Class JfROl BookJ CopyrigtitN o>k3X CQEXB1GHT DEPOSFT. SCIENCE OF VALUE SOLVING IT BY HENRY RAWIE WILLIAMS & WILKINS COMPANY BALTIMORE, MD. Copyright secured 1920 By Henry Rawie MAY 20 1920 ©CU570067 PREFACE If the world is to advance to a larger civilization, that advance must come from new paths in solving labor and capital problems, come with the dis- covery of new truth, but new ideas are difficult to follow when the mind is called upon to go in the opposite direc- tion from accepted theory. Socialism and other systems of re- form for labor are based upon false theories and false beliefs, having a false starting point, and no right con- clusions can come from a wrong begin- ning. No true solution from a false premise. The false starting point, accepted without debate or question, asserts that Labor is the Cause of Value, that labor creates the value of goods and property, and therefore the only valid title to goods or property rests with 3 4 PREFACE labor, that any profit above labor cost is a robbery of labor. If this founda- tion is false that fact should be self evi- dent, new paths should appear and cor- rect solutions should follow from new discoveries in a new science. The true starting point is exactly the reverse of the accepted theory. Labor is NOT the cause of Value but Value is the Cause of labor. Value, when attaching to goods in the market, forces labor to work at tasks of every kind, creating food and shelter in every variety and quantity, building great systems of railways, electric lines and manufacturing. Value is a great inscrutable creative power of the Almighty. It is not cre- ated by labor, but it creates labor and directs labor in the way it must go to bring about civilization. Labor and capital is directed by natural laws of value, and is so directed by and through the circulation of money. Such laws PREFACE 5 constitute a science of value, which science when known will solve all our labor, capital and other distressing social problems. The manufacturer or merchant is held firmly to his business by the mar- ket price of the goods he sells; by the value that will attach to goods after they reach the market. The employer of labor is guided by the market price, his labor cost and the wages he pays must leave a margin of price above labor cost or he will not employ labor or bring goods to market. The natural laws which set values to different lines of goods in the market are laws that control, not only the wages of labor and profits of merchants but at the same time direct the forces of production in the way they shall go for the benefit of all mankind. CONTENTS Chapteb 1 Fatal Theories 9 Chapter 2 Cost of Living 23 Chapter 3 Capital 42 Chapter 4 Rotating Capital 57 Chapter 5 The Cost of Land 70 Chapter 6 Solving It 84 7 CHAPTER 1 Fatal Theories If you tell a sensible man you under- stand the " Labor Question" and know- how to solve it, he will turn and run away because theories of government have become like tales of an Albatross with thousands of crazy Ancient Mar- iners stopping every one to tell him the story. The whole civilized world seems to have gone mad with an insane desire to change our present civiliza- tion by some new and untried experi- ment. A sensible man will run in terror from the theorist who demands power to change the ownership of property, because he will know that for five thousand years of history the same kind of promise was followed by the most bloody results, making bad con- ditions worse. 9 10 SCIENCE OF VALUE Notwithstanding the failure of war to solve social problems; failures to re- lieve poverty and distress among the underpaid millions, notwithstanding the fact that within a hundred years the advance of science has given the vast majority of labor a higher standard of living than was ever dreamed about in olden times, in spite of progress and great wealth, the great majority of peo- ple are more discontented than ever before in the history of the world. The news coming out of Russia at this time, January, 1920, concerning the change of ownership in property, is such that any man whose opinion is based upon the facts, is forced to con- clude that Russia is suffering what no great population ever before endured. Instead of the theories of Lenine bring- ing a new and better order, conditions have for a long time been at the limit of human endurance, half the popula- tion is being rapidly killed off by dis- ease, starvation and murder. FATAL THEORIES 11 In face of what appears to be the undoubted facts about Russia, in spite of the cold murder of thousands of property owners because they own pro- perty, millions of people in other lands, workers and educators, uphold and support the Russian rule of murder, notably so in Great Britain, France, Italy and the United States. Lenine, in carrying Socialism to its logical conclusions, found he could not destroy the prevailing system of own- ing property unless he murdered and exterminated the property owners who might oppose his rule, and he is said to have ruthlessly carried out his theory of blood. According to that fatal theory the remedy is very simple, just abolish the ownership of property, and if the owner refuses to be abolished, if the small owner would combine with the rich owner, then every property owner must be exterminated to root out a system 12 SCIENCE OF VALUE called Capitalism by Russian and other fanatics. According to theory, when property ownership has been abolished, then government, free from the evil influ- ence of so called capitalism, will auto- matically give labor its natural rights and a paradise on earth must follow. Lenine destroyed the rich as a class, but included so many small owners that they could not combine to oppose his power, and his devoted followers all over the world, seeing the complete- ness of his work of murder, seeing there was no longer a rich class, find his theory carried out in actual practice, and believe a paradise for labor must necessarily follow, in spite of all the facts to the contrary. So anxious are the people of the world to finally solve the problem of unjust wealth, that no cost of blood is held too great a price to pay. Great numbers of people will not only sacri- FATAL THEORIES 13 fice their own lives to carry out a the- ory they believe will bring justice to labor, but will not hesitate at killing whole populations of men, women and children that would oppose them. No matter in what form government changed in the past, each revolution, and each advance or fall had the same underlying cause in the ownership of property, changing it from one class in power to another class who sought power. Modern discontent has the same tap root, the same desire to change ownership for the power wealth confers, but the modern world now de- mands a vaster change than ever be- fore, demands that ownership must either be entirely abolished or that wealth be justly distributed according to the services of labor for the benefit of mankind. The same economic cause is at the base of every war and revolution in the history of government, and it must result 14 SCIENCE OF VALUE from some great natural law at its base seeking a way by which wealth will at last be justly distributed to each as each contributes to the general welfare. Nature makes it plain to every man that he can live with the least work where the land is most fertile and where the climate is most favorable; tens of millions of animals, birds and fishes live on the free bounty of nature and millions of savages live without work. The fact that millions of men must work to the limit of endurance every day for a mere living which savages and animals get without work, and must do so after labor has created bil- lions of property values, is the cause of modern world-wide discontent. When populations of savages were forced into slavery by conquering tribes the work of cultivating the soil with slave labor was confined to the most fertile lands, because the least work FATAL THEORIES 15 would produce the most supplies. It soon became apparent that one half of the working population could supply- all the people with an abundant living, and abandon the poor lands to sav- ages, or to become wild land. When fertile lands become private property, the owners became a rich class getting their power from the fer- tility of soil by which they were able not only to control the labor that must work upon the land, but also the labor cut off from the land that must have other work and live from the surplus of the fertile soil. The introduction of money took away this power over labor from the mere land-owner and forced a division of that power with merchants, with other employers and with the banker and money lender. Gains arising to all employers of labor, out of the fer- tility of soil, from the circulation of money, made the factors of production 16 SCIENCE OF VALUE and wages most perplexing, because the use of money increased occupation of labor from the few that provided simply food and shelter to thousands of new divisions of labor that called for great cities for factories and railway systems, and for millions of consumers for factory products. In the modern world the organiza- tion of labor to better its condition be- came a vast system of education about markets, prices, wages, profits, ma- chinery and capital, millions of working people, for the first time, became aware of the connection between wage money and the things it bought, and it was soon discovered there was a gap be- tween wage money and prices of goods the money must buy. Labor organizations were forced to keep accounts of the cost of labor in many lines, to learn the cost of capital and machinery, the cost of getting sup- plies to market, and to separate profits from all such costs. FATAL THEORIES 17 An elemental truth was being made clearer and clearer to organized labor as modern civilization advanced by leaps and bounds, and this truth cul- minated in a doctrine that the wages of labor must, in some way balance with the money the labor product sells for, and when this balance has been secured labor will be getting its full reward. Let us accept the doctrine that — The Wages of Labor Must Buy Back the Entire Product at the Market Price — and follow it as a fundamental truth, to see what the actual facts have to say, and how wages may arrive at that place. Here is the place where theories and disputes have their origin, for on one side it seems impossible to pay the en- tire selling price of goods in wages, be- cause, looking at any one product, it is quite impossible to pay the labor of that product its entire market price. 18 SCIENCE OF VALUE This fact brings about the utmost confusion of theory. It is taken for granted that a condition for a part of the total price for goods must effect the whole price list in the same way, but such is not the case. Because it rains today does not decide that it must rain every day. The law for living things is a law of great classes and is not a law for each unit of any class as it is in material things. It is true the wages of labor must balance with the selling price of the whole product, but such a balance would be impossible if the producing labor was paid the market price for each product and no account was taken of the other labor that must buy what it does not produce. The wages of all labor must balance with the market prices of the total product, which will include the wages for about half of total labor never counted as part of the cost of goods in the market. FATAL THEORIES 19 The wages of lawyers, government servants of all kinds, teachers, writers, printers, actors, preachers, doctors, and the like, must buy goods and this helps create the market price of goods and they must have their wages carried by that market price, although their work is never calculated as a part of the cost of any of the goods they consume. When special classes of labor, like railway and factory workers claim the whole money income of railways, or factory belongs to them and that profit is a robbery, such a claim ignores the money that must be distributed to other labor and which cannot circulate and be distributed unless it is carried in the price of goods all the people buy. Total wages must equal total prices each year. When history records the failure of Lenine, the chief cause of quick ruin in Russia will be found in his radical method of trying to pay factory wages 20 SCIENCE OF VALUE equal to the selling price, to include profit while ignoring an equal claim of other labor in the same market price. Lenine's wage theory brought about a paralysis in the employment of sec- ondary labor; it destroyed the circula- tion of money and the market in which the peasant sold the surplus from fer- tile lands. Business must fail and bar- ter must replace the use of money in Russia until a sane government will establish a circulation of money that obeys its natural laws. Seeing the utter collapse of his the- ories, Lenine was driven to print bil- lions in rubles, for his barbarism re- quired some sort of money to hold even its short lease of government power. Facing a coming disaster with one bil- lion of rubles from the printing press "treading upon the heels of other bil- lions so fast they follow/ ' he now as- serts he is destroying money because it is the chief cause of the slavery of labor. FATAL THEORIES 21 Demanding impossible wages, a la- bor organization may paralyze the transportation, or the basic industry of a nation and threaten its whole exist- ence upon a fatal theory that the whole sum collected belongs to railway or fac- tory workers, following on the heels of disaster in Russia. Labor organizations do not get their great power from the power of numbers as they suppose, but get it from society tamely submitting to a small fraction of labor taking absolute control over vast systems of machinery which are doing nine-tenths of our total work, permitting labor leaders to assert a power like Feudal Barons of other times but of a lower civilization. It will be well for labor leaders to learn the truth in time, for if they are successful in their outrageous demands they will as certainly destroy civili- zation in the United States as has been the case in Russia, and no government 22 SCIENCE OF VALUE calling itself Democratic may long sub- mit to the strike power now held by organized labor. Sooner or later such labor leaders must be treated as ene- mies and traitors to civilization and be punished accordingly, or our modern civilization will pass away in another period of dark ages and a new civiliza- tion arise from new generations of bar- barians. CHAPTER 2 Cost of Living A natural law declares that wages must balance the market price of the entire labor product, at two times its cost in a cash market. A natural law declares that all the goods and capital labor can send to market will meet their supply of money to buy them at two times the cost if we do not in- terfere with the natural order. The natural wage rate is much greater than ever a Lenine or Socialist philosophy dare claim, and it will not be difficult to prove how wages may rise to the natural limit, by a simple plan, without the murder of a single property owner, without disturbing ex- isting governments, and do so by cre- ating the most prosperous period of industry the world has ever witnessed, and make that prosperity permanent. 23 24 SCIENCE OF VALUE Wages will not rise to the natural limit unless the demand for labor will send the rate to that limit, and force employers to pay the rate. The nat- ural demand for labor will come from the expenditure of billions of dollars producing something for which there will always be found a profitable mar- ket and for which the supply can never equal the demand. What is it that labor may produce where the supply can never equal de- mand? The answer is Wealth that pays an income and which allows the owner to live without work. An insatiable demand for labor will arise by giving it a free field to build capital that buys a living without work. As the demand to live without work can never be satisfied it follows that having a free field to build the capital that will enable its owner to live with- out work the demand for labor in this field must be so much greater than the COST OF LIVING 25 supply as to force wages to the highest point wealth can be made to pay. The production of capital must be made profitable, not only must capital collect its required rent to make the investment a good one, but it must also sell for more than it cost to build, which is to say that buildings must be manufactured and sold in quantity just like goods are sold; that dilapi- dated buildings in cities, which . now collect high rents on the best locations must be torn down and be replaced with the kind of building each location demands. New profit in building must come by getting the best locations for great buildings, in the heart of cities, with- out cost for land. It is the present cost of land in cities that prevents labor from now buying back its entire product. Money must now be spent to buy land, and since land is not a labor product the money taken to buy 26 SCIENCE OF VALUE land unsettles the money market and makes that market just that sum short of its natural supply, debts are thereby created to offset the loss of money paid for land. In getting at the foundation of wages the first fact to get to the light is the fact that factory products must be sold to a vastly greater number of con- sumers than the mere workers whose wages make up the cost of such prod- ucts, how is the extra money to reach the hands of extra buyers unless the price of that product carries the money with it from the market? Factories and railways represent vast expenditure of past labor and material in great systems of plants, how is a city consumer who produces none of the goods he consumes to get money to buy unless the price of such goods carries that money around its circle, from the market to labor of every description? COST OF LIVING 27 The selling price of any labor product must be high enough above its wage cost so as to include the money other labor must spend to buy it. In buy- ing back its entire product it is nec- essary that the price of each product must balance with the money labor must spend in the market. The fact that land commands a price, but pays no money to labor to balance that price, is what now throws our markets and prices in confusion. Order and harmony between labor and capital can never be established until what is now a price for land becomes a price of a labor product which will be bal- anced by the money labor spends in all markets. If it is true that each labor product must carry in its market price the money that returns to labor to buy it, where does capital come in? What part of the purchase money for com- modities does capital supply and what 28 SCIENCE OF VALUE part of the wage that buys a living, is the capitalist expected to pay? If goods distribute all the money to pay for goods, why need capital em- ploy labor? This was Lenine's propo- sition and it seems logical. Capital does not now and never can employ labor in producing goods. Labor em- ploys labor by dividing into two great classes each class becoming the em- ployer of the other. Capital brings labor from the past into the present market to assist and cooperate with living labor and brings into the market an enormous supply of money earned by past labor which we call credit money that should increase the wages of present labor, but fails to do so and that failure creates the trouble between labor and capital. Consider a moment the vast sums that have been spent for railway systems, fac- tory systems, building cities and towns, improving farms and the like that we now COST OF LIVING 29 use as past labor and need not produce. Capital represents a sum in the United States of about two hundred and fifty billion dollars earned by past labor that should now cooperate to increase the wages of present labor but fails to do so. A sum of two hundred and fifty billion dollars worth of past labor we use every day with only a hundred million dollars cost for present labor each day to buy the living. The owner of capital, while not in fact an employer of labor, is expected somehow to pay for the capital he owns, to pay present labor because present labor supplies the living-with- out-working, that gives capital its value in money. Capital is expected to pay just as any buyer in the market will pay by buying at a price above cost, but labor should be the main buyer of capital, as it is the main buyer of goods, here again it fails. 30 SCIENCE OF VALUE Speaking of labor as a total, and not the mere labor that directly produces goods, there comes from labor a vast daily product to sell in our markets and a natural law forces that product to sell at a price of two times labor cost because only half the labor is paid to produce goods — leaving capital to create its own market. Labor, speaking for total labor, sends a quantity of capital to market each year and the price of capital is fixed by natural law at two times its cost where land cost is omitted, and this capital must carry money to buy capital for labor like goods must carry money for labor to buy goods. The failure in the circulation of money will be found in the cost of land taking money belonging to the market for capital which money would bring past labor into the market as profit from the production of capital. The money to buy capital must come from COST OF LIVING 31 a market price of capital the same as the money to buy goods comes from the market price of goods, and debts that supply money to pay for land, de- stroys the circulation of past-labor- money or capital money. Labor is entitled to a vastly greater sum in wages than any socialist or government ownership theory asserts but this greater sum is credit money earned by past labor which must co- operate with the cash earned by pres- ent labor. The solution of this prob- lem demands a different treatment of industry than present theories advo- cate. Profits must be preserved above all things; while socialist and other theories are bent on destroying profits. How does it happen that a few labor- ers operating machines are so prolific, or fertile, in producing goods that one worker, with the help of capital or past labor, will supply the needs of a hundred families? 32 SCIENCE OF VALUE The productiveness of machines, steam and electricity, is said to come from capital and from the superior brains of the capitalist, but that is no answer because it is apparent that cap- ital and its organization has been intel- ligently directed for centuries of the past, to supply new classes of goods to meet new stages of civilizations and has been a continuous evolution. What we call profit is but another name for the fertility of soil, or fertil- ity of production given free by nature above cost of living for labor. The low unit of cost from machines is not to be credited to the labor that oper- ate them or to capital but to fertility of nature the same as a ten thousand barrel oil well is not credited to the drillers or to the cost of an oil well. There must be enough shoes, for example, to supply all the people, and money must be distributed to the peo- ple to buy them. If one laborer, COST OF LIVING 33 working in a shoe factory, turns out a hundred times as many shoes as he buys back it is plain that wages in shoemaking, spent only for shoes, would leave the market with most of its shoes without buyers. The price in the market must not fall below the labor cost of production, and before other classes may buy shoes the price must rise high enough above cost of production to supply money for all consumers of shoes. The reader should get the fact clear in his mind that every labor product in the market must carry a price, that will not alone pay its own labor cost but a price that supplies other labor with money to buy the surplus. Oil must carry and distribute money to the whole population; all the money re- quired to buy oil, and when one well will produce ten thousand barrels at fifty thousand times less cost than an- other well giving only one barrel in 34 SCIENCE OF VALUE five days, it simply means that such fertility in an oil well is used by Na- ture to carry the extra supply of money consumers must get, and can get in no other way. It is necessary to look upon the body politic as being one great Mass-Man who daily consumes vast supplies of food, clothing, coal, steel, lumber, cop- per and other goods, requiring cities, towns and farms connected with rail- way and factory systems. The de- mand for a living by the Mass-Man is an organic demand higher than the demands of unit workers for their own living and includes all raw material for capital. To hold each product, in its due pro- portion, to supply the multiple needs of the Mass-Man, each class of goods is given its proportionate share in a fixed supply of money to buy what the whole mass needs and this money must ren- der profit. The limit in quantity of COST OF LIVING 35 money, to buy the daily living for all the people will buy only an exact pro- portion of each line of goods, and as the social organism needs more of one special class its price will rise leaving less money to spend for something else, the price of which must therefore fall. It is utterly impossible for any hu- man brain to estimate the cost of any article in the market, where fertility of soil makes a barrel of oil cost fifty thousand times more at one oil well than another. What is true of fer- tility mixing up costs for oil is equally true for wheat, coal, and for all soil products, and for most machine made goods. While it is utterly beyond human power to estimate production cost for any class of goods in the market, it is quite a simple matter to establish a cost basis for all goods, and to make each class confine its cost to that base, by making the cost of living for all the 36 SCIENCE OF VALUE people the base for total cost of sup- plies. It is easy to discover that wages paid, in any case, is labor cost, and the money spent for living by all the people is cost of living for the body politic. Wages must balance with a certain standard of living based upon our de- gree of civilization, which is based upon the species of social organism our civilization has achieved. Each class of goods must carry its own supply of money in its price, col- lect the money from consumers and return it to channels of circulation to again buy the same supplies in greater or less quantity as the whole organism may direct. There are two costs to everything sold for money in the consumers mar- ket, both are labor costs, one is cost of labor producing the total living, and the other is cost of all other labor which is advancing the standard of COST OF LIVING 37 living. These two labor costs estab- lish a standard market price of two times cost of production, but allows any class of goods to rise or fall. The most necessary product is the food supply which must be distributed every day and cannot be postponed, and to have the most abundant sup- plies for an increase of population the natural law confines labor to the most fertile lands by only allowing the quan- tity of money a government may coin to circulate as the cost of living, thereby forcing all other payments to be made with credit money. If the labor that produces all the food received all the money to buy it back, he could use less than half of it and half the people would have no money for a living and half the sup- plies would rot for lack of a market. To give all labor its proportion of total food the limit of food money is divided and only half the cash is allowed to the 38 SCIENCE OF VALUE labor producing all the living, and the price rises to two times cost thereby setting aside half the money and half the living for labor that must find other work. When a land owner employs labor to produce food he must pay that labor a wage equal to its standard of living and therefore the fertile land must produce a surplus above the living of its labor. The land owner having the surplus living as profit will employ surplus labor as his personal servant or to build upon and otherwise improve his land. It is self evident that any product of secondary labor, whose living comes from primary labor working the fertile land, must cost the land owner two units of living, one unit of living for the primary worker, and one unit from surplus paid as wages to the secondary worker, hence all capital has at its foundation the same sea level price of COST OF LIVING 39 two times cost, measured by cost of living. This double cost, of two units for capital, provides money for two classes of labor to buy back the buildings sent to market from money the buildings sell for, when they sell for two times cost, the same as two times cost of goods supplies the money for two classes of labor to buy back all the goods sent to market. It is easy to see that the cash paid out to labor producing goods, will be spent in buying the same goods and will return again for the same employ- ment, but it is not easy to see how the money paid to doctors, lawyers, teach- ers and the like, which they spend for a living is made a part of the market price of goods and how it returns from the market to again pay them. Money, when in hand to hand use every day, paying labor and buying a living, is money in direct action meas- 40 SCIENCE OF VALUE uring the cost of labor, and the price of goods as a yard stick might measure endless yards of cloth. But when profits in cash are taken from sales of goods, that cash was paid by secondary labor who produced none of the goods, and it must return to buy goods by what may be called reflex action, in spending profit money. When the natural law draws a line separating costs from prices above cost ,the profit money goes to a bank to become a book account or credit, and the cash should immediately return to become wages for secondary labor. By establishing banks we permit "time" for money to circulate and buy other things than a living. Banks provide money to buy capital and thereby employ surplus labor in build- ing capital and pay labor operating and maintaining capital. With rich farming lands, oil and min- ing lands, towns, cities and factories COST OF LIVING 41 connected by railway systems, a very large part of the people find work in operating and maintaining capital and their work depends, not upon the direct circulation of cash, but upon the reflex circulation of profits which creates another circulation of bank check or past-labor-money equally as important as government cash. The moment we pass from the mere satisfaction of animal appetites in the supply of simple food, we develop un- limited varieties in food and clothing and in new forms of capital calling for the enormous energy of natural forces working with steam and electricity which would give an unlimited market to labor did not the human law inter- fere with the natural order of evolution. CHAPTER 3 Capital Capital plays a very important part in the cost of living for without it we cannot rise above the savage, but when capital appears money begins to play its most important part, for without the profits from capital there could be no payments of interest upon which the circulation and value of each dollar is based. Money must have "time" to pass around its own circle or exchange, to be earned and spent and earned before it may again be spent, but money that must buy the living for all the people is not given "time" to so circulate and for that reason it must be supplied in such quantity, and be held in such pools that it will instantly buy a living every day without waiting on dollars moving around the circle. 42 CAPITAL 43 The merchant finds all the cash money in use, either in the pockets of the people or in pools in banks waiting to takes its place for spot payments, and he must find other money to pay cost for goods before he can sell the same goods and return the cash to the hands of labor. The banker, having cash on hand, as a reserve, which is not in use every day, can finance the merchant and give "time" to allow goods to be bought and sold, and be paid for with the cash collected from consumers. This "time" has a value for waiting goods the same as the "time" con- sumed in producing the same goods, and "waiting-time" is paid with profit received by the merchant on each dol- lar of cash. Money would not pass from one per- son to another, from the merchant to the employer of labor, and from the banker to the merchant, unless each 44 SCIENCE OF VALUE dollar sold for more than it cost, the same as goods moving from producer to consumer must sell for more than cost, it is pennies of interest, added to each dollar of cash, that sends it around its circle from hand to hand. The rate of interest gives life and power to a quantity of money earned by labor of the past that otherwise is dead, a five per cent rate of interest means that $100.00 of capital money is given the power to circulate, at a value measured in cash. LIVING WITHOUT WORKING In trying to solve the labor problem Lenine determined that no one should have a living without working, and nothing he advocated was more vio- lently opposed by natural law than that foolish theory. Living without work existed for all living things thousands of years before human beings could talk, and discuss CAPITAL 45 Bolshevism. Birds and animals and millions of savages now live on the free bounty of Nature without an employer to make them work. Unless the human law will permit a certain proportion of living to provide leisure, unless we permit money to circulate to buy leisure, by exchanging capital for its value in money, the nat- ural law will not permit the worker to get the high wages he otherwise would have. Fertility of soil provides an overflow- ing abundance by using only a part of labor to provide a living for all, and capital with its machinery can only exist by adding to the abundant living. There is no injustice in setting aside a certain portion of the total living to provide leisure and to become a re- ward for speeding up the development of civilization by the increase of wealth. There is no basis for the absurd the- ory that because a rich class live in 46 SCIENCE OF VALUE luxury without working, the poor are deprived of a decent living. The fact is that the living set aside as a reward to produce capital is so abundant, that when wealth concentrates, we find a small rich class unable to consume the portion expected to be used for leisure which should go to millions of property- owners among the laboring class. The natural law draws a line sepa- rating the living by working from a living without working, a line that sep- arates commodites from capital by confining cash to the sole function of buying the living, requiring capital to be bought and sold with past-labor, or credit money. Labor first gets control over the cash that buys the total living, with no part of that cash set aside for the owner of capital, and the riddle of centuries has been to discover how labor loses con- trol over capital and was never able to buy its share of wealth and thereby CAPITAL 47 secure its share of the leisure provided for by the natural order. When total cash is paid out to labor it buys back all the living, but it must buy at two times cost. Selling a living at two times cost creates a cash profit by putting half the cash in the hands of merchants and others as having no cost in labor. Profit in cash must then create a supply of past-labor, or credit money, and somehow labor has lost control over the supply of past-labor- money created from cash profits. Profits in cash taken from consumers may directly buy a living without work, but they are much greater than the owners need for a living without work. To secure a future living with- out work profit must be used to create capital which will collect an income for an indefinite time in the future, and capital arises from the desire to secure a future living without work. 48 SCIENCE OF VALUE THE RATE OF INTEREST If capital is to provide its owner a living without work the profit it col- lects must return more money than was paid to labor as cost in building capital, and to secure this greater return than cost, the natural law divides profits into two equal parts, so that half will return the cost of capital and the other half will pay for a living without work- ing, and by so dividing total profit the natural law creates a rate of interest equal to half the rate of profit. The rate of interest is so established by natural law that it is always half the rate of profit on capital when consid- ered as a whole. The cost of capital is fixed by its cost in interest, because "time" is taken to return the cost of capital from collections of interest which always pays for "time" of waiting. When the rate of interest is ten per cent for example, capital must select CAPITAL 49 land so fertile that it will collect twenty per cent on its cost, pay ten per cent interest for the use of the money each year; and ten per cent to revolve a sup- ply of money that will return its cost and repeat the circulation for a new building every ten years. Labor is expected to sell a living without working to the capitalist by selling interest money as cost of capital, and by having one-fourth the total living to sell as " leisure' ' each year. With the rate of interest at ten per cent, each ten dollars of leisure money for one year calls for an investment of one hundred dollars from capital which calls for one hundred dollars spent in wages for each ten dollars of interest each year at the ten per cent rate. Should labor be able to sell one- fourth the total living each year; as leisure, in the United States at this time it would have about eight billion dol- lars worth of interest money to sell, and 50 SCIENCE OF VALUE it would circulate forty billion dollars worth of capital money so that invest- ors could collect the eight billion dol- lars of interest. This capital market is the market labor has lost, the market in which it should sell the easy living enjoyed by the owners of wealth. When a country is new, it has little capital and its standard of living is low, fertile lands will produce an enor- mous surplus but most of the labor will be idle or wasted. When surplus liv- ing is used to employ surplus labor in building and improving lands then capital, trade, and manufacturing de- velop, cities grow, the standard of liv- ing will begin to advance and wages also will advance. Suppose for example, total wages in a newly developing country, like an early date in the United States, is two billion dollars a year, which sum is spent by labor as its cost of living. Two billion dollars in wages spent by CAPITAL 51 two classes of labor will buy what cost one billion dollars to produce. The living sold for two billion will develop one billion dollars profit if capital has been able to mobilize business on the best locations and save the surplus labor for other work than providing a living. The profit of one billion dollars is a base profit of one hundred per cent, and will pay one hundred per cent, on a cost of capital equal to one billion dollars, or fifty per cent interest on a selling price of two times cost. Goods get a standard price of two times cost by merely dividing total cash into two equal parts, one half paying cost of half the labor, forcing all the cash to be spent as cost of living for all the people. The fact that government money, coined or printed, can only be spent for total living, makes every rise in wages balanced by an equal rise in 52 SCIENCE OF VALUE cost of living, until the highest stand- ard of living has been reached by the growth of capital and by the accumu- lation of wealth. Every attempt to supply more money by an inflation of cash rarely relieves a stringency of money, but is always offset by an equal rise in cost of commodities, for when total cash is doubled total wages and total cost of living must also double. The chief concern of labor is to dis- cover how wages may rise without an equal rise in cost of living so that a surplus in wages may buy a share of the capital that will give a living with- out working to the laborer. When capital is developing in a new country the profits are one half the money spent as cost of living, and cre- ate a very high rate of profit on a small total of capital, which will hold rates of interest high until the growth of capital brings down the rate of profit. CAPITAL 53 High rates of profit will soon double the quantity of capital where fertile lands may be obtained, when capital has a cost equal to the cost of living for one year it will have a profit of one hundred per cent, but to double the quantity of capital will cut the rate of profit to fifty per cent when no advance has been made in the sum spent for total living. The rule which governs the rate of profit and interest is based, like the rule governing wages, on the fertility of soil, capital must improve the fer- tile lands, and may only improve such lands as will pay two times the rate of interest on the cost of the improve- ment. The rule is that capital collecting one hundred per cent profit will get one hundred per cent when the cost of that capital is equal to the cost of living for one year, for example, with living sell- ing for two billion dollars paid in 54 SCIENCE OF VALUE wages the fertile lands developed by capital will allow the most favorably located capital to collect all the profit and pay an average rate of one hun- dred per cent with capital and living each having a cost of one billion, but each having a selling price of two bil- lion dollars. This very high rate will stimulate the growth of capital until it becomes two times the cost of living for one year, and thus force the profit to spread over two times as much capital as be- fore and cut the rate from one hundred to fifty per cent, with the rate of inter- est keeping at half the rate of profit, or twenty-five per cent. When total capital accumulates to four times the cost of living for a year the profit it collects must spread over four times as much capital and the rate of profit is cut from one hundred to twenty-five per cent, while interest is cut from fifty to twelve and a half CAPITAL 55 per cent. Wealth and capital increas- ing to eight times the cost of living for the year will cut the rate of profit to spread over eight times that volume and cut the base of one hundred per cent into eighths, or twelve and half per cent with the rate of interest fol- lowing to six and one-fourth per cent. The lower rates of interest on capi- tal come from commerce where capital in ships and merchant stocks gets the early profits from expanding trade, and where banking enables trade to extend, advancing money for new cap- ital by cutting the rate of interest. When a merchant must buy goods from an employer of labor he will dis- cover the total cash is in the pockets of the people, or is waiting in pools at banks to take its turn in the daily pay- ment of wages and daily buying a living, that no cash is to be had to buy goods in advance of selling them to labor and other consumers. 56 SCIENCE OF VALUE The banker with his pools of cash is in a position to insure the payment of cash at a future time when the mer- chant sells his goods, hence he can advance spare cash from his pool, or give credit based upon his cash, and the merchant buys in advance to sell at two times cost and thus collect the cash that must be used over again. The merchant pays interest for "time" in the circulation of money, for "time" that goods must take in passing from producer to consumer, "and this 'time' of moving goods" has a value equal to the time consumed in producing goods and "interest" pays for the "time" so consumed. CHAPTER 4 Rotating Capital The money spent for capital must return to be used over again in paying wages the same as the cash spent for goods, but a different supply of money must be provided for this purpose be- cause cash is limited to returning to pay the cost of living and cannot sup- ply money to buy or build capital. The money advanced to pay labor for the material and cost of capital may be returned by the sale of the completed capital the same as cash re- turns by the sale of goods to consumers, but it must rotate from the profit it collects because capital is not con- sumed and reproduced like goods every time its money changes from producer to consumer. A man borrows to build the same as a merchant borrows to buy goods, the 57 58 SCIENCE OF VALUE builder should return the borrowed money from a sale to consumers of capital. Although we may say a man need not borrow to build, but has the money to his credit in bank, his own money is advanced to him by a natural law, the same as if he borrowed credit from the bank, he only escapes paying interest. Borrowing to build requires the pay- ment of interest for the time the money is used by the builder the same as by the merchant, but as buildings are not consumed and reproduced once a year the circulation of capital money is much more complicated than cash and de- pends upon profits of capital. If capital can only collect a sum each year to pay interest on its own cost, it is as simple as can be that no quantity of capital money can rotate like cash rotates, and capital cannot be distri- buted to new owners like goods are- distributed to new owners. ROTATING CAPITAL 59 If the cost of a building is ten thou- sand dollars and the rate of interest is ten per cent, the building must collect rents of one thousand dollars a year to pay interest alone, and an equal one thousand dollars a year to return and rotate the cost money, or principal once in ten years, and, therefore, capital must be so located that it will collect two times the interest on its cost. When the rate of interest falls from ten to five per cent the cost of capital, measured by income, is cut in half and the quantity of capital on fertile loca- tions is expected to double, and lands only half as fertile will then be open to the development of new capital, while old buildings on valuable locations should be torn down and be replaced by new buildings offering more space on the best locations. There should be no scarcity of land on which to build an unlimited supply of capital, as there is scarcity of land 60 SCIENCE OF VALUE to produce corn, or wheat, or coal, be- cause the cost of labor does not become the basis of profit for capital as it does for goods, and because the cost of capi- tal falls as the rate of interest falls. The production of capital should be just as profitable on poor land as upon the most fertile, while with goods the poor lands return no profit and cannot be cultivated. An acre of land that will only collect ten dollars a year profit may demand a hundred dollars of cap- ital to improve it while other land in cities may demand a million dollars of capital for each acre built upon. It is extremely doubtful if total wealth in any country can ever be more than ten times the annual cost of liv- ing, for at eight times cost of living the rate of interest falls to six and one- fourth per cent and at sixteen times the rate would be slightly more than three per cent and would be too low for replacement. In the United ROTATING CAPITAL 61 States, for example, in 1918, a circula- tion of about five billion dollars of gov- ernment cash rotating six times that year established the cost of living at thirty billion dollars or six times five billion of cash. Having a base cost of living at thirty billion the total profit in that year was half this sum or fifteen billion dollars, while the total capital at two hundred and forty billion must accept an average rate of profit of about twelve per cent on cost or six per cent interest. The rise in standard of living puts a stop to the increase in quantity of capital because the accumulation from the past takes up all the labor that can be spared from providing the higher living, taking all spare labor to main- tain and operate capital, with no labor to increase the total. To build towns and cities, railways and factories demands credit money to be advanced by the billions, which 62 SCIENCE OF VALUE money must have time at its disposal to return and be used again. Advance money calls for a reflex circulation when compared with the simple and direct circulation of primary govern- ment cash. The rotation of credit is reflex be- cause the natural law will not permit a government to print capital or prop- erty money or give it power, it must depend upon the profit supplied by cash before it will appear and before it can circulate. Profit in cash, taken from the cost of living, represents wages of the labor that produces none of the goods it consumes, it has a re- flex action because it buys a living without working for the capitalist while the cash must buy a living by working for the laborer. The value of past labor must in some way exchange for the value of present labor if past labor money is to buy present goods and, therefore, the value ROTATING CAPITAL 63 of capital is based upon the profits taken from present cost of living. Capital is bought and sold with past- labor-money, or credit money that must be exchanged for cash or living- labor-money to keep the value of capi- tal at par with the value of goods as shown by the cost of living. A building costing ten thousand dol- lars will find past-labor-money wait- ing as bank deposits, payable on de- mand in living cash. A builder should find it as easy to borrow capital money as a merchant finds it easy to borrow commodity money, and a bank would find building loans as quickly paid as are commercial loans, if the rotation of credit was allowed to follow its natural channels. A bank charging ten per cent inter- est cannot wait ten years for a return of the principal and take only the inter- est during the waiting period, nor can a builder wait ten years while a build- 64 SCIENCE OF VALUE ing is collecting and discharging its loan to the bank, although he becomes the owner at the end of the period. But if a building will rotate its own value in returning its cost money with interest there is no need of a builder or banker waiting during a ten year period. The quantity of credit money is intended, like the quantity of cash, to anticipate all future demands upon it. If one building costing ten thou- sand dollars will return its cost in ten years, ten such buildings will return the cost of one each year, and the con- stant accumulation of buildings re- turning their cost should keep all the money in circulation labor may need for building purposes. When a builder pays out cost there is no waiting, because he can only pay out cash that keeps turning over every day while the money to buy the com- pleted building must come from past- labor-money which is given one year ROTATING CAPITAL 65 to make a complete turn-over in buy- ing all the capital labor can produce in one year. Each building must stand as clearly upon its own money foundation as it stands upon its stone foundation, it must supply all the money it takes from the stream of circulation so that each building will create its own rent money and will not take the cash that buys a living. A quantity of credit is always on hand in banks where there is a bank- ing system and where capital and trade has developed. The banking system of a country is expected to supply all possible demands upon it for building or other capital purpose. Our failure to supply capital money for building is not found in any lack of bank deposit credit but in a failure of bank credit to rotate and distribute wealth to new owners. The supreme failure that de- stroys one nation after another is a 66 SCIENCE OF VALUE failure to distribute wealth; and which failure allows wealth to concentrate in absurd fortunes to a small class of owners. The rotation of any quantity of gov- ernment cash is quite simple, it is paid out in wages of every description, in the United States for example, at a rate of about one hundred million dol- lars a day to about forty-five million wage earners, with a wide variety in rates of wages, but creating a standard rate of wages for total labor equal to a standard living for all the people. If it was possible to collect, from forty-five million wage earners, the one hundred million paid to them the same day it is paid, then the rotation of cash would close each day and the quantity of cash money would limit its own circle to the one hundred million dollars of cash. But wages paid today cannot be collected today from sales of goods, the cash scatters over the coun- ROTATING CAPITAL 67 try, hence a quantity of cash must be provided that will keep paying one hundred million dollars each day until the spending will release the same amount each day, and then the circle will close; this period is about fifty working days or six times a year. It is easy to see how cash rotates in paying wages and buying goods, and the revolution of credit would be as simple if capital had its natural market and sold at two times its cost the same as goods sell in a natural cash market at two times cost. From each hundred million dollars worth of goods sold each day there is taken a cash profit of fifty million dol- lars which creates credit of ten or more times the profit, each dollar of cash profit may become the foundation for ten dollars of bank credit. Just as we must have a quantity of cash and not wait for its return from labor; have a sixty day supply; so also 68 SCIENCE OF VALUE we must have a supply of credit wait- ing to be cancelled by fifty million dol- lars of profit money each day. The supply of bank credit waiting to ex- change for cash, and be cancelled, will perform all the functions of cash except to buy the living from day by day, it will do all property buying and will distribute wealth to new owners; it will buy goods in advance of their being sold to consumers. The banker soon discovers that he does not need one dollar in cash for each dollar he promises to pay in cash on demand, bank profit is based upon building up a deposit and loan account to the limit of a supply of cash which will permit the required quantity credit money to get into circulation. The rotation of bank deposit credit depends upon capital being sold at two times its cost, the same as goods are sold; the builder should borrow to build the same as a merchant borrows to ROTATING CAPITAL 69 buy goods to sell. The banker learns from experience that building loans are extremely dangerous because they are seldom paid and soon tie up his liquid credit and it then becomes impossible to supply the needs of merchants. The banker failing to revolve his total deposits once a year will revolve a small part in merchants loans, and thus will allow investment and saving banks to make building loans. Revolv- ing credit by establishing permanent debts which soon consume all the credit commerce may spare, and then debts destroy the circulation of credit bring- ing about a monetary panic. CHAPTER 5 The Cost of Land If the field for the production of capital was open to the builder, the same as the field for the production of goods is open; if the builder had a nat- ural market for capital like the natural market for goods the builder would then have a cash market in which there will be no competition as we now use that word, everything labor could produce would find buyers at two times cost, and land could not be sold for any value in money. Give the builder his natural market and the insatiable demand for wealth, which is but a desire to live without work, will keep labor fully employed at the highest rate of wages society can pay. Capital would then supply half the money required to pay the 70 THE COST OF LAND 71 high rate of wages and this capital money would add nothing to the cost of living. The profit from selling capital at two times cost will supply an endless stream of credit money with which to buy capital like cash buys a living. Capital profit can not be cancelled by exchanging for cash to buy a living as cash profit taken from the sale of a liv- ing must be cancelled. Measuring wages with cash is meas- uring by direct action when cash is used but measures by reflex action when credit does the work. Cash in direct action measures wages like a yard stick will measure endless bolts of cloth, as wages or goods come under the measure they are taken away to be consumed, with the measure remaining constant to be used over and over dol- lars of cash being in perpetual circula- tion. 72 SCIENCE OF VALUE Cash units like a cell of protoplasm have what we may call immortal life, and once in existence they supply the body politic with a living for all time, while credit units like tissue cells are mortal and belong to that part of the social body which is constantly chang- ing, credit dollars being born only to die and return by a new birth from cash profits. Capital, as a whole is never con- sumed like goods are consumed, the part that is consumed must be renewed and in being renewed is measured by so many dollars of credit money which is consumed in order to measure and permit the value of capital to remain unimpaired thus endowing the social organism with an objective body that has continual life, endowing society as a whole with immortality. Unfortunately for mankind the builder was never given free field and its natural market, every government THE COST OF LAND 73 in the world is faced with the dire ne- cessity of establishing this free market for capital or perish from the face of the earth. Consider a free capital market in a city like New York, the potential power the city holds for new building is shown where old and dilapidated structures now disgrace the principal streets and collect high rents from the most de- sirable locations without supplying the buildings the rent calls for and for which the public pays. The average height of buildings on the most fertile building ground in the world — Manhattan Island — is about four stories above the street, when the demand, on the same ground, would send the average height to sixteen stories above the street. A free capi- tal market would rebuild New York City from its very foundation leaving but a score or so of its present struc- tures standing. 74 SCIENCE OF VALUE When a builder would convert the fertile rents of a city location into a building, and supply a structure the public pays for, he is stopped short by a cost for land in advance of building that utterly destroys all profit in sell- ing the building at two times cost, for land takes one time cost of the best building each location will support. Forcing capital to sell at labor cost keeps the average rate of wages from rising higher than the cost of living, which covers the cost of capital, and before the average rate of wages may rise above cost of living capital must sell at two times labor cost When land became private property, its fertility soon gave the owner a power to take all gains above a living, and when the natural law gave com- merce a profit of one hundred per cent on the cost of goods the land owner was in a position to demand money for the fertile land that provided such profitable fields of production. THE COST OF LAND 75 In a city the owner of the site will demand as advance cost of land a sum equal to the most expensive structure that may be built upon the land, and failing to pay that price building comes to an end. When a land-owner may demand a sum equal to the cost of any building and take half the rent the building col- lects such a demand is opposed by the natural law regulating the circulation of credit money. No money will cir- culate to pay such a cost for land, be- cause it is limited to buying things that are continually consumed and repro- duced by employing labor; buying land interferes with the flow of money from the markets back to labor because labor does not produce land and because land is not consumed. The natural law will only supply the cost of building although it may sell at a profit and therefore the land- owner must take a mortgage to cover 76 SCIENCE OF VALUE the cost of his land, which mortgage promises to pay money that can not be had at some future time. Forcing the builder to pay a cost for land in advance of building forces up the cost of land and crowds one build- ing against another, using the least amount of land on which to erect, the poorest building that will collect the highest rent. If all buildings sold at two times cost with no cost for land, there would be no loss to the owner because each building would be built to the limit of its location and instead of having a land value under each building that same value would appear as a selling price of each building above cost. Selling buildings at two times cost would force the most expensive build- ings to occupy the sites that get the most rent, which would give the great- est benefit to the tenant. A building costing ten thousand dollars, for ex- THE COST OF LAND 77 ample, and selling for twenty thous- and dollars will return but ten thous- and dollars profit, while a building costing ten million dollars and selling for twenty will return ten million dol- lars profit, giving the owner the great- est profit when he selects the most expensive building that may be sold at two times its cost. The enormous profit on great build- ings provides an ample fund to beau- tify them, to give all manner of ad- vantage in modern improvements and plenty of land for light and air and for the best architecture. Building to the natural and most profitable height on Manhattan Island, as an illustration, would make land so plentiful as to seem now unbelievable, for with a height of sixteen floors in- stead of four, two times the present population could live in the greatest comfort on only half the land now cov- ered with buildings. 78 SCIENCE OF VALUE The builder is now handicapped so that he has no field of operation like the producer of goods. First he must have two times the cost of his building before he may break ground, practic- ally an impossible condition, and next he is expected to sell his product at cost, another outlandish requirement, and then the investor is expected to be satisfied with interest payments alone and never see the return of the prin- cipal. Under the conditions imposed by a cost of land, building only takes place in an active land value and real estate boom, where profits come from a rise in land value, which follows new build- ing. The profit from a rise in value of land may replace the natural profit in selling buildings at two times cost for a short time. As "no tree grows so high as to quite reach heaven/ ' so land values cannot keep going up indefi- nitely to give profits to builders, and THE COST OF LAND 79 at the top of the boom the bubble of land speculation bursts with a panic, and a period of hard times follows with millions of laborers out of work. Debts must carry the cost of land and they must keep accumulating until capital carries all the debt it can col- lect interest upon from the extra fertile locations. Debts consume the interest that is expected to keep an equal sum of credit rotating once every year by paying wages. Before debts reach the absolute limit, by taking all the interest above actual cost of capital, they bring about a con- traction of bank credit because the banks find deposits tied up with debts that cannot be paid; the liquid credit of commerce has been converted into bonds and mortgages promising to re- turn credit in ten or more years in- stead of returning it in sixty days or one year according to natural law. 80 SCIENCE OF VALUE It is quite easy to prove how debts destroy liquid credit by keeping it from turning over. There is a limit to total credit, the same as there is a limit to total cash, and if credit is to be used over and over again, as cash is used, it must be set free at least once each year, to balance the capital consumed that year, and by its own rotation once a year pay a sum in wages equal to the capital consumed. In the United States, for example, railway, city and industrial bonds amount to about twenty billion dol- lars worth and represent money once used to pay the cost of building, such bonds promise to return the cost money they consumed in periods of ten to fifty years, but cannot return any of it, while it should return once a year if labor is to have a free field and capital is pay for its own labor. Under natural law the interest paid on twenty billion dollars gives valu e THE COST OF LAND 81 and power to that sum of credit money once every year, but when debts prom- ise to return the money in the future and consume the interest each year, while holding the money out of circu- lation, the loss to labor each year is measured by the total debt. Suppose the twenty billion of bonds, and other debts, promising to return credit in ten or more years was paid, it is plain that twenty billion dollars could not be paid by the cash in use and it should be equally plain that to pay such debts would merely release that sum of credit money to again build new capital, or become new debts. Debts cannot return billions to im- mediate circulation any more than they can be immediately paid in full, but they may be made payable in cash on demand, and thus change from dead into living capital and rotate that sum of money once each year. 82 SCIENCE OF VALUE Debts should not be made an excep- tion to other forms of capital in any •corporation, to make debts payable on •demand will call for a similar payment from all other securities. Instead of having cats and dogs, in the form of common stock and second preferred and first and second bonds, there should be but one class of capital se- curities as there is one class of bank deposits to be kept always at par and always payable on demand, protected by the required reserve. Every owner of a capital security should own an equal part of that capi- tal with no preferred stock, mortgage or other claim to destroy the value of his holding. Debts violate the natural or- der by giving one class of security owners a preferred claim upon the money invested by other classes. On this account capital has no market, except from speculation on the stock exchanges because the preferred cred- THE COST OF LAND 83 itor may take the property at one half or less of its true value when the pre- ferred lien falls due and cannot be paid. When a man's money is on deposit in a bank, it is to the banks interest, and to the government's interest to keep his claim upon money at par and equal in every bank. But deposits can only be held at par by being payable on demand from the cash reserve held to meet such payment. When a man's money is taken from the bank to be invested in capital it is taken for a higher use, and should be even more carefully protected by the banker and the government than when it was on bank deposit, but all safeguards for investors have been abandoned leaving them at the mercy of any financial pirate who may loot a corporation by manipulating its common and pre- ferred securities. CHAPTER 6 Solving It It is a mistake to assume we have a labor question to solve, a money ques tion or a land question, and it is an equal mistake to assume that govern- ment ownership, profit sharing and the like will solve our problems. It is not one or the other problem that disturbs the body politic but a vital disease, and although each symptom seems to pre- sent a problem or disease by itself, there is only one way to overcome dis- ease and that is to remove the cause and restore health. No matter how grave may be the condition of the patient how painful his suffering, he can mend only as fast as the body may return to its normal functions and absorb the poisons that have been so long accumulating. 84 SOLVING IT 85 The great symptoms of social dis- ease are found in debts, in the cost of land, in unemployed labor, and in the loss of a capital market. We cannot obtain health by passing laws to abolish debt, to abolish property in land, or destroy its cost, we cannot decree a market for capital by statute nor find artificial employment for the labor that happens to be out of work at different seasons in good or bad times. Whatever difference of opinion there may be about theories of profit sharing, government ownership, socialism and the like, there is no dispute about the pressing need of always having plenty of work at good wages, the need of find- ing fields of work that will, at once and forever, remove the menace of mil- lions of laborers being suddenly thrown out of work. Work is being suggested in every imaginal line, not the natural and pro- fitable work that always keeps the ma- 86 SCIENCE OF VALUE jority active, but some kind of artifi- cial stimulus merely to act as a stop gap to the tide of swelling discontent. No one seems to be aware of the fact that under natural conditions there would be no idle labor such as we have in our most prosperous times. About ninety per cent of labor is always profitably employed by pro- duction under control of natural law, without an effort from the government or any other agency to find work. Employers hunt the labor to get the profit, and it is a simple rule to follow, — if 90 per cent may be profitably em- p^yed under a law that seeks to em- ploy one hundred per cent why not discover what interferes with that law and keeps ten per cent always idle and always competing? To find profitable work for one hun- dred per cent of labor at all times is to find a field of employment that will take up the idle labor in all fields. SOLVING IT 87 Taking up the idle surplus makes labor scarce in every occupation and will in- crease the demand for labor so that each occupation will find none of its labor out of work. The fundamental employment which will give permanent prosperity must first provide the highest possible living for all the people, and second must pro- vide an unlimited demand for all spare labor in the capital market. This fun- damental demand divides labor into two great classes, one class employing all labor producing goods consumed in living and the other great class em- braces all other labor. Labor working on ships, railways, in city stores and the like depends upon the labor that sends goods to market, and likewise, lawyers, doctors, print- ers, and other like labor depends upon other classes of labor. In the two fundamental fields, pro- duction of goods and production of cap- 88 SCIENCE OF VALUE ital, total labor must find its one hun- dred per cent demand. We must have a living at any cost, and, therefore, the lack of employment will be found in the capital or building market where de- mand may be postponed by debts which use the money that ought to em- ploy surplus labor. The natural de- mand for capital is insatiable when not interfered with it will take up all the labor that can be spared from produc- ing a living, and thus force wages to the highest rate the whole people can pay. The root of unemployment will be found in failing to build according to rents collected from the best locations in cities; in failing to convert each ten dollars of rent collected into one hun- dred dollars worth of building. To make a beginning in solving the labor question each city must attack its own problem of removing disgraceful shacks from valuable locations and replace SOLVING IT 89 them with the buildings that belong there. A city has a natural market for labor greatly exceeding any supply of labor at its command, because in years past, it has failed to build, as the natural order demands, and has thousands of old buildings suitable to fifty years ago that should give way to new and bet- ter structures. This is the field that now may be opened as the most profit- able field to employ one hundred per cent of labor and keep them so em- ployed. If we would restore the capital mar- ket to labor, under natural law, cer- tain conditions are indispensable. First, a cost for land must not be taken in advance of building, land cost must not be allowed to interfere with build- ing. Second, money must be advanced from some source, in great quantity without creating debts; third; capital must have a market where new build- 90 SCIENCE OF VALUE ings will sell for two times cost: sell in small holdings of one hundred dollar shares to many individual owners. Our failure to obey natural law has filled our cities with unsightly and dis- graceful shacks on the most desirable locations. Had we developed accord- ing to the natural order every city would be vastly different in all its building and so much more beautiful that it becomes difficult, if not impos- sible, to realize the change the future holds out for us. We are not expected to make this change in a day or a year, but only to pass to the higher civilization as we change from the old order into the new. It is not expected to abolish the cost of land, or property in land; to abol- ish debts, or to make a market for all capital at two times its cost at once. Only as fast as the body politic may assimilate the new order, the change may take place, which means only as SOLVING IT 91 fast as we may rebuild our cities and farms can we remedy the present in- justice, change the present unjust dis- tribution of wealth to its natural and just distribution. The beginning must be made along lines of least resistance in cities where banking can most easily finance new buildings on the best location, and where building is most profitable. It is necessary to make such building prof- itable for the present owner of land and thus overcome the cost of land, because if the owner builds he has no cost of land to pay. A city is not expected to go into the building business but merely to act as agent and trustees; to provide the machinery by which land cost will be obliterated, by which money in abund- ance will be supplied, and create a mar- ket where all the securities for new structure may be sold, and keep se- curities payable on demand. 92 SCIENCE OF VALUE A city must provide means to finance all buildings or other income capital, issuing and selling building loan se- curities, redeemable on demand f rcim a reserve provided for that purpose, but should in no way interfere with any other agency seeking to build or finance building on another plan. When a city like New York was a vil- lage, its narrow lots and three story buildings supplied its village needs, but when business and a greater popula- tion required more land and great buildings, the small lot owner found the value of his land rising by leaps and bounds until the cost for land made new buildings impossible. Thousands of village structures now remain wait- ing to be replaced with steel frame and elevator apartments and office build- ings in every city each demanding an acre of space or more. An owner of a small lot may demand half the total selling price of a building SOLVING IT 93 that will tower forty stories above the street and make it utterly impossible to build upon the lot. Any single owner failing to sell when twenty such lots must be included in a site will prevent the building of a ten million dollar structure. If each parcel of land in a city was fully improved to the limit of its fer- tility, as shown by the rent it may col- lect, the benefit to each owner would secure the most expensive building any site would support. Getting no money for land will force the lot owners to build and take half the value of the completed building as profit, in place of getting a cost for their land. The present building difficulty is found in having no security for the building money advanced, the land value, takes a preferred lien and the building money must take a second mortgage, making an almost certain, loss when the mortgage cannot be paid, a loss equal to the cost of the building. 94 SCIENCE OF VALUE There would be no investment bet- ter than securities for modern fire proof elevator steel frame buildings if all se- curities were equal, and if the rents collected were all used for the benefit of the building and none of the rent permitted to return a cost for land. To transfer the cost for land into building cost the finance plan must force the value of new buildings to a basis of two times cost by so limiting the cost that the rent collected will pay two times the rate of interest on the cost money, make all building se- curities twice the cost of building, but none of them being secured by a value of land. A city should act as trustee to fi- nance building and other capital where such capital depends on rents or divi- dends to return its cost. A city should issue and sell building securities at two times the cost of building, holding out one time cost for the benefit of present land owners. SOLVING IT 95 There must be no mortgages. Se- curities should be perpetual, and when redeemed from the reserve, should again be sold to replenish the reserve. City trustees should be perpetual. There would then be no individual pri- vate owners of a new building, it would be owned publically by its securities belonging to millions of people. There is no practical limit to the sum a city may supply except the limit of labor and material to build. Each structure will not only pay for itself, but it will create the money it uses and will rotate its own money to pay the rent it takes. Each building will not only supply the money it con- sumes as cost, but will supply the money it collects as rent, and will in- crease wage rates to cover the rent from tenants. By this plan a city takes a deed to the property as perpetual trustee, while the general public becomes the 96 SCIENCE OP VALUE owner of shares in each building. Cap- ital is made liquid by being able to sell one hundred dollars worth of any- building although its value is ten mil- lion dollars and redeem securities on demand by having a reserve for that purpose. Building, in the central locations of a great city, calls for ample room for tall buildings having imposing ap- proaches — room for light and air and in most cases ten or more city lots must combine to secure the required space. Under a plan by which a city would finance its new building, the owners of small parcels, instead of opposing like a dog in a manger, trying to sell each small lot for an impossible price,— would find it more profitable to com- bine, for then each lot would get his true proportion of profit in a great building, whereas building on the small lot would leave a small profit from a low building. SOLVING IT 97 Issuing securities at two times cost, and making them redeemable on de- mand, will become very profitable to owners of small lots where they may combine to erect a great building. A million dollar profit in each million dol- lar cost of building will convert what is now a land value, having no market into a higher building value having a cash market. More important than other things, to force owners of shacks on valuable sites to rush to the city finance com- mittee for new buildings will be the fact that the plan well under way, land values are certain to disappear as soon as the central business districts are properly improved. Unless the owner builds in time his land may become a public park with no expense to the city. The disease of the social organism demands a cure by understanding and by obeying the natural order. Strikes, labor organization, anarchist and so- 98 SCIENCE OF VALUE cialism are but surface symptoms of the vital ills concealed within the body politic. The fatal germ of social disease is the permanent unemployed and the low rates of wages. The danger from disease germs is greatest in cities which are the vital organs of the body politic. It is in cities the remedy must be first applied, but merely to set the unem- ployed at work will not immediately cure the disease. The complaint has effected the en- tire body politic, shown by disease tis- sue in rotten ruins of old buildings that now disgrace the best locations, and time must elapse before diseased capi- tal tissue can be replaced with healthy tissue and a new distribution of ac- cumulated wealth take place.