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 THE DISTRIBUTION OF INCOME
 
 MACMILLAN AND CO., Limited 
 
 LONDON • BOMBAY • CALCUTTA 
 MELBOURNE 
 
 THE MACMILLAN COMPANY 
 
 NEW YORK • BOSTON • CHICAGO 
 DALLAS ■ SAN FRANCISCO 
 
 THE MACMILLAN CO. OF CANADA, Ltd. 
 
 TORONTO
 
 THE 
 
 DISTRIBUTION OF INCOME 
 
 BEING A STUDY OF WHAT THE NATIONAL WEALTH 
 
 IS AND OF HOW IT IS DISTRIBUTED ACCORDING 
 
 TO ECONOMIC WORTH 
 
 BY 
 
 WILLIAM SMART, M.A, D.Phil., LL.D. 
 
 ADAM SMITH PROFESSOR OF POLITICAL ECONOMY 
 IN THE UNIVERSITY OF GLASGOW 
 
 25/3V 
 
 UEhc Rational jptrioenb is at once the aggregate net 
 $roinet of, a no the sole Source of Pigment for, all 
 the Instruments of $robttction iotthin the (Eountrg.— 
 
 Marshall. 
 
 SECOND EDITION 
 
 MACMILLAN AND CO., LIMITED 
 ST. MARTIN'S STREET, LONDON 
 
 I 91 2
 
 
 TO 
 
 JOHN ST. LOE STRACHEY 
 
 A RESPECTFUL TRIBUTE TO HIS PUBLIC SERVICE 
 AS EDITOR OF THE ' SPECTATOR '
 
 PREFACE TO THE SECOND EDITION 
 
 I published this book in 1899, after many years of 
 writing and revision. Since then I have had to go 
 over the subject with my students once a year, criticis- 
 ing myself, finding Distribution each time more 
 fascinating in itself and more serious in its issues. 
 I had, besides, for three busy years on the Poor Law 
 Commission, the unique experience of asking ques- 
 tions and gathering evidence from all the great and 
 little industries of the country, visiting workshops, 
 factories, docks, coming into contact with employers, 
 employed, Trade Union leaders, officials, and econo- 
 mists ; and I should have made bad use of my time if 
 I had not been constantly re-considering all I had 
 written in the light of this great mass of facts and 
 opinions. 
 
 If now, in this second edition, I make no change in 
 the substance of the argument — I call it an "argu- 
 ment," for it is one long chain from end to end — 
 it is some testimony that a'ge and experience have 
 only confirmed me in my conviction of its soundness. 
 If I had any hesitation a dozen years ago, when I 
 worked out the thesis that the principle which rules
 
 viii PREFACE TO THE SECOND EDITION 
 
 in and explains the distribution of wealth is that of 
 payment according to the "economic worth" of the 
 factors which produce the wealth, I have none now. 
 
 But, as will be seen from the final chapter, I am 
 less satisfied than I was with the issues of our system. 
 In the enthusiasm of comparative youth, I thought it 
 a fine thing to have demonstrated that the existing dis- 
 tribution was not "unjust," inasmuch as, on the whole, 
 the several incomes which made up the National 
 Income were not arbitrary sums, but payments for 
 goods produced and services rendered to society, and 
 that the equivalence between payment and service was, 
 in the main, secured by perpetual competition to pro- 
 duce the goods and services. But a distribution may 
 justify itself on purely economic grounds, and may yet 
 leave much to be desired. For the very reason that our 
 employers exact equivalence between service rendered 
 and payment, they will not give work and wage to the 
 human factor unless it is at least as profitable as the 
 capital factor ; and, in the competition of the two, 
 the human factor, as a whole, may not be keeping its 
 place. The " survival of the fittest " may be an admir- 
 able thing in Nature, where the organisms which 
 cannot hold their own die and are done with. It is 
 not so admirable in Society where they must be kept 
 alive, and where the survivors have to drag an increas- 
 ing burden of the failures. If I may use once again 
 a parallel which has done good service: The great 
 Duke's army in the Peninsula could in time "go
 
 PREFACE TO THE SECOND EDITION ix 
 
 anywhere and do anything," but it was only after 
 the raw levies had been reduced by privation and 
 disease, and every soldier left was like toughened steel. 
 So now-a-days, in the course of strenuous evolution, 
 the army of industry has become exceedingly efficient, 
 very much because the standard of man is rising, and 
 admittance refused to any but those who are able to 
 do the work required. The result, so far as it is seen 
 in an ever-increasing income of wealth, is all that 
 need be desired. But what of those who are " not 
 good enough " for the ranks ? The growth of science, 
 and the great rewards attaching to its application, 
 have made industry a highly organised machine. It 
 is abundantly evident that ability to work and willing- 
 ness to work — which, once a day, may have secured 
 a man in bread and butter at least — will not by them- 
 selves now give any man a wage unless he can find 
 his place in that machine. And, to fill such a place, 
 great numbers may be " unfit." 
 
 I have seen much of the " unemployed," at Distress 
 Committees and elsewhere. I gladly bear witness that 
 the majority of them were " unemployable " by their 
 own fault. But, all the while, the conviction has 
 been forcing itself upon me that most of the others 
 were unfitted, by the environment in which they had 
 grown up, and by the intellectual poverty of their early 
 life, for anything better than casual labour. 
 
 As I have indicated, there is no reason for despair — 
 no reason for turning back and destroying machinery,
 
 x PREFACE TO THE SECOND EDITION 
 
 as the labourers in 1830 did the threshing machines — 
 no reason for overturning the fine fabric of efficient 
 industry which time and science have built up. All 
 that is wanted is recognition of the situation, and 
 resolution to act upon it. The way of escape is, of 
 course, to fit every man to take the place where 
 industry, with all its mechanical perfection, requires, 
 and will always require, the brain, and initiative, and 
 resources of the responsible human being. But this 
 involves adding years to the compulsory education 
 of the young generation, letting the inefficient die 
 out. Whether the nation is prepared to face the huge 
 organisation and inevitable expense of this or not, I 
 do not know. I have at any rate done my best to 
 show that it is the only way. 
 
 WILLIAM SMART. 
 
 University of Glasgow, 
 January, 191 2.
 
 PREFACE TO THE FIRST EDITION 
 
 This book reflects a part of my own mental history. 
 A man who takes up the systematic study of Econo- 
 mics only after a considerable apprenticeship to practical 
 business life, has to spend some years not so much in 
 acquiring knowledge as in revising his experience 
 and getting rid of misconceptions. He naturally be- 
 comes critical of common opinions, of wide generalisa- 
 tions, and of short cuts to serious conclusions. In a 
 study which deals so much more with men than with 
 things, he finds the difficulty of ascertaining the exact 
 truth about even the most ordinary economic occur- 
 rence, and becomes, if not cynical, at least impatient 
 of other men's credulity. He becomes less and less 
 disposed to dogmatise, knowing very well that a man's 
 development on any side of his subject often stops from 
 the time when he comes to a reasoned conclusion 
 about it. Hence he becomes known as a silent man 
 who asks questions, and he incurs very likely the 
 reproach of being a blind leader because he will not 
 pronounce on such a thing as a labour dispute till long 
 after the dispute has settled itself. He has nothing 
 of the cloud-compelling confidence of other scientific
 
 xii PREFACE TO THE FIRST EDITION 
 
 teachers. By the nature of his subject he ought to 
 be — and, I think, generally is — the humblest of men, 
 and is indeed only too apt to spend the best years of 
 his life in waiting for more light, and meantime 
 throwing cold water on other people's enthusiasms. 
 If afterwards he feels any superiority to his students, 
 it is not that he knows a little more than they, but 
 that he knows how little any one can know of law and 
 order in this many-motived work-a-day life of man. 
 
 Thus for some years I shrank from grappling in 
 earnest with the supreme problem of Distribution ; 
 waiting, I might say, till the unconscious influences 
 of learning and teaching made up my mind for me. 
 For, as Adam Smith says, a teacher " obliged to go 
 every year over the same ground, if he is good for 
 anything, necessarily becomes, in a few years, well 
 acquainted with it ; and if, upon any particular point, 
 he should form too hasty an opinion one year, when he 
 comes in the course of his lectures to reconsider the 
 same subject the year thereafter, he is very likely to 
 correct it." When, however, the duty could no longer 
 be denied, I decided to take my own difficulties as prob- 
 ably representing those of the ordinary man. If my 
 brother economists find this procedure tedious, and are 
 disposed to think that I arrive at familiar conclusions 
 by tortuous paths, I can only say that, from my busi- 
 ness experience, I am perhaps more likely than they 
 to know what are the lines of thought alone which 
 the ordinary man moves, and what are the difficulties
 
 PREFACE TO THE FIRST EDITION xiii 
 
 which prevent his freer acceptance of those familiar 
 conclusions. 
 
 The first thing to be done was to get a definite 
 idea of what it is that is distributed under the name of 
 Wealth, and the result of the inquiry is contained in 
 Book I. As I wrote this, it became clear to me that, 
 of the vast National Income which this country enjoys, 
 a great deal is distributed while and as it is made ; 
 that, in short, the production process as we know it 
 is also a distribution process. Following this clue, I 
 began with the personage who, in the present state of 
 things, is primarily the paymaster of organised in- 
 dustry, the employer, and tried to find how his 
 payments are conditioned and overruled. Working 
 along this line, I was forced to see that, whatever 
 hard names may be applied to the results of this dis- 
 tribution, the distribution is not arbitrary, much less 
 chaotic. 
 
 Hence, beginning with no thought of doing more 
 than setting forth the methods of the present distribu- 
 tion of wealth, I have found myself led to express an 
 opinion on its merits. One may, perhaps, imagine a 
 better distribution, although, it seems to me, it is 
 not easy to do so except by assuming that society 
 is much simpler than it is, or that it is willing to 
 renounce many of its motives as well as its gains. 
 Nor am I insensible to its anomalies and hardships : 
 I confess, indeed, that they are enough to confuse 
 the generous mind and drive it to ill-considered
 
 XIV 
 
 PREFACE TO THE FIRST EDITION 
 
 action, and I find myself rather apt to think that there 
 is something wrong with the student who begins his 
 economic studies in any admiration of the status quo. 
 But when the question is whether a regulated state 
 control according to any social or socialist ideal would 
 bring us conditions of life wherein all would have the 
 possibility of realising their moral being, or of being 
 what is called " happy," I am disposed to think that 
 the " invisible hand" — however one interprets Adam 
 Smith's reference — is bringing about these conditions 
 more quickly than any deliberate rearrangement of 
 industry would. As " man's unhappiness comes of 
 his greatness," so does our dissatisfaction with the pre- 
 sent distribution come from the knowledge of what 
 wealth has done for some, and from the want of 
 knowledge that there is not yet enough of wealth to do 
 the same for all. A little better knowledge of history, 
 or a teaching of history that would try better to repro- 
 duce the everyday life and environment of the common 
 people in past generations, would make us more 
 content. The fact that many rich men get more than 
 they deserve is obvious ; it seems to have been over- 
 looked that even a very poor man may be getting more 
 than he is worth. 
 
 I am well aware that to give a deliberate judgment 
 on this subject is probably the most responsible act 
 of an economist's life, and that to give the one I 
 have expressed will probably relegate me, in the 
 opinion of many with whom I have been associated
 
 PREFACE TO THE FIRST EDITION xv 
 
 and whose goodwill I most value, to the rank of the 
 " high and dry " economists ; but, as an honest man, 
 ich kann nicht cinders. It may, perhaps, carry the 
 more weight if I say that I began writing with a 
 long-rooted conviction that the present distribution 
 was bad, even unjust, and that I did not know from 
 chapter to chapter where the argument would finally 
 lead me in this respect. 
 
 Part of my task, I gratefully acknowledge, has 
 been made easier than it would have been two years 
 ago by the publication of Mr. and Mrs. Webb's 
 Industrial Democracy. Accepting it as by far the 
 most able and exhaustive account and defence of 
 Trade Unionism, I have not gone outside its pages 
 for information of what Trade Unionism is and what 
 it aims at. 
 
 My thanks are due to my colleague, Professor 
 Stockman, the Rev. Bruce Taylor, and Mr. John 
 G. Kerr, who have assisted me with statistics, 
 and to many others. But most of all am I in- 
 debted to the Nestor of English economics, Professor 
 Alfred Marshall, and to my friend Mr. Edwin Cannan. 
 The book itself could not have been written but 
 for Professor Marshall's Principles, which I have 
 used as text-book for some years, and in which, 
 at each revision, I find unexpected depth and fresh 
 suggestion ; and its author, in this as on many 
 other occasions, has been my kindliest critic and
 
 XVI 
 
 PREFACE TO THE FIRST EDITION 
 
 helper. If the chapters on the Mobility and the 
 Substance of Capital are at all clear, I owe it to 
 Mr. Cannan's scholarly and exhaustive Theories of 
 Production and Distribution, and to his keen and 
 patient criticism when the sheets were in proof. 
 
 Finally, I should be untrue to the conviction 
 as to what I have called on p. 67 "the greatest unpaid 
 service of all," if I did not acknowledge that if I 
 have done anything worth doing, either in this book 
 or elsewhere, it has been by the faithful co-operation 
 of her who has given me the necessary condition of 
 continuous quiet work, the peace of home. 
 
 WILLIAM SMART. 
 
 University of Glasgow, 
 July, 1899.
 
 CONTENTS 
 
 BOOK I 
 
 THE NATIONAL INCOME 
 
 CHAP. 
 
 i. The Problem ..... 
 
 2. The Money Income .... 
 
 3. The Real Income ..... 
 
 4. The Relation of the Real Income to the 
 
 Money Income ..... 
 
 5. The Real Income as a Sum of Goods pro 
 
 duced or Services rendered 
 
 6. Income as an Annual Phenomenon 
 
 7. Income as a Growth from some Permanent 
 
 OTOCK •••••• 
 
 8. The only Permanent Stock . 
 
 9. The Real Income of a Purely Economic 
 
 State ...... 
 
 10. The Real Income of the Modern State 
 
 11. Income which escapes both Notice and 
 
 Assessment ..... 
 
 12. The Limitation of Money Incomes by the 
 
 Real Income ..... 
 
 PAGE 
 
 3 
 
 5 
 8 
 
 11 
 
 20 
 3i 
 
 35 
 44 
 
 50 
 59 
 
 66 
 
 77
 
 XV111 
 
 CONTENTS 
 
 CHAP, 
 I. 
 
 2. 
 
 3- 
 
 5- 
 6. 
 
 7- 
 8. 
 
 9- 
 
 io. 
 
 1 1. 
 
 12. 
 
 13- 
 
 14. 
 
 16. 
 
 •7- 
 18. 
 
 19. 
 
 20. 
 
 21. 
 
 BOOK II 
 
 THE DISTRIBUTION OF THE INCOME 
 
 The Problem ..... 
 
 The Employer ..... 
 The Employer's Interest in keeping up 
 
 I RICES • • • • • • 
 
 The Employer's Interest in keeping down 
 
 Cost : Substitution .... 
 The Defence of Substitution 
 The Employer's Interest in keeping down 
 
 Cost : Buying Labour cheap 
 The Appeal from the Individual . 
 Masters and Men ..... 
 The Appeal to the Trade . 
 The Appeal from Trade to Trade 
 The Trade Mobility of Labour . 
 The Mobility of Capital 
 Taking our Reckoning .... 
 Subsistence Wages ..... 
 The Subsistence of Capital . 
 The Weakness of a Subsistence Theory of 
 
 Distribution ..... 
 The Failure of Efficiency to sustain Wages 
 A Wrong Scent ..... 
 A Supposititious Case and its Lessons . 
 Trade Unionism : for and against Cheap 
 
 Labour ...... 
 
 Trade Unionism : the Powerlessness of the 
 
 Individual 
 
 PAGE 
 
 93 
 1 1 1 
 
 116 
 
 122 
 
 132 
 
 139 
 
 H7 
 
 155 
 164 
 
 167 
 170 
 178 
 183 
 193 
 203 
 
 210 
 216 
 223 
 231 
 
 245 
 25 8
 
 CONTENTS xix 
 
 OHAP. PAGE 
 
 22. Trade Unionism : Collective Bargaining and 
 
 the Standard Rate . . . . .261 
 
 23. Trade Unionism : its Disclaimer . . .271 
 
 24. Trade Unionism : its Direct Effect on 
 
 Wages ....... 277 
 
 25. Trade Unionism : its Indirect Effect on 
 
 Wages 288 
 
 26. Rent ........ 297 
 
 27. Professional Incomes ..... 307 
 
 28. Is it an "Unjust Distribution?" . .321 
 
 29. Some Conclusions . . . . . -334 
 
 INDEX 34i
 
 BOOK I 
 
 THE NATIONAL INCOME
 
 incomes. 
 
 CHAPTER I 
 
 THE PROBLEM 
 
 The -words National Income are generally used either for the sum of the 
 money incomes annually received, or for the total of the commodities and services 
 annually produced. These nuo "incomes" require, first, to be separately 
 explained and analysed, and, afterivards, to be put in definite relation to each 
 other. 
 
 " The National Income," say the statisticians, " is The two 
 about £2,000,000,000 a year." 
 
 " The National Income," say the economists, " is 
 the net aggregate of commodities, material and im- 
 material, including services of all kinds, produced 
 within the year." x 
 
 Unless statisticians and economists are speaking of 
 two different things under one ambiguous name, it 
 would seem that the net aggregate of " commodities " 
 produced within the year is, somehow or other, priced 
 at £2,000,000,000. 
 
 When the two propositions are thus set side by 
 side, and the relation between them is directly 
 challenged, this would probably be accepted without 
 question. But they are not usually put side by side. 
 
 1 " Everything that is produced in the course of a year, every service 
 rendered, every fresh utility brought about, is a part of the national 
 income." — Marshall : Principles of Economics, 4th ed. p. 150.
 
 THE PROBLEM book i 
 
 The ordinary man, whether landowner, or capitalist, 
 or wage-earner, thinks with the statistician. His 
 income appears at his credit in money figures or is 
 paid over to him in money. It is his income that 
 he "spends," and what he spends is money. He 
 never thinks of his income but in terms of pounds, 
 shillings, and pence. 
 
 The economist, on the other hand, with some 
 reason, rather distrusts the money income. The 
 first years of his training are spent in getting behind 
 the disguise thrown by money over the real wealth 
 which it names and measures : he becomes so 
 conscious of the inadequacy and ambiguity of the 
 money measurement that he often fights shy of it 
 altogether, and speaks of income as " commodities 
 and services," forgetting that in so doing he has 
 stepped off the platform of the ordinary man. At 
 the same time it may be confessed that he is not 
 altogether consistent in this attitude. Usually when 
 he passes from the consideration of the making of 
 goods to the consideration of selling them and of 
 distributing the proceeds among the various productive 
 factors, he falls into the habit of the people around 
 him, and thinks of income as merely so many shillings 
 or sovereigns. 
 Subject of Three things, then, claim our consideration. Firstly, 
 
 the Money Income requires explanation and analysis. 
 Secondly, we require to get behind the money 
 income to the Real Income, and find its nature and 
 sources. Thirdly, the Money Income and the Real 
 Income require to be put in definite relationship. 
 
 Book I.
 
 CHAPTER II 
 
 THE MONEY INCOME 
 
 Statisticians new calculate the National Income, in terms of money, at 
 £2,000,000,000, making up the sum from the Income Tax returns, from the 
 Estimate of Wages, and from a calculation of the earnings of an "intermediate 
 class." It is a total of rents and quasi-rents, profits, dividends, interest, 
 salaries, and •wages. 
 
 According to the most recent calculations, the 
 National Income, in terms of money, is now about 
 
 J ^2,000,000,000. 1 
 
 1 In 1798, when estimating the sum which might be realised from 
 his first Income Tax, Pitt took the incomes which might be expected 
 to contribute at a little over £100,000,000, and Lord Auckland con- 
 sidered that the other incomes might amount to as much again. (This 
 did not include Ireland.) In 1802, Sir Robert Peel estimated the total 
 income at £300,000,000. The first methodical calculation, however, 
 was made by Dudley Baxter in his National Income (1868), when he 
 computed the aggregate income of the people for the previous year at 
 £814,000,000. Before the Statistical Society, in 1878, Sir Robert 
 Giffen, taking the returns for the year 1874-5, estimated the National 
 Income at about £1,200,000,000. In the Growth of Capital (1889), he 
 revised his figure from the returns of 1884-5, and made out the income 
 at about £1,350,000,000. In 1903 (British Association meeting at 
 Southport), he estimated it at £1,750,000,000. In 1904, Professor 
 Bowley (Economic Journal) hazarded the guess that the National Income 
 was not far off £1,800,000,000. Mr. Chiozza Money (Riches and 
 Poverty), on the returns of 1908-9, put it at £1,844,000,000. On the 
 basis of methods approved by a Committee of the British Association 
 (including Professors Bowley, Cannan and Edgeworth), the National 
 Income, at the present time, may safely be set down at £2,000,000,000.
 
 6 THE MONEY INCOME book i 
 
 The This imposing sum is made up of three groups : (i) 
 
 statistical I ncomes which come under the cognisance of the 
 
 basis. ° 
 
 Income Tax Commissioners ; (2) Incomes received as 
 Wages ; (3) Incomes not included in either of the 
 other two. 
 
 (1) The Income Tax returns give an official account 
 of the incomes above £160. Schedule A contains 
 mainly incomes from Lands and Houses ; Schedule B, 
 Farmers' Profits ; Schedule C, incomes from Public 
 Funds. Schedule D shows the incomes from Quarries, 
 Mines, Iron, Gas, Salt, and Water Works, Canals, 
 Fishings and Shootings, Markets and Tolls, Cemeteries, 
 Public Companies, such as Banks, Telegraph and 
 Insurance Companies, Foreign and Colonial Securities, 
 Coupons, Railways in and out of the United Kingdom, 
 Municipal and Corporation Stocks and Loans, and the 
 miscellaneous occupations grouped as "Trades and Pro- 
 fessions." Schedule E consists mainly of the Salaries 
 of Officials in Government, Corporation and Public 
 bodies, embracing Army, Navy, and Civil Services. 
 
 (2) Wages come under the cognisance of the Labour 
 Department, and an estimate of Earnings of Manual 
 Workers is based on its statistics. 
 
 (3) The earnings of the intermediate group are 
 obtained by very elaborate calculations from materials 
 furnished by the Census and Income Tax returns. 
 
 It is by adding the Incomes of these three groups 
 — taking care that no income is counted twice — 
 that we obtain the National Income in terms of 
 money. The £2,000,000,000 is the sum which 
 would be assessable to Income Tax if all incomes 
 whatsoever were subject to such a tax and if no 
 incomes escaped it.
 
 stituents. 
 
 chap, ii THE MONEY INCOME 
 
 The National Income, then, in so far as it is expressed Its con 
 in money, is a sum composed of rents (land and build 
 ings, rents), of profits (made by farmers, manufacturers 
 merchants, traders, by the owners of mines, of iron, 
 water, and gas works, and of canals and railways), of 
 dividends and interest, of salaries of officials and pro- 
 fessional persons, and of wages of labour. To put 
 it technically : it consists of Rents and Quasi-rents ; 
 of Profits paying for organisation, management, and 
 risk ; of Interest on capital ; and of Wages of all 
 kinds of labour.
 
 CHAPTER III 
 
 THE REAL INCOME 
 
 In the primitive community the goods produced were evidently the income, 
 and if such a community, in course of progress, had produced their goods in 
 association and taken claims on the central store where their supply was 
 deposited, the income would still evidently have been the goods claimed. It is 
 not essentially different to-day, when, instead of selling our goods for a claim, 
 we sell them for the universal commodity, money. Thus the £2,000,000,000 
 represent a real income which the community supplies for its own living. 
 
 Goods con- 
 stitute the 
 primitive 
 income. 
 
 The National Income, under the form which we have 
 just considered, is a total of money payments handed 
 over or credited to the individuals of various classes 
 during the year. What does this money represent ? 
 We shall find this most easily if we look back at 
 the simpler system from which the use of money 
 delivered us. 
 
 In the good old times — of which we know little, 
 and very little that is good — the family or tribal 
 group was almost self-contained, producing for the 
 most part what it consumed. It would scarcely be 
 denied that the " income " of each group was the food, 
 clothes, and buildings, plus any other comforts which it 
 might obtain by bartering its surplus for the surpluses 
 of other groups. And the income of the " community " 
 — if we so designate the total of the groups — was the 
 total food, clothes, shelter, and surpluses. 
 
 N.
 
 chap, in THE REAL INCOME 9 
 
 If we could imagine such a community dividing 
 its labour and bartering its goods within the group, it 
 would be clear that the " demand " of each group of 
 producers — what it bought with — was the goods it 
 supplied ; that the total demand of the community was 
 the total supply of that community ; and that, accord- 
 ingly, the community's Income was this total demand 
 or this total supply of goods. 
 
 If, again, we could imagine such a community Claims as 
 getting rid of the awkwardness of barter by establishing income - 
 a central store, where each group of producers took its 
 goods and got in exchange an agreed on " claim " for a 
 similar value of other goods (however that value was 
 assessed), we have the phenomenon that, instead of a 
 number of individual incomes taken directly into con- 
 sumption, there is one income on which the various 
 contributing groups take claims, these claims being 
 exchangeable at will into any aliquot part of the one 
 income. The name of "income" might in this case 
 be given to the claims, without any one being misled 
 into thinking that such an income was anything more 
 than representative of the goods claimed. 
 
 It is not otherwise, in essence, in the modern Money in 
 
 • 1 .1 1. c • come a sui 
 
 economic state, where, as the result or a tacit f c i a ; ms 
 agreement, the producing groups do not sell their 
 goods for a claim but for a commodity — a metal — itself 
 the product of capital and labour, valued for other 
 purposes than money, and exchangeable at will for any 
 commodity or commodities of equal value. 
 
 To-day the prominent phenomenon is, not only 
 that labour is almost infinitely divided during time and 
 over space, but that all goods, after being produced, 
 are sold before they enter into consumption. The
 
 IO 
 
 THE REAL INCOME book i 
 
 self-contained groups are replaced by groups working on 
 a plan under an organising paymaster, and the making 
 of each good now takes the form of a short or long 
 production process. During the course of the process 
 this " employer," as he is called, pays out to the various 
 people employed by him a money income, equivalent 
 in his estimate to the contribution rendered ; and when 
 the goods, which are the outcome of the production 
 process, finally come into his hands, he sells them, 
 recoups himself for all the incomes he has advanced 
 during the process, and keeps the balance. He and all 
 working under him take their "payment" in that 
 unique good called money which potentially is anything 
 else, and the money arrogates the name of income. 
 on a The modern phenomenon, then, is that the entire 
 
 product of industry, which in simpler times was 
 retained in the household for consumption, and was 
 visibly the " income," is now taken to the shops and 
 called " goods," while the various claims on the shops 
 are called " income." It seems clear that the money 
 income is still practically only a sum of claims against 
 the one real income of goods. 
 
 The answer, then, to our question as to what the 
 money represents, is that the £2,000,000,000 are really 
 representative of a concrete income which the com- 
 munity supplies for its own living. Underlying the 
 modern money form is a real national income of 
 " goods," or good things, corresponding to the food, 
 clothes, and buildings which constitute the primitive 
 income. 
 
 concrete 
 income.
 
 CHAPTER IV 
 
 THE RELATION OF THE REAL INCOME TO THE 
 MONEY INCOME 
 
 The relation suggested is that the real income is what the money income pays 
 for. But this gives us the unfamiliar conception that the real National Income, 
 ■which -we naturally think of as the "finished" goods by which a man may 
 live, consists of intermediate products and services, down a long line of 
 processes. It is, however, really an alternative way of reckoning the same 
 sum of things. The helpful but indefinite Austrian division into production 
 and consumption goods suggests that the National Income may be conceived of 
 as the sum of consumption goods (plus any additions to capital), but must be 
 calculated as the sum of the services which issue in them. The identity of the 
 two suggests that there is a parallel identity in price. Whether the conduction 
 of value is backward or forward, the total payments for the contributory ser- 
 vices must equal the total price of the consumption goods (and added capital), 
 and these payments appear in our schedules as Incomes. Thus the total money 
 income is seen to be a payment for a total goods income produced, and each 
 money income may be, economically, conceived as an output of goods. 
 
 The National Income thus takes two forms. On the The money 
 one hand is a money income of £2,000,000,000. On l p n a y° s m J r 
 the other hand is a concrete income on which certain the real 
 persons have established claims to the amount of 
 £2,000,000,000. The relation between the two 
 suggests itself. It is that the various money incomes 
 are paid in virtue of contributions rendered to the 
 real income. Down the long roll of industry, which 
 begins with land and mine owners, includes all those 
 
 income.
 
 12 
 
 THE RELATION OF THE REAL 
 
 BOOK I 
 
 What 
 corre- 
 sponds to 
 the primi- 
 tive income 
 of food, 
 etc.? 
 
 Is it 
 
 finished 
 goods ? 
 
 Or inter- 
 mediate 
 products 
 and 
 services ? 
 
 engaged directly or indirectly in manufacture and 
 transport, and ends with the retail dealer ; from the 
 prime minister guiding an empire to the comic singer 
 doing his " turn " in a music-hall — all these people get 
 their income because they are producers of goods. The 
 real income is what the money income has paid for. 
 
 But when we follow this line of connection, it leads 
 us to a conception of the real National Income which 
 is certainly unfamiliar. We readily accepted the pro- 
 position that, in the primitive community, the income 
 was, undoubtedly, the "food, clothing, shelter, and 
 surpluses." But when production is broken up into 
 processes of various lengths and complexity, we are 
 compelled to ask what now corresponds to the 
 primitive income. 
 
 Say that the making of furniture is divided up 
 between four industries. Are we prepared to say that 
 the real income of the modern community consists of 
 the screw-nails which are the final product of one 
 trade ; of the oak planks turned out by a second trade ; 
 of the fitting together of the planks and nails in the 
 form of tables and chairs, which is the work of a third; 
 of the warehousing and selling and delivering, which 
 make up a fourth ? Or does it consist of the furniture ? 
 
 The man in the street will have no hesitation in 
 saying that it is the furniture, this being the "good" 
 which the four industries aimed at and issued in, and the 
 good, moreover, on which he is likely at some time or 
 other to spend part of his money income. But if we say, 
 as we have done, that the real income is what the money 
 income has paid for, we must say that the National 
 Income consists of the various intermediate products 
 and contributory services, and not of the furniture.
 
 chap, iv TO THE MONEY INCOME 13 
 
 On looking carefully at this, one thing emerges very 
 clearly — namely, that the National Income cannot be 
 calculated by adding the one to the other. "If," as Pro- 
 fessor Marshall says, " we have counted a carpet at its 
 full value, we have already counted the values of the 
 yarn and the labour that were used in making it, and 
 these must not be counted again." 1 And this, in turn, 
 suggests that these are not conflicting but alternative 
 ways of computing the National Income. This, how- 
 ever, requires explanation. 
 
 In the writings of the Austrian economists, the Consump- 
 division of goods into Consumption Goods and Pro- p^uction 
 duction Goods plays a great part. Life, the satisfaction Goods 
 of human wants and the realisation of human activities, 
 is the end in view of which and towards which all 
 goods are made, and this life, in the last resort, gives 
 them their worth. It was so in primitive times, when 
 life was simple ; it is not otherwise to-day, when life is 
 complex. If industry is divided up into an infinite 
 number of processes, it is simply that those goods which 
 maintain the modern life may be increased and multi- 
 plied. Consumption Goods, accordingly, is the name 
 given by the Austrian economists to those final and 
 finished goods which pass away and disappear in the 
 maintenance of human life. Production Goods, on 
 the other hand, are all those goods which go to the 
 making of consumption goods — those innumerable 
 things, and processes, and services which focus in the 
 consumption goods. If production goods do not issue 
 in goods that subserve the life of man, they are as useless 
 as the sixty millions sunk in the Panama Canal. Thus 
 production goods are conceived of as consumption- 
 
 1 Principles of Economics, 5th ed. p. 79.
 
 i 4 THE RELATION OF THE REAL book I 
 
 finite 
 
 goods-in-the-making. To make use of our illustration : 
 the furniture represents the consumption goods, and the 
 services, which embodied themselves first in the screws 
 and planks and afterwards in the tables and chairs 
 delivered to consumers, represent production goods, 
 an inde- On examining this classification, however, we find 
 it anything but clear cut. The majority of goods 
 are not ear-marked either to production or to con- 
 sumption. A machine, for instance, is the very type 
 of a production good, and a loaf of a consumption 
 good. But a tramway car, as taking men to their work 
 in town, would be called a production good, while, as 
 carrying our tired townsfolk to a day's enjoyment in 
 the country, it would appear as a consumption good. 
 The loaf, which to the consumer is a consumption 
 good, is to the retailer the good by which he makes his 
 living. And because we cannot put all goods into one 
 category or the other, some have said that this classifi- 
 cation must be dropped altogether, 
 though But those at least who have had to teach Political 
 
 necessary Economy to mixed classes of people, bringing with them 
 tion. all sorts of preconceived ideas about " intrinsic value," 
 
 the "claims of labour," and the like, would probably 
 be sorry to do without the classification. If we are to 
 keep a clear distinction between wealth as means — a 
 collection of instruments — and Well-being or Benefit 
 or Satisfaction as the subjective state which is the end 
 of wealth, we need a category in which to put goods in 
 the last stage at which they can be measured, and 
 this category is supplied by consumption goods. Per- 
 sonally, I find it as impossible to dispense with the 
 classification as to draw the line which divides the 
 classes.
 
 chap, iv TO THE MONEY INCOME 15 
 
 In any case, the attempt to classify goods as pro- Alternative 
 duction and consumption goods seems to bring out <;? m P uta " 
 clearly that there are, conceivably, two ways of com- 
 puting the real National Income — the one which takes 
 it as the sum of consumption goods plus any additions 
 to capital, the other which takes it as the sum of the 
 services which contribute to the making of them ; and 
 that these two are alternatives. Either alternative, how- 
 ever, may be used when different purposes are in view ; 
 and the thesis which I put forward is that, while the 
 National Income may be conceived of "as the total sum of 
 consumption goods, as these and these alone are the 
 means of satisfying the end of economic action, the life 
 of man, it must be calculated as the sum of the con- 
 tributory services. 
 
 The object which we have now in view is to connect 
 the money income with the real income. Clearly we 
 cannot connect it with an income of consumption goods. 
 Even if the distinction between the two classes of 
 goods were as definite as it is vague, and certain goods 
 were as clearly marked for immediate consumption as is 
 the roll on the breakfast-table, there are no statistics or 
 inventories either of the amounts or the prices of such. 
 
 But we can and do connect it with the contributory 
 services, and, remembering the Austrian suggestion that 
 production goods are simply consumption -goods-in-the- 
 making, we see that there is a parallel identity in price. 
 
 In the argument of the Austrian economists (who whether 
 seem to think of agriculture as the typical industry and 7 al V e g0 " 
 of food as the typical product, and who, accordingly 
 tend to put the emphasis on Demand as the " tap- 
 root of value"), 1 the price paid for the consumption 
 
 1 See passim my Introduction to the Theory of Value.
 
 i6 
 
 THE RELATION OF THE REAL 
 
 BOOK I 
 
 good is reflected back on all the previous services in 
 the process and pays for them. To put it concretely : 
 A loaf costs sixpence to the consumer. Of this price 
 a fraction falls to the baker for his personal services, 
 and the rest replaces the flour which came to him 
 as raw material, the plant, and the wages. Take the 
 flour alone as it is sold by the miller : a fraction of its 
 price falls to the miller for his services; the balance of 
 the price replaces the co-operating factors he bought, 
 the wheat, the plant, and the labour. Take the wheat 
 alone : a fraction of the price realised by its sale falls 
 to the farmer as the price of his services ; the balance 
 replaces the factors he buys, land, plant, and labour, 
 and so on. 
 or forward, In the argument of the English economists, on the 
 other hand (who, like Adam Smith, begin their science 
 with the infinite division of labour more evident in 
 manufacture, put the emphasis on supply, and take 
 demand almost for granted), the conduction of value is 
 forward, from factors of production to product ; the 
 cost price of every factor enters into the price of every 
 intermediate good, and the cost price of the various 
 intermediate goods enters finally into the price of the 
 finished consumption good, and determines it. 1 
 
 Whichever way we put the conduction of value — 
 and, in the long run, they come to the same thing — 
 the total payments for the contributory services are, in 
 the end, the same as the total payments for consump- 
 tion goods plus additions to capital, and vice versa. 
 At every stage of the production process, services are 
 embodied in intermediate goods, and, when these inter- 
 mediate goods are paid for, the services are paid for. 
 
 1 See passim, " The Standard of Comfort," in my Studies in Economics. 
 
 the pay- 
 ments are 
 the same.
 
 chap, iv TO THE MONEY INCOME 17 
 
 In other words : to get a suggestive conception of the 
 National Income, we seem bound to think of it as 
 a sum of consumption goods of all kinds. But when 
 we wish to connect the money income directly with 
 the real income, we must take it as a sum of contri- 
 butory services rendered during the year, whether they 
 issue at once in consumption goods, or are embodied 
 in goods that are only stages toward consumption 
 goods, or are simply additions to capital. 
 
 And what we have now to put forward is that, Thesis. 
 while, as we said, we cannot get at the consumption 
 goods made during the year and their prices, we can 
 get at the various prices paid to all the factors, which, 
 however remotely, are necessary to the emergence of 
 the final consumption goods. For these prices appear 
 in our schedules as Income. 
 
 Let us take the case of the finished consumption Proof, 
 good called a suit of clothes. The raw material, wool, 
 is bought by a wool-spinner. Say that he buys the 
 whole clip of a year, then the price at which it is 
 bought has to pay for the following : rent of land, 
 interest on capital (farm buildings, implements, etc.), 
 profits of farmers, wages of labour. The landlord's 
 rent and interest appear in Schedule A ; the farmer's 
 profits and interest in Schedule B ; the wages would 
 appear in Schedule D if it were not that they are 
 under the exempted amount and so have to be guessed 
 at. The prices of implements, etc., are complexes of 
 rent, profits, and wages made in other production 
 processes, and appear in another set of incomes. 
 
 The phenomenon, then, is that the production 
 goods called land, buildings, implements, farmer's 
 labour, and men's labour have all co-operated in — are 
 
 B
 
 18 THE RELATION OF THE REAL book i 
 
 all factors toward — the making of the commodity 
 wool, and the price realised by this wool pays, or 
 replaces payments previously made, for all these factors. 
 None of these goods probably wears itself out in the 
 process. It wears away only a portion of itself — give 
 a year's use or a year's service. The point to be 
 brought out is that the payment for each use or service 
 appears in the National Budget as an Income. And 
 the total of these incomes is the same as the total price 
 of the wool ; that is, the total money income here 
 represents the total real income of wool. 
 
 The next stage is when the wool enters with its 
 full price into the production process of the weaving 
 manufacturer as his raw material ; that is, appears as 
 capital. Say that a wholesale cloth merchant now 
 takes the whole annual output of the weaving sheds. 
 Then the price paid for the woven cloth in turn pays 
 for a year's use of land, a year's use of the capital 
 (including factory, plant, coal, oil, etc.), and pays 
 besides for what might, perfectly appropriately, be 
 called a year's use of the manufacturer and a year's use 
 of all the wage-earners. All these payments, then, 
 appear in the various schedules as Incomes. 
 
 Say, finally, that a dozen tailors take this cloth and 
 turn it into suits of clothes ; then to the full price of 
 the cloth is added the service of the wholesaler, the 
 service of the tailors, and all the wear and tear of their 
 capital ; and the price at which the suits of clothes are 
 bought by the community is nothing else than a com- 
 plex of the prices paid for all the services from the 
 first production to the last. 
 
 As was said, we have no statistics of the suits of 
 clothes produced and of the prices paid for them.
 
 chap, iv TO THE MONEY INCOME 19 
 
 But we have statistics of the prices paid for all the 
 intermediate services whose value over the year in- 
 dividually comes above the tax limit, as those appear 
 in various schedules under the name of Incomes, and 
 we have a calculation for those which are under that 
 limit. 
 
 Thus the total money income really represents a 
 total goods income, and each individual money income 
 may be, economically, conceived of as representing an 
 output of goods.
 
 CHAPTER V 
 
 THE REAL INCOME AS A SUM OF GOODS PRODUCED 
 OR OF SERVICES RENDERED 
 
 The two incomes being thus put into direct relation as (a) a sum of goods 
 produced and paid for by (b) the £2,000,000,000 of money, we are introduced 
 to the conception of society as a co-operation of mutual service, -where the 
 receivers of income figure as the producers of goods. This is unfamiliar — to 
 the -worker, -who looks on his employer as an exploiter ; to the employer, -who 
 thinks of his profits as a margin or surplus ; to the merchant, -who is credited 
 with merely " taking toll" of goods already produced ,• to professional classes, 
 •whose product is pure service ; to government servants, "who afford the con- 
 ditions for carrying on industry. All these produce good things, and this may 
 be best brought out by speaking of the real National Income as a Sum of Services, 
 •whether embodied in commodities or not. 
 
 This 
 
 method of 
 calculating 
 the Real 
 Income 
 
 To put the substance of the previous chapters in other 
 words : As the starting-point of our investigation, we 
 have taken the £2,000,000,000 of money which appeal 
 to us as having the most undoubted claim to the name 
 of the National Income. But equally indubitable is it 
 that this " money " is not money, but only the aggre- 
 gate value in money of something very different. As 
 in the primitive community, so in the modern, people 
 work for a " living," and this living is properly con- 
 ceived of as a sum of goods destined to pass away and 
 disappear in maintaining the life — using the term in its 
 modern extension — of that community. If, then, the
 
 chap, v THE REAL INCOME 21 
 
 primitive income consisted of the " food, clothing, 
 shelter, and surpluses" produced during the year, no 
 less is the modern income the sum of similar goods 
 destined to pass away in the service of man, and this is 
 how we must conceive of the National Income when 
 we think of it as the end of economic action. But 
 this income is not one which we can put into figures 
 for purposes of calculation and measurement ; and, 
 when we wish to connect the modern real income with 
 the modern money income, the only way of doing so 
 is to take the alternative method, and consider the con- 
 tributory services which come into existence during the 
 year as the real goods income. To put it in terms 
 of our former illustration : the National Income may, 
 and for many purposes must, be conceived of as con- 
 sisting of commodities like furniture ; but, for our 
 present purpose, it must be calculated as everything 
 brought into existence during the year which was 
 instrumental toward making the furniture. In so 
 doing, the money income appears as the direct equi- 
 valent of the goods income. 
 
 This points us to the conception which is essential suggests 
 to all real understanding of economics — the conception the funda " 
 
 r • r- » * n Vr-. mental 
 
 ot society as a co-operation of Mutual Service. The idea of 
 money paid over or credited to landowners, employers, industnal 
 capitalists, professional men, officials, etc., and to 
 working men, is payment for and represents an 
 income of goods or good things produced, and the 
 goods produced, which exchange for or buy the 
 money income, are the same things as are exchanged 
 again or sold for the money income. Each group's 
 supply is thus a demand for the supply of other 
 groups, and we get our first glimpse of what Professor 
 
 society.
 
 J 
 
 22 THE REAL INCOME book i 
 
 Marshall means when he says that the National 
 Income (or Dividend as he prefers to call it) " is at 
 once the aggregate net product of, and the sole source 
 of payment for, all the agents of production within the 
 country ; it is divided up into earnings of labour, 
 interest of capital, and, lastly, the producer's surplus, 
 or rent, of land and of other differential advantages for 
 production : it constitutes the whole of them, and the 
 whole of it is distributed among them ; and the larger 
 it is, the larger, other things being equal, will be the 
 share of each of them." 1 
 
 There is no doubt, however, that this conception of 
 mutual service — of money-income receivers as real- 
 income producers — is an unfamiliar one, and needs 
 explanation. 
 Employers Working men, as a rule, have a fixed idea that 
 dSir^of the employer is not a producer — a servant of society — 
 goods. but an " exploiter" of labour ; one who gets the service 
 
 done for him, and arrests the greater part of the 
 payment. Even where they admit that he does some 
 service, they say roundly that he is overpaid. This 
 we shall have to examine in detail later. 2 
 
 The employer, again, has a reason of his own 
 for not easily recognising the truth, and a quite 
 distinct one. It is that his income represents itself to 
 him as a margin or surplus — something left when 
 the total outlays are deducted from the total receipts. 
 He deals in values rather than in goods. He knows 
 very well that, in the making of one kind of goods, he 
 consumes and destroys other kinds of goods, and the 
 destruction seems as much part of his business as the 
 
 1 Principles of Economics, 5th ed. p. 536. 
 
 2 In book ii. chap. ii.
 
 chap, v AS A SUM OF GOODS PRODUCED 23 
 
 making. To say that he produces so much goods 
 annually, itself suggests the other phenomenon — that 
 he consumes only a little less goods annually. Yet if 
 he were asked suddenly what he made his income by, 
 he would say without hesitation that it was by making 
 cloth, or iron, or chemicals, or this or that. Out of 
 the mill gates pours a continuous stream of goods to 
 be sold, and it is the price realised for those goods 
 during the year that pays all the factors for their year's 
 use and service. The employer is paymaster. He 
 must replace capital — and this is the meaning of the 
 guarding expression in the definition of the National 
 Income "net aggregate" — but after this is done the 
 balance of the price realised by the goods pays interest 
 on capital, pays rent, pays labour, and leaves over the 
 payment called profits. It makes no difference in this 
 respect whether they are monopoly goods or goods sold 
 under free competition. Under monopoly conditions 
 the price divided will be greater than it would other- 
 wise be ; more will go to the owner of the monopoly, 
 and only the ordinary payments to the other factors ; 
 but the essential thing is that the public pays the price 
 and the employer divides it out. In the case, then, 
 of industries organised under employers, whether 
 extractive, agricultural, manufacturing, or transit in- 
 dustries, the total income from each organised unit of 
 production is nothing but the money name for goods 
 produced and sold during the year. 
 
 The difficulty of recognising the fact that he is a So are 
 "producer" is greater in the case of the Merchant. merchants - 
 The phenomenon here is that, in the division of 
 labour, certain classes devote themselves to take goods 
 from where the goods are made or warehoused, and
 
 24 
 
 THE REAL INCOME 
 
 BOOK I 
 
 Pace 
 Ruskin, 
 
 they are 
 not mere 
 " middle- 
 men," 
 
 distribute them to the various quarters where they are 
 to be used. The essential nature of this transaction 
 is easily misunderstood, even by the actors themselves, 
 as if what the merchant did was simply to take toll 
 of the goods as they passed through his hand ; and it 
 must be said that Ruskin gave countenance to this 
 in Unto this Last, p. 55. There he speaks as if 
 merchant industry were typified by the case of a 
 third party who undertakes simply to superintend the 
 transference of commodities from one farm to another, 
 receiving some sufficiently remunerative share of every 
 parcel conveyed, but who keeps back the articles with 
 which he has been entrusted until there comes a period 
 of extreme necessity for them on the one side or the 
 other, and then exacts in exchange all that the distressed 
 farmer can spare of other kinds of produce. Perhaps it 
 is too much to say that Ruskin really means this as 
 typical, but he gives that impression by the words, 
 "This would be a case of commercial wealth acquired 
 on the exactest principles of modern political economy" 
 — which seem to say that the operation known as a 
 " corner," and a " corner," moreover, run by a person 
 who is trusted and paid for watching the interests of 
 his principals, or the action of a stockbroker who 
 speculates on his own account and against the 
 interests of his clients, is the normal occupation of 
 the merchant. 
 
 The truth about the merchant is that he is one of 
 the part producers of goods — a servant in the long pro- 
 duction process. No production process is finished till 
 the goods come to the consumer. When they leave 
 the manufacturer they have merely completed a late 
 stage in the process, not a final one. The relation of
 
 chap, v AS A SUM OF GOODS PRODUCED 25 
 
 the wholesale merchant to the manufacturer is parallel 
 to the relation which comes later, that of the retailer to 
 the wholesaler. He takes the goods as the material of 
 his trade. He breaks bulk to suit customers. He puts 
 the goods into convenient packings. He arranges for 
 the transit, and finally places them at the consumer's 
 convenience. Any manufacturer will confirm this. 
 It would not enter into his head that his profit is 
 curtailed because he sells his goods to a merchant 
 instead of to a consumer. If he himself sold them 
 to the public, it would involve more expenditure, and 
 he would charge up the expenses on the price. If 
 he employs an agent to do this for him, the agent's 
 remuneration is added on to the price. If the manufac- 
 turer, however, employs no agent, but sells outright to 
 an independent merchant, the superficial phenomenon 
 is that the merchant buys goods at one price and sells 
 them at another, and this permits of being represented 
 as if it were a wrong to the new buyer. It is assumed 
 that if the goods had been bought direct, without 
 the intervention of this "middleman," as he is mis- 
 leadingly called, the consumer would have paid less. 
 But this is a mere assumption, and generally a most 
 erroneous one. Probably the consumer has no facilities 
 of getting at the manufacturer — the manufacturer may 
 be in another country and selling his goods in a different 
 currency, involving all the machinery and mystery of 
 foreign exchange. Probably the manufacturer would 
 not sell him the small quantity he requires at all, or 
 would sell it at a higher price. 
 
 It stands to reason that, if the merchant had 
 no useful function, if he merely "took toll" of the 
 goods and added nothing, he could not obtain a
 
 nor 
 
 2 b THE REAL INCOME book i 
 
 permanent footing in a competitive organisation. 
 He has to compete in the same work with 
 agents; he has to compete with consumers dealing 
 direct ; and this competition keeps his profits within 
 limits. 
 
 But one may grant that it is difficult to keep the 
 gamblers, rationale of this trade clearly in evidence. As I wrote 
 
 nor • r i- • 
 
 engrossers, this chapter in my first edition, for instance, the pro- 
 duce market was disorganised by the Spanish-American 
 war. France had thrown her ports open to wheat, and 
 there was a sudden and exceptional demand for produce. 
 Merchants were caught short of stock, with prices flying 
 up hour by hour, and the dealers were selling to each 
 other — selling one day and buying back the next. Here 
 were presented the features of a gamble — not a useful 
 communication between producer and consumer, but 
 an excited buying and selling of produce between 
 middleman and middleman. The grower in America 
 who sold his wheat the month before at a low figure 
 saw it then in the possession of some third person, 
 in whose hands it had risen to a ridiculous price, 
 and he, naturally enough, reflected that, if he had not 
 sold but held on, he might be getting the high price ; 
 from this it was but a step to the idea that he had 
 been defrauded, and that such merchants were the 
 curse of his industry. The only answer to this is that 
 all men occasionally make mistakes in the time at which 
 they sell. The farmer sold at the wrong time ; that was 
 all. But if he had held on, it is difficult to see that the 
 consumer would have got his wheat a farthing cheaper. 
 If things had gone the opposite way — if prices had come 
 down in the hands of the middlemen and they had been 
 desperately buying from and selling to each other to
 
 chap, v AS A SUM OF GOODS PRODUCED 27 
 
 spread their losses — the grower would have been thank- 
 ing heaven that there were middlemen ! 
 
 All the same, the merchant is too ready not to take 
 himself seriously ; to think that he deducts from — 
 takes toll of — the goods that pass through his hands ; 
 and so he also fails to recognise that his income is a 
 payment for an equivalent — goods made or services 
 rendered within the year. And it is a pity when an 
 honourable trade fails to take itself seriously and to be 
 proud of its high calling. 
 
 Not otherwise, in substance, is it with occupations So are 
 which have no output of material goods for sale, but f^vants 
 sell their services direct. The East End practitioner, 
 indeed, embodies his services in the "bottle" which he 
 sells for a shilling, while the West End physician sells 
 only advice, care, a " good bedside manner," etc. But 
 there is no more difference between the two than there 
 is between the service rendered by the dentist when he 
 fills an old tooth and makes it fit for use, and the 
 service rendered when he puts in a new one made in 
 his workshop downstairs. Professional services are 
 goods offered, assessed, and sold. The "fee" is paid 
 for value received in " immaterial goods." 
 
 Lastly, to take the case of incomes in the shape of and 
 salaries paid by governments and municipalities. Here ° cias ' 
 the truth is even more obscure, because the thing paid 
 for is, as a rule, neither embodied in goods nor paid for 
 freely by a body of consumers. Such incomes are pay- 
 ments for affording certain conditions to the industrial 
 and general public, and the price for these conditions is 
 handed over once a year in taxes and rates to central 
 paymasters and distributed by them. We may be 
 paying too much or too little ; as in the case of
 
 28 THE REAL INCOME book i 
 
 monopoly goods in manufacture, this is beside the 
 question. But when Parliament votes so many 
 millions for this supply and so many for the other, 
 it does so under the clear understanding that it is not 
 giving away salaries to privileged parties for doing 
 nothing, but is paying for services evidently rendered 
 to the secure and smooth carrying on of the national 
 industries and national life generally. Taxation, for 
 instance, is one of the expenses reckoned in cost ; it 
 is, in fact, of the same nature as the wage paid to 
 the night watchman. 
 We should, The reader will probably have noticed that there is 
 however, go jjfl^ijy h ere as re g a rds terminology. Professor 
 
 replace J ° . . 
 
 "commo- Marshall speaks of the National Income as consisting 
 "good's " f °f "commodities, material and immaterial, including 
 services," and this is well enough understood in an 
 economic treatise. But in ordinary language the word 
 "commodity " certainly means something material, and 
 would not be understood to cover direct services. 
 " Goods," indeed, is a more elastic term, and might 
 better cover both "immaterial goods" and services. 
 But, again, the common grouping of " goods and ser- 
 vices" shows that "goods" by itself is apt to be 
 misleading, 
 by the term A simple solution seems to be to use the word 
 Services. "services" by itself. It has one obvious advantage: 
 that it suggests what I have said is the essential principle 
 of industrial society — that it is great co-operation of 
 mutual service. The expression has the further advan- 
 tage of bringing into line the various factors in pro- 
 duction. We cannot get a satisfactory conception of 
 the National Income till we recognise that, whether we 
 pay men and women or pay for goods, what is paid for
 
 chap, v AS A SUM OF SERVICES 29 
 
 is always service. There are some services which 
 human beings alone can render ; others which goods 
 alone can render ; some which may be rendered by 
 either indifferently ; others — perhaps the majority — 
 which require the co-operation of both. 
 
 Common terminology leads us astray. We speak of 
 the " consumption " of some goods ; of the " use " 
 of others; while we always speak of the "services" The "use" 
 of a human being. The difference is mostly one °( amailIS 
 
 c _ ' his service. 
 
 of durability. We embody labour and capital in- 
 differently in loaves or in houses, in coal or in machinery. 
 The one wears out in a single use, the other in a long 
 succession of uses ; but both are consumed in service to 
 man. We embody labour and capital in the main- 
 tenance, education, and training of a human being, just 
 as we do in the making of a machine. Men and 
 machines both wear out in time, although both of them 
 may improve for a time as they " settle down " to their 
 work. And the " use " of a man is, often enough, 
 demonstrated to be identical with that of a machine 
 when the one replaces the other. In any case, the 
 payment is always payment for what men and things do, 
 not for what they are. We do not pay the physician 
 for his good bedside manner, but because of the health 
 he restores or maintains. We pay our soldiers, not 
 because they wear beautiful uniforms — that, indeed, is 
 part of their wages — but because their wearing of the 
 sword allows us to dispense with wearing swords. It 
 does not matter essentially whether the land produces 
 wheat or is reserved for pleasure walks ; it does not 
 matter whether the capital turns out cloth or sustains 
 credit ; and it does not matter whether the man works 
 along with tools to produce commodities, or simply
 
 3 o THE REAL INCOME book I 
 
 Services. 
 
 exerts his faculties for the benefit and delectation of 
 his fellows — all are paid for what they do, for the 
 services they render. When one asks of the various 
 factors what their income is payment for, the landowner 
 answers that his income is payment for the year's use 
 of his fields, the capitalist answers that his is payment 
 for the year's use of his capital. If the employer, the 
 professional man, and the working man answered in 
 the same way, they would say that they draw their 
 income from society for the year's use that society 
 makes of them. 
 The If we speak, then, of the National Income as a Sum 
 
 National ^ g erv j ces embodied in material forms or not so 
 
 Income is > 
 
 a Sum of embodied, we seem to get an expression equally 
 applicable, whether we conceive of it as a sum of goods 
 which minister to the wants and activities of man's life, 
 or calculate it as a sum of services.
 
 CHAPTER VI 
 
 INCOME AS AN ANNUAL PHENOMENON 
 
 There is a peculiarly misleading relation between the two forms of the 
 National Income. The money income is " made " and estimated by the year. 
 But the goods income has no such natural limit, except sometimes in the case 
 of agriculture. As a rule, the harvest of industry is a perpetual stream of 
 crop, and the year is no more than a convenient period for reckoning gains 
 and losses. 
 
 Having defined the two forms of the National Income A misiead- 
 and indicated their direct relation to each other as ingn 
 services and the money payment for services, we have 
 now to point to another and a peculiarly misleading 
 relation between the two. 
 
 Money incomes are paid at regular or irregular Money 
 intervals. The working man's pay comes to him once ^annual 
 a week for fifty-two weeks. The capitalist's return receipt. 
 comes in to him in the shape of dividends paid once 
 every six months or once a year. The landowner gets 
 his rents on quarter days. The business man generally 
 draws a regular salary during the year, but he does not 
 know what his income is till the annual balance is 
 struck. As a rule, however, income is estimated by 
 the year. By definition it is an annual receipt. 
 The question is : Does the year correspond with 
 anything in the production of the real income, or
 
 32 INCOME AS AN ANNUAL PHENOMENON book i 
 
 is it merely an arbitrary period chosen for convenient 
 calculation ? 
 So is the In that industry which is at once the oldest and 
 
 harvest 11 " 1 even >' et the most universal > the production process 
 has a very definite connection with the year. While 
 the earth is travelling its 365^ days round the sun, we 
 have the winter, spring, summer, and autumn necessary 
 for the sowing, incubating, growing, and reaping of 
 the staple food of man in temperate climates, and for 
 resting the ground after its labour. Associated with 
 food is the second staple of life, clothing. The fleece 
 which is necessary for the sheep's covering during the 
 winter becomes a burden in spring, and in early 
 summer the annual wool crop comes forward. Once 
 a year, again, the cocoon is built by the silkworm, and 
 the flax yields its harvest. The coming forward of 
 the cotton crop in Europe is associated with the annual 
 rise and fall of the Nile. These staple raw materials, 
 then, come forward only once in the 365 days. Thus 
 it is easy to see that to our ancestors the annual 
 harvest was the natural time for stock-taking, for 
 counting their gains and losses. As regards the 
 most familiar crops, the production process — the time 
 from start to finish — is a year ; the course of one 
 annual process is clearly separated from that of 
 another ; and here we have an identity between the 
 payment of the money income and the receiving of 
 the goods income, 
 generally, But as regards many other field products the 
 
 always* propriety of the annual stock-taking is not altogether 
 so obvious. There are some crops, such as hay, which 
 come forward more than once a year. There are 
 others which take more than a year to come to
 
 chap, vi INCOME AS AN ANNUAL PHENOMENON 33 
 
 fruition, the most obvious being trees grown for 
 timber. There are crops which are always more 
 or less at the stage of harvest, such as grass. As 
 regards cattle, the year may or may not mark the 
 economic period of production. 
 
 Even, however, if, in agriculture, there were the But there 
 closest connection between the year and the beginning: Is no ^ uch 
 
 ' ob annual 
 
 and end of the production process, there is no such harvest in 
 connection in the making of other forms of wealth. In f 3 " 11 " 
 
 tacture. 
 
 the working up of raw material into finished goods, 
 the seasons play scarcely any part. The grain which 
 took a year to grow is turned into flour one day 
 and into bread the next. In Chicago the living 
 pig goes in at one end of the sheds to come out 
 pork at the other. The raw cotton may leave the 
 spinner as yarn, leave the weaver as cloth, and 
 leave the tailor as clothes all in a few days. Some 
 production processes take hours, others take days, 
 still others months. Many, such as wine, take years. 
 
 Further, if we were to take weaving instead of farm- 
 ing as the typical industry, we should see that the 
 harvest of industry is not one which is gathered at 
 stated intervals : there is a constant flow of the 
 cloth from the looms to the warehouse. If we took 
 the shop as a more appropriate type than the 
 barn, instead of the grain being stored once a 
 year, we should see the harvest pouring in in one 
 steady, unceasing flow from hour to hour and day 
 to day. 
 
 Our conclusion must be that, while it is easy 
 to see how the year should have come to be thought 
 of as the natural period for taking stock and 
 calculating gains or losses, it has no more warrant than 
 
 c
 
 34 INCOME AS AN ANNUAL PHENOMENON book i 
 
 convenience of calculation, and may, indeed, prevent 
 us having clear ideas of the nature of production 
 processes.
 
 CHAPTER VII 
 
 INCOME AS A GROWTH FROM SOME PERMANENT 
 
 STOCK 
 
 We get this idea also from agriculture, where the fields remain after the harvest 
 is gathered, and we transfer it to other industries -without noticing the differ- 
 ence. Thus ive imagine that there is a clear and obvious distinction between 
 income and a permanent something from ivhich income comes. But are even 
 the fields perennial sources of crop ? Land, implements, cattle are durable 
 indeed, but they are not permanent. And, pace Henry George, the idea that 
 reproduction is more than production is sufficiently exploded. Thus, in essence, 
 agriculture does not differ from manufacture ; in neither of them is there a 
 permanent stock from "which comes a recurring income. 
 
 It would seem to be the case, however, that the Does 
 general acceptance of the year's end as the natural J ncome 
 
 . ' leave an 
 
 time to square up accounts of profit and loss has led to unimpaired 
 another misleading belief: namely, that real income is 3toc 
 the growth from some perennially fruitful stock. Every 
 year £2, 000,000,000 worth of wealth is brought into 
 the world. The most of this is consumed every year, 
 and the whole of it might be, without leaving the com- 
 munity any poorer at the beginning of the next year. 
 This appears to correspond accurately with the 
 phenomenon of money income. Just as a dividend is 
 thrown off and distributed to shareholders for con- 
 sumption while the company's "stock" remains unim- 
 paired, so, it is conceived, may the £2,000,000,000
 
 36 
 
 INCOME AS A GROWTH 
 
 BOOK I 
 
 The fields 
 indeed re- 
 main after 
 harvest. 
 
 worth of income be consumed and pass out of existence 
 while the stock or capital of the world's wealth remains 
 as it was. 
 
 One may, indeed, be easily mistaken in tracing the 
 genesis of common conceptions, but it seems to me that, 
 in this case also, ever since the Physiocrats, the views 
 of economists as regards income in general have been 
 based, more or less consciously, upon the phenomena 
 of the industry assumed to be typical. In agriculture, 
 as we have seen, the year marks a natural period of 
 sowing, gestation, and harvest. Once a year the fields 
 are stripped of their chief crops. The grain is carted 
 away and put into barns, or sold off the land — but the 
 field remains. Is not income, then, the wealth that is 
 born once a year — the grain and plants and roots and 
 fruits ? Is there not something that is sufficiently 
 distinct from this, and remains as a productive fund 
 ready to yield a similar income another year, namely, 
 the fields ? Hence, when the balance-sheet is struck 
 once a year, it is easy to produce a capital account 
 and a profit and loss account. The net assets are the 
 fields ; the gross income is the crop ; and this income 
 has visibly sprung from the ground during the year, 
 leaving the assets untouched. 
 
 The belief is strengthened by other phenomena of 
 the farm. The cow that has dropped her calf is 
 standing in the byre, and the milk is no visible drain 
 on her life. The sheep are feeding along with the 
 lambs, and the fleece is growing again on their 
 backs. All the phenomena of animal reproduction, 
 in fact, tend towards this view. Again, the farm 
 buildings are permanent shelters ; the dykes and 
 fences are not appreciably deteriorated in the twelve
 
 chap, vii FROM SOME PERMANENT STOCK 37 
 
 months ; even the implements are good for several 
 seasons. 
 
 In the case of this industry, then, everything tends 
 to induce the conception that there is a clear distinction 
 between income and that from which income comes — 
 the growth and the stock. Once every year, when the 
 crop is cleared off and the land lies gathering its 
 strength for its next effort, it seems to be demonstrated 
 that income is the annual crop from fields which remain 
 unimpaired by the drain made upon them. 
 
 We transfer this all too readily to manufacture with- But there is 
 out noticing the difference. When the business man / J^-* 
 strikes his balance, he does not find what his income similar in 
 has been till he provides that the wear and tear of his facture 
 factory and plant are compensated by a depreciation 
 fund. It is his business to see that his concrete capital 
 remains intact — capable of producing the same end- 
 less flow of manufactures year after year. What he 
 does not so readily notice is that he provides for this 
 in a way which differs from that which Nature takes 
 in agriculture; that the depreciation fund is a new 
 phenomenon ; that the keeping of his capital intact 
 involves laying aside a portion of the produce to stand in 
 place of that which was worn out, while, in the case of 
 land, Nature provides a capital which, substantially, does 
 not wear out. There is nothing in his concrete capital 
 which corresponds to the fields ; no bed rock covered 
 with soil. The true analogy is between his factory and 
 his machinery on the one hand, and the farm buildings 
 and farm implements on the other. 
 
 When we pass to merchant industry the difference nor in 
 is more evident. If we eliminate the warehouse — as -^"^Jy 
 we may do on the consideration that perhaps the largest
 
 3 8 INCOME AS A GROWTH book i 
 
 merchant businesses consist of transferring goods straight 
 from the factories where they are made to the people 
 who are to use them — there is nothing corresponding 
 either to the fields or to the buildings or to the imple- 
 ments. The merchant's "capital" may be a claim on 
 a bank. On the strength of this claim he buys goods 
 one minute and sells them perhaps the next. When he 
 strikes his balance at the year's end, he puts so many 
 debts due to him on the one side and so many due by 
 him on the other. Yet he also speaks of his capital 
 as being intact after he has drawn his income during the 
 year, and calls his creditors to witness that his capital — 
 his claim on the bank — is as large as it was at the 
 beginning of the year. 
 though a All these differences, which might be supposed to 
 
 "dividend" str jk e at j east tne p e0 ple interested, tend to be hidden 
 
 • r> Li" 
 
 "capital" from the rest of us by the disguise of the rublic 
 intact ' Company. To a great and increasing number of 
 
 people, little or nothing is known of the industries in 
 which their wealth is sunk. Whether the company be 
 agricultural, or extractive or manufacturing, or mercan- 
 tile, or transit, the only thing the shareholder knows is 
 that the business is an " investment," and the chief — 
 almost the only — concern he has in the matter is that 
 once a year he gets from it a dividend. To him, there- 
 fore, the income is something, as it were, "budded off" 
 a parent stem which it leaves unimpoverished. For, by 
 definition, the paying of a dividend leaves the pro- 
 ductive organisation of the company unimpaired. At 
 least a dividend that does not do so — one " paid out of 
 capital " — is justly regarded as of the nature of a fraud. 
 In certain so-called dividends, indeed, it is recognised, 
 at any rate by business people, that in each annual pay-
 
 chap, vn FROM SOME PERMANENT STOCK 39 
 
 ment a certain portion of capital is being paid back — the 
 typical case being that of ships and mines whose working 
 life is limited. The annual return is higher than it would 
 be by a percentage which is assumed to stand for a 
 depreciation fund. But in these cases every one should 
 know that something is contained in the dividend 
 besides the dividend proper, and the fact that such pay- 
 ments are expected to come to an end in a limited 
 number of years bears out the definition that the 
 paying of a dividend proper leaves the productive 
 organisation intact. 
 
 Thus, in days when the Limited Liability Company 
 is the most familiar form of industrial organisation, we 
 unconsciously grow up with the idea that there is a 
 clear separation between income and a something from 
 which income comes. Without very well understand- 
 ing what we mean, we think of income as an annual 
 growth from some perennial stock, or as a lake which 
 overflows its banks once a year. This used to be 
 recognised perhaps most clearly in the popular complaint 
 about the Income Tax — that it made no distinction 
 between those incomes derived from capital and those 
 from professions. 1 When it was stated that the 
 income of the professional man dies with him while the 
 income of the capitalist passes on to the heir, a grievance 
 seemed made out. It was taken for granted that some 
 incomes come from a source which remains distinct and 
 permanent. 
 
 But it is time to point out that, in the current view 
 about fields and crops, there is a profound fallacy. 
 
 1 Now recognised, more or less logically, by the lower rate on "earned" 
 income.
 
 4 o INCOME AS A GROWTH book i 
 
 It is not the case that in agriculture, any more than in 
 other industries, there is a stock which remains un- 
 impaired when the harvest is gathered. 
 But are the It is now long since economists had to modify 
 fields un- j jj ■ ^ pnrase w hich Ricardo made memorable 
 
 impaired ? * 
 
 through his rent theory, namely, the "original and 
 indestructible powers of the soil." The land which 
 grows the crop that human beings need is not a per- 
 manently productive instrument. Every crop takes 
 away with it so much of the organic and inorganic 
 elements, and the constant growing of one crop soon 
 makes ground sterile as regards that crop. It has 
 indeed the peculiarity that, if left fallow long enough, 
 Nature herself will renew its powers ; and, in a new 
 country where people are content with a small yield 
 per acre because acres are plenty, it may be some years 
 before even the constant succession of one crop will 
 greatly impoverish the ground. But, in an old country, 
 one of the chief functions of the farmer is, by manure, 
 by pasturing cattle, by appropriate rotations, to put back 
 into the ground what each crop takes from it. The 
 most that can be said for the phrase, " indestructibility 
 of the soil," is that agricultural land contains very 
 much more plant food than is ever utilised, and that 
 the soil is less destructible than most other instruments 
 of production. 1 
 
 A manufacturer who sinks part of his capital in 
 
 1 Professor Marshall, indeed, finds the only fundamental attribute of 
 land in its extension — -its space-relations and the annuity that Nature 
 has given it of sunshine and rain and air. "We shall find that it is this 
 property of 'land' which, though as yet insufficient prominence has 
 been given to it, is the ultimate cause of the distinction which all writers 
 on economics are compelled to make between land and other things." 
 — Principles of Economics, 5 th ed. p. 145.
 
 chap, vii FROM SOME PERMANENT STOCK 
 
 machinery knows that, however heavy and strong it 
 is, he must, if he is to keep his producing power 
 constant from year to year, face two expenses. He 
 must lay out so much in keeping it in due repair and 
 working order. But this is not all : no amount of 
 care and patching will keep it going for ever. There 
 must come a time when the machinery is, on the 
 whole, " done," and has to be thrown out. Against 
 that day he lays aside each year a small percentage 
 of his return, to accumulate till the expense of new 
 machinery must be incurred. 1 We might say, then, 
 that, in the case of land, agriculturists dispense with 
 the latter fund, on condition of spending a somewhat 
 ample percentage on wear-and-tear or repairs account. 
 But evidently this is only a difference of degree. 
 
 As regards the implements of agriculture, again, 
 and as regards buildings, dykes, drains, fences, and the 
 like, it is clear that we have in them nothing different 
 from the other fixed capital of the manufacturer. Some 
 of them are designed to last for years, while others are 
 expected to last perhaps a season, but none of them has 
 any claim to permanence. 
 
 When, finally, we turn to seed and cattle, we get Is repro- 
 on the track of an ancient fallacy recently revived, JJjJJJ'i j^ 
 " Supposing that in a country adapted to them," said terest, as 
 Henry George, " I set out bees ; at the end of a year G l^ e 
 I will have more swarms of bees, and the honey which affirms? 
 they have made. Or supposing, where there is a range, 
 I turn out sheep, or hogs, or cattle ; at the end of the 
 year I will, upon the average, also have an increase. 
 Now what gives the increase in these cases is . . . the 
 
 1 That is to say: a proper Depreciation Account covers two items, 
 Repairs and Amortissement.
 
 4 2 INCOME AS A GROWTH book i 
 
 active power of Nature ; the principle of growth, of 
 reproduction, which everywhere characterises all the 
 forms of that mysterious thing or condition which we 
 call life. And it seems to me that it is this which is 
 the cause of interest, or the increase of capital over and 
 above that due to labour." 1 
 
 In this curiously tentative passage, cattle are looked 
 on as instruments of production different from other 
 tools ; durable if not permanent sources of income, 
 which remain unimpaired after the new wealth has 
 been taken away. Cattle, he says, "of themselves 
 increase in quantity," and a similar statement is made 
 about seed. The same ideas, it is to be noted, are to 
 be found in Adam Smith, and they probably formed 
 the basis of the Physiocratic theory. 
 
 But surely the simple fact that a sheep is sold, 
 indifferently, either to be turned into mutton or to 
 become the mother of future sheep, and that both uses 
 are discounted in the price, tells us that it cannot be 
 the power of reproduction alone that yields " interest." 
 The price of a thing includes the price of all its uses. 
 Some goods are wanted for a single exhausting use ; 
 others are wanted to give out their uses gradually. If a 
 commodity, like seed, is capable of either use, the alter- 
 native use is considered in the price. We no more get 
 interest because of the reproductive power of a sheep 
 than we get it because of its virtues as mutton. It was 
 Nature l° n g a g° pointed out that this separation between the 
 works in WO rk of Nature and the work of man is quite unreal. It 
 facture as is the one Nature that works in the field, that works in 
 in agncul- machinery, and that works in man. Reproduction is 
 
 ture. J ' .... , . 
 
 by no means the greatest miracle in the production 
 
 1 Progress and Poverty, p. 1 68.
 
 chap, vii FROM SOME PERMANENT STOCK 43 
 
 remains 
 
 of wealth. It takes Nature a great many months to 
 produce a horse ; it does not take as many minutes for 
 her to raise hundreds of horse-power by setting water 
 to boil in a great kettle. 
 
 Enough has been said to show that agriculture does Capital 
 not differ in nature from manufacture, and thus we ^^ 
 fall back on manufacture as exhibiting more perfectly intact 
 the phenomena we wish to examine. But what is 
 manifest in manufacture is that the capital does not 
 remain the same in amount unless every bit of it is 
 continually being remade as it wears out. Income is 
 not a growth budded off from a tree which remains 
 what it was. Its truer analogue is to be found in the 
 machine shop which makes tools for all kinds of trades 
 and at the same time replaces its own tools by the 
 same process. 1 
 
 But even this analogy is incomplete and misleading. 
 It still conceives of income as if it were a different 
 thing from parent wealth. It is time that we came to 
 clearer ideas of what it is that does remain and what it 
 is that wears out. 
 
 1 Cf. Studies in Economics, p. 231.
 
 CHAPTER VIII 
 
 THE ONLY PERMANENT STOCK 
 
 The metaf>hor of a " fiow " reminds us that consumption is not a terminal 
 point for -wealth ; that production and consumption are a circle. Man is a 
 part of Nature — a momentary embodiment — an organism -which the earth builds 
 up for a time and then claims for others. Thus -what we call the "accumu- 
 lation of -wealth " is a fash-light view of the state of Nature (including man) 
 relative to the desires of man. In other words : wealth -wears out in the con- 
 crete and is replaced ,• man wears out in the individual and is replaced. What 
 remains constant is Wealth and Man. But the two, in the last resort, are not 
 distinct and separate, but pass constantly into and out of the body of each other. 
 
 A "flow In modern economics we are familiar with the meta- 
 notafund." ^ or Q f wea l t h as a "flow not a fund." The ex- 
 pression has done better service than most metaphors 
 have. It keeps before us what has just been brought 
 out — that the production of wealth pours on without 
 a break, year in year out, and has no natural limit 
 or stock-taking at the end of the twelve months, 
 and that the various incomes are not taken out of 
 some great fund accumulated in the past. But it 
 contains deeper meanings. 
 The stream The popular belief about wealth is that it is pro- 
 duced by man for his consumption, and, in this con- 
 sumption, is destroyed. Wealth-production is thought 
 to be like the exploiting of a mine. If it were so, 
 one might well wonder that the world gets richer 
 
 of wealth
 
 chap, viii THE ONLY PERMANENT STOCK 45 
 
 every day. In contradiction to this, the description describes 
 of wealth as a flow or stream aptly suggests that the 
 production and consumption of wealth describe a great 
 circle — a passing from one form into another and back 
 again. For a stream describes a circle. It passes to 
 the sea ; is taken up by evaporation ; discharged in 
 rain on the mosses and uplands ; and sinks to form 
 again the source of the stream. And, like the stream 
 too, no single drop of it perhaps comes back to the 
 same source. We never step twice into the same 
 river. The drops are new : the stream remains. 
 
 The relation of man to his world is primarily that 
 of the animal to its world. He is visibly a part of 
 Nature and conforms to all her laws. He gets his 
 living from the earth and air. For a time he builds 
 himself up and grows, and then he sinks back and 
 resolves into the materials from which he came. He Man is like 
 is but a worm that fills its skin and draws its life 
 from the earth which it passes through itself and 
 leaves on the grass again. He makes the world richer 
 as the worm makes the surface richer — by bringing 
 matter from one place and leaving it in another. 
 He is the passing tenant of a house of life which is not 
 his own ; the passing holder of a purse which gets 
 fuller as he spends. 1 He thinks complacently of all 
 other organisms as made for him : he is really bound up 
 in the one bundle of life with them. Certainly the 
 worms riot when man loses what he prizes most. He 
 is, after all, only one of the innumerable organisms 
 that the earth builds up with its substance for a time, 
 but in time claims again for other organisms. 
 
 Thus we come to the commanding point of view 
 
 1 Cf. Studies in Economics, p. 274. 
 
 a worm.
 
 46 THE ONLY PERMANENT STOCK book i 
 
 The that, to separate man and his world, is to separate what 
 
 apparent Q 0( \ hath joined. In metaphysics this is brought out 
 
 dualism. , _ , , .•• .1 
 
 in its clearest form in the demonstration that there is 
 no outside world which lies below us coloured and 
 shaped and sounding as we know it ; and that, as we 
 cannot conceive of a matter which has neither shape 
 nor colour nor any of the other qualities with which 
 we unconsciously endow it, so neither is there any 
 mind which exists apart from the world it knows. In 
 economics it is only another form of the same apparent 
 dualism that rules our thoughts. We think of man as 
 somehow apart from and above his natural environ- 
 ment, contemplating it, working on it, and subduing 
 it to himself. Yet any deeper consideration shows us 
 that man is simply the last and greatest embodiment 
 of his environment, and is, after all, but a temporary 
 embodiment. 
 Men and To apply this to the economic field. Some classes 
 
 goods wear get tne j r i nc0 me credited to them as "due to capital," 
 
 out ilikc 
 
 others as " due to labour." In either case there is 
 something that wears out and something that remains. 
 All capital — even land — wears out day by day, month 
 by month, year by year. All men wear out day by 
 day, month by month, year by year. The embodi- 
 ments of goods and of services are alike transitory. But 
 all capital is replaced day by day, month by month, 
 year by year ; and all men are replaced day by day, 
 month by month, year by year, 
 but only Thus what presents itself to the superficial view as 
 
 change t | ie accumu lation of wealth on a world for the sake of 
 
 their form. . ,. • 1 r l 
 
 man, is nothing else than a flash-light view l or the 
 
 'We owe the phrase — and much more in the analysis of capital — to 
 Mr. Irving Fisher, whose papers in the Economic Journal, vols. vi. and vii.,
 
 chap, vin THE ONLY PERMANENT STOCK 47 
 
 state of Nature (including man) at any moment. 
 And the consumption of wealth is not its destruction, 
 but its transmutation ; the going up of the flow of 
 wealth into the clouds by evaporation, to fall again in 
 matter, and in course of time pass into other em- 
 bodiments of the twin phenomena of Nature, the 
 environment and man. 
 
 In short, we cannot long view man and wealth 
 separately, for matter is the substance of man, and man 
 is the sensitive point at which matter for the moment 
 appears as wealth. Capital, in time, is added to : the 
 earth itself, under reclamation, increases its economic 
 area, and under greater strain develops greater powers : 
 and the number of men is added to. 
 
 Thus what remains permanent, or increases, is Wealth 
 wealth as a sum, the concrete forms of which are con- and Man 
 stantly wearing out and being replaced by other and 
 probably better ones. And what remains constant or 
 increases is a sum of population, the individuals of which 
 are constantly wearing out and being replaced by larger 
 families, and, we hope, by better people. The permanent 
 stock, then, is Wealth and Man. 
 
 But these two, in the last resort, are not distinct are one. 
 and separate, but live for each other and by each other, 
 the faithful partners of one wedded life. 
 
 The stumbling-block, I may confess, which for long 
 prevented me fully accepting wealth as a " flow " was 
 that the analogy seemed to leave out man, the con- 
 sumer. He came in somewhere as a person on the 
 bank dipping in his pail, and taking so much from it. 
 Or the ridiculous idea was suggested that the stream 
 
 probably end an old controversy and mark a new departure in economic 
 classification and nomenclature.
 
 48 THE ONLY PERMANENT STOCK book i 
 
 of wealth was all dipped up in this way by the various 
 participants in the National Income, so that by the 
 time it got to the sea there was no stream ! The 
 metaphor seems complete when it is realised that man 
 is in the stream — like a trout lying with its head to the 
 current — getting his food from what the stream con- 
 tains, living by that, and passing it through him again. 
 "Red in As I write this on a May morning, a blackbird 
 
 daw' ,an 1S Peking up his breakfast on the lawn. He has just 
 pulled a large worm from the ground. The worm is 
 writhing on the grass ; the blackbird is leisurely 
 taking bites out of it. In a minute the worm has 
 disappeared, and the bird is singing grace after meat 
 on a tree. 
 
 It is a good enough picture of how we live, except 
 that our living demands many more deaths, and that, 
 as our dainty stomachs cannot stand the writhing of 
 the worm, we get the killing done for us by butchers 
 and sportsmen. 
 
 But we are more exacting than the blackbird. He 
 has his feathers : we grow sheep to give us ours. He 
 perches on a tree : we dig our houses out of the 
 ground and build them up on the surface. He woos 
 his mate by no other attractions than Nature gives 
 him — his song, his glossy breast, his rounded outlines. 
 We ransack heaven and earth for clothes and jewels in 
 which to look our best, and dangle the prospect of so 
 much a year before the lady of our choice. But, 
 essentially, we live like the blackbird by robbing 
 Nature for the moment of things and creatures 
 Life passes which, in their turn, had robbed Nature of other 
 t roug us. t [ 1 j n g S anc | creatures. The stream of life runs 
 through us, not past us.
 
 chap, viii THE ONLY PERMANENT STOCK 49 
 
 The distinctive difference is that we do not take 
 our living ready-made from Nature. She does not 
 indeed give us too freely the things we want ; we 
 have to search out, and combine, and make her do 
 many things that she would not of herself do. This 
 provision we then call Wealth. So the conceit grows 
 upon us that we are creators of wealth, and we 
 are so to the extent that we fashion Nature according 
 to our own image and desire. So also it comes that 
 Nature is always trying to get her own way again, and 
 to turn our wealth back into her own forms of matter, 
 and what she daily disintegrates we daily recreate. 
 Thus men make their living by taking wealth Resurrec- 
 into themselves, and wealth lives by being taken 
 into them. Wealth is consumed by their lives and 
 replaced by their lives. Man, again, is consumed 
 by passing into the body of wealth, and replaced 
 by that body of wealth. Man, in short, lives as 
 his income comes in to him and through him ; not 
 by his income perishing in the furnace called his 
 body. Income is not something taken from Nature by 
 a being alien to it, but its substance as it passes for 
 the moment into one of the parts of itself. 
 
 Having thus tried to clear away some short-sighted 
 or one-sided views as to Income, and, in the doing so, 
 perhaps, got into thinner air than the economist is 
 supposed to have lungs to breathe, we go on to a closer 
 examination of the constituents of the real income. 
 
 tion.
 
 CHAPTER IX 
 
 THE REAL INCOME OF A PURELY ECONOMIC 
 
 STATE 
 
 If the National Income consists of those things for which the money incomes 
 pay, economic science, in taking this wealth for its province, has a -very -wide 
 field. To appreciate this, let us ask what would be the features of a purely 
 economic State ; that is, one whose, entire activities were bent on and limited to 
 the production of the necessaries of the working life. Even if the whole 
 twenty-four hours of every mans existence -were taken up in purveying those 
 necessaries, it would be a very extensive State, for it -would embrace all the 
 processes and all the government protection and assistance necessary for this end. 
 All pursuits, in fact, would be parts of a production process. Nor would this 
 imply a sordid State ,• the sciences would be there, though not as ends in them- 
 selves, but as aids to production. In such a life the circular flow of wealth — 
 the consumer consuming for the sake of producing, and the producer producing 
 for the sake of consuming — would come out with perfect clearness. But, after 
 all, is this essentially different from the State as we know it ? 
 
 The scope Following out the lines on which we started, we 
 of econo- arr j ve at the conclusion that the real National Income 
 consists of those things for which the various money 
 incomes of our income schedules are the payment. It 
 is the sum of the services paid for by rents, interest, 
 profits, wages, salaries, etc., whether these services are 
 embodied or not. But if this is what we have to 
 examine as " wealth," and if wealth is distinctively the 
 subject of economic study, the science of economics 
 covers a wider field than most people think. 
 
 mica
 
 chap, ix IN A PURELY ECONOMIC STATE 51 
 
 When we look at the official schedules of income, as sug- 
 what ought to strike us is that they contain the g , ested by 
 
 . , J the income 
 
 industries and occupations of most of the male and schedules, 
 many of the female inhabitants of the country. There 
 we find our farms, mines, and quarries ; our fisheries, 
 shootings, and cemeteries ; our ironworks, gasworks, 
 waterworks, ships, canals, and railways ; our work- 
 shops and factories, warehouses and shops ; banks, 
 telegraph, telephone, and insurance services — all the 
 capital sunk and all the labour employed in them. 
 There appear the teachers, thinkers, physicians, 
 lawyers, parsons, artists, literary people — all co-operat- 
 ing with each other, and selling their services to 
 make a living. There, again, are the sums repre- 
 senting the constant service rendered by buildings. 
 There is the return given by British capital invested 
 abroad. Finally, there is the great army of govern- 
 ment and municipal servants, from Tommy Atkins 
 with his shilling a day to the King with his Privy 
 Purse allowance. Some by their hands and brains 
 and looks and voices, others by their lands and 
 wealth, all by their service, earn incomes which duly 
 appear in our schedules, and total up to £2,000,000,000 
 a year. If the services rendered to the community 
 by all these form the National Income, what we have 
 before us for study is little short of a brief account 
 of the entire activities and pursuits of the modern 
 community. 
 
 If this is startling to those who have been accustomed 
 to regard the sphere of economic study as a narrowly 
 limited, perhaps even a slightly sordid one, it is 
 because we are slow to recognise that the modern 
 State is primarily an industrial one, where the activities
 
 52 
 
 THE REAL INCOME book i 
 
 of the most superior persons among us are as much 
 part of the " economic life " of the nation as are the 
 activities of the mill hand and the day labourer. To 
 make this clear, suppose we try to realise what are the 
 differences between the modern State and a State whose 
 entire phenomena would undoubtedly come strictly 
 under the scope of economic investigation. 
 
 The mere Every day some forty-five millions of individual 
 
 existence bodies in the United Kingdom have to be fed, and 
 
 of forty-five D .-i-m • 
 
 millions of every day so many million loaves are baked. This 
 people reminds us that, in every life, there are wants recurring 
 
 three or four times a day, on the satisfaction of which 
 existence itself depends. The provision for such wants 
 accordingly must come before any other occupation 
 whatever. In modern circumstances the provision 
 involves a long series of industries stretching from the 
 farm to the retailer, and embracing agricultural, 
 extractive, manufacturing, transit, distribution, and 
 banking industries. But this is only one of the 
 industries which are absolutely necessary to existence. 
 Clothinp- and shelter are not recurring but constant 
 wants, and they involve even longer series of industries, 
 beginning with the raw material and ending with the 
 shop, 
 demands These are wants from which we never escape in any 
 
 i'ndustrks. state °f society, poor or rich, and the slightest inves- 
 tigation would show that the industries which keep us 
 alive must alone furnish occupation to a very large 
 proportion of our forty-five millions of people. Sup- 
 pose we take those industries as they are, divided into 
 an infinity of long and wide production processes — for 
 the division of labour is not only a chain of processes
 
 chap, ix OF A PURELY ECONOMIC STATE 53 
 
 which takes time, but a co-operation of many places 
 and countries — we need, merely for their con- 
 tinuity and safe conduct, the organisation of police and 
 defence ; we need the machinery for the interpretation 
 and enforcement of contracts ; we need a postal and 
 telegraph service ; we need, in short, at least the most 
 undoubted functions of the State. And, in this view 
 and to this extent, we must class the many occupations 
 furnished by governments, imperial and local, with their 
 equipment, as strictly parts of the general production 
 process. 1 
 
 Suppose, then, that the return of Nature to man was a purely 
 so bare and so difficult, or that population increased so E conomic 
 fast, that these occupations absorbed the whole of man's 
 waking life, and that the remainder of his twenty-four 
 hours was spent simply in repairing the waste of tissue 
 and brain by rest and sleep ; we have, I think, what 
 might be called a purely economic State. Its ration 
 d'etre would be the maintenance of physical life, and all 
 its pursuits would be but necessary parts of a production 
 process towards that end. It would not be very 
 different from the economy of the settler in a new 
 country, whose life is taken up, filled, and concluded in 
 supplying his elementary wants. It at least would 
 correspond to the time-honoured definition of Political 
 Economy as the science of wealth, for here nothing else 
 is in question, or is aimed at by the national effort, but 
 the production and consumption of the primary forms 
 
 1 If there seems at first sight to be some violence to current ideas in 
 this, we have only to consider the argument constantly advanced for the 
 increase of our fleet — that it is necessary not so much for the safety of 
 our shores as for the safety of our shipping ; it is, in other words, a police 
 force on the high seas.
 
 54 
 
 THE REAL INCOME 
 
 BOOK I 
 
 of wealth, the necessaries of life. And the National 
 
 Income of such a State would consist solely of those 
 
 necessaries. 
 
 would not Nor would this economic State he, in any possible 
 
 be in the interpretation, a sordid one. No doubt we should still 
 
 1C3SL a * _—.«,•• 
 
 sordid one. see the swagger of the soldier, the fuss of the politician, 
 and the insolence of the official — the old mistake of the 
 tail wagging the dog ; but every thinker would be able 
 to see that all occupations — his own included — were 
 mere divisions of the one labour, the end of that labour 
 being the maintenance of life. Whatever the theo- 
 retical opinions as to the powers and capacities of man 
 under more favourable circumstances, it would be 
 recognised that Nature had set limits to man's develop- 
 ment in making him a creature dependent for his 
 existence on the filling of his stomach, the clothing of 
 his back, and the shelter of his body, while she limited 
 her supply of the things necessary for these purposes. 
 If it would be a " city of pigs," as Plato suggested, at 
 least it would not be a " city of God," built above the 
 fouler sty of slave labour. Poverty is not sordidness. 
 
 Moreover, the suspicion of sordidness disappears when 
 we consider that, although all pursuits and energies 
 were directed to and controlled by a purely economic 
 purpose, there would be room and necessity for most of 
 the sciences. Man would still be the central figure. 
 Physiology and Anatomy would map out his constitu- 
 tion ; Surgery would preside at his birth, and Medicine 
 attend him all his life ; for the maintenance of the body 
 of man at its highest level would be the maintenance of 
 the good worker. Physics, with her handmaid Mathe- 
 matics, would have almost as prominent a place as now ; 
 for, after all, pure science generally has an outcome in
 
 chap, ix OF A PURELY ECONOMIC STATE 55 
 
 applied. So would Botany, Geology, Zoology. The 
 science of Law would be called on for its decision in 
 contract relations, and so on. The somewhat numerous 
 class who deprecate the extension of our universities, 
 except as technical and professional schools, and would 
 teach science only as it can be applied to industry, 
 would perhaps not notice that any limit was being put 
 on thought. 
 
 But indeed the possible dignity of such a State may 
 be seen from the consideration that it is only the 
 unequal distribution of income that allows any of us to 
 escape from its conditions. If each of us were reduced 
 to the 17s. ijd. per week, which is all that our share 
 would amount to on an equal distribution, our time 
 would mostly be taken up in working for our daily 
 bread, and preparing by sleep for the next day's work ; 
 and yet men would be men, and women women, and 
 life worth living. And, again, if the comfortable 
 classes, horror-stricken at the realisation of our national 
 poverty, and, seeing that the excessive consumption 
 of the few inevitably puts the many below the line 
 of efficiency-wages, were to abandon their easy and 
 leisured life, give up luxuries, and take to the increasing 
 of the National Income in the shape of " necessaries 
 for efficiency," it is by no means certain that this dis- 
 tinctively industrial State would be any more sordid 
 than the present one. 
 
 In such a society, the only department which escaped 
 the economic framework would be the religious in its 
 strictest sense — the spiritual relations of man to some 
 unseen power and unknown future. For morals would 
 find its sphere, as now, inside the economic framework, 
 in regulating the relations of honest dealing between
 
 56 
 
 THE REAL INCOME 
 
 BOOK I 
 
 In it the 
 circular 
 flow would 
 be obvious. 
 
 people who worked. With the one exception, then, of 
 religion, as there would be no room nor time for anything 
 which did not contribute to the building up of the 
 efficient human agent of production, everything else 
 would come within the sphere of economics. 
 
 In such a State, then, would come out, with perfect 
 clearness, the circular flow of wealth. The life of 
 man would be seen to be no more than the taking up 
 of food, clothing, and shelter — matter turned for the 
 moment to wealth — into a certain temporary organic 
 shape. Here also would appear the fundamental iden- 
 tity of producer and consumer. The names would not 
 designate different classes — as they may come to do 
 when some escape producing, although none escapes 
 consuming — nor even indicate quite distinct functions 
 of the one class ; for the consumer would consume 
 for the sake of producing, and the producer would 
 produce for the sake of consuming. 
 
 The limits 
 of such a 
 state 
 
 In the foregoing I have tried to sketch the features 
 of a State whose entire activities and pursuits would be 
 the recognised object of economic study. If the truth 
 of this be admitted, the purely economic State might 
 be defined as one where the whole of life and conduct 
 would be shaped solely with a view to the maintenance 
 of human life. The question inevitably arises : What 
 extension may be given to the conception of this 
 " human life " without altering the character of the 
 State as an economic organism ? Could it ever be 
 limited to the mere physical life — the complex of 
 wants without whose satisfaction the body of man 
 would die ? The answer would probably be that it 
 always has been and always must be more than this ;
 
 chap, ix OF A PURELY ECONOMIC STATE 57 
 
 else we should have little justification in distinguishing 
 between human and merely animal life. 
 
 But even suppose it were limited to the physical life, 
 is the " maintenance " in question confined to the 
 satisfactions absolutely necessary to the mere continu- 
 ance and efficiency of such a life ? If food were 
 chosen and weighed out solely with a view to heating 
 and strength giving power — as some young mothers 
 do in the case of babies ; if we clothed ourselves in 
 Jaeger and lived in houses which had no recommenda- 
 tion but their sanitary accommodation and appliances ; 
 we should indeed be fit for the Socialist paradise where 
 half an hour of labour per day 1 will provide mankind 
 with all the necessities of existence. But evidently 
 in no community above the savage has any such 
 limitation been thought of. Even our " city of pigs " 
 must have a better sty than four walls, fresh air, and 
 abundant husks. 
 
 If, however, we admit this, and allow our " main- 
 tenance " to include provision for the other wants 
 which we suppose necessary for an existence worth 
 calling " life," or allow the production of anything 
 beyond what is necessary to the efficiency of a con- 
 tinuous race of workers, it seems to me that we throw 
 away the possibility of logically limiting the economic 
 life and with it the economic purview. 
 
 Indeed the single consideration that, even for those are very 
 pursuits which are generally excluded from economic 
 cognisance, there is necessary an infinity of instruments 
 which the producing world must provide, and that in 
 these pursuits the instruments are worn out and require 
 replacement, is enough to confirm this. Or consider 
 
 x This was Godwin's and Owen's calculation. 
 
 elastic.
 
 5 8 IN A PURELY ECONOMIC STATE book i 
 
 what is involved in the idea of " efficiency of labour." 
 It may very well be that the tired brainworker finds in 
 the theatre a rest and inspiration which make his next 
 day's work the better. Here he makes a demand for 
 the player. He turns the machinery of industry to 
 providing the appliances of the playhouse — taking 
 capital from other directions — and determines men and 
 women to particular employments in which they 
 make an income. He invokes the machinery of the 
 State to protect him while he finds his " life " and adds 
 to his " efficiency " in listening to the play. It is 
 difficult to see any essential difference between this and 
 the demand for the bread and butter which sets the 
 farming industry in motion. 1 
 
 Here, then, is an alternative. If we are to limit 
 the " economic life " to the provision of what satisfies 
 a limited number of wants — presumably those wants 
 by whose satisfaction the productive efficiency of labour 
 is conditioned — Economics will have a much narrower 
 sphere than the severest economist ever yet marked out 
 for it. But if we take in the provision for what the 
 modern man calls his " life," then, I am afraid, it is a 
 shorter task to point out what does not fall within the 
 scope of economic study than to give a detailed account 
 of what does. 
 
 1 The very words " maintenance of life " suggest how difficult it is 
 to get an expression that will cover everything involved in the economic 
 sphere. Have we not been told that £15,000 worth of cloth were 
 buried in the grave of a savage chief in Uganda ?
 
 CHAPTER X 
 
 THE REAL INCOME OF THE MODERN STATE 
 
 The modern State differs from the purely economic one as being a State where 
 the simple life of struggle 'with Nature has widened into a rich, complex, social, 
 cultured life, •which finds itself not only in the consumption of goods, but in its 
 own activities, and is, moreover, a life continuous with and under obligations to 
 the past and future. If we still define wealth as the provision for human life, 
 the greater part of our energy is still spent in economic pursuits. And Economics 
 is seen to be the study of the foundations and framework of society. 
 
 We may now consider the modern State in its full 
 development, and see how far, in the whole of its 
 complex activities, it really differs from the purely 
 economic State we have just looked at. The con- 
 clusion to which we shall probably come is that there 
 is less difference than some people think ; that the most 
 of our activities are still glorified forms of the simple 
 life led by the peasant — the " making of a living " 
 by contributing to and being paid from the National 
 Income. 
 
 The modern man is not by any means a simple What life 
 being. Material in substance and animal in form, he is now ls 
 an animal who has come to consciousness of himself, 
 to remembrance of his history, to ideals of his future ; 
 he is a part of Nature, and yet he has remade Nature in
 
 6o THE REAL INCOME book i 
 
 his own image ; he is the focus point of countless 
 ancestries, knit together with other lives, finding his 
 individuality in society. He is not like his brother 
 animals, a being merely with recurring or constant 
 wants, nor even a being with an infinite number of 
 infinite kinds of wants, but a being whose wants are 
 set in and subordinated to a planned, associated, and 
 continuous life of thought, action, aspiration, and 
 leisure. His satisfaction demands more than material 
 goods : it requires personal services ; it requires living 
 association with men and women ; it requires beauty 
 and art ; it craves for action ; it pursues knowledge 
 for the sake of knowledge. If we could sum this up 
 in a word, it would be perhaps, that this life has turned 
 on itself and made its own activities an end. It not 
 only works to live ; it lives to work. 
 
 —with Nor is this the only complexity of the modern man. 
 
 claims and jj cannot be considered by the economist apart from 
 
 obligations : J r 
 
 certain relations into which he is born. He is not in 
 the least like a sheep in the meadow, which might be 
 supposed to have as good a right to his share of the 
 meadow as any other sheep. His past and his parents 
 transmit to him not only life, but claims or obligations, 
 or both. He may be heir to landed property, which 
 means that he has the legal right to run a barbed wire 
 round a certain portion of earth's surface, and either 
 warn off other people as trespassers, or make them pay 
 for the privilege of using it. He may be heir to 
 general wealth, which means that he is the owner of 
 those innumerable instruments of production that other 
 men want and will pay him to use. Or he may be 
 the younger son in this entailed estate of the world, 
 who finds no field to work in and no tools to work
 
 chap, x OF THE MODERN STATE 61 
 
 with unless he hires them from his more fortunate 
 brothers. 
 
 Thus there comes to be a broad distinction between 
 men. Some are born in possession of two instruments 
 of production ; others of only one. 1 Every normal 
 man, in virtue of his muscles and brains, has something 
 by which he can, in normal circumstances, make a 
 living. But those who are born heirs to wealth have, 
 in addition, something which men will pay them 
 for the use of. In any case, whether propertied or 
 empty-handed, the modern man has to pay for his 
 footing in the country into which he is born. In 
 becoming one of our forty-five millions, he inherits 
 their legacy of debt, and bears on his shoulders his 
 share of the £733,000,000, which the nation owes. 
 
 Comparing, then, our modern State with the simpler 
 economic State whose end and rahon d'etre was the 
 maintenance of its physical life, we certainly have to 
 recognise that there has come a change in the character 
 of the provision for this life. It is the provision for an 
 emotional and intellectual social life with a more 
 exacting and more refined material basis. 
 
 The provision still takes, for the most part, the shape demanding 
 of material goods. Men still eat and drink, still require ^. ogger e 
 clothes and shelter ; and, when it is considered how satisfac- 
 little the corresponding wants can increase in gross 
 capacity, it is surprising how much of the capital and 
 labour of the country is still taken up in the provision of 
 
 1 In another sense from Carlyle's, we may say that the modern epic is 
 not "Arms and the Man," but "Tools and the Man." In past times 
 the difference between men was that one was clad in skin and steel and 
 another in skin only ; and so the one had the power of living on the other. 
 Now the one has muscles and brains alone ; the other has wealth as well. 
 Yet the latter does not live on but by the former. 
 
 tions,
 
 62 
 
 THE REAL INCOME 
 
 BOOK I 
 
 food, liquor, clothes, and housing. But the growth of 
 
 wealth, the increase of numbers, and the rise in the 
 
 standard of comfort and taste, call, not only for more 
 
 goods of the commoner kinds, but for better quality of 
 
 these goods, and for new kinds of goods. This new 
 
 demand is reflected back on the various production 
 
 processes, absorbs more of the national wealth and more 
 
 of the population, and this, again, makes greater 
 
 demands on the general and technical education of the 
 
 workers. With this goes an increased demand for the 
 
 imperial and local services which are the condition of 
 
 these industries. 
 
 but also the But a great many of the goods demanded almost 
 
 higher ones, escape f rom t h e category of material goods: they are 
 
 so obviously the medium of mind, and appeal so directly 
 
 to the faculties least associated with the material. 
 
 Pictures are, in form, simply coated canvas, but in 
 
 them mind speaks straight to mind. The newspaper 
 
 is the voice of men scattered up and down the earth 
 
 collecting news. The book, externally, is the material 
 
 product of a very material workshop, but — well, there 
 
 is no generalisation that would describe what the book 
 
 is, but certainly the material part is the least of it. 
 
 From this it is but a step to services where the 
 material embodiment vanishes altogether. It is difficult 
 to see how one could speak of a play or a concert or a 
 lecture as a "utility fixed and embodied in material 
 objects." Domestic service occupies a larger and larger 
 place in rich communities. And though the labour of 
 a cook may be embodied in the dishes, what of the 
 maid who brings them in ? Thus we come to what 
 seems to me the crowning phenomenon of modern life, 
 and the most satisfactory : the growing demand for 
 
 and, above 
 all, the 
 human
 
 chap, x OF THE MODERN STATE 63 
 
 services which are not embodied in goods but are 
 rendered direct, and are inseparable from the servant. 
 We discover that the human being is the treasury of a 
 wealth capable of satisfying want, and that the progress 
 of man is in the direction of developing just those 
 wants that cannot be satisfied but by the human 
 service. 1 
 
 Here, however, is a kind of income which adds very 
 much to the complexity of economic study : the chief 
 productive factor — who stands in other respects as a 
 mere tool of production, like a slave — in this respect, 
 himself occupies the same category as the finished 
 goods which land, capital, and other labour together 
 produce. Man is as clearly an embodiment of service 
 as goods are. The companionship of a man of genius 
 is surely as good a thing as the books he writes ; his 
 conversation is as valuable as his formal lectures, just as 
 a g-ood woman is as much wealth to the circle in which 
 she moves as are the stockings she knits. 
 
 In this we seem to have a final confirmation of the A sum of 
 propriety of speaking of the National Income as a sum 
 and complex of Services. It consists, as we have seen, 
 of those things for which the money National Income 
 is payment — the total of rents, interest, profits, wages, 
 salaries, etc. For the most part those services are 
 embodied, directly or as conditions, in material goods, 
 the result of the joint action of organised labour and 
 capital. But an increasing number of those services 
 has no embodiment, or but slight embodiment, in 
 material forms : they are services rendered direct by 
 men and women to each other. It consists, besides, of 
 those services which do not clearly come within either 
 
 1 Compare p. 243.
 
 economic 
 survey ? 
 
 64 THE REAL INCOME book i 
 
 category — the provision for happiness and quiet life 
 afforded by the organisation of good government and 
 the administration of good laws. 
 But does What we find, then, in the modern State is a life 
 
 i h whok SS wn i c h) perhaps for the most part, still finds its satis- 
 escape the factions in the provision for the primitive wants, but 
 finds, besides, a growing satisfaction in " goods " that 
 bear the impress of the human factor more pro- 
 minently than that of the machine factor, and appeal 
 to wants and activities which emerge only with 
 wealth and leisure. I fail to see how the provision 
 for the maintenance of such a life escapes from the 
 scope of economic study. If Professor Marshall's 
 opening sentence, that " Political Economy is a study 
 of mankind in the ordinary business of life," be 
 accepted as defining its scope, the field of economic 
 study is almost as extensive as that of morals ; for 
 making an income is still the " ordinary business," if 
 not the ultimate aim, of most men's lives. But, beyond 
 this, all lives, however remote from the " vulgar cares " 
 of making a living, are based on labour, and are set in 
 an economic framework. The history of our times is 
 not like ancient history, the struggle of armed bands 
 against each other : all such struggle is now instinc- 
 tively resented as an interference with the industrial 
 life — an accident, an impertinence. Nor is our real 
 history a political one, except in so far as we are still 
 extending the cover of our shield and the shelter of our 
 flag over people who live and work under it, or so far 
 as we devise laws and administer them for the better 
 securing of liberty to our people as they earn their bread. 
 It is the history of an Industrial State, extending the 
 demands it makes on Nature and on man, by reason
 
 chap, x OF THE MODERN STATE 65 
 
 of the widening life which is at once its end and its 
 being. 
 
 I repeat, then, that, if Political Economy is a study The econo- 
 of wealth, and if the wealth of the modern State is ^ifo™ 6 " 
 what its money income pays for, the science covers a society, 
 wider field than most people think ; for it is no less 
 than a study of the foundations and framework of 
 modern society. 
 
 This will become clearer when we now go on in the 
 next chapter to show that, after all, this income, repre- 
 sented and paid by the money income, does not exhaust 
 the wealth that accrues periodically to the nation. We 
 may grant that Economics concerns itself chiefly with 
 motives and satisfactions that are easily measurable in 
 money. But as the very conception of boundary in- 
 volves the existence of something outside the boun- 
 dary, so the ordinary economic measure itself suggests 
 that there is a field outside, which, if it does not belong 
 to Economics, does not seem to come within the sphere 
 of our other study. In the schedules of the National 
 Income, we find most of the male citizens of the 
 community, excluding paupers and criminals, and thus 
 these schedules include incomes from that of the day 
 labourer up to that of the millionaire. But (1) they 
 include only that real income which is paid for ; they 
 do not include the unpaid services : and (2) they do 
 not include improvements in conditions generally.
 
 services. 
 
 CHAPTER XI 
 
 INCOME WHICH ESCAPES BOTH NOTICE AND 
 
 ASSESSMENT 
 
 This may be put in seven categories: (i) unpaid services, particularly 
 those of -women ; (2) groining leisure, inhere ivork is hard and uncongenial ; 
 (3) congenial occupation as a wealth in itself apart from its product ; (4) per- 
 sonal relations as a by-product ,• (5) netv kinds of goods and improved quality 
 not represented in price ; (6) property yielding no revenue and general recon- 
 struction of environment ,• (7) freedom and good government. 
 
 \- 
 
 Thus far The line of investigation which we laid down compels 
 of paid us to a somew hat limited definition of the real National 
 
 Income. We started with the money income as given 
 us in tax returns and statistical estimates. Taking this 
 as a payment for services rendered and received, we 
 found the real income in these services, and so came to 
 the conception of the National Income as the result of 
 the co-operation of all the instruments of production 
 within the kingdom, embodied in or owned by the 
 forty-five millions of British men and women. But 
 these are the paid services. They are the only ones 
 which can be reduced to statistics. Evidently they 
 do not exhaust the annual resources for the satisfaction 
 of the people's wants. The income which escapes 
 may be put in seven categories. 
 
 1 . Unpaid Services. — In the modern State the unpaid
 
 chap. xi. INCOME UNASSESSED 67 
 
 services attain great dimensions, just because the growth 
 of wealth allows many people to produce things which 
 they do not sell or even use, but give as a contribution 
 to humanity. As I said, society has become divided 
 into those who have two instruments of production 
 and those who have only one. If the one is sufficient 
 to yield the maintenance demanded, the other may 
 be set free to work for love. Thus we have the 
 services of Members of Parliament, 1 municipal, county, 
 and parish councillors, managers of charities and bene- 
 volent and educational institutions, magistrates, justices, 
 scholars, explorers, and the like. 
 
 To these must be added the greatest unpaid service Woman's 
 of all— that of women in the household. What this J^ehold" 
 income really amounts to may be guessed if we imagine 
 what we should have to pay to servants for doing work 
 now done by wives, sisters, and daughters, and how 
 entirely impossible it would be to get similar work done 
 for money. If such women went to the factory or 
 into professional life, we should have to withdraw 
 probably a much greater number from the factory 
 or professions to take their place, and should lose 
 something with it all. 
 
 For the rest, it is enough to say with Professor 
 Marshall : " A woman who makes her own clothes, or a 
 man who digs in his own garden or repairs his own 
 house, is earning income, just as would the dressmaker, 
 gardener, or carpenter who might be hired to do the 
 work." 2 
 
 2. Leisure. — There are people — not all poor — who 
 
 1 Even when they take salaries, we may hope that the £400 a year 
 does not represent the commercial value of their work. 
 
 2 Principles of Economics, 5 th ed. p. 72.
 
 68 INCOME WHICH ESCAPES book i 
 
 seem to have the idea that a man is somehow hardly 
 treated in having to work for his living ; that for a 
 minority to be " enjoying themselves " while the 
 majority work, implies injustice and oppression on the 
 part of the minority. 
 
 The fact, of course, is that there is no " natural " 
 provision to allow of man's idleness. In any climate 
 similar to ours, the savage, even with unlimited acres, 
 has a very hard time, and if he escapes incessant work 
 he does so only by limiting his wants and leaving his 
 nature undeveloped. But even if Nature in the wild 
 state were more bountiful than she is, she never under- 
 took to find subsistence for an unlimited number of 
 people with unlimited appetites. When we ask, then, 
 how this little country is able to support forty-five 
 millions of more or less civilised people, the answer is 
 that we owe it primarily to our ancestors, who made 
 the rough estate of Nature into fruitful farms and 
 workshops, and, abstaining from the immediate crops, 
 left the reclaimed estate stocked with tools of all sorts 
 for their heirs. Thus though life is easy to some and 
 hard to others, it is very seldom so hard to anybody as 
 it would have been to all but for the action of those 
 whose transmitted claims we honour in favour of their 
 descendants. In other words, the forty-five millions 
 are able to live at all, even by constant work, because 
 the minority have inherited capital — the tools of pro- 
 duction — which they are willing to hire out for a 
 consideration. 
 
 But, as the consequence of this tradition of our fathers, 
 there is in modern society a hereditary class, which is 
 not a privileged class, nor a class whose existence is a 
 burden on other classes, but which has, all the same,
 
 chap, xi BOTH NOTICE AND ASSESSMENT 69 
 
 the possibility of leisure, or of living in idleness, by 
 lending to others what the others want. And I am 
 tempted to think that, but for the presence and the 
 occasional arrogance of this class, men generally would 
 no more have complained at having to work for their 
 living than the blackbird complains that he has to spend 
 his days looking for worms. ~ 
 
 Possibly, however, there is another and a better Where 
 reason for the new idea which regards labour not so 7°*7 1S 
 much as a means to wealth as the contradictory of 
 wealth, and puts it among "evils" rather than among 
 "goods." It is that, in some respects, life is harder 
 to the majority than it used to be. Perhaps it need 
 not have been so. But when a little island like this 
 increases its numbers from eighteen and a half millions 
 to forty-five within a century, and when these millions 
 increase their desires and raise their standard of living 
 till the labourer on 20s. to-day is in many respects 
 better off than the middle classes of three genera- 
 tions ago, one can see why the hours of labour 
 are not more curtailed than they are, and why the 
 intensity of labour may be much greater than it was. 
 It is because the demands of the consumer are so 
 enlarged that the demands on the producer are not 
 diminished. 
 
 In old times all labour was very much like what agri- and con- 
 cultural labour or domestic service is now. The work tmuous » 
 might be rough and exhausting, but men " took their 
 time " over it. It had constant breaks and lightenings 
 consequent on its being carried on, not in isolated 
 premises, but in houses and adjoining sheds. Men 
 could come out to the door for a smoke or a chat, and 
 go back to the loom without being afraid that they
 
 7o INCOME WHICH ESCAPES book i 
 
 would "lose their place." An hour longer in bed in 
 the morning did not cost a man his job : time could be 
 made up by working a little later. There was in this 
 simpler life, one may imagine, very much the kind of 
 liberty that literary men hold so dear — the liberty of 
 doing their work when they please and with the 
 intensity they please. 
 
 But the characteristic feature — and it is not a pleasant 
 feature — of regimented labour to-day is that men must 
 do their tasks within certain hours and certain years, 
 and during these times they must work their hardest. 1 
 It is not the tyranny of a master that is to blame ; 
 it is the outcome of the whole system — the inevitable 
 consequence of factory industry, where men and 
 women work along with steam and machinery, and 
 must regulate their labour by the starting of the engine 
 and adapt their movements to the speed of the spindle. 
 The good master here is the man who pays the highest 
 wage — not the man who allows his workers to work 
 as they will. To this intensity of work the Trade 
 Union has contributed its quota. Employers com- 
 pelled to pay the minimum rate are compelled to get 
 their money's worth out of the workers, and so skilled 
 men are superannuated at forty-five, 2 till working men 
 dye their hair and reject the friendly spectacles lest their 
 age should betray itself, 
 leisure is It is, then, more than likely that the intensity of 
 
 work has increased during the century, and, if so, it 
 becomes abundantly clear why leisure — the mere 
 abstinence from work — has attained the importance of 
 a thing to be prized and priced. In such circumstances 
 it is not a mere negation ; it is a positive form of 
 
 1 Compare p. 280 (note). * Compare p. 174. 
 
 ealth.
 
 chap, xi BOTH NOTICE AND ASSESSMENT 71 
 
 wealth. It is one of the services which the community 
 render and make possible for each other. But the 
 shorter work-day does not appear in any recognised 
 schedule of income. It is only a rise in the general 
 standard of comfort, in the same category as the 
 gradual and unpriced improvements of the natural and 
 social environment. 
 
 3. Congenial Occupation. — If work is congenial, then, 
 in the act of providing, is obtained some of the " life " 
 which was originally found in the provision. A great 
 many of the occupations which, in older and harder 
 times, were pursued as means to an end, become ends in 
 themselves, and the former end may even become sub- 
 sidiary. It is markedly so in the professions where the 
 " bread and butter " is assuredly the smaller part of the 
 wage. It is so to a very great extent with officials, 
 employers, and all men in business for themselves. 
 Only among the great mass of the working classes do 
 we find the entire absence of this, partly because the 
 work is not their own but that of a master, partly 
 because of the monotony which divided labour tends to 
 induce. 1 
 
 Here the phenomenon is that numbers of men are A second 
 producing services for other men, and making their 
 money income by doing so, while, in and by the same 
 act, they are making a second income for themselves 
 which is never expressed in money at all. It cannot 
 exactly be called an income of " pleasure," for somehow 
 we do not usually associate pleasure with hard work ; 
 
 1 It would be dishonest, in me at least, to pretend that the change 
 from hard manual labour to monotonous watching of machinery is 
 essentially a lightening of labour ; its bright side must be found in its 
 results.
 
 7 2 INCOME WHICH ESCAPES book i 
 
 but it is an income of satisfaction, of happiness, of well- 
 being, which might be weighed, and sometimes is 
 weighed, by a money measurement against the satis- 
 faction of goods or services which satisfy the grosser 
 wants, as, for instance, when a professional man chooses 
 a small salary and work into which he can put his heart, 
 to the, larger rewards of less congenial occupations. 
 Social 4. Persona/ Relations. — As this working life develops 
 
 activities. j ntQ a lejsu,.^ dignified, congenial life, and moreover a 
 life that is, in many departments, engaged in the pro- 
 duction of that which goes to develop a man and make 
 him unsatisfied, rather than to fill up his wants and 
 satisfy them, the purely social relations of man to man 
 form a source of happiness and well-being which is 
 almost a by-product of the other occupations. I refer, 
 of course, to the satisfactions of personal communion 
 and intercourse between men and women ; the associ- 
 ation in culture and education ; the co-operation in 
 games and amusements and kindred pursuits of all 
 kinds, where man finds the expression and realisation of 
 his nature and opens up sources of happiness otherwise 
 unknown. And it is in these directions that wants — 
 and with them satisfactions — expand into infinity, or 
 rather where activities which are realisations in them- 
 selves take the place of wants that require filling from 
 outside. 
 Unpriced 5. New Goods and Improved Qualities. — Another 
 
 improve- steady increase of wealth escapes notice because of its 
 
 merits in J \ 
 
 quality. very commonness. It is the invention of new goods 
 and the improvement in quality of old ones. The best 
 illustration is perhaps the familiar bicycle. Here is a 
 form of wealth which has added perhaps more to human 
 health and happiness than any other invention of late
 
 chap, xi BOTH NOTICE AND ASSESSMENT 73 
 
 years. Forty years ago nothing like it was in man's 
 knowledge. Then came the old high bicycle with 
 direct action, the chief attraction of which, I am per- 
 suaded, was its danger. Later came the modern cycle, 
 which enables even delicate women to go long distances 
 without fatigue. What makes us overlook the increase 
 here in the " income of benefit " — to use a con- 
 venient expression — is precisely that it is a change of 
 quality, not an addition of quantity, and that probably 
 the improvement is not reflected very appreciably in the 
 price. In the present instance, not only is the differ- 
 ence between the luxurious pneumatic of to-day and 
 the " boneshaker " of a few years ago already forgotten, 
 but it is not noticed that, within forty years, the estate 
 of human happiness has been widened by the drawing 
 of the world closer together. Men and women who 
 seldom escaped from the city are now at home any- 
 where within a radius of twenty miles. Parallel cases 
 are the motor car — doing for the elderly what the 
 bicycle did for the young — the typewriter and the 
 telephone, improvements in photography, sewing- 
 machines, pianos, in the printing, binding, and illus- 
 tration of books, in newspapers, in all the apparatus of 
 sport and games. 
 
 6. Property yielding no AJoney Revenue. — There is 
 another group which escapes assessment and yet adds 
 infinitely to the stream of human well-being. It nas 
 two forms : (1) the wealth sunk by governments, 
 municipalities, and individuals which appears thence- 
 forth as capital not yielding a revenue, and (2) the 
 gradual change that creeps over the environment as it 
 comes into conformity with man's new nature and 
 desires.
 
 74 INCOME WHICH ESCAPES book i 
 
 Capital net (i) When GifFen, in 1889, calculated the "nation's 
 
 income °* P ro P ert y " at ^ IO > 37> 000 » 000 ) 1 tne most of this 
 amount was made up by taking various money incomes 
 at so many years' purchase. But to this he added two 
 sums : one of .£960,000,000, representing " moveable 
 property, e.g. furniture of houses, etc., works of art, 
 etc." ; another of .£500,000,000, representing "govern- 
 ment and local property." Now these two classes yield 
 an actual income of benefit to the nation just as private 
 houses, which are assessed to Property and Income Tax, 
 do, but they are explicitly scheduled in the wealth of 
 the nation as " not yielding income." 
 
 Of the same nature are public parks, open spaces, 
 and recreation grounds. If, for instance, a rich man 
 leaves his house and grounds within a city to be used 
 as a public museum and park, the enjoyment of them, 
 which formerly appeared measured in money as income, 
 now drops out of the tax returns. But, practically, it 
 is the same as if they had fallen into the possession of 
 a large family. 
 
 Recon- (2) The other form is less obvious. It corresponds 
 
 in the public sphere to "good-will " in a private business 
 — the smooth running of a concern when the various 
 parts get fitted into one another. The development of 
 a country repeats on a great scale the familiar history 
 of a badly laid out watering-place. In its young days 
 it grows as it pleases, with the result that, when it 
 comes to years of discretion, a great deal of its revenue 
 must be taken to pull down and clear away nuisances. 
 This kind of reconstruction of the environment is 
 notorious in the purification of rivers, drainage schemes, 
 city improvement schemes, etc. But there is another 
 
 1 The Growth of Capital, p. 1 1 . 
 
 structed en- 
 vironment.
 
 chap, xi BOTH NOTICE AND ASSESSMENT 75 
 
 kind which goes on more quietly but more surely. 
 It is the increase of well-being which comes, not of 
 adding new material for enjoyment, but of finding 
 for the old material new uses hitherto undiscovered 
 or badly economised. It takes such shapes as the 
 removal of industries to particular quarters — say to 
 the neighbourhood of water — leaving the residential 
 quarters to quiet and fresh air ; the deportation of 
 working people from congested towns to suburbs, by 
 railways and cars ; the bringing of the country and 
 seashore within reach for summer quarters ; the utilisa- 
 tion of waste stretches of sand and turf for the national 
 (and rational) recreation of golf; the speeding up of 
 town traffic by tramway lines ; the improvement of 
 city pavements to secure absence of noise and jar, and 
 of roads to suit bicycles and motors — the endless ways, 
 in short, by which growing knowledge and organisation 
 "make the most of" the environment. The rough 
 places of the world are often made marvellously plain, 
 as a golf-course is — by simply tramping over them. 
 
 7. Freedom and Good Government. — Last, and most National 
 unnoticed of all perhaps — especially by those who find condltlon8> 
 the golden age in the past — is the growing wealth 
 which comes with the growing culture of the nation 
 and the making and administration of good laws — 
 the wealth of peace, free choice of occupation, security 
 to person and property, abolition of class privileges, 
 freedom of thought and expression. If we for a 
 moment realised the difference between a time when 
 men had to take the protection of themselves in their 
 own hands, and a time when electric light and the 
 policeman make even a great city safe to life, property, 
 and virtue, we should know how much has thus been
 
 76 INCOME UNASSESSED book i 
 
 added to the real but indivisible wealth of the nation. 
 It escapes our notice because it is the elimination of a 
 minus rather than the coming of a plus. 1 
 
 Here, then, is an immense amount of real income 
 which must be added to the money income (and to 
 the goods and services which it reflects) in any 
 adequate account of the annual flow of wealth by 
 which we live. It seems worth calling attention to 
 that, in any of the popular schemes of re-distribution, 
 it is the money income alone (and the real income it 
 represents) which is thought of, and that little account 
 is ever taken of the great increase in communal wealth 
 which is not distributed. And it strikes me that it is 
 in the unassessed and neglected incomes of this chapter 
 that conscientious persons may make the greatest 
 additions of real wealth, without disturbance to the 
 economic organism, simply by taking thought. 
 
 1 An eighth category may be suggested. Human well-being gains not 
 only by the addition of instruments, but by the growing capacity to 
 make use of them. It is education, of course, which develops this 
 capacity. Thus the increase of wealth, which makes it possible to raise 
 the school age and to afford free education to the children of the poorest, 
 has a double effect on the real "income of benefit."
 
 CHAPTER XII 
 
 THE LIMITATION OF MONEY INCOMES BY THE 
 REAL INCOME 
 
 A parable to show that, whatever the distribution of the money income may 
 be, there is only one sum of goods for which it can be exchanged. This real 
 income admits of being looked at from two points of view : either— as we have 
 done — as the sum of goods bought from the factors by the money, or as the sum 
 of goods bought by the factors "with the money. In either case there is only one 
 sum. Two things prevent us seeing this. One is that goods are paid for at 
 one time and bought back at another. The other is the possibility of miscalcu- 
 lation between supply and demand. But, on the "whole, all the supply (goods 
 income) is bought by all the demand (money income). Therefore, if one factor 
 or group of factors gets more, some other must get less. And, as corollary, 
 if one factor or group of factors renders more service, some other gets more 
 income, and vice versa. This may be illustrated by the case of a rich man's 
 daughter taking to typewriting, and by the contention put forward on the 
 Eight Hours' Day question. 
 
 There still remains something to be said as to the 
 relation in which the money income stands to the real 
 income. It may be introduced by a parable bearing 
 on one of the problems of the day. 
 
 Suppose a well-meaning cloth manufacturer has been A 
 making the experiment I once made, of living in the 
 conditions of a working woman ; and has found that, 
 while it is possible to feed oneself on sixpence a day, 
 it is not pleasant, and that, taking into consideration 
 house rent, clothes, and other necessaries, it is extremely 
 
 con- 
 scientious 
 weaver
 
 78 THE LIMITATION OF MONEY INCOMES book i 
 
 difficult to see how women can live under ios. a week 
 and remain honest. 
 
 Suppose, then, he becomes uneasy in his mind as to 
 the lowness of the wage he is paying to his women 
 workers. He would fain pay them more, but, being 
 in the condition of many employers at all times, and 
 getting only bank interest on his capital, he cannot 
 afford to make any further reduction on his own 
 remuneration, 
 raises his At this moment, one of the workers, fresh from a 
 
 prices an University Extension lecture, comes to him with the 
 
 wages, J ' 
 
 argument that wages come out of price of product, and 
 suggests that he should raise the price of the goods 
 made in the factory. A favourable opportunity presents 
 itself; he raises the price of his cloth ; and, let us say, 
 he gives the whole of this advance to the workers. 
 And suppose all the cloth manufacturers follow suit. 
 Well, of course, the women workers are congratu- 
 lating themselves on getting, say, a shilling a week 
 more. And a few of us who buy cotton cloth are 
 thinking that their contentment is cheaply bought even 
 if we have to pay something more for the cloth we buy. 
 But suppose that this cloth is one of the necessaries 
 which working women must buy for their own living, 
 then all working women will find that they have to 
 pay more for it, and the weavers themselves, if they 
 buy cloth at the mill warehouse, will very likely 
 grumble when they find that they have to pay more 
 for the cloth they themselves have woven, 
 and all Suppose now that all employers take a conscientious 
 
 employers £ t an( j a jj ra j ge ^ p r | ces f their product in the same 
 
 tollow suit. 7 _ r r 
 
 proportion, till we turn the complete circle of all trades. 
 This might be possible so long as prices are not kept
 
 chap, xii BY THE REAL INCOME 79 
 
 in check by competition either from other countries 
 
 or from people who remain outside all combinations. 
 
 What is the total result ? The wage-earners, let us Cut bono ? 
 
 suppose, get a shilling a week more wage than they 
 
 did, but the new wage now buys only what the old 
 
 one did. The money wages of all trades have risen ; 
 
 but the prices of all commodities have risen ; and the 
 
 real wage remains constant. 
 
 Thus we are reminded that a rise in price attended 
 by a rise in wage is good for the wage-earners of any 
 individual trade only in proportion as other trades do 
 not follow suit. "The strength of sixpence in my 
 pocket depends upon the want of sixpence in yours." 
 If the cloth-worker gets a shilling of advance and if 
 no price rises, it is all clear gain to her. If she gets a 
 shilling of advance, and if something which she does not 
 buy rises in price, it is still all gain to her, although 
 those of us who buy the dearer commodity suffer to 
 the extent of our purchases. But if the cloth-worker 
 gets a shilling advance, and if all the commodities on 
 which she spends her wages rise in the same proportion, 
 in what respect has she gained ? 
 
 What has been forgotten by those who think that a 
 rise in price is the short cut to universal well-being ? It 
 is that money is, after all, merely a claim on one sum 
 of goods, which changes in price or wage may redis- 
 tribute but cannot increase. 
 
 The parable brings before us, in another form, what An aiter- 
 was already suggested : that the real National Income " at .'Y e de ". 
 
 J && _ finition of 
 
 admits of alternative definitions. " The real incomes," Real 
 says Professor Cannan, " consist of what is bought ncome - 
 with money." 1 This definition has the advantage of 
 
 1 Theories of Production and Distribution, p. 62.
 
 80 THE LIMITATION OF MONEY INCOMES book i 
 
 Division of 
 labour by 
 means of 
 money. 
 
 corresponding with the familiar economic distinction 
 between Nominal and Real wages, the nominal being 
 the money wage which the workman gets on pay- 
 day, the real being what his wife buys with her husband's 
 " pay." But " real income," as defined by our previous 
 argument, is what the working man has made for his 
 wage. What must be made clear now is that these 
 are merely alternative ways of arriving at the same 
 result : the real income is the same sum of goods 
 looked at from two points of view — the side of the 
 seller and the side of the buyer. The factors — or 
 rather, the owners of the factors — are primarily sellers 
 of the goods they produce ; then they are buyers of 
 the goods they have produced. From the one side the 
 National Income appears as a sum of goods produced 
 and taken to the shops ; from the other, as a sum of 
 goods taken out of the shops into consumption. The 
 essence of the matter is that the services we have been 
 considering in the former chapters of this book are 
 services rendered to the community. But services 
 rendered to the community must be services received by 
 the community. The goods produced are the goods 
 consumed, or — it may be — saved. 
 
 In primitive circumstances, we may suppose that 
 each worker had an income, part of which he pro- 
 duced and part of which he consumed and saved ; 
 there was then no money income to puzzle us. The 
 income to gain which the worker has now surrendered 
 his isolated industry is not money, but a share in the 
 goods produced by the divided and organised effort. 
 The money is a half-way house. For the moment 
 the money income is in the hands of the factors and 
 the goods income is in the shops. But no one gets his
 
 chap, xii BY THE REAL INCOME 81 
 
 real income till he comes to the shops, where he and 
 
 all the others have sold their part-products or particular 
 
 products, and buys, along with the others, his share in 
 
 the total product. It is the last stage in the division of 
 
 labour : what the factors worked for was, of course, 
 
 the goods, not the money. It is money that has made 
 
 the division of labour possible by enabling the worker 
 
 to contribute an income of unfinished or particular 
 
 products and to get an income of finished or general ones. 
 
 As his contribution to the National Income, he makes The worker 
 
 a part-product or a particular product : as his share, he Particular 
 
 gets finished products or products in general. What income to 
 
 we have to grasp is that the goods that are then Ignend one 
 
 bought — Professor Caiman's " real income " — are the 
 
 same goods which were first produced. The sum of 
 
 the part or particular products is just the products in 
 
 general. 1 
 
 Say that A, B, and C have divided their labour to 
 pool the result. After his week's work, each takes his 
 product to the market and sells it for money. The 
 total real income at the week's end is the goods in the 
 market — the total product of A, B, and C. With this 
 money, again, on Saturday night come A, B, and C, or 
 their wives, to buy their provision for the next week. 
 But what they find in the market is just what they 
 have individually put in. The income is the same The 
 goods, whether counted as they come into the market ' , ent !! y ° 
 
 b ' J the alter- 
 
 or as they go out from the market. natives 
 
 1 What, perhaps, makes this more difficult to realise is that the 
 putting together of the material part-products or particular products, 
 and the serving them to the consumer as finished goods, are themselves 
 particular products or part-products in an immaterial form. A chair, 
 for instance, is a finished product made up of the labour of the joiner, 
 the polisher, and the retailer, as well as of the substance wood. 
 
 F
 
 82 THE LIMITATION OF MONEY INCOMES book i 
 
 is obscured 
 by the time 
 between 
 making and 
 spending, 
 
 and by the 
 want of 
 coincidence 
 between 
 demand and 
 supply. 
 
 There are, however, two things which prevent us 
 seeing this identity quite clearly : the one is the time 
 elapsing between getting the money wage and spending 
 it ; the other is the possibility of miscalculation between 
 the supply and the demand. 
 
 (i) Goods are produced and payment is made for 
 producing them at one time, while the money is spent 
 in buying them back at another. It is one of the 
 advantages of money that it allows this to be done ; 
 the man who takes his income in money — unlike the 
 farm labourer who takes it in kind — gets into his 
 possession a form of wealth which " keeps " ; he can 
 retain the money in his pockets as long as he likes 
 before exchanging it. 
 
 (2) The possibility of miscalculation comes of the 
 fact that the working man's wife has her choice — 
 her " run of the shop " to the extent of the wage. 
 If the workers formed themselves into a small co- 
 operative ring, say of six persons, each person making 
 a definite commodity, and if each such person at the 
 week's end got a claim on one-sixth of each product, the 
 goods put into the store would be visibly the same goods 
 as were taken out of the store. But in the modern 
 division of labour there is no such arrangement. The 
 majority of goods are not made to order, but in anticipa- 
 tion of order ; and demand, the money income seeking 
 goods, adjusts itself through free sale to supply, the 
 goods income seeking money. The division of 
 labour has its advantage in the increase of the goods 
 over what isolated efforts would produce. It has its 
 disadvantage in the great possibility of miscalculation 
 between producer and consumer, the one turning out 
 what the other does not want. But this inevitably
 
 chap, xii BY THE REAL INCOME 83 
 
 rights itself though not without loss. Every person 
 makes to sell. If the goods are not sold one week, 
 they will not be made a second. Or, if the worker is 
 so placed that he cannot make anything else than the 
 one thing, he will let his product go at a reduced price 
 till the low price sells it. 
 
 It is a marvellous thing, at first sight, that these 
 miscalculations should so right themselves ; that, for 
 instance, the shops which sell the most perishable 
 goods and run perpetual risk, one would think, of being 
 left with unsold stock, do, on the whole, make a profit. 
 What it amounts to is that the whole huge complex of 
 goods, mostly made on speculation and anticipation of 
 demand, does find buyers ; the money income is just The money 
 able to exhaust the jroods income. But it is not so ! ncome 
 
 just clears 
 
 marvellous as it looks. What escapes notice is that the the goods 
 incomes which the people spend were first paid out of mcome » 
 price, or in anticipation of price, and that this price is 
 presumably a price determined by the wants and desires 
 of the people ; that the producers, on the whole, 
 produce the goods at a price which will sell the goods, 
 and hand over this price to be paid back again. This 
 is perhaps a hard saying, and might be put another 
 way. 
 
 The employers, who organise the divided labour 
 towards the production of a finished commodity, do 
 take a risk that the goods will not sell, and pay wages 
 only in anticipation. They do not do so, however, on 
 a wild speculation, but on a calculated one. They do 
 not make goods at all unless there is a desire for the 
 goods, and unless the desire is likely to express itself in 
 such an offer of price that they can sell at a profit, and 
 it is because, and in expectation, of this that they pay
 
 84 THE LIMITATION OF MONEY INCOMES book i 
 
 because the 
 money to 
 buy with 
 was first 
 paid for. 
 
 the wages. If they make a mistake and the prices are 
 too high, then, indeed, the goods may be left unsold ; 
 but, unless employers normally did not make this mis- 
 take, there would be no employing and no wages. 
 
 To put it in its simplest terms. Suppose an em- 
 ployer wants to demonstrate the fundamental idea of 
 Economics, that industry is a co-operation of people 
 making goods for themselves ; and, in order to elimin- 
 ate the troublesome phenomenon of profit, charges 
 nothing for his own services. Then, if such an 
 employer makes cotton cloth to sell at sixpence a yard, 
 it is because he anticipates that there will be buyers at 
 sixpence a yard, and he makes this possible by putting 
 the sixpence into the workers' pocket as wage. It is 
 only the division of labour which hides from us that the 
 consumers, on the whole, are the producers, and buy 
 their own goods for the price at which they were paid 
 for making them, selling their part-products for sixpence 
 in order to buy sixpence worth of whole-products. 
 
 This would be quite clear under a thorough co- 
 operative system — and it is one of the chief values of 
 co-operation that it teaches simple people this lesson. 
 When the little group who started the co-operative 
 movement in Rochdale bought their first barrel of sugar 
 and appointed one of their number to sell it to them- 
 selves in small quantities as wanted, it must have been 
 evident to them that, unless they fixed the retail price 
 at a figure which would clear the sugar without loss, 
 and unless they were sure of enough demand to clear 
 the sugar at that price, the total transaction would not 
 pay. So if any ring of consumers were to follow out 
 co-operation logically — were to make the goods for 
 their own store and confine their purchases to this store
 
 CHAP. XII 
 
 BY THE REAL INCOME 
 
 85 
 
 — the identity of the income produced and the income 
 bought would be clear. 
 
 The conclusion to which all this leads up is shown The essen- 
 concretely in our opening parable. The total money always"* 1 ?" 
 income cannot buy more than the goods there are to How is the 
 buy. If all the factors were to change all their money l^J 1 ' 
 income back again for goods, the goods income would affected? 
 be exhausted. But, in any case, there is only one sum 
 of goods to be bought with the money. Under a 
 Socialistic system, we might all be paid a weekly 
 allowance by the great employer, the State. But all 
 our allowances together could not buy more than we 
 together had first put into the national stores. It follows, 
 then, in accordance with the law which does not allow 
 one to have original ideas as to simple arithmetic, that, 
 unless the real income is increased, if one factor makes 
 good its claim to more, another must be content to take 
 less. No juggling with rise of price and rise of wage, 
 or, again, with fall of price and fall of wage, will alter 
 this. If landlords manage to charge more for rent, or 
 employers for organising, or workers for labour, they 
 simply redistribute the National Income. There is a 
 crude idea among the working classes that what any 
 trade gains by combined action is gained from capital 
 or from employers ; it is just as likely that it is gained 
 from other bodies of wage-earners. If it is almost 
 impossible sometimes to see on what shoulders any new 
 taxation will light, it is as impossible to see which class 
 any particular rearrangement will pinch. 
 
 The corollary of this, however — if we may judge by Corollary. 
 the expressions and actions of great numbers — is not at 
 all clear. It is that, if one factor renders more service, 
 some factor (itself or another) gets more income ; and
 
 86 THE LIMITATION OF MONEY INCOMES book i 
 
 if one factor withholds its service, some factor (itself or 
 another) gets less income. These points may be proved 
 most usefully, perhaps, by taking two concrete and 
 familiar cases in which they are certainly not under- 
 stood. 
 
 Case of the (i) There is a statement which comes up with tire- 
 nch man s some reiteration, even among those who should know 
 
 daughter. ' ° 
 
 better ; — that a rich man's daughter has no right to 
 work for her living. Generally those who are most 
 eager to claim the " right to work " for the poor deny 
 it, in this case, to the rich, and those who speak with 
 scorn of the rich as " parasites " disapprove of the 
 daughters of the parasites doing what their fathers are 
 blamed for not doing. 
 
 There are two easy answers to the statement. One 
 is opportunist ; that, if the rich man's son is condemned 
 if he does not work, it is difficult to see why the rich 
 man's daughter should be condemned because she does. 
 The other is economic : that any person who adds to 
 the National Income adds to the sum of goods divisible, 
 while one who only consumes deducts from it. 
 
 But answers which silence do not always convince, 
 and the constant resurrection of the statement, even 
 among my own students, justifies the following out of 
 the economic argument in the concrete. Let us, then, 
 take a common case which seems most keenly resented : 
 where a girl, whose father is in a position to keep her, 
 finds a field for her energies in typewriting. 
 
 What catches the eye is that the girl here competes 
 with other girls who need to work, and, as it is phrased, 
 "takes the bread out of their mouths." The impli- 
 cation is, evidently, that only a limited number of
 
 duction" 
 
 again 
 
 chap, xii BY THE REAL INCOME 87 
 
 typists are required, and that this number may be had 
 from the daughters of less well-to-do people. 
 
 The first answer to this is: that a similar state- "Over-pro- 
 ment is currently made, not only about typewriting 
 and women's occupations generally, but about all 
 and every occupation. One would think, for instance, 
 that, in a country which boasts of being mistress of 
 the seas, and whose superiority in the construction of 
 ships is notorious, the statement could never be made 
 of engineers and shipbuilders. But it is the fact that, in 
 the most prosperous years, there is always a consider- 
 able percentage of unemployed in the great trade 
 societies which dominate the industry, and this is 
 counted by the Trade Unions a valid reason for 
 limiting the number of apprentices. 1 Ask any person 
 connected with our other great industry, the manu- 
 facture of textiles, and he will point for proof of 
 " over-production " to the number of mills in Lanca- 
 shire that neither pay dividends nor lay aside adequate 
 depreciation. It is the same all down the scale to com- 
 mission merchants and retail dealers : " there are too 
 many in the trade." Nor is it otherwise with the 
 professions. The number of "stickit ministers," of 
 lawyers who cannot make a living, of medical men 
 without a practice, the slowness of promotion in 
 banking, in teaching, in the civil service, the great army 
 of wretchedly paid clerks, the horrors of Grub Street 
 journalism, the starvation of minor poets — all repeat 
 the same story. Only for the army and navy do we 
 ever hear that there are too few candidates, and the 
 reason given is that the payment is too small to tempt 
 any but the adventurous, the restless, and the " waster." 
 
 1 Cf. p. 174 ; also p. 259 (note).
 
 88 THE LIMITATION OF MONEY INCOMES book i 
 
 The statement, then, that there is overcrowding 
 in the trade of typewriting cannot be taken more 
 literally than the similar statements about other trades. 
 We must regard it as merely expressing the common 
 fact that people in a trade do compete, and we must 
 ask if a rich man's daughter does not also co-operate ; 
 in other words, if she does not add a real income as well 
 as take a money one. Suppose, then, our typical in- 
 stance offers her services on the market, the question 
 is : Does this of itself bring the means of paying for her ? 
 Well, let us suppose that she has been getting a 
 dress allowance of ^30 from her father, and that, in 
 view of her making 12s. 6d. per week in typewriting, 
 he stops the allowance. There is no difference to the 
 girl except the honest glow of independence. But 
 what about the father ? He has now a sum of £30 of 
 unspent income. Suppose, to make the argument 
 quite clear, that, with this sum, he engages another 
 typist in his own office. Is this not a new opening in 
 the industry ? And even if we grant that Miss Dives 
 has displaced another typist, if it should happen that 
 this displaced one gets the new situation, has this 
 competition taken the bread out of Miss Lazarus' 
 mouth ? The position, of course, practically is that 
 the new typist has added a new service or sum of 
 wealth to the community, and is paid by the value of 
 this new service. 
 Does she Whichever way we turn it, we cannot escape from 
 
 "make" ^ arithmetical fact that the rich man's daughter adds 
 her wage? before she divides; deducts only as she adds; com- 
 petes only as she co-operates. In all this, we have 
 only another form of that popular fallacy which 
 Professor Marshall has — one would hope — nailed to
 
 chap, xii BY THE REAL INCOME 89 
 
 the unem- 
 ployed, 
 
 the counter under the name of the Fixed Work 
 Fund. 
 
 (2) The demand for an Eight Hours' Day made by Taking up 
 the engineers in the course of the 1897-98 dispute 
 was based on many arguments, good and bad, but 
 two came into prominence. To some the chief gain 
 seemed to be the absorption of the unemployed. It 
 was, no doubt, asserted at the same time that the 
 reduction of hours would not diminish the output, but 
 those who put this forward must have reckoned that 
 the two arguments would not be considered by the 
 same class : if the output per man was not to be 
 reduced, where would the demand for more labour 
 come from ? The real conviction, of course, was 
 that the workers hitherto employed would not be able 
 in eight hours to do the amount of work required, 
 and that the employers would be forced to take on 
 more men — ignoring the probability that the amount 
 of work required and ordered would not be the same 
 if prices, owing to the increased cost, were raised. 
 
 To others the attractiveness of the proposal was the 
 extra hour of leisure. But they did not wish to pay f" haur ' 8 
 
 r y leisure 
 
 for this hour. They did not propose to work any 
 harder and do in eight hours what they had been doing 
 in nine. They simply asked that the wages for eight 
 hours should remain what they had been for nine. 
 It was, in short, a peculiarly awkward demand for a 
 rise of wages, and many employers regarded it as 
 merely a device for securing an hour more of overtime- 
 pay in the day. 
 
 The increase in cost which would have followed in 
 either view was to be taken either out of the consumers 
 in higher prices or out of the employers in reduced 
 
 or saving
 
 go THE LIMITATION OF MONEY INCOMES book i 
 
 Again the 
 essential 
 question : 
 What 
 would 
 be the 
 effect on 
 the real 
 income? 
 
 profits. The former, urged the employers, was not 
 possible in face of foreign competition both in mutual 
 markets and at home : the latter was not possible in 
 the state of profits ; and they proved the reality of their 
 belief by the great federation formed by rival units in 
 face of a common danger. 
 
 The fundamental economic question here was : 
 Could machinery and men, severally and jointly, do 
 as much in eight hours as they did in nine ? If they 
 could, then there was a gain on many counts. The 
 men would have an hour's more leisure while their 
 wages remained the same. The masters would econo- 
 mise engine power and wear and tear of plant. 
 If, however, they could not, the result would be a 
 diminution in the amount of goods poured into the 
 National Income. How, then, could one get more out 
 of a bag that contained less ? But all through the dis- 
 pute it was evident that this was a view which did 
 not enter into the heads of the men. Their idea was 
 the old one : that wages come out of employers' 
 pockets, or that employers can fill their pockets by 
 charging higher prices, forgetting that, in the long- 
 run, if the consumer has to pay higher prices, it simply 
 means that one part of the national dividend pays more 
 for the other parts. If there is no increase in the real 
 income, any increase in money income is only a re- 
 distribution. To think otherwise, is to conceive that 
 the earth could be made to yield more to farmers' 
 labour by dividing the 365 days of the year into 
 thirteen months.
 
 BOOK II 
 
 THE DISTRIBUTION OF THE 
 INCOME
 
 CHAPTER I 
 
 THE PROBLEM 
 
 The importance of the inquiry rests on the assumed " badness " of the 
 present distribution. The phrase covers two latent assumptions: — (i) That 
 •work, merely as tvork, deserves wage. The idea probably is that the Creator 
 must have provided for man as ivell as for his felloiv-creatures. But ive men 
 ask infinitely more than Nature gives, and ive get it on one condition— that ive 
 divide our efforts and make to each others orders. Thus a distribution is 
 not necessarily "bad" because it withholds a living from some who are 
 willing to work. (2) That an unequal distribution is a bad one. But 
 •would an equal distribution be a good one ? Among suggestions for a better 
 distribution some have thought of a distribution according to Needs. As the 
 only needs which could reasonably be assessed are physical ones, this would be 
 a distribution according to size of families — "which would scarcely recommend 
 itself after the experience of last century. Is Deserts, however, not a reason- 
 able principle f Suppose we grant this, and take Product as a criterion of 
 deserts. In this case ive must bring quantity and quality of products to a 
 common measure, and this must be value. In many cases this is the modern 
 principle : the author, e.g., gets the value of his services as assessed directly by 
 the public. But this is not the typical case of modern industry. (A) It is not 
 always personal desert that is paid ; the propertied classes are paid according 
 to the product of the factors they own. (B) In factory industry the individual 
 contribution is lost, first in the thing produced, and, second, in its price, which 
 latter is the thing really divided. Thus income " due to " does not mean "pro- 
 duced by," but "credited to." This is more clear in the case of factors which 
 enter into the making of all sorts of goods — still more so when the services are not 
 factory goods, but general conditions of their production and of life generally, as 
 e.g. police protection. Individual income, then, is a share in the total produce 
 of industry somehow credited to a factor, and the payment in money is suggestive 
 of this. Thus our problem is : by examining the relations between servant
 
 tribution." 
 
 94 THE PROBLEM bookii 
 
 and paymaster, to find if there is a principle ivhich attaches the various pay- 
 ments to the -various services. 
 
 The previous book, one may hope, has given us clearer 
 ideas of the national Money income as a sum of in- 
 dividual money incomes, amounting to ^2,000,000,000, 
 and of the national Real income as a year's flow of ser- 
 vices, sometimes rendered directly, sometimes embodied 
 in goods, sometimes taking the form of general con- 
 ditions of life. 
 
 "Baddis- The ascertainment of the principle, if there be a 
 
 principle, on which this annual flow of wealth is dis- 
 tributed, is a matter not only of scientific interest, 
 but of the deepest practical importance. It is all the 
 more so on account of the almost universal assumption 
 that there is something, if not wrong, at least regret- 
 table, in the present distribution. The soberest states- 
 man or publicist has seldom any hesitation in speaking 
 of the " bad " or even of the " unjust " distribution of 
 wealth. If it is " bad," it is not, as some people seem 
 to think, ipso facto proved that it might be better ; but, 
 at any rate, we cannot rest till we settle whether it is 
 inevitable or not. If it is "unjust," it is not inevitable. 
 People, indeed, never have had very clear ideas of what 
 justice is, but every one has a rude idea that there is 
 such a thing, and most of the pressing questions of the 
 day are pressing just because of some suspicion of 
 injustice. 
 
 It may be no unprofitable introduction, then, if we 
 try to bring to light one or two of the latent assump- 
 tions that underlie the current criticism of our present 
 distribution, and criticise in turn one or two suggestions 
 for distributing the National Income on a different
 
 a 
 
 chap, i THE PROBLEM 95 
 
 plan. We have an honoured example of this method in 
 the Republic, where Plato allows Thrasymachus and 
 Glaucon to ventilate their crude ideas about justice 
 before he builds up the majestic fabric of that state, 
 ordered with a view to the good of the whole, wherein 
 justice resides. 1 
 
 Most of us are familiar with the bitter complaint of if a man 
 the literary man that he cannot make a living by his ""^° 
 pen. He calls heaven to witness that he has lived living, 
 soberly and worked hard — perhaps that he has a wife 
 and family depending on him. But the public will not 
 buy his books. Was ever honest man so treated ? Or, 
 harder still, it is an actor who cannot make a living, as 
 he wishes, by playing Shakespeare. He has sunk his 
 fortune in the staging. He has ransacked the British 
 Museum for accuracy in dressing. No one doubts his 
 acting ; neither Hamlet nor Lear has any secrets from 
 him. But night after night he faces a beggarly array 
 of empty boxes. So he turns and curses Supply and 
 Demand, and asks for a state-endowed theatre. 
 
 Yet, common as the idea is that a man has a claim 
 to a living when it is proved that he has worked hard 
 and worked according to his ability, it is a mystery to the 
 economist how this idea ever got acceptance. 2 Is there 
 
 1 The Platonic division of labour is a division according to capacity — 
 each man to practise only that thing to which his nature is most perfectly 
 adapted. It is suggestive that, with Plato, a just distribution of income 
 is nothing compared to the distribution of employments with a view to 
 the realisation of the perfect life. 
 
 2 If some reader doubts whether it really has acceptance, let him con- 
 sider this : that, while public opinion has got to the point of resenting pure 
 begging, it still allows the organ man or the so-called German Band to 
 torture us into bribing it to go away. The only explanation is that the
 
 96 THE PROBLEM book n 
 
 any self-evident connection between mere work and 
 wages? On what "scheme of the universe" is it based? 
 and blames Perhaps man is thought of as a shipwrecked sailor 
 society tor tnrown on these hard shores of life by wind and waves. 
 It is " disgraceful " to let him starve. Well, but he is 
 not let starve ; at worst, the workhouse doors are open, 
 and food and shelter guaranteed him there. But he 
 does not want charity, he wants work. Well, let him 
 work. But he wants payment for his work. Ah, 
 that is a different thing ; what can he make ? Paints 
 pictures, does he ? or makes verses ? or can turn the 
 handle of an organ ? But we don't want these. Bad 
 pictures and bad music are as bad as bad verses — better 
 pay him not to do any of these things. But, it is 
 repeated, he wants work, not charity. There is no 
 answer to this ; so our complainant appeals, as usual, 
 to the higher court and says : If the individuals do not 
 recognise their duty, the State must make work for the 
 unemployed. But where does the State get its money ? 
 And to whom will the State sell the goods if, as is the 
 case, they are not wanted by the citizens ? 
 
 No doubt at bottom the idea comes to us from the 
 religious side. God provides a living for the beast of 
 the field and the fowl of the air, therefore he must have 
 provided as much for his favourite child, man : if the 
 provision is not forthcoming it must be kept back by 
 some engrosser or other. "We are beaten — nous sommes 
 trahis." Those who use this argument from the 
 animal kingdom to man might consider the answer of 
 the old farmer when, in the day of adversity, he was 
 
 turning a handle or blowing into a tube is "work," and that the men 
 accordingly are working for their living — the fact being that they are 
 forcing their living from us at the point of the bayonet.
 
 dustrial 
 contract. 
 
 chap, i THE PROBLEM 97 
 
 reminded that God feeds even the ravens, " Aye, that's 
 it — on my tatties." 
 
 The truth is that the analogy is quite misleading we must 
 economically, whatever it may be theologically. We f sk !*' he 
 are not beasts of the field or fowls of the air, but men. the in- 
 As men we have, for the time, reversed the " natural 
 process." We set limits to the elimination of the 
 unfit. We have a fixed idea of the sanctity of human 
 life, and we spend ourselves in sustaining and increas- 
 ing the sum of it. Thus, refusing to limit our 
 numbers as Nature dictates to her other creatures, 
 we have to plan deliberately to make Nature yield us 
 what she does not yield her other creatures. Individu- 
 ally, we produce almost nothing that could sustain even 
 a simple life, in order that we may, in combination, 
 produce the things we ask for our complex life. And, 
 having surrendered our individual working, we cannot 
 produce without considering the wants and wishes of 
 our fellows. The marvellous thing is that, by this 
 co-operation, we not only secure existence to millions 
 who otherwise would not survive at all, but we release 
 multitudes from the necessity of mechanical, laborious 
 toil, and allow them to produce things for which their 
 capacity fits them — things in the making of which 
 they take positive pleasure. All, however, on one 
 condition — that the goods made meet demand. We are 
 not Crusoes working to our own orders. The body 
 of consumers is our employer, and ultimately our 
 paymaster. And if, after all, the public will not buy 
 our work, we need not complain that it has broken its 
 bargain with us. It is we who took the risk of pleasing 
 ourselves and producing something for which the 
 demand was precarious.
 
 9& THE PROBLEM book n 
 
 Thus we are driven to see that a distribution of 
 wealth is not necessarily " bad " because it withholds a 
 living from some who are willing to work. 
 
 But, it will be argued, granting that the analogy 
 from the animal to man is misleading, we are a rich 
 nation — richer than ever nation was before — and 
 yet luxury and want jostle each other in the street. 
 That, of the total income of this country, four and 
 three-quarter millions of families should divide among 
 them only some £500,000,000, while other two 
 hundred and twenty-two thousand families divide 
 £350,000,000 : that not fewer than 25 per cent, of 
 the whole number of adult workers in the community 
 should receive for their labour less than a pound per 
 week 1 — what is this but the old contrast of Lazarus 
 and Dives ? Does anything more require to be said to 
 prove that the distribution of income is thoroughly 
 bad ? Every one is familiar with this kind of state- 
 ment. It is always assumed that Lazarus went to 
 heaven because he was poor. 
 is unequal The assumed premiss here is, of course, that 
 necessara" 011 unec l ua l distribution, which every one admits, is bad 
 "bad"? distribution. Is this not a somewhat hasty assump- 
 tion ? The Declaration of Independence tells us that 
 all men are born free and equal — and we all know the 
 kind of equality America allows its black citizens. 
 But, outside America, when did any medical man 
 commit himself to the statement that all the babies 
 
 'This was the calculation in 1899. Mr. Chiozza Money estimates 
 that one-half of the entire income of the nation is enjoyed by 12 % of its 
 population : more than one-third of the income by less than one-thirtieth 
 of its people. — Riches and Poverty, 191 1.
 
 chap. I THE PROBLEM 
 
 99 
 
 he brought into the world were " equal " ? Is it in 
 inches or weight, in strength or appetite, in size of 
 brain or muscle — in anything, in short, except that 
 they all have the same number of arms, legs, and other 
 members, and are partial to milk diet ? Yet, as a rule, 
 though born unequal, and all through life remaining 
 unequal in every respect, many people regard the in- 
 equality of income as quite abnormal. Let us ask, then, 
 if an equal distribution would be a good distribution. 
 
 The National Income, as we know, sums up to 
 £2,000,000,000, and the population is some 45,000,000. 
 The one divided by the other gives £44 8s. iofd. per 
 head, or 17s. i^d. per week. Suppose, then, that an 
 extreme communist assumed the dictatorship, and that 
 he managed — which would not be quite easy — to 
 induce or compel all the leaders of industry to continue 
 organising as keenly for the community as they did for 
 themselves ; the most that could be given per week 
 to each, whether as wages, aliment, or however it was 
 called, would be just what seventeen silver shillings 
 and one and a half pennies could buy in the shops 
 and schools, theatres and churches, or wherever the 
 goods of the National Income are sold. 
 
 But would any dictator distribute the National 
 Income equally ? The first thing that strikes one is 
 that a large portion of the nation at any moment 
 consists of babies — who certainly could not consume 
 17s. i^d. worth of milk and cot accommodation per 
 week. Another part consists of those interesting but 
 difficult, people who inhabit jails — people who are not 
 only non-producers, but have done their best to over- 
 turn the structure of honest society, and would con- 
 tinue to do so even if it were demonstrated to them
 
 ioo THE PROBLEM book n 
 
 that a benevolent despot was at the head of it. 
 Again, more than half the population consists of 
 women, and although one may have the greatest 
 admiration for the woman who works, some of us 
 are not prepared to give an equal share to the woman 
 who thinks that her sex gives her immunity from 
 contributing anything. 
 
 It needs very little demonstration to show that, 
 whether an unequal distribution is a bad one or not, 
 an equal distribution would not be a good one ; and it 
 is suggested that, whatever else a better distribution 
 might do, it could not make us all rich. 1 
 
 Admitting, then, that an equal distribution is at 
 least questionable, let us inquire what other principle 
 might conceivably be adopted to regulate income, 
 assuming that a regulated distribution is in human 
 power. 
 Do Needs Would a distribution according to Needs be any 
 supply a better ? Perhaps it would, if we could define the word 
 
 better , r . . . 
 
 principle ? in any satisfactory way. But it is difficult to see how 
 any needs could be taken into consideration but the 
 physical ones, and, as every grown-up person has very 
 much the same physical needs, this — if it is not to be 
 an equal distribution — would be a distribution according 
 to families ; so that, to use Pitt's words, " this will 
 make a large family a blessing and not a curse." 
 Everyone knows what happened in the beginning of 
 the century when the Poor-Law Guardians acted on 
 the principle, and made the allowance proportional to 
 the family. 
 
 I am far from saying that equality modified by 
 
 1 Cf. Studies in Economics, pp. 35, 269.
 
 CHAP. I 
 
 THE PROBLEM 101 
 
 differences of needs is not a possible, perhaps admirable, 
 principle of distribution. It is the one we instinctively 
 adopt in the nursery, the workhouse, and the hospital ; 
 in besieged cities and in ships short of provisions it 
 would be the only one thought of. But, to organise a 
 community of forty-five millions on any such principle, 
 is a task at which even the Social Democratic Federa- 
 tion might hesitate. 
 
 Failing these more obvious standards, our thoughts Or Deserts? 
 naturally turn to Deserts as a principle of distribution. 
 This is a standard that runs almost diametrically 
 opposite to the last mentioned. A distribution by 
 Needs would be more or less determined by physical 
 constitutions, but deserts have nothing to do with 
 physical constitution. Peers of the realm may agree 
 in requiring the same amount of food per day, but no 
 dictator would assess Lord Kelvin's deserts at the same 
 figure as those of the majority of his colleagues. 
 Possibly the only resemblance between Miss Marie 
 Corelli and Mary Smith who works in the factory is 
 that they both drink the same amount of tea per day, 
 but Miss Corelli would be much astonished to find that 
 this argued any parallel as to their deserts. 
 
 This suggests, indeed, a very good illustration of the 
 difficulty. Suppose our dictator had come to the case 
 of Miss Corelli and reasoned with himself : — " How 
 much shall we give her ? Her novels were the favourite 
 reading of Queen Victoria, but the Athenaum did not 
 consider the Queen an authority on novels. Suppose 
 we give her double the average, and allow her 34s. 3d. 
 a week." One may imagine Miss Corelli's appeal to 
 her endless series of large editions exhausted before
 
 ICU 
 
 THE PROBLEM 
 
 BOOK II 
 
 publication, and her denunciation of the unfortunate 
 dictator as a disguised Saturday Reviewer ! 
 
 Evidently the conception of "deserts" itself requires 
 explanation. But is there — can there be — any re- 
 cognised standard of deserts ? There is one answer 
 which seems obvious and natural. Is not Product the 
 economic criterion of deserts ? The examination of 
 this in some detail will at least show us where the 
 problem lies. 
 
 But 
 
 Deserts, 
 translated 
 into Value 
 of Product, 
 
 Let us take first the simplest case, where a person 
 works directly for and sells to the public. Let us 
 assume that it is reasonable to argue : This person has 
 produced much ; therefore he deserves much. The 
 question is immediately suggested : What do we mean 
 by "much"? Is it much in quantity or much in 
 quality ? These in turn must be brought to a common 
 standard, and so our criterion becomes, not Product, 
 but Value of Product. 
 
 What, however, is Value ? It is not absolute worth 
 — if there be any such thing as absolute worth. It is 
 not worth as it would be assessed by any Academy or 
 Senatus of the wisest, or by any dictator, however able 
 and high-minded. Value is the market expression of 
 human desires — not of absolute wants, but of desires in 
 relation to satisfactions. A loaf is valuable, a diamond 
 is valuable, a bottle of brandy is valuable, and Miss 
 Corelli's novels are valuable, all on the same principle 
 — that they satisfy certain human desires and are not to 
 be had in unlimited amounts. The publisher holds up 
 the product of years of labour and thought of some 
 distinguished scholar. Anybody want it? Nobody 
 wants it : it has no value. What shall I offer you,
 
 chap, i THE PROBLEM 103 
 
 gentlemen ? — The Sorrows of Satan? Ah, yes, says the 
 public ; that is a valuable thing. We'll take 10,000 
 of it at 6s. In the end, the relation of Demand and 
 Supply is the only court, if we appeal from product to 
 value of product as our criterion of deserts. 
 
 And thus we find that the case of the popular is really the 
 novelist is as good an instance as may be of the way in P r '? c 'P le on 
 
 & J J which some 
 
 which some people get their "deserts." She does not are paid. 
 go to the critics and ask them for their assessment ; she 
 throws her product on the market, and the public, 
 buying her books, assess her share in the National 
 Income. Suppose she is her own publisher, then the 
 printer, the binder, and the paper-maker co-operate to 
 some small extent, but the rest of the value of the 
 product is hers, and she gets paid almost directly for 
 that product : she gets paid, that is, the amount at 
 which the public assess her product. The conclusion 
 to which we seem pointed is that, if the worker's 
 "deserts" be translated into "what he has produced," 
 and "what he has produced" be read as "the value of 
 what he has produced," then in many cases the present 
 distribution of income is a distribution according to 
 deserts. 
 
 Can this conclusion be extended beyond the case of This 
 workers who produce directly for and sell to the public ? P nnci P le > 
 If we examine the phenomena under our eyes we shall 
 find two things to modify any such idea. One is what 
 may be called production by proxy; the other is that 
 the sharing of the producing disappears in the value of 
 the product. 
 
 (1) It is obvious that, under the present distribution, 
 a great many people are paid, not according to the value
 
 104 THE PROBLEM book n 
 
 of what they personally produce, but according to what 
 the factor of production owned by them produces. In 
 the case of labour there is no difference, for labour and the 
 labourer are one. But what the " capitalist " is paid for 
 is not what he personally produces, but what his capital 
 produces, and similarly with the landowner. Is not this 
 change of individual desert into desert of a proxy more 
 than a mere modification ? It seems a strange reading 
 of " payment by deserts " that the Duke of West- 
 minster should get hundreds of thousands per year, not 
 because he is a good man and does good work, but 
 because he owns some of the land on which London is 
 built ; or that young Mr. Vanderbilt should get his 
 colossal income because he had a rich father, 
 does not It must, of course, be granted that, outside of the 
 personal i ncome s which fall to labour as labour, the idea of 
 deserts; persona/ desert as the standard of distribution must be 
 given up. 1 It is always the factor of production that 
 is paid for its services, whether it be a human or a 
 " dead " factor, and the payment goes to the recognised 
 owner of this factor. 
 
 (2) The other thing which must modify our conclu- 
 sion is that production for and sale direct to the public 
 is not representative of the complex organised produc- 
 tion characteristic of the present industrial state. In 
 the second chapter of Book I. we could see that so 
 many hundred millions of the money income are pre- 
 sumably due to capital, and so many hundreds of 
 millions are presumably due to labour. Does this mean 
 that so much of the real income may be traced to the 
 energy of capital, and so much to that of labour — that 
 
 1 How far this affects the "justice" of the present distribution is 
 discussed in Chapter XXVIII.
 
 chap, i THE PROBLEM 105 
 
 these two sums are payments according to the respective 
 products ? Let us look at a typical instance. 
 
 A factory is a unit ; an organisation of various factors and fails us 
 for one common purpose, the making of one definite jn d ° u r f t a r y lse 
 thing or stream of things. Every good that goes out 
 of the factory gate as a finished article is a focus point 
 of many and various contributories. The employer 
 could not exert his functions unless he had workers to 
 organise : the workers could not do anything without 
 machinery and power : the machinery and power could 
 not be brought together unless under a roof: and the 
 building could not be erected but on solid land. We 
 recognise, as we say, that land, labour, capital, and 
 organisation have " gone to " the making of the 
 product. 
 
 But as the article lies ready for sending out, while 
 we may recognise that the foundation of it is a certain 
 substance, there is little to tell us of the hands and 
 machines which shaped and worked it up, and there is 
 no trace whatever of the organising energy which 
 bound them all together. The material and the im- 
 material factors alike have embodied themselves in a 
 new creation. There is no earmarking of any share where we 
 in the process to labour, or capital, or land, or organi- "" not . 
 
 ~ , determine 
 
 sation — much less to the infinitely diverse forms into any share as 
 which these factors are subdivided. All we can say £™ f a c c e tor y 
 is that they have co-operated. Or, looking at the 
 product over a year as a steady stream of similar 
 commodities, all we can say is that it is the joint 
 result of many contributories which have merged and 
 lost their separate existence. Thus we could not 
 divide out the product according to the share which 
 the various factors have had in making it, even if the
 
 io6 THE PROBLEM book n 
 
 goods were distributed among the various factors as the 
 
 price of their exertions. 
 The But, as a fact, the goods themselves lose their indivi- 
 
 divisionnot duality before any sharing takes place. It is not only 
 
 of product, J ' ° i « i •J--11- 
 
 but of price the "seamless garment of product that is divided ; it 
 is the value of that seamless garment in the shape of its 
 money price. Yet when the goods are sold and the 
 price realised has paid some factors and repaid the pay- 
 ment to other factors, we unhesitatingly say that the 
 three or four per cent, which the capitalist receives is 
 an income " due to capital," and that the pound a week 
 income of the worker is " due to labour." Evidently 
 the word " due to " does not mean " produced by." 
 The goods are, indeed, produced by capital and labour 
 together. But when they are sold, and so much is said 
 to be " due to capital " and so much " due to labour," 
 the word " due " means " credited " to. The money 
 income of either party is no more than the distribu- 
 tion into two shares of an income produced by the two, 
 the one share credited to the capitalist and the other 
 to the labourer. 
 
 Conceivably, again, it might be said that yarn or 
 cloth is the direct product of all those groups of persons 
 and things if the work of these groups found issue in 
 nothing else. But the coal-miner supplies his coal 
 not only to textile but to other factories, to the grates 
 of private houses, to the furnaces of steamships, etc. 
 The machine-maker similarly turns out all kinds of tools 
 and plant. Yarn enters into cloth, but it enters also 
 into half a dozen other things. Cloth, again, enters 
 prominently into clothing, but not exclusively. Here, 
 it must be confessed, we lose all practical connection 
 between individual income and individual product.
 
 chap, i THE PROBLEM 107 
 
 Indeed, the more clearly we comprehend this pheno- The great 
 menon of divided labour, the less shall we be inclined ">-opera- 
 
 ' tion. 
 
 to assign individual product to individual factors, and to 
 imagine that wages are paid on any such basis. In a 
 simpler state of things, we may suppose that the woman 
 worker spins and weaves her own cloth, and say, with- 
 out serious inaccuracy, that her real income is what she 
 produces. Suppose, now, mother and daughter divide 
 their labour and one spins while the other weaves, we 
 may still say the income is the joint product, the cloth. 
 But, whenever the division is carried outside the home, 
 this simple relation between worker and product dis- 
 appears altogether. Employed in a mill, the spinner 
 cannot take her income in yarn, for she cannot use the 
 yarn ; nor can the weaver take her income in cloth, 
 for she could use only a fraction of the cloth. But 
 neither yarn nor cloth can be said accurately to be the 
 product of these two. They are the product of all 
 those persons and things that have finally found issue 
 in the yarn and cloth, and both spinner's and weaver's 
 contributions are but an insignificant fraction of the 
 whole. Yarn and cloth are, indeed, the product into 
 which their labour visibly enters ; but the labour of the 
 machine-maker who makes nothing else than spinning 
 and weaving machinery, and of the miner who digs 
 the coals which supply the power, enter just as visibly 
 and directly into the making of yarn. 
 
 If, again, we look beyond factory industry to such 
 functions as those of a policeman, soldier, judge, and ask 
 how their service is to be assessed and divided out 
 among those to whom it is rendered, we find that all 
 we can say is that the total of goods — the total real 
 income — is produced by all the workers acting together,
 
 io8 THE PROBLEM book a 
 
 but that, to assign any particular share to any individual 
 or class according to its product, is impossible. The 
 mill girl no more " produces " yarn than she " grows " 
 potatoes. She co-operates with the machine-maker and 
 the coal-miner, and with all those whose exertions are 
 necessary to the turning out of yarn and cloth ; but 
 she co-operates just as truly with the ploughman, the 
 policeman, the clergyman, and the musician. If one 
 makes cloth for all, and another preaches sermons for 
 all, the one co-operates with the other in the " produc- 
 ing " of the sermons, and the other co-operates in the 
 " producing " of the cloth. If the division of labour 
 allows each worker to be released from making his 
 or her own income as the bird or beast makes it — by 
 picking it up on the fields — each member of the 
 economic community is a joint producer with every 
 other, and only the totality of product can be assigned 
 to the totality of income receivers. 
 The share Thus we come to the point that the " real income " 
 " "edited °f eacn P erson i s not wnat he individually produces — 
 to," not for no one can tell what that is — but a share in the 
 produced tota j pro( j uce somehow credited to him, and the pay- 
 ing of the share in money suggests this. When the 
 weaver goes to the gate to get her wages, she is not 
 paid with a portion of the cloth which her hands have 
 contributed to weave. Nor is she paid with something 
 that gives her a claim on that cloth alone. She is paid 
 in an intermediate something which she can exchange 
 at will into an aliquot portion of the total real income 
 that is produced. She is paid in so much cloth, so much 
 meal, so much protection, so much ghostly advice, so 
 much amusement, because the co-workers, including 
 herself, have produced the totality of this produce, and
 
 chap, i THE PROBLEM 109 
 
 she is paid in those things in that she is paid in a 
 commodity, money, which, potentially, is everything 
 which that commodity will buy. 
 
 In our brief examination of Deserts, then, as a 
 possible standard of distribution, we seemed to find that, 
 translating Deserts as Value of Product, some people 
 are paid according to their deserts. And the problem 
 would be a comparatively easy one if we could attach 
 such and such products to such and such services. But 
 we see that this fails us in organised industry, for there 
 what is paid over to the various factors as their share 
 is only a credit note for an aliquot portion of the total 
 product turned out by the joint efforts of all. 
 
 What, then, is our problem ? It is not, of course, The 
 the statistical one of tabulating the incomes of in- pro em ' 
 dividuals or of finding the average income of various 
 classes, but the economic one of inquiring if there is 
 any principle which rules in and accounts for the pre- 
 sent distribution. On the whole, our forty-five millions 
 of people are living on — or, rather, passing through 
 their lives — a great stream of wealth. When we 
 examined the stream in Book L, to see what it really 
 was, we found, incidentally, that it had already been 
 divided out — in the making. When, now, we look 
 at the result, we are inclined to say that it has been 
 very badly divided out among those who are to live 
 by it. But, on looking at one or two schemes for a 
 better division, we seem to discover that the present 
 distribution, far from being " chaotic," has many 
 features which suggest that the wealth has fallen to the 
 factors which make it in some proportion to the share 
 which they take in making it. Putting aside mean-
 
 no THE PROBLEM book n 
 
 while the incomes noted in Chapter XI. as escaping the 
 money assessment, we have seen that the general relation 
 which the money income bears to the real income is 
 that the one is payment for the making of the other. 
 But if the money incomes, with which income tax and 
 statistical accounts present us, are, on the whole, a pay- 
 ment for the rendering of various services, does not this 
 suggest that there may be a principle which attaches the 
 various payments to the various services, and that this 
 principle may be found by studying the relations which 
 exist between those who render the services and those 
 who pay for them ? 
 
 The wage-earner gets so many shillings handed him 
 at the end of the week. The landlord and capitalist 
 on quarter-day receive money equivalent to, say, 3 per 
 cent, on their property. The employer on stock-taking 
 finds that his incomings normally show a surplus over 
 his outgoings, although he may have exhausted his total 
 profit in his interim dividend, and spent the whole of 
 this surplus before his books are balanced. Evidently 
 the various payments which make up the money in- 
 come are somehow the equivalents for the services ; but 
 who or what assesses the equivalence ? If a labourer 
 gets £52 a year for his services, and an owner of 
 ^1750 gets about the same (at 3 per cent.), who or 
 what applies the common measure by which the ser- 
 vices are adjudged equal ?
 
 CHAPTER II 
 
 THE EMPLOYER 
 
 The study of one class among the very various services paid by income seems 
 likely to yield up a principle, via. -where an employer is paymaster. The emphasis 
 laid on his paying function, however, keeps in the background the great employ- 
 ing function, to ivhich payment of "wages is subsidiary — his organising of the 
 -working -world. He brings supply and demand together (not only organising 
 the production process, but finding a market), and he takes the risk (employing 
 being a continuous series of speculations). Thus the unit organisation of the 
 modern -world being the factory, it might be imagined that the organiser's 
 interest -was identical -with that of those organised ; but among -working men 
 there is only the faintest recognition of any such identity. 
 
 Among the categories of money income, which formed The P a y- 
 our starting-point in the former book, there is one 
 which seems most likely to yield the information we 
 seek. Say that "Wages" stand for something like 
 £750,000,000 out of the £2,000,000,000, what catches 
 the eye is that " Employers " are the direct paymasters 
 of over a third of the National Income. If so, the 
 employer at least must be able to give some account 
 of why and in what measure he pays. And it seems 
 a reasonable inference that, if we are to find a 
 principle of distribution at all, it will be in the study 
 of the earning and paying of these wage incomes. 
 This, then, will furnish the material of our principal 
 analysis.
 
 H2 THE EMPLOYER book 11 
 
 Captains of The imagination of many credits this paymaster 
 with very arbitrary and extreme powers. He is 
 presumably a rich man ; and, generalising perhaps from 
 the relation of a master to his domestic servants, it is 
 assumed that his ability to pay is limited only by his 
 inclination. Carlyle long ago gave him the honour- 
 able title of Captain of Industry, saying: "The 
 Leaders of Industry, if Industry is ever to be led, are 
 virtually the Captains of the World ; if there be no 
 nobleness in them, there will never be an Aristocracy 
 more." x But, in the opinion of many critics, he is 
 so far from being a captain of industry that he is a 
 mere exploiter of it. He buys labour cheap and sells 
 its products dear. Even where he is a kindly person, 
 his interests are so strongly in the direction of under- 
 paying his servants that these interests overbear not 
 only kindliness but justice. He is concerned to get 
 as much as he can out of his workers, but he has no 
 appreciation of the stimulating effect of a high wage ; 
 he relies instead on the compelling effect of a low one. 
 
 A mis- Without entering meanwhile on the truth or falsity 
 
 emphasis. °f ^ s description, it may be pointed out that the 
 emphasis thus laid on the employer as the paymaster 
 of labour is very misleading. It diverts attention 
 from his other functions and dwarfs them. It elevates, 
 in fact, a subsidiary part of his total activity into the 
 chief place. It tends to that most fallacious and 
 mischievous conception that wages come out of 
 employers' pockets. 
 
 The The truth is that the function of the employer is 
 
 °upp"y 8 to ° f no l ess trian t ^ ie or g an i s i n g °f trie present working 
 meet world. He brings supply and demand together. On 
 
 demand. 
 
 1 Past and Present, iv. 4.
 
 chap, ii THE EMPLOYER 113 
 
 the one hand, he raises the walls, puts in the plant, 
 buys the material and auxiliaries, appoints the over- 
 seers, and organises the production process, putting the 
 worker where he can "make a wage" ; on the other 
 hand, he finds the market. 
 
 But, while some of his critics recognise that he has 
 a function as regards the former, there is literally no 
 evidence that they realise the greatness of his work in 
 the latter respect. In modern industry orders do not 
 run after an employer. He has not only to seek for 
 them but to tempt them, and the steady week to week 
 payment of the workers depends on his success. But 
 he is only one of many competing to get these orders. 
 The working man conceives of capital and labour as 
 the natural enemies ; but the employer knows that his 
 nearest enemy is the other employer, and the war is 
 relentless. Here he must be a diplomatist ; in large 
 businesses he must be a strategist. It is wit against 
 wit, influence against influence, price against price. 
 
 Of all this the working man knows nothing. He 
 does the work set before him and comes for his wage 
 at the week end. 
 
 Even more anxious is the part the employer plays The taking 
 in taking the risk. Instead of putting his capital in a 
 safe investment, he buys buildings, plant, and material, 
 and sinks his money in making goods that may sell 
 for something more than they have cost to make, but 
 may not. It is a speculation from end to end ; it is 
 throwing realised wealth — wealth made and ready for 
 use — into a melting-pot, in the hope that it may 
 materialise into valuable products that will meet 
 demand at a paying price. He buys out his working- 
 men partners and his sleeping capitalist partners by 
 
 H
 
 n 4 THE EMPLOYER book n 
 
 paying them fixed weekly and annual sums. The 
 danger is not only that of losing his interest, but of 
 losing his capital as well. And even when he has 
 sold the goods, he is not at the end of his risk ; for he 
 has to give the customary credit, and sometimes to sell 
 for payment in another country and in another kind of 
 money, and it may be months more before he knows 
 whether any individual transaction has been successful. 
 But, whether or not, the wheels must be kept going : 
 the fixed charges are being incurred, and to stop is to 
 make loss certain. His business is not one transaction, 
 but a continuous series of transactions, of separate 
 speculations ; the capital coming in for the moment 
 realised, and being continuously thrown back again 
 into the production process. 
 The brain. If we conceive, then, of the nation as engaged in 
 the prosecution of one great business — of the National 
 Income as the total output of the national industry — 
 we find that the unit of its organisation is the single 
 factory, and that the employer is the brain of this unit. 
 The payment of wages is a subsidiary part of an 
 activity whose end is the making of goods ; an activity 
 which focuses many forms of labour and many forms 
 of capital towards one single point. 
 
 Thus it might be imagined that the interests of all 
 directly and indirectly employed are identical with the 
 employer's interests. Suppose — and it is no absurd 
 supposition — that a set of well-to-do workers were to 
 supply their own capital as well as their own labour, 
 and put over them a manager ; their only rational 
 policy would be to give the manager a free hand to do 
 very much as the employer does. 
 
 But the employer who presumes on any but the
 
 chap, ii THE EMPLOYER 115 
 
 most rudimentary consciousness of such community of The enemy 
 interests, will have a rude awakening. The worker Wlthin the 
 
 gates. 
 
 knows nothing about the gravity of fixed charges. He 
 has no suspicion that anything is lost to an employer 
 by a suspension of work — " Aren't the wages stopped 
 as well as the work ! " he argues. He has no idea 
 of the co-operation of customer and maker called 
 "good-will." Confusing interest and profits, he 
 thinks the capitalist-employer well paid with a few 
 thousands a year, forgetting that the " capitalist " might 
 very likely get as much without being an " employer." 
 In days when our large commerce and industry are at 
 stake, he thinks foreign competition a " bogey." Thus, 
 in times when disunion in the factory is perilous, the 
 enemy is always within the gates. In many of the 
 large trades of the country, it is evident that the workers 
 watch for the employer's misfortunes. When he gets 
 into a tight place, then is the time for the workers, not 
 to come to his assistance, but to threaten to lay the 
 mills idle. It is not too much to say that, in addition 
 to the ordinary business qualities, the large employer 
 of to-day requires much of the nerve and resource of 
 a war minister, for his is a double warfare with rivals 
 outside and civil war at home.
 
 CHAPTER III 
 
 THE EMPLOYER'S INTEREST IN KEEPING 
 UP PRICES 
 
 Employers, not being salaried officers, pursue primarily their own interests, 
 and these immediate interests are two — to keep up price and to reduce cost. 
 The former is scarcely within their power — unconscious as "working men seem 
 of the fact. The pressure from customers and their own constant competition 
 induce cutting of price, and, independently of temporary cutting — which might 
 bring its own remedy — the rapid superannuation of fixed capital by new 
 processes and machinery makes reduction of prices possible, till such time as 
 demand overtakes and passes supply at the reduced price. But the latter is 
 the object of their incessant endeavour and demands particular investigation. 
 
 It is unfortunate that the organised should entirely 
 ignore the common interest they have with the 
 organiser. Philosophic writers have often represented 
 industry as a war against want, and spoken of the men 
 as privates and of the employers as officers of an indus- 
 trial army. 1 But the analogy is far from perfect. 
 
 1 "The blind Plugson : he was a Captain of Industry, born member of 
 the Ultimate genuine Aristocracy of this Universe, could he have known 
 it ! These thousand men that span and toiled round him, they were a 
 regiment whom he had enlisted, man by man ; to make war on a very 
 genuine enemy : Bareness of back, and disobedient Cotton-fibre, which 
 will not, unless forced to it, consent to cover bare backs. Here is a most 
 genuine enemy ; over whom all creatures will wish him victory. He 
 enlisted his thousand men ; said to them, ' Come, brothers, let us have 
 a dash at Cotton !' They follow with cheerful shout j^they gain such a
 
 in his own 
 
 chap, in KEEPING UP PRICES 117 
 
 Private employers are neither officials of the State nor The 
 salaried servants of any body. The work of organising f m P|°y 
 
 j J ° ° in his c 
 
 is one that they take on themselves ; one that any man interest, 
 may take on himself. The defence of the nation is 
 not left to private enterprise. Nor is the administra- 
 tion of its laws, nor its education, nor even its religious 
 teaching. No man may make a will, or draw a lease, 
 or trench on any function of the lawyer without 
 exposing himself to prosecution : no one may practise 
 medicine without special equipment and guarantees, 
 on danger of being branded as a quack. But all men 
 may assume the high office of organising the people to 
 make their living, and interpret their duties very much 
 as they please, so long as they keep within the Factory 
 Acts. Seeing, then, that employers go into business, 
 as other workers do, to make a living, we might 
 expect to find that they have some interests which 
 coincide with those of their workers, and some which 
 coincide with those of the consumers generally, but 
 others which are peculiarly their own. Our first 
 business is to ask what are the methods taken by them 
 when undisguisedly pursuing their own interests. 
 
 As has been said, employing is a risk from end to 
 end. Employers live by their "chance," preferring the 
 glorious uncertainty of profit to a salary. 1 Entering 
 into a kind of sleeping partnership with working men 
 and capitalists, they buy the share of these sleeping 
 partners for fixed sums of wages and interest. That 
 
 victory over Cotton as the Earth has to admire and clap hands at : but, 
 alas. . . . Why, Plugson, even thy own host is all in mutiny : Cotton 
 is conquered ; but the bare backs are worse covered than ever ! " — Past 
 and Present, iii. 10. 
 
 1 Note that the very word Profit now suggests its opposite, Loss.
 
 n8 THE EMPLOYER'S INTEREST book 11 
 
 is, practically, they buy out the other shares of the 
 joint product for a fixed weekly or annual sum, and 
 take the risk of selling the whole product. Their wage 
 is the difference between these amounts — the sum 
 of the costs, and the net price realised for the goods, 
 wishes to Thus it is evident that they have two chief interests : 
 keep up one • t0 ra j se t j le p r ; ce f the goods they sell, the 
 
 price. r i 
 
 other is to keep down the cost of these goods. 
 
 But the It is not too much to say that, unless where they 
 
 pressure combine, to raise prices is out of their power : to 
 
 downward ' r r 
 
 keep them from falling, indeed, is almost beyond it. 
 There is no tradition, as there was a century ago, that 
 high prices should be encouraged : the backing of public 
 opinion is entirely the other way. Cheap goods are 
 what the consumer, quite rationally, expects as the out- 
 come of industrial progress — the reflex of abundance. 
 Even the conscientious buyer, who belongs to the 
 Consumers' League and gets his clothes only from 
 White List tailors, has no guidance, and can have no 
 guidance, as regards his other purchases from retail 
 shops, and a very little knowledge tells him that cheap 
 goods are as likely to be evidence of high wages and 
 good conditions of work as of sweating. 1 And, when 
 men and women have no other guide, they buy the 
 cheaper. The whole world of consumers, in fact, con- 
 spires to press down prices. To purvey these cheap 
 goods, the retail dealer presses on the warehouseman, 
 
 1 " The finest and most expensive broadcloth, made in the west of 
 England factories, is the product of worse-paid labour than the cheap 
 tweeds of Dewsbury or Batley." — Webb, Industrial Democracy, ii. 672. 
 In the West of Scotland, it is said that the ready-made clothes made 
 in the Wholesale Co-operative Society, where the wages are high, are 
 cutting out sweated "ready-mades."
 
 chap, in IN KEEPING UP PRICES 119 
 
 assuring him of larger orders if he will only take a 
 fraction off the price, or increase the discount, or 
 extend the time of payment. To meet this, the ware- 
 houseman presses on the manufacturer to give conces- 
 sions. To the manufacturer, the inducement is not 
 only that of a large turn over, but that of the economies 
 which attend large production, and he in turn presses 
 on the purveyors of his raw material and stores. 
 
 This pressure from below is accompanied by the 
 pressure from around. Of all workers, employers are 
 probably the most individualistic. Unless under the 
 strain of a great common danger, such, for instance, as 
 was considered to threaten the entire engineering trade 
 of the three kingdoms in 1897, they are least capable 
 of combination. There is little publicity about their 
 methods. Their accounts are not open to public 
 inspection ; nor, as a rule, are their prices : if the 
 prices are, the discounts are not. They get orders by 
 personal influence, by pushing, by meeting the wishes 
 of customers, and so on ; but none of these equals or 
 can stand against the great inducement, a concession in 
 price. 
 
 And, again, the employer depends upon the con- 
 tinuity of his business. He must keep the wheels 
 moving, whatever it costs. Hence if, for the moment, 
 he does not get his price, he runs up stock. But, unless 
 he has capital enough to allow him to hold back till he 
 gets his price, this stock must be cleared, or there is a 
 break in the continuous turn over, or rather return-flow, 
 of his capital from goods to money and from money to 
 goods again, and he is compelled to sell at a loss. 
 
 Hence the pressure on price is always downwards, is irresist- 
 and makers who once let down their price spoil their 
 
 ible.
 
 120 THE EMPLOYER'S INTEREST book n 
 
 market, and generally give up hope of seeing it raised 
 again. 
 
 There is a difference, it should be noted, between 
 a temporary "cutting" and a normal reduction of 
 prices. If production processes remained stationary, 
 as, for instance, in the hand-made paper trade, where 
 strongly organised labour is the principal factor in 
 cost, the cutting of prices might be severe enough, 
 but it would be confined to those willing to make 
 an initial loss to gain a footing, and would last only 
 till they got this footing or lost enough money. 
 But where much fixed capital is employed and 
 invention gets free scope, the new firm has one advan- 
 tage over its rivals which may allow it to reduce prices 
 without actual loss : it is the rapid superannuation of 
 plant and processes due to applied science. It is generally 
 the case that the last comer has the cheapest cost, and, 
 being the last comer, and anxious to " get in," the first 
 use made of this is to reduce prices. He is the man 
 who could keep up prices : he is the man who is the 
 readiest to cut them down. 
 But work- Unconscious of all this, employers are credited by 
 ncft beUeve wor king men — if the pronouncements of labour leaders 
 this. are to be believed — with the power of raising prices at 
 
 will. It is evidently an article of faith among coal- 
 miners. Their case, indeed, is in one respect excep- 
 tional. Where the coal is sold for home consumption 
 and the carriage of the bulky article is a large element in 
 price, the consumers can be " squeezed," as consumers 
 of other articles cannot. But experience might by this 
 time have taught the miners that it is generally their 
 own action that makes rises in price of coal possible. 
 If the South Wales miners come out on strike, it is very
 
 chap, in IN KEEPING UP PRICES 121 
 
 obvious why prices of coal go up ; so we see Fife 
 benefiting at the expense of Lanarkshire, and the Mid- 
 lands at the expense of both. At such times prices of 
 coal go up with a bound, but this has nothing to do 
 with the will of employers ; and, hampered as most 
 coal-masters are by the long contracts inevitable to 
 continuous industry, it is probably the miners who gain 
 most of the rise. But the ordinary employer knows 
 very well that a rise of prices is something that cometh 
 not with observation ; he is, of course, on the watch to 
 embrace it when it does come, but, as a rule, he can do 
 nothing to bring the chance to his door. 
 
 But, while it is almost impossible for the employer 
 to raise price, 1 to reduce cost is very much within 
 his power, and is indeed the object of his constant 
 endeavour. If he can do so, there are two possibilities 
 open to him. He may, in favourable circumstances, 
 keep his price unchanged and have a larger margin of 
 profit to himself. Or he may undersell his rivals ; thus, 
 on the one hand, getting a footing among new cus- 
 tomers, and, on the other, enlarging his output and 
 securing the economies of large production. Evidently 
 our next business is to inquire more particularly into 
 the methods of reducing cost. 
 
 1 Perhaps, as an old manufacturer, I may say parenthetically that I 
 never had any experience of rising prices : it was always a struggle to 
 keep them from being crushed down. Even when the annual crop of 
 cotton was a failure, and the smaller men had to face a heavy increase in 
 cost of the raw material, the larger men had contracted for a year's 
 supply, and would not listen to any proposal to raise prices. It is, 
 probably, different in merchant industry, but then — merchants are not 
 large employers of labour.
 
 CHAPTER IV 
 
 THE EMPLOYER'S INTEREST IN KEEPING DOWN COST I 
 
 SUBSTITUTION 
 
 The combinations of factors which may be used to produce the real National 
 Income are endlessly 'various. These factors are set in rivalry by the person 
 most interested in "widening the margin between cost and price. The example 
 of a -well-planned factory shows how an improvement in one department will 
 suggest the rearrangement of all the factors. The possible substitutions may be 
 put in three groups : (i) Materials are substituted for materials, machinery for 
 machinery, workers for workers ; (2) machinery is substituted for labour, and 
 labour for machinery ; (3) the proportions in which machinery and labour are 
 combined are constantly changing. The employer will use those factors and 
 combinations of factors which are most efficient at the price. 
 
 Goods may The wider our knowledge of commodities and of the 
 be made in processes which make them, the more disposed we shall 
 
 an infinity " . r , 
 
 of ways. be to think of the National Income as a sum of goods 
 which may be made by endlessly various combinations 
 of factors. There are, indeed, some things which can 
 be done only by certain factors, and, happily, there are 
 great departments where the human factor has the 
 monopoly. But there are few indispensable elements 
 in the making of any commodity, and science is con- 
 stantly bringing forward new competitors. We have 
 seen greater wonders in manufacture than that of 
 making a silken purse out of a sow's ear. This com- 
 petition of factor with factor to produce similar results
 
 ch. iv KEEPING DOWN COST: SUBSTITUTION 123 
 
 is made effective by the person who has the strongest 
 motive for finding out and backing the most effective 
 competitor, inasmuch as he thereby widens that margin 
 between cost and price which goes to him, in the first 
 instance, as profit. 
 
 In every industry there are a great many different 
 kinds of capital employed ; there are a good many 
 different kinds of labour ; and there are, besides, many 
 different ways in which all these may be combined. A 
 good organisation may be described as one where the 
 capital of an employer is so distributed among those 
 various factors that the most economical factors are 
 employed and the most economical use is made of them. 
 
 In an ideally planned twisting-mill, 1 for instance, The mar- 
 there would be perfect proportion between the various fineness 
 parts of the process from start to finish. The building 
 would be of such breadth that each " minder " should 
 have the maximum number of spindles which she could 
 patrol and attend to ; of such length, that as many 
 twisting-frames could be put in as the foreman in each 
 flat could supervise and supply with yarn ; and of such 
 height and strength, that the upper flats should have as 
 much rigidity as the lower ones. The total number of 
 spindles being thus fixed, the exact power wanted 
 would be calculated ; the engine would provide just 
 
 1 Twisting, it may be explained, is the chief work of cotton-thread 
 making, and is taken for illustration here simply as being the case with 
 which I am practically acquainted. Usually the thread-maker buys the 
 yarn as his raw material — although the larger manufacturers now spin a 
 good deal of their yarn — and his function is first to twist two strands 
 together and then to twist three of these two-ply strands into "six cord" 
 thread. The twisting spindles are set in two-sided frames placed parallel 
 across the flats, so that a minder patrols all day between two long lines 
 of spindles, watching for the break of a thread, and piecing it while 
 stopping the spindle.
 
 124 THE EMPLOYER'S INTEREST IN book n 
 
 this power, no more and no less ; the boilers would be 
 calculated to raise sufficient steam for this power, and 
 the gearing to transmit it. 
 
 Otherwise, there would be some wage paid to minders 
 and to foremen for doing nothing, or there would be 
 waste of yarn for insufficiency of minding ; there would 
 be difference in quality between the output of one flat 
 and that of another ; there would be waste of coal and 
 steam and extra wear and tear ; or the maximum 
 speed and output would not be got from the spindles. 
 In Professor Marshall's technical words : " Each man 
 taking account of his own means will push the in- 
 vestment of capital in his business in each several 
 direction until what appears in his judgment to be 
 the outer limit, or margin, of profitableness is reached ; 
 that is, until there seems to him no good reason 
 for thinking that the gains resulting from any further 
 investment in that particular direction would corn- 
 describes pensate him for his outlay. The margin of profit- 
 an irregular ab i eness j s not t0 be regarded as a mere point on any 
 
 marginal ° r j i • 
 
 line. fixed line of possible investment, but as a boundary line 
 
 of irregular shape, cutting one after another every 
 possible line of investment." l 
 
 That is to say, the employer arranges his expenditure 
 on the various forms of capital and labour in such a way 
 that he gets the greatest possible result with the least 
 possible outlay. Thus if, in this ideal factory, he has a 
 hundred minders, the marginal economic minder is the 
 hundredth, and this one "pays." The addition of 
 another minder would not pay. She would require 
 another frame, and as there is no room for another frame 
 in the flats, and as it could not be provided without 
 
 1 Principles of Economics, 5th ed. p. 356.
 
 ch. iv KEEPING DOWN COST: SUBSTITUTION 125 
 
 lengthening the whole factory, eight new frames and 
 four minders would be required (assuming four flats), 
 and, ex hypothesis this would be beyond the power of 
 the engine to drive and of the foremen to supervise. 
 
 Here then we have, we may suppose, an output of 
 goods produced at the lowest possible cost for the 
 moment, and this gives us a first hint of what will rise 
 into prominence further on : that each worker is "worth 
 his wage " to the employer, and that, if the employer is 
 to be judge, the finished product is throwing back its 
 value on the workers and justifying their wage as " pro- 
 duced " or " earned." For the product is the most 
 economic possible ; each group of factors is indispensable 
 to the product ; and each individual is indispensable to 
 the group. These goods, at least, can be sold at the 
 lowest price, and so the price justifies itself to the 
 consumer ; if the consumer wants the product, he is 
 warranted in paying this, as he cannot get it for less. 
 
 But it is only for the moment that this is the lowest Eachlowest 
 cost. It is quite true that, once the factory is built and cost Isonl y 
 
 1 ' ' temporary. 
 
 the plant put down, new combinations are limited, and 
 the economy must take certain limited directions. A 
 slight change in any one of the factors may suggest 
 other combinations : for instance, an improvement in 
 the twisting-frames may allow the number of revolutions 
 per minute, and thus the output per spindle, to be 
 increased, but this might increase the work of the 
 minder so much that there would be more waste 
 through broken ends than would justify the improve- 
 ment, and the frames could not be economically worked 
 without more minders, all the time that it is economi- 
 cally impossible, by the arrangement of the flats, to 
 introduce more minders. But as factories are added to
 
 126 THE EMPLOYER'S INTEREST IN book n 
 
 or new ones built, the new economies are embodied 
 in new organisations. I do not suppose that any 
 employer — or any architect, for that matter — ever 
 " repeated " his plan. Thus the ideally planned factory 
 of one year may be old-fashioned before the walls are 
 dry. Similarly, economies in fuel, improvements in 
 raising of steam, in transmission of power, in dovetailing 
 of processes, etc., will counsel the substitution of 
 expenditure on capital for expenditure on labour, or 
 expenditure in supervision for expenditure in manual 
 work, and will draw the jagged marginal line to cut 
 each branch of expenditure at quite different points, the 
 result being a lower total cost. 
 
 The general lines of substitution may be grouped 
 into three classes : — 
 
 i. Materials are substituted for materials, machinery 
 for machinery, workers for workers. 
 
 2. In a less degree, machinery is substituted for 
 labour, and labour for machinery. 
 
 3. The proportions in which machinery and labour 
 are combined are constantly changing. 
 
 Substitu- (1) Iron ore is the basis of an innumerable number 
 tion of £ commoc |j t jes, and wood, of innumerable others ; but 
 
 other 1 
 
 materials, there is a wide margin where they overlap and com- 
 pete ; and aluminium, again, may be a rival of both. 
 Coal, the great auxiliary raw material, finds a rival, 
 to a growing extent, in oil, and though coal enters into 
 the making of gas and electricity, these are, in some 
 respects, also rivals to it. In the composition of 
 alloyed metals, the competition of various minerals is 
 most obvious. In textiles, there is a constant struggle 
 whether the sheep or the worm or the plant shall pro- 
 vide the raw material of our clothing ; there are many
 
 ch. iv KEEPING DOWN COST: SUBSTITUTION 127 
 
 purposes for which wool, silk, flax, and cotton are rival 
 materials, and the combination of wool with cotton and 
 of cotton with silk has emphasised this. In building, 
 again, wood comes into competition with stone, stone 
 with brick, and all of them with concrete and iron. 
 
 As regards plant, employers are constantly weighing of other 
 the comparative value of steam, oil, gas, and electricity machinel 7> 
 as motors ; of belt and rope-driving against gearing in 
 the transmission of power ; of related machinery in the 
 same process, as ring-spinning against throstles ; and, 
 of course, of miscellaneous tools of all kinds. 
 
 Of the growing rivalry between women's labour of other 
 and men's, there is much evidence, although but labour - 
 few statistics. 1 Apart from this, the chief competition 
 of man with man is on the margin between the 
 exertion of labour and the supervision of labour. The 
 function of a foreman is to see that the persons under 
 his charge work up to their full capacity, and that 
 materials and conditions are given them which permit 
 of this full capacity being realised. In an economically 
 managed department, there is no waiting for stuff 
 
 J The facts, so far as gathered, are given in the Majority Report of 
 the Royal Commission on the Poor Laivs (1909). The general conclusion 
 is that, "while women (and juveniles) are now engaged in many 
 industries in which the specialisation of machinery enables them to take 
 part, they are not, in any considerable trade or process, displacing adult 
 males in the sense that they are being more largely employed to do work 
 identical with that formerly done by men. The great expansion of 
 women's labour seems to have been in new fields of employment, or in 
 fields which men never occupied " (Section on Social and Industrial 
 Developments since 1 834, p. 322). As an instance of the contrary, 
 however, I find the last Report of the Chief Inspector of Factories (19 10) 
 saying that, in Sheffield, an improved grinding machine has been 
 introduced which is taking the place of wet grinding for the table-blade 
 industry, and that these machines are worked by women (p. 51).
 
 128 THE EMPLOYER'S INTEREST IN book n 
 
 between the various stages, no late arrivals after the 
 engine starts, no excuse given for dawdling, nor yet is 
 there any overworking. But there may be a waste in 
 watching waste ; it often happens that the saving 
 which a foreman makes will not pay his wage. 
 Suppose, for instance, a foreman can just get the most out 
 of eight minders, and that there are ten minders in the 
 flat, it is evident that it will be more profitable to wink 
 at some waste than to put in a second foreman. In 
 other words, the labour is divided between working and 
 watching. The two are then comparable in terms of 
 product, and there is a margin at which the employer 
 will be in doubt whether to pay for more workers or 
 for better watching of those he has. One employer 
 will attain his end by increasing his workers, another 
 by policing them. 
 Substitu- (2) The trend of factory industry generally, where 
 
 tion of machinery has gradually encroached on the former 
 
 machinery j o j 
 
 for labour, work of man, needs no illustration. One life-time 
 may have seen gangs of engineers dragging a heavy 
 casting from the shop to the ship ; later on, teams of 
 horses harnessed do the same work ; and, later still, 
 the traction-engine superseding both — just as a couple 
 of lives might have seen the sedan chair superseded by 
 the " growler," the " growler " by the hansom, and the 
 motor car taking the place of both. 
 
 The case where men have taken over the work 
 of machinery does not often stand by itself; it 
 generally takes the form discussed under the next 
 category. 
 New group- (3) For man works less and less by himself, more 
 ingsoreac . ant j rnore with tools; and most of the recent substitution 
 has taken the shape of new groupings and combinations
 
 ch. iv KEEPING DOWN COST: SUBSTITUTION 129 
 
 of men and machinery. 1 Man is, we may hope, 
 gradually becoming a better worker, with better 
 general and technical education, with greater resources 
 and versatility, with more perfect mastery of hand and 
 eye. But just for this reason he works with more and 
 finer tools ; and machinery is probably improving even 
 more rapidly than man, in power, in delicacy, in fineness 
 of seizing and holding, in accuracy and repetition, etc. 
 Hence arise the most difficult problems of modern 
 industry ; for while both the direct service of man and 
 the service in which he uses his head in planning 
 and organising are more valuable, the service in which 
 he waits on machinery is more simple. The struggle 
 of the employers in the engineering trade — as indeed 
 in many other trades — is for liberty to replace skilled 
 men by unskilled in the management of machinery 
 which needs no skill or but little skill. The struggle 
 in the bookbinding and in the tailoring trades par- 
 ticularly, is for liberty to replace men by women, and 
 women by children, more and more of the actual work 
 being taken over by machinery. 
 
 1 " Compare, for instance, the mde implements of an Indian Ryot even 
 of to-day with the equipment of a progressive Lowland farmer ; and con- 
 sider the brick-making, mortar-making, sawing, planing, moulding, and 
 slotting machines of a modern builder, his steam-cranes and his electric 
 light. And if we turn to the textile trades, or at least to those of them 
 which make the simpler products, we find each operative in early times 
 content with implements the cost of which was equivalent to but a few 
 months of his labour ; while in modern times it is estimated that for 
 each man, woman, and child employed there is a capital in plant alone of 
 about ,£200, or say the equivalent of five years' labour. Again, the cost 
 of a steamship is perhaps equivalent to the labour for fifteen years or more 
 of those who work her ; while a capital of about £1,000,000,000 
 invested in railways in England and Wales is equivalent to the work 
 for more than twenty years of the 300,000 wage earners employed on 
 them." — Marshall, Principles of Economics, 5th edit. p. 222. 
 
 I
 
 130 THE EMPLOYER'S INTEREST IN book n 
 
 This, then, is the first method by which the 
 employer reduces his total cost. It is the object of 
 his constant endeavour to find out the factors and 
 combinations of factors which are most efficient, and 
 to work them to their full capacity. 
 
 It will not escape notice that there is an ambiguity 
 in the expression " most efficient." Physically speak- 
 ing, of two machines that one would be called the 
 more efficient which did better work even without 
 regard to time, or did more work in the same time. 
 But, economically speaking, the quality or amount of 
 product and the time taken have always reference to 
 cost, and that machine is the more efficient which does 
 better work or more work for the same cost, or does 
 the same work for a lower cost. In some cases the 
 physical and the economic efficiency coincide, but in 
 others they do not, and this raises the problem of 
 "cheap labour," which will be better treated in a 
 All this separate chapter. Meantime, it must be noted that 
 mdepen- substitution is not synonymous with "cheap buying" 
 
 dently of J . { .... 
 
 "cheap of the factors. Substitution would remain a principal 
 buying." f unc ti on f the employer although the prices of all the 
 factors were fixed, for it relates not so much to the 
 buying as to the combining of the factors. To give 
 scope to the substitutionary function, all required is 
 that there should be progress in the usual economic 
 sense : namely, the increasing of the power of 
 man over the forces of Nature, so that a greater 
 amount of product is turned out on the whole for 
 a given amount of effort or sacrifice, however 
 measured — as, for instance, when some improvement 
 in engines saves some of the present 90 per cent, of 
 the escaping energy of coal, or when cross fertilisa-
 
 ch. iv KEEPING DOWN COST: SUBSTITUTION 131 
 
 tion or the fixation of nitrogen increases the yield of 
 wheat. 
 
 Unfortunately, there are only too many who cannot 
 see the difference between the two. The rooted 
 belief of the working classes is that employers are 
 always scheming to cut down wages. A very slight 
 examination shows that what is complained of is very 
 often the re-grouping of factors, while each factor is 
 paid its former price. The introduction of a coal 
 cutter, for instance, does not involve the reduction of 
 hewers' wages, but the replacement of a number of 
 manual hewers by machinery ; the machinery requiring 
 two or three mechanics plus a smaller number of men 
 who, however, need not have the technical qualities 
 which make a good hewer. If the displaced hewers 
 choose to take the lower place, it is they who are trying 
 to "take the bread out of the mouths" of the less skilled 
 men, and they cannot expect their former wage. If, 
 however, the hewers crowd into the other pits where 
 there are no coal cutters, and over-supply the market, 
 it is not right to blame the employers for the reduction 
 of wage which follows. In bookbinding, again, where 
 the traditional lines of demarcation are breaking down, 
 what the men call the "sweating of labour" is some- 
 times the better paying of female labour. Generally 
 speaking, the introduction of machinery means a 
 changed but an increased demand for labour, — a 
 momentary loss of wages in some directions, more than 
 balanced by increased wages in others.
 
 CHAPTER V 
 
 THE DEFENCE OF SUBSTITUTION 
 
 Is this method of the employer in the interest of the community ? There is 
 some likelihood that it is so from the fact that employers must ultimately meet 
 the public -wishes as to goods and price. The doubt comes probably from 
 those ivho identify the community with the "working classes. But, after all, 
 ivoirfd a perfectly conscientious employer not find that his first duty was to the 
 community rather than to his "work-people? Illustration from a municipal 
 industry. What "would a Socialist officer do under similar circumstances ? Would 
 not his mandate be to favour no one class at the expense of others ? And 
 does not the interest of everybody lie in the increase of the real National 
 Income ? 
 
 is it in the It may be advisable to pause at this point and ask the 
 interests ot Quest j on . Granted that this substitution of factor for 
 
 the com- ~ , 
 
 munity? factor is pursued in the selfish interest of the private 
 employer, is it also in the interests of the community 
 that there should be this constant substitution ? Or 
 is the employer doing something which an en- 
 lightened public conscience, or a wiser communal 
 direction, would disapprove or prohibit ? 
 
 There is an a priori likelihood here that employers 
 take their lead from no other masters than the 
 community. Their energy and sacrifice finds its sole 
 outlet in the goods they sell, and the goods they sell 
 must meet the public demand. As a fact, employers 
 interpret the public demand. In many cases, indeed,
 
 chap, v THE DEFENCE OF SUBSTITUTION 133 
 
 they make to order ; in as many, perhaps, they make in 
 anticipation of orders. But, in either case, if they do 
 not meet the public demand as to kind and quality of 
 goods and as to price, they suffer, and they suffer first. 
 Their capital and their labour form the buffer which 
 breaks the blow to the body of labour. If working 
 men would so much believe in their own arguments as 
 to start business on their own account with their Trade 
 Union capital, they would better appreciate the impor- 
 tance to them of this " buffer state." 
 
 But when doubt is expressed whether the employer's —which 
 interest in this matter of substitution is parallel with embra " s 
 
 r not only 
 
 that of the community, one may suspect that by working 
 "community" is meant "working classes." If men c aS8es 
 were found the more efficient factor, it is scarcely 
 credible that objection would be taken to the sub- 
 stitution of men for machinery. The suggestion is 
 that the constant arrangement and rearrangement of 
 factors is inconsistent with the employer's assumed duty 
 of securing his people continuous work and wages, and, 
 particularly, that the displacement of men by machinery 
 is so disastrous in its results that it may more than 
 balance the general gain in low prices. 
 
 Granting the considerable amount of truth in this, 1 
 it must again be pointed out that Carlyle's honourable 
 name of Captains of Labour has given a misleading 
 emphasis to one side of the employer's responsibilities. 
 Is it not the case that a perfectly logical employer might 
 come to the conclusion that his next duty, after attend- 
 ing to his own interests, was to serve the public rather but con- 
 than his work-people ? Certainly the more conscientious 
 any employer is, the more clearly will he see the two 
 
 1 See also p. 254. 
 
 sumers.
 
 134 THE DEFENCE OF SUBSTITUTION book ii 
 
 sides, and the sometimes diverging interests, of producer 
 and consumer. This comes out very clearly in muni- 
 cipal industry. To take an example from my own 
 city. In 1894 the Corporation of Glasgow took over 
 the tramways from a private company which had 
 hitherto worked them. Various arguments were ad- 
 vanced by the Corporation for taking up an industry 
 which it was evidently anxious to take up, but the one 
 which probably weighed most with the public — who 
 alone could give the mandate — was that, under Corpor- 
 ation management, the conditions of labour in the 
 service would be improved. By 1896 there was a 
 considerable surplus, and the question arose whether 
 this should be spent in giving still better conditions of 
 work and wages to the men or in giving a cheaper 
 service. The answer was not for a moment doubtful. 
 The tramway servants numbered 2400. The passen- 
 gers carried were close on 100,000,000. Evidently 
 the first duty was to the larger constituency. 1 
 
 Now a private employer also has these two con- 
 stituencies to consider. If he use part of his profit 
 to make his factory into a place of work comparable in 
 comfort to his own counting-house, and resolves to pay 
 such wages that every workman will be content — if 
 that were possible — he certainly has a reward in the 
 approval of his own conscience, and may possibly win 
 some recognition in the affectionate regard of the 
 more enlightened of his work-people. But if he use 
 the same sum to reduce his prices, he has very ample 
 and immediate recognition and reward. The public 
 respond — unless the article is a quite peculiar one — by 
 increasing their purchases ; this increases his output 
 
 1 An increase of £5300 was, however, given in wages.
 
 chap, v THE DEFENCE OF SUBSTITUTION 135 
 
 and gives him the economies of large production, so 
 that, after all, there may be no sacrifice ; and, moreover, 
 he distances his rivals. Thus it is not difficult for him 
 to think that being servant of the public is a more 
 grateful thing than being a leader of men. 
 
 This comes out most clearly of all if we suppose that a parallel 
 the place of the employer were to be taken over, under ' s n ocialisrn 
 a Socialist State, by a salaried official. He would then 
 be appointed and paid by the people to do the people's 
 behests, and he would be prevented from acting in the 
 interests of any one class. Would he do otherwise 
 than the private employer now does in this respect ? 
 Suppose he saw that, by some rearrangement of the 
 factors, he could get a greater output of goods for the 
 same cost, would it be his duty to shut his eyes and go 
 on on the old lines ? Suppose he put it to the com- 
 munity thus : Here is an improvement by which I can 
 sell you a shilling's worth of goods for elevenpence. 
 Would there be any doubt about the community's 
 reply ? But suppose he added : If I adopt this new 
 arrangement I shall require one man less in each group 
 of twelve. Would not the answer be : If you can 
 give us the same result with eleven men, why pay 
 twelve ? Is it not really paying a man for pro- 
 ducing nothing ? It is not as if you disabled the man ; 
 you merely say to him, go and find work — and add 
 wealth — somewhere else. 
 
 Moreover, it may very well be objected to the argu- a class 
 ment based on the displacement of labour that it is, ar s ument > 
 after all, a class argument. 1 The engineer, for instance, 
 
 1 In the Majority Report of the Royal Commission on the Poor Laws 
 (1909), there is a chapter on "The Effect of Machinery," and a 
 very impartial summary of the evidence of employers in various trades
 
 136 
 
 THE DEFENCE OF SUBSTITUTION book 11 
 
 and one 
 inimical to 
 progress. 
 
 naturally objects to be displaced by the unskilled man. 
 But has not the unskilled man a similar grievance if he 
 is not allowed to get a job better than he had ? Both 
 of them again object to their work being taken over 
 by machinery. But are there no other classes which 
 have a claim to be considered ? 
 
 To favour labour at the expense of machinery is to 
 put very direct obstacles in the way of progress ; it is 
 to curtail the invention of machinery, the making of 
 machinery, and the use of machinery. It is certainly 
 to favour a certain class of labour at the expense of 
 classes as deserving, namely, the machine-makers and 
 the machine-tenders. It has passed into common lan- 
 guage that the inventor is a man who deserves well of 
 his country. How is this to be reconciled with a course 
 of action which would penalise those who had educated 
 themselves to work the inventions ? And to favour 
 manual labour at the expense of skilled or head labour 
 is even worse. The object we are all aiming at now- 
 adays is to educate our masters. But educated men 
 revolt at doing unskilled work. The corollary of a 
 rising standard of education should be a rise in the kind 
 of work given our workers. 1 If then, we were, by a 
 fair-wage clause in our contracts or otherwise, to give a 
 preference to manual labour over skilled labour or head 
 labour where the two compete, we should be acting 
 against our real convictions. The moment we admit 
 
 on the facts, trend, and effects of the "Displacement of Labour," 
 
 P- 34-1- 
 
 1 " I should say the skilled men require even more skill than they 
 because of the finer work and more intricate machinery" (Geo. N. 
 Barnes, M.P.). "The semi-skilled of to-day is in many cases as good 
 as the skilled was a quarter of a century ago " (Sir Benjamin C. Browne). 
 Royal Commission on the Poor Laivs, Evidence, vol. viii. 82943, 86333.
 
 chap, v THE DEFENCE OF SUBSTITUTION 137 
 
 that it is impossible to think of favouring one class of 
 labour over another, we give away the case for inter- 
 fering with the employers in their constant effort to 
 substitute the more efficient factor for the less efficient. 
 Looking at these things, it must be granted that, in 
 this method of substitution of the most economic factors, 
 the private employer is doing exactly what his analogue, 
 the official of a municipality or of a socialistic com- 
 munity organised in the interests of the entire body, 
 would do. Suppose that the product were his own, 
 no worker in his senses would insist on using a poorer 
 instrument of production if a better one was to be 
 had for the same price, and a salaried official would 
 not be allowed to consider vested interests and to 
 stereotype industry to poor methods or poor tools. 
 The cases of hardship which occur would occur in 
 any case, and the argument is, as it would be then, 
 that the interests of the community must come before 
 the interests of any class. 
 
 The position now reached in the argument is this : a guar- 
 that in the substitutionary action of employers the antee " 
 community has a guarantee, within limits which will 
 be discussed later, of the best factors being chosen for 
 the production of that sum of goods called the National 
 Income. Given these three premisses, that competition 
 between employers is active, that the pressure of self- 
 interest is strong enough, and that employers are given 
 a free hand to employ what factors they please, we may 
 assume that, at any moment, the goods which constitute 
 the National Income are, on the whole, made by that 
 combination of factors which is most efficient for the 
 purpose. It is not a final distribution by any means
 
 138 THE DEFENCE OF SUBSTITUTION book ii 
 
 — the next month will show us some employer or 
 other making a fresh arrangement with the view of 
 substituting still more efficient factors — but, at the 
 moment, I say we may assume that the factors which 
 are actually working are the most valuable towards the 
 total product or total price. And we begin to see thus 
 early that, if certain conditions are fulfilled, there is an 
 a priori probability that each factor is actually paid 
 according to the share it has in producing this total 
 result.
 
 CHAPTER VI 
 
 THE EMPLOYER'S INTEREST IN KEEPING DOWN 
 COST : BUYING LABOUR CHEAP 
 
 The employer buys everything else for his production process as cheaply as he 
 can, and no one blames him. Why not labour ? — so long as he is a person 
 working for his living and not a State official or civil servant. All the same, 
 this is not to condemn the action of those who realise the ultimate dangers of low 
 •wages, and try to prevent the buying of labour below a certain level. 
 
 Independently of the arranging and combining of 
 the factors, the employer, acting in his own interest, 
 buys all his factors as cheaply as he can, and among 
 them, Labour. 
 
 We are so accustomed to the great controversy Why not ? 
 suggested by these simple words that we do not realise 
 how singular it is that we should have to devote a 
 special chapter to them. No one writing a treatise on 
 the good housewife, and indicating what kind of joints 
 were most economical for the family dinner, would 
 think it necessary to say that she goes to the shop 
 where she gets the best meat for the money. So, in 
 speaking of substitution, it was assumed that the 
 employer would not pay more than he required to, 
 subject, of course, to the ordinary canons which forbid 
 a man to lie or cheat or misrepresent. Caveat emptor. 
 But there is no doubt whatever that the statement
 
 i 4 o THE EMPLOYER'S INTEREST book ii 
 
 which begins this chapter would in itself be considered 
 by very many as an indictment against the employer, 
 and, if taken seriously, would by some be considered to 
 confirm their worst suspicions. 
 Why buy For his raw material the employer watches the 
 
 Sin roTt P ros P ects °f the cro P) and holds back 0r bu y S far ahead 
 cheap? according to his forecast. He makes his coal contracts 
 
 in the same way, calculating the chances of peace or 
 war in the labour world. For any addition to his 
 buildings he gives out schedules, and generally accepts 
 the lowest offer. Any addition to his machinery he 
 will buy in this country, or in America, or from the 
 Continent, just as he finds most profitable. He will 
 charter his freight, arrange his insurance, fix his ex- 
 change, discount his bills, and finance his business, all 
 on the same principle. 
 
 So far he meets no criticism. Those from whom 
 he buys cannot object, for it is just what they them- 
 selves do. Up to this point the working man joins 
 hands with his employer, for the very good reason that 
 his interests lie parallel. If the employer were the 
 salaried officer, or the commissioned agent, of his 
 workers, his duty in this respect would be exactly the 
 same as that dictated by his own private interests, and, 
 if it were found that he was giving out a contract to a 
 higher offer when a lower one of similar quality had been 
 sent in, one may imagine the outcry of betrayal of trust. 
 In his private capacity, again, the working man acts 
 exactly as his employer does. It is for his consumption 
 that the shops are filled with cheap boots and ready- 
 made clothes — and this should not be forgotten when 
 we hear the reckless accusations of " sweating " : I 
 have heard a hall full of tailors denouncing the paying
 
 chap, vi IN KEEPING DOWN COST 141 
 
 of wages under the log, when every man among them 
 was wearing ready-made clothes. 
 
 Indeed the community has openly congratulated Why a P - 
 itself on the steady cheapening of everything. Only p ^ cheap 
 a Royal Commission would have the hardihood to 
 express its gratitude that food was likely to be dearer. 1 
 If the owners of land have been compelled to sell it cheap land, 
 instead of holding on for higher prices, or to let it at 
 reduced rents, nobody has suggested that they were 
 being " exploited " or oppressed. We have seen 
 capital generally offering itself for lower and lower and cheap 
 rates, and nobody has raised a voice to say that it was ca P ltal > 
 a " weak bargainer " and must be protected. We have 
 looked at the employer as a person whose position was 
 constantly threatened, but we have not thought of him 
 as a person unfairly treated on that account, nor even as 
 a person to be pitied, recognising that the pressure on 
 him, from below and around, was the economic means 
 by which progress is made and prices are kept at cost. 
 Indeed, the Trade Unions themselves, on their own 
 confession, 2 have openly played into the hands of the 
 large organisations and looked on the ruin of the small 
 employer as an incident in progress. 
 
 *"A satisfactory feature of the past year was the rise in the prices 
 of grain." — Royal Commission on Agricultural Depression, Report, 1897, 
 p. 41. 
 
 2 "To the Trade Union, representing all the operatives, the sluggish- 
 ness of the poor or stupid employers is a serious danger. The old- 
 fashioned master spinners, with slow-going family concerns, complain 
 bitterly of the harshness with which the Trade Union officials refuse to 
 make any allowance for their relatively imperfect machinery, and even 
 insist, as we have seen, on their paying positively a higher piecework rate 
 if they do not work their mills as efficiently as their best-equipped com- 
 petitors." — Webb, Industrial Democracy, 1. 413.
 
 142 THE EMPLOYER'S INTEREST book 11 
 
 and not In all his ordinary purchase of factors, then, the 
 
 labour* employer meets with no criticism when he buys in the 
 cheapest market. But when he tries to buy his labour 
 cheap . . . ! 
 
 We are not concerned here with the argument of 
 Trade Unionism ; it will be discussed in its proper 
 place. 1 We are simply analysing what the employer 
 does when acting, like any other worker, in his own 
 interests. Even he may — and often does — agree that 
 the consequences of paying low wages are so serious to 
 the working classes and to the State that the workers 
 are right in combining to sell their labour collectively. 
 But this is not his affair ; it is the workers'. He will 
 represent that, if all employers are put on the same 
 footing as regards the buying of labour — that is, if no 
 one can buy it more cheaply than another — it will suit 
 him quite well ; 2 as in this case the public must pay the 
 higher cost if it is to have the goods. But, unless this 
 similar footing is established — unless the cheapest labour 
 obtainable by his rivals is that paid by the Trade Union 
 rate — his objection to be restricted in the payment of 
 wage is a real one, and one that must be honestly 
 faced — namely, that he is expected to pay the cost. 
 It is ail a Hence it ought to be made quite clear that, unless 
 the employer is to be judged by some other canon than 
 is applied by us all in the ordinary working life, there 
 is nothing dishonourable nor discreditable in the em- 
 ployer buying his labour as cheap as he can get it. If 
 the employer is to be looked upon as the statesman, or, 
 we may say in England, as the politician is — that is, 
 
 1 In Chap. XX. 
 
 2 Except in so far as he is put at a disadvantage with the unrestricted 
 employer abroad. 
 
 matter of 
 business.
 
 chap, vi IN BUYING LABOUR CHEAP 143 
 
 as a man whose one guiding principle is the good of 
 his fellow-citizens and not his own interests — the 
 situation will be entirely different. But then we shall 
 have to pay him a salary, as we pay our civil servants, 
 or expect him to live from some other source than his 
 business, as we expect of our members of Parliament. 
 But, as things are, the employer has no mandate from 
 society, or from any body higher than himself, to buy 
 a man's work on any other principle than he buys an 
 engine's work. He buys an engine's work and hopes 
 to recoup himself out of the final product. He buys 
 a man's work and hopes to recoup himself out of the 
 final product. But he buys the work at one time and 
 sells the final product at a later time ; he takes his 
 chance, in the one case as in the other, and expects to 
 be recouped also for this risk. That is to say : when 
 he buys labour, he does not pay a price which is certain 
 to be recouped in the product, any more than when 
 he buys a horse he is certain to get his worth out of 
 it. He buys an instrument of production, not a pro- 
 duct. To him a man is valuable only as a means to 
 an end. Wage accordingly is a "cost," to be treated 
 as all other costs are. In short, labour with him is 
 a factor to be combined as he sees to be most advan- 
 tageous, and to be bought as cheaply as possible. 
 
 In all this there is nothing which should expose the 
 employer to the reproach of being the enemy of labour. 
 But there is nothing to attach to him the responsibility 
 of being the special providence of labour. It is a very 
 fine thing when the private employer rises to the 
 dignity of his office and takes on himself the responsi- 
 bilities which attach to the civil servant, but this is not 
 in the bond. It is not a small thing, this employing
 
 144 THE EMPLOYER'S INTEREST book n 
 
 of the nation. Perhaps none of the great services are 
 comparable with it. One would agree with Carlyle 
 thus far. But employing is not the work of a salaried 
 official of the State, paid by the State. If it were so, 
 the State might lay what conditions it pleased on the 
 paying of labour. As it is, the employer does all his 
 buying and selling as a matter of business, buying his 
 labour with wages on the same principle as the wage- 
 earner buys his goods with wages, and all on a specula- 
 tion of profit or loss. 
 
 Of course, one knows what is at the bottom of all the 
 outcry. It is the twofold conviction (i) that something 
 is always " held back " in wage ; (2) that the employer — 
 the " Capitalist," as he is called when he is to be held up 
 to obloquy — is overpaid ; that he manages somehow to 
 get more than he is "worth" ; that, accordingly, he 
 has a fund out of which he can afford to pay higher 
 wages than he requires to, without trenching on his 
 own " living wage " — whatever that may be. We 
 shall see in due place what ground there is for this 
 belief. 1 
 
 But while it is thus arguable that no blame can be 
 attached to the employer for buying his labour as cheap 
 as he can, this is not to condemn the action of labour 
 in trying to sell itself as dear as it can, nor even to assume 
 that the employer may not welcome being relieved 
 of the pressure to buy it cheap. There may be evils 
 following on the cheap buying of labour which do not 
 affect the employer and do not appear at the moment. 
 
 By the process of substitution generally, the National 
 Income is produced for a smaller expenditure of effort, 
 
 1 Cf. p. 249.
 
 chap, vi IN BUYING LABOUR CHEAP 145 
 
 or is increased for the same amount of effort. If simple Difference 
 manual labour is replaced by the labour of machinery, be ' ween 
 and the manual labourers displaced find work in making tion and 
 and tending the machinery, no wage need be reduced P a y ing low 
 
 » /' o wages. 
 
 — indeed wages may be raised — and yet the National 
 Income will be increased ; for, unless the machinery 
 were in the end to produce more than the manual 
 labour for the same expense, there would be no motive 
 to make the change. The net result here is that 
 more is produced for the same wear and tear of 
 humanity on the whole. The factor momentarily 
 displaced finds another sphere, and his unchanged 
 wage gives him a claim on an enlarged real National 
 Income. 
 
 But when the employer induces or compels the 
 worker to take a lower wage for the same work, he gets 
 the worker to hand over to him the same amount of 
 product as before for a smaller amount of money. 
 Translated, this means that he gets the workman to add 
 the same amount to the National Income in exchange 
 for a smaller claim on that National Income. The 
 balance of the claim taken from the workman goes to 
 the employer, and may remain with him as income or 
 may disappear in reduced prices. 1 
 
 Here the real National Income is not diminished, but 
 it is not increased. The wear and tear of humanity is 
 not increased, but it is not diminished. The worker, 
 
 1 If a shilling is taken from the worker's wage, and a corresponding 
 reduction is made in the price of the commodity produced, both worker 
 and employer lose this shilling's worth of claim. But those who have 
 claims get so much more ; that is, there is now a shilling's worth of 
 unclaimed real National Income to be divided among the consumers. It 
 is something like the burning of a bank-note, whereby the holder suffers 
 and the bank shareholders gain. 
 
 K
 
 146 BUYING LABOUR CHEAP book n 
 
 indeed, suffers, for he gets a smaller claim on the real 
 income. In this, however — although it usually escapes 
 notice and is not considered to deserve sympathy — he 
 shares the same fate as the owner of capital when capital 
 is compelled to take a lower rate. But, indeed, the 
 consequences may be very different. 1 If the wage is 
 substantially reduced, it will cripple the efficiency, not, 
 perhaps, of the labourer himself, but of labour, for it 
 will tend to prevent the labourer from bringing up his 
 family to the same efficiency as himself. The injury 
 in this case is not to the worker only, but to the com- 
 munity. But this is to anticipate. 
 
 1 See pp. 207, 293.
 
 CHAPTER VII 
 
 THE APPEAL FROM THE INDIVIDUAL 
 
 We have seen that, as each good is the outcome of single organisations, its 
 price is the limit payable to all in the organisations, and that the employer, as 
 paymaster of this price, assesses each factor as worth so much to him. Should 
 or must either party, however, rest content -with this assessment? Emphatically 
 not. The determination of price and of wage is not now a matter of individual 
 will or ability at all. The making of every good is divided among a number 
 of organisations : beyond the single factory is the trade, and therein lies 
 an appeal both from the individual paymaster and from the individual 
 •workman. 
 
 So far as we have gone the argument is this. From Risumioi 
 the previous book we brought forward the great the argu " 
 
 & & mem. 
 
 phenomenon of 45,000,000 of people enjoying a living 
 assessed in money at £2,000,000,000. Most of these 
 people work. But, on the one hand, this income is not 
 all the result of work, and, on the other, the work of a 
 great many has no place in this income : that is to say, 
 the income falls not only to labourers in payment for 
 their exertions, but to owners of land and owners of 
 wealth for the co-operation of these factors, while work 
 like that of the majority of women is not assessed 
 in money at all, although it is as necessary for what we 
 call our "life" as the work that is paid for. This 
 latter, however, we must leave out of account. The 
 problem which concerns us here is the distribution of
 
 148 THE APPEAL FROM THE INDIVIDUAL book n 
 
 Risumi. that part of the income which is assessed in money, 
 and the feature which gives the problem its urgency 
 and its interest is the excessive inequality of that 
 distribution. Is there any rational explanation of this 
 feature ? 
 
 Looking at our categories of income receivers, it 
 seemed that, if there were any such explanation, it 
 would be found in that field of industry where one 
 person is the paymaster. The employer, at least, 
 might be presumed to have some reason for and measure 
 in his payments, and an examination of his actions and 
 motives might explain why some incomes were paid in 
 shillings and others in pounds. But a very little con- 
 sideration showed us that the paying of labour, which 
 bulks so largely in the imagination of many, is only one 
 part of the employer's general function as the organiser 
 of industry, and that it is impossible to find out from 
 what purse he pays, or on what measurement of service 
 he pays, without considering his action as a whole. 
 Thus we found ourselves committed to a lengthy 
 analysis of factory industry. 
 
 Here we have employers putting together the labour 
 and capital of the country within single units of organ- 
 isation, and directing the efforts of these factors into a 
 stream of goods. The employer comes, as it were, into 
 a community of individuals, where each man is making 
 his own living, and changes it into an organism making 
 its living. He organises the many individual bodies 
 into one body with many members, each member doing 
 its own little part of a total task. With his own 
 capital, or with that of other people, he buys his men 
 the proper equipment, proper conditions, and proper 
 material. As the work goes on from week to week,
 
 chap, vii THE APPEAL FROM THE INDIVIDUAL 149 
 
 while the product is not ready for sale for perhaps Resume. 
 months, he advances wages in faith and prospect of the 
 product. When it is finished, he takes it to market and 
 sells it to others — either other employers or direct con- 
 sumers as the case may be — recouping himself from the 
 price for all the advances he has made, and taking the 
 surplus to himself as his wage. 
 
 In all this, his work is not primarily the distribution 
 of income, but the organisation of production. He 
 takes the peasant from his potato patch, and the weaver 
 from his handloom, and puts them into farms and 
 weaving sheds, not in order to give them work, but in 
 order to grow more potatoes and weave more cloth. 
 In the end they, and he with them, get a larger living ; 
 but, though the end is thus social, the method is indivi- 
 dualistic. The organisation of which he is the centre 
 is purely a private speculation. He is working towards 
 the making of goods which will suit the public both as 
 regards quality and price, but he is working for his 
 own hand. The State does not pay him for a civil 
 servant's work, nor do the workers pay him to 
 organise them and hand over to them all but his own 
 remuneration. He has no motive but the ordinary — 
 and honourable — one of making his bread by the sweat 
 of his brow, and we need not expect anything from 
 him but the ordinary industrial action of pursuing his 
 own interests. The principle on which the employer 
 pays is clear enough : he pays on a calculation of what 
 the factors are " worth " to him. Presumably, then, 
 the inequality of income is due to inequality of service. 
 What other test of the value of a machine is there 
 than that of selling its product ? What other test is 
 there of the value of a man than that he should sell
 
 150 THE APPEAL FROM THE INDIVIDUAL book n 
 
 Riiumi. his services to the person whose aim it is to find the 
 most efficient factors, put them in the most efficient 
 combination, and sell the product for what the public 
 will pay ? 
 
 This, then, takes us so far in our search for an 
 explanation or principle of the distribution of income. 
 The incomes we are examining are payments made on 
 account of services rendered. 
 
 The conclusion is not completely satisfactory, but it 
 is not so unsatisfactory as some people think. It will 
 not satisfy those, for instance, who are persuaded that 
 there is some abstract standard of work other than that 
 which tests it by sale, and think that they know the 
 value of their service better than those to whom it is 
 rendered. If a man is obsessed with the idea that he is 
 a born tragedian, he will never believe that he is being 
 paid his worth as " general utility." It will not satisfy 
 those who have a preconceived idea that wages are a 
 compensation — an equivalent for pain endured or effort 
 put forth. It will not satisfy those who have not 
 learned the elementary principle of value, and make 
 the urgency of certain wants the measure of value of 
 that which satisfies them. "In a great house there 
 are not only vessels of gold and of silver, but also of 
 wood and of earth ; " there are always those who 
 consider the humble stewpan more "valuable" than 
 the pretentious rose bowl, and argue that the boy 
 who blacks the boots does a greater "service," and 
 should have a larger wage, than the footman who 
 waits the door. Was it not Adam Smith himself 
 who said that a diamond had "scarce any value in 
 
 use 
 
 " ?
 
 chap, vii THE APPEAL FROM THE INDIVIDUAL 151 
 
 But the conclusion will go some way towards Attention 
 satisfying those who have accepted it for economic t0 the 
 truth that the ultimate assessor of value is the public assessor. 
 which buys the goods. Just because they accept 
 this, however, they will consider the answer far from 
 complete. We shall have to examine further into 
 the matter before we take the employer's word for 
 it that his assessment corresponds with that of the 
 public. 
 
 The question which suggests itself, then, is whether The 
 
 . . 111 -^l ^i_ • individual 
 
 either party should or must rest content with this assessment 
 distribution of income at the hands of the individual cannot be 
 employer. In fairness to the employing class and to 
 the wage-earners alike, the answer must be an emphatic 
 No. The wage-earner is not bound to take it on trust 
 that the wage paid him is the proper wage, however 
 accurately it measures the service rendered to the pay- 
 master, and however just the employer tries to be. 
 ghtis custodiet ipsos custodes? Why should wages be 
 contingent on the good or bad management of the 
 employer ? An intelligent workman will ask if his 
 employer has secured the best price for their joint 
 product: 1 if he has put the worker's effort in com- 
 bination with the best appliances and processes : if 
 he has been able to buy all the other factors as 
 cheap as they might be bought ; and besides, if he has 
 not an exaggerated estimate of what his own share 
 should be. 
 
 On the other hand, the employer should not take on 
 himself the onus of professing that he pays the proper 
 wage. His ability to pay may not be in the least a 
 
 1 The miners, as I have said, are always charging the coal-masters 
 with sacrificing this interest.
 
 i$2 THE APPEAL FROM THE INDIVIDUAL book n 
 
 gauge of the ability of employers generally. The joint 
 product may be sold under conditions where the price 
 is not kept in check by normal competition. The 
 employer may be a philanthropic person who sur- 
 renders his profits, or a monopolist to whose profits 
 extra wages do not make much difference. Or he 
 may be an employer whose gifts are as exceptional 
 as meadow lands are in Connemara. To expect an 
 employer to pay high wages because he is a rich man, 
 or to hold him up to reprobation simply because he 
 pays low ones, is to do the very worst service to labour, 
 inasmuch as it perpetuates the idea we are only now 
 getting rid of, that wages are a charity, instead of being 
 the share in the National Income which the work- 
 man may honourably claim as the work of his own 
 hands. 
 
 for neither The fact is that the determination of wage is not 
 now a matter of individual will or ability at all. For 
 (i), although the good itself is the outcome of single 
 organisations, its price is not. The price is not a 
 matter of arrangement between the employer, or 
 the employer and his workers, on the one hand, 
 and the consumers on the other, but between all the 
 employers in the particular trade on the one hand, and 
 all the consumers of the particular product on the other. 
 The employer is only the paymaster of a price deter- 
 
 nor its dis- mined for him. And (2), under modern conditions, 
 the sharing of the price between the workers and the 
 employer is not a matter of bargain between the 
 
 is an workers and their individual employers, but is deter- 
 
 mined between all the workers in the trade on the 
 one hand, and all the employers in the trade on the 
 other. Both the price and the distribution are demon- 
 
 price 
 
 tribution 
 
 individual 
 matter.
 
 chap, vii THE APPEAL FROM THE INDIVIDUAL 153 
 
 strably the result of forces which are greater than those 
 of any individual ; forces, moreover, the action of which 
 is constant enough and observable enough to be reduced 
 to law. 
 
 If a master, asked for a rise of wage, pleads that he is 
 giving his men all that they are worth to him, and shows 
 his books to prove that, while he is selling his goods 
 for the best price he can command, he is yet making 
 nothing for himself, this does not and should not satisfy 
 the men, provided that they can point to other factories 
 in the same trade where wages are higher. Again, if 
 a master proposes a reduction of wages to his workers, 
 it is not to the point for the men to reply that they are 
 " worth the wage " to him, inasmuch as he is able to 
 pay them the former wages, take a good profit to him- 
 self, and still sell at the market price, so long as he can 
 prove that they are getting more than their work is 
 worth to the other employers in the same trade. In 
 either case the complainant proves his contention in the 
 same way : the workers go next door and find their 
 work there " worth " the higher wage ; the master goes 
 next door and gets in other workers. The appeal is 
 from one master to the body of masters, and from one 
 man to the body of men. 
 
 The rationale of this is clear enough. It is that the The appeal 
 single factory is only one member of a greater organisa- 
 tion. In the division of labour, the making of every 
 good is divided, not only into a number of processes, 
 but among a number of makers. The true "dividend" 
 — that which can be divided — is the price paid for the 
 totality of this class of goods. Beyond the primary 
 unit of the factory is the larger unit of the trade. Our 
 attention, then, is lifted from the relations of master 
 
 to the 
 trade.
 
 154 THE APPEAL FROM THE INDIVIDUAL book ii 
 
 and man within the individual factory to the relations 
 of masters on the one side and men on the other side 
 within a trade, and the claim of payment according to 
 services rendered takes higher ground.
 
 CHAPTER VIII 
 
 MASTERS AND MEN 
 
 Within a trade, and " thinking away " the factory walls, one must be 
 struck by the difference of solidarity between masters and men, and this 
 difference produces striking results, (i) Among the former, attracted by the 
 speculative gain of profit, and themselves subject to substitution, there is 
 intense rivalry, pressure on price, and so pressure on profits. (2) Among the 
 latter the massing into factories binds them into a class, and effects an implicit 
 combination. Hence come mobility and -wage levels, independent of, but fostered 
 by, Trade Unions. 
 
 A trade is a congeries of the rival organisations we In each 
 have been considering-, united in the common object of tra f 
 
 °' ■> masters and 
 
 producing one section of the real National Income. The men con- 
 production of yarn, for instance, is one industry divided o| . J 2 
 over all the spinning-mills in the country. Such mills 
 might be, and in many cases actually are, branches of a 
 single organisation. As a rule, however, each trade is 
 made up of a number of separate units, each with its 
 own peculiar organisation. Hitherto we have been 
 looking at the relations of masters with men and men 
 with masters within these units. But many current 
 phenomena, particularly the action of Trade Unions, 
 bring before us another set of relations, namely, those of 
 masters with masters and of men with men within this 
 greater unit of the trade. In taking the trade as its
 
 156 MASTERS AND MEN book n 
 
 unit, Trade Unionism, if we may use the expression, 
 " thinks away " the factory walls, and presents us with 
 a number of masters and a number of men co-operating 
 towards one end, the making, say, of a single kind of 
 commodity, but, at the same time, confronting each 
 other as two distinct bodies. 
 
 Looking at the two bodies as thus set over against 
 
 each other, the difference of solidarity between them is 
 
 very striking, and the difference leads to very striking 
 
 results. 
 
 Among (i) As a rule, employers in the same trade regard 
 
 masters ^^ ot h er as r j va l s an d their intense rivalry exerts the 
 
 there is ill 
 
 intense same pressure on themselves as they exert on the 
 rivalry, wor ) cers The pressure is not indeed put in force by 
 an outsider, but by an agency which directly pits them 
 against each other ; that is, the necessity of meeting and 
 tempting the consumer. For, although they make for 
 the consumer, they are not the agents of the consumer. 
 To keep their place, as we have seen, they are con- 
 tinually pressed to use the potent argument of a con- 
 cession in price, or in discount, or in terms of credit. 
 Theoretically they have a common interest — to keep 
 up prices; but this is the common interest which they 
 are least likely to acknowledge. If they abandon the 
 cutting of prices and sell on a common list, they are 
 thrown back on personal resources to sell their goods ; 
 and the weak men, rinding the difficulty of this, in- 
 evitably begin to cut in underhand ways, till the 
 stronger men break away openly, 
 bringing Now this excessive individualism very definitely 
 wkhin safeguards the public interest in that it brings profits 
 limits. within limits and law. The employer, as we have 
 seen, is a functionary who does something, in the
 
 chap, vin MASTERS AND MEN 157 
 
 division of labour, which labour and capital cannot do 
 for themselves. He puts the two together in an 
 organisation, buys their services for fixed sums, and 
 takes the risk of recouping himself out of the joint 
 product. For all this he makes no fixed charge or 
 salary. Profit is neither a wage nor an interest ; it is 
 a speculative gain. The attraction of it is the specula- 
 tion. Where there are profits they are usually large, 
 and the losses fall out of the reckoning both of the 
 employers as a class and of the community. Many a 
 man would not enter a trade for a fixed salary of ^2000 
 a year, who is yet content to make .£4000 one year 
 and nothing the next. The speculation presents itself 
 as an attraction to a man of resource and self-confidence; 
 the payment depends on results, and it brings out the 
 best that is in him economically as a salary would 
 seldom do. 
 
 But for this very reason that it is not a fixed share For profit 
 but a margin, and a margin which depends more or l * neit er 
 less on a speculation, the employer is suspected of earned" 
 making sums which bear no proportion either to the 
 work of organising or to the risk underwritten. To the 
 working man, the employer is a person who does not 
 require to take off his coat or soil his hands ; therefore 
 he cannot be paid for working. And of what risk means, 
 the working man seems to know absolutely nothing. 
 He hears enough about the large profits ; he knows 
 nothing about the losses — which indeed are and must 
 be concealed ; and so, considering " profit " synony- 
 mous with inordinate and unearned gains, he confuses 
 the employer with the gambler. 1 
 
 1 He makes the same mistake about the merchant, whom he charges 
 with the old crime of "engrossing" because he buys cheap and sells dear,
 
 i 5 8 MASTERS AND MEN book n 
 
 nor "in- If the idea of "unearned gains" disappears before 
 
 ordinate." ^ ana ly S j s G f the employer's functions in the last 
 few chapters, the idea of " inordinate gains " disappears 
 when the proper way of calculating average profits 
 is understood. " To find the average profits of a trade," 
 says Professor Marshall, " we must not divide the 
 aggregate profits made in it by the number of those 
 who are reaping them, nor even by that number added 
 to the number who have failed ; but from the aggregate 
 profits of the successful we must subtract the aggregate 
 losses of those who have failed, and perhaps disappeared 
 from the trade ; and we must then divide the remainder 
 by the sum of the numbers of those who have suc- 
 ceeded and those who have failed. It is probable that 
 the true gross earnings of management, that is, the 
 excess of profits over interest is not on the average 
 more than a half, and in some risky trades not more 
 than a tenth part, of what it appears to be to persons 
 who form their estimate of the profitableness of a trade 
 by observation only of those who have secured its 
 prizes." * 
 
 neglecting the fact that the person who buys on a large scale, divides the 
 purchase out, and carries it to suit customers, is a real functionary in the 
 division of labour, and no more a middleman than any other who comes 
 between Nature and man. Witness the attitude of the co-operator 
 towards the retail dealer, and witness also how often he deludes himself 
 by making the "divi" stand in the place of quality (cf. p. 24). 
 
 1 Principles of Economics, 5th edit. p. 620. Statistics of private businesses 
 are, of course, not obtainable, but the following are usually accepted as the 
 estimates of trustworthy authorities. In Worcester, Mass., Mr. J. H. 
 Walker calculates that, of every hundred men in business there in 1845, 
 twenty-five were out of business in five years, fifty in ten years, and sixty- 
 seven in fifteen years ; "and most of these disappearances mean simple 
 failures." Of France, M. Leroy Beaulieu says that, out of every hundred 
 new businesses, twenty disappear almost at once, fifty or sixty vegetate,
 
 chap, vin MASTERS AND MEN 159 
 
 In a suggestive passage * the same writer shows that And among 
 employers themselves are subject to the action of sub- mWitution 
 stitution through their own competition. Profits are obtains, 
 constantly checked by comparison with the earnings 
 of foremen and salaried managers ; there is constant 
 rivalry between large employers enjoying the economies 
 of large production and small employers depending 
 rather on personal and less divided energies ; between 
 those employing their own and those working with 
 borrowed capital ; and between the new man who, " by 
 his quick resolutions and dexterous contrivances, and 
 perhaps also a little by his natural recklessness, ' forces 
 the pace,' " and the old-established firm relying on 
 its reputation and long connections. Of late years, 
 besides, the private employer has at least two powerful 
 competitors. In the Joint Stock and Limited Liability 
 Companies, which cover iabout a tenth of the total 
 industry of the country, his place as organiser is taken 
 by the directors, or the manager, or the secretary ; or 
 his functions are divided among them, while the risk is 
 transferred to the owners of the capital, the share- 
 holders. In the Co-operative Stores, both organisation 
 and risk fall upon the consuming members, and it 
 would be difficult to say to what extent this movement 
 may yet grow. 
 
 On the whole, there is good reason to believe that 
 the community gets its employing done for it more 
 
 neither rising nor falling, and only ten or fifteen succeed [Repartition des 
 Ric/iesses, ch. xi.). And Mr. D. A. Wells says that "there has long been 
 a substantial agreement among those competent to form an opinion, that 
 ninety per cent, of all the men who try to do business on their own account 
 fail of success" [Recent Economic Changes, p. 351). 
 
 1 Principles of Economics, 5th edit. p. 600.
 
 160 MASTERS AND MEN book 11 
 
 cheaply than it gets any other service, just because the 
 speculation and the free life are very large elements in 
 the real remuneration. I have several times suggested 
 that the functions performed by the private employer 
 are very much the same as would be undertaken by 
 the salaried servant, if working men appointed a leader 
 over themselves and worked with their own capital ; 
 and, more than that, that they are very much the same 
 functions as would be performed by the paid captains 
 of industry in a Socialist State. To this it may 
 now be added that, if the employers are performing 
 these functions for a remuneration that does not 
 seem, on the average, more than a wage for their 
 services, it comes very much to the same thing as if 
 they were salaried servants of the community. The 
 hope of a Socialism, one may suppose, is that under 
 it wages would be maintained, interest would fall, 
 and leaders would be paid by their cost of produc- 
 tion. It is difficult to see much essential difference 
 in those regards between this and the present 
 system. 
 Among the (2) The massing of men together in modern in- 
 UwliSrity. dustl 7> subject, as regards work, conditions, and pay- 
 ment, to the will of a few powerful persons, and watched 
 over by special government regulations, has tended to 
 keep out of sight their opposing interests, bound them 
 together in the loyalty of a class, and produced an 
 implicit combination for many common purposes. 
 And, for good or evil, the influence of Trade 
 Unionism has been to make the working classes regard 
 the employer as their natural enemy, in face of whom 
 all little differences of their own have to be sunk. 
 There is perhaps no name that the working man now
 
 chap, vin MASTERS AND MEN 161 
 
 dreads more than that of " blackleg " — the man who 
 separates himself from his fellows. 
 
 As natural result of this solidarity, comes the estab- its result — 
 lishing of wage levels. A very slight glance at modern wage eve s ' 
 industry shows us that wages do not vary from man 
 to man, but persist, rise, or fall over masses. Men 
 doing similar work in a factory are paid similar wages or 
 similar piece-work rates. Where time-workers and 
 piece-workers work side by side, the wages tend towards 
 equality. When our sphere of observation takes in a 
 group of factories engaged in similar work and con- 
 gregated in one locality, we find that the time wage or 
 the piece-work rate is very much the same over these 
 factories. 
 
 Enquiring into the reason of this, we shall be told no 
 doubt that it is due to the principle and the working of 
 Trade Unions. It is very doubtful, however, if any- 
 thing more can be claimed by Trade Unionism than 
 that it has fostered and confirmed the maintenance of 
 levels which exist where there are no Unions, and 
 might be maintained although Trade Unions never 
 existed. Witness the fact that in many industries where 
 women only are employed, as in the thread-mills, the 
 levels are quite as marked. 1 
 
 All that is necessary for the establishing of wage provided 
 levels is mobility. If factories are within reach of each [ e ,. ls 
 
 J mobility. 
 
 1 " The most autocratic and unfettered employer spontaneously adopts 
 standard rates for classes of workmen, just as the large shopkeeper fixes 
 his prices, not according to the higgling capacity of particular customers, 
 but by a definite percentage on cost. . . . The modern employer of labour 
 on a large scale cannot be bothered with precisely graduated special rates 
 for each of his iooo hands. It suits him better to adopt some common 
 principle of payment, simple of application by his clerks and easily com- 
 prehended by his workmen." — Webb, Industrial Democracy, vol. i. p. 281. 
 
 L
 
 i62 MASTERS AND MEN book 11 
 
 other, and if the work is similar, the freedom and ability 
 of each worker to go where the wage for the moment 
 is better, and to leave the place where for the moment it 
 is worse, inevitably ends in levelling wages. Even it 
 there is no form of Friendly Society or Union, it is 
 incredible that workers should not talk over the matter 
 of wages, either at the bench, or on the way to and 
 from their work, or after hours ; and, if they do so, it 
 is only human nature that they should stand together 
 and take common action. If domestic servants — per- 
 haps the most isolated of any class of workers — can 
 always be counted on to know to a shilling what a 
 place is worth, and what is the character of the house 
 and the mistress, it is assuming too much to say that 
 men, associating in the most intimate way every day, 
 are as helpless as Trade Union theory makes them out 
 to be. It is a testimony in the same direction that, 
 unless the authors of Industrial Democracy are improv- 
 ing upon the instructions of their clients, the promotion 
 of mobility within each trade is part of the Trade 
 Union programme. 1 
 
 But, to the extent that mobility is imperfect, there 
 is not this tendency to levels of remuneration. And 
 perhaps those of us who live in large manufacturing 
 towns, where dozens of similar workshops and factories 
 
 1 Webb, Industrial Democracy, vol. i. pt. i. ch. iii. " In such trades as 
 the Engineers, the Boot and Shoe Operatives, the Cotton-Weavers, and the 
 Compositors, the Trade Union has, for whole generations, been struggling 
 to induce its most apathetic and conservative-minded members to put 
 on the adaptability and mobility of 'economic man.' The growth of 
 'uniform lists' and 'national agreements' in one trade after another is a 
 sign that this difficulty is, in some cases, being overcome." — Vol. ii. 
 p. 731.
 
 chap, viii MASTERS AND MEN 163 
 
 are crowded together in a small area, are apt to ex- 
 aggerate the mobility that there is. 1 
 
 1 That the actual amount of mobility remains an open question may 
 be suggested by the following quotations from a debate in the House of 
 Commons, 1 7th April, 1899 : — " I do not think I am exaggerating the facts 
 when I say that mobile labour is the rule, and immobile labour the 
 exception, among the industrial population " (Mr. Asquith). " I think this 
 idea of the mobility of labour applies only to a fraction of the working 
 classes. In the majority of trades and in the majority of towns the work- 
 ing classes are not mobile" (Mr. Chamberlain). "I do not agree with the 
 last speaker. I have obtained some statistics from the Secretary of the 
 Hearts of Oak Society, which show that out of its 220,000 members no 
 fewer than 126,000 of its members have removed during the past year, an 
 average of 500 removals per day" (Mr. John Burns).
 
 CHAPTER IX 
 
 THE APPEAL TO THE TRADE 
 
 There is thus a strong tendency ivithin each trade bringing the remuneration 
 of both parties under economic laiv. The price is determined between all the 
 employers in a trade and the public, and this is the price divided, i.e. the total 
 divisible. In the division of the price, profit is kept down by the intercompeti- 
 tion of employers ,• ivhile ■wages are steadied by an appeal from the employer to 
 the body of employers, and from the "workman to the body of workmen. Thus 
 there is an escape on both sides from the arbitrariness of the individual. 
 
 Emergence If the foregoing be an accurate analysis of the relations 
 of law. Q f meters to masters and of men to men within a 
 
 trade, we have in these relations a force tending to bring 
 the remuneration of both under economic law. 
 
 The working man, as we have seen, is haunted by 
 two distinct suspicions : one, that his employer is not 
 getting the best price which he might for their joint 
 output ; the other, that the division of the price 
 between him and his employer is arbitrary. As re- 
 gards the former, we have found that price is not a 
 thing for which the individual employer is responsible : 
 it is seen to be a matter of determination between, on 
 the one hand, the whole body of separate employers, 
 using different methods and combinations of factors 
 and driven to sell as cheaply as they can, and, on 
 the other, the whole body of consumers. As regards
 
 ness. 
 
 chap, ix THE APPEAL TO THE TRADE 165 
 
 the latter, we find that the division of this price is 
 not a thing for which the individual employer can 
 be held responsible, but a matter of determination 
 between all the employers and all the workers 
 employed. On the side of the employers, we see a 
 fierce individualistic competition bringing profits within 
 limits, and in fact, there is reason to believe, reducing 
 them to a very low point. On the side of the men, we 
 see an implicit combination of the regimented masses, 
 resulting, where there is mobility, in the establishment 
 of wage levels. 
 
 In all this we have an appeal from the tyranny The escape 
 of the single employer, and, equally, an appeal from J°^™i 
 the tyranny of the single workman. In the widen- arbitrari- 
 ing of the circle of interests which makes the unit 
 factory into the member of a co-operating trade, both 
 workmen and employers have a standard of com- 
 parison in the services and the payments of the other 
 factories. If one walks from the Broomielaw Bridge 
 at Glasgow along the Clyde as far as Govan, the long 
 line of ship-yards and the successive signboards bearing 
 the words "Engineers and Shipbuilders" tell us that 
 here, in one quarter, the appeal from master to master 
 and from man to man is very real. We are reminded 
 that the employer is not an independent unit, but 
 one of many units all organised, on different plans, 
 for the same purpose, and all competing with each 
 other to get the best factors and to serve the same 
 public ; and that the man is not an independent 
 unit, but one of many fit for and competing with 
 others to do the same service. Thus the worker 
 escapes from his dependence on the willingness or 
 ability of his particular employer to pay, and the
 
 166 THE APPEAL TO THE TRADE book n 
 
 employer escapes from his dependence on the willingness 
 or ability of his particular workmen to serve. 
 
 The point which we reach, then, in our present 
 argument is : that the shifting of our point of view 
 from the individual master and man to the trade, 
 advances us another stage towards bringing distribution 
 under law ; for every factor may now claim to be paid 
 according to what its service is worth to the body of 
 employers in the trade, and every employer may claim 
 that his profit is no more than a closely cut wage. We 
 have, in short, the emergence of the Representative 
 Employer, settling the price of the goods with the 
 public, and overruling the arbitrary payments of the 
 single employer ; and we have the consolidating of 
 the workers into the Representative Worker, setting the 
 standard of service and the claim of payment for 
 the single worker.
 
 CHAPTER X 
 
 THE APPEAL FROM TRADE TO TRADE 
 
 Does the appeal of the individual factor against arbitrary payment extend 
 beyond the trade ? The answer again -will depend on the mobility of the 
 factors. 
 
 Suppose that the National Income consisted exclusively Perfect 
 
 of the products of one particular industry ; that all the ™o ul Vievel 
 
 workers were of equal ability ; and that transit was wages. 
 
 rapid and cheap, — say, not to make the illustration 
 
 absurd, that the industry is farming, where one man in 
 
 his time plays many parts. In such a case, there would 
 
 still be the pressure from beneath and around tending 
 
 to reduce wage, but it would be like the pressure on 
 
 water in a lake. Every farmer who tried to reduce the 
 
 rate of wages would find himself short of workers, and 
 
 every farmer who offered more would find applicants at 
 
 his gate. Suppose also that competition had done its 
 
 perfect work among the farmers, so that there was one 
 
 price for the products made, and that profits were 
 
 reduced to a minimum ; then the mere knowledge that 
 
 labour was able and ready to move would keep wages 
 
 at one level, and the only question would be to what 
 
 point this level could be pressed. 
 
 But if there were no such levelling influence among 
 the farmers, and if workers were prevented, by distance
 
 1 68 THE APPEAL FROM TRADE TO TRADE book ii 
 
 or other obstacles, from appealing from farmer to 
 farmer, profits and wages would not come under law : 
 there would be nothing to indicate that the contri- 
 butions of the various factors towards the National 
 Income were being measured and assessed by anything 
 higher than the willingness, or ability, or brute force of 
 each individual employer organising his industry with a 
 view to his own self-interest. 
 
 What seems to come into prominence, then, as the 
 great security and safeguard against arbitrary incomes, 
 is, on the one hand, the competition of the employers, 
 and, on the other, the mobility of the workers. 
 
 But, as things are, the industry by which the 
 National Income is produced is as far as possible from 
 resembling this supposititious case of farming. It consists 
 of an infinite variety of products made in an infinite 
 number and variety of trades employing factors whose 
 abilities are infinitely various. We have seen that, to 
 the extent that there is mobility inside trades, there is 
 a tendency to levels in the remuneration of the various 
 factors employed, and that the arbitrariness of the 
 individual payment tends to disappear : if there were 
 perfect mobility here — which, of course, is impossible 
 — it might be said that every factor in such a case 
 is getting the full " economic worth " of its contri- 
 How far bution to the price. We have now to inquire if there 
 °".f. ra e is not some force which tends to brine the various 
 
 mobility o 
 
 extend ? trades together into a unit, as the various factories were 
 brought to unity in a trade ; if, in short, to retain our 
 metaphor, the dividing walls of trades also may not be 
 conceived of as broken down, leaving all labour, con- 
 scious of its common interest, facing the whole body of 
 employers competing with each other. Or are trades
 
 chap, x THE APPEAL FROM TRADE TO TRADE 169 
 
 like compartments within which the competition among 
 employers and the mobility among workers are con- 
 fined ? If the latter is the case — and Trade Union 
 action distinctly tends that way — we are left with very 
 great anomalies in distribution. It is notorious, for 
 instance, that some of the less skilled but well-organised 
 trades have attained a level of wage much higher than 
 that of allied skilled trades where the organisation is 
 weak. 
 
 In other words, the worker may be convinced that 
 his standard wage is the most he can get in the 
 distribution of the price. But, owing to over-populating 
 of his trade or the peculiar substitution of capital factors 
 in it, he may not be getting a rising wage. Has he, 
 then, any appeal to other trades not so circumstanced ? 
 The question comes to this : What is the amount of 
 mobility, among factors and among employers, from 
 occupation to occupation ?
 
 CHAPTER XI 
 
 THE TRADE MOBILITY OF LABOUR 
 
 Probably it is much greater than one would believe from personal observa- 
 tion. Between certain trades there can, of course, be no direct movement. But 
 •where machinery is much used, among the minders there is much mobility — one 
 proof being the failure of Trade Unions to keep their organisations closed, another 
 being the phenomena during the lock-out of 1897-98. But even -where there is 
 no movement of adult labourers, the possibility of movement due to improved 
 communication, and, particularly, the coming forward of the young generation, 
 lead to the same results. Thus the groups between which there is mobility 
 are growing larger and the division lines thinner. All this applies -with added 
 emphasis to the employing class. 
 
 There is If we ask ourselves how many people within our know- 
 m °Wlit ledge and in our own country have changed their 
 than we trade, some of us might have difficulty in finding a 
 imagine. s j n gi e instance, unless, perhaps, where a domestic has 
 changed, say, from house to table maid, or from coach- 
 man to gardener. And those who believe that social 
 and ethical considerations demand that a man should 
 not be a wanderer, but a centre of influence and affec- 
 tions, are predisposed to accept Mr. Davidson's general- 
 isation that trade mobility generally spells degradation 
 from the ranks of the skilled to the unskilled. 1 
 
 1 The Bargain Theory of Wages, p. 183. On the other hand, it has 
 been argued plausibly that inventions are generally made by men who 
 migrate from trade to trade.
 
 chap, xi THE TRADE MOBILITY OF LABOUR 171 
 
 But probably the mobility of labour which we are 
 now considering — the power of free movement from 
 trade to trade 1 — is greater than any empirical observa- 
 tion would suggest. No agricultural depression, of 
 course, will ever drive farm-labourers into watch- 
 making. But agricultural labourers take to the coal- 
 pits when inducement is offered — so much so that, at 
 a recent Trade Union Congress, the resolution was 
 proposed that no man should be allowed to go down 
 the pits unless he had already been a miner before the 
 age of eighteen. And, by the nature of their work, 
 watchmakers might pass freely enough into other 
 occupations requiring fine fingering and the use of 
 delicate tools. 
 
 It is generally argued that the evident tendency of For much 
 modern industry, as of modern scholarship, is towards jf "7 s ' S 
 specialisation, and that specialisation is an almost in- specialisa- 
 superable obstacle to mobility. But the case of workers mac hi ne - 
 in engineering shops is suggestive. Not many years tending. 
 ago, it was a commonplace that a skilled millwright 
 could turn his hand to anything. Later, it was observed 
 that this all-round workman was disappearing from the 
 shops, 2 and was being replaced by the man skilled in 
 
 1 It may be advisable to call attention to Mr. Davidson's reminder 
 that there are two kinds of mobility : place mobility — the one we have 
 been considering, — and trade mobility- — the one with which we are now 
 concerned. — The Bargain Theory of Wages, p. 181. 
 
 2 He holds his place, however, in the smaller trades and in special 
 industries, such as the making of small, fine machinery, or scientific 
 apparatus — if for no other reason than that it is necessary to provide 
 considerable flexibility among the workers to meet such daily con- 
 tingencies as sickness, accidents, leave, promotion, etc., where the 
 temporarily vacant places can be filled immediately. Royal Commission on 
 the Poor Laws (1909), Majority Report, p. 347.
 
 172 THE TRADE MOBILITY OF LABOUR book 11 
 
 the handling of particular machine tools; and disin- 
 terested spectators began to lament that it would go 
 hard with such men if they "lost their jobs." But the 
 modern development of machine tools has brought an 
 escape from this dreary outlook, in the fact that very 
 much the same kind of skill is required for tending one 
 kind of machine tool as for tending another. 1 Witness, 
 for instance, the movement within the last twenty 
 years first into the practically new trade of cycle 
 manufacture, then into the making of motors. Witness 
 again the generally accepted statement that, during the 
 great lock-out of 1897-98, the work in many shops 
 was scarcely interrupted, the engineers' places being 
 taken by apprentices and by labourers advanced to the 
 post of machine-tending. 
 
 The fact seems to be that the universal spread of 
 machinery requiring only skill in machine-minding 
 tends to make labour more mobile, at the same time 
 as it makes mobility more necessary. If one looks 
 
 1 " An engineering establishment will have in use a long array 
 of different types of planing, drilling, boring, slotting, and milling 
 machines, together with a bewildering variety of applications of the old- 
 fashioned lathe. The precise degree of skill and trustworthiness 
 required to work each of these machines, or even to execute different jobs 
 upon one of them, is infinitely varied. The simple drilling-machine or 
 the automatic lathe, continuously turning out identical copies of some 
 minute portion of an engine, can be tended by a mere boy. Some work 
 executed on an elaborate milling-machine, on the other hand, taxes the 
 powers of the most accomplished mechanic. Yet so numerous are the 
 intermediate types that the increase in difficulty from each machine to 
 the next is comparatively small. Thus the youth or the labourer who 
 begins by spending his whole day in 'minding* the simplest driller or 
 automatic lathe may 'progress' from one process to another with little 
 further instruction, until, by mere practice on a succession of machines, 
 the sharp boy becomes insensibly a qualified turner or fitter." — Webb, 
 Industrial Democracy, ii. p. 471.
 
 chap, xi THE TRADE MOBILITY OF LABOUR 173 
 
 over the field of labour, and sees the desperate efforts 
 that are being made, in most of the crafts, to prevent 
 the intrusion of outsiders who have never passed the 
 recognised gate of apprenticeship but yet are found 
 quite capable of doing the work to which the Trade 
 Union protests a " right," 1 — even if one considers only 
 one part of the same movement, the pressing of women 
 workers into trades hitherto held sacred to men, — it 
 is difficult to resist the conclusion that, in the near 
 future, the competition which will attract notice is not 
 the competition between capital and labour, but the 
 inter-competition of the various grades of labour. 2 
 
 If, however, we look for mobility only in the 
 movement of adult labour, we should be disappointed. 
 But there are other two considerations which must be 
 taken into account. 
 
 (1) Where there is cheap and rapid transit, and Actual 
 
 , 1 1 1 1 1 movement 
 
 where newspapers, trade unions, and labour bureaus ig not 
 keep people informed of the conditions of work and necessary. 
 wages, there need not be actual movement to secure 
 the levelling effects of mobility. After all, the word 
 means " power to move," and the threat of movement 
 is sometimes enough to secure the worker against 
 arbitrary payment. 
 
 (2) Where there is no mobility of the labourer, Mobility 
 there may be and is mobility of labour. Perhaps it is y u° n u g s gene ! 
 not sufficiently realised that the supply of labour must ration. 
 
 be a continuous stream. To maintain its numbers, 
 every trade requires to be constantly recruited, and, to 
 
 1 Many of the Unions, notably the London Society of Compositors 
 and the Amalgamated Society of Engineers, have given up trying to fight 
 against the tendency. — Webb, Industrial Democracy, ii. pp. 468-470. 
 
 2 See further, p. 217.
 
 174 THE TRADE MOBILITY OF LABOUR book ii 
 
 meet the demands of growing population and growing 
 wealth, most trades require a constant addition to their 
 numbers. In 1893, the Employers' Committee and 
 the Iron Shipbuilders' Society came to an agreement 
 whereby two apprentices — the term of indenture being 
 five years — were allowed to every seven men. The 
 rationale of this proportion was that this number of 
 apprentices would keep the supply of journeymen 
 constant. But Dr. John Inglis, whose right to speak 
 with authority will not be questioned on the Clyde at 
 least, while agreeing, protested against the limit as 
 quite insufficient to supply what one might expect to 
 be the normal demand for journeymen in this trade. 1 
 
 Remembering this constant need of accessions, it 
 is clear that the direction of young workers to one 
 group of occupations means actual decrease of numbers 
 in the other groups, and the growing competition in 
 one group has its counterpart in the slackening of com- 
 petition in the others. At any moment, the population 
 under ten years of age is nearly a quarter of the whole. 
 In times when riveters are "past their best" at the 
 age of forty, and when there are " no men available " 
 in the shipbuilding industry after forty-five, 2 the effect 
 of this stream of recruits constantly coming forward 
 goes far to redress the immobility of the adult workers. 
 It is true that 3 per cent, or 3! per cent, of the total 
 population coming forward every year as new candidates 
 
 1 Transactions of the Philosophical Society of Glasgow, 1893-94. 
 
 2 "The reports of the men's union (Boilermakers and Iron and Steel 
 Shipbuilders' Society) show that the average age at death is forty-five years. 
 The number which continues at work after that age is so trifling, and we 
 have to set off against these the greater number which does not so continue 
 till death supervenes, that we may take it that there are, for practical 
 purposes, no men available after forty-five." — Dr. John Inglis, Ibid.
 
 chap, xi THE TRADE MOBILITY OF LABOUR 175 
 
 for work cannot produce much effect if distributed 
 over industry generally, nor will a total cutting off of 
 the supply of recruits from any one trade affect its 
 numbers for a long time ; but a small percentage of the 
 new population coming into any one trade will have a 
 very powerful effect indeed in levelling its wage. 
 
 It must be granted that the wisdom and unselfish- 
 ness needed to guide the labour of young people into 
 the most profitable channels have hitherto been sadly 
 to seek. In the lower ranks, parents generally yield to 
 the temptation of increasing the household earnings by 
 sending their children to earn a wage at any casual 
 occupation which comes within their notice, such as 
 selling papers and matches, or caddying at golf-courses. 
 And any one with eyes can see what kind of training 
 is being got by the " smart message boy " so often 
 advertised for. Above this rank, children, as a rule, 
 follow the occupation of their fathers, especially 
 where the fact of the father being in a particular trade 
 makes it easier to get the children into apprentice- 
 ship. But in proportion as the working classes rise to 
 higher standards of life, the direction of this current 
 of young labour will be better guided. Generally 
 speaking — and within limits — the longer a child can 
 be kept at school, the wider is the field of occupations 
 thrown open to him, and the fact of his being kept 
 longer at school is, in general, a proof that the parent 
 is capable of judging what occupations are least con- 
 gested or offer the better prospects. 
 
 It seems a fair generalisation that, while the groups 
 which are self-contained and non-competing are be- 
 coming more confirmed in these characteristics, the 
 mobility of labour as a whole is increasing, inasmuch as
 
 176 THE TRADE MOBILITY OF LABOUR book n 
 
 the tendency in all trades is to introduce more and more 
 machinery, and to reduce the function of the great 
 bulk of labour to machine-tending. At least we may 
 say that, while labour generally is divided into groups 
 which are comparatively non-competing, the lines of 
 demarcation between many groups are getting thinner, 
 and the groups are getting fewer and larger. But that 
 mobility has not yet gone very far — perhaps that 
 Trade Union restriction has prevented it going very far 1 
 — is suggested by the fact that riveters on the Clyde 
 are getting from 40s. to 80s. per week according to the 
 job, while engineers get 36s. to 38s., and brassfinishers 
 perhaps 35s. 
 Mobility When we come, finally, to the class who organise 
 
 among labour and vet must be counted as the head labourers, 
 
 employers. J 
 
 the mobility is much more marked. It is evident that 
 the employing class is not limited to capitalists. The 
 increase of wealth generally, the spread of Limited 
 Liability Companies, etc., seem to confirm Professor 
 Marshall's statement that, where there is organising 
 ability, there will be no lack of capital begging to be 
 organised. 2 The more complex business becomes, 
 
 1 Cf. the Conclusions of the Royal Commission on the Poor Laivs (1909), 
 Majority Report, p. 347. Mr. Ramsay Macdonald frankly stated : "the 
 organisation of labour is absolutely essential in view of the organisation 
 of capital, and it is practically impossible to organise labour if there is 
 much fluidity of labour between trade and trade." 
 
 2 When the modern Socialist persists in making the "capitalist" 
 his target for attack, it can only be that it suits him not to see that the 
 owner of capital and the captain of industry are very often distinct persons, 
 and that, in any case, the difficult and responsible labour of organising and 
 taking risks is an entirely distinct function from that of providing the 
 capital. If there is suffering, the owner of capital (or the employer qua 
 owner of capital) suffers with the labourer from the power which tends 
 to press down the remuneration of both.
 
 chap, xi THE TRADE MOBILITY OF LABOUR 177 
 
 the less specialised is the skill of the employer. He 
 is the person who has knowledge of things and 
 knowledge of men rather than technical training and 
 knowledge of processes. Hence the area of competi- 
 tion for this occupation grows wider and wider. The 
 numbers are recruited from the universities rather than 
 from the technical schools. Here there is considerable 
 mobility among adults, at the same time as increasing 
 numbers of young people are easily diverted into that 
 occupation which presents not only a career for brains 
 and an independent life, but the additional attraction of 
 a speculative wage. It is mostly elderly men who would 
 be willing to barter their talents for a fixed salary ; the 
 young will always be attracted by the chance of great 
 fortunes even when balanced by the preponderant 
 risk of great failures. 
 
 M
 
 CHAPTER XII 
 
 THE MOBILITY OF CAPITAL 
 
 Wealth does indeed tend to take fixed and specialised forms, and so to become 
 immobile. And ive must not argue from the fact that interest is a rate to the 
 conclusion that mobility is the cause of this equality of return. But capital as a 
 •whole is much more mobile than labour is. (i) Many of the larger forms may be 
 con-verted. (2) Its mobility is secured by the new supply ; for (a) the form it 
 •will take is determined by interested persons ; (b) as it wears out, the replace- 
 ment takes improved shapes. In all this there is a suggestive comparison with 
 the case of labour. Thus we conclude that the appeal is -very real. 
 
 Fixed capi- In the case of capital, again, it is clear that under no 
 ta is very exigency could the plant of a flour-mill be converted 
 
 immobile. o J r 
 
 into machinery for making motor cars. It may be 
 granted also that the complexity of industry and the 
 hugeness of the tasks it undertakes lead to more and 
 more of the country's wealth being invested in fixed 
 and specialised capital, incapable of adaptation. Thus, 
 comparing the respective mobilities, it is quite arguable 
 that of the two, a labourer thrown out of a job and an 
 employer boycotted by his work-people, the employer 
 is the weaker. The former has indeed little or no 
 reserve power of holding out, but he can at least take 
 up his belongings and walk to the next town ; while 
 the latter is tied to the spot, and may in a week sustain 
 loss — loss of profit and loss of customers — that puts his 
 balance hopelessly on the wrong side. If statistics
 
 chap, xii THE MOBILITY OF CAPITAL 179 
 
 could be had of the cases where employers carry on 
 simply because they cannot get their capital out, and 
 continue spending with a smiling face because their 
 credit cannot afford any sign of retrenchment, some of 
 the sympathy so amply given to the wage-earner might 
 be transferred to his master. 
 
 On the other hand, it is a commonplace that all 
 investments of capital tend to an equality of return. 
 As any stock exchange list will show, the slight differ- 
 ences between the return given by good industrial 
 companies, railways, mines, and the like, are all ac- 
 counted for by differences in their respective security. 
 If wages tend to equality only where and as there is 
 great mobility, how is it, in the circumstances above 
 mentioned, that interest is so evidently a rate ? 
 
 The paradox deserves an explanation which it does The rate of 
 not always get. It may be said at once that this '"^f,,,,. 
 equality of rate has nothing necessarily to do with the thing here, 
 mobility of capital. We easily assume a much closer 
 parallel between " capital " and " labour " than really 
 exists. Labour is confined within the skin of the 
 labourer ; whatever the disadvantages of his position, 
 the owner of labour — the one who gets the wage — 
 is one with the labour which earns the wage, and fixed 
 labour is fixed ownership of labour. The labourer, 
 that is to say, cannot sell his labour for what it will 
 bring, and "cut the loss" by getting rid of the un- 
 fortunate investment for a smaller sum. When he 
 appeals from employer to employer, he drags the burden 
 of his person with him. 
 
 But while labour is the labourer and wages goes to 
 him alone, capital is not the capitalist, and it is the 
 capitalist — the owner of capital — to whom interest
 
 180 THE MOBILITY OF CAPITAL book 11 
 
 goes. An employer, finding his concrete fixed capital 
 unremunerative, may sell it to another person for a 
 smaller sum of capital in general in the shape of 
 money. Or — what is the same thing — he "calls 
 down " his capital. In either case, what he calls " his " 
 capital does not remain as it was : though the concrete 
 forms remain unchanged, the value of the capital is 
 written down — that is, part of it is wiped out of the cal- 
 culation altogether. " When a man becomes worth only 
 half his previous wage, we do not write him down as 
 half a man ; but if a factory brings its owner £2$ 
 instead of £50 a year, we say that his capital is only 
 ^500 instead of £ 1 000." It might perhaps be put in 
 this way : the unit of labour is the labourer ; the unit 
 of capital is, say, j£ioo worth of capital. In short, even 
 if we were to assume that capital is no more mobile 
 than labour is, interest would still be a rate. 1 
 
 The real But capital itself as a whole is much more mobile 
 
 mo ' lty ' than labour as a whole. 
 
 I. Though millstones will not make bicycles, many 
 of the largest categories of capital may, within tolerably 
 wide limits, be converted from one purpose to another ; 
 for instance, buildings, steam-engines, horses, etc. 
 
 How it is 2. The mobility of capital is secured from the side 
 
 Te^ew^ °* tne neW SU PPtyj an( * ^re, a 8 am > We naVe a SU gg eS " 
 
 supply : tive comparison between it and labour. 
 
 (a) Wealth is increasing very much faster than 
 population, 2 and the shape which this wealth will take, 
 
 1 On the fallacy which contrasts the fall in the rate of interest with 
 the rise in wages, see Cannan, Theories of Production and Distribution, 
 chap. vii. 
 
 2 "We are within the mark, then, in assuming that population since 
 1850 has increased at the rate of 1-3 per cent, per annum, and industry
 
 chap, xii THE MOBILITY OF CAPITAL 181 
 
 as it comes into the world, is in the hands of people 
 who have every motive to give it the shape which will 
 find the most profitable investment. It has been com- 
 puted that the nation saves — that is, does not consume 
 — ^200,000,000 a year. 1 Suppose that part of the 
 saving is done by a person who cannot extend his 
 business and prefers to acquire old capital rather than 
 new. He allows his savings to accumulate in a bank, 
 and so gives the banker power to decide what shape the 
 new capital shall take. Or he buys consols and allows 
 the seller to decide. And, again, there is always a 
 fund of inchoate capital which can be materialised in 
 any form wanted. The forges and machine shops of 
 the country, for example, are full of stock — steel bars, 
 plates, tubes, etc. — which may be directed, at a week's 
 notice, to the making of any kind of machinery. 
 
 But while capital can take any shape, labour can unlike 
 take only one. A man rises up, works, and lies down a our * 
 in his own skin. Labour, as was said, is always prisoned 
 in the body of the labourer. But capital is wealth — 
 any and every shape of wealth. It is not sown that 
 grain which shall be ; the body which it shall be 
 depends on the wish of the sower. Even the fields 
 can grow half a dozen kinds of grain, or support houses, 
 or act simply as pleasure-grounds, although, once sown, 
 the seed can come up only what was sown. But man 
 has only one seed, and that seed must come up the 
 grain which was sown. 
 
 (b) As fixed capital wears out, its replacements need 
 not take the old shape. The progress of invention and 
 
 and wealth at the rate of about 3 per cent, per annum." — Giffen, Essays 
 in Finance, p. 95 (written in 1872). 
 
 1 This is Giffen's figure. — Essays in Finance, chaps, vi. and vii.
 
 i82 THE MOBILITY OF CAPITAL book 11 
 
 improvement seldom allows that old machinery is re- 
 placed by machinery exactly the same. The worst 
 that can happen to it is that it is stopped and sold 
 for what it will bring, and no more of that kind of 
 capital is produced. But the labourer's children are 
 made in his own image. He himself may indeed 
 stop doing what he was doing, write down his own 
 value, and turn to something else ; analogous in this 
 to a factory turned into a shed, or machinery used 
 for old iron. But, though his sons may be superfluous, 
 he does not stop producing the same kind of man 
 as he himself was. Men, in short, produce men and 
 nothing but men. Capital produces everything but 
 man. 
 
 If, then, mobility is the condition of the appeal 
 from arbitrary payment, capital has its full share of 
 the advantages of such an appeal.
 
 CHAPTER XIII 
 
 TAKING OUR RECKONING 
 
 It was suggested that there might be a clearer connection between money in- 
 come and services rendered than one -would think. We find on analysis (i) that 
 services rendered to employers are services rendered to the community and paid 
 by the community in price ; (2) that, in the division of this price, profits are 
 not arbitrary, being subject to fierce inter-competition, and the remuneration of 
 the factors is not arbitrary (although <we cannot indeed apportion remuneration 
 according to product), owing to the appeal — where and to the extent that there 
 is mobility— from the individual to the trade. To this extent there is a tendency 
 towards equal payments for equal services. And this mobility is seen to extend 
 beyond trades and bring an equalising influence into all incomes. But, assuming 
 this as true, the pressure downward remains : is there any point at which it 
 must stop ? 
 
 "I am always willing," said Adam Smith, "to run 
 some hazard of being tedious in order to be sure that 
 I am perspicuous." As the present argument is a 
 very long one, it is perhaps advisable at this point, at 
 the "hazard of being tedious," to pause and take our 
 reckoning. 
 
 Our subject is the distribution of the £2,000,000,000 
 which represent the real income produced year by 
 year. All the positive knowledge most of us have 
 about this distribution is that it is very unequal, and 
 most people are ready to say that it is very bad. 
 But many of us must have had a suspicion that a 
 good deal of the inequality may, after all, be due to
 
 184 TAKING OUR RECKONING book n 
 
 an inequality of deserts; that there may be more truth 
 than one thinks in the rough and ready generalisation 
 of experience that "most men earn just about what 
 they are worth." And, as it happened, the analysis 
 on which we entered, as apparently the most promising, 
 suggested that there might be a clearer connection 
 between the money incomes paid to each factor and 
 the services rendered by that factor than appears on 
 the surface. 
 Beginning We started with incomes earned in factory industry 
 
 dustry under private employers, where one man is visibly 
 
 under em- the direct paymaster of many incomes, and, indirectly, 
 p the paymaster of his own. It seemed probable that, 
 
 if we were to find any principle in distribution, it 
 would be in the study of the employer's actions. 
 He is the centre of those organisations in which the 
 greater part of the National Income is made. He 
 at least knows for what he pays, and why he pays 
 so much to this and so much to that factor. Is it 
 not possible, it was suggested, that employers generally 
 may be so controlled in their acts by economic 
 circumstances, that (i) the services rendered primarily 
 to the individual employer and by the individual 
 employer may really be found services rendered to 
 the community, and that (2) the payments made by 
 the individual employer to the factors and to him- 
 self may also be found determined by the community ? 
 we found I. The first part of our expectation has, I think, 
 
 o/anise 7 justified itself. We find the employer to be virtually 
 services the agent who carries out the public wishes. The 
 community demand goods for their living. They 
 ask that they and their resources be organised to pro- 
 duce goods. The employer takes the task and the risk
 
 chap, xm TAKING OUR RECKONING 185 
 
 on himself. He selects and combines the various factors 
 to his best ability, his great interest being in reducing 
 the cost. He takes the goods as they come from the 
 hands of his factors and sells them, distributing the 
 price in payments to the factors and to himself. 
 
 The reason why he pays is, of course, that certain 
 services are rendered to himself and by himself. But 
 evidently we cannot stop at this statement. Every- 
 thing is thrown forward on the price of the goods 
 produced : it is the fount of payment : and this price 
 is paid by the consumers of the goods. The em- 
 ployers are seen to be intermediaries acting uncon- 
 sciously for the consumers. We are reminded of the 
 microcosm of industry presented in the former book, 
 where each organisation of labour and capital, acting 
 through its employer, throws its product — its service 
 embodied in goods — into the pool, and takes away 
 in exchange a claim on the pool in the shape of 
 money. Thus there is always a real income — a pool 
 filled with goods, — and a money income — the claims 
 on these goods. But the real payment of the factors 
 for their services is not made till the claims are 
 cashed : when they are cashed, it is seen that the 
 services rendered to the pool have been paid out of 
 the pool. Each producer of goods is paid by other 
 goods : it is a great co-operation of mutual service. 
 Thus we find that the services rendered to single for the 
 employers are synonymous with services done to the ^"^" it 
 whole body of the buyers — that is, to the community. 
 
 If we found out nothing else about distribution 
 than this, it is always something to know that the 
 factors are not paid out of employers' pockets, nor 
 out of any pre-existing fund or purse, but out of goods
 
 1 86 TAKING OUR RECKONING book n 
 
 sold by the employer on account of himself and his 
 factors; that the community is the ultimate receiver of 
 those services. We have indeed need of everything 
 that may tend to raise the dignity of labour, and 
 nothing is more likely to do so than the conception 
 that the humblest worker is the servant of the State, 
 —services But all that this tells us is that the community 
 
 p ^' in recognises the services of the factors by buying the 
 
 goods in which they are embodied, and paying a sum, 
 not for each service, but for the totality of services 
 embodied in the goods. The distribution of the price 
 thus far is left with the employer. But may we not 
 hope that the distribution of the price also is subject 
 to the control of this ultimate paymaster ; that the 
 payments made by the single employer are controlled 
 by forces greater than his own ? 
 
 II. This second part of our expectation also is, I 
 
 think, beginning to justify itself. First we found that 
 
 But in dis- no employer stands alone in determining his prices — 
 
 tnbuting t j ie tota j divisible anc l j n determining his payments — 
 
 this price, ' r i 
 
 the sharing of that total ; and then we found that no 
 
 worker stands alone in claiming his share of the price. 
 
 The suspicion that haunts most men — we may as 
 
 well put it in words — is that the power in the hands of 
 
 granted employers is too absolute. But our analysis of the 
 
 that em- motive and work and method of payment of the em- 
 ployers do ... 
 not get too ploying class showed us that their services are constantly 
 
 much ' being compared and checked and pressed to a maxi- 
 
 mum, and their "profit" to a minimum, by the rivalry 
 among themselves to sell to the public. However 
 great the power of the employer may be, it does not 
 extend to the securing himself an exorbitant share of 
 the price. Profit, the word understood by so many as
 
 chap, xni TAKING OUR RECKONING 187 
 
 the gain of exploitation, is better interpreted as the 
 correlative of loss. 
 
 But while we may be satisfied that the employers is enough 
 are not getting t0 ° much, it does not follow that the [r* fr ° m 
 
 00 > the price 
 
 employed may not be getting too little. Granted, that adequately 
 is to say, that, out of the price realised for the joint ^J^ 
 product, the employer is obliged to pay over to the 
 factors all but a minimum wage called profit ; what 
 protects that price from being driven too low ? And 
 this brings us to the " loose end " which troubles us all 
 through the question of wages. 
 
 In this competition which reduces profit to a 
 minimum, one prominent feature is that the employer 
 is always casting about to find the most efficient factors. 
 But, with him, "most efficient" means "most efficient 
 at the price." Of two factors doing the same amount 
 and quality of work in the same time, that one is the 
 more efficient which is the cheaper. And, as we saw, 
 he is forced, whatever his inclinations may be, to buy 
 his labour as he buys other commodities ; that is, as 
 cheaply as he can. The question which seems 
 naturally to present itself is : What proof is there that 
 the remuneration thus beaten down represents a proper 
 equivalent for the service rendered ? 
 
 If the question is pressed in this form, I am afraid a "fair 
 no answer can be given to it. It is quite true that we e q ulval . ent 
 
 l of service 
 
 cannot well shake ourselves clear of the idea that there 
 is a "fair equivalent," if only we could find the means 
 of determining it. Possibly it has come down to us 
 from times when men individually produced from the 
 fields, and counted what they took for their consumption 
 as the work of their own hands ; or it comes from 
 our fancy that there must have been some such stage in
 
 1 88 TAKING OUR RECKONING book n 
 
 history. With all our recognition of the difference 
 between the work of a tiller of the soil in an un- 
 occupied world, and that of a whole co-operating 
 community where no factor is more than the smallest 
 tooth in an insignificant wheel, we sometimes dream 
 that it must be possible to determine wages simply by 
 product, as one might contract to pay a labourer the 
 extra produce which he saves from being wasted, or as 
 a mistress might — and could — afford to pay a house- 
 keeper if the housekeeper could prevent the under 
 servants from " breaking." And the idea gets strong 
 support when we look through the complex working 
 of the industrial machine, and find that, at bottom, 
 every act of production is the giving of a quid pro quo, 
 an outlay of human life or of realised wealth, or of 
 both, as against the receiving of more life or wealth, or 
 both. If this is so, one is ready to argue, Why should 
 it be impossible to attach a fair equivalent to every 
 given amount of service ? 
 is indeed It is well to put it down once for all, that, if we 
 
 lTdeter- 16 ^ase 0Ur no P eS °*" a " ^ a ' r Wa S e " OI1 * n Y SUC ^ ^ ea > We 
 
 mination. shall be disappointed. As we have amply seen, no 
 such criterion is possible in our divided industry. 
 In the seamless garment of price, the material 
 contribution which the several factors have had in 
 the making of the goods is lost. 
 But arbi- All the same, we are not left to the conclusion that 
 
 trary pay- ^ wort h f t h e factor's service is just what its 
 
 merits are J , 
 
 eliminated employer may pay for it. Few factors are dependent 
 on the will or ability or force of the individual 
 employer. In the case of the factors which are 
 supplied by capital, this is quite clear. Fixed capital, 
 indeed, is less mobile than almost any labour, but 
 
 where there 
 is mobility
 
 chap, xni TAKING OUR RECKONING 189 
 
 other forms of capital move easily wherever there 
 are ships or trains to take them, and, beyond this, 
 the increasing flood of new capital can be determined 
 easily into any channels which show an advantage. 
 Thus, in the case of capital, there is a very real appeal 
 from the tyranny of the individual employer. In 
 the case of labour, again, if the workers within a 
 trade are informed, and are willing and free to move, 
 there is an appeal from the single employer to the 
 body of employers in this trade, 1 and, in this case also, 
 the new generation of workers is readily determined 
 into the more profitable occupations. This possibility 
 of movement, out of some places and callings and 
 into others, which we call Mobility, secures — well, 
 let us be quite clear what it does secure. 
 
 Suppose a single spinning master intimates a Mobility 
 reduction of wages for next fortnight from 12s. to ^a"e levels 
 lis. It does not follow that next fortnight will find 
 the wheels idle because the workers have betaken 
 themselves elsewhere. On the one hand, there is 
 nothing to show that other employers can take in 
 more workers ; on the other, there may be unem- 
 ployed workers glad to be taken on at the lower 
 wage. All we can say is that there will be a tendency 
 to move to other factories where the wage is still 12s., 
 if a place can be found in these factories, and that the 
 new recruits, as they pass out of the half-time stage, 
 
 1 We speak here as if the appeal was always against the employer — • 
 as if the "lowest price" paid to workers is likely to be lower than 
 corresponds with the service rendered — and this certainly is the danger. 
 But in the text it was noted that the "tyranny of the individual" may 
 be the other way, and that the employer, also in virtue of this mobility, 
 is equally safeguarded against paying more than the services rendered 
 would warrant. See p. 151.
 
 i 9 o TAKING OUR RECKONING book u 
 
 will be directed towards the higher wage. In time, 
 then, there will be a shortage of hands in the lower 
 paid factory, and this will tend to raise the wage again. 
 But, at the same time and as counterpart, there will be 
 an over-supply of applicants at the gates of the higher 
 paid factories. Thus wage may fall in these latter 
 from I2S. to us. 6d., and rise again in the former from 
 us. to us. 6d. There will always be the tendency 
 towards a level, but the level may fall. If several 
 tanks of viscous fluid are connected by a pipe, there 
 will be a steady pressure of the fluid towards one level ; 
 but if there is a leak in one of the tanks the level will 
 fall. There is nothing, then, in this to secure that 
 the " lowest price " may not be too low. 
 by the But, granting all this, mobility is something. It is 
 
 theTn fr ° m an a PP ea l fr° m one man's payment to the payment of 
 dividual to others. If the loss of workers who " know the place " 
 and its ways is a thing with which the employer has 
 to reckon, he will think twice before he risks it. Not 
 all employers wish to reduce wage, and not all at one 
 time. On the other hand, mobility enables the 
 worker to take advantage of the chance when a better 
 wage is open to him. Possibly we have left this aspect 
 of the matter too much on one side, because of the 
 prevalence, at the present time, of a phenomenon of 
 which we have to speak later — the tendency for 
 machinery to take over much of the work hitherto 
 done by men, and the consequent pitting of the 
 capital factor against the human factor. But at all 
 times the worker has something to sell which the 
 employer, if he is to remain an employer, must buy ; 
 and it is, moreover, as we shall see later, a thing whose 
 value to the employer may increase with a rise in
 
 chap, xiii TAKING OUR RECKONING 191 
 
 wages out of all proportion to the rise — a wise employer 
 may make more by paying a high wage than an 
 average one by paying a low wage. Thus, although 
 Trade Union action rather tends to keep this in the 
 background, there is a real competition to buy labour, 
 which tends to raise its price as surely as the com- 
 petition to sell labour lowers it. In these conditions, 
 mobility secures and rewards the appeal from the 
 employer who wishes to reduce wage to the employer 
 who is willing to maintain or to raise it. 
 
 Thus what mobility does, within each trade, is to 
 secure the factors against arbitrary payment, and to 
 give the conditions for the working of those forces 
 which tend to raise the remuneration of the factors as 
 against those forces which tend to press it down. As 
 regards the remuneration of labour, then, while, as we 
 have seen, there is a tendency within each trade to 
 reduce all employers to a normal standard as regards 
 the payment of wages, this mobility tends towards 
 securing that equal services are equally rewarded. 1 
 
 And then the question came, if this mobility, with And 
 its equalising tendency, does not extend beyond in- betimes 
 dividual trades. Unquestionably it does so as regards extends 
 capital, and an examination of the conditions of t0 trade 
 mobility seemed to show that it does, to some extent, as 
 regards labour. There are certain current movements 
 which make it easier than it was to pass from one trade 
 to another. One is the universal introduction of 
 
 1 It is scarcely necessary to say that by tendency towards equality is 
 not meant any tendency towards equal money wages, but towards equal 
 net advantage wages ; and, moreover, that it is not a tendency towards 
 equal remunerations of efficient and inefficient labour, but towards the 
 establishing of wage levels for similar efficiencies.
 
 192 
 
 TAKING OUR RECKONING 
 
 BOOK II 
 
 But it does 
 not prevent 
 the pressing 
 down of the 
 levels. 
 
 machinery and the tendency to reduce the great body 
 of labour to machine-tending. Another, and a greater 
 perhaps, is the steady rise in the standard of the 
 labourer : increasing comfort gives increasing time 
 for general and technical education and training. 
 This does not indeed affect the adult workers to any 
 great extent, but it does affect the class through whom 
 mobility for the most part works, the children. It is, 
 of course, most notable in the best-educated classes, 
 and thus we see the greatest mobility of all among the 
 employers themselves — the employers here coming 
 into line with the workers generally. But it is a 
 quite well-marked phenomenon of all classes above the 
 very lowest ranks, that the children, as a rule, tend to 
 pass into a somewhat higher grade of labour than their 
 fathers. And every step taken by governments and 
 corporate bodies to give better education to the 
 children of the poor, and to make the ascent from the 
 board school to the university possible to the most 
 promising, tends strongly in this direction. 
 
 This is a resum6 of the argument so far as we have 
 gone. The fact seems to be beyond question that in- 
 comes, in this kind of industry, are very far from being 
 arbitrary ; that they are payments for services whose 
 value is being compared and tested in all sorts of ways ; 
 and that, as result, there is a tendency, strong in the 
 case of capital, much weaker in the case of labour, 
 towards the establishing of levels in the remuneration 
 of all the factors. But, in this establishing of levels, 
 we do not get rid of the pressure downwards which 
 comes originally from the universal desire and attempt 
 to get goods cheap, and is transmitted by employers in 
 the constant effort to substitute the cheaper factor.
 
 CHAPTER XIV 
 
 SUBSISTENCE WAGES 
 
 Is there not a Ioivest level of wages in Subsistence? But tvhat is "subsist- 
 ence"? With the Physiocrats it "was one thing — an observation of facts: ivith 
 Ricardo, another — an inconsistent deduction. We must distinguish between the 
 subsistence of labour and that of the human being. Modern labour, infinitely 
 graded, making demands on intellect, nervous energy, and resource, is not one 
 thing, ivith a physiological minimum of food, clothing, and shelter. It is a 
 force embodied and transmitted, brought to a high efficiency le-vel by education, 
 organisation, and surroundings. Its subsistence, then, involves reproduction of 
 all this ; its " cost of production " means the expense of bringing up a continuous 
 succession of home-groivn, educated, trained -workers. 
 
 The question which seems to emerge is this : Is there 
 any point at which the pressure downwards, exerted 
 on and by employers, must be arrested ? The answer 
 which rises to the lips of any one acquainted with 
 economic theory is that, as regards wages, there is 
 such a level in Subsistence. "Though millions have 
 died of starvation, it has always been an accepted 
 maxim that a man must live." x 
 
 Simple as the conception of the Subsistence Wage when 
 might seem to be, the history of theory shows very w t a |" b were 
 diverging accounts both of what it is and of what sistence 
 induces it. In the first theory of distribution, pomt " 
 that of the Physiocrats, subsistence was not so much 
 
 1 Cannan, Theories of Production and Distribution, 1776-184.8, p. Z3Z.
 
 i 9 4 SUBSISTENCE WAGES book n 
 
 the minimum as the ordinary rate of wages, and 
 not so much an economic deduction as an economic 
 statement of facts. The force which kept the French 
 peasant at subsistence level was taxation — not taxation 
 as we know it, but taxation to support a privileged 
 class, who did not pay taxes, but who had the destinies 
 of France in their hand, and had ambitions and ideals 
 of national life which the peasants' taxation made 
 possible of realisation. Owing very much to a policy, 
 scarcely now conceivable, which surrounded each pro- 
 vince with a protective tariff wall against the neighbour- 
 ing provinces, France was miserably poor, and its 
 population was decreasing ; but the government ex- 
 penditure was enormous. War was the amusement 
 of the court, but it was not defrayed by the court. 
 In eighteen years, the national debt ran up from about 
 £6,000,000 to £130,000,000. How could the peasant 
 expect more than his subsistence when the unhappy 
 king and court could not even get as much, but had 
 to run into debt ? And the system of taxation was 
 calculated to keep men poor. It was levied on the 
 district, and was farmed out to fermiers generaux, 
 the consequence being that those who could pay had 
 to make up for those who could not. What was the 
 use of toiling when anything made by the cultivator 
 over subsistence was taken by the tax-gatherer ? 
 
 It needs scarcely be said that the position of the 
 English working man to-day is as different from this 
 as possible. He pays no direct imperial taxes. If he 
 abstains from liquor, tobacco, tea, and sugar, he escapes 
 even the indirect ones. If he does pay taxation in this 
 latter form, it is not to support a privileged or idle class 
 with ambitions and national ideas different from his
 
 chap, xiv SUBSISTENCE WAGES 195 
 
 own ; his taxation is simply payment for what he and 
 the citizens as a body consider value received in service 
 rendered to them. It is a contribution, taken from the 
 people only to be returned to the people, in doing them 
 services that are best done for them through this par- 
 ticular organisation called the State. 
 
 If, then, economic theory had continued to be based Ricardo. 
 on observed facts, the subsistence theory would have 
 been relegated to the limbo of rash generalisations. 
 But the strong deductive bent of Ricardo gave it a 
 scientific basis which was not so easy to shake. There 
 were two things from which Ricardo could not escape. 
 One was the Malthusian demonstration of the power 
 of the sexual impulse in face of the limited powers of 
 land : when market wages rose, marriages increased and 
 births increased, and, before the new flood of popula- 
 tion, wages fell to their "natural" level of the "food, 
 necessaries, and conveniences required for the support 
 of the labourer and his family." The other was the 
 fact that wages, "in an improving society," might for 
 an indefinite period be constantly above subsistence. 
 
 The attempt to steer between these led Ricardo to 
 strangely inconsistent statements. " Subsistence," he 
 said, " varies at different times in the same country, 
 and very materially differs in different countries." An 
 English labourer would " consider " potatoes for food 
 and a mud cabin for housing below subsistence level. 
 Subsistence, thus, is a thing of " habits and customs." 
 But in the same chapter he had just said that, when the 
 labourers' price falls below their " natural price," priva- 
 tion "reduces their number," thus identifying subsist- 
 ence with the physiological minimum. It is impossible 
 to reconcile such statements; and succeeding economists,
 
 196 SUBSISTENCE WAGES book n 
 
 who accepted Ricardo as in the line of the economic 
 
 succession, took whichever of them suited their purpose. 
 
 The iron Ricardian theory, accordingly, is claimed as the original 
 
 Law and authority for the Iron Law of the Socialists, and for the 
 
 Standard of modern doctrine that wages depend on the Standard of 
 
 Comfort. /~i r c a 
 
 Comfort or the time. 
 
 In speaking of Subsistence Wages, we must carefully 
 
 distinguish between two things which are sufficiently 
 
 vague without being confused ; the subsistence of the 
 
 labourer as a human being, and the subsistence of the 
 
 human being as a labourer ; or, more shortly, between 
 
 the subsistence level of the labourer, and the subsistence 
 
 level of labour. 
 
 Subsistence The difference had not emerged prominently when 
 
 ?\ l e economic theory was beina; formulated. The sub- 
 
 labourer. J p 
 
 sistence of a Scots ploughman in the old days might 
 almost be put in terms of oatmeal. 1 Where dinner 
 was reduced to a mere incident of life — as it is among 
 some vegetarians one meets, instead of being the stately 
 function never to be omitted by the Englishman — 
 subsistence was fairly calculable. The greatest French- 
 man among the early economists passed his apprentice- 
 ship to statecraft in the Limousin among peasants 
 whose food for one half the year was chestnuts. And 
 one remembers Adam Smith's terrible testimony to the 
 poverty of the Highlands in his days : " It is not un- 
 common, I have been frequently told, for a mother 
 who has borne twenty children not to have two alive." 
 
 1 " What do you get for breakfast ? " " Get ! what should I get but 
 parritch?" "Ay, and what for dinner?" " Parritch, sin* ye maun 
 hae't." "Some change for supper, surely?" "Just parritch tae, and 
 glad to see them a' times o' the day." " Is it possible that you feed on 
 nothing but porridge, morning, noon, and night ?" " Hey, Jock, here's 
 a man thinks every day a New'rday !" — Laird of Logan.
 
 chap, xiv SUBSISTENCE WAGES 197 
 
 Probably the conception of subsistence as a minimum 
 would never have arisen except in a society where it 
 was the ordinary wage. 
 
 But these were the days before steam ; when men 
 had to do work that now is done — and better done — 
 by tools and machinery. Consequently these were 
 days when, in the commoner tasks of life, compara- 
 tively little strain was put on the nervous system 
 and the intellect. It is evident that a different 
 subsistence is required to-day for work that is mostly 
 indoor, and is always done in collaboration with 
 machinery of a more or less complex kind, where 
 brute strength is little required. But whenever we look 
 above the lower levels of labour — without looking 
 at all at pure brain work — the surroundings of the 
 worker come into consideration, and we find that a 
 great deal of the most ordinary work requires a certain 
 resource and reserve force that can be got only where 
 there is a considerable degree of home comfort, leisure, 
 education, and recreation. It is not possible to speak 
 of " labour " as if it were one definite thing, and of its 
 "subsistence" as a simple minimum expenditure of 
 food, clothing, and shelter. Subsistence, in short, in 
 its simplest shape as a physiological minimum, is an 
 exceedingly vague conception. 
 
 It is, however, a mistake to confuse labour with man. Subsistence 
 Labour is a force embodied in the single man, educated of labour - 
 in his life, transmitted to his children, and therefore a 
 force which depends very greatly on its surroundings ; 
 but it is also a force capable of indefinite extension 
 when put in its proper setting and collaboration. In 
 Professor Marshall's Principles, the "supply of labour" 
 is considered as depending, not only on the numbers of
 
 i 9 8 SUBSISTENCE WAGES book n 
 
 labourers, but on the intensity, the education, and the 
 organisation of their labour. Labour, in short, is an 
 abstraction. It is the service of the labourer, and the 
 increasing labourers may, individually, do more ; they 
 may, individually, do better ; and they may, collec- 
 tively, do still more and still better. Hence the sub- 
 sistence level of modern labour is not the subsistence 
 that will keep men alive and allow them to perpetuate 
 their kind, but the subsistence that will maintain the 
 stream of labour at the efficiency level to which it has 
 been brought by more generous provision, education, 
 and free institutions. The lowest level of modern 
 labour is not that at which the labourer dies for want 
 of necessaries, but that at which his labour becomes 
 inefficient and unprofitable ; where the labourer is cut 
 off by the employer as "not worth his meat." Or, if 
 we put it in terms of the labourer, we must look on 
 the labourer as he is — a machine brought to great per- 
 fection, not of strength, indeed, but of delicacy and 
 complexity, in the making of which much capital has 
 been sunk and risked. The question is not between 
 starving and not starving the labourer, but between 
 letting the fine human machine go to rust and keeping 
 it in first-rate working order. 
 Subsistence In this, then, there is an essential difference be- 
 an/capital lWeen capital and labour. No calculation, or dieting, 
 compared, or medical skill will turn out children as machinery 
 rums out needles and pins. Every worker is born 
 unequal, inasmuch as he is the converging point of 
 ancestries as old as life ; and, once he is born upon the 
 earth, he is differently susceptible to the influences of 
 his surroundings, even if these surroundings were equal. 
 As a worker he is, accordingly, infinitely graded by his
 
 chap, xiv SUBSISTENCE WAGES 199 
 
 very nature ; and, what is more, the more complex our 
 civilisation, the more this difference of grade will 
 come out and defy calculation. Thus the idle, 
 dreamy, sickly boy who was practically of no use to 
 former generations — was, in fact, a burden on them 
 — may be the most highly graded as a worker now 
 if he have the divine gift of song. The division of 
 labour, it must be remembered, is a co-operation also 
 of consumption ; thanks to it, if people are limited 
 to making one thing or a few things, they are per- 
 mitted by it to get anything they demand. Hence 
 the division of labour becomes based on two things 
 — capacity to work, and capacity to meet a want ; 
 and, as wants increase and diversify, the capacity to 
 produce "wealth" becomes infinitely increased. 
 
 But an industrial production process has just this 
 difference from the human production process, that 
 it does not transmit an ancestry. It only gives a 
 shape. And, when the thing is produced, it gets n^ 
 further ; it begins to decay. Hence its efficiency is 
 predetermined for it, and is predetermined simply by its 
 cost. Its efficiency is predetermined for it : it has no 
 development before it ; it never becomes more valuable 
 as a labourer does, but steadily less. Its efficiency is 
 predetermined by its cost : it has no unequal ancestors, 
 and so never surprises us by doing work not expected 
 of it. And so, what one child of capital can do, 
 another can do. Nature here obeys her masters, and 
 turns out her products, as we say, "machine made." 
 
 This " subsistence of labour," then, involves much what the 
 more than appears on the surface. It is not only ^fiabou" 06 
 the cost of maintaining the worker in such con- really 
 
 ... r 1 ^l ] involves. 
 
 ditions as prevent deterioration of the strength and
 
 200 SUBSISTENCE WAGES book n 
 
 skill embodied in him ; it is the cost of conditions 
 which allow the worker to develop what is in him 
 and to take advantage of his surroundings ; and it is, 
 as well, the cost of reproducing such labour. We 
 need not be deterred, as some economists have been, 
 by the assumed brutality of speaking of a " cost of 
 production " of human beings as one might speak of 
 the cost of producing draught-horses. 1 For the chief 
 feature in this cost is not the expense of marrying 
 and keeping a wife and family in bread and butter, 
 but the cost of keeping the wife at home attending 
 to her house and family, the cost of keeping the 
 children at school till well into their 'teens and of 
 giving them technical training or unpaid apprentice- 
 ship afterwards, and, besides, the cost of keeping the 
 whole household in sanitary, moral, invigorating, and 
 developing circumstances. 
 
 If the wage is less than will allow this for a family 
 of the average size, we have either the phenomenon 
 with which France has made us familiar, of a severely 
 restricted supply of labourers, or a reduction in the 
 quality of the labour, due to the children being in- 
 sufficiently fed and educated, and being turned out 
 prematurely into the streets or factories to add to 
 the household wage. The wage sufficient to bring 
 up children who get to work in the fields at the age 
 of ten is a different amount from the wage that will 
 
 1 There is no use shutting our eyes to the fact that both marriage- 
 rate and birth-rate are affected by economic considerations, and perhaps 
 it would be well if they were more so affected. To refuse consideration 
 to a theory which assumes that there is a cost of production of human 
 beings, is very much to accuse man of having no more foresight and 
 reason in the most responsible actions of his life than the birds who pair 
 as the spring comes round.
 
 chap, xiv SUBSISTENCE WAGES 201 
 
 keep the child at school till he is thirteen. The 
 wage that will support a family in the country is 
 different from that which will support it in health 
 and strength in the city. Both, again, are too low 
 to keep the child at home till his apprenticeship is 
 past : unless the wage is sufficient for this, there is 
 likely not to be enough skilled labour in the next 
 generation. It is, indeed, only now that we are be- 
 ginning to understand that varied diet, sanitary 
 conditions, leisure, and amusement have a money 
 equivalent in the work produced. There is reason 
 to think that we have a long way to go before the 
 ordinary wage is enough to produce that best labour- 
 saving machine, the willing and conscientious worker ; 
 he will be the product of much more education and 
 of much better conditions of life than we are yet 
 apparently able to afford. Any mistress of a house- 
 hold can calculate how much higher a wage it would 
 " pay " her to give if the domestics would only regard 
 her property as carefully as they do their own. 1 
 
 To sum up. The idea of a level of wages deter- A careless 
 mined by subsistence is the result of a careless f^™ lsa 
 generalisation about labour, as if humanity were run 
 
 1 What is to be said for the now favourite doctrine of the Living 
 Wage rests on this basis. So long as we regard the Living Wage as a 
 forced concession, wrung from unwilling employers and based only on the 
 fact of our increasing national wealth, there is little to be said in defence 
 of it, and not much to be hoped of its permanence. But the moment we 
 acknowledge that a perfectly healthy, decently educated, and reliable work- 
 man cannot be produced unless a certain sum is paid to the head of the 
 household, the Living Wage takes on a new aspect ; it is seen to be what 
 employers would gladly pay if they were as much interested in the future 
 of labour and its productive force as, say, slave-owners would be. But, 
 of course, the practical danger of a stated minimum is that it may prove 
 a maximum. Cf. "A Living Wage," in Studies in Economics.
 
 212 SUBSISTENCE WAGES book ii 
 
 into one mould of living machines requiring for 
 their maintenance so much food, so much clothing, 
 and so much shelter. This could be true only if 
 the work thrown on man were of one kind, and 
 that a kind which could be supported on a little 
 oatmeal. But the more powerful in production the 
 iron machine is, the more necessary is it that labour 
 should be unlike it ; and the first form of the un- 
 likeness is in the variety of tasks which labour can 
 do, and the varying degrees of intensity with which 
 it may do them. Now each task makes its own 
 demand on manual strength, nervous energy, intellect, 
 and that result of heredity, education, and good 
 surroundings which we call "resource," and so each 
 task has its own subsistence wage. And there is no 
 labourer but may develop unsuspected powers and 
 intensity of labour if his subsistence be increased, or 
 varied, or seasoned by hope. The second form of 
 the unlikeness is that the maintenance of labour is 
 not only the maintenance of the labourer as he is, 
 but the bringing forward of a continuous flow of 
 hereditary skill and aptitude ; and this depends on 
 conditions of family, social, and political life which 
 are not attainable by any physiological minimum.
 
 CHAPTER XV 
 
 THE SUBSISTENCE OF CAPITAL 
 
 Physiocratic theory assumed also that there was a return below -which 
 capital -would begin to disappear — a subsistence interest : and the conception 
 seems legitimate enough. But -what capital is it that disappears? Is it the 
 annual addition that slows down, or the stock of wealth that begins to go out 
 of existence ? Whichever it be, it would be difficult to name the -vanishing 
 point. Whether the average rate fall or not, it is not probable that the annual 
 accumulation will decrease, inasmuch as the people who will sa-ve — the rich — 
 will then, presumably, be richer. But the lower level is still more -vague. 
 E-ven negati-ve interest would not check saving, for wealth once made must be 
 kept in existence by use. Thus a fall in wages is much more serious than a fall 
 in interest. But the full difficulty of putting capital and labour in parallels 
 emerges when we realise that, in speaking of the rate of interest, we make the 
 return relative, not to concrete capital, but to the value of capital, whereas 
 wages are relative to the labourer. 
 
 In the Physiocratic theory of distribution, it was assumed The 
 that, if the price realised for commodities did not cover V J^^ 
 a sufficient remuneration to capital, capital would dis- point. 
 appear, and that in one of two ways : — (i) Instead of 
 being used for production it would be directly consumed 
 — like seed-corn which may be eaten. (2) It would 
 take flight to other countries where the rate of interest 
 was higher. It was, in short, assumed that capital, like 
 labour, had its subsistence level. 
 
 The application of the word subsistence to " dead 
 capital " may seem inappropriate. But it becomes
 
 204 
 
 THE SUBSISTENCE OF CAPITAL 
 
 BOOK II 
 
 A legiti- 
 mate con- 
 ception. 
 
 The emi- 
 gration 
 of capital 
 is true 
 enough. 
 
 increasingly evident that capital and labour, both in 
 production and distribution, must be put in parallel 
 columns. If it becomes clearer that labour has no vested 
 interest in the production of the National Income, it is 
 also clear that the owner of capital has not the same 
 claim on our sympathies as regards its distribution, and 
 there is the more necessity to be clear as to the extent 
 of the parallelism. In modern industry, there emerges 
 the phenomenon, not so obvious in simpler times, that 
 capital is not a mere auxiliary to labour, but a serious 
 rival in doing the same work. We are apparently far 
 from the time — if it ever comes — when the spheres of 
 each will be defined and separate ; meanwhile, in some 
 fields of industry, they are fighting for almost exclusive 
 possession, and, in others, they are fighting for the 
 position of predominant partner. The employer makes 
 use of either indifferently as suits him, replacing the one 
 by the other, and buying both as cheaply as he can. 
 The fact that the employer very often is an owner of 
 capital — a capitalist — should not blind us to the fact that, 
 in economic conception, he is the employer of capital. 
 His personal object is not the lending of capital to 
 obtain interest, but the using of capital to make profit. 
 In this point of view, then, the question as to the sub- 
 sistence level of interest is quite as reasonable as the 
 question of subsistence wage. 
 
 The second part of the Physiocratic assumption 
 remains true enough. If the mobility of capital was 
 notorious even in those early times, it is no less so now. 
 Between 1875 and 1885 our foreign investments in- 
 creased at the rate of not less than £30,000,000 a year, 1 
 and no proof has ever been advanced for the assertion 
 
 1 Giffen, The Growth of Capital, p. 41.
 
 chap, xv THE SUBSISTENCE OF CAPITAL 205 
 
 of some protectionists that we are selling our foreign 
 securities. But people, as a rule, would rather keep 
 their money under their own eye if that is possible, and 
 it is safe to assume that this money has gone abroad 
 because it was offered a higher rate of interest there 
 than the state of things in this country allowed. 
 
 About the first part of the assumption there is more The 
 doubt. GifFen's calculation, as we saw, put the annual vanishm s 
 
 ' ' r point or 
 
 saving of this country at some £200,000,000 ; that is, what? 
 an annual addition of that sum to our total wealth. This 
 question then arises : Do we mean that, when the 
 interest rate falls to a certain point, the present annual 
 addition will fall off, or that the body of capital itself 
 will begin to disappear ? For there is no less than 
 £200,000,000 of difference between them. But, 
 whichever of these views we adopt, the assumed point 
 of disappearance is of the vaguest description. 
 
 Whether interest will fall much below its present —the pre- 
 rate may be questioned, 1 but we have little reason aj"^"™^ 1 
 to believe that any probable reduction will affect capital? 
 our annual savings. Saving is not made when people 
 are poor, but when they are rich. Early accumula- 
 tions may have deserved the name of "sacrifice," 
 but it is not so easy to justify the term in those 
 days of general comfort and occasional extravagance. 
 We cannot expect a working man at 20s. a week 
 to save ; perhaps it is better for society if he does 
 not, but spends it all in the better upbringing of his 
 family at the time when a shilling or two a week will 
 
 1 When Goschen made the z\ per cents, irredeemable for twenty 
 years after 1903, he probably thought it might. Dr. Cassel says it is 
 impossible that it can, in any circumstances, fall below 1^ per cent. 
 {The Nature and Necessity of Interest).
 
 206 THE SUBSISTENCE OF CAPITAL book ii 
 
 make the difference between stunting and developing 
 the young generation. At any rate, it is not this class 
 that makes use of the savings banks ; and, again, it is 
 not the savings-bank class that make the great accumu- 
 lations, but the people whose saving is not sacrifice but 
 investment. As the nation, then, may be presumed to 
 continue growing richer year by year, it is entirely 
 guesswork to indicate a point where the rate of 
 accumulation will slow down. 1 
 tlie But the lower level, that at which not the annual 
 capital? addition but the body of capital begins to disappear, is 
 infinitely more shadowy. Capital once made must be 
 kept in existence ; only those who forget that capital is 
 not money, but the whole sum of more or less perish- 
 able wealth in the country, can think otherwise. If a 
 man makes a fortune, his anxiety is to keep it, and the 
 only way to keep it, when he is past using it or is dis- 
 inclined to use it himself, is to get others to use it for 
 him. The demand for capital is still so great that 
 other people will keep it and pay him for keeping it ; 
 but, if this were not so, the capitalist would rather pay 
 to get it used and kept than be compelled to keep it 
 
 1 That many people trench on their capital is notorious enough, but 
 that they do so because they would rather consume it than accept the 
 interest offered, is very doubtful indeed. It is not a case of liking ; if 
 people of moderate means get a very small interest they cannot live on it, 
 and therefore may draw on their principal. If this were a widely spread 
 or important phenomenon, it would amount to this : that there is a level 
 of interest where the steady accumulation of capital, characteristic of a 
 growing country, is checked. But the people who trench on their capital 
 because they cannot live on their interest are not the people who would 
 ordinarily keep up the accumulation. On the other hand, when interest 
 sinks, sensible people do not trench on their capital, but work harder or 
 work for a longer period of their lives than they would otherwise have 
 done.
 
 chap, xv THE SUBSISTENCE OF CAPITAL 207 
 
 himself. When Pope's father retired from business, 
 he took a chest of guineas to his villa at Twickenham, 
 and took out his household expenses as he needed them. 
 A man would never do this nowadays. He would at 
 worst put his chest in the National Safe Deposit, and pay 
 " negative interest " for the safeguarding of it. And 
 no one would be deterred from trying to make a 
 fortune for his old age and his family because he could 
 get nothing by the lending of it. 
 
 There is, indeed, one false parallel which we are apt A false 
 to draw between capital and labour. We speak as if pai 
 the capitalist had no means of living but from his 
 capital, just as the labourer presumably has no means 
 of living but by his labour ; we think of the instrument 
 of production which every man has in his own body as 
 in the same position with the instrument of production 
 which some men have in their pocket. In reality, 
 the man who has capital presumably has two means 
 of making a living. If he has plenty of capital, he need 
 not work ; if he has not plenty, he can work to 
 supplement his interest. Thus it is not of the same 
 importance to the capitalist that his interest goes down 
 as it is to the labourer that his wage goes down. 
 The one is an auxiliary ; the other may be a matter 
 of life or death. 
 
 We may be prepared, then, to find that any 
 pressure which brings down the level of wages and the 
 level of interest to subsistence point (however sub- 
 sistence may be conceived), has, in the long-run, 
 different effects in the two cases, and that it may be so 
 much more serious in the case of labour that we may 
 have to separate the interest of the employer from 
 the interest of the nation. If the supply of capital be
 
 208 THE SUBSISTENCE OF CAPITAL book ii 
 
 for the moment checked by the fall of interest to Its 
 lowest level, the inevitable rise to subsistence point 
 again will immediately bring out the best-appointed 
 factories and plant of any sort wanted. But if the 
 supply of labour be checked by the fall of wages to 
 starvation point, the rise of wages to efficiency point 
 again will not restore vigour to the limbs and training 
 to the young, nor will it for many a year replace the 
 developing influence of heredity and surroundings. And 
 all this is independent of the fact that man is the end 
 of all labour, and ought never to be reckoned as only a 
 tool of production. 
 Wage is But, indeed, there is an ambiguity in the whole 
 
 relative to quest j on w hich ouo;ht to be dragged to light : it has 
 
 the concrete ~ ° DD t • 
 
 labourer, already been referred to on page 181. It is com- 
 paratively easy to speak of the subsistence of labour, 
 for labour has always one concrete representative — the 
 human being who exerts the labour. If the subsistence 
 of " labour," as we saw, is vague, the amount which 
 will " feed, clothe, and house the labourer " has at least 
 some definiteness. But capital has no one representa- 
 tive. When the man in the street speaks of capital he 
 means money, and one writer identifies it with credit. 
 But if we look through the writings of various 
 economists, we may suspect that, with one, machinery 
 is the typical form, with another, it is railways, while 
 a third may have " trade capital " in his mind. But 
 these types are only aids — perhaps misleading aids 
 — to thought ; for, if capital is " wealth from which 
 one derives an income," it is difficult to select any one 
 form as typical of this vast range of things, 
 but interest But the deeper difficulty emerges when we realise 
 to the value h ■ spring- f t h e "rate of interest," we are 
 
 oi capital. > r e>
 
 chap, xv THE SUBSISTENCE OF CAPITAL 209 
 
 putting capital into terms of value : we are speaking, 
 not of concrete capital, but of, say, £100 worth of 
 capital ; while wages, on the other hand, are always 
 relative, not to a certain value of labour but to the 
 concrete labourer. To put it in a nutshell : capital in 
 its value form may be reduced by one-half, while the 
 machinery, railways, or other instruments of pro- 
 duction it represents remain exactly as they were, the 
 same in outward form, the same in their power of 
 producing other commodities. 1 If we grant this, we 
 shall see that a reduction or increase of capital in the 
 one sense has no necessary connection with a reduction 
 or increase of capital in the other. Thus the question 
 at what point the body of capital begins to disappear 
 has no relation to the question at what point the 
 rate of interest will cease to encourage saving. 
 
 Enough has been said, perhaps, to show that 
 subsistence interest is at least as vague and elusive as 
 subsistence wage. Perhaps we may find in succeeding 
 chapters that it is not of importance, for our present 
 purpose, that we should do more than indicate the 
 difficulties which attach to both conceptions. 
 
 *Cf. p. 180.
 
 CHAPTER XVI 
 
 THE WEAKNESS OF A SUBSISTENCE THEORY OF 
 DISTRIBUTION 
 
 The analysis in the last two chapters is of importance only as showing how 
 little can be expected of any theory based on so -vague a conception as that of 
 subsistence. The attractiveness of the Iron Law was its apparent defniteness. 
 But if "subsistence" be taken to mean subsistence of Efficiency — as seems the 
 only reasonable reading — the defniteness disappears. We get a well-rounded 
 theory, incapable of disproof, but equally incapable of proof. The man in the 
 street, who knows nothing of Ricardo or the Iron Law, has some reason when 
 he asks what is the importance of a theory which explains the inevitableness of 
 falling or constant wages when our experience is altogether of constant or 
 rising ones. But, even if efficiency level were perfectly definite, will efficiency 
 alone sustain wages against the pressure downwards ? 
 
 The subject of the last two chapters was forced 
 upon us by the line of investigation followed. If 
 we accept the statement that the employer is at once 
 the organiser and the paymaster of the factors which 
 contribute to make the National Income, it is to his 
 activity we must refer for the explanation of the 
 organisation and of the payment. Here the feature 
 always before us has been the constant pressure on 
 wages and interest ; and the economist, if for nothing 
 else, is bound to give consideration to the thesis 
 which has such respectable sponsors as Turgot and 
 Ricardo, and such vehement propagandists as the
 
 chap, xvi WEAKNESS OF SUBSISTENCE THEORY 211 
 
 Socialists of last generation, — that the pressure does 
 not cease till subsistence level is reached. 
 
 But the attempt to attach a definite meaning to a The vague- 
 word so readily used seems to end in failure. The « e s s u \sist- 
 subsistence of labour would be definite enough if we ence" as 
 could figure labour as a plough horse, which will go ^ ur 
 on working for so many years provided it gets 
 sufficient oats and hay and a dry stable. But the 
 labour which works along with capital in modern 
 industry is as far as possible from this. Any satis- 
 factory conception of the subsistence of labour must 
 mean the maintenance of a continuous stream of 
 labourers, in whom is embodied a hereditary and 
 increasing efficiency for an infinitely various kind of 
 work. But if we mean this, we cut away the feet 
 from the contention : we can scarcely say that wages 
 tend to fall to this level, but will not fall below it, 
 when everything points to the conclusion that it is 
 only of late years, and that in the most favoured 
 portions of the world, that they have yet risen to it. 
 Most of us would agree with Professor Marshall 
 that "over a great part of the world wages are 
 governed nearly after the so-called iron or brazen 
 law, which ties them close to the cost of rearing and 
 sustaining a rather inefficient class of labourers." x 
 
 Nor do we meet with any more success in trying and to 
 to define the subsistence level of capital. What we capita ' 
 know empirically about capital is that a certain 
 minimum rate is obtained for its use where the 
 security is perfect, and, to this extent, it might 
 possibly be conceived of as one thing — a conception 
 almost impossible in the case of an instrument of 
 
 1 Principles of Economics, 5th ed. p. 531.
 
 212 
 
 THE WEAKNESS OF A SUBSISTENCE book ii 
 
 takes away 
 the attract- 
 ive definite- 
 ness of a 
 subsistence 
 theory. 
 
 production so endlessly various and cumulative in 
 efficiency as man. But we have had no experience 
 of a rate below 2^ per cent., and this rate showed 
 no sign of checking even the enormous annual ad- 
 ditions to capital. To go beyond that ; to translate 
 capital out of its value form, with a unit, say, of 
 £100 worth of capital, and discuss the possible de- 
 crease, in quantity or quality, of the concrete forms, 
 is no more than an academic exercise. 
 
 Once we are persuaded of the extreme looseness 
 of this idea of subsistence, it seems to me that its 
 attractiveness, from the point of view of economic 
 theory, disappears. It was the craving for definite- 
 ness — for some one fixed share in distribution — that 
 induced Socialists of last generation to turn Ricardo's 
 conception of Natural Wage into an Iron Law of 
 wages. Similarly, many of us have been haunted by 
 the possibility of a rounded theory of distribution 
 which would connect prices of goods directly with 
 the cost of production x of their factors. This would 
 
 1 Every economist is familiar with Cairnes' rehabilitation of the word 
 Cost with its literal meaning of Sacrifice. Mill, he said, in speaking of 
 cost of production as determining value, meant no more than the money 
 expenses incurred by employers, while, in reality, there could be no greater 
 contrast than that between cost, the sacrifice incurred by man in pro- 
 ductive industry, and wages, the return made by nature to man upon that 
 sacrifice. It was, however, reserved for the Austrian economists to 
 bring out the full meaning of the word, as indicating the sacrifice of 
 wealth as well as the sacrifice of human energy. The "cost" of any 
 factor, in this sense, means what the bringing to birth of that factor 
 costs the community, either in realised wealth, or in realised human life, 
 or in both. Production always costs something, although this is hidden 
 from us by the rapid recuperation of nature, just as the mother forgets 
 her pain "for joy that a man child is born into the world." Even in 
 the case of that most durable of all instruments, the earth, every crop
 
 chap, xvi THEORY OF DISTRIBUTION 213 
 
 be the case if it could be shown that the remun- 
 eration of all factors tended to be crushed down to 
 the amount necessary to "subsist" those factors. So 
 long as "subsistence" was thought of as the physio- 
 logical minimum necessary to sustain life, this was 
 evidently hopeless. It came into rude collision with 
 everyday facts, and it confused "labour" with an 
 imaginary normal labourer. 
 
 But some economists of late seem to have thought And applied 
 that they had met this difficulty by changing subsist- [tj^ii" 7 
 ence into "the amount necessary to sustain the effi- more vague, 
 ciency of labour." Certainly by this they manage 
 to evade direct disproof. It is possible to show that 
 the labourer at 20s. a week has something over after 
 keeping himself in life ; and, if 20s. is the average 
 wage of the manual labourer, it is ipso facto disproved 
 that his wages are at subsistence level in the old sense 
 of the term. If, again, anyone likes to affirm that 35s. 
 a week is the lowest wage which will sustain a con- 
 tinuous stream of thoroughly efficient skilled labour, 
 and if 35s. is the average wage of skilled labour in 
 this country, it is impossible to disprove the statement 
 that wages are at "subsistence level." And the further 
 advantage is gained that, if wages rise to 70s. a week, 
 it will still be possible to argue that they are not 
 above what is necessary for the peculiarly efficient 
 
 carries away and deprives it of so much of its wealth-giving constituents. 
 Every day's work "takes it out of" a man, although he does not notice 
 this, nature giving it back again to him in food, etc. So the final cost 
 of production of any factor is what it takes out of the world to bring 
 this factor into it — the wealth, material and personal, it consumes while 
 it is being brought to efficiency ; and evidently this real cost of production 
 is as applicable to men as to things, seeing that the making of the one 
 consumes as truly as the making of the other does.
 
 2i 4 THE WEAKNESS OF A SUBSISTENCE book ii 
 
 labour that will then, presumably, be forthcoming. 
 Thus, if we are content to overlook the looseness and 
 indefiniteness of the word " efficiency," we may say 
 that wages are now at their lowest level, because, if 
 they went lower, the efficiency of labour would suffer. 
 And, similarly, we may say that interest is at its 
 lowest level, because, if it went lower, capital would 
 not be forthcoming in sufficient quantity to give the 
 most efficient co-operation to labour. By this means 
 we may maintain that prices tend to be "cost prices," 
 because wages and interest tend always to the cost 
 of production of labour and capital. But, in this case, 
 what becomes of the definiteness which was the 
 attraction of the Iron Law ? Once this is under- 
 stood, who would pin his faith to a theory which 
 said that interest was at its lowest because it had 
 never been lower, and that wages were at their lowest 
 although they had never been higher ? 
 But why But, having paid our economic debt of deference to 
 
 aboutanin- R' car ^° an d to Socialist theory, it is perhaps time that 
 evitable fall we paid a little more deference to common sense. The 
 havTnot 868 man m t ^ le street Dre aks in upon all our theorising with 
 fallen? this question : "Is it true that wages now show any 
 
 tendency, or promise to develop any tendency, towards 
 subsistence level ? It is, of course, preposterous to say 
 that they are anywhere near physical subsistence level. 
 But did not the Royal Commission on Agricultural 
 Depression declare that, while the value of agricultural 
 land had fallen by ^1,000,000,000, or 50 per cent., and 
 farming profits, never very high, had also fallen, wages, 
 in that most backward of all industries, had not fallen, 
 but in some places had definitely risen ? And is it not 
 notorious that, outside of agriculture, wages, for the last
 
 chap, xvi THEORY OF DISTRIBUTION 215 
 
 generation of the past century at least, were steadily 
 rising, and, since then, have at least not fallen ? " 
 
 " Is there not a suspicion," he might continue, " that, 
 having proved to your own satisfaction that wages 
 cannot rise, you have now to explain the fact that they 
 are rising ? Is it not the case that, to preserve even an 
 appearance of probability, you have had to change the 
 simple and definite conception of subsistence into a 
 conception so indefinite that it may cover anything — 
 what you call ' Subsistence of Efficiency ' ? You have 
 to defend a thesis which declares that wages tend to 
 fall, and you do so by asserting that they are falling to 
 a rising level, namely, to something which no one can 
 define, or measure, called Efficiency Wages. But suppose 
 you were able to express any man's efficiency level in 
 so many shillings a week, would this efficiency prove a 
 'dyke' on which the pressure of employers beats in 
 vain?"
 
 CHAPTER XVII 
 
 THE FAILURE OF EFFICIENCY TO SUSTAIN WAGES 
 
 Will Efficiency by itself sustain the remuneration of any factor? If new 
 machinery, requiring only unskilled labour at an efficiency -wage ofz^s., takes the 
 place of machinery -which required skilled labour at 3 5*., will the ski/led efficiency 
 prevent wages coming down ? Even if Trade Union action secured it for a 
 time, it could be only for a time — and Trade Union action is not efficiency by 
 itself Granted, however, that this is true in individual trades, is efficiency 
 once gained not a valuable possession, commanding a wage in related trades ? 
 Perhaps : but what if, in the mechanical trades, high efficiency is not needed 
 in the future ? 
 
 The suggestion made in last chapter was that the 
 Efficiency of any factor will not by itself sustain its 
 remuneration. If this can be proved, we shall have a 
 final argument for denying to the conception of sub- 
 sistence any useful place in the theory of distribution. 
 
 Of rival Machinery, the representative form of concrete 
 actors, ca pjt a l, j s t h e a lly f labour in so far as the interests 
 of both lie in the production of a great National Income 
 of goods. It is the rival of labour in so far as this 
 National Income is produced indifferently by either. 
 The employer uses the one or the other as suits him, 
 but only so long as suits him. It is his interest to get 
 as much as he can out of them, and pay them as little 
 as possible for it. It is he who puts them together : it
 
 chap, xvii THE FAILURE OF EFFICIENCY 217 
 
 is he who pits them against each other, using their 
 rivalry for his own ends. 
 
 Let us assume, then, that the various levels of 
 efficiency subsistence are as definite as they actually are 
 vague ; and let us suppose that one grade of skilled 
 labour, working along with certain machinery, requires 
 for its full efficiency a wage of 35s. per week. Suppose 
 that this wage has been forthcoming as the wage which 
 the consumers must pay in the price of the goods if 
 they are to get the goods at all : that, in other words, 
 35s. is a "cost price," in the literal sense of the term, 
 of this skilled labour. 
 
 But suppose it is found that this particular labour is suppose 
 not indispensable; that machinery is invented which is io * a % 
 more automatic and requires only unskilled labour to dispensable. 
 tend it ; and that unskilled labour requires, for its full 
 efficiency, only 25s. per week. Let us follow out what 
 might happen in such a case : it will be recognised as 
 having a resemblance to one with which we were 
 familiar in the year 1897. 
 
 " We have no objection whatever to the new Can skilled 
 machines," says the voice of labour, " and we have no ^jf^ 
 objection that they should be worked by unskilled unskilled 
 labour, but we demand that the minder be paid 35s." 
 
 The position, then, is that any number of unskilled 
 men are willing to take the work at, say, 25s. ; and that 
 this would be an actual advance of wages to them ; but 
 that the employers are to be compelled to pay 35s. It 
 would be difficult for any one but a Trade Union leader 
 to extract the rationale from this. The employer here 
 is not beating down wages : indeed, he is purposing to 
 raise the wages of one class. He is only asking liberty 
 to employ the kind of labour which he needs — the
 
 218 THE FAILURE OF EFFICIENCY book 11 
 
 efficiency he requires ; that is, he is exercising his 
 recognised function of employing what are, indisputably, 
 the most efficient factors for the purpose. 
 
 If this policy were successful, the result practically 
 would be that, compelled to choose between skilled and 
 unskilled labour at the same wage, the employer would 
 choose the skilled labourer ; and the new principle 
 would be introduced, that, whatever the change in the 
 character of the work, only skilled labour, at skilled 
 labourers' wage, shall be employed wherever skilled 
 labour has once been employed. It is not quite correct 
 to represent this as hostility to the introduction of 
 machinery generally : it is hostility only to the intro- 
 duction of one kind of machinery — namely, that which 
 takes the direction of simplification of machines. The 
 only improvements permissible, on this view, would be 
 those which require skilled labour to attend to them — 
 a contention which would, for instance, approve of the 
 typewriter and condemn the calculating machine, and, 
 logically followed, would forbid all improvements 
 which do away altogether with labour. 
 Con- The consequences would be, of course, these : (i) 
 
 sequences. ^ e invention of machinery is limited and discouraged; 
 (2) this reduction of cost being barred, prices of 
 machine products are kept up in price ; (3) products 
 being kept up in price, there is no increase in the 
 demand for them, except from the increase of popula- 
 tion ; (4) there is not the natural increase in the making 
 of machinery with its attendant demand for capital 
 and labour ; (5) the work which would naturally fall 
 to men with a standard of efficiency of 25s. is curtailed, 
 and these men lose the chance of bettering their 
 position. Thus the loss falls on three classes, the
 
 chap, xvn TO SUSTAIN WAGES 219 
 
 consumers, the makers of machinery, and the unskilled 
 labourers; all to keep up the wage of skilled men doing 
 work that requires no skill. 
 
 It seems to stand to reason that the Trade Union 
 which counselled such things would stand con- 
 demned, and that the employers who rebelled against 
 the Trade Union in this would have the sympathy of 
 the public. In the old fight between organised and 
 unorganised labour, the victory would be with the 
 latter; Trade Unionism would be proportionately 
 discredited ; and, in the end, the labourer at 35s. 
 would be displaced by the labourer at 25s. Efficiency, 
 even when backed by a strong Union, is not sufficient 
 to maintain wages. 
 
 But, it will be objected, this may be true as regards But is not 
 the individual worker or even as regards the individual Squired 6 
 trade. But is not this acquired skill a desirable and always a 
 valuable thing in many trades besides that in which t - nms > 
 it was acquired ? This also must be considered in 
 detail. 
 
 Temporary loss of employment may, indeed, be con- 
 sidered as a painful incident of progress which is being 
 mitigated by the growing mobility of capital and labour. 
 We are reminded of the hand-loom revolution, where 
 the wise workers passed into power-loom weavers, to 
 the great advantage of their position. Mr. and Mrs. 
 Webb have given us a striking instance of what may 
 happen, on different lines, to preserve the skill and wage 
 of the worker displaced by machinery, and it is full of 
 hope and suggestion. When the application of the 
 sewing-machine to bootmaking in the middle of last 
 century began to revolutionise the trade, the old Amal- 
 gamated Society of Cordwainers, instead of adapting
 
 220 THE FAILURE OF EFFICIENCY book n 
 
 themselves to the new processes, kept up their rate, and 
 devoted themselves to the old handicraft ; with the 
 result that, while the cheap boot has created a new and 
 increasing demand for itself, the hand-made boot has 
 kept its place among those willing to pay the price. 
 " The handicraftsmen have become a select body, not 
 because they have closed their ranks, but because none 
 but men of long training and exceptional skill can find 
 employment at the recognised scale, or do the highly 
 finished work which the employers require in return 
 for such high rates. Competition between the handi- 
 craftsmen takes, in fact, the form of a continuous 
 elimination of the less skilled among them, who are 
 encouraged, in their youth, to go into the machine 
 trade. The result has been that the skilled hand boot- 
 makers, whilst somewhat diminishing in numbers, have 
 positively improved their scale of prices and average 
 earnings, and more than maintained their level of skill. 
 Finally, notwithstanding a continuous improvement in 
 the efficiency of bootmaking machinery, the hand- 
 made boot still remains an ideal to which inventors 
 and factory managers are perpetually striving to ap- 
 proximate their commoner product." A similar 
 phenomenon is found in the paper trade, where the 
 demand for the superior hand-made paper has actually 
 increased, and where there has "never been a 
 reduction of wages " ; while, at the same time, " the 
 production of machine-made paper has advanced by 
 leaps and bounds, to the great advantage of the public 
 in the cheapening of the article for common use." 1 
 
 If these were typical cases ; if, to the openings in 
 other industries, were added the possibility of preserv- 
 
 1 Webb, Industrial Democracy, i. 419.
 
 chap, xvii TO SUSTAIN WAGES 221 
 
 ing another form of the same industry ; if skilled How can it 
 workers, replaced by unskilled machinemen, could find j.^,;*, 6 ™ 
 employment and a sale for their goods in making some field in 
 product where there was still a demand for skill, there wan c ted ' ? ' s 
 would be no problem. But what if this is not a 
 typical case : what if, in great groups of industry, the 
 area of skilled employment is actually narrowing? 
 
 A distinguished colleague in my own university, 
 who has every means of judging of the position from 
 the side of the construction of machinery, and practical 
 experience of it from the side of the workers, concludes 
 that we are only at the beginning of another economic 
 revolution; in engineering, he thinks, machinery is 
 becoming so perfect and so automatic that not even the 
 "setting" will be a skilled job, and that, accordingly, 
 in the great field of engineering industry the demand 
 for labour will be a demand for machine-minders with 
 a minimum of skill. 1 
 
 Nor can we flatter ourselves that the skill formerly 
 employed in tending machines may be transferred to the 
 making of machines, so that the skilled engineer who is 
 thrown out of employment by the unskilled minder has 
 only to transfer himself to the shops where the lathes, 
 planing and slotting machines, etc., are made, and will 
 there find a new demand for his skill at the old 35s. 
 wage. For the same phenomenon — the improved 
 machinery requiring only unskilled labour — presents 
 
 1 Dr. Archibald Barr, the Professor of Civil Engineering and 
 Mechanics. Concurrently with this, there will necessarily arise, in his 
 opinion, a demand for a new class of skilled mechanics — namely, men 
 who will not be called upon to exercise skill of hand, but to bring their 
 ingenuity and experience to bear on the process of manufacture in devising 
 the most economical methods and systems of putting work through the 
 shops.
 
 222 THE FAILURE OF EFFICIENCY book ii 
 
 itself in the shops where machines and machine tools 
 are made. 
 
 If this is a true diagnosis, it seems enough to prove 
 the contention of our man in the street that efficiency 
 by itself will not maintain the remuneration of any 
 factor. It would not be difficult to show that the 
 same happens in the lowest ranks when machinery 
 begins to be substituted for hand labour. No efficiency 
 with the needle, for instance, will save the seamstresses 
 in their unhappy contest with machine-made goods. 
 There is every prospect that capital has a future in the 
 making of almost everything that is now made by pure 
 manual labour.
 
 CHAPTER XVIII 
 
 A WRONG SCENT 
 
 On reflection, it will be seen that, in the lastfeiv chapters, ive have gone off 
 on a -wrong scent : the pressure on employers to buy services as cheaply as they 
 can, easily led us into the by-way of a theory which finds an arrest of the 
 pressure in Subsistence. But this is to appeal from demand price — a re- 
 muneration according to services rendered, — to supply price — a remuneration 
 •which has no such connection. Having now made it clear that no remunera- 
 tion is at or near any intelligible subsistence point, we are free to take up the 
 thread of our argument, and inquire as to the "dyke" which labour seems to 
 have erected against the pressure downwards. 
 
 In the early part of the present book, we saw that the 
 opinions commonly held as to the " badness " or " in- 
 justice " of the distribution of wealth seemed very 
 much based on some vague preconceived notion of 
 what the distribution should be, — as if inequality were 
 itself sufficient condemnation, or as if it argued that 
 deserts were not recognised as having anything to do 
 with remuneration. An exhaustive examination of 
 factory industry, however, where single employers 
 divide a realised price among the contributing factors, 
 suggested that the service rendered played at least a 
 great part in determining incomes. Perhaps the only 
 thing that would altogether satisfy our aspirations after 
 economic justice would be a distribution according to, 
 and demonstrably in the measure of, services rendered
 
 224 
 
 A WRONG SCENT book n 
 
 We had to the making of the National Income. But, short 
 seen arbi- Q f ^j we seemec l t0 be coming to a tolerable 
 
 tranness ' ... 
 
 disappear- approximation to it when, on taking our reckoning 
 ing; in Chapter XIII., we found that the incomes paid 
 
 by the private employer are so controlled by economic 
 circumstances that the apparent arbitrariness of pay- 
 ment disappears. He is controlled by the price : he 
 is controlled by his competitors : he is controlled by 
 the demands of his factors. The services rendered 
 primarily to him are paid for at a rate determined by 
 all the employers, at the same time as the employers 
 are found to be no more than the channels through 
 which these payments come from the larger body, the 
 consumers. 
 
 If this is not a payment demonstrably according to 
 service rendered — and as we went on it seemed to 
 become clearer that no such measure could be applied 
 — this, at any rate, must be said for it : that the stress 
 of economic circumstances prevents the employer from 
 taking an exorbitant share of the price ; and that, if 
 prices are pressed too low, and too little apparently is 
 left, after profit is deducted, to pay the other factors 
 adequately, these factors get at least the advantage when 
 they come to cash their claims by spending their 
 money remuneration, 
 but, in But here we went off on what must now be pro- 
 
 spit ui°! nounced a wrong scent. When demonstrating how, 
 
 mobility, ~ ^ 
 
 under modern conditions, the individual workman ap- 
 pealed from the arbitrariness of the single employer, we 
 found that mobility was a necessary condition of the 
 appeal. But we are apt to think that mobility is more 
 powerful than it is. It cannot of itself keep up or raise 
 wage. It only affords a necessary condition for doing so
 
 "dyke." 
 
 chap, xviii A WRONG SCENT 225 
 
 when the other conditions are favourable, and it brings 
 
 wages over the area of mobility to a level. That is to 
 
 say : suppose the tendency of prices is downwards, it is 
 
 true that mobility allows the single worker to appeal 
 
 from the persons who are anxious to reduce them to the 
 
 persons who have not the same need of reducing them, 
 
 and thus it makes the former employers think twice 
 
 about taking strong measures. But it also gives the 
 
 latter employers more power to reduce, by widening 
 
 the field of their supply. Thus our attention was 
 
 again drawn to the constant pressure downwards the pressure 
 
 exerted by and through the employer. So m we ned 
 
 At this point we came across a theory which seeks turned aside 
 to escape the arbitrariness of payment altogether, but sub^tence 
 in a different way : the theory which says that there as a 
 is a level which brings the pressure to a stop, namely, 
 subsistence. It suggested that what we called "cost 
 price," and defined as the cost to the representative 
 employer, was really the cloak of a true " cost of pro- 
 duction price," meaning by this the cost of production 
 of the factors — what it costs the world to bring them 
 into life and keep them in life. 
 
 No doubt this would have been a very satisfactorily 
 rounded theory indeed. The present distribution 
 would have gone far to justify itself in the sight of all 
 men, — at least if we take subsistence as meaning 
 efficiency-subsistence. The factors employed would, 
 in the opinion of the representatives of the community, 
 be the most efficient factors — those which should be 
 employed. They would be paid according to their 
 efficiency, in that they would be paid the sum which 
 that efficiency needed to bring it into, and keep it in, 
 being. Thus all prices would be pressed down to and
 
 226 A WRONG SCENT book ii 
 
 remain as complexes of this cost, and the price would 
 be a necessary one ; one without which the goods 
 could not be got. The payments would be the 
 utmost which the total sum realised — the price which 
 the community was willing to pay for the goods — 
 permitted to be paid ; for the fund from which they 
 were paid would be exhausted by the payments. And, 
 while the factors would thus be getting their maximum, 
 they would also be getting their minimum, for pay- 
 ment could not go lower than this cost of production 
 level. It would be the most the workers could get, 
 as well as the least they could take. 
 
 But, on examining this theory, it seemed to break 
 down at all points, or else to persist by taking up 
 positions equally capable of disproof and of proof; the 
 final weakness being evident when it was seen that 
 " efficiency " had little of the resisting power credited 
 to physical subsistence. 
 
 We found, in fact, that, as no factor had a vested 
 interest in production, but was always one of many 
 competing for the same work, there was no level 
 which would ensure the subsistence of any factor. 
 At the same time, what was gradually coming into 
 prominence all through our discussion was that neither 
 the capital factors nor the labour factors showed any 
 sign, over the whole, of approximating to a sub- 
 sistence remuneration. And the notorious fact as to 
 wages was that they were everywhere constant or 
 rising. 
 
 Probably it was not till we came to this point — the 
 failure of the pressure to keep wages from rising — that 
 we became aware that we had gone off on a wrong 
 scent ; that, in seeking a measure of payment in sub-
 
 chap, xvni A WRONG SCENT 227 
 
 sistence, we were appealing to a totally different principle 
 from that which seeks it in service. 
 
 The line of investigation which we had consistently But, up till 
 followed from the start was the tracing of the connec- * he , n ' we 
 
 had been 
 
 tion between product, or contribution to product, and finding a 
 remuneration. We had seen that, in factory industry P n " cl P le 
 
 ' * /in demand 
 
 at least, the factors were paid because of services ren- price, 
 dered, and the employer had been considered as paying 
 according to his estimate of the factor's service. The 
 " demand " for the factors had come through him, but 
 not of him. What the employer pays for is what the 
 workers can give him, — what they can produce under 
 his guidance. The more the worker can give — can 
 add to the National Income — the more is he worth ; 
 his demand price, then, rises with the amount of the 
 service he renders in quantity or quality, or both, 
 because it is the expression and equivalent of this 
 service. The explanation of payment and the measure 
 of payment were both from the side of Demand — the 
 demand made for the worker's service because his 
 product was demanded by the community. In short, 
 we had up till that time been looking at distribution 
 altogether from the side of demand : the price paid 
 by the employer to each factor was a Demand 
 Price. 
 
 But to seek the explanation and principle of remune- not in a 
 ration in subsistence, is to appeal to a different principle des P air 
 altogether. It is to conceive that the factors are paid, price, 
 not according to the service they render, but according 
 to what it costs to bring them into being and keep 
 them in being. It is the principle of slave labour, not 
 of free labour : the principle on which we feed horses 
 to enable them to draw the plough, not the principle
 
 A WRONG SCENT book 11 
 
 on which we pay factors which can assert their claim 
 to an increasing total product. To make this the 
 claim of wage in a community whose dividendum is 
 increasing about twice as fast as its divisors, is almost 
 a claim of despair. It is to confess that the worker 
 cannot get a wage commensurate to what he has pro- 
 duced — to what his services are worth as demanded by 
 the community. Failing this, and as the only means 
 of securing a wage at all, the worker puts forward the 
 last argument : that, unless he is paid enough to pro- 
 duce him and his labour, the employer will not get 
 him or his service. It is cutting the knot by appealing 
 from Demand Price to Supply Price. 
 
 But all our investigation up to the point at which 
 we came across this theory gave us no reason why 
 we should thus cut the knot. We had found the 
 microcosm of our industrial organism in a community 
 of persons making their living out of the ground ; their 
 wages increasing as their crops increased ; the efficiency 
 of their labour reflected in and paid by the increase in 
 product. When such a community submits itself to 
 organisation, the one fact, the increase of crop, is not 
 altered : why should the other, the increased amount 
 falling to the factors, be altered ? If the organiser 
 shows it how to grow larger crops, these crops should, 
 one would think, represent larger wages to the worker 
 and a larger wage to the organiser. The factors 
 generally hand over their products to the employers 
 to get that equivalent back from the employers : the 
 demand of the employer for their labour should auto- 
 matically increase with the increased product which 
 the factors hand over to him. It is a distribution 
 according to service rendered ; that is, according to
 
 chap, win A WRONG SCENT 229 
 
 product. The production process and the distribution 
 process are one : it is the sharing in the production 
 that gives a claim to the distribution. 
 
 Why, then, should we abandon the line of investiga- 
 tion which followed closely the current phenomena of 
 industry and connected remuneration with service, to 
 appeal to a theory whose chief merit is that it does not 
 depend on any support from facts ? 
 
 As we shall see later, the discussion of the last four 
 chapters, although following a wrong scent, has not 
 been without results. It has at least reminded us that, 
 as demand for goods has no meaning, economically, 
 apart from the consideration of supply, so the actual 
 demand price of factors is inevitably influenced by their 
 possible supply price ; and it has suggested the Trade 
 Union position — the refusal of workers in combination 
 to supply themselves and their services for less than a 
 certain price. 
 
 Meantime we take up the argument very much To hark 
 where we left it on p. 192. The great fact at the k ' 
 back of all distribution is that what is being distributed 
 is a growing sum. It follows that the absolute amount 
 which falls to capital and the absolute amount which 
 falls to labour are likely both to be increasing. How 
 the two aggregates stand relatively to each other in this 
 increase, it would, I suppose, be impossible to say with- 
 out a statistical inquiry very difficult to make. As we 
 have seen, the rate of interest tells us nothing on this 
 head. We may safely say that capital has not been 
 reduced to the despair price of subsistence. On the 
 other hand, there is no doubt that wages — even money 
 wages — are constant or increasing. Here, then, we
 
 23 o A WRONG SCENT book 11 
 
 return to Demand Price. The suggestion is : either 
 that labour has managed to set up an artificial " dyke " 
 against the pressure downwards, or that there is no 
 dyke in the question, but only the natural result of the 
 unfettered action of supply and demand.
 
 CHAPTER XIX 
 
 A SUPPOSITITIOUS CASE AND ITS LESSONS 
 
 A supposititious case : that the universal introduction of machinery 
 reduces labour generally to unskilled minding of machines, ivages coming 
 together at a compromise between present skilled and unskilled rates. Wages 
 here come down because there is an over-supply of men competing with capital 
 
 for the same work. But the greater the consequent increase of goods, the 
 sooner comes the demand for men : capital is in over-supply, and ivages rise. 
 The lesson is : that -what ultimately determines the remuneration of any factor 
 is its indispensableness, efficiency having its due place as tending to make the 
 
 factor indispensable. This is confirmed by the appeal to cases where man is 
 still competing with capital, instead of complementing it. The hardships 
 involved in the transition should not blind us to the inevitable, and to the 
 ultimate escape of man which it promises. 
 
 Let us suppose that the forecast on p. 221, as regards Suppose 
 the engineering trade, proves a true one. Let us go moment 
 further, and assume that the same phenomenon occurs machinery 
 in all other departments of factory industry. Then ^a n aces 
 the position is that, skill not being required, the wages 
 of skilled labour have fallen and the wages of unskilled 
 have risen, to meet at one level of machine-minding — 
 say 25s. per week. The population is being crowded 
 into factories and yards, and set to monotonous, unin- 
 spiring, undeveloping toil, from which only the few 
 escape to be the undertakers and managers in this giant 
 grinding-mill. The standard of man has fallen, and
 
 232 A SUPPOSITITIOUS CASE book ii 
 
 his degradation is cumulative, inasmuch as the unskilled 
 man brings up children made in his own image. But 
 the cost of production is lower ; prices of goods are 
 lower ; and so the gain to the consumer is greater. It 
 is nobody's fault : it is only the consequence of applied 
 science taking over much of the work which man has 
 been doing, and replacing the dexterity of finger and 
 eye and brain by the automatic action of machinery. 
 
 What, we ask in this case, has brought down wages ? 
 There is no doubt about the answer : it is that the 
 supply of man has outrun the employer's demand 
 for it, and, to get work at all, man has had to lower 
 his price. 1 
 
 But will this continue ? No, for one perfectly 
 definite reason : that, sooner or later, the point is 
 reached where capital no longer replaces man but 
 demands man. It never, indeed, could do without 
 man, but, for the moment, the capital presumably 
 found more than enough of men to co-operate with it. 
 But this comes to an end. 
 the By hypothesis, cost is reduced, and, as cost is reduced, 
 
 foTman prices ar e reduced, and, with reduction of price, in- 
 wiil come evitably goes increase of demand for goods. With 
 agam ' increased demand goes further multiplication of ma- 
 chinery ; with this goes increased demand for the men 
 
 1 It must be noted that this is a supposititious case. But if it seems to 
 violate legitimate canons by putting forward an altogether absurd suppositi- 
 tion, we may profitably remember that we are only at the beginning of 
 the machine age ; that we are introducing everywhere this rival to man ; 
 that the need for man is for the moment becoming less in all fields 
 where machinery is entering. The work formerly done by nature and 
 man is now being done more by nature and less by man. Man's 
 work is found in invention (of further machinery), in planning, in 
 managing, and in minding : the first three take up a small number of 
 men, the latter takes up the majority.
 
 chap, xix AND ITS LESSONS 233 
 
 who are to mind the machines. Whence is this 
 demand to be met ? There is no field of unskilled 
 labour from which it can be drawn, for all are em- 
 ployed at the lower level of machine-minders. The 
 only field is the natural increase of population. But 
 population in this country does not increase more than 
 half as fast as wealth does. Therefore, as capital pours and that 
 into the world, the demand for man becomes more and P en " a ~ 
 
 ' nently. 
 
 more urgent ; he is indispensable ; he can command a 
 higher wage. Capital is no longer flooding in to take 
 his place ; it is clamouring to be employed by him ; a 
 new state of affairs has arisen. It is capital that is now 
 in over-supply. 
 
 To put this more concretely. Suppose that our 
 forecast proves true : that the skilled engineer is no 
 longer wanted, and that the shop of the future is one 
 where there are dozens of automatic machines and a 
 few minders. This looks very formidable for a time, 
 and it is disastrous enough for a time. Hundreds of men, 
 in a small locality let us say, have been growing up to be 
 engineers, and these men find no field for their labour 
 but that of machine-minders. But it is not so formid- 
 able if we look forward a little to the doubling and 
 trebling of the shops. If we suppose that capital and 
 labour, in this one locality, preserve the proportions 
 which they bear over the whole field, then, for every 
 man who comes forward, there is double the value of 
 machinery — not necessarily double the number of 
 machines, but double the value of machines. It seems 
 clear that, in time, these engineers will all find employ- 
 ment. But, it is objected, at the reduced rate of wage ? 
 Yes, for the moment. But let the tendency continue ; 
 let the value of machinery quadruple for every doubling
 
 234 A SUPPOSITITIOUS CASE book ii 
 
 of the numbers of men ; and men rapidly acquire a 
 scarcity value. The employer is still the combiner 
 and paymaster ; he introduces machinery wherever he 
 can ; but there comes a point where the man is indis- 
 pensable. It may be at the third machine, or the 
 fourth, or the sixth, but it comes. Then the employer 
 finds that an absolute bar is put to the further intro- 
 duction of machinery unless he can get men. But men 
 are scarce, labour is at a premium, and wages begin 
 steadily to rise — not that labour does any more, not 
 that it is more skilled, but that it is more indispensable. 
 
 Thus far of our supposititious case. The first part 
 of it seemed to demonstrate that, however steady the 
 upward movement of wages had been in the past, there 
 would inevitably be a check and a set-back if the 
 perfecting of machinery enabled the employer to put 
 it in direct rivalry with skilled human effort ; the 
 second part seemed to demonstrate that wages would 
 resume their upward movement when the increase of 
 the perfected machinery made the co-operation of the 
 human factor indispensable. 
 The real The case has been put as strongly as possible to 
 
 • / e 1S bring out the contention that, in the last resort, what 
 
 indispens- o > > 
 
 abieness. protects the remuneration of any factor from falling 
 under the pressure of employers is neither subsistence 
 nor efficiency, but — to use a clumsy word — its indis- 
 pensableness. Factors are paid by the employer, not 
 in the measure of their service as assessed by any 
 abstract standard, but according as that service is 
 accompanied by or reflected in the need he has of them. 
 It has already been noted that the service rendered by 
 any factor is not to be measured by its material pro-
 
 chap, xix AND ITS LESSONS 235 
 
 duct, nor yet by the amount, quality, or utility of its 
 contribution. We have now to emphasise that the 
 economic " efficiency " of a factor, and therefore its 
 payment, is not to be measured by what it can do, but 
 by what it alone can do — by the need that other factors 
 have of it in the co-operation of production. 
 
 It is another of the Protean expressions of the 
 formula of value. There is no absolute value : value 
 is rooted in demand, but demand itself depends on 
 supply, as desire, the root of demand, varies with 
 attained or attainable satisfaction. Thus things which 
 are of most " use," when measured by ordinary 
 standards, may be of least value, and value disappears 
 altogether in presence of superfluity. Applied to the 
 factors of production it takes this form : efficiency 
 must be conditioned by scarcity ; the demand for a 
 factor depends on what it can do — its efficiency — 
 relative to the supply of the factor offering itself. 
 
 Here at last we get efficiency put into its proper The true 
 place, and find the root of that universal conviction efficiency. 
 as to its importance which elevated it into an un- 
 tenable position in the subsistence theory. After all, 
 it is a guiding conception, inasmuch as, the more 
 efficient a factor is, the more likely it is to be indis- 
 pensable. If, for instance, all the young generation 
 were diverted into medicine and became highly quali- 
 fied physicians and surgeons, all their efficiency would 
 not secure that they got as good a wage as the man 
 who supplied them with potatoes. But, all the same, 
 the medical man could divert his energies into the 
 digging of potatoes, while no amount of inducement 
 could turn the potato digger into a qualified medical 
 man.
 
 case 
 
 236 A SUPPOSITITIOUS CASE book n 
 
 A concrete It has been hinted that the supposititious case is not 
 all supposititious. Let us ask, then, how far it applies 
 to modern phenomena, and see if the results agree with 
 our conclusion. Not so many years ago, Glasgow was 
 a centre for power-loom weaving. If one asks to-day 
 why weaving is for the moment a dying trade, the 
 answer is perfectly simple. It is that the Glasgow 
 weavers, up till quite lately, resolutely refused to take 
 charge of more than two looms. In vain did the 
 friends of the women workers show them their danger. 
 In vain did employers tempt the workers with higher 
 wages at a lower piece-work rate, if they would try 
 the three looms. Nowhere were there better weavers 
 than in Glasgow, and they could not understand why 
 employers should ask them to accept lower rates. 
 The reason simply was that Lancashire had long ago 
 accepted the inevitable and adopted the three and four 
 loom system. Possibly the product was not quite so 
 good. Possibly, too, where fine work was demanded 
 by the public, the price obtainable still kept the 
 Glasgow weavers in some sort of employment. But, 
 whether first class or not, the work done in Lancashire 
 met the great demand at the price. The contrast of 
 price was such that more and more demand fell on the 
 cheap Lancashire goods, and less and less on the dear 
 Glasgow ones. No more capital was invested in 
 Glasgow mills. More and more capital found its way 
 to Lancashire. Glasgow wages fell. Lancashire wages 
 rose. 
 
 The correspondence with our supposititious case is 
 obvious. For the moment, capital, getting more 
 abundant and cheaper, had forced its way into the 
 weaving trade, bringing down the wages of labour
 
 chap, xix AND ITS LESSONS 237 
 
 till the point was reached — say at the fourth loom — 
 where capital could get no further ; women's labour 
 acquired a monopoly value, and the wage, which 
 hitherto tended to fall, began to rise. In Glasgow, on 
 the other hand, the influx of capital was prevented by 
 the action of the weavers — yet the inevitable happened 
 all the same. 
 
 There is only too much reason to fear that this is 
 not an isolated case. If capital were capable of taking 
 over all the work of man in industry, there would be 
 a steady replacement of man till there was no room 
 for him in the industrial organism at all. Happily, 
 this is impossible. But the actual case is this : that, 
 owing to developments undreamt of by our ancestors, 
 capital is bound to take over many tasks that have 
 fallen to man, but would never now fall to man if he 
 could begin the division of labour all over again. 
 "Things are in the saddle and ride mankind" still, 
 because things and men have not yet agreed upon the 
 two spheres where they do not rival but complement 
 each other. The proper service of mankind is man — 
 the doing of what machinery cannot do. Where he 
 tries to do what machinery can do as well, his re- 
 muneration is bound to fall. 
 
 The coming problem is similar to that which meets A parallel 
 our own nation as other nations rise to more equal !* !jonal 
 industrial power, and countries which formerly im- division of 
 ported goods largely from us are found capable of laDour - 
 making many such goods at home, and even of ex- 
 porting them. The wealth of all the nations is 
 increasing ; and yet, in the richest of them all, great 
 groups of industry are thrown idle and men find 
 themselves out of employment. The reason is that
 
 238 A SUPPOSITITIOUS CASE book n 
 
 our country has continued doing things it would never 
 have begun to do if the nations had started all abreast. 
 Thus our farmers are worsted in growing wheat, 
 because we never should have made wheat our staple 
 crop if we had had America within reach. Thus, 
 on the larger scale, we have sunk much of our capital 
 and specialised much of our labour in farming, when it 
 should have been devoted to other things — if we had 
 foreseen what was going to happen. 
 
 So is it with capital and labour. We have two 
 factors, like two countries, which have been doing each 
 other's work. Now one proves the more powerful. 
 Capital lowers its standard wage, and, so long as man 
 competes, he must follow suit. But, when the point is 
 reached where capital can no longer tread in man's 
 footsteps, and man is found indispensable to allow 
 capital to earn even its subsistence wage, then the 
 demand for man becomes unaffected by its competition, 
 and, as capital increases, the demand for this indispens- 
 able factor increases, employers compete to get labour, 
 and wages rise. 
 
 This, then, is the answer to the question put at the 
 end of last chapter, why labour, on the whole, has been 
 able to hold its own and increase its claims on the 
 National Income. The reason has nothing to do with 
 subsistence. It is its relative indispensableness to the 
 employers of the nation. The demand for labour, as 
 compared with the supply of it, has been such that the 
 interest of the employer in beating down wage has 
 been overborne by his interest in getting labour. 
 
 To put it in a word. The pressure downwards 
 exerted by employers on labour and capital alike,
 
 chap, xix AND ITS LESSONS 239 
 
 depends on the rivalry of the two — the possibility of 
 the one being substituted for the other. It ceases at 
 the point where each finds its peculiar sphere and 
 substitution is no longer possible. The upward course 
 of wages, perhaps temporarily interrupted, begins again 
 when, and in proportion as, the very subsistence of 
 capital depends on its getting labour as its complement. 
 
 The supposititious case, however, points another is 
 moral. It indicates what amount of reason there is mad l mer y 
 
 our Frank- 
 
 for the fear that machinery is the Frankenstein of enstein? 
 our civilisation. 
 
 If the forecast on p. 221 has any large amount of 
 truth in it, we have troublous times before us. The 
 working classes have not the slightest idea that wages 
 may react for a time from purely economic causes. 
 What they do know is that the wealth of the country 
 is increasing hand over hand, and they regard a steady 
 rise in money wages as the due accompaniment and 
 expression of this. At a representative meeting in 
 Glasgow of working men, called to consider the effect 
 of women's cheap labour on men's wages, one of the 
 delegates remarked that he was not aware that there had 
 been any change in the wages of his trade of late years, 
 adding naively, as an afterthought, " except, of course, 
 a rise now and then." So rooted is this conviction that 
 the greatest Union in the country staked all its funds, 
 and cost the nation many millions of money, in the 
 demand for an Eight Hours' Day " without reduction 
 of wage." If, then, we are called to pass through a 
 time when the money wages of skilled labour will 
 actually fall, we may prepare for still greater disturb- 
 ances. The world is still, it is to be feared, under the
 
 2 4 o A SUPPOSITITIOUS CASE book n 
 
 domination of what Professor Marshall has aptly called 
 the Fixed Work Fund fallacy, and there may even be 
 a savage outbreak of the working classes against this 
 machinery which, they think, is taking away their 
 living. 
 That skill But, quite apart from a reduction of wage, the 
 
 should be- degradation of man, implied in making skill and training 
 
 come super- ° * * . t i_ 
 
 fluous is a superfluous, is much more serious, even if, by some new 
 very great com p U l s j on D n the part of government, the children 
 are prevented from sharing their parents' fall. If 
 skilled occupations are lost, and men trained to a 
 vigorous use of their faculties are relegated to labour 
 that makes less call on them as rational beings, men 
 who have only one life to live are losing it ; the gain of 
 posterity is not our gain ; and it is merely foolish to 
 counsel resignation. Personally, I sincerely hope that 
 the first part of my supposititious case will remain 
 supposititious. 1 The experience I have had, first as a 
 large employer of labour, and then as a professional man, 
 has given me the firmest belief in the essential joy of 
 work. I base, for instance, a good deal on the indis- 
 putable fact that no professional man or woman would 
 tolerate a legal restriction on the hours of his or her 
 labour. But admitting the difference between such 
 work and the work of factory operatives — particularly 
 
 1 It must be remembered that the phenomenon which gives the sup- 
 posititious case its strength is the appearance in the engineering trades of 
 machines which demand skill only in the " setting." It is quite possible 
 that this may not be typical ot machinery generally, or may be only a 
 passing stage ; that the machine of the future may still be more complex 
 and require a higher degree of skill even in the ordinary minding. The 
 linotype, for instance, it is said, demands more skill and a higher 
 standard of education than is demanded even of that highly skilled work- 
 man, the compositor at case.
 
 chap, xix AND ITS LESSONS 241 
 
 in the freedom to do one's work at one's own time — I 
 have always hoped that some new development would 
 open up a future where most work would be skilled and 
 would be congenial ; and where, accordingly, the 
 mighty reserve forces of labour, working under the 
 stimulus of hope and love of one's work, would be 
 added to the material resources which science is putting 
 at our disposal. 
 
 The human tool has one essential difference from any 
 other. When we buy a machine we know the best 
 of it. It may be indefinitely deteriorated by misuse : 
 it will not improve by the most considerate use. 
 But many a man would be dear at 20s. and may be 
 cheap at 35s., just as many a girl, who has never done 
 a hand's turn at home, suddenly becomes an energetic, 
 resourceful manager when she gets a house of her own. 
 It is most regrettable if we have yet for some time to 
 face a great readjustment before we begin the ascent 
 again. It is no business of economists to make light of 
 such hardships ; the world would probably listen more 
 readily to them if they were not so eager to point out 
 the ultimate good that they sometimes seem to overlook 
 the present evil. And this evil is very great. 
 
 But when all is said on this side, it remains for the But the set 
 economist to warn his audience against trying to oppose back ls 
 the pressure of economic forces which are in the lines 
 of the world's evolution, and to plead that sympathy 
 with present suffering should not be allowed to stand in 
 the way of the ultimate good. 1 For, after all, the end 
 of our supposititious case is, not the degradation of man 
 
 1 As, for instance, I am persuaded is the case in allowing women 
 working at home, in vain competition with factory industry, to escape 
 the beneficent sweep of the Factory Acts. 
 
 Q
 
 24 2 A SUPPOSITITIOUS CASE book ii 
 
 to be the servant of machinery, but the escape of man 
 from its tyranny. The present state of things is that, 
 in many departments, men are trying to retain work 
 which either machinery or man can do, and where it is 
 only a question of which can do it more cheaply. It is 
 singular that, in spite of this, the demand for human 
 skill has been such that wages have not fallen, but, on 
 the whole, risen. One may hope that this may con- 
 tinue ; that the work of machine-minding in the future 
 may be divided between much highly specialised skill 
 and little unskilled labour, rather than between little 
 Allowing specialised skill and much unskilled labour. But, in 
 tor the t j le worst case a f ter a period of transition and hardship, 
 
 utmost ' r * 
 
 extension of capital, from its very abundance, will fall into its proper 
 machinery, p| acC) not as t h e r j va } f mari) but as the servant of man ; 
 
 and, when this happens, two things will come out very 
 clearly which are already coming out dimly : — 
 
 (i) That machinery always requires setting and 
 tending on the lower plane, and planning and organis- 
 ing on the higher. 
 
 (2) That in direct service there is an unlimited 
 field for human activity. 
 
 If it be true that wages, ultimately, cannot be kept 
 from rising in fields where capital has its full share 
 and is introduced to the possible limit, this makes 
 clear what is the position of man in occupations 
 where machinery cannot intrude at all. If there is a 
 scarcity value attached to man even in the fields of 
 machine industry, his scarcity value in other occupa- 
 tions, particularly where brains are indispensable, is 
 evident. 
 
 The fact is that growing wealth, as it has brought 
 the evil, will also bring the remedy. For many a year
 
 chap, xix AND ITS LESSONS 243 
 
 yet, the great majority of the population will increase there is an 
 their demand automatically for machine-made goods, J^j '^ th 
 as the cost of such goods comes down. But growing human 
 wealth means growing wants — wants that did not ac ° r * 
 emerge at all on the lower stage, but rise into promi- 
 nence and urgency when the lower wants are better 
 satisfied ; and these wants cannot be altogether met by 
 machine-made goods. What, for instance, is it that 
 has caused the rise of wages in domestic service 
 but the demand, which instantly emerges whenever 
 people get a little easier in their circumstances, for the 
 "servant" ? Who that knows the working class family 
 but recognises the satisfaction expressed in the state- 
 ment, "we keep a girl now"? This has often been 
 interpreted by economists as the ambition for social 
 distinction, as if people asserted their new wealth by 
 having some one " beneath them " ; and perhaps the 
 natural resentment at such an attitude has something 
 to do with the unpopularity of "service" among the 
 class from which we might expect domestic service to 
 be recruited. It is, however, more obviously and more 
 honourably interpreted as the demand for services 
 which men and women alone can render, asserting 
 itself immediately that the lower wants are satisfied. 
 
 To overlook this evolution of a nation is to forget Sic hur 
 the essential nature of man. His stomach and his ad astra ' 
 digestion are limited. The shelter and warmth he 
 needs are a fixed quantity. 1 This fixed quantity, in- 
 deed, is so far from being supplied among the masses 
 that, as was said, there is still an enormous field for 
 the supply of the commonest class of machine-made 
 necessaries. But once these necessary wants are 
 
 1 See Studies in Economics, pp. 193, 272.
 
 244 A SUPPOSITITIOUS CASE book n 
 
 satisfied in any man, the field of his desires extends to 
 the satisfaction of his senses, of his intellect, of his 
 taste. He wants more books and newspapers, and, 
 although these are immediately produced for him by 
 factories and workshops working under the factory 
 system, yet the mediate demand is for more thinkers, 
 more poets, more travellers, more collectors of news 
 and information generally. He wants more of the 
 goods that satisfy the sense of beauty ; he wants more 
 amusements ; he wants more teachers. In fact, in 
 this latter field, of teaching, there is room for an 
 infinite number of human beings, for the field is as 
 infinite as knowledge itself. He does not, of course, 
 want endless board schools : there is a limit to that 
 kind of education. But, based on this, comes the 
 demand for secondary schools and for universities. Uni- 
 versities, indeed, are now too much the tools of the 
 professional man — in Scotland at least — but the demand 
 for education that has no goal but education, is bound 
 to extend among the cultured classes generally. One 
 may hope to see the day — even in thrifty Scotland — 
 when a university education will be demanded as the 
 entrance to all the higher posts of business life, and 
 when, moreover, the university shall find a place and 
 an utterance for every man who has special knowledge 
 of something, however remote it may be from the 
 "bread and butter sciences." At every step upwards in 
 wealth, while the demand for capital and machinery 
 increases, the demand for man as man still more 
 increases.
 
 CHAPTER XX 
 
 TRADE UNIONISM I FOR AND AGAINST CHEAP 
 
 LABOUR 
 
 The basis of Trade Unionism is the conviction that the •workman is a "weak 
 seller." By way of introduction, let us (i) ask ivhy the employer should not 
 buy labour as cheaply as he can, and (2) try to see the rationale of the -work- 
 man s refusal to sell at the individual employer's price. 1. JVages not being 
 charity, ivhy should an employer, -who uses labour only as one of his instruments, 
 and cannot himself get more than the market price for his goods or for his o<wn ser- 
 vices, be expected to treat labour exceptionally, and pay more than the market 
 rate ? Or, if he has the means of paying more, is he to be a "blackleg" to his 
 class ? But, again, -what is "cheap labour" as distinguished from the market 
 price of labour ? 2. Granted that the uncombated liberty of the employer to 
 buy labour as cheaply as he can -will result in a great National Income, a certain 
 claim on a possibly smaller income may be better than a possible claim on a cer- 
 tainly larger income, and, like the inventor -who takes out his patent rights, the 
 •worker must assert his claim at the point where he has the best chance of 
 enforcing it. 
 
 Up to this point we have looked at the relations of 
 workers to employers as unaffected by the restrictions 
 or interference of any stronger combination than is 
 involved in the solidarity of regimented masses. We 
 have now to consider the effects of the conscious com- 
 bination of workers in the policy called Trade Union- 
 ism. How does it affect the activity of employers, 
 and, therefore, the distribution of wealth which they 
 make in the form of wa^es ?
 
 struck our 
 ancestors 
 
 246 TRADE UNIONISM: book 11 
 
 The basis Trade Unionism is based on the conviction that 
 of Trade t j le wor ^ er as an individual, is not in the same strong 
 
 Unionism. 7 * ,° 
 
 position to sell his labour as his employer is to buy it, 
 and that, accordingly, unless supported and strength- 
 ened by common action, he always sells it too cheaply. 
 How it This argument seems to have struck our forefathers 
 
 very much as if their plough-horses had turned round 
 and complained that they were not in a position to 
 secure their proper feed of oats and hay. The tone of 
 employers, even a generation ago, was that they were 
 the only judges of what a man was worth ; a request 
 for a rise of wages was resented as an impertinence 1 
 — not that any employer ever thought of giving an 
 advance without it ; and the man who made it was 
 often enough cast out with the brand upon him, so that 
 other employers, seeing it, might beware of him. 
 
 We have learned a good deal since then. We know 
 the treachery of the argument, " if he doesn't like the 
 wage, he needn't take the work," in a world where 
 industry is all organised, and no man, turned from the 
 gate of his trade, can employ himself. The organising 
 of a nation to earn its living is seen to be a matter for 
 the nation ; to be left to private enterprise so long 
 as private enterprise can do it better than any other 
 system, but not a moment longer. 2 
 
 *As it is still, I am afraid, in the unorganised women's trades. 
 
 2 Economic science generally insisted on this caveat as regards the holders 
 of land, even when other employments were held sacred. If this is no longer 
 so prominent as it was, it is because cheaper freights have reduced the im- 
 portance of agricultural land by taking the monopoly of the people's food 
 out of home landowners' hands. Hence we have the distinct tendency 
 among economists to group land and capital together ; and we have the 
 recognition that employers in both spheres must find their interests as 
 best they can in the interests of those they employ. In fact, as has been
 
 chap, xx FOR AND AGAINST CHEAP LABOUR 247 
 
 Indeed, we are in danger of going much too far, and 
 forgetting the essential truth of what earlier economists 
 put in too absolute and forbidding a form. Assuming 
 that, to grant the right of workers to combine, with 
 the view of selling their labour as dear as they can, 
 involves the denial of the employer's right to pay as 
 little as he needs, — not seeing, that is to say, that the 
 two " rights " are perfectly compatible — public opinion 
 seems inclined to treat the economist who would 
 seriously defend the buying of labour in the cheapest 
 market as merely a curious survival of a " discredited 
 Political Economy." It is a singular testimony to the 
 power of the Trade Union idea over the common con- 
 sciousness that it should be so. Perhaps, however, it Ad-vocatus 
 will not be a bad introduction to the study of the Trade ia ° 
 Union argument, and may recall some things that 
 should not be " discredited," if, for the moment, we 
 ask, in supplement of the argument in Chapter VI., 
 why the employer should not buy his labour as he buys 
 his other factors. 
 
 There is still a mysterious suggestion of charity or charity in 
 benevolence connected with the paying of wages. To wag . e " 
 
 r ' ° ° paying. 
 
 say nothing of the frequent assertion that workmen are 
 " ungrateful fellows," meaning by this that they do not 
 accept the wages offered them without question, there 
 is no doubt that employers, both public and domestic, 
 think it a fine thing when they pay above the market 
 rate, and that workers do not resent it, even when they 
 
 hinted, we have something like the emergence of a dim conviction that 
 employing is a kind of State function ; the duties of a civil servant seem 
 expected of the employer even without the guarantee of a civil servant's 
 salary.
 
 248 TRADE UNIONISM, 
 
 BOOK II 
 
 know that they are getting more than other employers 
 regard them as " worth." But wage is an equivalent 
 for work done : the worker has no more reason to say 
 " thank you " for his wage than the employer to say 
 " thank you " for the service he gets. And what is the 
 meaning of that recognised rate-in-aid called Tips ? 
 It is either a reflection on the employer, suggesting 
 that he is not paying what he ought, 1 or it is a kind of 
 charity, or, worse still, it is a purchase of civility which 
 should be given gratis. Surely the tone of an indepen- 
 dent worker should be "pay me what thou owest," 
 without adding " and as much more as you please." 
 A shopkeeper would resent being offered more than 
 the price he asked ; why does not the working man ? 
 The The longer one looks at it, the more puzzling does 
 
 abo works ** seem tnat an employer should be expected to pay, or 
 for his be praised for paying, more than he requires to. He 
 
 engages labour, not for itself, but solely because labour 
 is a factor in the production of the commodities he 
 wishes to make. He wishes to make these commodities, 
 not because he wants them for himself, or because he is 
 ordered by a benevolent State to make them, but 
 because he wants the things to sell. And he wants to 
 sell them simply and solely that he may make a living 
 by it. The "living" is the motive and end of the 
 whole business ; and, if the working man does not see 
 that it is any part of his concern to give up part of his 
 
 1 The great Municipalities seem to me to have truckled to this feeling. 
 When fixing wages in any of their industrial enterprises, they borrow 
 their scale from the "representative employer" outside, and generally 
 add a shilling or two, in order, I suppose, to live up to the honourable 
 standard of "model employers." It is curious to note how unconscious 
 the private employers, who generally constitute a large proportion of any 
 Municipality, are of the reflection they are thus casting on themselves. 
 
 living.
 
 chap, xx FOR AND AGAINST CHEAP LABOUR 249 
 
 living in order that the employer may have a profit, 
 why should the employer sacrifice anything of his 
 living to give the working man a wage ? It is thought 
 — and justly — that it is a disgraceful thing for a man to 
 be idle ; when he engages in the public service as an 
 employer, why should he be expected to become a 
 philanthropist ? Why should he treat labour otherwise 
 than as he treats raw material or machinery ? Or, 
 rather, who is to guarantee him his own " living wage " 
 if he treats it differently ? 
 
 There is something at the back of all this. It is 
 undoubtedly the conviction that the employer normally 
 makes more than he ought — however vague may be 
 the idea underlying the " ought " ; in short, that he 
 has the means of paying more if he liked. 
 
 But, if our analysis was correct, the employer is not 
 a free agent in this respect. It is notorious that, if a 
 man with means takes his money out of a safe security 
 at a small interest, and embarks it in industry under his 
 own eye, he takes on himself work, and responsibility, 
 and anxiety that he need not undertake, and he runs very 
 considerable risk, not only of getting nothing for his 
 work, but of getting even less return for his capital 
 than what the safe security yielded him. It is surely 
 unreasonable to think that he is bound to be swayed 
 by other than industrial motives. But when he thus 
 risks his means as an employer, he pays and is paid out 
 of price. If he manages to raise his prices and pays an 
 extra wage out of the raised price, he is really paying 
 out of the public purse by charging the extra wage 
 on to the consumers. But this raising of price is 
 almost out of his power. He himself is over-ruled 
 by circumstances. The worth of the employer, qua
 
 250 TRADE UNIONISM: book 11 
 
 employer, as I said, is tested probably more severely 
 than that of any other class, and he cannot, on the 
 whole, make more than a wage that compares badly 
 with the wage for similar work in other departments 
 of labour. If so, it is not possible for him to pay 
 higher wages than he requires to ; and, once this is 
 recognised, the paying of extra wage falls under the 
 category it never should fall under, that of charity. 
 Is he to But let us take the exceptional case where he, 
 "black- individually, has an extra profit, or, rather, where 
 le g" ? he is obtaining what is properly called "rent" in 
 addition to his profit, and is sacrificing some of this 
 rent. In industry, as we have abundantly seen, no 
 individual stands alone. In each factory there is an 
 ebb and flow of labour which keeps up its level 
 while changing the personnel of the labourers. A 
 rise of wages, then, given by one employer of his 
 own good will, is the starting-point of a demand for a 
 rise in all similar industries. But, ex hypothesis to 
 give this rise will deprive the average employer of his 
 living. Has the exceptional employer in this case 
 no responsibility to his class — those who work hardly 
 for their living and get their living paid them in the 
 wage called profit ? Is the conception of " blackleg " 
 to be confined to the working classes ? l 
 
 If, lastly, he has no extra profits or rent, and yet 
 pays his men more than he needs must — perhaps 
 because he has other resources on which he can live — 
 it comes to the same thing. It is like a muni- 
 cipality building houses for the poor and under- 
 
 1 In time, of course, this will have to right itself, unless the benevolent 
 employer in question is able to absorb all the trade of his crushed-out 
 rivals.
 
 chap, xx FOR AND AGAINST CHEAP LABOUR 251 
 
 selling the private builders. If the private builders 
 are discouraged and cease building, the municipality 
 will soon have enough to do, although, probably, the 
 new drain on the ratepayers' pockets will have the 
 effect which is absent when a private employer does 
 the supplementing out of his own pocket. 
 
 It may very well be contended, then, that, in acting 
 according to his own interests, the employer is over- 
 ruled to do the best he can for the largest national 
 interest, the interest of the consumer. The end of 
 his activity is the making of the two blades to grow 
 where one grew before — the increasing of that mass 
 of goods over which the pounds, shillings, or pence 
 paid as wage are a claim. To the extent that he is 
 successful, the money which the worker gets buys 
 more and more of these goods ; and, without paying 
 more wage than he needs to pay, the employer fills his 
 place as a necessary servant of the community. 
 
 But, beyond this, we may very well ask what is What is 
 the meaning of "cheap labour." It is amazing how u ^ur?»j 
 long people will go on confidently using a word 
 without noticing its ambiguity. What are cheap 
 goods ? Are they "cheap" in comparison with what 
 one would pay " rather than go without " them ? 1 
 Or with what one would pay in ordinary circum- 
 stances ? Or with what one used to pay ? Or 
 with their importance to our physical needs ? Is 
 aluminium "cheap" at 6d. a lb. because it has valuable 
 qualities that are not combined in other metals of 
 similar price, or because it was 5s. 3d. a lb. in 1883 ? 
 Cheapness is opposed to dearness, and both terms are 
 
 x The difference between this and what one "actually does pay" is 
 Marshall's definition of Consumers' Rent, or rather Consumers' Surplus.
 
 252 TRADE UNIONISM: book n 
 
 relative to some norm. But if one asks the economist 
 what "normal price" is, he will ask, "Which normal?" 
 and will refer the inquirer to Professor Marshall's 
 Principles for an answer — if he agrees with Professor 
 Marshall. 
 
 But the " cheapness " of a service, or of an instrument 
 of production, is still more difficult of definition. We 
 are not allowed, it seems, to speak of the manufacturer 
 or tradesman as selling his services for " less than they 
 are worth " : their " worth " is admittedly what they 
 will fetch. The working man's labour, however, seems 
 to have two worths : one, what it will fetch if bought 
 and sold freely ; the other — well, what is the other ? 
 Is it the Trade Union price ? But that is begging the 
 very question. Is it the price of " subsistence " ? But 
 it is scarcely conceivable that any one who makes 
 a grievance of " cheap labour " would refer to subsist- 
 ence price as forming the norm. Labour, one must 
 remember, is not valuable in itself; only for what it 
 does in the production of something which is considered 
 valuable enough to buy. Therefore the criterion of 
 what labour is worth is the price which the consumer 
 will pay for that something. To say, then, that labour 
 is cheap would seem to say that it is embodied in goods 
 that sell for a low price. But if this low price is all 
 that the consumers will pay, why call the goods cheap, 
 and what becomes of the contention that the labour is 
 cheap ? It amounts to the old charge that the em- 
 ployers bring down the price of goods ; that they sell 
 more cheaply than they might. Certainly they do ; 
 but, unless we are willing to adopt a subsistence theory, 
 and say that wages must determine price, we must say 
 that the reduction of price is what we expect of the
 
 chap, xx FOR AND AGAINST CHEAP LABOUR 253 
 
 employer ; and, carrying the war home, we may say 
 that the working classes are the first to grumble if 
 prices are raised against them, and the first to beat 
 down prices all they can. 
 
 Need any more be said to show that, before the 
 word "cheap labour" is put forward as carrying 
 condemnation of the thing, it would be as well to 
 define what the complainants mean by "cheap" r 
 
 Thus far of the argument which the " survival The Trade 
 of a discredited political economy " might advance for """. 
 the action that Trade Unionism exists to oppose. 
 Let us now, still by way of introduction, look equally 
 fairly at the Trade Union answer. 
 
 If a Socialist State, falling heir to the outward form 
 and methods of individualism, were to appoint its own 
 officers, and instruct them that the one end they must 
 keep in view is the production of the greatest sum 
 of wealth from the resources, material and human, of 
 the community, there would be, one may assume, no 
 combinations of labour ; the workers would resign 
 themselves to be treated simply as productive factors, 
 their weekly wages to be paid according to the estimate 
 of the employers as to their worth in the co-operation — 
 the employer having no private interest in the matter. 
 But in this case the payment of wages would be 
 only the first instalment of the real remuneration. 
 There would be a balance of payment to be made 
 subsequently. Whether it took the form of State 
 expenditure for common objects, or extra payments 
 to the workers on some other ground — it might 
 be of deserts, or of wants, or of this or that — 
 the whole of the second blade would go to the 
 workers.
 
 254 TRADE UNIONISM: book h 
 
 The worker But, under the present system, the first instalment 
 must make j a jj ^ ^ wor ] cers can be sure of ; the second 
 
 his claim ' 
 
 where he blade goes indeed somewhere, but there is no guarantee 
 
 forced" t ' iat lt § oes to tnose wno have produced it. Now 
 this, as was said, is practically to get the worker to 
 add the greatest amount to the National Income, 
 while inducing him to take the lowest claim on the 
 National Income ; for, as was proved in the earlier 
 part of this book, the production of the National 
 Income is at the same time the distribution of it. 
 Of course, it is a great thing to increase the income, 
 but if, in the production, the distribution is deter- 
 mined — if the worker's share of it is determined as 
 he produces it — he is bound to ask that the production- 
 distribution process gives him his due claim on the 
 total income. 
 
 To use an analogy : the inventor is not content to 
 know that his new machine will reduce prices, and 
 that he will have his share in the cheap goods. Nor 
 is he content to earn his remuneration by making and 
 selling it. He takes out his patent rights ; that is, he 
 puts in his claim at the point where he can enforce it. 
 Similarly, granting that a large National Income is 
 desirable, the workers have no guarantee of their share 
 unless they put in their claim at the point where they 
 can enforce it, and that is when their labour is needed 
 to produce the income. In short, while cheap goods 
 are a very good thing, what is the worker advantaged 
 if his wages are reduced in the same proportion as the 
 goods are cheapened ? 
 Good wages There is, continues the argument, a fallacy in the 
 chea" current idea that low wages have an adequate corn- 
 
 goods, pensation in cheap goods. There is no doubt that
 
 chap, xx FOR AND AGAINST CHEAP LABOUR 255 
 
 some logically-minded people conceive that, if wages 
 go down and goods get cheaper and cheaper, the 
 workers are as well off as ever, and better off, perhaps, 
 if they are thus deprived of their power of striking. 
 They say that, so long as the productiveness of labour 
 and capital is not impaired, industry produces an 
 undiminished National Income whatever wages are 
 paid, and they are apt to think that the distribution is 
 equally unaffected. One way of distribution is in low 
 wage and cheap prices ; the other is in high wage and 
 high prices. If the two are in proportion, the worker 
 gets the same amount of living out of his wages in 
 either case. A poor woman making iijd. a day at 
 stitching up ready-made clothing is not a pleasant 
 object, nor yet is a whole family making up match- 
 boxes at 2^d. the gross (themselves providing the 
 paste). But see how wonderfully things work out : 
 the former household can buy a complete boy's suit 
 for 4s., and the latter can get two boxes of matches 
 for a halfpenny ! 
 
 The fallacy here lies in the assumption that the 
 benefit of low prices goes to the workers alone. The 
 workers are only one section of the community, and 
 they are individually small consumers, while the low 
 prices spread their gain over the other and more 
 extravagant sections as well. 1 No doubt the con- 
 sumers are the larger body, inasmuch as they embrace 
 paupers, criminals, invalids, children, women, and idle 
 
 1 It is estimated by the Fabian Society that, although the wage- 
 earners of the United Kingdom number four-fifths of the population, 
 they consume only between one-third and two-fifths of the annual 
 aggregate of products and services. It would be more satisfactory, per- 
 haps, if this estimate were given by the Statistical Society.
 
 256 TRADE UNIONISM: bookh 
 
 persons. But the interests of invalids, children, and 
 women are bound up with the interests of the men 
 who support them ; the interests of paupers and 
 criminals are quite subordinate to the interests of 
 those who work ; and, to benefit idle persons, it is 
 not wise to sacrifice the interests of the industrious. 
 It is the producing consumer or consuming producer 
 whose interests are paramount ; his interests are the 
 most real and far-reaching interests of the community. 
 The workers, then, are right in preferring to put in 
 their claim at the point where they have the best 
 chance of getting it duly honoured. 
 
 This, I think, may be accepted as the rationale of 
 the Trade Union answer to the claim of the employer 
 to buy labour as cheaply as he can. 1 Even if it were 
 proved that the quickest way to a large dividendum is 
 to allow employers this freedom, it is contended that 
 this is not enough, seeing that there is no security 
 that, in the division of it, the working classes will get 
 their due share. Better a smaller income, if, by assert- 
 ing their claim at the proper place, they can secure a 
 larger share of it. 
 
 This, it must be understood, is not by any means 
 the argument which an economist would advance as 
 
 'How far it is proper to "put words into the mouth" of Trade 
 Unionism, and find principles for action unconscious of a principle, is a 
 question. But if Mr. and Mrs. Webb had not done so, Industrial 
 Democracy would never have been written, as it proceeds all through on 
 the basis that the Trade Unions have "builded better than they knew," 
 and one is always doubtful how far Trade Unions homologate their 
 interpretation. In the present case it is evident enough that Trade 
 Unions are not guided by any conscious principle, but aim, to use the 
 frank words of their sponsors, simply at getting by Collective Bargaining 
 something better than they would get by Individual Bargaining. — i. p. 321.
 
 chap, xx FOR AND AGAINST CHEAP LABOUR 257 
 
 the final contention of Trade Unionism, but it is, so 
 far as I can see, the workman's answer to the claim of 
 "free trade in labour." 
 
 The point which interests us here in Trade The "loose 
 Unionism is its treatment of what we have called en ' 
 the " loose end " of the wages question — the equiva- 
 lence between service and remuneration. It does not 
 profess to have any opinion on the equivalence except 
 the conviction that labour is always underpaid. It 
 says that the Trade Unions have opposed an effectual 
 " dylce " against the otherwise overwhelming pressure 
 of the employers ; and, if pressed on the point, it would 
 probably say that increasing national wealth warrants 
 a better subsistence. But it is not possible to discuss 
 this " dyke " without entering to some extent on the 
 general argument and method of Trade Unionism. 
 We may begin with the arguments used to prove 
 the alleged weakness in the " strategic position " of 
 the workers as compared with that of the employer.
 
 CHAPTER XXI 
 
 TRADE UNIONISM : THE POWERLESSNESS OF THE 
 INDIVIDUAL 
 
 It is argued that employers are themselves the "victims of irresistible pressure 
 from below and around to reduce ivages. The isolated workman, on the other 
 hand, has no reserve funds to enable him to look for another job or to remove 
 his household to another locality, and he has always the enemy -within the gate ; 
 so he accepts the reduction, and the reduction spreads. The remedy is common 
 action -within a trade ; the exigencies of particular "workers and particular 
 employers being " ruled out," the -wage contract is determined between a 
 body of labourers and a body of employers. 
 
 Employers Putting aside the baser imputations sometimes reck- 
 are"power- l^ssly made against employers as taking advantage of 
 less. workers' necessities, 1 the argument is that the best 
 
 employers are themselves the victims of irresistible 
 pressure. As we have seen, they are pressed on by 
 the public and they press on one another, the last 
 comer — generally the best appointed — setting the 
 pace. Thus there are always employers who, having 
 
 1 It is painful to observe how ready workers are to charge their 
 employers — men whom they confess to be honourable in other relations 
 of life — with acts which, one hopes, they would not believe of their own 
 class, and it would be incredible to any one who had not moved in 
 Trade Union circles. I do not refer to the paying of low wages, but to 
 such accusations as breaking faith, deliberate falsehood, using false 
 weights and measures in assessing workers' product, and the like.
 
 chap, xxi POWERLESSNESS OF THE INDIVIDUAL 259 
 
 done all they can to reduce cost in other ways, and 
 finding that their rivals can undersell them, think it 
 not unreasonable that their workers should assist them 
 to keep the wheels moving by taking a smaller wage. 
 
 What is the position of the working man as against The 
 this pressure ? It is that he is generally not strong , a ourer 
 
 r 0/0 has no re- 
 
 enough to challenge it by throwing up his place. A serve price, 
 man whose utmost saving can be but a few pounds 
 is not in a position to lose time ; and, as he must 
 give up one job before he even looks for another 
 — for employment must be sought during business 
 hours — he necessarily loses time in seeking for the 
 other. Nor is he generally in a position to face the 
 expense of removing himself, his family, and his 
 belongings to another locality ; and, when it is re- 
 membered that, in the best times, the proportion of 
 unemployed in the organised trades does not fall below 
 2 per cent., 1 it is assuming too much to think that 
 another job is always waiting him in the same locality. 
 Thus he has always to calculate whether it is not 
 cheaper to lose, say, a shilling a week, than incur 
 an immediate expense which will probably run into 
 pounds. 
 
 Besides this, if the men do not work together, a and the un- 
 man's foes are those of his own household. A man emp ° y l 
 
 are at the 
 
 will think twice before he gives up his job, when gate. 
 he knows that unemployed men, who have, presumably, 
 
 1 This 2 per cent., I confess, has always staggered me, and I felt 
 relieved to hear Mr. George N. Barnes say that the explanation of their 
 not being absorbed was that they "were not in the right place, or they 
 were registered as unemployed when, as a matter of fact, they were 
 simply changing over from one employment to another," — some of them, 
 indeed, bordering on superannuation age. See further Royal Commission 
 on the Poor Laws (1909), Majority Report, p. 332.
 
 2 6o TRADE UNIONISM book 11 
 
 been round all the other places in the locality looking 
 for work, are at the mill gate waiting to take it. 
 Thus, if he stands by himself, there is every likeli- 
 hood that he will rather put up with the reduced 
 wage. But if wages are reduced in one factory, 
 the example is set to all the employers in the district, 
 and wages will follow the course of prices generally ; 
 they will steadily go down. 
 The To protect the working man against this pressure 
 
 out"' of the downwards, the obvious method, says the argument, is 
 individual, union and common action of men engaged in similar 
 work. By this united action, the unit of labour 
 becomes the body of workmen in each particular 
 trade. The exigencies of the particular workman in 
 a single establishment, in a single district, in an 
 individual trade, are " ruled out." At the same time, 
 the exigencies of particular employers are ruled out. 
 The wealthiest contractor and the builder on the 
 brink of bankruptcy, the firm crowded with orders 
 and the firm standing practically idle, are placed on 
 a uniform footing. The wage contract is concluded 
 between a collective body of workers and a represen- 
 tative employer, and, in the best unions, the inter- 
 pretation of the bargain is made by " professional 
 experts who devote their whole time to the service 
 respectively of the Employers' Association and the 
 Trade Union." l 
 
 1 Industrial Democracy, i. p. 195.
 
 CHAPTER XXII 
 
 TRADE UNIONISM : COLLECTIVE BARGAINING AND 
 THE STANDARD RATE 
 
 Collective Bargaining is an outcome of modern conditions. Its objects are 
 many, and many of them have passed into universal acceptance. But the chief 
 is the securing of a Standard Rate ; not an equal wage, but an equal rate of 
 wages ,• not an equal rate from trade to trade, but a separate rate for a separate 
 trade ,• not a maximum or an average, but a minimum ; and not a high wage 
 for poor work. To Collective Bargaining and the maintenance of the Standard 
 Rate, all Trade Union action is subordinate. Even the Friendly Society function 
 becomes a mere adventitious aid, and its funds are not sacred against an attempt 
 to cut down the Rate. 
 
 Collective Bargaining, on the whole, is an out- The out- 
 come of modern conditions. It has come with the com , e of 
 
 mo 
 break of the personal tie, which was possible when conditions 
 
 men had access to their masters but is impossible 
 in the huge factories and varied industries of to-day. 
 Granting that there should be a bargain, and not 
 merely an acceptance by one party of the other 
 party's terms, it is clear that, in many trades, indi- 
 vidual bargaining is almost impossible. In some, it 
 is the size of the organisation that is the obstacle ; 
 in others, it is the character of the work. And the 
 obstacle is entirely unsurmountable when the employer 
 is a public company. " It is not too much to say 
 that, so far as concerns the personal life of the 50,000
 
 2 6 2 TRADE UNIONISM: book n 
 
 employes of the London and North-Western Railway, 
 the 55,000 ordinary shareholders, who own that vast 
 enterprise, are even more ignorant, more inaccessible, 
 and more irresponsible than the millions of passengers 
 whom they serve." x In such trades as bootmaking, 
 again, where little changes are constantly being made, 
 even if there were the freest access to the employer, 
 no workman can know what his work is worth. 
 If there is no Collective Bargaining and the machinery 
 for interpreting it, he must either trust himself to 
 the goodwill of the employer or make guesses at the 
 worth of his own services. Here the only alternative to 
 the Collective Bargain seems to be a customary wage. 
 As a fact, in every industry where there is constant 
 change, however free it may be from Trade Union 
 interference, there is Collective Bargaining; at every 
 new detail the foreman and a knot of men, smaller 
 or larger, must agree on a price — especially if it be 
 a piece-work job — and the formal Collective Bargain 
 is no more than an extension of the agreement which 
 would be come to in any case. The contention, 
 then, is that, individual bargaining being impossible, 
 the only alternative to acceptance of the employers' 
 terms is the Collective Bargain. 
 
 Objects of The objects of Collective Bargaining are many. 
 
 BareaSg. They embrace hours of beginning and leaving off work, 
 arrangements for holidays, accommodation for meals, 
 and taking charge of valuable tools, arrangements and 
 payment for over-time and for piece-work, notice 
 required for terminating engagements, questions of 
 allowance for extras, matters connected with appren- 
 ticeship, etc. 
 
 1 Industrial Democracy, ii. p. 691.
 
 chap, xxn THE STANDARD RATE 263 
 
 In most of these it is obvious that the interests in- 
 volved are common to large groups of workers, and 
 could not reasonably in any case be the subject of 
 bargaining between employers and individuals. Among 
 those objects, again, are some, once bitterly opposed, 
 but now accepted by every one. Such are the limita- 
 tion and regulation of the hours of labour, by law in 
 the case of women and children, by agreement in the 
 case of adults, and the numerous provisions on the 
 statute-book for safety, health, and comfortable con- 
 ditions. When the question under discussion is 
 Trade Unionism as a whole, it should be counted to 
 it for righteousness that, in the past, it has fought 
 for and obtained those reforms, in the teeth of vested 
 interests, employers' opposition, and even mistaken 
 philanthropy. 
 
 But the chief object of Collective Bargaining — the 
 " practically universal regulation and indispensable The Stand- 
 
 . . ,, _, , TT . , . r arcl Rate 
 
 requisite among 1 rade Unions — is the securing or a 
 standard minimum rate of wages for similar work 
 within certain groups. We must be careful that we 
 understand what exactly this Standard Rate is. 
 
 (1) What it means to secure is not equality of wage, 
 but equality of rate of wages. Sometimes, as in the is an equal 
 largest and most powerful Trade Unions, notably the 
 Coal-miners, Cotton-spinners, Cotton-weavers, and 
 Boot and Shoe Operatives, this is secured by elaborate 
 piece-work lists, usually necessitating the constant 
 work of highly paid experts ; sometimes by a fixed 
 time wage, as with the Engineers, Carpenters, Stone- 
 masons, and Bricklayers ; sometimes by a combination 
 of the two, as in the case of the United Society 
 of Boilermakers and Iron Shipbuilders, and the
 
 264 TRADE UNIONISM: 
 
 BOOK II 
 
 Compositors. 1 But, whatever method is adopted, the 
 end aimed at is uniformity of payment for equal 
 work — " identical pay for identical effort." 
 within (2) It is not equality of rate from trade to trade. 
 
 " y ' " There is, in the Trade Union world of to-day, 
 absolutely no trace of any desire for equality of wage. 
 The card-room operatives in a Lancashire cotton-mill, 
 earning from 10s. to 20s. a week, will unhesitatingly 
 come out on strike to assist the cotton-spinners to 
 maintain a Standard Rate paid out of the products of 
 the combined labour of the two sections averaging 40s. 
 a week." It is simply equality of rate within each 
 trade. Even this expression "within the trade" must 
 be qualified. It is, naturally, an aspiration of the Unions 
 that the " trade " should mean the entire trade over the 
 country ; but hitherto " Trade Unionism cannot be 
 said to have progressed beyond the securing of a local 
 Standard Rate . . . : directly the cost of living becomes 
 appreciably different, even the strongest Unions admit 
 variations in local rates." London rates, for instance, 
 are usually about 10 per cent, higher than provincial. 2 
 
 J "What is aimed at is uniformity in the rate. In some industries 
 this can be maintained only by insisting on time wages. In others, 
 time wages would produce just the opposite result, and Trade Unionists 
 accordingly insist, with equal determination, on payment by the piece." 
 For the reasons why time wages in some trades and piece-work in others 
 make the maintenance of a Standard Rate difficult or impossible, and are 
 therefore opposed by different classes of workers, see Industrial Democracy, 
 i. p. 288. 
 
 2 Ibid. i. ii. v. The equality sought, indeed, is still more indeterminate. 
 Whether it should be equality of nominal wages or equality of real wages 
 "has never been settled in principle." As regards women, while "the 
 resentment and abhorrence with which the average working man regards 
 the idea of women entering his trade " are acknowledged, the futility of 
 prohibition has become evident, and the Trade Unions have changed
 
 chap, xxii THE STANDARD RATE 265 
 
 1- 
 mum rate 
 
 (3) It is a minimum, not a maximum. Thus, ^min 
 wherever the employer finds it advantageous to pay a 
 higher rate, "the Trade Union cordially encourages 
 
 the practice." Still the authors of Industrial Democracy 
 confess that, " although the Standard Rate is a minimum, 
 not a maximum, the establishment of this minimum 
 necessarily results in a nearer approximation to equality 
 of rates than would otherwise prevail " — and this is 
 particularly true of time-work. 
 
 And, again, they are candid enough to acknowledge 
 that " a considerable section of the wage-earning class 
 have a deeply rooted conviction that the conscientious, 
 industrious, and slow mechanic ought in equity to 
 receive no less pay than his quicker but equally 
 meritorious neighbour." * 
 
 (4) It is not a demand of high wage for poor work, and for 
 It prevents the paying of lower wage, but not because wo e r |°° 
 it demands that the poor worker be paid above his only. 
 value. It does not put forward any claim that the 
 
 their front, demanding that women also should become subject to the 
 Standard Rate. " But it is unfair, and even cruel, to the vast army of 
 women workers, to uphold the fiction of the equality of the sexes in the 
 industrial world," and an examination of what happens among the 
 Lancashire weavers, "where there has never been any sex distinction," 
 shows that there is a real though unobtrusive segregation, the heavy 
 trade falling to the men, the comparatively light work (paid for at lower 
 rates) to the women. On this Mr. and Mrs. Webb base the opinion 
 that, from the Trade Union point of view, there must be frank recogni- 
 tion of classification of work, each with its own Standard Rate. "The 
 essential thing is that there should be no under-bidding of individuals of 
 one sex by individuals of the other. So long as the competition of men 
 is virtually confined to the men's jobs, and the competition of women to 
 women's jobs, the fact that the women sell their labour at a low price 
 does not endanger the men's Standard Rate." — ii. x. (d), p. 506. 
 
 1 In Jus trial Democracy, i. ii. v. p. 285.
 
 266 TRADE UNIONISM: book 11 
 
 poor worker should be taken on at all. But, if he is 
 taken on, it demands that he be paid the rate, on the 
 ground that it is better that the employer should suffer 
 in having to pay him a full wage, than that his weak- 
 ness should be used to pull down the wage of all the 
 others. 
 
 There is, indeed, a premiss in the argument which 
 needs bringing out. It is that the average labourer is 
 "worth" the rate which his Union demands. Probably 
 most of us, inadvertently taking the Trade Unionist's 
 view for the Trade Union view, do some injustice to 
 the argument here. The idea seldom, indeed, enters 
 into the head of the workman that his labour is valuable 
 as a tool and only as a tool. Even where it does dawn 
 upon him, he thinks that his labour is always worth a 
 wage. But, beyond this, he has been so accustomed 
 to a steady rise in wages that he is firmly convinced 
 that labour steadily grows more and more valuable, 
 and he naturally concludes that he is at all times worth 
 at least the wage of his trade. 
 
 But the theory of Trade Unionism on this point is 
 sound enough. It does not hold that wages must always 
 rise and never fall. 1 It professes to take as its rate 
 the sum which, between employers and workmen, is 
 agreed on as an adequate remuneration for the services 
 of an average workman in the circumstances of his 
 trade, and it admits no man into its ranks who is 
 
 la The cotton-spinners, for instance, whose standard earnings are 
 determined by an exceptionally stable National Agreement, have, during 
 the last twenty years, agreed to twelve alterations of this standard, 
 five times upward and seven downward." — Industrial Democracy, i. 
 p. 256. The popular contention of the coal-miners that price must 
 follow wages is not a recognised Trade Union contention, and is not 
 likely to be.
 
 chap, xxn THE STANDARD RATE 267 
 
 under this average standard. 1 We are prevented from 
 seeing that the assumed premiss is a perfectly fair one, 
 only by the common conviction that the " ca' canny " 
 principle, adopted by certain Unions, is a part of Trade 
 Unionism. 
 
 To Collective Bargaining and the maintenance of 
 the Standard Rate, all Trade Union action subordinates 
 itself, and in their defence it gives up many things, 
 admirable in other respects except that they tend to cut 
 workmen off from one another. This is the reason 
 of the sullen dislike or active hostility to outside 
 friendly societies, sick and burial clubs, to profit- 
 sharing schemes, sliding scales, and all lines of 
 "vertical cleavage" — to say nothing of Home Work 
 and the Small Master system. 
 
 This also explains, if it does not justify, the Subordina- 
 
 ,. . . - 1 • 1 . 1 1 tion of the 
 
 peculiar position in which the mutual insurance ident 
 part of the Trade Union function stands. A Trade function 
 Union cannot be sued ; it does not enter into any 
 legally binding contract ; and, probably as conse- 
 quence, the Friendly Society department, from the 
 actuarial point of view, is about as bad as bad could be. 
 It "does not rest on any actuarial basis" ; it "represents 
 at best the empirical guesswork of the members"; 2 
 
 1 The question, of course, remains whether workers, once admitted to 
 the Union, continue worth the rate, and whether any measures are 
 taken as regards members who become inefficient. 
 
 2 "No Trade Union has deliberately desired bankruptcy; but many 
 Trade Unions have persistently voted for scales of contributions and 
 benefits which have inevitably resulted in bankruptcy." — Industrial Demo- 
 cracy, i. p. 61. This unsoundness is sometimes due to rival societies 
 which overlap each other, as e.g. in engineering, and bid against each 
 other for members. — Ibid. p. 112.
 
 268 TRADE UNIONISM: book 11 
 
 it " does not profess to afford its members any legal 
 security or certain guarantee against destitution, sick- 
 ness, or old age " ; men who have paid in their sub- 
 scriptions for a lifetime are liable, without appeal to 
 law to be expelled and forfeit all claim if they volun- 
 tarily withdraw, for there is no surrender value ; the 
 scale of payment may be arbitrarily changed and the 
 benefits reduced or abolished altogether. Moreover, 
 the whole funds are available for three purposes, — 
 out-of-work pay, strike pay, and sickness and super- 
 annuation ; but the punctual discharge of the sick 
 and superannuation liabilities is "a distinctly secondary 
 consideration," and more than once great Trade Unions 
 have been reduced to absolute beggary through ex- 
 hausting their funds in the two former. 1 
 
 These are the statements, not of an outsider, but of 
 the champions of Trade Unionism. To my mind, they 
 barely manage to clear " experienced Trade Union 
 officials" of something which bears an ugly name, 
 when it is hinted that their " persistent advocacy of 
 sick pay and superannuation allowance is based on the 
 adventitious aid it brings to working-class organisa- 
 tions, namely, the potent attraction which the pros- 
 pect of support in sickness or unemployment has to the 
 young man just out of his time." 
 
 But this questionable policy is explained, if not 
 excused, once it is realised that the Friendly Society 
 function, although the oldest part of Trade Union 
 activity, and a part which has secured such universal 
 approval as to make many critics a little blind to 
 abuses of the other parts, is now quite subordinate to 
 the protective function. The benefits are a "power- 
 
 1 Industrial Democracy, i. ii. I, passim.
 
 chap, xxii THE STANDARD RATE 269 
 
 ful instrument for maintaining discipline and for en- 
 forcing upon all the decisions of the majority. If 
 expulsion carries with it the loss of valuable prospective 
 benefit, such, for instance, as superannuation, it be- 
 comes a penalty of great severity." It is, moreover, 
 an instrument against the independence of the branches. 
 "Thus the addition of friendly benefits has been, 
 on the whole, a great consolidating force in Trade 
 Unionism." 
 
 The true inwardness of the Friendly Society side 
 comes out clearly in the out-of-work provision. Of 
 course, in itself this is an admirable and much-needed 
 form of insurance, and it is noteworthy that "no other 
 organisation, whether commercial or philanthropic, 
 has yet come forward to protect the wage-earner 
 against the destitution arising from lack of employ- 
 ment " — for the reason that " this pay cannot be 
 properly administered except by bodies of men 
 belonging to the same trade and even working in the 
 same establishment." x Consequently one can hardly 
 object when it is stated that " it is the out-of-work 
 benefit which takes the most important place in the 
 
 1 This suggests the real need there is for the Friendly Society function. 
 "The great industrial insurance companies and collecting societies, with 
 their millions of working-class customers, and their ubiquitous network 
 of paid officials, but without a jury system, find it financially impossible 
 to undertake to give even sick pay, let alone out-of-work benefit. The 
 Prudential Assurance Company, the largest and best managed of them 
 all, began to do so, but had to abandon it after five years' experience — 
 unable to cope with the fraud that was practised." — Industrial Democracy, 
 i. p. 101. This consideration formed the ground of the suggestion made 
 by the Royal Commission on the Poor Latvs (1909) Majority Report, p. 421, 
 that Unemployment Assurance could best be promoted by utilising the 
 agency of existing trade organisations or of organisations of a similar 
 character which might be brought into existence.
 
 tective. 
 
 270 TRADE UNIONISM book 11 
 
 mutual insurance business, its limits being extended 
 in many instances whilst others are cut down." 
 to the pro- But this out-of-work pay is used almost purely for 
 the maintenance of the Standard Rate. Its object is 
 to prevent the man " from accepting employment on 
 terms which, in the common judgment of the trade, 
 would be injurious to its interests." "A member is 
 not only permitted to refuse job after job, if these 
 are offered to him below the Standard Rate, he is 
 absolutely forbidden to accept work on any but the 
 conditions satisfactory to his branch." Thus " the 
 whole Friendly Society business of a Trade Union is 
 only an adventitious adjunct, strictly subordinate to its 
 main function of securing for its members better con- 
 ditions of employment. In pursuit of these better 
 conditions the Trade Union must be free, in any 
 emergency, to use every penny of its funds in the 
 fight. . . . The insecurity of the Friendly Society side 
 of Trade Unionism is, in fact, inherent in the con- 
 junction of trade and friendly purposes." x 
 
 The authors of Industrial Democracy seem resolved 
 that we shall not accept Trade Unionism without 
 knowing its "seamy side." 
 
 1 Industrial Democracy, ii. p. 531 ; ibid. i. ii. passim.
 
 CHAPTER XXIII 
 
 TRADE UNIONISM [ ITS DISCLAIMER 
 
 In separating off the practice of Trade Unions from the pure theory of Trade 
 Unionism — "very necessary now when public opinion is so much irritated — we 
 find the following are disclaimed : (i) Interference tuith substitution generally, 
 particularly 'with the introduction of machinery and improved processes ,■ (2) the 
 •vested right of any class to a particular trade ; (3) insistence on apprenticeship 
 and limitation of apprentices ; (4) the objection to piece-work ; (5) maximum 
 •work ,• (6) picketing ,• (7) interference with management. 
 
 Before we go on to discuss the restrictions which Seven 
 Trade Unionism puts on the activity of the employer, jl. "]![ "j 
 it will be as well to clear out of the way some re- officially, 
 strictions which, rightly or wrongly, individual Trade 
 Unions are charged with imposing. 
 
 The last half century has seen a great change in the 
 attitude of economists, as well as of the public, towards 
 Trade Unionism. The active hostility of employers 
 has gradually passed into at least passive endurance. 
 The suspicion of the economists in the same time has 
 passed into half-hearted apology. All men now see 
 the root of good in what they thought the thing 
 evil. It is acknowledged that there must be Trade 
 Unions. It is even said, and by employers who do 
 not love them, " better a strong Union than a weak 
 one.
 
 272 
 
 TRADE UNIONISM: book 11 
 
 But if this tolerant attitude is not to turn again 
 into hearty denunciation, it will only be by clearly 
 separating off the pure theory from the practice, the 
 accidents, and the abuses — just as we sometimes sepa- 
 rate off Christianity from the practice of Christians. It 
 is evident that at present educated opinion is intensely 
 irritated against the Unions. Their crass refusal to look 
 on foreign competition as anything but a convenient 
 " bogey " set up by the employers ; the incessant 
 paralysis of large industries at a time when our country 
 has yet a chance of recovering its position among the 
 progressive nations, — these are disquieting accompani- 
 ments to a foreign policy which keeps running up the 
 British flag over old countries and new ones, and to a 
 national economic policy which opens the ports and 
 invites the competition of every other nation under 
 heaven. As for the arrogant meddling with important 
 matters of management, and the more irritating in- 
 terference with unimportant details — a long-suffering 
 public wishes to know if these are integral parts of 
 the system or not. If they are done without the 
 approval of official Trade Unionism, it is suspected 
 that they are not done without its knowledge ; and 
 the question begins to be asked, how it is that official 
 Trade Unionism does not take itself seriously, and 
 protest against them. A little more, and an attempt 
 may be made in earnest, and in honest conviction, to 
 "smash the Unions," followed, of course, by a deter- 
 mination of the Unions to revenge themselves — an 
 economic Alsace and Lorraine which may cost us dear. 1 
 
 1 I leave this as I wrote it in 1899. Since then, the position of the 
 Trade Unions has become much more recognised and assured. The 
 irritation — and alarm — of the present day is due far more to the break-
 
 chap, xxiii ITS DISCLAIMER 273 
 
 In Industrial Democracy, 1 however, we have the 
 voicing by two economists of the inarticulate sense 
 of men whose circumstances prevent them doing justice 
 to their own cause, and we may accept the following 
 disclaimer as official. 
 
 (1) Trade Unionism professes not to interfere with Prevention 
 the action of the employer in substituting one factor °. f sub ^ tltu_ 
 
 r ' ° tion of 
 
 for another. It does not object to the substitution of the most 
 machinery for labour, nor to any particular combina- g^™! 
 tion of factors in organisation, nor to the substitution 
 of members belonging to one group of workers for mem- 
 bers belonging to another group. Nor, further, does 
 it object to the substitution of one member of the 
 group for another member, provided that no member 
 is paid under the Standard Rate. All that it does is to 
 take its stand on the minimum wage for the group, 
 and forbid the substitution of one member in that 
 group for another member in the same group at any- 
 thing below this wage. 
 
 In fact, the introduction of new processes and particu- 
 machinery is not only not discouraged, but is actually machinery. 
 a part of Trade Union policy, and it is claimed that 
 the limitation put on the labour supply by the Standard 
 Rate gives a strong inducement to the employer to 
 substitute machinery for men. 2 Nothing can be more 
 
 away of the men from their leaders, involving, as it does, the breaking 
 of agreements made with the Unions ; their amazing reading of the legal 
 "peaceful" picketing; and the blow at the heart aimed by strikes in the 
 transit trades. 
 
 1 By Sidney and Beatrice Webb. London : Longmans, Green and 
 Co., 1897. 
 
 2 "The fact is that Trade Unionism on this subject has changed its 
 attitude. . . . Resistance to machinery no longer forms part of the pro- 
 cedure of British Trade Unionism. . . . The change has even gone so far 
 
 s
 
 274 TRADE UNIONISM: bookii 
 
 satisfactory than the frank declaration : "Thoughtful 
 workmen in the staple trades have become convinced, 
 by their own experience no less than by the repeated 
 arguments of the economists, that a rising standard of 
 wages and other conditions of employment must 
 depend ultimately on the productivity of labour, and 
 therefore upon the most efficient and economical use 
 of credit, capital, and capacity. ... If any of the 
 methods and regulations of Trade Unionism result in 
 the choice of less efficient factors of production than 
 would otherwise have been used, that part of Trade 
 Unionism, however advantageous it may seem to par- 
 ticular sections of workmen, will stand condemned." * 
 The ex- (2) The Right to or Vested Interest in a Trade, 
 
 righTto based on cumbrous and arbitrary lines of " demarcation," 
 a trade. between overlapping occupations — where " trivial dis- 
 putes sometimes blaze up into industrial wars of the first 
 magnitude" — is abandoned as an "obsolete doctrine." 2 
 Limitation (3) The Restriction of Numbers, by insisting on 
 apprenticeship qualifications while limiting the number 
 of apprentices, is said to be " undemocratic in its scope, 
 unscientific in its educational methods, and fundamen- 
 tally unsound in its financial aspects." 3 
 
 that there are now instances of trouble being caused by Trade Unions 
 putting pressure on old-fashioned employers to compel them to adopt the 
 newest inventions." — Industrial Democracy, ii. pp. 393-96. 
 
 1 Ibid. ii. pp. 548, 702. 
 
 2 Ibid. ii. p. 527. "In the advanced industrial communities of our 
 time, the circumstances are so complex and so perpetually changing, that 
 it passes the wit of man to define the 'right to a trade' in any way that 
 will not produce the most palpable absurdities." — Ibid. ii. p. 516. 
 
 3 Ibid. ii. p. 481. Contrary to common belief, " so far from apprentice- 
 ship regulations forming a necessary part of Trade Unionism, a positive 
 majority of the Trade Unionists now belong to occupations in which no 
 shadow of apprenticeship has ever existed." 900,000, or three-fifths of 
 
 of numbers.
 
 chap, xxiii ITS DISCLAIMER 275 
 
 (4) The objection to Piece-work is not characteristic Refusal of 
 of Trade Unionism as a whole. It is, as a fact, either pie 
 willingly accepted or positively insisted on by the 
 majority of Trade Unions, and this majority includes 
 
 the largest and most powerful among them. In the 
 trades where piece-work is objected to, it is on the same 
 grounds as, in other trades, time wages are objected to ; 
 that is to say, where it is found inconsistent with 
 Collective Bargaining and the Standard Rate. 1 
 
 (5) The occasional dictation of the maximum work A maxi- 
 to be done for the Standard Rate is explained to be a work 
 defensive measure against the practice, in some time- 
 work trades, of bribing particular workmen to act as 
 
 " bell horses " ; that is, to work at exceptional speed 
 in order to force the pace of the others. And, while 
 this is not condemned in some cases, it is pointed out 
 that it may " easily work out so as to be a fraud on the 
 employer." 2 At the same time the " ca' canny " 
 principle is described as an " adulteration of labour " 
 which may " easily bring about the final ruin of 
 personal character." 3 
 
 the whole membership, in no way restrict apprenticeship or the learning 
 of their members' occupations by newcomers : 500,000 nominally 
 retain apprenticeship regulations, but have practically thrown their 
 trades open : only 90,000 actually enforce apprenticeship regulations. — 
 Industrial Democracy, ii. p. 474. 
 
 1 Ibid. i. pp. 288, 303. 
 
 2 "He has contracted for his labour at an all-round rate on the 
 assumption that he receives a normal average of work. In the group of 
 workmen there will, of course, be some of average speed, together with 
 a few quicker men and a few slower. Any regulations which tend to 
 restrict the quick workers necessarily lowers the average of the whole, 
 upon which the collective bargain has by implication been based." — Ibid. 
 i. p. 306. 
 
 3 "The sub-contractor's practice of 'driving,' the constant pressure 
 upon a man to work always at the very top of his speed, will quickly
 
 276 
 
 TRADE UNIONISM: ITS DISCLAIMER book 11 
 
 Picketing. 
 
 Interfer- 
 ence with 
 manage- 
 ment. 
 
 (6) " Picketing," which so easily passes from the 
 legal " attending at or near a place in order merely to 
 obtain or communicate information," through the 
 illegal " watching and besetting," into violent intimida- 
 tion, is "a mark not of Trade Unionism but of its 
 imperfection." 1 
 
 (7) Finally, the interference with management, 
 which played so large a part in the case for the 
 employers in the lock-out of 1897, was strenuously 
 denied by individual branches, and disclaimed in the 
 official manifestoes. 
 
 I repeat that this is the disclaimer contained in the 
 pages of what has been hailed as the Gospel of Trade 
 Unionism. Many of us, no doubt, rubbed our eyes 
 on reading it, and some, before accepting it as official, 
 will probably want to see if, in the future practice of 
 Trade Unionism, the disclaimer is not itself disclaimed. 
 But, in view of these very definite statements, it would 
 be manifestly unfair to speak of any of these seven 
 abuses as parts of the policy called Trade Unionism. 
 
 break down the health of the worker, and impoverish the nation by 
 inducing premature old age. On the other hand, systematic loitering 
 will destroy the character and efficiency of even the most resolute worker. 
 In adulterating the product you adulterate the man." — Industrial Demo- 
 cracy, i. p. 308. 
 
 1 Ibid. ii. p. 857. "The most powerful Unions of the present 
 day, the most exacting in their demands on the employers, have laid 
 aside the whole system of picketing with its intangible annoyance and 
 easy transition into breaches of public order. In the great five months' 
 strike of the cotton-spinners in 1893, and in the gigantic stoppage of the 
 Miners' Federation in 1894, practically no pickets were posted or needed. 
 'It is not worth the risk, trouble, or expense,' writes a leading Trade 
 Union official." (It is perhaps as well to remember that Industrial 
 Democracy was published in 1897.)
 
 CHAPTER XXIV 
 
 TRADE UNIONISM : ITS DIRECT EFFECT ON WAGES 
 
 If the Standard Rate be the essence of Trade Unionism, is the restriction, after 
 all, so "very serious ? Does it not put a premium on the best employer ? But, 
 for this i>ery reason, ivc may question if the direct influence of Trade Unions on 
 •wages has been 'very great. Can it be that they have kept "wages from falling to 
 subsistence point? The "home" industries, indeed, give point to such a sus- 
 picion. But these are not factory industries, and, besides, the argument from 
 •women's industries is a "weak one. Suppose, however, -we admitted the strength 
 of this a priori contention, it altogether neglects the " demand price" of the 
 •worker, and the appeal to history and to facts gives it no support. 
 
 After this disclaimer, we seem bound to the conclusion it stands or 
 that Trade Unionism stands or falls with the Standard f ^ lls Wlt ^ 
 
 the Stand- 
 Rate secured by Collective Bargaining. It is the con- ard Rate. 
 
 solidation of the individual workers, with their individual 
 interests, into groups of workers each with a single 
 interest. These groups are larger or smaller according 
 to the extension of the policy of solidarity, but the 
 group aimed at is the Trade. Each trade, or each 
 trade within a district, aims at having and maintaining 
 a Standard Rate of wages. 
 
 By this method of Collective Bargaining and the 
 Standard Rate, it is contended, the employer is pre- 
 vented from taking advantage of the competition of 
 the starving man on the one hand, and that of the 
 exceptional workman on the other, to beat down the
 
 278 
 
 TRADE UNIONISM: 
 
 BOOK II 
 
 What re- 
 striction 
 does it put 
 on the em- 
 ployer ? 
 
 It is not 
 objected to 
 by the 
 strong em- 
 ployer. 
 
 earnings of the other workmen. "The starving man 
 gets his job at the same piece-work rate as the 
 workman who could afford to stand out for his usual 
 earnings. The superior craftsman retains all his 
 advantages over his fellows, but without allowing his 
 superiority to be made the means of reducing the 
 weekly wage of the ordinary worker." At the same 
 time, " the employer of superior business ability or 
 technical knowledge, and the firm enjoying the best 
 machinery or plant, preserve, it is claimed, every 
 fraction of their advantage over their competitors." x 
 
 When we come, then, to the question with which 
 we are concerned, and ask what effect this policy has 
 had on the distribution of income, we have to look for 
 its direct effects in the restriction which it puts on 
 the free activity of the employer-paymaster. Con- 
 fessedly, it is an artificial "dyke" thrown up against 
 the pressure exerted on and through the employer. 2 
 It prevents him buying the labour of any trade or 
 group under a certain price. He may measure capital 
 against labour as competing factors, or men of one 
 trade as against men of a related trade, or selected 
 workers against average workers in the same trade, 
 and pay them according to their worth to him ; but 
 he cannot offer less than the Standard Rate of the 
 particular trade to any man in that trade. 
 
 I have asked many employers what objections they 
 had to Trade Unions. It is significant that they, 
 almost invariably, pitch upon the actions which Mr. 
 
 1 Industrial Democracy, i. pp. 174, 175. 
 
 '"'Artificial," that is to say, as compared with the economic dyke 
 which is interposed by the indispensableness of the labour factor to the 
 employer.
 
 chap, xxiv ITS DIRECT EFFECT ON WAGES 279 
 
 and Mrs. Webb assert to be the mistakes, accidents, 
 or abuses of Trade Unionism, and that the provision 
 to which they have perhaps least objection is that of 
 the Standard Wage. So far as Trade Unionism 
 gives him an average day's work for the standard 
 wage, and does not prevent him getting more or 
 better work for more wage, the restriction is scarcely 
 felt by the strong employer. This point has been 
 put in the background by some too zealous opponents 
 of all restriction. As there are people who protest in 
 an academic way even against the Factory Acts, — 
 not that they would wish them abrogated, but that 
 they resent interference with liberty in any form, — 
 so there are critics who speak as if an employer's 
 life is not worth living unless he is allowed to pay 
 low wages. But this is to put the argument on the 
 wrong track, and to identify the freedom from restric- 
 tion with one of its accidental results. No employer 
 wishes to employ inferior workers, and few employers 
 would care to confess that they wished liberty to pay 
 low wages to good workers. Many an employer, 
 indeed, wishes to be allowed to keep on faithful 
 servants when they are past their best and are not 
 worth the Standard Rate, paying them, of course, a 
 lower wage. But this is kindliness ; " it is not busi- 
 ness " ; and it is not, unless very exceptionally, allowed 
 by the Trade Unions. " Business," on the other hand, 
 will dismiss a man whenever his hair grows grey or he 
 needs spectacles, and this the Trade Unions do not 
 condemn. But no opponent of Collective Bargaining 
 and the Standard Rate, who is worth reckoning with, 
 bases anything on the desirableness of low wage, 
 either in itself or as tending to cheap goods. Far
 
 280 TRADE UNIONISM: book h 
 
 from this, what such an opponent contends is that 
 it prevents the best workmen from getting their full 
 deserts, and, moreover, prevents the average wage 
 from being as high as it might be. 1 
 The real The real objection which I find among employers 
 
 o jection. — an( j j t j s veJ .y bitterly expressed — is that the mini- 
 mum tends to become the usual wage, owing to the 
 jealous dread of the majority that the better work 
 of the better man should reflect too strongly on the 
 average man : 2 what acts as a stimulus to emulation 
 among educated people acts in the opposite way 
 
 1 See particularly the incisive pamphlets of Mr. T. S. Cree — A Criti- 
 cism of the Theory of Trade Unions, and Evils of Collective Bargaining. 
 Mr. Cree's chief argument is that Collective Bargaining does not secure a 
 true "economic" (or, as he calls it, "just") price for labour, as it takes 
 away the only means of arriving at such a price, "the higgling of the 
 market in many dealings," and, universalised, would end in a bargain 
 between capital and labour based simply on the strength of the two. 
 But he does not say that this economic price would be lower than the 
 present : indeed, he says that it would probably be higher, and that, at 
 any rate, the price of labour outside the Unions would be higher. I 
 think it right to emphasise this point, as Mr. Cree has been held up to 
 considerable odium on the assumption — from which his character as an 
 employer of labour might have protected him — that a man who writes 
 against Trade Unions must hold a brief for capital. But indeed the 
 economist who criticises Trade Unionism with anything but a view to 
 defend it will generally meet the same fate. 
 
 2 Are employers not asking too much when they expect that a high 
 wage is sufficient to make a man exert himself up to the limit of his 
 capacity ? Are there no people among the cultured classes who are 
 content with a small income and an easy life ? And, hard workers 
 as professional people are, do they care to keep up high pressure, 
 day in day out, between 6 a.m. and 5 p.m. ? So long as the day's work 
 is mechanical and calls for none of the higher qualities of the human 
 being, I confess I do not like to see a workman, compelled by fear of 
 losing his place, or tempted by a, higher wage, so exhausting himself in 
 his wage-earning that he has no energy left for anything more Godlike 
 after hours.
 
 chap, xxiv ITS DIRECT EFFECT ON WAGES r8i 
 
 among the less educated. To this extent the policy 
 does limit the activity of the employer. Perhaps, 
 however, the evil is due, not to the Standard Rate, 
 but to the massing and solidarity of labour of which 
 Trade Unionism is the result. It might be found 
 on inquiry that the same phenomenon was as pro- 
 minent in great establishments where Trade Unionism 
 has no footing. 
 
 If, then, Trade Unionism does not claim high 
 wage, or indeed any wage, for poor work, but only 
 good wage for good work, is the restriction, after 
 all, so serious ? 
 
 There is, indeed, something in the argument that it puts a 
 
 rr> i tt • . • .• • ^u premium 
 
 1 rade Union restriction puts a premium on the strong £ n the 
 employer. Once we get rid of the idea that the strong 
 chief economy of the employer is the cutting down of ' mp ° ye 
 wages, and see that far more lies in his combination 
 of the proper factors, in securing his results by the 
 best and often the most expensive processes, and by 
 the economies of large production, this becomes clear 
 enough. To such an employer, indeed, it is a very 
 distinct advantage that he should be secured against 
 his rivals " cutting " their wage cost. In considera- 
 tion of this, the restriction of being compelled to pay 
 the Standard Rate does not seem very severe. 
 
 Again, there is a great deal in the argument — 
 although, of course, it is open to the " last straw " 
 answer — that already employers have immensely more 
 stringent restrictions put on them, and that, all the 
 same, these do not stand in the way either of their own 
 profits or of the national advantage. The provision of 
 ventilation, cubic space, degrees of humidity and
 
 282 
 
 TRADE UNIONISM. 
 
 BOOK II 
 
 The Trade 
 
 Unions' 
 
 claim, 
 
 that, but 
 for them, 
 wages 
 would have 
 been at 
 subsistence 
 level, 
 
 temperature, water supply, sanitary conveniences, the 
 regulations as to stoppage for cleaning, the fencing of 
 machinery, special appliances in the dangerous trades, 
 to say nothing of Employers' Liability and Workmen's 
 Compensation Acts — all these may be assumed already 
 to put our employers at a disadvantage as compared 
 with foreign competitors. But these restrictions are 
 found to work in the same way as the Standard Rate ; 
 namely, that they stimulate the strong employer, and 
 only tell against the employer who has not the brains 
 and resource to make the larger economies — that is, 
 against the employer who has the least claim either on 
 the worker or on the community. 1 
 
 But, for the very reason that the restriction is so 
 limited, one begins to suspect that Trade Unionism 
 has acted, through its professional advocates, very much 
 as the medical man who assures us that, if he had not 
 been called in just at the last moment, the patient 
 would have been beyond human aid. 
 
 The Unions claim that they have gained for the 
 working man all the advantage he has now as compared 
 with what he had in the bad old times when combination 
 was still illegal. They do not merely assert that money 
 wages would not have risen — which might have been 
 
 la The girls in a London jam factory are still puzzled as to why the 
 Government should compel their employer to provide them with costly 
 sanitary conveniences, and yet permit him to go on paying wages quite 
 inadequate for their healthy subsistence. ... If Colonel Dyer and Mr. 
 Livesey could for a moment rid themselves of their metaphysical horror 
 of any legal regulation of wages, they would admit that the elaborate 
 Factory Act requirements in the way of sanitation and safety, and any 
 limitation of the hours of labour, constitute a far greater impediment to 
 their management of their own business in the way they think best than 
 would any National Minimum of wages for the lowest grade of labour." 
 — Industrial Democracy, i. p. 361 5 ii. p. JJJ.
 
 chap, xxiv ITS DIRECT EFFECT ON WAGES 283 
 
 compatible with a very real rise due to the falling prices 
 of commodities ; they assert that they would have fallen 
 to subsistence point, by which we must understand 
 not only low money wages, but a money wage so low 
 that, in spite of cheap commodities, it cannot purchase 
 more than keep soul and body together. 1 The argu- 
 ments relied on are the ignorance of the isolated 
 worker, his want of reserve power, the perishable 
 nature of the commodity he has to sell, his want of 
 skill in bargaining, his liability to be pitted against his 
 fellows, the indeterminateness of the contract in every- 
 thing but nominal wage. 2 
 
 There is one field of industry which, unhappily, supported 
 
 . . . • • 1 11 1 though it is 
 
 gives point to this contention : it is the so-called ^ y the facts 
 "sweated industries," where warehouses give out work in home 
 
 1 j 1 -r* 1 • industries, 
 
 to women to be done at home. laking on persons 
 in extreme poverty, acting on their ignorance as 
 to the rates paid to others, working on their fears 
 of being left without a job, the employers are able, 
 if they like to take full advantage, to reduce wages 
 down to the rate that will just support life. There 
 seems no doubt that in such industries there are 
 
 lH Where there is no combination of any kind, the strategic weakness 
 of the individual wage-earner, unable to put a reserve price on his labour, 
 forces him to accept the lowest possible terms. ... If he refuses the 
 foreman's terms, even for a day, he irrevocably loses his whole day's sub- 
 sistence. If he has absolutely no other resources than his labour, hunger 
 brings him to his knees the very next morning. Even if he has a little 
 hoard or a couple of rooms full of furniture, he and his family can only 
 exist by the immediate sacrifice of their cherished provision against 
 calamity or the stripping of their home. Sooner or later he must come 
 to terms, on pain of starvation or the workhouse." — Industrial Democracy, 
 ii. p. 656. 
 
 2 The arguments have been put in the strongest way in the chapter 
 on the "Higgling of the Market," ibid. ii. p. 654.
 
 284 TRADE UNIONISM: book 11 
 
 no levels of wage, 1 and they have a strong case who 
 contend that this is an evasion in fact of the purpose 
 of the Factory Acts, which it would be more merciful 
 to put a stop to. The workers are generally keeping 
 up a perfectly hopeless struggle against machinery 
 and organised labour. If shirt-makers, working with 
 their needle, are competing with shirt factories, it is 
 the old story of the hand-loom weaver and the power- 
 
 1 In a very able Report on Home Work among Women, I. Shirt-making, 
 Shirt-finishing, and Kindred Trades, presented to and printed by the Glas- 
 gow Council for Women's Trades, by a trained investigator, Miss Margaret 
 H. Irwin, occurs the following : — •" As in most other industries followed 
 by women, there is an absence of any standard or uniform rate of pay- 
 ment for the same class of work throughout the trade. One shop may 
 pay is. 8d. per dozen for making pinafores, while another pays iod. a 
 dozen, both taking fourteen hours' work per day. Blouses paid at 2s. a 
 dozen by one house are paid at is. a dozen by another, the same time 
 being required per dozen in both cases. Some good-paying houses will 
 give 2s. 6d. for the making of certain garments that others pay is. and 
 is. 6d. for. Again, one house will pay 2s. id. where another pays 2s. jA. 
 Undoubtedly this system, or want of system, lends itself to irregular 
 competition on the part of both employers and workers, with disastrous 
 results to both. Rival firms in competition with each other continue to 
 outbid one another in taking contracts at still lower and lower rates, and 
 in too many cases it is to be feared the temptation to recoup themselves 
 by reductions in wages is irresistible. The workers, on the other hand, 
 having no organisation among themselves to fix and maintain a standard 
 and uniform rate, are obliged to accept the reductions pressed upon them 
 by less scrupulous or necessitous employers, until, in so many cases, 
 wages have been sunk below the actual 'starvation level ' and have to be 
 supplemented by public or private charities. In the case of a factory 
 prosecution in a town in the West of Scotland some little time ago, an 
 employer pleaded justification for working his employees at an illegal 
 time on the ground that most of his workers were in receipt of parochial 
 relief and needed the extra time to make up a wage." This reductio ad 
 absurdum of low wages recalls Miss Collet's remark in Mr. Booth's first 
 volume : "Many women, I am convinced, only take the work in order 
 to make an appearance of industry, and so qualify themselves for charitable 
 assistance."
 
 chap, xxiv ITS DIRECT EFFECT ON WAGES 285 
 
 loom. In such circumstances the best employer could 
 not give more wages than he does if he gives out home 
 work at all, and there does not seem much reason 
 in throwing the blame on the employers. Probably 
 there are few of them who would not be quite as well 
 pleased if this kind of labour were made impossible. 1 
 
 But surely the obvious answer to the use of this as 
 a general illustration is that home-work is not a factory 
 industry, but the dying struggle against it ; that, in 
 factory industry, is conspicuously absent the possibility 
 which is here prominent, the attack in detail on workers 
 whose helpless circumstances are known, and who have 
 none of the solidarity involved in regimented labour. 
 
 In fact, any argument borrowed from women's 
 industries is a weak one when extended beyond that 
 sphere. As is now well understood, women's trades 
 have, up till lately at least, lain outside men's industries 
 as non-competing groups. The field itself is a limited 
 one. For many reasons, which I have written on 
 elsewhere, 2 women are peculiarly helpless ; and, as 
 compared with men generally, may in many cases 
 be called hopelessly non-efficient. As regards their 
 trades, then, I should be disposed to agree with the 
 contention just adduced ; or, rather, to say that where 
 the level of women's wages stands above what may be 
 called the physiological minimum, it is due to custom, 
 and perhaps to the pressure of public opinion, rather 
 than to anything else. 3 
 
 1 See "Employers' Views," p. 12 of same Report. 
 
 2 Studies in Economics, "Women's Wages," p. 107. 
 
 3 Particularly in the larger women's industries is it evident that a 
 level of wage prevails which is wholly customary, and which no employer 
 ever thinks of beating down.- — Ibid. p. 127.
 
 2 86 
 
 TRADE UNIONISM. 
 
 BOOK II 
 
 neglects the 
 
 demand 
 
 price, 
 
 and has no 
 support 
 from 
 history. 
 
 But suppose that we admitted the truth of all this 
 highly a priori argument as regards men's industries, 
 and admitted, moreover, that employers are scarcely 
 aware of their tremendous power to press down wages, 
 simply because few of them have ever cared to exert it, 
 there is surely another side. It is that labour is not a 
 tool which may be used or may not, but a factor whose 
 co-operation with capital is indispensable, and, in many 
 cases, a tool which cannot be replaced by any other 
 factor whatever. Is there no such thing as competition 
 for the services of this tool ? But, to go further in 
 this answer would take us over the whole course of our 
 previous argument ; namely, that the wages of labour 
 have been determined by and have risen with the increase 
 of the National Income, and that the explanation is to 
 be found in the fact that they are a demand price, not, 
 as the Trade Union argument assumes, a supply price. 
 
 What justification, then, have the Trade Unions for 
 this extreme claim that, but for them, wages would 
 have been kept at subsistence level ? Do they appeal 
 to history ? Well, history does tell of a time when 
 wages were at starvation level, but it was in France in 
 the eighteenth century, and the lesson was much more 
 political than economic. More to the point is the 
 reference to the earlier years of the last century, when 
 capital was beginning to increase, but labour was still 
 abundant, there being no restriction on the hours of 
 men and women, and no restriction on the labour of 
 children. Between the upper millstone of the em- 
 ployers' pressure and the nether of abundant labour, 
 wages were kept low enough, although it does not 
 appear historically accurate to say that they remained 
 at subsistence level.
 
 chap, xxiv ITS DIRECT EFFECT ON WAGES 287 
 
 But the situation is fundamentally changed when 
 the flood of wealth far outstrips the flood of population. 
 Why appeal to a time when the conditions were 
 essentially different, and ignore the history of the last 
 thirty years? 
 
 The conclusion seems to be that, in this regard, 
 Trade Unionism must lower its claim. If it be 
 granted that the restriction which the Standard Rate 
 puts on the employer is after all so small, and has so 
 many points which do not affect the strong employer 
 at all, its defence must be put on other grounds than 
 that it has compelled unwilling employers to pay a 
 high and increasing wage.
 
 CHAPTER XXV 
 
 TRADE UNIONISM : ITS INDIRECT EFFECT 
 ON WAGES 
 
 Especially in view of the international character of trade, ive must ask if 
 Trade Unionism may fairly be regarded as promoting the permanent efficiency 
 of the community. Perhaps its best service is the elimination of the person who 
 is subject to the temptation to pay lower wages, the weak employer. For low 
 •wages contain a double danger : they tend not only to inefficient labour in the 
 present, but to an enfeebling of the race. Scarcely less important is the premium 
 it puts on the good workman, excluding from Trade Union advantages those 
 who do not come up to the Union standard of efficiency. Thus, indirectly, its 
 influence on wages may be considerable. 
 
 The "The economist and the statesman will judge of 
 
 challenge. T rac ie Unionism, not by its results in improving the 
 
 position of a particular section of workmen at a 
 
 particular time, but by its effects on the permanent 
 
 efficiency of the nation." ! 
 
 To most people, perhaps, the defence of Trade 
 Unionism has not an absorbing interest. Quite evi- 
 dently the Trade Union has come to stay. It is the 
 analogue anions? the industrial classes of what one sees 
 all around : that individual competition has its limits ; 
 that the instinct of every individual is to build up a 
 
 1 Industrial Democracy, ii. p. 702.
 
 chap, xxv INDIRECT EFFECT ON WAGES 289 
 
 private little dyke of his own against competition ; x 
 that combination is as much a characteristic of this 
 century as competition. It was inevitable that Trade 
 Unionism should assert itself when the new order 
 abolished what made the old order supportable — the 
 personal tie. The worker in former times had an 
 appeal to the reason or the humanity of the employer. 
 But there is little personal tie in the latest growth of 
 industry, the limited liability company ; or, if there is, 
 it is a survival. We might as well argue against the 
 progress of democracy, of which indeed Trade Unionism 
 is a phenomenon and incident. The old order changeth, 
 and all the wise man cares to see is that the wisdom 
 of the old order is incorporated in the new. 
 
 All the same, there is one matter in which it is Foreign 
 important that we should know the true bearings of t° mpetl ~ 
 Trade Unionism : it is as regards foreign competition. 
 The thoughtful Englishman may well be appalled by 
 the difficulties of the task which this Free Trade 
 country has set itself. Our highly paid industry has 
 to meet two distinct and formidable competitions. 
 One is the similar competition of countries with 
 capital as great and workers as good as ours. The 
 other is the competition of new countries where labour 
 gets as many pence as it gets shillings with us, where 
 there are no Factory Acts for restriction of hours and 
 no expensive sanitary requirements, and where industry 
 is equipped by British capital and managed by British 
 brains. In face of these two competitions, the first 
 
 1 The reader is referred to the admirable passages where Mr. and Mrs. 
 Webb show in detail the various dykes built by propertied, learned, 
 and professional classes in defence of their various interests. — Industrial 
 Democracy, ii. p. 566. 
 
 T
 
 290 TRADE UNIONISM: book n 
 
 impulse of our employers is to meet their rivals with 
 their own weapons and reduce wages. 
 
 The Trade Unionist, of course, considers it a 
 matter for pride that he prevents this. If he thinks 
 about the matter at all apart from his own immediate 
 interests, he perhaps quotes Sir Robert Giffen that 
 " the labour and capital engaged in foreign manu- 
 facturing is only a fraction of our whole industry. 
 England might still be a great and prosperous country 
 even if the whole of that fraction were to be at once 
 swept away." 1 But this does not satisfy those who 
 fear not only for our foreign but for our home trade, 
 and who look on the protective policies of countries 
 like America with comparative calmness, only because 
 they know that, if these countries should adopt Free 
 Trade, our home market itself would be in some 
 danger. On the other hand, one may very well 
 believe that any general reduction of wages, based on 
 the impossibility of competing with other countries, 
 would lead the electoral majority to follow the example 
 of these countries, and endeavour to keep wages high 
 by Protection. 
 
 It is principally in view of this that we must take 
 up the challenge which heads this chapter, and ask if 
 Trade Unionism may fairly be regarded as promoting 
 the efficiency of labour. For if it does, it has a strong 
 indirect effect on wages, and we need have little fear 
 of foreign competition. 2 Evidently it is one thing to 
 
 1 Essays in Finance, p. 146. 
 
 2 It is significant that the trades which contribute three-fourths of 
 our exports, namely, textiles, shipbuilding, machine-making, and coal- 
 mining, are the trades in which Trade Unionism is most prominent. — 
 Industrial Democracy, ii. p. 760.
 
 chap, xxv ITS INDIRECT EFFECT ON WAGES 291 
 
 regard Trade Unionism as a mere device for obtaining 
 an increase in the standard of comfort, and quite 
 another to regard it as a means for increasing the 
 producing power of the worker. 
 
 We have already seen that Trade Unionism may 
 fairly be regarded as putting a premium on the strong 
 employer. Placing all employers on an equal footing 
 as to the rate at which they obtain labour, it acts 
 against the weak employers, and puts the destinies 
 of the working classes in the hands of those who are 
 best able to allow labour an increasing share, and are 
 least tempted to reduce wage ; and it throws the 
 energies of such employers into reducing their cost 
 by the introduction of the most efficient machinery, 
 processes, and organisation. 
 
 Now it may be questioned if the best service of The eiimi- 
 Trade Unionism to the permanent efficiency of the natl0n ° f 
 
 r ' the weak 
 
 community does not lie in the implication of this — the employer. 
 tendency to eliminate all but the strong employers. 
 Trade Unionism here is hard — even cruel. Many have 
 been inclined to think that the workman did not know 
 what was his own interest when he ignored the com- 
 munity of interest between himself and his employer, 
 and threw in his lot instead with his fellow-workers. 
 It meant the deathblow to the old-fashioned personal 
 relation, and very often it meant the deathblow to the 
 old-fashioned employer. But here again it seems to be 
 the case that Trade Unionism has " builded better than 
 it knew," when it frankly, if unconsciously, embraced 
 the " cash nexus " as the one appropriate to the times. 
 After all, the employer exists for the employed — the 
 few for the many — and the employers of last generation,
 
 292 TRADE UNIONISM: book n 
 
 however generous and well-meaning, seemed very 
 often to put the relation the other way about. But 
 when this is recognised, and the abolition of the per- 
 sonal tie makes the interests of both more clearly 
 separable, it is seen that the weak employer is a danger 
 tothe workman and to the community. It is the man 
 working with insufficient capital, smaller output, and 
 less perfect plant, or the man who has not the brains 
 and resource to make the larger economies, who is 
 open to the temptation of reducing wage. Indeed, as 
 we saw, many employers would make their own 
 weakness a reason or excuse for reducing wage. It 
 is quite true that they cannot " afford " to pay good 
 wages. But is this a matter for the worker to consider 
 at all ? If the labour is the same, why should not the 
 wage be the same ? Why should the worker suffer 
 because the employer is weak ? Thus, although the 
 strong employer is not likely to pay low wages either 
 under Trade Unionism or when free to buy his labour 
 as he likes, the weak employer, unless prevented by 
 Trade Union action, 1 is ; and, at this point, we must 
 bring out the fact, which might otherwise escape us, 
 that low wages are a social danger, with far-reaching 
 economic consequences. 
 The in- What soothes the consciences of many people about 
 
 terests o j qw wa g £S> anc | p ersuac Jes them that they have no 
 children, responsibility in the matter, is that, at the worst, there 
 is a certain compensation in the cheap goods which 
 
 1 It may be quite true that this is to throw an extra burden on those 
 who are under the Standard Wage level. But the Trade Union answer 
 probably would be that this, after all, tends to the elimination of the 
 unfit, and that the permanent interests of the nation lie in forcing every 
 worker up to the standard efficiency of some Trade Union.
 
 chap, xxv ITS INDIRECT EFFECT ON WAGES 293 
 
 those underpaid workers are assumed to produce. But 
 there is one thing that is not likely to be compen- 
 sated. It is the injury done to the children. The 
 one good thing in slavery was the interest of the 
 master in the future of his workers. The children 
 of the slaves were the master's property. They were 
 always at least a valuable asset ; if the owner sunk 
 capital in training them, that capital was not lost, 
 seeing that the young slave could be sold. The slave 
 was in the position of the work horse, and his 
 children in the position of the foals. Thus, if our 
 employers were slave-owners, they would never subsist 
 their workers below the level that would secure a due 
 supply of healthy children and would allow the parents 
 to educate and train the young slaves to the same grade 
 of efficiency — any more than they would put hard work 
 on their cattle at breeding time or shear their lambs 
 prematurely. But there is no such continuity in the 
 relation between the employer and his human cattle. 
 The best-intentioned employer cannot be expected to 
 be much concerned about the efficient upkeep of the 
 workman's child when the child is free to go where 
 he likes. With us the future of the young is in the 
 hands of the father, not in those of the employer. 
 The interest of the child is the same as that of the 
 young slave, namely, that he should get a subsistence, 
 education, and training that will bring him up to the 
 efficiency of the father's trade. But, unfortunately, 
 even the father has little direct interest in giving the 
 child such a training. He will not benefit by it any 
 more than the employer would. Thus the sacrifice 
 is made by the person who will not benefit, and the 
 benefit is gained by the person who makes no sacrifice.
 
 294 TRADE UNIONISM: book h 
 
 The community indeed is wakening up to the appre- 
 ciation that this is a national question ; but, meanwhile, 
 the child's future is bound up with the father's wage. 
 The wage may be enough, even when low, to support 
 the father's efficiency, but it is not necessarily enough 
 to keep up the efficiency of the young labour on which 
 the future depends. 1 
 
 And, as it happens, this weak point in our system 
 did come out in the early part of last century, when 
 children, unprotected by a father's high wage, were 
 pressed into industrial service without restriction, to 
 meet the growing demands of machinery. It was the 
 time when Mrs. Browning wrote her " Cry of the 
 Children," and Carlyle shouted, "Deliver me these 
 rickety perishing souls of infants, and let our Cotton- 
 trade take its chance." 2 
 
 The Scarcely less important is the premium which 
 
 oTth^good Trade Union restriction puts on the good worker, 
 worker. When an employer is forced to pay a certain wage, 
 whatever men he takes on, he naturally takes good 
 care that those he employs shall be worth the wage. 
 And when workmen, competing for a job, are com- 
 pelled to stand out for a certain minimum, their best 
 chance of being taken on is to show that they are 
 worth more than the wage they ask. The competition 
 
 1 It is one of the best dialectical scores that Mr. and Mrs. Webb 
 make when they point out that the English farmer has always been able 
 to hire his labour practically at bare subsistence, and is free to exact 
 unlimited hours of work ; and that, as consequence, nemesis has fallen 
 upon him, and he can get no more out of his labourers than the worth 
 of their wage, inasmuch as he has to rely on them and on the families 
 they bring up. — Industrial Democracy, ii. p. j6z. 
 
 2 Past and Present, iv. iii.
 
 chap, xxv ITS INDIRECT EFFECT ON WAGES 295 
 
 of workers among themselves is not checked, but put 
 on a higher level — transferred, in short, from price to 
 quality, just as it is in the case of goods where com- 
 bination or custom prevents underselling. 1 It is quite 
 true, as a rule, that Union men are the elite of their 
 trade. To the extent that the Union is a strong one, 
 for a worker not to belong to it is a presumption 
 that he is not fit for it. Although this presumption 
 may be denied, it is something in favour of its 
 general validity that a wise Trade Union does not 
 take on men who are likely to come on its hands 
 for out-of-work benefits, as such men are sure to do if 
 employers do find them not up to the standard : a 
 Trade Union may surely be credited with so much 
 attention to its own interests. 
 
 Here the defence of Trade Unionism is that it has 
 gone on the same lines as individualistic action, and 
 has tended to the survival of the most efficient work- 
 man. At the same time, it may claim to have 
 softened some of the worst evils of individual com- 
 petition. It has prevented the employers doing with 
 labour what they do, and may without harm do, with 
 the other factors — introducing violent changes without 
 
 1 1 was for many years in a trade where the prices, discounts, and 
 terms among the leading firms were fixed by agreement at one level. 
 The agreement stipulated that travellers and agents were to give 
 "neither money nor money's worth" as an inducement, a box of cigars 
 or a turkey at Christmas even being counted a breach of faith. And — 
 what is not quite common in all combinations — the agreement was 
 kept, because one of the firms was rich enough and resolute enough to 
 punish any breach by an immediate break up of the combination, and a 
 30 per cent, reduction of price. All this did not prevent the keenest 
 competition between the firms, in quality, in "get-up," in suiting 
 customers' wishes ; nor did it prevent the trade from being entirely 
 redistributed among the firms.
 
 296 TRADE UNIONISM book ii 
 
 regard to the persons immediately injured. Even 
 granted that in this Trade Unionism may have kept 
 back the progress of material wealth to some degree, it 
 may be argued that, if the community had had the 
 issues fairly put before it, it would have declared for the 
 slower growth, on the ground that it is a doubtful kind 
 of wealth which saps the foundations of well-being. 
 
 The Trade Union action, then, which insists that 
 every worker employed shall be employed on his 
 merits, and irrespective of the necessities of the 
 employer, is one that tends to maintain the efficiency 
 of the worker, and hurts only that employer who is, 
 in some respects, a danger to the community. 
 
 The effect To sum up this part of our subject. As the 
 lbu ~ restriction which Trade Unionism puts on the liberty 
 of the employer is not very serious, the direct effect of 
 Trade Unionism on the distribution of income does 
 not seem very great. At least it does not amount to 
 more than securing, by an artificial " dyke," the share 
 which, with more or less friction, would have gone 
 to labour without it. But, indirectly, its effect on 
 wages seems to be considerable, inasmuch as it tends to 
 maintain the efficiency of the stream of labour by 
 favouring the strong employer and putting a premium 
 on the good worker. This conclusion, however, 
 assumes that wt are considering ideal Trade Unionism, 
 apart from its accidents, mistakes, and abuses. 
 
 tion.
 
 CHAPTER XXVI 
 
 RENT 
 
 The familiar Ricardian demonstration showed us Rent emerging as con- 
 sequence of differential qualities in a factor of supply "where demand could 
 not be met from the most productive quality available, and owed its strength 
 to the correspondence of this with the character of land and the demand for 
 food. We now see that rent is only " one species of a large genus " ,■ that 
 there are rents and quasi-rents from all factors of supply. Thus, in the case 
 of most goods, tvhile the ordinary factors are paid according to their services, 
 the price leaves a surplus which may be diverted but cannot be eliminated. 
 
 Our problem has been to find if there is any principle 
 which rules in and accounts for the present distribution. 
 The mere stating of the problem reminded us that the 
 great sum of wealth which we call the National 
 Income does not come into the hands of the nation 
 like a windfall, or like taxation brought into the 
 Treasury to be then distributed on some principle 
 or other, but is a total which has already been 
 divided out in the making ; in short, that the various 
 money incomes which make up the £2,000,000,000 
 have been earned in and for the making of the real 
 income of services. The two features which caught 
 our eye were the rapid increase of the total income and 
 the extreme inequality of the individual incomes, and 
 we saw then that the problem amounts to this : Is
 
 298 
 
 RENT 
 
 BOOK II 
 
 Suppose 
 we have 
 accounted 
 for the 
 share of 
 Labour, 
 
 and of 
 Capital ; 
 
 what about 
 Rent? 
 
 there any measurable economic connection between 
 the money incomes which have been paid and the ser- 
 vices which have been rendered ? The detailed study 
 of the Employer-paymaster has, I think, dissipated the 
 idea that the share which falls to labour is anything 
 like the subsistence of a slave system. Wages are not 
 arbitrary sums. On the whole and over the field, they 
 are the full economic equivalent of the product of the 
 wa2;e-earner. 
 
 Thus we account for something like £750,000,000 
 out of the total. But a little consideration shows that 
 our explanation has gone much farther than the incomes 
 contained in the Wage Estimate. The principle which 
 measures wage also measures the incomes got from 
 capital, so far as capital is used by Employers. The 
 same pressure downwards is exerted on both. In other 
 words : the principle which explains the remuneration 
 of labour as determined at a margin of competition 
 with machinery and other forms of capital, explains 
 the remuneration of machinery and other forms of 
 capital as determined at a margin of competition with 
 labour. If then, we may assume — as I think we may 
 — that the remuneration of capital generally is chiefly 
 determined by the remuneration which it can command 
 in ordinary productive industry, I think we may say 
 that the clue followed — the work of the Employer- 
 paymaster — goes far to explain and account for the 
 share taken by the owners of capital. 
 
 The question remains : What about the incomes 
 taken under the name of Rent ? Are they left outside 
 the scope of our principle ? This, however, cannot be 
 answered without a somewhat detailed investigation 
 into what Rent is.
 
 chap, xxvi RENT 299 
 
 We may approach the subject most easily from the The 
 old Ricardian demonstration. Here is wheat grown La "_ ' 
 on fields which pay, perhaps, £2 per acre of rent. 
 There is wheat grown on fields which pay no rent 
 at all. And the price of the wheat in either case is 
 40s. per quarter. We say that the price of the wheat 
 is determined by the expenses of production on the 
 field which pays no rent, and that the rent of £2 per 
 acre on the other field is paid because there it costs less 
 to produce this wheat. The greater the margin 
 between cost and price, the greater the rent ; the 
 less the margin, the less the rent ; rent disappearing 
 altogether where the cost and the price are one. 
 
 According to this demonstration, two things are its 
 involved in the emergence of rent. (1) There must 
 be a difference in the quality of the land employed. 
 The difference may be in the chemical constituents of 
 the soil, or in its freedom from unproductive elements, 
 or in its exposure, or in its situation generally, but, 
 however it be, there must be differential elements in the 
 factor. (2) There must be so much demand that the 
 poorer qualities have to be drawn on for supply. Now 
 the strength of Ricardo's demonstration is that it deals 
 with grain — a necessary of life which people must have 
 whatever the price ; and that this necessary of life can 
 be grown only on a factor of production of differential 
 quality. If grain were not a food, the demand for it 
 would not necessarily increase ; and, if the factors which 
 produced it were any but land, the supply of the good 
 qualities would be increased till the demands were met 
 without having resort to the poorer qualities. Given 
 these conditions, and the famous conclusion follows ; 
 " Corn is not high because a rent is paid, but a rent is
 
 300 RENT book n 
 
 paid because corn is high. . . . That corn which is 
 produced by the greatest quantity of labour is the 
 regulator of the price of corn ; and rent does not and 
 cannot enter in the least degree as a component part 
 of its price." 
 
 Care must, however, be taken that this principle — 
 of which Ricardo said, and all economists have echoed 
 him in saying, that " its clear understanding is of the 
 utmost importance to the science of political economy " 
 — is correctly applied. I have found students reading 
 the proposition that rent does not enter into price as if 
 it meant that price did not cover and yield rent ; as if 
 rent were not paid out of price. 1 Evidently the landlord 
 is paid, not by a part of the crop reserved for him, 
 but out of the price obtained for the whole quantity of 
 crop sold off the land owned by him. The price may 
 cover rent or it may not. The same 40s. price of 
 wheat pays the £2 of rent on one field and leaves 
 no rent for the other. The truth is that, although 
 the price may or may not cover rent — yield rent — the 
 price is not determined by the rent, but the rent by the 
 price. Or, to put it another way, rent does not enter 
 into the determination of price, but it is the same force 
 which presses up the price that makes the rent. 
 It has lost But as soon as it was clearly seen that the pheno- 
 menon of land rent depended on these two things, 
 necessary demand and differential supply, the old doctrine 
 lost one importance and gained another. It was seen 
 (1) that though food is a necessary of life, its strict 
 necessity is not one that grows with the increase of 
 
 1 What puzzles the student is to say that rent does not "enter into" 
 price, and yet that price "covers" rent — as if price gave up that which 
 was not in it. 
 
 one im 
 portance,
 
 chap, xxvi RENT 301 
 
 wealth, but only with the increase of population. Cer- 
 tainly, the more mouths, the more food needed, but each 
 mouth asks no more than the others — all the time that 
 the demand for almost every other form of wealth is 
 seen to be unlimited. The first effect of wealth on the 
 working classes, for instance, is not necessarily to increase 
 their baker's bill, but to throw an increased demand 
 on to all the other bills. It was seen (2) that land as 
 given us by Nature is a very different tool of produc- 
 tion from the land of a civilised people. Scientific 
 farming, with its reclamation, manuring, variety of 
 crops and rotation of crops, levels up the differences 
 in land, and makes it impossible to predicate absolute 
 fertility or infertility of any land, or to grade land as 
 first class, second class, etc. And when steam began 
 to draw the world together, it became evident that, 
 although the area of food-growing land is limited, yet, 
 it may be enough to meet the limited demand for food 
 for some generations yet. In consequence, not only 
 did the old law lose the importance it had when man 
 was pictured as prisoned on a rocky island with a 
 hungry family growing up in progressive ratio, but 
 short-sighted economists mistook the historical accidents 
 of Ricardo's demonstration for essentials, and denied 
 his law the place it had held unquestioned for many 
 years. 
 
 Once, however, the doctrine was stripped of every- and gained 
 thing adventitious, and rent remained as the payment 
 for a necessary and limited differential factor, its 
 application was seen to extend much beyond land. In 
 Professor Marshall's words, rent became only a species 
 of a very large genus. Wherever there is a differential 
 supply of any factor, and the demand for that factor 
 
 the 
 
 anotner
 
 Manu- 
 factures. 
 
 302 RENT book 11 
 
 cannot be met from its most efficient portion, there is 
 a payment of rent. And the real importance of that 
 less-noticed proposition of Ricardo was seen : " The 
 exchangeable value of all commodities, whether they 
 be manufactured, or the produce of the mines, or the 
 produce of land, is always regulated ... by the greater 
 quantity of labour necessarily bestowed on their pro- 
 duction by those who continue to produce them under 
 the most unfavourable circumstances, meaning by 'most 
 unfavourable circumstances ' the most unfavourable 
 under which the quantity of produce required renders 
 it necessary to carry on the production." 
 Rent in To take the case of manufactures. Suppose that 
 
 half a dozen mills in one trade control the market for 
 their products, and that those mills are fully employed. 
 Suppose that, owing to the lapse of time and the steady 
 progress of science which always makes the last-built 
 mill the one with the lowest cost, there is a gradation 
 of cost between the mills from A mill down to F ; then 
 the cost in A, as the oldest mill, and, presumably, the 
 most expensive to work, will regulate the price of 
 the total product. In this mill, labour will get its 
 wage, capital its interest, and the payment of organisa- 
 tion will be a simple wage of superintendence and 
 premium for risk. But every other mill will earn a 
 surplus rising from B to F. If now another mill is built, 
 say G, there will for the moment be an over-supply, 
 and this will bring down the price. At this new 
 price, A will fall below the margin ; it will not pay 
 wages, interest, and salary ; and it will be closed. But 
 the price will still be regulated by the cost in that mill 
 which works under the most unfavourable circum- 
 stances — only, this marginal mill will now be B. And
 
 chap, xxvi RENT 3°3 
 
 still, at the new cost price, C, D, E, F, and G will 
 show a differential surplus or rent. 
 
 The further extension made by Professor Marshall is Quasi- 
 well known. He takes the case of any stock of goods Rent- 
 for which the demand suddenly increases. If the stock 
 cannot quickly be increased, price rises, and the owner 
 of the stock gets a surplus of the nature of a rent. If 
 the demand continues, and a call is made on the factors 
 for extra product which is not forthcoming, the surplus 
 may be transferred, in part or whole, to the factors, 
 and they will be earning a rent. To this he gives 
 the name of "Quasi-Rent" — not meaning that it 
 is something like rent, but that it is a temporary, or 
 " short-period " rent. For if the demand continues 
 and the factors can be increased, the extra remunera- 
 tion will cause them to be increased — transferred from 
 other fields, or got from new labour and capital 
 coming forward ; and in time the surplus will dis- 
 appear. The price of the goods, then, which, for the 
 moment, was governed mainly by demand, and not by 
 the supply price of the factors, will be reduced till it 
 comes down to be a sum of supply prices, and this will 
 be the true or long period normal price. But if the 
 factors cannot be increased, then the price is governed in 
 the same way as land produce. It will be a price deter- 
 mined by the cost of the most costly portion which 
 must still be produced to meet the demand ; and though, 
 in the marginal factories, this price is divided out 
 altogether in wages, interest, and profits, calculated at 
 cost price, the price will cover a rent in all factories 
 above the margin. It will not be a pure cost of 
 production price like the other. 
 
 What remains to be added is that rent is inevitable.
 
 304 RENT book 11 
 
 Land rent is, as Ricardo said, the result of the 
 niggardliness of Nature, which has not given us an 
 infinite amount of land of the best quality, but has given 
 us so little land, and that of so mixed a quality, that we 
 cannot get all the produce we want without paying for 
 it in a heavy cost of labour and capital. Similarly, we 
 may add, if any factor for which there is a demand 
 could be increased at will, there would be no rent ; for 
 supply would be brought forward till it drowned out 
 any surplus earned. There is only one way, then, to 
 eliminate rent ; that is, to get at the secret of creation 
 and make every factor of production after the image 
 of the machine which can be turned out, to an un- 
 limited amount, of the same pattern and quality, and 
 at the same cost. 1 
 Rent may But, while rent cannot be eliminated, it does not 
 
 J^ t d | i v o e t rtcd ' follow that it might not be diverted. It is quite 
 eliminated, possible and logical to argue that rent is no hardship, 
 inasmuch as it is a surplus over the level of wages, 
 interest, and profits. The farmer and his men work 
 just as hard on the fields which pay no rent as on the 
 fields which pay ^5 an acre. But what must be added 
 as regards land rent is that, if the possession of this 
 differential factor had never been allowed into private 
 hands, the rent would have gone to the State, and would 
 have been perhaps applied in the payment of other 
 services. 2 At least, life would have been easier for the 
 
 1 Professor Patten suggests how rent may be limited absolutely by 
 throwing the demand on to crops which make less drain on the soil, and 
 relatively by reclamation and scientific rotation, thus eliminating its 
 inequalities. — The Premises of Political Economy, and The Economic Basis 
 of Protection. 
 
 2 What is sometimes forgotten is that the gain to the nation in such 
 a case would not be so great as appears at first sight. If land is taken
 
 lares. 
 
 chap, xxvi RENT 305 
 
 rest of us. But, while this is true of land rent, it is 
 not easy to see how other forms of rent could have 
 been similarly diverted. 
 
 If, then, rent is due to differential quality in the Rent enters 
 factors of supply, and is true rent or quasi-rent ' s " ia 
 according as the supply is incapable of increase or 
 capable of but slow increase, then evidently rent enters 
 more or less into the remuneration of every factor as 
 well as land. It enters into wages, (1) because the 
 human factor is naturally differentiated ; (2) because 
 it takes a considerable time before any particular class 
 of labour can be produced, educated, or trained to 
 increase the supply. It enters into profits for the 
 same reasons, the employer being in essence a head 
 worker. It enters into capital, though less prominently, 
 wherever any concrete form has secured a patent right 
 or other monopoly which prevents its quick increase, 
 although here the supply is likely to come from sub- 
 stitutes. 
 
 The conclusion is that, in following our clue of the 
 Employer-paymaster, we find him distributing out 
 among the contributing factors prices calculated at 
 margins where there is no rent. But these prices may, 
 and generally do, contain rent and provide rent of all 
 
 from private owners, it is no longer assessable for taxation. Again, 
 the hardship (or "injustice," as some people who know not Plato are 
 ready to call it) of rent is plausibly put as if it consisted in allowing land- 
 owners to live without working — without that personal contribution to 
 the National Income which is considered a duty in the abstract and 
 is resented as an impertinence in the concrete when it comes to adding 
 another rival to a market already suffering from "over-production." 
 But it has to be proved that landowners, as a class, are any more idle 
 than others of the capitalist class, or more than working people would be 
 if they had the chance. 
 
 U
 
 306 RENT book n 
 
 kinds, and this is pre-eminently the case as regards 
 prices of land products. Thus the prices of the goods 
 which constitute the National Income are divided out 
 in such a way that each factor subject to competition 
 gets its minimum, while other factors, in proportion 
 as they escape from competition in supply and are yet 
 indispensable, get more than this minimum.
 
 CHAPTER XXVII 
 
 PROFESSIONAL INCOMES 
 
 A purely tentative chapter. In Medicine and Laiv, prices are prescribed 
 by scales of fees adapted to the ability of the employer to pay. Other professions 
 are paid by salaries. From these data only three general conclusions may be 
 draivn : (i) that supply price and (2) that scarcity and monopoly play a great 
 part in these incomes ; ( 3 ) that professional incomes are based on and regulated 
 by comparison and competition with industrial incomes. 
 
 Up to this point we have considered nothing but 
 incomes earned in industries organised by employers. 
 And if the National Income consisted only of goods 
 made under the factory system, we might perhaps claim 
 to have a fairly definite principle of remuneration. But 
 Schedules D and E of the Income Tax remind us of 
 other incomes, the chief being professional incomes and 
 incomes earned under governments and municipalities. 
 In the following, I limit myself to the former. Here, how- 
 ever, we enter a sphere which has scarcely been touched 
 by economists, and I must guard myself against being 
 supposed to do anything more than make a beginning. 
 
 In Medicine, " the rate of charges for professional In 
 services is in every locality based upon the presumed e icine ' 
 annual income of the patient or employer." 1 
 
 *I quote from the statement of a Committee in 1863 appointed by 
 the Faculty of Physicians and Surgeons, the Medical Society, and the
 
 3 o8 PROFESSIONAL INCOMES book n 
 
 A payment Here the patient or " employer," to use the word 
 to C °biiit S candidly adopted in the above, pays his employe, the 
 to pay. medical man, for services rendered, but the fee is 
 measured by the employer's presumed income. This 
 is not a little startling when one realises it. It is as if 
 an ordinary employer paid his work-people, not accord- 
 ing to what they gave him in service — in product or 
 contribution to product ; nor according to the price 
 expected to be realised for the service when embodied 
 in goods ; nor yet according to what the work-people 
 needed for subsistence ; but according to whether the 
 employer was worth £s°° a year or £5000. It is, it 
 will be observed, the same principle as is now generally 
 recognised to measure taxation, namely, the ability of 
 the citizen to pay — as a municipality rates according to 
 house rent, and government according to a degressive 
 income tax. But the principle here is less disguised 
 than in taxation. For, while it might be argued that 
 a ratepayer with a large house is likely to make more use 
 of the various municipal services than a ratepayer with 
 a small house, and that a taxpayer with £5000 a year 
 
 Medico-Chirurgical Society of Glasgow. The Committee "divided 
 society into five classes," and drew up a scale of differential fees, "as 
 indicating the remuneration to which every qualified medical practitioner 
 is entitled, however junior his position or limited his practice." The five 
 classes are : (i) incomes exceeding £1000 ; (ii) from ^500 to £1000 ; 
 (iii) from £250 to £500 ; (iv) from £100 to ^250 ; (v) under £100. 
 A single visit between 9 a.m. and 8 p.m. to classes (i) and (ii) costs the 
 patient a guinea ; to (iii) 10s. 6d. ; to (iv) 5s. ; to (v) 2S. 6d. "A few 
 visits" are charged, respectively, 10s. 6d., 7s., 5s., 3s. 6d., 2s. 6d.; 
 "prolonged attendance," 7s., 5s., 3s. 6d., 2s. 6d., 2s. 6d. But before 
 or after the usual visiting hours, fee and a half is charged j night visits 
 from 10 p.m. to 7 a.m. cost double and treble 5 and country visits cost 
 double. The scale is to be found in every medical practitioner's desk — 
 though not on his walls — and regulates the charges up till this day.
 
 chap, xxvn PROFESSIONAL INCOMES 309 
 
 is likely to have more to protect than one with ^500, 
 it can scarcely be argued that the life and health of 
 a rich man are more precious than the life and health 
 of a poor one. The payment of medical service 
 follows, in fact, the principle only fully adopted in 
 our death duties, — the principle of graduated taxation. 
 It is difficult to reduce this particular income to any 
 common basis with industrial income. The relation is 
 turned the other way about : many employers employ 
 one person, instead of one employer employing many. 
 The employer is not a middleman or agent for either 
 producer or consumer : he is the consumer himself. 
 The wage paid does not depend on any realised price : 
 it comes straight out of the employer's pocket ; and, 
 indeed, it depends on the depth of the employer's 
 pocket. All the incomes we have looked at had one 
 fundamental resemblance — that there was one price to 
 rich and poor for similar goods in the same market. 
 But here the same service has a different price from 
 employer to employer : it is dearer to rich, cheaper to 
 poor. 
 
 The price of legal services in Scotland for general in La 
 business is regulated by a table adjusted and approved 
 in 1899 by the Society of Writers to His Majesty's 
 Signet, the Society of Solicitors in the Supreme Courts 
 of Scotland, the Faculty of Procurators in Glasgow, 
 and the Incorporated Society of Law Agents in Scot- 
 land. This table contains elaborate lists of fees for 
 Conveyancing and General Business, and there are 
 separate tables sanctioned by Act of Sederunt of the 
 Court of Session regulating the fees for Enrolled Law 
 Agents in the Supreme Courts of Scotland, and for
 
 3 io PROFESSIONAL INCOMES book n 
 
 Agents practising before the Sheriff Courts, etc. In these 
 very varied fees, perhaps the only general one is that 
 intended to cover business not otherwise provided for : 
 that an agent's charge for time is, in town, ios. each 
 hour, and, out of town, five guineas per day, plus 
 travelling and personal expenses. 
 
 It is, however, significant that the fees here pre- 
 scribed are maximum charges. 1 An agent may charge 
 the maximum to a rich or an occasional client, but will 
 charge less for regular family business, and a good 
 deal less in the case of a poor client. For this reason 
 the actual charges are regulated, after all, very much by 
 the same principle as obtains in the medical profession. 
 They vary with the income of the " employer." 
 
 These two These are the two great professions in which incomes 
 are quite m jp-ht be expected to show some obvious resemblance to 
 
 peculiar. o r 
 
 the incomes earned in industry, inasmuch as the services 
 rendered are sold individually at so much per visit, or 
 per hour, or per folio. But they are not only peculiar 
 in their method of charging, but they are peculiar in 
 occupying a category almost by themselves. Among 
 artists, for instance, the principle of employing is the 
 same : that there are many employers to one worker. 
 And the measure of payment is sometimes, perhaps, 
 similar, as when the bargain — a very blind bargain — 
 is made beforehand between the artist and his "patron" 
 (this being the suggestive term by which the worker 
 designates his employer). But this measure does not 
 
 X A notable thing to one brought up in industrial circles is that, 
 although there is so much latitude, there is little intentional cutting 
 of prices — at least in family business. The explanation probably is that 
 the inducement which makes a man take his business to one lawyer in 
 preference to another is greatly personal.
 
 chap, xxvii PROFESSIONAL INCOMES 311 
 
 hold where the artist puts his pictures into exhibitions 
 and shops, and sells them at one price to any buyer. 
 In authorship, again, while the principle is the same, 
 the measure of payment is not differential, but is the 
 ordinary commercial one. 
 
 The theatrical and musical professions, on the other 
 hand, conform to the commercial type. Here the 
 manager or entrepreneur is simply an employer, 
 although the actor-manager doubles his part with 
 that of head worker. As employer, he puts the 
 goods of his company on sale every evening. But 
 although stalls are half-a-guinea and pit half-a-crown, 
 the prices are not differential. The manager here 
 sells two commodities, namely, artistic productions, 
 and comfort in enjoying them ; the differently priced 
 seats are similar to the differently priced classes in a 
 railway train. 
 
 Other professions, as a rule, are paid by salaries. 
 Perhaps the most measurable of these is the important 
 profession of teaching. 
 
 In the Public or State-aided Schools of Scotland, in 
 the average salary of a head master (1909-10) is Teachin §- 
 £189 : 2 : 2 ; of an assistant master, ^135 : 18 : 10. 
 The average salary of a head mistress (principal or 
 sole teacher) is £95 : 13 : 1 ; of an assistant mistress, 
 j£8i : 19 : 2. About forty per cent, of the head 
 masters receive under ^150; 62 per cent, of the 
 head mistresses, under j£ioo. The salaries of both 
 sexes show a steady and considerable rise since 1872, 
 but this statement must be qualified by noting the 
 increasing proportions of the under-paid sex. There 
 are only eight more head masters in 1910-11 than
 
 312 PROFESSIONAL INCOMES book h 
 
 in 1889-90, while there are 474 more head mistresses. 
 At present women teachers form 71. 1 per cent, of 
 the total staff, as against 50.6 in 1889-90. The 
 prizes are urban posts, such as the minimum in 
 Glasgow and Edinburgh of ^250 and the maximum 
 of £500; the blanks are the rural posts under £75 
 for head masters and under £50 for head mistresses. 
 
 The only deduction I feel inclined to make from 
 these figures is that there is not a very close relation 
 between the service rendered and the income, either 
 absolutely or comparatively. For a rural head master 
 or mistress, with, say, 50 scholars and no assistance, 
 to keep children of all standards intellectually active 
 for four or five hours, while imparting to them a very 
 definite amount of very definite instruction, is good 
 work for the community and hard work for the teacher ; 
 and it is much heavier than that of an urban assistant, 
 who has to deal with the work of a single standard and 
 yet is better paid. Indeed it may be questioned if the 
 work of such a rural teacher, to whose enterprise and 
 generalship much is left, is not quite as heavy as that 
 of a head master in an elementary urban school, since 
 in the latter case both management and organisation 
 are in the hands of the Education Department and the 
 School Boards. 
 
 In the Scots Universities, while the salaries of old 
 chairs show a very wide range of difference, bearing 
 some little proportion to the number of students taught, 
 the principle has been laid down by the late Commission 
 that no new chair should be founded under an endow- 
 ment which with other funds would yield less than 
 ^600 a year ; and, as in other cases, the minimum 
 is likely to prove a maximum. But it is questionable
 
 chap, xxvn PROFESSIONAL INCOMES 313 
 
 if anything is to be deduced from incomes of this sort; 
 the unmeasured elements in wage are more prominent 
 here than in almost any other occupation. The 
 services rendered, the cost of training, and the ability 
 required are probably such as would command a very 
 much higher remuneration in industry. But the tenure 
 is ad vitam aut culpam : the teaching session is a very 
 short one : * the position is a very honourable one ; and 
 the work is, or ought to be, entirely congenial. It is 
 no doubt true that such a salary commands the candida- 
 tures of first-class men from all quarters of the kingdom, 
 and would command the candidature of first-class men 
 from all Europe if foreigners had any chance in the 
 competition. But, again, perhaps a lower salary 
 would command the same men ; and it is question- 
 able if better men would be forthcoming if the salary 
 were ^1000. 
 
 Of clergymen in the United Free Church of in the 
 Scotland Church ' 
 
 52 have less than £160 per annum. 
 235 have £160 per annum. 
 428 have between £160 and £200 per annum. 
 428 „ „ £200 and £300 „ 
 
 221 „ „ £300 and £400 „ 
 
 in „ „ £400 and £500 „ 
 
 J The salary looks higher than it is, from the popular conception that 
 it is " a year's payment for six months' work " — as some people think the 
 payment for a book is payment for the time taken in actually writing it. 
 Of course, the teacher has to take in as well as give out : the six months 
 of the recess are spent in preparing for the six months of the session. 
 A teacher is not a cistern of which one turns the tap for so many 
 months ; if he were, he would soon be empty enough.
 
 3 i 4 PROFESSIONAL INCOMES book u 
 
 53 have between £500 and £600 per annum. 
 31 „ „ £600 and £700 
 
 16 have over £700 per annum. 1 
 
 In the Established Church of Scotland 
 
 225 have less than £200 per annum. 
 400 „ ^250 per annum. 
 180 „ £300 „ 
 
 280 „ ^350 
 HO » ^400 „ 
 
 100 „ £500 „ 
 
 50 „ £600 
 
 20 „ over ^700 per annum. 
 The above data of various professions, slight as they 
 are, seem to afford ground for three very general 
 conclusions. 
 They have ( x ) One is that supply price has a good deal to do 
 latTon'to with professional income. When a boy has to be 
 su.PP'y supported at school and college, and heavy fees have 
 to be paid to corporations for examinations, degrees, 
 and leave to practise, it is inevitable that the charge 
 for the services should bear some proportion to the cost 
 of production. 
 
 A Scots medical student has to spend five years in 
 his professional course alone (and he should, of course, 
 have a basis of general university education before that), 
 and he usually takes a year or two of unpaid hospital 
 practice thereafter. During these years he will pay 
 from 1 8s. to 24s. a week for board and lodgings during 
 session, plus clothes, pocket-money, etc. The fees 
 and absolutely necessary charges for medical education 
 
 1 In cases where there are manses, they are in addition to these sums. 
 
 price
 
 chap, xxvn PROFESSIONAL INCOMES 315 
 
 alone of, say, an M.B. CM. of Glasgow are these : — 
 Education and examination fees, £126: registration 
 as practitioner, ^5 : necessary apparatus, £6 : books, 
 j£io : in all, ^147. This is a fairly cheap school, and 
 the items mentioned are minimum charges ; but the 
 lowest estimate for other schools would probably not 
 be below j£i20, while it may go indefinitely above 
 that. If, thereafter, the student becomes a member of 
 the larger institutions, the extra is somewhat heavy ; 
 for instance, the membership of the Faculty costs 
 fifty guineas, of the Royal College of Physicians and 
 Surgeons, .£86 : 10. The figures given above, how- 
 ever, are the lowest at which a student can become a 
 "legally qualified registered medical practitioner." Such 
 a cost of production, it is obvious, has something to do 
 with the average income of medical men in Scotland 
 being about £300 a year. 
 
 A law student in Glasgow — and this may be taken as 
 typical of Scotland generally — has to go through a five 
 years' apprenticeship, receiving usually a yearly salary 
 successively of £10, £15, £20, £25, and £30 ; but if, 
 before applying to the Court for admission as a law 
 agent, he holds a degree in Law or in Arts of a 
 University in Great Britain or Ireland, granted after 
 examination, a three years' apprenticeship will suffice. 
 On his admission as an agent, after passing his law 
 examinations, there is a stamp duty to the Inland 
 Revenue of £55 to practise before the Sheriff Courts, 
 with an additional £30 if he desires to practise also 
 before the Court of Session. He is then duly qualified 
 to practise, subject to an annual stamp duty of £6 for 
 his certificate. But, to get a good footing in the pro- 
 fession, he may think it advisable to join one or other
 
 3 i6 PROFESSIONAL INCOMES book n 
 
 of the great societies or faculties, which charge con- 
 siderable entrance fees. The Faculty of Procurators 
 in Glasgow, for instance, charges fifty guineas. 
 
 In the salaries of the Board School teachers just 
 quoted, it would be difficult to see any connection 
 between remuneration and cost of production. But 
 there is one thing here that does influence the supply, — 
 the bonus offered to young teachers. Those boys and 
 girls who become junior students (at the age of 15 and 
 upwards) receive free education, and, in certain cases, 
 allowances for travelling expenses, etc. The Depart- 
 ment regulates the supply of junior students. After 
 the three years' special course in a junior student 
 centre, there is provided for most of those students 
 elaborate professional training under Provincial Com- 
 mittees, maintained by grants from the Education 
 (Scotland) Fund, which was instituted in 1908. At 
 the end of the six years of preparation, the full-fledged 
 teacher may consider that the personal return is out of 
 proportion to the cost of production. It is curious to 
 see how all this echoes Adam Smith's remarks about 
 the Church over a century ago. 1 
 
 lH It has been considered of so much importance that a proper 
 number of young people should be educated for certain professions that 
 sometimes the public, and sometimes the piety of private founders have 
 established many pensions, scholarships, exhibitions, bursaries, etc., for 
 this purpose, which draw many more people into those trades than could 
 otherwise pretend to follow them. Very few churchmen are educated 
 altogether at their own expense. The long, tedious, and expensive educa- 
 tion, therefore, of those who are, will not always procure them a suitable 
 reward, the Church being crowded with people who, in order to get 
 employment, are willing to accept of a much smaller remuneration than 
 what such an occupation would otherwise have entitled them to ; and in 
 this manner the competition of the poor takes away the reward of the 
 rich." — Wealth of Nations, blc. i. ch. x. pt. 2.
 
 chap, xxvii PROFESSIONAL INCOMES 317 
 
 A divinity student in any of the Presbyterian 
 Churches of Scotland has practically to take the Arts 
 degree, involving at least a three years' course. In 
 the Established Church, the theological course which 
 follows takes three years ; in the United Free Church, 
 four years. The expenses of this education are very 
 small ; perhaps £5 to £10 a year would cover them, 
 and there are few extras. It may be suggested that the 
 lower cost is reflected in the lower salaries of this pro- 
 fession ; but, of course, the unassessed real wages of social 
 standing and congenial work are very considerable. 
 
 (2) The second is that the element of scarcity or They are to 
 monopoly enters largely into these incomes. Entrance someextent 
 
 r / o J monopoly 
 
 to most of the professions is severely limited by the prices. 
 qualifications demanded of the candidate by public 
 bodies — no man becomes a lawyer or a doctor when 
 he is old ; and the expenses of production limit the 
 number of entrants. It is not true to say that the 
 professions have erected a " private dyke " of their own 
 against competition, and aimed consciously at keeping 
 up incomes by limiting numbers. The great professions 
 certainly are ruled by people who limit the numbers, 
 but they do so through the natural means of erecting 
 barriers against the unqualified. And, however much 
 a command of capital may assist the able student to get 
 into a profession, the limitation of numbers will not 
 prevent him starving after he has got in if he cannot 
 command a practice. 
 
 (3) The third is that professional incomes, whether They are 
 paid by salaries or fees, are based on and regulated by (W^ai 
 competition with industrial incomes. This is not to incomes, 
 say that any direct comparison is made between the 
 services for which professional fees are charged and other
 
 3 i8 PROFESSIONAL INCOMES book n 
 
 services, but there is a comparison between the incomes 
 obtainable in each. The tendency towards establishing 
 equality of "net-advantage" wage from trade to trade, 
 which depends on the mobility of labour from trade 
 to trade, extends from the trades to the professions 
 through the mobility of the young generation. The 
 new recruits are indeed directed into professional 
 channels very largely by considerations that are other 
 than economic, but undoubtedly a comparison is 
 constantly being made between the "living" to be 
 got in the one group and that to be got in the other. 
 We seem to have an instructive analogy in Co-opera- 
 tion. The prices charged for goods in Co-operative 
 Stores are confessedly the prices of the retail shops 
 round about ; there is no other way of determining 
 the Store prices ; Co-operation thus is based on com- 
 petition. Similarly, in the professions, we seem to find 
 that the prices charged for the human factors of the 
 immaterial goods produced are based on the prices got 
 by similar and more measurable services in ordinary 
 industry. If one asks why a medical man's income 
 should run into thousands, the proximate answer is 
 that his fees are high. But when we turn to the fees 
 and ask why they are high, we have difficulty in getting 
 an answer, except that, comparing the industrial world 
 with the professional, a certain, income is necessary to 
 tempt men into this profession, and that this income 
 must be paid by the demand of the public. 
 
 In some professions the comparison is more direct. 
 A physician's services are compared with and his 
 income kept in check by the services of the druggist, 
 who is very often the physician of the poor, or 
 rather, perhaps, of the lower middle classes. The
 
 chap, xxvn PROFESSIONAL INCOMES 319 
 
 "advice " is paid for and comprised in the price of the 
 " bottle." Even rich people do not call in a doctor 
 for little ailments when the druggist is able to indicate 
 what remedies are usually taken. 
 
 In the case of a dentist, again, I am told that the fee 
 is regulated primarily by the corresponding medical 
 fee, and, as a rule, varies with the ability of the patient 
 to pay ; but, in a large part of dentistry, there comes in 
 the charge for mechanical aids and material. A dentist 
 in large practice has necessarily a workshop of his own ; 
 is, in fact, a small employer, using tools, making teeth, 
 preparing stopping, etc. 
 
 " They offer themselves in any number," said an 
 eminent dentist, speaking of his women assistants, "at 
 5s. a week to start ; that is what they get in the tele- 
 phone service. I don't pay them that, of course. I 
 give them 12s. a week at once : I cannot afford 
 more. And," he added, pathetically and parenthetically, 
 " they aren't worth it." The statement suggests : (1) 
 that the wage of such assistants is determined by direct 
 comparison with wages in ordinary industry, and that 
 the " cost price " of the dentist's services is to this 
 extent determined by industrial phenomena ; (2) that 
 this practitioner had an idea in his mind of how much 
 he should make per year as income, and regulated his 
 demand price for assistance, and to this extent his 
 income, according to that idea. 
 
 We must not, however, fall into the mistake of They are 
 regarding professional incomes as " derived incomes " ; not denved 
 
 °, ° r _ ' incomes. 
 
 as if the income of material goods were the real and 
 only income, and all others no more than a tax on 
 it — even if it be regarded as an inevitable tax. The 
 Income Tax Commissioners do not tax wealth twice
 
 3 20 PROFESSIONAL INCOMES book n 
 
 in bringing these incomes under their schedules. 
 There are certain professions which contribute to the 
 health, education, and efficiency of the workers, and in 
 this case the material National Income is increased by 
 their services. There are others which contribute to 
 the security and general wellbeing of life, to the security 
 of property, and to the efficiency of organised industry. 
 Here also the material income is larger than it would 
 otherwise be. There are other occupations which 
 produce wealth directly, but are ignorantly considered 
 parasitic ; such as the services of those who purvey 
 art, letters, amusement, etc. So long as the public 
 demand and will pay for these services, they are as 
 really contributions to the National Income as bread 
 and butter, and this is the advantage of the nomen- 
 clature with which we started, namely, that the 
 National Income is a complex of Services, whether 
 embodied in material forms or not. From the point 
 of view which we have been taking, the difference is 
 that they are not subject to the same comparisons and 
 checks as industrial incomes. The " goods " are not 
 thrown off in similar form by the thousand and the 
 million, but are, to a large extent, particular products. 
 This makes it more difficult to find a general prin- 
 ciple in the incomes got by such producers, but it does 
 not constitute a difference in natura. And what I 
 suggest is that, in the long-run, these incomes come under 
 law through the mobility of the young generation. 
 
 But as regards this whole chapter, I must repeat 
 that it is to be taken rather as a contribution of raw 
 material for others to work on than as anything in the 
 least exhaustive.
 
 CHAPTER XXVIII 
 
 IS IT AN " UNJUST DISTRIBUTION " ? 
 
 It is easy to say that the present distribution is " unjust" but only so long as 
 toe do not define our measure. In the examination of distribution something like 
 a rough justice seems to have emerged. In divided industry the factors make 
 their final appeal to Demand, and accept Price as the outside limit. If we are 
 asked to prove that this price is " justly " divided, ivhat ive can do is to shoiv 
 hoiv far arbitrary division is eliminated. As regards Labour, this is done 
 in the great industries by the appeal to the Trade, and the appeal is made 
 possible by mobility ; only so far as the mobility is imperfect does the worker 
 fail to secure his demand price. This mobility, again, does extend to a consider- 
 able degree from occupation to occupation, ivith the same results. But this 
 is not to say that the distribution is "unjust" where (here is imperfect mobility, 
 and where workers over-populate their particular compartment. As regards 
 Employers, arbitrary payment is eliminated by their mutual competition, and, as 
 regards Capital, by the excessive mobility of the rapidly increasing supply. 
 But this claim of rough justice, be it remembered, assumes private ownership 
 and free transfer. Under such a system, there must be inequality of start. The 
 protest against this is due to the right to Rent which private ownership 
 carries, and it is strengthened by the possibilities of Land Rent. But it is 
 weakened: (i) by the present phenomena of land rent ; (2) by the widening 
 of rent as an economic category ,• and (3) by the fall in the rate of interest. 
 
 In the first chapter of this second book, it was said that 
 " the soberest statesman or publicist has seldom any 
 hesitation in speaking of the ' bad ' or even of the 
 'unjust' distribution of wealth." In view of what 
 the subsequent chapters have brought out, is it possible 
 to acquiesce in this condemnation ? 
 
 x
 
 322 IS IT AN ''UNJUST DISTRIBUTION " ? book n 
 
 inequality What gives plausibility to the statement is, of course, 
 of income ^ sm allness f tne share which goes to the great 
 
 may be o o 
 
 expected majority of individuals, as contrasted with the great 
 incomes which fall to a few. On this consideration, 
 the distribution may be " bad " enough as regards its 
 effects, but it is not thereby proved to be "unjust." 
 Aristotle's principle of Distributive Justice is " equal 
 things to equal persons," but — " unequal things to 
 unequal persons." If we translate " person " into 
 " economic person," and remember that the economic 
 person is one who owns and contributes factors of 
 production, our argument is put. 
 
 When the total income of the nation, great as it is, 
 is brought into association with the population, the 
 fact is brought out that the wealth per head is not, 
 after all, very great — that no possible distribution could 
 make us all " rich " ; and this, again, suggests that the 
 "economic worth" of the ordinary undistinguished 
 
 nary 
 
 '&> i 
 
 factor cannot be very great. Under the Crofters' Act 
 in Scotland, the old aspiration has been realised that a 
 man should get as much land as he can cultivate with- 
 out hiring outside assistance, and should be secured in 
 his holding. The crofter is not a Crusoe — he consumes 
 almost nothing of what he grows or makes, but uses 
 all his produce to feed young cattle, sheep, and horses, 
 which he sells ; that is to say, he gets all the advantage 
 of the market demand. In short, he is as good an 
 example of the worker who gets " the whole produce 
 of his labour " as is the popular novelist. The result 
 shows that, outside of the fine life, the share of the 
 National Income which the crofter gets is probably 
 considerably less than the wage of a very ordinary 
 worker in an organised industry. The agricultural
 
 ch. xxvm IS IT AN "UNJUST DISTRIBUTION "? 323 
 
 labourer under an East Coast farmer — where the 
 employer-farmer is the paymaster — probably gets more. 
 If this be taken as the base line of payment according if the 
 to " economic worth," the smallness of the share which economic 
 
 ' persons are 
 
 goes to the masses individually is scarcely surprising, unequal. 
 and the cry of K injustice " must find some other basis. 
 
 Similarly as regards the other incomes ; when it is 
 pointed out that the owner of capital is really the 
 owner of an iron slave which he sets to work alongside 
 the human workers, and that he may own many 
 thousands of such slaves ; that the owner of land gets 
 his income because he hires out the services of a factor 
 which is always necessary and is highly differential in 
 quality ; that the employer is a factor who renders 
 services without which neither capital, labour, nor 
 land could produce to any effect ; that, finally, pro- 
 fessional men render services which they could not 
 render without a long and expensive training, and that 
 they also are highly " differential " in quality ; the 
 charge of injustice is certainly " not proven," though 
 these incomes may be large. 
 
 In fact, once we divest ourselves of the impression that A kind of 
 equality of income is the ideal, and accept the principle ^ u ^ in 
 that, in a world so comparatively poor, a man must pay tribution, 
 for his footing and justify his right to be here at all, 
 there emerges something curiously like a rough justice 
 in the distribution. At least it is not a distribution to 
 idlers ; nor a distribution by force or fraud ; nor a 
 distribution due to favour of the distributers, or to 
 patronage, or to privilege, or to custom. It is, in some 
 sense, a distribution according to product, and is based 
 on service rendered to the community. And if we 
 had lived in past centuries, and some one had then
 
 3 2 4 IS IT AN "UNJUST DISTRIBUTION "? book n 
 
 told us of a country where men as a rule enjoyed an 
 income because they rendered services to their fellows, 
 however rough and ready the measurement of such 
 s ervices, we should have counted it a fortunate country. 
 Perhaps we should have counted it the idle dream of a 
 Utopia ; for men's ideas of Utopia, even a century ago, 
 were very humble. Did not Adam Smith himself say 
 that " to expect that the freedom of trade should ever 
 be entirely restored in Great Britain is as absurd as 
 to expect that an Oceana or Utopia should ever be 
 established in it " ? 1 
 as it We shall never, however, understand or acknow- 
 
 measures | et j„. e t } iat t h e ac t U al distribution is based on, and 
 
 payment ° 
 
 roughly by in some way according to service, so long as we cling 
 to an abstract idea of how " service " is to be measured. 
 Its measurement is, indeed, a very difficult matter. It 
 seems easy only so long as we do not define what 
 measure we are using ; as, for instance, when we say that 
 distribution is "bad," meaning that it is unequal, or 
 "unjust," meaning that the man who sweats from 
 morn till eve does not get more than 20s. a week. It 
 is so difficult, in fact, that attempts to assess service by 
 any other than the measure we have applied generally 
 materalise into claims of compensation for effort or pain 
 (which, of course, is an implicit abandonment of the 
 very idea of service) and end in a subsistence theory 
 (which is the frank abandonment of it). 
 At least In our divided industry — that is, industry where labour 
 
 payments an( j cap j ta i a bandon their individual efforts and prospects 
 
 are not r * l 
 
 arbitrary in view of the increased return which inevitably accrues 
 from organisation — the factors of production throw 
 their products on the market, and appeal to the last 
 
 1 Wealth of Nations, bk. iv. ch. ii.
 
 (ii. xxvm IS IT AN " UNJUST DISTRIBUTION "? 325 
 
 court, that of demand. They practically agree to 
 accept as payment for their services what demand 
 dictates as the value of their goods. That is to say, 
 they accept price as the outside limit of the distribution. 
 No consideration of effort or pain will get anything 
 beyond this. To put it concretely : if the total retail 
 price realised by the sale of cotton thread is ten millions 
 sterling, these ten millions are the limit of what can be 
 paid to all the factors which have contributed to putting 
 the cotton thread in the homes of the people. This 
 being so, we are led to inquire as to the division of this 
 price among the contributories. Here the first point 
 in establishing our thesis is to point out to what 
 extent arbitrary division is eliminated, embracing in the 
 term " arbitrary " that division which would give too 
 much as well as that which would give too little ; for 
 there is only one sum of goods in which the money 
 incomes can cash their claim, and to give too much to 
 one is to force too little on another. 
 
 Here we find that the individual worker is one where there 
 of many, and the individual paymaster one of many. ,s moblllt y- 
 Within each great trade, in virtue of the regimenting 
 of industry, there is mobility ; and, to the extent that 
 there is mobility, there is an appeal from the payment 
 of one master to the payment of masters generally. In 
 the customary levels of the great women's industries, as 
 well as in the standard rate levels of organised industries, 
 we find the proof that the appeal is very real, and that 
 employers in virtue of it are reduced to paying as one 
 representative employer. To the extent, however, that 
 there is not mobility, the sections of a trade become 
 shut-in compartments, within which the level is not 
 determined so much by the demand of employers for
 
 326 IS IT AN " UNJUST DISTRIBUTION "? book n 
 
 services as by the subsistence which, to some extent, 
 prevents the remuneration from falling lower. But it 
 is only where want of mobility thus shuts labour into 
 compartments that any approach to what may be called 
 subsistence wage is seen. In all others, the remunera- 
 tion has risen with the increase of the National 
 Income. 
 
 Beyond this, to the extent that there is mobility from 
 trade to trade or from trade to profession, the same 
 tendency to a level — the same elimination of arbitrary 
 payment — is seen. And that there is considerable 
 mobility even here is manifest in the steady throwing 
 open of all trades and professions to young people who 
 are fit for the work required — just as, for instance, the 
 absence or abolition of patronage in the Scots churches 
 has opened up the ministry to any youth who 
 can get supported at school and college, and has 
 notoriously established a real mobility between even 
 the manual occupations and this particular profession. 
 
 It would, however, be too much to say that this 
 claim of " rough justice " breaks down altogether 
 where mobility is imperfect, just as, in the opposite 
 direction, it would be too much to say that the claim 
 is satisfied when Trade Union action counteracts the 
 want of mobility by keeping up wage within the 
 immobile area. In the division of labour, society 
 makes no contract, even an implicit one, guaranteeing 
 that, if too many workers come into a trade and refuse 
 or are unable to move out of it, it will give them the 
 same wage as it gives to those who wisely go where 
 there is demand for their energies ; and the fall of such 
 wages, even below subsistence point, will not appear, 
 to the person trained in economics, as a convincing argu-
 
 en. xxviii IS IT AN ''UNJUST DISTRIBUTION " ? 327 
 
 ment against the actual distribution. Ever since man 
 breathed the air around him and attached no payment 
 to its "use," he has been familiar with such common- 
 places as "too much of anything is good for nothing," 
 and it should not appear unreasonable to him when 
 the factors which make wealth receive the same treat- 
 ment, as regards payment, as all men give to the 
 finished goods which these factors make. 
 
 As regards employers, again, to show that labour 
 has an appeal from one to another, and that employers 
 generally are thus made to pay according to the ability 
 of the representative employer, is to show that, so far, 
 the arbitrariness of their remuneration is checked. But, 
 beyond this, what solidarity has done for regimented 
 labour, the competition among themselves has done 
 for the employing classes. The relentless struggle 
 to find and keep markets prevents profits from being 
 arbitrary, and tends to press them down to a level 
 which has perhaps more claim to the name of " sub- 
 sistence of efficiency " than is the case with any other 
 factor. 
 
 As regards the remaining factor, capital, the levelling 
 and equalising influence is not that of solidarity, but of 
 mobility pure and simple; and the results are seen per- 
 haps in the fact that it is possible to speak of a "rate" of 
 interest in a sense which is not predicable of any other 
 remuneration. Mobility here, however, has the effect 
 which must be expected when the supply increases so 
 rapidly that there is difficulty in getting employment for 
 it ; that is to say, the mobility becomes a weapon in the 
 hands of employers to crush down its remuneration. 
 Those of us who have to do with trustee estates, for 
 instance, and are familiar with the intimation that
 
 328 IS IT AN " UNJUST DISTRIBUTION " ? book n 
 
 Every- 
 where we 
 have found 
 levels of 
 remunera- 
 tion. 
 
 But we 
 
 assume 
 
 private 
 
 property 
 
 and free 
 
 transfer. 
 
 " Mr. So-and-so gives notice that he will pay up his 
 2,\ per cent, bond unless you renew it at 2| or 3 per 
 cent.," can bear witness to this. It is simply that 
 capital is pressing at the door of investment. 
 
 Thus, all through, we have found ourselves dealing 
 with levels, not with individual payments. At each 
 step, the suspicion of arbitrariness has retired further 
 into the background, and the reign of economic law 
 has seemed more stern. We find this reflected in 
 the contention of those who inveigh most strongly 
 against the present distribution, the Socialists, that it 
 is out of the power of the best-intentioned individual 
 to remedy matters even in his own little field ; that 
 the system so hangs together that it can be cured 
 only by a complete overturn. But, unlike them, as 
 we advance in knowledge of its complexity and 
 coherence, we are almost ready to say, with Adam 
 Smith, that in industry the individual is "led by an 
 invisible hand to promote an end which was no part 
 of his intention " ; or, at least, to repeat with some 
 appreciation the words which follow: "Nor is it 
 always the worse for the society that it was no part 
 of his intention. By pursuing his own interest he 
 frequently promotes that of the society more effectually 
 than when he really intends to promote it. I have 
 nevjer known much good done by those who affected 
 to trade for the public good. It is an affectation, 
 indeed, not very common among merchants, and 
 very few words need be employed in dissuading them 
 from it." 1 
 
 There is, however, one modification — to use a 
 
 colourless term — which must be made in this claim 
 
 1 Wealth of Nations, bk. iv. ch. ii.
 
 cn. xxviii IS IT AN " UNJUST DISTRIBUTION "? 329 
 
 of rough justice. 1 It is not justice as we would define 
 it in a "city of God," where the lives of men were 
 put into the hands of a Plato to be determined in such 
 a way that each man would " be himself," and would 
 contribute the energies of this best self to the good of the 
 whole. It is not a justice such as might conceivably 
 be realised if society could make a fresh start, and if 
 no individual were allowed to own any property but 
 himself. It is a justice which has been realising itself 
 in a community where, originally, justice was not much 
 thought of. In this community, the right of private 
 property and of free transfer of property has always 
 been recognised, and the evolution of history thus 
 far has only strengthened it. But this involves that 
 men are even more unequal economically than 
 they are by nature. The payment by service which 
 we have accepted as, more or less, a translation of 
 " payment by deserts," is a payment for the services of 
 
 1 An economist will naturally suspect the appeal to justice in an 
 economic treatise. It suggests to him that the author is going beyond 
 the province of economic science. With this feeling I entirely sympathise. 
 But one is reminded of Mill's words : that, while the laws and conditions 
 of the production of wealth partake of the character of physical truths, 
 the distribution of wealth is a matter of human institution only ; and, 
 this being so, the economist, almost in spite of himself, is generally called 
 to express an opinion on the results of distribution, which, disguise it as 
 he may, amounts very much to an ethical judgment. Certain it is that 
 no human institution will permanently stand if once people are convinced 
 that it is unjust. In this, at any rate, the economist may take shelter 
 beneath the segis of an authority whose utterances, alike in ethics and 
 economics, command the deepest respect : — "The conclusions of eco- 
 nomic science have always been supposed to relate ultimately— however 
 qualified and supplemented — to actual human beings ; and actual human 
 beings will not permanently acquiesce in a social order that common 
 moral opinion condemns as unjust." — The Principles of Political Economy, 
 Henry Sidgwick, 2nd edit. p. 500.
 
 33o IS IT AN "UNJUST DISTRIBUTION " ? book n 
 
 If, indeed, 
 we demand 
 payment 
 according 
 to personal 
 desert, 
 
 we cannot 
 have it 
 without 
 overturn- 
 ing our 
 present 
 system, 
 
 factors of production. Now we have seen that in- 
 dustrial processes take little account of whether these 
 factors are flesh and blood or stone and iron, so Ions 
 as they compete as substitutes for each other's work. 
 The payment for labour is perhaps a payment by 
 personal deserts ; but the payment for capital is a 
 payment for the deserts of a factor which does not 
 take and enjoy its pay, but hands it over to its 
 owner. The idea of personal desert, then, as a 
 principle of distribution, must be given up : we speak 
 only of the desert of a factor of production. The 
 justice I claim is that which gives to persons incomes 
 according to the " economic worth " of the factors 
 which they own. 
 
 If it be objected in limine that no justice is possible 
 under private property and free transfer of property, 
 then, of course, there is no more to be said ; although 
 we might, with some propriety, ask to see how justice 
 is to be secured in a Socialist community, and refuse 
 the ordinary answer that it is time enough to think 
 out details when such a society becomes possible. For 
 the justice, if there is any, must be determined by 
 those details. And perhaps we, in turn, might ask 
 those who adopt the Socialist answer, if they are quite 
 clear as to what they mean by a "just" distribution. 
 Is it to be something like a poll-tax which takes no 
 account of the natural and inevitable difficulties in dis- 
 tribution, or one which takes nature as it is and man 
 as he is ? 
 
 But even suppose we were to give the fullest weight 
 to the objection that the very idea of justice is bound 
 up with personal desert, it may reconcile us to the 
 inevitable if we see that this payment according to the
 
 en. xxvm IS IT AN " UNJUST DISTRIBUTION "? 331 
 
 deserts of privately owned factors is the result of a 
 right which seems innocent enough, and one without 
 which liberty would be but a limited thing — the right 
 to the enjoyment of what one makes by his own 
 labour. 
 
 What does this right mean ? Presumably the right 
 to spend what one has made ; otherwise it would be 
 hollow enough. But it could scarcely be said that 
 a father was allowed the "enjoyment" of what he 
 had made by his own labour if he was prevented 
 enjoying it in company with his family. If he is 
 allowed to enjoy it thus, what is this but giving it 
 to his family ? If the right is allowed as regards the 
 family, why not as regards the poor relation ? and if 
 the poor relation, why not the friend ? But if people, 
 when living, are allowed to hand over wealth to other 
 people, it is not reason to prevent them handing it 
 over when they can no longer hold it themselves ; at 
 any rate, the prohibition would lead only to giving it 
 during life. 
 
 But if we allow this liberty — and it seems bound 
 up with the very existence of that which is usually 
 supposed to bind society together and make it possible, 
 the Family — there emerges full blown the system under 
 which we live : that some men start life with land, where we 
 some with capital, others with nothing but their ? ay accord_ 
 
 r ' & ing to 
 
 muscles and brains. Now if one man has land, and product. 
 another capital, and a third has labour only, and if we 
 are disposed to pay the man a wage because, and only 
 because, his labour produces that which we and others 
 want, how can we draw a line and say that nothing 
 shall be given as wage to the land or as wage to the 
 capital ? The result is the same — product. What
 
 332 IS IT AN " UNJUST DISTRIBUTION " ? book n 
 
 difference does it make whether it is a human factor 
 that produces for us, or a mud-and-manure factor, 
 or a stone-and-iron one ? What we want — what we 
 demand industry for — is product. 
 The stum- Probably what gives force to the argument against 
 ofrent ° C private property is that it carries with it, not so 
 much the obtaining of interest as, the obtaining of 
 rent. Rent, again, had an artificial prominence given 
 to it, in past circumstances and in past economics, by 
 its limitation to the return from land. And land rent, 
 in turn, had an artificial prominence given to it by the 
 facile assumption that land, as a rule, had passed down 
 in families from the time of William the Conqueror, 
 and that the present landowners hold the "unearned 
 increment" of centuries. How far this coincides 
 with the familiar statement that one half of the land 
 of Scotland is for sale in the hands of a single 
 Edinburgh lawyer, and that great tracts everywhere are 
 unsaleable and unlettable, may be left to economists 
 who are still young enough and fresh enough to be 
 interested in the Morrison's Pill school of reformers. 
 It is enough here to say that the continual sale 
 and re-sale of land as an " investment," the drawing 
 together of the world and its food and mineral products 
 by cheap and rapid transit, and the spreading out of 
 the town into the country by cheap motors, is steadily 
 reducing land, in economic assessment, to the rank 
 of a special form of capital. At the same time the 
 general acceptance of Professor Marshall's thesis that 
 "the rent of land is not a thing by itself, but the 
 leading species of a large genus," and that there must 
 be rent so long as there are differential qualities in any 
 agent of product, labour being included, forbids us to
 
 interest. 
 
 en. xxvm IS IT AN " UNJUST DISTRIBUTION "? 333 
 
 regard rent as in itself a strong argument against 
 private property. 
 
 The objection to capital, as giving its owner a and 
 claim in the distribution apart from rent, would 
 be much stronger if it were not the case that 
 capital, as capital, gives a person very little power unless 
 he has a very large amount of it. The possession 
 of j£ioo will not give even the working man more 
 than 60s. or 80s. a year. And, again, it must be 
 considered that this low remuneration of capital puts 
 it freely at the disposal of any one who has brains to 
 use it. The true advantage that capital gives is the 
 start it allows to the children of those who have it, in 
 affording time for education and training, and this 
 advantage is somewhat altruistic. If we put this aside, 
 the rewarding of every ^100 of capital with 60s. or 
 80s. per year for the work it makes possible, does not 
 seem an overwhelming injustice to those who work 
 with it. 
 
 When all these considerations are given their due Distribu- 
 
 ■ 1 . >. .1 . • tion accord- 
 
 Weight, it seems to me that, given private property, • to 
 
 the free transfer of property, and the inequality of start Service. 
 
 which the possession of two factors of production 
 
 or of a differential factor gives, there is a good deal to 
 
 be said for the present distribution as a Distribution 
 
 according to Service. At least, there is enough 01 
 
 " rough justice " in it to make even those of us who 
 
 feel its imperfections most keenly think twice before 
 
 we give our countenance to any rival scheme which 
 
 has yet been proposed.
 
 CHAPTER XXIX 
 
 SOME CONCLUSIONS 
 
 The foregoing explanation of unequal distribution is not an apology for it, 
 although it disposes of the charge of " exploitation" and points the way of 
 escape for labour. The evil of -very large incomes, even though earned for 
 services, is to be deplored, both as making for waste of wealth, and as 
 making employment depend on a capricious demand. But any scheme of 
 "better distribution" must face the danger of diminishing the total distribut- 
 able. Two final considerations : that, beyond the money income, there is 
 another income which is not distributed ,• that the wcllbcing of society depends 
 at least as much on the use of the income as on its distribution. 
 
 The fore- In case of misunderstanding, perhaps I should say, 
 going ex- wna t otherwise I should scarcely think necessary, that 
 
 planation, J J ' 
 
 the foregoing is not an apology for unequal distribution, 
 but an explanation of it. 
 
 Undoubtedly the explanation takes some of the sting 
 from the evil. In showing that incomes are determined, 
 not by force, or fraud, or privilege, or custom, but by 
 u economic worth," it shows up the shallow charge of 
 "exploitation." 
 though it Moreover, it points the general way of escape. So 
 
 points a l on gr as boys are turned out on the world to work 
 
 way or o J 
 
 escape for at the age of fourteen, even if they win through the 
 deadly quicksand of " boy-labour," 1 they will, I am 
 
 1 l wonder if it is really known that a boy cannot begin an apprentice- 
 ship till sixteen. What is he to do in the two years which intervene? 
 
 labour,
 
 chap, xxix SOME CONCLUSIONS 335 
 
 afraid, so far as they go into ordinary industry un- 
 equipped by thorough education, be forced to compete 
 at the low level with the capital factors, and to take 
 the wage of these factors. The way of escape — I am 
 inclined to think, the only way x — is to take the young 
 generation, and bring them up to occupations where 
 they will escape from this deadly rivalry. In Scotland, 
 any boy of promise, whose parents can keep him at 
 school long enough to pass the preliminary examina- 
 tion into the University, is, first, subsidised by abundant 
 bursaries, and by the Carnegie Fund, and, later, can 
 almost maintain himself by scholarships, till he passes 
 into a profession. And, in the professions, the pro- 
 portion of failures is negligible. Why should not the 
 same be done in the schools for those who have not 
 the bent towards such a career ? In that case, employers 
 would get workers who have the energy, and resource, 
 and responsibility which only come with education. 
 For such workers, the whole industrial world is eagerly 
 looking out — but it will never get them from immature 
 boys, who have known only the drudgery of education 
 and willingly throw away their books whenever the 
 
 And what will he be compelled to do if the parents are poor ? The 
 depressing mass of evidence on Boy-labour collected by the Poor Law 
 Commission gives the answer. 
 
 1 It seems not to be realised even yet that, at the same time as many 
 modern tendencies are manufacturing the physically unfit, the general 
 course of progress is manufacturing the economically unfit. In improv- 
 ing machinery, we have raised the standard for its rival, man, and half- 
 educated men of ordinary ability, who once a day commanded a good 
 wage, are not able to compete with a substitute which can do almost 
 everything but move itself. The only way to meet this is to devote 
 something of the same thought and expense as has perfected machinery 
 to perfect man.
 
 336 
 
 SOME CONCLUSIONS 
 
 BOOK II 
 
 compulsion is removed. 1 And this would cut the feet 
 from the legitimate discontent with distribution as it 
 is, inasmuch as almost the only advantage which the 
 rich man's son has over the poor man's is that he is 
 allowed time to be educated, and to stand on his own 
 legs. 
 
 But this leaves wholly unaffected the fact that a 
 
 distribution which gives very large incomes to a com- 
 
 does not paratively small number of persons is deeply to be 
 
 very large deplored. Even if these few were wise, and even if 
 
 they recognised to the full that wealth is a trust, it 
 
 incomes 
 less deplor- 
 able, places too much responsibility on the individual, rsut 
 
 if they are neither wise nor conscientious, it leads inevi- 
 tably to the squandering, uselessly and hurtfully, of 
 wealth which ought, in any rational idea of things, to 
 be consumed by men and women in making them 
 the men and women which God, we may presume, 
 meant them to be. 
 
 The worst evil of these large incomes is, perhaps, 
 least noticed. It is that they bind up the labour and 
 the wages of the many with the demand of the few — 
 keep the many putting forth the whole of their energies 
 in producing wealth which does not even ennoble the 
 lives of the few — wealth which neither the poor nor 
 
 2 It has been my business, as an economist, to keep in touch with the 
 manufacturing and mercantile world, and experience confirms me in 
 what I learned in my own employing apprenticeship — that the pro- 
 portion of failures of thoroughly educated men in business is as negligible 
 as in the professions. I pin my faith to what I consider two facts ; (i) 
 that, while an uneducated man can hardly be helped up, an educated 
 man can scarcely be kept down — he has seen the hills of God ; (2) that 
 employers recognise that they have everything to gain from giving such 
 men their chance, and that they do very gladly put responsibility on the 
 person who is willing to take it, and does not start out with the soul- 
 destroying maxim that he will "do no more than he is paid for."
 
 chap, xxix SOME CONCLUSIONS 337 
 
 the cultured could use for any good end even if it 
 came into their hands. Not only is this bad in itself, 
 but it makes labour depend on a demand that is, in its 
 nature, capricious and non-continuous. And this leads 
 to an impasse which is surely, of all things, deplorable ; 
 that rich persons who wish to spend their incomes in 
 ways that help humanity are faced at once with the 
 consideration that, if they change the channels of their 
 ordinary consumption, they throw numbers of the 
 working classes for the moment out of employment 
 because of the dislocation between supply and demand. 
 To emphasise this, it is enough to remember that, if 
 a wave of temperance swept over the country, it 
 would " take the bread out of the mouths " of tens 
 of thousands, who, at the orders of those who organise 
 the nation's industry to meet the nation's wants, have 
 been providing those " bad luxuries " — not only the 
 publicans, not only the brewers and distillers with 
 their workpeople, but all those who supply the mate- 
 rial and the plant — from farmers to engineers — to say 
 nothing of the transit trades which carry all these 
 goods. And, as all economists at least know, to dis- 
 organise even one great trade of supply is to disorganise 
 one great demand for the goods of all other trades. 
 
 If, then, these large incomes are a double danger, 
 the recognition that they are payments for " economic 
 worth " will not protect them from attack. The fact 
 that a great landholder's rents do not infringe upon his it is most 
 farmers' profits has never prevented us rejoicing when ^'"J 316 t0 
 
 , r jo "break up 
 
 the estate was broken up among small holders. Nor the big 
 should the fact that a millionaire gets as "income" f st TH' 
 
 . . & both of 
 
 only an economic payment for his capital prevent us land and 
 deploring that there should be millionaires. The capitaL 
 
 Y
 
 338 SOME CONCLUSIONS book n 
 
 dominant consideration, of course, is that, if this great 
 massing of capital into one hand were replaced by the 
 holding of the same amount of capital in a great 
 many hands, the capital would not be lost to the 
 nation, and would be employed all the same. No 
 one thinks it anything but good when the millionaire 
 bequeaths his wealth in small sums over the widest 
 area of his poor relations. How the accumulation 
 of vast capitals in single hands is to be checked is, 
 indeed, a problem on which I may be excused from 
 entering. I may point out, however, that one method 
 is already in action — the limiting of free transfer 
 at death. In the Death Duties, the State does go 
 a long way in breaking up the " big estates " both 
 of land and capital. It claims for public purposes at 
 death a very large share of what a man was free to 
 transfer during his lifetime, and re-distributes it in 
 public services. 
 Distribu- One warning, however, must be sounded ; that, in any 
 
 everything, scheme for " better distribution," the danger of reducing 
 the total amount distributable must not be overlooked. 
 It should be remembered that there is already a second 
 distribution after the economic incomes have been paid 
 over, namely, the distribution to those who have no 
 'economic worth" whatsoever. Immense sums, out of 
 our incomes, are distributed, not in payment of goods 
 and services, but to classes who have, all the same, a 
 claim on us ; first, to the children, the aged, the 
 impotent, the lunatic, and others "stricken of God" ; 
 -;econd, to the drunken, the feckless, the criminal — 
 and what an amount of money could be spent on this 
 last class is only appreciated by those who recognise 
 hat punishment is not revenge, but reformation and
 
 CHAP. XXIX 
 
 SOME CONCLUSIONS 
 
 339 
 
 tributed 
 income. 
 
 restoration to society. It is hopeless to think of 
 bringing the majority of these classes into any scheme 
 of distribution on an economic basis ; and accordingly, 
 to level up and level down economic incomes, does 
 not exhaust the problem : we must still bear the burden 
 of those who fall by the way. The maintenance of 
 the total National Income at its high figure, therefore, 
 comes only second to its better distribution. 
 
 If, finally, this distribution according to "economic 
 worth " does not leave us quite happy, there are two 
 considerations which open up a brighter prospect. 
 
 One is that what we have been engaged with is The undis 
 the distribution of the money income, and of the real 
 income which it represents, not of the extra income 
 described in Book I. Chap. XI. 1 Thus we are re- 
 minded that, beyond what passes to the various servants 
 of the community as income, there is always something 
 being added to the wealth of classes or of the whole 
 community — an amount of comfort and well-being 
 which is enjoyed, though not divided. In recognition 
 of the good of this, and in approval of the increase 
 of it, we may join hands with Socialism. 
 
 The other is that the possibilities of a " better 
 distribution of wealth " are not limited by the actual 
 distribution of the money income. The rich, by taking sumption 
 thought and by conscientious consumption (as distinct 
 from spending), may add almost indefinitely, not only 
 to the permanent wealth of the world, but to the well- 
 being of their poorer neighbours, and that without any 
 suspicion of "charity." After all, one may thank 
 God, the possibilities of purely selfish consumption are 
 limited, and most people find, as a common experience. 
 
 1 Cf. also Studies in Economics, p. 219. 
 Y 2 
 
 The 
 
 Socialising 
 of Con-
 
 340 SOME CONCLUSIONS book 11 
 
 that the only way of "enjoying themselves" is to call 
 in the aid of others to "enjoy with them." But on 
 this I have written enough elsewhere. 1 
 
 1 Studies in Economics, p. 249 : "The Socialising of Consumption."
 
 INDEX 
 
 Absolute share of labour and capital, 
 229 
 
 Adam Smith, 150, 183, 196, 316, 
 324, 328 
 
 Adi'ocatus Diaboli, 247 
 
 Agreements, trade, 295 
 
 Agricultural labour, 294 
 
 Agriculture compared with manu- 
 facture, 32, 36, 40 
 
 Appeal, from the individual, 147 ; 
 to the trade, 153, 164; from 
 trade to trade, 167 
 
 Arbitrariness, escape from, 165, 
 182, 324 
 
 Aristotle's justice, 322 
 
 Asquith, 162 
 
 Assessment of value, 151 
 
 Auckland, Lord, 5 
 
 Austrian economists, 13, 15, 21 2 
 
 Bad distribution, 94, 109, 321 
 
 Barnes, G. N., 136, 259 
 
 Barr, Arch., 221 
 
 Baxter, Dudley, 5 
 
 Blackbird, 48, 69 
 
 Blackleg employers, 250 
 
 Booth, Chas., 284 
 
 Bowley, Professor, 5 
 
 Boy labour, 334 
 
 Browne, Sir Benjamin C, 136 
 
 Burns, John, 163 
 
 Cairnes, 212 
 
 Cannan, Edwin, 5, 79, 81, 180, 
 
 x 93 
 
 Capital, unassessed, 74 ; mobility 
 
 of, 178 ; fixed, 178 ; not the 
 
 capitalist, 179; inchoate, 181; 
 subsistence of, 203 ; flight of, 
 204 ; disappearance of, 206 ; its 
 true advantage, 333 
 
 Captains of Industry, 112, 116 
 
 Carlyle, 61, 112, 116, 133, 144, 
 294 
 
 Cash-nexus, 291 
 
 Cassel, 205 
 
 Chamberlain, 163 
 
 Charity in wage-paying, 247 
 
 Cheap buying, 139 
 
 Cheap goods versus good wages, 
 254, 292 
 
 Cheap labour, 130, 139, 245, 251 
 
 Children, interests of, 292 
 
 Chiozza Money, 5 
 
 Circle of production and consump- 
 tion, 45 
 
 Claims, as income, 9 ; where 
 labour must assert its, 254, 256 
 
 Coal-miners, 120, 151 
 
 Collective bargaining, 261 
 
 Collet, Miss, 284 
 
 Commission on Agricultural De- 
 pression, 141, 214 
 
 Community, interests of, 132 
 
 Congenial occupation, 71 
 
 Consumption and use, 29 
 
 Consumption goods, 13 
 
 Consumption, socialising of, 339 
 
 Contract, the industrial, 97 
 
 Contribution, relation to share, 81 
 
 Co-operation, 84, 107 
 
 Corelli, Marie, 101, 102 
 
 Corporation of Glasgow and tram- 
 ways, 134
 
 342 
 
 INDEX 
 
 Cost of production of labour, 200 ; 
 
 in the professions, 314 
 Cost, reduction of, 121 ; keeping 
 
 down, 122, 140; lowest, 125; 
 
 as sacrifice, 212 
 Cree, T. S., 280 
 Crofters, 322 
 
 Davidson, John, 170, 171 
 Defence of substitution, 132 
 Demand and supply not coincident, 
 
 82 
 Demand for man, 232, 243 
 Demand price of labour, 227, 286 
 Dentists, 319 
 Depreciation fund, 37, 41 
 Deserts, distribution by, 101, 109; 
 
 of factors, 330 
 Displacement by women, 127 
 Distribution, bad, 94, 109; un- 
 equal, 98 ; equal, 99 ; by needs, 
 100; by deserts, 101 ; by value 
 of product, 102, 331 ; Physio- 
 cratic theory of, 193, 203 ; is it 
 an unjust? 321 ; justice of, 323; 
 decision as to merits of the pre- 
 sent, 333; inequalities of, 297, 
 334> 33 6 5 not everything, 338; 
 a second, 338 
 Dividend, 35, 38 
 Division of labour, 9, 12, 52, 81, 
 
 8 4> 9S> 97> !°7, r 99 i inter- 
 national, 237 
 Due to not "produced by," 106 
 Dyke, 225, 230, 234, 257, 278, 
 289, 296 
 
 Economic framework of society, 
 
 55> 65 
 Economics, scope of, 50, 65 
 Edgeworth, Professor, 5 
 Education, the escape, 334 
 Efficiency, necessaries for, 55 ; 
 subsistence of, 213, 215; fail- 
 ure of, 216, 226; its real place, 
 235 ; Trade Union promotion 
 of, 288 
 Efficient, ambiguity of the word, 
 
 130 
 Eight Hours' Day, 89, 239 
 
 Employers, 22, 1 1 1 ; as paymasters, 
 in; functions of, 112,148; their 
 interest in keeping up prices, 
 n 6 ; in reducing cost, 122; not 
 officials, 117, 142, 149, 160; 
 pressure on, 118; their two con- 
 stituencies, 134; compared with 
 civil servants, 135, 144 ; repre- 
 sentative, 166; not capitalists, 
 176; not philanthropists, 249; 
 restriction on, 278 ; premium 
 on strong, 281, 291 ; elimina- 
 tion of weak, 291 ; as exploiters, 
 22, 144; Captains of Industry, 
 112, 133; their rivalry, 156, 
 295 ; as officials, 247 
 
 Environment, reconstruction of, 74 
 
 Equal distribution, 99 
 
 Fabian Society, 255 
 
 Factors, 104; rival, 126; some 
 
 own two, 61, 207 
 Factory, 105 
 Fisher, Irving, 46 
 Fixed capital, 178, 181 
 Fixed work fund, 89, 240 
 Flow of wealth, 44, 56 
 Foreign competition, 289 
 Free Trade, its task, 289 
 Free transfer, 329, 331 
 Freedom a form of wealth, 75 
 French peasant, 194 
 Friendly Societies, 267, 269 
 
 George, Henry, 41 
 
 Giffen, 5, 74, 181, 204, 205, 
 
 290 
 Godwin, 57 
 Goods, new, 72 
 Goods, the National Income as a 
 
 sum of, 20 
 Goschen, 205 
 
 Home industries, 241, 286 
 
 Idlers, 68 
 
 Income, primitive, 9, 12, 20, 80; 
 the money, 5 ; the real, 8 ; re- 
 lation of the real to the money, 
 14 ; as a sum of goods produced
 
 INDEX 
 
 343 
 
 or services rendered, 20 ; as an 
 annual phenomenon, 31 ; as a 
 growth, 35 ; of a purely eco- 
 nomic State, 50 ; of the modern 
 State, 59 ; which escapes both 
 notice and assessment, 66 ; 
 limitation of the money by the 
 real, 77 ; credited to, not pro- 
 duced by, 108 
 
 Incomes, professional, 307 ; in 
 medicine, 307 ; in law, 309 ; in 
 teaching, 311 ; in the Church, 
 313 ; the evils of large, 336 
 
 Income Tax assessment, 6 
 
 Indispensableness, 233, 242 
 
 Individual, appeal from the, 147 ; 
 assessment, 152 ; powerlessness 
 of the, 259 
 
 Inglis, John, 174 
 
 Inheritance, 68 
 
 Interest, 41 ; rate of, 179 ; related 
 to value of capital, 180, 208 ; 
 fall of, 205 ; confused with 
 profit, 113 
 
 Iron Law, 196, 210, 214 
 
 Irwin, Miss, 284 
 
 Justice, 95 ; according to Aristotle, 
 322 ; according to Plato, 329 ; 
 rough, 323, 329, 333 ; appeal to, 
 329 
 
 Labour, more intense, 69, 280 ; 
 regimented, 70 ; exertion and 
 supervision of, 127 ; cheap, 130, 
 139, 245, 251 ; displacement of, 
 135 ; not the labourer, 197 ; 
 unskilled displacing skilled, 217 ; 
 its demand price, 227, 286 ; its 
 supply price, 228, 286 ; its in- 
 dispensableness, 233, 242 
 Land, not unimpaired by cultiva- 
 tion, 40 ; passed down since the 
 Conquest, 332 ; taxation of, 
 304 
 Landowners as officials, 246 
 Large incomes, their double evil, 
 
 336 
 Law, emergence of economic, 164 
 Leisure a positive wealth, 67 
 
 Leroy Beaulieu, 158 
 
 Life, 48, 56, 59 
 
 Limited Liability Companies, 38, 
 
 176 
 Living wage, 201 
 Lock-out of 1897-98, 89, 172 
 Loose end of the wages question, 
 
 187, 257 
 Low wages, 279 
 
 Macdonald, Ramsay, 176 
 
 Machine-minding, 171 
 
 Machinery, displacement by, 135, 
 221,231 ; discouraged, 218 ; as 
 a Frankenstein, 239 ; as rival of 
 labour, 216, 237, 238 
 
 Malthus, 195 
 
 Management, interference with, 
 276 
 
 Manufacture compared with agri- 
 culture, 32, 36, 42 
 
 Margin of profitableness, 123 
 
 Marginal prices, 305 
 
 Marshall, Alfred, 3, 13, 22, 28, 
 40, 64, 67, 88, 124, 129, 158, 
 159, 176, 197, 2ii, 240, 251, 
 
 3°i> 303> 332 
 
 Masters and men, 155 
 
 Maximum work, 275 
 
 Merchant, function of the, 23 ; 
 not a mere middleman, 24 ; not 
 a gambler, 26 
 
 Middlemen, 24 
 
 Mill, J. S., 212, 329 
 
 Minimum rate, 70 
 
 Mobility, 161, 165, 325; trade, 
 166, 170, 175 ; of the young, 
 173 5 among employers, 176, 
 178 ; of capital, 180, 325 ; 
 movement not necessary to, 
 173 ; secures wage levels, 189 
 
 Money income, 5, 9, 77 ; relation 
 of the real to the, jj ; limited 
 by real income, jj, 80, 85 ; 
 clears the goods income, 83 
 
 National Income, the money, 3, 5; 
 the real, 4, 8, 10; statistical 
 basis of, 6 ; constituents of, 7 ; 
 how related, 11,19; alternative
 
 344 
 
 INDEX 
 
 computations of, 13, 15 ; a sum 
 of services, 30, 63 ; an annual 
 phenomenon, 3 1 ; as a growth, 
 35 ; alternative definitions of, 
 79 ; made by various combina- 
 tions of factors, 122 ; absolute 
 shares in, 229 ; place of rent in 
 the, 298 ; necessity of main- 
 taining the, 338 ; the undistri- 
 buted, 338 
 Nature, 42,45, 48, 53, 68 
 Needs, distribution by, 100 
 
 Officials, incomes of, 27 
 Organisation, good, 123 
 Over-production, 87 
 Owen, Robert, 57 
 
 Parallels between capital and 
 
 labour, 178, 181, 198,207,211, 
 
 241 
 Parents, responsibility of, 175 
 Patten, Simon, 304 
 Peel, 5 
 
 Personal deserts, 104 
 Personal relations as wealth, 72 
 Physiocrats, 36, 42, 193, 203 
 Picketing, 276 
 Piece-work, 275 
 Pitt, 5, 100 
 Plato, 54, 95, 305, 329 
 Poor Law Commission, 127, 135, 
 
 I3 6 > *7h J 76, 259> 269, 334 
 Powerlessness of the individual, 
 
 258 
 Premium on the strong employer, 
 
 278, 287 ; on the good worker, 
 
 294 
 Pressure on price, 118, 121 ; on 
 
 wages, 193, 258 
 Price, pressure on, 118, 121 ; the 
 
 limit of distribution, 325 
 Prices, raising of, yj ; keeping up, 
 
 116; low, 253 
 Private property, 329 
 Problem of Book I., 4 ; of Book 
 
 II., 94 
 Producers, employers as, 22 ; mer- 
 chants as, 23 ; servants as, 27 ; 
 
 officials as, 27 
 
 Product, payment by, 331 
 
 Production and distribution pro- 
 cess one, 229, 254 
 
 Production goods, 13 
 
 Professional incomes, 307 ; based 
 on industrial incomes, 317; not 
 derived, 319 
 
 Profit, 117 ; not unearned, 157 ; 
 not inordinate, 158 ; average, 
 158 
 
 Property, private, 329 
 
 Protection, 290 
 
 Quality, improved, 72 
 Quasi-rents, 303 
 
 Real income, 4, 8 ; limiting money 
 income, 77, 83 
 
 Reckoning, taking our, 183 
 
 Rent, 297 ; essentials of, 299 ; 
 extension of, 303, 305; National 
 Income contains, 305 ; in manu- 
 facture, 302 ; inevitable, 303 ; 
 may be diverted, 304 ; enters 
 into all shares, 305 ; a stum- 
 bling-block, 332 
 
 Reserve price of labour, 259 
 
 Restriction of numbers, 274 ; on 
 employers, 278 
 
 Revolution, a new economic, 221 
 
 Ricardo, 40, 195, 214, 299, 300, 
 304 
 
 Rich man's daughter, 86 
 
 Right to a trade, 274 
 
 Risk, employer's function in tak- 
 ing, 113, 117 
 
 Ruling out, 260 
 
 Ruskin, 24 
 
 Saving, 181, 205 ; check to, 205 
 Scarcity, a prominent element in 
 
 professional incomes, 317 
 Scent, a wrong, 223 
 Servants, direct, 27 
 Service, 21, 29, 324 
 Services, 28 ; a sum of, 20, 63 ; 
 
 unpaid, 66 ; the human, 62, 
 
 243 ; that escape money 
 
 measurement, 66 
 Share, relation to contribution, 81
 
 INDEX 
 
 345 
 
 Sidgwick, Henry, 329 
 
 Skill becoming superfluous, 240 
 
 Slaves, 293 
 
 Smith, Adam, 16, 150, 183, 196, 
 
 3 l6 ? 324, 3 28 
 Socialism, 135, 176, 253 
 
 Society a co-operation of mutual 
 service, 21 
 
 Solidarity, 156, 160 
 
 Specialisation, 171 
 
 Standard of comfort, 196 
 
 Standard Rate, 261, 277 ; real 
 objection to, 280 
 
 State, a purely economic, 50 ; not 
 sordid, 54 ; its limits, 56 ; the 
 modern, 59, 64 
 
 Stock, the only permanent, 44 
 
 Subsistence, a vague conception, 
 195, 201, 211 ; of labour, 195 ; 
 of capital, 198, 203, 211 ; of 
 efficiency, 213, 215 ; point, 283 
 
 Subsistence theory, weakness of a, 
 210 
 
 Subsistence wages, 193 
 
 Substitution, 122 ; defence of, 132; 
 different from cheap buying, 
 145 ; of employer for employer, 
 159; not objected to by Trade 
 Unionism, 273 
 
 Supply and demand, want of coin- 
 cidence between, 82 
 
 Supply price of labour, 228, 286 ; 
 of professional men, 314 
 
 Supposititious case, a, 231 
 
 Sweating, 131, 140, 286 
 
 Table of incomes, 51 
 
 Taxation in France, 194; of land, 
 
 .304 
 
 Time element, 82 
 
 Tips, 248 
 
 Trade, appeal to the, 164 
 
 Trade Unionism, basis of, 246 ; 
 its answer, 253 ; for and against 
 cheap labour, 245 ; the power- 
 lessness of the individual, 258 ; 
 Collective Bargaining, 261 ; the 
 Standard Rate, 263; trie Friendly 
 
 Society function, 267 ; its dis- 
 claimer, 271 ; popular attitude 
 towards, 271 ; present position 
 of, 271, 272 ; direct effect on 
 wages, 277 ; indirect effect on, 
 wages, 288 ; its challenge, 288 
 Twisting mill, an ideal, 123 
 
 Unemployed, 89, 259 
 Unemployment assurance, 269 
 Unequal distribution, 98 
 Unfit, manufacturing the, 335 
 Use of a man, 29 
 
 Value, conduction of, 15, 16 ; 
 what it is, 102 ; of product, 
 102, 109; assessment of, 149 
 
 Wage estimate, 6, 298 
 
 Wages, minimum, 70 ; raising of, 
 78 ; determination of, 152; and 
 work, 96 ; from employers' 
 pockets, 112; levels, 161, 328; 
 subsistence, 193,201; rise in, 89, 
 214 ; not sustained by efficiency, 
 216 ; not charity, 247 ; under 
 Municipalities, 248; cheap goods 
 •versus good, 254 ; low, 279 
 
 Walker, J. H., 158 
 
 Wants, 52, 61 ; demanding direct 
 services, 243 
 
 Weak employers, 291 
 
 Wealth, as a flow, 44, 56 ; and 
 man, 47 
 
 Weaver, a conscientious, yj 
 
 Weaving in Glasgow, 236 
 
 Webb (Industrial Democracy), 118, 
 141, 161, 162, 172, 173, 219, 
 256, 260, 262, 264, 265, 268, 
 269, 270, 273, 274, 275, 276, 
 278, 282, 283, 288, 289, 290, 
 294 
 
 Wells, D. A., 159 
 
 Women in the house, 67 
 
 Women's trades, 246, 283, 285 
 
 Work, as a claim on a living, 95 
 
 Worker, the representative, 166 ; 
 the all-round, 171 
 
 Glasgow: Printed at the University Press by Robert MacLehose & Co. Ltd.
 
 BY THE SAME AUTHOR. 
 
 Studies in Economics. Extra Crown 8vo. 
 
 8s. 6d. net. 
 
 The Return to Protection : being a re- 
 statement of the Case for Free Trade. Crown 
 8vo. Second Edition. 1906. 3s. 6d. net. 
 
 An Introduction to the Theory of 
 
 Value, on the Lines of Menger, Wieser, 
 and Bohm-Bawerk. Second Edition. Crown 
 8vo. 1910. is. 6d. net. 
 
 Economic Annals of the Nineteenth 
 Century, 1801-1820. 8vo. 21s.net. 
 
 Professor Cannan, in The Ecojwmic Journal. — "In future history 
 'Smart' will take much the same place in footnotes after 1800 which 
 ' Macpherson ' occupies before that date. But Professor Smart is quite 
 unnecessarily modest when he says. ' I make no pretensions to have written 
 history.' . . . One thing which the Annals bring into due prominence is 
 the fact which the ordinary history is apt to obscure, that life in this country 
 went on in spite of the War. Of course, we know that it did, yet most of us 
 are content to write ' The Great War ' in the tablets of our mind across 
 these years. The An?ials show us a people which managed to be interested 
 in bull-baiting, children in factories, copyrights, poor-rates, the slave trade, 
 apprentices, sweeps' climbing boys, macadam, and hundreds of other sub- 
 jects which we should rather have expected to wait till easier times." 
 
 M. Yves Guyot, in the Journal des Econoviistes. — " Je ne saurais trop 
 recommander ce remarquable ouvrage a tous ceux qui veulent appuyer sur 
 des faits la connaissance des lois £conomiques. lis verront que leur verity 
 est d£montr£e par des sanctions inevitables." 
 
 L'Economisla. — "II Sig. Smart, professore di Economia politica presso 
 l'Universita di Glasgow, ha intrapresa un'opera colossale, quella di racco- 
 gliere, opportunamente ordinati i documenti economici del XIX secolo. 
 Questo primo volume tratta del ventennio dal 1801 al 1820 ed e gia pieno 
 del maggiore interesse non solo per la raccolta in se, ma per la illustrazione 
 che ne da l'Autore, il quale con molta modestia dice di non aver preteso di 
 fare la storia, ma soltanto di aver raccolti i materiali per farla ; per6 la 
 storia emerge dai materiali stessi che sono disposti ed illustrati con tanto 
 amore e chiarezza da farci yivere nel tempo a cui essi appartengono."
 
 The Athen&um. — "Throughout Professor Smart maintains a distinctly 
 impartial attitude, and gives chapter and verse for all that he relates. 
 Hansard is referred to virtually on every page. ... It has only been 
 possible to give here a scanty sample of the interesting contents of this 
 volume. Our readers should study it for themselves." 
 
 The Nation. — "The problems presented in a society where masses of 
 people were liable to such vicissitudes, would have taxed the ability of rulers 
 of knowledge, insight, and experience ; and it is not surprising that they were 
 too much for the English oligarchy. Students who desire to know what these 
 problems were, and how they were discussed, and to follow such important 
 and interesting questions as the play of interests and opinions round the 
 Corn Laws, will find abundant material in Professor Smart's volume." 
 
 Professor C H. \r man, in The Manchester Guardian. — " Those who take 
 him at his word and begin turning pages and reading here and there, as 
 one would in consulting annals, will soon find themselves drawn into 
 reading continuously. The Annals make up a connected and fascinating 
 narrative. . . . Such a realistic and minute description as he is providing 
 of our economic life in the nineteenth century is urgently needed by English 
 economists at the present time." 
 
 The Liverpool Post. — " No more valuable piece of historical research can 
 be placed to the credit of any modern writer than is to be found in the 
 Economic Annals. . . . His quest is truth, and he pursues it with steady 
 and unfaltering persistence." 
 
 Yorkshire Post. — "The first instalment of a work which, if completed on 
 the same scale and the same level of excellence, will be as indispensable to 
 the economist and historian as his own brain." 
 
 Aberdeen Free Press. — " Professor Smart's book is a noteworthy one, and 
 must become the vade mecum of all who wish to understand the social and 
 economic condition of the United Kingdom during the period it surveys. 
 This volume of 800 pages, covering only twenty years, is but the first of a 
 series which the author proposes to issue ; and if the project is completed 
 for the whole century in the same admirable manner in which it has been 
 begun, it will rank as one of the most stupendous contributions of a singl" 
 individual to economic literature." 
 
 Glasgow Herald. — "The author's own views are never obtruded though 
 not always concealed. What he displays is the fruit of enormous labour 
 controlled by judgment and by a knowledge of his vast subject. There is 
 much to fascinate the student, and even the casual observer, in these 
 chapters as one turns them over one by one. This is in fact no dull record 
 but a living series of pages of human history. The book is a monument of 
 labour, for which the economic student should be deeply grateful, and for 
 which the future historian will owe an unending debt of gratitude." 
 
 The British Weekly. — "Professor Smart, in a volume covering nearly 
 800 pages, has written a history of economic progress during the first twenty 
 years of the nineteenth century, which will be invaluable to students, and 
 at the same time attractive to the general reader. The learned author is 
 well known as one of the chief living authorities on Political Economy and 
 kindred subjects. His Introduction to the Theory of Value, his Studies in 
 Economics, and his work on the Distribution of Income have taken their 
 place among the standards. ... It is impossible for us, in a brief review, 
 to give any idea of the rich contents of this volume."
 
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