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UNIVERSITY OF ILLINOIS AT URBANA-CHAMPAIGN





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  University of Illinois at
Urbana-Champaign Library
Brittle Books Project, 2009.





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FROM CAPITALISM

   TO FREEDOM
   CONTAINING A STUDY
   IN MARXIAN ECONOMICS
   By H. W. PARKINSON
   Member  of  the  Institution  of  Civil  Engineers


THE LABOUR PUBLISHING
COMPANY LIMITED LONDON
38 GREAT ORMOND ST. W.C. i










































































Published in Great Britain in zga5.
















TO MY DAUGHTER ELSA
        TI


580343






















                       Preface.



    The author wishes to record his grateful appreciation of
the assistance received by him from Henry Alcock, M.A., Pro-
fessor of History and Economics, University of Queensland,
and from H. A. Talbot Tubbs, M.A., sometime Professor of
Classics, University of New Zealand. It is hardly necessary
to add that neither of these gentlemen is in the slightest
degree responsible for the opinions expressed in the text.
    The author welcomes helpful criticism.

                                       H. W. PARKINSON.

   Clifton Gardens,
       Sydney, January, 1924.
















              List of Illustrations.





Figure.                                            Page.

   1. Tle Spiral of Progress ......................44
   2. The Growth of Surplus Value...............78
   3. Diagram I. Distribution of Wealth...........80
   4.   do.    II. Australian Exports..............84
   5.   do.   III. Value of Products...............86
   6.   do.   IV. Quantity of Products............. 88
   7.   do.    V. Time........................... 89
   8.   do.   VI. Value and Quantity of Products .. 90
   9.   do. VII. Cost ........................... 92
   10.  do. VIII. Profit .......................... 96
   11. Supply and Demand........................ 98
   12. Diagram IX. Products.......:............... 101
   13. First Form of Differential Rent ............. 107
   1:4. Second Form of Differential Rent............. 109
   16. The Pyramid of Credit ..................... 135














                     Contents.





Chapter                                           Page.
    I. Introduction           ...................
    II. The History of Industry............ ........ 19
  III. The Evolution of Industry................... 40
  IV. Money .................................... 50
  V. Value.................................... 54
  VI. Surplus Value .............................. 77
  VII. Exploitation.............................. 104
  VIII. The Great Private Bank Fraud............... 122
  IX. Economic Contradiction .................... 139
  X. The Ethical Aspect ........................ 149
  XI. The Philosophy of Capitalism............... 163
  XII. The Mental Attitude............169
  XIII. Capitalism ................................ 178
  XIV. Palliatives ................................ 186
  XV. Ecan ~m01.IR evolut .()n.................... 200
  XVII. Freedom................................. 209
       Appendix................................ 220


































All Rights8Reserved.















I.


                    Introduction.


    That the industrial organisation of society as at present
constituted is the outcome of a long period of growth and
change few, if any, would wish to deny. Change and growth
continue still; we ourselves are in the midst of them. Even in
our own time we have seen handicraft give place to the factory
system-the bootmaker is a maker no longer, and we do not
go to him now to be measured but merely to "try on"; he
is simply a seller of factory-made wares. A similar fate
threatens even the tailor. Such changes are gradual, hardly
perceived until they are complete; but their cumulative effect
is very great, and in sum they make the history of industry.
If then we would understand the present industrial organisa-
tion of society we must be conversant with the history of its
development. A brief preliminary review of that development
needs no further apology.
    But merely to know the history of industry is not in itself
sufficient. It is easy to plot the known portion of a curve, but
unless its "law" is determined we cannot project it or follow
its future course. So to knowledge of the past history of in-
dustrial development must be added determination of the laws
of development-if we are to forecast its further advance.
Industry is a quasi-organism and all organisms develop in the
same way-under the same laws. Those laws or ways of
development are in brief integration and differentiation, of
which something more must be said later.
    Armed with this two-fold knowledge, both of the history
of industry and of the laws of its development or evolution,
we shall be in a position to take up our main subject of re-
search, the existing social method of producing and distribu-
ting wealth-the method known as Capitalism.







FROM CAPITALISM TO FREEDOM.


    The scale of this present work does not permit a detailed
treatment of historical data. In Chapter II. there is given a
summary view of past economic systems.       Of the present
system we take it to be plain without the need of elaboration
that the distribution of wealth is very unequal. Great wealth
comes to a few, comparative poverty to the many. Under
Capitalism differentiation has outstripped integration, causing
lack of harmony, a loss of balance and an unequal develop-
ment. Happily there are already signs of a recovery of
balance and of a more harmonious advance in the future.
    What those signs are and how advantage may be taken
of them is the subject of the remaining, and constructive,
portion of this book.
    It will be plain to the reader that, in general, the system
of investigation adopted is that which became familiar through
the monumental work of Karl Marx on capital, though the
present writer would not be understood merely to echo the
the views of that great propagandist. Marx did not live to
edit the whole of his book "Das Kapital," but in any case
his writings would not have been easy reading, and they
demand from the reader earnest and patient study and some
preliminary knowledge of economics and industrial history.
     Karl Marx died in 1883, but it can hardly be said that his
 work is as yet completely understood, or his greatness as a
 man and a thinker recognised. He stands with Darwin pre-
 eminent as one of the greatest intellectual forces of the nine-
 teenth century. A profound scholar, versed in the jurispru-
 dence, economics and philosophy of his day, he wrote and spoke
 German, French and English, knew Spanish, Italian and
 Russian, and was a critical scholar in Greek and Latin.
     He was a man of exemplary life, a loving husband and
 father and a kind-hearted man; ever ready to play with the
 children of the London streets, he was affectionately known
 to them as "Daddy."   The poet Heine said of him: "Marx is
 the tenderest, gentlest man I have ever known"; yet there was
 in him a sternness, a contempt, almost amounting to intoler-
 ance, for what he regarded as error, and most certainly he did
 not "suffer fools gladly," but was perhaps too ready to believe
 that those who did not agree with him were fools. His scorn
 of shams was withering. It has been said of him that "he had
 the satire of Juvenal and the holy wrath of Dante," but he
 gave out more light than heat. The lightning stroke of his
 satire was not followed by reverberating thunder, and gave
 no warning to his victim   of a second flash; it cauterised
 by the intensity of light, and mercilessly exposed the intel-
 lectual nakedness of his adversaries, the vulgar economists.
 In the picturesque language of Bernard Shaw, Marx "convicted


12







INTRODUCTION.


private property of wholesale spoliation, murder and compul-
sory prostitution; of plague, pestilence and famine, battle,
murder and sudden death."          It is hardly surprising that
private property does not love him. But Marx dealt his hardest
blows at systems, not at individuals. He struck at the latter
only in so far as they personified a system; as he himself says:
    I paint the Capitalist and the Landlord in no sense couleur de rose.
But here individuals are dealt with only in so far as they are the
personifications of economic categories, embodiments of particular
class-relations and class-interests. My standpoint from  which the
evolution of the economic formation of society is viewed as a process
of natural history can less than any other make the individual respon-
sible for relations whose creature he socially remains, however much
he may subjectively raise himself above them.
     This is an admirable attitude, and one worthy of imitation.
Marx not only gave the world his doctrine of surplus value, and
his explanation of the capitalistic system of production, but he
familiarised   his  generation   with   the vast importance of
economic and material conditions in the formation of the social
structure. His economic, or materialistic, conception of history
is stated in the following words:
    In making their livelihood together men enter into certain neces-
sary involuntary relations with each other, industrial relations which
correspond to whatever stage society has reached in the development
of its material productive forces. The totality of these industrial
relations constitutes the economic structure of society, the real basis
upon which the legal and political superstructure is built, and to which
definite forms of social consciousness correspond. The method of pro-
ducing the material livelihood determines the social, political and in-
tellectual life process in general.
    It is not men's consciousness which determines their life; on the
 contrary, it is their social life which determines their consciousness.
     That is, the first requisite is to live-to obtain food, cloth-
ing and shelter ;* then only, and only on the economic basis of
a community formed for that purpose, can men concern them-
selves with other things. But as Marx himself says:
    A social formation never passes away before all the productive
 forces immanent within it have had time to develop themselves, and
 new and higher relations of production never establish themselves
 before the material conditions of their existence have already been
 formed within the womb of the old society.
     That the economic factor is of immense importance in the
 evolution of society cannot be denied. That it is the only
 factor is obviously untrue. But permanently to straighten a
 crooked stick it is not sufficient merely to bend it straight;
 it must be bent crooked in the opposite direction, elastic re-
 action may then make it permanently straight. Both Marx
 and Engels probably understood this and acted accordingly.
    *As Aristotle said long years ago: "We must first secure a livelihood,
 then practise virtue."


13







FROM CAPITALISM TO FREEDOM.


    Although Marx had outgrown Hegelism,# yet, as he him-
self admits, he coquetted with Hegelian terms. He held that
ideas were deeply rooted in reality, but did not deny the reality
of matter. His thoughts were clear, but his very thoroughness,
as well as his method of expression, often made it difficult for
his readers properly to appreciate his meaning. When dealing
with variable quantities his thoroughness led him to work out
resolutely all their possible variations, with, in some cases,
wearisome detail.
    Another cause of misunderstanding has been Marx's failure
to define his terms. In some cases it is only by his repeated
use of a term that we at last arrive at an understanding of its
exact meaning. In the present work an endeavor has been
made to clear up any obscurity which may attach to those of
Marx' views which have been selected for confirmation or
criticism.  It is hoped that this work of clarification and
modernisation will help the average reader to break through
the mists of misconception-whether accidental or wilful-
which most economic writers have helped to spread over the
Marxian doctrines.
    Capitalism   is a system   of producing and distributing
wealth. But wealth is the means of life, and the method there-
fore of its production and distribution is of vital importance.
"You take my life when you do take the means by which I
live."
     To understand the capitalist system it is necessary in the
first place that we should recognise in it the outcome of a
long process of growth. To grow is one thing, to be made
another. A house is made, a tree grows. The distinction is of
the utmost importance. To regard modern industry as merely
so many individuals at work is a serious error, as serious as
to confound an armed mob, a haphazard collection of armed
men, with an army. Even a house is not a haphazard collec-
tion of bricks-there must be arrangement, organisation, in a
word, construction. Further, the construction of a house is a
problem in statics, the growth and organisation of industry
are a problem-and a complex problem-in dynamics. A draw-
ing, an oil painting may fairly present a house, but industry
is a moving picture. Industry has changed, is changing, and
-we may safely assert-will change. The materials of a house
are inorganic, lifeless brick and timber: industry is an organ-
   *Thus Marx says of Hegel: "Nothing could be more comical than Hegel's
development of private property in land. According to him, man as an
individual must give reality to his will as the soul of external nature, and
to this end must take possession of nature and make her his private pro-
perty." It logically follows, as Marx says, that if all individuals act in this
way a conflict as to possession arises. In which case Hegel tells us, "Here
positive right must fix its boundaries, for nothing more can be deduced
from the conception." Evidently a very barren sort of conception, and
evidently Marx had outgrown Hegelism.


14







INTRODUCTION.


isation of living, thinking men. Industry lives, and that which
determines life is organic change and growth.
     We have used the terms that are sufficient for our present
purpose, although we might go further and affirm-as we
believe-that society is a living organism. The difficulty of
the latter conception is pointed out by Professor L. T. Hob-
house:
    In what terms are we to describe the reality of the social wholes
is a standing difficulty of sociology. They are, as we have seen, of
organic character, yet, if we speak of them as organisms, we are liable
to confound them with animals or plants, which they are not. Essen-
tially they are unities of mind. . . Yet if we speak of them as
personalities, we are liable to the fallacy of the common self .
But whatever term we use, the rule of logic is simple. Our reason-
ings must always stand the test of substituting the thing defined,
for the definition. ... If we speak of society as organic, we must
not think of it as a great Leviathan, a whole related to individuals as
a body to its cells. We must regard the organic as a genus into which
animals and plants fall as species. . . . So considered, an organism
is a whole constituted by the interconnection of parts which are them-
selves maintained each by its interconnection with the remainder .
It is on this character that social ethics depends. . . . It is by
reference to this character that . . . development is to be measured.
     S. . There are societies in which . . . distinct and separate per-
sonalities may develop in harmony and contribute to a collective
achievement.*
     But we cannot subscribe entirely to that view. To call
society a living organism is not mere analogy, mere simile, nor
does it simply embody a simple truth. So much depends on
what is meant by living organism. An animal is a living
organism, so is a plant, and yet an animal is not a plant, nor
is society either. Nor is the antithesis between individual and
society complete. Nor is our conception of society perfect, but
it can truly be said that Man is what he is because he is a
member of society. We are at least on safe ground when we
assert that society is an organisation of life and develops in
accordance with the laws of evolution.
     "And what"--we ask with Coleridge-"is organisation
but the connection of parts in and for a whole, so that each
part is at once means and end?"        Such an organisation is
society-the whole-whose parts are individuals linked to-
gether for the attainment of a common end, the purpose for
which society is, the satisfaction of man's desire for wealth
and life. To fulfil this purpose, to attain this end, industry,
associated industry, exists.
     Various writers, by speaking of the evolution of industry,
have acknowledged that it is subject to organic change. That
admission, however, is not by itself sufficient. Evolution has
become so familiar a word, that to many, perhaps most, it has
    *"Metaphysical Theory of the State," p. 131.


15






FROM CAPITALISM TO FREEDOM.


lost much of its fuller significance. To them evolution "has
something to do with the survival of the fittest": they are
vaguely conscious that it implies a gradual advance from a
lower to a higher form. But while, if offered a concrete
example, they may recognise readily enough that (let us say)
a conger-eel is a higher form of life than a jelly-fish, yet,
actually, they have a less distinct conception of what really
constitutes a higher form than they have of evolution itself.
    Now growth follows certain laws, but by the laws of evo-
lution we do not now mean the causes of the growth which
results in a higher form of life, but merely those generalisations
which express what is meant by the word higher. Those gene-
ralisations or laws may be stated as:
     (1) Change from the relatively simple to the relatively
complex, by (2) an increasing differentiation, or specialisation
in the parts, accompanied by (3) an increasing integration, or
oneness of the whole. Other laws there may be, but they do
not concern us.
     (1) Complexity arises from a multiplication of parts and
organs having distinct functions, and thus while, e.g., the jelly-
fish-almost an amorphous mass, with a power of absorbing
food by infiltration-has neither heart nor gills, internal skele-
ton, nor eyes, nor brain, nor nervous system, the conger-eel is
more complex, since it has all these and more. Compared with
a jelly-fish, the conger-eel is a complex organism and a higher
form of life.
     (2) Differentiation is the specialisation of parts of an
organism or organisation to perform fewer functions or one
particular function, but to perform it better; a development of
the senses and powers of an organism by means of new or better
organs. And the greater the number of organs and the more
exclusive their function, the higher the differentiation and the
form of life.
     (3) Integration (or solidarity) is the interdependence of
the whole and its parts. A sponge can be cut in two, and each
part will continue to live, but two conger-eels cannot be made
by cutting one in halves. And the more necessary the parts
are to the life of the whole, the higher the integration and the
form of life. Thus the evolution of an organism or organisation
from a lower to a higher form consists of an advance hand in
hand of both integration and differentiation, and a progressive
change from the relatively simple to the relatively complex.
     Evolution, as now understood, is not an unfolding of what
 already exists, although, etymologically speaking, that may be
 the first meaning of the word. But it is-in its accepted
 scientific application-a gradual growth-in-complexity of a
 race or species, and-through the species-of the individual.


16






INTRODUCTION.


Mere change is not evolution: for since "evolution" is limited
to a growth-in-complexity, it is obvious that not any and every
change can be evolution-there may be a change from the
complex to the simple. The full theory of evolution may, it is
true, embrace a complete cycle, but we are only concerned
with ascending phases, or with the phase of degradation only in
so far as it applies to parts of an organism (useless organs)
and not to an organism as a whole. Nor is mere development
evolution; evolution is of the species, development of the indi-
vidual. By development we understand those changes in the
individual which take place in its growth to maturity. These
changes, it is true, if we begin with the embryo, may, or do,
rehearse the story of the evolution of the species. It may or
may not be true that individual developments accidentally ac-
quired are in some cases transmitted to, and persist in the off-
spring; and that by such transmission the evolution of the
species is affected, although it is believed that only individual
changes that affect the germ-plasm are transmitted. The indi-
vidual develops, the species evolves.
     This, then, is evolution properly so called, a growth of the
species from the relatively simple to the relatively complex.
     It is hardly necessary to trace in detail the evolution of
organic life or to follow the ascending phases of evolution in
the species; but that 'higher' integration-passing beyond the
individual to embrace society requires a moment's considera-
tion. The life of society does not begin and end with the life
of the: individuals of which-for the time-it is composed. The
life history of-Greece and Rome extends beyond the life period
of any individual Greek or Roman. Rome grew, reached
its zenith, and decayed-but life in the world did not die with
Rome-because Rome was only one of many societies.         The
merging of all societies into one constitutes the highest form
of social integration, but to constitute the highest form of
social organisation-the highest possible differentiation is also
necessary. Thus a 'higher' form of organisation, whether of
individual industry, or of social industry, or of world industry,
consists in a more complex organisation; in parts specialised
to perform effectively one function; in parts that are har-
moniously related to each other, and to the whole; and in a
whole whose life depends on the harmonious support of its
parts. It is of the utmost importance to realise the organic
connection between the individual and the society of which
he forms a part. Before Darwin came 'life' was for us a con-
geries of unrelated phenomena; we saw only the varied fruits
of the genealogical tree of life, the tree itself and its branches
were buried out of sight. And these' fruits superficially re-
garded seemed to have no relation to each other. It was not
B


17







18          FROM CAPITALISM TO FREEDOM.

easily seen that bird, reptile, fish and mammal were intimately
related and rooted in the same stock. The belief that they
were separate and independent acts of creation was as natural
as the childish belief that the sun revolves round the earth.
     Before Marx came, 'industry' presented us with facts
which the economists placed in separate and almost unrelated
categories,-as rent, interest, profit, wages,-and it required
the genius of Marx to discover their true relation to each
other and the underlying laws of their being.
     The absurd attempt to tear the individual from the orgaa-
ism of which he forms a part, to emasculate him and represent
him as actuated by selfish motives alone was bound to end in
failure.
    The 'economic man' was a creature who always moved accurately
along the line of greatest personal gain:-as labourer, planting him-
self in the trade and place where wages are highest, endowed with a
chameleon-like capacity of adaptation, trammelled by no bonds of at-
tachment which would retard the perfect fluidity of his movements in
the labor-market; as capitalist, making with unerring instinct for the
highest rate of profit, unfettered by foolish scruples about sweating,
adulteration, or any malpractice, which attached to 'investments' as
merchant, shopkeeper, or as consumer, knowing one law only, viz., 'to
buy in the cheapest to sell in the dearest market.' No gain which the
ignorance -or weakness of another placed his way would be rejected;
no sentiment of compassion or generosity would be allowed to blunt the
edge of his cupidity.
    Industrial society was conceived of as a society of these self-
seekers.*
    But in fairness to the orthodox economist, it must be re-
cognised that in his endeavour to simplify the problem      and
reduce it to a few elements he has, at least, put his finger on
the most powerful motive underlying Capitalism, viz., self-
interest. That there is a lack of harmony between the parts
-between labourer, capitalist, merchant, shopkeeper and con-
samer-only shows that Capitalism is defective and backward
in integration, and consequently a 'low' form of industry. But
that Capitalism has evolved, few or none will deny. Its growth
is best studied in the light of evolution, because the general
laws of evolution are the general laws of industrial organi-
sation. Aided by that light we are enabled to trace, dimly
it is true, the prehistoric beginnings and growth of industry.
            *J. A. Hobson, "The Social Problem," p. 29.







THE HISTORY OF INDUSTRY.


                            II.

          The History of Industry.

    Since industry is essential to life, the growth and develop-
ment of industry is necessarily co-temporary with the life of
man, and, indeed, with the life of his ape-like ancestors who
found in hunger an incentive to 'industry.'
    Organised industry was, at first, founded on sex, later, on
property and territory.
    In the earlier form the cares of motherhood kept the wo-
man near the camping place. To her fell the more sedentary
work, that of cooking, keeping the fire alight, making cooking
utensils, plaiting baskets and sewing skins. But the men
were free to hunt, to fish, to wander through the forest in
search of food. To them fell the protection of the camp, the
wmak'ng of weapons, the hunting and capture of animal food.
    Industrial organisation on the basis of sex lasted for thou-
sands of years, and only at a comparatively recent date gave
place to the second form of industry-that founded on pro-
pery.
    "Modern institutions," says Lewis H. Morgan in his
"Ancient Society," "plant their roots in the period of barbar-
ism, into which their germs were transmitted from the pre-
vious period of savagery.   They have had a lineal descent
through the ages."
    The first great form of industry-that founded on sex-
developed with, and depended on, Group Marriage, a custom
so remote and unfamiliar that it may be well to give a short
account of it. The earliest form of 'marriage' was consan-
guine marriage or indiscriminate intercourse between the sexes.
The second-and most important from the industrial point of
view-was group marriage. The group was formed by a num-
ber of women of common descent, all of whom were considered
to be 'sisters' and the 'mothers' in common to all the child-
ren of the group. Of the children of Group A, the daughters
remained in, and were essential to the group, or 'matriar.
chate'; the sons were forbidden to marry in Group A-all the
daughters being technically their sisters-they married into
some other group and became, in common with others, the joint
husbands of all the daughters in that group, say B, just as
their 'sisters' became, in common, the wives of all the men in
Group A. (Some even number of groups-four or more-was
generally formed).
    The women thus constituted the permanent element in the
group, and in common held its property. These groups are


19







FROM CAPITALISM TO FREEDOM.


termed gentes, and it was on this "crimson thread of kinship"
that ancient society was organised. Since the status of woman
is largely determined by her economic position, it is not sur-
prising to. find that her status was never higher than under
the gens system of social organisation. The system was a pure
democracy, and its members, as in the case of the North
American Indians, were noted for their manly independence
and dignity of character.
    A number of different gentes--generally four, six, or eight
--an even number was necessary-formed a phratry, or group
of brother gentes, but it was the women in each gens that
formed its stable element, and indeed owned its property in
cnunmon. They never changed their names nor the gens in
which they were born; but sons when they attained manhood
were compelled to marry into some other gens. A number of
phratries formed a tribe. An inspection of the illustration
showing the first and second phratries of the Seneca-Iroquois
tribe will give a good idea of the system.
     /         SENECA-IROQUOIS      TRIBE.
                     FIRST PHRATRY
                     (Brother Gentes).
1. BEAR.       2. WOLF      3. BEAVER.   4. TURTLE.

   Men          Men           Men          Men

   1mn         WomenW    Ie.           I n


Daughters -


   Sons



 5. DEER.

   Men


   Women
Daughters


  Sons -


Daughters     Daughters


  Sons          Sons

        SECOND PHRATRY
          (Brother Gentes).


6. SNIPE.

   Men


   Women
Daughters


- Sons


7. HERON.

   Men


SWomen
SDaughters


   Sons


8. -HAWK.

   Men


 Women
Daughters


  Sons


O CD
tbe r;
ryst c


The dwellings or long houses of each gens were sometimes built in the form of a
cross with a fireplace in the centre and skin partitions between the sleeping cubicles.


1I


20






THE' HISTORY OF INDUSTRY.


     Originally �marriage was not only prohibited in the same
-gens; but also in the same phratry-thus sons from the Turtle
were not allowed to marry into the Bear, since both Turtle and
Bear belonged to the 1st phratry, and although later this res-
triction was removed, yet since all the women of the gens in
which a man was born were technically either his mothers or
his sisters, marriage within the gens was rigidly prohibited.
    If the whole gens is regarded as a single individual the
relationships created will more easily be understood. Thus
the whole gens was responsible for the acts of individual mem-
bers. With these gentes as units the tribe was built up. The
Seneca-Iroquois tribe consisted of eight phratries, each phratry
of from four to eight gentes and each gens of 50 to 100 or more
individuals.
     The later developments of the institution of marriage
hardly concern us; they may be briefly mentioned, as (3) The
Pairing Family, founded on temporary and, while it lasted,
exclusive marriage of one male and one female; it was not,
however, of a permanent nature. (4) The Patriarchal Family,
or the marriage of one man to several wives. (5) The Mono-
gamic Family or the permanent marriage of one man. to one
woman.
     The institution of marriage exhibits in its evolution a
 gradual progression from the indefinite and general to the
 definite and particular, and has more or less affected the de-
 velopment of man himself, property, and industrial organi-
 sation.
     In tracing the development of industry-or indeed of
 any evolutionary growth-it should not be forgotten that the
 process is gradual, and more or less continuous. As such it
 is not naturally divisible into sections. But certain changes
 are relatively rapid, and may serve as milestones artificially
 to mark our progress.     Morgan, for instance, divides the
 prehistoric development of society into two main periods: I.
 Savagery, II. Barbarism; and subdivides them into lower,
 middle and higher stages.
                         I. Savagery.
     1. The lower stage is the infancy of the human race, and
 may be said to have ended with the acquisition of a fish sub-
 stance and a knowledge of the use of fire. Men lived, partly
 at least, in trees, in tropical and subtropical forests; for only
 in this way could they escape large beasts of prey. Fruits,
 nuts and roots served as food. In this stage, which lasted for
 thousands of years, and to which may be ascribed the develop-
 ment of gesture and sounds into articulate speech, the only
 'industry' was a rude struggle for subsistence, an appropria-
 tion of natural products.

    Page 21, 9th line from bottom of page-'"fish sub-
stance" should read "fish subsistence"


21






FROM CAPITALISM TO FREEDOM.


    2. The middle stage of savagery commenced with the
discovery of fire, rendering a general fish diet possible. Shell-
fish, it is true, may be eaten raw, and some other fish when sun
dried, but generally fish cannot be eaten in a raw state.
    Now began the first division of labour; the man searched
for food, while the woman kept the fire alight and cooked the
food when found. With a general fish diet possible human
beings became independent of climate, and largely of locality.
Following the course of rivers and coast lines, protected by
fire at night from wild animals, or secure in caves, they spread
over the greater part of the earth even while in a savage state.
     The so-called palaeolithic implements of the early stone age
belong almost entirely to this period. Their wide distribution
over the continents testifies to the extent of man's wander-
ings. The increasing bent for exploration and invention, to-
gether with the possession of fire, added new products to the
bill. of fare, such as farinaceous roots and tubers, cooked in
hot ashes or in baking pots or ground ovens.
     With the invention of the first weapons, the club, the
boomerang and the spear, a meat diet was sometimes to be
obtained, but tribes subsisting exclusively by hunting have
never existed, for the proceeds of hunting were too uncertain.
With savage man it was occasionally a feast, more often a
famine,* and the precariousness of the sources of subsistence
probably gave rise to cannibalism, which seems to have arisen
in this stage and continued in force for a long time. Until
quite recently we had in the aboriginal Australian an example
of the middle stage of savagery. :It is characterised by some
form of group marriage.
     3. The higher stage of savagery is ushered in by the in-
vention of the bow and arrow, making venison and other meats
a regular part of the diet, and hunting a normal occupation.
     Bow, arrow, and cord, represent a rather complicated
instrument, and its invention presupposes a long and accumu-
lated experience, increased mental capacity and acquaintance
with a number of other inventions. Thus among peoples that
are familiar with the use of the bow and arrow (but not with
the art of pottery) we find the beginnings of village settle-
ments, control of food production, construction of vessels and
utensils, weaving of bast fibre by hand (without a loom),
baskets made of bast or reeds (chiefly by women), and sharp-
  ned stone implements.
     Fif'e and the stone axe furnished the dugout, and here and
 there timbers and slabs were used for house building.    All
 these improvements were found, for example, among the Ame.
   *The carerfree, happy savage is entirely a creature of the poeitic
imnagination. The fear of hunger was ever present. "Sacrifices" were
food offerings to a hungry god.


22






THE HISTORY OF INDUSTRY.


rican Indians of the North-West, who used bow and arrows, but
knew nothing of the art of pottery. Bows and arrows were
for the higher stage of savagery what the iron sword was for
the higher stage of barbarism, and the firearm for civilisation
--the weapon of supremacy. The struggle for existence grew
into. a struggle, not only with nature and wild animals, but
with other men.
    The higher stage of savagery is characterised by the matur-
ity of the group system of marriage, and the formation of the
gentile system of industry and government, and later by the
beginnings of the pairing form of marriage and the decay of
the gentile system.
                       II. Barbarism.
    1. Lower Stage.-This dates from the introduction of the
art of pottery. The art is due probably in all cases (it is dis-
tinctly traceable in many instances) to the custom of covering
wooden or plaited vessels with clay, in order to render them
fireproof. It did not, however, take long to find out that
imoulded clay served the purpose without lining, or reinforce-
nlent. At an earlier stage recourse was had to soapstone,
steatite, or potstone, which will not fracture if suddenly cooled
with water.
    We may assume the course of industrial development up
to this stage to have been equally characteristic, in a general
way, of all mankind without reference to locality, but at the
beginning of barbarism a stage is reached where the differ-
ence in natural resources makes itself felt.
    The salient feature of barbarism is the taming and raising
of animals, and the -cultivation of plants. Now the old world
contained nearly all the tameable animals and cultivable species
of grain, while the Americans possessed only one tameable
animal, the llama, in the south, and but few species of grain,
al.hongh one of the best, viz., Indian corn. Thus the inhabi-
tants of America, and of Asia and Europe, were led along dif-
ferent and divergent roads, and the various stages of develop-
ment in the Old and New World exhibit a pronounced dis-
similarity.
    2.: The middle stage in the West, or New World, com-
mnienced with the cultivation and irrigation of food plants, and
with the use of adobes-bricks baked in the sun-and stones
for houses.
    At the time of their discovery by Europeans the Indians
in the lower stage of barbarism (all those living east of the
Mississippi) carried on cultivation (on a small scale) in gar-
dens. Maize, perhaps also pumpkins, melons and some vege-
tables were raised. A very essential part of their sustenance
was produced in this manner. They lived in wooden houses,


23






FROM CAPITALISM TO FREEDOM.


and their villages were fortified. The tribes of the North-
West, especially those of the region along the Colombia river,
were still in the higher stage of savagery, ignorant of pottery,
and the cultivation of plants.
    But the so-called Pueblo Indians in New Mexico, the Mexi-
cans, Central Americans, and Peruvians were in the middle
stage of barbarism. They lived in fortlike houses of adobe,
or stone, cultivated maize: and other plants in artificially irri-
gated gardens, and even kept a few tame animals-the Mexi-
cans had domesticated the turkey and other birds, and the
Peruvians the llama. They were familiar with the use of
metals, iron excepted, but still retained stone weapons and
implements. Their conquest by the Spaniards cut short all
further independent development.
    In the East or Old World the middle stage of barbarism
began with the taming of milk and meat-producing animals,
while the cultivation of plants seems to have remained un-
known far into this period. The taming and raising of ani-
mals, and the forming of large herds seem to have caused a
se'paration of Aryans and Semites from the rest of the bar-
barians. In suitable localities this led to a nomadic life, and
the search for pasture land. The Semites wandered about the
grassy plains of the Euphrates and Tigris, and the Aryans in
the plains of India, the Oxus, Jaxartes, Don and Dnieper, de-
serting the forests that had been the homes of their ancestors.
Their superior development may have been due in part to a
copious milk and meat diet. At anyrate, cannibalism grad-
ually disappeared during this stage, and the pairing family
generally became more fixed in form and approached the
monogamous family of a later date.
    3. The higher stage of barbarism began with the melting
of iron ore, and merged into the period of civilisation by the
invention of letter script, and the use of written records. This
higher stage of barbarism is richer in improvements and in
production, than all the preceding stages put together.  It
is the stage of the Greek heroes, the Italians before the foun-
dation of Rome, the Germans of Tacitus, and the Norsemen
of the Viking age. Here first we have the iron-pointed plough-
share drawn by animals and agriculture on a large scale
resulting in a practically unlimited increase in the production
of food, and, as consequence, the clearing of forests and their
transformation into arable and pasture lands.
     Naturally these improvements led to a more rapid in-
crease in population and to its higher concentration. There
was a general improvement in tools, and inventions multi-
plied: the bellows, the hand-mill, the potter's wheel, the
:fashioning of metals, the waggon, the chariot, shipbuilding with


24






THE HISTORY OF INDUSTRY.


beams and planks, the beginnings of artistic architecture, the
pstablishment of towns surrounded by walls, with turrets and
attlements, are all attributable to the higher stage of bar-
barism.
    We may sum up the epochs as follows, giving possible or
probable dates for the most advanced peoples:
    Savagery.-B.C. 100,000 to B.C. 40,000, period 60,000 years,
the time during which there was merely an appropriation of
natural products, and tools and weapons were chiefly invented
for that purpose.
    Barbarism--B.C. 40,000 to B.C. 3000, period 37,000 years,
the time during which natural productions were cultivated,
and wild animals tamed and bred for the use of man; new
tools and inventions being chiefly directed to purposes of agri-
culture.
     Civilisation.--B.C. 3000 years to date, the time during
which the raw materials of nature were manufactured, and
machines for that purpose were invented. It may well be that
this groping into the dim past contains somewhat of error;
in what follows we are on surer ground. The social and in-
dustrial history of mankind has not the character of an un-
broken series, but each society apparently began with the gen-
tile or kin system of organisation. If we continue with our
own. civilisation when we were what the Romans called barbar-
ians, the whole historical development of industry is illustrated,
beginning with the gentes and ending with the capitalist sys-
tem of our own time.
    When the Romans first came into contact with our bar-
barian forefathers, they found them to be in the early stages of
the village community form of organisation. The gentile sys-
tem had broken down and passed away. Of the communities
of villeins on French estates in early times Sir Henry Maine,
in his "Early History of Institutions," writes:
    Now that the explanation has once been given, there can be no
doubt that these associations were not really voluntary partnerships,
but groups of kinsmen; not, however, so often organised on the ordin-
ary type of the village-community as on that of the house-community,
which has recently been examined in Dalmatia and Croatia. Each of
them was what the Hindus call a joint-individual family, a collection
of assumed descendants from a common ancestor, preserving a com-
mon hearth and common meals during several generations.
     The gentile system may in some cases have passed
 gradually  into  the  village-community    and  the   village-
 community have gradually assumed the special characteristics
 of the feudal manorial system; or, in other cases, the growth
 of property, the intrusion of strangers, dispersion resulting
 from war, the pressure of a concentrated population on local


25






FROM CAPITALISM TO FREEDOM.


resources may have hastened a disintegration which finally
resulted in separate and independent patriarchal families.
    With a wide territory to roam over there was at first no
hindrance to the multiplication of such families or to their pos-
session of large flocks of sheep and herds of cattle, but once
again, as population increased, and as agriculture became of
greater relative importance, these wandering units became
fixed and entered into a new form of integration-the village
community. Thus a union founded on property and territory
took the place of a union founded on kin. As a rule the new
communities consisted of men and of common descent, children
of an original patriarch-like the children of Israel-but the
coalescence of less nearly related families was not uncommon,
and there was room even for strangers. Mutual aid in agri-
culture and in resisting aggression had at length bound ad-
jacent families into one community, and ultimately led to the
manorial form of village community, as it existed in Britain at
the time of the Roman conquest.
    The Britons at that time had already entered the higher
stage of barbarism, and society was based on monogamy. No
inconsiderable skill in weaving, metal-working, pottery and
enamelling had been attained. Tin and lead mines had existed
in Cornwall for a long time, but extraction and working of
iron ore, as in the Severn Valley, was a recent development.
On the rivers coracles of basket-work and hides still served,
but overseas, as to Ireland, the native craft were flat-bottomed
boats of oak secured by iron spikes with high bow and stern,
and furnished with sails of hides.
    Although Julius Caesar first landed in B.C. 55 the real
work of conquest began in A.D. 43 under Claudius, and was
not completed until 89. Rome wanted corn, and so British land
was allotted to Roman soldier-settlers, under whom the old
inhabitants were employed to cultivate the soil they once had
owned themselves. Under Roman demand a great increase in
wheat production took place, and encouragement was given to
various rudimentary industries. Further, the organisation of
society in those parts of the country occupied by the Romans
was broken up, and the inhabitants carried almost at a bound
from barbarism into the earlier stages of civilisation. The
Romans frankly regarded the conquered province as existing
for their own benefit alone, and did not hesitate to expropriate
and exploit the native population, very much as at a later
date England, if less frankly, exploited, and still largely ex-
ploits, India.
    During the first century of Roman occupation the Britons
learned much from the Romans, but paid for their gain by the


26






THE HISTORY OF INDUSTRY.


loss of self-respect and initiative. These qualities they had not
regained, when, long after Rome had withdrawn her hand,
they became in turn an easy spoil for the ruder but more
vigorous Saxons, although in those parts of the country which
had not been occupied by the Romans they put up a good
fight. Wave after wave of conquest, not only by Saxons but
by Danes, drove the Britons still to the West, and largely
submerged their new-found civilisation. From the resultant
'confusion and intermingling of races there gradually emerged
something of system   of the feudal type. Individual cultiva-
tors, families or groups of families, fell into the power, or
sought the protection, of some military chief who, in return,
exacted tribute either in kind or in service. Thus over the
country there sprang up more or less isolated communities
inder the protection of military chiefs.
    This was the state of England at the time of the Norman
Conquest in A.D. 1066. The manors into which William found
the country divided he distributed amongst his own followers.
The principal sufferers were the Saxon thegns; to the bulk
of the people it was no more than a change of masters.
     The manor consisted of the stronghold or castle of the
lord (at a later date this had grown into a walled and fortified
town), and round it nestled the ville consisting of the houses
of cultivators and artisans; beyond the ville stretched the
manor lands, strips of cultivation alternating with fallow and
girt with an outer ring of common and waste up to the border
of the forest. There was no enclosure of any kind, so that it
was necessary, to prevent destruction of crops, that all livestock
be herded. Originally, according to some historians, land was
held in common, but with division of labour the problem
arose of the just division of its products. If the artisan was to
claim his products as his own, it was obviously but fair that the
cultivator be allowed to do the like. To retain common own-
ership of land, and yet permit individual or family occupation
with private possession of its products, was a difficulty which
arose definitely then, and has still to receive a satisfactory
solution. In some regions of Europe, it is believed, the first
attempt made at a solution involved the division of the land
into portions for individual occupation, allowing each cultiva-
tor to retain as his own the products of his allotment. From
individual ownership of products to individual* ownership of
land was a simple step; but as land varied in fertility it was
parcelled into strips, and as each cultivator received portions of
relatively good, bad and indifferent soil his holding was scat-
tered about in different parts of the manor or township. This
    *At first the land vested in the family rather than the individual and
 was worked, by a mutual interchange of labor, by the whole community.


27






FROM CAPITALISM TO FREEDOM.


was the general Teutonic practice, even before the English came
to Britain, and the lord's land was, not exempt from it: Pas-
tures, common, and waste were, however, still held in com-
mon. At the head of the manor still stood the lord who held
his little world in fee. As he had gained his position so he re-
tained it,--by force of arms,-later by force of law, as he
and his kind made it. Supported by his squires and soldiery,
and in case of need by other inhabitants of the manor, he de-
fended the little community from outside aggression, exacting
in return tribute in service and in kind. As a rule, each lord
held more than one manor, and farmed out those in which he
did not reside; thus first arose the large farmer. At the head
of his subjects stood the socmen, or free tenants,-free in the
sense that they paid in kind only and were exempt from ser-
vice. The socmen were comparatively a small body, the bulk
of the population of the manor being villeins. These latter were
praedial serfs, bound to the soil, and to service upon it, and
unable to leave the manor; they could not, e.g., marry a daugh-
ter' or sell an ox, without the lord's consent, a consent which
meant in effect a fine; for in those days exploitation was naked
and unashamed. Below the villein was the cottar who pos-
sessed only a few acres of land, and depended mainly on
'wages' for a living (paid chiefly in kind). At the bottom of
all were the slaves, whose duties were mainly those of menial
service. From   time to time the artisan class was recruited
from  among the socmen or those of the villeins who, ambi-
tious to rise, had by arrangement been able to commute per-
sonal service into a payment to the lord, at first in kind, later
in money. This payment was in effect a rent-quit rent it was
called, as by it the villein was 'quit' of further service in
person.
     Here then we have, it is important to note, the definite
beginning of what is familiar to us as rent. Here, too, we may
note, not the first, but the greatest, and the most important
differentiation. Hitherto, each family had been, industrially,
almost a self-contained unit; it supplied itself, almost entirely,
with the tools it used, the food it ate, and the clothes it wore.
It grew its own corn, ground it into flour, and made its own
bread; it reared its own sheep, shore them, and manufactured
the wool into its own clothing. It made for its own use. Even
the towns and villages were associations of such self-contained
families, but there was mutual help. Each family contri-
buted animals to form a ploughing team, and combined with
others to carry out work on each other's allotments.
     Now, some families and some individuals, from various
causes, became divorced from   the soil, and became artisan-


28






THE HISTORY OF INDUSTRY.


merchants. They made exclusively for sale and not for their
own use; but there was, at first, no speculative making for a
market; they made to order only and were paid in goods. The
artisans made tools for the agriculturists, and were paid in
wheat and mutton, or later, when money came into general
use (it was used exclusively for foreign trade at first), in
money. This differentiation was perfecly natural: it is a part
of the evolutionary process. Holders of land who became more
expert as artisans than as farmers, or whose holding was too
small to provide a living, sought to devote themselves exclus-
ively to trade. Tied as they were to the soil, their only re-
source was a commutation payment to the lord; and such
payments were a valued source of income to the lord, who was
able to supplement it by a further levy for a 'right to trade.'
Thus the unhappy cultivator had to buy both a right to his
own time and a right to trade, and these not only from his
immediate overload, but from the King as well. The latter
collected his tribute at first through the lords of the manors as
his agents, but afterwards, or in addition, by special officers.
In view of this situation the artisans, bound by community of
interest, formed a guild. (If this was called a merchants' guild,
as it was, it must be remembered that at first there was little or
no distinction between an artisan and a merchant; the same
man who made sold the goods; only as industry evolved there
was differentiation, and making and selling fell into separate
hands). Such a guild would, acting for all, arrange, if pos-
sible, by an annual payment or by a lump sum for the right
to the whole of their time for all its members. Similarly they
would arrange for the right to trade, or, in other words, for
open markets for their goods. This payment was made some-
times to the lord, sometimes to the King, sometimes to both;
and if the matter was arranged the town became free. When
the right to trade was purchased it was on the understanding
that it conferred an exclusive right of trade, and it was a
function of the guild to preserve this privilege, resisting inter-
lopers. Want of money, however, sometimes induced the King
to re-sell the privilege to aliens; these formed their own or-
ganisation, which was called a craft guild.
     The mere accident of the existence of an alien craft guild
and a native merchant guild need not detain us; it is the guild
system as a whole that demands our attention. The guild was
the first great industrial differentiation if by 'industry' we
mean both agriculture and manufacture; in the gentile system
they were combined; in the earlier village-communities they
were combined, but in the English manor, at the point we have
now reached, they, for the first time, became separated. The


29







FROM CAPITALISM TO FREEDOM.


development of manufacture forged ahead, agriculture lagged
behind.
    This dislocation causes much confusion in industrial his-
tory; each branch of industry (agriculture and manufacture)
must henceforth be considered separately.
    The guild was an association of artisan-merchants; the
guild bound its members together; it was a great integra-
tion; it regulated production, prescribing quality, weight, size
and the price of goods. The guildsman as a member of his
guild had a voice in fixing the regulations under which he
worked; he was an honourable man who thought that shoddy
work dishonoured his guild, nor had he any incentive to pro-
duie shoddy work; he was not dependent on competition or
the law of 'supply and demand.' His prices were fixed, and
goods were made 'to order.' Compare his position with that
of the smart business man of to-day, who lives on his wits,
who is cunning, admittedly selfish, almost a trickster, to whom
no trick is too shady if legal-or not likely to be found out!
The guildsman held a dignified position, he worked in his own
home, assisted by apprentices-their nunber and terms of
apprenticeship were fixed by the guild-who expected in
due course to become 'Masters' themselves; that is, they ex-
pected to become merchants as well as artisans.
    Before considering the later developments of the guild
system we must return to the man on the land.
    The process of deserting country for town had, as we have
seen, begun when smaller holders secured release from labor-
rents and became artisans, emigrating, in most cases, to the
towns. The lands they vacated fell to the lord of the manor,
and accumulation began. The process was greatly accentuated
by what is a veritable landmark in English history, the black
death,* which raged throughout the country from August, 1348,
until the autumn of 1349, and carried off from one-third to one-
half of the population. The effect was immediate. Wages rose
30, in some cases 200 per cent.; women who had worked for one
penny a day demanded and received threepence. Small holders
in increasing numbers threw up their holdings and became
free labourers, tramping the country for work at the highest
wages they could exact. The whole agricultural system broke
down, and the lords of the manors were at their wits' end;
their men had slipped away, whither none knew. The situa-
tion was beyond measure difficult.
     As landlords exclusively constituted Parliament, the first
remedy proposed was the restoration of the old rate of wage.
This being passed was made, in intention, effective by enact-
      * The black death, however, was not confined to England.


30






THE HISTORY OF INDUSTRY.


i4g that refusal to work be punishable by imprisonment. It
was made illegal for workmen to leave their work; if they
did leave they were declared outlaws. The notorious Statutes
of Laborers were countered by the Peasants' Revolt, which
however, was crushed by force.
     Unable to obtain labour for agriculture, landlords substi-
 tuted sheep-farming as requiring far less labour. Also they
 began to enclose their lands. The open-field system of hus-
 bandry had left England practically hedgeless; the lord might
 have his own demesne enclosed, but it was largely intermingled
 with strips of land held by villeins. In the lord's eyes land
 held by;villeins really belonged to him; the villein merely oc-
 cupied and paid rent. Actually such land did continually tend
 to pass to the lord's demesne, as when the villein died without
 heir; as, too, on a death, the lord could always refuse a new
 grant or make it intolerable to the new tenant by imposing too
 heavy a fine of entry, land constantly escheated to him. Again
 common and waste, used time out of mind for depasturing alike
 by lord and tenant, was, as especially suited for sheep, greedily
 enclosed. The enclosure of common land was, in fact, direct
 robbery. Many small holders, never able to live solely from
 their own land, had eked out a subsistence by part-time work
 on the lord's land. This privilege was now denied them, and
 they were consequently compelled to abandon their own too
 small allotments.
     The process went on for one hundred and fifty years; and,
 as :a-matter of history, the final result was>that the greater
 portion of the soil of England passed out of the hands of small
 holders and into those of comparatively few landlords. The
 expropriated men, deprived of one of the chief instruments of
 production, were thrown on the labour market. Though the
 Black Death was doubtless the immediate occasion of the
 change in England, it was not the cause. For that we must look
 deeper; for throughout Europe similar results followed as
 the feudal system broke up and passed away.
    All industrial history is marked by a constant improve-
ment in the technical method of production, resulting in better
or cheaper goods. Field-enclosure made possible improve-
ments in agriculture; associated labour increased production
by introducing specialisation; just as later, under Capitalism,
the factory system improved production by machinery, 'prime-
movers,' and large-scale manufacture.
    Yet with every improvement in method whole classes suf-
fered; the few benefited, the many lost. Why, one may ask,
did,. the many submit to their loss? And the answer must be:
largely from an instinct, or inherited intuition, such as makes


31






FROM CAPITALISM TO FREEDOM.


the mother sacrifice herself for the sake of her child, the
patriot die for his country, the individual suffer for the race. To
neglect this impulse, very real as it is, and to found economics
on a purely selfish basis, is the current, and somewhat absurd,
mistake of most writers on economics, from Adam Smith down.
The dull, if not stupid, acquiescence of the many, impelled by
an irrational instinct, thus co-operates with the selfishness
of the few to produce the one result.
    A remarkable instance of this,-of which by the way Marx
reminds us,-is to be found in the story of the Scottish clans.
Each clan owned the land on which it was settled: the clan's
representative, its chief, was titular owner, in no fuller sense
than the King of England is owner, titular owner, of the soil
of England. On their own authority these chiefs transformed
the nominal into an actual ownership: a King of England might
as well claim the right to drive his subjects into the sea. A
certain Duchess of Sutherland expelled her 'tenantry' (!)
assigned them in lieu somne 6000 acres of the seashore,-2 acres
to a family,-and magnanimously charged them no more than
2/6 per acre rent for this waste. Meantime she had divided the
whole of the stolen clan land into 29 great sheep farms,
supporting only 29 families and those chiefly Southerners. As
for the clan it lived by fishing, finding a home half on land
and half on water, and, frankly, gaining but half a livelihood
from both. But the clan was to expiate even more bitterly the
fault into which the inherited, romantic, instinct of loyalty
to their chief had led them. In the smell of the fish which
rose to the nostrils of the castle-folk there was a scent of profit
-the seashore was let to the fishmongers of London: and the
clansmen, a second time hunted from their own, were left to
sell all they had, their labour-power, to Glasgow capitalists.
Not content even now the 'owner' of the soil, self-styled as he
was, turned his sheep-walks into deerforest, which offered a
greater rate of income. The sheep followed the men into exile,
and their place was taken by the 'things of the wild.'    One
may walk from the Earl of Dalhousie's estate in Forfarshire
to John o' Groats without leaving forest land. Here now roam
free the fox, the wild-cat, the marten, and the Alpine hare
and 'the lesser wild'-rabbit, squirrel and rat-have found a sure
home. The whole of this forest land is unproductive: it might
just as well have been sunk under the waters of the German
Ocean, so far as production is concerned: but it pays a high
rent, drawn from the rich idler who in his turn has sweated
it out of his 'workers.'
     How came it then that the Highlander tamely submitted
 to this tyranny? Implicit obedience had for generations been
 essential to the very existence of the clan the instinct per-


32






THE HISTORY OF INDUSTRY.


sisted, the -Chief ordered, the clan obeyed, without thought of
the future ruin. By instinct they unconsciously assisted the
progress of industrial evolution; by reason man may yet con-
sciously assist in his own industrial development.
    The- Black Death had merely accelerated the always inevit-
able transition to better methods of production. Enclosure
was not :wholly an evil. Following their lords' example the
soemen, who had remained in the main cultivators, enclosed
n; t only their own but as much also of adjoining land as they
could get, and thus were able greatly to increase their output
of -wheat by improved methods which only enclosure had
rendered possible. In fact every change in method has qua
production been an advance: it is a failure only qua distribu-
tion.
    The combined effect of the changes which followed the
Black Death entirely destroyed the Manorial System. The
'free' men found that they were unable to enter the 'ring'
formed by the Guilds, and equally unable to get work as farm-
laborers, from the holders of land which had now      become,
largely, sheep-runs.   To borrow   a modern expression, the
'labor-market was flooded,' and many were reduced to beg-
gary.   The position.. of a beggar was most cruel-branded
as a felon, whipped and even executed; he was thrown aside
as less -profitable than sheep. Contemporary feeling is ex-
pressed in the following lines:
         "Sheep have eat up our meadows and our downes,
         Our-corn, our wood, whole villages and towns.
         Yea, they have eat up many wealthy men
         Beside widowes and orphan childeren:
         Besides our statutes and our iron laws
         Which they "have swallowed down into their maws:
         Till now I thought the proverb did but jeste
         Which said a black sheep was a biting beast."
     The enclosure movement began to slacken. The new sheep
farms soon became sufficient to meet the demand for wool:
labor was less difficult to get and the too rapid increase in
enclosure had aroused general alarm which took effect in legis-
lation designed to check it and encourage arable farming.
Townsend-Warner sums up:
    The time of the enclosures, like all times of rapid displacement of
labor, implied much distress, but this distress was mitigated by the
ease with which laborers whose land had been taken from them found
occupation in the woollen industries.
     The mitigation was, however, only temporary: unemploy-
ment became chronic. Much land had been enclosed: about
three-fifths were still unenclosed.
    It is to be remembered too that enclosure from the 13th
century onwards involved no small expense. It required a
C


33







34          FROM CAPITALISM TO FREEDOM.

private Act of Parliament which was beyond the means of the
small farmer, and became still more so when, in the 17th
century, he began to suffer in pocket from another cause.
Hitherto he had been able to augment his income by some form
of domestic industry, spinning or weaving, in which members
of his family could assist. With the advent of the factory
system this source of income was cut off. The result was
that under the combined effects of cost of enclosure and decay
of domestic manufacture he sank more and more into the
position of an agricultural labourer or migrated to the towns.
Only the large farmer with more knowledge and more money
was left.
     (Peasant revolts in the 16th century marked agrarian
revolution, just as machinery riots of the 18th century marked
the revolution in manufacturing.)
     During all this time changes had been taking place in the
guild system. The artisan-merchant had developed into an
artisan and a merchant. The craft-guild, no longer an alien
institution, had become the corporate representative of the
artisan, as had the merchants' guild of the merchant.
    In the fourteenth century, the trades, crafts, or misteries were very
definitely marked off from each other. The cobbler was very emphatic-
ally required to stick to his last; he was not allowed to make shoes,
and the shoemaker was not allowed to cobble them. .  The making
of a saddle involved not less than four separate crafts.  .  Speciali-
sation was enforced in order to ensure efficiency; the workman was
required to do one thing and do it well, lest he should endeavour to do
many things and do them all badly. But the position was arrived at
only by degrees. At the end of the eleventh century this division of
labour was still in its early stages.*
     With the differentiation of artisan-merchant into artisan
and merchant the guild system, pure and simple, began to break
up, passing by an intermediate stage, known as the domestic
system, into Capitalism.
     Under the domestic system     the Master Craftsman still
worked at home-hence the name of the system--but he no
longer sold his wares to the consumer, or made them only to
order: a market, as we understand the word, had come into
being.
     From the reign of Edward III. the progress of industry had been
rapid. Not only did trade increase in volume but it increased on a new
system. Under this there were still masters who worked at home,
took apprentices, and employed a journeyman or two, but these were
no longer members of a guild: they did not work under guild regula-
tions or sell at guild prices. In fact they were no longer merchants;
they no longer sold to the consumer at all, but to a middleman, a
clothier, who put out the wool to be broken and combed, received it
again and sent it on to the carders and spinners, and receiving the
yarn from them, passed it on to the weaver and fuller and dyer in
              *Innea' "England's Industrial Development."






THE HISTORY OF INDUSTRY.


turn. Thus the clothier was the central figure of the new system: he
employed combers, carders, spinners, weavers, fullers, dyers and paid
them for their work: the product was his, and he undertook the task of
selling the finished goods: on him fell the risks of the market. The
artisans had no longer to judge what they should make, nor had they
to trouble to find a market for their wares: but they worked at what
the clothier sent them and were paid by the piece at a regular price
which would be common all over the district.
    This is a clear statement of the domestic system and of
the beginnings of the factory system, the clothier representing
the employer, the artisans the employees, but with an impor-
tant difference: for the employees of the clothier, so far as
they were, in however small a way, employers, owned the capital
as represented by tools and work room: it was only their
employees who, owning neither land nor tools, were in the
position of the modern working man. The clothier controlled
the policy of industry: the product was his. We shall see that
further development in production eliminated the small master
and concentrated capital in the hands of the clothier or em-
ployer, driving the workmen into the factory. (At a later
date, further development differentiated employers into own-
ers of factories, concrete capital, and owners of money credit,
money capital, and enabled the latter, as bankers, largely to
control the policy of industry).
     The change from the piecework of the domestic system,
in which the pieceworkers owned their tools and worked at
home, to the capitalist system, under which men worked in
a factory owned by their employer, constitutes what is known
as 'the industrial revolution.'
     Simple production for use, i.e., hand-to-mouth production
 by means of simple tools, passed with the earliest specialization
 into simple production for exchange at guild prices and guild
 standards of quality and workmanship.       As specialization
 increased the individual was restricted-not merely to the
 making of one article-but to the production of a single
 part of one article.  The co-operation of many individuals
 became necessary to produce a complete commodity.        This
 further specialization proved incompatible with the guild sys-
 tem and caused it to break up, but a form of transition,-the
 domestic system,-intervened between the earlier guild and
 the later factory systems. The essential feature of the guilds
 was regulation by authority:! but the domestic system meant
 not only increased specialization but, to some extent, the re-
 placement of local regulation by free competition.     Piece-
 workers were able to compete against each other for employ-
 ment, and employers, by reducing the price of their goods,
 were able to compete against each other for trade. Work
 however was still, largely, carried on in the workman's own


35







FROM CAPITALISM TO FREEDOM.


home: it was not necessary for an employer to have a factory,
and indeed a 'factory' still meant a trading depot, not a place
of manufacture. Trade was more or less free and trading
companies were numerous. The art of company-promotion
was, even then, well understood so that Defoe's account written
in 1697, allowing for a certain quaintness of diction, reads
surprisingly modern.
    There are, and that too many, fair pretences of fine discoveries,
new inventions, engines and I know not what, which being advanced in
notion, and talked up to great things to be performed when such and
such sums shall be advanced and such and such engines are made,
have raised the fancies of credulous people to such a height that merely
on the shadow of expectation they have formed companies, chose com-
mittees, appointed officers, shares and books, raised great stock, and
cried up an empty notion to that degree that people have been betrayed
to part with their money for shares in a New-Nothing: and when the
inventors have carried on the jest till they have sold all their own
interest they leave the cloud to vanish of itself, and the poor purchasers
to quarrel with one another and go to law about settlements, trans-
ferrings, and some bone or other thrown among 'em by the subtilty
of the author to lay the blame of miscarriage upon themselves. So I
have seen shares in joint-stocks, patents, engines, and undertakings
blown up by, the air of great words and the name of some man of
credit concerned, to �100 for a 500th part or share, some more, and at
last dwindle away till it has been stock-jobbed down to �12, �10, �9, or
�8 a share, and at last no buyer: that is in short the fine new word
for Nothing-worth and many families ruined by the purchase. If I
should name linen manufactures, salt-petre works, copper mines,
diving engines, and the like for instances of this, I should do no wrong
to truth, or to some persons too visibly guilty.
    At certain times no scheme is too crazy.       In 1825 men
were found to subscribe to a company which was to "drain the
Red Sea in order to recover the gold lost by the Egyptians
when pursuing the Israelites."
    S The age of the domestic system    was essentially one of
trade expansion. In 1600 the great East India Company was
formed: in 1719 its rival the South Sea Bubble burst. The
accumulation of gold was thought to increase national power
and trade to be the means of its acquisition: yet to trade,
unless indeed we seize by force the riches of India or Peru,
we must have something to give in exchange. The prosaic task
of wealth-production did not, however, appeal to the adven-
turous spirit of the age whose busy bees were all afire to steal
their neighbours' honey. It was the age of buccaneers. Yet
production retained its simple form, and was carried on in
the homes of the workers with appliances,-the spinning wheel
and hand-loom,--which had been in use for centuries.
    The advent of machinery and the factory system         com-
pleted, as we have said, the industrial revolution, and the
transformation of the hand-worker into a proletarian. The


36






THE HISTORY OF INDUSTRY.


history of the revolution is in the main the history of mechani-
cal invention. Its first landmark is the invention of the
flying shuttle by Kay in 1733: which completely upset the
balance between spinners and weavers: already hard pressed
the former could no longer keep pace with the latter. The
balance was more than redressed however in 1764 when Har-
graves patented his spinning-jenny : and Arkwright followed
with an improvement on the jenny. His machine,-it was
spinning by rollers,-being driven by water, was known as
the water-frame. Finally Crompton combined jenny and frame
in his "muslin-wheel" or, as it has been generally known since,
mule.
     rThese machines introduced a new factor, of first import-
 ance, "power." As the power used was at that time water there
 came into being the "beckside" mills of Lancashire and York-
 shire which, situated in romantic glens at the foot of waterfalls,
 became veritable Houses of Lamentation, Temples of Moloch,
 slaughter-houses where calico was dyed red in the blood of
 little children.
     A new and more rapid development followed when steam
 replaced, water. Already in 1781 Boulton writing to Watt
 could say "the people in Manchester are all steam-mad."
 Within twenty years the new power was in general use: its
 adoption made effective Cartwright's power-loom   (invented
 in 1785). And now invention crowded on invention. Cart-
 wright produced a machine for wool-combing: Bell followed
 with cylinder-printing of calico: Heathcote devised machinery
 for making lace, Murray for heckling and spinning flax: and
 Gott adapted cotton machinery to use in the woollen industry.
 These inventions caused an enormous increase in production
 and a corresponding fall in prices: they also caused the con-
 centration of factories in towns where the coal-supply was
 cheap, and so led ultimately to the evils of a congested popu-
 lation.
     There had been meantime a similar expansion in other
industries. Even in the 17th century Dudley had experimented
with coal for smelting iron.  Now the steam-engine and
mechanical blower supplied a better blast: smelting made a
rapid development, the output of iron increased enormously,
and all industries dependent upon -iron advanced with a like
rapidity.
    If production increased enormously there was an equal
decline in the condition of the workers, the proletarians. Pre-
viously deprived of land they now found themselves deprived
also of their only capital, the tools of their trade. Certainly
they put up a stiff fight, but flesh and blood could not long
compete with machinery: the hand-loom passed, and they were


37







FROM CAPITALISM TO FREEDOM.


bound hand and foot to the steam-driven looms of the capital-
ist. The loom set the pace: and the evils of "speeding-up"
began. To describe the poverty of the workers, their blind
rage against the machines, their smashing of the looms, is a
thankless task. A glimpse or two at their subsequent condi-
tion will suffice. Thus Dr. Embleton in 1865:
    The rooms in which labourers in many cases live are situated in
confined and unwholesome courts and yards, and for space, light, air
and cleanliness are models of insufficiency and insalubrity, and a dis-
grace to any civilised community: in them men, women and children
lie at night huddled together: and as, in regard to the men, the night-
shift succeeds the day-shift and the day-shift the night-shift in un-
broken series for some time together, the beds have scarcely time to
cool: the whole house is badly provided with water and worse with
privies, dirty, unventilated and pestiferous.
     And the "Standard" of April 5th, 1866:
     A frightful spectacle was to be seen yesterday in one part of the
 metropolis. Although the unemployed thousands of the East End did
 not parade their black flags en masse, the human torrent was imposing
 enough.  Let us remember these people suffer.  They are dying of
 hunger. That is the simple and terrible fact. There are 40,000 of
 them. In our presence, in one quarter of this wonderful metropolis are
 packed,--next door to the most enormous accumulation of wealth the
 world ever saw,--cheek by jowl with this, 40,000 helpless starving
 people. These thousands are now breaking in Upon the others' quar-
 ters: always half-starving, they cry their misery in our ears, they
 cry to heaven, they tell us from their miserable dwellings that it is
 impossible for them to find work and useless for them to beg.
     Again Mr. Charlton, County Magistrate, 14th January,
 1860:
     Children of nine and ten years are dragged from their squalid beds
 at two, three, and four o'clock in the morning and compelled to work
 for a bare subsistence until ten, eleven, or twelve at night, their faces
 whitening, and their humanity absolutely sinking into a stone-like tor-
 por, utterly horrible to contemplate.
     Such were the fruits of the economic philosophy of the
 time: avowedly based on selfishness, preaching free competi-
 tion, free trade, free contract, it condemned these little ones,--
 in the sacred name of freedom,--to a living death. But the
 "cry of the children" arose to the ears and touched the hearts
 of men like Robert Owen and Lord Ashley, men who should be
 held in everlasting remembrance for their humanity.          An
 employer himself Owen was able to demonstrate that profit
 need not be synonymous with cruelty.
      It must not be supposed that these cruelties were confined
 to England. Sismondi, the French economist, writing in 1818,
 says: "At this period I was keenly interested in the commer-
 cial crises which Europe had experienced during the past years
 and in the cruel sufferings of the factory hands, which I myself
 had witnessed in Italy, Switzerland and France, and which


38







THE HISTORY OF INDUSTRY.


according to public reports were at least equally bad in
England, Belgium and Germany."
     Capitalism in full flower produced these horrors, as un-
restricted Capitalism does even to this day: witness the cruel
working conditions of the wretched native cotton operatives
of India, and the atrocities practised on the collectors of wild
rubber in the Congo and on the Amazon,-matters whispered
about or buried under a conspiracy of silence. Consider, e.g.,
the existing system of peonage in Latin-America worked by
American, British, German and other foreign capital.
    The victim, usually a native but sometimes a white or half-breed,
incurs a debt to the planter or merchant, and by the Latin-American
law of debtor and creditor which knows no Truck Acts, becomes in
effect, his slave until the debt is paid off. It never is paid off: the
planter keeps the books. Under this transparent fiction of debt slaves
are bought and sold, villages broken up, peasant landowners reduced
to the level of serfs, and tribes carried off to distant scenes of oppres-
sion. Children are bought and sold and young women driven into cornm -
mercial prostitution. To-day (May, 1914) British capital is migrating
to Russia. It finances a Siberian gold mine: and presently we read
that the workers, who had revolted against the intolerable conditions,
have been shot down literally by the hundred. To-morrow capital will
be building factories in China, and the worst evils of our own nascent
industrial era will be repeated under incomparably worse conditions
     If the general condition of the English wage-slave of
to-day is better than it was in 1860,-and it certainly is,--
itJs only because Factory Acts have interfered with "freedom
of contract," it is only because trade unionism has abolished
'free' labor.


39






FROM CAPITALISM TO FREEDOM.


                             III.

         The Evolution of Industry.
   Social research must be based upon a sane analysis of the all-round
development of the best of mankind up to the present moment.
The Historical Spirit consists in the due appreciation of the successive
stages of human development as reflected in a succession of historical
facts.-Comte.
    Whatever may be the causes of evolution-and we do not
attempt to deal with them here-there can be no doubt that
the path of the ascending phases of evolution along which a
living species passes is marked by two pronounced character-
istics: (1) an increasing integration or oneness of the whole
accompanied by (2) an increasing differentiation or specializa-
tion of the parts of that whole.
    The first makes for a more distinct individuality, for an
increasing independence of others, yet at the same time for an
increasing dependence of the whole on its parts.
    The second-differentiation--makes for complexity in the
individual by separating out and multiplying the number of
its organs whose functions become more and more specialized.
Thus, one might say, from being a jack-of-all-trades an organ
becomes a master-of-one. And that is true not only of an
individual man, but of the various organs of industrial society.
    To take an illustration from   the political sphere:---The
cutting off of parts of New South Wales to form-first Vic-
toria and then Queensland-although it seemed to be disinteg-
ration was, in reality, a differentiation within the British
Empire. At a later date the federation of Australian States
seemed to be a return to the former condition of union, but
differentiation into separate States remained: federation was
only a higher integration, and both differentiation and integ-
ration were continuous.
    There exist in Australia, at the present moment, two move-
ments-one towards a closer union between the States, the
other towards a further subdivision of the present States into
smaller States: and within each State the delegation of power
to local bodies and municipalities.
    And so of property in land (or capital). The old gentile
or tribal ownership will never return. Private ownership
of land is no doubt a necessary stage in evolution-a higher
differentiation. It is justified, as Marx says, because it is a
transient necessity. But the revival in a higher form of the
communal ownership of land and the development therewith
of some form of Socialism, although apparently a backward
step, will in reality be a continued advance in integration, a


40






THE EVOLUTION OF INDUSTRY.


return in plan, but at a higher elevation.     The student of
economic history must carefully distinguish between differ-
entiation and disintegration.
    If then the development of private property in land and
the other means of production is really an historical necessity,
or, in other words, a necessary phase in the development of
the social organism, neither Russia, nor any other nation, can
overleap that phase and jump from       what was in effect a
feudal system, straight into the arms of Socialism.        The
Russian revolution so far as the peasants (who constitute some,
eighty or ninety per cent. of the population) are concerned
has merely advanced the evolutionary phase of private owner-
ship.
    Nor is it clear how far manufacture can outrun agricul-
ture in its development, or whether it is possible for manufac-
tures to be socialised while agriculture remains ii the domestic
stage, and has not even become capitalised.
    The time element produces confusion; yet history clearly
shows us that every people has passed along the same course
of development. It shows us, moreover, that different stages
of development in different industries of the same people are
reached at different times.     Agriculture for example lags
behind manufacture, and instances of the capitalistic system,
the domestic system and even some relics of a family com-
munism co-exist even in the most industrially advanced nations.
This time-displacement makes a connected presentation of the
subject'r difficult. It is not sufficient to consider industrial
evolution in one nation or society. only; we are compelled, if
our narrative is to be continuous, to confine ourselves to one
industry in one nation. But, indeed, that is impossible because
higher developments transcenhd the bounds of any one nation:
the beginnings of an iintegration transcending national limits
already exist. If then we make time our standard of reference
we are compelled to jump from one nation to another.
    Yet advanced nations have one and all passed along the
same course and followed the same path.
    The gentile system of group marriage and all it involves
was world-wide, in essence, if not in. detail. It was practically
universal.
    When Bachofen first drew attention to the maternal family in
his epoch-making work, and Morgan described the clan-organisation,--
both concurring as to the almost general extension of these forms and
maintaining that the marriage laws lie at the Very basis of the con-
secutive steps of human evolution, they were accused of exaggeration.
However, the most careful researches prosecuted since;, by a phalanx
of students of ancient law, have proved that races of mankind bear
traces of-having passed through similar stages of development of mar-
riage laws, such as we now see in force among certain savages. See


41







FROM CAPITALISM TO FREEDOM.


the works of Post, Dargun, Kovalevsky, Lubbock, and their numerous
folowers: Lippert, Mucke, etc.*
     As a system of industry the gens was an enlarged family
communism with a common house, single hearth, common meals
and a democratic rule with common ownership by the gens of
all' its, gear.
    Commencing in savagery and continuing through barbarism, it
remained until civilisation had commenced. . . . The Grecian gens,
phratry and tribe, the Roman gens, curia and tribe find their analogues
in the gens, phratry and tribe of the American aborigines. In like
manner the Irish sept, the Scottish clan, the phrara of the Albanians,
and the Sanskrit ganas are the same as the American Indian gens,
which has already been called a clan. Gens, genos, and ganas (in Latin,
Greek and Sanskrit) have alike the primary significance of Kin.t
     For a clear demonstration of the practical universality of
group marriage the reader is referred to Lewis Morgan's
"Ancient Society," its demonstration here need not then delay
us.
     But not only the gens system but the village-community
 (which in many cases developed into a feudal system) was
 world wide and practically universal (in essence if not in
 detail).
     Sir Henry Maine tells us that:
     If very general language were employed the description of the
Teutonic or Scandinavian village communities might actually serve
as a description of the same institution in India.$
     Says Kropotkin:
     We do not know one single human race, or one single nation
 that has not had its period of village-communities. . . . It prevailed
 in England during both the Saxon       and  Norman  times .
 it was, at the bottom of the social organisation of old Scotland, old
 Ireland, and old Wales.... .It survived the Roman rule in Italy ....
 It was the rule with the Scandinavians, the Slavonians, the Finns.
 Elphinstone has described it among the Afghans.. . . It existed in
 Abyssinia, the Soudan, in -the interior of Africa, with the natives of
 both Americas, with all the small .and large "ribes of the Pacific archi-
 pelagoes . . . This fact alone disposes of the theory according to which
 the village-community in Europe would have been a servile growth.
 It is anterior to serfdom, and even servile submission was powerless
 to break it. It was a universal phase of evolution.
     This fact has not long been recognised; thus Professor
 Ashley writing in 1892 says:
     One gets up from reading these notes� with quite an uncanny feel-
ing. We had known in a vague sort of way that there had been what
was loosely called a 'feudal system' in Japan; and M. de Laveleye and
other writers had prepared us for finding something that could be
brought under the equally vague designation of a 'village-community.'
But we were certainly not prepared to find that in most essential points
mediaeval society in Japan was the exact counterpart of that in
    *Kropotkin's '"Mutual Aid," p. 85.
    tLewis Morgan's "Ancient Society."
    t"Villagse Communities," p. 107.
    �Notes by D. B. Simmons on the Land Tenure of Old Japan.


42







THE EVOLUTION OF INDUSTRY.


Europe; that the development was apparently parallel not only in
character but also in time..... It is as startling as if we had come
upon our 'doubles.'
    That the domestic system and Capitalism are, or have been,
world-wide is a matter of history.
    Thus amid some diversity, disguised in time and place,
we discover the same great laws of evolution producing every-
where similar effects :-the gentile system-the village com-
munity or feudal manor,--the guild system-the domestic
system and Capitalism.
     "History repeats itself" is a common saying, and the idea
is illustrated by the swinging pendulum, but history never
repeats itself. There is a return to a similar phase, but other-
wise the position is quite different.
     Hegel, in his philosophy of history, goes nearer the mark.
First a thesis, then anti-thesis, then synthesis. But the anti-
thesis is not, as with Hegel, a schism between subjective and
-objective, between mind and matter, Spirit and Nature: but
between particular and general, between individual and State,
between class and community. (With Hegel the reader will
recognise the immense importance of the growth of conscious-
ness in man-not only self-knowledge but a knowledge of his
relation to other men and to nature.) The history of industry
shows us that one system is followed by another. In every
thesis, or integration, differentiation takes place, and when this
progressive differentiation has reached a certain point-the
thesis, integration, system-call it what you will-becomes too
small, too narrow to contain, in harmony, all its parts, conflict,
anti-thesis, class war, ensues, until the old integration is broken
up and replaced by a higher, a larger, and a wider synthesis,
integration, or system. The lower form of industry passes
away entirely or leaves as relics some weak or rudimentary
organs.
     These crises occur in the development, not only of societies,
 but of individual organisms, the chicken breaks its shell-the
 tadpole becomes a frog-the chrysalis, a butterfly. Individual
 species, De Vries tells us, pass through alternate periods of
 stability and transformation-although insensible variation is
 continually taking place; but when the period of mutability
 occurs new forms spring forth with unexpected suddenness.
 "All facts point to the conclusion that these periods of stability
 and mutability alternate more or less regularly with one an-
 other."*   Whether this is true or not of species, industrial
 history shows us that it is true of industry; that after compara-
 tively long periods, during which a given system of industry
 has existed, a cumulative internal friction between the parts,
 *Hugo De Vries' "Species and Varieties: Their Origin by Mutation," p. 639.


43








FROMT CAPITALISM TO FREEDOM.


or classes, caused by advancing specialisation, results in a
comparatively rapid and radical -change- a new and 'higher'
form of industry taking the place of a worn-out system.
    The gentile system is dead-the manorial system is dead-
the guild system is dead-of the domestic system there. remain
but-enfeebled or rudimentary organs-the capitalist system in
turn will- die.
    The -idea is illustrated by what we have called the spiral
of -progress.
                             - vto INTERNATIONAL SOC/AL/SM

                      r

       NATIONAL
     SPECIALIZATION


       54,te  eyziafton  - - -  ---/300. ,--
                               - - -  -NTIONAL GUILD- SOCAL/15



    S   CAPITALISM                   AD /600-1870
        (Pr/vofle �nerproe)

              401130.1510           TRA0E5) GUILD SYS TEA
            Demwe*System
   (L!/D)NEW PASTORAISM            A40/350 -1560
          fnchsed pamtm,
              40.700-1200           /v4A'ORIAL SYSThI

     PA STORAL PAM/LIES                 l8/. C eCommn0hd
  Q ~(Pa~/riarchaI)
    N              C /0.000      6� ENTLE SYSTEM:// herscA 11t w4 ?
 t!A AND(RING IILNT'RS &-FISHERS 8-c-50000

           FIRE DISCOVERED (C)   B C 80000 -T~~ionAmd/i  o ~IS ulr
                         (b)    LIC/00 000
         RVDOTWENTnRY SPEECH

           EESTU R� A, O VNItS  a 6 MA'N OF PILTDOI$' AW I(LI TYPE
                           (a) B C 300000

             THE SPIRAL OF PROCRESS.
                            Fig.:I


44






THE EVOLUTION OF INDUSTRY.


    The early dates* shown on the diagram are little better
than mere guesswork, and indeed who is able to determine the
time when man became man and ceased to be what-if he ap-
peared to-day would be called an ape ? There is, however, some
reason to believe that B.C. 300,000 should read B.C. 500,000 at
least. Indeed the most recent method of determining the age
of rocks, and consequently the age of the fossils they contain,
viz., by the rate of transformation of uranium into uranium
lead, indicates that man is probably 1,000,000 years old.
If then we view     the course of industrial history    from
above-in plan looking down-the cirele appears to close or
nearly to close-history seems to repeat itself, but the elevation
is quite different: the altitude is much greater.
    Industrial evolution is seen to be a continuous but irregular
advance both towards a higher integration and a higher differ-
entiation. At one time the forces of integration prevail and
progress is chiefly towards a wider and higher solidarity and
larger union; at another time the forces of differentiation
prevail and progress is chiefly towards specialisation and more
pronounced individualism.
    When the whole is large enough to contain all its parts
harmony exists. This harmony is mechanical, but not only
mechanical. It is organic also. From the mechanical stand-
point, never passed by some people, it may be compared to
the simplest machine-an ordinary bolt. A complete bolt con-
sists of a shank uniting two heads. The shank holds together
whatever lies between the heads, provided the heads-parts of
the bolt-are connected to the shank. That is, provided the
parts form an harmonious whole. If one or both heads are
removable they are called nuts. The bolt is then no longer
homogeneous. Its parts have become differentiated. The ends
(or one end) of the shank carry helical threads which fit into
corresponding grooves in the nuts. So long as this is the case,
so long as the relation of nut and screw is harmonious, so long
as they are of the same pitch, the end sought is attained.
But if the nut does not fit the screw-if the pitch is different-
there is discord between the parts and the whole is ineffective
or useless.
    But society. is not merely a mechanical arrangement of
parts. To be efficient, harmoniously to serve the end of social
life there must be not only mechanical harmony but organic
harmony, because society is not only a machine, it is also an
organic growth, a phenomenon of life, not merely a mechanical
collection of individuals-an industrial army, not a mob. Man
is, what he is, because he is a part of a social whole.
   *Later dates show the dislocation between agriculture and manufacture,
the latter advancing the more rapidly.


45







FROM CAPITALISM TO FREEDOM.


    More clearly to illustrate the truth we must, then, take
the ease of an organism, something that grows. Take a rose
bush: the purpose of the perfume of the rose, its colored petals,
and the nectar it contains, is to attract a bee, or other insect,
so that pollen may be conveyed from stamen to ovary and the
rose be fertilised. When this has been accomplished the petal
has done its work, it is no longer of any use. For so long
thereafter as it continues to live and draw nourishment from
the plant it is a mere parasite-like the landlord and capitalist.
If it is able to fasten itself on to the plant it becomes an element
of discord sapping the plant's vigor and life and retarding the
development of the seed.
     So it is with systems of industry. The landlord and the
capitalist may still be ornamental, but they are no longer of
any use. They have in fact become harmful.
     The gentile system founded on ties of blood relationship
was broken up by a growing differentiation of its individual
parts and gave place to the village-community, of which we
have studied one form, viz., the feudal manor. Differentiation
still persisted. The manor, integration, or cell contained
within its walls both agriculture and manufacture conjoined,
but now the cell subdivided, agriculture and manufacture
drifted apart and no integration has as yet united them again-
to the despair of Marx and all Socialists. Following the course
of manufacture we find it integrated in the guilds, beginning
to be disintegrated by a progressive differentiation in what
is called the domestic system until gradually, with the growth
of invention and power-machinery, it passed into the compara-
tive chaos of Capitalism. Already we discern the signs of a new
integration. Thus in accordance with the laws of evolution
industry grew, and it could only grow out of pre-existing con-
ditions; each development rested on a previous development:
it was a cumulative unfolding life process in which the neces-
sary conditions had to be present before further growth could
take place, and growth, as we know, is gradual, it can only to
a slight extent be forced.
     But although specialisation within the individual consti-
 tutes a higher form of individual life, yet, we may note in pass-
 ing, that the specialisation of individuals necessary to form a
 higher society, or industry, may have a crippling effect on the
 individual.
    If we are accustomed (says Comte) to deplore the spectacle among
 the artisan class, of a workman occupied during his whole life in
 nothing else but making pin's heads, we may find something quite as
 lamentable, in the intellectual class, in the exclusive employment of a
 human brain in resolving equations or classifying insects.... It occa-
 sions a miserable indifference about the general course of human
 affairs, as long as there are equations to solve or pins to manufacture.


46






THE EVOLUTION OF INDUSTRY.


    Even Darwin felt the crippling effect of specialisation.
Thus, with characteristic modesty, he speaks of himself:
   A man with a mind more highly organised or better constituted
than mine would not, I suppose, have suffered, and if I had to live
my life again I would make a rule to read some poetry and listen t
some music once a week, for perhaps the parts of my brain now atro-
phied would thus have been kept active through use. The loss of these
tastes is a loss of happiness, and may possibly be injurious to the
intellect, and more probably to the moral character, by enfeebling the
emotional part of our nature.
     Only by reducing 'working time' can the deleterious effect
of the specialisation of the individual be avoided.
     The life of society, however, is not limited by the life of
individual men, but individual men and societies have alike
risen, as by stepping-stones on the dead bodies of their pre-
decessors, and both advances imply a concomitant development
of mind. Brain development is necessary to co-ordinate the
various sense impressions, to combine the evidence of the senses
both past and present-to draw conclusions, in fact, to reason.
     Man has probably evolved from a physically weak form
of gregarious ape-like animal, because association is necessary
to produce the brain development required to enable cunning
and combination to overcome brute force.
     When once combination actually exists, it grows into a
habit, and habit from a blind instinct grows into an idea, and
the idea reacts on and helps to change conditions. One early
form  of combination-the gentile system     founded on kinship
persisted for centuries into historic times. The facts broke in
upon the system before the new ideas, which were disguised as
long as possible. Thus adoption-fictitious kinship-occasion-
ally brought in the stranger. Improvements in the art of hut-
building and in the conditions which made permanent homes
possible, probably had much to do, in many races, with the
conventionalising of individual marriage, so that an economic
fact insensibly introduced a new social condition.
     The idea of private property did not at first exist, it had
to grow. This idea
was slowly formed in the human mind, remaining nascent and feeble
through immense periods of time. Springing into life in savagery, it
required all the experience of this period, and of the subsequent period
of barbarism to develop the germ, and to prepare the human brain for
the acceptance of its controlling influence. Its dominance as a passion
over all other passions marks the commencement of civilisation. It
not only led mankind to overcome the obstacles which delayed civil-
isation, but to establish political society on the basis of territory and
of property.
     Presents given to savages have been found abandoned in
 the woods: their indifference to property is in marked con-


47






FROM CAPITALISM TO FREEDOM.


trast with the avid greed of the modern man. For the savage
use is the only claim to a transient possession.
    The progressive growth of the idea of property is illustrated by the
appearance of testamentary dispositions established by Solon. This
right was certain, of ultimate adoption; but it required time and experi-
ence for its ultimate development. Plutarch remarks that 'Solon ac-
quired celebrity by his law in relation to testaments which before that
were not allowed; but the property and homestead must remain in
the gens. When he permitted a person to devise his own property to
anyone he pleased in case he had no children, he honored friendship,
more than kindred, and made property the rightful possession of the
owner.'*
     But before the idea of property was formed, the idea of
kinship :existed, and   on this idea the gentile system    was
founded. That system was at length broken up because, with
the growth of new ideas and a self-asserting individualism, it
became too narrow. For absolute strangers there was no room
--for individual property there was no room-for individual
marriage there was no room. Thus by the introduction of
elements the gentile system was unable to absorb, the old inte-
gration was strained to the breaking point and ultimately
broke. The higher differentiation compelled a higher integra-
tion, as it generally does.
     The disintegration of the gentile system gave rise, in many
cases,: to wandering families of pastoralists of the patriarchal
type. Individual property replaced common ownership, poly-
gamy replaced group marriage, and, when these families settled
down, agriculture largely replaced pastoral pursuits. Thus a
new integration, the village-community, arose, a specific form
of which, namely, the English manorial system, has been
described briefly in our historical retrospect.
     Up to this point social and industrial development had
 proceeded hand in hand: now, agriculture began to be left
 behind by the rapid advance of manufacture. The effect of
 this differentiation was not only to break up the manorial sys-
 tem but to cut society in two: a town party and a country
 party have existed ever since. In agriculture the new pastor-
 alism, i.e., enclosed pasture for sheep, took the place of the
 open commons: in manufacture the guilds arose.
     Between the guild system and Capitalism there was inter-
 posed a state of transition known as the domestic system.
     Out of the domestic system there grew, as we have seen,
 Capitalism. Out of Capitalism    is growing a new   order; we
 have ventured into the realms of prophecy and termed it guild
 socialism. The curve of progress is swinging in the direction
 of a higher integration, the idea of unity still persists, "it
 flows still even now, and it seeks its way to find out a new
    *Morgan's "Ancient Society."


48






THE EVOLUTION OF INDUSTRY.


expression which would not be the state, nor the medieval city,
nor the village community of the barbarians, nor the savage
clan, but would proceed from all of them, and yet be superior
to them in its wider and more deeply humane conceptions.*
    Hitherto the growth of industrial society has been almost
as independent of man's conscious action as is the growth of
his body. In society the organ of consciousness resides in each
of its individual parts, and although the action of each part
may have been consciously directed to some limited end, yet
remoter results, the cumulative effect of all individual actions
on industry as a whole, was quite unforeseen. Thus uncon-
sciously Capitalism emerged. "They builded better (or worse)
than they knew." At last, with the growth of knowledge and
development of mind,t man may consciously change his indus-
trial system; to enable him to do that, with safety, he must
understand the capitalist system and know why there is discord
between its various industrial organs or classes. The first
step is to understand the meaning and function of money.
   *Kropotkin's "Mutual Aid," p. 222.
   fiindeed; as Wallace pointed out, Darwin concurring, the present
evolution of man consists chiefly in mental development, or, from the
physical standpoint, in brain development.


D


49






FROM CAPITALISM TO FREEDOM.


                           IV.



                       Money.


    "Money makes the world go round"-or, at least, it circu-
lates commodities, purchases services, commands respect.
Without money the modern man is lost, with money-plenty
of money-he is almost as a king. Money oils the wheels of
commerce, increases the efficiency of exchange, and obviates
the exasperating delays of barter. It is the world's dominant
commodity. It casts a halo round the meanest man, and lights
up with adventitious beauty the homeliest woman. It epi-
tomizes a multitude of desires and realises a host of blessings.
It is at once both a blessing and a curse. Yet the witchery
of money must not blind us, as it has blinded so many others,
to the real nature of this magic substance.
    Money has been described as "that which passes freely
from hand to hand throughout the community in final dis-
charge of debts and full payment for commodities, being
accepted equally without reference to the character or credit of
the person who offers it and without the intention of the person
who received it to consume it, or enjoy it, or apply it to any
other use than in turn to tender it to others in discharge of
debts or payment for commodities." This description of
what money is and what service money renders may fairly be
abbreviated into such a definition as Walker gives :-"The
term 'money' is applied to any commodity whatever its sub-
stance or its form, which, whether by law or by convention,
becomes the common medium of exchange in any community."
Or as Irving Fisher has it :-"What is generally acceptable in
exchange for goods." Two points need, in this connection, to


50








be emphasised. Gold, or any other form of money, though
a commodity devoted to a special purpose, exchange, remains
always itself a commodity. And secondly though it may be
of great convenience it is not essential to exchange: for that
can be, and for ages was, effected by barter alone.
     The earliest exchanges, it is probable, took place between
groups or tribes rather than between individuals, and at first
assumed the form of mutual presents.
    It is instructive to see trade in its lowest form among such tribes
as the Australians. The tough greenstone valuable for making hatchets
is carried hundreds of miles by natives, who receive from other tribes
in return the prized products of their districts, such as red ochre to
paint their bodies with; they have even got so far as to let peaceful
traders pass unharmed through tribes at war, so that trains of youths
might be met, each lad with a slab of sandstone on his head to be
carried to his distant home, and shaped into a seed-crusher. When
strangers visit a tribe they are received at a friendly gathering, and
presents are given on both sides. No doubt there is a tacit understand-
ing that the gifts are to be more or less fair exchange, and if either
side is not satisfied there will be grumbling, but in this roughest kind
of barter we do not find that clear notion of a unit of value which is
the great step in trading.
     Giving of gifts becomes barter. Barter, growing keen, de-
velops a conception of value: Of two articles exchanged one,
the more durable, becomes the measure of this value. A third
commodity, more     durable   still and  more   easily carried,
measures the value of both. It passes where the bulkier, more
perishable cannot. It is the medium    of exchange. It is the
standard of value. It is the means of deferred purchase or
payment. It is money.
     When    geus, family   or tribe, was isolated   and   self-
 sufficient, there was no need for exchange (and therefore no
 need for money): clothing, food, and shelter belonged to the
 group and were distributed according to group-needs and
 group-custom. But isolation, if indeed it ever was, did not
 persist. Group    neighboured   group, and    intercourse  de-
 veloped.  Group differed from    group, and sought or made
 different goods. Group as against group possessed its own,
 had, in effect, property.   Novelty awoke desire and group
 sought the property of group. The necessity for exchange had
 arisen,
     Differentiation went on apace. New goods, new forms of
 clothing, new tools and utensils came into use, strengthening
 the idea of property, communal and private, and increasing
 the desire for exchange. A detailed history of primitive ex-
 change is not possible after the lapse of ages, nor is it neces-
 sary. It is sufficient to illustrate the rise of a standard and
 measure of value and ultimately of money. A tribe whose


MONEY.


51






FROM CAPITALISM TO FREEDOM.


staple diet was fish had food in plentiful and constant supply
but insufficient means of covering. Contact with a tribe of
hunters brought them   skins in exchange for their fish. As
skins were more durable, values came to be expressed in them.
Become thus a measure of value they would pass to a third
tribe as money, purchasing for the fishermen some primitive
form of farinaceous food it may be, or a superior fibre for
their lines and nets. Accepted by three tribes as a measure of
value skins are now not only a desired commodity but a
currency and medium of exchange.
    Almost endless is the variety of such media of exchange
or commodity ihoneys, amongst different people and in dif-
ferent stages of their development.    In agricultural com-
munities the purpose has been served by corn in ancient Greece
(and even in modern Norway), by rice in Asia Minor, rock-salt
in Abyssinia, black tea in Russia, dates in North Africa,
cocoanuts in Central America. In other primitive communities
currency has consisted of dried cod fish, pieces of cotton cloth,
straw mats, cubes of beeswax, red feathers, whale's teeth,
iron shovels, and hand-made nails. Leather was long current
in Russia and in the Levant. The moneys of North America
during the early days of the first settlers were sufficiently
numerous to be tabulated by Del Mar in eleven classes-
amongst them lignite, coal, ivory and bone money, gold,
silver and copper coins, mica, pieces of lead, shells, pearls,
agate, jasper, and beaver and marten skins. The early Euro-
pean settlers in North America paid their debts in wheat,
oats, barley, peas, bacon, pork, beef, fish, flax, wool, whisky,
and even musket balls.
    Most of these articles are evidently quite unsuited for
use as money, not only from their varying value, which is a
characteristic of all commodities (not excluding gold), but
from their bulky or perishable nature, the impossibility of
dividing some of them without loss, and their varying weight
or quality.
     The qualities required in commodity-money are port-
ability, stability of value, uniformity, divisability, durability,
and cognisability.   These qualities are found combined in
certain non-rusting metals, amongst which gold and silver,
by common consent, have been generally recognised as most
suitable for use as currency.
     All these commodities which have served (as they might
 serve again) as 'money' have something in common which
 makes them valuable. That something cannot be their service
 as money alone for it has been seen (1) that almost any
 commodity may be used as money and (2) that money is a


52






                         MONEY.                         53
convenience only and not a necessity. If there were no money
these commodities would still have a value and the same
value. Money, in other words, is a commodity selected con-
ventionally (not, as it might seem, arbitrarily) as a medium
of exchange, and its value has the same basis as that of any
other commodity. The term "money" has cast over the com-
modity which serves that purpose a veil of mystery. This
veil, which effectively obscures its true value, we may then
tear away, and having done so may hope to discover that
'something' which makes this commodity, as it makes all
commodities, valuable. We pass on then to consider what is
the true nature of value.







FROM CAPITALISM TO FREEDOM.


                             V.



                         Value.


    Though the question of value lies at the heart of the
problem of economics, yet there is no part of the sabject
in which greater confusion reigns, and has reigned. Writers
on economics have-doubtless with the best intentions-added
to the confusion by overworking the hyphen in some instances
and by not consistently retaining it in others. They talk
glibly of intrinsic-value, exchange-value, market-value, to say
nothing of true-, scarcity-, and monopoly-value. That they
are honestly seeking for clarity of thought may readily be
conceded, as also that the multiplication of terms is a true
indication of the complexity of the problem. And yet J. S.
Mill had the self-assurance to say, "Happily there is nothing
in the laws of value which remains for the present or any
future writer to clear up: the theory of the subject is com-
plete." One is reminded of Boehm-Bawerk's pretentious
"Karl Marx and the Close of his System."
    It is easy enough for us to smile at hasty judgments by
previous writers, but the fact remains: the laws of value are
still unsettled and obscure. The words of Ricardo still stand
true: "There is no source from which have flowed so many
errors, and out of which have sprung so many diverse opinions
in this science as from the vague and indefinite sense attached
to the word 'value.' There are in effect many 'values'; of
these we emphasise three. It may be said that a certain
medicine is 'valuable': and the meaning is that it is effica-
(ious, but not necessarily costly. Quinine is a 'valuable' medi-
cine because, irrespective of its cost, it is useful-efficacious-
in the treatment of disease; and it is in a similar sense that
we speak of water and air as 'valuable.' Equally, but from a
differing standpoint, hand-made lace, an in-laid table, are


54








'valuable'; where the meaning is that either article is the
product of intense human effort. This meaning of 'value' is
probably not so generally recognised. And yet it must be
patent to everyone who has in act or thought made anything,
it matters not what it is, that so soon as you have put forth
effort, whatever direction that effort takes, you are sensible
that a 'virtue' has gone out of you and you are conscious that,
let the market say what it will, you have created a 'value.'
For that is the meaning of the word. And thirdly, an Old
Master is valuable; but less because it confers great pleasure,
is useful, or the result of intense human effort, than because
we can get a large sum of money in exchange for it.
    These three values are distinguished as (1) use-value,
(2; intrinsic-value, and (3) exchange-value. The hyphen re-
maine indispensable: for to use the term 'value' of any or all
indifferently produces endless confusion. As some precon-
ceptions have gathered round the word 'intrinsic' we shall
adopt an entirely new term-inherent-and speak of (1) use-
value, (2) inherent-value and (3) exchange-value.
     Most writers on economics mean by value the third of
these or exchange-value: a variable quantity only to be ascer-
tained, at any given place or time, by the "higgling of the
market." Yet, even in a breath, they tell us also that an
article may be sold above or below its 'true' value. This true-
value-what is it? It cannot be identical with, since it may
be greater or less than, exchange-value. Nor can it be use-
value: for the usefulness of an article does not determine its
exchange-value, otherwise air and water would have a greater
exchange-value than diamonds. The phrase of the economist
confesses a consciousness that there is something inherent in
the article, apart from, independent of, the vagaries of the
market. If markets, and by consequence exchange-value, did
not exist, yet, it is felt, there is in the article that which, with-
outreference to its usefulness, though usefulness is in a com-
modity a sine qua non-is constant and gives it this 'true-
value.' To this, whatever its nature, we give the name inherent-
value. We shall endeavour further to show that inherent-
value consists of human effort-of brain and muscle-as it is
embodied in a utility or service: and that it is of such stuff
that exchange-value is made. Our attitude to exchange-value
forbids a definition of our own: we must adopt the meaning
assigned to it by other economists. Though definitions are
numerous they in the main agree with that of Professor Mar-
shall who says: "Exchange-value is the amount of that second
thing which can be got there and then in exchange for the
first." Exchange-value is then the amount or quantity of the


VALUE.


55







56         FROM CAPITALISM TO FREEDOM.
thing or things-with all they contain and are-which we
accept in exchange for some other thing we give. Something
determines what quantity shall be given-what is that some-
thing ?
    Now by definition inherent-value means-is-labor-cost.
We propose to show the 'something' in exchange-value is also
labor-cost-not that inherent and exchange values are iden-
tical, far from it, but that they are of the same kind.
    Broadly speaking writers on economics are divided into
two schools-.on the question of value. The Jevons-Austrian
school holds that value is subjective, that it has no objective
reality, or, alternatively, that our subjective appreciation of
value is the real or true value. The classical school, of which
Marx was a descendant, held that value is an objective reality,
and he and others maintain that the efficient cause of value
is human effort or labor.
    To appreciate these divergent views it is essential that we
should agree upon the meaning of 'subjective' and 'objective.'
Suppose for example that I run my head against a stone wall,
raising a lump on my forehead, it is said that I do not know
that the wall exists, at best I only 'believe' it. The collision
caused a shock to my brain, set the brain matter in move-
ment, and "what I am pleased to call my mind" took note there-
of. If I identify myself and my mind, I am told by meta-
physicians that all that I 'know' is what I experience, and
by physiological psychologists that all I experience is certain
brain movements. I do not 'know' that the object-in this
case the stone wall-really exists at all-the very lump on
my forehead may be all imagination: probably Christian
Scientists would tell me that it was. If, thinking to settle
the matter, I again run my head against the wall and again
experience similar results, still I am told, that is no proof
of the objective existence of the wall: I may be eccentric,
peculiar, abnormal. If in the interests of science my friends
agree to repeat the experiment in their own persons, and meet
the like result, that is all the proof we can offer of the
objective existence of the wall-and for most people it will
probably be sufficient. It is true, if we have not investigated
farther, we 'know' only one aspect or quality of the wall.
To attain complete knowledge the wall must be examined from
every side, its constituents analysed, and that not by ourselves
alone, but by others. But failure to see does not destroy ob-
jective reality. One man may say that a red flag is grey: to
him it is grey, because he is colour-blind. Aristotle knew
nothing of X-rays or the long waves of radio-telegraphy: they
are none the less objective realities.









     If, however, value is objective it has equally a subjective
counterpart.
    They--objective and subjective--form a world of the same struc-
ture as the phenomenal world. . . . In short every proposition having
a communicable significance must be true of both worlds or of neither:
the only difference must lie in just that essence of individuality which
eludes words and baffles description, but which for that very reason
is irrelevant to science.*
     Assuming then that we are agreed on what is meant by
subjective and objective in regard to value, we may return
to the more immediate question "what is value?"      And we are
more directly concerned, as is by now apparent, to show that
exchange-value, though of the same kind as, is not identical
with inherent-value. In plain fact exchange-value in a com-
modity is the inherent-value contained in the other commodity,
that commtodity for which the first is exchanged. To shorten
the discussion we may with advantage quote from T. Veblen's
book--"The Place of Science in Modern Civilisation"          (pp.
419-20) :
    It is scarcely worth while to question what serves as the beginning
of wisdom in the current criticism of Marx, viz., that he offers no
adequate proof of his labor-value theory.' It is even safe to go farther
and say he offers no proof of it. The feint which occupies the opening
paragraphs of "Das Kapital" and the corresponding passages of "Zur
Kritik" is not to be taken seriously as an attempt to prove his position
by ordinary recourse to argument.      It is rather a self-satisfied
superior's playful mystification of those readers (critics) whose limited
powers do not allow them to see that his proposition is self-evident.
Taken on the Neo-Hegelian ground and seen in the light of the general
rmaterialistic conception, the proposition that value=labor-cost, is
self-evident, not to say tautological. . ... The materialistic conception
of history translates the unfolding life of the spirit of man into terms
of the unfolding-material--life of man in society. Insofar as 'goods'
are the products of industry they are the product of this unfolding
life ,of man . . ... The life-process which when it takes the specific form
of an expenditure of labor-power goes to produce 'goods,' is a process
of material forces, the spiritual or mental features of the life-process
and of labor being only its unsubstantial reflex. It is consequently
only in the material changes wrought by this expenditure of labor-
power that the metaphysical substance of life-labor-power-can be
embodied; but in these changes of material fact it cannot but be em-
bodied since these are the end to which it is directed.
    The balance between goods in respect of their magnitude as an out-
put of human labor holds good indefeasibly in point of the meta-
physical reality of the life process. . . . Such is the value of the goods
in reality: they are equivalents of one another in the proportion in
which they partake of this substantial quality, although their true
equivalence may never come to an adequate expression in the trans-
actions involved in the distribution of the goods. This real or true
value of the goods is a fact of production and holds true under all
systems and methods of production, whereas the exchange-value-the
'phenomenal' form of the real value-is a fact of distribution and ex-
      *Bertrand Russell's "Introduction to Mathematical Philosophy."


57


VALUE.






FROM CAPITALISM TO FREEDOM.


presses the real -value more or less. adequately according as the scheme
of distribution in force at the time conforms more or less closaly to
the equities given by production.
    In this able statement of the case Veblen clearly recog-
nises and distinguishes between real or true value end its
phenomenal form, exchange-value.
    Thus to sum up :--in the light of the materialistic, i.e., the
economic, conception of history the proposition that value
equals labor-cost is self-evident. Yet, strangely enough, there
are those who accept the economic conception of history and
still reject the labor. theory of value. Yet in the light of
evolution the proposition "value equals labor-cost" is no less
self-evident. For what is evolution but a "cumulative unfold-
ing life-process," a becoming?
    The   general philosophical standpoint has no       doubt
changed considerably since Marx's day, but Marx was ahead of
his time and the standpoint of to-day does not materially differ
from his. That Marx had outgrown Hegel we have already
pointed out and he was more evolutionary in his attitude than
Neo-Hegelian. Only with his fatalism have we any quarrel.
The conception of the Universe as a toy train wound up "in
the beginning" and placed on rails already laid and leading
to a fore-ordained end, a train that cannot leave the rails
but must inevitably reach the allotted goal, unless the original
impulse fails and everything stops, is a mechanistic, fatalistic,
teleological view that is neither orthodox science, orthodox
philosophy nor orthodox ieligion. Insofar as Marx adopts
the view that Socialism, in every particular case, is inevitable
we disagree with him. Evolution shows us that although
movement towards a higher form of life may take place it
only does so when the species, consciously or unconsciously,
adjust themselves to changing circumstances. Species have
evolved: species have become extinct: nations have flourished:
civilisations have decayed: the issue is largely in our own
hands, it is not inevitable. There is "just that essence of
individuality which eludes science." If, however, Marx means,
as perhaps he does, that only for those nations who continue
indefinitely t exist Socialism is inevitable, then we agree.
Socialism is, we believe, a necessary phase of industrial evolu-
tion, which will result from a conscious organisation of in-
dustry--a conscious effort to maintain national life.
     And not only is conscious effort necessary to maintain
social life, it is necessary to produce commodities-the very
means of life. The effort to make is one with the effort to
live, and that effort embodied in goods constitutes inherent-
value.


58








    From the standpoint of evolution the proposition "value
is labor-cost" is-to repeat-self-evident. But if we are to
know and understand value we must not forget that while it is
certainly a reality, it is yet a complex reality. In other words
it must be envisaged from many angles of view. In itself one,
it has yet a multiplicity of facets. And here a simile may help
to a better comprehension. We would then compare value to
a shield, made of steel in form circular but dished, the inner
side electro-plated with silver, the outer coated with gold-leaf:
but unless a man has seen it in the making the composite con-
struction is discoverable only on analysis. If, as a spectator,
one examines it from a given standpoint and in a given light
but with one eye closed, the appearance is that of a circular
disc of silver, flat, and of two dimensions: if, however, opening
both eyes and with no change of position but only of light he
regards it again, he will see a disc circular still, and still of
silver, but concave and of three dimensions. Suppose now he
walks slowly round the shield, the vision constantly changes-
now he sees a plain surface bounded by an ellipse-then it is
dished-now the ellipse lengthens, as the apparent ratio of
major to minor axis increases-yet again he sees or seems to
see a plain gold surface bounded by a straight line and a circu-
lar arc-now    convex in two degrees-now      bounded by an
ellipse but convex in one degree,-and finally a full circular
convex gold disc. Since the shield is symmetrical, he has only
to proceed beyond this point to find that the several visions
repeat themselves but in reverse order, for all the world as
though instead of continuing his progress he had retraced his
steps. With, however, this difference-that, returning, he is
presented with the same, but progressing, with similar, appear-
ances.
     It is with value as it is with the shield. Exchange-value
 is similar to, but not the same as, inherent-value,; both have
 many aspects. However useful the material of which the shield
 is made, it is its form which constitutes it a shield. So, too,
 it is the force that forms, and not the material formed, that
 constitutes inherent-value-the true gold of our quest. The
 silver of exchange-value is merely the distorted reflection of
 the gold of inherent-value. But one side of a shield cannot
 reflect the other, and so one shield must be reflected in another
 shield. The exchange-value of a commodity is seen not in that
 commodity itself, but in the inherent-value of the other com-
 modity-(taken in exchange).
      Thus,-suppose human effort standardised, and that we
 can say that a given article-as A, is equal to six hours-six
 standard hours of labor. Now let A be exchanged for B the
 result of 8 S.H.: then A has been sold-exchanged-above, and


VALUE.


59






60         FROM CAPITALISM TO FREEDOM.
B below, its inherent-value. Granted:--but observe this simple,
and equally important, result, which is most readily expressed
in tabular form:
                        Inherent-value. Exchange-value.
             A   ...........   6       ..      8
             B   .........     8       ..      6

                              14              14
    Or, in other form, when exchange takes place the total
inherent-value is always equal to the total exchange-value.
Thus the "plus equals the minus" :-inherent values are both
distorted in their reflected exchange values, but in opposite
directions: and the equation remains. If, however, the total
labor time has been equally distributed over both articles the
tabular form would have been:
                        Inherent-value. Exchange-value.
             A ...........     7       ..      7
             B  ...........    7       ..      7

                              14              14
     Now by comparison of both tables we have,-in figure
form,-the first law of value, which in words runs thus
Commodities exchange, or tend to exchange, in the ratio of their
inherent values.
     If in the latter table the 'law,'-whether by law we mean
"invariable sequence under given conditions" or "the nearest
approximation to the history of observed fact",-is clear at
a glance, in the former it tends to be obscured as we look at
either A or B seeing a part and not the whole of the trans-
action. But if the first table is read as a whole the law is as
obvious there as in the second.
     What then are the conditions under which this first law of
 value has full and unrestricted play? Such conditions, it may
 be confessed, have never actually existed: the law is the abstract
 statement to which facts make always a more or less close
 approximation. It is in short just such an assumption as
 science makes in regard to its fictions of a straight line, a
 perfect vacuum, the absence of weight or friction. Granting
 such to be real, says science, certain results follow provided
 all disturbing causes are removed, but science well knows that
 in actuality it is impossible entirely to remove each disturbing
 factor. But if it is not possible to attain an absolute corre-
 spondence, yet on the other hand there has been a close approxi-
 mation in the past and that for relatively long periods. This
 was the case during the age of simple production, when, while
 exchange was active and free, the ownership of land and raw







                           VALUE.                            61

materials and tools was distributed with approximate equality
amongst the aggregate of the community. To make the law
an exact statement of fact there must be free, and equal, access
to all raw materials and forces of nature, equal technological
knowledge, equal possession of tools, in short equality of con-
trol over all means of production. Engels rightly says:
    Marx' law of value was generally valid economically from the
beginning of the period which, through the medium of exchange, turned
products into commodities, down to the 15th century of our era. As
the exchange of commodities dates from a time anterior to all written
records in Egypt to at least 2,500 and perhaps 5,000 years and in Baby-
lon as far perhaps as 6,000 years B.C., the law of value has been
in force for anything between 5,000 and 7,000 years.
     How then has it come about that the law no longer holds
with equal precision, or at least no longer with equal corre-
spondence to fact? We may listen to Marx' own exposition of
the reason for the difference:
    The whole difficulty arises from the fact that commodities are not
exchanged simply as commodities but as products of (masses of) capital
which claim equal shares of the total amount of surplus value, if they
are of equal magnitude, or shares proportional to their magnitude.
     And he adds later:
     The exchange of commodities at their values, or approximately at
their values, requires a much lower stage of capitalist development
than their exchange at their price of production.
     A great many people, even a number of professed econo-
mists, freely criticise Marx' theory: few have taken the pains
to read in original or translation the full text of his work.
Veblen is more than justified when he comments:
    Marx' critics commonly identify the concept of 'value' with that
 of 'exchange-value' and then show that the theory of 'value' does not
 square with the facts of price under the existing system of distri-
 bution-piously hoping thereby to have defeated the Marxian doctrine,
 whereas of course for the most part they have not touched it.
     That which is really self-evident is not susceptible of
 logical proof: though one may, in a sense, make its self-evidence
 more obvious. It is so with the equation, Inherent-value =
 labor cost. Marx in his discussion confines himself to commodi-
 ties, which are not only things desired by man-not necessarily
 beneficial but desired, whether good or bad,-but also things
 made by man. (We keep to this restriction: speaking later of
 nature's 'free gifts.') Two commodities 'face' each other, 20
 yards of linen and one coat. Suppose them to be of equal value
 (inherent-value). Value then is the common property or mea-
 sure of their equality. If they had not this-or some other
 common property-they would be incommensurable. One may
 say an apple is equal to a pear, where the meaning is, or may







FROM CAPITALISM TO FREEDOM.


be, in respect to weight, color, form, nourishing power-each
or all of these. But when it is said that two commodities or
parcels of commodities are equal, value and value alone is the
'middle term' in respect of which equality is predicated. Other
qualities, geometrical, physical, chemical, are not common to
all commodities. As Marx puts it-"their physical qualities
only claim attention insofar as they affect their utility . . . they
make them use-values." There is but one property common to
all alike, human labor, which is value.
     It is at this point that Boehm-Bawerk breaks in with the
question:
    But do not there remain a number of other qualities? As (1) have
they not the common quality of being scarce in proportion to demand?
(2) Is it not common to them to be the object of demand and supply?
(3) to be appropriated? (4) to be natural products? (5) to cause
expense to their producers? Why then should not the principle of
value reside in any one of these qualities as well as in the quality of
being the product of labor?
     One wonders if Boehm-Bawerk is wholly serious or are
some of his questions purely dialectical ?* We will pay him the
compliment of assuming that he is serious and answer them
seriatim. But it is necessary first to remind the reader that
while we are dealing with value as an objective reality, Boehm-
Bawerk criticises from the subjective standpoint: and, really,
argument between those who start from these diametrically
opposed points of view is "as futile as a discussion of solids in
terms of two dimensions.'" For the subjectivist, inherent-value
does not exist and exchange-value is but a creature of the
imagination. Even though the discussion be futile, we reply
to Boehm-Bawerk's questions thus:-
     (1) Scarcity is not common to all commodities nor is it
 inherent in commodities but relative to the wants of man.
 Scarcity is of two kinds (a) natural, (b) artificial, and the
 latter is the stuff of which monopoly-values are made: both
 forms, however, seriously interfere with and obscure the opera-
 tion of the first law of value, and we will give them fuller
 consideration later.
     (2) Supply and demand are not inherent in commodities
 but relative to man, who makes supply and creates demand.
 No treatment of economies, however, can be complete without
 some reference to these Siamese twins.
     (3) All commodities are appropriated, but 'appropriation'
 is not a quality but an accident.
     (4) With natural products we shall deal immediately.
     *Boehm-Bawerk was undoubtedly able, but the fact that he accuses Marx
 of trickery prejudices the mind against him, and renders it difficult to
 believe whole-heartedly in his intellectual honesty.


62







     (5) If the "expense they cause their owners" is the labor
of their production then that common property is the very
'value' we are seeking to establish.
    We return as promised to the question of scarcity,-or
monopoly-value. One of the reasons for a discrepancy, which
admittedly exists, between the magnitudes of inherent and ex-
change values in a commodity has already been pointed out
in a quotation from Marx and will be further elucidated in
,a following chapter on Surplus Value. There remains that
common stumbling-block to acceptance of the labor theory of
value, natural utilities, i.e., products useful to man which, as
completed by Nature, can contain little or no labor.*' Virgin
soil is a typical natural utility. It contains no labor (or
little), but admittedly can command in exchange commodities
which do contain labor. The key to the enigma is to be found
in the nature of monopoly. Suppose that I own the only
spring of water in a desert. If I am not myself there and no
one else is, the spring is of neither use nor value to me or
any other man. But let there arrive in the desert certain
travellers dying of thirst: their presence at once gives to the
water of my spring an exchange-value: of its magnitude, the
first law of value has nothing to say. If I have the resources
of law and order at my back, I may demand and get whatever
of money or other valuable the travellers possess, to the last
farthing: and the amount is determined by their capacity to
pay not by the intensity or quantity of their thirst. That is
the law of supply and demand and it explains really nothing.
If I own the well the contract is free, I demand "what the
traffic will bear": the "court awards it and the law doth give
it." But exactly what has become of 'economic' law? When
suppliers 'own' the raw material of Nature the law of supply
and demand, and more especially demand by the owner becomes
a disturbing factor of the first magnitude. Yet even supply
and demand has its limitations. In the case supposed it would
be useless to demand more than the travellers possessed, or
indeed to destroy my future market.        My act was legal
profiteering: but did I not save the travellers' lives?   Or,
another case:-bushrangers 'stick up' a coach, demand, and
get, the travellers' money at the pistol's point. This is illegal
-robbery under arms-yet did not the bushrangers spare the
travellers' lives?
     The price paid for life is in either case a force value:
we may call it a pistol value and whether it be as here purely
physical, or as in modern industrialism economic, or as often
half political half economic, does not alter its essential nature.
   *Land to have exchange value must be, or be made, accessible; to be sold
it must have been surveyed, a plan made, and title deeds written.


VALUE.


63






FROM CAPITALISM TO FREEDOM.


    That is the position of unimproved land 'value': virgin
soil has utility, crops may be grown on it, houses may be
built upon it, but land has no inherent-value, it is not the
result of labor, but the presence of those who must use
it, and incidentally, can pay for it, gives it a pistol value
which masquerades under the name of exchange-value. In
the absence of population, land and pistols are equally useless
as a means of acquiring wealth for their owners.
    If we agree that at present wealth is distributed strictly
in accordance with the magnitude of the respective 'pulls' of
the various classes of an industrial community--and it may be
so--then economics is a science of brute force, or politics, or
law, or of diplomacy, bluff and chicane, whatever the 'pull'
may be.
     Indeed, the sciences of psychology, politics, ethics and
economics are so closely bound together, that it is impossible
wholly to separate them to-day. Greek philosophy recognising
the fact frankly united them, so far at least as concerned the
first three: economics in the modern sense had hardly come
into being. This inter-relation and inter-action of the four
sciences inevitably affects, not altogether favourably, com-
mon thought and language, and that not less among pro-
fessed leaders of opinion than among the average of the com-
munity.
     Failure to recognise this fact is responsible for many
judgments upon the labor theory of value. If we regard
only purely economic grounds, the 'value' of natural utilities
does not exist. Where "might is right," there is no other
appeal to justice, and "necessity knows no law," economic
or otherwise. The value of natural utilities lies, in fact, outside
the tacit assumptions of political economy.
     Another of the stuffed lions in the path of truth, stand-
 ing between and separating inherent-from exchange-value goes
 under the name of 'scarcity.' Ricardo brackets it with labor
 as joint parent of value-a somewhat anaemic parent. Scarcity
 is not a thing, it is a relation-a relation between utilities on
 one hand and human needs on the other-in fact, scarcity is
 a mere negation.
     Such as it is, it is of two kinds, artificial and natural.
 With the latter we have just dealt and resolved it under
 private owne:ship iLto 'pistol' value. Artificial scarcity so-
 called is also of two kinds: firstly, it represents and stands for
 an excess of labor. Gold is relatively scarce-but there is
 no pistol-value in gold, because there are hundreds of gold
 mines-as presented by nature-which do not 'pay' to work.
 For example, if coal is required, it is easier to mine the coal


64








than mine the gold necessary to purchase the coal. Scarcity
here means that to render the commodity less scarce would
involve a greater expenditure in labor than we are prepared
to give. Artificial scarcity properly so-called is due to the
deliberate withholding of goods from the market, or deliberate
refusal to manufacture them in order to secure a pistol-value.
     It was necessary briefly to discuss monopoly and scarcity
value which might otherwise prove a stumbling block, but
we return now to the main argument.
     There remain, therefore, only two objective realities worth
further c onsideration, namely, utility (the material qualities
that satisfy human wants) and labor (the means by which
those qualities are made available): both, admittedly, are neces-
sary to produce a commodity-as in the case of our shield,
or in the case of (say) steam.
     The material basis of steam is water, but heat is its
efficient cause. Steam is composed of water, but the efficient
cause 'of steam  is heat-both, however, are essential.     The
quantity of steam   varies with the quantity of heat.     Heat
makes steam exactly as labor makes commodities. Steam is
latent in water, just as commodities are latent in natural
materials.  Heat does not create steam    out of nothing, nor
does labor create commodities, but as heat produces steam
from water, so labor produces commodities from the crude
materials of nature.     Essentially, steam is heat, the steam
engine is a heat engine. In the same sense value is labor,
and labor is the efficient cause and measure of wealth-but
if man is its father, yet the earth is its mother. The analogy
stands.
     We have likened inherent-value to force, but the force
of human labor is not merely mechanical energy as measured
in foot-pounds, nor is it merely vital force, but vital force
applied with intelligence and technological knowledge and
as we shall discover later-assisted by appliances handed down
by the experience and wisdom of the ages. As a further argu-
ment it will be shown that labor can be measured, but that
utility has not been measured, and, so far as one can see,
eannot be measured-socially at any rate.
     Unless a thing can be measured, not estimated, as equal
to, or so much greater or less than, some similar thing, there
can be no science. Value may be an abstraction-like mathe-
matics*-but, nevertheless, it is an abstraction we can under-
   *Bertrand Russell has said of mathematics that it is "the subject in
which we never know what we are talking about, nor whether what we are
saying is true!" Given certain relations (which may or may not be true)
between certain entities, x, y, and z (what they are does not concern the
mathematician), then it can be said certain results folllow. Abstraction
implies reality from which we have taken for exclusive consideration certain
properties or aspects.
E


VALUE.


65






FROM CAPITALISM TO FREEDOM.


stand; but if we are to assign definite magnitudes to reality
(or to some of its properties), we must be able to measure it.
That value may be an abstraction is not fatal to mensuration
-time is an abstraction but we can measure it.
    Since usefulness is entirely relative to man, and utility
in its subjective sense means the satisfaction or pleasure given
to man by the useful thing, we must-if we are to measure
utility-measure the pleasure utility gives, or the pain its
absence causes.
    To measure anything we must use a measuring rod and
the things to be measured must be of the same kind. Our
measure must be the common measure of them all, i.e., the
things must be commensurable. If we measure length, we
need a foot rule; if time-a clock; if water-a meter; if weight
-a pair of scales. A clock will not measure length, nor a
foot rule weight, the things to be measured must be of the
same kind. Measures are divided into a number of units of
equal length, so that zero on the scale corresponds to the be-
ginning of the thing to be measured and some unit on the scale
coincides with its end. Between the beginning and the end
we count the units-minutes, inches, cubic feet, pounds, de-
grees, hours of labour. All measurements are relative to our
measuring machine. Clearly the most urgent and important
thing-if we wish to measure-is to invent our measuring
machine and our unit of measurement. Now it has been pro-
posed to measure usefulness or utility, by the intensity of the
individual's desire for the useful thing, just as a ther-
mometer measures the intensity of heat.     But that is not
sufficient even if it were possible. If heat were the stuff
of which utility is made, we must ascertain its quantity, not
its intensity. A large warm body may contain more heat than
a small hot body. So, a passing impulse may contain less
desire than a persistent longing. But if we could measure
the intensity of one man's desire (although that is not suffi-
cient) how are we to determine whether his desire is greater
or less than another man's desire for the same commodity, and
how much greater or less-how discover our unit? "By the
sacrifice he is willing to make," it has been suggested. But
that only shifts the difficulty. How are we to measure his
sacrifice? By the amount of gold, the number of sovereigns
or dollars, he is prepared to part with to obtain the desired
thing? No other method seems to have been suggested. But
evidently the same quantity of gold does not measure an equal
intensity (or quantity) of desire in different men-one may
be rich, the other poor. The ground is continually shifting
under our feet. Or, our subjective individualist may take


66








refuge in what he calls a social measure. From the individu-
ality which eludes us, and is irrelevant to science, he may
fall back for support on the general mind, and it may be
asserted that in any given market the quantity of desire as
indicated by the bids made and accepted measures the value
of a commodity; in fact that a commodity is worth just what
it will fetch. (It cannot be sacrificed!)  In other words we
are forced back to the higgling of the market. The supposed
uniform price is a convenient fiction, as every country fair
will prove.    At practically the same moment similar com-
modities have different values.   Finally, with all said and
done, it is exchange- and not inherent-value we have been
hunting.   "The wind bloweth where it listeth," but it is
more easy to discover its laws, than it is for our subjective
theorists to explain the laws of value; with them it seems
to come just to this : value is our idea of value. How then are
wve to measure ideas ?
    If our subjectivists have discovered anything it is merely
a 'sufficient reason' and not an 'efficient cause.
     The theory of marginal utility is not concerned with
movement of any kind, but solely with the adjustment of
exchange-value to a certain given situation. It is entirely
deductive and is based on doubtful premises---in fact it is not
scientific, since it has no inductive basis. It assumes private
ownership, free contract, natural rights, and the hedonistic
calculus, i.e., the measurement of pleasure and pain: It is
carefully explained that (say) the utility of water varies
with the use to which we are able or compelled to put it. If
we are dying of thirst, its utility is a maximum, but that
utility falls as we are able, for example, to use it for cooking
or washing    or watering our gardens, and what we are
prepared to pay for water, i.e., its exchange-value, varies
correspondingly. That is perfectly true, and if we were deal-
inig with exchange.value the argument is perfectly sound.
(Even so, we can only say what it has sold for, not what it
will sell for. The test of science is prevision.) But we are
dealing with inherent-value. And in any case, it is doubtful
if individual pleasure and pain can be measured, and it is
certain that there is no common measure of 'social' pleasure
or pain--if such a thing exists. Nor is it true that the end
sought is always the pleasure given by the consumption of
final goods. As Veblen says:
    The hedonistically presumed final purchase of consumable goods
is habitually not contemplated in the pursuit of business enterprise.
Business men habitually aspire to accumulate wealth in excess of the
limits of all practicable consumption, and wealth so accumulated is not


VALUE.


67






FROM CAPITALISM TO FREEDOM.


intended to be converted by a final transaction into consumable goods
or sensations of consumption.
     The attempt to measure utility by measuring pleasure
signally fails, the feat has never been performed, nor has
anyone invented a measuring instrument or shown us how
to use it; until that has been done we are justified in saying
that utility cannot be measured.
    We have now to show that the labor contained in a com-
modity can be measured.
    Viewed from    the individual standpoint, and under the
primitive conditions of simple production in which the first law
of value is clearly seen, the individual man consults his own
ease. If A wants a spade which he is able to make as easily
as a hoe which his neighbour B wants, then B, who has a
surplus spade, can easily arrange for A to make a hoe and
exchange it for B's surplus spade. Clearly it is a matter of
indifference to A whether he makes a hoe or a spade and to
oblige his neighbour, he will readily agree to make the hoe.
     Then the first law of value holds in the equivalence of
A's, effort in either case and by that effort we arrive at the
equation:-         1 hoe = 1 spade in value.
But as industrial conditions gradually grow more complicated,
the measure of exchange-value ceases to be an individual
evaluation and becomes a matter of social evaluation. The
point of view is changed; we have advanced a step on our way
round the shield. Society estimating the value of the labor-
power of a worker considers only the intensity and kind of
his activity, and the result of his activity, but is in no sense
concerned whether that activity is a pleasure or a pain-
whether the worker is sick or in good health-it asks for re-
sults and by the nature of those results the labor-power of
an individual is rated as equal to, or greater, or less in value
than some given standard; and, if the standard of value has
been taken as the average intensity of labor of a common
laborer, then exactly how much greater.
     A skilled laborer's natural hour of labor may be equal to
two hours of common labor, i.e., to two standard hours.
     And here it may be remarked that all labor is some com-
bination of mental and physical exertion. There is, and can
be, no such thing as purely mental and purely physical labor.
It is common to speak of skilled and unskilled labor, but there
is in reality no such thing as unskilled labor, skill of some
sort-no matter how low-there must always be; the terms
are merely relative.
     How, it may be asked, is this social evalution of individual
labor to be made?


68








    A rough evaluation exists at present, but the present
rough method is far from satisfactory: not only in its relative
but in its absolute determinations.
   The estimation in which different qualities of labor are held (says
Ricardo). comes soon to be adjusted in the market with sufficient pre-
cision for all practical purposes, and depends on the comparative skill
of the laborer, and the intensity of the work performed. The scale
once fixed is liable to little alteration. If a day's labor of a working
jeweller be more valuable than a day's labor of a common laborer, it
has long ago been adjusted and placed in its proper position in the
scale of value.
    If then we assume the standard-hour to be an hour of
mechanical work, or with Ricardo, as an hour of common
labor, then, for example, the effort of the jeweller (to keep to
R icardo's illustration) equals, for one hour of his time, two
"standard-hours"-' '-his effort having been determined in the
market as worth twice that of a common laborer.         (It is
obvious that-assdming this equation-we could just as well
say that the jeweller's time-hour was "standard" and the
common laborer 's working hour therefore amounted only to
half a standard hour). Following this process into more detail
we can posit an adjustment, sufficiently accurate for our pre-
sent purpose, of all the main forms of labor. Thus we get
at the number of standard-hours embodied in a given com-
modity, or what is the same thing, at the 'labor' value or
inherent-value, of that commodity. But observe that in doing
so we are really fixing wages as long as we accept the prin-
ciple that each form   of effort should be paid its worth in
standard-hours. By 'fixing wages' we do not mean that partial
and restricted sense in which the phrase is commonly used;
we mean the total payment by society to the individual for his
services, whether that payment be in cash or in the form of rent,
interest, dividends, or wages in the narrow sense, or in some
indirect form, for example, museums, public parks, free educa-
tion, pensions for sick or aged. In fact to 'fix wages' is, if the
words are rightly understood, nothing more or less than to solve
the prdblem of the distribution of wealth.
     It follows that we by no means concur in the decision of
 the market as at present constituted,-or as it was constituted
 in Ricardo's time,-any more than we concur in the decision
 of the judge in an Australian Arbitration Court. Our 'market'
 is something very different. In the market which we recog-
 nise there must be free competition-in the full sense of the
 words-and equality of opportunity for all. Everyone must
 be in the market-all alike must be hirers and hired. Under
 such conditions the wages of every form and variety of labor
 would be fixed by "supply and demand."' If the supply of
 some forms of labor was too great the 'wage' would be re-


VALUE.


69







FROM CAPITALISM TO FREEDOM.


duced, if too small the 'wage' would be increased. In that
manner we should arrive at what we should have good grounds
for calling a fair wage; in that way we should get a true social
evaluation. That method, depending on human judgment, may
not be perfect, but if man is not to measure the relative worth
of his own and his fellow man's work, who is to do so?
     To turn aside for a moment: it may be confessed that
the market we consider competent to fix wages justly is at
present an ideal. In the real market as it exists at present,
Swages are largely fixed from   above-not by the Deity-as
some would have us believe, but by employers,* whereas we
would have them fixed both by those above and by those below
conjointly. Yet even the decisions of the existing partial
tribunal are probably approximately correct, insofar at least
as relative wages are concerned, and we must perforce accept
these decisions for the present. The Panama Canal was con-
structed by men, whose wages were fixed-from highest to
lowest--from Colonel Goethals to the common laborer from
above by an existing system of state evaluation. No one has
suggested that Colonel Goethals did not earn his wage. He
may have earned more, so may all who worked with him. If
relative wages are justly fixed in the ratios 1:2:3, then 2/-,
4/- and 6/- is the just relation: but 3/-, 6/- and 9/- may be the
just wage. That is a matter we have still to deal with.
     But to return: our measuring stick is not yet marked with
its units of measurement. What unit should be adopted? The
selection of a unit of measurement is purely a matter of con-
venience, a mere convention. Practical considerations alone
decide whether we use the metre or the yard, the degree
Fahrenheit or the degree Centigrade. We select then the hour
worked by the common laborer as the unit of measurement
and call that hour the standard-hour. In that case when rela-
tive wages have been fixed, only one absolute wage, the basic
wage, has to be determined. Suppose for instance we consider
only three forms of labor: common, skilled, and intellectual,
and the ratio of these three forms is by social evaluation fixed
as 1 is to 2 is to 3; suppose further the basic wage is 2/- per
S.H.; then for one hour's work the common laborer receives
2/-, the skilled laborer (2 S.H. at 2/-) 4/-, and the intellectual
laborer (3 S.H. at 2/-) 6/-.     The payment evidently need
    *But not entirely. In some countries, as Australia, the judge of the
.Arbitration Court fixes the basic wage it is true, but he also fixes the rates
for many kinds of labor, and he does this after hearing evidence both from
above and from below; that is, from both employer and employee. On the
other hand, it is only the wage-earners in the ordinary sense of the
word who are subject to the jurisdiction of the Court. The wage of the
capitalist is the outcome of many economic forces, of forces rooted in
force, as history shows us; but already there are indications that his wages
are coming under the jurisdiction of a Court-the State-and his profits
fixed, or at least limited.


70








not be in cash, it may be in standard hour notes: then a 1 S.H.
note will exchange for 2/- or anything that is worth 2/-
   We conclude then: labor can be measured in standard-hours,
and the number of S.H's. of work performed by the individual
per natural hour can be determined by social evaluation. When
we have succeeded by social evaluation in correctly placing
every man's lalbor-power in its correct place in the scale of
value it is still necessary, by a process of time-keeping, to
ascertain how much labor-how      many individual standard
hour - each commodity contains. Even this operation is less
simple than it appears. Under simple forms of production,
the determination was easy because the individual made the
utility from first to last and the tools used were simple and
inexpensive, but under the modern complex method of produc-
tion, it is not so. Of the total labor-power embodied in a com-
modity, some is present labor, some is past labor, some is direct
labor, some is indirect labor.
    Raw material and partly finished manufactures alike con-
tain past labor; only the final operation which produces a
"consumption" good is present labor. Again, both present
and past labor may be direct or indirect-actual work in
making the commodity, or work in making the tools and
machinery used and in organising and directing the labor-force
employed. If a machine has cost a thousand standard hours
and during its "life" can only make 1000 articles, then in
every article there is embodied 1 S.H. of past indirect labor.
     Now, although it is not easy, or at least requires system
and care, yet it is quite possible to make these calculations:--
costs-clerks are doing it every day-only they do it with money
instead of with standard hours.
     If then we have determined by social evaluation the value
 of each man's work and reduced natural hours of labor to
 individual standard hours, so that the common laborer's
 natural hour is one S.H. and the scientist's natural hour is per-
 haps 5 S.H.: if further, we have by a process of time-keeping
 and assessment by cost-clerks determined exactly how many
 individual S.H. a commodity contains, it may be thought that
 the problem is solved, and that the inherent-value of every
 commodity and every service is known. That would be a great
 mistake--the problem of value is not so simple. We have to
 take another step-to advance further round our shield and
 view it fromi another standpoint-the social standpoint, because
 the inherent-value of a commodity depends not only on the
 number of individual S.H. the whole of its parts contain, but
 on the number of social S.H. it contains. It is exactly at this
 point that many labor leaders fall into error. Not only must
 the sum total of individual standard hours past and present,


VALUE.


71






FROM CAPITALISM TO FREEDOM.


direct and indirect be ascertained-they must be reduced to
social standard hours. The work two men can do working
together is not the same in amount as that done by the same
two men working separately-it is greater. Merely to add
together individual standard hours will not give us social stan-
dard hours, and it is the number of social S.H. contained in a
commodity that constitutes its social inherent-value.
    Nor is that all. We cannot by mere summation of indi-
vidual direct and indirect labor arrive at social inherent-value.
(That fact is eagerly seized on by apologists for "capital" and
its claims-as though "capital" could have any claims at all-
but :it is convenient for such apologists to confuse "capital"
with -capitalists.*) Indeed, as regards results (productivity)
one individual standard hour of direct labor, combined with
an individual S.H. of indirect labor, may produce ten times as
much as two S.H. of direct individual labor. How are these
new elements to be taken care of, and brought into theaccount?
The reply is: by what is known as differential rent and profit.
These matters will be dealt with later on. We have nearly
gone round our shield but not quite.
    Marx defines value as "socially necessary labor." He says
"'the value of each commodity is determined by the quantity
of labor expended on and-materialised in it, by the working-
time necessary under given social conditions, for its produc-
tion." We have put in heavier type the particular words it-is
necessary to emphasise.
     To grasp the full meaning of these words we must under-
stand that wherever differentiation takes place the thing so
modified must be regarded in its entirety if the matter is to
be understood. Thus the production of any particular kind
of commodity necessary to supply the wants of a community
must be considered as a whole; limited views are always mis-
leading. As when, for instance, we only see one of the two
commodities involved in an exchange, or when we are asked
the apparently ridiculous question: "How is it that undercut
costs more than shin beef?" we might just as reasonably have
been asked: "Why does wheat cost more than straw?"
   The cost of a bullock as a whole and the cost of producing
 the wheat including its straw is spread variously over all its
 parts. If we consider wheat only and wheat of the same
 quality, the cost of the whole harvest is spread--by the law
 of indifference---equally over the whole crop-although some
 portions of the crop may contain more individual standard
 hours than other portions. If the parts are not of equal quality
 --as, notably, in the case of a bullock-the summation of the
 parts gives the inherent-value of the whole, or rather, the
    *They wish to rationalise their interests; we all do.


72








inherent-value of the whole is divided variously among the
parts-the cost per pound varies. Nor must we confine our-
relves even to one bullock--all the bullocks requiredby a com-
aunity must be brought into the reckoning.
    This differentiation between individual and social S.H.
 wl as we have said be dealt with more fully when we come
 to speak of differential rent and profit, but we must under-
 stald the principle involved now. Man produces wealth by
 modfying the materials he finds in the world. He modifies
 matirial by his own physical energy, which is indeed one of
 the f9rces of Nature. But man regards himself as a thing apart.
 Tohin all other things are related-are relative. The materials
 he can use, just as they are found in the world, he calls natural
 riches. The materials he has modified to make them useful
 he calh wealth: he has mixed his labor in them. But man
 is not tle only force in nature; he can direct to his assistance
 external natural forces: and he has inherited many of the
 methods and a. knowledge of such direction. The steam or inter-
 nal combustion engine, for example, gives him command of the
 energy of chemical combination: machinery, often 'self-acting,'
 assists him to produce bricks, just as 'fertile' soil and a good
 climate assist him to produce wheat. Of the total number of
 bricks required by a community some may, necessarily under
 existing social conditions, be made by hand; the rest by
 machinery. One S.H. of individual labor may be embodied in
 100: hand-made bricks, and a similar quantity of labor in 400
 machine-made bricks. Assuming they are of the same quality
 and neglecting for a moment the depreciation of the machinery
 used, the total cost is 2 S.H. per 500 bricks. Then 1 social
 S.H. per 250 bricks is the correct inherent-value of the bricks
 and not 1 individual S.H. per 100, or per 400, as the case may
 be. There cannot be two prices for similar things at the same
 place and time. The individual S.H. is the just basis of the
 individual's reward (assuming he is entitled to receive in the
 ratio of his output of individual standard hours), but the social
 S.H. is the just price.
     And it is in this correct adjustment between the individual
 and the social S.H. that the whole social problem-in its eco-
 nomic aspect-consists. But Marx takes the matter a step
 further-as he was perfectly entitled to do; but we prefer not
 to follow him, as the result is to make the already sufficiently
 complicated still more complicated. It is an attempt-futile
 we believe-to identify (in quantity) inherent and exchange
 values, as they arise under the capitalist mode of distribution.
     Thus Marx tells us: "'The labor-time socially necessary
 is that required to produce an article under the normal condi-
 tions of production, and with the average degree of skill and


VALUE.


73






FROM CAPITALISM TO FREEDOM.


intensity prevalent at the time."*   But Marx goes farthe
than this: instead of drawing a clear distinction between 'true'
value (inherent-value) and exchange-value he tries to identify
them. Marx complicates his conception of "socially neces-
sary" labor by, in effect, reversing the phrase and making it
also mean "necessary social" labor. Thus he says: "Supp)se
that every piece of linen in the market contains no more la)or-
time than is socially necessary. In spite of this, all those pieces
taken as a whole have had superfluous labor-time spent upon
them. If the market cannot stomach the whole at the normal
price of 2 shillings a yard, this proves that too great a pirtion
of the total labor of the community has been expended in
weaving. The effect is the same as if each individual had
expended more labor-time upon his particular product than is
socially necessary."'t
    That is, a certain quantity of socially necessary labor-
necessary under the existing methods of manufacture was
not the 'necessary social' labor to meet the demands of the
existing market, i.e., the linen was oversupplied.
     In one case 'socially' means under the conditions of manu-
facture; in the other it means under the conditions of the
market.
     That, it seems to us, is to put more into the word 'socially'
than it can really hold-to load it beyond its saturation point.
On the other hand, Marx was perfectly entitled to give any
meaning he pleased to his own phrase "socially necessary"
provided he carefully defined it-as he did; and those writers
who think they discover dishonesty in Marx, either convict
themselves of stupidity or are themselves suspect. To disagree
with a writer or his method of presenting his subject-matter
is one thing-to suggest that he is dishonest is quite another.
As Marx has not made the clear distinction we have drawn
between inherent and exchange values, he is compelled to make
them identical-that is involved in the restricted meaning he
is compelled to give to 'utility,' namely, that if a thing is not
immediately desired it has no utility.
     A utility may be over supplied, so that-for the moment-
 it cannot be given away; then it has no exchange-value, nor,
 according to Marx, value of any sort. But because it is poten-
 tially useful although not, for the moment, actually useful we
 hold it may have inherent-value. In the absence of definite
 distinction between inherent- and exchange-value, Marx was
 forced into the position he took up, yet he is sometimes com-
 pelled to fall back on 'true' value, in contradistinction to
 exchange-value or market price, and he laid himself open to
    *Capital, Vol. I., p. 46, Kerr's Edition, 1919.
    tCapital, Vol. I., p. 120, Kerr'q Edition, 1919.


74








the charge, so often made against him, that his value was
entirely determined by the higgling of the market and had
no independent existence. We see the same facts that Marx
did, but prefer to present them in a different form.
    Finally, it is necessary to point out that our measuring
rod of social standard hours varies with varying conditions
in full accordance with the principle of relativity. Man's
general mental and physical capacity for work may gradually
change, yet the relations of men to each other in that respect
remain the same as, for example, when the capacity of every
worker alike is increased 10 per cent. But a quicker element
of change--in a progressive community-lies in the introduc-
tion of more or better machinery, technological methods and
industrial organisation. If we measure present values we use
present means of measurement. This preliminary investigation,
incidental to the consideration of the problem of value, must,
we think, already have shown that an intelligent social organ-
isation of industrial society is a crying need of the present
day and that the go-as-you-please of Capitalism, by courtesy
called a system, is utterly inadequate to satisfy the dictates
of social justice. In the next chapter on Surplus Value we
deal exclusively with social S.H., but they may also be regarded
as individual S.H. because the work of society is regarded as
a whole; in effect each man is assisted equally by machinery
and industrial organisation; but at the beginning of each year
more machinery is introduced (the number of workers remain-
ing constant).    It follows that the productivity of labor
increases from year to year and, as a consequence, the price
of commodities (in S.H's.) continually falls and the output
continually increases, that is to say: value varies inversely as
the quantity (and efficiency) of the machinery used and
directly as the number of social standard hours worked.
     But we are not yet in a position to formulate the laws
 of value. The first and fundamental law has been stated as
 follows: 1. Commodities exchange, or tend to exchange, in the
 ratio of their inherent values. That is the first and only law
 under 'simple production,' but as the methods of production
 grow more complex, these complexities modify the result of
 the first law, and must themselves be formulated into laws.
     Moreover, it has become clear that inherent-value has not
 a single and definite aspect-it is first individual-labor-time
 of the kind and intensity chosen by the individual-it is then
 the kind of labor tacitly agreed on by the two parties to an
 exchange-it is then the labor as rated by the community, i.e.,
 by social evaluation-it is then this evaluated labor embodied
 in a specific commodity, and finally this evaluated labor em-


VALUE.


75






FROM CAPITALISM TO FREEDOM.


bodied in the whole social output of that kind of commodity.
Marx, as we have seen, carried the complexity still farther.
    Let us then distinguish clearly between three of these
inherent values: 1. Socially determined or evaluated individual
labor, which we may call shortly 'individual' inherent-value.
2. Individual inherent-value embodied in a given commodity
which we may call the 'specific' inherent-value of that com-
modity, and 3, the social inherent-value of a commodity, which
we must further define. We saw in our illustration of hand-
made and machine-made bricks that of the single whole class
of 500 bricks, in one case 100 bricks had a specific inherent-
value of 1 S.H. and in the other case 400 bricks had a specific
inherent-value of 1 S.H. due to the use of machinery and
methods of different efficiencies, but the "social inherent-
value" of bricks as a class of commodity was 1 standard hour
per 250 bricks. Thus to reduce the specific inherent-value of
a unit commodity to its social inherent-value the number of
units contained in the whole class must be divided by the
number of specific (or individual) units of value the whole
class contains. The distinction between individual units or
standard hours and social units or standard hours is essential
because individuals are (or should be) paid in accordance with
their output of individual standard hours, but goods are sold
(or should be) in accordance with the number of social stan-
dard hours they contain. As we have already said this differ-
entiation between individual (or specific) and social S.H's.
constitutes the economic social problem.
     It is now probably quite clear that the dislocation between
the two is caused chiefly by the varying amounts and effi-
eiencies of the tools and machinery used, and to a lesser extent
by the various degrees of industrial organisation.
     We shall ultimately show that total individual-value=total
specific  inherent-value=total   social  inherent-value=total
exchange-value=total market prices. If the reader is disap-
pointed at the complexity of the subject it should be remem-
bered that truth is complex. If it were claimed that the number
of natural hours of work that went to the making of a useful
thing constituted its value-as some have thought was asserted
-the matter would be simple indeed, and would be evidence-
to those who know anything of the complexity of nature that
the claim was untrue. Individual inherent-value embodied in
goods constitutes their specific inherent-value, but the modifi-
cation of specific into social inherent-value can best be ex-
plained after the principles of surplus-value are understood.


76






SURPLUS VALUE.


                            VI.


                  Surplus Value.


    Surplus value is nearly as old as man himself. It casts its
roots far back into the past. It arose when man first received
in exchange more value than he gave. When by unequal distri-
bution of wealth society became differentiated into rich and
poor, when the rich lent of their abundance and received back
not only what they lent but 'interest' as well, surplus value
swelled in the bud: when large areas of land fell into the
hands of individuals, while other men had none, and 'rent'
became general, surplus value burst into flower: when tools
and machinery were concentrated in factories and owned by
few, whilst the many worked for wages and 'profit'-evolved,
the fruit of surplus value loaded the tree of Capitalism to
breaking point. Now, either the tree must break under the
load, or the fruit fall and decay.
    Our historical sketch has reminded us of the gradual loss
by the many of the agents of production and their engrossment
by the few. Divorced from his land and his spinning-wheel
the laborer could neither dig nor spin without concurrence of
landlord or capitalist: all he had of his own to sell was his
labor power. But he was no longer bound to the soil: he was
free to roam the countryside in search of work. With the
advent of the factory and wage-system the Industrial Revolu-
tion was complete: the two chief features of which are: (1)
ownership of factory and its products by, as a rule, those who
do not work in the factory: (2) Payment of wages in money
to those who do work in the factory. The present day has
brought a further though by no means unimportant develop-
ment in that factories are now generally owned by shareholders
and operated by their appointees, directors to look after the


77







FROM CAPITALISM TO FREEDOM.


surplus value, managers to look after the men. Meantime the
shareholder sits back and waits for his profits. And these
profits arise? Primarily they are the difference between cost-
price of production and sale-price of goods produced. 'Cost-
price' includes maintenance of plant, purchase of raw or partly
manufactured materials, and wages and salaries. 'Sale-price'
is whatever can be obtained in the market for the goods. Thus
profit is sale-price minus cost-price.
    A word of explanation as to wages. Wages are paid in
money: but real wages are the goods that those money-wages
purchase.   Real wages for some centuries have not varied
much: it is a matter in dispute whether they have increased at
all: there can, however, be no doubt that the increase, if any,
has been slow and small. They are fixed by custom or law
on the existing standard of comfort of the working class, and
no attempt is made to determine them by value of work done:
they must however be sufficient to enable the laborer to live
and rear a family.*
     Under the modern factory system of production it is
 obvious that if the rate of real wage paid in goods remain
 nearly constant and on the other hand the amount of goods
 produced is increased by the introduction of more and better
 machinery and by improved methods, a considerable increase
 in the quantity of surplus goods will result. Surplus value
 does not increase directly as surplus goods: Diagram VI. will
 show that the increase is much slower; but it does increase:
 how and to what extent will be better understood from the
 following illustration:-











                            Fig. 2.

     Figure 2 shows squares drawn on lines whose lengths are
 1, 2, and 3, and placed at distances 1, 2 and 3 from a reference
    *Where, as in Australia, wages are fixed by the Court, the rate enacted
 is based on the assumption that a man has a wife and children (two by the
 state courts of N.S.W., three by the Commonwealth courts), neither more
 nor less; and that he will be constantly enployed, but no guarantee of
 constancy of employment is given.


78






SURPLUS VALUE.


point. These squares may be used for the purpose of illus-
trating what is known as the law of inverse squares. That
law is followed by all forces (such as light, heat, gravity, etc.)
emanating from one point, as 0 in the figure, and spreading
out equally in all directions. The law states that the intensity
of the force varies inversely as the square of its distance from
the point of origin. That is, the more the force spreads out,
the weaker it becomes. Take the case of light, the square on
distance 2, and the square on 3, are shown divided into 4 and
9 small squares respectively, and each of these small squares
is of the same area as the square on distance 1. It will be
seen that as the light illuminating the first small square at
distance 1 is a constant quantity which spreads out and illumi-
nates uniformly the whole of the square on distance 2, each
of its four small squares must receive only one-quarter of the
light which falls on the first small square at distance 1, so
similarly each of the small squares at distance 3 gets only one-
ninth the amount of light which shines on the first small
square at distance 1. That is, the quantity of light per small
square is reduced from 1 to I and 1-9.
     Now replace this unit of light by a unit of labor-one stan-
dard hour-and suppose that by the introduction of machinery
and the sub-division of labor, and generally by better methods
of manufacture introduced from time to time the productivity
of labor is gradually increased, so that instead of one article,
ultimately nine articles of the same kind can be produced by
one standard hour of labor. Then in the same labor-time nine
articles are made instead of one.
     Suppose that at stage 1 there are no surplus products and
 the laborers receive in wages all the goods they make-repre-
 sented by the small square on distance 1. Then at stage 2-
 assuming, as we may, that real wages are constant-the laborers
 receive one small square, and the capitalists three; of the
 three one, let us say, goes to replace raw materials, and
 worn-out machinery, leaving a surplus of two small squares;
 then the value of these two squares constitutes surplus value.
 At stage 3 the laborers receive, say, 1- small squares (equal
 to a 50 per cent. increase in wages) and the capitalist 72
 small squares, of which, say, 2  go to replace raw materials and
 plant, leaving a surplus of 5 squares as profit.
     That is how the capitalist makes his wealth. But the capi-
 talist, if he be not also his own landlord, is compelled to share
 this surplus with the landlord class. (How the landlords ex-
 tract this tribute from the capitalists we shall discover later
 on.) Thus landlords and capitalists as the receivers of surplus
 products, and surplus value, tend to become rich, while the


79







80         FROM    CAPITALISM     TO FREEDOM.

laborers remain in this respect stationary, or, at best, only
slowly advance. Inequality. of wealth is the natural result.
    From the side of production, "the industrial machine is a
lever,' continuously being lengthened by progress, which enables
the burden of Atlas to be lifted with increasing-ease," but
from the side of consumption a counterbalancing friction is
developed which effectively prevents a general improvement in
human welfare. This defect in consumption arises from de-
fective distribution.



              DISTRIBUTION OF WEALTH

      1S]HJ1l ]HI HuIM 9NINMi1N0lIVlfldOd


boar 2'oG- %oo6,rw�v Zol Xo Z ' 2o  oz-r ; T


0


7.0


9Q)


401


%o9


20,E


0 7 Z0430Z; 407 507. 607 707;807. 90%.toot',
             74%               2 21
          WORK(ERS          LMIDDLE CLASS y sCAPITALLDTS
 POPULATION,- BEGINNING WITH THE POOREST


Fig. 3.


    That wealth is very unequally divided-in. every capitalist
community-is generally known, but an inspection of Diagram
1 will probably cause surprise. The diagram (Fig. 3) has been


Z:
bJ
.Q


zo

10






SURPLUS VALUE.


constructed from official and non-official returns in England,
America and Australia. Plotting the points given by statistics,
it was found impracticable to distinguish between England and
America--an average line has been drawn to represent both
countries. No particular accuracy is therefore claimed-abso-
lute accuracy is evidently-from the nature of the case-quite
impossible. Indeed later returns indicate that even too much
wealth has been ascribed to the workers, and the curves should
hug the bottom line of no wealth more closely. But at least
there is some approximation to the truth. In the diagram the
population is arranged in the order of individual wealth.
     The base of the small square represents 2 per cent. Read-
ing. along the bottom line it is seen that 74 per cent. of the
population of England and America own only 7 per cent. of
the private wealth of those countries. Consequently the balance
of the wealth, 93 per cent., is owned by 26 per cent. of the popu-
lation. If the diagram is held reversed-upside down-it will
be seen that 7 per cent. of the population owns 80 per cent.
of the wealth, and-a still more striking fact-1 per cent. of
the population own nearly 55 per cent. of the wealth.
     It will be seen that the total population has been divided
into: workers 74 per cent., middle class 22 per cent., and capi-
talists 4 per cent. It is not asserted that there are no workers
in the latter classes, or that all are employed in worker class.
The middle class here shown consist chiefly of a combination
of those whose income arises partly from personal exertion
and partly from property, and has nothing to do with culture
or social position.
     Before however showing in detail by a numerical illus-
 tration exactly how and why this inequality of wealth due to
 surplus value arises we must clearly realise the dynamic nature
 of wealth-production. Such production is, under any system,
 more or less continuous: under Capitalism it is practically an
 unbroken output,--in the language of the relativists it is a
 "space-time continuum."
     That the output continues means that it has movement or
 flow, that in effect there is a river of goods passing and always
 passing through all the stages of manufacture. In any one
 period, a day, a month, a year, every stage of production,
 from A to Z,-is going on; e.g., in the cotton industry, (1)
 clearing the soil, (2) planting cotton-seed, (3) reaping, (4)
 ginning, (5) transport to place of manufacture, (6) spinning
 into thread, (7) weaving into calico, (8) making into garments,
 (9) distributing to retailers, (10) distributing to consumer.
 Further, all these operations are interlocked and any notable
 change in the rate of flow in any one affects all other stages.
 F


81






FROM CAPITALISM TO FREEDOM.


Thus, if the rate of distribution to consumers slackens, shirts
accumulate in the hands of retailers, then of wholesalers, and
the check passes all along the line, and, if severe and continued,
may bring the whole industry to a standstill. What we have
here to observe is that properly to estimate the total wealth
produced-in any given period-we must consider the state
of the whole industry, from the first operation to the last,
measuring against each other the beginning and end of the
period. If these two are exactly equal, then the workers, in
that industry, have produced within the period all the shirts
sold :-in effect of course, for though the calico used in the first
shirts sold had been made in an earlier period yet the exact
amount of such calico remains in stock at the end to replace
it. Hence, if, as is inevitable, our diagrams cut up a really
continuous flow into artificial periods they still remain true
in the sense just explained. Each factory receives its raw
material in a partly manufactured state: its own product is
the raw material of the next factory in the line. This is the
necessary result of specialised production and must occur in
any higher form of industry.
     To present a numerical illustration of the way in which
surplus value arises, certain assumptions must be made,
and the endeavour has been to assume average figures which
correspond as closely as possible to reality, and in cases of
doubt not to overstate the case against the capitalist. The
following are the data as regards labor:
    1. The number of laborers is constant.
    2. The number of hours worked is constant, at 8 per diem.
    3. Before the introduction of capital, wages are taken as
seven-eighths of the whole of the products of labor.
    4. Real wages (i.e., quantity of products received by the
laborer in return for his labor-power) are steadily increased
by 2 per cent. of the original wage every year (simple interest).
    As regards capital:
    5. Fixed-capital in plant and capital in raw material is
increased at the rate of 32 per cent. compound interest.
     6. Concrete capital is equally divided between plant and
raw materials.
     7. The depreciation of plant is taken at 10 per cent. per
annum.
     8. The use of plant (i.e., prime movers, as steam engines,
etc., and machinery) is assumed to increase the output of pro-
ducts tenfold.


82






SURPLUS VALUE.


    A period of eighty years is considered and calculations
made for every fifth year. The results are embodied in tables,
and shown graphically in diagrams.
     With regard to the several data a word of explanation
may be permitted.
     1. " The number of laborers is constant." With so many
varying quantities it is desirable, whenever possible, to assume
constancy. A community with a fixed population, or rather
a fixed number of workers, is therefore assumed:
     2. "The number of hours worked is constant at eight."
 The same reason holds as in 1.
     3. "The original * wage is taken at seven-eighths of the
total production"; one-eighth being retained by capitalists as
rent, interest or profit. Suppose for instance workers are em-
ployed in gathering firewood, that they receive �700 in wages,
and the firewood is sold for �800. If the �700 includes the cost
of management by a foreman, etc., then �100 is the clear
profit-or absolute surplus value as Marx calls it.       (No
machinery being employed.)
     4. "Real wages are increased steadily by 2 per cent. per
 annum (simple interest) after the introduction of machinery."
 As a fact nominal wages fluctuate, but on the average nominal
 wages show   a tendency to advance.    Whether real wages
 actually increase 100 per cent. in fifty years and 300 per cent.
 in one hundred years, or not, is open to serious doubt, and it
 seems probable that the rate of increase is not correctly repre-
 sented by a straight line, as has been assumed. The assumption
 regarding real wages is, however, believed to be approximately
 true, or to state the case favorably for the capitalist. Thorold
 Rogers in his "Six Centuries of Work and Wages" says:
 "Relatively speaking the working man of to-day is not so well
 off as he was in the fifteenth century."
     5. "Fixed" capital in plant and capital in raw materials
is increased at the rate of 3- per cent. compound interest."
There is not the slightest doubt that the capital employed in
pr6gressive countries increases in some geometric progression,
and there is reason to believe that 32 per cent. compounded
is approximately the true rate. The exact rate, no doubt,
varies at different times, and in different countries, but it is
of little consequence whether the rate be 2- per cent. or 5
per cent. for the principles involved are the same. Unfor-
tunately, owing to the backwardness of official statistics the
rate cannot be directly obtained, but the growth of exports is
known, and it is probable that these are proportional to the
growth of capital.
    *As yet there is no machinery employed.







FROM CAPITALISM TO FREEDOM.


    Diagram II. (Fig. 4) shows the growth of Australian
exports from  1830 to 1920.
                             MILLIONS
  A.D1920        70   30   40    0    60   70   80  90



     190                                              1900

     90                                               90

     80                                               30

     70                                               70



     50                                               50

     40                                              40

             10   20  30   40    50   60   70   80  90
                          MILLIONS
                          Fig. 4.
These diagrams, or graphs, are easily read. Thus: To find
the amount of exports in 1860, follow the horizontal line,
marked 1860, due east until the curve is met, then go vertically
due north to the figure 20. As these figures represent mil-
lions, the exports from Australia in 1860 were in value nearly
�20,000,000. It will be noticed that there is a considerable
deviation about this time from the 32 per cent. curve, due no
doubt to exceptionally large exports of gold.
     The gash in the upper right hand corner of the diagram
in 1914-15 was due to restricted exports during the great
European war, but generally the 3  per cent. compound in-
terest curve fits the export figures pretty well.
     6. It has been assumed that half the capital is in plant,
 and half'in raw niaterials. By plant is meant prime movers,
 as steam engines, internal combustion engines, water wheels,
 turbines, wind mills, etc., in fact any and every device by
 which the forces of nature are directed to the use and benefit
 of man; and not only prime movers, but machinery of all sorts


84






SURPLUS VALUE.


which under the control of man and driven for the most part
by the forces of nature manipulate the materials of nature.
Thus the forces of nature are made to manipulate the materials
of nature, and produce articles of use, or utility. (It is evident
that the same kind of result is obtained by a machine whether
it be driven by hand power, or steam power.)
    By 'raw materials' are meant not only crude materials
as they occur in nature, as coal, iron ore, etc., but all partly-
finished products up to the last stage of manufacture. Raw
materials, plus wages, are often spoken of as 'circulating
capital' in text books on economics, but wages (including
salaries) are distinguished by Marx as 'variable capital.' In
other words 'circulating capital' consists of 'variable capital,"
i.e., salaries and wages, plus the 'constant capital' in raw
materials, coal, oil, etc., but it does not include the cost of
plant.
    7. "The average depreciation of plant is 10 per cent. per
annum;" an ample allowance.
    8. "The use of plant increases products ten-fold." Marx
gives a number of cases in which the increased production
due to the use of steam or water power in conjunction with
machinery and human labor is on the average as high as
sixty-fold. A more moderate estimate of a ten-fold increase
has been assumed here, or rather since only half the capital
is assumed to be invested in plant, the increased production
by the total capital invested is only five-fold. These assump-
tions have been tabulated and their results are shown in the
diagrams, but the tables themselves and the detailed method
of their calculation are to be found in the appendix. It should,
however, be pointed out that the income capitalists can spend
in consumption goods or on new capital goods is not in reality
so great as is shown in the tables. No account has been taken
of the loss of capital due to the introduction of new kinds of
machinery which cause old plant to be scrapped before it is
worn out.
     This matter will be referred to later on, but as these
 losses may be heavy, the fact should be noted now.
     Industry is a movemenj and we can only chart the course
 of a moving body by fixing points through which it passes
 during a given period-whether day, month or year is of no
 consequence. By connecting these points we obtain a graphic
 representation of the progress of industry. Times of 'turnover'
 would furnish the most correct period, but they vary; yearly
 periods are convenient because it is customary to state profits,
 interest, depreciation, etc., on that basis. The day originally
 adopted may, then, be taken to represent a year.


85









86 LFROM CAPITALISM TO FREEDOM.


0P


000VI
0 0


0


L.


_00


LC)


3v .


  L 2z


  liii KP

CO-


- - -f-I-~4- - -I-I--l-"


00


oJ2AN


.


L~4


...I)


i i i i i i f I i I i i  11  --d i


F l .- -- - 4 - A te.--}-- }---} ,; i - --- {----i} T =;%- i 0 r-= .


66


I
r--


i
t
f


S JV2A







SURPLUS VALUE.


    Diagram III. (figure 5) exhibits the growth of capitalistic
industry, on the assum.ptions made, over a period of 80 years.
The standard hour of labor adopted is the natural hour of
'common' labor to which all other kinds of labor, mental or
physical, are reduced.
    The diagram is made up of two graphs with a common
base line 0 -8. On the right (going East) from 0-8 we first
meet the curve of. 'raw materials'; next, that of plant de-
terioration; and finally the curve of total (constant) capital
in plant and raw materials. On the left hand side of 0-8
(going West) we have the curve of wages, which when
measurement is made from 8-80, instead of from 0-8, is also
the curve of sur-plus value.
    Of the whole period of 80 years consider the position at
the beginning, end, and middle point.
    In the zero year no constant capital at all is employed,
merely the money capital used as wages, which Marx terms
variable capital. We may suppose laborers to be exclusively
employed in (say) gathering firewood to which they give a
'place' value, by placing it in a depot: they receive seven-
eighths of this value-but relinquish one-eighth as 'rent' to
a non-workcr who 'owns' the forest. That one hour's work
(out of eight) is not paid for; Marx calls it unpaid labor or
absolute surplus value.  (Of -the total surplus value the
diagram shows the absolute surplus value as a constant; in
reality the ratio of absolute to relative surplus value depends
on the degree of monopoly, but data is not available.)
     1. If we express the division of the products of industry
        in quantities and not in values we have for the Zero
        year:
             Capitalists, 100.      Laborers, 700.
     2. In the 40th year of Capitalism the division of the pro-
        ducts is as follows:
             Capitalists, 635.      Laborers, 1160.
     3. In the 80th year (the end of the period examined) the
        -division is
             Capitalists, 2232.     Laborers, 1820.
     Thus on our iniprobable assumption that real wages
 steadily increase by 2 per cent. per year, wages during the
 80 years have risen from 700 to 1820: profits have risen from
 100 to 2232.
     Stated in values, wages have decreased from 700 to 359:
 profits have increased from 100 to 441. Roughly, wages have
 been halved, profits have been multiplied by four.
     The figures quoted and the method of their calculation
 will be found in the appendix.


87







88         FROM CAPITALISM TO FREEDOM.

    The reader will note that 'the halving of the value of
wages goes hand ini hand with a (more than) doubling of the
quantity of products received, yet relatively the laborer gets
poorer and poorer and the capitalist richer and richer.
    There is constant confusion in economics between values
and products, because the quantity of products increases much
faster than the inherent-value incorporated in them. The same
quantity of labor is continually making more products.
    The curve on the extreme right of diagram III. (figure 5)
is the curve of 32 per cent. compound interest and is of the
same character as the dotted curve shown in diagram II. (figure
4). It represents the growth of capital (assumption 5), which
is probably nearly correct. Of the total capital, half (shown
by the next curve marked raw materials) is invested in plant.
The small area cut out of the other half, viz., plant (line.0 to
16), is the loss of plant by deterioration or depreciation; viz.:
one-tenth per annum.

                          MM WEAL TH
                 TOTALOI D YcRYEARLYPA'ODIXTS
          C(S5JPUAffTKYI GOOLI  _ TOTAtRAW MATERIALS AND PLANT USED  __
          PLU~S RRO lX ~-- 41AGE~S--- IPMY IYFD IINEtPE&-WWU PMTSE If MLlTEOV

    8   4.3:                       3               7 t$,

  -70

  60---



  50                                          _i        30


        -20I                                10


 10o .                                                 -1
 r54        3   2   1  0    1   2  3   4   5   6   7   8?e
                      QUANTITIES        Fig. 6.

     This depreciation and the whole of the raw. material
 actually' used in any one year is a first charge on the industry
 and is recovered in the price of the commodities. Marx divides
 the total value of the goods produced, into surplus-value 3,
 wages VT, and raw materials and plant consumed C. Thus







SURPLUS VALUE.                       8


S + V + C is the totalyearly (or periodical) value. V + C
he calls the 'cost of production' when plant and raw materials
arc purchased in their true (inherent) values.
    Diagram IV. (Fig. 6) shows the increasing quantity of
daily or yearly products due to the increasing use of capital in
plant, and also the gradually increasing amount of products
incorporated in raw materials and plant. The enormous in-
crease in the quantity of products made by living labour when
assisted by machinery, is seen at 'a glance.

           DISPOSAL OF LABOR WORKING-TIME
        TME PRODUCJING   TIME PROOLICING  TIME PRODUC1NG
        CAPITALISTS  CA P1TALIS TS PARTLY FINISHEDI)PPOOLrn  WORKERS
        oFL5MPW) &GOB5                    COM~UMPTILWIGUS


$�0          2     3    4     55   6 7        SoR

70-7
        -------------- S-------------- ---------70-




60-                                            6-


50 -50





30-30




                                               20

oer - oZero


         VALUE
                         Fig. 7.

    Diagram V. (Fig. 7) embodies the table of Labour Time,
and has already been. explained. it will be seen howe the time
devoted to the finishing. process which produces '.consumption
goods' grows gradually less. and the time required to bring the
'raw materials' or partly-finished products to the finishing
stage gradually increases.


89


I5


2


Y






90         FROM CAPITALISM TO FREEDOM.
    The relation between 'value' and 'quantity' is exhibited
in Diagram VI. (Fig. 8). Both are plotted to the same scale.
Value has a tendency to remain constant, or to increase slowly.
Under the conditions assumed 800 S. hours are worked per day
throughout the whole period of 80 years.


    VALUE     QUANTITY OF PRODUCTS
  802   I   0    1    2    3   4         6   7    8    9

  70

  60













             SI,         Fig. 8.


    At a first glance it would appear as though the daily value
producedought at all times to be 800, no matter what the quan-
goods produced in the same time by the same number of work-









ers the value of the goods should, it would appear, be halved






labor (807 past and 800 present). The daily amount of






SURPLUS VALUE.


labor, past and present, direct and indirect, embodied in com-
modities has practically been doubled. On the other hand, the
quantity of goods produced has been increased more than five-
fold, from 800 to 4052 (see column 8a, Table of Products). Or,
if we consider present labor only, a man in the 80th year
produces, with the assistance of capital, more than five times
the products he could make in the Zero year, five times as
many consumption goods.
     It is quite possible for the quantity of goods received in
wages to increase, and the value of wages to fall.    For in-
stance, from the Zero year to the 80th year wages increase from
700 to 1820 in quantity (see column 7, Table of Products), but
fall in value from 700 to 359 (see column 7, Table of Values),
but, again it may be remarked, it is the quantity and not the
value of the goods that counts in the welfare of a people.
Quantity constitutes real wages: value or price, nominal wages.
Diagram No. III. shows 'values' in the same form as Diagram
No. IV. exhibits quantities.
     Diagram VII. (Fig. 9) exhibits the fall in the time (and
value) required to produce an article, due to the use of mach-
inery and the better organisation and subdivision of labor.
The time is shown in standard minutes; if expressed in frac-
tions of a standard hour, then Time x Quantity = Value (in
Standard Hours).
    In the table of 'Values,' column 18 (see Appendix), it
will be noticed that the rate of profit varies considerably, that
is, the rate of profit on the true cost of production, C - V.
The constant capital, C, consists of the partly finished mater-
ials embodied in the consumption goods and the material and
labor required to replace the worn-out machinery, and the
variable capital, V, consists of the goods paid away as wages,
or salaries. Surplus-value consists of rent, plus profit, plus
interest.
    Some confusion may arise from the use of the word 'profit'
to mean surplus-value. It is strictly a part of the total sur-
plus value, but it is often used to denote the whole.
    In the Zero year the rate of surplus-value is 12- per cent.
This rate of 'profit' continually increases until in the 55th
year it reaches 46 per cent. It then continually falls and will
continue to fall, no matter how long the period analysed, pro-
vided the conditions assumed still continue to exist.
    It will also be noticed that the value of the total capital
employed continually increases; from 700 in the Zero year to
1827 in the 80th year. The quantity of capital also increases
from 700 to 9254. On the other hand the cost of the living
labor-power employed decreases from 700 to 359, but the


91







92         FROM CAPITALISM TO FREEDOM.

quantity and inherent value of present labor-power remains
constant, at 800 standard hours.
    Thus past labor becomes a larger and still larger pro-
portion of the total labor employed, or, speaking in terms of



             COST OF PRODUCING ONE ARTICLE
                   IN STANDARD MINUTES
                      (PRESENT LABOR)


to


2 0  40Af


  80


  -70


  60 -60


  '50                                         5


z 40  - - - - - -   - - -  401"


  30----3---                                  0


  20  - - - - - - - - - - - - 20


  10            -. -                    - - 10


10     2U0   3U     40


.90


W


60 MWU7&;


                           Fig. 9.


capital, tlie constant capital continually. increases while re-
latively the variable capital continually decreases.
    If we term the constant plus, the variable capital, the total
capital (neglecting for the moment the capital not worn. out)


fO t


i1i Go







SURPLUS VALUE.


then total capitals with a higher proportion of constant capital
are termed by Marx, capitals of higher organic composition.
Each succeeding year our assumptions give capitals of higher
organic composition than those used in the preceding year.
Thus in the 10th year variable capital is 97.8 per cent. and
constant capital only 2.2 per cent. of the total capital. In the
80th year the variable capital has fallen to 30.8 per cent. and
the constant capital has risen to 69.2 per cent. The capital
used in the 80th year is therefore of higher organic composi-
tion than that used in the 10th year. Now Marx points out
that with capitals of the same magnitude the percentage of
profit is smaller in those of higher organic composition,-
provided, and the proviso is vital, the degree of exploitation, or
the percentage of surplus-value remains constant. Or to put
it in another way: of two capitals of equal magnitude that in
which the variable capital is greater, i.e., employs the most
men, will return the higher rate of profit provided the per-
centage of surplus value remains constant.
    That statement appears to contradict our figures, which
show an increasing rate of profit in capitals of higher organic
composition from the Zero to the 50th year. The explanation
is that in our figures the percentage of surplus value does not
remain constant. With the proviso Marx makes, his statement
is perfectly correct.
    After the depreciation of plant has been made good and
the raw material made in previous years has been replaced,
the value of the surplus products available for consumption
(or reinvestment) is distributed as follows:
    In the Zero year, 88 % to workers: 12 % to capitalists.
    In the 50th year, 592% to workers: 401% to capitalists.
    In the 80th year, 45 % to workers: 55 % to capitalists.
    The percentage of the total value of products taken by
capitalists continually increases; the value taken by workers
continually grows less, although the products taken by
workers may slightly increase.
    If, however, the value taken by capitalists is expressed
as a percentage on the total capital employed we have:
    Zero year, nil: 50th year, 35%: 80th year, 24%.
    After the 50th year the percentage on the total capital
employed continually falls, because the capital employed in-
creases faster than the total surplus value of the products, but
the mass of value taken by capitalists continually increases
while the mass of products taken by capitalists enormously
inereases.
    We now come to the consideration of a fact which has
been a great stumbling block (it has even been thought fatal)


93







FROM CAPITALISM TO FREEDOM.


to the labor theory of value as enunciated by Marx, viz.: the
tendency of industries to yield an average rate of profit on
the total capital employed.
    It has been shown that capitals of different organic com-
position produce, or tend to produce, different rates of profit
    At any given time it is evident that existing industries
use capitals of different degrees of organic composition. Some
employ relatively more laborers, some less-the ratio of the
amount spent in wages, to the amount spent in raw material
and plant varies greatly. Industries of low organic composi-
tion (those, i.e., employing a relatively large quantity of labor)
should produce a high rate of profit. And yet, as a fact, all
industries produce, or tend to produce (we neglect the growing
results of monopoly) the same rate of profit-calculated on the
total capital employed. How can this be explained?       Our
figures for any year are merely a statement of the average
composition of all the then existing industries, and do not
affirm that each industry has that particular capital compo-
sition, i.e., the particular ratio of constant to variable capital,
set down-they only state that the average composition of all
the capitals in use in that year has that particular ratio. Our
figures, in fact, are 'social' and not 'specific' inherent-values.
    Now suppose that instead of showing the growth of indus-
try over a period of 80 years, the whole table of values and
products should represent 17 industries working during one
and the same year and having the various compositions of
capital shown in the tables; such industries would yield ac-
cording to the figures (column 20) profits varying from 12
per cent. to 35 per cent. Could such varying returns be main-
tained? Obviously they could not. It must be quite evident
that with money to invest even the densest capitalist would put
it into the 11th or most profitable industry, and that this
example would be followed by others. That this is what has
occurred is as certain as it is that water will run down hill.
    When the deepest depressions in the field of industry have
been filled the water-(the capital)-will flow into the minor
depressions until we shall get, what in fact we have, a uniform
level surface, a level rate of profit in all existing industries.
What that level is, depends on the total quantity of profit avail-
able, and the quantity available is the sum     total of the
'specific' profits arising from all industries.
    This perfectly natural equalisation of profits under Capi-
talism has been hailed with delfght by critics as a contradiction
of the labor theory of value. It contradicts it exactly as a
magnet contradicts the law of gravitation when it lifts a steel
pen from the table--but in fact it is no contradiction at all;


94






SURPLUS VALUE.


on the contrary, it fulfills the theory and is implicit in the term
'soeially necessary.'
    Marx had been accused of plagiarising Rodbertus* (a
neglected writer whose works are well worth reading: his
standpoint is even more evolutionary than that of Marx).
Engels, as a consequence of this accusation, in his preface to
the second' volume of "Das Kapital" (issued after the death
of Marx), threw out a challenge to economists to show how the
views of Rodbertus reconciled the average rate of profit with
the labor theory of value, promising to give Marx' solution
in the third volume. No one was able to do so.
    At length that solution appeared, but it was not-we may
almost say it is not-understood because the full meaning of
socially necessary is not realised. Yet the matter is not diffi-
cult. In any self-contained community its full requirements
for any particular commodity are met-in most cases--by
several different factories of various degrees of efficiency, and
working under different conditions. The most efficient makes
the highest profit but cannot supply the whole market. From
this necessary differentiation we must look for enlightenment
to the industry as a whole-or the commodity as a whole-
because what is true of one class of commodity is true of all
commodities amongst themselves, we must look to the integra-
tion in which this differentiation takes place; we must pass,
in fact, from specific inherent-value to social inherent-value.
The entire labor of production is distributed in the market
throughout the -whole mass of commodity produced, just as a
teaspoonful of sugar will, in time, diffuse itself uniformly
throughout the whole cup of tea, or as salt penetrates the whole
volume of contained fluid, or leaven leavens the whole lump.
This aetion is known to science as saturation, or as endosmosis
-a passing through a living membrane to mix with another
fluid of a different density-so through the living membranes
of labor, labor-powers of different densities are mixed. The
whole cup may be represented by the manor, the guild market,
the Hanseatic League, the nation or the civilised world--but
within the limits of the cup this endosmosis takes place.
    Thus we have the effect of the unrestricted primary law
of value modified by a secondary law, viz.: competition amongst
capitalists. Once more we have to do, not with the making
of value, but with its distribution when made; with the trans-
formation of inherent value into exchange value.
   *Every writer, consciously or unconsciously, adopts the ideas of others,
but Marx, like Shakespeare, so altered what he adopted as to make it his
OWfl


95







9 FROM CAPITALISM TO FREEDOM.


    This transformation is shown in Diagram VIII. (Fig. 10).
    The normal (full) line of surplus value is that due to the
FIRST LAW Of VALUE: commodities exchange, or tend to
exchange, in the ratio of their specific inherent-values. That
law operates, no matter how it may be restricted or its effects
modified, under every system: of production and exchange.


             NORMAL PROFIT


AVERAGE RATE OF PROFIT      01


4    5     6


- r - - 1- 1- r -~r ~r - - - T-- T.


8
17


    132


15   __ _itiiii~


1                                        '
I                                 -
                 por


AVERAGE


  3    4     5    6
PROFIT OR SURPLUS VALUE
IN STANDARD HOURS
    Fig. 10..


7    8


c


Under simple. production the effects of the .law are hardly
modified at all, but under the complex system of production
known as Capitalism a secondary law comes into play.. By
endosmosis fluids of different- densities are diffused equally
throughout the whole mass, so by the second law of value


(r)


v




S


96





SURPLUS VALUE.


specific inherent-value is transformed into social inherent-
values or, using Marx' terms, specific profits are merged by
competition between capitalists into an average rate of profit
on the total capital employed, and capitals of different organic
composition receive a uniform rate of profit. Marx calls this
'the price of production'; we term it social inherent-value.
This variation from normal profit is represented in diagram
VIII., figure 10, by. the dotted line. The area on the left of
both lines is the same area, but the shape of the area is dif-
ferent. Both represent the total surplus value, but the dis-
tribution of profit (or surplus value) amongst the seventeen
industries is different.
    THE SECOND LAW         OF VALUE may be stated as fol-
lows:-The exchange-value of a commodity is greater than its
Specific inherent-value when the organic composition of the
capital used in its production is high: conversely, the ex-
change-value of a commodity is less than its specific inherent-
value when the organic composition of the capital used in its
production is low: in other words commodities exchange, or
tend to exchange, in the ratio of their social inherent-values.
It follows that when capitals of average organic composition
are used their products exchange as though only the first law
operated: provided their exchange is not affected by the
operation of the third law of value. As a corollary to the
second   law  we have: under free      competition  amongst
capitalists the quantity of capital employed in the pro-
duction of any commodity tends to increase or diminish
until an average rate of profit results, on the total capi-
tal employed in all industries. We have now reached nearly
to the surface appearances of exchange-value, to the point, in
fact, where we parted company with Marx in his presentation
of the subject, viz., to that modification of 'social' inherent-
value known as supply and demand, which results in ex-
change-value or market price.  Figure 11 shows in diagra-
matie form the play of supply and demand. The figure was
origihally intended to illustrate the variation of exchange value
from: inherent value. If the reader will substitute, in his mind,
market price for exchange-value, and "social" inherent-value,
or, "the price of production" as Marx terms it, for inherent-
value, the diagram can be used to illustrate the THIRD LAW
OF VALUE, namely: The exchange-value of a commodity is
greater than its social inherent-value when the commodity is
scarce, but less when the commodity is abundant; in other
words: commodities exchange at their market values. Of
natural scarcity we have already spoken-the third law refers
entirely-insofar as it is an economic law-to artificial
scarcity.
G


97






FROM CAPITALISM TO FREEDOM.


     The straight horizontal line     represents the   normal
line of inherent-value (price of production).      Two com-
pressed spiral springs represent supply and demand and carry
at their junction a pencil which pormally traces out the
straight line of inherent-value (price of production).   Now
suppose lateral oscillation is set up. As the spring of demand

                        SUPPLY








                        DEMAND
                           Fig. 11.

extends it weakens, as the spring of supply is compressed it
strengthens until a reaction takes place and the pencil is car-
ried in turn below the normal line of value. This action and
reaction in the springs correctly illustrates the action and
reaction of supply and demand.
     Suppose the pencil is carried forward from left to right,
or, what comes to the same thing, the paper is carried under
the pencil from right to left, then it will trace out the line of
exchange-value (market-price). The illustration is in fact on
the lines of the steam indicator diagram.
     Over a long period the sum of the areas above the line
will be equal to the sum of the areas below the line, i.e., the
pluses will equal the minuses. This play of demand and sup-
ply assumes free competition, but Capitalism is changing and
the economic laws of Capitalism must change too. It cannot
be too clearly apprehended, that economic law is merely a
generalisation of the principles of the system of industry (and
the method of distributing its results) in vogue for the time
being. When free competition no longer exists-and it is fast
ceasing to exist-the law of demand and supply becomes the
'law' of economic (or political) force. When monopoly reigns
supreme-and it is growing fast-it can be said of the laws of
economics, as of snakes in Iceland, "there are none."    Eco-
nomie law is relative to, restricted to, and conditioned by a


98






SURPLUS VALUE.


special system  of industry, or body of reference; it is not
universal, inexorable, immutable, eternal, or something equally
drastic, beloved of our newspaper leader writers.
     The fallacy of treating exchange as a means of increasing
the general wealth-(the things exchanged)-was trenchantly
dealt with by Ruskin long ago:
    If in the exchange one man is able to give what cost him little
labor, for what cost the other much, he 'acquires' a certain quantity of
the produce of the other's labor. And precisely what he acquires, the
other loses. In mercantile language, the person who acquires is com-
monly said to have 'made a profit,' and I believe that many of our
merchants are seriously under the impression that it is possible for
everybody, somehow, to make a profit in this manner. Whereas, by the
unfortunate constitution of the world we live in, the laws both of
matter and of motion have quite rigorously forbidden universal acquisi-
tion of this kind. Profit, or material gain, is attainable only by con-
struction, or by discovery; not by exchange. Whenever material gain
follows exchange, for every plus there is a precisely equal minus.

    Note that Ruskin says material gain. It is not denied
that every voluntary exchange gives mutual satisfaction, or to
one of the parties less dissatisfaction, notwithstanding the fact
that both of the parties to the exchange may be aware that one
of them is sacrificing a material or inherent-value; that one
is making a profit, the other a loss, as measured under normal
conditions.
    To illustrate the third law   of value let us take a con-
crete case. For greater clearness, it may be well here to re-
place "standard hours" by the more familiar measure of value,
--gold. Suppose then that a natural hour of work by a pick
and shovel man working with the average degree of skill and
intensity of his class has been adopted as a standard hour of
labor. Suppose further that such a standard laborer works
as a gold miner on a gold field of average richness and wins
on the average 11.3 grains of pure gold per hour, then the
standard hour expressed in pure gold is one-tenth of a sove-
reign, i.e., two shillings and we have the equation:-
                        1 S.H. = 2/-.
     (There are reasons for believing that this estimate is ap-
proximately correct). Replacing, then, the standard hour by
its gold equivalent of 2/-, we will, as our illustration, take the
case of a party of fishermen. In one day (or night) let us
suppose that 50 S.H. of labor are expended in catching and
selling fish. Then the specific inherent-value of the catch-
large or small-is 100 shillings. If only one fish is caught
it has cost �5, if 1,200 fish are caught, each fish is on the ave-.
rage worth one penny. Suppose the average catch (for a
similar expenditure of labor in the whole industry) is 100


99






FROM CAPITALISM TO FREEDOM.


fish, then the social inherent value of each fish is on the ave-
age 1/-. That is the 'true,' 'real,' or 'normal' price per ave-
rage-sized fish. Now -consider the market. Suppose that at
id. each the market is glutted (at anything below that price
our fishermen are not repaid for hawking them round and
consequently will not do so): further, that above 2/- each no
one will buy, we then have maximum and minimum limits.
Further, suppose that our fishermen have previously tested
the possibilities of their market, and find they can sell their
fish in the quantities, and at the prices, shown in the following
table :--
          Exchange                       Specific
          value                          inherent-
          per fish.                      value
                                         per fish.
1,200 fish @ Id. = �5   0 0         1,200 @ ld. = �5    0 0
1,000 ,,   @ 2d. =   8  6  8       1,000 @ lid. =    5 0   0
  500,,      6d =1210      0         500 @ 2d.=      5 0   0
  250  ,,  @ 9d. =   9  3  6         250 @ 4d. =     5  0  0
  *100 ,,  @1/- =    5  00 100 @ 1/- =               5  0 0
  50   ,   @ 1/6=    3 15  0          50 @ 2/- =     5  0  0
    5  ,,  @ 2/- =   05                                 0  0
    Now although it is quite true that if all exchanges are
taken into the account, things must on the average exchange at
their real values, yet one industry may, and in fact does, per-
sistently sell its goods above their value while another as per-
sistently is compelled to sell them below their value. Our
fishermen 'ought' to sell so as to realise 100/-, but (on the
above schedule) it will pay them to restrict the supply to 500
fish per day and throw away the rest of their catch. Thus,
whether it be our humble group of fishermen, or a capitalist
octopus like the Standard Oil Trust, there is the same tempta-
tion to seek the point of maximum gain; and the process is the
same, it is a matter merely of keeping the consumer hungry.
     In Diagram IX., Fig. 12, this final modification of inherent-
valuet into the exchange-value of the market is shown by a
dotted line. Using Marx's terms we have 'true' value modi-
fied into 'the price of production,' and finally into 'market
prices.' In every case, no matter which line we take, the area
of the figure (total value) whether to the right or the left is the
same in magnitude. Labor and labor only makes value.
   *Exchange-value, specific inherent-value and social inherent-value all
coincide at this point.
   tThe diagram shows quantities not values, but at any given moment
quantities are proportional to inherent-values.


100







SURPLUS VALUE.10


    Owing' to the use of two sets of terms (our own and Marx)
it may be well to place them side by. side to illustrate the trans-
formations. undergone by actual concrete labor-time until it


s CAR'LAW 2. PRISE OF PRODUCTION IN GOODS    -
TERTIARY LAW -3 MARKET PRICE IN GOODS-
PRIMARY LAW I. TRUE VALUE IN GOODS -
  r    2    3    4    5    6    7    8


515


3             -

II r


PAU


MARKET PRICE IN GOODS.


                       Fig. 12.

results. in the exchange-value of the market; thus :
        Marx' Terms.               Author's Terms.,


(a) Actual concrete labor.
(b) Concrete labor in average
    hours.
(c) Abstract labor. time in
    Commodities.
(d) Price of production in
    average hours.
(e) Exclawge value 'or mar-.
    ket-price.


(a) Actual concrete labor.
(b) Individual s ta nd ar d
    hours.
(c) Specific standard hours
    in commodities.
(d) Social inherent-value in
    standard hours.
(e) Exchange value or mar-
    ket price.


101


II


i


7    8   9I







FROM CAPITALISM TO FREEDOM.


    The transformation from    (a) to (b) is made by "social
evaluation" from   (b) to (c) by the embodiment of labor-time
in commodities (or services) by -means of machinery, etc., of
differing efficiencies; from (c) to (d) by differential rent-
profit and interest; from (d) to (e) by "supply and demand."
With differential-rent and -profit and with interest we shall
deal in the next chapter.

    The reader is now in a position to appreciate both the
strength and the weakness of Marx' position regarding 'value.'
By giving a very comprehensive meaning to the term 'socially
necessary' Marx is able correctly to assert that the exchange-
value (or market price) of an article is exactly expressed by
the number of socially necessary abstract hours of labor it
contains, and for which it exchanged. But his 'value' cannot be
expressed by a fixed number of standard hours because it is
continually changing, and what it is-for the moment-can only
be ascertained by actually selling or exchanging the article.
That is an absurdly high price to pay for the merely verbal
advantage of identifying the inherent- and exchange-value of
a commodity in magnitude as well as in kind.
    iOn the other hand, by doing no violence to the term
'socially necessary,' or, if you will, by restricting its meaning,
we are able to fix and define inherent-value and make of it a
calculable quantity absolutely independent of the 'higgling
of the market.'
     For example: If a community devotes 10,000 individual
standard hours past and present to the production of one
million bricks, the social inherent-value of each brick is
exactly ten thousand divided by one million, or one-hundredth
                                 10,000    1
of a standard hour per brick.   10000      1S.H.
                               1,000,000 100
     In other words: the inherent-value of a commodity is its
"cost of production" in standard hours.
    [Author's Note: Minor objections, sometimes raised, to the labor
theory of value, deserve perhaps a note.
    1. With the metaphysical idea of 'marginal utility' which offers an
 alternative theory of value, we have already dealt.
    2. To the objection that "labor cannot be measured" we reply
 that our previous argument has shown demonstrably that labor can
 be' measured.
    3. An objection has been raised by Mr. Beer, the author of a
 "History of British Socialism," who contends that the increase in wealth
 following the introduction of machinery and prime movers into England
 was sb great that the labor in the country could not possibly have
 made it all. It did not. The difference at that time between the ex-
 change value of British products and their inherent-value was so great
 that England was enabled to exploit other nations. It was largely the


102.









                        SURPLUS VALUE.                           103

labor of other nations that caused the wealth of England to increase
"by leaps and bounds."
    4. That value is a ratio is a statement that hardly merits a reply.
Value, whether exchange or inherent, is one of the terms of a ratio.
If four apples exchange for six pears, we may say the exchange-value
of four apples is six pears, but to say that the value of four apples
is 4: 6 is a palpable absurdity. Merely to assert-correctly no doubt-
that all things are relative without telling us to what and how they are
related is hardly calculated to" advance the sum total of human know-
ledge.]







FROM CAPITALISM TO FREEDOM.


                            VII.

                     Exploitation.
    We come now to those forms of Surplus Value which
change specific values into social values, viz., rent, profit and
interest. But these transforming agencies instead of equal-
ising or proportionalising the rewards of individual effort, as
expressed in output in standard hours, actually in virtue of
private ownership direct the balances of specific values into
the pockets of owners of land and capital. That is to say they
are at present a means of exploitation. By exploitation is
meant the legal acquisition of wealth in exchange for no effort,
or no adequate effort.
    All men are more or less willing to exploit. Some do not
know that they are exploiting, some believe that exploitation
is not only legal but moral also; some are vastly indignant
when told that private rent, profit and interest are exploitation,
and that, in effect, they are only legalised forms of robbery.
So familiar indeed are these terms that we are quite ready to
believe that they express eternal laws given to us by Nature
herself. How can we be exploiters, we who have never stolen
a penny in our life, and scrupulously paid our debts?
    Though we may reasonably be content to leave for the
time untouched the moral aspect of Capitalism, yet, right or
wrong, wise or unwise, private rent, profit and interest are
forms of surplus value and surplus value is exploitation. The
term has a wide meaning; we may exploit nature, to some ex-
tent we must exploit nature, because we are not able to replace
the coal, iron ore and other materials taken out of the ground,
although we can, in time, replace the trees cut from a virgin
forest. In one sense this loss is a part of the cost of the com-
modities. It is a real reduction of national riches and a per-
manent loss to posterity against which, however, posterity
must set its inheritance of advanced knowledge and technical
methods.
    Differential rent and profit have then a natural as well as
an artificial basis. They are payments for natural and social
(industrial) advantages enjoyed by individuals or corpora-
tions. The essential question is not so much whether differ-
ential rent and profit per se are just (they are) but to whom
they should be paid-the private individual or the community.
But all rent and interest is not differential, part of it is, or may
be. pure 'pistol' value.
                  Rent, Profit and Interest.
    Of these "values" we deal first with "Rent," and with
that particular form known as agricultural ground rent.


104







EXPLOITATION.


    Under Capitalism we have three parties: (1) Landlord,
(2) Capitalist-Tenant-Farmer, (3) Agricultural Farm Labourer.
The scene of operations for them all is land.
    Land has (or may have) exchange-value, otherwise it would
be impossible to rent or sell it, and it is the fact that land is
a utility in private ownership-a utility necessary to human
existence-that gives to land its exchange-value. Rent, then,
is what is paid for the use of land.
    For instance: if someone is willing to pay �20 a year for
the exclusive right to occupy and use a certain piece of ground
and if the current rate of interest is 5 per cent., then the pre-
pent exchange-value of the land is �400, because �400 will buy
an income of �20 per annum; but had the current rate of
interest only been 4 per cent., the exchange-value of the land
would be �500, because, at 4 per cent., �500 is required to buy
an income of �20. Thus we see that the exchange-value of
land rises or falls inversely as the rate of interest. (That is
the ordinary investmeht aspect; we do not include those cases
in which the motive of purchase is social position-or even a
speculation in unearned increment-from a strictly business
point of view such purchases are often bad investments). But
if the rate of interest determines the exchange-value of land,
what determines rent? What makes us willing to pay �20 a
year for the use of ground. How does the rent of unimproved
land arise, and by what laws is it governed?
    Note in the first place that under Capitalism, the tenant-
farmer is engaged in producing commodities for the market,
that is for sale and not for his personal use. That is the dis-
tinguishing mark of social production under Capitalism. Let
us suppose he is engaged in producing wheat for sale. The
marketing of his product is then a part of his cost of produc-
ttcn. If his land is far from his market, his costs are in-
creased.
    Products, as we have seen, are not always, or even often,
sold at their inherent-value, they are sold at market-prices, or
if supply and demand are equal, they are sold at their prices
of production. It is this fact that makes ground rent possible,
but nlot this fact alone. The second fact, or factor, becomes
apparent when we consider the true nature of capital.
     The essential and vital element in capital (machinery as
 an agent of production) lies in the fact that capital enables
 man to make use of some particular forces of nature. Thus
 anyone who possesses a steam engine can make use of the force
 known as heat, through the expansive power of steam. Steam
 suitably confined can be made to do work, and this 'work'
 belongs to the owner of the steam engine. It is free to every-
 one who can buy a steam engine-but it is not free to those


105







FROM CAPITALISM TO FREEDOM.


who do not own or cannot buy and use steam engines. It is,
therefore, in reality, the monopoly of the wealthy, the mono-
poly of capitalists; and we shall find monopoly at the root of
rent, interest and profit.
    But it is not only by capital that man, or some men, util-
ise the forces of nature-some particular forces of nature are
utilised by land. Capital, by itself, cannot cause a single blade
Uf grass to grow; but land, by itself, can produce utilities.
    Some land is said to be fertile, meaning that it is so con-
stituted that it will grow vegetation profusely. But all land
has not the same degree of fertility. If the most fertile land is
already privately owned no one else can get such good
land. If my neighbour has a good steam engine I can, if I
have the money, get one exactly like it, but if the best land is
already taken, no one can get land as good. Poor land may be
made good, but it is then land, plus capital, and plus labor.
It is not virgin land, the subject with which we are now deal-
ing. We discover, therefore, a monopoly within a monopoly,
an exclusive individual advantage multiplied by an exclusive
class-advantage, an m2 so to speak, a higher power of monopoly.
Only the wealthy or the fortunate can own land, only some
of them can own the best land. This fact is the second, but
fundamental, cause of differential ground-rent.
    This may be put concretely: Suppose A owns first-class
land that will produce, say, 32 bushels of wheat to the acre,
and that D's land is only fourth-class, producing 8 bushels.
Suppose the cost of production in both cases to be 40 shillings
per acre. (That is to say the capital expended by both in
labour and depreciation of plant (V -   C) is the same. Let
however, the total capital invested by both be 80 shillings per
acre). A has 32 bushels to sell, D has only 8 bushels. Let
the quality be the same, then both get the same price per
bushel. If the market needs D's wheat (and we will suppose
it does), then supply and demand balance and the market-price
of wheat is, in this case, the "price" of production, i.e., D's
cost of production, plus the average rate of profit. That is
to say the price of production (or, on our assumptions, the
ordinary market-price) is the price of the wheat which re-
quired the most labour per bushel to produce. The market-
price cannot be less than that (except temporarily and under
exceptional circumstances), otherwise D would not continue to
invest his money in wheat-growing. If the price of wheat falls
below D's price of production, he would receive less than the
average rate of profit, or he might even suffer loss, in fact he
must do so, if the "price" of production falls below his cost of
production. If then the market price is D's price of produc-
tion, wheat will be 7/6 per bushel. To yield a profit of 25


106







EXPLOITATION..10


per cent.. on 80 shillings (the total capital employed), a return
of 20 shillings is required, and adding to this D's cost of pro-
duction- 40 shillings-we get 60 shillings as his price of pro-
duction. D then receives (8 x 7/6) 60 shillings, or his price
of production, but A receives (32 x 7/6) 240 shillings, or180
shillings -more than D, in return for the same expenditure in
plant' and labour. Now, it is evident that D could afford to
rent A's land and pay to A 180 shillings per annum for the
use of A's fertile land; but neither D nor anyone else could
pay rent for D's poor land. His land, so long as the price
of wheat does not rise above 7/6, can only.be worked rent
free: it is, as economists say, on the margin of cultivation, it
only returns a bare living.
    An inspection of Fig. 13 will make the matter clear. In
the illustration the proportionate amount of rent has been
greatly exaggerated.

                TOTAL CAPITAL lNVE5TEEP80/-.C+F40/-
            PRIEOFPRODCE
      IACRE    50V
 B   ?IT CLASS   o      TORECRECEIPTPT2SX7 6 4x2180
      YIELA5  401       C11 RENT=20-6


      IACREI
 D    ThCLASS          RECEPTS7x7/660-




       YIELD  40/- ?20/ RffNT=0 -60  L      i.1






    .Acre blocks, owned by -B and C, of intermnediate degrees
 of. fertility* have been' interpolated to show how. differential
 rent arises.
     In. the diagram C + V is the cost. of production, and S
 that particular form' of surplus-value known as the average
 rate of profit;. the -sum of these two items forms the price of
 production.
     It may be noted here that land does not necessarily come
 into cultivation in the order of its fertility, but 'in the order


107







FROM CAPITALISM TO FREEDOM.


of the cost of production of its products, and the cost of clear
ing the land of native growth, and of conveying the products
to the market, is a part of the cost of production, and may be
a large part.
    It has been shown that when the whole range of produc-
tion is considered the total exchange-value equals the total in-
herent value, and that the total inherent value consists of, and
is measured by, the number of social standard hours embodied
in utilities, or the individual standard hours given in service.
In the tables and diagrams of value (see Appendix and chapter
on Surplus-Value) in which the underlying laws of value are
exhibited, it was assumed that plant and raw materials were
stated at their true values (their social inherent-values), and
not at their exchange-values, or their nominal values.   The
divergence between inherent and exchange-value may be very
great. What, for example, is the inherent-value of the wheat
produced by A, B, C and D, and what is its exchange-value?
In all 32 +- 24 -3 16 + 8 = 80 bushels of wheat are produced
and sold, at 7/6 per bushel.    The total exchange-value is
therefore 80 @ 7/6 = �30.
    Now what is the inherent-value? The question is more
difficult. It depends on the average rate of exploitation of
the worker-a reasonable assumption is 50 per cent. On that
basis the inherent-value of each crop is 40 shillings plus 50
per cent.-60 shillings. And the inherent-value of the four
crops is 4 x 60s. = 240s. -�12. Considering the four crops
as one we have: Inherent-value �12: Exchange-value �30.
    The total crop is therefore (on our assumption) sold at
150 per cent. above its true value in S.H. Where does this
value come from? It comes from      the workers who manu-
factured the articles virtually given in exchange for the wheat,
but actually incorporated in the gold paid for the wheat. The
worker receives �8, the capitalist-tenant-farmer �4. This �12
represents the true inherent-value of the wheat, but the land-
lord gets �18 worth of exchange-value above the actual inherent-
value of the wheat, a value which does not exist in the wheat
at all. (The actual figures assumed are merely an illustra-
tiion of the fact: and a fact of immense importance).
    The illustration indicates that exploitation of workers
by the landlord is not confined to those who "rent" land but
is passed on to every other class in the community. Agricul-
tural ground rent rests on two supports, on one side the
different degrees in fertility of different soils, and on the
other hand the "price of production" involving the average
rate of profit. The actual total return in bushels does not affect
differential rent. Raise or lower the fertility all round and rent
is unaffected, but increase the range of fertility,-the differ-


108







                      EXPLOITATION.                       109
ences in fertility,-as when, for instance, fifth class land can
be brought into cultivation, and the rent of the more fertile
lands is increased. These differences form what is termed
differential rent, as distinguished from pure monopoly rent.
     The 'price of production,' and its important constituent
the 'average rate of profit,' depend on the general conditions
of socialised industrial production, which determine the total
surplus-value to be cut up. That constitutes, as we have said,
one of the foundations of rent, a fact first pointed out by
Marx.
     We have seen how the entrepreneur is exploited by the
landlord in the first form of differential rent, but there is a
second form which enables the landlord to increase his re-
turns. It is a well-known fact that by better cultivation, and
by the use of artificial manures, the fertility of land can be
increased. But that costs money
                TOTALt CAPITAL INVESTZI /60/ PER ACRE. C-- V80/-
            PRCEOFPRODUCTION      PRICE OF WH/EAT 7/6 PER BUSHEL
     IACRE  COSTOFPRODY AvPROFIn
 A   YtELDING C-+V  . .TOTAL RECEIPTS = 3         -
      B�ELS     8o/-    i 40/-  RENT 360-120 = 340-

      I ACRE




 C   YIELDING  80-7      40- 1lR   -
     IACRE


 o    aLng        -. 10     RECE/PTS SO/- COST S-
          12ELSPROFIT /0/ ORLES THANAVERAGE          Fig. 14.
                            NO RENT
    In the case under discussion the total amount of money
capital applied to the land was 80 shillings per acre, with the
results as stated. Suppose that by doubling this capital ex-
penditure fertility in each case is increased 50 per cent. Will
that investment pay in every case, and what will be the effect
on rent? Assume that the demand for wheat increases at the
same rate as increased production. Then the price of wheat
will remain 7/6 per bushel. Further, assume that the same
proportion of total capital invested, to capital used up, viz.,
one-half, still holds good. The result is shown in the dia-
gram (figure 14).







FROM CAPITALISM TO FREEDOM.


    It is seen that A, B and C have not only received the
average rate of profit on their investment, but they have also
received a share of 'rent' (provided their landlord has not
been able to take it). A and B have gained considerably, and
C to a lesser extent; but D, who made 20 shillings profit on
the old basis, now finds he has only made 10 shillings on
twice the amount of capital!
    Artificially enhanced fertility increases rent, but not
always in proportion to the additional capital employed, and it
enlarges, in some cases, the tenant's rate of profit, for so long
as rent remains unchanged. Ultimately when leases are re-
vised, the landlord is in a position to engross all the profit
that exceeds the average rate. For the sake of simplicity we
have in our illustration of the two forms of differential rent
assumed that certain factors are constant. But just as the
price of wheat, in reality, is rarely constant, but varies with
supply and demand,-so there are other variable quantities in
the equation. Marx takes some two dozen cases and thor-
oughly exhausts the subject. It will be sufficient to refer
the reader to his work for this more detailed treatment: enough
has been said here to explain the general meaning of differ-
ential rent.
    "Differential rent, however, is not confined to agricultural
land: it affects also city and suburban land (used for build-
ing), and mining properties. These have also their varying
degrees of 'fertility.' By a larger outlay of capital, buildings
of greater earning power can be erected, and by carrying these
to a height of several stories the area of the site is virtually
increased. Such "improvements" correspond to the use of
fertilisers on agricultural land, and so bring city sites under
the operations of differential rent in its second form. Here,
too, ultimately, the landlord engrosses all above the average
rate of profit. The same remark applies to suburban land, the
most desirable sites command the highest price, or the great-
est rent.
     It is the same in the case of mines: the fertility or rich-
ness of a mine is the individual monopoly of its owner, and
the rent (or 'royalty')* he can exact is determined precisely
as in the case of agricultural lands by greater or less "rich-
ness" and proximity to market.      The introduction of more,
or better, mining plant, creates the second form of differential
rent.
     Nor is this all. In old countries, and indeed in some of
 the large cities of new countries-Sydney and Melbourne for
 example-another form of exploitation exists, or once existed.
    *The Royalties paid to the State are in most cases merely nominal.


110






EXPLOITATION.


     ':The overwhelming part of the land used in England for
 building purposes, but not -sold as freehold, is rented by the
 land-owners for 99 years, or for a shorter time if possible.
 After the lapse of this time the buildings fall into the hands
 of the land-owner, together with the land. The tenants are
 obliged to deliver the house to the great land-owner in a good
 habitable condition after the expiration of the lease, after
 having paid up to this time an exorbitant ground rent.
 Hardly has the lease expired, when the agent or inspector of
 the landlord comes,- inspects your house, takes care that you
 get it into good condition, takes possession of it, and annexes
 it to the domain of his landlord. The fact is that if this sys-
 tem is permitted to exert its full effects for some time longer,
 the entire ownership of houses as well as country real estate
 will be in the hands of the great landed proprietors. The
 whole of the West End of London, north and south of Temple
 Bar, belongs almost exclusively to half a dozen great landlords,
 is rented at enormous ground rents, and if the leases have not
 quite expired, most of them expire in rapid succession. The
 same applies in a greater or smaller degree to every city in the
 kingdom. But this greedy system of exclusiveness and mono-
 poly does not stop even here. Nearly all the docking facili-
 ties of :our port cities are in the hands of the great land levia-
 thans in consequence of the same process of usurpation."*
     As Marx says elsewhere, "One class of society is compelled
to pay tribute to another class for permission to inhabit the
earth."   It is hardly a matter for wonder that single-taxers
think they see in land-nationalisation a cure for all the eco-
nomic ills of society.
     We have spoken of rent and of differential-rent almost as
though they were interchangeable terms, But that is by no
means so. A sharp distinction must be made between them.
If all land had the same degree of 'fertility' then it is evident
that differential-rentt would vanish with the differences on
which it is founded. But rent would not vanish. Land, or
its use, is at present sold and its price is affected by 'supply
and demand' as well as by the rate of interest and the ave-
rage rate of profit. Interest also is a form of surplus-value
and surplus-value as a whole is increased by improvements
in manufacturing. Thus, since these improvements reduce the
inherent-value of real wages, a general increase in rent is due
to improvements in agriculture. As Thorold Rogers points
out:
    There is only one cause for a general rise in rent (population
remaining constant): improvements in the process of agriculture.
From the days of Henry III. to those of James I. no such economy or


111


*Das Kapital.


tVifeenia-rntisofenteme     eonmi   rnt






FROM CAPITALISM TO FREEDOM.


improvement occurred. But from the time of James I., especially after
the middle: of his reign, large and important improvements are made
in agriculture, great economies discovered, and a rapid rise of rent
ensues.
    It is to be regretted, though it is not to be wondered at, that these
improvements and economies had no beneficial effect on the wages of
labor.
     We have set forth the nature and incidence of rent under
private ownership of land, and have glanced at the evils which
arise iunder those conditions. It is not suggested that rent
in itself is to be condemned. If at any stage of industrial
development it is found desirable to allow the private and
exclusive use of land by individuals-or even the private and
exclusive use of capital-then the payment of rent by such
individuals to the State-or of interest-is just, assuming that
"nature" is, or should be, the common heritage of mankind.
But private rent is always exploitation.

                            Profit.
    The ambiguity of the terms used in the Science of Economics
has already been noticed-"value" is one example, "profit" is
another. It is as though botanists adopted common popular
names to describe flowers--names varying with locality and
possessing no underlying reference to structure, genus or
family. Orthodox Economics has had no Linnaeus-not to
say a Darwin. Perhaps a congress of professional economists
will yet name and define the various phenomena of Capital-
ism. In the meantime, failing all authority-even clear and
definite convention-everyone is at liberty to coin his own
terms.
    The retail grocer calls his net returns "profit," but he
breaks down masses of products, the hundredweight or ton of
sugar into pounds, and delivers these small quantities to the
doors of consumers: performing a part of the work of distri-
bution, he works, and his "profits" are "wages," or at least
wages, plus profit, and possibly plus rent. Profit is what is
left after cost (in its ordinary meaning) has been deducted
from price, and delivery to the consumer constitutes a part of
the cost of the product, if by production we mean an available
product.
     Similarly to determine the profit of a merchant or a manu-
facturer the wages of superintendence and all other costs for
work done must first be deducted from total receipts because
profit is a part of surplus-value-it is unpaid labor. Marx,
as we have seen, divides surplus-value into absolute and rela-
tive, and profit may be divided into monopoly-profit and
differential-profit. Differential-profit and differential-rent


112






EXPLOITATION.


arise from the exploitation of natural forces and materials and
other exclusive industrial advantages.
    To illustrate that statement, let us suppose the existence
of a community consisting of only two people, A and B. Sup-
pose A cultivates the only acre of first-class land available
yielding 32 bushels of wheat, and let B cultivate an acre of
second-class land yielding 24 bushels.  Let A and B work
equally hard, use the same kind of implements and expend
the same number 0f S.H1's on the work of cultivation. Then,
as we have seen, A's differential-rent is the difference between
the two returns (32-24), i.e., 8 bushels.
    Now take a case of differential profit. Suppose another
community consisting of C and D, and let them shoot wild
ducks: let C be armed with a shot gun-the only one available
-and let D carry a bow and arrows. Let both work equally
hard, .and: suppose C shoots 20. ducks and D shoots 6 ducks.
The difference between the two returns (20-6), i.e., 14 ducks,
is .differential profit. That is an example of differen-
tial profit under simple production, it may be desirable to con-
sider a ease under the more complex system known as Capi-
talism.
    Suppose that in one place forty men coal a ship in four
hours by carrying coal in a basket on their heads, while in
another place four men do the same work in the same time by
using a steam winch, or special coal-loading machinery. Let
the cost of the fuel, &c., used for the winch and the deprecia-
tion of the winch during the operation be represented by two
mens work for four hours, then the work done is equivalent
to six:men's work. Are these six men to reeeive the same re-
mnuneration as the forty? If the average cost of the two
coalings is �20, should the wages per man be �20 divided by
six, i.e., �3/6/8 in one case, and �20 divided by forty,
i.e., 10/- in the other? Would not the commensurate wage
be two coalings at �20 equal �40 divided by forty-six men,
i.e., 17/41 per man (4ssuming all the men to work equally
hard) ? But if the rate of wages has been fixed by law or
custom at 2/- per hour, then to the owner of the winch �17/12/-
(�20 less six men at 8/- or �2/8/-) emerges as differential-
profit. But the employer of the forty men only makes �4
(i.e., �20 less forty men at 8/- or �16) as profit, even when
the workers supply their own baskets. The six men correspond
to C, the forty men to D.
     Now if, in the first case, the community had consisted not,
 as has been premised, of A and B alone. but of several persons
 and classes then assuming modern conditions, the different re-
 turn to A would have passed, not to A himself but--as differ-
 ehtial rent-to a landlord. So in the second illustration had
 H


:113






FROM CAPITALISM TO FREEDOM.


the community consisted, not of C and D alone but of several
classes, the higher return to C would have passed not to C
himself but in the form of differential profit to another mem-
ber, the man whoever he was who furnished C with the gun
and powder and shot. As in an enlarged community the land-
lord can and does engross the difference in returns as rent,
jso in an enlarged community the owner of the gun-the capi-
talist-claims and receives the difference in return as profit.
Only by presenting the case in vacuo by 'thinking away' land-
lord and  capitalist are we able to see how and whence differ-
ential profit (like differential rent) arises. So far the position
is clear. But in either illustration (from simple production)
there has been omitted-for the sake of greater clearnests-an
element of some importance, that of "indirect labor" or "wear
and tear."
    The depreciation of capital is caused by the partial destruc-
tion of the plant used. In effect a part of the labour contained
in the plant passes over into the product whose manufacture
has caused the "wear and tear" of the plant. This labour must
be replaced, the capital must be maintained or made good.
That its the necessary return to capital. That is the element
we have, of purpose, overlooked. Suppose then that in the
case of A and B the "wear and tear" of their plant costs 2
bushels, that either now or at some future time A and B must
consume 2 bushels of wheat during the time they are making
good the damage done to their plant by the cultivation of the
particular acre in question. Their net returns are then (32-2),
i.e., 30 bushels and (24-2), i.e., 22 bushels respectively, and
A's true "differential rent"     (which is really profit) is
30-22=8 bushels (as before).*
    But in the case of C and D who have not used the same
kind of plant, suppose C who used the gun must consume 5
ducks while cleaning hits gun and making fresh powder and
shot, while DT only consumes 1 duck in making fresh arrows.
Their net returns are then (20---5), i.e., 15 and (6-1), i.e., 5
ducks respectively, and the true differential profit is (15-5),
i.e., 10 ducks, and not 14 ducks as previously assumed.
     It may still be thought that the two caises taken from
simple production are not parallel-that the forces contained
in the land are the gift of Nature, but the forces contained
in the gun are the gift of man. It maybe objected the differ-
ence arises from the fact that although in one case man has
made the forces of land available merely by making the land
accessible, yet in the other case he has first to make the gun-
   *Here we see clearly that the total quantity haa nothing to do with the
ase. It is the range of variation, the differences which determine "differ-
ential rent"


114






EXPLOITATION.


he must give to the materials of which it is compoksed useful
form and adjustments--before he can make the explosive force
of gunpowder available, and indeed he has to make the powder
and shot or the arrows. That is true, but it is no less true
that man has also to make the agricultural implements he uses
before he can make available the forces of soil and sun and
seed available. There is then no fundamental difference be-
tween the two cases-they are clearly parallel:
    We assumed in the agricultural illustration that A and B
used the same kind of implements, but they need not do tso,
they might use different amounts of capital just as C and D
did. To show the absolute identity of differential profit and
the second form of differential rent take the case of E and
F, in which both cultivate land yielding 16 bushels of wheat
to the acre, but E uses a single furrow plough and two horses
costing: �200, and F uses a four-furrow plough and six horses
costing �400. Let E's cost of production be 3/- plus 37/-
(C + V) = 40/- per acre and F's 6/- + 29/- (C + V)   35/-
per acre. Had they both used the same kind of plant their costs
would have been the same, either 40/- or 35/- per acre. As
it is E's cost for 16 bushels is 40/-, while F's is only 35/-.
The 5/- is clearly differential profit, because the fertility of the
land is the same, it is the fertility of the capital that its differ-
ent.
    Take another example: Suppose that the productivity of con-
stant capital is five times as great as the productivity of
variable capital and let the organic composition of four equal
capitals of 80 owned by G, H, I and J be as shown below, then
the products of
                              c-+-v
                 G are 5 x 70 + 10       360 products
                 H   ,, 5 x 60 +20       320     ,,
                 I   ,, 5 x 50 +30 = 280         ,,
                 J   ,, 5 x 40     40 = 240      ,,
 The total capital in each case is 80: the profits are proportional
 to the resulting products. The differences are:
                  G 360 - 240 = 120
                  H 320- 240 =      80
                  I 280 -240 =      40
                  J 240- 240=       -
 And these differences are due to the varying fertility of the
 capital employed, they are differential profit. Had these vary-
 ing differences been due to varying fertility of virgin soil
 individual landlords would have pocketed them as rent, why
 then cannot our capitalists pocket the differential profit due


115







FROM CAPITALISM TO FREEDOM.


to the use of machinery of various efficiencies ? Why must
they share these profits on a total capital employed basis,
among all the members of their class?
    The form   of the question supplies the answer: because
land is an individual pos:session, but capital is the possession
of a class. Any capitalist can buy the same kind of plant as is
used by any other capitalist. E, for instance, can purchase a
four-furrow plough and six horses, and for the same price that
F paid, but natural fertility cannot be made; each piece of land
is unique. If we make: land fertile by artificial meants that
fertility is due to labour (and capital), but the fertility natural
to land is quite irrespective of our labour in getting at it or
artificially improving it. The quantity of heat or gunpowder
is the direct result of, and proportional to, the labor it con-
tains: land cannot be made as: a gun, or a plough, is made.
There is strict limitation in the quantity and position of land,
but capital, although not unlimited, has not the same limita-
tions. But, for so long as a capitalist remains alone in the
possession and use of better machinery, or improved methods
of production, for so long he can reap differential profit. If
other capitalists are unable to enter into competition with him,
or if he forms a trust or combine and keeps his machinery or
trade process seecret, he, and the other members of the trust,
can reap more than the average rate of profit. In a word,
so long as capital or particular forms of capital, can be
monopolised entirely, just for so long the monopolists can
raise their profit above the average rate of profit. But it can
only be done at the expense of others. There is only the total
surplus-value to cut up, and it is axiomatic that the sum of the
parts cannot be greater than the whole: only by making the
whole greater can all the parts be increased. If, however, real
wages are reduced, the total surplus-value is increased, and
the capitalist's share is made greater.
     We have seen that when all land has the same degree of
 fertility differential rent vanishes--but monopoly rent does
 not vanish, becautse it depends on individual monopoly.
     When all capitals are of the same organic composition,
 and are equally well organised and managed, differential profit
 vanishes, but profit does not vanish because it depends on
 the difference between cost and price.
     Surplus-value equals rent, plus profit, plus intereast, and
 the total surplus-value can be increased (a) by increasing the
 total quantity of commodities (wages and prices remaining
 constant), or (b) by reducing wages (the quantity of com-
 modities and their prices remaining constant), or (c) by a
 combination of (a) and (b).


116






EXPLOITATION.


    A  general increase of rent, profit and intereast is only
possible by increasing the total amount of surplus-value by
increasing the number of workers, or the rate of exploitation,
but a.particular increase in rent, or profit, or interest is pos-
sible if the share of one, or both, of the other constituents of
surpluys-value is reduced.

                           Interest.
     Interest is a part of surplus-value. It is a payment by
the entrepreneur (or 'c.mpany') to his sleeping partner, the
money-capitalist or banker. Interest is gross, material, tan-
gible, there is nothing ethereal about it. It does not drop-
like the gentle rain-from heaven. It is not a mental state, an
abtstraction, or a mere idea. It is a concrete return-under
Capitalism--for the loan of money. The money does not breed,
but   with  money    the  instruments   of  production-land,
machinery and raw materials-can be bought and wages paid.
Interest comes from   the exploitation of the labourer. The
prejudice-almost universal-against interest has, therefore, a
rational basis. Like rent, interest has an historical develop-
ment. It is an historical necessity, a part of the system   of
Capitalism, but it existed before Capitalism, in its full name,
came into being. Interest is a part of surplus-value, but so is
rent, and interest may be paid out of rent. In olden days
the large land-owner borrowed to spend money in display or
in riotous living; the small land-owner borrowed, as he does
to-day, to assist his individual production, or to keep the wolf
from the door. Thus both large and small land-owners often
fall into the clutches of the usurer.
    Not until the other prerequisites of capitalist production are present,
 does usury become a means of assisting in the formation of the new
 mode of production by ruining the feudal lord and small scale pro-
 duction on the one hand and centralising the means of production into
 capital on the other.
     Several theories of interest have been put forward by one
 or another economist, but, that it its the reward of abstinence!
 is perhaps the orthodox explanation, and the rate of interest
 depends upon-the rate of impatience!       Chickens exist be-
 cause we 'abstain' from   eating eggs and the rich are rich
 because they patiently abstain from the enjoyment of their
 wealth-or they have done so in the past, or if not, then their
 fathers have-with    intelligent foresight preferring future
 benefit to present joy. And, in a sense, the theory is true,
 in so far at least as it affirms that 'someone' has abstained
 from the consumption of wealth. How otherwise can capital
 come into existence?


117






FROM CAPITALISM TO FREEDOM.


     The Saxons abstained from the consumption of the goods
taken from them by the robber barons who came over with
William the Conqueror, they abstained from using the land
granted by William to individual Normans, they abstained
from using the products of the labour they spent on the lord's
land, just as the modern labourer abstains from consuming
that portion of the goods he produces which constitutes ksur-
plus-value. Interest, then, is truly the result of abstinence,
the abstinence of the 'other fellow.' It follows naturally that
the rate of interest depends on the rate of impatience, that it
is, in fact, directly proportional to the rate of impatience!-
an impatience effectively restrained by the force of circum-
stances-the poor circum-stances of the labourer. Man is so
constituted that he would "rather have it now than wait until
he gets it" in the ordinary course of events-impatient man!
But it is the labourer's necessity rather than his impatience
which compels him to discount (i.e., in part to sacrifice), daily
or weekly, the contribution his work has made towards
exchange-value. His labour has added inherent-value to the
articles he has worked on and has made or partly made, before
he receives his wages, although the exchange-value of those
goods may not have been realised, i.e., the goods may not have
been sold. Wages are not in reality paid in advance. And
it is just on this time element that Boehm-Bawerk founds his
theory of interetst. It is an agio--blessed word. Well, time
and space are the field of all activities (time is the fourth
dimension) and consequently rent and wages, sudden death
and a future life are all agios. But exactly what does 'agio'
mean ? In olden days debased and clipped coin was taken to a
bank and "good" money called Bank Money of exactly the
same value was issued in exchange. Bank money was always
at a premium or agio compared with equal quantities of de-
based money-but there was no increase in value, fewer good
coins were issued in exchange for debased coins, but in sum
both were of equal value. There is nothing whatever in the
word to explain interest.
    The fact its that technological processes take time. Interest
js a return of which time is a special function. Otherwise time
has nothing to do with the case. Time, which improves wine,
turns cider sour and generally causes deterioration in com-
modities.
    Behind Boehm-Bawerk's time-movement lies the 'fructifi-
cation' theory of interest-if you live long enough, instead
of an acorn you shall receive an oak tree, and indeed the oak
claimed to-day was an acorn once. The theory is a return to
the exploded ideas of the Physiocrats who thought that only
Nature created surplus-value; it is, in fact, a monopoly claim


118








oni the bounties of Nature. An increase in the quantity of
products is not necessarily an increase in exchange value;
but, in any case, the claim is a claim for the exclusive owner-
ship of a natural product. We discover in nearly every theory
of interest a sufficient reason but not an efficient cause; how,
when, .and where we get the interest, we are called upon to
pay, is not explained. On the other hand, we have explained
the natural and artificial causes of differential rent and differ-
ential profit, and the cause of interest. How to abolish mono-
poly :rent, profit and interest and the correct method of dis-
tributing differential rent and profit constitute, in fact, the
industrial social problem.
     Rate of Interest.-We have seen that of the total surplus-
 value landlords are able to engross as rent all that portion
 which rises above the average rate of profit on the total
 capital employed. They do this by increasing the price of
 the raw materials manufacturers use.    The manufactuer or
 entrepreneur has then to reckon with the Money-capitalist,
 generally the banker, that is if he has borrowed money to
 carry on his enterprise.
     How then, and on what terms, is the rest of the spoil to be
divided? Spoil, we say, because the entrepreneur has already
received his wages of supervision. Salaries and wages are
not a part of surplus-value. In other words, what rate of
interest must the entrepreneur pay to the banker? It is quite
evident that the entrepreneur cannot pay more in interest than
the profit he makes-his net profit-unless he suffers an
actual loss. Nor will he agree to pay all the net profit he
expects to make.
     Interest is a payment for the use of money, or, and more
 generally, for credit, i.e., for a claim on goods. Interest often
 takes the form of discount-the banker buys a bill for �100,
 payable in three months, and gives, say, �99 now: the rate
 of discount is then 4 per cent. We may then include discount
 when speaking of interest. Although the banker appears to
 be able to fix the rate of interest he must, in reality, follow
 the conditions of trade as they exhibit themselves in the rela-
 tion which his reserves (of gold) bear to his advances (loans
 of eredit). Under normal conditions of trade our banker has
 learned by experience-often bitter-that he must maintain
 a certain relation between his reserves and his advances, and
 he finds he can do this by varying the rate of interest (or dis-
 count). Under abnormal conditions the gold reserve cannot be
 big enough. Reserves and advances may be compared to two
 horses in a race whose relative positions must be maintained.
 The banker has power (during the race) to increase or reduce
 the handicap weight carried by Advances. If Advances gets


EXPLOITATION.


119






FROM CAPITALISM TO FREEDOM.


too far ahead (of Reserves) he is loaded with a greater weight
of interest. If Advances falls back too far he is relieved of
some of the weight he carries. The load of interest is reduced,
and in this $simple fashion the desired relative position is-if
due care is exercised-maintained.
    We have admitted that-superficially at least-the amount
of the banker's gold reserve does affect the rate of interest
and it is no doubt true that a maladjustment of advances and
reserves may precipitate a commercial crisis, but the cautses of
such crises lie far deeper, they are embedded in the very con-
stitution of Capitalism itself, as we shall see when we come
to treat of its economic contradictions. For our present pur-
pose it its neither necessary nor profitable to attempt to unravel
the tangled threads which-as in the case of exchange-value-
go to make up a knotty problem, viz., the rate of interest at
any particular time and place. To clear up the dark mystery
of private banking requires the illumination of a whole chap-
ter.
    Rent, profit, and interest are capitalistic terms used by
economists and accepted by them in their ordinary "business"
se ;se, they are not scientific terms. We must perforce accept
them, but, thanks to Marx, we can sum them up in the term
surplus-value, and Marx has divided surplus-value into: (1)
Absolute, and (2) Relative. We have attempted to show that
relative surplus-value has a "natural' basis, and to define
utilities more clearly have divided them into (a) natural and
(b) artificial, meaning by (a) those forcers and materials which
are useful to man as they are presented by Nature, and by
(b) those forces and materials which must be made useful.
We may then tabulate an analysis of surplus-value as below:
                          Monopoly Rent
             Absolute         ,,   Profit
                                ,, Interest
 Surplus-
 Value                    Differential Rent (natural forces and
             Relative                        materials)
                                  ,, Profit (artificial forces and
                                          Smaterials)
    If natural conditions are uniform-which they never are-
differential rent would vanish. If industrial conditionts are
uniform-as appears to be impossible-differential profit
would vanish. If the agents of production, land and capital,
are "socialised"--as is quite possible-absolute surplus-value
would vanish.
    An analysis of Capitalism   in tabulated form   is shown
below. Professional men and working farmers who own their
land and plant, but who do not employ labourers (to whom


120







EXPLOITATION.12


should be added working jewellers and others) are remnants
of a dying system (domestic), but although not of Capitalism
they are in Capitalism, and if they do not own the whole of
their means of production outright, are, to that extent, merely
agents for the collection and payment of rent and interest
to the real owners.
    Shopkeepers generally pay rent and are more and more
squeezed out by emporiums and forced into the rank of shop
assistants. 'Landlords' of public houses (tied houses), and
shopkeepers too, tend to become mere agents for merchants
and' are' practically receivers of wages on a piecework or com-
mission basis. Yet they are ,often the ..fiercest opponents of
Socialism!
                      Landlord-=Capitalist


            Landlords


Agri'i-la~nd   Mine       City Land
  Owners      Owners       Owner
  tenant      Mining     Merch'nts &
  Farmers    Capita lts  Shopkeepers
  Farm         Miners.   Clerks :and
  Lab'rei                 Shop Assts


      Capitalists

 Bankers       Entre-
    y         preneurs
    I            I
Managers     Industrial
and Clerks    Workers


121.






FROM CAPITALISM TO FREEDOM.


                           VIII.


     The Great Private Bank Fraud.

   If the average man in the street is asked: "What is a bank?"
he might reply: "It is a place where they lend money."    If
he is then asked: "Where do they get the money from?" he
may reply: '-' The shareholders put up some of it, but for the
most part it is lent to the bank at 3 or 4 per cent. by people
who do not know how to invest it safely. The bank accepts
these fixed deposits and lends them at 6 or 7 per cent., and
so makes a profit."  Wrong! Absolutely and utterly wrong,
so far as the chief function of a modern bank is concerned--
as we hope to make perfectly clear in this chapter.
    We have already dealt with money; currency and credit
naturally follow. Currency may be defined as any written
promise to pay current coin or render a service which by
mere transfer conveys to another the right to receive the coin
or service specified in the document. By debt is meant a legal
claim or right to money or service, and if such rights are
transferable by merely passing some document from hand to
hand, such documents are currency. To be transferable then
a debt must take some material form such as bank notes,
cheques, bills of exchange, post office orders, postage stamps,
etc., but unless they represent debt they are not currency.
Old coins do not represent debt, they are not current money.
Strictly speaking current gold coin is not currency, it is the
thing promised and not merely the material evidence of an
obligation. Bank notes* are not currency unless and until they
represent debt. A Government may print thousands of notes,
but until they are paid away for something received they are
not currency-they are not in circulation.     An exchange,
whether of goods or services, involves two things, the thing
that is given and the thing that is received.
    Now suppose that the operation of exchange is only half
completed, say that I have handed over some valuable thing,
but have not received value in return, but merely a promise to
pay, I am then a creditor, and have a legal right of action to
e dforce, if necessary, my claim against the other party to
   * y currency we mean actual currency; bank notes before they are
issued are potential currency.


122






THE GREAT PRIVATE BANK FRAUD.


the exchange, who is now called a debtor. If the agreement
between us is "spot cash," I can, if necessary, demand
settlement at once; if, however, the agreement is that I am not
to be paid for (say) three months from a given date, my
right of action is suspended for three months from that date.
The paper on which that deferred claim, or any other deferred
claim, is recorded in writing constitutes currency, provided
the claim can be transferred by merely handing the paper to
someone else. Currency then represents the incomplete half
of an exchange. Currency is a token of indebtedness, it May
be a postage stamp, a railway ticket, a bank note, a bill of
exchange-only when the letter has been carried, or the owner
of the ticket taken to the place specified, or the gold coin
paid, is the transaction completed. We say the gold coin paid
because bank notes and bills of exchange are invariably
promises to pay gold (in a certain form), but currency is
a promise of what is to be paid.
    Some people think that gold coin represents debt; that is
obviously erroneous. Gold coin (of the specified amount)
completes the exchange; it is one of the things-and not a
representative of the things-exchanged. The fact that we
do not wear or eat or otherwise consume gold coin, but (gene-
rally) only want the gold coin because we can exchange it
for something else we do want to consume, only shows that
gold coin is capital-a capital good-a means of acquiring a
consumption good. Gold as we know is (by convention) one
medium of exchange-but only one of many. But it is more
than a means of exchange, it is commodity, it is actual wealth,
whereas a bank note only represents wealth. Of course there
is a sense in which paper promises to pay may be said to be
commodities because as we shall see these promises to pay,
or tokens of wealth, are what banks principally deal in, but
it must always be remembered that they are not in themselves
wealth and they are only valuable in so far as they are a
means of obtaining real wealth. Some writers, e.g., Macleod,
claim that these promises are actual wealth. The contention
is manifestly absurd.
    A nation is not actually richer because all its possessions
are embodied in promises to pay, it is in that case absolutely
poor, nor is it actually richer here and now, because it holds
the promises of other nations to pay (as France no doubt
realises) it is only potentially richer.
    Currency then is not wealth, it only represents the actual
wealth to be given in exchange for wealth actually received.
     The word, however, is not always used in that sense. In fact,
here as elsewhere, in the so-called science of economics, we


123






FROM CAPITALISM TO FREEDOM.


find the utnmost confusion of terms. Unless we define we are
undone, and the reader must try to put aside his own pre-
conceptions.
    By Specie or Cash we mean hard cash, current coin in
gold, silver or copper; actual wealth by which an exchange is
completed. (Silver and copper coins are, however, in part
wealth and in part tokens of wealth.)
    Gold means pure gold, but sometimes the word may mean
bullion. Bullion is an alloy consisting of eleven parts of pure
gold and one part of copper, of which current sovereigns are
made. A sovereign weighs 123.274 grains of Troy (standard
weight), but it only contains about 113 grains of pure gold
(or, to be exact, 113 grains and one-six hundred and twenty-
third of a grain).
    Money is whatever may be legally tendered or accepted
in full satisfaction of debt. Generally it is bullion in the form
of coin. It then not only satisfies the debt, it also completes
the exchange. But when gold payments are legally suspended
bank notes must be accepted in full satisfaction of debt though
they do not complete the exchange.
    Currency is often held to mean money, or the circulating
medium of coin and, notes; in fact to be synonymous with
money. We give it a much wider and in some respects a narrower
meaning and have defined it as whatever represents debt, and
at the same time transfers, the specified "right" to the holder.
Money in the form of gold coin does not represent debt, it
completes an exchange. The only ambiguity consists in what
is meant by transferable. Here we trench on the distinction
between currency and credit. A bearer cheque, clearly, is cur-
rency, but an order cheque is not, until it has been endorsed.
A crossed cheque, not negotiable, is never currency--nor in-
deed is it credit, it is an order to a bank to transfer credit.
    To explain that much misunderstood matter--credit-is
the chief object of this chapter, and more especially that form
of credit known as bank credit. But credit existed before
banks were invented. Promises to pay gold coin, often called
bills of exchange, were first used (in modern times) by the
Italians. Thus Antonio's promise to pay Bernardo could be
used by Bernardo to satisfy his debt to Luigi, if the latter
was equally convinced of the good faith and solvency of Antonio.
Thus Bernardo of Rome, having shipped to Antonio at Genoa 100
casks of wine, draws a bill on Antonio for their value, 10,000
lire; owing Luigi (of Rome) a similar sum for a house he has
bought from him, Bernardo hands him in payment his bill or
claim on Antonio. Luigi transmits it to Saladio of Genoa,
from whom he has bought silk to a similar value, and Saladio


124







THE GREAT PRIVATE BANK FRAUD.


ultimately receives from his fellow townsman Antonio the
amount due in the first place to Bernardo, and thus the con-
fidence of those men in the good faith of a fourth, and his
ability to pay in gold, or other valuable commodity, if re-
quired, has made it possible to complete those large trans-
actions without the passing of anything more than a piece of
paper. Obviously the process could be greatly extended, the
bill might, on similar conditions-the soundness of Antonio's
credit-pass through  thirty or three hundred hands, but there
will be a limit to those who know and trust Antonio. If for
this. reason only, and there are many more, there is greater
use for another form of representative or paper money, the
bank note.
     The bank note is a piece of paper bearing the legend
                     '. '�5
    "The Bank of         promises to pay to the bearer the
sum of Five Pounds in gold on demand.
                                     "Signed      "
But there is still another form of promise to pay gold of far
greater use and importance than the bank note, i.e., bank
credit.
    Bank credit may provisionally be defined as bank book
entries--figures written in the books of a bank-instead of
on transferable pieces of paper. (Credit, clearly, is not cur-
rency since it cannot be passed from hand to hand).
    First let us seek the origin and trace the history of such
"book entries." The rudiments of banking were taught
to the Romans by the Greeks, but we may confine our en-
-quiries to the former nation.
     The "gens" or gentile system passed, as we have seen,
into the patriarchal family, and some portions of the family
possessions gradually became merged into the "right" of the
head of the family. According to Maeleod the dominus, by
custom  or law, was compelled to keep a family ledger as
strictly as that of a modern banker, showing all receipts and
expenditures, money borrowed and money lent, and all profits
and losses. These ledgers were carefully preserved in a safe
placed in a special apartment of the house. But gradually,
from being a record of family possessions, they become records
of the personal possessions of the dominus, and in time ex-
clusive possession by other members of the family was re-
corded. Private ownership, in fact, evolved and exchange
between individuals, as we know it, became possible.
    SAt first agreements to exchange or to complete an ex-
 change at a future date were merely verbal-a stipulation-
 with witnesses. Later these verbal stipulations were reduced
 to a written promise to pay on a specified date, and were then


125






FROM CAPITALISM TO FREEDOM.


termed "obligationes litteris." These written promises to
pay, or Bills of Exchange, are the "goods" which modern
banks buy. But note that these goods are merely promises
to pay real goods, namely, gold coin, and are not in them-
selves actual goods. We repeat this distinction so often be-
cause it is essential to a clear understanding of the subject
matter, since the principal function of a bank is to buy debts
and to pay for them by credits, or book entries. The original
owner of the debt or Bill of Exchange or promise to pay cash
on some future date can, by his order (cheque) on the bank
(to whom the Bill has been sold) obtain cash, or a transfer
of credit, at once. For this advantage a discount is paid.
    But this essential bank function only evolved gradually.
Money (cash) only became common in England about the
middle of the 13th century. The receipts given to the Knights
of the Holy Cross at the time of the Crusades, for gold plate,
jewels and other valuables left for safekeeping, were the
forerunners of the modern bank note-but the child was not
exactly like its father. The actual things lent or left for
storage were at first returned, but when those things took the
form of cash, the property in the cash passed to the borrower,
who gave to the lender a receipt or right of action for the
return of a similar quantity or value in cash-the identical
money lent was not returned. So if we lend our neighbour a
spade we expect him to return the actual spade lent, but if
we lend him a loaf of bread or a pound of sugar we expect
another loaf and pound of sugar in return. The latter form
of loan was called "Mutuum."
     Macleod persists in calling a debt a saleable commodity,
 whereas it is more correct to describe it as a saleable legal
 right of action against a debtor for the recovery of a com-
 modity. In any case, however, these "rights" or debts can
 be bought and sold.
     A Bill of Exchange generally takes the following form:-
         "�150.                   London, May 20th, 1907.
     Three months after date pay to John Smith (or to my-
 self) or order the sum of one hundred and fifty pounds for
 value received.
     To William Robinson, Esq.)    (Signed) Henry Jones."
               New York.
 Henry Jones is the drawer, William Robinson the drawee, and
 John Smith the payee. Robinson accepts the bill by endors-
 ing it with his name. If Smith also endorses it, it becomes
 payable to bearer, that is, it becomes currency. If it is sold
 to a banker who "credits" the account of the seller with
 �150, debits him with the "discount" agreed on, it is bought


126






THE GREAT PRIVATE BANK FRAUD.


with and exchanged for a bank credit and not for cash. Smith
has then discounted the bill-obtained an immediate credit,
for cash payable in the future.
    Now in this case what has really happened? Certain
present goods actually exist and are mentioned in a Bill of
Lading, the legal ownership of the Bill of Lading entitles the
holder to receive the goods. The goods in question-we will
suppose-were manufactured by Henry Jones in London and
sold to William Robinson of New York. Jones instructs Rob-
inson to pay the price of the goods (i.e., draws a bill on Rob-
inson) to John Smith to whom Jones owes �150. Robinson
agrees to do so (accepts the bill), and Smith, who wishes to
use at once the money he is entitled to in three months, or so,
sells the bill to a bank and the bank buys it for (say) �148,
making a profit of �2 by the simple process of writing a few
figures in its books.
    We have seen how Antonio's promise to pay (bill of ex-
change) was able to settle the accounts of Bernado, Luigi,
and Saladio-all of which (and there might have been hundreds
instead of three or four) were finally completed by the single
ash payment made by Bernado when his bill matured. Thus
a single transfer of one sovereign may settle ten or twenty
separate debts of �1 each. Probably everyone will remem-
ber the ease with which, as school boys, we solved formidable
looking sums in multiplication of fractions, and the pleasure
with which we realised that it was quite unnecessary first
to multiply by six and then divide by six, that even multipli-
cation by twenty-four and division by eight could be reduced.
by cancellation, to a simple multiplication by three. And it is
this delightful process of cancelling-the mere transfer of
figures in a bank's books-that enables a bank to erect such
a huge superstructure of credit on such a small foundation
of gold.
    Now-a-days banking in each nation is one great business.
Competing banks no longer try to break each other as they
once did. They are all--in effect-amalgamated in what is
known as the "Clearing House."      Cheques drawn on one
bank, but paid into another bank, are mutually presented, and
insofar as they are equal, cancelled. Only the margins, the
final plus or minus of all transactions between two banks, are
settled in cash (or notes). Indeed when there is a general
cash reserve, held by a Bank of England or some State or
Federal Authority, a mere book entry serves to transfer each
bank's claim to cash, which all the time reposes peacefully
in the common or general reserve. The nominal basis of credit
-bullion-recedes more and more into the background as a
medium of exchange; as a measure of value it still remains,


y 127






FROM CAPITALISM TO FREEDOM.


since all credits, all bills of exchange, all purchases, all debts
are expressed in terms of gold. But the real foundation of
"credit" consists chiefly of the material goods represented
by the bill of exchange (or by securities) bought for credit
by the bank. The bank, in effect, turns our actual goods into
purchasing power, before the goods are sold to consumers.
It is enabled to do so by the confidence the public reposes in
its power to pay (when and if required) gold coin, and thus
complete the exchange.
    Note, then, that the owner of goods pays interest on his
own wealth.
    The chief function of a bank is to turn solid wealth into
purchasing power; to, in effect, liquify private wealth by the
simple process of writing figures in a book. Suppose, for
example, I am the owner of shares in, say, the British Tobacco
Company, valued on the Stock Exchange at �2000 (exchange-
value). If. i deposit my 'scrip' with a banker I may be able
to arrange for an 'overdraft' of �1000. Bankers are always
careful to leave a safe margin between exchange- and inherent-
value. As a prelude to charging me, say, 7 per cent. for the
accommodation my banker will probably tell me that 'money'
is tight or scarce just now, and that my application must go
before the Board..: The cost price of the service the bank
renders me is about 21 per cent., the balance, 4 .per cent., is
pure profit. Having arranged the matter, I draw a cheque
for, say, �100 in favor of John Smith for goods received:
Smith sends my cheque to his banker and asks him to credit
his (Smith's) account. His banker collects �100 from my
banker through the Clearing House. Now what has happened?
(1) Debit entry for �100 has been made in my bank account,
and a credit entry for the like amount in Smith's bank account.
(2) I have become liable to my bank for 7 per cent. per annum
on a hundred pounds' worth of my British Tobacco Company
shares, which I have, in effect, temporarily or permanently
transferred to John Smith in payment of my debt; that is, to
complete the exchange.
    My bank has undoubtedly rendered me a service. When
it honored my cheque for �100 it assured Smith that I was
'worth' (at least) �100. The bank, moreover, became liable to
pay Smith (if and when called upon) �100 in gold or in bank
notes. But the bank ran no risk.: its 'security' was .ample
The cost price of the service it rendered (about 24 per cent.)
.is. all it was justly entitled to, and with fewer banks or only
one the cost of the service might be considerably reduced.
    A - pure profit of 41 per cent. may seem 'reasonable,' but
consider: the profit made was profit on the capital (in com-


128







THE GREAT PRIVATE BANK FRAUD.


modity form) owned by the bank's customer: on the money
capital actually put up by the shareholders of the bank (ex-
cluding capitalised profits) the profit was at least 40 per
cent.: it may have been 400 per cent. It may in fact be said
that banks make 40 per cent. (calculated on their own capital)
out of the money capital of their -clients or customers and 400
per cent. out of their customers' commodity capital (securities).
That seems incredible.
     In support of that statement we may quote from the work
of an orthodox conservative economist-one who believes that
value is a ratio!   Macleod, in his "Theory and Practice of
Banking," Vol. I., pp. 324-326, says:-

    We must now explain how a banker trades with money. Suppose
his customers pay in �10,000 to their accounts: then the money becomes
the banker's absolute property as a "mutuum." After such an opera-
tion his accounts would stand thus:--
               Liabilities.                 Assets.
       Deposits ......... �10,000   Cash ........ �10,000
    It may be said, in ordinary and quiet times, a banker's balance in
cash will seldom differ by more than one-thirty-sixth part from day
to day. [Incomings and outgoings will balance to that extent.] So
that if he retains one-tenth of his customers' cash to meet any demands
which may be made upon him, that is ample and abundant in ordinary
times. If then, in the above example, the banker retains �1,000 in cash
to meet any demands upon him, he has �9,000 of his customers' money
to trade with.
    Suppose that the "banker" buys �40,000 of commercial bills at three
months, and that the agreed upon Profit was 4 per cent., then the sum
to'be retained on the bills would be �400, leaving himself liable for
�39,600.
    His accounts would stand thus:-
            Liabilities.                     Assets.
      Deposits ....... �49,600     Cash ............ �10,000
                                   Bills of Exchange  40,000
                      �49,600                        �50,000

 the balance of �400 being his own property or profit.
     By this process the 'banker' has . . . created �39,600 in credit
 and his Profit is clear: he has not gained 4 per cent. on the �9,000 in
 cash, but 4 per cent. on �40,000. (Black type mine.)

     Note now a very common popular error: from the banker's
 point of view  a deposit is not the Bill of Exchange placed
 afterpurchase, in the vaults of a bank; it is, by a natural trans-
 lation, the credit entry in the Bank's ledger in the account of
 Jones, or of whoever sells the Bill to the bank: it is a liability
 to pay money to Jones and not an asset. Many people imag-
 ine that a bank which has large deposits is in a strong posi-
 tion, whereas a deposit is a liability the bank has to meet. The
 granting of a credit gives an individual a legal claim against


129






FROM CAPITALISM TO FREEDOM.


the bank-a right of action-for the amount of the credit
(in cash on demand).
     But because individuals believe they can get cash on
demand they do not ask for it-for the most part they are
satisfied with transfers of credit.
    In the example just given of the �10,000 cash shown as
an asset, �9,600 is in reality a liability, only the �400 profit
is a real asset. The fiction of mutuum need not deceive us.
So much depends on the point of view.
     Thus we see that the special essence of a banker's busi-
ness is, not to lend money, but on the basis of bullion to create
a vast superstructure of credit, or as Macleod puts it:-
    A banker is a trader who buys Money and Debts by creating other
Debts.
Creating is Macleod's word, and here-from the banker's point
of view-it is well chosen. The Messenians had a proverb-
"There is a Profit before a Profit, and yet another Profit
still"; and they laughed at the Natural Philosophers who said,
"'Nothing can come from Nothing."
    Yet Macleod quotes this saying with approval, he actu-
ally believes that credit is created out of nothing.   Thus
he sums up a long argument: "Hence we see that the mere
will of man has created vast masses of Wealth out of Notli
ing!" And then it is 'decreated'! Because a Bill of Exchange,
unlike a Bill of Lading, can become detached from the actual
goods that gave it being and can be used as money, or as a
bank note, or other promise to pay, and can thus be made to
represent the incomplete half of any exchange of equal value
Macleod loses sight of the material reality on which it is
founded.
     Take for example the Bill of Exchange for �150 drawn
by Manufacturer Jones on Merchant Robinson (and accepted
by him) in payment for goods received. Jones, after some
(circumlocution, gets �148 spot cash for his �150 worth of
goods. But the goods, we may suppose, have only cost Jones
�140. Then of the �10 surplus value the goods contained
Jones is compelled by the force of circumstances to yield �2
to the bank. The �2 is not "created," but made by Jones'
workmen. But the bank acquires the �2 by the simple pro-
cess of writing figures in its books and issuing a cheque book.
The depositor then writes out a cheque and sends it by post
to his private creditor-in nine cases out of ten he does not
personally draw cash and personally hand the cash to his
creditor. The result is that the banks find by experience that
a little cash goes a long way. For the most part a mere
transfer of figures in their books does the trick.


130







THE GREAT PRIVATE BANK FRAUD.


131


     As Professor Agger, of Columbia University, says:-
     The significance of these matters to a bank's profit can be force-
fully illustrated by assuming a hypothetical case. Suppose that a bank
has cash deposits of 200,000 dollars, and suppose further that in the
absence of any legal restriction the bank learns by experience that
because of the general use of checks as currency in its community
and because of the maintenance of comfortable balances by the de-
positors, a cash reserve of 10 per cent. is adequate to meet direct
demands for cash as well as possible debit balances at the clearing
house. Twenty thousand dollars would then suffice to meet the cash
demands of, and the clearing house requirements arising from the
checks drawn by, the depositors of cash. One hundred and eighty
thousand dollars would then be released to the bank for other pur-
poses. If now borrowers from the bank have about the same relative
cash needs as the depositors of cash, and if they maintain an approxi-
mately equivalent balance, the whole of the 180,000 dollars may be used
as a 10 per cent. reserve for the deposit liabilities that the bank may
safely add to those assumed when the cash itself was deposited. In
other words, instead of earning interest on only 180,000 dollars the
bank may earn interest on just ten times that amount, namely, 1,800,000
dollars. On the basis of a 4 per cent. rate this would mean an annual
income of 7,200 dollars, if the bank's lending power were limited to
the actual cash held above the reserve required for cash depositors;
but when this cash may itself be used as a 10 per cent. reserve
against further deposits extended to the public, the annual income at
the same rate leaps to 72,000 dollars. This is to say, on a 10 per cent.
reserve basis every dollar in cash means an increase of 9 dollars in
the bank's lending power. That explains why the bank can afford to
maintain an expensive establishment, to supply stationery, and to
undertake free of charge the collection of checks, coupons, etc., for
its depositors. In the banking business nothing succeeds like de-
posits.

     But let us take an actual case-the Bank of England.
The facts and largely the words are taken from         Macleod's
book on Banking.
     Banking, in the modern sense of the word, had no exist-
ence n England before the year 1640. Up to that period
merchants had been, for a considerable time, in the habit of
depositing their bullion and cash in the Mint in the Tower,
for convenience and security, under the guardianship of the
Crown. The King-Charles 1.-seized the merchants' bullion
and cash in the Tower to the amount of �120,000. He was
beheaded in 1649, nevertheless (!) in 1672 Charles II. seized
�1,328,526; of this sum �416,725 belonged to Sir Robert Viner
alone. The bankers, it is true, were not numerous, but the
money they had belonged, in great part, to their customers,
and of these were 10,000: some of their customers went mad,
others committed suicide.
     The Act incorporating the Bank of England received the
Royal assent on the 25th April, 1694. It directed that the
sum of �100,000 a year should be granted to persons making
                    *"Organised Banking," p. 32.






FROM CAPITALISM TO FREEDOM.


a voluntary war loan of �1,200,000 to the Government. The
subscribers to the loan, on which slightly over 8 per cent. per
annum was to be paid, were to be allowed to assign and trans-
fer their stock and interest, and to receive the usual privileges
of a corporation. They were to be allowed to deal in Bills of
Exchange, buy and sell bullion, gold and silver, and to lend
money on security.
    The Bank Act of 1697 provided that no other bank should
be sanctioned by Act of Parliament.
    In 1704 and again in 1707 the bank was in difficulties,
and agreed-
    1. That interest on their original stock of �1,200,000 be
reduced to 6 per cent. (�72,000 instead of �100,000), with an
allowance of �4,000 for managing the debt.
    2. That the bank would advance a further sum of �400,000
at 6 per cent. interest.
    3. That they be allowed to double their present capital
of �2,201,171 10s. at the price 115 per cent. for the new stock.
Upon which they agreed to circulate �2,500,000 of Exchequer
bills and receive an allowance of 6 per cent. on it, one-half
for interest and the other for repayment of principal.
    4. That their privileges* as a corporation should be con-
tinued for 21 years from 1st August, 1711, to 1732.
     Thus the Bank actually lent to Government �1,200,000
plus �400,000, but still had it as stock, whilst the Government
paid them a yearly sum of �246,000 and allowed the existing
shareholders to take a bonus of �330,000 from incoming share-
holders.   Notwithstanding that fact, the new shareholders
stood on velvet, and it is no wonder that when subscriptions
for new stock opened on the 22nd of February, 1709, at nine
in the, morning, it was fully subscribed by one o'clock the
same day. No wonder the shareholders agreed with Macleod
in thinking that wealth could be created!
     In 1716 the bank was empowered to borrow money at any
rate of interest they pleased upon their bills, bonds and any
obligation under their Common Seal, or upon the credit of
their capital stock, and their existence was prolonged prac-
tically indefinitely.
     The first Act of 1697 prevented the Bank from making
advances to the Government without the express permission
of Parliament, but Pitt in 1793 passed an Act to remove this
restriction.
     The 'creation' of wealth by writing figures in a book then
 went on apace. The creation was performed by the Bank, the
 interest was paid by the Government. In a few months no
   *No other corporation exceeding six persons was to be allowed to issue
Promissory Notes payable on demand, i.e., Bank Notes.


132






THE GREAT PRIVATE BANK FRAUD.


less than �1,613,345 was created. These issues were all pro-
mises to pay gold on demand, and as past and often bitter
experience had taught the directors of the Bank the danger
of credit issues enormously in excess of their gold reserves,
they remonstrated with Mr. Pitt, who promised that advances
on Treasury bills should be reduced to �500,000-a promise he
never kept.   On the contrary, in July, 1796, he asked for an-
other �800,000 at once, and a similar sum in August.      Re-
luctantly the directors yielded. "Much would have more,"
and in the following November Pitt made a fresh demand for
�2,750,000, and got it. It is so easy to create! i.e., to forestall
taxation.  In February, 1797, Pitt asked for �700,000, and
hinted he would require a further sum of �200,000 for Ire-
land. The Governor assured him that the drain of cash had
been continuous and severe of late, and that such a demand
was very dangerous. The demand for Ireland when made was
for �1,500,000! The directors were dismayed and restricted
their advances to merchants and others.    At length, on Feb-
ruary 25th, the crash came, and the Cabinet hurriedly author-
ised the directors of the Bank to suspend cash payments and
extend their issues of paper. The situation was at once re-
lieved, and the stupidity of a gold basis was demonstrated.
    Brief mention may be made of the 'fatal' Act of 1844.* It
divided the Bank into two departments, one for the issue of
credits, i.e., purchase of Bills of Exchange, and the other for
the issue of bank notes-as though bank notes and credits
were not both credits! The Act shut the front door and left
the back door wide open! Is it astonishing that the gold once
more disappeared ? The issue of bank notes was strictly cur-
tailed in relation to the cash reserve, the issue of credits was
unlimited! Three years later in the crisis of 1847 the Bank
was only saved by the Cabinet allowing it to violate the Act,
and again in 1857, and in 1866 and 1914, it was found neces-
sary to suspend the Act. The Act evidently is a failure, but
so is the gold basis, or rather the present form of gold basis.
     The gold basis is for the banker as wood in the child-
 ren's game of 'touch wood,' for so long as you touch wood you
 are safe and immune; if you leave it, no matter how short the
 time or distance, fear and anxiety are your portion. At the
 approach of danger you must fly to its protecting virtues.
 So in fear and trembling the banker parts with his gold, and
 when commercial crises threaten, when public fear breaks into
 panic, panic into a run, a run into a stampede, the bank is
 'broken,' and if some depositors escape ruin they are con-
    * This Act is admirably adapted "to bring the profits of industry
 periodically into the money bag of the usurer" by an increase in the rate
 of d!iscount-necessary to maintain the gold reserve.


133






FROM CAPITALISM TO FREEDOM.


sidered fortunate. And the whole arrangement is as unneces.
sary as it is foolish.
    Chained to gold a bank is not free to exercise its proper
function of issuing credits against all sound securities repre-
senting real wealth. That wealth and not merely gold is the
real basis of all Government bonds, and taxation is the means
by which it is diverted from personal to communal use. Yet
.n wealth they do not own the banks are allowed to levy tri-
bute. As Marx says i*t "Is there anything more insane than,
for instance, the Bank of England in 1797 to 1817, whose notes
have credit only by backing of the State, taking payment from
the State, to transform these same notes from paper into money
and then to loan them to the State?" Now that is exactly what
is taking place to-day. The title deeds to wealth (securities)
are handed over to bankers who lock them up in their safes,
and on this private wealth the owners are charged discount or
interest in return practically for no more than a cheque book,
and a few figures written in the bank's ledger, figures that give
Inmediate purchasing power in virtue of public confidence.
    And we calmly permit this stark insanity to continuel
    It may be asked: "Is there no limit to this creation
of wealth, or at least to this creation of credit?"   Un-
doubtedly there is. John Law, who was much saner than many
of our modern Messenians, advocated the idea of representing
all solid wealth, such as land, corn, silk, etc., in bank notes,
or in bank credits. (A bank note is a bank credit). This,
to a limited extent, is exactly what banks to-day-the question
now is: What is the limit of that happy arrangement ?
     It is limited because bank notes and bank credits are pro-
mises to pay current gold coin. Could these debts (bank notes
and bank credits) be paid in paper, representing commodities
instead of gold, there would be no other limit than the com-
modities themselves to the creation of credit. The proposals
of John Law would be perfectly sound. That this cannot now
be done shows the foolishness of a gold basis.
    Yet it might be done, as we show in our chapter on Pallia-
tives. We have taken a 10 per cent. cash reserve as ample
provision against credit advances (in notes and book entries),
but the bullion reserve against notes alone is often as high as
one in three, while the reserve against notes and bank credits
(and they are both liabilities) may fall as low as one in thirty.
Ten per cent. is considered to be safe in ordinary times, but
one in one is the only absolutely safe proportion. Such banks
have existed at Amsterdam, Venice, Hamburg, and Nuremburg.
Theywere purely deposit banks: did no discounting, and con-
             *"Capital,"  Vol. III., p. 638, Kerr's Fdition.

        Page 134, 19th line from bottom of page-"what
   banks to-day" should read "what banks do to-day"


134






THE- GREAT PRIVATE BANK FRAUD.    15


sequently made no profit. But, although, a cash reserveof
one � sovereign for every �1 note issued-known as the Cur-
rency Principle-is perfectly safe for the bank which does not
give 'credits,' yet the volume of modern trade transactions
is so great that gold coins, whether in their own form, or as
represented by bank notes, would be utterly inadequate as the
only medium of exchange.




           CO', N  IONS                   ETCo I ' C ~
         iov.     ILI
            160

          -   15~OR 5TAILA
               ph OT N  5       Etl qSu




                 '(.AN        N o      iT


                      WLiliDS GOD










    Ilune, in his Essay on Money, says,: "The substitution of
Paper for Metallic Currency is a national gain, any further in-
crease of paper, beyond this is but a form of robbery." That
form of robbery is perfectly legal, and is known now by the
name of exploitation, but some- means of increasing the -media of
exchange is. clearly necessary, and this necessity gave rise


135







FROM CAPITALISM TO FREEDOM.


first to: the issue of notes in excess of the coin reserve, and
then to the issue of bank icredits. The great private bank
fraud is not a deep and dark-laid scheme of robbery, but, like
Topsy, it "just grow'd."
    Something had to be done, and so consciously or uncon-
sciously the inverted pyramid of exchange media was erected.
Founded entirely on a gold basis--credit at first took the
form of bank notes in excess of the gold coin each note was
supposed to represent: bank notes proving insufficient to
meet the demands of trade promissory notes-bills of exchange
-representing actual goods-were added to the unstable
structure of credit, and finally leaving the solid ground of
existing reality-past goods (already destroyed) and future
goods, goods not yet in existence, and accommodation bills
representing some vague capacity to pay, overhung the al-
ready top-heavy edifice.
    Every one of the debts, bank notes, bills of exchange, pro-
missory notes, interest on war bonds-all are payable in gold
or' demand! Gold, in theory, is to complete every exchange.
    And there used to be an adage "as sound as a bank"!
Banks are radically and essentially unsound-a breath of sus-
picion-a wind of doubt-a run on a bank and over goes the
crazy erection of credit.   And periodically these winds of
doubt must blow; one commercial crisis has followed and must
follow another, so long as the capitalistic system lasts. Banks
may aggravate such crises, but they cannot prevent them. As
Macleod says: "It is entirely futile to expect that mercantile
crises can be prevented, and they occur with precisely the same
violence in places where there is a purely metallic currency
as everywhere else." (We shall show the reason for and
necessity of commercial crises in our next chapter)., All that
can be done to mitigate their violence is to suspend by law
gold payments and to issue whatever credits are required by
sound trading institutions.   No institution that can-ulti-
mately-pay twenty shillings in the pound should be allowed
to go insolvent, but those who cannot should not be assisted.
     As we have said, no reform in banking methods can pre-
 vent periodical crises, but what is known as "sound" banking
 may mitigate them. The most sensible reform would simply
 turn the solid part of the pyramid into the usual position
 adopted by all sober pyramids-that is a reform we shall sug-
 gest, but in the meantime what can be done by less radical
 measures?
     Something, but not much. Thus the 10 per cent. reserve
 might at least be preserved. Experience has proved that a
 10 per cent. reserve against advances (notes and credits) is a
 sufficient provision in ordinary times. In times of severe


136






THE GREAT PRIVATE BANK FRAUD.


crisis nothing short of a supply of gold to meet all possible
demands is absolutely safe for the banks; and absolutely dis-
astrous for traders.
     Assuming then that a 10 per cent. cash reserve against
 issued notes and- credits is the end bankers have in view, and
 that they voluntarily accept that limit to their (really un-
 limited) power to issue credits, the question is how can it
 be done?
     Originally each bank kept its own reserve of bullion. Even
 as late as November, 1914, American banks did so, But little
 pools soon dry up :--if all these small reserves are drained
 into one 'decent lake-spasmodic calls or runs on individual
 banks are easily met. Nearly every civilised nation now has a
 general gold reserve.
     But each bank is called upon to keep its own share of the
pooled gold reserve at not less than 10 per cent. of its total
advances. And that is-done-or attempted-by varying the
rate of discount in consonance with foreign exchanges.
    A high rate of discount attracts gold; a low rate repels
it. Suppose for example the rate of discount on bills or ex-
change is 3 per cent. in London, and 8 per cent. in Paris-then
gold will flow from London to Paris. The modus operandi
is by means of Accommodation Bills, bogus bills which do not
in reality represent actual sales of goods. Such a bill for
(say, �100 can be sold in London for �97, and gold, not notes
or. credit, is asked for; the gold is taken to Paris where a
�100 bill can be bought for �92---a gross profit of �5. The
cost of sending the bill is trifling, and when large sums are
dealt with the cost of transmitting gold is a very small per-
centage. There are other small hindrances to the transfer of
gold from one country to another, but the difference between
the two rates of discount is the governing factor. To prevent
gold from leaving one country and going to another the dif-
ference in the rate of discount in the two countries must not
quite reach the gold point. To increase the quantity of gold
in a country the rate of discount as compared with other coun-
tries must exceed the gold point. Thus by altering the rate
of discount, a 10 per cent. gold reserve against notes and
credits can be maintained. Clearly it is the merchants who
are the immediate sufferers from a deficiency in the gold
reserve-the bankers make a profit out of it. "'There is a
Profit before a Profit, and yet another Profit still," and it
comes out of the pockets of our shrewd business men.
    Let us see what some of these profits are. All companies
consisting of individual shareholders regard their profits as a
matter that concerns themselves alone-all of them avoid the
light of publicity as much as possible; secret reserves, unde-


137






FROM CAPITALISM TO FREEDOM.


clared profits, argue an uneasy conscience. Companies indig-
nantly repel all inquiry, and loudly declare their right to
manage their own business in their own way. As if the
method by which wealth is made and distributed was of no
vital interest to a nation, and was merely a matter of private
.oncern !
     There is considerable difficulty in obtaining reliable fig-
ures. Roughly, every million pounds of gross banking profits
may be divided as follows:-
         Net profit (66.6 per cent.) .......�666,667
         Working expenses* (22 per cent.)    222,222
         Taxation (11 per cent.) ...........111,111

                                          �1,000,000

While the amount of credits advanced is about ten times as
great as the paid up capital and ten times the amount of
the gold reserve.
     The Commonwealth Bank of Australiat was founded in
1912 with a capital of five thousand pounds (�5000).      In
June, 1922, it had an accumulated capital of over �4,000,000,
made entirely by charges in excess of the cost of the services
rendered. A profit of �4,000,000 in ten years is an average
profit per year of �400,000; and a profit of �400,000 a year on
a capital of �5,000 is a profit of eight thousand (8,000) per
cent. ! Our 400 per cent. was evidently far too modest.
The total net yearly     profit of all the banks in     Aus-
tralia in 1922 was over �8,000,000--gross returns on the basis
assumed would be �12,000,000. Deducting working expenses
22   per  cent. =  �2,666,664  would   leave  a  balance  of
�9,333,336 unnecessarily taken from the pockets of the people.
Thus if the rate of discount is 6 per cent., it might be reduced
to, say, 24 per cent.-affording great relief to traders and
manufacturers, or, if directed into the coffers of the State,
taxation could be reduced. If the total net banking profits
in Britain are taken at twenty times the Australian profits, then
�160,000,000 are every year taken from the pockets of its peo-
ple, and put into the pockets of those who "own" the banks.
Banks are only one form of exploitation. It is estimated that
the so-called "public" limited liability companies in Australia
make an annual net profit of �20,000,000. On the 20 to 1 basis
such   companies would in     Britain  acquire a   profit of
�400,000,000, and that leaves untouched the profit from rent
and the profit of private firms. Is it any wonder that the
'people' of England are poor?
   *The highest shown (including directors' fees) in published statements.
   tOwned by the "people" of Australia.


138






ECONOMIC CONTRADICTION.


                            Ix.


           Economic Contradiction.

    If we try to envisage the output of wealth by a nation
we may regard it as a flow of the crude materials of Nature
gradually changing shape from stage to stage until finality is
reached in consumption or capital goods. The analogy is not
however perfect: it is not the uninterrupted flow of a river:
at this stage or that there may be stoppages, and goods may
accumulate in heaps in warehouse or store: only when the flow
is constant is the analogy sound. Though there is an intimate
connection between the several stages of manufacture, the rate
of "flow" is liable to vary, now hastening, now retarded,
even, it may be, for a time stopping altogether. When the
final stage is reached at last we see that the goods are either
consumption or capital goods, are, i.e., goods to be consumed
immediately or are goods to be used in the production of
yet more goods! Whatever the kind of goods the rate of flow
depends essentially on demand: though a limit, rarely if ever
reached, is imposed by the capacity of producing agencies:
we may fairly say that demand determines supply.
    Now at each stage,-we may name them A. B. to J.,-new
value is added, and if A.        J. represent the producers
then  while   each  of A.-----J. is     credited  with  the
particular value he has added, yet it is not till, finally,
J. sells the ultimate goods that these values are realised.
Again, A. ---J. may        remain   owners   of  the  goods
until the   final sale  by   J., or   they  may sell their
claim  to banks or to other capitalists, at a discount,
and these then become the real owners. In either case it is
the real owners who decide what goods shall in future be pro-
duced, or in other words decide the policy of industry: be-
cause for the most part these goods are circulating capital,
and can be used in any desired direction: the workers who
consume them can be employed just as capitalists may decide.
Claims on such goods,-recorded chiefly on floating paper or
as credit in the books of a bank,-constitute purchasing
power: and this power is held by aggregations of capital in


139







FROM CAPITALISM TO FREEDOM.


the hands of individuals or of banking corporations. These
"claims" on wealth are often pure exploitation; as watered
stock, vested privilege, and goodwill.
    Such immaterial wealth, preferential benefits of the nature of in-
tangible assets, may be a matter of usage simply, as the vogue of a
given public-house, or of a given tradesman, or of a brand of consum-
able goods: or may be a matter of arrogation, as the King's customs in
early times, or the once notorious Sounds Dues, or the closing of
public highways by large landholders: or of contractual concession, as
in the freedom of a city or guild, or a franchise in the Hanseatic League
or in the Associated Press: or of Government concession, whether based
on bargain or otherwise, as many of the trade monopolies of early mod -
ern times, or a corporation charter, or a railway franchise, or letters
of marque, or letters patent: or of statutory creation, as trade protec-
tion by import, export or excise duties, or navigation laws: or of super-
stitious punctilio, as the creation of a demand for wax by the devout
obligatory consumption of consecrated tapers, or the similar devout
consumption of and demand for fish during Lent.*
    As a result of these and other forms of exploitation re-
ceivers of surplus value find themselves in possession of more
' claims" to wealth than they care to realise-of more money
than they can possibly spend on consumption goods, they must
save, i.e., they must "invest" their money in capital goods.
And the manufacturer finds that he is unable to sell his goods
at a profit-no matter how small that profit may be, conse-
quently he must reduce his output or close his works.
    Let the manufacturer state his own case: "Unless I can
sell my goods as cheaply as others, I cannot sell them at all,
consequently I am compelled, under pain of bankruptcy, to
reduce my costs to a minimum. I may do that in several or
all of the following ways: I may reduce wages; lengthen hours;
induce my men to work harder; introduce automatic and up-
to-date machinery; improve my methods and organisation.
I do not want to do these things, but I must if I am to live.
I cannot afford to be a philanthropist, nor am I in business
merely for "the good of my health."
     The plea must be admitted.     Our manufacturer is evi-
dently a creature of circumstances, and probably a very decent
fellow.
     What then are the circumstances?
     More goods are produced than can be sold. And they
 cannot be sold for two reasons: firstly, because those who
 want the goods have not got the money to buy them; secondly,
 because those who have got the money, do not want them.
 That is the position in a nutshell.
     Remembering that the great bulk of consumers are wage
and salary receivers, let us consider the effect of the measures
our manufacturer was compelled to take.
          *Veblen, "Place of Science in Civilisation," p. 362.


140






ECONOMIC CONTRADICTION.


    To "reduce wages" is to reduce the purchasing power
of wage-receivers. To "lengthen hours" means that fewer
men are required-that less wages are paid and fewer goods
can be sold.
    More "intense labour" has exactly the same result- fewer
men-less wages-fewer goods sold.       To introduce better
methods and more automatic machinery has the same result:
fewer men-less wages-fewer goods sold.
    There is no escape from the dilemma so far as the market
made by the worker is concerned. Remains the market made
by the wealthy capitalists themselves. Their consuming cap-
acity is limited-let us stretch it with luxuries as far as pos-
sible. And here we note that luxury is good for trade, and
Ruskin's fine indignation was wasted.    For production to
continue goods must be consumed, whether by use, or waste, or
fire, or luxury, or war, is, from the economic point of view,
a matter of indifference.   The almost agonised cry of the
manufacturer is for a market his frenzied endeavour is to sell
his goods. It has been seriously stated that it costs as much
to sell as to produce an article. That is an enormous but
beneficial waste. How otherwise would all those "travellers"
live
    After an extensive fire men are employed-during the
war men-and women too-were employed. Under the 'in-
exorable' law of capitalist economics waste and fire and war
are good in that they enable men to be employed. "Fair is
foul and foul is fair" might well be adopted as the motto
of the system. Seen "through the fog and filthy air" of
Capitalism all virtues are distorted. Clearly the home market
can only be improved by increasing wages, or by increasing
the luxury of the rich. The foreign market may possibly be
captured by reducing wages, etc. Let us see-perhaps it can
be done-for a time.
    Trade is in reality an exchange of goods and services
for goods and services. Foreign trade is chiefly an exchange
of goods-(shipping is, however, a service). That being so,
what are we to exchange? Of manufactured consuniption
goods we already have too many-the home market is over-
supplied; but we may take raw materials as wheat and wool,
and in return we give our surplus manufactured goods, and
all is well-for a time. Presently, other nations, having their
own unemployed, raise a protective tariff and start manu-
facturing for themselves. Still trade is good-for a time-
because we are able to send machinery instead of, or in addi-
tion to, manufactured consumption goods. Then comes a
slump-a trade depression. Australia, for instance, is begin-
ning to turn her own wool into cloth and blankets, etc. (how


141







FROM CAPITALISM TO FREEDOM.


will that affect Bradford?), and to make her own steel rails
(how will that affect Sheffield?) and her own machinery
(what has Leeds to say?), and soon cotton and cotton mills
will follow. No-there is no permanent solution in foreign
trade.
    Then "Economy" is the cry: reduce expense by dismis-
sing unnecessary civil servants, cut down on naval, military,
educational establishments: by an even greater amount you
enlarge unemployment and therefore decrease the spending
power of the community: still fewer goods are required by the
market. Well, obviously, emigration: there is a land overseas:
for men there is no call in England-unless there should be
another war; or "Capital" may emigrate and employ "cheap"
labour. It would be simpler to adopt Dean Swift's "remedy
for the current distress in Ireland"-and practise infanticide
and cannibalism. True the Dean's remedy is drastie: true
that "it is the people that make the State, whose real riches
lie in its inhabitants": but what else is there? One final
refuge remains: Imperialism. There is an abundance of the
"raw materials of nature" to be exploited: oil in Mosul, iron
ore in China and Morocco, coal in the Ruhr and elsewhere,
cotton-lands in Egypt and Australia, rubber in the Congo, and
"concessions"' everywhere. Suppose the suggestion is ac-
cepted, what then? War, destruction of "goods," and there-
fore a market. Assuredly a market-for a year, or it may be
five: and then? Surely we have seen it: Europe bankrupt,
and as a last hope an attempt to make a market "within the
Empire."   Once we sold to the world: now we are trying to
make a handful of dominions and colonies appear to us as
if they were the world. In vain, absolutely in vain! It
matters not whether the unit be state, nation, empire or
world, sooner or later the fatal dislocation in distribution
brings production to a standstill and a starving multitude
faces warehouses bursting with merchandise, but between them
flashes the sword of "law and order."
    Thus in sum it amounts to just this:-Assuming the pre-
sent capitalist system, there are two and only two results-
     (a) Those who can, and are willing to, consume "goods"
are unable to pay for them.
     (b) Those who can pay for them, cannot, or are unwilling
to consume them.
     Or it may be expressed in one sentence: "Sale of consump-
tion goods is restricted by the limited capacity of the worker's
purse on the one hand, and the capitalist's stomach on the
other." To sell cheapely, wages must be reduced: to reduce
wages is to diminish the power of purchase: to sell freely,


142







ECONOMIC CONTRADICTION.


purchasing power must be increased. Thus does Capitalism
ring its own knell. We cannot at the same time both reduce
wages to secure cheapness and increase them to provide a
narket.v A system which attempts the impossible and absurd
stands self-condemned, and is clamant for replacement.
     The position is aptly illustrated by an actual case from
nature. A dead beast was found on a cattle "run" or ranch,
one horn of the unfortunate animal having grown so as to
pierce the eye and penetrate the brain. No doubt madness
preceded death. That is exactly what is threatening the
capitalist system-involuntary self-slaughter.   And there is
more than one mad cow in the arena.
    Now our own wealth commands us; we are destroyed by
the works of our own hands by the very machinery we have
ourselves invented. The more efficient production becomes, by
specialisation and invention, the less efficient grows distri-
bution because there has been no accompanying synthesis or
integration.
    It may be well to consider for a moment the limits of
existing~ industrial integrations. In olden times the manor
was self-contained; it constituted an industrial unit. Later,
the nation became the unit; some foreign trade certainly
existed, but chiefly in luxuries not essential to the life of the
nation. To-day foreign trade is essential to the life of England,
and were she suddenly cut off from the outer world she would
starve.*  To fix the exact limits of her industrial integration
is almost impossible, but they are international. In ordinary
conversation  we   speak  of 'England's' trade with, say,
'America.' But England does not trade with America: capital
is now a private possession and certain private individuals or
firms in England trade with private individuals or firms in
America.    Under    Socialism,  whether    'State,'  'Guild,'
'Soviet,' or any other brand, England will trade with other
socialised nations, if they exist, or with private individuals
oi- firms in capitalistic nations, but she will trade as a whole.
War, some day, will cease, but that day is not yet, is perhaps
far off. In the meantime it would be wise for each nation to
make itself as self-contained as possible. Hence, for the pre-
sent, Protection is justified. Protection is indeed, if not a
necessary, at least an advisable preliminary step towards
Socialism. A higher integration (as Socialism) will be accom-
panied by a higher differentiation, not only within, but of,
the nation, as indicated in our spiral of progress. How foolish
then it is for the Labor Party in England to oppose Protection,
   *"It is, quite erroneously, thought that England could not grow her
own food: she could; as Kropotkin has pointed out.


143







FROM CAPITALISM TO FREEDOM.


although Protection,f in itself, is no remedy for the present
mal-distribution of wealth.
     Over-production is, from. another point of view, under-
production, and production is restricted, not because we are
physically unable to produce more, but because we are unable
to sell more.   The slight extent to which we 'lived on our
capital' during the war, by neglecting to maintain our plant,
was but as a drop in the bucket compared with the loss of
products since the war, due to our inability to sell; and we
cannot sell because our 'people' are unable to buy.
     As Marx tells us:
     Within the  capitalist system  all methods. for raising   the
social productiveness of labor are brought about at the cost of
the individual laborer; all means for the development of pro-
duction transform themselves into means of domination over, and ex-
ploitation of, the producers; they mutilate the laborer into a fragment
of a man, degrade him to the level of an appendage of a machine,
destroy every remnant of charm in his work and turn it into a hatred
toil; they estrange from him the intellectual potentialities of the labor
process in the same proportion as science is ihcorporated in it as an in-
dependent power; they distort the conditions under which he works,
subject him during the labor process to a despotism the more hateful
for its meanness; they transform his life-time into working-time, and
drag his wife and child beneath the Juggernaut of capital. But all
methods for the production of surplus-value are at the same time
methods of accumulation, and every extension of accumulation becomes
again a means, for the development of those methods. It follows there-
fore that in proportion as capital accumulates, the lot of the laborer,
be his payment high or low, must grow worse. (Heavier type mine.)
     To which may be added that crowning degradation, un-
certainty of employment. . "Wealth accumulates and men
decay.",
     It is a feature of the system that there are always unem-
ployed, though numbers vary greatly, as is but natural, with
the state of trade. Even in 1886 Engels, after pointing out
the tendency of production to exceed market needs, could
say:--" The decennial cycle of stagnation, prosperity, over-
production and credit, ever recurrent from 1825 to 1867, seems
indeed to have run its course: but only to land us in the slough
of despond of a permanent and chronic depression.             The
sighed-for period of prosperity will not come: as often as we
seem to see the heralding symptoms, so often do they again
    t When the political and economic integration of the world is an accom-
plished fact, Free Trade will be as obviously the correct system for the
world as it is now for the internal trade of a nation. The chief objection
to Protection lies in its psychological, rather than in its economic, effect.
It tends to accentuate a selfish nationalism which not only proclaims "my
nation first" but "the rest nowhere"; it tends to prolong the war dementia
which saw in enemy atrocities the acts of devils; in our own; just reprisal
by indignant heroes-an attitude, of mind, and a belief, common to all
belligerents (!), but one which does not promote the difficult art of 'living
together.'


144






ECONOMIC CONTRADICTION.


vanish into thin air.    Meanwhile each succeeding winter
brings us afresh the great question-' What are we to do with
the :unemployed ?' But while the number of the unemployed
keeps swelling from year to year there is no one to answer
the question."  It is the purport of this book to attempt an
answer.
    SUnder= Capitalism, trade-depressions and crises are in-
evitable: they began with Capitalism and only with its end
will they find theirs. 'Since 1763 they have recurred in the
following years:-- 1772, 1782, 1793, 1803, 1810, 1814-1819,
1825, 1837-1839, 1847, 1857, 1864-6, 1873-9, 1882-4, 1890, 1893,
1900, 1907, .1921; and the nightmare of the last is still with
us in 1923. These crises destroy a large amount of "capital";
not capital in the sense of material aids to production but
eapital as represented by "'claims" on wealth. The "capital"
destroyed in these recurrent crises consists of the power ob-
tained by monopoly through trusts or trade-agreements to fix
the price of goods by limiting supply. When this power fails
demand is unable to keep pace with supply, and goods are
either sold at a loss or not at all, or they cease to be produced.
These trade crises do good in so far as they squeeze the
"water" out of finance, and reduce the grosser over-capitalisa-
tions. But "while the grass is growing the horse is starving.'
and the knowledge that things are on the mend is sorry con-
solation to those who, meanwhile, are unemployed, or those
who, though employed, know that they are-to use their
own expression-" working themselves out of a job" and
merely hastening a fresh depression.
     The real meaning of a depression is that goods cannot
be consumed, not that they cannot be produced: and whether
the cause be defined as general over-production or specific
under-consumption is of no moment. Economists of the classi-
cal school are chiefly guilty in their insistence that general
over-production is impossible. This is the error of the father
of economics, Adam Smith: it is the error of Ricardo: and
oily Sismondi lifts the voice of one crying in the wilderness:
           "Repent, repent, and from old errors turn!
           Who listen'd to his voice, obey'd his cry?
           Only the echoes, which he made relent,
           TRung from their flinty caves, Repent! Repent!" .
 At length, after more than a hundred years, some economists
 are beginning to listen and repent.
    .The reality of general over-production has been strenu-
 ously denied, and on the face of it, it appears to be so absurd,
 so impossible, that it may be well to go over the ground once
 more.


145






FROM CAPITALISM TO FREEDOM.


    The position was stated by Sismondi in 1803, restated by
Marx in 1867, yet we find economists of the present day, for
example, Professor Rist in "A History of Economic Doctrine"
(Gide and Rist) still asserting that Sismondi is wrong. Even
some labour leaders (e.g., J. R. Clynes) appear not to have
understood the matter as late as 1920. What then can be ex-
pected from the "man in the street"? Mr. Lloyd George went
nearer the mark when he told us that Europe was like a
beggar in rags gazing with longing eyes into a British shop
window, but he forgot to add that two-thirds of the inhabitants
of Britain were in the same position.
    Professor Rist takes up the orthodox Ricardian position:
there can be no general over-production-and although he
admits the correctness of most of Sismondi's statements yet
finds them vitiated by that fundamental error!
    Sismondi says goods cannot be sold unless someone can
buy them-and, he might have added, consume them.
    M. Rist replies (p. 177 of the English translation): "At
any one moment there may be too many, or too few products
of a certain kind, . . . but of every product, at one and the
same time, there can never be too much."  In other words
there cannot be general over-production. But what is meant
by 'too much'? If merely that products are wanted by
someone-and that is what the "man in the street" means
then we agree with the Professor-the 'wants' of man are
almost insatiable. But economists do not use 'want' in this
naive sense. If by 'want' or 'never too much' is meant that there
is always a demand for the products-demand in the economic
sense of effective demand-then every shopkeeper in France,
as well as England, will tell the Professor that he is wrong.
M. Rist says of Sismondi (page 181): "He was unwilling to
admit that the growth of production itself created this de-
mand." It may be asked: Why do not those who own surplus
goods exchange them with each other? No doubt the surplus
products could be exchanged, but they are not, because the
owners of surplus goods cannot consume them and nothing is
gained by exchanging something we cannot use for something
else we cannot use. All that can be done is to save the surplus
even if exchange takes place. And, it may be added, if the
products are consumption goods they can only be saved in
warehouses and shops. If they are "capital"' goods-i.e.,
machinery and the like-they can be "invested," and more
consumption goods, more surplus goods, produced.    Surely
the position is clear! That is what constitutes general over-
production, and general over-production inevitably produces
unemployment.


146






ECONOMIC CONTRADICTION.


    2. Sismondi points out the immobility of fixed capital-
-We cannot suddenly turn a sawmill into a Portland cement
factory-therefore manufacturers limit production, they "go
slow," and the automatic adjustment of supply and demand,
through prices, entails a "frightful amount of suffering."
M. Rist says (p. 180) : "The dictum . . . controls the policy
of every trust and kartel of the present day." But (p. 191)
"Sismondi's argument is vitiated by the same false idea
that made him admit the possibility of general over-produc-
tion!"
    3. Sismondi was disgusted by the fact that not only were
workers driven out of employment by machinery, but that
even those who were employed received only a small share
(if any) of the benefits of machinery. He says: "We have
said it elsewhere, but think it essential to repeat it, that it is
not the perfection of machinery that is the real calamity, but
the unjust distribution of the goods produced." M. Rist
comments (pp. 182) : "Here again Sismondi appears correct."
  But (page 183): "Sismondi's argument is open to the sante
objection as was made above! (i.e., there cannot be general
over-production)."
    4. Sismondi says: "Pursuit of cheapness has forced the
entrepreneur to economise not only in the matter of stuff,
but Also of men. Competition has everywhere enticed women
and children to bear the burden of production instead of
adults . . . The earnings of an entrepreneur sometimes repre-
sent nothing but the spoliation of the workmen." M. Rist
comments (p. 183) : "It is futile to deny the justice of the
argument." "But (p. 185) he (Sismondi) does not consider
that appropriation by proprietors or capitalists of a portion
of the social product is in itself unjust." Sismondi was not
Marx, but here Sismondi is evidently thinking of the 'wages
of superintendence.' The capitalist pure and simple hardly
existed in Sismondi's day. Sismondi dubbed the economists
of his day "orthodox"-in return they refused him the name
of economist at all. Sismondi stated his celebrated winch
argument. This is practically the query: "If all wealth could
be produced by automatic machinery and the machinery is
owned by the few-what are the many to do?" And Profes-
sor Rist (footnote to p. 181), writing in the twentieth century,
says the problem is insoluble! We venture to give three solu-
tions: 1. Starve. 2. Fight. 3. Joint and common ownership
of the instruments of production and exchange by society.
     Marx saw the beginnings of trade-unionism, and pointed
 out that this new force ran counter to, and modified, the un-
 restricted law of wages; that while unionism could not create


147






FROM CAPITALISM TO FREEDOM.


employment it might-within        limits-increase  the   wages
of those who were employed, even might ultimately take over
the management of industry altogether.
    When the laborers discover that the degree of intensity of com-
petition among themselves depends wholly on the pressure of relative
surplus population, they try to organise a regular co-operation between
employed and unemployed in order to destroy or to weaken the ruinous
effects of this natural law of capitalistic production on their class.
     The fact is that at present the worker is degraded, and is,
virtually, a slave. His labor-power is a commodity, sold in
the open market like any other commodity; only by 'striking'
can workers take a leaf out of the capitalists' book and limit
supply.
     The lesson of all this is so obvious that it hardly needs to
be pointed out. The failure is from the side of the distribution
--not production-of wealth. The ownership of the means of
production enables a few    men to draw    to themselves more
wealth than they can possibly consume, The cure lies in the
common ownership of the means of production and exchange,
in an all-round increase in wages and salaries and the aboli-
tion of privilege, so, and only so, can we have efficient distri-
bution.
     Capitalism, like a blind Samson, is pulling down the pillars
of its temple and involving one and all in universal ruin.


148






THE ETHICAL ASPECT.


                            X.


              The Ethical Aspect.

    As we have contrasted the word freedom with Capitalism
it may be desirable at this point to explain precisely what we
mean by freedom. Individual action is limited by material
conditions. Such limitations do not affect the freedom we
mean. Nor do we mean by freedom the removal of all social
restrictions, as in the case of Robinson Crusoe. Freedom is
the action a man may enjoy, in a social state, as a part of a
whole.   Complete freedom' consists in    a perfect adjust-
ment of individuals to each otheir, and to society for mutual
benefit. Society may be simple or complex, but its members
are free if their adjustment to each other is perfect. Thus free-
dom may exist in every form of society whether low or high,
whether simple or complex.
    The individual is free, not because he possesses entirely
unrestricted power to act, but because as a member of a
perfect society he possesses the greatest possible power of
action and of self-realisation. Freedom, then, consists in an
harmonious and perfect adjustment of parts in and for each
other and the whole.
     In defining freedom we have to a large extent defined
justice.
     If we digress for a moment and ask why perfect adjust-
ment is, at least, attempted, or what causes differentiation into
parts, we can only say we do not know. All we know is that
in the past economic changes.have been largely unconscious,
the result apparently of a blind struggle between individuals,
an interaction of the individual and his surroundings, or
when action has been conscious its effect on society as a whole
was not recognised. And yet, even so, society has grown, it
has evolved, and the changes have been made by the action of
individuals. There must therefore be something in man that
makes for a 'higher' life. That something, whether we call it
instinct, or intuition, or reason, or religion, whether a vague
blind striving, a groping after truth, or clear conscious action,
impels mankind to a higher life. That something lies at the


149






FROM CAPITALISM TO FREEDOM.


root alike of the self-sacrifice which promotes a higher integra-
tion, and the self-assertion which leads to a higher differentia-
tion. It lies, in fact, at the root of all efforts-conscious or
unconscious--which tend to carry out the injunction, "Be ye
therefore perfect." That something is the very spirit of re-
ligion--the religion which impels a woman to sacrifice herself
for her child, a man to die for his country, a Socrates to die
for truth, a Christ to die for the world. When conscious, this
spirit is called goodwill, and goodwill is now, we believe, a
factor in industrial evolution. By goodwill the discordant
elements in Capitalism can be removed, a higher integration
effected and freedom attained.
    Freedom is an element in justice, but justice is something
more than freedom. We may have a perfect society in the
sense just defined, but not: the 'highest' form of society, and,
we contend, those actions that lead to a higher form of society
are just. Justice is therefore relative, not absolute. When
we speak of social justice we include, in fact, those rearrange-
ments in society which lead to a higher form of society.
    Justice is compounded of several elements, of which the
first is equality-equality of conditions, equality of oppor-
tunity. With natural inequalities we are not concerned. Jus-
tice applies solely to arrangements made by man with men. We
cannot alter the laws of matter, and their results are inevitable,
and the inevitable is neither just nor unjust, it is-inevitable.
We cannot alter the laws of Nature because we cannot alter the
constitution of Nature. But the laws of economics-of capital-
istic production-even when true, are only the laws of a man-
created system-a system we can alter.
     We do not take our stand on the theory of greatest happi-
ness, or on the doctrine of natural rights, but on the ground of
evolution. There is no right to anything that stands in the
way of a higher development of society, there is every right
to whatever promotes that development.
     In this idea of justice, equality finds a place, but the idea
of equality is widely misunderstood, and needs definition.
     Simply to say "all men are equal" at once provokes denial.
 It is so obvious that in many respects men are not equal. In
 what respect then are they equal?
     Man is not merely a means, he is an end. The equality
 we speak of is in personality. Every man is to himself the
 centre of the universe. His personality is unique, it contains
 "just that essence of individuality which eludes words and
 baffles description.'" He has, with others, an equal claim to
 consideration, to freedom, and to independence from the coer-
 cion, from the arbitrariness of others, in so far as this is com-
 patible, according to general laws, with the freedom of others.


150






THE ETHICAL ASPECT.


    Men "are equal by virtue of the illimitable value each
personality represents, they are equal in relation to the con-
sideration we owe to their interests." It is in that respect that
equality is: claimed.
    But by justice we do not merely mean equality even in the
restricted sense just defined. Justice is a relation between
men-it is relative, proportionate. That is just which promotes
the development of society towards a higher form of life, and
by society we do not mean merely the living individuals form-
ing the units of existing society, but also the individuals to
be, the welfare of the race in fact. In that wider sense we
interpret the phrase, "Salus populi suprema lex." The health,
the welfare of the people or the society is the supreme law. By
justice then we mean those relations or actions of man to man
which best promote the ends of evolution; the upward striving
of the human race. The end is not merely individual life and
happiness, but the highest form of social life and happiness.
Certain human relationships may, at one particular phase of
development, best promote the development of the race, and
so be just under those particular circumstances-later the
same relationships may impede the development of the race,
and so become unjust. That is what is meant when justice is
said to be relative. To the man engaged in heavy physical
toil justice allots more food than to one whose work is of a
sedentary nature, If the food is divided in the just proportion
both are equally well fed. Similarly we claim the equal right
of all to participate in higher development, in opportunities,
in chances in life, the equal right of all to inherit the earth,
to be "heirs of all the ages." We advance then as self-evident
truths the following statements:
    1. The forces and materials of Nature should be the joint
and common property of mankind.
     2. The sum total of human knowledge should be the com-
mon property of the race
     3. The only just title, in a social state, to income is social
service.
    1. In so far as the forces and materials of Nature can be
owned or utilised by man, all men by their common humanity
appear to have an equal claim to them. If this is denied, if
anyone asserts that some men have a better claim to own
Nature than others (others that is of the same race, time, and
culture) then on that man lies the onus of proof. But exclusive
use is not incompatible with common ownership. To use does
not necessarily mean to own. Exclusive individual use may
co-exist with common ownership.
     It may be argued with Max Stirner that "might is right,
 and there is no right without might," that the weak ought to


151






FROM CAPITALISM TO FREEDOM.


give place to the strong, that this is the law of Nature, and
that what is natural is just. To this we demur. It is indi-
vidualism run mad. It is the denial of all social obligation.
Nor is the appeal to Nature valid. Nature is neither moral,
nor immoral, simply non-moral. Justice and injustice, as we
have said, refer solely to arrangements made between men.
That the materials and forces of Nature should be the common
property of all men we hold to be axiomatic. We cannot prove
that two and two make four. We cannot prove the right of
all men to participate in the bounties of Nature. We regard
it as an axiom, a self-evident truth. It goes to the root of the
whole matter. It is fundamental. And to the forces and
materials of Nature may be added time and space: matter and
force, time and space, what can be more fundamental? These
things are essential to life, we claim them as the common
property, the joint inheritance of all men.
    If private property in land, if Capitalism and the wages
system (as we know it) are now in the best interest of the race,
then we agree that they are just.
    Capitalism may have been-we believe it was-a necessary
phase in the evolution of industry and the way to a higher
industrial development. It is on that ground justified by
Marx. But because a system has been just, it does not follow
that it is just.
    It may be objected, "the forces and materials of Nature
are common property, they are free to all:the sun shines on
rich and poor alike, the rain falls on the just and the unjust."
The assertion that all materials of Nature are common property
is clearly incorrect. Facts plainly contradict such a statement.
But-it may again be urged-'" all men cannot work the same
mine, or cultivate the same piece of land. The enclosure of
land and its private ownership is surely justified by that fact."
Again we demur. The private occupation of land may be
justified, but not its private ownership.   Exactly how   to
arrange for private occupation, and still retain common owner-
ship, seems to have been too difficult a problem for our ances-
tors to solve, but there is no doubt that it can be solved. Then
as regards the forces of Nature, heat for example, how under
Capitalism do workers retain their share of the benefits to be
derived from the use of that great force? Probably no one
will have the temerity to assert that the condition of the
worker has improved "pari passu" with the command of man
over the forces of Nature, and with the methods by which
he has been able to harness them and make them his obedient
servants. The worker can now travel in an electric tram ear,
or in a railway carriage drawn by a steam locomotive; but


152






THE ETHICAL ASPECT.


is: his condition any better if his wages are still on the bare
subsistence line ? Has he received a real benefit from these
inventions? Or granting that he has received some benefit,
has he received a proportionate--a just---share of benefit? It
cannot :truly be. said that he has. And it is the private owner-
ship of capital that enables the capitalist to gain and keep
a disproportionately great share of the benefits which arise
from- the control of forces that are the common inheritance
of all. It seems clear that if capitalists are allowed to receive,
in the first instance, the entire benefit to be derived from the
use of a force of Nature, they should, in justice, pay a royalty
to those who are prevented from directly participating in that
benefit, or, as an alternative, the means, that is, capital, should
be owned in common. Nor does the argument end here, it can
be applied to all social arrangements, which result in dispro-
portionate benefit to individuals: or to classes.
    2,: The: sum total of human knowledge should be the com-
mon property of the race.
    It may be granted that thinkers, discoverers and inventors
are entitled to a reward for their social service. But they have
found, after diligent search perhaps, something which is the
property of the race, they have not created it. It may be some
unknown material, or force of Nature. It may be some means
of utilising some known material or force of Nature--some
relation of space, or time, or number, some discovery in higher
mathematics. We may justly grant a patent, or copyright, or
reward, a wage in fact for work done; but the inventor having
received his reward, his invention, should belong to mankind.
James Watt was the first:: to imake the steam engine turn a
wheel, a discovery of enormous importance. Watt is dead and
the benefit to be derived from, the use of the steam engine is;
or should be, the common property of the race.
    Here again we find the capitalist class is enabled prac-
 tically to monopolise not only the forces and materials of
 Nature, but the brains of mankind, all discoveries, all inven-
 tions. "It is doubtful," says Mill, '"if all the mechanical in-
 ventions yet made have lightened the day's toil of any human
 being."  Would it not be just for the rest of the community
 to require payment from   the capitalists for the almost ex-
 clusive benefit they derive from such knowledge? With the
 possession of the steam engine capitalists annex, not only the
 force of heat, but the long line of discoveries that made the
 engine possible, and the benefit of the idea which the engine
 enshrines.
     3. The only just claim to income is social service.
     If the welfare of the race and the common good is the
 supreme law, on what ground can the idle justly claim wealth ?


153






FROM CAPITALISM TO FREEDOM.


It -is obvious that Wealth does not make itself-all wealth is
produced by man working in conjunction with Nature. "Man
is its :father and the earth its mother," and if the earth, if
Nature, is the common property of the race, work, and work
only, is the just claim to wealth. This argument is as trite as
it is true. The gospel of work has many propagandists. But
although it is a true gospel, it is useless to preach it to the
worker who knows he is already exploited and who suspects
that the chief concern of those who admonish him is his further
exploitation. He prefers to go-slow, to prevent, as he believes,
at least some amount of exploitation. His attitude is perhaps
deplorable, ill-advised, disastrous, but very natural. That it
should be possible at all constitutes a grave indictment of the
wages system. It must not, however, be forgotten that even
with go-slow work, production can be greatly increased by
the employment of more, and more efficient machinery, nor
should it be forgotten that manufacturers also 'go-slow' by
deliberately limiting production, and throwing men out of
work.
    Work is no longer solitary individual work-work under
Capitalism is socialised, and it is by the division of labor, by
associated labor using capital that wealth can best be made.
The individual is now a part of a great organised whole, and
any attempt to return to the domestic system is to be depre-
cated. We should go forwards not backwards. But is it fair
that capitalists should "do nothing"-nothing useful to the
community-and yet reap the greatest advantage from social-
ised and organised labor? We find that capitalists not only
monopolise the materials and forces of Nature, and the accu-
mulated discoveries, inventions, and knowledge of mankind,
but they receive the chief benefit from the organisation of
labor, and the "law and orders' under which we all live. And,
as has been said, "they do nothing!"  Surely some crowning
service must have been overlooked, some mighty good that
they confer on mankind in exchange for all these benefits.
It may be contended that we have overlooked the true function
of eapitalists, viz., the adjustment of supply to demand. To
that we reply: first, it is not the -capitalist pure and simple-
the income-purchaser-who makes this adjustment; and
secondly, the adjustment is more or less automatic. It is gene-
rally the merchant, or the refiner, or finishing manufacturer,
who is the chief regulator, but the impulse is passed all along
the line from the consumer to the producer and price is the
great indicator. For instance, demand slackens, the retailer
makes a slight reduction in price to stimulate demand and cuts
down his orders to wholesale merchants' travellers or agents-
the steadying influence is passed on to merchants and through


154






THE ETHICAL ASPECT.


them to manufacturers of the consumption goods, from them
on to manufacturers of partly finished material, and so finally
to suppliers of raw material and cultivators. These last have
been blindly working up stocks and find themselves involved
in loss. A reaction takes place and the impulse is transmitted
in the other direction. The action and reaction are automatic,
the capitalist pure and simple has nothing to do with the case
and 'does nothing,' and the active merchant and others very
little. As Sismondi says, "A certain kind of equilibrium, it
is true, is re-established in the long run, but it is only after a
frightful amount of suffering inherent in the blind play of
economic forces."
    The capitalist then evidently does not adjust supply to
demand. But perhaps the capitalist is the great stomach of
the body politic-! He is not the captain of industry-he pays
others to do that work, but he signs his cheques, even if he
does not fill them in. And-yes, he saves; our curves show us
that he saves. Crowning virtue! He cannot consume all he
gets, so he saves 31 per cent. or more and reinvests the money,
and his sacrifice, his self-denial, is belauded in every morning
newspaper, and the virtue of thrift extolled. The worker who
saves nothing, and is most improvident, is urged to follow this
noble example. To save, the worker must lower his standard
of comfort, and-since a "living wage" at the existing stan-
dard of comfort is admittedly the basis on which wages are
now fixed-saving on the part of the worker would make it
possible to lower wages.
    It has been shown that, in reality, it is the limited stomach
of the capitalist, and the undue exercise of the virtue of saving,
that is the cause of recurring commercial crises, financial
panics, over-production, and unemployment. But the capitalist
should not be blamed for the limited capacity of his stomach-
he does his best, but it is simply impossible for him to consume
all he gets-he must save. Saving is the only virtue in which
he is assured pre-eminence.
    The great war benefited the capitalist by destroying-and
paying for-products which he could not himself consume, and
which other people could not buy. Credit performed this
miracle.
    Do the foregoing considerations lead to the belief that the
'owner' of capital is justly entitled to all, or nearly all, the
benefits derived from its use? Had the capitalist discovered
all the forces and materials he uses, had he invented all the
machines, had he organised the working force (he does not
even do this), had he found out all trade processes and directed
the working force, still he would not be entitled to the bene-


155








156          FROM    CAPITALISM       TO FREEDOM.

fits he now receives. And he has done none of these things.
(And with the capitalist we bracket the landlord.)
   What then is the Landlord-Capitalist?      He is a parasite.
A parasite of the body politic, a fever germ, both the cause and
the result of the economic disorder of the world. I cannot at
this point do better than quote from    "The Social Problem"
(p. 114) by J. A. Hobson, who himself begins with a quotation
from J. Mussart and Emile Vandervelde's "Parasitism, Organic
and Social," p. 75:-
    "We find that atrophy is both more rapid and more complete among
parasites than elsewhere. Plants lose their roots and even their leaves.
Among animals, the points of contact with the world are minimised
in proportion to the degree of parasitism; the nervous system tends
to disappear so completely, indeed, that in some species the individual
ends in being little more than a sac with reproductive organs. In
the world of human life, parasitic degeneration is, above all, cerebral.
The intellectual faculties are the first to atrophy from disease; physical
degeneration is a later and almost a reflex process."
    This slow working of the natural 'law in modern industrial societies
is chiefly attributable to two causes. The first is that, so far as
rent-drawers, sinecurists, and other "proprietary parasites" are con-
cerned, they are frequently inheritors of an originally vigorous con-
stit,tion which is transmitted to them but slightly, if at all, impaired
by the parasitic life of their parents. This good start in life, favored
by a healthy environment in childhood, enables them to stand out some-
times for a long time against' the natural tendencies of the parasitic
life. Then, again, parasitism does not, save in extreme cases, impose
or admit complete inertia. Most parasites must either find a "host"
or, if it be provided, as by inheritance, to the human  parasite,
some activity is enjoined in the very processes of feeding on him.
Take, for instance, the landowner. A fine humour lurks in the common
defence of landlordism upon the ground of the laborious energy the
landlord must display in order to extract his full economic rents and
administer his property for this purpose,--the labor of managing his
estate... The "independent gentleman," for so with unconscious
humor he styles himself, will practise for a while such forms of
active self-expression as are fashionable, stir his emulation, and are
not degraded by having attached to them any useful end; he may
hunt, play golf, sit on the bench, enter Parliament, or even collect
some sort of knowledge which shows well, and involves no arduous
effort of attainment. But the property of another which he uses will
gradually crush his own property, his capacity of vigorous self-expres-
sion. Relieved of the necessity of painful effort, he will only undergo
such efforts as are easy; so the habit of hard work disappears, and
with it the zest of enjoyment which the reaction from hard work
brings. The higher kinds of concentrated mental effort, with their
corresponding enjoyments, go first; then  the lower; even the
physical exercises involving skill, constant practice, and play of mind,
yield to the simpler forms of animal enjoyment. This is the normal
and necessary effect of living upon another's property. One by one
the higher activities are debilitated, and cease to work; the attempt
to consume without producing, to enjoy without effort, at once lessens
the quantity and lowers the quality of life. The logical end of a
society living upon unearned incomes would be death by over-feeding,
or by inability to digest and assimilate their food. No economic or






THE ETHICAL ASPECT.


moral defence of the right to receive rent or interest, or to take by
inheritance or bequest another's property, however cogent it may
appear, can abrogate this application of the natural law.
    Physical decay is a 'natural' consequence of attempted evasions of
the physical law which imposes exercise as the condition of digestion.
"Whosoever will not work neither can he eat" is the physical render-
iuig of the moral law. For the physical diseases bred of stolen luxuries,
and those which spring from chronic starvation, are literal counter-
parts. The convex, congested paunch of the torpid plutocrat, who
consumes without the effort of producing, implies as its equal and
opposite the concave, anaemic body of the inefficient starveling.

    Here again the pluses equal the minuses, and yet in sober
truth the landlord-capitalist deserves our pity. The idle rich
are victims of circumstances, as much as are the idle poor. Our
quarrel is not with men, our quarrel is with the capitalist
system. The capitalist individually is often a good fellow, and
everyone is trying hard to become a capitalist. But if the idle
rich are to receive toleration now, and consideration in the
future readjustment of society, they must change their mental
attitude towards workers.
    One more word before we dismiss the landlord-capitalist.
So persistently has the virtue of thrift been preached that the
reader would hardly agree to any condemnation of it. Nor
do we wish to condemn thrift per se: it is in itself a necessary
virtue, and individual thrift is the royal road to fortune. In
the outset of his career the capitalist does exercise self-denial,
but when thrift ceases to be self-denial and becomes mere
accumulation it is a virtue no longer. So far as thrift enables
the man who saves to use his own capital to produce more
with less effort it is "a consummation devoutly to be wished,"
it attains what may be called the natural end of saving. But
thrift ceases to be a good if it enables a man to do no work
himself but live on the efforts of others. Yet that unfor-
tunately is the result-the unnatural result-when thrift passes
into mere accumulation. accumulation into investment, and
investment results in permanent idleness. That a man should
-for a time-do no work is reasonable only if he is then con-
suming what he has himself saved from his honest toil. But
"to do nothing" continuously is as unnatural as it is mischiev-
ous alike to the individual and the community. To save means
to relinquish or abstain from using a consumable good, to sac-
rifice the fleeting satisfaction of to-day for a-perhaps-
greater satisfaction to-morrow. May not that sacrifice have
its natural reward ? Certainly it may have its natural reward.
The natural reward of not eating our cake to-day to be able
to eat-not a larger one-but the same cake, somewhat staler,
to.morrow. If a fresh cake of the same weight and quality is
returned to-morrow for one given away to-day, the advantage,


157






FROM CAPITALISM TO FREEDOIM.


as in most exchanges, may be mutual. There is really no ques-
tion of sacrifice at all.
    Legitimate anxiety to make provision for one's old age is
--with many people-the chief impulse towards saving, but
this provision can best be made by contribution to the pension
fund of others. Just as a man who enjoys "free" education
for his children pays in taxes-not merely during the time his
children are at school, but during his whole working life-so
also should he pay, indirectly, for his own old age pension.
And the pension should be, and could be, not a beggarly pit-
tance, but sufficient to keep him in the degree of comfort he
has always enjoyed. The provision of such pensions should
hold a foremost place in reform. It would remove the dread
so many men now have of any alteration in the existing system
of wealth distribution.
     Now let us imagine if we can that the forces and materials
of Nature have been made common property-that everyone
is a landlord and a capitalist. Shall we all sit down and live
on our rent and interest? The idea is worth consideration.
The 'wages' of capital, of capital apart from labor, would
still be there, but these wages would not materialise. Clearly
in reality they never were there. The wages of capital must
be -earned for us by others or we must work. For as Gilbert
has it:
                  "When everybody's somebody,
                  Why, no ,one's anybody."
     Since we cannot all live as capitalists the painful fact re-
mains that all must work. By making everyone a landlord
and a capitalist we have in effect eliminated both landlord
and   capitalist from  our industrial system, leaving    only
workers.
     What then has justice to say to the workers when every-
 one is a worker? With the landlord-capitalist we have also
 eliminated private rent, private profit, and private interest,
 but we have not eliminated differential rent and differential
 profit, because they represent the aid-varying in degree-
 which "Nature" gives to man; the more or less fertile land, the
 rare waterfall, the greater or lesser utilisation of heat and elec-
 tricity. And not only do differential rent and profit represent
 differences in "Nature," they represent also differences-often
 necessary differences-in social organisation, inequalities en-
 tirely beyond the control of the individual, even beyond the
 control of a group. Now, clearly, if the justice of the common
 ownership of "Nature" is admitted, the group has no more
 right to claim the exclusive benefit of these differential ad-
 vantages than has the individual. That rules out the syndicalist


158






THE ETHICAL ASPECT.


-the group of industrialists who claim as their own the entire
product of some particular industry in which they happen to
be engaged.
     The worker is not always entitled to the products of his
own labour when that labour is aided by capital and social
organisation. Such a claim is only just when the worker
works under average conditions-with average natural ad-
vantages-with machinery of the average amount and effi-
ciency and under the average degree of industrial organisation.
With more or less than average conditions the worker is en-
titled to more or less than he produces. He is entitled to the
value he gives out in labour, not the products he makes. Syn,
dicalists overlook these facts, they fail to see that differential-
rent and differential-profit justly belong to society as a whole.
Capital is, in itself, a blessing and a good, an air from heaven,
a spirit of health, an angel and a minister of grace, and not-
as some would have it-a blast from hell, a goblin damn'd.
But its blessings now fall in the wrong place, its kindly cur-
rent has been turned awry.      The contemptuous pity with
which the superior person regards the weavers who wrecked
the power looms is misplaced. In so far as the weavers own
personal well-being was concerned, their smouldering rage, dull
but instinctive, and breaking at length into a fierce flame, was
a truer guide to their own interests than the intellectual blind-
ness of those who see nothing but good in the use of machinery.
Unwilling sacrifices, sacrifices as unnecessary as unwilling,
they were the victims of the ignorance, greed, and stupidity
of a society which was not able-and has not yet been able-
to readjust itself to a changed environment. The so-called
educated man of to-day rejoices in the conquest of Nature by
man even though he darkly wonders why all these discoveries
and inventions have not lightened the day's toil of every man.
The educated man of to-day belongs chiefly to the stupid
middle-classes, and he, in his turn, will receive the contemp-
tuous pity of a later age.
     We are led, finally, to consider the right of bequest.
Under the "gentile" system property remained in the gens.
The gens was the undying individual. The gens as a lasting
unit was essential to the life of ancient society. Rather than
permit the death of such a unit, gentile society allowed a weak
gens, by the fiction of adoption, to strengthen its numbers.
When the system broke up, and the patriarchal family took its
place, the life of the family was held to be continuous. When
Solon permitted  the Athenians to devise their movable
property, they were not allQwed to disinherit their male des-
cendants. With the growth of individualism the life of the


159






FROM CAPITALISM TO FREEDOM.


individual was held to .be continuous; his rights and duties
were passed on to his heir who continued him      rather than
represented' him.
     Founded on Roman Law the existing right of bequest has
 grown into what it is to-day, a 'right' we believe to be one of
 the greatest wrongs ever inflicted on suffering humanity.
 Once useful it has become pernicious.
     With power founded on property, it was only natural that
the father should wish to hand down his property-and power-
to his son, but that society should permit the almost uncon-
trolled power of bequest is quite another matter. That the
will of a man no longer living should be imposed on the living
is absurd; that, within limits, consideration on the ground of
natural affection should be paid to the wishes of the dead
is reasonable, but that the clutch of a dead hand should be
allowed to choke posterity is as tragic as it is absurd. If we
agree that certain property justly belongs to an individual we
may concede-again within limits-the right of that individual
to do what he will with his own. But when he is dead the
:property is no longer his. What shall become of it would
not indeed be a very important matter if it did not possess,
under Capitalism, power, in the form of capital, to extract
surplus value from the non-owners of capital, i.e., the work-
ers. At present, for example, a wealthy woman has the power
to leave the income extracted from    the workers by perhaps
a capital of half a million pounds sterling-to provide and
support a home for stray cats-or even some less worthy ob-
ject, although thousands of children may be underfed and
neglected. A man is at present at liberty-in some countries
-to cut off his son with a shilling and leave his wife and
daughters in comparative want. (They manage these things
better in the Argentine!)    The absolute right of anyone to
decide what shall be done with his property after his death
is an absurd travesty of justice. That surely is the function
of society. Even Senior,* the first occupant of the Chair of
Political Economy in Oxford University, and the originator of
the fashionable theory that interest is the reward of abstin-
ence, says: "The inheritor cannot plead abstinence-the virtue
is not transmissible, and he has no title to his fortune except
just good luck."
     In all this it must not be thought that we are attacking
 private property. On the contrary we defend it. But there
 is private property and private property. All we ask is that
    "Senior is also the hero of the 'last hour' theory. He proved conclusively
 that the Lancashire cotton spinners made all their profit in the last hour.
 The hours were reduced from twelve to ten, and the manufacturers still
 made profits!


160






THE ETHICAL ASPECT.


the reader should discriminate between two species.    As a
community we rightly refuse to permit the sewing machine
of the poor seamstress to be distrained for rent. We recog-
nise her right to use the means of her livelihood.      It is
'proper'" that she should use her 'property.' The 'propriety' of
that course no one denies. But we are not very logical. The
property of the factory operative in the use of his means of
livelihood is denied. It never strikes us that it is 'improper'
to reduce the numlber of our hands,--that to do so is to violate
the sacred right of private property.
    "The property which every man has in his own labour,
as it is the original foundation of all other property, so it is
the most sacred and inviolable. . . . To hinder him     from
employing his strength and dexterity . . . is a plain viola-
tion of this most sacred property."  (Adam Smith.)
    "The right of work . . . is the first, the most sacred,
and the most imprescriptible of all kinds of property."
(Turgot.)
    When the common or communal ownership of "Nature"
is advocated, when we claim for every member of the com-
munity an equal share of 'Nature,' we are defending the right
of private property. If the labourer mixes his labour in his
own share of 'Nature' the value thus created is, we contend,
justly his. We defend his right to own that wealth against
the wrong he now suffers from the employer who exploits
him. It is the particular and exclusive ownership by indi-
vidual or. class, not only of natural materials and forces, but of
the chief benefits arising from social organis.tion and the in-
herited knowledge of mankind: it is the leal monopoly of
these things, which make the exploitation of the many by the
few possible, that we condemn. The test is clear: The right
to private property lies in the fact that-directly or indirectly
-it is the result of our own exertion. Man lives in society.
He is a social animal. Consequently, the exercise of some
social function is his just claim to private property. And the
city ground-landlord, the receiver of coal royalties, the holder
of shares to whom are paid dividends, what social function
do they perform? Clearly none whatever. Their disappear-
ance would benefit the community. The landlord-capitalist
has become a parasite, a hanger-on, a rudimentary organ, a
mere appendix. His natural fate is, first, atrophy, then extinc-
tion. That is the normal method by which Nature gets rid of
functionless organs. Such organs may become a danger. Dis-
ease no doubt is abnormal, yet Nature has her diseases. Men
have died from appendicitis, nations have perished from in-
ternal decay.
K


161






FROM CAPITALISM TO FREEDOM.


    A difficulty still remains, namely, what specifically is
the wealth a man may justly claim on the ground of social
services? How, in fact, is the wealth which results from the
combined efforts of a community to be distributed amongst
its members? These questions are answered completely in a
later chapter. In the meantime it may be noted that whilst
payment of differential rent and differential profit to the
community is just, their diversion into private pockets is un-
just. A test of justice is on every income tax paper: "In-
come derived from     personal exertion" is just: "Income
derived from    property" is theft, not legal, but moral
theft. The dishonest system of Capitalism hangs this carcase
-this long-dead albatross-round the neck of every landlord
and capitalist. To some it is a necklace of spring violets,
to others a dull opiate-a garland of poppies-to others-who
know it for what it really is-it is a horror and a nightmare.
"Who shall deliver us from the body of this death?"
    Justice, as we have said, is relative. It is summed up in the
motto of each system: of Capitalism: "to each according to
his economic strength" or "might is right": that is the justice
of the brute: of socialism: "to each according to his deeds";
that is the justice of man: of communism: "to each accord-
ing to his needs": that is the justice of the angel, and, as we
are often told, men are not yet angels, but neither are they
brutes!

    In the industrial society of to-day differentiation has so
far outstripped integration that the bounds of society are
strained to the breaking point. Unless integration becomes
wider, advancing to a new and higher form, the disruption
of society seems inevitable. The old integument is no longer
large enough to contain in harmony the increased number of
parts into which society has differentiated. That is the cause
of the 'class war,' and on its issue depends the fate of the
nation. That differentiation may pass into disintegration is
the supreme danger.


162






THE PHILOSOPHY OF CAPITALISM.


                             XI.


      The Philosophy of Capitalism.


    "In every historical epoch the prevailing mode of eco-
nomic production and exchange, and the social organisation
necessarily following from it, form the basis upon which is
built up, and from which alone can be explained, the political
and intellectual history of that epoch." (Marx.)
    We may then expect to find in the philosophy of Capital-
ism a rationalisation of the economic interests of capitalists.
That transient phase of industrial evolution which is, we be-
lieve, only the intermediate stage between the Guild System
and Guild Socialism, and which is known as Capitalism, has
for a slogan "Freedom of Contract," and for philosophy the
doctrine of Laissez-faire. As all of us are equally inclined
to claim for our favourite doctrine the aegis of freedom, and
to blazon on our individual banner that much-enduring word,
so do the disciples of laissez-faire also call their system free-
dom. There are many 'freedoms': there is a freedom from
all restrictions, that is more properly called license: there is a
freedom  of just and equal conditions for all.     So far as
laissez-faire claims a freedom of its own, it is freedom from
economic or political conditions imposed by the State, a free-
dom doubtless essential in certain phases of evolution to break
up an old or obsolete economic system. Such was the freedom
of the individualist which paved the way to a higher synthe-
sis, broke up the old guild regulations, released the labourer
from his bondage to the soil, and established the free competi-
tion of Capitalism.
     (Once by free competition the capitalist has climbed to
power he kicks the ladder from beneath his feet and demands
'protection'). To-day, and of necessity, the cry is for curtail-
ment of capitalistic freedom. Gradually, or it may be sud-
denly, Capitalism must pass away before the dawn of a new
and better system. That involves new      political laws: for
every economic order finds its reflection in political law.
Order and law go hand in hand. To oppose the coming order
is as futile as it is to try to prop up the ruins of an order
already tumbling to decay. Yet every cause finds its quota of


163







FROM CAPITALISM TO FREEDOM.


"die-hards," who will fight till the last ditch and not always
without some success. The advancing tide is not without its
receding wave: for the moment,-1923,-the wave is receding
and reaction prevails. Thus in England a reactionary Con-
servative Government marks the same general movement as
Fascism in Italy, the 'Swastika' in Bavaria, the Knupfal-
Brigade in Austria, the Awakeners in Hungary, and Hacken-
kreutzler in Czecho-Slovakia, while Poland has her Korfanty
and Haller, Bulgaria her Macedon Commitadjis. Thus over a
great part of Europe reaction is, for the moment, supreme.
One had thought the doctrine of Laissez-faire dead beyond
hope of resuscitation, riddled by criticism, shot to pieces by
the heavier artillery of commonsense, a mere shapeless mass
of ruins. More than a quarter of a century ago Frederic Har-
rison said:
    The satanic doctrine of laissez-faire is dead.

    More than sixty years ago Comte wrote:
    It sets up as a universal dogma the absence of all regulat-
ing intervention whatever as the best means of promoting the
spontaneous rise of society; so that, on every serious occasion,
this doctrine can respond to urgent practical needs only by the uni-
form xeproduction of this systematic negation. Because it perceives
a natural tendency in society to arrange itself in a certain order, not
seeing in :this a suggestion of an order to be promoted by social ar-
rangements, it preaches an absence of regulation which, if carried out
to the limit of the principle, would lead to the methodical abolition
of all government. . . it systematises anarchy . .. Such a doctrine
publishes its own weakness by showing its want of relation to the
aggregate of our practical needs.
Yet the Rip Van Winkles of political life, oblivious of the
past and refreshed by their long sleep, have delved to some
purpose among the ruins, and "like a child from the womb,
like a ghost from   the tomb," they have risen and built it
againt.
     It becomes then necessary to "slay again the already
slain": crushing this hoary error that would fain pretend to
be a growing youth: and therefore briefly to examine once
more the bases on which the superstructure rests.
     There are four foundation stones:
     (1) The idea promulgated by Adam Smith that what is
good for the individual must be good for the nation.
     (2) Malthus' "law of population."
     (3) Natural Selection or the "Survival of the Fittest."
     (4) The confusion of "State" with "Nation."
     Yet before we deal with the foundations we may be per-
mitted to glance at the edifice.


164






THE PHILOSOPHY OF CAPITALISM.


    The apologists for laissez-faire contend that there is a
natural balance or equilibrium towards which all creation
tends: that the forces of Nature, if blind, are yet directed by
an "invisible hand," so as to promote human welfare, and
that therefore all we have to do is to give these forces free
play: that unrestricted competition,--a sort of "devil take the
hindmost,"-will finally result in an earthly paradise, so
that to interfere is not only foolish but impious. It is a com-
fortable doctrine,-for the rich. Those who would live tran-
quil and undisturbed may well embrace it, false as in our be-
lief the doctrine is. Yet there must be some basis of truth,
or the doctrine could not have stood for a moment. We pro-
pose therefore to examine carefully the ground on which it
has been built up.
     (1). There is first the plausible idea put forward by
Adam Smith that "what is good for the individual must be
good for the nation."   The idea found ready acceptance, it
seemed self-evident: even to-day it is a commonplace. Let
every individual member acquire virtue, strength, wealth, and
the nation will be virtuous, strong and rich: the appeal is
irresistible,- and sound,-if only every one does so acquire.
Let every one seek his own self-interest, and he "is led in
this, as in many other instances, by an invisible hand, to pro-
mote an end that was no part of his intention"-in fact, the
good of society. Yet, if I steal ten pounds from my neighbour
society is no richer, even though he "seeks" to steal, and suc-
ceeds in stealing ten pounds from me in return. What under-
lies the misconception is a vague but strongly held idea that
Nature or God arbitrarily interferes with, or by an innate
tendency in things directs the unconscious or conscious actions
of man: which is in reality a doctrine of fatalism or deter-
minism, and the very antithesis of the individualism which
fathers it. Or perhaps the unconscious action of man is con-
sidered to be "natural," the conscious, if not unnatural, at
least "artificial," an antithesis which if convenient is cer-
tainly also misleading.
     The idea that the interests of the individual and the
 nation march always hand in hand is not in agreement with
 fact. It is the interest of the nation to be victorious in war,
 but the dead, though we may count them happy, are not en-
 vied, and had each soldier been guided by self-interest he would
 have run away. What is true of individual and nation is true
 also of class and nation:-as Cairnes says: "Let us not con-
 found the statement that human interests are at one with the
 statement that class interests are at one. .The latter, I be-


165






FROM CAPITALISM TO FREEDOM.


lieve to be as false as the former is true."* Indeed, the reality
of the "class-war" is often denied on just this mistaken
ground that all men have interests in common. Sheep and
wolf are both, directly or indirectly, interested in grass: war,
if bad for the soldier, is good for profiteers, and vultures live
on the dead.
     (2). Nor, secondly, is there any reason to be disturbed
over Nature's capacity to deal with the problem of popula-
tion: she has her own, drastic, methods of reducing a surplus.
Malthus' so-called law asserts that population increases or
tends to increase in geometrical progression,-as 1, 2, 4, 8, 16,
-while the means of subsistence increase in arithmetical pro-
gression only,-i.e., as 1, 2, 3, 4, 5,-with the inevitable con-
sequence that population is always tending to outrun sub-
sistence. Thus "at Nature's feast no place is set for the
children of the poor: she sternly bids them to begone."  For
all the show of mathematical accuracy that the Malthusian
law presents, it is not true that population, whatever its tend-
ency, has steadily increased in any geometrical progression:
it would be enough to say that population had increased, was
increasing, .and tended to increase, with which statement there
would be little room to find fault. But it is otherwise with
his assertion as to means of subsistence: that is absolutely
false. Nature has given to every mouth a pair of hands to
feed it: and two men working together can and do produce
more than twice as much as one. Yet Malthus seriously asks
us 'to believe that, for example, 16 men can produce only five
times as much as one. Even human credulity has its limits.
     It may be, however, that to some economists the so-called
"law of diminishing returns" seems to give support to the
Malthusian view. The "law" might just as well have been
"the law of increasing returns." What it means is that under
given circumstances there is a certain ratio between human effort
and "natural forces" which, once reached, yields a maximum
effect or greatest return per unit of human effort. Thus,-a
man may not only plough his field but may gather and spread
manure on it, with the result that at harvest time he finds
that his return, per hour worked, has increased: in the follow-
ing year he devotes still more time to gathering and spreading
manure, only to find that though his total return has again
increased, yet the return per hour worked has actually
diminished. After all, there is much virtue in a name: and if the
"law" were called that of "increasing returns," few would
find in it any suggestion of support for Malthus.
     The underlying truth in his theory is no more than this,
 that if human beings constantly increase in number there must
               * Essays on Political Economny, p. 245.


166






THE PHILOSOPHY OF CAPITALISM.


ultimately come a time when there is not standing room for
them on the earth, a bogey which is not likely to frighten the
reader. As a matter of fact, history does not record constant
increases of population, and does record many and great
deereases.
     It may be of interest to add that Malthus himself was
-no advocate of laissez-faire. Birth-control, by other means
than those he advised, is now common, if not universal, and not
least amongst the disciples of laissez-faire.
     (3). We turn now to 'Natural Selection,' or,-for it is
but another name for the same thing,-the 'Survival of the
Fittest.' Natural selection is only possible on two conditions:
that individual animals and plants vary (thus affording ground
for selection), and that Nature "red in tooth and claw," brings
about a great destruction of life, the 'less fit' being destroyed,
the 'more fit' surviving. The former of these conditions does
apply to man, the latter does not.
     A sea mullet will lay in the season some 2,000,000 eggs:
and, although all are fertile, not one per cent. will grow to
maturity; the rest have perished not for lack of food so much
as because they are themselves the food-supply of innumerable
enemies: and if it were not so there would be no balance in
nature, the prolific mullet would literally "eat up" the sea.
Civilised men do not eat one another, and there is, in this
age of the world, no animal capable of eating man, at least to
the point of serious loss. Thus the biological law of the sur-
vival of the fittest has little or no application to man. "Those,"
says Wallace, "who advocate our allowing natural selection
to have free play among ourselves on the ground that we are
interfering with Nature are totally ignorant of what they are
talking about."
     All which is not to deny that, as is self-evident, if some
are to be destroyed, the 'fittest' will survive. In modern war-
fare the fittest to survive are those who stay at home because,
perhaps, they are unfit for the ranks. The fittest must survive,
it is mere tautology, but in the case of man it is not the 'blind
forces' of Nature that alone hold sway: there is also man's
conscious action, a new and very real factor in the equation.
Now the mind of man is just as "natural" as any other func-
tion or part of his being: yet the interference by man's con-
scious self is, rather absurdly, classed as "artificial." This
"artificial" action of man has given us for example the de-
veloped strain of animal and plant life upon which modern
civilisation is based. Artificial if it be called, it is surely
just as natural as, say, the action of the heart. In effect
Nature, or what you please to call the Power, has given us


167






FROM CAPITALISM TO FREEDOM.


reason and intelligence, and the fruits of the operation of
these are just as 'natural' as those of the instinct of the beast.
    Thus it is that the whole of the laissez-faire philosophy
basing itself on a mere play on the sense of the word 'natural'
misleads, and has misled the world for longer than it profits to
reckon. Selection may be 'natural,' that is, unconscious, as
in plants and animals, including savage man; or it may be
'artificial,' that is, the result of man's conscious action; or
it may be 'semi-conscious,' as birth-control at present directed
to selfish personal ends, whose effect on the social organism
is unrecognised and, in many cases, pernicious, as when, e.g.,
the mentally feeble have many children and the mentally
strong, few. We should advocate an advance to 'conscious'
selection, not a return    to 'natural' selection.   Man   is
a reasoning, tool-using animal, who also has the power
to direct the forces of Nature to his benefit.       But he
can best do so by using his power consciously and delibe-
rately to combine individual effort with those of his fellows
towards the goal of organised social production. Such effort,
directed and combined, is man's contribution to the advance-
ment of the race. Only in a high form of social life is the
highest form ,of individual life possible.
     (4). Finally as to the supposed identity of the "State"
and "nation." If the advocates of laissez-faire mean by "the
State" the ruling political party, or the department that ad-
ministers on its behalf, in fact, a bureaucracy, then we agree
that the State was not designed, and is not fitted to carry on
the work of industry. Society must develop, is perhaps even
now developing, an economic organ. And the sooner the bet-
ter. Yet even now it might reasonably be argued that it is
better for the State to manage industry badly than for 'pri-
vate ownership' to manage it well. Of what use to us is an
efficient machine if we do not receive the results of that
efficiency, but only periodical unemployment?
     The question is not so much one of efficiency in produc-
 tioni as of efficiency in distribution. Capable managers can
 be bought by the "State" or "nation" as freely as by "private
 owners," ahd there is no reason why an industry "owned" by
 the community should not be managed as well as one "owned"''
 by a private company. But it is foreign to our present pur-
 pose to discuss anything in the nature of "nationalisation"
 of -industry: all we are here concerned with is to emphasise
 the fundamental fallacy of laissez-faire-in other words, of
 "the philosophy of Capitalism."


168







THE MENTAL ATTITUDE.


                            XII.


              The Mental Attitude.

    Mental action of some sort, conscious or unconscious, al-
ways precedes physical action. Before we act we think, and
what we think largely determines what we do. But similar
sense impressions do not always produce, in different indi-
viduals, similar action. Because they act on different and
dissimilar minds, the reaction is different.
    Hence the importance, if we are to foretell or influence
action, of knowing man's mental attitude. This is affected,
among other influences, by theology, religion, philosophy,
science, public opinion, prejudice, intuition, reason.
    Let us briefly-very briefly-examine some of these in-
fluences.
    Fear is one of the strongest of our inherited instincts,
and it lies at the root of theological ideas. Man has ever made
God in his own image. The early Scandinavians saw in ice
and snow their worst enemy, in heat and light their best friend.
Their long winter, when the sun seemed lost and vanquished,
must have been a nightmare to them. An eclipse of the sun
caused them   the greatest consternation, and their triumph
when he reappeared knew no bounds. The apparent con-
test is the origin of Sun Myths. God and devil, light and
darkness, heat and cold, good and bad, are all twin ideas. In
the howling tempest, crouching in cold and darkness, the Viking
thought he heard the Wild Horsemen thunder by, and in
imagination fled before them. And even yet, whether the
pursuer seeks to save or to destroy, man flies in fear from
the unknown.
         I fled Him, down the nights and down the days;
         I fled Him, down the arches of the years;
         I fled Him, down the labyrinthine ways
         Of my mind; and in the mist of tears
         I hid from Him, and under running laughter.
           Up vistaed hopes I sped;
           And shot, precipitated,
         Adown Titanic glooms of chasmed fears.
         From those strong Feet that followed, followed after.
           But with unhurrying chase,
           And unperturbed pace,
        Deliberate speed, majestic instancy,
           They beat-and a Voice beat
           More instant than the Feet-
        "All things betray thee, who betrayest Me."


      Page 169, 12th line from bottom  of page-"Of my
 mind" should read "Of my own mind"


169







170         FROM   CAPITALISM      TO FREEDOM.
        . . Across the margent of the world I fled,
        And troubled the gold gateways of the stars,
        Smiting for shelter on their clanged bars;
          Fretted to dulcet jars
       And silvern chatter the pale ports o' the moon.
       . . . To all swift things for swiftness did I sue;
       Clung to the whistling mane of every wind.
         But whether they swept, smoothly fleet,
       The long savannahs of the blue;
         Or whether, Thunder-driven,
       They clanged his chariot 'thwart a heaven
       Plashy with flying lightnings round the spurn o' their feet:-
         Fear wist not to evade as Love wist to pursue.*

     The Grecian saw in God beauty and sensuous joy personi-
fied; to other nations his chief characteristic was power.
Thor and his hammer, Jupiter hurling his thunderbolt, Nep-
tune and his Trident. To the Hebrew he was a God of Battles,
to the oppressed a God of Vengeance, or a Deliverer, or a
God of Love and Consolation. In modern times the Hebrew
God is relied on to excuse multitudinous murder and anon the
Prince of Peace to stay the slaughter: our every mood is re-
flected. If we are rich but grow uneasy regarding the dis-
tribution of wealth, is it not written, "The poor ye have al-
ways with you," and should not they learn to be content with
the position in life in which it has pleased the Almighty to
place them, and have not we chosen the better part?

And the Sons of Mary smile and are blessed-they know the Angels
    are on their nide.
They know in them is the Grace confessed, and for them are the
    Mercies multiplied.
They sit at The Feet-they hear The Word-they see how truly the
    promise runs;
They have cast their burden upon the Lord and-the Lord He lays it
    on Martha's sons!

    As Ruskin reverently says, "To call the confused wreck
of social order and life, brought about by malicious confusion
and competition, an arrangement of Providence is quite one
of the most insolent and wicked ways in which it is possible
to take the name of God in vain."      It is utterly hopeless to
look for help to creed-bound theologians.     If we except the
Society of Friends, how many sermons were preached, during
the Great War, from the texts, "Love your enemies" and
"Thou shalt not kill"? How many preachers of Christianity
proved faithful to the teachings of their Master?    Yet sack-
cloth and ashes are still out of fashion.
* One would like to quote the whole of Francis Thompson's noble poem,
                     "The Hound of Heaven."







THE MENTAL ATTITUDE.


     No,--from  formal theology there is nothing to hope. It
has undoubtedly been the greatest curse that has ever afflicted
suffering humanity. "Christianity in practice, as we know it
now, for all the Sermon on the Mount, is the religion of ag-
gression, domination, combat.      It waits upon the pushing
trader and the lawless conqueror; and with obsequious thanks-
giving it blesses his enterprise."*' "The growing temper of sac-
erdotalism and the doctrine of authority well accord with mili-
'tarism and political autocracy. Force is the natural ally
of superstition, and superstition knows it well."t From formal
dogma there is nothing to hope, but true religion and unde-
filed-the reverent recognition of a Great Mystery-the up-
ward striving of the human spirit-the yearning to be at one
with the Infinite-the spirit of service and self-sacrifice-the
religion of humanity-is the sheet anchor of our hope. Yet
man ever makes God in his own image. He is the reflection of
man's own mind. But one mind acts and reacts on another,
forms, and is formed by others until their sum constitutes the
mental attitude of each age or period.
    Perhaps after Theology the 'dismal' science of Economics
is most responsible for the later miseries of mankind. Next
to the stupidity of consigning 'unbelievers' to eternal torment
omes the crudity of an 'inexorable' law which condemns the
wage-earner to life-long poverty, and condones the atrocities
of a factory system. Economics, for long the happy hunting
ground of theologian and metaphysician, is hardly yet a science.
Many of its teachers still bow the knee in the orthodox Temple
of Rimmon, but there are, and not a few, exceptions-some
are among the martyrs. We need recall only the fate of
Thorstein Veblen-a fate which spells eternal disgrace to his
university.,, Nor, alas, does Veblen stand alone. The position
as it affects especially the life of a university is well put by
J. A. Hobson:
    It is not so much the weight of the 'dead hand' that is to be feared
as that of the living: a college so unfortunate as to harbour teachers
who, In handling vital issues of politics or economics, teach truths
deeply and obviously antagonistic to the interests of the classes from
whom financial aid was sought, would be committing suicide. Higher
education has never been economically self-supporting; it has hardly
ever been fully organised from public funds; everywhere it has re-
mained parasitic on the private munificence of wealthy persons .
Where universties are dependent for endowments and incomes upon
the favor of the rich, upon the charity of millionaires, there will be:
'Safe teachers. Safe studies. Sound (i.e., orthodox) methods.' The
coarse proverb which tells us that "he who pays the piper calls the
tune" is quite applicable here as elsewhere, and no bluff regarding
academic dignity and intellectual honesty must blind us to the fact. .
The subservience to rank and money, even in our older English uni-
                      *Harrison.   t Hobson.


171







172         FROM CAPITALISM TO FREEDOM.
versities, has been of late evinced so nakedly, and the demand for
monetary aid in developing new faculties necessarily looms so large
in academic eyes, that the danger here indicated is an evergrowing
one. .   . The millionaire who endows Oxford does not buy its men
of learning outright . . . but it is becoming more difficult for a
scholar with the intellectual outlook of a John Morley, a Frederic
Harrison, or a Goldwin Smith to secure election, or for a political
economist with strong views on the necessity of controlling capital to
be elected to a chair in Economics.*
     If that is true of British what must be said of American
Universities ?  This: the blight of Capitalism is over them all.
Let anyone recall the early history of Chicago University.
     And of the so-called science of Economics itself what shall
we say?    Science tells us of the ways in wvhich force acts on
matter-tells us that if certain conditions are present certain
results invariably follow: of first causes she says nothing. But
man demands an explanation.          To the primitive man all
causes are animistic: he. causes things to move, therefore,
every movement he does not cause is the result of the ak'tion
of some similar being, God or devil. Does he seek the cause
of thunder?    Jove is hurling his thunderbolts, although the
"Hand" is hidden behind the thunder-cloud. Next he en-
dows material things with a mind: and now          we hear that
Nature abhors a vacuum, or the,.subjective creates the objec-
tive, interest is caused by abstinence, value is pain or pleasure,
or an idea. Economics has not long left her misty Olympus,
has hardly yet cast away the granite table of "inexorable"
law. But we may yet hope to see her descend the mountain-
side, and in the "common light of day" pace the valley of
matter-of-fact with her sisters, and point to the cause of this,
the effect of that-'"so far as she can tell," and subject always
to correction, like every other modest science. At present
she is a dangerous and uncertain guide.
    What is the use of a vast body of generalisations based on a spec-
ial set of conditions, where those conditions vary indefinitely? The
number of such bodies of laws is infinite. There may be a million sys-
tems of Political Economy besides the one we have got, all just as true
if we allow their data. What is the use of one more than another,
unless we suppose some one of the sets of conditions permanent? The
actual economic laws are certainly not true now, never can be true,
and in the progress of civilisation may become less and less true inde-
finitely. Let it be supposed, however, that they bear some relation to
an actual state of society. But what if the actual state of society
changes, what is the good of them then? We should want another
set in relation to that change, and so on . . . Political Economy. .
rests on the assumption that the social state is practically not cap-
able of improvement, . . . Yet all reasonable social inquiry pro-
ceeds on the ground that the social state requires much improvement.
Directly it is improved, new economic principles will be needed. .
                 * "Imperialism: A Study," p. 232-1.







THE MENTAL ATTITUDE.


One of the acutest of men, Machiavelli, studying one of the corruptest
of human societies, once conceived the idea of reducing politics to a
system on the assumption that men simply acted for their own inte-
rests (the very assumption of the economists). . . . His "Prince"
is a sort of Bible of Political Vice.*

And of our subjective economists the words of Comte are still
true:
. .. Looking with an impartial eye upon their disputes . . . we might
imagine ourselves present at a conference of scholiasts of the Middle
Ages about the attributes of their metaphysical entities.

     With the philosophy of Capitalism we have already dealt.
Theology, Religion, Economics, Philosophy-each          and   all
affect man's mental attitude, but perhaps nothing is so potent
for good or evil as the daily press. Once a week sermons are
preached but for the most part not heard; six-nay seven-
days a week into every man's ear the press whispers, suggests,
insinuates, shrieks, or even thunders, in defence of Capitalism.
Social prejudice is fostered, "go-slow "-by the workingman-
is denounced, "Waste" is reprobated, "Economy"is ex-
tolled, "Taxation" is anathematised; the doctrine of hard
work-for the workers-is preached; the absolute futility
of   socialism  is  demonstrated;    the  transcendent    glories
of  "capital"    are  displayed.   Well, what   else  is to   be
expected?    Editors and leader-writers 'must live,' and they
can   live  most   comfortably   by   prostituting  their  intel-
lects and selling them    to the highest bidder.    In England
and her Dominions the press is bought and sold, but it is in
America that the press has fallen lowest. Read, for example,
the letter of James H. Barry, Editor of the "San Francisco
Star,"' addressed to Professor Ross, of the University of
Wisconsin:
    You wish to know my confidential opinion as to the honesty of
the Associated Press. My opinion, not confidential, is that it is
damnedest, meanest monopoly on the face of the earth-wet-nurse for
all other monopolies. It lies by day, it lies by night, and it lies for
the very lust of lying.

     Or hear the Editor of the "New York Tribune" replying
to the toast of "The Independent Press":
    There is no such thing as an independent press, unless it be in
the country towns. You know it, and I know it. There's not one of
you dares to write his honest opinions . . . any of you who would
be so foolish . . . would be out on the streets looking for another
job. The business of the press is to destroy the truth, to pervert, to
vilify, to fawn at the feet of Mammon, and to sell his race and country
      * Frederic Harrison-"National and Social Problems," pp. 298-301.


173







FROM CAPITALISM TO FREEDOM.


for his daily bread. You know it, and I know it, and what folly is this
to be toasting an 'Independent Press'?
    Thus self-interest sways the intellect and determines the
mental attitude of each and every class in the community.
    The attitude of the capitalist is easily understood; he is
out to fight his brother capitalist, or discreetly join hands
with him, to "get rich quick," and if, as in a few cases, he
thinks it is a disgrace to die rich, yet his selfishness is easily
rationalised. It is so easy to be convinced when we want to
be convinced. As the Spanish proverb runs: "When the devil
is hungry he eats flies."  No argument is too petty to con-
vince when desire points the way.
    And how the toadies of Capitalism play up to their pat-
rons!  Thus, for example, your stockbroker in his monthly
report: "It is no doubt hopeless to look for the abrogation of
the tax on the so-called 'unimproved value' of land, an absurd-
ity based on the Henry George fallacy. The Act is a model
of tangled and self-contradictory stupidity, being the polished
product of the brilliant disciples of the mad Karl Marx." Writ-
ten evidently by a student of Marxian economics.
     It is, however, the blindness of the "great middle class"
which is at once the most pitiful, astonishing, and dangerous
of existing social phenomena. Those who belong to it cannot
or will not see that although they may be more highly edu-
cated, have attained to a higher standard of "culture," oc-
cupy a different social position, nay, even ride first-class in
railway trains, they are in exactly the same economic class as
manual workers. Only the middle-class is blind; the manual
worker does know he is exploited, and the capitalist knows he
exploits. It cannot be really that the middle-class is more
stupid than other classes; generally speaking, the reverse is
probably true. What then is the explanation of this aston-
ishing blindness? In the first place social prejudice. Middle-
class people generally employ "servants," and they seem to
imagine that the salary they themselves live on is something
entirely different in its nature from the wages they pay. To
the women, especially their servants, take shape as the 'work-
ing-class'; they cannot realise that their husbands and fathers
equally belong there. Even the men, though better able, and
more willing, to recognise their true economic position,
quickly lose sight of it when, as so many do, they come to live
on interest from invested savings, and so dissociate income
from active effort, mental or physical.
     And the second cause of blindness is their comparative
 indifference to, and ignorance of, economics. Already in fairly
 comfortable circumstances, associating-or perhaps trying to


174






TiE MENTAL ATTITUDE.


associate--with the capitalist pure and simple, they have no
incentive to study economics. The subject is, they find, un-
popular; they would rather 'side with the angels.' If, on the
other hand, they do study orthodox economics, what do they
find? Necessarily false conclusions proceeding from the
erroneous premise that selfishness is the only motive of
economic conduct-or, at best, a mere exposition of economic
fact, as it exists under Capitalism. If they seek their
ideas of political economy from the brain-stupefying leaders
in   their morning    papers,  they   are  fed   with   words
which carefully foster social prejudice. The one plain fact
they do not learn, whether from newspaper or text-book, is
that everyone who renders social service, whether by hand or
brain, is a worker and should receive 'wages.' As a result
of this teaching, good-hearted but (economically) muddle-
headed people make a fetish of moderation and think all would
be well if only masters and men would be more 'considerate'
to each other; if the old 'paternal' relationship could be re-
stored; if only landlords would be contented with 'fair' rents,
capitalists with 'moderate' interest and tradesmen and manu-
facturers with 'reasonable' profits.
     It is as though one were to approve of one's sister being
'moderately' virtuous. These good people are disposed to con-
done the means by which wealth is acquired, if only it is used
well. Ruskin tells us that under the feudal system, society
was divided into peasants who lived by digging, priests who lived by
begging, and knights who lived by pillaging; and (he adds, speaking of
present-day exploitation) as the luminous public mind becomes fully
cognisant of these facts, it will assuredly not suffer things to be alto-
gether arranged that way any more.

     Under Capitalism churches are 'endowed,' knights live on
rent, interest and profit, but peasants still dig. It is the
gradual recognition of these facts by the public mind that is
the cause of so much dissatisfaction.
     Prejudice still attaches to the name of labor union: and
although   in fact all professional men,--lawyers, doctors,
engineers, architects, dentists and others,-have their unions,
these are half-disguised as 'institutions,' or 'associations.' Pro-
fessional fees, fixed by convention, are, in reality, wages, as
are the salaries of high officials and business managers. The
emoluments of judges and other highly placed individuals, the
commissions of business men, even the profits of small trades-


175







FROM CAPITALISM TO FREEDOM.


men, are all wages, but the camouflage of a name disguises'
the fact.
     The truth is that the middle-class, especially that "upper
 middle-class" Which tends to set the tone of the whole, looks
 forward to a time when its members will be living on an assured
 income derived from invested savings; so that throughout life
 their mental attitude is steadily approaching that of the capi-
 talist.
     Prejudice certainly is not confined to the middle-class and
 blindness to class-interest affects all grades of modern society.
* But it is in the middle class that these two evils are most
deeply rooted; and it is there that under present conditions
of industrial organisation their influence upon the general
welfare is most pernicious, may at any time become fatal. The
position calls urgently for remedy.    And a remedy can be
found only in increased knowledge and a due appreciation of
the true principles of economics.     Prejudice is largely the
result of ignorance. Vaguely to appeal for a "change of
heart" is futile; a "change of head" is equally essential.
     Of the wage-earner it is hard to speak.     The besotted,
 ignorant slave of industry still exists, here and there, but as
 a class he is rapidly passing away. The schoolmaster has been
 abroad and, at least, the worker can now read and has become
 conscious of his position. The. better class of workers are
 amongst the most intelligent of the nation and often get nearer
 to the truth than the orthodox economists. The fact is that
 essentially there is no difference at all between the classes. All
 are tarred with the same brush, and it is as useless as it is
 foolish for the pot to call the kettle black.
     We are trying to alter a worn-out system, not to vilify our
 fellow men.
     We are compelled to end on a note almost of despair. It
 really seems as though it were useless to appeal to reason; it
 seems as though all appeal to be effective must be to the
 emotions.
     When Germany, or Prussia, tore up her "scrap of paper"
 she gave us a splendid chance to make a moving emotional
 appeal, and we did not neglect the opportunity.     When we
 tore up our scrap of paper---the fourteen points-on which the
 ink was hardly dry, we were looking the other way or were
 blind or deaf--certainly we were dumb, and its author, when
 it was pointed out to him that it was not reasonable or logical
   * The small shopkeeper does the community a service, he assists in the
distribution of consumption goods. The payment he receives for this work
he calls "profit,"' and if you tell him profit is exploitation of the worker, he
does not believe you. He is thinking of one thing, whereas you are speaking
of quite another. The "profit" he makes may not be a sufficient reward for
his labor, and he does not regard himself as a laborer; on the other hand, it
may greatly exceed the inherent-value of his work.


176






THE MENTAL ATTITUDE.


to make Germany pay for military pensions when we (and he)
had promised to confine reparations to civil damages, merely
replied: "Damn logic," words that we fear will some day be
washed out in rivers of blood. And Fohi, 3000 years before
Christ taught the Chinese that Reason came from Heaven!
A mere repudiation of logic might leave us cold: we may
dispute the ground on which the argument stands: but in this
particular case the condemnation of logic was also a repudia-
tion of our plighted word and the betrayal of a disarmed
nation. The 'peace' was the greatest atrocity of the war.

    It is on this stormy sea of angry passions and contending
interests that we must perforce launch our bark.


L


177






FROM CAPITALISM TO FREEDOM.


                           XIII.


                     Capitalism.

    It is hardly necessary at this stage to define Capitalism,
but it may be described briefly as a system in which one set
of individuals makes goods and another set owns them.
    The preceding analysis, although far from complete, has
perhaps raised some suspicion that Capitalism is by no means
a perfect industrial system; but at least this can be said in its
favor-it works: efficiently or inefficiently, it works. It is
moreover the result of a long process of development. That
it is perfect, few will be found to assert, but there are con-
siderations of caution, which make us "rather bear those ills
we have than fly to others that we know not of." The ills of
Capitalism are admitted, but we must be convinced that there
is a more excellent way before we agree to any change. That
part of our subject comes later: at present we would stress
the reality of the "ills we have." Some of those ills have
already been exhibited, they will merely be catalogued here;
others must receive some fuller notice. We arraign Capital-
ism then on the following charges:
    1. It is an inefficient mode of producing wealth.
    2. It is an inefficient mode of distributing wealth.
    3. It contains inherent contradictions.
    4. It develops a functionless parasitic class.
    5. It fetters education and contaminates the seats of
         learning.
    6. It fosters class prejudice and the class war.
    7. It promotes Imperialism and causes International war.
    8. It develops a ruling class and consequently a ruled class,
         i.e., virtual slavery.
    To retort, in general answer to these charges, that "Capi-
talism is a necessary stage in the evolution of industry," is
beside the mark: our concern is not with what has been but


178








with what, in the present stage of industrial evolution, is neces-
sary. That Capitalism is necessary now we unhesitatingly
deny; with equal readiness we admit that it was, at a time, an
advance in the method of producing wealth.
    '1. Summarily dismissing, as we certainly may, this general
objection it remains to substantiate the individual accusations
levelled against Capitalism. "Capitalism then," to repeat, "is
an inefficient method of producing wealth." Now it is true
that on the one hand large-scale production, power-driven
machinery, division of labor under the factory system, the
chief advances in industrial organisation made by Capitalism,
do increase enormously the amount of wealth. But it is equally
true: that the abolition of Capitalism would not make it neces-
sary to surrender these advantages. Thus the relative effi-
ciency of Capitalism is not lost. On the other hand Capitalism
acts directly counter to efficiency in the following ways:
     (a) It creates unemployment-and that both of men and
.machinery. For, as it fosters a go-slow policy on the part of
the ::employees, so it teaches employers deliberately to reduce
output when commodities cannot be sold at a sufficient profit
--the go-slow policy of the capitalist.
     (b) It causes, through competition, unnecessary employ-
ment. The number of banks, insurance companies, agents and
middlemen of all kinds, to say nothing of retail shops, greatly
exceeds the needs of the population. No observer can have
missed the lesson which any street in any town offers any
morning of the year,-a round half-dozen of carts delivering
bread-or meat, or milk-where one could do the work as well
or better. And to this must be added the waste of wealth
in the advertisement of competing articles of trade, a system-
inseparable from modern methods of trading-which increases
up to 100 per cent. the price to the consumer.
     That is its objective side: (c) subjectively, efficiency de-
mands that wealth should be distributed amongst the members
of a community so as to produce the greatest amount of satis-
faction. And here we join hands with those who point out
that the final utility of a commodity should be as high as
possible. The bread which satisfies the hunger of the worker
is of higher utility, both to the individual and to the com-
munity, than the cake which stimulates the cloyed appetite of
the idle rich. As distributed at present wealth is often not a
utility, but a futility, or even a disutility. The cake of the
rich may become a poison rather than a food. Capitalism stimu-
lates unnecessary production, especially of articles of luxury
whose subjective value in the pleasure they give is far less
than the pain entailed in their production.


CAPITALISM.


179






FROM CAPITALISM TO FREEDOM.


    2. "Capitalism is an inefficient mode of distributing
wealth." To substantiate this charge it is sufficient to refer
the reader to the diagram of the distribution of wealth on
page 80.
    3. "Capitalism contains inherent contradictions." In-
creased production might mean increase of wealth to each
member of the community: whereas, under Capitalism, the
greater the quantity of wealth produced the sooner a mass
of wealth faces-across an impassable gulf-a mass of starving
people. This is the meaning-and the lesson-of every de-
pression in trade.
    4. "Capitalism develops a functionless parasitic class."
The man of 'independent means' is liable to be a nuisance to
himself as he is certainly a danger to society. He has done
the State no service. "Our criticism"-says J. A. Hobson-
"of the present industrial system as an instrument of social
economy is that it works too wastefully: it does not evoke
productive energy 'according to powers' nor does it distribute
the product 'according to needs.' The 'surplus' is at once the
measure and the instrument of this waste. Its injury is three-
fold. First as unearned individual income not merely does it
fail to support or stimulate productive effort, but it diverts
individual energies into non-productive channels, atrophies
socially serviceable activities, and substitutes either a life of
idleness or one of frivolous and socially injurious activity.
,Surplus acts on its recipients as an inhibition upon labor.
Secondly, so far as it represents the result of sweating, rack-
renting, or other processes of oppressive bargaining, it injures
the productivity of labor by robbing the laboring classes of
their natural stimulus to progressive efficiency. Thirdly, by
enabling individuals to take for their private income what is
produced by society and is required to satisfy the needs of
social life, it damages the efficiency of the State and of the
public services it is called upon to render."
    5. "Capitalism fetters education and contaminates the
seats of learning."
     In the four chief engines of popular education-church,
press, schools and universities, and the political machine-the
controlling lever is in the hands of capital. Thus Capitalism
largely determines the mental attitude.
     6. "It fosters social prejudice and the class war."  The
first we have already dealt with, the second we shall refer to
later.
     7. "Capitalism promotes 'Imperialism' and causes inter-
national war." Imperialism appeals to national pride and pat-
riotism. Just and good as these sentiments are-within limits


180








--few  people understand how these virtues have been ex-
ploited by capitalists. The capitalist himself, in his search
for profit, knows no country. He does not invest in the
country he lives in if a more profitable investment can be
made in some other country. Wealth is the object of his desire
and monopoly the means of its acquisition. Man working in
co-operation with Nature produces wealth. Therefore, the
capitalist must exploit men or Nature, or both. Cheap labor
he regards as a boon, undeveloped natural resources are his
delight, provided he is able to exploit them. If the labor
of his own countrymen is dear, no spectre of unemployment
prevents him from   using cheaper foreign labor. Yet he is
patriotic ! He enters on enterprises in foreign and undeveloped
countries, but expects his country to guarantee his profits.
The profit he makes may be enormous because of the risk of
the investment, but although he discounts his risk he refuses
to meet its bills. He demands the protection of his country.
Hie prates of patriotism. He "extends the bounds of the Em-
pire." In reality the capitalist has no country, he knows no
nation, he belongs to a class that cuts athwart all political
boundaries-the great international class of exploiters. Yet
within that class there is competition. It is a case of diamond
cut diamond and each jewel seeks a national setting, making a
tool of diplomacy and fools of his fellow countrymen.
     England (Lord Cowdray and his friends) secures oil con-
cessions in Central America or Persia (to the great annoyance
of the Standard Oil Group). England (Lords Rothschild, Mil-
ner, and their friends) "spoils the Egyptians." England (Lord
Incheape and his friends) corners-or tries to corner-the
overseas carrying trade. England (Lord Leverhulme and his
friends) exploits West Africa.     England   (the concession
hunters) exploits the inhabitants and the raw materials of
India, Turkey, China, Egypt, down to that small speck in the
Pacific-Nauru. Nothing is too common or unclean. And all
this to the great annoyance of America and France and Ger-
many and Japan. France (French capitalists) was much
annoyed when Germany (German capitalists) wanted a slice
of the iron-ore of Morocco. America (American capitalists)
would, no doubt, scorn to take from China a concession grant-
ing the exclusive right to build railways for the poor Chinese,
and (incidentally) power to make the Chinese pay through the
nose for this blessing of civilisation.
     It is as true to-day as when Sir Thomas More wrote the
:words, "Everywhere do I perceive a certain conspiracy of rich
men seeking their own advantage under the name and pretext
of the Commonwealth." And it is these rich men who are


CAPITALISM.


181






FROM CAPITALISM TO FREEDOM.


responsible 'for the Great War. Greed, greed and lust for
personal power-in a word Imperialism-caused the war. And
who are its victims? Of those who fell or were broken in
the war the vast majority were workers. And that is equally
true of those who are broken in the peace. For while it is
certain that, if :Germany is to pay a huge indemnity, the stan-
dard of her workers' life must be lowered, yet at least her
people will be employed: but it is equally certain that the
workers of France, England, America and Italy will suffer from
unemployment. And the rich men have grown richer! Since
the foregoing was written     Rear-Admiral Consett in his
"Triumph of Unarmed Forces" tells us that, with the know-
ledge of the British Admiralty, profiteers in England, during
the war, supplied Germany, via Scandinavian countries, with
the sinews of war: coal, fodder, fertilisers, rope, petrol, tin,
nickeI: cotton, etc., without which the war must have ended
at least two years earlier. As J. A. Blaksley says in an article
in the "National Review" (June, 1923), entitled "The Greatest
Tragedy in History," "There is dark work, dirty work, my
Masters, behind this business," but we are not so sanguine as
he is when he adds, "As for the regiment of profiteers who
made their millions by the death of Englishmen their punish-
ment will come in due time." The time is already overdue.
If these men are not traitors to their country and murderers
there is no meaning in the words.
    That modern wars have been, almost exclusively, due to
economic causes is profoundly true and these economic causes
may be summed up in the word Imperialism. Imperialism de-
notes those interests of a capitalist class which are diametri-
cally opposed to those of the nation as a whole. Thus war
largely arises from a lack of internal harmony. "The only
safety of nations (says J. A. Hobson) lies in removing the
unearned increments of income from the possessing classes, and
adding them to the wage-income of the working classes or to
the public income, in order that they may be spent in raising
the standard of consumption."
    And there is much truth in Green's contention: "The
source of war between States lies in the incomplete fulfilment
of their function; in the fact that there is some defect in the
maintenance or reconciliation of rights among their own
subjects . . . It is nothing then in the necessary organisation
of the State, but rather some defect of that organisation
in relation to its proper function of maintaining and reconcil-
ing rights, of giving scope to capacities, that leads to a conflict
of apparent interests between one State and another. . . . The
military system of Europe is no necessary incident of the


182






CAPITALISM.


relations between independent States, but arises from the fact
that organisation of State-life (national life), even with those
peoples that have been brought under its influence at all, is
so incomplete."
    Finally, while we condemn capitalist exploitation because
it leads through Imperialism to war, we do not hold as corollary
that the raw materials of countries inhabited by lower races
must remain permanently unexploited by higher races.
    Here the dictum of Joseph Chamberlain, himself essentially
a man of commerce, may stand: "Our rule over native terri-
tories can only be justified if we can show that it adds to the
happiness and prosperity of the natives." But by whose judg-
ment shall it be determined that exploitation of a lower race
so far from injuring them effectively promotes their develop-
ment and happiness? We cannot allow the arbitrament of
private enterprise or of an Imperialist clique-both equally
profiteers-but only such a tribunal as may be formed when
truly self-governing democracies are welded into a permanent
League:of Nations, only by such a league of really inter-
national governance can such exploitation be undertaken and
controlled with proper security and success.
     81 "Capitalism develops a ruling class and consequently a
ruled class, i.e., virtual slavery."
     The distinction between the State and the nation has
been already drawn. By the State we mean the government,
that is, the real government-the ruling class. The State then
is not the nation (although the word is often used in that
sense). The State is the organisation by which a self-con-
tained society is controlled-the ruling power.
     The government of a country-and at present the country
or nation forms the boundary lines of different self-contained
societies-tends to become, and ultimately must become, a
reflection of the economic relationship of its members. Where
ownership is in common, rulership is in common; where a
dominant economic class exists, that class rules. When the
elan or gentile system was broken up by the intrusion of
private property, by the introduction of the cash nexus and
by interest, profit and rent, there was substituted for blood
relationship the private ownership of land; property and
residence in a particular area became the title to a share in
the control of the society. With the gradual loss, first of
land and then of machinery, by the many, and accumulation
of property by the few, control by the few followed-and
control of the many by the few is despotism. The many
became what they are to-day, virtually slaves. Only under
           * "Principlee of Political Obligation," pp. 172-3-7.


183







FROM CAPITALISM TO FREEDOM.


true democratic* government does liberty exist.       In a com-
pletet democracy there is no room for slaves.
     By many the term 'wage-slave' is resented as though it
were mnere exaggeration. But there is no exaggeration. In
sober truth the worker of to-day has not the security of a slave.
"Speaking broadly, the slave was secure; his job was continu-
ous and his master was obliged to maintain him in employ-
ment and in unemployment, in sickness and in health. This
security, which was a security, without rights, based upon
the denial of freedom, the wage-system        swept away.    For
an actual security based upon bondage it substituted a no
less actual insecurity based upon an incomplete personal free-
dom,. Our problem to-day is that of re-establishing security
without re-instituting virtual chattel-slavery.'"
     The economic enslavement of the proletariat of to-day is
a generally recognised fact, and modern so-called political free-
dom is a delusion unless it translates itself into economic free-
dom, because power necessarily rests in the hands of a domin-
ant economic class. Where land and machinery are owned by
a class--that class rules, no matter what the outward form of
government may be. Conversely, economic freedom is the
certain forerunner of a real democratic control. With com-
man ownership we have control from below, with class owner-
ship control from above. The first is freedom, the second
slavery.
     Hitherto the accent has been laid on poverty. Many
people seem to think that a mere redistribution of material
wealth is the sole sum    and end of Socialism.     An equal or
even greater stress should be laid on liberty. A system that
permits one man to say to another, "Your services are no longer
required" --a systemn that refuses to guarantee any employ-
ment, that forces one man with cringing servility to suppli-
cate another for an opportunity to work, is a system           of
    * The so-called political democracy of America embodies an autocratic
plutocracy and economic slavery of the most pronounced kind. oScott
Nearing says: "A new-rich ruling class, backed by immense resources;
controlling vast investment surpluses; strangling opposition at home while
it buys power abroad-this is America." And he adds: "There are more
than twenty men now (1923) in the Federal prisons who were. convicted
of agitation against the war. They have served five or six years at hard
labor, but since they were members of the hated I.W.W. they are kept
behind the bars after the law under which they were convicted has lapsed
and been repealed. Five members of the I.W.W. were convicted in Sacra-
mento, California, and must serve one to fourteen year sentences in the
penitentiary. These men were arrested for appearing as witnesses in a
trial of a member of their organisation."
    tThe Athenian "Commonwealth" was a pure democracy, but not a coin-
 plete democracy. Slaves were called 'organa,' machines-they were not
 thought of as human beings, and ninety thousand citizens (including women
 ind children) were able to dominate 365.000 slaves. "The glory that was
 Greece" was nourished by the blood of slaves; and yet in some respects
 the Athenian slave was better off than the "wage-slave" of to-day.
             tG. D. H. Cole, "Self-Government in Industry."


184








virtual slavery. And not only wage, but salary receivers too,
are in tiat position; men who have perhaps specialised in
a certain business whose special knowledge of an individual
business is perhaps their chief asset are often thrown on the
market at a week's or a month's notice by perhaps the mere
whim of some other man. And they, slaves as they are to a
system, yet call themselves free, because they have a vote!
Why, servitude extends into the ranks of capitalists them-
selves! As we have seen employers must do certain things.
"If we command our wealth we shall be rich and free; if
our wealth commands us we are poor indeed." Capitalists
not only devour the poor, they devour each other, and often
they must, if they are to rem'ain capitalists. To many the cry
"Self-government in industry" seems a strange cry. "What!
Are the men whom I employ to be able to dictate to me how
I am to manage my business?" is the indignant exclamation
of many employers. But is it your business? You are (or
should be) a servant of society, without whose aid you would
starve in the wilderness! The power the present system gives
to the privileged holders of wealth is a veiled tyranny. Take
the case of bankers: the privilege the community places in
their hands of granting credit enables them to control the
policy of industry-to whom credit shall be given, and thus,
what shall be made, and what shall not be made. See how
the, ranufacturer cringes to his banker. And if we ask who
made bankers into lords and rulers over us, "our own
stupidity" is the only answer.
    Of more recent developments of Capitalism, merely a word.
The trust, cartel, monopoly, holding company, integration-
call it what you will-grows apace: no longer merely in a
horizontal direction, absorbing some particular article or stage
of manufacture, but vertically, also, co-ordinating the whole
manufacture from A to Z.
    Above and beyond the manufacturer is seen the capitalist
and beyond the capitalist the super-capitalist-men like Roths-
child, Morgan and Stinnes, who organise trusts and 'combines'
and amass wealth by the simple process of over-capitalisation.
Their enormous accumulations are entirely independent of the
'average rate of profit.' Such combinations extend beyond
national limits: the great financier is an international; he
has no country. His machinations result in the 'acquisition'
of wealth far in excess of his personal requirements. His
chief object is power-a power which spells the economic
enslavement of nations.
     Such, then, in sum, is the case against Capitalism.


185


CAPITALISM.






FROM CAPITALISM TO FREEDOM.


                            XIV.

                      Palliatives.

    The development of industry from one system to another
takes place more or less slowly, but the rate of change is by
no means uniform. A type at one time may seem to be abso-
lutely fixed, at another to be unstable and subject to rapid-
even violent-change. How far reforms in a system of in-
dustry preserve it, and to what extent they constitute the path
of change from one system to another is an open question.
    Reforms or palliatives may be advocated (or opposed)
from entirely opposite points of view. Some may oppose re-
forms because they do not wish the existing state of things
to be altered at all-others may oppose them because they
believe that a policy of laissez-faire will inevitably result
sooner or later in a violent explosion and the destruction of
Capitalism. We shall consider these different views later on:
in the meantime it is proposed to review some of the proposals
which seek to mend rather than to end the system of Capitalism.
Of some of these space will only allow of brief mention: of
one or two others we shall treat more fully.
    "Let in the light." Under this heading may be advocated
reform in the matter of statistics. Only those who have sought
to obtain information regarding private wealth, profits made
by "private" enterprises and the various secret sinks down
which "gain" is poured, have any idea of the abysmal depths
of ignorance and Egyptian darkness that exist. Secrecy is
jealously claimed and guarded, it is held to be the "private"
business of exploiters--"let the public," who are exploited,
"mind their own business."     Our Government statisticians
should be clothed with enormously enhanced powers. This re-
form is the first of all reforms-the parent of all others.
     Fixing the Purchasing Power of Paper Money. In chapter
VIII. the stupidity of making one commodity, viz., gold, the
only final means of exchange was referred to. Every debt,
every bank note, every bank credit, every cheque, is a promise
to pay a specified quantity of current gold coin on demand,
yet if everyone demands gold at once, it would be a physical
impossibility to meet that claim. To promise the impossible
-what is known, under existing circumstances, to be impos-


186








sible--is absurd or dishonest. Moreover, to make one com-
modity (gold) the measure of value, when all or many com-
modities-taken together-might be adopted as the measure,
is foolish Money is a means of purchasing goods. We borrow
or lend purchasing power. That the thing actually lent or
borrowed should always remain the same-that the purchasing
power borrowed should be returned-neither more nor less-
is essentially just and reasonable. That desirable result can
be achieved by the use of paper money whose 'general' pur-
chasing power is fixed, but whose 'particular' purchasing
power (for gold) is not fixed. The thing is perfectly simple,
its advantages are enormous. Why the reform has not been
adopted long ago is really inexplicable. Any commodity might
have been adopted as the measure of value, there is nothing
unique about gold.
    Let us suppose for example that instead of representing
a certain weight of gold the �1 note represents a certain weight
or measure of wheat. Then we have fixed the price of wheat
in paper money; our inverted pyramid now rests on wheat in-
stead of on gold. If, say, 4 bushels of wheat are represented
by a �1 note, we have fixed the price of wheat (instead of
gold) in paper money; we have, so to speak, glued the �1 note
to 4 bushels of wheat and made wheat the measure of value.
Then, if 4 bushels of wheat will buy 123 grains of bullion (a
sovereign consists of 123 grains of bullion) so will a �1 note:
if 5 bushels are needed, then a �1 note will only buy four-
fifths of 123 grains, i.e., 98 2-5 grains of bullion. Thus in
fixing the price of wheat in paper money we have at the same
time unfixed the price of gold (bullion) in paper money. In
other words by varying from time to time the weight of gold
given for a �1 note we have fixed the price of wheat.
    Biut it is not proposed merely to fix the price of one com-
modity as wheat; it is proposed to fix "the general purchasing
power" of the �1 note. It is proposed to fix "the general
price level" and make paper money "legal tender." It is im-
portant then to understand what is meant by "the general price
level." Suppose, for example, we expend a �1 note as follows:
                                               s. d.
         llb. of butter ...........   .......2    0
         11b. of  tea  ........................ 3 0
         1 doz. eggs ......................   1   6
         6 loaves of bread  ................... 3 0
         1 pair socks .......................  3  0
         1 shirt ............................ 7   6

             Total .....................�1 0 0


187


PALLIATIVES.







FROM CAPITALISM TO FREEDOM.


The general price level of all those articles taken together is
�1. Now, suppose that six months later we buy exactly the
same articles as follows:
                                               s. d.
        11b. of butter......................2  6
        11b. of tea .......................... 2  9
        1 doz. eggs ........................   2  0
        6 loaves of bread ...................3  3
        1  pair socks ...................... 3  3
        1 shirt ........................... 7  3

            Total ..................... �1  0  0
Individual prices have varied, but "the general price level"
is the same; had the second bill come to 22/- the "general price
level" would have moved up from 20/- to 22/-, a general 10
per cent. increase in prices. Instead, however, of taking only
six articles it is proposed to take 100, or better still 300, and
of each article a definite and fixed quantity in accordance
with human needs. For example, a greater weight of bread
and meat than of pepper and salt, more wool than silk, more
iron than tin, more water than whisky.
    This fixed schedule, budget, or bill of goods would take
the place of gold as our measure of value. We should always
be able to buy the entire budget for a �1 note, or a �100 note,
according to the quantities assumed when making up our
schedule. No matter how the prices of articles varied in rela-
tion to gold, they (taken all together) would not vary in rela-
tion to paper money, and that is made possible by the simple
expedient of varying, from time to time, the weight of gold
given in exchange for a �1 note. We have, then, succeeded
in turning our pyramid on to its natural basis. It no longer
rests on its gold point, or wheat point, but is broad based on
300 commodities. Commodities have become our measure of
value; paper money our means of exchange, and gold a mere
intermediary between paper and commodities.
    It by no means follows that the price of each individual
commodity in our schedule is fixed: they may vary plus and
minus, but the 300 articles taken together will always be pur-
chasable for a fixed sum in paper money. There is nothing-
except ignorance-to prevent this reform being adopted. And
the gold basis (so-called), i.e., bullion payable on demand,
could be resumed at once.
    But index numbers, representing the cost of our budget
in gold, would still be required in order to fix-say,
every two months-the amount of bullion to be paid on demand
for a �1 note. There is nothing mysterious or difficult in


188






PALLIATIVES.


ascertaining what the index number for the moment may be,
because it is merely the wholesale spot cash price of our
weighted schedule of 300 commodities taken together; the total
bill in fact,-prices being stated in gold or bullion.
    Before explaining the use of these index numbers we may
pause to answer a very natural question, viz.: "Even when
a starting point has been adopted and we agree that a �1 note
shall represent a certain weight of gold, yet if paper is to be
our only money and the 'general price level' in paper is fixed,
how are we to ascertain the 'general price level' in gold, or
the price of your weighted schedule of 300 commodities
in  gold?"   The fact is, it is not strictly      correct to
say, or imply, that the general purchasing power of the �1
note can be absolutely fixed. It can in truth only be fixed
in the same sense and in the same way that the speed of a
steam engine is fixed by its governor. A slight variation in
the speed of an engine is necessary to induce its governor
to act, so that in fact a governor does not absolutely fix and
make perfectly constant the speed of a steam engine; but a
variation in speed of one or two per cent. will actuate a sensi-
tive governor. As a result, the speed of the engine is continu-
ally varying from 1 per cent. above to 1 per cent. below its
normal speed-but within those limits the speed is fixed.
    In the case we are considering slight variations in the
exchange value of paper money act in a precisely similar
manner. Ordinary price changes still go on as at present, but
their effect is not cumulative because periodically the index
number is altered, and this alteration brings the �1 note back
to its normal purchasing power-the general price level is
restored.
    If the index number is determined at short periods, say
every two months, our price governor is sensitive and the
general price variation will probably not exceed 1 per cent.;
if only once in six months our governor is sluggish and price
variation may amount to 3 or 4 per cent. (It is proposed to
found the general price level on wholesale prices as more
stable and less liable to local variation than retail prices.)
    Let us suppose that it has been decided to adopt this great
reform; the first step would be to resume the payment of
gold on demand. There is nothing whatever to prevent this
provided the present value of the �1 note is taken as the
starting point, i.e., about 111 grains of gold bullion to the �1
note. Indeed, the immediate resumption of gold payment on
demand would be a great and immediate advantage to the
nation. At present, we are steadily increasing our load of
indebtedness, not only by fresh loans, but by the increasing


189






FROM CAPITALISM TO FREEDOM.


weight of old loans. We borrowed (in some cases) when the
�1 note was only worth 80 grains of gold bullion; it is now
(1923) worth 110 grains, and may go to 123 grains. Thus the
weight of our indebtedness has increased-in some cases-by
37 per cent., and it may increase to 52 per cent. It is to be
hoped the camel's back will not break!
    But, although the first step is to resume gold payments,
Governments must retain and exercise when necessary-as in
case of war or financial panic-their power to suspend gold
payments, for the simple reason that there are more notes
than gold in existence. To keep a sufficient supply of gold
to meet ordinary and customary demands, it is only necessary
to offer a small premium on gold. A national bank (national
in reality and not merely in name) might offer a slightly higher
rate of interest for gold than for note deposits, or raise its
rate of discount, or buy bullion outright.
    With paper 'legal tender' gold would only be required to
pay adverse foreign trade balances. In fact the balance of
foreign trade whether favorable or adverse would still be paid
in gold, but only paper money would be used for internal trade.
     (2) The second step is to decide on, and fix, a schedule
of goods and the quantity of each good in the 100 or 300
articles adopted. The greater the number of articles the more
nearly will the schedule approach the "general" price level.
     (3) Now determine the first index number. Suppose the
quantity or weight of each article is so arranged that their
total cost in notes is exactly �100; then with the �1 note worth
110 grains of gold bullion the cost of the whole schedule of
goods in bullion is 110 x 100, or 11,000 grains, and 11000 is
our first index number.
     (4) Now suppose that two months have elapsed and a
fresh index number has to be determined. All that is neces-
sary is to ascertain the wholesale spot cash price (in notes)
of our schedule of goods. Suppose prices have slightly varied
and that it now needs 101 �1 notes to buy the whole schedule
of goods. Then clearly the bullion price of the goods is now
101 x 110 grains or 11,110 grains of gold, and the price of
bullion in notes must be legally altered from 110 grains of
bullion per �1 note to 111.1 grains per �1 note. When that
alteration is made 100 �1 notes will again buy the whole
schedule of goods.
     Suppose that prices (in notes) now begin to fall, and that
two months later 99 �1 notes will buy the goods. Then the
bullion price of the goods is 99 x 111.1 grains of gold bullion
or 109.989 grains. Then, when 109.989 grains of gold bullion
are declared the legal exchange for a �1 note, the whole
schedule can again be purchased for 100 �1 notes.


190









     Thus, within narrow limits, the general purchasing power
of the �1 note has been fixed in a simple practicable manner.
The �1 note, it must be remembered, is legal tender and gold
(bullion) would only be required for international trade. The
advantages of the reform are obvious. Wages once fixed at a
definite "standard" would remain fixed, nominal wages would
become real wages; class friction would be reduced; an element
of uncertainty would be removed from all contracts and an
element of hardship as between debtor and creditor. The
purchasing power borrowed would always be repaid, neither
more nor less. The wear and tear of gold would be reduced
and its exchange-value in notes would be publicly known.
Gold would still remain the basis of international trade. Exter-
nally we should be no worse off, rather better; internally the
benefits are unquestionably great.

    [Author's Note: It is one of the contradictions of Capitalism that
a gradual depreciation of the value of (legal tender) paper money has
many advantages. Such a depreciation is tantamount to a capital
levy: it is a real. reduction of indebtedness. The depreciation of the
mark practically cancelled Germany's internal indebtedness and stimu-
lated her trade. It unquestionably reduced the German worker's real
wage, but he is employed. It put enormous profits into the hands
of German capitalists; but these profits have been invested in plant and
factories, "thus increasing Germany's productive power and efficiency
-an enormous advantage in the future fight for markets. It has
ripened Capitalism in Germany by greatly increasing the concentration
of capital, and power, in trusts and cartels, so that the country is
almost ready for guild socialism. The very peace treaty which assisted
these developments has acted like a boomerang and injured those who
launched it. If Germany breaks up (politically), France will, no doubt,
be satisfied, but to other nations the 'treaty' only spells economic loss
and unemployment. There is only one method by which Germany can
pay without injuring her creditors' trade, that is, by free gifts of con-
sumption goods to individuals (in the creditor nations) who have no
purchasing power. To, in effect, supply other nations with cheap goods
is to absorb some of their purchasing power, and to that extent destroy
their home market.]
    [Author's Note: The "Quantity Theory of .1oney" has recently been
revived. It is, we believe, essentially erroneous if by 'money' is meant
gold or any medium of exchange convertible into gold on demand.
Marx(speaks of the theory as "the old fib-that changes in the quan-
tity of gold existing in a certain country, by increasing or reducing
the quantity of the medium of circulation in that country, must raise
or lower the prices of commodities in that country." The purchasing
power of gold tends to follow the first law of value, that is, gold tends
to exchange directly as the number of standard hours of labor it (and
the other commodity) contains. The discovery of enormously rich gold
mines would, by reducing the inherent-value (per unit) of gold at the
same time reduce its exchange-value.
    Only insofar as gold is-for the moment-relatively scarce (or
 abundant) is the first law modified by the third law of value. If that
 ephemeral and temporary variation is all that is claimed by the theory,
 why single out 'money' (i.e., gold)? All commodities are equally affected


PALLIATIVES.


191







FROM CAPITALISM TO FREEDOM.


by the third law. The chief effect of a national gold coin scarcity
is to raise the rate of interest in that nation and not to raise the
price of commodities. If, however, by 'money' is meant paper money
which cannot be converted into gold and which has no other com-
modity backing-as e.g., in Russia and Germany-then the value of
the paper depends on its use (as, for example, the payment of taxation
and the legal discharge of old debts) and on the popular estimate as
to how much (if any) gold can, at some future time, be got for the
paper. Should the reform we have just advocated show a continually
falling value in the �1 note, as measured in gold, it would be chiefly
because the labor per unit commodity purchased continually grew less.
    We say 'chiefly' because interest is often included in the 'cost of
production,' and tends to increase costs--and consequently prices-in
those industries which use 'bank credit at a high rate of interest
    It is the grain of truth in a false theory which makes it dangerous,
by tending to preserve it.
    When social inherent-values are scientifically fixed the standard
hour note will be the equitable means of discharging debt; at present
the quantity of many commodities (taken together) is more equitable
than the quantity of one, viz., gold.]
     Taxation.-One obvious method of redressing the grosser
inequalities of wealth is to make all national charges fall upon
the rich by means of taxation. That method does not attempt
to remove the causes of inequality, but deals in a mechanical
way with -effects. Such reforms are simple and superficial;
some people are under the impression that a mechanical re-
distribution of wealth is all that Socialists propose, and
they triumphantly retort, "Even if you do divide wealth
equally, in a year or two inequalities will again exist;
unless you can alter human nature," etc., etc. Everyone has
heard, to boredom, these good people talk. Taxation of the
rich is a palliative, may be a due and necessary reform, but
can be only of very limited effect.
     The Single Tax, as advocated by Henry George, goes
rather deeper. It is an attempt to nationalise differential rent
and, indeed, monopoly-rent, but there it ends; it makes no
attempt to nationalise profits. George, in fact, seems to have
been totally ignorant of Karl Marx' work, and indeed
defended interest on the old physiocratic ground that it was
'natural,' advocating what is now called the 'fructification'
theory. George and his followers have a single eye; what they
see, they see clearly, but exploitation by profits they do not
see at all. If we are to deal in a mechanical way with effects
it would be far better to make the single tax a tax on incomes.
     Society at present exercises its right to fix wages, a
minimum or basic wage, with-above it-a scale of wage based
on that minimum. We propose to carry that scale to its logical
conclusion and fix not only a minimum but a maximum wage.
One way of doing this is by existing governmental machinery,
viz., by an income tax fixed on a sliding scale. Merely as


192








PALLIATIVES..19


an example of the form such a tax might take, and not as a
recommendation of the rate, we suggest a simple formula,
increasing taxation at ,the rate of 1-450th per cent. per pound
of income'for married persons, and doubling the tax upon the
single. .The result is to fix a maximum yearly wage or income
of �10,250 for the married and �5,125 for the single. There
would rbe exemption from taxation of incomes of �500 and
under for the married and �250 for the single. Thus for the
married the 501st pound is assessed at 1-450th per cent., say 4d.
With an;income of-�510, the �10 is assessed at 10-450th per
cent., say. 4s. 5d. The exemption for the single is an income
of �250 and the tax on the 251st pound is, say, id., and on the
first ten. pounds. over. �250, i.e., on �260, is about 8s. 10d.
Probably -it would not pay to collect any amount under 1/-.

                PROPOSED INCOME TAX.

                    (MARRIED PERSONS.)

    Icm.Rate of      Amount of   NtIcm.          Rmrs
    ncm. Tax.        Deduction.  NtIcm.          Rmrs

    �                  �  s. d.    �  s. d.


     1%        4

 2%37
 3t,% f75
 5 %         125
   .7j%      262
10.%         450
12*.%        687
15 %         975
20 %        1,700
25.%        2,625
30 %        3,750
35 %        5,075
40, %       6,600
45 %        8,325
50 %       10,250
50 % & 100 % 30,250
50. % & 100% 90,250


13
10
10
0
0
10
0
10
0
0
0
0
0
0
0
0
0
0


  500,0
  745 6
  987 10.
  1,462 10
  1,925 0
  2,125 0
  3,2.37.10
  4,050 0
  4, 812 10
  5,525 0
  6,8.00 0
  7,875 0
  8,750 0
  9,425 0
  9,900 0
10,175 0
10,250 0
10,250 0
10,250 0


Free of taxation.




The rate of taxa-
tion increases by
1-450th per cent.
per � of income.










Tax on amount
over �20,250 100
per -cent


    Such. a schedule ;is, we contend, absolutely just. For some
countries the. rate might not be sufficient.. The rate, however,
is of less moment ; the, method is all-important. Such a plan,
and it contains no element of. Utopia, would, if adopted,. go
far to solve the problem how to purchase existing 'capital.'

M


   1~00.
   750,
   1,000
   1,500-
 2,000,
 2,500
 3,500
 4,5.00
 5,500
 .6, 500
 8,500
 10,500
 12,500:
 .14,500
 16,500.
 18,500
 20,500
 40,500.
100,500


.193







FROM CAPITALISM TO FREEDOM.


    In proposing a maximum wage we establish a principle
of equity, that as there is a bottom level of comfort below
which no man should be required to live, so there is an upper
level of comfort (or luxury) which no man should exceed.
    As a means of acquiring communal ownership it is not the
only method. A thoroughly feasible plan is to utilise death
duties, and this we may present in the words of J. A. Hobson:
    If the State could' intercept, hold, and maintain a fifth of the
larger properties which pass at death, treating it as public capital,
it would at no distant time be the owner of a substantial share of the
land and the industrial capital of the nation, without any of the incon-
venience, expense and irritation ensuant upon more violent methods
of expropriation with or without compensation. . . . If the State,
receiving payment in land or in shares, kept possession of these in-
struments, it would soon find itself a partner, in many of the large
businesses of the country. . .. By changing the nature of the invest-
ments which come into public ownership by death duties thus paid in
kind, it would be feasible for the State to select those industries which
by peaceful penetration it would 'socialise.'*
     These taxation proposals assume a Labor Government.
     The Douglas Scheme-" Producers' Banks."-The Douglas
Scheme is comparatively new and has hardly been sufficiently
criticised. It is founded on the Douglas Theory. Like many
other theories the theory contains, we believe, an element of
truth and an element of untruth. We propose to deal with the
Theory first, then with the Scheme.
     Major Douglas suggests that we should reduce the price
of home consumption goods in the ratio that the production of
consumption goods bears to total goods-i.e., to consumption
plus capital goods-to something like 25 per cent. of cost
according to his estimate. A study of his book leads to the
conclusion that what he really means is, not that consumption
goods should be sold below their real cost, but that they should
be sold at their real cost.
     On that point we are in full accord with Major Douglas.
But we differ with him on the question of what constitutes
the 'real cost' of consumption goods. Major Douglas tells us
that when we buy consumption goods we are paying for, but
do not receive, capital goods. That statement is, we believe,
only partly true. Some capital goods we receive, some we do
not. Some capital goods are converted by the process of
manufacture into final goods (final is another name for con-
sumption). Some capital is "permanent" (only partly con-
sumed in one operation); other capital goods are entirely
consumed in one operation. Of these latter are raw materials
during the last operation which converts them into final goods,
also coal, lubricating oil, etc.
                  * "The Industrial System," p. 243.


194






PALLIATIVES.


     The real cost of a final good is the cost in 'time-energy'
units (as Major Douglas calls labor) of all the constituents
of the good. These include the cost of raw materials, coal,
etc., consumed in production, depreciation (the cost of that
portion of the machinery worn out), and wages. Major
Douglas admits depreciation of machinery (say at 10 per
cent. per annum) as a part of real cost. On what ground of
reason does he refuse to admit that the depreciation of coal
(100 per cent. per operation) is also a part of real cost?
    The production of final goods-all production, in fact-
is a continuous operation; a flow, dynamic, not static, as
Douglas correctly insists. Let us examine what takes place
during a given period of flow resulting in the production of
final goods.
    Assume a self-contained nation and regard its working
population as all employed in one immense factory. From a
former period of flow (higher up the river) raw materials
(grown, mined or partly manufactured) have been bequeathed.
So have the factory and the plant. During the period we are
considering all operations from A to Z proceed. Goods are
finally made into consumption goods, and the raw materials
they contain are replaced by the production of more raw
material.
     (1) If the production of raw material during the period
exactly balances the raw material converted into final goods,
and if the wear of plant is made good-neither more nor less-
then the "real cost" of the final goods made consists of the
wages paid, and nothing else.
    But (2) if more raw material is, during the period, pro-
dueed than is turned into final goods, or additional plant or
machinery is made (after providing for the depreciation of
the existing plant), then the "real cost" and correct price
                                    F
of a unit of final goods, say A = -   of its present price,

when F represents the total final goods produced, and K
represents the total additional capital goods produced (during
the period). (In this case (2) producing power has appre-
ciated and-as Major Douglas suggests-additional credit
may be issued to absorb its appreciation.)
     If, however, (3) the capital goods used have not been
entirely replaced, the real cost and correct price of a unit
                       F
of final goods (A) =----- of its present price.
                     F-K
K now representing the depreciation of capital goods.


195






FROM CAPITALISM TO FREEDOM.


                                                    F
    In case (1) the real cost and correct price of A = of its
                                                    F
present price i.e., its present price-at which goods are com-
monly sold-is its real cost and correct price. But in case (2)
the fraction -      is not likely at any time to reach such a
            F+K
ridiculously small dimension as one-quarter, as is suggested
by Major Douglas. The mistake of including all capital goods
instead of additional capital goods in the fraction is, we be-
lieve, now evident.
    So much for the Douglas Theory. We agree that price
ought to be founded on real cost. But since that is not possible
under Capitalism, because, if owners of factories cannot make
a profit, or make a loss, they will not, or cannot, allow their
factories to be used, we agree that a new scheme of distributing
wealth is required. We agree that the existing method of
fixing prices is archaic. We agree that the crux of the present
economic problem is how to fix prices on real cost.
    But we disagree with Major Douglas when he allows
private rent, profit, and interest to be included in the price
of an article.   Public differential rent and profit would
virtually reduce all prices. We disagree with him when he
fails to take stock of the goods on hand (both capital and
final) at the beginning and end of the period of production-
When he fails to add (or subtract) the stock at the end of the
period to (or from) the stock at the beginning of the period.
That is his vital and fundamental mistake.
    In his Credit Power and Democracy Major Douglas pro-
pounds a scheme of joint ownership (of the coal-mining
industry) by the present owners of coal mines, the workers
in the mines, and the nation. The existing right of ownership,
or rather the capital value at present held by private owners,
is not to be disturbed, but capital for future extensions is
to be contributed by the three parties named, i.e., present
owners, mine workers, and the general community.        But
private owners are to receive, instead of their present divi-
dends, a fixed and guaranteed rate of interest-6 per cent.
is suggested-on the capital value of their mines. All wages
and dividends are to be distributed by a Producers' Bank,
whose directors are to manage the whole guild or industry.
The price of coal is to be determined in three ways:-(1) to
consumers-below    cost; (2) to manufacturers-at cost; (3)
to outsiders-at whatever can be obtained in the world's
market.


196






PALLIATIVES.


    We have already explained what Major Douglas means
by below cost and what we believe to be the error in his
theory. We must refer the reader to Major Douglas' book
for a fuller explanation of his Scheme, which we now propose
to .criticise.
    The Scheme is an imperfect form    of guild socialism-a
syndicate in which both capitalists and workers join, but on
unequal terms. That fact would probably not be admitted
by Major Douglas, since he makes the astonishing statement
(p. 80)'that the Guild Socialist movement has entirely omitted
to allow for the unearned increment of association. It is a
wise father that knows his own child. (Indeed there is an
oracular obscurity in the enunciation of the whole Scheme
that argues some confusion in its author's mind; but at least
the fact of surplus value is stumbled over,-" wages and
salaries do not represent the value produced"-if not quite
recognised-more than half a century after Marx! And Major
Douglas has the temerity to speak loftily of the "fallacy of
Marxianism"!)
    The Scheme is admittedly a compromise-a half-hearted
reform which looks only to the partial prevention of future
wrongs. The capitalist is to be allowed to retain the exploiting
power of his present capital-6 per cent. is suggested-and
even to participate in future capital issues. We are told that
it is "incredible that any of the ordinary Socialist proposals
can be realised without a 'revolution' that would defeat their
avowed object." That is as may be, but it is quite true that
the establishment of a Producers' Bank would meet with less
opposition than clean-cut Guild Socialism. It is at least some-
thing to know that our present burdens will not, in future,
be greatly increased, and, since compromise is the soul of
practical economics, and half a loaf is better than no bread,
it might be wiser to strive for a possible half-loaf than for
an impossible loaf.
     Major Douglas sees in the financial power (banks chiefly)
 the arch villain of the play, and if "interest" constitutes the
 principal method of exploitation (which we question), there
 can be no doubt that the Major's sight is clear. But what
 has become of rent, and the balance of profit which is not
 interest? It is sufficient, according to Major Douglas, to
 guilderise credit and thus set free the wheels of industry.
 We do not forget that the control of credit enables the finan-
 cial power to control the policy of industry; or that the wheels
 of industry may be turned by slaves. The socialisation of
 credit is a tremendous reform-"a consummation devoutly to
 be wished"-but the guilderisation of 50, or even 75, per cent.


197






FROM CAPITALISM TO FREEDOM.


of the interest on future capital is not exactly the gate to an
industrial paradise.
    Major Douglas spurns the ground of concrete reality and
wings his way through cloudy symbols. Producing power is
real credit; add selling power, and we get financial credit.
By financial credit is meant the power, obtained from private
banks, to liquefy solid securities-to turn securities into
purchasing power.
    This power, as we have seen, really resides in the com-
munity, and a national bank with a currency based on goods,
in the manner just explained, would give to the community
as well as to the "manufacturer all the advantages claimed by
Major Douglas for his Producers' Bank, provided steps are
also taken to transfer the ownership of concrete capital
(machinery and land, etc.) to the community and not to the
producer.
    Under the Douglas Scheme the board of directors of each
Producers' Bank would fix prices for their own industry on
cost in human effort. But who would fix them as between
the different Producers' Banks when various quantities of
commodity resulted from similar efforts? Who is to prevent
one industry from exploiting another by holding or seizing
natural advantages? Who is to equalise "wages" as between
guilds? Society as a whole should own its land and capital.
Society as a whole must develop a unified economic control of
policy, not--a  the Douglas Scheme would give us-twenty
or more independent controls. That would be merely to
replace 'class war' and company competition by a 'group war'
and transfer the fight for differential rent and profit (natural
and social advantages) to competing Producers' Banks.
     Group war, like every other war, can only be avoided
by a higher integration, a controlling power resting on all
the groups involved, and such a power is absent in the Douglas
Scheme. The difficulties of crossing the stream-the time of
'revolution,' in fact-must be admitted, and are common to
Producers' Banks and Guild Socialism alike.
     The Major's belief that the Trust and not the Trades
Union will prove to be the parent of the Guild is not the least
interesting of his views. Perhaps they will become joint
parents. But how is the Producers' Bank to be generated?
And can it be born piecemeal? Suppose that somehow (by
political means?) a Miners' Bank or Guild has been estab-
lished and the price of coal to the home consumer reduced
by 30 per cent., as seems possible. The wages of other
workers, outside a Guild, would still be fixed by the cost of
living, and since the cost of living is reduced, wages would be


198






PALLIATIVES.


reduced. Perhaps a legal minimum wage might meet this
difficulty.
    Producers' Banks, like Single Tax, is a one-eyed scheme.
The latter only sees exploitation in private rent, the former
only sees it in private profit (prices). Each is a great reform,
but neither of them is a complete solution of the economic
problem.
    This chapter-already too long-might be indefinitely ex-
tended. A few more "reforms" may, however, just be
mentioned.
    Motherhood Endowment.-Given an income tax on the
lines already proposed--the economic independence of woman
might-to some extent-be assured, by making a payment to
her of 10s. per week for every child under 14 years of age.
    Old Age Pensions.-The economic independence of old
people might also be assured by a payment to every person
over sixty or sixty-five of �100 per annum.
    One can imagine the horror of many people and their
exclamation, "Where is the money to come from?" These
are not wild suggestions of an impossible millennium, but sober,
practical proposals that only need a firm-if necessary, stern-
Labor Party to bring them into being.
    Nationalisation of Banking.-This great reform would
provide funds for old age pensions, and is almost a necessary
part of the plan of fixing the purchasing power of money.


199






FROM CAPITALISM TO FREEDOM.


                            XV.

           Evolution or Revolution.

    Hitherto we have been engaged in destructive rather than
constructive criticism; we have pointed out that "the times
are out of joint," that the dislocation between production and
distribution is the cause of social discord. But having
diagnosed the case we mnust, to be of any service, prescribe a
remedy.
    Already we have foreshadowed our own opinion that
the remedy is to be found in Guild Socialism. Before, however,
describing the remedy in detail we propose to define the
meaning of Guild Socialism and outline the means of its
attainment.
    State Socialism  differs in many respects from  Guild
Socialism; it differs as the nationalisation of industry differs
from' its socialisation. Many have actually supposed the terms
synonymous. There could be no greater mistake. By the
'nationalisation' of industry is meant not only joint and
common ownership by a nation of the agencies of production,
distribution and exchange, but their management by a State
or municipal bureaucracy,--a condition of affairs in which
everyone is a 'civil servant' in the sense in which that term
is now understood. Such a nightmare of a system has been,
rightly, named the 'servile State.' Those who are not at
present wage or salary receivers may well shudder at the
apparition: to the proletariat, however, it would be some relief
from present servility: at least their 'jobs' would be secure.
    Political liberty, as embodied in the right to vote for
parliamentary representatives, still leaves the individual work-
man in economic bondage. Trade unionism merely loosens
the bonds. State enterprises afford him no relief, even when
well managed, since any profit they make merely reduces the
burden of taxation on the rich. Even an income restriction
on the rich-a maximum      wage-by means of sliding-scale
taxation (a mechanical and not an organic reform) would
merely direct wealth into the coffers of the State. The problem
of how to get it into the pocket of the worker would still
remain to be solved, and even if it were solved the problem
of self-government in industry would still exist. A political
body is quite incapable of fixing, in detail, just working
conditions: that could not be done even by a Labor Govern-


200






EVOLUTION OR REVOLUTION.


ment. Self-government in industry, as the term is understood
by working men, means the selection by the workers them-
selves of those in direct authority over them. It does not
mean that each man may do exactly what he pleases,-nor
does it mean a control of the policy of industry (now in the
hands of capitalists, chiefly bankers). By 'policy' we mean
the determination when and what commodities shall be made
and which manufacturer or guild shall make them.
    The problem of industry, then, has two aspects-first:
the method of distributing wealth; second, the method of its
social production. Nationalisation solves the first, socialisation
solves both. The first involves the problem    of differential
rent and profit. Of any given utility, the quantity produced
is not directly proportional to the number of individual
standard hours of labor spent in its production, but-the
number of individual standard      hours being    constant-it
depends on the amount of assistance the worker receives from
natural and social forces. In other words, the quantity of a
utility produced varies directly with the quantity of social
standard hours expended in its production. It is just this
difference between individual and social values that constitutes
the chief problem in distribution.
     Let us again state it, in its simplest form* preferably in
terms of differential fertility. One field will produce ten,
another fifteen bushels of wheat, with precisely the same
labor-the difference in return is due solely to "natural
fertility."
     Let either parcel contain the same number of "individual
standard hours," as 5; then either producer receiving 5 "S.H.
notes" has the just price of his labor, for social justice
requires that he be paid the equivalent, not of the actual
produce which may result from his labor, but of the labor
itself-neither more nor less. The total produce is 25 bushels-
the total cost 10 S.H.-the average cost per bushel * S.H.
(  S.H. in the one case, A S.H. in the other). This then (% S.H.
per bushel) is the social value of the wheat and the just price
to the consumer. If the wheat is sold at this figure it means
that as ':"the consumer'" is in reality the community as a whole,
the entire difference due to "natural fertility" is returnable
and returned to the community in the form       of a net price
which retrieves exactly the true cost of production. And social
justice is satisfied.
     But as the community has rights against and claims upon
 its individual members-for services rendered-to meet these
 the price to the consumer may be raised to, e.g., the true cost
    * Such factors as rent, margin of cultivation, etc., emerging under the
 existing system, are obviously not here present.


201






FROM CAPITALISM TO FREEDOM.


of production of the more costly parcel of wheat, i.e., to
J S.H. per bushel. The total produce, 25 bushels, sold at
i S.H. per bushel, leaves, after payment as before of 5 S.H.
to either cultivator, a balance of 2. S.H. If this balance is
retained by the community, and expended solely on communal
services (in which all individuals, including the cultivators,
participate equally) social justice is again satisfied, the pro-
ducer has received, and the consumer paid, a fair price.
    (Thus the problem requires for its solution a social or-
ganisation which shall intercept the entire difference due to
"natural fertility" and use it for the benefit of the community
as a whole. Private ownership in the instruments of produc-
tion is abolished, the community is its own landlord and its
own capitalist and the competition of the market replaced by
an intelligent control of prices. In a word, the solution is
communal ownership and the nationalisation of what under
the present system is differential-rent and profit: because what
holds for differential rent in primary production holds equally
for differential profit in manufacture.
    The second aspect of the problem, self-government in in-
dustry, cannot be so briefly dismissed. Here we have to do
with two questions, which in themselves distinct cannot in
practice be kept wholly separate, the means by which a change
is to be effected and the machinery by which the new system
is to work smoothly and efficiently. It is clear that there must
be a real-no mere sham-democracy not only of civil govern-
ment, but also of industry; that there must be not political
freedom only, but economic freedom also. But while there is
general agreement as to the goal to be attained opinions differ
widely as to the means. And of these notice is here due. There
are those, for example, who announce that "the world is
moving spontaneously towards economic freedom," and by
implification require of us a policy of masterly inactivity.
This, however, is merely to restore the old doctrine of laissez-
faire, a doctrine which, if comforting to those who are well
off, has long been discredited and is, in industry at any rate,
wholly obsolete. It was given, by the "Manchester School," far
more than a fair trial, with results disastrous and nearly fatal.
     Others again are strong for "meliorism," by which some-
what barbarous term we are to understand a gradual lightening
of the chains of wage-slavery as circumstances and time shall
allow. And there are many who look hopefully to this policy
of opportunism; in contrast with whom are advocates of a
directly contrary method, which by aggravating the evils
would increase the disease until the patient should in despera-
tion "make an effort" and throw off the incubus once for all.


202






EVOLUTION OR REVOLUTION.


    A more serious attempt to solve the problem is by the
method known as State Socialism. That method, it must be
admitted, is a partial solution. It solves the first aspect of the
question, the problem of the distribution of wealth, if by
State Socialism is meant the absolute ownership by the com-
munity in common of the instruments of production; but it
leaves the problem of freedom or self-government in industry
untouched. Unfortunately there exists to-day a spurious State
and   Municipal   Socialism  purporting   to  nationalise  or
municipalise certain industries or services, which so-called
'Socialism' constitutes in reality the last refuge of capitalists.
State railways, State industries of various kinds, municipal
services, gas, water, trams, electricity-all are examples of
this spurious Socialism, which is in reality State Capitalism.
It may be well to describe more fully a typical case such as
the 'State' railways of Australia.      These railways are
nationalised but they are not socialised, and they certainly
are not owned by the people of Australia, who, in fact, only
hold the equity of redemption. They belong-except nominally
-to the British capitalists who advanced the money which
enabled the railways to be built.     The "Government" of
Australia merely acts as managing agent for these capitalists,
and guarantees and collects the interest-payment agreed on.
In this game the capitalists are "on a good wicket" and score
heavily. It would in fact save them a lot of trouble if that
kind of "nationalisation" became universal. To the burden
of interest are added bureaucratic inefficiency and lack of
business experience. Political intrigue is rampant, and rail-
ways which cannot "pay " are built to enhance the value of
land held by political supporters. While in theory the com-
munity gains the difference between the average rate of profit
and the rate of interest at which the money for construction
was borrowed, in practice this saving is more than absorbed
in the betterment of employees. For this advantage--and
this advantage only-the State railways of Australia may
claim that, viz., they are of greater benefit to the community
than private railways. Unfortunately, this spurious form of
Socialism-more properly State Capitalism-has condemned all
Socialism in the eyes of a great number of people who mis-
takenly imagine that it is the Socialism they are asked to
support.
     Nationalisation in the form of State Capitalism has for
years paraded as Socialism. In Australia the State railways
(already mentioned), the Commonwealth Bank, and the Com-
monwealth Shipping Line are all State industries. The two
latter concerns made at one time enormous profits. Were


203






FROM CAPITALISM TO FREEDOM.


the workers benefited thereby?     Certainly not-these profits
merely reduce the taxation imposed on local capitalists. Only
in so far as the State gives more constant employment, better
wages and better conditions are some workers benefited, other-
wise the benefits pass into, or remain in, the pockets of
capitalists. But a real State Socialism, one in which it is not
necessary to pay interest or rent to private persons, does not
solve the problem of freedom; it only leads to the Servile State,
it does not give self-government in industry.
    This fact is beginning to be recognised. Mr. Plumb, for
instance, proposed that American railways should be adminis-
tered by fifteen directors, five to represent the public, five
the officials and five the employees. The proposal is interest-
ing because it recognises that employees should have a voice
in control, and also the fact that the "State" is not fitted to
manage industry.    The proposal, however, should admirably
suit the capitalist because it guarantees his "interest."
    Self-control* in industry or industrial autonomy is an
idea which, though familiar to a certain class of thinkers, has
hardly yet impressed itself upon the consciousness of the
general public. Exactly what it means will be made clear
in the next chapter.
    IThe idea of self-control in industry is also brought out
in the evidence of a working miner, given in Australia, before
a Commission of Inquiry into working conditions in coal mines:
"He did not think the mining industry could be carried on
satisfactorily while the mines were in private hands.       The
miners objected to nationalisation in the ordinary acceptation
of the term, as they would still be working for 'wages.' They
objected to being corrupted by officialdom and believed that
State Capitalism meant the Servile State. He thought it essen-
tial to the success of the industry that the workers should have
a voice in the control."
     Nationalisation-which is really State Capitalism-fails
because (a) it does not completely solve the economic problem
but merely saves to the community the difference between profit
and interest, or, in the alternative, improves the standard of
comfort of its employees, and (b) because it leaves entirely
untouched the matter of economic freedom. Even State
Socialism  fails to provide a satisfactory    solution, because
although we grant that it can secure communal ownership of
all the instruments of production and so sweep away most of
    *Control of industry may denote three entirely different things: 1.
Technical control. 2. Control of policy. 3. Control of conditions of service.
A general has complete technical control of his army, he decides how they
shall fight; but an Emperor, or Cabinet, or ruling class decides on the
policy of war, when to fight and whom to fight. Technical control should
be in the hands of experts: control of policy in the hands of the nation
as a whole: control of conditions (to some extent) in the hands of the
workers.


204






EVOLUTION OR REVOLUTION.


the evils of private ownership, it also leaves untouched the
question of economic freedom. It is an obvious-and just-
criticism that many reforms lead directly not to Guild-but
to State-Socialism.    Unless, however, the full scheme of
Guild Socialism is to be established suddenly as by a coup-de-
main,-and that would involve some more or less violent
measure of expropriation,-we may well be content with (at
first) a gradual socialisation of industries even though this
brings in its train a temporary and passing stage of State
Socialism. We cannot rest in State Socialism, but we may
accept it as an intermediary, perhaps inevitable, to the per-
fected form of social organism. It is at least half way to the
goal of our ambition-it assures social ownership.
     If then the various methods discussed are all in greater
or less degree insufficient wherein does the true solution lie?
It lies, we believe, in restoring one of the forms of industrial
organisation which, as we saw in our historical retrospect,
had evolved naturally in the development of industry, but in
"restoring" it in a perfected type modified and adapted to
suit modern conditions:- in a word, it lies in Guild Socialism.
For under Guild Socialism not only would the whole of the
instruments of production, distribution and exchange be owned
by the community and by, the community as a whole, but full
provision is made also for assuring self-government in in-
dustry, or (as we have sometimes called it) economic freedom.
     These terms deserve a word of explanation.
     We have defined freedom-in a social State-as the com-
plete and harmonious adjustment of individuals to each other
and to society, for their mutual benefit. Adjustment neces-
sarily implies limitation. Already and in every conceivable
state individual action is limited by material conditions. It is
also limited by social conditions-social conditions which, in
any case, have been imposed by a class. Modern industry is
essentially social-only by men working together can the best
result be achieved. Limitation, both material and social, must
remain, but freedom consists in each individual having an
equal voice in fixing these limits. In other words, industry,
to be free, must be made democratic.
     If we have, for the moment, sufficiently defined the end in
view we come to the important question: How in general terms
is that end to be attained? By Evolution or by Revolution?
And what is the exact meaning of those words?
     Marx, in a fine passage which reads like the "inspired
 utterance" of one of the Hebrew prophets, sums up the situa-
 tion and foretells the result:-
    As soon as the laborers are turned into proletarians, their means


205








206         FROM CAPITALISM TO FREEDOM.
of production into capital, as soon as the capitalist mode or production
stands on its own feet, then the further socialisation of labor and the
further transformation of the land and other means of production into
socially exploited and, therefore, common means of production, as well
as the further expropriation of private proprietors, takes a new form.
That which is now to be expropriated is no longer the laborer working
for himself, but the capitalist exploiting many laborers. This expro-
priation is accomplished by the action of the immanent laws of
capitalistic production itself, by the centralisation of capital. One
capitalist always kills many. Hand in hand with this centralisation
or this expropriation of many capitalists by few, develop on an ever-
extending scale the co-operative form of the labor process, the con-
scious technical application of science, the methodical cultivation of
the soil, the transformation of the instruments of labor into instru-
ments of labor only usable in common, the economising of all means
of production by their use as the means of production of combined,
socialised labor, the entanglement of all peoples in the net of the
world market, and with t'his the international character of the capital-
istic regime. Along with the constantly diminishing number of the
magnates of capital, who usurp and monopolise all the advantages of
this process of transformation, grows the mass of misery, oppression,
slavery, degradation, exploitation; but always increasing in numbers,
and disciplined, united, organised by the very mechanism of the process
of capitalistic production itself. The monopoly of capital becomes a
fetter upon the mode of production, which has sprung up and flourished
along with and under it. Centralisation of the means of production
and socialisation of labor at last reach a point where they become
incompatible with the capitalist integument. This 'integument is burst
asunder. The knell of capitalist property sounds. The expropriators
are expropriated.

     All through the ages the spirit of man has been seeking the
light of self-consciousness. Less and less he remains a mere
automaton-a mere creature of reflex action, of superstition,
of custom, of imposed law. More and more he begins to under-
stand, to reason, to know, to will.
     As a new factor in industrial evolution, conscious mutual
aid-combined action directed to a clearly defined end-begins
to take the place of the unconscious social adjustment of the
past-an adjustment due to the pressure of economic conditions
on   individuals and    classes-a   pressure whose cause was
unrecognised. The man and the society both felt that some-
thing was wrong, but did not know what that something was.
That is still the position of many people-they recognise that
something is awry, yet they are beginning to know what that
something is, but when they do know we may expect conscious
action. To a certain extent a beneficent social adjustment
may take place as Adam Smith supposed; some approach to a
working model may be arrived at by practice, but it is only
when the principles are understood on which the model works
that a perfect model can be made.
     Here then we have the means by which the transformation
of Capitalism into Guild Socialism is to be effected, viz., the






EVOLUTION OR REVOLUTION.


workers themselves, "always increasing in numbers, dis-
ciplined, united, organised"; in other words, it is to trade
unionism that we must look for the emancipation of the world
from Capitalism.
     "Who would be free themselves first must strike the
blow." But only when the time is ripe, only when the few
capitalists have killed the many, when huge monopolies have
concentrated and organised industry. And in the meantime
"reform," by all means reform, if we wish to escape a destruc-
tive revolution. Reform makes for intelligence  and intelli-
gence for a constructive revolution-repression enslaves and
results in a destructive revolution.
     Evolution and revolution are terms which may denote
merely different degrees and rates of change. When we speak
of the evolution of industry we mean a slow and gradual
change: by revolution-the industrial revolution-we mean a
rapid and what we call fundamental change, one of De Vries'
periods of mutability. That is true of constructive revolution.
But it must be confessed that revolution has another meaning-
a change may simply be destructive. Instead of a new in-
tegration, we then have disintegration. Some people imagine
that a social revolution must inevitably result in Socialism:
that is not our view. Revolutions may be either destructive
or constructive. Socialism must be worked for, thought for,
prayed for; if necessary, fought for. The rule is clear: a
majority may justly use force to prevent the execution by
force, of the will of a minority. The call is to every man to
be up and doing, and the first thing to be done is to spread
the light of knowledge.
    Nature has her constructive revolutions. Not only may a
species have its periods of rapid change and mutability: they
occur also in the development of the individual. Not only does
the embryo rehearse the story of evolution, but 'revolutions'
persist in later life. The child is born, the child becomes a
man or woman, the woman ceases to be capable of bearing
children. The chick breaks its shell; the chrysalis becomes
a butterfly; the tadpole becomes a frog. Constructive revolu-
tion is but a phase of evolution.
    Seen in the light of evolution, and indeed in the light of
history-what do we find and what may we expect? An in-
creasing complexity by a growing specialisation of function
among the parts of the whole. Each national society has at
present a political organ-parliament-which is every day
developing more definitely an executive-an administration
of law as distinct from a making of laws.


207







,208        FROM    CAPITALISM      TO FREEDOM.

     But as yet society as a whole has no economic* organ.
We may-we must-expect the development by society of an
economic organ, and in Trade Unions we see the embryo of
such an organ.
     By analogy we may say that at present the directing brain
of society consists of only one lobe-the political lobe; the
economic lobe is rudimentary or entirely missing. Yet if the
conduct of society in the economic as well as the political
sphere is to be intelligently directed such a lobe must be
developed. In politics we consciously direct our course, and it
is to consciousness as a force in economic evolution we must
look for future economic advance. And when the economic
lobe has been developed the two lobes must be co-ordinated.
The second lobe, i.e., the second House, will be a Trades Con-
gress, and in cases of disagreement or difficulty the two
Houses must sit together. The political "State" represents the
whole of the consumers, and may still be elected on a geogra-
phical basis; the economic congress would represent the pro-
ducers and be elected on a trade or guild basis.
     Indeed in some recent constitutions, the Irish Free State
and the constitution of Germany, for example, Economic Coun-
cils. and Political Councils are associated. Article 165 of the
German Constitution (A.D. 1919) reads as follows:-
    . The District Workman's Councils and the Federal Workman's
Council meet, for the accomplishment of all economic tasks, and for
co-operation in the execution of social laws, with the representatives
of the employers and other sections of the nation concerned, to form
District Economic Councils and a Federal Economic Council. These
Economic Councils shall be so constituted to represent all important
groups of occupations, in proportion to their economic and social im-
portance.
    Drafts of laws of fundamental importance, involving social and
economic policy shall be submitted by the Federal Government to the
Federal Economic Council for approval before they are actually brought
forward. The latter has the right of proposing such bills itself. Should
the Federal Government not approve of them, it must nevertheless in-
troduce them into the Reichstag, with a statement of its own views
The Federal Economic Council may present its proposals to the Reich-
stag by one of its own members . . .-From     the official English
translation.
     The black type is mine. Here we have, at least, the be-
 ginning of an economic congress, with a right of consultation
 and a power of initiative.
    *The relations of men to each other in society are not merely economic
 they are political also. Laws of marriage, of conduct, of personal obligation.
 "Thou shalt not kill"; "Thou shalt not commit adultery": "Thou shalt
 not exploit" are not economic, or purely economic, commands. Their
 sanction is the higher life of society.






FREEDOM.


                            XVI.



                       Freedom.


    It has been necessary, even at the cost of some repetition,
to bring together in a comprehensive survey the defects of the
capitalistic system and the evils an injustice to which it gives
rise. For we must have before our eyes a full and fresh realisa-
tion of the errors of the past if we are to propound in exchange
a system of dealing with the production and distribution of
wealth which shall replace inefficiency by efficiency, injustice
by justice, discord by harmony, tyranny by freedom. The
social problem is far from simple, but its solution will be
rendered the more easy if it is borne in mind that it has two
parts or aspects, the one economic, the other political. And
let it be frankly admitted at the outset that it may not be
possible to follow out the solution to be offered into so
detailed a treatment as has marked our criticism of the existing
sy; tem; for, as is obvious, no plan of what we aim to do
to-morrow can by the nature of the case be as meticulously
precise as the history of what we have done to-day. But it
will be possible to present the solution with precision and
detail sufficient to convince the reader that a problem of prac-
tical politics has been dealt with in a practical manner.
    A guild is an association of workers, a kind of glorified
trades union. It is, at present, almost impossible for many
people to overcome their active or latent prejudice to the name
of union, but the guild of the future, involving everyone in
its ranks, will be a very different thing from existing trade
unions. Let such people, if they are professional men or em-
ployers, think of their own associations; if financial men, of
their directors' meetings and conferences. Doctors, lawyers,
engineers, civil servants, retail traders all have their unions,
call them what they will.
     Several detailed plans have been set forth to embody the
principles of guild Socialism: one has been worked out by
N


209






FROM CAPITALISM TO FREEDOM.


Mr. G. D. H. Cole, but such schemes are purely tentative and
at present chiefly useful as a reply to impatient critics who
exclaim, "Exactly what do you propose?" and who are, in
most cases, found to be unwilling, to listen to, much less ex-
amine, detailed proposals.    Experience would immediately
modify them, even if they could be put in force; but in any
case we have not a tabula rasa, and, as we know, guild Social-
ism, if it ever comes into being, must grow out of existing
conditions. It seems better, then, to confine ourselves to the
principles of guild Socialism.
    As a higher form of industry than Capitalism we may
expect guild Socialism to exhibit a still more pronounced
specialisation and, more especially, a stronger co-ordination,
because it is in integration that Capitalism is conspicuously
defective. Administration will be distinct from the Executive.
Committees will determine the policy of industry. The execu-
tion of definite duties will be in the hands of individuals. The
sphere both of committees and individuals will be specified
and clearly defined." Technical investigation will be in the
hands of experts: team work will, however, be possible, but
will be co-ordinated-as all team   work must be. Everyone
will have a voice in determining the conditions and surround-
ings of his work, and be able to choose the kind of work he
prefers.
    The guild may be compared to a democratic army in which
the privates select the sergeants, the sergeants the captains,
the captains the majors, the majors the colonels, the colonels
the generals, and the generals the commander-in-chief. Once
the executive has been selected orders flow in the opposite
direction. So too on the administrative side which determines
industrial policy. Shop committees will be elected by those
who work in the shop: works committees by those engaged in
the works: district committees by workers of the district;
national committees or economic councils by all the workers in
the nation. The functions of such bodies will be limited to
action in their respective spheres, subject always to the next
higher authority. Thus would a real control by the rank and
file replace the existing autocracy in industry, and lead to a
real, instead of a sham, democracy, not only in the policy of
industry, but in social policy also.
     As the guild is the unit of this democracy of industry
it may be well to show how the entire working population
may be grouped in harmony with it.
     S. G. Hobson, in his "National Guilds," when dealing with
the number and kind of guilds likely to be formed, suggests
some twenty-two and says, speaking of Britain:


210








                          FREEDOM.                           211

    According to the 1901 census, the number of occupied persons
was 18,261,146, out of a total population of 41,458,721.... These figures
     give us a fairly clear conspectus of the problem of organisation
that the guilds must.solve.
                                                      Number
                  Class                               occupiers
     1. Civil Service-General and Municipal..............253,865
     2. Defence (excluding those abroad)...............203,998
     3.Professional and Subordinate Services...........733,582
     4. Domestic Services .............................2,199,517
     5. Commercial Occupation.............  .......    712,465
     6. Transit.......................................1,497,629
     7. Agriculture .......................... ....2,262,454
     8. Fishing.................................        61,925
     9. Mines and Quarries (in and about)................943,880
     10. Metals, Machines, Implements, etc...............1,475,410
     11. Precious Metals, Jewels, Watches, Games.........168,344
     12. Building and Construction......................1,335,820
     13. Wood, Furniture, Fittings and Decorations.    307,632
     14. Brick, Cement, Pottery and Glass................189,856
     15. Chemicals .............................       149,675
     16. Leathers, Skins, Hair, Feathers-..................117,866
     17. Paper, Printing, Books, Stationery................334,261
     18. Textiles.......................................1,462,001
     19. Clothing......................................1,395,795
     20. Food, Tobacco, Drink and Lodging...............1,301,076
     21. Gas, Water and Sanitary..........78,686
     22. General and Undefined ...............        l,075,414
     These twenty-two groups, organised into guilds, would furnish at
any rate a provisional arrangement of the entire industrial activity of
the country.

     It.will be noticed that Mr. S. G. Hobson boldly includes
 agriculture amongstthe guilds.        Can, then, the existing
 breach between agriculture and manufacture be healed? Until
 it is healed the integration of society remains incomplete, as
 it has remained since the days of the ancient gens. (Even in
 the early manor -integration was not complete.) In England
 and other- advanced countries we believe it can be healed : in
 other countries, Russia for example, the division is too wide,
 the time is not ripe. To what extent a higher integration is
 possible, in manufacture alone, is an -open question. In the
 more advanced nations agricuture has, largely, become capi-
 talistic. In Australia the 'squatter' is passing ; every drought,
 every financial crisis reduces his numbers ; 'runs' are rapidly
 passing into the hands of comipanies and are worked by mana-
 gers. In some countries the introduction of costly machinery,
 such as. ploughs with many shares drawn by. prime-movers:
 large power-driven reaping machinery : the employment of
 'labor' to prepare the soil and reap the harvest: the growing
 necessity, in many cases, for large and costly irrigation works :
 the -establishment of rural banks and '.pools' for the better
 marketing of agricultural products-all point to the develop-






FROM CAPITALISM TO FREEDOM.


ment of communal action and the decay of individualism. In
these countries the time is ripe for guild Socialism.
    We have now set forth, in sufficient detail, a scheme of
the machinery of wealth-production and explained its organisa-
tion, and have shown how through industrial democracy eco-
nomic freedom is assured. Something is still to be said in
explanation of the working of the system and in particular of
its relation to civil government. Civil government is vested
in the National Parliament, and this body forms, with addition
of its executive officers, the entity we call "the State." Now
the State is not without a voice in industrial affairs; for, as
representative of the entire community, it is, in effect, the
owner of the land and capital of the country. Further, though
the National Trades-Congress represents all producers it does
not represent all consumers. The sick, the aged, children,
women (in part) and resident aliens-if they draw their in-
come from    other countries - are represented only in the
National Parliament. Some integration therefore of State and
Trades-Congress is required, and how that is brought about
will best be seen as we develop other working details.
    Thus, for example, a standard of value and a medium of
internal exchange are required.    For these we propose the
Standard Hour note. (Gold would still remain, in all prob-
ability, the medium of foreign exchange, and the standard of
international values.   It would liquidate the "balance of
trade.") Individuals would receive pay, not (in the present
sense of the word) wages, and the rate ot pay would be fixed
by social evaluation.
     Now, as has been already pointed out, the basis of the
Standard Hour is purely a matter of convention and solely
concerns the particular community which adopts it. But, the
basis agreed upon, how is the social evaluation of each man's
work not only in one guild but as between different guilds
to be made? And here we touch that integration of National
Parliament and Trades-Congress already desiderated. Firstly,
each guild would fix ratios for all its members. (Members
of the State Administration and Executive would form a guild
of their own for a like purpose.)  Secondly, Congress would
co-ordinate these ratios for all guilds represented by it. Par-
liament would do the like for its officers. And, finally, a
joint sitting of Congress and Parliament would fib the pay-
ment of all. Thus the functions of State and Trades-Congress
are integrated.
     Awards of pay would be subject, from time to time, to
revision; and this revision would be based upon the law of
supply and demand. For, as every man is free to choose his


212








occupation and the guild he prefers to work in, if certain
guilds attract too many workers the rates of pay in that guild
would be lowered, if too few, increased, until an equilibrium
was established. Thus by social evaluation direct and indirect
pay would soon reach a more or less stable basis.
    Again it would be necessary to fix prices: for products
are not directly proportionate to the r,~' ber of individual
standard hours they contain. The rich mine, the fertile field,
the industry employing the most or best machinery would still
yield a disproportionately great return, and yet all other mines,
fields, factories, might be socially necessary to supply all re-
quirements of the community. In fixing prices, as in determin-
ing rates of pay, "supply and demand" would furnish a
guiding principle. But if the price of some articles is, say,
raised, the price of others must be reduced: the pluses must
always be equal to the minuses: the amount realised from the
sale of the total goods (and services) produced must be equal
to the "wages" paid. Thus, the equitable distribution of
differential-rent and differential-profit, and the co-ordination
of inherent and exchange-value would be the work of "con-
gress" and of "its" officers appointed for that purpose. But
the fixing of the general level of prices, so as to yield a surplus
for communal purposes, would be the joint work of Parliament
and Congress. The variation of individual prices, plus and
minus, would not affect the general price level.
    The importance and, indeed, necessity of the integration of
Parliament and Congress-which for brevity's sake we may call
henceforth the "Congress-State "-are the more appreciated
as we realise more fully what is implied in the significant act
of price-fixing, which is in fact the crowning piece in the
whole structure of economic justice. The value of the goods
made by each guild must primarily pay the "true cost of pro-
duction." This consists of "maintenance" (i.e., depreciation
of plant used in manufacture) raw materials, and pay to the
workers, but includes neither private rent, profit, nor interest
(as it does under Capitalism). But the price of the goods
may vary from their value, plus or minus, by differential
profit or differential loss according as each guild, taken as a
unit of production, uses more or less than the average amount
of "natural or artificial advantages. Now under Capitalism
the difference (of possible profit) between the least advan-
tageously placed socially necessary industry and the most ad-
vantageously placed passes into the pockets of private indi-
viduals because no social organism has been developed to turn
value into price and retail the difference for the community
as a whole. But under guild Socialism the missing social or-


FREEDOM.


213






FROM CAPITALISM TO FREEDOM.


gan --which appears in a rudimentary form in syndicalism"-is
supplied and made perfect by the Congress-State. Conscious
and intelligent action by the Congress-State replaces the erst-
while blind play of economic forces, and prices are so fixed
as not only to pay to each industry the individual inherent
value of the goods it produces, but also to hold true the
balance of justice bltween all industries in the community,
and, if at such a rate as to retain a differential profit, then to
keep that profit entire ;for the benefit of the community as
a whole. But prices fixed in this manner to ensure a just
return to each individual worker would be subject to variation
from time to time to meet the varying and more or less fitful
demands of consumers, that is, the 'wages' paid guild workers
would not necessarily determine the price charged the con-
sumer.   Any profit or loss, however, resulting from    a mal-
adjustment of prices to values would fall to the community
as a whole. Thus is guild Socialism not only economic free-
dom but economic justice as well.
    Further, if, as is indeed advisable, in price-fixing more
or less of differential profit is retained, then in the fund so
created the Congress-State has the wherewithal to extend
existing industries and undertake new enterprises. It may
also elect to mete out this "surplus" State expenditure and
all forms of "free service": or, in the alternative, these may
be provided, as at present, out of taxation-it is purely a
question of convenience.
    In the new State 'free services' would be far more numer-
ous and varied than under present conditions. Naturally, the
services of all State officials would be free, but we may expect
to find the list extended to include, e.g., all members of the
Education   Guild, the Medical Guild     (involving  also den-
tists), probably the Guild of Artists. And here we are
reminded of a question too long deferred-what is to be
done with the "Economic Rent" of ability, how, that is
to  say, would    exceptional   ability be  remunerated    and
within   what   limits  should   its  possessor   receive  the
benefit? Abstract justice might reasonably demand that
exceptional ability if acquired should be paid for and that
inherited ability should be common property. But in practice
it would be found too difficult, if not indeed impossible, to
make such a distinction correctly, and relative justice would
probably be content, under guild Socialism, if, while the indi-
vidual guild fixed a high rate of pay for service of excep-
   *Under Syndicalism differential profits are retained by individual in-
dustries-an injustice to the community on the one hand, and to less advan-
tageously placed industries on the other. The organ which turns value into
price is partial, not social, and therefore defective.


214








tional ability on the part of its members it received a still
higher fee from those desirous of profiting by such service
and- retained the difference. This would be, admittedly, a
compromise-part of the 'economic rent' of ability would be-
long to the individual "star" (to borrow a convenient, if
somewhat colloquial term) and a part to the general com-
munity.   To any who might object that the incentive to
exceptional ability would be unduly diminished we should
retort that popular estimation would fully supply the de-
ficiency.
    The various 'free services'     and to those mentioned
might be added free passenger transport-together with State
expenditure on old age and invalid pensions, orphanhood, hos-
pitals, police, and similar objects, will require the provision of
a considerable revenue. This may be obtained solely by in-
creasing the price of commodities, or by taxation, or by a com-
bination of both methods. The matter is not vital-it is, as
has already been said, a question of convenience. We would
add merely that if taxation is preferred there is no just ground
for a sliding scale: a percentage on all incomes would be the
equitable method.

    We have now completed our brief survey of Guild Social-
ism and have shown how it, and it alone, offers the solution
of economic freedom and economic justice, that without it
political freedom is a sham. Many details are omitted from
a necessarily rapid sketch, but most of these the reader's
own intelligence may be ,trusted to supply.  One question
remains, and that of the greatest practical moment, how, viz.,
if Guild Socialism be the true solution, is the goal to be reached
and by what approaches? And here it must be recognised that
if society is a living organism, Guild Socialism must evolve by
natural growth and that only within certain (and narrow)
limits can the growth of a living organism be forced. We
hold, therefore, that the coming industrial reorganisation, if
it is to be permanent, must be evolutionary, but also that
conscious action by man is a necessary factor of that evolution.
Guild Socialism must grow-out of Capitalism, and out of
trade-unionism. The completed change will constitute a re-
volution, and to hasten forward the revolution is the traditional
mission of Labor.
    Nor need the word revolution excite dismay. We do not
forecast events comparable to the French Revolution or those
by which the Bolshevik rule was established in Russia, when
(as in the violent contortions of Nature, her earthquake and
volcanic eruptions) long pent-up forces suddenly find release


FREEDOM.


215






FROM CAPITALISM TO FREEDOM.


and the social order dissolves into chaos. What we see in
the future is a gradual and natural change culminating in
a final stage whose comparative suddenness and reversal of
a pre-existing order constitute a revolution-a peaceful re-
volution and a bloodless. It is the birth of a child. For long
months the child has developed in the mother's womb, nourished
indirectly by the food she eats and the air she breathes.
But there comes a crisis-the child is born, breathes for itself
and digests its own food. There has been long preparation,
but the event is sudden and the change complete. It is a
phase of growth. It is a natural revolution.
    Historians have concurred in naming the change in indus-
trial organisation which produced Capitalism an industrial
revolution. In a precisely similar sense do we and others with
us speak of a social revolution which will replace Capitalism
by a more perfect system.      As, however, conscious human
action is a factor in this evolution it is well to consider
briefly the nature of such intervention, the methods, more
in detail, of hastening and helping the birth of a new system.
Words of which so much is heard to-day, 'strike,' 'boycott,'
'direct action,' raise the question of force-what it is and how
far it is allowable. Clearly we are speaking here of political
force. Now since it is of the essence of democracy that the
will of the majority should prevail, and as continuous unanimity
in any community of men is unthinkable, any action of the
majority overruling the opinions of a minority must in greater
or less degree be of the nature of force. Further, the majority
may legitimately use force (in a fuller sense, here) to prevent
a minority from imposing (by material force) its will upon
the community. A minority has one legitimate weapon-and
one only - persuasion: but that weapon is its indisputable
right.* From these premises it follows that if Labor forms a
majority of the community, it may legitimately use the force
of law, the direct action of a strike, to resist and destroy
forcible exploitation by a minority. Force then is not, under
circumstances, an improper method; on the contrary, it is
justified if it is requisite to prevent the will of a minority
imposing on the majority of a nation, and is in fact implicit
in every action taken by a ruling majority.
     And now we may turn to consider by what practical steps
 Guild Socialism may be brought about, or at least, hastened.
 By history and tradition alike the task is assigned to Labor:
 but some divergence of opinion exists as to method. There are
 Guild Socialists who, like S. G. Hobson, would have Labor
 leave politics entirely alone, and devote itself solely to organ.
    *It is strange in this 20th century of ours to find this right disputed.


216








ising the "'One Big Union," which is to include all workers,
not the skilled artisan alone, but the so-called 'middle class'-
professional men, clerks, managers,-as well as the mass of
unskilled laborers. Others again hold that the first object of
Labor should be to capture the Legislature. Both views have
reason on their side:-neither is sufficient in itself. The attack
must be all along the line, no less on the political than on
the economic front.
    Minor issues set aside, two objectives loom up large and
palpable-democratic control of industry, communal owner-
ship of the means of production. In practice perhaps not
wholly separable, they are sufficiently diverse to be treated
individually. Democratic control (which is really self-control)
of industry it is Labor's task to secure. (In passing, we would
rule out "Syndicalism," which, aiming as it does at class
ownership, is a disintegrating force.) The first step will be
greatly to strengthen, enlarge and unite existing Labor Unions:
the next, by their means, to push more rapidly to a decisive
issue the "class-war" which is already being waged in all
capitalist countries. There are at least three prime needs.
First, all workers must be enlisted. This involves (a) a true
conception of what really constitutes a "worker," and this
once realised will destroy the existing-and most mischievous
-barrier between "Labor" and "Middle-class," whose inter-
ests are in reality almost identical, (b) (and this is in effect
a corollary) the adoption of the principle of "solidarity."
Though sectional jealousy is still rife in Labor circles, it is
slowly passing, and the ultimate triumph of "solidarity" is
assured.
     Secondly, the army once enlisted, provision must be made
for adequate training, equipment and direction. As yet, e.g.,
the "One Big Union" is little more than a crude though fer-
tile idea.
     And thirdly, the commissariat must be organised. For
this Labor must look to the Co-operative Store movement
which, well advanced in England, Denmark, Italy and (to a
less degree) Germany, is reaching high-water mark in Belgium,
where its development since the war merits the epithet phe-
nomenal. America, France, and Australia on the other hand
are here notably deficient.
     Nor must Labor look for victory solely to one final coup;
the class struggle must be continuous. Every fair means must
be adopted, every 'concession' accepted; but the moral sense
of the community should be educated-not violated.        Sec-
tional advantages may be won by 'raids,' but these raids merely
assist and prepare for the general attack and keep the army


217


FREEDOM.






FROM CAPITALISM TO FREEDOM.


drilled, disciplined and 'fit.' Final victory is brought nearer
by the seizure of strategic points, and it is not too soon to
establish democratic control and communal ownership of--for
a beginning-mines and railways. Guild Socialists, however,
with every reason, refuse to pay 'money down' for industries
communally    acquired, objecting-and     rightly-that   this
would merely substitute State Capitalism and so perpetuate
wage-slavery. But, with a legislature captured for reform
enacting democratic control and communal ownership, com-
plete payment of capital and interest to, e.g., holders of railway
stock, could be made in, let us say, 20 equal yearly amounts,
the money being raised by increased taxes-on a sliding scale
-levied upon land and income. 'Capital' ownership thus ex-
tinguished, fares and freights could be lowered and wages in-
creased in proportion to the load of interest removed from the
shoulders of those who use the railways.
    Insensibly, but inevitably, in discussing methods for estab-
lishing democratic control of industry we have been led to
impinge upon the second of the two problems-how, viz., com-
munal ownership is to be effected. Now while it is for the
Labor Unions to contend for the control of industry, the fight
for communal ownership is the business of the consumers, the
business therefore of all members of the community, of society
as a whole. It can be won by capturing the Legislature, and
that in all democratic countries is a step neither difficult nor
distant. It has been accomplished in Australia.
    Assuming then a legislature ready to enact communal
ownership, we have to consider by what direct methods it is
to be brought into being. The expropriators must be expro-
priated-but how? In any case we must expect the words:
robbery, spoliation, confiscation, repudiation, to be used by the
expropriated who will indignantly appeal to justice. If Justice
uses the words: restoration, restitution, reparation, taxation,
they will not be understood. The system of private ownership
in the instruments of production must go immediately that
system is clearly understood by the bulk of the people. The
plunderer has a legal and vested right to plunder. To cause
that plunder to cease is to be called a plunderer. Nothing is
to be gained for either side by each calling the other names.
At present exploitation in the form of private rent, profit, and
interest is legal: make such rent, profit and interest illegal and
immediately exploitation becomes robbery which law and order
may be invoked to prevent. "The welfare of the people is the
supreme law."   If necessary the few must suffer for the good
of the many--but there need be no suffering. Guild Socialists
propose to pension off capitalists, the pension to last for two
generations. The proposal is not only just, but merciful.


218








    It must never be forgotten that capitalists are mere
creatures of circumstances, and not criminals. It is only right
and fair that the 'revolution' should be made as easy for them
as possible, but 'revolution' there must be. The difficulty is
in the first step to be taken, in all probability before the real
position is completely understood.
    Some compromise will probably be necessary if the change
is to be made by a peaceful revolution. To that end we com-
mend our taxation proposal (see page 193) in, perhaps, a less
drastic form at first. But details after all will settle them-
selves if the underlying principle is understood.
    We have pictured the land of promise, we have surveyed
and measured the roads by which we may travel to it: many
of us may not enter in, but others will.
    With the integration of the community in Guild Socialism,
combining completeness of democratic control with full eco-
nomic freedom and a real political democracy, the evolution of
the social organism stands accomplished. There remains a
still higher integration far, as yet, in the future, but certain of
fulfilment-the international control of industry. With that
we have not to deal. It must suffice merely to say that the
same principles of justice which we have evoked in arguing
the case of "the man versus the State" stand good when the
case of "the nation versus the world" is considered. If the
omen of the League of Nations does not mislead, political inte-
gration must precede economic. But the time will surely come
when the interdependence of nation upon nation will be fully
recognised, the stupidity of war acknowledged, and the force
to prevent force be found in a supreme World-Government.
Government by an aristocracy has failed. Government by a
plutocracy has failed. Power, political and economic alike, is
passing into the hands of the people. And therein is the
promise of a better and a nobler age. "Democracy is sudden
like the sea, grows dark with storms and sweeps away many
precious things; but like the sea, it reflects the light of the
wide heavens and cleanses the shores of human life."


FREEDOM.


219








220          FROM CAPITALISM TO FREEDOM.







                         Appendix.




                   EXPLANATION OF TABLES.
    A period of 80 years of Capitalism  has been considered. One
hundred men are assumed to work 8 hours per day. Each man is
assumed to be an 'average' worker and the value of each man's work
is taken as standard, so that one natural hour of work is one Standard
Hour.
    The total output is, therefore, 800 S.H. per day.
    Since all use the same amount of machinery and form one organ-
isation the "individual" and "social" standard hours are the same, viz.,
800 per day.
    Each unit product-each pound, or yard, ounce or inch-is assumed
to contain 1 S.H. in the zero year. With the growth of "capital,"
however, unit products contains a smaller and still smaller fraction
of 1 iS.H.
    ,The 800 S.H. may be taken to represent any period-a day, a month,
or a year.
    Real wages are paid in commodities, and in the zero year (assump-
tion 3) the wages per hour for 100 men are 700, or 7 articles per man
(see column 7, Table of Quantities). In the 80th year real wages
(assumption 4) are 700 + (80 x 2% of 700)=700 + (80 x 14)=1820.
It is in this manner that column 7 in the table of quantity of products
has been calculated. The total number of commodities produced in the
80th year depends largely on the quantity of 'plant' used.
    By assumption (3) the capitalists' share of the commodities pro-
duced in the zero year is one-eighth of 800=100, and of this amount
31 % is set aside each year as capital, and the total capital is increased
by 3A per cent. of the previous capital; in the 80th year, therefore, at
3z per cent. compound interest this 100 * amounts to 1468, and one-
half, or 734 is 'plant.' Then by assumption (8) we have for the total
quantity of commodities produced: 800 x 10 (734)=8140. In this manner
column 13 of the table of Quantity of Products is calculated, of this
total, 8140, 1820 is paid in wages, leaving 6320. Out of this amount
(6320) 3717 goes to replace raw material and 371 to replace worn-out
plant, leaving a surplus of 2232 to the capitalist. By assumption (5)
plant and raw material is increased each year by 31 per cent. The
capitalists must therefore save 32 per cent. of 7434 (3717 + 3717) = 260
daily in the 80th year, leaving a net income in consumption goods of
2230 articles, pounds or yards, etc., of goods per day.
    In this manner the table of quantities is calculated. The table gives
daily or yearly quantities. (If 300 working days per year are assumed
the yearly results are obtained by multiplying by 300, but since the
ratio is constant, the daily results may, for our purpose, be taken as
yearly results.)
    The table of 'labor time' is similarly calculated. The total daily
time is eight hours and the daily products (column 13) are in the









                            APPENDIX.                             221

80th year 8140, i.e., (C=4088) +   (V=1820) +  (S=2232)=8140.   Of
these products the workers receive 1820. Thus the time required to
                            1820
produce their own wages is -  of 8=1.79 S. Hours per man. (In the
                            8140
zero year it was 7 S. Hours.)  To replace the constant capital, raw
and partly finished material and worn-out plant, 4088 goods are re-
                                                                  4088
quired (column 6 of table of quantities), and to make these goods -
                                                                  8140
of 8=4.02 hours per man are required. This is the necessary return
of capital and is quite distinct from the unnecessary return to capi-
talists. If, however, production is to continue to increase at the rate
of 3j per cent. per annum, 260 goods must be saved; the work of a
quarter of an hour per man per day. The balance of the time in the
80th year is 1.94 hours per day per man, and is occupied in producing
the 1972 daily consumption goods, or surplus products which are taken
by the capitalists as their net income.
    Thus the whole of the workers receive 1820 consumption goods and
the whole of the capitalists 1972 in the 80th year.
    The table of values shows the value, that is, the number of S. Hours
of labor, present and past, embodied in the goods. In the zero year
each uit of goods costs and is of the value of one S. Hour. In the
80th year the cost per unit has fallen to .197 S. Hour; thus the quan-
tity of goods increases much faster than the value of the goods, and
it is the quantity of goods that counts in the welfare of a community
or nation. The total value of the daily output in the 80th year is 1607,
therefore that quantity must be divided in the same ratio as the
                                 2232
goods, thus the surplus value is -    of 1607=441, and in this way all
                                 8140
the other values are obtained and tabulated. The present labor, it
should be noted, is constant at 800, but the past labor gradually in-
creases from zero to 807 in the 80th year. The inherent value of an
article consists in the total labor (present or past) embodied in the
article, or in the 80th year to 800+807=1607 S.H.
* These 100 commodities or 100 S.H. may be represented by 100 sovereigns






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224


80     8.00
75     8.00
70     8.00
65     8.00
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55     8.00
50     8.00
45     8.00
40     8.00
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VV


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2.06
2.22
2.30
2.34
2.40
2.35
2.28
2.13
1.98
1.82
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4.02
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5.22
5.66
6,06
6.38
6.66
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H


11.9    80
127     75
13.9    70
15.2    65
16.7    60
18.4    55
20.4    50
22.5    45
25.3    40
28..3   35
31.5    30
35.6    25
39.6    20
44.1    15
49.1    10
54.8     5
60,0   Zero


     FROM CAPITALISM TO FREEDOM.
















DISTRIBUTION OF LABOR TIME.

                8 HOUR DAY.


4-J


--------------- -'








                            APPENDIX.                            225


                  FREE TRADE v. PROTECTION.
    Just now-the closing months of '23-it looks as though the old
capitalist parties in England, the old 'Liberal' and old 'Conservative'
(manufacturers and landlords) may succeed in drawing that red herring,
the fiscal issue, across the path of the British Labor Party. If a coo-ee
from Australia can 'be heard across the world, however faintly, let
Labor beware. Forty (and more) years ago this millstone kept the
Australian Labor Party submerged, and it was only when they cut
themselves free of it that they rose triumphant. If the British Labor
Party does not sink the fiscal issue, the fiscal issue will assuredly
sink the party.
    How confident we free traders were in the old days! The Angel
 of Peace was to descend on the earth clad in untaxed Lancashire
 cotton: artificial national barriers were to be thrown down: other
 nations we believed would hasten to follow our noble example: and
 when they did not, it was with condescending pity, more in pained
 surprise than in anger, that we regarded their blindness. We had seen
 the vision splendid; why were they so blind? Perhaps after all our
 eyes were clearer and our practical commonsense was greater (!) than
 was the case with other nations. In plain English, the other eleven
 jurymen were (and are) excessively stupid.
    How the old 'Liberals' must now rejoice scenting the familiar
battle ground again. 'A free breakfast table': 'taxing the people's food':
what glorious battle cries and what a splendid split in the ranks of the
Labor Party, half-two-thirds-of    the  party  trooping  back  to
the ancient and comfortable dug-outs, once more to fight under the
glorious banner of freedom and laissez-faire. Again we hear the old
victorious shout, "Let each country produce what it can best produce
and freely exchange goods with its neighbors, thus reaching at one
bound the harmony of a united world." Have we not heard the voice
of the charmer?
    By this time it should be clear that neither free trade nor protection
are of lasting benefit to the workers. Whether the breakfast table is
taxed or free matters not one iota. Wages must buy the scanty meal,
and if costs are high wages must be correspondingly high, real wages
must keep body and soul together, and that is about all they will do
under the present wage-system. Of course there may be no wages at
all. Protectionist America has had her two millions of unemployed,
free trade England her million (a percentage rather in favor of
America). If there are no wages, then let Labor fight to increase the
dole and cease its stupid opposition to taxation. 'Tax the rich' should
be the cry.
    When England was the workshop of the world, free trade was her
best policy. When she is (as now) threatened with the loss of some
portion of her home market, protection is her best policy, but neither
will help the worker-much. It hlas been stated that Britain's home
market is twenty times as great as her foreign market; if so, the loss
of five per cent. of her home trade would be equivalent to the loss of
the whole of her foreign trade (including her Empire trade). The
importance of her home market is immense, and her home market may
be assured by protection. With protection and increased wages (real
wages) the home market and the comfort of Britain's workers might be
increased, but-fatal objection-the profits of her manufacturers and
capitalists would not be increased. Thus, so long as capitalists rule
the State neither protection nor free trade will greatly or permanently
improve the position of the wage-receiver. Reform must go deeper.
Let the British Labor Party concentrate on such reforms and let it
beware the fiscal issue.




Reader's Pencil Notes.












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