*?r*-Si
1
JJCSB LIBRAKY
"),
V -
PRINCIPLES
SOCIAL ECONOMICS
INDUCTIVELY CONSIDERED AND
PRACTICALLY APPLIED
WITH
CRITICISMS ON CURRENT THEORIES
GEORGE GUNTON
AUTHOR OF " WEALTH AND PROGRESS
G. P. PUTNAM'S SONS
NEW YORK LONDON
7 WBST TWBXTY-THIRD ST. 27 KING WILLIAM ST.. STRAND
1891
J0> RBAFJA. CALIF/
COPYRIGHT, 1891
BY
GEORGE GUNTON
ttbe Iknicfterbocher press, t*ew
Elearotyped and Printed by
G. P. Putnam's Sons
\ - .
TO MY WIFE
WITHOUT WHOSE INSPIRATION AND AID THIS BOOK
COULD NOT HAVE BEEN WRITTEN.
PREFACE.
IF there is one subject that should be more attractive
the student and more inspiring to the citizen than an-
other, it is that of social economics, because it deals
directly and exclusively with the influences and conditions
which control all human welfare. It is through a knowl-
edge of the principles and laws of human economics that
we are enabled to make nature contribute to man's comfort
and luxury by substituting abundance for poverty, freedom
for slavery, peace for war, intelligence and morality for
ignorance and brutality ; in short, a civilization of democracy
and culture for one of despotism and degradation. When-
ever the science which should furnish the key to nature's
bounties and the light to human progress becomes unattrac-
tive to the student and repulsive to the average citizen, we
may be assured that there is something fundamentally amiss
with the conception and treatment of the subject.
This is precisely the case with political economy to-day.
Instead of being the beacon-light of industrial and social
affairs, the source to which all may turn for safe instruction
and hopeful guidance, it is the " dismal science " which
students avoid, statesmen and capitalists disregard, citizens
ignore, and laborers discredit. Why is a science so dreary
and pessimistic, which by its very nature should be fasci-
nating and hopeful ? The obvious answer is, that it fails
to fulfill its function as a science of industrial welfare and
social advancement. On nearly all fundamental questions
affecting the production and distribution of wealth its doc-
trines are both uncertain and inconsistent. The popular
Vi PREFACE.
theory of wages has been exploded by experience,' and the
current doctrines of value, interest, and profit have for gen-
erations been subjects of perplexing controversy between
experts and sources of utter bewilderment to students.
This is mainly due to the fact that the accepted theories
belong to the hand-labor conditions of the seventeenth and
eighteenth centuries, which have very little relation to the
factory conditions of the nineteenth century. Nor should
this be a matter of surprise, since it is entirely consistent
with the law of industrial evolution. In its development
society has assumed several distinct and essentially different
industrial phases, which have each changed the economic
structure of society, shifting the centre of industrial move-
ment and the point of view of economic study.
Under feudalism, for instance, the land-owning class was
the centre of all social and industrial movement. Economic
policy therefore was considered from the standpoint of a
land-owning class.
With the development of manufacture and trade however,
came a radical change in economic relations. Serfs became
wage receivers, and the cultivation of the land passed to
tenant farmers, which change transferred the distribution of
wealth from the domain of authority, to that of economic law.
By this transition the social basis of industrial prosperity
was broadened, and the centre of economic movement was
shifted from the industries required to supply the needs
of a small land-owning class to those required to supply
the demands of a relatively large commercial class, whose
interests were more varied and extensive. In proportion as
new conditions developed, the narrow paternal policy which
was adapted to the old regime became inimical to the welfare
of the community, and a reconstruction of economic doctrine
from a new point of view became necessary. The efforts of
two centuries to supply this need culminated in the " Wealth
of Nations," which really marks the advent of middle-class
political economy, whose influence has practically moulded
the economic thought of the present century.
PREFACE. Vll
For the same reason that under feudalism every thing was
viewed from the standpoint of the land-owner, every thing
was now considered from the standpoint of the manufac-
turer and merchant, whose income was derived from trade.
How to promote sales became the fundamental idea of
what has been well named the " Commodities School " of
political economy. To sell extensively necessitated pro-
ducing cheaply. And since wages formed the greater part
of the cost of production, it appeared from the " com-
modities " point of view to be as necessary to obtain cheap
labor as cheap raw material, and for the same reason.
Consequently it became a cardinal doctrine of the '' Com-
modities School " that large profits depend upon low
wages. " It has been my endeavor to show throughout this
work," says Ricardo, " that the ratio of profits can never
be increased but by a fall in wages." In the days of hand
labor and small factories, when the consumption of the upper
and middle classes furnished a sufficient market for pro-
ducts, this cheap-labor policy was successful in giving profits.
But this very success led to the development of large
factories, which were destined again to revolutionize the
economic structure of society. For since these large enter-
prises required a more extensive market for their success
than any possible increase in the consumption of wealth by
the upper and middle classes could furnish, the habitual
demands of the masses for the first time necessarily became
the foundation of industrial prosperity. Therefore it is in
the needs of the masses that the economics of the future must
be studied and statesmanship determined.
To such a change of indu'strial relations Adam Smith and
his followers were altogether oblivious ; their conception of
industrial evolution was too limited to enable them to antici-
pate it, and their purely " commodities " point of view pre-
vented them from observing it. They saw the importance
of the factory as a means of making wealth cheap, but they
did not see the economic importance of making man dear.
Having failed to recognize the laborer as the great factor in
VI 11 PREFACE.
a market whose consuming power must be increased, they
continued to treat him only as a productive force in the
factory, whose cost should be reduced, on the theory as Mill
puts it, that " profits depend upon wages, rising as wages
fall and falling as wages rise."
Thus through an effort to apply erroneous ante-factory
theories to factory conditions political economy has for
three quarters of a century been made a gospel of cheap
labor and an enemy of social advance.
The growing incompetency of political economy to deal
with modern conditions has begun to be recognized by in-
ductive economists, and during the last twenty years an
increasing departure from economic orthodoxy has been
manifest among the younger economists of Europe and this
country, which is now developing to the proportions of a
new school.
In breaking from the hard and narrow lines established by
the doctrines of early English economists, the " New School "
has already rendered an important service to economic sci-
ence, by making respectable the re-discussion of the funda-
mental principles governing industrial relations and political
policy, in the light of modern knowledge.
Thus far, however, its work has been critical rather than
constructive. It has contributed far more to break up the
old than to establish a new body of economic doctrine.
Although the English theory of wages has been repudiated
and the doctrine of laissez faire rejected by them, no ap-
proximately adequate explanation of wage phenomena has
been furnished, nor any affirmative principle of public policy
suggested.
In the following pages I have endeavored to discuss the
principles of social economics from the nineteenth century
point of view. If the facts of modern experience are to be
the court of final appeal, the great fundamental fact to be
recognized in our society is the democratic basis of industry,
The factory system has made the use of natural forces
(steam, electricity, etc.) necessary to successful industrial en-
PREFACE. IX
terprise. Nature is intensely democratic. She will only
work cheaply when she is serving a large number. Kings and
aristocracies may command the unpaid service of slaves, but
natural forces will work efficiently only for the million.
Millionaires could not travel by steam or communicate
by electricity if millions of workmen did not use the same
methods. In short, the success of all machine-using industries
now primarily depends on the extent to which their products
are consumed by the masses. Therefore the prosperity of the
community in general and capitalists in particular depends
upon increasing the wants and elevating the social life and
character of the laboring classes. Considered from this
standpoint, the whole subject of economics assumes a new
and altogether more rational and humane aspect. It ceases
to be a mere " science of wealth," subordinating producers
to the product, and becomes a science of human welfare,
making the social life of the producers the end to which
the creation of commodities is the great means. In other
words, it is transformed from a dismal science of pessimism
and despair, which complacently sees the masses crowded
to the verge of starvation, into a science of optimism and
hope, which bears a message of prosperity and progress to
the whole of humanity.
Besides giving economic science a humane, hopeful aspect
hitherto conspicuously wanting, this change in the point
of view makes it integral, harmonious, and intelligible.
Much that has been involved in confusion becomes simple and
clear; much that has been mistakenly regarded as unjust and
oppressive enough to warrant revolution, becomes obviously
beneficent and progressive ; and much that has been dole-
fully taught as axiomatic truth is seen to be manifest error.
Moreover, when we change our point of view from com-
modities to men, and make the laborer the initial point of
observation, the questions of production and distribution
become susceptible of discussion in terms intelligible to ordi-
nary minds. We then find value or price assuming a human
basis, and commodities are seen to be dear or cheap not as
X PREFACE.
they will exchange for more or less gold, but as they will
exchange for more or less of labor, as economic equivalents-
With this idea of value the theory of supply and demand of
which Malthusianism and the wage-fund fallacy are a natural
outcome, is incompatible. The ratio in which a given quan-
tity of cloth or shoes is the economic equivalent of a day's
labor can no more be determined by the mere fact of the
quantity of cloth or the number of laborers, than can the
moral quality of a robbery by the number of thieves. The
only basis upon which two things can be economic equivalents
of each other is the substantial equality of their cost of
production. Upon no other principle can exchanges be
economic, equitable, and mutually advantageous.
The principle of cost, governed as it is by the cost of the
dearest portion of the economic supply of any commodity,
furnishes a keystone to the arch of economic science.
It supplies the basis for a consistent body of economic
doctrine capable of explaining the phenomena of wages,
rent, interest, and profit upon one general principle of
universal application namely, the law of economic price
and its corollary, the law of economic surplus. Instead of
a system of " commodity " economics which justifies human
degradation as a means of cheapening wealth, we have a sys-
tem of social economics, which shows that the most effective
means of promoting the industrial welfare of society on a
strictly equitable basis, must be sought in influences which
develop the wants, and elevate the social life and character
of the masses. Here then we have a sound, economic, and
broad social basis for intelligent, humane, and progressive
statesmanship, which shall promote individuality without
incurring the follies of laissez faire, and utilize the educa-
tional and protective functions of the state without incurring
the dangers of paternalism.
NEW YORK CITY, January, 1891.
CONTENTS.
PART I.
THE PRINCIPLES OF SOCIAL PROGRESS.
CHAPTER I.
SOCIAL PROGRESS.
FACE
The law of progress the key to history ....... 3
The nature of progress . . ^ ....... 4
Progress defined and phenomena classified 5
Its tendency shown by the primitive condition of man .... 6
By the development of the family as a social unit ..... 7
By the rise of the feudal system ........ 8
By the growth of free towns and individual rights .... 9
By the development of the middle class and the factory system . . IO
Industrial progress different from social and political . . . .n
The source of individual freedom 12
Socializing effect of the wages system . . . . . . .13
Economic interdependence and social individuality a criterion of civilization, 14
CHAPTER II.
THE LAW OF SOCIAL PROGRESS.
The elements in social progress 15
Natural order of social progress . . . . . . . .16
Industrial progress the basis of all progress 17
Comte's mistake 18
The intellect the servant of human wants ...... 19
Relation of egoism to altruism ........ 2O
Law of social progress summarized ........ 21
Xll CONTENTS.
CHAPTER III
THE CAUSE OF SOCIAL PROGRESS.
PAGE
Human wants the cause of social evolution . . . . . .22
Effectual and non-effectual desires ........ 23
The social source of equity 24
Intelligence, justice, and virtue have same origin ..... 25
As human wants increase civilization advances . . . .26
CHAPTER IV.
VERIFICATION OF THE LAW OF SOCIAL PROGRESS.
Progress accompanies large consumption of wealth by the masses . . 27
Small consumption in Oriental countries ....... 28
Under ancient Greece and Rome, few rich, many poor . . 29
Slavery preponderates 30
Why ancient philosophy long remained without effect . . . .31
Arrested progress cause of Rome's fall ....... 32
CHAPTER V.
THE RISE AND SOCIAL POWER OF FREE CITIES AS VERIFYING THE LAW OF
SOCIAL PROCESS.
Barbarism supplanted by feudalism ........ 33
Concentration of the serfs in the towns ....... 34
The burgesses secure control of the towns by paying rent ... 35
Insurrection of the towns ......... 36
Transformation of towns into free cities 37
The cities were the homes of freedom 38
CHAPTER VI.
THE FALL OF THE FREE CITIES AND ITS EFFECT UPON SOCIAL PROGRESS.
Progress arrested by their fall ......... 39
Spain distracted by religious wars ........ 40
Premature development in Italy . . . . . . . .41
German freedom destroyed by imperial alliance ..... 42
French cities overcome by the barons ....... 43
In England the cities not suppressed ....... 44
Charters rendered inviolable ......... 45
Labor rents superseded by wages ........ 46
Feudalism abolished by expansion of freedom in the towns ... 47
Increased wealth of the middle class . 48
CONTENTS. XI 1!
CHAPTER VII.
THE LAW OF SOCIAL PROGRESS AS VERIFIED IN THE PROGRESS OF POLITICAL
AND RELIGIOUS FREEDOM.
PAGE
Political power of English Commons ....... 49
Religious and political liberty follow material development ... 50
Wicliff's Bible succeeds ; Hussite War a failure . . . . .51
Character of the Jacquerie and the Peasant War . . . .52
Social character of the Reformation 53
Protestantism due to the social power of middle class .... 54
Condition of the masses from the fifteenth to the eighteenth century . 55
The factory system. Industrial legislation ...... 56
Right to vote extended to the laboring classes 57
Superior industrial conditions of America . . . . . .58
Difference between French and American Revolutions .... 59
Industrial prosperity cause of our free institutions ..... 60
PART II.
THE PRINCIPLES OF ECONOMIC PRODUCTION.
CHAPTER I.
WEALTH AND THE LAW OF ITS PRODUCTION.
Mill's conflicting definitions of wealth ....... 63
Walker's definition ........... 64
Perry substitutes the word property .65
Essential characteristics of wealth 66
Wealth defined 67
Various views of production ......... 68
Theory of non-productive labor ........ 69
All useful labor productive .70
Differentiation of productive effort 71
Gratified desires complete the cycle of effort ...... 72
Land, labor, and natural forces the necessary factors in production . . 72
Land passive, man and nature active . . . . . 73
Nature and character of capital ........ 74
Economic use of the term capital ........ 75
Use of capital determined by increasing returns ..... 76
Mistaken praise of parsimony 77
Capital the effect not the cause of industrial prosperity .... 78
Capital arises from the hope of gain ....... 79
No use for capital in barbarism ........ 80
Social consumption the cause of economic production . . . . 81
XIV CONTENTS.
PAGE
Characteristic simplicity of physical wants ....... 82
Complexity of social wants 83
Nature responds liberally only to large demand ..... 84
New wants make large markets ........ 85
High wages lead to low prices 86
Two kinds of discoveries under ancient and modern civilizations . . 87
Why ancient civilizations were not self-sustaining ..... 88
Resume of laws of production ......... 89
CHAPTER II.
ECONOMIC VALUE.
Adam Smith's definition confusing ........ 90
Relation of value and utility . . . . . . . . .91
Definition of value 92
Price and value identical . . . . . . . . 93, 94
Value a relation between man and things ...... 95
Mistaken point of view 96
Error of Mill and Cairnes 97
Value is not the exchange ratio of things to things, but of things to man . 98
Effect of the new point of view 99
CHAPTER III.
DEMAND AND SUPPLY NOT THE LAW OF ECONOMIC PRICES.
Economic price not governed by demand and supply .... 100
Gregory King's law .......... 101
It applies to agricultural products ....... 102
Not to manufactured products . . . . . . . 103, 104
The theory does not fit the facts 105
Wages do not obey the law of supply and demand ..... 106
Economic price the exchange of equivalents ...... 167
Cost the basis of economic equivalence ....... 107
Testimony of McCulloch 108
Cairnes' error regarding supply and demand 109
Commodities do not create demand . . . . . . .no
Demand the cause of supply . . . . . . . . .in
Origin of price .......... 1 12
Initial point of supply . . . . . . . . . .113
Price phenomena originate in man . . . . . . . .114
CHAPTER IV.
THE LAW OF ECONOMIC PRICES.
Exchange ratio of wealth and service . ". . . . . .115
Meaning of economic law . . . . . . . . .116
CONTENTS. XV
PAGE
Laissez faire not scientific . . . . . . . . .117
Economic law defined . . . . . . . . .118
Maximum and minimum price, how determined ..... 120
Cost the point of economic equilibrium 121
All the factors in production must receive the equivalent of what they con-
tribute ............ 122
The possibility of an economic surplus ....... 123
Equity of economic law 124
How cost of production affects price . . . . . . .125
Origin of economic profits . . . . . . . . .126
Their equitable basis .......... 127
Primary law of price .......... 128
Character of price variations 129
Prices in the same market tend to uniformity ...... 130
Statement of law of prices 131
Verification of the law of prices . ' . . . . . . . 132
Agricultural prices . . . . . . . . . . .133
Relation of quantity to price 134
All prices regulated by cost of dearest portion ...... 135
Quality of labor determines its cost 136
Variation in wages ........... 137
CHAPTER V.
THE LAW OF THE COST OF PRODUCTION.
Popular errors regarding cost of production 138
Simple phenomena misleading ......... 139
Ricardo's illustration . . . . . . . . . 140
Cost and quantity ........... 141
Brassey's experience in several countries ....... 142
High wages make cheap wealth ...... . . 143
Important relation of wages to machinery ...... 144
Use of capital, how determined ........ 145
Nature and function of capital ........ 146
Importance of large market ......... 147
Wages measure the laborer's consumption 148
The true law of prices . 149
CHAPTER VI.
MONEY AND ITS ECONOMIC FUNCTION.
Walker's definition of money . . . . . . . . .150
Money and wealth not identical 151
Money an evidence of credit . . . . . . . . .152
Definition of money .......... 153
XVI CONTENTS.
PAGE
Function of money 154
Evils of fluctuations in the value of money , . . . . .155
Of what should money be made ? 156
Essential attributes of money 157
It must have maximum value in minimum form . . . . .158
Claims of a tabular standard . . . . . . . . .159
Its difficulties ........... 160
Need of a scientific price-level 161
Depreciation of money . . . . . . . . . .162
Inadequacy of metallic money ........ 163
Basis of a paper currency . . . . . . . . .164
Necessity of gold and silver 165
Because universally acceptable 166
Proportion between property and credit money ..... 167
Herbert Spencer's view 168
Essentials of a sound monetary system ........ 169
How to regulate the quantity . . . . . . . . .170
Advantages of private enterprise . . . . . . . .171
Money should be- taken out of politics . . . . . . .172
PART III.
THE PRINCIPLES OF ECONOMIC DISTRIBUTION.
CHAPTER I.
THE DISTRIBUTION OF WEALTH.
Distribution inseparable from production ...... 175
It is an economic transfer. Difference between consumption and pro-
ductive use . . . . . . . . . . .176
Function of productive wealth . . . . . . . .177
Order of economic distribution ........ 178
Walker's inconsistency . 179
Walker's doctrine of " residual claimant " fallacious . . . 180,181
Historic order of distribution 182
Economic order wages, rent, interest, profit . . , . . .183
CHAPTER II.
SOME RECENT THEORIES OF WAGES CONSIDERED.
Woods theory of wages 184
Doctrine of final utility .185
Mistaken application of 186
Wages not uniform in all industries ....... 187
CONTENTS. XVI i
Laborers' welfare depends on absolute not relative income . . . 188
Capital sometimes yields no interest . . . . . . .189
Wages not determined by rate of interest ...... 190
Nor must they be confounded with profit . . ' . . . 191
Uniformity in wages and prices ; diversity in profits .... 192
Prof. Clark's theory of wages ......... 193
He, like Marx, confounds the last increment with the dearest . 194, 195
Price-fixing increment not the same in manufacture as in agriculture . 196
Confounding wages with rent ......... 197
Price and surplusage 198
Defects of Prof. Clark's theory summarized . . . . . .199
CHAPTER III.
THE LAW OF WAGES.
Requisites of a sound theory 200
Definition of wages 201
Real and nominal wages .......... 202
Wages the economic price of labor ........ 203
Statement of law of wages 204
Wages determined by standard of living ....... 205
Prices of labor and of products move differently ..... 206
Dearest laborers fix price of labor ........ 207
Poorest capitalists fix price of commodities 208
Relation between wages and savings-bank deposits .... 209, 210
Difference in cost of living the source of savings . . . . .211
Agriculture unfavorable to savings 212
Foreign laborers save more because they cost less 213
Very highest-paid laborers strike ........ 214
Family income regulated by its cost 215
How the cost of living is determined 216
Remedy for low wages 217
CHAPTER IV.
RENT, ITS ECONOMIC LAW AND CAUSE.
The Ricardo- Walker definition of rent ....... 218
Amended definition .......... 219
Economic production as applied to land 220
The law of rent stated 221
Rent governed by the law of surplusage ....... 222
Walker's explanation of rent ......... 223
Fertility not cause of rent ......... 224
Rent has a social origin .......... 225
Relation of rent to prices ......... 226
XVI 11 CONTENTS.
PAGB
Economic basis of rent 227
Effect of population on prices 228
Effect of improved methods 229
Rent follows and leads the movement of wages ..... 230
Is rent a social tax ? . . . . . . . . .231
Difference in the economic order of using land and machinery . . . 232
Relation of rent to wages illustrated . 233
High wages cause of high rents ........ 234
Effect of abolishing rent .......... 235
ResumJ of the doctrine of rent ........ 236
CHAPTER V.
THE LAW OF INTEREST.
Interest related to capital as rent is to land 237
Walker's view considered ......... 238
Not consistent with facts ......... 239
No-interest capital common ......... 240
Economic movement of capital ........ 241
Economic movement of interest ........ 242
Improved methods constantly push capital towards the no-interest point . 243
True law of interest 244
The law illustrated 245
Surplus enlarged by increased production ...... 246
Entrepreneur's profit comes from surplus above rent and interest . . 247
The social character of interest 248
CHAPTER VI.
THE LAW OF PROFIT.
Orthodox errors the source of socialistic theories ..... 249
Employers' view of profit and wages ....... 250
Theories of Rodbertus and Marx . . . . . . . .251
Statement of Marx's theory of surplus value . . . . . .252
Misleading illustrations .......... 253
Fallacy of his theory demonstrated ........ 254
Relation of labor to value 255
Distribution of cost-items does not alter value 256
Cause of Marx's error 257
His mistaken assumptions . . . . . . . . . 258
Economic evolution of profit ......... 259
Equity of economic profit ......... 260
Surplus does not prove exploitation ........ 261
Ratio of product to profit and wages ...... 262, 263
Illustrated by cotton industry ......... 264
CONTENTS. xix
FACE
Mr. Giffen's view of wages and product 265
His error 266
Distribution of economic benefits ........ 267
Ratio of wages and profits to product 269
Defective modes of calculation ........ 270
They lead to false conclusions . . ... . . 271
Omitted data vitiate conclusions ........ 272
Salaries and depreciation of capital overlooked .... 273
Wages have increased relatively to net product ..... 274
Relative decrease of profits ......... 275
Correct mode of ascertaining economic condition of laborer . . . 276
Incompleteness of obtainable data ........ 277
Table showing ratio of wages to profits ....... 278
Nature of industrial tendencies ........ 279
PART IV.
THE PRINCIPLES OF PRACTICAL STATESMANSHIP.
CHAPTER I.
LAISSEZ FAIRE AS A GUIDING PRINCIPLE IN PUBLIC POLICY.
Origin of laissez-faire doctrine ........ 283
Adam Smith and the French Physiocrats ....... 284
Negative character of laissez faire- . . . . . . . .285
Its erroneous postulates . . . . . . . . . 286, 287
False views of competition . . . . . . . . . 288
Misuse of the term natural law ........ 289
Natural and human selection ......... 290
Survival of the unfittest .......... 291
Government essential to society 292
Character of economic competition . . . . . . . 293
The competing units must be approximately equal ..... 294
The necessity of opportunity .... ; .... 294
CHAPTER II.
THE STATE J OR, THE NATURE AND FUNCTION OF GOVERNMENT.
The state as distinguished from society ....... 295
No absolute rights in society ..... ... 296
All government is representative ........ 297
The state is the authoritative expression of the aggregate .... 298
Relation of the state to the individual . 299
XX CONTENTS.
PAGE
Social-organism theory of Plato, Hobbes, Rodbertus, Marx, and Spencer. 300
Spencer's claim that society is an organism, stated .... 301, 302
His fundamental propositions considered ...... 303
Radical distinction between society and an individual organism . . 304
Society is not an organic entity 305
Social evolution different from physical 306
Mr. Spencer logically supports socialism 307
Clark's attempt to apply this theory to economics ..... 308
His position analyzed .......... 309
The function of government . . . . . . . . .310
Importance of mutual dependence . 311
Controlling principle in statesmanship 312
Individual action preferable to state action . . . . . .313
Difficulty of determining their respective spheres .... 314, 315
Sphere of individual action 315
Sphere of state action 316, 317
Difference between protection and paternalism 318
State functions essentially protective and educational .... 319
CHAPTER III
THE PRINCIPLE OF INTERNATIONAL TRADE.
Necessity of national development 320
Society a means for individual advancement 321
The nation 322
Socializing tendency of manufacturing industries 323
Importance of their development 324
A large home market necessary 325
Superiority of home over foreign market ....... 326
Foreign markets and home wages ........ 327
A nation is rich by what it uses, not by what it sells .... 328
Test of economic cheapness . . 329, 330
False assumption of free-traders 331
Operation of free trade illustrated ....... 332, 333
Uneconomic competition ......... 334
Basis of economic competition . . 335
Popular fallacies regarding the nature of a tariff 336
The law of international competition . . . . . . 337
Weakness of the infant-industry theory ....... 338
Civilization depends upon protecting the higher against the lower . . 339
India, Ireland, and Russia ......... 340
England, America, and Continental countries ...... 341
Protection and home prices 34 2
Proper mode of testing a tariff ....'.... 343
Ultimate effect of a protective tariff on profits 344
CONTENTS. XX
PAG
Effect of protecting the higher wage-level 345
Illustrated by cotton industry 346
Led to improved methods of production ...... 347
Effect on the industrial development in America . . . . 348
Wages in non-protected industries ........ 349
Erroneous views regarding 350
Mr. Elaine's mistaken view . . . . . . . . -35*
Has not outgrown the English theory of wages ..... 352
How protection affects wages ......... 353
Wages can only be raised by social forces 354
How to examine wages phenomena . . . . . . . -355
Industrial improvement affects all classes 356
Effect of protection upon other countries ..... 357, 358
How protection promotes the economic selection of industries . . -359
It leads to free trade 360
Its domestic application 361
CHAPTER IV.
THE PRINCIPLES OF ECONOMIC TAXATION.
Basis of equitable taxation . . . . . . . . . 362
It should come from surplus incomes ....... 363
The mobility of taxes . 364
Their relation to wages 365
How transferred from laborer to employer . . . . . . 366
How he pays them out of his surplus . . . . . . . 367
How his surplus is replenished from nature 368
Taxation like wages a form of consumption ...... 369
Economic importance of taxation exaggerated ...... 370
Taxes enable government to exercise its functions . . . . 371
How taxes should be levied, paid, and collected 372
Evils of direct taxation 373, 374
Property and incomes tax ......... 375
Advantages of indirect taxation ........ 376
Taxes should be levied upon real estate ....... 377
Equitable nature of a land tax ........ 378
Objections answered 379
No profits on taxes. Mill's error ........ 380
Taxation is public consumption of wealth 381
Henry George's delusion 381
CHAPTER V.
BUSINESS DEPRESSIONS.
How distinguished from famines ........ 383
Historical facts about depressions ........ 384
xxil CONTENTS.
PAGE
Inadequate causes assigned ......... 385
Low consumption the real cause ........ 386
Evils attending factory system ........ 387
Indications of arrested consumption . ... . . . . 388
Mistaken industrial policy . . . 389
Economists largely responsible for this 390
Sound economics would ..ead to their gradual extinction .... 391
Two points which should be realized by capitalists ..... 392
Increase consumption by raising wages ....... 393
Improve laborers' social condition ........ 394
Necessity of an industrial barometer 394
Idleness statistics should be frequently collected 396
CHAPTER VI.
COMBINATION OF CAPITAL.
Social alarm created by spinning-jenny 397
Modern opposition to trusts of similar nature 398
Relation of capital to consumption ........ 399
Combination of capital raises the plane of competition .... 400
Concentration of capital and competition ...... 401
Efficiency not number of competitors the criterion of competition . . 402
Economic incentive 403
Power of potential competition ........ 404
Mobility of capital diminishes as that of comsumable wealth increases . 405
Effect of no-profit capital ......... 406
Limit of concentration .......... 407
Purchasing power of wages and the concentration of capital . . . 408
Effects of trusts on prices 409
Standard Oil Trust 410,411
Its economy in utilizing waste . . . . . .412
Its economies extended to other countries -4*3
Trusts unlike corners . . . . . . . . . 414
CHAPTER VII.
COMBINATION OF LABOR.
Combination of labor accompanies that of capital . . . . . 415
Both have an economic function 4 10
Objections to trades-unions ......... 4*7
Concentration the keynote of all progress 4*8
False notions of individual freedom ...... . 4 J 9
One-sided economics 420
Impossibility of individual contracts - 4 21
Incompatible with industrial complexity ....... 4 22
CONTENTS, XX111
PAGE
Economic nature of labor organizations 423
Strikes and corners 424
Social contact essential to progress .425
It develops intelligence and refines manners 426
Social effects of labor unions 427
Economic effect of labor unions 428
Their relation to hours of labor and wages ...... 429
They must be judged by their permanent effect 430
Gain and loss by strikes .......... 431
Unfair criticisms 432
Trades-unions are necessary institutions - . 433
SUMMARY AND CONCLUSION.
Character of social progress 434
Nature of production and of value ........ 436
Nature and order of distribution ...... 436
Duties of statesmanship 438
INDEX 443
INDEX TO " WEALTH AND PROGRESS " 449
PART L
THE PRINCIPLES OF SOCIAL PROGRESS.
PRINCIPLES OF SOCIAL ECONOMICS.
CHAPTER I.
SOCIAL PROGRESS.
SECTION I. The Nature and Meaning of Social Progress.
THE promotion of social progress may be regarded as the
primary object of all human institutions. The wisdom or un-
wisdom of any form of government, political and industrial
policy, or moral code regardless of climate, country, or civiliza-
tion depends upon whether or not it tends to promote the
social progress of the people. When we can furnish an adequate
explanation of the law of social progress we shall be in a position
to explain why the march of civilization has been so marked and
continuous in some countries and so retarded in others ; why
nations once the most advanced are now greatly in the rear ;
why the ancients made such progress in art and philosophy,
while they lacked simple contrivances with which to procure
the common comforts and decencies of daily life ; why general
poverty, religious, social, and political despotism prevail in some
countries, while comparative abundance with religious freedom
and political democracy obtain in others. " The law of prog-
ress," says Fiske, 1 " when discovered, will be found to be the
law of history. The great fact to be explained is either the
presence or the absence of progress, and when we have formu-
lated the character of progress and the conditions essential to it,
we have the key to the history of the stationary as well as of the
progressive nations. When we are able to show why the latter
"Cosmic Philosophy," vol. ii., pp. 195, 196.
3
4 THE KEY TO SOCIAL HISTORY,
have advanced, the same general principle will enable us to show
why the former have not advanced." Indeed, to explain the
nature, law, and cause of social progress is not only to lay the
foundation for the science of social economics, but it is also to
furnish the key to social philosophy, and thereby to establish a
rational basis for statesmanship and social reform. This in-
volves, first of all, the consideration of what constitutes progress.
Unless we understand what social progress is, there can be no
intelligent consideration of the law and cause of its development,
and hence no approximately correct science, either of economics
or of government, is possible.
Progress is commonly regarded as synonymous with improve-
ment. This expression confounds the process with the product.
It states what progress does rather than what it is. If asked what
constitutes the progress of the plant, it would not be correct to
say the flowers, buds, and foliage. Their condition correctly
indicates the state of the plant's progress, but they no more con-
stitute the progress than the apple constitutes the tree, or the
barometer the storm. The progress of the plant consists of a
series of changes that take place in its organization before the
flower appears, and of which 'it is the result. So, too, of improve-
ment. While progress usually implies a change for the better,
the improvement is not the progress, but the result of it ; it is the
change of form or condition which precedes and produces the
improvement. Although all progress is simply change, all change
is not necessarily progress. It may be retrogression. What then
are the distinguishing characteristics of the changes which con-
stitute progress ? Fortunately science has furnished the answer
to this question, so far as physical development is concerned.
The investigations of Linnaeus, Wolf, Goethe, Schelling, Von
Baer, Darwin, and others have established the fact that the
"growth or progress of organisms, both vegetable and animal,
consists of a series of structural changes from a relatively simple
to a relatively complex state of organization. For more than
half a century this definition of progress has so completely stood
the test of verification that it has become an accepted scientific
truth, and now both plants and animals are classified in the scale
of development according to the simplicity or complexity of their
organization.
DEFINITION OF SOCIAL PROGRESS. 5
If we examine the history of social institutions we shall find
that this distinguishing characteristic of progress is equally true
of society. Although the precise forms of the earliest phases of
social life are difficult to determine, modern investigation has
proved beyond question that society in its primitive stages was a
homogeneous aggregate of human beings without industrial
specialization or social or political individuality, and that all
progress from that time to this has been a movement towards
a greater complexity of life and definiteness of individual, social,
and political functions. Progress in general, therefore, may be
defined as a tendency to change from a relatively simple to a
relatively complex organization.
Although this movement from the simple to the complex is the
distinguishing characteristic of all progress, the form it assumes
in physical and social phenomena is very different. In all the
phases of physical development the tendency is to produce a
greater perfection, individuality, and freedom of the organism,
the highest type of which is man. Society is not an individual
organism, but an association of individual organisms. Social
development, therefore, does not consist in organic differentiation,
but in the differentiation of the social environment of individuals.
In considering social advancement, therefore, we are concerned
only with social phenomena ; that is to say, with the influences
which affect the material, political, and moral condition of man
in society ; nor are we called upon to deal with the origin of the
elements in his social character, but only with the development
of their expression.
The phenomena of society may be classified as social and
economic ; the former relates to man's political and ethical life,
and the latter to his industrial efforts. In order to correctly
understand progress in society, it will be necessary briefly to
consider the historic tendency of these two phases separately.
SECTION II. The Historic Tendency of Social Progress.
Although the genesis of man is still an unsettled question, the
fact that he once existed as a mere physical being scarcely
superior to the lower animals is conclusively established. 1
1 The wild men in the interior of Borneo are described by Dalton as living :
" absolutely in a state of nature, who neither cultivate the ground nor live in
6 THE JELLY-FISH PERIOD OF SOCIETY.
Recent investigations have shown that primitive man was so
devoid of social life and character as to neither cook his food
nor build himself a hut to live in. In many instances the insti-
tution of marriage was entirely unknown ; in others the conjugal
ties were so slender that they existed only until the birth of the
child. 1 The interminable struggle for life against the elements,
wild beasts, and his fellows, made man's localization necessary,
and brought him into social and personal relations that gradually
assumed a more permanent or tribal character. This may
properly be said to constitute the first stage of social existence
the jelly-fish period of society. Here the social homogeneity
was such that every thing was owned in common even wives
and children. Authorities agree that " the primitive condition
of man socially was one where every man and woman were
regarded as equally married to one another," and "any woman
who attempted to resist the marriage privileges claimed by any
member of the tribe was liable to severe punishment. " * The child
had no particular father or mother, but belonged to the tribe. 8
The struggle for existence being now between tribes, war was
the chief occupation, and those who were most proficient and
brave as warriors naturally became the most honored and
influential leaders of the tribe. One of the chief characteristics
of tribal warfare was that the will of the victor became the law
of the vanquished. Accordingly, if the chief desired to take a
huts, who neither eat rice nor salt, and who do not associate with each other,
but rove about some woods like wild beasts ; the sexes meet in the jungle, or
the man carries away a woman from some campong. When the children are
old enough to shift for themselves, they separate neither one afterwards think-
ing of the other. At night they sleep under some large trees, the branches of
which hang low." Sir John Lubbock's " Origin of Civilization," pp. 5, 6 ;
Ibid. , chapter iii. See also Lichtenstein's " Travels in South Africa," p. 137 ;
" Expedition to Borneo," vol. ii., p. 10 ; Lubbock's " Prehistoric Times," pp.
563-5, 595, 596 ; Lyell's " Antiquity of Man,'' pp. 377-80 ; Sproat's " Scenes
and Studies of Savage Life," p. 120 ; Dubois' " Description of the People of
India," p. 3 ; " Transactions Ethnological Society," new series, vol. iii., p. 248.
1 Lubbock's "Origin of Civilization," pp. 53-57- See also Sir Edward
Belcher's " Transactions Ethnological Society," vol. v., p. 45 ; Starke's
" Primitive Family," pp. 82-84.
2 Lubbock's "Origin of Civilization," p. 67; Starke's "Primitive Family,"
p. 245 ; McLennan's " Primitive Marriages," pp. 229, 230.
s Lubbock's " Origin of Civilization," p. 71.
THE FAMILY THE SOCIAL UNIT. 7
woman from among his war captives, he could have the exclusive
use and enjoyment of her as against any and all other members
of the tribe. 1 This instituted a departure from tribal homoge-
neity which naturally led first to a certain degree of personal
domestic exclusiveness, then to individual marriages, and finally
to the family group. Thus, through the gradual process of social
differentiation and integration, society was slowly transformed
from a simple homogeneous mass, in which the tribal aggregate
was the only unit, into a relatively complex social organization
with the family as the unit, possessing definite social functions,
rights, and powers. It should be remembered, however, that
this social individuation conferred no rights or powers upon the
individual, but only upon the family. 3 Indeed, it is a universal
law in society that the exercise of social rights extends only with
the growth of the social unit. Hence, when the family became
the unit, it acquired all the social rights and powers of the unit.
But all rights absolutely stopped at this point. The individual
members of the family acquired no more social recognition by
this change than had been previously accorded to the individual
members of the tribe. The family was recognized solely through
its male head, whose power was absolute, even to life and death.
With the settlement of the family came the necessity of culti-
vating the lands. This led to the substitution of an agricultural
for a pastoral life, and the right of private for public ownership
in land and its products. 8
Another feature of this regime was the practice of enlarging
the family by enforced or voluntary adoption ; those entering the
family by this means were kinsmen ; a fiction that nothing, but
"A war captive, however, was in a peculiar position ; the tribe had no rights
to her ; her capturer might have killed her if he chose ; if he preferred to keep
her alive he was at liberty to do so ; he did as he liked, and the tribe was no
sufferer." Sir John Lubbock's "Origin of Civilization," p. 71 ; also McLen-
nan's " Primitive Marriages," pp. 43, 44.
5 " At the outset, the peculiarities of law in its most ancient state lead us
irresistibly to the conclusion that it took precisely the same view of the family
group which is taken of individual men by the system of rights and duties now
prevalent throughout Europe." Maine's " Ancient Law," p. 129. " But
ancient law, it must again be repeated, knows next to nothing of Individuals.
It is concerned not with Individuals, but with Families ; not with single human
beings, but with groups." Ibid., p. 250. "Village Communities," p. 10.
3 Maine's " Early History of Institutions," pp. I, 2, 73-79.
8 THE PATRIARCHAL FAMILY.
the absolute authority of the head of the family could have estab-
lished. In this way the simple primitive family made up of blood
relations, was expanded into the patriarchal family, held together
by the tie of a mythical kinship. 1 Greater sacredness of, and
protection to, life and property came with this higher state of
organization, and " marriage by capture " gave place to marriage
by purchase, transferring the selection of a wife from the muscu-
lar authority of the savage suitor, to the civil authority of the
parent. 2
These social relations continued theoretically until the Chris-
tian era, and practically until the middle of the sixth century.
From the time of the Twelve Tables, B.C., 450, to that of
the Justinian Code, progress was very tardy, but tended tow-
ards a further differentiation of the social polity in the direc-
tion of substituting the individual for the family as the social
unit. This movement, which is most distinctly indicated by
the innovations made upon the domain of patria potestas (the
authority of the father over the person and property of his de-
scendants), though imperceptible during the latter four hundred
years of the Republic, began to show itself in the early days of
the Empire.
If we pass from the ancient to the modern world, where social
progress has been more marked, we shall find that its movement
has been everywhere distinguished by the same general charac-
teristics. During the savage struggle for imperial supremacy
which covered the face of Europe for nearly four hundred years
after the fall of the Western Empire, in which all permanent
authority and recognized law were practically abolished, 3 the patri-
archal system virtually disappeared and society reorganized into
the feudal system. Social institutions then assumed a different as-
pect. Instead of being composed of family groups, held together
1 We must look on the family as constantly enlarged by the adoption of
strangers within its circle, and we must try to regafd the fiction of adoption as
so closely simulating the reality of kinship that neither law nor opinion makes
the slightest difference between a real and an adoptive connection." Maine's
"Ancient Law," p. 128. See also "Early History of Institutions," p. 310;
"Village Communities," p. 115 ; Lubbock's " Origin of Civilization."
'Maine's "Ancient Law," pp. 119-133 ; cf, Lubbock's "Origin of Civili-
zation," p. 52 ; " Fiske's " Cosmic Philosophy," vol. ii., pp. 220, 221.
* Guizot's " History of Civilization," pp. 6, 69 ; also Hallam's " History of
the Middle Ages," vol. i., p. 92.
SOCIAL CHARACTER OF FEUDALISM. 9
by a mythical kinship under parental despotism, subject to impe-
rial absolutism, society consisted of manorial or baronial groups,
held together by mutual dependence upon the land-owner, who,
while giving nominal allegiance to the king, was practically inde-
pendent of him. 1 The individual instead of the family was the
social unit, and industrial interest instead of kinship was the
cohesive principle in society 2 ; land, or wealth, instead of birth,
became the basis of rank and authority. 8
No sooner had feudalism become the settled order of society
than the process of further social differentiation set in. One of
the earliest evidences of this was the localization of the serfs
on the estates of the respective barons, and their division into
classes as "hinds" and "artificers." By this division of labor
the former became permanently ruralized, and the latter central-
ized, into groups whose history is that of modern civilization.
During the tenth century these groups grew into permanent towns
and became the centres of trade and industry. As they increased
in population and wealth they grew in social activity, intelligence,
and power ; and hence became the permanent source of the
further division of labor, the specialization of social and religious
functions, and of personal and political rights.
By the middle of the eleventh century we find the burghers
asserting their right to the ownership of property, and forcibly
resisting the efforts of the barons to despoil them. Early in the
twelfth century the towns began to obtain the right of local self-
government. During the thirteenth and fourteenth centuries the
serf was differentiated from the lord's estate, and became an
economic and social individual. The separation of political in-
stitutions from the authority of the Church, and the power of
Parliament over the Crown were also positively asserted during
this period.
1 ' ' The kingdom was as a great fief, or rather as a bundle of fiefs, and the
king little more than one of a number of feudal nobles, differing rather in dig-
nity than in power from some of the rest." Hallam's " History of the Middle
Ages," vol. i., p. 136.
2 " It was feudalism which for the first time linked personal duties, and by
consequence personal rights, to the ownership of land." Maine's "Ancient
Law," p. 102.
3 Hallam's " Middle Ages," vol. i., p. 88; also ibid., p. 122, and Guizot's
" History of Civilization," p. 67.
IO FREE CITIES AND THE MIDDLE CLASS.
This was followed in the fifteenth and sixteenth centuries by a
general breaking up of the feudal system and a new formation of
social institutions. Throughout Europe the political elements
integrated into definite nations. 1 The gentry and interior no-
bility, who were economically and socially segregated from their
class, and the superior artisans who, by the growth of manufac-
ture and trade in the Free Towns, had become " master artificers,"
formed a new social stratum the mercantile or middle class
which henceforth became the enterprising and progressive ele-
ment in society. With the rise of this class came a new era in
civilization. Under its influence industrial, political, and reli-
gious institutions were revolutionized. In this period the dis-
covery of America and the passage to India by the Cape of Good
Hope, and the use of the mariner's compass were consummated ;
painting with oil and the manufacture of paper from linen were
invented ; the right of private judgment in religion and the
supremacy of parliamentary government were permanently estab-
lished. From this came the use of steam, the invention of the
spinning-jenny and the power-loom, and the establishment of
the factory system, the railroad, steamship, and telegraph, with
their natural accompaniments the daily press, cheap books, and
popular education.
As the outgrowth of these movements slavery has been abol-
ished from Christendom and the principle of civil and religious
freedom for the individual, without regard to caste, color, race,
or sex, has been established in the most advanced countries, and
is destined to be extended to the whole human race.
Thus the universal tendency of progress in society is to in-
crease the power, rights, and freedom of the individual, and
diminish the arbitrary control of collective authority.
SECTION III. Historic Tendency of Economic Progress.
Upon the principle that all progress is governed by one general
law, it is commonly supposed that progress must assume the
same form in economics that it does in society and politics.
Consequently, because social progress tends toward greater
democracy of administration, it is held that industrial progress
1 Guizot's " History of Civilization," chap. xi.
CHARACTER OF ECONOMIC PROGRESS. II
must be in the direction of the public administration of industry.
A little reflection will show this to be a mistake. Although
industrial progress has a tendency toward greater specialization,
the form it assumes differs from that in social and political
institutions, as much as progress in the latter differs from that
in physical phenomena.
The essential difference between political and industrial insti-
tutions is that the utility of the former consists in their harmoni-
ous adaptation to the social habits and character of the people,
whereas the utility of industrial institutions consists in their
economic efficiency their capacity of furnishing wealth cheaply.
Since social institutions will necessarily more completely reflect
the desire and character of the people in proportion as the masses
participate in their construction, it follows that progress in
society is a tendency towards democracy of administration of
political and social affairs. With economics the case is different.
No advantage can accrue to the laborer or the community by any
change of industrial institutions which does not enable the la-
borer to obtain more wealth for a day's work. Whether industry
is conducted on the democratic town-meeting plan, or by a few
private individuals, cannot possibly affect the welfare of the com-
munity, except as it promotes that end. Unless democracy of
industrial administration would cheapen wealth, it would be a
burden upon the community, without any compensating advan-
tage, since it would involve the care of management without any
beneficial result.
A brief survey of the history of industrial progress will show
that the increasing efficiency of productive methods, and hence
the improvement of the means of getting a living, has two
characteristics. One is the division and concentration of labor
power, the other is the increase and social diffusion of political
power. The former tends to specialize and limit the laborer's
economic function, the latter tends to generalize and extend his
social function. Thus, as the laborer's industrial individuality
diminishes, the influence of his social and political individuality
increases.
Primitive industry, like primitive society, was very simple and
homogeneous. Every one performed practically all kinds of
labor with equal proficiency. Progress from that point to the
12 MISTAKEN NOTIONS ABOUT FREEDOM.
present has been a continuous tendency toward a greater divi-
sion, and specialization of labor and concentration of capital.
The tendency of this movement has ever been to differentiate
productive force into numerous portions, integrating the laborer
and machinery upon special branches, every one of which is
dependent not only upon the action of the others, but upon the
united action of the whole. Thus industrial differentiation, in-
stead of increasing, tends to diminish the economic individuality
of the laborer. It is because of this tendency to make the laborer
an almost automatic part of a highly complex productive ma-
chine, that the present industrial system is regarded as inimical to
his social freedom. Those who take this view, and they are very
numerous, lay great stress upon the fact that the laborer is an
employe. To them the very stipulation of income means limita-
tion of freedom. Of all the objections urged against the wages
system, this is probably the most universal, and is regarded as
the most fundamental. They think the only conditions under
which social freedom is possible, is where the laborers employ
themselves. The fallacy in this position arises from a miscon-
ception of the idea of freedom. Freedom is not a mere theoretic
form, but a sturdy fact. It does not consist in the formal per-
mission, but in the actual power, to go or to do. Nothing can
give social and political freedom but wealth ; the freedom that
wealth affords does not depend upon whether the laborer works
for himself or for another, but it depends entirely upon how much
wealth he receives. There is no power in nature, society, or
government that can make a poor man free. Poverty is social
weakness ; it is the source of slavery, and the background of
despotism.
Social well-being consists not so much in doing, as in having.
In proportion as man's energies are expended in obtaining a living,
the possibilities of his social, intellectual, and moral life and de-
velopment 'are restricted. In order, then, to maximize man's
social individuality, it is necessary to minimize the expenditure
of his physical energy. This is precisely what the division of
labor, the concentration of capital, and the development of the
factory system promote.
The de-individualization of the laborer as a producer promotes
his social advancement in many ways. In the first place, it makes
INFLUENCE OF THE WAGES SYSTEM. 13
the wages or stipulated-income system necessary. In proportion
as the income of any class becomes stipulated, it becomes less
contingent. To the extent that this occurs, material subsistence
becomes more certain, which is the first step toward social and
intellectual development. So long as the laborer's living is
uncertain, he is in a more or less constant state of anxiety and
suspense, which tends to make progress in the higher phases of
social life impossible.
Another beneficial feature of this tendency is that it concentrates
the laborers, and specializes their occupations. By this means
they are not only forced into closer and more frequent intercourse
with each other, but it also increases their mutual interdependence.
The material condition of the masses cannot be improved, nor
can their political freedom or social character be developed, by
any thing which does not increase the economic interdepend-
ence of the people, and weld them together in social classes. In
proportion as this process of social differentiation increases,
interests and sympathies broaden, altruism is developed, and the
welfare of all becomes identical with that of each. Nothing so
surely aids social advancement as that which makes it necessary
for millions to rise together. No industrial system, no civiliza-
tion, no religion even is worth sustaining which only saves a few.
Another feature of the wages system is the tendency to promote
more constant employment. There is no fact more conclusively
established in the history of industrial progress than that the
concentration of capital in fixed plants and large enterprises
makes a marked increase in the permanence of employment.
As industrial establishments increase in size, constant employ-
ment of capital becomes necessary. The loss involved in the
short stoppage of a large factory will soon be more than equal to
the profit of a year's business. Whatever increases permanence
in the use of capital necessarily increases the constancy of
employment. Thus, as the factory methods develop, the capi-
talist has to pay the penalty for enforced idleness through loss or
bankruptcy ; and hence permanent employment becomes one of
the features of the industrial expertness of capitalistic manage-
ment. Under the individual or self-employing regime this was
not the case. When the hand weaver failed to sell his cloth or
make a living, he could starve, beg, go to jail, or die, as the case
14 ECONOMIC PROGRESS DEFINED.
might be. His poverty involved nobody else, while under the
wages system the great capitalist, nay, the whole community,
is involved with the enforced idleness of the laborer.
Accordingly, the world over, we find that permanence of
employment increases and enforced idleness diminishes where
the wages system is most developed and capital most concen-
trated. This is clearly shown by the currents of emigration.
People always leave those localities and countries where employ-
ment is the most precarious and least remunerative, and move
towards those where it is most permanent and best rewarded.
Hence the tendency of emigration is always from those coun-
tries where the wages system and factory methods are least
developed, to those where they are most highly developed. It
is from China, Bohemia, Austria, Italy, Germany, and Ireland,
towards England and America, that laborers emigrate, and not
from England or America to Continental Europe and Asia.
The industrial system, which tends to socialize the laborer, in-
crease the economic interdependence of the capitalist, consumer,
and workman, and make the material well-being of the masses
the basis of business success, necessarily possesses all the possi-
bilities of an ever-advancing civilization. Progress in politics and
society, therefore, may be defined as the tendency to increase the
sovereignty of the individual and diminish the arbitrary authority
of the state by establishing greater democracy of administration.
In economics k may be defined as the tendency to centralize
industrial administration and responsibility, de-individualize the
laborer as a producer and socialize the results in better and
cheaper products.
CHAPTER II.
THE LAW OF SOCIAL PROGRESS.
SECTION I. The Elements of Social Progress.
IN the preceding chapter two facts were established. First,
that social progress is the movement of society toward the reali-
zation of the highest material, intellectual, and moral possibilities
in human life ; i.e., toward the plane of greater human well-
being. Second, that this progressive movement consists in a
series of changes from a relatively simple to a relatively complex
state of social organization. We now come to the consideration
of the law by which this movement takes place ; that is to say,
the order in which the different phases of social phenomena are
developed. These may be grouped under three general heads,
as the material, the intellectual, and the moral. The material
element in social progress is not merely that which relates to
man's physical necessities, but every thing that relates to his
wants and desires, of whatever kind, the gratification of which
involves the production of wealth. These will be found to in-
clude, not only the necessities for food and shelter, but those for
education, art, travel, intellectual and moral culture, and even
religion. In fact, there are no desires of which man is capa-
ble whose gratification does not directly or indirectly necessitate
the production of wealth. The material element in social
progress, therefore, includes every thing which relates to the
gratification of human wants, desires, and aspirations. The intel-
lectual element is that which relates to man's capacity to acquire
and apply knowledge ; it is the analyzing, reasoning, judging,
and directing element. Morality simply relates to the quality of
is
1 6 THE ORDER OF SOCIAL PROGRESS.
human conduct. We designate conduct as moral or immoral
according as it directly or indirectly tends to promote or retard
social well-being or human happiness.
While these phenomena are distinct in their character they are
inseparable in their relation ; hence no differentiation can result
in permanent integration and specialization which does not find
expression in all these phases of social life. 1 If the development
of any one of these elements should be promoted at the expense of
the rest, it must necessarily fail of its function because not one of
them can permanently exist without the sustaining influence
of the others. The increased production and accumulation of
wealth, for example, could not continue without the increase of
intelligence to devise the means necessary to produce it, and
a corresponding advance in the social integrity to sustain it. A
general advancement of intelligence is impossible without the
relative elimination of poverty and vice ; and no considerable
advance in ethics can take place without a previous increase in
material well-being.
SECTION II. The Natural Order of Social Progress.
Although the various elements of social development are in-
separably connected with, and constantly act and react upon
each other, one of them must necessarily sustain the initiative
relation to the others, or no movement could take place. Which
of these occupies that position ? The answer to this question
must explain the relative position these elements occupy in the
scale of development and the historic order of their appearance,
both of which are indicated by their functional relations.
Morality, being the quality of conduct, necessarily arises from
motives, decisions, and actions, and hence must be a resultant of
the other elements. Morality is the fruit and not the root ; it is
the objective point towards which progress tends, and conse-
quently is the last to be developed. 8 The intellect, as already
explained, is the reasoning, analyzing, judging faculty ; its func-
tion consists exclusively in adapting means to an end. It
occupies the position of servant and guide to the other faculties.
' ' The progress of society is not moral progress, or intellectual progress, or
material progress ; but it is the combination of all the three." Fiske's " Cosmic
Philosophy," vol. ii., p. 245.
* Ward's "Dynamic Sociology," vol. i., p. 216.
MATERIAL PROGRESS THE FIRST. 1?
Human activities are never exerted except for the gratification of
some desire, want, sympathy, sentiment, or ambition arising in
the feelings. Intellectual or physical effort put forth without
some motive or desire would be senseless. 1 Of necessity, there-
fore, the material element in social progress is first in the scale of
development and supplies the motive which calls the intellect
into activity. All the inventions and discoveries in manufacture,
science, and literature, all the doctrines of economics, ethics,
politics, and religion have been produced by the intellect in its
effort to gratify the desires. These efforts have been perpetuated
or abandoned in proportion as they were found, by experience,
to be favorable or unfavorable to human well-being.
Clearly, therefore, the natural order of the various elements in
social development is : the material, the intellectual, the moral ;
the material being the basis or motor force, the intellectual the
means, and the moral the result."
Although the fact that progress of society has always been in
the ascending order from the material to the moral has been
generally recognized as a matter of history, it has been almost
uniformly ignored as a principle in social philosophy.
There appears to have been an undefined apprehension that to
permanently regard the material as the preponderating element
in human progress is to belittle the influence exercised by the
intellect upon the advance of civilization. This is a mistake.
The danger of inverting the order of its operation is what is most
likely to occur. It is precisely at this point that some of the most
fatal errors have "entered the popular theories. The best writers
agree that in the early stages of social growth the material
element is first in order and influence, but seeing that the mate-
rial conditions and moral character advance more rapidly as the
1 Comte's "Positive Philosophy," pp. 384-50x3.
8 " The same may be said of all the so-called virtues honesty, benevolence,
justice, etc. These qualities are the result of his civilization. His moral
nature has sprung from his rational faculties, and may be traced back to its
origin in sympathy : at first confined to his immediate companions or offspring ;
thence gradually extended to embrace his own clan ; then his particular tribe,
race, or country ; then, to a limited degree, the whole human race ; and lastly,
as exhibiting the highest type, and quite rare even among the most civilized,
made to comprehend the lower brute creation in one beneficent scheme of
morals." Ward's " Dynamic Sociology," vol. i., p. 461.
2
1 8 COMTE'S MISTAKE.
intellect develops, they appear to assume that the order of prog-
ress changes and the intellectual instead of the material element
becomes the dominating influence in social progress. Even
Comte says : " If our affective faculties were subordinated to the
intellectual, all idea of improving the social organism would be
senseless. . . . For our affective faculties must preponderate,
not only to rouse the reason from its natural lethargy, but to give
a permanent aim and direction to its activity, without which it
would be ever lost in vague, abstract speculation." ' After
having thus affirmed the truth of the ascending order, he says :
" This is the natural order . . . whereas the reverse is the
rational one and that which gains upon the other in proportion
as the intellect assumes a larger share in the human evolution." 2
Thus, according to Comte, upon the dawn of the human intellect,
the natural order became irrational. Buckle, Draper, and Guizot
all take practically the same position. Though they do not go
through the same course of reasoning that M. Comte does, they
act upon the same conclusions. They all admit that material
conditions must precede intellectual and moral development, and
then insist that the intellect is the source of human progress. 5
For the assumption that the order of evolution is thus reversed
by the accession of the intellect there is no warrant either in rea-
son or fact. That the material element in progress is greatly
accelerated by the reflex action of the intellect, and the intellec-
tual by the moral, and that progress is greatly enhanced thereby,
is unquestionable. But that in no way implies any change in the
law of social movement. The fact that the intellect fills a much
larger sphere in human life than it once did, does not tend to show
that it has in any way changed its relative position. The differ-
ence in the activities of man in modern civilized society and
those of his savage ancestors simply represents the difference in
the quality and quantity of his desires. The intellect, by the
very nature of its function, is not a propelling, but a guiding
element. It is the servant and not the master of human wants.
1 "Positive Philosophy," p. 500. American edition.
3 Ibid., pp. 685, 636.
3 Buckle's " History of Civilization," vol. i., pp. 30, 31 ; cf. also pp. 242
and 509 ; Draper's " Intellectual Development of Europe," p. 591 ; Guizot's
" History of Civilization," pp. 66, 84, 85, and 230.
THE INTELLECT OBEYS THE WANTS. 19
The operation of this principle is clearly illustrated in the social
effect of the discovery of the mariner's compass, the art of print-
ing, the use of gunpowder, etc. It was not until some consider-
able portion of mankind desired the products of other nations
that navigation became necessary and the mariner's compass
could be of service to man, while gunpowder and printing,
having been invented before the desire for them was developed,
had to wait thousands of years before they could exercise any
influence upon civilization. 1 Although our acquisitions in sci-
ence, art, labor-saving inventions, etc., are the work of the intellect,
it is only when those achievements minister to human wants that
its activities tend to promote human progress.
It is true, however, that the influence of a new acquisition by
the intellect seldom fully expands itself in the satisfaction of the
wants to which it directly relates, but it frequently exercises a
reflex influence, the tendency of which is to again increase the
desire and consequently still further stimulate its own activity.
For example, the art of printing not only increased the number
of books sufficiently to supply those who had already acquired a
positive desire for reading, but it so cheapened them as to put
them within the reach of a large class to whom such a luxury had
previously been impossible, thereby greatly increasing the desire
for, as well as the possibilities of, obtaining knowledge. Again,
when the power-loom and the spinning-jenny were invented,
they not only enabled the manufacturers to supply the increasing
demand for cotton cloth, but they so reduced its price that it could
become an article of common use among the masses. This fact
naturally soon gave rise to such desires for other and superior
fabrics that the result was to ultimately revolutionize the industrial
system of all Europe.
It is therefore not true that the natural order of social evolu-
tion is changed by the development of the intellect. To whatever
extent the sphere and activities of the intellect may be increased,
its relative position and function must, by the very nature of its
constitution, remain the same.
A similar error prevails in regard to the position of ethics in
social progress. Because personal morality, commercial integ-
rity, industrial equity, and social harmony are seen to increase
1 See Part II., chapter i.
2O ERRORS REGARDING ALTRUISM.
as the altruistic feelings advance in society, it is held that altruism
and egoism are essentially antagonistic to each other. Egoism is
a term usually employed as relating to self, and altruism as relating
to others ; hence all actions and feelings are regarded as egoistic
in proportion as they tend to promote the welfare of self to the
exclusion of others ; and conversely they are altruistic in pro-
portion as they tend to promote the well-being of others to the
exclusion of self.
From this position it has been consistently inferred that self-
interest is inimical to the well-being of society. The natural
effect of such a conclusion is to create an aversion to all indus-
trial institutions in which this principle is recognized and to
stimulate the demand for a reconstruction of society on a so-
called altruistic basis. This reasoning involves a misconception
of the terms egoism and altruism and their logical relation to
each other. It is a radical error to regard altruism as anti-
egoistic, or even non-egoistic, in its influence. To injure or
ignore the well-being of self is to destroy the first essential con-
dition for promoting the welfare of others. We can only be
helpful to others in proportion as we are well provided for our-
selves. 1 The poor, the weak, and the inferior are always a
burden rather than a help to their friends.
Egoism may be defined as relating to the welfare of self ; and
altruism as relating to the welfare of self and others. The basis
of true altruism is successful egoism. Altruism differs from
egoism, not in being opposed, or even indifferent to, the interests
of self, but only in embracing the interests of others besides self-.
Thus all real altruism is highly egoistic, though all egoism is not
altruistic. All conduct may be called relatively altruistic accord-
ing as it benefits more than one, and relatively egoistic as it
benefits less than all. It is a mistake, therefore, to conclude that
altruistic conduct in society can be increased only as the princi-
ple of self-interest is diminished.
There is, moreover, unconscious and conscious altruism. The
1 " The acts required for continued self-preservation, including the enjoyment
of benefits achieved by such acts, are the first requisites to universal welfare.
Unless each duly cares for himself his care for all others is ended by death ; and
if each thus dies there remains no other to be cared for. This permanent
supremacy of egoism over altruism, made manifest by contemplating existing
life, is further made manifest by contemplating life in the course of evolution."
Spencer, " Data of Ethics," pp. 187, 188.
THE LAW OF SOCIAL PROGRESS. 21
former is altruistic conduct prompted by egoistic motives ; the
latter is that inspired by altruistic motives. In the progress of
society unconscious altruism precedes and tends to develop con-
scious altruism. Much the larger portion of the altruistic con-
duct in the world to-day is of the unconscious class. The great
improvements in manufacture and commerce that have put so
many luxuries and refinements within the reach of the average
citizen have, for the most part, been created by egoistic motives.
It is because the industrial policy of the employing class has been
dominated too much by the idea of benefiting self to the exclu-
sion of others that it has received so many disastrous checks.
We shall hereafter see that industrial depressions, bankruptcies,
enforced idleness, and their accompanying evils, are the economic
penalty for ignoring the interests of others in the efforts to bene-
fit self. Those who are excluded from the benefits we enjoy
become a menace to our well-being and a hindrance to our prog-
ress ; and conversely, the more completely the welfare of others
becomes identical with our own the more is our own increased.
Altruism, then, is not opposed to egoism ; it is simply a higher
phase of it. Obviously, altruism the highest form of ethical
conduct is the consequence of broadening the egoistic activities
of the material and intellectual elements, and hence is necessa-
rily last in the order of development. We are therefore war-
ranted in concluding that the progress of society toward greater
complexity of organization, in which the necessity of physical
effort is diminished, intellectual power and personal freedom
increased, and moral character elevated, is always in the ascend-
ing order from the material to the intellectual and moral ; the
material being the basis, the intellectual the means, and the moral
qualities the result.
What then are the influences by which exclusive egoism is
transformed into all inclusive altruism, and savagery is converted
into civilization ? To answer this question is to explain the cause
of social progress and will be the subject of the next chapter.
CHAPTER III.
THE CAUSE OF SOCIAL PROGRESS.
IT is not enough to known what progress is, or even to know
the law of progress ; but the cause of progress must also be under-
stood before a true system of social philosophy can be established.
We have seen : (i) that social progress consists in changes of
man's social polity, or institutions, and not in his physical organ-
ism ; (2) that while all progress is change, only those changes
are progressive which tend to further social differentiation ; (3)
that while there can be no social progress without differentiation,
only that differentiation is progressive which results in new inte-
grations and greater complexity of social relations.
What then is the force which produces the changes that result
in integrating differentiation ? If we examine the history of
social institutions from their simplest beginnings, or trace them
from their most complex stages back to the earliest times, we
shall find that every change in the polity of society whether in-
tellectual, political, moral, or religious has been brought about
by man's conscious effort to adapt social institutions to his own
needs and desires. Social institutions are established by man
exclusively for men. It may be said that the changes in social
institutions are the work of the human intellect ; that, where
man's social wants are the most numerous his physical and intel-
lectual activities are the most varied and all phases of social
institutions are the most highly differentiated. In the last analysis
the proximate cause of social progress is human wants.
In the first place, it will be observed that all desires, of what-
ever character, are simply states of feeling, the distinguishing
characteristics of which are pleasure and pain. In proportion as
22
DESIRE THE CAUSE OF EFFORT. 23
pleasure exceeds pain in human experience happiness prevails
and life becomes attractive and desirable ; and conversely, as pain
exceeds pleasure misery prevails and life becomes undesirable.
These antithetical states are completely represented in the terms,
want and satisfaction. Want is pain ; satisfaction is pleasure ;
and the extent to which the latter exceeds the former is the true
measure of happiness. To increase the proportion of pleasure
to pain, therefore, is the primary purpose of all human effort and
the immediate cause of social differentiation. Although all effort
is exerted for the gratification of some desire, there are many
desires that fail to call forth sufficient effort for their satisfaction.
Effectual desires are those which incite the necessary activity for
their gratification ; those which fail to call out such effort are in-
effectual. Only effectual desires cause progress. Why are some
desires effectual and others ineffectual ? it may be asked. Upon
what principle is effort expended for the satisfaction of some
wants and not for others ? A moment's consideration will show
that this is all determined by the relative degree of pain and
pleasure involved. Hence, the gratification of any given desire
must finally turn upon the choice between a relatively painful
want and a relatively painful effort, the decision always being in
favor of the minimum pain. If this be true, it follows that human
wants are not only the cause of social progress, but that advance-
ment toward a higher plane of happiness can only take place on
the egoistic principle of obtaining the maximum pleasure for the
minimum pain.
It thus appears that self-interest in man is not an evil element,
as we have been taught to consider it, but that the principle of
egoism affords the basis of, and inspiration to, social develop-
ment. Man in his most primitive state was exclusively egoistic
in his desires and in his conduct. Altruism was not visible in
any thing that he did. Having no social or physical interest in
his fellow-man, there was no more economic or ethical reason,
why he should not steal from, or even kill and eat, him, than
that the lion should not devour the lamb.
As his wants became more numerous the efforts to satisfy them
became more burdensome, and the contest between want and
effort began. The want must remain ungratified or a means of
gratifying it less painful than the want itself must be devised. This
24 THE ORIGIN OF EQUITY.
could only be accomplished by inventing labor-saving con-
trivances ; and invention is exclusively the function of the mind.
The greater the demand for this mental activity the more rapidly
are the intellectual faculties developed, and the more easily are
wants gratified. It was precisely upon this principle that the
crude tomahawk, bow and arrow, and canoe were first employed,
and the division of labor became a necessity. With the division
and specialization of labor, exchange of products became indis-
pensable to the gratification of wants, and some degree of inter-
course having been established, a beginning of confidence became
inevitable. As the wants of men increased, and they became
more dependent upon each other for the means of satisfying
them, they naturally became more settled and social in their
mode of life, and as soon as the crudest form of association be-
came necessary, altruistic conduct began. The fact that asso-
ciation arose from self-interest made it indispensable that the
advantages should be mutual to some extent. Thus from purely
egoistic motives it became absolutely necessary that the efforts
to benefit self should be so directed as to confer some benefit
upon others.
Through this closer social contact wants became still more
varied and efforts more specialized ; intellectual activity in-
creased and individuality gcew more pronounced. When, from
these influences, exclusive family relations, with the permanent
care of offspring, developed, and the private ownership of prop-
erty became customary, it was obvious that one of two things
must occur, either the security of life and property must be
increased, or these complex social relations must be abandoned ;
otherwise the danger to life and property would neutralize all the
new advantages. Thus a certain degree of morality became in-
dispensable to self-interest, and the murder, theft, and treachery
which a more simple life induced, having proved injurious to all
and permanently beneficial to none, were pronounced capital
offences. The more closely we consider history in this light, the
more clearly it appears that the same principle applies to the
whole moral code. Just as fast as the quality of an action
becomes uniformly recognized it is designated moral or immoral,
and passes from the sphere of conscious expediency to that of
moral principle.
DEVELOPMENT OF MORALITY. 2$
In this way virtue tends to perpetuate itself, while vice or
immorality tends to its own elimination. The object of intel-
lectual activity being to serve the desire for happiness, it is neces-
sarily employed in devising means for eliminating the painful
without reducing the pleasurable experiences, and it is only as
this eliminating process takes place that new social integrations
become permanent and the best results of progress are secured.
This principle applies to all phases of human conduct. All the
improvements in medicines, ethics, politics, and economics are the
direct results of this eliminating process.
It may be urged that the altruism, or morality, thus evolved
from egoistic motives, is only of the unconscious kind, and is very
different from the conscious altruistic feeling which we recognize
in the highest moral characters. If we pursue the enquiry a little
further we shall see that volitional altruism is but a higher phase
of the unconscious expedient. The same principle which leads
men to repeat the conduct that produces beneficial results, also
leads them to have a common interest in, admiration for, and
sympathy with, those identified with such beneficial efforts.
It should be remembered, however, that social progress is not
a simple, direct movement, but a resultant of the action and
reaction of a variety of social currents, and that with each suc-
cessive increase in the social complexity the influences affecting
their differentiation become more subtle and involved.
The increasingly frequent personal intercourse which inevitably
arises from more complex social relations, and the greater identity
of interests, naturally tends to promote a greater reciprocation of
sympathetic feelings. It is a universal principle in sociology that
the more frequently we repeat acts which command our own and
others' approval, the more they tend to become habitual and
automatic ; and in proportion as any conduct tends to become an
unconscious part of daily life, it forms a fixed element of social
character. Accordingly, in the most advanced countries, where
the wants and desires of the people are the most numerous *and
their industrial and social relations the most complex, we find the
greatest degree of honor, virtue, integrity, fair dealing, general
honesty, and public and private justice ; in short, the highest
phase of moral conduct. To such an extent is this true that con-
tracts, sometimes covering millions of dollars, are daily made
26 NEW WANTS THE CAUSE OF PROGRESS.
between parties in New York, London, Paris, etc., who never saw
each other. Should either party violate such obligation, the
law which expresses the moral character in the respective
countries would enforce its fulfilment, and the civilized world
even sanctions warfare when nations violate their treaties with
each other.
The transfer of conduct from a basis of conscious utility to that
of moral principle is but another step in social evolution ; the
essential difference being direct and indirect experience.
When we act upon the abstract principle of right and wrong
we are simply basing our conduct upon generalizations drawn
from the repeated experiences of others. We accept it as a
dogmatic principle only because its expediency has been pre-
viously demonstrated.
Nor is this all. The influences which are thus elevating indi-
vidual egoism into moral principle are also simultaneously tending
to expand and intensify sympathetic, altruistic feeling. In pro-
portion as the influence of man's egoism becomes indirect, and
that of his altruism direct, he becomes more sensitive to the
feelings of others and less absorbed in his own ; so that, instead
of regarding the misery of others with indifference, as formerly,
a comparatively slight unhappiness becomes the source of great
pain to him, and often the incentive to his highest action. Hence
we see that, whereas man could once kill and feed upon his
fellows, to-day the advanced races regard injury to another as
equal to harm inflicted upon themselves.
Viewing the subject in all its phases, we see that in every
direction the increase of egoistic wants is the real source of social
progress. It develops the activity of the intellect ; this in turn
differentiates the social environment ; engrafts virtue into char-
acter ; transforms conscious egoism and unconscious altruism
into unconscious egoism and conscious altruism ; elevates utility
into morality, and makes moral principle, instead of individual
interest, the basis of social conduct. Thus, as man's intellect is
called into activity by the differentiation of his desires, so is his
moral character developed by the differentiation of his interests.
CHAPTER IV.
THE VERIFICATION OF THE LAW OF SOCIAL
PROGRESS.
ACCORDING to the theory of social progress presented in the
preceding chapters the development of man's social wants, and
the consequent increase in the general consumption of wealth, is
the necessary precursor of social, intellectual, and moral advance-
ment. If this doctrine is correct we may always expect to find
the highest state of civilization, and the most complete social,
political, and religious freedom, in those countries where the
material well-being of the masses is the most marked and con-
tinuous. And conversely, wherever the development of social
wants have been the most restricted, we may equally expect to
find the greatest intellectual and moral stagnation, and social,
political, and religious despotism.
The operation of this law is as universal as the human race.
History is replete with the evidence that social, political, and re-
ligious freedom is everywhere large or limited, the intellectual
and moral character high or low, in proportion as the general
consumption of wealth by the masses is great or small. The his-
tory of India and China, for instance, reveals to us peoples whose
simple habits of life induce very few wants, and those chiefly of a
physical character which are easily supplied. Their food consists
chiefly of rice, ragi, or millet, with a little seasoning. Their
houses are mainly fragile huts which may keep out the rays of
the sun, but seldom afford much protection against wind and
rain. The furniture and clothing of the common people are
equally simple and meagre, being confined to the limited uses
which a rice-diet and a ten-cent-a-day social life make necessary.
27
28 INDIA, CHINA, AND EGYPT.
Although the political institutions of the two countries are in
many respects essentially different, the economic and social con-
ditions of the people are practically the same. What law and
caste has done towards stereotyping the industrial and social
degradation of the laboring classes in Hindostan, custom has just
as firmly established in China. The natural result of these con-
ditions is the arrest of material and social progress in those
countries. If we can accept the testimony of modern travellers,
the people of India and China are in substantially the same state
of mental and moral degradation that they were in nearly three
thousand years ago. 1
In Egypt the industrial and social systems were very similar
to those in India and China, and their influence upon civilization
was substantially the same. Dates composed the staple food of
the common people. The poverty of the masses in ancient Egypt
may be inferred from the fact that the children of the lower
classes went entirely naked, and that to bring up a child to
maturity did not cost more than twenty drachmas, or thirteen
shillings of English money,* i.e., about three dollars and a quarter.
The social and political servitude of the lower classes is shown
by the fact that they were prohibited by law and custom from
owning land, participating in public affairs, or even choosing their
own occupation.*
So far as data are obtainable, a similar set of facts present
1 ' ' The nations of Europe have very little idea of the actual condition of the
inhabitants of Hindostan. They are more wretchedly poor than we have any
notion of." "Transactions of Asiatic Society," vol. i. t p. 482. "From the
earliest period to which our knowledge of India extends, an immense majority
of the people, pinched by the most galling poverty, . . . crouching before
their superiors in abject submission, and only fit either to be made slaves them-
selves or to be led to battle to make slaves of others." Buckle's " History of
Civilization," vol. i., p. 53. " It is remarkable how little the people of Asiatic
countries have to do in the revolution of their governments. They are never
guided by any great and common impulse of feeling, and take no part in events
the most interesting and important to their country and their own posterity."
" Journal of Asiatic Society," vol. i., p. 250. See also Alison's " History of
Europe," vol. x., pp. 419, 420.
' Buckle's " History of Civilization," vol. i., p. 63.
1 " If any artisan meddled with political affairs, or engaged in any other em-
ployment than the one in which he had been brought up, a severe punishment
was inflicted upon him." Wilkinson's " Ancient Egyptians," vol. ii., pp. 8, 9.
GREECE AND ROME. 2Q
themselves in the much-lauded early civilization of South Ameri-
ca. The leading features of the industrial and social system in
ancient Mexico and Peru were similar to those of China, India,
and Egypt ; and consequently their influences upon human
progress were substantially the same. What rice was to the in-
habitants of India and China, and dates to those of Egypt,
maize and bananas were to the people of Mexico and Peru.
Here too, poverty, ignorance, and servitude, with all their
attendant evils, were the direful lot of the laboring classes. 1
The history of ancient Rome and Greece presents a similar
picture, although the setting is somewhat different. These two
countries differed from each other in some respects ; their cli-
mate, religion, political institutions and literature were unlike
those of India, China, Egypt, and early America in many im-
portant particulars ; but in one fundamental respect they were
all substantially the same namely, the material and social con-
dition of the people.
The great mass of the people in Greece and Rome were miser-
ably poor and the very few were enormously rich. Despite the
progress of art, philosophy, and jurisprudence, the social con-
tempt in which the industrial classes were held by their superiors
was as intense as that exhibited by the ruling classes of Asia,
Africa, and America.
Slavery was so thoroughly rooted in the social system of
Greece that it was not only sustained by those who had a mer-
cenary interest in the traffic, but the philosophers before whose
wisdom we of the nineteenth century are asked to bow defended
it as being in accordance with natural law. Xenophon, a disciple
of Socrates, in expressing his contempt for the laboring classes,
declared : " The manual arts are infamous and unworthy of a
citizen." Even Plato introduced slaves into his ideal republic.
Nor did the scientific mind of Aristotle emancipate him from the
iniquitous idea. Speaking of laborers, he says : " These indi-
1 " They (the masses) had nothing that deserved to be called property. They
could follow no craft, could arrange no labor, no amusement, but such as was
specially provided by law. They could not change their residence or dress
without a license from the government. They could not even exercise the free-
dom which is conceded to the most abject in other countries that of selecting
their own wives." Prescott's "History of Peru," vol. i., p. 159. See also
Draper's " Intellectual Development of Europe," p. 461.
3., the same " in
all other employments," the reverse is everywhere the case. In
all fairly well established industries where any appreciable amount
of capital is employed, interest or profit varies from zero up. In
farming and every branch of manufacture there are to be found
some who are barely holding their own and keeping their capital
intact. There are many who for years together receive no interest
for the use of their capital, and frequently some who continue to
employ it at a net loss, while others in the same business and
often in the some locality receive five, ten, and sometimes twenty
per cent, profit. It is exactly at this no-interest point that the price
of the product is determined 4 ; and every time this price-fixing
point is lowered by the use of improved methods of production,
these no-interest producers are compelled to produce at a loss or
leave the business. This is the only means by which the price
of commodities is permanently reduced. It is in this process of
pushing the price below the plane of the no-interest producer that
1 This point he makes clear by saying : " But the charges for insurance and
for renewals, or wear and tear, are not strictly charges for the use of capital, but
simply a provision to preserve its amount unimpaired. . . . Disregarding,
therefore, all items of cost of employing auxiliary capital except interest, the
law of wages assumes this form : The interest on capital and the price of labor,
in all employments, are fixed by the rates paid for their use in those of their actual
employments in which they are used indifferently" etc. Quarterly Journal of
Economics, vol. iii., No. I, pp. 71, 72.
8 Quarterly Journal of Economics, vol. iii., No. I, p. 68.
1 Ibid., p. 86. 4 Part II., chapter iv., section iii.
190 WAGES UNLIKE INTEREST.
small concerns are constantly being " crowded out of business by
large ones ' ; and this tendency increases as the use of capital
and specialization of industry develops and civilization advances.
Since, in all well established industries subject to free competi-
tion, there is capital employed which receives a liberal return as
interest or profits, and in the same industries capital is employed
for the use of which no interest whatever is paid, it is manifestly
incorrect to say : " The same prices . . . are also paid for equal
amounts of labor and capital in whatever other employments they
may be engaged in."
Nor is the second affirmation any more consistent with the
facts. If it were true that the rate of wages is determined by, or
only equal to, the rate of interest, the rate of wages could never
exceed the amount paid for the use of the capital representing an
equal amount of productive force. According to this hypothesis,
wherever the capital is employed without interest the laborer must
also work without wages. It is unnecessary to say that such a
state of things is nowhere to be found in the industrial world, not
even under slavery. In every industry we can find capital em-
ployed without interest, but in no industry can we find labor
working without wages.
Since capital is frequently used without interest, and labor
never used without wages, it is manifestly incorrect to say the
rate of wages is determined by or equal to the rate of interest ;
and since both the rate of wages and interest vary in different
industries, and vary in different localities in the same industry, it
cannot possibly be true that " the same prices as are paid in these
cases for labor and for the use of capital are also paid for them in
all their other employments."
The only really important point in Mr. Wood's argument is the
recognition of the fact that capital can only be successfully em-
ployed when it is cheaper than labor as a means of production, a
fact hitherto generally overlooked.
Since social progress chiefly depends upon increasing the
quantity and reducing the cost of wealth, and this in turn depends
upon the use of capital in production, a correct understanding of
the law governing the economic use of capital is of the utmost
1 Cf. chapter iv. ; also author's article, Political Science Quarterly, vol. iii.,
No. 3, pp. 385-408.
CONFOUNDING WAGES WITH PROFITS. . 19!
importance to economic science. As already explained, 1 that
which undersells always succeeds, and that which succeeds establishes
the methods by which its success is accomplished j consequently, the
principle upon which capital can be successfully employed in
production is its relative cheapness as a productive factor.
The fact that " as between two methods of obtaining the same
result, cheapness is the sole guide," is clear to Mr. Wood, but its
economic significance he has evidently failed to recognize. Like
the orthodox economists, he sees that the use of capital is the
only means of permanently cheapening wealth. And he further
sees what they did not, namely : that capital can only be em-
ployed when it furnishes productive force cheaper than labor ;
but the principle upon which capital becomes cheaper than labor
he appears to be no nearer understanding than was Adam Smith,
Gregory King, or Thomas Munn. The chief difficulty with Dr.
Wood is that he fails to distinguish between the economic
character of labor and capital and consequently confounds the
price of labor with interest or profit which are fundamentally
different.
The price of labor, like that of all necessary factors in production,
is determined by its own cost and not by interest, nor any thing
relating to capital. The use of capital depends upon the cost of
labor in two ways its cost as a factor in production, and its
expensiveness as an element in consumption. While capital can
never be employed unless it can work cheaper than labor, it can
only do so when it is accompanied by new employment creat-
ing conditions which nothing but an enlarged general consumption
and higher wages can supply. Moreover, a general rate of wages
and profits in all industries, such as Wood struggles to explain,
is nowhere to be found. The rate of wages tends to uniformity
only within specific industrial groups. In such countries as India
and China and to some extent in Russia and Austria, among
purely agricultural producers, there is the nearest approximation
to a general rate of wages, because there industrial differentiation
is at the minimum. But in proportion as the division of labor
and the complexity of industrial and social relations increase, a
general rate of wages becomes impossible, because distinctive
industrial groups bring different rates of wages into existence.
1 Part II., chapter i.
192 . NO UNIFORMITY OF PROFITS.
For example, the wages of spinners, weavers, carpenters, masons,
tailors, etc., will tend to a uniform rate for each industry in the
same market or locality, but that uniformity does not extend
throughout the country. Accordingly, we find that the wages for
the same occupation in New York City are very much higher than
in rural districts and country villages, for the obvious reason that
the cost of supplying the labor-power is greater in the former
than in the latter places.
Therefore while wages and prices always tend to a uniformity,
it is a uniformity for the same quality in the same market. But
even this is in no sense true of profits ; on the contrary, all the
force of self-interest and economic law tend to make profits move
in the opposite direction. The reason for this is very simple.
Profits being the net surplus after all costs are paid, it is because
prices tend to a uniformity that a variation in the cost makes
profits possible, and therefore the greater the variation in the cost
of production per unit of product, the greater the variation in the
profits. And conversely the more uniform the cost of production
per unit, the more uniform and the smaller the maximum amount
of profit. Instead of profits tending towards a uniformity, they
tend towards diversity, varying from zero up, in proportion as
the complexity in productive methods and variety in the cost per
unit increases.
SECTION II. Professor Clark's Theory.
In a recent monograph ' Professor Clark presents a theory of
wages which, if not new, has some new features in it. The fun-
damental point in this theory is, that the price of all factors in
production is determined by what the last and no-rent increment
can produce, which when applied to labor is, that the general
rate of wages is determined by what the laborer could produce
" empty-handed " or with such land and tools as can be had for
nothing.
As a theory of wages this is essentially the doctrine of Henry
1 A paper on the " Possibility of a Scientific Law of Wages," read before the
Third Annual Meeting of the American Economic Association, in Philadelphia,
December 27, 1888. " Publications American Economic Association," vol. iv.,
No. I.
CLARK'S THEORY STATED. 193
George, which we have shown to be contrary to all experience. 1
Mr. Clark, however, seems to think the fallacies which we exposed
in the theory of Mr. George are not due to the principle of the
doctrine, but result from a too restricted application of it.
Instead of limiting the theory to no-rent land, as George does,
he extends it to no-rent instruments in all departments of the
social working-field.* This theory affirms : (i) that there is a
no-rent point at which every productive factor is employed ; (2)
that this marginal or no-rent place is where the price of using all
productive instruments is determined ; (3) that this price-fixing
portion of the supply is always the last increment that is brought
into use hence, "the men who fix the standard of wages are in
the rear rank, not in the front " ; (4) that the wages of the last
or price-fixing increment depend upon the proportion between
the number of laborers and the amount of capital employed ; and
consequently, that wages can only be advanced in proportion as
capital increases faster than labor.
1. Is it correct to say that there is a no-rent point in the use
of all productive factors ? Something depends here upon what
is meant by the phrase " no-rent." If by rent he means the cost
of maintaining the instrument unimpaired, then the statement is
manifestly incorrect. In this sense a permanent no-rent use of
any productive factor is impossible, since its wear and tear would
soon cause its total destruction. If, however, by rent he means
that which the owner obtains in addition to maintaining its pro-
ductive efficiency unimpaired, the statement is unexceptionable.
Regarding rent in the sense of net surplus, there is unquestion-
ably a no-rent point at which every productive factor, including
labor, is employed.'
2. Whether or not it is correct to say that the price of using
the productive instruments is determined at the no-rent (no-sur-
plus) point, depends upon the sense in which the word " price "
is used. If by the price of using productive instruments is meant
the expense of maintaining their productive efficiency, which
1 " Wealth and Progress," Part II., chap, i., sec. iii.
* " The true margin of cultivation more accurately that of utilization is
not wholly nor chiefly an agricultural thing ; it extends throughout the indus-
trial system. . . . There is a margin of utilization in cotton spinning, in
iron-smelting, in shop-keeping." Pp. 44, 45.
3 Part III., chapter iii.
194 HE COMMITS THE SAME ERROR AS MARX.
constitutes a necessary part of the cost of production, and is paid
by the consumer in the price of the product, there can be no
exception to the statement. But if by the price of using produc-
tive instruments is meant the rent of land, and the profit or
interest of capital, or the savings of labor, in short, surplus
incomes none of which enters the cost of production, then the
statement would be manifestly incorrect. Instead of these being
determined at the price of no-rent use, they are always deter-
mined by variations from it. 1 It would indeed be a contradiction
in terms to say surplus incomes are determined by no-surplus
uses.
3. The third proposition will be found to be much less satis-
factory. In affirming that the last increment added to the supply
is the price-determining increment, Prof. Clark has made a ques-
tionable application of his argument. He here confounds the
last with the dearest increment as if they were quite equivalent
expressions. In doing this he has committed precisely the same
mistake that Marx made in following Ricardo and confounding
the quantity with the cost of labor as the determining factor in
value. When Ricardo said " the value of commodities is deter-
mined by the quantity of labor devoted to their production," he
really meant the cost of that labor. But he erroneously assumed
that a given quantity of labor always represents the same cost 3 ;
hence, the cost and quantity at any given time are equivalent
expressions. Marx literally accepted Ricardo's expression, " the
quantity of labor " without regard to its cost, the logical applica-
tion of which led directly to the colossal error of declaring that
profits are exploitation of labor, an error which the adoption of
the other form of expression, " cost of labor," would have entirely
obviated. 3
The position of Prof. Clark is another instance of the same
kind. Ricardo's theory jof rent, which is the evident basis of his
doctrine, affirms that the last increment of land brought into cul-
tivation is always the no-rent and hence the price-determining
portion. The idea he endeavors to apply to the whole sphere of
1 See Part III., chap. iv.
2 See " Political Economy and Taxation," ch. i., sec. ii. and iii.
* See article on " Economic Basis of Socialism," Political Science Quarterly
for December, 1889.
THE LAST-INCREMENT FALLACY. 195
price phenomena. He assumes that the price of all productive
instruments is determined by the no-rent increment, and that this
is always the increment which is brought into use last. It is here
that the element of error enters the doctrine and invalidates it as
a scientific theory of prices, either of labor or of commodities.
In making the last increment of land the rent-fixing increment,
Ricardo confounded the last with the dearest increment, exactly
as in the previous case he confounded the quantity with the cost
of labor. The real reason Ricardo held that the rent of all land
was fixed by the last increment brought under cultivation was,
because he erroneously assumed that the last increment was
always the poorest and therefore the dearest. Here as in the
former case he assumed that the two were equivalent expressions
but always spoke of the " last." Prof. Clark like Marx accepts
the literal form rather than the interior meaning of Ricardo's
expressions and with similarly fatal consequences.
It can easily be shown that this " last-increment " theory is
inconsistent with the facts, alike in regard to land, capital, and
labor. It is well known that Ricardo's assumed order of cultiva-
tion is entirely unhistoric. Instead of the best land always being
used first and the poorest last, the reverse order more frequently
occurs. For instance, when the land brought into cultivation last
will yield more for the same investment than that already culti-
vated, as is often the case, the price of the product will not fall to
the cost of production on this last land, because in that case all
the previously cultivated land would be thrown out of use by
making the price so low as to render its cultivation impossible.
If the product of all the land under cultivation is needed, the
price must be high enough at least to enable the poorest portion
to be cultivated without paying rent. Thus while the poorest
portion will be the price-fixing and no-rent increment, it will not
be the last, but the last increment, being the best or better than the
poorest, will be a rent-paying and not the price-fixing increment.
Having confused the last with the dearest increment, Prof.
Clark's argument from this point on, like that of Marx, leads
directly to error in proportion to the consistency with which it is
pursued.
He says " it is a familiar commercial principle that the last
increment of the supply of any commodity fixes the general price
196 A NEW ELEMENT OF CONFUSION.
of that article." Instead of that principle being familiar in
commerce and manufacture, it is even less true there than in the
case of land. There is no fact better established in the history
of manufacture than that it is the oldest, poorest, and hence the
dearest machinery and methods which yield no profits. It is the
water-wheel factory, the small mules and slow looms that occupy
the no-profit or minimum profit position. The new factories
with the most modern improvements are those which yield the
greatest profits, because they can sell at the same price while
producing at a less cost than their price-fixing competitor.
In manufacture and commerce, therefore, instead of being the
\ last it is usually the first or oldest instruments 'in use which
fix the price; but whether the oldest or newest, it is always
the dearest.
According to the last-increment theory, wages will always be
determined by " the last laborers added to the social working
force." ' If we observe the history of the mobility of the laborer
whether it be from industry to industry, from locality to locality,
or from nation to nation, we shall find, except in a few rare
instances, that those who enter any given working field last are
the most inexperienced, incompetent, and poor. It is the effort
to improve their condition that induces people to change their
country, locality, or occupation. That is why emigration is always
from lower to higher wage-paying countries, why mechanics
seldom become farmers, but agricultural laborers are constantly
entering the factory and farmers' sons deserting the farms for the
cities. The laborer who leaves his country or industry may be
and probably often is one of the dearest of the class he leaves, but
he is usually among the cheapest in the class he enters. If the
poorest laborer fixed the wages when a new man entered any
class, the wages of all in that class would fall to his level.
The statement that the standard of wages is fixed by " the actual
product created by ... the men who run no-rent machinery "
introduces a new element of confusion. The men who run the
no-rent machinery are not necessarily the last comers in that in-
dustry. This is really confounding the price of the laborer with
that of the product. Other things being the same, the use of the
poorest instruments will determine the no-profit and price-fixing
1 " Possibility of a Scientific Law of Wages," p. 49. 2 Ibid., p. 49.
CONFOUNDING WAGES WITH RENT. IQ7
point of commodities, because in that case the quality of the in-
struments affects the cost of production. But this is not true of
labor ; since the instruments are not used in producing labor-
power, its cost, and hence its price, cannot be affected by their
quality. As productive instruments are only used in creating
commodities, it is the price of commodities alone that can be
affected by the quality of such instruments. The price of the
instruments may have been affected by that of the previous labor
which was employed in their production, but when used as in-
struments in production in conjunction with labor they are both
simply items in the cost of producing a future product, whose
price is fixed by 'them and not theirs by it. For the same reason
that the price of raw material is not determined by the finished
product into which it enters, but by the price of what enters into
it, the price of labor power does not depend upon the price of
what it produces, but upon the price of what it consumes i.e.,
the cost of its own production. Upon no other principle would
the product made by the poorest tools be the dearest, and hence
the no-profit portion.
Therefore, instead of the price of labor being determined by
the quality of the instrument it uses, it is the price of the result-
ant product only that is so affected. The fact that the entrepre-
neur who uses the poorest tools has to pay wages as high as
those who use the best, prevents him from having any profit. As
a matter of fact the laborer's wages do not grade up and down
according to the superiority and inferiority of the instruments he
uses. It is only profits which thus vary, and the reason they do
so is because wages do not.
Another source of confusion is the mistake of regarding wages
as sustaining the same relation to labor that rent does to land
and that profit does to capital. This it will be remembered was
one of the chief errors in Dr. Wood's argument, and Prof. Clark
seems not entirely to have escaped it. Although for a time he
seems to treat wages as identical with prices, in his grand formula
he treats wages as governed by the same law as profits and rent, 1
" The earnings of capital (profits and rent) are subject to identically the
same law as those of labor ; they are fixed by the product of the last increment
that is brought into the field." " Possibility of a Scientific Law of Wages,"
P- 53-
198 PRICE AND SURPLUSAGE.
which is entirely erroneous. In the use of both capital and land,
that which is necessary to replace the wear and tear is not profit
or rent but necessary cost. It does not go to the owner of the
land or capital, but is all consumed in maintaining its productive
efficiency. Wherever land or capital is employed, and the prod-
uct is only equal to this necessary cost, there will be no profits
or rent. In the case of labor all this is different. All the laborer
receives is wages, whether it is cost or surplus. Whether the
laborer receives what will barely maintain his economic efficiency
or a third more than that amount it is all wages because it is all
in the price of his labor.
In every class of labor under wage conditions there are some
laborers who work at the bare cost point, and others who have a
surplus. There is also land that is used at cost point and yields
no rent or surplus, and land that yields a rent. 1 So too of capi-
tal ; there is some that is used without profit and some that
yields a profit. Now those laborers who have no surplus above
their cost of living receive wages, and as high wages too as those
of their class who have a surplus. But the owners of land and
capital which only yields the cost of their use do not receive a
surplus as rent or profit. To say profit and rent are governed
by the same law as labor is to confound the law of prices with
the law of surplus. Wages are the price of labor and are gov-
erned by the same law as the price of land, gold, or shoes.
Profit and rent, like the laborer's savings, are all surpluses and
are governed by the law of surplus. The correct statement
therefore is this : the surplus or savings from wages, rent of land,
and profit of capital, are all governed by the same law the law
of economic surplusage ; and the wages of labor, the price of
land, and of commodities are governed by the same law, namely,
the law of economic prices.
4. The fourth proposition is the natural outcome of the third.
1 In using the expression " no-rent," the existence of no-rent land and no-
profit instruments, is assumed. If however a state of society should be reached
where no-rent land does not exist, that would not in the least militate against
the law. It would then be the minimum-rent land or tools that occupy the
price-fixing position. Indeed the prefix " no " should always be taken to mean
" minimum." Then where no-rent land or capital exists the statement is cor-
rect, and where they do not exist it is the minimum-rent land or capital that is
referred to.
DEFECTS OF CLARK'S THEORY. 199
*
The doctrine which makes the laborer's income depend upon the
quality of his tools naturally leads to the conclusion that wages
depend upon capital. Hence it is not surprising that Mr. Clark
falls back into the fold of pure wage-fundism which makes the
progress of the laborer subsequent to and dependent upon that
of the capitalist. He says : " The sole hope of this multitude
(the working class) lies in an advance of the margin of the field
of capital, and in the retirement of the margin of the field of
labor. By this twofold action only can wages rise with great
rapidity, but the movement of its margins is possible only by
means of a considerable excess of the supply of capital unbal-
anced by labor." ' This contains the essence of about all the
heresy of orthodox economics. It makes man depend upon
wealth instead of making wealth depend upon man.
Whatever the merits of this theory may be, it has three serious
defects : (i) in assuming that prices are determined by the last
instead of by the dearest increment of the supply ; (2) in treat-
ing wages as a share of the division of the product instead of a
necessary item in the cost of its production ; (3) in putting wages
in the same economic category with rent and profit instead of in
the category of prices. The natural result is to confound wages
with profits, misplace the price-determining factor, and finally
invert the economic relation of capital and labor.
1 " Possibility of a Scientific Law of Wages," p. 59.
CHAPTER III.
THE LAW OF WAGES.
SECTION I. The Test of a Scientific Law of Wages.
A SCIENTIFIC law of wages must afford a rational explanation
of all normal wage phenomena. It must explain what wages
are, why they are paid, and how their amount is determined. It
must explain why the rate of wages varies in the same industries
in different countries and localities, and why it differs in different
industries in the same localities ; why the wages in agriculture
are always lower than those of manufacturing industries in the
same country ; why in the same industries and localities the
wages of women are lower than those of men ; and why in all
industries a portion of the laborers can save money while others
of their class can scarcely make both ends meet. In proportion
as any theory fails to account for these constantly recurring
facts, it must be deemed insufficient to explain the economic law
of wages.
In considering the theories of others I have applied this test,
and to the extent that they fail to fulfil its requirements, I have
not hesitated to pronounce them incomplete or unsound. 1 All
that I ask is that the theory presented in this chapter shall be
judged by the same standard ; and if it fails to fulfil the require-
ments exacted from others, it must share the same fate, and vice
versa. In order to avoid confusion it is important at the outset
that we definitely understand what the term wages is intended to
mean.
1 The criticism of the wages-fund theory, Professor Walker's theory, and
Henry George's theory will be found in " Wealth and Progress," Part II.,
chap. i. ; and that of Dr. Wood and Professor Clark in the preceding chapter.
CHARACTER OF THE WAGES-SYSTEM. 2OI
SECTION II. Definition of Wages.
In the first place, the phrase wages has no economic meaning
except under wage conditions ; that is to say, under conditions
where the laborer's income consists of a specific amount paid by
another for his service as such. Strictly speaking, wages are
economically the price of labor. For instance, if a man works for
himself, and either sells or consumes the product of his labor,
what he receives will not be wages ; it will be the result of his
labor, but that will consist of the product he created, whether
little or much, good or bad, or indifferent, but it will not be the
price of his labor. Nothing can properly be regarded as having
a price which is not subject to the conditions of exchange i.e.,
is not bought and sold. When a man owns and sells the products
of his labor, the product has a price but his labor has not, because
as labor it has not entered the sphere of exchange, and hence is
not subject to the law of prices.
So too in slavery, where the laborer owns neither his labor nor
his product. Here the product is bought and sold, and hence
has a price, but the labor-power as such is not exchanged ; it is
the laborer himself that is bought and sold. We do not buy the
labor of the horse or the engine. It is true that the motive for
buying the horse or engine is to obtain their productive power,
but in order to obtain that power we have to buy that in which
it is produced. Under slavery the laborer is economically iden-
tical with the horse or the engine. It is he and not his labor-
power that is bought and sold. The difference in the two
systems, then, may be stated thus : under slavery the laborer is a
commodity ; under the wages-system it is only his labor-power or
service that is a commodity. With this change came a marked
social distinction ; under wage conditions, the capitalist, instead
of buying and selling laborers as under slavery, buys service and
sells products, and the laborer sells service and buys products.
Thus the laborer ceases to be a commodity and becomes a distinct
social unit who buys and sells, and economic price is transferred
from his personality to his labor-power. It is only under condi-
tions where the laborer is personally, socially, and politically free
and sells his service as such, that wages can properly be said to
exist. The price at which service under such conditions is sold
by the laborer is wages.
2O2 REAL AND NOMINAL WAGES.
It is therefore not the amount received, but the way in which
it is received that constitutes it wages. Whether the amount be
a hundred dollars a year or a hundred dollars a week makes no
economic difference. There is nothing in the nature of wages as
such to prevent them from being increased to any amount. The
essential characteristic of wages is that they constitute a definite
as distinguished from a contingent income. It will be observed
that this definition of wages includes the incomes of all, without
regard to sex or social status, who sell their service for a stipu-
lated amount. The term wages, then, as it will be used through-
out this book, means neither more nor less than the price of 'labor '.
In the text-books there is usually considerable discussion about
nominal and real wages. This, however, need detain us but
a moment. Nominal wages simply mean the price that is paid
for a given amount of service expressed in the currency or money
of the community. Real wages mean the actual amount of
wealth or social well-being obtainable for a day's labor. Nominal
wages are of no special account except as a mode of expressing
real wages. 1 In considering the law of wages, therefore, the
question is not how is the laborer's income determined when he
works for himself, nor how it is determined when he is personally
the property of another, but how his income is determined when
he voluntarily sells his service as service. What the employer
pays to the laborer is not in any sense a division of the product,
but it is wholly an expenditure in purchasing the means of pro-
duction. Thus labor (not the laborer) is in exactly the same
economic category as raw material, machinery, or any other pro-
ductive factor. For instance, when the manufacturer has pro-
duced a thousand yards of cotton cloth he does not divide it
with his laborers either practically or theoretically ; on the con-
trary, all the wages for producing that cloth, including those
involved in producing the raw material and machinery, have
already been paid. They constitute a part of the cost, and hence
the value of the cloth. Whether or not the manufacturer will
gain or lose by the transaction is a subsequent matter, and
entirely depends upon whether he can produce the cloth at as
small a cost as his most incompetent competitor.
The economic claim of the laborer therefore is to a definite
price for his labor, and not to a proportional share of the prod-
' " Wealth and Progress," pp. 75, 76, 96, 97, 98.
WAGES THE PRICE OF LABOR. 203
uct. This really constitutes the economic difference between
wages and rent, interest and profit, and is the distinction already
pointed out between price and surplus. If the laborer were a
claimant to a given proportional share of the product, the size
of his income would depend upon the quantity produced, and
would thus become a contingent instead of a stipulated amount.
In short he would be working in partnership and not working for
wages. As before stated, the essential characteristic of the
wages system is that the laborer is not a commercial partner ; he
has no ownership in the finished product. His economic posi-
tion is to sell labor and buy products, and that of the entrepreneur
is to buy labor and sell products. Obviously then the laborer sells
his productive power to the employer at a stipulated price ; he
has no more claim to a proportional share of the product than
have those who sell raw material or machinery. The law of wages,
then, is the law of the economic price of labor.
Therefore, in considering the law of wages the question is not
what proportion of the product belongs to the laborer, but how
the price of -his labor is economically determined. When we
have discovered the law by which the price of labor is governed,
we shall be in a position to consider how that price (wages) can
be increased.
SECTION III. The Law of Wages.
One of the essential conditions of a scientific law of prices is
that it must be applicable to all price phenomena. Wages being
simply the price of labor, must be governed by the same law
as the price of commodities. Consequently if the formula of the
law of prices presented in a previous chapter ' is correct, we have
only to apply that theory to labor in order to find the economic
law of wages. If it does not explain the movement of wages as
completely as it accounts for the price of commodities, we may
safely conclude that it fails to fulfil the requirements of a scientific
law.
This law it will be remembered is : That economic prices con-
stantly tend toward the cost of furnishing the most expensive portion
of the necessary supply in any given market ; and that this tendency
increases directly as the impediments to free economic movement are
diminished.
1 Part II., chap. iv.
2O4
ECONOMIC LAW OF WAGES.
'Applied to labor then, this law is : That wages tend to move
towards the cost of furnishing the most expensive portion of the neces-
sary supply of labor-power in any given market ; and that this ten-
dency increases directly as the individual freedom and mobility of the
laborer advances.
By the cost of a thing is meant not what it may have cost
somebody else or would cost under any other conditions, but
Avhat its owner actually gave for it or would have to pay to re-
place it. The cost of labor-power then, is what it cost the laborer
to furnish it. Obviously the cost of labor-power to the laborer is
the cost of his maintenance or living. The cost of the laborer's
living, however, is not limited to the simple maintenance of the
individual laborer, but it includes all that enters into the neces-
sary expenses of his social life. Since the maintenance of the
family of the married man is as much a part of his necessary cost
of living as his individual food and shelter, it is an indispensable
item in the cost of supplying his labor power. Therefore the fam-
ily and not the individual is the economic unit in the labor market.
The law of wages then, may be more correctly stated thus :
The rate of wages in any country, class, or industry constantly tends
towards the cost of living of the most expensive families J who furnish
a necessary part of the supply of labor in that country, class, or in-
dustry, as shown in the following diagram :
NO. I.
C.
5 c.
IO C.
15 c.
20 C.
25 c.
$2
$2
$2
$2
$2
$2
Maximum cost
$
A
B
C
D
E
F.
$1.95
90
Sour
of
vings.
ce
*T
$1.85
80 . -.
Sa
$1
Minimum cost . $1.75
SAVINGS.
WAGES.
ACTUAL COST.
COST REDUCED
BY
CHEAP LIVING.
The reason wages in any class or industry are thus adjusted to
the standard of living of the most expensive families is exactly
the same as that which we saw caused the price of commodities
1 By the most expensive families is not meant the most expensive single
family, but the most expensive ten or twenty per cent, of the class whose labor
is required.
COST OF LIVING THE BASIS OF WAGES. 2O$
to be adjusted to the cost of producing the most expensive por-
tion of the supply. We saw that the price of commodities tends
to a uniformity, because the lowest price at which one producer
would sell was the highest at which the consumer would buy.
This uniformity, through the pressure of the consumer to buy at
the minimum, tends to be adjusted at the lowest point the pro-
ducer can afford to sell, which is at cost. And since the price
tends to uniformity at cost, wherever the cost varies, the uni-
formity necessarily takes place at the cost of the dearest incre-
ment.
This is equally true of labor, and for precisely the same rea-
son. Upon the same principle that the producer cannot or
will not consent to continuously sell a commodity for less than
it cost him to produce it, or than it will cost him to replace it,
the laborer cannot or will not long consent to sell his service for
less than it costs him (and his family) to live. He will, as ex-
perience shows, often work for less than would supply him with
exceptional comforts and luxuries, but he will not continuously
work for less than will furnish him with those things which by
constant repetition and the force of habit have become necessi-
ties. Rather than forego these he will refuse to work, and will
inaugurate strikes, riots, and other means of endangering the
peace and prosperity of the community.
If two dollars per day is the minimum amount upon which a cer-
tain portion of a given class of laborers can or will consent peace-
fully to live, then that amount must be paid them in order to ob-
tain their labor. What the most expensive portion of a given class
must receive, the others may and will receive. We know that the
general rate of wages in the same .industry and locality is nearly
uniform. We know, for instance that weavers, spinners, shoe-
makers, carpenters, bricklayers, etc., working in the same shop
or factory or on the same job, get the same rate of pay for work
at their respective trades whether they are single or married, have
large or small families, or live more or less expensively than their
fellow-laborers. We also know, for reasons already given, that
the most expensive among them must obtain for his service what
will supply his family with what they regard as necessities. What
will be sufficient to supply the urgent necessities of the most ex-
pensive portion of any class of laborers, to induce them to con-
tinue to work, will furnish all those whose cost of living is less,
2O6
RELATION OF CAPITAL AND LABOR.
with a margin proportionate to the difference which may be saved
or spent in what to them are luxuries.
Thus through the law of price uniformity, by which the cost of
producing the most expensive portion determines the general
price of the commodity in that market, the minimum amount
upon which the most expensive laborers in any class or industry
will consent to live and continue at work, determines the rate of
wages in that class.
.There is one important distinction, however, between these two
classes of price phenomena which should not be overlooked. Al-
though all prices are governed by the same general law, the price
of commodities and of labor move in opposite directions. While
the dearest capitalist and the dearest laborer both fix the prices
for their class, they occupy relatively opposite positions. The
manufacturers who furnish the most expensive portion of the sup-
ply of commodities are the poorest and lowest in their class, while
the laborers who furnish the most expensive portion of labor-
power are the best and highest in their class, as shown in the ac-
companying diagram :
NO. 2.
PROFIT.
PRICE.
ACTUAL COST.
COST SAVED
BY CAPITAL.
F
E
D
C
B
A
1C.
|c.
fc.
o c.
4c.
4 c.
46.
4c.
4c.
40.
Minimum cost . . . 3c.
. ^
Source
-c. of
3fc. P
. ^ic.
rofits.
fc.| ;
. 4c.
, 3-
Maximum cost
C.
5 c.
IO C.
15 c.
20 C.
25 c.
$2
$2
$2
$2
$2
$1
Maximum cost
$2
A
B
C
D
E
F
. $1.
95
, . fti.oo
T I -85 Source
80 ~ of
Savings.
$i
Minimum cost . . $1.75
SAVINGS.
WAGES.
ACTUAL COST.
COST REDUCED
BY
CHEAP LIVING.
DEARER LABORERS HELP THE CHEAPER. 2O/
Here it will be observed the movements are all exactly the
same as in the case of commodities (diagram No. i), but the
relative positions of all are reversed. Laborer A, like capitalist
A, is the dearest. His labor-power cost him $2 a day, and he
sells it for $2 a day, and has no surplus ; but instead of being at
the bottom of his class, he is at the top. The wages of laborer
A, like the price of manufacturer A, are the same as, and fix,
those of all the others. Just as the cost of living of the laborers A,
B, C, D, E, and F recedes from the cost line of A on the right,
does their net-surplus (or the possibility of it) increase in the
savings column on the left. That is to say, in proportion as any
of the other laborers live upon less than A they are enabled to
sell their labor for more than it actually cost them. And the dif-
ference, which in the case of the entrepreneur was profit, -consti-
tutes a net-surplus for the laborer either to be saved, expended
upon luxuries, or for any purpose whatsoever. Thus the lowest
laborers are enabled to obtain wages higher than the cost of their
own labor, because the dearest laborers are compelled to demand
a higher price for their labor-power in order to obtain the equiva-
lent of its cost.
The relative positions of the laborer and capitalist being the
inverse of each other, it will be seen that it is the most advanced
laborer and the poorest capitalist who have no surplus. The rea-
son for this is that in the progress of society the movement of
the price of commodities is downwards, while that in the price of
labor is upwards. That is to say, the dearest laborer occupies the
top and progressive position, while the dearest capitalist occupies
the bottom and receding position. The surplus of the less
expensive laborers is the advantage they receive from the struggles
of their most expensive brethren. We have thus a law of wages
which is not limited to any special industry, country, or period,
but whose application is as universal as the existence of wage
conditions. 1
If wages are governed by the cost or standard of living, it will
of course follow that wages will always be the highest where the
socially established standard of living among the laborers is the
most complex and expensive ; and, conversely, they will be the
1 See chapter on the Universality of the Law of Wages. " Wealth and
Progress," p. 162.
208 WAGES IN DIFFERENT COUNTRIES.
lowest where the standard of living is the most simple and in-
expensive, and this is precisely what we find the world over. 1
We no sooner recognize this than the reason why the wages of
the Asiatic are lower than those of the European becomes obvi-
ous. The same difference, and for the same reason, exists
between wages paid in similar industries in Continental countries
and in England, and between those in England and America.
The testimony of history is, that in all countries wages in the
same industries have always been higher in large cities than in
small ones, and so has the cost of living, which generally implies
greater social advancement and general intelligence.
This view is further emphasized by the fact that the industrial
centres of the world have, from the dawn of human history, been
the birthplaces of freedom and the nurseries of civilization. 2
Upon this principle we have no difficulty in understanding why
the wages of agricultural laborers are always lower than those of
mechanics, and why, as is universally the case, agricultural wages
are higher in the vicinity of large cities and towns than in out-
lying districts. 3 It is because the wants of the agricultural class
are fewer, their social life simpler, and their standard of living
lower. As a necessary part of this same fact, we find that agri-
cultural laborers are always in the rear ranks of social advance-
ment, and are the last to acquire industrial and political rights.
The difference between the wages of women and those of men
in the same industry is due to the same cause ; it is an entire
mistake to assume, as some do, that the lower wages received by
women are due to their inferior ability. If wages were determined
by the skill and competency of the laborer, then the carpenter,
mason, painter, or compositor in the country town with equal
skill would get the same wages as those in the large cities. And
laborers of equal skill in different industries in Pekin, Tokio, St.
Petersburg, and Constantinople would obtain the same wages as
those in New York City, whereas we know that the common
laborer of New York obtains higher wages than the most skilled
mechanics in most of the former places.
Nor are the lower wages of women caused by difference in sex,
1 " Wealth and Progress," Part II., chapters iii. and vii.
"Part I., chapter v. Also, "Wealth and Progress," pp. 116-119.
s "Wealth and Progress," pp. 163-166.
SA VINOS-BANK DEPOSITS.
since in that case the wages of men everywhere would be higher
than those of women anywhere, which is by no means the case.
The wages of women in America are as high as those of
men in the same industry in any other country, and, with the
exception of England, and perhaps Paris, are actually higher.
Obviously, then, the wages of women, like those of men, do not
conform to the fact of personal skill nor to that of sex, but they
do everywhere conform to cost of living. As elsewhere shown, 1
the average woman's cost of living is very much smaller than
that of the average man, and her wages are correspondingly
lower. The wages of women are lower than those of men for the
same reason that the wages of agricultural laborers are lower than
those of mechanics in the large cities, and wages for the same kinds
of labor in Moscow or Constantinople are lower than in Paris,
London, or New York. In short, the wages of women are gov-
erned by the same law as those of men, namely, the cost of
living, and the only reason the wages of women are lower than
those of men is because women cost less.
Another fact, of which no theory of wages hitherto presented
affords any satisfactory explanation, is the savings-bank deposits
of wage-earners. Since these deposits to the extent that they are
saved from wages represent a net-surplus above the necessary
cost of living, they are usually taken as conclusive evidence of
high wages. They are frequently treated as a kind of wage
thermometer, the rate of wages or social condition of the laborers
being regarded high or low as savings-bank deposits are large or
small. The correctness of this conclusion is commonly accepted
as self-evident, and it is frequently cited as a conclusive proof
of the wisdom of an existing or proposed industrial or political
policy.
The last presidential election in this country (1888) may be
cited as an example of this. In order to show the striking contrast
between the wages and social conditions of the laborers in this
country and England, one of our most popular statesmen cited
the fact that the savings-bank deposits in Massachusetts, with
2,000,000 population, are nearly two thirds as much as those of
1 For the further discussion of this point and the facts relating to the wages
and the cost of living of women, the reader is referred to " Wealth and Prog-
ress," pp. 172-178.
14
2IO SAVINGS NO CRITERION OF IV AGES.
Great Britain with a population of 38,000,000, or over eleven
times as much per capita of the population. This statement was
accepted as showing the difference in the wages and material
prosperity of the laborers in the two countries. A more mis-
leading statement it would be difficult to imagine, as a little exam-
ination of the subject will conclusively show.
Although the economic and social conditions of the American
laborer are decidedly superior to those of his English brother,
this fact cannot be established by savings-bank statistics. Nor
is the difference between the wages in the two countries any-
where near so great as the difference in the amount of savings-
bank deposits would indicate. If we compare the savings-
bank deposits of the different States in this country the utter
worthlessness of such data, for showing the difference in the rate
of wages, will at once be apparent.
According to the official savings-bank statistics in 1887, the
deposits per capita of the population were : in Rhode Island,
$169.41; in Massachusetts, $147.30 ; in Connecticut, $147.18;
in New Hampshire, $125.52 ; in New York, $89.05 ; while in
Pennsylvania they were only $10.81 per capita. In Ohio they
were $4.32, in Minnesota $2.17, and in Wisconsin only .02 cents,
and in a large number of the Western States there are no
savings-banks at all. Now, if there is any virtue in savings-
bank statistics as indicating the rate of wages and the industrial
condition of the community, the laborers in New York State are
only a little over half as well off as those in Rhode Island, and
less than two thirds as well off as those in Massachusetts, Con-
necticut, or New Hampshire, while in Pennsylvania the condition
of the laborer would only be about one sixteenth as good as it is
in Rhode Island.
According to this notion the laborers of Italy are as well off as
those in Pennsylvania, and vastly better than those of Ohio, Il-
linois, Minnesota, Wisconsin, or any of the Middle and Western
States, except California. A theory by which $4.32 per capita in
Ohio, $2.17 in Minnesota, .02 cents in Wisconsin, and other
Western States, as compared with $169.41 per capita in Rhode
Island, are taken to represent the wages and social condition of
the laboring classes in those States, bears upon its face the evi-
dence of its own absurdity. Why the laborers of Rhode Island,
THE SOURCE OF SAVINGS. 211
Massachusetts, Connecticut, and New Hampshire should be able
to save a third more per capita than those in New York, 1 fourteen
times as much as those of Pennsylvania, thirty-four times as
much as those of Ohio, sixty-eight times as much as those in
Minnesota, and several hundred times as much as those in
Wisconsin and other States, is a complete enigma from the
standpoint of any of the popular theories of wages, yet they
are phenomena which a scientific law of wages is bound to
explain.
In the light of the theory here presented, however, these facts
assume an entirely normal role and become perfectly explainable.
In the first place, the laborers' savings-bank deposits, like the
accumulations of any other class, are entirely of the nature of a
surplus, 2 and therefore, like rents and profits, are governed by the
law of surplusage. It will be observed that the surplus, which
alone makes savings-bank deposits possible, is simply the differ-
ence between the cost of living of the most expensive families of
any given class or industry and those who, for whatever reason,
live upon less. Thus wages may be very high, and still the pos-
sible surplus be very small, and vice versa.
For example, if wages in a given class or industry were $3.00
a day, and the established standard of living in that class was
substantially uniform, the possibility of saving would be very
slight, because the cost of living of each family would be practi-
cally equal to, and hence consume, the entire wages. Under
those conditions savings would be impossible, except to unmar-
ried persons or those whose families were smaller than the largest,
which at best would afford but a small amount of surplus for the
class in general. Moreover, the possibility of savings from that
cause would exist in any class, whatever the rate of wages. On
the other hand, suppose that in a given industry the general rate
of wages fixed by the dearest laborers is $1.50 a day, but instead
of the standard of living being uniform throughout the class, it
greatly varies through the difference in the social habits, as is
actually the case in this country where American, English, Irish,
French-Canadian, and Continental laborers are all employed in
1 Savings-bank deposits in Italy amount to $9.00 per capita of the popula-
tion. Cf. Political Science Quarterly, vol. iv., pp. 483, 493.
8 See diagram No. 2., p. 206.
212 AGRICULTURE UNFAVORABLE TO SAVINGS.
the same industry. Many of these foreign laborers, through their
simpler habits of life, will be able to live on one half or two thirds
as much as the American or English laborer, and hence will be
able to save the difference. With this variation in the cost of
living to different persons at the same rate of wages, a much
larger proportion of savings per capita will be possible than in the
former case, where wages were one hundred per cent, higher.
That is precisely what exists in this country, and particularly in
the New England States and manufacturing centres. From this
point of view there is no difficulty in understanding why savings-
bank deposits per capita are much smaller in the Western than
in the Eastern States. In the Western States agriculture is the
chief occupation. It is well known that agricultural life is more
nearly uniform than that of any other occupation. Being iso-
lating in its influence, it affords the minimum incentive for n.ew
wants and a variety of social demands. Consequently, whatever
rate of wages prevails, savings will necessarily be very slight in
agricultural communities, while they might be relatively large in
manufacturing centres, even with the same rate of wages. Indeed
the savings-bank deposits in Italy are derived from wages much
smaller than those in our Western States, where no savings-banks
exist.
The same is true of the different States in this country. Wis-
consin, where the savings are but two cents per capita, is more
exclusively agricultural than Minnesota, where they are $2 ; and
Ohio is more agricultural than Pennsylvania, 1 and Pennsylvania
than New York. In New England however the reverse is true.
In Rhode Island, Massachusetts, and Connecticut there is the
minimum amount of agriculture and the maximum amount of
manufacture. Consequently they have a greater concentration
of population and variety of social life among their wage classes.
In addition to this, they have the greatest number of different
nationalities engaged in the same occupation, thus greatly in-
creasing the differences in the standard of living while the same
wage level prevails.
If we turn to England we find a very different state of affairs.
1 For social purposes, mining and raw-material-producing industries may be
regarded as agriculture, because they are similarly isolating and non-socializing
occupations.
WHY FOREIGN LABORERS CAN SAVE. 21$
There the population is highly homogeneous ; hence, in each
class there is a greater uniformity of social habits and cost of
living, and therefore less surplus from the same aggregate income
that is to say, there are none of those arbitrary differences in
the style of living in the same class occasioned by an influx of for-
eigners as in this country. The differences in the standard of
living there, in the main, are only such as arise from the differ-
ence in the size of families and the passing from one social grade
to another. From the causes already explained, 1 whenever
laborers migrate from one industry or social grade to another,
while they frequently represent the top or most expensive portion
of the class they leave, they usually represent the bottom, or least
expensive, of that into which they enter. Just as fast as they are
transferred from a position where they are the dearest to one
where they are the cheapest, they are changed from a wage-fixing
to a surplus-receiving position. The savings-bank deposits will
naturally therefore, be much smaller per capita in a homogeneous
country like England than in a heterogeneous country like Amer-
ica, even though the wages were the same in both countries.
Savings are not due to the amount of the wages, but to dif-
ferences in the cost of living in the class where the same rate of
wages prevails.
This explains why such a large proportion of the laborers in
this country who have bank accounts which is so commonly re-
garded as conclusive evidence of superior character, are foreigners.
If the possession of a bank account, or the ownership of what is
so patronizingly styled " a little home " often a mere shanty,
is evidence of superior character, why did they not have them
in their own country, where that " superior character " was de-
veloped ? It may be replied that it is because wages there were
too low to leave a margin above what would give them a bare
living. Precisely so ; but why was there no margin in their own
country ? Why is there no margin for the best class of Chinamen
in China, of Germans in Germany, Englishmen in England, and
Americans in America, while there is a margin in almost any
country in Continental Europe for the Asiatic, in England for the
Continental laborer, and in the United States for the laborers of
every other country in the world ? The answer is obvious. There
1 Section ii., preceding chapter.
214 WHY HIGHEST PAID LABORERS STRIKE.
is no margin from which the best class of laborers can save in
their own country, simply because there the general rate of wages
is determined by their own standard of living. They can get
wages which will leave them a margin over the cost of living, only
by going where the price of labor is determined by a social char-
acter and standard of living higher than their own, or, if in their
own country, by adopting a standard of living lower than the
highest of the class to which they socially belong.
The fact that the lower thus always obtain the advantage
acquired by the higher is the economic incentive for all indus-
trial mobility. It is only because the laborer can obtain the
higher wages previously established in the new country or indus-
try, that he will ever undertake to face the disadvantages of
emigrating to a foreign land or endure the inconvenience of
entering into a new occupation. This law also explains why,
throughout the history of industrial progress, the most intelligent
and socially advanced laborers always constitute the discon-
tented element in their class, and are usually the leaders in labor
organizations, strikes, and other forms of industrial agitation. It
is because being the most expensive of their class they have no
margins and therefore experience the greatest pressure from the
non-satisfaction of new wants and desires.
The effect of the earnings of women and children upon the
wages of men is another fact which the prevailing theories of
wages have entirely failed to explain. Extensive investigations
have shown that in those industries where women and children
contribute to the families' maintenance, the wages of the men
tend to fall directly as the amount contributed by the women and
children increases. 1 If it is simply a question of supply and
demand, as is generally assumed, the competition of women and
children for employment would tend to reduce the wages of all
laborers ; because as laborers increase in one industry they would
migrate to others, and thus the effect would be the general reduc-
tion of the rate of wages. Such, however, is not the case. The
effect is mainly upon the wages of the man in the class where the
women who work are a part of the same household. Thus we
find that in the same social grade and locality, in the trades
where the man supports the whole family, his wages are fully as
1 For the facts upon this point see " Wealth and Progress," pp. 167 and 172.
FATHER'S WAGES AND FAMILY'S INCREASE. 21$
high as those of the whole family where the wife and one or two
children contribute to the family's support.
A table will elsewhere be found ' constructed from the indi-
vidual statements of wages and cost of living of three hundred
and ninety-seven families employed in ten different industries in
Massachusetts. These facts show that the total yearly income of
the family in the highest class was $821.40, and cost of living
$772.21, and in the lowest the total income was $682.05 and cost
of living was $650.81. In the highest class where the women
and children who work were only as one fourth of one to a
family, the wages of the man were $752.36. In the lowest class
where the women and children who work were as one and one
third to a family, the man's wages were only $424.12. In other
words, in those industries where the women and children con-
tribute only $69 a year, the wages of the man were only $19 less
than the total cost of the family's living, whereas in the indus-
tries where the earnings of the women and children were $257 a
year, the wages of the man were $226 less than the total cost of
the family's living. It will thus be seen that while the difference
between the total income of the family in the highest and lowest
class was almost exactly the same as that in the total cost of the
family's living, the difference in the highest and lowest yearly
wages of the man was greater than that in the cost of living by
almost exactly the amount of the difference in the earnings of the
women and children. That is to say, while the total income of
the family varied with the total cost of the family's living, the
ratio of the man's wages to the cost of the family's living dimin-
ished directly as the total earnings of the women and children
increased. 2 Thus whether the income of the family is all de-
rived from one source or from several sources, its total amount
tends to equal the total cost of the family's living.
Therefore, from whatever standpoint we study the move-
ment of wage phenomena, we find that the general rate of wages
in any country, class or industry, constantly tends to equal the
" Wealth and Progress," 171.
" Thus, it is seen that in neither of the cases where the head of the family
is assisted by his wife or children, does he earn as much as other laborers.
Also, that in the case where he is assisted by both wife and children, he earns
the least." Report of the Bureau of the Statistics of Labor, Massachusetts,
1876, p. 71.
2l6 COST OF LIVING HOW AFFECTED.
cost of living of the most expensive families furnishing the
necessary supply of labor.
The cost of living may be affected in two ways, either by a
change in the price of the commodities which the laborer con-
sumes or by a change in the quantities of those commodities
which enter into his habitual consumption. An increase in the price
of commodities would be a rise in the money cost of living, but
not a rise in the standard of living ; hence, while it would increase
the money wages, it would not increase the amount of wealth the
laborer receives for a day's labor. It would therefore be a rise
in nominal wages, but not a rise of real wages. 1 An increase in
the cost of living, arising from an increase in the commodities
habitually consumed by the laborer, would constitute a rise in the
standard of living. It would increase the actual amount of wealth
daily received by the laborer, and hence would be a rise of real
wages. Thus a rise in the cost of living and nominal wages is of
no social advantage to the laborer except when accompanied by
a rise in the standard of living and of real wages. 3
It is therefore a rise in the actual social standard and not in
the nominal money cost of living, which is of importance in con-
sidering the question of wages. Indeed it is in the minimizing of
the money cost and the maximizing of the social standard of
living that industrial and social progress really consists. In
other words, the condition of the laborer improves only as the
price of commodities falls and the price of labor rises. The
standard of living in any class or country depends upon the
social character of the people. Social character is chiefly deter-
mined by the number and variety of established social wants,
and the consequent simplicity or complexity of social relations. 3
It may therefore be said that wages finally depend upon the
social character of the laboring classes, the restriction or devel-
opment of which is mainly determined by the extent and perma-
nence of their social opportunities. When we learn to regard
1 " Wealth and Progress," pp. 96-98.
'This law is just as true in "piece-work" as it is in "day-work." See
chapter on " Piece- Work," " Wealth and Progress," p. 179.
8 For an extended discussion of the relation of social wants and character to
the standard of living, see " Wealth and Progress," Part II., chap, ix., pp.
187-203.
REMED Y FOR LOW WAGES. 2 1 J
wages simply as the price of labor which is governed by the
laborer's standard of living, we shall see that the laborer is not poor
because the capitalist is rich, but that wages are low because
the laborer is socially cheap. The true remedy for low wages :
therefore is not to be sought in profit-sharing, nationalization of
land and productive instruments, or in any other schemes for
restricting the economic opportunities of the capitalist, but solely in
conditions for extending the social opportunities of the laborer.
CHAPTER IV.
RENT, ITS LAW AND CAUSE.
SECTION I. The Definition of Rent.
THE definition of rent generally accepted by economists is that
given by Ricardo, 1 namely, " that rent is that portion of the prod-
uce, of the earth which is paid to the landlord for the use of the
original and indestructible powers of the soil." 2
It is manifest that if rent is limited to what is paid for " the
powers of the soil," or infertility of the land, then what is paid
for land used for building, manufacturing, and commercial pur-
poses is not rent at all, since the price paid for such land is
entirely independent of the quality of its soil. Moreover, the
rent paid for some of the most sterile land for building purposes
is greater than that paid for the most fertile land in the world.
A definition of rent that does not apply to land which pays the
highest rent of all, and which is increasing as civilization
advances, musi- surely be regarded as defective. Nor is this
definition materially improved by Mr. Walker's qualification that
the expression " original and indestructible powers of the soil "
includes "not only arable land, but pasture and timber land,
mineral deposits, water privileges, and building sites." 3 While
in this case it includes all that is paid for the "original and
indestructible powers " of any kind of land, it fails as a defini-
tion of rent, because as we shall see rent is never paid for " the
original and indestructible powers " of any land.
It is true that some agricultural land has a high degree of
original fertility, but there is no land whose fertility is inde-
1 " Political Economy and Taxation," pp. 34-36.
"Walker's "Political Economy," p. 193. Also, McCulloch's "Political
Economy," p. 142.
* " Political Economy," p. 193.
3X8
RENT IS ECONOMIC SURPLUS. 2 19
structible. Every intelligent farmer knows that continuous
cultivation without fertilization will impoverish or destroy the
fertility of the most productive land ever known. The fertility
of land is not only always destructible, as in the case of mines,
but it is frequently not original ; indeed much of the most
productive agricultural land in the world to-day owes its fertility
not to its " original powers," but almost entirely to improvements
created by the application of labor and capital. And the greater
part of the land whose fertility is thus created commands a higher
rent than much of that which possesses the greatest amount of
" original fertility." '
In the case of land for building purposes alone, the so-called
"powers of the soil," or qualities of the land for which rent is
paid, are neither original nor indestructible. Indeed it does
not depend upon any quality whatever peculiar to land. On
the contrary, rent is entirely due to the presence of a highly
civilized industrial community. If New York City were removed
a hundred miles from Manhattan Island, the rent of the greater
part of the land, some of which is the highest paid for any land
in the world, would entirely disappear. Clearly therefore, if
rent is limited to that " which is paid to the landlord for the use
of the original and indestructible powers of the soil," almost
none of the income from land is rent, since a very small portion
of such income is paid for its " original " and none at all for its
" indestructible powers."
The chief difficulty with this definition is that it fails to dis-
tinguish between price and surplus. Rent is not the price
of land ; it is only the economic surplus arising from its use. In
order to avoid confusion I define rent as the net surplus resulting
from the productive use of land under all economic conditions for
any purpose whatsoever. To explain how this surplus arises is to
furnish the law of rent.
SECTION II. The Law of Rent.
Rent being an economic surplus, in seeking the law of rent we
are simply seeking the law of surplus in relation to the produc-
1 Witness the high rents paid for the land used for market-gardening and the
highly cultivated farms in such countries as Belgium and England, whose fer-
tility is largely artificial, and the low rent paid for the most fertile land in our
Western States, whose productiveness is largely original.
220 ECONOMIC PRODUCTION OF LAND.
tive use of land. And as surplus is included in and 'received
with the price, it being the difference between price and cost, it
follows that the law of surplus is a necessary corollary of the law
of price. In order, therefore, to ascertain the law of rent, we
have only to apply to land the general law of prices presented in
a previous chapter l namely, that in a given market prices tend
towards uniformity on the basis of the cost of producing the
most expensive portion. It is objected by some that since land
is the " free bounty of nature " it can have no cost of production.
This is a mistake. It should be remembered that economic pro-
duction does not mean physical creation but only economic and
social adaptation. This may involve a great deal of physical
modification both in form and location, or it may involve little
or none of either.
The production of broadcloth or a gold watch involves a great
deal of physical change in the wool and in the gold, steel, and
other metals of which the cloth and watch are made, whereas the
production of nuts and bananas involves very little. The more
nearly complete is an object furnished by nature the less will be
the cost involved .jn appropriating it to human uses, and vice
versa. The cost of producing a power-loom includes all the
expenditure necessary to complete it as an instrument for weav-
ing. This of course does not mean the creation of the iron or
wood of which the loom is made, but only their adaptation to
productive purposes. It is in this sense that we speak of the
cost of producing land, the term production having not a
physical but only an economic signification. For economic
purposes therefore, the cost of producing land, like that of any
other productive instrument, includes all the expenditure neces-
sary to utilize it as a means of production.
The law of price in relation to land, therefore, may be stated
thus : That under conditions of economic freedom, the price of
land in any given community tends to equal the cost of its produc-
tion i.e., the cost of actualizing its economic and social utility.
Hence when the cost per unit of using all the land is the same,
the price and the cost of production (economic use) will be identi-
cal, and no surplus or rent will remain. And whenever the cost
per unit of using different portions of land varies, the price per
1 Part II., chapter iii.
THE LAW OF RENT. 221
unit will tend to a uniformity on the basis of the cost of actual-
izing the utility of the most expensive portion of the land used
for that purpose in that community. Thus while the price per
unit of the whole land in that community tends to a uniformity,
that of the portion whose utility costs the most to actualize it
will consist entirely of cost, and that of the others will consist of
cost and rent (surplus), the rent increasing as the cost of utiliza-
tion diminishes below that of the most expensive portion used.
Having found the law of prices in relation to land, we have as
a necessary corollary the law of surplus i.e., the law of rent. It
may be stated as follows : That under conditions of economic
freedom, the rent of land used for any purpose tends to equal the
difference between its productive utility and that of the poorest
land used for the same purpose in that community, or which con-
tributes to the necessary supply of the same market.
It will be observed that the conclusion here reached is sub-
stantially the same as that of Ricardo, stripped of many mislead-
ing assumptions by which the Ricardian theory has ever been
accompanied.
In the first place, by treating rent as the net surplus resulting
from the productive use of land, we entirely avoid the error in-
volved in the Ricardian definition of rent as the price paid for
" the original and indestructible powers of the soil." And by re-
garding land simply as a productive instrument, thereby putting
it in the same economic category with other forms of capital, we
remove all grounds for the perplexing controversy as to whether
the income from improvements in land is properly rent or profits.
Since rent and profits are both economic surpluses, whether or
not they are designated by the same term is a matter of entire
indifference. We also avoid the confusing consequences of that
erroneous assumption of Ricardo, that land is always utilized in
the order of its fertility, the best being taken first and the
poorest last, an assumption which Carey devoted tedious space
to exposing, and which Walker and other Ricardians are still
laboring to defend.
From the point of view here presented, it is absolutely of no
importance whether the land is cultivated in the order claimed
by Ricardo or that claimed by Carey, the law will operate the
same in either case. If the inferior land were used before the
222 RENT GOVERNED BY LAW OF SURPLUS.
superior, as is frequently the case, the only difference would be
this :. instead of the land employed last being used at cost, and
that employed first yielding rent, as Ricardo assumed, the order
would be reversed and the land employed first would be used at
cost, and that employed last would yield a rent. Neither the
amount of land used nor the amount of rent paid would be
affected by that change. The difference in the productive utility
of the land will be rent just the same, whether the inferior or su-
perior is brought first into use. It is not the historical order of
their use, but the difference in the degree of their productive
utility, that determines the amount of the rent. The difference
in the fertility of two pieces of land yielding twenty and twenty-
five bushels of wheat respectively will obviously be just as great
whichever is brought into use first.
If the subject had been treated from the point of view here
presented, these errors would have been avoided. It would then
have been obvious that the order of use of superior and inferior
land has no necessary relation whatever to the price-fixing or sur-
plus-producing influence of either labor, land, or machinery. For
in all cases and under all conditions where economic freedom
prevails, the price is determined by the cost of using the least
effective, and therefore the most expensive increment, and
whether that be first or last makes absolutely no difference. By
this treatment of the subject, we not only avoid the error and re-
tain what is true in the popular theory, but we have a consistent
classification of economic phenomena, by which the price of land
commodities and labor is governed by the law of price, and on
the other hand, the rent of land, the profit of capital, and the sav-
ings of labor are governed by the law of surplus.
SECTION. III. The Cause of Rent.
No theory can be regarded as furnishing an adequate explana-
tion of rent phenomena which does not explain the cause of rent.
When we know how rent comes into existence, and by what
social force it becomes economically possible, we shall be able to
determine whether it arises from an economic necessity and is a
social advantage, or whether it is due to economic despotism and
is a social burden, as is commonly believed. Upon this point
the popular doctrine is perhaps least of all satisfactory. Francis
WALKER'S EXPLANATION OF RENT. 22$
Walker, who has probably taken more pains than any other
writer to make good the deficiencies in the Ricardian theory of
rent, endeavors to show that the difference in the productiveness
of land is not only the measure and regulator of rent, but that it is
also the cause or source of rent. He has endeavored to illus-
trate exactly how, under the influence of self-interest, rent arises. 1
Like Ricardo, he begins by assuming the existence of a new
country with four grades of land, which will yield, with the same
expenditure of labor and capital, 24, 22, 20, and 18 bushels of
wheat per acre respectively. He also, like Ricardo, assumes that
the best land, or 24-bushel tract, will be cultivated first, and the
others in the order of their fertility, and says : " Cultivation then
descending to the 22-bushel tract, rent emerges. Under what im-
pulse ? Why, by the simple operation of the principle of self-
interest ; inasmuch as some of the would-be cultivators must go
upon the 22-bushel tract, every person now in the occupation of
a lot on the 24-bushel tract may just as well may he not ? pay
something for the privilege of remaining where he is, as take up
a lot of the new land for nothing ? If not, why not ? How much
shall he pay ? Why, clearly, 2 bushels per acre, the difference
between the yield of the two tracts under the same application of
labor and capital." " This continues until the whole four tracts are
brought under cultivation, rent rising 2 bushels per acre on
each tract under cultivation, when the next is brought into use,
and the rent on the different tracts is 2,' 4, and 6 bushels per
acre respectively. Then further " to illustrate the operation of
this cause " he assumes the existence of a distant tract of land
that will yield with the same labor and capital 30 bushels per
acre. But through its greater distance from the market 12
bushels are consumed in transportation, reducing the amount de-
livered to the market to 18 bushels, or the same as the product
of the poorest home tract. He then, by a series of improvements
in the methods of transportation, reduces the cost of bringing
the crop of the distant tract to market from 12 to 9 bushels per
acre, and says : " The net produce of the distant tract (30 9) has
now risen to 21 bushels. The 2o-bushel tract must be abandoned.
. . . The highest grade of land now yields a rent of but 3
bushels an acre (24 21), the second of but i bushel. The aggre-
1 " Land and its Rent," pp. 10, 57. ' Ibid., p. 18.
224 FERTILITY NOT CAUSE OF RENT.
gate amount received by the owners of land in rents sinks from
9 to 4." '
It will be observed that at the commencement of Mr. Walker's
community we found the best land producing 24 bushels per acre
and paying no rent ; then the same land, without any increase
in its productiveness, pays a rent first of 2 bushels, then of 4
bushels, and finally of 6 bushels an acre. And then after the
discovery of the 3o-bushel tract, without any diminution in its
productiveness, the rent of the same tract falls from 6 to 3
bushels per acre. That of the 22-bushel tract falls to i bushel
and that of the 2o-bushel tract disappears altogether.
The question here is " under what impulse " does the rent of
this land rise and fall without any change in its productiveness ?
What new force came into operation to make the tract of land,
which formerly could be had for nothing, yield a rent of 6
bushels and subsequently fall to 3 bushels per acre ? "Why,"
replies Mr. Walker, " by the simple operation of the principle of
self-interest." By what course of reasoning can it be shown that
the principle of self-interest in the land owner will always prevail
against the self-interest of the tenant ?
Again, if rent is caused by the fertility of the land or the self-
interest of the land owner, or both, why did it not emerge when
cultivation first began on the 24-bushel tract ? This was impos-
sible, Mr. Walker would reply, because it was not until " cultiva-
tion descended to the 22-bushel tract " that "rent emerges." If
rent was impossible on the 24-bushel tract until the 22-bushel
tract was cultivated, whatever power forced the 22-bushel tract
into use, or made its cultivation possible, is manifestly the real
cause of rent on the 24-bushel tract. This could not possibly be
the fertility of the land or the principle of self-interest in the
landowner, as these were just the same before as after rent was
paid;
Nor does Mr. Walker's distant-tract illustration throw any real
light upon this question. It is true that rent on the home tracts
falls when the distant tract is cultivated, but from what cause ?
Mr. Walker replies, because " the net produce of the distant tract
has now risen to 21 bushels." Nothing of the kind. So far as
Mr. Walker, has shown, no change whatever has taken place in the
1 " Land and its Rent," p. 25.
ORIGIN OF RENT SOCIAL. 22$
!
productiveness of the land. When we first saw the distant tract
it produced 30 bushels per acre ; it does the same now. The
only change that has occurred is a reduction of 3 bushels per
acre in the cost of transporting the crop. Manifestly that is not
due to any quality or condition of the land nor to the degree of
self-interest in the landowner. These are entirely unchanged.
It may with truth be said that cheapening transportation reduces
the cost of producing the wheat, but it in no way changes the in-
fluences of this land upon the cost of the wheat. The cost of the
wheat has been reduced by the use of capital, but it is by a class
of capital quite distinct from land.
Mr. Walker has shown that rent began on the 24-bushel tract
when " cultivation descended to the 22-bushel tract," and also
that rent on all the home tracts fell when the cost of transporting
the crop of the distant tract was reduced. But this does not explain
the cause which brought all this about. To say that rent rises
when inferior lands are cultivated and falls when transportation
is cheapened, is only like saying the train moves when the engine
starts. But what starts the engine remains to be ascertained
before the cause of this movement is explained. In stopping
at this point Mr. Walker repeats one of the chief mistakes of
orthodox economists namely, the failure to connect economic
phenomena with the social influences from which they arise. 1
What is the cause of rent is therefore still the question. Nor
will the answer be very difficult to find if we pursue the inquiry
along the lines already travelled and bear in mind the conclusions
reached in the preceding section ; namely, that land like all other
forms of capital is simply a productive instrument, and that rent
is a net surplus resulting from its economic use. Since an
economic surplus is the difference between the price of products
and the cost of their production, rent can only be obtained from
the price of the commodities in the production of which it is used
as an instrument. Clearly therefore, it is to the influences which
govern the price of the products that we must look for the cause
of rent. Let us return to Mr. Walker's community and see if we
can ascertain the cause that made the existence of rent possible,
which he failed to explain.
1 This limitation in regard to the use of improved machinery has already been
pointed out. See pp. 143-149.
15
226 RELATION BETWEEN PRICES AND RENT.
In the first place why did not the 24-bushel tract pay a rent
when first cultivated ? It was not because of its inferiority, since
it was the best land in the community ; nor was it from any lack
of self-interest in the landowner, for there never was a time when
he would not exact rent if he could. The reason no rent could
be obtained for it was that, there being only one grade of land in
use, the cost of production, so far as it affected land, was uni-
form. Hence according to the law of price already stated, the
value of every part of the product was only equal to the cost of
its production. Since the price of the wheat equalled the cost of
production on the 24-bushel tract, in order to cultivate the 22-
bushel tract without loss one of two things must necessarily
occur either the price of the product must rise, or the cost of
production must be reduced.
We will consider first, how a rise in the price of the produce
would affect the situation, since the expounders of the popular
doctrine always assume that this takes place. It is insisted upon
by these writers that rent does not increase the price of commod-
ities to the consumer, because the rent is the effect of the price
and not the price the effect of the rent. 1 But if it is true that
rent can only be paid or, if already paid, can only be increased
by a rise in the price of the produce, and that the rise in price is
1 " It is because its (the produce) price is high or low, a great deal more, or
very little more, or no more than what is sufficient to pay these wages and
profits, that it affords a high rent, a low rent, or no rent at all." Adam Smith,
" Wealth of Nations," book i., chapter i., p. 115. " Corn is not high because
a rent is paid, but a rent is paid because corn is high." Ricardo, "Political
Economy and Taxation," p. 39. See also ibid., pp. 40, 61, 62. " The in-
habitants must consent to pay such an additional price for raw produce as will
enable the second quality of land to be cultivated. No advance short of this
will procure them another bushel of corn. ... If they choose to pay a price
sufficient to cover the expense of cultivating the land of the second quality they
will obtain additional supplies, if they do not, they must want them." McCul-
loch, "Principles Political Economy," p. 142. "Rent is the effect of high
price. . . . It is not from the produce, but from the price at which the prod-
uce is sold, that rent is derived." Buchannan, note, p. 40, Ricardo's works.
" It is not the diversity of soils nor the law of diminishing returns, that causes
rents, since these continue as before when rent ceases to be paid, but it is the
price of produce under demand and supply that causes rent." Perry, " Political
Economy," p. 292. " The rent of land is determined by the value of its prod-
uce." Wade, " Political Economy," p. 101.
ECONOMIC BASIS OF RENT. 22/
paid to the landowner in rent, it is little more than a quibble
to say that the payment of rent does not increase the price of
commodities. Whether rent is the cause or effect of rise in
price, is of very little importance to the community if every rise
in rent is accompanied by a rise in the price. If for example, it
cost a dollar a bushel to raise wheat on the 24-bushel tract,
it would, under the same conditions, cost a dollar and ten cents
a bushel to produce it on the 22-bushel tract. If the wheat could
all be sold at that price, it would of course yield a surplus of ten
cents a bushel, or two bushels an acre on the 24 bushel tract.
Were this the only effect it would be a simple matter, but there
are other influences to be reckoned with. A rise in prices would
be a practical fall in wages ; hence every extension of cultivation
to poorer soils which increased the rent of the landowner would
increase the poverty of the laborer. Were such the case, the con-
dition of the masses would indeed be hopeless. Henry George's
pessimistic declaration that " rent swallows up the whole gain
and pauperism accompanies progress " would be literally true.
Fortunately for civilization however, the testimony of history is
all against such a notion. Rents have never increased so much
as during the present century, and the general fall in prices was
never so great as during the same period.
Nor is it possible that it should be otherwise, except in a state
of political despotism or industrial piracy. Under conditions
of economic freedom, it is as impossible for rent to rise through
increasing prices and reducing real wages, as it is for civilization
to advance by increasing poverty. Economic law presents an ab-
solute barrier to any such parasitic movement by which a surplus-
rgceiving class can be permanently enriched by the impoverish-
ment of the community. For the same reason that the landowner
cannot obtain rent except when the land yields a margin above
the cost of production, the cultivator cannot sell his produce at
a price higher than the consumers can afford to pay. Clearly
therefore, the product cannot be sold at a higher price unless the
purchasing power of the masses is commensurately increased. A
general increase of prices without a rise of wages would not only
defeat itself by destroying the market for the products, but it
would necessarily lower the standard of living and actually put
back civilization. If a rise of prices is accompanied by a com-
228 EFFECT OF POPULATION ON PRICES.
mensurate rise of wages, as it admittedly must be, 1 it would in-
crease the cost of cultivating the land as much as it increased the
price of the crop, making the cultivation of the 2 2 -bushel tract as
impracticable as ever.
Nor would a mere increase of population change the result.
If population should increase and the consumption or effectual
demand per capita of the community (real wages) remain sta-
tionary, prices could not advance except with the same conse-
quences as before. The mere fact presented by Mr. Walker, that
the 24-bushel tract is " inadequate to the needs of subsistence,"
is not sufficient to insure the cultivation of the inferior tract.
The community may lack subsistence, people may die of starva-
tion, as they often have ; but nobody will cultivate the 2 2 -bushel
tract unless its products can be sold at a price at least equal to
the cost.
It may be said that if the population increases, the aggregate
income and purchasing power of the community would be in-
creased, though wages were stationary. This is true, but since in
that case the number among whom the purchasing power is
divided would be increased in the same ratio, no one would be
richer than before, and consequently, the purchasing power of
the individual members of the community would not be increased.
A mere increase of the population, other things remaining the
same, would enable a larger amount to be consumed at the same
price, but it would not increase the capacity of anybody to pay a
higher price.
If an article of food, clothing, or the like, cannot be produced
for less than 25 cents, and at the prevailing rate of wages the
laborer can only pay 20 cents, it is clearly out of his power 4o
1 " As the wages of labor are everywhere regulated partly by the demand for
it, and partly by the average price of the necessary articles of subsistence, what-
ever raises this average price must necessarily raise those wages." Adam Smith,
"Wealth of Nations," book v., chapter ii., p. 691. Ibid., p. 693. " With a rise
in the price of food and necessaries the natural price of labor will rise." Ricar-
do, " Political Economy and Taxation," p. 50. " There can be no permanent
fall of wages, but in consequence of a fall (in the price) of the necessaries on
which wages are expended." Ibid., p. 75. " If they (the laborers) had to pay
8s. per quarter in addition for wheat . . . wages would inevitably and
necessarily rise." Ibid., p. 93. Cf. Mill's " Political Economy," vol. ii., pp.
423, 424, 425.
EFFECT OF IMPROVED METHODS. 229
consume it. Nor would any conceivable addition to the number
of ao-cent purchasers add one whit to their capacity for pur-
chasing 25-cent articles. The consumption and production
of 25-cent articles can never be promoted by increasing the
number of 2o-cent consumers. Nothing can make the produc-
tion of 25-cent articles possible but the creation of 25-cent
purchasers. Manifestly, therefore, other things remaining the
same, it is impossible in any general sense to extend cultiva-
tion to inferior land by merely increasing the price of com-
modities.
Since the use of the 22-bushel tract cannot be made feasible
by advancing prices, the only means by which it can be made
feasible is by reducing the cost of production. There are
only two ways by which the cost of production can be lessened,
either by a reduction of wages or the use of improved methods. 1
The former is impossible for the same reason that prices could
not be advanced. The latter, therefore, is the only alternative
consistent with a progressive state of society. What form im-
proved methods will take depends upon the state of civilization.
In a very early stage of society it might consist of substituting
a spade for a crooked stick, or at a later period a plough for a
spade, or mowing and threshing machines for the scythe and
flail. At whatever period it occurs or whatever form it takes,
since it cannot cheapen, it must save labor. This does not mean
that it must merely discharge labor for, as already explained,
labor is only economically saved when it is re-employed. Thus
in the case of land, as in every other phase of economic move-
ment, the successful use of improved methods of production
must necessarily be accompanied by new employment-creating
conditions. Nothing can create new employments except new
demands, or an increase in the consumption of wealth per capita
of the population, which of course means an increase in real
wages. When by this means inferior land can be cultivated
1 Improved methods include every thing that makes the same land yield more
or yield the same amount at a less cost. This may result from superior skill,
better division of labor, more capital in the form of fertilization, better drainage,
the substitution of animals for men, or steam for animals, improved implements
for either, or any other labor-saving or cost-reducing appliances.
230 RENT FOLLOWS MOVEMENT OF WAGES.
without loss, the superior land can be cultivated at a profit ; that
is to say, when the price of 22 bushels of wheat will defray
the cost of cultivating an acre of the 22-bushel tract, the
24-bushel tract will yield a surplus or rent equal to ten cents
a bushel or two bushels per acre, without either increasing
the price of the product or reducing wages. In the last analysis
therefore, the' determining cause of the use of inferior land and
the payment of rent on the superior land is the increased con-
sumption of wealth by the masses.
If we examine the cultivation of Mr. Walker's 3o-bushel tract
we shall find that its use finally depends upon the same cause.
He explains how what he calls its " net productiveness " rose
from 1 8 to 22 bushels per acre, by improved methods of trans-
portation. The moment we ask what made improved methods
of transportation possible, the answer is simple and obvious. The
railroads and steamships which enabled the lands of Dakota to
contribute to the wheat supply of Liverpool and London were
clearly due to the increased consumption of wealth per capita of
the population, which made the construction and use of railroads
economically feasible. Nor could this result from a mere in-
creased consumption of wheat, but it required a vast increase in
the demand for numerous manufactured articles whose produc-
tion and consumption involved a large amount of travel and
transportation. An increased demand for commodities and a
higher social standard of living, which makes steamships and
railroads possible, are simply the economic embodiments of
higher wages. Thus whether land is cultivated in the order of
the best first, and the poorest last, as represented by Mr. Walker's
four tracts, or the reverse, as claimed by Carey, the result is the
same, namely, that rent or a surplus from the use of land, like
that of all other productive instruments, finally depends upon the
increasing consumption of wealth per capita of the community.
In other words, the cause from which economic rent arises is tilt-
advancing standard of living and the rise of real wages among
the masses.
SECTION IV. Is Rent a Social Tax ?
Were it not commonly believed that rent is an unjust burden
upon the community, the abolition of which warrants the subver-
TRUE NATURE OF RENT. 231
sion of existing institutions, the consideration of this question
might properly seem superfluous. The claim that rent is a tax
by which the land-owning class are enabled to live at the expense
of the industrious community, legitimately arises from the Ricar-
dian postulate that " rent is that portion of the produce of the
earth which is paid to the landowner for the use of the original
and indestructible powers of the soil." No more fallacious notion
was ever taught than that rent, or any other economic surplus, is
a price paid for the free contribution of nature. There is no
economic law by which a charge can ever be exacted for the use
of gratuitous natural forces. 1 This view is further supported by
the no less popular doctrine that, in the economic order of dis-
tribution, rent is paid before wages, and that consequently the
laborer can only receive as his share of the product what is left
after rent and profits are taken out. 2
The utter untenableness of both these positions having been
already pointed out, the answer to the question " is rent a social
tax ? " need not detain us long.
Like all other forms of surplus, rent arises from the sure
operation of the law of economic prices ; being simply the
difference between the maximum and the minimum cost of pro-
duction per unit of product.
If this difference in the cost is due to the difference in the
methods, such as a better division of labor, higher skill, more
capital, better machinery, etc., the surplus created will go to the
entrepreneur and in common phrase will be called profits. And
if the difference in the cost of production is due to the different
degrees of productive utility of the land, the surplus created will
go to the landowner as rent. If the poorest instruments and the
poorest lands are used together no surplus can arise for either the
landowner or entrepreneur. But if superior instruments are used
with inferior land, the entrepreneur may have a surplus without
the landowner having rent, and conversely, if the superior land is
operated with inferior instruments, the landowner may obtain a
rent, while the entrepreneur can have no profit. Thus there can
1 Part II., chap, iv., pp. 21, 22.
a Jevons' "Theory of Political Economy," p. 292. Walker's "Political
Economy," pp. 248, 249. Sidgwick's "Principles of Political Economy," p.
322. Henry George's "Progress and Poverty," pp. 162, 163.
232 MACHINERY AND LAND.
neither be rents nor profits unless the joint use of the land and
implements produce at less than maximum cost, and the surplus
if any, will be divided between the owners of these two classes of
productive instruments or all accrue to either one, just in pro-
portion as it is due to the superiority of the land or of the
instruments.
There is this difference, however, between land and other pro-
ductive instruments : the different qualities of machinery always
come into use in the order of the poorest first and the best last,
whereas in the case of land, sometimes the best comes into use
first. The reason for this is that, machinery being a human in-
vention, each new device is the result of an effort to improve
upon the last ; its superiority over existing methods being the
only reason for using it, and the only motive for making it. On
the other hand, land being a natural product whose quantity and
locality are unchangeable, the use of the poorer or less productive
land can only be made feasible by the employment of superior
appliances. Thus, while it is always the best land and the best
machinery which yields a surplus, in the case of land when the
best is used first (as in the Ricardo-Walker assumption) it does not
yield a surplus until the second grade comes into use, whereas in
the case of machinery the surplus always commences on the best
which is last when its own use becomes possible. But whether
the use of land descends from the superior to the inferior through
the use of capital in better drainage, improved tools, machinery,
etc., or whether it ascends from the inferior to the superior
through improved methods of transportation (as in the case of
Walker's distant tract), makes no difference either in the amount
of rent paid or the effect of rent upon wages and the welfare of
the community.
In whatever order improvements are applied to the use of land
and a surplus is created, the rent will always depend upon the
difference between the cost per unit of the product due to using
the best land and that of using the poorest land employed for
that purpose within the same competing group or community.
Since rent can only be obtained from a surplus that remains after
all costs of production are paid, and since wages are governed by
social causes independent of the quality of land or machinery,
and prices are determined by the cost of producing the most ex-
RELATION OF RENT TO WAGES.
233
pensive portion of the supply which always includes wages, it
follows that rent can only be obtained when a surplus remains
after wages and prices have been determined. The economic re-
lation of rent to wages and prices is illustrated in the following
diagram, which represents Mr. Walker's four tracts producing 24,
22, 20, and 18 bushels per acre respectively, the assumption being
that with wages at $1.50 per day the cost of production on the 18-
bushel tract is a dollar a bushel.
No. 3.
RENT
PER
ACRE.
SURPLUS
PER
BUSHEL.
PRICE
PER
BUSHEL.
WAGES
PER
DAY.
COST PER BUSHEL.
BUSHELS
PER ACRE.
$6.00
25 c.
18 c
$1.00
Si oo
$1.50
$T en
Minimum cost, 75 c.
82
24
C. 22
$2 OO
IO C
$1 OO
$1 50
. go c. 20
$O.OO
OO C.
$1.00
$I. 5
Maximum cost .
*T~i-\/T r8
. JpI.OO 10
D
From the above, four things will be seen : (i) That A, who
uses the poorest land and pays no rent, sells at cost and has no
surplus. (2) That, the price of wheat being the same with all, B,
C, and D, whose land yields 2, 4, and 6 bushels per acre respec-
tively more than that of A, have a surplus of $2, $4, and $6 per
acre. (3) That the surplus in the rent column on the left only
begins and increases as the cost line per bushel on the right re-
cedes from (falls below) that of A. (4) That the increase
of the amount in the rent column in no way affects the price or
wages column ; D, whose rent is the highest, sells at the same
price and pays the same wages * as A, who pays no rent at all."
Since the consumer's price and the laborer's wages are both de-
termined at the point where no rent is paid, it is manifest that
1 As a matter of fact the large concerns in both manufacture and farming
represented by D, where the largest capital and best methods are used, are con-
stantly tending to pay higher wages and sell at lower prices than small farmers
or manufacturers represented by A.
2 If we assumed the four tracts of land to be of uniform quality and suppose
the difference in the product to arise from superior skill, larger capital, better
implements, etc., the result would be exactly the same, only the surplus column
instead of representing rent would represent profits as shown in diagram
No. i, p. 204.
234 HIGH WAGES CAUSE HIGH RENT.
the surplus paid to the landlord is in no sense a burden upon
either the consumer or the laborer ; that is to say, prices are not
higher nor wages lower because rent is paid. Indeed, if rent were
obtained at the expense of the consumer or the laborer, we should
find that prices rise and wages fall as rents increase, whereas the
reverse is universally true.
The highest rents are paid in the most civilized countries, and
in such countries rent is higher in the city than in the small town
or rural district. And it is precisely in these countries and cities
where rents are the largest, that wages are the highest, and gen-
eral prices are the lowest. 1 Consequently we find the migratory
movement of the laborers (which is always towards higher wages
and better living) is constantly from low-rent countries to high-
rent countries, from the rural districts where the rent is low to
the cities where rent is high. This also explains why commodi-
ties can often be obtained more cheaply in large cities than in
small towns, as shown by the fact that thousands of people travel
from fifty to a hundred miles to a city to make their purchases.
This does not mean that things are cheaper or wages higher
because a rent is paid, but that things are cheaper and rents are
larger because wages are higher there than elsewhere.
Nor is there any means, except charity or theft, by which the
amount in the rent column can possibly be made to find its way
to the laborer or consumer. The only economic way it can be
given to the consumer is to compel B, C, and D to reduce the
price of their product the full amount of their surplus 10, 18,
and 25 cents per bushel respectively. Should D sell his wheat at
75 cents a bushel, nobody would continue to buy from C, B, and
A, unless they sold theirs at the same price, which they could not
do, since it cost them more than that amount. If the product of
C is needed, 82 cents a bushel is the lowest price at which it can
be supplied ; and if that of B is required, the price cannot fall
below 90 cents a bushel ; land so long as that of A is needed, the
price must be a dollar a bushel, because less than that will not
repay the cost of producing it. No matter how the price is fixed
or who fixes it, it cannot possibly be less than equal to the cost
of producing the most expensive portion.
1 That is to say, the price of a day's labor will purchase the largest amount of
wealth.
EFFECT OF ABOLISHING RENT. 235
If the surplus is to be given to the laborer in any other way
than by reducing the price, it must go in the form of in-
creased wages. In order to do this wages must rise directly as
the surplus increases. The same difficulty arises here as in the
case of prices ; indeed, wages are simply the price of labor. If
D pays higher wages, then the laborers of C, B, and A will refuse
to work unless they can have the same. If A is compelled to
raise wages equal to 25 cents a bushel, the cost and hence the
minimum price of his product will necessarily rise to $1.25 a
bushel, which will then be the price of the whole product. Thus,
all that D, C, and B are by this means forced to give to the
laborer in higher wages, A is forced to demand back again from
the consumer in higher prices, and the difference or surplus will
be exactly as before, the only change being that both wages and
prices have risen 25 cents. In short, there are no economic
means by which A can obtain an equivalent of the cost of his
product which will not give B, C, and D a surplus ; and con-
versely, there are no means by which D can sell at cost which
will not bankrupt C, B, and A.
There are two conditions which, under economic freedom, all
competing producers must fulfil or leave the business : other
things being the same, they must pay the same wages and sell
their products at the same price as their competitors in the same
market. For the same reason that D's price cannot be reduced
without lowering that of C, B, and A, the wages paid by A cannot
be reduced without lowering those paid by all the others, since
whatever will enable A to either raise the price or reduce wages
will enable B, C, and D to do the same. Manifestly therefore,
if the landowner were prohibited from taking the surplus of B,
C, and D in the form of rent, it would simply remain in the hands
of the farmer or entrepreneur as profits. Since the surplus is not
increased by virtue of its being divided between the landowner
and entrepreneur, it could not be diminished by giving it all to
either one of them. In other words, as the surplus arising from
the difference in the cost of producing with the poorest and the
best land would be the same whether rent is paid or not, the
abolition of rent would simply be an increase of profits. Rent,
in short, is entirely a question between the landowner and the
entrepreneur and does not enter into the problem either of prices
236 RENT QUESTION SUMMARIZED,
or of wages. It being impossible for the surplus of B, C, and D
to go to the consumer either in higher wages or lower prices,
whether it shall all remain in the hands of the entrepreneur or be
shared between him and the landowner is of no economic or
social importance to the laborer or to the community.
The social welfare of the people can advance only as prices
fall and wages rise, results which cannot be promoted by any
manipulation of rent. It is by lessening the cost of production
and not by appropriating the surplus that prices must be reduced.
The cost of production can be lessened only by using improved
methods. The successful use of improved methods depends
upon increasing consumption and higher wages. Therefore the
improvement of the social condition of the masses and the general
advancement of society must be sought in the influences which
promote the advance of real wages and not in any schemes for
abolishing rents.
The question of economic rent then, may be summarized thus :
(i) That rent is a net surplus arising from the use of land as an
economic instrument ; (2) That rent tends to equal the differ-
ence in the productive utility of the different portions of land
used for the same purpose in the same community or competing
group ; (3) That the economic use of inferior land simulta-
neously with superior, and hence the payment of rent, finally de-
pends upon the employment of improved methods of production
(use of capital) ; (4) That the successful use of improved meth-
ods depends upon the increased consumption of wealth per capita
of the community or a higher social standard of living among
the masses and, that rent is not the cause of low wages, but
the economic consequence of high wages ; (5) That since rent is
an economic surplus the existence and increase of which depends
upon the social progress and increasing wages of the laboring
classes, it is in the broadest sense the interest of the landowning
class to promote in every way possible the economic and social
advancement of the laboring classes.
CHAPTER V.
THE LAW OF INTEREST.
SECTION I. Popular Theories of Interest.
INTEREST is economically analogous to rent ; it sustains pre-
cisely the same relation to capital that rent does to land. In con-
sidering the question of interest, therefore, we have to deal with
essentially the same economic problem we considered in the last
chapter. All the popular objections urged against the payment
of rent as a burden to the community, an exaction from the laborer,
etc., are presented with equal force against the payment of inter-
est. And conversely, the same reasons that justify the payment
of rent apply equally to that of interest. Scientifically therefore,
all that is necessary in dealing with the question of interest is to
apply to capital the law already stated in regard to land.
Unfortunately however, in this instance, as in almost every
other question in economics, a simple direct statement of the sub-
ject is practically impossible without first clearing away some of
the confusion in which it has been involved. The utter lack of
logical consistency which characterizes the body of economic
doctrines authoritatively taught is such that there is practically
no mutual relation between the different departments of the sub-
ject. There being no recognized common centre of movement,
no order of relation and mutual dependence of phenomena, and
hence no accepted general law which they shall obey, each phase
of the subject is discussed for the most part as if it had no neces-
sary relation to the whole but were governed by laws peculiar to
itself. Thus we find Ricardo and other English economists
teaching that profits are governed by a law entirely different
from that which regulates rent. And now more than half a
century later we have Mr. Walker declaring the same thing with
regard to interest.
23?
238 WALKER'S VIEW OF INTEREST.
This is the more astonishing in Mr. Walker's case, because he
makes special claim to having presented a logical order of distri-
bution. 1 When dealing with the question of rent, which he puts
first, he never tires of proclaiming the doctrine that rent does
not affect the price of the product, since that is determined by
the use of no-rent land ; yet he fails to recognize this principle
in the case of interest, and emphatically declares that " there is
not any no-interest capital," and says :
"We have seen that the whole theory of rent rests on the
assumption that there is a body of no-rent lands. ... In
the theory of capital there is nothing to correspond to this.
The economist does not find any no-interest capital. In theory,
all capital bears an interest, and all portions of capital bear
equal interest. . . . But what has been stated shows
how fundamentally the theory of interest differs from that of
rent." 3
Why should we assume that " there is a body of no-rent lands "
and that " there is not any no-rent capital " ? Upon what
ground should we assume that " all portions of capital bear equal
interest " ? Surely we have a right to demand some explanation,
some pertinent facts in experience, or a well-established principle
before we can be expected to accept such sweeping affirm-
ations. If, as Mr. Walker says, " interest forms a part of
the price of all products," 3 then all interest is a tax upon the
consumer, and the wealth of the rich, so far as interest is con-
cerned, is obtained at the expense of the poor. It will not be
difficult to show that Mr. Walker's position on interest, which is
essentially the same as that of Marx on profits, and George on
rent, rests like theirs on pure assumption unsupported by estab-
lished facts or verified principle. When discussing profits he in-
sists that there is no-profit capital and says :
" The employers of the lowest grade the no-profit employers,
as we have called them must pay wages sufficient to hire labor-
ers to work under their direction. These wages constitute an es-
sential part of the cost to the employer of the production of the
goods. The fact that these wages are so high is the reason why
1 " Political Economy," pp. 193, 248.
* Ibid., pp. 222, 223.
3 Ibid., pp. 235, 236.
SIMILARITY OF INTEREST AND PROFIT. 239
these employers are unable (their skill, etc. being the same) to
realize any profit for themselves." '
If we ask Mr. Walker why there are " no-profit employers,"
which of course means no-profit capital, he will reply, as he has
at length, that it is because, under free and active competition,
prices tend to equal the cost of production under the greatest
disadvantage. 2 If there is any economic power by which prices
can be forced down to the no-profit point and to the no-rent
point, why can they not, by the same power, be forced down to
the no-interest point ? If the owner of the poorest tools in use
is powerless to demand a price sufficiently high to yield a profit
upon the capital invested in those tools, by what force in
economics can he demand a price high enough to yield interest
for that capital ? Obviously the same power that will enable
him to insist upon the one will enable him to obtain the
other.
When considering the law of prices, 3 we saw that, at the price-
determining point (producing at the greatest disadvantage), each
factor in production obtained only the exact equivalent of the
cost of its contribution to the product ; that is to say, that no
factor in production can add more value to the product than it
loses in the process. Consequently the price of the product
cannot be greater than the equivalent of the aggregate cost of the
factors jointly employed in its production. Clearly if there is
any power by which more can be demanded from the product for
capital than the equivalent of what it gives (the cost of maintain-
ing its productive efficiency), the same power will enable the
consumer and the laborer to do likewise. It is only upon the
principle that capital employed under the greatest disadvantage
will barely yield the cost of maintaining its productive efficiency,
that no-rent land and no-profit employers are possible. It is
solely because their product sells at cost that they occupy the
datum-line or price-fixing position. Manifestly any social con-
ditions or economic law which will make no-rent land and no-
profit factories possible, will also make no-interest capital
possible.
1 "Political Economy," pp. 240, 241.
" Ibid., pp. 236-242.
3 Chapter iv., pp. 20-22.
240 NO-INTEREST CAPITAL.
Moreover, facts everywhere sustain this theorem. There is
probably no well-established industry, either in agriculture, man-
ufacture, or commerce, in which there is not permanently a cer-
tain amount of no-interest capital employed. There are hun-
dreds and perhaps thousands of small farmers, merchants, and
manufacturers in this and every other commercially advanced
country, who remain in business for years and barely obtain a
living and keep their capital intact. Nor do I refer to those re-
sults of bad judgment and inexperience which Mr. Walker calls
"accidents," 1 but only to capital which is so employed as the
necessary result of economic law.
Mr. Walker may reply that no one will accumulate wealth and
invest it in production unless he can obtain a reward at least to
the extent of interest. Even if this were literally correct and
without an exception, it would not prevent the use of no-interest
capital. Indeed if capital were never invested for less than the
maximum profit the use of the no-interest capital would be not
only possible but inevitable. Through the concentration of cap-
ital and the use of improved methods, maximum-profit yielding
capital is constantly being reduced to the no-interest point.
Suppose for example, that in the manufacture of cotton cloth
half a million dollars are invested in the plant which at the time
is of the most modern type, and that the capital not only yields
interest but a profit. In the course of a few years a great im-
provement in machinery is discovered by the use of which the
cost of cotton cloth is greatly reduced. Through the fall in price
resulting from the use of this new machinery, the profits of those
who still produce by the previous methods are entirely destroyed.
The capital which at first yielded a high profit ceases to yield
any thing above the bare cost of production wages, raw material,
and actual wear and tear. Consequently, if this capital continues
to be employed it must be used without profit or interest.
Moreover, when through still further improvements the price falls
too low for this now inferior machinery to be used without loss,
the capital invested in the tools of the next grade above will fall
to the no-interest point, and so on. Thus, while it may be true
that no capital is originally invested without interest or even high
1 " Political Economy," p. 235.
MOVEMENT OF CAPITAL. 24!
profit, it constantly tends towards the no-interest point through
the use of improved methods. This does not mean, however,
that the same capital, or the capital of the same persons, continues
to be employed at the no-interest point ; on the contrary, such
capital is constantly struggling to move from no-interest to high-
profit uses. This however, is often difficult to do without loss.
If the capital is invested in machinery which is reduced to the
no-interest point by the competition of larger concerns using su-
perior methods, then it can only be transferred to high-profit uses
by being invested in the superior methods and producing on
a larger scale, and this usually involves a larger amount of capi-
tal, the lack of which often makes such transfer impossible. Cap-
ital is often thus retained in the same business for a considerable
time after it ceases to yield interest, partly in the hope of doing
better and partly from fear of a loss of the principal in any sud-
den transfer to new fields. From these and many other causes
which are constantly in operation, especially among small pro-
ducers, capital is often continued in a business, not merely until
it reaches the no-interest point, but in many cases until it is
forced by competition to the losing point. Thus, while capital is
constantly struggling to move from no-interest to high-profit uses,
that portion of it which is used under the poorest conditions is
always no-interest capital.
If prices could never fall below the interest-paying point for
the capital invested in the poorest tools, then the use of improved
machinery would not cheapen commodities, but would simply
increase profits. Nothing but working at a loss or the failure to
obtain interest will enforce the disuse of the most inferior instru-
ments, and permit prices to fall to the cost of producing with
superior methods, and thus compel the advantages of improved
machinery and concentrated capital to pass to the community in
lower prices instead of remaining in the hands of capitalists as
higher profits.
This is what is constantly taking place in every progressive
community. There is scarcely a machine-using industry in which
capital has not been reduced from the high-profit to the no-
interest point several times over during the present century.
Take, for example, the cotton industry. In the first quarter of
this century, capital invested in machinery that could produce
16
MOVEMENT OF INTEREST.
calico at 30 cents a yard would yield a high profit. And before
1830 the capital invested in the same machinery could not yield
interest, nor even be used without loss, the price of calico having
fallen to 17 cents a yard. And the high-profit capital of 1830
reached the no-interest or losing point by 1843, when the price
had fallen to 12 cents a yard. And the high-profit capital of 1843
again reached the no-interest point by 1850, when the price had
fallen to 9 J cents a yard ; and so on, until to-day the capital can-
not receive interest which is unable to produce the same com-
modity at less than 5 cents a yard. Thus the whole circle from
high-profit to no-interest has been traversed several times over
during the present century. In fact, every dollar's worth of
capital invested in the print-cloth business since the invention
of the power-loom, that could not produce print-cloth at 4
cents a yard, has been reduced to the no-interest point. 1 Since
Mr. Walker admits that this takes place in the sphere of both
profits and rents, why he should fail to see that through the
same law it must also take place in the sphere of interest, is not
a little surprising. He appears to have fallen into the same error
that the English economists committed in regard to rent and
profits. They saw that rent is paid from a surplus above the
cost, and hence is not an addition to the price of the product ;
while they regard profits as the reward for the abstinence of the
capitalist, and hence a necessary addition to the price.* Mr. Walker
saw their error in not regarding profits as a surplus similar to
rent, yet he has repeated the same oversight regarding interest.
Indeed, he has taken their formula for profits and used it as a
definition of interest, and says : " Capital, as we have seen, is the
result of saving. Interest, then, is the reward for abstinence." *
1 ! the mm industries there are many large properties that are barely np to
the level of no-interest mse without loss to-day which a few jean ago yielded
high profits. The Jfcfrodarfina of tmmmful orrentiops has in any instances
rcdaccd wnttttm* of dollars" worth of -i* ; T not merely to the no-interest
foot, bat forced it oat of use altogether.
* " Wealth of Nations," book L, chapter vi., p. y) chapter riL, p. 42 ;
book T., eha^Cer n,~, p. 691. Rkardo's " Works," pp. 39, 68. McCnlloch's
" Principles of Political Economy," p. 42. Mill's " Principles of Political
Economy." *oL L, pp. 569-72.
" Po6tal Economy," p. 224 ; also p. 66 ; .,
the wages of every laborer must be equal to the cost of his own
living. Now we know that in every industry the wages of the
same class of laborers tend to a uniformity while the cost of
living of the individual laborers varies greatly. For example, we
know that in New York City painters, carpenters, bricklayers,
cigarmakers, tailors, etc., who work on the same grade of work
or in the same shop get the same wages, but individually the cost
of their living varies in some cases several dollars a week. On
the Marxian hypothesis, that the capitalist who sells his yarn for
more than it costs him exploits some of the factors of production,
the laborer who obtains more for his labor than it cost him must
also have exploited some other factor. Marx would object to
charging the laborer with robbery ; his purpose is to prove the
other man the thief. Yet, if it is a law in economics that the
possession of a surplus proves exploitation, then a surplus in the
hands of the laborer who has sold his labor power for more than
it cost him is as conclusive evidence of exploitation as is a sur-
plus in the hands of the capitalist who has sold his commodity
for more than it cost him. Scientific law does not discriminate
262 PRODUCT PROFIT AND WAGES.
between individuals ; there is no operation of natural law under
which the laborer is an honest man and the capitalist a thief,
when both are doing the same thing. A theory which thus puts
vice at a premium and virtue at a discount by showing that
none but thieves succeed and that the only reward for honesty is
failure and poverty, should only need stating to be rejected.
SECTION V. The Ratio of Profit to Product and to Wages.
One of the most prevalent assumptions regarding profit is, that
it takes an inordinately large proportion of the product. The
point upon which Marx lays exceptional stress is that profit prac-
tically equals wages. Although few careful writers would now
venture to contend that wages are actually diminishing, the idea
of Rodbertus, that the laborer's share of the product diminishes
as his productiveness increases, is very commonly accepted.
How much of the product goes to profit and the ratio of profit to
wages are mainly questions of fact ; it is therefore to facts
that we must turn for any satisfactory explanation of the sub-
ject.
If the law of prices and wages presented in these pages is
sound, and its corollary of the law of surplus (rent, interest, and
profit) is correct, we may expect, under modern productive con-
ditions, to find three important facts : (i) that real wages (wealth
obtainable for a day's service] tend to increase both actually and rela-
tively to the quantity of consumable wealth produced ; (2) that, while
the surplus or profit increases in its actual amount, it diminishes
relatively to the aggregate net product j that is to say, profit absorbs
a diminishing proportion of the consumable wealth produced ; (3)
that the ratio of wages to profits tends to increase, and that both the
actual amount of consumable wealth and the relative proportion of
the net product which goes to labor are greater than the amount which
goes to capital, and that this tendency increases as the concentration of
capital and the use of improved methods advance.
\. Is the proposition that real wages tend to increase both
actually and relatively to the quantity of consumable wealth pro-
duced, sustained by the facts ? Fortunately, the industrial history
of the present century affords ample data for a conclusive answer
to this question. Let us take the cotton industry, which by this
THE COTTON INDUSTRY. 263
time the reader has become quite familiar with. Moreover, this
industry affords an excellent illustration of the principles under
consideration, because it is a very extensive industry. It is also
completely representative of the factory system, and as such has
been in existence longer than almost any other industry. At the
commencement of the present century the weaver could only buy
ten yards of cloth with a week's wages. To-day (1890) he can
obtain a hundred and fifty yards of his own product for a week's
wages, while working about thirty hours less per week. That is
to say, through a rise in his wages and a fall in the price of the
product, he is able to obtain fifteen times as much of his own
product for a day's work in 1890 as he could obtain in 1800.
The factory period in this country really dates from about 1830.
From that time to 1880 the investment of capital, the number of
establishments, the amount and price of product, and the wages
paid in that industry were as follows :
1830. 1880.
Number of establishments 801 756
Aggregate capital invested $40,612,984 $208,280,346
Number of Ibs. cloth produced 59,514,926 607,264,241
persons employed 62,208 172,544
spindles " 1,246,703 10,653,435
Amount of capital to establish $50,702 $275,503
Ratio of Ibs. produced to capital 1.4 to $1.00 2.4 tofi.oo
" capital to persons employed $652.85 to i $1,207.17 to I
" spindles to persons " 22 to I 62 to I
" capital to spindles " $32.58101 $19.55101
" Ibs. produced to persons employed 950.7 to i 3,519-5 to I
" spindles 47.6 to 1 . 57.0 to i
Annual consumption of Ibs. of cotton cloth per capita. . .5.90 13.81
Price of cotton cloth per yard 17 cents 7 cents
Operative's wages per week $2.55 $5-4
It will be seen that in the 756 large establishments in 1880 in
which the aggregate capital invested was five times as great as
that in the 80 1 small establishments in 1830, the capital invested
per spindl-e was one third less, the number of spindles operated
by each laborer nearly three times as large, the product per
spindle one fourth greater, the product per dollar invested twice
as large, the price of the cotton cloth nearly sixty per cent, less,
the consumption per capita of the population over one hundred
per cent, greater, and wages more than double.
264 PURCHASING POWER OF WAGES.
If we take the New England States, which comprise the leading
cotton-manufacturing district in the country, and also that where
the greatest concentration of capital and machinery in this
industry has taken place, the results in this direction are still
more striking. According to the statistics on wages and prices
from 1752, gathered by the Massachusetts Labor Bureau, 1 in
1831 the ratio of spindles to operatives was 24 T f T to i. In 1880
they were 7iy{hy to i. And the ratio of pounds of product to
operatives employed in 1831 was 1,484 to i, and in 1880 it
was 3,633 to i. That is to say, during fifty years the ratio of
spindles to operatives increased 184 per cent., and the ratio of
product to operatives 145 per cent. During the same period
the aggregate wages of men, women, and children rose 115 per
cent., and the hours of labor were reduced 12 p'er cent., while
the price of calico print fell from 17 to 7 2 cents a yard. Thus,
while the wages in this industry rose 115 per cent., the purchasing
power of those wages in the finished product increased 241
per cent. ; that is to say, through a rise of wages and fall in
prices accompanying the concentration of capital and use of
improved methods, the laborer was enabled to obtain over five
times as much of his own product for a day's labor in 1880 as he
did in 1830 the increase is still greater now (1890).
If we consider the matter from the standpoint of value
instead of quantity of product, a similar result is apparent.
In 1850 the value of the product per operative in New Eng-
land was $707 ; in 1880 it was $1,139 per operative, an increase
of 61-^5*5- per cent. The wages in this industry for 1850 for New
England are not obtainable, but if we assume that the proportion
of the 1 15 per cent, increase from 1830 to 1880 was as great after
as before 1850, a perfectly safe assumption, the rise in wages
from 1850 to 1880 would be 69 per cent. Measured in money,
therefore, the value of labor (wages) of cotton operatives rose 8
per cent, more than the value of their product. If we extend this
generalization to the whole United States the result is very
similar. The value of product per operative in the cotton
industry in 1850 was $709, and in 1880 it was $1,112, being an
1 Report for 1885, pp. 185-189.
2 Ibid., p. 455-
1 1 have taken 1850 because the value for 1830 is not obtainable.
MR. GIFFEN ON WAGES AND PRODUCT. 26$
increase of 56fa l P er cent., or 12 per cent, less than the rise of
wages. Therefore, whether we view the question from the
standpoint of quantity of wealth, purchasing power of wages, or
the ratio of wages to product, it is equally clear that wages have
increased both actually and relatively to the quantity of con-
sumable wealth produced, as capital has been concentrated and
as improved methods of production have been employed.
Notwithstanding this rise of wages and fall of prices, it is
insisted that the laborer is despoiled of a large part of the wealth
he produces. As evidence of this we are pointed to the fact that
in many industries the product per laborer has increased more
than a thousand per cent, during the last fifty years, while their
wages have not much more than doubled. This claim has been
virtually conceded by Mr. Giffen, President of the British Statis-
tical Society. He says : " On this head it may be admitted, to
begin with, that there is apparent foundation for some of the
complaints. Workmen in particular employments do not get a
reward at all in proportion to the increase of production in those
employments. The illustration of a cotton-mill is familiar. A
single attendant on a number of machines will 'produce' as
much in an hour as formerly in a year or two, but his wages are
only double or perhaps not quite double what they were when
the production was so much less. 2 . . . But the increased severity
of toil, without proportionate remuneration, might be admitted
in those special employments without altering the fact that
remuneration has increased generally. What seems to have
happened in these cases is that the development of society
imposes a heavy burden on a special class." 3 While he tries to
break the force of this complaint by showing that remuneration
has increased generally, he practically admits the injustice, and
treats it as an inherent element in the present industrial constitu-
tion of society. This is all that socialistic reconstructionists
claim ; it is because they believe that equity is impossible under
the present industrial system that they demand its abolition.
Nor can their claim be reasonably resisted unless these phe-
nomena can be explained without assuming either that society
1 See U. S. Census (1880), volume on Manufactures, pp. 541-547.
2 " Gross and Net Gain of Rising Wages," Contemporary Review, December,
1889, p. 835. * Ibid., p. 838.
266 MR. GfFFEN'S ERROR.
has developed in the wrong direction or that natural law is
inherently unjust.
Here is another instance of the error of treating wages as a
share in the division of the product, instead of an item in the cost
of production. If this view were correct, and wages in each
industry should rise directly as the product per laborer increases,
as Mr. Giffen's argument implies,, the result, instead of being more
equitable, would be unjust to the laborers and more inimical to
society. It would be unjust to the laborers because it would
give all the increased product resulting from improved machinery
to the particular laborers who happen to use the improved
implements, thus depriving the laborers in non-machine-using
industries of any advantage arising from superior methods of
production. Upon what principle of equity should a weaver
or shoemaker who happens, without any virtue on his part, to use
improved instruments, receive fifty or a hundred times as much
wages as the bricklayer, painter, compositor, and other hand-
workers whose industries do not admit of the use of steam-driven
machinery ? Manifestly any industrial system which would in-
crease the wages of the factory-worker fifty or a hundred-fold,
while it would only advance those of hand-workers ten or twenty
per cent., simply because, in the nature of the occupations, the
former could and the latter could not use labor-saving machinery,
would be the very embodiment of injustice.
It would be inimical to society, because it would make any
general reduction in the price of commodities impossible, as the
increased wealth would all go to the particular laborer who used
improved machinery, thus depriving the community in general of
any participation in the advantages of industrial development.
It is hardly necessary to say that the use of steam-driven
machinery is no more due to the particular operatives who use it
than it is to the millions of compositors, bricklayers, farmers, and
other laborers who do not use them. In the first place, it is the
consumption not of the machine workers merely, but of the whole
community that supplies the market which makes the use of the
factory methods possible. And in the second place, it is the
inventive genius developed by an advancing civilization, to-
gether with the capital invested in the production of machinery
to supply the need thus created, that furnishes the increased
DISTRIBUTION OF BENEFITS. 267
product. Clearly therefore, if only the wages of those laborers
were increased who used the improved instruments the market
for the machine-made products would be too small to enable
factory methods to be profitably employed. Thus a system which
would give all the increased product resulting from improved
instruments to the particular laborers who use those instruments
would not only be highly unjust, but would defeat itself and
arrest the industrial progress of society.
If we examine the case of machine-using and non-machine
using laborers in the light of the law of wages and prices
heretofore presented, it will be apparent that the mere fact that
the laborer produces more, has practically nothing to do with
what he shall receive, because it has nothing to do with the cost
of his living. The amount he produces by a day's work depends
far more upon the kind of tools he uses than upon his personal
quality. A twelve-year-old child in a New England factory can
spin more yarn than a hundred of the most expert spinners that
ever lived could produce with a spinning wheel. It is the price
of the product, and not the price of the labor, that is determined
by the quantity the laborer produces in a day. The cost of his
living being the same if he produces twice as much, the cost of
production and hence the price will be proportionately reduced.
Thus any improvement of productive instruments which enables
the laborer to produce more, his cost of living being the same,
will show itself not in a rise of his wages, but in a fall of the
price of the commodities he produces.
On the other hand, the price of hand-made commodities rises
in proportion as the laborers' wages increase. It thus appears
that wages are determined by conditions which affect the charac-
ter and cost of the laborer, and not by those which influence the
quantity and cost of the product. When the standard and cost
of living of the compositor, bricklayer, painter, etc., increase, the
community has to pay more for the products of their labor,
because there is not much improvement in the tools they use ;
whereas the product of the factory worker is so much increased
that, although his wages rise as much as those of other laborers,
the cost of production is greatly diminished. That is why the
price of all httfid-made products tends to rise while that of
machine or factory-made products constantly tends to fall. It is
268 EQUITY OF ECONOMIC LA W.
because the wages of the hand-workers have increased in a
greater proportion than their product that those of machine
workers have increased less proportionately to their product.
By this means the disadvantage of inferior and the advantage of
superior instruments is distributed uniformly to each person in
the community to the extent that he is a. consumer. Thus the
two prime movements of industrial progress, the rise of wages and
the fall of prices, benefit laborers in all occupations and condi-
tions directly as their wealth-consuming capacity increases and
social character rises.
It will be observed that, from this point of view, the case of the
workman to whom Mr. Giffen referred as not getting " a reward
at all in proportion to the increase of production," appears
entirely different. What to him appeared to be a necessary in-
justice is in reality the e'vidence of the supreme equity of
economic law. The increased product being mainly due to the
use of capital and improved tools, which has been made possible
through the use of increased consumption and higher social life
of the general community, it is to the community in general, and
not to particular laborers who happen to use those tools, that the
increased product in equity should go, and by economic law does
go. The important fact that cannot be too much emphasized
here is, that wages are paid for the economic cost, and hence for
the social quality of the laborer. It is therefore what the laborer
is rather than what he does that determines his wages, and this is
true without regard to the nature of his occupation or the quality
of his tools.
2. This brings us to the second proposition, that profits tend
to absorb a diminishing proportion of the consumable wealth
produced. In view of what has already been said, a discussion
of this proposition might be properly deemed unnecessary. And
were it not that one of our most trusted statistical authorities has
apparently affirmed the opposite, I should so regard it. In the
report of the Massachusetts Bureau of Statistics of Labor for
1885 the data for nine industries are given, which show that the
percentage of the net product paid as wages fell from 59-^ per
cent, in 1850 to 48-^ per cent, in 1880, and, after commenting
upon the peculiarities of each industry, the repot** (p. 191) says :
" An examination of these two tables would, we think, lead to
RATIO OF PROFIT TO PRODUCT. 269
the conclusion that, although in every case money wages have
considerably increased, yet in certain industries in which the
principles of the factory system (i.e., the subdivision of labor, co-
ordination of processes, and the application of a series of mutually
dependent and practically automatic machines) have been most
effective, such, for instance, as in the cotton and woollen indus-
tries, the relative share of net product gained by the workmen
tends to decrease. That is to say, in these industries perfection
of machines and processes constantly tend to create a larger
product with less capital, and the ratio of increase in productive
capacity tends to outrun the ratio of increase in wages, so that
of this larger product labor obtains a less relative share."
They then take from the United States Census the same data
for all industries in the country, and find that 5 1 per cent, of this
net product was paid in wages in 1850 and only 48^^ per cent, in
1880, and say : " It appears that when the field is broadened so
as to include the entire manufacturing industries of the country,
labor's share of the net product has declined from 5 1 per cent,
to 48^ per cent."
In view of such emphatic statements apparently sustained by
facts from such a reliable source, it can hardly be a matter of sur-
prise that it is generally believed that wages obtain a constantly
diminishing and profit gains an increasing proportion of the
wealth produced. It is important, therefore, even at the risk of
being a little tedious, to examine the process by which this con-
clusion is reached. Nor will this be very difficult, since both the
data and the method of treatment are amply stated. The method
of procedure is to divide the product into gross and net value,
the former being the value of the aggregate product, and the
latter that of the product less the cost of the raw material. This
is regarded as representing the net value created by the joint
operation of the labor and capital employed in the enterprise. 1
If a diminishing proportion of this net product is paid as wages,
it is concluded that an increasing proportion of it must go to
1 "Net product, or value of product remaining after deducting value of raw
materials of manufacture, represents the direct result of the productive forces
in the given industry ; or, in other words, it represents the value created over
and above the value of raw materials by the effective operation of labor and
capital united." Report of Bureau of Statistics of Labor, p. 190.
2/0 DEFECTIVE METHODS.
profits. 1 This method of treating the subject is defective in two
respects : (i) in regarding the ratio of the total wages to the
net product (product less raw material) as indicating the economic
condition of the laborer ; (2) in assuming that a diminution in
the ratio of the total wages to this net product necessarily implies
a proportional increase of profit.
(i) That it is a mistake to treat the ratio of the aggregate
wages to the value of product as indicating the economic condi-
tion of the laborer, is shown by the fact that this ratio may
increase and the laborer grow poorer, and it may diminish while
the laborer's condition improves. Take, for example, the hand-
loom weaver and the factory laborer. After deducting the raw
material, nearly all the value of the product of the hand-loom
weaver went to wages ; while, according to the bureau's figures,
only about 48 per cent, of the product now goes to wages, yet no
one would pretend that the hand-loom weavers were in a better
economic condition than are the factory operatives to-day.
Whether the amount paid for labor is one million or one thou-
sand millions of dollars in no way affects the laborer's condition,
except as it gives a larger amount to each laborer. The same is
true of the proportion. Whether the 80 or 90 per cent, of the
product received by the hand-weaver gave him more actually or
relatively to the product than 50 per cent, will to-day, depends
entirely upon whether it is paid to a relatively larger or smaller
number of laborers. If the aggregate amount paid in wages
relatively to the product were doubled, and either the number of
laborers to whom it was paid or the time expended in producing
it with the same laborers was more than doubled, instead of indi-
cating an improvement in the laborer's condition, it would show
a deterioration.
Suppose for example, that under hand labor, 80 cents out of
each dollar's worth of product go to labor, and are paid to 20
laborers, the ratio of wages per laborer to the value of the
product will be as 4 cents to the dollar ; whereas, if, under the
factory system, only 50 cents out of every dollar's worth of
product goes to labor, if it is all paid to five laborers, the ratio
of wages per laborer to the value of the product would be as 10
cents to the dollar. Thus every laborer would receive relatively
1 Ibid., p. go.
MISLEADING DEDUCTIONS. 2? I
to the product created two and a half times as much with the 50
per cent, under factory production as with the 80 per cent, under
hand labor. Now this is precisely what has occurred in the
development of factory methods of production. Clearly there-
fore, it is not the proportion between the aggregate wages and
the product, but the proportion between the amount paid to each
laborer and the product that indicates his economic condition.
In other words, it is the rate and not the aggregate amount of
wages that is the true basis of comparison, because it is the rate
of wages only that affects the laborer's economic status, either
actually or relatively.
(2) The assumption that a diminution in the ratio of aggre-
gate wages to the so-called net product necessarily implies a pro-
portional increase of profits is also a mistake. The fact that 51
per cent, of the net product was paid in wages in 1850 and only
487^ was so paid in 1880, does not prove that the percentage of
the product going to profit has increased ; on the contrary, this
might occur and profit be greatly reduced or annihilated alto-
gether. All this fact reveals is that in 1880 the total amount
paid in wages represented 2 T V per cent, less of the value of the
product, after deducting value of raw material, than it did in
1850 ; but this does not show that more of the remaining 5iyV
per cent, of the product went to profit. Until that remaining
portion is accounted for, there can be no more warrant for saying
that it went to profit than that it went to the moon. The only
condition under which the amount of one item can be properly
inferred from that of another is when the two represent the whole,
or when the amount they do not represent is a known fixed
quantity. Since all the product, less raw material, is not divided
between wages and profit, the inference that the ratio of profit to
net product increases because that of wages is diminished can
only be valid when all the other items are definitely ascertained.
That this has not been done in the present instance is shown by
the following statement : " The value of net product forms, as
we have said, a fund divisible into interest on capital, interest on
loans, insurance, freights, rents, commissions, wages, and profits.
Now if the relative share paid in labor in the form of wages is
decreased, it is, of course, obvious that the share remaining for
the other purposes mentioned is increased. If capital is also
2/2 OMITTED DATA.
relatively decreased, then it is fair to suppose that the share
chargeable to interest is also diminished. It is well known that
the relative cost of freights and insurance has decreased."
It will be observed that the above not only fails to definitely
explain the relative amount of the other items in the cost of pro-
duction and thereby obtain the proportion going to profit, but it
omits some items altogether. In the first place, it only accounts
for a portion of the amount which is paid for service, no account
being taken of salaries of managers and other overseers, and
agents, which are a part of the payment to labor, and are included
in the cost of production as much as the day-wages of the laborers
in the shop. In the next place it omits entirely the depreciation
of capital, which is also a necessary item in the cost of produc-
tion. The items thus unaccounted for necessarily go to swell the
undivided surplus which is put down as profit. By this means it
may be made to appear that a large profit exists, when in truth
there has been a dead loss, and when a profit does actually exist
this method of investigation will invariably make it appear very
much larger, sometimes more than double what it really is." Both
these items of cost affect the result in two ways. In the first
place, other things being the same, they both reduce the undivided
surplus going to profit to the full extent of their amount. In the
next place, they both absorb an increasing proportion of the
net product in proportion as factory methods of production are
increased.
It is impossible to state the exact proportion of the net product
paid in salaries in the different periods, because that item has
been entirely omitted by all industrial statistics until the Massa-
chusetts Census for 1885. According to this report, the total
amount paid in salaries in that State in 1885 was $10,846,367,
which was equal to 3yV 3 " *' ^ ' giving a rate of surplus value of more than one
hundred per cent. The laborer employs more than one half of his working day
in producing the surplus value." Marx, "Capital, "p. 203. " Now, gentle-
men, if you compare the working time you pay for, you will find that they are
to one another, as half a day is to half a day j this gives a rate of one hundred
per cent., and a very pretty percentage it is." Ibid., p. 211. " But the fact is
and on that we lay stress that the workers receive only about half of what
they produce. " Gronlund, '' Modern Socialism," p. 23.
8 These are exclusive of Boston. I have omitted Boston because for some
unexplained reason the net product in Boston fell about 75 per cent. Such a
change must be the result of some abnormal occurrence perhaps in a few indus-
tries. Although it would greatly reduce the ratio of profits to wages in 1880,
rather than use doubtful results. I prefer to exclude the whole of Boston data.
a Exclusive of salaries.
278
RATIO OF PROFITS TO WAGES,
representative concerns for a considerable number of years to-
gether, than by a very much larger number of concerns for a sin-
gle year. For instance, the complete facts for ten large corpora-
tions for ten years together will much more accurately show the
normal ratio of wages to profits in that industry than would the
facts, equally complete, for all the concerns in the country for any
given date. This investigation shows that the ratio of wages to
profits in thirteen leading industries for a number of years to-
gether, 1 to be as 4.20 to i. Taking the basis adopted by the
Massachusetts Bureau for 1880, the relative movement of profit
and wages from 1850 to 1885 has been as follows :
ALL MANUFACTURING INDUSTRIES FOR THE UNITED STATES.
Percent-
age of raw
material
Percent-
Percent-
Value of aggregate product.
and fixed
costs in
age of
wages in
age of
profits in
Average*
yearly
Ratio of
wages to
total
total
total
wages.
profits.
product.
product.
product.
1850 $1,019,106,616 . .
67.61
23.23
9.16
$247-37
2. 53* to I
1860 1,885,861,676 . .
67.92
20.09
11.99
288.94
1.67 to I
1870 4,232,325,442 . .
71.79
18.34
9.87
376.59
1.85 to I
1880 5,369,579,191 . .
76.37
17.67
5.96
346.91
2.96 to I
ALL MANUFACTURED INDUSTRIES FOR MASSACHUSETTS. 4
18751456,400,458 . . .
62.57
27.06
10.37
$445.00
2.6o 8 to I
1880 631,135,284. . .
72.79
21-75
5.46
364.00
3.98 to I
1885 674,634,269 . . .
70.88
23-45
5.67
388.62
4.13 to I
1888
402.45
THIRTEEN LEADING INDUSTRIES FOR 8 YEARS TOGETHER TO 1 889.
1889 $112,393,804.98 . 67.98 25.93 6.09 4.20 to I
1 Ten of these were for eight years in succession, two for ten years, and one
only for four years.
* It should be remembered that these figures do not represent the wages
of men, but the average wages of men, women, and children all taken together.
Since in manufacturing industries there is generally one worker besides the head
of the family, and sometimes more, these wages only represent about half the in-
come of the average family in these industries.
s This column is exclusive of salaries.
4 Exclusive of Boston. I have omitted Boston because for some unexplained
reason profits fell from an aggregate of $27,640,680 in 1875 to $7,162, 768 in
1880. Such a change must be the result of some abnormal occurrence perhaps
in a few industries. Although it would greatly reduce the ratio of profits to
wages in 1880, rather than risk doubtful results I prefer to exclude the whole of
Boston data for 1885. * This includes salaries.
ACTUAL RISE OF WAGES. 279
It will be seen from these facts, which represent the greatest
body of statistical data ever collected upon the subject, 1 that the
industrial tendency during the last thirty years has been steadily
towards a greater concentration of capital and economy in pro-
ductive power, resulting in an actual increase in wages both rela-
tively to the product and per laborer employed, and also a relative
proportional decrease of profit as compared with wages.
1 The figures for the United States are taken from the Census of 1880 and
those for Massachusetts are taken from the industrial census of that State, rep-
resenting for 1880 14,352 establishments in 80 industries with an aggregate capi-
tal of $271,056,051 ; for 1885, 23,431 establishments in 83 industries, with an
aggregate capital of $500,594,377.
PART IV.
THE PRINCIPLES OF PRACTICAL STATESMAN-
SHIP; OR, APPLIED SOCIAL ECONOMICS.
CHAPTER I.
LAISSEZ FAIRE AS A GUIDING PRINCIPLE IN
PUBLIC POLICY.
SECTION I. A Protest Against Paternalism.
ALTHOUGH laissez faire has never been the accepted rule of
public policy in any country, the fact that for more than a
century it has been taught by leading economists as the guiding
principle of industrial statesmanship entitles it to prominent con-
sideration. It should be remembered in the first place that the
idea of laissez faire as applied to industrial statesmanship does
not represent an inductively established principle in society ;
that is to say, it is not a logical conclusion drawn from an ex-
tensive study of industrial phenomena. On the contrary it came
into existence as a watchword to express a protest against the
high-handed paternalism of the feudal and mercantile systems ;
and by the force of habitual repetition, sustained by a pardon-
able bias against a land-owning class, it was subsequently elevated
to the position of an economic principle.
During the Middle Ages government was not only essentially
paternal, but it was exclusively in the hands of the land-owning
class. The interest class being chiefly local, industrial policy
was naturally restrictive in character. Accordingly, in the
earliest stages of manufacture and the growth of the free towns,
industry was hemmed in by innumerable arbitrary regulations.
Scarcely any occupation could be engaged in without paying
tallage or tribute to the baron. And with the growth of the Free
Cities and the decline of baronial power this privilege of exacting
tribute for the right to engage in an industry was assumed by the
guilds, and finally took the form of charters, by which the gov-
283
284 ORIGIN OF LAISSEZ FAIRE.
ernment became the exactor of booty. In proportion as manu-
facture and commerce increased, the evil effects of this policy
became more and more inimical to public welfare, and made a
new industrial policy necessary. Nor is it surprising that the
new policy should be the very opposite of the old one. The
remedy for the evil effects of too much government interference
was naturally sought in a policy of no government interference.
By the last half of the seventeenth century this anti-paternal
feeling had become very strong, and was finally voiced by a
prominent French merchant, who, when asked by Colbert,
"What can we do to aid you?" promptly answered, " Laissez
faire" Let us alone. This expression so completely represented
the feelings of the mercantile class that it became the watchword
for a new policy, and by the middle of the next century was made
the basis of an economic theory by Quesnay and the Physiocrats,
whose policy was concisely expressed as " Laissez faire et laissez
passer " Let us alone and keep the ways free. In the last
quarter of the eighteenth century this doctrine was revised and
recast in England by Adam Smith. In many important respects
the great Scotchman improved upon the doctrines of the French
Physiocrats, especially in bringing out the economic importance
of manufacture and commerce. But in view of the fact that the
public policy of England was still largely determined by the
landed aristocracy, who were traditionally hostile to the interests
of the manufacturing and trading classes, Adam Smith naturally
adhered to the doctrine of no government interference. Since his
time the idea of laissez faire has beeh generally presented as
representing a fundamental principle upon which the industrial
policy of all nations should be based, any departure from this
rule being justified only in special emergencies.
In the next place it should be observed that the doctrine of
laissez faire has not been verified by subsequent experience ;
consequently, instead of being more implicitly accepted, its
economic validity is denied just in proportion as the scientific
treatment of the subject increases. As an axiom in public policy
laissez faire is rejected by the inductive economists of the present
generation with almost as much uniformity as it was accepted by
the deductive economists of the previous half century. There-
fore, the claim that the theory of laissez faire represents a
CHARACTER OF LAISSEZ FAIRE. 285
universal principle in nature and society, and is entitled to the
same unquestioning acceptance in economics that is accorded
to the principle of gravitation in physics, is wholly unwarranted.
SECTION II. Laissez Faire Essentially Unscientific.
Considered as a fundamental principle in statesmanship,
laissez faire is essentially unscientific. It is necessarily negative,
while statesmanship is positive. All government, order, and
progress imply affirmative action, and therefore are the op-
posite of laissez faire. Science is essentially aggressive ; it
implies the active policy of investigating, knowing, and control-
ling things. Every improvement in the arts and sciences, every
labor-saving appliance, is the result of man's interference with
nature, of subjecting natural forces to human purposes. By
studying the laws of chemistry, electricity, and mechanics, we
know that under certain conditions heat, light, and force are
developed. And instead of adopting the rule of laissez faire y and
waiting till nature produces the desired result, we have learned
to bring the particular forces together in just such relations as
will produce that result much quicker. Consequently, we make
steam produce our wealth, electricity do our errands, and natural
forces serve us in every phase of life.
The same is true in the animal and vegetable world. Our
choicest flowers and vegetables are not the result of unaided
natural selection, but of artificial cultivation ; that is to say, of
the scientific application of the law of development. We have
studied the conditions under which certain kinds of fruit, flowers,
and vegetables develop their best specimens, and where nature
fails to supply these conditions they are substituted by man. Our
fast horses and finest breeds of cattle and sheep have all been
produced in the same way. What is true in chemistry, mechanics,
botany, and biology is equally true in sociology.
Since affirmative statesmanship is necessary to government,
and government is necessary to civilization, it is a contradiction
in terms to speak of laissez faire as the basis of statesmanship.
The science of government is not the knowledge of what not to
do, but it is the knowledge of what to do and how and when to
do it. To know what to do implies the knowledge of what not to
do, but to know what not to do does not imply the knowledge of
286 ERRONEOUS POSTULATES.
^vhat to do. So long as government exists it must have a function
a sphere of action. Scientific statesmanship implies a knowl-
edge of the principle by which that action should be directed.
Because the history of state interference with industry is the
history of mistakes, it is commonly assumed that the only way to
avoid mistakes of the past is to do nothing in the present It
would be just as correct to say that because all mistakes are the
result of affirmative action, inaction is the only means of avoiding
error, the logic of which would involve the destruction of the
human race. We cannot choose between doing and not doing,
but only between doing wisely and unwisely. The doctrine of
laissez faire, therefore, has no place in the science of statesman-
ship or the art of government.
This theory derives its chief plausibility from a seeming uni-
versality in its postulates, which are : (i) That self-interest is a
universal principle in human nature. (2) That each individual
knows his own interest best, and in the absence of arbitrary re-
strictions is sure to follow it. (3) That free competition always
develops the highest possibilities by enabling each to do that for
which he is best fitted, and thereby most surely advances the
welfare of all.
The proposition that self-interest is a universal principle in
human nature is undoubtedly correct ; but there is nothing in
experience or logic to warrant the assumption that the other
two follow from it. That whatever is for the best interest of
each promotes the welfare of all is indisputable, but that each
individual always knows what is best for his own interest, and in
the absence of arbitrary restrictions is sure to follow it, is by no
means certain.
Before each can know how to promote his own best interest he
must know what his best interest is, which is precisely what the
great bulk of the human race do not know. This knowledge can
only be acquired by a more or less intelligent generalization from
experience. Whatever tends to improve man's condition materially,
socially, and morally, and increase the advantages of social life,
promotes his best interests. To assume that every one knows
what is best for himself is as unphilosophic as to assume that the
child knows best what will promote its own welfare. Although
many parents are ignorant, and often injure when they think to
IGNORANCE OF SELF INTEREST. 287
help the child, the fact remains that the successful rearing
of children chiefly depends upon the number of instances in
which the wisdom of the parent, developed by experience, pre-
vails over the ignorance of the child. Indeed the race would die
out if the experience of parents werenot transformed into author-
ity over the child.
What is true of the child in this respect is still true to a very
great extent, of a vast majority of the human race. Take for
instance the people of Central Africa. The principle of self-in-
terest is as universal there as in any part of the world. But no
one would seriously claim that the average individual in that dark
continent knows what is best for his own interest. On the con-
trary, the most advanced scientists, philanthropists, philosophers,
and statesmen agree that the best interests of the inhabitants of
Africa can only be promoted by the interference of more ad-
vanced and civilized nations. This same lack of knowledge of
what is best for one's own interest, which is simply ignorance of the
laws of social development, is still painfully apparent, not merely
in every country, but, more or less in every class in the most ad-
vanced countries. Those familiar with the laws of sanitation
and hygiene know that cleanliness, fresh air, good drainage, and
wholesome food are of vital importance to physical health, and
therefore are of the highest interest to the laborer. But the ex-
perience of health authorities shows that only with the utmost diffi-
culty can the laboring classes, and particularly the poorer and
more ignorant portion, be induced to pay any attention to these
conditions.
So too the employing classes, while more enlightened upon
questions of science, literature, and art, exhibit scarcely less
ignorance in regard to their economic interests. Take, for in-
stance, their attitude towards the social condition of the laborer.
They have assumed and have acted almost uniformly upon the
assumption that high wages are inimical to their own interests,
and consequently that to resist the rise of wages and social im-
provement of the laboring classes is to promote their own pros-
perity ; whereas, had they known their true economic relation to
the laborer, they would have seen that every limitation of his
social and material progress reacts injuriously upon the per-
manence and extent of their own prosperity. The reason for
288 FALSE NOTIONS OF COMPETITION.
their mistaken attitude is precisely the same as that which gov-
erns the laborer when he endeavors to improve his condition by
using dynamite, and when he resists the introduction of improved
machinery, or evades the instructions of the Board of Health,
namely, ignorance of what is for his own best interest. It is
therefore fallacious to assume that every individual knows his
own interest best, and in the absence of arbitrary restrictions is
sure to follow it.
The idea that free competition always develops the highest
possibilities by enabling each to do that for which he is best
fitted, is equally misleading. The popular idea of free compe-
tition is that it means an unconditional struggle for existence
among individual units, and that is the sense in which the term
is usually employed by economists. This view is commonly re-
garded as the application of the doctrine of natural selection to
society ; and hence the policy of laissez fairs is claimed to be
based upon the doctrine of evolution. This is a mistaken con-
ception both of the doctrine of evolution and of the nature and
function of competition, as will appear from the following con-
siderations.
The doctrine -of evolution is simply a theory of growth as
distinguished from that of special providence. It teaches that
whatever may have been the origin of things, progress towards
higher forms of existence in all classes of phenomena takes place
in accordance with a law of cause and effect, and that higher and
more complex types of formation and the existence of new func-
tions, appear only under conditions favorable to their develop-
ment. In other words, opportunity for actualizing the potential
qualities of higher types is indispensable to progress. There is
nothing in this doctrine to warrant the assumption that such op-
portunity can always, or even generally be best secured by the
new type for itself, through a mere unrestrained struggle for ex-
istence. On the contrary, the whole implication is that existing
types must prepare the way and therefore create a favorable
opportunity for the birth and growth of the higher type. Much
of the error in this connection is due to a mistaken use of the
phrases " nature " and " natural law." We commonly employ the
term nature as if it represented only unconscious cosmic forces
as distinguished from conscious human forces. And thus we
USE OF THE TERM NATURAL LAW. 289
speak of the products of cosmic forces as natural and the prod-
ucts of human device as artificial, just as if human arrangements
were necessarily unnatural.
The term " natural " applies no more to cosmic than to human
forces. The consciousness and intelligence of man are as natural
as the unconsciousness of gravitation or of inorganic substances.
The term " natural " simply means that which is necessary to or
inherent in the constitution of things. It is natural that man
should have blood, nerves, and brain, because without these he
would not be man, but it is equally natural that stones should not
have them, because in that case they would not be stones. So
with natural law ; a law is not natural or unnatural because it
relates to conscious or unconscious objects, but solely because
it relates to the nature and inherent constitution of things. It
is just as much in accordance with natural law that under certain
conditions electricity destroys our house, as it is that under
other conditions it should light our streets. Natural law is simply
the order in which phenomena necessarily occur under given
conditions. Man cannot impose artificial laws ; he can only
artificially change the relations of objects so that through the
operation of cause and effect desired phenomena may occur
sooner, more frequently and more continuously than they other-
wise would. It is in this way, and in this way only, that man is
ever able to aid progress.
Therefore, in considering whether laissez faire or human inter-
vention is to be preferred, the question is not whether one is
more natural than the other, because in any case the result
will be natural, but it is whether the desired end can be more
surely obtained by intervention than by the unaided operation of
unconscious forces. And this will depend entirely upon whether
those who manipulate the conditions understand the laws of the
phenomena with which they are endeavoring to deal, and there-
fore can correctly predicate the result. Ignorant or unscientific
interference may be worse than laissez faire. But this by no
means implies that laissez faire is superior to scientific regulation.
Another expression which is misleadingly employed is " natural
selection." Here again the term natural is used as if all selection
were unnatural that is not blind and unconscious. There are no
natural and unnatural selections ; there are wise and unwise
19
2QO NATURAL AND HUMAN SELECTION.
selections, and there are conscious and unconscious selections.
It is as natural that ignorance will make poor selections as that
intelligence will make good ones. Because progress in the physi-
cal world has taken place mainly by unconscious selection, it is
assumed that progress in society will necessarily be more rapid
and continuous under a regime of laissez faire,
If it were true that in physical phenomena an unconditioned
struggle of units always produces the highest types and the
greatest progress, it would not follow that the same should be true
in society. But it is by no means clear that this is true even in
the physical world. It is of course true that in the development
of the earth and other physical formations where surviving
forms were determined by the action and reaction of unconscious
physical forces, those forms only were able to survive which
could withstand the struggle. But it is scarcely less certain that
many higher forms may have been destroyed during early stages
of their development, which, had they been able to reach maturity,
would have been better able to withstand opposing forces than
those which did survive.
It is highly probable that by this means millions of potentially
higher forms were destroyed in their infancy by mature and lower
types of formation. Thus under a regime of pure laissez faire
the action and reaction of blind physical forces progress may
have been greatly retarded, while inferior types for ages perpetu-
ated their existence by preventing the development of superior
types. Indeed, this is what we see taking place in every domain
where laissez faire prevails, and development is left to an un-
conditioned struggle for existence among individual units.
In the sphere of vegetation for instance, it is now a matter of
scientific knowledge that the choicest trees and most highly de-
veloped plants of any species may be stunted and even destroyed
by the presence of weeds and brush that had prior existence. This
is a fact that every scientific farmer and horticulturist under-
stands. As an illustration of the law of natural selection and the
survival of the fittest, we are pointed to wild animals, say a drove
of wild horses. It is assumed that those which survive are
always best and that those which were killed off were inferior,
from the mere fact that the former lived and the latter died.
This conclusion, however, does not necessarily follow from these
SURVIVAL OF THE UNFIT. 29!
facts. Suppose, for example, a foal, which possessed all the pos-
sibilities of being a faster or tougher horse than any in the herd,
was kicked in the ribs by one of the inferior though mature
horses and fatally injured. It is quite clear that in that case the
inferior type would prevent the development of the superior.
And this is what is constantly taking place wherever an unre-
strained struggle for existence prevails, as all experienced horse-
breeders know. By the study of appropriate mating and the
protection of the superior young against the violence of the
inferior old, speed, strength, and other desired qualities of the
horse have been developed to a degree never before known.
Thus under scientific selection, the higher possibilities of the
horse have been developed incomparably faster than they ever
were under natural selection. This is true in every sphere of
phenomena to which human knowledge can be applied. In fact,
progress everywhere increases directly, as scientific selection can
supersede natural selection in proportion as knowledge of rela-
tions can be substituted for blind experimentation. Were this
otherwise, science and civilization would be no better than igno-
rance and barbarism. Clearly therefore laissez faire is not the
surest way to promote the survival -of the fittest even in the
physical world.
In society this is still more uniformly true by virtue of a differ-
ent character in the phenomena. One of the most marked dis-
tinctions between physical and social phenomena is the manner
in which existing units influence the environment of future units.
In the lower forms of life the opposition of the inferior mature to
the superior immature (the established old to the unestablished
new) is limited to a direct struggle between contending units.
Consequently, the potentially superior has always a limited chance
(say one in a million) of surviving, if only by evading the deadly
opposition of an established type. In society this is different, and
the chance of the new to escape the repressive power of the old
is more difficult. Man, having acquired the power of consciously
adapting means to an end, can not only resist the undeveloped
new with the advantage of prior possession and mature develop-
ment, but he also has the power of manipulating the environment
of the subsequent generation so as to make the development of
the superior impossible.
GOVERNMENT INEVITABLE.
One of the prime conditions of human society is consciously
regulated order, and this implies government. Government neces-
sarily dominates the social environment of the individual.
Through social and political institutions, therefore, the opportu-
nities for enabling the fittest to survive will necessarily be aided
or repressed according to the notions entertained by those who
determine the policy of government. By this means, through
mere accident of priority, the inferior man can so regulate the
conditions of existence for subsequent generations that the de-
velopment of the potentially superior shall be impossible, and
thus secure the survival of the unfittest instead of the fittest.
The history of society is replete with evidences of this fact.
Indeed every arrest of social progress is due to the fact that the
inferior who obtained possession of authority have so dominated
the environment as to cut off opportunity for the development of
others, who with favorable opportunities would have been supe-
rior to themselves. Under such conditions not only does the
unfit survive, but its influence tends to perpetuate the reign of the
less fit in two ways. i. By stifling the germs of superiority in
humble classes, and thus cutting off the possibility of its develop-
ment and actualization. 2: By stereotyping the character of the
successful in giving it a monopoly of power and position. 'This
is what took place in ancient Egypt, Greece, and Rome, and in
mediaeval Europe, where both religious and civil authority was
exercised to cut off all opportunity for the development of char-
acter in those classes of the community not recognized as noble
or royal. The masses, who have ever constituted the laboring
classes, have been regarded as an inferior portion of society.
Their social inferiority has not only been made a reason for
their exclusion from social power and authority, but by destroy-
ing the opportunity for actualizing their best possibilities it has
been made the means of preventing their development and thus
keeping them inferior. Laissez faire, therefore, is literally im-
possible in society. There can be no choice between natural
selection and human selection, but only a choice between scien-
tific human selection and ignorant human selection ; not between
government and no government, but only between wise or un-
wise government interference.
The chief fallacy underlying the doctrine of laissez faire is a
ECONOMIC COMPETITION. 293
mistaken notion regarding the nature of competition. Because
competition is rivalry between contending units it is assumed
that all rivalry is competition, and hence that free competition
is simply an unrestrained struggle for existence. As we have
already seen, unrestrained struggle may and often does mean
repression and despotism instead of development and freedom.
It is entirely true that competition is indispensable to develop-
ment, but in order to have competition that develops instead of a
struggle that destroys, rivalry must take place under conditions
which make the object sought reasonably possible to either con-
testant. There can be no advantageous competition where the
prize is impossible to one and certain to the other. Such an
unequal struggle instead of developing the highest possibilities
of both competitors, inspires neither contestant to do his best.
To have effective competition the contest must be of such a
character as to compel the winner and inspire the loser to the
maximum degree of effort. This can only occur when the contest
takes place between approximately equal competing units. Com-
petition between unequals necessarily tends to crush rather than
develop the weaker, although he possesses all the potential possi-
bilities of superiority.
Take, for instance the child of the poor laborer and that of the
wealthy merchant. The former is sent to the factory or mine
without any education or opportunity for social development ; it
is reared in an atmosphere of ignorance, brutality and vice, while
the latter receives all the education and incentives for culture
that wealth and leisure can supply. When these two children
grow up, can there be any inspiring competition between them as
citizens for social position, public confidence, or even in the
sphere of business, where education and mental training are
necessary, indeed anywhere outside the sphere of manual labor ?
The difference between them in this respect, which nothing but
a difference in their opportunities creates, instead of inspiring
both to do their best, will naturally create a feeling of shrinking
inferiority in the one and an undue feeling of superiority in the
other. These two opposite feelings necessarily tend to give the
power of authority to the latter and the submissive position to
the former.
Clearly therefore instead of laissez faire necessarily securing
294 NECESSITY OF OPPORTUNITY.
free competition and " the survival of the most fit," it is the
policy which in society is most likely to prevent free competition
and to promote the survival of the less fit. It is an indispensable
condition to free competition and the maximum development of
the competitors, that the contest should be between approxi-
mately equal competing units. To secure approximate equality
among competitors and hence the success of the superior, we
must secure to each the opportunity for developing his best
possibilities. In other words, to obtain the inspiring influence of
free competition and to develop instead of crushing the potential
capacity of the individual we must substitute scientific states-
manship for ignorant authority. The question of statesmanship
then is not whether or not the state shall interfere in the affairs
of society, this it is sure to do so long as society exists, but
upon what principle it shall act in order to promote maximum
prosperity and freedom in the community. This involves a con-
sideration of the economic and social functions of government,
which will be the subject of the next chapter.
CHAPTER II.
THE STATE ; OR, THE NATURE AND FUNCTION OF
GOVERNMENT.
SECTION I. What is the State?
IT is very common to use the term state as if it were synony-
mous with society. That such a use of the term is too indefinite
for scientific purposes becomes apparent the moment we attempt
to consider the functions of the state. It is essential to the idea
of society that there be more or less social intercourse- and inter-
dependence among the individual units having some recognized
common centre of interest and action. This is not true of all
mankind. The human race is divided into groups or nations
composed of individuals who have more or less social and indus-
trial affinity. There is a great diversity of feeling, interest, and
action within these groups, but each group has a common inter-
est and will take common action as distinguished from any other
group or nation. The maintenance of this common interest we
call patriotism. Society therefore may be defined as an aggre-
gate of individuals in any group, nation, or tribe. We cannot
speak of the functions of this aggregate, because in its entirety
society never acts. Even under pure communism, where the
greatest uniformity of the units prevails, children, minors, and
usually though not necessarily, women are excluded from active
participation. Thus society as an aggregate never acts except
through a more or less extended representation by which a
portion acts for the whole. This representative portion, large or
small, constitutes the state as distinguished from society ; it is the
largest acting aggregate, and the individual is the smallest acting
unit.
295
296 NO ABSOLUTE RIGHTS.
The state then may be defined as the conscious authoritative
expression of society. Since the aggregate is greater than, and
includes the individual, the authority of the state necessarily in-
cludes and is superior to that of the individual. The state then
not only represents the authoritative action of the aggregate
(society) as distinguished from that of the individual, but its
authority is necessarily absolute over both the individual unit
and social aggregate.
We often hear such expressions as " absolute rights," " inalien-
able rights," etc. Strictly speaking, there are no such rights in
society ; not only the right to " liberty and the pursuit of happi-
ness," but even the right to life in society is necessarily subject
to the will of the aggregate, as authoritatively expressed in the
state or government. This is indispensable to the existence of
society. Society being an association of individuals whose im-
mediate interests are not always identical and whose conceptions
of the equity of their relations are frequently very different, the
existence of a power superior to both, whose authority shall be
absolute, is indispensable to social order. All rights of the indi-
vidual in society therefore, must in the very nature of the case,
be conditional. Absolute individual rights are a social impossi-
bility.
It is equally indispensable that these conditions should be de-
termined and enforced by the collective authority, the state,
since nothing short of that would command the confidence, sup-
port, and obedience of the individual units. While the authority
of the state is always absolute over both individual units
and the social aggregate, it always represents a consensus of
both. Although the state is always representative, it does not
always represent in the same manner, nor derive its authority in
the same way. In some stages of society collective authority
is all invested in one person, as in the chief of primitive tribes,
and forms an absolute despotism. This is sometimes due to
superior physical force, and sometimes to a fiction of divine ap-
pointment. In other stages of society authority is invested in
a number of individuals by hereditary descent, forming an aris-
tocracy or constitutional monarchy, and in others it is vested
in a still larger number, chosen by popular vote, forming a
democratic republic. But in every case the state represents the
ALL GOVERNMENT REPRESENTATIVE. 297
authority of the aggregate. The Czar's proclamation is not the
act of a mere individual, but the recognized authoritative expres-
sion of Russia. The Pope's edict is not the voice of an individual
Italian, but that of the Church.
It may be said that one-man-power, as represented by a shah,
a sultan, a czar, or a pope, is not representative but despotic.
It is indeed despotic, but it is also representative. Representa-
tion is to speak and act for others authoritatively. In this sense,
despotism is no less representative than is democracy, but its au-
thority to act for others is acquired in a different way. The
essence of all collective or state authority is that the government
derives its "powers from the consent of the governed." The ab-
solute authority of the despots who rule Persia, Russia, and
Turkey rests upon the consent of the governed as completely as
does that of the President or Congress in democratic America. If
the Czar of Russia had not the consent and confidence of the
Russians, his proclamations would have no more authority in
Russia than would those of any other individual. It is because
they recognize his fitness to rule (to act for them) that they obey
and support him. Their confidence may be misplaced, or may be
due to a superstitious belief in his divine appointment as the
head of the church and ruler of the nation ; but whatever the
reasons, their confidence and consent are none the less complete,
as is shown by the fact that they will not only work for him and
worship him, but will by the millions fight and die for him. The
only difference between despotic and democratic representation
is that through poverty, ignorance, and superstition, the consent
of the governed under despotism is given by silent acceptance of
their rulers as inherently fitted and divinely appointed to govern,
while under democracy this consent can only be obtained through
the volitional action of the individuals. Thus the essential dis-
tinction between despotism and democracy is not that the latter
is more representative than the former, but that it is more
elective. Poverty, ignorance, and superstition make political and
social incapacity inevitable, which in turn make elective represen-
tation impossible.
Just in proportion as the individual units of a community be-
come more intelligent and positive in character, does their con-
sent to the authority of the state become less dependent upon
298 ELECTIVE REPRESENTATION.
traditional usage and supernatural injunction, and more de-
pendent upon individual judgment. Hence it changes from
silent acquiescence to conscious choice, and then the repre-
sentative function of the state becomes less hereditary and more
elective in character. In such countries as Persia, Turkey, and
Russia the consent of the governed to the authority of gov-
ernment consists entirely in silent acquiescence, while in such
countries as Austria, Italy, and Germany, where material condi-
tions and the intelligence of the people are more advanced, there
is a limited amount of elective representation. In England the
elective principle is still more general, and in America it is most
general of all, being directly or indirectly applied to every branch
of government. But there is no country in which the repre-
sentation is all elective. Even in democratic America women are
still excluded from elective representation. The state, or col-
lective governing authority, sustains exactly the same representa-
tive relation to women in the United States as does that of the
Czar of Russia or the Shah of Persia to the whole people of those
countries. Hence the state, whether despotic or democratic, is
always the authoritative expression of the aggregate.
This is only another form of stating the principle so frequently
emphasized in these pages namely, that all social institutions
rest upon the habits and social character of the people. Society,
therefore, differs from the individual, in that it represents a
literal aggregate of which individuals are the units. The
state differs from society and from the individual, in that it is
the representative collective action of both, and its authority is
absolute over both. In short, the state expresses authoritative
social policy.
SECTION II. The Relation of the State to the Individual in
Progressive Society.
In order to ascertain the true relation of the state to the indi-
vidual, it is necessary, first of all, to examine the structural con-
stitution of society. This brings us directly to the question, is
society a higher organism, for whose preservation and develop-
ment the individual units are the tributary means, or is it an asso-
ciation created by and utilized for the preservation and develop-
ment of the individual units composing it ? Upon the answer to
GREEK IDEA OF SOCIETY. 299
this question depends the character of statesmanship and the
governing principle by which public policy should be shaped and
directed. If society is an organic entity, to whose development
the individual is subordinate and simply tributary, then the true
public policy would be to increase the functions of the state and
limit the sphere of individual action and authority. And con-
versely, if the development of the individual is the end to pro-
mote which society is only a means, the true public policy
would be to so mould and direct public institutions as to increase
the functions, responsibility, and authoritative sphere of the indi-
vidual, and to diminish those of the state. It will be observed
that these two conceptions of the relation of the state to the indi-
vidual logically lead to opposite theories of statesmanship, the
one towards socialism and the other towards individualism.
It is a peculiar feature of sociological literature that both
socialist and individualist writers assume that society is an organic
entity, and that it sustains the same relation to individuals
that the individual organism does to the parts of which it is com-
posed. This was the controlling idea of the Greeks and Romans,
who regarded the state as every thing and the individual as noth-
ing, except as he served the state. In his ideal republic, Plato
makes the state stand for a great personality, in whom the differ-
ent social classes are simply the functions. The ruling class, the
military class, and the industrial class are presented as corre-
sponding to the faculties of reason, will, and passion or force in
the human organism. Upon this point at least, it may be truly
said that all that has been written during the last two thousand
years has been simply Platonizing. Hobbes endeavored to es-
tablish literally by minute detail what Plato only introduced in
general outline, by making society a colossal artificial man. He
not only made certain classes of the community correspond to
the reason, will, and passion of the human organism, but he went
so far as to divide society into limbs, joints, nerves, memory, con-
science, and even ascribed to it a soul. 1
This idea, with some qualifications eliminating the minutiae of
detail introduced by Hobbes, is reaffirmed and extensively elabo-
rated on the basis of modern science, by Herbert Spencer.
1 See preface to his " Leviathan ; or, The Matter, Form, and Power of a Com-
monwealth, Ecclesiastical and Civil."
3OO SOCIAL ORGANISM THEORY.
Therefore Rodbertus had the full warrant of the continuous
teachings of philosophy from Plato to Spencer for his basic-
socialistic postulate that " the community is the end in itself. In-
dividuals are only the means for the promotion of social well-
being ; they are in no sense ends in themselves." 1 From this
point of view he logically held that public policy should constantly
be directed towards putting the ownership of property, especially
the means of production into the hands of government. This
idea has been more thoroughly developed by Karl Marx,
who endeavors to show that from the nature of economic
phenomena the ownership of the means of production can only
reside in the community, which theory is made the basis for
public policy by all shades of socialists. That socialists should
readily accept the traditional theory is not surprising, because it
sustains their a priori assumption that the state should do every
thing. But with Mr. Spencer the case is quite different, as he is
the most extreme representative of the individualist school.
He regards socialism as slavery, 2 and state ownership and con-
trol of industrial enterprises as inimical to progress. Now
the supremacy of industrial individualism is incompatible with
the existence of a social organism. The question, however, is not
whether Mr. Spencer's position on the organic structure of society
is consistent with his theory of individualism, but whether it is
scientifically and philosophically sound. This is the more im-
portant, because Mr. Spencer stands pre-eminently for the scien-
tific method of investigation. Indeed, his conclusions upon this
point are regarded as the sociological embodiment of the doctrine
of evolution, and may be taken as representing those of evolu-
tionists generally upon this subject. The fact that Mr. Spencer
occupies this leading position in the world of scientific sociology
makes a careful consideration of his position on this subject of
the utmost importance. In setting forth his reason for conclud-
ing that society is an organism, he says :
11 So completely, however, is a society organized upon the same
system as an individual being, that we may almost say there is
something more than analogy between them. . '. . A still more
remarkable fulfilment of this analogy is to be found in the fact,
1 Political Science Quarterly, September, 1889, p. 546.
2 " The Coming Slavery," Popular Science Mnnthly, April, 1884.
SPENCER'S THEORY OF SOCIETY. 30!
that the different kinds of organization which society takes on, in
progressing from its lowest to its highest phase of development,
are essentially similar to the different kinds of animal organi-
zation."
After a detailed illustration of the similarity between society
and an individual organism, he says :
" Thus do we find, not only that the analogy between a society
and a living creature is borne out to a degree quite unsuspected by
those who commonly draw it, but also that the same definition of
life applies to both. Thus the union of many men into one com-
munity ^this increasing mutual dependence of units which were
originally independent this gradual segregation of citizens into
separate bodies, with reciprocally subservient functions this for-
mation of a whole consisting of numerous essential parts this
growth of an organism, of which one portion cannot be injured
without the rest feeling it may all be generalized under the law
of individuation. The development of society, as well as the de-
velopment of man, and the development of life generally, may be
described as a tendency to individuate to become a thing. And
rightly interpreted, the manifold forms of progress going on around
us are uniformly significant of this tendency." l
In a later work, 2 Mr. Spencer discusses the social organism at
still greater length and defends his conception from the inconsis-
tencies of the Greeks and also against those of Hobbes. After
criticising these writers, he says :
" Notwithstanding errors, however, these speculations have
considerable significance. That such analogies, crudely as they
are thought out, should have been alleged by Plato and Hobbes
and many others, is a reason for suspecting that some analogy
exists. The untenableness of the particular comparisons above
instanced is no ground for denying an essential parallelism ; for
early ideas are usually but vague adumbrations of the' truth.
Lacking the great generalizations of biology, it was, as we have
said, impossible to trace out the real relations of social organiza-
tions to organizations of another order."
He then discusses the points of general analogy between
society and living organisms, which he sums up by saying :
1 " Social Statics," pp. 490, 493, 497. See also " First Principles," pp. 408,
413, 433-437-
2 "Illustrations of Universal Progress," chap. x.
* Ibid., p. 391.
302 SOCIETY AND LIVING BODIES.
" Thus we find but little to conflict with the all-important
analogies. . . . The principles of organization are the same ;
and the differences are simply differences of application. Here
ending this general survey of the facts which justify the com-
parison of a society to a living body ; let us look at them in
detail." '
After devoting thirty pages to the discussion of details sustain-
ing this analogy he concludes by saying :
" Such, then, is a general outline of the evidence which justifies,
in detail, the comparison of societies to living organisms. That
they gradually increase in mass ; that they become little by little
more complex ; that at the same time their parts grow more
mutually dependent ; and that they continue to live and grow as
wholes, while successive generations of their units appear ar>d
disappear, are broad peculiarities which bodies politic display,
in common with all living bodies, and in which they and living
bodies differ from every thing else." *
It will be seen from the foregoing that although Mr. Spencer
objects to Hobbes' presentation of the analogy between the social
and the human organization, he quite as emphatically holds to
the conclusion that society is an organism, whose organic struc-
ture is fundamentally the same as that of animal organisms. If
this be correct, it of course follows that the relation of the units
to the aggregate is the same and that the order of progress in
society is the same as in the animal organism. In short, that a
biological hypothesis adequately explains sociological phe-
nomena.
The fact that a theory correctly accounts for one class of phe-
nomena does not warrant its application to another, unless it can
be shown to adequately explain the new phenomena independently
of its use in any other field of investigation. If we examine
social phenomena independently of biological hypothesis, we
shall find : (i) That although there is a general resemblance be-
tween society and the animal organism, the difference between
1 " Illustrations of Universal Progress," pp. 397, 398.
* Ibid., p. 428. That this represents Mr. Spencer's views upon the subject is
shown by the fact that it is repeated in his latest utterances. See " Sociology."
Also correspondence with Huxley in the Times, September, 1889, republished in
the Popular Science Monthly, February, 1890.
SPENCER'S POSTULATES. 303
them is sufficiently radical and fundamental to destroy the basis
for the conclusion that society is an organism. (2) That such an
assumption is not necessary in order to apply the theory of evo-
lution to social phenomena.
It is unquestionably true that there are many points of re-
semblance between society and individual organisms, and so there
are between individual organisms ajad inorganic bodies. The
question, therefore, is not whether there are any points of agree-
ment between society and an organism, but whether the points of
agreement are sufficiently numerous and fundamental to make
them constitutionally identical. Mr. Spencer presents four char-
acteristics in which society resembles an individual, which he re-
gards as sufficiently fundamental to warrant the classification of
society as an organism ; they are :
" i. That commencing as small aggregations, they insensibly
augment in mass : some of them eventually reaching ten thousand
times what they originally were.
" 2. That while at first so simple in structure as to be con-
sidered structureless, they assume, in the course of their growth,
a continually-increasing complexity of structure.
" 3. That though in their early, undeveloped states, there exists
in them scarcely any mutual dependence of parts, their parts
gradually acquire a mutual dependence, which becomes at last so
great that the activity and life of each part is made possible only
by the activity and life of the rest.
" 4. That the life and development of a society is independent
of, and far more prolonged than, the life and development of any
of its component units, who are severally born, grow, work, re-
produce, and die, while the body politic composed of them sur-
vives generation after generation, increasing in mass, completeness
of structure, and functional activity." '
There can be little doubt that in these four characteristics
society resembles the animal organism ; nor can there be any
doubt that the first two apply with equal force to inorganic de-
velopment. These are as true of the development of inorganic
substances as they are of the growth of plants, animals, or society.
If, therefore, we are to assume that society is an organism because
in these general and important respects it resembles an individual,
then may we not say that vegetable and animal bodies are in-
" Illustrations of Universal Progress," pp. 391, 392.
304 SPENCER'S ERROR.
organic, because, in these fundamental characteristics they re-
semble inorganic bodies ; and vice versa. If we should attempt
to draw any such conclusion, Mr. Spencer would soon correct us
by pointing out that the lower we go in the scale of development
the greater is the simplicity and similarity of form. And thus,
while in the first two characteristics animal organisms are similar
to those of inorganic bodies, in the last two they greatly differ ;
for, though mineral substances like organisms, increase in mass
and complexity of structure, they do not develop the functional
dependence of parts exhibited in the individual organism. 1
If the fact that the individual organism has functional activi-
ties different from those of inorganic bodies, establishes the
distinction between their classification as organic and inorganic,
it follows that a similar difference between the constitution of
society and that of an individual organism equally warrants a dis-
tinction in their classification. If we examine the constitution of
society and the individual organism, we find the following radical
distinctions which are quite as great as those between organic
and inorganic bodies as pointed out by Mr. Spencer.
I. In an individual organism progress consists in the differ-
entiation and specialization of functions in which the aggregate
tends to gain a more complete control over the action of the parts,
such as eyes, ears, teeth, tongues, feet, hands, etc., whereas in
society progress consists in a differentiation of functions and
definiteness of polity in which the parts constantly tend to acquire
an increasing control over the action of the aggregate.
II. In an individual organism the end of the parts is to serve
and sustain the aggregate or organism, and when they fail to
serve that end they become atrophied and disappear, whereas in
society the end of the aggregate is to serve and sustain the
individual units.
III. In an organism, where consciousness and intelligence exist,
they reside in the aggregate and never in the parts ; whereas in
society consciousness and intelligence reside always in the parts
and never in the aggregate. Indeed, the social aggregate has
none of the attributes of a conscious entity.
1 ' ' Even such inorganic bodies as crystals, which arise by growth, show no such
definite relation between growth and existence as organisms." " Illustrations of
Universal Progress," p. 392.
SOCIETY NOT AN ORGANISM. 305
IV. In an organism the existence of the parts is subsequent to,
dependent upon, and developed through the unconscious action of
the aggregate ; whereas in society the aggregate and its polity or
representative action, is subsequent to, dependent upon, and de-
veloped through the conscious action of the parts.
V. In an organism the influences which promote differentiation
of function must operate upon the aggregate or organism, and
through it affect the parts ; whereas in society the influences
which promote differentiation must operate upon the paits or in-
dividual units, and through them affect the constitution of the
aggregate anoVits active polity.
VI. In society conscious wants, intelligence, and will, are the
characteristic attributes of the units through which all the in-
fluences affecting the differentiation of the social aggregate
must finally act ; whereas in the individual organism the units
have no such characteristics ; where these characteristics exist at
all they are the attributes of the aggregate and not of the units,
and in the lower forms of animal and all vegetable organisms
they do not exist at all.
It will thus be seen that, despite the general resemblance be-
tween society and an individual organism, the difference in the
functional relation of the parts to the aggregate, and the order of
their development, is quite as marked and more fundamental
than that between organic and inorganic bodies. The differ-
ence between the organic and the inorganic consists mainly in
the fact that the complexity of structure and interdependence of
the parts are greater in the former than in the latter ; whereas
the difference between society and an organism consists in the
fact that the units sustain an opposite relation to the aggregate,
and that progressive differentiation is in an opposite direction :
in society the tendency being to increase the conscious control
of the parts over the aggregate, and in an organism to increase
that of the aggregate over the parts. So far from being an
organic entity, society is only the systematized environment of
associated individuals by whom and for whom it is created, and
upon whose state of industrial, social, and intellectual develop-
ment its existence, form, and character depend.
Nor is this view inconsistent with the doctrine of evolution.
This theory does not involve the assumption that society is an
306 SOCIAL PROGRESS UNLIKE PHYSICAL.
organism. Evolution simply implies a progressive movement
from a less to a more definite, coherent, orderly state of existence.
But it does not follow that the more complex form must neces-
sarily be organic ; since in that case inorganic development would
not be evolution. Although evolution implies a greater definite-
ness of functional relation, it does not necessarily mean the
individualization of the aggregate. It is not strictly correct
therefore, to say " the development of society as well as the de-
velopment of men and the development of life generally may be
described as a tendency to individuate to become a thing." So-
ciety does not tend to become a thing, in the sensof an organic
entity. Progress in society is not a tendency to individualize the
social aggregate, but rather to de-individualize it, making its
action more and more the consciously delegated expression of
the individual. Indeed, the only individuality which social prog-
ress develops is in the units ; institutions are specialized, but
man only is individualized as an organic entity. If we regard
society as an association of individuals for their common protec-
tion and further development, the theory of evolution becomes
rationally applicable to social as well as organic and inorganic
phenomena. From this point of view the assumption that society
is an organism is unnecessary, and the anomaly of creating a
colossal social man with increasing despotic power over the
individual disappears. Social progress then is seen to be an
orderly movement towards greater individual perfection, and per-
sonal freedom for man, which accords with universal history.
So far as human knowledge goes, the highest individual or-
ganism yet developed is man. In every stage of physical
development, from the most incoherent homogeneous form
known or inferred, the movement has been towards higher and
more complex types of formation, each of which tended to make
the existence of the next possible. And the crowning product
of the whole series of inorganic and organic evolution is man.
With the appearance of man began another phase of develop-
ment which was neither inorganic nor organic, but SOCIAL.
Progress in this sphere does not consist in the unconscious
differentiation of an inorganic mass, nor in that of a living
organism, but in a systematization of the environment and
specialization of the efforts of individuals, which results in a
SPENCER UNWITTINGLY SOCIALISTIC. 307
further development of the individuality of the units. It thus
appears that man occupies the objective or crowning position
in both physical and social evolution ; with this difference
however : in the physical world he presents the highest
type of an organic aggregate, and in society he occupies the
position of a unit. Thus although evolution is fundamentally
the same in society as in the physical world, in that it is a move-
ment from the simple to the complex, the order of development
is reversed ; in the physical world, it is a subordination of
the parts to the perfection of the aggregate, and in society it
is a subordination of the aggregate to the perfection of the
units. In order therefore, to complete Mr. Spencer's statement,
that " the development of society as well as the development of
man and the development of life generally, may be described as a
tendency to individuate to become a thing," we must add,
that this individuating tendency ends in the greater individual-
ization, not of society, but of man physically as an organism,
and socially as a sovereign personality.
It is evident, therefore, that the Greek and Roman conception
that the state is every thing, the individual nothing ; and the
socialistic position logically deduced therefrom, that " the com-
munity is the end in itself, individuals being only the means for
the promotion of social well-being, and in no sense ends in them-
selves " ; and Mr. Spencer's assumption that " society is an organ-
ism," are essentially erroneous. In this, as in all other cases of
reasoning from mistaken hypotheses, the error only becomes
important when the theory is made the basis of action. Like
many of the immature postulates of the English economists,
already referred to, Mr. Spencer's theory of a social organism
unwittingly lays the logical basis for state socialism, a theory
which he himself regards as the greatest of modern fallacies.
The difference between Rodbertus and Mr. Spencer is precisely
the same as the difference between Marx and Ricardo. 1 Marx
arrived at the conclusion that profits are robbery by the logical
application of the Ricardian postulate that the quantity instead
of the cost of labor determines value. And Ricardo avoided the
fallacy of Karl Marx only by failing to consistently apply his
own postulate. So the theory of state socialism developed by
1 Part III., chap. vi.
308 PROFESSOR CLARK'S VIEW.
Rodbertus is logically sustained by the Spencerian postulate that
society is an organism, and Spencer avoids the fallacy of social-
ism only by disregarding his own hypothesis.
We are therefore warranted in concluding that society is not a
colossal " artificial man," as affirmed by Hobbes, nor an " organ-
ism " as affirmed by Spencer, nor an " end in itself," as affirmed by
Rodbertus ; but on the contrary, that it is an association of indi-
viduals as a means for the promotion of individual well-being.
Indeed the history of government is the history of making
and unmaking social institutions in order to render them more
subservient to the needs of the social life of the individual.
Nor is this view confined to Spencer and the socialists, but it
is beginning to be accepted by liberal economists. Thus in his
chapter on " The Basis of Economic Law " Professor Clark says :
" The analogy between society and the human body was familiar
to the ancients. It is a discovery of recent times that a society
is not merely like an organism ; it is one in literal fact. . . .
Political economy treats not merely of the wealth of individuals
who sustain complicated relations with each other, but of the
wealth of society as an organic unit." '
In a subsequent chapter (" Theory of Value ") he makes this
social organism into an active contracting personality who buys
every thing from the individual and sells every thing to him, and
says :
" Exchanges are always made between an individual and society
as a whole. In every legitimate bargain the social organism is a
party. Under a regime of free competition, whoever sells the
thing he has produced, sells it to society. His sign advertises the
world to come and buy, and it is the world not the chance
customer that is the real purchaser. Yet it is equally true that
whoever buys the thing he needs, buys it off society. ... In the
process the social organism is true to its nature as a single being
great and complex, indeed, but united and intelligent. It looks
at an article as a man would do, and mentally measures the
modification in its own condition which the acquisition of it
would occasion, or which the loss of it wowld occasion, if once
possessed." a
It will thus be seen that according to Professor Clark society
is not merely an organic entity, but it is a single intelligent be-
1 " Philosophy of Wealth," pp. 38, 39.
2 Ibid., pp. 85, 86.
CONFOUNDING METAPHOR WITH FACT. 309
ing. If the analysis of the economic relation of individuals to
society presented by Professor Clark is correct, then economic
collectivism is scientifically sound and should be accepted as
the basis of industrial statesmanship. But is the analysis correct ?
Is it true that " exchanges are always made between individuals
and society as a whole " ? Do such economic relations actually
exist ? Where, how, and under what conditions does society "as
a whole " buy wheat, potatoes, shoes, clothes, furniture, etc., from
individuals ? When farmers and manufacturers take their
products to the market they do not sell them to society, but
to individuals, who invariably purchase them either for their
own consumption or to resell them to other individuals. Nor
does society, as an organism of which individuals " are but atoms,"
consume any of these products. They are consumed by indi-
viduals, and by individuals only. Neither is the statement that
" his sign advertises the world to come and buy, and it is the
world and not the chance customer that is the real purchaser,"
any nearer correct, if the term world is used in any other sense
than the individuals in the world.
The social market simply expresses the aggregate consumption
of individuals constituting any social group. Neither is there
any truth, except as a metaphor, in the statement that " the social
organism is true to its nature as a single being, great and complex,
indeed, but united and intelligent. It looks at an article as a
man would do, and mentally measures the modification in its own
condition." Society, as an entity, does nothing of the kind. All
the " mental measurement," all the " intelligence," all the con-
scious action, is performed by individuals. A hundred indi-
viduals equally intelligent do not constitute a single intelligence
a hundred times as great as one. An intellectual giant cannot
be made by simply adding mental Liliputians. Intelligence
can only be increased by developing it in the individual organism.
Notwithstanding the immense advantage of society over isola-
tion and it constitutes all the difference between savagery and
civilization, there are no facts to warrant the assumption that
society is a new acting entity, much less an individual organ-
ism. On the contrary, the advantage of society is entirely to
individuals through their association with each other. In short,
society is an association of individuals for the better promotion
3IO THE FUNCTION OF GOVERNMENT.
of their own well-being, and therefore, in studying the law of
economic movement we must have for our basis the individual ;
in no other way can social progress be promoted.
SECTION III. The Function of Government ; or, The Control-
ling Principle in Statesmanship,
Having seen what the state is and the relation it sustains to the
individual, we are now in a position to consider its function as a
factor in civilization. Nor will this be a difficult task, if we bear
in mind the points already established, namely : that the state is
but the representative expression of associated individuals, and
that progress in society is a tendency towards the greater indi-
vidualization of man, both a physical organism and as a sovereign
social personality. As already pointed out, social progress has two
fundamental characteristics ; one is economic, the other social.
The former is a tendency towards more wealth for the individual ;
the latter is towards more freedom for the individual. How to
promote the increase of wealth and freedom for the individual
therefore, is the problem of statesmanship and the end to which
collective authority, or state action, should ever be directed.
In considering this question it should be remembered that
neither wealth nor freedom can be authoritatively given to the
individual ; they must be taken by him. The only way in which
the state can give wealth to the individual is by charity. Wealth
so acquired, instead of promoting freedom, is one of the most
powerful means of preventing it. Charity in any form tends to
create obligation, stereotypes dependence, and thereby destroys
individuality, and makes freedom impossible. The history of
freedom is a history of the increase of the sovereignty of the
individual over his own actions and the diminution of that of the
state. It is sometimes said " that government is best which
governs least." It would be more correct, however, to say that
people is best governed which needs the least government. We
should be careful, however, not to confound freedom with inde-
pendence. The savage is independent of social restrictions, but
he has very little freedom. He is in constant danger of his life
from the defencelessness of his position. He has no friends
because he befriends nobody ; he can obtain no assistance or
protection because he assists and protects nobody. Indeed it is
VIRTUE OF INTERDEPENDENCE. 31!
because he is the least dependent upon his fellows that he is the
most helpless and has the least freedom of any man in the world.
Mutual dependence is the greatest promoter of freedom. When-
ever the freedom of each depends upon the freedom of all, no one
has any interest in preventing it, but every one has an interest in
extending it. Mutual dependence cancels obligation and extends
freedom, while dependence creates obligation and restricts
freedom. It is only when everybody's safety depends upon pro-
tecting the safety of his neighbor that freedom extends along the
whole line of human relations. With the dependence upon
authority the case is entirely different. There the obligation is all
on one side. It is the relation of creditor and debtor, of the
giver and receiver, of the master and ward, and not that of
mutual helpers and the receivers of equivalents. Dependence
upon authority is scarcely less inimical to freedom than non-
dependence upon society. The one involves savagery and the
other despotism. It is only the mutual assistance born of indi-
vidual interdependence that can make the highest social life and
the maximum individual freedom possible. In other words, the
highest individualism promotes the most complete co-opera-
tion of effort, unity of interest, equity of relations, freedom of
action, and complexity of social life. Evidently then, it is the
duty of the state to promote in every way possible the develop-
ment of the individuality of its citizens, increase their mutual de-
pendence upon each other and to decrease their dependence upon
the government. Upon what lines should the public policy be
directed to accomplish this result ? Paternalism fails to promote
this end, because it tends to lessen instead of increase the activi-
ties and responsibilities of the individual. Nothing develops
power but activity, and nothing creates activity but the necessity
for it. We never put forth effort to do for ourselves that which
others will do for us. Since inaction is fatal to progress, the in-
crease of paternalism is necessarily a great barrier to individual
development. Nor is it less erroneous to assume that the sover-
eignty of the individual can best be promoted by merely restrict-
ing the sphere of governmental activities. It would be as correct
to say that the withdrawal of parental care and education from
children is the best means for developing the highest manhood.
The way to increase the sovereignty of the individual is not to
312 BASIS OF PUBLIC POLICY.
arbitrarily lessen the functions of the state, but to make its
activities less necessary. The necessity of state action can be
minimized only by maximizing the capacity of the individual. To
break the egg from without is almost certain to injure if not kill
the chick, but when it is broken from within by the increasing
power of the chick itself, it only breaks when the chick is strong
enough to do without it. So in society ; the authority of the state
over the individual should not disappear by weakening the forces
without, but by increasing those within him. In short, the indi-
vidual is the initial point of social movement.
The more intelligent and highly developed the character of the
individual, the more capable he is of doing for himself and more
reluctant to have others .do for him. Hence, throughout the his-
tory of society we see that the greater the ignorance and poverty
the more marked is the lack of individuality in the social units ;
and the weaker the character of the individual, the more despotic
is that of the government. A most significant fact in this move-
ment is, that this transfer of authority from the state to the indi-
vidual has always been exacted by the individual and reluctantly
yielded by the stale. 1 Indeed it is a fundamental principle in
both nature and society that man can only continuously have
that which he can demand and maintain by force of character.
Therefore the increase of wealth and the freedom of the indi-
vidual must come through influences which tend to envelop his
character, thereby making paternalism less necessary and des-
potism less possible.
It may therefore be laid down as a fundamental postulate in
scientific statesmanship, that the controlling principle in public pol-
icy should ever be to minimize the necessary sphere of governmental
action and authority, and to maximize the possible sphere of individual
action and responsibility. In other words, the function of govern-
ment in all phases of industrial, social, and political life is to
promote the development of the highest possibilities of the
individual.
1 Witness the protracted agitation that is always necessary to extend the rights
of the individual in any direction, the right of individual judgment in religion,
the right to vote, the right for women to own property, the right to hold public
office without regard to religious views, the right to democratic government, the
right for women to vote, even in a Republic, etc., etc.
DISADVANTAGE OF STATE ACTION. 313
In order to understand the lines of action which the application
of this principle involves, it is necessary to consider : (i) Why,
on general principle, individual effort and responsibility are pref-
erable to state action and authority ; (2) What class of things
can be administered better by the state than by the individual ;
(3) What line of public policy should be pursued in order to
maximize the sphere of individual action and responsibility and
thereby minimize the necessity for governmental authority.
i. On general principle, individual action and responsibility are
preferable to state action or collective authority, because they
possess the maximum possibility of directness, efficiency, econ-
omy, and equity. State action, being representative whether
elective or not, is necessarily indirect and arbitrary. Arbitrary
action always involves the maximum amount of inequity and
mistakes, because it is necessarily governed by stipulated rules,
and therefore cannot be modified to suit the great variety of
individual cases. The universal experience of mankind confirms
the assumption that whenever individuals can settle their affairs
between themselves, the adjustment is most likely to be equitable
and mutually satisfactory, and hence the decision of a third
party should always be a matter of last resort.
This does not mean that all courts and other forms of governmen-
tal action, or even war, are unmixed evils ; it only means that they
are necessarily clumsy, because arbitrary means of accomplishing
the desired end. Indispensable as war may have been, and im-
portant as armies, navies, and policemen still are, it is universally
admitted that the less the necessity for using them the better. It
is because of the injustice which always accompanies battle-field
decisions that war diminishes as individuality in the average
citizen increases and civilization advances. The same arbitrary
element runs through all collective action, though it is some-
times indicated in less violent and repulsive forms.
Take, for instance, taxation. How to equitably adjust taxation
has been a perplexing problem since human society began. It
is because taxes are levied by representative authority, according
to some arbitrary rule which is utterly incapable of being adapted
to a very great variety of conditions, that injustice is constantly
being done to numerous individuals and frequently to whole
classes. The same principle shows itself in our best courts
THE DIVIDING LINE IMPORTANT.
of justice, notwithstanding the jury system and the immense
learning of advocates and judges. When a case is given to a
jury the legal limits to their decision are fixed by the judge in
his charge. They may think the defendant morally innocent or
actually justified in his act, but by virtue of a legal technicality
they are forced to vote him guilty and subject him to a punish-
ment which both individually and collectively they would regard
as unjust. And so on through the whole history of legal de-
cisions. It is because of this preponderating probability of legal
inequity that in civil cases wherever disputants can adjust the
difference themselves they are generally encouraged to do so by
the court. State action being necessarily arbitrary, and hence
seldom capable of the highest efficiency, economy, and equity, it
is important to consider what class of things, if any, can natu-
rally be administered by the state better than by individuals, and
vice versa.
2. Since association is better than isolation, and since govern-
ment is necessary to society, it follows that while there are many
things which the individual can do better than the state, there
are some things which the state can do better than the indi-
vidual. How shall we determine between the sphere of state
and individual action ? If we take an extreme case from
either class, there, is no difficulty in deciding to which sphere it
naturally belongs. For instance, if it is a question of determining
one's own religious opinions, we have now no difficulty in deciding
that it belongs entirely to the individual. And on the other hand ?
if it is a question of public defence, such as requires an army and
navy, we have no difficulty in deciding it to be clearly one of
the functions of the state. But when we come to the outer edges
of these spheres of action where they merge together, the line of
demarcation is not so easily observed. Here a new difficulty
arises, because this is not only the point where a wise decision is
most important, but also where the material for making a wise
decision is most difficult to obtain. Although there is no differ-
ence of opinion to-day as to whether or not the individual should
choose his own religion or the government should control the
army, there is an immense difference of opinion as to whether
telegraphs, banks, mines, and railroads should be conducted
by private enterprise or under state control. The difference be-
SPHERE OF INDIVIDUAL ACTION. 315
tween the administration of the post-office and that of the tele-
graph is so slight that public management of the former is made
the basis for demanding state control of the latter. And if we
have nothing upon which to base our decision but the facts in
the two particular cases, it will be very difficult to decide. And
if government control is extended to the telegraph, the question
between that and the railroad becomes equally difficult to deter-
mine. The steps from the railroad to the mine, from the mine
to the farm, from the farm to the factory, are all equally short
and, of themselves, difficult to determine. It is necessary there-
fore, to have some broader generalization upon which to base our
decision than the data which each individual case furnishes. This
can only be found by viewing each individual case in the light of
the general class to which it belongs. Since in the progress of
society there is a constant tendency to transfer functions from
one sphere to another, it is in the distinctive characteristics of
these functions that we must seek the principle governing the
line of demarcation between the proper sphere of state and indi-
vidual authority, and thus be able to establish a scientific basis
for determining whether or not in any given instance the sphere
of state action should be extended or restricted.
If we study the evolution of society from its homogeneous
form, in which every thing was done by authority, to its present
highly complex state, where most things are done by individual
enterprise, we can readily see the leading characteristics of those
functions which tend to pass from the state to the individual and
those which tend to become recognized as distinctively the func-
tion of government. Among the things which have indisputably
passed to the sphere of individual authority are the right to per-
sonal freedom, the selection of one's partner in life, and the
charge of one's own children, the right of free speech, and of
making industrial contracts.
The reason why these are relegated to the individual is that in
all such cases there are many subtleties in which the individual
is more directly interested, and about which he is more com-
petent to decide than any third party can possibly be ; and these
subtleties increase with the advancing complexity of social rela-
tions. Moreover in many of these intricate personal relations
the decision must be made at once in order to be effective,
316 SPHERE OF STATE ACTION.
and therefore can be made only by the individual himself.
The arbitrary, red-tape character of government action neces-
sarily precludes complete knowledge of detail and the prompt
action necessary in such cases. Although no individual is yet
perfect in this regard, he has infinitely greater possibilities of be-
coming so than any form of representative authority can pos-
sibly have.
This is equally true of economic relations. In the early stages
of society, when industry was very simple, being practically
limited to agriculture, with crude hand-methods of production, it
could be conducted by collective authority. But as wants were
multiplied and occupations differentiated, economic relations
grew more involved, and a more special knowledge became
necessary, which made arbitrary administration very much less
efficient. Consequently the ownership of property and the
administration of productive enterprise gradually pass from
public to private ownership and control, or from the sphere of
state to that of individual authority, in proportion as the division
of labor, the concentration of productive effort, and the social
freedom of the individual increased.
On the other hand, although governments have radically
changed their character, certain functions have been relegated
to them by common consent. Among these are protection
against a common enemy, the maintenance of public order, the
protection of individual rights, the enforcement of contracts, the
administration of justice, the maintenance of public roads, canals,
bridges, parks, museums, libraries and the enforcement of sanitary
regulations. Nor is the reason for this difficult to understand.
The administration of the army, navy, police, and the like, is pre-
eminently the function of the state, because in such things effec-
tiveness lies in the maximum aggregation of physical force, and
this can be best obtained by all acting as one man under a single
leader. Indeed the most perfect military force involves the
maximum despotism and the minimum individuality, and hence
can always be exercised most efficiently by arbitrary authority.
The maintenance of public order, the enforcement of contracts,
and the administration of law are also functions which can be
best performed by the collectivity, for the reason that it acts
uniformly for all, and its decisions are backed by the power of
PUBLIC AND PRIVATE FUNCTIONS DEFINED. 317
all. Nor does the development of individual character tend to
transfer the functions of the soldier, the policeman, the judge,
and the jailor from the authority of the state to that of the
individual. On the contrary, while it tends to make these
functions unnecessary, so long as they are needed they can be
better performed by the state than by the individual.
The same is true of public highways, such as roads, canals,
bridges, sanitary regulations, etc. They are common conven-
iences which everybody needs, and their management is of the
simplest character. To keep such public conveniences in repair
calls for no special skill, and changes in method are so slow and
infrequent that no inconvenience is experienced by having them
under control of routine authority. Although unlike military
and police functions, these do not diminish but steadily increase
with the advance of civilization, there is no tendency to put
them under individual control. The reason for this is that while
these can be managed as well by the state as by the individual,
the former has the additional advantage of giving greater freedom
to travel by obviating the inconvenience of direct payment in the
form of tolls, etc. And since these functions relate only to
securing the maximum safety and convenience to individual
enterprise and mobility, there is no incentive for individuals to
undertake them because they have no interest in doing so.
It may therefore be laid down as a general principle, that in
proportion as social functions are complex, variable, and personal
in their nature and interest, requiring instant decisions and
expert skill, individual management is superior to state author-
ity, and conversely, only in proportion as functions are simple,
permanent, and arbitrary in their character, and impersonal in
their nature and interest, can they be efficiently performed by
the state. In other words, the functions of the state are
essentially protective, judiciary, educational, and impersonal in their
nature ; hence, all economic and social functions which are
essentially personal, productive, commercial, or experimental in their
nature properly belong to the sphere of individual action and
responsibility.
3. This brings us to the consideration of the third proposition,
namely, what line of public policy should be pursued in order to
maximize the sphere of individual action and responsibility, and
318 PROTECTION AND PATERNALISM.
thereby minimize the necessity for governmental authority. The
doctrine that the state should do for the individual only such
things as he cannot do as well for himself, of course implies that
it should continue to do all those things which it can, under exist-
ing conditions, do better than he. Hence, it does not follow that
because the natural functions of the state are protective, judiciary,
educational, and impersonal, that it should never perform any
others. On the contrary, the state must continue to do whatever
the individual is incapable of doing as well. The state should re-
linquish no function until it can be performed as well or better by the
individual ; otherwise many social duties would be abandoned alto-
gether and progress greatly retarded. Paternalism in government is a
necessary substitute for individual capacity, and consequently increases
as we descend and diminishes as we ascend the scale of civiliza-
Therefore, whenever it is necessary for the state to perform
paternal functions doing for the individual, it should always
be regarded as a temporary duty, to be transferred to the indi-
vidual as rapidly as he acquires the capacity to perform it. In
.the last analysis then, while it is the duty of the government to
do those things for the individual which he cannot do as well
for himself, the governing principle in public policy should
ever be to protect and enlarge those OPPORTUNITIES, and
to promote those influences which tend to develop the highest possibili-
ties of the individual to do for himself.
There is one other point worthy of note before passing to the
application of this principle to the various phases of industrial
and social life namely, the importance of distinguishing between
paternal and protective functions. This distinction is indeed in-
dispensable to scientific statesmanship. To confound the pater-
nal with the protective principle in government is to destroy all
philosophic basis for a public policy, yet this is commonly done
by many of the ablest writers. For instance, such writers as
Senior, Spencer, and the leading English economists oppose
state regulation of the hours of labor, the sanitary conditions of
workshops, employment of women and children in mines and
factories, compulsory education of factory children, and free
public schools, as being paternal legislation. They thus fail to
recognize any difference between the policy of furnishing the
DISREPUTE OF ENGLISH ECONOMICS. 319
child with wholesome sanitary surroundings and an education,
and that of furnishing him with food, clothes, and shelter. 1
It is really this unphilosophic opposition to reform which has
brought the doctrines of the English school into such disrepute
among the more liberal and sympathetic portion of the commu-
nity, and which in its reaction has given much plausibility to
socialism. Indeed it has made individualism the synonym for
anti-reform and its antithesis socialism the means of reform.
Orthodox economists reason that because paternalism is in-
jurious, protection should be abandoned; while, on the other hand,
socialists conclude that because protection has been advanta-
geous individualism should be abandoned and paternalism
adopted. By overlooking the distinction -between protection
and paternalism, we are logically driven to one of two unscien-
tific theories of statesmanship laissez faire or socialism.
The distinction between paternalism and protection is that a
paternal policy implies doing the maximum for the individual,
while a protective policy implies providing the individual with the
maximum opportunity to do for himself. If this difference were
clearly recognized the obvious error in the anti-reform atti-
tude of let-aloneism and the stultifying influence of paternalism
would be obviated. The duty of the state as essentially pro-
tective and educational in the widest sense of the term would
be easily understood. With this as the basis of public policy, the
state can always be scientifically used as a means of promoting
progress without hindering the growth of individual freedom.
1 This mistake is strikingly illustrated by Buckle in his able arraignment of
what he calls the protective spirit in France as contrasted with the non-protective
spirit in England. The truth is, however, that what Buckle was denouncing in
France as protection, was paternalism. It was a reign of bureaucracy in which
the state endeavored to do the maximum for the individual instead of enabling
the individual to do the maximum for himself. The contrast was not between
protection in France and laissez faire 'in England, but a contrast between pater-
nalism in France and protection in England. See " History of Civilization,"
vol. i., chapters ix. and x. See also Spencer's "Coming Slavery," Popular
Science Monthly, April, 1884.
CHAPTER III.
THE PRINCIPLE OF INTERNATIONAL TRADE.
SECTION I. Increasing Social Opportunity Necessitates
National Development.
IN the preceding discussion four facts have been established :
(i) That social progress is development of the character and
sovereignty of the individual, to which end government is but a
means. (2) That the let-alone doctrine is theoretically unscien-
tific and practically impossible in society ; a negative government
being a contradiction in terms. (3) That since paternalism
limits the need of the individual to do for himself, it hinders
rather than helps the development of individuality. (4) That
freedom can only be increased by the growth of individual
capacity, which in turn depends upon the opportunities for de-
veloping individual character.
In order to apply these principles to the various phases of
social and industrial life it is necessary at the outset to under-
stand what constitutes opportunity. In the first place it should
be remembered that we are dealing with man as a social being ;
hence it is only with the development of his character as a social
individuality that we are concerned. Indeed this constitutes all
the difference between savagery and civilization. Opportunity
then, is necessarily social, and must be sought in man's social
environment in his intercourse with his fellow-men. And since
progress in society as elsewhere, is the movement from a rela-
tively simple to a relatively complex state of existence, the social
environment necessary to constitute opportunity must be con-
stantly increasing in complexity. Social opportunity, therefore,
320
WHAT OPPORTUNITY IMPLIES. 321
may be stated as necessary contact with an increasing variety of
social influences. 1
Society then, is a necessary prerequisite to individual advance-
ment. Society does not mean merely an aggregation of human
beings, but such an association of individuals as shall make fre-
quent intercourse and mutual dependence between them certain.
This implies the segregation of the human race into groups or
nations in which the individuals have some industrial, social, and
political affinity, without which the contact necessary to individual
growth is impossible. Consequently the doctrine of increasing
opportunity for individual development includes not only the re-
lation of individuals to each other within a social group or nation,
but also the development of the nation as a political entity.
Although patriotism and the desire for national autonomy is a
prominent feature in the statesmanship of every country, there is
no recognized principle by which its policy should be governed.
What relation the industrial development of the nation sustains
to the civilization and freedom of the people ; why, and under
what conditions national and industrial autonomy is necessary to
industrial development, and what relation industrial and indi-
vidual development sustain to each other, are questions to which
neither economic nor political science has hitherto furnished any
adequate answer. When we recognize the fact however, that a
nation is but the social setting of the individual and that gov-
ernment is but a means by which the resources of the nation are
utilized for promoting the welfare of the individual, the im-
portance of considering the development of the nation as a
necessary means for promoting the progress of society at once
becomes apparent.
SECTION II. National Development Necessitates the Growth
of Manufacturing Industries.
In considering this question it is important at the outset clearly
to understand what we mean by the expression, national develop-
ment. It is commonly assumed that the development of the
material resources of a country, as agriculture, mining, or manu-
facture, is necessarily the development of the nation. This view
confounds the physical qualities of soil and climate with the
1 "Wealth and Progress," pp. 231, 232.
21
322 THE NA TION IS SOCIAL.
social qualities of the people which are essentially different.
Such reasoning logically makes the industrial pursuits, and hence
the social life, of the people depend upon the physical character-
istics of the country. Thus instead of subordinating nature to
man it subordinates man to nature, which is the reverse of all
progressive tendencies in social evolution. When we separate
physical from social phenomena and recognize the nation as the
people this difficulty is obviated ; it then becomes evident that
the social development of man is an end to which the physical
development of nature is but the means.
In considering the development of a nation therefore, the
prime question is not development of the natural resources of
the country, but development of the character of its people.
The mere fact that the soil of a country is prolific is not a suffi-
cient reason why all the people should become agriculturists.
The cultivation of the soil or of any material resource of a
country should be made subordinate to the cultivation of man.
In other words, the development of a nation consists in the
development of its civilizing and individualizing influences. To
the extent that the people of a nation are isolated in their occu-
pations and daily life, will their social progress be slow ; and the
less frequent intercourse between individuals the less social-
izing will its influences be. In order then, to increase the
socializing influences of a nation, it is necessary first of all to
promote the concentration of its population. Nor can this be
accomplished by mere arbitrary authority. People will not con-
centrate either in their social life or industrial pursuits merely
because they are advised or ordered to do so. The concentration
of population means greater complexity of social life, which is
what man is apt to avoid except under the pressure of some
desire or necessity.
It is proverbial that the savage shrinks from the customs of
civilization, and the rural peasant from contact with city life.
Indeed, people whose social life is simple, always endeavor to
avoid close intercourse with those in highly developed society,
because it means new and at first, embarrassing experiences.
Nothing will induce people to encounter the difficulties of a new
environment but the strong desire for some object not otherwise
obtainable. So long as people can gratify their desires without
IMPORTANCE OF CITIES. 323
facing the difficulties of new and more complex social relations,
they will continue to do so. Nothing will permanently centralize
a people which does not make concentration indispensable to
getting a living. Thus social concentration depends upon indus-
trial concentration. The possibility of concentrating employ-
ments depends upon the nature of the industry. Agricultural
occupations cannot possibly be centralized ; they are isolating
in their very nature, and hence are essentially non-socializing
in their influence. The only industries which tend to centralize
and socialize people are manufacturing. Social isolation is as
impossible with manufacture as is social concentration with
agriculture. The development of manufacturing industries then,
is an indispensable condition to national development and social
progress.
The development of manufacturing industries is important in
many respects. In the first place because it involves socializing
occupations. Factory methods of production bring people into
close social contact in the ordinary pursuits of industrial life.
Whatever compels people to work together, makes their living
in close proximity indispensable ; the modern city and all that it
implies is chiefly the product of these two facts. From time
immemorial the growth of manufacture and trade has been the
means of developing towns and cities, 1 and these industrial
centres have in turn ever been the nurseries of civilization. It is
always in the cities that the most complex social environment arises,
and it is always there that the greatest refinement and highest
individuality exists, and hence it is there that the successful
struggles for social, religious, and political freedom have always
taken place.
The difference therefore, between agricultural and manufac-
turing employments is very marked. Agriculture is essentially
isolating and non-socializing as an occupation, and its products
relate almost exclusively to physical wants. Hence it does
practically nothing either to create or supply the social wants
and life of man. Manufacture, on the contrary, relates almost
exclusively to the civilizing and refining side of man's character.
The supply of clothing, furniture, the development of archi-
tecture, music, literature, art, and every thing above the mere
1 \Vitness the free cities of the Middle Ages.
324 ECONOMIC OPPORTUNITY.
physical needs of the savage, is directly or indirectly the result
of manufacture and its socializing influence. These things are
not only necessitated by man's higher social wants, but are
largely consumed as the result of his social relations. Since
manufacturing industries tend both to create a socializing en-
vironment and to supply the social wants resulting therefrom,
they are doubly indispensable to national development.
SECTION III. Necessary Conditions to the Development of
Manufacture.
In discussing the economic and social wisdom of any public
policy, the two important questions to consider are : (i) What is
the end we desire to promote ? (2) What means will most surely
promote that end ?
1. It may be safely assumed that the desired end, to the promo-
tion of which statesmanship should be devoted and public policy
directed, is the material and social progress of the people. We
have already seen that this involves the development of the nation
as a political entity, and also that national development necessi-
tates social concentration and industrial diversification, which in
turn depend upon the growth of manufacturing industries. The
immediate question, therefore, for the practical statesman to
consider is, what will best promote the development of manufac-
turing industries. Whatever will promote this end will justify
the means necessary to its adoption. The question to ask is not
what will it cost ? but will it do it?
2. It is a universal law in nature arid society that growth
depends upon opportunity. As already explained, opportunity
is not to be interpreted as mere passive possibility, but as actual
inducement. In nature opportunity for growth means the exist-
ence of conditions and influences which make it easier to grow
than not to grow. In society, it is contact with positive social
influences which make refinement, knowledge, and general culture
easier and more advantageous than ignorance and crudeness ;
and in economics it is the existence of conditions which make it
more profitable to do than not to do. Opportunity for the
development of manufacturing industries therefore, means the
existence of conditions which make manufacture not only physi-
cally possible but economically profitable.
NEED OF A HOME MARKET. 325
Obviously the first condition necessary to the growth of any
industry is a market for its products. Now an economic market
evidently cannot be made by mere fiat of government because it
depends on the habits and social life of a people. But it can be
preserved by protecting home industry in manufacturers to a cer-
tain extent. How far? Why just so far as is necessary to prevent
home products from being undersold by the products of lower
paid laborers in other countries. This then is the sober rule and
principle of protection as ministering to human welfare. The
industries of a country should be protected to the full amount of the
difference between the wage-level of that nation and the nations below
it in average civilization using similar methods and no further, since
thus the maintenance of its place in civilization is secured. A restric-
tive policy can be justified only on the ground that it will promote
greater social advancement than would otherwise occur. Nothing
can justify the restriction of freedom except a demonstration that
it will ultimately promote more freedom. Will the protection of
the home market increase the opportunities for developing social-
izing industries ? This is the immediate question to consider
and it involves a number of most important questions, which will
be taken up in their order as follows : (i) The economic and
social superiority of the home market over the foreign ; (2) the
economic basis of international competition ; (3) the relation of
cost of production to international value ; (4) the effect of a
tariff upon the price of home products ; (5) the relation of tariffs
to wages in non-protected industries ; (6) the influence of pro-
tection in the most advanced countries upon the progress of less
civilized countries.
SECTION IV. The Economic and Social Superiority of a
Home Market over a Foreign.
There are three important reasons why home markets are supe-
rior to foreign markets, and why domestic trade and manufacture
should always be encouraged in preference to foreign: (i) Because
foreign trade is essentially wasteful ; (2) because foreign mar-
kets tend to enable employers to permanently profit by low
wages ; (3) because home markets most surely promote the
diversification of industry and social progress.
326 FOREIGN TRADE WASTEFUL.
i. Foreign trade is essentially wasteful because it necessarily
tends to maximize instead of minimizing the distance between the
raw material and the factory, and between the factory and the
market. For instance, before the development of cotton manu-
facture in this country, our cotton cloth was made in England.
The raw cotton was produced in South Carolina, sent to England
to be manufactured, then brought back to America. The con-
sumer of cotton cloth in this country had to pay the cost of
transporting it twice across the Atlantic, which was so much waste
made necessary by uneconomic conditions. To carry a product
six thousand miles in order to deliver it to consumers a hundred
miles away is to perpetuate the most costly way of doing.
Nothing can justify such waste except absolute inability to
avoid it. The mere fact that England could, under existing con-
ditions, do the manufacturing at so much less cost than we, as to
be able to pay the transportation both ways, was no economic
justification for our continuing to buy cotton cloth of her, instead
of developing the methods for making it ourselves. Indeed such
a policy would have been as obviously uneconomic as to have per-
sisted in using the hand-loom and stage-coach in preference to
the factory and railroad. The question in that case was not, can
England, under existing conditions, supply our cotton cloth
cheaper than we can make it ? but can we, by any change of
conditions, develop the means of making it as cheaply for our-
selves as she can make it for us, and thus eliminate for all time
the unnecessary cost of double transportation ? This question
was answered in the affirmative, and to-day cotton cloth can be
made as cheaply here as in England, and more cheaply than in
any other country, notwithstanding our wages are so much higher.
Consequently that economic waste is saved not only to us, but to
all future generations, to say nothing of the social advantage of
developing the industry in our own country.
It may be laid down as a fundamental principle in economic
production that all commodities should be manufactured as
near as possible to the raw material, or the market for finished
products. If a nation possesses the raw material for a given
article, it should always develop the facilities for manufacturing
the finished product for its own consumption ; and any public
policy which does not tend to promote this end is inimical to
FOREIGN' MARKETS AND HOME WAGES. $2?
national development. Therefore, instead of constantly en-
couraging foreign trade, it should ever be a cardinal principle in
statesmanship to develop domestic trade and home manufacture.
2. Another disadvantage of foreign as compared with home
markets is, that they divorce the economic interest of the em-
ployer and the employed. To the extent that the producers in
any community rely upon a foreign market for their wares, the
employers cease to have any economic interest in the welfare of
their own laborers. Whenever the employer is independent of
the laborers of his own country as consumers, he has an apparent
interest in keeping down wages, because, under those circum-
stances, every reduction of wages is an increase of profits. Sup-
pose, for instance, an American shoe manufacturer sells all his
product in Europe at a dollar a pair ; it is quite obvious that if
he can obtain his labor at 10 per cent, less, it would be so much
addition to his net profit, because the reduction of wages would
in no way affect the consumption of his shoes, they being sold in
another country where wages remain the same.
Under a home-market regime the case is very different, be-
cause in domestic trade there are no influences that militate
against the material welfare of the laborers which do not react
upon that of the employing class. The obvious reason for this
is that no market for factory-made products can be permanently
sustained without consumption by the laboring classes. Conse-
quently when the employing class in any country have to rely on
a home market for the sale of their products, their own prosperity
depends directly upon the consuming capacity, and hence the
wages, of the laboring classes in their own country. Under such
conditions, whatever reduces wages and impairs the purchas-
ing power of the laborer diminishes the market and undermines
the prosperity of the employer. Thus, under a home-market
regime, the employer's success is dependent upon and commen-
surate with the prosperity of the laboring classes, because their
consumption determines the market basis for his production.
But the days of foreign markets, as the chief support of highly
developed manufacturing industries in any country, are doomed.
Frequency of travel and familiar intercourse between the most
civilized nations tend to make exclusive knowledge of productive
methods practically impossible. Hence, as fast as nations be-
328 A NATION IS RICH BY WHAT IT USES.
come consumers of manufactured products, they begin to make
them for themselves, and to use the improved methods developed
by thfeir most advanced neighbors. Thus the tendency of civili-
zation is to make the industries of all countries depend more and
more upon home consumption. The economics of the future
must be the economics of large production, home-market, and
high wages, which are the only industrial conditions compatible
with social freedom and political democracy.
3. The third and by no means the least important reason why
home markets are preferable to foreign markets is, that they more
surely promote the diversification of production and the sociali-
zation of employments. One of the popular notions regarding
foreign trade is that the prosperity of a nation is indicated by the
amount of its exports, that it is rich by what it sells. This is a
great mistake. Nothing indicates the prosperity and well-being
of a people but what they consume. A nation may produce ex-
tensively and export largely and the mass of its people remain
very poor. To the extent that more manufactured products are
exported from any country than imported to it, are its products
not consumed by those who produce them. The prosperity of a
nation therefore, cannot be measured by the wealth it exports to
other countries, nor by the wealth it receives through the profits
of foreign trade, but only by the wealth its own people consume,
since that is all which really enters into their social life. Thus the
extent of domestic consumption the home market is the real
measure of the social status.
Moreover, a home market supplies a double social current,
whereas a foreign market for the same products only supplies a
single current. In addition to the socializing effect of manufac-
ture upon industry, the home use of manufactured articles tends
to increase and diversify the market for such products by the
social conditions necessarily connected with their consumption.
For instance, the consumption of carpets, pictures, music,
millinery, etc., imply more or less refined social relations, which
stimulate not only the desire for more of the same kind of things,
but also create tastes and desires for fresh varieties of products.
Thus, while manufacturing industries always socialize, their so-
cializing influence is necessarily the greatest where they produce
for a home market. This must not be interpreted to mean that
TEST OF ECONOMIC CHEAPNESS. 329
foreign markets are a disadvantage under all conditions, but only
that wherever the development of a home market is possible it is
always preferable to a foreign market. In other words, foreign
trade is ultimately an economic disadvantage to a nation unless
it can take place without substituting simpler for relatively com-
plex industries or lowering wages, and should be encouraged
under no other conditions.
SECTION V. The Economic Basis of International Compe-
tition.
Competition is regarded as essential to industry, because it pro-
motes economy in the production of wealth both by developing the
highest capacity in the producers and by reducing prices, thus
giving the community the advantage of the highest skill and the
best productive methods. This unexceptionable proposition
has the advantage of being one of the most uniformly accepted
postulates in economic science. Here then we have a point of
common agreement, namely, that no competition can promote
industrial well-being which does not tend to make wealth cheap.
(Neither a free trade nor a protective policy therefore can be
economically justified, except as it squares with this proposi-
tion.)
In order to apply this test to public policy, however, it is
necessary to understand clearly what constitutes cheap wealth,
and how to determine accurately when commodities are cheap
or dear. Commodities are said to be dearer as their value
rises, and cheaper as their value falls ; but the terms dearer and
cheaper have no meaning except as they indicate that the articles
referred to have become more or less difficult for man to obtain.
Wheat cannot be either cheap or dear to potatoes or gold, any-
more than Easter bonnets can be cheap or dear to fishes. The
value of wheat may be high or lo\v as compared with that of
potatoes or gold, but value cannot be high or low to those
articles ; it can be high or low only to man. Nor is the value of
an article high or low to man because it will exchange for a larger
or smaller quantity of gold or other commodities, but solely be-
cause it will exchange for a larger or smaller quantity of his
labor. In short, the terms value, price, exchange, dearness, and
33O CHINESE AND AMERICAN PRICES.
cheapness have absolutely no meaning, and convey no idea
except in relation to man.
From this point of view the importance of economic movement
does not turn upon the relation of one kind of wealth to another,
but depends upon the relation of all kinds of wealth to man.
Wealth is not necessarily cheap or dear according as it will ex-
change for a large or small amount of gold, but only as it will
exchange for a large or small amount of labor. That is to say,
no matter what the ratio of exchange between different com-
modities or between all commodities and gold may be, they are
cheap or dear only in proportion as a large or small amount can
be obtained for a day's service.
It may be said that the ratio in which commodities exchange
for gold always indicates the ratio in which they will exchange
for labor ; that is to say, the gold-price always indicates the
labor-price. This may be true to a limited extent within any
given country, but it is almost never true as between different
countries. Take, for example, this country and China ; suppose
shoes of a given quality were two dollars a pair in this country
and they were only fifty cents a pair in China, manifestly the
amount of gold necessary to obtain a pair of shoes in America
would purchase four pairs in China. Thus according to the
gold standard of measurement shoes in America would be three
hundred per cent, dearer than those in China, which is precisely
what the current doctrine teaches us to believe. Consequently it
is laid down as a self-evident proposition, that any discrimina-
tion which would prevent the shoes of China from entering the
market of America at less than two dollars a pair would make
the shoes of the American consumer dearer by three hundred
per cent.; therefore, the true economic policy is to have free
trade between America and China, and thus enable the American
citizen to have cheap shoes.
If we examine such a transaction from the standpoint of man
instead of gold, the utter fallacy of such a position will at once
be apparent. To be sure the shoes in America cost two dollars
a pair, but as the American mechanic receives two dollars a day
he can obtain a pair of shoes for a day's labor, while in China,
although the shoes cost but fifty cents a pair, the laborer receiv-
ing less than ten cents a day must work fully five days to obtain
CHEAP LABOR-PRICES ARE HIGH. 331
a pair of shoes. Thus while measured in gold, the shoes in
America cost four times as much as those in China ; measured in
labor, the Chinese shoes are four hundred per cent dearer than
the American. Manifestly the two-dollar American shoes are
cheaper for Americans than the fifty-cent Chinese shoes are for
Chinamen. Professors Sumner and Perry would probably reply
yes, but Chinese shoes would be cheaper for Americans than
American shoes are, because we could get four pairs of Chinese
shoes for the amount of service we now give for one pair. It is,
they would add, just because the Chinese can make shoes for
Americans cheaper than Americans can make them for them-
selves, that we want free trade in order that we may obtain our
shoes from those who can make them cheapest. Why should we
give the shoemakers of Lynn or Marblehead two dollars for what
we can buy from those of Pekin or Hong Kong for one dollar ?
This argument has a very satisfactory seeming, but it has the
disadvantage of failing to reckon with the facts. Like the
Ricardian theory, that " profits can only rise as wages fall," it
would be true provided the assumption upon which it is based
were correct namely, that every thing else remains the same.
Of course the American consumer would receive a net gain by
purchasing his shoes from China at fifty cents a pair, instead of
paying two dollars in America, if wages and other conditions
remained the same, which would be an impossibility. It would
be just as rational to say that ' other things remaining the same,'
a brick will not sink to the bottom of a bucket of water. It is
precisely because no two particles of the water remain the same
that the brick sinks ; the disturbance caused by introducing the
brick makes a readjustment of every drop of water necessary.
The same is true in the case before us. The introduction of
Chinese shoes into the American market would not merely give
the two-dollar American laborer one dollar shoes, but to the
extent that it operated, would make it a general industrial dis-
turbance and therefore cause a readjustment of economic rela-
tions. As already stated, whatever undersells succeeds, and
whatever succeeds becomes permanent, and whatever becomes
permanent establishes the methods by which its success is
accomplished. Therefore if the shoemakers of China could
undersell the shoemakers of America in the American market,
332 READJUSTMENT ON A LOWER PLANE.
they would necessarily succeed in obtaining the custom of Amer-
ican consumers. If this caused no other change than to reduce
the price of shoes in this country, the case would be very simple,
and the logic of the laissez-faire economist would be conclusive ;
but this is not the case. On the contrary, it would make an
entire rearrangement of industrial conditions necessary, at least
so far as the 200,000 of American shoemakers are concerned.
As soon as American consumers begin to buy shoes from
China several forces will begin to operate, which will tend to
revolutionize and ultimately readjust economic relations. The
American manufacturer will endeavor to compete with the China-
man in the American market, to do which he will be compelled
to reduce the cost of producing shoes here at least to the level of
the cost of production in China, together with the cost of trans-
portation. This could only be accomplished in one of two ways,
either by using superior labor-saving machinery or by reducing
wages equal to the difference. The improved machinery could
not be adopted for any such reason, because nothing has oc-
curred to increase the market sufficiently to make its profitable
employment possible.
A slight increase in the consumption of shoes might result
from lowering the price, but that would soon be more than offset
by the reduced consumption among the discharged laborers.
Hence it is manifest that such a change could do practically noth-
ing to create the better machinery necessary to make a differ-
ence in the cost of production. The only other alternative would
be to reduce the wages of shoemakers here to substantially the
same level as those in China. And this would not be limited to
the men who simply manufacture the shoes, it must also apply to
all those who produce the raw materials and tools used in making
shoes. When this reduction occurs, all the cheapness of the
imported shoes disappears, because the capacity of American la-
borers to purchase shoes is reduced exactly as much as the price
of the shoes has fallen. If wages are not reduced, then the China-
man would produce the shoes and the American shoemaker would
be forced into idleness, unless he emigrates to China, in which case
he would have to work on the same terms as the Chinaman.
Nor is there any warrant for assuming that the discharged
laborer will find another occupation. Nothing will create em-
LOW WAGES NEVER CHEAPEN WEALTH. 333
ployments except a market for products. Since nothing has
occurred in this instance to create either a demand for new
commodities or increase the consumption of existing ones, we
have no more right to assume that the discharged laborers could
find new occupations than we have to assume that they could
live in luxury without employment. Thus in thelast analysis
the shoes would either have to be made in China or in America
by Chinese methods ; and in either case, American wages would
be adjusted to Chinese prices. Consequently, instead of the low-
priced products from China giving us cheap wealth in America, it
would serve only to give us cheap labor and a lower civilization.
It may be regarded as an economic axiom that nothing can perma-
nently cheapen wealth which does not reduce the price of commodities
relatively to wages, and this can never be accomplished by substituting
cheaper for dearer labor, either at home or abroad.
Nor is this all. Not only is it true that the low-priced shoes
of China would not be permanently cheaper to anybody than
the high-priced shoes of America, but to permit the products of
the low-paid laborers of Asia to undersell those of the high-paid
laborers of America, would be to prevent the growth of the only
influences which can make wealth permanently cheaper in the
future. Just in proportion as the high-paid labor of one country
is superseded by the low-paid labor of another, is the simpler so-
cial life and small consumption of the former substituted for the
more complex social life and larger consumption of the latter.
This check in the demand for an increasing variety of products
necessarily prevents the diversification of industry and the de-
velopment of manufacture, and consequently lessens the incentive
for the concentration of capital, the use of steam-driven machinery,
and all wealth-cheapening methods of production ; and thus not
only fails to furnish cheap wealth for the present, but prevents
the possibility of cheaper wealth in the future. It is manifest,
therefore, that from a philosophic view of the case any public
policy which aids or permits the products of the low-paid labor
of one country to undersell the products of the high-paid labor
of another, tends to arrest human progress by stereotyping lower
civilization and preventing the growth of a higher.
Whenever a struggle for industrial supremacy takes place
between producers in countries of differing degrees of civiliza-
334 UNECONOMIC COMPETITION,
tion, 1 one of two things must necessarily occur : either the higher
must descend to the plane of the lower, or the lower must ascend
to the plane of the higher. If the higher-paid producer descends
to the plane of the lower, it will not be economic competition,
because in that case the low-wage products will be sure to undersell
the high-wage products, and thus enable the inferior to succeed
against the superior. In such a struggle there is nothing to de-
velop the best in the higher, but every thing to repress it. The
cheap-labor competitor does not succeed through his economic
superiority, but solely because of his social inferiority. Such a
contest, therefore, is contrary to all conditions of economic com-
petition. 2 Instead of being a contest between approximately
equal competing units which tends to develop the best in both, it
is an unequal struggle in which the inferior is sure to prevail
against the superior.
When competition takes place on the plane of the higher
wage-level, the result is very different. In such a contest, who-
ever succeeds is compelled to do so by employing superior ma-
chinery, and that reduces the cost of wealth by saving instead of
cheapening human labor. Every effort of the lower to succeed
against the higher by such means necessarily tends to develop
better methods of production, cheapen wealth and promote
social progress in the less advanced country, even if it fails to
undersell competitors in a foreign market. On the other hand,
in every such struggle the high-wage producer is compelled
to make efforts to still further develop the wealth-cheapening
methods in the most advanced countries. Therefore the con-
test on the higher plane is supremely economic, because it
stimulates the best in both competitors, guarantees that only
the superior shall succeed, and in so doing helps rather than
injures the inferior.
This is precisely what takes place in every other sphere of de-
velopment. Evolution is a constant differentiation and higher
integration with an ever increasing complexity of relations. So-
cial progress constantly tends toward a greater variety of relations,
1 The most infallible test of a relatively high or low state of civilization in any
country is the material or social conditions of the masses, which is always indi-
cated by the rate of real wages.
2 See definition of economic competition, p. 293.
BASIS OF ECONOMIC COMPETITION. 335
specialization of functions, and integration into larger but more
diversified aggregates ; witness the tendency towards larger and
larger cities and nations, through which greater freedom and
more complex and socializing intercourse is steadily devel-
oped. In all this progressive tendency each integration takes
place by the lower rising to the plane of the higher, and never by
the higher descending to that of the lower. And this progress
can only take place by the lower becoming approximately equal
to the higher. For instance, if one wants to move in a social
class more cultured than the one to which he belongs, he can do
so only by becoming more cultured himself. The more refined
will neither take on coarser manners nor tolerate the n in another
for the sake of his society. Indeed, were it otherwise, progress
would be impossible ; because if the higher would descend to the
lower, there would be no incentive for the lower to rise.
Since nothing can cheapen wealth which does not reduce the
cost of production without diminishing real wages, and since no
industrial contest can be economically competitive which does
not take place between approximately equal competing units, and
since there can be no approximate economic equality between
contestants except on the plane of the higher, it follows that
the true economic basis for international competition is the wage-level
of the dearer-labor country. In order therefore to apply the doc-
trine of opportunity laid down in the previous chapter, and to
establish international trade upon a strictly economic basis, it is
necessary for the higher-wage country to discriminate against the
products of the lower-wage producer to the full extent that the
lower wages affect the cost of production, as this determines the
competitive status of the commodity. Thus we have a truly
economic basis for a tariff policy that shall be protective without
being paternal. A tariff policy based upon this principle would
protect the superior against injury from the inferior, without
affording the slightest monopolistic impediment to economic
rivalry. Instead of restricting wholesome competition, this would
simply protect the competitive opportunity for the " fittest to
survive," the test of fitness always being the ability to furnish low-
priced wealth without employing low-priced labor. Under such
conditions the products of foreign countries could never under-
sell those of home industry, except when the lower price of the
336 SUPERFICIAL REASONING.
foreign product is due to the use of superior la.boT-sam'n^a.nd not
to labor-cheapening methods. Consequently whoever undersells
confers a permanent advantage on the whole community.
SECTION VI. Some Popular Fallacies Considered.
It is a standing charge against the protective doctrine that it
has no definable scientific basis, that it is grounded upon no
general principle in nature, society, or economics. Nor is this
charge wholly unwarranted when judged by the accepted reason-
ing on the subject. It is a peculiar feature of the history of
tariff legislation that it has been generally advocated for local or
special reasons, and almost never based upon any economic
principle susceptible of general application. In this country,
where the protective idea has reached its highest development,
the tariff advocate rests his claim almost entirely upon the fact
that we have made marked industrial progress under a protective
regime. He compares the wages and social condition of the
laborers in high-tariff America with those of the laborers in free-
trade England, and confidently exclaims : " Behold the superiority
of a high-tariff policy ! " And, with equal assurance, he ascribes
the poverty and social degradation of Ireland and India to the
fact that British rule has prevented them from having a protective
tariff. On the other hand, while the free-trader objects to this
kind of reasoning by the protectionist as confounding coincidence
with cause, he employs it with equal assurance in presenting his
own case. Studiously confining his observation to European
conditions, he compares the wages and social condition of labor-
ers in England under free trade with those in continental countries
under protection, but not with those in America, and triumphantly
exclaims : " Behold the superiority of free trade !"
By this mode of reasoning the English free-trader is as unable
to explain why wages are higher in America under protection
than in England under free trade, as is the American protectionist
to explain why they are higher in England with free trade than
in continental and Asiatic countries under protection. If the
mere fact that prosperity accompanied free trade in England
justifies the reasoning of the free-trader, then the fact that pros-
perity accompanies a high tariff in America equally justifies the
reasoning of the protectionist. And when the free-trader declares,
LAW OF ECONOMIC PROTECTION. 337
as he does, that America is not prosperous by virtue of the tariff,
but in spite of it, the protectionist can with equal force reply that
England is not prosperous by virtue of her free trade, but in spite
of it. This line of reasoning furnishes no scientific means of
testing the merits of either doctrine ; it shows that progress is
possible under both policies, but it affords no logical basis for
the application of either. What these facts show is, that neither
free trade in England nor protection in America prevented the
growth of industrial prosperity in those countries, but they do
nothing to prove that this progress was promoted by either policy.
Free trade being simply the absence of protection, it follows
that to discover the law of economic protection is to discover
that of free-trade also, and since neither free trade nor protec-
tion will produce the best economic effects under all conditions,
it is only by the knowledge of such a law that any philosophic
application of either policy is possible. If the conclusions
reached in the preceding sections are correct, however, this law
is already established, and we have a universal principle upon
which a protective and consequently a free trade policy can be
scientifically adopted. Briefly stated this law is : (i) that compe-
tition can be economic only when it takes place between approximately
equal competitors ; (2) that when there is any marked difference in
the wage-level of the international competitors, such approximate
competitive equality is possible only when the competition is based upon
the higher wage-level of the higher ; (3) that no lowering of prices
can cheapen wealth which does not result from diminishing the cost of
production withotit lowering wages.
Bearing these propositions in mind, we shall have no difficulty
in seeing why a protective policy might promote industrial pros-
perity and social progress in America, and have the reverse effect
in Austria, India, and Ireland. . Nor will it be difficult to under-
stand why America has more to fear from free trade with highly
civilized England than with the less civilized nations of Asia and
South America. And it will be equally clear why a tariff policy
will not produce the same effect with a high-wage level in a small
colony like Victoria with a million inhabitants, as in a large
country like the United States, with sixty-five million of people. 1
1 See articles in The Nineteenth Century for September, 1888, and Quarterly
Journal of Economics, October, 1888.
22
338 INFANT-INDUSTRY THEORY,
One of the arguments much relied upon by protectionists is
that known as the " infant-industry argument." The burden of
this argument is that industries should be protected in their early
stages to prevent them from being killed by competition before
they are fully established, the implication being that when they
become well established they will be able to hold their own
against the world. For a time this idea was reluctantly accepted
by anti-tariff people, but now that after having had protection for
half a century and on the plea of " infant industries," a tariff is
still demanded, the free-traders naturally ask " when do industries
reach maturity ? " They regard such reasoning as far more in-
fantile than the industry, and insist that if there is any virtue in
the protective principle, it should be applied in behalf of the
weak against the strong and not in behalf of the strong against
the weak. Consequently, if protection can be justified at all, it
is such countries as Russia, Turkey, Italy, Spain and the in-
dustrially weak countries of South America that need protection
against the United States, and not the United States against
them.
If the principle here laid down had been recognized, the
obvious fallacy in both these positions would have been appa-
rent ; and the talk about " infant industries " would never have
been indulged in by the protectionist, and the free-trader's re-
joinder about protecting the lower against the higher would have
been too absurd for utterance. It would then have been seen
that the products of America do not need protection against
those of England because the industries are younger, but be-
cause they are made under a higher civilization a civilization
in which the human element in production is more expensive.
Hence, to permit the products of America to be undersold by
those of another country, the lower cost of which results entirely
from the use of lower-paid labor, would neither give cheaper
wealth nor better social conditions. It would also have been
clear that this fact in no wise changes with age, unless either the
wage-level of the lower-wage country rises, or the use of labor-
saving appliances in the higher-wage country more than overcomes
.the difference. Unless one of these things occurs protection will
be as necessary at the end of a thousand years as it was the first
six months, although both countries may have greatly advanced.
THE HIGHER REQUIRES PROTECTION. 339
Indeed, the greater the advancement in both countries the
greater will be the probability of their employing similar ma-
chinery, thus making the necessity of protection depend entirely
upon the difference in their respective wage-levels, as is the case
with America and England to-day. Therefore, when the tariff
advocate asks for protection simply because the industry is
young, and the free-trader opposes it on the assumption that the
producers in a superior civilization ought to be able to eco-
nomically compete with those in an inferior civilization, they
both mistake the true economic gist of the problem. Social
superiority, instead of making protection unnecessary, is the very
thing which makes it necessary, provided it is socially important
to retain or further develop the industry.
Nor is this peculiar to industry ; it is a general principle
throughout society. In every phase of human relations, it is the
higher that needs protection against the lower, and this because
the latter will resort to methtfds of aggression and defence which
the former cannot, for social or ethical reasons, afford to em-
ploy. Take, for example, the criminal laws. They are enacted
to restrain the morally lower from injuring the higher ; it is to
prevent the dishonest from plundering the honest, the ma-
licious from assaulting the well-intentioned, that police courts and
jails are instituted and armies maintained. Indeed, there is not
a restrictive institution maintained in society which was not
called into existence to protect the higher from the injurious
effects of the lower.
It may be asked, if this theory is correct, why does not the
American producer need a much higher tariff against the prod-
ucts of China, Russia, or South America than he does against
those of England, since her wage-level much more nearly ap-
proximates to his own ? The reason for this is very simple. It
is because the social chasm between America and those coun-
tries is so great, that the use of labor-saving appliances here
more than makes up for the difference in the cost of labor in the
respective countries. In China, for instance, where almost every
thing is made by hand labor, the product per capita is so small,
compared with what can be turned off by steam-driven machin-
ery here, that it costs more to produce an article there with labor
at 6 cents a day than it does here with labor at two dollars a day.
340 INDIA, IRELAND, AND RUSSIA.
But if the labor-saving machinery of America were introduced
into China, and operated by their six-cent-a-day laborers, then an
immensely high tariff would be necessary in order to protect the
high wage-level of America, because, in that case, while all other
items of cost would be the same, the human element in the pro-
ductive process would be many hundred per cent, dearer here
than there. This is why England is a more dangerous com-
petitor to us than China. True, the wage-levels of America and
England are more nearly alike than are those of America and
China, but the machinery of America and England is still more
so. Indeed, it is because the machinery used in America and
England is practically the same, that all the difference in their
respective wage-levels is directly expressed in the relative com-
petitive power of the two countries. What is true of England is
equally true of France, Germany, and every other country, to the
extent that they use similar machinery but cheaper labor than
we do ; yet they may have very much cheaper labor, and still be
practically harmless as economic competitors, so long as they
use poorer machinery or hand methods.
Another error into which tariff advocates commonly fall, is in
thinking that India, Ireland, or Russia would greatly improve
their condition if they imposed a tariff against British products.
Indeed, there are not a few Englishmen to-day who entertain a
similar notion, and insist that England would be greatly benefited
by adopting a tariff policy towards America. This is a mistake,
for America's wage-level being higher than England's, we could
not undersell her except by the use of superior methods, which
either English producers would be forced to adopt or let Ameri-
can producers do the work, and in either case English laborers
would have a net gain. If the better methods were adopted in
England, she would have cheaper products without lower wages,
which would be equal to a rise of wages. If America made the
products, the English laborer could emigrate to America and
obtain American wages.
The same is true with regard to England and continental
countries. Competition between England and Russia would not
injure Russia, because there are no economic methods employed
in England which are not superior to those employed in Russia.
Whenever Russia is undersold by England, her products will
ENGLAND AND THE CONTINENT. 34!
have to be made by English methods either in England or in
Russia, and in either case the Russian people will be benefited.
The only reason England is not injured to-day by competition
with the countries in Continental Europe is precisely the same
as that which prevents China from seriously injuring America,
namely : that while her wage-level is higher, her machinery is so
much superior to theirs, that it more than makes up the differ-
ence in the cost of production. 1 England has less to fear, how-
ever, from continental competition than we have, because their
wage-level is nearer to hers than it is to ours, and to the extent
that American and English machinery is adopted in continental
countries faster than their wage-level approximates that of Eng-
land, will their relative competitive power gain upon hers. In
fact, unless the wage-level in continental countries rises very
rapidly, it can only be a matter of time when they will occupy
the same competitive position to England that she now sustains
to America, in which case she will be compelled either to adopt
a protective policy or surrender much of her manufacture to con-
tinental producers.
It will thus be seen that the seemingly inexplicable phenomena
over which free-traders and protectionists have vainly contended,
become perfectly explainable on the principle that international
competition can only be beneficial when the competitors are ap-
proximately equal upon the plane of the higher. Therefore a
protective policy is beneficial to a nation, only as affecting its
relations with less civilized countries. While America may need
protection against the machine-made products of all other coun-
tries, there is no country that can be permanently benefited by
discriminating against the products of America. So too with
England ; she may ultimately require a tariff against the machine-
made products of all other countries but America, and so on. In
a word, a tariff can only be of any permanent economic advan-
1 According to Mulhall, 80 % of the productive energy in Great Britain is fur-
nished by steam, while in continental countries steam only represents an aver-
age of 36 %. Consequently, the total cost of productive power per thousand
foot-tons is 17 cents in Great Britain as compared with 27 cents on the con-
tinent. " This advantage enables us (England) as far as labor is concerned to
undersell continental countries by 12 #, although our workmen's wages are
almost double." " History of Prices," pp. 54 and 57.
34 2 SUPERFICIAL OBJECTIONS.
tage, to the extent that it protects the opportunity for industrial
development afforded by a higher wage-level from the uneco-
nomic influence of a lower wage-level and inferior civilization.
SECTION VII. The Effect of a Tariff upon the Price of
Home Products.
There is no objection urged against a tariff policy so much
emphasized and so frequently repeated as the charge that a tariff
is necessarily a tax an oppressive burden upon the consumer.
The free-trade advocates, especially in this country, deny that it
is possible to improve the industrial condition of a community
by any system of tariff legislation. They insist that at best
it can only enable one class to gain at the expense of another. 1
Perry regards a protective tariff as an unmitigated curse, and
says : " Political economy, denouncing it as the enemy of man-
kind, hopes soon to throw upon its loathsome carcass the last
shovelful of cleansing earth." 2
It will not, however, be difficult to show that despite the learn-
ing and dogmatism on its side, this mode of treating the subject
is exceedingly superficial. The assertion that a tariff is a tax
bears the stamp of the declaimer rather than the economist ;
while seeming to say much, it actually says nothing. A tax is
simply a contribution to the public treasury, and is one of the
innumerable expenditures that social life makes necessary. The
payment of two dollars for a hat or a pair of shoes is just as
much a burden upon the resources of the citizen as is a tax of
two dollars for the government.
Taxes, like all other kinds of expenditures, should be treated as
an investment, the wisdom or unwisdom of which depends not
upon its amount, but entirely upon whether it yields more in
ultimate advantage than it costs in immediate disadvantage.
This fact can be more easily determined in some cases than in
1 " We deny that they can gain any thing from us, on account of the law, but
what we lose ; we deny that the total gains to one part of society by this
process can ever exceed the total losses of another part i.e., that the process
can increase the wealth of the community ; we deny, finally, that our share of
these hypothetical gains can ever be redistributed to us so as to bring back our
first loss." Sumner's " Protection in the United States," pp. n and 12.
2 " Political Economy," p. 477.
TAXES ARE INVESTMENTS. 343
others. For example, when one buys a steak, by the next meal
time he can determine whether or not he received an equivalent
for what he gave ; whether the satisfaction was equal to the cost.
If he purchases a suit of clothes, however, the result cannotPbe
so quickly determined. It will take several months to ascertain
whether or not an equivalent was given and received. And if he
invests in a farm or a factory, a still longer time is required to
decide the wisdom or unwisdom of the purchase. The indirect
and impersonal nature of governmental expenditures makes a
still longer time necessary to determine the exact results.
In order to determine whether or not a tax is a good invest-
ment, we have to deal with general tendencies or with ultimate
rather than immediate effects. For instance, if the wisdom of
the expenditure involved in maintaining an army, navy, police
force, were determined by the immediate effects at any given
time, it would be regarded as waste. Nevertheless the ex-
penditure necessary to enforce law and order is regarded as
a good investment even by free-traders. It procures as good
economic results as the expenditure for food, clothes, or shelter,
since it is essential to their enjoyment.
The same is true of education, but the effects here are still
further removed from direct observation, and consequently
must be judged 6n a still broader general basis. There are in
some countries, and indeed in some parts of this country, those
who regard a tax for the public schools as an oppressive burden,
an unjust exaction. But upon a broader view of the subject it
appears that their general social safety, freedom, and well-being
largely depend upon the intelligence of the great mass of the
community in which they live, and this to a great extent depends
upon opportunities for popular education. Experience has con-
clusively shown expenditure in public schools to be a good invest-
ment ; it comes back in better citizens and a higher civilization,
which in turn supplies all the influences and conditions that make
cheaper wealth and larger freedom possible.
In the same way must we estimate the wisdom or unwisdom of
a protective tariff. In considering the effect of a tariff policy
upon the price of home products, we must not consider alone the
direct and immediate effect upon prices, but also the indirect and
ultimate effect. It has already been pointed out that the test of
344 TARIFFS AND PROFITS.
cheapness is the ratio in which labor will exchange for wealth,
things being cheap or dear according as a large or small quantity
can be obtained for a day's labor. If home products can be
undersold by foreign, solely because labor is cheaper abroad than
here, the only result would be a readjustment of prices on the
lower wage-level, with no advantage to anybody. Let us assume
that a 20 per cent, tariff is necessary to prevent the home products
from being thus undersold, that 20 per cent, would not in any
sense be a tax upon the American consumer, because if that tariff
were not applied, the wage-level would be commensurately low-
ered and a day's labor would purchase no more wealth than
before. To say that under such conditions the home producer
is enabled to add as profit on his whole product an amount equal
to the tariff upon the foreign product, is to exhibit a striking
unacquaintance with economic phenomena. 1 All that a tariff
can do in such instances is to prevent a readjustment of prices
on a lower wage-level. Prices however, would be governed by
cost of production, according to the law before stated, just as if
there were no tariff. The competition between home producers,
together with the effort of the consumers, to purchase at the
minimum, will force prices down to the cost of producing the
most expensive portion of the necessary supply. All who can
produce at less than that, will obtain the difference as profit.
Unless the cost of producing that dearest portion can be lessened
by some other means than by lowering wages, it is utterly impos-
sible to make any improvement by reducing price.
This much however, only applies to the direct and immediate
effect, and is usually the only aspect which the advocate of
laissez faire stops to consider. The permanent economic influ-
ence of a protective tariff upon the price of home products,
however, is the indirect and ultimate effect rather than the im-
mediate and direct. In preventing the products of dear labor
from being undersold by those of cheap labor, the tariff protects
the home market for the home producer. The economic effect
of this, as already shown, is to promote the growth of manufac-
turing industries, and to concentrate population, which in turn
creates a social environment that develops new tastes and habits,
and these elevate the standard of living among the masses, and
1 Cf. President Cleveland's message December 6, 1887.
THE PRICE OF COTTON CLOTH. 345
consequently enlarge the demand for an increasing quantity and
variety of products.
The necessary tendency of this is to develop a higher grade
of social character and general intelligence, more inventive genius
and improved methods of production, by which the cost and
therefore the price of commodities is ultimately lowered without
reducing wages. From the foregoing it will be seen that a tariff
or any thing else which prevents a readjustment of prices on a
lower wage-level affords protection to the opportunity for devel-
oping better productive possibilities through the use of labor-
saving and wealth-cheapening methods. The effect of a tariff
upon the price of home products, therefore, when applied accord-
ing to the principles here laid down, is, first, to prevent a wasteful
readjustment of economic relations on a lower wage-plane ;
second, to protect opportunities for increasing productive pos-
sibilities and thereby make a readjustment of economic relations
on a higher wage-plane necessary.
If space permitted it could easily be shown that, despite the
frequent unseemly higgling and hauling to help local producers
by absurd tariff schedules, this has been the general effect of the
protective policy of this country. Take, for example, the cotton
industry, to which reference has already been made. For reasons
not necessary to explain here, the factory system had its rise in
England, and by the close of the first quarter of the present cen-
tury the use of steam-driven machinery, especially in the manu-
facture of cotton cloth, had become well established. At that
time the cotton industry in this country was in its infancy, being
mostly carried on in small factories run by water-power. The
difference in the development of this industry in the two countries
is clearly shown by the number of factories, amount of capital,
etc., which, in 1830, was as follows :
England. America.
Number of establishments . 1,151 801
Capital invested per establishment .
Number of spindles per establishment
Number of looms per establishment
Number of operatives per establishment
Weekly wages J
Price per yard ....
$147,680 $50,702
8,108 1,556
87 41
205 77
$2.51 $3.46
I5i 17
1 These figures represent for England (1833) the average weekly wages of
67,819 cotton operatives. And for America they represent the average wages
of 31,471 cotton operatives in New England (1830).
346 PROTECTION GAVE OPPORTUNITY.
It will be seen from the above that the English manufacturer
had a double advantage over the American. In addition to
having nearly half a century's start in the development of factory
methods, by which he had acquired a much greater concentration
of capital and more efficient use of machinery, he had an advan-
tage of nearly 40 per cent, in the cost of his labor. No argument
is necessary to show that under such conditions it was impossible
to prevent our cotton cloth from being undersold by the English
without reducing American wages fully one third. Nor would
this reduction in wages have been limited to the factory opera-
tives ; for even if the American manufacturer had imported
English machinery free of duty, the higher wages of the brick-
layers, masons, carpenters, painters, etc., would have made his
building and general plant cost more than the English. It would
have been necessary, therefore, to have reduced wages in all these
industries to practically the same level as those in England, in
order to be able to compete with the English manufacturer in our
home market. To obviate this difficulty and make it possible for
the American manufacturer to produce for the American market,
a tariff was levied upon English cotton cloth. This, however, did
not increase the price of the American product, as is commonly
assumed, but it increased the price of the English product, there-
by preventing the price of American cloth from falling to the
English level, and making it unnecessary to reduce wages here in
the cotton and several other industries. By thus putting the
American producer on an approximate competitive equality with
the English in the American market, an economic basis was
furnished for the development of cotton manufacture in this
country.
Nor did this tariff create a monopoly, by which the price of
cotton cloth could be abnormally increased and fabulous profits
obtained by the American producer. On the contrary, it pre-
vented the English producer from monopolizing the American
market through the use of cheaper labor. So long as the English
producer, by paying lower wages, could undersell the American,
there was no inducement for the American to take the risk of
investing capital in improved machinery. But when this uneco-
nomic advantage was removed and the competitors in the Ameri-
can market were put upon substantially the same wage-level, a
IMPROVED METHODS.' 347
strong incentive for developing superior methods was created,
since their use became the only means of success.
With the rapid increase of population which our high wage-level
stimulated the home market steadily increased, making a larger
production necessary. This naturally led to a greater concentra-
tion of capital, the use of larger factories and better machinery,
and the result is that cotton cloth, which could not be produced
for less than seventeen cents a yard in 1830, can now be furnished
at a profit for five cents a yard, while the laborer receives double
the wages he did then. 1 The development of wealth-cheapening
methods in the cotton industry, which the protection of the home
market has made possible, will be seen by the following facts for
England and America in 1830 and 1880 :
England. America.
1830. 1880. ^ 1830. 1880.
Xo. of establishments . 1,151 2,671 801 726
Capital per estab. . . $147,680 $140,292 $50,702 $275,503
Spindles per estab. . . 8,108 14,798 1,556 14,089
Looms per estab. . . 87 192 41 298
Laborers per estab. . . 205 180 77 228
Wages $2.51 $4.66 $3.46 $6.45 9
Price of cloth per yard, 15^ 6f 17 .07
It will be observed from the above that in 1830 the concentra-
tion of capital in the cotton industry was very much greater in
England than in America, the ratio of capital to establishments
being nearly three times as large, that of spindles more than five
times, that of looms twice as great, and that of operatives nearly
three times as great as in this country, while wages were 38 per
cent, lower. But in 1880 their relative position is reversed.
While in England the total, capital invested had a little more than
doubled, in America it had increased more than 400 per cent. In
England, with the increased capital, the number of establishments
had been commensurately increased, while in America the number
1 See Part III., chap, iv., sec. v.
s The wages in this table represent Massachusetts and England for 1883.
The average weekly wages for the whole period from 1872 to 1883 inclusive, in
the cotton industry, were : in England, $4.60 ; in Massachusetts, $7.68 being
66.96. percent, higher in Massachusetts than England. See "Massachusetts
Labor Bureau Report for 1884," p. 419.
348 EFFECT UPON OTHER INDUSTRIES.
of establishments was actually reduced. Hence, in 1880 the
amount of capital per establishment in England was $7,000 less
than in 1830, while in America it was five times as large. The
ratio of spindles to establishments only increased in England
about 82 per cent., while in America they increased 800 per cent.
The number of looms per establishment in 1880 had a little more
than doubled in England, while in America they increased six-
fold. During this period the number of operatives per establish-
ment in England diminished from 205 to 180, while in America
they increased from 77 to 228 ; and while wages in England rose
$2.15 a week, in America they rose $2.99 a week. All this clearly
demonstrates that the concentration of capital and the use of
labor-saving appliances in this industry made greater progress in
America than in England after the home market regime was in-
augurated. This is further shown by the fact that the price of
the product has been reduced more here, even with a greater rise
in the wages, than in England. Consequently, so far as the
manufacturing process is concerned, cotton cloth can be made
cheaper in America to-day than in England, notwithstanding
that wages in the same industry are 38 per cent, higher here than
there.
Nor was the beneficial effect of protecting the home market
in this instance limited to the cotton industry. The concentration
of capital and development of large factories in the cotton industry
naturally created a demand for machinery, which gave rise to
various branches of home manufacture in the iron industry and
the numerous industries involved in the building trades. With
this growth of manufacture and diversification of employment,
industrial centres became large cities, which furnished a steadily
increasing market for the products of our food and raw material,
producing population. This in turn necessitated railroads, which
still further lessened the cost of production, diversified industry,
cheapened travel, and thereby enabled the daily paper to penetrate
the rural districts, and the country population to come into more
frequent contact with city life ; and in other manifold ways de-
veloped the socializing influences of the nation, thus reacting upon
the social life, standard of living, and wages of the laboring class.
Without attempting to follow the various phases of industrial
development directly or indirectly resulting from the protection
WAGES IN NON-PROTECTED INDUSTRIES. 349'
of the home market, it is perfectly safe to say that, with the ad-
vantage that England had in factory development, it would have
been impossible to develop cotton and many other kindred
manufacturing industries without the imposition of a tariff, or
some other restrictive policy, unless we had lowered our wages
to the English level. To have done that would have destroyed
the incentive for emigration and thereby arrested the rapid in-
crease of our population, which in turn would have commensu-
rately checked the growth of our home markets, and thus
necessarily have greatly hindered the development of many
manufacturing industries. And if, without a tariff we had main-
tained our higher wage-level, not only our cotton cloth, but
nearly all our manufactured products, would have been made in
England, and we should have remained practically an agricultural
people, and hence, in all probability, would now be a third- or
fourth-rate nation, with a scattered population of perhaps from
twenty to thirty millions, having smaller wages, less general in-
telligence, and therefore a lower civilization than England.
SECTION VIII. The Relation of Protection to Wages in Non-
Protected Industries.
One of the most plausible objections urged against tariff legis-
lation is that it affords no benefit to those engaged in non-pro-
tected industries. It is insisted that in order to justify a tariff
policy, its advocates are bound to show that it is as advantageous
to those engaged in non-protected as in protected industries.
Nor is this an unreasonable demand ; there can surely be no
justification for any public policy which benefits one portion of
the community only at the expense of another. That the theory
of protection as hitherto presented has failed to fulfil this require-
ment can hardly be questioned by its most enthusiastic disciples.
The protectionists unquestionably believe that the whole com-
munity is benefited by a tariff policy, but they have hitherto failed
to explain how a tariff on the various articles of food, clothing,
furniture, and the like, benefits the carpenter, painter, plumber,
bricklayer, mason, engineer, compositor, and other domestic
artisans. This is chiefly due to the fact that they have accepted
the economic postulates of the laissez-faire economists, especially
350 GLADSTONE AND BLAINE.
regarding wages, prices, and profits, thus rendering a philosophic
conception of the protective principle logically impossible. We
have a striking illustration of this in Mr. Elaine's argument upon
that point in his recent controversy with Mr. Gladstone. He
said :
" He [Mr. Gladstone] sees that the laborers in what he calls
the ' protected industries ' secure high pay, especially as com-
pared with the European school of wages. He perhaps does not
see that the effect is to raise the wages of all persons in the United
States engaged in- what Mr. Gladstone calls the ' unprotected in-
dustries.' Printers, bricklayers, carpenters, and all others of that
class are paid as high wages as those of any other trade or call-
ing, but if the wages of all those in the protected classes were
suddenly struck down to the English standard, the others must
follow. A million men cannot be kept at work for half the pay
that another million men are receiving in the same country.
Both classes must go up or must go down together." '
This statement, which represents the gist of the modern pro-
tectionist position regarding the economic relation of protection
to wages, implies two assumptions, neither of which is correct :
(i) that wages are directly increased by the tariff in protected
industries ; (2) that through competition the rise of wages in
protected industries brings the wages in non-protected industries
up to the same level.
i. The idea that wages are high in protected industries be-
cause the tariff enables the manufacturer to obtain large profits,
and hence to pay higher wages, is one of the most popular falla-
cies connected with the whole tariff discussion. Even if tariffs
increased profits, that would not necessarily increase wages.
Employers do not raise wages merely because profits are large.
The increase of wages, except in rare cases, does not come
through the generosity of the employer, but through the pressing
demands of the laborer. Every laborer knows and every states-
man ought to know that protected employers are as ready to
reduce wages, as reluctant to increase them, and have as many
strikes, as do unprotected employers. But the assumption that
profits are larger in protected than in unprotected industries has
no foundation in fact. Even if a tariff did at first produce this
1 North American Review, January, 1890, pp. 47, 48.
BLAINE'S MISTAKE. 35 I
effect, it would soon be destroyed by competition, as capital would
leave unprotected to engage in protected industries, where larger
profits would be obtained.
Had the economic law of profits been understood, no such
assumption would have been made. It would then have been
seen that if there is any competition between producers in the
same market, the price of the commodity would tend to equal
the cost of producing the most expensive portion of the general supply.
If the cost of producing the dearest portion is lessened by free
trade, the price will fall ; if it is increased by protection, the price
will rise. But this change will affect the consumer's price, not
the employer's profit. The profit in either case will represent
the difference in the cost of production, increasing as the cost
diminishes below that of the dearest competitor, a difference
which neither free trade nor protection can affect.
2. Mr. Elaine's statement, that " a million men cannot be kept
at work for half the pay that another million men are receiving
in the same country," is also very unfortunate, as that is just what
is actually taking place all the time. Coal miners, agricultural
laborers, and many others are working every day in this country,
in many instances for less than half the pay that many classes of
workmen in the cities are receiving. And what makes this posi-
tion still more unfortunate is the fact that the printers, engineers,
bricklayers, carpenters, and others, whose wages are the highest,
are employed in non-protected industries ; hence this cannot be
the result of competition with the lower wages in protected in-
dustries. Neither is this difference in wages in the same country
peculiar to nationality or to political institutions ; it is as great
in America with protection and democracy as in England with
free trade and monarchy, or as in Germany with protection and
despotism. Instead of wages tending to uniformity in all indus-
tries in the same country, they tend to a greater diversity as
industrial differentiation advances. The only sense in which
wages tend to uniformity is in the same industry contributing to
the same market. 1
Nor is Mr. Elaine's statement, that " both classes must go up
or must go down together," any nearer correct. Experience
shows that they do not necessarily do any thing of the kind. For
1 See chapter on Wages.
352 CAUSE OF SLAINE'S ERROR.
instance, in 1725 the wages of agricultural laborers in England
were $s. ^d. ($1.28) per week ; those of carpenters, masons, brick-
layers, and other domestic artificers were 6s. ($1.44) a week. In
1800 the wages of agricultural laborers were us. $d. ($2.74) ;
those of domestic artificers iSs. ($4.38). In 1840 wages of agri-
cultural laborers were us. ($2.64) ; of artificers 33^.' ($7.92).
In 1877 wages in the London building trades were 4.2$. gd?
($10.26) a week, while in agriculture wages were about 13^.
($3.12) a week, being only 14.?. ($3.36) in'i884. 3 In a word,
during the present century the wages of mechanics and artisans
have increased more than twice as much as those of agricultural
and other rural laborers. The truth is, a protective tariff does
not affect wages in any such manner as indicated by Mr. Elaine. 4
The laborer knows from experience that an increase in the
tariffs on the particular commodity he produces does not
yield any commensurate increase in his wages. And to persist
in telling him that it does, can only result in destroying his
confidence in the economic advantage of a protective .policy.
If working men are expected to take an intelligent interest in
protection, a more rational explanation of its advantages must
be presented.
1 Wade's " History of the Working Classes," p. 166.
2 Rogers' '' Six Centuries of Work and Wages," p. 539.
8 Mulhall's " History of Prices," p. 125.
4 This argument clearly shows that the American protectionist has not yet
outgrown the English demand-and-supply (wage-fund) fallacy, which is further
shown by the fact that Mr. Elaine actually ascribes the rise of wages in England
to the increased demand for labor here. North American Review, January,
1890, p. 48. If this were true why did not wages rise still more in Ireland,
Germany, Italy, Bohemia, etc., from which countries the emigration has been
much greater than from England, and why have wages risen as much in France,
with almost no emigration, as in continental countries, where emigration has
been the greatest ? The truth is that voluntary emigration tends to check rather
than promote the rise of wages, because it draws off the best laborers upon whom
a rise in the wage-level depends. It is only when the lowest laborers are ex-
ported that home wages are improved by the change. That is why the condition
of the laborers in any country can best be improved at home. Hence the true
economic policy is to develop the home market and diversify domestic industry
instead of relying upon emigration as the means of relieving industrial distress.
The true way to help the people of Russia, India, and China is to take our
civilization to them and not to bring them to our civilization, and this can best
be done by developing our own possibilities. See section ix., p. 98.
HOW TARIFFS AFFECT WAGES. 353
Considered from the point of view here taken, however, these
seemingly conflicting facts are easily explained. When we under-
stand that the price of labor, like that of commodities, is governed
by the cost of furnishing the dearest portion of the necessary
supply, and that this cost is determined by the laborer's standard
of living, which in turn depends upon his character and social
environment, the whole subject assumes a new aspect. It then
becomes apparent that no influences can permanently affect
wages which do not operate upon the laborer's social life and
standard of living. The only way a tariff can do that is by
promoting the concentration and diversification of industry,
thereby creating more complex social relations that, stimulate
the growth of new desires and habits and a higher plane of
living. Manifestly these influences operate just as much upon
the laborers in non-protected as in protected industries. The
non-protected printer, carpenter, and painter obtain just as much
advantage from the social influences of a manufacturing city as
do their protected neighbors, the hatter and cigar-maker. The
wages of city mechanics are higher than those of rural laborers
because their standard of living is higher, which is owing, to the
more complex social conditions under which they live. It is
only to the extent that a tariff promotes the development of these
social conditions by protecting the home market that it in-
fluences wages in any industry. Upon the principle therefore
that protection is economically beneficial only as it tends to
develop the socializing influences of the nation, it is clear that its
effect upon wages is not limited to protected industries, but that
it effects equally the wages of all laborers to the extent that it
directly or indirectly affects their social environment.
If it were true, as is usually assumed, that a tariff benefits the
laborer through increasing the employer's profits and thus en-
abling him to pay higher wages, it would be true as is often urged
that the non-protected mechanic has no interest in a protective
policy. And so long as that view is taught by leading protec-
tionists, we may expect to see the intelligent laborers in domestic
industries, especially in our large cities, become free-traders.
But from the point of view here presented their interest in a
protective policy is quite as great and often greater than that
of those employed in the most highly protected industries. With-
23
354 SOCIAL FORCES OA'LY RAISE IV AGES.
out the development of cities and manufacturing centres, as
already shown, railroads, telegraphs and other industries, to say
the least, would have been in a much less advanced state. 1 In
which case the industrial and social environment of the great mass
of mechanics would have been more homogeneous, hence a more
simple social life and lower wages would have been inevitable, as
is the case in small towns, rural districts, and non-manufacturing
communities throughout the world. To the extent that a tariff
policy has developed manufacture and the growth of cities, it has
improved the. social life and wages of laborers in all industries
in those industrial centres, protected and non-protected. And
to the extent that it has developed railroads and telegraphs, it
has shortened the distance between farm and factory, and thereby
increased the opportunities that force rural laborers into more
frequent contact with the social influences of city life, thus in
its reflex action elevating the social life and wages of rural
laborers. This explains why the wages even of agricultural and
other laborers in isolating occupations are always higher in the
immediate vicinity of cities and manufacturing towns. 2
This view of the subject also enables us to understand why a
tariff will not produce the same effect in a small community like
an Australian colony, that it will in a large country like the
United States, even though the wage-level is as high there as it is
here. It is because the population there is too small to furnish a
sufficiently large market to sustain the use of the most highly de-
veloped factory methods, without which the socializing environ-
ment necessary to raise the standard of living and the rate of
wages cannot be developed.
There is one other fact that should be noticed before leaving
this point. We are told that despite the improvements in ma-
chinery and the general advancement, the condition of the factory
1 Witness India, Russia, and Turkey as compared with this country in these
respects. There are six times as many miles of railroad in New York State as
in all Turkey, and more miles of railroads in the United States than in all the
rest of the world.
* This fact has been universally observed though very little understood. See
"Wealth and Progress," pp. 160-163 ; Rogers' "Six Centuries of Work and
Wages," pp. 171, 172, 180, 327, 535, 536. Also " Wealth of Nations," Book
I., ch. viii. For similar facts in India see Buchanan's "Journey through the
Countries of Mysore, Canara, and Malabar," vol. i., pp. 124, 125.
MINERS AND FACTORY OPERATIVES. 355
operatives of New England and the miners of Pennsylvania is no
better, but in many cases is worse, than it was forty years ago,
although the products of these industries are highly protected.
There is some truth in this statement, and a great deal of error.
In the first place, it is not correct in any general sense to say that
the condition of the miners and factory operatives has not im-
proved. It is true, however, that the condition of the laborers
employed in those industries to-day, as compared with those
of forty years ago, has not improved commensurately with the
progress of the community. This fact is usually taken as con-
clusive evidence that, through some unjust manipulation of in-
dustrial forces, the laborers in these industries have been excluded
from the beneficial effects of the increasing wealth and social
advancement.
A little closer examination of the facts, however, will show
that this conclusion is erroneous. Suppose, for example, that in
a given business the laborers were intelligent Americans in 1850,
but for some reason they all left it and their places were filled by
Italians or Chinamen, would it be any test of the industrial and
social progress of the laborers in the community to compare the
wages, character, and intelligence of these Chinamen and Italians
in 1890 with those of the Americans who were employed in that
industry in 1850 ? Such a comparison would be rejected by any
fair-minded investigator as unworthy of a moment's consideration.
He would very properly insist that, in order to ascertain the
improvement in the laborer's condition from 1850 to 1880, we
must compare the condition of the same laborers. The wages
and social condition of the Chinamen and Italians might have
improved a hundred per cent., and still be no better in 1890 than
were those of the American laborers in 1850. The only way to
ascertain whether or not, or to what extent, the laborer's con-
dition has improved, is to compare the condition of the American
laborers in 1890 with their condition in 1850, and also the con-
dition of the Chinese and Italian laborers in 1890, not with that of
the Americans, but with their own condition in 1850.
Now this is precisely what has taken place in New England
factory life. The operatives of forty years ago were mainly
composed of native Americans, mostly children of the New
England farmers. During this period the industrial history of
3 $6 EVOLUTION OF INDUSTRIES.
America has been unlike that of any other country in the world.
Owing to our higher wage-level and the protection of our home
market, manufacture and a variety of occupations increased much
faster than did our native population. The consequence was a
continuous stream of emigration to this country. The introduc-
tion of every new industry of a higher order naturally drew to it
the more intelligent and characterful portion of the laborers from
the grade below, their places being filled by the less competent.
By this means there was an almost constant movement of laborers
from the more simple to the more complex and artistic industries,
and the less advanced laborers from other countries taking the
simpler occupations. In the cotton industry, for example, as
Americans moved up into the position of overseers, managers, or
merchants, their places were taken first by English, next by Irish,
and last by French Canadian operatives, so that to-day an Ameri-
can is scarcely to be found in the cotton factories of New England,
except in the superior positions, many of the various grades
of overseers, machinists, etc., being English or English-Irish.
Therefore, if we compare the wages and social conditions of the
spinner and weaver in New England cotton factories to-day with
those of 1840, we are not dealing with the same class of people
at all, nor even with the effects of the same civilization. The
French or Irish operative may not be very much better off to-day
than was the American who occupied the same position forty years
ago, and yet his condition may have been improved several hun-
dred per cent. The same is true of the miners of Pennsylvania,
who to-day are largely composed of the poorest laborers from
Continental Europe.
In order, therefore, to ascertain the progress that has taken
place in the industrial and social condition of these classes of
operatives, we must not compare their present condition with that
of the American forty years ago, but with their own condition at
that time. If we compare the condition of small merchants in
New England to-day with that of factory operatives of 1850, or
compare the condition of the English, Irish, and French Cana-
dian operatives in New England and the miners of Pennsylvania
to-day with what it was in England, Ireland, Canada, Scandi-
navia, Bohemia, or Russia thirty or forty years ago, the improve-
ment will appear as marked as in that of any other class in the
EFFECT UPON OTHER COUNTRIES. 357
community. To overlook this is entirely to misapprehend the
phenomena under consideration. These facts are not referred
to here to give a rose-colored tint to the condition of these
laborers ; on the contrary, I regard their condition, in many
instances, as not only a disgrace but as a serious danger to our
civilization. 1 They are referred to, only to emphasize the mistake
of ignoring them in considering the effect of modern industrial
influences upon the social condition of the laborers ; because it is
only by recognizing all the facts in the case, that we can form any
true estimate of the beneficial or other effects of any industrial
policy. Hence it may properly be said that to the extent that
protection has promoted the growth of manufacturing industries
it has directly and indirectly improved the social condition and
raised the wages of all classes of laborers in this country com-
mensurately with the advance of the community.
SECTION IX. The Influence of Protection in the Most Ad-
vanced Countries upon the Progress of the Less Advanced.
Perhaps the most specious argument employed in favor of a
free-trade policy is that it is cosmopolitan in its character, that
it rises above local, sectional, or even national considerations,
treating all mankind as brethren, while protection is pre-emi-
nently a local policy that endeavors to discriminate against the
people of all other countries in favor of its own. It may be ad-
mitted that any policy which promotes the welfare of one country
at the expense of another is essentially unphilosophic, and that
the best policy for any country is the one whose beneficial effects
are most universal. The economic character of a public policy,
however, should never be judged by its immediate or temporary
effect, but always by its permanent and ultimate influences.
Measured by this standard, it is not difficult to show that the
protective principle as here laid down is pre-eminently cos-
mopolitan in its character.
It may be regarded as a self-evident proposition that he who
would help others must first develop the best in himself, since not
to develop his own capacities is to limit his usefulness. The most
altruistic effects are usually produced by efforts to broaden and
1 See " Wealth and Progress," pp. 365-373.
358 SELF-IMPROVEMENT THE FIRST STEP.
elevate our own social life, because every addition to our own
life embraces more of the efforts, interests, and well-being of
others. In proportion as the interests of others becomes iden-
tified with our own, will our efforts be directed to promoting
their welfare as much as our own. In other words, in proportion
as we become socially interdependent do our efforts become
altruistic and cosmopolitan. Indeed, it is only by increasing
man's interdependence upon his fellow-man that the solidarity
of the human race will ever be realized, and the altruism "which
shall make every man's happiness include that of all mankind
become an established fact.
This is as true of nations as of individuals. The nation which
would contribute most to the advancement of human progress
must develop its own civilization. We might as well expect the
weak to carry the strong, as barbarism to aid civilization. That
nation which most completely develops its own industrial and
social possibilities, creates the most improved methods of pro-
duction. In this way it is not only able to obtain its own
wealth cheap, but ultimately to produce many commodities at less
cost than can be produced by the cheap labor of less civilized
countries. Upon the principle that whatever undersells succeeds,
the less civilized countries are compelled to adopt the superior
methods. Thus the benefits of inventions which result from the
development of a higher civilization are automatically transferred
to the lower, and the socializing influences of improved methods
of production become cosmopolitan.
This is clearly demonstrated by the adoption of various kinds
of American machinery abroad, without the use of which many
European products would have been undersold by ours. Nor are
the benefits which more highly civilized countries confer upon
the lower, limited to what is forced upon them by competition in
commodities which they both produce. A still greater benefit
arises from the introduction of new commodities, which more
diversified tastes and more complex social life of the more
highly civilized country bring into existence. As a demand for
new commodities increases, labor-saving appliances are invented
to reduce the cost of their production, until they can be sold in
foreign countries at merely a nominal price. In this case the
products of a higher civilization are not competing with those
ECONOMIC SELECTION' OF INDUSTRIES. 359
of a lower, but new products are being introduced into less
civilized countries ; this stimulates a taste for articles they have
not hitherto used, thereby introducing new elements into their
social life. Just as fast as a demand for such new commodities
is created, the social life is diversified, the standard of living
is raised, wages are increased, and a market basis for new
industries is established. This is what the diversified tastes
and inventive genius of America have been doing in Europe
and South America to an increasing extent during the last
twenty years.
Another advantage of a protective policy is that it tends to
make the economic selection of industries possible, thereby
promoting the only conditions upon which free trade between
nations can ever take place without injury to the higher-wage
country.
The postulate, so frequently emphasized by the advocates of
laissez faire, that nations, like individuals, should be enabled to
adopt those industries for which they are best fitted, is unexcep-
tionable. But in order to obtain this result, it is necessary to
secure opportunities for developing the economic possibilities
of the people. It should ever be remembered that the most effec-
tive economic force in society is human invention and not
natural resources, as is commonly assumed. For reasons already
explained, labor-saving inventions can be developed only under
the influence of socializing and diversified industries. These
conditions, without which a truly economic selection of industries
is impossible, are what protection furnishes.
Although it may be possible for these conditions to exist with-
out protection, history does not furnish an instance where such a
thing has occurred. The way in which protection promotes
this is easy to understand. In the first place, by raising the
basis of international competition to the plane of the higher wage-
level, it prevents the lower-paid labor of one country from being
made the means of checking the growth of manufacturing in-
dustries in another. This secures a home market for domestic
products and furnishes an economic basis for a diversification
of socializing industries in the higher wage-country. The greatest
incentive is thus furnished for developing the most economic
methods of production. With concentrated capital, the use of
360 PROTECTION PROMOTES FREE TRADE.
highly perfected machinery, and the development of specialized
industries, a truly economic selection of industries becomes pos-
sible. The conditions will then exist for determining what things
a nation can most economically produce, by reason of its pe-
culiar character, natural resources, and civilization.
When this point is reached, protection will be economically
necessary only to the extent of preventing the substitution of
simple for complex industries. It will then be to the advantage
not only of that nation, but of the world, that it should devote
its productive energies to those industries for which it has devel-
oped the best capacity, and to relinquish all others to countries
for which they are better adapted. Just in proportion as this
takes place,, protection becomes unnecessary provided, however,
that this change does not involve the substitution of simple for com-
plex industries. For example, if America becomes highly profi-
cient in the manufacture of jewelry and relatively deficient in
the manufacture of silk, capital will naturally go to the former
and away from the latter industry. Foreign silk might then be
admitted free of duty without injury to the American laborer.
It will thus be seen that protection (as here considered) not only
prevents a less civilized country from checking the progress of a
higher, but by promoting the substitution of economic for natural
(blind) selection -of industries, it tends ultimately to make a mu-
tually advantageous free trade possible.
Thus a protective policy is not necessarily narrow and ex-
clusive, but, when philosophically applied, is a most truly
cosmopolitan doctrine of industrial relations, because it tends
first, to develop home industry and civilization without injuring
others, and second, to automatically extend these beneficial
results to all mankind.
Here, then, we have a truly philosophic and strictly economic
basis for applying the protective principle both to foreign and
domestic industrial relations. It consists in securing the present
and promoting the future opportunities (incentive-creating con-
ditions) for developing the highest industrial and social possibili-
ties of a people, and may be briefly summarized thus :
Foreign Applied to the industrial intercourse of nations, a
true protective policy is to prevent the products of the more
advanced countries from being undersold by the products
PROTECTIVE PRINCIPLE APPLIED. 361
of less civilized countries, through the use of lower paid
labor ; thereby securing opportunities for developing the
best methods of production afforded by the larger consump-
tion and higher social life of the more advanced country.
Domestic Applied to the relations of individuals and classes
within the nation, this policy is one to guarantee the safety
of persons and property with the maximum amount of indi-
vidual freedom, and to secure the education, leisure, and
other like conditions, which tend to develop the best physical,
intellectual, and moral qualities of the individual citizen.
The scientific application of this principle to the various phases
of industrial, social, and political life is the true function of
statesmanship.
CHAPTER IV.
THE PRINCIPLES OF ECONOMIC TAXATION.
SECTION I. The Economic Basis of Equitable Taxation.
IN the preceding chapter, taxation was discussed solely as an
instrument of industrial protection and national development.
It is now proposed to consider taxation as a means of obtaining
public revenue. In order to determine how to obtain the neces-
sary revenue with the least expense and the greatest equity to all
classes, it is necessary briefly to consider : (i) the principle which
should determine the individual's contribution to the state ; (2)
the source from which the contribution should be drawn.
(i) The principle which should govern individual service to
the state is a much debated one. It has been contended by
some that a tax should be proportionate to the degree of pro-
tection furnished by the state. According to this view, if one
class of property is exposed to more danger than another, its
owners should pay a proportionately higher tax. The objection
to this is that it would place the greatest burden upon those least
able to bear it. Assuming taxes to stay where they are put,
under this system the owners of coal mines, stone quarries,
and land would be almost exempt from taxation, -while those
engaged in manufacture and commerce would have to pay very
high taxes. Moreover, the very poor and helpless, who most
frequently need the aid of the state in many forms and are least
able to contribute, would be the most heavily taxed. Since the
function of government is to protect and promote opportunities
for increasing the well-being of the individual, the most equitable
basis on which the individual can be called upon to serve the
state, is evidently his ability to contribute without injury to him-
362
PROPERTY TAX. 363
self. This idea is more or less generally recognized, as is shown
in the frequent demand to have a heavier tax imposed upon com-
modities consumed by the rich than upon those consumed by the
poor. And the frequent demand for taxing incomes above a
certain amount, the exemption of wages and small homesteads,
all of which are efforts to make the rich contribute more to the
public revenue than the poor, upon the principle that they are
more able to contribute.
(2) From what source should this tribute to the state be drawn,
or what is the best measure of an individual's capacity to pay
without injury to his own well-being ? It is commonly assumed
that the ability of a citizen to pay a tax is proportionate to the
property he owns ; this, however, is far from being correct. For
instance, one may legally own a large amount of property which
is so highly mortgaged as to make his ownership merely nominal.
To tax such a man in proportion to his property would impover-
ish him, while the effect of a similar tax upon his neighbor whose
property is free from mortgage would be relatively slight. One
manufacturer with a large plant may, through a mere change of
fashion or other social cause, be working at a loss, while another,
with a similar plant, but who is unaffected by the fashion, may be
making large profits.
Clearly, to tax the property of these two at the same rate would
be to deprive the former of his means of getting a living, while
from the latter it would take but a fraction of his surplus, and hence
would in no way impair his present industrial or social status.
Manifestly then a uniform tax upon product or property would
not fall with equal weight upon all. In other words, the owner-
ship of property does not constitute a correct measure of the^in-
dividual's ability to contribute to the public revenue. There is
but one source from which wealth can be taken with the certainty
that it will not inflict a burden, and that is, surplus income, which
embraces all the forms of rent, interest, and profit.
The reason this form of income can be taxed with the least
burden to its owner is that it does not enter into the necessary
cost of his living. The cost of the social well-being of all who
participate in production being a part of the necessary cost of
production is represented by wages and salaries, the surplus is
what remains after these costs are defrayed. Consequently, ai-
364 MOBILITY OF TAXES.
though to pay a tax from one's surplus is to lessen one's wealth,
it does not intrench upon the normal means of social well-being,
and therefore inflicts the minimum amount of economic and
social inconvenience. Clearly then, the extent of the surplus in-
come is the measure of an individual's ability to contribute to
the public revenue without injury to his own well-being. How
then can taxes be levied so as to be drawn from the economic
surplus of the community without disturbing industrial relations ?
This would be a very simple problem if the taxes would stay
where they are put and were paid by those upon whom they
are levied. But this is just what does not occur. In order
therefore, to answer this question, it is necessary to consider the
economic mobility of taxes.
SECTION II. The Mobility of Taxes and their Relation to
Wages.
To ascertain how taxes travel from one to another class in the
community, and to find by whom they are ultimately paid, we
have only to follow a tax from where it is levied to the place
where it cannot be further shifted. For illustration, let us sup-
pose that a tax is laid upon land ; the land being the source of all
raw material, such a tax would affect all commodities in the first
stage of their production. Upon the principle that a commodity
cannot be continuously furnished for less than it costs, the tax
will be added to the price of the product in the same way as
wages and other items, and must be paid by the purchaser. If
the article is wheat, the tax is thus transferred from the far-
mer to the miller. The tax being an inevitable item in the cost
of the flour to the miller it is transferred by him to the wholesale
merchant, and by him to the retail grocer, who in turn passes it
on to the consumer. Manifestly unless the consumer can transfer
the tax to some one else, he must pay it, because it is included in
the price of his commodity in addition to all necessary costs.
This brings us to the most critical point of the subject. All
writers of any standing recognize the mobility of the tax from the
raw material to the consumer of the finished product. But it is
generally assumed that the tax cannot be made to travel any
further than the commodity in whose cost it is an item, and con-
sequently whoever consumes the article ultimately pays the tax.
RELATION OF TAXES TO WAGES. 365
If we examine the matter more closely, however, we shall see that
this conclusion is only partially correct. Whether or not those
who consume the wheat pay the tax, will depend upon whether its
consumption forms an item in any further series of production.
Suppose, for instance, the wheat is consumed by horses that are
employed in a brick-yard. The wheat in that case at once be-
comes an item in the cost of using the horse, which in turn is an
item in the cost of the brick. This point is very important
here, because it has a direct bearing upon whether or not the
laborer ultimately pays the tax included in the price of the com-
modities he consumes.
The laborer, it should be remembered, exercises two functions
One is social, and the other economic. As a social factor he is
a consumer, and constitutes an important item both in ^civilization
and in the market. As an economic factor, however, he is
simply a productive force. In this capacity he affects the price
of the product in precisely the same way as does any other force
so employed, whether it be through the instrumentality of ani-
mals or machinery. Economically they all affect the cost and
price of the product in the same way, namely, through the cost
of procuring them. The cost of any productive instrument is
what is consumed in maintaining its productive efficiency, and
that cost must be replenished from the price of the product.
Now, the cost of maintaining the productive efficiency of the
laborer is his living. Whatever is necessary to that is a part of
the price of his labor wages, and therefore becomes a neces-
sary item in the cost of whatever he produces. Clearly, there-
fore, the more his living costs, the more expensive will be his
labor. If his cost of living could be reduced, either by inducing
him to consume fewer commodities or by lessening the cost of
those he does consume, his wages could easily be lowered. The
price of labor in Asia and continental Europe is less than in
America because labor there costs less. 1
For the same reason that the price of labor would fall if the
cost of the laborer's living could be reduced, it must and will
rise if the cost of that living is increased. Nor does it matter
whether the increased cost is due to an increase in the amount of
'"Wealth and Progress," Part II., chap, vii., sec. i., pp. 162-167; also
Brassey's " Work and Wages," pp. 88, 89, 94-96.
366 THE LABORER SHIFTS THE TAX.
wealth he consumes or to a rise in the price of that wealth. Thus,
during the American war, when the price of commodities was
greatly increased through the inflation of the currency, wages soon
moved in the same direction and fell again when the prices were
lowered as, indeed, they have throughout all history. 1 Clearly,
therefore, if the price of a laborer's flour, sugar, coffee, clothing,
and the like is increased by a tax, the result will be economically
the same as if the higher price were due to the payment of higher
wages to agricultural laborers, a rise in the rate of transportation,
a failure of crops, or any other cause ; and if it becomes perma-
nent it will result in his demanding and obtaining higher nominal
wages. The laborer would not gain any thing in well-being by
such a rise of wages, but it would be necessary in order to furnish
him the amount of well-being to which he had become habitually
accustomed, and without which he would refuse to work. In this
way, therefore, the tax is transferred from the laborer to the em-
ployer. 2 What is true of the laborer is equally true of all who
receive stipulated incomes.
To whom, then, it may be asked, does the employer transfei-
the tax ? Here the answer is as before to whomsoever he can.
And if he cannot transfer it to anybody, he must pay it himself.
He will of course utilize all the economic forces at his command
to pass the tax to somebody else. He may first try to make the
1 " Wealth and Progress," pp. 148-156; also McCulloch's "Principles of
Political Economy," p. 181.
3 This fact was recognized by the early English writers, although, like many
others of their best suggestions, it has been subsequently treated rather as an
incidental than a primary fact. Adam Smith says : " Such a tax must there-
fore occasion a rise in the wages of labor proportionable to this rise of price. It
is thus that a tax upon the necessaries of life operates in exactly the same man-
ner as a direct tax upon the wages of labor. The laborer, though he may pay
it out of his hand, cannot, for any considerable time at least, be properly said to
even advance it. It must always, in the long run, be advanced to him by his
immediate employer in the advanced rate of wages." " Wealth of Nations,"
Book V., chap, ii., article iv., pp. 691 and 692 ; see also pp. 686, 693, 694, and
704. Ricardo says : " There can be no permanent fall of wages, but in con-
sequence of a fall of the necessaries on which wages are expended." " Political
Economy and Taxation," p. 75. "A tax, however, on raw produce and on the
necessaries of the laborer, would have another effect it would raise wages."
find., p. 93. " The effect of a tax on wages would be to raise wages by a sum
at least equal to the tax, and would be finally, if not immediately, paid by the
employer of labor." Ibid., p. 133 ; see also pp. 129, 136, and 141.
TAXES DRAWN FROM THE SURPLUS. 367
laborer pay it by refusing to increase wages, but here he will be
met by the laborer's refusal to work, and, should he try to put it
on the consumer in higher prices, he will only be repeating the
circle, because the increase in the price will act as before upon
wages, and he will have to pay out to the laborer what he has
thus exacted from the consumer. In the last analysis, therefore,
the only source from which the employer can pay the tax is his
surplus or profit. 1 That being, as we saw in the last section, the-
true measure of the individual's ability to contribute to the public
revenue without curtailing his own well-being, it is the most
equitable basis of taxation. This brings us to the question how
the employer replenishes his surplus from which taxes are finally
drawn.
SECTION III. The Ultimate Effect of Taxation upon Profits
and the General Wealth of the Community.
If the conclusion reached in the last section is correct, and
taxes finally come out of the surplus product, then it follows that
either profits diminish as taxes increase, or that the employer has
some means of replenishing his surplus. We know from ex-
perience that the aggregate amount of wealth taken in taxes tends
to increase as society advances, and it is equally certain that the
aggregate profits do not diminish. On the contrary, while there
is a tendency to minimize the rate of profit per unit of product,
the aggregate amount of surplus product in various forms un-
questionably tends to increase. Clearly, then, there must be
some means by which the employer can replenish his surplus
when thus drained by taxation. How does he do it ?
We have already seen that he cannot take it from the consumer
1 Accordingly, any extra pressure of taxation is always first felt by the business
portion of the community in the diminution of profits. Hence we always
find the commercial class the first to protest against excessive taxation. For
this reason no representative government, and few despotic ones, could suddenly
increase the taxation of the country by an amount equal to the aggregate profits
of the community, because such an act would practically be a seizure of the total
surplus revenue, which would, in all probability, cause a revolution that would
destroy the government. That is why, whenever an exceptionally large amount
is to be suddenly raised by taxes, it invariably takes the form of a loan for a long
period, thus extending the ultimate payment of a portion of the tax to future
generations.
368 HOW THE SURPLUS IS REPLENISHED.
by raising prices, nor from the laborer by reducing wages. That
he does not take it from either of these sources is further shown
by the fact that contemporaneously with the increase of taxation,
real wages have risen and the price of commodities has fallen.
Manifestly then, the only way the producer's surplus can be
replenished is by a new draft upon nature through increased
production. Nor will it be difficult to see how this takes place,
if we bear in mind the law of prices and surplus, previously
presented.
Under this law, whenever productive methods are employed
by which nature yields a greater amount of wealth for the same
effort, all other demands upon the product being fixed amounts,
the whole gain naturally flows to the contingent surplus of those
who use the new methods. Consequently, all increase in the
wealth of any stipulated income class in the community, whether
it be through lowering prices or increasing wages, must be drawn
from the contingent surplus of the producers. For instance
when, by the adoption of more productive instruments, the sur-
plus of the most successful producers increases, there arises a
greater inducement to invest more capital in the enterprise, and
thus increase production. In order to insure the sale of this
increased production, it is offered at a lower price. If this
reduction be ten per cent., the uniform price of the total product
in that market will fall ten per cent. Manifestly this fall comes
directly out of the profits of the producers, and all who were
previously making less than ten per cent, profit will now have to
leave the business or adopt the methods by which the reduction
was brought about. Thus the additional wealth resulting from
the increased productive efficiency first flows to the economic
surplus of those producing the improvement, and then by com-
petition, is transferred from the producers' surplus to the com-
munity in lower prices.
An increase of wages takes place upon the same general
principles, and with substantially the same result, but it comes
in a somewhat different way. A reduction in prices is a distri-
bution of the surplus through the aggressive action of employers.
An increase of wages is a distribution of the surplus by the
aggressive action of laborers. As already explained, the enforced
transfer from profits to wages compels the producer either to
TAXES INCREASE PRODUCTION. 369
work without profit, or perhaps at a loss, or to adopt some
labor-saving means by which more can be produced at the same
cost. Thus the laborer's encroachment upon the capitalist's
surplus forces him, under penalty of poverty, to make nature
yield more wealth for the same effort, thus replenishing what
the laborer has taken from him, and making the community
absolutely richer by the amount to which wages have been
increased. 1
What is true of wages is true of any other form of increased
consumption which adds to the cost of production. Taxation is
precisely of this character. If 10 per cent, is added to the price
of wheat or cotton by a tax, the mobility and ultimate economic
effect upon profits and production will be identically the same as
if 10 per cent, had been added to the cost by an increase of
wages. The same economic power which would enable the
farmer to add to the price of wheat an increase m the farm
laborers' wages, and the miller, wholesale and retail merchant,
each in turn to add it to the price of flour, and the mechanic,
who consumes the flour, to add it to his wages, and thus ultimately
take it from the employers' profits, will enable them to do pre-
cisely the same by a tax which increases the cost of production
in the same way, no matter at what stage of the process it is
levied. Taxation, like wages, is simply a form of consumption,
and hence exercises the same influence upon profits and the
general wealth of the community as any other form of consump-
tion namely, to increase the aggregate production, which added
increment goes to replenish the source from which the tax was
last taken the employer's profit.
It will thus be seen that the entrepreneur does not pay the
tax, in the sense of being permanently the poorer by it, any more
than does the farmer, miller, merchant, or laborer. They each
shift it on to the next purchaser of the product into whose cost
it has entered. In the laborer's case, having become a part of
the cost of his labor, it is charged to the employer in the same
way. The employer, being unable to charge it upon any class
of his fellow-men, is forced, by the impulse of self-interest, to
exact it from nature, which he finally does in the form of a larger
product. Therefore Professor Sumner's statement that " every
1 Part II., chap, v., sec. iii. Also " Wealth and Progress," pp. 31, 32.
24
37O IMPORTANCE OP TAXATION EXAGGERATED.
tax is an evil " is essentially false. A tax is not necessarily an
evil any more than wages or any other form of consumption. 1
It will thus be seen that taxation properly occupies no such
important position in economics as is usually ascribed to it. If
the total consumption upon which the $300,000,000 of taxes in
this country is expended were abolished to-morrow, instead of
adding to our wealth, it would create an industrial depression in
this and probably in several other countries, until, by enforced
idleness and bankruptcy, production could be readjusted on the
narrower basis to conform to the diminished consumption or
demand. Were this relation of consumption to production prop-
erly understood, taxation would cease to be the hobgoblin of
public affairs. The important question regarding taxation is not
as to who shall pay the taxes, nor how much they shall be, but as
to how they shall be expended. If a large amount of wealth
is exacted from the community in taxes, and is squandered, then
there would be no justification for a readjustment of economic
relations which its production involves. If the tax revenue is
used to repress any phase of social progress, as would be in
maintaining a standing army, it is then a positive injury. Only
when the wealth created by tax is used to further the social
development of the people has it any economic or ethical justifi-
cation. Upon what principle, then, should the public revenue
be expended in order to justify its collection ?
SECTION IV. The Legitimate Sphere of Public Expenditures.
Since the public revenue is but the means by which government
fulfils its functions, its expenditure is necessarily limited to the
sphere of governmental action. We have already seen that the
functions of government are essentially protective, judiciary, educa-
tional, and impersonal in their character. Clearly therefore, the
sphere of public expenditures is properly limited to the promotion
of those objects which may be conveniently grouped into two
classes as the Static and the Dynamic functions of government.
1 Whether or not a rise of wages or an increase of taxation will be beneficial
will depend largely upon how it is expended, and this, in turn, will depend
upon the influences by which it was brought about, but, in any event, it will
cause an increase in production.
TWO FUNCTIONS OF GOVERNMENT. 3/1
The static functions embrace all that is necessary to secure the
community against a common enemy and to enforce the recog-
nized system of social order as expressed in established institu-
tions. This may require a large army, an extensive police force,
and a numerous staff of judiciary and executive officers. The
means necessary to sustain these instruments of public order
should be supplied from the public revenue, for the obvious
reason that it is the function above all others which can be best
performed by the government, and without which it would be
impossible for the individual to perform with safety and freedom
any of the industrial and social duties of a civilized citizen. All
expenditure for this purpose represents the price that civilization
has to pay for guarding itself against the effects of barbarism, and
should be reduced as rapidly as possible.
To accomplish this reduction involves the exercise of the
dynamic functions of government. These relate to increasing
the opportunity for developing all phases of individual capacity
and freedom. Opportunity, as the term is here employed, is
distinctively educational in the broadest sense of the word. Every
thing is educational that brings man into more frequent contact
with an increasing variety of social influences which tend to stimu-
late his wants and desires, sharpen his intelligence, and actualize
the latent possibilities of his character. This embraces not only
the elementary education furnished by the common school, which
is of prime importance to citizenship, but it also includes the
furnishing of clean, wholesome streets, good drainage, ventilation,
and other sanitary requisites to wholesome domestic life, an abun-
dance of public parks, gardens, museums, free lectures, reading-
rooms, circulating libraries, and, above all, the leisure necessary
to enable the masses to avail themselves of these and kindred
educating and elevating influences. To the extent that these
opportunities are increased will the intelligence and character of
the citizen be elevated and the functions of the soldier, policeman,
judge, and jailer become unnecessary. Consequently, to the
extent that the public revenue is expended in performing the
dynamic functions of the state will the amount required to
perform the static functions diminish. This is the more import-
ant because every dollar that is consumed by the government in
exercising its static functions involves so much production
3/2 PUBLIC IMPROVEMENTS,
without any real increase in well-being, it being all consumed in
guarding what already exists. On the other hand, every dollar
expended by the state in performing its dynamic functions
involves an increase of production, all of which is a net gain in
social well-being.
Therefore, instead of treating all taxes as an evil to be dimin-
ished, it is only the amount of the public revenue consumed by the
government in performing its executive and police duties that
can properly be so regarded. All that is consumed in extending
the socializing opportunities of the people is a positive benefit
and should be increased, especially as the increase of the latter is
the surest way of diminishing the former. To oppose an increase
of taxation for public improvements, in the name of economy, is
a fallacy which cannot be too frequently exposed. It is just as
important to have clean streets as to have clean houses, and the
wealth consumed in the one contributes to civilization as much
as that consumed in the other. The only question to be con-
sidered regarding such expenditures, is whether or not they can
be more efficiently conducted by the government than by private
individuals. 1 But that the wealth so consumed should be
increased is sustained by all the interests of civilization, and
those who oppose it are unconsciously or otherwise obstructing
the movement of social progress as surely as those who oppose
popular education and favor long hours of labor and low wages.
SECTION V. How can Taxes be Most Equitably Levied,
Conveniently Paid, and Economically Collected?
This proposition involves two questions : (i) How taxes should
be levied. (2) What they should be levied upon.
i. There are two general methods by which the public revenue
can be obtained direct and indirect taxation. It is a peculiar
feature in the history of taxation that those who are charged with
the responsibility of raising the revenue and with the administra-
tion of government, usually prefer to obtain the revenue through
indirect taxation. On the other hand, revenue reformers and
social reformers generally advocate direct taxation.
Direct taxation is urged in preference to indirect, chiefly on the
1 See Part IV., chapter ii., section iii.
DIRECT TAXATION. 373
ground that a tax is an evil which should always be minimized,
and that if taxes were collected directly from the individual
he would then realize how much he paid, and would therefore be
more strenuous in his demands for a retrenchment of the public
revenue. They insist that indirect taxation is simply a cunning
device for making the citizen contribute to the public revenue
under the guise of purchasing the necessaries of life, thus obtain-
ing wealth from the individual which he would otherwise refuse
to contribute. This position is based upon two assumptions :
(i) that taxes are necessarily an evil to be minimized ; (2) that
direct taxation affords each individual an opportunity of correctly
estimating the amount he contributes to the public revenue.
In the first place it is an entire mistake to regard taxes as neces-
sarily an evil. We have already seen that they simply represent
the consumption of wealth in a public form, and have the same
economic effect upon production, industry, and commerce gener-
ally, as does private consumption. And whether or not private
or public consumption will be permanently beneficial to the com-
munity depends upon how such consumption takes place. To the
degree that wealth is consumed in extending public improvements
and enlarging the social opportunities of the people, it is both
economically and socially a positive advantage. The assumption
therefore that taxes are at best a necessary evil is not only
erroneous in fact, but it is extremely mischievous in its effect,
as it inspires opposition to expenditures for public improve-
ments.
Nor is the idea that direct taxation enables each individual
accurately to determine the amount he contributes to the public
revenue any nearer correct. This is another of the numerous
errors arising from a misconception of the law of wages. From
what has already been said it will not be difficult to see that a
direct tax upon the individual is just as mobile as an indirect tax
levied upon the commodities he consumes. If a merchant can
transfer a tax upon flour to the consumer, because it adds to its
cost to him, he can also transfer to the consumer a tax upon his
house or his horse for the same reason.
The same is true of the laborer. A direct tax upon his house
or his wages or any thing in his possession, is simply so much
addition to the cost of his living, and can be transferred through
374 EVILS OF DIRECT TAXATION.
higher wages to the employer in precisely the same way as is his
house rent, and the cost of his food, clothes, and other necessaries
of life. 1 In many parts of England the different classes of local
expenditure such as the " poor's rate," the "cemetery rate," the
" highway rate," the " water rate," the " local-board rate," etc., are
collected directly from each householder by the tax-gatherer
in separate items, and often by different persons. These rates
however, enter into the cost of the laborer's living, and have to be
covered by his wages just as much as the amount of his grocery
bill or his house rent, and are everywhere so recognized. 8 Where
the rates and rents are high, as in London and other large centres,
the wages in all industries are correspondingly higher than in
localities where these items are low, which is one of the reasons
why wages are always higher in large cities than in small towns
and rural districts. 3 The economic mobility of a tax is in no-
wise affected by the fact that it is directly or indirectly collected.
Whether the taxes are gathered directly from the laborer in a
specific sum, or indirectly through the enhanced price of com-
modities, makes no real difference. In either case it enters into
the cost of his living and the price of his service, and hence is
ultimately transferred to the employer. Instead, therefore, of
direct taxation enabling the laborer accurately to determine the
amount he pays to the government, it has the opposite effect, and
he is deluded into the belief that he is heavily burdened by pub-
lic expenditures, whereas he actually contributes nothing except
temporarily during periods of readjustment.
Moreover, the effect of direct taxation is pernicious in many
ways. In the first place it creates a strong incentive for evading
taxes, which is a standing inducement to dishonesty. So long as
men believe that they are permanently impoverished by what
they pay into the public treasury, they will endeavor to devise
1 " Wealth of Nations."
2 So manifest is this that where whole classes of laborers have to ride to and
from their work, as in London and other large cities, the price of their fare is
recognized as a proper cause for demanding higher wages, and in other districts
where the employer furnishes the laborer's house rent-free, or the privilege of
keeping a cow, etc., it is equally regarded as a legitimate reason for paying
lower wages, and in such cases wages always are lower.
3 "Wealth and Progress," Part II., chap. vii.
PROPERTY AND INCOME TAX. 375
means to elude the tax-gatherer ; the " tax-dodger " is a well-
known character. 1 In the next place direct taxation creates a
strong feeling of dissatisfaction among the different classes in
the community as to the justice or injustice of taxing or not
taxing different classes of property. Hence the interminable
controversy as to whether or not workingmen's homes should be
exempt from taxation. It is held to be unjust to tax the work-
ingman's home because that would be putting the burden upon
those who are least able to bear it. But if they are to be exempt,
at what point should the exemption be fixed ? To exempt home-
steads at a given valuation would tend to encourage the building
of houses within that valuation limit ; and that would be a decided
injury, because it would act as a check upon the building of
superior houses, and hence tend to stereotype inferior domestic
conditions.
Again, whether or not all personal property should be taxed,
and if not what kind should be exempt, is another point of con-
tention. Some insist that productive property should not be
taxed, because such taxation discourages industry, while others
contend that to tax non-productive property is unjust, since it
yields no income. And certain it is that every attempt to tax
personal property encourages systematic misrepresentation and
other fraudulent practices too numerous to recite. 2
The same is true of income tax. This tax is assessed on the
assumption that it draws the revenue from surplus incomes which
would otherwise escape taxation. But when it is understood that
in the normal course of economic movement all taxes are finally
drawn from the surplus product, the force of such reasoning
entirely disappears. So far from direct taxation being the model
method of raising public revenue, therefore, it is essentially un-
economic and demoralizing. It involves the maximum incon-
1 In Boston for instance it has become an established practice among a large
number of rich men to temporarily reside in Nahant, a small town a few miles
from the city, where the local taxes are very light. By living there on the first
of May, when assessments are made, they are taxed for Nahant instead of
Boston. While they actually live in Boston, and obtain all the advantages of
the large public expenditures there, they are only taxed according to the trifling
expenditure in Nahant.
* See Prof. E. R. A. Seligman on " The General Property Tax," Political
Science Quarterly, March, 1890.
3/6 INDIRECT TAXATION.
venience, puts a premium on dishonesty, and tends to make the
average citizen a persistent enemy of public improvements,
without affording any compensating advantages. In short, direct
taxation is defensible only in cases of exceptional emergency
such as wars, 1 and even then but for the briefest period pos-
sible.
Since the public revenue must be directly or indirectly col-
lected, it follows that all the reasons for objecting to direct
taxation obtain in favor of the indirect. While it is highly
important that the individual should always be fully informed
regarding real burdens, it is quite as important that he be not
deluded into assuming imaginary ones. Since the public con-
sumption represented by taxation is not a permanent burden
upon any class in the community, the public welfare demands
that taxes should be so levied as not to have that appearance.
Consequently, instead of making taxes as direct as possible,
thereby giving them the most burdensome seeming, they should
be levied with the greatest indirectness, so as to be as impercepti-
ble as possible. To the extent that the individual ceases to be
conscious of his contribution, and its exact amount becomes
difficult to determine, will the incentive for the various forms of
dishonesty and corruption for evading taxation disappear. And
when an important public improvement is proposed which in-
volves a large expenditure, the decision of the average citizen
regarding it will be less likely to be neutralized by the feelings of
his own inability to contribute his share. By removing this con-
scious personal element, the question of taxation will be considered
solely with regard to its effects upon the community, thus removing
one of the greatest obstacles to public improvements. With this
view of taxation, all public expenditures of a protective, educa-
tional, opportunity-creating character (judiciously applied) would
be regarded as an actual addition to the wealth of the community,
1 The only reason for adopting direct taxation in case of war is that the surplus
income is reached quicker by that means, but it is far more inconvenient and
arbitrary ; and even in such cases it is more economic to borrow the necessary
amount and let it be finally repaid out of the revenue indirectly collected.
When it is thus furnished through the normal operation of economic law, it
tends gradually to replenish the surplus from which it is drawn by increased
production, and thus minimize, if not indeed obviate, the burden upon the com-
munity.
ADVANTAGES OF LAND TAX. 377
to be increased, instead of as at present being treated as a burden
to be avoided at every turn.
2. Upon what class of property should taxes be levied is the
question that remains to be considered. The important point to
be considered in determining the class of property upon which
taxes should be levied is how to obtain the greatest indirection
of movement with the least cost of collection.
Manifestly a tax will have the greatest indirection of movement,
and hence be most completely subject to economic law which
passes through the largest number of hands and enters into the
greatest variety of productive processes. To give a tax the
greatest indirection, therefore, it must be levied at the point
farthest removed from those by whom it will be finally paid.
Since all taxes are finally drawn from the surplus product, they
would necessarily be most direct when levied upon profits or
other surplus, and conversely most indirect when levied upon
the source of raw material. Upon the same principle that a tax
upon surplus incomes cannot be shifted to any other class in the
community, because it does not enter into the cost of production,
a tax on raw material can be shifted in a multitude of ways before
reaching any class of consumers, because it all enters into the
cost of production, and becomes an indistinguishable part of the
price of commodities. Clearly then, the greatest indirection
would be secured by imposing a tax on real estate, especially
on land. A tax upon land would of course be an addition to the
cost of producing every species of wealth in the community.
It is equally clear that a tax upon real estate would be the
most easy and inexpensive to collect. In the first place, it is
the form of property that is most accessible, it cannot be con-
cealed from the eye of the assessor ; hence it affords the least
temptation 'for tax-dodging, or other dishonorable means of
evasion. It is also the class of property whose value is most
easily ascertained, because it is most frequently and permanently
in the open market for sale or rent, either fact furnishing the basis
for ascertaining its current value at any given time. This form
of property has the further, advantage of being immovable. The
owner may leave the city, State, or country, but the real estate
remains as accessible as ever. Another advantage in this form
of taxation is that it avoids all the objectionable inquisitorial
378 EQUITABLE NATURE OF LAND TAX.
features involved in all direct, personal, and property taxes.
There is no other form of property in society upon which taxes
can be so easily and accurately assessed, so cheaply collected, and
with as little intrusion upon the freedom of the citizen.
Nor can there be any complaint that such a tax would press
unduly upon the landowner, because, so far as the income from
the land represents the cost of service rendered in using it for
productive purposes, the tax will all come back in the price
of the product ; and only that portion of the tax which falls
upon the surplus as rent, interest, and profit will be untransfera-
ble and finally paid by the landowner, the equity of which no
one can question. Nor can any legitimate complaint be made by
those who advance the tax at any of the subsequent stages. In
every case, so far as it affects the cost of economic production
either in the form of the cost of raw material, tools, labor, or any
thing whatsoever, it can be added to the price. Neither could
there properly be any complaint about the personal wealth of the
rich escaping taxation, because the tax having been laid at the
source of economic movement, its/#// amount is included in the
price of every thing they buy. Hence their only means of suc-
cessfully avoiding taxation would be to forego consumption,
which is to relinquish wealth and civilization. If taxes were
thus levied, the rich jewelry, wardrobes, furnishings, and equi-
pages of the wealthy would all carry their quota of taxation, and
so far as they represented the stock of the manufacturer or
merchant, or were included in the necessary cost of living of any
who render productive service, the tax included in their price
would be transferable as in all other cases ; that portion of these
forms of wealth only which was supplied from surplus income
would have finally to bear the tax. There certainly could be no
justice in making an article, which has already borne its full
quota of taxation in its economic journey to the consumer, yield
a fresh tax each year after it leaves the sphere of economic move-
ment. Such a tax must necessarily act as a direct check upon all
new forms of consumption, especially among the wage- and salary-
receiving class, and thus be positively inimical to the development
of a high standard of living and social progress.
It will perhaps be objected that if taxes were all levied on real
estate, and acted as an increase in the cost of raw material, the
OBJECTIONS ANSWERED. 379
tax would fall the heaviest on those articles containing the largest
amount of raw material. And since food and the coarser manu-
factured products consumed by the masses contain a much larger
proportion of raw material than the finer products of manufacture
and art consumed by the wealthy, the tax would fall much more
heavily upon the poor than upon the rich. This is an objection
which can be easily answered, if we bear in mind the law govern-
ing the mobility of taxes. It is true that in high-priced jewelry,
pictures, books, and indeed the finer products of manufacture
and art, the raw material forms the most insignificant portion of
the cost. And if the tax represented in the price of such articles
was limited to what is conveyed by the cost of raw material, it
would indeed be very slight. The fact is, however, that the tax
in such products enters mainly through the labor. Although the
tax-bearing raw material in these products is very slight, that
represented in the laborer's wages, which includes all that enters
into his living, is very great, and as the high price of such prod-
ucts is largely made up of the cost of labor, they bear the tax
levied upon all the raw material consumed by the laborer. The
tax, therefore, in the finer products of manufacture and art will
not be proportionate to the raw material they actually contain,
but to all the raw material that has been consumed by every thing
used in producing them. In other words, their contribution to
the public revenue will be proportionate to their value as finished
products, and therefore they represent the greatest instead of the
least tax-transmitting power.
Another objection that will probably be urged against this
position is, that a tax on raw material has the effect of adding to
the price of the product not only the tax but also the profit upon
the tax to those who advance it. This view has long been held
by leading English economists. 1 According to this view, every
time a tax is transferred it carries with it an added increment of
1 Adam Smith says : "A tax upon those articles necessarily raises their price
somewhat higher than the amount of the tax, because the dealer who advances
the tax must generally get it back with the profit. . . . His employer, if
he is a manufacturer, will charge upon the price of his goods this rise of wages
with a profit, so that the final payment of the tax, together with his overcharge,
will fall upon the consumer." "Wealth of Nations," Book V., chap, ii.,
article iv., pp. 691, 692.
380 MILL'S ERROR.
profit. Consequently, if it is transferred enough times, the amount
of profit which is added to the consumer's price of the finished
product by the tax will be greater than the tax itself. This doc-
trine is a logical part of the orthodox theory of profits, according
to which the normal profits of the capitalists form a necessary
part of the cost of production, and hence of the price of commo-
dities. In stating this theory, Mill says : " And profit, we have
also seen, is not exclusively the surplus remaining to the capitalist
after he has been compensated for his outlay, but forms, in most
cases, no unimportant part of the outlay itself." And after enu-
merating a long series of processes, in which the profits of each
are compounded in the next, he adds : " All these advances
form a part of the cost of production of linen. Profits, therefore,
as well as wages, enter into the cost of production which deter-
mines the value of the produce." ' Were this doctrine correct,
it would certainly form an unanswerable objection to all indirect
taxation, and indeed to indirect production also. Since every
specialization and division of labor adds to the series of distinct
profit-yielding processes, industrial improvements would serve to
increase the power of the capitalist to add compound profit to the
consumer's price of commodities.
Fortunately for civilization, however, economic law permits no
such compound profit-making process. We have already seen
that the price of the product in a given market tends to a
uniformity on the basis of the cost of furnishing tha dearest
portion. 2 Consequently the profits of each producer can only be
equal to the difference between his cost of production and that
of those furnishing the dearest increment of the general supply,
this increment being sold without profit. It is impossible there-
fore in any market, or at any stage of the productive process, to
add the producer's profit to the consumer's price, since competi-
tion compels all who contribute to the same market to sell at the
same price, which price is fixed by the cost of the no-profit produc-
ers. Consequently, if there is any profit, it must be obtained from
nature through greater economy in production. It will thus be
seen that the claim that taxes upon land or raw material must be
repaid with a profit to those who pay them, is a pure phantom
1 " Principles of Political Economy," vol. i., p. 568.
8 Part II., chap, iv., pp. 125-128. Cf, pp. 205, 206.
POPULAR DELUSION. 381
which entirely vanishes in the light of the true law of economic
prices, and with it disappear all the objections to indirect taxa-
tion, based upon adding compound profit to consumers' prices.
It will be seen that the question of taxation is much less funda-
mental than it is usually made to appear. Like the question of
money, it is frequently employed to influence public opinion on
a multitude of questions on which it has practically no bearing.
Taxation is simply the consumption of wealth in a public form,
and has no more economic effect than the same amount of wealth
privately consumed. The only interest therefore the community
has in the question is that the taxes shall be economically col-
lected and wisely expended. If this fact is once clearly under-
stood, the misconceptions in which the subject has been involved
will disappear. Then the popular delusion that all taxes are
finally paid by the laborer would lose its political utility, and the
equally erroneous notion of Henry George, that to levy all taxes
"on land-values would abolish poverty and establish universal
freedom, would at once be recognized as a mere social mirage.
The only advantage in levying taxes upon land and real estate in
preference to incomes and personal property is that the revenue
can be collected from the former with greater ease, certainty,
and convenience.
CHAPTER V.
BUSINESS DEPRESSIONS.
SECTION I. Economic Characteristics of Business
Depressions.
THERE are few questions upon which a greater variety of
opinion exists than business depressions. They are ascribed to
a different cause in every country, and often to as many different
causes in the same country as there are phases of social reform,
political parties, sectional or industrial interests. 1 Before any
intelligent understanding of the cause of these social calamities
can be obtained, it will be necessary to consider their economic
peculiarities, and the industrial or other conditions under which
they occur.
The first general characteristic of business depressions is that
they are periods of exceptional industrial adversity. But there
are two kinds of industrial adversity, whose characteristics and
causes are widely different ; these are famines and business de-
pressions. A famine is an actual scarcity of consumable wealth ;
a business depression, on the contrary, is a relative plethora of
consumable wealth. The first symptom of a famine is the failure
to produce a sufficient amount of wealth to meet the existing de-
1 The business depressions of 1873-1878 were attributed to over two hundred
different causes by the various economists, capitalists, philosophers, and re-
formers, who testified before the Congressional Committee to investigate the
subject. See reports of the Wright and Hewitt Congressional Committees on
" Industrial Depressions," also the report of the United States Senate Com-
mittee on " Education and Labor," 1885, and the report of the Commissioner
of Labor on " Industrial Depressions," 1886. Also report of Royal Commis-
sion (England, 1885) on the " Cause of Industrial Depressions."
382
DEPRESSIONS, FAMINES, AND PANICS. 383
mands of the community ; while the first indication of a business
depression is the failure to find sufficient customers to carry off
the existing supply of commodities. The economic distinction,
therefore, between a famine and a business depression is that the
former springs from a scarcity of commodities and the latter from
a scarcity of consumers. ,
Nor do famines and business depressions both occur in the
same countries. India, Egypt, and other less civilized countries,
have frequently suffered severely from famine and consequent pes-
tilence, as did also Europe during the Middle Ages, thousands,
and sometimes millions, died of hunger and disease, 1 but they
have no business depressions. America and the leading countries
in Europe no longer have famines, but they have business depres-
sions. Famines and business depressions are not only economi-
cally distinct, and occur in different countries, but the very
conditions which promote the one tend to prevent the other.
The very specialization of industry and development of science
that have steadily diminished the possibility of famines, have
brought into existence involved commercial relations and the
factory system which make business depressions possible. Nor
must business depressions be confounded with financial panics ;
these are disturbances of another kind. A money panic may
arise in the midst of business prosperity as at present (1890).
Although, like any other social disturbance, a financial panic has
a harmful effect upon the industrial community, it being purely a
fiscal disturbance the evil effect is largely restricted to the specu-
lative class. A money panic may be the final straw which reveals
a business depression, but if the consumption of commodities is
practically equal to the production it cannot produce one. Busi-
ness depressions, therefore, may be characterized as periods of
industrial adversity peculiar to machine-using countries, and
arise from a failure to sell and never from an inability to produce
consumable wealth.
Another characteristic of business depressions is that they are
not local or even national in their movement, but that they occur
with striking uniformity in all countries in which they occur at
all. This will be seen by the following table, which shows the
1 Mr. Cornelius Walford, F.I. A., F.S.S., in a paper published in the Sta-
tistical Journal, vol. xli., gives the history of 350 famines.
384 Hi 'STORY OF DEPRESSIONS,
recurrence of business depressions in England, France, United
States, Germany, and Belgium during this century. 1
England France. United States. Germany. Belgium.
1803 1804
1810 1810
1815 1813 1814
1818 1818 1818 ....
1826 1826 1826
1830 1830 .....
1837 1837 1837 1837 , 1837
1847 1847 1847 1847 1848
1857 1856 1857 1855 1855
1866 1866 1867 1864
1873 1873 1873 1873 1873
1883 1882 1882 1882 1882
1885 1885 1885 1885 1885
By this table three facts are clearly indicated : (i) That busi-
ness depressions are limited to machine-using countries beginning
in England with the rise of the factory system. (2) That they
have steadily extended to other countries as fast as factory
methods of production have been adopted ; that is to say, as
fast as they became manufacturing and commercial countries.
(3) That business depressions have been practically uniform
and international in their movement, and that all countries with-
out regard to form of government, political institutions, physical
or climatic peculiarities, when once afflicted are visited with
every recurrence and almost simultaneously. With these facts
before us regarding the nature and history of business depres-
sions, we are in a position to intelligently consider the causes
from which they arise.
SECTION II. Cause of Business Depressions.
In order to warrant the conclusion that any circumstance is
the cause of succeeding phenomena, it is at least necessary: (i)
that it should be adequate to produce the effect ; (2) that it
sustain some necessary relation to it. In seeking the cause of
business depressions therefore, we must first eliminate from the
problem all influences which are clearly insufficient to produce
them. Among the hundred or more specific causes assigned for
1 First Annual Report of U. S. Commissioner of Labor, p. 290.
CAUSES ASSIGNED. 385
the business depression of 1873 in this country were excessive
speculation in railroads and real estate, inflation of the currency,
high protective tariff, and the unnatural stimulus given to industry
by the war. 1 But when we observe that none of these things
occurred in England, and that still the industrial depression was
as severe there as here, it becomes clear that these causes were
insufficient to explain the facts. So too in the case of France. The
fact that at the close of the war in 1872 France was compelled to
pay an indemnity to Germany of five millards of francs in gold,
appears at first sight to furnish a sufficient reason why she should
have experienced a state of severe business depression and
poverty in 1873. But when we observe that the depression was
just as severe and protracted in Germany, where this colossal
indemnity was received, as in France, from whom it was exacted,
the virtue of this explanation disappears. Its inadequacy be-
comes still more apparent when we remember that although
none of these circumstances existed in England, Belgium, and
America, they all had business depressions equally severe and
protracted. The same is true of causes assigned for the
depressions of 1882 and 1885." Without entering further into
details regarding this class of causes then, we are abundantly
warranted in rejecting them as wholly inadequate to account for
the phenomena.
To what cause then can business depressions be attributed ?
A business depression can never occur unless the equilibrium
between consumption and production is disturbed in such a
manner as to result in a diminution of consumption as compared
with production. The first symptom of an approaching business
depression is the inability of producers to find customers for their
whole product at remunerative prices. Manufacturers will con-
1 " There had been a period of excessive speculation, especially in railroads
and real estate, large failures following that of Jay Cooke, inflation of the cur-
rency, high protective tariff, large immigration, and the unnatural stimulus
given to industry by the war, brought the monetary affairs of the country to a
crisis, resulting in general distrust, fall of prices, apprehension, and all the train
of evils which follow such crises." " First Annual Report of the Commissioner
of Labor," 1886, p. 60.
2 For the cause of the depression in 1882 see " First Annual Report of the
Commissioner of Labor," p. 76, and for a summary of the causes and remedies
recommended, see ibid., pp. 291-293.
25
386 THE REAL CAUSE.
tinue to produce wealth and will prosper so long as they can find
a remunerative market for their wares, even though wars rage or
governments are overthrown. Production being but the economic
response to consumption, it is to the influences which effect con-
sumption that we must look both for the cause and cure of business
depressions. Nor is this all. Since business depressions are
peculiar to factory conditions, and the market for factory-made
products depends chiefly upon the consumption of the laboring
classes, it follows that it is the failure of the laborers' consump-
tion to keep pace with the capitalists' production the failure of
the home to grow as fast as the factory that really produces
business depressions. Here then we have a cause that is both
adequate to produce the effect and necessary to it. So long as
the consumption of the masses i.e., the wage- and salary-
receiving class increases commensurately with the productive
capacity of the community, nothing can create a business depres-
sion ; and whenever this does not occur nothing can prevent one.
Why does the laborers' consumption periodically fall behind
the capitalists' production ? Is it a necessary part of the present
productive system, or is it merely incidental to it ? The essential
features of capitalistic production are specialization of labor,
concentration of capital, and the use of factory methods. As
already pointed out, these are essentially socializing in their in-
fluence ; hence, instead of being inimical to the growth of the
laborers' consumption, they are characteristically favorable to it.
This is also shown by the fact that all phases of social progress
have advanced more in a single century under the factory or
capitalistic regime than in any previous period of the world's
history. And it may be added that this progress has been
greatest in those countries where the factory system has most
completely prevailed. Witness this country and England, as com-
pared with the countries of Asia and Africa.
There is another feature of this industrial regime, however,
which should not be overlooked. In proportion as the factory
system improves economically, it tends to make the laborer more
and more a specialist of some particular part of the finished
product. Thus, the manufacture of a shoe is now divided into
nearly seventy specified occupations, and cotton manufacture into
eighty-six. In proportion as the laborers' employment is thus
PHASES OF FACTORY SYSTEM. 387
specified, the speed and quantity of machinery is increased, and
the strain upon his physical and nervous energy intensified.
With this concentrating and specializing tendency the piece-
work system has been generally established, which places the
laborers in severe competition with each other, and often results
in overdoing. 1 Again, the use of improved machinery and the
specialization of labor tend to diminish the necessity of a high
degree of skill in the laborer. This leads to the employment of
a large number of women and children in all branches of manu-
facturing industries ; and, like the men, they too are forced to be
automatic factors, their portion of the work being an indispensable
part of the whole productive process. They have to labor the
same number of hours, under the same constantly increasing
strain and pressure, and under the same sanitary conditions as
the men. The obvious effect of all this is to deaden the springs
of ambition and check the growth of new desires and superior
tastes and habits of life. The laborer whose energies are ex-
hausted in the workshop is naturally impervious to more ele-
vating and refining influences. His leisure moments find him
physically tired, mentally dull, and hence morally and socially
indifferent. The inevitable tendency of this is to cause him to
gravitate towards the saloon rather than the reading-room,
lecture-hall, or theatre for his instruction and entertainment.
Persons who are subjected to such continued toil from child-
hood up, in the foul air of mines and the s\ltering heat and
stifling atmosphere of mills and factories, cannot be expected to
develop the ambition and force of character necessary to inspire
and elevate their domestic and social life. The effect of such
conditions upon women and children is even more damaging
than upon men. The employment of women, especially wives
and mothers, in the factory tends to sap the very source whence
the springs of social character arise. Just in proportion as
woman is transferred from the home to the workshop is her in-
1 So general is this that in nearly all factory employments it is necessary to
have a large number, often 5 or 10 per cent., of spare hands, or substitutes, who
take the place of those who are compelled to be absent a day or two at a time
through sickness, or for a rest to prevent sickness, etc. It is not an uncommon
thing for this, in a large proportion of cases, to average as much as one day in
a week.
388 ARREST OF CONSUMPTION.
spiring, socializing, and humanizing influence in the domestic
circle destroyed a condition that will inevitably result in stereo-
typing the social life of the masses, and in checking the increase
of their wealth-consuming capacity.
This relative diminution of consumption soon begins to show
itself in the accumulation of the merchants' stock, which reacts
upon the manufacturer, first in diminished orders for his product,
then in a severe competition among producers for the contracted
market, in which th'e smaller concerns are compelled to close,
finally creating among the laborers enforced idleness, the most
powerful factor of all in promoting business depressions. When
the laborer ceases to have employment he practically ceases to
be a consumer ; for although in modern society he is not per-
mitted to starve, he has necessarily to be supported by others,
either in the form of indebtedness or charity. There is no one
cause by which the aggregate consumption of the community is
so rapidly diminished as by enforced idleness. Like a contagious
disease, it rapidly increases its own power for evil. The actual
restriction of the market resulting from enforced idleness still
further limits the sale of commodities, rendering production un-
profitable ; this again results in suspending production and in
further discharges, inevitably culminating in a business depres-
sion in which, through bankruptcy, the large capitalists absorb
the smaller ones, and are thus -enabled to wait till the lagging
consumption again overtakes production. Every such ruinous
adjustment is a temporary arrest of progress, and the more fre-
quently it occurs the more permanent becomes its evil influence
upon society.
Still another source of idleness is the use of improved ma-
chinery. Indeed changes in machinery are only improvements
in proportion as they are labor-saving i.e., labor-discharging.
Hence machinery that will discharge the most laborers is always
adopted. This takes place most frequently when trade is most
prosperous, and in countries where machine-using methods are
most general. Nor is it possible, or even desirable, that this
should be otherwise, since it is only through the use of improved
methods of production that the drudgery of human labor can, be
reduced, the luxuries of life increased, and social well-being en-
hanced. Manifestly unless new employments are created as fast
MISTAKEN POLICY OF EMPLOYERS. 389
as laborers are discharged, enforced idleness and the recurrence
of business depressions are inevitable.
It thus appears that while the factory system necessarily creates
socializing conditions, it has been accompanied by influences
which tend greatly to neutralize their beneficial effect ; but it
it is not difficult to see that these neutralizing influences are in
no sense a necessary part of the industrial system. While the
various forms of industrial specialization tend to increase the
draft upon the laborers' energies, it is not at all necessary that
this should be inimical to his social advancement. There is
nothing in the nature of factory methods which makes it neces-
sary that their use should be physically and socially deteriorating.
Bad ventilation and other unsanitary conditions, dangerous
machinery, overdriving, the employment of young children, and
long hours of labor are not essential to the factory system, any
more than slave labor and the cat-o'-nine tails were an essential
part of cotton-growing.
With increase of productive power and its accompanying
pressure upon the laborers' resources should have come a com-
mensurate increase in his leisure and opportunities for social
improvement. The reason this has been neglected is entirely
due to the mistaken social policy pursued by the employing
class. For the same reason that the Southern slave-holder
believed that slave labor was necessary to the cheap production
of cotton and, consequently, to the prosperity of the planters,
the modern employer has acted upon the erroneous assumption
that cheap labor is necessary to his business prosperity. Accord-
ingly he has resisted instead of promoting every effort to ameli-
orate the condition of the laboring classes, from the same motive
that the Southern planter opposed the abolition of slavery. All
other efforts to increase the social opportunities of the laborer
have been resisted by the employing class as mischievous agita-
tions, until they were made imperative by statute law or social
custom. Indeed their whole attitude toward the labor movement
in general has been one of persistent hostility. The experience
of the last fifty years, however, has shown that in almost every
instance they were entirely mistaken. It is now admitted that
free labor is more productive and economic than slave labor ever
was. And instead of the prosperity of the manufacturing class
390 ECONOMISTS AT FAULT.
having been lessened by the various restrictions imposed upon
their inhumane and uneconomic policy, it has steadily increased.
The employer of to-day, with wages twice as high, hours of labor
one fourth less, and the sanitary and social conditions of the
laborer a hundred per cent, better, is more prosperous than were
his predecessors fifty years ago.
Nor is this socially repressive policy due to any peculiar per-
versity of the employing class. They are not less humane and
philanthropic than any other portion of the community, as their
liberal contributions to charitable, educational, and other public
institutions conclusively show. Their antagonistic attitude arises
from a misconception of their economic relation to the laboring
class ; and for this, the economic teaching of the period is
responsible. The failure of the economist to recognize the revo-
lution in the economic relation of the laborer to the capitalist
which took place with the inauguration of the factory system,
naturally led to the mistake of ignoring the economic importance
of the laborers' consumption as the market basis for factory-made
products. With this ante-factory-period view of the laborers'
economic position, it naturally appeared to the employer that the
true economic policy was to obtain his labor as cheaply as possi-
ble. Oblivious of the fact that the success of his factory as a mere
money-making institution depends upon the character and wealth-
consuming capacity of the masses, he has systematically regarded
the laborers as merely so much productive force to be used to the
limit of their endurance.
Under the influence of such doctrines, it is not surprising that
the employing class should use every effort, industrial and politi-
cal, to resist all endeavors to increase the social opportunities or
raise the wages of the laborer. 1 Thus, through'the influence of
a mistaken industrial policy, the capitalist in the vain endeavor
to increase his power to produce, by limiting the power of the
laborer to consume, defeats the very object he most desires to
accomplish, and instead of promoting his own permanent pros-
perity, he is continually planting the seed of business depression,
enforced idleness, and bankruptcy. Thus business depressions,
instead of being a necessary part of the factory system, are really
the penalty which the employing class and the community have
1 See "Wealth and Progress," Part III., chapters vi. and vii.
FACTS TO BE RECOGNIZED. 39!
to pay for ignoring the economic and social advancement of the
laboring classes as the real basis of industrial prosperity.
SECTION III. The Prevention of Business Depressions.
It will be observed that business depressions are wholly a prob-
lem of the market ; and also that the market, while furnishing
the economic basis for production, is a social phenomenon, having
its rise in the social life of the people. Whether scientific pro-
duction shall continually cheapen wealth and increase social
well-being, or whether it shall create enforced idleness and busi-
ness depressions, depends upon whether new employments are
created as fast as labor-saving appliances are adopted. Produc-
tion being the response to consumption, new employments can be
created only as fast as new demands for commodities arise
among the masses. This involves an important change in the
general point of view from which the economic position of the
laborer is regarded. In the first place it must be distinctly recog-
nized as an irrevocable historic fact, that with the inauguration of
the factory system the economic relation of the laborer to the capital-
ist was radically changed, and that under modern industrial conditions
the market for the capitalists' production finally depends upon the
extent of the laborers' consumption j hence business prosperity can be
continuous only in proportion as real wages rise. And it must be
no less distinctly recognized as a fundamental principle in eco-
nomics that the cost of production is the controlling element in price
movement, and consequently that the determining element in the price
of labor (wages) is the cost of the laborers' living as determined by
the standard of his social life,
It should be' remembered, however, that capitalists are not
philosophers, nor have we any right to expect them to be. They
are captains of industry, and as such are too busy with the ad-
ministration of affairs to solve economic problems. Their func-
tion is to apply rather than to develop economic principles. The
same is substantially true of the journalist. Although his posi-
tion is that of an educator of public opinion, he is more like a
manufacturer than a scientist. He is occupied rather with the
popular presentation of accepted economic doctrines than with
testing their validity. Like the capitalists, the ablest editors and
392 NATURAL REMEDY.
essayists rely mainly upon economists for their economic princi-
ples. It is to the economists, therefore, that we have a right to
look for the recognition and active propagation of the economic
truths underlying this important problem.
When the foregoing propositions are emphatically taught in
colleges and acted upon by capitalists, the first great step
towards a solution, not only of industrial depressions but of the
social problem will have been taken ; and the chief cause of an-
tagonism between the laboring and the employing class will have
been removed. So long as the laborer and capitalist believe their
interests are economically antagonistic, unity of action to redress
social evils is almost impossible. If, however, the employing class
can be once made to realize (i) that there is no economic antag-
onism between the laborers' interests and their own, and (2) that
the initial point of industrial prosperity is not in production but
in consumption not in the factory but in the home not in profits
but in wages, there will for the first time be a common agreement
as to the point towards which all efforts for industrial improve-
ments must be directed, namely, the elevation of the laborer s stand-
ard of. living. This fact established, the only question would be
as to the best means of promoting that end, since whatever would
do that would promote the welfare of the whole community.
It is not to be inferred from the above that an increase in the
laborers' consumption (real wages) is a simple matter that can be
arbitrarily accomplished by an official proclamation or a legisla-
tive enactment. On the contrary, the laborer's standard of liv-
ing, being determined by his social habits, is a matter of relatively
slow development.
Although there is no immediate panacea for business depres-
sions any more than for poverty, despotism, or other evils arising
from the lack of social character among the masses, there are three
ways in which their severity may be diminished and their ulti-
mate elimination promoted : (i) negatively by lessening the ob-
structions to the social progress of the masses ; (2) positively by
constantly increasing the social opportunities of the masses ; (3)
by establishing an international business barometer by which ap-
proaching business depressions will be indicated sufficiently in
advance to enable their severest phases to be avoided.
i. The greatest obstruction to the social progress of the masses,
26
DUTY OF EMPLOYING CLASS. 393
as already pointed out, is the opposition of the employing class
and their literary and legislative, allies. With the acceptance of
the doctrine here indicated, there would naturally be a marked
change in the attitude of the press and statesmen toward the social
question, by which much of their opposition would be removed.
In the first place, such men as Edward Atkinson, David A. Wells,
and the leading commercial and political journals would no longer
appear as the opponents of every proposition, legislative or other,
for improving the laborers' social condition. Indeed much of
their present attitude toward the social question would then be
properly regarded as opposition to the public weal. The accept-
ance of this view would also further the same end by preventing
a vast amount of misdirected effort at social reform, the futility
of which often serves to strengthen the hands of the opposition.
If it were clearly understood that nothing can promote business
prosperity which does not directly or indirectly tend to elevate
the laborers' social life, and make a larger consumption of wealth
necessary, then the various social chimeras such as land nation-
alization, socialism, and the like would be discredited in advance
as having no real bearing upon the question.
2. The disparity between the increase in the laborers' consump-
tion as compared with that of the capitalists' production would
be still more diminished, if the energy which has been constantly
devoted to limiting the laborers' social opportunities were ap-
plied to increasing them. Then every proposition for improving
the condition of the masses would be approached with the desire
of adopting whatever feasible element of good it contained, instead
of a determination to magnify all its disadvantages for the
purpose of defeating it.
In order that the policy of increasing instead of restricting the
laborers' consumption may be scientifically applied to the pre-
vention of business depressions, it is necessary to have some
means of knowing in advance the first indications of a business
depression. It will be readily seen that if it could be correctly
known that a movement towards business depression had set in,
which if not arrested would inevitably bring a period of social
disaster, all the wisdom of economists, statesmen, and capitalists
would be applied to preventing its occurrence, and this could be
done in two ways.
394 Aff INDUSTRIAL BAROMETER.
In the first place, if correct economic doctrine prevailed, efforts
would at once be redoubled in ajl manufacturing countries to use
every known legislative, personal, social, and industrial means of
augmenting consumption among the masses. This would involve
efforts to raise the laborer's standard of living, which of course
means an improvement in his social condition. If such efforts
were made in all machine-using countries as soon as the symp-
toms of an approaching depression appeared, it could always be
weakened and in many cases obviated.
In the second place, if the consumption of the masses in the
various countries could not be increased sufficiently to offset
a threatened diminution in the market, the depression could be
largely mitigated by a movement of capital. As soon as it was
definitely known that the relative diminution of the market had
set in, while established industries could not, without injury, cur-
tail their production, the investment of new capital could and
would be curtailed. By curtailing investments sufficiently in
advance much new capital would be saved, and the shock to
established industries would be greatly reduced.
Moreover, as business depressions generally arise from a dis-
parity between consumption and production in certain lines of
commodities, a proper knowledge of business phenomena would
indicate in precisely what line of industry the disturbance existed,
and thus enable a more economic direction to be given to new
investments. By this means much of the capital that in such
periods is wasted in America, England, France, and Germany
might, and often would, be made to render a service to civiliza-
tion by developing the social resources of South America, India,
China, and other non-manufacturing countries. Is it possible
then to establish such an industrial barometer ; is there any
means by which the early symptoms of a business depression
can be surely indicated ? I think there is.
Although the first symptom of a business depression is the
failure of the producer to find a profitable market for his whole
product, this may occur from causes which do not necessarily
indicate a depression in business. A change of fashion for
example, or the substitution of a superior for an inferior product
. through the use of better methods, may produce that effect in a
specific industry. In that case however, the dulness in the old
STATISTICS OF IDLENESS. 395
industry would be practically offset by the briskness in the new.
Such a disturbance therefore will only be a temporary perturba-
tion incident to the movement of capital and labor from one
industry to another, and might indeed be a sign of business pros-
perity rather than adversity. But there is one fact in the indus-
trial world which infallibly indicates an approaching business
depression, namely, enforced idleness. There are many ways in
which enforced idleness may be produced in machine-using
countries, e.g., by the immigration of laborers from non-machine-
using countries, by discharges through the use of labor-saving
machinery, or by the suspension of industry consequent upon a
declining market. But from whatever cause or number of causes
enforced idleness arises, unless it is arrested, an industrial
depression is inevitable.
It is equally certain that nothing can produce a business de-
pression of serious proportions which does not create enforced
idleness ; indeed, so long as the laborers are all employed a busi-
ness depression is practically impossible. Therefore, while
enforced idleness may not be the initial cause of business
depressions, it is one of the earliest and most infallible indica-
tions of it. Since a knowledge of the phenomena is a necessary
prerequisite to scientific action, the first practical step toward
prevention of business depressions, is the collection of statistics
of enforced idleness. Nor would this be a difficult task, since
the machinery for collecting industrial data is now fairly well
established in most civilized countries. Statistics of enforced
idleness not being of an inquisitorial nature, there could be
no valid objection to their collection, especially as no class in
the community would have any motive for withholding the
information. In order that these statistics may have the utmost
utility, the investigation should be authoritative, universal, and
frequent.
To make the investigation authoritative, it should be under-
taken by the state. Moreover, it is a work which peculiarly be-
longs to the government, because it is of universal importance,
and can be performed more extensively, efficiently, and eco-
nomically by the state than by the individual, especially in the
less civilized countries. To give reliability to the data, the in-
vestigation should be as extensive as the factory system, includ-
396 NECESSITY OF FREQUENT DATA.
ing at least America, England, France, Germany, Belgium,
Switzerland, Austria, Italy, and Spain.
These statistics should also be collected as frequently as pos-
sible, not less than once a year, and half-yearly or quarterly
would be even better. Frequency of collection is one of the most
essential requisites of idleness statistics, because it is only by
a frequent collection of facts that the symptoms of an on-coming
industrial depression can be observed in its early stages and
hence the most efficient means of prevention adopted.
Such a body of data would furnish an inductive basis for the
scientific application of economic principles to market phe-
nomena, besides being invaluable in the treatment of all other
phases of the social question. While it is not pretended that
business depressions can be summarily abolished, it is indisputable
that with full, frequent, and reliable statistics of enforced idleness
in all machine-using countries, together with sound views regard-
ing the economic relation of the laborers' consumption to the
market, a great step would be taken towards their diminution and
ultimate elimination.
CHAPTER VI.
COMBINATION OF CAPITAL.
IT is a peculiar feature of the industrial history of society that
every movement towards concentration or more complex associa-
tion of industrial forces has always been viewed with alarm, and
has had to encounter serious opposition from the community.
The landed aristocracy saw with dismay the rise and growth of
the mercantile class from the fifteenth to the eighteenth century,
and accordingly used all their social and political power to harass
and hinder the development of what to them contained naught but
evil for society.
With the introduction of the spinning-jenny in the eighteenth
century, this social alarm was taken up by the hand spinners.
Their horror and indignation at the idea of a machine spinning
eight threads where they could only spin one were such that they
ransacked the home of Hargreaves, broke his machines, and drove
him from his native county for inventing it. A similar alarm was
raised in the first quarter of the present century by the hand-
loom weavers against the introduction of the power-loom, and
they went from town to town destroying the steam-driven ma-
chines. The small factory owners, who had encountered the
violence of the hand laborers, subsequently raised a similar
alarm against the corporation, and now small corporations,
individual factory-owners, laborers, and non-commercial classes
all join in raising a similar alarm-cry against trusts, syndicates,
and other corporate combinations.
Perhaps the most remarkable feature in the attitude of the
public towards industrial combination is their disregard for the
lessons of history. The fact that in almost every instance the
opposition to new forms of industrial organization has been a
397
398 IMPORTANCE OF CORRECT VIEWS.
mistaken resistance to what finally proved to be a permanent
benefit, seems to have almost no modifying influence upon their
belligerent attitude. The opposition to trusts to-day is scarcely
less intense than was that against the machines of Hargreaves
and Arkwright a century ago. 1
A very little reflection will show that -this opposition to capi-
talistic concentration is as uneconomic and impolitic as is the
crusade of capitalists against the combination of labor, and for
substantially the same reason. The fallacy underlying both these
positions is the assumption that an improvement in the con-
dition of either is obtained at the expense of the other. The
capitalist is opposed to labor-unions because he believes that a
rise of wages involves a fall of profits ; and the public oppose
the combination of capital because they believe that the large
profits of a successful corporation are necessarily obtained at the
expense of the laborer and the consumer.
In the light of the economic law of prices, surplus, and wages,
-as heretofore presented, the fallacy of such an attitude becomes
apparent. When we once realize that profit is not added to the
consumers' price, but that it represents a surplus produced by
the use of superior instruments and natural forces, it is clear that
the wealth of the capitalist is not drawn from the incomes of the
other classes in the community, but from nature. 2 And so with
the capitalist ; when he understands that a rise in wages is not a
permanent tax upon him, but is ultimately replenished through an
increased product hence, like his own profit, is not drawn from
his fellow-man, but from nature, the ground of his opposition
to labor combinations will disappear. Since neither the employ-
ing nor laboring class can permanently improve its condition by
impairing that of the other, but only by increasing the product
of nature, it will be obvious that neither one has any thing to gain
by suppressing the combination of the other ; but, on the con-
trary, if combination will increase their economic power, every-
body has an interest in extending and strengthening such
combination.
1 In 1888 a bill was introduced into Congress proposing to levy a tax of 40
per cent, on the products of trusts. In 1889 two other bills were introduced
into the United States Senate, practically making trusts criminal conspiracies.
s Chapter on " Prices."
TWO KINDS OF WEALTH. 399
Without stopping to consider whether or not the trust form of
combination is superior to any other, it may be laid down as a
fundamental principle demonstrated by the history of industrial
evolution, that the combination of capital is indispensable to
economic progress. This consists in cheapening wealth as com-
pared with labor. Capital and labor being the only two factors
which enter into the cost of production, it follows that wealth
can be cheapened only by increasing the productive capacity of
capital. It is a fact too obvious and universal to need discussing,
that an increase in the productive efficiency of capital is obtained
by means of greater specialization and concentration, which in-
creases as civilization advances. Of this, every successful factory,
railroad, and steamship enterprise is a demonstration.
This much will be conceded by the most ill-informed anti-
combinationist. But the objection commonly urged is that the
gain resulting from this economy in production mainly accrues
to a small class. It is insisted that this tends to create a double
evil, by at once promoting industrial monopoly and political des-
potism. They assure us that wherever wealth is accumulated in
the hands of a few, the poverty of the people, political corruption,
and private immorality increase, and that intellectual, political,
and national decay inevitably set in. 1 Although few arguments
have more effect upon the public mind than this, there are none
that reveal a greater lack of economic insight. It proceeds upon
the assumption (i) that all accumulation of wealth in the hands
of a limited class is injurious to the welfare of the community,
and (2) that the concentration of capital necessarily destroys
competition.
i. If we bear in mind the economic distinction between con-
sumable and productive wealth or capital already referred to, we
shall have little difficulty in seeing the error of this proposition.
Whether or not the accumulation of wealth in a few hands will
be beneficial or injurious to society, will entirely depend upon
whether it is consumable wealth or capital that is accumulated.
No one acquainted with the subject will for a moment contend
that concentration of consumable wealth in the hands of a small
class is advantageous to the community. Since this class of
'See author's article on "Trusts," Political Science Quarterly, vol. iii., pp.
403-406.
4OO CAPITAL ONLY IS ACCUMULATED,
wealth only ministers to human welfare when in the possession
of the consumer, it follows that it can only yield the largest
benefit to the community when it is most extensively distributed
among the people. With productive wealth or capital, however,
the case is exactly the reverse ; its functions being solely that of
a productive instrument, it can minister to human welfare only
by producing consumable wealth. Clearly therefore, whether or
not capital is any advantage to its owner or to the public, depends
entirely upon whether it is advantageously used in creating en-
joyable commodities. Since capital will only furnish consumable
wealth to its owner in proportion as he can sell his products, its
possession can only be advantageous to the capitalist when the
consumable wealth it produces is generally and liberally consumed
by the community.
It may be observed in passing that there is no tendency in
modern society to accumulate consumable wealth. On the con-
trary, the very prosperity of the community depends upon the
constantly increasing consumption of consumable wealth. When
we speak of the accumulation of millions in the hands of a single
individual or family to-day, it should be remembered that cap-
ital and not consumable wealth is referred to. With the excep-
tion of a small amount personally consumed and dispersed in
charities, the large fortunes of the Vanderbilts, Goulds, Astors,
Rothschilds, and other millionaires are productively employed.
Indeed, it would be regarded as the insanity of financiering to
accumulate consumable wealth, because the only result of such
accumulation would be deterioration and loss. As shown in the
preceding chapter, any tendency to prevent consumption from
keeping pace with production, which is simply accumulating con-
sumable wealth, surely leads to business depressions, and entails
inevitably bankruptcy, and often ruin upon the owners of capital.
Since capital can be of no advantage to its owner except when it
is profitably employed in producing consumable wealth, and since
it can be so profitably employed when its product is consumed
substantially as fast as it is produced, it follows, as an economic
necessity, that consumable wealth is most widely distributed
where productive wealth or capital is most concentrated. Thus
we again arrive at the oft-repeated proposition that the prosperity
of the capitalist finally depends upon the consumption of wealth
by the masses.
CONCENTRATION AND COMPETITION. 40!
2. The second objection is that combination of capital tends
to destroy competition. If this assumption be correct, the power
of competition will necessarily diminish as the combination of
capital increases. Whether or not this has taken place can be
determined only by the facts. In order to determine whether or
not effective competition increases or diminishes with combina-
tion of capital, we have only to ascertain whether or not prices
tend to press closer to the line of the cost of producing the most
expensive portion of the general supply. Tried by this test, the
assertion that the combination of capital necessarily tends to
destroy competition will be found to be entirely erroneous.
There never was a time when economic combination was so
great as it is to day, nor was there ever a time when competition
was so fierce and unsparing that is to say, when the margin
between the cost of producing the dearest portion and the selling
price was so small in such a large proportion of industries. In-
deed, it is one of the chief indictments against the capitalistic
system of production that it is a "competitive system." If we
follow the combination of capital from the hand-loom weaver
and the spinner of a single thread to the trust and syndicate, we
shall find that the margin of profit per unit of product has steadily
diminished a fact which every business man knows. The
reason for this is obvious. For instance, when the hand-loom
weaver could only turn off forty yards of cotton cloth a week, a
margin of a cent a yard would yield but an insignificant amount
of profit. The profit on the product of fifty weavers would only
be $25 a week, whereas the same margin on the product of fifty
weavers to-day would yield a profit of $1,080 a week.
Much of the error in this connection is due to judging compe-
tition from the standpoint of the deposed or receding competitor.
Thus, when the products of a small factory undersold those of a
hand-loom, judged from the standpoint of the hand-loom weaver,
competition was destroyed and monopoly established. Such
however was not the case, as everybody now knows. What
really took place was a readjustment of economic factors, made
necessary by the introduction of superior methods, which resulted
in transferring competition to a new plane, where its effectiveness
was greatly increased. The same was true when the small factory
was superseded by the corporation, and is true now when the
corporation is superseded by the trust and syndicate.
4O2 THE CRITERION OF COMPETITION.
It should be remembered that the influence of competition
does not depend so much upon the number of competitors as
upon the effectiveness of competition. Competitors may be very
numerous and still competition be ineffective, as in the case of
the hand-loom weavers. And conversely, competitors may be
few in number and still be very effective, as is the case of large
concerns to-day. One Macy furnishes more effective competi-
tion than a hundred small merchants with a few hundred dollars
capital each. This does not mean that reducing the number of
competitors will necessarily increase effective competition, but it
demonstrates the fact that high competition is possible with a
small number of competitors. Indeed, it is the severity of com-
petition thus developed that has brought the trust and other
forms of industrial confederation into existence.
That effective competition has thus increased with the increas-
ing combination of capital, no one acquainted with the subject
will dispute, but the alarm raised is ostensibly for the future. It
is upon what trusts may do, and not upon what they have done,
that the present opposition is based. It is said that the object of
the trust is to monopolize the market. Even so ; there is nothing
new in that. That has been one of the objects of every other in-
dustrial improvement. What motive could there be for intro-
ducing better methods and investing large capital, unless it would
give the owner more advantage over existing competitors. To
condemn an industrial institution because the object of its pro-
moters is to undersell and supersede traditional producers and
methods is economic insanity. It is not the motive of the capi-
talist but the economic effect of his action that must be deter-
mined in judging the social utility of industrial methods and
institutions. Whether the capitalist acts as an individual pro-
ducer, small factory owner, corporation, or trust ; whether he
produces cotton cloth, shoes, or petroleum, conducts a railroad or
publishes a newspaper, his motive is substantially the same ;
namely, to obtain more wealth " to make money." Will it pay?
is the question upon which the doing or not doing in every
sphere of industrial activity is determined.
The tone and politics of the newspapers are determined by
that fact about as completely as is the form and quality of hats
and shoes. Newspaper corporations have not invested hundreds
ECONOMIC INCENTIVE. 403
of thousands and even millions of dollars in buildings, large and
fast presses, automatic folders, foreign correspondence, special
telegrams, high salaried editors and reporters, special trains for
deliveries, etc., merely for the sake of furnishing the public with
ample, early, and reliable news. This has all been developed by
the effort of each to outdo his neighbor in the contest for obtain-
ing public patronage the market. It was only because this
could not be done without furnishing a larger or a better paper
at the same price which nothing but a greater combination of
capital and superior methods made possible that the immense
improvements in the daily paper have been produced. The same
motive which has induced newspaper corporations to furnish
a daily history of the human race for two cents, has given us our
railroads, telegraphs, steamships, and other time-and-space-
reducing and wealth-cheapening institutions, of which trusts are
the most recent form. And the reasons for suppressing one will
apply with equal force to suppressing the others.
The opposition to the larger combinations of to-day will be
found to have its root in the error which has characterized all
previous opposition to productive integrations. The averagely
intelligent antagonist to trusts will readily admit that all the evil
predictions regarding the earlier stages of capitalistic combina-
tion were mistaken. He will also admit that the mistake consisted
in the failure to recognize the increasing competitive power
which the larger factory and corporation possessed, especially
when accompanied by the daily press, the telegraph, and the rail-
roads. The more intelligent now see that a multiplicity of com-
petitors is not necessary to effective competition, having learned
by experience that this may result in a great waste of economic
power instead of a cheapening of commodities, and that compe-
tition is quite as effective, and far more economic, with a limited
number of competitors. While they recognize the folly of
assuming that any diminution in the number of competitors must
weaken competition, they tenaciously insist that to permit the com-
bination of capital to increase until the actual competitors are re-
duced to zero, must destroy competition. In other words, they
insist that competition is impossible unless the competitors are
actually present in the market.
The error in this view arises from overlooking the influence of
404 POTENTIAL COMPETITION.
potential competition. If we examine the subject from the
standpoint of modern phenomena, we shall find that there is
potential competition as well as actual, and that the economic
effect of potential competition increases as its phenomena grow in
complexity. The competitive power of capital will be found to
ultimately depend not merely upon its actual presence, but upon
its known availability at any given time and place. Consequently,
the more intelligent and economically powerful competitors are,
the more effectual will be their potential or possible competition,
and vice versa. For example in the ante-factory period, with
neither railroads nor telegraphs, the only capital known to be
available was that visibly present ; hence, none other exercised
any competitive influence in the market.
With the development of modern industry all this has changed.
Electricity and steam have so diminished time and space, and
concentration of capital has so increased the economic power of
the producer, that now both capital and products thousands of
miles away are economically available, and therefore exercise a
positive competitive influence upon the market. Accordingly the
wheat in India, Russia and Dakota, now exercises practically the
same competitive influence in Liverpool as does that which is
stored there, and solely because it is known to be actually avail-
able for the Liverpool market if the price rises high enough to
warrant its movement thither. Thus through improved means of
communication and transportation, products in the most remote
parts of the earth exercise a competitive influence upon a market
they may never actually enter, simply because it is known that they
can be there if needed.
What is true of commodities is even more true of fixed capital,
and as will readily be seen, potential competition or the power of
the possible competitor increases as the combination of capital
enlarges. Capital is proverbially one of the most sensitive things
in the world. Although it will take great risks for large profits it
will timidly recede at the sight of loss. There are many reasons
why large combinations are more amenable to the influence of
potential competition than small ones. Although more powerful,
they yet have more at stake. The very fact that capital is cow-
ardly makes it careful, and, since fear of loss next to hope of gain
is the most powerful motive which governs its movement, the first
INABILITY OF LARGE CAPITAL. 40$
condition to be secured is safety against loss. The greater the
concentration of capital, the more serious and difficult this be-
comes.
It is a principle in economic progress that as the mobility of
consumable wealth increases that of productive wealth diminishes,
because the very means which promote the easy transfer of prod-
ucts involve a greater fixity of capital. In proportion as capi-
tal loses its mobility, the necessity of maximizing its economic
utility in its existing form increases ; and when the concentration
is very great, that becomes the only means of preserving it from
deterioration. Take, for example, the Vanderbilt railroad system
with its investment of $170,000,000 and 60,000 employe's; this
is excellent property so long as it can be economically employed
for its present purpose. If, however, it should be superseded by
a superior system of transportation, the greater part of that prop-
erty would be worthless, the capital invested being absolutely
non-transferable. Such parts of the equipment as the rails, road-
bed, engines, cars, and stations (rep resenting nearly $150,000,000)
which now have a full value as finished products, would in that
case practically be reduced to the value of old iron. Three
fourths of their value would vanish as completely as if the prop-
erty were reduced to ashes.
If we bear in mind the fact that capital is simply an economic
instrument whose decay can only be prevented by maintaining its
productive utility, it will be manifest that in proportion as its con-
centration increases, the very life of capital depends more and
more upon its wealth-cheapening efficiency. It will probably be
replied that this may all be true so long as any actual competi-
tors remain, but when the combination of capital has reached a
point where the production of a given commodity is practically
in the hands of a single concern this restraint will disappear, and
prices can be indefinitely increased to suit a monopoly. Here is
where the error of ignoring the influence of potential competition
again shows itself. The very fact that capital cannot take wings
and fly away, but is compelled to work where it is or perish, gives
potential competition its greatest influence ; that is to say, gives
the non-employed or less remuneratively employed capital its
maximum price-reducing influence It should never be forgot-
ten that in a progressive society, where alone the greatest combi-
406 EFFECT OF NO-PROFIT CAPITAL.
nation of capital is possible, two things are more or less con-
stantly occurring : (i) the accumulation of wealth available for
productive purposes, which increases as the margin of profit
rises ; (2) the reduction of capital to no-profit uses, which in-
creases as superior productive methods and management are
adopted. From these two causes, which are as universal and
constant as social progress, capital seeking remunerative employ-
ment is constantly increasing.
Hence this idle or unremunerative capital has the same eco-
nomic effect upon productive capital that the wheat in India or
Russia has upon that in Liverpool ; it is waiting for an opportu-
nity. In the absence of legal restrictions, nothing will prevent
this anxiously waiting capital from actually entering the field
except keeping the margin of profit too small to warrant the risk.
This of course involves the lowering of prices commensurately
with the diminished cost of production, which is all the fiercest
actual competition can do. It may be said that if new capital
enters the field a monopoly will buy it up. But that takes more
capital ; a million dollars invested in buying up a competitor is
so much added to the cost of production, and directly dimin-
ishes profit. Clearly the million thus invested might just as well
be surrendered to the community in lower prices. That this
would be a safer and more economic method is manifest : (i)
because lowering the price tends to increase the consumption of
the commodity, extend the market, and make a still smaller
margin of profit yield a greater aggregate return ; (2) because a
new competitor is an unknown quantity, and may prove too strong
to be bought up, in which case existing producers may be driven
from the field, or have their profits reduced to zero. Since the
least danger to existing corporations lies in keeping out rather than
buying out new competitors, and since reducing prices alone can
do this, it follows that the larger a corporation the greater is its
interest in keeping prices low enough not to induce the organiza-
tion of counter-enterprises to jeopardize its existence. It is thus
evident that with economic freedom, the potential competition of
available capital is essentially the same as if a new competitor
were actually on hand. The fact that he may come any day has
practically the same competitive influence as if he had come,
because to keep him out requires the same kind of price-reducing
LIMIT OF CONCENTRATION. 407
effort that would be necessary to drive him out. Since the former
always involves less risk and generally less cost than the latter, it
is most likely to be adopted, in proportion as an intelligent under-
standing of economic movement prevails.
It is a great mistake to suppose that the investment of large
capitals is specially desirable to the capitalist. On the contrary
he avoids this as much as possible, always preferring to get along
with the minimum rather than to use the maximum capital to
accomplish any given result. Indeed to accomplish the greatest
result with the least investment is the very art of economic pro-
duction. Moreover, with every increase in the size of invest-
ments capital becomes more fixed, involved, and unwieldy, redu-
cing margins and making it possible for great losses to result
from very slight mistakes ; consequently greater expertness of
management becomes necessary in every department of a colos-
sal enterprise. Larger investments increase the risk of the capi-
talist and further outlay will be adopted only under the spur of
some economic inducement such as avoiding a loss, replenish-
ing a diminished profit, or perhaps obtaining a still larger profit.
The economic movement of capital being governed by the law
of increasing returns, it follows that capital will not (except by
mistake) go into new industries, unless it can obtain a greater
return per unit than it is already receiving. So, too, of concen-
tration or combination ; capital will continue to concentrate only
so long as it can obtain an increasing return per unit by so doing.
When that ceases to be possible the motive for combination dis-
appears ; and when the point of diminishing returns is reached
self-interest is positively against further combination. That there
is a point in any given state of society at which further concentra-
tion of capital will fail to yield increasing returns, and at which
diminishing returns set in, cannot be doubted. Whether or not
this point will be reached before the actual competing producers
in the same market disappear cannot now be determined. Nor is
this of any real importance since concentration will continue only
so long as it will give increasing returns to the capitalist and
cheaper products to the consumer. There is therefore no eco-
nomic reason why the state should do any thing to limit the con-
centration of capital, since that will be arrested by the capitalist
when it ceases to economize production and cheapen the wealth
408
EFFECT OF CONCENTRATED CAPITAL.
of the community. In other words, in the absence of legal re-
strictions economic law is more effectual in determining the equi-
table movement of capital than statute law can possibly be.
That this has been the general effect of the concentration of
capital during the present century is abundantly proven by the
fall of prices and rise of wages as shown by the increased pur-
chasing power of a day's labor during that period. The follow-
ing table shows the average weekly wages and their relative
purchasing power in 200 staple articles for 1860 and 1885 : '
i8(
)O.
i8i
*5.
INDUSTRIES.
Number of
branches.
Weekly
wages.
Purchasing
power.
Weekly
wages.
Purchasing
power.
Percentage
of increase.
Arms and ammunition
12
&I4. IS
IOO
iiiil'} IS
IIQ
IQ
Artisans' tools
IO
8 4S
IOO
II ZlS
74
Boots and shoes
17
II 4.2
IOO
10 63
1 2O
2O
Carriages and wagons
7
IO 47
IOO
12 8O
IC7
1:7
Clothinf
II
8 26
IOO
8 19
127
27
Cotton goods
86
6 50
IOO
6 4S
128
28
Flax, hemp, and jute
ie
4. OT
IOO
6 46
1 80
80
Leather
8
IO OI
IOO
II. OI
141
41
Liquors
8
IO ~T\
IOO
11.7-2
141
41
Machinery
IQ
7 OO
IOO
II 7S
IQ2
02
Metallic goods
IO
Q O7
IOO
II. 2S
161
6l
Musical instruments
8
IO.Q4
IOO
12. Q4
152
52
Paper goods
18
8 63
IOO
7 6l
114
14
Print and dye-goods
26
Q QO
IOO
7.67
IOO
Silk and silk goods
Q
R.QI
IOO
6.QI
167
67
7
8 OI
IOO
12 OI
IQI
Q7
58
e.*8
IOO
7.QO
180
8q
Worsted goods
22
6.12
IOO
6.12
I2Q
29
Carpetings
25
6.62
IOO
6.62
129
29
Building trades
IO
0.87
IOO
14. QQ
196
96
Average (Total
386)
8.64
IOO
9.88
150
5
This tendency is still more conclusively shown by the fact that
the fall in prices has been greatest in those commodities in
whose production there has been the greatest concentration of
1 The \vages in the above table represent 386 occupations in Massachusetts ;
the data for iS6o will be found in the Report of the Labor Bureau for 1884, and
those for 1885 in the Census Report for 1885 (volume on Manufactures).
EFFECT OF TRUSTS ON PKICES.
409
capital, as will be seen by the accompanying table, which shows
the purchasing power of weekly wages in commodities furnished
by trusts and other colossal combinations for 1860 and 1890 :
Purchasing power of weekly
wages.
1860.
1890.
Percentage
of increase.
Cotton-seed oil, number of gals. . .
Sugar refined, number of Ibs
iSyV
QOTAA
2Q T 9 A
ie.2
66
67
Freight New York to Chicago.
First class
530 Ibs
1317 Ibs
148
Second class
O^d
1520 '
T12
Third class
822
1076 f
176
Fourth class
I3OQ
2822 '
lie
Telegraph messages, number of. .
Pretroleum refined, number of gals.
8AV
I07A 9 TT
3iT 6 Tnr '
io86flfr '
283
907
It will be seen from the above tables that, although the general
purchasing power of wages has greatly increased since 1860, the
increase has been very much greater in those industries where
the greatest concentration of capital has taken place. Taking
200 staple articles together, the increase is 53^0 P er cent.,
whereas, in cotton-seed oil, it is 66 per cent. ; in sugar, 67 per
cent. ; in transportation (all classes) together, it is 142 per cent. ;
in telegraphy, 283 per cent. ; and in petroleum, 907 per cent. It
should be observed in this connection that the figures for cotton-
seed oil only extended to 1878, and that more than \^ of the
entire fall in the price has taken place since the trust was formed
in 1884 3 ; and also that the fall in the price of sugar during the
last thirty years has all taken place since January, 1882.'
It may be said that the point has not yet been reached where
actual competitors are reduced to none, and therefore the cor-
rectness of the theory here presented cannot be inductively
verified. It is true that there are very few industries in which the
actual competitors are not still relatively numerous. Nor is there
any sufficient ground for concluding that the time will ever come
1 The figures in this table are for 1878.
These figures are for 1866.
3 In 1878 the price of standard summer oil was 47^0*5 cents a gallon ; in 1883
it was 47y rise of,
in i4th century, 110-130 ; arrested
in isth century, 132-144; move-
ment of, from 1 5th to igth century,
145-160 ; universality of law of,
162-178 ; under piece-work, 179-
186 ; ultimate analysis of law of,
187-203. (See also Index to " Prin-
ciples of Social Economics.")
Wages-fund, its statement, fallacy,
and inadequacy, 35-52
Walker, Francis A., 53-59, 62
Wants, how effected by social con-
dition, 120 ; they determine the
standard of living, 187 ; their rela-
tion to wages, 176, 177 ; how cre-
ated, 201 ; their basis, 202
Wealth, prevalent notions about, i ;
condition of man before the accumu-
lation of wealth began, 2
Women, wages of, 168, 172-174;
their economic condition, 207
WEALTH AND PROGRESS.
A CRITICAL EXAMINATION OF THE LABOR PROBLEM.
BY GEORGE GUNTON.
12JVO, 400 PAGES. PAPER, 50 CENTS; CLOTH, $1.00.
OPINIONS OF THE PRESS.
" Mr. Gunton has written one of the ablest works on a question of vast
interest which has issued from the press in many years." Chicago Times.
"It is a plain, practical, common-sense view by a sensible American,
where every point is argued and a plain reason given for its adoption."
Chicago Inter-Ocean.
" The book is one of infinite suggestion and also of practical value."
Boston Traveller.
" No one can rise from the reading of ' Wealth and Progress' without the
profound conviction that it contains the first attempt ever made to put the
claim for an eight-hour system on a truly economic and scientific basis."
New York Star.
" Mr. Gunton's work may be declared without hesitation to be the most
notable contribution to the science since Walker's ' Wages Question.'" Po-
litical Science Quarterly.
" The book contains a great deal of good sense, especially in its criticism
of the one-sided views of the standard economical teachers. " New York Sun.
" The book contains an immense amount of exact information regarding
all branches of the subject, and will be valuable as a book of reference to
all students of the economical question." New York World.
" Mr. Gunton has performed his task in a brilliant and masterly manner,
and with a logical clearness and accuracy in argument that leaves scarcely a
question of the truth and soundness of the position he has taken. The book
is in many respects the most important, most thorough, and most satisfying
that has been added to the literature of the subject." Boston Evening
Gazette.
" The author is very thorough, and contributes much valuable thought to
the subject." Brooklyn Eagle.
"The author presents a picture of the 'social crisis,' and develops his
theory by historical illustration and demonstration. His presentation is fas-
cinating and skilful." Boston Journal.
"It is at once philosophic and eminently practical. It announces the
natural laws which lie at the basis of the labor problem, elucidates them by
historical data, and enforces their soundness with a logical cogency that
carries conviction." Eastern Argus (Portland, Me.).
" Mr. Gunton is the latest comer in the field, and he performs the job
that he undertakes. We have never seen a neater piece of refutation than
that to be found between pages sixty and seventy, wherein the George theory
is particularly analyzed." Journal of Commerce (New York).
"The practical experience of Mr. Gunton gives particular interest and
value to his book, which in manner and matter would do honor to the most
practised writer." Commercial Advertiser (New York).
" It is the most thorough and comprehensive treatment of the labor ques-
tion ever presented." Pater son Labor Standard.
" The book is conspicuous for its close backing of all theory by practical
demonstration." North American Review.
" His book is the work of a sincere man and careful thinker, and deserves
wide reading." Boston Post.
" If any one cares to know what makes for human 'progress in the field of
economics, here is the book of all books which America has ever produced."
The Public (Abington, Mass.).
"We commend Mr. Gunton's book as a calm and instructive argument,
which is entitled to serious consideration, and he deserves the thanks of all
sound economists." The American (Philadelphia).
" Mr. George Gunton has done a real service in publishing his ' Wealth
and Progress.' It is refreshing to read the utterances of a man whose tal-
ents and studies have fitted him for the work he has undertaken." Boston
Advertiser.
" If the arguments in this book could be taught in every high-school and
college in the land, we might hope for a speedy settlement of the trouble-
some and knotty problems of the day." Public Opinion (Washington,
D. C.).
" It is the most noteworthy of recent American contributions to the eco-
nomics of the labor problem. It will at once give its author an assured
standing as a political economist." Chicago Dial.
" It contains much originality of thought, boldly asserted and consistently
maintained, and is presented in such pleasant and attractive form that much
of it possesses the interest of a novel." Fall River News (Mass.).
"We are impressed with the thoroughness of the author's investigation
and the strength of his argument, no less than by the clearness and vigor of
his style." Christian Advocate.
' ' The argument of Mr. Gunton is supported by many facts well calculated
to prove his theory." Chicago Herald.
"It is a very remarkable book, and at the outset it will be very highly
appreciated by those best versed in economic science." Sunday Tribune
(Minn.).
" ' Wealth and Progess ' is a handsome contribution to the science of eco-
nomics which is sure to command attention." New Orleans States.
" It is a contribution to economical literature of marked value." Scien-
tific Arena.
" Mr. Gunton has brought to his task a large practical experience with
industrial affairs, extended observation both in Europe and America, and
clese study of economic questions." San Francisco Bulletin.
" The book is well written, and, while wholly opposed to socialism or the
vagaries of Henry George's school, is yet strongly in the interest of the
laboring clashes." San Francisco Call.
" It is one of the most comprehensive discussions of the labor question of
the day." Buffalo Advertiser.
" The subject is treated in a masterly manner, and will not fail to instruct
and profit those who are interested in that all important theme. New Bed-
ford Standard (Mass.).
"We have in this volume the last contribution of science to the science
of political economy, and, as it seems to us, the most valuable." Daily
Herald (Omaha).
" The present volume is clearly written, and is, to our mind, one of the
ablest contributions which has of late been made upon the vexed subject."
Buffalo Times.
' ' Wealth and Progress ' is a book designed to mark a new era in the
history of political economy." Commonwealth (Boston, Mass.).
" The author makes an exhaustive and able presentation of the subject,
and his work is entitled to serious consideration." Syracuse "Journal.
" The book contains a large mass of valuable statistical information, and
should be in the library of every student of the social problem." Labor
Leader (Boston).
" The author has produced a decidedly readable and suggestive work,
giving good proof that political economy has become a study of prominent
interest. He is no visionary socialist, but builds his propositions on facts
and sound common-sense." The Moravian.
" It will be readily admitted that he has in this volume made a valuable
contribution to the discussion of one of the burning questions of the day."
Washington Post.
" We may fully commend it as presenting many aspects of the great ques-
tion with remarkable force." Hartford Courant.
" By none could such a work have been written but by a master of eco-
nomic science, a thorough reader of statistics, a lucid and comprehensive
thinker." Catholic Quarterly Re^tieu<.
' ' Wealth and Progress ' will in time effect a revolution in what is known
as political economy." Record and Guide (New York).
4
ENGLISH NOTICES.
" Mr. Gunton is known in the United States as a hard student of eco-
nomic questions, and as a writer of high ability. That character is fully borne
up by his volume ' Wealth and Progress.' " The Scotsman.
" Mr. Gunton throws fresh light on a much-discussed subject, and we cor-
dially recommend his book to our readers." Belfast Northern Whig.
" The work contains immense and laborious research, and is entitled to
a thoughtful perusal and unqualified respect." Liverpool Post.
" Mr. Gunton's book is a very important contribution to economic science,
and deserves the most earnest consideration from all classes in the commu-
nity." Literary World (London).
" ' Wealth and Progress' is certainly a work of great suggestiveness and
usefulness. The practical value of its conclusion is undeniable. Its theory
goes beyond explanation, and guides action giving, indeed, a new scien-
tific sanction to schemes of social amelioration hitherto taken in a spirit of
vague philanthropy. He has gone far to achieve what economists and so-
cialists alike have failed to do. He has developed a theory of wages in
harmony with the social instincts and tendencies of to-day." Scottish
Leader.
" The performance leaves little to be desired for clearness of statement or
for aptness of illustration." St. James's Gazette (London).
" The idea is presented with clearness, and the arguments in its favor, as
well as some of the objections to its practical workings, are ably stated."
Morning Post (London).
"The importance of the question, the ability, earnestness, and experi-
ence of industrial affairs which Mr. Gunton brings to the study of a difficult
problem, entitle his work to respectful consideration. Mr. Gunton's book
is very welcome, as it enforces from an economical point of view the great
importance which must be attached to character." Charity Organization
Review (London).
" Mr. Gunton's book is written with great clearness and force of style and
thought, and attacks two of the most long-standing doctrines in Political
Economy the doctrine of the wages-fund, and the determination of wages
by supply and demand." The Spectator (London).
For sale by booksellers ; or will be sent by mail, postage-paid, on receipt of
the price, one dollar.
D. APPLETON & Co. MACMILLAN & Co.
i, 3 & 5 BOND ST., NEW YORK LONDON, ENG.
UCSB LIBRARY
'
."gSOUTHERN REGIONAL LIBRARY FACILITY