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 WAR AND WAGES 
 
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CAPITAL 
 WAR AND WAGES 
 
 Three ^luestions in Outline 
 
 BY 
 
 W. H. MALLOCK 
 
 BLACKIE AND SON LIMITED 
 
 50 OLD BAILEY LONDON 
 GLASGOW AND BOMBAY 
 
 1918 
 
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NOTE 
 
 The arguments of this short volume are appli- 
 cations to current events of general principles 
 which have been set forth at length in the author's 
 recently published treatise, "The Limits of Pure 
 Democracy". Its substance was embodied in two 
 articles, " Capital and the Costs of War " and 
 " Capital and General Progress ", which originally 
 appeared in the Nineteenth Century^ permission 
 to reproduce them having been kindly granted 
 by the Editor of the Journal 
 
CONTENTS 
 
 PART I 
 
 CAPITAL AND THE COSTS OF WAR 
 Chap. Page 
 
 I. "Conscription of Capital" as a Means of Pro- 
 viding THE Material Needs of War - - 3 
 
 II. Capital and Income 6 
 
 III. The Income of the United Kingdom - - - 14 
 
 IV. The Capital of the United Kingdom— its Quantity 
 
 AND THE Possibilities of "Conscribing" it - 17 
 
 V. The Net Effects of a Conscription of Capital 
 
 ON Various Sections of the Population- - 29 
 
 PART II 
 
 CAPITAL AND GENERAL PROGRESS 
 
 I. Capital and Increased Production. The Scheme 
 
 OF A Great Capitalist 43 
 
 II. Several Causes must Co-operate to Increask 
 
 Production 49 
 
 III. The Three Stages of Capital — Wage-capital and 
 
 Modern Machinery 54 
 
 IV. The Nottingham Labour Congress on Brain-work 
 
 AND Capital 67 
 
 V. Brain- work, Wage-capital, and Machine-capital 71 
 
 VI. The Co-operation of Various Classes in accord- 
 ance with their Respective Powers - - 76 
 tU 
 
Part I 
 
 CAPITAL AND THE COSTS 
 OF WAR 
 
CHAPTER I 
 
 "CONSCRIPTION OF CAPITAL" AS A MEANS OF 
 PROVIDING THE MATERIAL NEEDS OF WAR 
 
 The Vague Cry for ** Conscription " 
 
 Amongst the various expressions of what is called 
 "industrial unrest" — especially such unrest as relates 
 to the conditions of war-time — one of the most fre- 
 quent has been the complaint that there has been a 
 ** conscription of labour " but that there has not been, 
 as there ought to be, a corresponding " conscription 
 of capital ". Now, if we treat this complaint broadly, 
 there are with regard to it certain prefatory observa- 
 tions to be made. The contributions which a country 
 demands of its citizens in war-time are of three kinds: 
 industrial, military, and financial. The industrial con- 
 tribution consists merely of a transference of effort, 
 mainly manual, from one kind of work to another, 
 the wages of such effort as a rule being not diminished, 
 but increased. The military contribution consists in 
 a risking of life, and is the same for the man who 
 undergoes it whether he has much capital or none. 
 The financial contribution has come mainly from the 
 
4 /. ; r <: CAPITAL/ WAR, AND WAGES 
 
 rich; and, quite ajpart fronji loans, the mere tax- 
 contribution of the rich has amounted to about £^^ 
 out of every ;^ioo of income. The exaction of this 
 tax-contribution out of income is conscription pure 
 and simple. The taxes are spent by the State, and 
 the individuals who pay them will never get them 
 back. But those persons who demand the "con- 
 scription of capital ", or, as some call it, " a levy on 
 capital'*, demand it as something additional to the 
 existing conscription of incomes which have capital 
 as their origin. How far, for purposes of war, is 
 such a demand practicable? This is the first question 
 to which we will here devote ourselves. 
 
 Loose Ideas of what the Capital of 
 this Country is 
 
 Until it is analysed with reference to detailed facts, 
 " the conscription of capital " is a very effective cry 
 by reason of its seeming simplicity. But the kind 
 of simplicity imputed to it is the measure of the 
 ignorance of those by whom the cry is adopted. For 
 the actual facts to which this cry relates are not 
 simple. They are in the highest degree complex; 
 and that such is the case is being realized by many 
 intelligent men who are, to say the least of it, far 
 from regarding the capitalist with any undue favour. 
 This statement may be illustrated by the following 
 thoughtful Memorandum, which was recently sub- 
 
"CONSCRIPTION OF CAPITAL'* 5 
 
 mitted by a trade-union leader to an official closely 
 connected with the industrial politics of the moment. 
 
 " Very loose statements are constantly being made con- 
 cerning wealth {or capital) and its possible appropria- 
 tion^ particularly for the payment of debts incurred in 
 connection with the war. It would be particularly 
 desirable to have some definite information as to the 
 approximate amounts sunk in fixed capital^ differen- 
 tiating between machinery and land; the amounts that 
 are invested in other countries ^ and the amounts that 
 are fluids in the sense that they can be appropriated or 
 transferred without the dislocation of industry or com- 
 merce or the impoverishment of the land** 
 
 Now, if we consider the nature of capital generally, 
 the questions here raised are not those which lie at 
 the root of it. They are derivative questions, which 
 have other questions at the back of them. They are, 
 however, amongst those which at the present time first 
 suggest themselves to the mind of the average thinker; 
 and they are those with which, as an introduction, we 
 will, disregarding the logical order of our enquiry, 
 begin. First of all, then, we will take the capital of 
 the United Kingdom as measurable in terms of quan- 
 tity — in financial terms such as those which we com- 
 monly employ in expressing and measuring income — 
 and ask what, when thus expressed, the capital of 
 the United Kingdom, as compared with its income, 
 amounts to. 
 
CHAPTER II 
 
 CAPITAL AND INCOME 
 
 The Quantity of a Country s Capital much more 
 difficult to estimate than the Quantity of 
 its Income, 
 
 The first thing which will be brought home to us 
 when we consider capital quantitatively is that the con- 
 ception of capital is much more obscure and complex 
 than the conception of annual income. If any average 
 thinker were asked what capital is, he would probably 
 answer, after a moment's reflection, that capital is any 
 possession which can be used to increase production, 
 or can else, by sale, be turned into so much money, 
 by the use of which money something usable for the 
 purposes of production can be bought or else con- 
 structed. But this answer, though true within certain 
 limits, leaves many matters unsettled, so that even 
 the calculations of experts may lead to results which 
 will startle us by their seemingly random differences. 
 Thus, in the Introductory Report on the Census of Pro- 
 duction — a Blue book issued only a year or two before 
 the beginning of the war — the authors show that, 
 whilst various independent estimates of the income 
 
CAPITAL AND INCOME 7 
 
 of the United Kingdom differed from one another 
 by no more than 5 per cent, the various estimates 
 of the capital corresponding to this income in 
 some cases differed by as much as 100 per cent. 
 A partial explanation of these discrepancies may, 
 the authors suggest, be found in certain ambiguities 
 attaching to portions of the official statistics; but 
 they are mainly due to the fact that, with the same 
 figures before them, statisticians have computed the 
 capital assets of the country for different purposes, 
 from different points of view, or on different assump- 
 tions as to social conditions generally. 
 
 Incomes may remain constant whilst the 
 Capital from which each is derived 
 varies, 
 
 ThuS) if a man has an income, let us say, of j^iooo 
 a year from shares in a manufacturing company, what 
 his income means to him is a matter plain enough; 
 for his daily experience shows him what he can get 
 for it. But if he wished to turn these shares into 
 money, and then to turn this money into capital of 
 a new kind, with a view to starting some different 
 sort of business on his own account, the capital value 
 of these shares might not be equally evident. They 
 might for many years have been worth ;^20,ooo, safely 
 yielding on this an income of 5 per cent; but to-day 
 there might be a likelihood that the company some 
 
8 CAPITAL, WAR, AND WAGES 
 
 years hence would be injured by others manufac- 
 turing some rival product, and that shares, which 
 still were yielding him an income of ;^iooo, would, 
 a few years hence, be yielding ;f 600 only, or possibly 
 even less. Their capital value in that case for any 
 possible purchaser would be a matter of mere con- 
 jecture, and might prove to be indefinitely less than 
 what for many years it had been. It would bear no 
 fixed relation to the income still derived from it. 
 
 Many Things which normally have a Capital 
 Value are for Purposes of War not 
 Capital at all. 
 
 Again, for purposes of a mathematical calculus, 
 certain possessions may be expressed in terms of 
 a capitalized value which has no relation to realizable 
 value at all; and to many possessions a capital value 
 may be attributed, which they actually have under 
 some conditions, but which under others they have 
 not. 
 
 Sir Robert Giffen, for example, in computing the 
 capital of the United Kingdom, included furniture, all 
 works of art, and the goodwills of individual busi- 
 nesses and professions. Furniture and works of art, 
 including jewellery, were capitalized by him as the sum 
 of the prices which each article would fetch were it 
 sold to-day in isolation, without regard to the others. 
 
 The capital value of industrial and professional good- 
 Co 936) 
 
CAPITAL AND INCOME 9 
 
 wills was taken by him in the same way as the sum 
 
 of so many annual earnings for a certain number of 
 years, the assumption being that each of these good- 
 wills was sold singly likewise. About 20 per cent of 
 his total was made up of such items. 
 
 Now under some conditions this procedure has had 
 a practical meaning, but under others it has none. 
 
 Works of Art are not Capital for Purposes 
 of War 
 
 Let us begin with works of art, which may be 
 typified by great pictures. The number of great 
 pictures in the public galleries and private houses 
 of England is large, and the value attributed to each 
 is large also, as may be seen by the prices which such 
 pictures fetch at sales, and the vast sums for which, 
 when they are lent to exhibitions, they are insured, 
 or for which they can be readily mortgaged. In other 
 words, to each individual picture a capital value is 
 attributed, on the assumption that this value can there 
 and then be realized at a money price, and the money 
 ultimately used to create some implement of produc- 
 tion. Now such an assumption may, within certain 
 limits, be sufficiently correct when all the world is at 
 peace. But in time of war, when the vital question 
 for a nation is how to raise its productive equipment 
 to a maximum, no addition to its equipment is pos- 
 sible by means like these. 
 
 (0 936) 2 
 
lo CAPITAL, WAR, AND WAGES 
 
 What, in the way of equipment, would the British 
 nation gain if, for example, at a war bazaar in London, 
 a beautiful duchess induced a susceptible millionaire 
 to give her ^20,coo for a portrait of her great-great- 
 grandmother? The portrait would be merely the 
 means, so far as war is concerned, of inducing the 
 millionaire to subscribe for national purposes what 
 he might just as well have subscribed had the portrait 
 never been in existence 
 
 The Goodwills of Businesses are not Capital 
 for Purposes of War 
 
 A similar observation applies to the goodwills of 
 trades and professions. Sir Robert Giffen capitalized 
 these at a sum sufficient to finance the present war 
 for something like three months; and this computa- 
 tion may have been correct in the sense that he 
 himself attached to it — in the sense, namely, that it 
 represented the total of the individual sums which 
 each of these goodwills would have yielded on the 
 supposition that all of them were sold and changed 
 hands simultaneously. But even if conceivably any 
 such sales could be general, they could, in war-time 
 at all events, take place only between residents in the 
 same country. Certain London doctors, for example, 
 might sell their practices to other London doctors for 
 sums which the vendors would turn into so much 
 industrial capital; but the capital which the vendors 
 
CAPITAL AND INCOME ii 
 
 gained, the purchasing parties would lose. The total 
 capital of the country would remain what it was 
 before. It would not be possible for London doctors 
 to increase it by selling their practices to doctors in 
 Berlin, and using the sums obtained by this transac- 
 tion for the purpose of dropping bombs on Essen or 
 the Kiel Canal. 
 
 And here we are led on to a consideration much 
 more widely important, which the above examples 
 will be of much service in illustrating. Even if the 
 capital values attributed to works of art and good- 
 wills can be treated as actual capital for any purpose 
 whatever, they can be so treated on one supposition 
 only — the supposition that at any given time the 
 number of persons who desire to sell them is limited. 
 If, for the purpose of increasing the productive equip- 
 ment of the country, all persons possessing them were 
 equally anxious to sell them at the same time, such 
 possessions could not be sold at all, and even the sem- 
 blance of any capital value would be lost by them. 
 Nobody would exchange money, which might be 
 turned into an aeroplane, for the possession of a great 
 picture, if he knew that an hour later his one desire 
 would be to re-exchange the picture for money, in 
 order to put the latter at the service of the State or 
 nation. If the State should, either by conscription or 
 borrowing, get possession of all the great pictures in 
 England, the only use it could make of them for any 
 national purpose would be to exhibit them gratis to 
 
12 CAPITAL, WAR, AND WAGES 
 
 anybody who cared to look at them; but, so far as 
 war is concerned, this use would be useless. Food 
 would not be brought into this country, nor would 
 battles be won in Flanders, by a loan exhibition of 
 old masters in Kensington. So, too, with regard to the 
 matter of goodwills, any one doctor about to retire 
 might sell his practice to a second for a sum which 
 the Government might, by borrowing or conscribing 
 it, capitalize in the form of a machine for the multi- 
 plication of shells. But if all the doctors simultane- 
 ously attempted to raise new capital by selling the 
 goodwills of their respective practices to one another, 
 what went into A's pocket would come out of the 
 pockets of B. There would be no new capital which 
 the Government could either borrow or conscribe. 
 
 We thus see how largely, for practical purposes, 
 circumstances may alter the amount of a nation's 
 capital, if this amount, like income, is measured in 
 terms of money; so that, even though income may 
 be constant, the proportion of capital to income may, 
 so far as a nation's needs are concerned, be indefinitely 
 less in war-time than it practically is in times of 
 peace. The differences between current computations 
 of the capital of the United Kingdom are largely to 
 be accounted for by a neglect of this important fact. 
 
CAPITAL AND INCOME 13 
 
 What, as usable for War Purposes, is the 
 Actual Capital of the United Kingdom 
 to-day? 
 
 It still remains true, however, that, despite all these 
 considerations, a rich modern country, such as the 
 United Kingdom, possesses a total capital which, as 
 measured by its productive utility, is at any given 
 time expressible, just as income is, in quantitative 
 terms of money, so that the practical amount of the 
 one may be compared with that of the other, all 
 fluctuating or hypothetical elements of the former 
 being set aside. 
 
 What, then, as thus regarded, does the capital of 
 the United Kingdom amount to at the present time, 
 if expressed in terms similar to those which are used 
 to express the amount and distribution of its current 
 annual income? The most definite and comprehen- 
 sive information bearing on this question may be 
 taken as relating to the decade just preceding the 
 outbreak of the present war; but for the purposes ot 
 our immediate discussion it will be sufficiently indica- 
 tive of facts as they are to-day. 
 
CHAPTER III 
 
 THE INCOME OF THE UNITED KINGDOM 
 
 The National Income as analysed in the 
 ** Census o^ Production " 
 
 The information just referred to is contained in the 
 enormous volume called The Final Report of the First 
 Census of Production of the United Kingdom for the 
 year igoj, which represents the results of an enquiry 
 of a kind never undertaken in this country before. 
 
 The Census gives, firstly, in a series of minute 
 analyses, the net selling value of all the goods pro- 
 duced by the manufacturing, farming, and other major 
 industries of the country during the course of a given 
 year, the values or money prices being those of the 
 goods at the various places of origin. 
 
 It deals, secondly, with the value — that is to say, 
 the money prices — added to these goods by the pro- 
 cesses of commercial distribution, or the transference 
 of them from the places of origin to the final buyers 
 or consumers. 
 
 Thirdly, it deals with the value of personal services, 
 such as those of domestics, innkeepers, waiters, sca- 
 vengers, teachers, doctors, salaried officials of State 
 
INCOME OF THE UNITED KINGDOM 15 
 
 departments, and so forth — such values representing 
 the material goods which the persons who render 
 these services get from private individuals or public 
 bodies in exchange for them. 
 
 Finally, the sum of all these values, which includes 
 a certain goods-income from abroad, is presented as 
 the total income of the nation as it was in the 
 year 1907 
 
 Capital and Income as measured by a 
 Com?non Denominator 
 
 This total income amounted to about 2100 million 
 pounds, of which about a quarter represented personal 
 services, whilst about three-quarters represented goods 
 as offered to the user or consumer, finished and in 
 their final form. Goods and personal services, though 
 both alike contributing to the purchasable conveni- 
 ences of life, are not indeed things precisely of the 
 same order. We may, however, assume that the 
 goods-price paid in the course of a year to a man 
 who renders services — let us say, for example, a cab- 
 man — corresponds with the price of the goods which 
 his efforts would have produced if, instead of driving 
 cabs, he had played a part in building them. Thus 
 for both these elements of income we have substan- 
 tially one common denominator. 
 
i6 CAPITAL, WAR, AND WAGES 
 
 The Amount and Composition of the 
 National Income to-day 
 
 A total income, then, of 2100 million pounds was, 
 to speak more in detail, made up mainly of the follow- 
 ing elements in approximately the following pro- 
 portions : — 
 
 1. Finished material goods at places of final sale, 
 about sixth of their value-amount being the product 
 of British-owned enterprises abroad, the total repre- 
 senting about 1600 million pounds. 
 
 2. The shelter provided by dwelling-houses, which 
 is properly a form of service (its value-amount being 
 measured by house -rent) represented about 100 
 million. 
 
 3. Personal services, in the common sense of the 
 phrase, represented about 400 million. 
 
 So much, then, for the income of the country in 
 respect both of its amount and its composition. Let 
 us now consider what, apart from hypothetical values 
 — which may be actual under certain conditions but 
 which disappear under others — is the value-amount 
 of the capital corresponding to this annual income, if 
 both capital and income are measured in the same 
 way, so as to render any comparison between the two 
 amounts possible. Let us turn again to the Report 
 on the Census of Production^ and we shall in the pre- 
 fatory portion find certain facts to guide us. 
 
CHAPTER IV 
 
 THE CAPITAL OF THE UNITED KINGDOM— 
 ITS QUANTITY AND THE POSSIBILITIES 
 OF "CONSCRIBING" IT 
 
 I he Amount and Substance of the Capital 
 corresponding to the National Income 
 
 The Census Report, in dealing with the question of 
 capital as compared in respect of its quantity with 
 the income of the United Kingdom, treats capital 
 primarily, not as a general concept, but as a number 
 of material things which differ in shape and substance, 
 but which are all used for the same familiar purposes 
 of providing men with goods which are ultimately 
 enjoyed as income; and the quantity of this capital is 
 measured by reference to one basic fact. 
 
 This fact is as follows : Except in the case of un- 
 improved land, of which the capital value in any old 
 country is negligible — for land is a form of capital, 
 though on certain occasions distinguished from it — all 
 capital is the product of human effort, just as the 
 finished goods are in the multiplication of which it is 
 the function of capital to assist. Hence, with certain 
 reservations in respect mainly of obsolescence, the 
 
 17 
 
i8 CAPITAL, WAR, AND WAGES 
 
 Report computes the present capital of the United 
 Kingdom in terms of the cost of its construction. 
 This means, as has briefly been shown already, that 
 if a hundred men working, for example, as tailors add 
 so much value in a day to the value of so much cloth 
 by turning it into coats and trousers, the capital value 
 of the factory at which the cloth was woven would be 
 proportionate to the number of days which a hundred 
 men of like strength and intelligence would have to 
 spend in constructing the factory plant and buildings. 
 The nature of this method of computation is illus- 
 trated very vividly by the fact that one of the means 
 employed by the authors of the Census Report o\ 
 arriving at definite conclusions is an enquiry into the 
 cost of keeping existing capital in repair. 
 
 Only a Small Part of the Income of the Nation 
 corresponds directly to its Total Capital 
 
 The home capital of the nation being in respect of 
 its quantity thus computed, and compared with the 
 quantity of the national income, the quantity of the 
 former was, according to the Census} about 6000 
 
 * According to the authors of the Report, the machine-capital of the United 
 Kingdom was about double the net value of the annual factory output. 
 This is the most definite conclusion that the authors of the Report work 
 out. The capital employed in the processes of commercial distribution 
 has, they observe, been computed by various statisticians at something 
 like 2600 millions, or 50 per cent more than the total machine-capital ; but 
 this, and various estimates of capital of other kinds, appear, they observe, 
 to have been very greatly exaggerated, partly owing to "duplications", 
 
CAPITAL OF THE UNITED KINGDOM 19 
 
 million pounds as compared with about 2000. But 
 this does not mean that the capital of the United 
 Kingdom yields a dividend or consumable income at 
 the rate of anything approaching 33 per cent. Such 
 a supposition would be ludicrous. It would mean 
 that every income was derived by the recipient from 
 the fact of mere passive ownership, that nobody who 
 was not a capitalist got any income at all, that a 
 doctor received his fees, not because he dosed his 
 patients, but because he was a shareholder in the 
 London and Brighton Railway. As a matter of fact, 
 three-fourths of the income of the United Kingdom 
 can, with very fair precision, be shown to consist of 
 the earnings of direct effort — to consist, in other 
 words, of wages, salaries, fees paid in respect of pro- 
 fessional services, and the profits of petty employers, 
 in which interest on their little capitals is an element 
 hardly distinguishable from the earnings of manual 
 work. If we deduct the interest which, through 
 popular banks and otherwise, goes already to the 
 wage-earning classes as a whole, the interest going to 
 
 partly to the "capitalisation" of incomes not due to capital— e.g. pro- 
 fessional earnings, a large part of the personal earnings of farmers, &c. 
 Not many years ago an attempt was made to treat the whole "ungotten 
 minerals " of the country, especially coal, as capital. By adopting methods 
 of this kind the computed capital of the country may l>e inflated to an 
 indefinite extent. " Ungotten minerals" may be capital for future genera- 
 tions, but for each generation they are capital in so far only as they are 
 accessible. Without going into the details of such complicated questions, 
 it is enough here to say the capital of the British Islands to-day is appa- 
 rently not more than some 6000 millions, or about three times the national 
 income, if both are expressed in the quantitative terms of money. 
 
20 CAPITAL, WAR, AND WAGES 
 
 the recipients as mere possessors of capital does not 
 amount to as much as 300 million, which means a 
 dividend of about 7 per cent. In some cases, as the 
 Census shows, the rate is much higher than this, in 
 others it is much less. 
 
 Of what material things, then, does the capital of 
 the United Kingdom at the present day consist? Its 
 main elements are: — 
 
 1. Agricultural land, with its artificial but immov- 
 able adjuncts, such as drains, fences, barns, to which 
 we may add seed and live stock. 
 
 2. Mines — coal mines especially — together with 
 their mechanical equipment. 
 
 3. Factory buildings and the mechanical plant of 
 factories. 
 
 4. Railways, ships, and other means of transport. 
 
 5. Dwelling-houses. 
 
 6. A certain stock of such goods as are necessary 
 for the support of life, this stock at any given time 
 being greatly in excess of that which a nation by its 
 current efforts produces from day to day. 
 
 This last-named kind of capital requires to be dis- 
 cussed separately. Let us for the moment confine 
 ourselves to the five others, and ask in what sense 
 material things like these, \{ conscribed or borrowed 
 from their present possessors by the Government, 
 could, with a view to defraying the costs of war, be 
 used as a supplement or alternative to taxes on 
 current income. 
 
CAPITAL OF THE UNITED KINGDOM 21 
 
 Capital in the Form of Houses, Effects 
 of conscribing this 
 
 Let us begin with dwelling-houses. Except in the 
 case of houses which the Government has annexed as 
 offices, what use could it make of houses if it borrowed 
 or conscribed the rest of them, other than the use 
 which is made of them by the existing occupants? 
 If it took them over as a loan, it would have to pay 
 on the loan an interest equivalent to the rent now 
 paid to the owners, and the rent, under the name 
 of a tax, would be paid to the Government by the 
 occupants, who would, taken collectively, be another 
 name for the nation. There would be a change in 
 the form of the arrangement, but no change in its 
 essence. If the Government, instead of borrowing the 
 houses, conscribed them, it might doubtless effect one 
 change which would be not only nominal but real. 
 By refusing to pay the owners any rent or interest 
 at all, and thus avoiding the necessity of getting it 
 out of the occupants, it might enable the latter to live 
 without paying rent to anybody, and they would so 
 far be richer by the amount of the rent remitted. 
 Each of them would to that extent have a certain 
 extra income. But whether the Government by this 
 conscription of house - capital acquired any extra 
 assets available for defraying the costs of war or no, 
 would depend on what the occupiers did with this 
 extra income when they got it. If they spent it in 
 
22 CAPITAL, WAR, AND WAGES 
 
 causing the production of more luxuries for their own 
 enjoyment — if they spent it, for example, on beer, 
 whereas the expropriated landlords had previously 
 spent the same sum on skittles — there would be a 
 change for individuals in the nature and distribution 
 of luxuries; but the Government by its act of con- 
 scription would have raked in nothing which it would 
 not have got before if the landlords, free of taxation, 
 had been left to spend all their rental on whatever 
 luxuries they pleased. The only way in which, by 
 conscribing the capital represented by houses, the 
 State could gain anything for the purposes here in 
 question would be that of compelling the occupiers, 
 as soon as the rents were remitted, not to spend them 
 on their own gratifications, but return them uncon- 
 ditionally to the State — a process which, so long as it 
 lasted, would be only a clumsy variant of the process 
 of raising the same sum by taxation. 
 
 Capital in the Form of Ships, Effects of 
 conscribing this 
 
 Let us take the case of ships. Let all the ships of 
 this country be typified by a single \ essel. The cost 
 of constructing it — i.e. its capital value — might be fif- 
 teen times as great as the value of the services which 
 it rendered by its voyages in a single year; but by 
 conscribing its capital value the State could not enable 
 it to perform the voyages of fifteen years in one. For 
 
CAPITAL OF THE UNITED KINGDOM 23 
 
 purposes of war, all that the State could do would be 
 to see that its cargoes consisted solely of necessaries, 
 and that the importation of superfluous goods was pro- 
 hibited. In this way goods-values might be secured 
 for war use which would ultimately be equivalent to 
 the ship's capital value; but this capital value could be 
 realized in annual instalments only — that is to say, by 
 a virtual tax on income, spread over a period of some- 
 thing like fifteen years. 
 
 Similar Effects of conscribing Capital 
 of Other Kinds 
 
 And to all forms of productive capital, such as agri- 
 cultural land plus improvements, and to the whole 
 mechanical equipment of mines, railways, factories, 
 and industrial production generally, the same rule, 
 with two exceptions, applies. By conscribing capital 
 — by making itself the owner of capital — the State 
 could, for purposes such as those of war, gain nothing 
 which it does not gain by special taxation of in- 
 come. By making itself the owner of capital, it 
 could not do as a whole what may be done, and 
 very often is done, by an individual here and 
 there. It could not, in other words, treat capital as 
 income, and spend it as an addition to income in 
 order to meet the exceptional demands of war-time. 
 Whether the capital which it conscribed were agri- 
 cultural land or factory plant, all that it could ulti- 
 
24 CAPITAL, WAR, AND WAGES 
 
 mately use would be, not the capital, but the products 
 or the income in which the employment of capital 
 resulted. It could not increase the food-supply by 
 taking possession of fields and offering earth to the 
 population as a supplement to insufficient potatoes. 
 It could not increase our shipping by taking posses- 
 sion of all the shipyards of England, and launching 
 docks or cranes as substitutes for torpedoed mer- 
 chantmen. 
 
 As, however, has been just now said, to this rule 
 there are two exceptions, the first of which is as 
 follows : — 
 
 Turning Capital into Income by 
 neglecting Repairs 
 
 There actually is one way in which, by conscribing 
 productive capital, the State might for the moment 
 gain more than the normal income derived from it, in 
 the sense that it might secure, for the immediate pur- 
 poses of war, the efforts of a larger number of men. 
 The way in question is that of applying to the 
 immediate purposes of war the efforts of those per- 
 sons who are normally employed in keeping the 
 capital of the nation in repair. Such a procedure 
 would be precisely analogous to that which is actu- 
 ally often adopted by capitalists whose capital con- 
 sists of houses. Thus, a man, let us say, receives for 
 a certain row of houses a gross rental of ;^700 a year. 
 
CAPITAL OF THE UNITED KINGDOM 25 
 
 The average annual cost of keeping these houses in 
 repair would be ;£^ioo, and, if he kept them in repair, 
 his net income would be ;^6oo. But in order to aug- 
 ment this net income, and keep (we will suppose) a 
 chauffeur, he lets the repairs go, and for the moment 
 increases his income to the extent of ;£"ioo. The re- 
 sults of this procedure may not be at first apparent; 
 but, if it is continued, the houses become gradually 
 uninhabitable, their rental value falls, or one by one 
 the tenants give up their tenancies, and finally the 
 owner has no capital and no income at all. The 
 same would be the case with ships and the larger 
 part of productive capital generally. The deterioration 
 would go on with increasing velocity; very soon there 
 would be little of the original capital left; and the 
 cost of replacing the productive capital which was 
 lost would, owing to this very loss, be indefinitely 
 greater than the first cost of constructing it. 
 
 Turning Capital into Income by consjuni^ig 
 Food-reserves without replacing them 
 
 We now come to exception number two. 
 
 Unlike all other forms of capital, there are, as has 
 
 been said already, certain material things the capital 
 
 value of which can be used as income of equal amount 
 
 immediately; and these things consist of consumable 
 
 goods necessary for the support of life, such as food 
 
 and sufficient clothing, which, saved from the products 
 ( c 936 ) 3 
 
26 CAPITAL, WAR. AND WAGES 
 
 of one or two preceding years, remain ready for use 
 during the next. And whether these things are capital 
 or no, in the sense of being aids to production, or to 
 what extent they are aids to it, depends altogether on 
 the manner in which they are distributed or applied. 
 
 Let us suppose that these reserves of immediately- 
 consumable necessaries took the form of so many 
 million packets of biscuits, preserved meat and milk, 
 tea, sugar, and beer — each packet representing one 
 man's ample livelihood for a year. Now, if these 
 packets were distributed amongst the nation uncon- 
 ditionally, the recipients being under no obligation to 
 do any work in return for them, and consequently 
 remaining (as they easily might do) idle, this mass 
 of consumable necessaries would not be capital at all. 
 It would not aid, on the contrary it would suspend, 
 production. The only way in which it could be ren- 
 dered productive, or, in other words, invested with the 
 qualities of capital, would be to place this mass of 
 livelihoods in the custody of some authoritative body, 
 whether consisting of so many private capitalists or 
 the State, who, since the recipients for the time need 
 no longer produce food (the food being there already) 
 would deal it out to them on the two following con- 
 ditions: firstly, that they produced some other com- 
 modities, and, secondly, that these other commodities 
 should be of certain specified kinds which private 
 capitalists or else the State would prescribe to them, 
 such as guns, for example, instead of motor-cars, or 
 
CAPITAL OF THE UNITED KINGDOM 27 
 
 submarines instead of excursion steamers. The proper 
 name for such hoards of immediately-consumable 
 necessaries when they are dispensed on these con- 
 ditions is wage-capital; and the productive function 
 of wage-capital is this: that it enables the authorities, 
 whether private or public, who dispense it, to secure 
 not only that in return for it the recipients shall pro- 
 duce something of a kind different from these wage- 
 commodities themselves, but also that this something 
 shall be of the kind which is at the time most needed. 
 Of this species of saved-up capital, which, unlike 
 every other, is consumed as income by the wage- 
 earners in the very act of using it, the State, in times 
 of extreme stress, might, by the device of conscribing 
 it, employ the whole of its capital value immediately, 
 thus expending as income in one year necessaries 
 which it had taken many years to accumulate and 
 would require many years to replace. The State 
 might thus in war-time secure a sudden increase in 
 goods not necessary for the life of its citizens, but 
 necessary for national victory; but the State might 
 virtually achieve the same results by borrowing such 
 hoarded necessaries under promise of future repay- 
 ment, or by extracting them indirectly by means of 
 some special tax. It must further be observed that, 
 however this may be, such conscription or borrowing 
 or taxation could from the nature of the case last for 
 a short time only, for the wage-capital thus used as 
 income would very soon be exhausted ; and relatively 
 
28 CAPITAL, WAR, AND WAGES 
 
 to capital of other kinds, which is valuable not for its 
 own sake but only in proportion to the amount of its 
 final products, the amount of wage - capital, or of 
 hoarded foodstufifs, which is ready for consumption 
 at any one time is small. 
 
 Capital Generally, exclusive of Wage-capital 
 
 For the moment, then, we need not speak of wage- 
 capital further, though it has another aspect with 
 which we will deal presently. For the moment we 
 are concerned mainly with capital of other kinds, with 
 permanent things not directly consumable, such as 
 land, houses, ships, and the vast plant of our factories, 
 of which things the bulk of our conscribable capital 
 is composed; and what has been thus far shown is 
 this: that the State, for purposes of war, would, by 
 conscribing capital, gain nothing more, and indeed 
 would gain nothing else, than what it would gain 
 from an appropriation by means of taxes of that 
 portion of the goods-income of the country which is 
 due to the aid of such capital, as distinct from the 
 manual efforts of the labourers and the directive 
 brain-work of the employers. 
 
 And yet, despite this fact, the conscription of capital 
 would, if it could be carried out, have on the affairs of 
 the nation some special effect of some kind. What 
 would the kind and extent of that effect be? 
 
CHAPTER V 
 
 THE NET EFFECTS OF A CONSCRIPTION OF 
 CAPITAL ON VARIOUS SECTIONS OF THE 
 POPULATION. 
 
 Impossibility of conscribing Capital obtained 
 as a Loan fjvm Neutral or Allied Countries 
 
 With a view to answering the question thus pro- 
 posed, we shall get an insight into at least one part 
 of the answer, by making and considering the follow- 
 ing very simple suppositions. 
 
 Let us suppose that, instead of conscribing the 
 capital of the United Kingdom, the State borrowed 
 capital of an equal amount from America, and that 
 such a loan took the material form of all the merchant 
 vessels of that country, these being placed for the 
 time at the service of the British Government. If 
 the British Government secured the use of these ships 
 as a loan, it would have to guarantee to America 
 some interest on the capital represented by them, or, in 
 other words, some compensation for that use of their 
 own shipping which the American people would forgo; 
 and the Americans would at least expect that some 
 day, after the war was over, their own ships should 
 
30 CAPITAL, WAR, AND WAGES 
 
 be restored to them. But if, having got these ships, 
 the British Government should announce its intention 
 of keeping them, saying that it had altered its mind, 
 and preferred not to borrow but to conscribe them, 
 such a "confidence trick" would be an act of war 
 unexampled in history. Our country, having con- 
 quered one enemy, would at once have provoked war 
 with another. 
 
 Such a procedure is practically unthinkable. But 
 let us suppose the British Government dealt in the 
 same way with the capital of its own citizens. How 
 would matters stand then? For it is the conscription 
 of home capital that here mainly concerns us. 
 
 Home Capital borrowed in War-time could be 
 used afterwards only for the Purpose of 
 producing a Normal Goods-income 
 
 The State in conscribing home capital would, as 
 has been shown already, not be conscribing in any 
 practical sense the material substance of such things 
 as machinery, but simply be conscribing the goods- 
 income which such capital aids in producing, and also 
 prescribing in war-time what the nature of the goods 
 shall be — aeroplanes, for example, instead of choco- 
 late-creams. When normal times returned, and things 
 such as shells and aeroplanes were no longer necessary, 
 all that the State could do would be to see that the 
 goods-income resumed its normal forms, and to hand 
 
EFFECTS OF CONSCRIPTION OF CAPITAL 31 
 
 it back to the nation for personal enjoyment as before. 
 The sole new power, which, by conscribing capital, it 
 would acquire, would be that of determining the 
 manner in which the "conscribed" goods -income 
 should be distributed. 
 
 Interest on Borrowed Home Capital would be a 
 Debt which the Nation owed to itself 
 
 The case may be put thus: If all the available 
 capital were lent to the State, the sum total would 
 constitute what is called a national debt; and, if we 
 regard the nation as one individual, this debt would 
 be a debt which one man owed to himself, for the 
 interest paid to him by the State would necessarily 
 come from taxes which he had himself paid, and he 
 would only be getting back to-day what he had given 
 to the State yesterday, or transferring to the pockets 
 of his waistcoat what he had taken out of the pockets 
 of his breeches. As a matter of fact, however, home 
 capital lent to the State is not contributed by one 
 man. It is contributed only by some, and these con- 
 tribute it in very unequal proportions. Some lend 
 their thousands of pounds, others their hundreds or 
 their fifties, others nothing at all ; and thus the nation 
 as a whole is not paying interest to itself as an un- 
 divided whole, but certain portions of the nation are 
 paying interest to others. If the State treated the 
 capital, not as a loan, but as so much public property, 
 
32 CAPITAL, WAR, AND WAGES 
 
 it would still have to pay this interest, or goods- 
 income, to the nation, but would pay it without any 
 regard to the amounts subscribed by, or rather taken 
 from, individuals. The individuals who had wasted 
 their substance, or who had produced so little that they 
 had nothing which the State could appropriate, would 
 be treated as on a par with those whose care and 
 talents had created and saved the whole. The cor- 
 porate resources of the nation, so far as income from 
 capital is concerned, would be just what they would 
 be otherwise. The only difference would be that the 
 burden of the debt (as it would be from the State's 
 point of view), or the income from capital (as it would 
 be from the point of view of the citizens), would be 
 largely shifted from one class to another. 
 
 These observations relate to income from capital 
 only. They have, other things being equal, no rela- 
 tion to income from direct personal effort. What, 
 then, in terms of income, would be the maximum 
 effect on the individual citizens which a State con- 
 scription of all home capital could produce? It would, 
 were it feasible, take something from the more capable 
 few for the benefit of the less capable many, adding 
 this something as a bonus to the direct earnings of 
 the latter. So much is obvious. It is the precise 
 result which those who talk about the conscription 
 of capital desire. The question is, to what extent 
 would the less capable many, in terms of income^ 
 be benefited? 
 
EFFECTS OF CONSCRIPTION OF CAPITAL 33 
 
 The Majority would directly gain, but the 
 Direct Gain would be reduced by a New 
 and Heavy Liability 
 
 The very essence of income from capital, or the 
 goods-income which capital produces, as distinguished 
 from income produced by direct personal effort, is 
 that its source, such as the plant of a factory, is trans- 
 ferable from one man to another without this income 
 itself being thereby lessened. Now, according to the 
 data provided by the Census of Production, the in- 
 come from home capital of this country in the year 
 1907 was ;£^300,ooo,ooo, as against a total income of 
 ;f 2,100,000,000, the larger part of this latter sum being 
 the product of the direct efforts of the workers, manual 
 or mental, by whom the capital was used. That is to 
 say, income from transferable means of production was 
 about one-seventh of the entire income of the nation. 
 The utmost, then, that the State, from the point of view 
 of the many, could do by treating all capital as the 
 property of the nation generally would be to give 
 every citizen an absolutely equal share of the income 
 which its present possessors derive from it in the 
 form of dividends, which share would amount to 
 about £7 per head. Now, shortly before the war, 
 the average income per inhabitant of the United 
 Kingdom was about £^7, of which £/Y^ per head 
 was the product of direct effort; or, if we put the 
 
34 CAPITAL, WAR, AND WAGES 
 
 matter in terms of the actual workers, the direct 
 earnings of each amounted to about ;^82 ; whilst if all 
 income from capital were divided among the workers 
 equally, this would have meant for each a bonus of 
 about j^i5. This, on the face of it, would be a sub- 
 stantial gain for the majority. But, closely connected 
 with the question of income from capital, there are 
 other facts to be considered, by which the situation 
 is greatly altered. 
 
 If all were credited with an Equal Share of 
 Capital, all would have to save eqtially 
 
 According to the Census of Production, there is an 
 annual saving, or conversion of income -goods into 
 new capital, which goods, in respect of their value — 
 this being about 300 million — are about equal to the 
 total goods - income which capital itself produces. 
 This saving of income, or this diversion of produc- 
 tive power from the production of consumable goods 
 into agencies for producing more goods, is, as matters 
 stand, equivalent to a voluntary tax, not merely or 
 mainly on income produced by capital — for, were that 
 the case, all income from capital would be absorbed 
 by it — but on the total income from capital and direct 
 effort together. At present some three - fourths of 
 these savings — the total being about £1$ per head 
 of the occupied population — come from the richer 
 classes, the savings of these per head being about 
 
EFFECTS OF CONSCRIPTION OF CAPITAL 35 
 
 jf 170, and those of the poorer majority being not 
 so much as £4. But in proportion as incomes were 
 equalized, these savings, or this voluntary tax, would 
 have to be equalized also. The individual savings 
 of the present rich would decline, till they fell from 
 ;£'i70 to the general average of ;£'i5; and the indi- 
 vidual savings of the poorer classes would increase, 
 till they rose to ;£^IS from a sum which is at present 
 
 £4- 
 
 This fact may be put in various ways, but, how- 
 ever we work it out, the broad conclusion is the same. 
 A certain capitalist income — about 300 million pounds 
 — is regarded as redistributable, on the assumption 
 that in the capital which is the source of it each unit 
 of the nation holds virtually an equal share. The 
 sum thus distributed, if there were no deductions to 
 be made from it, would mean ;^7, los, per inhabitant, or 
 £iS per worker in addition to his total income; but 
 if, out of his total income, which is mainly direct 
 earnings, each average worker has to tax himself by 
 paying into the national savings fund about £1 1 more 
 than he does at the present time, the net addition to 
 his entire spendable income will be something nearer 
 to £4 than ;£^IS, or only about a third or fourth of 
 what, apart from savings, it would be. 
 
36 CAPITAL, WAR, AND WAGES 
 
 Popular Demtnciations of ''Saving'' 
 
 To this argument, however, by those who advocate 
 "conscription", the following answer may be, and con- 
 stantly is, made. Such persons may, and a great 
 many of them do, declare that saving is unnecessary 
 — that the inculcation of the practice is somehow or 
 other what they call " a capitalist dodge", or a device 
 by which the employers of to-day rake the income of 
 the nation into their own reserves. Thus the constant 
 counsel which socialists administer to the wage-earn- 
 ing classes is to scout the idea of " thrift", to spend as 
 income every penny they get, and in a mood of " divine 
 discontent" then clamour for more. 
 
 What the Annual Savings of this Country arc, 
 such as Capital Equipment for New Workers^ 
 &c,, and why they are necessary 
 
 To such denunciations of "thrift" there are two 
 main answers, of which the first is as follows: — 
 
 It is pointed out in the Census of Production that 
 much of the material capital of a country like the 
 United Kingdom, consisting as it does of scientific 
 machinery, requires not only to be maintained " in 
 good physical order", but also requires to be often 
 reconstructed, if any advance in production per head 
 is to be achieved ; new mechanisms being substituted 
 for others which are not worn out, but obsolete. A 
 
EFFECTS OF CONSCRIPTION OF CAPITAL 37 
 
 considerable amount of savings is necessary for such 
 reconstruction. 
 
 But there is a further answer to denunciations of 
 saving which is still more obvious and important. 
 Every year in the United Kingdom some 380,000 
 persons, or 180,000 workers, are added to the popula- 
 tion, and new capital or material aids to production 
 must be placed at the disposition of these; for they 
 will otherwise be no more able to work than a soldier 
 will be able to shoot if he is not provided with a rifle. 
 Now it is shown by elaborate figures given in the 
 Census of Production that the mechanical equipment 
 necessary for each new workman represents, on an 
 approximate average, capital to the value of some 
 ;^250, and if to this mechanical equipment be added 
 new house accommodation for himself, his wife, and 
 children, the value or cost of his entire material equip- 
 ment will be, we may say roughly, about ;^450. Hence 
 the total capital which must be saved out of income 
 for the equipment of these new workers collectively 
 will be something between 80 million and 100 million 
 pounds. 
 
 Further, as the Census points out, we must include 
 amongst goods saved, or goods which might have 
 been income-goods, but take the form of capital, new 
 equipments which are exported for the purpose of 
 maintaining or extending British-owned enterprises 
 abroad; and yet again we must include home reserves 
 of such income-goods as become capital in so far as 
 
38 CAPITAL, WAR, AND WAGES 
 
 they are held for the purpose of being dispensed or 
 administered in the form of future wages. 
 
 Here, according to the Census, are the principal 
 elements of the savings of this country, which amount 
 in all to some 300 million pounds a year. 
 
 Small Gains of the Average Man, and the 
 Penalization of all Exceptional Enterprise 
 
 In a country, then, such as the United Kingdom, 
 the population of which increases, and which aims at 
 increasing the average wealth per inhabitant, savings 
 are not optional, but obligatory. If individuals did 
 not make them voluntarily for their own prospective 
 advantage, the State in the interest of the nation 
 would have to take them by force. Taking them by 
 force would be the virtual equivalent of conscribing 
 them. The more efficient citizens, who at present 
 produce the larger part of them, would be robbed of 
 nearly the whole of the future advantages which their 
 present savings now promise to themselves; and the 
 less efficient workers, who alone would gain anything, 
 would, in respect of goods-income available for direct 
 consumption, be on an average richer than they are at 
 present by an addition to their present total incomes 
 of not more than a twentieth. 
 
 The practical question which remains for considera- 
 tion is this : whether the more efficient citizens, out of 
 whose products in any case most of the savings must 
 
EFFECTS OF CONSCRIPTION OF CAPITAL 39 
 
 come, would continue to produce them if nearly all of 
 their property in these were forcibly taken away from 
 them. 
 
 In order to answer this question we must consider 
 capital generally in a more extensive way. 
 
Part II 
 
 CAPITAL AND GENERAL 
 PROGRESS 
 
 (0»30) 
 
CHAPTER I 
 
 CAPITAL AND INCREASED PRODUCTION. THE 
 SCHEME OF A GREAT CAPITALIST 
 
 Growing Recognition that any General Enrich- 
 ment must be based on Increased Production 
 
 We have thus far considered capital mainly in rela- 
 tion to the exceptional conditions and the exceptional 
 costs of war. We will now consider it in relation to 
 the times and conditions of peace, which we all desire 
 to re-establish as representing the normal life of the 
 world. 
 
 The general conclusion resulting from the broad 
 facts thus far dealt with may be briefly restated in 
 other terms as follows. A conscription of capital 
 would not, except to a very small degree, provide 
 anything for purposes of war which cannot be secured 
 in a far more convenient way by direct taxation of 
 current income, or by loans. It would, indeed, shift to 
 a certain degree, from a smaller class to a larger, the 
 income irom which, for purposes of war, the State 
 must, in any case, appropriate a certain amount some- 
 how ; the total income of the richer man being dimin- 
 
44 CAPITAL, WAR, AND WAGES 
 
 ished, and the total income of the poorer man being 
 increased. But even if we leave the special costs of 
 war altogether out of the question, the average gain 
 of each worker of the poorer classes would, as com- 
 pared with what is popularly imagined, be insignifi- 
 cant. The equally distributed income derived from 
 conscribed capital would for them, and for everybody 
 else, not come to more per worker than is, 6d a 
 week. 
 
 Now, though most of the persons who demand that 
 capital should be " conscribed " have not taken the 
 trouble to reduce the meaning of such conscription 
 to definite details like these, there has been for the 
 last ten years a tendency, even amongst extreme 
 radicals, to realize a more general fact of which these 
 details are illustrations. 
 
 Examples of this Recognition 
 
 The fact in question is that, if the incomes of the 
 population generally are to be raised in the future to 
 any substantial extent, this result cannot be achieved 
 by any mere redistribution of income already exist- 
 ing, but must be looked for in a large increase of the 
 total amount produced. Thus Sir L. Chiozza Money, 
 who began his career as a statistician with fervid asser- 
 tions that all could be raised to affluence by taxing, 
 for the benefit of all, the accumulated revenues of 
 plutocrats, has subsequently insisted, in an essay 
 
CAPITAL AND INCREASED PRODUCTION 45 
 
 contributed to a volume called The Great State^ that 
 an equal division of the entire income of this country 
 would hardly suffice to raise the population to what 
 in his opinion a reasonable life required. The same 
 contention has been urged by Professor Marshall; 
 and lately many great employers, arguing in the same 
 direction, have been seeking as practical men to indi- 
 cate by what means a great increase may be effected 
 in the volume of wealth produced, the hours of labour 
 at the same time being reduced rather than prolonged. 
 Of such means the most striking is that which was 
 described by Lord Leverhulme, one of the most suc- 
 cessful of the active capitalists of the country, in a 
 long statement made by him, which was published 
 by the Observer on the 20th of January, 191 8. This 
 statement, if taken as it there stands, requires various 
 qualifications, on the need for which Lord Lever- 
 hulme has elsewhere himself insisted. But let us 
 begin with taking it on its own sole merits, seeing 
 how far it will carry us, and what deductions and 
 additions must be made from and to it if our concep- 
 tion of the principal means towards increased produc- 
 tion is to be more or less complete. 
 
46 CAPITAL, WAR, AND WAGES 
 
 The optimism of a Great Employer 
 
 As formulated by Lord Leverhulme himself on the 
 occasion just mentioned, this particular part of his 
 gospel may be briefly summed up thus: — 
 
 With regard to the immediate future of Labour in 
 this country as soon as war-work ceases, the truth is, he 
 maintains, that, unless things are grossly mismanaged, 
 there is no ground for pessimism. The natural de- 
 mand for labour will, he says, be greater, not less, than 
 the supply, one reason being the necessity for con- 
 verting as soon as possible the war-plant of factories 
 into a plant usable for satisfying the demands of peace. 
 But this, he says, is not all. When once the restitu- 
 tion of normal industry is accomplished, this restitu- 
 tion, if things are managed intelligently, will merely 
 be the starting-point for further and hitherto un- 
 exampled progress. Not only will the employers 
 ultimately be more prosperous than before, but the 
 wage -earners will benefit to a degree more signal 
 still. The total output will be so largely increased 
 that there will be for each of the latter a large addi- 
 tion to his wages; and their daily hours of labour, so 
 Lord Leverhulme estimates, may be reduced in the 
 near future to not more than six. And how is such a 
 miracle to be accomplished? 
 
CAPITAL AND INCREASED PRODUCTION 47 
 
 The Great Results promised front a More 
 Continuous Use of Existing Machine Capital 
 
 His argument, as set forth on the occasion to which 
 we are here referring, runs thus: — 
 
 If we start with assuming a specified amount of 
 labour, the total product of such labour is greater to- 
 day than it once was, because labour in the modern 
 world is aided by elaborate machinery which in earh'er 
 ages was unknown. Thus, he says, it is estimated that 
 in a modern factory, out of a total product consisting of 
 100 units, " machinery is accountable for 90 units, and 
 human labour engaged in the actual process of pro- 
 duction is accountable for barely 10". But, says Lord 
 Leverhulme, when it is estimated that machinery is 
 year by year accountable for nine times as many 
 units as the labour employed in using it, this :?stimate 
 is based on what is at present the fact — that the 
 labourers work only for eight hours a day, and that 
 the machinery is operating for only eight hours like- 
 wise. For two-thirds of every day it is idle and pro- 
 duces nothing. Hence, says Lord Leverhulme, the 
 industrial progress of the future must be looked for 
 in rendering the operations of machinery continuous, 
 so that for every 90 units which it daily produces 
 now it shall, other things being equal, produce 270 
 units, with which end in view the labourers would 
 have to work in shifts. Thus if each shift worked, 
 
48 CAPITAL, WAR, AND WAGES 
 
 as is now the case, for eight hours, then, other things 
 being equal, a factory at present giving assistance to 
 lOO men would give assistance to 300, each of these 
 three hundreds. A, B, and C, taking up the work of 
 its predecessor in the course of twenty-four hours. 
 This arrangement would mean an economy similar 
 to that practised by Box and Cox, who at different 
 periods of the day were occupants of the same bed- 
 room. One initial expenditure would provide ma- 
 chinery for 3CX) labourers just as well as for 100; and 
 if machinery used for only eight hours a day multiplies 
 the product of each labourer using it by 10, this same 
 machinery, if used for twenty-four hours, would repeat 
 this service gratuitously for 200 labourers more, thus 
 multiplying the product of labour not by 10 but by 
 30. That is to say, the continuous use of machinery 
 would, relatively to the number of workers, treble the 
 total output; and, such being the case on the as- 
 sumption that an eight-hour day continued, it would 
 be possible to diminish the working day in the pro- 
 portion of 30 to 24, and yet make wages possible 
 which the total income of the country could not pro- 
 vide to-day. 
 
CHAPTER II 
 
 SEVERAL CAUSES MUST CO-OPERATE 
 TO INCREASE PRODUCTION 
 
 Reasons for regarding this one Reform 
 as inadequate 
 
 Such IS the substance of Lord Leverhulme's main 
 argument. It is one the logic of which will be at 
 once apparent to everybody, and its general force is 
 enhanced by the fact that it is urged by a great 
 capitalist who speaks from direct and highly success- 
 ful experience. At the same time it must be noted 
 that, if we confine our attention to his immediate argu- 
 ment, the figures which he gives appear to be far too 
 high, his over-estimate being due to his omission of 
 the two following facts. 
 
 The first of these facts may be illustrated by the 
 case of ships. The engines of an Atlantic liner are, 
 as matters now stand, worked during the whole of 
 every twenty-four hours of the voyage, not for eight 
 hours only. There is here no room for improve- 
 ment of the kind which Lord Leverhulme suggests. 
 Secondly, in certain industries the part played by ma- 
 chinery is much less than it is in others, and the gain 
 
so CAPITAL, WAR, AND WAGES 
 
 to be looked for by employing it more continuously is 
 much less likewise. Thus if we may roughly measure 
 the amount of machinery employed in different in- 
 dustries by its horse-power per employed person, and 
 if, beginning with the industry — namely soap-pro- 
 duction — with which Lord Leverhulme is himself con- 
 nected, we express the amount of horse-power per 
 man by the index number lOO, the amount will be 
 lOO for the engineering trades likewise; but for the 
 textile trades it will be not more than 90, for the 
 building trades it will be 30, and for the dress-making 
 trades it will be only 5. In the agricultural industries 
 it is less even than in dress-making, and for various 
 reasons its use could never be continuous. Further, it 
 remains to be noted that in many industries or occu- 
 pations — namely those which consist of the rendering 
 of personal services, such as the services of waiters, 
 shop-attendants, and domestics, no continuous running 
 of any conceivable machinery would have any effect, 
 or appreciable effect, whatever. The horse-power of 
 machinery used, as shown by the Census of Produc- 
 tion, is only a rough indication of the efficiency of the 
 machinery itself; but the broad conclusion to which 
 these considerations lead us is that, however sound in 
 itself, and however fraught with promise the policy 
 which Lord Leverhulme set forth on the occasion here 
 referred to may be, he exaggerated the effects which 
 could result from that policy if taken alone. 
 
TO INCREASE PRODUCTION 51 
 
 The More Contimious Use of Capital must be 
 accompanied by two other Reforms — Improve- 
 ments of Machine-capital, and a New Self- 
 development on the part of the Labourers 
 
 His very exaggerations, however, are in themselves 
 instructive; for they have their origin in the fact that, 
 in urging on that occasion one series of arguments, 
 he omitted to insist on others which those very argu- 
 ments imply, and on which he has himself, in various 
 speeches and reports of speeches, insisted; and if 
 these be taken together with those now under con- 
 sideration, they may go far, as we shall see presently, 
 towards justifying hopes for which each, if taken 
 singly, affords too narrow a foundation. 
 
 Translated into terms of general economic theory, 
 the particular contention of Lord Leverhulme with 
 which we are here concerned is this: — 
 
 1. That capital, for every hour for which it is in 
 use, multiplies the product of labour, or unassisted 
 hand-work, to some extent which may in any case be 
 called enormous. 
 
 2. That capital is machinery, and is virtually nothing 
 else. 
 
 3. That, a certain amount of machinery being given, 
 the principal means by which production may be in- 
 creased in the future is a using of this machinery with 
 the utmost continuity possible. 
 
52 CAPITAL, WAR, AND WAGES 
 
 But here we come to a point at which this argument 
 will be seen to mean more than it states. Even if we 
 assume that capital in the form of machinery is the 
 sole productive agent other than current labour, 
 machinery is not an undifferentiated quantity which 
 is measurable only by the cost of the labour employed 
 in its construction. Machinery differs in respect not 
 only of its amount as measured in this way, but of its 
 quality or efficiency also. An absolutely inefficient 
 mechanism, such as the celebrated Bessemer steamer, 
 may require more labour to make than one whose 
 efficiency transcends all expectation. A modern 
 cotton-mill constructed, under scientific direction, by 
 five hundred labourers in a year would give far greater 
 aid to production than the total number of hand-looms 
 which the same number of labourers, without any such 
 direction, could construct in the same time. Thus if, 
 a certain amount of machine-capital being given, pro- 
 duction may be greatly increased by using it more 
 continuously than is done at present, another road to 
 increased production is that of improving its quality; 
 and, so far as machinery goes, it is by improving its 
 quality that the entire industrial progress of the last 
 hundred years has been achieved. 
 
TO INCREASE PRODUCTION 53 
 
 An Explanation which itself requires 
 explaining 
 
 But to say that this progress is due to improve- 
 ments in machine-capital is not to explain a problem. 
 It is merely to state the problem which requires ex- 
 plaining. The problem which requires explaining is 
 how the machine-capital of to-day, relatively to the 
 hand-work involved in its construction, has come to 
 be more efficacious than the machine-capital of earlier 
 times; and the answer lies in the fact that machine- 
 capital is not the only form of capital by which in 
 modern times the operations of labour are assisted. 
 Further, as we shall see also, there are certain forces 
 resident in the labourers themselves which, quite apart 
 from the direct operations of capital, may, whereas 
 they are now latent, be so elicited and developed as 
 to co-operate largely in increasing the total product. 
 We will first, however, consider more completely the 
 nature of capital itself. 
 
CHAPTER III 
 
 THE THREE STAGES OF CAPITAL— WAGE- 
 CAPITAL AND MODERN MACHINERY 
 
 Different Aspects of Capital 
 
 Capital, like most concrete things, may with equal 
 accuracy be defined in totally different ways, according 
 to the point of view from which it may happen to be 
 regarded. In this it resembles a man. Let us suppose 
 that a man, very large, very voracious, and at the 
 same time very agreeable, adds himself to the com- 
 pany of a dozen people at tea. Viewed from one 
 point he might be described as the life of the gathering. 
 Viewed from another point, he might be described 
 as an unwelcome intruder, who ate up so many buns 
 that the rest of the company were rendered peevish 
 by inanition. Again, the same man might have three 
 portraits painted of him, which, according as they 
 represented his profile, his full face, or his back, were 
 all equally accurate, though not a single line or contour 
 in any two of them was the same. A large number 
 of people, if asked what capital is, would describe it 
 as any property yielding the possessor a revenue on 
 which he could live without doing any productive 
 
 64 
 
THE THREE STAGES OF CAPITAL 55 
 
 work in return for it. Everybody, also, would describe 
 it at the same time as " wealth set aside for the future 
 production of more wealth". 
 
 Differences in the Substance and Functions 
 of Capital at Different Stages of its 
 Development 
 
 Now with this latter definition, although it is not 
 exhaustive, there is, so far as it goes, no occasion to 
 quarrel. Its fault is that it is applicable to concrete 
 things of very various kinds, and that, though indi- 
 cating one characteristic in respect of which they are 
 all alike, it gives no indication of those in respect of 
 which they profoundly differ. Not only does capital, 
 as we know it at the present day, comprise various 
 material substances which fulfil simultaneously very 
 different functions, but it fulfils in its later forms one 
 function in particular of which in its earlier forms it 
 shows no sign whatever. In this respect it resembles 
 the human embryo, which, beginning as an impreg- 
 nated cell, exhibits nothing at first which science can 
 identify as human, and which, even when it has reached 
 an advanced stage of development, might, so far as 
 observation can inform us, be the embryo of a rabbit 
 just as well as the embryo of a man. 
 
 If we look at capital in a comprehensive sense his- 
 torically, its existence, its growth, and its functions 
 are divisible into three stages, which we may rough) v 
 
gS CAPITAL, WAR, AND WAGES 
 
 describe as the Primitive, the Intermediate, and the 
 Modern. In the first it assumes one form and fulfils 
 one function only. In the second, this one form and 
 this one function remaining, a new form and a new 
 function develop themselves, which co-operate with 
 the first, the first two being thereby changed, not 
 greatly but appreciably. Finally, these two forms 
 and functions of capital give birth to a third, which 
 invests capital generally with a practically new char- 
 acter, and from which indeed capital derives the whole 
 of its modern efficiency. 
 
 Primitive Capital, or Rude Tools 
 
 Primitive capital consists exclusively of small and 
 very simple tools, such as chipped flints, darts, and 
 traps, the main use of all of them being to assist the 
 human hand in the capture of animals, whose flesh is 
 eaten, and whose skins are used for clothing. 
 
 Intermediate Capital, or a Sustentation Fund 
 plus Implements 
 
 Intermediate capital, which comes into being with 
 the first beginnings of agriculture and the keeping of 
 live stock,^ differs from primitive capital in the fact 
 
 * Henry George insisted that the fundamental form of capital is live stock, 
 which increases through natural and non-human causes, together with rege- 
 table products such as wine, which mature and increase in value by mere 
 process of time, whereas things like ships and machinery do neither. We 
 
THE THREE STAGES OF CAPITAL 57 
 
 that, besides comprising tools, it comprises also stores 
 of food, which, saved from one harvest or lambing 
 season, enable men to keep themselves alive till the 
 next. Such stores we may call sustentation-capital, 
 and when once they come into existence other results 
 follow. 
 
 When harvests are gathered in which feed men for 
 a longer period than that which is required for pro- 
 ducing them, men have time to multiply their tools 
 and improve them — to turn them into what, by way 
 of distinction, we may call "implements". Rudiment- 
 ary spades appear, flints being used for shaping them, 
 and ploughs in the form of selected and sharpened 
 sticks. The primitive loom appears, which is made 
 of sticks and strings ; also the potter's wheel, and the 
 quern for grinding corn. Such developments are due 
 to the average intelligence of mankind ; but they are 
 so limited in their scope that in countries where capital 
 is still in the intermediate stage implement-capital is 
 still what It was two thousand years ago. In the 
 Shetland Islands corn is, or till recently still was, 
 ground in querns — survivals of the Stone Age. The 
 native looms of India are still what they were before 
 the days of Gautama. 
 
 may describe his argument as a bisection of capital into organic capital and 
 inorganic; and for certain purposes this bisection is useful. It need not, 
 however, be pressed with any minuteness here. Animals, wines, seed kept 
 for sowing, may be here all grouped together as elements of sustentation- 
 capital or wage-capital, seed saved for sowing being the most convenient 
 type of it. 
 
 (09S6) 5 
 
S8 CAPITAL, WAR, AND WAGES 
 
 Modern Capitaly or Wage-capital, plus Capital 
 in the form of Elaborate Machinery 
 
 Modern capital embodies both the antecedent kinds, 
 but differs from them primarily in the following funda- 
 mental particular, of which all other differences are the 
 consequence. In the case of modern capital, the por- 
 tion of it which consists of a sustentation fund, or the 
 hoarded means of life, comes gradually to perform 
 new functions, of which capital in its earlier stages 
 shows no appreciable signs. In the earlier stages of 
 society every labourer is his own capitalist. This is 
 true in a double sense. In the first place the tem- 
 porary releases from mere food-production which the 
 earlier accumulations of sustentation-capital give are 
 used by the labourer according to his own devices, 
 for each man's sustentation-capital is his own. In 
 the second place, for this reason, the implements 
 fashioned by the labourers generally represent their 
 own ingenuity, or the ingenuity of the average man, 
 and the uses to which they put them represent nothing 
 but individual dexterities and judgments. But in pro- 
 portion as capital reaches its modern stage of develop- 
 ment, the sustentation fund, or the hoarded means of 
 life, though it is ultimately consumed by the labourers 
 just as it was before, passes out of their own custody 
 into that of a relatively few individuals, whose intelli- 
 gence IS above the average, and who apportion to 
 
THE THREE STAGES OF CAPITAL 59 
 
 each labourer his own means of subsistence on con- 
 dition that he performs his labour in certain special 
 ways which the intelligence of these few prescribes to 
 him. 
 
 The first distinctive result of this new development 
 of sustentation-capital appears in the change effected 
 by it in such capital as consists of implements. Im- 
 plements, which previously had represented the in- 
 tellect of the ordinary man, come gradually to repre- 
 sent the intellect of the exceptional man — of the 
 great inventor, the man of constructive imagination, 
 the master of applied knowledge; and, metamor- 
 phosed by labour, now acting under his direction, 
 these implements are developed at last into the end- 
 less complexities of modern scientific machinery. 
 
 Further, this first result is supplemented or accom- 
 panied by another. Sustentation - capital as thus 
 administered by the few is a means by which labour 
 is directed when using the machinery for what is its 
 sole ultimate purpose — namely, the production and 
 multiplication of an endless variety of goods which 
 directly minister to convenience, ease, and pleasure. 
 
 In other words, capital in its primitive stage con- 
 sists solely of a few rudimentary tools. In its second 
 stage, besides tools, it includes considerable hoards of 
 food, which will support men for a longer period than 
 that which is necessary for their renewal; and the 
 labourers thus have time, by the use of their common 
 sense, to convert mere tools into implements which, 
 
6o CAPITAL, WAR, AND WAGES 
 
 though still of a rudimentary kind, are larger or more 
 elaborate than what the word " tools " suggests. 
 
 Wage-capital as an Implement of Direction 
 
 When capital reaches its modern stage, and the 
 sustentation fund is administered not by the many 
 but by the few, sustentation -capital develops into 
 wage-capital. It becomes the means by which imple- 
 ment-capital is changed into capital embodied in the 
 form of machinery, which machinery from generation 
 to generation the intellect of the few renders more 
 and more productive, and the multiplied products of 
 which, with a view to demand and consumption, 
 the organizing intellect of the few from year to year 
 determines. 
 
 The Alternative to Wage-capital is Force, or 
 some System of Slavery 
 
 But though the essence of modern capital as the 
 producer of increased wealth resides primarily in the 
 fact that it is, in the form of wage-capital, a means by 
 which the intellect of the few directs the operations 
 of the many, this is not the only means by which the 
 same result may, to some degree at all events, be 
 accomplished. Wages are in their essence the pro- 
 duce of work performed by one man in obedience to 
 the directions of another, and are only obtainable by 
 
THE THREE STAGES OF CAPITAL 6i 
 
 the worker on condition that he obeys. But a similar 
 obedience may, as history shows, be secured by allot- 
 ting to the worker a sum equivalent to his wages in 
 any case, and then compelling his obedience by the 
 application of external force. This is the method 
 involved in all schemes of Socialism which even pre- 
 tend to have a reasoned economic basis. According 
 to such schemes all capital would be owned by the 
 State, and the sustentation element would be dis- 
 tributed amongst the citizens considered not as 
 workers but as men, the requisite work being ex- 
 torted by law backed up in the last resort by a 
 quasi-military force. But the various kinds of work 
 which the State or the community would need would 
 still be in themselves just what they are to-day; and, 
 just as happens to-day under the regime of the private 
 employer, the intellect of some central authority would 
 have to devise and prescribe them. Other things 
 being equal, the only essential difference between the 
 two systems is the difference between getting a man 
 to perform a prescribed task because he knows that 
 his daily bread will be in proportion to his diligence 
 in performing it, and giving him a maximum of daily 
 bread first and whipping him into performing his pre- 
 scribed task afterwards. The industrial object in 
 view is in both cases the same; but the wage system 
 secures it by an appeal to his head. The Socialist 
 system would secure it by an appeal to his tail. This 
 latter system is essentially the system of slavery. 
 
62 CAPITAL, WAR, AND WAGES 
 
 Pretending to represent a respect for the dignity of 
 men as men, it would really result in treating men 
 like horses. 
 
 Wage-capital the Parent of Machine-capital 
 
 The primary fact in either case is the control, by 
 whatever means it may be exercised, over the hand- 
 work of the many by the mental and moral energies 
 of a specially able few. Here we have the primary 
 cause of the modern increase of wealth — a cause 
 which operates through the possession of wage-capital 
 by persons possessing the highest directive talent; 
 and this cause gives birth to a second — that is to say, 
 capital in the form of modern machinery. Machine- 
 capital represents productive genius crystallized in 
 direct action. It is "the word made flesh". Wage- 
 capital represents productive genius in the preparatory 
 act of so directing labour that it produces machine- 
 capital, and constantly increases the extent to which 
 current labour is assisted by it. In this way machine- 
 capital, which is genius in its second incarnation, 
 increases the total product, and thus makes possible 
 and actual an increase of those " savings " by which, 
 when used as wage-capital, machine-capital is itself 
 made ampler and more effective. 
 
 Thus wage-capital, which consists primarily of food 
 and other daily necessaries, is machine-capital in its 
 protoplasmic form. Indeed, when it first comes into 
 
THE THREE STAGES OF CAPITAL 63 
 
 the hands of its possessor, it is in most cases merely 
 potential protoplasm. So far as it represents mere 
 saving on his part, it merely represents the fact that, 
 instead of spending it on his own passing pleasures, 
 he has decided on using it as the wages of productive 
 work of some kind, which practically means the pro- 
 duction of some sort of machinery; but before he can 
 so use it, it is necessary for him to determine what 
 the nature of the machinery shall be.^ Until he has 
 determined this, his wage-capital is like the log of 
 wood which Horace describes as saying: " I once was 
 the trunk of a fig tree — a piece of useless timber, till 
 a craftsman, after debating whether he should turn 
 me into a stool or a Priapus, settled on turning me 
 
 1 In order to put the matter more in detail, let us take the case of the 
 establishment of a new coal-mine. An actual case of this kind has been 
 described by Sir Hugh Bell. Before the mine could be started, or a ton 
 of coal from it put on the market, seven years' preliminary work were 
 necessary in the way of experinient, investigation, and otherwise, which 
 preliminary work swallowed up a capital of ^^600,000. The larger part 
 of this sum took the fonn of wage-capital, or the livelihood of so many 
 thousand workers, which was provided for them before their own work had 
 produced anything. In the last analysis its source was goods which had 
 been produced in the past, but for which as yet the producers had received 
 no goods in exchange. What they had received was money which could 
 be converted into goods of equivalent value, no matter of what kind, in any 
 part of the world which produced the goods required, such goods in the 
 present case consisting mainly of bread, meat, and other similar things, 
 into which money-wages are converted. These goods, so far as the pos- 
 sessors of the wage-capital were concerned, were virtually deferred pay- 
 ments for other goods which had been produced by the possessors in the 
 past, and which they now took in the form, not of personal luxuries for 
 themselves, but of goods generally necessary for the maintenance and the 
 health of all 
 
64 CAPITAL, WAR, AND WAGES 
 
 into a god". It is the directing mind of the few at 
 the back of modern capital that gives it its productive 
 efficiency, and we can see the process of its develop- 
 ment from its protoplasmic and indeterminate stage 
 upwards taking place under our very eyes. 
 
 An Example of Machine-capital emerging 
 out of Wage-capital 
 
 Let us take a concrete illustration. Let us suppose 
 that a " Tank " is an industrial, not a military me- 
 chanism. Let us suppose that it is a plough of un- 
 exampled efficiency, an agent of increased production, 
 a new addition to the machine-capital of the country. 
 Not so many months ago no such thing as a Tank 
 existed; but this piece of machine -capital did not 
 come out of nothing. It existed first in the form of 
 an idea which was confined to the minds of one or 
 a very few persons. Then this idea became asso- 
 ciated with a practical command of food -stuffs and 
 other commodities necessary for the support of a 
 number of manual workers, who, in return for these, 
 fashioned certain lumps of metal (which might have 
 been fashioned into any number of familiar things, 
 such as pokers or tongs or dust-pans) into steel plates, 
 rivets, bars, rods, cylinders, and so forth, of patterns 
 so unfamiliar that the very men who fashioned them 
 had no conception of their final purpose. Then the 
 manual workers, still in return for food-stuffs, con- 
 
THE THREE STAGES OF CAPITAL 65 
 
 formed to the direction issued by the designing mind, 
 assembled these parts and united them, and the Tank 
 as a piece of machine-capital was at last an accom- 
 plished fact 
 
 Wage-capital and the Organized Use of 
 Machine-capital 
 
 If, however, we regard such a mechanism as a type 
 of machine-capital generally, wage-capital, if merely 
 used as an implement of direction in constructing 
 it, will have done but half its work. The machine- 
 capital remains sterile until fresh labour uses it; and 
 except in very simple cases, such as that of water- 
 supply, the fresh labour that uses it requires as much 
 direction and organization as the labour which was 
 employed in its construction. An employer, for ex- 
 ample, has a factory the machinery of which renders 
 possible the production of so many thousand yards of 
 cloth, chiffon or muslin, which differ from one another 
 in respect of weight, texture, pattern, colour, and so 
 forth; and his primary object will be to devise and 
 produce those particular goods only which will from 
 moment to moment satisfy the needs or captivate the 
 capricious tastes of his customers. He must, there- 
 fore, be always directing the hand-work of his various 
 employees in such a manner that, out of countless 
 possible goods, certain special goods, and no others, 
 shall from moment to moment be produced, and that 
 
66 CAPITAL, WAR, AND WAGES 
 
 these shall be produced in certain specified quantities. 
 The whole success of his business, both from the 
 public point of view and from his own, depends upon 
 such direction; and here again it is through wage- 
 capital that the process of direction is accomplished. 
 On this occasion or on that he pays his employees 
 so many shillings a week, not for producing cloth of 
 any kind, no matter what, but of some particular kind 
 which he himself dictates. 
 
 In other words, whilst machine-capital is the proxi- 
 mate cause of increased production, machine -capital 
 itself is created by, and the uses of it depend upon, 
 brain-work which operates through the possession and 
 administration of wage-capital. 
 
CHAPTER IV 
 
 THE NOTTINGHAM LABOUR CONGRESS ON 
 BRAIN-WORK AND CAPITAL 
 
 The Truth of the Foregoing Analysis virtually 
 admitted by the Labour Congress at Not- 
 tingham 
 
 Now virtually, though not worked out in detail, the 
 fundamental correctness of the preceding analysis of 
 modern capital was admitted by a resolution passed 
 by the Labour Congress held at Nottingham in 
 January, 191 8. And that such should be the case is 
 an extremely interesting sign of how a fact which the 
 more thoughtful socialists have for a long time recog- 
 nized is becoming apparent to a very much wider 
 circle ; though it is also a sign, no less remarkable, of 
 how far the Labour Party and its leaders are from 
 grasping the full consequences of this fact, which they 
 have now placed in the forefront of their programme 
 as fundamental. 
 
 Recognition of Brain-worfz as a Factor in Pro- 
 duction, and of the Brain-worker as entitled 
 to ''the Full Fruits of his Industry " 
 
 The first article of the resolution here in question 
 declares that, when a party is said to represent 
 
 67 
 
68 CAPITAL, WAR, AND WAGES 
 
 " Labour", the conception of the " labourer" must be 
 widened, so that it shall include men who work with 
 their brains and their moral faculties, and not those 
 only who work with their hands and sinews — so that 
 it shall, for example, include "an admiral like Lord 
 Beresford on the one hand and a former official of 
 Trade Unions like Mr. Seddon on the other". 
 
 Two other Principles laid down which 
 wholly repudiate the First 
 
 So much being granted, the resolution proceeds to 
 affirm formally three fundamental principles: — 
 
 Firstly, that the general objective of any Labour 
 Party must be " to secure for each of the producers, 
 whether by hand or brain, the full fruits of his in- 
 dustry"; 
 
 Secondly " to secure the most equitable distribution 
 possible, on the basis of the common ownership of the 
 means of production"; 
 
 Thirdly, to secure " the best obtainable system by 
 which these means of production" — that is to say, 
 capital when it has been once created — "may be 
 placed under popular control". 
 
 Now, so far as it goes, the first of these three classes 
 hits the nail on the head, and requires the alteration 
 of only a single word, of which mention will be made 
 presently. 
 
 The second clause is in part a mere repetition of the 
 
THE NOTTINGHAM LABOUR CONGRESS 69 
 
 first, for the first has already defined " the most equi- 
 table distribution possible" as that which secures the 
 " full fruits of his industry for every worker whether 
 by hand or brain". But it is not a mere repetition of 
 the first. It is more. It is, curiously enough, a re- 
 pudiation of one-half of its consequences. For if this 
 second clause means anything at all, the sole meaning 
 which distinguishes it from the first is this: that when 
 " the full fruits of a man's industry, whether by hand 
 or brain", are spoken of, everything is to be included 
 in these fruits or products except such things as 
 machine -capital or the means of production them- 
 selves. In other words, if a highly-accomplished cook 
 makes perishable things, like specially nice jam-tarts, 
 he is entitled to eat all of them, or get whatever he 
 can by selling them at a special price; but that if a 
 Watt produces a permanent utility like a steam-engine, 
 however rare the brain-work necessary for such a feat 
 may be, the engine shall be treated as though it had 
 been produced by everybody, and the brain-industry 
 of the original inventor be rewarded by no proportion- 
 ate "fruits" at all. 
 
 The third clause is a recognition of the fact, which 
 has been just now emphasized here, that machine- 
 capital or engine-capital having been once constructed 
 by brain-work controlling hand-work, a further " con- 
 trol" or organization must be imposed on the hand- 
 work of the men using it; but it adds that this organ- 
 ization (which is pure brain-work or nothing) is to be 
 
70 CAPITAL, WAR, AND WAGES 
 
 " popular", which can only mean that it is to emanate, 
 not, as now, from the brains of specially gifted indi- 
 viduals, but from the brains of all men equally, whether 
 they have any special talents for complex organization 
 or no. 
 
 It will thus be seen that, though in its recognition 
 of the brain-worker as a productive agent no less truly 
 than the hand worker, and no less entitled than the 
 latter to "the full fruits of his industry", the Notting- 
 ham Resolution indicates on the part of those who 
 drew it up and assented to it a real development of 
 thought in the direction of economic truth, the develop- 
 ment is still incomplete, and is indeed in certain 
 respects altogether inconsistent with itself And these 
 imperfections, if we consider the matter more closely, 
 will be found to originate in the fact that, though its 
 authors have come to recognize brain-work as one of 
 the agencies by which production generally is in- 
 creased, they have arrived at no clear recognition of 
 the manner in which brain-work acts. 
 
 Here we are brought to another, and indeed to the 
 fundamental question. What is the manner — what is 
 the sole manner — in which brain-work as distinct from 
 hand-work does act and can act, if we consider it as 
 an agent by which wealth is increased generally? 
 
CHAPTER V 
 
 BRAIN-WORK, WAGE-CAPITAL, AND MACHINE- 
 CAPITAL 
 
 How Productive Brain-work operates 
 
 Except in a few cases, such as that of the painter, 
 in whose person brain-work and hand-work are essen- 
 tially and inseparably connected, the brain-worker 
 can add to the general wealth of a country in one 
 way only, and that is, by directing, not the move- 
 ments of his own hands, as the painter does, but the 
 movements of the hands of masses of other people. 
 If the greatest industrial brain-worker in the world 
 directed the movements of his own hands only, he 
 might personally produce something a little above 
 the average, but the efficiency of labour in general 
 would be just what it was before. Let us, for an 
 illustration of this fact, go back to our supposed 
 ag^ricultural "Tank". 
 
 ^t>* 
 
 The Industrial Brain-worker operates by 
 directing the Hands of Others 
 
 Such a mechanism let us say, when it is multiplied 
 and put on the market, doubles the product of every 
 
 71 
 
72 CAPITAL, WAR, AND WAGES 
 
 acre to the tillage of which it is applied. It adds 
 millions of pounds yearly to the value of the country's 
 crops. But if the brain-work of the inventor affected 
 his own hands only, the utmost he could do would be 
 to perfect a small model — a model of the size of a 
 perambulator — by which, if he used it himself, he 
 might double the produce of a field at the back of 
 his own house, and there the matter would end. It 
 his brain-work, as embodied in the Tank, is to be 
 made useful generally, it must be made on a large 
 scale, and it must be multiplied. 
 
 By the Use of Wage-capital the Brain-worker 
 produces Machine-capital 
 
 Let us suppose that the brain-worker who invents 
 It and who causes its multiplication are the same. 
 The raw materials of the agricultural Tank being 
 given, such a man, as has just now been said, in 
 making a practical start, must first of all be the pos- 
 sessor of a certain wage-capital. This, we may say, 
 is ;£'sooo, which he dispenses to fifty mechanics at 
 the rate, let us say, of 40J. a week for a year, on con- 
 dition that they fashion the materials in strict accor- 
 dance with his own drawings and directions; and at 
 the end of the year there are five full-sized Tanks, 
 ready to increase, when used, the agricultural output 
 of the country. But what, by that time, is the posi- 
 tion of the brain-worker himself? His original capital 
 
BRAIN-WORK, WAGE- AND MACHINE-CAPITAL 73 
 
 of ;^5000 will have disappeared. The fifty mechanics 
 will have had their own reward in eating it up and 
 living on it during the course of the past twelve 
 months, and, in consequence of the brain-worker's 
 genius, it will have reappeared as capital in the form 
 of five machines. 
 
 The ''Fruits of the Industry of the Brain- 
 worker'' come to him only through his 
 Claims on the Capital which he has him- 
 self created. 
 
 But if matters ended here the brain -worker will 
 have got no reward for his own work at all, either 
 in elaborating his designs or directing the mechanics 
 in the execution of them. He will merely have lost 
 all the capital which he once possessed; for the 
 Tanks, as they now stand, would not yield him bread 
 and butter for a day. His reward will begin only 
 when he makes over the use of this machine-capital 
 to farmers, who will pay him for the use of it out of 
 the value of the extra crops which the use of it will 
 enable them to produce.^ They will not, indeed, give 
 
 ^ It has been contended by some economists — Henry George was one of 
 them — that wages do not come out of capital at all, but represent the direct 
 result of the efforts of the wage-earners themselves before their wages are 
 paid — an argument which, if it were in any important sense true, would 
 apply to the rewards of the brain-work of the employing capitalists also — 
 to what Mill described analogically as "the wages of their superinten- 
 dence"; and there are certain cases in which it might be, or perhaps even 
 (09S6) 6 
 
74 CAPITAL, WAR, AND WAGES 
 
 him the whole of this extra quantity, for, if they did 
 so, the use of the machines would be of no benefit to 
 themselves; but they will, directly or indirectly, give 
 him a certain percentage of it. 
 
 But if, according to the terms of the Resolution 
 passed by the Labour Congress, all "the means of 
 production ", or all machine-capital, should be treated 
 as "common property", our brain-worker, instead of 
 being entitled to " the full fruits of his industry ", will 
 get absolutely nothing, or at best no more than some 
 forty-five-millionth part of them, and everything which 
 he had saved from the fruits of his previous industry 
 would be gone. That is to say, according to the 
 principles laid down by the Labour Party at Not- 
 
 is, true. A man, for example, with a capital represented by an office, 
 might collect a number of boys and employ them at a weekly wage in 
 carrying messages at a certain charge per mile, the total receipts being 
 handed over to himself, and a part of them being returned to the boys as 
 wages at the close of each week, or it might be at the close of every even- 
 ing. Wages, no doubt, would in a case like this come out of the product of 
 work already performed ; for the product of each piece of work—the de- 
 livery, that is to say, of a message — would be paid by the recipient to the 
 messenger; and the wages which the latter received subsequently would 
 come out of so many shillings which went first into bis own pocket. But this 
 is true only of peculiar and minor undertakings. It is absolutely untrue of 
 the typical enterprises of to-day. If a railway company constructs a work 
 like the Severn Tunnel, or a manufacturer constructs a factory, neither of 
 these undertakings will, in the way of products or services, yield anything 
 until it is complete. It will yield nothing out of which wages can come. 
 For the completion of either, the work of years may be necessary— for the 
 completion of the tunnel, the work of five or six years; but the wages of the 
 labourers must be paid during the whole interim ; and they can come only 
 out of capital already saved by the employers, and pre-existing in the form 
 of potential wages. 
 
BRAIN-WORK, WAGE- AND MACHINE-CAPITAL 75 
 
 tingham, all brain-work would be rewarded in pro- 
 portion to its full productive value except brain-work 
 of the higher kind, by which alone the efficiency of 
 production is susceptible of any general increase. The 
 higher brain-workers would be pariahs outside the 
 region of economic justice altogether. 
 
 The question, then, which arises is this. How is 
 it that people, who have come to see clearly up to 
 a certain point, show themselves so incapable of any 
 clear vision beyond it that their second and third 
 principles absolutely contradict their first? 
 
CHAPTER VI 
 
 THE CO-OPERATION OF VARIOUS CLASSES IN 
 ACCORDANCE WITH THEIR RESPECTIVE 
 POWERS. 
 
 Confusion arising from an Inaccurate Use 
 of Language 
 
 Let us turn back for a moment to an observation 
 which has been made already, and which relates not 
 to the substance of their first principle but to its 
 wording. It has been said that, as the Labour Party 
 states it, their first principle requires one verbal amend- 
 ment. The amendment referred to is as follows. In 
 order to make the meaning of their statement clear, 
 for the word " labour'* should be substituted the word 
 ^^ efforV\ which includes, as commonly used, brain- 
 work as well as hand-work, the word "labour" being 
 popularly understood as designating the latter to the 
 implied exclusion of the former. 
 
 Substitution of the Word ''Effort " for the 
 Words ''Brain-work and Hand-work'' 
 
 If this verbal amendment be made, what is now 
 called the Labour Party will reappear as the Effort 
 
 76 
 
THE CO-OPERATION OF VARIOUS CLASSES 77 
 
 Party; and the only conceivable difference, so far as 
 fundamentals are concerned, between it and any other 
 party would be that an Effort Party or an Effort 
 Government would stand for the principle that power 
 should be vested solely in persons whose lives are, or 
 have been, devoted to useful effort of one kind or 
 another. But even this difference would be more or 
 less illusory; for the mere exercise of governmental 
 power is an arduous effort in itself. 
 
 The Real Logic of the Labour Party Attacks — 
 no Income from Capital, but Recurring 
 Income from, Inherited Capital 
 
 To talk, therefore, of an Effort Party or an Effort 
 Government would seem at first sight to be a mere 
 piece of tautology; and it is obvious that, however 
 fully those who now call themselves the Labour Party 
 have come to recognize brain-work as a genuine pro- 
 ductive agent, they have at the back of their minds 
 some meaning less barren than this. Such would be, 
 indeed, the case even if they recognized capital, and 
 those results of its use which are commonly called 
 interest, as the legitimate property of those whose 
 efforts had in the course of their own lives produced 
 it. But quite apart from the income thus derived, an 
 income accrues to many persons from capital which 
 has been inherited, and not created by themselves; 
 which they do not even administer by their own brain- 
 
78 CAPITAL, WAR, AND WAGES 
 
 work in using it, but simply invest, or lend to others 
 whose brain-work makes it fructify; and the logical 
 meaning of the Resolution passed by the Nottingham 
 Congress, self-contradictory as it stands, boils itself 
 down to this — that the means of production, or the 
 capital, which should be treated as "common pro- 
 perty", comprises not all capital but only such portions 
 of it as their present possessors have not created but 
 inherited. 
 
 An American Socialist on Inherited Income 
 
 This has been plainly stated by one of the leading 
 Socialists of America. According to any sane con- 
 ception of brain-work, any man, he says, is entitled 
 to the uttermost farthing he can get for it. Further, 
 with one limitation only, he is entitled to spend it as 
 he likes; and if he has not spent the whole of it at his 
 death, he may, with this same limitation, be even 
 entitled to transmit the residue to his son. The 
 limitation imposed equally on father and son is that, 
 whilst father and son may consume their wealth on 
 their own transitory enjoyments, they may not convert 
 it into any permanent utility which would assist in 
 the production of more wealth, and thus yield them 
 a permanently recurring income. For example, he 
 says, "a great singer like Melba" might legitimately 
 make 150,000 dollars in the course of a single opera- 
 season, and spend it, if she liked, on dresses and in 
 
THE CO-OPERATION OF VARIOUS CLASSES 79 
 
 entertaining her friends; but she would not be allowed 
 to spend it in constructing " a block of houses in New 
 York", for the use of which she or her heirs would 
 receive an "annually recurring rent". 
 
 The Small Popular Gain front any Mere 
 Redistribution of Inherited Incomes 
 
 Now without pausing to consider (for space does 
 not admit of this) the general effects of a law which 
 would encourage men to eat up "the full fruits of 
 their industry ", and practically render the construction 
 of all permanent utilities penal, it will be enough here 
 to say a word or two as to a matter yet more im- 
 portant. Of the various causes operating in the ranks 
 of the Labour Party which lead them to demand the 
 conversion of all inherited capital into "common 
 property", the most active cause is, not any general 
 theory, but a belief as to simple fact. This is a belief, 
 carefully fostered by agitators, that the income from 
 inherited capital in a country such as our own forms 
 so huge a proportion of the national income in its en- 
 tirety, that a distribution of it "on the basis of common 
 property" would suffice to raise all, even the least 
 efficient, to conditions of leisure and affluence never 
 before experienced or even approached by the masses 
 of any nation in the history of the human race. 
 
 In the earlier portion of the present volume this 
 question has been dealt with already. In my recently 
 
8o CAPITAL, WAR, AND WAGES / 
 
 published work, The Limits of Pure Democracy ^ it is 
 dealt with in greater detail. It will be enough here 
 to repeat in more general terms that, whilst the net 
 spendable income from inherited capital in a country 
 like our own is considerable, it is something absurdly 
 small if compared with the magnitude which the 
 imagination of the Labour Party attributes to it. If, 
 for example, it were treated as " common property ", 
 and added to the direct " fruits of the life-industry of 
 living men ", it would not, for the wage-earning classes, 
 mean one-third of the gain which they have actually 
 achieved between the death of Lord Beaconsfield 
 and to-day. And these observations bring us back 
 to Lord Leverhulme, who predicts, as we have seen, 
 a gain incomparably greater than this in the course 
 of a few years, which has nothing to do with the con- 
 version of capital from individual into common pro- 
 perty, but relates solely to the possibilities of increased 
 production. 
 
 Summary of the Means by which the Masses may 
 in the Future secure Substantial Enrichment 
 
 It has been pointed out in the preceding pages that, 
 for various reasons, there definitely specified, Lord 
 Leverhulme's promise of a vastly increased production 
 with a concurrent diminution of labour-hours, rests, 
 if it relates merely to the more continuous use of 
 machinery, on too narrow a basis. It has been, how- 
 
I 
 
 THE CO-OPERATION OF VARIOUS CLASSES 8i 
 
 ever, pointed out also that there are two other changes 
 which are at least equally practicable, and on which 
 indeed, in certain of his utterances, Lord Leverhulme 
 has himself insisted ; and if these two others are ac- 
 complished in connection with the first, the three 
 together may go far in the direction of rendering 
 Lord Leverhulme*s optimistic promise a reality. 
 
 The Constant Improvement of Machine-capital 
 
 One of these is in its general character so simple 
 and obvious that it is enough merely to mention it 
 It consists, not in the more continuous employment 
 of the machine-capital now existing, but of concurrent 
 improvements of it by brain-work of the highest qua- 
 lity. The other change — and from certain points of 
 view it is even more important — requires a more 
 detailed explanation. 
 
 A Higher Development by the Labourers 
 of their own Faculties 
 
 If we take any average labourer, we may say, 
 speaking broadly, that his labour if he works for 
 wages (or in other words if he works under the tech- 
 nical direction of an employer) differs from his labour 
 if he works independently, and directly consumes or 
 sells his own isolated product, in the fact that his 
 technical actions are in the latter case mapped out 
 
82 CAPITAL, WAR, AND WAGES 
 
 for him and co-ordinated with the actions of others 
 by a mind external to his own, the general char- 
 acter of his work being not necessarily different in 
 its character from what it was before. A carter who 
 transported in a cart the most elaborate of scientific 
 mechanisms, from the places where the parts were 
 made to the place where they were assembled and 
 put together, would be doing work in no way different 
 from that which a mediaeval farmer did when he 
 carted so much barley. 
 
 Watt and his Workmen 
 
 When Watt and his capitalist partner began to- 
 gether the commercial production of steam-engines, it 
 was very difficult to get out of the mechanics employed 
 by them work more accurate than that which had 
 been necessary for constructing the axles and wheels 
 of coaches. Even so, however, the steam-engines 
 fashioned by the mechanics working under Watt's 
 direction were a vast addition to the productive powers 
 of the country. But, as Watt soon discovered, the 
 work of even his best mechanics was so rough in kind 
 that a large part of the steam-power was, by leakage, 
 wasted. He had therefore to train them, or induce 
 them to train themselves^ to an accuracy of work of 
 which previously they had no idea, the reason being 
 that, prior to Watt's inventions, no accuracy of this 
 novel degree was necessary. The mechanics, however, 
 
THE CO-OPERATION OF VARIOUS CLASSES 83 
 
 did acquire it when once Watt had presented them 
 with opportunities for its productive use. In The 
 Limits of Pure Democracy (Chapter III, Book III) I 
 have dealt with this question at length. It is enough 
 here to say that what applies to the making of steam- 
 engines under the direction of a genius like Watt, 
 applies to modern labour generally as distinguished 
 from the labour of a hundred years ago. New kinds 
 of precision, alacrity, and punctuality are needed, and 
 have been developed now, which had not been de- 
 veloped, because they were not needed, then. The 
 opportunities for this development and new differenti- 
 ation of faculties has come from above. The develop- 
 ment itself has come from below. It represents on 
 the part of the labourers, not a mere passive submis- 
 sion to the directions of the scientific employer; it 
 represents an active response to them, which originates 
 in the labourers themselves. 
 
 Thus, if we suppose two things to be given, namely, 
 the highest scientific direction on the one hand and a 
 mass of labourers on the other — the latter, even if 
 their labour was merely of the crudest kind, would 
 produce considerably more than they would do if they 
 worked independently ; but if, opportunities being de- 
 vised for them, they by their own exertions developed 
 their own latent faculties further, the total product 
 would be indefinitely greater still. In other words, 
 under the modern system of industry there is always 
 a margin between the total product as it is, or as it 
 
84 CAPITAL, WAR, AND WAGES 
 
 would be if the labourers developed their own faculties 
 to the utmost, and the total as it is, or would be if the 
 labourers did or do no more than would just make it 
 worth while for the capitalist to provide them with 
 capital and employ them. 
 
 Reserves of Alacrity in the Labourers which 
 are still waiting to be developed 
 
 Now to-day, in the opinion of all, there is a great 
 volume of alacrity which is latent in the labourers 
 themselves, and which would, if fully exerted, increase 
 the total product of this country immensely, but which 
 is at present developed and exercised by them to a 
 relatively small degree. Indeed, in this country, at all 
 events, it has been the avowed policy of Trade Unions 
 to repress this development, and thus induce what is 
 called "a limitation of output". It might seem diffi- 
 cult to conceive a policy more insane than this; but 
 it has nevertheless an intelligible logic at the back 
 of it. 
 
 What is mainly needed to secure the Exercise 
 of this Latent Labour-power 
 
 What the wage-earners tell themselves is that, as 
 matters are now arranged, they get a certain wage for 
 a certain minimum of effort, but that, if they developed 
 and exerted their own faculties further, they would 
 
THE CO-OPERATION OF VARIOUS CLASSES 85 
 
 get no proportionate reward in the way of extra wages 
 for themselves. A properly scientific wage scheme 
 would render this complaint impossible. It would 
 aim at securing for all extra effort — namely that which 
 depends on the voluntary self-education of the labourer 
 — a super-reward proportionate to the extra amount 
 produced, and would thus call into operation large 
 industrial forces which are at present latent because 
 there is no inducement, or no general inducement, to 
 exercise them. 
 
 The methods by which most conveniently and ac- 
 curately this super-reward may be allotted — whether 
 it would be by way of shares held by the wage-earners 
 in the capital of this or that business, or by the de- 
 velopment of piece-work or otherwise — would differ 
 according to the nature of the particular business in 
 question; but in all cases the underlying principle 
 would be the same — namely, that all effort beyond 
 a certain minimum should be certain of receiving a 
 reward equivalent to its productive value. 
 
 The Three Main Means of Increased 
 Production in the Interests of All 
 
 The main reforms, then, to which we may reason- 
 ably look forward as the means of approximately 
 realizing the promises which Lord Leverhulme out- 
 lines — namely, a large increase of wages, together with 
 a diminution of toil — are three : — 
 
86 CAPITAL, WAR, AND WAGES 
 
 1. The more continuous use of existing machine- 
 capital ; 
 
 2. The improvement of machine -capital by the 
 genius of the inventor, the discoverer and the organizer, 
 in which category we may include new processes and 
 a more economical use of motive-power and means of 
 transport ; 
 
 3. A practical development on the part of the wage- 
 earners of alertness and energy now largely latent for 
 want of sufficient inducement in the way of accurately 
 graded reward to exercise them. 
 
 The Highest Wages in the World are those now 
 paid by Certain of the Greatest Capitalists 
 
 Those reforms have nothing whatever to do with 
 loose schemes for making capital common property, 
 or placing the use of capital under the joint control 
 of everybody. They have nothing to do with the 
 idea of making the wage-earners richer by making 
 the employer poorer. The highest wages ever paid 
 in the world's history have been paid by American 
 employers, such as the Ford Company, whose own 
 profits have been enormous. The reforms here indi- 
 cated may lead in the near future to the beginnings 
 both of great increase and a general diffusion of 
 wealth. An attempt to realize these processes by mak- 
 ing capital common property, and using it under the 
 control of everybody, would arrest or paralyse both. 
 
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