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UNIVERSITY OF CALIFORNIA 
 AT LOS ANGELES 
 
VIA. L. I b 
 
 Half-past Twelve. 
 
 DINNER HOUR STUDIES 
 
 FOR THE ODD 
 
 HALF-HOURS. 
 
 GEORGE W. GOUGH. 
 
 Scmettme Exhibitioner of Balliol College. Oxford. 
 

 
 
 
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 George W. Gough 
 
GEORGE W. GOUGH 
 
 THE author of this book is the son of a 
 railway servant and his interest in 
 economics was first aroused when, as a small 
 boy, he used to walk up and down the great 
 goods yard at Stafford with his father and got 
 into the habit of enquiring what was in the 
 waggons, where they came from and where 
 they were going to. Into hundreds of waggons 
 the small child climbed, investigating the hid- 
 den mysteries of pit props, pigs of lead, barrels 
 of apples, etc., etc. 
 
 His first close interest in the study oi 
 economics was aroused when an old shoemaker 
 — of the class now largely driven out by 
 modern machinery — advised him to read Adam 
 Smith's "Wealth of Nations." The young- 
 teacher took the advice and an interest in 
 economics began which was destined to have 
 wide results. 
 
 Mr. Gough went to Oxford and is proud 
 of being " a Balliol man ;" he was an Exhibi- 
 tioner of the famous college and secured first- 
 class honours in Modern History. He was 
 Cobden prizeman, London, 1901, and Oxford 
 University, 1905, and Rrassey student for 
 1907. His " Ten Minutes' Talks with Workers " 
 in The Times Trade Supplement have attracted 
 world-wide interest, but his proudest work is 
 
•• The Yeoman Adventurer,"' a story as full 
 of human pathos and splendid grit as any that 
 has ever been told. 
 
 But Mr. Gough's greatest pride is that he 
 i? " of the people," and that he can speak to 
 the worker as one of themselves. Knowing the 
 trials and difficulties of working men and 
 women he is able to throw aside the cloak of 
 the professor and write of the realities. His 
 short talks on the succeeding pages are as 
 human in their touch as they are broad in their 
 views. 
 
 •Published by Methuen & Co.. London, and G. P. Putnam's Sons, 
 
 New York. 
 
* 
 
 CONTENTS 
 
 
 Chap. 
 
 i. 
 
 What is Political Economy? 
 
 Page 
 
 1 
 
 ii. 
 
 The Problems and Methods of 
 Political Economy 
 
 3 
 
 in. 
 
 Important Facts about Com- 
 modities ... 
 
 6 
 
 IV. 
 
 The Production of Goods 
 
 8 
 
 V * 
 
 The Division of Labour 
 
 11 
 
 VI. 
 
 Capital : (1) What it is 
 
 14 
 
 VII. 
 
 Capital: (2) What it does 
 
 16 
 
 VIII. 
 
 The Organisation of Industry : 
 (1) The Industrial Revolution 
 
 19 
 
 IX. 
 
 Organisation : 
 
 (2) The Prevailing Type of 
 Industrial Organisation 
 
 22 
 
 X. 
 
 The Selling of Goods 
 
 25 
 
 XL 
 
 The Rent of Land 
 
 27 
 
 XII. 
 
 The Wages of Labour 
 
 30 
 
 XIII. 
 
 Wages in Relation to Output ... 
 
 33 
 
 XIV. 
 
 Investment and Interest 
 
 36 
 
 XV. 
 
 The Profits of the "Boss" 
 
 39 
 
 XVI. 
 
 Competition and Combination ... 
 
 42 
 
 XVII. 
 
 The Mechanism of Exchange. 
 (1) Money 
 
 45 
 
 XVIII. 
 
 The Mechanism of Exchange. 
 (2) Banknotes 
 
 48 
 
CoNTKNTS —continued 
 
 Chap. >' ac "' ,; 
 
 XIX. The Mechanism of Exchange. 
 
 (3) Cheques and Banks ... 52 
 
 XX. The Mechanism of Exchange. 
 
 (4) Foreign Bills ... ... 55 
 
 XXI. The Commercial Commonwealth 58 
 
 XXII. The Principles of Taxation ... 61 
 
 XXIII. Taxes on Goods ... ... 64 
 
 XXIV. Taxes on Persons ... ... 68 
 
 XXV. Rates ... ... ... 71 
 
 XXVI. The Final Issue ... ... 74 
 
Dinner-hour studies for the odd half -hours 1 
 
 CHAPTER I. 
 
 What is Political Economy ? 
 
 TF we pick up a book on astronomy, on 
 ■*■ grammar, or arithmetic, or botany, most 
 of us have a pretty clear notion of the 
 kind of information it will give us. Just as 
 men do not gather figs from thorns, so they 
 do not expect to find information about vulgar 
 fractions in a text-book of botany. There is, 
 however, no such general knowledge of what 
 is to be expected from a text-book of 
 economics. What is even more significant, 
 however, is this : nobody in his right senses 
 would dream of giving an opinion on a pro- 
 blem in chemistry if he had never learned any 
 chemistry, while it is quite the usual thing for 
 people to give, off-hand and cheerily, opinions 
 on economic problems without making any 
 attempt by reading and observation to fit 
 themselves for the task. Because political 
 economy is concerned with the daily life of 
 men, it is, of course, possible for a man to go 
 quite right on some important economic 
 matters by the mere force of native shrewdness 
 and insight, especially if those matters closely 
 concern him in his daily work. Still, it is 
 quite clear that the study of economics is a 
 necessary preliminary to the formation of 
 sound views on economic questions, and as 
 economic questions are daily becoming more 
 and more important, it is proposed in this 
 series of papers to help our readers to study 
 economics for themselves. Certainly, it can 
 be promised that they will find the subject 
 fascinating as well as useful. 
 
 What does political economy deal with ? 
 The easiest and perhaps the best answer is that 
 
2 HALF-PAST TWELVE 
 
 it is the study of daily life of man in a modern 
 state. Every day an Englishman experiences 
 a succession of wants. He is hungry and 
 must have food, cold and must have firing, in 
 the dark and must have light, in the wrong 
 place and must get to the right one by train, 
 tram, or 'bus, and so on indefinitely. These 
 wants are satisfied mainly by goods or com- 
 modities, but also by services — e.g., those of 
 engine-drivers, laundresses, teachers, actors, 
 etc. Wants and goods form the starting 
 point of political economy. 
 
 In a modern country like England few 
 people grow or make any of the goods they 
 themselves use to satisfy their wants. When 
 I need a commodity — e.g., some meat or a hat 
 — I go into a shop or market and buy it with 
 money. A market consists of two sets of 
 people, sellers or suppliers of goods, and buyers 
 or demanders of goods. Our next important 
 subject of study is, therefore, the conduct of 
 these two classes of people, the study of the 
 laws of supply and demand, or more shortly, 
 the study of markets. It should be noted (1) 
 that a market is not necessarily a separate 
 building; there is now-a-days a world-market 
 for some commodities — e.g., wheat and 
 cotton ; and (2) that for some purposes we 
 quite properly speak of the " labour market," 
 although labour is not a commodity. 
 
 But we can only purchase goods in a 
 market if we have the money the seller de- 
 mands in exchange for them. The amount 
 of money we have at our disposal during a 
 given period is called our Income, because In- 
 comes are estimated in money. Clearly, how- 
 ever, our real income for that period consists 
 of the goods and services we have used in 
 satisfying our wants. The distinction between 
 real incomes and money incomes is extremely 
 important, and must never be forgotten. 
 Incomes are either earned or unearned — that is, 
 
Dinner-hour studies for the odd half -hours 3 
 
 they are either the wages of labour or pay- 
 ments derived from allowing otheis to use our 
 property. Some people, of course, draw part 
 of this income from their labour and part from 
 their property. The study of incomes is the 
 next important part of economics. 
 
 Finally we are obliged to make payments 
 to the Government, those to the King's 
 Government being called "taxes," while those 
 to the Local Government of the place we live 
 in are called " rates." The study of rates and 
 taxes, or of public finance, is one with which 
 political economy is very closely concerned. 
 
 Goods, Markets, Incomes, and Taxes — 
 these form the chief topics with which Political 
 Economy concerns itself. 
 
 CHAPTER II. 
 
 The Problems and Methods of 
 Political Economy. 
 
 "ILJAVING indicated the general character of 
 -*■-■• the subjects with which the economist 
 concerns himself, we next proceed to ask : 
 What is the object of his studies ? What pro- 
 blems does he set out to solve, and what useful 
 purpose is served by solving them ? 
 
 We have seen that human needs are sat- 
 isfied by goods or commodities. The mass of 
 goods available in any national territory for 
 satisfying the needs of its people, constitutes 
 the wealth of the nation. The mass of goods 
 belonging to a given individual in that nation 
 constitutes his wealth. Again, be it carefully 
 noted that though wealth is measured in 
 money, money is only one part — a small and 
 really insignificant part — of wealth. In 
 England, for example, the coined money ex- 
 isting in the country does not form one- 
 hundredth part of the total wealth. National 
 
HALF-PAST TWELVE 
 
 Wealth and Individual Wealth, National In- 
 come and Individual Income, are conceptions 
 of first-rate importance, and each forms the 
 basis of a great and very practical problem. 
 
 England is to-day a far wealthier country 
 than Spain, yet in the reign of Queen 
 Elizabeth Spain was far wealthier than Eng- 
 land. England to-day is far wealthier than 
 she was at the beginning of last century 
 Measured in money, the wealth of England 
 in 1900 was at least seven times greater than 
 it was in 1800. Here, then, is the first great 
 economic problem : "Why does national wealth 
 vary from country to country at the same 
 time and from time to time within the same 
 country ?" 
 
 The next problem is to account for the 
 variations in individual wealth. A very 
 popular dancer earns more in a month than a 
 -Aveated shirtmaker earns in her whole life- 
 time. Most of us do not own enough land to 
 ■1 and on : there are a few who own estates 
 large enough to find standing room for the 
 entire population of the earth. We want to 
 know why these things are so, and the study 
 of economics explains them. There was a 
 time when these facts were accepted as part of 
 a divine order. We sang in church on 
 Sundays : 
 
 ' The rich man in his castle, 
 The poor man at his gate, 
 
 God made them rich and lowly, 
 And ordered their estate." 
 
 We have ceased to sing nonsense about them, 
 and are bent on getting to understand why 
 they have come about, and it is Economics 
 that is concerned in the inquiry. 
 
 It is the object of all science to explain, 
 but in all sciences the process of explaining 
 can be pushed back farther and farther until 
 
Dinner-hour studies for the odd half-hours 5 
 
 we come to something that cannot be ex- 
 plained, but must be taken for granted. The 
 explanation of many phenomena is gravity, or 
 life, but gravity and life cannot be explained. 
 The science of political economy is, in this 
 respect, like other sciences, and yet unlike 
 them. 
 
 The economy of a modern country like 
 England rests on two ultimate bases : (1) 
 private property and (2) competition. Any 
 argument which assumes that these bases are 
 not there, is, therefore, futile. A. is wealthier 
 than B. because he owns more property than 
 B. does, not necessarily (though, of course, 
 very frequently) because he is a better man in 
 any sense of the term. C. gets £100 a week 
 for dancing because managers compete for her 
 services; D. gets 5s. a week for making shirts 
 because there are scores to compete for her 
 place if she thinks the wage too small. 
 
 But though these facts — private property 
 and competition are at present ultimate facts, 
 to be taken for granted, the economist knows 
 that at one time they were altogether unim- 
 portant. As far as he knows they may become 
 unimportant again. All he says is, in effect, 
 " Here they are now ; they lead to certain re- 
 sults, some wholly admirable, some extremely 
 unsatisfactory. Any sudden reversal of them 
 is entirely out of the question. Any proposed 
 reform, to be worth looking at, must assume 
 their continued existence and importance." 
 
 At one end of the scale there is the " sub- 
 merged tenth," at the other the "idle rich." 
 It may safely be said that if neither class ex- 
 isted, the present social order would be wholly 
 admirable. The great bulk of us, in varying 
 degrees certainly, but without substantial in- 
 justice, do our work and get our incomes, and 
 have a command over the material means of 
 life which would amaze a mediaeval baron in 
 his draughty, insanitary, and uncomfortable 
 castle. 
 
HALF-PAST TWELVE 
 
 CHAPTER III. 
 Important Facts about Commodities. 
 
 THE young student of economics will find it 
 rather difficult at first to keep constantly 
 in mind some of the simple but fundamental 
 truths of the science. The result of failing 
 to keep them in mind can be best seen in the 
 foolishness of the practical proposals put for- 
 ward by men who have never paid any atten- 
 tion to the science. Quackery is as rife in 
 economics as it is in medicine. 
 
 Let us make quite sure fiom the very be- 
 ginning that we understand the exact nature 
 of commodities and their relation to human 
 needs. 
 
 To begin with, it is necessary to observe 
 that some of our most urgent needs are satis- 
 fied by external objects which are not com- 
 modities. The usual illustration is air, the 
 thing we need most constantly and most 
 acutely. Water is another urgently needed 
 thing, but it is not a commodity amongst a 
 small tribe of savages living on the bank of a 
 river. The Bible tells us of a time when not 
 even food was a commodity among the Chosen 
 People, for manna was supplied to them 
 gratuitously and miraculously. What, then, 
 is a commodity in the economic sense ? 
 
 Nothing can be a commodity unless it 
 satisfies a human need — that is, unless men 
 want it. It must possess " utility," as the 
 economist says, and this is its first character- 
 istic. We have no judgment to pass on 
 whether men ought to want it. The fact that 
 they do want it is all that concerns us ; beer 
 and Bibles, spears and pruning hooks, are 
 equally commodities. 
 
Dinner-hour studies for the odd hall -hours 
 
 In the next place, a thing, besides being 
 useful, must be scarce before it can become a 
 commodity. By scarcity we simply mean that 
 there is not enough of it to go round. In the 
 economic sense wheat is just as scarce as dia- 
 monds, though 4,000 million bushels of it are 
 grown every year. The distinction is often 
 put by saying that air is a " free good," and 
 wheat an "unfree good." Both are natural 
 products ; but while Nature gives us air without 
 effort on our part, and in such abundance that 
 everyone can have all he wants, she only gives 
 us wheat as the result of effort or work on our 
 part. 
 
 In the last place, a commodity must be 
 capable of appropriation and transference — 
 that is, it must be the property of one person 
 who can, if he chooses, hand it over to another. 
 The upshot of the matter is that commodities 
 have to be worked for. Work ranges from the 
 picking of blackberries to the making of 
 Dreadnoughts ; from the mere appropriation 
 of things provided by Nature ready for use to 
 the concerted and laborious work of thousands 
 of men of every possible grade of skill. 
 Human labour must be exerted, and the 
 powers and materials of Nature forced to yield 
 us the commodities we need. 
 
 In using particular commodities to satisfy 
 particular needs, a very important law of 
 human nature comes into operation. The de- 
 sire for further supplies of a given commodity 
 diminishes as our stock of it increases. A 
 housewife frequently needs tea; she newr 
 needs tons of it. As her stock of it increases 
 pound by pound, each succeeding pound is 
 less acutely needed, until at last she comes to 
 a pound which she is quite uncertain whether 
 she wants or not. Economists call this 
 pound of tea the "marginal" pound, and its 
 utility the "marginal" utility of tea to the par- 
 ticular person concerned. And its importance 
 is very great, for it means two things: (1) If 
 
8 HALF-PAST TWELVE 
 
 I go on accumulating tea after this point has 
 been reached I am making a bad mistake, for 
 I clearly ought to be thinking now of other 
 goods to satisfy other wants, and, therefore 
 (2) if I am the owner of tea beyond ray own 
 margin, I shall be willing to exchange it for 
 some other commodity in regard to which I 
 have not yet reached my margin. Suppose it 
 is tobacco. The man who exchanges will look 
 at tobacco exactly as I look at tea. The fact 
 that he will take my tea proves that he is in- 
 side the margin for tea, as I am for tobacco. 
 At one time it was universally thought that in 
 an exchange of goods one party must neces- 
 sarily lose. We now see clearly that as a 
 matter of fact both parties necessarily gain; 
 it does not make the slightest difference to 
 this mutual gain that one party to the trans- 
 action lives in England and the other in 
 America. 
 
 CHAPTER IV. 
 
 The Production of Goods. 
 
 ADAM SMITH, the founder of the modern 
 science of political economy, called his 
 great work, published in 1776, the " Wealth of 
 Nations." His view of the scope of the science 
 is happily indicated by its title. Given a 
 nation of so many souls, settled on a given 
 national territory, the first thing the economist 
 has to find out is the set of conditions and the 
 nature of the arrangements which will make 
 the wealth of that nation, the mass of com- 
 modities available for the use of its people, as 
 great as possible. How the commodities when 
 produced are divided out amongst the people 
 
Dinner-hour studies for the odd half-Jiours 'J 
 
 is, of course, a very important matter, but it 
 is another and quite different matter, and must 
 be left for treatment in the right place. The 
 connection between the two problems is one, 
 however, which may be stated at once, so that 
 we can gradually work our way to a clear 
 understanding of both. The way in which 
 wealth when produced is shared amongst the 
 producers has an important reaction on the 
 amount produced. An illustration will make 
 this clear. The wealth produced on a slave 
 plantation was divided in such a way that the 
 owner got for himself all that was left after 
 he had used up just enough to keep his slaves 
 alive and in good working form. Clearly 
 this was a very bad arrangement for the slaves, 
 but it looks as if it were the best arrangement 
 that could possibly be devised from the 
 master's point of view, since, under it, as the 
 plantation song had it, 
 
 " De niggers make de cotton en co'n 
 
 En de w'ite folks gits de money." 
 It was, however, nothing of the sort. Slave 
 labour never pays in the long run, for it is 
 wasteful and inefficient, and only useable at 
 all in the lower grades of agricultural produc- 
 tion. 
 
 Wealth is produced in a modern country 
 by the co-operation of four factors or agents 
 of production, divisible into two groups as 
 follows : — 
 
 Agents or Factors of Production : 
 
 I. Two Original Factors. 
 
 .1. T.and and natural agents, or, in 
 one word, Nature. 
 
 2. Labour. 
 
 II. Two Factors that have been De- 
 veloped in the Evolution of Industry. 
 
 3. Capital. 
 
 4. Organisation. 
 
 Variations in national wealth are the re- 
 sult, therefore, of variations in the available 
 supply of these four factors of production. 
 
10 HALF-PAST TWELVE 
 
 Recorded history, as we know, does not take 
 us very far back in the economic history of 
 the world. Comparative philology, the study 
 of words, has taken us back perhaps thousands' 
 of years beyond the earliest scrap of written his- 
 tory, but even then we find our primitive ances- 
 tors, the so-called Aryans, already in a pretty 
 advanced stage of economic development. 
 Geology, perhaps, does show us very dimly 
 the original man almost naked in the face of 
 natural forces he could hardly use, much less 
 control. Here we have the beginnings of 
 economic life, the union of the two original 
 agents of production, land and labour. Even 
 so far back, however, he had made some little 
 attempt to provide himself with tools to help 
 him — a stone hammer, a flint spear-head, bone 
 fish-hooks, and so on. That is, he had begun 
 to accumulate capital, and beyond any doubt 
 there weie the rude beginning of organisation, 
 constantly between members of the same group, 
 occasionally between members of different 
 groups. Even in the rudest hunting, two men 
 co-operating, one to drive the game where the 
 other can hit it with a spear, get in the long 
 run more than twice as much as both acting 
 singly. Then, when the greatest of all discoveries 
 was made — namely, that it was possible and 
 much more profitable to catch animals rather 
 than kill them — the upward economic move- 
 ment was fairly started. 
 
 The study of these four agents of produc- 
 tion is very important. One truth, often lost 
 sight of in all sorts of proposals, is that in the 
 long run improvements in social conditions 
 have got to be based on improvement in the 
 agents of production. If the reader is con- 
 sidering any such suggestion (e.g., to tax im- 
 ported goods, or to introduce the "single tax") 
 he should at any rate start by thinking out its 
 relation to production, for the first interest we 
 ; 11 have is in maximising the amount of wealth 
 produced. 
 
Dinner-hoar studies for the odd half -hours 11 
 
 CHAPTER V. 
 
 The Division of Labour. 
 
 'T^HERE are two features of our every-day 
 *• life to which we are so accustomed that 
 we hardly notice them, though they are very 
 well worth attention in themselves, and the 
 explanation of them is one of the principal 
 tasks of economics. The first is that practic- 
 ally nobody produces any of the goods which 
 he himself consumes. A baker may of course 
 eat some of his own bread, and workmen very 
 often have gardens or allotments in which they 
 grow vegetables for their own use, but these 
 and all similar exceptions are really quite unim- 
 portant. The town of Burnley, for example, 
 does not consume enough of its own products 
 to keep one of its looms at work. The second 
 of the features which we are now examining is 
 that practically nobody produces the whole of 
 a given commodity. The man who can make 
 a shoe from start to finish has become almost 
 as rare as a white blackbird. The lady who 
 could make her own clothes from start to finish 
 is as extinct as the dodo. Yet Mr. Croaker, 
 in Oliver Goldsmith's play, " The Good 
 Natured Man " (written in 1TG8), says, " I have 
 seen a lady clothed from top to toe in her own 
 manufactures formerly" — that is, she was 
 wearing clothes which, from the wool onwards, 
 had been made in her own household. The 
 rule is that a modern worker makes a small 
 part of a completed article which he never uses 
 himself, or which at most only forms a small 
 part of his total consumption, which in the 
 main consists of articles produced by other 
 workers, often living in other countries. 
 Economists speak of this phenomenon as the 
 
12 HALF -PAST TWELVE 
 
 " Division of Labour," a rather absurd term 
 in itself. The process really consists of the 
 separation of tasks and the union of labour, 
 to fit the tasks into one another. 
 
 The advantages of this Division of 
 Labour are quite obvious. It increases the 
 skill of the worker, and so makes his output 
 greater. It facilitates the use of tools by re- 
 stricting the number of different tools which a 
 workman requires. It makes him more 
 dextrous in the use of those he does use. It 
 leads to the introduction of machinery, for as 
 soon as a task becomes mechanical it is very 
 likely that a machine can be made to do it. It 
 allows every worker to find work which suits 
 his capacity; a man who would be useless if 
 he had to make the whole of a shoe, may yet 
 earn a good living at making the heels, and so 
 on. The result is that the aggregate output 
 of a given number of workers is increased enor- 
 mously beyond what they could accomplish 
 working separately. 
 
 And the process is continually being ex- 
 tended. The number of different employments 
 recorded in successive censuses increases 
 rapidly. For special classes of workers Divi- 
 sion of Labour may be injurious for a time, as 
 the invention of machinery which will take over 
 their simple tasks throws some of them out of 
 work. Then they are at the further disad- 
 vantage that there is a much smaller market 
 for the only kind of work they can do. It is 
 doubtless true, too, that work is becoming 
 more mechanical, and the worker consequently 
 a mere automaton. He repeats the same 
 simple task, hour after hour, day after day, 
 until days grow to years and the years to a 
 lifetime. We cannot do what William Morris 
 and John Ruskin desired, for a return all 
 round to craftsmanship and artistry in work 
 is impossible. The evil undoubtedly exists, 
 and the remedy is to train and equip the 
 younger generation to enjoy a fuller and 
 
Dinner-hoar studies for the odd half -hours 13 
 
 nobler life outside the factory and the mill, 
 and to provide them with the means of doing 
 it. 
 
 The extent to which Division of Labour 
 can be carried is limited by the extent of the 
 market for the complete finished goods. We 
 see the connection of the two when we observe 
 that the minute sub-division which is now the 
 rule has gone on while our exports have been 
 increasing by leaps and bounds. The making 
 of men's clothing affords a striking example, 
 for while there are still tailors in a small way 
 who measure customers for a complete suit and 
 make all of it themselves, the making of a 
 complete suit in a large ready-made clothing 
 factory in Leeds is divided among scores of 
 different hands. 
 
 One other result of Division of Labour is 
 that the production of goods is carried on for 
 an unknown market. The village tailor only 
 makes his suit when a definite customer has 
 given an order. The Leeds manufacturer 
 turns out thousands of suits every week with- 
 out having the slightest knowledge of the 
 whereabouts of the people who will buy them 
 in order to wear them. Of course, the heads 
 of these large firms have to know pretty ex- 
 actly what they are doing, and the successful 
 ones do not make any vital mistakes, but 
 clearly there is a danger, taking industry as a 
 whole, that the right kinds and the right 
 quantities of goods may not be turned out. 
 When this happens on a large scale it may 
 cause grave trouble, and is often a contributory 
 cause of an industrial crisis. 
 
 The last point to which attention must be 
 called is the intimate connection between Divi- 
 sion of Labour and the Growth of Capital. 
 Capital makes large-scale production possible, 
 and large-scale production makes further sub- 
 division of labour profitable. Profitable to 
 whom? To everybody concerned, and not 
 least of all to the workers. The worker thinks, 
 
14 HALF-PAST TWELVE 
 
 rightly enough, that his own immediate inter- 
 est is in the amount of money wages that he 
 earns, but his interest in the quantity of goods 
 produced is just as direct, though, perhaps not 
 as plain to him, unless he trains himself to see 
 economic laws actually at work. If the amount 
 of wealth produced increases, there is at least 
 a chance that the share of the workers will in- 
 crease, and by combination amongst them- 
 selves they will be able to get that part of the 
 increase to which on economic grounds they 
 are entitled. 
 
 CHAPTER VI. 
 Capital : (1) What It Is. 
 
 [T is clear, then, that we are, as it were, 
 * going to market, but on the way there we 
 are occupied in finding out why it is that 
 national wealth varies from time to time and 
 country to country. Two causes of variation 
 we have touched on : (1) The size of the 
 national territory, and the way in which 
 Nature has endowed it with fertility and 
 minerals (especially coal and iron), rivers and 
 harbours, and so on; and (2) the extent to 
 which its people have carried out the Division 
 of Labour. We said, too, that there was an 
 intimate connection between Division of 
 Labour and Capital, the third factor in wealth 
 production. All other things being equal as 
 between two nations, the one with most and 
 best capital will forge ahead of the other. 
 
 What is Capital ? This looks an easy 
 question, surely, but as a matter of fact there 
 has been more dispute among economists over 
 it than over any other question. Its import- 
 ance may be seen from a simple fact : Karl 
 
Dinner-hour studies for the odd half -hours 15 
 
 Marx, the founder of modern Socialism, ex- 
 plained his views in characteristic German 
 fashion in three large volumes, the well-known 
 title of which is simply " Capital." He hoped 
 to revolutionise society, and to do so, he says 
 in effect, we must thoroughly understand 
 Capital. We are at work on a much less am- 
 bitious project — to understand society, not to 
 revolutionise it; but we must do as Marx did, 
 and tiy to understand Capital. 
 
 It will help us to go right if we set down 
 right away the points that are disputed about. 
 There is no space to discuss them; indeed, we 
 shall often and purposely start hares in the 
 hope that readers will hunt them. The older 
 economists drew clear-cut distinctions (1) be- 
 tween Wealth and Capital and (2) between 
 Land and Capital. Some modern economists 
 refuse to draw one or both of these distinc- 
 tions. It really does not matter as much as you 
 might think which side is taken, but it is use- 
 ful to worry the matter out for yourselves. 
 
 The best way to do this is to start with a 
 clear and definite understanding that Capital 
 is not money. The stupidities that follow 
 from supposing that it is are pretty familiar. 
 For example, we are told quite truly that mil- 
 lions of capital are flying abroad. What goes 
 abroad when this happens? Millions of 
 sovereigns ? We have sent enough capital 
 abroad in a year to clear every gold coin out 
 of the country if this is really the case, and 
 as our stock of gold rapidly increases through 
 it all, it is obvious that whatever else happens 
 when capital goes abroad, the money stops at 
 home. 
 
 There are two ways of looking at capital : 
 
 (1) From the point of view of its owner, and 
 
 (2) from the social point of view. 
 
 (1) Capital from the private point of 
 view : The capital of a business is the estim- 
 ated cash value of everything the firm owns — 
 
16 HALF-PAST TWELVE 
 
 its land 01 leases, its buildings, its machinery, 
 its stock of raw materials and finished goods, 
 its goodwill, its book debts, its patent rights, 
 its cash in hand, and so on. It may be equal 
 to, less than, or more than the capital origin- 
 ally invested in the business. It is, in short, 
 the mass of valuable things (or titles to 
 valuable things) which the concern uses for the 
 purpose of carrying on its business. Capital 
 and business are, then, connected terms ; all 
 these things are wealth, but wealth used for a 
 special purpose — business, the end of which is 
 profits. 
 
 (2) Capital from the social point of 
 view: If we look at the commodities around 
 us, we see at once that they fall into two 
 classes. Steel is a useful and valuable com- 
 modity, but if anyone dumped a ton of it on 
 my lawn with the idea that he was rendering 
 me a service, I should vigorously undeceive 
 him. A pound of tobacco on my study table 
 — that's quite a different matter. In other 
 words, there are commodities which are ready 
 for satisfying a human want, and commodities 
 which are not so ready. The tobacco is 
 ready ; the steel will be when it is a bicycle. 
 
 The two points of view coincide, for 
 clearly the second class ("production goods") 
 are found only in business life. The proper 
 place for a ton of steel is a factory. 
 
 CHAPTER VII. 
 
 Capital : (2) What It Does. 
 
 /^APITAL assists labour; it is really a tool, 
 ^ which makes the result of a given 
 amount of human exertion greater than it 
 would otherwise be. It is possible to catch a 
 fish by tickling it with the bare hand, and 
 
Dinner-hour studies for the odd half-hours 17 
 
 half a dozen energetic men skilled at the job 
 might catch a meal or two of fish in a day. 
 The same men, with a steam trawler and all 
 modern appliances, may well catch enough 
 fish in a day to provision a small town. The 
 labour is little if any harder, but the result 
 is increased immeasurably. The earliest 
 known man used bone fish-hooks; we find 
 them side by side with the fragments of his 
 own skeleton. Fish-hooks and trawlers are 
 capital : they increase the product of labour. 
 By themselves they can of course do nothing : 
 the bone hooks have caught no fish since their 
 owner died, perhaps scores of thousands of 
 years ago. But it is also just as true that men 
 without capital can do practically nothing. If 
 all the capital in England were whirled sky- 
 ward during the night, industry on the mor- 
 row would come to a dead stop. 
 
 The next step before us is to inquire how 
 it comes about that Capital increases the pro- 
 ductivity of labour ? 
 
 (1) In the first place it enables industry 
 to be continuous. If the tanner had to catch 
 and flay the animals whose skins he wants, he 
 would do very little tanning. In one of the 
 largest tanyards in Europe the writer saw hun- 
 dreds of thousands of skins piled up in ware- 
 houses, and in one of the largest shoe factories 
 in England he saw a few days later a huge 
 basement packed with leather of every kind, 
 much of it from the tanyard nine hundred 
 miles away. The modern worker has at hand 
 a continuous supply of everything he wants, 
 time is economised, and industry kept going 
 continuously. For example, the shoe factory 
 in question, employing well over a thousand 
 people, had had but one day's short time in 
 twenty years. 
 
 (2) In the second place, Capital enables 
 the processes of industry to be spread out over 
 the length of time which will ensure the maxi- 
 mum output in goods in return for a given 
 
18 HALF -PAST TWELVE 
 
 output in labour. When the Roman poet 
 Horace had completed a volume of poems, the 
 manuscript was handed to a " publisher," who 
 had it dictated line by line to a large number 
 of slaves. It was a much quicker way of 
 doing the thing than we have to-day. A 
 printing establishment takes a long time to 
 build and equip, but once there, it can turn 
 out an edition of the whole of Horace in a 
 day, that would have kept all the writing- 
 slaves of Rome busy for a year or two, with 
 the further advantage that the copies are all 
 alike. For centuries packhorses crawled over 
 the Alps; Capital at last made railway tunnels 
 through them. It is probably no exaggera- 
 tion to say that the trains would carry more 
 goods through the Alps in a week than pack- 
 horses have carried over them since Rome was 
 first built. Capital, then, enables industry 
 to adopt long and roundabout methods with 
 object of maximising the final output. 
 
 The older economists exercised themselves 
 to find out how Capital originated and grows. 
 Mill said in one famous paragraph that 
 Capital was " saved," and in the next that it 
 was "consumed." We need not bother about 
 the matter here except to say that a man who 
 "saved" a bale of cotton or one of Piatt's 
 spinning frames (both typical pieces of 
 Capital) would simply make an ass of him- 
 self. The idea, of course, was to find a 
 justification for the taking of interest on 
 Capital, interest being the "reward for abstin- 
 ence," as presumably, the man who "saved" 
 the spinning frame could have eaten it had 
 he chosen. 
 
 The quantity of goods ready for satisfy- 
 ing human needs steadily increases, first be- 
 cause the number of human beings steadily 
 increases, and secondly because they are con- 
 tinually developing new wants {e.g., for 
 moving pictures, motor cars, safety razors, 
 
Dinner-hour studies for the odd half -hours 19 
 
 and prepared breakfast dishes), and the avail- 
 able Capital increases because it is an indis- 
 pensable factor in supplying these wants. If 
 for any reason the demand for finished goods 
 decreased permanently, the amount of Capital 
 would decrease permanently. If the "saving" 
 theory is correct, the maximum output would 
 be saved if nobody consumed anything, and 
 then we should all be dead in a week. 
 
 Working men are sometimes told that 
 capitalism is the enemy of the working classes. 
 Two points, however, clearly arise from our 
 study of capital : — 
 
 (1) You cannot have capital without the 
 capitalist to save it, and it is absurd to sup- 
 pose that men will provide capital unless the 
 ordinary motive for providing it, the profits 
 which it earns, is assured to them. 
 
 (2) While it is true that capital earns an 
 income for the capitalist who owns it, it is 
 also true that it enormously increases the 
 wages of the labourer. 
 
 CHAPTER VIII. 
 
 THE ORGANISATION OF INDUSTRY. 
 (1) The Industrial Revolution. 
 
 T ABOUR and Capital depend for their 
 -"-' efficiency not only on the quantity and 
 quality of each that is available at any given 
 moment, but on the way in which they are 
 organised to carry on the work of production. 
 The best way of grasping the importance of 
 organisation as a factor in national industry- 
 is to trace its development. It will be suffi- 
 cient for our purposes to go back a compara- 
 tively short distance. It would be possible, I 
 imagine, to find in Lancashire now men who 
 
20 HALF-PAST TWELVE 
 
 have had personal relations with men who saw 
 Lancashire lead the world out of mediaevalism 
 in industry into the full light and splendour 
 of the modern world. A clear-headed man 
 of ninety, who, as a boy of fifteen talked in- 
 telligently with a preceding clear-headed man 
 of ninety, would not need to go to books to 
 learn of this mighty change. 
 
 What would such a man have to think 
 away from the Lancashire of to-day in order 
 to reproduce the earlier Lancashire which his 
 ancient friend had described to him from per- 
 sonal recollection ? Just everything that 
 makes Lancashire what it is, the most im- 
 portant industrial area on the face of the 
 earth. Railways, tramways, canals, mills, 
 sheds, works, and mines must all go; mighty 
 towns must be reduced to drowsy villages, 
 thriving haunts of industry blotted out alto- 
 gether, docks diminished to the size of a 
 cricket field, ships attenuated till they would 
 be small enough to float in the swimming bath 
 of the most modern liner. And then, what 
 has he to think back into Lancashire to make 
 the picture perfect ? The industrial system 
 then prevailing is known as the " domestic 
 system." Our earlier old man would have 
 read with delight as a boy a great novel then 
 recently published, " Humphrey Clinker." 
 We to-day, wonder perhaps, what Mistress 
 Tabitha Bramble, who is on a tour through 
 Bath and London to Edinburgh, means by 
 her constant injunctions to the house-keeper 
 at home to keep the maids spinning. It was 
 the domestic system of spinning yarn under 
 which she lived, and the village weaver would 
 call for the yarn and weave it into cloth on the 
 loom in his cottage. The resulting flannel 
 Mrs. Bramble would send on a packhorse to 
 a fair to be sold to a dealer. And this rough 
 textile industry was so carried on in every 
 village in the land, and though in a few dis- 
 tricts faround Norwich, Leeds and Man- 
 
Dinner-hour studies for the odd half-hours 21 
 
 Chester) much more was done than elsewhere, 
 it was all done in the same way — on spinning 
 wheels and wooden looms in the homes of the 
 people. Now a good weaver could keep three 
 or four women at work spinning. The result 
 was a constant dearth of yarn. Men set to 
 work on finding some means of spinning auto- 
 matically. Hargreaves made his "spinning 
 jenny," Arkwright his roller frame, Crompton 
 combined them in the "mule" ; this outclassed 
 the weavers, and Cartwright equated matters 
 with his power loom. The "mills" crowded 
 out every possible yard of riverside power, 
 and Watts put that right by driving them by 
 his steam engines. The goods choked 
 the roads, and Brindley made his canal; the 
 canal got hopelessly inadequate, and Stephen- 
 son made his railway. A little later on an 
 antiquated fiscal system once more blocked 
 Lancashire's further expansion, and Peel and 
 Gladstone came to her aid and gave her Free 
 Trade. It all happened in an incredibly short 
 time, and in half a century Lancashire became 
 what she is to-day, though she still, for- 
 tunately, keeps her unique power of forging 
 ahead of every imitator and competitor in the 
 world. 
 
 Such is a rapid thumb-nail sketch of the 
 industrial Revolution, which gave the world 
 the capitalist-factory system of industry. In- 
 dustry had been carried by men working on 
 their own account, or for a master not far re- 
 moved in economic status from them, or in 
 cottages and workshops, with tools so inex- 
 pensive that a poor man could afford them, 
 with no machines (which are simply power- 
 driven tools), with small and intermittent sup- 
 plies of raw materials, and for known and 
 mostly local markets. The Industrial Revolu- 
 tion replaced this system by large factories, 
 filled with machinery and power-houses, and 
 costing scores of thousands of pounds to build 
 and equip, and employing hundreds and even 
 
22 HALF-PAST TWELVE 
 
 thousands of men and women, working for an 
 employer whose market was steadily becoming 
 world-wide. 
 
 CHAPTER IX. 
 
 ORGANISATION. 
 
 (2) The Prevailing Type of Industrial 
 Organisation. 
 
 THE economic life of England is so full 
 and complicated that success in the 
 study of it depends on the power to bieak it 
 up in imagination into simple and easily- 
 handled problems. The economist is obliged 
 to adopt several devices in order to achieve 
 this end. One of these is to strip off all the 
 complications of real life and try to get at 
 the root of the matter by studying it in simple 
 and indeed sometimes imaginary forms. 
 Another device is to study a typical case, and 
 then, what is true of this will be true of others, 
 with any necessary changes in the results due 
 to differences between the cases. 
 
 In selecting the type to be studied, it is 
 of course necessary to select the most import- 
 ant — the type to which industry is steadily 
 conforming more and more generally. Now, 
 just as under the Domestic System (described 
 in the last article) the workman owned his own 
 tools, so under the new system in its earlier 
 stages "the firm" owned its own Capital. To- 
 day the tendency is for industry to be carried 
 on by means of borrowed capital. Few people, 
 [or example, know the exact meaning of the 
 "deposits" which appear among the accounts of 
 our banks. When a worker "deposits" a 
 sovereign in the Post Office Savings Bank he 
 
Dinner-hour studies for the odd half -hours 23 
 
 hands an actual coin over the counter, but 
 bank "deposits" are not all like this. They 
 consist in part of money lent to the bank, but 
 also of credit given by the bank. A man 
 wanting to start or extend a business gets 
 credit from his banker, who "deposits" against 
 his name in the books of the bank an entirely 
 imaginary sum, on which the man draws 
 cheques in payment of his business expenses. 
 The bank does not own the money and lend it 
 to the man — that is not at all what happens. 
 
 Important as these bankers' deposits (and 
 " overdrafts," which serve the same purpose) 
 are in business, the use of borrowed capital is 
 best seen in the case of Limited Liability Com- 
 panies. Advertisements appear in the papers 
 every day inviting the public to take up shares 
 in companies formed for an infinite variety of 
 purposes — to build a new railway in the 
 Argentine, to plant rubber in Brazil or make it 
 in London, to develop real estate in the 
 Middle West of Canada, and so on, and the 
 combined capital of these companies amounts 
 to hundreds of millions of pounds sterling. 
 
 There are, as we have seen, four agents of 
 production — Land, Labour, Capital and Or- 
 ganisation. We shall make the assumption 
 that each of these agents is the property of, 
 or is applied by, a distinct class in the com- 
 munity. A man (or a small group of men) 
 with the experience, knowledge, and power 
 necessary to organise a business, may be re- 
 garded as : — 
 
 (1) Acquiring land, for which he agrees 
 
 to pay a given rent. 
 
 (2) Borrowing capital, for which he 
 
 agrees to pay a given rate of in- 
 terest. This capital, we repeat, 
 will be simply a credit at his bank ; 
 power, that is, to draw cheques on 
 the bank to buy the real capital 
 required — that is, buildings, 
 machines, tools, raw materials, etc. 
 
24 HALF-PAST TWELVE 
 
 (3) Hiring workers, to whom he agrees 
 to pay a stated rate of wages. 
 
 Having made these arrangements, he 
 organises the business, turns out its finished 
 product, puts it on the market, gets the high- 
 est price he can for it, and from the receipts, 
 after allowing for depreciation and the 
 accumulation of a reserve, he pays the rent of 
 his land, the interest on his capital, the wages 
 of his workers, and keeps for himself any- 
 thing he has left as his profits. 
 
 It is usual to call such a man an 
 Entrepreneur, a French word, meaning "one 
 who undertakes to do a thing." We have not 
 a suitable English word, for "undertaker" is 
 used in a special and quite different sense, and 
 the fine Elizabethian word " adventurer," used 
 of the merchants who " ventured trade 
 abroad," has got degraded in meaning. 
 
 The producers of wealth are thus divided 
 in four classes, each receiving a share of the 
 product : — 
 
 (1) Landlords, receiving Rent. 
 
 (2) Capitalists, receiving Interest. 
 
 (3) Workers, receiving Wages. 
 
 (4) Entrepreneurs, or Employers receiv- 
 
 ing Profits. 
 In actual life, of course, a man may be 
 in two or three classes. The head of a firm 
 may own all its capital, then he is both (2) 
 and (4) ; a landlord may hold shares in a 
 business, and so be (1) and (2) ; a worker may 
 own a piece of land and also receive bonuses 
 on his life assurance policy or dividends on 
 his shares in the "co-op.," then he is (1), (2) 
 and (3). But the only possible thing for the 
 economist to do is to regard them as distinct 
 and study them separately. 
 
Dinner-hour studies for the odd half -hours 25 
 
 CHAPTER X. 
 
 The Selling of Goods. 
 
 WHEN a stock of commodities is accumu- 
 lating on my hands, there sooner or 
 later comes a time when 1 get to the marginal 
 unit (see the third chapter), and I am prepared 
 to exchange this for another article which will 
 yield me the same utility along another line 
 of satisfaction. Suppose this second com- 
 modity is money ; then I am willing to sell my 
 marginal unit (say my marginal pound of tea) 
 for, say, 2s. Clearly, however, as all the 
 pounds of tea are alike, it is a matter of in- 
 difference which one the purchaser takes. 
 Conversely, if I were buying tea from a stock 
 this is the price I should be willing to pay for 
 it. This is, in brief, what the economist 
 means when he says that marginal utility fixes 
 price. Commodities like tea, are bought and 
 sold in large quantities, and, theoretically, 
 each buyer and each seller has his own mar- 
 ginal price, but of course in practice the mar- 
 ginal valuations coincide pretty closely when 
 great masses of consumers are taken into 
 account, and then are gradually brought to- 
 gether by the working of the market. 1 may, 
 for example, have fixed on Is. llAd. as my 
 marginal price for tea, but this is useless in a 
 world in which the retail prices of tea always 
 move (so far as I have seen) in twopences. I 
 shall have to lose id. by buying at 2s., as it 
 is wholly improbable that the shop-keeper will 
 consent to lose Hd. by selling at Is. lOd. 
 
 When our entrepreneur has made his 
 goods, he places them on the market. But 
 he can never be sure what he will get for them ; 
 
o 6 HALF-PAST TWELVE 
 
 even if it is usual foi him to make by contract, 
 he never knows exactly what he can be sure 
 of getting as the contract price. The actual 
 price is determined by the conditions prevail- 
 ing at the time of marketing the goods or 
 making the contiact. Prices in retail shops 
 and markets move slowly, but in a wholesale 
 market much more rapidly. For example, 
 the price of a 4 lb. loaf does not change very 
 often, while the price of a quarter of wheat 
 varies frequently within narrow limits. These 
 variations, we say, are due to variations in 
 supply and demand. Many buyers and few 
 sellers, up prices go, fewer buyers, more 
 sellers, they begin to fall; few buyers and 
 many sellers, and they come down with a run. 
 On the big world markets the movements are 
 much influenced by speculative buyers and 
 sellers. A man will quite commonly order 
 10,000 bushels of wheat who would be in a 
 hopeless position if the wheat were brought to 
 his door for delivery, since he can neither pay 
 for it nor store it. No, he was dealing not in 
 wheat but in " futures " — that is, the future 
 price of wheat, but his dealings influence 
 prices for millers who want the corn to grind. 
 If our entrepreneur does not get the price 
 he expected, he begins to consider his position, 
 and if he is disappointed time after time 
 throughout a considerable period, he soon 
 ceases to produce goods. That is to say, be- 
 hind the laws of supply and demand which 
 fix the market price on a given day for a given 
 transaction, there is another force at work to 
 fix prices in the long run. I have said that 
 the entrepreneur has a price in his mind which 
 he "expects." If the ups and downs of 
 market prices, taking one year with another, 
 average out with this expected price, he goes 
 on producing. What, then, determines this 
 "expected" price — the "natural," or "nor- 
 mal," or "long-period" price, as it is 
 variously called ? 
 
Dinner-hour studies for the odd half -hours i~i 
 
 We have seen that the entrepreneur has to 
 make certain payments out of the price he re- 
 ceives for his goods, and that these payments 
 form the shares of the other three agents of 
 production. Generally, too, the amount of 
 these shares is fixed in advance, by compari- 
 son with what the agents get in other similar 
 industrial concerns : the trade union rate of 
 wages, the usual interest on debentures, and 
 so on. Over and above these, he wants some- 
 thing for himself, at least as much— and 
 rather more to cover his risk — as he could get 
 by doing similar work as the paid manager 
 of another firm. All these expenses of pro- 
 duction must, in the long run and on the 
 average, be met out of the price received for 
 the goods. In the words of the economist : 
 market price is determined by supply and de- 
 mand ; normal price by cost of production. 
 Market price may never coincide with normal 
 price, but be perpetually oscillating about it. 
 
 CHAPTER XL 
 The Rent of Land. 
 
 A rent is the payment made to the owner of 
 **■ a piece of land by the cultivator. It is also 
 commonly used for the payment of the use of 
 a house, but this includes not only the rent of 
 the land on which the house stands, but also 
 a payment for the use of the building. We 
 must think of them apart, for the payments 
 are fixed in different ways. It is best to be- 
 gin with the rent of agricultural land. 
 
 Let us suppose that there are three farms, 
 all devoted exclusively to corn growing, ex- 
 actly equal in size, equi-distant from their 
 
26 HALF -PAST TWELVE 
 
 common market and with equal facilities of 
 transport to it, stocked and treated in the same 
 way, employing the same number of workers 
 at the same weekly wage, under farmers of 
 about equal ability. 
 
 Look at the matter from the entrepreneur's 
 point of view, the entrepreneur here being, of 
 course, the farmer. He has sunk capital in 
 his farm; he wants the same interest on it as 
 he could have got in an equally safe invest- 
 ment elsewhere. He pays wages ; he wants 
 them back. He has all sorts of outgoings for 
 seed, manures, repairs; he wants these back. 
 His dead capital depreciates, and he wants 
 back each year the amount by which it has 
 depreciated. He works himself, and for this 
 he wants an amount at least equal to what he 
 could earn as the servant of an employer. If 
 he gets all these he is satisfied, and must be 
 satisfied, for in the long run he can get no 
 more. 
 
 Let us further suppose that on each farm 
 all these required sums can be met from a 
 yield of 10,000 bushels of corn. It is ex- 
 tremely unlikely that the yield of the farms 
 will be alike, and consequently we can fix on 
 any arbitrary but reasonable numbers : let us 
 say, then, the first farm yields 10,000 bushels, 
 the second 11,000 bushels, and the third 
 12,000 bushels. 
 
 Now we have carefully made all the 
 factors of production that can be controlled by 
 human foresight exactly equal for each of the 
 three farms. Yet nobody expects these equal 
 sets of factors to produce equal results. And 
 why ? Because the final result in farming is 
 affected by a factor which man cannot control 
 the natural advantages of the soil. The 
 difference in the results is due to nature. No 
 doubt, the first farm could be made to yield 
 11,000 bushels like the second, probably even 
 12,000 like the third, but — and here comes the 
 important point— -not by the same amount and 
 
Dinner-hour studies /or the odd half -hours 29 
 
 kind of treatment. Let the first farmer in- 
 crease his expenditure and he can increase his 
 crop, but all other factors being equal as be- 
 tween the farms, Nature gives unequal resufts. 
 
 It is easy to draw the inevitable conclu- 
 sion. If the three farmers own their own 
 land, each of them takes the total crop; but 
 if the farms belong to a landlord, what then? 
 The third must yield up 2,000 bushels to his 
 landlord, and the second 1,UU(J bushels. 
 There is no injustice to the farmers in this, for 
 even so each gets back every grain of corn he 
 has any economic right to get back. It is 
 rather a pity, of course, that the land has got 
 into private ownership, for if it were ail state- 
 owned, the state would get the 3,000 bushels, 
 and the " single-taxers," of whom we are now 
 hearing so much, propose to take them for the 
 State. At present they quite rightly go to the 
 man who owns the land. From the first 
 farmer the landlord will get nothing, because 
 there is nothing left over for him to take. 
 It is "no rent land" on the margin of cultiva- 
 tion. 
 
 Suppose we now turn the corn into money 
 at os. a bushel, and observe two very important 
 inferences. First, the fact that rent is paid 
 does not affect the price of corn, which is -3s. 
 a bushel just the same whether the land pays 
 rent or not. Abolish rent, and you benefit not 
 the consumer but the farmers of the better- 
 class lands. Second, raise corn in price by 
 means of an import duty, and you benefit 
 neither farmers nor labourers, but only the 
 landlords. When corn is 5s. a bushel, the 
 first farmer can pay no rent ; make it more he 
 can, and the landlord can be depended on to 
 make him. The last German tariff raised tin- 
 value of the agricultural land of Germany by 
 no less than £1,000,000,000— a pretty present 
 to a favoured class ! 
 
 Finally, we note that we are arguing from 
 a case of farms supplying the same market. 
 
30 HALF-P AS T TWE LVE 
 
 There is, then, bound to be no-rent land some- 
 where (a hare the reader should hunt for him- 
 self), but it may be anywhere on the earth 
 for a Free Trade country — say 1,000 miles 
 west of Winnipeg. 
 
 CHAPTER XII. 
 
 The Wages of Labour. 
 
 'HpHE wages of bricklayers in Manchester 
 -■- before the war were lOd. per hour. If 
 the economist is asked to explain why they 
 were lOd. and not lid. or 9d., he is asked to 
 solve what is at once one of the most difficult 
 problems in economics, and one of the most im- 
 portant problems in social life. For the man 
 who would not like them to be lid., or even 
 is. lid., providing it could be managed, is 
 not worth arguing with. One thing we may 
 be sure of is that the wages are what they are 
 neither by chance nor accident, but as the re- 
 sult of some law or laws. For we see law at 
 work the moment we seriously attend to the 
 matter. Bricklayers' wages are always higher 
 in big towns than in small towns, are always 
 higher than the wages of bricklayers' labourers, 
 are always lower than the wages of foremen 
 bricklayers, and so on. To endeavour to 
 throw some light on the subject in one short 
 chapter is a desperate venture, for every para- 
 graph could be easily expanded into a long 
 chapter. 
 
 Let us begin again with the entrepreneur, 
 for though we may or may not like the "boss" 
 of our work-a-day life, as students of 
 economics, he is of essential importance to us. 
 And, as hinted previously (beginning of 
 Article IX.), we must adopt the device of 
 
Dinner-hour studies for the odd half-hours 31 
 
 simplifying matters even if at first the result 
 seems unreal. We shall merely ask the reader 
 to assume (1) that a certain entrepreneur has at 
 his disposal a certain amount of capital (a fac- 
 tory of given size and equipment); (2) that all 
 labourers he employs are exactly alike as 
 labourers, and one being just as good for his 
 purposes as any other; and (3) that he agrees 
 before starting to pay them all 30s. a week 
 wages. 
 
 Now, as he takes on man after man, the 
 product turned out increases rapidly, for as 
 long as he has no men his factory stands idle. 
 Now what extremely nice problem must the 
 boss work out if he is to run his factory so 
 as to get the best possible results ? Clearly to 
 produce the maximum quantity of product 
 that pays under the limits forced upon him 
 (which are : (1) so much capital and no more ; 
 (2) 30s. per man per week wages and no less). 
 With no men there is no product; with, say, 
 1,000 men, still no product, for 1,000 men 
 would jam his factory so full that nobody 
 could do any work. He, therefore, puts on 
 man after man, and watches how much the 
 last man adds to the total product. He is 
 clearly working his way towards a margin (an 
 idea now getting familiar to us), and of course 
 he stops as soon as he gets to the man whose 
 work for a week only increases the value of 
 the output of the factory by 30s. Here, then, 
 is our first glimpse of the law of wages. In 
 a perfectly run factory the wages of all 
 workers of a given grade equal the output of 
 the marginal worker of that grade. 
 
 We now have to ask what are the forces 
 that shift the margin about and so help to de- 
 termine wages. It is clearly useless, in the 
 manner of the older books, to attempt to find 
 some one determining factor. We can find 
 the limits within which it shifts, and enumer- 
 ate the forces that shift it, and that is all we 
 can do. We may distinguish two sets of 
 
32 HALF-PAST TWELVE 
 
 forces at work to fix the margin : (1) Those 
 wielded by or closely affecting the workers, 
 and (2) those wielded by or closely affecting 
 the employers. 
 
 (1) Wages cannot fall lower than the 
 amount necessary to keep the labourer alive 
 and efficient; too low wages are suicidal even 
 from the employer's point of view. They do 
 not in practice fall lower than is required to 
 enable the labourers to maintain the standard 
 of comfort to which they are accustomed. 
 The wages to be paid were, as we have said, 
 agreed on in advance, and in making the 
 agreement something will depend on the cur- 
 rent state of the labour " market," and on the 
 ielative bargaining power of master and men, 
 and the bargaining power of the men will be 
 enormously increased if they belong to a 
 Trade Union and bargain as a body. The 
 social estimation in which the work stands 
 enters into the account, and in particular the 
 time and money required to educate young 
 people to follow the trade. The efficiency of 
 the workers is of the utmost importance, for a 
 small number of efficient workers is required 
 to wring the last ounce of product out of the 
 fixed stock of capital we are taking for 
 granted, and therefore the marginal man 
 comes earlier and the wages of all the men 
 could be made correspondingly higher. 
 
 (2) The employer knows this as well as 
 his men know it, and when he agrees on 30s. 
 as the rate of pay, he knows pretty well (and 
 we assume him to know with minute accuracy) 
 that when he has his total working staff, up 
 to and including the marginal man, the whole 
 concern will be doing the most and best and 
 cheapest work it is capable of. If, for ex- 
 ample, he found that the working staff, as 
 determined in numbers by the marginal man, 
 was not big enough fully to utilise the existing 
 capital, he would insist, if he could, on lower- 
 ing wages, so that more men could be brought 
 
Dinner-hour studies for the odd half -hours 33 
 
 in. If he could not get his way, he would be 
 working at a loss, and ultimately be forced 
 to stop altogether. 
 
 But the chief thing that limits him is the 
 value the public sets on each unit of the pro- 
 duct he is turning out, and this is closely de- 
 pendent on its social utility. If its price goes 
 up, he can sell the product of the marginal 
 man for more money and so raise wages all 
 round. Hence we see the economic importance 
 of the sliding scale of wages which the workers 
 in some trades have been able to insist on. 
 
 CHAPTER XIII. 
 Wages in Relation to Output. 
 
 /"\NE of the most important results of the 
 ^^ Great War has been that it has thrust on 
 us the study of Political Economy as the only 
 possible means by which the people of a great 
 industrial nation can fight their way through 
 the mass of economic problems which the war 
 brought in its train. Never was it more neces- 
 sary that the conduct of each one of us, both 
 as worker and citizen, should be right conduct 
 because it has been based on accurate think- 
 ing. The course of wages during the war is 
 one of the most important, as it certainly is 
 one of the most interesting, of the economic 
 questions thus raised. 
 
 War is waste. The Great War was waste 
 written in gigantic letters. Consider the 
 salient features: — (1) For nearly five years, 
 millions of men who, but for the war, would 
 have been engaged in producing and mer- 
 chanting goods did none of this work, with 
 the result that what they would have produced 
 went unproduced ; nay, worse than that, not 
 
only did they not produce goods but they 
 spent the whole of their time blowing to pieces 
 goods that had already been produced. (2) 
 Many other millions, both of men and women, 
 spent their time in producing, not, as usual, 
 goods for use in civil life but goods to be used 
 in the war. In the war zones, the wreck of 
 civilisation on its material side will be visible 
 for decades to come, try as hard as we may 
 to obliterate its traces. All over the world, 
 for years to come, there will be gaps in our 
 supplies of all the necessaries of life because 
 of the reduction of output during the war. 
 
 As soon as war broke out prices began to 
 rise (1) because men who held stocks of goods, 
 anticipating scarcity in the near future, began 
 to put up prices (2) because the supply of goods 
 at once began to fall off (3) because the govern- 
 ment demand for certain classes of goods put 
 up their prices, and the prices of all other 
 commodities began to rise in sympathy, as the 
 economists say, and (4) because governments 
 were compelled to finance the war by the crea- 
 tion of " paper," and the inflation of the 
 currency at once told on the level of prices. 
 
 Therefore, working men soon got into a 
 vicious circle. The cost of living increased 
 To meet it they demanded higher wages, and 
 got them. In order to pay the higher wages 
 manufacturers put up their prices. Then the 
 workers, finding that their increased wages 
 were swallowed up in higher prices, demanded 
 higher wages, and got them, and thus started 
 travelling round the circle again. It is pro- 
 bably true that, taking the working classes of 
 this country as a whole, they got a higher 
 " real wage," by which is meant that the sup- 
 ply of goods coming into their homes was 
 larger, during the war than ever before it; but 
 it is also quite clear that this real wage has 
 risen not very much, while their money wage, 
 paid in " Bradburys," has about doubled on 
 the average. 
 
Dinner-hour studie s for the odd half -hours 35 
 
 This compels us to lace this question : 
 " How can the working classes of this country 
 increase their real wages ?" 
 
 Let us begin by considering the question 
 in a large and general way. The goods which 
 flow day by day into all the working-class 
 homes in this country are part, a large part, 
 but still only a part, of the total mass of 
 goods produced. Now it is clear enough that 
 one way of increasing real wages is to increase 
 the main stream of goods. Large rivers, as 
 they near the sea, quite commonly divide into 
 two streams, thus making what the geography 
 books call a delta. Suppose that owing to a 
 heavy rainfall in the upper country the main 
 stream rises. When the ilood water gets to 
 the point where the delta begins, is it not quite 
 clear that part of the excess water will flow 
 along each arm of the delta ? Apply the illus- 
 tration. Consider the supply of goods as a 
 river, fed from innumerable springs and 
 rivulets (that is, from our farms, workshops, 
 mills, factories and shipyards) and dividing 
 at a certain point into two main channels, one 
 flowing into the homes of the workers, the 
 other flowing into the homes of the non- 
 workers. Whatever causes the supply of 
 goods in the main river of trade to get larger 
 will increase that particular channel which 
 flows into the workers' home. Moreover, this 
 would be the case even if the workers them- 
 selves did nothing to increase the supply. If 
 the workers contribute to increase the supply, 
 it naturally follows that their share of it will 
 increase even more abundantly. 
 
 This is why we hoar so much to-day of the 
 demand for increased production, a bigger 
 output from every producing unit, however 
 small or however large, in the whole country. 
 Having taken this general view, which, to 
 borrow another illustration from geography, is 
 like looking at a small scale but clear map of 
 our countrv as a whole, let us look at a large 
 
36 HALF-PAST TWELVE 
 
 scale map of one particular bit of it. Take 
 the factory in which you yourself work. The 
 world's hunger for goods is so great, owing to 
 the war, that every article your factory turns 
 out is sure of a market. There are large 
 factories in England to-day already booked 
 up with orders for two years ahead, and manu- 
 facturers can get almost any price they like for 
 goods ready for immediate delivery. Your 
 employer will only be too anxious for the out- 
 put of his factory to be increased, and if it is 
 increased by extra efforts on your part, 
 economic forces will give you full value in 
 goods for every increased ounce of effort you 
 put into the job. 
 
 Again, every extra article turned out by 
 your factory will be bought by somebody who 
 can only pay for it by turning out articles of 
 his own. Every working man who increases 
 his output puts into operation a set of 
 economic forces which inevitably provide 
 another working man with an opportunity of 
 increasing his. 
 
 CHAPTER XIV. 
 
 Investment and Interest. 
 
 npHE payment made for the use of capital 
 is called interest. It is always reckoned 
 at so much per cent., say, 5 per cent. — i.e., 
 £5 i->er annum for the use of every £100. 
 When an entrepreneur borrows capital for the 
 use of his business, he frequently offers to 
 make a certain rate of interest the first charge 
 on the "profits" of the company, using the 
 word "profits" in the business sense. This is 
 the meaning of the "debenture" shares of some 
 companies, the "ordinary" shares of which 
 take what they can get. 
 
The machinery of wealth-production is 
 kept going in order to supply goods to satisfy 
 human needs, and hence it follows that the 
 kind of work it is doing at any given moment 
 depends on the needs which want satisfying, 
 but obviously there is always a vast aggregate 
 of unsatisfied needs. There are some, but not 
 many, individuals whose incomes are so large 
 that they can satisfy every need, and indeed 
 gratify every whim, but although these people 
 loom large in the public eye, there are too few 
 of them to make any real difference. And on 
 the other hand, notwithstanding the fact that 
 there are many very poor people, it is also true 
 that the bulk of people have incomes more 
 than large enough to satisfy the most urgent 
 needs, so that they can leave other secondary 
 needs unsatisfied if they choose, and, as we 
 shortly put it, " save the money." When a 
 man thus defers the satisfaction of a need he 
 is entitled to some reward for doing so, be- 
 cause it is just this postponement of satisfac- 
 tion in the present that enables society as a 
 whole to get wealthier than it otherwise would 
 be, and of this increased wealth he should get 
 his share. If a man's income has been paid 
 him in gold, say £500, he has this amount 
 to spend in the satisfaction of his wants until 
 pay-day comes round again. It is really 
 astonishing how quickly £500 can be got rid 
 of by a man who puts his back into the job ; 
 but let us suppose that this particular man by 
 cutting down his expenses can manage on 
 £300 "during the interval. Now, if he buried 
 the £200 in his garden, the only thing that 
 would happen would be that when he dug it 
 up again (providing that gold was still in use 
 as money) he could use it in purchasing more 
 goods. Modern arrangements give him a far 
 better alternative, for he can always "invest" 
 it. Instead of burying it, which is mere 
 foolishness, or using it up there and then in 
 satisfying needs by purchasing goods out of 
 
 384640 
 
38 HALF-PAST TWELVE 
 
 the existing stock, his " investment," if wisely 
 planned, puts it into the hands of men who 
 will use it in productive enterprises which 
 could never be undertaken if he (and of course 
 he is only a type of millions) had not acted as 
 he has done, and which result in making the 
 future stock of goods bigger than ever. The 
 process cannot be overdone, for the simple 
 reason that if everybody cut down his present 
 consumption to the bone, so to speak, in order 
 to save, the prices of the existing stock of 
 goods would fall so low that entrepreneurs 
 would not come forward to borrow the "sav- 
 ings" for productive purposes. 
 
 Investments vary greatly in character, and 
 a new enterprise is often merely a gamble. If 
 a man wants to keep his capital safe and cer- 
 tain, so that he can realise it at a moment's 
 notice, he must choose some form of invest- 
 ment which gives him this power, and in such 
 cases he gets what we may call "pure" interest. 
 Government and municipal loans, mortgages 
 on good property, old and firmly established 
 businesses of all sorts ("gilt-edged" securities, 
 as they are called) provide this. If he invests 
 in a new concern there is always an element 
 of risk, and if he runs the risk and is successful 
 he gets a higher rate of interest. 
 
 At bottom, however, what determines the 
 rate of interest is the number and character of 
 the ways in which new capital can be remunera- 
 tively applied. People will not invest in old 
 sources giving a low rate, when new sources are 
 becoming available which give a high rate. 
 Hence the prices of the old shares fall — the 
 simple explanation of the fall in Consols. 
 
 All through these papers, the object is to 
 find out how the social machine is constructed 
 and what forces set it to work. This is a purely 
 scientific undertaking, but there is no reason 
 why we should not pause every now and again 
 to reflect upon the special interests of the 
 working classes. 
 
Dinner-hour studies for the odd half -hours 49 
 
 Now every man who finds out a new and 
 more profitable method of investing new 
 capital, thereby does two things to help the 
 working classes. He does not do it in order 
 to help them, but to help himself; and, on the 
 other hand, the workers are inclined to be a 
 little suspicious when they are told that a 
 capitalist, solely concerned in looking after his 
 own interests, cannot do it without looking 
 after theirs. In fact, however, this is what 
 happens : — 
 
 (1) By providing extra and more profit- 
 able methods of employing labour he adds to 
 the demand for labour, without adding to its 
 supply, and this tends to increase money. 
 
 (2) By increasing the supply of goods 
 available to satisfy the needs of society, he 
 raises the real income of society, that is, the 
 available supply of goods, and of this in- 
 creased supply of goods the workers get their 
 share by the usual operation of economic laws. 
 
 CHAPTER XV. 
 The Profits of the "Boss. 
 
 Y> 
 
 IF the reader will refer back to Chapter IX., 
 -*- he will see that all along we have been 
 using the French word Entrepreneur to signify 
 a man who runs a business on borrowed capital, 
 and that practically no difference arises from 
 the fact that many employers own the whole 
 or part of the capital sunk in their business. 
 All that we have to do is to remember that the 
 business man uses the word "profits" in a wider 
 sense than we are now using it. To him the 
 "profits" are that sum of money which remains 
 over for his own private behoof at the end of 
 a financial year after he has met all the ex- 
 penses of running the firm, including, if he is 
 
40 HALF-PAST TWELVE 
 
 wise, contributions to two important items — 
 the reserve fund and the depreciation account. 
 The object of a reserve fund is to equalise 
 "profits" (in his sense) over a period of years, 
 some of which are bound to be bad, while a 
 depreciation fund is used to keep capital, 
 which always suffers from wear and tear, up 
 to its original standard. 
 
 He does not bother about political 
 economy, but still, if you can get him to talk 
 the matter over, he will acknowledge that his 
 "profits" are really a composite product. It 
 contains his "Wages of Superintendence," as 
 Mill called it — the reward, that is, of his 
 own work as head of the firm. It contains 
 what in the last paper we called " pure " 
 interest on the invested capital, part of the in- 
 vestment being in many cases in the land the 
 factory stands on, so that here, "profits" con- 
 tain "rent"; and finally, an indefinite but very 
 real addition to this pure interest, due to the 
 risk of losing the original capital. Now, when 
 all these items are accounted for, it is clear 
 that on economic grounds there ought to be 
 nothing left over. Every economic factor 
 which contributed to the result has been duly 
 rewarded — the landlord, the workers (includ- 
 ing the boss in his capacity of worker), and 
 the owners of the capital, have had all that 
 economic law entitles them to. If there is 
 still something over, we are going to call that 
 something " profits." Let us see where this 
 something, " profits," comes from. 
 
 We assume, as the starting point of our 
 search, that there is only one price for one 
 commodity in one and the same market. We 
 see the best, of course, in retail shops, where 
 a certain size tin of a certain definite com- 
 modity fsay "Cowboy Brand" of condensed 
 milk) sells for the same price throughout a 
 town, but it is substantially true, and tends to 
 be absolutely true, of all commodities. 
 
Now looking at the commodities from the 
 buying point of view, we know that one of the 
 most important factors in fixing their price is the 
 urgency with which they are wanted by buyers. 
 If A is the only maker of a certain article, he 
 does not bother himself about what it costs 
 him to produce it, but only what he can per- 
 suade his customers to pay for it. If there are 
 a lot of men, A, B, C, D, . . . X, making 
 it, none of them can do as he likes. Competi- 
 tion keeps down the price to the cost of pro- 
 duction ; but— and here comes the vital 
 question — whose cost of production, A's, B's, 
 ... or X's ? A is, we will say, a man whose 
 business has old and firm connections, whose 
 factory is up-to-date, conveniently situated, 
 with a railway on one side and a tidal water 
 on the other, and a huge town near by for a 
 steady market — a description suggested by a 
 recent visit to one of the most successful firms 
 in London. X, on the other hand, is miser- 
 ably deficient in all respects, and B, C, D, etc., 
 vary, none being so good as A, and none so 
 bad as X. Again, we ask, whose cost of pro- 
 duction fixes selling price ? 
 
 The answer is the cost of the poorest man 
 whose commodities are needed. When the 
 article is in strong demand X can get his price, 
 and so all those more fortunately situated can 
 also get X's price. As the demand slackens, 
 X falls out, and say, D gets his price, all be- 
 low him actually losing — for losses can be made 
 in business as well as gains. We see, then, 
 that the source of " profits," as we have denned 
 them, is the possession of special advantages 
 for production. They are closely similar, 
 therefore, to rent, and might be called the 
 " rent of special advantages for carrying on 
 business." 
 
 Competition, however, tends to cut them 
 down. A French economist has said that the 
 law of profits is that they tend to become zero, 
 and a business friend of the writer's was so 
 
±2 HALF-PAST TWELVE 
 
 struck with the accuracy of the expression that 
 he conceived a very great respect for 
 economists, whom he had clearly regarded 
 hitherto as rather futile persons. 
 
 If the production of a particular com- 
 modity is giving unusually good net returns 
 to the firms in the business, it usually happens 
 that new firms break in on them and at once 
 obtain a share of the market by cutting prices. 
 This competition may come from home firms, 
 for there is always plenty of capital available 
 for any new business that promises high pro- 
 fits, or from foreigners. Of course, this is 
 very unpleasant for the original firms, and 
 they natually try to prevent it, and the ways 
 in which they do this need to be closely 
 studied. 
 
 CHAPTER XVI. 
 Competition and Combination. 
 
 COME of the advantages possessed by the 
 ^ better situated firms (A, B, C, and D, of 
 Article XIV.) in a given industry accrue from 
 the simple fact that there they are, already in 
 possession of the field. A new firm has always 
 to struggle hard to get on its feet, and its 
 available capital may be exhausted before it 
 has got properly started. Its competing power 
 can only be expressed in its prices, and con- 
 sequently its prices may be lower than its ex- 
 penses of production justify. It is, in short, 
 living on its capital, a process which ends, 
 sooner or later, in bankruptcy. 
 
 In the absence of the special conditions to 
 which we shall refer later, existing firms can 
 only keep out new competitors by keeping tneir 
 
Dinner-hour studies for the odd half -hours 43 
 
 prices down to a level below which no new 
 firm can go, and this can only be done per- 
 manently by keeping down the expenses of 
 production. One way of doing this is to pro- 
 duce on a larger scale. Experience shows that 
 a firm which is producing, say, 1UU,UUU units 
 of a given commodity in a given period can 
 turn it out at a lower cost per unit to the firm 
 than another firm turning out, say, oO.UUO 
 units. The economy of large-scale production 
 springs from many sources; some elements in 
 cost {e.g., clerical work, light and power) in- 
 crease slowly while the output rises rapidly; 
 there are obvious advantages in buying raw 
 materials on a large scale; an extensive con- 
 nection has more points at which to grow, and 
 if orders shrink at some points they are likely 
 to be expanded at others. Division of labour 
 can be carried further; men can be put in 
 charge of single departments and become ex- 
 perts in it, for a man may be almost a miracle 
 at buying raw materials and a perfect fool at 
 selling the finished articles; machinery "pays 
 for itself" more quickly and can be "scrapped" 
 earlier, making room for later and more per- 
 fect models. 
 
 All this is obvious enough ; what is not so 
 obvious is that it is not a process which can go 
 on indefinitely. There is no economic ground 
 for supposing that a protective tariff will en- 
 able us to produce on a larger scale, though the 
 examples of America and Germany are held 
 up as proofs. There is something very 
 muddle-headed in this, for, as we shall see in 
 a moment, the supposed larger scale produc- 
 tion of these countries is something quite dif- 
 ferent. Large scale production comes, and 
 can only come, from the growth of a particular 
 firm; and if there is one thing which we may 
 take as axiomatic, it is that English business 
 men have now, and long have had, the brains, 
 capital and experience necessary to enable them 
 to produce on the largest scale which pays. 
 
U HALF-PAST TWELVE 
 
 So far we have only been considering that 
 kind of growth which has as its object the 
 turning out of product at a lower cost per unit, 
 and so enabling it to be sold at a price which 
 makes the competition of new firms not worth 
 troubling about, since if new firms start they 
 must find new markets. The growth of a 
 single firm is one thing, the combination of a 
 number of firms another, and very different 
 thing. Everybody in Lancashire and Yorkshire 
 knows of firms which began, perhaps half a 
 century or more ago, in a cottage, and are now 
 housed in monster buildings that cover acres. 
 That is growth of the first kind, wholesome 
 and beneficial. But when a group of similar 
 firms unite into a Ring, Combine, Syndicate, 
 Kartell, or Trust, the main object of the union 
 is not to get the advantages of large scale pro- 
 duction, but to secure unanimity in dealing 
 with the consumer. There are other advan- 
 tages, but these are incidental to the mam one. 
 it is clear that the actual scale of production 
 may remain quite unaltered. 
 
 In the lower form of combination, of 
 which the German Kartell is typical, the 
 separate firms retain a large measure of inde- 
 pendence, the Kartell determining only the 
 price and selling policy. All receipts for sales 
 go to the central administration, and profits 
 are divided among the firms according to a 
 scale agreed on at the time the Kartell was 
 formed. The American "Trust," as it is 
 popularly called, has developed through the 
 looser forms of combination until it has be- 
 come a unified firm. 
 
 The object throughout is to obtain and 
 retain the power to determine the price at which 
 the consumer shall buy. The plan is to make 
 it impossible for outsiders to start operations, 
 but if these outsiders are outside the national 
 boundary, a new difficulty arises. In practice 
 the solution has proved easy, for the foreigner 
 has his power to compete curtailed, and even 
 
Dinner-hour studies for the odd half-hours 4;~> 
 
 annihilated, by protective tariffs. In this 
 country we hear little of combinations of pro- 
 ducers because our fiscal system so narrowly 
 limits their power to affect the public that their 
 existence and operations are practically un- 
 noticed. 
 
 CHAPTER XVII. 
 
 The Mechanism of Exchange. 
 (1) Money. 
 
 A/I ONEY is the first thing which every one 
 ■*■*■■■ of us has to think about in practical 
 life, and the reader of these papers may be in- 
 clined to ask how it comes about that what is 
 so important to the individual is something 
 which the economist does not write about until 
 he has got quite a long way with his descrip- 
 tion of the wealth-producing machinery of 
 modern life. One of the very best books on 
 " Money," that written by Professor Jevons, 
 opens as follows : — 
 
 " Some years since, Madamoiselle Zelie, a 
 singer of the Theatre Lyrique at Paris, made 
 a professional tour round the world, and gave 
 a concert in the Society Islands. In exchange 
 for an air from Norma and a few other songs, 
 she was to receive a third part of the receipts. 
 When counted, her share was found to consist 
 of three pigs, twenty-three turkeys, forty- four 
 chickens, five thousand cocoanuts, besides 
 considerable quantities of bananas, lemons and 
 oranges. At the Halle in Paris, as the prima 
 donna remarks in her lively letter, printed by 
 M. Wolowski, this amount of live stock and 
 vegetables might have brought four thousand 
 francs, which would have been good remunera- 
 tion for five songs. In the Society Islands, 
 
46 HALF -PAST TWELVE 
 
 however, pieces of money were very scarce; 
 and as Madamoiselle could not consume any 
 considerable portion of the receipts herself, it 
 became necessary in the meantime to feed the 
 pigs and poultry with the fruit." 
 
 Madamoiselle Zelie had goods and no one 
 to sell them to for money. 
 
 You will remember that when Robinson 
 Crusoe was searching the wreck for goods that 
 would be useful to him, it is recorded that he 
 "found about thirty-six pounds value in 
 money, some European coin, some pieces of 
 eight, some gold, some silver." Was he 
 pleased with his find ? Not at all, for these 
 were his words : "I smiled to myself at the 
 sight of this money. Oh drug! said I aloud, 
 what art thou good for ? Thou art not worth 
 to me, no not the taking off the ground ; one of 
 these knives is worth all this heap ; I have no 
 manner of use for thee ; e'en remain where thou 
 art, and go to the bottom as a creature whose 
 life is not worth saving." Robinson Crusoe, 
 however, was a creature of civilisation even 
 though he was alone on a desert island, so on 
 second thoughts he took it away. Crusoe, 
 you see, had money and no one from whom 
 he could buy with it the goods that he wanted. 
 
 One other simple illustration and we shall 
 get to the root of the matter. One fine day in 
 the middle of last October, little Tommy took 
 advantage of a school holiday to go black- 
 berrying. He collected a fine basketful of 
 them. At first he ate some of them himself, 
 but he soon got tired of eating blackberries. 
 Why then did he go on gathering them ? For 
 a very simple reason. When he had filled his 
 basket, he took them back into the village and 
 sold them to the Vicar's wife for a shilling. 
 As soon as the shilling was in his hand, 
 Tommy raced off to the little general shop in 
 the village, satisfied himself by a rapid glance 
 that the cricket ball, price one shilling, which 
 he had been looking greedily at for weeks. 
 
Dinner-hour studies for the odd half -hours 47 
 
 was still there, darted into the shop, put down 
 the shilling, proudly took possession of the 
 ball, and went off to play with it. 
 
 Now a shilling is money. What had this 
 particular shilling done? It had shifted a 
 basket of blackberries out of Tommy's hand 
 into the hand of the Vicar's wife, and it had 
 shifted a cricket ball out of the shop-keeper's 
 hand into Tommy's. 
 
 This is the essential thing that money does 
 for us. It is precisely like a waggon in its 
 economic function. It shifts goods about. 
 And just as it would be foolish conduct for us 
 to go on building waggons unless there was 
 goods for them to shift about, so it is useless 
 for us to go on making money, whether golden 
 sovereigns or paper Bradbury s, unless we 
 make goods for the new money to shift about. 
 If we make more money and no more goods, 
 prices rise. Once more, it is obvious that we 
 have come by another path to the old point, 
 namely, that the great need of the day is in- 
 creased production. Make no more money, 
 but make far more goods, and the same money- 
 having more goods to shift, will shift more of 
 them at a time, that is to say, when you take 
 your Bradbury into a shop you will bring out 
 a bigger basketful of goods. 
 
 One other important point about money. 
 Anything can be used as money provided that 
 people take it from one another on sight and 
 without question asked. Some years ago 1 
 showed a class of children how a pound weight 
 made of iron would float in a big glass 
 bowl of mercury, just as a cork floats on a 
 glass of water. Then I put a sovereign into 
 the mercury, and though it weighed only a 
 trifle in comparison with the floating iron 
 weight, it sank to the bottom. This greatly 
 delighted the children, but the result of tin- 
 experiment did not greatly delight me, for the 
 mercury silvered the sovereign and made it 
 look almost exactly like a shilling. It was 
 
48 HALF-PAST TWELVE 
 
 real sovereign right enough, but for days 1 
 tried in vain to get a tradesman to take it. 
 Finally, a friendly bank manager, after 
 smiling at my account of what had happened, 
 put the silvery sovereign in one pan of his 
 scale and an unmistakable sovereign out of his 
 till into the other pan. Now the real test of a 
 sovereign is not its colour, nor its shape, nor 
 its markings, nor its size, but its weight. 
 There is nothing else in the world which 
 weighs precisely as much as a sovereign. My 
 silvery sovereign and the unmistakable 
 sovereign were of precisely the same weight, 
 so I got the latter and the former went into the 
 till to have the mercury rubbed off it in the 
 course of a week or two by jingling up against 
 the others. 
 
 Whatever does the work of money, that 
 is, whatever shifts goods about at once and 
 without question, is money. 
 
 CHAPTER XVIII. 
 
 The Mechanism of Exchange. 
 (2) Banknotes. 
 
 IV/TONEY, then, is the tool by means of 
 which exchanges of goods between man 
 and man are conducted. An obvious consequence 
 of doing this work is that money also measures 
 the relative value of goods in the market in 
 which the exchanges take place. If in Liver- 
 pool a bale of cotton sells for £10 and a 
 quarter of wheat for 50s., we deduce that a 
 bale of cotton is worth four times as much as 
 a quarter of wheat. It is most interesting as 
 well as most important to watch changes in 
 value. A needle is not worth much now, but 
 one of the first English dramas turns on the 
 loss of Gammer Gurton's Needle, a loss so im- 
 
Dinner-hour studies for the odd half -hours 49 
 
 portant that the whole village is comically up- 
 set by it, until it is discovered in her man 
 Hodge's trousers, which he had put on before 
 the task of mending them had been completed. 
 
 All we ask of money, then, is that it will 
 do what carts do — shift goods about. Now 
 in one respect, unfortunately, coins are like 
 carts — they cost much in human labour to 
 make. As our standard coin we use the 
 sovereign, a piece of gold, ll/12ths fine, 
 weighing when new 123.27447 grains, shaped 
 and stamped in a particular way. It is not 
 easy to mistake a false for a real sovereign if 
 the most ordinary care is used. The ring is 
 difficult to mistake and the weight impossible. 
 In my own case the sovereign was decided to 
 be real the moment it was placed in the balance. 
 Sovereigns are legal tender to any extent. If 
 Lord Rothschild owed Mr. Lloyd George ten 
 million pounds, he could settle the debt by 
 sending along ten million sovereigns. It 
 would take Lord Rothschild all his time to get 
 the coins together, and Mr. Lloyd George 
 would be terribly disconcerted by being paid 
 in such an unbusinesslike fashion, but legal 
 payment it would be. It used not to be so 
 with our silver coins, which, before the war, 
 were only legal tender up to £2, for then they 
 were really " tokens," worth twice as much as 
 the silver in them, and therefore very well 
 worth forging out of the real metal. Now, 
 owing to the rise in the price of bar-silver, a 
 shilling, like a sovereign, is worth the metal 
 it contains. 
 
 Now all the sovereigns in England had 
 to be got here from abroad, and of course the 
 foreigners who mined them wanted paying for 
 them, in cotton goods, boots, machinery, and 
 so forth. Truly, then, it is a great pity that 
 we cannot make our sovereigns out of some- 
 thing that costs us little or no labour to pro- 
 duce. If pieces of paper, for example, would 
 do just as well, we could ship all our sovereigns 
 
50 HALF-PAST TWELVE 
 
 abroad and get useful commodities for them, 
 and use the paper for money. 
 
 As a matter of fact we see that pieces of 
 paper are constantly used to make payments. 
 The same necessity that produced metallic 
 money in times so far back that we have no 
 record of the invention, has in modern times 
 produced paper money. The amount of 
 goods to be shifted about has utterly out- 
 grown the shifting capacity of our stock of 
 coins. If all the merchants and manufac- 
 turers in Liverpool and Manchester suddenly 
 took it into their heads to insist on being paid 
 in hard cash, the trade of Lancashire would 
 come to a standstill. It simply could not be 
 done. There are neither the coins to do it 
 nor the time to do it in. 
 
 The use of pieces of paper to represent 
 money is, then, the only way in which modern 
 business can be conducted. There are 
 numerous kinds of paper money, from the 
 postal order, worth 6d., to the Treasury Bill, 
 worth £5,000. The war has made us only 
 too familiar with the " Bradbury " or "' Cur- 
 rency Note." 
 
 Let us begin with the Bank Notes. The 
 "fiver" of ordinary talk being the best known, 
 though there are higher denominations. Now, 
 the peculiarity of the Bank of England note 
 is that it is just as truly legal tender for a debt 
 as gold itself. A man owes me £5 and tenders 
 100 shillings. I can refuse. He tenders me 
 a cheque. I can refuse. He offers me five 
 sovereigns or a "fiver" and the offer of either 
 settles the matter. If I refuse now the loss is 
 mine. The reason why a Bank of England 
 note is legal tender is simple enough, and if 
 the reader will, when he gets the chance, call 
 in the Bank in Threadneedle Street and pre- 
 sent a " fiver," he will see why. In an ordin- 
 ary bank or shop the man hands out the gold 
 and carefully puts the note away. In the 
 Bank the clerk pays out the gold and then 
 
tears the note. There is no room here to ex- 
 plain the Bank Charter Act of 1844; it must 
 be enough to say that, with exceptions which 
 do not really matter and would take long to 
 explain, a "fiver" represents an actual five 
 sovereigns stored away in the Bank, so that 
 when the Bank parts with the coins it neces- 
 sarily has to destroy the paper that represented 
 them. The English bank-note is "convertible 
 on sight." 
 
 For a short period during the Napoleonic 
 wars this was not so. The Bank was by law 
 relieved of the obligation of paying gold for 
 its notes when they were presented to it. The 
 "assignats" of the French Revolution and the 
 "greenbacks" of America are famous instances 
 of "inconvertible" paper money. In these 
 days of living pictures it may be useful to point 
 out that in American pictures we notice that 
 all payments are paid in paper — " wads of 
 money," as the Americans call them. 
 
 In all the leading countries the issue of 
 bank-notes is strictly controlled by the govern- 
 ment, so that the perfect convertibility of them 
 may be secured. In this respect the system 
 inaugurated in England in 1844 has been 
 followed more or less closely. It is an in- 
 tegral part of this system that the government 
 itself should not have power to issue notes. 
 For notes are legal tender, and if the govern- 
 ment could issue them at will it would be under 
 a constant temptation to get out of its financial 
 difficulties by the same simple process of set- 
 ling a printing machine to work to "make 
 money" wherewith to buy Dreadnoughts and 
 pay salaries. 
 
52 HALF-PAST TWELVE 
 
 CHAPTER XIX. 
 
 The Mechanism of Exchange. 
 (3) Cheques and Banks. 
 
 HP HE commonest way of making payment 
 ■■• by means of paper is to " draw a 
 cheque." All business men, and private 
 people of means — even of moderate means 
 now-a-days — pay all the money they receive 
 into their bank, and when they have payments 
 to make they send cheques on this bank to 
 their creditors. A cheque is simply an order 
 from A to his banker B to pay C the sum on 
 the cheque. When the law forbade the issue 
 of notes by private banks, the cheque was in- 
 vented to serve the same purpose. Of course, 
 B, the banker, will not pay C unless A has a 
 deposit to his name sufficient to cover the 
 amount, though this deposit, as we see, may 
 be an imaginary amount lent him by the bank. 
 Cheques for very large sums are not uncom- 
 mon, for the writer has just seen one for over 
 £250,000. 
 
 Suppose that A and C both keep their 
 accounts at B's bank. In this case B has only 
 to alter figures to settle the debt. He makes 
 A's account less and C's account greater by 
 the amount of the cheque, and payment is 
 made without the use of a single coin. If A's 
 bank is not the same as B's, but is in the same 
 town, the system is easily expanded. In this 
 case C sends the cheque to his banker D, who 
 has to get the money from B, but it is sure to 
 happen that another man E has drawn a 
 cheque on D in favour of F who banks with B. 
 The bankers simply change cheques, make the 
 necessary alterations in their books, and two 
 debts are settled. This is the system adopted 
 now in all large towns. All cheques received 
 
Dinner-hour studies for the odd half -hours 53 
 
 by one bank and payable at another are sent 
 to a central " Clearing House," where each 
 bank gets its credits balanced against its 
 debits, receiving or paying the difference only, 
 and that, too, by means of other cheques 
 drawn on or in favour of the Clearing House, 
 so that in the end the daily payments of the 
 country, amounting to scores of millions of 
 pounds, are settled with the aid of a very 
 small amount of coin. The cheques cleared at 
 the London Bankers' Clearing in 1910 
 amounted to £14,659,000,000. 
 
 If a banker had to keep in his possession 
 the exact amount of money he had on deposit, 
 he could make no profit on his business. But, 
 as everyone knows, a banker can in ordinary 
 times get along quite well with only a fraction 
 of his total liabilities available in cash. The 
 amounts paid in day by day, on the average 
 of a reasonable period, are greater than those 
 paid out. Hence he has always capital avail- 
 able which he can lend on interest, and this 
 provides his chief source of profit. 
 
 The fly-wheel which steadies the machin- 
 ery of this huge and complicated system of 
 credit operations is gold. I take a man's 
 cheque in payment of a debt because I assume 
 that he has a credit at the bank ; I pay the 
 cheque into my own account because I assume 
 that the bank will always meet my cheques up 
 to the amount of my deposit. The assump- 
 tion is true in the vast majority of cases. 
 Occasionally, however, this assumption either 
 ceases to be true, or people think that it is — 
 and jest or earnest makes little difference to 
 the ultimate result. The machinery of credit 
 is apt to come tumbling down about our ears, 
 and a financial crisis is the result. There was 
 such a crisis in America in the autumn of 1908. 
 Our own banking system has for long proved 
 itself immune from serious collapse, though 
 critics think it capable of improvement. All 
 banks have got into the habit of banking at 
 
54 HALF-PAST TWELVE 
 
 The Bank, and some say that their own re- 
 serves may therefore be possibly insufficient to 
 ward off a threatened crisis. 
 
 Although our account of the ways in 
 which payments are made by means of paper 
 documents is not yet complete (for one of the 
 most important of these documents has yet to 
 be described), we may now lay down the great 
 law of money. As the quantity of money in cir- 
 culation varies, prices vary, providing that the 
 amount of goods to be sold remains constant. 
 An increase in the quantity of money leads to 
 increased prices, and vice versa. If the amount 
 of money is increasing and the stock of goods 
 is increasing too, the change in prices will, of 
 course, not correspond merely to the increase 
 in money, but to the relation between the two. 
 
 The effect on prices of an increase in the 
 amount of money in circulation, which is 
 obvious in theory, has been very marked in 
 practice during the last twenty years. In the 
 fifteen years preceding the war vast amounts 
 of new gold were poured out from South 
 Africa, at a rate which promised, if main- 
 tained, to double the world's stock of the yel- 
 low metal by about the year 1932. This 
 output of gold led to a marked rise in prices. 
 If all incomes had gone up exactly as much 
 as prices, no one except the gold producers 
 would have been a single penny the worse or 
 better, but unfortunately, when prices are ris- 
 ing all round, there is one "commodity," 
 labour, the price of which always tends to lag 
 behind in the movement. Between 1900 and 
 1910 wages in this country remained at about 
 the same level, while prices rose ten per cent. 
 
 During the war the history of money and 
 prices has attracted the interest and attention 
 of every one of us. To begin with, a new 
 form of paper money, the currency note or, as 
 it is colloquially called, the "Bradbury" was 
 introduced and issued on a very large scale. 
 The sovereign disappeared from use, and as 
 
Dinner-hour studies for the odd hail -hours •">•"» 
 
 for every sovereign in use before the war it is 
 probable that two Bradburys are in use to-day, 
 the effect of the increase in the currency on the 
 level of prices hardly wants arguing. 
 
 CHAPTER XX. 
 
 The Mechanism of Exchange: 
 (4) Foreign Bills. 
 
 SO far as money values are concerned, the 
 year 1919 was a record year of British 
 trade. Every working day of the year we 
 imported goods worth £5,200,000. Large 
 armies of foreigners and of our fellow subjects 
 overseas contributed each day to this vast total. 
 Of each of them it is true, naturally, that he 
 wants paying for his goods. How does he 
 get paid ? 
 
 It does not matter what the foreigner has 
 sent us, or where he lives, he always does one 
 and the same thing, in the absence of special 
 reasons to the contrary. In order that we 
 may follow his conduct and its consequences, 
 we will discuss an actual case. 
 
 On November 20th, 1900, a certain manu- 
 facturer of Zurich, in Switzerland, sold to a 
 friend of the writer's, living in London, 
 ladies' dress goods worth £453 9s. 9d. Hav- 
 ing sent off the goods he wrote the following- 
 document. The actual document, in French, 
 is before me as I write, and I simply translate 
 it, except that I call the Zurich manufacturer 
 E.S. and the London importer W.D. : — 
 Zurich, Nov. 20th, 1906. £453 9s. 9d. 
 
 Three months after date pay by this 
 first of exchange to our order the sum of 
 four hundred and fifty three pounds, nine 
 shillings and ninepence sterling, and place 
 the same to our account as advised. 
 To W.D., London. E.S. 
 
56 HALF-PAST TWELVE 
 
 Here, then, is the position: W.D. with the 
 goods in London and E.S. with the document 
 in Zurich. What happened to the document? 
 He sold it to a firm, Messrs. F, who paid it 
 into a bank, and then the bank sold it to a 
 firm, Messrs. M, who in turn posted it to 
 Berlin, where it finally turned into the Imperial 
 Bank, the manager of which posted it to the 
 manager of his branch at Crimmitschau, who 
 sold it to a certain Herr B. How do I know 
 this ? Simply by the endorsements on the 
 back which tell their own tale quite plainly. 
 What did Herr B want with it? He wanted 
 it to pay to a London firm G and P, from 
 whom he had purchased goods, and when the 
 three months were up, G and P sent it to W.D., 
 who wrote his name across the face to acknow- 
 ledge his debt, whereupon G and P paid it into 
 their bank, which paid it into W.G.'s bank, 
 which gave G and P's bank credit for it, after 
 deducting it from W.D.'s account. So that the 
 goods which W.D. bought from E.S. in 
 Zurich were paid for by the goods which G 
 and P sent to Crimmitschau. Such is the life 
 story of a typical "bill of exchange" or "bill on 
 London." Some are more detailed, and go 
 an even more circuitous route from birth to 
 death, but the principle and effect is always 
 the same. As a rule these bills accumulate in 
 hundreds in the hands of London foreign bill 
 brokers, who buy them up at less than their 
 face value, and get the whole of this at matur- 
 ity. I have seen enough of them at once in a 
 small room in "the City" to buy up one of the 
 smaller German states, for there are supposed 
 to be something like £150,000,000 worth of 
 them about on the average. 
 
 When a foreign exporter to England has 
 written his bill he goes out to sell it, for the 
 bill stands for sovereigns in London in three 
 months time, and he wants, say, francs in 
 Zurich here and now. Clearly, if in any 
 foreign country the number of exporters to 
 
Dinner-hour studies for the odd half -hours 57 
 
 England increases, the number of bills on 
 London increases too, and unless the importers 
 from England (the buyers of the bills) have 
 increased equally, some bill sellers will be left 
 with their bills on their hands, and will have 
 to part with them at a sacrifice. This slackens 
 their desire to sell to England, and makes the 
 buyers of the bills (the importers from Eng- 
 land) all the more anxious to buy from 
 England, and this soon puts matters right by 
 decreasing our imports and increasing our ex- 
 ports. 
 
 Now, if we ever have too much money 
 prices rise accordingly, and our exporters do 
 not get so many orders. Hence abroad the 
 number of bill buyers goes down, and some 
 bill sellers have to wait out the time and get 
 the gold from London. This automatically 
 drains us of unnecessary gold. Of course, 
 exactly the reverse happens when we find our- 
 selves short of money. 
 
 During the latter part of the war and the 
 whole of 1919, the American Exchange was so 
 heavily against us that the English pound 
 sterling came at length to have a purchasing 
 power in New York of rather less than 17s. 
 No wonder that prices went up ! There is 
 only one cure for this state of things. We 
 must export more or import less. Which are 
 we to do ? We cannot do without our im- 
 ports, for they consist in the main of food and 
 raw materials. The best economic remedy, 
 therefore, is to export more, and this can only 
 be done by producing more in order to have 
 more to export. It used to be said that all 
 roads lead to Rome. In these days, whenever 
 the economist settles down to put his thoughts 
 on paper, it is curious how every train oi 
 thought leads him to one and the same con- 
 clusion — the necessity for increased output. 
 
58 HALF-PAST TWELVE 
 
 CHAPTER XXI. 
 The Commercial Commonwealth. 
 
 [ T is a tempting task to try to thread the in- 
 -*- finitely numerous and various facts of a 
 long and complicated history on a single 
 thread of logical development. Usually, 
 however, it is useless to attempt it, and 
 economic history is no exception to the rule, 
 for all sorts of threads lie at hand for choice, 
 and it is impossible to say which is the most 
 useful. We cannot help but observe, however, 
 that the development of means of exchange is 
 one such thread, and, further, that the gradual 
 perfection of the tool money has led to an ex- 
 tension of markets. We have had in succes- 
 sion barter, coins, notes, bills, and cheques, 
 and also in succession no market, a small local 
 market, a national market, and now, for many 
 important commodities, an international 
 market. The dealers in the Liverpool markets 
 for corn and cotton are influenced by the do- 
 ings of the dealers in Chicago and New 
 Orleans, and vice versa, and both sets in each 
 commodity watch each other carefully. 
 
 The chief agents in linking the world to- 
 gether have been the steamship and the tele- 
 graph. The movements of goods have been 
 regularised to a nicety. The captain of a 
 grain steamer from the Argentine comes into 
 the mouth of the English Channel, and there 
 receives, perhaps even by wireless, a message 
 from his owner's agent, telling him where to 
 proceed with his cargo, for the telegraph has 
 kept the agent in touch with every corn market 
 in Europe, and enabled him to sell to the best 
 advantage. Merchant houses in Calcutta and 
 Hong Kong, Valparaiso and Sydney, San 
 Francisco and London, New York and Ham- 
 burg, are now for all practical purposes as 
 
Dinner-hour studies for the odd half -hours o\) 
 
 near neighbours as if they were side by side 
 in Princess Street, Manchester, or Wood 
 Street, London. The world is steadily be- 
 coming a commercial commonwealth that 
 knows nothing of Jew or Gentile, Greek or 
 Barbarian. National boundaries are still 
 formidable barriers, but commerce is steadily 
 breaking them down for, at any rate, its own 
 purposes, and other purposes are so linked 
 with them that the forces of union are steadily 
 making headway against the forces of dis- 
 union. If two great countries were to go to 
 war, the mere state of war would inflict the 
 gravest injury on thousands of the leading 
 citizens of each. Take a simple point : When 
 England and Germany went to war, all con- 
 tracts existing between their subjects were sus- 
 pended or extinguished — a very awkward 
 matter for all concerned. 
 
 The nations composing this commercial 
 commonwealth differ widely among themselves 
 in economic character. They may be broadly 
 classified into old countries and young coun- 
 tries. England is the typical old country in 
 this economic sense. In the main it imports 
 food and raw materials and exports manufac- 
 tures. The Argentine is the typical young 
 country, exporting food and raw materials 
 and importing manufactures. The great trade 
 routes run between these two groups. 
 
 The development of the commercial com- 
 monwealth is perhaps best seen in the fact that 
 capital has practically ceased to be restricted 
 by national boundaries. The wealthier old 
 countries, France, Germany, and, above all, 
 England, have lent enormous sums to aid in 
 the development of the younger countries. As 
 we now know, this capital consists almost ex- 
 clusively of goods, and when we sav that 
 England has invested 413, 500,000,000 abroad 
 (half in our colonies and half in other young 
 countries) we mean that we have manufactured 
 
GO HALF-PAST TWELVE 
 
 the component parts of capital to that extent 
 and shipped them abroad for use in the coun- 
 tries to which we have lent it. 
 
 And just as capital goes abroad as goods, 
 so the interest on it comes back as goods. Our 
 capital was tools and machines, our interest is 
 food and raw materials. If Germany were to 
 borrow from us she could only pay interest 
 in manufactures, and consequently our loans 
 to Germany are so small as not to be worth 
 considering. There is a maximum of advan- 
 tage to us in the arrangement. Even if none 
 of our capital went to our brethren overseas 
 the advantage would still persist, but we are 
 deriving a further political advantage when 
 we send our capital to develop our Empire. 
 Complaints of capital investments abroad are 
 the shibboleth of the ignoramus in economics. 
 
 While no one, least of all a Briton, would 
 desire, to diminish the spirit of national pride, 
 the world's future manifestly depends on 
 strengthening every link that binds the civil- 
 ised nations into a commercial commonwealth, 
 and in weakening every artificial barrier be- 
 tween them. Language and race are national 
 barriers, and we can do nothing to alter them. 
 Some things — e.g., different currencies, 
 weights, and measures — are just as plainly 
 artificial, and uniformity would be an immense 
 advantage. But the chief artificial barrier is 
 the tariff wall, and we render an immense ser- 
 vice to the world by the mere fact that our 
 foremost place in the commercial world has 
 been won by and can only be maintained by 
 Free Trade. We carry half the world's goods 
 across the sea, and we do at least one-sixth of 
 the total overseas trade of the world on our 
 own account. 
 
Dinner-hour studies for the odd half -hours 61 
 
 CHAPTER XXII. 
 
 The Principles of Taxation. 
 
 GOODS, Incomes, and Markets, the first 
 three of the leading topics of economics, 
 have now been dealt with. Taxes remain for 
 consideration. As a subject of study they 
 yield to none in interest. It is only when we 
 come to pay them that they become a nuisance. 
 But this is incorrect, though unavoidable, 
 human nature being what it is, and the 
 economist is doing one of his best services when 
 he explains what taxes are, what they should 
 be, what they do, and what they should do. 
 For the study of taxes is one of the most 
 practical topics to which we can devote our- 
 selves. 
 
 Taxes are always studied in economic 
 treatises in a separate "book" {e.g., Book V. 
 in both Adam Smith and John Stuart Mill). 
 There is, now-a-days, a tendency, which has 
 its disadvantages, to treat taxation in separate 
 volumes. Taxes belong closely to our previ- 
 ous subject. They form an income, the income 
 of the government, and we have endeavoured 
 to link income with effort, showing that each 
 class of income is derived from a contribution 
 to the total work of production. We must not 
 lose sight of this, but we must find out 
 what it is that Government does for us that 
 earns an income. 
 
 Again, the taxpayer should be drilled into 
 the belief that when he pays a tax he is just as 
 truly buying something as when he goes into 
 a shop and pays half-a-crown for a cap. He 
 willingly pays for the cap, because he sees the 
 result in a useful commodity. He pays his 
 rates and taxes unwillingly because he does 
 
G2 HAL F-PAST TW ELVE 
 
 not see the result. If an Englishman 
 emigrated to the middle of Africa he would 
 see the result at once, for he would miss dozens 
 of agreeable things there which he had here 
 because he paid taxes. What we buy with our 
 rates and taxes is the comfort, order, and de- 
 cency of life in a civilised State, and when 
 we are all as uniformly keen on getting good 
 value for money when we pay a tax as when 
 we pay for a cap, our country will be far 
 better worth living in than ever it has been. 
 
 "Taxation is distinguished from confisca- 
 tion only in degree," says Lord Hugh Cecil 
 in his recent and very useful little book on 
 " Conservatism." It is an unusually plain 
 statement of an old view which is, I am 
 obliged to say, as muddle-headed as it is mis- 
 chievous. For an acute man, looking at the 
 matter purely from a business point of view, 
 might well say : " The Government is cheer- 
 fully welcome to every farthing of my income, 
 on the understanding that it gives me and 
 mine a better supply of the things we need 
 than 1 manage to get out of it for myself. As 
 things and Governments are now, I am so cer- 
 tain that I should lose on the whole by the 
 change that I should strenuously object to 
 making it, but along any particular line where 
 government can do better for me than I can 
 ever do for myself, an increase of taxation is 
 something for which I am even now quite 
 ready." Paying taxes and getting value for 
 them is the first dutv of citizenship, and to it 
 the idea of confiscation is abhorrent. 
 
 The duty of deciding what the taxes of 
 this country shall be rests with the Chancellor 
 of the Exchequer, subject to confirmation by 
 the House of Commons. In practice, of 
 course, he each year proposes a number of 
 taxes — income tax — death duties, excise duties, 
 customs duties, and so on. We may, how- 
 ever, in our own minds, lump them all together 
 
Dinner-hour studies for the odd half-hours U-'i 
 
 in a single tax, and ask ourselves : " What ad- 
 vice would we offer the Chancellor of the Ex- 
 chequer when he is determining what tax each 
 of us shall pay ?" In other words : " What is 
 the ideal to be aimed at in taxation ?" In the 
 text books of Economics this question appears 
 thus : " What are the Canons of Taxation ?" 
 The most famous list of these canons is in 
 Adam Smith's "Wealth of Nations." Taxes, 
 he said, in effect, 
 
 (1) Should be certain in amount ; 
 
 (2) Should be payable at the most con- 
 venient time ; 
 
 (3) Should take from the pocket of the 
 taxpayer as little as possible over the 
 net amount received by the Govern- 
 ment; and 
 
 (4) Should be equal as between citizen 
 and citizen, the test of equality being 
 that they should be proportional to 
 income. 
 
 The first three canons were commonly neg- 
 lected when Adam Smith wrote, but are pretty 
 clearly observed now, at any rate in England. 
 It is the last canon that still troubles us. How 
 are we to decide that taxation is fair as be- 
 tween citizen and citizen ? 
 
 Fair taxation will take fair account of two 
 great facts. First that incomes vary, and that 
 the power to pay taxes increases much more 
 rapidly than income increases. When a man's 
 income has risen from t'1,000 to £2, 000 a year 
 he can pay more than twice as much in taxa- 
 tion even on the sacrifice theory, since his 
 doubled income more than doubles for him 
 the amenities of civilised life. In practice this 
 consideraton should lead (a) to the setting free 
 from compulsory taxation of all incomes below 
 a certain standard ; a man earning less than a 
 given sum if he pays at all should pay volun- 
 tarily by buying a taxed commodity he is not 
 really compelled to buy — e.g., whisky; K b) to 
 
64 HALF-PAST TWELVE 
 
 an increased rate in the pound on the higher 
 grades of income — proportional taxation, as 
 it is called. 
 
 The second great fact is that some incomes 
 are earned and precarious, and others unearned 
 and permanent. A man earning £800 a year 
 as a doctor is not so well able to pay taxes as a 
 man getting £800 a year as the rent of his 
 freehold land. The doctor's income will cease 
 when he ceases to work ; the landlord's income 
 will not cease even at death, but will be con- 
 tinued immediately to his successor. This 
 makes a fair case for taxing the second class 
 of incomes more highly than the first. 
 
 Both these great facts are reasonably 
 allowed for in our existing tax system. 
 
 CHAPTER XXIII. 
 Taxes on Goods. 
 
 ALTHOUGH it is quite obvious that the 
 payment of a tax always falls on a per- 
 son or is divided amongst a group of persons, 
 it is often quite impossible to ascertain who it 
 is that pays it, or how the payment is divided 
 amongst the group on whom it falls. This is 
 especially true of a tax that has been so long 
 in existence, such as our present land tax,^ so 
 that it has been paradoxically said that "an 
 old tax is no tax." Everybody must have 
 noticed how soon the disturbances and dis- 
 agreement caused by new taxes pass away. 
 People get used to them and forget them. 
 Certainly an old tax is the best tax, and hence 
 a wise Chancellor of the Exchequer makes as 
 few changes as possible, and makes big 
 permanent changes when changes must be 
 
made. Mr. Gladstone in 1853, Sir William 
 Harcourt in 1894, and Mr. Lloyd George in 
 1909, lightly acted on this principle. 
 
 While taxes must necessarily be paid by 
 some person or persons, known or unknown, 
 it is common and convenient to speak of taxes 
 on " goods." Sometimes the best way of col- 
 lecting a tax is to go direct to the individual 
 who is to pay and get the tax from him in 
 money. There are the so-called direct taxes, 
 the best-known example of which is the income 
 tax. Sometimes the only way of getting at 
 an individual is a roundabout one. To com- 
 pel men to take out a license to smoke would be 
 absurd, as everybody would evade it by 
 smoking only when indoors. By adopting 
 the simple plan of taxing the tobacco when it 
 arrives in this country all smokers are effect- 
 ually taxed, for the importer who pays it to 
 the customs officials adds the tax to the price 
 of the tobacco, and so step by step it gets to 
 the man who buys the tobacco to smoke. Few 
 smokers realise that when they buy a shilling's 
 worth of tobacco they have paid a tax of about 
 tenpence. Such taxes are called indirect, and 
 in this country the chief goods so taxed are 
 alcoholic drinks, tobacco, tea and sugar. 
 
 It is a leading principle of sound taxa- 
 tion that a tax should be a tax and nothing 
 else. Its chief object is to get revenue for the 
 Government, not for some private individual, 
 or perform any other function. Let us recall 
 the important economic law laid down in our 
 study of markets, that for similar commodities 
 in the same market there is only one price. In 
 the restaurant car of a train on which the 
 writer frequently travels he hears the diners 
 ask for a lager. Now, lager is a German 
 drink, which is imported in large quantities, 
 but it is also manufactured at home. If 
 quality and quantity be equal, a bottle of im- 
 ported German lager will sell for the same 
 price as a bottle of home-brewed lager. Now, 
 
66 HALF-PAST TWELVE 
 
 we all know that English breweries are visited 
 by Government officials, called " excisemen," 
 who gauge the quantity brewed and levy a tax 
 on it called an excise duty. Suppose this tax 
 to work out at od. on a bottle of English lager, 
 which sells at Od. in the " diner." Therefore, 
 in the " diner " a bottle of German lager also 
 costs bd. But if there were no tax on the 
 German lager it would be grossly unfair to the 
 English brewer, who would be completely 
 swamped if the German offered his lager for 
 •3d. So to put matters right, the same tax 
 must be levied on imported German lager as is 
 levied on home-brewed lager. But, what is 
 sauce for the goose is sauce for the gander. It 
 would be grossly unfair to the English 
 drinkers of lager if no duty was levied on the 
 English brewer, while the German paid our 
 supposed tax of 3d., for by selling English 
 lager at -3d. the German lager could be kept 
 out, while the whole of the 2d. would not go 
 to the English Government, but to the English 
 brewer. In this case, the import duty would 
 be a protective duty levied in the interests of a 
 favoured group of manufacturers. 
 
 If it were proposed to select only one 
 article for this special treatment, everybody 
 except the manufacturers of it would cry out 
 against the proposal. Yet when it is proposed 
 to apply the principle to all the food and manu- 
 factures we import, some people are unwise 
 enough to suppose that a great and beneficial 
 system would be inaugurated. Very many 
 reasons are given for this, but not one of them 
 contains any element of sound economics. We 
 are, here, looking at the matter from the taxa- 
 tion point of view, and we have only to note 
 that tariff taxes do not change their character 
 merely by being multiplied in number. The 
 idea that the foreigner pays them would hardly 
 be worth discussing even if we had room to 
 do so. 
 
Dinner-hour studies for the odd half -hours 07 
 
 Taxes on goods are paid by persons who 
 are often ignorant of the fact that when they 
 purchase them they are paying taxes. This, 
 indeed, gives them, as things are now, a 
 political advantage over direct taxes, since the 
 " ignorant impatience of taxation," which 
 statesmen naturally do not wish to provoke, is 
 not aroused by them, or, if aroused, is apt to 
 be speedily forgotten. Some great federal 
 countries — that is, countries formed out of 
 originally independent states — have no taxes 
 on persons or no direct taxes. America (as 
 distinct from the separate states) raised nearly 
 the whole of her revenue before the war from 
 customs and excise. Germany, too, had no 
 direct taxes to fall back on, though they ex- 
 isted on what we should think an adequate 
 scale in the various states. It is not generally 
 realised how strongly the Protectionist system 
 of these countries is reinforced by this simple 
 fact that its abolition means the introduction 
 of the hated direct taxes, paid in cash straight 
 out of the citizens' pockets. But whether 
 much revenue or little be requisite, justice de- 
 mands that taxes on goods should be com- 
 bined with taxes on persons, for the former 
 fall with peculiar weight on the poor. The 
 idea that there are millions for the Exchequer 
 in taxes on luxuries is absurd. Any single 
 tax is bound to be unfair as between class and 
 class, and it requires a judicious use of both 
 direct and indirect taxation to make a good 
 financial system. 
 
US HALF -PAST TWELVE 
 
 CHAPTER XXIV. 
 Taxes on Persons. 
 
 PfcEFORE dealing with the second great 
 class of taxes, it will be well to call atten- 
 tion to the fact that the classification into 
 taxes on goods (indirect taxes) and taxes on 
 persons (direct taxes) is not exhaustive. 
 There are what may be called taxes on acts, 
 such as the stamps which have to be fixed on 
 certain classes of documents. Again, some 
 taxes are payments in return for special 
 privileges, such as permission to keep a dog 
 or a public-house ; while others are payments 
 for services rendered direct to the payer, as 
 the fee for sending a telegram or a letter. 
 
 When the State calls on its citizens to 
 make a direct money payment, it must, of 
 course, lay down some basis on which the 
 amount payable is to be calculated. Ability 
 to pay is the proper test, but how is the ability 
 to be ascertained ? Two obvious tests of 
 ability suggest themselves : (1) The income of 
 the taxpayer during a stated period ; (2) the 
 value of his property at a certain date. A 
 tax levied on the former is called an Income 
 Tax, one on the latter a Property Tax. It 
 may be noted in passing that the legal name 
 in this country for the former is " Property and 
 Income Tax," because when first instituted it 
 was supposed to be levied on both. In 
 mediaeval England the chief direct tax was a 
 real property tax, a "tenth or fifteenth" of the 
 assessed value of the property of each tax- 
 payer. 
 
 The Income Tax was once aptly described 
 by Lord Lansdowne as " the milch cow of 
 British finance." It is not, as Mr. Gladstone 
 
said in 1853, a simple tax, but "a code or 
 system of taxation." In that year it produced 
 £5,600,000. Last year the receipts from it 
 reached the enormous aggregate of 
 £46,670,185. 
 
 The tax as now levied distinguishes be- 
 tween (1) small and large incomes, and (2) 
 earned and unearned incomes. Incomes of 
 £130 a year or less are left untaxed, a pro- 
 vision which leaves out what we, either too 
 narrowly or rather snobbishly, call the 
 "working classes." Incomes under £700 have 
 a certain amount left untaxed, a proper con- 
 cession to the " lower middle classes," to use 
 another charming epithet. The tax is levied 
 at so much in the £. Pitt, who introduced the 
 tax in 1789, started with 2s. in the £ ; 
 Northcote in 1874, reduced it to 2d., in ac- 
 cordance with the Conservative policy of 
 getting rid of it altogether in times of peace. 
 
 Before the war the income tax was one 
 shilling and twopence in the pound, but this 
 Hat rate was cut into in several ways. It 
 applied only to unearned incomes of five 
 thousand pounds or less, and all earned in- 
 comes of £130 a year pay nothing at all, while 
 between £130 and £700 certain allowances 
 were made in respect of children and insurance 
 policies. In the last year of the war, the in- 
 come tax, including the super tax on incomes 
 over £3,000, was very heavy indeed, and an 
 income of £3,000 paid as much as £962 10s. 
 in income tax, while if of the £3,000 of total 
 income, £1,000 had been what are called 
 " war profits," the total tax on the £3,000 
 ("income tax plus super tax plus excess profits 
 tax) would have been no less than £1,259 10s., 
 or 8s. 5d. out of every single pound of income. 
 
 It is likely, of course, that some income 
 escapes taxation, because the taxpayers under- 
 state their incomes. As fax as possible in- 
 come is taxed at the source — e.g., dividends 
 have the tax deducted before being paid. The 
 
70 HALF-PAST TWELVE 
 
 recent plan of compelling employers to state 
 the salaries of employees has done much to 
 diminish evasion. 
 
 The second test of ability to contribute 
 is fully utilised in this country, by means oi 
 the " Death Duties," which, although very 
 much simplified by Sir William Harcourt in 
 1894, are still impossible. The object of the 
 Death Dutes is first and chiefly to raise needed 
 revenues; but, secondly, they have the effect 
 of making the treatment of earned and un- 
 earned incomes fairer. We have supposed the 
 case of a doctor and a landowner each getting 
 an income of £800. Until 1894 these incomes 
 were treated almost exactly alike. Liberal 
 finance has quite properly altered this. As 
 we have seen, the doctor pays 2s. 6d. in the 
 £, the landowner much more. When each 
 dies, his property pays the collection of taxes 
 we speak of as "Death Duties" and of course 
 it is obvious that the estate of the latter will 
 pay much more than the estate of the former. 
 Death Duties vary with the amount of the 
 estate and with the degree of kinship between 
 the deceased and his heir. In the last 
 financial year they yielded £25,517,000. 
 
 There arc other direct taxes in our 
 financial system : (T) the old Land Tax, (2) 
 the New Land Values Taxes — the great 
 novelty of the famous 1909 Budget — and the 
 Inhabited House Duty, but they only yield 
 all told about 3i million £. 
 
 Up to the Harcourt Budget of 1894 it is 
 obvious that the balance between indirect and 
 direct taxation was not fairly held in this 
 country. In Mr. Gladstone's last Budget 
 (1882-3) Customs and Excise duties together 
 yielded £41,000,000, the Income Tax 
 £12,000,000, and the then existing "Death 
 Duties" ''which were very indulgent to land 
 as compared with personal property) an 
 amount not worth bothering about. Before 
 the war the two great branches : (1) Customs 
 
■plus Excise and (2) Income Tax plus Death 
 Duties, yielded about £70,000,000 each. 
 During the war, the necessary increase of tax- 
 ation weighed more heavily upon the second 
 branch than upon the first. Customs plus 
 Excise for the current financial year are 
 estimated to bring in about 238 million £, 
 while Income Tax plus Death Duties will bring 
 in 390 million £. 
 
 It is commonly objected to direct taxes 
 that they check the accumulation of capital, 
 and, in particular, it has become the vogue 
 to say that recent extensions of direct taxes 
 have driven capital abroad. But even if this 
 has been done, it has certainly been done in 
 vain, for the income on these investments 
 abroad is, on the whole, just as closely tapped 
 as if it had been made at home, and the 
 capital abroad is duly laid under contribution 
 for Death Duties on the decease of its owner. 
 No doubt people find it irksome to pay these 
 duties, but the national expenditure has to be 
 met, and a fair distribution of the heavy 
 burden is the most that can be expected. 
 
 CHAPTER XXV. 
 
 Rates. 
 
 npHE sums raised by Local Authorities axe 
 ■*■ called Rates, to distinguish them from 
 the sum raised by the central Government, some 
 of which are called taxes and others duties. 
 The difference of name does not imply anv 
 differences in economic theory. Indeed, the 
 old customs tariff of the 17th Century was 
 called " Book of Rates." On the Continent 
 local taxes are often added to the central taxc; 
 
I -i 
 
 2 HALF-PAST TWELVE 
 
 and levied in the same way at the same time 
 from the same persons; or again, a common 
 form of local taxation in France is the octroi, 
 a customs duty levied on goods entering a 
 town. Our own rates are now levied in a 
 uniform way throughout the country, and are 
 always so much in the £ on the rateable value 
 (itself always a percentage of the rental value) 
 of all lands and buildings (with some excep- 
 tions — e.g., sacred buildings) and mines in the 
 area covered by the authority making the 
 rates — e.g., the stock-in-trade of a shopkeeper 
 — but this was finally given up in 1840 as im- 
 practicable, except with regard to machinery. 
 
 Rates provide the main source of the in- 
 come of Local Authorities, nearly 71 millions 
 out of a total of nearly 169 millions in 1908-9. 
 The remainder was derived from (1) sums 
 collected by the central Government as part 
 of its ordinary taxation, and handed over to 
 local authorities — 25 million £ ; (2) receipts 
 from commercial undertakings (gas, electric- 
 ity, water, trams, etc.), 48 million £; and (3) 
 new loans raised during the year, 24 
 million £. 
 
 If we add together the total income of 
 the central authority and the local authorities 
 for 1908-9, we get the grand aggregate of 
 £320,000,000, which sum is probably 12} to 
 1") per cent, of the aggregate income of the 
 people of the United Kingdom. In other 
 words, out of every £1 we receive as private 
 citizens we handed over half-a-crown to three 
 shillings to carry on the government of the 
 country. It is a large proportion, and should 
 make everyone realise the urgent need of 
 active and intelligent citizenship. 
 
 The first question concerning local finance 
 is, ' Who pays the rates ?" It has already 
 been pointed out that the ultimate incidence 
 of taxation — the discovery, that is, of the 
 persons or groups on whom taxes finally fall 
 — is always a difficult and often an insoluble 
 
problem. Turning to local taxation, we ha\i 
 to start from the simple assumption that when 
 a man is looking out for a house he has in 
 mind a certain sum which he will pay per 
 annum to have a roof over his head. Sup- 
 pose he settles on £50 as his upper limit. Now, 
 it is clearly of no consequence to him that this 
 £50 is divisible to two parts — (1) rent and (2) 
 rates. If the rates on that house are £10 a 
 year, the landlord can only get £40 as rent. 
 The landlord therefore pays all the rates in 
 the sense that his rent would be so much more 
 if they did not exist. If rates fall during the 
 currency of a lease we see at once that the 
 tenant gains, and we know that on the renew.) i 
 of the lease the landlord will raise the rent. 
 
 This view must be qualified to this extent, 
 that rates which are levied in order to supply 
 ratepayers with certain special services are 
 paid by those who get the services. If the 
 municipality did not remove my "dust" 1 
 should have to remove it myself or pay some- 
 one to do it. If it did not light the streets I 
 should have the expense of a lantern to light 
 me about, just as if I lived in a tiny village. 
 As a town grows in size its old problem- 
 grow in difficulty, and new ones arise. It 
 gets impossible to do without street lighting, 
 and uneconomic to stick to candles and lamps 
 indoois. The town gets too large to permit 
 all distances to be covered afoot, and means 
 of transport become necessary. Now the very 
 things that the people of a town need most be- 
 cause they are townsmen and not villagers — 
 light, water, and transport — are obviously 
 monopolies. Two gas companies (unless, as 
 in London, the town is clearly divided between 
 them) laying mains, two tramway companies 
 laying tracks, in the same street — well, tin- 
 idea is absurd. But the monopolist who sup- 
 plies a necessity is in a very strong position 
 for exacting an undue price. One way of 
 preventing this is for the central authority to 
 
step in and limit the charges which may be 
 made. Another and still better way is for 
 the local authority to control the monopoly. 
 This is the theoretical case for municipal 
 trading, and, providing that municipal 
 management is business-like and effective, 
 there is no room for complaint. The usual 
 objections to this "municipal socialism" are 
 old fogey ism gone mad. 
 
 The extraordinary increase of rates during 
 the last century — roughly speaking, they 
 doubled between 1860 and 1890, and have 
 doubled again since — has naturally raised 
 locally the familiar national question of find- 
 ing new sources of taxation. The system of 
 handing the produce of national taxes over to 
 local authorities has been carried far, and 
 muddles all the accounts. Again, what were 
 local burdens only have been more and more 
 taken over by the central authorities — e.g., 
 gaols altogether, and education largely. Two 
 recent national schemes — Old Age Pensions 
 and National Insurance — will largely relieve 
 the rates. These, however, are hardly new 
 sources of taxation, and what many desire to 
 see done is the separate taxation of urban land 
 — but this is too big a problem for a para- 
 graph. 
 
 CHAPTER XXVI. 
 
 The Final Issue. 
 
 [" T is one of the finest fruits of the study of 
 *- economics that the student is insensibly led 
 to attempt to use his knowledge for the benefit 
 of society. It is far too often supposed that 
 the only men who can render effective social 
 
service to their country are those who stand 
 in the forefront of politics, commanding the 
 applause of parliament and shaping the 
 destinies of the nation. It is not so. Social 
 progress does not depend on the leaders so 
 much as upon the led. We have tried to show 
 that economics cannot be learned merely from 
 books. The student must know the workshop 
 and the factory, the market-place and the mill, 
 the exchange and the " city." And as soon as 
 he realises this and gets into touch with the 
 human material out of which society is 
 moulded, and from which it derives its 
 character, he finds that to a large extent the 
 evils of our present system are due to the 
 material and not to the mould. He finds, too, 
 that in all ranks and conditions there are men 
 and women who are centres from which 
 radiate the forces that are really going to 
 make things better. 
 
 But the student of economics must not 
 neglect his books, especially the grand old 
 standard books, which enable him to look at 
 the ideas and movements of long ago with the 
 eyes of the men who lived among them. And 
 the first thing he will learn is that we are to- 
 day looking at the evils of poverty in a new 
 light. " We are all Socialists now," said Sir 
 William Harcourt, and in a sense he was right. 
 For we have almost to a man discarded the 
 idea that social conditions are due to forces 
 which the State could not control if it would, 
 and should not attempt to control if it could. 
 For one thing, we see quite clearly that State 
 action in the past has contributed to produce 
 the evils of to-day, and it is idle to protest 
 against its action to-day in an amending direc- 
 tion. What is the State to do ? To put the 
 question frankly is the best way to get at the 
 answer. 
 
 The reply of the Socialist is that the State 
 must take over all the machinery of wealth- 
 production. At present the worker is divorced 
 
76 HALF-PAST TWELVE 
 
 from all control of the system on which he de- 
 pends. Through no fault of his own he may 
 be unable to earn a living. Even now, in the 
 throng of a boom in business such as we have 
 not had for many years, many trade unionists 
 in every thousand are out of work. Of a large 
 majority of these it is clearly true that their 
 misfortune, with all the suffering it often en- 
 tails on a helpless wife and still more helpless 
 children, is no fault of their own. When em- 
 ployed they work for an employer whose only 
 motive for employing them is to make a profit 
 on their work, and if he cannot do this he dis- 
 charges them. As long as work is done for 
 profit-seekers this is bound to happen. More- 
 over, even when at work their wages are deter- 
 mined by the same influences. The boss must 
 have his profits, and his obvious plan is to 
 keep wages as low as possible. Abolish the 
 system of working for profits and wages, says 
 the Socialist, and you abolish all the evils of 
 the present system. 
 
 The Socialist thinks that the very forces 
 of self-interest are tending to bring this about. 
 For in all leading countries private firms are 
 amalgamating into Trusts, and in extreme 
 cases practically the whole of an important in- 
 dustry may be controlled by a small group of 
 men. Carry the process a step further, he 
 says, make the group into a State department, 
 and the thing is done — to the obvious satisfac- 
 tion of everybody. 
 
 Again the Socialist says that the older 
 palliatives have failed. If the writer is asked 
 whether that being so, it is true that all things 
 point to Socialism, he could only reply that 
 he does not know and does not care. For even 
 if Socialism as a possible alternative to our 
 present system had no drawbacks, it is per- 
 fectly certain that it has no chance of being 
 adopted within any time that we can look for- 
 ward to, and the writer is not interested in the 
 affairs of 2500 A.D. Society is not divided 
 
Dinner-hour studies for the odd half -hours 77 
 
 into two mutually exclusive and antagonistic 
 classes, capitalists and workers, the exploiters 
 and the exploited. If all the workers went 
 on strike to-morrow to get the new system in- 
 troduced (as the Syndicalists suggest doing to 
 get their own brand of society set up) the 
 people who would be the first and hardest hit 
 by the strike would be the workers themselves. 
 For by far the largest employers of the work- 
 ing classes are the working classes themselves, 
 the capitalist being only an intermediary. 
 
 Society is too big and complex a thing to 
 be fitted into the framework of any theory. 
 As a working rule we must adopt the old 
 maxim Natura non facit saltum. It is not 
 without a deep meaning that Marshall has put 
 his motto on the title page of his Principles of 
 Economics, one of the weightiest, as it surely 
 is one of the most human-hearted additions to 
 our standard books. For Society is a natural 
 growth, and it does not move of itself, and 
 cannot be made to move from without, in leaps 
 and bounds. It has had no respect for the 
 trammels of individualism, and will have none 
 for the aspirations of Socialism. It is big 
 enough to need the best of both. The modern 
 economist has no theoretical objections to 
 State action. Here he is at one with the 
 Socialist. Where he parts company is in in- 
 sisting that State action is not an end in itself, 
 but a means to an end, and that therefore its 
 results must be measured and estimated as 
 carefully as possible. If these short papers 
 set a few readers to work to prepare themselves 
 by reading, observing, and thinking, to play 
 a better part in all kinds of available social 
 action, they will have fulfilled the hope in 
 which they have been written. 
 
The 
 
 Prime Minister 
 
 " Shorter hours, higher 
 wages, a better standard of 
 living for millions more men 
 and women. That is the 
 problem. Can we solve it ? 
 We can only solve it in one 
 way, and that is by increasing 
 production." 
 
 Sheffield, October 16th, 1919. 
 
 The Rt. Hon. 
 
 J. R. Clynes, M.P. 
 
 " Workmen who de- 
 liberately restricted output 
 or who fail to accept any 
 form of industrial develop- 
 ment which would make 
 their labour more productive 
 were punishing themselves 
 and their class without 
 knowing it." 
 
 Birmingham, August 13th, 1919. 
 
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