diff options
Diffstat (limited to '42759-0.txt')
| -rw-r--r-- | 42759-0.txt | 15478 |
1 files changed, 15478 insertions, 0 deletions
diff --git a/42759-0.txt b/42759-0.txt new file mode 100644 index 0000000..0fb0478 --- /dev/null +++ b/42759-0.txt @@ -0,0 +1,15478 @@ +*** START OF THE PROJECT GUTENBERG EBOOK 42759 *** + +Note: Images of the original pages are available through + Internet Archive. See + https://archive.org/details/distributivejust00ryaniala + + + + + +DISTRIBUTIVE JUSTICE + + * * * * * + +[Illustration: (MACMILLAN LOGO)] + +THE MACMILLAN COMPANY + +NEW YORK · BOSTON · CHICAGO · DALLAS +ATLANTA · SAN FRANCISCO + +MACMILLAN & CO., LIMITED + +LONDON · BOMBAY · CALCUTTA +MELBOURNE + +THE MACMILLAN CO. OF CANADA, LTD. +TORONTO + + * * * * * + + +DISTRIBUTIVE JUSTICE + +The Right and Wrong of Our Present Distribution of Wealth + +by + +JOHN A. RYAN, D.D. + +Associate Professor of Political Science at +the Catholic University of America; Professor +of Economics at Trinity College; Author of +"A Living Wage," "Alleged Socialism of the +Church Fathers," Joint Author with Morris +Hillquit of "Socialism: Promise or Menace?" + + + + + + + +New York +The Macmillan Company +1916 + +All rights reserved + + + + + Nihil Obstat. + _REMIGIUS LAFORT, S. T. D., + Censor_. + + Imprimatur. + _JOHN CARDINAL FARLEY, + Archbishop of New York_. + + + COPYRIGHT, 1916, + BY THE MACMILLAN COMPANY + +Set up and electrotyped. Published November, 1916. + + + + + TO + + ARCHBISHOP IRELAND + + IN + + ADMIRATION AND GRATITUDE + + + + +PREFACE + + +Five of the nine members of the late Federal Commission on Industrial +Relations united in the declaration that the first cause of industrial +unrest is, "unjust distribution of wealth and income." In all +probability this judgment is shared by the majority of the American +people. Regarding the precise nature and extent of the injustice, +however, there is no such preponderance of opinion. Even the makers of +ethical and economic treatises fail to give us anything like uniform +or definite pronouncements concerning the moral defects of the present +distribution. While the Socialists and the Single Taxers are +sufficiently positive in their statements, they form only a small +portion of the total population, and include only an insignificant +fraction of the recognised authorities on either ethics or economics. + +The volume in hand represents an attempt to discuss systematically and +comprehensively the justice of the processes by which the product of +industry is distributed. Inasmuch as the product is actually +apportioned among landowners, capitalists, business men, and +labourers, the moral aspects of the distribution are studied with +reference to these four classes. While their rights and obligations +form the main subject of the book, the effort is also made to propose +reforms that would remove the principal defects of the present system +and bring about a larger measure of justice. + +Many treatises have been written concerning the morality of one or +other element or section of the distributive process; for example, +wages, interest, monopoly, the land question; but, so far as the +author knows, no attempt has hitherto been made to discuss the moral +aspects of the entire process in all its parts. At least, no such task +has been undertaken by any one who believes that the existing economic +system is not inherently unjust. That the present essay in this field +falls far short of adequate achievement the author fully realises, but +he is sustained by the hope that it will provoke discussion, and move +some more competent person to till the same field in a more thorough +and fruitful way. + + JOHN A. RYAN. + + The Catholic University of America, + Washington, D. C., June 14, 1916. + + + + +CONTENTS + + + PREFACE vii + + INTRODUCTORY CHAPTER: THE ELEMENTS AND SCOPE OF THE PROBLEM xiii + General References xvii + + + SECTION I + + THE MORALITY OF PRIVATE LANDOWNERSHIP AND RENT + + CHAPTER PAGE + + I THE LANDOWNER'S SHARE OF THE NATIONAL PRODUCT 3 + Economic Rent Always Goes to the Landowner 4 + Economic Rent and Commercial Rent 5 + The Cause of Economic Rent 6 + + II LANDOWNERSHIP IN HISTORY 8 + No Private Ownership in Pre-Agricultural Conditions 10 + How the Change Probably Took Place 12 + Limited Character of Primitive Common Ownership 14 + Private Ownership General in Historical Times 15 + Conclusions from History 17 + + III THE ARGUMENTS AGAINST PRIVATE LANDOWNERSHIP 19 + Arguments by Socialists 19 + Henry George's Attack on the Title of First Occupancy 21 + His Defence of the Title of Labour 24 + The Right of all Men to the Bounty of the Earth 30 + The Alleged Right of the Community to Land Values 39 + + IV PRIVATE OWNERSHIP THE BEST SYSTEM OF LAND TENURE 48 + The Socialist Proposals Impracticable 48 + Inferiority of the Single Tax System 51 + + V PRIVATE LANDOWNERSHIP A NATURAL RIGHT 56 + Three Principal Kinds of Natural Rights 57 + Private Landownership Indirectly Necessary for + Individual Welfare 59 + Excessive Interpretations of the Right of Private + Landownership 61 + The Doctrine of the Fathers and the Theologians 62 + The Teaching of Pope Leo XIII 64 + + VI LIMITATIONS OF THE LANDOWNER'S RIGHT TO RENT 67 + The Tenant's Right to a Decent Livelihood 69 + The Labourer's Claim Upon the Rent 71 + + VII DEFECTS OF THE EXISTING LAND SYSTEM 74 + Landownership and Monopoly 75 + Excessive Gains from Private Landownership 80 + Exclusion from the Land 90 + + VIII METHODS OF REFORMING OUR LAND SYSTEM 94 + The Leasing System 95 + Public Agricultural Lands 97 + Public Ownership of Urban Land 98 + Appropriating Future Increases of Land Value 100 + Some Objections to the Increment Tax 102 + The Morality of the Proposal 108 + The German and British Increment Taxes 114 + Transferring Other Taxes to Land 117 + The Morality of the Plan 120 + Amount of Taxes Practically Transferable 122 + The Social Benefits of the Plan 127 + A Supertax on Large Holdings 130 + References on Section I 133 + + + SECTION II + + THE MORALITY OF PRIVATE CAPITAL AND INTEREST + + IX THE NATURE AND THE RATE OF INTEREST 137 + Meaning of Capital and Capitalist 137 + Meaning of Interest 138 + The Rate of Interest 141 + + X THE ALLEGED RIGHT OF LABOUR TO THE ENTIRE PRODUCT + OF INDUSTRY 145 + The Labour Theory of Value 146 + The Right of Productivity 149 + + XI THE SOCIALIST SCHEME OF INDUSTRY 152 + Socialist Inconsistency 152 + Expropriating the Capitalists 154 + Inefficient Industrial Leadership 158 + Inefficient Labour 162 + Attempted Replies to Objections 162 + Restricting Individual Liberty 168 + + XII ALLEGED INTRINSIC JUSTIFICATIONS OF INTEREST 171 + Attitude of the Church Toward Interest on Loans 172 + Interest on Productive Capital 175 + The Claims of Productivity 177 + The Claims of Service 181 + The Claims of Abstinence 182 + + XIII SOCIAL AND PRESUMPTIVE JUSTIFICATIONS OF INTEREST 187 + Limitations of the Sacrifice Principle 187 + The Value of Capital in a No-Interest Régime 188 + Whether the Present Rate of Interest is Necessary 191 + Whether at Least two Per Cent. is Necessary 193 + Whether any Interest is Necessary 196 + The State is Justified in Permitting Interest 199 + Civil Authorisation not Sufficient for Individual + Justification 201 + How the Interest-Taker is Justified 204 + + XIV CO-OPERATION A PARTIAL SOLVENT OF CAPITALISM 210 + Reducing the Rate of Interest 211 + Need for a Wider Distribution of Capital 213 + The Essence of Co-operative Enterprise 214 + Co-operative Credit Societies 216 + Co-operative Agricultural Societies 217 + Co-operative Mercantile Societies 220 + Co-operation in Production 222 + Advantages and Prospects of Co-operation 228 + References on Section II 233 + + + SECTION III + + THE MORAL ASPECT OF PROFITS + + XV THE NATURE OF PROFITS 237 + The Functions and Rewards of the Business Man 237 + The Amount of Profits 239 + Profits in a Joint-Stock Company 241 + + XVI THE PRINCIPAL CANONS OF DISTRIBUTIVE JUSTICE 243 + The Canon of Equality 243 + The Canon of Needs 244 + The Canon of Efforts and Sacrifice 246 + The Canon of Productivity 247 + The Canon of Scarcity 250 + The Canon of Human Welfare 252 + + XVII JUST PROFITS IN CONDITIONS OF COMPETITION 254 + The Question of Indefinitely Large Profits 255 + The Question of Minimum Profits 258 + The Question of Superfluous Business Men 260 + + XVIII THE MORAL ASPECT OF MONOPOLY 262 + Surplus and Excessive Profits 263 + The Question of Monopolistic Efficiency 265 + Discriminative Underselling 267 + Exclusive-Sales Contracts 270 + Discriminative Transportation Arrangements 272 + Natural Monopolies 273 + Methods of Preventing Monopolistic Injustice 275 + Legalised Price Agreements 277 + + XIX THE MORAL ASPECTS OF STOCKWATERING 279 + Injurious Effects of Stockwatering 281 + The Moral Wrong 284 + The "Innocent" Investor 286 + Magnitude of Overcapitalisation 288 + + XX THE LEGAL LIMITATION OF FORTUNES 291 + The Method of Direct Limitation 292 + Limitation Through Progressive Taxation 296 + The Proper Rate of Income and Inheritance Taxes 299 + Effectiveness of Such Taxation 300 + + XXI THE DUTY OF DISTRIBUTING SUPERFLUOUS WEALTH 303 + The Question of Distributing Some 303 + The Question of Distributing All 308 + Some Objections 311 + A False Conception of Welfare and Superfluous Goods 314 + The True Conception of Welfare 316 + References on Section III 318 + + + SECTION IV + + THE MORAL ASPECTS OF WAGES + + XXII SOME UNACCEPTABLE THEORIES OF WAGE-JUSTICE 323 + I The Prevailing-Rate Theory 323 + Not in Harmony with Justice 325 + II Exchange-Equivalence Theories 326 + The Rule of Equal Gains 326 + The Rule of Free Contract 328 + The Rule of Market Value 330 + The Mediæval Theory 332 + A Modern Variation of the Mediæval Theory 337 + III Productivity Theories 340 + Labour's Right to the Whole Product 341 + Clark's Theory of Specific Productivity 347 + Carver's Modified Version of Productivity 351 + + XXIII THE MINIMUM OF JUSTICE; A LIVING WAGE 356 + The Principle of Needs 356 + Three Fundamental Principles 358 + The Right to a Decent Livelihood 360 + The Claim to a Decent Livelihood from a Present + Occupation 362 + The Labourer's Right to a Living Wage 363 + When the Employer is Unable to Pay a Living Wage 366 + An Objection and Some Difficulties 370 + The Family Living Wage 373 + Other Arguments in Favour of a Living Wage 376 + The Money Measure of a Living Wage 378 + + XXIV THE PROBLEM OF COMPLETE WAGE JUSTICE 381 + Comparative Claims of Different Labour Groups 381 + Wages Versus Profits 388 + Wages Versus Interest 390 + Wages Versus Prices 393 + Concluding Remarks 398 + + XXV METHODS OF INCREASING WAGES 400 + The Minimum Wage in Operation 400 + The Question of Constitutionality 405 + The Ethical and Political Aspects 407 + The Economic Aspect 408 + Opinions of Economists 412 + Other Legislative Proposals 416 + Labour Unions 417 + Organisation Versus Legislation 420 + Participation in Capital Ownership 423 + References on Section IV 425 + + XXVI SUMMARY AND CONCLUSION 426 + The Landowner and Rent 426 + The Capitalist and Interest 427 + The Business Man and Profits 428 + The Labourer and Wages 430 + Concluding Observations 431 + + INDEX 453 + + + + +INTRODUCTORY CHAPTER + +THE ELEMENTS AND SCOPE OF THE PROBLEM + + +Distributive justice is primarily a problem of incomes rather than of +possessions. It is not immediately concerned with John Brown's railway +stock, John White's house, or John Smith's automobile. It deals with +the morality of such possessions only indirectly and under one aspect; +that is, in so far as they have been acquired through income. +Moreover, it deals only with those incomes that are derived from +participation in the process of production. For example; it considers +the labourer's wages, but not the subsidies that he may receive +through charity or friendship. Its province is not the distribution of +all the goods of the country among all the people of the country, but +only the distribution of the products of industry among the classes +that have taken part in the making of these products. + +These classes are four, designated as landowners, capitalists, +undertakers or business men, and labourers or wage earners. The +individual member of each class is an _agent_ of production, while the +instrument or energy that he owns and contributes is a _factor_ of +production. Thus, the landowner is an agent of production because he +contributes to the productive process the factor known as land, and +the capitalist is an agent of production because he contributes the +factor known as capital; while the business man and the labourer are +agents not only in the sense that they contribute factors to the +process, but in the very special sense that their contributions +involve the continuous expenditure of human energy. Now the product of +industry is distributed among these four classes precisely because +they are agents of production; that is because they own and put at the +disposal of industry the indispensable factors of production. We say +that the agents of production "put the factors of production at the +disposal of industry," rather than "exercise or operate the factors," +because neither the landowner nor the capitalist, as such, expend +continuous energy in the productive process. All that is necessary to +enforce a claim upon the product is to contribute an instrument or +factor without which production cannot be carried on. + +The product distributed in any country during a single year is +variously described by economists as the national product, the +national income, the national dividend. It consists not merely of +material goods, such as houses, food, clothing, and automobiles, but +also of those non-material goods known as services. Such are the tasks +performed by the domestic servant, the barber, the chauffeur, the +public official, the physician, the teacher; or any other personal +service "that is valued, as material commodities are valued, according +to their selling prices." Even the services of the clergyman are +included in the national income or product, since they are paid for +and form a part of the annual supply of good things produced and +distributed within the country. In the language of the economist, +anything that satisfies a human want is a utility, and forms part of +the national wealth; hence there can be no sufficient reason for +excluding from the national income goods which minister to spiritual +or intellectual wants. The services of the clergyman, the actor, the +author, the painter, and the physician are quite as much a part of the +utilities of life as the services of the cook, the chambermaid, or the +barber; and all are as clearly utilities as bread, hats, houses, or +any other material thing. In a general way, therefore, we say that the +national product which is available for distribution among the +different productive classes comprises all the utilities, material +and non-material, that are produced through human agents and satisfy +human desires. + +In the great majority of instances the product is not distributed in +kind. The wheat produced on a given farm is not directly apportioned +among the farmers, labourers, and landowners that have co-operated in +its production; nor are the shoes turned out by a given factory +divided among the co-operating labourers and capitalists; and it is +obvious that personal services cannot be returned to the persons that +have rendered them. Cases of partial direct distribution do, indeed, +occur; as when the tenant takes two-thirds and the landowner one-third +of the crop raised by the former on land belonging to the latter; or +when the miller receives his compensation in a part of the flour that +he grinds. To-day, however, such instances are relatively +insignificant. By far the greater part of the material product is sold +by the undertaker or business man, and the price is then divided +between himself and the other agents of production. All personal +services are sold, and the price is obtained by the performers +thereof. The farmer sells his wheat, the miller his flour, and the +barber his services. With the money received for his part in +production each productive agent obtains possession of such kinds and +amounts of the national product as his desires dictate and his income +will procure. Hence the distribution of the product is effected +through the conversion of producers' claims into money, and the +exchange of the latter for specific quantities and qualities of the +product. + +While the national product as a whole is divided among the four +productive classes, not every portion of it is distributed among +actually distinct representatives of these classes. When more than one +factor of production is owned by the same person, the product will +obviously not go to four different classes of persons. For example; +the crop raised by a man on his own unmortgaged land, with his own +instruments, and without any hired assistance; and the products of the +small shopkeeper, tailor, and barber who are similarly self sufficient +and independent,--are in each case obtained by one person, and do not +undergo any actual distribution. Even in these instances, however, +there occurs what may be called _virtual_ distribution, inasmuch as +the single agent owns more than one factor, and performs more than one +productive function. And the problem of distributive justice in such +cases is to determine whether all these productive functions are +properly rewarded through the total amount which the individual has +received. Where the factors are owned by distinct persons, or groups +of persons, the problem is to determine whether each group is properly +remunerated for the single function that it has performed. + +The problem of the morality of industrial incomes is obviously +complex. For example; the income of the farmer is sometimes derived +from a product which he must divide with a landowner and with +labourers; sometimes from a product which he shares with labourers +only; and sometimes from a product which he can retain wholly for +himself. The labourer's income arises sometimes out of a product which +he divides with other agents of production; sometimes out of a product +which he divides with other labourers as well as other agents; and +sometimes out of a product of which he receives the full money +equivalent. The complexity of the forces determining distribution and +income indicate a complexity in the forces affecting the morality of +income. Moreover, there is the more fundamental ethical question +concerning the titles of distribution: whether mere ownership of a +factor of production gives a just claim upon the product, as in the +case of the landowner and the capitalist; whether such a claim, +assuming it to be valid, is as good as that of the labourer and the +business man, who expend human energy in the productive process; +whether different kinds of productive activity should be rewarded at +different rates; and if so in what proportion. Why should the +capitalist receive six per cent., rather than two per cent., or +sixteen per cent.? Why should the locomotive engineer receive more +than the trackman? Why should not all persons be compensated equally? +Should all or any of the benefits of industrial improvements go to the +consumer? Such are typical questions in the study of distributive +justice. They are sufficient to give some idea of the magnitude and +difficulty of the problem. + +Scarcely less formidable is the task of suggesting means to correct +the injustices of the present distribution. The difficulties in this +part of the field are indicated by the multiplicity of social remedies +that have been proposed, and by the fact that none of them has +succeeded in winning the adhesion of more than a minority of the +population. We shall be obliged not only to pass moral judgment upon +the most important of these proposals, but to indicate and advocate a +more or less complete and systematic group of such reforms as seem to +be at once feasible and righteous. + + +GENERAL REFERENCES + + TAUSSIG: Principles of Economics. Macmillan; 1911. + + DEVAS: Political Economy. Longmans; 1901. + + HOBSON: The Industrial System. Longmans; 1909. + + CLARK: The Distribution of Wealth. Macmillan; 1899. + + SMART: The Distribution of Income. London; 1899. + + WILLOUGHBY: Social Justice. Macmillan; 1900. + + CARVER: Essays in Social Justice. Harvard University Press; + 1915. + + ELY: Property and Contract in Their Relations to the + Distribution of Wealth. Macmillan; 1914. + + NEARING: Income. Macmillan; 1915. + + STREIGHTOFF: The Distribution of Incomes in the United + States. Longmans; 1912. + + WAGNER: Grundlegung der Nationaloekonomie. Leipzig; + 1892-1894. + + PESCH: Lehrbuch der Nationaloekonomie. Freiburg; 1905-1913. + + ANTOINE: Cours d'Économie Sociale. Paris; 1899. + + HITZE: Capital et Travail. Louvain; 1898. + + HOLLANDER: The Abolition of Poverty. Houghton Mifflin + Company; 1914. + + ELLWOOD: The Social Problem. Macmillan; 1915. + + GARRIGUET: The Social Value of the Gospel. Herder; 1911. + + PARKINSON: A Primer of Social Science. Devin-Adair Co.; 1913. + + VERMEERSCH: Quaestiones de Justitia. Bruges; 1901. + + KING: The Wealth and Income of the People of the United + States. Macmillan; 1915. + + COMMISSION ON INDUSTRIAL RELATIONS. Final Report; 1915. + + + + +SECTION I + +THE MORALITY OF PRIVATE LANDOWNERSHIP AND RENT DISTRIBUTIVE JUSTICE + + + + +CHAPTER I + +THE LANDOWNER'S SHARE OF THE NATIONAL PRODUCT + + +That part of the national product which represents land, and is +attributed specifically to land, goes to the landowner. It is called +economic rent, or simply rent. We say that rent "is attributed +specifically to land," rather than "is produced specifically by land," +because we do not know what proportion of the joint product of the +different factors of production exactly reflects the productive +contribution of any factor. Economic rent represents the productivity +of land in so far as it indicates what men are willing to pay for +land-use in the productive process. In any particular case rent comes +into existence because the land makes a commercially valuable +contribution to the product; and it goes to the landowner because this +is one of the powers or rights included in the institution of private +ownership. And the landowner's share is received by him precisely in +his capacity as landowner, and not because he may happen to be +labourer, farmer, or proprietor of agricultural capital. + +It is perhaps superfluous to observe that not all land produces rent. +While almost all land is useful and productive, at least potentially, +there is in almost every locality some land which in present +conditions does not warrant men in paying a price for its use. If the +crop raised on very sandy soil is so small as to cover merely the +outlay for labour and capital, men will not pay rent for the use of +that soil. Yet the land has contributed something to the product. +Herein we have another indication that rent is not an adequate measure +of land productivity. It merely represents land value,--at a given +time, in given circumstances. + + +_Economic Rent Always Goes to the Landowner_ + +All land that is in use, and for the use of which men are willing to +pay a price yields rent, whether it is used by a tenant or by the +owner. In the latter case the owner may not call the rent that he +receives by that name; he may not distinguish between it and the other +portions of the product that he gets from the land; he may call the +entire product profits, or wages. Nevertheless the rent exists as a +surplus over that part of the product that he can regard as the proper +return for his labour, and for the use of his capital-instruments, +such as, horses, buildings, and machinery. If a farmer employs the +same amount and kind of labour and capital in the cultivation of two +pieces of land, one of which he owns, the other being hired from some +one else; if his net product is the same in both cases, say, 1,000 +dollars; and if he must pay 200 dollars to the owner of the hired +land,--then, 200 of the 1,000 dollars that he receives from his own +land, is likewise to be attributed specifically to his land rather +than to his capital or labour. It is rent. While the whole product is +due in some degree to the productive power of land, 200 dollars of it +represents land value in the process of production, and goes to him +solely in his capacity as landowner. The rent that arises on land used +for building sites is of the same general character, and goes likewise +to the owner of the land. The owner of the site upon which a factory +is located may hire it to another for a certain sum annually, or he +may operate the factory himself. In either case he receives rent, the +amount that the land itself is worth for use, independently of the +return that he obtains for his expenditure of capital and labour. Even +when a person uses his land as a site for a dwelling which he himself +occupies, the land still brings him economic rent, since it affords +him something for which he would be obliged to pay if his house were +located on land of the same kind owned by some one else. + + +_Economic Rent and Commercial Rent_ + +It will be observed that the landowner's share of the product, or +economic rent, is not identical with commercial rent. The latter is a +payment for land and capital, or land and improvements, combined. When +a man pays nine hundred dollars for the use of a house and lot for a +year, this sum contains two elements, economic rent for the lot, and +interest on the money invested in the house. Assuming that the house +is worth ten thousand dollars, and that the usual return on such +investments is eight per cent., we see that eight hundred dollars goes +to the owner as interest on his capital, and only one hundred dollars +as rent for his land. Similarly the price paid by a tenant for the use +of an improved farm is partly interest on the value of the +improvements, and partly economic rent. In both cases the owner may +reckon the land as so much capital value, and the economic rent as +interest thereon, just as the commercial rent for the buildings and +other improvements is interest on their capital value; but the +economist distinguishes between them because he knows that they are +determined by different forces, and that the distinction is of +importance. He knows, for example, that the supply of land is fixed, +while the supply of capital is capable of indefinite increase. In many +situations, therefore, rent increases, but interest remains stationary +or declines. Sometimes, though more rarely, the reverse occurs. As we +shall see later, this and some other specific characteristics of land +and rent have important moral aspects; consequently the moralist +cannot afford to confuse rent with interest. + + +_The Cause of Economic Rent_ + +The cause of economic rent is the fact that land is limited relatively +to the demand for it. If land were as plentiful as air mere ownership +of some portion of it would not enable the owner to collect rent. As +landowner he would receive no income. If he cultivated his land +himself the return therefrom would not exceed normal compensation for +his labour, and normal interest on his capital. Since no one would be +compelled to pay for the use of land, competition among the different +cultivators would keep the price of their product so low that it would +merely reimburse them for their expenditures of capital and labour. In +similar conditions no rent would arise on building sites. The cause of +the _amount_ of rent may also be stated in terms of scarcity. At any +given time and place, the rent of a piece of land will be determined +by the supply of that kind of land relatively to the demand for it. +However, the demand itself will be regulated by the fertility or by +the location of the land in question. Two pieces of agricultural land +equally distant from a city, but of varying fertility, will yield +different rents because of this difference in natural productiveness. +Two pieces of ground of equal natural adaptability for building sites, +but at unequal distances from the centre of a city, will produce +different rents on account of their difference of location. The +absolute scarcity of land is, of course, fixed by nature; its relative +scarcity is the result of human activities and desires. + +The definition of rent adopted in these pages, "what men are willing +to pay for the use of land," or, "what land is worth for use," is +simpler and more concrete, though possibly less scientific, than those +ordinarily found in manuals of economics, namely: "that portion of +the product that remains after all the usual expenditures for labour, +capital, and directive ability have been deducted;" or, "the surplus +which any piece of land yields over the poorest land devoted to the +same use, when the return from the latter is only sufficient to cover +the usual expenses of production." + +The statement that all rent goes to the landowner supposes that, in +the case of hired land, the tenant pays the full amount that would +result from competitive bidding. Evidently this was not the case under +the feudal system, when rents were fixed by custom and remained +stationary for centuries. Even to-day, competition is not perfect, and +men often obtain the use of land for less than they or others might +have been willing to give. But the statement in question does describe +what tends to happen in a system of competitive rents. + +Before discussing the morality of the landowner's income, and of rent +receiving, we may with profit glance at the history of land tenure. +Thus we shall get some idea, first, of the antiquity of the present +system, and, second, of its effects upon individual and social +welfare. Both these considerations have an important bearing upon the +moral problem; for length of existence creates a presumption in favour +of the social, and therefore the moral, value of any institution; and +past experience is our chief means of determining whether an +institution is likely to be socially beneficial, and therefore morally +right, in the future. + + + + +CHAPTER II + +LANDOWNERSHIP IN HISTORY + + +Thirty or thirty-five years ago, the majority of economic historians +seemed to accept the theory that land was originally owned in +common.[1] They held that in the beginning the community, usually a +village community, was the landowner; that the community either +cultivated the land as a corporation, and distributed the product +among the individual members, or periodically divided the land among +the social units, and permitted the latter to cultivate their +allotments separately. The second of these forms of tenure was the +more general. The primitive time to which the theory referred was not +the period when men got their living by hunting and fishing, or by +rearing herds, but the agricultural stage of economic development, +when life had become settled. Of the arguments upon which the theory +was based, some consisted of ambiguous statements by ancient writers, +such as Plato, Cæsar, and Tacitus, and others were merely inferences +drawn from the existence of certain agrarian institutions: family +ownership of land; common pasture lands and woodlands; periodical +distribution of land among the cultivators, as in the German Mark, the +Russian Mir, the Slavonic Zadruga, and the Javanese Dessa. All these +practices have been interpreted as "survivals" of primitive common +ownership. Only on this hypothesis, it is argued, can they be +satisfactorily explained. + +More recent writers have subjected the various arguments for this +theory to a searching criticism.[2] To-day the great majority of +scholars would undoubtedly accept the conclusion of Fustel de +Coulanges, that the arguments and evidence are not sufficient to prove +that in the earliest stages of agricultural life land was held in +common; and a majority would probably take the more positive ground +that common ownership in the sense of communal cultivation and +distribution, never existed for any considerable length of time among +any agricultural people. The present authoritative opinion on the +subject is thus summarized by Professor Ashley: + +"From the earliest historical times, in Gaul and Germany, very much +land was owned individually, and wealth on one side and slavery on the +other were always very important factors in the situation. + +"Even in Germany, communal ownership of land was never a fundamental +or generally pervasive social institution; there was something very +much like large private estates, worked by dependents and slaves, from +the very earliest days of Teutonic Settlement. + +"As to England, it is highly probable that we shall not find anything +that can fairly be called a general communal system of landowning, +combined with a substantial equality among the majority of the people, +under conditions of settled agriculture. To find it in any sense we +shall have to go back to an earlier and 'tribal' condition, if, +indeed, we shall find it there!"[3] + + +_No Private Ownership in Pre-Agricultural Conditions_ + +Whenever and wherever men got their living by hunting and fishing, +there was no inducement to own land privately, except possibly those +portions upon which they built their huts or houses. "Until they +become more or less an agricultural people they are usually hunters or +fishermen or both, and possibly also to a limited extent keepers of +sheep and cattle. Population is then sparse and unoccupied territory +is plentiful, and questions of the ownership of particular tracts of +land do not concern them."[4] In any region occupied by a group or +tribe, all portions of the land and the water were about equally +productive of game and fish; the amount obtainable by any individual +had no relation to labour on any particular piece of soil; and it was +much easier for each to range over the whole region in common with his +fellows than to mark off a definite section upon which he would not +permit others to come, but beyond which he himself would not be +permitted to go. In such conditions private ownership of land would +have been folly. Tribal or group ownership was, however, in vogue, +especially among those groups that were in control of the better +grounds or streams. Even this form of proprietorship was comparatively +unstable, since the people were to a considerable degree nomadic, and +were willing to abandon present possessions whenever there was a +prospect of obtaining better ones elsewhere. Among men who got their +living by rearing herds, the inducement to hold land in exclusive +private control would be somewhat stronger. The better grazing tracts +would be coveted by many different persons, especially in the more +populous communities. And there would always be the possibility of +confusion among the different herds, and contention among their +owners. In such circumstances the advantages of exclusive control +would sometimes outweigh the benefits of common use and ownership. In +the thirteenth chapter of Genesis we are told that, owing to strife +between the herdsmen of Abram and Lot, the brothers separated, and +agreed to become the exclusive possessors of different territories. +Nevertheless, it is probable that tribal ownership was the prevailing +form of land tenure so long as people remained mainly in pastoral +conditions. + +It is likewise probable that the same system continued in many cases +for some time after men began to cultivate the soil. At least, this +would seem to have been the natural arrangement while land was +plentiful, and the methods of cultivation crude and soil-exhausting. +It would be more profitable to take up new lands than to continue upon +the old. Within historical times this system prevailed among the +ancient Germans, some of the tribes of New Zealand, and some of the +tribes of Western Africa. Where land was not so plentiful it was +sometimes redistributed among individuals or heads of families, as +often as a death occurred or a new member arrived in the community. +Some of the tribes and peoples who observed this practice were the +ancient Irish, the aborigines of Peru, Mexico, and parts of what is +now the United States, and Australia, and some of the tribes of +Africa, India, and Malaysia.[5] Whether the most primitive +agricultural systems of every people were of this nature we have, of +course, no means of knowing, but the supposition is antecedently +probable; for agriculture must have begun very gradually, and been for +some time practised in connection with the more primitive methods of +obtaining a livelihood. As the land had been held for the most part in +common during the hunting and fishing stage and during the pastoral +stage, the same arrangement would probably continue until the people +found it necessary to cultivate the same tracts of land year after +year, and conceived the desire to retain their holdings in stable +possession and to transmit them to their children. Moreover, so long +as the members of the clan remained strongly conscious of their +kinship, and realised the necessity of acting as a unit against their +enemies, there would be a strong incentive to clan ownership of the +land, and clan allotment of it among the individual members. In other +words, the clan would, in these circumstances, have the same motives +for common ownership that exist to-day in the family. + +The oldest historical peoples, the Israelites, Egyptians, Assyrians, +Babylonians, and Chinese, had private ownership of land at the +beginning of their recorded history. Most of them, however, had been +cultivating land for a considerable length of time, and had acquired a +considerable degree of civilisation, before the earliest period of +their existence of which we have any knowledge. It is quite possible +that those among them that had passed through the hunting and fishing +or the pastoral stage of existence, had practised tribal or common +ownership during the earlier portion of their agricultural life. + + +_How the Change Probably Took Place_ + +The change from tribal to private landownership could have occurred in +a great variety of ways. For example, the chief, patriarch, or king +might have gradually obtained greater authority in making the +allotments of land among the members of the tribe or group, and thus +acquired a degree of control over the land which in time became +practical ownership; he might have seized the holdings of deceased +persons, or of those who were unable to pay him the tax or tribute +that he demanded, or of those who were for any reason obnoxious to +him. Again, the taxes paid to the chief man in a community for his +services as ruler might have come in time to be regarded as a payment +for the use of the land, and therefore as an acknowledgment that the +chief was also the landlord. Even in the Middle Ages the rents +received by the feudal lords were in great measure a return for social +and political services, just as are the taxes received to-day from +private landowners by the State. In primitive times, as well as later +on, the chief would naturally do his best to convert this institution +of tax paying or tribute paying into rent paying, and to add the +position of landowner to his other prerogatives. After all, the +transition from tribal ownership, with private cultivation and private +receipt of the produce of individual allotments, to overlordship and +landlordism, would not have been greater than that which actually took +place in England between the fifteenth and the nineteenth centuries, +when the lords became absolute owners of land that they had previously +held with their tenants in a sort of divided or dual ownership. In a +word, tribal ownership could have been displaced by landlordism +through the same methods that have been used everywhere by the +powerful, the ambitious, and the greedy against the weak, the +indifferent, and the upright. Nor must we forget the influence of +conquest. Most of the countries that appear in historical times with a +system of private ownership had at some previous period been +subjugated by an alien people. In many of these the conquerors +undoubtedly introduced a considerable degree of individual ownership, +the more powerful among them becoming landlords, while their weaker +companions and the mass of the conquered population were established +in a condition of tenancy. + +Where a somewhat widely diffused private ownership succeeded the +primitive system, it was probably due to the free action of the +cultivators, as soon as they came to realise the inconveniences of +ownership in common. "Any enclosed land round their permanent +dwellings, and any land outside the settlement which was cleared, +reclaimed, and cultivated, or occupied with cattle by individuals or +families, was recognised as their personal property. Only those who +were industrious, enterprising, and courageous enough would clear, +occupy, retain, cultivate, and defend waste land. They would become +personal owners of cattle, and would gradually acquire wealth which +would enable them to employ others and still further improve their +position. As their power increased, and as population grew, the +bravest, wealthiest, and most capable fighting men amongst them would +become chiefs or a species of nobles, and the force of circumstances, +often no doubt aided by force and fraud, would eventually make them +the landowners of the greater part of the district, with the more or +less willing acquiescence and consent of the community amongst whom +they lived, and to whom they extended their protection."[6] + + +_Limited Character of Primitive Common Ownership_ + +A great deal of the opposition to the theory of primitive common +ownership of agricultural land, seems to be based upon an exaggerated +conception of the scope of that institution. The average man who +thinks or speaks of ownership to-day has in mind the Roman concept and +practice of private property. This includes the unrestricted right of +disposal; that is, the power to hold permanently, to transfer or +transmit, to use or to abuse or not to use at all, to retain the +product of the owner's use, to rent the property to any person and for +any period that the owner chooses, and to obtain a price in return +called rent. Any man who takes the theory of primitive common +ownership to imply that the community or tribe exercised all these +powers over its land, will have no difficulty in proving that the +evidence is overwhelmingly against any such theory. Even among those +people that are certainly known to have practised so-called common +ownership of land, there are very few instances of communal +cultivation, or communal distribution of the product. Yet these are +included in the Roman concept of ownership. The usual method seems to +have been periodical allotment by the community of the land among +individuals, individual cultivation of the allotted tracts, and +individual ownership of the product. Moreover, there was always a +chief or patriarch who exercised considerable authority in the +distribution of the land, frequently collected a rent or tax from the +cultivators, and almost invariably exercised something like private +ownership of a portion of the land for his direct and special benefit. +Sometimes other men of importance in the community possessed land +which was not subject to the communal allotment. Primitive ownership +of land in common was, therefore, very far from vesting in the +community all the powers that inhere in the private proprietor of land +according to the Roman law and usage. + + +_Private Ownership General in Historical Times_ + +So much for land tenure in prehistoric times. During the historical +period of the existence of the race, almost all civilised peoples have +practised some form of private ownership in the matter of their arable +lands. While differing considerably at various times and places, it +has always excluded communal allotment of land and communal +distribution of the product, and has always included private receipt +of the product by the owner-user, or private receipt of rent when the +owner transferred the use to some one else. But it did not always +include the right to determine who should be the user. In the later +centuries of the feudal system, for example, the lord could not always +expel the tenants from the land, nor prevent them from transmitting +the use of it to their children. Moreover, the rent that he received +was customary and fixed, not competitive and arbitrary, and it was +looked upon in great measure as a return to the lord for social, +military, and political services, as well as a payment for the use of +land. This system was private ownership, indeed, but if we apply the +Roman notion of ownership we shall find it difficult to decide whether +the tenant or the lord should more properly be called the owner. At +any rate, the right of ownership possessed by the lord was greatly +limited by restrictions which favoured the masses of the cultivators. +In every community there were common wood lands and pasture lands for +the free use of all the inhabitants. Among other restrictions of +private ownership and control in favour of the principle of equal +access to the land by all persons, we may mention the division of the +English villein's holding into several portions, intermingled with +those of his neighbours, so that each would have about the same amount +of good land; and the ancient Hebrew law whereby alienated land was +returned to the descendants of its original owners every fifty +years.[7] + +Reckoning the feudal lord, and all other overlords who had the same +control over land, as private proprietors, we may say that in +historical times the arable land of every country has been owned by a +minority of the population. Since the downfall of feudalism, the +tendency in most regions of the Western world has been toward an +increase in the number of owners, and a decrease in the number of +great estates. This tendency has been especially marked during the +last one hundred years. It will, however, need to continue for a very +long time, or else to increase its pace very rapidly, before land +ownership will be diffused in anything like the measure that is +necessary if its benefits are to be shared by all the people. Even in +the United States, where the distribution is perhaps more general than +in any other country, only 38.4 per cent. of the families in towns and +cities owned, in 1910, the homes in which they lived, and therefore +the land upon which their homes were located. In the rural districts +the per cent. of home-owning families was only 62.8. + + +_Conclusions from History_ + +What conclusions does history warrant concerning the social and moral +value of private landownership? Here we are on very uncertain ground; +for different inferences may be drawn from the same group of facts if +a different section of them be selected for emphasis. Sir Henry Maine +and Henry George both accepted the theory of primitive agrarian +communism, but the former saw in this assumed fact a proof that common +ownership was suited only to the needs of rude and undeveloped +peoples, while the latter regarded it as a sure indication that common +ownership was fundamentally natural and in accordance with permanent +social welfare. The fact that practically all peoples whose history we +know discarded communal for private ownership as soon as they had +acquired a moderate degree of proficiency in methods of cultivation +and in the arts of civilised life does, indeed, create a presumption +that the latter system is the better for civilised men. To this extent +Sir Henry Maine is right. Against this presumption Henry George +maintained that common ownership was abandoned solely because of the +usurpation, fraud, and force employed by the powerful and privileged +classes. Undoubtedly this factor played a great part in bringing about +the private ownership that has existed and still exists, but it does +not account for the institution as a whole and everywhere. If chiefs, +kings, and other powerful personages had never usurped control of the +land, if no people had ever conquered the territory of another, it is +probable that private ownership would have taken place to the same +extent, although it would have been much more widely diffused. For the +system of periodical repartition of land, to say nothing of communal +cultivation and communal distribution of the product, does hinder that +attachment to a particular portion of the soil and that intensive +cultivation which are so necessary to the best interests of the +cultivator, the most productive use of the land, and therefore the +welfare of society. + +On the other hand, the limitations on the right of private ownership +which have been established in so many places and times in favour of +those who were not owners, show that men have very generally looked +upon land as in some measure the inheritance of all the people. Hence +arises the presumption that this conviction is but the reflection of +fundamental and permanent human needs. + +Summing up the matter, we may say that the history of land tenure +points on the whole to the conclusion that private ownership is +socially and individually preferable to agrarian communism, but that +it should be somewhat strictly limited in the interest of the +non-owners, and of the community as a whole. + +FOOTNOTES: + +[1] The most notable exponents of this view were: Von Maurer, +"Einleitung zur Geschichte der Mark," 1854; Viollet, "Bibliotheque de +l'école des chartres," 1872; Maine, "Village Communities in the East +and the West," 1872; and De Laveleye, "De la propriété et ses formes +primitives," 1874, of which an English translation appeared in 1878 +under the title, "Primitive Property." + +[2] Chief among these writers are: Fustel de Coulanges in an article +in "Revue des Questions Historiques," April, 1889; translated by +Margaret Ashley, and published with an introductory chapter by W. J. +Ashley under the title, "The Origin of Property in Land," 1891; G. Von +Below, "Beilage zur Allgemeine Zeitung: Das kurze Leben einer +vielgenannten Theorie," 1903; F. Seebohm, "The Village Community," +1883. Cf. Whittaker, "Ownership, Tenure, and Taxation of Land," 1914, +ch. ii; Cathrein, "Das Privatgrundeigenthum und seine Gegner," 1909; +and Pesch, "Lehrbuch der Nationaloekonomie," I, 183-188. + +[3] Quoted in Whittaker, op. cit., pp. 27, 28. + +[4] Idem, p. 29. + +[5] Cf. P. W. Joyce, "A Social History of Ancient Ireland," 1903; and +Letourneau, "Property: Its Origin and Development," 1896. + +[6] Whittaker, op. cit., pp. 30, 31. + +[7] Leviticus xxv, 23-28. + + + + +CHAPTER III + +THE ARGUMENTS AGAINST PRIVATE LANDOWNERSHIP + + +If land were not privately owned there would be no receiving of rent +by individuals. Therefore, the morality of the landlord's share of the +national product is intimately related to, and is usually treated in +connection with, the morality of private ownership. + +Substantially all the opponents of private property in land to-day are +either Socialists or disciples of Henry George. In the view of the +former, land as well as the other means of production should be owned +and managed by the State. Although they are more numerous than the +Georgeites, their attack upon private landownership is less +conspicuous and less formidable than the propaganda carried on by the +Henry George men. The Socialists give most of their attention to the +artificial instruments of production, dealing with land only +incidentally, implicitly, or occasionally. The followers of Henry +George, commonly known as Single Taxers or Single Tax men, defend the +private ownership of artificial capital, or capital in the strict +economic sense, but desire that the control of the community over the +natural means of production should be so far extended as to +appropriate for public uses all economic rent. Their criticism of +private ownership is not only more prominent than that made by the +Socialists, but is based to a much greater extent upon ethical +considerations. + + +_Arguments by Socialists_ + +Indeed, the orthodox or Marxian Socialists are logically debarred by +their social philosophy from passing a strictly moral judgment upon +property in land. For their theory of economic determinism, or +historical materialism, involves the belief that private +landownership, like all other social institutions, is a _necessary +product_ of economic forces and processes. Hence it is neither morally +good nor morally bad. Since neither its existence nor its continuance +depends upon the human will, it is entirely devoid of moral quality. +It is as unmoral as the succession of the seasons, or the movement of +the tides. And it will disappear through the inevitable processes of +economic evolution. As expressed by Engels: "The growing perception +that existing social institutions are unreasonable and unjust, that +reason has become unreason, and right wrong, is only proof that in the +modes of production and exchange changes have taken place, with which +the social order, adapted to earlier economic conditions, is no longer +in keeping."[8] + +Frequently, however, the individual Socialist forgets this +materialistic theory, and falls back upon his common sense, and +his innate conceptions of right and wrong, of free will and +responsibility. Instead of regarding the existing land system as a +mere product of blind economic forces, he often denounces it as +morally wrong and unjust. His contentions may be reduced to two +propositions: The proprietor who takes rent from a cultivator robs the +producer of a part of his product; and no one has a right to take for +his exclusive use that which is the natural heritage and means of +support for all the people. Referring to the receipt of 35,000,000 +pounds a year in rent by 8,000 British landlords, Hyndman and Morris +exclaim: "Yet in the face of all this a certain school still contend +that there is no class robbery."[9] Since the claim that the labourer +has a right to the full product of his labour applies to capital as +well as to land, it can be more conveniently considered when we come +to treat of the income of the capitalist. With regard to the second +contention, the following statement by Robert Blatchford may be taken +as fairly representative of Socialist thought: "The earth belongs to +the people.... So that he who possesses land possesses that to which +he has no right, and he who invests his savings in land becomes the +purchaser of stolen property."[10] Inasmuch as this argument is +substantially the same as one of the fundamental contentions in the +system of Henry George, it will be discussed in connection with the +latter, in the pages immediately following. + + +_Henry George's Attack on the Title of First Occupancy_ + +Every concrete right, whether to land or to artificial goods, is based +upon some contingent fact or ground, called a title. By reason of some +title a man is justified in appropriating a particular farm, house, or +hat. When he becomes the proprietor of a thing that has hitherto been +ownerless, his title is said to be original; when he acquires an +article from some previous owner, his title is said to be derived. As +an endless series of proprietors is impossible, every derived title +must be traceable ultimately to some original title. Among the derived +titles the most important are contract, inheritance, and prescription. +The original title is either first occupancy or labour. The prevailing +view among the defenders of private landownership has always been that +the original title is not labour but first occupancy. If this title be +not valid every derived title is worthless, and no man has a true +right to the land that he calls his own. Henry George's attack upon +the title of first occupancy is an important link in his argument +against private property in land. + +"Priority of occupation give exclusive and perpetual title to the +surface of a globe in which, in the order of nature, countless +generations succeed each other!... Has the first comer at a banquet +the right to turn back all the chairs, and claim that none of the +other guests shall partake of the food provided, except as they make +terms with him? Does the first man who presents a ticket at the door +of a theatre, and passes in, acquire by his priority the right to shut +the doors and have the performance go on for him alone?... And to this +manifest absurdity does the recognition of the individual right to +land come when carried to its ultimate that any human being, could he +concentrate in himself the individual rights to the land of any +country, could expel therefrom all the rest of the inhabitants; and +could he concentrate the individual rights to the whole surface of the +globe, he alone of all the teeming population of the earth would have +the right to live."[11] + +In passing, it may be observed that Henry George was not the first +distinguished writer to use the illustration drawn from the theatre. +Cicero, St. Basil, and St. Thomas Aquinas all employed it to refute +extravagant conceptions of private ownership. In reply to the +foregoing argument of Henry George, we point out: first, that the +right of ownership created by first occupancy is not unlimited, either +extensively or intensively; and, second, that the historical +injustices connected with private ownership have been in only a +comparatively slight degree due to the first occupation of very large +tracts of land. The right of first occupancy does not involve the +right to take a whole region or continent, compelling all subsequent +arrivals to become tenants of the first. There seems to be no good +reason to think that the first occupant is justified in claiming as +his own more land than he can cultivate by his own labour, or with the +assistance of those who prefer to be his employés or his tenants +rather than independent proprietors. "He has not the right to reserve +for himself alone the whole territory, but only that part of it which +is really useful to him, which he can make fruitful."[12] Nor is the +right of private landownership, on whatever title it may rest, +unlimited intensively, that is, in its powers or comprehension. Though +a man should have become the rightful owner of all the land in a +neighbourhood, he would have no moral right to exclude therefrom those +persons who could not without extreme inconvenience find a living +elsewhere. He would be morally bound to let them cultivate it at a +fair rental. The Christian conception of the intensive limitations of +private ownership is well exemplified in the action of Pope Clement +IV, who permitted strangers to occupy the third part of any estate +which the proprietor refused to cultivate himself.[13] Ownership +understood as the right to do what one pleases with one's possessions, +is due partly to the Roman law, partly to the Code Napoléon, but +chiefly to modern theories of individualism. + +In the second place, the abuses which have accompanied private +property in land are very rarely traceable to abuses of the right of +first occupancy. The men who have possessed too much land, and the men +who have used their land as an instrument of social oppression, have +scarcely ever been first occupants or the successors thereof through +derived titles. This is especially true of modern abuses, and modern +legal titles. In the words of Herbert Spencer: "Violence, fraud, the +prerogative of force, the claims of superior cunning,--these are the +sources to which these titles may be traced. The original deeds were +written with the sword, rather than with the pen: not lawyers but +soldiers were the conveyancers: blows were the current coin given in +payment; and for seals blood was used in preference to wax."[14] Not +the appropriation of land which nobody owned, but the forcible and +fraudulent seizure of land which had already been occupied, has been +one of the main causes of the evils attending upon private +landownership. Moreover, in England and all other countries that have +adopted her legal system, the title of first occupancy could never be +utilised by individuals: all unoccupied land was claimed by the Crown +or by the State, and transferred thence to private persons or +corporations. If some individuals have got possession of too much land +through this process, the State, not the title of first occupancy, +must bear the blame. This is quite clear in the history of land tenure +in the United States and Australasia. + +Henry George's attack upon private landownership through the title of +first occupancy is therefore ineffective; for he attributes to this +qualities that it does not possess, and consequences for which it is +not responsible. + + +_His Defence of the Title of Labour_ + +Thinking that he has shattered the title of first occupancy, Henry +George undertakes to set up in its place the title of labour. "There +can be to the ownership of anything no rightful title which is not +derived from the title of the producer, and does not rest on the +natural right of the man to himself."[15] The only original title is +man's right to the exercise of his own faculties; from this right +follows his right to what he produces; now man does not produce land; +therefore he cannot have rightful property in land. Of these four +propositions the first is a pure assumption, the second is untrue, the +third is a truism, and the fourth is as unfounded as the first. +Dependently upon God, man has, indeed, a right to himself and to the +exercise of his own faculties; but this is a right of action, not of +property. By the exercise of this right alone man can never produce +anything, never become the owner of anything. He can produce only by +exerting his powers upon something outside of himself; that is, upon +the goods of external nature. To become the producer and the owner of +a product, he must first become the owner of materials. By what title +is he to acquire these? In one passage[16] Henry George seems to think +that no title is necessary, and refers to the raw material as an +"accident," while the finished product is the "essence," declaring +that "the right of private ownership attaches the accident to the +essence, and gives the right of ownership to the natural material in +which the labour of production is embodied." Now this solution of the +difficulty is too simple and arbitrary. Its author would have shrunk +from applying it universally; for example, to the case of the +shoemaker who produces a pair of shoes out of stolen materials, or the +burglar who makes an overcoat more useful (and therefore performs a +task of production) by transferring it from a warehouse to his +shivering back! Evidently Henry George has in mind only raw material +in the strict sense, that which has not yet been separated from the +storehouse of nature; for he declares in another place that "the right +to the produce of labour cannot be enjoyed without the free use of the +opportunities offered by nature."[17] In other words, man's title to +the materials upon which he is to exercise his faculties, and of which +he is to become the owner by right of production, is the title of gift +conferred by nature, or nature's God. + +Nevertheless this title is applicable only to those goods that exist +in unlimited abundance, not to those parts of the natural bounty that +are scarce and possess economic value. A general assumption by +producers that they were entitled to take possession of the gifts of +nature indiscriminately would mean industrial anarchy and civil war. +Hence Henry George tells us that the individual should pay rent to +"the community to satisfy the equal rights of all other members of +the community."[18] Inasmuch as the individual must pay this price +before he begins to produce, his right to the use of natural +opportunities is not "free," nor does his labour alone constitute a +title to that part of them that he utilises in production. +Consequently labour does not create a right to the concrete product. +It merely gives the producer a right to the value that he adds to the +raw material. His right to the raw material itself, to the elements +that he withdraws from the common store, and fashions into a product, +say, wheat, lumber, or steel, does not originate in the title of +labour but in the title of contract. This is the contract by which in +exchange for rent paid to the community he is authorised to utilise +these materials. Until he has made this contract he has manifestly no +full right to the product into which natural forces as well as his own +labour have entered. According to Henry George's own statements, +therefore, the right to the product does not spring from labour alone, +but from labour plus compensation to the community. Since the contract +by which the prospective user agrees to pay this compensation or rent +must precede his application of labour, it instead of labour is the +original title. Since the contract is made with a particular community +for the use of a particular piece of land, the title that it conveys +must derive ultimately from the occupation of that land by that +community,--or some previous community of which the present one is the +legal heir. So far as economically valuable materials are concerned, +therefore, the logic of Henry George's principles leads inevitably to +the conclusion that the original title of ownership is first +occupancy. + +Even in the case of economically free goods, the original title of +ownership is occupancy. Henry George declares that the traveller who +has filled his vessels at a free-for-all spring owns the water when he +has carried it into a desert, by the title of labour.[19] +Nevertheless, in its original place this water belonged either to the +community or to nobody. In the former supposition it can become the +property of the traveller only through an explicit or implicit gift +from the community; and it is this contract, not labour, that +constitutes his title to the water. If we assume that the spring was +ownerless, we see that the labour of carrying a portion of it into the +desert still lacks the qualifications of a title; for the abstracted +water must have belonged to him before he began the journey. It must +have been his from the moment that he separated it from the spring. +Otherwise he had no right to take it away. His labour of transporting +it gave him a right to the utility thus added to the water, but not a +right to the water when it first found a local habitation in his +vessels. Nor was the labour of transferring it from the spring into +his vessels the true title; for labour alone cannot create a right to +the material upon which it is exerted, as we see in the case of stolen +objects. If it be contended that labour together with the natural +right to use the ownerless goods of nature have all the elements of a +valid title, the assertion must be rejected as unprecise and +inadequate. The right to use ownerless goods is a general and abstract +right that requires to become specific and concrete through some +title. In the case of water it is a right to water in general, to some +water, but not a right to a definite portion of the water in this +particular spring. The required and sufficient title here is that of +apprehension, occupation, the act of separating a portion from the +natural reservoir. Therefore, it is first occupancy as exemplified in +mere seizure of an ownerless good, not labour in the sense of +productive activity, nor labour in the sense of painful exertion, that +constitutes the precise title whereby the man acquires a right to the +water that he has put into his cup or barrel. Mere seizure is a +sufficient title in all such cases as that which we are now +considering, simply because it is a reasonable method of determining +and specifying ownership. There is no need whatever of having recourse +to the concept of labour to justify this kind of property right. In +the present case, indeed, the acts of apprehension and of productive +labour (the labour of dipping the water into a vessel _is_ productive +inasmuch as the water is more useful there than in the spring) are the +same physically, but they are distinct logically and ethically. One is +mere occupation, while the other is production; and ownership of a +thing must precede, in morals if not in time, the expenditure upon it +of productive labour. + +"The theory which bases the right of property on labour really depends +in the ultimate resort on the right of possession and the fact that it +is socially expedient, and is therefore upheld by the laws of society. +Grotius, discussing this in the old Roman days, pointed out that since +nothing can be made except out of pre-existing matter, acquisition by +means of labour depends, ultimately, on possession by means of +occupation."[20] + +Since man's right to his faculties does not of itself give him a right +to exercise them upon material objects, productive labour cannot of +itself give him a right to the product therefrom created, nor +constitute the original title of ownership. Since labour is not the +original title to property, it is not the only possible title to +property in land. Hence the fact that labour does not produce land, +has no bearing on the question of private landownership. + +In passing it may be observed that Henry George implicitly admitted +that the argument from the labour title was not of itself sufficient +to disprove the right of private property in land. Considering the +objection, "if private property in land be not just, then private +property in the products of land is not just, as the material of these +products is taken from the land," he replied that the latter form of +ownership "is in reality a mere right of temporary possession," since +the raw material in the products sooner or later returns to the +"reservoirs provided for all ... and thus the ownership of them by one +works no injury to others."[21] But private ownership of land, he +continued, shuts out others from the very reservoirs. Here we have a +complete abandonment of the principle which underlies the labour +argument. Instead of trying to show from the nature of the situation +that there is a logical difference between the two kinds of ownership, +he shifts his ground to a consideration of consequences. He makes the +title of social utility instead of the title of labour the +distinguishing and decisive consideration. As we shall see later, he +is wrong even on this ground; for the fundamental justification of +private landownership is precisely the fact that it is the system of +land tenure most conducive to human welfare. At present we merely call +attention to the breakdown in his own hands of the labour argument. + +To sum up the entire discussion on the original title of ownership: +Henry George's attack upon first occupancy is futile because based +upon an exaggerated conception of the scope of private landownership, +and upon a false assumption concerning the responsibility of that +title for the historical evils of the system. His attempt to +substitute labour as the original title is likewise unsuccessful, +since labour can give a right only to the utility added to natural +materials, not to the materials themselves. Ownership of the latter +reaches back finally to occupation. Whence it follows that the title +to an artificial thing, such as a hat or coat, water taken from a +spring, a fish drawn from the sea, is a joint or two-fold title; +namely, occupation and labour. Where the product embodies scarce and +economically valuable raw material, occupation is usually prior to +labour in time; in _all_ cases it is prior to labour logically and +ethically. Since labour is not the original title, its absence in the +case of land does not leave that form of property unjustified. The +title of first occupancy remains. In a word, the one original title of +all property, natural and artificial, is first occupancy. + +The other arguments of Henry George against private landownership are +based upon the assumed right of all mankind to land and land values, +and on the contention that this right is violated by the present +system of tenure. + + +_The Right of All Men to the Bounty of the Earth_ + +"The equal right of all men to the use of land is as clear as their +equal right to breathe the air--it is a right proclaimed by the fact +of their existence. For we cannot suppose that some men have a right +to be in the world, and others no right. + +"If we are here by the equal permission of the Creator, we are all +here with an equal title to the enjoyment of his bounty--with an equal +right to the use of all that nature so impartially offers.... There is +in nature no such thing as a fee simple in land. There is on earth no +power which can rightfully make a grant of exclusive ownership of +land. If all existing men were to grant away their equal rights, they +could not grant away the rights of those who follow them. For what are +we but tenants for a day? Have we made the earth that we should +determine the rights of those who after us shall tenant it in their +turn?"[22] + +The right to use the goods of nature for the support of life is +certainly a fundamental natural right; and it is substantially equal +in all persons. It arises, on the one hand, from man's intrinsic +worth, his essential needs, and his final destiny; and, on the other +hand, from the fact that nature's bounty has been placed by God at the +disposal of all His children indiscriminately. But this is a general +and abstract right. What does it imply specifically and in the +concrete? In the first place, it includes the actual and continuous +use of some land; for a man cannot support life unless he is permitted +to occupy some portion of the earth for the purposes of working, and +eating, and sleeping. Secondly, it means that in time of extreme need, +and when more orderly methods are not available, a man has the right +to seize sufficient goods, natural or produced, public or private, to +support life. So much is admitted and taught by all Catholic +authorities, and probably by all other authorities. Furthermore, the +abstract right in question seems very clearly to include the concrete +right to obtain on reasonable conditions at least the requisites of a +decent livelihood; for example, by direct access to a piece of land, +or in return for a reasonable amount of useful labour. All of these +particular rights are equally valid in all persons. + +Does the equal right to use the bounty of nature include the right to +equal _shares_ of land, or land values, or land advantages? Since the +resources of nature have been given to all men in general, and since +human nature is specifically and juridically equal in all, have not +all persons the right to share equally in these resources? Suppose +that some philanthropist hands over to one hundred persons an +uninhabited island, on condition that they shall divide it among +themselves with absolute justice. Are they not obliged to divide it +equally? On what ground can any person claim or be awarded a larger +share than his fellows? None is of greater intrinsic worth than +another, nor has any one made efforts, or sacrifices, or products +which will entitle him to exceptional treatment. The correct principle +of distribution would seem to be absolute equality, except in so far +as it may be modified on account of varying needs, and varying +capacities for social service. In any just distribution account must +be taken of differences in needs and capacities; for it is not just to +treat men as equal in those respects in which they are unequal, nor is +it fair to deprive the community of those social benefits which can be +obtained only by giving exceptional rewards for exceptional services. +The same amount of food allotted to two persons might leave one hungry +and the other sated; the same amount of land assigned to two persons +might tempt the one to wastefulness and discourage the other. To be +sure, the factor of exceptional capacity should not figure in the +distribution until all persons had received that measure of natural +goods which was in each case sufficient for a decent livelihood. For +the fundamental justification of any distribution is to be sought in +human needs; and among human needs the most deserving and the most +urgent are those which must be satisfied as a prerequisite to right +and reasonable life. + +Now it is true that private ownership of land has nowhere realised +this principle of proportional equality and proportional justice. No +such result is possible in a system that, in addition to other +difficulties, would be required to make a new distribution at every +birth and at every death. Private ownership of land can never bring +about ideal justice in distribution. Nevertheless it is not +necessarily out of harmony with the demands of _practical_ justice. A +community that lacks either the knowledge or the power to establish +the ideal system is not guilty of actual injustice because of this +failure. In such a situation the proportionally equal rights of all +men to the bounty of nature are not actual rights. They are +conditional, or hypothetical, or suspended. At best they have no more +moral validity than the right of a creditor to a loan that, owing to +the untimely death of the debtor, he can never recover. In both cases +it is misleading to talk of injustice; for this term always implies +that some person or community is guilty of some action which could +have been avoided. The system of private landownership is not, indeed, +perfect; but this is not exceptional in a world where the ideal is +never attained, and all things are imperfect. Henry George declares +that "there is on earth no power which can rightfully make a grant of +exclusive ownership in land"; but what would he have a community do +which has never heard of his system? Introduce some crude form of +communism, or refrain from using the land at all, and permit the +people to starve to death in the interests of ideal justice? Evidently +such a community must make grants of exclusive ownership, and these +will be as valid in reason and in morals as any other act that is +subject to human limitations which are at the time irremovable. + +Perhaps the Single Taxer would admit the force of the foregoing +argument. He might insist that the titles given by the State in such +conditions were not exclusive grants in the strict sense, but were +valid only until a better system could be set up, and the people put +in possession of their natural heritage. Let us suppose, then, that a +nation were shown "a more excellent way." Suppose that the people of +the United States set about to establish Henry George's system in the +way that he himself advocated. They would forthwith impose upon all +land an annual tax equivalent to the annual rent. What would be the +effect upon private land-incomes, and private land-wealth? Since the +first would be handed over to the State in the form of a tax, the +second would utterly disappear. For the value of land, like the value +of any other economic good, depends upon the utilities that it +embodies or produces. Whoever controls these will control the market +value of the land itself. No man will pay anything for a +revenue-producing property if some one else, for example, the State, +is forever to take the revenue. The owner of a piece of land which +brings him an annual revenue or rent of one hundred dollars, will not +find a purchaser for it if the State appropriates the one hundred +dollars in the form of a tax that is to be levied year after year for +all time. On the assumption that the revenue represents a selling +value of two thousand dollars, the private owner will be worth that +much less after the introduction of the new system. + +Henry George defends this proceeding as emphatically just, and denies +the justice of compensating the private owners. In the chapter of +"Progress and Poverty" headed, "Claim of Land Owners to Compensation," +he declares that "private property in land is a bold, bare, enormous +wrong, like that of chattel slavery"; and against Mill's statement +that land owners have a right to rent and to the selling value of +their holdings, he exclaims: "If the land of any country belong to the +people of that country, what right, in morality and justice, have the +individuals called land owners to the rent? If the land belong to the +people, why in the name of morality and justice should the people pay +its salable value for their own?"[23] + +Here, then, we have the full implication of the Georgean principle +that private property in land is essentially unjust. It is not merely +imperfect,--tolerable while unavoidable. When it can be supplanted by +the right system, its inequalities must not continue under another +form. If inequalities are continued through the compensation of +private owners, individuals are still hindered from enjoying their +equal rights to land, and the State becomes guilty of formal and +culpable injustice. The titles which the State formerly guaranteed to +the private owners did not have in morals the perpetual validity which +they professed to have. Since the State is not the owner of the land, +it was morally powerless to create or sanction titles of this +character. Even if all the citizens at any given time had deliberately +transferred the necessary authorisation to the State, "they could +not," in the words of Henry George, "grant away the right of those who +follow them." The individual's right to land is innate and natural, +not civil or social. The author of "Progress and Poverty" attributes +to the individual's _common_ right to land precisely the same absolute +character that Father Liberatore predicates of the right to become a +_private_ land owner.[24] In the view of Henry George, the State is +merely the trustee of the land, having the duty of distributing its +benefits and values so as to make effective the equal rights of all +individuals. Consequently, the legal titles of private ownership which +it creates or sanctions are valid only so long as nothing better is +available. At best such titles have no greater moral force than the +title by which an innocent purchaser holds a stolen watch; and the +persons who are thereby deprived of their proper shares of land +benefits, have the same right to recover them from the existing +private owners that the watch-owner has to recover his property from +the innocent purchaser. Hence the demand for compensation has no more +merit in the one case than in the other. + +To the objection that the civil laws of many civilised countries would +permit the innocent purchaser of the watch to retain it, provided that +sufficient time had elapsed to create a title of prescription, the +Single Taxer would reply that the two kinds of goods are not on the +same moral basis in all respects. He would contend that the natural +heritage of the race is too valuable, and too important for human +welfare to fall under the title of prescription. + +To put the matter briefly, then, Henry George contends that the +individual's equal right to land is so much superior to the claim of +the private owner that the latter must give way, even when it +represents an expenditure of money or other valuable goods. The +average opponent does not seem to realise the full force of the +impression which this theory makes upon the man who overemphasises the +innate rights of men to a share in the gifts of nature. Let us see +whether this right has the absolute and overpowering value which is +attributed to it by Henry George. + +In considering this question, the supremely important fact to be kept +in mind is that the natural right to land is not an end in itself. It +is not a prerogative that inheres in men, regardless of its purposes +or effects. It has validity only in so far as it promotes individual +and social welfare. As regards individual welfare, we must bear in +mind that this phrase includes the well being of all persons, of those +who do as well as of those who do not at present enjoy the benefits of +private landownership. Consequently the proposal to restore to the +"disinherited" the use of their land rights must be judged by its +effects upon the welfare of all persons. If existing landowners are +not compensated they are deprived, in varying amounts, of the +conditions of material well being to which they have become +accustomed, and are thereby subjected to varying degrees of positive +inconvenience and hardship. The assertion that this loss would be +offset by the moral gain in altruistic feelings and consciousness, may +be passed over as applying to a different race of beings from those +who would be despoiled. The hardship is aggravated considerably by the +fact that very many of the dispossessed private owners have paid the +full value of their land out of the earnings of labour or capital, and +that all of them have been encouraged by society and the State to +regard landed property in precisely the same way as any other kind of +property. In the latter respect they are not in the same position as +the innocent purchaser of the stolen watch; for they have never been +warned by society that the land might have been virtually stolen, or +that the supposedly rightful claimants might some day be empowered by +the law to recover possession. On the other hand, the persons who own +no land under the present system, the persons who are deprived of +their "birthright," suffer no such degree of hardship when they are +continued in that condition. They are kept out of something which they +have never possessed, which they have never hoped to get by any such +easy method, and from which they have not been accustomed to derive +any benefit. To prolong this condition is not to inflict upon them any +new or positive inconvenience. Evidently their welfare and claims in +the circumstances are not of the same moral importance as the welfare +and claims of persons who would be called upon to suffer the loss of +goods already possessed and enjoyed, and acquired with the full +sanction of society. + +Henry George is fond of comparing the private owner of land with the +slave owner, and the landless man with the man enslaved; but there is +a world of difference between their respective positions and moral +claims. Liberty is immeasurably more important than land, and the +hardship suffered by the master when he is compelled to free the slave +is immeasurably less than that endured by the slave who is forcibly +detained in bondage. Moreover, the moral sense of mankind recognises +that it is in accordance with equity to compensate slave owners when +the slaves are legally emancipated. Infinitely stronger is the claim +of the landowner to compensation. + +If the Georgeite replies that the landless man is at present kept out +of something to which he has a right, while confiscation would take +from the private owner something which does not really belong to him, +the rejoinder must be that this assertion begs the question. The +question is likewise begged when the unreasonable defender of private +property declares that the right of the landless is vague and +undetermined, and therefore morally inferior to the determinate and +specific right of the individual landowner. This is precisely the +question to be solved. Does the abstract right of the landless man +become a concrete right which is so strong as to justify confiscation? +Is his natural right valid against the acquired right of the private +proprietor? These questions can be answered intelligently only by +applying the test of human welfare, individual and social. To say that +land of its very nature is not morally susceptible of private +ownership, is to make an easy assertion that may be as easily denied. +To interpret man's natural right to land by any other standard than +human welfare, is to make of it a fetish, not a thing of reason. Henry +George himself seemed to recognise this when he wrote that +wonderfully eloquent but overdrawn and one-sided description of the +effects of private ownership which occurs in the chapter entitled, +"Claim of Landowners to Compensation."[25] + +When we say that human welfare is the final determinant of the right +to land, we understand this phrase in the widest possible sense. To +divide the goods of the idle rich among the deserving poor, might be +temporarily beneficial to both these classes, but the more remote and +enduring consequences would be individually and socially disastrous. +To restore a legacy to persons who had been defrauded of it when very +young, would probably cause more hardship to the swindler than the +heirs would have suffered had there been no restitution; nevertheless +the larger view of human welfare requires that the legacy should be +restored. When, however, two or three generations have been kept out +of their inheritance, the civil law permits the children of the +swindler to retain the property by the title of prescription; and for +precisely the same reason, human welfare. + +The social consequences of the confiscation of rent and land values, +would be even more injurious than those falling upon the individuals +despoiled. Social peace and order would be gravely disturbed by the +protests and opposition of the landowners, while the popular +conception of property rights, and of the inviolability of property, +would be greatly weakened, if not entirely destroyed. The average man +would not grasp or seriously consider the Georgean distinction between +land and other kinds of property in this connection. He would infer +that purchase, or inheritance, or bequest, or any other title having +the immemorial sanction of the State, does not create a moral right to +movable goods any more than to land. This would be especially likely +in the matter of capital. Why should the capitalist, who is no more a +worker than the landowner, be permitted to extract revenue from his +possessions? In both cases the most significant and practical feature +is that one class of men contributes to another class an annual +payment for the use of socially necessary productive goods. If +rent-confiscation would benefit a large number of people, why not +increase the number by confiscating interest? Indeed, the proposal to +confiscate rent is so abhorrent to the moral sense of the average man +that it could never take place except in conditions of revolution and +anarchy. If that day should ever arrive the policy of confiscation +would not stop with land. + + +_The Alleged Right of the Community to Land Values_ + +In the foregoing pages we have confined our attention to the Georgean +principle which bases men's common right to land and rent upon their +common nature, and their common claims to the material gifts of the +Creator. Another argument against private ownership takes this form: +"Consider what rent is. It does not arise spontaneously from the soil; +it is due to nothing that the landowners have done. It represents a +value created by the whole community.... But rent, the creation of the +whole community, necessarily belongs to the whole community."[26] + +Before taking up the main contention in this passage, let us notice +two incidental points. If all rent be due to the community by the +title of social production, why does Henry George defend at such +length the title of birthright? If the latter title does not extend to +rent it is restricted to land which is so plentiful as to yield no +rent. Since the owners or holders of such land rarely take the trouble +to exclude any one from it, the right in question, the inborn right, +has not much practical value. Probably, however, the words quoted +above ought not to be interpreted as excluding the title of +birthright. In that case, the meaning would be that rent belongs to +the community by the title of production, as well as by the congenital +title. + +The second preliminary consideration is that the community does not +create _all_ land values nor _all_ rent. These things are as certainly +due to nature as to social action. In no case can they be attributed +exclusively to one factor. Land that has no natural qualities or +capacities suitable for the satisfaction of human wants will never +have value or yield rent, no matter what society does in connection +with it: the richest land in the world will likewise remain valueless, +until it is brought into relation with society, with at least two +human beings. If Henry George merely means to say that, without the +presence of the community, land will not produce rent, he is stating +something that is perfectly obvious, but it is not peculiar to land. +Manufactured products would have no value outside of society, yet no +one maintains that their value is all created by social action. +Although the value of land is always due to both nature and society, +for practical purposes we may correctly attribute the value of a +particular piece of land predominantly to nature, or predominantly to +society. When three tracts, equally distant from a city, and equally +affected by society and its activities, have different values because +one is fit only for grazing, while the second produces large crops of +wheat, and the third contains a rich coal mine, their relative values +are evidently due to nature rather than to society. On the other hand, +the varying values of two equally fertile pieces of land unequally +distant from a city, must be ascribed primarily to social action. In +general, it is probably safe to say that almost all the value of land +in cities, and the greater part of the value of land in thickly +settled districts, is specifically due to social action rather than to +differences in fertility. Nevertheless, it remains true that the value +of every piece of land arises partly from nature, and partly from +society; but it is impossible to say in what proportion. + +Our present concern is with those values and rents which are to be +attributed to social action. These cannot be claimed by any person, +nor by any community, in virtue of the individual's natural right to +the bounty of nature. Since they are not included among the ready made +gifts of God, they are no part of man's birthright. If they belong to +all the people the title to them must be sought in some historical +fact, some fact of experience, some social fact. According to Henry +George, the required title is found in the fact of production. +Socially created land values and rents belong to the community because +the community, not the private proprietor, has produced them. Let us +see in what sense the community produces the social value of land. + +In the first place, this value is produced by the community in two +different senses of the word community, namely, as a civil, corporate +entity, and as a group of individuals who do not form a moral unit. +Under the first head must be placed a great deal of the value of land +in cities; for example, that which arises from municipal institutions +and improvements, such as, fire and police protection, water works, +sewers, paved streets, and parks. On the other hand, a considerable +part of land values both within and without cities is due, not to the +community as a civil body, but to the community as a collection of +individuals and groups of individuals. Thus, the erection and +maintenance of buildings, the various economic exchanges of goods and +labour, the superior opportunities for social intercourse and +amusement which characterise a city, make the land of the city and its +environs more valuable than land at a distance. While the activities +involved in these economic and "social" facts and relations are, +indeed, a social not an individual product, they are the product of +small, temporary, and shifting groups within the community. They are +not the activities of the community as a moral whole. For example, the +maintenance of a grocery business implies a series of social +relations and agreements between the grocer and his customers; but +none of these transactions is participated in by the community acting +as a community. Consequently such actions and relations, and the land +values to which they give rise are not due to, are not the products of +the community as a unit, as a moral body, as an organic entity. What +is true of the land values created by the grocery business applies to +the values which are due to other economic institutions and relations, +as well as to those values which arise out of the purely "social" +activities and advantages. If these values are to go to their +producers they must be taken, in various proportions, by the different +small groups and the various individuals whose actions and +transactions have been directly responsible. + +To distribute these values among the producers thereof in proportion +to the productive contribution of each person is obviously impossible. +How can it be known, for example, what portion of the increase in the +value of a city's real estate during a given year is due to the +merchants, the manufacturers, the railroads, the labourers, the +professional classes, or the city as a corporation? The only practical +method is for the city or other political unit to act as the +representative of all its members, appropriate the increase in value, +and distribute it among the citizens in the form of public services, +institutions, and improvements. Assuming that the socially produced +value of land ought to go to its social producer rather than to the +individual proprietor, this method of public appropriation and +disbursement would seem to be the nearest approximation to practical +justice that is available. + +Is the assumption correct? Do the socially produced land values +necessarily belong to the producer, society? Does not the assumption +rest upon a misconception of the moral validity of production as a +canon of distribution? Let us examine some of the ways in which +values are produced. + +The man who converts leather and other suitable raw materials into a +pair of shoes, increases the utility of these materials, and in normal +market conditions increases their value. In a certain sense he has +created value, and he is universally acknowledged to have a right to +this product. Similarly the man who increases the utility and value of +land by fertilising, irrigating, or draining it, is conceded the +benefit of these improvements by the title of production. + +But value may be increased by mere restriction of supply, and by mere +increase in demand. If a group of men get control of the existing +supply of wheat or cotton, they can artificially raise the price, +thereby producing value as effectively as the shoemaker or the farmer. +If a syndicate of speculators gets possession of all the land of a +certain quality in a community, they can likewise increase its value, +produce new value. If a few powerful leaders of fashion decide to +adopt a certain style of millinery, their action and example will +effect an increase in the demand for and the value of that kind of +goods. Yet none of these producers of value are regarded as having a +moral right to their product. + +When we turn to what is called the social creation of land values, we +find that it takes two forms. It always implies increase of social +demand; but the latter may be either purely subjective, reflecting +merely the desires and power of the demanders themselves, or it may +have an objective basis connected with the land. In the first case it +may be due solely to an increase of population. Within the last few +years, agricultural land which is no more fertile nor any better +situated with regard to markets or other social advantages than it was +thirty years ago, has risen in value because its products have risen +in value. Its products have become dearer because population, and +therefore demand, have grown faster than agricultural production. +Merely by increasing its wants the population has produced land +values; but it has obviously no more right to them than have the +leaders of fashion to the enhanced value which they have given to +feminine headgear. On the other hand, the increased demand for land, +and the consequent increase in its value, are frequently attributable +specifically to changes connected with the land itself. They are +changes which affect its utility rather than its scarcity. The farmer +who irrigates desert land increases its utility, as it were, +_intrinsically_. The community that establishes a city increases the +utility of the land therein and thereabout _extrinsically_. New +_relations_ are introduced between that land and certain desirable +social institutions. Land that was formerly useful only for +agriculture becomes profitable for a factory or a store. Through its +new external relations, the land acquires new utility; or better, its +latent and potential uses have become actual. Now these new relations, +these utility-creating and value-creating relations, have been +established by society, in its corporate capacity through civil +institutions and activities, and in its non-corporate capacity through +the economic and "social" (in the narrower "society" sense) activities +of groups and individuals. In this sense, then, the community has +created the increased land values. Has it a strict right to them? a +right so rigorous and exact that private appropriation of them is +unjust? + +As we have just seen, men do not admit that mere production of value +constitutes a title of ownership. Neither the monopolist who increases +value by restricting supply, nor the pace-makers of fashion, who +increase value by merely increasing demand, are regarded as possessing +a moral right to the value that they have "created." It is increase of +utility, and not either actual or virtual increase of scarcity to +which men attribute a moral claim. Why do men assign these different +ethical qualities to the production of value? Why has the shoemaker a +right to the value that he adds to the raw material in making a pair +of shoes? What is the precise basis of his right? It cannot be labour +merely; for the cotton monopolist has laboured in getting his corner +on cotton. It cannot be the fact that the shoemaker's labour is +socially useful; for a chemist might spend laborious days and nights +producing water from its component elements, and find his product a +drug on the market. Yet he would have no reasonable ground of +complaint. Why, then, is it reasonable for the shoemaker to require, +why has he a right to require payment for the utilities that he +produces? Because men want to use his products, and because they have +no right to require him to serve them without compensation. He is +morally and juridically their equal, and has the same right as they to +have access on reasonable terms to the earth and the earth's +possibilities of a livelihood. Being thus equal to his fellows, he is +under no obligation to subordinate himself to them by becoming a mere +instrument for their welfare. To assume that he is obliged to produce +socially useful things without remuneration, is to assume that all +these propositions are false; it is to assume that his life and +personality and personal development are of no intrinsic importance, +and that his pursuit of the essential ends of life has no meaning +except in so far as may be conducive to his function as an instrument +of production. In a word, the ultimate basis of the producer's right +to his product, or its value, is the fact that this is the only way in +which he can get his just share of the earth's goods, and of the means +of life and personal development. His right to compensation does not +rest on the mere fact of value-production. + +As a producer of land values, the community is not on the same moral +ground with the shoemaker. Its productive action is indirect and +extrinsic, instead of direct and intrinsic, and is merely incidental +to its principal activities and purposes. Land values are a +by-product which do not require the community to devote thereto a +single moment of time or a single ounce of effort. The activities of +which land values are a by-product, have already been remunerated in +the price paid to the wage-earner for his labour, the physician for +his services, the manufacturer and the merchant for their wares, and +the municipal corporation in the form of taxes. On what ground can the +community, or any part of it, set up a claim in strict justice to the +increased land values? The right of the members of the community to +the means of living and self development is not dependent upon the +taking of these values by the community. Nor are they treated as +instruments to the welfare of the private owners who do get the +socially created land values; for they expend neither time nor labour +in the interest of the latter directly. Their labour is precisely what +it would have been had there been no increase in the value of the +land. + +Since social production does not constitute a right to land values nor +to rent, it affords not a shadow of justification for the confiscation +of these things by the community. If social appropriation of socially +created land values had been introduced with the first occupation of a +piece of land, it might possibly have proved more generally beneficial +than the present system. In that case, however, the moral claim of the +community to these values would have rested on the fact that they did +not belong to anybody by a title of strict justice. They would have +been a "res nullius" ("nobody's property") which might fairly have +been taken by the community according as they made their appearance. +The community could have appropriated them by the title of first +occupancy. But there could have been no moral title of social +production. When, however, the community or the State failed to take +advantage of its opportunity to be the first occupant of these values, +when it permitted the individual proprietor to appropriate them, it +forfeited its own claim. Ever since it has had no more right to +already existing land values than it has to seize the labourer's wages +or the capitalist's interest,--no more right than one person has to +recover a gift or donation that he has unconditionally bestowed upon +another. + +To sum up the conclusions of this chapter: The argument against first +occupancy is valid only with regard to the abuses of private +ownership, not with regard to the institution; the argument based upon +the title of labour is the outcome of a faulty analysis, and is +inconsistent with other statements of its author; the argument derived +from men's equal rights to land merely proves that private ownership +does not secure perfect justice, and the proposal to correct this +defect by confiscating rent is unjust because it would produce greater +evils; and the so called production of the social values of land +confers upon the community no property right whatever. + +FOOTNOTES: + +[8] "Socialism: Utopian and Scientific," p. 45; Chicago, 1900. + +[9] "A summary of the Principles of Socialism," p. 23; London, 1899. + +[10] "Socialism: A Reply to the Pope's Encyclical," p. 4; London, +1899. + +[11] "Progress and Poverty," book vii, ch. i. + +[12] "La Propriété Privée," par L. Garriguet, I, 62; Paris, 1903. + +[13] Cf. Ardant, "Papes et Paysans," pp. 41, sq. + +[14] "Social Statics," chap, ix; 1850. Spencer's retractation, in a +later edition of this work, of his earlier views on the right of +property in land does not affect the truth of the description quoted +in the passage above. + +[15] "Progress and Poverty," loc. cit. + +[16] "Open Letter to Pope Leo XIII," page 25 of Vierth's edition. + +[17] "Progress and Poverty," loc. cit. + +[18] "Progress and Poverty," loc. cit. + +[19] "Open Letter to Pope Leo XIII," loc. cit. + +[20] Whittaker, op. cit., p. 32. + +[21] "Open Letter," loc. cit. + +[22] "Progress and Poverty," book vii, ch. i. + +[23] Cf. chapter entitled "Compensation" in "A Perplexed Philosopher." + +[24] Cf. "Principles of Political Economy," 1891, p. 130. + +[25] "Progress and Poverty." + +[26] "Progress and Poverty," book vii, ch. iii. + + + + +CHAPTER IV + +PRIVATE OWNERSHIP THE BEST SYSTEM OF LAND TENURE + + +The defence of private landownership set forth in the last chapter has +been conditional. It has tended to show that the institution is +morally lawful so long as no better system is available. As soon as a +better system has been discovered, the State and the citizens are +undoubtedly under some degree of moral obligation to put it into +practice. Hence the important present question is whether this +condition or contingency has become a reality. The only proposed and +the only possible alternative systems are Socialism and the Single +Tax. All other forms of tenure are properly classed as modifications +of private ownership, rather than as distinct systems. Consequently +the worth, and efficiency, and morality of private ownership can be +adequately determined by comparison with the two just mentioned. + + +_The Socialist Proposals Impracticable_ + +As now existing and as commonly understood, private landownership +comprises four elements which are not found together in either +Socialism or the Single Tax. They are: security of possession combined +with the power to transfer and transmit; the use of land combined with +the power to let the use to others; the receipt of revenue from +improvements in or upon the land; and the receipt of economic rent, +the revenue due to the land itself, apart from improvements. In its +extreme form, and as formerly understood by the majority of its +authoritative exponents, Socialism would take from the individual all +of these elements or powers. The State, or the Collectivity, would own +and manage all productive land and land-capital, and would receive and +distribute the product. Consequently the cultivators of the land would +be deprived of even that limited degree of control which is now +possessed by the tenant on a rented farm; for the latter, though not a +landowner, is the owner of a farming business, and of agricultural +instruments of production. Under Socialism the users of the land would +not receive the revenue either from improvements or from the land +itself. They would be substantially employés of the community, +receiving a share of the product according to some plan of +distribution established by public authority. Land occupied by +dwellings would likewise be owned and managed by the State, although +its product, the benefit of its use, would necessarily go in the first +instance to the occupier. In return for this benefit he would +undoubtedly be required to pay some kind of rent to the State. + +Now the majority of persons believe that this system of land tenure +would be inferior to private ownership, both as regards individual +welfare and social welfare. The reasons for this belief will be given +in detail in the chapter on "The Socialist Scheme of Industry." For +the present it will be sufficient to point out in a summary way that +Socialism would be unable to organise and carry on efficiently all +agricultural and extractive industries, either under one central +direction or under many provincial authorities; that it could not +adjust wages and salaries satisfactorily, nor give the individual +worker an incentive as effective as the self interest that goes with +private ownership; that it would deprive the worker of a great part of +the freedom that he now enjoys in the matters of occupation and +residence; that it would leave to the consumer less choice in the +demand for the products of land; that it would place all the people in +a position of dependence upon a single agency for all these products; +and that it would make all land users, whether as workers or as +residents, tenants-at-will on the property of the State. + +From the nature of the case, none of the foregoing propositions can be +demonstrated mathematically. Nevertheless they are as nearly evident +as any other practical conclusions which are based upon our general +experience of human nature, its tendencies, and its limitations. At +any rate, the burden of proof is upon the advocates of the new system. +Until they have assumed and satisfactorily disposed of this burden, we +are justified in rejecting their prophecies, and in maintaining the +superiority of private ownership.[27] + +To-day, however, many Socialists, possibly the majority of them in +some countries, would reject the extreme form of land socialisation +discussed in the preceding paragraphs. "The nearest approach which +Socialists have made to a _volte face_ since Marx, has been in +relation to Agrarianism.... Marx thought that the advantage of +concentrating capital would be felt in agriculture as in other +industries; but, in spite of a temporary confirmation of this view by +the mammoth farms which sprang up in North America, it now appears +very doubtful.... Recognition of this has led reformists to substitute +a policy of actively assisting the peasants for the orthodox policy of +leaving them to succumb to capitalism. Their formula is: 'Collectivise +credit, transport, exchange, and all subsidiary manufacture, but +individualise culture.'"[28] The Belgian Socialist leader, +Vandervelde, seems to prefer State ownership and management of the +great agricultural industries which require large masses of capital +for their efficient operation, such as dairying, distilling, and sugar +making, together with State ownership of the land thus used. Other +lands he would have owned by the State, but cultivated by individuals +according to a system of leasing and rent-paying.[29] By a referendum +vote the members of the Socialist party in the United States recently +amended their platform on land, to read as follows: "The Socialist +party strives to prevent land from being used for the purpose of +exploitation and speculation. It demands the collective possession, +control or management of land to whatever extent may be necessary to +attain that end. It is not opposed to the occupation and possession of +land by those using it in a useful and bona fide manner without +exploitation."[30] As to land occupied by dwellings, perhaps the +majority of Socialists would now agree with Spargo in the statement +that, "so far as the central principle of Socialism is concerned, +there is no more reason for denying the right of a man to own his own +home than there is to deny him the right to own his hat."[31] + +In so far as the foregoing modifications of Socialist proposals would +allow the individual to own the land that he cultivates or occupies, +they do not call for further discussion here. In so far as they +combine State ownership of land with individual management of +cultivation, they are subject to at least all the limitations of the +Single Tax. To the latter system we now turn our attention. + + +_Inferiority of the Single Tax System_ + +Of the four leading elements of private ownership enumerated above, +the Single Tax scheme would comprise all but one. In the words of +Henry George himself: "Let the individuals who now hold it still +retain, if they want to, possession of what they are pleased to call +_their_ land. Let them continue to call it _their_ land. Let them buy +and sell, and bequeath and devise it. We may safely leave them the +shell, if we take the kernel. _It is not necessary to confiscate +land; it is only necessary to confiscate rent...._ In this way the +State may become the universal landlord without calling herself so, +and without assuming a single new function. In form, the ownership of +land would remain just as now. No owner of land need be dispossessed, +and no restriction need be placed upon the amount of land that any one +could hold."[32] + +Individuals would, therefore, still enjoy security of possession, the +managerial use of land, and the revenue due to improvements. The +income arising from the land itself, the economic rent, they would be +obliged to hand over as a free gift to the State. As we have seen in a +preceding chapter, this confiscation of rent by the State would be +pure and simple robbery of the private owner. Suppose, however, that +the State were willing to compensate individual proprietors with a sum +equal to the present value, or the capitalised rent, of their land. In +that case the only difference made to the individual would be that he +could no longer invest his money in land nor profit by the increases +in land values. While this would deprive some persons of advantages +that they now enjoy, it would be beneficial to the majority, and to +the community. Since no man would find it profitable to retain control +of more land than he could use himself, the number of actual land +users would be increased. The land speculator would disappear, +together with the opportunity of making and losing fortunes by +gambling on the changes in land values. Owing to the removal of +taxation from the necessaries of life and from industry, consumers +would get goods cheaper, and some stimulus would be given to +production and employment. Those monopolies which derive their +strength from land would become weaker and tend to disappear. Sooner +or later there would probably be a considerable increase in the amount +of money available for public improvements and socially beneficial +institutions. + +On the other hand, there would be certain and serious disadvantages. A +considerable number of land users might permit their holdings to +deteriorate through careless cultivation. To be sure, they would not +find this a profitable course if they intended to remain on the land +permanently; but they might prefer to exhaust the best qualities of a +farm in a few years, and then retire, or go into some other business, +or repeat the wearing-out process on other lands. Thus the community +would suffer through the lowered productiveness of its land, and +because of the lower rent that it would receive from all subsequent +users of the deteriorated tracts. In the second place, the +administrative machinery required to levy and collect the rent, and to +apportion the different holdings among competitive bidders, would +inevitably involve a vast amount of error, inequality, favouritism, +and corruption. For the land tax to be levied and collected would not +be, as now, a fraction of the rental value, but the full amount of the +annual rent. In the third place, cultivators would not have the +inducement to make improvements which arises from the hope of selling +both the improvements and the land at a profit, owing to the increased +demand for the land. Perhaps the greatest disadvantage of the system +would be the instability of tenure, with regard to both productive and +residential lands. Owing to misfortunes of various kinds, for example, +one or two bad crops, many cultivators would be temporarily unable to +pay the full amount of the land tax or rent. It is scarcely +conceivable that the State would remit the deficiency, or refuse to +turn the land over to other persons on terms more advantageous to +itself. Inasmuch as the value and rent of land would be continuously +adjusted by competition, the more efficient and more wealthy would +frequently supplant the less efficient and the less wealthy, even +though the latter had occupied their holdings or their dwellings for a +great number of years. Legal security of tenure, though theoretically +the same as that enjoyed by the private owner to-day, would be much +less effective practically. In this respect land users would be in +almost as bad a case as renters are at present.[33] + +Our conclusion, then, is that private landownership is certainly +better than extreme Socialism, or any form of Socialism which does not +concede to the land user all the control that he would have under the +Single Tax system, and that it is very probably superior to the +latter. In making this comparison and drawing this conclusion, we have +in mind private ownership, not at its worst nor as it exists or has +existed in any particular country, but private ownership in its +essential elements, and with its capacity for modification and +improvement. If we were to examine carefully the results of private +ownership as it obtained in Ireland for several centuries before the +enactment of the recent Land Purchase Act, we should probably be +tempted to declare that the most extreme form of agrarian Socialism +could scarcely have been productive of more individual and social +injury. Certain other countries present almost equally unfavourable +conditions of comparison. Failure to note this distinction between the +historical and the potential aspects of private landownership has +vitiated many otherwise excellent defences of the institution. It has +provoked the retort that almost any plausible change would be an +improvement upon private ownership as it has existed in this or that +country. But these are not the real alternatives. The practical choice +is between private ownership as shown by experience and reason to be +capable of improvement, and some untried system which is subject to +grave defects, and which at its best would be probably inferior to +modified private ownership. An attempt to describe some of these +modifications and improvements will be made in a subsequent chapter. +In the meantime we content ourselves with the statement that private +land ownership is capable of becoming better than Socialism +certainly, and probably better than the Single Tax system. +Consequently it is justified not merely so long as neither of these +schemes is introduced, but as an institution which the State would do +well to maintain, protect, and improve. + +FOOTNOTES: + +[27] Cf. Chapter xi. + +[28] Ensor, "Modern Socialism," p. xxxi, N. Y., 1904. + +[29] Idem, pp. 213-216. + +[30] Cited by Spargo, "The Substance of Socialism," p. 88, N. Y., +1909. + +[31] Idem, p. 90. + +[32] "Progress and Poverty," book viii, ch. ii. + +[33] Cf. Walker, "Land and Its Rent"; and Seligman, "Essays in +Taxation." + + + + +CHAPTER V + +PRIVATE LANDOWNERSHIP A NATURAL RIGHT + + +The conclusions of the preceding chapter include the statement that +individuals are morally justified in becoming and remaining +landowners. May we take a further step, and assert that private +landownership is a natural right of the individual? If it is, the +abolition of it by the State, even with compensation to the owners, +would be an act of injustice. The doctrine of natural rights is so +prominent in the arguments of both the advocates and the opponents of +private landownership that it deserves specific treatment. Moreover, +the claim that private landownership is a natural right rests upon +precisely the same basis as the similar claim with regard to the +individual ownership of capital; and the conclusions pertinent to the +former will be equally applicable to the latter. + +A natural right is a right derived from the nature of the individual, +and existing for his welfare. Hence it differs from a civil right, +which is derived from society or the State, and is intended for a +social or civil purpose. Such, for example, is the right to vote, or +the right to hold a public office. Since a natural right neither +proceeds from nor is primarily designed for a civil end, it cannot be +annulled, and it may not be ignored, by the State. For example: the +right to life and the right to liberty are so sacred to the +individual, so necessary to his welfare, that the State cannot +rightfully kill an innocent man, nor punish him by a term in prison. + + +_Three Principal Kinds of Natural Rights_ + +Although natural rights are all equally valid, they differ in regard +to their basis, and their urgency or importance. From this point of +view, we may profitably distinguish three principal types. + +The first is exemplified in the right to live. The object of this +right, life itself, is intrinsically good, good for its own sake, an +end in itself. It is the end to which even civil society is a means. +Since life is good intrinsically, the right to life is also valid +intrinsically, and not because of consequences. Since there is no +conceivable equivalent for life in the case of any individual in any +contingency, the right to life is immediate and direct in all possible +circumstances. + +Among the natural rights of the second class, the most prominent are +the right to marry, to enjoy personal freedom, and to own +consumption-goods, such as food and clothing. The objects of these +rights are not ends in themselves, but means to human welfare. +Confining our attention to marriage, we see that membership in the +conjugal union is an indispensable means to reasonable life and self +development in the majority of persons. The only conceivable +substitutes are free love and celibacy. Of these the first is +inadequate for any person, and the second is adequate only for a +minority. Marriage is, therefore, _directly_ and _per se_ necessary +for the majority of individuals; for the majority it is an +_individual_ necessity. If the State were to abolish marriage it would +deprive the majority of an indispensable means of right and reasonable +life. Consequently the majority have a _direct_ natural right to the +legal power of marrying. + +In the case of the minority who do not need to marry, who can live as +well or better as celibates, the legal opportunity of marriage is +evidently not directly necessary. But it is necessary indirectly, +inasmuch as the _power of choice_ between marriage and celibacy is an +individual necessity. No argument is required to show that the State +could not decide this matter consistently with individual welfare or +social peace. Whence it follows that even the minority who do not wish +or do not need to marry, have a natural right to embrace or reject the +conjugal condition. In their case the right to marry is indirect, but +none the less inviolable.[34] + +Private ownership of land belongs in a third class of natural rights. +Inasmuch as it is not an intrinsic good, but merely a means to human +welfare, it differs from life and resembles marriage. On the other +hand, it is unlike marriage in that it is not _directly_ necessary for +any individual whatever.[35] The alternative to marriage, namely, +celibacy, would not even under the best social administration enable +the majority to lead right and reasonable lives. The alternative to +private landownership (and to private ownership of capital as well), +namely, some form of employment as wage receiver, salary receiver, or +fee receiver enables the individual to attain all the vital ends of +private ownership: food, clothing, shelter, security of livelihood and +residence, and the means of mental, moral, and spiritual development. +None of these vital ends or needs is essentially dependent upon +private ownership of land; for millions of persons satisfy them every +day without becoming landowners. Nor are they exceptions, as those who +can get along without marriage are exceptions. The persons who live +reasonable lives without owning land are average persons. What they do +any other person could do if placed in the same circumstances. +Therefore, private landownership is not directly necessary for the +welfare of any individual. + + +_Private Landownership Indirectly Necessary for Individual Welfare_ + +In our present industrial civilisation, however, private landownership +is _indirectly_ necessary for the welfare of the individual. It is +said to be indirectly necessary because it is necessary as a _social +institution_, rather than as something immediately connected with +individual needs as such. It is not, indeed, so necessary that society +would promptly go to pieces under any other form of land tenure. As we +have seen in the last chapter, it is necessary in the sense that it is +capable of promoting the welfare of the average person, of the +majority of persons, to a much greater degree than State ownership. It +is necessary for the same reason and in the same way as a civil police +force. As the State is obliged to maintain a police force, so it is +obliged to maintain a system of private landownership. As the citizen +has a right to police protection, so he has a right to the social and +economic advantages which are connected with the system of private +ownership of land. These rights are natural, derived from the needs of +the individual in society, not dependent upon the good pleasure of the +city or the State. They are individual rights to the presence and +benefits of these social institutions. + +But man's rights in the matter of land tenure are more extensive than +his rights with regard to a police force. They are not restricted to +the presence and functioning of a social institution. Every citizen +has a natural right to police protection, but no citizen has a natural +right to become a policeman. The welfare of the citizen is +sufficiently looked after when the members of the police are selected +by the authorities of the city. On the contrary, his welfare would not +be adequately safeguarded if the State were to decide who might and +who might not become landowners. In the first place, the ideal +condition is that in which _all_ persons can easily become actual +owners. In the second place, the mere legal opportunity of becoming +owners is a considerable stimulus to the energy and ambition of all +persons, even of those who are never able to convert it into an +economic opportunity. Therefore, only a very powerful reason of social +utility would justify the State in excluding any person or any class +from the legal power to own land. No such reason exists; and there are +many reasons why the State should not attempt anything of the sort. As +a consequence of these facts, every person, whether an actual owner or +not, has a natural right to acquire property in land. This right is +evidently a necessary condition of a fair and efficient system of +private ownership, which is in turn a necessary condition of +individual welfare. The right of private landownership is, therefore, +an indirect right; but it is quite as valid and quite as certain as +any other natural right. + +Now this right is certainly valid as against complete Socialism, which +includes State management and use, as well as State ownership. Is it +valid against the Single Tax system, or against such modified forms of +Socialism as would allow the individual to rent and use the land as an +independent cultivator with security of tenure? Would the introduction +of some such scheme in a country in which only a small minority of the +population were actual owners, constitute a violation of individual +rights? While we cannot with any feeling of certainty return an +affirmative answer to these questions, we can confidently affirm that +reform within the lines of private ownership would in the long run be +more effective, and, therefore, that the right of private ownership is +_probably_ valid even against these modified forms of common +ownership.[36] + + +_Excessive Interpretations of the Right of Private Landownership_ + +The indirect character of the right of private landownership, its +relativity to and dependence upon social conditions, is not always +sufficiently grasped by either its advocates or its opponents. In the +writings of the former we sometimes find language which suggests that +this right is as independent of social conditions as the right to +marriage or the right to life. "The State has no right to abolish +private property [in land] because private property is not a social +right, but an individual right derived from nature, not derived from +the State." It exists for _human_ welfare, not merely for _civil_ +welfare.[37] The only defect in this reasoning is that the premises do +not justify the conclusion. Undoubtedly the State may not abolish +private ownership, _so long as it is necessary for human or individual +welfare_; but, when this necessity ceases, the moral justification of +the institution likewise disappears. The institution may then be +abolished, somehow, by some agency, without any violation of +individual rights. Why may not the task of abolition be performed by +the State? No other agency is available. The assertion that the State +is incompetent to decide whether the institution of private ownership +has outlived its usefulness, is entirely gratuitous; besides, it +implies that a small minority of selfishly interested persons may +justly require the continuation of a system of land tenure which has +become harmful to the overwhelming majority of the community. Extreme +defences of the right of private landownership are largely +responsible for the misconceptions of many of its opponents. +Occasionally the latter represent this right as an _a priori_ +monstrosity which is serenely independent of the facts of life and +industry. While such persons are at liberty to reject the +interpretations of facts contained in the preceding paragraphs, they +cannot reasonably deny the logic of the process which has led to the +conclusion that the individual has a natural right to own land. + +So much for the natural right of landownership as seen in the light of +reason. Let us now consider it briefly from the side of doctrinal +authority, namely, the writings of the Fathers and Theologians of the +Church, and the formal pronouncements of the Popes. + + +_The Doctrine of the Fathers and Theologians_ + +Some of the Church Fathers, particularly Augustine, Ambrose, Basil, +Chrysostom, and Jerome, denounced riches and the rich so severely that +they have been accused of denying the right of private ownership. The +facts, however, are that none of the passages upon which this +accusation is based proves it to be true, and that in numerous other +passages all of these writers explicitly affirm that private ownership +is lawful.[38] Speaking generally, we may say that they taught the +moral goodness of private ownership without insisting upon its +necessity. Hence they cannot be cited as authorities for the doctrine +that the individual has a natural right to own land. + +Some of the great theologians of mediæval and post-mediæval times +denied this right, inasmuch as they denied that the institution of +private ownership was imposed or commanded by the natural law. Among +them are Scotus,[39] Molina,[40] Lessius,[41] Suarez,[42] +Vasquez,[43] and Billuart.[44] Since private ownership is not +absolutely necessary to human welfare in all forms of society, it +cannot, in their view, be regarded as strictly prescribed by the +natural law, nor be instituted without the positive action of civil +authority, or the consent of the community. Nevertheless they all +admit that it is much better than common ownership in contemporary +societies. The difference between their position and that of de Lugo, +for example, seems to be two-fold: First, they put stronger emphasis +upon the doctrines that the earth belongs to all men in common, that +in the absence of original sin ownership would likewise have been +common, and that this arrangement is therefore in a fundamental sense +normal, agreeing with nature and the natural law; and, second, they +put a lower estimate upon the superiority of private ownership even in +contemporary conditions. In a word, they denied that private ownership +was so much better than any alternative system as to confer upon the +individual a natural right in the strict sense; that is, a right which +laid upon the State the correlative obligation of maintaining the +institution of private landownership. + +On the other hand, many of the ablest theologians of the same period +declared that private ownership was enjoined by the natural law and +right reason, and consequently that it was among the individual's +natural rights. According to St. Thomas Aquinas, private property is +"necessary for human life," and is one of those social institutions +which are prescribed by the _jus gentium_; and the content of the _jus +gentium_ is not determined by positive law, but by the dictates of +"natural reason," by "natural reason itself."[45] These statements +seem to convey the doctrine of natural right as clearly as could be +expected in the absence of an explicit declaration. Cardinal de Lugo +sets forth the same teaching somewhat more compactly, but in +substantially the same terms: "Speaking generally, a division of goods +and of ownership-titles proceeds from the law of nature, for natural +reason dictates such division as necessary in the present +circumstances of fallen nature and dense populations."[46] This view +is to-day universally accepted among Catholic writers. + + +_The Teaching of Pope Leo XIII_ + +The official teaching of the Church on the subject is found in the +Encyclical, "On the Condition of Labour," by Pope Leo XIII. In this +document we are told that the proposals of the Socialists are +"manifestly against justice"; that the right of private property in +land is "granted to man by nature"; that it is derived "from nature +not from man, and the State has the right to control its use in the +interest of the public good alone, but by no means to abolish it +altogether." These statements the Pope deduces from a consideration of +man's needs. Private property in land is necessary to satisfy the +wants, present and future, of the individual and his family. Were the +State to attempt the task of making this provision, it would exceed +its proper sphere, and produce manifold domestic and social confusion. + +While Pope Leo defines the natural right of private ownership as +incompatible with complete Socialism, that is, collective use as well +as collective ownership, his statements cannot fairly or certainly be +interpreted as condemning the Single Tax system, or any other +arrangement which would leave to the individual managerial use and +secure possession of his holding, together with the power to transmit +and transfer it, and full ownership of improvements. These are the +only elements of ownership which the Holy Father defends, and which he +insists upon as necessary. The one element of private ownership which +the Single Tax system would exclude; namely, the power to take rent +from and profit by the changes in land values, finds no place among +the advantages of private ownership enumerated in the Encyclical. + +There is, indeed, one passage of the Encyclical in which Pope Leo +seems to allude to the Single Tax, or to some similar proposal. He +expresses his amazement at those persons who "assert that it is right +for private persons to have the use of the soil and its various +fruits, but that it is unjust for any one to possess outright either +the land on which he has built, or the estate which he has brought +under cultivation. But those who deny these rights do not perceive +that they are defrauding man of what his own labour has produced. For +the soil which is tilled and cultivated with toil and skill utterly +changes its conditions: it was wild before, now it is fruitful; was +barren, but now brings forth in abundance. That which has thus altered +and improved the land becomes so truly a part of itself as to be in +great measure indistinguishable and inseparable from it. Is it just +that the fruit of a man's own labour should be possessed and enjoyed +by any one else? As effects follow their cause, so is it just and +right that the results of labour should belong to those who have +bestowed their labour." + +In this passage we find two principal statements: first, that those +persons are in error who declare full private ownership of land to be +unjust; and, second, that it is wrong to deprive a man of the +improvements which he makes in the soil. Now the first of these +propositions does not touch the Single Tax system as such; it only +condemns the assertion of Henry George that private ownership is +essentially unjust. It is directed against one of the arguments for +the system, not against the system itself. More specifically, it is a +refutation of an argument against private land ownership, rather than +a positive attack upon any other system. It could be accepted by any +Single Taxer who does not agree with Henry George that the present +system is essentially unjust. The second proposition does not apply to +the Single Tax system at all; for the latter would concede to the +individual holder the full ownership and benefit of improvements; and +it could easily be so administered as to protect him against injury in +any case in which improvement values were not exactly and clearly +distinguishable from land values. + +While Henry George opposed the doctrines of the Encyclical in his +"Open Letter to Pope Leo XIII," all his arguments are directed against +the proposition that private ownership is right and just. The "Letter" +is an attack upon private ownership rather than a defence of the +Single Tax. Apparently its author did not find that Pope Leo condemned +any positive or essential element of the Single Tax as a proposed +system of land tenure. + +If the rejoinder be made that Pope Leo could have had no other group +of persons in mind than the Single Taxers, when he wrote the paragraph +quoted above, our answer must be that he did not definitely identify +them, either by naming them, as he named the Socialists, or by any +other sufficiently explicit designation. Applying to this paragraph +the customary and recognised rules of interpretation, we are obliged +to conclude that it does not contain an explicit condemnation of the +Single Tax system. + +To put the substance of this chapter in two sentences: Private +landownership is a natural right because in present conditions the +institution is necessary for individual and social welfare. The right +is certainly valid as against complete Socialism, and probably valid +as against any such radical modification of the present system as that +contemplated by the thoroughgoing Single Taxers. + +FOOTNOTES: + +[34] The marriage rights of criminals, degenerates, and other socially +dangerous persons, are passed over here as not pertinent to the +present discussion. For the same reason nothing is said of the +perfectly valid _social_ argument in favour of the individual right of +marriage. + +[35] Cf. Vermeersch, "Quaestiones de Justitia," no. 204. + +[36] The argument in the text is obviously empirical, drawn from +consequences. There is, however, a putatively intrinsic or +metaphysical argument which is sometimes urged against the justice of +the Single Tax system. It runs thus: since the fruits of a thing +belong to the owner of the thing, "res fructificat domino," rent, +which is the economically imputed fruit of land, necessarily and as a +matter of natural right should go to the owner of the land. As will be +shown later, the formula at the basis of this contention is not a +metaphysical principle at all, but a conclusion from experience. Like +every other formula or principle of property rights, it must find its +ultimate basis in human welfare. + +[37] Liberatore, "Principles of Political Economy," pp. 130, 134. + +[38] Cf. Vermeersch, op. cit., no. 210; Ryan, "Alleged Socialism of +the Church Fathers." + +[39] "In IV Sent.," d. 15, q. 2, n. 5; and "Reportata parisiensia," d. +15, q. 4, n. 7-12. + +[40] "De Justitia et Jure," tr. 2, d. 18 and 20. + +[41] "De Justitia et Jure," c. 5, n. 3. + +[42] "De Legibus," l. 2, c. 14, n. 13 and 16. + +[43] "In Summa," 1ma 2ae, d. 157, n. 17. + +[44] "De Justitia et Jure," d. 4, a. 1. + +[45] "Summa Theologica," 2a 2ae, q. 57, a. 2 and 3. + +[46] "De Justitia et Jure," d. 6, s. 1, n. 6. + + + + +CHAPTER VI + +LIMITATIONS ON THE LANDOWNER'S RIGHT TO RENT + + +The chapters immediately preceding have led to the conclusion that +private ownership is the best system of land tenure, and that the +individual has a natural right to participate in its advantages. +Although this system confers upon the individual owner the power to +take the rent of the land, we are not logically debarred from raising +the question whether this power is a necessary part of the moral +rights of landownership. Does the right to own a piece of land +necessarily include the right to take its rent? By what ethical +principle of distribution is the landowner justified in appropriating +a revenue in return for which he has performed no labour, nor made any +sacrifice? This is unquestionably what happens when a man hires out +his land to another. And in conditions of perfect competition, those +owners who operate their own land are fully remunerated for their +labour in the form of profits. Over and above this sum they receive +rent, the payment that they could get from the land if they were to +let its use to tenants. In the normal situation, therefore, rent is a +workless income. On what moral ground may it be taken by the +landowner?[47] + +The fact that we have rejected the Single Tax and the confiscation of +rent by the community, does not of itself commit us to the conclusion +that the private owner has a moral right to receive rent. We have +condemned the State appropriation of rent on the assumption that it +would take place without a similar confiscation of interest. Such +discrimination would be grossly unfair; for it would cause land values +to sink to zero, while leaving the value of capital substantially +undisturbed. To carry out such a programme would be to treat property +owners unequally, to penalise one set of beneficiaries of "workless" +incomes, while leaving another set untouched. Consequently, the State +is not justified in confiscating rent unless it is justified in +confiscating or prohibiting interest; and the landowner is as fully +justified in taking rent as the capital owner is in taking interest. +The contention of the Single Taxer that ownership of the former kind +is morally wrong, while ownership of capital is morally legitimate, +has already received sufficient discussion. The specific question +remains, therefore,--whether the landowner and the capitalist are +justified in receiving and retaining their "workless" incomes. + +Inasmuch as the principles and pertinent facts involved in this +question can be more effectively and more conveniently discussed in +relation to interest than in relation to rent, the solution will be +deferred to the chapters on interest. Assuming provisionally that the +outcome of the discussion will be favourable to the claims of the +landowner, let us inquire whether he always has a moral right to _all_ +the rent. The parallel question regarding the capitalist will be +considered in connection with the right of the labourer to a living +wage. + + +_The Tenant's Right to a Decent Livelihood_ + +The actual payments made by tenants to landowners sometimes leave the +former without the means of decent living. Such had been the condition +of a large part of the Irish tenant farmers before 1881, when the Land +Courts were established. In the course of twenty-five years these +courts reduced the rents by twenty per cent. on the average in upwards +of half a million cases. While a part of the reductions was intended +to free the tenants from the unjust burden of paying rent on their own +improvements, another part was undoubtedly ordered on the theory that +the tenants were entitled to retain a larger share of the product for +their own support. Yet the latter portion of the reduction apparently +represented true economic rent; for it was included in the difference +between the product and the current cost of production; it was +included in the amount that men in Ireland were willing to pay for the +use of land. It was a part of the surplus that they had left after +defraying their expenditures for capital and labour. To be sure, the +tenants in some other countries, say, the United States, would not +have been satisfied with such a small remuneration, and would not have +handed over so much to the landlord; but if the concept of economic +rent is to have any serviceable meaning it must be determined by the +actual returns to capital and labour in each locality, and not by the +standards of some other place which are assumed to be normal. In any +case, the Irish Land Courts did reduce the rents below the level fixed +by competition, by the unregulated forces of supply and demand. + +Was this treating the landlords justly? May a tenant ever retain a +part of the rent which the free course of competition would yield to +the landowner? Here we must distinguish between the tenant who is and +the tenant who is not in possession of a holding sufficiently large to +require all the time and labour of a cultivator possessing average +efficiency. The tenant who controls and cultivates less than this +amount of land ought not to expect to get all his livelihood +therefrom. Failure to do so would not necessarily mean that he was +paying exorbitant rent. Holdings of this sort are rightly called +"uneconomic"; that is, they are too small to permit a profitable and +reasonable application of labour and capital. On such holdings the +fair rent would be that amount per acre which would be regarded as +fair for the use of the same land held in farms of "economic" size. +The proper recourse for the occupiers of uneconomic holdings is to get +control of more land, which is exactly what has been happening in +Ireland through the action of the Congested Districts Board. + +This brings us to the case of the man who cannot pay the competitive +rent on a holding of normal size, and have sufficient left to provide +himself and family with a decent livelihood. The fundamental reason why +the rent is so high is to be found in the economic weakness of the +great mass of the tenants, who can neither emigrate to another country +nor get a better living as wage earners in their own. Their predicament +is exactly the same as that of the helpless and unskilled labourers who +are compelled by the force of competition to accept less than living +wages. In these circumstances it seems clear that a government +commission would be justified in reducing the rents to such a level as +would leave the tenants of average efficiency on normal holdings the +means of maintaining a decent standard of living. In such cases, then, +the landowner has not a right to the full economic or competitive rent. +His right thereto is morally inferior to the tenant's right to a decent +livelihood, just as the capitalist-employer's right to the prevailing +rate of interest is morally inferior to the labourer's right to a +living wage. Neither in the one case nor in the other is mere +competition the final determinant and measure of justice. It has no +moral validity when it comes into conflict with man's natural right to +get a reasonable livelihood on reasonable conditions from the bounty of +the earth. These fundamental questions will be discussed at length in +the chapters on wages. + +To the possible objection that the concept of a "normal" holding is +vague, the sufficient reply is that in practice it can be estimated +with as much definiteness as the concept of the "average" labourer. As +we see from the history of the Irish Land Courts and their "Judicial +Rents," it can be defined with sufficient accuracy to serve the ends +of practical justice. More than this is not attained in any department +of human relations, particularly, economic relations. + + +_The Labourer's Claim Upon the Rent_ + +Should any part of the rent go to the labourer? Let us take first the +case of the labourer who is employed by a tenant, and who is not +occupied in personal service but in some productive task connected +with the land. Like all other wage earners he has a right to a +sufficient share of the product to afford him a decent livelihood. +Since the tenant is the employer, the director of the business, and +the owner of the product, he rather than the landowner is the person +who is primarily charged with the obligation of providing the labourer +with a living wage. As noted above, his own claim to a decent +livelihood is morally superior to the landlord's claim to rent; but +if, having taken this amount from the product, he finds himself unable +to pay living wages to all his employees unless he deducts something +either from the normal interest-return on his own capital or from the +rent that would ordinarily go to the landowner, he is morally bound to +choose the former course. He, not the landowner, is the wage payer. +That he is obliged to provide living wages to his labour force even +at the cost of interest on his own investment in the business, is a +proposition that will receive ample discussion and defence in a later +chapter.[48] + +Suppose, however, that the tenant has not the means of paying full +living wages after turning into the wage fund all the money that he +had hoped to retain as interest on his capital. May he withhold from +the landowner a sufficient portion of the rent to cover the deficit in +wages? Were this action practicable it would be undoubtedly +justifiable; for the landowner's claim to rent is no stronger than the +tenant-capitalist's claim to interest. As claims upon the product, +both are morally weaker than the labourer's right to a living wage. +Nevertheless, the tenant who should attempt to carry out this course +would probably be prosecuted for non-fulfilment of his contract with +the landowner, or would be evicted from the holding. Nor is the +landowner obliged in such cases to give up the rent in order that a +living wage may be paid to the tenant's labour force. He cannot be +certain that the failure of the latter to receive full living wages +has not been due to inefficiency or fraudulent conduct on the part of +the tenant. Moreover, the landowner would be justified in seeking to +protect himself against the recurrence of such situations by putting +his land in charge of a more capable tenant, or by selling it and +investing or lending the money elsewhere. However clear may be the +abstract proposition that the claim to a living wage possessed by the +employee of the tenant is superior to the claim to rent possessed by +the landowner, the difficulty of realising this right in practice is +sufficient to relieve even conscientious proprietors from the +obligation of giving up the rent for this purpose. + +When the landowner is operating or cultivating his land himself, he is +evidently obliged to pay a living wage to all his employees at the +expense of rent, just as he is obliged to do so at the cost of +interest on his artificial capital. To be sure, the first charge upon +the product should be a decent livelihood for himself; but, when he +has obtained this, the right of his employees to a living wage is +morally superior to his right to either rent or interest. + +At present the State takes a part of the rent through taxation. May it +take a larger share without violating justice? This question will be +considered in the second chapter following. In the meantime, we shall +examine the principal defects of the existing system of land tenure +with a view to the suggestion of appropriate remedies, whether through +taxation or otherwise. + +FOOTNOTES: + +[47] The assumption that perfect competition is even roughly +approximated in relation to men who operate their own land, and that +they generally obtain an adequate return for their labour in addition +to the sum that they might have obtained through hiring out their +land, may appear rather violent in view of the estimate that the +average farmer in the United States gets only $402 annually in payment +for the labour of himself and family. See article on "The Farmer's +Income" in the _American Economic Review_, March, 1916. However, this +income is mostly in the form of food, fuel, and shelter, which would +cost very much more in the city; consequently it is probably +equivalent to an urban income of $600. Its value is still further +enhanced by the farmer's independent position, and by his expectation +of profiting by the future increase of land values. Hence it would +seem that the rent and interest allowance of $322 might fairly be +regarded as a surplus in excess of the necessary payment for labour. + +[48] Chapter xxii. + + + + +CHAPTER VII + +DEFECTS OF THE EXISTING LAND SYSTEM + + +Starting from the principle that the rightness or wrongness of any +system of land tenure is determined not by metaphysical and intrinsic +considerations, but by the effects of the institution upon human +welfare, we arrived at the conclusion that private landownership is +not unjust, so long as no better system is available. By the same test +of human welfare we found that it would be wrong to substitute a +better system through the process of confiscating rent, while leaving +interest undisturbed. A further step brought us to the conclusion that +complete Socialism would certainly, and the complete Single Tax +probably, be inferior to the present system. As a sort of corollary, +the social and moral superiority of private landownership was stated +in terms of natural rights. Finally, the question was raised whether +the landowner has a right to take rent, and to take all the rent. + +In stating the superiority of the present system, we explicitly noted +that we had in mind the system as capable of improvement. This implied +that there are defects in the present form of land tenure, and that +these can be eliminated in such a way as to make the system more +beneficial and more in harmony with the principles of justice. In the +present chapter we shall give a summary review of the principal +defects, and in the following chapter we shall suggest some methods of +reform. All the defects and abuses may conveniently be grouped under +three heads: Monopoly; Excessive Gains; and Exclusion from the Land. + + +_Landownership and Monopoly_ + +In the literature of the Single Tax movement the phrase, "land +monopoly," is constantly recurring. The expression is inaccurate; for +the system of individual landownership does not conform to the +requirements of a monopoly. There is, indeed, a certain resemblance +between the control exercised by the owner of land and that possessed +by the monopolist. As the proprietor of every superior soil or site +has an economic advantage over the owner of the poorest soil or site, +so the proprietor of a monopolistic business obtains larger gains than +the man who must operate in conditions of competition. In both cases +the advantage is based upon the scarcity of the thing controlled, and +the extent of the advantage is measured by the degree of scarcity. + +Nevertheless, there is an important difference between landownership +and monopoly. The latter is usually defined as that degree of unified +control which enables the persons in control arbitrarily to limit +supply and raise price. As a rule, no such power is exercised by +individuals, or by combinations of individuals with regard to land. +The pecuniary advantage possessed by the landowner, that is, the power +to take rent, is conferred and determined by influences outside of +himself, by the natural superiority of his land, or by its proximity +to a city. He can neither diminish the amount of land in existence nor +raise the price of his own. The former result is inhibited by nature; +the latter by the competition of other persons who own the same kind +of land. To be sure, there are certain kinds of land which are so +scarce and so concentrated that they do fall under true monopolistic +control. Such are the anthracite coal mines of Pennsylvania, and some +peculiarly situated plots in a few great cities, for example, land +that is desired for a railway terminal. But these instances are +exceptional. The general fact is that the owners of any kind of land +are in competition with similar owners. While the element of scarcity +is common to landownership and to monopoly, it differs in its +operation. In the case of monopoly it is subject, within limits, to +the human will. This difference is sufficiently important, both +theoretically and practically, to forbid the identification or +confusion of landownership with monopoly. + +A notable illustration of such confusion is the volume by Dr. F. C. +Howe, entitled, "Privilege and Democracy in America." He maintains +that bituminous coal, copper ore, and natural gas are true monopolies, +but gives no adequate proof to support this assertion. Moreover, he +exaggerates considerably the part played by landownership in the +formation of industrial monopolies. Thus, his contention that the +petroleum monopoly is due to ownership of oil-producing lands is +certainly incorrect; for the Standard Oil Company (or companies) has +never controlled as much as half the supply of raw material. "The +power of the Standard does not rest upon a direct monopoly of the +production of crude oil through ownership of the wells."[49] Perhaps +the most remarkable misstatement in the volume is this: "The railway +is a monopoly because of its identity with land."[50] Now there are a +few important railway lines traversing routes or possessing terminal +sites which are so much better than any alternative routes or sites as +to give all the advantages of a true monopoly. But they are in a small +minority. In the great majority of cases, a second parallel strip or +parallel site could be found which would be equally or almost equally +suitable. Neither the amount nor the kind of land owned by a railroad, +nor its legal privilege of holding land in a long, continuous strip, +is the efficient cause of a railway monopoly. To attribute the +monopoly to land is to confound a condition with a cause. One might as +well say that the land underlying the "wheat king's" office is the +cause of his corner in wheat. It is true that in a few of the great +cities the existing railroads may, through their ownership of all the +suitable terminal sites, prevent the entrance of a competing line. In +the first place, such instances are rare; in the second place, the +fact that there are several roads already in existence shows that +competition was possible without the entrance of another one. The +influence impelling them to form a monopoly for the regulation of +charges is not their ownership of terminal sites. No sort of uniform +action with regard to terminals would produce any such effect. The +true source of the monopoly element in railways is inherent in the +industry itself. It is the fact of "increasing returns," which means +that each additional increment of business is more profitable than the +preceding one, and that in most cases this process can be kept up +indefinitely. As a consequence, each of two or more railroads between +two points strives to get all the traffic; then follows unprofitable +rate cutting, and finally combination.[51] The same forces would +produce identical results if railroad tracks and terminals were +suspended in the air. + +Dr. Howe asserts that the monopolistic character of such public +utility corporations as street railways and telephone companies is due +to their occupation of "favoured sites."[52] How can this be true, +when it is possible to build a competing line on an adjoining and +parallel street? If the city forbids this, and gives an exclusive +franchise to one company, this legal ordinance, and not any +exceptional advantage in the nature of the land occupied, is the +specific cause of the monopoly. If the city permits a competing line, +and if the two lines sooner or later enter into a combination, the +true source and explanation are to be found in the fact of increasing +returns. Combination is immeasurably more profitable than cut-throat +competition. Moreover, the evils of public service monopolies can be +remedied through public control of charges and through taxation. +Neither in railroads nor in public utilities is land an impelling +cause of monopoly, or a serious hindrance to proper regulation. + +Most of Dr. Howe's exaggerations of the influence of land upon +monopoly take the form of suggestion rather than of specific and +direct statement. When he attempts in precise language to enumerate +the leading sources of monopoly, he mentions four; namely, land, +railways, the tariff, and public service franchises.[53] Nor is he +able to prove his assertion that of these the most important is land. + +Nevertheless, land is one of the foremost causes. The most prominent +examples of land monopoly in this country are the anthracite coal +mines and the iron ore beds. Fully ninety per cent. of our anthracite +coal supply (exclusive of Alaska) is under the control of eight +railway systems which in this matter act as a unit.[54] According to +Dr. Howe, the excessive profits reaped from this monopolistic control +amount to between one hundred and two hundred million dollars +annually.[55] In other words, the consumers of anthracite coal must +pay every year that much more than they would have expended if the +supply had not been monopolised. On the other hand, the formation of +monopoly would have been much more difficult if the railroads had been +legally forbidden to own coal mines. As things stand, railway monopoly +is an important cause of the anthracite coal monopoly. Some +authorities are of the opinion that a similar condition of monopoly +will ultimately prevail in the bituminous coal mines. Iron ore has +been brought under the control of the United States Steel Corporation +to such an extent that the Commissioner of Corporations writes: +"Indeed, so far as the Steel Corporation's position in the entire iron +and steel industry is of a monopolistic character, it is chiefly +through its control of ore holdings and the transportation of +ore."[56] From this statement, however, it is evident that the +monopoly depends upon control of transportation as well as upon +ownership of the ore beds. If the former were properly regulated by +law, the latter would not be so effective in promoting monopoly. + +Speaking generally, we may say that when a great corporation controls +a large proportion of the raw material entering into its manufactured +products, such control will supplement and reinforce very materially +those other special advantages which make for monopoly.[57] Prominent +examples are to be found in steel, natural gas, petroleum, and water +powers. In his "Report on Water Power Development in the United +States," the Commissioner of Corporations (March 14, 1912) declared +that the rapidly increasing concentration of control might easily +become the nucleus of a monopoly of both steam and water power. Ten +great groups of interests, he said, already dominated about sixty per +cent. of the developed water power, and were pursuing a policy +characterised by a large measure of agreement.[58] As a rough +generalisation, it would be fair to say that in one or two instances, +at least, landownership is the chief basis, and in several other cases +an important contributory cause of monopoly. + +Even an approximately accurate estimate of the amount of money which +consumers are compelled to pay annually for the products of such +concerns over and above what they would pay if the raw material were +not wholly or partially monopolised, is obviously impossible. It may +possibly run into hundreds of millions of dollars. + + +_Excessive Gains from Private Landownership_ + +The second evil of private landownership to be considered here, is the +general fact that it enables some men to take a larger share of the +national product than is consistent with the welfare of their +neighbours and of society as a whole. As in the matter of monopoly, +however, so here, Single Tax advocates are chargeable with a certain +amount of overstatement. They contend that the landowner's share of +the national product is constantly increasing, that rent advances +faster than interest or wages, nay, that all of the annual increase in +the national product tends to be gathered in by the landowner, while +wages and interest remain stationary, if they do not actually +decline.[59] + +The share of the product received by any of the four agents of +production depends upon the relative scarcity of the corresponding +factor. When undertaking ability becomes scarce in proportion to the +supply of land, labour, and capital, there is a rise in the +remuneration of the business man; when labour decreases relatively to +undertaking ability, land, and capital, there is an increase in wages. +Similar statements are true of the other two agents and factors. All +these propositions are merely particular illustrations of the general +rule that the price of any commodity is immediately governed by the +movement of supply and demand. In view of this fact, it is not +impossible that rent might increase to the extent described in the +preceding paragraph. All that is necessary is that land should become +sufficiently scarce, and the other factors sufficiently plentiful. + +As a fact, the supply of land is strictly limited by nature, while +the other factors can and do increase. There are, however, several +forces which neutralise or retard the tendency of land to become +scarce, and of rent to rise. Modern methods of transportation, of +drainage, and of irrigation have greatly increased the supply of +available land, and of commercially profitable land. During the +nineteenth century, the transcontinental railroads of the United +States made so much of our Western territory accessible that the value +and rent of New England lands actually declined; and there are still +many millions of acres throughout the country which can be made +productive through drainage and irrigation. In the second place, every +increase of what is called the "intensive use" of land gives +employment to labour and capital which otherwise would have to go upon +new land. In America this practice is only in its infancy. With its +inevitable growth, both in agriculture and mining, the demand for +additional land will be checked, and the rise in land values and rents +be correspondingly diminished. Finally, the proportion of capital and +labour that is absorbed in the manufacturing, finishing, and +distributive operations of modern industry is constantly increasing. +These processes call for very little land in comparison with that +required for the extractive operations of agriculture and mining. An +increase of one-fifth in the amount of capital and labour occupied in +growing wheat or in taking out coal, implies a much greater demand for +land than the same quantity employed in factories, stores, and +railroads.[60] + +As a consequence of these counteracting influences, it appears that +the share of the landowners has not increased disproportionately. The +most comprehensive endeavour yet made to determine the growth and +relative size of the different shares of the national product is +embodied in Professor W. I. King's volume, "The Wealth and Income of +the People of the United States," published in 1915. It estimates +that the total annual income of the nation increased from a little +less than two and one-fourth billions of dollars in 1850 to a little +more than thirty and one-half billions in 1910, or slightly more than +fifteen times. During the same period rent, the share of the +landowners, advanced from $170,600,000 to $2,673,900,000, or about +fifteen and three quarter times. In the year 1910, therefore, the +landowners were receiving but a very small fraction more of the +national product than their predecessors obtained sixty years +earlier.[61] As to the relative size of the shares going to the +different factors in 1910, the figures are even more remarkable. Wages +and salaries absorbed 46.9 per cent.; profits, 27.5 per cent.; +interest, 16.8 per cent.; and rent, only 8.8 per cent.[62] This was +exactly the same per cent. that the landowners received in 1860. To be +sure, these figures are only approximations, but they are probably the +most reliable that can be obtained from our notoriously incomplete +statistics, and they will deserve respectful consideration until they +have been refuted by specific criticism and argument. In the opinion +of their compiler: "The figures for wages and salaries are believed to +be fairly accurate; those for rent are thought to have an error of not +more than twenty per cent. The separation of the share of capital from +that of the entrepreneur is very crudely done and no stress should be +laid on the results. The total for all shares is thought to be more +accurate than the mode of distribution, and for the last three census +years should come within ten per cent. of the correct statement of the +national income. For earlier years the error should not be over twenty +per cent. at the outside."[63] If we make the maximum allowance for +error in reference to the share of the landowner, and assume that the +rent estimate is twenty per cent. too low, we find that it was still +only ten and one-half per cent. of the total product in 1910, which +represents an increase of less than three per cent. since 1850. It is +significant that Dr. Howe, who has no bias toward belittling the share +of the landowner, suggested as his minimum and maximum estimates of +the land values of the country in 1910 figures which are respectively +fifty per cent. below and only five per cent. above the amount taken +by Professor King as the basis for his estimate of rent.[64] There is, +consequently, a strong presumption that Professor King is right when +he stigmatises as "absurd" the contention of the Single Taxer, "that +all the improvements of industry result only in the enrichment of the +landlord.... The value of our products has increased since 1850 to the +extent of some twenty-eight billions of dollars, while rent has gained +less than three billions. Evidently it has captured but a meagre part +of the new production."[65] + +There are strong indications, however, that the per cent. of the +product going to the owners of land has increased considerably in the +last twenty years, and that this movement will continue indefinitely. +According to Professor King's calculations, the per cent. of the total +product assignable as rent advanced from 7.8 in 1900 to 8.8 in 1910, +which meant that during that period the national income increased only +70 per cent., while the share of the landowner increased 91 per +cent.[66] It is true that a disproportionate advance in rent has +occurred between other census years, only to be neutralised by +subsequent decreases; but the present instance seems to include +certain features which did not characterise any of the former gains in +the relative share of the landowner. Since 1896 the prices of food +products "rose most rapidly in the case of meat, dairy products, and +cereals, which were derived directly from the land. The prices of raw +materials show a like relation. Timber, grain, and other raw materials +obtained directly from the land have risen rapidly in price, while +semi-manufactured articles have increased less rapidly, or have +decreased in price.... There is no parallel in any other field to the +advance in those land values upon which civilisation most directly +depends--timber lands, fertile agricultural land, and land in large +commercial and industrial centres. The recent rise in land values has +been little short of revolutionary."[67] + +Between 1900 and 1910 the value of farm lands _per acre_ in the United +States advanced 108.1 per cent.[68] During the eight years beginning +with July 1, 1906, the value of land in Greater New York increased +something more than one-third; in the principal cities of New Jersey, +and in Worcester, Washington, Boston, and Buffalo, somewhat less; in +Springfield and Holyoke, considerably more. In the most recent ten +years for which figures are available (since 1900 in every case) the +land values of Milwaukee, St. Louis and San Francisco averaged only a +slight degree of expansion, while those of Kansas City doubled, and +those of Houston, Dallas, Los Angeles, and Seattle trebled. To quote +Professor Nearing, from whose compilations these estimates have been +summarised: "The total extent of the increase in American city land +values may be hinted at rather than stated with any certainty. The +scattering instances in which land and improvements are separately +assessed led to the conclusion that in a large, well-established city, +growing at approximately the same rate as the other portions of the +United States, the land value is doubling in from ten to twenty-five +years. In the new, rapidly growing city of the middle and far West and +in some of the smaller cities of the East, the ratio of increase in +land values is far greater, amounting to two-fold or even three-fold +in a decade. In a few instances the rate of increase is much smaller, +and in one case, Jersey City, land values over a period of seven years +have actually decreased.... Nevertheless, the few available long range +figures indicate a widespread and considerable increase in American +city land values."[69] + +The rise in the value of timber lands during the last thirty years has +been, in the words of the federal investigators, "enormous." For the +ten-year period ending in 1908, "the value of a given piece of +southern pine taken at random is likely to have increased in any ratio +from three-fold to ten-fold." About the same ratio of increase +obtained in the Pacific Northwest, and a somewhat smaller increase in +the region of the Great Lakes.[70] While a considerable decline has +taken place since 1908, it is only temporary; for the demand for +timber is notoriously increasing several times as fast as the supply. + +That this upward movement in the value of all three kinds of land will +continue without serious interruption, seems to be as nearly certain +as any economic proposition that is dependent upon the future. +Although millions of acres of arable lands are still unoccupied in the +United States and Canada, the far greater part of them require a +comparatively large initial outlay for draining, clearing, irrigation, +etc., in order to become productive. Hence there is no likelihood that +they can be brought under cultivation fast enough to halt or greatly +retard the advancing values which follow upon the growth of population +and the increased demand for agricultural products. In all probability +the greater part of them will not come into use until the prices of +farm products have risen above the present level. Obviously this +supposes an increase in the value of all farm land, old and new. Nor +is the adoption of better methods of farming likely to check seriously +the upward movement. Between 1900 and 1910 the urban population of +America increased 34.8 per cent., as against a gain of only 21 per +cent. in the total population. This disproportionate growth in the +number of the city dwellers will if continued make certain what is in +any case extremely probable, a steady and considerable advance in +urban land values and rents. + +The circumstance that these remarkable increases in land values are a +comparatively recent phenomenon has prevented them from receiving the +attention that they deserve, either from the general public or from +the students of economic and social problems. The total value of the +land of the country has increased steadily from decade to decade, but +so has the total value of capital, and even between 1900 and 1910 the +increase in the share of the capitalist was exactly equal to the +increase in the share of the landowner, that is, 91 per cent.[71] +Those persons who complacently make such comparisons overlook the new +and significant feature of the more recent advances in land value; +namely, that they are due in only a slight degree to an expansion of +the _area_ of land under consideration. The increases of value quoted +in the foregoing paragraphs are increases _per acre_ and _per urban +lot_, not increases derived from bringing new land under cultivation +or new tracts within municipal limits. On the other hand, the +increases in the value of capital, now as always, represent for the +most part concrete additions to the existing stock of productive +instruments. Except where monopoly holds sway, particular capital +instruments, unlike particular pieces of land, do not increase in +value. Hence the owner of a given amount of capital does not profit by +the advance in the total value of capital as the owner of the average +parcel of land profits by the general increase in the value of land. +This means that all those consumers of products who are not +landowners must pay an increasing tribute to those who are landed +proprietors. + +So much for the _proportion_ of the national product which goes to the +landowning class. Let us next inquire how the landowner's share, or +rent, is distributed throughout the population. If it were equally +divided among all persons, its increase relatively to the shares of +the other factors would, from the social viewpoint, be a matter of +considerable indifference. On the other hand, if it is secured by a +minority of the population, and if that minority tends to become +smaller as the share itself becomes larger, we have a socially +undesirable condition. + +In the twenty years between 1890 and 1910, the proportion of farm +families in the United States owning farm land, mortgaged or +unmortgaged, declined from 65.9 per cent. to 62.8 per cent.; the +proportion of urban families owning their homes, encumbered or +unencumbered, increased from 36.9 to 38.4 per cent., and the +proportion of all families owning homes, encumbered or unencumbered, +fell from 47.8 to 45.8 per cent. Of the homes owned by their +occupiers, 28 per cent. were mortgaged in 1890, and 32.8 per cent. in +1910.[72] While a decline of two per cent. in the home owning and +landowning families in twenty years, and an increase of almost five +per cent. in the number of those families who hold their property +subject to encumbrance, may not seem very serious in themselves, they +indicate a definitely unhealthy trend. Not only are the landowning +families in a minority, but the minority is becoming smaller. + +Nevertheless, when we consider the amount of gains accruing to the +average member of the landowning class, we do not find that it is +unreasonably large. The great majority of landed proprietors have not +received, nor are they likely to receive, from their holdings incomes +sufficiently large to be called excessive shares of the national +product. Their gross returns from land have not exceeded the +equivalent of fair interest on their actual investment, and fair wages +for their labour. The landowners who have been enabled through their +holdings to rise above the level of moderate living constitute a +comparatively small minority. And these statements are true of both +agricultural and urban proprietors. + +It is true that a considerable number of persons, absolutely speaking, +have amassed great wealth out of land. It is a well known fact that +land was the principal source of the great mediæval and post-mediæval +fortunes, down to the end of the eighteenth century. "The historical +foundation of capitalism is rent."[73] Capitalism had its beginning in +the revenue from agricultural lands, city sites, and mines. A +conspicuous example is that of the great Fugger family of the +sixteenth century, whose wealth was mostly derived from the ownership +and exploitation of rich mineral lands.[74] In the United States very +few large fortunes have been obtained from agricultural land, but the +same is not true of mineral lands, timber lands, or urban sites. "The +growth of cities has, through real estate speculation and incremental +income, made many of our millionaires."[75] "As with the unearned +income of city land, our mineral resources have been conspicuously +prolific producers of millionaires."[76] The most striking instance of +great wealth derived from urban land is the fortune of the Astor +family. While gains from trading ventures formed the beginning of the +riches of the original Astor, John Jacob, these were "a comparatively +insignificant portion of the great fortune which he transmitted to +his descendants."[77] At his death, in 1848, John Jacob Astor's real +estate holdings in New York City were valued at eighteen or twenty +million dollars. To-day the Astor estate in that city is estimated at +between 450 and 500 millions, and within a quarter of a century will +not improbably be worth one billion dollars.[78] According to an +investigation made in 1892 by the _New York Tribune_, 26.4 per cent. +of the millionaire fortunes of the United States at that time were +traceable to landownership, while 41.5 per cent. were derived from +competitive industries which were largely assisted by land +possessions.[79] The proportion of such fortunes that is due, directly +or indirectly, in whole or in part, to landownership has undoubtedly +increased considerably since 1892. + +With regard to great individual or corporate land holdings, there +exist no adequate statistics. A few conspicuous instances may be +cited. The United States Steel Corporation owns lands yielding iron +ore, coal, coke, and timber which are valued by the Commissioner of +Corporations at nearly 250 million dollars, and by the Steel +Corporation itself at more than 800 million dollars.[80] Three +companies own nearly eleven per cent., and 195 individuals or +corporations own 48 per cent. of all the privately owned timber in the +United States.[81] The United States Census of 1910 shows that the +number of farms containing 500 acres or over was about 175,000, and +comprised ten per cent. of the total farm acreage. One hundred and +fifty persons and corporations are said to own 220,000,000 acres of +various kinds of land. None of these holders has less than ten +thousand acres, and two of the syndicates possess fifty million acres +each.[82] + + +_Exclusion from the Land_ + +One of the most frequent charges brought against the present system of +land tenure is that it keeps a large proportion of our natural +resources out of use. It is contended that this evil appears in three +principal forms: owners of large estates refuse to break up their +holdings by sale; many proprietors are unwilling to let the use of +their land on reasonable terms; and a great deal of land is held at +speculative prices, instead of at economic prices. So far as the +United States are concerned, the first of these charges does not seem +to represent a condition that is at all general. Although many holders +of large mineral and timber tracts seem to be in no hurry to sell +portions of their holdings, they are probably moved by a desire to +obtain higher prices rather than to continue as large landowners. As a +rule, the great landholders of America are without those sentiments of +tradition, local attachment, and social ascendency which are so +powerful in maintaining intact the immense estates of Great Britain. +On the contrary, one of the common facts of to-day is the persistent +effort carried on by railroads and other holders of large tracts to +dispose of their land to settlers. While the price asked by these +proprietors is frequently higher than that which corresponds to the +present productiveness of the land, it is generally as low as that +which is demanded by the owners of smaller parcels. To be sure, this +is one way of unreasonably hindering access to the land, but it falls +properly under the head of the third charge enumerated above. There is +no sufficient evidence that the _large_ landholders are exceptional +offenders in refusing to sell their holdings to actual settlers. + +The assertion that unused land cannot be rented on reasonable terms is +in the main unfounded, so far as it refers to land which is desired +for agriculture. As a rule, any man who wishes to cultivate a portion +of such land can fulfil his desire if he is willing to pay a rent that +corresponds to its productiveness. After all, landowners are neither +fools nor fanatics: while awaiting a higher price than is now +obtainable for their land, they would prefer to get from it some +revenue rather than none at all. As a matter of fact, almost all the +agricultural land that is immediately available for renting, is +constantly under cultivation. This refers to land that is already +under the plough, and is provided with buildings and other necessary +improvements. Practically none of this is out of use. New land which +is without buildings is not wanted by tenants, unless it is convenient +to their residences, because they do not desire to expend money for +permanent improvements upon land that they do not own. True, the +present owners of such land might erect buildings, and then let it to +tenants. In so far as new land might profitably be improved and +cultivated, and in so far as the owners are unwilling or unable to +provide the improvements, the present system does keep out of use +agricultural land that could be cultivated by tenants. Mineral and +timber lands are sometimes withheld from tenants because the owners +wish to limit the supply of the product, or because they fear that a +long-term lease would prevent them from selling the land to the best +advantage. As to urban sites, the contention that we are now examining +is generally true. The practice of leasing land to persons who wish to +build thereon does not, with the exception of a very few cities, +obtain in the United States for other than very large business +structures. As a rule, it does not apply to sites for residences. The +man who wants a piece of urban land for a dwelling or for a moderately +sized business building cannot obtain it except by purchase. + +Cannot the land be bought at a reasonable price? This brings us to the +third and most serious of the charges concerning exclusion from the +land. Since the value of land in most cities is rising, and apparently +will continue to rise more or less steadily, the price at which it is +held and purchasable is not the economic price but a speculative +price. It is higher than the capitalised value of the present revenue +or rent. For example: if five per cent. be the prevailing rate of +interest, a piece of land which returns that rate on a capital of one +thousand dollars cannot be bought for one thousand dollars. The +purchaser is willing to pay more because he hopes to sell it for a +still higher price within a reasonable time. He knows that he cannot +immediately obtain five per cent. on the amount (say, 1,200 dollars) +that he is ready to pay for the land, but his valuation of it is not +determined merely by its present income-producing power, but by its +anticipated revenue value and selling value.[83] The buyer will pay +more for such land than for a house which yields the same return; for +he knows that the latter will not, and hopes that the former will, +bring a higher return and a higher price in the future. Wherever this +discounting of the future obtains, the price of land is unreasonably +high, and access to vacant land is unreasonably difficult. + +This condition undoubtedly exists most of the time in the great +majority of our larger cities. Men will not sell vacant land at a +price which will enable the buyer to obtain immediately a reasonable +return on his investment. They demand in addition a part of the +anticipated increase in value. In the rural regions this evil appears +to be smaller and less general. The owners of unused or uneconomically +used arable land are more eager to sell their holdings than the +average proprietor of a vacant lot. So far as this sort of land is +concerned, it is probable that most of the denunciation of "land +speculators" and "land monopolists" overshoots the mark. Not the high +price at which unused arable lands are held, but the great initial +cost of draining, clearing, or irrigating them, is the main reason why +they are not purchased by cultivators. + +While no general and precise estimate can be given of the extent to +which the speculative exceeds the actual rent-producing value of land +in growing cities, twenty-five per cent. would not improbably be a +fair conjecture. Even when a reaction occurs after a period of +excessive "land-booming," the lower prices do not bring the manless +land any nearer to the landless men. Only the few who possess ready +money or excellent credit can take advantage of such a situation. On +the whole the evil that we are now considering is probably greater +than any other connected with the private ownership of land. + +All the tendencies and forces that have been described in the present +chapter under the heads of Monopoly, Excessive Gains, and Exclusion +from the Land, are in some degree real defects and abuses of the +existing system of land tenure. Most of them do not seem to be +sufficiently understood or appreciated by the more ardent defenders of +private ownership. To recognise them, and to seek adequate correctives +of them would seem to be the task of both righteousness and +expediency. In the next and final chapter of this Section, we shall +consider certain remedies that seem to be at once effective and just. + +FOOTNOTES: + +[49] "Report of the Commissioner of Corporations on the Petroleum +Industry," Part I, p. 8. + +[50] P. 138. + +[51] Cf. Ely, "Monopolies and Trusts," pp. 59, sq. + +[52] P. 133. + +[53] Pp. 68, 69. + +[54] "Final Report of the U. S. Industrial Commission," p. 463; Bliss, +"New Encyclopedia of Social Reform," pp. 245, 770; Van Hise, +"Concentration and Control," pp. 32, 33. + +[55] Idem, pp. 46, 47; cf. "Final Report of Industrial Commission," +pp. 463-465. + +[56] "Report of the Commissioner of Corporations on the Steel +Industry," Part I, p. 60. + +[57] Cf. Hobson, "The Industrial System," pp. 192-197. + +[58] Pp. 15, 16, 29-31. + +[59] Cf. "Progress and Poverty," books III and IV. + +[60] Cf. Walker, "Land and Its Rent," pp. 168-182, Boston, 1883. + +[61] Page 158. + +[62] Page 160. + +[63] Page 158; footnote. + +[64] "Privilege and Democracy," p. 307. + +[65] Page 160. + +[66] Op. cit., pages 160, 158. + +[67] Professor Nearing in "The Annals of the American Academy of +Political and Social Science," March, 1915. + +[68] Thirteenth Census, Bulletin on "Farms and Farm Property," page 1. + +[69] _The Public_, Nov. 26, 1915. For an account of increases in the +principal European cities, see Camille-Husymans, "La plus-value +immobilière dans les communes belges"; Gand, 1909. + +[70] "Report of the Commissioner of Corporations on the Lumber +Industry," Part I, pp. 214-216. + +[71] King, op. cit., p. 158. + +[72] Thirteenth Census, Vol. I, p. 1295. + +[73] Hobson, "The Evolution of Modern Capitalism," p. 4; London, 1907. + +[74] _Harper's Monthly Magazine_, Jan., 1910. + +[75] Watkins, "The Growth of Large Fortunes," p. 75; N. Y., 1907. + +[76] Idem, p. 93. + +[77] Youngman, "The Economic Causes of Great Fortunes," p. 45; N. Y., +1909. + +[78] Howe, op. cit., pp. 125, 126. + +[79] Cf. Commons, "The Distribution of Wealth," pp. 252, 257; N. Y., +1893. + +[80] "Report of the Commissioner of Corporations on the Steel +Industry," Part I, p. 314. + +[81] "Summary of Report of the Commissioner of Corporations on the +Lumber Industry," pp. 3-8. + +[82] From articles in "The Single Tax Review," vol. 9, nos. 5, 6. + +[83] "In a growing city, an advantageous site will command a price +more than in proportion to its present rent, because it is expected +that the rent will increase still further as the years go on." +Taussig, "Principles of Economics," II, 98; N. Y., 1911. + + + + +CHAPTER VIII + +METHODS OF REFORMING OUR LAND SYSTEM + + +In economic and social discussion the word reform is commonly opposed +to the word revolution. It implies modification rather than abolition, +gradual rather than violent change. Hence reforms of the system of +land tenure do not include such radical proposals as those of land +nationalisation or the Single Tax. On the other hand, some extension +of State ownership of land, and some increase in the proportion of +taxes imposed upon land, may quite properly be placed under the head +of reform, inasmuch as they are changes in rather than a destruction +of the existing system. + +In general, the reform measures needed are such as will meet the +defects described in the last chapter; namely, monopoly, excessive +gains, and exclusion from the land. Obviously they can be provided +only by legislation; and they may all be included under two heads, +ownership and taxation. + +By far the greater part of the more valuable lands of the country are +no longer under the ownership of the State. Urban land is practically +all in the hands of private proprietors. While many millions of acres +of land suitable for agriculture are still under public ownership, +almost all of this area requires a considerable outlay for irrigation, +clearing, and draining before it can become productive. Forty years +ago, three-fourths of the timber now standing was public property; at +present about four-fifths of it is owned by private persons or +corporations.[84] The bulk of our mineral deposits, coal, copper, +gold, silver, etc., have likewise fallen under private ownership, with +the exception of those of Alaska. The undeveloped water power +remaining under government ownership has been roughly estimated at +fourteen million horse power in the national forests, and considerably +less than that amount in other parts of the public domain.[85] This is +a gratifying proportion of the whole supply, developed and +undeveloped, of this national resource, which is said to be somewhere +between 27 and 60 millions horse power.[86] Only about seven million +horse power has yet been developed, almost all of which is privately +owned. + + +_The Leasing System_ + +In many countries of Europe it has long been the policy of governments +to retain ownership of all lands containing timber, minerals, oil, +natural gas, phosphate, and water power. The products of these lands +are extracted and put upon the market through a leasing system. That +is; the user of the land pays to the State a rental according to the +amount and quality of raw material which he takes from the storehouse +of nature. Theoretically, the State could sell such lands at prices +that would bring in as much revenue as does the leasing system; +practically, this result has never been attained. The principal +advantages of the leasing arrangement are: to prevent the premature +destruction of forests, the private monopolisation of limited natural +resources (which has happened in the case of the anthracite coal +fields of Pennsylvania) and the private acquisition of exceptionally +valuable land at ridiculously low prices; and to enable the State to +secure just treatment for the consumer and the labourer by +stipulating that the former shall obtain the product at fair prices, +and that the latter shall receive fair wages. + +This example should be followed by the United States. All timber, +mineral, gas, oil, and water power lands which have not been alienated +to private persons should remain under government ownership, and be +brought into use through a leasing arrangement which would enable the +private operators to obtain the rates of profit and interest which are +ordinarily yielded by enterprises subject to the same degree of risk. +Happily this policy now seems likely to be adopted. In 1913 a law was +passed by the United States providing for the operation of the coal +mines of Alaska on leases. The amount that can be leased by any person +or corporation is limited to 2560 acres, and the penalty for +attempting to monopolise the product is forfeiture of tenure. The +Secretary of the Interior has urged a similar arrangement for the +development and extraction of water power, coal, oil, gas, phosphate, +sodium, and potassium on the public domain of Continental United +States, and his recommendation will probably be adopted by Congress. +Thus the rent of these lands will go to the whole people instead of to +a comparatively small number of individuals, monopoly of the products +will be made impossible, and our remaining public resources will be +protected from rapid and ruinous exploitation. + +To the objection that capitalists will not invest their money in nor +carry on extractive enterprises on a leasing basis, the sufficient +answer is that they are doing it now. In 1909, 24.5 per cent. of all +the lands producing minerals, precious metals, and stone; 94.6 per +cent. of the lands producing petroleum and gas; and 61.2 per cent. of +the two groups of lands combined, were operated under leases from +private owners or from the government.[87] If the rental or royalty +demanded is not unreasonably high capitalists will be quite as +willing to produce raw materials of these kinds from leased land as +they are to manufacture or sell goods in a rented building. Not the +leasing system, but the terms of the particular lease are the +important consideration. + +Public grazing lands should remain government property until such time +as they become available for agriculture. Cattle owners could lease +the land from the State on equitable terms, and receive ample +protection for money invested in improvements. + + +_Public Agricultural Lands_ + +The leasing system cannot well be applied to agricultural lands. In +order that they may be continuously improved and protected against +deterioration, they must be owned by the cultivators. The temptation +to wear out a piece of land quickly, and then move to another piece, +and all the other obstacles that stand in the way of the Single Tax as +applied to agricultural land, show that the government cannot with +advantage assume the function of landlord in this domain. In the great +majority of cases the State would do better to sell the land in small +parcels to genuine settlers. There are, indeed, many situations, +especially in connection with government projects of irrigation, +clearing, and drainage, in which the leasing arrangement could be +adopted temporarily. It should not be continued longer than is +necessary to enable the tenants to become owners. With this end in +view the State should make loans to cultivators at moderate rates of +interest, as is done in New Zealand and Australia. + +Whether the State ought to purchase undeveloped land from private +owners in order to sell it to settlers, may well be doubted. The only +lands to which such a scheme would be at all applicable are large +estates which are held out of use by their proprietors. Even here the +transfer of the land to cultivators could be accomplished indirectly, +through an extra heavy tax. This method has been adopted with success +by Australia and New Zealand. The only other action by the State that +seems necessary or wise in order to place settlers upon privately +owned agricultural land, is the establishment of a comprehensive +system of rural credits. The need of cheaper food products, and the +desirability of checking the abnormal growth of our urban populations, +are powerful additional reasons for the adoption of this policy. The +Hollis Rural Credits Bill recently enacted into law by Congress goes a +considerable way toward meeting these needs. + + +_Public Ownership of Urban Land_ + +No city should part with the ownership of any land that it now +possesses. Since capitalists are willing to erect costly buildings on +sites leased from private owners, there is no good reason why any one +should refuse to put up or purchase any sort of structure on land +owned by the municipality. The situation differs from that presented +by agricultural land; for the value of the land can easily be +distinguished from that of improvements, the owner of the latter can +sell them even if he is not the owner of the land, and he cannot be +deprived of them without full compensation. While the lessee paid his +annual rent, his control of the land would be as complete and certain +as that of the landowner who continues to pay his taxes. On the other +hand, the leaseholder could not permit or cause the land to +deteriorate if he would; for the nature of the land renders this +impossible. Finally, the official activities involved in the +collection of the rent and the periodical revaluation of the land, +would not differ essentially from those now required to make +assessments and gather taxes. + +The benefits of this system would be great and manifest. Persons who +were unable to own a home because of their inability to purchase land, +could get secure possession of the necessary land through a lease from +the city. Instead of spending all their lives in rented houses, +thousands upon thousands of families could become the owners and +occupiers of homes. The greater the amount of land thus owned and +leased by the city, the less would be the power of private owners to +hold land for exorbitant prices. Competition with the city would +compel them to sell the land at its revenue-producing value instead of +at its speculative value. Finally, the city would obtain the benefit +of every increase in the value of its land by means of periodical +revaluation, and periodical readjustment of rent. + +Unfortunately the amount of municipal land available for such an +arrangement in our American cities is negligible. If they are to +establish the system they must first purchase the land from private +owners. Undoubtedly this ought to be done by all large cities in which +the housing problem has become acute, and the value of land is +constantly rising. This policy has been adopted with happy results by +many of the municipalities of France and Germany.[88] At the state +election of 1915 the voters of Massachusetts adopted by an +overwhelming majority a constitutional amendment authorising the +cities of the commonwealth to acquire land for prospective home +builders. In Savannah, Georgia, no extension of the municipal limits +is made until the land to be embraced has passed into the ownership of +the city. Another method is to refrain from opening a new street in a +suburban district until the city has become the proprietor of the +abutting land. Whatever be the particular means adopted, the objects +of municipal purchase and ownership of land are definite and obvious: +to check the congestion of population in the great urban centres, to +provide homes for the homeless, and to secure for the whole community +the socially occasioned increases in land values. Indeed, it is +probable that no comprehensive scheme of housing reform can be +realised without a considerable amount of land purchase by the +municipalities. Cities must be in a position to provide sites for +those home builders who cannot obtain land on fair conditions from +private proprietors.[89] + +Turning now from the direct method of public ownership to the indirect +method of reform through taxation, we reject the thoroughgoing +proposals of the Single Taxers. To appropriate all economic rent for +the public treasury would be to transfer all the value of land without +compensation from the private owner to the State. For example: a piece +of land that brought to the owner an annual revenue of one hundred +dollars would be taxed exactly that amount; if the prevailing rate of +interest were five per cent. the proprietor would be deprived of +wealth to the amount of two thousand dollars; for the value of all +productive goods is determined by the revenue that they yield, and +benefits the person who receives the revenue. Thus the State would +become the beneficiary and the virtual owner of the land. Inasmuch as +we do not admit that the so-called social creation of land values +gives the State a moral right to these values, we must regard the +complete appropriation of economic rent through taxation as an act of +pure and simple confiscation.[90] + + +_Appropriating Future Increases of Land Value_ + +Let us examine, then, the milder suggestion of John Stuart Mill, that +the State should impose a tax upon land sufficient to absorb all +future increases in its value.[91] This scheme is commonly known as +the appropriation of future unearned increment. Either in whole or in +part it is at least plausible, and is to-day within the range of +practical discussion. It is expected to obtain for the whole +community all future increases in land values, and to wipe out the +speculative, as distinguished from the revenue-producing value of +land. Consequently it would make land cheaper and more accessible than +would be the case if the present system of land taxation were +continued. Before discussing its moral character, let us see briefly +whether the ends that it seeks may properly be sought by the method of +taxation. For these ends are mainly social rather than fiscal. + +To use the taxing power for a social purpose is neither unusual nor +unreasonable. "All governments," says Professor Seligman, "have +allowed social considerations in the wider sense to influence their +revenue policy. The whole system of productive duties has been framed +not merely with reference to revenue considerations, but in order to +produce results which should directly affect social and national +prosperity. Taxes on luxuries have often been mere sumptuary laws +designed as much to check consumption as to yield revenue. Excise +taxes have as frequently been levied from a wide social, as from a +narrow fiscal, standpoint. From the very beginning of all tax systems +these social reasons have often been present."[92] Our Federal taxes +on imports, on intoxicating liquors, on oleo-margarine, and on white +phosphorus matches, and many of the license taxes in our +municipalities, as on pedlars, saloon keepers, and dog owners, are in +large part intended to meet social as well as fiscal ends. They are in +the interest of domestic production, public health, and public safety. +The reasonableness of effecting social reforms through taxation cannot +be seriously questioned. While the maintenance of government is the +primary object of taxation, its ultimate end, the ultimate end of +government itself, is the welfare of the people. Now if the public +welfare can be promoted by certain social changes, and if these in +turn can be effected through taxation, this use of the taxing power +will be quite as normal and legitimate as though it were employed for +the upkeep of government. Hence the morality of taxing land for +purposes of social reform will depend entirely upon the nature of the +particular tax that is imposed. + + +_Some Objections to the Increment Tax_ + +The tax that we are now considering can be condemned as unjust on only +two possible grounds: first, that it would be injurious to society; +and, second, that it would wrong the private landowner. If it were +fairly adjusted and efficiently administered it could not prove +harmful to the community. In the first place, landowners could not +shift the tax to the consumer. All the authorities on the subject +admit that taxes on land stay where they are put, and are paid by +those upon whom they are levied in the first instance.[93] The only +way in which the owners of a commodity can shift a tax to the users or +consumers of it, is by limiting the supply until the price rises +sufficiently to cover the tax. By the simple device of refusing to +erect more buildings until those in existence have become scarce +enough to command an increase in rent equivalent to the new tax, the +actual and prospective owners of buildings can pass the tax on to the +tenants thereof. By refusing to put their money into, say, shoe +factories, investors can limit the supply of shoes until any new tax +on this commodity is shifted upon the wearers of shoes in the form of +higher prices. Until these rises take place in the rent of buildings +and the price of shoes, investors will put their money into +enterprises which are not burdened with equivalent taxes. But nothing +of this sort can follow the imposition of a new tax upon land. The +supply of land is fixed, and cannot be affected by any action of +landowners or would-be landowners. The users of land and the consumers +of its products are at present paying all that competition can compel +them to pay. They would not pay more merely because they were +requested to do so by landowners who were labouring under the burden +of a new tax. If all landowners were to carry out an agreement to +refrain from producing, and to withhold their land from others until +rents and prices had gone up sufficiently to offset the tax, they +could, indeed, shift the latter to the renters of land and the +consumers of its products. Such a monopoly, however, is not within the +range of practical achievement. In its absence, individual landowners +are not likely to withhold land nor to discontinue production in +sufficient numbers to raise rents or prices. Indeed, the tendency will +be all the other way; for all landowners, including the proprietors of +land now vacant, will be anxious to put their land to the best use in +order to have the means of paying the tax. Owing to this increased +production, and the increased willingness to sell and let land, rents +and prices must fall. It is axiomatic that new taxes upon land always +make it cheaper than it would have been otherwise, and are beneficial +to the community as against the present owners. + +In the second place, the tax in question could not injure the +community on account of discouraging investment in land. Once men +could no longer hope to sell land at an advance in price, they would +not seek it to the extent that they now do as a field of investment. +For the same reason many of the present owners would sell their +holdings sooner than they would have sold them if the tax had not been +levied. From the viewpoint of the public the outcome of this situation +would be wholly good. Land would be cheaper and more easy of access to +all who desired to buy or use it for the sake of production, rather +than for the sake of speculation. Investments in land which have as +their main object a rise in value are an injury rather than a benefit +to the community; for they do not increase the products of land, while +they do advance its price, thereby keeping it out of use. Hence the +State should discourage instead of encouraging mere speculators in +land. Whether it is or is not bought and sold, the supply of land +remains the same. The supreme interest of the community is that it +should be put to use, and made to supply the wants of the people. +Consequently the only land investments that help the community are +those that tend to make the land productive. Under a tax on future +increases in value, such investments would increase for the simple +reason that land would be cheaper than it would have been without the +tax. Men who desired land for the sake of its rent or its product +would continue as now to pay such prices for it as would enable them +to obtain the prevailing rate of interest on their investment after +all charges, including taxes, had been paid. Men who wanted to rent +land would continue as now to get it at a rental that would give them +the usual return for their capital and labour. + +So much for the effect of the tax upon the community. Would it not, +however, be unjust to the landowners? Does not private ownership of +its very nature demand that increases in the value of the property +should go to the owners thereof? "Res fructificat domino:" a thing +fructifies to its owner; and value-increases may be classed as a kind +of fruit. + +In the first place, this formula was originally a dictum of the civil +law merely, the law of the Roman Empire. It was a legal rather than an +ethical maxim. Whatever validity it has in morals must be established +on moral grounds, by moral arguments. It cannot forthwith be assumed +to be morally sound on the mere authority of legal usage. In the +second place, it was for a long time applied only to natural products, +to the grain grown in a field, to the offspring of domestic animals. +It simply enunciated the policy of the law to defend the owner of the +land in his claim to such fruits, as against any outsider who should +attempt to set up an adverse title through mere appropriation or +possession. Thus far, the formula was evidently in conformity with +reason and justice. Later on it was extended, both by lawyers and +moralists, to cover commercial "fruits," such as, rent from lands and +houses, and interest from loans and investments. Its validity in this +field will be examined in connection with the justification of +interest. More recently the maxim has received the still wider +application which we are now considering. Obviously increases in value +are quite a different thing from the concrete fruit of the land, its +natural product. A right to the latter does not necessarily and +forthwith imply a right to the former. In the third place, the formula +in question is not a self evident, fundamental principle. It is merely +a summary conclusion drawn from the consideration of the facts and +principles of social and industrial life. Consequently its validity as +applied to any particular situation will depend on the correctness of +these premises, and on the soundness of the process by which it has +been deduced. + +The increment tax is sometimes opposed on the ground that it is new, +in fact, revolutionary. In some degree the charge is true, but the +conditions which the proposal is intended to meet are likewise of +recent origin. The case for this legislation rests mainly on the fact +that, for the first time in the world's history, land values +everywhere show an unmistakable tendency to advance indefinitely. This +means that the landowning minority will be in a position to reap +unbought and continuous benefits at the expense of the landless +majority. This new fact, with its very important significance for +human welfare, may well require a new limitation on the right of +property in land. + +It is also objected that to deprive men of the opportunity of +profiting by changes in the value of their land would be an unfair +discrimination against one class of proprietors. But there are good +reasons for making the distinction. Except in the case of monopoly, +increases in the value of goods other than land are almost always due +to expenditures of labour or money upon the goods themselves. The +value increases that can be specifically traced to external and social +influences are intermittent, uncertain, and temporary. Houses, +furniture, machinery, and every other important category of artificial +goods are perishable, and decline steadily in value. Land, however, is +substantially imperishable, becomes steadily scarcer relatively to the +demand, and its value-increases are on the whole constant, certain, +and permanent. Moreover, it is the settled policy of most enlightened +governments to appropriate or to prevent all notable increases in the +value of monopolistic goods, either through special taxation or +through regulation of prices and charges. Taking the increment values +of land is, therefore, not so discriminative as it appears at first +glance.[94] + +Another objection is that the proposal would violate the canons of +just taxation, since it would impose a specially heavy burden upon one +form of property. The general doctrine of justice in taxation which is +held by substantially all economists to-day, and which has been taught +by Catholic moralists for centuries, is that known as the "faculty" +theory.[95] Men should be taxed in proportion to their ability to pay, +not in accordance with the benefits that they may be assumed to +receive from the State. And it is universally recognised that the +proper measure of "ability" is not a man's total possessions, +productive and unproductive, but his income, his annual revenue. Now, +the increment tax does seem to violate the rule of taxation according +to ability, inasmuch as it would take all of one species of revenue, +while all other incomes and properties pay only a certain percentage. + +All the adherents of the faculty theory maintain, however, that it is +subject to certain modifications. Incomes from interest, rent, and +socially occasioned increases in the value of property should be taxed +at a higher rate than incomes that represent expenditures of labour; +for to give up a certain per cent. of the former involves less +sacrifice than to give up the same per cent. of the latter. Therefore, +increments of land-value may be fairly taxed at a higher rate than +salaries, personal property, or even rent and interest. When, however, +the law absorbs the whole of the value increments, it seems to be +something more than a tax. The essential nature of a tax is to take +only a portion of the particular class of income or property upon +which it is imposed. The nearest approach to the plan of taking all +future increases in land value is to be found in the special +assessments that are levied in many American cities. Thus, the owners +of urban lots are frequently compelled to defray the entire cost of +street improvements on the theory that their land is thereby and to +that extent increased in value. In such cases the contribution is +levied not on the basis of the faculty theory, but on that of the +benefit theory; that is, the owners are required to pay in proportion +to benefits received. All adherents of the faculty theory admit that +the benefit theory is justifiably applied in situations of this kind. +It might be argued that the latter theory can also be fairly applied +to increments of land value that are to arise in the future. In both +cases the owner returns to the State the equivalent of benefits which +have cost him nothing. There is, however, a difference. In the former +case the value increases are specifically due to expenditures made by +the State, while in the latter they are indirectly brought about by +the general activities of the community. We do not admit with the +Single Taxers that this "social production" of value increments +creates a right thereto on the part of either the community or the +civil body; but even if we did we should be compelled to admit that +the two situations are not exactly parallel; for the social production +of increases in the value of land involves no special expenditure of +labour or money. Hence it is very questionable whether the +appropriation of the whole of the future value increments can be +harmonised with the received conceptions and applications of the +canons of taxation. + + +_The Morality of the Proposal_ + +However, it is neither necessary nor desirable to justify the proposal +on the mere ground of taxation. Only in form and administration is it +a tax; primarily and in essence it is a method of distribution. It +resembles the action by which the State takes possession of a newly +discovered territory by the title of first occupancy. The future +increases of land value may be regarded as a sort of no man's property +which the State appropriates for the benefit of the community. And the +morality of this proceeding must be determined by the same criterion +that is applied to every other method or rule of distribution; namely, +social and individual consequences. No principle, title, or practice +of ownership, nor any canon of taxation, has intrinsic or metaphysical +value. All are to be evaluated with reference to human welfare. Since +the right of property is not an end in itself, but only a means of +human welfare, its just prerogatives and limitations are determined by +their conduciveness to the welfare of human beings. By human welfare +is meant not merely the good of society as a whole, but the good of +all individuals and classes of individuals. For society is made up of +individuals, all of whom are of equal worth and importance, and have +equal claims to consideration in the matter of livelihood, material +goods, and property. In general, then, any method of distribution, any +modification of property rights, any form of taxation, is morally +lawful which promotes the interests of the whole community, without +causing undue inconvenience to any individual. Whether a given rule of +ownership or method of distribution which is evidently conducive to +the public good is, nevertheless, unduly severe on a certain class of +individuals, is a question that is not always easily answered. Some of +the methods and practices appearing in history were clearly fair and +just, others clearly unfair and unjust, and still others of doubtful +morality. Frequently the State has compelled private persons to give +up their land at a lower price than they paid for it; in more than one +country freebooters and kingly favourites robbed the people of the +land, yet their heirs and successors are recognised by both moralists +and statesmen as the legitimate owners of that land; in Ireland +stubborn landlords are to-day compelled by the British government to +sell their holdings to the tenants at an appraised valuation; in many +countries men may become owners of their neighbours' lands by the +title of prescription, without the payment of a cent of compensation. +All these practices and titles inflict considerable hardship upon +individuals, but most of them are held to be justified on grounds of +social welfare. + +Now the public appropriation of all future increments of land value +would evidently be beneficial to the community as a whole. It would +enable all the people to profit by gains that now go to a minority, +and it would enable the landless majority to acquire land more easily +and more cheaply. We have in mind, of course, only those value +increases that are not due to improvements in or on the land, and we +assume that these could be distinguished in practice from the +increments of value that represent improvements. Would the measure in +question inflict undue hardship upon individuals? Here we must make a +distinction between those persons who own land at the time that, and +those who buy land after, the law is enacted. + +The only inconvenience falling upon the latter class would be +deprivation of the power to obtain future increases in value. The law +would not cause the value of the land to decline below their purchase +price. Other forces might, indeed, bring about such a result; but, as +a rule, such depreciation would be relatively insignificant, for the +simple reason that it would already have been "discounted" in the +reduction of value which followed the law at the outset. The very +knowledge that they could not hope to profit by future increases in +the value of the land would impel purchasers to lower their price +accordingly. While taking away the possibility of gaining, the law +enables the buyers to take the ordinary precautions against losing. +Therefore, it does not, as sometimes objected, lessen the so called +"gambler's chances." On the other hand, the tax does not deprive the +owners of any value that they may add to the land through the +expenditure of labour or money, nor in any way discourage productive +effort. Now it is, as a rule, better for individuals as well as for +society that men's incomes should represent labour, expenditure, and +saving instead of being the result of "windfalls," or other fortuitous +and conjunctural circumstances. And the power to take future value +increments is not an intrinsically essential element of private +property in land. Like every other condition of ownership, its +morality is determined by its effects upon human welfare. But we have +seen in the last paragraph that human welfare in the sense of the +social good is better promoted by a system of landownership which does +not include this element; and we have just shown that such a system +causes no undue hardship to the individual who buys land after its +establishment. Such is the answer to the contention, noticed a few +pages back, that the landowner has a right to future increments of +value because they are a kind of fruit of his property. It is more +reasonable that he should not enjoy this particular and peculiar +"fruit." Were the increment tax introduced into a new community before +any one had purchased land, it would clearly be a fair and valid +limitation on the right of ownership. Those who should become owners +after the regulation went into effect in an old community would be in +exactly the same moral and economic position. Finally, there exists +some kind of legal precedent for the proposal in the present policy of +efficient governments with regard to the only important increases that +occur in the value of goods other than land; namely, increases due to +the possession of monopoly power. By various devices these are either +prevented or appropriated by the State. + +Those persons who are landowners when the increment tax goes into +effect are in a very different situation from those that we have just +been considering. Many of them would undoubtedly suffer injury through +the operation of the measure, inasmuch as their land would reach and +maintain a level of value below the price that they had paid for it. +The immediate effect of the increment tax would be a decline in the +value of all land, caused by men's increased desire to sell and +decreased desire to buy. In all growing communities a part of the +present value of land is speculative; that is, it is due to demand for +the land by persons who want it mainly to sell at an expected rise, +and also to the disinclination of present owners to sell until this +expectation is realised. The practical result of the attitude of these +two classes of persons is that the demand for, and therefore the value +of land is considerably enhanced. Let a law be enacted depriving them +of all hope of securing the anticipated increases in value, and the +one group will cease to buy, while the other will hasten to sell, thus +causing a decline in demand relatively to supply, and therefore a +decline in value and price. + +All persons who had paid more for their land than the value which it +came to have as a result of the increment tax law, would lose the +difference. For, no matter how much the land might rise in value +subsequently, the increase would all be taken by the State. And all +owners of vacant land the value of which after the law was passed did +not remain sufficiently high to provide accumulated interest on the +purchase price, would also lose accordingly. To be sure, both these +kinds of losses would exist even if the law should cause no decline in +the value of land, but they would not be so great either in number or +in volume. + +Landowners who should suffer either of these sorts of losses would +have a valid moral claim against the State for compensation. Through +its silence on the subject of increment-tax legislation, the State +virtually promised them at the time of their purchases that it would +not thus interfere with the ordinary course of values. Had it given +any intimation that it would enact such a law at a future time, these +persons would not have paid as much for their land as they actually +did pay. When the State passes the law, it violates its implicit +promise, and consequently is under obligation to make good the +resulting losses. + +Is it not obliged to go further, and pay for the positive gains that +many of the owners would have reaped in the absence of the law? For +example: a piece of land is worth one thousand dollars the day after +the tax goes into effect, and that was exactly the price paid for it +by the present owner; another piece has the same value, but was bought +by the present owner for eight hundred dollars. While neither of these +men suffer any loss on their investments, they are deprived of +possible gains; for had the law not been enacted their holdings would +be worth, say, eleven hundred dollars. Nevertheless, they are no worse +off in this respect than those persons who buy land after the +increment tax goes into effect, and have no greater claim to +compensation for abolished opportunities of positive gain. As we have +seen above, the certain advantages of the measure to the community, +the doubtful advantages to individuals of profiting by changes in +price which do not represent labour, expense, or saving, show that the +owners have no strict right to compensation. And it is still clearer +that no landowner has a valid claim on account of value increases that +would have taken place subsequent to the time that the measure was +enacted. There is no way by which owners who would have held their +land long enough to profit by these increments can be distinguished +from owners who would not have availed themselves of this conjectural +opportunity, nor any method by which the amount of such gains can be +determined. + +On the other hand, it might be objected that, in reimbursing all +owners who suffer the positive losses above described, the State is +unduly generous; for if the law had not been enacted many of the +reimbursed persons would have sold their holdings at a price +insufficient to cover their losses. But these cannot be distinguished +from those who would have sold at a remunerative price. Hence the +State must compensate all or none. The former alternative is not only +the more just all round, but in the long run the more expedient. + +In view of the social benefits of the increment tax, especially the +removal of many of the inequities of the present taxing system, the +State might sometimes be justified in making good only a part of the +losses that we have been discussing. But this could probably occur +only for administrative reasons, such as the difficulty of determining +the persons entitled to and the amounts of compensation. It would not +be justified merely to enable the State to profit at the expense of +individuals. And, in any case, there seems to be no good reason why +the unpaid losses should amount to more than a small fraction of the +whole. + +In the foregoing pages we have been considering a law which would from +the beginning of its operation take _all_ the future increments of +land value. There is, however, no likelihood that any such measure +will soon be enacted in any country, least of all, in the United +States. What we shall probably see is the spread of legislation +designed to take a part, and a gradual growing part, of value +increases, after the example of Germany and Great Britain. Let us +glance at the laws in force in these two countries. + + +_The German and British Increment Taxes_ + +The first increment tax (Werthzuwachssteuer) was established in the +year 1898 in the German colony of Kiautschou, China. In 1904 the +principle of the tax was adopted by Frankfort-am-Main, and in 1905 by +Cologne. By April, 1910, it had already been enacted in 457 cities and +towns of Germany, some twenty of which had a population of more than +100,000 each, in 652 communes, several districts, one principality, +and one grand duchy. In 1911 it was inserted in the imperial fiscal +system, and thus extended over the whole German Empire. While these +laws are all alike in certain essentials, they vary greatly in +details. They agree in taking only a per cent. of the value increases, +and in imposing a higher rate on the more rapid increases. The rates +of the imperial law vary from ten per cent. on increases of ten per +cent. or less to thirty per cent. on increases of 290 per cent. or +over. In Dortmund the scale progresses from one to 12-1/2 per cent. +Inasmuch as the highest rate in the imperial law is 30 per cent., and +in any municipal law (Cologne and Frankfort) 25 per cent.; inasmuch as +all the laws allow deductions from the tax to cover the interest that +was not obtained while the land was unproductive; and inasmuch as only +those increases are taxed which are measured from the value that the +land had when it came into the possession of the present owner,--it is +clear that landowners are not obliged to undergo any positive loss, +and that they are permitted to retain the lion's share of the +"unearned increment."[96] + +It is to be noted that most of the German laws are retroactive, since +they apply not merely to future value increases, but to some of those +that occurred before the law was enacted. Thus, the Hamburg ordinance +measures the increases from the last sale, no matter how long ago that +transaction took place. The imperial law uses the same starting point, +except in cases where the last sale occurred before 1885. Accordingly, +a man who had in 1880 paid 2500 marks for a piece of land which in +1885 was worth only 2000 marks, and who sold it for 3000 marks after +the law went into effect, would pay the increment tax on 1000 +marks,--unless he could prove that his purchase price was 2500 marks. +In all such cases the burden of proof is on the owner to show that the +value of the land in 1885 was lower than when he had bought it at the +earlier date. Obviously this retroactive feature of the German +legislation inflicts no wrong on the owner, since it does not touch +value increases that he has paid for. Indeed, the value of the land +when it came into the present owner's possession seems to be a fairer +and more easily ascertained basis from which to reckon increases than +any date subsequent to the enactment of the law. On the one hand, +persons whose lands had fallen in value during their ownership would +be automatically excluded from the operation of the law until such +time as the acquisition value was again reached; on the other hand, +those owners whose lands had increased in value before the law went +into effect would be taxed as well as those whose gains began after +that event; thus the law would reach a greater proportion of the +existing beneficiaries of "unearned increment." Moreover, it would +bring in a larger amount of revenue. + +The British law formed a part of the famous Lloyd-George budget of +1909. It taxes only those increments that occur after its enactment. +These are subject to a tax of twenty per cent. on the occasion of the +next transfer of the land, by sale, bequest, or otherwise.[97] In some +cases this arrangement will undoubtedly cause hardship. For example: +if land which was bought for 1,000 pounds in 1900 had fallen to 800 +pounds in 1909, and were sold for 1,000 pounds in 1915, the owner +would have to pay a tax of twenty per cent. on 200 pounds. This would +mean a net loss of forty pounds, to say nothing of the loss of +interest in case the land was unproductive. It would seem that some +compensation ought to be given here; yet the rarity of such +instances, the administrative difficulties, and the general advantages +of this sort of legislation quite conceivably might forbid the +conclusion that the owner was made to suffer certain injustice. The +compensating social advantages of the increment tax as well as of +other special taxes on land, will receive adequate discussion +presently. + + +_Transferring Other Taxes to Land_ + +Another taxation plan for reducing the evils of our land system +consists in the imposition of special taxes on the _present_ value of +land. As a rule, these imply, not an addition to the total tax levy, +but a transfer of taxes from other forms of property. The usual +practice is to begin by exempting either partly or wholly buildings +and other kinds of improvements from taxation, and then to apply the +same measure to certain kinds of personal property. In most cases the +transfer of such taxes to land is gradual, extending over a period of +five, ten, or fifteen years. The plan is in operation in Canada and +Australasia, and to a slight extent in the United States. + +It has received its greatest development in the western provinces of +Canada; namely, British Columbia, Alberta, Saskatchewan, and Manitoba. +The cities of Edmonton, Medicine Hat, and Red Deer; Vancouver, +Victoria, and thirteen others of the thirty-three cities of British +Columbia; all the towns of Alberta except two; all but one of the +villages of Alberta, and one-fourth of those in Saskatchewan; all the +rural municipalities and local improvements districts in Alberta, +Manitoba, and Saskatchewan, and 24 of the 28 in British +Columbia,--exempt improvements entirely from taxation. The three +cities in Alberta which retain some taxes on improvements; all the +cities and towns and three-fourths of the villages in Saskatchewan; +the four largest cities in Manitoba; and a considerable number of the +municipalities in Ontario (by the device of illegal under-assessment +in this instance),--tax improvements at less than full value, in some +cases as low as fifteen per cent. Land is invariably assessed at its +full value. It is to be observed that these special land taxes provide +only local revenues; they do not contribute anything to the +maintenance of either the provincial or the dominion governments. The +reason why the local jurisdictions have adopted these taxes so much +more extensively in Alberta than in the other provinces is to be found +in a provincial law enacted in 1912, which requires all towns, +villages, and rural areas to establish within seven years the practice +of exempting from taxation personal property and buildings. +Saskatchewan permits cities and towns to tax improvements up to sixty +per cent. of their value, while British Columbia and Manitoba leave +the matter entirely in the hands of the local authorities. The +provincial revenues are derived from many sources, chiefly real +estate, personal property, and incomes; but British Columbia, +Saskatchewan, and Alberta levy a special tax on unimproved and only +slightly improved rural land. The rate of this "wild lands tax" is in +British Columbia four per cent., and in the other two provinces one +per cent. Some of the municipalities of British Columbia and +Saskatchewan also impose a "wild lands tax." By a law passed in 1913 +Alberta levies a provincial tax of five per cent. on the value +increases of non-agricultural lands. A movement for the reduction of +the tax on buildings has developed considerable strength in the +eastern provinces of Ontario, Nova Scotia, and New Brunswick.[98] + +New Zealand and most of the states of Australia have for several years +levied special taxes on land, consisting mainly of general rates on +estates of moderate size, and a progressive super tax on large +estates. The Commonwealth of Australia also imposes a tax of one penny +in the pound on the value of land. A considerable proportion of the +cities and towns in both New Zealand and Australia derive practically +all their revenues from land, exempting improvements entirely. In both +countries, however, the bulk of the total revenue is obtained from +other sources than land taxes. In New Zealand they yield less than +thirteen per cent. of the national receipts.[99] + +Pittsburgh and Scranton were required by a law enacted in 1913 to +reduce the local tax rate on buildings at such a pace that in 1925 and +thereafter it would be only one-half the highest rate on other forms +of property. Everett, Wash., and Pueblo, Col., within recent years +adopted by popular vote more sweeping measures of the same character, +but the Everett law has never gone into effect, and the Pueblo statute +was repealed two years after it had been passed. In many cities of the +United States, buildings are undervalued relatively to land by the +informal and illegal action of assessors. The most pronounced and best +known instance of this kind is Houston, Texas, where in 1914 land was +assessed at seventy per cent. of its value and buildings at only +twenty-five per cent. In 1915, however, the practice was forbidden by +the courts as contrary to the Texas constitution. At more than one +recent session of the New York legislature, bills have been introduced +providing for the gradual reduction of the tax on buildings in New +York City to a basis of fifty per cent. of their value. While none of +them has been passed, the sentiment in favour of some such measure is +probably increasing. A similar movement of opinion is apparent in many +other sections of the country. + +On the whole, the special land taxes of Canada and Australasia are not +remarkably high. They seem to be as low or lower than the average +rates imposed on land, as well as on other forms of general property, +in the United States. In the provinces, the special land taxes provide +only a small portion of the total revenues; in the cities and towns, +there are, as a rule, other sources of revenue as well as land, and +the expenses of municipal government are probably not as high as in +this country. Hence the land taxes of Canada have not reached an +abnormally high level, and are probably lower than most persons who +have heard of them would be inclined to expect. The chief exceptions +to the foregoing statements are to be found in the "wild lands tax" of +British Columbia, and in the land taxes of some of the towns (not the +cities) of Alberta. A rate of four per cent. on unimproved and +slightly improved rural land is extraordinary in fiscal annals, and is +scarcely warranted by any received principle of taxation, although it +may possibly be justified by peculiar social and administrative +conditions in the province of British Columbia. Some of the smaller +towns of Alberta which adopted the land tax during the recent period +of depression have been compelled to impose even higher rates, the +maximum being reached by Castor in 1912, with a rate of 8-1/2 per +cent. As a natural consequence, a large proportion of the land in this +town was surrendered by its owners to the municipality. While this +amazing tax rate is probably temporary, and is likely to be lowered +after the return of the average conditions of prosperity, it inflicts +unfair hardship upon those owners whose circumstances are such that +they must give up their land, instead of awaiting the hoped for +decline in the rate of taxation. + + +_The Morality of the Plan_ + +The losses of various kinds that would result from the transfer of +other taxes to land may be thus summarised. Land would depreciate in +value by an amount equal to the capitalised tax. For example; if the +rate of interest were five per cent., an additional tax of one per +cent. would reduce land worth one hundred dollars an acre to eighty +dollars. This decline might, indeed, be partly, wholly, or more than +offset by a simultaneous rise due to economic forces. In any case, +however, the land would be worth twenty dollars less than it would +have been worth had the tax not been imposed. For some owners this +would mean a positive loss; for others it would signify mere failure +to gain. The latter would happen in the case of all those owners who +at any time after the imposition of the tax sold their land at as high +a price as they had paid for it. Not all of the owners whose land was +forced by the tax to a figure below their purchase price would suffer +positive loss; for the land might subsequently rise in value +sufficiently to wipe out the unfavourable difference. In this respect +a special tax on the present value of land has a different effect from +a tax that appropriates all the future value increases. Only those +owners who actually sold their land below their purchase price could +charge the former tax with inflicting upon them positive losses. In +the case of the land exemplified above, the owner who sold at ninety +dollars per acre could properly attribute to the tax a loss of ten +dollars; the owner who sold at eighty dollars would have a grievance +amounting to twenty dollars; and a loss would be suffered by any owner +who sold for less than eighty dollars. In the second place, all owners +of vacant land who sold at a price insufficient to provide for +accumulated interest on the purchase price, could justly hold the tax +responsible, so long as the deficiency did not exceed the +value-depreciation caused by the tax. Thirdly, all persons whose land +had an unusually high value relatively to the value of their exempted +property, would suffer losses as taxpayers. They would lose more +through the heavier land taxes than they would gain through the +lighter taxes, or the absence of taxes, on their other property. + +To compensate all owners who underwent these three kinds of losses +would be practically impossible. The number of persons would be too +large, the difficulty of proving many of the claims would be too +expensive, and the compensation process would be too long drawn out, +since it would have to continue until the death of all persons who had +owned land when the last instalment of the increased land taxes went +into effect. Therefore, the losses in question must be counterbalanced +by other and indirect methods. These will be found mainly in the +following considerations: the amount of the new taxes; the gradual +method of imposing them; and their socially beneficial results. + + +_Amount of Taxes Practically Transferable_ + +According to Professor King's computations, the total rent of land in +the United States in 1910 was $2,673,900,000, while the total +expenditures of national, state, county and city governments were +$2,591,800,000.[100] In his opinion (p. 162) "the rent would have been +barely sufficient to pay off the various governmental budgets as at +present constituted, and with the growing concentration of activities +in the hands of the government, it appears that rent will soon be a +quantity far too small to meet the required changes. With increasing +pressure on our natural resources, however, it is probable that the +percentage of the total income paid for rent will gradually increase +and, since this is true, the lag behind the growing governmental +expenses will be considerably less than would otherwise be the case." + +A change in our fiscal system providing for the immediate derivation +of all revenues from land taxes would, therefore, involve the +confiscation of all rent, and the destruction of all private land +values. Land would be worth nothing to the owners when its entire +annual return was taken by the State in the guise of taxes. Even if +the process of imposing the new taxes on land were extended over a +long term of years the same result would be reached in the end; for +whatever increase had taken place in the economic value of land during +the process would in all probability have been neutralised by the +increase in governmental expenditures. It is evident, therefore, that +the proposal to put _all_ taxes on land must be rejected on grounds of +both morals and expediency. + +Let us suppose that all national revenues continued, as now, to be +raised from other sources than land, and that all state, county, and +city revenues remained as they are, except those derived from the +general property tax. This would mean that all the following taxes +would be unchanged: all federal taxes, the taxes on licenses of all +kinds, all taxes on business, incomes, and inheritances, and all +special property taxes. If, then, the whole of the general property +tax were concentrated on land; that is, if all the taxes on +improvements and on all forms of personal property were legally +shifted to land,--the entire revenue to be raised from land would in +1912 have amounted to $1,349,841,038.[101] This is slightly more than +one-half of Professor King's estimate of the total rent for 1910, +which was $2,673,900,000. But this figure equals four per cent. of the +land values of the country; hence the concentration of the general +property tax on land would mean a tax rate of two per cent. on the +full value of the land. + +How much would this change increase the present rate of land taxes, +and decrease existing land values? While no accurate and definite +answer can be given to either of these questions, certain +approximations can be attempted which should be of considerable +service. + +In 1912 the average tax rate on the assessed valuation of all goods +subject to the general property tax was .0194, or $19.40 per thousand +dollars.[102] The assessed valuation of taxed real property and +improvements (land, buildings, and other improvements) was nearly +fifty-two billion dollars, while the true value of the same property +was nearly ninety-eight and one-half billions.[103] Consequently, the +actual tax rate of .0194 on the assessed valuation was exactly one per +cent. on the true value of real estate. On the assumption that both +land and improvements were undervalued to the same extent, the land +tax was one per cent. of the full value of the land. If now we take +Thomas G. Shearman's estimate, that land values form sixty per cent. +of the total value of real estate, we find that the taxes derived from +land constituted only forty-four per cent. of the total revenues +raised by the general property tax. To concentrate the whole of the +general property tax on land, by transferring thereto the taxes on +improvements and on personal property, would, accordingly, cause the +land tax to be somewhat more than doubled. It would be slightly above +two per cent. on the full value of the land. This is the same estimate +that we obtained above by a different process; that is, by comparing +Professor King's estimate of land value and rent with the total +revenues derived from the general property tax. + +However, it is not improbable that sixty per cent. is too low an +estimate of the ratio of land values to entire real estate values. In +1900, farm land and improvements, exclusive of buildings, formed 78.6 +per cent. of the value of real estate, i.e., land, improvements, and +buildings. In 1910, the per cent. was a little less than 82. Now it is +quite unlikely that the value of non-building improvements on farms +amounted to the difference between sixty per cent. and seventy-eight +per cent. in 1900, or between sixty per cent. and eighty-two per cent. +in 1910. Hence the value of farm land is something more than sixty per +cent. of farm real estate. On the other hand, the value of factory +land in 1900 formed only 41.5 per cent. of the total value of factory +land and buildings, while the value of city and town lots in five +rural states varied from 34 to 62 per cent. of this species of real +estate.[104] In Greater New York land constitutes 61 per cent. of real +estate values.[105] Owing to the lack of data, the average ratio for +all kinds of real estate for the whole country is impossible of +determination. If the estimate of seventy per cent. be adopted, which +is probably the upper limit of the average proportion between land +values and real estate values throughout the country, the portion of +the general property tax now paid by land amounts to about fifty-two +per cent. Consequently the imposition of the whole general property +tax on land would not quite double the present rate on land. To the +first of the two questions raised above the answer can be given with a +fair amount of confidence that the transfer of improvement and +personal property taxes to land would cause land taxes to be about +twice what they are at present. + +To the second question, concerning the extent to which land values +would fall in consequence of the heavier taxes, the answer must be +somewhat less definite. The added land taxes would be about one-half +the present general property taxes, or $675,000,000. This is about one +per cent. the total land values of the country. One per cent. of land +values capitalised at five per cent. represents a depreciation of +twenty per cent. in the value of land; capitalised at four per cent., +it represents a depreciation of twenty-five per cent. For example; if +land worth one hundred dollars an acre returns to its owner a net +income of five dollars annually, the appropriation of one dollar by a +new tax will leave a net revenue of only four dollars; capitalised at +the current rate of five per cent., this represents only eighty +dollars of land value, or a depreciation of twenty per cent. If the +land has the same value of one hundred dollars, and still yields only +four dollars revenue, a deduction of one dollar in new taxes will +leave only three dollars net; capitalised at the current rate of four +per cent., this represents only seventy-five dollars of land value, or +a depreciation of twenty-five per cent. Using the other method of +calculation, which estimated the present tax rate on the full value of +land at one per cent., we get exactly the same results; namely, the +new tax is one per cent., which is equivalent to a depreciation of +twenty per cent. or of twenty-five per cent., according as we assume +an interest rate of five per cent. or of four per cent. Suppose, +however, that the assessors do not undervalue land to the extent that +we have been assuming; suppose that the present rate of .0194 on +assessed valuation is equivalent to, not merely one per cent., but one +and one-half per cent. of the full value of land. In that hypothesis +the additional tax would likewise be one and one-half per cent., which +capitalised at five per cent, would represent a depreciation of thirty +per cent., and at four per cent. a depreciation of thirty-seven and +one-half per cent. Combining in one generalisation the various +suppositions made in this paragraph, we estimate the depreciation of +land values resulting from the proposed tax transfer as somewhere +between twenty and forty per cent. + +We have considered two hypothetical transfers of taxes to land. The +first we found to be out of the question because it would appropriate +the whole of the rent and destroy all private land values. The second +would apparently amount to two per cent. of the value of land, and +cause land values to depreciate from twenty to forty per cent. It is +unnecessary to consider the probable effects of any plan that would +involve heavier land taxes than the second; that is, the scheme of +imposing all the general property tax on land; for it represents the +extreme feasible and fair limit of the movement within, at any rate, +the next fifteen or twenty years. + +Even this degree of tax transference would be unjust to the landowners +if it were brought about at once. No social or other considerations +exist that would justify a depreciation in land values of from twenty +to forty per cent. If, however, the process were extended over a +period of, say, twenty years, the decline would be only one or two per +cent. annually, which is considerably less than the rate at which farm +lands and the land in large cities have risen in value during recent +years. Under such an arrangement the great majority of owners would +probably find that the depreciation caused by the heavier land taxes, +had been more than offset by the upward tendency resulting from the +increased demand for land. + +Nevertheless, there would still be positive losses of the three kinds +described a few pages back; namely, to owners who sold land below the +price that they had paid for it; to owners who sold vacant land at a +price insufficient to cover accumulated interest on the investment; +and to owners whose aggregate tax burdens were increased. Some degree +of each of these sorts of losses would be due specifically to the new +land taxes. As noted above, public compensation in all such cases +would be impracticable. Consequently the justification of a law that +inflicts such losses must be found, if it exists, in social +considerations. + + +_The Social Benefits of the Plan_ + +These may be summed up under three heads: making land easier to +acquire; cheapening the products and rent of land; and reducing the +burdens of taxation borne by the poorer and middle classes. An +increase in the tax on land would reduce its value and price, or at +least cause the price to be lower than it would have been in the +absence of the tax. This does not mean that land would be more +profitable to the purchaser, since he is enabled to buy it at a lower +price only because it yields him less net revenue, or because it is +less likely to increase in value. The value of land is always +determined by its revenue-producing power, and by its probabilities of +price-appreciation. Consequently, what the purchasers would gain by +the lower price resulting from the new tax, they would lose when they +came to pay the tax itself, and when they found the chances of value +increases diminished. If a piece of land which brings a return of five +dollars a year costs one hundred dollars before the new tax of one per +cent. is imposed, and can be bought for eighty dollars afterward, the +net interest on the purchase price has not changed. It is still five +per cent. Hence the only advantage to the prospective purchaser of +land in getting it cheaper consists in the fact that he can obtain it +with a smaller outlay of capital. For persons in moderate +circumstances this is a very important consideration. + +In the second place, higher taxes would cause many existing owners +either to improve their land, in order to have the means of meeting +the added fiscal charges, or to sell it to persons who would be +willing to make improvements. And the desire to erect buildings and +other forms of improvements would be reinforced by the reduction or +abolition of taxes on those kinds of personal property which consist +of building materials. An increase in the rapidity of improvements on +land would mean an increase in the rate at which land was brought into +use, and therefore an unusual increase in the volume of products. This +virtual increase in the supply of land, and actual increase in the +supply of products, would cause a fall in three kinds of prices: the +price of products, the rent of land, and the price of land. The last +named reduction would be distinct from the reduction of land value +caused in the first instance by the imposition of the tax. + +In the third place, the reduction, and finally the abolition, of taxes +on improvements and personal property would be especially beneficial +to the poorer and middle classes because they now pay a +disproportionate share of these charges. Lower taxes on dwellings +would mean lower rents for all persons who did not own their homes, +and lower taxes for all owners whose residence values were unusually +large relatively to their land values. And the tendency to lower rents +on dwellings would be reinforced by the lower cost of building +materials resulting, as noted above, from the increased supply and the +lower tax on this form of personal property. Lower taxes on that +species of personal property which consists of consumers' goods, such +as household furniture and wearing apparel, would lessen the present +inequity of taxation because this class of goods is reached to a much +greater extent in the case of the poor than in the case of the rich. +It is not easy to conceal or to undervalue a relatively small number +of simple and standard articles; but diamonds, costly furniture, and +luxurious wardrobes can be either hidden, or certified to the assessor +at a low valuation. As for those forms of personal property which are +of the nature of capital and other profit producing goods, such as +machinery and tools of all kinds, productive animals, money, +mortgages, securities, the stocks of goods held by manufacturers and +merchants, and likewise buildings which are used for productive +purposes,--the taxes on all these kinds of property are for the most +part shifted to the consumer. The latter ultimately pays the tax in +the form of higher prices for food, clothing, shelter, and the other +necessaries and comforts of life.[106] Now a tax on consumption is +notoriously unfair to the poorer and middle classes because it affects +a greater portion of their total expenditures, and takes a larger per +cent. of their income than in the case of the rich. Hence the removal +of the taxes specified in this paragraph would be at once the +abolition of a fiscal injustice, and a considerable assistance to the +less fortunate classes. + +All those landowners who occupied rented dwellings would benefit by +the reduction in house rent, and all landowners without exception +would reap some advantage from the reduction or abolition of the taxes +on consumers' goods and on the various forms of producers' goods. It +is not improbable that a considerable proportion of them would gain as +much in these respects as they would lose in the capacity of +landowners. + +Would the social benefits summarily described in the foregoing +paragraphs be sufficient to justify the increased land taxes in the +face of the losses that would be undergone by some landowners in the +three ways already specified? In view of our ignorance concerning the +probable amount of benefits on the one hand and losses on the other, +it is impossible to give a dogmatic answer. However, when we reflect +on the manifold social evils that are threatened by a rapid and +continuous increase in land values, and the resulting decrease in the +proportion of the population that can hope to participate in the +ownership of land, we are forced to conclude that some means of +checking both tendencies is urgently necessary for the sake of social +justice and social peace. The project that we have been considering; +namely, the transfer of taxes on improvements and on personal property +to land by a process extending over twenty years, seems to involve a +sufficiently large amount of advantage and a sufficiently small amount +of disadvantage to justify systematic and careful experiment. + + +_A Supertax on Large Holdings_ + +Every estate containing more than a maximum number of acres, say, ten +thousand, whether composed of a single tract or of several tracts, +could be compelled to pay a special tax in addition to the ordinary +tax levied on land of the same value. The rate of this supertax +should increase with the size of the estate above the fixed maximum. +Through this device large holdings could be broken up, and divided +among many owners and occupiers. For several years it has been +successfully applied for this purpose in New Zealand and +Australia.[107] Inasmuch as this tax exemplifies the principle of +progression, it is in accord with the principles of justice; for +relative ability to pay is closely connected with relative sacrifice. +Other things being equal, the less the sacrifice involved, the greater +is the ability of the individual to pay the tax. Thus, the man with an +income of ten thousand dollars a year makes a smaller sacrifice in +giving up two per cent. of it than the man whose income is only one +thousand dollars; for the latter case the twenty dollars surrendered +represent a privation of the necessaries or the elementary comforts of +life, while the two hundred dollars taken from the rich man would have +been expended for luxuries or converted into capital. While the +incomes of both are reduced in the same proportion, their +satisfactions are not diminished to the same degree. The wants that +are deprived of satisfaction are much less important in the case of +the richer than in that of the poorer man. Hence the only way to bring +about anything like equality of sacrifice between them is to increase +the proportion of income taken from the former. This means that the +rate of taxation would be progressive.[108] + +It is in order to object that the principle of progression should not +be applied to the taxation of great landed estates, since a +considerable part of them is unproductive, and consequently does not +directly affect sacrifice. But the same objection can be urged against +any taxation of unoccupied land. The obvious reply is that the equal +taxation of unproductive with productive land is justified by social +reasons, chiefly, the unwisdom of permitting land to be held out of +use. The same social reasons apply to the question of levying an +exceptionally high tax on large estates, even though they may at +present produce no revenue. + +While the tax is sound in principle, it is probably not much needed in +America in connection with agricultural or urban land. Its main sphere +of usefulness would seem to be certain great holdings of mineral, +timber, and water power lands. "There are many great combinations in +other industries whose formation is complete. In the lumber industry, +on the other hand, the Bureau now finds in the making a combination +caused, fundamentally, by a long standing public policy. The +concentration already existing is sufficiently impressive. Still more +impressive are the possibilities for the future. In the last forty +years concentration has so proceeded that 195 holders, many +interrelated, now have practically one-half of the privately owned +timber in the investigation area (which contains eighty per cent. of +the whole). This formidable process of concentration, in timber and in +land, clearly involves grave future possibilities of impregnable +monopolistic conditions, whose far reaching consequences to society it +is now difficult to anticipate fully or to overestimate."[109] In +January, 1916, the Secretary of Agriculture called the attention of +Congress to the fact that a small number of corporations closely +associated in a policy of community of interest were threatening to +secure and exercise a monopoly over the developed water power of the +country. Ninety per cent. of the anthracite coal lands of Pennsylvania +are owned or controlled by some nine railroads acting as a unit in all +important matters. For situations of this kind a supertax on large +estates would seem to hold the promise of a large measure of relief. + +To sum up the main conclusions of this very long chapter: +Exceptionally valuable lands, as those containing timber, minerals, +oil, gas, phosphate, and water power, which are still under public +ownership should remain there. Through a judicious system of loans, +deserving and efficient persons should be assisted to get possession +of some land. Municipalities should lease rather than sell their +lands, and should strive to increase their holdings. To take all the +future increases in the value of land would be morally lawful, +provided that compensation were given to owners who thereby suffered +positive losses of interest or principal. To take a small part of the +increase, and to transfer very gradually the taxes on improvements and +on personal property to land, would probably be just, owing to the +beneficial effects upon public welfare. A supertax on large holdings +of exceptionally valuable and scarce land would likewise be beneficial +and legitimate.[110] + + +REFERENCES ON SECTION I + + ASHLEY: The Origin of Property in Land. London; 1892. + + LAVELEYE: Primitive Property. London; 1878. + + WHITTAKER: The Taxation, Tenure, and Ownership of Land. + London; 1914. + + PREUSS: The Fundamental Fallacy of Socialism. St. Louis; + 1908. + + GEORGE: Progress and Poverty; and A Perplexed Philosopher. + + MARSH: Land Value Taxation in American Cities. N. Y.; 1911. + + FILLEBROWN: A Single Tax Handbook for 1913. Boston; 1912. + + YOUNG: The Single Tax Movement in the United States. + Princeton; 1916. + + SHEARMAN: Natural Taxation. N. Y.; 1898. + + MATHEWS: Taxation and the Distribution of Wealth. N. Y.; + 1914. + + CATHREIN: Das Privatgrundeigenthum und seine Gegner. + Freiburg; 1909. + + FALLON: Les Plus-Values et l'Impot. Paris; 1914. + + NEARING: Anthracite. Philadelphia; 1916. + + HAIG: Final Report of the Committee on Taxation of the City + of New York; 1916. + + The exemption of Improvements from Taxation in Canada and U. + S.; 1915. + + Some Probable Effects of Exemption in City of New York; 1915. + + KELLEHER: Private Ownership. Dublin; 1911. + + Proceedings of the 1913 Meeting of the American Economic + Association. + + U. S. COMMISSIONER OF CORPORATIONS: Reports on the Lumber, + Petroleum, Steel, and Water Power of the United States. + + SELIGMAN: Essays in Taxation; Shifting and Incidence of + Taxation; and Progressive Taxation in Theory and Practice. + + Also the works of Taussig, Devas, Carver, Pesch, King, + Vermeersch, Willoughby, and the Commission on Industrial + Relations, all of which are cited at the end of the + introductory chapter. + +FOOTNOTES: + +[84] "Summary of Report of the Commissioner of Corporations on the +Timber Industry in the United States," p. 3. + +[85] "Report of the Commissioner of Corporations on Water Power +Development in the United States," pp. 193-195. + +[86] Idem, pp. 4, 5. + +[87] "Abstract of the Thirteenth Census," p. 552. + +[88] Cf. Marsh, "Land Value Taxation in American Cities," p. 95. + +[89] Municipal purchase and ownership of land have been advocated by +such a conservative authority as the Rev. Heinrich Pesch, S.J. +"Lehrbuch der Nationaloekonomie," I, 203. + +[90] As we shall see in a later chapter, the confiscation and +injustice would be smaller if the State should simultaneously abolish +interest. In any case, the decline in land value resulting from +complete confiscation of rent should be made up to the private owner +by public compensation. + +[91] "Principles of Political Economy," book V, ch. 2, sect. v. + +[92] "Progressive Taxation in Theory and Practice," 1908, p. 130. + +[93] Cf. Taussig, "Principles of Economics," II, 516: Seligman, "The +Shifting and Incidence of Taxation," p. 223. + +[94] The "discrimination" objection is put in a somewhat different +form by the Rev. Sydney F. Smith, S.J., in an article in _The Month_, +Sept., 1909, entitled "The Theory of Unearned Increment." His argument +is in substance that if the people of a city can claim the increases +in land values which their presence and activity have occasioned, the +purchasers of food, clothes, books, or concert tickets are equally +justified in claiming that, "having added to the value of the shops +and music halls, they had acquired a co-proprietary right in the +increased value of the owners' stock, and the owners' premises." While +this argument is specifically directed against those who maintain that +the "social production" of values confers a right thereto, it affects +to some extent our thesis that there is a vast difference between +value-increases in land and in other goods. Father Smith seems to +confuse the origination of value with the increase of value. The +presence of consumers is an obvious prerequisite to the existence of +any value at all in any kind of goods, but labour and financial outlay +on the part of the producers of the goods are an equally indispensable +prerequisite. The reason why the value is appropriated by the latter +rather than the former is that this is clearly the only rational +method of distribution. What we are concerned with here, however, is +not this initial or cost-of-production-value of artificial goods, but +the _increases_ in value above this level which are brought about by +external and social influences. Theoretically, the State could as +reasonably take these as the increases in the value of land; +practically, such a performance is out of the question, for the simple +reason that such increases are spasmodic and exceptional. If Father +Smith thinks that "food or clothes, or books, or concert tickets" +regularly advance above the cost-of-production-value, he is simply +mistaken. Since these and other artificial goods bring to their owners +as a rule no socially occasioned increments of value, they and their +owners are in quite a different situation from land and the owners of +land. + +[95] Cf. Seligman, "Progressive Taxation in Theory and Practice," part +II, chs. ii and iii; also the classic refutation of the "benefit" +theory by John Stuart Mill in "Principles of Political Economy," book +V, ch. ii, sec. 2. The traditional Catholic teaching on the subject is +compactly stated by Cardinal de Lugo in "De Justitia et Jure," disp. +36; cf. Devas, "Political Economy," p. 594, 2d ed. + +[96] Cf. Fallon, "Les Plus-Values et l'Impot," pp. 455, sq.; Paris, +1914; Fillebrown, "A Single Tax Handbook for 1913"; Boston, 1912; +Marsh, "Taxation of Land Values in American Cities," pp. 90-92; New +York, 1911; "The Quarterly Journal of Economics," vols. 22, 24, 25; +"The Single Tax Review," March-April, 1912; "Stimmen aus Maria-Laach," +Oct., 1907. + +[97] See the references in the second last paragraph. + +[98] The most comprehensive and reliable account of the special land +taxes in Canada is contained in the report prepared for the Committee +on Taxation of the City of New York, by Robert Murray Haig, Ph.D., +entitled, "The Exemption of Improvements from Taxation in Canada and +the United States"; New York, 1915. See also Fallon, op. cit., pp. +452-455. + +[99] Cf. Fallon, op. cit., pp. 443-452. + +[100] "The Wealth and Income of the People of the United States," pp. +158, 143. + +[101] "Abstract of Bulletins on Wealth, Debt, and Taxation," p. 16; U. +S. Census, 1913. + +[102] Idem, p. 15. + +[103] Idem, p. 16; and Bulletin of the Census on "Estimated Valuation +of National Wealth," p. 15. + +[104] "Special Report of the Twelfth Census on Wealth, Debt, and +Taxation," pp. 12, 13. + +[105] Haig, "Probable Effects of Exemption of Improvements....", p. +23. + +[106] Cf. Seligman, "The Shifting and Incidence of Taxation," pp. 187, +245, 272, and all of part II; N. Y., 1899; Taussig, "Principles of +Economics," II, 518-549, and chs. 67-69. + +[107] Cf. Fallon, op. cit., pp. 442, sq. + +[108] Cf. Vermeersch, "Quaestiones de Justitia," pp. 94-126; Seligman, +"Progressive Taxation in Theory and Practice," pp. 210, 211; Mill, +"Principles of Political Economy," book V, ch. ii, sec. 3. + +[109] "Summary of Report of the Commissioner of Corporations on the +Lumber Industry in the United States," p. 8. + +[110] Probably the most concrete and satisfactory discussion of the +increment tax and the project to transfer improvement taxes to land, +is that presented in the "Final Report of the Committee on Taxation of +the City of New York"; 1916. It contains brief, though complete, +statements of all phases of the subject, together with concise +arguments on both sides, majority and minority recommendations, a +great variety of dissenting individual opinions, and considerable +testimony by experts, authorities, and other interested persons. + + + + +SECTION II + +THE MORALITY OF PRIVATE CAPITAL AND INTEREST + + + + +CHAPTER IX + +THE NATURE AND THE RATE OF INTEREST + + +Interest denotes that part of the product of industry which goes to +the capitalist. As the ownership of land commands rent, so the +ownership of capital commands interest; as rent is a price paid for +the use of land, so interest is a price paid for the use of capital. + +However, the term capital is less definite and unambiguous, both in +popular and in economic usage, than the word land. The farmer, the +merchant, and the manufacturer often speak of their land, buildings, +and chattels as their capital, and reckon the returns from all these +sources as equivalent to a certain per cent. of interest or profit. +This is not technically correct; when we use the terms capital and +interest we should exclude the notions of land and rent. + + +_Meaning of Capital and Capitalist_ + +Capital is ordinarily defined as, wealth employed directly for the +production of new wealth. According as it is considered in the +abstract or the concrete, it is capital-value or capital-instruments. +For example, the owner of a wagon factory may describe his capital as +having a value of 100,000 dollars, or as consisting of certain +buildings, machines, tools, office furniture, etc. In the former case +he thinks of his capital as so much abstract value which, through a +sale, he could take out of the factory, and put into other concrete +capital forms, such as a railroad or a jobbing house. In the latter +case he has in mind the particular instruments in which his capital is +at present embodied. The capital-value concept is the more convenient, +and is usually intended when the word capital is used without +qualification. It is also the basis upon which interest is reckoned; +for the capitalist does not measure his share of the product as so +many dollars of rent on his capital-instruments, but as so many per +cent. on his capital-value. + +Capitalists are of two principal kinds: those who employ their own +money in their own enterprises; and those who lend their money to +others for use in industry. The former may be called active +capitalists, the latter loan-capitalists. Perhaps a majority of active +capitalists use some borrowed money in their business. To the lenders +of this borrowed money or capital they turn over a part of the product +in the form of interest. When, therefore, interest is defined as the +share of the product that goes to the capitalist, it is the owner of +capital-value rather than of capital-instruments that is meant. For +the man who has loaned 50,000 dollars at five per cent. to the wagon +manufacturer is not, except hypothetically, the owner of the buildings +which have been erected with that money. These are owned (subject +possibly to a mortgage) by the borrower, the active capitalist. But +the abstract value which has gone into them continues to be the +property of the lender. As owner thereof, he, instead of the active +capitalist, receives the interest that is assigned to this portion of +the total capital. Hence interest is the share of the product that is +taken by the owner of capital, whether he employs it himself or lends +it to some one else. While the fundamental reason of interest is the +fact that certain concrete instruments are necessary to the making of +the product, interest is always _reckoned_ on capital-value, and goes +to the owner of the capital-value. It goes to the man whose money has +been put into the instruments, whether or not he is the owner of the +instruments. + + +_Meaning of Interest_ + +Interest is the share of the capitalist as capitalist. The man who +employs his own capital in his own business receives therefrom in +addition to interest other returns. Let us suppose that some one has +invested 100,000 dollars of borrowed money and 100,000 dollars of his +own money in a wholesale grocery business. At the end of the year, +after defraying the cost of labour, materials, rent, repairs, and +replacement, his gross returns are 15,000 dollars. Out of this sum he +must pay five thousand dollars as interest on the money that he has +borrowed. This leaves him a total amount of ten thousand dollars, as +his share of the product of the industry. Since he could command a +salary of three thousand dollars if he worked for some one else, he +regards his labour of directing his own business as worth at least +this sum. Deducting it from ten thousand dollars, he has left seven +thousand dollars, which must in some sense be accredited as payment +for the use of his own capital. However, it is not all pure interest; +for he runs the risk of losing his capital, and also of failing to get +the normal rate of interest on it during future unprosperous years. +Hence he will require a part of the seven thousand dollars as +insurance against these two contingencies. Two per cent. of his +capital, or two thousand dollars, is not an excessive allowance. If +the business did not provide him with this amount of insurance he +would probably regard it as unsafe, and would sell it and invest his +money elsewhere. Subtracting two thousand dollars from seven thousand, +we have five thousand left as pure interest on the director's own +capital. This is equivalent to five per cent., which is the rate that +he is paying on the capital that he has borrowed. If he could not get +this rate on his own money he would probably prefer to become a lender +himself, a loan capitalist instead of an active capitalist. This part +of his total share, then, and only this part, is pure interest. The +other two sums that he receives, the three thousand dollars and the +two thousand dollars, are respectively wages for his labour and +insurance against his risks. Sometimes they are classified together +under the general name of profits. + +Let us suppose, however, that the gross returns are not 15,000 +dollars, but 17,000. How is the additional sum to be denominated? In +strict economic language it would probably be called net profits, as +distinguished from normal or necessary profits, which comprise wages +of direction and insurance against loss. Sometimes it is called +interest. In that case the owner of the store would receive seven +instead of five per cent, on his own capital. Whether the extra two +per cent. (2,000 dollars) be called net profits or surplus interest, +is mainly a matter of terminology. The important thing is to indicate +clearly that these terms designate the surplus which goes to the +active capitalist in addition to necessary profits and necessary +interest. + +At the risk of wearisome repetition, one more example will be given to +illustrate the distinction between interest and the other returns that +are received in connection with capital. The annual income from a +railway bond is interest on lender's capital, and consequently pure +interest. Ordinarily the bondholder is adequately protected against +the loss of his capital by a mortgage on the railroad. On the other +hand, the holder of a share of railway stock is a part owner of the +railroad, and consequently incurs the risk of losing his property. +Hence the dividend that he receives on his stock comprises interest on +capital plus insurance against loss. It is usually one or two per +cent. higher than the rate on the bonds. Since the officers and +directors are the only shareholders who perform any labour in the +management of the railroad, only they receive wages of management. +Consequently the gross profits are divided into interest and dividends +at fixed rates, and fixed salaries. When a surplus exists above these +requirements it is not, as a rule, distributed among the stockholders +annually. In railroads, therefore, and many other corporations, +interest is easily distinguished from those other returns with which +it is frequently confused in partnerships and enterprises carried on +by individuals. + + +_The Rate of Interest_ + +Is there a single rate of interest throughout industry? At first sight +this question would seem to demand a negative answer. United States +bonds pay about two per cent.; banks about three per cent.; municipal +bonds about four per cent.; railway bonds about five per cent.; the +stocks of stable industrial corporations about six per cent. net; real +estate mortgages from five to seven per cent.; promissory notes +somewhat higher rates; and pawnbrokers' loans from twelve per cent. +upwards. Moreover, the same kind of loans brings different rates in +different places. For example, money lent on the security of farm +mortgages yields only about five per cent. in the states of the East, +but seven or eight per cent. on the Pacific coast. + +These and similar variations are differences not so much of interest +as of security, cost of negotiation, and mental attitude. The farm +mortgage pays a higher rate than the government bond partly because it +is less secure, partly because it involves greater trouble of +investment, and partly because it does not run for so long a time. For +the same reasons a higher rate of interest is charged on a promissory +note than on a bank deposit certificate. Again, the lower rates on +government bonds and bank deposits are due in some degree to the +peculiar attitude of that class of investors whose savings are small +in amount, who are not well aware of the range of investment +opportunities, and to whom security and convenience are exceptionally +important considerations. If such persons did not exist the rates on +government bonds and savings deposits would be higher than they +actually are. The higher rates in a new country on, say, farm +mortgages are likewise due in part to psychical peculiarities. Where +men are more speculative and more eager to borrow money for industrial +purposes, the demand for loans is greater relatively to the supply +than in older and more conservative communities. Therefore, the price +of the loans, the rate of interest, is higher. + +In one sense it would seem that the lowest of the rates cited above, +namely, that on United States bonds, represents pure interest, and +that all the other rates are interest plus something else. +Nevertheless, the sums invested in these bonds form but a very small +part of the whole amount of money and capital drawing interest, and +they come from persons who do not display the average degree either of +business ability or of willingness to take risks. Hence it is more +convenient and more correct to regard as the standard rate of interest +in any community that which is obtained on first class industrial +security, such as the bonds of railroads and other stable +corporations, and mortgages on real estate. Loans to these enterprises +are subject to what may properly be called the average or prevailing +industrial risks, are negotiated in average psychical conditions, and +embrace by far the greater part of all money drawing interest; +consequently the rate that they command may be looked upon as in a +very real and practical sense normal. While this conception of the +normal rate is in a measure conventional, it accords with popular +usage. It is what most men have in mind when they speak of the +prevailing rate of interest. + +The prevailing or standard rate in any community can usually be stated +with a sufficient approach to precision to be satisfactory for all +practical purposes. In all the Eastern States it is now about five per +cent.; in the Middle West it is somewhere between five and six per +cent.; on the Pacific coast it is between six and seven per cent. The +supreme court of Minnesota decided in 1896 that, in view of the actual +rates of interest then obtaining, five per cent. on the reproduction +cost of railroads was a fairly liberal return, and could be adopted by +the state authorities in fixing charges for carrying freight and +passengers.[111] A few years later the Michigan tax commission allowed +the railroads four per cent. on the reproduction cost of their +property, on the ground that investments which yielded that rate in +addition to the usual tax of one per cent. (or five per cent. before +the deduction of the tax) stood at par on the stock market.[112] In +other words, the prevailing rate was five per cent. At the beginning +of the year 1907, the railroad commission of Wisconsin fixed six per +cent. as the return to which the stockholders of railroads were +entitled, because this was about the return which investors generally +were able to get on that kind of security. In the view of the +Commission, the current rate of interest on railroad _bonds_, and +similar investments, was about five per cent.[113] The significance of +these decisions by the public authorities of three states is found not +so much in the particular rates which they sanctioned as in the fact +that they were able to determine a standard or prevailing rate. +Therefore a standard rate exists. At the same time it is interesting +to note that in all three states the rate of industrial interest was +declared to be about the same, that is, five per cent. Perhaps it is +safe to say that, throughout the greater part of the industrial field +of America, five or six per cent. is the prevailing rate of interest. + +What causes the rate to be five per cent., or six per cent., or any +other per cent.? Briefly stated, it is the interplay of supply and +demand. Since interest is a price paid for the use of a thing, i.e., +capital, its rate or level is determined by the same general forces +that govern the price of wheat, or shoes, or hats, or any other +commodity that is bought and sold in the market. The rate is five or +six per cent. because at that rate the amount of money offered by +lenders equals the amount demanded by borrowers. Should the amount +offered at that rate increase without a corresponding increase in the +amount demanded, the rate would fall, just as it would rise under +opposite conditions. + +Supply and demand, however, are merely the immediate forces. They are +themselves the outcome or resultant of factors more remote. On the +side of supply, the principal remote forces which regulate the rate of +interest are: the industrial resources of the community, and the +relative strength of its habits of saving and spending. On the side of +demand, the chief ultimate factors are: the productivity of +capital-instruments, the comparative intensity of the social desires +of investing and lending, and the supplies of land, business ability +and labour. Each of these factors exercises upon the rate of interest +an influence of its own, and each of them may be assisted or +counteracted by one or more of the others. Precisely what rate will +result from any given condition of the factors, cannot be stated +beforehand, for the factors cannot be measured in such a way as to +provide a basis for this kind of forecast. All that can be said is +that, when changes occur on the side of either demand or supply, there +will be a corresponding change in the rate of interest, provided that +no neutralising change takes place on the other side. + +FOOTNOTES: + +[111] "Final Report of the Industrial Commission," pp. 410, 411. + +[112] "Report of the Industrial Commission," vol. IX, p. 380. + +[113] "Publication No. 32 of the Railroad Commission of Wisconsin," +pp. 165, 166. + + + + +CHAPTER X + +THE ALLEGED RIGHT OF LABOUR TO THE ENTIRE PRODUCT OF INDUSTRY + + +In a preceding chapter we saw that Marxian Socialism is logically +debarred from passing _moral_ judgment upon any social institution or +practice.[114] If social institutions are produced necessarily by +socio-economic forces they are neither morally good nor morally bad. +They are quite as unmoral as rain and snow, verdure and decay, +tadpoles and elephants. Consistent Socialists cannot, therefore, +censure on purely ethical grounds the system of private capital and +interest. + +This logical requirement of the theory of economic determinism is +exemplified in much of the rigidly scientific discussions of +Socialists. Marx maintained that the value of commodities is all +determined and created by labour, and that interest is the surplus +which the labourer produces above the cost of his keep; nevertheless +Marx did not formally assert that the labourer has a moral right to +the whole product, nor that interest is theft. He set forth his +theories of value and surplus value as positive explanations of +economic facts, not as an ethical evaluation of human actions. His +object was to show the causes and nature of value, wages, and +interest, not to estimate the moral claims of the agents of +production, or the morality of the distributive process. In his formal +discussion of the theory of value and of surplus value, Marx said +nothing that implied a belief in genuine moral responsibility, or +that contradicted the principles of philosophical materialism and +economic determinism. It is, therefore, quite erroneous to infer that, +since the Marxian theory attributes all value and products to the +action of labour, Marxian Socialists must condemn the interest-taker +as a robber. + +Neither Marx nor any other Socialist authority, however, has always +held consistently to this purely positive method of economic +exposition. When they declare that the labourer is "exploited," that +surplus value is "filched" from him, that the capitalist is a +"parasite," etc., they are expressing and conveying distinct moral +judgments. In their more popular writings Socialist authors do not +seriously attempt to observe the logical requirements of their +necessitarian philosophy. They assume the same ethical postulates, and +give expression to the same ethical intuitions as the man who believes +in the human soul and free will.[115] And the great majority of their +followers likewise regard the question of distribution as a moral +question, as a question of justice. In their view the labourer not +only creates all value, but has a just claim to the whole product. + + +_The Labour Theory of Value_ + +This doctrine is sometimes formally based upon the Marxian theory of +value, and is sometimes defended independently of that theory. In the +former case its groundwork is about as follows: By eliminating the +factors of utility and scarcity, Marx found that the only element +common to all commodities is labour, and then concluded that labour is +the only possible explanation, creator, and determinant of value.[116] +Since capital, that is, concrete capital, is a commodity, its value is +likewise determined and created by labour. Since it cannot create +value, for only labour has that power, it can contribute to the +product of the productive process in which it is engaged only as much +value as it originally received. Since it is only a reservoir of +value, it cannot transfer more value than it holds and possesses. In +the words of Marx, "the means of production transfer value to the new +product, so far only as during the labour-process they lose value in +the shape of the old use-value. The maximum loss of value that they +can suffer in the process is plainly limited by the amount of the +original value with which they came into the process, or, in other +words, by the labour time necessary for their production. Therefore, +the means of production can ever add more value to the product than +they themselves possess independently of the process in which they +assist. However useful a given kind of raw material, or a machine, or +other means of production may be, though it may cost 150 pounds, or +say 500 days' labour, yet it cannot, under any circumstances, add to +the value of the product more than 150 pounds."[117] + +To view the matter from another angle: capital contributes to the +product only sufficient value to pay for its own reproduction. When, +as is the normal usage, the undertaker has deducted from the product +sufficient value or money to replace the deteriorated or worn out +machine, or other concrete capital, all the remaining value in the +product is due specifically to labour. + +When, therefore, the capitalist goes further, and appropriates from +the product interest and profits, he takes a part of the value that +labour has created. He seizes the surplus value which labour has +produced in excess of the wages that it receives. In ethical terms, he +robs the labourers of a part of their product. + +It is not necessary to introduce any extended refutation of this +arbitrary, unreal, and fantastic argument. "The theory that labour is +the sole source of value has few defenders to-day. In the face of the +overwhelming criticism which has been directed against it, even good +Marxists are forced to abandon it, or to explain it away."[118] It +may, however, be useful to recount very briefly the facts which +disprove the theory. Labour creates some things which have no value, +as wooden shoes in a community that does not desire wooden shoes; some +things have value, exchange value, although no labour has been +expended upon them, as land and minerals; the value of things is +sometimes greater, sometimes less, proportionately, than the labour +embodied in them; for example, paintings by the old masters, and last +year's styles of millinery; and, finally, the true determinants of +value are utility and scarcity. If it be objected that Marx was aware +of these two factors, the reply is that he either restricted them to +the function of conditions rather than efficient causes of value, or +attributed to them an influence that is inconsistent with his main +theory that labour is the sole determinant of value. Indeed, the +contradictions into which Marx was led by the theory are its +sufficient refutation.[119] + +With the destruction of the labour theory of value, the Marxian +contention that capital contributes only its own original value to the +product is likewise overthrown. The same conclusion is reached more +directly by recalling the obvious facts of experience that, since the +joint action of both capital and labour is required to bring into +being every atom of the product, each is in its own order the cause of +the whole product, and the proportion of the whole that is +specifically due to the casual influence of either is as incapable of +determination as the procreative contribution of either parent to +their common offspring. The productive process carried on by labour +and capital is virtually an organic process, in which the precise +amount contributed by either factor is unknown and unknowable. + +In so far, therefore, as the alleged right of labour to the whole +product is based upon the Marxian theory of value, it has not a shadow +of validity. + + +_The Right of Productivity_ + +But the claim is not necessarily dependent upon this foundation. Those +Socialists who have abandoned the labour theory of value can argue +that the labourer (including the active director of industry) is the +only _human_ producer, that the capitalist as such produces nothing, +and consequently has no moral claim to any part of the product. +Whatever theory of value we may adopt, or whether we adopt any, we +cannot annul the fact that interest does not represent labour expended +upon the product by the capitalist. + +Nevertheless, this fact does not compel the conclusion that the share +of the product now taken by the capitalist belongs of right to the +labourer. Productivity does not of itself create a right to the +product. It is not an intrinsic title. That is to say, a right to the +product is not inherent in the relation between product and producer. +It is determined by certain extrinsic relations. When Brown makes a +pair of shoes out of materials that he has stolen, he has not a right +to the whole product; when Jones turns out a similar product from +materials that he has bought, he becomes the exclusive owner of the +shoes. The intrinsic relation of productivity is the same in both +cases. It is the difference of extrinsic relation, namely, the +relation between the producer and the material, that begets the +difference between the moral claims of the two producers upon the +product. + +The right of the producer is conditioned by certain other and more +fundamental relations. Why has Jones a right to the shoes that he has +made out of materials that he has bought? Not because he needs them; +he is not alone in this condition. The ultimate reason and basis of +his ownership is to be sought in the practical requirements of an +equitable social distribution. Unless men receive an adequate return +for their labour, they will not be able to satisfy their wants in a +regular and sufficient manner. If they are forced to labour for others +without compensation, they are deprived of the opportunity to develop +their personality. They are treated as mere instruments to the welfare +of beings who are not their superiors, but their moral and juridical +equals. Their intrinsic worth and sacredness of personality is +outraged, their essential equality with their fellows is disregarded, +and their indestructible rights are violated. On the other hand, when +a producer, such as Jones, gets possession of his product, he +subordinates no human being to himself, deprives no man of the +opportunity to perform remunerative labour, nor appropriates an +unreasonable share of the common bounty of the earth. He has a right +to his product because this is one of the reasonable methods of +distribution. + +In fact, it is the exigencies of reasonable distribution that +constitute the fundamental justification of every title of ownership. +The title of purchase by which a man claims the hat that he wears; the +title of inheritance by which a son claims the house that once +belonged to his father; the title of contract through which a labourer +gets wages, a merchant prices, and a landlord rent,--are all valid +simply because they are reasonable devices for enabling men to obtain +the goods of the earth for the satisfaction of their wants. All titles +of property, productivity included, are conventional institutions +which reason and experience have shown to be conducive to human +welfare. None of them possesses intrinsic or metaphysical +validity.[120] + +Therefore, the Socialist cannot establish the right of labour to the +full product of industry until he proves that this so-called right +could be reduced to practice consistently with individual and social +welfare. In other words, he must show that to give the entire product +to the labourer would be a reasonable method of distribution. Now the +arrangement by which the Socialist proposes to award the whole product +of labour is the collective ownership and operation of the means of +production, and the social distribution of the product. If this system +would not enable the labourer and the members of society generally to +satisfy their wants to better advantage than is possible under the +present system, the contention that the labourer has a right to the +entire product of industry falls to the ground. The question will be +considered in the following chapter. + +FOOTNOTES: + +[114] Cf. Engels, "Socialism: Utopian and Scientific," pp. 45, 46; and +Hillquit-Ryan, "Socialism: Promise or Menace," 103, 104, 143-145. + +[115] Cf. Hillquit-Ryan, op. cit., pp. 75, 76. + +[116] "Capital," pp. 1-9. + +[117] Op. cit., p. 117; Humboldt Edition. + +[118] Skelton, "Socialism: A Critical Analysis," pp. 121, 122. + +[119] Cf. Skelton, loc. cit. + +[120] The exaggerated claims made on behalf of social productivity in +the matter of land values have been examined in a previous chapter. +Similar exaggerations with regard to capital will be considered in +chapter xii. + + + + +CHAPTER XI + +THE SOCIALIST SCHEME OF INDUSTRY + + +"Never has our party told the workingman about a 'State of the +future,' never in any way than as a mere utopia. If anybody says: 'I +picture to myself society after our programme has been realised, after +wage labour has been abolished, and the exploitation of men has +ceased, in such and such a manner,--' well and good; ideas are free, +and everybody may conceive the Socialist State as he pleases. Whoever +believes in it may do so; whoever does not, need not. These pictures +are but dreams, and Social Democracy has never understood them +otherwise."[121] + +Such is the official attitude of Socialism toward descriptions of its +contemplated industrial organisation. The party has never drawn up nor +approved any of the various outlines of this sort which have been +defended by individual Socialists. It maintains that it cannot +anticipate even the essential factors in the operation of a social and +industrial system which will differ so widely from the one that we +have to-day, and which will be so profoundly determined by events that +are in the nature of the case impossible to prognosticate. + + +_Socialist Inconsistency_ + +From the viewpoint of all but convinced Socialists, this position is +indefensible. We are asked to believe that the collective ownership +and operation of the means of production would be more just and +beneficial than the present plan of private ownership and operation. +Yet the Socialist party refuses to tell us how the scheme would bring +about these results; refuses to give us, even in outline, a picture of +the machine at work. As reasonably might we be expected to turn the +direction of industry over to a Rockefeller or a Morgan, making an act +of faith in their efficiency and fairness. We are in the position of a +man who should be advised to demolish an unsatisfactory house, without +receiving any solid assurance that the proposed new one would be as +good. To our requests for specific information about the working of +the new industrial order the Socialists, as a rule, answer in terms of +prophesied results. They leave us in the dark concerning the causes by +which these wonderful results are to be produced. + +From the viewpoint of the confirmed Socialist, however, this failure +to be specific is not at all unreasonable. He can have faith in the +Socialist system without knowing beforehand how it will work. He +believes in its efficacy because he believes that it is inevitable. In +the words of Kautsky, "what is proved to be inevitable is proved not +only to be possible, but to be the only possible outcome."[122] The +Socialist believes that his scheme is inevitable because he thinks +that it is necessarily included in the outcome of economic and social +evolution. + +Neither the premises nor the conclusion of this reasoning is valid. +The doctrines of economic determinism, the class struggle, the +concentration of capital, the disappearance of the middle classes, the +progressive pauperisation of the working classes, and all the other +tenets of the Socialist philosophy, have been thoroughly discredited +by the facts of psychology, the experience of the last half century, +and the present trend of industrial and social forces.[123] Even if +the Socialist outcome were inevitable, it would not necessarily be an +improvement on the present system. It might illustrate the principle +of retrogression. + +Since we cannot make an act of faith in either the inevitableness or +the efficacy of the Socialist industrial scheme, we are compelled to +submit it to the ordinary tests of examination and criticism. We must +try to see what would be the essential structure, elements, and +operation of a system in which the means of production were owned and +managed collectively, and the product socially distributed. In +attempting to describe the system, we shall be guided by what seems to +be inherently necessary to it, and by the prevalent conception of it +among present day Socialists. In this connection we have to observe +that some of the criticisms of the Socialist order attribute to it +elements that are not essential, nor any longer demanded by the +authoritative spokesmen of the movement; for example, complete +confiscation of capital, compulsory assignment of men to the different +industrial tasks, equality of remuneration, the use of labour checks +instead of money, the socialisation of all capital down to the +smallest tool, and collective ownership of homes. + + +_Expropriating the Capitalists_ + +The first problem confronting a Socialist administration would be the +method of getting possession of the instruments of production. In the +early years of the Socialist movement, most of its adherents seemed to +favour a policy of outright confiscation. Professor Nearing estimates +the total property income now paid in the United States as, "well +above the six-billion-dollar mark."[124] Were the Socialist State to +seize all land and capital without compensation, it could conceivably +transfer more than six billion dollars annually from landowners and +capitalists to the community. Not all of it, however, would be +available for diversion to the labourers. According to the +computations of Professor King, about two billion dollars were in 1910 +saved and converted into capital.[125] A progressive Socialist régime +would want to appropriate at least that sum for the renewal and +increase of the instruments of production. Consequently, it would have +only four billion dollars to add to the present total income of +labour. This would be equivalent to $43.50 for every person in the +United States. + +Desirable as would be such an addition to the remuneration of labour, +it could never be realised through the process of confiscation. The +owners of land and capital would be sufficiently powerful to defeat +any such simple scheme of setting up the collectivist commonwealth. +They constitute probably a majority of the adults of our population, +and their economic advantages would make them much stronger relatively +than their numbers.[126] Ethically the policy of confiscation would +be, on the whole, sheer robbery. To be sure, not all owners of land +and capital have a valid claim to all their possessions, but +practically all of them hold the greater part of their wealth by some +kind of just title. Much land and capital that was originally acquired +by unjust means has become morally legitimatised by the title of +prescription. + +The majority of present day Socialists seem to advocate at least +partial compensation.[127] But this plan does not seem to offer any +considerable advantage over complete confiscation. As regards +morality, it would differ only in the degree of its injustice; as +regards expediency, it would be at best of doubtful efficacy. If the +capitalists were given only a small fraction of the value of their +holdings they would oppose the change with quite as much +determination as though they were offered nothing; if they were paid +almost the full value of their possessions there would be no +substantial gain to the community from the transfer; if they were +compensated at a figure somewhere between these two extremes their +resistance would still be more costly to the State than the extra +amount required to make full compensation. + +Finally, if full compensation were offered it would have to take the +form of government obligations, securities, or bonds. If these did not +bear interest the great majority of capital owners would regard the +scheme as partial and considerable confiscation, and would fight it +with determination and effectiveness. If the State bound itself to pay +interest on the bonds it would probably find itself giving the +dispossessed capitalists as high a rate of return on their capital, as +large a share of the national product, as they receive under the +present system. Consequently, the expropriation of the capitalists +would bring no direct and pecuniary gain to the labouring classes. +Indeed, the latter would suffer positive loss by the change, owing to +the fact that the State would be required to withdraw from the +national product a considerable amount for the maintenance, renewal, +and expansion of the instruments of production. At present the +capitalist class performs the greater part of this function through +the reinvestment of the incomes that it receives in the form of +interest and rent. The average Socialist entirely ignores this +capitalistic service, when he draws his pessimistic picture of the +vast share of the national product which now goes to "idle +capitalists." So far as the larger capitalist incomes are concerned; +that is, those in excess of twenty-five thousand dollars annually, it +is probable that the greater part is not consumed by the receivers, +but is converted into socially necessary capital instruments. Since +this would not be permitted in a Socialist order, the capitalists +would strive to consume the whole of the incomes received from the +public securities, and the State would be compelled to provide the +required new capital out of the current national product. In a word, +society would have to give the capitalists as much as it does at +present, and to withhold from the labourers for new capital an immense +sum which is now furnished by the capitalists. + +It is undoubtedly true that the richest capitalists would be unable to +expend the whole of their incomes upon themselves and their families. +If they turned a considerable part of it over to the State, the +surrendered sum would be available as capital, thereby reducing the +amount that the State would need to take out of the national product +for this purpose. Were all those possessing incomes in excess of fifty +thousand dollars per family to give up all above that amount, the +total thus accruing to the State would be a little more than one +billion dollars.[128] But this would be only one-half the required new +capital. A part of the additional one billion is now provided out of +wages and salaries, but the greater part probably comes out of rent +and interest. Under Socialism this latter portion would have to be +deducted from that part of the national product which at present goes +to the workers and is consumed by them. Hence they would undergo a +loss of several hundred million dollars. + +One reply to this difficulty is that the total product of industry +would be much increased under Socialism. Undoubtedly an _efficient_ +organisation of industry on collectivist lines would be able to effect +economies by combining manufacturing plants, distributive concerns, +and transportation systems, and by reducing unemployment to a minimum; +but it could not possibly make the enormous economies that are +promised by the Socialists. The assertion that under Socialism men +would be able to provide abundantly for all their wants on a basis of +a working day of four, or even two, hours is seductive and +interesting, but it has no support in the ascertainable facts of +industrial resources. Even if the Socialist organisation were +operating with a fair degree of efficiency, the gains that it could +effect over the present system would probably not more than offset the +social losses resulting from increased consumption by the compensated +capitalists. + +But the proposed industrial organisation would not operate with a fair +degree of efficiency. According to present Socialist thought, +industries that are national in scope, such as the manufacture of +petroleum, steel, and tobacco, would be carried on under national +direction, while those that supplied only a local market, such as +laundries, bakeries, and retail stores, would be managed by the +municipalities. This division of control would be undoubtedly wise and +necessary. Moreover, the majority of Socialists no longer demand that +_all_ tools and all industries should be brought under collective or +governmental direction. Very small concerns which employed no hired +labour, or at most one or two persons, could remain under private +ownership and operation, while even larger enterprises might be +carried on by co-operative associations.[129] Nevertheless the attempt +to organise and operate collectively the industries of the country, +even with these limitations, would encounter certain insuperable +obstacles. These will be considered under the general heads of +inefficient industrial leadership, inefficient labour, and +interference with individual liberty. + + +_Inefficient Industrial Leadership_ + +Under Socialism the boards of directors or commissions which exercised +supreme control in the various industries, would have to be chosen +either by the general popular vote, by the government, or by the +workers in each particular industry. The first method may be at once +excluded from consideration. Even now the number of officials chosen +directly by the people is far too large; hence the widespread +agitation for the "short ballot." Public opinion is coming to realise +that the voters should be required to select only a few important +officials, whose qualifications should be general rather than +technical, and therefore easily recognised by the masses. These +supreme functionaries should have the power of filling all +administrative offices, and all positions demanding expert or +technical ability. If the task of choosing administrative experts +cannot be safely left to the mass of the voters at present, it +certainly ought not to be assigned to them under Socialism, when the +number and qualifications of these functionaries would be indefinitely +increased. + +If the boards of industrial directors were selected by the government, +that is, by the national and municipal authorities, the result would +be industrial inefficiency and an intolerable bureaucracy. No body of +officials, whether legislative or executive, would possess the varied, +extensive, and specific knowledge required to pick out efficient +administrative commissions for all the industries of the country or +the city. And no group of political persons could safely be entrusted +with such tremendous power. It would enable them to dominate the +industrial as well as the political life of the nation or the +municipality, to establish a bureaucracy that would be impregnable for +a long period of years, and to revive all the conceivable evils of +governmental absolutism. + +The third method is apparently the one now favoured by most +Socialists. "The workers in each industry may periodically select the +managing authority," says Morris Hillquit.[130] Even if the workers +were as able as the stockholders of a corporation to select an +efficient governing board, they would be much less likely to choose +men who would insist on hard and efficient work from all subordinates. +The members of a private corporation have a strong pecuniary interest +in selecting directors who will secure the maximum of product at the +minimum of cost, while the employés in a Socialist industry would want +managing authorities who were willing to make working conditions as +easy as possible. + +The dependence of the boards of directors upon the mass of the +workers, and the lack of adequate pecuniary motives, would render +their management much less efficient and progressive than that of +private enterprises. In the rules that they would make for the +administration of the industry and the government of the labour force, +in their selection of subordinate officers, such as superintendents, +general managers, and foremen, and in all the other details of +management, they would have always before them the abiding fact that +their authority was derived from and dependent upon the votes of the +majority of the employés. Their supreme consideration would be to +conduct the industry in such a way as to satisfy the men who elected +them. Hence they would strive to maintain an administration which +would permit the mass of the labour force to work leisurely, to be +provided with the most expensive conditions of employment, and to be +immune from discharge except in rare and flagrant cases. Even if the +members of the directing boards were sufficiently courageous or +sufficiently conscientious to exact reasonable and efficient service +from all their subordinates and all the workers, they would not have +the necessary pecuniary motives. Their salaries would be fixed by the +government, and in the nature of things could not be promptly adjusted +to reward efficient and to punish inefficient management. So long as +their administration of industry maintained a certain routine level of +mediocrity, they would have no fear of being removed; since they would +be supervised and paid by public officials who would have neither the +extraordinary capacity nor the necessary incentive to recognise and +reward promptly efficient management, they would lack the powerful +stimulus which is provided by the hope of gain. In the large private +corporations, the tenure of the boards of directors depends not upon +the workers but upon the stockholders, whose main interest is to +obtain a maximum of product at a minimum of cost, and who will employ +and discharge, reward and punish, according as this end is attained. +Moreover, the members of the boards, and the executive officers +generally, are themselves financially interested in the business and +in the maintenance of the policy demanded by the other stockholders. + +All the subordinate officers, such as department managers, +superintendents, foremen, etc., would exemplify the same absence of +efficiency. Knowing that they must carry out the prudent policy of the +board of directors, they would be slow to punish shirking or to +discharge incompetents. Realising that the board of directors lacked +the incentive to make promotions promptly for efficient service, or to +discharge promptly for inefficient service, they would devote their +main energies to the task of holding their positions through a policy +of indifferent and routine administration. + +Invention and progress would likewise suffer. Men who were capable of +devising new machines, new processes, new methods of combining capital +and labour, would be slow to convert their potencies into action. They +would be painfully aware that the spirit of inertia and routine +prevailing throughout the industrial and political organisation would +prevent their efforts from receiving quick recognition and adequate +rewards. Inventors of mechanical devices particularly would be +deprived of the stimulus which they now find in the hope of +indefinitely large gains. Boards of directors, general managers, and +other persons exercising industrial authority would be very slow to +introduce new and more efficient financial or technical methods when +they had no certainty that they would receive adequate reward in the +form of either promotion or money compensation. They would see no +sufficient reason for abandoning the established and pleasant policy +of routine methods and unprogressive management. + + +_Inefficient Labour_ + +The same spirit of inefficiency and mediocrity would permeate the rank +and file of the workers. Indeed, it would operate even more strongly +among them than among the officers and superiors; for their +intellectual limitations and the nature of their tasks would make them +less responsive to other than material and pecuniary motives. They +would desire to follow the line of least resistance, to labour in the +most pleasant conditions, to reduce irksome toil to a minimum. Since +the great bulk of their tasks would necessarily be mechanical and +monotonous, they would demand the shortest possible working day, and +the most leisurely rate of working speed. And because of their +numerical strength they would have the power to enforce this policy +throughout the field of industry. They would have the necessary and +sufficient votes. In a general way they might, indeed, realise that +the practice of universal shirking and laziness must sooner or later +result in such a diminution of the national product as to cause them +great hardship, but the workers in each industry would hope that those +in all the others would be more efficient; or doubt that a better +example set by themselves would be imitated by the workers in other +industries. They would not be keen to give up the certainty of easy +working conditions for the remote possibility of a larger national +product. + + +_Attempted Replies to Objections_ + +All the attempts made by Socialists to answer or explain away the +foregoing difficulties may be reduced to two: the achievements of +government enterprises in our present system; and the assumed efficacy +of altruism and public honour in a régime of Socialism. + +Under the first head appeal is made to such publicly owned and managed +concerns as the post office, railroads, telegraphs, telephones, street +railways, water works, and lighting plants. It is probably true that +all these enterprises are on the whole carried on with better results +to the public than if they were in private hands. It is likewise +probable that these and all other public utility monopolies will +sooner or later be taken over by the State in all advanced countries. +Even if this should prove in all cases to be a better arrangement from +the viewpoint of the general public welfare than private ownership and +management, the fact would constitute no argument for a Socialist +organisation of all industry. In the first place, the efficiency of +labour, management, and technical organisation is generally lower in +public than in private enterprises, and the cost of operation higher. +Despite these defects, government ownership of public utilities, such +as street railways and lighting concerns, may be socially preferable +because these industries are monopolies. Inasmuch as their charges and +services cannot be regulated by the automatic action of competition, +the only alternative to public ownership is public supervision. +Inasmuch as the latter is often incapable of securing satisfactory +service at fair prices, public ownership and management becomes on the +whole more conducive to social welfare. In other words, the losses +through inefficient operation are more than offset by the gains from +better service and lower charges. Three cent fares and adequate +service on an inefficiently managed municipal street railway are +preferable to five cent fares on a privately owned street railway +whose management is superior. On the other hand, all those industries +which are not natural monopolies can be prevented from practising +extortion upon the public through regulated competition. In them, +therefore, the advantages of private operation, of which competition +itself is not the least, should be retained. + +In the second place, practically all the public service monopolies are +simpler in structure, more routine in operation, and more mature in +organisation and efficiency than the other industries. The degree of +managerial ability required, the necessity of experimenting with new +methods and processes, and the opportunity of introducing further +improvements in organisation are relatively less. Now, it is precisely +in these respects that private has shown itself superior to public +operation. Initiative, inventiveness, and eagerness to effect +economies and increase profits are the qualities in which private +management excels. When the nature and maturity of the concern have +rendered these qualities relatively unimportant, public management can +exemplify a fair degree of efficiency. + +In the third place, the ability of the State to operate a few +enterprises, does not prove that it could repeat the performance with +an equal degree of success in all industries. I can drive two horses, +but I could not drive twenty-two. No matter how scientific the +organisation and departmentalisation of industries under Socialism, +the final control of and responsibility for all of them would rest +with one organ, one authority, namely, the city in municipal +industries, and the nation in industries having national scope. This +would prove too great a task, too heavy a burden, for any body of +officials, for any group of human beings. + +Finally, it must be kept in mind that the publicly operated utilities +are subject continuously to the indirect competition of private +management. By far the greater part of industry is now under private +control, which sets the pace for efficient operation in a hundred +particulars. As a consequence, comparisons are steadily provoked +between public and private management, and the former is subject to +constant criticism. The managers of the State concerns are stimulated +and practically compelled to emulate the success of private +management. This factor is probably more effective in securing +efficiency in public industries than all other causes put together. In +the words of Professor Skelton: "A limited degree of public ownership +succeeds simply because it is a limited degree, succeeds because +private industry, in individual forms or in the socialised joint stock +form, dominates the field as a whole. It is private industry that +provides the capital, private industry that trains the men and tries +out the methods, private industry that sets the pace, and--not the +least of its services--private industry that provides the +ever-possible outlet of escape."[131] + +The Socialist expectation that altruistic sentiments and public honour +would induce all industrial leaders and all ordinary workers to exert +themselves as effectively as they now do for the sake of money, is +based upon the very shallow fallacy that what is true of a few men may +very readily become true of all men. There are, indeed, persons in +every walk of life who work faithfully under the influence of the +higher motives, but they are and always have been the exceptions in +their respective classes. The great majority have been affected only +feebly, intermittently, and on the whole ineffectively by either love +of their kind or the hope of public approval. + +A Socialist order could generate no forces which would be as +productive of unselfish conduct as the motives that are drawn from +religion. History shows nothing comparable either in extent or +intensity to the record of self surrender and service to the neighbour +which are due to the latter influence. Yet religion has never been +able, even in the periods and places most thoroughly dominated by +Christianity, to induce more than a small minority of the population +to adopt that life of altruism which would be required of the great +majority under Socialism. + +Moreover, the efficacy of the higher motives is much greater among men +devoted to scientific, intellectual, and religious pursuits than in +either the leaders or the rank and file engaged in industrial +occupations. The cause of this difference is to be sought in the +varying nature of the two classes of activity: the first necessarily +develops an appreciation of the higher goods, the things of the mind +and the soul; the second compels the attention of men to rest upon +matter, upon the things that appeal to the senses, upon the things +that are measurable in terms of money. + +There is a special fallacy underlying the emphasis placed by +Socialists on the power of public honour. It consists in the failure +to perceive that this good declines in efficacy according as the +number of its recipients increases. Even if all the industrial +population were willing to work as hard for public approval as they +now do for money, the results expected by Socialists would not be +forthcoming. Public recognition of unselfish service is now available +in relatively great measure because the persons qualifying for it are +relatively few. They easily stand out conspicuous among their fellows. +Let their numbers vastly increase, and unselfishness would become +commonplace. It would no longer command popular recognition, save in +those who displayed it in exceptional or heroic measure. The public +would not have the time nor take the trouble to notice and honour +adequately every floor walker, retail clerk, factory operative, street +cleaner, agricultural labourer, ditch digger, etc., who might become a +candidate for such recognition. + +When the Socialists point to such examples of disinterested public +service as that of Colonel Goethals in building the Panama Canal, they +confound the exceptional with the average. They assume that, since an +exceptional man performs an exceptional task from high motives, all +men can be got to act likewise in all kinds of operations. They +forget that the Panama Canal presented opportunities of self +satisfying achievement and fame which do not occur once in a thousand +years; that the traditions and training of the army have during many +centuries deliberately and consistently aimed and tended to produce an +exceptionally high standard of honour and disinterestedness; that, +even so, the majority of army officers have not in their civil +assignments shown the same degree of faithfulness to the public +welfare as Colonel Goethals; that the Canal was built under a régime +of "benevolent despotism," which placed no reliance upon the "social +mindedness" of the subordinate workers; and that the latter, far from +showing any desire to qualify as altruists or public benefactors, +demanded and received material recognition in the form of wages, +perquisites, and gratuities which greatly surpassed the remuneration +received by any other labour force in history.[132] In a word, +wherever in the construction of the Canal notable disinterestedness or +appreciation of public honour was shown, the circumstances were +exceptional; where the situation was ordinary, the Canal builders were +unable to rise above the ordinary motives of selfish advantage. + +Beneath all the Socialist argument on this subject lies the assumption +that the attitude of the _average man_ toward the higher motives can +by some mysterious process be completely _revolutionised_. This is +contrary to all experience, and to all reasonable probability. Only a +small minority of men have ever, in any society or environment, been +dominated mainly by altruism or the desire of public honour. What +reason is there to expect that men will act differently in the future? +Neither legislation nor education can make men love their neighbours +more than themselves, or love the applause of their neighbours more +than their own material welfare. + + +_Restricting Individual Liberty_ + +Even though human nature should undergo the degree of miraculous +transformation necessary to maintain an efficient industrial system on +Socialist lines, such a social organisation must soon collapse because +of its injurious effect upon individual liberty. Freedom of choice +would be abolished in the most vital economic transactions; for there +would be but one buyer of labour, and one seller of commodities. And +these two would be identical, namely, the State. With the exception of +the small minority that might be engaged in purely individual +avocations, and in co-operative enterprises, men would be compelled to +sell their labour to either the municipality or the national +government. As competition between these two political agencies in the +matter of wages and other conditions of labour could not be permitted, +there would be virtually only one employer. Practically all material +goods would have to be purchased from either the municipal or the +national shops and stores. Since the city and the nation would produce +different kinds of goods, the purchaser of any given article would be +compelled to deal with one seller. His freedom of choice would be +further restricted by the fact that he would have to be content with +those kinds and grades of commodities which the seller saw fit to +produce. He could not create an effective demand for new forms and +varieties of goods, as he now does, by stimulating the ingenuity and +acquisitiveness of competing producers and dealers. + +Prices and wages would, of course, be fixed beforehand by the +government. The supposition that this function might be left to the +workers in each industry is utterly impracticable. Such an arrangement +would involve a grand scramble among the different industries to see +which could pay its own members the highest wages, and charge its +neighbours' members the highest prices. The final result would be a +level of prices so high that only an alert and vigorous section of the +workers in each industry could find employment. Not only wages and +prices but hours, safety requirements, and all the other general +conditions of employment, would be regulated by the government. The +individuals in each industry could not be permitted to determine these +matters any more than they could be permitted to determine wages. +Moreover, all these regulations would from the nature of the case +continue unchanged for a considerable period of time. + +The restriction of choice enforced upon the sellers of labour and the +buyers of goods, the utter dependence of the population upon one +agency in all the affairs of their economic as well as their political +life, the tremendous social power concentrated in the State, would +produce a diminution of individual liberty and a perfection of +political despotism surpassing anything that the world has ever seen. +It would not long be tolerated by any self respecting people. + +To reply that the Socialist order would be a democracy, and that the +people could vote out of existence any distasteful regulation, is to +play with words. No matter how responsive the governing and managing +authorities might be to the popular will, the dependence of the +individual would prove intolerable. Not the manner in which this +tremendous social power is constituted, nor the personnel of those +exercising it, but the fact that so much power is lodged in one +agency, and so little immediate control of his affairs left to the +individual,--is the heart of the evil situation. In a word, it is a +question of the liberty of the individual versus the all pervading +control of his actions by an agency other than himself. Moreover, the +people in a democracy means a majority, or a compact minority. Under +Socialism the controlling section of the voting population would +possess so much power, political and economic, that it could impose +whatever conditions it pleased upon the non-controlling section for +an almost indefinite period of time. The members of the latter part of +the population would not only be deprived of that immediate liberty +which consists in the power to determine the details of their economic +life, but of that remote liberty which consists in the power to affect +general conditions by their votes. + +In the last chapter we saw that the claim to the full product of +industry, made on behalf of labour by the Socialists, cannot be +established on intrinsic grounds. Like all other claims to material +goods, it is valid only if it can be realised consistently with human +welfare. Its validity depends upon its feasibility, upon the +possibility of constructing some social system that will enable it to +work. The present chapter has shown that the requirements of such a +system are not met by Socialism. A Socialist organisation of industry +would make all sections of the population, including the wage earning +class, worse off than they are in the existing industrial order. +Consequently, neither the private ownership of capital nor the +individual receipt of interest can be proved to be immoral by the +Socialist argument. + +Since private ownership and management of capital are superior to +Socialism, the State is obliged to maintain, protect, and improve the +existing industrial system. This is precisely the conclusion that we +reached in chapter iv with reference to private ownership of land. In +chapter v we found, moreover, that individual ownership of land is a +natural right. The fundamental considerations there examined lead to +the parallel conclusion that the individual has a natural right to own +capital. But we could not immediately deduce from the right to own +land the right to take rent. Neither can we immediately deduce from +the right to own capital the right to take interest. The positive +establishment of the latter right will occupy us in the two following +chapters. + +FOOTNOTES: + +[121] Wilhelm Liebknecht, cited in Hillquit's "Socialism in Theory and +Practice," p. 107. + +[122] "Das Erfurter Program," cited by Skelton, op. cit., p. 178. + +[123] Cf. Skelton, op. cit., ch. vii; Bernstein, "Evolutionary +Socialism," pp. 1-94; Simkhovitch, "Marxism vs. Socialism," _passim_; +Walling, "Progressivism and After," _passim_; Hillquit-Ryan, op. cit., +ch. iv. + +[124] "Income," p. 152. + +[125] "The Wealth and Income of the People of the United States," p. +132. + +[126] Cf. Hillquit-Ryan, op. cit., pp. 107, 136. + +[127] Cf. Hillquit-Ryan, op. cit., pp. 73-77; Skelton, op. cit, p. +183; Walling, "Socialism as It Is," p. 429. + +[128] Cf. King, op. cit., pp. 224-226. + +[129] Cf. Kautsky, "The Social Revolution," pp. 166, 167; +Hillquit-Ryan, op. cit., p. 72. + +[130] Hillquit-Ryan, op. cit., p. 80; cf. Spargo, "Socialism," pp. +225-227. + +[131] "Socialism: A Critical Analysis," p. 219. + +[132] Cf. "The Panama Gateway," by Joseph Bucklin Bishop, p. 263. + + + + +CHAPTER XII + +ALLEGED INTRINSIC JUSTIFICATIONS OF INTEREST + + +In his address as President of the American Sociological Society at +the annual meeting, Dec. 27, 1913, Professor Albion W. Small denounced +"the fallacy of treating capital as though it were an active agent in +human processes, and crediting income to the personal representatives +of capital, irrespective of their actual share in human service." +According to his explicit declaration, his criticism of the modern +interest-system was based primarily upon grounds of social utility +rather than upon formally ethical considerations. + +A German priest has attacked interest from the purely moral +viewpoint.[133] In his view the owner of any sort of capital who +exacts the return of anything beyond the principal, violates strict +justice.[134] The Church, he maintains, has never formally authorised +or permitted interest, either on loans or on producing capital. She +has merely tolerated it as an irremovable evil. + +Is there a satisfactory justification of interest? If there is, does +it rest on individual or on social grounds? That is to say: is +interest justified immediately and intrinsically by the relations +existing between the owner and the user of capital? Or, is rendered +morally good owing to its effects upon social welfare? Let us see what +light is thrown on these questions by the anti-usury legislation of +the Catholic Church. + + +_Attitude of the Church Toward Interest on Loans_ + +During the Middle Ages all interest on _loans_ was forbidden under +severe penalties by repeated ordinances of Popes and Councils.[135] +Since the end of the seventeenth century the Church has quite +generally permitted interest on one or more extrinsic grounds, or +"titles." The first of these titles was known as "lucrum cessans," or +relinquished gain. It came into existence whenever a person who could +have invested his money in a productive object, for example, a house, +a farm, or a mercantile enterprise, decided instead to lend the money. +In such cases the interest on the loan was regarded as proper +compensation for the gain which the owner might have obtained from an +investment on his own account. The title created by this situation was +called "extrinsic" because it arose out of circumstances external to +the essential relations of borrower and lender. Not because of the +loan itself, but because the loan prevented the lender from investing +his money in a productive enterprise, was interest on the former held +to be justified. In other words, interest on the loan was looked upon +as merely the fair equivalent of the interest that might have been +obtained on the investment. + +During the seventeenth, eighteenth, and nineteenth centuries, another +title or justification of loan-interest found some favour among +Catholic moralists. This was the "praemium legale," or legal rate of +interest allowed by civil governments. Wherever the State authorised a +definite rate of interest, the lender might, according to these +writers, take advantage of it with a clear conscience. + +To-day the majority of Catholic authorities on the subject prefer the +title of virtual productivity as a justification. Money, they contend, +has become virtually productive. It can readily be exchanged for +income-bearing or productive property, such as, land, houses, +railroads, machinery, and distributive establishments. Hence it has +become the economic equivalent of productive capital, and the interest +which is received on it through a loan is quite as reasonable as the +annual return to the owner of productive capital. Between this theory +and the theory connected with "lucrum cessans" the only difference is +that the former shifts the justification of interest from the +circumstances and rights of the lender to the present nature of the +money itself. Not merely the fact that the individual will suffer if, +instead of investing his money he loans it without interest, but the +fact that money is generally and virtually productive, is the +important element in the newer theory. In practice, however, the two +explanations or justifications come to substantially the same thing. + +Nevertheless, the Church has given no positive approval to any of the +foregoing theories. In the last formal pronouncement by a Pope on the +subject, Benedict XIV[136] condemned anew all interest that had no +other support than the intrinsic conditions of the loan itself. At the +same time, he declared that he had no intention of denying the +lawfulness of interest which was received in virtue of the title of +"lucrum cessans," nor the lawfulness of interest or profits arising +out of investments in productive property. In other words, the +authorisation that he gave to both kinds of interest was merely +negative. He refrained from condemning them. + +In the Responses given by the Roman Congregations from 1822 onward to +questions relating to the lawfulness of loan-interest, we may +profitably consider four principal features. First, they declare more +or less specifically that interest may be taken in the absence of the +title of "lucrum cessans"; second, some of them definitely admit the +title of "praemium legale," or civil authorisation, as sufficient to +give the practice moral sanction; third, they express a genuine +permission, not a mere toleration, of interest taking; fourth, none of +them explicitly declares that any of the titles or reasons for +receiving loan-interest will necessarily or always give the lender a +_strict right_ thereto. None of them contains a positive and reasoned +approval of the practice. Most of them merely decide that persons who +engage in it are not to be disturbed in conscience, so long as they +stand ready to submit to a formal decision on the subject by the Holy +See. The insertion of the latter condition clearly intimates that some +day interest taking might be formally and officially condemned. + +Should such a condemnation ever appear, it would not contradict any +moral principle contained in the "Roman Responses," nor in the present +attitude of the Church and of Catholic moralists. Undoubtedly it could +come only as the result of a change in the organisation of industry, +just as the existing ecclesiastical attitude has followed the changed +economic conditions since the Middle Ages. + +All the theological discussion on the subject, and all the +authoritative ecclesiastical declarations indicate, therefore, that +interest on loans is to-day regarded as lawful because a loan is the +economic equivalent of an investment. Evidently this is good logic and +common sense. If it is right for the stockholder of a railway to +receive dividends, it is equally right for the bondholder to receive +interest. If it is right for a merchant to take from the gross returns +of his business a sum sufficient to cover interest on his capital, it +is equally right for the man from whom he has borrowed money for the +enterprise to exact interest. The money in a loan is economically +equivalent to, convertible into, concrete capital. It deserves, +therefore, the same treatment and the same rewards. The fact that the +investor undergoes a greater risk than the lender, and the fact that +the former often performs labour in connection with the operation of +his capital, have no bearing on the moral problem; for the investor +is repaid for his extra risk and labour by the profits which he +receives, and which the lender does not receive. As a mere recipient +of interest, the investor undergoes no more risk nor exertion than +does the lender. His claim to interest is no better than that of the +latter. + + +_Interest on Productive Capital_ + +On what ground does the Church or Catholic theological opinion justify +interest on invested capital? on the shares of the stockholders in +corporations? on the capital of the merchant and the manufacturer? + +In the early Middle Ages the only recognised titles to gain from the +ownership of property were labour and risk.[137] Down to the beginning +of the fifteenth century substantially all the incomes of all classes +could be explained and justified by one or other of these two titles; +for the amount of capital in existence was inconsiderable, and the +number of large personal incomes insignificant. + +When, however, the traffic in rent charges and the operation of +partnerships, especially the "contractus trinus," or triple contract, +had become fairly common, it was obvious that the profits from these +practices could not be correctly attributed to either labour or risk. +The person who bought, not the land itself, but the right to receive a +portion of the rent thereof, and the person who became the silent +member of a partnership, evidently performed no labour beyond that +involved in making the contract. And their profits clearly exceeded a +fair compensation for their risks, inasmuch as the profits produced a +steady income. How then were they to be justified? + +A few authorities maintained that such incomes had no justification. +In the thirteenth century Henry of Ghent condemned the traffic in rent +charges; in the sixteenth Dominicus Soto maintained that the returns +to the silent partner in an enterprise ought not to exceed a fair +equivalent for his risks; about the same time Pope Sixtus V denounced +the triple contract as a form of usury. Nevertheless, the great +majority of writers admitted that all these transactions were morally +lawful, and the gains therefrom just. For a time these writers +employed merely negative and _a pari_ arguments. Gains from rent +charges, they pointed out, were essentially as licit as the net rent +received by the owner of the land; and the interest received by a +silent partner, even in a triple contract, had quite as sound a moral +basis as rent charges. By the beginning of the seventeenth century the +leading authorities were basing their defence of industrial interest +on positive grounds. Lugo, Lessius, and Molina adduced the +productivity of capital goods as a reason for allowing gains to the +investor. Whether they regarded productivity as in itself a sufficient +justification of interest, or merely as a necessary prerequisite to +justification, cannot be determined with certainty. + +At present the majority of Catholic writers seem to think that a +formal defence of interest on capital is unnecessary. Apparently they +assume that interest is justified by the mere productivity of capital. +However, this view has never been explicitly approved by the Church. +While she permits and authorises interest, she does not define its +precise moral basis. + +So much for the teaching of ecclesiastical and ethical authorities. +What are the objective reasons in favour of the capitalist's claim to +interest? In this chapter we consider only the intrinsic reasons, those +arising wholly out of the relations between the interest-receiver and +the interest-payer. Before taking up the subject it may be well to +point out the source from which interest comes, the class in the +community that pays the interest to the capitalist. From the language +sometimes used by Socialists it might be inferred that interest is +taken from the labourer, and that if it were abolished he would be the +chief if not the only beneficiary. This is incorrect. At any given time +interest on producing capital is paid by the consumer. Those who +purchase the products of industry must give prices sufficiently high to +provide interest in addition to the other expenses of production. Were +interest abolished and the present system of private capital continued, +the gain would be mainly reaped by the consumer in the form of lower +prices; for the various capitalist directors of industry would bring +about this result through their competitive efforts to increase sales. +Only those labourers who were sufficiently organised and sufficiently +alert to make effective demands for higher wages before the movement +toward lower prices had got well under way, would obtain any direct +benefit from the change. The great majority of labourers would gain far +more as consumers than as wage earners. Speaking generally, then, we +may say that the capitalist's gain is the consumer's loss, and the +question of the justice of interest is a question between the +capitalist and the consumer. + +The intrinsic or individual grounds upon which the capitalist's claim +to interest has been defended are mainly three: productivity, service, +and abstinence. They will be considered in this order. + + +_The Claims of Productivity_ + +It is sometimes asserted that the capitalist has as good a right to +interest as the farmer has to the offspring of his animals. Both are +the products of the owner's property. In two respects, however, the +comparison is inadequate and misleading. Since the owner of a female +animal contributes labour or money or both toward her care during the +period of gestation, his claim to the offspring is based in part upon +these grounds, and only in part upon the title of interest. In the +second place, the offspring is the definite and easily distinguishable +product of its parent. But the sixty dollars derived as interest from +the ownership of ten shares of railway stock, cannot be identified as +the exact product of one thousand dollars of railway property. No man +can tell whether this amount of capital has contributed more or less +than sixty dollars of value to the joint product, i.e., railway +services. The same is true of any other share or piece of concrete +capital. All that we know is that the interest, be it five, six, +seven, or some other per cent., describes the share of the product +which goes to the owner of capital in the present conditions of +industry. It is the conventional not the actual and physical product +of capital. + +Another faulty analogy is that drawn between the productivity of +capital and the productivity of labour. Following the terminology of +the economists, most persons think of land, labour, and capital as +productive in the same sense. Hence the productivity of capital is +easily assumed to have the same moral value as the productive action +of human beings; and the right of the capitalist to a part of the +product is put on the same moral basis as the right of the labourer. +Yet the differences between the two kinds of productivity, and between +the two moral claims to the product are more important than their +resemblances. + +In the first place, there is an essential physical difference. As an +instrument of production, labour is active, capital is passive. As +regards its worth or dignity, labour is the expenditure of human +energy, the output of a _person_, while capital is a material thing, +standing apart from a personality, and possessing no human quality or +human worth. These significant intrinsic or physical differences +forbid any immediate inference that the moral claims of the owners of +capital and labour are equally valid. We should logically expect to +find that their moral claims are unequal. + +This expectation is realised when we examine the bearing of the two +kinds of productivity upon human welfare. In the exercise of +productive effort the average labourer undergoes a sacrifice. He is +engaged in a process that is ordinarily irksome. To require from him +this toilsome expenditure of energy without compensation, would make +him a mere instrument of his fellows. It would subordinate him and his +comfort to the aggrandisement of beings who are not his superiors but +his moral equals. For he is a person; they are no more than persons. +On the other hand, the capitalist as such, as the recipient of +interest, performs no labour, painful or otherwise. Not the +capitalist, but capital participates in the productive process. Even +though the capitalist should receive no interest, the productive +functioning of capital would not subordinate him to his fellows in the +way that wageless labour would subordinate the labourer. + +The precise and fundamental reason for according to the labourer his +product is that this is the only rational rule of distribution. When a +man makes a useful thing out of materials that are his, he has a +strict right to the product simply because there is no other +reasonable method of distributing the goods and opportunities of the +earth. If another individual, or society, were permitted to take this +product, industry would be discouraged, idleness fostered, and +reasonable life and self development rendered impossible. Direful +consequences of this magnitude would not follow the abolition of +interest. + +Perhaps the most important difference between the moral claims of +capitalist and labourer is the fact that for the latter labour is the +sole means of livelihood. Unless he is compensated for his product he +will perish. But the capitalist has in addition to the interest that +he receives the ability to work. Were interest abolished he would +still be in as good a position as the labourer. The product of the +labourer means to him the necessaries of life; the product of the +capitalist means to him goods in excess of a mere livelihood. +Consequently their claims to the product are greatly unequal in vital +importance and moral value. + +The foregoing considerations show that even the claim of the labourer +to his product is not based upon merely intrinsic grounds. It does not +spring entirely from the mere fact that he has produced the product, +from the mere relation between producer and thing produced. If this is +true of labour-productivity we should expect to find it even more +evident with regard to the productivity of capital; for the latter is +passive instead of active, non rational instead of human. + +The expectation is well founded. Not a single conclusive argument can +be brought forward to show that the productivity of capital directly +and necessarily confers upon the capitalist a right to the +interest-product. All the attempted arguments are reducible to two +formulas: "res fructificat domino" ("a thing fructifies to its owner") +and "the effect follows its cause." The first of these was originally +a legal rather than an ethical maxim; a rule by which the title was +determined in the civil law, not a principle by which the right was +determined in morals. The second is an irrelevant platitude. As a +juristic principle, neither is self evident. Why should the owner of a +piece of capital, be it a house, a machine, or a share of railway +stock, have a right to its product, when he has expended neither time, +labour, money, nor inconvenience of any kind? To answer, "because the +thing which produced the product belongs to him," is merely to beg the +question. To answer, "because the effect follows the cause," is to +make a statement which has nothing to do with the question. What we +want to know is why the ownership of a productive thing gives a right +to the product; why this particular effect should follow its cause in +this particular way. To answer by repeating under the guise of +sententious formulas the thesis to be proved, is scarcely satisfactory +or convincing. To answer that if the capitalist were not given +interest industry and thrift would decrease and human welfare suffer, +is to abandon the intrinsic argument entirely. It brings in the +extrinsic consideration of social consequences. + + +_The Claims of Service_ + +The second intrinsic ground upon which interest is defended, is the +_service_ performed by the capitalist when he permits his capital to +be used in production. Without capital, labourers and consumers would +be unable to command more than a fraction of their present means of +livelihood. From this point of view we see that the service in +question is worth all that is paid in the form of interest. +Nevertheless it does not follow that the capitalist has a claim in +strict justice to any payment for this service. According to St. +Thomas, a seller may not charge a buyer an extra amount merely because +of the extra value attached to the commodity by the latter.[138] In +other words, a man cannot justly be required to pay an unusual price +for a benefit or advantage or service, when the seller undergoes no +unusual deprivation. Father Lehmkuhl carries the principle further, +and declares that the seller has a right to compensation only when and +to the extent that he undergoes a privation or undertakes a +responsibility.[139] According to this rule, the capitalist would have +no right to interest; for as mere interest-receiver he undergoes no +privation. His risk and labour are remunerated in profits, while the +responsibility of not withdrawing from production something that can +continue in existence only by continuing in production, is scarcely +deserving of a reward according to the canons of strict justice. + +Whatever we may think of this argument from authority, we find it +impossible to prove objectively that a man who renders a service to +another has an intrinsic right to anything beyond compensation for the +expenditure of money or labour involved in performing the service. The +man who throws a life preserver to a drowning person may justly demand +a payment for his trouble. On any recognised basis of compensation, +this payment will not exceed a few dollars. Yet the man whose life is +in danger would pay a million dollars for this service if he were +extremely rich. He would regard the service as worth this much to him. +Has the man with the life preserver a right to exact such a payment? +Has he a right to demand the full value of the service? No reasonable +person would answer this question otherwise than in the negative. If +the performer of the service may not charge the full value thereof, as +measured by the estimate put upon it by the recipient, it would seem +that he ought not to demand anything in excess of a fair price for his +trouble. In other words, he may not justly exact anything for the +service as such. + +It would seem, then, that the capitalist has no moral claim to pure +interest on the mere ground that the use of his capital in production +constitutes a service to labourers and consumers. It would seem that +he has no right to demand a payment for a costless service. + + +_The Claims of Abstinence_ + +The third and last of the intrinsic justifications of interest that we +shall consider is _abstinence_. This argument is based upon the +contention that the person who saves his money, and invests it in the +instruments of production undergoes a sacrifice in deferring to the +future satisfactions that he might enjoy to-day. One hundred dollars +now is worth as much as one hundred and five dollars a year hence. +That is, when both are estimated from the viewpoint of the present. +This sacrifice of present to future enjoyment which contributes a +service to the community in the form of capital, creates a just claim +upon the community to compensation in the form of interest. If the +capitalist is not rewarded for this inconvenience he is, like the +unpaid labourer, subordinated to the aggrandisement of his fellows. + +Against this argument we may place the extreme refutation attempted by +the Socialist leader, Ferdinand Lassalle: + +"But the profit of capital is _the reward of abstinence_. Truly a happy +phrase! European millionaires are ascetics, Indian penitents, modern +St. Simons Stylites, who perched on their columns, with withered +features and arms and bodies thrust forward, hold out a plate to the +passers-by that they may receive the wages of their privations! In the +midst of this sacro-saint group, high above his fellow-mortifiers of +the flesh, stands the Holy House of Rothschild. That is the real truth +about our present society! How could I have hitherto blundered on this +point as I have?"[140] + +Obviously this is a malevolently one-sided implication concerning the +sources of capital. But it is scarcely less adequate than the +explanation in opposition to which it has been quoted. Both fail to +distinguish between the different kinds of savers, the different kinds +of capital-owners. For the purposes of our inquiry savings may be +divided into three classes. + +First, those which are accumulated and invested automatically. Very +rich persons save a great deal of money that they have no desire to +spend, since they have already satisfied or safeguarded all the wants +of which they are conscious. Evidently this kind of saving involves no +real sacrifice. To it the words of Lassalle are substantially +applicable, and the claim to interest for abstinence decidedly +inapplicable. + +Second, savings to provide for old age and other future contingencies +which are estimated as more important than any of the purposes for +which the money might now be expended. Were interest abolished this +kind of saving would be even greater than it is at present; for a +larger total would be required to equal the fund that is now provided +through the addition of interest to the principal. In a no-interest +régime one thousand dollars would have to be set aside every year in +order to total twenty thousand dollars in twenty years; when interest +is accumulated on the savings, a smaller annual amount will suffice to +produce the same fund. Inasmuch as this class of persons would save in +an even greater degree without interest, it is clear that they regard +the sacrifice involved as fully compensated in the resulting provision +for the future. In their case sacrifice is amply rewarded by +accumulation. Their claim to additional compensation in the form of +interest does not seem to have any valid basis. In the words of the +late Professor Devas, "there is ample reward given without any need of +any interest or dividend. For the workers with heads or hands keep the +property intact, ready for the owner to consume whenever convenient, +when he gets infirm or sick, or when his children have grown up, and +can enjoy the property with him."[141] + +The third kind of saving is that which is made by persons who could +spend, and have some desire to spend, more on present satisfactions, +and who have already provided for all future wants in accordance with +the standards of necessaries and comforts that they have adopted. +Their fund for the future is already sufficient to meet all those +needs which seem weightier than their present unsatisfied wants. If +the surplus in question is saved it will go to supply future desires +which are no more important than those for which it might be expended +now. In other words, the alternatives before the prospective saver +are to procure a given amount of satisfaction to-day, or to defer the +same degree of satisfaction to a distant day. + +In this case the inducement of interest will undoubtedly be necessary +to bring about saving. As between equal amounts of satisfaction at +different times, the average person will certainly prefer those of the +present to those of the future. He will not decide in favour of the +future unless the satisfactions then obtainable are to be greater in +quantity. To this situation the rule that deferred enjoyments are +worth less than present enjoyments, is strictly applicable. The +increased quantity of future satisfaction which is necessary to turn +the choice from the present to the future, and to determine that the +surplus shall be saved rather than spent, can be provided only through +interest. In this way the accumulations of interest and savings will +make the future fund equivalent to a larger amount of enjoyment or +utility than could be obtained if the surplus were exchanged for the +goods of the present. "Interest magnifies the distant object." +Whenever this magnifying power seems sufficiently great to outweigh +the advantage of present over future satisfactions, the surplus will +be saved instead of spent. + +Among the well-to-do there is probably a considerable number of +persons who take this attitude toward a considerable part of their +savings. Since they would not make these savings without the +inducement of interest, they regard the latter as a necessary +compensation for the sacrifice of postponed enjoyment. In a general +way we may say that they have a strict right to this interest on the +intrinsic ground of sacrifice. Inasmuch as the community benefits by +the savings, it may quite as fairly be required to pay for the +antecedent sacrifices of the savers as for the inconvenience undergone +by the performer of any useful labour or service. + +Summing up the matter regarding the intrinsic justification of +interest, we find that the titles of productivity and service do not +conclusively establish the strict right of the capitalist to interest, +and that the title of abstinence is morally valid for only a portion, +probably a rather small portion, of the total amount of interest now +received by the owners of capital. Consequently interest as a whole is +not conclusively vindicated on individual grounds. If it is to be +proved morally lawful its justification must be sought in extrinsic +and social considerations. This inquiry will form the subject of the +next chapter. + +FOOTNOTES: + +[133] Hohoff, "Die Bedeutung der Marxschen Kapitalkritik"; Paderborn, +1908. + +[134] Pp. 64-67, 88, 89, 96. + +[135] Cf. Van Roey, "De Justo Auctario ex Contractu Crediti"; and +Ashley, "English Economic History." + +[136] Encyclical, "Vix Pervenit," 1745. + +[137] Cf. St. Thomas, "Summa Theologica," 2a 2ae, q. 78, a. 2 et 3. + +[138] "Secunda Secondae," q. 77, a. 1, in corp. + +[139] "Theologia Moralis," I, no. 1050. + +[140] "What is Capital?" p. 27. + +[141] "Political Economy," p. 507. + + + + +CHAPTER XIII + +SOCIAL AND PRESUMPTIVE JUSTIFICATIONS OF INTEREST + + +As we saw in the last chapter, interest cannot be conclusively +justified on the ground of either productivity or service. It is +impossible to demonstrate that the capitalist has a strict right to +interest because his capital produces interest, or because it renders +a service to the labourer or the consumer. A part, probably a small +part, of the interest now received can be fairly justified by the +title of sacrifice. Some present owners of capital would not have +saved had they not expected to receive interest. In their case +interest may be regarded as a just compensation for the sacrifice that +they underwent when they decided to save instead of consuming. + + +_Limitations of the Sacrifice Principle_ + +Nevertheless these men would suffer no injustice if interest were now +to be abolished. Up to the moment of the change, they would have been +in receipt of adequate compensation; thereafter, they would be in +exactly the same position as when they originally chose to save rather +than consume. They would still be able to sell their capital, and +convert the proceeds to their immediate uses and pleasures. In this +case they would obviously have no further claim upon the community for +interest. On the other hand, they could retain the ownership of their +capital, and postpone its consumption to some future time. In making +this choice they would regard future as more important than present +consumption, and the superiority of future enjoyment as sufficiently +great to compensate them for the sacrifice of postponement. Hence +they would have no moral claim to interest on the ground of +abstinence. In general, then, the sacrifice-justification of interest +continues only so long as the interest continues. It extends only to +the interest received by certain capitalists in certain circumstances, +not to all interest in all circumstances. Therefore, it presents no +moral obstacle to the complete abolition of interest. + +Since probably the greater part of the interest now received cannot be +justified on intrinsic grounds, and since that part of it which is +thus justified could be abolished consistently with the rights of the +recipients, let us see whether it is capable of justification for +reasons of social welfare. Would its suppression be socially +beneficial or socially detrimental? + + +_The Value of Capital in a No-Interest Régime_ + +The interest that we have in mind is pure interest, not undertaker's +profit, nor insurance against risk, nor gross interest. Even if all +pure interest were abolished the capitalist who loaned his money would +still receive something from the borrower in addition to the repayment +of the principal, while the active capitalist would get from the +consumer more than the expenses of production. The former would +require a premium of, say, one or two per cent. to protect him against +the loss of his loan. The latter would demand the same kind of +insurance, and an additional sum to repay him for his labour and +enterprise. None of these payments could be avoided in any system of +privately directed production. The return whose suppression is +considered here is that which the capitalist receives over and above +these payments, and which in this country seems to be about three or +four per cent. + +Would capital still have value in a no-interest régime, and if so how +would its value be determined? At present the lower limit of the value +of productive capital, as of all other artificial goods, is fixed in +the long run by the cost of production. Capital instruments that do +not bring this price will not continue to be made. In other words, +cost of production is the governing factor of the value of capital +from the side of supply. It would likewise fix the lower limit of +value in a no-interest régime; only, the cost of producing capital +instruments would then be somewhat lower than to-day, owing to the +absence of an interest charge for the working capital during the +productive process. + +But the cost of production is not a constant and accurate measure of +the value of artificial capital. The true measure is found in the +revenue or interest that a given piece of capital yields to its +owners. If the current rate of interest is five per cent., a factory +that brings in ten thousand dollars net return will have a value of +about two hundred thousand dollars. This is the governing factor of +value from the side of demand. In a no-interest economy the demand +factor would be quite different. Capital instruments would be in +demand, not as revenue producers, but as the concrete embodiments, the +indispensable requisites of saving and accumulation. For it is +impossible that saving should in any considerable amount take the form +of cash hoards. In the words of Sir Robert Giffen: "The accumulations +of a single year, even taking it at one hundred and fifty millions +only, ... would absorb more than the entire metallic currency of the +country [Great Britain]. They cannot, therefore, be made in +cash."[142] The instruments of production would be sought and valued +by savers for the same reason that safes and safety deposit boxes are +in demand now. They would be the only means of carrying savings into +the future, and they would necessarily bring a price sufficiently high +to cover the cost of producing them. One man might deposit his savings +in a bank, whence they would be borrowed without interest by some +director of industry. When the owner of the savings desired to recover +them he could obtain from the bank the fund of some other depositor, +or get the proceeds of the sale of the concrete capital in which his +own savings had been embodied. Another man might prefer to invest his +savings directly in a building, a machine, or a mercantile business, +whence he could recover them later from the sale of the property. +Hence the absence of interest would not change essentially the +processes of saving or investment. Capital would still have value, but +its valuation from the demand side would rest on a different basis. It +would be valued not in proportion to its power to yield interest, but +because of its capacity to become a receptacle for savings, and to +carry into the future the consuming power of the present. + +The question whether the abolition of interest by the State would be +socially helpful or socially harmful is mainly, though not entirely, a +question of the supply of capital. If the community would not have +sufficient capital to provide for all its needs, actual and +progressive, the suppression of interest would obviously be a bad +policy. Most economists seem inclined to think that this condition +would be realised; that, without the inducement of interest, men would +neither make new savings nor conserve existing capital in sufficient +quantity to supply the wants of society. Very few of them, however, +pretend to be able to prove this proposition. So many complex factors +with regard to the possibilities of saving and the motives of savers, +enter into the situation that no opinion on the subject can have any +stronger basis than probability. As a preliminary to our consideration +of the question of abolition, let us inquire whether there exists any +definite relation between the present supply of capital and the +current rate of interest. + + +_Whether the Present Rate of Interest Is Necessary_ + +It is sometimes contended that the interest rate must be kept up to +the present level if the existing supply of capital is to be +maintained. The underlying assumption is that some of the present +savers would discontinue that function at any lower rate, with the +consequence that the supply of capital would fall below the demand. +Owing to this excess of demand over supply, the rate of interest would +rise, or tend to rise, to the former level. Therefore, the rate +existing at any given time is the socially necessary rate. The rate of +interest is said to be analogous to the rate of wages. For example; of +ten thousand men receiving five dollars a day, nine thousand may be +willing to work for four dollars rather than quit their present jobs. +But the other thousand set their minimum price at five dollars. If the +wage is reduced to four dollars these men will get employment +elsewhere, thus causing such an excess of demand over supply as to +force the wage rate back to five dollars. The same thing, it is +contended, will happen when the high-priced section of the savers, +"the marginal savers," discontinue saving on account of the artificial +lowering of the rate of interest. + +The analogy, however, is misleading. The "marginal" one thousand wage +earners refuse to work for four dollars a day because they can get +better compensation in some other occupation. This phenomenon has been +proved over and over again by observation and experience. On the other +hand, there is no experience, no positive evidence, which shows or +tends to show that any _necessary_ group of present savers would +discontinue or materially reduce their accumulations if they were no +longer able to secure the present rate of interest. If the rate were +lowered simultaneously in all civilised countries the dissatisfied +savers, unlike the dissatisfied labourers, would not be able to get a +better price for their capital elsewhere. Their only alternative +would be to spend their actual or potential savings for present +enjoyment. Now we have no empirical data to justify the assumption +that any considerable number of savers would choose this alternative +in preference to, say, three or two per cent. interest. The fact that +any group of savers at present gets and insists on getting a higher +rate, merely proves that they can get it, and that they are selfish +enough to take advantage of the possibility. We know that some men who +now obtain six per cent. interest would accept two rather than cease +to save; yet they do not hesitate to demand six per cent. So far as we +know, all present savers might take the same attitude. At any rate, we +can not conclude that they would not take less from the fact that they +now get more. Why then does not the rate of interest fall? If all +present savers are getting a higher rate than is necessary to induce +them to save, why do they not increase their savings to such an extent +that the supply of capital will exceed the present volume of demand, +and thus lead to a decline in the rate of interest? This is what +happens when the price of consumption-goods rises appreciably above +the minimum level that satisfies the most high-priced or "marginal" +producers. There is, however, an important difference between the two +cases. The capacity to produce more goods is practically unlimited, +and the corresponding desire is also unlimited, so long as the price +of the product exceeds the cost of production. The capacity to save is +not unlimited, and the desire to save is neutralised and sharply +restricted by other and more powerful desires. Hence it is quite +possible that the price of capital, i.e., interest, is determined to +only a slight degree by the "cost" of saving, being mainly dominated +and regulated from the side of demand. + +Even though many of the present savers and owners of capital should +diminish or discontinue their functions on account of a fall in the +rate of interest, a reduction would not necessarily take place in the +supply of capital. The function of these "marginal savers" would in +all probability be performed by other persons, who would be compelled +to increase their accumulations in order to provide as well for the +future as they had previously been able to provide with a smaller +capital at a higher rate of interest.[143] + + +_Whether at Least Two Per Cent. Is Necessary_ + +While admitting that the present rate is unnecessarily high, Professor +Cassel maintains that a certain important class of savers would +diminish very considerably their accumulations if the interest rate +should fall much below two per cent. This class comprises those +persons whose main object in saving is a fund which will some day +support them from its interest. At six per cent. a person can +accumulate in about twelve years a sum sufficient to provide him with +an interest-income equal to the amount annually saved. For example; +two thousand dollars put aside every year, and subjected to compound +interest, will aggregate in twelve years a principal capable of +yielding an annual income of two thousand dollars. At two per cent. +the same amount of yearly saving will not lead to the same income in +less than thirty-five years. If the rate be one and one-half per +cent., forty-seven years will be required to produce the desired +income. Hence, concludes Cassel, if the rate falls below two per cent. +the average man will decide that life is too short to provide for the +future by means of an interest-income, and will expect to draw upon +his principal. This means that he will not need to save as much as +when he sought to accumulate a capital large enough to support him out +of its interest alone. + +The argument is plausible but not conclusive. If the rate of interest +is so low that a man must save for forty-seven years in order to +obtain a sufficient interest-income to support him in his declining +years, he will rarely attain that end. In the great majority of +instances men who are unable to save more annually than the amount +that they will need each year in old age, will expect and be compelled +to use up a part or all of their capital in the period following the +cessation of their economic usefulness. Nevertheless, it does not +follow that they will save less at one and one-half per cent. than at +six per cent. The determining factor in the situation is the attitude +of the saver toward the _capital sum accumulated_. He either desires +or does not desire to leave this behind him. In the latter case he +will save only as much as is necessary to provide an annual income +composed partly of interest and partly of the principal. If this +contemplated income is two thousand dollars, and the rate of interest +is six per cent., he will not need to save that much annually for as +long a period as ten years. He can diminish either the yearly amount +saved or the length of time devoted to saving. On the other hand, if +the rate is only one and one-half per cent. he will be compelled to +save a larger total in order to secure an equal accumulation and an +equal provision for the future. In all cases, therefore, in which the +saving is carried on merely for the saver's own lifetime it will be +increased instead of decreased by a low rate of interest. + +If the saver does desire to bequeath his capital he will not always be +deterred from this purpose merely because he is compelled to use some +of the capital for the satisfaction of his own wants. Take the man who +can save two thousand dollars a year, and with the rate of interest at +six per cent. assure himself an interest-income of the same amount, +and who intends to leave the principal (some thirty-three thousand +dollars) to his children. Should the rate fall to one and one-half per +cent. he would be unable to accumulate and bequeath nearly such a +large sum. Surely this fact, discouraging as it is, will not determine +him to save nothing. He will not, as Cassel's argument assumes, decide +to leave nothing to his children, and content himself with that amount +of saving which will suffice to provide for his own future. In all +probability he will try to accumulate a sum which, even when +diminished by future deductions for his own wants, will approximate as +closely as possible the amount that he could have bequeathed had the +rate remained at six per cent. This means that he will save more at +the low than at the high rate of interest. + +The relative insignificance of the sum which would be saved at a low +rate might sometimes, indeed, deter a person from saving for +testamentary purposes. With the rate at six per cent., a man might be +willing to save six hundred dollars a year for a sufficiently long +period to provide a legacy of twenty thousand dollars to an +educational institution. With the rate at one and one-half per cent., +the amount that he could hope to accumulate would be so much smaller +that it might seem to him not worth while, and he would decline to +save the six hundred dollars annually. Cases of this kind, however, +always involve the secondary objects of saving, the luxuries rather +than the necessaries of testamentary transmission. They do not include +such primary objects as provision for one's family. When the average +man finds that he cannot leave to his family as much as he would +desire, as much as he would have bequeathed to them at a higher rate +of interest, he will strive to increase rather than decrease his +efforts to save for this purpose. + +Speaking generally, then, we conclude that the assumption underlying +Professor Cassel's theory is contradicted by our experience of human +motives and practices. Men who save mainly for a future +interest-income, at the same time wishing to keep the principal intact +until death, and who could have fully realised this desire under a +high interest régime, will not become entirely indifferent to it when +they find that they cannot attain it completely. They will ordinarily +try to leave behind them as large a capital or principal as they can. +Hence they will save more rather than less. + + +_Whether Any Interest Is Necessary_ + +Perhaps the best known recent statement of the opinion that interest +is inevitable, appears in Professor Irving Fisher's "The Rate of +Interest."[144] While he does not assert explicitly that sufficient +capital would not be provided without interest, and even admits that +in certain circumstances interest might disappear, the general logic +and implications of his argument are decidedly against the supposition +that society could ever get along without interest. He lays such +stress upon the factor of "impatience," i.e., man's unwillingness to +wait for future goods, as to suggest strongly that other causes of +interest, and the number of savers free from "impatience," are quite +insignificant. Now, if "impatience" were the only cause of interest +the latter must continue as long as "impatience" continues; and if +practically all savers, actual and possible, are completely dominated +by "impatience" the abolition of interest would be socially +disastrous. However, neither of these assumptions is demonstrable. We +have just seen that the present rate of interest has other causes than +"impatience"; that a large proportion of savers insist upon getting +the present rate, not because they require it to offset their +"impatience," but simply because they can obtain it, and because they +prefer it to the lower rate. Therefore, the mere existence of the +present rate does not prove it to be necessary. By the same argument +it is evident that the existence of any interest does not demonstrate +the necessity of some interest. In the second place, the number of +savers, present and prospective, whose "impatience" is so weak as to +permit them to save without interest, is probably greater than the +average reader of Professor Fisher's pages is led to assume. The +question whether interest is necessary cannot be answered by reference +to the general fact of human "impatience"; it demands a preliminary +analysis of the extent to which "impatience" affects the different +classes of savers. + +With interest abolished, those persons who were willing to subordinate +present secondary satisfactions to the primary future needs of +themselves and their families, would save at least as much for these +purposes as when they could have obtained interest. Most of them would +probably save more in order to render their future provision as nearly +as possible equal to what it would have been had interest accrued on +their annual savings. Whether a person intended to leave all his +accumulations, or part of them, or none of them to posterity, he would +still desire them to be as large as they might have been in a régime +of interest. In order to realise this desire, he would be compelled to +increase his savings. And it is reasonable to expect that this is +precisely the course that would be followed by men of average thrift +and foresight. Such men regard future necessaries and comforts, +whether for themselves or their children, as more important than +present non-essentials and luxuries. Interest or no interest, prudent +men will subordinate the latter goods to the former, and will save +money accordingly. + +When, however, both future and present goods are of the same order and +importance, the future is no longer preferred to the present. In that +case the preference is reversed. The luxuries of to-day are more +keenly prized than the luxuries of to-morrow. If the latter are to be +preferred they must possess some advantage over the luxuries that +might be obtained here and now. Such advantage may arise in various +ways; for example, when a man decides that he will have more leisure +for a foreign journey two years hence than this year, or when he +prefers a large amount of future enjoyment at one time to present +satisfactions taken in small doses. But the most general method of +conferring advantage upon the secondary satisfactions of the future as +compared with those of the present, is to increase the quantity. The +majority of foreseeing persons are willing to pass by one hundred +dollars' worth of enjoyment now for the sake of one hundred and five +dollars' worth one year hence. This advantage of quantity is provided +through the receipt of interest. It affects all those persons whose +saving, as noted in the last chapter, involves a sacrifice for which +the only adequate compensation is interest, and likewise all those +persons who are in a position to choose between present and future +luxuries. Were interest suppressed these classes of persons would +cease to save for this kind of future goods. + +According to Professor Taussig, "most saving is done by the well-to-do +and the rich."[145] On this hypothesis it seems probable that the +abolition of interest would diminish the savings and capital of the +community very considerably; for the accumulations of the wealthy are +derived mainly from interest rather than from salaries. On the other +hand, the suppression of interest should bring about a much wider +diffusion of wealth. The sums formerly paid out as interest, would be +distributed among the masses of the population as increased wages and +reduced costs of living. Hence the masses would possess an immensely +increased capacity for saving, which might offset or even exceed the +loss of saving-power among those who now receive interest-incomes.[146] + +To sum up the results of our inquiry concerning the necessity of +interest: The fact that men now receive interest does not prove that +they would not save without interest. The fact that many men would +certainly save without interest does not prove that a sufficient +amount would be saved to provide the community with the necessary +supply of capital. Whether the savings of those classes that increased +their accumulations would counteract the decreases in the saving of +the richer classes, is a question that admits of no definite or +confident answer. + + +_The State Is Justified in Permitting Interest_ + +If we assume that the suppression of interest would cause a +considerable decline in saving and capital, we must conclude that the +community would be worse off than under the present system. To +diminish greatly the instruments of production, and consequently the +supply of goods for consumption, would create far more hardship than +it would relieve. While "workless" incomes would be suppressed, and +personal incomes more nearly equalised, the total amount available for +distribution would probably be so much smaller as to cause a +deterioration in the condition of every class. In this hypothesis the +State would do wrong to abolish the system of interest. + +If, however, we assume that no considerable amount of evil would +follow, or that the balance of results would be favourable, the +question of the proper action of the State becomes somewhat complex. +In the first place, interest could not rightfully be suppressed while +the private taking of rent remained. To adopt such a course would be +to treat the receivers of property incomes inequitably. Landowners +would continue to receive an income from their property, while capital +owners would not; yet the moral claims of the former to income are no +better than those of the latter. In the second place, the State would +be obliged to compensate the owners of existing capital instruments +for the decline in value which, as we have already seen, would occur +when the item of interest was eliminated from the cost of reproducing +such capital instruments. It would likewise be under moral obligation +to compensate landowners for whatever decrease in value befell their +property as a result of the abolition of rent. + +Nevertheless, the practical difficulties confronting the legal +abolition of interest are apparently so great as to render the attempt +socially unwise and futile. In order to be effective the prohibition +would have to be international. Were it enforced in only one or in a +few countries, these would suffer far more through the flight of +capital than they would gain through the abolition of interest. The +technical obstacles in any case would be well nigh insuperable. If the +attempt were made to suppress interest on producing capital, as well +as on loans, the civil authorities would be unable to determine with +any degree of precision what part of the gross returns of a business +was pure interest, and what part was a necessary compensation for risk +and the labour of management. Should the State try to solve this +problem by allowing the directors of industry varying salaries to +correspond with their comparative degrees of efficiency, and different +rates of insurance-payments to represent the different risks, it would +inevitably make some allowances so low as to discourage labour and +enterprise, and others so high as to give the recipients a +considerable amount of pure interest in the guise of profits and +salaries. Should it fix a flat rate of salaries and profits, the more +efficient undertakers would refuse to put forth their best efforts, +and the more perilous enterprises would not be undertaken. The +supervision of expenses, receipts, and other details of business that +would be required to prevent evasion of the law, would not improbably +cost more than the total amount now paid in the form of interest. On +the other hand, if the method of suppression were confined to loans it +would probably prove only a little less futile than the effort to +abolish interest on productive capital. The great majority of those +who were prevented from lending at interest would invest their money +in stocks, land, buildings, and other forms of productive property. +Moreover, it is probable that a large volume of loans would be made +despite the prohibition. In the Middle Ages, when the amount of money +available for lending was comparatively small, and when State and +Church and public opinion were unanimous in favour of the policy, the +legal prohibition of loans was only partially effective. Now that the +supply of and the demand for loans have enormously increased, and +interest is not definitely disapproved by the Church or the public, a +similar effort by the State would undoubtedly prove a failure. Even if +it were entirely successful it would only decrease, not abolish, +interest on productive capital.[147] + +In view of the manifold and grave uncertainties of the situation, it +is practically certain that modern States are justified in permitting +interest. + + +_Civil Authorisation not Sufficient for Individual Justification_ + +This justification of the attitude of the State does not of itself +demonstrate that the capitalist has a right to accept interest. The +civil law tolerates many actions which are morally wrong in the +individual; for example, the payment of starvation wages, the +extortion of unjust prices, and the traffic in immorality. Obviously +legal toleration does not _per se_ nor always exonerate the individual +offender. How, then, shall we justify the individual receiver of +interest? + +As already pointed out more than once, those persons who would not +save without interest are justified on the ground of sacrifice. So +long as the community desires their savings, and is willing to pay +interest on them, the savers may take interest as the fair equivalent +of the inconvenience that they undergo in performing this social +service. The precise problem before us, then, is the justification of +those savers and capitalists who do not need the inducement of +interest, and whose functions of saving and conserving capital are +sufficiently compensated without interest. + +It is a fact that the civil law can sometimes create moral rights and +obligations. For example; the statute requiring a person to repair +losses that he has unintentionally inflicted upon his neighbour is +held by the moral theologians to be binding _in conscience_, as soon +as the matter has been adjudicated by the court. In other words, this +civil regulation confers on the injured man property rights, and +imposes on the morally inculpable injurer property obligations. The +civil statutes also give moral validity to the title of prescription, +or adverse possession. When the alien possessor has complied with the +legal provisions that apply, he has a moral right to the property, +even though the original owner should assert his claim at a later +time. Some moral theologians maintain that a legal discharge in +bankruptcy liberates the bankrupt from the moral obligation of +satisfying his unpaid debts. Several other situations might be cited +in which the State admittedly creates moral rights of individual +ownership which would have no definite existence in the absence of +such legal action and authorisation.[148] + +This principle would seem to have received a particularly pertinent +application for our inquiry in the doctrine of _præmium_ legale as a +title of interest on loans. In the "Opus Morale" of Ballerini-Palmieri +can be found a long list of moral theologians living in the +seventeenth and eighteenth centuries who maintained that the mere +legal sanction of a certain rate of interest was a sufficient moral +justification for the lender.[149] While holding to the traditional +doctrine that interest was not capable of being justified on intrinsic +grounds, these writers contended that by virtue of its power of +eminent domain the State could transfer from the borrower to the +lender the right to the interest paid on a loan. They did not mean +that the State could arbitrarily take one man's property and hand it +over to another, but only that, when it sanctioned interest for the +public welfare, this extrinsic circumstance (like the other "extrinsic +titles" approved by moralists) annulled the claim of the borrower in +favour of the lender. In other words, they maintained that the money +paid in loan-interest did not belong to either borrower or lender with +certainty or definiteness until the matter was determined by economic +conditions and extrinsic circumstances. Hence legal authorisation for +the common good was morally sufficient to award it to the lender. More +than one of them declared that the State had the same right to +determine this indeterminate property, to assign the ownership to the +lender, that it had to transfer property titles by the device of +prescription. And their general position seems to have been confirmed +by the response of the Congregation of the Poenitentiaria, Feb., 1832, +to the Bishop of Verona, the substance of which was that a confessor +might adopt and act upon this position.[150] + +And yet, neither this nor any of the other precedents cited above, are +sufficient to give certain moral sanction to the practice of +interest-taking by those persons who would continue to save if +interest were abolished. All the acts of legal authorisation that we +have been considering relate to practices which are beneficial and +necessary to society. Only in such cases has the State the moral +authority to create or annul property rights. In the seventeenth and +eighteenth centuries the legal authorisation of a certain rate of +interest made that rate morally lawful simply because this legal act +gave formal and authoritative testimony to the social utility of +interest-taking. The State merely declared the reasonableness, and +fixed the proper limits of the practice. The beneficent effect of +interest-taking upon society was its underlying justification, was the +ultimate fact which made it reasonable, and which gave to the action +of the State moral value. Had the taking of interest on loans not been +allowed the bulk of possible savings would either not have been saved +at all, or would have been hoarded instead of converted into capital. +And that money was badly needed in the commercial and industrial +operations of the time. Hence the owners of it were in the position of +persons who regarded saving and investing as a sacrifice for which +interest was a necessary and proper compensation. To-day, however, +there are millions of persons who would continue to perform both these +functions without the inducement of interest. Therefore, the public +good does not require that they should receive interest, nor that the +State should have the power to clothe their interest-incomes with +moral lawfulness. Inasmuch as the State is not certain that the +abolition of interest would be socially expedient or practically +possible, it is justified in permitting the institution to continue; +but it has no power to affect the morality of interest-taking as an +individual action. + + +_How the Interest-Taker Is Justified_ + +Although the interest received by the non-sacrifice savers is not +clearly justifiable on either intrinsic or social grounds, it is not +utterly lacking in moral sanctions. In the first place, we have not +contended that the intrinsic factors of productivity and service are +_certainly_ invalid morally. We have merely insisted that the moral +worth of these titles has never been satisfactorily demonstrated. +Possibly they have a greater and more definite efficacy than has yet +been shown by their advocates. In more concrete terms, we admit that +the productivity of capital and the service of the capitalist to the +community, are possible and doubtful titles to interest. A doubtful +title to property is, indeed, insufficient by itself. In the case of +the interest receiver, however, the doubtful titles of productivity +and service are reinforced by the fact of possession. Thus +supplemented, they are sufficient to justify the non-sacrifice saver +in giving himself the benefit of the doubt as regards the validity of +his right to take interest. To be sure, this indefinite and uncertain +claim would be overthrown by a more definite and positive title. But +no such antagonistic title exists. Neither the consumer nor the +labourer can show any conclusive reason why interest should go to him +rather than to the capitalist. Hence the latter has at least a +presumptive title. In the circumstances this is morally sufficient. + +To this justification by presumption must be added a justification by +analogy. The non-sacrifice savers seem to be in about the same +position as those other agents of production whose rewards are out of +proportion to their sacrifices. For example; the labourer of superior +native ability gets as much compensation for the same quality and +quantity of work as his companion who has only ordinary ability; and +the exceptionally intelligent business man stands in the same relation +to his less efficient competitor; yet the sacrifices undergone by the +former of each pair is less than that suffered by the latter. It would +seem that if the more efficient men may properly take the same rewards +as those who make larger sacrifices, the non-sacrifice capitalist +might lawfully accept the same interest as the man whose saving +involves some sacrifice. On this principle the lenders who would not +have invested their money in a productive enterprise were nevertheless +permitted by the moralists of the post-mediæval period to take +advantage of the title of _lucrum cessans_. Although they had +relinquished no opportunity of gain, nor made any sacrifice, they were +put on the same moral level as sacrificing lenders, and were allowed +to take the same interest. + +As a determinant of ownership, possession is the feeblest of all +factors, and yet it is of considerable importance for a large +proportion of incomes and property. In the distribution of the +national product, as well as in the division of the original heritage +of the earth, a large part is played by the title of first occupancy. +Much of the product of industry is assigned to the agents of +production mainly on the basis of inculpable possession. That is; it +goes to its receivers automatically, in exchange for benefits to those +who hand it over, and without excessive exploitation of their needs. +Just as the first arrival on a piece of land may regard it as a +no-man's territory, and make it his own by the mere device of +appropriation, so the capitalist may get morally valid possession of +interest. Sometimes, indeed, this debatable share, this no-man's share +of the product of industry, is secured in some part by the consumer of +the labourer. In such cases their title to it is just as valid as the +title of the capitalist, notwithstanding the doubtful titles of +productivity and service which the latter has in his favour. First +occupancy and possession are the more decisive factors. In the great +majority of instances, however, the capitalist is the first occupant, +and therefore the lawful possessor of the interest-share. + +The general justification of interest set forth in the immediately +preceding paragraphs is supplemented in the case of the great majority +of capital owners by the fact that their income from this source is +relatively insignificant. The average income of the farmers of the +United States is only 724 dollars per year, and of this 322 dollars is +interest on the capital invested in the farm.[151] Even when we make +due allowance for the high purchasing power of farm incomes, due to +the lower cost of foodstuffs and house rent, the total amount of 724 +dollars provides only a very moderate living. Consequently the great +majority of farmers can regard the interest that they receive as a +necessary part of the remuneration that is fairly due them on account +of their labour, sacrifices, and risks. So far as they are concerned, +the justification of interest, as interest, is not a practical +question. The same observation applies to the majority of urban +business men, such as small merchants and manufacturers. Their +interest can be justified as not more than fair wages and profits. + +Again, there is a large number of interest receivers who are entirely +dependent upon this kind of income, and who obtain therefrom only a +moderate livelihood. They are mainly children, aged persons, and +invalids. Unlike the classes just described, they cannot justify their +interest as a fair supplement to wages; however, they may reasonably +claim it as their equitable or charitable share of the common heritage +of the earth. If they did not receive this interest-income they would +have to be supported by their relatives or by the State. For many +reasons this would be a much less desirable arrangement. Consequently +their general claim to interest is supplemented by considerations of +human welfare. + +The difference between the ethical character of the interest discussed +in the last two paragraphs and of that received by persons who possess +large incomes, is too often overlooked in technical treatises. Every +man owning any productive goods is reckoned as a capitalist, and +assumed to receive interest. If, however, a man's total +interest-income is so small that when combined with all his other +revenues it merely completes the equivalent of a decent living, it is +surely of very little significance as interest. It stands in no such +need of justification as the interest obtained by men whose incomes +amount to, say, ten thousand dollars a year and upwards. + +Still another confirmatory title of interest is suggested by the +following well known declaration of St. Thomas Aquinas: "The +possession of riches is not in itself unlawful if the order of reason +be observed: that a man should possess justly what he owns, and _use_ +it in a proper manner for himself and others."[152] Neither just +acquisition nor proper use is alone sufficient to render private +possessions morally good. Both must be present. As we have seen above, +the capitalist can appeal to certain presumptive and analogous titles +which justify practically his acquisition of interest; but there can +be no doubt that his claim and his moral power of disposal are +considerably strengthened when he puts his interest-income to a proper +use. One way of so using it is for a reasonable livelihood, as +exemplified in the case of the farmers, business men, and non-workers +whom we considered above. Those persons who receive incomes in excess +of their reasonable needs could devote the surplus to religion, +charity, education, and a great variety of altruistic purposes. We +shall deal with this matter specifically in the chapter on the "Duty +of Distributing Superfluous Wealth." In the meantime it is sufficient +to note that the rich man who makes a benevolent use of his +interest-income has a special reason for believing that his receipt of +interest is justified. + +The decisive value attributed to presumption, analogy, possession, and +doubtful titles in our vindication of the capitalist's claim to +interest, is no doubt disappointing to those persons who desire +clear-cut mathematical rules and principles. Nevertheless, they are +the only factors that seem to be available. While the title that they +confer upon the interest receiver is not as definite nor as noble as +that by which the labourer claims his wages or the business man his +profits, it is morally sufficient. It will remain logically and +ethically unshaken until more cogent arguments have been brought +against it than have yet appeared in the denunciations of the income +of the capitalist. And what is true of him is likewise true of the +rent receiver, and of the person who profits by the "unearned +increment" of land values. In all three cases the presumptive +justification of "workless" incomes will probably remain valid as long +as the present industrial system endures. + +FOOTNOTES: + +[142] "Growth of Capital," p. 152. + +[143] Cf. Gonner, "Interest and Saving," p. 73; Cassel, "The Nature +and Necessity of Interest," ch. iv. + +[144] New York, 1907. + +[145] "Principles of Economics," II, 42. + +[146] Cf. Hobson, "The Economics of Distribution," pp. 259-265. + +[147] Cf. Fisher, "Elementary Principles of Economics," pp. 396, 397. +However, he does not discuss in this passage the possibility of +suppressing interest on productive capital by a direct method. + +[148] Cf. Lehmkuhl, "Theologia Moralis," I, nos. 917, 965, 1035. + +[149] Vol. 3, pp. 617-629; 2d ed. + +[150] Ballerini-Palmieri, loc. cit.; cf. Van Roey, op. cit., pp. +73-75. + +[151] Cf. _American Economic Review_, March, 1916; p. 46. + +[152] "Contra Gentiles," lib. 3, c. 123. + + + + +CHAPTER XIV + +CO-OPERATION AS A PARTIAL SOLVENT OF CAPITALISM + + +Interest is not a return for labour. The majority of interest +receivers are, indeed, regularly engaged at some active task, whether +as day labourers, salaried employés, directors of industry, or members +of the professions; but for these services they obtain specific and +distinct compensation. The interest that they get comes to them solely +in their capacity as owners of capital, independently of any personal +activity. From the viewpoint of economic distribution, interest is a +"workless" income. As such, it seems to challenge that ethical +intuition which connects reward with effort and which inclines to +regard income from any other source as not quite normal. Moreover, +interest absorbs a large part of the national income, and perpetuates +grave economic inequalities.[153] + +Nevertheless, interest cannot be wholly abolished. As long as capital +remains in private hands, its owners will demand and obtain interest. +The only way of escape is by the road of Socialism, and this would +prove a blind alley. As we have seen in a preceding chapter, Socialism +is ethically and economically impossible. + +May not the burdens and disadvantages of interest be mitigated or +minimised? Such a result could conceivably be reached in two ways: the +sum total of interest might be reduced, and the incomes derived from +interest might be more widely distributed. + + +_Reducing the Rate of Interest_ + +No considerable diminution of the interest-volume can be expected +through a decline in the interest rate. As far back as the middle of +the eighteenth century, England and Holland were able to borrow money +at three per cent. During the period that has since intervened, the +rate has varied from three to six per cent. on this class of loans. +Between 1870 and 1890, the general rate of interest declined about two +per cent., but it has risen since the latter date about one per cent. +The Great War now (1916) in action is destroying an enormous amount of +capital, and it will, as in the case of all previous military +conflicts of importance, undoubtedly be followed by a marked rise in +the rate of interest. + +On the other hand, the only definite grounds upon which a decline in +the rate can be hoped for are either uncertain or unimportant. They +are the rapid increase of capital, and the extension of government +ownership and operation of natural monopolies. + +The first is uncertain in its effects upon the rate of interest +because the increased supply of capital is often neutralised by the +process of substitution. That is, a large part of the new capital does +not compete with and bring down the price of the old capital. Instead, +it is absorbed in new inventions, new types of machinery, and new +processes of production, all of which take the place of labour, thus +tending to increase rather than diminish the demand for capital and +the rate of interest. To be sure, the demand for capital thus arising +has not always been sufficient to offset the enlarged supply. Since +the Industrial Revolution capital has at certain periods and in +certain regions increased so rapidly that it could not all find +employment in new forms and in old forms at the old rate. In some +instances a decline in the rate of interest can be clearly traced to +the disproportionately quick growth of capital. But this phenomenon +has been far from uniform, and there is no indication that it will +become so in the future. The possibilities of the process of +substitution have been by no means exhausted. + +The effects of government ownership are even more problematical. +States and cities are, indeed, able to obtain capital more cheaply +than private corporations for such public utilities as railways, +telegraphs, tramways, and street lighting; and public ownership of all +such concerns will probably become general in the not remote future. +Nevertheless the social gain is not likely to be proportionate to the +reduction of interest on this section of capital. A part, possibly a +considerable part, of the saving in interest will be neutralised by +the lower efficiency and greater cost of operation; for in this +respect publicly managed are inferior to privately managed +enterprises. Consequently, the charges to the public for the services +rendered by these utilities cannot be reduced to the same degree as +the rate of interest on the capital. On the other hand, the exclusion +of private operating capital from this very large field of public +utilities should increase competition among the various units of +capital, and thus bring down its rewards. To what extent this would +happen cannot be estimated even approximately. The only safe statement +is that the decline in the general rate of interest would probably be +slight. + + +_Need for a Wider Distribution of Capital_ + +The main hope of lightening the social burden of interest lies in the +possible reduction in the necessary volume of capital, and especially +in a wider distribution of interest-incomes. In many parts of the +industrial field there is a considerable waste of capital through +unnecessary duplication. This means that a large amount of unnecessary +interest is paid by the consumer in the form of unnecessarily high +prices. Again, the owners of capital and receivers of interest +constitute only a minority of the population of all countries, with +the possible exception of the United States. The great majority of the +wage earners in all lands possess no capital, and obtain no interest. +Not only are their incomes small, often pitiably small, but their lack +of capital deprives them of the security, confidence, and independence +which are required for comfortable existence and efficient +citizenship. They have no income from productive property to protect +them against the cessation of wages. During periods of unemployment +they are frequently compelled to have recourse to charity, and to +forego many of the necessary comforts of life. So long as the bulk of +the means of production remains in the hands of a distinct capitalist +class, this demoralising insecurity of the workers must continue as an +essential part of our industrial system. While it might conceivably be +eliminated through a comprehensive scheme of State insurance, this +arrangement would substitute dependence upon the State for dependence +upon the capitalist, and be much less desirable than ownership of +income-bearing property. + +The workers who possess no capital do not enjoy a normal and +reasonable degree of independence, self respect, or self confidence. +They have not sufficient control over the wage contract and the other +conditions of employment, and they have nothing at all to say +concerning the goods that they shall produce, or the persons to whom +their product shall be sold. They lack the incentive to put forth +their best efforts in production. They cannot satisfy adequately the +instinct of property, the desire to control some of the determining +forms of material possession. They are deprived of that consciousness +of power which is generated exclusively by property, and which +contributes so powerfully toward the making of a contended and +efficient life. They do not possess a normal amount of freedom in +politics, nor in those civic and social relations which lie outside +the spheres of industry and politics. In a word, the worker without +capital has not sufficient power over the ordering of his own life. + + +_The Essence of Co-operative Enterprise_ + +The most effective means of lessening the volume of interest, and +bringing about a wider distribution of capital, is to be found in +co-operative enterprise. Co-operation in general denotes the unified +action of a group of persons for a common end. A church, a debating +club, a joint stock company, exemplifies co-operation in this sense. +In the strict and technical sense, it has received various +definitions. Professor Taussig declares that it "consists essentially +in getting rid of the managing employer"; but this description is +applicable only to co-operatives of production. "A combination of +individuals to economise by buying in common, or increase their +profits by selling in common" (Encyclopedia Britannica) is likewise +too narrow, since it fits only distributive and agricultural +co-operation. According to C. R. Fay, a co-operative society is "an +association for the purpose of joint trading, originating among the +weak, and conducted always in an unselfish spirit." If the word, +"trading" be stretched to comprehend manufacturing as well as +commercial activities, Fay's definition is fairly satisfactory. The +distinguishing circumstance, "originating among the weak," is also +emphasised by Father Pesch in his statement that the essence, aim, and +meaning of co-operation are to be found in "a combination of the +economically weak in common efforts for the security and betterment of +their condition."[154] In order to give the proper connotation for our +purpose, we shall define co-operation as, that joint economic action +which seeks to obtain for a relatively weak group all or part of the +profits and interest which in the ordinary capitalist enterprise are +taken by a smaller and different group. This formula puts in the +foreground the important fact that in every form of co-operative +effort, some interest or profits, or both, are diverted from those who +would have received them under purely capitalistic arrangements, and +distributed among a larger number of persons. Thus it indicates the +bearing of co-operation upon the problem of lightening the social +burden of interest. + +From the viewpoint of economic function, co-operation may be divided +into two general kinds, producers' and consumers'. The best example of +the former is a wage earners' productive society; of the latter, a +co-operative store. Credit co-operatives and agricultural +co-operatives fall mainly under the former head, inasmuch as their +principal object is to assist production, and to benefit men as +producers rather than as consumers. Hence from the viewpoint of type, +co-operation may be classified as credit, agricultural, distributive, +and productive. + + +_Co-operative Credit Societies_ + +A co-operative credit society is a bank controlled by the persons who +patronise it, and lending on personal rather than material security. +Such banks are intended almost exclusively for the relatively helpless +borrower, as, the small farmer, artisan, shopkeeper, and the small man +generally. Fundamentally they are associations of neighbours who +combine their resources and their credit in order to obtain loans on +better terms than are accorded by the ordinary commercial banks. The +capital is derived partly from the sale of shares of stock, partly +from deposits, and partly from borrowed money. In Germany, where +credit associations have been more widely extended and more highly +developed than in any other country, they are of two kinds, named +after their respective founders, Schulze-Delitzsch and Raiffeisen. The +former operates chiefly in the cities, serves the middle classes +rather than the very poor, requires all its members to subscribe for +capital stock, commits them to a long course of saving, and thus +develops their interest as lenders. The Raiffeisen societies have, as +a rule, very little share capital, exist chiefly in the country +districts, especially among the poorest of the peasantry, are based +mostly on personal credit, and do not profess to encourage greatly the +saving and lending activities of their members. Both forms of +association loan money to their members at lower rates of interest +than these persons could obtain elsewhere. Hence credit co-operation +directly reduces the burden of interest. + +The Schulze-Delitzsch societies have more than half a million members +in the cities and towns of Germany, sixty per cent. of whom take +advantage of the borrowing facilities. The Raiffeisen banks comprise +about one-half of all the independent German agriculturists. Some form +of co-operative banking is well established in every important country +of Europe, except Denmark and Great Britain. In the former country +its place seems to be satisfactorily filled by the ordinary commercial +banks. Its absence from Great Britain is apparently due to the credit +system provided by the large landholders, to the scarcity of peasant +proprietors, and to general lack of initiative. It is especially +strong in Italy, Belgium, and Austria, and it has made a promising +beginning in Ireland. In every country in which it has obtained a +foothold, it gives indication of steady and continuous progress. +Nevertheless it is subject to definite limits. It can never make much +headway among that class of persons whose material resources are +sufficiently large and palpable to command loans on the usual terms +offered by the commercial banks. As a rule, these terms are quite as +favourable as those available through the co-operative credit +associations. It is only because the poorer men cannot obtain loans +from the commercial banks on the prevailing conditions that they are +impelled to have recourse to the co-operative associations. + + +_Co-operative Agricultural Societies_ + +The chief operations of agricultural co-operative societies are +manufacturing, marketing, and purchasing. In the first named field the +most important example is the co-operative dairy. The owners of cows +hold the stock or shares of the concern, and in addition to dividends +receive profits in proportion to the amount of milk that they supply. +In Ireland and some other countries, a portion of the profits goes to +the employés of the dairy as a dividend on wages. Other productive +co-operatives of agriculture are found in cheese making, bacon curing, +distilling, and wine making. All are conducted on the same general +principles as the co-operative dairy. + +Through the marketing societies and purchasing societies, the farmers +are enabled to sell their products to better advantage, and to obtain +materials needed for carrying on agricultural operations more cheaply +than would be possible by isolated individual action. Some of the +products marketed by the selling societies are eggs, milk, poultry, +fruit, vegetables, live stock, and various kinds of grain. The +purchasing societies supply for the most part manures, seeds, and +machinery. Occasionally they buy the most costly machinery in such a +way that the association becomes the corporate owner of the +implements. In these cases the individual members have only the use of +the machines, but they would be unable to enjoy even that advantage +were it not for the intervention of the co-operative society. Where +such arrangements exist, the society exemplifies not only co-operative +buying but co-operative ownership. + +Agricultural co-operation has become most widely extended in Denmark, +and has displayed its most striking possibilities in Ireland. +Relatively to its population, the former country has more farmers in +co-operative societies, and has derived more profit therefrom, than +any other nation. The rapid growth and achievements of agricultural +co-operation in the peculiarly unfavourable circumstances of Ireland +constitute the most convincing proof to be found anywhere of the +essential soundness and efficacy of the movement. Various forms of +rural co-operative societies are solidly established in Germany, +France, Belgium, Italy, and Switzerland. In recent years the movement +has made some progress in the United States, especially in relation to +dairies, grain elevators, the marketing of live stock and fruit, and +various forms of rural insurance. The co-operative insurance companies +effect a saving to the Minnesota farmers of $700,000 annually, and the +co-operative elevators handle about 30 per cent. of the grain marketed +in that state. In 1915 the business transacted by the co-operative +marketing and purchasing organisations of the farmers of the United +States amounted to $1,400,000,000. + +The transformation in the rural life of more than one European +community through co-operation has amounted to little less than a +revolution. Higher standards of agricultural products and production +have been set up and maintained, better methods of farming have been +inculcated and enforced, and the whole social, moral, and civic life +of the people has been raised to a higher level. From the viewpoint of +material gain, the chief benefits of agricultural co-operation have +been the elimination of unnecessary middlemen, and the economies of +buying in large quantities, selling in the best markets, and employing +the most efficient implements. As compared with farming conducted on a +large scale, the small farm possesses certain advantages, and is +subject to certain disadvantages. It is less wasteful, permits greater +attention to details, and makes a greater appeal to the self interest +of the cultivator; but the small farmer cannot afford to buy the best +machinery, nor is he in a position to carry on to the best advantage +the commercial features of his occupation, such as borrowing, buying, +and marketing. Co-operation frees him from all these handicaps. "The +co-operative community ... is one in which groups of humble men +combine their efforts, and to some extent their resources, in order to +secure for themselves those advantages in industry which the masters +of capital derive from the organisation of labour, from the use of +costly machinery, and from the economies of business when done on a +large scale. They apply in their industry the methods by which the +fortunes of the magnates in commerce and manufacture are made." These +words, uttered by a prominent member of the Irish co-operative +movement, summarise the aims and achievements of agricultural +co-operation in every country of Europe in which it has obtained a +strong foothold. In every such community the small farm has gained at +the expense of the large farm system. Finally, agricultural +co-operation reduces the burden of interest by eliminating some +unnecessary capital, stimulates saving among the tillers of the soil +by providing a ready and safe means of investment, and in manifold +ways contributes materially toward a better distribution of wealth. + + +_Co-operative Mercantile Societies_ + +Co-operative stores are organised by and for consumers. In every +country they follow rather closely the Rochdale system, so called from +the English town in which the first store of this kind was established +in 1844. The members of the co-operative society furnish the capital, +and receive thereon interest at the prevailing rate, usually five per +cent. The stores sell goods at about the same prices as their +privately owned competitors, but return a dividend on the purchases of +all those customers who are members of the society. The dividends are +provided from the surplus which remains after wages, interest on the +capital stock, and all other expenses have been paid. In some +co-operative stores non-members receive a dividend on their purchases +at half the rate accorded to members of the society, but only on +condition that these payments shall be invested in the capital stock +of the enterprise. And the members themselves are strongly urged to +make this disposition of their purchase-dividends. Since the latter +are paid only quarterly, the co-operative store exercises a +considerable influence toward inducing its patrons to save and to +become small capitalists. + +In Great Britain the vast majority of the retail stores have been +federated into two great wholesale societies, one in England and the +other in Scotland. The retail stores provide the capital, and +participate in the profits according to the amounts purchased, just as +the individual consumers furnish the capital and share the profits of +the retail establishments. The Scottish Wholesale Society divides a +part of the profits among its employés. Besides their operations as +jobbers, the wholesale societies are bankers for the retail stores, +and own and operate factories, farms, warehouses, and steamships. +Many of the retail co-operatives likewise carry on productive +enterprises, such as milling, tailoring, bread making, and the +manufacture of boots, shoes, and other commodities, and some of them +build, sell, and rent cottages, and lend money to members who desire +to obtain homes. + +The co-operative store movement has made greatest progress in its +original home, Great Britain. In 1913 about one person in every three +was to some degree interested in or a beneficiary of these +institutions. The profits of the stores amounted to about $71,302,070, +which was about 35 per cent. on the capital. The employés numbered +about 145,000, and the sales for the year aggregated $650,000,000. The +English Wholesale Society was the largest flour miller and shoe +manufacturer in Great Britain, and its total business amounted to +$150,000,000. Outside of Great Britain, co-operative distribution has +been most successful in Germany, Belgium, and Switzerland. It has had +a fair measure of development in Italy, but has failed to assume any +importance in France. "There is every sign that within the near +future--except in France--the stores will come to include the great +majority of the wage earning class, which is a constantly growing +percentage of the total population."[155] Within recent years a +respectable number of stores have been established on a sound basis in +Canada and the United States. Owing, however, to the marked +individualism and the better economic conditions of these two +countries, the co-operative movement will continue for some time to be +relatively slow. + +As in the case of agricultural co-operation, the money benefits +accruing to the members of the co-operative stores consist mainly of +profits rather than interest. In the absence of the store societies, +these profits would have gone for the most part to middlemen as +payments for the risks and labour of conducting privately owned +establishments. Forty-seven of the sixty million dollars profits of +the British co-operative stores in 1910 were divided among more than +two and one-half million members of these institutions, instead of +going to a comparatively small number of private merchants. The other +thirteen million dollars were interest on the capital stock. Had the +members invested an equal amount in other enterprises they could, +indeed, have obtained about the same rate and amount of interest, but +in the absence of the co-operative stores their inducements and +opportunities to save would have been much smaller. For it must be +kept in mind that a very large part of the capital stock in the +co-operative stores is derived from the members' dividends on their +purchases at such stores, and would not have come into existence at +all without these establishments. The gains of the co-operative +stores, whether classified as profits or as interest, are evidently a +not inconsiderable indication of a better distribution of wealth. + + +_Co-operation in Production_ + +Co-operative production has occasionally been pronounced a failure. +This judgment is too sweeping and too severe. "As a matter of fact," +says a prominent London weekly, "the co-operators' success has been +even more remarkable in production than in distribution. The +co-operative movement runs five of the largest of our flour mills; it +has, amongst others, the very largest of our boot factories; it makes +cotton cloth and woollens, and all sorts of clothing; it has even a +corset factory of its own; it turns out huge quantities of soap; it +makes every article of household furniture; it produces cocoa and +confectionery; it grows its own fruit and makes its own jams; it has +one of the largest tobacco factories, and so on." Obviously this +passage refers to that kind of productive co-operation which is +carried on by the stores, not to productive concerns owned and +managed by the workers therein employed. Nevertheless the enterprises +in question are co-operatively managed, and hence exemplify +co-operation rather than private and competitive industry. They ought +not to be left out of any statement of the field occupied by +co-operative production. The limitations and possibilities of +co-operation in production can best be set forth by considering its +three different forms separately. + +The "perfect" form occurs when all the workers engaged in a concern +own all the share capital, control the entire management, and receive +the whole of the wages, profits, and interest. In this field the +failures have been much more numerous and conspicuous than the +successes. Godin's stove works at Guise, France, is the only important +enterprise of this kind that is now in existence. Great Britain has +several establishments in which the workers own a large part of the +capital, but apparently none in which they are the sole proprietors +and managers. The "labour societies" of Italy, consisting mostly of +diggers, masons, and bricklayers, co-operatively enter into contracts +for the performance of public works, and share in the profits of the +undertaking in addition to their wages; but the only capital that they +provide consists of comparatively simple and inexpensive tools. The +raw material and other capital is furnished by the public authority +which gives the contract. + +A second kind of productive co-operation is found in the arrangement +known as co-partnership. This is "the system under which, in the first +place, a substantial and known share of the profit of a business +belongs to the workers in it, not by right of any shares they may +hold, or any other title, but simply by right of the labour they have +contributed to make the profit; and, in the second place, every worker +is at liberty to invest his profit, or any other savings, in shares of +the society or company, and so become a member entitled to vote on the +affairs of the body which employs him."[156] So far as its first, or +profit sharing, feature is concerned, co-partnership is not genuine +co-operation, for it includes neither ownership of capital nor +management of the business. Co-operative action begins only with the +adoption of the second element. In most of the existing co-partnership +concerns, all the employés are urged, and many of them required to +invest at least a part of their profits in the capital stock. The most +notable and successful of these experiments is that carried on by the +South Metropolitan Gas Company of London. Practically all the +company's 6,000 employés are now among its stockholders. Although +their combined holdings are only about one-twenty-eighth of the total, +they are empowered to select two of the ten members of the board of +directors. Essentially the same co-partnership arrangements have been +adopted by about one-half the privately owned gas companies of Great +Britain. In none of them, however, have the workers obtained as yet +such a large percentage of either ownership or control as in the South +Metropolitan. Co-partnership exists in several other enterprises in +Great Britain, and is found in a considerable number of French +concerns. There are a few instances in the United States, the most +thoroughgoing being that of N. O. Nelson & Co. at Le Claire, Ill. + +As already noted, the co-operative stores exemplify a third type of +co-operative production. In some cases the productive concern is under +the management of a local retail establishment, but the great majority +of them are conducted by the English and Scottish Wholesale Societies. +As regards the employés of these enterprises, the arrangement is not +true co-operation, since they have no part in the ownership of the +capital. The Scottish Wholesale Society, as we have seen, permits the +employés of its productive works to share in the profits thereof; +nevertheless it does not admit them as stockholders, nor give them any +voice in the management. In all cases the workers may, indeed, become +owners of stock in their local retail stores. Since the latter are +stockholders in the wholesale societies, which in turn own the +productive enterprises, the workers have a certain indirect and +attenuated proprietorship in the productive concerns. But they derive +therefrom no dividends. All the interest and most of the profits of +the productive establishments are taken by the wholesale and retail +stores. For it is the theory of the wholesale societies that the +employés in the works of production should share in the gains thereof +only as consumers. They are to profit only in the same way and to the +same extent as other consumer-members of the local retail +establishments. + +The most effective and beneficial form of co-operative production is +evidently that which has been described as the "perfect" type. Were +all production organised on this plan, the social burden of interest +would be insignificant, industrial despotism would be ended, and +industrial democracy realised. As things are, however, the +establishments exemplifying this type are of small importance. Their +increase and expansion are impeded by lack of directive ability and of +capital, and the risk to the workers' savings. Yet none of these +obstacles is necessarily insuperable. Directive ability can be +developed in the course of time, just as it was in the co-operative +stores. Capital can be obtained fast enough perhaps to keep pace with +the supply of directive ability and the spirit of co-operation. The +risk undertaken by workers who put their savings into productive +concerns owned and managed by themselves need not be greater than that +now borne by investors in private enterprises of the same kind. There +is no essential reason why the former should not provide the same +profits and insurance against business risks as the latter. While the +employés assume none of the risks of capitalistic industry, neither do +they receive any of the profits. If the co-operative factory exhibits +the same degree of business efficiency as the private enterprise it +will necessarily afford the workers adequate protection for their +savings and capital. Indeed, if "perfect" co-operative production is +to be successful at all its profits will be larger than those of the +capitalistic concern, owing to the greater interest taken by the +workers in their tasks, and in the management of the business. + +For a long time to come, however, it is probable that "perfect" +co-operative production will be confined to relatively small and local +industries. The difficulty of finding sufficient workers' capital and +ability to carry on, for example, a transcontinental railroad or a +nationwide steel business, is not likely to be overcome for one or two +generations.[157] + +The labour co-partnership form of co-operation is susceptible of much +wider and more rapid extension. It can be adapted readily to the very +large as well as to the small and medium sized concerns. Since it +requires the workers to own but a part of the capital, it can be +established in any enterprise in which the capitalists show themselves +willing and sympathetic. In every industrial corporation there are +some employés who possess savings, and these can be considerably +increased through the profit sharing feature of co-partnership. A very +long time must, indeed, elapse before the workers in any of the larger +enterprises could get possession of all, or even of a controlling +share of the capital, and a considerable time would be needed to +educate and fit them for successful management. + +Production under the direction of the co-operative stores can be +extended faster than either of the other two forms, and it has before +it a very wide even though definitely limited field. The British +wholesale societies have already shown themselves able to conduct with +great success large manufacturing concerns, have trained and attracted +an adequate number of competent leaders, and have accumulated so much +capital that they have been obliged to invest several million pounds +in other enterprises. The possible scope of the stores and their +co-operative production has been well described by C. R. Fay: +"distribution of goods for personal consumption, first, among the +working class population, secondly, among the salaried classes who +feel a homogeneity of professional interest; production by working +class organisations alone (with rare exceptions in Italy) of all the +goods which they distribute to their members. But this is its limit. +Distribution among the remaining sections of the industrial +population; production for distribution to these members; production +of the instruments of production, and production for international +trade; the services of transport and exchange: all these industrial +departments are, so far as can be seen, permanently outside the domain +of a store movement."[158] + +The theory by which the stores attempt to justify the exclusion of the +employés of their productive concerns from a share of the profits +thereof is that all profits come ultimately from the pockets of the +consumer, and should all return to that source. The defect in this +theory is that it ignores the question whether the consumers ought not +to be required to pay a sufficiently high price for their goods to +provide the producers with profits in addition to wages. While the +wholesale stores are the owners and managers of the capital in the +productive enterprises, and on the capitalistic principle should +obtain the profits, the question remains whether this is necessarily a +sound principle, and whether it is in harmony with the theory and +ideals of co-operation. In those concerns which have adopted the +labour co-partnership scheme, the workers, even when they own none of +the capital, are accorded a part of the profits. It is assumed that +this is a fairer and wiser method of distribution than that which +gives the labourer only wages, leaving all the profits to the +manager-capitalist. This feature of co-partnership rests on the theory +that the workers can, if they will, increase their efficiency and +reduce the friction between themselves and their employer to such an +extent as to make the profit sharing arrangement a good thing for both +parties. Consequently the profits obtained by the workers are a +payment for this specific contribution to the prosperity of the +business. Why should not this theory find recognition in productive +enterprises conducted by the co-operative stores? + +In the second place, the workers in these concerns ought to be +permitted to participate in the capital ownership and management. They +would thus be strongly encouraged to become better workers, to save +more money, and to increase their capacity for initiative and self +government. Moreover, this arrangement would go farther than any other +system toward reconciling the interests of producer and consumer. As +producer, the worker would obtain, besides his wages, interest and +profits up to the limit set by the competition of private productive +concerns. As consumer, he would share in the profits and interest +which would otherwise have gone to the private distributive +enterprises. In this way the producer and consumer would each get the +gains that were due specifically and respectively to his activity and +efficiency. + + +_Advantages and Prospects of Co-operation_ + +At this point it will perhaps be well to sum up the advantages and to +estimate the prospects of the co-operative movement. In all its forms +co-operation eliminates some waste of capital and energy, and +therefore transfers some interest and profits from a special +capitalist and undertaking class to a larger and economically weaker +group of persons. For it must be borne in mind that all co-operative +enterprises are conducted mainly by and for labourers or small +farmers. Hence the system always makes directly for a better +distribution of wealth. To a considerable extent it transfers capital +ownership from those who do not themselves work with or upon capital +to those who are so engaged; namely, the labourers and the farmers; +thus it diminishes the unhealthy separation now existing between the +owners and the users of the instruments of production. Co-operation +has, in the second place, a very great educational value. It enables +and induces the weaker members of economic society to combine and +utilise energies and resources that would otherwise remain unused and +undeveloped; and it greatly stimulates and fosters initiative, self +confidence, self restraint, self government, and the capacity for +democracy. In other words, it vastly increases the development and +efficiency of the individual. It likewise induces him to practise +thrift, and frequently provides better fields for investment than +would be open to him outside the co-operative movement. It diminishes +selfishness and inculcates altruism; for no co-operative enterprise +can succeed in which the individual members are not willing to make +greater sacrifices for the common good than are ordinarily evoked by +private enterprise. Precisely because co-operation makes such heavy +demands upon the capacity for altruism, its progress always has been +and must always continue to be relatively slow. Its fundamental and +perhaps chief merit is that it does provide the mechanism and the +atmosphere for a greater development of the altruistic spirit than is +possible under any other economic system that has ever been tried or +devised. + +By putting productive property into the hands of those who now possess +little or nothing, co-operation promotes social stability and social +progress. This statement is true in some degree of all forms of +co-operation, but it applies with particular force to those forms +which are carried on by the working classes. A steadily growing number +of keen-sighted social students are coming to realise that an +industrial system which permits a comparatively small section of +society to own the means of production and the instrumentalities of +distribution, leaving to the great majority of the workers nothing but +their labour power, is fundamentally unstable, and contains within +itself the germs of inevitable dissolution. No mere adequacy of wages +and other working conditions, and no mere security of the workers' +livelihood, can permanently avert this danger, nor compensate the +individual for the lack of power to determine those activities of life +which depend upon the possession of property. Through co-operation +this unnatural divorce of the users from the owners of capital can be +minimised. The worker is converted from a mere wage earner to a wage +earner plus a property owner, thus becoming a safer and more useful +member of society. In a word, co-operation produces all the well +recognised individual and social benefits which have in all ages been +evoked by the "magic of property." + +Finally, co-operation is a golden mean between individualism and +Socialism. It includes all the good features and excludes all the evil +features of both. On the one hand, it demands and develops individual +initiative and self reliance, makes the rewards of the individual +depend upon his own efforts and efficiency, and gives him full +ownership of specific pieces of property. On the other hand, it +compels him to submerge much of the selfishness and indifference to +the welfare of his fellows which characterise our individual economy. +It embraces all the good that is claimed for Socialism because it +induces men to consider and to work earnestly for the common good, +eliminates much of the waste of competitive industry, reduces and +redistributes the burdens of profits and interest, and puts the +workers in control of capital and industry. At the same time, it +avoids the evils of an industrial despotism, of bureaucratic +inefficiency, of individual indifference, and of an all pervading +collective ownership. The resemblances that Socialists sometimes +profess to see between their system and co-operation are superficial +and far less important than the differences. Under both arrangements +the workers would, we are told, own and control the means of +production; but the members of a co-operative society directly own and +immediately control a _definite amount of specific capital_, which is +essentially _private_ property. In a Socialist régime the workers' +ownership of capital would be collective not private, general not +specific, while their control of the productive instruments with which +they worked would be shared with other citizens. The latter would +vastly outnumber the workers in any particular industry, and would be +interested therein not as producers but as consumers. No less obvious +and fundamental are the differences in favour of co-operation as +regards the vital matters of freedom, opportunity, and efficiency. + +In so far as the future of co-operation can be predicted from its +past, the outlook is distinctly encouraging. The success attained in +credit, agriculture, and distribution, is a sufficient guarantee for +these departments. While productive co-operation has experienced more +failures than successes, it has finally shown itself to be sound in +principle, and feasible in practice. Its extension will necessarily be +slow, but this is exactly what should be expected by any one who is +acquainted with the limitations of human nature, and the history of +human progress. If a movement that is capable of modifying so +profoundly the condition of the workers as is co-operative production, +gave indications of increasing rapidly, we should be inclined to +question its soundness and permanence. Experience has given us +abundant proof that no mere system or machinery can effect a +revolutionary improvement in economic conditions. No social system can +do more than provide a favourable environment for the development of +those individual capacities and energies which are the true and the +only causal forces of betterment. + +Nor is it to be expected that any of the other three forms of +co-operation will ever cover the entire field to which it might, +absolutely speaking, be extended; or that co-operation as a whole will +become the one industrial system of the future. Even if the latter +contingency were possible it would not be desirable. The elements of +our economic life, and the capacities of human nature, are too varied +and too complex to be forced with advantage into any one system, +whether capitalism, Socialism, or co-operation. Any single system or +form of socio-economic organisation would prove an intolerable +obstacle to individual opportunity and social progress. Multiplicity +and variety in social and industrial orders are required for an +effective range of choices, and an adequate scope for human effort. In +a general way the limits of co-operation in relation to the other +forms of economic organisation have been satisfactorily stated by Mr. +Aneurin Williams: "I suggest, therefore, that where there are great +monopolies, either natural or created by the combination of +businesses, there you have a presumption in favour of State and +municipal ownership. In those forms of industry where individuality is +everything; where there are new inventions to make, or to develop or +put on the market, or merely to adopt in some rapidly transformed +industry; where the eye of the master is everything; where reference +to a committee, or appeals from one official to another, would cause +fatal delay: there is the natural sphere of individual enterprise pure +and simple. Between these two extremes there is surely a great sphere +for voluntary association to carry on commerce, manufacture, and +retail trade, in circumstances where there is no natural monopoly, and +where the routine of work is not rapidly changing, but on the whole +fairly well established and constant."[159] + +The province open to co-operation is, indeed, very large. If it were +fully occupied the danger of a social revolution would be +non-existent, and what remained of the socio-industrial problem would +be relatively undisturbing and unimportant. The "specialisation of +function" in industrial organisation, as outlined by Mr. Williams, +would give a balanced economy in which the three great socio-economic +systems and principles would have full play, and each would be +required to do its best in fair competition with the other two. +Economic life would exhibit a diversity making strongly for social +satisfaction and stability, inasmuch as no very large section of the +industrial population would desire to overthrow the existing order. +Finally, the choice of three great systems of industry would offer the +utmost opportunity and scope for the energies and the development of +the individual. And this, when all is said, remains the supreme end of +a just and efficient socio-industrial organisation. + + +REFERENCES ON SECTION II + + FISHER: The Rate of Interest. New York; 1907. + + CASSEL: Nature and Necessity of Interest. London; 1903. + + GONNER: Interest and Saving. London; 1906. + + LANDRY: L'Intérêt du Capital. Paris; 1904. + + MENGER: The Right to the Whole Produce of Labour. London; + 1899. + + CATHREIN-GETTELMAN: Socialism. St. Louis; 1904. + + SKELTON: Socialism: A Critical Analysis. New York; 1911. + + SPARGO: Socialism. Macmillan; 1906. + + WALLING: Socialism As It Is. New York; 1912. + + HILLQUIT-RYAN: Socialism: Promise or Menace? Macmillan; 1914. + + SAVATIER: La Théorie Moderne du Capital et la Justice. Paris; + 1898. + + GARRIGUET: Régime du Travail. Paris; 1908. + + FUNK: Zins und Wucher. Tübingen; 1868. + + HOLYOAKE: The History of Co-operation. London; 1906. + + FAY: Co-operation at Home and Abroad. London; 1908. + + WILLIAMS: Copartnership and Profit-Sharing. Henry Holt & Co.; + 1913. + + MANN, SIEVERS, COX: The Real Democracy. London; 1913. + + Also the works of Taussig, Devas, Antoine, Hobson, Nearing, + Willoughby, and Hitze, which were given at the end of the + introductory chapter. + +FOOTNOTES: + +[153] Professor Scott Nearing estimates the annual income derived from +the ownership of property in the United States; that is, land and all +forms of capital, at from six to nine billion dollars. Professor W. I. +King gives the combined shares of the national income received by the +landowners and the capitalists at more than six and three-quarter +billions in 1910. According to the Census Bulletin on the "Estimated +Valuation of National Wealth," the capital goods of the country were +in 1912 approximately $175,000,000,000.00. At four per cent. this +would mean an annual income of seven billion dollars. The lowest of +the three estimates, six billion dollars, is equivalent to more than +sixty dollars a year for every man, woman, and child in the United +States. If that sum were equally distributed among the whole +population, it would mean an increase of between forty and sixty per +cent. in the income of the majority of workingmen's families! Nor do +present tendencies hold out any hope of an automatic reduction of the +interest-burden in the future. In the opinion of Professor Scott +Nearing, "the present economic tendencies will greatly increase the +amount of property income paid with each passing decade." "Income," p. +199; New York, 1915. See especially ch. vii. According to Professor +Taussig, "the absolute amount of income going to this [the capitalist] +class tends to increase, and its share of the total income tends also +to increase; whereas for the labourers, though their total income may +increase, their share of income of society as a whole tends to +decline." "Principles of Economics," II, 205. + +[154] "Lehrbuch der Nationaloekonomie," III, 517. + +[155] Fay, "Co-operation at Home and Abroad," p. 340. + +[156] Schloss, "Methods of Industrial Remuneration," pp. 353, 354. + +[157] Cf., however, Mr. A. R. Orage's work, "National Guilds," London, +1914. + +[158] Op. cit., p. 341. + +[159] "Copartnership and Profit-Sharing," p. 235. + + + + +SECTION III + +THE MORAL ASPECT OF PROFITS + + + + +CHAPTER XV + +THE NATURE OF PROFITS + + +We have seen that rent goes to the landlord as the price of land use, +while interest is received by the capitalist as the return for the use +of capital. The two shares of the product which remain to be +considered include an element which is absent from both rent and +interest. The use for which profits and wages are paid comprises not +merely the utilisation of a productive factor, but the sustained +exertion of the factor's owner. Like the landowner and the capitalist, +the business man and the labourer put the productive factors which +they control at the disposal of the industrial process; but they do so +only when and so long as they exercise human activity. The shares that +they receive are payments for the continuous output of human energy. +No such significance attaches to rent or interest. + + +_The Functions and Rewards of the Business Man_ + +Who is the business man, and what is the nature of his share of the +product of industry? Let us suppose that the salaried manager of a hat +factory decides to set up a business of the same kind for himself. He +wishes to become an entrepreneur, an undertaker, a director of +industry, in more familiar language, a business man. Let us assume +that he is without money, but that he commands extraordinary financial +credit. He is able to borrow half a million dollars with which to +organise, equip, and operate the new enterprise. Having selected a +favourable site, he rents it on a long term lease, and erects thereon +the necessary buildings. He installs all the necessary machinery and +other equipment, hires capable labour, and determines the kinds and +quantities of hats for which he thinks that he can find a market. At +the end of a year, he realises that, after paying for labour of all +sorts, returning interest to the capitalist and rent to the landowner, +defraying the cost of repairs, and setting aside a fund to cover +depreciation, he has left for himself the sum of ten thousand dollars. +This is the return for his labour of organisation and direction, and +for the risk that he underwent. It constitutes the share called +profits, sometimes specified as net profits. + +This case is artificial, since it assumes that the business man is +neither capitalist nor landowner in addition to his function as +director of industry. It has, however, the advantage of distinguishing +quite sharply the action of the business man as such. For the latter +merely organises, directs, and takes the risks of the industrial +process, finds a market for the product, and receives in return +neither rent nor interest but only profits. In point of fact, however, +no one ever functions solely as business man. Always the business man +owns some of the capital, and very often some of the land involved in +his enterprise, and is the receiver not only of profits but of +interest and rent. Thus, the farmer is a business man, but he is also +a capitalist, and frequently a landowner. The grocer, the clothier, +the manufacturer, and even the lawyer and the doctor own a part at +least of the capital with which they operate, and sometimes they own +the land. Nevertheless their rewards as business men can always be +distinguished from their returns as capitalists and landowners by +finding out what remains after making due allowance for rent and +interest. + +It is a fact that many business men, especially those directing the +smaller establishments, use the term profits to include rent and +interest on their own property. In other words, they describe their +entire income from the business as profits. In the present discussion, +and throughout this book generally, profits are to be understood as +comprising merely that part of the business man's returns which he +takes as the reward of his labour, and as insurance against the risks +affecting his enterprise. Deduct from the business man's total income +a sum which will cover interest on his capital at the prevailing rate +and rent on his land, and you have left his income as business man, +his profits. + + +_The Amount of Profits_ + +In a preceding chapter we have seen that where the conditions of +capital are the same, there exists a fairly uniform rate of interest. +No such uniformity obtains in the field of profits. Businesses subject +to the same risks and requiring the same kind of management yield very +different amounts of return to their directors. In a sense the +business man may be regarded as the residual claimant of industry. +This does not mean that he takes no profits until all the other agents +of production have been fully remunerated, but that his share remains +indeterminate until the end of the productive period, say, six months +or a year, while the shares of the other agents are determined +beforehand. At the end of the productive period, the business man may +find that his profits are large, moderate, or small, while the +landowner, the capitalist, and the labourer ordinarily obtain the +precise amounts of rent, interest, and wages that they had expected to +obtain. That there exists no definite upper limit to profits is proved +by the history of modern millionaires. That there exists no rigid +lower limit is proved by the large proportion of enterprises that meet +with failure. + +Nevertheless it would be wrong to infer that the volume of profits is +governed by no law whatever, or that they show no tendency toward +uniformity in any part of the industrial field. There is a calculated +or preconceived minimum. No man will embark in business for himself +unless he has reason to expect that it will yield him, in addition to +protection against risks, an income as large as he could obtain by +hiring his services to some one else. In other words, contemplated +profits must be at least equal to the income of the salaried business +manager. No tendency toward uniformity of profits exists among very +large enterprises nor among industries which are constantly adopting +new methods and new inventions. In businesses of small and moderate +size, and in those whose methods have become standardised, such as a +retail grocery store, or a factory that turns out staple kinds of +shoes, profits tend to be about the same in the great majority of +establishments. In such industries the profits of the business man do +not often exceed the salary that he could command as general manager +for some one else in the same kind of business. + +Professor King estimates the total volume of profits in the United +States in 1910 as almost eight and one-half billion dollars. This was +27.5 per cent. of the national product, as against 24.6 per cent. in +1890 and 30 per cent. in 1900.[160] He interprets the fall in the wage +earners' share which has taken place since 1890 (53.5 to 46.9 per +cent.) as indicating a considerable increase in the share of those +business men who control the very large industries. "The promoters and +manipulators of these concerns have received, as their share of the +spoils, permanent income claims, in the shape of securities, large +enough to make Croesus appear like a pauper."[161] Moreover, even +outside this monopoly field, the more able and successful business men +seem to have obtained in recent years what might be termed a +relatively large share of the product of industry. The exceptionally +efficient undertakers, those possessing the imagination, foresight, +judgment, and courage to take full advantage of the recent +improvements in the industrial arts, and in the methods of production +generally, seem to have advanced in wealth and income more rapidly +than any other class that has been subject to the operation of +competition. + + +_Profits in the Joint-Stock Company_ + +Up to this point we have been considering the independent business +man, the undertaker who manages his enterprise either alone or as a +member of a partnership. In all such concerns it is easy to identify +the business man. Who or where is the business man in a joint stock +company? Where are the profits, and who gets them? + +Strictly speaking, there is no undertaker or business man in a +corporation. His functions of ownership, responsibility, and direction +are exercised by the whole body of stockholders through the board of +directors and other officers. It is true that in very many, probably +in most corporations, one or a very few of the largest stockholders +dominate the policies of the concern, and exercise almost as much +power and authority as though they were the sole owners. Neither +these, however, nor any other officer in a corporation receives +profits in the same sense as the independent owner of a business. For +their active services the officers of the corporation are given +salaries; for the risks that they undergo as owners of the stock they +are compensated in the same way as all the other stockholders, that +is, through a sufficiently high rate of dividend. For example, in +railroads the bonds usually pay from four to five per cent., the stock +from five to six per cent. The bonds represent borrowed money, and are +secured by a mortgage on the physical property. The stock represents +the money invested by the owners, and is subject to all the risks of +ownership; hence its holders require the protection which is afforded +by the extra one per cent. which they obtain over that paid to the +bondholders. + +While a corporation has no profits in the sense of a reward for +directive activity or a protection against risk, it frequently +possesses profits in the sense of a surplus which remains after costs +and expenses of every kind have been defrayed. These profits are +ordinarily distributed pro rata among the stockholders, either +outright in the form of an extra dividend, or indirectly through +enlargement of the property and business of the company. They are +surplus gains or profits having the same intermittent and speculative +character as the extra gains which the individual business man +sometimes obtains in addition to those profits which are necessary to +remunerate him for his labour, and protect him against risks. They are +not profits in the ordinary economic sense of the term. + +FOOTNOTES: + +[160] "The Wealth and Income of the People of the United States," 158, +160. + +[161] Idem, p. 218. + + + + +CHAPTER XVI + +THE PRINCIPAL CANONS OF DISTRIBUTIVE JUSTICE + + +Before taking up the question of the morality of profits, it will be +helpful, if not necessary, to consider the chief rules of justice that +have been or might be adopted in distributing the product of industry +among those who participate actively in the productive process. While +the discussion is undertaken with particular reference to the rewards +of the business man, it will also have an important bearing on the +compensation of the wage earner. The morality of rent and interest +depends upon other principles than those governing the remuneration of +human activity; and it has been sufficiently treated in chapters xii +and xiii. The canons of distribution applicable to our present study +are mainly six in number: arithmetical equality; proportional needs; +efforts and sacrifices; comparative productivity; relative scarcity; +and human welfare. + + +_The Canon of Equality_ + +According to the rule of arithmetical equality, all persons who +contribute to the product should receive the same amount of +remuneration. With the exception of Bernard Shaw, no important writer +defends this rule to-day. It is unjust because it would treat unequals +equally. Although men are equal as moral entities, as human persons, +they are unequal in desires, capacities, and powers. An income that +would fully satisfy the needs of one man would meet only 75 per cent., +or 50 per cent., of the capacities of another. To allot them equal +amounts of income would be to treat them unequally with regard to the +requisites of life and self development. To treat them unequally in +these matters would be to treat them unequally as regards the real and +only purpose of property rights. That purpose is welfare. Hence the +equal moral claims of men which admittedly arise out of their moral +equality must be construed as claims to equal degrees of welfare, not +to equal amounts of external goods. To put the matter in another way, +external goods are not welfare; they are only means to welfare; +consequently their importance must be determined by their bearing upon +the welfare of the individual. From every point of view, therefore, it +is evident that justice in industrial distribution must be measured +with reference to welfare rather than with reference to incomes, and +that any scheme of distribution which provided equal incomes for all +persons would be radically unjust. + +Moreover, the rule of equal incomes is socially impracticable. It +would deter the great majority of the more efficient from putting +forth their best efforts and turning out their maximum product. As a +consequence, the total volume of product would be so diminished as to +render the share of the great majority of persons smaller than it +would have been under a rational plan of unequal distribution. + + +_The Canon of Needs_ + +The second conceivable rule is that of proportional needs. It would +require each person to be rewarded in accordance with his capacity to +use goods reasonably. If the task of distribution were entirely +independent of the process of production, this rule would be ideal; +for it would treat men as equal in those respects in which they are +equal; namely, as beings endowed with the dignity and the potencies of +personality; and it would treat them as unequal in those respects in +which they are unequal; that is, in their desires and capacities. But +the relation between distribution and production cannot be left out +of account. The product is distributed primarily among the agents of +production only, and it must be so distributed as to give due +consideration to the moral claims of the producer as such. The latter +has to be considered not merely as a person possessing needs, but as a +person who has contributed something to the making of the product. +Whence arise the questions of relative efforts and sacrifices, and +relative productivity. + +Since only those who have contributed to the product participate in +the distribution thereof, it would seem that they should be rewarded +in proportion to the efforts and sacrifices that they exert and +undergo. As an example of varying effort, let us take two men of equal +needs who perform the same labour in such a way that the first expends +90 per cent. of his energy, while the second expends 60 per cent. As +an example of varying sacrifice, let us take the ditch digger, and the +driver who sits all day on the dump wagon. In both these examples the +first man expends more painful exertion than the second. This would +seem to make a difference in their moral desert. Justice would seem to +require that in each case compensation should be proportionate to +exertion rather than to needs. At any rate, the claims of needs should +be modified to some extent in favour of the claims of exertion. It is +upon the principle of efforts and sacrifices that we expect our +eternal rewards to be based by the infinitely just Rewarder. The +principle of needs is likewise in conflict with the principle of +comparative productivity. Men generally demand rewards in proportion +to their products. The validity of this demand we shall examine in a +subsequent paragraph. + +Like the rule of arithmetical equality, the rule of proportional needs +is not only incomplete ethically but impossible socially. Men's needs +vary so widely and so imperceptibly that no human authority could use +them as the basis of even an approximately accurate distribution. +Moreover, any attempt to distribute rewards on this basis alone would +be injurious to social welfare. It would lead to a great diminution in +the productivity of the more honest, the more energetic, and the more +efficient among the agents of production. + + +_The Canon of Efforts and Sacrifice_ + +The third canon of distribution, that of efforts and sacrifices, would +be ideally just if we could ignore the questions of needs and +productivity. But we cannot think it just to reward equally two men +who have expended the same quantity of painful exertion, but who +differ in their needs and in their capacities of self development. To +do so would be to treat them unequally in the matter of welfare, which +is the end and reason of all distribution. Consequently the principle +of efforts and sacrifices must be modified by the principle of needs. +Apparently it must also give way in some degree to the principle of +comparative productivity. When two men of unequal powers make equal +efforts, they turn out unequal amounts of product. Almost invariably +the more productive man believes that he should receive a greater +share of the product than the other. He believes that the rewards +should be determined by productivity. + +It is evident that the rule of efforts and sacrifices, like those of +equality and needs, could not be universally enforced in practice. +With the exception of cases in which the worker is called upon +regularly to make greater sacrifices owing to the disagreeable nature +of the task, attempts to measure the amounts of effort and painful +exertion put forth by the different agents of production would on the +whole be little more than rough guesses. These would probably prove +unsatisfactory to the majority. Moreover, the possessors of superior +productive power would in most instances reject the principle of +efforts and sacrifices as unfair, and refuse to do their best work +under its operation. + +The three rules already considered are formally ethical, inasmuch as +they are directly based upon the dignity and claims of personality. +The two following are primarily physical and social; for they measure +economic value rather than ethical worth. Nevertheless, they must have +a large place in any system which includes the factor of competition. + + +_The Canon of Productivity_ + +According to this rule, men should be rewarded in proportion to their +contributions to the product. It is open to the obvious objection that +it ignores the moral claims of needs and efforts. The needs and +use-capacities of men do, indeed, bear some relation to their +productive capacities, and the man who can produce more usually needs +more; but the differences between the two elements are so great that +distribution based solely upon productivity would fall far short of +satisfying the demands of needs. Yet we have seen that needs +constitute one of the fundamentally valid principles of distribution. +Between productivity on the one hand and efforts and sacrifices on the +other, there are likewise important differences. When men of equal +productive power are performing the same kind of labour, superior +amounts of product do represent superior amounts of effort; when the +tasks differ in irksomeness or disagreeableness, the larger product +may be brought into being with a smaller expenditure of painful +exertion. If men are unequal in productive power their products are +obviously not in proportion to their efforts. Consider two men whose +natural physical abilities are so unequal that they can handle with +equal effort shovels differing in capacity by fifty per cent. +Instances of this kind are innumerable in industry. If these two men +are rewarded according to productivity, one will get fifty per cent. +more compensation than the other. Yet the surplus received by the more +fortunate man does not represent any action or quality for which he is +personally responsible. It corresponds to no larger output of personal +effort, no superior exercise of will, no greater personal desert. It +is based solely upon a richer physical endowment by the Creator. + +It is clear, then, that the canon of productivity cannot be accepted +to the exclusion of the principles of needs and efforts. It is not the +only ethical rule of distribution. Is it a valid partial rule? +Superior productivity is frequently due to larger effort and expense +put forth in study and in other forms of industrial preparation. In +such cases it demands superior rewards by the title of efforts and +sacrifices. Where, however, the greater productivity is due merely to +higher native qualities, physical or mental, the greater reward is not +easily justified on purely ethical grounds. For it represents no +personal responsibility, will-effort, or creativeness. Nevertheless, +the great majority of the more fortunately endowed think that they are +unfairly treated unless they are recompensed in proportion to their +products. Sometimes this conviction is due to the fact that such men +wrongly attribute their larger product to greater efforts. In very +many cases, however, the possessors of superior productive power +believe that they should be rewarded in proportion to their products, +regardless of any other principle or factor. Probably the true +explanation of this belief is to be found in man's innate laziness. +While the prevalence of the conviction that superior productivity +constitutes a just title to superior compensation, does create some +kind of a presumption in favour of its correctness, it must be +remembered that presumption is not proof. Weighing this presumption +against the objective considerations on the opposite side of the +argument, we take refuge in the conclusion that the ethical validity +of the canon of comparative productivity can neither be certainly +proved nor certainly disproved. + +Like the rules of equality, needs, and efforts, that of productivity +cannot be universally enforced in practice. It is susceptible of +accurate application among producers who perform the same kind of work +with the same kind of instruments and equipment; for example, between +two shovellers, two machine operators, two bookkeepers, two lawyers, +two physicians. As a rule, it cannot be adequately applied to a +product which is brought into existence through a combination of +different processes. The engine driver and the track repairer +contribute to the common product, railway transportation; the +bookkeeper and the machine tender co-operate in the production of +hats; but we cannot tell in either case whether the first contributes +more or less than the second, for the simple reason that we have no +common measure of their contributions. Sometimes, however, we can +compare the productivity of _individuals_ engaged in different +processes; that is, when both can be removed from the industry without +causing it to come to a stop. Thus, it can be shown that a single +engine driver produces more railway transportation than a single track +repairer, because the labour of the latter is not indispensable to the +hauling of a given load of cars. But no such comparison can be made as +between the whole body of engine drivers and the whole body of track +repairers, since both groups are indispensable to the production of +railway transportation. Again, a man can be shown to exert superior +productivity because he affects the productive process at more points +and in a more intimate way than another who contributes to the product +in a wholly different manner. While the surgeon and the attendant +nurse are both necessary to a surgical operation, the former is +clearly more productive than the latter. When due allowance is made +for all such cases, the fact remains that in a large part of the +industrial field it is simply impossible to determine remuneration by +the rule of comparative productivity. + + +_The Canon of Scarcity_ + +It frequently happens that men attribute their larger rewards to +larger productivity, when the true determining element is scarcity. +The immediate reason why the engine driver receives more than the +track repairer, the general manager more than the section foreman, the +floorwalker more than the salesgirl, lies in the fact that the former +kinds of labour are not so plentiful as the latter. Were general +managers relatively as abundant as section foremen their remuneration +would be quite as low; and the same principle holds good of every pair +of men whose occupations and products are different in kind. Yet the +productivity of the general managers would remain as great as before. +On the other hand, no matter how plentiful the more productive men may +become, they can always command higher rewards than the less +productive men in the same occupation, for the simple reason that +their products are superior either in quantity or in quality. Men +engaged upon the more skilled tasks are likewise mistaken when they +attribute their greater compensation to the intrinsic excellence of +their occupation. The fact is that the community cares nothing about +the relative nobility, or ingenuity, or other inherent quality of +industrial tasks or functions. It is concerned solely with products +and results. As between two men performing the same task, superior +efficiency receives a superior reward because it issues in a larger or +better product. As between two men performing different tasks, +superior skill receives superior compensation simply because it can +command the greater compensation; and it is able to do this because it +is scarce. + +In most cases where scarcity is the immediate determinant of rewards, +the ultimate determinant is, partly at least, some kind of sacrifice. +One reason why chemists and civil engineers are rarer than common +labourers is to be found in the greater cost of preparation. The +scarcity of workers in occupations that require no special degree of +skill is due to unusual hazards and unpleasantness. In so far as +scarcity is caused by the uncommon sacrifices preceding or involved in +an occupation, the resulting higher rewards obviously rest upon most +solid ethical grounds. However, some part of the differences in +scarcity is the result of unequal opportunities. If all young persons +had equal facilities of obtaining college and technical training, the +supply of the higher kinds of labour would be considerably larger than +it now is, and the compensation would be considerably smaller. +Scarcity would then be determined by only three factors; namely, +varying costs of training, varying degrees of danger and +unattractiveness among occupations, and inequalities in the +distribution of native ability. As a consequence, competition would +tend to apportion rewards according to efforts, sacrifices, and +efficiency. + +How can we justify the superior rewards of that scarcity which is not +due to unusual costs of any sort, but merely to restricted +opportunity? So far as society is concerned, the answer is simple: the +practice pays. As to the possessors of the rarer kinds of ability, +they are in about the same ethical position as those persons whose +superior productivity is derived entirely from superior native +endowment. In both cases the unusual rewards are due to factors +outside the control of the recipients; to advantages which they +themselves have not brought into existence. In the former case the +decisive factor and advantage is opportunity; in the latter it is a +gift of the Creator. Now we have seen that this sort of productivity +cannot be proved to be immoral as a canon of distribution; +consequently the same statement will hold good of this sort of +scarcity. + + +_The Canon of Human Welfare_ + +We say "human" welfare rather than "social" welfare, in order to make +clear the fact that this canon considers the well being of men not +only as a social group, but also as individuals. It includes and +summarises all that is ethically and socially feasible in the five +canons already reviewed. It takes account of equality, inasmuch as it +regards all men as persons, as subjects of rights; and of needs, +inasmuch as it awards to all the necessary participants in the +industrial system at least that amount of remuneration which will meet +the elementary demands of decent living and self development. It is +governed by efforts and sacrifices, at least in so far as they are +reflected in productivity and scarcity; and by productivity and +scarcity to whatever extent is necessary in order to produce the +maximum net results. It would give to every producer sufficient +remuneration to evoke his greatest net contribution to the productive +process. Greatest "net" contribution; for a man's _absolute_ maximum +product may not always be worth the required price. For example: a man +who for a salary of 2500 dollars turns out a product valued at 3000 +dollars, should not be given 3000 dollars in order to induce him to +bring forth a product worth 3300 dollars. In this case a salary of +2500 dollars evokes the maximum net product, and represents the reward +which would be assigned by the canon of human welfare. Once the vital +needs of the individual have been safeguarded, the supreme guide of +the canon of human welfare is the principle of maximum net results, or +the greatest product at the lowest cost. + +It is not contended here that this canon ought never to undergo +modification or exception. Owing to the exceptional hazards and +sacrifices of their occupation, a combination of producers might be +justified in exacting larger compensation than would be accorded them +by the canon of human welfare on the basis of net results in the +present conditions of supply and scarcity. Unusual needs and +capacities might also justify a strong group in pursuing the same +course. All that is asserted at present is that in conditions of +average competition the canon of human welfare is not unjust. And this +is all that is necessary as a preliminary to the discussion of just +profits.[162] + +FOOTNOTE: + +[162] A very suggestive discussion of the psychology, the general +principles, and the practical limitations of distributive justice, +will be found in an article by Gustav Schmoller, entitled, "The Idea +of Justice in Political Economy." It is No. 113 in the Publications of +the American Academy of Political and Social Science. + + + + +CHAPTER XVII + +JUST PROFITS IN CONDITIONS OF COMPETITION + + +We have seen that profits are that share of the product of industry +which goes to the business man. They comprise that residual portion +which he finds in his hands after he has made all expenditures and +allowances for wages, salaries, interest at the prevailing rate on +both his own and the borrowed capital, and all other proper charges. +They constitute his compensation for his labour of direction, and for +the risks of his enterprise and capital. + +In the opinion of most Socialists, profits are immoral because they +are an essential element of an unjust industrial system, and because +they are not entirely based upon labour. Under Socialism the +organising and directing functions that are now performed by the +business man, would be allotted to salaried superintendents and +managers. Their compensation would include no payment for the risks of +capital, and it would be fixed instead of indeterminate. Hence it +would differ considerably from present-day profits. + +To the assertion that profits are immoral a sufficient reply at this +time is that Socialism has already been shown to be impracticable and +inequitable. Consequently the system of private industry is +essentially just, and profits, being a necessary element of the +system, are essentially legitimate. The question of their morality is +one of degree not of kind. It will be considered under two principal +heads: the right of the business man to obtain indefinitely large +profits; and his right to a certain minimum of profits. + + +_The Question of Indefinitely Large Profits_ + +As a general rule, business men who face conditions of active +competition have a right to all the profits that they can get, so long +as they use fair business methods. This means not merely fair and +honest conduct toward competitors, and buyers and sellers, but also +just and humane treatment of labour in all the conditions of +employment, especially in the matter of wages. When these conditions +are fulfilled, the freedom to take indefinitely large profits is +justified by the canon of human welfare. The great majority of +business men in competitive industries do not receive incomes in +excess of their reasonable needs. Their profits do not notably exceed +the salaries that they could command as hired managers, and generally +are not more than sufficient to reimburse them for the cost of +education and business training, and to enable them to live in +reasonable conformity with the standard of living to which they have +become accustomed. + +Efforts and sacrifices are reflected to some extent in the different +amounts of profits received by different business men. When all due +allowance is made for chance, productivity, and scarcity, a +considerable proportion of profits is attributable to harder labour, +greater risk and worry, and larger sacrifices. Like the principle of +needs, that of efforts and sacrifices is a partial justification of +the business man's remuneration. + +Those profits which cannot be justified by either of the titles just +mentioned, are ethically warranted by the principles of productivity +and scarcity. This is particularly true of those exceptionally large +profits which can be traced specifically to that unusual ability which +is exemplified in the invention and adoption of new methods and +processes in progressive industries. The receivers of these large +rewards have produced them in competition with less efficient business +men. While the title of productivity does not entirely satisfy the +seeker for decisive ethical sanctions, it is stronger morally than any +opposing considerations that can be invoked. It is probably as strong +as some other principles that we have to accept as the best attainable +in the very difficult field of industrial ethics. + +Nevertheless, it would seem that those business men who obtain +exceptionally large profits could be reasonably required to transfer +part of their gains to their employés in the form of higher wages, or +to the consumers in the form of lower prices. Both of these methods +have been followed by Henry Ford, the automobile manufacturer. Neither +of them is certainly demanded by the principles of strict justice; +they rest upon the feebler and less decisive principle of general +equity or fairness.[163] This concept is less definite than those of +charity and justice, and stands midway between them. It comes into +operation when an action is obligatory on stricter grounds than those +of charity, and yet cannot with certainty be required on grounds of +justice. Notwithstanding its vagueness, it is sufficiently strong to +make the average conscientious man feel uncomfortable if he neglects +its prescriptions entirely. It has, therefore, sufficient practical +value to deserve a place in the ethics of distribution. And it seems +to have sufficient application to the problem before us to justify the +statement that the receivers of exceptionally large profits are bound +in equity to share them with those persons who have co-operated in +producing and providing them, namely, wage earners and consumers. + +In the field of profits the canon of human welfare is not only sound +ethically but expedient socially. It permits the great majority of +business men to obtain, if they can, sufficient remuneration to meet +their reasonable needs. Whether it requires society to _guarantee_ at +least this amount of profit-income is a question that we shall examine +presently. It encourages efforts, and makes for the maximum social +product by permitting business men to retain all the profits that they +can get in conditions of fair competition. Does it forbid any attempt +by society to limit exceptionally large profit-incomes? If the limit +were placed very high, say, at 50,000 dollars per year, it would not +apparently check the productive efforts of the great majority of +business men, since they never hope to pass that figure. Whether it +would have a seriously discouraging effect upon the activity and +ambition of those who do hope to reach, and of those who have already +reached that level, is uncertain. Among business men who are +approaching or who have passed the 50,000 dollars annual profit-income +mark, the desire to possess more money is frequently weaker as a +motive to business activity than the longing for power and the driving +force of habit. At any rate, the question is not very practical. Any +sustained attempt to limit profits by law would require such extensive +and minute supervision of business that the policy would prove to be +socially intolerable and unprofitable. The espionage involved in the +policy would provoke general resentment, and the amount of profits +that could be diverted either to the State or to private persons would +be relatively insignificant. + +Thus far we have been considering the independent business man and +business firm, not the joint stock company or corporation. In the +latter form of organisation, the labour of direction is remunerated by +fixed salaries to the executive officers, while the risks of +enterprise and capital are covered by the regular dividends received +by the whole body of stockholders. Consequently the only revenues +comparable to profits are the surplus gains that remain after wages, +salaries, interest, dividends, rent, and all other expenses and +charges have been met. These are apportioned through one process or +another among the stockholders. On what ethical principle can they be +thus distributed? The general principle of productivity, or superior +productivity, is the only one available. If a corporation which uses +fair methods of competition can obtain surplus gains, while the +majority of its competitors fail to do so, the cause must be sought in +its superior business management. This superiority must be credited to +the whole body of stockholders, even though the great majority of them +are responsible for it only in a very remote way, through their +selection of the executive officers. The stockholders surely have a +better claim to these surplus gains than any other group in the +community. At the same time, they are, like the independent business +man, bound by the principle of equity to share the surplus with the +labourers and consumers. + + +_The Question of Minimum Profits_ + +Has the business man a strict right to a minimum living profit? In +other words, have all business men a right to a sufficient volume of +sales at sufficiently high prices to provide them with living profits +or a decent livelihood? Such a right would imply a corresponding +obligation upon the consumers, or upon society, to furnish the +requisite amount of demand at the required prices. Is there such a +right, and such an obligation? + +No industrial right is absolute. They are all conditioned by the +possibilities of the industrial system, and by the desires, +capacities, and actions of the persons who enter into industrial +relations with one another. As we shall see later, this statement is +true even of the right to a living wage. When the industrial resources +are adequate, all persons of average ability who contribute a +reasonable amount of labour to the productive process have a right to +a decent livelihood on two conditions: first, that such labour is +their only means of sustenance; and, second, that their labour is +economically indispensable to those who utilise it or its product. +"Economically indispensable" means that the beneficiary of the labour +would rather give the equivalent of a decent livelihood for it than go +without it. While both these conditions are apparently fulfilled in +the case of the great majority of wage earners, they are only rarely +realised with regard to business men. In most instances the business +man who is unable to make living profits could become an employé, and +thus convert his right to a decent livelihood into a right to a living +wage. Even when no such alternative is open to him, he cannot claim a +strict right to living profits, for the second condition stated above +remains unfulfilled. The consuming public does not regard the business +function of such men as economically indispensable. Rather than pay +the higher prices necessary to provide living profits for the +inefficient business men, consumers will transfer their patronage to +the efficient competitors. Should the retail grocer, for example, +raise his prices in the effort to get living profits, his sales would +fall off to such an extent as to reduce his profits still lower. While +the consumers may be willing to fulfil their obligation of furnishing +living profits for all necessary grocers, they are not willing, nor +are they morally bound, to do so in the case of grocers whose +inability to command sufficient patronage at remunerative prices shows +that they are not necessary to the community. The consuming public +does not want to employ such business men at such a cost. + +Nor is the State under obligation to ensure living profits for all +business men. To carry out such a policy, either by enforcing a +sufficiently high level of prices, or by subsidising those who fail to +obtain living profits, would be to compel the public to support +inefficiency. + +In the foregoing paragraphs we have assumed that the inability of the +business men under consideration to get living profits is due to their +own lack of capacity as compared with their more efficient +competitors. When, however, their competitors are not more efficient, +but are enabled to undersell through the use of unfair methods, such +as adulteration of goods and oppression of labour, a different moral +situation is presented. Honest and humane business men undoubtedly +have a claim upon society to protection against such unfair +competition. And the consumers are under obligation to make reasonable +efforts to withhold their patronage from those business men who +practise dishonesty and extortion. + + +_The Question of Superfluous Business Men_ + +Although we have rejected as impractical the proposal to set a legal +limit to profit-incomes, we have to admit that many of the abler +business men would continue to do their best work even if the profits +that they could hope to obtain were considerably smaller in volume. +These men hold a strategic position in industry, inasmuch as they are +not subject to the same degree of constant competition as the other +agents of production.[164] Were the supply of superior business +capacity more plentiful, their rewards would be automatically reduced, +and the burden of profits resting upon society would be to that extent +diminished. On the other hand, the number of mediocre business men, +especially in the distributive industries, is much larger than is +necessary to supply the wants of the community. This constitutes a +second unnecessary volume of payments under the head of profits. Is +there no way by which these wastes can be reduced? + +The volume of exceptionally large profits could be diminished by an +extension of the facilities of technical and industrial education. +Thus the number of persons qualifying as superior business men could +be gradually increased, competition among this class of men would be +intensified, and their rewards correspondingly diminished. + +The profits that go to superfluous business men, especially in the +class known as middlemen, can be largely eliminated through +combination and co-operation. The tendency to unite into a single +concern a large number of small and inefficient enterprises should be +encouraged up to the point at which the combination threatens to +become a monopoly. That this process is capable of effecting a +considerable saving in business profits as well as in capital, has +been amply demonstrated in several different lines of enterprise. As +we have seen in a preceding chapter, the co-operative movement, +whether in banking, agriculture, or stores, has been distinctly +successful in reducing profits. Millions of dollars are thus diverted +every year from unnecessary profit-receivers to labourers, consumers, +and to the man of small resources generally. Yet the co-operative +movement is only in its infancy. It contains the possibility of +eliminating entirely the superfluous business man, and even of +diminishing considerably the excessive profits of the exceptionally +able business man. + +FOOTNOTES: + +[163] Cf. pp. 212, 213 of Castelein's "Philosophia Moralis et +Socialis." + +[164] Cf. Hobson, "The Industrial System," chapter on "Ability." + + + + +CHAPTER XVIII + +THE MORAL ASPECT OF MONOPOLY + + +The conclusion was drawn in the last chapter that the surplus gains of +corporations operating in conditions of competition, can justly be +retained by the stockholders as the remuneration of exceptional +productive efficiency. It is, of course, to be understood that the +proper allowance for interest on the capital is not necessarily the +amount authorised by the stipulated rate of dividend on the stock, but +the prevailing or competitive rate of interest plus an adequate rate +of insurance against the risks of the enterprise. If the prevailing +rate of interest is five per cent., and the risk is sufficiently +protected by an allowance of one per cent., the fair rate of return on +the investment is six per cent. The fact that a concern may actually +award its stockholders ten per cent. dividends, has no bearing on the +determination of the genuine surplus. If the actual surplus that +remains after paying all other charges and allowing ten per cent. on +the stock, is only 50,000 dollars, whereas it would be 100,000 dollars +with an allowance of only six per cent., then the true surplus gains, +or profits, are the latter amount not the former. No part of the +100,000 dollars can be justified as interest on capital. It must all +find its justification as profits proceeding from superior +productivity. + +Bearing in mind this distinction between the actual rate of dividend +and the proper allowance for interest on capital, we take up the +question of the morality of profits or surplus gains in conditions of +monopoly. + + +_Surplus and Excessive Profits_ + +Several of the great industrial combinations of the United States have +obtained profits which are commonly stigmatised as "excessive." For +example, the Standard Oil Company paid, from 1882 to 1906, an average +annual dividend of 24.15 per cent. on the capital stock, and had +profits in addition at the rate of about 8 per cent. annually;[165] +from 1904 to 1908 the American Tobacco Company averaged 19 per cent. +on its actual investment;[166] and the United States Steel Corporation +obtained an average annual return of 12 per cent. on its investment +from 1901 to 1910.[167] A complete list of the American monopolies +that have reaped more than the competitive rate of return on their +capital would undoubtedly be a very long one. + +Is it possible to justify such returns? Has a monopoly a right to take +surplus gains? Let us suppose a concern which is getting 15 per cent. +on its investment. Inasmuch as the risks are smaller than in +competitive enterprises, six per cent. is an ample allowance for +interest. Of the remaining 9 per cent., 4 per cent., we shall assume, +is derived from economies of production as compared with the great +majority of competitive concerns. This portion of the surplus, being +the reward of superior efficiency, may be retained by the owners of +the monopoly quite as justly as similar gains are taken by the +exceptionally efficient corporation in conditions of competition. The +objection that the monopoly ought to share these gains with the +public, since it limits individual opportunity in a socially +undesirable way, has some merit, but it can scarcely be urged on +grounds of strict justice. At most it points only to an obligation in +equity. + +By what canon of distribution can the retention of the other 5 per +cent. of surplus gain be justified? Not by the titles of needs and +efforts, for these have already been satisfied through the salaries +paid to those stockholders who perform labour in the management of the +concern. These titles afford no basis for any other claim than that +which proceeds from labour. They cannot be made to justify claims made +on behalf of capital. Not by the title of productivity, for this has +already been remunerated in the 4 per cent. just considered. Not as +interest on capital, for ample allowance has already been made under +this head in the original 6 per cent. As we have seen in an earlier +chapter, the only reasons that give ethical support to interest on +capital are the sacrifice that is involved in some kinds of saving, +the possibility that interest is necessary in order to induce the +provision of sufficient capital, the certainty that the State would be +unable to enforce the abolition of interest, and some presumptive +considerations. Since all of these reasons and ends are satisfied by +the competitive rate of interest, none of them will justify the +exaction of more than the competitive rate. It is not possible to +justify a higher rate on either social or individual grounds. +Therefore, the only basis that is left upon which to defend the +retention of the five per cent. surplus that we are discussing, is the +power of appropriation. The monopoly possesses the economic strength +to take this five per cent. because it is able to impose higher than +competitive prices upon the consumer. Obviously such power has no +greater ethical sanction or validity than the pistol of the +highwayman. In both cases the gains are the product of extortion. + +The conclusion that men have no right to more than the competitive +rate of interest, as interest, on their capital, and that a monopoly +has consequently no right to those surplus gains that are not produced +by superior efficiency, is confirmed by public opinion and by the +decisions of the courts. The monopolistic practice of taking more than +the usual rate of returns on capital merely because there exists the +power to take it, is universally condemned as inequitable. In fixing +the charges of public service corporations, the courts with practical +unanimity allow only the rate of return that is obtainable in +competitive conditions of investment. + +The statement that the monopoly may retain those surplus gains which +are derived from superior efficiency assumes, of course, that fair +wages have been paid to employés, and fair prices to the sellers of +materials, and that fair methods have been used toward competitors. In +so far as any of these conditions is not met, the monopolistic concern +has no right to surplus gains of any sort. All three of the claims +just mentioned are morally stronger than the claim to superior rewards +because of superior efficiency. + + +_The Question of Monopolistic Efficiency_ + +So much for the moral principle. What proportion of the surplus gains +of monopoly are due to extortionate prices rather than to economies in +production, cannot be known even approximately. According to Justice +Brandeis, who is one of the most competent authorities in this field, +only a very small part of these gains are derived from superior +efficiency.[168] Professor E. S. Meade writes: "During a decade +[1902-1912] of unparalleled industrial development, the trusts, +starting with every advantage of large capital, well-equipped plants, +financial connections, and skilled superintendence, have not +succeeded."[169] On the other hand, President Van Hise thinks that, +"the weight of argument is strongly in favour of the increased +efficiency of large combinations of industry on the average."[170] The +difference of opinion existing among students of this subject is due +to lack of adequate data, particularly to the absence of such uniform +and comprehensive systems of accounting as would be required to +provide a basis for reliable general conclusions. Opposing particular +statements may be equally true, because based upon different +instances; but general statements are little better than guesses. + +Let us approach the question from another side, that of prices. +Whenever the charges imposed by monopolistic concerns upon their +products are higher than those that would have prevailed under +competition, the surplus gains are obviously to that extent not due to +superior efficiency. They have their source in the arbitrarily made +prices. The Final Report of the United States Industrial Commission, +which was made at the beginning of the year 1902, declared that, "in +most cases the combination has exerted an appreciable power over +prices, and in practically all cases it has increased the margin +between raw materials and finished products."[171] Since the cost of +production had decreased during the preceding decade, this increase in +the margin, and the ensuing increased profits, necessarily involved an +increase in prices to the consumer. Taking the period of 1897-1910, +and comparing the movement of prices between eighteen important +trust-controlled products, and the same number of important +commodities not produced by monopolistic concerns, Professor Meade +concluded that the former were sold at a "much lower" relative level +than the latter.[172] His computations were based upon figures +compiled by the Bureau of Labour. According to the Commissioner of +Corporations, the Standard Oil Company "has taken advantage of its +monopoly power to extort prices much higher than would have existed +under free competition."[173] The same authority shows that the +American Tobacco Company used its power to obtain considerably more +than competitive prices on some of its products.[174] Excessive +prices, as measured by the standards of competition, were also +established by the United States Steel Corporation, the American Sugar +Refining Company, and the combinations in meat packing and in +lumber.[175] + +A safe statement would probably be that the greater part of the +surplus gains of the most conspicuous American monopolies have been +due to excessive prices rather than to economies of production. + +Let us turn from the subject of unjust monopoly gains to that of +unfair methods used by the great combinations toward their +competitors. These methods are mainly three: discriminative +underselling, exclusive-selling contracts, and advantages in +transportation. + + +_Discriminative Underselling_ + +The first of these practices is exemplified when a monopoly sells its +goods at unprofitably low rates in competitive territory, while +maintaining higher prices elsewhere; and when it offers at very low +prices those kinds of goods which are handled by competitors, while +holding at excessively high prices the kinds of commodities over which +it has exclusive control. Both forms of the practice seem to have been +extensively used by most of the monopolistic concerns of America.[176] +The Standard Oil Company has been perhaps the most conspicuous +offender in this field.[177] This practice is unjust because it +violates the fundamental moral principle that a man has a right to +pursue a lawful good without hindrance through illicit means. Among +the illicit means enumerated by the moral theologians are force, +fraud, deception, lying, slander, intimidation, and extortion.[178] + +The illicit means employed in discriminative underselling are chiefly +extortion and deception. If the very low prices at which the monopoly +sells in the field which contains competitors were maintained outside +of that field also, and if they were continued not merely until the +independent concerns were driven out of business, but indefinitely +afterward, no injustice would be done the latter. For no man has a +natural right to any particular business. If a powerful concern can +eliminate competitors through low prices made possible by superior +efficiency, the competitors are not unjustly treated. They have no +more just cause of complaint than the inefficient grocer whose custom +is attracted from him by other and more efficient merchants. The +offence is at the worst contrary to charity. But when the monopoly +maintains the low and competition-eliminating prices only locally and +temporarily, when it is enabled to establish and continue these prices +only because it sells its goods at extortionate rates elsewhere, the +latter prices are evidently the instrument or means by which the +competitors are injured and eliminated. In that case the monopoly +violates the right of the competitors to pursue a lawful good immune +from unfair interference. The lawful good is a livelihood from this +kind of business; and the illicit interference is the unjust prices +maintained outside the competitive field. + +In the preceding paragraph we have assumed that the extortionate +prices are operative at the same time as the excessively low prices, +but in a different place. Suppose that the former are imposed only +after the independent concerns are eliminated. The injustice to the +competitors remains the same as in the preceding case. Although the +extortionate prices are later in time, they are the instrumental cause +of the destructive low prices through which the competitors were +driven out of business. If the owners of the monopoly were not certain +of their ability to establish the subsequent extortionate prices, they +would not have put into effect the unprofitably low prices. Hence +there is a true causal connection between the former and the latter. +Although the connection is mainly psychical, through the consciousness +of the monopoly owners, it is none the less real and effective. Its +practical effectiveness is seen in the fact that the subsequent +possibility of imposing extortionate prices will induce men to lend +the monopoly money to carry on the process of exterminating +competition. The process is maintained by means of the extortionate +prices quite as effectively as though the two things were +simultaneous. + +In so far as the patrons of the independent concerns are deceived into +expecting that the very low prices will be permanent, and in so far as +this impression causes them to withdraw their patronage from the +independents, the latter are injured through another illicit means, +namely, deception. The competitors have a right not to be deprived of +their customers through imposture. + +What is the measure of extortionate prices in this connection? How can +we know that the high, competition-eliminating prices are really +extortionate? There are only two possible tests of just price. The +first is the proper cost of production,--fair wages to labour, fair +prices for materials, and fair interest on capital. If the monopoly +does not raise prices above this level, it obviously does not impose +extortionate prices, nor inflict injustice upon the eliminated +competitor. Moreover, if the monopoly has introduced economies of +production it may, as we have seen, justly charge prices somewhat +above the cost-of-production level. But it may not raise them above +the level that would have prevailed under competition. This is the +second test of just price. No possible justification can be found, +except one to be mentioned presently, for charging the consumers +higher prices than they could have obtained under competitive +conditions. At such prices the monopoly will be able to secure the +prevailing rate of interest on its capital, and all the surplus gains +that proceed from superior efficiency. A higher scale of prices will +be, therefore, extortionate, and the competitors who are eliminated +through its instrumentality will be the victims of injustice.[179] + +The exception alluded to above occurs when the monopoly uses the +excess which it obtains over the competitive price to pay fair wages +to those labourers who were insufficiently compensated in competitive +conditions. In such a case the eliminated competitors would have no +just claim against the monopoly; for their elimination took place in +the just interest of the producers. The case, however, is purely +academic, since the discriminative underselling practised by our +monopolistic concerns has not been impelled by any such motive, nor +has it achieved any such result. + + +_Exclusive-Sales Contracts_ + +The second unfair method employed by monopolies toward competitors is +that of exclusive-selling contracts, sometimes called the "factor's +agreement." It requires the dealer, merchant, or jobber to refrain +from selling the goods produced by independent concerns, on penalty of +being refused the goods produced by the monopoly. The merchant is +compelled to choose between the less important line of wares to be had +from the former, and the more important line obtainable from the +latter. He will not be permitted to handle both. "Here is somebody who +has been buying goods, let us say, by way of illustration, from the +American Tobacco Company, and a rival producer comes in whom the +merchant likes to patronise. He buys goods for a time from the rival, +and an agent of the trust sends him a note to the effect that he must +not buy any more from that rival corporation; that, if he does so, the +trust will give all of its own goods, some of which the merchant is +obliged to have, to another agent. That will probably bring him to +terms."[180] By this method the independent manufacturer can be +deprived of sufficient patronage to injure him seriously, and perhaps +to drive him out of business. + +This process is one of intimidation brought to bear upon the merchant. +Through fear of loss he is compelled to discontinue selling the goods +of the competing manufacturer. It is a kind of secondary boycott. As +such, it is an unreasonable interference with the liberty of the +merchant unless its object is to compel him to do something that he +may be reasonably required to do. In the case that we are considering, +the object of the pressure is not of that character; for to drive the +rival manufacturer out of business, or to assist in his expulsion, is +not a reasonable thing. The exclusive-selling contract which is forced +upon the merchant is quite as unreasonable as though its purpose were +to prevent him from, say, patronising manufacturers having red hair. +Being thus unreasonable, thus injurious to individual liberty, it +violates not only the law of charity but that of justice. It +transgresses the merchant's right to enter reasonable contracts with +the rival manufacturer, and if it results in a pecuniary loss to the +former it is an invasion of his rights of property. It likewise +violates the rights of the competitive manufacturer, since it is among +the unfair means which may not be used to prevent a man from pursuing +a legitimate good. It is an unfair means because it involves +unreasonable intimidation, uncharity, and injustice toward the +merchant. When the independent manufacturer is injured through such an +instrumentality, he suffers injustice quite as certainly at the hands +of the monopoly as though his property were destroyed through the +strong-arm methods of hired thugs. + + +_Discriminative Transportation Arrangements_ + +Concerning the third unfair method, discriminative advantages in +transportation, the United States Industrial Commission declared: "It +is incontestable that many of the great industrial combinations had +their origin in railroad discrimination. This has been emphasised many +times in the history of the Standard Oil Company, and of the great +monopolies dealing in live stock, dressed beef, and other +products."[181] The American Sugar Refining Company has been several +times convicted of receiving illegal favours from railroads, and has +paid in fines thousands upon thousands of dollars. Sometimes the +monopoly has openly been accorded lower freight rates than its +competitors, and sometimes it has paid the regular charges, and then +received back a part of them as a refund or rebate. At one time the +Standard Oil Company obtained rebates not only on its own shipments, +but on those of its rivals![182] + +Special advantages of this sort necessarily involve injustice to the +competitors of the monopoly. If the low rates given to the +monopolistic concern are a sufficiently high price for the service of +carrying freight, the higher charges imposed upon the competing +concerns are extortionate; if the former rates are unprofitably low, +the difference between sufficient and insufficient freight charges is +made up by the independent concerns. In the former case the +independents pay the railroad too much; in the latter case they bear +burdens that should properly rest upon the monopoly. The monopolistic +concern is partly responsible for this injustice inasmuch as it urges +and often intimidates the railroad to establish the discriminating +rates. + +All three of the practices that we have been considering are +universally condemned by public sentiment. They are all likewise under +the ban of statutory law. The first two have recently received +detailed and explicit prohibition in the Clayton Anti-Trust Act. + + +_Natural Monopolies_ + +Up to this point we have been dealing with private and artificial +monopolies. We turn now to consider briefly those natural and +quasi-public monopolies which are either tacitly or explicitly +recognised as monopolies by public authority, and whose charges are to +a greater or less extent regulated by some department of the State. +Such are, for example; steam railroads and municipal utilities. When +the charges made for the services of these corporations are +_adequately_ regulated by public authority, the owners of such +concerns will have a right to all the surplus gains that they can +obtain. In that case a contract is made between the corporation and +the public which is presumably fair to both parties, and which +represents the social estimate of what is just. If the public +authorities have not sufficiently safeguarded the interests of the +people, if they have permitted the charges to be so high as to provide +excessive returns for the corporation, the latter is under no moral +obligation to refrain from reaping the full benefit of the State's +negligence or incompetence. If, however, the unduly high rates have +been brought about through bribery, extortion, or deception practised +by the corporation, the inequitable contract thus arranged will not +justify the surplus gains thus produced. For example; if the +corporation deliberately and effectively conceals the real value of +its property through stockwatering, and thus misleads the public +authority into permitting charges which return twelve instead of six +per cent. on the actual investment, the corporation cannot forthwith +justly claim the surplus gain represented by the extra six per cent. + +When the public authorities either fail entirely to regulate charges, +or do so only spasmodically and partially, the quasi-public monopoly +will not necessarily have a right to all the obtainable surplus gains. +For a long time the express companies of the United States were +permitted to exact what charges they pleased, and even yet the rates +on some of our railroads are not adequately regulated by the State. In +such cases the charges imposed on the public are not an adequate +expression of the social estimate of justice, nor an adequate basis of +legitimate surplus gains. In the absence of sufficient public +regulation, a quasi-public monopoly is morally bound to fix its +charges at such a level as will enable it to obtain only the +prevailing rate of interest on the investment, and such surplus gains +as it can produce through exceptional efficiency. In all such cases +the public service corporation is in the same moral position as the +artificial monopoly: it has no possible basis except superior +efficiency for claiming or getting any returns above the competitive +rate of interest on its capital. Its only possible reason for +obtaining more is the fact that it has the power to take more. This +fact has obviously no moral validity. + + +_Methods of Preventing Monopolistic Injustice_ + +How shall the injustices of monopoly be prevented in the future? So +far as quasi-public monopolies are concerned, all students of the +subject are now agreed that these should be permitted to exist under +adequate governmental regulation as to prices and service. The reason +is that in this field successful and useful competition is impossible. +Public utility corporations are natural monopolies, and must be dealt +with by the method of regulation until such time as they are brought +under the ownership and operation of the State. With regard to the +great industrial combinations which have become or threaten to become +artificial monopolies, there exists substantial agreement among +competent authorities on one point, and disagreement on another point. +All admit that the unfair competitive methods described in an earlier +part of this chapter should be stringently prohibited. No possible +reason can be found for legal toleration of these or any other +discriminative, uncharitable, or unjust practices on the part of +stronger toward weaker competitors. + +The disagreement among students of monopoly relates to the fundamental +question of permitting or not permitting these combinations to exist. +According to the first theory, of which Mr. Justice Brandeis is the +most distinguished exponent, no new industrial monopolies should be +permitted, and those that we have should be dissolved. The basis of +this theory is the assumption that all the economies and all the +productive efficiency found in monopolistic concerns can be developed +and maintained in smaller business organisations, and that the method +of prevention and dissolution is the simplest means of protecting the +public against the danger of extortionate monopoly prices. Attention +has been called in a preceding paragraph to the impossibility of +determining whether the great monopolistic combinations have on the +average shown themselves to be more efficient than concerns subject +to active and adequate competition. It is significant, however, that +in the discussion of this subject which took place at the twenty-sixth +annual meeting of the American Economic Association, at Minneapolis in +1913, the economists who participated were practically unanimous in +holding that the superior efficiency of the trusts had not been +demonstrated, but was a matter of serious doubt, and that the burden +of proof of their alleged superiority had been definitely shifted upon +those who maintained the affirmative.[183] Probably the great majority +of the whole body of American economists would share these +conclusions. + +On the other hand, the opponents of prevention and dissolution, of +whom Mr. George W. Perkins is probably the most conspicuous, point to +the obvious economies of large-scale over small-scale production, and +contend that these are sufficient reason for permitting and even +encouraging the great combinations. The power to oppress competitors +by unjust methods of business, and the public by extortionate prices, +should be kept under rigid control by supervision, and government +regulation of maximum prices. But the arguments advanced in favour of +this position are never conclusive. Most of its advocates fail to +realise, or at least to take adequately into account, the difference +between large-scale production and production by a monopoly. While the +large plant and the large business organisation have in many lines of +manufacture and trade a considerable advantage over the small plant +and the small organisation, there is not a scintilla of evidence to +show that the efficiency of magnitude increases indefinitely with +magnitude. There is no proof that the maximum efficiency is reached +only with the maximum size of the business unit. On the contrary, all +the evidence that we have points to the conclusion that in every field +of industrial and commercial enterprise, all the economies of +magnitude and of combination are obtained long before the concern +becomes a monopoly. There is not an industry of any importance in the +United States in which all the advantages of bigness and concentration +cannot be made operative in concerns that control as low as +twenty-five per cent. of the total product. The highest economy and +efficiency can be obtained without monopoly. + +Indeed, this is admitted by the more reasonable advocates of the +regulation and price-fixing policy. While maintaining that +"concentration must go far in order to give the maximum of +efficiency," President Van Hise does not hold "that it should go to +the extent that the element of monopoly enters"; and he would have the +law "declare restraint of trade unreasonable that gets to monopoly," +and fix the definite per cent. of business control which constitutes a +monopoly.[184] We are justified, therefore, in concluding that the +theory of prevention and dissolution (provided that the competing +units are not made so small as to destroy the certain economies of +magnitude) rather than the theory of permission and regulation, +indicates the sound economic and social policy of dealing with +monopolies. + + +_Legalised Price Agreements_ + +President Van Hise advocates the regulation policy in a modified form. +In substance his view is that, while no corporation should be +permitted to control the greater part of any product, monopolistic +price-agreements should be sanctioned and regulated by law. No amount +of restrictive legislation, he maintains, can secure universal +competition in the matter of prices. Experience shows that the +destructive results of cut-throat competition compel the more powerful +competitors to make price agreements in some lines of business.[185] +For example; all the retail grocers in a city are often found selling +certain staples at a uniform price for long periods of time. +Agreements of this sort should, in the opinion of President Van Hise, +be formally permitted by law, with the proviso that a government +commission should fix the maximum and possibly the minimum limits. And +he contends that the task of fixing fair maximum and minimum prices +would be much less difficult than is commonly supposed, and that it +would be much simpler and easier than the task of regulating railway +freight rates. + +Whatever may be the merits of this plan, it is not likely to be +embodied in legislation in the near future. So far as we can see now, +the American people are committed to the policy of endeavouring to +restore genuine competition by prohibiting those predatory practices +to which the great monopolies mainly owe their existence. The attempt +will be made to give competition a fair opportunity to prevent both +monopolistic control of products and monopolistic fixing of prices. +Competition has not enjoyed any such opportunity during the last +quarter of a century. If this attempt should fail after a thorough +trial, the time will be at hand for the regulation of prices by the +government. Until that time has arrived (let us hope that it never +will arrive) the State will not, and should not, embark upon such a +large and difficult experiment. + +FOOTNOTES: + +[165] Report of the Commissioner of Corporations on the Petroleum +Industry, II, 40, 41. + +[166] Report of the Commissioner of Corporations on the Tobacco +Industry, II, 26-34. + +[167] Report of the Commissioner of Corporations on the Steel +Industry, I, 51. According to F. J. McRae, the expert accountant for +the Stanley congressional investigating committee, this concern +secured 40 per cent. on the _cost_ of its property. + +[168] Hearings Before the Interstate Commerce Committee, U. S. Senate, +Part XVI, pages 1146-1166. + +[169] _The Journal of Political Economy_, April, 1912, p. 366. + +[170] "Concentration and Control," p. 20. + +[171] Page 621. + +[172] _The Journal of Political Economy_, April, 1912, p. 363. + +[173] Report on the Petroleum Industry, II, 74. + +[174] Report on the Tobacco Industry, II, 27. + +[175] Cf. Van Hise, op. cit., pp. 140, 149, 153, 159. + +[176] Final Report of the Industrial Commission, pp. 660-662. + +[177] Report on the Petroleum Industry, I, 328-332. + +[178] Cf. Lehmkuhl, "Theologia Moralis," I, No. 974. + +[179] It may be of interest to recall the mediæval attitude toward +monopolistic exactions, as summarily stated by St. Antoninus, who was +archbishop of Florence in the first half of the fifteenth century: +"When monopolist merchants agree together to preserve a fixed price, +so as to secure an unlimited profit, they are guilty of sinful +trading." He maintained that they should not sell above the market +price, and should be prevented from so doing by law. See his "Summa +Theologica," III, 8, 3, iv, and II, 1, 16, ii. Present day moral +theologians lay down the same doctrine, and in addition condemn the +characteristic monopolistic methods as unjust. See Tanquerey, "De +Justitia," nos. 776, 777; Lehmkuhl, "Theologia Moralis," vol. I, no. +1119. + +[180] Clark, "The Problem of Monopoly," p. 35. + +[181] Final Report, p. 361. + +[182] Report on the Petroleum Industry, pp. 22, 23. + +[183] "Papers and Proceedings," pp. 158-194. + +[184] Op. cit., pp. 20, 251. + +[185] Op. cit., pp. 254-265. + + + + +CHAPTER XIX + +THE MORAL ASPECT OF STOCK WATERING + + +In the last chapter we saw that a monopoly has no right to gains in +excess of the competitive rate of interest on its capital, except in +so far as these have been derived from superior efficiency. Now +superior efficiency is clearly present whenever the monopolistic +concern obtains surplus gains by selling its product at competitive +prices, or at the prices that would have prevailed under competition. +Evidently the surplus in such a case is due to the greater +productivity of the monopoly as compared with the average productivity +of competitive concerns. When, however, the monopoly charges prices +above the competitive level, its surplus gains cannot all be +attributed to unusual efficiency. A part if not all of them are the +result simply of the power to take; consequently they are immoral. + +One of the means by which some monopolies have obtained unjust surplus +gains is overcapitalisation, or stockwatering. This practice is rarely +found in businesses that are subject to normal competition. So far as +the consumer is concerned, a corporation that cannot fix prices +arbitrarily has nothing to gain by inflating its capital. Unless it +develops exceptional efficiency, it cannot hope to obtain more than +the competitive rate of interest on its capital; if it does become +exceptionally efficient, it can take the resulting surplus gains +without arousing public resentment or criticism. In either case, it +will have no sufficient reason to deceive the public by exaggerating +the amount of its capital. When a competitive concern does water its +stock, the object will be to defraud investors. If the scheme is +successful the unjust surplus gains are taken by one set of +stockholders from another set of stockholders. Whenever anything of +this sort occurs, the deceptive devices employed are so crude and +obvious that they present no special problem for the moralist. Even as +practised by monopolies, stockwatering raises no principle that has +not been already discussed. It does, however, create some special +difficulties in the matter of applying the moral principles involved. +Consequently, it may with advantage be considered in a separate +chapter. + +The general definition of overcapitalisation is capitalisation in +excess of the proper valuation of a business. What is the measure of +proper valuation? According to many corporation directors, it is +earning power. If a concern is able to get the prevailing rate of +interest on a capitalisation of ten million dollars, that is the +proper capitalisation for that concern, even though the money actually +invested might not have exceeded five million dollars. In the opinion +of most other persons, however, a company is overcapitalised when the +face value of its securities is greater than the money put into the +business plus the subsequent enhancement in the value of its land. +"The money put into the business," means that which has been expended +for labour, materials, land, equipment, and all other items and costs +of organising the concern, together with the sum that is necessary to +cover the interest not obtained by the investors during the +preparatory period before the business became productively operative. +The increase in the value of the land after its acquisition by the +company also deserves a place in the legitimate valuation, and may +reasonably be represented by an appropriate amount of securities. +Monopolistic corporations have as good a right, generally speaking, to +profit by the "unearned increment" of land as competitive concerns. In +brief, the proper measure of capitalisation is cost: either the +original cost, as just explained and supplemented; or the present +cost of reproducing the business. + + +_Injurious Effects of Stockwatering_ + +Stockwatering can become an instrument of unjust gains in two ways: +first, through fraud inflicted upon some of the investors; second, +through the imposition of exorbitant prices upon the consumers. The +former cannot occur so long as the process of inflation does not go +beyond earning power; for in that case all stockholders, barring +dishonest manipulation of the company's receipts, will obtain the +normal rate of interest on their investment. If, however, stock is +sold in excess of the earning power of the concern, those stockholders +who fail to obtain the ordinary rate of interest on their money are +unjustly treated in so far as they have been deceived. And those +officers or other members of the corporation who have profited by the +deception of and injury to these stockholders, are the recipients of +unjust gains. Daniel Drew inflated the capitalisation of the Erie +Railroad from seventeen millions to seventy-eight millions within four +years for the purpose of manipulating the stock market; owing to +excessive issues of stock, the American Shipbuilding Company was +thrown into bankruptcy to the great injury of all but one of its +stockholders;[186] because they issued securities to buy subsidiary +railway lines at exorbitant prices, and to provide extravagant +commissions and discounts for bankers, the directors of the 'Frisco +System forced it into a receivership, after having inflicted a net +loss of four million dollars per year upon the stockholders.[187] Many +other notable performances might be cited where stockwatering, both in +railroads and in industrial concerns, has defrauded investors of +millions of dollars, and enabled a few powerful directors to reap +corresponding enormous profits. + +At first sight it would seem that stockwatering is of little or no +importance to the consumer. Since a monopolistic concern endeavours to +fix its prices at the point that will yield the maximum net profit in +any case, the amount of stock in existence would seem to be irrelevant +to the problem. Nevertheless, the presence of a large quantity of +fictitious capital whose owners are calling for dividends, sometimes +constitutes a special force impelling the imposition of higher prices +and charges. "It will happen at times that overcapitalisation does at +least cause a clinging to high prices. The managers of an +overcapitalised monopoly may have to face the fact that great blocks +of securities are outstanding, very likely issued by their +predecessors, and now held by all sorts of investors. They are then +loath to let go any slice of its profits. We have seen that often the +monopoly principle of maximum net profit is not applied in its full +sweep, especially in industries which are potentially subject to +public control. Where abnormal returns on the original investment have +been made, concessions to public opinion in the way of low rates and +better facilities are more likely to come when capitalisation has not +been inflated."[188] The United States Industrial Commission found +that as regards railroads: "In the long run excessive capitalisation +tends to keep rates high; conservative capitalisation tends to make +rates low."[189] + +This indirect influence of stockwatering toward excessive rates and +prices becomes effective in two ways. The existence of fictitious +capital conceals from the public the high rate of return that is +obtained on the true valuation, thus preventing effective action for a +reduction in prices and charges; and it sometimes causes the +rate-making authorities to allow rates to be sufficiently high to +yield something to the investors in the inflated capital. If a trust +or a railroad has issued stock having a par value of twice the capital +invested, its rate of dividend on the entire capitalisation will be +only one-half the rate of interest that it is receiving on the +investment. If it pays, for example, seven per cent. on all its stock, +it will be getting fourteen per cent. on its genuine capital. While +the consumers of tobacco, or the patrons of a railroad, would raise no +outcry against seven per cent. dividends, they would probably begin to +agitate for an enforcement of the anti-trust laws, and for a reduction +in freight and passenger charges, if they realised that they were +providing for dividends of fourteen per cent. Nor is the public +adequately protected by government investigations of trusts and +regulation of railway rates. Despite the anti-trust laws, many +American monopolies have for many years received exorbitant profits +through excessive prices imposed upon the consumer; and in many of +these instances overcapitalisation and its resulting concealment of +real profits have been of considerable assistance to the extortionate +monopoly. In fixing railway rates, the Interstate Commerce Commission, +and the various state railroad commissions, have been seriously +hampered by their inability to determine the real investment of the +roads, and to separate the genuine from the fictitious capitalisation. +Not until the year 1913 did the national government begin the task of +making a valuation of interstate railroad property, and the work will +require several years. Very few of the states have made valuations of +the railroads within their borders. In the meantime it is certain that +many of the rates fixed by both the national and the state bodies will +continue, as in the past, to be higher than they would have been if +the true value of the railroads were known and accepted as the basis +of freight and passenger charges. + +The second bad effect of stockwatering on the consumer is seen when +rate-fixing bodies deliberately permit the charges of public service +corporations to be high enough to include some returns on that portion +of the capitalisation which is fictitious. It is very difficult for +such authorities to resist entirely the plea of the "innocent +investor." Consequently, railroad commissions and other rate making +authorities, and even the courts, have occasionally made some +provision for dividends on the "water." Chairman Knapp of the +Interstate Commerce Commission admitted a few years ago that, in +considering the reasonableness of a given rate, this body took into +account the financial condition, and therefore the capitalisation of +the railroad.[190] In 1914 and 1915 practically all the great railway +systems of the United States made powerful, and in a measure +successful, appeals to the Interstate Commerce Commission for a rise +in rates on the ground that they were unable to pay the normal rate of +interest on their securities, and hence could not obtain on +advantageous terms new capital needed for improvements. Had the +capitalisation of the roads been kept down to the actual investment, +most of them would have been able to pay the competitive rate of +interest on all their stock, and still have a sufficient surplus to +command excellent credit. + + +_The Moral Wrong_ + +When prices or charges are made high enough to provide returns on +fictitious capital, the consumer is treated unjustly. As we have shown +more than once, the consumer cannot rightfully be required to pay for +the products of a monopoly at a greater rate than is necessary to +provide the competitive rate of interest on capital in the average +conditions of efficiency. If some concerns are able to sell at this +price, and still obtain surplus gains, they have a right thereto on +account of their exceptional productivity. But the capital upon which +a monopolistic concern has a claim to the prevailing rate of interest, +is genuine capital: that is, the actual investment as interpreted +above, not an inflated capitalisation. The consumers may justly be +required to pay for the use and benefit of actual productive goods; +but it is not just that they should be compelled to pay for the +supposed use of a capital that has no concrete reality. + +The stockholders of the monopolistic corporation which imposes upon +the consumers exorbitant prices or charges through the instrumentality +of inflated capitalisation, can become guilty of this injustice in two +ways: by promoting the improper capitalisation; and by getting +dividends on stock for which they have not given a fair equivalent. As +a rule, the greater part of such guilt and responsibility rests upon +certain special and powerful groups among the stockholders. For +example; the J.P. Morgan syndicate which organised the United States +Steel Corporation received for that service securities to the value of +$63,500,000. "There can be no question," says the Commissioner of +Corporations, "that this huge compensation to the syndicate was +greatly in excess of a reasonable payment."[191] The syndicate was +able to exact this stupendous sum mainly because some of its members +were also in control of some of the companies that were brought into +the combination. "In other words, as managers of the Steel Corporation +these various interests virtually determined their compensation as +underwriters."[192] In the opinion of the minority members of the +Stanley congressional investigating committee, "such a sum bore no +relation whatever to the service rendered, the risk run, and the +capital advanced."[193] The majority of the committee characterised +the transaction in even stronger language. It is clear, therefore, +that the syndicate committed injustice toward the consumers both by +organising a monopoly which afterward imposed unjust prices, and by +taking millions of dollars in securities which its members did not +earn, and on which they received interest through the exorbitant +prices. While this transaction is exceptionally conspicuous, it is +substantially typical of the methods by which many powerful monopolies +have watered their stock to the detriment of the public, and the +advantage of a small group of directors and financiers. + + +_The "Innocent" Investor_ + +Is the State obliged to protect, or is even justified in protecting, +the innocent victims of stockwatering? That is to say, should +rate-making authorities fix the charges of public service corporations +high enough to return some interest to the purchasers of fictitious +securities? All the facts and presumptions of the case seem to demand +an answer in the negative. In the first place, it is impossible to +distinguish the "innocent" holders from those who were fully +acquainted with the questionable and speculative nature of the stock +at the time it came into their possession. In the second place, the +civil law has never formally recognised any such claim on the part of +even innocent investors, nor any such obligation on the part of +itself. It has never laid down the principle that any class of +investors in fictitious stock has a legal or moral right to obtain the +normal rate of interest on such stock through the imposition of +sufficiently high charges upon the consumers. Nor have the courts, +except in isolated instances, sanctioned any such principle. On the +contrary, the Supreme Court of the United States, in the case of Smyth +vs. Ames, declared that a railroad "may not impose upon the public the +burden of such increased rates as may be required for the purpose of +realising profits upon such excessive valuation or fictitious +capitalisation." In the third place, when we consider the matter from +the side of morals, we see that the innocent investors are not the +only persons whose rights are involved. If charges are placed high +enough to cover interest on fictitious capital, the cost and the +injury fall upon the consumers. The latter have a right to the +services of utility corporations, such as railways and gas companies, +at a fair price; that is, a price which will return to the capital put +into the concern the prevailing rate of interest, plus whatever gains +are obtained by exceptional efficiency. To require them to pay more +than this, is to compel them to give something for nothing; namely, to +provide interest on capital which does not exist, and from which they +receive no benefit. When, therefore, the State intervenes to secure +fair charges for the consumers, it should base them upon the capital +actually invested and used in the business of public service. + +Frequently, however, the State has permitted overcapitalisation, and +charges sufficient to pay normal dividends thereon, for long periods +of years. Has it not thereby encouraged investors to cherish the +expectation that these high charges would be permitted to continue, +and that the fictitious stock would remain indefinitely as valuable as +when it came into their possession? Is it not breaking faith with +these investors when it reduces charges to the basis of the actual +investment? A sufficient answer to these questions is found in the +fact that the State has never officially sanctioned the practice of +stockwatering, nor in any way intimated that it would recognise the +existence of the fictitious stock when it should take up the neglected +task of fixing fair rates and charges. At the most, the civil law has +merely tolerated the practice, and the resulting extortion upon the +public. And there has never been a time when the greater and saner +part of public opinion did not look upon overcapitalisation as at the +least abnormal and irregular. Neither from the civil law nor from +public sentiment have the devices of inflating capitalisation received +that measure of approval which would confer upon investments therein +the legal or the moral status of vested rights. To the "innocent +investor" in watered stocks the maxim, _caveat emptor_, is as fairly +applicable as to the man who has been deceived into lending his money +on insufficient security, or the man who has been induced by the +asseverations of a highly imaginative prospectus to put his money into +a salted gold mine, or the man who buys stolen goods from a pawn shop, +or the man who because of insufficient police protection loses his +purse to a highwayman. In all these cases perfect legal safeguards +would have prevented the loss; yet in none of them does the State +undertake to make the loss good to the innocent victim. + +Such seems to be the strict justice of the situation as between the +consumer and the innocent investor. It may sometimes happen that a +particularly grave hardship can be averted from the latter at a +comparatively slight cost to the former. In such a case equity would +seem to require that some concession be made to the investors through +the imposition of somewhat higher charges upon the consumer. + + +_Magnitude of Overcapitalisation_ + +Probably the majority of the great steam railroads, street railways, +and gas companies that were organised during the last quarter of the +nineteenth century inflated their capitalisation to a greater or less +extent. Since the year 1900 the trusts have been the chief exponents +and illustrations of the practice. According to President Van Hise, +"the majority of the great concentrations of industry have gone +through two or three stages of reorganisation, the promoters and +financiers each time profiting greatly, sometimes enormously."[194] +For example; in 1908 the "water" in the American Tobacco Company was +estimated by the Commissioner of Corporations at $66,000,000; the +United States Shipbuilding Company diluted its twelve and one-half +million dollars of capital with more than fifty-five millions of +"water"; the United States Steel Corporation contained at the time of +its organisation fictitious capital to the amount of $500,000,000; and +at least fifty per cent. of the common stock of the American Sugar +Refining Company represented no actual investment.[195] Owing to the +penetrating and widespread criticism, and the government +investigations and prosecutions of the last few years, the practice of +stockwatering has very greatly diminished. Perhaps the most flagrant +recent example is that of the Pullman Company, which according to the +testimony of R. T. Lincoln before the Federal Commission on Industrial +Relations, distributed among its stockholders $100,000,000 in stock +dividends between 1898 and 1910. + +Nevertheless the temptation to inflate capital will exist until the +device is stringently prohibited by law. Both the nation and the +states ought to adopt the policy of forbidding the sale of stock at +less than par value, and restricting issues of stock to the amount +required for the establishment, equipment, and permanent betterment of +a concern, including a sum to cover the loss of interest to the +investors during the early period of the business. Any extraordinary +risks to which an enterprise is liable can be protected by the simple +device of allowing a correspondingly high rate of interest on the +securities. With such legislation enacted and enforced, neither the +investor nor the consumer could be deceived or defrauded; and the +financing and management of corporations would become less +speculative, and more beneficial to the community. The present chapter +may be fittingly closed with a moderate and significant statement from +the pen of Professor Taussig: "It is doubtful whether the whole +mechanism of irregular and swollen capitalisation was at any time +necessary or wise. Why not provide once for all that securities shall +be issued only to represent what has been invested?... It is +sometimes said that freedom, even recklessness, in the issue of +securities was a useful device, in that it enabled the projectors to +look forward to returns really tempting, and at the same time +concealed these returns from a grudging public.... A more simple and +straightforward way of dealing with the issue of securities might thus +have dampened in some degree the feverish speculation and restless +progress of railway development. But a slower pace would have had its +advantages also, and, not least, restriction of securities would have +saved great complications in the later stages of established monopoly +and needed regulation."[196] + +FOOTNOTES: + +[186] Cf. Ripley, "Trusts, Pools, and Corporations," pp. 207-210. + +[187] See Report of the Interstate Commerce Commission on these +transactions. + +[188] Taussig, "Principles of Economics," II, 385, 386. + +[189] Final Report, p. 414. + +[190] Final Report of the Industrial Commission, p. 413. + +[191] Report on the Steel Industry, p. 38. + +[192] Idem, p. 39. + +[193] _Chicago Record-Herald_, July 29, 1912. + +[194] Op. cit., p. 28. + +[195] Cf. Van Hise, op. cit., pp. 29, 142, 149. + +[196] Op. cit., II, 387, 388. + + + + +CHAPTER XX + +THE LEGAL LIMITATION OF FORTUNES + + +If the taxation and other measures of reform suggested in Section I +were fully applied to our land system; if co-operative enterprise were +extended to its utmost practicable limits for the correction of +capitalism; and if the wide extension of educational opportunities, +and the elimination of the surplus gains of monopolies restricted the +profits of the business man to an amount strictly commensurate with +his ability and risks,--if all these results were accomplished the +number of men who could become millionaires through their own efforts +would be so small that their success would arouse popular applause +rather than popular envy. Their claim to whatever wealth they might +accumulate would be generally looked upon as entirely valid and +reasonable. Their pecuniary eminence would be pronounced quite as +deserved as the literary eminence of a Lowell, the scientific eminence +of a Pasteur, or the political eminence of a Lincoln. In such +conditions there could be no disconcerting discussion of the menace of +great fortunes. + +In the meantime, these reforms are not realised, nor are they likely +to be even approximately established within the present generation. +For some time to come it will be possible for the exceptionally able, +the exceptionally cunning, and the exceptionally lucky to accumulate +great riches through clever and fortuitous utilisation of special +advantages, natural and otherwise. Moreover, a great proportion of the +large fortunes already in existence will persist, and will be +transmitted to heirs who will in many cases cause them to increase. +Can nothing be done to reduce the size and lessen the number of these +great accumulations? If so, is such a proceeding socially and morally +desirable? + + +_The Method of Direct Limitation_ + +The law might directly limit the amount of property to be held by any +individual. If the limit were placed fairly high, say, at one hundred +thousand dollars, it could scarcely be regarded as an infringement on +the right of property. In the case of a family numbering ten members, +this would mean one million dollars. All the essential objects of +private ownership could be abundantly met out of a sum of one hundred +thousand dollars for each person. Moreover, a restriction of this sort +need not prevent a man from bestowing unlimited amounts upon +charitable, religious, educational, or other benevolent causes. It +would, indeed, hinder some persons from satisfying certain unessential +wants, such as, the desire to enjoy gross or refined luxuries, great +financial power, and the control of immense industrial enterprises; +but none of these objects is necessary for any individual's genuine +welfare. In the interest of the social good such private and +unimportant ends may properly be rendered impossible of realisation. + +Such a restriction would no more constitute a direct attack upon +private ownership than limitations upon the use and kinds of property. +At present a man may not do what he pleases with his gun, his horse, +or his automobile, nor may he invest his money in the business of +carrying the mails. The limitation of fortunes is just what the word +expresses, a _limitation_ of the right of property. It is not a denial +nor _destruction_ of that right. As a limitation of the amount to be +held by an individual, it does not differ in principle from a +limitation of the kinds of goods that may become the subject of +private ownership. There is nothing in the nature of things nor in the +reason of property to indicate that the right of ownership is +unlimited in quantity any more than it is in quality. The final end +and justification of individual rights of property is human welfare; +that is, the welfare of all individuals severally and collectively. +Now it is quite within the bounds of physical possibility that the +limitation under discussion might be conducive to the welfare of human +beings both as individuals and as constituting society. + +Nevertheless the dangers and obstacles confronting any legal +restriction of fortunes are so real as to render the proposal socially +inexpedient. It would easily lend itself to grave abuse. Once the +community had habituated itself to a direct limitation of any sort, +the temptation to lower it in the interest of better distribution and +simpler living would become exceedingly powerful. Eventually the right +of property might take such an attenuated and uncertain form in the +public mind as to discourage labour and initiative, and thus seriously +to endanger human welfare. In the second place, the manifold evasions +to which the measure would lend itself would make it of very doubtful +efficacy. To be sure, neither of these objections is absolutely +conclusive, but taken together they are sufficiently weighty to +dictate that such a proposal should not be entertained so long as +other and less dangerous methods are available to meet the problem of +excessive fortunes. + +Four of the nine members of the Federal Commission on Industrial +Relations have suggested that the amount of property capable of being +received by the heirs of any person be limited to one million +dollars.[197] If we assume that by heirs the Commission meant the +natural persons to whom property might come by bequest or succession, +this limitation would permit a family of ten persons to inherit one +hundred thousand dollars each, and a family of five persons to obtain +two hundred thousand dollars apiece. Would such a restriction be a +violation of the right of private ownership? The answer depends upon +the effects of the measure on human welfare. The rights of bequest and +succession are integral elements of the right of ownership; hence they +are based upon human needs, and designed for the promotion of human +life and development. A person needs private property not only to +provide for his personal wants and those of his family during his +lifetime, but also to safeguard the welfare of his dependents and to +assist other worthy purposes, after he has passed away. Owing to the +uncertainty of death, the latter objects cannot be adequately realised +without the institutions of bequest and succession. + +All the necessary and rational ends of bequest and succession could be +attained in a society in which no man's heirs could inherit more than +one million dollars. Under such an arrangement very few of the +children of millionaires would be prevented from getting at least one +hundred thousand dollars. That much would be amply sufficient for the +essential and reasonable needs of any human being. Indeed, we may go +further, and lay down the proposition that the overwhelming majority +of persons can lead a more virtuous and reasonable life on the basis +of a fortune of one hundred thousand dollars than when burdened with +any larger amount. The persons who have the desire and the ability to +use a greater sum than this in a rational way are so few that a +limitation law need not take them into account. Corporate persons, +such as hospitals, churches, schools, and other helpful institutions, +should not, as a rule, be restricted as to the amount that they might +inherit; for many of them could make a good use of more than the +amount that suffices for a natural person. + +So much for the welfare and rights of the beneficiaries of +inheritance. The owners of estates would not be injured in their +rights of property by the limitation that we are here considering. In +the first place, the number of persons practically affected by the +limitation would be extremely small. Only an insignificant fraction of +property owners ever transmit or expect to be wealthy enough to +transmit to their families more than one million dollars. Of these few +a considerable proportion would not be deterred by the million dollar +limitation from putting forth their best and greatest efforts in a +productive way. They would continue to work either from force of habit +and love of their accustomed tasks, or from a desire to make large +gifts to their heirs during life, or because they wished to assist +some benevolent enterprise. The infinitesimally small number whose +energies would be diminished by the limitation could very safely be +treated as a socially negligible element. The community would be +better off without them. + +The limitation of inheritance would, indeed, be liable to abuse. +Circumstances would undoubtedly arise in which the community would be +strongly tempted to make the maximum inheritable amount so low as to +discourage the desire of acquisition, and to deprive heirs of +reasonable protection. While the bad effects of such a limitation +would not be as great as those following a similar abuse with regard +to possessions, they are sufficiently grave and sufficiently probable +to suggest that the legal restriction of bequest and succession should +not be considered except as a last resort, and when the transmission +of great fortunes had become a great and certain public evil. + +It seems reasonable to conclude, then, that neither the limitation of +possessions nor the limitation of inheritance is necessarily a direct +violation of the right of property, but that the possible and even +probable evil consequences of both are so grave as to make these +measures of very doubtful benefit. Whether the dangers in question are +sufficiently great to render the adoption of either proposal morally +wrong, is a question that cannot be answered with any degree of +confidence. What seems to be fairly certain is that in our present +conditions legislation of this sort would be an unnecessary and unwise +experiment. + + +_Limitation Through Progressive Taxation_ + +Is it legitimate and feasible to reduce great fortunes indirectly, +through taxation? There is certainly no objection to the method on +moral or social principles. As we have seen in chapter viii, taxes are +not levied exclusively for the purpose of raising revenue. Some kinds +of them are designed to promote social rather than fiscal ends. Now, +to prevent and diminish dangerous accumulations of wealth is a social +end which is at least as important as most of the objects sought in +license taxes. The propriety of attempting to attain this end by +taxation is, therefore, to be determined entirely by reference to its +probable effectiveness. + +The precise method of taxation available here is a progressive tax on +incomes and inheritances. By a progressive tax is meant one whose rate +advances in some definite proportion to the increases in the amount +taxed. For example, a bequest of 100,000 dollars might pay one per +cent.; 200,000 dollars, two per cent.; 300,000 dollars, three per +cent., and so forth. The reasonableness of the principle of +progression in taxation has been well stated by Professor Seligman: +"All individual wants vary in intensity, from the absolutely necessary +wants of mere subsistence to the less pressing wants which can be +satisfied by pure luxuries. Taxes, in so far as they rob us of the +means of satisfying our wants, impose a sacrifice upon us. But the +sacrifice involved in giving up a portion of what enables us to +satisfy our necessary wants is very different from the sacrifice +involved in giving up what is necessary to satisfy our less urgent +wants. If two men have incomes of one thousand dollars and one hundred +thousand dollars respectively, we impose upon them not equal but very +unequal sacrifices if we take away from each the same proportion, say +ten per cent. For the one thousand dollar individual now has only nine +hundred dollars, and must deprive himself and his family of +necessaries of life; the one hundred thousand dollar individual has +ninety thousand dollars, and if he retrenches at all, which is very +doubtful, he will give up only great luxuries, which do not satisfy +any pressing wants. The sacrifice imposed on the two individuals is +not equal. We are laying on the one thousand dollar man a far heavier +sacrifice than on the one hundred thousand dollar man. In order to +impose equal sacrifices we must tax the richer man not only +absolutely, but relatively, more than the poor man. The taxes must be +not proportional, but progressive; the rate must be lower in the one +case than in the other."[198] + +The principle of equality of sacrifices which underlies the +progressive theory does not justify the levelling and communistic +inferences that have sometimes been brought against it. Equality of +sacrifice does not mean equality of satisfied, or unsatisfied, wants +after the tax has been collected. If Brown pays a tax of one per cent. +on his income of two thousand dollars, it does not follow that Jones +with an income of ten thousand dollars should pay a sufficiently high +rate to leave him with only the net amount remaining to Brown; namely, +1980 dollars. Equality of sacrifice means proportional equality of +burden, not equality of net resources after the tax has been deducted. +The object of the progressive rate is to make relatively equal the +sacrifices _caused by the tax itself_, not to equalise the sum total +of burdens or unsatisfied wants that exist among men. + +Another objection to progressive taxation is that it readily lends +itself to confiscation of the largest incomes. All that is necessary +to produce this result is to increase the rate with sufficient +rapidity. This could be accomplished either by large steps in the +rate itself or by small steps in the income increases which formed the +basis of the advances in the rate. For example, if the Federal income +tax, which at present levies two per cent. on incomes of more than +three thousand dollars, and three per cent. on incomes of over twenty +thousand dollars, should thereafter progress geometrically with every +geometrically progressive increment of income, the rate on incomes +above $640,000 would be 96 per cent.! Or if the rate should progress +arithmetically with every ten thousand dollars of increase above +twenty thousand dollars, it would be 100 per cent. on incomes of over +$990,000! + +To this objection there are two valid answers. Even if the rate should +ultimately reach one hundred per cent. it need not, and on progressive +principles it should not, effect confiscation of an entire income. The +progressive theory is satisfied when the successive rates of the tax +apply to successive increments of income, instead of to the entire +income. For example, the rate might begin at one per cent. on incomes +of one thousand dollars, and increase by one per cent. with every +additional thousand, and yet leave a very large part of the income in +the hands of the receiver. Each one thousand dollars would be taxed at +a different rate, the first at one per cent., the fiftieth at fifty +per cent., and the last at one hundred per cent. If the hundred per +cent. rate were applied to the whole of the higher incomes, it would +be a direct violation of the principle of equality of sacrifice. In +the second place, the progressive theory forbids rather than requires +the rate to go as high as one hundred per cent. While the sacrifices +imposed by a given rate are greater in the case of small than of large +properties, they become approximately equal as between all properties +above a certain high level. After this level is reached, additional +increments of wealth will all be expended either for extreme luxuries, +or converted into new investments. Consequently they will supply +wants of approximately equal intensity. For example, the wants +dependent upon a surplus of 25,000 dollars in excess of an income of +100,000 dollars, and the wants dependent upon a surplus of 75,000 +dollars above the same level do not differ materially in strength. To +diminish these surpluses by the same per cent., say, ten, would impose +proportionally equal burdens. + +Hence the rate of progression should be degressive; that is, it should +increase at a constant pace until a certain high level of income is +reached, then increase at a steadily diminishing pace, and finally +become uniform on the very highest incomes. For example; if the rate +increased one per cent. with every additional five thousand dollars, +reaching fifteen per cent. on incomes of seventy-five thousand +dollars, it should be on eighty thousand dollars, not sixteen but +fifteen and one-half per cent. On 85,000 dollars the rate should be +15-3/4 per cent.; on 90,000, 15-7/8 per cent.; on 95,000, 15-15/16 per +cent.; and on all sums of 100,000 and over, 16 per cent. The point at +which the increments in the rate began to decline would be that at +which differences in wants began to diminish, and the point at which +the rate became stationary would be that at which wants fell to the +same level of intensity. + + +_The Proper Rate of Income and Inheritance Taxes_ + +While the principle of equality of sacrifices forbids a rate of tax +that would reach or approximate confiscation, it gives no definite +indication of the proper scale of progression, or of the maximum limit +that justice would set to the rate. Under our Federal law the highest +rate on incomes is now 13 per cent.; under the Wisconsin law it is 6 +per cent.; under the law of Prussia it is 4 per cent.; and under the +British act of 1909 it is about 8-1/2 per cent. Evidently a much +higher rate than any of these would be required to make any impression +upon swollen fortunes. The British government recently (September, +1915) made the maximum rate about 33-1/3 per cent. To be sure, this +is a war measure which probably will not continue after the +restoration of peace. However, if it were made permanent it could not +be proved to be unjust, provided that it were applied to the +_increments_ of income above a certain high limit, but not to these +incomes in their entirety. + +Our present inheritance taxes are very low, averaging less than 3 per +cent. throughout the United States. Probably the highest rate is to be +found in Wisconsin, where bequests to non relatives in excess of half +a million dollars are subject to a tax of fifteen per cent. It is +clear that all the existing rates could be raised very considerably +without causing a violation of justice. Some years ago Andrew Carnegie +recommended a tax of fifty per cent. on estates amounting to more than +one million dollars.[199] No country has yet reached this high level +of inheritance taxes. Nevertheless we cannot certainly stigmatise it +as unjust either to the testator or his heirs, nor can we prove that +it is in any other manner injurious to human welfare. All that can be +said with confidence concerning the just rates of inheritance taxation +must take the form of generalisations. The increments of the tax +should correspond as closely as possible to the diminishing intensity +of the wants which the tax deprives of satisfaction; in the case of +each heir a certain fairly high minimum of property should be entirely +exempt; on all the highest estates the rate should be uniform, and it +should fall a long way short of confiscation; and the tax should at no +point be such as to discourage socially useful activity and +enterprise. + + +_Effectiveness of Such Taxation_ + +The essential justice of the measures is not the only consideration +affecting high income and inheritance taxes. There remain the +questions of expediency and feasibility. Under the first head the +objection is sometimes raised that taxes which appropriated a +considerable portion of the larger incomes and inheritances would +diminish very materially the social supply of capital. Immense sums of +money would go into the public treasury which otherwise would have +been invested in commerce and industry. Two questions are raised by +this situation: first, whether it might not be better for society to +have these sums devoted, through public works of various kinds, to +consumptive uses instead of to an increase in the supply of capital; +second, whether the reduction in the savings and capital provided by +the persons paying the taxes could be offset by increases in saving +among other classes. Even if it be assumed that the first question +should receive a negative answer, it is not improbable that the second +should be answered in the affirmative. In other words, the increased +saving which the poorer and middle classes would be enabled to make as +a result of the shifting of some of their burden of taxation to the +large incomes and inheritances, might very well counterbalance the +curtailment in the investments of the wealthy classes. Even if this +possibility were not fully realised, even if the net volume of capital +in the community were somewhat diminished, this disadvantage might be +more than neutralised by the wider social benefits of the taxation +policy. + +With regard to the feasibility of very heavy income and inheritance +taxes, it is sometimes contended that neither of these measures can be +made effective toward the reduction of abnormal fortunes.[200] It is +held that the successful collection of these taxes requires the +co-operation of the persons affected by them; that if the rate should +go above ten or twelve per cent., the income receiver would evade the +tax in a great variety of ways, while the owner of a large estate +would transfer his property outright to a trust company, which would +after his death make the desired distribution. The man who urges +these objections is a very high authority on taxation, especially on +its administrative side; nevertheless his contentions are not +absolutely conclusive. In particular, it does not seem probable that +high inheritance taxes could be evaded by the simple devices that he +mentions. It ought not to be beyond the power of administrative +ingenuity to find methods of defeating such subterfuges. However, it +is altogether likely that the possibilities of evasion would be +sufficient to prevent the imposition of tax rates that approached +within measurable distance of the borderland of confiscation. + +The sum of the matter seems to be that the reduction and prevention of +great fortunes cannot prudently be accomplished by the method of +direct limitation; that these ends may wisely and justly be attained +indirectly, through the imposition of progressive income and +inheritance taxes; but that the extent to which these measures would +be genuinely effective cannot be estimated until they have been given +a thorough trial. + +FOOTNOTES: + +[197] "Final Report," p. 32. + +[198] "Progressive Taxation," pp. 210, 211; cf. Vermeersch, +"Quaestiones de Justitia," pp. 94-126. + +[199] "The Gospel of Wealth," pp. 11, 12. + +[200] Cf. Dr. T. S. Adams in "Papers and Proceedings of the 27th +Annual Meeting of the American Economic Association," pp. 234, sq. + + + + +CHAPTER XXI + +THE DUTY OF DISTRIBUTING SUPERFLUOUS WEALTH + + +The correctives of the present distribution that were proposed before +the beginning of the last chapter related mainly to the apportionment +of the product among the agents of production. They would affect that +distribution which takes place as an integral element of the +productive process, not any disposition which the productive agents +might desire or be required to make of the shares that they had +acquired from the productive process. Such were many of the proposals +regarding land tenure, and all of those concerning co-operative +enterprises and monopoly. In the last chapter we considered the +possibility of neutralising to some extent the abuses of the primary +distribution by the action of government through the taxation of large +fortunes. These were proposals directly affecting the secondary +distribution. And they involved the method of compulsion. In the +present chapter we shall inquire whether desirable changes in the +secondary distribution may not be effected by voluntary action. The +specific questions confronting us here are, whether and how far +proprietors are morally bound to distribute their superfluous wealth +among their less fortunate fellows. + + +_The Question of Distributing Some_ + +The authority of revealed religion returns to the first of these +questions a clear and emphatic answer in the affirmative. The Old and +the New Testaments abound in declarations that possessors are under +very strict obligation to give of their surplus to the indigent. +Perhaps the most striking expression of this teaching is that found +in the Gospel according to St. Matthew, ch. 25, verses 32-46, where +eternal happiness is awarded to those who have fed the hungry, given +drink to the thirsty, received the stranger, covered the naked, +visited the sick, and called upon the imprisoned; and eternal +damnation is meted out to those who have failed in these respects. The +principle that ownership is stewardship, that the man who possesses +superfluous goods must regard himself as a trustee for the needy, is +fundamental and all-pervasive in the teaching of Christianity. No more +clear or concise statement of it has ever been given than that of St. +Thomas Aquinas: "As regards the power of acquiring and dispensing +material goods, man may lawfully possess them as his own; as regards +their use, however, a man ought not to look upon them as his own, but +as common, so that he may readily minister to the needs of +others."[201] + +Reason likewise enjoins the benevolent distribution of surplus wealth. +It reminds the proprietor that his needy neighbours have the same +nature, the same faculties, capacities, wants, and destiny as himself. +They are his equals and his brothers. Reason, therefore, requires that +he should esteem them as such, love them as such, and treat them as +such; that he should love them not merely by well wishing, but by well +doing. Since the goods of the earth were intended by the Creator for +the common benefit of all mankind, the possessor of a surplus is +reasonably required to use it in such a way that this original purpose +of all created goods will be fulfilled. To refuse is to treat one's +less fortunate neighbour as something different from and less than +oneself, as a creature whose claim upon the common bounty of nature is +something less than one's own. Multiplying words will not make these +truths plainer. The man who does not admit that the welfare of his +neighbour is of equal moral worth and importance with his own +welfare, will logically refuse to admit that he is under any +obligation of distributing his superfluous goods. The man who does +acknowledge this essential equality will be unable to find any logical +basis for such refusal. + +Is this obligation one of charity or one of justice? At the outset a +distinction must be made between wealth that has been honestly +acquired and wealth that has come into one's possession through some +violation of rights. The latter kind must, of course, be restored to +those persons who have been wronged. If they cannot be found or +identified the ill-gotten gains must be turned over to charitable or +other worthy objects. Since the goods do not belong to the present +holder by any valid moral title, they should be given to those persons +who are qualified by at least the claim and title of needs. + +Some of the Fathers of the Church maintained that all superfluous +wealth, whether well or ill gotten, ought to be distributed to those +in want. St. Basil of Cæsarea: "Will not the man who robs another of +his clothing be called a thief? Is the man who is able and refuses to +clothe the naked deserving of any other appellation? The bread that +you withhold belongs to the hungry; the cloak that you retain in your +chest belongs to the naked; the shoes that are decaying in your +possession belong to the shoeless; the gold that you have hidden in +the ground belongs to the indigent. Wherefore, as often as you were +able to help men and refused, so often you did them wrong."[202] St. +Augustine of Hippo: "The superfluities of the rich are the necessities +of the poor. They who possess superfluities possess the goods of +others."[203] St. Ambrose of Milan: "The earth belongs to all; not to +the rich; but those who possess their shares are fewer than those who +do not. Therefore, you are paying a debt, not bestowing a gift."[204] +Pope Gregory the Great: "When we give necessaries to the needy, we do +not bestow upon them our goods; we return to them their own; we pay a +debt of justice rather than of mercy."[205] + +The great systematiser of theology in the thirteenth century, St. +Thomas Aquinas, who is universally recognised as the most +authoritative private teacher in the Church, stated the obligation of +distribution in less extreme and more scientific terms: "According to +the order of nature instituted by Divine Providence, the goods of the +earth are designed to supply the needs of men. The division of goods +and their appropriation through human law do not thwart this purpose. +Therefore, the goods which a man has in superfluity are due by the +natural law to the sustenance of the poor."[206] + +That this is the official teaching of the Church to-day is evident +from the words of Pope Leo XIII: "When one has provided sufficiently +for one's necessities and the demands of one's state of life, there is +a duty to give to the indigent out of what remains. It is a duty not +of strict justice, save in case of extreme necessity, but of Christian +charity."[207] Nearly thirteen years earlier, the same Pope had +written: "The Church lays the rich under strict command to give their +superfluity to the poor."[208] + +The only difference between the Fathers and Pope Leo XIII and St. +Thomas on this question has reference to the precise nature of the +obligation. According to the Fathers, the duty of distribution would +seem to be a duty of justice. In the passage quoted above from St. +Thomas, superfluities are said to "belong," or to be "due" ("debetur") +to the needy; but the particular moral precept that applies is not +specified. In another place, however, the Angelic Doctor declares that +almsgiving is an act of charity.[209] Pope Leo XIII explicitly says +that the obligation of giving is one of charity, "except in extreme +cases." The latter phrase refers to the traditional doctrine that a +person who is in extreme need; that is, in immediate danger of losing +life, limb, or some equivalent personal good, is justified in the +absence of any other means of succour in taking from his neighbour +what is absolutely necessary. Such appropriation, says St. Thomas, is +not properly speaking theft; for the goods seized belong to the needy +person, "inasmuch as he must sustain life."[210] In a word, the +mediæval and the modern Catholic teaching would make distribution of +superfluous goods a duty of justice only in extreme situations, while +the Fathers laid down no such specific limitation. Nevertheless, the +difference is less important than it appears to be on the surface. +When the Fathers lived, theology had not been systematised nor given a +precise terminology; consequently, they did not always make exact +distinctions between the different classes of virtues and obligations. +In the second place, the Patristic passages that we have quoted, and +others of like import, were mostly contained in sermons addressed to +the rich, and consequently were expressed in hortatory rather than +scientific terms. Moreover, the needs of the time which the rich were +exhorted to relieve were probably so urgent that they could correctly +be classed as extreme, and therefore would give rise to an obligation +of justice on the part of those who possessed superfluous wealth. + +The truly important fact of the whole situation is that both the +Fathers and the later authorities of the Church regard the task of +distributing superfluous goods as one of strict moral obligation, +which in serious cases is binding under pain of grievous sin. Whether +it falls under the head of justice or under that of charity, is of no +great practical consequence. + + +_The Question of Distributing All_ + +Is a man obliged to distribute _all_ his superfluous wealth? As +regards the support of human life, Catholic moral theologians +distinguish three classes of goods: first, the necessaries of life, +those utilities which are essential to a healthy and humane existence +for a man and his family, regardless of the social position that he +may occupy, or the standard of life to which he may have been +accustomed; second, the conventional necessities and comforts, which +correspond to the social plane upon which the individual or family +moves; third, those goods which are not required to support either +existence or social position. Goods of the second class are said to be +necessary as regards conventional purposes, but superfluous as regards +the maintenance of life, while those of the third class are +superfluous without qualification. + +No obligation exists to distribute the first class of goods; for the +possessor is justified in preferring his own primary and fundamental +needs to the equal or less important needs of his neighbours. The +owner of goods of the second class is under obligation to dispense +them to persons who are in extreme need, since the preservation of the +neighbour's life is more important morally than the maintenance of the +owner's conventional standard of living. On the other hand, there is +no obligation of giving any of these goods to meet those needs of the +neighbour which are social or conventional. Here, again, it is +reasonable that the possessor should prefer his own interests to the +equal interests of his fellows. Still less is he obliged to expend any +of the second class of goods for the relief of ordinary or common +distress. As regards the third class of goods, those which are +absolutely superfluous, the proportion to be distributed is +indefinite, depending upon the volume of need. The doctrine of the +moral theologians on the subject is summed up in the following +paragraph. + +When the needs to be supplied are "ordinary," or "common"; that is, +when they merely expose a person to considerable and constant +inconvenience, without inflicting serious physical, mental, or moral +injury, they do not impose upon any man the obligation of giving up +all his superfluous goods. According to some moral theologians, the +possessor fulfils his duty in such cases if he contributes that +proportion of his surplus which would suffice for the removal of all +such distress, provided that all other possessors were equally +generous; according to others, if he gives two per cent. of his +superfluity; according to others, if he contributes two per cent. of +his annual income. These estimates are intended not so much to define +the exact measure of obligation as to emphasise the fact that there +exists some degree of obligation; for all the moral theologians agree +that some portion of a man's superfluous goods ought to be given for +the relief of ordinary or common needs. When, however, the distress is +grave; that is, when it is seriously detrimental to welfare; for +example, when a man or a family is in danger of falling to a lower +social plane; when health, morality, or the intellectual or religious +life is menaced,--possessors are required to contribute as much of +their superfluous goods as is necessary to meet all such cases of +distress. If all is needed all must be given. In other words, the +entire mass of superfluous wealth is morally subject to the call of +grave need. This seems to be the unanimous teaching of the moral +theologians.[211] It is also in harmony with the general principle of +the moral law that the goods of the earth should be enjoyed by the +inhabitants of the earth in proportion to their essential needs. In +any rational distribution of a common heritage, the claims of health, +mind, and morals are surely superior to the demands of luxurious +living, or investment, or mere accumulation. + +What per cent. of the superfluous incomes in the United States would +suffice to alleviate all the existing grave and ordinary distress? +Nothing like an exact answer is possible, but we can get an +approximation that will have considerable practical value. From the +estimates of family incomes given by Professor W. I. King, it appears +that in 1910 the number of families with annual incomes of less than +one thousand dollars was a little more than ten and three quarter +millions, and that the total incomes of those families receiving more +than ten thousand dollars a year amounted to a little more than three +and three quarter billions.[212] If each of the latter class of +families should expend ten thousand dollars per year for the needs of +life and social position, they would have left nearly two and three +quarter billions for distribution among the ten and three quarter +million families who are below the one thousand dollar level. So far +as the figures of Professor King's table enable us to judge, the +greater part if not all of this sum would be required to bring this +group of families up to that standard. Possibly an income of one +thousand dollars per family is not required to remove all ordinary and +grave distress; and possibly ten thousand dollars is not enough for +the reasonable requirements of some families. If both these +suppositions are true they will tend to cancel each other: the needs +to be met will be less, but the superfluous income to be distributed +will be less also. Whatever be the minimum and maximum limits of +family income that approve themselves to competent students, the +conclusion will probably be inevitable that the greater part of the +superfluous income of the well-to-do and the rich would be required to +abolish all grave and ordinary need. + + +_Some Objections_ + +The desirability of such a thoroughgoing distribution of superfluous +incomes appears to be refuted by the fact that a considerable part of +the capital and organising ability that function in industry is +dependent upon the possession of superfluous goods by the richer +classes. That surplus of the larger incomes which is not consumed or +given away by its receivers at present, constitutes no small portion +of the whole supply of savings annually converted into capital. Were +all of it to be withdrawn from industry and distributed among the +needy, the process might involve more harm than good. Moreover, the +very large industrial enterprises are initiated and carried on by men +who have themselves provided a considerable share of the necessary +funds. Without these large masses of personal capital, they would have +much more difficulty in organising these great enterprises, and would +be unable to exercise their present dominating control. + +To the first part of this objection we may reply that the distribution +of superfluous goods need not involve any considerable withdrawal of +existing capital from industry. The giving of large amounts to +institutions and organisations, as distinguished from needy +individuals, might mean merely a transfer of capital from one holder +to another; for example, the stocks and bonds of corporations. The +capital would be left intact, the only change being in the persons +that would thenceforth receive the interest. Small donations could +come out of the possessor's income. Moreover, there is no reason why +the whole of the distribution could not be made out of income rather +than out of capital. While the givers would still remain possessed of +superfluous wealth, they would have handed over to needy objects, +persons, and causes the thing that in modern times constitutes the +soul and essence of wealth; namely, its annual revenues. + +Nevertheless, the distribution from income would apparently check the +necessary increase of capital, lessen unduly the supply of capital for +the future. Were all, or the greater part of superfluous incomes +devoted to benevolent objects it would be used up for consumption +goods; such as, food, clothing, housing, hospitals, churches, schools. +Would not this check to the increase of capital cause serious injury +to society? + +New investment would not be diminished by an amount equal to the whole +amount of income transferred to objects of benevolence. For the +improved position of the poorer classes that had shared in the +distribution would enable them to increase their productive power and +their resources, and therefore to save money and convert it into +capital. Again, their increased consuming power would augment the +demand for goods, bring about a larger use of existing capital +instruments, and therefore lead to an enlargement of the community's +capacity for saving. Thus, the new saving and capital would, partially +at least, take the place of that which was formerly provided by the +possessors of surplus income. In so far as a net diminution occurred +in the community's supply of capital, it would probably be more than +offset, from the viewpoint of social welfare, by the better diffusion +of goods and opportunities among the masses of the population. + +The second difficulty noted above, that such a thorough distribution +of superfluous goods would lessen considerably the power of the +captains of industry to organise and operate great enterprises, can be +disposed of very briefly. Those who made the distribution from income +rather than from invested wealth, would still retain control of large +masses of capital. All, however, would have deprived themselves of the +power to enlarge their business ventures by turning great quantities +of their own income back into industry. But if their ability and +character were such as to command the confidence of investors, they +would be able to find sufficient capital elsewhere to equip and carry +on any sound and necessary enterprise. In this case the process of +accumulating the required funds would, indeed, be slower than when +they used their own, but that would not be an unmixed disadvantage. +When the business was finally established, it would probably be more +stable, would respond to a more definite and considerable need, and +would be more beneficial socially, inasmuch as it would include a +larger proportion of the population among its proprietors. And the +diminished authority and control exercised by the great capitalist, on +account of his diminished ownership of the stock, would in the long +run be a good thing for society. It would mean the curtailment of a +species of power that is easily liable to abuse, wider opportunities +of industrial leadership, and a more democratic and stable industrial +system. + +Only a comparatively small portion of the superfluous goods of the +country could with advantage be immediately and directly distributed +among needy individuals. The greater part would do more good if it +were given to religious and benevolent institutions and enterprises. +Churches, schools, scholarships, hospitals, asylums, housing projects, +insurance against unemployment, sickness, and old age, and benevolent +and scientific purposes generally,--constitute the best objects and +agencies of effective distribution. By these means social and +individual efficiency would be so improved within a few years that +the distress due to economic causes would for the most part have +disappeared. + +The proposition that men are under moral obligation to give away the +greater portion of their superfluous goods or income is, indeed, a +"hard saying." Not improbably it will strike the majority of persons +who read these pages as extreme and fantastic. No Catholic, however, +who knows the traditional teaching of the Church on the right use of +wealth, and who considers patiently and seriously the magnitude and +the meaning of human distress, will be able to refute the proposition +by reasoned arguments. Indeed, no man can logically deny it who admits +that men are intrinsically sacred, and essentially equal by nature and +in their claims to a reasonable livelihood from the common heritage of +the earth. The wants that a man supplies out of his superfluous goods +are not necessary for rational existence. For the most part they bring +him merely irrational enjoyment, greater social prestige, or increased +domination over his fellows. Judged by any reasonable standard, these +are surely less important than those needs of the neighbour which are +connected with humane living. If any considerable part of the +community rejects these propositions the explanation will be found not +in a reasoned theory, but in the conventional assumption that a man +may do what he likes with his own. This assumption is adopted without +examination, without criticism, without any serious advertence to the +great moral facts that ownership is stewardship, and that the Creator +intended the earth for the reasonable support of all the children of +men. + + +_A False Conception of Welfare and Superfluous Goods_ + +If all the present owners of superfluous goods were to carry out their +own conception of the obligation, the amount distributed would be only +a fraction of the real superabundance. Let us recall the definition +of absolute superfluity as, that portion of individual or family +income which is not required for the reasonable maintenance of life +and social position. It allows, of course, a reasonable provision for +the future. But the great majority of possessors, as well as perhaps +the majority of others, do not interpret their needs, whether of life +or social position, in any such strict fashion. Those who acquire a +surplus over their present absolute and conventional needs, generally +devote it to an expansion of social position. They move into larger +and more expensive houses, thereby increasing their assumed +requirements, not merely in the matter of housing, but as regards +food, clothing, amusements, and the conventions of the social group +with which they are affiliated. In this way the surplus which ought to +have been distributed is all absorbed in the acquisition and +maintenance of more expensive standards. All classes of possessors +adopt and act upon an exaggerated conception of both the strict and +the conventional necessities. In taking this course, they are merely +subscribing to the current theory of life and welfare. It is commonly +assumed that to be worth while life must include the continuous and +indefinite increase of the number and variety of wants, and a +corresponding growth and variation in the means of satisfying them. +Very little endeavour is made to distinguish between kinds of wants, +or to arrange them in any definite scale of moral importance. Desires +for purely physical goods, such as, food, drink, adornment, and sense +gratifications generally, are put on the same level with the demands +of the spiritual, moral, and intellectual faculties. The value and +importance of any and all wants is determined mainly by the criterion +of enjoyment. In the great majority of cases this means a preference +for the goods and experiences that minister to the senses. Since these +satisfactions are susceptible of indefinite increase, variety, and +cost, the believer in this theory of life-values readily assumes that +no practical limit can be set to the amount of goods or income that +will be required to make life continuously and progressively worth +living. Hence the question whether he has superfluous goods, how much +of a surplus he has, or how much he is obliged to distribute, scarcely +occurs to him at all. Everything that he possesses or is likely to +possess, is included among the necessaries of life and social +position. He adopts as his working theory of life those propositions +which were condemned as "scandalous and pernicious" by Pope Innocent +XI in 1679: "It is scarcely possible to find among people engaged in +worldly pursuits, even among kings, goods that are superfluous to +social position. Therefore, hardly any one is bound to give alms from +this source." + +The practical consequences of this false conception of welfare are +naturally most conspicuous among the rich, especially the very rich, +but they are also manifest among the comfortable and middle classes. +In every social group above the limit of very moderate circumstances, +too much money is spent for material goods and enjoyments, and too +little for the intellectual, religious, and altruistic things of life. + + +_The True Conception of Welfare_ + +This working creed of materialism is condemned by right reason, as +well as by Christianity. The teaching of Christ on the worth of +material goods is expressed substantially in the following texts: "Woe +to you rich." "Blessed are you poor." "Lay not up for yourselves +treasures on earth." "For a man's life consisteth not in the abundance +of things that he possesseth." "Be not solicitous as to what you shall +eat, or what you shall drink, or what you shall put on." "Seek ye +first the kingdom of God and his justice, and all these things shall +be added unto you." "You cannot serve God and Mammon." "If thou +wouldst be perfect, go, sell what thou hast and give to the poor, and +come follow me." Reason informs us that neither our faculties nor the +goods that satisfy them are of equal moral worth or importance. The +intellectual and spiritual faculties are essentially and intrinsically +higher than the sense faculties. Only in so far as they promote, +either negatively or positively, the development of the mind and soul +have the senses any reasonable claim to satisfaction. They have no +value in themselves; they are merely instruments to the welfare of the +spirit, the intellect, and the disinterested will. Right life +consists, not in the indefinite satisfaction of material wants, but in +the progressive endeavour to know the best that is to be known, and to +love the best that is to be loved; that is, God and His creatures in +the order of their importance. The man who denies the intrinsic +superiority of the soul to the senses, who puts sense gratifications +on the same level of importance as the activities of mind, and spirit, +and disinterested will, logically holds that the most degrading +actions are equally good and commendable with those which mankind +approves as the noblest. His moral standard does not differ from that +of the pig, and he himself is on no higher moral level than the pig. + +Those who accept the view of life and welfare taught by Christianity +and reason cannot, if they take the trouble to consider the matter, +avoid the conclusion that the amount of material goods which can be +expended in the rational and justifiable satisfaction of the senses, +is very much smaller than is to-day assumed by the great majority of +persons. Somewhere between five and ten thousand dollars a year lies +the maximum expenditure that any family can reasonably devote to its +material wants. This is independent of the outlay for education, +religion, and charity, and the things of the mind generally. In the +overwhelming majority of cases in which more than five to ten thousand +dollars are expended for the satisfaction of material needs, some +injury is done to the higher life. The interests of health, intellect, +spirit, or morals would be better promoted if the outlay for material +things were kept below the specified limit. + +The distribution advocated in this chapter is obviously no substitute +for justice or the deeds of justice. Inasmuch, however, as complete +justice is a long way from realisation, a serious attempt by the +possessors of true superfluous goods to fulfil their obligations of +distribution would greatly counteract and soften existing injustice, +inequality, and suffering. Hence, benevolent giving deserves a place +in any complete statement of proposals for a better distribution of +wealth. Moreover, we are not likely to make great advances on the road +of strict justice until we acquire saner conceptions of welfare, and a +more effective notion of brotherly love. So long as men put the senses +above the soul, they will be unable to see clearly what is justice, +and unwilling to practise the little that they are able to see. Those +who exaggerate the value of sense gratifications cannot be truly +charitable, and those who are not truly charitable cannot perform +adequate justice. The achievement of social justice requires not +merely changes in the social mechanism, but a change in the social +spirit, a reformation in men's hearts. To this end nothing could be +more immediately helpful than a comprehensive recognition of the +stewardship of wealth, and the duty of distributing superfluous goods. + + +REFERENCES ON SECTION III + + ELY: Monopolies and Trusts. Macmillan; 1900. + + VAN HISE: Concentration and Control. Macmillan; 1912. + + STEVENS: Industrial Combinations and Trusts. Macmillan; 1913. + + RUSSELL: Business, the Heart of the Nation. John Lane; 1911. + + GARRIGUET: Régime du Travail. Paris; 1909. The Social Value + of the Gospel. St. Louis; 1911. + + HOBSON: Work and Wealth, a Human Valuation. Macmillan; 1914. + + WEST: The Inheritance Tax. New York; 1908. + + SELIGMAN: Progressive Taxation. Princeton; 1908. The Income + Tax. New York; 1913. + + BOUQUILLON: De Virtutibus Theologicis. Brugis; 1890. + + Also, the works of Taussig, Devas, Hobson, Antoine, Pesch, + Carver, Vermeersch, Nearing, and King which are cited in + connection with the introductory chapter. + +FOOTNOTES: + +[201] "Summa Theologica," 2a. 2ae., q. 66, a. 3. + +[202] "Patrologia Graeca," vol. 31, cols. 275, 278. + +[203] "Patrologia Latina," vol. 37, col. 1922. + +[204] "Patrologia Latina," vol. 14, col. 747. + +[205] "Patrologia Latina," vol. 77, col. 87. These and several other +extracts of like tenor may be found in Ryan's "Alleged Socialism of +the Church Fathers," ch. i; St. Louis, 1913. + +[206] Op. cit., 2a. 2ae., q. 66, a. 7. + +[207] Encyclical, "On the Condition of Labour," May 15, 1891. + +[208] Encyclical, "On Socialism, Communism, Nihilism," Dec. 28, 1878. + +[209] Op. cit., 2a. 2ae., q. 32, a. 1. + +[210] Idem, q. 66, a. 7. + +[211] A comprehensive, though brief, discussion of this question and +numerous references are contained in Bouquillon, "De Virtutibus +Theologicis," pp. 332-348. When Pope Leo XIII declared that the rich +are obliged to distribute "out of" their superfluity, he did not mean +that they are free to give only a portion thereof. The particle "de" +in his statement, "officium est de eo quod superat gratificari +indigentibus," is not correctly translated by "some." It means rather +"out of," "from," or "with"; so that the affluent are commanded to +devote their superfluous goods indefinitely to the relief of the +needy. In the Encyclical, "Quot Apostolici Muneris," he used the +expression, "gravissimo divites urget praecepto ut quod superest +pauperibus tribuant," which clearly declares the duty of distributing +all. + +[212] "The Wealth and Income of the People of the United States," pp. +224-226. + + + + +SECTION IV + +THE MORAL ASPECT OF WAGES + + + + +CHAPTER XXII + +SOME UNACCEPTABLE THEORIES OF WAGE-JUSTICE + + +"It may be that we are not merely chasing a will-o'-the-wisp when we +are hunting for a reasonable wage, but we are at any rate seeking the +unattainable." + +Thus wrote Professor Frank Haight Dixon in a paper read at the +twenty-seventh annual meeting of the American Economic Association, +December, 1914. Whether he reflected the opinion of the majority of +the economists, he at least gave expression to a thought that has +frequently suggested itself to every one who has gone into the wage +question free from prejudices and preconceived theories. One of the +most palpable indications of the difficulty to which Professor Dixon +refers is the number of doctrines concerning wage justice that have +been laboriously built up during the Christian era, and that have +failed to approve themselves to the majority of students and thinkers. +In the present chapter the attempt is made to set forth some of the +most important of these doctrines, and to show wherein they are +defective. They can all be grouped under the following heads: The +Prevailing-Rate Theory; Exchange-Equivalence Theories; and the +Productivity Theories. + + +I. THE PREVAILING-RATE THEORY + +This is not so much a systematic doctrine as a rule of expediency +devised to meet concrete situations in the absence of any better +guiding principle. Both its basis and its nature are well exemplified +in the following extract from the "Report of the Board of Arbitration +in the Matter of the Controversy Between the Eastern Railroads and the +Brotherhood of Locomotive Engineers:"[213] "Possibly there should be +some theoretical relation for a given branch of industry between the +amount of the income that should go to labour and the amount that +should go to capital; and if this question were decided, a scale of +wages might be devised for the different classes of employés which +would determine the amount rightly absorbed by labour.... Thus far, +however, political economy is unable to furnish such a principle as +that suggested. There is no generally accepted theory of the division +between capital and labour.... + +"What, then, is the basis upon which a judgment may be passed as to +whether the existing wage scale of the engineers in the Eastern +District is fair and reasonable? It seems to the Board that the only +practicable basis is to compare the rates and earnings of engineers in +the Eastern District with those of engineers in the Western and +Southern Districts, and with those of other classes of railway +employés." + +Six of the seven men composing this board of arbitration subscribed to +this statement. Of the six one is the president of a great state +university, another is a successful and large-minded merchant, the +third is a great building contractor, the fourth is a distinguished +lawyer, the fifth is a prominent magazine editor, and the sixth is a +railway president. The dissenting member represented the employés. +Since the majority could not find in any generally accepted theory a +principle to determine the proper division of the product between +capital and labour, they were perhaps justified in falling back upon +the practical rule that they adopted. + +_Not in Harmony with Justice_ + +From the viewpoint of justice, however, this rule or standard is +utterly inadequate. It is susceptible of two interpretations. "Wages +prevailing elsewhere," may mean either the highest rates or those most +frequently occurring. According to the latter understanding, only +those wages which were below the majority rates should be raised, +while all those above that level ought to be lowered. In almost all +cases this would mean a reduction of the highest wages, as these are +usually paid only to a minority of the workers of any grade. The +adoption of the highest existing rates as a standard would involve no +positive losses, but it would set a rigid limit to all possible gains +in the future. According to either interpretation of the prevailing +rate, the increases in wages which a powerful labour union seeks to +obtain are unjust until they have been established as the prevailing +rates. Thus, the attorney for the street railways of Chicago dissented +from the increases in wages awarded to the employés by the majority of +the board of arbitration in the summer of 1915 because, "these men are +already paid not only a fair wage but a liberal wage, when the wages +in the same employment and the living conditions in other large cities +are taken into consideration, or when comparison is made of these +men's annual earnings with the earnings in any comparable line of work +in the city of Chicago."[214] In other words, the dominant thing is +always the right thing. Justice is determined by the preponderance of +economic force. Now, a rule such as this, which condemns improvement +until improvement has somehow become general, which puts a premium +upon physical and intellectual strength, and which disregards entirely +the moral claims of human needs, efforts, and sacrifices, is obviously +not an adequate measure of either reason or justice. And we may well +doubt that it would be formally accepted as such by any competent and +disinterested student of industrial relations. + + +II. EXCHANGE-EQUIVALENCE THEORIES + +According to these theories, the determining factor of wage justice is +to be found in the wage contract. The basic idea is the idea of +equality, inasmuch as equality is the fundamental element in the +concept of justice. The principle of justice requires that equality +should be maintained between what is owed to a person and what is +returned to him, between the kinds of treatment accorded to different +persons in the same circumstances. Similarly it requires that equality +should obtain between the things that are exchanged in onerous +contracts. An onerous contract is one in which both parties undergo +some privation, and neither intends to confer a gratuity upon the +other. Each exchanger desires to obtain the full equivalent of the +thing that he transfers. Since each is equal in personal dignity an +intrinsic worth to the other, each has a strict right to this full +equivalent. Owing to the essential moral equality of all men, no man +has a right to make of another a mere instrument to his own interests +through physical force or through an onerous contract. Men have equal +rights not only to subsist upon the earth, but to receive benefits +from the exchange of goods. + +_The Rule of Equal Gains_ + +The agreement between employer and employé is an onerous contract; +hence it ought to be made in such terms that the things exchanged will +be equal, that the remuneration will be equal to the labour. How can +this equivalence be determined and ascertained? Not by a direct +comparison of the two objects, work and pay, for their differences +render them obviously incommensurable. Some third term, or standard, +of comparison is required in which both objects can find expression. +One such standard is individual net advantage. Inasmuch as the aim of +the labour contract is reciprocal gain, it is natural to infer that +the gains ought to be equal for the two parties. Net gain is +ascertained by deducting in each case the utility transferred from the +utility received; in other words, by deducting the privation from the +gross return. The good received by the employer when diminished by or +weighed against the amount that he pays in wages should be equal to +the good received by the labourer when diminished by or weighed +against the inconvenience that he undergoes through the expenditure of +his time and energy. Hence the contract should bring to employer and +employé equal amounts of net advantage or satisfaction. + +Plausible as this rule may appear, it is impracticable, inequitable, +and unjust. In the vast majority of labour contracts it is impossible +to know whether both parties obtain the same quantity of net +advantage. The gains of the employer can, indeed, be frequently +measured in terms of money, being the difference between the wages +paid to and the specific product turned out by the labourer. In the +case of the labourer no such process of deduction is possible; for +advantage and expenditure are incommensurable. We cannot subtract the +labourer's privation, that is, his expenditure of time and energy, +from his gross advantage, that is, his wages. How can we know or +measure the net benefit obtained by a man who shovels sand ten hours +for a wage of two dollars? How can we deduct his pain-cost from or +weigh it against his compensation? + +So far as the two sets of advantages are comparable at all, those of +the employé would seem to be always greater than those of the +employer. A wage of seventy-five cents a day enables the labourer to +satisfy the most important wants of life. Weighed against this gross +advantage, his pain-cost of toil is relatively insignificant. His net +advantage is the greatest that a man can enjoy, the continuation of +his existence. The net advantage received by the employer from such a +wage contract is but a few cents, the equivalent of a cigar or two. +Even if the wage be raised to the highest level yet reached by any +wage earner, the net advantage to the labourer, namely, his +livelihood, will be greater than the net advantage to the employer +from that single contract. Moreover, the sum total of an employer's +gains from all his labour contracts is less quantitatively than the +sum total of the gains obtained by all his employés. The latter gains +provide for many livelihoods, the former for only one. Again, no +general rate of wages could be devised which would enable all the +members of a labour group to gain equally. Differences in health, +strength, and intelligence would cause differences in the pain-cost +involved in a given amount of labour; while differences in desires, +standards of living, and skill in spending would bring about +differences in the satisfactions derived from the same compensation. +Finally, various employers would obtain various money gains from the +same wage outlay, and various advantages from the same money gains. +Hence if the rule of equality of net advantages were practicable it +would be inequitable. + +It is also fundamentally unjust because it ignores the moral claims of +needs, efforts, and sacrifices as regards the labourer. As we have +seen in the chapter on profits in competitive conditions, and as we +shall have occasion to recognise again in a later chapter, no canon or +scheme of distributive justice is acceptable that does not give +adequate consideration to these fundamental attributes of human +personality. + +_The Rule of Free Contract_ + +Another form of the exchange equivalence theory would disregard the +problem of _equality_ of gains, and assume that justice is realised +whenever the contract is free from force or fraud. In such +circumstances both parties gain something, and presumably are +satisfied; otherwise, they would not enter the contract. Probably the +majority of employers regard this rule as the only available measure +of practicable justice. The majority of economists likewise subscribed +to it during the first half of the nineteenth century. In the words of +Henry Sidgwick, "the teaching of the political economists pointed to +the conclusion that a free exchange, without fraud or coercion, is +also a fair exchange."[215] Apparently the economists based this +teaching on the assumption that competition was free and general among +both labourers and employers. In other words, the rule as understood +by them was probably identical with the rule of the market rate, which +we shall examine presently. It is not at all likely that the +economists here referred to would have given their moral approval to +those "free" contracts in which the employer pays starvation wages +because he takes advantage of the ignorance of the labourer, or +because he exercises the power of monopoly. + +No matter by whom it is or has been held, the rule of free contract is +unjust. In the first place, many labour contracts are not free in any +genuine sense. When a labourer is compelled by dire necessity to +accept a wage that is insufficient for a decent livelihood, his +consent to the contract is free only in a limited and relative way. It +is what the moralists call "_voluntarium imperfectum_." It is vitiated +to a substantial extent by the element of fear, by the apprehension of +a cruelly evil alternative. The labourer does not agree to this wage +because he prefers it to any other, but merely because he prefers it +to unemployment, hunger, and starvation. The agreement to which he +submits in these circumstances is no more free than the contract by +which the helpless wayfarer gives up his purse to escape the pistol of +the robber. While the latter action is free in the sense that it is +chosen in preference to a violent death, it does not mean that the +wayfarer gives, or intends to give, the robber the right of ownership +in the purse. Neither should the labourer who from fear of a worse +evil enters a contract to work for starvation wages, be regarded as +transferring to the employer the full moral right to the services +which he agrees to render. Like the wayfarer, he merely submits to +superior force. The fact that the force imposed upon him is economic +instead of physical does not affect the morality of the transaction. + +To put the matter in another way, the equality which justice requires +is wanting in an oppressive labour contract because of the inequality +existing between the contracting parties. In the words of Professor +Ely: "Free contract supposes equals behind the contract in order that +it may produce equality."[216] + +Again, the rule of free contract is unjust because it takes no account +of the moral claims of needs. A man whose only source of livelihood is +his labour does wrong if he accepts a starvation wage willingly. Such +a contract, however free, is not according to justice because it +disregards the requirements of reasonable life. No man has a right to +do this, any more than he has a right to perpetrate self mutilation or +suicide. + +_The Rule of Market Value_ + +A third method of interpreting exchange equivalence is based upon the +concept of value. Labour and compensation are thought to be equal when +the value of one is equal to the value of the other. Then the contract +is just and the compensation is just. The only objection to these +propositions is that they are mere truisms. What does value mean, and +how is it to be determined? If it is to receive an ethical +signification; if the value of labour is to be understood as denoting +not merely the value that labour will command in a market, but the +value that labour ought to have,--the statement that wages should +equal the value of labour becomes merely an identical proposition. All +that it tells us is that wages ought to be what they ought to be. + +In its simplest economic sense value denotes purchasing power, or +importance in exchange. As such, it may be either individual or +social; that is, it may mean the exchange importance attributed to a +commodity by an individual, or that attributed by a social group. In a +competitive society social value is formed through the higgling of the +market, and is expressed in market price. + +Now individual value is utterly impracticable as a measure of exchange +equivalence in the wage contract. Since the value attributed to labour +by the employer differs in the great majority of instances from that +estimated by the labourer himself, it is impossible to determine which +is the true value, and the proper measure of just wages. + +The doctrine that the social value or market price of labour is also +the ethical value or just price, is sometimes called the classical +theory, inasmuch as it was held, at least implicitly, by the majority +of the early economists of both France and England.[217] Under +competitive conditions, said the Physiocrats, the price of labour as +of all other things corresponds to the cost of production; that is, to +the cost of subsistence for the labourer and his family. This is the +natural law of wages, and being natural it is also just. Adam Smith +likewise declared that competitive wages were natural wages, but he +refrained from the explicit assertion that they were just wages. +Nevertheless his abiding and oft-expressed faith in the theory that +men's powers were substantially equal, and in the social beneficence +of free competition, implied that conclusion. Although the great +majority of his followers denied that economics had moral aspects, +and sometimes asserted that there was no such thing as just or unjust +wages, their teaching tended to convey the thought that competitively +fixed wages were more or less in accordance with justice. As noted +above, their belief in the efficacy of competition led them to the +inference that a free contract is also a fair contract. By a free +contract they meant for the most part one that is made in the open +market, that is governed by the forces of supply and demand, and that, +consequently, expresses the social economic value of the things +exchanged. + +All the objections that have been brought against the rule of the +prevailing rate apply even more strongly to the doctrine of the market +rate. The former takes as a standard the scale of wages most +frequently paid in the market, while the latter approves any scale +that obtains in any group of labourers or section of the market. Both +accept as the ultimate determinant of wage justice the preponderance +of economic force. Neither gives any consideration to the moral claims +of needs, efforts, or sacrifices. Unless we are to identify justice +with power, might with right, we must regard these objections as +irrefutable, and the market value doctrine as untenable. + +_The Mediæval Theory_ + +Another exchange-equivalence theory which turns upon the concept of +value is that found in the pages of the mediæval canonists and +theologians. But it interprets value in a different sense from that +which we have just considered. As the measure of exchange equivalence +the mediæval theory takes objective value, or true value. However, the +proponents of this view did not formally apply it to wage contracts, +nor did they discuss systematically the question of just wages. They +were not called upon to do this; for they were not confronted by any +considerable class of wage earners. In the country the number of +persons who got their living exclusively as employés was extremely +small, while in the towns the working class was composed of +independent producers who sold their wares instead of their +labour.[218] The question of fair compensation for the town workers +was, therefore, the question of a fair price for their products. The +latter question was discussed by the mediæval writers formally, and in +great detail. Things exchanged should have equal values, and +commodities should always sell for the equivalent of their values. By +what rule was equality to be measured and value determined? Not by the +subjective appreciations of the exchangers, for these would sometimes +sanction the most flagrant extortion. Were no other help available, +the starving man would give all he possessed for a loaf of bread. The +unscrupulous speculator could monopolise the supply of foodstuffs, and +give them an exorbitantly high value which purchasers would accept and +pay for rather than go hungry. Hence we find the mediæval writers +seeking a standard of _objective_ value which should attach to the +commodity itself, not to the varying opinions of buyers and sellers. + +In the thirteenth century Albertus Magnus[219] and Thomas Aquinas[220] +declared that the proper standard was to be found in labour. A house +is worth as many shoes as the labour embodied in the latter is +contained in the labour embodied in the former. It is worthy of note +that the diagram which Albertus Magnus presents to illustrate this +formula of value and exchange had been used centuries before by +Aristotle. It is likewise noteworthy that this conception of ethical +value bears a striking resemblance to the theory of economic value +upheld by Marxian Socialists. However, neither Aristotle nor the +Schoolmen asserted that all kinds of labour had equal value. + +Now this mediæval labour-measure of value could be readily applied +only to cases of barter, and even then only when the value of +different kinds of labour had already been determined by some other +standard. Accordingly we find the mediæval writers expounding and +defending a more general interpretation of objective or true value. + +This was the concept of normal value; that is, the average or medium +amount of utility attributed to goods in the average conditions of +life and exchange. On the one hand, it avoided the excesses and the +arbitrariness of individual estimates; on the other hand, it did not +attribute to value the characters of immutability and rigidity. +Contrary to the assumptions of some modern writers, the Schoolmen +never said that value was something as fixedly inherent in goods as +physical and chemical qualities. When they spoke of "intrinsic" value, +they had in mind merely the constant capacity of certain commodities +to satisfy human wants. Even to-day bread has always the intrinsic +potency of alleviating hunger, regardless of all the fluctuations of +human appraisement. The objectivity that the mediæval writers ascribed +to value was relative. It assumed normal conditions as against +exceptional conditions. To say that value was objective merely meant +that it was not wholly determined by the interplay of supply and +demand, but was based upon the stable and universally recognised +use-qualities of commodities in a society where desires, needs, and +tastes were simple and fairly constant from one generation to another. + +How or where was this relatively objective value of goods to find +concrete expression? In the "communis aestimatio," or social estimate, +declared the canonists. Objective value and just price would be +ascertained practically through the judgment of upright and competent +men, or preferably through legally fixed prices. But neither the +social estimate nor the ordinances of lawmakers were authorised to +determine values and prices arbitrarily. They were obliged to take +into account certain objective factors. In the thirteenth and +fourteenth centuries, the factors universally recognised as +determinative were the utility or use-qualities of goods, but +especially their cost of production. Later on, in the sixteenth and +seventeenth centuries, risk and scarcity were given considerable +prominence as value determinants. Now cost of production in the Middle +Ages was mainly labour cost; hence the standard of value was chiefly a +labour standard. Moreover, this labour doctrine of true value and +equality in exchanges was strongly reinforced by another mediæval +principle, according to which labour was the supreme if not the only +just title to rewards. + +How was labour cost to be measured, and the different kinds of labour +evaluated? By the necessary and customary expenditures of the class to +which the labourer belonged. Mediæval society was composed of a few +definite, easily recognised, and relatively fixed orders or grades, +each of which had its own function in the social hierarchy, its own +standard of living, and its moral right to a livelihood in accordance +with that standard. Like the members of the other orders, the +labourers were conceived as entitled to live in conformity with their +customary class-requirements. From this it followed that the needs of +the labourer became the main determinant of the cost of production, +and of the value and just price of goods. Inasmuch as the standards of +living of the various divisions of the workers were fixed by custom, +and limited by the restricted possibilities of the time, they afforded +a fairly definite measure of value and price,--much more definite than +the standard of general utility. To Langenstein, vice chancellor of +the University of Paris in the latter half of the fourteenth century, +the matter seemed quite simple; for he declared that every one could +determine for himself the just price of his wares by referring to the +customary needs of his rank of life.[221] + +Nevertheless, class needs are not and cannot be a standard of +exchange-equivalence. They cannot become a criterion of equality, a +common denominator, a third term of comparison, between labour and +wages. When we say that a given amount of wages is equal to a given +content of livelihood, we express a purely economic, positive, and +mathematical relation: when we say that a given amount of labour is +equal to a given content of livelihood, we are either talking nonsense +or expressing a purely ethical relation; that is, declaring that this +labour _ought to_ equal this livelihood. In other words, we are +introducing a fourth term of comparison; namely, the moral worth or +personal dignity of the labourer. Thus, we have not a single and +common standard to measure both labour and wages, and to indicate a +relation of equality between them. While class needs directly measure +wages, they do not measure labour, either quantitatively, or +qualitatively, or under any other aspect or category. + +Aside from this purely theoretical defect, the canonist doctrine of +wage justice was fairly satisfactory as applied to the conditions of +the Middle Ages. It assured to the labourer of that day a certain rude +comfort, and probably as large a proportion of the product of industry +as was practically attainable. Nevertheless it is not a universally +valid criterion of justice in the matter of wages; for it makes no +provision for those labourers who deserve a wage in excess of the cost +of living of their class; nor does it furnish a principle by which a +whole class of workers can justify their advance to a higher standard +of living. It is not sufficiently elastic and dynamic. + +_A Modern Variation of the Mediæval Theory_ + +In spite of its fundamental impossibility, the concept of +exchange-equivalence still haunts the minds of certain Catholic +writers.[222] They still strive to get a formula to express equality +between labour and remuneration. Perhaps the best known and least +vulnerable of the attempts made along this line is that defended by +Charles Antoine, S.J.[223] Justice, he declares, demands an objective +equivalence between wages and labour; and objective equivalence is +determined and measured by two factors. The remote factor is the cost +of decent living for the labourer; the proximate factor is the +economic value of his labour. The former describes the _minimum_ to +which the worker is entitled; the latter comprises perfect and +adequate justice. In case of conflict between the two factors, the +first is determinative of and morally superior to the second; that is +to say, no matter how small the economic value of labour may _seem_ to +be, it never can descend below the requisites of a decent livelihood. + +Now, neither of these standards is in harmony with the principle of +exchange-equivalence, nor capable of serving as a satisfactory +criterion of wage justice. Father Antoine argues that labour is always +the moral equivalent of a decent livelihood because the worker expends +his energies, and gives out a part of his life in the service of his +employer. Unless his wage enables the labourer to replace these +energies and conserve his life, it is not the equivalent of the +service. If the wage falls short of this standard the labourer gives +more than he receives, and the contract is essentially unjust. In this +conception of equivalence, energy expended, instead of cost of living, +becomes the term of comparison and the common measure of labour and +remuneration. Energy expended is, however, technically incapable of +providing such a common standard; for it does not measure both related +terms in the same way. The service rendered to the employer is the +_effect_ rather than the equivalent of the energy expended; and the +compensation is a _means_ to the replacement of this energy rather +than its formal equivalent. Moreover, the formula does not even +furnish an adequate rational basis for the claim to a decent minimum +wage. A wage which is merely adequate to the replacement of expended +energy and the maintenance of life, is really inadequate to a decent +livelihood. Such compensation would cover only physical health and +strength, leaving nothing for intellectual, spiritual, and moral +needs. As Father Antoine himself admits and contends, the latter needs +are among the elements of a decent livelihood, and a wage which does +not make reasonable provision for them fails to comply with the +minimum requirements of justice. + +The second factor of "objective equivalence" is even more questionable +than the first. To be _completely_ just, says Father Antoine, wages +must be not merely adequate to a decent livelihood, but equivalent to +the "economic value of the labour" ("la valeur économique du +travail"). This "economic value" is determined objectively by the cost +of production, the utility of the product, and the movement of supply +and demand; subjectively, by the judgment of employers and employés. +In case of conflict between these two measures of value, and in case +of uncertainty concerning the objective measure, the decision of the +subjective determinant must always prevail. + +These statements are hopelessly ambiguous and confusing. If the +objective measure of "economic value" is to be understood in a purely +positive way, it merely means the wages that actually obtain in a +competitive market. In the purely positive or economic sense, the +utility of labour is measured by what it will command in the market, +the movement of supply and demand is likewise reflected in market +wages, and the determining effect of cost of production is also seen +in the share that the market awards to labour after the other factors +of production have taken their portions of the product. In other +words, the "economic value" of labour is simply its market value. +This, however, is not Father Antoine's meaning; for he has already +declared that the "economic value" of labour is never less than the +equivalent of a decent livelihood, whereas we know that the market +value often falls below that level. In his mind, therefore, "economic +value" has an ethical signification. It indicates at least the +requisites of decent living, and it embraces more than this in some +cases. When? and how much more? Let us suppose a business so +prosperous that it returns liberal profits to the employer and the +prevailing rate of interest on the capital, and yet shows a surplus +sufficient to give all the labourers ten dollars a day. Is "cost of +production" to be interpreted here as allowing only the normal rate of +profits and interest to the business man and the capitalist, leaving +the residue to labour? Or is it to be understood as requiring that the +surplus be divided among the three agents of production? In other +words, is the "economic value" of labour in such cases to be +determined by some ethical principle which tells beforehand how much +the other agents than labour ought to receive? If so, what is this +principle or formula? + +None of these questions is satisfactorily answered in Father Antoine's +pages. They are all to be solved by having recourse to the subjective +determinant of "economic value"; namely, the judgment of employers and +employés. Thus his proximate factor of justice in wages, his formula +of complete as against minimum just wages, turns out to be something +entirely subjective, and more or less arbitrary. It is in no sense a +measure of the equivalence between work and pay. + +Moreover, it is inadequate as a measure of justice. Should the +majority of both employers and employés fix the "economic value" of +the labour of carpenters at five dollars a day, there would be no +certainty that this decision was correct, and that this figure +represented just wages. Should they determine upon a rate of fifty +dollars a day, we could not be sure that their decision was unjust. +Undoubtedly the combined judgment of employers and employés will set a +fairer wage than one fixed by either party alone, since it will be +less one-sided; but there is no sufficient reason for concluding that +it will be in all cases completely just. Undoubtedly employers and +employés know what wages an industry can afford at prevailing prices, +on the assumption that business ability and capital are to have a +certain rate of return; but there is no certainty that the prevailing +prices are fair, or that the assumed rates of profits and interest are +fair. In a word, the device is too arbitrary. + +To sum up the entire discussion of exchange-equivalence theories: +Their underlying concept is fundamentally unsound and impracticable. +All of them involve an attempt to compare two entities which are +utterly incommensurate. There exists no third term, or standard, or +objective fact, which will inform men whether any rate of wages is the +equivalent of any quantity of labour. + + +III. PRODUCTIVITY THEORIES + +The productivity concept of wage justice appears in a great variety of +forms. The first of them that we shall consider is advocated mainly by +the Socialists, and is usually referred to as the theory of the "right +to the whole product of labour."[224] + +_Labour's Right to the Whole Product_ + +We have seen that Adam Smith's belief in the normality and beneficence +of free competition would have logically led him to the conclusion +that competitive wages were just; and we know that this doctrine is +implicit in his writings. On the other hand, his theory that all value +is determined by labour would seem to involve the inference that all +the value of the product belongs to the labourer. As a matter of fact, +Smith restricted this conclusion to primitive and pre-capitalist +societies. Apparently he, and his disciples in an even larger degree, +was more interested in describing the supposed beneficence of +competition than in justifying the distribution that resulted from the +competitive process. + +The early English Socialists were more consistent. In 1793 William +Godwin, whom Anton Menger calls "the first scientific Socialist of +modern times," laid down in substance the doctrine that the labourer +has a right to the whole product.[225] In 1805 Charles Hall formulated +and defended the doctrine with greater precision and consistency.[226] +In 1824 the doctrine was stated more fundamentally, systematically, +and completely by William Thompson.[227] He accepted the labour theory +of value laid down by Adam Smith, and formally derived therefrom the +ethical conclusion that the labourer has a right to the whole product. +"Thompson and his followers are only original in so far as they +consider rent and interest to be _unjust_ deductions, which violate +the right of the labourer to the whole product of his labour."[228] He +denounced the laws which empowered the land owner and the capitalist +to appropriate value not created by them, and gave to the value thus +appropriated the name, "surplus value." In the use of this term he +anticipated Karl Marx by several years. His doctrines were adopted and +defended by many other English Socialist writers, and were introduced +into France by the followers of Saint-Simon. "From his works," says +Menger, "the later Socialists, the Saint-Simonians, Proudhon, and +above all, Marx and Rodbertus, have directly or indirectly drawn their +opinions."[229] + +Although Saint-Simon never accepted the doctrine of the labourer's +right to the whole product, his disciples, particularly Enfantin and +Bazard, taught it implicitly. In a just social state, they maintained, +every one would be expected to labour according to his capacity, and +would be rewarded according to his product.[230] + +Perhaps the most theoretical and extreme statement of the theory that +we are considering is found in the writings of P. J. Proudhon.[231] He +maintained that the real value of products was determined by labour +time, and that all kinds of labour should be regarded as equally +effective in the value-creating process, and he advocated therefore +equality of wages and salaries. For the realisation of this ideal he +drew the outlines of a semi-anarchic social order, of which the main +feature was gratuitous public credit. Neither his theories nor his +proposals ever obtained any considerable number of adherents. + +A milder and better reasoned form of the theory was set forth by Karl +J. Rodbertus.[232] Professor Wagner calls him, "the first, the most +original, and the boldest representative of scientific Socialism in +Germany." Yet, as Menger points out, Rodbertus derived many of his +doctrines from Proudhon and the Saint-Simonians. He admitted that in a +capitalist society the value of commodities does not always +correspond to the labour embodied in them, and that different kinds of +labour are productive in different degrees. Therefore, he had recourse +to the concept of a normal, or average, day's labour in any group, and +would have the various members of the group remunerated with reference +to this standard. This was to be brought about by a centralised +organisation of industry in which the whole product would ultimately +go to labour, and the share of the individual worker would be +determined by his contribution of socially necessary labour. + +Although Karl Marx adopted and formulated in his own terms the theory +that value is determined by labour, he did not thence deduce the +conclusion that labour has a right to the whole product.[233] Being a +materialist, he consistently rejected conceptions of abstract justice +or injustice, rights or wrongs. In opposition to the methods of his +predecessors, he endeavoured to discover the historical and positive +forces which determined the actual distribution, and to derive +therefrom the laws that were necessarily preparing the way for a new +social order. While he contended that rent receivers and interest +receivers appropriated the surplus value created by labour, he +refrained from stigmatising this process as morally wrong. It was +merely a necessary element of the capitalist system. To call it unjust +was in Marx' view to use language without meaning. As well might one +speak of the injustice of a hurricane or an avalanche. Not the +preaching of abstract justice, but the inevitable transformation of +the capitalist into the collectivist organisation of industry, would +enable labour to obtain its full product. + +Nevertheless, it is probably true that a majority of the followers of +Marx have drawn from his labour theory of value the inference that all +the value of the product belongs by a moral right to the labourer. So +deeply fixed in the human conscience is the conception of justice, and +so general is the conviction of the labourer's right to his product, +that most Socialists have not been able to maintain a position of +consistent economic materialism. Indeed, Marx himself did not always +succeed in evading the influence and the terminology of idealistic +conceptions. He frequently thought and spoke of the Socialist régime +as not only inevitable but as morally right, and of the capitalist +system as morally wrong. Despite his rigid, materialistic theorising, +his writings abound in passionate denunciation of existing industrial +evils, and in many sorts of "unscientific" ethical judgments.[234] + +In so far as the right to the whole product of labour has been based +upon the labour theory of value, it may be summarily dismissed from +consideration. The value of products is neither created nor adequately +measured by labour; it is determined by utility and scarcity. Labour +does, indeed, affect value, inasmuch as it increases utility and +diminishes scarcity, but it is not the only factor that influences +these categories. Natural resources, the desires and the purchasing +power of consumers determine value quite as fundamentally as does +labour, and cause it to vary out of proportion to the labour expended +upon a commodity. + +To-day there are probably not many adherents of the +right-to-the-whole-product doctrine who attempt to base it upon any +theory of value. The majority appeal to the simple and obvious fact +that the labourers, together with the active directors of industry, +are the only human beings who expend energy in the productive process. +The only labour that the capitalist and the landowner perform in +return for the interest and rent that they respectively receive, +consists in choosing the particular goods in which their money is to +be invested. As capitalist and landowner, they do not participate in +the turning out of products. They are owners but not operators of the +factors of production. In the sense, therefore, of active agents the +labourers and the business men are the only producers. Whether land +and capital should be called _productive_, whether the product should +be regarded as _produced_ by land and capital as well as by labour and +undertaking activity, is mostly a matter of terminology. Inasmuch as +they are instrumental in bringing forth the product, land and capital +may properly be designated as productive, but not in the same sense as +labour and business energy. The former are passive factors and +instrumental causes of the product, while the latter are active +factors and original causes. Moreover, the former are non-rational +entities, while the latter are attributes of human beings. + +As we have seen in former chapters, it is impossible to prove that +mere ownership of a productive thing, such as a cow, a piece of land, +or a machine, necessarily creates a right to either the concrete or +the conventional product. The formula, "_res fructificat domino_," is +not a self evident proposition. Nor are there any premises available +from which the formula can be logically and necessarily deduced. On +the other hand, we cannot prove conclusively that ownership of +productive property does _not_ give a right to the product. Whence it +follows that the owners of land and capital have at least a +presumptive claim to take rent and interest from their possessions. +Moreover, those owners of capital who would not have saved money +without the hope of interest have a just claim thereto on account of +their sacrifices in saving. + +Would the State be justified in abolishing rent and interest, and thus +enabling labour to obtain the whole product? Conceivably this result +might be brought about under the present system of private ownership, +or through the substitution of collectivism. Were the change made by +the former method land and capital would no longer be sought or have +value on account of their annual revenues, but only as receptacles of +saving. They would be desired solely as means of accumulating stores +of goods which might be exchanged for articles of consumption some +time in the future. While we cannot estimate even approximately the +decline that would thus occur in the value of land and capital, we may +safely assert that it would be considerable. Unless the proprietors +received adequate compensation for this loss, they would be compelled +to suffer obvious and grave injustice. Any attempt, however, to carry +out such a scheme, either with or without compensation, would +inevitably fail. Rent might be terminated through the Single Tax, but +interest could not be abolished by any mere legal prohibition. Nor +does Socialism afford a way out; for, as we have seen in a former +chapter, it is an impracticable system. Consequently the theory of the +right to the whole product of labour is confronted by the final +objection that its realisation would involve greater evils and +injustices than those which it seeks to abolish. + +Finally, the theory is radically incomplete. It professes to describe +the requirements of justice as between the landowners and capitalists +on the one side, and the wage earners on the other; but it provides no +rule for determining distributive justice as between different classes +of labour. In none of its forms does it provide any comprehensive rule +or principle to ascertain the difference between the products of +different labourers, and to decide how the product belonging to any +group of men as a whole should be divided among the individual +members. Does the locomotive engineer produce more than the section +hand, the bookkeeper more than the salesman, the ditch digger more +than the teamster? These and countless similar questions are, from the +nature of the productive process, unanswerable. Even if it were +ethically acceptable, the doctrine of the right to the whole product +is hopelessly inadequate. + +As intimated above, the notion that if the labourer receives +compensation according to his product he receives just compensation, +is one of the most prevalent and fundamental concepts in the +controversy about wage justice. Hence we find it in certain theories +which reject the doctrine of the right to the whole product. According +to these theories, not only the labourer but all the agents of +production should be rewarded in proportion to their productive +contributions. Instead of the whole product, the worker ought to +receive that portion of it which corresponds to his specific +productivity, that is, that portion of the product which represents +his productive influence as compared with the productive efficacy of +land, capital, and business energy. + +_Clark's Theory of Specific Productivity_ + +One of the theories referred to in the last paragraph is that which +has been elaborated in great detail and with great ingenuity by +Professor John Bates Clark. As stated by himself in the opening +sentence of the preface to his "Distribution of Wealth," its main +tenet is, "that the distribution of the income of society is +controlled by a natural law, and that this law, if it worked without +friction, would give to every agent of production the amount of wealth +which that agent creates." In a régime of perfect competition, +therefore, the labourer would get, not the whole product of industry, +but the whole product due to his own exertions. + +It is impossible, and indeed unnecessary, to enter upon an extended +examination of this contention. It will be sufficient to state in a +summary way the most obvious and cogent objections. Without making any +examination of Professor Clark's theory, we should expect to find it +unconvincing. For the productive process is by analogy an organic +process, in which every factor requires the co-operation of every +other factor in order to turn out even the smallest portion of the +product. Each factor is in its own order the cause of the whole +product. Consequently no physical portion of the product can be set +aside and designated as wholly due to any one factor. Can we not, +however, distinguish the _proportionate productive influence_ exerted +by each factor, and the proportion of the product which represents +such productive influence? This is the question to which Professor +Clark addresses himself with much ingenuity, subtlety, and labour, and +to which he returns an affirmative answer.[235] + +He contends that the amount of product added by the presence of the +least productive labourer in a group or establishment describes the +productivity of that and every other labourer for whom the man in +question can be substituted. Nevertheless this marginal labourer had +the use of _some_ capital, no matter how little or how poor; +consequently the increment of product which follows his activity is +partly due to capital. It represents something other than his own +productive power. If his wage equals the value of this increment of +product, he is receiving something more than his specific product. + +In the second place, Professor Clark maintains that the difference +between what a labourer produces when he uses the whole of a certain +supply of capital and what he produces when he has shared that capital +with another labourer, represents the specific productivity of the +relinquished capital. Let us assume that in a given case the +difference is ten units of product. When the first man had the whole +capital to himself, the product was one hundred units; when he shares +the use of it with another, the total product is one hundred and +eighty units. As the two men are assumed to be equally productive, +each has to his credit ninety units of product. Working with half the +capital, the first man finds that the resulting product is ten units +less than when he was using the whole capital. Hence these ten units +represent the portion that the relinquished capital contributed to the +product; and if the productivity of half the capital is ten units, +that of the whole capital must be twenty units. Nevertheless, the ten +units by which the product was enlarged when the man had the whole +capital, did not come into being without his co-operation; hence they +cannot be entirely attributed to the one-half share of the capital. In +other words, the productivity of the relinquished capital seems to be +less than ten units. It also seems to be more than ten units; for we +may assume that if each man were to use one-half the capital +independently of the other, the resulting total product would be less +than one hundred and eighty units, or less than ninety units for each. +Consequently the difference between the product resulting from the +first man's use of the whole capital and that resulting from his use +of half the capital would be more than ten units; and this difference +is specifically attributable to half the capital. Who can say which of +these calculations is correct, or whether either of them is correct? + +The method of ascertaining specific productivity which has been +described in the last paragraph is thought by Professor Clark to +receive confirmation from the fact that it leads to the same +conclusion as the first and more direct method; namely, that the +specific productivity of labour is expressed in the product of the +marginal labourer. As a matter of fact, this conclusion is yielded by +both methods; for the specific productivity of the first labourer +appeared as eighty units, which was also the specific productivity of +the second labourer, who was the marginal labourer. As we saw in the +second last paragraph, however, the marginal product is not due to +labour alone; hence the verification provided by the second method is +in reality a refutation. + +Apparently the majority of economists do not accept Professor Clark's +theory; for of the nine who discussed certain applications of it at +the nineteenth annual meeting of the American Economic Association +only one approved it, three were non-committal, and five expressed +their dissent.[236] + +Even if the theory were true its hypothetical character would deprive +it of any practical value. It assumes a régime of perfect competition, +but this assumption is so seldom realised that no rule based upon it +can throw much light on the question of the productivity of present +day labourers. + +Even if it were exactly applicable to existing conditions, that is, if +labourers were actually getting their specific products, the theory +would not provide us with a doctrine of just wages. As we have seen in +former chapters, productivity is neither the only nor the highest canon +of justice, whether as regards the comparative claims of capital and +labour, or as regards the claims of different labourers. The contention +that capital ought to command interest because it aids in bringing +forth the product, is neither self evident nor demonstrable by any +process of reasoning. Even if we should concede that the capitalist has +a right to interest by virtue of the productivity of his capital, we +should not therefore conclude that this right is as cogent as the +corresponding right of the labourer. In the former case the productive +agency is not human nor active, but only material and passive; and the +recipient of the product performs no labour as capitalist, but is left +free to get a livelihood by personal activity. The productivity of +labour differs in all these respects, and the difference is ethically +sufficient to justify the claim that the labourer may sometimes have a +right to a part of the specific product of capital. To sum up the +matter in the words of Professor Wicker: "To have proved that the +capitalist gets in interest what his capital produces is not to have +proved that the capitalist gets what he has earned. To have proved that +the landlord gets what his land produces is not to have proved that the +landlord earns his distributive share.... Economics is not ethics; +explanation is not justification."[237] + +Indeed, Professor Clark nowhere explicitly asserts that productivity +is an adequate rule of justice. "We might raise the question," he +says, "whether a rule that gives to a man his product is in the +highest sense just."[238] Scattered throughout his volume, however, +are many expressions which might fairly be interpreted as answering +this question in the affirmative. The statements that distribution +according to product is a "natural law," and that if the labourer does +not get his full specific product he is "despoiled," suggest if they +do not imply that wages according to productivity is not merely the +economic but the ethical norm. At any rate, the assumption of +productivity as the adequate canon of wage justice, is very widely +adopted, and is frequently brought forward to give sanction to +insufficient rates of remuneration. Hence it has been thought well to +show that the economic basis of the assumption, i.e., that the +labourer gets what he produces, is unproved and unprovable. + +_Carver's Modified Version of Productivity_ + +Professor Carver makes no attempt to ascertain or state the exact +physical productivity of labour as compared with that of capital, but +confines his attention to what he calls the "economic" productivity of +a given unit of labour in a given productive process.[239] "Find out +accurately how much the community produces with his [the labourer's] +help, over and above what it produces without his help, and you have +an exact measure of his productivity."[240] By this rule we can +determine a man's productivity not only as compared with his +inactivity in relation to a given industry or establishment, but as +compared with the productivity of some other man who might be +substituted for him. Thus understood, productivity expresses the +economic value of a man to the industrial process in which he +participates. It "determines how much a man is worth, and +consequently, according to our criterion of justice, how much a man +ought to have as a reward for his work."[241] + +While this conception of productivity is relatively simple, and the +canon of justice based upon it is somewhat plausible, neither is +adequate. To many situations the productivity test is substantially +inapplicable. The removal from industry of the man who works alone; +for example, the independent shoemaker, blacksmith, tailor, or farmer, +would result not in a certain diminution, but in the entire +non-appearance of the product; and the removal of the capital or tools +would have precisely the same effect. According to the former method, +the labourer is to be credited with the whole product, and capital +with nothing; according to the latter method, capital produces +everything, and labour nothing. Even when several labourers are +employed in an establishment, the test is inapplicable to those who +are engaged upon indispensable tasks; for example, the engineer in the +boiler room of a small factory, and the bookkeeper in a small store. +Remove them, and you have no product at all; hence a rigid enforcement +of Professor Carver's test would award them the whole product. To be +sure, we can get some measure of the productivity of these men by +observing the effect on the product when inferior men are put in their +places; but this merely enables us to tell how much more they are +worth than other men, not their total worth. Moreover, even the +substitution test is not always practicable. The attempt to ascertain +the productivity of a workman of high technical skill by putting in +his place an utterly unskilled labourer, would not yield very +satisfactory results, either to the inquiry or to the industry. In the +majority of such cases, the difference in the resulting product would +probably far exceed the difference in the existing wage rates of the +two men, thus showing that the skilled worker is getting considerably +less than he is "economically worth." + +In the field to which it is applicable, namely, that of more or less +unspecialised labour in large establishments, Professor Carver's +theory violates some of the most fundamental conceptions of justice +and humanity. He admits that it takes no account of the labourer's +efforts, sacrifices, or needs, and that when unskilled labour becomes +too plentiful, the value of the product may fall below the cost of +supporting a decent standard of living. While he looks with some +sympathy upon the demand for a minimum wage of two dollars per day, he +contends that unless the labourer really _earns_ that amount, some +other man will be paid less than he earns, "which would be unjust." To +"earn" two dollars a day means, in Professor Carver's terminology, to +add that much value to the product of the establishment in which the +labourer is employed; for this is the measure of the labourer's +productivity. If all the men who are now getting less than two dollars +a day are receiving the full value of their product, and if all the +other workers are likewise given the full value of their product, an +increase in the remuneration of the former will mean a deduction from +the compensation of the latter. + +These conclusions of ethical pessimism are extremely vulnerable. As we +have shown in chapter xvi, efforts, sacrifices, and needs are superior +to productivity as claims to reward, and must be given due +consideration in any just scheme of distribution. Professor Carver +would leave them out of account entirely. In the second place, it is +not always nor necessarily ever true that to raise the wages of the +poorest paid labourers will mean to lower the remuneration of those +who are better paid. Many workers, particularly women, are now +receiving less than the measure of their "productivity," less than +they "earn," less than their worth to the employer, less than he would +be willing to pay rather than go without their services. Professor +Carver would, of course, not deny that the wages of all such labourers +could be raised without affecting the remuneration of other workers. +Even when the poorest paid class is receiving all that its members are +at present worth to the employer, an increase in their compensation +would not necessarily come out of the fund available for the better +paid. It could be deducted from excessive profits and interest; for we +know well that in many industries competition does not automatically +keep down these shares to the minimum necessary to retain the services +of business ability and capital. It could be provided to some extent +out of the enlarged product that would result from improvements in the +productive process, and from the increased efficiency of those workers +whose wages had been raised. Finally, the increased remuneration could +be derived from increased prices. When we speak of the unskilled +labourer as getting all that he produces, or all that he earns, we +refer not to his concrete product, but to the value of that product, +to the selling price of the product. Neither this price, nor any other +existing price, has anything about it that is either economically or +ethically sacred. In a competitive market current prices are fixed by +the forces of supply and demand, which often involve the exploitation +of the weak; in a monopoly market they are set by the desires of the +monopolist, which are likewise destitute of moral validity. Hence a +minimum wage law which would raise the price and value of the product +sufficiently to provide living wages for the unskilled workers, thus +increasing their "productivity" and enabling them to "earn" the legal +wage, would neither violate the principles of justice, nor necessarily +diminish the compensation of any other labouring group. To be sure, +the increased prices might be followed by such a lessening of demand +for the product as to diminish employment; but this is another matter +which has no direct bearing on either the economic or the ethical +phases of productivity and earning power. And the disadvantages +involved in the supposition of a reduced volume of employment may +possibly be not so formidable socially as those which accompany a +large volume of insufficiently paid occupations. This question will +receive further consideration in a later chapter. + +In the meantime, we conclude that Professor Carver's theory or rule is +inapplicable to a large part of the industrial field, and that where +it does apply it frequently runs counter to some of the fundamental +principles of distributive justice. + +FOOTNOTES: + +[213] Page 47. + +[214] _The Chicago Daily Tribune_, July 17, 1915. + +[215] Article on "Political Economy and Ethics," in Palgrave's +Dictionary of Political Economy. + +[216] "Property and Contract," II, 603. + +[217] Cf. "L'Idée du Juste Salaire," by Léon Polier, ch. iii. Paris; +1903. + +[218] Polier, op. cit., pp. 33, sq.; Ryan, "A Living Wage," pp. 26, +sq. + +[219] "Ethica," lib. 5, tr. 2, cap. 5. + +[220] "Comment. ad Eth.," XXI, 172. + +[221] Cf. Polier, op. cit., pp. 66-75; Ryan, op. cit, pp. 93, 94. + +[222] Cf. Polier, op. cit., pp. 92-95. + +[223] "Cours d'Économie Sociale," pp. 598, sq. + +[224] Polier, op. cit., pp. 219-359; Menger, "The Right to the Whole +Produce of Labour"; English Translation. London; 1899. + +[225] "Enquiry Concerning Political Justice." + +[226] "On the Effects of Civilisation on the People of European +States." + +[227] "An Inquiry Into the Principles of the Distribution of Wealth +Most Conducive to Human Happiness." + +[228] Menger, op. cit., p. 56. + +[229] Op. cit., p. 51. + +[230] Cf. Menger, op. cit., pp. 62-73. + +[231] "Qu' est-ce que la propriété ou recherches sur la principe du +droit et du gouvernment." 1840. + +[232] "Zur Erkentniss unserer staatswirthschaftlichen Zustande," 1842. + +[233] "Das Kapital," 1867. + +[234] Cf. Polier, op. cit., pp. 352, sq. + +[235] Cf. especially chap. xxi, "The Theory of Economic Causation." + +[236] "Proceedings," pp. 23-54. + +[237] "Proceedings of the 22d Annual Meeting of the American Economic +Association," pp. 160, 161. + +[238] Op. cit., p. 8. + +[239] "Essays in Social Justice"; especially ch. vii. + +[240] Op. cit., pp. 187, 188. + +[241] Op. cit., p. 201. + + + + +CHAPTER XXIII + +THE MINIMUM OF JUSTICE: A LIVING WAGE + + +Although the principle of needs is somewhat prominent among the +theories of wage justice, it received only incidental mention in the +last chapter. Considered as a comprehensive rule, this principle has +been defended with less energy and definiteness than most of the other +canons. Considered as a partial rule, it is sound and fundamental, and +therefore could not have been classed among theories that are +unacceptable. + + +_The Principle of Needs_ + +Many of the early French Socialists of the Utopian school advanced +this formula of distribution: "From each according to his powers; to +each according to his needs." It was also put forward by the German +Socialists in the Gotha Program in 1875. While they have not given to +this standard formal recognition in their more recent platforms, +Socialists generally regard it as the ideal rule for the distant +future.[242] The difficulties confronting it are so great and so +obvious that they would defer the introduction of it to a time when +the operation of their system will, they hope, have eradicated the +historical human qualities of laziness and selfishness. To adopt needs +as the sole rule of distribution would mean, of course, that each +person should be rewarded in proportion to his wants and desires, +regardless of his efforts or of the amount that he had produced. The +mere statement of the proposal is sufficient to refute it as regards +the men and women of whom we have any knowledge. In addition to this +objection, there is the insuperable difficulty of measuring fairly or +accurately the relative needs of any group composed of men, women, and +children. Were the members' own estimates of their needs accepted by +the distributing authority, the social product would no doubt fall far +short of supplying all. If the measurement were made by some official +person or persons, "the prospect of jobbery and tyranny opened up must +give the most fanatical pause." Indeed, the standard of needs should +be regarded as a canon of Communism rather than of Socialism; for it +implies a large measure of common life as well as of common ownership, +and paternalistic supervision of consumption as well as collectivist +management of production. + +While the formula of needs must be flatly rejected as complete rule of +distributive justice, or of wage justice, it is valid and +indispensable as a partial standard. It is a partial measure of +justice in two senses: first, inasmuch as it is consistent with the +admission and operation of other principles, such as productivity and +sacrifice; second, inasmuch as it can be restricted to certain +fundamental requisites of life, instead of being applied to all +possible human needs. It can be made to safeguard the minimum demands +of reasonable life, and therefore to function as a minimum standard of +wage justice. + +Human needs constitute the primary title or claim to material goods. +None of the other recognised titles, such as productivity, effort, +sacrifice, purchase, gift, inheritance, or first occupancy, is a +fundamental reason or justification of either rewards or possessions. +They all assume the existence of needs as a prerequisite to their +validity. If men did not need goods they could not reasonably lay +claim to them by any of the specific titles just enumerated. First +comes the general claim or fact of needs; then the particular title +or method by which the needs may be conveniently supplied. While these +statements may seem elementary and platitudinous, their practical +value will be quite evident when we come to consider the conflicting +claims that sometimes arise out of the clash between needs and some of +the other titles. We shall see that needs are not merely a physical +reason or impulse toward acquisition and possession, but a moral title +which rationalises the claim to a certain amount of goods.[243] + + +_Three Fundamental Principles_ + +The validity of needs as a partial rule of wage justice rests +ultimately upon three fundamental principles regarding man's position +in the universe. The first is that God created the earth for the +sustenance of _all_ His children; therefore, that all persons are +equal in their inherent claims upon the bounty of nature. As it is +impossible to demonstrate that any class of persons is less important +than another in the eyes of God, it is logically impossible for any +believer in Divine Providence to reject this proposition. The man who +denies God or Providence can refuse assent to the second part of the +proposition only by refusing to acknowledge the personal dignity of +the human individual, and the equal dignity of all persons. Inasmuch +as the human person is intrinsically sacred and morally independent, +he is endowed with those inherent prerogatives, immunities, and claims +that we call rights. Every person is an end in himself; none is a mere +instrument to the convenience or welfare of any other human being. The +worth of a person is something intrinsic, derived from within, not +determined or measurable by reference to any earthly object or purpose +without. In this respect the human being differs infinitely from, is +infinitely superior to, a stone, a rose, or a horse. While these +statements help to illustrate what is meant by the dignity of +personality, by the intrinsic worth, importance, sacredness of the +human being, they do not prove the existence of this inherent +juridical quality. Proof in the strict sense is irrelevant and +impossible. If the intrinsic and equal moral worth of all persons be +not self evident to a man, it will not approve itself to him through +any process of argumentation. Whosoever denies it can also logically +deny men's equal claims of access to the bounty of the earth; but he +cannot escape the alternative conclusion that brute force, exercised +either by the State or by individuals, is the only proper determinant +of possessions and of property. Against this monstrous contention it +is not worth while to offer a formal argument. + +The second fundamental principle is that the inherent right of access +to the earth is conditioned upon, and becomes actually valid through, +the expenditure of useful labour. Generally speaking the fruits and +potentialities of the earth do not become available to men without +previous exertion. "In the sweat of thy brow thou shalt eat thy +bread," is a physical no less than a moral commandment. There are, +indeed, exceptions: the very young, the infirm, and the possessors of +a sufficient amount of property. The two former classes have claims to +a livelihood through piety and charity, while the third group has at +least a presumptive claim of justice to rent and interest, and a +certain claim of justice to the money value of their goods. +Nevertheless, the general condition is that men must work in order to +live. "If a man will not work neither shall he eat." For those who +refuse to comply with this condition the inherent right of access to +the earth remains only hypothetical and suspended. + +The two foregoing principles involve as a corollary a third principle; +the men who are in present control of the opportunities of the earth +are obliged to permit reasonable access to these opportunities by +persons who are willing to work. In other words, possessors must so +administer the common bounty of nature that non-owners will not find +it unreasonably difficult to get a livelihood. To put it still in +other terms, the right to subsist from the earth implies the right to +access thereto on reasonable terms. When any man who is willing to +work is denied the exercise of this right, he is no longer treated as +the moral and juridical equal of his fellows. He is regarded as +inherently inferior to them, as a mere instrument to their +convenience; and those who exclude him are virtually taking the +position that their rights to the common gifts of the Creator are +inherently superior to his birthright. Obviously this position cannot +be defended on grounds of reason. Possessors are no more justified in +excluding a man from reasonable access to the goods of the earth than +they would be in depriving him of the liberty to move from place to +place. The community that should arbitrarily shut a man up in prison +would not violate his rights more fundamentally than the community or +the proprietors who should shut him out from the opportunity of +getting a livelihood from the bounty of the earth. In both cases the +man demands and has a right to a common gift of God. His moral claim +is as valid to the one good as to the other, and it is as valid to +both goods as is the claim of any of his fellows. + + +_The Right to a Decent Livelihood_ + +Every man who is willing to work has, therefore, an inborn right to +sustenance from the earth on reasonable terms or conditions. This +cannot mean that all persons have a right to equal amounts of +sustenance or income; for we have seen on a preceding page that men's +needs, the primary title to property, are not equal, and that other +canons and factors of distribution have to be allowed some weight in +determining the division of goods and opportunities. Nevertheless, +there is a certain minimum of goods to which every worker is entitled +by reason of his inherent right of access to the earth. He has a right +to at least a _decent_ livelihood. That is; he has a right to so much +of the requisites of sustenance as will enable him to live in a manner +worthy of a human being. The elements of a decent livelihood may be +summarily described as: food, clothing, and housing sufficient in +quantity and quality to maintain the worker in normal health, in +elementary comfort, and in an environment suitable to the protection +of morality and religion; sufficient provision for the future to bring +elementary contentment, and security against sickness, accident, and +invalidity; and sufficient opportunities of recreation, social +intercourse, education, and church-membership to conserve health and +strength, and to render possible in some degree the exercise of the +higher faculties. + +On what ground is it contended that a worker has a right to a decent +livelihood, as thus defined, rather than to a bare subsistence? On the +same ground that validates his right to life, marriage, or any of the +other fundamental goods of human existence. On the dignity of +personality. Why is it wrong and unjust to kill or maim an innocent +man? Because human life and the human person possess intrinsic worth; +because personality is sacred. But the intrinsic worth and sacredness +of personality imply something more than security of life and limb, +and the material means of bare existence. The man who is not provided +with the requisites of normal health, efficiency, and contentment +lives a maimed life, not a reasonable life. His physical condition is +not worthy of a human being. Furthermore, man's personal dignity +demands not merely the conditions of reasonable physical existence, +but the opportunity of pursuing self perfection through the harmonious +development of all his faculties. Unlike the brutes, he is endowed +with a rational soul, and the capacity of indefinite self +improvement. A due regard to these endowments requires that man shall +have the opportunity of becoming not only physically stronger, but +intellectually wiser, morally better, and spiritually nearer to God. +If he is deprived of these opportunities he cannot realise the +potentialities of his nature nor attain the divinely appointed end of +his nature. He remains on the plane of the lower animals. His +personality is violated quite as fundamentally as when his body is +injured or his life destroyed. + +While it is impossible to define with mathematical precision the +degree of personal development that is necessary to satisfy the claims +of personal dignity, it is entirely practicable to state with +sufficient definiteness the minimum conditions of such development. +They are that quantity of goods and opportunities which fair-minded +men would regard as indispensable to humane, efficient, and reasonable +life. The summary description of a decent livelihood at the end of the +second last paragraph, would probably be accepted by all men who +really believe in the intrinsic worth of personality. + + +_The Claim to a Decent Livelihood from a Present Occupation_ + +The claim of a worker to a decent livelihood from the goods of the +earth does not always imply a strict right to a livelihood from one's +present occupation. To demand this would in some circumstances be to +demand a livelihood not on reasonable but on unreasonable terms; for +the persons in control of the sources could not reasonably be required +to provide a decent livelihood. Their failure to do so would not +constitute an unreasonable hindrance to the worker's access to the +earth in such circumstances. In chapter xvi we saw that not all +business men have a strict right to that minimum of profits which is +required to yield them a decent livelihood: first, because the +direction of industry is not generally the business man's only means +of getting a living; second, because the community, the consumers, do +not regard the presence and activity of all existing business men as +indispensable. Of course, the community is morally bound to pay such +prices for goods as will enable all the necessary business men, +whether manufacturers or traders, to obtain a decent livelihood in +return for their directive functions; but it is not obliged to provide +a livelihood for those business men whose presence is not required, +who could vanish from the field of industrial direction without +affecting either the supply or the price of goods, and whose +superfluous character is proved by the fact that they cannot make a +livelihood at the prevailing prices. They are in the position of +persons whom the community does not desire to employ as business men. +In refusing to pay prices sufficiently high to provide these +inefficient business men with a decent livelihood, the community is +not unreasonably hindering their access to the common goods of the +earth. Such men are really demanding a livelihood on unreasonable +terms. + + +_The Labourer's Right to a Living Wage_ + +On the other hand, the wage earner's claim to a decent livelihood is +valid, generally speaking, in his present occupation. In other words, +his right to a decent livelihood in the abstract means in the concrete +a right to a living wage. To present the matter in its simplest terms, +let us consider first the adult male labourer of average physical and +mental ability who is charged with the support of no one but himself, +and let us assume that the industrial resources are adequate to such a +wage for all the members of his class. Those who are in control of the +resources of the community are morally bound to give such a labourer a +living wage. If they fail to do so they are unreasonably hindering his +access to a livelihood on reasonable terms; and his right to a +livelihood on reasonable terms is violated. The central consideration +here is evidently the _reasonableness_ of the process. Unlike the +business man, the rent receiver, and the interest receiver, the +labourer has ordinarily no other means of livelihood than his wages. +If these do not furnish him with a decent subsistence he is deprived +of a decent subsistence. When he has performed an average day's work, +he has done all that is within his power to make good his claim to a +decent livelihood. On the other hand, the community is the beneficiary +of his labour, and desires his services. If, indeed, the community +would rather do without the services of an individual labourer than +pay him a living wage, it is morally free to choose the former +alternative, precisely as it is justified in refusing to pay a price +for groceries that will enable an inefficient grocer to obtain living +profits. Whatever concrete form the right of such persons to a decent +livelihood may take, it is not the right to living wages or living +profits from the occupations in question. Here, however, we are +discussing the labourer to whom the community would rather pay a +living wage than not employ him at all. To refuse such a one a living +wage merely because he can be constrained by economic pressure to work +for less, is to treat him unreasonably, is to deprive him of access to +a livelihood on reasonable terms. Such treatment regards the labourer +as inferior to his fellows in personal worth, as a mere instrument to +their convenience. It is an unreasonable distribution of the goods and +opportunities of the earth. + +Obviously there is no formula by which such conduct can be +mathematically demonstrated as unreasonable; but the proposition is as +certain morally as any other proposition that is susceptible of +rational defence in the field of distribution. No man who accepts the +three fundamental principles stated some pages back, can deny the +right of the labourer to a living wage. The man who does not accept +them must hold that all property rights are the arbitrary creation of +the State, or that there is no such thing as a moral right to +material goods. In either supposition the distribution and possession +of the earth's bounty are subject entirely to the arbitrament of +might. There is nothing to be gained by a formal criticism of this +assumption. + +What persons, or group, or authority is charged with the obligation +which corresponds to the right to a living wage? We have referred to +"the community" in this connection, but we do not mean the community +in its corporate capacity, i.e., the State. As regards private +employments, the State is not obliged to pay a living wage, nor any +other kind of wage, since it has not assumed the wage-paying function +with respect to these labourers. As protector of natural rights, and +as the fundamental determiner of industrial institutions, the State is +obliged to enact laws which will enable the labourer to obtain a +living wage; but the duty of actually providing this measure of +remuneration rests upon that class which has assumed the wage-paying +function. This is the employers. In our present industrial system, the +employer is society's paymaster. He, not the State, receives the +product out of which all the agents of production must be rewarded. +Where the labourer is engaged in rendering personal services to his +employer, the latter is the only beneficiary of the labourer's +activity. In either case the employer is the only person upon whom the +obligation of paying a living wage can primarily fall. + +If the State were in receipt of the product of industry, the +wage-paying fund, it would naturally be charged with the obligation +that now rests immediately upon the employer. If any other class in +the community were the owners of the product that class would be under +this specific obligation. As things are, the employer is in possession +of the product, and discharges the function of wage payer; +consequently he is the person who is required to perform this function +in a reasonable manner. + + +_When the Employer Is Unable to Pay a Living Wage_ + +Evidently the employer who cannot pay a living wage is not obliged to +do so, since moral duties suppose a corresponding physical capacity. +In such circumstances the labourer's right to a living wage becomes +suspended and hypothetical, just as the claim of a creditor when the +debtor becomes insolvent. Let us see, however, precisely what meaning +should reasonably be given to the phrase, "inability to pay a living +wage." + +An employer is not obliged to pay a full living wage to all his +employés so long as that action would deprive himself and his family +of a decent livelihood. As active director of a business, the employer +has quite as good a right as the labourer to a decent livelihood from +the product, and in case of conflict between the two rights, the +employer may take advantage of that principle of charity which permits +a man to prefer himself to his neighbour, when the choice refers to +goods of the same order of importance. Moreover, the employer is +justified in taking from the product sufficient to support a somewhat +higher scale of living than generally prevails among his employés; for +he has become accustomed to this higher standard, and would suffer a +considerable hardship if compelled to fall notably below it. It is +reasonable, therefore, that he should have the means of maintaining +himself and family in moderate conformity with their customary +standard of living; but it is unreasonable that they should indulge in +anything like luxurious expenditure, so long as any of the employés +fail to receive living wages. + +Suppose that an employer cannot pay all his employés living wages and +at the same time provide the normal rate of interest on the capital in +the business. So far as the borrowed capital is concerned, the +business man has no choice; he must pay the stipulated rate of +interest, even though it prevents him from giving a living wage to +all his employés. Nor can it be reasonably contended that the loan +capitalist in that case is obliged to forego the interest due him. He +cannot be certain that this interest payment, or any part of it, is +really necessary to make up what is wanting to a complete scale of +living wages. The employer would be under great temptation to defraud +the loan capitalist on the pretext of doing justice to the labourer, +or to conduct his business inefficiently at the expense of the loan +capitalist. Anyhow, the latter is under no obligation to leave his +money in a concern that is unable to pay him interest regularly. The +general rule, then, would seem to be that the loan capitalist is not +obliged to refrain from taking interest in order that the employés may +have living wages. + +Is the employer justified in withholding the full living wage from his +employés to provide himself with the normal rate of interest on the +capital that he has invested in the enterprise? Speaking generally, he +is not. In the first place, the right to any interest at all, except +as a return for genuine sacrifices in saving, is not certain but only +presumptive.[244] Consequently it has no such firm and definite basis +as the right to a living wage. In the second place, the right to +interest, be it ever so definite and certain, is greatly inferior in +force and urgency. It is an axiom of ethics that when two rights +conflict, the less important must give way to the more important. +Since all property rights are but means to the satisfaction of human +needs, their relative importance is determined by the relative +importance of the ends that they serve; that is, by the relative +importance of the dependent needs. Now the needs that are supplied +through interest on the employer's capital are slight and not +essential to his welfare; the needs that are supplied through a living +wage are essential to a reasonable life for the labourer. On the +assumption that the employer has already taken from the product +sufficient to provide a decent livelihood, interest on his capital +will be expended for luxuries or converted into new investments; a +living wage for the labourer will all be required for the fundamental +goods of life, physical, mental, or moral. Evidently, then, the right +to interest is inferior to the right to a living wage. To proceed on +the contrary theory is to reverse the order of nature and reason, and +to subordinate essential needs and welfare to unessential needs and +welfare. + +Nor can it be maintained that the capitalist-employer's claim to +interest is a claim upon the product prior to and independent of the +claim of the labourer to a living wage. That would be begging the +question. The product is in a fundamental sense the common property of +employer and employés. Both parties have co-operated in turning it +out, and they have equal claims upon it, in so far as it is necessary +to yield them a decent livelihood. Having taken therefrom the +requisites of a decent livelihood for himself, the employer who +appropriates interest at the expense of a decent livelihood for his +employés, in effect treats their claims upon the common and joint +product as essentially inferior to his own. If this assumption were +correct it would mean that the primary and essential needs of the +employés are of less intrinsic importance than the superficial needs +of the employer, and that the employés themselves are a lower order of +being than the employer. The incontestable fact is that such an +employer deprives the labourers of access to the goods of the earth on +reasonable terms, and gives himself an access thereto that is +unreasonable. + +Suppose that all employers who found themselves unable to pay full +living wages and obtain the normal rate of interest, should dispose of +their businesses and become mere loan capitalists, would the condition +of the underpaid workers be improved? Two effects would be certain: an +increase in the supply of loan capital relatively to the demand, and +a decrease in the number of active business men. The first would +probably lead to a decline in the rate of interest, while the second +might or might not result in a diminution of the volume of products. +If the rate of interest were lowered the employing business men would +be able to raise wages; if the prices of products rose a further +increase of wages would become possible. However, it is not certain +that prices would rise; for the business men who remained would be the +more efficient in their respective classes, and might well be capable +of producing all the goods that had been previously supplied by their +eliminated competitors. Owing to their superior efficiency and their +larger output, the existing business men would be able to pay +considerably higher wages than those who had disappeared from the +field of industrial direction. As things are to-day, it is the less +efficient business men who are unable to pay living wages and at the +same time obtain the prevailing rate of interest on their capital. The +ultimate result, therefore, of the withdrawal from business of those +who could not pay a living wage, would probably be the universal +establishment of a living wage. + +Of course, this supposition is purely fanciful. Only a small minority +of the business men of to-day are likely to be driven by their +consciences either to pay a living wage at the cost of interest on +their capital, or to withdraw from business when they are confronted +with such a situation. Is this small minority under moral obligation +to adopt either of these alternatives, when the effect of such action +upon the great mass of the underpaid workers is likely to be very +slight? The question would seem to demand an answer in the +affirmative. Those employers who paid a living wage at the expense of +interest would confer a concrete benefit of great value upon a group +of human beings. Those who shrank from this sacrifice, and preferred +to go out of business, would at least have ceased to co-operate in an +unjust distribution of wealth, and their example would not be +entirely without effect upon the views of their fellow employers. + + +_An Objection and Some Difficulties_ + +Against the foregoing argument it may be objected that the employer +does his full duty when he pays the labourer the full value of the +product or service. Labour is a commodity of which wages are the +price; and the price is just if it is the fair equivalent of the +labour. Like any other onerous contract, the sale of labour is +governed by the requirements of commutative justice; and these are +satisfied when labour is sold for its moral equivalent. What the +employer is interested in and pays for, is the labourer's activity. +There is no reason why he should take into account such an extrinsic +consideration as the labourer's livelihood. + +Most of these assertions are correct, platitudinously correct, but +they yield us no specific guidance because they use language vaguely +and even ambiguously. The contention underlying them was adequately +refuted in the last chapter, under the heads of theories of value and +theories of exchange equivalence. At present it will be sufficient to +repeat summarily the following points: if the value of labour is to be +understood in a purely economic sense it means market value, which is +obviously not a universal measure of justice; if by the value of +labour we mean its ethical value we cannot determine it in any +particular case merely by comparing labour and compensation; we are +compelled to have recourse to some extrinsic ethical principle; such +an extrinsic principle is found in the proposition that the personal +dignity of the labourer entitles him to a wage adequate to a decent +livelihood; therefore, the ethical value of labour is always +equivalent to at least a living wage, and the employer is morally +bound to give this much remuneration. + +Moreover, the habit of looking at the wage contract as a matter of +commutative justice in the mere sense of contractual justice, is +radically defective. The transaction between employé and employer +involves other questions of justice than that which arises immediately +out of the relation between the things exchanged. When a borrower +repays a loan of ten dollars, he fulfils the obligation of justice +because he returns the full equivalent of the article that he +received. Nothing else is pertinent to the question of justice in this +transaction. Neither the wealth nor the poverty, the goodness nor the +badness, nor any other quality of either lender or borrower, has a +bearing on the justice of the act of repayment. In the wage contract, +and in every other contract that involves the distribution of the +common bounty of nature, or of the social product, the juridical +situation is vitally different from the transaction that we have just +considered. The employer has obligations of justice, not merely as the +receiver of a valuable thing through an onerous contract, but as the +_distributor_ of the common heritage of nature. His duty is not merely +contractual, but social. He fulfils not only an individual contract, +but a social function. Unless he performs this social and distributive +function in accordance with justice, he does not adequately discharge +the obligation of the wage contract. For the product out of which he +pays wages is not his in the same sense as the personal income out of +which he repays a loan. His claim upon the product is subject to the +obligation of just distribution; the obligation of so distributing the +product that the labourers who have contributed to the product shall +not be denied their right to a decent livelihood on reasonable terms +from the bounty of the earth. On the other hand, the activity of the +labourer is not a mere commodity, as money or pork; it is the output +of a _person_, and a person who has no other means of realising his +inherent right to a livelihood. Consequently, both terms of the +contract, the labour and the compensation, involve other elements of +justice than that which arises out of their assumed mutual +equivalence. + +In a word, justice requires the employer not merely to give an +equivalent for labour (an equivalent which is determined by some +arbitrary, conventional, fantastic, or impossible attempt to compare +work and pay) but to fulfil his obligation of justly distributing that +part of the common bounty of the earth which comes into his hands by +virtue of his social function in the industrial process. How futile, +then, to endeavour by word juggling to describe the employer's +obligation in terms of mere equivalence and contractual justice! + +Some difficulties occur in connection with the wage rights of adult +males whose ability is below the average, and female and child +workers. Since the dignity and the needs of personality constitute the +moral basis of the claim to a decent livelihood, it would seem that +the inefficient worker who does his best is entitled to a living wage. +Undoubtedly he has such a right if it can be effectuated in the +existing industrial organisation. As already noted, the right of the +workman of average ability to a living wage does not become actual +until he finds an employer who would rather give him that much pay +than do without his services. Since the obligation of paying a living +wage is not an obligation to employ any particular worker, an employer +may refrain from hiring or may discharge any labourer who does not add +to the product sufficient value to provide his wages. For the employer +cannot reasonably be expected to employ any one at a positive loss to +himself. Whence it follows that he may pay less than living wages to +any worker whose services he would rather dispense with than +remunerate at that figure.[245] + +Women and young persons who regularly perform a full day's work, have +a right to compensation adequate to a decent livelihood. In the case +of minors, this means living at home, since this is the normal +condition of all, and the actual condition of almost all. Adult +females have a right to a wage sufficient to maintain them away from +home, because a considerable proportion of them live in this +condition. If employers were morally free to pay home-dwelling women +less than those adrift, they would endeavour to employ only the +former. This would create a very undesirable social situation. The +number of women away from home who are forced to earn their own living +is sufficiently large (20 to 25 per cent. of the whole) to make it +reasonable that for their sakes the wage of all working women should +be determined by the cost of living outside the parental precincts. +This is one of the social obligations that reasonably falls upon the +employer on account of his function in the present industrial system. +In all the American minimum wage laws, the standard of payment is +determined by the cost of living away from home. Besides, the +difference between the living costs of women in the two conditions is +not nearly as great as is commonly assumed. Probably it never amounts +to a dollar a week. + + +_The Family Living Wage_ + +Up to the present we have been considering the right of the labourer +to a wage adequate to a decent livelihood for himself as an +individual. In the case of an adult male, however, this is not +sufficient for normal life, nor for the reasonable development of +personality. The great majority of men cannot live well balanced +lives, cannot attain a reasonable degree of self development outside +the married state. Therefore, family life is among the essential +needs of a normal and reasonable existence. It is not, indeed, so +vitally necessary as the primary requisites of individual life, such +as food, clothing, and shelter, but it is second only to these. +Outside the family man cannot, as a rule, command that degree of +contentment, moral strength, and moral safety which are necessary for +reasonable and efficient living. It is unnecessary to labour this +point further, as very few would assert that the average man can live +a normal and complete human life without marriage. + +Now, the support of the family falls properly upon the husband and +father, not upon the wife and mother. The obligation of the father to +provide a livelihood for the wife and young children is quite as +definite as his obligation to maintain himself. If he has not the +means to discharge this obligation he is not justified in getting +married. Yet, as we have just seen, marriage is essential to normal +life for the great majority of men. Therefore, the material requisites +of normal life for the average adult male, include provision for his +family. In other words, his decent livelihood means a family +livelihood. Consequently, he has a right to obtain such a livelihood +on reasonable terms from the bounty of the earth. In the case of the +wage earner, this right can be effectuated only through wages; +therefore, the adult male labourer has a right to a family living +wage. If he does not get this measure of remuneration his personal +dignity is violated, and he is deprived of access to the goods of the +earth, quite as certainly as when his wage is inadequate to personal +maintenance. The difference between family needs and personal needs is +a difference only of degree. The satisfaction of both is indispensable +to his reasonable life. + +Just as the woman worker who lives with her parents has a right to a +wage sufficient to maintain her away from home, so the unmarried adult +male has a right to a family living wage. If only married men get the +latter wage they will be discriminated against in the matter of +employment. To prevent this obviously undesirable condition, it is +necessary that a family living wage be recognised as the right of all +adult male workers. No other arrangement is reasonable in our present +industrial system. In a competitive régime the standard wage for both +the married and the unmarried men is necessarily the same. It will be +determined by the living costs of either the one class or the other. +At present the wage of the unskilled is unfortunately adjusted to the +subsistence cost of the man who is not married. Since two prevailing +scales of wages are impossible, the remuneration of the unmarried must +in the interests of justice to the married be raised to the living +costs of the latter. Moreover, the unmarried labourer needs more than +an individual living wage in order to save sufficient money to enter +upon the responsibilities of matrimony. + +Only two objections of any importance can be brought against the male +labourer's claim to a family living wage. The first is that just wages +are to be measured by the value of the labour performed, and not by +such an extrinsic consideration as the needs of a family. It has +already been answered in this and the preceding chapters. Not the +economic but the ethical value of the service rendered, is the proper +determinant of justice in the matter of wages; and this ethical value +is always the equivalent of at least a decent livelihood for the +labourer and his family. According to the second objection, the +members of the labourer's family have no claim upon the employer, +since they do not participate in the work that is remunerated. This +contention is valid, but it is also irrelevant. The claim of the +labourer's family to sustenance is directly upon him, not upon his +employer; but the labourer has a just claim upon the employer for the +means of meeting the claims of his family. His right to this amount of +remuneration is directly based neither upon the needs nor the rights +of his family, but upon his own needs, upon the fact that family +conditions are indispensable to his own normal life. If the wife and +young children were self supporting, or were maintained by the State, +the wage rights of the father would not include provision for the +family. Since, however, family life involves support by the father, +the labourer's right to such a life necessarily includes the right to +a wage adequate to family support. + + +_Other Arguments in Favour of a Living Wage_ + +Thus far, the argument has been based upon individual natural rights. +If we give up the doctrine of natural rights, and assume that all the +rights of the individual come to him from the State, we must admit +that the State has the power to withhold and withdraw all rights from +any and all persons. Its grant of rights will be determined solely by +considerations of social utility. In the concrete this means that some +citizens may be regarded as essentially inferior to other citizens, +that some may properly be treated as mere instruments to the +convenience of others. Or it means that all citizens may be completely +subordinated to the aggrandisement of an abstract entity, called the +State. Neither of these positions is logically defensible. No group of +persons has less intrinsic worth than another; and the State has no +rational significance apart from its component individuals. + +Nevertheless, a valid argument for the living wage can be set up on +grounds of social welfare. A careful and comprehensive examination of +the evil consequences to society and the State from the under-payment +of any group of labourers, would show that a universal living wage is +the only sound social policy. Among competent social students, this +proposition has become a commonplace. It will not be denied by any +intelligent person who considers seriously the influence of low wages +in diminishing the efficiency, physical, mental, and moral, of the +workers; in increasing the volume of crime, and the social cost of +meeting it; in the immense social outlay for the relief of unnecessary +poverty, sickness, and other forms of distress; and in the formation +of a large and discontented proletariat.[246] + +The living wage doctrine also receives strong support from various +kinds of authority. Of these the most important and best known is the +famous encyclical, "On the Condition of Labour," May 15, 1891, by Pope +Leo XIII. "Let it then be granted that workman and employer should, as +a rule, make free agreements, and in particular should agree freely as +to wages; nevertheless, there is a dictate of natural justice more +imperious and ancient than any bargain between man and man; namely, +that the remuneration should be sufficient to maintain the wage earner +and reasonable and frugal comfort." Although the Pope refrained from +specifying whether the living wage that he had in mind was one +adequate merely to an individual livelihood, or sufficient to support +a family, other passages in the Encyclical leave no room for doubt +that he regarded the latter as the normal and equitable measure of +remuneration. Within a dozen lines of the sentence quoted above, he +made this statement: "If the workman's wages be sufficient to maintain +himself, his wife, and his children in reasonable comfort, he will not +find it difficult, if he be a sensible man, to practise thrift; and he +will not fail, by cutting down expenses, to put by some little savings +and thus secure a small income." + +All lesser Catholic authorities hold that the adult male labourer has +some kind of moral claim to a family living wage. In all probability +the majority of them regard this claim as one of strict justice, while +the minority would put it under the head of legal justice, or natural +equity, or charity. The differences between their views are not as +important as the agreements; for all the Catholic writers maintain +that the worker's claim is strictly moral in its nature, and that the +corresponding obligation upon the employer is likewise of a moral +character. + +The Federal Council of the Churches of Christ in America, representing +the principal Protestant denominations, has formally declared in +favour of "a living wage as a minimum in every industry." + +Public opinion likewise accepts the principle of a living wage as the +irreducible minimum of fair treatment for all workers. Indeed, it +would be difficult to find any important person in any walk of life +to-day who would have the temerity to deny that the labourer is +entitled to a wage sufficient for reasonable family life. Among +employers the opinion is fairly general that the narrow margin of +profit in competitive industries renders the burden of paying a family +living wage to all adult males unfairly heavy; but the assertion that +the wage contract is merely an economic transaction, having no +relation to justice, is scarcely ever uttered publicly. + + +_The Money Measure of a Living Wage_ + +For self-supporting women a living wage is not less than eight dollars +per week in any city of the United States, and in some of our larger +cities it is from one to two dollars above this figure. The state +minimum wage commissions that have acted in the matter, have fixed the +rates not lower than eight nor higher than ten dollars per week.[247] +These determinations are in substantial agreement with a large number +of other estimates, both official and unofficial. + +When the present writer was making an estimate of the cost of decent +living for a family about eleven years ago, he came to the conclusion +that six hundred dollars per year was the lowest amount that would +maintain a man and wife and four or five small children in any American +city, and that this sum was insufficient in some of the larger +cities.[248] Since that time retail prices seem to have risen at least +twenty-five and possibly forty-five per cent.[249] If the six hundred +dollar minimum were correct in 1905 it should, therefore, be increased +to seven hundred and fifty dollars to meet the present range of prices. +That this estimate is too low for some of the more populous cities, has +been fully proved by several recent investigations. In 1915 the Bureau +of Standards put the minimum cost of living for a family of five in New +York City at $840.18. About the same time the New York Factory +Investigating Commission gave the estimate of $876.43 for New York +City, and $772.43 for Buffalo. In 1908, when the cost of living was +from ten to thirty per cent. cheaper than to-day, the United States +Bureau of Labour found that, "according to the customs prevailing in +the communities selected for study," a fair standard of living for a +family of five persons among mill workers, was $600.74 in the South, +and from $690.60 to $731.64 in Fall River, Massachusetts.[250] + +According to the "Manly Report" of the Federal Commission on +Industrial Relations, between two-thirds and three-fourths of the +adult male labourers of the United States receive less than $750.00 a +year, and the same proportion of women workers are paid under eight +dollars a week. A considerable majority, therefore, of both male and +female labourers fail to obtain living wages. We are still very far +from having actualised even the minimum measure of wage justice. + +FOOTNOTES: + +[242] Cf. Skelton, "Socialism: A Critical Analysis," p. 202; Menger, +"The Right to the Whole Produce of Labour," pp. 8, sq. + +[243] All the questions treated in this chapter are discussed at much +greater length in the author's work, "A Living Wage"; Macmillan; 1906. + +[244] See chapters xii and xiii. + +[245] While the statement in the text applies to _all_ labourers of +less than average ability, it obviously is applicable only to +individual cases among those who are up to the average. These are the +workers at the "margin" of the labour force in an establishment, those +who could be discharged without causing the industry to shut down. If +an employer would rather go out of business than pay a living wage to +all his necessary labourers of average ability, he is morally free to +do so; but he may not employ them at less than living wages in order +to obtain interest on his capital. + +[246] One of the best statements of the evil social results of low +wages will be found in Webb's "Industrial Democracy," vol. II, pp. +749-766. + +[247] See reports of these commissions in Oregon, Washington, +Massachusetts, Minnesota, and California. + +[248] "A Living Wage," p. 150. + +[249] See Bulletins of the Federal Bureau of Labour Statistics on +"Retail Prices"; and Nearing, "Reducing the Cost of Living." + +[250] "Summary of the Report on Condition of Woman and Child Wage +Earners in the United States," pp. 383, 384. The best intensive study +of family cost of living is that published in the volume edited by +Robert C. Chapin, "The Standard of Living Among Workingmen's Families +in New York City"; 1909. It led to the conclusion that anything less +than eight hundred dollars was insufficient for the yearly maintenance +of a husband and wife and three small children in Manhattan. + + + + +CHAPTER XXIV + +THE PROBLEM OF COMPLETE WAGE JUSTICE + + +A living wage for all workers is merely the _minimum_ measure of just +remuneration. It is not in every case complete justice. Possibly it is +not the full measure of justice in any case. How much more than a +living wage is due to any or all of the various classes of labourers? +How much more may any group of workers demand without exposing itself +to the sin of extortion? By what principles shall these questions be +answered? + +The problem of complete wage justice can be conveniently and logically +considered in four distinct relations, as regards: the respective +claims of the different classes of labourers to a given amount of +money available for wage payments; the claims of the whole body of +labourers, or any group thereof, to higher wages at the expense of +profits; at the expense of interest; and at the expense of the +consumer. + + +_Comparative Claims of Different Labour Groups_ + +In the division of a common wage fund, no section of the workers is +entitled to anything in excess of living wages until all the other +sections have received that amount of remuneration. The need of a +decent livelihood constitutes a more urgent claim than any other that +can be brought forward. Neither efforts, nor sacrifices, nor +productivity, nor scarcity can justify the payment of more than living +wages to any group, so long as any other group in the industry remains +below that level; for the extra compensation will supply the +nonessential needs of the former by denying the essential needs of +the latter. The two groups of men will be treated unequally in respect +of those qualities in which they are equal; namely, their personal +dignity and their claims to the minimum requisites of reasonable life +and self development. This is a violation of justice. + +Let us suppose that all the workers among whom a given amount of +compensation is to be distributed, have already received living wages, +and that there remains a considerable surplus. On what principles +should the surplus be apportioned? For answer we turn to the canons of +distribution, as explained in chapter xvi. When the elementary needs +of life and development have been supplied, the next consideration +might seem to be the higher or nonessential needs and capacities. +Proportional justice would seem to suggest that the surplus ought to +be distributed in accordance with the varying needs and capacities of +men to develop their faculties beyond the minimum reasonable degree. +As we have already pointed out, this would undoubtedly be the proper +rule if it were susceptible of anything like accurate application, and +if the sum to be distributed were not produced by and dependent upon +those who were to participate in the distribution. However, we know +that the first condition is impracticable, while the second is +non-existent. Inasmuch as the sharers in the distribution have +produced and constantly determine the amount to be apportioned, the +distributive process must disregard nonessential needs, and govern +itself by other canons of justice. + +The most urgent of these is the canon of efforts and sacrifices. +Superior effort, as measured by unusual will-exertion, is a +fundamental rule of justice, and a valid title to exceptional reward. +Men who strive harder than the majority of their fellows are ethically +deserving of extra compensation. At least, this is the pure theory of +the matter. In practice, the situation is complicated by the fact +that unusual effort cannot always be distinguished, and by the further +fact that some exceptional efforts do not fructify in correspondingly +useful results. Among men engaged at the same kind of work, superior +effort is to a great extent discernible in the unusually large +product. As such it actually receives an extra reward in accordance +with the canon of productivity. When men are employed at different +tasks, unusual efforts cannot generally be distinguished and +compensated. Hence the general principle is that superior efforts put +forth in the production of utilities, entitle men to something more +than living wages, but that the enforcement of this principle is +considerably hindered by the difficulty of discerning such efforts. + +The unusual sacrifices that deserve extra compensation are connected +with the costs of industrial functions and the disagreeable character +of occupations. Under the first head are included the expense of +industrial training and the debilitating effects of the work. Not only +justice to the worker but a farsighted view of social welfare, dictate +that all unusual costs of preparation for an industrial craft or +profession should be repaid in the form of unusual compensation. This +means something more than a living wage. For the same reasons the +unusual hazards and disability resulting from industrial accidents and +diseases should be provided for by higher remuneration. In the absence +of such provision, these costs will have to be borne by parents, by +society in the form of charitable relief, or by the worker himself +through unnecessary suffering and incapacity. The industry that does +not provide for all these costs is a social parasite, the workers in +it are deprived of just compensation for their unusual sacrifices, and +society suffers a considerable loss through industrial friction and +diminished productive efficiency. In so far, however, as any of the +foregoing occupational costs are borne by society, as in the matter of +industrial education, or by the employer, as by the devices of +accident compensation or sickness insurance, they do not demand +provision in the form of extra wages. + +Other unusual sacrifices that entitle the worker to more than living +wages, are inherent in disagreeable or despised occupations. The +scavenger and the bootblack ought to get more than the performers of +most other unskilled tasks. On the principles of comparative +individual desert, they should receive larger remuneration than many +persons who are engaged upon skilled but relatively pleasant kinds of +work. For if they were given the choice of expending the time and +money required to fit them for the latter tasks, or of taking up +immediately their present disagreeable labour, they would select the +more pleasant occupations, for the same or even a smaller +remuneration. And the majority of those who are now in the more +skilled occupations would make the same choice. Hence the sacrifices +inherent in disagreeable kinds of work are in many cases as great as +or greater than the sacrifices of preparation for the more pleasant +tasks; consequently the doers of the former are relatively underpaid. +If all wages were regulated by some supreme authority according to the +principles of complete justice, the workers in disagreeable +occupations would receive something more than living wages. Nor would +this determination of rewards be in any way contrary to social welfare +or the principle of maximum net results; for the superior +attractiveness of the other kinds of work would draw a sufficient +supply of labour to offset the advantage conferred by higher wages +upon the disagreeable occupations. The main reason why the latter kind +of labour is so poorly paid now is the fact that it is very plentiful, +a condition which is in turn due to the unequal division of industrial +opportunity. Were the opportunities of technical education and of +entrance to the higher crafts and professions more widely diffused, +the labourers offering themselves for the disagreeable tasks would be +scarcer and their remuneration correspondingly larger. This would be +not only more comfortable to the abstract principles of justice, but +more conducive to social efficiency. + +To sum up the discussion concerning the canon of efforts and +sacrifices: Labourers have a just claim to more than living wages +whenever they put forth unusual efforts, and whenever their +occupations involve unusual sacrifices, either through costs of +preparation, exceptional hazards, or inherent disagreeableness. The +precise amount of extra compensation due under any of these heads can +be determined, as a rule, only approximately. + +The next canon to be considered as a reason for more than living wages +is that of productivity. This offers little difficulty; for the +unusual product is always visible among men who are performing the +same kind of work, and the employer is always willing to give the +producer of it extra compensation. While superior productive power +which is based solely upon superior native ability has only +presumptive validity as a canon of justice, that is ethically +sufficient in our workaday world. Moreover, the canon of human welfare +demands that superior productivity receive superior rewards, so long +as these are necessary to evoke the maximum net product. + +The canon of scarcity has exactly the same value as that of +productivity. Society and the employer are well advised and are +justified in giving extra compensation to scarce forms of labour when +the product is regarded as worth the corresponding price. This remains +true even when the scarcity is due to restricted opportunity of +preparation, rather than to sacrifices of any sort. In that case the +higher rewards are as fully justified as the superior remuneration of +that superior productivity which is based upon exceptional native +endowments. The amount of extra compensation which may properly be +given on account of scarcity is determined either by the degree of +sacrifice involved or by the ordinary operation of competition. When +men are scarce because they have made exceptional sacrifices of +preparation, they ought to be rewarded in full proportion to these +sacrifices. When they are scarce merely because of exceptional +opportunities, their extra compensation should not exceed the amount +that automatically comes to them through the interplay of supply and +demand. + +The canon of human welfare has already received implicit application. +When due regard is given to efforts, sacrifices, productivity, and +scarcity, the demands of human welfare, both in its individual and its +social aspects, are sufficiently safeguarded. + +In the foregoing pages the attempt has been made to describe the +proportions in which a given wage fund ought to be distributed among +the various classes of labourers who have claims upon the fund. The +first requisite of justice is that all should receive living wages. It +applies to all workers of average ability, even to those who have no +special qualifications of any sort. When this general claim has been +universally satisfied, those groups of workers who are in any wise +special, whose qualifications for any reason differentiate them from +and place them above the average, will have a right to something more +than living wages. They will have the first claim upon the surplus +that remains in the wage fund. Their claims will be based upon the +various canons of distribution explained in detail above; and the +amounts of extra remuneration to which they will be entitled, will be +determined by the extent to which their special qualifications +differentiate them from the average and unspecialised workers. If the +total available wage fund is merely sufficient to provide universal +living wages and the extra compensation due to the specialised groups, +no section of the labour force will be justified in exacting a larger +share. Even though the employer should withhold a part of the amount +due to some weaker group, a stronger group that is already getting its +proper proportion would have no right to demand the unjustly withheld +portion. For this belongs neither to the employer nor to the powerful +labour group, but to the weaker section of labourers. + +This does not mean that a powerful body of workers who are already +receiving their due proportion as compared with other labour groups, +would not be justified in seeking any increase in remuneration +whatever. The increase might come out of profits, or interest, or the +consumer, and thus be in no sense detrimental to the rights of the +other sections of labourers. This problem will be considered a little +later. At present we confine our attention to the relative claims of +different labour groups to a definite wage fund. + +Suppose, however, that after all workers have received living wages, +and all the exceptional groups have obtained those extra amounts which +are due them on account of efforts, sacrifices, productivity, and +scarcity, there remains a further surplus in the wage fund. In what +proportions should it be distributed? It should be equally divided +among all the labourers. The proportional justice which has been +already established can be maintained only by raising the present +rates of payment equally in all cases. All the average or +unspecialised groups would get something more than living wages, and +all the other groups would have their extra compensation augmented by +the same amount. + +Of course, the wage-fund hypothesis which underlies the foregoing +discussion is not realised in actual life, any more than was the "wage +fund" of the classical economists. Better than any other device, +however, it enables us to describe and visualise the comparative +claims of different groups of labourers who have a right to unequal +amounts in excess of living wages. + + +_Wages Versus Profits_ + +Let us suppose that the wage fund is properly apportioned among the +different classes of labourers, according to the specified canons of +distribution. May not one or all of the labour groups demand an +increase in wages on the ground that the employer is retaining for +himself an undue share of the product? + +As we have seen in the last chapter, the right of the labourers to +living wages is superior to the right of the employer or business man +to anything in excess of that amount of profits which will insure him +against risks, and afford him a decent livelihood in reasonable +conformity with his accustomed plane of expenditure. It is also +evident that those labourers who undergo more than average sacrifices +have a claim to extra compensation which is quite as valid as the +similarly based claim of the employer to more than living profits. In +case the business does not provide a sufficient amount to remunerate +both classes of sacrifices, the employer may prefer his own to those +of his employés, on the same principle that he may prefer his own +claim to a decent livelihood. The law of charity permits a man to +satisfy himself rather than his neighbour, when the needs in question +are of the same degree of urgency or importance. As to those labourers +who turn out larger products than the average, or whose ability is +unusually scarce, there is no practical difficulty; for the employer +will find it profitable to give them the corresponding extra +compensation. The precise question before us, then, is the claims of +the labourers upon profits for remuneration above universal living +wages and above the extra compensation due on account of unusual +efforts, sacrifices, productivity, and scarcity. Let us call the wage +that merely includes all these factors "the equitable minimum." + +In competitive conditions this question becomes practical only with +reference to the exceptionally efficient and productive business men. +The great majority have no surplus available for wage payments in +excess of the "equitable minimum." Indeed, the majority do not now pay +the full "equitable minimum"; yet their profits do not provide them +more than a decent livelihood. The relatively small number of +establishments that show such a surplus as we are considering have +been brought to that condition of prosperity by the exceptional +ability of their directors, rather than by the unusual productivity of +their employés. In so far as this exceptional directive ability is due +to unusual efforts and sacrifices, the surplus returns which it +produces may be claimed with justice by the employer. In so far as the +surplus is the outcome of exceptional native endowments, it may still +be justly retained by him in accordance with the canon of +productivity. In other words, when the various groups of workers are +already receiving the "equitable minimum," they have no strict right +to any additional compensation out of those rare surplus profits which +come into existence in conditions of competition. + +This conclusion is confirmed by reference to the canon of human +welfare. If exceptionally able business men were not permitted to +retain the surplus in question they would not exert themselves +sufficiently to produce it; labour would gain nothing; and the +community would be deprived of the larger product. + +When the employer is a corporation instead of an individual or a +partnership, and when it is operating in competitive conditions, the +same principles are applicable, and the same conclusions justified. +The officers and the whole body of stockholders will have a right to +those surplus profits that remain after the "equitable minimum" has +been paid to the employés. Every consideration that urges such a +distribution in the case of the individual business holds good for the +corporation. + +The corporation that is a monopoly will have the same right as the +competitive concern to retain for its owners those surplus profits +which are due to exceptional efficiency on the part of the managers of +the business. That part of the surplus which is derived from the +extortion of higher than competitive prices cannot be justly retained, +since it rests upon no definite moral title. As we saw in the chapter +on monopoly, the owners have no right to anything more than the +prevailing rate of interest, together with a fair return for their +labour and for any unusual efficiency that they may exercise. Should +the surplus in question be discontinued by lowering prices, or should +it be continued and distributed among the labourers? As a rule, the +former course would seem morally preferable. While the labourers, as +we shall see presently, are justified in contending for more than the +"equitable minimum" at the expense of the consumer, their right to do +so through the exercise of monopoly power is extremely doubtful. +Whether this power is exerted by themselves or by the employer on +their behalf, it remains a weapon which human nature seems incapable +of using justly. + + +_Wages Versus Interest_ + +Turning now to the claims of the labourers as against the capitalists, +or interest receivers, we perceive that the right to any interest at +all is morally inferior to the right of all the workers to the +"equitable minimum." As heretofore pointed out more than once, the +former right is only presumptive and hypothetical, and interest is +ordinarily utilised to meet less important needs than those supplied +by wages. Through his labour power the interest receiver can supply +all those fundamental needs which are satisfied by wages in the case +of the labourer. Therefore, it seems clear that the capitalist has no +right to interest until all labourers have received the "equitable +minimum." It must be borne in mind, however, that any claim of the +labourer against interest falls upon the owners of the productive +capital in a business, upon the undertaker-capitalist, not upon the +loan-capitalist. + +When all the labourers in an industry are receiving the "equitable +minimum," have they a right to exact anything more at the expense of +interest? By interest we mean, of course, the prevailing or +competitive rate that is received on productive capital--five or six +per cent. Any return to the owners of capital in excess of this rate +is properly called profits rather than interest, and its relation to +the claims of the labourers has received consideration in the +immediately preceding section of this chapter. The question, then, is +whether the labourers who are already getting the "equitable minimum" +would act justly in demanding and using their economic power to obtain +a part or all of the pure interest. No conclusive reason is available +to justify a negative answer. The title of the capitalist is only +presumptive and hypothetical, not certain and unconditional. It is, +indeed, sufficient to justify him in retaining interest that comes to +him through the ordinary processes of competition and bargaining; but +it is not of such definite and compelling moral efficacy as to render +the labourers guilty of injustice when they employ their economic +power to divert further interest from the coffers of the capitalist to +their own pockets. The interest-share of the product is morally +debatable as to its ownership. It is a sort of no-man's property (like +the rent of land antecedently to its legal assignment through the +institution of private landownership) which properly goes to the first +occupant as determined by the processes of bargaining between +employers and employés. If the capitalists get the interest-share +through these processes it rightfully belongs to them; if the +labourers who are already in possession of the "equitable minimum" +develop sufficient economic strength to get this debatable share they +may justly retain it as their own. + +The foregoing conclusion may seem to be a very unsatisfactory solution +of a problem of justice. However, it is the only one that is +practically defensible. If the capitalist's claim to interest were as +definite and certain as the labourer's right to a living wage, or as +the creditor's right to the money that he has loaned, the solution +would be very simple: the labourers that we are discussing would have +no right to strive for any of the interest. But the claim of the +capitalists is not of this clear and conclusive nature. It is +sufficient when combined with actual possession; it is not sufficient +when the question is of future possession. The title of first +occupancy as regards land is not valid until the land has been +actually occupied; and similarly the claim of the capitalist to +interest is not valid until the interest has been received. If the +economic forces which determine actual possession operate in such a +way as to divert the interest-share to the labourers, they, not the +capitalists, will have the valid moral title, just as Brown with his +automobile rather than Jones with his spavined nag will enjoy the +valid title of first occupancy to a piece of ownerless land which both +have coveted. + +This conclusion is confirmed by reference to the rationally and +morally impossible situation that would follow from its rejection. If +we deny to the labourers the moral freedom to strive for higher wages +at the expense of the capitalist, we must also forbid them to follow +this course at the expense of the consumer. For the great majority of +consumers would stand to lose advantages to which they have as good a +moral claim as the capitalists have to interest. Practically this +would mean that the labourers have no right to seek remuneration in +excess of the "equitable minimum"; for such excess must in +substantially all cases come from either the consumer or the +capitalist. On what principle can we defend the proposition that the +great majority of labourers are forever restrained by the moral law +from seeking more than bare living wages, and the specialised +minority from demanding more than that extra compensation which +corresponds to unusual efforts, sacrifices, productivity, and +scarcity? Who has authorised us to shut against these classes the +doors of a more liberal standard of living, and a more ample measure +of self development? + + +_Wages Versus Prices_ + +The right of the labourers to the "equitable minimum" implies +obviously the right to impose adequate prices upon the consumers of +the labourer's products. This is the ultimate source of the rewards of +all the agents of production. Suppose that the labourers are already +receiving the "equitable minimum." Are they justified in seeking any +more at the cost of the consumer? If all the consumers were also +labourers the answer would be simple, at least in principle: rises in +wages and prices ought to be so adjusted as to bring equal gains to +all individuals. The "equitable minimum" is adjusted to the varying +moral claims of the different classes of labourers; therefore, any +rise in remuneration must be equally distributed in order to leave +this adjustment undisturbed. It is a fact, however, that a large part +of the consumers are not labourers; consequently they cannot look to +rises in wages as an offset to their losses through rises in prices. +Can they be justly required to undergo this inconvenience for the +benefit of labourers who are already getting the "equitable minimum"? + +Let us consider first the case of higher wages versus lower prices. A +few progressive and efficient manufacturers of shoes find themselves +receiving large surplus profits which are likely to continue. So far +as the presumptions of strict justice are concerned, they may, owing +to their superior productivity, retain these profits for themselves. +Seized, however, with a feeling of benevolence, or a scruple of +conscience, they determine to divide future profits of this class +among either the labourers or the consumers. If they reduce prices the +labourers will gain something as users of shoes, but the other wearers +of shoes will also be beneficiaries. If the surplus profits are all +diverted to the labourers in the form of higher wages the other +consumers of shoes will gain nothing. Now there does not seem to be +any compelling reason, any certain moral basis, for requiring the shoe +manufacturers to take one course rather than the other. Either will be +correct morally. Possibly the most perfect plan would be to effect a +compromise by lowering prices somewhat and giving some rise in wages; +but there is no strict obligation to follow this course. To be sure, +since the manufacturers have a right to retain the surplus profits, +they have also a right to distribute them as they prefer. Let us get +rid of this complication by assuming that the manufacturers are +indifferent concerning the disposition of the surplus, leaving the +matter to be determined by the comparative economic strength of +labourers and consumers. In such a situation it is still clear that +either of the two classes would be justified in striving to secure any +or all of the surplus. No definite moral principle can be adduced to +the contrary. To put the case in more general terms: there exists no +sufficient reason for maintaining that the gains of cheaper production +should go to the consumer rather than to the labourer, or to the +labourer rather than to the consumer, so long as the labourer is +already in receipt of the "equitable minimum." + +Turning now to the question of higher wages at the cost of higher +prices, we note that this would result in at least temporary hardship +to four classes of persons: the weaker groups of wage earners; all +self employing persons, such as farmers, merchants, and manufacturers; +the professional classes; and persons whose principal income was +derived from rent or interest. All these groups would have to pay more +for the necessaries, comforts, and luxuries of living, without being +immediately able to raise their own incomes correspondingly. + +Nevertheless, the first three classes could in the course of time +force an increase in their revenues sufficient to offset at least the +more serious inconveniences of the increase in prices. So far as the +wage earners are concerned, it is understood that all these would have +a right to whatever advance in the money measure of the "equitable +minimum" was necessary to neutralise the higher cost of living +resulting from the success of the more powerful groups in obtaining +higher wages. The right of a group to the "equitable minimum" of +remuneration is obviously superior to the right of another group to +more than that amount. And a supreme wage-determining authority would +act on this principle. It cannot be shown, however, that in the +absence of any such authority empowered to protect the "equitable +minimum" of the weaker labourers, the more powerful groups are obliged +to refrain from demanding extra remuneration. The reason of this we +shall see presently. In the meantime we call attention to the fact +that, owing to the greater economic opportunity resulting from the +universal prevalence of the "equitable minimum" and of industrial +education, even the weaker groups of wage earners would be able to +obtain some increases in wages. In the long run the more powerful +groups would enjoy only those advantages which arise out of superior +productivity and exceptional scarcity. These two factors are +fundamental, and could not in any system of industry be prevented from +conferring advantages upon their possessors. + +As regards the self employing classes, the remedy for any undue +hardship suffered through the higher prices of commodities would be +found in a discontinuance of their present functions until a +corresponding rise had occurred in the prices of their own products. +They could do this partly by organisation, and partly by entering into +competition with the wage earners. Substantially the same recourse +would be open to the professional classes. In due course of time, +therefore, the remuneration of all workers, whether employés or self +employed or professional, would tend to be in harmony with the canons +of efforts, sacrifices, productivity, scarcity, and human welfare. + +Since the level of rent is fixed by forces outside the control of +labourers, employers, or landowners, the receivers thereof would be +unable to offset its decreased purchasing power by increasing its +amount. However, this situation would not be inherently unjust, nor +even inequitable. Like interest, rent is a "workless" income, and has +only a presumptive and hypothetical justification. Therefore, the +moral claim of the rent receiver to be protected against a decrease in +the purchasing power of his income, is inferior to the moral claim of +the labourer to use his economic power for the purpose of improving +his condition beyond the limits of welfare fixed by the "equitable +minimum." What is true of the rent receiver in this respect applies +likewise to the case of the capitalist. As we saw a few pages back, +the wage earners are morally free to take this course at the expense +of interest. Evidently they may do the same thing when the consequence +is merely a diminution in its purchasing power. To be sure, if capital +owners should regard their sacrifices in saving as not sufficiently +rewarded, owing either to the low rate or the low purchasing power of +interest, they would be free to diminish or discontinue saving until +the reduced supply of capital had brought about a rise in the rate of +interest. Should they refrain from this course they would show that +they were satisfied with the existing situation. Hence they would +suffer no wrong at the hands of the labourers who forced up wages at +the expense of prices. + +Two objections come readily to mind against the foregoing paragraphs. +The more skilled labour groups might organise themselves into a +monopoly, and raise their wages so high as to inflict the same degree +of extortion upon consumers as that accomplished by a monopoly of +capitalists. This is, indeed, possible. The remedy would be +intervention by the State to fix maximum wages. Just where the maximum +limit ought to be placed is a problem that could be solved only +through study of the circumstances of the case, on the basis of the +canons of efforts, sacrifices, productivity, scarcity, and human +welfare. The second objection calls attention to the fact that we have +already declared that the more powerful labour groups would not be +justified in exacting more than the "equitable minimum" out of a +common wage fund, so long as any weaker group was below that level; +yet this is virtually what would happen when the former caused prices +to rise to such an extent that the weaker workers would be forced +below the "equitable minimum" through the increased cost of living. +While this contingency is likewise possible, it is not a sufficient +reason for preventing any group of labourers from raising their +remuneration at the expense of prices. Not every rise in prices would +effect the expenditures of the weaker sections of the wage earners. In +some cases the burden would be substantially all borne by the better +paid workers and the self employing, professional, and propertied +classes. When it did fall to any extent upon the weaker labourers, +causing their real wages to fall below the "equitable minimum," it +could be removed within a reasonable time by organisation or by +legislation. Even if these measures were found ineffective, if some of +the weaker groups of workers should suffer through the establishment +of the higher prices, this arrangement would be preferable on the +whole to one in which no class of labourers was permitted to raise its +remuneration above the "equitable minimum" at the expense of prices. A +restriction of this sort, whether by the moral law or by civil +regulation, would tend to make wage labour a status with no hope of +pecuniary progress. + +It is true that a universal and indefinite increase of wages at the +expense of prices might at length leave the great majority of the +labourers no better off than they were when they had merely the +"equitable minimum." Such would certainly be the result if the +national product were only sufficient to provide the "equitable +minimum" for all workers, and that volume of incomes for the other +agents of production which was required to evoke from them a fair +degree of productive efficiency. In that case the higher wages would +be an illusion. The gain in the amount of money would be offset by the +loss in its purchasing power. Even so, this condition would be greatly +superior to a régime in which the labourers were universally prevented +from making any effort to raise their wages above a fixed maximum. + + +_Concluding Remarks_ + +All the principles and conclusions defended in this chapter have been +stated with reference to the present distributive system, with its +free competition and its lack of legal regulation. Were all incomes +and rewards fixed by some supreme authority, the same canons of +justice would be applicable, and the application would have to be made +in substantially the same way, if the authority were desirous of +establishing the greatest possible measure of distributive justice. +The main exception to this statement would occur in relation to the +problem of raising wages above the "equitable minimum" at the expense +of prices. In making any such increase, the wage-fixing authority +would be obliged to take into account the effects upon the other +classes of labourers, and upon all the non-wage-earning classes. +Substantially the same difficulties would confront the government in a +collectivist organisation of industry. The effect that a rise in the +remuneration of any class would produce, through a rise in the prices +of commodities, upon the purchasing power of the incomes of other +classes, would have to be considered and as nearly as possible +ascertained. This would be no simple task. Simple or not, it would +have to be faced; and the guiding ethical principles would always +remain efforts, sacrifices, productivity, scarcity, and human welfare. + +The greater part of the discussion carried on in this chapter has a +highly theoretical aspect. From the nature of the subject matter this +was inevitable. Nevertheless the principles that have been enunciated +and applied seem to be incontestable. In so far as they are enforcible +in actual life, they seem capable of bringing about a wider measure of +justice than any other ethical rules that are available. + +Possibly the applications and conclusions have been laid down with too +much definiteness and dogmatism, and the whole matter has been made +too simple. On the other hand, neither honesty nor expediency is +furthered by an attitude of intellectual helplessness, academic +hyper-modesty, or practical agnosticism. If there exist moral rules +and rational principles applicable to the problem of wage justice, it +is our duty to state and apply them as fully as we can. Obviously we +shall make mistakes in the process; but until the attempt is made, and +a certain (and very large) number of mistakes are made, there will be +no progress. We have no right to expect that ready-made applications +of the principles will drop from Heaven. + +For a long time to come, however, many of the questions discussed in +this chapter will be devoid of large practical interest. The problem +immediately confronting society is that of raising the remuneration +and strengthening generally the economic position of those labourers +who are now below the level, not merely of the "equitable minimum," +but of a decent livelihood. This problem will be the subject of the +next chapter. + + + + +CHAPTER XXV + +METHODS OF INCREASING WAGES + + +Proposals for the reform of social conditions are important in +proportion to the magnitude of the evils which they are designed to +remove, and are desirable in proportion to their probable efficacy. +Applying these principles to the labour situation, we find that among +the remedies proposed the primacy must be accorded to a minimum wage. +It is the most important project for improving the condition of labour +because it would increase the compensation of some two-thirds of the +wage earners, and because the needs of this group are greater and more +urgent than the needs of the better-paid one-third. The former are +below the level of reasonable living, while the latter are merely +deprived of the opportunities of a more ample and liberal scale of +living. Hence the degree of injustice suffered by the former is much +greater than in the case of the latter. A legal minimum wage is the +most desirable single measure of industrial reform because it promises +a more rapid and comprehensive increase in the wages of the underpaid +than any alternative device that is now available. The superior +importance of a legally established minimum wage is obvious; its +superior desirability will form the subject of the pages that are +immediately to follow. + + +_The Minimum Wage in Operation_ + +Happily the advocate of this measure is no longer required to meet the +objection that it is novel and utterly uncertain. For more than twenty +years it has been in operation in Australasia. It was implicit in the +compulsory arbitration act of New Zealand, passed in 1894; for the +wages which the arbitration boards enforce are necessarily the lowest +that the affected employers are permitted to pay; besides, the +district conciliation boards are empowered by the law to fix minimum +wages on complaint of any group of underpaid workers. The first formal +and explicit minimum wage law of modern times was enacted by the state +of Victoria in 1896. In the beginning it applied to only six trades, +but it has been extended at various legislative sessions, so that +to-day it protects substantially all the labourers of the state, +except those employed in agriculture. Since the year 1900 all the +other states of Australia have made provision for the establishment of +minimum wages. At present, therefore, the legal minimum wage in some +form prevails throughout the whole of Australasia. + +In 1909 the Trade Boards Act authorised the application of this device +to four trades in Great Britain. In 1913 the provisions of the Act +were made applicable to four other trades, and in 1914 to a third +group of four industries. A special minimum wage law was in 1912 +enacted to govern the entire coal mining industry of the country. + +The first minimum wage law in the United States was passed in 1912 by +Massachusetts. It has been followed by similar legislation in ten +other states; namely, Arkansas, California, Colorado, Kansas, +Minnesota, Nebraska, Oregon, Utah, Washington, and Wisconsin. +California has adopted a constitutional amendment which specifically +authorises minimum wage legislation for women and minors, and Ohio +added a similar provision to her constitution which applies to men as +well. + +The minimum wage statutes of Australasia and Great Britain cover all +classes of workers, but those of the United States are restricted to +minors and women. With the exception of the Utah act, all the +important laws on this subject in all three regions establish minimum +wages indirectly, by authorising commissions and wage boards to +determine the actual rates. In Australasia and Great Britain the +statutes do not attempt to specify any standard to which the wage +determinations of the boards must conform, but the tendency in the +former country in recent years has been to enforce a living wage as +the minimum; that is, wage rates sufficiently high to provide a decent +family livelihood for men, and a reasonable personal livelihood for +women and minors. All the laws in America but one require the +commissions to establish living wages. In Utah no commission is +provided for, as the law itself specifies in terms of money the +minimum rates of remuneration that the employers of women are +permitted to pay. + +The effectiveness of the laws that have been put into operation is at +least as great as their friends had dared to hope. According to +Professor M. B. Hammond of Ohio, who investigated the situation on the +spot in the winter of 1911-1912, the people of Australasia have +accepted the minimum wage "as a permanent policy in the industrial +legislation of that part of the world." Professor Hammond's +observations, and the replies of the Chief Factory Inspector of +Melbourne to the New York Factory Investigating Commission, show the +main effects of minimum wage legislation to be as follows: sweating +and strikes have all but disappeared; the efficiency of the workers +has on the whole increased; the number of workers unable to earn the +legal minimum has not been as great as most persons had feared, and +almost all of them have obtained employment at lower remuneration +through special permits; the legal minimum has not only not become the +actual maximum, but is exceeded in the case of the majority of +workers; no evidence exists to show that any industry has been +crippled, or forced to move out of the country; with the exception of +a very few instances, the prices of commodities have not been raised +by the law.[251] + +In the four trades of Great Britain which were first brought under the +operation of the Trade Boards Act, and which presented some of the +worst examples of economic oppression, the beneficial effects of the +minimum wage have been even more striking than in Australasia. Wages +have been considerably raised, in some cases as high as one hundred +per cent.; dispirited and helpless workers have gained courage, power, +and self-respect to such an extent as to increase considerably their +membership in trade unions, and to obtain in several instances further +increases in remuneration beyond the legal minimum; the compensation +of the better paid labourers has not been reduced to the level fixed +by the trade boards; the efficiency of both employés and productive +processes has been on the whole increased; the number of persons +forced out of employment by the law is negligible; no important rise +of prices is traceable to the law; and the number of business concerns +unable to pay the increase in wages is too small to deserve serious +consideration. All these results had been established before the +outbreak of the war.[252] + +The legal minimum wage has been carried into effect in only four +states of our own country. It covers practically all the industries +employing women and minors in Oregon and Washington, all the working +women and girls of Utah, and the women and minors of a few trades in +Massachusetts. The rates established for experienced women vary from +$7.50 per week in Utah to ten dollars a week for some classes in +Washington. As the first wage determinations were put into effect only +in 1913, American experience has been too short as well as too narrow +to warrant certain conclusions. So far as it has been applied, +however, the legal minimum wage has been as successful in the United +States as in Australasia or Great Britain. All competent witnesses +agree that it has brought a considerable increase in wages to a +considerable proportion of the women and minors in the industries in +which it is operative, and that it has neither thrown any important +number of workers out of employment nor forced any important concern +out of business. Speaking of the three leading industries in which +minimum wages were first established in Washington, the Industrial +Welfare Commission of that state testifies: "Seldom has any piece of +legislation, in prospect, engendered so much discussion and so much +criticism, as did the minimum wage law, with the intricacies of its +ramifications touching almost every industry in the state, large or +small, and the family of nearly every wage earner; seldom, too, has +any law, in actuality, been so well received, its application been +accomplished with so little open opposition, and, for a law of this +character, has been attended with so little industrial disturbance as +that same minimum wage law. None of the dire predictions made prior to +the passage of the law have come about to an extent that questions the +general efficiency of the law. There has been no wholesale discharge +of women employés, no wholesale levelling of wages, no wholesale +replacing of higher paid workers by cheaper help, no tendency to make +the minimum the maximum, while the employers of the state in general +have been following the letter and spirit of the law, and aiding +greatly in its application.... The law, in other words, has advanced +the wages of practically sixty per cent. of the workers in these +industries, and has done it without serious opposition at a time when +business conditions were none too good."[253] The Bureau of Labour +Statistics of the United States investigated the operation of the +minimum wage in the mercantile establishments of Oregon at the end of +the first year. The conclusions of the investigators were in brief +that both the number and the proportion of women getting the legal +minimum ($9.25 per week) for adults had increased, that the proportion +obtaining more than this rate had likewise increased, that those who +had received a rise in remuneration did not show any decline in +efficiency, that women had not been displaced by men, and that the +average increase in the labour cost resulting from the advance in +wages was only three mills on each dollar of sales.[254] The effects +of the Utah law during the first year of its operation were summarised +by the Labour Commissioner, Mr. H. T. Haines, as follows: a rise in +the wages of a "number of women and girls who most needed the +additional sums of money"; increased efficiency of female workers +admitted by most employers; but few cases of women or girls utterly +deprived of employment by the law; none of the higher paid women +suffered a reduction in wages; and ninety per cent. of the employers +are satisfied with the minimum wage statute.[255] So far as the law +has been applied in Massachusetts, it seems to be relatively as +successful as in the other three states.[256] + + +_The Question of Constitutionality_ + +The principal reason why the minimum wage laws on the statute books of +the other seven states have not been carried into effect, is the +uncertainty of the validity of minimum wage legislation in our +constitutional system. In November, 1914, a district judge granted a +writ of injunction, restraining the Minimum Wage Commission of +Minnesota from enforcing their wage determinations, on the ground that +the law attempted to delegate legislative power, and that its +provisions violated that section of the fourteenth amendment to the +United States Constitution which forbids any state to deprive a person +of life, liberty, or property without due process of law. One of the +courts of Arkansas has taken substantially the same position. The +second objection urged by the Minnesota judge is probably much the +more serious of the two, and is the one upon which chief emphasis has +been laid in the briefs filed in various courts by the opponents of +minimum wage legislation. As regards labour legislation, "due process +of law" may be practically translated, "reasonable and necessary +exercise of the State's police power." And the police power means that +indefinite power of the State to legislate for the health, safety, +morals, and welfare of the community.[257] Now it is obvious that a +minimum wage law deprives both employer and employé of some liberty of +contract, and also that it virtually deprives the former of some +property, inasmuch as it generally increases his outlay for wages. On +the other hand, this restriction of liberty and equivalent diminution +of property seem to be carried out in harmony with due process of law, +since they constitute an exercise of the police power of the State on +behalf of the general welfare. Some months before the Minnesota judge +granted the writ of injunction against the enforcement of the minimum +wage law of that state, a lower court and the Supreme Court of Oregon +had pronounced the Oregon statute constitutional, as a legitimate +exercise of the police power. An appeal from this judgment was argued +in the Supreme Court of the United States, Dec. 17, 1914, but no +decision has yet (October, 1916) been rendered. Until the highest +court has spoken on the question of constitutionality, no state is +likely to take any further step toward establishing minimum wages. +Should the decision of the Supreme Court be unfavourable valid minimum +wage legislation will be impossible without an amendment of the United +States Constitution.[258] + + +_The Ethical and Political Aspects_ + +Whether it be considered from the viewpoint of ethics, politics, or +economics, the principle of the legal minimum wage is impregnable. The +State has not only the moral right but the moral duty to enact +legislation of this sort, whenever any important group of labourers +are receiving less than living wages. One of the elementary functions +and obligations of the State is to protect citizens in the enjoyment +of their natural rights; and the claim to a living wage is, as we have +seen, one of the natural rights of the person whose wages are his only +means of livelihood. Therefore, the establishment of minimum living +wages is not among the so-called "optional functions" of the State in +our present industrial society. Whenever it can be successfully +performed, it is a primary and necessary function. So far as political +propriety is concerned, the State may as reasonably be expected to +protect the citizen against the physical, mental, and moral injury +resulting from an unjust wage contract, as to safeguard his money +against the thief, his body against the bully, or his life against the +assassin. In all four cases the essential welfare of the individual +is injured or threatened through the abuse of superior force and +cunning. Inasmuch as the legal minimum wage is ethically legitimate, +the question of its enactment is, politically speaking, entirely a +question of expediency. + + +_The Economic Aspect_ + +Now the question of expediency is mainly economic. A great deal of +nonsense has been written and spoken about the alleged conflict +between the legal minimum wage and "economic law." Economists have +used no such language, indeed; for they know that economic laws are +merely the expected uniformities of social action in given +circumstances. The economists know that economic laws are no more +opposed to a legal minimum wage than to a legal eight hour day, or +legal regulations of safety and sanitation in work places. All three +of these measures tend to increase the cost of production, and +sometimes carry the tendency into reality. A minimum wage law is +difficult to enforce, but not much more so than most other labour +regulations. At any rate, the practical consideration is whether even +a partial enforcement of it will not result in a marked benefit to +great numbers of underpaid workers. It may throw some persons, the +slower workers, out of employment; but here, again, the important +question relates to the balance of good over evil for the majority of +those who are below the level of decent living. At every point, +therefore, the problem is one of concrete expediency, not of agreement +or disagreement with a real or imaginary economic law. + +Some of those who oppose the device on the ground of expediency set up +an argument which runs about as follows: the increase in wages caused +by a minimum wage law will be shifted to the consumer in the form of +higher prices; this result will in turn lead to a falling off in the +demand for products; a lessened demand for goods means a reduced +demand for labour; and this implies a diminished volume of employment, +so that the last state of the workers becomes worse than the first. +Not only is this conception too simple, but it proves too much. If it +were correct every rise in wages, howsoever brought about, would be +ill advised; for every rise would set in motion the same fatal chain +of events. Voluntary increases of remuneration by employers would be +quite as futile as the efforts of a labour union. This is little more +than the old wages fund theory in a new dress. And it is no less +contrary to experience. + +The argument is too simple because it is based upon an insufficient +analysis of the facts. There are no less than four sources from which +the increased wages required by a minimum wage law might in whole or +in part be obtained. In the first place, higher wages will often give +the workers both the physical capacity and the spirit that make +possible a larger output. Thus, they could themselves equivalently +provide a part at least of their additional remuneration. When, +secondly, the employer finds that labour is no longer so cheap that it +can be profitably used as a substitute for intelligent management, +better methods of production, and up to date machinery, he will be +compelled to introduce one or more of these improvements, and to +offset increased labour cost by increased managerial and mechanical +efficiency. This is what seems to have happened in the tailoring +industry of England. According to Mr. Tawney, "the increased costs of +production have, on the whole, been met by better organisation of work +and by better machinery."[259] In the third place, a part of the +increased wage cost can be defrayed out of profits, in two ways: +through a reduction in the profits of the majority of business +concerns in an industry; but more frequently through the elimination +of the less efficient, and the consequent increase in the volume of +business done by the more efficient. In the latter establishments the +additional outlay for wages might be fully neutralised by the +diminished managerial expenses and fixed charges per unit of product. +This elimination of unfit undertakers would not only be in the +direction of greater social efficiency, but in the interest of better +employment conditions generally; for it is the less competent +employers who are mainly responsible for the evil of "sweating," when +they strive to reduce the cost of production by the only method that +they know; that is, the oppression of labour. Should the three +foregoing factors fall short of providing or neutralising the +increased wages, the recourse would necessarily be to the fourth +source; namely, a rise in the price of products. However, there is no +definite reason for assuming that the rise will in any case be +sufficient to cause a net decrease of demand. In Oregon the increased +labour cost due to the minimum wage law amounted, as we have seen, to +only three mills per dollar of sales in mercantile establishments. +Even if this were all shifted to the consumer--something that is +practically impossible--it would be equivalent to an increase of only +three cents on each ten dollars' worth of purchases, and thirty cents +on each hundred. The reduction in sales on account of such a slight +rise in prices would be infinitesimal. In the case of possibly the +majority of products, the lessened demand on the part of the other +classes might be entirely counterbalanced by the increased demand at +the hands of the workers whose purchasing power had been raised +through the minimum wage law. The effect upon sales, and hence upon +business and production, which follows from an increase in the +effective consuming power of the labouring classes is frequently +ignored or underestimated. So far as consumers' goods are concerned, +it seems certain that a given addition to the income of the +wage-earning classes will lead to a greater increase in the demand +for products than an equal addition to the income of any other section +of the people. + +Nevertheless, the possibility must be admitted of some diminution of +employment, owing to higher prices and decreased demand. And it is +certain that some workers would not be worth the legal minimum to +their employers. A part, but probably not all, of these could find +employment at a lower wage, through a system of permits for "slow +workers." Whatever the amount of unemployment resulting from both +these causes, it would undoubtedly be an evil of lesser magnitude than +that which at present follows from the under-payment of a majority of +the labouring population. And it could be remedied by two measures +which are in any case necessary for social welfare, and which would be +hastened by the establishment of a legal minimum wage. These are +adequate and scientific laws and institutions to deal with the general +problem of unemployment, and a comprehensive system of industrial and +vocational training. + +These conclusions, then, seem to be justified: the economic objections +to a legal minimum wage are not essentially different from those that +may be urged against any other beneficial labour legislation; and they +have been sufficiently refuted by experience to throw the burden of +proof upon the objectors. Expediency suggests, however, that in the +United States the device should be applied gradually in two respects: +for a few years it ought to be confined to women and minors; and when +it is extended to men, the rates should approach the level of a +complete family living wage by stages, covering, say, three or four +years. The former restriction would enable the law to be carried +through its experimental stages with a minimum disturbance to industry +as a whole, and with a minimum of opposition, and the latter would +greatly reduce the danger of male unemployment.[260] + + +_Opinions of Economists_ + +When the present writer made an argument for the legal minimum wage +something more than ten years ago, he was able to find only one +American economist who had touched the subject, and the verdict of +that one was unfavourable.[261] A little over a year ago, Dr. John +O'Grady sent an inquiry to one hundred and sixty economists of the +United States to ascertain their opinions on the same subject. Of the +ninety-four who replied seventy were in favour of a minimum wage law +for women and minors, thirteen were opposed, and eleven were +non-committal; fifty-five favoured such legislation for men, twenty +were against it, and nineteen were disinclined to give a categorical +answer. About three-fourths of those who responded expressed the +opinion that the measure would tend to increase the efficiency both of +the workers and of methods of production.[262] + +It is worthy of note that the nine members of the late Federal +Commission on Industrial Relations, although disagreeing widely and +variously on most other important questions and proposals, were all +favourable to a minimum wage law for women and minors.[263] + +The most comprehensive and most searching criticism of the legal +minimum wage from the viewpoint of economic theory has been made by +Professor F. W. Taussig.[264] While he does not commit himself +definitely to the assertion that a universal minimum wage of, say, +eight dollars per week, would cause a notable amount of unemployment +among women, he regards this consequence as sufficiently probable to +indicate the "need of going slow in the regulation of women's wages." +Specifically, he would have public wage boards refrain from fixing the +minimum rates high enough to maintain women living away from home. His +final and only serious argument for this position relates to the +marginal effectiveness of women workers. He assumes that all "the +fitful, untrained, indifferent women are got rid of; that all who +offer themselves for work at the age of (say) eighteen years have had +an industrially helpful education,--" and then raises the question +whether all of them will be "able to get distinctly higher wages than +are now current."[265] Obviously the question is not serious unless it +contemplates the probability of unemployment for a _considerable +proportion_. If only one per cent. or less of the women should be +unable to find employment at the higher wages, the net social +advantage of the minimum wage device would be so obvious as to render +Professor Taussig's opposition quite unreasonable. Making the +assumptions quoted above from his pages, let us try to see whether his +apprehensions are economically justifiable. + +If they are reasonable or probable they must rest on one of two +fundamental conditions: the occupations available to women are too few +to absorb all that would seek to become wage earners at eight dollars +per week; or a considerable section of them would be unable to produce +such a high wage. Possibly the first of these assumptions is true, but +neither Professor Taussig nor any other authority has presented +evidence to support it, and it is on the face of things not +sufficiently probable to justify hesitation in the advocacy of a +minimum living wage. If the second assumption be correct, if the +product of a considerable section of women (all adequately trained) +would be insufficient to yield them eight dollars per week, in +addition to the other costs of production, the conclusion is +inevitable that the same result would follow the attempt to pay all +male adults (likewise adequately trained) a family living wage of, +say, fifteen dollars per week. For the product of the average man does +not exceed that of the average woman by even as great a ratio as +fifteen to eight. If the average woman is not worth eight dollars a +week to an employer in any kind of woman's occupation, the average man +is not worth fifteen dollars. Therefore, we cannot hope, even with the +aid of a thorough system of industrial and vocational training, to +provide all adult males of average capacity with a family living wage +and the minimum means of living a reasonable life. + +This is a veritable counsel of despair. It implies either that the law +of diminishing returns is already operating in this country in such a +way as to prevent the national product from being sufficiently large +to provide a minimum wage of fifteen dollars a week for men, and eight +dollars a week for women; or that the product, though ample for this +purpose, and for all the other necessary payments to the higher priced +workers and to the other agents of production, cannot under our +present industrial system be so distributed as to attain the desired +end. For the first of these hypotheses there is no evidence worthy of +the name. If Professor King is right in his estimate of an average +family income of 1494 dollars annually[266] the difficulty before us +does not lie in the field of production. Professor Taussig seems to +rest his fears on the second hypothesis, on the assumed impossibility +of bringing about the required distribution; for he points out that +increased efficiency of the workers may, like increased efficiency of +the material instrumentalities of production, in the long run redound +mainly to the benefit of the consumers, while wages may be little if +any above the old level. If these fears are justified, if the +difficulty is entirely one of the mechanism of distribution, and if it +cannot be overcome by legal enactment, then is our competitive +organisation of industry bankrupt, and the sooner we find out that +fact definitely the better. If the legal minimum wage will help to +expose such a situation, will show that, no matter how much the +productivity of the workers may be increased, a large proportion of +them must by the very nature of the competitive system be forever +condemned to live below the level of decent existence, then the +minimum wage is worth having merely as an instrument of economic +enlightenment. + +Professor Taussig's argument and illustrations[267] seem to +contemplate a condition in which the number of women who become fitted +for a certain trade is excessive relatively to the demand for its +products, and to the supply of women in other industries. Were +industrial training thus misdirected, and were the trained persons +unable or unwilling to distribute themselves over other occupations, +they would, indeed, face precisely the same dilemma as do the +unskilled workers to-day. That is; a majority would be condemned to +insufficient wages, or a minority to unemployment. But we have been +assuming an _adequate_ system of industrial and vocational training, a +well-balanced system, one that would enable the workers to adjust +their supply to the demand throughout the various occupations. In +these conditions the economic axiom that a supply of goods is a demand +for goods should become beneficently effective: the workers should all +be able to find employment, and to obtain the greater part of their +increased product. Surely Professor Taussig does not mean to commit +himself to the view that every increase in the productive power of the +workers will in the long run help them only inasmuch as they are +consumers, the lion's share of the additional product being taken by +other classes. Probably such is the usual result in a régime of +unregulated competition, and unlimited freedom as regards the wage +contract. But this is precisely what we expect a minimum wage law to +correct and prevent. We rely upon this device to enable the workers to +retain for themselves that share of the product which under free +competition would automatically go to the non-labouring consumers. We +hope that blind and destructive economic force can be held in check by +deliberate and beneficent social control. + +The fact of the matter seems to be that Professor Taussig's argument +is too hypothetical and conjectural to justify his pessimistic +conclusions. It is unpleasantly suggestive of the reasoning by which +the classical economists tried to show the English labourers the folly +and futility of trade unionism. + + +_Other Legislative Proposals_ + +The ideal standard of a minimum wage law is a scale of remuneration +adequate not only to the present needs of individuals and families, +but to savings for the contingencies of the future. Until such time as +the compensation of all labourers has been brought up to this level, +the State should make provision for cheap housing, and for insurance +against accidents, sickness, invalidity, old age, and unemployment. +The theory underlying such measures is that they would merely +supplement insufficient remuneration, and indirectly contribute to the +establishment of genuine living wages. In Europe, housing and +insurance legislation is so common that no reasonable and intelligent +person any longer questions the competency or propriety of such action +by the State. + +If an adequate legal minimum wage, in the sense just defined, were +universally established, the State would not be required to do +anything further to effectuate wage justice, except in the matter of +vocational and industrial education. This would qualify practically +all persons to earn at least a living wage, and would enable those +who underwent unusual sacrifices either before or during their +employment to command something over and above. In other words, all +workers would then be able to obtain what we have called "the +equitable minimum." And the labouring class as a whole would possess +sufficient economic power to secure substantially all that was due by +any of the canons of distributive justice. + + +_Labour Unions_ + +The general benefits and achievements of labour organisations in the +United States down to the beginning of the present century, cannot be +more succinctly nor more authoritatively stated than in the words of +the United States Industrial Commission: "An overwhelming +preponderance of testimony before the Industrial Commission indicates +that the organisation of labour has resulted in a marked improvement +in the economic condition of the workers."[268] Some of the most +conspicuous and unquestionable proofs of rises in wages effected by +the unions are afforded by the building trades, the printing trades, +the coal mining industry, and the more skilled occupations on the +railroads. Between 1890 and 1907 wages increased considerably more in +the organised than in the unorganised trades.[269] + +Nevertheless, when all due credit is given to the unions for their +part in augmenting the share of the product received by labour, there +remain two important obstacles which seriously lessen their efficacy +as a means of raising the wages of the underpaid. + +The first is the fact that the unions still embrace only a small +portion of the total number of wage earners. According to Professor +Leo Wolman, a little more than twenty-seven million of the +thirty-eight million persons engaged in "gainful occupations" in the +United States in 1910 were wage earners in the ordinary sense of that +phrase, and of these twenty-seven million only 2,116,317, or 7.7 per +cent., were members of labour organisations.[270] The membership +to-day is about two and three quarter millions. If the total number of +wage earners increased between 1910 and 1916 at the same rate as +during the preceding decade, the organised portion is now somewhat +less than 7.7 per cent. of the whole. Evidently the labour unions have +not grown with sufficient rapidity, nor are they sufficiently powerful +to warrant the hope that they will be soon able to lift even a +majority of the underpaid workers to the level of living wage +conditions. + +The second obstacle is the fact that only a small minority of the +members of labour unions are drawn from the unskilled and underpaid +classes, who stand most in need of organisation. The per cent. of +those getting less than living wages that is in the unions is almost +negligible. With the exception of a few industries, the unskilled and +the underpaid show very little tendency to increase notably their +organised proportion. The fundamental reason of this condition has +been well stated by John A. Hobson: "The great problem of poverty ... +resides in the conditions of the low-skilled workman. To live +industrially under the new order he must organise. He cannot organise +because he is so poor, so ignorant, so weak. Because he is not +organised he continues to be poor, ignorant, weak. Here is a great +dilemma, of which whoever shall have found the key will have done much +to solve the problem of poverty."[271] + +The most effective and expeditious method of raising the wages of the +underpaid through organisation is by means of the "industrial," as +distinguished from the "trade," or "craft," union. In the former all +the trades of a given industry are united in one compact organisation, +while the latter includes only those who work at a certain trade or +occupation. For example: the United Mine Workers embrace all persons +employed in coal mines, from the most highly skilled to the lowest +grade of unspecialised labour; while the craft union is exemplified in +the engineers, firemen, conductors, switchmen, and other groups having +their separate organisations in the railroad industry. The industrial +union is as much concerned with the welfare of its unskilled as of its +skilled members, and exerts the whole of its organised force on behalf +of each and every group of workers throughout the industry which it +covers. The superior suitability of the industrial type of union to +the needs of the unskilled labourers is seen in the fact that more of +them are organised in the coal mining than in any other industry, and +have received greater benefits from organisation than their unskilled +fellow workers in any other industry. Were the various classes of +railway employés combined in one union, instead of being organised +along the lines of their separate crafts, it is quite improbable that +the unskilled majority would be getting, as they now are getting, less +than living wages. While it is true that the various craft unions in +an industry are often federated into a comprehensive association, the +bond uniting them is not nearly so close, nor so helpful to the weaker +groups of workers as in the case of the industrial unions. + +Human nature being what it is, however, the members of the skilled +crafts cannot all be induced or compelled to adopt the industrial type +of organisation. The Knights of Labour attempted to accomplish this, +and for a time enjoyed a considerable measure of success, but in the +end the organisation was unable to withstand those fundamental +inclinations which impel men to prefer the more narrow, homogeneous, +and exclusive type of association. The skilled workers refused to +merge their local and craft interests in the wider interests of men +with whom they had no strong nor immediate bonds of sympathy. Among +labourers, as well as among other persons, the capacity for altruism +is limited by distance in space and occupational condition. The +passion for distinction likewise affects the wage earner, impelling +the higher groups consciously or unconsciously to oppose association +that tends to break down the barrier of superiority. Owing to their +greater resources and greater scarcity, the skilled members of an +industrial union are less dependent upon the assistance of the +unskilled than the latter are dependent upon the former; yet the +skilled membership is always in a minority, and therefore in danger of +being subordinated to the interests of the unskilled majority. + +For these and many other reasons it is quite improbable that the +majority of union labourers can be amalgamated into industrial unions +in the near future. The most that can be expected is that the various +occupational unions within each industry should become federated in a +more compact and effective way than now prevails, thus conserving the +main advantages of the local and craft association, while assuring to +the unskilled workers some of the benefits of the industrial union. + + +_Organisation Versus Legislation_ + +In the opinion of some labour leaders, the underpaid workers should +place their entire reliance upon organisation. The arguments for this +position are mainly based upon three contentions: it is better that +men should do things for themselves than to call in the intervention +of the State; if the workers secure living wages by law they will be +less likely to organise, or to remain efficiently organised; and if +the State fixes a minimum wage it may some day decide to fix a +maximum. + +Within certain limits the first of these propositions is +incontestable. The self education, self reliance, and other +experiences obtained by the workers through an organised struggle for +improvements of any kind, are too valuable to be lightly passed over +for the sake of the easier method of State assistance. Indeed, it +would be better to accept somewhat less, or to wait somewhat longer, +in order that the advantages might be secured through organisation. +However, these hypotheses are not verified as regards the minimum wage +problem. The legal method promises with a high degree of probability +to bring about universal living wages within ten or fifteen years. The +champions of organisation can point to no solid reasons for indulging +the hope that their method would achieve the same result within a half +a century. Therefore, the advantages of the device of organisation are +much more than neutralised by its disadvantages. + +The fear that the devotion of the workers to the union would decline +as soon as living wages had been secured by law, seems to have no +adequate basis either in experience or in probability. Speaking of the +establishment of minimum wages in the tailoring industry of Great +Britain, Mr. Tawney declares that it "has given an impetus to trade +unionism among both men and women. The membership of the societies +connected with the tailoring trade has increased, and in several +districts the trade unions have secured agreements fixing the standard +rate considerably above the minimum contained in the Trade Board's +determination."[272] Similar testimony comes from Australasia. Indeed, +this is precisely what we should be inclined to expect; for the +workers whose wages had been raised would for the first time possess +the money and the courage to support unions; and would have sufficient +incentives thereto in the natural desire to obtain something more than +the legal minimum, and in the realisation that organisation was +necessary to give them a voice in the determination of the minimum, +and to enable them to co-operate in compelling its enforcement. +Indeed, general experience shows that organisation becomes normally +efficient and produces its best results only among workers who have +already approximated the level of living wages. + +To be sure, the State could set up maximum instead of minimum +wages,--if the employing classes were sufficiently powerful. But all +indications point to a decline rather than an increase in their +political influence, and to a corresponding expansion in the +governmental influence of the labouring classes and their +sympathisers. Moreover, the labour leaders who urge this objection are +inconsistent, inasmuch as they advocate other beneficial labour +legislation. The distinction which they profess to find between laws +that merely remove unfair legal and judicial disabilities and laws +that reduce the length of the working day or fix minimum wages, has no +importance in practical politics or in the mind of the average +legislature. If the political influence of labour should ever become +so weak and that of capital so strong as to make restrictive labour +legislation generally feasible, legislators would not confine their +unfriendly action to the field of positive measures. They would be +quite as ready to pass a law prohibiting strikes as to enact a statute +fixing maximum wages. The formal legalisation of strikes, picketing, +and the primary boycott which is contained in the Clayton Act, and for +which the labour unions worked long and patiently, could conceivably +be seized upon by some future unfriendly Congress as a precedent and +provocation for legislation which would not only repeal all the +favourable provisions of the Clayton Act, but subject labour to +entirely new and far more odious restraints and interferences. The +fact that governments passed maximum wage laws in the past is utterly +irrelevant to the question of wage legislation to-day. A legal minimum +wage, and a multitude of other protective labour laws are desirable +and wise in the twentieth century for the simple reason that labour +and the friends of labour are sufficiently powerful to utilise this +method, and because their influence seems destined to increase rather +than decrease. The contrary hypothesis is too improbable for serious +consideration. + +The conclusions that seem justified by a comprehensive and critical +view of all the facts of the situation, are that organisation is not +of itself an adequate means of bringing about living wages for the +underpaid, but that it ought nevertheless to be promoted and extended +among these classes, not only for its direct effect upon wages, but +for its bearing upon legislation. The method of organisation and the +method of legislation are not only not mutually opposed, but are in a +very natural and practical manner complementary. + + +_Participation in Capital Ownership_ + +While those workers whose remuneration is below the level of decent +maintenance are not ordinarily in a position to become owners of any +kind of capital, many of them, especially among the unmarried men, can +accumulate savings by making large sacrifices. As a matter of fact, +hundreds of thousands of the underpaid have become interest receivers +through the medium of savings banks, real estate possessions, and +insurance policies. Every effort in this direction is distinctly worth +while, and deserving of encouragement. Labourers who are above the +minimum wage level can, of course, save much larger amounts, and with +less sacrifices than the underpaid classes. In all cases the main +desideratum is that the workers should derive some income from +capital; but it is almost equally important that their capital +ownership should wherever possible take the form of shares in the +industry in which they are employed, or the store at which they buy +their goods. This means co-operative production and co-operative +distribution. The general benefits of the co-operative enterprise +have already been described in chapter xiv. For the wage earner +proprietorship in a co-operative concern is preferable to any other +kind of capital ownership because of the training that it affords in +business management and responsibility, in industrial democracy, and +in the capacity to subordinate his immediate and selfish interests to +his more remote and larger welfare. + +Co-operative ownership of the tools with which men work has advantages +of its own over co-operative ownership of the stores from which they +made their purchases, inasmuch as it increases their control over the +conditions of employment, and gives them incentives to efficiency +which results in a larger social product and a larger share thereof +for themselves. As already pointed out in chapter xiv, the ideal type +of productive co-operation is that known as the "perfect" form, in +which the workers are the exclusive owners of the concern where they +exercise their labour. Nevertheless, the "federal" type, in which the +productive concern is directly owned by a wholesale co-operative, +indirectly by the retail co-operative store, and ultimately by the +co-operative consumers,--presents one important advantage. It could be +so modified as to enable the employés of the productive enterprise to +share the ownership of the latter with the wholesale establishment. +Such an arrangement would at once give the workers the benefits of +productive co-operation mentioned above, and render probable a +satisfactory adjustment of the conflicting claims of producers and +consumers. As intimated in chapter xxiv, such a conflict is inherent +in every system of industrial organisation, and will become more +evident and more acute in proportion to the strengthening of the +position of labour. + +A final reason for ownership of capital by labour deserves mention +here, even though it has no immediate bearing upon the question of +remuneration. Were all labourers receiving the full measure of wages +to which they are entitled by the canons of distributive justice, it +would still be highly desirable that the majority if not all of them +should possess some capital, preferably in the productive and +distributive concerns in which they were immediately interested. It +does not seem probable that our economic system as now constituted, +with the capital owners and the capital operators for the most part in +two distinct classes, will be the final form of industrial +organisation. Particularly does this arrangement seem undesirable, +incongruous, and unstable in a society whose political form is that of +democracy. Ultimately the workers must become not merely wage earners +but capitalists. Any other system will always contain and develop the +seeds of social discontent and social disorder. + + +REFERENCES ON SECTION IV + + ADAMS AND SUMNER: Labour Problems. Macmillan; 1905. + + COMMONS AND ANDREWS: Principles of Labour Legislation. + Harpers; 1916. + + WALKER: The Wages Question. New York; 1876. + + RYAN: A Living Wage. Macmillan; 1906. + + SNOWDEN: The Living Wage. London; Hodder & Stoughton. + + O'GRADY: A Legal Minimum Wage. Washington; 1915. + + BRODA: La Fixation Légale des Salaires. Paris; 1912. + + N. Y. FACTORY INVESTIGATING COMMISSION. Appendix to Vol. III. + + TAWNEY: Minimum Rates in the Chain-Making Industry. London; + 1914. + + Minimum Rates in the Tailoring Industry. London; 1915. + + TURMAN: Le Catholicisme Social. Paris; 1900. + + POTTIER: De Jure et Justitia. Liege; 1900. + + POLIER: L'Idée du Juste Salaire. Paris; 1903. + + MENGER: The Right to the Whole Produce of Labour. London; + 1899. + + GARRIGUET: Régime du Travail. Paris; 1908. + + NEARING: Reducing the Cost of Living. Philadelphia; 1914. + + CHAPIN: The Standard of Living in New York City. New York; + 1909. + + Also the works on co-operation cited in connection with + Section II, and those of Hobson, Carver, Nearing and + Streightoff. + +FOOTNOTES: + +[251] See articles by Hammond in the _American Economic Review_, June, +1913, and in the _Annals of the American Academy of Political and +Social Science_, July, 1913; and page 62 of the Appendix to the third +volume of the Report of the New York State Factory Investigating +Commission. + +[252] See the replies of the London Board of Trade to the N. Y. +Factory Investigating Commission, on pages 77, 78 of the volume cited +above; and especially the two monographs by R. H. Tawney, "The +Establishment of Minimum Rates in the Chain-Making Industry," and "The +Establishment of Minimum Rates in the Tailoring Industry." London; +1914 and 1915. + +[253] "First Biennial Report of the Industrial Welfare Commission of +Washington," pp. 13, 15. + +[254] "Effect of Minimum Wage Determinations in Oregon." Bulletin No. +176 of United States Bureau of Labour Statistics. + +[255] From a paper read before the National Convention of the +Association of Government Labour Officials, Nashville, Tenn., June 9, +1914. + +[256] See Bulletins of Massachusetts Minimum Wage Commission. + +[257] See the excellent and varied series of papers on the subject in +Orth's "The Relation of Government to Property and Industry," pp. +103-178. Ginn & Company; 1915. + +[258] The arguments for and against the constitutionality of a legal +minimum wage are adequately presented in the briefs, respectively, of +Louis D. Brandeis and Rome G. Brown, in the cases of Stettler _vs._ +O'Hara and Simpson _vs._ O'Hara. The former is published by the +National Consumers' League, New York, and the latter by the Review +Publishing Company, Minneapolis. + +[259] "Minimum Rates in the Tailoring Industry," p. 161. + +[260] One of the best statements of the economic aspect of the minimum +wage is that by Sidney Webb, in the _Journal of Political Economy_, +Dec., 1912. Probably the most varied and comprehensive general +discussion is the symposium in the _Survey_, Feb. 6, 1915. See +especially the excellent presentation in Commons and Andrews' +"Principles of Labour Legislation," pp. 167-200. + +[261] See pages 303, 304 of "A Living Wage"; Macmillan, 1906. + +[262] O'Grady, "A Legal Minimum Wage"; Washington, 1915. + +[263] "Final Report," pp. 101, 255, 364. + +[264] _The Quarterly Journal of Economics_, May, 1916. A somewhat less +unfavourable criticism is contained in the paper by Professor John +Bates Clark in the _Atlantic Monthly_, September, 1913. + +[265] Page 436. + +[266] "The Wealth and Income of the People of the United States," p. +129. + +[267] Page 437. + +[268] "Final Report," p. 802. Washington, 1902. + +[269] See article by Professor Commons in "The New Encyclopedia of +Social Reform," p. 1233. + +[270] _The Quarterly Journal of Economics_, May, 1916, p. 502. + +[271] "Problems of Poverty," p. 227. London, 1891. + +[272] "Minimum Rates in the Tailoring Industry," p. 96. + + + + +CHAPTER XXVI + +SUMMARY AND CONCLUSION + + +Throughout this book we have been concerned with a two-fold problem: +to apply the principles of justice to the workings of the present +distributive system, and to point out the modifications of the system +that seemed to promise a larger measure of actual justice. The +mechanism of distribution was described in the introductory chapter as +apportioning the national product among the four classes that +contribute the necessary factors to the process of production, and the +first part of the problem was stated as that of ascertaining the size +of the share which ought to go to each of these classes. + + +_The Landowner and Rent_ + +We began this inquiry with the landowner and his share of the product, +i.e., rent. We found that private ownership of land has prevailed +throughout the world with practical universality ever since men began +to till the soil in settled communities. The arguments of Henry George +against the justice of the institution are invalid because they do not +prove that labour is the only title of property, nor that men's equal +rights to the earth are incompatible with private landownership, nor +that the so-called social production of land values confers upon the +community a right to rent. Private ownership is not only socially +preferable to the Socialist and the Single Tax systems of land tenure, +but it is, as compared with Socialism certainly, and as compared with +the Single Tax probably, among man's natural rights. On the other +hand, the landowner's right to take rent is no stronger than the +capitalist's right to take interest; and in any case it is inferior to +the right of the tenant to a decent livelihood, and of the employé to +a living wage. + +Nevertheless, the present system of land tenure is not perfect. Its +principal defects are: the promotion of certain monopolies, as, +anthracite coal, steel, natural gas, petroleum, water power, and +lumber; the diversion of excessive gains to landowners, as indicated +by the recent great increases in the value of land, and the very large +holdings by individuals and corporations; and the exclusion of large +masses of men from the land because the owners will not sell it at its +present economic value. The remedies for these evils fall mainly under +the heads of ownership and taxation. All mineral, timber, gas, oil, +grazing, and water-power lands that are now publicly owned, should +remain the property of the states and the nation, and be brought into +use through a system of leases to private individuals and +corporations. Cities should purchase land, and lease it for long +periods to persons who wish to erect business buildings and dwellings. +By means of taxation the State might appropriate the future increases +of land values, subject to the reimbursement of private owners for +resulting decreases in value; and it could transfer the taxes on +improvements and personal property to land, provided that the process +were sufficiently gradual to prevent any substantial decline in land +values. In some cases the State might hasten the dissolution of +exceptionally large and valuable estates through the imposition of a +supertax. + + +_The Capitalist and Interest_ + +The Socialist contention that the labourer has a right to the entire +product of industry, and therefore that the capitalist has no right to +interest, is invalid unless the former alleged right can be +effectuated in a reasonable scheme of distribution; and we know that +the contemplated Socialist scheme is impracticable. Nevertheless, the +refutation of the Socialist position does not automatically prove that +the capitalist has a right to take interest. Of the titles ordinarily +alleged in support of such a right, productivity and service are +inconclusive, while abstinence is valid only in the case of those +capital owners to whom interest was a necessary inducement for saving. +Since it is uncertain whether sufficient capital would be provided +without interest, and since the legal suppression of interest is +impracticable, the State is justified in permitting the practice of +taking interest. But this legal permission does not justify the +individual interest-receiver. His main and sufficient justification is +to be found in the presumptive title which arises out of possession, +in the absence of any adverse claimant with a stronger title to this +particular share of the product. + +The only available methods of lessening the burden of interest are a +reduction in the rate, and a wider diffusion of capital through +co-operative enterprise. Of these the former presents no definite or +considerable reasons for hope, either through the rapid increase of +capital or the inevitable extension of the industrial function of +government. The second proposal contains great possibilities of +betterment in the fields of banking, agriculture, stores, and +manufacture. Through co-operation the weaker farmers, merchants, and +consumers can do business and obtain goods at lower costs, and save +money for investment with greater facility, while the labourers can +slowly but surely become capitalists and interest-receivers, as well +as employés and wage-receivers. + + +_The Business Man and Profits_ + +Just remuneration for the active agents of production, whether they be +directors of industry or employés, depends fundamentally upon five +canons of distribution; namely, needs, efforts and sacrifices, +productivity, scarcity, and human welfare. In the light of these +principles it is evident that business men who use fair methods in +competitive conditions, have a right to all the profits that they can +obtain. On the other hand, no business man has a strict right to a +minimum living profit, since that would imply an obligation on the +part of consumers to support superfluous and inefficient directors of +industry. Those who possess a monopoly of their products or +commodities have no right to more than the prevailing or competitive +rate of interest on their capital, though they have the same right as +competitive business men to any surplus gains that may be due to +superior efficiency. The principal unfair methods of competition; that +is, discriminative underselling, exclusive-selling contracts, and +discrimination in transportation, are all unjust. + +The remedies for unjust profits are to be found mainly in the action +of government. The State should either own and operate all natural +monopolies, or so regulate their charges that the owners would obtain +only the competitive rate of interest on the actual investment, and +only such surplus gains as are clearly due to superior efficiency. It +should prevent artificial monopolies from practising extortion toward +either consumers or competitors. Should the method of dissolution +prove inadequate to this end, the State ought to fix maximum prices. +Inasmuch as overcapitalisation has frequently enabled monopolistic +concerns to obtain unjust profits, and always presents a strong +temptation in this direction, it should be legally prohibited. A +considerable part of the excessive profits already accumulated can be +subjected to a better distribution by progressive income and +inheritance taxes. Finally, the possessors of large fortunes and +incomes could help to bring about a more equitable distribution by +voluntarily complying with the Christian duty of bestowing their +superfluous goods upon needy persons and objects. + + +_The Labourer and Wages_ + +None of the theories of fair wages that have been examined under the +heads of "the prevailing rate," "exchange-equivalence," or +"productivity" is in full harmony with the principles of justice. The +minimum of wage justice can, however, be described with sufficient +definiteness and certainty. The adult male labourer has a right to a +wage sufficient to provide himself and family with a decent +livelihood, and the adult female has a right to remuneration that will +enable her to live decently as a self supporting individual. At the +basis of this right are three ethical principles: all persons are +equal in their inherent claims upon the bounty of nature; this general +right of access to the earth becomes concretely valid through the +expenditure of useful labour; and those persons who are in control of +the goods and opportunities of the earth are morally bound to permit +access thereto on reasonable terms by all who are willing to work. In +the case of the labourer, this right of reasonable access can be +effectuated only through a living wage. The obligation of paying this +wage falls upon the employer because of his function in the industrial +organism. And the labourer's right to a living wage is morally +superior to the employer's right to interest on his capital. Labourers +who put forth unusual efforts or make unusual sacrifices have a right +to a proportionate excess over living wages, and those who are +exceptionally productive or exceptionally scarce have a right to the +extra compensation that goes to them under the operation of +competition. Labourers who are receiving the "equitable minimum" +described in the last sentence have a right to still higher wages at +the expense of the capitalist and the consumer, if they can secure +them through the processes of competition; for the additional amount +is an ethically unassigned or ownerless property which may be taken +by either labourer, capitalist, or consumer, provided that there is +no artificial limitation of supply. + +The methods of increasing wages are mainly three: a minimum wage by +law, labour unions, and co-operative enterprise. The first has been +fairly well approved by experience, and is in no wise contrary to the +principles of either ethics, politics, or economics. The second has +likewise been vindicated in practice, though it is of only small +efficacy in the case of those workers who are receiving less than +living wages. The third would enable labourers to supplement their +wage incomes by interest incomes, and would render our industrial +system more stable by giving the workers an influential voice in the +conditions of employment, and laying the foundation of that +contentment and conservatism which arise naturally out of the +possession of property. + +As a matter of convenience, the foregoing paragraphs may be further +summarised in the following abridgment: The landowner has a right to +all the economic rent, modified by the right of his tenants and +employés to a decent livelihood, and by the right of the State to levy +taxes which do not substantially lower the value of the land. The +capitalist has a right to the prevailing rate of interest, modified by +the right of his employés to the "equitable minimum" of wages. The +business man in competitive conditions has a right to all the profits +that he can obtain, but corporations possessing a monopoly have no +right to unusual gains except those due to unusual efficiency. The +labourer has a right to living wages, and to as much more as he can +get by competition with the other agents of production and with his +fellow labourers. + + +_Concluding Observations_ + +No doubt many of those who have taken up this volume with the +expectation of finding therein a satisfactory formula of distributive +justice, and who have patiently followed the discussion to the end, +are disappointed and dissatisfied at the final conclusions. Both the +particular applications of the rules of justice and the proposals for +reform, must have seemed complex and indefinite. They are not nearly +so simple and definite as the principles of Socialism or the Single +Tax. And yet, there is no escape from these limitations. Neither the +principles of industrial justice nor the constitution of our +socio-economic system is simple. Therefore, it is impossible to give +our ethical conclusions anything like mathematical accuracy. The only +claim that is made for the discussion is that the moral judgments are +fairly reasonable, and the proposed remedies fairly efficacious. When +both have been realised in practice, the next step in the direction of +wider distributive justice will be much clearer than it is to-day. + +Although the attainment of greater justice in distribution is the +primary and most urgent need of our time, it is not the only one that +is of great importance. No conceivable method of distributing the +present national product would provide every family with the means of +supporting an automobile, or any equivalent symbol of comfort. Indeed, +there are indications that the present amount of product per capita +cannot long be maintained without better conservation of our natural +resources, the abandonment of our national habits of wastefulness, +more scientific methods of soil cultivation, and vastly greater +efficiency on the part of both capital and labour. Nor is this all. +Neither just distribution, nor increased production, nor both +combined, will insure a stable and satisfactory social order without a +considerable change in human hearts and ideals. The rich must cease to +put their faith in material things, and rise to a simpler and saner +plane of living; the middle classes and the poor must give up their +envy and snobbish imitation of the false and degrading standards of +the opulent classes; and all must learn the elementary lesson that +the path to achievements worth while leads through the field of hard +and honest labour, not of lucky "deals" or gouging of the neighbour, +and that the only life worth living is that in which one's cherished +wants are few, simple, and noble. For the adoption and pursuit of +these ideals the most necessary requisite is a revival of genuine +religion. + + + + +INDEX + + + Abstinence: as a title to interest, 182-186. + + Adams, T. S.: 301, 302. + + Adam Smith: 331, 341. + + Agriculture: co-operation in, 217-220. + + Alaska: leasing system in, 96. + + Altruism: efficacy of under Socialism, 165-167; + promoted by co-operation, 229. + + Ambrose, Saint: 305. + + American Sugar Refining Company: 267, 272, 289. + + American Tobacco Company: 263, 267, 288. + + Analogy: economic, as justifying interest, 205, 206. + + Anthracite coal: a monopoly, 75, 78, 95, 132. + + Antoine, Charles: 337-340. + + Antoninus, Saint: 270. + + Aquinas, Saint Thomas: 63, 64, 175, 181, 208, 304, 306, 307, 333. + + Arbitration: failure of, 324. + + Ashley, W. J.: 9. + + Astor estate: 88, 89. + + Augustine, Saint: 305. + + Australasia: special land taxes in, 118-120, 131; + minimum wage in, 401, 402. + + Authorities: Catholic and Protestant, on living wage, 277, 278. + + + Basil, Saint: 305. + + Bible, the: on the duty of benevolence, 303, 304, 316, 317. + + Brandeis, Louis D.: 265, 275. + + Business man: functions and rewards of, 237-239, 255-258; + no right of to minimum profits, 258-260, 362, 363; + the superfluous, 260, 261. + + + Canada: special land taxes in, 117-120. + + Canonist: doctrine of wage justice, 333-336. + + Canons of distributive justice: 243-253. + + Capital: meaning of, 137, 138; + power of to create value, 146-148; + Catholic teaching concerning interest on, 175-177; + titles of to interest, 177-186; + value of in a no-interest régime, 188-190; + need for a wider distribution of, 213, 214; + need for ownership of by labour, 214, 229, 230. + + Capitalists: two kinds of, 138; + expropriation of, 154-158; + right of to take interest, 201-209; + claims of, versus claims of labourers, 367-369, 390-393, 396. + + Carnegie, Andrew: 300. + + Carver, T. N.: 351-355. + + Catholic Church: attitude of toward interest, 172-176. + + Child workers: right of to a living wage, 373. + + Christian conception of welfare: 316-318. + + Clark, J. B.: 271, 347-351. + + Compensation: to landowners, 34-39; + to capitalists under Socialism, 154-158. + + Competition: alleged failure of, 275-278. + + Confiscation: of land values under the Single Tax, 34-39; + of capital under Socialism, 154-158; + of wealth by taxation, 297, 298. + + Constitutionality of minimum wage laws: 405-407. + + Consumer: injury to through stockwatering, 282-288; + obligations of to business man, 258, 259, 362, 363; + versus labourer, 393-398. + + Contract: onerous, 326; + free, as a rule of wage justice, 328-330, 370-372. + + Co-operation: as a partial solvent of capitalism, 210-233; + essence and kinds of, 214, 215; + in banking, 216, 217; + in agriculture, 217-220; + in stores, 220-222; + in production, 222-228; + effect of on social stability, 229, 230; + as compared with individualism and Socialism, 230, 231; + province and limitations of, 231-233; + bearing of on the superfluous business man, 260, 261; + and on the labouring classes, 423-425. + + Co-partnership: 223, 224. + + Corporation: profits of a, 241, 242, 257, 258, 262, 389. + + Cost of living: 378, 379. + + Cost of production: of capital, 188, 189. + + Credit societies: co-operative, 216, 217. + + + Defects of our land system: 74-93; + monopoly, 75-80; + excessive gains, 80-89; + exclusion, 90-93. + + Devas, Charles: 184. + + Disagreeable tasks: 384, 385. + + Dixon, F. H.: 323. + + Discriminative transportation contracts: 272, 273. + + Discriminative underselling: 267-270. + + Distribution of superfluous wealth: 303-319. + + Distributive justice: canons of, 243-253, 381, 382. + + + Earth: right of access to, 358-360. + + Economic determinism: inconsistent with ethical judgments, 20, 145, + 146, 343, 344. + + Efficiency: monopolistic, 265-267, 275-277, 279; + exceptional, 388-390. + + Efforts: exceptional, as claim to rewards, 382-383. + + Efforts and sacrifices: as canons of distribution, 245-247. + + Ely, R. T.: 330. + + Employer: gains of from wage contract, 327, 328; + obligation of to pay a living wage, 365-372. + + Engels, F.: 20. + + Ensor, E. K.: 50. + + Equal gains: as a canon of wage justice, 326-328. + + Equality: as a canon of justice, 243, 244; + of men's claims to the bounty of nature, 358, 359; + of rights to a decent livelihood, 360-363. + + "Equitable minimum": of wages, 388, 390, 392, 393, 395, 397, 398, + 399, 417. + + Equity: meaning of, 256. + + Exchange-equivalence: theories of, 326-340; + equal gains, 326-328; + free contract, 328-330; + market value, 330-332; + mediæval, 332-336; + modern, 336-340. + + Exclusion from the land: 90-93. + + Exclusive-sales contracts: 270-272. + + Expropriation: of capitalists under Socialism, 154-158. + + Extrinsic titles: of interest, 172. + + + Family living wage: 373-376. + + Fathers of the Church: on private property in land, 62; + on duty of beneficence, 305, 306. + + Fay, C. R.: 214, 221, 227. + + Fisher, Irving: 196. + + Fortunes: legal limitation of, 291-302; + directly, 292-295; + by taxation, 296-302. + + France: co-operative production in, 223. + + Fustel de Coulanges: 9. + + + Gains: excessive from land, 80-89; + from monopolies, 263-265. + + Germany: co-operation in, 216. + + Giffen, Sir Robert: 189. + + Godwin, W.: 341. + + Government ownership: 93-95; + limitations of, 163-165; + and rate of interest, 212. + + Great Britain: co-operation in, 220-222; + income taxes in, 299-300; + minimum wage in, 401, 402. + + + Haines, H. T.: 405. + + Hammond, M. B.: 402. + + Henry George: on primitive common ownership, 17; + on first occupancy, 21-24; + on title of labour, 24-29; + on natural right to land, 30-39; + on right of community to land values and rent, 39-47; + on Single Tax, 51, 52. + + Hillquit, Morris: 159. + + Hobson, J. A.: 418. + + Howe, F. C.: 76-78. + + Human welfare: the test of property rights in land, 36-38; + and of a system of land tenure, 74; + and of increment taxes, 109-111; + and of titles of property, 150, 151, 244, 293-295; + as a canon of distributive justice, 252, 253; + as justifying profits, 256, 257, 389; + as justifying higher than living wages, 386. + + Hyndman and Morris: 20. + + + Income: distribution of national, 81-83. + + Incomes: injustice of equal, 244; + progressive taxation of, 297-302. + + Increment taxes: 102-117. + + Inefficiency: of leadership and labour under Socialism, 158-168. + + Inheritance: legal limitation of, 293-295; + progressive taxation of, 296-302. + + Interest: nature of, 137-140; + rate of, 141-144; + alleged intrinsic justifications of, 171-186; + attitude of Church toward, 172-176; + extrinsic titles of, 172; + and the title of productivity, 176-181; + and the title of service, 181, 182; + and the title of abstinence, 182-186; + social and presumptive justifications of, 187-209; + necessity of, 191-199; + civil authorization, 201-204; + how justified, 204-209, a "workless" income, 210; + possibility of reducing rate, 211-213; + distinguished from profits, 238, 239; + versus wages, 390-393. + + Investor: the "innocent," 286, 287. + + Ireland: reduction of rents in, 69-71; + compulsory sale of land in, 110; + co-operation in, 217-219. + + Italy: co-operation in, 223. + + + Justice: dependence of on charity, 318; + not found in prevailing-rate theory, 325; + nor in exchange equivalence theories, 326-340; + nor in productivity theories, 340-355; + and the wage contract, 370-372; + and the legal minimum wage, 407. + + + Kautsky, Karl: 153. + + King, W. I: 82, 83, 122, 123, 155, 240, 310, 414. + + + Labour: as a title to land, 24-29; + and to products, 45; + and to the entire product of industry, 145-152; + 341-347; + productivity of, 178, 179; + inefficiency of under Socialism, 162-167; + mediæval measure of cost of, 336, 337; + claims of different groups of, 381-387; + legislative proposals for, 416, 417. + + Labour unions: efficacy and limitations of, 417-420; + and legislation, 420-423. + + Labourer, the: claim of to rent, 71-73; + right of to his product, 25, 26, 28, 43, 45, 149, 150, 179, 180; + gains of from wage contract, 327, 328; + right of to a living wage, 363-369, 373; + versus the capitalist, 390-393, 396; + versus the consumer, 393-398; + and co-operative enterprise, 423-425. + + Land: distribution of, 16, 17, 87-89; + large holdings of, 89, 90; + accessibility to, 91-95; + the leasing system, 95-97; + public ownership of, 98-100. + + Landowner: right of to rent, 67-73; + his share of product, 80-89. + + Landownership: in history, 8-18; + two theories of, 8, 9; + in pre-agricultural conditions, 10-12; + origin of private, 12-14; + prevalence and benefits of, 15-18; + arguments against private, 19-47, + by Socialists, 19-21, + by Henry George, 21-47; + private, the best system of tenure, 48-55; + four elements of, 48; + a natural right, 55-56. + See Henry George, Occupancy, Labour, Right, Compensation, + Confiscation, Defects, Rent. + + Land System: defects of the existing, 74-93. + + Land values: how created by the community, 40-47; + increase of, 83-86; + taxation of, 117-130. + + Langenstein: 335. + + Lassalle, F.: 183. + + Large estates: special taxation of, 130-132. + + Leadership: industrial, under Socialism, 158-167. + + Leasing system: 95-97. + + Legislation: for labour, 120-123, 416. + + Liberty: under Socialism, 168-170. + + Liebknecht, W.: 152. + + Life: right to, 57; + true conception of, 317. + + Limitation of fortunes: 291-302; + directly, 292-295; + by taxation, 296-302. + + Livelihood, decent: 360-363; + the labourer's right to, 363-365; + the employer's, 366. + + Living wage: the minimum of wage justice, 356-380; + three fundamental principles, 358-360; + and a decent livelihood, 360-363; + right of labourer to, 363-369; + obligation of employer to pay, 365-372; + for a family, 373-376; + and social welfare, 376, 377; + authorities for, 377, 378; + money measure of, 378-380; + versus other titles of reward, 381, 382, 386. + + Loan capitalist: and the claims of the labourer, 366, 367, 390, 391. + + Loans: attitude of Church toward interest on, 172-174; + and productive capital, 174, 175. + + + Maine, Sir Henry: 17. + + Market value: and wage justice, 330-332, 370, 375. + + Marriage: right to, 57, 58; + and reasonable life, 374. + + Marx, Karl: 145-148, 342, 343, 374. + + Materialism: in current conception of welfare, 314-318. + + Meade, E. S.: 265, 266. + + Menger, A.: 342. + + Middle Ages, doctrines of: on interest, 172, 175, 176, 201; + on titles of gain, 175; + on wage justice, 332-336. + + Minimum: of wage justice, 356-380. + + Minimum profits: question of right to, 258-260. + + Minimum wage: 353-355, 400-423; + in operation, 400-405; + ethical and political aspects of, 407, 408; + economic aspect of, 408-416; + opinions of economists on, 412-416, 420-423. + + Modern: version of exchange-equivalence, 336-340. + + Monopoly: in relation to land, 75-80; + moral aspect of, 262-278; + excessive gains of, 263-265; + efficiency of, 265-267, 275-277; + discriminative underselling by, 267-270; + favors to by railroads, 262, 273; + natural, 273-275; + suppression versus regulation of, 275-278; + by labour, 390, 397. + + + Natural monopolies: 273-275. + + Natural rights: 57-59. See Rights. + + Nearing, Scott: 83-85; + 154, 210, footnote. + + Needs: as a canon of justice, 244, 246, 356-358; + classification of, 308, 309; + exaggerated conception of, 314-318; + a standard of wage justice in Middle Ages, 335, 336. + + + Occupancy, first: as a title to land, 21-24; + as exemplified in increment taxes, 109. + + Occupation: question of right to a livelihood from a present, 362, + 363. + + Original titles: See Occupancy, Labour. + + Overcapitalization: 279-290. See Stockwatering. + + Ownership: titles of determined by reasonable distribution, 150, + 151. + + + Perkins, G. W.: 276. + + Personality: as basis of industrial rights, 358-371, 374. + + Pesch, H.: 215. + + Pope Benedict XIV: 173. + Clement IV: 23. + Gregory the Great: 306. + Innocent XI: 316. + Leo XIII: 64-66, 306, 309, 377. + Sixtus V: 176. + + Population: excessive increase of urban, 86. + + Possession: as a partial justification of interest: 205, 206. + + Possessors: obligation of to non-possessors, 359, 360. + + Presumption: as a partial justification of interest, 205; + and the canon of productivity, 248. + + Prevailing rate theory: of wage justice, 323-325. + + Prices: test of extortionate, 269, 270; + legalized agreements fixing, 277, 278; + versus wages, 393-399. + + Principles: three fundamental to living wage doctrine, 358-360. + + Product: distribution of national, 181-183. See Labour, Labourer, + Right. + + Production: of land values by the community, 39-47; + co-operation in, 222-228. + + Productivity: as a title to the product, 25, 26, 28, 43, 45, 149, + 150, 179; + as a title to interest, 172, 173, 176-181, 204, 205; + of labour and capital, 178-180; + as a canon of distribution, 246-249, 350, 351; + as justifying large profits, 255-258, 262, 388, 389; + as a title to wages, 341-355, 385; + Clark's theory of, 347-351; + Carver's theory of, 351-355. + + Profits: nature of, 237-242; + as compared with interest and rent, 139, 140, 238, 239; + amount of, 239, 240; + in a corporation, 241, 242; + in conditions of competition, 254-261; + indefinitely large, 255-258; + minimum, 258-260; + surplus and excessive, 263-265; + in natural monopolies, 273, 274; + versus wages, 388-390. + + "Progress and Poverty": 21, 22, 24, 25, 30, 34, 39, 51, 52. + + Proudhon: 342. + + Public honour: efficacy of under Socialism: 165-167. + + Pullman Company: 289. + + + Reform: versus revolution, 94. + + Rent: economic, 3-7; + commercial, 5; + how produced by society, 39-47; + right of landowner to, 67-75; + right of tenant and labourer to, 69-73, 396; + increase and amount of, 80-87; + distribution of, 87-89; + in United States, 122. + + Rent charges: attitude of theologians toward, 175, 176. + + "Res fructificat domina": + limitations of this formula, 60, 61, 104, 105, 111, 180, 345. + + Revolution: versus reform, 94. + + Riches: from land, 88, 89. + + Right: of the individual to land, 30-39; + of the community to land values and rent, 39-47; + of the producer to his product, see productivity; + of private landownership, 56-66; + to take rent, 67-73; + of access to the earth, 358-360; + to a decent livelihood, 360-363; + to a living wage, 363-369, 372, 376. + + Rights: three principal kinds of natural, 57-59; + of property, as created by the State, 202. + + Rodbertus, K.: 342. + + Roman Congregations: on lawfulness of interest taking, 173, 174. + + + Saint-Simon: 342. + + Sacrifice: principle of in taxation, 131, 297; + as a title to interest, 185-188; + as a title of reward, 383-385. + + Savers: three kinds of, 183-185. + + Scarcity: effect of on rewards of productive agents, 80; + as a canon of distributive justice, 250, 251; + as justifying very large profits, and more than a living wage, + 255-258. + + Schmoller: 253. + + Schoolmen: doctrines of on wage justice, 333-336. + + Seligman, E. R. A.: 101, 296, 297. + + Service: as a title to interest, 181, 182, 204, 205. + + Shifting: of land taxes, 102, 103. + + Sidgwick, H.: 329. + + Single Tax: injustice of, 33-39, 100; + proposals and defects of, 51, 54, 108. + + Skelton, O. D.: 165. + + Small, A. W.: 171. + + Social benefits: of special taxes on land, 127-130. + + Socialism: as regards land, 49, 51; + not inevitable, 153; + expropriation of capitalists by, 154-158; + inefficiency of, 158-168; + hostile to individual liberty, 168-170; + not co-operation, 230, 231. + + Socialists: on private landownership, 19-21; + on interest, value, and labour, 145-148; + on the collectivist State, 152, 153; + on morality of profits, 254; + on wage justice, 341-347; + on the principle of needs, 356. + + Socialist party: of the United States, on landownership, 51. + + Spargo, John: 51. + + Specific productivity: as a measure of wage justice, 347-351. + + Speculation: effect of on land values, 92, 93, 103. + + Spencer, Herbert: 23. + + Standard Oil Company: 76, 263, 267. + + State, the: should permit interest, 199-201; + power of to create property rights, 202-204; + not obliged to guarantee living profits, 259; + fixing of maximum prices by, 275-278; + and the "innocent" investor, 286, 287; + and the prevention of stockwatering, 289, 290; + and the limitation of fortunes, 291-302; + and payment of living wages, 365; + and minimum wage, 407, 408, 420-423; + and other labour legislation, 416, 417. + + Stockholders: claim of to surplus gains, 257, 258, 262; + as related to stockwatering, 279-281, 285. + + Stockwatering: moral aspect of, 279-290; + definition of, 280; + injurious effects of, 281-286 and the "innocent" investor, 286, + 287; + magnitude of, 288, 289; + prevention of, 289, 290. + + Stores: co-operation in, 220-222. + + Superfluous wealth: duty of distributing, 303-319; + kinds of, 308, 309; + a false conception of, 314-316; + true conception of, 318, 319. + See Wealth. + + Supertax: on large landed estates, 130-132. + + Supply and demand: as determining rent, 80; + as determining interest, 143, 144. + + + Taussig, F. W.: 198, 214, 282, 289, 290; + on minimum wage, 412-416. + + Tawney, R. H.: 421. + + Taxation: as a social instrument, 101, 102; + of increases in land value, 102-117; + faculty theory of, 107, 108; + progressive, as a method of limiting fortunes, 296-302. + + Taxes: shifting of to land, 117-130; + social benefits of, 127-130. + + Tenant: claim of to rent, 69-71. + + Theologians: on private landownership, 62-64; + on interest, 172-176, 202-204; + on civil creation of property rights, 202; + on duty of benevolent distribution, 308, 309. + + Thompson, W.: 341. + + + Undertaker: See Business man. + + United States: special land taxes in, 119; + co-operation in, 218, 263; + minimum wage in, 401, 403-407. + + United States Commissioner of Corporations, reports of: on Standard + Oil Company, 76, 263, 267, 268, 272; + on Steel Corporation, 79, 89, 263, 267, 285; + on water power ownership, 79, 95; + on the lumber industry, 85, 89, 94, 132; + on American Tobacco Company, 263, 267, 288; + on American Sugar Refining Company, 267, 272, 289. + + United States Shipbuilding Company: 288, 289. + + United States Steel Corporation: 79, 89, 267, 285, 289. + + Use: right, as a confirmatory justification of interest taking, + 206-208. + + + Value: Marxian theory of, 145-148, 333, 343, 344; + relation of to wage justice, 330-340; + and to a living wage, 370, 375. + + Van Hise, C. R.: 266, 267, 277, 278, 288. + + + Wage justice: unacceptable theories of, 323-355; + prevailing rate theory, 323-325; + exchange equivalence theory, 326-340; + productivity theories, 341-355; + the minimum of, 356-380; + problem of complete, 381-399; + claims of different labour groups, 381-387; + wages versus profits, 388-390; + wages versus interest, 390-393; + wages versus prices, 393-399. + + Wages: versus profits, 388-390; + "equitable minimum" of, 388; + versus interest, 390-393; + versus prices, 393-399; + methods of increasing, 400-425; + legal minimum, 400-416; + other legislation for, 416, 417; + labour unions, 417-423; + co-operative enterprise, 423-425. + + Wagner, A.: 342. + + Watered stock: 279-290. See Stockwatering. + + Water power: in the United States, 79, 95. + + Wealth, superfluous: duty of distributing, 303-319; + as regards a part, 303-307; + as regards the whole, 308-314; + a duty of charity or of justice, 305-307; + the supply of capital and business ability, 311-313; + false and true conceptions of, 314-316. + + Welfare: a false conception of, 314-316; + true conception of, 316-318; + social, demands a living wage for all, 376, 377. + See Human welfare. + + Whittaker, Sir Thomas: 10, 14, 28. + + Wicker, G. R.: 350, 351. + + Williams, A.: 232. + + Wolman, L.: 417, 418. + + Women: right of to a living wage, 373. + + + PRINTED IN THE UNITED STATES OF AMERICA + + + * * * * * + + The following pages contain advertisements of books by the + same author or on kindred subjects. + + * * * * * + + + Socialism: Promise or Menace + + BY MORRIS HILLQUIT and JOHN A. RYAN, D.D. + + _270 pp., 12mo, $1.25_ + +A debate on the right or wrong of the movement in which opposing +arguments are presented dealing with various phases of the subject. +The attack is made by Dr. Ryan, Professor of Moral Theology and +Economics in St. Paul Seminary and author of _A Living Wage_. The +defender, Mr. Hillquit, is a practising lawyer and has been a delegate +to national and international socialist conferences for several years. + +"One of the most important books ever published, bearing on the issue +of Socialism."--_Ohio State Journal._ + +"Many books have been written on the subject, but no better +presentation of both sides in one volume can be found than in +_Socialism, Promise or Menace_.... It is a fine, fair and square +discussion."--_Congregationalist._ + +"Nowhere else within the covers of a single volume can be found +such a satisfactory presentation of the leading arguments and +counter-arguments on a great question, for each debater is amply +qualified to present his case."--Boston _Globe_. + + * * * * * + + _A Living Wage, Its Ethical and Economic Aspects_ + + By JOHN A RYAN, S.T.L. + Professor of Ethics and Economics in St. Paul's Seminary. + + _Cloth, 12mo, $1.00; Standard Library Edition, $.50_ + +"Father Ryan's work on the Living Wage is perhaps the best exposition +of the labor phase of the social problem. It has taken its place on +the shelves of public and private libraries beside other standard +works, while the name of the author is associated with the leading +American sociologists. + +"The volume is prefaced by an introduction by Professor Richard T. +Ely, the noted American economist. As the title indicates, the subject +is not merely treated from an economic point of view, but also in its +economic aspects--a course of procedure that is somewhat of a +departure from prevailing discussions of economic subjects. There is a +tendency to treat political economy as a subject related to +mathematics. Statistics and axioms are the predominating features. +However, the science of political economy cannot disregard the origin +and destiny of man. + +"'The Living Wage' is based on the principles of Christian philosophy. +Its logic proceeds from the Christian conception of the dignity of +man. Father Ryan's book is thus a most timely and necessary +contribution to sociological literature. That 'The Living Wage' has +met the popularity that it has, is evidence of the growing conviction +that the social problem cannot be solved except on Christian +principles."--_Common Cause._ + +"It is refreshing to pick up a book by Dr. Ryan, who is always so sane +and so convincing."--_North Western Chronicle._ + +"The book is considered the best presentation of Catholic economic +thought at the disposal of the general reader."--_Albany Times-Union._ + + +"That this economic study by Father Ryan is a solid work is evidenced +by the fact that it was first published in 1906, and was reprinted in +1908, 1910, and 1912.... Instead of appeals to sentiment or glittering +generalities, Professor Ryan offers seasoned arguments and precise +doctrine."--_Portland Evening Telegram._ + +"The most judicious and balanced discussion at the disposal of the +general reader."--_World To-day._ + + * * * * * + + Property and Contract in Their Relations to the Distribution of + Wealth + + By RICHARD T. ELY, Ph.D., LL.D. + Of the University of Wisconsin, Author of "Outlines of Economics," + Editor of the "Citizens' Library," etc. + +_In two volumes, $4.00. Special Law Library Edition, Sheep, 8vo, $7.50_ + +In this work, which is based upon legal decisions as well as upon +economic principles, a leading authority on political economy +considers simply and concisely one of the greatest problems now before +the American people. Much has been heard and written of late about +judicial readjustment and direct government, but few who have +discussed the subject have seen the heart of it as clearly as does +Professor Ely. Of special importance is his treatment of the police +power, a burning question in American jurisprudence. An idea of the +scope and comprehensiveness of the work may be gained from the +following condensed table of contents: Introduction; Book I, The +Fundamentals in the Existing Socio-Economic Order Treated from the +Standpoint of Distribution; Part I, Property, Public and Private: I, +Property, Public and Private, The First Fundamental Institution in the +Distribution of Wealth; II, Illustrations Showing the Importance of +Property in Wealth Distribution; III, Property Defined and Described; +IV, Property, Possession, Estate, Resources; V, The Attribute and +Characteristic of Property; VI, The Social Theory of Private Property; +VII, Property and the Police Power; VIII, What May I Own? IX, The +Conservative Nature of the Social Theory of Property; X, XI, A +Discussion of the Kinds of Property; XII, The General Grounds for the +Maintenance of Private Property; XIII, A Critical Examination of the +General Grounds for the Maintenance of Private Property; XIV, XV, XVI, +XVII, XVIII, XIX, The Present and Future Development of Private +Property; XX, The Transformation of Public Property into Private +Property and of Private Property into Public Property; XXI, The +Management of Public Property with Reference to Distribution; XXII, +Theories of the Origin of Private Property; Part II, Contract and Its +Conditions: I, Introductory Observations; II, Contract Defined and +Described; III, The Economic Significance of Contract; IV, Contract +and Individualism; V, Criticism of the Individualistic Theory of +Contract and the Social Theory; VI, Contracts for Personal Services; +VII, Class Legislation; VIII, Facts as to Impairment of Liberty; IX, +The Courts and Constitutions; X, Concluding Observations; Appendix I, +Part III, Vested Interests; Appendix II, Part IV, Personal Conditions; +Appendix III, Production, Present and Future, by W. I. King, Ph.D., +Instructor in Statistics, University of Wisconsin; Appendix IV, List +of Cases Illustrating the Attitude of the Courts Toward Property and +Contract Rights and the Consequent Evolution of These Rights, by +Samuel P. Orth, Ph.D., Professor of Political Science, Cornell +University. + + * * * * * + + Principles of Economics + + BY F. W. TAUSSIG + Henry Lee Professor of Economics in Harvard University + + _New edition. Cloth, 8vo, 2 vols., each $2.00_ + + Volume I, 547 pages Volume II, 573 pages + +The present edition of Professor Taussig's standard work embodies many +changes throughout the text, thus bringing his work abreast of the +most recent developments. The chapter on banking in the United States +has been entirely re-written; as it now stands, it includes a +description of the Federal Reserve Bank system and a consideration of +the principles underlying the new legislation. The chapter on trusts +and combinations has been largely re-written, with reference to the +laws enacted in 1914. Considerable addition and revision has been made +in the chapter on workmen's insurance, calling attention to the +noteworthy steps taken of late years in England and the United States. +The chapters on taxation and especially on income taxes, and on some +other topics, have been similarly brought to date. + +A remarkable tribute to the merit of this book is that while it was +not intended primarily as a class text, it has been adopted for +exclusive use as a text in many of the colleges and universities, both +large and small. Experience has shown conclusively that the book's +clarity of expression and freedom from the usual technical treatment +of the subject has made it an especially suitable text for all +colleges. For the smaller institutions, the book has the additional +advantage of containing all the necessary material required in the +usual course in economics, and thus avoids the extra expense and +trouble of using several other books to supplement the basic text. In +fact, the value and the extended use of this work as a comprehensive, +untechnical treatment of the subject, have led many eminent economists +to regard it as the most notable contribution to the subject of +economics since the time of John Stuart Mill. + + +THE MACMILLAN COMPANY +Publishers 64-66 Fifth Avenue New York + + + + + * * * * * + + + + +Transcriber's Notes: + +Obvious typographical errors were corrected. + +Hyphenation inconsistency between "co-partnership" as used by the +author, and "Copartnership" as in the title of a quoted reference, +was retained as in the original. + +A few out-of-order index entries were relocated. + +Advertisements: "THE MACMILLAN COMPANY Publishers 64-66 Fifth Avenue +New York" appeared at the bottom of each ad page in the original. This +has been reduced to one occurrence after the final ad. + +*** END OF THE PROJECT GUTENBERG EBOOK 42759 *** |