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diff --git a/42759.txt b/42759.txt deleted file mode 100644 index f83a636..0000000 --- a/42759.txt +++ /dev/null @@ -1,15871 +0,0 @@ -The Project Gutenberg eBook, Distributive Justice, by John A. (John -Augustine) Ryan - - -This eBook is for the use of anyone anywhere at no cost and with -almost no restrictions whatsoever. You may copy it, give it away or -re-use it under the terms of the Project Gutenberg License included -with this eBook or online at www.gutenberg.org - - - - - -Title: Distributive Justice - The Right and Wrong of Our Present Distribution of Wealth - - -Author: John A. (John Augustine) Ryan - - - -Release Date: May 21, 2013 [eBook #42759] - -Language: English - -Character set encoding: ISO-646-US (US-ASCII) - - -***START OF THE PROJECT GUTENBERG EBOOK DISTRIBUTIVE JUSTICE*** - - -E-text prepared by D Alexander, JoAnn Greenwood, and the Online -Distributed Proofreading Team (http://www.pgdp.net) using page images -generously made available by Internet Archive (https://archive.org) - - - -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 Regime 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 Mediaeval Theory 332 - A Modern Variation of the Mediaeval 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'Economie 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, Caesar, 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'ecole des chartres," 1872; Maine, "Village Communities in the East -and the West," 1872; and De Laveleye, "De la propriete 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 employes 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 Napoleon, 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 Propriete Privee," 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 employes 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 mediaeval and post-mediaeval 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 mediaeval and post-mediaeval -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 -immobiliere 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 regime -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 employes 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 employes. 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 regime 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 regime -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 -regime 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 Regime_ - -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 regime, 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 regime; 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 regime, 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 regime -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 _praemium_ 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-mediaeval 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 employes, 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 employes 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 employes. 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 employes 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 employes 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 employes 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 employes 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 -employes 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 -employes 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 -employes 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 employes 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 -employes 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 regime 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'Interet 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 Theorie Moderne du Capital et la Justice. Paris; - 1898. - - GARRIGUET: Regime du Travail. Paris; 1908. - - FUNK: Zins und Wucher. Tuebingen; 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 employes 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 employe, 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 employes, 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 mediaeval 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 Caesarea: "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 -mediaeval 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: Regime 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 employes 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 -employes." - -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 employes. -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 employes 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 employe 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 -employe 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 employe 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 employes. 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 Mediaeval Theory_ - -Another exchange-equivalence theory which turns upon the concept of -value is that found in the pages of the mediaeval 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 mediaeval 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 employes 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 mediaeval 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 mediaeval 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 mediaeval 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 mediaeval 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 mediaeval 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 mediaeval -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. Mediaeval 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 Mediaeval 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 economique 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 employes. -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 -employes. 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 employes 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 employes 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 -employes 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 regime -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 regime 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 regime 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'Idee du Juste Salaire," by Leon 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'Economie 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 propriete 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 -employes 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 employes; 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 employes -fail to receive living wages. - -Suppose that an employer cannot pay all his employes 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 employes. 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 employes may -have living wages. - -Is the employer justified in withholding the full living wage from his -employes 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 employes. 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 -employes, 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 -employes are of less intrinsic importance than the superficial needs -of the employer, and that the employes 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 employe 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 regime 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 employes, 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 employes. 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 employes. 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 employes. 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 employes 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 regime 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 employes 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 employes, 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 employe 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 regime 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 employes 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 employes 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 Legale 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'Idee du Juste Salaire. Paris; 1903. - - MENGER: The Right to the Whole Produce of Labour. London; - 1899. - - GARRIGUET: Regime 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 employe 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 employes and wage-receivers. - - -_The Business Man and Profits_ - -Just remuneration for the active agents of production, whether they be -directors of industry or employes, 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 -employes 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 employes 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 regime, 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; - mediaeval, 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; - mediaeval 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. 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