SOCIAL WRONGS AND STATE RESPONSIBILITIES SOCIAL WRONGS AND STATE RESPONSIBILITIES BY WILLIAM JANDUS IT SHOULD REQUIRE NO ARGUMENT TO PROVE THAT INDUSTRIAL EQUITY IS INCOMPATIBLE WITH THE PRIVATE OWNERSHIP OF ECONOMIC FUNDAMENTALS CLEVELAND HORACE CARR, PUBLISHER 1913 Copyrighted, 1913 by William Jandus To MY WIFE 273349 CONTENTS Preface i Introduction 7 Value and the Economic Formula 17 Money Basis and the "Quantity Theory" 33 Self-liquidation of Land Values, and Rents of Equali- zation vs. Taxation '... 42 The Solvency of Values the Key to the Socialization of Economic Fundamentals 49 Private Capitalism and Effortless Income 57 Private Ffnance a Monopoly of Solvent Functions . . 68 Our Commercial Dominions 74 Economic Responsibilities of State . 82 PLATES I The Marginal Value of Gold. II Pyramid of Financial Instability. III Composite Curve of Wealth. IV The Curve of Compound Interest. V The Pyramid of Social Parasitism. VI The Financial "Fever Chart." APPENDIX The Marginal Value of Gold 97 The Depreciation of Gold 103 Land Values Ill The Distribution of Wealth under Private Finance . 121 The Income of Private Finance and the Outgo of the Unpropertied Producer 124 The Law of Money Volume and the Law of Solvent Functions 126 Index , 135 PREFACE THAT our current economic theories have been premised in a passing phase of social evolution, and that the doctrines based upon them reflect a predatory stage of human development, comes as a legitimate inference, which, on closer acquaintance with the true conditions, ripens into a conviction. The parasitic foundations of society come to us from the rudimentary past, where they found their justification in evolutionary expedi- ency; and while this justification no longer holds, the parasitism continues to endure. The discovery of the law of solvent functions and the formulation of the economic equation, made possible the brief analysis of the eco- nomic situation attempted in these pages. If the writer has used his data and arguments to good purpose, they will show among other im- portant things: That along the cleavage plane of average property possession society falls apart into two hostile camps with interests diverging. ii Social Wrongs and State Responsibilities That about five per cent of the people are above the line of average "wealth," two per cent on the line, and ninety-three per cent below the line. That by virtue of causes economically avoid- able, the five per cent above the line become parasites upon the ninety-three per cent be- low the line. That the propertied five per cent become the private owners of economic fundamentals, for the use of which they draw annuities from the unpropertied, who become the mere renters of them. That upon the unpropertied classes there fall ultimately, all the costs for rents, taxes, and interest rates. That the private ownership of economic funda- mentals constitutes a usurpation of the com- mon privilege, and is economically indefen- sible. That the bonded and mortgaged insolvencies, and organized voracities, of "Private Fi- nance," are avoidable and economically un- justifiable. To rightly understand the economic situation it should be noted, that the parasitically advan- taged classes become industrially foot-loose and Preface iii politically free to act, while the disadvantaged workers become industrially enslaved and po- litically dependent. It may be said therefore, without any exaggeration, that the present social structure has been planned and built from cellar to attic by the propertied classes, and that the toil-bound and exploited routine producers had no hand in its upbuilding. The resulting civilization is thus purely a class product; its republics and democracies mere revolts against titled parasitism, and the his- tory of political reform only a record of legal curbs imposed by the smaller parasites upon the predatory encroachments of the larger and more powerful ones. In these political conflicts the interests of the routine producers were not considered, and the great underlying wrongs remained untouched. Hence the so- called free institutions of our day continue to be based in the State-guaranteed privilege of the propertied classes to seize the labor-powers of the unpropertied without reciprocal service and without economic warrant. The State is the creature of the propertied classes, and its policies are a reflex of the cur- rent economics, wherein the interests of the unpropertied ninety-three per cent have been iv Social Wrongs and State Responsibilities not only overlooked, but compromised. Out of the "financed outgo" of the unpropertied, there is coined the "capitalized income" of the prop- ertied, with the legal sanction of the State, backed by the machinery of government to en- force the economic confiscation. Of the twenty millions of average families in the United States, the earnings of more than five millions are financially seized and absorbed, in order to maintain the propertied classes in parasitic affluence. The families in the "First Estate" have each the power to appropriate and convert to their personal use, indefinitely, and without an industrial equivalent, the earn- ings and livings of from ten average wage- earners to ninety thousand. Worse than all is the persistence of institu- tions bottomed in the self-interest of those who control and operate them. Every man above the line of average possession has a personal interest in the preservation of arrangements that give him the lever of advantage over his fellows. He thus becomes an accomplice to the perpetuation of a great social injustice, and nothing but an awakened conscience and an aroused sense of honor will prompt him to surrender his advantage and place it as a moral Preface v offering on the altar of equal opportunity and economic righteousness. The social question thus resolves itself squarely into an issue between the propertied and the unpropertied classes; and inasmuch as the State, in its corporate capacity, is the crea- ture of parasitic interests, this issue narrows down to the State as the real culprit, and the routine producer as its victim. Meanwhile, no one is to blame for our social misery. Our current doctrines being based in the very wrongs we are trying to analyze, it became necessary to convict them of error be- fore a proper diagnosis of the economic situ- ation could be made. Neither host nor parasite could be aware of the true state of things with- out a scientific analysis of social conditions, and hence the underlying wrongs and their eco- nomic remedies could not be clearly defined and apprehended. Until so defined and appre- hended there can be no social reform. It is easy to appeal to class prejudices, and to stir up class animosities, when advocating social reform. Nothing, however, could be more hurtful and criminal at this juncture. Some of the most ardent champions of social reform are to be found among the parasitically vi Social Wrongs and State Responsibilities advantaged, and it is only fair to presume that the fair-minded and high-minded of their class will not only gladly surrender their advantage, but lead the van of social reform, when they once realize the injustice of present arrange- ments. Nevertheless, until justice has been es- tablished, the issue must be regarded as a class struggle and it behooves the disadvantaged ninety-three per cent to organize their scat- tered forces into political solidarity on a plat- form of revised economic principles, and, with- the weapons of franchise, effect their own deliverance. Cleveland, Ohio February 1, 1913 SOCIAL WRONGS AND STATE RESPONSIBILITIES INTRODUCTION IF it is presumption to assail present social foundations, even where literary expediency prescribes no limit to discussion, it would seem like madness to attempt it in a running com- mentary on current theories and doctrines. Economics is a large subject and the refutation of established error a difficult undertaking. Hence, if despite brevity of treatment and abridgment of data, the writer succeeds in pointing out a fatal oversight in our handbooks on political science, and some of the conse- quences flowing from economic misinterpreta- tion, he will have achieved more than should be reasonably expected. It is no trifling matter to quarrel with one's civilization and to challenge the integrity of 8 Social Wrongs and State Responsibilities traditions and institutions of which one is the evolutionary product and expression. Like im- peachment of ancestry and dispraise of country, such a challenge has a look of sacrilege, if not an aspect of treason. Besides, new view-points are disconcerting, and their advocates unpopular. When, more than a decade ago, the writer took up the critical examination of economic theories, he was impressed by their argument. Granting the normality of social conditions of which these theories were the economic inter- pretation, he saw no escape from their conclu- sions. But what if these supposedly normal conditions were abnormal ones, and we had mis- interpreted the shifting compromises and com- pensatory expedients of evolutionary develop- ment into a science of economics? What war- rant have we for assuming that our theories are premised in normal social conditions? A grain of science is worth a ton of opinion. Newton's formula disclosed the mechanics of the universe, and spectrum analysis its chemical components. Out of the law of atomic equiva- lence arose the science of chemistry, and out of Ohm's law the modern application of elec- tricity. Darwin's investigations revealed the essential unity of animate nature and man's place in it. Pasteur's researches proved pa- thology to be a department of bacteriology ; and so on through the list of classified knowledge; Introduction 9 everywhere, the blind gropings of opinion give way to the lucid interpretations of science. Now all cosmic interrelations and sequences which it is the province of science to interpret find their ultimate expression in mathematical formulae. The laws of science are the laws of these numerical interrelations, and even the remotest effects when traced to fundamental causes will find their premise and justification in mathematical terms. Mathematics, as the soul in the body of science, is, therefore, the only reliable criterion of truth. Economics has from the time of Adam Smith been heralded as a full-fledged science, and there has been no one to dispute its right to so exalted a title. And yet, how can there be a science without a mathematical basis ? We have neither a unit of economic measurement nor an equa- tion of economic procedure. How then can we have a science of economics? Partisan opinion does not constitute a science. There can be no Republican or Democratic economics any more than there can be a political chemistry or a partisan physics. The rules of economic pro- cedure cannot be determined by political ma- jorities nor compelled by the fiat of autocratic power. The fundamentals of economics have not yet been written into the text of any polit- ical platform nor are they embodied in the organic laws of any country. 10 Social Wrongs and State Responsibilities If in an economic sense the industrial process is a flow of services, it must in an ethical sense be a flow of sacrifices. If economics is a balanc- ing of productive services, it must be a balanc- ing of productive sacrifices also. On its ethical side, therefore, normal economics should be identified with applied justice and our social arrangements should make for industrial equity. Yet our theories lead toward no equalization of the rewards and sacrifices of production, and no sane economist has ever grown eloquent over the justice of present conditions. Says John Stuart Mill: "The idea of distributive justice, or any proportionality between success and exertion, is in the present state of society so manifestly chimerical as to be relegated to the region of romance." And from Smith to Mill, and from Comte to Herbert Spencer every dis- tinguished writer on social science took it for granted that injustice is inherent in human affairs and that social equity is a matter, not of applied economics, but of discretional morals and organized benevolence. It did not occur to these writers as a reasonable alternative, that perhaps their economic interpretation and not "human depravity," might be to blame for the injustice. Taking these and other phenomena into account and bearing in mind that our present controls and disciplines, like those of the past, Introduction 11 find their justification in evolutionary expe- diency alone, and must, in the endless mutation of things, be impermanent and transitory, there appear to be good reasons for suspecting that the substructure of economic doctrine rests upon a false premise and that the pretentious edifice reared upon it will, sooner or later, crumble on its foundations. There is a loose end in the tangled skein of economic speculation which once fairly grasped and followed to its logical unwinding, leads toward conclusions greatly at variance with present interpretations. That loose end is the "marginal value of gold." "^Taking up the money basis as a subject of inquiry, and comparing the relative items of expenditure on the average workingman's budget, the writer made the discovery that the marginal value of gold is less than one-fifth of one per cent of the commercial values resting upon it for functional solvency. In other words, the money-scope of gold is so small that there is but one unit of solvency for every five hundred units of merchandise seeking liquidation in the money-base ! Following up this astonishing clue he found that commercial exigencies and economic auto- matism raised this marginal value cumulatively about one hundred-fold so that it might hold such merchandise conditionally solvent by arti- 12 Social Wrongs and State Responsibilities flcial credit expedients. That, deceived by this compensatory inflation of the precious metals, economic students not only overlooked the in- adequate money-scope of the metal basis, but misinterpreted its financial limitations into a law of money. In this way the functional insol- vency of the world's values organized itself automatically into a circulation of "money debts," the eternal liquidation of which by time expedients and brokerage devices came to be re- garded as a normal phenomenon. Instead of a competent money-base of ample money-scope in which all commercial values might be held cost- lessly solvent and fluid, we had an incompetent money-base of limited money-scope incapable of solvent functions without artificial inflation and costly expedients of time-liquidation. Out of these insolvent conditions arose the concepts "Capital," "Credit" and "Interest" the creedal trinity of the economic gospel. "Capital" became the basic factor of economic interpretation, money, as a mere "title to capi- tal" and "denominator of value," taking sub- ordinate rank. Notes, bonds, mortgages, and other organized voracities, instead of being looked upon as the offspring of a defective money-base, were regarded as the normal phe- nomena of a normal money system and defended by numerous hypotheses, none of which will bear critical examination. Introduction 13 Now, if this "Capitalism," with its funded insolvencies and apprehensive credits, can be proved to be an avoidable and uneconomic ex- pedient of liquidation, then our present inter- pretations must be abandoned and our treatises rewritten. So that the reader may grasp the industrial situation, it will be well to focus our attention upon "Capital," the economic factotum. Capital, posing as a preferred partner in the business of production, claims a perpetual income called "interest," while a "capitalized" environment calls for a perpetual income called "rent." As land is only an alternate form of investment, the rent rate is really a commuted interest rate and hence both of these incomes are interest in- comes, or "capitalized incomes." The claimants of these incomes are not the collective people, but the private owners of the money privilege and the private owners of the land privilege. It appears, therefore, that private landlordism is only an optional form of private capitalism and that private capitalism is the Alpha and Omega of present economic doctrine. Plainly speaking, our text-books are in effect treatises on "Private Capitalism," and concern themselves chiefly with theories of Interest, Capital, Credit Finance, and other phenomena of functional insolvency. Hence they are written from the viewpoint of the owners of economic 14 Social Wrongs and State Responsibilities fundamentals, and do not reflect the collective interests of men. The situation resolves itself therefore into "Private Capitalism" versus the "Collective Effort ;" that is to say,"Private Finance" versus the "Common Interests." Private Finance, in the guise of "capital," claims first right to the common product and takes it. Then come the claims for maintenance and depreciation, and then wages and profits as residual claimants. Ordinarily, defective functions and morbid conditions may be mitigated by artificial com- pensations, and just as defective vision may be relieved by optics, and defective hearing by acoustics, so defective solvent functions might be improved by compensatory economics. Un- fortunately current economics has utterly failed to vindicate its claims to be a science. Not only have we been unable to diagnose the social ills, but we have been incompetent to differentiate between health and disease, and have taken the abnormal for the normal function. Where permanent cures are available, it would be folly to apply palliatives, yet a pallia- tive is better than no relief. Had our political controls equalized the wastes and costs of credit finance through the public taxes, by assuming the functions of credit liquidation as a part of the public service, the solvency of values would have been made premiumless. The money f unc- Introduction 15 tion being furnished free on the usual securities, all interest rates would terminate at once, and "Capital" become an incomeless value and not a sustained voracity. Under such State-guar- anteed solvency, however, the value of the land privilege, as a private possession, would rise until its discount value found its limitations in the life-risk alone, and were man immortal, land values, as the only available source of effortless income, would become infinitely great. It seemsy therefore, that all valuations under Private Finance are based in the "income powers" of capital that is, in the voracities of compound interest. "Wealth" thus becomes identified, not with a concrete and final value, but with a perpetual flow of values which Private Finance exacts from the public on the plea of doing it a perpetual service. With the interest rate at zero, however, there could be no "Capitalized Income" and our feudal concepts of "wealth" and "capital" would under- go a profound modification. The lack of a proper criterion of social nor- mality and the failure to discover the true law of solvent functions have led us wofully astray from the paths of economic truth and rectitude. Wholly oblivious of the scant marginal value of the metal basis and the negligible money-scope of gold, the functional insolvency of values was not even suspected. Thus the limitations of the 16 Social Wrongs and State Responsibilities metal basis came to be misinterpreted into a general law of money, and the true law of sol- vent functions, and of money-scope, were buried under cumulative misapprehensions. Mean- while the wasteful compromises of economic automatism were mistaken for a real money of circulation, and "Private Capitalism," as a com- pensatory expedient, became the paramount factor of economic interpretation. The wastes of credit finance were coined into the incomes of the propertied classes and interpreted into "wealth." Our handbooks thus became a sort of Royal Charter of commercial rights and privileges by which the propertied classes felt themselves entitled to collect money tithes from the unpropertied. Meanwhile the wishes of the latter were not even consulted. As, however, the propertied classes had always been in polit- ical control, the terms of the charter were easily enforced. By a strange oversight our text-book authors failed to realize that private capitalism divided men into two classes, with interests apart that the economics of the "capitalizers" were not the economics of the "capitalized," and that the latter were not bound by the predatory pact. VALUE AND THE ECONOMIC FORMULA THE soul of economics is its formula, and the main concept in that formula is value. To ap- prehend the meaning of value is to apprehend the meaning of the economic problem. Paradoxical as it may appear "value" is an economic misfortune and "wealth" a disaster. It is only when a thing costs productive sacrifice that we appraise it as a "wealth." Hence wealth is a measure of nature's stint and man's pov- erty. In a paradise of costless abundance where things might be had for the taking, we should be rich in goods but poor in wealth. In an effortless Eden there could be no productive sacrifice and hence no "value," and to hoard up the eternally superfluous would be senseless. A ton of water will not exchange for a penny- weight of gold, though value for value, every drop of water is infinitely more useful than a pennyweight of gold. But gold is scarce, that is, difficult to produce, while of water there is a superabundance. Hence we place gold in the category of wealth while water does not appear on the list. Were water as scarce as coal, a man owning a lake of it would become a billionaire, 17 18 Social Wrongs and State Responsibilities but it would be a national disaster to list it as a wealth asset. What a thing is worth to us depends upon the units of productive sacrifice we are willing to expend to obtain it. Value is an appraisement of the sacrifices of production, or costs in terms of productive effort. Into these costs enter the wear and tear of our physical, mental, and psychic processes. We capitalize, as it were, these sacrifices, and call them value. Hence all value implies actual or potential units of labor- cost or units of productive sacrifice. If, for the present, we regard the average effort to earn a dollar, as a unit of human effort, and we start with a quantity of iron ore costing seventy-five cents, there may be produced from it the following values : Iron Bars worth $ 5.00 Horse Shoes " 10.00 Needles " 6,800.00 Watch Springs " 200,000.00 Hair Springs " 400,000.00 (Carroll D. Wright "Industrial Development of the United States.") Reducing these values to units of effort, we have: For mining the ore % units For making iron bars 5 For making horse shoes 10 For making needles 6,800 For making watch springs 200,000 For making hair springs 400,000 Value and the Economic Formula 19 We thus connect values with units of produc- tive effort of which they are the economic ex- pression, and hence it appears that, directly or indirectly, value depends upon the labor cost, and that goods will exchange for each other according to the actual or potential units of productive effort they represent. The exchange of goods becomes, therefore, an exchange of services. Not, however, the producer's cost, but the consumer's bid, is the true criterion of "labor-cost," for it is the discriminating public which in the last analysis sets the doctor's fee and the artisan's hire, appraising not alone the values of goods but the services of the different trades and professions that produced them. We produce special values called goods, and take in pay general, substitutional, values called money. We expend units of productive sacrifice and receive therefore units of "income." Value, from the producer's standpoint is measured in units of sacrifice, and from the consumer's standpoint in units of satisfaction. Hence, in the last analysis, disbursement of income is an exchange of units of sacrifice for units of satis- faction; and the test of economic normality is that distribution of the common product where every average unit of income represents an average unit of productive sacrifice. We expend income so as to derive from it the greatest number of units of satisfaction pos- 20 Social Wrongs and State Responsibilities sible. This gives rise to another concept of value based in the estimate we place upon our wants and the goods that satisfy those wants. We expend a certain proportion of our income for food, clothing, shelter, fuel, light and other util- ities, and the amount of income we expend for each item marks its relative importance, or marginal value, on the chart of yearly expendi- ture. Hence the average expenditure of income upon a utility is a criterion of the marginal value of that utility. Value may be said to have two dimensions scarcity and utility. A thing is scarce when its production offers great resistance to human effort. It has utility when it subserves some useful purpose or satisfies some human want. No matter how scarce a thing may be, if it have no utility it will have no exchange value. On the other hand, no matter how useful a thing may be, if it be eternally superabundant it can- not be classed as a wealth and its exchange value will be nil. Hence, to constitute "wealth" a thing must be both scarce and useful. Value may therefore be defined as a function of utility on the one hand and of scarcity on the other. In a strictly commercial aspect the industrial process may be viewed as a flow of productive values; in a purely economic sense as a flow of productive services ; and in an ethical sense as a flow of productive sacrifices. Value as a func- Value and the Economic Formula 21 tion of sacrifice introduces a moral element into economics, but because ethics and economics refuse to harmonize under "private capitalism," writers felt obliged to square their theories to fit supposedly normal conditions by dodging the moral issue, thus escaping from the inconsist- encies of the situation. Sacrifice has to do with morals, but satisfaction has not ; hence, by inter- preting value in terms of gratified desire the perplexing element of ethics could be eliminated. Its substitution put economics outside of the pale of applied justice and placed it within the pale of discretional morals. Applied ethics, and applied economics, are, however, merely two phases of applied civics, and cannot be divorced from one another without social disaster. At best, however, there is no way of estima- ting a satisfaction. It has no defined dimensions in space or time, nor can its connection with productive effort be satisfactorily established. On the other hand, the sacrifice of productive effort is a constant. It has a defined limit in fatigue and can be measured in time. We can measure the productive cost of making watch- springs out of a certain weight of iron ore, but we cannot measure the gratification these watch-springs confer. As has been noted, value is a function of scarcity, and scarcity implies resistance offered to productive effort. Always and everywhere 22 Social Wrongs and State Responsibilities resistance interposes itself between man's ef- fort and his living, and the scope of science and invention is to find the ways and means for overcoming such resistance. The flow of human effort into productive consummation follows the same law as the flow of electricity into work. Effort and resistance are reciprocal terms. This relationship may be expressed in an equation thus: one unit of productive potential E, ex- erted upon one unit of resistance R, will yield p one unit of product P ; that is, P = The K industrial yield is thus a function of the envi- ronment resistance on the one hand, and of in- dustrial effort overcoming that resistance on the other. The economic law is exactly paral- E leled by Ohm's Law of electricity C =-S-, where K E stands for the electric potential, R for the electric resistance and C for the current output or product. The equation may be simplified, if, instead of stating it in terms of the industrial resistance R, we express it in terms of the fa- cilities of production F, its reciprocal. These facilities F comprise all the physical efficiencies by which the resistance R is overcome. Substi- tuting F for R we have P = EF, where the productive potential E is linked with the phys- ical potential or facility F as a co-ordinate and co-equal factor of production. In this equation Value and the Economic Formula 23 the constituent elements of human effort are reduced to an economic law. Contrary to the general belief, it is the mental, and not the manual element in human effort that is the supreme factor of productive achievement. Not the physical but the intellec- tual faculties are the moving forces and manip- ulative agents of productive consummation. The muscular powers of men and animals and the raw forces of nature are only so many tools of production in the hands of intellect. Could we utilize but one-tenth of the energy stored in a ton of coal we could set loose the labor power of four thousand men working ten hours. But these are only "foot-pounds." What really counts is the mental potential or directive ca- pacity back of these raw forces. Without indus- trial initiative and directive capacity, industry must cease and man perish. It may be well to explain that "productive potential," "mental po- tential," "intellectual potential," "industrial in- itiative," "directive capacity," etc., are alternate terms connoting the effort "E" overcoming the resistance "R." Human endeavor may be said to resolve itself into speculative and routine production. The speculative producer is the organizer and co- ordinator of industrial effort, devising and inventing means, methods, and processes for effecting productive economies and efficiencies. 24 Social Wrongs and State Responsibilities He assumes all the risks and responsibilities of his industrial initiative, and carves out his profits at the marginal costs of production. The routine producer, on the other hand, takes no risks, assumes no responsibilities, and sells his risk-discounted efforts for a stipulated wage. He is thus a wage-earner following the routine of a well-established trade or calling. While the former is thrown upon his unaided initiative and mental resource, the latter de- pends largely upon his acquired skill and pro- ductive automatism. Yet every routine producer has some industrial initiative and this differen- tiates him from a machine. He manipulates the facility F for productive consummation, though himself a tool in the hands of his employer, who guides his powers along channels of productive efficiency and economy. We may therefore say that the factor E is the brains, and the factor F the muscle of produc- tion ; and though it may be difficult to determine where initiative ends and automatism begins, it will answer the purposes of the formula to include the human factor under E, and the mechanical factor under F. Inasmuch as these factors are correlates, an error in classification will make no difference to the equation. The static or physical efficiencies included under the facilities F, are the following : Value and the Economic Formula 25 First : The environment potential, consisting of the biologic powers and raw forces of nature and the resources of land, water, climate, and other natural advantages of the common en- vironment. Second: The mechanical potential, consisting of the tools, appliances, machinery and in- stallations of production, together with the muscular powers of men and animals and all other stored powers for operating these in- strumentalities. Third: The commercial or distributive poten- tial, comprising the agencies and facilities of solvency, transportation, and communication, and the whole machinery of commerce. Fourth : The technical potential, embracing all public and private schools and institutions of technical learning, all libraries, books and periodicals, the public press and other instru- mentalities of education conducive to indus- trial efficiency. Fifth : The administrative potential, consisting of State and Church controls, courts of jus- tice, and other institutions of law and order, defenses against invasion and all public works, buildings and structures for conserv- ing and augmenting the industrial potential of a country. 26 Social Wrongs and State Responsibilities Under the intellectual potential E will be understood the directive powers of man to set the facilities F in motion for productive con- summation. The factors E and F constitute the industrial potential of a people, and this potential varies with the power of the factors and the industrial pace. Where, during the hunting stage, some twenty-five individuals per hundred square miles of land area probably marked the average limits of race survival, such a territory is now capable of supporting, on an average, some ten thousand individuals. The industrial potential of the present may therefore be said to be sev- eral hundred times greater than that of the past. The formula P = EF, when properly applied and interpreted, should fit every human rela- tion. Whether the effort E be expended con- structively or destructively, makes no difference to the equation. Be the dividends P those of industrial achievement, or of pious devotion, or of diplomatic forestallment, or the pelf and pillage of war, the same elements enter into it, namely: the intellectual potential E and the means of achievement F. The aim of all collective endeavor is to reduce the industrial resistance R by administrative measures F. Whether such measures concern transportation, communication, sanitation, irri- Value and the Economic Formula 27 gation, forestation, conservation of public resource, solvency of values, or other govern- ment functions, in every case, the sole aim of applied economics is to diminish the common resistance R by increasing the potential F. Hence, always and everywhere, the test ques- tions of political science should be : Does the administrative measure increase the industrial potential of the people ? Does it econ- omize the common effort? Does it make for a higher* general standard of living? If not, then it is a hindrance R and not a facility F. How many of our national policies will pass the economic test? Will private capitalism and its wastes and voracities? Will private landlordism the offspring of private capitalism? Will the tariffs and subsidies of predatory privilege? Will the imperialisms and war-footings of an aggressive commercial class ? Will the insolent and predacious individual- ism, around whose parasitic prosperities are grouped the collective interests of men as a mere incident and by-product? Will the present systems of taxation? Will the tons of statutory legislation based in these policies? 28 Social Wrongs and State Responsibilities It should be self-evident that before we may enter upon an era of enlightened legislation, there must be an economic formula by which to square economic procedure. The invariability of the money standard be- ing assumed, the economic law may be viewed as a law of wages and of prices, E being the wage factor, and F the price factor. The greater the pace E the higher the wage rate; the greater the potential F, the greater the product P in terms of the wage rate. Of course the true income rate is the product P. Assuming the pace E to be constant, the income P will vary as the potential power F, and the factor F will then appear to be the true criterion of a people's productive efficiency and income capacity. Now of all the classified facilities F, the "en- vironment potential" is the most important, and the food resource of that potential its most compelling factor. Civilizations, like armies, crawl upon their stomachs; and hence the ur- gencies of life become the real factotums of the wages-level, and, other things equal, the peoples owning the largest food resource enjoy the highest wage-rates. Diminish, therefore, the per capita distribu- tive share of the common resource and you di- mmish the per capita wages. "Scarcity values" Value and the Economic Formula 29 are economic misfortunes which present inter- pretations permit a privileged class to capital- ize into effortless incomes. Population pres- sure produces a "scarcity value" in the common resource, and when such pressure is pushed be- yond the point of greatest average productive returns, peoples enter upon a career of low standards of living and industrial decline. The pressure of population on resource is a pressure on the wages-level. This is why wages are low iir overcrowded countries, and where, in addition to such pressure on resource, all other potentials F are undeveloped, as in China, Japan, and India, there the wage-rates tend toward the starvation limit. So great is the pressure on foothold in some parts of the Orient that the very sources of sustenance are polluted, and the swarming populations may be said to perish in their own toxins. No apprehension need be felt over a possible decline of wage-rates so long as the pressure on resource is maintained below the point of dimin- ishing returns. That the wages-level may be lowered by "foreign competition" is the falla- cious argument of "protectionism" and the bug- aboo of commercial exploiters. Apart from the economic benefits of a mutual interchange of cheap surpluses, the general prosperity of na- tions cannot be unfavorably influenced by inter- national commerce. Competitive elimination 30 Social Wrongs and State Responsibilities may bring losses to individual traders and affect local industries, but they cannot but benefit the common interests. Where an industry is forced to the wall by outside competition, another and better one takes its place, the substitution of the fit for the unfit tending to increase the industrial potential by guiding production along profitable channels. Were there no economic benefit in the inter- change of cheap surpluses, there could be no commerce, and were the forces of competition and elimination inoperative we should all de- generate and perish. If overcrowded peoples are obliged to sell their labor-powers cheaply in the common market, that is their loss and not the loss of the economically prudent ones. Wages of nations cannot fall below their per capita productive output, and this output de- pends upon population pressure and cannot be reduced by an exchange of surpluses. The average income is fixed by the average industrial potential, and, incredible as it may appear to our Labor leaders, the law of average income has never been, and can never be, set aside by any concerted action of organized labor. The average income can never overtake the average product, and hence the wages-level cannot be effectively boosted without boosting up the product-level. All artificially raised wages are parasites Value and the Economic Formula 31 not on "capital," nor on "profits," as is com- monly supposed, but upon the weaker and less assertive trades and callings. The voracities of capitalism cannot be reached by any changes in wage rates, and as all profits are made at the marginal costs of production, not only the ad- vanced wage-rates but all the risks and losses of strikes must be added to the general cost of living, which fall almost wholly upon the dis- advantaged classes. Meanwhile a culling proc- ess is bjusy, weeding out the incapable workers who cannot earn the higher wage, and supplant- ing them with those who can. Where, by sheer monopoly advantage, the more powerful unions wring concessions from an employing class, the high rates invite into their organization supe- rior craftsmen from the outside, who gradually, but surely, raise the craft status to a higher plane of efficiency, and to whom, in the long run, the less efficient workers lose their places, or take inferior positions. Nowhere may the results of this selective process be better studied than among the train crews on American railways a fine body of men upon whom advancing wage-rates have imposed progressively heavier duties, and more exacting requirements, until their efficiency has been raised to the level of the higher pay. Meantime, the general advance in wage- rates, everywhere apparent, is wholly due to 32 Social Wrongs and State Responsibilities the depreciation of the metal basis, and not to the improved facilities F, which make them- selves felt in prices only. Thus, everywhere, the economic law tends to assert itself in the end, and nowhere can it be set aside by artificial regulation or legislative fiat. Such, briefly, are some of the deductions of the economic formula. THE MONEY BASIS AND THE "QUANTITY THEORY" A STANDARDIZED substitutional value, such as a dollar, may be defined as a value achieved industrially by the expenditure of one standard unit of productive effort upon one standard unit of industrial facility in a standard unit of time. Adopting the average labor required to mine a pennyweight of gold (dollar), as a standard of average human effort, then, a unit of produc- tive efficiency E, in terms of digging gold, is that mental potential, which applied to a unit of industrial facility F, will produce one penny- weight of gold P; and a unit of industrial facility F, is a physical potential which when manipulated by a unit of productive efficiency E, will result in a pennyweight of gold P. Of course the economic unit must be an aver- age unit. Directly or indirectly nearly the whole technical skill of a civilization goes into every industrial act, and it may be said with truth 34 Social Wrongs and State Responsibilities that every trade and calling of man participates in the making of a pin or button. Not one of the thousands of special trades, professions, and industries but has in some way contributed to the production of these articles. As with pins and buttons, so with the mining of gold. The whole world is, co-operatively speaking, en- gaged in mining gold, and to trace and estimate every contributory effort that goes into the ex- traction, smelting, transportation, and distribu- tion of gold would be a sheer impossibility. Now if gold is to be a standard unit of value, it should be a value constant. While, however, the sacrifices of production have remained con- stant from the beginnings of industry, products have undergone a progressive devaluation. In the last analysis, all costs, and hence, all values, find their appraisement in the wear and tear of nerve and muscle. The fatigues and dis- comforts of productive effort, which are the same now as they were thousands of years ago, constitute the only invariable element in eco- nomic science. Whether the output per average unit of productive sacrifice be large or small makes no difference to the fatigue and discom- fort of a unit of labor. As English farm labor receives to-day from six to seven times as much gold per day's work as the same labor received in the thirteenth and fourteenth centuries, we conclude that we can produce from six to seven Money Basis and the Quantity Theory 35 times as much gold per unit of labor as we could then. Reliable wages statistics will show that the mining of gold, in terms of the average produc- tive effort, costs now only about one-sixth of what it cost two or three centuries ago, and that it continues to cheapen (in terms of human effort) , about two per cent yearly. Meanwhile, its marginal importance on the chart of human wants, has remained practically unchanged. This marginal importance of gold, according to trustworthy data, amounts to less than one-fifth of one per cent of all other values. In other words, the average man will expend no more than one-fifth of one per cent of his income to satisfy the gold want, whether gold be cheap or dear. A unit of value measures a unit of pro- ductive sacrifice, and as we can now mine six times as much gold per average unit of sacri- fice as we could two or three centuries ago, the gold coin of today, to be at par with the gold coin of the past, should be six times as large. As the resistance of the environment has been overcome by the progressive technics and improvements F, all the products of industry have been cheapened some faster than others. Those that have cheapened faster than gold ap- peared to fall in price; those that cheapened slower appeared to rise. For this reason alone food-stuffs have appeared to advance in price 36 Social Wrongs and State Responsibilities while manufactured products appeared to fall. In order to keep pace with the progressive de- valuation of the gold unit, wages had to be ad- vanced along the whole line of human endeavor, and the industries of the country have been up- set and will continue to be upset by "strikes" for higher wages until the metal basis is perma- nently demonetized. The money basis of an ideal currency should be unlimited as to potential power of solvency. In it all circulating values should at all times be supersolvent. But the money-scope of a money- base is no higher than its potential marginal value. While the marginal value of an indis- pensable utility, such as land, may be forced up indefinitely by monopoly, the marginal value of dispensable things tend to remain the same or to depreciate. The marginal value of gold is permanently limited by its dispensability. So small is this value that unaided by artificial ex- pedients its per capita money-scope or solvent power amounts to less than 30 cents. In fact, from the consumption of gold in the arts, 1890 to 1910 inclusive, (Report of the Director of the Mint for 1911), it appears that the aver- age per capita expenditure for the gold want amounts to less than twenty-four cents ! On the basis of its marginal importance, gold has a solvent power of less than one-fifth of one per cent of the commercial values resting upon Money Basis and the Quantity Theory 37 it. That is to say, for every five hundred units of merchandise seeking the money function, there is but one unit of solvent power to do the money work. The problem is, then, how to make one unit of solvent power liquidate five hundred circulating units of commerce. Could this single money unit work overtime, and could business be run on unsecured promises of payment ma- turing in some eighty-odd years, then, perhaps, liquidation in the gold basis might be possible without banking expedients. But here the com- pensations of nature come to our assistance, and the marginal value of gold is automatically raised a hundred fold or more by cumulative expansion. By such expansion the solvent power of gold is advanced from a justifiable per capita circulation of twenty-four cents to a circulation of twenty-seven dollars; and the time element is reduced proportionately. We are still far from solvent, however, but by organizing our insolvency into a circulation of "money debts" called credits, the time element may be still further reduced and a deferred solvency be achieved. With something like twenty-five thousand "credit factories" to make local risks available as pledges of payment, and a "show-case" evidence of money solvency, we are in a position to float a currency of liabilities maturing in from thirty to ninety days. We are now "solvent" in a wide-flung network of 38 Social Wrongs and State Responsibilities "money debts," or credits, which an amazing class-privilege permits a propertied minority to coin into a source of income. The money basis of an ideal circulation should be the most fundamental and command- ing of all values. But gold is only a negligible derivative, and apart from gratifying the child- ish vanities of the uncultured, gold has no util- ity that cannot be fully met by substitutes. When we part with a coin, we part with some- thing for which there appears to be no available use on the chart of human wants, and hence arises the idea that money is merely a "title to capital" and not a competent value for itself. In the language of economic misinterpretation and apology, credit finance is said to deal in "titles to capital." In the language of common sense, it deals in the means of solvency. So very dispensable is gold that the whole stock of it could be dumped into the sea and not be missed. Its contribution to human happiness is practically nothing, and there is good reason to believe that even its present small marginal im- portance will shrink appreciably when it loses its money privilege and prestige. It cannot be said, therefore, that gold, as a money basis, measures up to any of the essen- tial requirements of financial competency. As a special availability and money asset it is prac- tically worthless. Its exchange value varies with Money Basis and the Quantity Theory 39 the number of its circulating units, and with the cheapening process of extraction. Its money- scope is small, its unit unstable, and its unaided power of solvency negligible. The whole question of a competent circula- tion is thus a question of liquefying and stand- ardizing a competent money asset, and the ques- tion of liquefaction is a question of subdividing such an asset into representative units of stand- ardized value. These units then become a stand- ard of appraisement for the values of commerce. The attributes of mobility, imperishability, and general availability, make the money unit the quickest of all assets. They invest it with a commanding power over all other values the power to appraise and discount risks. Every money valuation is a brokerage transaction in which the risks and costs of depreciation and decay are discounted. We exchange the perish- able for the imperishable, the special for the universal value. But the perishable is a risk and the special is a risk. We discount the risks in terms of a riskless money. Money is a liquefied and standardized substi- tutional value in which all products should be naturally and eternally solvent. Without a sub- stitutional value to offer labor for product, there can be no production. Without a substitutional value offered to merchants there can be no com- merce. Without a circulation to insure the 40 Social Wrongs and State Responsibilities solvent flow of values and services there can be no industry and no civilization. The premium on money is thus a premium on a scarcity of substitutional values. Instead of liquefying the largest national asset, we liquefy the smallest. Instead of a per capita circulation of six hundred money-units, we have a per capita circulation of twenty-seven. If the po- tential money-scope of the money-base be large enough to hold the aggregate circulating values of commerce supersolvent, then competitive goods will meet competitive money and sol- vency will be costless. Under present credit restrictions and scant money-means, nine in- dustrial opportunities are deferentially waiting upon one arrogant dollar ; that is, opportunities are at a discount and the dollar is at a premium. Were the liquefied assets five or more times greater in value than the aggregate values of commerce, six eager dollars would be waiting upon one opportunity; that is, dollars would be at a discount and opportunities at a premium. It is a self-evident proposition that where over- whelming money reserves press eternally upon opportunity, there monopoly of financial, com- mercial, and industrial resource is impossible. With a redundancy of permanent liquid means, the arguments for "parsimony" and "futurity," upon which our theories of "capital" and "inter- Money Basis and the Quantity Theory 41 est" depend, would be swept away in a flood of premiumless money reserves. The money question is therefore not a ques- tion of flexible credits and a central bank of issue, but the question of a money-base so large in amplitude and potential value, that it shall constitute the whole of "capital/ ' and that all the circulating values of commerce shall be competitively, and hence costlessly, solvent in it. The underlying principle of solvency is money-scope, and the money-scope of an asset depends upon its potential value. SELF-LIQUIDATION OF LAND VALUES. RENTS OF EQUALIZATION vs. TAXATION LOCALIZED in the environment are the latent powers and efficiencies of a civilization. Not the physical values and improvements, but the in- dustrial potentials, of which these values are an externalized expression, constitute the wealth of nations. The industrial potential is a potential capacity to achieve product. It is the power of maintenance and repair by which the vigor and health of the social organism is maintained. The environment is charged up, as it were, with the collective powers and efficiencies of past and present civilizations, such powers and efficien- cies manifesting themselves as "land values." A careful study of census figures, and of real- estate valuations, will show that in 1900 the ratio of land values to physical values amounted, on an average, to about sixty-two per cent. In other words, "land" was then nearly twice as valuable as the physical improvements upon it. Land values are the reflected values of con- 42 Self-Liquidation of Land Values 43 structive economies, such as those of trans- portation and communication those of distri- bution and exchange of supplies in the common market those of exchange in professional and industrial services in great civic centers those of water, light, heat and power conveniences those of collective drainage, roadways, subways, and those of other social conveniences by which the individual is enabled to live on a highly potentialized plane of existence, enjoying privi- leges worth billions of dollars without giving a thought to their costly maintenance. They are the capacities F overcoming the industrial re- sistance R, by which human effort is conserved and the sacrifices of production spared. They represent the net difference between the total appraised value of a civilization and its physical costs. These latent and localized capacities to achieve product constitute the real wealth of a civilization, and their value may be pushed up to any figure by artificial scarcity. Apart from the values of scarcity, such "sur- plus values" are a criterion of man's achieved mastery over the common resistance. The in- creased industrial potential and the increased population pressure have raised the values of land in this country from something like fifty millions of dollars three centuries ago, to about sixty billions of dollars to-day. Being the industrial reflex of the collective endeavor 44 Social Wrongs and State Responsibilities on the one hand, and of population pressure on the other, these assets are public assets and can- not be privately held without upsetting the in- dustrial equities of men. These public values constitute at once the largest and most imposing asset of a civiliza- tion. Were they mobilized into a currency of self-liquidation on the basis of a fair tax appraisement, and their present owners given the cash equivalent of their land holdings in such a currency, the environment could be with- drawn from private possession without violat- ing any principle of justice. The program of self -liquidation contemplates giving the land-owners warrants in full for their title, and coining these warrants into a currency of quit-claim payment. As sole land- lord, the State receives such currency at its face value for the renting privilege and for all public debts. It demonetizes gold and redeems it at par in the new currency. As the logical cus- todian of private and public savings, the State furnishes free of charge the usual paper instru- mentalities of circulation and exchange which the glorifiers of capitalism wrongfully claim as an especial feature of the credit system. By such an administrative fiat, the State socializes the common environment, liquefies one-half of the world's values into a permanent currency, renders all commercial values solvent Self -Liquidation of Land Values 45 in the money-base, makes solvency costless by competitive money means, places all men upon an equalized footing, and invests society with its rightful powers and civic dignities. Under Private Finance and its privately en- grossed fundamentals, the per capita wealth in 1900 amounted to about twelve hundred dollars in "property" values and about twenty-seven dollars in "money" values. That is, there were twelve hundred "property units" and twenty- seven ' 'money units," the former potentially insolvent in the latter. With one-half of the property values mobilized into a currency by self -liquidation, we should have about six hun- dred "property units" and six hundred "money units," the former solvent in the latter. As, however, the circulating values of commerce comprise only about one-fifth of these residual property units, such commercial values become supersolvent that is, competitively solvent and the money function becomes costless. Space forbids entering into a further discus- sion of the environment basis except to make the broad statement, that its critics were igno- rant of the underlying principles of costless solvency, and hence were incompetent to pass an opinion upon it. The various abortive at- temps made by reformers and land speculators in the past to base a currency in land values were conceived in profound ignorance of solvent 46 Social Wrongs and State Responsibilities functions, and, except as hand-samples of blind economic groping, are unworthy of serious con- sideration. No bona fide attempt has ever been made to supplant the gold basis and to refuse to receive its units for taxes. With the absolute nationalization of all land values by self -liquida- tion and the concurrent demonetization of the metal basis, gold will suffer an unexpected fall in price and its redemption will entail a public loss. Infinite in potential value, and unlimited in potential money-scope, the environment, as the world's largest and most compelling asset, is at once the only logical and only available money- base, and the land privilege as the most uni- versal, valuable, and indispensable of all privi- leges, should appeal to the popular imagination as financially the most mobile and competent of all possible money bases. When once standardized, the value of the en- vironment unit in terms of the renting privilege remains a fixed constant. Whether the aggre- gate value of the circulating units exceeds, or falls below the "capitalized" value of the land asset, will make no difference to the renting power of the money unit. It will rent as much land in the one case as in the other, but an over- issue will tend to cheapen the land privilege in relation to all other utilities, and an under-issue will tend to make it relatively more precious. In Self -Liquidation of Land Values 47 the one case the marginal value of the renting privilege will fall and in the other it will rise. In an indispensable asset like the environ- ment, which has no economic limitations as to potential value, the law of "quantity" or money- scope is independent of the marginal value of the renting privilege, and finds its limitation only in motives of a psychic kind. The law of money volume is really a law of private hoards, and the law of these hoards depends upon the industrial pace and average thrift of a people. Under our present financial dominion, with its scant money means, one-half of these hoards or reserves, consists in the "capitalized" values of land. Under a decapitalized finance these values become permanently liquefied into a currency and the residual properties become money-solvent. The financial technics of the supersolvent future will call for the mainte- nance of such a per capita circulation, that the predetermined marginal value of the renting privilege shall remain a constant. Under public ownership the revenues from land become public revenues. The differential rent charge is only a method of equalizing the industrial opportunities of men by appraising the values of location. It is really a method of equalizing the common resistance R. The rent charge is thus not a tax, but the purchase price of the facilities F, the revenues of equalization 48 Social Wrongs and State Responsibilities coming back to society commuted into valuable services and enhanced industrial efficiency. Taxation, in whatever form it may be exer- cised, is an arbitrary seizure of private property. The taxing power is a despotic power that finds its warrant only in the formative stages of society as a predatory expedient to cover a predatory wrong the wrong of dis- environment. There can be no just tax, and there never was a popular tax. By no exercise of economic ingenuity can the load of taxation be equalized by artificial assessment. This alone should condemn a principle morally vicious, politically dangerous, and economically unjusti- fiable. The tax system is a national school of perjury and corruption of public morals. It lowers the civic pride, degrades the public con- science, and makes for dishonesty in public and private life. The paramount function of State is to protect men in their rights to inviolate sovereignty, and in their rights to private property. Taxation aggresses them in both these rights. THE SOLVENCY OF VALUES THE KEY TO THE SOCIALIZATION OF ECONOMIC FUNDAMENTALS IF applied economics, as a science of human welfare, is to be worth while, it should make for the equalization of the rewards and sacri- fices of production, and its doctrines must there- fore be premised in equalized opportunities. Man is master of his economic destinies. He can change, not alone his environment, and his physical organism, but his text-books. Our cur- rent institutions find their warrant and support in our current theories, and these theories are inconsistent with economic righteousness. Present interpretations are based in the pri- vate ownership of economic fundamentals and the capitalization of these fundamentals into effortless incomes. Not alone is the environment privately held, but the money function is pri- vately owned and controlled. Society is thus divided into an advantaged and a disadvantaged class. The private owners of economic funda- 49 50 Social Wrongs and State Responsibilities mentals capitalize their advantage into a tribute from the disadvantaged and justify the financial seizure as a reciprocal service. The question of an economic "square deal" is thus a question of socializing these fundamentals, and strange as it may appear, the key to this socialization will be found in the solvency of values. The mechanics of the industrial process de- pend upon the solvent flow of values and serv- ices. The money of a country is the blood-plasm of circulation, carrying the corpuscles of nutri- tion to every organ and tissue of the social structure. If the serum of circulation be defi- cient, reparatory processes arise to compensate for the deficiency and become a drain upon the organism. The interest-rate is such a drain, and under private capitalism becomes a forfeit from the unpropertied to the propertied. The dispensability of gold fixed its money- scope at its marginal value. The exigencies of business, however, demanded the cumulative ex- pansion of this value to a point where a credit system could be profitably operated. Economic automatism placed the time limit from thirty to ninety days and the money volume at a hundred times its marginal value. The general insol- vency could now be mobilized into a circulation of money debts, and a conditional solvency be achieved by time expedients. The inflation stopped automatically at a point where such Socialization of Economic Fundamentals 51 time expedients could be profitably operated, and left no available surplus of money means. Such a chronic shortage of money assets was keenly felt, and the whole history of financial legislation has been one sustained effort for money volume. It soon became apparent, how- ever, that every attempt to expand the circula- tion beyond the inflated money-scope resulted in a depreciation of the money unit and a de- basement of the currency. Believing such depreciation to be a normal phenomenon of all currencies, the money-scope of the metal basis was misinterpreted into a law of money. No effort was made to discover the law of solvent functions, and for want of a scientific explanation of the "quantity theory" the money unit came to be regarded merely as a standard by which the real "wealth" or "capital" might be measured, and while to this day there is no unanimity of opinion as to what is, and what is not "capital," all authorities are fully agreed that it is not, and cannot be, money. In view of the utter worthlessness of gold as a utility, the most ardent champions of the metal basis refuse to regard the "small bits of metal" as a competent substitutional value of final pay- ment. Hence we are taught that money is a "deferred payment" a mere "token," or "coun- ter" of value but not a valuable consideration in itself. We have seen why the gold coin cannot 52 Social Wrongs and State Responsibilities be taken seriously as a competent and confi- dence-inspiring value. Nevertheless, gold is a part of the world's "capital" and the only per- manently mobilized and standardized portion of it. 1 What then is the rest of the world's "capital" but an unmobilized and unstandardized substi- tutional value, that is to say, an inchoate money means? What is the "general purchasing power" of our distinguished preceptors but the credit system in movement that is, the organ- ized insolvencies of capitalism in process of parasitic liquidation with the risk-discounted assets of industry in pawn? The "general pur- chasing power" is a perpetual flow of money debts coined into a perpetual flow of private in- comes by the machinery of credit. Without "guarantees" there can be no credit system, and without "capitalized debts" and risk-discounted assets, there can be no guaran- tees. The public debts of the world, incurred for wars and war-footings, constitute more than one quarter of the world's "securities." These "funded" debts make up the most available and most desirable assets of credit finance, and hence, not only the "public debts" but the wars that produced them, came to be regarded as "public blessings." Were all values supersolvent in the money- base, the term "capital" as an expedient of Socialization of Economic Fundamentals 53 morbid finance could not have been thought of, and "credit," except as an evidence of insol- vency, would have had no economic significance. In fact, our interest-bearing notes, bonds, mort- gages, and other funded voracities, organized for perpetual parasitic liquidation, loudly pro- claim the universal insolvency of values, and so too, our "securities," our "guarantees," and "pledges" (of money payment) are mere verbal confessions of such general insolvency. The worjid is insolvent, and the credit system is only a means of mobilizing this insolvency into a wide-flung, panic-laden circulation of liabilities. We are perpetually and wastefully "coining" perishable assets into a costly "pur- chasing power," and are thus manufacturing solvency as an article of commerce. We are buying and selling it over the bank counter as so much merchandise. Like other products of commerce, artificial solvency follows the law of demand and supply, fluctuating from a scarcity value of six cents on the dollar to a panic price where liquidation ends in disastrous discounts and business failures. Capitalism is "propertyism." We are, so to speak, "property" solvent, that is, "asset" sol- vent, but not "money" solvent. "Propertyism" is a method of achieving "money" solvency by offsetting assets against each other on the pages of a ledger. Money solvency is cash solvency. 54 Social Wrongs and State Responsibilities Property solvency is credit solvency. One is costless, the other costly. Property ism (capitalism) is a standing men- ace to the industrial stability and prosperity of the world. It alone is the cause of all our panics and depressions. It alone is responsible for the vagrancies, poverties and charities of unem- ployment. Leaking at every joint through the open seams of capitalism, and with distress sig- nals forever flying, the ship of Industry sails the waters of financial insolvency with the pumps of credit working overtime to keep it afloat. Instead of being eternally supersolvent and financially independent of one another; instead of "spot-goods" exchanging for "spot- cash" on even terms without discount; instead of daily adjustments of business-gains and losses, each day closing with a clean slate we are eternally subsolvent and financially depend- ent; our material assets are forever in pawn to Private Finance for solvent functions; our books are swamped with running accounts, delayed liquidations, and chronic money-debts, and we live in a constant state of apprehension lest the scope of business overtake the scope of credit by trenching upon its cash guarantees. Meanwhile the community is honeycombed with cumulative liabilities, merchants are perilously interdependent for solvent means, and the busi- ness of the country is on the verge of insolvency Socialization of Economic Fundamentals 55 and panic. One serious failure may involve the rest, and like a house of cards bring down the credit structure in a heap. Our present concept of capital is a sad jumble of verbal inconsistencies which much academic discussion has failed to clear up. Apart from the means and instrumentalities of production F, what is this "capital" but a money resource? The credit system is only a circulation of money debts for which the unstandardized assets of commerce stand sponsors, while a scant money- means and costly banking processes perform the wasteful and operose functions of delayed liquidation. These stupendous values so dwarf and overshadow the beggarly money-base that they come to be regarded as the paramount thing, while the circulating "bits of metal," the only real liquidating factors of the credit sys- tem, are looked upon merely as a "measure" of these values. Meanwhile the coinage of these guarantees of liquidation into means of pay- ment is a continuous performance, and the seigniorage, in terms of interest, a perpetual cost. Every credit transaction is a lapsed money function translated into a book account. The credit is not a money, but a "promise to pay money," and credit finance is merely a method of bartering goods and values against one an- other on the pages of a ledger. The exchange is effected by mutual cancellation, the credit unit 56 Social Wrongs and State Responsibilities yielding up its pecuniary life in a single trans- action, hence, while the money unit, when once coined, is good for indefinite function, the per- ishing credit is a currency of perpetual recoin- age, and hence of perpetual waste of function. This waste of function begets a bank charge of two per cent or more for operating the credit system, which added to four per cent or less for the premium for scarcity of money means, makes the cost of artificial solvency amount to about six per cent. The former rate is a cost, not of production, but of compensation, and the latter a cost, not of production, but of an avoid- able scarcity of money means, both costs being wasteful and uneconomic. Hence credit finance, as a tool of solvency, is at best a primitive and wasteful expedient. Imagine the economies of an industrial system where the machinery of production must be daily replaced by a brand new equipment ! Yet such is the economy of the credit system. Not only do the wastes of finan- cial function become a serious charge upon the collective effort, but the costs of credit solvency, as will be seen, became a source of profit to the privileged, at the expense of the unprivileged. PRIVATE CAPITALISM AND EFFORTLESS INCOME PRIVATE capitalism is a private institution and the traffic in solvent functions is the exclu- sive privilege of the propertied classes. This astounding privilege confers upon private finance a power for evil which it is difficult to contemplate with mental composure. To make chattels of the money function is to make chat- tels of men. To traffic in artificial solvency is to traffic in the seized powers of industry. For the State to surrender to the vicissitudes of private enterprise and profit the most vital of all industrial factors, is not only to abdicate its highest collective function, but to raise up powerful financial masters to dominate and feudalize the common people. Natural or artificial, material or immaterial, every value and every service bears the shop- marks of private capitalism, and pays Private Finance a royalty of six cents on the dollar for the privilege of solvency. The whole world is 57 58 Social Wrongs and State Responsibilities perpetually in debt to these private owners and dispensers of solvent functions for the expense of artificial liquidation. Every dollar's worth of property is actually and potentially a "money debt" for the cost of solvency incurred in its industrial development, and the world's values are a huge capitalized debt in perpetual dis- count and liquidation. For these costs the prop- ertied collect from the unpropertied a charge called interest. They collect it through a pri- vately capitalized environment, a privately capitalized industry and a privately capitalized commerce. This tribute appears as an added cost to living. It is exacted in enhanced prices and advanced rent charges. It becomes a per- petual lien on the property less a mortgage on the earnings of the producer which he is power- less to lift. As this charge falls actually and potentially upon every unit of the average per capita wealth, a conservative estimate will show that, to the propertyless, such a tax represents fully twenty-five per cent or more of the average in- come of the wage-earner. Thus the unproper- tied worker is in perpetual bondage to private finance for one quarter of his services. He is one-fourth slave and three-fourths freeman. The bond markets of the world are only so many State-protected slave markets where the finan- cially-seized labor powers of the unpropertied Private Capitalism 59 are marked down to the highest bidder. Ten thousand dollars' worth of sustained solvent functions will purchase the labor powers of a man forever, and neither sickness nor death can terminate the "bondage," for it capitalizes the born and mortgages the unborn. Unlike chattel slavery, its crude and brutal alternative, capitalism is a refined and genteel method of appropriating a service. It avoids the unpleas- antness and responsibility of outright slavery and .thus spares the finer sensibilities. It has furthermore the sanction of economic author- ity, and this salves the conscience of the learned and mollifies the feelings of the charitable. A composite curve of wealth drawn from ap- proximate data will show that about five per cent of the people are above the line of aver- age property possession, two per cent on the line, and ninety-three per cent below the line. Under our present controls the five per cent above the line become parasites upon the ninety- three per cent below the line. There is abso- lutely no escape from the financial vampirism unless one is on the neutral line of average property possession, where these voracities are balanced against each other. To be above the line is to "draw income." To be below the line is to "yield income/' the largest economic for- feit being wrung from the poorest and most helpless members of society. 60 Social Wrongs and State Responsibilities Had the wasteful costs of capitalism been equalized through the taxes by operating the credit system as a State function, the spoliation of the unpropertied by the propertied might have been avoided. Under such public finance the costs of the credit system would have fallen equally upon the propertied and unpropertied and been felt as a common loss. But under pri- vate finance the capitalizers could shift the whole loss upon the capitalized, and convert the privilege of liquidation into a source of income. Thus the propertied classes not only escaped their own just share of the national loss, but by shifting it upon the unpropertied, they were enabled to capitalize the common distress and their class advantage into fabulous private for- tunes. Some of these fortunes are over one hun- dred and fifty thousand times the average per capita wealth; and so great is the voracity of capitalism, that nothing but the brevity of life has saved mankind from having become the feudal property of one supreme parasite. These stupendous fortunes easily organize themselves into irresponsible personal controls and feudal dominions. They give rise to a lordly leisured class not only independent of the indus- trial process and outside of the law of recipro- cal service, but wholly separated from the aims and interests of the common people whose sub- stance it devours. This class, with its feudal Private Capitalism 61 training has feudal leanings and imperialist ambitions. Being industrially foot-loose it be- comes politically busy hatching schemes of empire and the subjugation of alien races by re-enforced war-footings and strongly central- ized governments, for Imperialism begets mili- tarism. These men have always been, and are now, a standing menace to free institutions. All perversions of economic justice have their source in feudal advantage. Without the pri- vate "usurpation of economic fundamentals, which gave rise to effortless affluence and arbi- trary power, there could have been no class dominions, no wars, no slaveries, no serfdoms and other characteristics of the predatory stage of man's social beginnings. It is only because of such violations of economic equity and opportu- nity that all attempts to establish a real democ- racy have failed. Democracies cannot flourish in a soil suitable only for growing artificial dis- parities in the livings of men. Yet upon such feudal foundations stand the governments of the world, and upon such feudal bases rest our theories and doctrines of political science ! We capitalize the wastes of functional insol- vency into parasitic incomes, appraise the vo- racities of capitalism as a private "wealth," and list the seized powers of the unpropertied pro- ducers as a national asset! Meanwhile, capital- ism has no justification in public expediency. It 62 Social Wrongs and State Responsibilities is a hindrance R, and not a facility F. It is wasteful, not economic a loss and not a gain an illness and not a health. It is a consuming force and not a producing power. The "capitalized income" as a doctrine of normal economics has never been seriously questioned by our text-books, although prac- tically every writer has thought it his duty to apologize for it. The justification is sought in the alleged "productivity" of capital, such pro- ductivity giving rise to "surplus value." But the wealth assets of nations are not as "pro- ductive" as the free utilities of nature. Not all the "capital" of the world is as important to production as the air we breathe, the water we drink, or the reproductive powers of nature upon which we depend for our subsistence. Without either one of these urgencies man would perish before he turned a wheel. How much "surplus value" shall be written off for the "usufruct" of air? How much for water? How much for the reproductive forces of nature? How much for the light and heat of the sun? And who is entitled to collect this tribute? Capital has its wage of function in perpetual upkeep. Why then should it demand a bonus? In this rivalry among the factors of produc- tion, what about the real productive agent with- out which there could be no capital? The Private Capitalism 63 Southern aristocrats wrote off for the interest rate on their capitalized slaves. Why, then, may not free Labor write off for an interest charge on its capitalized powers? Why can it not at least share in its own despoilment? The situa- tion is absurd, and any attempt to justify it unworthy of common intelligence. Effortless incomes are wrung out of monopo- lized urgencies. They come from the unwar- ranted monopoly of economic fundamentals, and not from any reciprocal service rendered to society. Engross any of the free urgencies and you may feudalize the world, for they become "capital" and demand "income." Industry is not helped, but held up; incomes are not yielded, but exacted. The theories of interest have no better stand- ing. We are taught, for instance, that "capital" is scarce and perishable that it must be "snatched from the jaws of appetite," and that interest is the reward of abstinence. Yet the forbearance of men is not motived in usury, but in providence, and providence is not based in self-sacrifice, but in self-interest; for were the penalties of providence greater than the re- wards, there could be no "saving instinct." Usury, however, is based, not so much in the optional forbearance of the rich, as in the en- forced self-denial of the poor. The sacrifices of "saving capital" are vicarious. The "financed" 64 Social Wrongs and State Responsibilities masses are obliged to practice the most rigid economies, stinting, pinching, and denying themselves, so that their financial masters may profit by their "abstinence," and live in para- sitic extravagance and splendor. It cannot be said, moreover, that the interest rate is due to a scarcity of "capital," when the credits of the country constitute less than ten per cent of the aggregate assets; nor that capital is perishable, when one-half of these assets are permanent and indestructible. The scarcity is not in concrete values, but in liquid values. Because some men underrate future enjoy- ments for present enjoyments, and present goods appear to have a greater value than future goods, we are taught that such under- valuation is the cause of the interest rate. Were this true, then rural populations, where interest rates are high, underestimate the future more than city populations, where the rates are low, and there is hence a sliding scale in the estimation of present and future values according to where men live. Then again, as our industrial potential rises, and efficiency overtakes our wants with a generous surplus, the "saving of capital" may not be as impor- tant as its overproduction, and hence the justi- fication of interest as a function of sacrifice is weakened. Furthermore, only children and Private Capitalism 65 degenerates undervalue future realizations, and they cannot influence the interest rate. Men do not live for themselves but for their families, and the civilization of the world is the civiliza- tion of the provident, the improvident and their breed being marked for elimination. Of course, to a starving man, a dollar to-day may be worth more than a million to-morrow ; but the urgen- cies of the necessitous cannot organize them- selves into a general tax on the means of sol- vency. ** Normally there is no economic advantage in present possession except that based in the life- risk, which seems to be confused with the time element of delayed liquidation. Because life is short and death an ever-present contingency, some men will discount the uncertain for the certain and sell a right to future income at a loss. Such a discount, however, is not an interest rate, and can bind no one to its terms but those directly concerned. The notion that interest is paid for "capital" and not for the solvent function, is one of those clever expedients of perplexed genius, which by side-stepping difficult questions and side-track- ing embarrassing problems, is enabled to give error the countenance of truth. Probably noth- ing will interest the future student more than the waste of mental resource and ingenuity in defending and perpetuating error, where a 66 Social Wrongs and State Responsibilities smaller expenditure of intellect would have sufficed to discover an unassailable premise. We have been in a state of mental inhibition which prevented us from perceiving the simple truth that our credit system is a patchwork of com- pensatory and panic-laden expedients of sol- vency, and that the interest rate is the measure of the cost and wastes of artificial liquidation. We were aware that the "money value" of gold was out of all proportion to its utility value, and yet we saw nothing wrong with the money basis. We noted the narrow money-scope of the "precious metals," but failed to interpret the meaning of the "quantity theory." The wild fluctuations of the stock market traced our industrial delirium in rising peaks of financial frenzy and descending troughs of insolvent ruin ; but we saw nothing wrong with the credit system. We perceived society falling apart into two distinct classes with interests antagonized, and social disparities enormously exaggerated; and yet we saw nothing wrong with our text-books. With all these pathologic symptoms and the industrial fever-chart staring us in the face, we failed to diagnose the morbid situation. Yet had the money function been a public function, and the land privilege the common privilege, there could have been no annuities Private Capitalism 67 from fundamentals. Had all values been fluid in the money-base, solvency would have been cost- less, and the lame apologies for "capitalized income" and the dozen or more impossible theories of interest would have been left unuttered. PRIVATE FINANCE IS A MONOPOLY OF SOLVENT FUNCTIONS PRIVATE FINANCE is a private monopoly of solvent means, and whatever limited competi- tion we have enjoyed under the credit system has become a vanishing advantage since the advent of trust combinations and mergers. Although the national assets are superabund- ant, there never was a time when capital as a money resource overtook the industries of any nation. There is no premiumless capital; that is, there is no costless money function. Solvency is costly, and credits must be trimmed down to the marginal needs of business emergency, leav- ing no idle surplus of liquid means wherewith to challenge the formidable combinations of pri- vate capital. There is no profit in bank reserves. This is why bankers want an elastic currency, which in times of money dearth may be stretched to meet the demands of business, and in times of "redundancy" be contracted, so as to keep the circulation within those nice limits The Monopoly of Solvent Functions 69 where every dollar will be "earning" interest and where prices will remain unaffected. Un- less every dollar is busy drawing interest bank stocks will depreciate. Hence a competitive redundancy of money-means, by which to dis- pute the financial monopoly, is incompatible with credit finance, whose natural limitations find their expression in an interest forfeit. In fact the credit system and the interest charge are the offspring of subsolvent conditions, and such cohdifions are incompatible with idle, and hence premiumless, reserves. A monopoly of solvent means fixes the scope of business and places society under the abso- lute dominion of a few overlords of private finance, who can set aside the laws of competi- tion and nullify the safeguards of economic automatism. The admissions of Judge Gary and Mr. Carnegie before the Stanley Committee should convince the glorifiers of the credit sys- tem that Private Finance is a private monopoly of solvent means, and that until overthrown, nothing but State interference can save us from financial absolutism and a closed business monopoly. In the face of these admissions, what becomes of economic automatism as a self -regu- lating principle and the sheet-anchor of polit- ical science? If anything is well established in economics, it is, that the State cannot and should not regulate prices and wages, and that 70 Social Wrongs and State Responsibilities the law of competitive demand and supply is alone the sure criterion of what they shall be. It is the duty of State to prevent monopoly, not to regulate it to promote competition, not to control it by statute. The fact is, that our pri- vate capitalism has made a sorry mess of our economic theories, and led us into inconsis- tencies more and more irreconcilable with any rational scheme of social mechanics. It stands to reason, that before we may have competitive business, we must have competitive money-means. It is self-evident that there can be no idle reserves where solvency is at a pre- mium, and that hence, there can be no competi- tive money-means under Private Finance. The traffic in economic fundamentals is a traffic in human lives, to say nothing of human rights; and yet our present theories and doc- trines are based in such private commerce. The environment is the collective resource, and cost- less solvency the collective right and privilege; and yet both land and the money function are privately engrossed for tribute. Divested of all verbal subleties and ambigui- ties, our so-called "science of wealth" is really the science of manipulating the voracities of capitalism for private profit. Our conception of wealth is a feudal concept. Wealth, as we have seen, is a function of scarcity, and scarcity may be artificially produced by monopolizing the The Monopoly of Solvent Functions 71 urgencies. The pressure of population on the public resource does not produce "wealth" in the sense of a general prosperity, but it creates a scarcity in the common resource, which pri- vate owners of land may "capitalize" into private wealth. In other words, the urgencies of the poor may be translated into the wealth of the rich. Place the fence of monopoly around the free utilities and you have wealth and riches within the enclosure in so far as you have stint and poverty without. Were the environment the collective property of men, and did public policy demand a conservation of public lands by ad- vanced rent rates, such an enhancement of land values would be felt as a public calamity, and such public wealth viewed as a disaster. But under private ownership the stints and misfor- tunes of the disenvironed may be capitalized into the incomes of an owning class. Thus, while under public ownership the law of Mal- thus operates alike on the propertied and un- propertied, under private ownership this law becomes a tool for the enrichment of the former and impoverishment of the latter. The land owner not only escapes all payments of land rent, but is enabled to demand services from the landless. What applies to private landlordism, applies to private capitalism, the parent of all financial voracities for the only moral support for the "capitalized income" from land, comes 72 Social Wrongs and State Responsibilities from the interest rate on "Capital." Without such support the great wrong of private owner- ship would have become apparent to all men. Pressure of population on land gives rise to a scarcity value in public resource. Pressure of business on solvent means gives rise to a scar- city value of solvent functions. We appraise the scarcity values of a privately owned renting privilege in terms of the scarcity value of a pri- vately owned money privilege, and thus lay the foundation for our predatory concept of "Wealth" and "Capitalized Income." Hence, "scarcity values," which our census statistics list as a national asset, are not a public "wealth," but only a predatory means by which the labor powers of the socially disadvantaged may be appropriated without recompense. In the last analysis, all wealth implies ability to demand the services of society. So long as such services are reciprocal, the private wealth of individuals is merely a measure of the just claims such individuals have on society for serv- ices actually rendered. There can be no injus- tice in such private wealth. Indeed, the founda- tions of any rational scheme of society must be laid in the inviolate rights of private property, and it is only because these rights have been infringed under present arrangements that we have a social problem. Sharing the common economic misapprehension, and wholly oblivi- The Monopoly of Solvent Functions 73 ous of the hidden black-mask and dark-lantern of Private Finance, alias "Capital," Proudhon overlooked the real culprit when he charged "Private Property" with the crime of "rob- bery." It is not Private Property, but Private Capitalism that is the Raffles of industry. It is Private Capitalism, in the canonicals of author- ity and the cloak of Science, that makes effort- less income appear socially respectable and economically justifiable. While noisily pro- claiming the "sacredness" of private property, it robs the unpropertied and divides the plun- der with the propertied. The incomes of capitalism are seized incomes. Beyond the privilege of perpetual upkeep (wages of function), and the privilege to ex- ploit the risks of commerce and industry for profit, capital has no economic right to any bonus, and under supersolvent conditions will become a flat, incomeless value. OUR COMMERCIAL DOMINIONS INSTEAD of being under the impersonal laws of science, and the administration of economic experts capable of interpreting and applying them to social needs, we have been in the past, and are in the present, under the dominion of mercantile empirics. The functional insolvency of values in the money-base vested the commercial classes with the dangerous powers and responsibilities of artificial solvency, and their self-imposed duties and responsibilities came to be regarded as a part of the distributive function. Practically the whole technics of what is called "business," consists in the ability to maintain solvent func- tions under insolvent conditions, the solvent flow of goods and services depending wholly upon the private owners and manipulators of credit means. "Take care of business and busi- ness will take care of prosperity," we are ad- monished. "Industry waits upon business and fails when business fails," we are warned. The 74 Commercial Dominions 75 inference is plain; to be industrially saved we must stimulate business that is, we must tax the "producer" for the benefit of the "distribu- ter." To enlarge the profits of business we must go into wasteful production : we must set legis- lative barriers to competition and so divert the industrial effort into artificial and wasteful channels of production. Private Finance blends manufacturer, trader and capitalizer into one supreme factor the "businessman" upon whose ability to remain solvent, hang the industrial destinies of the "financed" and "tariffed" producer. The integ- rity of the industrial process depends upon the sustained integrity of the credit system. This sustained integrity depends in turn upon two contingencies. First: There must be no busi- ness failures ; and Second : The scope of busi- ness must not overtake the scope of credit. Either alternative will precipitate a panic and arrest the industrial process. Hence the exag- gerated importance of the commercial classes as supreme factors of the industrial movement. The world is organized and run as a mercan- tile institution. Our State controls are com- mercial controls, and public policies are shaped by, and for, commercial interests. Current standards are commercial standards. Current economics are commercial economics. The world's governments are the mouthpieces of the 76 Social Wrongs and State Responsibilities trading classes, and our congresses and parlia- ments are the Upper and Lower Chambers of Commerce. We tax cheapness and subsidize dearness to boost the profits of commercial exploiters. We prematurely exhaust the resources of the coun- try by the overproduction of steel, oil, lumber, and other raw materials, in order to enlarge their parasitic fortunes; and we even permit them to defraud and poison us with adulterated foods and drugs to further swell their exag- gerated incomes. We perceive the dishonesty of diluting sugar with glucose and coffee with beans, but overlook the larger dishonesty of diluting four or five hundred other items with a tariff impost; and while resenting the petit larceny of the misbrander and debaser, we remain blind to the grand larceny of the tariff - taxer. The spectacular prosperities of private finance and of privileged commerce loom up so large in the economic eye that they monopolize its field of vision. It does not occur to our pros- perity shouters that the rapacities F in the eco- nomics of the advantaged, become the voracities R in the equation of the disadvantaged ; and that such vampirism is at the root of all our social iniquities and miseries. It should be obvi- ous that the distributing classes cannot be more important to society than the producing Commercial Dominions 77 classes; and that the social dividend P cannot be increased by placing obstacles R, in the path of the economies F of commercial interchange. Unjust institutions seek refuge in arma- ments. The imperialisms and militarisms have always been, and are now, the distinctive fea- tures of commercial dominions. The world's competitive products are distributed under emulative war-footings instead of emulative decency and fair play. The governments of nations are so many military and diplomatic expedients of commercial aggression and ra- pacity, and their cabinets the fiscal agents of resident and self-expatriated commercial ex- ploiters. Behind every war (waged ostensibly for the public benefit) there lurks some local class ad- vantage magnified into national importance, and back of it stands the banker and the financier. We assume the quarrels of these exploiters; we tax ourselves for their militarisms and otherwise commit ourselves to their interna- tional rivalries and war-footings on the plea of "patriotism" and the fallacious belief that com- mercial forestallment and an "open door" are a guarantee of an enlarged field of employment. Meanwhile, the world's market is not a means of multiplying opportunities of employment, but only a means of economizing the common effort by distributing the world's industries 78 Social Wrongs and State Responsibilities according to their marginal importance to the common need. Furthermore, except as a piti- ful dupe and vassal, the feudalized producer has no economic or "patriotic" interest in the mili- tarisms and war-footings of his economic over- lords. Stop the source of idle income and the power to tax, and there remain no incentives for territorial encroachments, and no valid ex- cuse for organized violence. The history of private finance and its com- mercial dominions is a history of social up- heaval and economic antagonism. Financially, we are in a state of chronic insolvency; indus- trially, in a state of potential panic ; socially, on the point of insurrection, and internationally on the brink of war. No one will seriously contend that traffic in economic fundamentals and the exploitation of the voracities of credit finance confer any bene- fit on mankind; and yet practically all the energies of the parasitically advantaged go into the manipulation and exploitation of these vo- racities. It requires no high order of intelligence to set the leech of capitalism to the artery of labor, nor to organize its parasitic powers into monopoly profits by mergers and consolidations. Yet practically all the services of the financial classes are of that order services which could be dispensed with under supersolvent condi- tions. The functions of the commercial classes Commercial Dominions 79 are not financial but distributive. It cannot be said that these functions are more important to the community than those of the inventor class or of the professional classes. Our civilization can never repay the Edisons, Bells and Burbanks, to say nothing of the Dar- wins, Pasteurs, and their kind; but aside from a few of the former who may have risen to fortune, is it reasonable to believe that the useful services rendered society by the four or five thousand millionaire traders, real-estate speculators and financiers of this country are on the average worth more than the average income of the professional classes? It is quite safe to say that all the incomes of the million- aire class over and above such an average are wholly outside of the law of reciprocal service and therefore purely parasitic. It would of course be foolish to underrate the abilities of these men so wastef ully misapplied under pres- ent conditions. Their parasitic advantage makes them independent of the industrial process and places them above the common interests. Being outside of the law of reciprocal service, they are enabled to live in effortless magnificence and luxury wholly apart from the strivings of the common herd upon whom they prey, and whom they mock by their unapproachable extrava- gance and feudal standards of living. Were their class-interests the common inter- 80 Social Wrongs and State Responsibilities ests the welfare of each depending upon the welfare of all civic pride would not be iden- tified with "real-estate booms," artificial "busi- ness expansions," and other private prosperities based in the exploitation of usurped funda- mentals and population pressures, but would concern itself with the general welfare and higher planes of living. Were their interests the same, the root causes of corruption, bribery, jobbery, and inefficiency in public office would be removed. Were their interests identical, there could be no "sweat-shops," no child labor, no exhausting hours of employment, no tenement-house evils, and no civic ugliness. Such conditions would be incompatible with public expediency and economic efficiency. As it is, these men and their capitalisms stand for industrial wastes and social sufferings that stagger the imagination. The social recourse is the self-liquidation of fundamentals. Socialize the idle income and the face of civilization will be changed. Self-liquidation will decapitalize the money function, defeudalize industry, demilitarize commerce, and decommercialize our political controls. Shorn of their financial power and confronted on every hand with vast incomeless liquid means competing for investment, the commercial classes will be thrown upon their Commercial Dominions 81 competitive abilities, and like all other pro- ducers in the field of reciprocal endeavor, be called upon to establish their true marginal im- portance to society. It will then be a matter of profound indifference to the worker whether locally, nationally, or internationally, the trad- ing classes are successful or unsuccessful in their business rivalries, so long as he is not taxed for their militarisms and can get his wares in the open market at their competitive price. .Wither they fail or do not fail, will make no difference to the industrial and finan- cial stability of the country. THE ECONOMIC RESPONSIBILITIES OF STATE PUBLIC expediency demands the socialization of all natural monopolies. Not alone the eco- nomic fundamentals, but the means of transpor- tation, communication, distribution, and all other monopolizable public privileges should be socialized by self -liquidation. The law of equal opportunity, as the law of public expediency, should be the basic law of political science. No government can long endure whose foundations have not been laid in economic righteousness, and sooner or later all organic laws of nations will have to pass the tests of economic fitness and expediency in the Courts of Science. It would of course be a waste of time to argue with those who still believe that "governments" are divinely ordained and their rulers super- nally inspired. To believe that Supernal Wis- dom had anything to do with our predatorily based and feudally conducted governments is to believe that rank economic stupidity and folly 82 The Economic Responsibilities of State 83 constitute Supernal Wisdom. If economic jus- tice is the criterion of a normally constituted State, then, not a government on earth deserves to-day the name of "State." It may be said, in a constructive sense, that all governments have entered into an alliance with a financial class to rob the public by capi- talism, and with a commercial class to exploit it by tariffs and subsidies. Without imputing any- thing but the best motives to our financial and commercial ^controls, no one will maintain that the present governments and their economics represent the common interests of men. Now the State, as the foster-parent of private capitalism, must be held responsible for what- ever social injustice may flow from it. Society in its corporate sense has no defendable right to confer titles of private ownership to eco- nomic fundamentals, and thus to hand over one class of men for financial spoliation by another. It is the paramount duty of the State to equalize the industrial opportunities of men, in default of which it should be held liable for all damages and losses due to its administrative incapacity or neglect. It is the duty of the State to abolish private capitalism and socialize idle income by costless solvency, or failing to do so, to maintain all men on an equality of property possession. 84 Social Wrongs and State Responsibilities No arguments for the overthrow of unjust institutions are so potent as those which suc- cessfully assail defective economic foundations and the organic laws based upon them. Chal- lenge the integrity of these foundations with conclusive evidence and the social edifice must crumble. The constitution of the United States, with honest intent, stipulates that no man shall for- feit his property without due process of law, and yet the State is responsible for economic conditions that nullify this provision, and there- fore every man beflow the line of average wealth has a right of action against the government for economic larceny. Ninety-three per cent of the people are robbed by capitalism. All but one-tenth of one per cent are robbed by tariff laws. All but a few speculators are impover- ished by panic industrialism, and practically all are aggressed in person, property, and liberty, by the taxing power. For any of these injuries men have a right of action against the State, and the first case for the plaintiffs will do more for the cause of social reconstruction than all the French Revolutions and other popular up- risings have ever done or can ever do. Our social arrangements are fundamentally dishonest, and our political controls must be held constructively to blame for the dishonesty. Capitalism and its feudal dominions are on trial The Economic Responsibilities of State 85 for wholesale robbery. The plaintiff is the Rou- tine Producer, some ninety millions strong, and his case is as strong as his number. Let him bring suit through competent counsel, and eco- nomic feudalism and its text-books are doomed. According to the wealth curve shown here- with, the distribution per family for 1900 may be classified as follows: Class Per Cent Fortunes First Estatef. 0.1 Six to nine figures. Second Estate 0.9 Five to six figures. Third Estate 4.0 $6,000 to $10,000. Neutral Estate 2.0 $5,000 to $6,000. Fourth Estate 93.0 Below $5,000. 100.0 If the latest estimates of Mr. Rockefeller's holdings are to be believed, the curve of ultra-parasitism and irresponsible power rises abruptly into space nearly a mile, that is, nine thousand times higher than the one-hundred- thousand-dollar level, and more than one hun- dred and fifty thousand times higher than the average wealth line. And if our text-books are to be taken seriously, Mr. Rockefeller has con- ferred such vast benefits on humanity that it will require the collective effort of ninety thou- sand average men, working forever, to pay for them! Parasitism is a universal phenomenon. One- half of the world devours the other half. Con- 86 Social Wrongs and State Responsibilities sideration and forbearance have never been a test of survival on the physical plane of evolu- tion, nor have they as yet become a criterion of biologic fitness on the psychic plane. There is a benevolent parasitism, however, wherein host and parasite live in an amicable reciprocity of functions. This happy state is called symbiosis. Perhaps the leisured classes may even now be economically vindicated on the score of such reciprocal consortism? All civilizations arose parasitically from the vitals of Industry, but neither host nor parasite was aware of the social symbiosis. Without leisure there could have been no learning, and without learning no social advancement and no civilization. Hence the predatory seizures and parasitisms of the past find their justification in evolutionary expediency. The civilizations of the world have always been, and are now, the civilizations of the para- sitically advantaged. Probably less than one- tenth of one per cent of the community the feudal efflorescence of private capitalism is in absolute control of our social and political ar- rangements. Back of these controls stand the survived institutions of social growth and de- velopment with their roots deep in the soil of feudal tradition and dominion. These controls and their champions and supporters make up all there is of the "State" and the "Society" of our The Economic Responsibilities of State 87 day. Conspicuous in the civic foreground they stand, class-conscious, and socially apart from the routine producers out of whose bonded and mortgaged powers their spectacular fortunes are wrung. The stage-properties of civic life and the machinery of government are in their hands. They control all the avenues of social advantage, monopolize all the higher luxuries and amenities, parade their ostentatious and unapproachable livings in vassaled splendor, obstruct OUT highways with their liveried con- veyances, and exhaust all the resources and possibilities of exaggerated income. They im- pose their feudal ideals and standards upon the stupid host, establish class differentiations and distinctions, fix the social boundaries, enact the canons of leisured gentility, prescribe the punctilios of polite convention, and set the pace of emulative parasitism and extravagance. It is their civilization and they are the civic cul- mination and expression of its economics. Being the evolutionary product of such ar- rangements, and lacking a criterion of social normality, we are incapable of social self- introspection and self-analysis. Meanwhile these institutions are intimately interwoven into one another by endless conventions and habits, and firmly held together by thousands of private and class interests. So nicely are they fitted in- to the feudal scheme of things that but few 88 Social Wrongs and State Responsibilities perceive their abnormality or suspect their transitory character. We are apt to forget that the very essence of life is eternal change, and that nothing is permanent in nature but the Evolutionary Impulse, of which this change is a panoramic expression and manifestation. Even atoms change their subatomic equiva- lences, and chemistries their mathematical formulae. We ascribe greater permanency to human institutions than they possess and greatly over- estimate the civilization of our age. Yet on the dial-plate of social advancement we are still close to the zero point of economic achievement. Chattel slavery is still fresh in the minds of a million pensioners in these United States, and serfdom in Austria and Russia has not yet faded out of the memory of the living. We still decide economic problems by opinion, and inter- national questions by violence. Our "best citi- zens" quench their elemental ferocities in brutal lynchings and burnings and Christianity mur- ders Jews in holy Russia and pious Roumania. The torch of the Spanish inquisition died out less than a century ago. The despotic controls and disciplines of crude and rudimentary civili- zations are apotheosized into celestial kingdoms, and great masses of mankind live their narrow, ritualized, and dominated lives, in superstitious fear. More than ninety per cent of the human The Economic Responsibilities of State 89 race live in abdicated selfhood, with their sov- ereign powers in trust to some usurping despot, and the vast majority are feudalized by the owners and exploiters of economic funda- mentals. The history of mankind is a history of paternal dominion. Man was born and reared in an atmosphere of feudal control, and he lived and died under the rule of despotic dynasties arrogating to themselves absolute powers over his person. Dominion pursued him from the cradle to the grave, until the monarchic idea became a dominating concept capable of being expanded into a cosmic principle upon which a universe might be built. Man is only now be- ginning to recover from his feudal obsession, and the story of political reform is a story of his struggle to redeem his sovereign powers from the grasp of personal dominion and pa- ternal control. Every Magna Charta of enlarged freedom is a record of some partial redemption of his economic rights, and the movement for personal sovereignty cannot cease until all do- minions and paternalisms are swept away, and man and woman shall stand forth in equal dig- nity and freedom, acknowledging no dominion and no power but that of the underlying Verity and Spontaneity of things which finds its inter- pretation in the laws of science. No one is to blame, however, for our intol- erable conditions; our social miseries and dis- 90 Social Wrongs and State Responsibilities parities were not made to order, but grew out of our evolutionary immaturity and necessity. No hard and fast lines separate the different classes of men, and the privilege of economic vampir- ism is not monopolized, but is open to anyone capable of overtaking the voracities consuming him and of rising to the parasitic level of prop- ertyism where he may put on the screws of private finance and push the button of com- pound interest. As parasites tend rather to in- crease in size than in numbers, any accession of parasites from the outside is followed by corre- sponding and possibly greater defection from the inside, and hence the number of the host class has no tendency to diminish. The privilege to share in his own despoilment, therefore, con- fers no benefit upon the routine producer who bears the whole load of economic iniquity. From the prostrate body of Labor rises the ladder of "Capitalized Income," with its topmost rung one hundred and fifty thousand times higher than the average wealth line. In order that a diminishing percentage of the parasitically advantaged may mount the rungs of idle in- come, an increasing percentage of the disad- vantaged must be content to hold the ladder. Hence the shallowness of the argument that all men may achieve success and prosperity under present arrangements. It is no disparagement to individuals that The Economic Responsibilities of State 91 they take advantage of conditions the funda- mental injustice of which they do not even sus- pect. Social equality does not imply equality of fortune, but only equality of right to economic fundamentals. There will be disparities in for- tunes just so long as there are disparities in brains, but such disparities can violate no equities where incomes from fundamental urgencies have been socialized. It is no more a disgrace to rise above the average ' of property possession than to rise above the average of intelligence, and yet under our financial vampirism every capable man who accumulates a well-earned competence becomes a parasite upon those who are below the line of average wealth. All normal men are honest and desire fair play, and the most ardent and most influential reformers come from the ranks of the parasitically advantaged. When once the enormity of present interpretations is realized, such men will not be the last to demand a thor- oughgoing reform. Sooner or later the intellectually advantaged, whether they wish it or not, become parasit- ically advantaged ; and thus in a way, it may be said, that the parasitically advantaged belong to the class we have called "speculative pro- ducers," while the disadvantaged belong to the class designated as "routine producers." While the routine producer contributed nothing but 92 Social Wrongs and State Responsibilities his muscle and acquired automatism to the civ- ilization of his age, the speculative producer furnished the brains and became the social in- itiative and movement. He seized the environ- ment and became a landlord. He seized the primitive money-means and became a capitalist. These tremendous powers made him absolute master of the economic situation, and reduced the worker to a state of vassalage. Had our theories been based in equalized op- portunities, our economic interpretations could not have been reconciled with the servitudes and subordinations of feudal dominion. It is only because the slaveries and serfdoms of the past were not found inconsistent with current economics, that they persisted so long and gave way only when the moral sense of mankind re- volted against them. We still speak of the "working classes" and the "servant question" from that lofty "leisure-class" point of view which perceives fixed class differentiations among men, and even our text-book writers assume, unwittingly, a patronizing, class-con- scious tone in dealing with the labor problem. A very superficial self -introspection will prove that we are feudal to the core that our dress, our drama, our fiction, our social conventions and standards, and even our religious ideals, all proclaim a feudal ancestry. Yet we are, in effect, one and the same man, and though endlessly The Economic Responsibilities of State 93 differentiated by environment, our economic destinies are identical. Equalize all opportuni- ties, and the decapitalized world will be over- run by potential Morgans and Carnegies and other speculative producers competing for live- lihoods not incompatible with the incomes of other callings, and not inconsistent with the law of reciprocal service. The fact confronts us everywhere, that so- ciety is divided into two distinct classes whose interests .are- apart. There are the "owners" and the "owned" the lords of the environment and the disenvironed renters the lords of pri- vate finance and the ultimate renters of solvent functions the capitalizers and the capitalized the tariff-taxers and the tariff-taxed in short, the advantaged and the disadvantaged. Everywhere the advantaged constitute them- selves the initiative and referendum of all social and industrial movements, write their own class-economics, and operate the machinery of civilization to suit their especial class interests. Everywhere, too, the disadvantaged have been overlooked as co-operative human factors, and like the yoked ox and harnessed horse, have been left outside the pale of economic interpre- tation except as an exploitable facility F in the hands of a capitalizing agent E. The hopelessness of the routine producer was pathetically set forth by classical economists in 94 Social Wrongs and State Responsibilities an "iron law of wages," and his elimination at the margin of subsistence explained by the law of Malthus. Meanwhile the voracities of capi- talism and landlordism were devouring his sub- stance and piling up effortless incomes for his feudal masters and economic mentors. We saw the parasite in the glory of his effortless pos- sessions and secret power, but we overlooked the host. We perceived the "Income" side of economics but failed to see the "Outgo" side. We interpreted into our texts the interests of the advantaged five per cent, but ignored the interests of the disadvantaged ninety-three per cent. The tumor, and the body it feeds on, have separate processes and separate economics. We mistook pathology for hygiology, wrote a treat- ise on morbid states and functions, and called it "political science." Brainless Labor is only a stupid beast of burden, neither able to voice its industrial wrongs, nor to correct them. Modern educa- tional facilities have raised the "brother to the ox" to the intellectual plane of his economic overlords, and hence the unrest and discontent everywhere prevailing, and the demand for so- cial reform. The social question is not a question of compensatory meliorism, as our political con- trols imagine, but a question of fundamental justice. It is not a question of legislative ex- pedients, but a question of applied economics, The Economic Responsibilities of State 95 which in the new interpretation is coincident with applied justice. No reformer, whether Individualist, Socialist, Single-Taxer or Trade- Unionist, demands for his system more than simple economic justice the justice of equal industrial opportunity. In the socialization of land values and natural monopolies by self- liquidation, all the demands of social justice are fully met and all the aims of social reformers are realized. No one has a patent on nature and hence, no^ proprietary rights in economic fundamentals. Nothing but equalized oppor- tunities and socialized urgencies will remove the beak of capitalism from the breast of Labor, and the stigma of shame and reproach from our economic teachings. Gowned and mortar-hatted in the vestments of academic learning and authority, error has prevailed where naked truth has perished. The time of change has come. The hope of humanity lies in its advanced economic thinking in its unlabeled and unorthodox intelligence in the insurgency of economic students and leaders of thought. It is for them, not only to revise our theories and rewrite our treatises, but to bear the torch of social reform and lead the way to a peaceable readjustment of our conditions. Meanwhile, before any break with present conditions is possible, the divided forces of re- form must unite upon a common platform not 96 Social Wrongs and State Responsibilities a platform of political opinion but a platform of political science. There is but one truth, and science is its interpretation. Opinions are con- tentious and belligerent. Science is at peace. There can be no reconciliation between rival factions until their programs are fused in the crucible of science and the slag of error is sep- arated from the metal of truth ; and there can be no permanency in social reform unless that reform is based in applied economics. The principles upon which all reform parties may be united have been indicated in these pages. At the base of human justice is "equality of opportunity," and such equality is incompat- ible with Private Finance. "Labor" is at a dis- count because "capital" is at a premium. Until capitalism is destroyed, the routine producer remains an industrial vassal, and the so-called "dignity of Labor" a standing satire on com- placent servitude. Food Want 425 Comfort Want 225 Shelter Want 153 Clothing Want 142 Light \ 11 / Want Gold T2T Want PLATE I MARGINAL VALUE OF GOLD showing the insolvency of commercial values in the metal basis. DATA Eighteenth Annual Report of the Commissioner of Labor Income Expenditure of 2567 Families in the United States for 1901. Annual Report of the Director of the Mint for 1901 Consumption of Gold in the Arts. (See Appendix.) NOTE In order to avoid discrepancies arising from the progressive de- valuation of the metal basis the data for the ' ' Pyramid of Financial Instability" and for the "Composite Curve of Wealth" have been based in the same year as the data from which the "Marginal Value of Gold" has been determined. Physical Values $47,000,000,000 (derivative and perishable), $7,651,000,000 of which constitute the values of Commerce. Land Values $47,000,000,000 (fundamental and imperishable), normally five or six times greater than the values of Commerce. National Assets for 1901 $94,000,000,000 The National insolvency of Vrsnrt=TJ=rirz=^ values mobilized into a cur- rency of ' 'money debts ' ' called V ' ' Credits " V or " purchasing power, ' ' amount- ing to about V=====r=r^ $7,651,000,000 and resting upon Bank Reserves ^^^^^^ amounting to about $808,000,000. Private Reserves.V-=-=g^etc. $1,292,000,000 Marginal Value of Gold $18,500,000 cumulatively expanded into a circulation of $2,100,000,000. PLATE II PYRAMID OF FINANCIAL INSTABILITY The Monetary Situation in the United States for the year 1901. The tax on land has socialized about twenty per cent of its rent ' 'income" and thus reduced its market value one-fifth. Adding this fifth to land valuations and allowing for the value of public lands, and for the franchise values of railway and other rights of way, an analysis of the Twelfth Census will show that the physical assets (in- flations of the money-base deducted) , were about equal in value to the land assets of the Nation in 1900, each amounting to about $47,- 000,000,000. (See Appendix.) With the land assets mobilized into a currency of self -liquidation, all derivative and perishable values may be rendered "money-solvent" in fundamental and imperishable ones, commercial values supersolvent, and the money function competi- tive and costless. $100,000 Level PLATE III COMPOSITE CURVE OF WEALTH The average wealth per family is based in the Twelfth Census, and its distribution in the determinations of G. K. Holmes, Political Science Quarterly, December 1893 ; Charles G. Spahr, ' ' The Present Distribution of Wealth ; ' ' and "The New York Herald" of April 28, 1901. (See Appendix.) ' '** Number of families 16,187,715. Average wealth per family of 4.7 persons $5,500. The line of average wealth A-B, divides " Capitalized' from "Capitalized." Assuming that two per cent of the people are on or near the line of average wealth, then about five per cent are fairly above the line and about ninety-three per cent definitely below it. Those above the line are parasites upon those below the line. The distributive share at the extreme end of economic dispossession dwindles to nothing while at the other end the ultra-parasitic millions shoot up into space some nine thousand times the limits of this page. This streak of irresponsible wealth is the feudalizing force of the world. $10,000 Level Line of Average Wealth 20 40 100 Population in ten-per-cent subdivisions The First Estate } The Second Estate , , , Pnvate Owners of f ^ t Economic Fundamentals The Third Estate !> y The Neutral Zone of ^H ^k Fiiwntwl Vampirism The Renters of Economic Fundamentals upon whom all rents, taxes, and interest rates ultimately fall ; Fourth / \ Estate ^ The Host who pays for all the bonded and mortgaged insolvencies of Private Capitalism, and out of whose financially-seized powers all idle incomes flow ; The Routine Producer irhose economic interests have been entirely overlooked by our text-books on Political Science. PLATE IV THE PYRAMID OF SOCIAL PARASITISM (Based in the Composite Curve of Wealth) The First and Second Estates comprise about one per cent of the com- munity and own between them more than one-half of the country's material resources. The First Estate the high distillate of Private Finance, whose parasitic fortunes rise beyond the scope of the Wealth Curve owns about one- third of the aggregate property assets of the nation, and controls the rest by its financial absolutism. It domi- nates all avenues of production and leisurely takes its toll out of the dispropertied ninety-three per cent, who are utterly helpless to re- sist the financial seizure. It feudalizes the people by its irresponsible power, and degrades them by its ' 'benevolence. ' ' It builds churches, libraries and universities, retires super-annuated scholarship on a pension, and strange irony of fate endows chairs of Political Sci- ence out of the proceeds of the economic sin ! PLATE V-THE FINANCIAL FEVER CHART Traced from the average fluctuations of sixty active railway stocks. (Dun's Review for January 6, 1912.) The recurrent high and low levels are not due to recurrent periods of successful and unsuccessful management of railway properties, nor to periodic gains or losses in railway assets, but to the discounts of a fluctuating scarcity of money means that is, to recurrent periods of distrust in the general solvency of values. Apart from the manip- ulation of the market by dishonest speculators and the influences of subsidized privilege, the average fluctuations are not the fluctuations of stock values but of money values. Under supersolvent conditions where the money line remains permanently straight, there can be no concerted movement of values and the average price level will find its expression in a straight line. In this chart of panic finance are reflected not alone the chronic insolvency of values, but the depreciation of the money base, the risks of tariff legislation and other interior and exterior influences. The high crests of spasmodic " prosperity" mark the critical points where the scope of business trenches upon the scope of credit by encroaching upon its cash guarantees, the periods of acute money distress being punctuated by panics. As the money function is a collective function and supersolvency a State responsibility, govern- ments must be held to blame for the periodic disasters of private finance. COMPOUND INTEREST At five per cent compound interest, "Capital" doubles itself every fourteen years, its power to absorb the common earnings increasing in a geometric ratio with every cyclic interval of fourteen years. In less than forty cyclic intervals the cumulative interest on one dollar will overtake the present estimated "wealth" of the world. In the curve of interest herewith, the limits of the page are reached in nine cycles of time, the pro- gressive power of the interest rate to consume product being given in figures. As gold has been depreciating about two per cent yearly for the last forty years or so, the average wage- earner's inco^ne #f $768 per family, in 1900, should now be worth $950. Estimating the average income at $800 only, and the number of families at twenty millions, the aggregate annual earnings of Labor should foot up about sixteen billions of dollars. Out of this total, the propertied classes collect from the unpropertied without a reciprocal equivalent, between four and five billions of dollars yearly. It is this unjustifiable tribute from usurped funda- mentals, which creates such amazing disparities in the livings of men, and raises up industrial and commercial dominions subversive of free institutions, and wholly incompatible with the ideals and principles of a demo- cratic commonwealth. THE CURVE OF COMPOUND INTEREST AT FIVE PER CENT PLATE VI Cumulative Capitalism 8 16 32 64 128 256 512 I I I I I I I Progressive voracity in nine cycles APPENDIX THE MARGINAL VALUE OF GOLD THE average per capita money outlay for any item of expenditure, represents its average mar- ginal value^ in relation to other average per capita outlays. The marginal value of a thing represents its intrinsic importance in relation to other things. In the Eighteenth Annual Report of the Com- missioner of Labor, there are given statistical tables showing the average expense for rent, fuel, lighting, food, clothing, and sundries, for some 25,000 workingmen's families residing in different parts of the country. In the case of 2,567 of these families, greater detail and more careful elaboration of items has made the tables not only more available for our purpose, but more trustworthy. Arranged to run in an orderly rotation of relative cost, the items are as follows : Income Expenditure of 2,567 Families in the United States for 1901 Number of families 2,567 Average size of family 5.31 Total income per family $827.19 Total expenditure $768.54 100 Appendix Items of Expense Amount Per Cent Food $326 90 42.54 Rent 117 41 15.28 Clothing 10784 14.04 Sundries 45 13 5 87 Fuel 32.23 4.19 Furniture and Utensils 26 31 3 42 Insurance 2097 2 73 Medical and Mortuary 20 54 2 67 Intoxicating Liquors 1244 1 62 Amusements 1228 1 60 Tobacco . 10.93 142 Membership Fees 9.05 1.17 Books and Magazines. . . . 8.35 1.09 Lighting 8.15 1.06 Religion 7.62 .99 Charity 2.39 .31 Total . $768.54 100.00 The table shows what value an average work- man places upon his various economic needs, and how much of his income he is willing to expend upon each individual item. The per- centage column may be said to represent the strength of his various wants, and, economically speaking, to measure the ultimate or marginal values of the various utilities indicated. Food has the first claim on income, and hence takes the largest share of a worker's wages. Man must eat ; he must be sheltered, and he must be clothed. Hence these wants take precedence of all others where income is limited. It will be noticed that there is a difference between income and expenditure in this statement, The Marginal Value of Gold 101 amounting to $58.65, which appears as a saving or surplus. When, however, the average stand- ard of living reaches its highest development, the reserves of competence will remain prac- tically constant and there will be on the average no saving. Consumption will keep even pace with production, and income and expenditure will balance one another at all times. For this reason, and in the absence of accurate income statistics, it may be expedient to regard $768.54 as the average yearly income and yearly dis- bursement of an average workingman's family in the United States. Now under the head of "Sundries" there is comprised a multitude of more or less dispen- sable utilities which the compilers did not think worth while to specify. The vanity of display is still strong in human nature, and among other personal adornments, there is felt a need for gold ornaments, dental fillings, trinkets, etc. What is the strength of such a need? Fortu- nately there is no trouble in arriving at an accu- rate estimate of the per capita "gold want." In 1901, when these data were collected, the United States consumed in the arts, according to the annual report of the Director of the Mint, $18,482,330 worth of new gold. The population of that year is estimated at 77,754,000 persons. This would mean a per capita expenditure of less than 24 cents for gold, which for a family of 5.31 members, amounts to about $1.25. That is, out of a total yearly income of $768.54, an 102 Appendix average family would expend $1.25, or less than one-fifth of one per cent, to satisfy its gold appetite. This expenditure measures the mar- ginal value of gold as compared with the mar- ginal values of all other items of economic con- sumption in the table. Deducting this amount from the "Sundries" account and placing it in its proper order on the chart of marginal values, we should have : Items Amount Expended Per Cent Food $326.90 42 54 Rent 117.41 1528 Clothing 107.84 14 04 43.88 5 67 Fuel 3223 4 19 Furniture End Utensils 2631 Q 42 Insurance . 2097 2 73 Medical and Mortuary 20 54 2 fi7 Intoxicating Liquors 12 44 1 R9 Amusements 12 28 Ififl Tobacco 10 93 1 A.9 Membership Fees 9 05 1 17 Books and Magazines . . . Q QC 1AQ Lighting . . . 8 IK ,\)y Iftfi Religion 7 62 .uo 99 Charity 239 31 Gold 1 25 20 Total $768 54 100 00 According to this showing, less than one- fifth of one per cent represents the "gold thirst," or marginal value of gold, on the aver- age wage-earners' budget. The utility that gold satisfies measures up less than one five-hun- The Marginal Value of Gold 103 dredth of the total utility of the aggregate ex- penditure. In order to simplify our conception of the marginal values of the items in this budget, it will be expedient to place all the absolutely dis- pensable expenditures in the "Sundries" ac- count. The "Sundries" account may be classed as "Comforts" and the "Rent" item as "Shel- ter." Thus changed and rearranged, the items will appear thus : Wants' Expendi- tures Per Cent Strength of Wants in Thousandths Food $326 90 42 54 425 Comforts 174 76 22 57 225 Shelter 117.41 1528 153 Clothing . 107 84 14 16 142 Fuel . 32.23 4 19 42 Lighting 8.15 1.06 11 Gold 125 20 2 Total . $768.54 100.00 1.000 Reducing these figures to a geometrical chart, the plate shows diagrammatically, not only the relative importance of the various items of con- sumption, but also the volume or amplitude of their respective values. That is to say, the in- trinsic value of "Food" on this particular budget, is more than 212 times that of gold; "Comforts" more than 112 times; "Shelter" more than 76 times; "Clothing" 71 times; "Fuel" 21 times; "Lighting" more than 5 times, and the aggregate items more than 500 times. THE DEPRECIATION OF GOLD ALTHOUGH Adam Smith seems to have real- ized that productive sacrifice was "the only standard by which we could compare the values of different commodities at all times and all places," neither he nor his successors adopted the wages unit as a basis for estimating the depreciation of the metal basis. Yet, while all values have slowly shifted and changed by im- proved methods of production, the costs of these values in units of sacrifice have remained the same. Were trustworthy wages statistics available for the last two or three centuries, the average rates paid would accurately show all fluctua- tions in the values of the money metals. We have no such data. Buried in the literature of the past there are doubtless scattered the records of wage-rates, which, if collected and classified, would give us a starting-point for future comparisons. But the perplexities that confront the student of 'wages statistics, and the risks of a wrong inter- pretation of rates, are so great, that only those who have tried it can realize the scope of the 104 The Depreciation of Gold 105 undertaking. Furthermore, wage-rates differ in every country; and comparisons, to be reliable, must be wholly local. These differences in wage- rates are due to variations in the industrial pace, variations in the natural and artificial fa- cilities and resources F, and variations in popu- lation pressure on such resources. Fortunately, a few reliable wages data and approximate results will answer the purposes of this quest. Thorold Rogers, in his "Six Centuries of Work and Wages," gives the yearly income of the English hind, or farm hand, in the thir- teenth and fourteenth centuries, at about thirty-five shillings and eight pence. The money standard of that time was based in the "Tower" pound, which contained three times as much silver as the present English standard. Hence, reduced to current English money, this income would amount to 107 shillings, or about $25.68 in American money. According to the "Report on Wages, Earnings, and Conditions of Employ- ment of Agricultural Laborers in the United Kingdom," published in 1905, and quoted in Bulletin No. 71, Bureau of Labor, the wages of agricultural laborers averaged on sixty-nine farms in 1903, $3.55 per week, or $184.60 per year, exclusive of compensation for piece work, harvest work, overtime, etc. This income shows an apparent increase in wages of about six hun- dred per cent since the thirteenth century, and indicates that gold production has been cheap- ened seven-fold. 106 Appendix At the building of Newgate prison in London, in 1281, carpenters were getting from four to five and a half pence per day, or an average of about four and three-quarters pence for skilled labor. This would amount to $1.71 per week. In 1905, according to Bulletin No. 77 of the Bureau of Labor, carpenters and joiners averaged $10.65 per week, in London. This would show an apparent increase in wages of five hundred and twenty per cent, and indicates that gold production has been cheapened more than six- fold since that date. According to the "Revue d'Economique" of 1887, quoted by Mulhall, average French rural labor was paid twelve cents, and operative labor eighteen cents per day in 1768, while in 1880, one hundred and twelve years later, the same labor was being paid forty-four cents and sixty- six cents respectively. This would show an ap- parent increase in wages of about two hundred and sixty-six per cent and a cheapening of gold three and two-thirds times. According to the data furnished by Ellison, quoted by the same authority, the average wages paid in cotton-mills in 1839, was four a half cents per hour, and in 1889, nine and one- quarter cents per hour, showing an apparent increase of one hundred and three per cent in fifty years, gold having become twice as cheap. From the census figures given in table num- ber two, Bulletin No. 57, Bureau of the Census, the per capita wages in 1860 averaged $274.00, The Depreciation of Gold 107 while in 1905 they averaged $490.00, showing an increase of eighty per cent in forty-five years. From 1897 to 1907 wages rose nearly thirty per cent, showing an average depreciation of gold of three per cent per year during that time, but from 1890 to 1907 wages rose but twenty- eight per cent, showing an average depreciation of gold of 1.6 per cent. These great discrep- ancies are due to our cyclic industrial convul- sions, and^become the sources of grave errors in wage comparisons. According to the Aldrich Report sent to the Senate, March, 1893, wages rose 89.6 per cent between 1840 and 1891. Quoting from Carroll D. Wright's "Industrial Evolution of the United States," carpenters averaged sixty cents, common labor forty-three cents and shoemakers seventy-three cents in 1790, while the same labor averaged $1.40, $1.00, and $1.70 per day respectively in 1860, showing an average increase of about one hun- dred and thirty per cent in seventy years. The increase from 1860 to 1891, according to the Aldrich Report, amounted to 68.6 per cent; while from 1891 to 1907, according to Bulletin 77, Bureau of Labor, wages rose 27.67 per cent. Splicing these figures together, starting with 100 for 1790, we should have 230 for 1860, 387 for 1891, and 494 for 1907, showing an increase in wages of three hundred and ninety-four per cent in one hundred and seventeen years. 108 Appendix If in the same way we take the figures of the Revue d'Economique as a starting point and splice it with figures from the Aldrich Report and Bulletin 77, we shall have 100 for 1768, 366 for 1880, 432 for 1891 and 551 for 1907, show- ing an approximate increase in general wages of four hundred and fifty-one per cent in one hundred and thirty-nine years. Where wage rates may be handled in the percentage form, such a blending of rates is permissible and avoids all errors due to the localized differences in wage-levels. Gathering up these fragmentary data into a table of comparisons, we have the following record of wage-advances : Dates Occupations Time Apparent Wage Increase 1300 to 1903 Farm Labor 600 yrs. 600 per cent 1300 to 1905 Carpenters 600 yrs. 520 per cent 1768 to 1880 Various 112 yrs. 226 per cent 1768 to 1891 Various 123 yrs. 332 per cent 1768 to 1907 Various 139 yrs. 451 per cent 1790 to 1907 Various 117 yrs. 394 per cent 1790 to 1860 Various 70 yrs. 130 per cent 1790 to 1891 Various 101 yrs. 287 per cent 1839 to 1889 Cotton Spinning 50 yrs. 103 per cent 1840 to 1891 Various 51 yrs. 88 per cent 1860 to 1905 Various 45 yrs. 80 per cent 1897 to 1907 Various 10 yrs. 30 per cent 1890 to 1907 Various 17 yrs. 28 per cent The Depreciation of Gold 109 From an analysis of the table of comparisons, it appears that nearly all of the decline in the cost of gold production occurred within the last one hundred and fifty years, and that prior to that time wages remained practically on a level. We are probably quite safe in saying that, to-day, gold is worth one-sixth of what it was two or three hundred years ago. The deprecia- tion within the past three decades has been very great, and is going on probably at a rate of two per cent a year. The gold dollar of fifty years ago fs worth only about fifty cents to-day, and in another fifty years will be worth only twenty-five cents if we persist in using the gold basis. The production of gold acquired a great im- pulse during the rise of the factory system in the early part of the nineteenth century, when "capital" was in great demand for steam-power installations in all kinds of industrial produc- tion. Watt's steam engine was invented in 1769, Arkwright's loom in 1785, Whitney's cotton gin in 1793; these, and other historic inventions, were crowding fast for application on modern lines of machinery production, and overtook the usual moderate supply of "liquid capital." Gold was scarce, and hence it at once responded to the demand by becoming dear by expanding its "scarcity" value so as to meet the pecuniary demands for liquidating enlarged credits. Professor Jevons, in his study of prices, 110 Appendix found that between 1809 and 1849 (when the factory movement was at its height), gold values rose one hundred and forty-five per cent. By 1859 they fell twenty per cent below normal. The discovery of gold in California, improved methods of banking, improved facilities of transportation, and the inflow of gold from less enterprising countries, not only restored the former level but overtook it. Meanwhile, still richer sources of gold supply were found, and new and improved methods of production were at work cheapening the output. The cyanide process and the gold dredge are responsible for much of the cheapening. LAND VALUES SPEAKING commercially, the land holdings of the Choctaw and Chickasaw Indians are prob- ably wortn ten times as much to-day as the whole territorial United States was worth three centuries ago. In colonial days, land could be had from two and a half to ten cents an acre. In 1778, North Carolina offered settlers a square mile of land for sixty-four dollars, or at the rate of ten cents an acre. In 1779, Kentucky offered pioneers four hundred acre sections for ten dollars, or at the rate of two and a half cents per acre. So great was the bid for settlers that virgin land could be had for the bare cost of recording a title. Since then, all arable soils have been taken up and nothing is left but undesirable land. This remnant is held at a flat rate of $1.25 per acre. An acre of land in the heart of the city of New York is worth to-day more than ten million times that value. Land in the vicinity of Wall Street is assessed as high as $300.00 a square foot, though an office building twenty-five stories high rarely cost more per square foot of 111 112 Appendix lot area than $200.00. A small plot of land on Broadway and 34th Street valued at $10,000 in 1855, brought $375,000 or $350.00 a square foot in 1901. Near the Bank of England, land is worth about $16,000,000 an acre, while in the heart of the financial district in New York land averages about $20,000,000 an acre. A few years ago lot No. 1, thirty-nine feet on Wall Street and thirty feet on Broad Street, sold for $700,000, or at the rate of about $26,000,000 per acre. According to the "Report of the Commis- sioners of Taxes and Assessments" of the City of New York, for the quarter ending June 30, 1907, the assessed value of the land in New York City amounted to $3,563,293,224, while the improvement values amounted to $2,140,- 716,428, the rate of land to improvements being 62.5 to 37.5 per cent respectively. In the Bor- ough of Manhattan, land values are 67.2 per cent of the total values, while in the first sec- tion of Manhattan, land is 70 per cent of the total, or two and a third times as valuable as the physical improvements upon it. The assessed value of land in New York City is nearly twice as great as the value of land in the balance of the State. Six square miles of land in the neighborhood of Central Park are more valuable than the assessed value of all the real estate in the State of Missouri. Wherever the commercial, industrial, and social interests are condensed, there the land values easily overtake Land Values 113 the improvement values. Indeed, a little reflec- tion will show that land values are independent of the cost of the improvements, but are de- pendent upon the co-operative efficiencies that are attained, and the pressure of population up- on these efficiencies. Cut down your population and values fall. Cut down your efficiencies and rents decline. By that reciprocity of interests which binds all communities together, it may be said, that land valuesJn cities, depend not alone on their own urban populations, but on those of the country of which they are the civic components and commercial centers. Rural land values rise in sympathy not only with rural improve- ments, but with urban improvements, and thus tend, on the average, to overtake local physical values faster than cities. In the assessed valuations given no al- lowance is made for streets, parks, water areas and other tax-exempt properties, and where public park areas and waters are ex- tensive, and their values have not been included in the tax appraisements, the real land values are much greater than would appear. Thus, the average assessed land values in New York City are 62.5 per cent of the total. But of the $1,156,346,803 exempt values, about seventy- five per cent are chargeable to land and were they included in the estimate, the land ratio would be 64.8 per cent. Furthermore, the special franchise values in the city amount to 114 Appendix $466,855,000, while the physical values of these properties amount to only $69,615,950, being thirteen per cent of the total valuation. Were these added, the ratio would rise to 66.4 per cent. The following ratios of land valuations to total valuations culled from the New York City Report of Taxes and Assessments for 1907 may be of interest : Average land values first section of Manhattan . . 70.0% Average land values for Borough of Manhattan. .67.2% Average land values for City of New York 62.5% Average land values for Boston 60.7% Average land values for Milwaukee 55.5% Average land values for Detroit 53.9% Average land values for St. Louis 51.2% Average land values for Baltimore 44.0% As stated, no allowance has been made in these estimates for public properties. The Twelfth Census places the value of farm lands and factory lands at $14,085,427,275, and the value of buildings and structures on these lands at $5,006,043,275. This would make the ratio of land values to improvement values, seventy-three per cent. Were due allowance made for exempt park and other public proper- ties, the general value of land in cities would probably reach sixty per cent. The Twelfth Census gives us the following estimates of the "wealth" of the United States for 1900: Land Values 115 1. Real property and improvements taxed $46,324,839,234 2. Real property and improvements exempt 6,212,788.930 3. Railroads and their equipment 9,035,732,000 4. Street railways 1,576,197,160 5. Telegraph systems 211,650,000 6. Telephone systems 400,324,000 7. Pullman and private cars 98,836,600 8. Shipping and canals 537,849,478 9. Waterworks, private 267,752,468 10. Electric light and power, private. . . 402,618,653 11. Live sto,ck 3,306,473,278 12. Farm improvements and machinery 749,775,970 13. Manufacturing machinery, tools and implements 2,541,046,639 14. Gold and silver and bullion 1,677,379,825 15. Agricultural products 1,455,069,323 16. Manufactured products 6,087,151,108 17. Imported merchandise 424,970,592 18. Mining products 326,851,517 19. Clothing and personal adornments. . 2,000,000,000 20. Furniture, carriages, etc 4,880,000,000 Total $88,517,306,775 Items 1 and 2 give the appraised values of all the taxed and exempt land improvements. The values foot up a total of $52,537,628,164. To get at the net land values, the improvement values must be deducted from this total. As already mentioned the farm and factory values are rated at $14,085,427,275 and the value of the buildings on same at $5,006,043,278, making a total of $19,091,470,553 in farm realty. De- ducting this from the total realty values there is left $33,446,157,611 chargeable to city realty. 116 Appendix We have estimated that the average value of land in cities would reach 60 per cent of the total value, but in order to be on the safe side we will place the average at, say, 52.5 per cent. If this estimate be approximately correct, then about $17,550,000,000 of this amount will repre- sent land values and $15,896,157,611 improve- ment values. Adding these items separately to the respective farm and factory valuations, we get $31,635,427,275 for total land values, and $20,902,200,889 for total improvement values. From these figures it would appear that the general average of land values is about sixty per cent of the total realty values. In these estimates, however, no allowance has been made for the franchise values of the efficiencies of transportation and communication, and of the light, power and water supply installations of private ownership, which appear itemized in the "wealth" statement Nos. 3 to 10 inclusive. These items foot up $12,530,960,359. Judging from the New York City estimates, already quoted, where franchise values were more than six times as great as the physical values, we are probably safe in estimating at least sixty per cent, or about $7,500,000,000 of this total, to consist of franchise values chargeable to land, the balance, $5,030,960,359, representing the physical values of these efficiencies. Adding this to $31,635,427,275 we get $39,135,427,275 as a revised total of land valuation which would appear to make the land ratio about sixty-five Land Values 117 per cent. But before we can get the actual land value, one more revision will be necessary. States and municipalities collect a land tax. It is a well-known principle in economics that, of all taxes, the land tax alone cannot be shifted upon the tenant. The heavier the tax, the smaller the rent income, and the cheaper the land, until, finally, when the tax rate is so great that it absorbs the whole rent value, land be- comes worthless as an investment and may be had for the tax rate, which becomes the rent rate. Now the state, county, and city govern- ments, exercising the right of eminent domain, collect a part of the rent of land in the form of a tax. This tax diminishes the value of the land to the extent that it diminishes the rent value. How much has the value of land been impaired by this tax? The revenues collected by these local controls amounted to about $706,660,244 in 1902. The ratio of real estate to personal property amounted to about seventy-eight per cent according to the assessed valuation of each, and hence the revenue from realty may be figured at about $551,000,000. We found the apparent ratio of land to improvements to be about sixty per cent, and hence, about $330,- 600,000 of this amount is chargeable to land. The people, in the person of their government, collect in this $330,600,000 a part of the rent of the common environment, the balance being collected by private owners. Were there no land tax, this amount would swell the receipts of 118 Appendix private ownership, and land would at once rise over twenty per cent in value. As it is, a part of the rent income has been socialized by the tax rate and land is bought and sold in the market at its residual value. The land investor pays less for land. That is why the tax cannot be shifted. Were the tax suddenly raised, however, the competitive value of land would fall. The landowner could not collect as much rent as before, and he could not make good the loss. Such an arbitrary public policy would constitute a confiscation of private property, and com- pound the economic felony. Landlordism is only an optional capitalism. "Capital" has the alter- native of seeking other forms of idle income, and hence, landowners cannot bo. singled out for social reprobation and punishment because of fundamental wrongs for which economic empiricism alone is responsible. "Capitalizing" this annuity of $330,600,000 at the current rate of four per cent, we find its income value to be equal to an investment of $8,265,000,000 in land. Adding this to our revised total of $39,135,427,275, we obtain a grand total land value of $47,400,427,275. Eco- nomic obscurity, taking refuge in economic vagueness, has called these reflected values of industrial co-operation, the "unearned incre- ment." Rearranging the "wealth" chart for 1900, the items may be condensed and classified as fol- lows: Land Values 119 1. Land values $47,400,427,275 2. Buildings and structures 20,902,200,889 3. Transportation and communication efficiencies and municipal installa- tions (Nos. 3 to 10 inclusive) 5,030,960,359 4. Manufacturing machinery, tools and appliances, farm tools, implements and equipments (Nos. 12 and 13) 3,290,822,609 5. Food reserves, in process (Nos. 11 and 15) 4,761,542,601 6. Other products, in process (Nos. 16, 17, 18) 6,838,973,217 7. Household utilities 4,880,000,000 8. Clothing^ and adornments 2,000,000,000 9. Money metals 1,677,379,825 Total $96,782,306,775 The capitalized land tax has increased the census total by $8,265,000,000. As has been explained, the land values are efficiency or "facility" values. They are mostly the reflected values of the industrial instru- mentalities, Nos. 2, 3 and 4, of the rearranged chart. These improvement values foot up $29,223,983,857. Hence, if these estimates are reasonably fair, the approximate ratio of land values to improvement values will be about 62.0 per cent. The tax rate on land depreciates its market value about 21 per cent, hence the real ratios of land to improvement values would be so much greater in cities. The average land values in the Borough of Manhattan would amount to about 80 per cent of the total, or four times the improvement values. THE DISTRIBUTION OF WEALTH UNDER PRIVATE FINANCE ACCORDING to an estimate made by the New York Herald in its issue of April 28, 1901, 3228 millionaires, representing one two-hundredth of one per cent of the population, owned one-fifth of the wealth assets of the United States. G. K. Holmes (Political Science Quarterly, December, 1893) estimates the division of the national wealth for 1890 as follows : 9 per cent owned 71 per cent of the wealth .~) ' < < ' ' ' ' OA ' ' ' * * < < < r>q " Q" " *' ' * Charles G. Spahr (The Present Distribution of Wealth) estimates that in 1890 : 1 per cent owned 51 per cent of the wealth -j i qr ^^