{"collection":"philosophy-ethics","full_text_available":true,"graph_url":"https://unchartedknowledge.5gfusion.net/v2/api/page/gutenberg_42759/graph","html_url":"https://unchartedknowledge.5gfusion.net/v2/page/gutenberg_42759","id":"gutenberg_42759","license":"Public Domain (US)","rights_basis":"gutenberg_metadata_copyright_false","source":"gutenberg","source_url":"https://www.gutenberg.org/ebooks/42759","summary":null,"tags":["Category: Economics","Category: Philosophy & Ethics","Economic history","Income distribution -- Moral and ethical aspects","Wealth -- Religious aspects"],"text":"Note: Images of the original pages are available through\n      Internet Archive. See\n      https://archive.org/details/distributivejust00ryaniala\n\n\n\n\n\nDISTRIBUTIVE JUSTICE\n\n       *       *       *       *       *\n\n[Illustration: (MACMILLAN LOGO)]\n\nTHE MACMILLAN COMPANY\n\nNEW YORK \u00b7 BOSTON \u00b7 CHICAGO \u00b7 DALLAS\nATLANTA \u00b7 SAN FRANCISCO\n\nMACMILLAN & CO., LIMITED\n\nLONDON \u00b7 BOMBAY \u00b7 CALCUTTA\nMELBOURNE\n\nTHE MACMILLAN CO. OF CANADA, LTD.\nTORONTO\n\n       *       *       *       *       *\n\n\nDISTRIBUTIVE JUSTICE\n\nThe Right and Wrong of Our Present Distribution of Wealth\n\nby\n\nJOHN A. RYAN, D.D.\n\nAssociate Professor of Political Science at\nthe Catholic University of America; Professor\nof Economics at Trinity College; Author of\n\"A Living Wage,\" \"Alleged Socialism of the\nChurch Fathers,\" Joint Author with Morris\nHillquit of \"Socialism: Promise or Menace?\"\n\n\n\n\n\n\n\nNew York\nThe Macmillan Company\n1916\n\nAll rights reserved\n\n\n\n\n     Nihil Obstat.\n           _REMIGIUS LAFORT, S. T. D.,\n                                Censor_.\n\n     Imprimatur.\n           _JOHN CARDINAL FARLEY,\n                Archbishop of New York_.\n\n\n              COPYRIGHT, 1916,\n          BY THE MACMILLAN COMPANY\n\nSet up and electrotyped. Published November, 1916.\n\n\n\n\n                     TO\n\n             ARCHBISHOP IRELAND\n\n                     IN\n\n          ADMIRATION AND GRATITUDE\n\n\n\n\nPREFACE\n\n\nFive of the nine members of the late Federal Commission on Industrial\nRelations united in the declaration that the first cause of industrial\nunrest is, \"unjust distribution of wealth and income.\" In all\nprobability this judgment is shared by the majority of the American\npeople. Regarding the precise nature and extent of the injustice,\nhowever, there is no such preponderance of opinion. Even the makers of\nethical and economic treatises fail to give us anything like uniform\nor definite pronouncements concerning the moral defects of the present\ndistribution. While the Socialists and the Single Taxers are\nsufficiently positive in their statements, they form only a small\nportion of the total population, and include only an insignificant\nfraction of the recognised authorities on either ethics or economics.\n\nThe volume in hand represents an attempt to discuss systematically and\ncomprehensively the justice of the processes by which the product of\nindustry is distributed. Inasmuch as the product is actually\napportioned among landowners, capitalists, business men, and\nlabourers, the moral aspects of the distribution are studied with\nreference to these four classes. While their rights and obligations\nform the main subject of the book, the effort is also made to propose\nreforms that would remove the principal defects of the present system\nand bring about a larger measure of justice.\n\nMany treatises have been written concerning the morality of one or\nother element or section of the distributive process; for example,\nwages, interest, monopoly, the land question; but, so far as the\nauthor knows, no attempt has hitherto been made to discuss the moral\naspects of the entire process in all its parts. At least, no such task\nhas been undertaken by any one who believes that the existing economic\nsystem is not inherently unjust. That the present essay in this field\nfalls far short of adequate achievement the author fully realises, but\nhe is sustained by the hope that it will provoke discussion, and move\nsome more competent person to till the same field in a more thorough\nand fruitful way.\n\n                                               JOHN A. RYAN.\n\n    The Catholic University of America,\n    Washington, D. C., June 14, 1916.\n\n\n\n\nCONTENTS\n\n\n  PREFACE                                                        vii\n\n  INTRODUCTORY CHAPTER: THE ELEMENTS AND SCOPE OF THE PROBLEM   xiii\n                        General References                      xvii\n\n\n  SECTION I\n\n  THE MORALITY OF PRIVATE LANDOWNERSHIP AND RENT\n\n  CHAPTER                                                       PAGE\n\n      I THE LANDOWNER'S SHARE OF THE NATIONAL PRODUCT              3\n          Economic Rent Always Goes to the Landowner               4\n          Economic Rent and Commercial Rent                        5\n          The Cause of Economic Rent                               6\n\n     II LANDOWNERSHIP IN HISTORY                                   8\n          No Private Ownership in Pre-Agricultural Conditions     10\n          How the Change Probably Took Place                      12\n          Limited Character of Primitive Common Ownership         14\n          Private Ownership General in Historical Times           15\n          Conclusions from History                                17\n\n    III THE ARGUMENTS AGAINST PRIVATE LANDOWNERSHIP               19\n          Arguments by Socialists                                 19\n          Henry George's Attack on the Title of First Occupancy   21\n          His Defence of the Title of Labour                      24\n          The Right of all Men to the Bounty of the Earth         30\n          The Alleged Right of the Community to Land Values       39\n\n     IV PRIVATE OWNERSHIP THE BEST SYSTEM OF LAND TENURE          48\n          The Socialist Proposals Impracticable                   48\n          Inferiority of the Single Tax System                    51\n\n      V PRIVATE LANDOWNERSHIP A NATURAL RIGHT                     56\n          Three Principal Kinds of Natural Rights                 57\n          Private Landownership Indirectly Necessary for\n              Individual Welfare                                  59\n          Excessive Interpretations of the Right of Private\n              Landownership                                       61\n          The Doctrine of the Fathers and the Theologians         62\n          The Teaching of Pope Leo XIII                           64\n\n     VI LIMITATIONS OF THE LANDOWNER'S RIGHT TO RENT              67\n          The Tenant's Right to a Decent Livelihood               69\n          The Labourer's Claim Upon the Rent                      71\n\n    VII DEFECTS OF THE EXISTING LAND SYSTEM                       74\n          Landownership and Monopoly                              75\n          Excessive Gains from Private Landownership              80\n          Exclusion from the Land                                 90\n\n   VIII METHODS OF REFORMING OUR LAND SYSTEM                      94\n          The Leasing System                                      95\n          Public Agricultural Lands                               97\n          Public Ownership of Urban Land                          98\n          Appropriating Future Increases of Land Value           100\n          Some Objections to the Increment Tax                   102\n          The Morality of the Proposal                           108\n          The German and British Increment Taxes                 114\n          Transferring Other Taxes to Land                       117\n          The Morality of the Plan                               120\n          Amount of Taxes Practically Transferable               122\n          The Social Benefits of the Plan                        127\n          A Supertax on Large Holdings                           130\n          References on Section I                                133\n\n\n  SECTION II\n\n  THE MORALITY OF PRIVATE CAPITAL AND INTEREST\n\n     IX THE NATURE AND THE RATE OF INTEREST                      137\n          Meaning of Capital and Capitalist                      137\n          Meaning of Interest                                    138\n          The Rate of Interest                                   141\n\n      X THE ALLEGED RIGHT OF LABOUR TO THE ENTIRE PRODUCT\n        OF INDUSTRY                                              145\n          The Labour Theory of Value                             146\n          The Right of Productivity                              149\n\n     XI THE SOCIALIST SCHEME OF INDUSTRY                         152\n          Socialist Inconsistency                                152\n          Expropriating the Capitalists                          154\n          Inefficient Industrial Leadership                      158\n          Inefficient Labour                                     162\n          Attempted Replies to Objections                        162\n          Restricting Individual Liberty                         168\n\n    XII ALLEGED INTRINSIC JUSTIFICATIONS OF INTEREST             171\n          Attitude of the Church Toward Interest on Loans        172\n          Interest on Productive Capital                         175\n          The Claims of Productivity                             177\n          The Claims of Service                                  181\n          The Claims of Abstinence                               182\n\n   XIII SOCIAL AND PRESUMPTIVE JUSTIFICATIONS OF INTEREST        187\n          Limitations of the Sacrifice Principle                 187\n          The Value of Capital in a No-Interest R\u00e9gime           188\n          Whether the Present Rate of Interest is Necessary      191\n          Whether at Least two Per Cent. is Necessary            193\n          Whether any Interest is Necessary                      196\n          The State is Justified in Permitting Interest          199\n          Civil Authorisation not Sufficient for Individual\n              Justification                                      201\n          How the Interest-Taker is Justified                    204\n\n    XIV CO-OPERATION A PARTIAL SOLVENT OF CAPITALISM             210\n          Reducing the Rate of Interest                          211\n          Need for a Wider Distribution of Capital               213\n          The Essence of Co-operative Enterprise                 214\n          Co-operative Credit Societies                          216\n          Co-operative Agricultural Societies                    217\n          Co-operative Mercantile Societies                      220\n          Co-operation in Production                             222\n          Advantages and Prospects of Co-operation               228\n          References on Section II                               233\n\n\n  SECTION III\n\n  THE MORAL ASPECT OF PROFITS\n\n     XV THE NATURE OF PROFITS                                    237\n          The Functions and Rewards of the Business Man          237\n          The Amount of Profits                                  239\n          Profits in a Joint-Stock Company                       241\n\n    XVI THE PRINCIPAL CANONS OF DISTRIBUTIVE JUSTICE             243\n          The Canon of Equality                                  243\n          The Canon of Needs                                     244\n          The Canon of Efforts and Sacrifice                     246\n          The Canon of Productivity                              247\n          The Canon of Scarcity                                  250\n          The Canon of Human Welfare                             252\n\n   XVII JUST PROFITS IN CONDITIONS OF COMPETITION                254\n          The Question of Indefinitely Large Profits             255\n          The Question of Minimum Profits                        258\n          The Question of Superfluous Business Men               260\n\n  XVIII THE MORAL ASPECT OF MONOPOLY                             262\n          Surplus and Excessive Profits                          263\n          The Question of Monopolistic Efficiency                265\n          Discriminative Underselling                            267\n          Exclusive-Sales Contracts                              270\n          Discriminative Transportation Arrangements             272\n          Natural Monopolies                                     273\n          Methods of Preventing Monopolistic Injustice           275\n          Legalised Price Agreements                             277\n\n    XIX THE MORAL ASPECTS OF STOCKWATERING                       279\n          Injurious Effects of Stockwatering                     281\n          The Moral Wrong                                        284\n          The \"Innocent\" Investor                                286\n          Magnitude of Overcapitalisation                        288\n\n     XX THE LEGAL LIMITATION OF FORTUNES                         291\n          The Method of Direct Limitation                        292\n          Limitation Through Progressive Taxation                296\n          The Proper Rate of Income and Inheritance Taxes        299\n          Effectiveness of Such Taxation                         300\n\n    XXI THE DUTY OF DISTRIBUTING SUPERFLUOUS WEALTH              303\n          The Question of Distributing Some                      303\n          The Question of Distributing All                       308\n          Some Objections                                        311\n          A False Conception of Welfare and Superfluous Goods    314\n          The True Conception of Welfare                         316\n          References on Section III                              318\n\n\n  SECTION IV\n\n  THE MORAL ASPECTS OF WAGES\n\n   XXII SOME UNACCEPTABLE THEORIES OF WAGE-JUSTICE               323\n           I The Prevailing-Rate Theory                          323\n               Not in Harmony with Justice                       325\n          II Exchange-Equivalence Theories                       326\n               The Rule of Equal Gains                           326\n               The Rule of Free Contract                         328\n               The Rule of Market Value                          330\n               The Medi\u00e6val Theory                               332\n               A Modern Variation of the Medi\u00e6val Theory         337\n         III Productivity Theories                               340\n               Labour's Right to the Whole Product               341\n               Clark's Theory of Specific Productivity           347\n               Carver's Modified Version of Productivity         351\n\n  XXIII THE MINIMUM OF JUSTICE; A LIVING WAGE                    356\n          The Principle of Needs                                 356\n          Three Fundamental Principles                           358\n          The Right to a Decent Livelihood                       360\n          The Claim to a Decent Livelihood from a Present\n              Occupation                                         362\n          The Labourer's Right to a Living Wage                  363\n          When the Employer is Unable to Pay a Living Wage       366\n          An Objection and Some Difficulties                     370\n          The Family Living Wage                                 373\n          Other Arguments in Favour of a Living Wage             376\n          The Money Measure of a Living Wage                     378\n\n   XXIV THE PROBLEM OF COMPLETE WAGE JUSTICE                     381\n          Comparative Claims of Different Labour Groups          381\n          Wages Versus Profits                                   388\n          Wages Versus Interest                                  390\n          Wages Versus Prices                                    393\n          Concluding Remarks                                     398\n\n    XXV METHODS OF INCREASING WAGES                              400\n          The Minimum Wage in Operation                          400\n          The Question of Constitutionality                      405\n          The Ethical and Political Aspects                      407\n          The Economic Aspect                                    408\n          Opinions of Economists                                 412\n          Other Legislative Proposals                            416\n          Labour Unions                                          417\n          Organisation Versus Legislation                        420\n          Participation in Capital Ownership                     423\n          References on Section IV                               425\n\n   XXVI SUMMARY AND CONCLUSION                                   426\n          The Landowner and Rent                                 426\n          The Capitalist and Interest                            427\n          The Business Man and Profits                           428\n          The Labourer and Wages                                 430\n          Concluding Observations                                431\n\n          INDEX                                                  453\n\n\n\n\nINTRODUCTORY CHAPTER\n\nTHE ELEMENTS AND SCOPE OF THE PROBLEM\n\n\nDistributive justice is primarily a problem of incomes rather than of\npossessions. It is not immediately concerned with John Brown's railway\nstock, John White's house, or John Smith's automobile. It deals with\nthe morality of such possessions only indirectly and under one aspect;\nthat is, in so far as they have been acquired through income.\nMoreover, it deals only with those incomes that are derived from\nparticipation in the process of production. For example; it considers\nthe labourer's wages, but not the subsidies that he may receive\nthrough charity or friendship. Its province is not the distribution of\nall the goods of the country among all the people of the country, but\nonly the distribution of the products of industry among the classes\nthat have taken part in the making of these products.\n\nThese classes are four, designated as landowners, capitalists,\nundertakers or business men, and labourers or wage earners. The\nindividual member of each class is an _agent_ of production, while the\ninstrument or energy that he owns and contributes is a _factor_ of\nproduction. Thus, the landowner is an agent of production because he\ncontributes to the productive process the factor known as land, and\nthe capitalist is an agent of production because he contributes the\nfactor known as capital; while the business man and the labourer are\nagents not only in the sense that they contribute factors to the\nprocess, but in the very special sense that their contributions\ninvolve the continuous expenditure of human energy. Now the product of\nindustry is distributed among these four classes precisely because\nthey are agents of production; that is because they own and put at the\ndisposal of industry the indispensable factors of production. We say\nthat the agents of production \"put the factors of production at the\ndisposal of industry,\" rather than \"exercise or operate the factors,\"\nbecause neither the landowner nor the capitalist, as such, expend\ncontinuous energy in the productive process. All that is necessary to\nenforce a claim upon the product is to contribute an instrument or\nfactor without which production cannot be carried on.\n\nThe product distributed in any country during a single year is\nvariously described by economists as the national product, the\nnational income, the national dividend. It consists not merely of\nmaterial goods, such as houses, food, clothing, and automobiles, but\nalso of those non-material goods known as services. Such are the tasks\nperformed by the domestic servant, the barber, the chauffeur, the\npublic official, the physician, the teacher; or any other personal\nservice \"that is valued, as material commodities are valued, according\nto their selling prices.\" Even the services of the clergyman are\nincluded in the national income or product, since they are paid for\nand form a part of the annual supply of good things produced and\ndistributed within the country. In the language of the economist,\nanything that satisfies a human want is a utility, and forms part of\nthe national wealth; hence there can be no sufficient reason for\nexcluding from the national income goods which minister to spiritual\nor intellectual wants. The services of the clergyman, the actor, the\nauthor, the painter, and the physician are quite as much a part of the\nutilities of life as the services of the cook, the chambermaid, or the\nbarber; and all are as clearly utilities as bread, hats, houses, or\nany other material thing. In a general way, therefore, we say that the\nnational product which is available for distribution among the\ndifferent productive classes comprises all the utilities, material\nand non-material, that are produced through human agents and satisfy\nhuman desires.\n\nIn the great majority of instances the product is not distributed in\nkind. The wheat produced on a given farm is not directly apportioned\namong the farmers, labourers, and landowners that have co-operated in\nits production; nor are the shoes turned out by a given factory\ndivided among the co-operating labourers and capitalists; and it is\nobvious that personal services cannot be returned to the persons that\nhave rendered them. Cases of partial direct distribution do, indeed,\noccur; as when the tenant takes two-thirds and the landowner one-third\nof the crop raised by the former on land belonging to the latter; or\nwhen the miller receives his compensation in a part of the flour that\nhe grinds. To-day, however, such instances are relatively\ninsignificant. By far the greater part of the material product is sold\nby the undertaker or business man, and the price is then divided\nbetween himself and the other agents of production. All personal\nservices are sold, and the price is obtained by the performers\nthereof. The farmer sells his wheat, the miller his flour, and the\nbarber his services. With the money received for his part in\nproduction each productive agent obtains possession of such kinds and\namounts of the national product as his desires dictate and his income\nwill procure. Hence the distribution of the product is effected\nthrough the conversion of producers' claims into money, and the\nexchange of the latter for specific quantities and qualities of the\nproduct.\n\nWhile the national product as a whole is divided among the four\nproductive classes, not every portion of it is distributed among\nactually distinct representatives of these classes. When more than one\nfactor of production is owned by the same person, the product will\nobviously not go to four different classes of persons. For example;\nthe crop raised by a man on his own unmortgaged land, with his own\ninstruments, and without any hired assistance; and the products of the\nsmall shopkeeper, tailor, and barber who are similarly self sufficient\nand independent,--are in each case obtained by one person, and do not\nundergo any actual distribution. Even in these instances, however,\nthere occurs what may be called _virtual_ distribution, inasmuch as\nthe single agent owns more than one factor, and performs more than one\nproductive function. And the problem of distributive justice in such\ncases is to determine whether all these productive functions are\nproperly rewarded through the total amount which the individual has\nreceived. Where the factors are owned by distinct persons, or groups\nof persons, the problem is to determine whether each group is properly\nremunerated for the single function that it has performed.\n\nThe problem of the morality of industrial incomes is obviously\ncomplex. For example; the income of the farmer is sometimes derived\nfrom a product which he must divide with a landowner and with\nlabourers; sometimes from a product which he shares with labourers\nonly; and sometimes from a product which he can retain wholly for\nhimself. The labourer's income arises sometimes out of a product which\nhe divides with other agents of production; sometimes out of a product\nwhich he divides with other labourers as well as other agents; and\nsometimes out of a product of which he receives the full money\nequivalent. The complexity of the forces determining distribution and\nincome indicate a complexity in the forces affecting the morality of\nincome. Moreover, there is the more fundamental ethical question\nconcerning the titles of distribution: whether mere ownership of a\nfactor of production gives a just claim upon the product, as in the\ncase of the landowner and the capitalist; whether such a claim,\nassuming it to be valid, is as good as that of the labourer and the\nbusiness man, who expend human energy in the productive process;\nwhether different kinds of productive activity should be rewarded at\ndifferent rates; and if so in what proportion. Why should the\ncapitalist receive six per cent., rather than two per cent., or\nsixteen per cent.? Why should the locomotive engineer receive more\nthan the trackman? Why should not all persons be compensated equally?\nShould all or any of the benefits of industrial improvements go to the\nconsumer? Such are typical questions in the study of distributive\njustice. They are sufficient to give some idea of the magnitude and\ndifficulty of the problem.\n\nScarcely less formidable is the task of suggesting means to correct\nthe injustices of the present distribution. The difficulties in this\npart of the field are indicated by the multiplicity of social remedies\nthat have been proposed, and by the fact that none of them has\nsucceeded in winning the adhesion of more than a minority of the\npopulation. We shall be obliged not only to pass moral judgment upon\nthe most important of these proposals, but to indicate and advocate a\nmore or less complete and systematic group of such reforms as seem to\nbe at once feasible and righteous.\n\n\nGENERAL REFERENCES\n\n     TAUSSIG: Principles of Economics. Macmillan; 1911.\n\n     DEVAS: Political Economy. Longmans; 1901.\n\n     HOBSON: The Industrial System. Longmans; 1909.\n\n     CLARK: The Distribution of Wealth. Macmillan; 1899.\n\n     SMART: The Distribution of Income. London; 1899.\n\n     WILLOUGHBY: Social Justice. Macmillan; 1900.\n\n     CARVER: Essays in Social Justice. Harvard University Press;\n     1915.\n\n     ELY: Property and Contract in Their Relations to the\n     Distribution of Wealth. Macmillan; 1914.\n\n     NEARING: Income. Macmillan; 1915.\n\n     STREIGHTOFF: The Distribution of Incomes in the United\n     States. Longmans; 1912.\n\n     WAGNER: Grundlegung der Nationaloekonomie. Leipzig;\n     1892-1894.\n\n     PESCH: Lehrbuch der Nationaloekonomie. Freiburg; 1905-1913.\n\n     ANTOINE: Cours d'\u00c9conomie Sociale. Paris; 1899.\n\n     HITZE: Capital et Travail. Louvain; 1898.\n\n     HOLLANDER: The Abolition of Poverty. Houghton Mifflin\n     Company; 1914.\n\n     ELLWOOD: The Social Problem. Macmillan; 1915.\n\n     GARRIGUET: The Social Value of the Gospel. Herder; 1911.\n\n     PARKINSON: A Primer of Social Science. Devin-Adair Co.; 1913.\n\n     VERMEERSCH: Quaestiones de Justitia. Bruges; 1901.\n\n     KING: The Wealth and Income of the People of the United\n     States. Macmillan; 1915.\n\n     COMMISSION ON INDUSTRIAL RELATIONS. Final Report; 1915.\n\n\n\n\nSECTION I\n\nTHE MORALITY OF PRIVATE LANDOWNERSHIP AND RENT DISTRIBUTIVE JUSTICE\n\n\n\n\nCHAPTER I\n\nTHE LANDOWNER'S SHARE OF THE NATIONAL PRODUCT\n\n\nThat part of the national product which represents land, and is\nattributed specifically to land, goes to the landowner. It is called\neconomic rent, or simply rent. We say that rent \"is attributed\nspecifically to land,\" rather than \"is produced specifically by land,\"\nbecause we do not know what proportion of the joint product of the\ndifferent factors of production exactly reflects the productive\ncontribution of any factor. Economic rent represents the productivity\nof land in so far as it indicates what men are willing to pay for\nland-use in the productive process. In any particular case rent comes\ninto existence because the land makes a commercially valuable\ncontribution to the product; and it goes to the landowner because this\nis one of the powers or rights included in the institution of private\nownership. And the landowner's share is received by him precisely in\nhis capacity as landowner, and not because he may happen to be\nlabourer, farmer, or proprietor of agricultural capital.\n\nIt is perhaps superfluous to observe that not all land produces rent.\nWhile almost all land is useful and productive, at least potentially,\nthere is in almost every locality some land which in present\nconditions does not warrant men in paying a price for its use. If the\ncrop raised on very sandy soil is so small as to cover merely the\noutlay for labour and capital, men will not pay rent for the use of\nthat soil. Yet the land has contributed something to the product.\nHerein we have another indication that rent is not an adequate measure\nof land productivity. It merely represents land value,--at a given\ntime, in given circumstances.\n\n\n_Economic Rent Always Goes to the Landowner_\n\nAll land that is in use, and for the use of which men are willing to\npay a price yields rent, whether it is used by a tenant or by the\nowner. In the latter case the owner may not call the rent that he\nreceives by that name; he may not distinguish between it and the other\nportions of the product that he gets from the land; he may call the\nentire product profits, or wages. Nevertheless the rent exists as a\nsurplus over that part of the product that he can regard as the proper\nreturn for his labour, and for the use of his capital-instruments,\nsuch as, horses, buildings, and machinery. If a farmer employs the\nsame amount and kind of labour and capital in the cultivation of two\npieces of land, one of which he owns, the other being hired from some\none else; if his net product is the same in both cases, say, 1,000\ndollars; and if he must pay 200 dollars to the owner of the hired\nland,--then, 200 of the 1,000 dollars that he receives from his own\nland, is likewise to be attributed specifically to his land rather\nthan to his capital or labour. It is rent. While the whole product is\ndue in some degree to the productive power of land, 200 dollars of it\nrepresents land value in the process of production, and goes to him\nsolely in his capacity as landowner. The rent that arises on land used\nfor building sites is of the same general character, and goes likewise\nto the owner of the land. The owner of the site upon which a factory\nis located may hire it to another for a certain sum annually, or he\nmay operate the factory himself. In either case he receives rent, the\namount that the land itself is worth for use, independently of the\nreturn that he obtains for his expenditure of capital and labour. Even\nwhen a person uses his land as a site for a dwelling which he himself\noccupies, the land still brings him economic rent, since it affords\nhim something for which he would be obliged to pay if his house were\nlocated on land of the same kind owned by some one else.\n\n\n_Economic Rent and Commercial Rent_\n\nIt will be observed that the landowner's share of the product, or\neconomic rent, is not identical with commercial rent. The latter is a\npayment for land and capital, or land and improvements, combined. When\na man pays nine hundred dollars for the use of a house and lot for a\nyear, this sum contains two elements, economic rent for the lot, and\ninterest on the money invested in the house. Assuming that the house\nis worth ten thousand dollars, and that the usual return on such\ninvestments is eight per cent., we see that eight hundred dollars goes\nto the owner as interest on his capital, and only one hundred dollars\nas rent for his land. Similarly the price paid by a tenant for the use\nof an improved farm is partly interest on the value of the\nimprovements, and partly economic rent. In both cases the owner may\nreckon the land as so much capital value, and the economic rent as\ninterest thereon, just as the commercial rent for the buildings and\nother improvements is interest on their capital value; but the\neconomist distinguishes between them because he knows that they are\ndetermined by different forces, and that the distinction is of\nimportance. He knows, for example, that the supply of land is fixed,\nwhile the supply of capital is capable of indefinite increase. In many\nsituations, therefore, rent increases, but interest remains stationary\nor declines. Sometimes, though more rarely, the reverse occurs. As we\nshall see later, this and some other specific characteristics of land\nand rent have important moral aspects; consequently the moralist\ncannot afford to confuse rent with interest.\n\n\n_The Cause of Economic Rent_\n\nThe cause of economic rent is the fact that land is limited relatively\nto the demand for it. If land were as plentiful as air mere ownership\nof some portion of it would not enable the owner to collect rent. As\nlandowner he would receive no income. If he cultivated his land\nhimself the return therefrom would not exceed normal compensation for\nhis labour, and normal interest on his capital. Since no one would be\ncompelled to pay for the use of land, competition among the different\ncultivators would keep the price of their product so low that it would\nmerely reimburse them for their expenditures of capital and labour. In\nsimilar conditions no rent would arise on building sites. The cause of\nthe _amount_ of rent may also be stated in terms of scarcity. At any\ngiven time and place, the rent of a piece of land will be determined\nby the supply of that kind of land relatively to the demand for it.\nHowever, the demand itself will be regulated by the fertility or by\nthe location of the land in question. Two pieces of agricultural land\nequally distant from a city, but of varying fertility, will yield\ndifferent rents because of this difference in natural productiveness.\nTwo pieces of ground of equal natural adaptability for building sites,\nbut at unequal distances from the centre of a city, will produce\ndifferent rents on account of their difference of location. The\nabsolute scarcity of land is, of course, fixed by nature; its relative\nscarcity is the result of human activities and desires.\n\nThe definition of rent adopted in these pages, \"what men are willing\nto pay for the use of land,\" or, \"what land is worth for use,\" is\nsimpler and more concrete, though possibly less scientific, than those\nordinarily found in manuals of economics, namely: \"that portion of\nthe product that remains after all the usual expenditures for labour,\ncapital, and directive ability have been deducted;\" or, \"the surplus\nwhich any piece of land yields over the poorest land devoted to the\nsame use, when the return from the latter is only sufficient to cover\nthe usual expenses of production.\"\n\nThe statement that all rent goes to the landowner supposes that, in\nthe case of hired land, the tenant pays the full amount that would\nresult from competitive bidding. Evidently this was not the case under\nthe feudal system, when rents were fixed by custom and remained\nstationary for centuries. Even to-day, competition is not perfect, and\nmen often obtain the use of land for less than they or others might\nhave been willing to give. But the statement in question does describe\nwhat tends to happen in a system of competitive rents.\n\nBefore discussing the morality of the landowner's income, and of rent\nreceiving, we may with profit glance at the history of land tenure.\nThus we shall get some idea, first, of the antiquity of the present\nsystem, and, second, of its effects upon individual and social\nwelfare. Both these considerations have an important bearing upon the\nmoral problem; for length of existence creates a presumption in favour\nof the social, and therefore the moral, value of any institution; and\npast experience is our chief means of determining whether an\ninstitution is likely to be socially beneficial, and therefore morally\nright, in the future.\n\n\n\n\nCHAPTER II\n\nLANDOWNERSHIP IN HISTORY\n\n\nThirty or thirty-five years ago, the majority of economic historians\nseemed to accept the theory that land was originally owned in\ncommon.[1] They held that in the beginning the community, usually a\nvillage community, was the landowner; that the community either\ncultivated the land as a corporation, and distributed the product\namong the individual members, or periodically divided the land among\nthe social units, and permitted the latter to cultivate their\nallotments separately. The second of these forms of tenure was the\nmore general. The primitive time to which the theory referred was not\nthe period when men got their living by hunting and fishing, or by\nrearing herds, but the agricultural stage of economic development,\nwhen life had become settled. Of the arguments upon which the theory\nwas based, some consisted of ambiguous statements by ancient writers,\nsuch as Plato, C\u00e6sar, and Tacitus, and others were merely inferences\ndrawn from the existence of certain agrarian institutions: family\nownership of land; common pasture lands and woodlands; periodical\ndistribution of land among the cultivators, as in the German Mark, the\nRussian Mir, the Slavonic Zadruga, and the Javanese Dessa. All these\npractices have been interpreted as \"survivals\" of primitive common\nownership. Only on this hypothesis, it is argued, can they be\nsatisfactorily explained.\n\nMore recent writers have subjected the various arguments for this\ntheory to a searching criticism.[2] To-day the great majority of\nscholars would undoubtedly accept the conclusion of Fustel de\nCoulanges, that the arguments and evidence are not sufficient to prove\nthat in the earliest stages of agricultural life land was held in\ncommon; and a majority would probably take the more positive ground\nthat common ownership in the sense of communal cultivation and\ndistribution, never existed for any considerable length of time among\nany agricultural people. The present authoritative opinion on the\nsubject is thus summarized by Professor Ashley:\n\n\"From the earliest historical times, in Gaul and Germany, very much\nland was owned individually, and wealth on one side and slavery on the\nother were always very important factors in the situation.\n\n\"Even in Germany, communal ownership of land was never a fundamental\nor generally pervasive social institution; there was something very\nmuch like large private estates, worked by dependents and slaves, from\nthe very earliest days of Teutonic Settlement.\n\n\"As to England, it is highly probable that we shall not find anything\nthat can fairly be called a general communal system of landowning,\ncombined with a substantial equality among the majority of the people,\nunder conditions of settled agriculture. To find it in any sense we\nshall have to go back to an earlier and 'tribal' condition, if,\nindeed, we shall find it there!\"[3]\n\n\n_No Private Ownership in Pre-Agricultural Conditions_\n\nWhenever and wherever men got their living by hunting and fishing,\nthere was no inducement to own land privately, except possibly those\nportions upon which they built their huts or houses. \"Until they\nbecome more or less an agricultural people they are usually hunters or\nfishermen or both, and possibly also to a limited extent keepers of\nsheep and cattle. Population is then sparse and unoccupied territory\nis plentiful, and questions of the ownership of particular tracts of\nland do not concern them.\"[4] In any region occupied by a group or\ntribe, all portions of the land and the water were about equally\nproductive of game and fish; the amount obtainable by any individual\nhad no relation to labour on any particular piece of soil; and it was\nmuch easier for each to range over the whole region in common with his\nfellows than to mark off a definite section upon which he would not\npermit others to come, but beyond which he himself would not be\npermitted to go. In such conditions private ownership of land would\nhave been folly. Tribal or group ownership was, however, in vogue,\nespecially among those groups that were in control of the better\ngrounds or streams. Even this form of proprietorship was comparatively\nunstable, since the people were to a considerable degree nomadic, and\nwere willing to abandon present possessions whenever there was a\nprospect of obtaining better ones elsewhere. Among men who got their\nliving by rearing herds, the inducement to hold land in exclusive\nprivate control would be somewhat stronger. The better grazing tracts\nwould be coveted by many different persons, especially in the more\npopulous communities. And there would always be the possibility of\nconfusion among the different herds, and contention among their\nowners. In such circumstances the advantages of exclusive control\nwould sometimes outweigh the benefits of common use and ownership. In\nthe thirteenth chapter of Genesis we are told that, owing to strife\nbetween the herdsmen of Abram and Lot, the brothers separated, and\nagreed to become the exclusive possessors of different territories.\nNevertheless, it is probable that tribal ownership was the prevailing\nform of land tenure so long as people remained mainly in pastoral\nconditions.\n\nIt is likewise probable that the same system continued in many cases\nfor some time after men began to cultivate the soil. At least, this\nwould seem to have been the natural arrangement while land was\nplentiful, and the methods of cultivation crude and soil-exhausting.\nIt would be more profitable to take up new lands than to continue upon\nthe old. Within historical times this system prevailed among the\nancient Germans, some of the tribes of New Zealand, and some of the\ntribes of Western Africa. Where land was not so plentiful it was\nsometimes redistributed among individuals or heads of families, as\noften as a death occurred or a new member arrived in the community.\nSome of the tribes and peoples who observed this practice were the\nancient Irish, the aborigines of Peru, Mexico, and parts of what is\nnow the United States, and Australia, and some of the tribes of\nAfrica, India, and Malaysia.[5] Whether the most primitive\nagricultural systems of every people were of this nature we have, of\ncourse, no means of knowing, but the supposition is antecedently\nprobable; for agriculture must have begun very gradually, and been for\nsome time practised in connection with the more primitive methods of\nobtaining a livelihood. As the land had been held for the most part in\ncommon during the hunting and fishing stage and during the pastoral\nstage, the same arrangement would probably continue until the people\nfound it necessary to cultivate the same tracts of land year after\nyear, and conceived the desire to retain their holdings in stable\npossession and to transmit them to their children. Moreover, so long\nas the members of the clan remained strongly conscious of their\nkinship, and realised the necessity of acting as a unit against their\nenemies, there would be a strong incentive to clan ownership of the\nland, and clan allotment of it among the individual members. In other\nwords, the clan would, in these circumstances, have the same motives\nfor common ownership that exist to-day in the family.\n\nThe oldest historical peoples, the Israelites, Egyptians, Assyrians,\nBabylonians, and Chinese, had private ownership of land at the\nbeginning of their recorded history. Most of them, however, had been\ncultivating land for a considerable length of time, and had acquired a\nconsiderable degree of civilisation, before the earliest period of\ntheir existence of which we have any knowledge. It is quite possible\nthat those among them that had passed through the hunting and fishing\nor the pastoral stage of existence, had practised tribal or common\nownership during the earlier portion of their agricultural life.\n\n\n_How the Change Probably Took Place_\n\nThe change from tribal to private landownership could have occurred in\na great variety of ways. For example, the chief, patriarch, or king\nmight have gradually obtained greater authority in making the\nallotments of land among the members of the tribe or group, and thus\nacquired a degree of control over the land which in time became\npractical ownership; he might have seized the holdings of deceased\npersons, or of those who were unable to pay him the tax or tribute\nthat he demanded, or of those who were for any reason obnoxious to\nhim. Again, the taxes paid to the chief man in a community for his\nservices as ruler might have come in time to be regarded as a payment\nfor the use of the land, and therefore as an acknowledgment that the\nchief was also the landlord. Even in the Middle Ages the rents\nreceived by the feudal lords were in great measure a return for social\nand political services, just as are the taxes received to-day from\nprivate landowners by the State. In primitive times, as well as later\non, the chief would naturally do his best to convert this institution\nof tax paying or tribute paying into rent paying, and to add the\nposition of landowner to his other prerogatives. After all, the\ntransition from tribal ownership, with private cultivation and private\nreceipt of the produce of individual allotments, to overlordship and\nlandlordism, would not have been greater than that which actually took\nplace in England between the fifteenth and the nineteenth centuries,\nwhen the lords became absolute owners of land that they had previously\nheld with their tenants in a sort of divided or dual ownership. In a\nword, tribal ownership could have been displaced by landlordism\nthrough the same methods that have been used everywhere by the\npowerful, the ambitious, and the greedy against the weak, the\nindifferent, and the upright. Nor must we forget the influence of\nconquest. Most of the countries that appear in historical times with a\nsystem of private ownership had at some previous period been\nsubjugated by an alien people. In many of these the conquerors\nundoubtedly introduced a considerable degree of individual ownership,\nthe more powerful among them becoming landlords, while their weaker\ncompanions and the mass of the conquered population were established\nin a condition of tenancy.\n\nWhere a somewhat widely diffused private ownership succeeded the\nprimitive system, it was probably due to the free action of the\ncultivators, as soon as they came to realise the inconveniences of\nownership in common. \"Any enclosed land round their permanent\ndwellings, and any land outside the settlement which was cleared,\nreclaimed, and cultivated, or occupied with cattle by individuals or\nfamilies, was recognised as their personal property. Only those who\nwere industrious, enterprising, and courageous enough would clear,\noccupy, retain, cultivate, and defend waste land. They would become\npersonal owners of cattle, and would gradually acquire wealth which\nwould enable them to employ others and still further improve their\nposition. As their power increased, and as population grew, the\nbravest, wealthiest, and most capable fighting men amongst them would\nbecome chiefs or a species of nobles, and the force of circumstances,\noften no doubt aided by force and fraud, would eventually make them\nthe landowners of the greater part of the district, with the more or\nless willing acquiescence and consent of the community amongst whom\nthey lived, and to whom they extended their protection.\"[6]\n\n\n_Limited Character of Primitive Common Ownership_\n\nA great deal of the opposition to the theory of primitive common\nownership of agricultural land, seems to be based upon an exaggerated\nconception of the scope of that institution. The average man who\nthinks or speaks of ownership to-day has in mind the Roman concept and\npractice of private property. This includes the unrestricted right of\ndisposal; that is, the power to hold permanently, to transfer or\ntransmit, to use or to abuse or not to use at all, to retain the\nproduct of the owner's use, to rent the property to any person and for\nany period that the owner chooses, and to obtain a price in return\ncalled rent. Any man who takes the theory of primitive common\nownership to imply that the community or tribe exercised all these\npowers over its land, will have no difficulty in proving that the\nevidence is overwhelmingly against any such theory. Even among those\npeople that are certainly known to have practised so-called common\nownership of land, there are very few instances of communal\ncultivation, or communal distribution of the product. Yet these are\nincluded in the Roman concept of ownership. The usual method seems to\nhave been periodical allotment by the community of the land among\nindividuals, individual cultivation of the allotted tracts, and\nindividual ownership of the product. Moreover, there was always a\nchief or patriarch who exercised considerable authority in the\ndistribution of the land, frequently collected a rent or tax from the\ncultivators, and almost invariably exercised something like private\nownership of a portion of the land for his direct and special benefit.\nSometimes other men of importance in the community possessed land\nwhich was not subject to the communal allotment. Primitive ownership\nof land in common was, therefore, very far from vesting in the\ncommunity all the powers that inhere in the private proprietor of land\naccording to the Roman law and usage.\n\n\n_Private Ownership General in Historical Times_\n\nSo much for land tenure in prehistoric times. During the historical\nperiod of the existence of the race, almost all civilised peoples have\npractised some form of private ownership in the matter of their arable\nlands. While differing considerably at various times and places, it\nhas always excluded communal allotment of land and communal\ndistribution of the product, and has always included private receipt\nof the product by the owner-user, or private receipt of rent when the\nowner transferred the use to some one else. But it did not always\ninclude the right to determine who should be the user. In the later\ncenturies of the feudal system, for example, the lord could not always\nexpel the tenants from the land, nor prevent them from transmitting\nthe use of it to their children. Moreover, the rent that he received\nwas customary and fixed, not competitive and arbitrary, and it was\nlooked upon in great measure as a return to the lord for social,\nmilitary, and political services, as well as a payment for the use of\nland. This system was private ownership, indeed, but if we apply the\nRoman notion of ownership we shall find it difficult to decide whether\nthe tenant or the lord should more properly be called the owner. At\nany rate, the right of ownership possessed by the lord was greatly\nlimited by restrictions which favoured the masses of the cultivators.\nIn every community there were common wood lands and pasture lands for\nthe free use of all the inhabitants. Among other restrictions of\nprivate ownership and control in favour of the principle of equal\naccess to the land by all persons, we may mention the division of the\nEnglish villein's holding into several portions, intermingled with\nthose of his neighbours, so that each would have about the same amount\nof good land; and the ancient Hebrew law whereby alienated land was\nreturned to the descendants of its original owners every fifty\nyears.[7]\n\nReckoning the feudal lord, and all other overlords who had the same\ncontrol over land, as private proprietors, we may say that in\nhistorical times the arable land of every country has been owned by a\nminority of the population. Since the downfall of feudalism, the\ntendency in most regions of the Western world has been toward an\nincrease in the number of owners, and a decrease in the number of\ngreat estates. This tendency has been especially marked during the\nlast one hundred years. It will, however, need to continue for a very\nlong time, or else to increase its pace very rapidly, before land\nownership will be diffused in anything like the measure that is\nnecessary if its benefits are to be shared by all the people. Even in\nthe United States, where the distribution is perhaps more general than\nin any other country, only 38.4 per cent. of the families in towns and\ncities owned, in 1910, the homes in which they lived, and therefore\nthe land upon which their homes were located. In the rural districts\nthe per cent. of home-owning families was only 62.8.\n\n\n_Conclusions from History_\n\nWhat conclusions does history warrant concerning the social and moral\nvalue of private landownership? Here we are on very uncertain ground;\nfor different inferences may be drawn from the same group of facts if\na different section of them be selected for emphasis. Sir Henry Maine\nand Henry George both accepted the theory of primitive agrarian\ncommunism, but the former saw in this assumed fact a proof that common\nownership was suited only to the needs of rude and undeveloped\npeoples, while the latter regarded it as a sure indication that common\nownership was fundamentally natural and in accordance with permanent\nsocial welfare. The fact that practically all peoples whose history we\nknow discarded communal for private ownership as soon as they had\nacquired a moderate degree of proficiency in methods of cultivation\nand in the arts of civilised life does, indeed, create a presumption\nthat the latter system is the better for civilised men. To this extent\nSir Henry Maine is right. Against this presumption Henry George\nmaintained that common ownership was abandoned solely because of the\nusurpation, fraud, and force employed by the powerful and privileged\nclasses. Undoubtedly this factor played a great part in bringing about\nthe private ownership that has existed and still exists, but it does\nnot account for the institution as a whole and everywhere. If chiefs,\nkings, and other powerful personages had never usurped control of the\nland, if no people had ever conquered the territory of another, it is\nprobable that private ownership would have taken place to the same\nextent, although it would have been much more widely diffused. For the\nsystem of periodical repartition of land, to say nothing of communal\ncultivation and communal distribution of the product, does hinder that\nattachment to a particular portion of the soil and that intensive\ncultivation which are so necessary to the best interests of the\ncultivator, the most productive use of the land, and therefore the\nwelfare of society.\n\nOn the other hand, the limitations on the right of private ownership\nwhich have been established in so many places and times in favour of\nthose who were not owners, show that men have very generally looked\nupon land as in some measure the inheritance of all the people. Hence\narises the presumption that this conviction is but the reflection of\nfundamental and permanent human needs.\n\nSumming up the matter, we may say that the history of land tenure\npoints on the whole to the conclusion that private ownership is\nsocially and individually preferable to agrarian communism, but that\nit should be somewhat strictly limited in the interest of the\nnon-owners, and of the community as a whole.\n\nFOOTNOTES:\n\n[1] The most notable exponents of this view were: Von Maurer,\n\"Einleitung zur Geschichte der Mark,\" 1854; Viollet, \"Bibliotheque de\nl'\u00e9cole des chartres,\" 1872; Maine, \"Village Communities in the East\nand the West,\" 1872; and De Laveleye, \"De la propri\u00e9t\u00e9 et ses formes\nprimitives,\" 1874, of which an English translation appeared in 1878\nunder the title, \"Primitive Property.\"\n\n[2] Chief among these writers are: Fustel de Coulanges in an article\nin \"Revue des Questions Historiques,\" April, 1889; translated by\nMargaret Ashley, and published with an introductory chapter by W. J.\nAshley under the title, \"The Origin of Property in Land,\" 1891; G. Von\nBelow, \"Beilage zur Allgemeine Zeitung: Das kurze Leben einer\nvielgenannten Theorie,\" 1903; F. Seebohm, \"The Village Community,\"\n1883. Cf. Whittaker, \"Ownership, Tenure, and Taxation of Land,\" 1914,\nch. ii; Cathrein, \"Das Privatgrundeigenthum und seine Gegner,\" 1909;\nand Pesch, \"Lehrbuch der Nationaloekonomie,\" I, 183-188.\n\n[3] Quoted in Whittaker, op. cit., pp. 27, 28.\n\n[4] Idem, p. 29.\n\n[5] Cf. P. W. Joyce, \"A Social History of Ancient Ireland,\" 1903; and\nLetourneau, \"Property: Its Origin and Development,\" 1896.\n\n[6] Whittaker, op. cit., pp. 30, 31.\n\n[7] Leviticus xxv, 23-28.\n\n\n\n\nCHAPTER III\n\nTHE ARGUMENTS AGAINST PRIVATE LANDOWNERSHIP\n\n\nIf land were not privately owned there would be no receiving of rent\nby individuals. Therefore, the morality of the landlord's share of the\nnational product is intimately related to, and is usually treated in\nconnection with, the morality of private ownership.\n\nSubstantially all the opponents of private property in land to-day are\neither Socialists or disciples of Henry George. In the view of the\nformer, land as well as the other means of production should be owned\nand managed by the State. Although they are more numerous than the\nGeorgeites, their attack upon private landownership is less\nconspicuous and less formidable than the propaganda carried on by the\nHenry George men. The Socialists give most of their attention to the\nartificial instruments of production, dealing with land only\nincidentally, implicitly, or occasionally. The followers of Henry\nGeorge, commonly known as Single Taxers or Single Tax men, defend the\nprivate ownership of artificial capital, or capital in the strict\neconomic sense, but desire that the control of the community over the\nnatural means of production should be so far extended as to\nappropriate for public uses all economic rent. Their criticism of\nprivate ownership is not only more prominent than that made by the\nSocialists, but is based to a much greater extent upon ethical\nconsiderations.\n\n\n_Arguments by Socialists_\n\nIndeed, the orthodox or Marxian Socialists are logically debarred by\ntheir social philosophy from passing a strictly moral judgment upon\nproperty in land. For their theory of economic determinism, or\nhistorical materialism, involves the belief that private\nlandownership, like all other social institutions, is a _necessary\nproduct_ of economic forces and processes. Hence it is neither morally\ngood nor morally bad. Since neither its existence nor its continuance\ndepends upon the human will, it is entirely devoid of moral quality.\nIt is as unmoral as the succession of the seasons, or the movement of\nthe tides. And it will disappear through the inevitable processes of\neconomic evolution. As expressed by Engels: \"The growing perception\nthat existing social institutions are unreasonable and unjust, that\nreason has become unreason, and right wrong, is only proof that in the\nmodes of production and exchange changes have taken place, with which\nthe social order, adapted to earlier economic conditions, is no longer\nin keeping.\"[8]\n\nFrequently, however, the individual Socialist forgets this\nmaterialistic theory, and falls back upon his common sense, and\nhis innate conceptions of right and wrong, of free will and\nresponsibility. Instead of regarding the existing land system as a\nmere product of blind economic forces, he often denounces it as\nmorally wrong and unjust. His contentions may be reduced to two\npropositions: The proprietor who takes rent from a cultivator robs the\nproducer of a part of his product; and no one has a right to take for\nhis exclusive use that which is the natural heritage and means of\nsupport for all the people. Referring to the receipt of 35,000,000\npounds a year in rent by 8,000 British landlords, Hyndman and Morris\nexclaim: \"Yet in the face of all this a certain school still contend\nthat there is no class robbery.\"[9] Since the claim that the labourer\nhas a right to the full product of his labour applies to capital as\nwell as to land, it can be more conveniently considered when we come\nto treat of the income of the capitalist. With regard to the second\ncontention, the following statement by Robert Blatchford may be taken\nas fairly representative of Socialist thought: \"The earth belongs to\nthe people.... So that he who possesses land possesses that to which\nhe has no right, and he who invests his savings in land becomes the\npurchaser of stolen property.\"[10] Inasmuch as this argument is\nsubstantially the same as one of the fundamental contentions in the\nsystem of Henry George, it will be discussed in connection with the\nlatter, in the pages immediately following.\n\n\n_Henry George's Attack on the Title of First Occupancy_\n\nEvery concrete right, whether to land or to artificial goods, is based\nupon some contingent fact or ground, called a title. By reason of some\ntitle a man is justified in appropriating a particular farm, house, or\nhat. When he becomes the proprietor of a thing that has hitherto been\nownerless, his title is said to be original; when he acquires an\narticle from some previous owner, his title is said to be derived. As\nan endless series of proprietors is impossible, every derived title\nmust be traceable ultimately to some original title. Among the derived\ntitles the most important are contract, inheritance, and prescription.\nThe original title is either first occupancy or labour. The prevailing\nview among the defenders of private landownership has always been that\nthe original title is not labour but first occupancy. If this title be\nnot valid every derived title is worthless, and no man has a true\nright to the land that he calls his own. Henry George's attack upon\nthe title of first occupancy is an important link in his argument\nagainst private property in land.\n\n\"Priority of occupation give exclusive and perpetual title to the\nsurface of a globe in which, in the order of nature, countless\ngenerations succeed each other!... Has the first comer at a banquet\nthe right to turn back all the chairs, and claim that none of the\nother guests shall partake of the food provided, except as they make\nterms with him? Does the first man who presents a ticket at the door\nof a theatre, and passes in, acquire by his priority the right to shut\nthe doors and have the performance go on for him alone?... And to this\nmanifest absurdity does the recognition of the individual right to\nland come when carried to its ultimate that any human being, could he\nconcentrate in himself the individual rights to the land of any\ncountry, could expel therefrom all the rest of the inhabitants; and\ncould he concentrate the individual rights to the whole surface of the\nglobe, he alone of all the teeming population of the earth would have\nthe right to live.\"[11]\n\nIn passing, it may be observed that Henry George was not the first\ndistinguished writer to use the illustration drawn from the theatre.\nCicero, St. Basil, and St. Thomas Aquinas all employed it to refute\nextravagant conceptions of private ownership. In reply to the\nforegoing argument of Henry George, we point out: first, that the\nright of ownership created by first occupancy is not unlimited, either\nextensively or intensively; and, second, that the historical\ninjustices connected with private ownership have been in only a\ncomparatively slight degree due to the first occupation of very large\ntracts of land. The right of first occupancy does not involve the\nright to take a whole region or continent, compelling all subsequent\narrivals to become tenants of the first. There seems to be no good\nreason to think that the first occupant is justified in claiming as\nhis own more land than he can cultivate by his own labour, or with the\nassistance of those who prefer to be his employ\u00e9s or his tenants\nrather than independent proprietors. \"He has not the right to reserve\nfor himself alone the whole territory, but only that part of it which\nis really useful to him, which he can make fruitful.\"[12] Nor is the\nright of private landownership, on whatever title it may rest,\nunlimited intensively, that is, in its powers or comprehension. Though\na man should have become the rightful owner of all the land in a\nneighbourhood, he would have no moral right to exclude therefrom those\npersons who could not without extreme inconvenience find a living\nelsewhere. He would be morally bound to let them cultivate it at a\nfair rental. The Christian conception of the intensive limitations of\nprivate ownership is well exemplified in the action of Pope Clement\nIV, who permitted strangers to occupy the third part of any estate\nwhich the proprietor refused to cultivate himself.[13] Ownership\nunderstood as the right to do what one pleases with one's possessions,\nis due partly to the Roman law, partly to the Code Napol\u00e9on, but\nchiefly to modern theories of individualism.\n\nIn the second place, the abuses which have accompanied private\nproperty in land are very rarely traceable to abuses of the right of\nfirst occupancy. The men who have possessed too much land, and the men\nwho have used their land as an instrument of social oppression, have\nscarcely ever been first occupants or the successors thereof through\nderived titles. This is especially true of modern abuses, and modern\nlegal titles. In the words of Herbert Spencer: \"Violence, fraud, the\nprerogative of force, the claims of superior cunning,--these are the\nsources to which these titles may be traced. The original deeds were\nwritten with the sword, rather than with the pen: not lawyers but\nsoldiers were the conveyancers: blows were the current coin given in\npayment; and for seals blood was used in preference to wax.\"[14] Not\nthe appropriation of land which nobody owned, but the forcible and\nfraudulent seizure of land which had already been occupied, has been\none of the main causes of the evils attending upon private\nlandownership. Moreover, in England and all other countries that have\nadopted her legal system, the title of first occupancy could never be\nutilised by individuals: all unoccupied land was claimed by the Crown\nor by the State, and transferred thence to private persons or\ncorporations. If some individuals have got possession of too much land\nthrough this process, the State, not the title of first occupancy,\nmust bear the blame. This is quite clear in the history of land tenure\nin the United States and Australasia.\n\nHenry George's attack upon private landownership through the title of\nfirst occupancy is therefore ineffective; for he attributes to this\nqualities that it does not possess, and consequences for which it is\nnot responsible.\n\n\n_His Defence of the Title of Labour_\n\nThinking that he has shattered the title of first occupancy, Henry\nGeorge undertakes to set up in its place the title of labour. \"There\ncan be to the ownership of anything no rightful title which is not\nderived from the title of the producer, and does not rest on the\nnatural right of the man to himself.\"[15] The only original title is\nman's right to the exercise of his own faculties; from this right\nfollows his right to what he produces; now man does not produce land;\ntherefore he cannot have rightful property in land. Of these four\npropositions the first is a pure assumption, the second is untrue, the\nthird is a truism, and the fourth is as unfounded as the first.\nDependently upon God, man has, indeed, a right to himself and to the\nexercise of his own faculties; but this is a right of action, not of\nproperty. By the exercise of this right alone man can never produce\nanything, never become the owner of anything. He can produce only by\nexerting his powers upon something outside of himself; that is, upon\nthe goods of external nature. To become the producer and the owner of\na product, he must first become the owner of materials. By what title\nis he to acquire these? In one passage[16] Henry George seems to think\nthat no title is necessary, and refers to the raw material as an\n\"accident,\" while the finished product is the \"essence,\" declaring\nthat \"the right of private ownership attaches the accident to the\nessence, and gives the right of ownership to the natural material in\nwhich the labour of production is embodied.\" Now this solution of the\ndifficulty is too simple and arbitrary. Its author would have shrunk\nfrom applying it universally; for example, to the case of the\nshoemaker who produces a pair of shoes out of stolen materials, or the\nburglar who makes an overcoat more useful (and therefore performs a\ntask of production) by transferring it from a warehouse to his\nshivering back! Evidently Henry George has in mind only raw material\nin the strict sense, that which has not yet been separated from the\nstorehouse of nature; for he declares in another place that \"the right\nto the produce of labour cannot be enjoyed without the free use of the\nopportunities offered by nature.\"[17] In other words, man's title to\nthe materials upon which he is to exercise his faculties, and of which\nhe is to become the owner by right of production, is the title of gift\nconferred by nature, or nature's God.\n\nNevertheless this title is applicable only to those goods that exist\nin unlimited abundance, not to those parts of the natural bounty that\nare scarce and possess economic value. A general assumption by\nproducers that they were entitled to take possession of the gifts of\nnature indiscriminately would mean industrial anarchy and civil war.\nHence Henry George tells us that the individual should pay rent to\n\"the community to satisfy the equal rights of all other members of\nthe community.\"[18] Inasmuch as the individual must pay this price\nbefore he begins to produce, his right to the use of natural\nopportunities is not \"free,\" nor does his labour alone constitute a\ntitle to that part of them that he utilises in production.\nConsequently labour does not create a right to the concrete product.\nIt merely gives the producer a right to the value that he adds to the\nraw material. His right to the raw material itself, to the elements\nthat he withdraws from the common store, and fashions into a product,\nsay, wheat, lumber, or steel, does not originate in the title of\nlabour but in the title of contract. This is the contract by which in\nexchange for rent paid to the community he is authorised to utilise\nthese materials. Until he has made this contract he has manifestly no\nfull right to the product into which natural forces as well as his own\nlabour have entered. According to Henry George's own statements,\ntherefore, the right to the product does not spring from labour alone,\nbut from labour plus compensation to the community. Since the contract\nby which the prospective user agrees to pay this compensation or rent\nmust precede his application of labour, it instead of labour is the\noriginal title. Since the contract is made with a particular community\nfor the use of a particular piece of land, the title that it conveys\nmust derive ultimately from the occupation of that land by that\ncommunity,--or some previous community of which the present one is the\nlegal heir. So far as economically valuable materials are concerned,\ntherefore, the logic of Henry George's principles leads inevitably to\nthe conclusion that the original title of ownership is first\noccupancy.\n\nEven in the case of economically free goods, the original title of\nownership is occupancy. Henry George declares that the traveller who\nhas filled his vessels at a free-for-all spring owns the water when he\nhas carried it into a desert, by the title of labour.[19]\nNevertheless, in its original place this water belonged either to the\ncommunity or to nobody. In the former supposition it can become the\nproperty of the traveller only through an explicit or implicit gift\nfrom the community; and it is this contract, not labour, that\nconstitutes his title to the water. If we assume that the spring was\nownerless, we see that the labour of carrying a portion of it into the\ndesert still lacks the qualifications of a title; for the abstracted\nwater must have belonged to him before he began the journey. It must\nhave been his from the moment that he separated it from the spring.\nOtherwise he had no right to take it away. His labour of transporting\nit gave him a right to the utility thus added to the water, but not a\nright to the water when it first found a local habitation in his\nvessels. Nor was the labour of transferring it from the spring into\nhis vessels the true title; for labour alone cannot create a right to\nthe material upon which it is exerted, as we see in the case of stolen\nobjects. If it be contended that labour together with the natural\nright to use the ownerless goods of nature have all the elements of a\nvalid title, the assertion must be rejected as unprecise and\ninadequate. The right to use ownerless goods is a general and abstract\nright that requires to become specific and concrete through some\ntitle. In the case of water it is a right to water in general, to some\nwater, but not a right to a definite portion of the water in this\nparticular spring. The required and sufficient title here is that of\napprehension, occupation, the act of separating a portion from the\nnatural reservoir. Therefore, it is first occupancy as exemplified in\nmere seizure of an ownerless good, not labour in the sense of\nproductive activity, nor labour in the sense of painful exertion, that\nconstitutes the precise title whereby the man acquires a right to the\nwater that he has put into his cup or barrel. Mere seizure is a\nsufficient title in all such cases as that which we are now\nconsidering, simply because it is a reasonable method of determining\nand specifying ownership. There is no need whatever of having recourse\nto the concept of labour to justify this kind of property right. In\nthe present case, indeed, the acts of apprehension and of productive\nlabour (the labour of dipping the water into a vessel _is_ productive\ninasmuch as the water is more useful there than in the spring) are the\nsame physically, but they are distinct logically and ethically. One is\nmere occupation, while the other is production; and ownership of a\nthing must precede, in morals if not in time, the expenditure upon it\nof productive labour.\n\n\"The theory which bases the right of property on labour really depends\nin the ultimate resort on the right of possession and the fact that it\nis socially expedient, and is therefore upheld by the laws of society.\nGrotius, discussing this in the old Roman days, pointed out that since\nnothing can be made except out of pre-existing matter, acquisition by\nmeans of labour depends, ultimately, on possession by means of\noccupation.\"[20]\n\nSince man's right to his faculties does not of itself give him a right\nto exercise them upon material objects, productive labour cannot of\nitself give him a right to the product therefrom created, nor\nconstitute the original title of ownership. Since labour is not the\noriginal title to property, it is not the only possible title to\nproperty in land. Hence the fact that labour does not produce land,\nhas no bearing on the question of private landownership.\n\nIn passing it may be observed that Henry George implicitly admitted\nthat the argument from the labour title was not of itself sufficient\nto disprove the right of private property in land. Considering the\nobjection, \"if private property in land be not just, then private\nproperty in the products of land is not just, as the material of these\nproducts is taken from the land,\" he replied that the latter form of\nownership \"is in reality a mere right of temporary possession,\" since\nthe raw material in the products sooner or later returns to the\n\"reservoirs provided for all ... and thus the ownership of them by one\nworks no injury to others.\"[21] But private ownership of land, he\ncontinued, shuts out others from the very reservoirs. Here we have a\ncomplete abandonment of the principle which underlies the labour\nargument. Instead of trying to show from the nature of the situation\nthat there is a logical difference between the two kinds of ownership,\nhe shifts his ground to a consideration of consequences. He makes the\ntitle of social utility instead of the title of labour the\ndistinguishing and decisive consideration. As we shall see later, he\nis wrong even on this ground; for the fundamental justification of\nprivate landownership is precisely the fact that it is the system of\nland tenure most conducive to human welfare. At present we merely call\nattention to the breakdown in his own hands of the labour argument.\n\nTo sum up the entire discussion on the original title of ownership:\nHenry George's attack upon first occupancy is futile because based\nupon an exaggerated conception of the scope of private landownership,\nand upon a false assumption concerning the responsibility of that\ntitle for the historical evils of the system. His attempt to\nsubstitute labour as the original title is likewise unsuccessful,\nsince labour can give a right only to the utility added to natural\nmaterials, not to the materials themselves. Ownership of the latter\nreaches back finally to occupation. Whence it follows that the title\nto an artificial thing, such as a hat or coat, water taken from a\nspring, a fish drawn from the sea, is a joint or two-fold title;\nnamely, occupation and labour. Where the product embodies scarce and\neconomically valuable raw material, occupation is usually prior to\nlabour in time; in _all_ cases it is prior to labour logically and\nethically. Since labour is not the original title, its absence in the\ncase of land does not leave that form of property unjustified. The\ntitle of first occupancy remains. In a word, the one original title of\nall property, natural and artificial, is first occupancy.\n\nThe other arguments of Henry George against private landownership are\nbased upon the assumed right of all mankind to land and land values,\nand on the contention that this right is violated by the present\nsystem of tenure.\n\n\n_The Right of All Men to the Bounty of the Earth_\n\n\"The equal right of all men to the use of land is as clear as their\nequal right to breathe the air--it is a right proclaimed by the fact\nof their existence. For we cannot suppose that some men have a right\nto be in the world, and others no right.\n\n\"If we are here by the equal permission of the Creator, we are all\nhere with an equal title to the enjoyment of his bounty--with an equal\nright to the use of all that nature so impartially offers.... There is\nin nature no such thing as a fee simple in land. There is on earth no\npower which can rightfully make a grant of exclusive ownership of\nland. If all existing men were to grant away their equal rights, they\ncould not grant away the rights of those who follow them. For what are\nwe but tenants for a day? Have we made the earth that we should\ndetermine the rights of those who after us shall tenant it in their\nturn?\"[22]\n\nThe right to use the goods of nature for the support of life is\ncertainly a fundamental natural right; and it is substantially equal\nin all persons. It arises, on the one hand, from man's intrinsic\nworth, his essential needs, and his final destiny; and, on the other\nhand, from the fact that nature's bounty has been placed by God at the\ndisposal of all His children indiscriminately. But this is a general\nand abstract right. What does it imply specifically and in the\nconcrete? In the first place, it includes the actual and continuous\nuse of some land; for a man cannot support life unless he is permitted\nto occupy some portion of the earth for the purposes of working, and\neating, and sleeping. Secondly, it means that in time of extreme need,\nand when more orderly methods are not available, a man has the right\nto seize sufficient goods, natural or produced, public or private, to\nsupport life. So much is admitted and taught by all Catholic\nauthorities, and probably by all other authorities. Furthermore, the\nabstract right in question seems very clearly to include the concrete\nright to obtain on reasonable conditions at least the requisites of a\ndecent livelihood; for example, by direct access to a piece of land,\nor in return for a reasonable amount of useful labour. All of these\nparticular rights are equally valid in all persons.\n\nDoes the equal right to use the bounty of nature include the right to\nequal _shares_ of land, or land values, or land advantages? Since the\nresources of nature have been given to all men in general, and since\nhuman nature is specifically and juridically equal in all, have not\nall persons the right to share equally in these resources? Suppose\nthat some philanthropist hands over to one hundred persons an\nuninhabited island, on condition that they shall divide it among\nthemselves with absolute justice. Are they not obliged to divide it\nequally? On what ground can any person claim or be awarded a larger\nshare than his fellows? None is of greater intrinsic worth than\nanother, nor has any one made efforts, or sacrifices, or products\nwhich will entitle him to exceptional treatment. The correct principle\nof distribution would seem to be absolute equality, except in so far\nas it may be modified on account of varying needs, and varying\ncapacities for social service. In any just distribution account must\nbe taken of differences in needs and capacities; for it is not just to\ntreat men as equal in those respects in which they are unequal, nor is\nit fair to deprive the community of those social benefits which can be\nobtained only by giving exceptional rewards for exceptional services.\nThe same amount of food allotted to two persons might leave one hungry\nand the other sated; the same amount of land assigned to two persons\nmight tempt the one to wastefulness and discourage the other. To be\nsure, the factor of exceptional capacity should not figure in the\ndistribution until all persons had received that measure of natural\ngoods which was in each case sufficient for a decent livelihood. For\nthe fundamental justification of any distribution is to be sought in\nhuman needs; and among human needs the most deserving and the most\nurgent are those which must be satisfied as a prerequisite to right\nand reasonable life.\n\nNow it is true that private ownership of land has nowhere realised\nthis principle of proportional equality and proportional justice. No\nsuch result is possible in a system that, in addition to other\ndifficulties, would be required to make a new distribution at every\nbirth and at every death. Private ownership of land can never bring\nabout ideal justice in distribution. Nevertheless it is not\nnecessarily out of harmony with the demands of _practical_ justice. A\ncommunity that lacks either the knowledge or the power to establish\nthe ideal system is not guilty of actual injustice because of this\nfailure. In such a situation the proportionally equal rights of all\nmen to the bounty of nature are not actual rights. They are\nconditional, or hypothetical, or suspended. At best they have no more\nmoral validity than the right of a creditor to a loan that, owing to\nthe untimely death of the debtor, he can never recover. In both cases\nit is misleading to talk of injustice; for this term always implies\nthat some person or community is guilty of some action which could\nhave been avoided. The system of private landownership is not, indeed,\nperfect; but this is not exceptional in a world where the ideal is\nnever attained, and all things are imperfect. Henry George declares\nthat \"there is on earth no power which can rightfully make a grant of\nexclusive ownership in land\"; but what would he have a community do\nwhich has never heard of his system? Introduce some crude form of\ncommunism, or refrain from using the land at all, and permit the\npeople to starve to death in the interests of ideal justice? Evidently\nsuch a community must make grants of exclusive ownership, and these\nwill be as valid in reason and in morals as any other act that is\nsubject to human limitations which are at the time irremovable.\n\nPerhaps the Single Taxer would admit the force of the foregoing\nargument. He might insist that the titles given by the State in such\nconditions were not exclusive grants in the strict sense, but were\nvalid only until a better system could be set up, and the people put\nin possession of their natural heritage. Let us suppose, then, that a\nnation were shown \"a more excellent way.\" Suppose that the people of\nthe United States set about to establish Henry George's system in the\nway that he himself advocated. They would forthwith impose upon all\nland an annual tax equivalent to the annual rent. What would be the\neffect upon private land-incomes, and private land-wealth? Since the\nfirst would be handed over to the State in the form of a tax, the\nsecond would utterly disappear. For the value of land, like the value\nof any other economic good, depends upon the utilities that it\nembodies or produces. Whoever controls these will control the market\nvalue of the land itself. No man will pay anything for a\nrevenue-producing property if some one else, for example, the State,\nis forever to take the revenue. The owner of a piece of land which\nbrings him an annual revenue or rent of one hundred dollars, will not\nfind a purchaser for it if the State appropriates the one hundred\ndollars in the form of a tax that is to be levied year after year for\nall time. On the assumption that the revenue represents a selling\nvalue of two thousand dollars, the private owner will be worth that\nmuch less after the introduction of the new system.\n\nHenry George defends this proceeding as emphatically just, and denies\nthe justice of compensating the private owners. In the chapter of\n\"Progress and Poverty\" headed, \"Claim of Land Owners to Compensation,\"\nhe declares that \"private property in land is a bold, bare, enormous\nwrong, like that of chattel slavery\"; and against Mill's statement\nthat land owners have a right to rent and to the selling value of\ntheir holdings, he exclaims: \"If the land of any country belong to the\npeople of that country, what right, in morality and justice, have the\nindividuals called land owners to the rent? If the land belong to the\npeople, why in the name of morality and justice should the people pay\nits salable value for their own?\"[23]\n\nHere, then, we have the full implication of the Georgean principle\nthat private property in land is essentially unjust. It is not merely\nimperfect,--tolerable while unavoidable. When it can be supplanted by\nthe right system, its inequalities must not continue under another\nform. If inequalities are continued through the compensation of\nprivate owners, individuals are still hindered from enjoying their\nequal rights to land, and the State becomes guilty of formal and\nculpable injustice. The titles which the State formerly guaranteed to\nthe private owners did not have in morals the perpetual validity which\nthey professed to have. Since the State is not the owner of the land,\nit was morally powerless to create or sanction titles of this\ncharacter. Even if all the citizens at any given time had deliberately\ntransferred the necessary authorisation to the State, \"they could\nnot,\" in the words of Henry George, \"grant away the right of those who\nfollow them.\" The individual's right to land is innate and natural,\nnot civil or social. The author of \"Progress and Poverty\" attributes\nto the individual's _common_ right to land precisely the same absolute\ncharacter that Father Liberatore predicates of the right to become a\n_private_ land owner.[24] In the view of Henry George, the State is\nmerely the trustee of the land, having the duty of distributing its\nbenefits and values so as to make effective the equal rights of all\nindividuals. Consequently, the legal titles of private ownership which\nit creates or sanctions are valid only so long as nothing better is\navailable. At best such titles have no greater moral force than the\ntitle by which an innocent purchaser holds a stolen watch; and the\npersons who are thereby deprived of their proper shares of land\nbenefits, have the same right to recover them from the existing\nprivate owners that the watch-owner has to recover his property from\nthe innocent purchaser. Hence the demand for compensation has no more\nmerit in the one case than in the other.\n\nTo the objection that the civil laws of many civilised countries would\npermit the innocent purchaser of the watch to retain it, provided that\nsufficient time had elapsed to create a title of prescription, the\nSingle Taxer would reply that the two kinds of goods are not on the\nsame moral basis in all respects. He would contend that the natural\nheritage of the race is too valuable, and too important for human\nwelfare to fall under the title of prescription.\n\nTo put the matter briefly, then, Henry George contends that the\nindividual's equal right to land is so much superior to the claim of\nthe private owner that the latter must give way, even when it\nrepresents an expenditure of money or other valuable goods. The\naverage opponent does not seem to realise the full force of the\nimpression which this theory makes upon the man who overemphasises the\ninnate rights of men to a share in the gifts of nature. Let us see\nwhether this right has the absolute and overpowering value which is\nattributed to it by Henry George.\n\nIn considering this question, the supremely important fact to be kept\nin mind is that the natural right to land is not an end in itself. It\nis not a prerogative that inheres in men, regardless of its purposes\nor effects. It has validity only in so far as it promotes individual\nand social welfare. As regards individual welfare, we must bear in\nmind that this phrase includes the well being of all persons, of those\nwho do as well as of those who do not at present enjoy the benefits of\nprivate landownership. Consequently the proposal to restore to the\n\"disinherited\" the use of their land rights must be judged by its\neffects upon the welfare of all persons. If existing landowners are\nnot compensated they are deprived, in varying amounts, of the\nconditions of material well being to which they have become\naccustomed, and are thereby subjected to varying degrees of positive\ninconvenience and hardship. The assertion that this loss would be\noffset by the moral gain in altruistic feelings and consciousness, may\nbe passed over as applying to a different race of beings from those\nwho would be despoiled. The hardship is aggravated considerably by the\nfact that very many of the dispossessed private owners have paid the\nfull value of their land out of the earnings of labour or capital, and\nthat all of them have been encouraged by society and the State to\nregard landed property in precisely the same way as any other kind of\nproperty. In the latter respect they are not in the same position as\nthe innocent purchaser of the stolen watch; for they have never been\nwarned by society that the land might have been virtually stolen, or\nthat the supposedly rightful claimants might some day be empowered by\nthe law to recover possession. On the other hand, the persons who own\nno land under the present system, the persons who are deprived of\ntheir \"birthright,\" suffer no such degree of hardship when they are\ncontinued in that condition. They are kept out of something which they\nhave never possessed, which they have never hoped to get by any such\neasy method, and from which they have not been accustomed to derive\nany benefit. To prolong this condition is not to inflict upon them any\nnew or positive inconvenience. Evidently their welfare and claims in\nthe circumstances are not of the same moral importance as the welfare\nand claims of persons who would be called upon to suffer the loss of\ngoods already possessed and enjoyed, and acquired with the full\nsanction of society.\n\nHenry George is fond of comparing the private owner of land with the\nslave owner, and the landless man with the man enslaved; but there is\na world of difference between their respective positions and moral\nclaims. Liberty is immeasurably more important than land, and the\nhardship suffered by the master when he is compelled to free the slave\nis immeasurably less than that endured by the slave who is forcibly\ndetained in bondage. Moreover, the moral sense of mankind recognises\nthat it is in accordance with equity to compensate slave owners when\nthe slaves are legally emancipated. Infinitely stronger is the claim\nof the landowner to compensation.\n\nIf the Georgeite replies that the landless man is at present kept out\nof something to which he has a right, while confiscation would take\nfrom the private owner something which does not really belong to him,\nthe rejoinder must be that this assertion begs the question. The\nquestion is likewise begged when the unreasonable defender of private\nproperty declares that the right of the landless is vague and\nundetermined, and therefore morally inferior to the determinate and\nspecific right of the individual landowner. This is precisely the\nquestion to be solved. Does the abstract right of the landless man\nbecome a concrete right which is so strong as to justify confiscation?\nIs his natural right valid against the acquired right of the private\nproprietor? These questions can be answered intelligently only by\napplying the test of human welfare, individual and social. To say that\nland of its very nature is not morally susceptible of private\nownership, is to make an easy assertion that may be as easily denied.\nTo interpret man's natural right to land by any other standard than\nhuman welfare, is to make of it a fetish, not a thing of reason. Henry\nGeorge himself seemed to recognise this when he wrote that\nwonderfully eloquent but overdrawn and one-sided description of the\neffects of private ownership which occurs in the chapter entitled,\n\"Claim of Landowners to Compensation.\"[25]\n\nWhen we say that human welfare is the final determinant of the right\nto land, we understand this phrase in the widest possible sense. To\ndivide the goods of the idle rich among the deserving poor, might be\ntemporarily beneficial to both these classes, but the more remote and\nenduring consequences would be individually and socially disastrous.\nTo restore a legacy to persons who had been defrauded of it when very\nyoung, would probably cause more hardship to the swindler than the\nheirs would have suffered had there been no restitution; nevertheless\nthe larger view of human welfare requires that the legacy should be\nrestored. When, however, two or three generations have been kept out\nof their inheritance, the civil law permits the children of the\nswindler to retain the property by the title of prescription; and for\nprecisely the same reason, human welfare.\n\nThe social consequences of the confiscation of rent and land values,\nwould be even more injurious than those falling upon the individuals\ndespoiled. Social peace and order would be gravely disturbed by the\nprotests and opposition of the landowners, while the popular\nconception of property rights, and of the inviolability of property,\nwould be greatly weakened, if not entirely destroyed. The average man\nwould not grasp or seriously consider the Georgean distinction between\nland and other kinds of property in this connection. He would infer\nthat purchase, or inheritance, or bequest, or any other title having\nthe immemorial sanction of the State, does not create a moral right to\nmovable goods any more than to land. This would be especially likely\nin the matter of capital. Why should the capitalist, who is no more a\nworker than the landowner, be permitted to extract revenue from his\npossessions? In both cases the most significant and practical feature\nis that one class of men contributes to another class an annual\npayment for the use of socially necessary productive goods. If\nrent-confiscation would benefit a large number of people, why not\nincrease the number by confiscating interest? Indeed, the proposal to\nconfiscate rent is so abhorrent to the moral sense of the average man\nthat it could never take place except in conditions of revolution and\nanarchy. If that day should ever arrive the policy of confiscation\nwould not stop with land.\n\n\n_The Alleged Right of the Community to Land Values_\n\nIn the foregoing pages we have confined our attention to the Georgean\nprinciple which bases men's common right to land and rent upon their\ncommon nature, and their common claims to the material gifts of the\nCreator. Another argument against private ownership takes this form:\n\"Consider what rent is. It does not arise spontaneously from the soil;\nit is due to nothing that the landowners have done. It represents a\nvalue created by the whole community.... But rent, the creation of the\nwhole community, necessarily belongs to the whole community.\"[26]\n\nBefore taking up the main contention in this passage, let us notice\ntwo incidental points. If all rent be due to the community by the\ntitle of social production, why does Henry George defend at such\nlength the title of birthright? If the latter title does not extend to\nrent it is restricted to land which is so plentiful as to yield no\nrent. Since the owners or holders of such land rarely take the trouble\nto exclude any one from it, the right in question, the inborn right,\nhas not much practical value. Probably, however, the words quoted\nabove ought not to be interpreted as excluding the title of\nbirthright. In that case, the meaning would be that rent belongs to\nthe community by the title of production, as well as by the congenital\ntitle.\n\nThe second preliminary consideration is that the community does not\ncreate _all_ land values nor _all_ rent. These things are as certainly\ndue to nature as to social action. In no case can they be attributed\nexclusively to one factor. Land that has no natural qualities or\ncapacities suitable for the satisfaction of human wants will never\nhave value or yield rent, no matter what society does in connection\nwith it: the richest land in the world will likewise remain valueless,\nuntil it is brought into relation with society, with at least two\nhuman beings. If Henry George merely means to say that, without the\npresence of the community, land will not produce rent, he is stating\nsomething that is perfectly obvious, but it is not peculiar to land.\nManufactured products would have no value outside of society, yet no\none maintains that their value is all created by social action.\nAlthough the value of land is always due to both nature and society,\nfor practical purposes we may correctly attribute the value of a\nparticular piece of land predominantly to nature, or predominantly to\nsociety. When three tracts, equally distant from a city, and equally\naffected by society and its activities, have different values because\none is fit only for grazing, while the second produces large crops of\nwheat, and the third contains a rich coal mine, their relative values\nare evidently due to nature rather than to society. On the other hand,\nthe varying values of two equally fertile pieces of land unequally\ndistant from a city, must be ascribed primarily to social action. In\ngeneral, it is probably safe to say that almost all the value of land\nin cities, and the greater part of the value of land in thickly\nsettled districts, is specifically due to social action rather than to\ndifferences in fertility. Nevertheless, it remains true that the value\nof every piece of land arises partly from nature, and partly from\nsociety; but it is impossible to say in what proportion.\n\nOur present concern is with those values and rents which are to be\nattributed to social action. These cannot be claimed by any person,\nnor by any community, in virtue of the individual's natural right to\nthe bounty of nature. Since they are not included among the ready made\ngifts of God, they are no part of man's birthright. If they belong to\nall the people the title to them must be sought in some historical\nfact, some fact of experience, some social fact. According to Henry\nGeorge, the required title is found in the fact of production.\nSocially created land values and rents belong to the community because\nthe community, not the private proprietor, has produced them. Let us\nsee in what sense the community produces the social value of land.\n\nIn the first place, this value is produced by the community in two\ndifferent senses of the word community, namely, as a civil, corporate\nentity, and as a group of individuals who do not form a moral unit.\nUnder the first head must be placed a great deal of the value of land\nin cities; for example, that which arises from municipal institutions\nand improvements, such as, fire and police protection, water works,\nsewers, paved streets, and parks. On the other hand, a considerable\npart of land values both within and without cities is due, not to the\ncommunity as a civil body, but to the community as a collection of\nindividuals and groups of individuals. Thus, the erection and\nmaintenance of buildings, the various economic exchanges of goods and\nlabour, the superior opportunities for social intercourse and\namusement which characterise a city, make the land of the city and its\nenvirons more valuable than land at a distance. While the activities\ninvolved in these economic and \"social\" facts and relations are,\nindeed, a social not an individual product, they are the product of\nsmall, temporary, and shifting groups within the community. They are\nnot the activities of the community as a moral whole. For example, the\nmaintenance of a grocery business implies a series of social\nrelations and agreements between the grocer and his customers; but\nnone of these transactions is participated in by the community acting\nas a community. Consequently such actions and relations, and the land\nvalues to which they give rise are not due to, are not the products of\nthe community as a unit, as a moral body, as an organic entity. What\nis true of the land values created by the grocery business applies to\nthe values which are due to other economic institutions and relations,\nas well as to those values which arise out of the purely \"social\"\nactivities and advantages. If these values are to go to their\nproducers they must be taken, in various proportions, by the different\nsmall groups and the various individuals whose actions and\ntransactions have been directly responsible.\n\nTo distribute these values among the producers thereof in proportion\nto the productive contribution of each person is obviously impossible.\nHow can it be known, for example, what portion of the increase in the\nvalue of a city's real estate during a given year is due to the\nmerchants, the manufacturers, the railroads, the labourers, the\nprofessional classes, or the city as a corporation? The only practical\nmethod is for the city or other political unit to act as the\nrepresentative of all its members, appropriate the increase in value,\nand distribute it among the citizens in the form of public services,\ninstitutions, and improvements. Assuming that the socially produced\nvalue of land ought to go to its social producer rather than to the\nindividual proprietor, this method of public appropriation and\ndisbursement would seem to be the nearest approximation to practical\njustice that is available.\n\nIs the assumption correct? Do the socially produced land values\nnecessarily belong to the producer, society? Does not the assumption\nrest upon a misconception of the moral validity of production as a\ncanon of distribution? Let us examine some of the ways in which\nvalues are produced.\n\nThe man who converts leather and other suitable raw materials into a\npair of shoes, increases the utility of these materials, and in normal\nmarket conditions increases their value. In a certain sense he has\ncreated value, and he is universally acknowledged to have a right to\nthis product. Similarly the man who increases the utility and value of\nland by fertilising, irrigating, or draining it, is conceded the\nbenefit of these improvements by the title of production.\n\nBut value may be increased by mere restriction of supply, and by mere\nincrease in demand. If a group of men get control of the existing\nsupply of wheat or cotton, they can artificially raise the price,\nthereby producing value as effectively as the shoemaker or the farmer.\nIf a syndicate of speculators gets possession of all the land of a\ncertain quality in a community, they can likewise increase its value,\nproduce new value. If a few powerful leaders of fashion decide to\nadopt a certain style of millinery, their action and example will\neffect an increase in the demand for and the value of that kind of\ngoods. Yet none of these producers of value are regarded as having a\nmoral right to their product.\n\nWhen we turn to what is called the social creation of land values, we\nfind that it takes two forms. It always implies increase of social\ndemand; but the latter may be either purely subjective, reflecting\nmerely the desires and power of the demanders themselves, or it may\nhave an objective basis connected with the land. In the first case it\nmay be due solely to an increase of population. Within the last few\nyears, agricultural land which is no more fertile nor any better\nsituated with regard to markets or other social advantages than it was\nthirty years ago, has risen in value because its products have risen\nin value. Its products have become dearer because population, and\ntherefore demand, have grown faster than agricultural production.\nMerely by increasing its wants the population has produced land\nvalues; but it has obviously no more right to them than have the\nleaders of fashion to the enhanced value which they have given to\nfeminine headgear. On the other hand, the increased demand for land,\nand the consequent increase in its value, are frequently attributable\nspecifically to changes connected with the land itself. They are\nchanges which affect its utility rather than its scarcity. The farmer\nwho irrigates desert land increases its utility, as it were,\n_intrinsically_. The community that establishes a city increases the\nutility of the land therein and thereabout _extrinsically_. New\n_relations_ are introduced between that land and certain desirable\nsocial institutions. Land that was formerly useful only for\nagriculture becomes profitable for a factory or a store. Through its\nnew external relations, the land acquires new utility; or better, its\nlatent and potential uses have become actual. Now these new relations,\nthese utility-creating and value-creating relations, have been\nestablished by society, in its corporate capacity through civil\ninstitutions and activities, and in its non-corporate capacity through\nthe economic and \"social\" (in the narrower \"society\" sense) activities\nof groups and individuals. In this sense, then, the community has\ncreated the increased land values. Has it a strict right to them? a\nright so rigorous and exact that private appropriation of them is\nunjust?\n\nAs we have just seen, men do not admit that mere production of value\nconstitutes a title of ownership. Neither the monopolist who increases\nvalue by restricting supply, nor the pace-makers of fashion, who\nincrease value by merely increasing demand, are regarded as possessing\na moral right to the value that they have \"created.\" It is increase of\nutility, and not either actual or virtual increase of scarcity to\nwhich men attribute a moral claim. Why do men assign these different\nethical qualities to the production of value? Why has the shoemaker a\nright to the value that he adds to the raw material in making a pair\nof shoes? What is the precise basis of his right? It cannot be labour\nmerely; for the cotton monopolist has laboured in getting his corner\non cotton. It cannot be the fact that the shoemaker's labour is\nsocially useful; for a chemist might spend laborious days and nights\nproducing water from its component elements, and find his product a\ndrug on the market. Yet he would have no reasonable ground of\ncomplaint. Why, then, is it reasonable for the shoemaker to require,\nwhy has he a right to require payment for the utilities that he\nproduces? Because men want to use his products, and because they have\nno right to require him to serve them without compensation. He is\nmorally and juridically their equal, and has the same right as they to\nhave access on reasonable terms to the earth and the earth's\npossibilities of a livelihood. Being thus equal to his fellows, he is\nunder no obligation to subordinate himself to them by becoming a mere\ninstrument for their welfare. To assume that he is obliged to produce\nsocially useful things without remuneration, is to assume that all\nthese propositions are false; it is to assume that his life and\npersonality and personal development are of no intrinsic importance,\nand that his pursuit of the essential ends of life has no meaning\nexcept in so far as may be conducive to his function as an instrument\nof production. In a word, the ultimate basis of the producer's right\nto his product, or its value, is the fact that this is the only way in\nwhich he can get his just share of the earth's goods, and of the means\nof life and personal development. His right to compensation does not\nrest on the mere fact of value-production.\n\nAs a producer of land values, the community is not on the same moral\nground with the shoemaker. Its productive action is indirect and\nextrinsic, instead of direct and intrinsic, and is merely incidental\nto its principal activities and purposes. Land values are a\nby-product which do not require the community to devote thereto a\nsingle moment of time or a single ounce of effort. The activities of\nwhich land values are a by-product, have already been remunerated in\nthe price paid to the wage-earner for his labour, the physician for\nhis services, the manufacturer and the merchant for their wares, and\nthe municipal corporation in the form of taxes. On what ground can the\ncommunity, or any part of it, set up a claim in strict justice to the\nincreased land values? The right of the members of the community to\nthe means of living and self development is not dependent upon the\ntaking of these values by the community. Nor are they treated as\ninstruments to the welfare of the private owners who do get the\nsocially created land values; for they expend neither time nor labour\nin the interest of the latter directly. Their labour is precisely what\nit would have been had there been no increase in the value of the\nland.\n\nSince social production does not constitute a right to land values nor\nto rent, it affords not a shadow of justification for the confiscation\nof these things by the community. If social appropriation of socially\ncreated land values had been introduced with the first occupation of a\npiece of land, it might possibly have proved more generally beneficial\nthan the present system. In that case, however, the moral claim of the\ncommunity to these values would have rested on the fact that they did\nnot belong to anybody by a title of strict justice. They would have\nbeen a \"res nullius\" (\"nobody's property\") which might fairly have\nbeen taken by the community according as they made their appearance.\nThe community could have appropriated them by the title of first\noccupancy. But there could have been no moral title of social\nproduction. When, however, the community or the State failed to take\nadvantage of its opportunity to be the first occupant of these values,\nwhen it permitted the individual proprietor to appropriate them, it\nforfeited its own claim. Ever since it has had no more right to\nalready existing land values than it has to seize the labourer's wages\nor the capitalist's interest,--no more right than one person has to\nrecover a gift or donation that he has unconditionally bestowed upon\nanother.\n\nTo sum up the conclusions of this chapter: The argument against first\noccupancy is valid only with regard to the abuses of private\nownership, not with regard to the institution; the argument based upon\nthe title of labour is the outcome of a faulty analysis, and is\ninconsistent with other statements of its author; the argument derived\nfrom men's equal rights to land merely proves that private ownership\ndoes not secure perfect justice, and the proposal to correct this\ndefect by confiscating rent is unjust because it would produce greater\nevils; and the so called production of the social values of land\nconfers upon the community no property right whatever.\n\nFOOTNOTES:\n\n[8] \"Socialism: Utopian and Scientific,\" p. 45; Chicago, 1900.\n\n[9] \"A summary of the Principles of Socialism,\" p. 23; London, 1899.\n\n[10] \"Socialism: A Reply to the Pope's Encyclical,\" p. 4; London,\n1899.\n\n[11] \"Progress and Poverty,\" book vii, ch. i.\n\n[12] \"La Propri\u00e9t\u00e9 Priv\u00e9e,\" par L. Garriguet, I, 62; Paris, 1903.\n\n[13] Cf. Ardant, \"Papes et Paysans,\" pp. 41, sq.\n\n[14] \"Social Statics,\" chap, ix; 1850. Spencer's retractation, in a\nlater edition of this work, of his earlier views on the right of\nproperty in land does not affect the truth of the description quoted\nin the passage above.\n\n[15] \"Progress and Poverty,\" loc. cit.\n\n[16] \"Open Letter to Pope Leo XIII,\" page 25 of Vierth's edition.\n\n[17] \"Progress and Poverty,\" loc. cit.\n\n[18] \"Progress and Poverty,\" loc. cit.\n\n[19] \"Open Letter to Pope Leo XIII,\" loc. cit.\n\n[20] Whittaker, op. cit., p. 32.\n\n[21] \"Open Letter,\" loc. cit.\n\n[22] \"Progress and Poverty,\" book vii, ch. i.\n\n[23] Cf. chapter entitled \"Compensation\" in \"A Perplexed Philosopher.\"\n\n[24] Cf. \"Principles of Political Economy,\" 1891, p. 130.\n\n[25] \"Progress and Poverty.\"\n\n[26] \"Progress and Poverty,\" book vii, ch. iii.\n\n\n\n\nCHAPTER IV\n\nPRIVATE OWNERSHIP THE BEST SYSTEM OF LAND TENURE\n\n\nThe defence of private landownership set forth in the last chapter has\nbeen conditional. It has tended to show that the institution is\nmorally lawful so long as no better system is available. As soon as a\nbetter system has been discovered, the State and the citizens are\nundoubtedly under some degree of moral obligation to put it into\npractice. Hence the important present question is whether this\ncondition or contingency has become a reality. The only proposed and\nthe only possible alternative systems are Socialism and the Single\nTax. All other forms of tenure are properly classed as modifications\nof private ownership, rather than as distinct systems. Consequently\nthe worth, and efficiency, and morality of private ownership can be\nadequately determined by comparison with the two just mentioned.\n\n\n_The Socialist Proposals Impracticable_\n\nAs now existing and as commonly understood, private landownership\ncomprises four elements which are not found together in either\nSocialism or the Single Tax. They are: security of possession combined\nwith the power to transfer and transmit; the use of land combined with\nthe power to let the use to others; the receipt of revenue from\nimprovements in or upon the land; and the receipt of economic rent,\nthe revenue due to the land itself, apart from improvements. In its\nextreme form, and as formerly understood by the majority of its\nauthoritative exponents, Socialism would take from the individual all\nof these elements or powers. The State, or the Collectivity, would own\nand manage all productive land and land-capital, and would receive and\ndistribute the product. Consequently the cultivators of the land would\nbe deprived of even that limited degree of control which is now\npossessed by the tenant on a rented farm; for the latter, though not a\nlandowner, is the owner of a farming business, and of agricultural\ninstruments of production. Under Socialism the users of the land would\nnot receive the revenue either from improvements or from the land\nitself. They would be substantially employ\u00e9s of the community,\nreceiving a share of the product according to some plan of\ndistribution established by public authority. Land occupied by\ndwellings would likewise be owned and managed by the State, although\nits product, the benefit of its use, would necessarily go in the first\ninstance to the occupier. In return for this benefit he would\nundoubtedly be required to pay some kind of rent to the State.\n\nNow the majority of persons believe that this system of land tenure\nwould be inferior to private ownership, both as regards individual\nwelfare and social welfare. The reasons for this belief will be given\nin detail in the chapter on \"The Socialist Scheme of Industry.\" For\nthe present it will be sufficient to point out in a summary way that\nSocialism would be unable to organise and carry on efficiently all\nagricultural and extractive industries, either under one central\ndirection or under many provincial authorities; that it could not\nadjust wages and salaries satisfactorily, nor give the individual\nworker an incentive as effective as the self interest that goes with\nprivate ownership; that it would deprive the worker of a great part of\nthe freedom that he now enjoys in the matters of occupation and\nresidence; that it would leave to the consumer less choice in the\ndemand for the products of land; that it would place all the people in\na position of dependence upon a single agency for all these products;\nand that it would make all land users, whether as workers or as\nresidents, tenants-at-will on the property of the State.\n\nFrom the nature of the case, none of the foregoing propositions can be\ndemonstrated mathematically. Nevertheless they are as nearly evident\nas any other practical conclusions which are based upon our general\nexperience of human nature, its tendencies, and its limitations. At\nany rate, the burden of proof is upon the advocates of the new system.\nUntil they have assumed and satisfactorily disposed of this burden, we\nare justified in rejecting their prophecies, and in maintaining the\nsuperiority of private ownership.[27]\n\nTo-day, however, many Socialists, possibly the majority of them in\nsome countries, would reject the extreme form of land socialisation\ndiscussed in the preceding paragraphs. \"The nearest approach which\nSocialists have made to a _volte face_ since Marx, has been in\nrelation to Agrarianism.... Marx thought that the advantage of\nconcentrating capital would be felt in agriculture as in other\nindustries; but, in spite of a temporary confirmation of this view by\nthe mammoth farms which sprang up in North America, it now appears\nvery doubtful.... Recognition of this has led reformists to substitute\na policy of actively assisting the peasants for the orthodox policy of\nleaving them to succumb to capitalism. Their formula is: 'Collectivise\ncredit, transport, exchange, and all subsidiary manufacture, but\nindividualise culture.'\"[28] The Belgian Socialist leader,\nVandervelde, seems to prefer State ownership and management of the\ngreat agricultural industries which require large masses of capital\nfor their efficient operation, such as dairying, distilling, and sugar\nmaking, together with State ownership of the land thus used. Other\nlands he would have owned by the State, but cultivated by individuals\naccording to a system of leasing and rent-paying.[29] By a referendum\nvote the members of the Socialist party in the United States recently\namended their platform on land, to read as follows: \"The Socialist\nparty strives to prevent land from being used for the purpose of\nexploitation and speculation. It demands the collective possession,\ncontrol or management of land to whatever extent may be necessary to\nattain that end. It is not opposed to the occupation and possession of\nland by those using it in a useful and bona fide manner without\nexploitation.\"[30] As to land occupied by dwellings, perhaps the\nmajority of Socialists would now agree with Spargo in the statement\nthat, \"so far as the central principle of Socialism is concerned,\nthere is no more reason for denying the right of a man to own his own\nhome than there is to deny him the right to own his hat.\"[31]\n\nIn so far as the foregoing modifications of Socialist proposals would\nallow the individual to own the land that he cultivates or occupies,\nthey do not call for further discussion here. In so far as they\ncombine State ownership of land with individual management of\ncultivation, they are subject to at least all the limitations of the\nSingle Tax. To the latter system we now turn our attention.\n\n\n_Inferiority of the Single Tax System_\n\nOf the four leading elements of private ownership enumerated above,\nthe Single Tax scheme would comprise all but one. In the words of\nHenry George himself: \"Let the individuals who now hold it still\nretain, if they want to, possession of what they are pleased to call\n_their_ land. Let them continue to call it _their_ land. Let them buy\nand sell, and bequeath and devise it. We may safely leave them the\nshell, if we take the kernel. _It is not necessary to confiscate\nland; it is only necessary to confiscate rent...._ In this way the\nState may become the universal landlord without calling herself so,\nand without assuming a single new function. In form, the ownership of\nland would remain just as now. No owner of land need be dispossessed,\nand no restriction need be placed upon the amount of land that any one\ncould hold.\"[32]\n\nIndividuals would, therefore, still enjoy security of possession, the\nmanagerial use of land, and the revenue due to improvements. The\nincome arising from the land itself, the economic rent, they would be\nobliged to hand over as a free gift to the State. As we have seen in a\npreceding chapter, this confiscation of rent by the State would be\npure and simple robbery of the private owner. Suppose, however, that\nthe State were willing to compensate individual proprietors with a sum\nequal to the present value, or the capitalised rent, of their land. In\nthat case the only difference made to the individual would be that he\ncould no longer invest his money in land nor profit by the increases\nin land values. While this would deprive some persons of advantages\nthat they now enjoy, it would be beneficial to the majority, and to\nthe community. Since no man would find it profitable to retain control\nof more land than he could use himself, the number of actual land\nusers would be increased. The land speculator would disappear,\ntogether with the opportunity of making and losing fortunes by\ngambling on the changes in land values. Owing to the removal of\ntaxation from the necessaries of life and from industry, consumers\nwould get goods cheaper, and some stimulus would be given to\nproduction and employment. Those monopolies which derive their\nstrength from land would become weaker and tend to disappear. Sooner\nor later there would probably be a considerable increase in the amount\nof money available for public improvements and socially beneficial\ninstitutions.\n\nOn the other hand, there would be certain and serious disadvantages. A\nconsiderable number of land users might permit their holdings to\ndeteriorate through careless cultivation. To be sure, they would not\nfind this a profitable course if they intended to remain on the land\npermanently; but they might prefer to exhaust the best qualities of a\nfarm in a few years, and then retire, or go into some other business,\nor repeat the wearing-out process on other lands. Thus the community\nwould suffer through the lowered productiveness of its land, and\nbecause of the lower rent that it would receive from all subsequent\nusers of the deteriorated tracts. In the second place, the\nadministrative machinery required to levy and collect the rent, and to\napportion the different holdings among competitive bidders, would\ninevitably involve a vast amount of error, inequality, favouritism,\nand corruption. For the land tax to be levied and collected would not\nbe, as now, a fraction of the rental value, but the full amount of the\nannual rent. In the third place, cultivators would not have the\ninducement to make improvements which arises from the hope of selling\nboth the improvements and the land at a profit, owing to the increased\ndemand for the land. Perhaps the greatest disadvantage of the system\nwould be the instability of tenure, with regard to both productive and\nresidential lands. Owing to misfortunes of various kinds, for example,\none or two bad crops, many cultivators would be temporarily unable to\npay the full amount of the land tax or rent. It is scarcely\nconceivable that the State would remit the deficiency, or refuse to\nturn the land over to other persons on terms more advantageous to\nitself. Inasmuch as the value and rent of land would be continuously\nadjusted by competition, the more efficient and more wealthy would\nfrequently supplant the less efficient and the less wealthy, even\nthough the latter had occupied their holdings or their dwellings for a\ngreat number of years. Legal security of tenure, though theoretically\nthe same as that enjoyed by the private owner to-day, would be much\nless effective practically. In this respect land users would be in\nalmost as bad a case as renters are at present.[33]\n\nOur conclusion, then, is that private landownership is certainly\nbetter than extreme Socialism, or any form of Socialism which does not\nconcede to the land user all the control that he would have under the\nSingle Tax system, and that it is very probably superior to the\nlatter. In making this comparison and drawing this conclusion, we have\nin mind private ownership, not at its worst nor as it exists or has\nexisted in any particular country, but private ownership in its\nessential elements, and with its capacity for modification and\nimprovement. If we were to examine carefully the results of private\nownership as it obtained in Ireland for several centuries before the\nenactment of the recent Land Purchase Act, we should probably be\ntempted to declare that the most extreme form of agrarian Socialism\ncould scarcely have been productive of more individual and social\ninjury. Certain other countries present almost equally unfavourable\nconditions of comparison. Failure to note this distinction between the\nhistorical and the potential aspects of private landownership has\nvitiated many otherwise excellent defences of the institution. It has\nprovoked the retort that almost any plausible change would be an\nimprovement upon private ownership as it has existed in this or that\ncountry. But these are not the real alternatives. The practical choice\nis between private ownership as shown by experience and reason to be\ncapable of improvement, and some untried system which is subject to\ngrave defects, and which at its best would be probably inferior to\nmodified private ownership. An attempt to describe some of these\nmodifications and improvements will be made in a subsequent chapter.\nIn the meantime we content ourselves with the statement that private\nland ownership is capable of becoming better than Socialism\ncertainly, and probably better than the Single Tax system.\nConsequently it is justified not merely so long as neither of these\nschemes is introduced, but as an institution which the State would do\nwell to maintain, protect, and improve.\n\nFOOTNOTES:\n\n[27] Cf. Chapter xi.\n\n[28] Ensor, \"Modern Socialism,\" p. xxxi, N. Y., 1904.\n\n[29] Idem, pp. 213-216.\n\n[30] Cited by Spargo, \"The Substance of Socialism,\" p. 88, N. Y.,\n1909.\n\n[31] Idem, p. 90.\n\n[32] \"Progress and Poverty,\" book viii, ch. ii.\n\n[33] Cf. Walker, \"Land and Its Rent\"; and Seligman, \"Essays in\nTaxation.\"\n\n\n\n\nCHAPTER V\n\nPRIVATE LANDOWNERSHIP A NATURAL RIGHT\n\n\nThe conclusions of the preceding chapter include the statement that\nindividuals are morally justified in becoming and remaining\nlandowners. May we take a further step, and assert that private\nlandownership is a natural right of the individual? If it is, the\nabolition of it by the State, even with compensation to the owners,\nwould be an act of injustice. The doctrine of natural rights is so\nprominent in the arguments of both the advocates and the opponents of\nprivate landownership that it deserves specific treatment. Moreover,\nthe claim that private landownership is a natural right rests upon\nprecisely the same basis as the similar claim with regard to the\nindividual ownership of capital; and the conclusions pertinent to the\nformer will be equally applicable to the latter.\n\nA natural right is a right derived from the nature of the individual,\nand existing for his welfare. Hence it differs from a civil right,\nwhich is derived from society or the State, and is intended for a\nsocial or civil purpose. Such, for example, is the right to vote, or\nthe right to hold a public office. Since a natural right neither\nproceeds from nor is primarily designed for a civil end, it cannot be\nannulled, and it may not be ignored, by the State. For example: the\nright to life and the right to liberty are so sacred to the\nindividual, so necessary to his welfare, that the State cannot\nrightfully kill an innocent man, nor punish him by a term in prison.\n\n\n_Three Principal Kinds of Natural Rights_\n\nAlthough natural rights are all equally valid, they differ in regard\nto their basis, and their urgency or importance. From this point of\nview, we may profitably distinguish three principal types.\n\nThe first is exemplified in the right to live. The object of this\nright, life itself, is intrinsically good, good for its own sake, an\nend in itself. It is the end to which even civil society is a means.\nSince life is good intrinsically, the right to life is also valid\nintrinsically, and not because of consequences. Since there is no\nconceivable equivalent for life in the case of any individual in any\ncontingency, the right to life is immediate and direct in all possible\ncircumstances.\n\nAmong the natural rights of the second class, the most prominent are\nthe right to marry, to enjoy personal freedom, and to own\nconsumption-goods, such as food and clothing. The objects of these\nrights are not ends in themselves, but means to human welfare.\nConfining our attention to marriage, we see that membership in the\nconjugal union is an indispensable means to reasonable life and self\ndevelopment in the majority of persons. The only conceivable\nsubstitutes are free love and celibacy. Of these the first is\ninadequate for any person, and the second is adequate only for a\nminority. Marriage is, therefore, _directly_ and _per se_ necessary\nfor the majority of individuals; for the majority it is an\n_individual_ necessity. If the State were to abolish marriage it would\ndeprive the majority of an indispensable means of right and reasonable\nlife. Consequently the majority have a _direct_ natural right to the\nlegal power of marrying.\n\nIn the case of the minority who do not need to marry, who can live as\nwell or better as celibates, the legal opportunity of marriage is\nevidently not directly necessary. But it is necessary indirectly,\ninasmuch as the _power of choice_ between marriage and celibacy is an\nindividual necessity. No argument is required to show that the State\ncould not decide this matter consistently with individual welfare or\nsocial peace. Whence it follows that even the minority who do not wish\nor do not need to marry, have a natural right to embrace or reject the\nconjugal condition. In their case the right to marry is indirect, but\nnone the less inviolable.[34]\n\nPrivate ownership of land belongs in a third class of natural rights.\nInasmuch as it is not an intrinsic good, but merely a means to human\nwelfare, it differs from life and resembles marriage. On the other\nhand, it is unlike marriage in that it is not _directly_ necessary for\nany individual whatever.[35] The alternative to marriage, namely,\ncelibacy, would not even under the best social administration enable\nthe majority to lead right and reasonable lives. The alternative to\nprivate landownership (and to private ownership of capital as well),\nnamely, some form of employment as wage receiver, salary receiver, or\nfee receiver enables the individual to attain all the vital ends of\nprivate ownership: food, clothing, shelter, security of livelihood and\nresidence, and the means of mental, moral, and spiritual development.\nNone of these vital ends or needs is essentially dependent upon\nprivate ownership of land; for millions of persons satisfy them every\nday without becoming landowners. Nor are they exceptions, as those who\ncan get along without marriage are exceptions. The persons who live\nreasonable lives without owning land are average persons. What they do\nany other person could do if placed in the same circumstances.\nTherefore, private landownership is not directly necessary for the\nwelfare of any individual.\n\n\n_Private Landownership Indirectly Necessary for Individual Welfare_\n\nIn our present industrial civilisation, however, private landownership\nis _indirectly_ necessary for the welfare of the individual. It is\nsaid to be indirectly necessary because it is necessary as a _social\ninstitution_, rather than as something immediately connected with\nindividual needs as such. It is not, indeed, so necessary that society\nwould promptly go to pieces under any other form of land tenure. As we\nhave seen in the last chapter, it is necessary in the sense that it is\ncapable of promoting the welfare of the average person, of the\nmajority of persons, to a much greater degree than State ownership. It\nis necessary for the same reason and in the same way as a civil police\nforce. As the State is obliged to maintain a police force, so it is\nobliged to maintain a system of private landownership. As the citizen\nhas a right to police protection, so he has a right to the social and\neconomic advantages which are connected with the system of private\nownership of land. These rights are natural, derived from the needs of\nthe individual in society, not dependent upon the good pleasure of the\ncity or the State. They are individual rights to the presence and\nbenefits of these social institutions.\n\nBut man's rights in the matter of land tenure are more extensive than\nhis rights with regard to a police force. They are not restricted to\nthe presence and functioning of a social institution. Every citizen\nhas a natural right to police protection, but no citizen has a natural\nright to become a policeman. The welfare of the citizen is\nsufficiently looked after when the members of the police are selected\nby the authorities of the city. On the contrary, his welfare would not\nbe adequately safeguarded if the State were to decide who might and\nwho might not become landowners. In the first place, the ideal\ncondition is that in which _all_ persons can easily become actual\nowners. In the second place, the mere legal opportunity of becoming\nowners is a considerable stimulus to the energy and ambition of all\npersons, even of those who are never able to convert it into an\neconomic opportunity. Therefore, only a very powerful reason of social\nutility would justify the State in excluding any person or any class\nfrom the legal power to own land. No such reason exists; and there are\nmany reasons why the State should not attempt anything of the sort. As\na consequence of these facts, every person, whether an actual owner or\nnot, has a natural right to acquire property in land. This right is\nevidently a necessary condition of a fair and efficient system of\nprivate ownership, which is in turn a necessary condition of\nindividual welfare. The right of private landownership is, therefore,\nan indirect right; but it is quite as valid and quite as certain as\nany other natural right.\n\nNow this right is certainly valid as against complete Socialism, which\nincludes State management and use, as well as State ownership. Is it\nvalid against the Single Tax system, or against such modified forms of\nSocialism as would allow the individual to rent and use the land as an\nindependent cultivator with security of tenure? Would the introduction\nof some such scheme in a country in which only a small minority of the\npopulation were actual owners, constitute a violation of individual\nrights? While we cannot with any feeling of certainty return an\naffirmative answer to these questions, we can confidently affirm that\nreform within the lines of private ownership would in the long run be\nmore effective, and, therefore, that the right of private ownership is\n_probably_ valid even against these modified forms of common\nownership.[36]\n\n\n_Excessive Interpretations of the Right of Private Landownership_\n\nThe indirect character of the right of private landownership, its\nrelativity to and dependence upon social conditions, is not always\nsufficiently grasped by either its advocates or its opponents. In the\nwritings of the former we sometimes find language which suggests that\nthis right is as independent of social conditions as the right to\nmarriage or the right to life. \"The State has no right to abolish\nprivate property [in land] because private property is not a social\nright, but an individual right derived from nature, not derived from\nthe State.\" It exists for _human_ welfare, not merely for _civil_\nwelfare.[37] The only defect in this reasoning is that the premises do\nnot justify the conclusion. Undoubtedly the State may not abolish\nprivate ownership, _so long as it is necessary for human or individual\nwelfare_; but, when this necessity ceases, the moral justification of\nthe institution likewise disappears. The institution may then be\nabolished, somehow, by some agency, without any violation of\nindividual rights. Why may not the task of abolition be performed by\nthe State? No other agency is available. The assertion that the State\nis incompetent to decide whether the institution of private ownership\nhas outlived its usefulness, is entirely gratuitous; besides, it\nimplies that a small minority of selfishly interested persons may\njustly require the continuation of a system of land tenure which has\nbecome harmful to the overwhelming majority of the community. Extreme\ndefences of the right of private landownership are largely\nresponsible for the misconceptions of many of its opponents.\nOccasionally the latter represent this right as an _a priori_\nmonstrosity which is serenely independent of the facts of life and\nindustry. While such persons are at liberty to reject the\ninterpretations of facts contained in the preceding paragraphs, they\ncannot reasonably deny the logic of the process which has led to the\nconclusion that the individual has a natural right to own land.\n\nSo much for the natural right of landownership as seen in the light of\nreason. Let us now consider it briefly from the side of doctrinal\nauthority, namely, the writings of the Fathers and Theologians of the\nChurch, and the formal pronouncements of the Popes.\n\n\n_The Doctrine of the Fathers and Theologians_\n\nSome of the Church Fathers, particularly Augustine, Ambrose, Basil,\nChrysostom, and Jerome, denounced riches and the rich so severely that\nthey have been accused of denying the right of private ownership. The\nfacts, however, are that none of the passages upon which this\naccusation is based proves it to be true, and that in numerous other\npassages all of these writers explicitly affirm that private ownership\nis lawful.[38] Speaking generally, we may say that they taught the\nmoral goodness of private ownership without insisting upon its\nnecessity. Hence they cannot be cited as authorities for the doctrine\nthat the individual has a natural right to own land.\n\nSome of the great theologians of medi\u00e6val and post-medi\u00e6val times\ndenied this right, inasmuch as they denied that the institution of\nprivate ownership was imposed or commanded by the natural law. Among\nthem are Scotus,[39] Molina,[40] Lessius,[41] Suarez,[42]\nVasquez,[43] and Billuart.[44] Since private ownership is not\nabsolutely necessary to human welfare in all forms of society, it\ncannot, in their view, be regarded as strictly prescribed by the\nnatural law, nor be instituted without the positive action of civil\nauthority, or the consent of the community. Nevertheless they all\nadmit that it is much better than common ownership in contemporary\nsocieties. The difference between their position and that of de Lugo,\nfor example, seems to be two-fold: First, they put stronger emphasis\nupon the doctrines that the earth belongs to all men in common, that\nin the absence of original sin ownership would likewise have been\ncommon, and that this arrangement is therefore in a fundamental sense\nnormal, agreeing with nature and the natural law; and, second, they\nput a lower estimate upon the superiority of private ownership even in\ncontemporary conditions. In a word, they denied that private ownership\nwas so much better than any alternative system as to confer upon the\nindividual a natural right in the strict sense; that is, a right which\nlaid upon the State the correlative obligation of maintaining the\ninstitution of private landownership.\n\nOn the other hand, many of the ablest theologians of the same period\ndeclared that private ownership was enjoined by the natural law and\nright reason, and consequently that it was among the individual's\nnatural rights. According to St. Thomas Aquinas, private property is\n\"necessary for human life,\" and is one of those social institutions\nwhich are prescribed by the _jus gentium_; and the content of the _jus\ngentium_ is not determined by positive law, but by the dictates of\n\"natural reason,\" by \"natural reason itself.\"[45] These statements\nseem to convey the doctrine of natural right as clearly as could be\nexpected in the absence of an explicit declaration. Cardinal de Lugo\nsets forth the same teaching somewhat more compactly, but in\nsubstantially the same terms: \"Speaking generally, a division of goods\nand of ownership-titles proceeds from the law of nature, for natural\nreason dictates such division as necessary in the present\ncircumstances of fallen nature and dense populations.\"[46] This view\nis to-day universally accepted among Catholic writers.\n\n\n_The Teaching of Pope Leo XIII_\n\nThe official teaching of the Church on the subject is found in the\nEncyclical, \"On the Condition of Labour,\" by Pope Leo XIII. In this\ndocument we are told that the proposals of the Socialists are\n\"manifestly against justice\"; that the right of private property in\nland is \"granted to man by nature\"; that it is derived \"from nature\nnot from man, and the State has the right to control its use in the\ninterest of the public good alone, but by no means to abolish it\naltogether.\" These statements the Pope deduces from a consideration of\nman's needs. Private property in land is necessary to satisfy the\nwants, present and future, of the individual and his family. Were the\nState to attempt the task of making this provision, it would exceed\nits proper sphere, and produce manifold domestic and social confusion.\n\nWhile Pope Leo defines the natural right of private ownership as\nincompatible with complete Socialism, that is, collective use as well\nas collective ownership, his statements cannot fairly or certainly be\ninterpreted as condemning the Single Tax system, or any other\narrangement which would leave to the individual managerial use and\nsecure possession of his holding, together with the power to transmit\nand transfer it, and full ownership of improvements. These are the\nonly elements of ownership which the Holy Father defends, and which he\ninsists upon as necessary. The one element of private ownership which\nthe Single Tax system would exclude; namely, the power to take rent\nfrom and profit by the changes in land values, finds no place among\nthe advantages of private ownership enumerated in the Encyclical.\n\nThere is, indeed, one passage of the Encyclical in which Pope Leo\nseems to allude to the Single Tax, or to some similar proposal. He\nexpresses his amazement at those persons who \"assert that it is right\nfor private persons to have the use of the soil and its various\nfruits, but that it is unjust for any one to possess outright either\nthe land on which he has built, or the estate which he has brought\nunder cultivation. But those who deny these rights do not perceive\nthat they are defrauding man of what his own labour has produced. For\nthe soil which is tilled and cultivated with toil and skill utterly\nchanges its conditions: it was wild before, now it is fruitful; was\nbarren, but now brings forth in abundance. That which has thus altered\nand improved the land becomes so truly a part of itself as to be in\ngreat measure indistinguishable and inseparable from it. Is it just\nthat the fruit of a man's own labour should be possessed and enjoyed\nby any one else? As effects follow their cause, so is it just and\nright that the results of labour should belong to those who have\nbestowed their labour.\"\n\nIn this passage we find two principal statements: first, that those\npersons are in error who declare full private ownership of land to be\nunjust; and, second, that it is wrong to deprive a man of the\nimprovements which he makes in the soil. Now the first of these\npropositions does not touch the Single Tax system as such; it only\ncondemns the assertion of Henry George that private ownership is\nessentially unjust. It is directed against one of the arguments for\nthe system, not against the system itself. More specifically, it is a\nrefutation of an argument against private land ownership, rather than\na positive attack upon any other system. It could be accepted by any\nSingle Taxer who does not agree with Henry George that the present\nsystem is essentially unjust. The second proposition does not apply to\nthe Single Tax system at all; for the latter would concede to the\nindividual holder the full ownership and benefit of improvements; and\nit could easily be so administered as to protect him against injury in\nany case in which improvement values were not exactly and clearly\ndistinguishable from land values.\n\nWhile Henry George opposed the doctrines of the Encyclical in his\n\"Open Letter to Pope Leo XIII,\" all his arguments are directed against\nthe proposition that private ownership is right and just. The \"Letter\"\nis an attack upon private ownership rather than a defence of the\nSingle Tax. Apparently its author did not find that Pope Leo condemned\nany positive or essential element of the Single Tax as a proposed\nsystem of land tenure.\n\nIf the rejoinder be made that Pope Leo could have had no other group\nof persons in mind than the Single Taxers, when he wrote the paragraph\nquoted above, our answer must be that he did not definitely identify\nthem, either by naming them, as he named the Socialists, or by any\nother sufficiently explicit designation. Applying to this paragraph\nthe customary and recognised rules of interpretation, we are obliged\nto conclude that it does not contain an explicit condemnation of the\nSingle Tax system.\n\nTo put the substance of this chapter in two sentences: Private\nlandownership is a natural right because in present conditions the\ninstitution is necessary for individual and social welfare. The right\nis certainly valid as against complete Socialism, and probably valid\nas against any such radical modification of the present system as that\ncontemplated by the thoroughgoing Single Taxers.\n\nFOOTNOTES:\n\n[34] The marriage rights of criminals, degenerates, and other socially\ndangerous persons, are passed over here as not pertinent to the\npresent discussion. For the same reason nothing is said of the\nperfectly valid _social_ argument in favour of the individual right of\nmarriage.\n\n[35] Cf. Vermeersch, \"Quaestiones de Justitia,\" no. 204.\n\n[36] The argument in the text is obviously empirical, drawn from\nconsequences. There is, however, a putatively intrinsic or\nmetaphysical argument which is sometimes urged against the justice of\nthe Single Tax system. It runs thus: since the fruits of a thing\nbelong to the owner of the thing, \"res fructificat domino,\" rent,\nwhich is the economically imputed fruit of land, necessarily and as a\nmatter of natural right should go to the owner of the land. As will be\nshown later, the formula at the basis of this contention is not a\nmetaphysical principle at all, but a conclusion from experience. Like\nevery other formula or principle of property rights, it must find its\nultimate basis in human welfare.\n\n[37] Liberatore, \"Principles of Political Economy,\" pp. 130, 134.\n\n[38] Cf. Vermeersch, op. cit., no. 210; Ryan, \"Alleged Socialism of\nthe Church Fathers.\"\n\n[39] \"In IV Sent.,\" d. 15, q. 2, n. 5; and \"Reportata parisiensia,\" d.\n15, q. 4, n. 7-12.\n\n[40] \"De Justitia et Jure,\" tr. 2, d. 18 and 20.\n\n[41] \"De Justitia et Jure,\" c. 5, n. 3.\n\n[42] \"De Legibus,\" l. 2, c. 14, n. 13 and 16.\n\n[43] \"In Summa,\" 1ma 2ae, d. 157, n. 17.\n\n[44] \"De Justitia et Jure,\" d. 4, a. 1.\n\n[45] \"Summa Theologica,\" 2a 2ae, q. 57, a. 2 and 3.\n\n[46] \"De Justitia et Jure,\" d. 6, s. 1, n. 6.\n\n\n\n\nCHAPTER VI\n\nLIMITATIONS ON THE LANDOWNER'S RIGHT TO RENT\n\n\nThe chapters immediately preceding have led to the conclusion that\nprivate ownership is the best system of land tenure, and that the\nindividual has a natural right to participate in its advantages.\nAlthough this system confers upon the individual owner the power to\ntake the rent of the land, we are not logically debarred from raising\nthe question whether this power is a necessary part of the moral\nrights of landownership. Does the right to own a piece of land\nnecessarily include the right to take its rent? By what ethical\nprinciple of distribution is the landowner justified in appropriating\na revenue in return for which he has performed no labour, nor made any\nsacrifice? This is unquestionably what happens when a man hires out\nhis land to another. And in conditions of perfect competition, those\nowners who operate their own land are fully remunerated for their\nlabour in the form of profits. Over and above this sum they receive\nrent, the payment that they could get from the land if they were to\nlet its use to tenants. In the normal situation, therefore, rent is a\nworkless income. On what moral ground may it be taken by the\nlandowner?[47]\n\nThe fact that we have rejected the Single Tax and the confiscation of\nrent by the community, does not of itself commit us to the conclusion\nthat the private owner has a moral right to receive rent. We have\ncondemned the State appropriation of rent on the assumption that it\nwould take place without a similar confiscation of interest. Such\ndiscrimination would be grossly unfair; for it would cause land values\nto sink to zero, while leaving the value of capital substantially\nundisturbed. To carry out such a programme would be to treat property\nowners unequally, to penalise one set of beneficiaries of \"workless\"\nincomes, while leaving another set untouched. Consequently, the State\nis not justified in confiscating rent unless it is justified in\nconfiscating or prohibiting interest; and the landowner is as fully\njustified in taking rent as the capital owner is in taking interest.\nThe contention of the Single Taxer that ownership of the former kind\nis morally wrong, while ownership of capital is morally legitimate,\nhas already received sufficient discussion. The specific question\nremains, therefore,--whether the landowner and the capitalist are\njustified in receiving and retaining their \"workless\" incomes.\n\nInasmuch as the principles and pertinent facts involved in this\nquestion can be more effectively and more conveniently discussed in\nrelation to interest than in relation to rent, the solution will be\ndeferred to the chapters on interest. Assuming provisionally that the\noutcome of the discussion will be favourable to the claims of the\nlandowner, let us inquire whether he always has a moral right to _all_\nthe rent. The parallel question regarding the capitalist will be\nconsidered in connection with the right of the labourer to a living\nwage.\n\n\n_The Tenant's Right to a Decent Livelihood_\n\nThe actual payments made by tenants to landowners sometimes leave the\nformer without the means of decent living. Such had been the condition\nof a large part of the Irish tenant farmers before 1881, when the Land\nCourts were established. In the course of twenty-five years these\ncourts reduced the rents by twenty per cent. on the average in upwards\nof half a million cases. While a part of the reductions was intended\nto free the tenants from the unjust burden of paying rent on their own\nimprovements, another part was undoubtedly ordered on the theory that\nthe tenants were entitled to retain a larger share of the product for\ntheir own support. Yet the latter portion of the reduction apparently\nrepresented true economic rent; for it was included in the difference\nbetween the product and the current cost of production; it was\nincluded in the amount that men in Ireland were willing to pay for the\nuse of land. It was a part of the surplus that they had left after\ndefraying their expenditures for capital and labour. To be sure, the\ntenants in some other countries, say, the United States, would not\nhave been satisfied with such a small remuneration, and would not have\nhanded over so much to the landlord; but if the concept of economic\nrent is to have any serviceable meaning it must be determined by the\nactual returns to capital and labour in each locality, and not by the\nstandards of some other place which are assumed to be normal. In any\ncase, the Irish Land Courts did reduce the rents below the level fixed\nby competition, by the unregulated forces of supply and demand.\n\nWas this treating the landlords justly? May a tenant ever retain a\npart of the rent which the free course of competition would yield to\nthe landowner? Here we must distinguish between the tenant who is and\nthe tenant who is not in possession of a holding sufficiently large to\nrequire all the time and labour of a cultivator possessing average\nefficiency. The tenant who controls and cultivates less than this\namount of land ought not to expect to get all his livelihood\ntherefrom. Failure to do so would not necessarily mean that he was\npaying exorbitant rent. Holdings of this sort are rightly called\n\"uneconomic\"; that is, they are too small to permit a profitable and\nreasonable application of labour and capital. On such holdings the\nfair rent would be that amount per acre which would be regarded as\nfair for the use of the same land held in farms of \"economic\" size.\nThe proper recourse for the occupiers of uneconomic holdings is to get\ncontrol of more land, which is exactly what has been happening in\nIreland through the action of the Congested Districts Board.\n\nThis brings us to the case of the man who cannot pay the competitive\nrent on a holding of normal size, and have sufficient left to provide\nhimself and family with a decent livelihood. The fundamental reason why\nthe rent is so high is to be found in the economic weakness of the\ngreat mass of the tenants, who can neither emigrate to another country\nnor get a better living as wage earners in their own. Their predicament\nis exactly the same as that of the helpless and unskilled labourers who\nare compelled by the force of competition to accept less than living\nwages. In these circumstances it seems clear that a government\ncommission would be justified in reducing the rents to such a level as\nwould leave the tenants of average efficiency on normal holdings the\nmeans of maintaining a decent standard of living. In such cases, then,\nthe landowner has not a right to the full economic or competitive rent.\nHis right thereto is morally inferior to the tenant's right to a decent\nlivelihood, just as the capitalist-employer's right to the prevailing\nrate of interest is morally inferior to the labourer's right to a\nliving wage. Neither in the one case nor in the other is mere\ncompetition the final determinant and measure of justice. It has no\nmoral validity when it comes into conflict with man's natural right to\nget a reasonable livelihood on reasonable conditions from the bounty of\nthe earth. These fundamental questions will be discussed at length in\nthe chapters on wages.\n\nTo the possible objection that the concept of a \"normal\" holding is\nvague, the sufficient reply is that in practice it can be estimated\nwith as much definiteness as the concept of the \"average\" labourer. As\nwe see from the history of the Irish Land Courts and their \"Judicial\nRents,\" it can be defined with sufficient accuracy to serve the ends\nof practical justice. More than this is not attained in any department\nof human relations, particularly, economic relations.\n\n\n_The Labourer's Claim Upon the Rent_\n\nShould any part of the rent go to the labourer? Let us take first the\ncase of the labourer who is employed by a tenant, and who is not\noccupied in personal service but in some productive task connected\nwith the land. Like all other wage earners he has a right to a\nsufficient share of the product to afford him a decent livelihood.\nSince the tenant is the employer, the director of the business, and\nthe owner of the product, he rather than the landowner is the person\nwho is primarily charged with the obligation of providing the labourer\nwith a living wage. As noted above, his own claim to a decent\nlivelihood is morally superior to the landlord's claim to rent; but\nif, having taken this amount from the product, he finds himself unable\nto pay living wages to all his employees unless he deducts something\neither from the normal interest-return on his own capital or from the\nrent that would ordinarily go to the landowner, he is morally bound to\nchoose the former course. He, not the landowner, is the wage payer.\nThat he is obliged to provide living wages to his labour force even\nat the cost of interest on his own investment in the business, is a\nproposition that will receive ample discussion and defence in a later\nchapter.[48]\n\nSuppose, however, that the tenant has not the means of paying full\nliving wages after turning into the wage fund all the money that he\nhad hoped to retain as interest on his capital. May he withhold from\nthe landowner a sufficient portion of the rent to cover the deficit in\nwages? Were this action practicable it would be undoubtedly\njustifiable; for the landowner's claim to rent is no stronger than the\ntenant-capitalist's claim to interest. As claims upon the product,\nboth are morally weaker than the labourer's right to a living wage.\nNevertheless, the tenant who should attempt to carry out this course\nwould probably be prosecuted for non-fulfilment of his contract with\nthe landowner, or would be evicted from the holding. Nor is the\nlandowner obliged in such cases to give up the rent in order that a\nliving wage may be paid to the tenant's labour force. He cannot be\ncertain that the failure of the latter to receive full living wages\nhas not been due to inefficiency or fraudulent conduct on the part of\nthe tenant. Moreover, the landowner would be justified in seeking to\nprotect himself against the recurrence of such situations by putting\nhis land in charge of a more capable tenant, or by selling it and\ninvesting or lending the money elsewhere. However clear may be the\nabstract proposition that the claim to a living wage possessed by the\nemployee of the tenant is superior to the claim to rent possessed by\nthe landowner, the difficulty of realising this right in practice is\nsufficient to relieve even conscientious proprietors from the\nobligation of giving up the rent for this purpose.\n\nWhen the landowner is operating or cultivating his land himself, he is\nevidently obliged to pay a living wage to all his employees at the\nexpense of rent, just as he is obliged to do so at the cost of\ninterest on his artificial capital. To be sure, the first charge upon\nthe product should be a decent livelihood for himself; but, when he\nhas obtained this, the right of his employees to a living wage is\nmorally superior to his right to either rent or interest.\n\nAt present the State takes a part of the rent through taxation. May it\ntake a larger share without violating justice? This question will be\nconsidered in the second chapter following. In the meantime, we shall\nexamine the principal defects of the existing system of land tenure\nwith a view to the suggestion of appropriate remedies, whether through\ntaxation or otherwise.\n\nFOOTNOTES:\n\n[47] The assumption that perfect competition is even roughly\napproximated in relation to men who operate their own land, and that\nthey generally obtain an adequate return for their labour in addition\nto the sum that they might have obtained through hiring out their\nland, may appear rather violent in view of the estimate that the\naverage farmer in the United States gets only $402 annually in payment\nfor the labour of himself and family. See article on \"The Farmer's\nIncome\" in the _American Economic Review_, March, 1916. However, this\nincome is mostly in the form of food, fuel, and shelter, which would\ncost very much more in the city; consequently it is probably\nequivalent to an urban income of $600. Its value is still further\nenhanced by the farmer's independent position, and by his expectation\nof profiting by the future increase of land values. Hence it would\nseem that the rent and interest allowance of $322 might fairly be\nregarded as a surplus in excess of the necessary payment for labour.\n\n[48] Chapter xxii.\n\n\n\n\nCHAPTER VII\n\nDEFECTS OF THE EXISTING LAND SYSTEM\n\n\nStarting from the principle that the rightness or wrongness of any\nsystem of land tenure is determined not by metaphysical and intrinsic\nconsiderations, but by the effects of the institution upon human\nwelfare, we arrived at the conclusion that private landownership is\nnot unjust, so long as no better system is available. By the same test\nof human welfare we found that it would be wrong to substitute a\nbetter system through the process of confiscating rent, while leaving\ninterest undisturbed. A further step brought us to the conclusion that\ncomplete Socialism would certainly, and the complete Single Tax\nprobably, be inferior to the present system. As a sort of corollary,\nthe social and moral superiority of private landownership was stated\nin terms of natural rights. Finally, the question was raised whether\nthe landowner has a right to take rent, and to take all the rent.\n\nIn stating the superiority of the present system, we explicitly noted\nthat we had in mind the system as capable of improvement. This implied\nthat there are defects in the present form of land tenure, and that\nthese can be eliminated in such a way as to make the system more\nbeneficial and more in harmony with the principles of justice. In the\npresent chapter we shall give a summary review of the principal\ndefects, and in the following chapter we shall suggest some methods of\nreform. All the defects and abuses may conveniently be grouped under\nthree heads: Monopoly; Excessive Gains; and Exclusion from the Land.\n\n\n_Landownership and Monopoly_\n\nIn the literature of the Single Tax movement the phrase, \"land\nmonopoly,\" is constantly recurring. The expression is inaccurate; for\nthe system of individual landownership does not conform to the\nrequirements of a monopoly. There is, indeed, a certain resemblance\nbetween the control exercised by the owner of land and that possessed\nby the monopolist. As the proprietor of every superior soil or site\nhas an economic advantage over the owner of the poorest soil or site,\nso the proprietor of a monopolistic business obtains larger gains than\nthe man who must operate in conditions of competition. In both cases\nthe advantage is based upon the scarcity of the thing controlled, and\nthe extent of the advantage is measured by the degree of scarcity.\n\nNevertheless, there is an important difference between landownership\nand monopoly. The latter is usually defined as that degree of unified\ncontrol which enables the persons in control arbitrarily to limit\nsupply and raise price. As a rule, no such power is exercised by\nindividuals, or by combinations of individuals with regard to land.\nThe pecuniary advantage possessed by the landowner, that is, the power\nto take rent, is conferred and determined by influences outside of\nhimself, by the natural superiority of his land, or by its proximity\nto a city. He can neither diminish the amount of land in existence nor\nraise the price of his own. The former result is inhibited by nature;\nthe latter by the competition of other persons who own the same kind\nof land. To be sure, there are certain kinds of land which are so\nscarce and so concentrated that they do fall under true monopolistic\ncontrol. Such are the anthracite coal mines of Pennsylvania, and some\npeculiarly situated plots in a few great cities, for example, land\nthat is desired for a railway terminal. But these instances are\nexceptional. The general fact is that the owners of any kind of land\nare in competition with similar owners. While the element of scarcity\nis common to landownership and to monopoly, it differs in its\noperation. In the case of monopoly it is subject, within limits, to\nthe human will. This difference is sufficiently important, both\ntheoretically and practically, to forbid the identification or\nconfusion of landownership with monopoly.\n\nA notable illustration of such confusion is the volume by Dr. F. C.\nHowe, entitled, \"Privilege and Democracy in America.\" He maintains\nthat bituminous coal, copper ore, and natural gas are true monopolies,\nbut gives no adequate proof to support this assertion. Moreover, he\nexaggerates considerably the part played by landownership in the\nformation of industrial monopolies. Thus, his contention that the\npetroleum monopoly is due to ownership of oil-producing lands is\ncertainly incorrect; for the Standard Oil Company (or companies) has\nnever controlled as much as half the supply of raw material. \"The\npower of the Standard does not rest upon a direct monopoly of the\nproduction of crude oil through ownership of the wells.\"[49] Perhaps\nthe most remarkable misstatement in the volume is this: \"The railway\nis a monopoly because of its identity with land.\"[50] Now there are a\nfew important railway lines traversing routes or possessing terminal\nsites which are so much better than any alternative routes or sites as\nto give all the advantages of a true monopoly. But they are in a small\nminority. In the great majority of cases, a second parallel strip or\nparallel site could be found which would be equally or almost equally\nsuitable. Neither the amount nor the kind of land owned by a railroad,\nnor its legal privilege of holding land in a long, continuous strip,\nis the efficient cause of a railway monopoly. To attribute the\nmonopoly to land is to confound a condition with a cause. One might as\nwell say that the land underlying the \"wheat king's\" office is the\ncause of his corner in wheat. It is true that in a few of the great\ncities the existing railroads may, through their ownership of all the\nsuitable terminal sites, prevent the entrance of a competing line. In\nthe first place, such instances are rare; in the second place, the\nfact that there are several roads already in existence shows that\ncompetition was possible without the entrance of another one. The\ninfluence impelling them to form a monopoly for the regulation of\ncharges is not their ownership of terminal sites. No sort of uniform\naction with regard to terminals would produce any such effect. The\ntrue source of the monopoly element in railways is inherent in the\nindustry itself. It is the fact of \"increasing returns,\" which means\nthat each additional increment of business is more profitable than the\npreceding one, and that in most cases this process can be kept up\nindefinitely. As a consequence, each of two or more railroads between\ntwo points strives to get all the traffic; then follows unprofitable\nrate cutting, and finally combination.[51] The same forces would\nproduce identical results if railroad tracks and terminals were\nsuspended in the air.\n\nDr. Howe asserts that the monopolistic character of such public\nutility corporations as street railways and telephone companies is due\nto their occupation of \"favoured sites.\"[52] How can this be true,\nwhen it is possible to build a competing line on an adjoining and\nparallel street? If the city forbids this, and gives an exclusive\nfranchise to one company, this legal ordinance, and not any\nexceptional advantage in the nature of the land occupied, is the\nspecific cause of the monopoly. If the city permits a competing line,\nand if the two lines sooner or later enter into a combination, the\ntrue source and explanation are to be found in the fact of increasing\nreturns. Combination is immeasurably more profitable than cut-throat\ncompetition. Moreover, the evils of public service monopolies can be\nremedied through public control of charges and through taxation.\nNeither in railroads nor in public utilities is land an impelling\ncause of monopoly, or a serious hindrance to proper regulation.\n\nMost of Dr. Howe's exaggerations of the influence of land upon\nmonopoly take the form of suggestion rather than of specific and\ndirect statement. When he attempts in precise language to enumerate\nthe leading sources of monopoly, he mentions four; namely, land,\nrailways, the tariff, and public service franchises.[53] Nor is he\nable to prove his assertion that of these the most important is land.\n\nNevertheless, land is one of the foremost causes. The most prominent\nexamples of land monopoly in this country are the anthracite coal\nmines and the iron ore beds. Fully ninety per cent. of our anthracite\ncoal supply (exclusive of Alaska) is under the control of eight\nrailway systems which in this matter act as a unit.[54] According to\nDr. Howe, the excessive profits reaped from this monopolistic control\namount to between one hundred and two hundred million dollars\nannually.[55] In other words, the consumers of anthracite coal must\npay every year that much more than they would have expended if the\nsupply had not been monopolised. On the other hand, the formation of\nmonopoly would have been much more difficult if the railroads had been\nlegally forbidden to own coal mines. As things stand, railway monopoly\nis an important cause of the anthracite coal monopoly. Some\nauthorities are of the opinion that a similar condition of monopoly\nwill ultimately prevail in the bituminous coal mines. Iron ore has\nbeen brought under the control of the United States Steel Corporation\nto such an extent that the Commissioner of Corporations writes:\n\"Indeed, so far as the Steel Corporation's position in the entire iron\nand steel industry is of a monopolistic character, it is chiefly\nthrough its control of ore holdings and the transportation of\nore.\"[56] From this statement, however, it is evident that the\nmonopoly depends upon control of transportation as well as upon\nownership of the ore beds. If the former were properly regulated by\nlaw, the latter would not be so effective in promoting monopoly.\n\nSpeaking generally, we may say that when a great corporation controls\na large proportion of the raw material entering into its manufactured\nproducts, such control will supplement and reinforce very materially\nthose other special advantages which make for monopoly.[57] Prominent\nexamples are to be found in steel, natural gas, petroleum, and water\npowers. In his \"Report on Water Power Development in the United\nStates,\" the Commissioner of Corporations (March 14, 1912) declared\nthat the rapidly increasing concentration of control might easily\nbecome the nucleus of a monopoly of both steam and water power. Ten\ngreat groups of interests, he said, already dominated about sixty per\ncent. of the developed water power, and were pursuing a policy\ncharacterised by a large measure of agreement.[58] As a rough\ngeneralisation, it would be fair to say that in one or two instances,\nat least, landownership is the chief basis, and in several other cases\nan important contributory cause of monopoly.\n\nEven an approximately accurate estimate of the amount of money which\nconsumers are compelled to pay annually for the products of such\nconcerns over and above what they would pay if the raw material were\nnot wholly or partially monopolised, is obviously impossible. It may\npossibly run into hundreds of millions of dollars.\n\n\n_Excessive Gains from Private Landownership_\n\nThe second evil of private landownership to be considered here, is the\ngeneral fact that it enables some men to take a larger share of the\nnational product than is consistent with the welfare of their\nneighbours and of society as a whole. As in the matter of monopoly,\nhowever, so here, Single Tax advocates are chargeable with a certain\namount of overstatement. They contend that the landowner's share of\nthe national product is constantly increasing, that rent advances\nfaster than interest or wages, nay, that all of the annual increase in\nthe national product tends to be gathered in by the landowner, while\nwages and interest remain stationary, if they do not actually\ndecline.[59]\n\nThe share of the product received by any of the four agents of\nproduction depends upon the relative scarcity of the corresponding\nfactor. When undertaking ability becomes scarce in proportion to the\nsupply of land, labour, and capital, there is a rise in the\nremuneration of the business man; when labour decreases relatively to\nundertaking ability, land, and capital, there is an increase in wages.\nSimilar statements are true of the other two agents and factors. All\nthese propositions are merely particular illustrations of the general\nrule that the price of any commodity is immediately governed by the\nmovement of supply and demand. In view of this fact, it is not\nimpossible that rent might increase to the extent described in the\npreceding paragraph. All that is necessary is that land should become\nsufficiently scarce, and the other factors sufficiently plentiful.\n\nAs a fact, the supply of land is strictly limited by nature, while\nthe other factors can and do increase. There are, however, several\nforces which neutralise or retard the tendency of land to become\nscarce, and of rent to rise. Modern methods of transportation, of\ndrainage, and of irrigation have greatly increased the supply of\navailable land, and of commercially profitable land. During the\nnineteenth century, the transcontinental railroads of the United\nStates made so much of our Western territory accessible that the value\nand rent of New England lands actually declined; and there are still\nmany millions of acres throughout the country which can be made\nproductive through drainage and irrigation. In the second place, every\nincrease of what is called the \"intensive use\" of land gives\nemployment to labour and capital which otherwise would have to go upon\nnew land. In America this practice is only in its infancy. With its\ninevitable growth, both in agriculture and mining, the demand for\nadditional land will be checked, and the rise in land values and rents\nbe correspondingly diminished. Finally, the proportion of capital and\nlabour that is absorbed in the manufacturing, finishing, and\ndistributive operations of modern industry is constantly increasing.\nThese processes call for very little land in comparison with that\nrequired for the extractive operations of agriculture and mining. An\nincrease of one-fifth in the amount of capital and labour occupied in\ngrowing wheat or in taking out coal, implies a much greater demand for\nland than the same quantity employed in factories, stores, and\nrailroads.[60]\n\nAs a consequence of these counteracting influences, it appears that\nthe share of the landowners has not increased disproportionately. The\nmost comprehensive endeavour yet made to determine the growth and\nrelative size of the different shares of the national product is\nembodied in Professor W. I. King's volume, \"The Wealth and Income of\nthe People of the United States,\" published in 1915. It estimates\nthat the total annual income of the nation increased from a little\nless than two and one-fourth billions of dollars in 1850 to a little\nmore than thirty and one-half billions in 1910, or slightly more than\nfifteen times. During the same period rent, the share of the\nlandowners, advanced from $170,600,000 to $2,673,900,000, or about\nfifteen and three quarter times. In the year 1910, therefore, the\nlandowners were receiving but a very small fraction more of the\nnational product than their predecessors obtained sixty years\nearlier.[61] As to the relative size of the shares going to the\ndifferent factors in 1910, the figures are even more remarkable. Wages\nand salaries absorbed 46.9 per cent.; profits, 27.5 per cent.;\ninterest, 16.8 per cent.; and rent, only 8.8 per cent.[62] This was\nexactly the same per cent. that the landowners received in 1860. To be\nsure, these figures are only approximations, but they are probably the\nmost reliable that can be obtained from our notoriously incomplete\nstatistics, and they will deserve respectful consideration until they\nhave been refuted by specific criticism and argument. In the opinion\nof their compiler: \"The figures for wages and salaries are believed to\nbe fairly accurate; those for rent are thought to have an error of not\nmore than twenty per cent. The separation of the share of capital from\nthat of the entrepreneur is very crudely done and no stress should be\nlaid on the results. The total for all shares is thought to be more\naccurate than the mode of distribution, and for the last three census\nyears should come within ten per cent. of the correct statement of the\nnational income. For earlier years the error should not be over twenty\nper cent. at the outside.\"[63] If we make the maximum allowance for\nerror in reference to the share of the landowner, and assume that the\nrent estimate is twenty per cent. too low, we find that it was still\nonly ten and one-half per cent. of the total product in 1910, which\nrepresents an increase of less than three per cent. since 1850. It is\nsignificant that Dr. Howe, who has no bias toward belittling the share\nof the landowner, suggested as his minimum and maximum estimates of\nthe land values of the country in 1910 figures which are respectively\nfifty per cent. below and only five per cent. above the amount taken\nby Professor King as the basis for his estimate of rent.[64] There is,\nconsequently, a strong presumption that Professor King is right when\nhe stigmatises as \"absurd\" the contention of the Single Taxer, \"that\nall the improvements of industry result only in the enrichment of the\nlandlord.... The value of our products has increased since 1850 to the\nextent of some twenty-eight billions of dollars, while rent has gained\nless than three billions. Evidently it has captured but a meagre part\nof the new production.\"[65]\n\nThere are strong indications, however, that the per cent. of the\nproduct going to the owners of land has increased considerably in the\nlast twenty years, and that this movement will continue indefinitely.\nAccording to Professor King's calculations, the per cent. of the total\nproduct assignable as rent advanced from 7.8 in 1900 to 8.8 in 1910,\nwhich meant that during that period the national income increased only\n70 per cent., while the share of the landowner increased 91 per\ncent.[66] It is true that a disproportionate advance in rent has\noccurred between other census years, only to be neutralised by\nsubsequent decreases; but the present instance seems to include\ncertain features which did not characterise any of the former gains in\nthe relative share of the landowner. Since 1896 the prices of food\nproducts \"rose most rapidly in the case of meat, dairy products, and\ncereals, which were derived directly from the land. The prices of raw\nmaterials show a like relation. Timber, grain, and other raw materials\nobtained directly from the land have risen rapidly in price, while\nsemi-manufactured articles have increased less rapidly, or have\ndecreased in price.... There is no parallel in any other field to the\nadvance in those land values upon which civilisation most directly\ndepends--timber lands, fertile agricultural land, and land in large\ncommercial and industrial centres. The recent rise in land values has\nbeen little short of revolutionary.\"[67]\n\nBetween 1900 and 1910 the value of farm lands _per acre_ in the United\nStates advanced 108.1 per cent.[68] During the eight years beginning\nwith July 1, 1906, the value of land in Greater New York increased\nsomething more than one-third; in the principal cities of New Jersey,\nand in Worcester, Washington, Boston, and Buffalo, somewhat less; in\nSpringfield and Holyoke, considerably more. In the most recent ten\nyears for which figures are available (since 1900 in every case) the\nland values of Milwaukee, St. Louis and San Francisco averaged only a\nslight degree of expansion, while those of Kansas City doubled, and\nthose of Houston, Dallas, Los Angeles, and Seattle trebled. To quote\nProfessor Nearing, from whose compilations these estimates have been\nsummarised: \"The total extent of the increase in American city land\nvalues may be hinted at rather than stated with any certainty. The\nscattering instances in which land and improvements are separately\nassessed led to the conclusion that in a large, well-established city,\ngrowing at approximately the same rate as the other portions of the\nUnited States, the land value is doubling in from ten to twenty-five\nyears. In the new, rapidly growing city of the middle and far West and\nin some of the smaller cities of the East, the ratio of increase in\nland values is far greater, amounting to two-fold or even three-fold\nin a decade. In a few instances the rate of increase is much smaller,\nand in one case, Jersey City, land values over a period of seven years\nhave actually decreased.... Nevertheless, the few available long range\nfigures indicate a widespread and considerable increase in American\ncity land values.\"[69]\n\nThe rise in the value of timber lands during the last thirty years has\nbeen, in the words of the federal investigators, \"enormous.\" For the\nten-year period ending in 1908, \"the value of a given piece of\nsouthern pine taken at random is likely to have increased in any ratio\nfrom three-fold to ten-fold.\" About the same ratio of increase\nobtained in the Pacific Northwest, and a somewhat smaller increase in\nthe region of the Great Lakes.[70] While a considerable decline has\ntaken place since 1908, it is only temporary; for the demand for\ntimber is notoriously increasing several times as fast as the supply.\n\nThat this upward movement in the value of all three kinds of land will\ncontinue without serious interruption, seems to be as nearly certain\nas any economic proposition that is dependent upon the future.\nAlthough millions of acres of arable lands are still unoccupied in the\nUnited States and Canada, the far greater part of them require a\ncomparatively large initial outlay for draining, clearing, irrigation,\netc., in order to become productive. Hence there is no likelihood that\nthey can be brought under cultivation fast enough to halt or greatly\nretard the advancing values which follow upon the growth of population\nand the increased demand for agricultural products. In all probability\nthe greater part of them will not come into use until the prices of\nfarm products have risen above the present level. Obviously this\nsupposes an increase in the value of all farm land, old and new. Nor\nis the adoption of better methods of farming likely to check seriously\nthe upward movement. Between 1900 and 1910 the urban population of\nAmerica increased 34.8 per cent., as against a gain of only 21 per\ncent. in the total population. This disproportionate growth in the\nnumber of the city dwellers will if continued make certain what is in\nany case extremely probable, a steady and considerable advance in\nurban land values and rents.\n\nThe circumstance that these remarkable increases in land values are a\ncomparatively recent phenomenon has prevented them from receiving the\nattention that they deserve, either from the general public or from\nthe students of economic and social problems. The total value of the\nland of the country has increased steadily from decade to decade, but\nso has the total value of capital, and even between 1900 and 1910 the\nincrease in the share of the capitalist was exactly equal to the\nincrease in the share of the landowner, that is, 91 per cent.[71]\nThose persons who complacently make such comparisons overlook the new\nand significant feature of the more recent advances in land value;\nnamely, that they are due in only a slight degree to an expansion of\nthe _area_ of land under consideration. The increases of value quoted\nin the foregoing paragraphs are increases _per acre_ and _per urban\nlot_, not increases derived from bringing new land under cultivation\nor new tracts within municipal limits. On the other hand, the\nincreases in the value of capital, now as always, represent for the\nmost part concrete additions to the existing stock of productive\ninstruments. Except where monopoly holds sway, particular capital\ninstruments, unlike particular pieces of land, do not increase in\nvalue. Hence the owner of a given amount of capital does not profit by\nthe advance in the total value of capital as the owner of the average\nparcel of land profits by the general increase in the value of land.\nThis means that all those consumers of products who are not\nlandowners must pay an increasing tribute to those who are landed\nproprietors.\n\nSo much for the _proportion_ of the national product which goes to the\nlandowning class. Let us next inquire how the landowner's share, or\nrent, is distributed throughout the population. If it were equally\ndivided among all persons, its increase relatively to the shares of\nthe other factors would, from the social viewpoint, be a matter of\nconsiderable indifference. On the other hand, if it is secured by a\nminority of the population, and if that minority tends to become\nsmaller as the share itself becomes larger, we have a socially\nundesirable condition.\n\nIn the twenty years between 1890 and 1910, the proportion of farm\nfamilies in the United States owning farm land, mortgaged or\nunmortgaged, declined from 65.9 per cent. to 62.8 per cent.; the\nproportion of urban families owning their homes, encumbered or\nunencumbered, increased from 36.9 to 38.4 per cent., and the\nproportion of all families owning homes, encumbered or unencumbered,\nfell from 47.8 to 45.8 per cent. Of the homes owned by their\noccupiers, 28 per cent. were mortgaged in 1890, and 32.8 per cent. in\n1910.[72] While a decline of two per cent. in the home owning and\nlandowning families in twenty years, and an increase of almost five\nper cent. in the number of those families who hold their property\nsubject to encumbrance, may not seem very serious in themselves, they\nindicate a definitely unhealthy trend. Not only are the landowning\nfamilies in a minority, but the minority is becoming smaller.\n\nNevertheless, when we consider the amount of gains accruing to the\naverage member of the landowning class, we do not find that it is\nunreasonably large. The great majority of landed proprietors have not\nreceived, nor are they likely to receive, from their holdings incomes\nsufficiently large to be called excessive shares of the national\nproduct. Their gross returns from land have not exceeded the\nequivalent of fair interest on their actual investment, and fair wages\nfor their labour. The landowners who have been enabled through their\nholdings to rise above the level of moderate living constitute a\ncomparatively small minority. And these statements are true of both\nagricultural and urban proprietors.\n\nIt is true that a considerable number of persons, absolutely speaking,\nhave amassed great wealth out of land. It is a well known fact that\nland was the principal source of the great medi\u00e6val and post-medi\u00e6val\nfortunes, down to the end of the eighteenth century. \"The historical\nfoundation of capitalism is rent.\"[73] Capitalism had its beginning in\nthe revenue from agricultural lands, city sites, and mines. A\nconspicuous example is that of the great Fugger family of the\nsixteenth century, whose wealth was mostly derived from the ownership\nand exploitation of rich mineral lands.[74] In the United States very\nfew large fortunes have been obtained from agricultural land, but the\nsame is not true of mineral lands, timber lands, or urban sites. \"The\ngrowth of cities has, through real estate speculation and incremental\nincome, made many of our millionaires.\"[75] \"As with the unearned\nincome of city land, our mineral resources have been conspicuously\nprolific producers of millionaires.\"[76] The most striking instance of\ngreat wealth derived from urban land is the fortune of the Astor\nfamily. While gains from trading ventures formed the beginning of the\nriches of the original Astor, John Jacob, these were \"a comparatively\ninsignificant portion of the great fortune which he transmitted to\nhis descendants.\"[77] At his death, in 1848, John Jacob Astor's real\nestate holdings in New York City were valued at eighteen or twenty\nmillion dollars. To-day the Astor estate in that city is estimated at\nbetween 450 and 500 millions, and within a quarter of a century will\nnot improbably be worth one billion dollars.[78] According to an\ninvestigation made in 1892 by the _New York Tribune_, 26.4 per cent.\nof the millionaire fortunes of the United States at that time were\ntraceable to landownership, while 41.5 per cent. were derived from\ncompetitive industries which were largely assisted by land\npossessions.[79] The proportion of such fortunes that is due, directly\nor indirectly, in whole or in part, to landownership has undoubtedly\nincreased considerably since 1892.\n\nWith regard to great individual or corporate land holdings, there\nexist no adequate statistics. A few conspicuous instances may be\ncited. The United States Steel Corporation owns lands yielding iron\nore, coal, coke, and timber which are valued by the Commissioner of\nCorporations at nearly 250 million dollars, and by the Steel\nCorporation itself at more than 800 million dollars.[80] Three\ncompanies own nearly eleven per cent., and 195 individuals or\ncorporations own 48 per cent. of all the privately owned timber in the\nUnited States.[81] The United States Census of 1910 shows that the\nnumber of farms containing 500 acres or over was about 175,000, and\ncomprised ten per cent. of the total farm acreage. One hundred and\nfifty persons and corporations are said to own 220,000,000 acres of\nvarious kinds of land. None of these holders has less than ten\nthousand acres, and two of the syndicates possess fifty million acres\neach.[82]\n\n\n_Exclusion from the Land_\n\nOne of the most frequent charges brought against the present system of\nland tenure is that it keeps a large proportion of our natural\nresources out of use. It is contended that this evil appears in three\nprincipal forms: owners of large estates refuse to break up their\nholdings by sale; many proprietors are unwilling to let the use of\ntheir land on reasonable terms; and a great deal of land is held at\nspeculative prices, instead of at economic prices. So far as the\nUnited States are concerned, the first of these charges does not seem\nto represent a condition that is at all general. Although many holders\nof large mineral and timber tracts seem to be in no hurry to sell\nportions of their holdings, they are probably moved by a desire to\nobtain higher prices rather than to continue as large landowners. As a\nrule, the great landholders of America are without those sentiments of\ntradition, local attachment, and social ascendency which are so\npowerful in maintaining intact the immense estates of Great Britain.\nOn the contrary, one of the common facts of to-day is the persistent\neffort carried on by railroads and other holders of large tracts to\ndispose of their land to settlers. While the price asked by these\nproprietors is frequently higher than that which corresponds to the\npresent productiveness of the land, it is generally as low as that\nwhich is demanded by the owners of smaller parcels. To be sure, this\nis one way of unreasonably hindering access to the land, but it falls\nproperly under the head of the third charge enumerated above. There is\nno sufficient evidence that the _large_ landholders are exceptional\noffenders in refusing to sell their holdings to actual settlers.\n\nThe assertion that unused land cannot be rented on reasonable terms is\nin the main unfounded, so far as it refers to land which is desired\nfor agriculture. As a rule, any man who wishes to cultivate a portion\nof such land can fulfil his desire if he is willing to pay a rent that\ncorresponds to its productiveness. After all, landowners are neither\nfools nor fanatics: while awaiting a higher price than is now\nobtainable for their land, they would prefer to get from it some\nrevenue rather than none at all. As a matter of fact, almost all the\nagricultural land that is immediately available for renting, is\nconstantly under cultivation. This refers to land that is already\nunder the plough, and is provided with buildings and other necessary\nimprovements. Practically none of this is out of use. New land which\nis without buildings is not wanted by tenants, unless it is convenient\nto their residences, because they do not desire to expend money for\npermanent improvements upon land that they do not own. True, the\npresent owners of such land might erect buildings, and then let it to\ntenants. In so far as new land might profitably be improved and\ncultivated, and in so far as the owners are unwilling or unable to\nprovide the improvements, the present system does keep out of use\nagricultural land that could be cultivated by tenants. Mineral and\ntimber lands are sometimes withheld from tenants because the owners\nwish to limit the supply of the product, or because they fear that a\nlong-term lease would prevent them from selling the land to the best\nadvantage. As to urban sites, the contention that we are now examining\nis generally true. The practice of leasing land to persons who wish to\nbuild thereon does not, with the exception of a very few cities,\nobtain in the United States for other than very large business\nstructures. As a rule, it does not apply to sites for residences. The\nman who wants a piece of urban land for a dwelling or for a moderately\nsized business building cannot obtain it except by purchase.\n\nCannot the land be bought at a reasonable price? This brings us to the\nthird and most serious of the charges concerning exclusion from the\nland. Since the value of land in most cities is rising, and apparently\nwill continue to rise more or less steadily, the price at which it is\nheld and purchasable is not the economic price but a speculative\nprice. It is higher than the capitalised value of the present revenue\nor rent. For example: if five per cent. be the prevailing rate of\ninterest, a piece of land which returns that rate on a capital of one\nthousand dollars cannot be bought for one thousand dollars. The\npurchaser is willing to pay more because he hopes to sell it for a\nstill higher price within a reasonable time. He knows that he cannot\nimmediately obtain five per cent. on the amount (say, 1,200 dollars)\nthat he is ready to pay for the land, but his valuation of it is not\ndetermined merely by its present income-producing power, but by its\nanticipated revenue value and selling value.[83] The buyer will pay\nmore for such land than for a house which yields the same return; for\nhe knows that the latter will not, and hopes that the former will,\nbring a higher return and a higher price in the future. Wherever this\ndiscounting of the future obtains, the price of land is unreasonably\nhigh, and access to vacant land is unreasonably difficult.\n\nThis condition undoubtedly exists most of the time in the great\nmajority of our larger cities. Men will not sell vacant land at a\nprice which will enable the buyer to obtain immediately a reasonable\nreturn on his investment. They demand in addition a part of the\nanticipated increase in value. In the rural regions this evil appears\nto be smaller and less general. The owners of unused or uneconomically\nused arable land are more eager to sell their holdings than the\naverage proprietor of a vacant lot. So far as this sort of land is\nconcerned, it is probable that most of the denunciation of \"land\nspeculators\" and \"land monopolists\" overshoots the mark. Not the high\nprice at which unused arable lands are held, but the great initial\ncost of draining, clearing, or irrigating them, is the main reason why\nthey are not purchased by cultivators.\n\nWhile no general and precise estimate can be given of the extent to\nwhich the speculative exceeds the actual rent-producing value of land\nin growing cities, twenty-five per cent. would not improbably be a\nfair conjecture. Even when a reaction occurs after a period of\nexcessive \"land-booming,\" the lower prices do not bring the manless\nland any nearer to the landless men. Only the few who possess ready\nmoney or excellent credit can take advantage of such a situation. On\nthe whole the evil that we are now considering is probably greater\nthan any other connected with the private ownership of land.\n\nAll the tendencies and forces that have been described in the present\nchapter under the heads of Monopoly, Excessive Gains, and Exclusion\nfrom the Land, are in some degree real defects and abuses of the\nexisting system of land tenure. Most of them do not seem to be\nsufficiently understood or appreciated by the more ardent defenders of\nprivate ownership. To recognise them, and to seek adequate correctives\nof them would seem to be the task of both righteousness and\nexpediency. In the next and final chapter of this Section, we shall\nconsider certain remedies that seem to be at once effective and just.\n\nFOOTNOTES:\n\n[49] \"Report of the Commissioner of Corporations on the Petroleum\nIndustry,\" Part I, p. 8.\n\n[50] P. 138.\n\n[51] Cf. Ely, \"Monopolies and Trusts,\" pp. 59, sq.\n\n[52] P. 133.\n\n[53] Pp. 68, 69.\n\n[54] \"Final Report of the U. S. Industrial Commission,\" p. 463; Bliss,\n\"New Encyclopedia of Social Reform,\" pp. 245, 770; Van Hise,\n\"Concentration and Control,\" pp. 32, 33.\n\n[55] Idem, pp. 46, 47; cf. \"Final Report of Industrial Commission,\"\npp. 463-465.\n\n[56] \"Report of the Commissioner of Corporations on the Steel\nIndustry,\" Part I, p. 60.\n\n[57] Cf. Hobson, \"The Industrial System,\" pp. 192-197.\n\n[58] Pp. 15, 16, 29-31.\n\n[59] Cf. \"Progress and Poverty,\" books III and IV.\n\n[60] Cf. Walker, \"Land and Its Rent,\" pp. 168-182, Boston, 1883.\n\n[61] Page 158.\n\n[62] Page 160.\n\n[63] Page 158; footnote.\n\n[64] \"Privilege and Democracy,\" p. 307.\n\n[65] Page 160.\n\n[66] Op. cit., pages 160, 158.\n\n[67] Professor Nearing in \"The Annals of the American Academy of\nPolitical and Social Science,\" March, 1915.\n\n[68] Thirteenth Census, Bulletin on \"Farms and Farm Property,\" page 1.\n\n[69] _The Public_, Nov. 26, 1915. For an account of increases in the\nprincipal European cities, see Camille-Husymans, \"La plus-value\nimmobili\u00e8re dans les communes belges\"; Gand, 1909.\n\n[70] \"Report of the Commissioner of Corporations on the Lumber\nIndustry,\" Part I, pp. 214-216.\n\n[71] King, op. cit., p. 158.\n\n[72] Thirteenth Census, Vol. I, p. 1295.\n\n[73] Hobson, \"The Evolution of Modern Capitalism,\" p. 4; London, 1907.\n\n[74] _Harper's Monthly Magazine_, Jan., 1910.\n\n[75] Watkins, \"The Growth of Large Fortunes,\" p. 75; N. Y., 1907.\n\n[76] Idem, p. 93.\n\n[77] Youngman, \"The Economic Causes of Great Fortunes,\" p. 45; N. Y.,\n1909.\n\n[78] Howe, op. cit., pp. 125, 126.\n\n[79] Cf. Commons, \"The Distribution of Wealth,\" pp. 252, 257; N. Y.,\n1893.\n\n[80] \"Report of the Commissioner of Corporations on the Steel\nIndustry,\" Part I, p. 314.\n\n[81] \"Summary of Report of the Commissioner of Corporations on the\nLumber Industry,\" pp. 3-8.\n\n[82] From articles in \"The Single Tax Review,\" vol. 9, nos. 5, 6.\n\n[83] \"In a growing city, an advantageous site will command a price\nmore than in proportion to its present rent, because it is expected\nthat the rent will increase still further as the years go on.\"\nTaussig, \"Principles of Economics,\" II, 98; N. Y., 1911.\n\n\n\n\nCHAPTER VIII\n\nMETHODS OF REFORMING OUR LAND SYSTEM\n\n\nIn economic and social discussion the word reform is commonly opposed\nto the word revolution. It implies modification rather than abolition,\ngradual rather than violent change. Hence reforms of the system of\nland tenure do not include such radical proposals as those of land\nnationalisation or the Single Tax. On the other hand, some extension\nof State ownership of land, and some increase in the proportion of\ntaxes imposed upon land, may quite properly be placed under the head\nof reform, inasmuch as they are changes in rather than a destruction\nof the existing system.\n\nIn general, the reform measures needed are such as will meet the\ndefects described in the last chapter; namely, monopoly, excessive\ngains, and exclusion from the land. Obviously they can be provided\nonly by legislation; and they may all be included under two heads,\nownership and taxation.\n\nBy far the greater part of the more valuable lands of the country are\nno longer under the ownership of the State. Urban land is practically\nall in the hands of private proprietors. While many millions of acres\nof land suitable for agriculture are still under public ownership,\nalmost all of this area requires a considerable outlay for irrigation,\nclearing, and draining before it can become productive. Forty years\nago, three-fourths of the timber now standing was public property; at\npresent about four-fifths of it is owned by private persons or\ncorporations.[84] The bulk of our mineral deposits, coal, copper,\ngold, silver, etc., have likewise fallen under private ownership, with\nthe exception of those of Alaska. The undeveloped water power\nremaining under government ownership has been roughly estimated at\nfourteen million horse power in the national forests, and considerably\nless than that amount in other parts of the public domain.[85] This is\na gratifying proportion of the whole supply, developed and\nundeveloped, of this national resource, which is said to be somewhere\nbetween 27 and 60 millions horse power.[86] Only about seven million\nhorse power has yet been developed, almost all of which is privately\nowned.\n\n\n_The Leasing System_\n\nIn many countries of Europe it has long been the policy of governments\nto retain ownership of all lands containing timber, minerals, oil,\nnatural gas, phosphate, and water power. The products of these lands\nare extracted and put upon the market through a leasing system. That\nis; the user of the land pays to the State a rental according to the\namount and quality of raw material which he takes from the storehouse\nof nature. Theoretically, the State could sell such lands at prices\nthat would bring in as much revenue as does the leasing system;\npractically, this result has never been attained. The principal\nadvantages of the leasing arrangement are: to prevent the premature\ndestruction of forests, the private monopolisation of limited natural\nresources (which has happened in the case of the anthracite coal\nfields of Pennsylvania) and the private acquisition of exceptionally\nvaluable land at ridiculously low prices; and to enable the State to\nsecure just treatment for the consumer and the labourer by\nstipulating that the former shall obtain the product at fair prices,\nand that the latter shall receive fair wages.\n\nThis example should be followed by the United States. All timber,\nmineral, gas, oil, and water power lands which have not been alienated\nto private persons should remain under government ownership, and be\nbrought into use through a leasing arrangement which would enable the\nprivate operators to obtain the rates of profit and interest which are\nordinarily yielded by enterprises subject to the same degree of risk.\nHappily this policy now seems likely to be adopted. In 1913 a law was\npassed by the United States providing for the operation of the coal\nmines of Alaska on leases. The amount that can be leased by any person\nor corporation is limited to 2560 acres, and the penalty for\nattempting to monopolise the product is forfeiture of tenure. The\nSecretary of the Interior has urged a similar arrangement for the\ndevelopment and extraction of water power, coal, oil, gas, phosphate,\nsodium, and potassium on the public domain of Continental United\nStates, and his recommendation will probably be adopted by Congress.\nThus the rent of these lands will go to the whole people instead of to\na comparatively small number of individuals, monopoly of the products\nwill be made impossible, and our remaining public resources will be\nprotected from rapid and ruinous exploitation.\n\nTo the objection that capitalists will not invest their money in nor\ncarry on extractive enterprises on a leasing basis, the sufficient\nanswer is that they are doing it now. In 1909, 24.5 per cent. of all\nthe lands producing minerals, precious metals, and stone; 94.6 per\ncent. of the lands producing petroleum and gas; and 61.2 per cent. of\nthe two groups of lands combined, were operated under leases from\nprivate owners or from the government.[87] If the rental or royalty\ndemanded is not unreasonably high capitalists will be quite as\nwilling to produce raw materials of these kinds from leased land as\nthey are to manufacture or sell goods in a rented building. Not the\nleasing system, but the terms of the particular lease are the\nimportant consideration.\n\nPublic grazing lands should remain government property until such time\nas they become available for agriculture. Cattle owners could lease\nthe land from the State on equitable terms, and receive ample\nprotection for money invested in improvements.\n\n\n_Public Agricultural Lands_\n\nThe leasing system cannot well be applied to agricultural lands. In\norder that they may be continuously improved and protected against\ndeterioration, they must be owned by the cultivators. The temptation\nto wear out a piece of land quickly, and then move to another piece,\nand all the other obstacles that stand in the way of the Single Tax as\napplied to agricultural land, show that the government cannot with\nadvantage assume the function of landlord in this domain. In the great\nmajority of cases the State would do better to sell the land in small\nparcels to genuine settlers. There are, indeed, many situations,\nespecially in connection with government projects of irrigation,\nclearing, and drainage, in which the leasing arrangement could be\nadopted temporarily. It should not be continued longer than is\nnecessary to enable the tenants to become owners. With this end in\nview the State should make loans to cultivators at moderate rates of\ninterest, as is done in New Zealand and Australia.\n\nWhether the State ought to purchase undeveloped land from private\nowners in order to sell it to settlers, may well be doubted. The only\nlands to which such a scheme would be at all applicable are large\nestates which are held out of use by their proprietors. Even here the\ntransfer of the land to cultivators could be accomplished indirectly,\nthrough an extra heavy tax. This method has been adopted with success\nby Australia and New Zealand. The only other action by the State that\nseems necessary or wise in order to place settlers upon privately\nowned agricultural land, is the establishment of a comprehensive\nsystem of rural credits. The need of cheaper food products, and the\ndesirability of checking the abnormal growth of our urban populations,\nare powerful additional reasons for the adoption of this policy. The\nHollis Rural Credits Bill recently enacted into law by Congress goes a\nconsiderable way toward meeting these needs.\n\n\n_Public Ownership of Urban Land_\n\nNo city should part with the ownership of any land that it now\npossesses. Since capitalists are willing to erect costly buildings on\nsites leased from private owners, there is no good reason why any one\nshould refuse to put up or purchase any sort of structure on land\nowned by the municipality. The situation differs from that presented\nby agricultural land; for the value of the land can easily be\ndistinguished from that of improvements, the owner of the latter can\nsell them even if he is not the owner of the land, and he cannot be\ndeprived of them without full compensation. While the lessee paid his\nannual rent, his control of the land would be as complete and certain\nas that of the landowner who continues to pay his taxes. On the other\nhand, the leaseholder could not permit or cause the land to\ndeteriorate if he would; for the nature of the land renders this\nimpossible. Finally, the official activities involved in the\ncollection of the rent and the periodical revaluation of the land,\nwould not differ essentially from those now required to make\nassessments and gather taxes.\n\nThe benefits of this system would be great and manifest. Persons who\nwere unable to own a home because of their inability to purchase land,\ncould get secure possession of the necessary land through a lease from\nthe city. Instead of spending all their lives in rented houses,\nthousands upon thousands of families could become the owners and\noccupiers of homes. The greater the amount of land thus owned and\nleased by the city, the less would be the power of private owners to\nhold land for exorbitant prices. Competition with the city would\ncompel them to sell the land at its revenue-producing value instead of\nat its speculative value. Finally, the city would obtain the benefit\nof every increase in the value of its land by means of periodical\nrevaluation, and periodical readjustment of rent.\n\nUnfortunately the amount of municipal land available for such an\narrangement in our American cities is negligible. If they are to\nestablish the system they must first purchase the land from private\nowners. Undoubtedly this ought to be done by all large cities in which\nthe housing problem has become acute, and the value of land is\nconstantly rising. This policy has been adopted with happy results by\nmany of the municipalities of France and Germany.[88] At the state\nelection of 1915 the voters of Massachusetts adopted by an\noverwhelming majority a constitutional amendment authorising the\ncities of the commonwealth to acquire land for prospective home\nbuilders. In Savannah, Georgia, no extension of the municipal limits\nis made until the land to be embraced has passed into the ownership of\nthe city. Another method is to refrain from opening a new street in a\nsuburban district until the city has become the proprietor of the\nabutting land. Whatever be the particular means adopted, the objects\nof municipal purchase and ownership of land are definite and obvious:\nto check the congestion of population in the great urban centres, to\nprovide homes for the homeless, and to secure for the whole community\nthe socially occasioned increases in land values. Indeed, it is\nprobable that no comprehensive scheme of housing reform can be\nrealised without a considerable amount of land purchase by the\nmunicipalities. Cities must be in a position to provide sites for\nthose home builders who cannot obtain land on fair conditions from\nprivate proprietors.[89]\n\nTurning now from the direct method of public ownership to the indirect\nmethod of reform through taxation, we reject the thoroughgoing\nproposals of the Single Taxers. To appropriate all economic rent for\nthe public treasury would be to transfer all the value of land without\ncompensation from the private owner to the State. For example: a piece\nof land that brought to the owner an annual revenue of one hundred\ndollars would be taxed exactly that amount; if the prevailing rate of\ninterest were five per cent. the proprietor would be deprived of\nwealth to the amount of two thousand dollars; for the value of all\nproductive goods is determined by the revenue that they yield, and\nbenefits the person who receives the revenue. Thus the State would\nbecome the beneficiary and the virtual owner of the land. Inasmuch as\nwe do not admit that the so-called social creation of land values\ngives the State a moral right to these values, we must regard the\ncomplete appropriation of economic rent through taxation as an act of\npure and simple confiscation.[90]\n\n\n_Appropriating Future Increases of Land Value_\n\nLet us examine, then, the milder suggestion of John Stuart Mill, that\nthe State should impose a tax upon land sufficient to absorb all\nfuture increases in its value.[91] This scheme is commonly known as\nthe appropriation of future unearned increment. Either in whole or in\npart it is at least plausible, and is to-day within the range of\npractical discussion. It is expected to obtain for the whole\ncommunity all future increases in land values, and to wipe out the\nspeculative, as distinguished from the revenue-producing value of\nland. Consequently it would make land cheaper and more accessible than\nwould be the case if the present system of land taxation were\ncontinued. Before discussing its moral character, let us see briefly\nwhether the ends that it seeks may properly be sought by the method of\ntaxation. For these ends are mainly social rather than fiscal.\n\nTo use the taxing power for a social purpose is neither unusual nor\nunreasonable. \"All governments,\" says Professor Seligman, \"have\nallowed social considerations in the wider sense to influence their\nrevenue policy. The whole system of productive duties has been framed\nnot merely with reference to revenue considerations, but in order to\nproduce results which should directly affect social and national\nprosperity. Taxes on luxuries have often been mere sumptuary laws\ndesigned as much to check consumption as to yield revenue. Excise\ntaxes have as frequently been levied from a wide social, as from a\nnarrow fiscal, standpoint. From the very beginning of all tax systems\nthese social reasons have often been present.\"[92] Our Federal taxes\non imports, on intoxicating liquors, on oleo-margarine, and on white\nphosphorus matches, and many of the license taxes in our\nmunicipalities, as on pedlars, saloon keepers, and dog owners, are in\nlarge part intended to meet social as well as fiscal ends. They are in\nthe interest of domestic production, public health, and public safety.\nThe reasonableness of effecting social reforms through taxation cannot\nbe seriously questioned. While the maintenance of government is the\nprimary object of taxation, its ultimate end, the ultimate end of\ngovernment itself, is the welfare of the people. Now if the public\nwelfare can be promoted by certain social changes, and if these in\nturn can be effected through taxation, this use of the taxing power\nwill be quite as normal and legitimate as though it were employed for\nthe upkeep of government. Hence the morality of taxing land for\npurposes of social reform will depend entirely upon the nature of the\nparticular tax that is imposed.\n\n\n_Some Objections to the Increment Tax_\n\nThe tax that we are now considering can be condemned as unjust on only\ntwo possible grounds: first, that it would be injurious to society;\nand, second, that it would wrong the private landowner. If it were\nfairly adjusted and efficiently administered it could not prove\nharmful to the community. In the first place, landowners could not\nshift the tax to the consumer. All the authorities on the subject\nadmit that taxes on land stay where they are put, and are paid by\nthose upon whom they are levied in the first instance.[93] The only\nway in which the owners of a commodity can shift a tax to the users or\nconsumers of it, is by limiting the supply until the price rises\nsufficiently to cover the tax. By the simple device of refusing to\nerect more buildings until those in existence have become scarce\nenough to command an increase in rent equivalent to the new tax, the\nactual and prospective owners of buildings can pass the tax on to the\ntenants thereof. By refusing to put their money into, say, shoe\nfactories, investors can limit the supply of shoes until any new tax\non this commodity is shifted upon the wearers of shoes in the form of\nhigher prices. Until these rises take place in the rent of buildings\nand the price of shoes, investors will put their money into\nenterprises which are not burdened with equivalent taxes. But nothing\nof this sort can follow the imposition of a new tax upon land. The\nsupply of land is fixed, and cannot be affected by any action of\nlandowners or would-be landowners. The users of land and the consumers\nof its products are at present paying all that competition can compel\nthem to pay. They would not pay more merely because they were\nrequested to do so by landowners who were labouring under the burden\nof a new tax. If all landowners were to carry out an agreement to\nrefrain from producing, and to withhold their land from others until\nrents and prices had gone up sufficiently to offset the tax, they\ncould, indeed, shift the latter to the renters of land and the\nconsumers of its products. Such a monopoly, however, is not within the\nrange of practical achievement. In its absence, individual landowners\nare not likely to withhold land nor to discontinue production in\nsufficient numbers to raise rents or prices. Indeed, the tendency will\nbe all the other way; for all landowners, including the proprietors of\nland now vacant, will be anxious to put their land to the best use in\norder to have the means of paying the tax. Owing to this increased\nproduction, and the increased willingness to sell and let land, rents\nand prices must fall. It is axiomatic that new taxes upon land always\nmake it cheaper than it would have been otherwise, and are beneficial\nto the community as against the present owners.\n\nIn the second place, the tax in question could not injure the\ncommunity on account of discouraging investment in land. Once men\ncould no longer hope to sell land at an advance in price, they would\nnot seek it to the extent that they now do as a field of investment.\nFor the same reason many of the present owners would sell their\nholdings sooner than they would have sold them if the tax had not been\nlevied. From the viewpoint of the public the outcome of this situation\nwould be wholly good. Land would be cheaper and more easy of access to\nall who desired to buy or use it for the sake of production, rather\nthan for the sake of speculation. Investments in land which have as\ntheir main object a rise in value are an injury rather than a benefit\nto the community; for they do not increase the products of land, while\nthey do advance its price, thereby keeping it out of use. Hence the\nState should discourage instead of encouraging mere speculators in\nland. Whether it is or is not bought and sold, the supply of land\nremains the same. The supreme interest of the community is that it\nshould be put to use, and made to supply the wants of the people.\nConsequently the only land investments that help the community are\nthose that tend to make the land productive. Under a tax on future\nincreases in value, such investments would increase for the simple\nreason that land would be cheaper than it would have been without the\ntax. Men who desired land for the sake of its rent or its product\nwould continue as now to pay such prices for it as would enable them\nto obtain the prevailing rate of interest on their investment after\nall charges, including taxes, had been paid. Men who wanted to rent\nland would continue as now to get it at a rental that would give them\nthe usual return for their capital and labour.\n\nSo much for the effect of the tax upon the community. Would it not,\nhowever, be unjust to the landowners? Does not private ownership of\nits very nature demand that increases in the value of the property\nshould go to the owners thereof? \"Res fructificat domino:\" a thing\nfructifies to its owner; and value-increases may be classed as a kind\nof fruit.\n\nIn the first place, this formula was originally a dictum of the civil\nlaw merely, the law of the Roman Empire. It was a legal rather than an\nethical maxim. Whatever validity it has in morals must be established\non moral grounds, by moral arguments. It cannot forthwith be assumed\nto be morally sound on the mere authority of legal usage. In the\nsecond place, it was for a long time applied only to natural products,\nto the grain grown in a field, to the offspring of domestic animals.\nIt simply enunciated the policy of the law to defend the owner of the\nland in his claim to such fruits, as against any outsider who should\nattempt to set up an adverse title through mere appropriation or\npossession. Thus far, the formula was evidently in conformity with\nreason and justice. Later on it was extended, both by lawyers and\nmoralists, to cover commercial \"fruits,\" such as, rent from lands and\nhouses, and interest from loans and investments. Its validity in this\nfield will be examined in connection with the justification of\ninterest. More recently the maxim has received the still wider\napplication which we are now considering. Obviously increases in value\nare quite a different thing from the concrete fruit of the land, its\nnatural product. A right to the latter does not necessarily and\nforthwith imply a right to the former. In the third place, the formula\nin question is not a self evident, fundamental principle. It is merely\na summary conclusion drawn from the consideration of the facts and\nprinciples of social and industrial life. Consequently its validity as\napplied to any particular situation will depend on the correctness of\nthese premises, and on the soundness of the process by which it has\nbeen deduced.\n\nThe increment tax is sometimes opposed on the ground that it is new,\nin fact, revolutionary. In some degree the charge is true, but the\nconditions which the proposal is intended to meet are likewise of\nrecent origin. The case for this legislation rests mainly on the fact\nthat, for the first time in the world's history, land values\neverywhere show an unmistakable tendency to advance indefinitely. This\nmeans that the landowning minority will be in a position to reap\nunbought and continuous benefits at the expense of the landless\nmajority. This new fact, with its very important significance for\nhuman welfare, may well require a new limitation on the right of\nproperty in land.\n\nIt is also objected that to deprive men of the opportunity of\nprofiting by changes in the value of their land would be an unfair\ndiscrimination against one class of proprietors. But there are good\nreasons for making the distinction. Except in the case of monopoly,\nincreases in the value of goods other than land are almost always due\nto expenditures of labour or money upon the goods themselves. The\nvalue increases that can be specifically traced to external and social\ninfluences are intermittent, uncertain, and temporary. Houses,\nfurniture, machinery, and every other important category of artificial\ngoods are perishable, and decline steadily in value. Land, however, is\nsubstantially imperishable, becomes steadily scarcer relatively to the\ndemand, and its value-increases are on the whole constant, certain,\nand permanent. Moreover, it is the settled policy of most enlightened\ngovernments to appropriate or to prevent all notable increases in the\nvalue of monopolistic goods, either through special taxation or\nthrough regulation of prices and charges. Taking the increment values\nof land is, therefore, not so discriminative as it appears at first\nglance.[94]\n\nAnother objection is that the proposal would violate the canons of\njust taxation, since it would impose a specially heavy burden upon one\nform of property. The general doctrine of justice in taxation which is\nheld by substantially all economists to-day, and which has been taught\nby Catholic moralists for centuries, is that known as the \"faculty\"\ntheory.[95] Men should be taxed in proportion to their ability to pay,\nnot in accordance with the benefits that they may be assumed to\nreceive from the State. And it is universally recognised that the\nproper measure of \"ability\" is not a man's total possessions,\nproductive and unproductive, but his income, his annual revenue. Now,\nthe increment tax does seem to violate the rule of taxation according\nto ability, inasmuch as it would take all of one species of revenue,\nwhile all other incomes and properties pay only a certain percentage.\n\nAll the adherents of the faculty theory maintain, however, that it is\nsubject to certain modifications. Incomes from interest, rent, and\nsocially occasioned increases in the value of property should be taxed\nat a higher rate than incomes that represent expenditures of labour;\nfor to give up a certain per cent. of the former involves less\nsacrifice than to give up the same per cent. of the latter. Therefore,\nincrements of land-value may be fairly taxed at a higher rate than\nsalaries, personal property, or even rent and interest. When, however,\nthe law absorbs the whole of the value increments, it seems to be\nsomething more than a tax. The essential nature of a tax is to take\nonly a portion of the particular class of income or property upon\nwhich it is imposed. The nearest approach to the plan of taking all\nfuture increases in land value is to be found in the special\nassessments that are levied in many American cities. Thus, the owners\nof urban lots are frequently compelled to defray the entire cost of\nstreet improvements on the theory that their land is thereby and to\nthat extent increased in value. In such cases the contribution is\nlevied not on the basis of the faculty theory, but on that of the\nbenefit theory; that is, the owners are required to pay in proportion\nto benefits received. All adherents of the faculty theory admit that\nthe benefit theory is justifiably applied in situations of this kind.\nIt might be argued that the latter theory can also be fairly applied\nto increments of land value that are to arise in the future. In both\ncases the owner returns to the State the equivalent of benefits which\nhave cost him nothing. There is, however, a difference. In the former\ncase the value increases are specifically due to expenditures made by\nthe State, while in the latter they are indirectly brought about by\nthe general activities of the community. We do not admit with the\nSingle Taxers that this \"social production\" of value increments\ncreates a right thereto on the part of either the community or the\ncivil body; but even if we did we should be compelled to admit that\nthe two situations are not exactly parallel; for the social production\nof increases in the value of land involves no special expenditure of\nlabour or money. Hence it is very questionable whether the\nappropriation of the whole of the future value increments can be\nharmonised with the received conceptions and applications of the\ncanons of taxation.\n\n\n_The Morality of the Proposal_\n\nHowever, it is neither necessary nor desirable to justify the proposal\non the mere ground of taxation. Only in form and administration is it\na tax; primarily and in essence it is a method of distribution. It\nresembles the action by which the State takes possession of a newly\ndiscovered territory by the title of first occupancy. The future\nincreases of land value may be regarded as a sort of no man's property\nwhich the State appropriates for the benefit of the community. And the\nmorality of this proceeding must be determined by the same criterion\nthat is applied to every other method or rule of distribution; namely,\nsocial and individual consequences. No principle, title, or practice\nof ownership, nor any canon of taxation, has intrinsic or metaphysical\nvalue. All are to be evaluated with reference to human welfare. Since\nthe right of property is not an end in itself, but only a means of\nhuman welfare, its just prerogatives and limitations are determined by\ntheir conduciveness to the welfare of human beings. By human welfare\nis meant not merely the good of society as a whole, but the good of\nall individuals and classes of individuals. For society is made up of\nindividuals, all of whom are of equal worth and importance, and have\nequal claims to consideration in the matter of livelihood, material\ngoods, and property. In general, then, any method of distribution, any\nmodification of property rights, any form of taxation, is morally\nlawful which promotes the interests of the whole community, without\ncausing undue inconvenience to any individual. Whether a given rule of\nownership or method of distribution which is evidently conducive to\nthe public good is, nevertheless, unduly severe on a certain class of\nindividuals, is a question that is not always easily answered. Some of\nthe methods and practices appearing in history were clearly fair and\njust, others clearly unfair and unjust, and still others of doubtful\nmorality. Frequently the State has compelled private persons to give\nup their land at a lower price than they paid for it; in more than one\ncountry freebooters and kingly favourites robbed the people of the\nland, yet their heirs and successors are recognised by both moralists\nand statesmen as the legitimate owners of that land; in Ireland\nstubborn landlords are to-day compelled by the British government to\nsell their holdings to the tenants at an appraised valuation; in many\ncountries men may become owners of their neighbours' lands by the\ntitle of prescription, without the payment of a cent of compensation.\nAll these practices and titles inflict considerable hardship upon\nindividuals, but most of them are held to be justified on grounds of\nsocial welfare.\n\nNow the public appropriation of all future increments of land value\nwould evidently be beneficial to the community as a whole. It would\nenable all the people to profit by gains that now go to a minority,\nand it would enable the landless majority to acquire land more easily\nand more cheaply. We have in mind, of course, only those value\nincreases that are not due to improvements in or on the land, and we\nassume that these could be distinguished in practice from the\nincrements of value that represent improvements. Would the measure in\nquestion inflict undue hardship upon individuals? Here we must make a\ndistinction between those persons who own land at the time that, and\nthose who buy land after, the law is enacted.\n\nThe only inconvenience falling upon the latter class would be\ndeprivation of the power to obtain future increases in value. The law\nwould not cause the value of the land to decline below their purchase\nprice. Other forces might, indeed, bring about such a result; but, as\na rule, such depreciation would be relatively insignificant, for the\nsimple reason that it would already have been \"discounted\" in the\nreduction of value which followed the law at the outset. The very\nknowledge that they could not hope to profit by future increases in\nthe value of the land would impel purchasers to lower their price\naccordingly. While taking away the possibility of gaining, the law\nenables the buyers to take the ordinary precautions against losing.\nTherefore, it does not, as sometimes objected, lessen the so called\n\"gambler's chances.\" On the other hand, the tax does not deprive the\nowners of any value that they may add to the land through the\nexpenditure of labour or money, nor in any way discourage productive\neffort. Now it is, as a rule, better for individuals as well as for\nsociety that men's incomes should represent labour, expenditure, and\nsaving instead of being the result of \"windfalls,\" or other fortuitous\nand conjunctural circumstances. And the power to take future value\nincrements is not an intrinsically essential element of private\nproperty in land. Like every other condition of ownership, its\nmorality is determined by its effects upon human welfare. But we have\nseen in the last paragraph that human welfare in the sense of the\nsocial good is better promoted by a system of landownership which does\nnot include this element; and we have just shown that such a system\ncauses no undue hardship to the individual who buys land after its\nestablishment. Such is the answer to the contention, noticed a few\npages back, that the landowner has a right to future increments of\nvalue because they are a kind of fruit of his property. It is more\nreasonable that he should not enjoy this particular and peculiar\n\"fruit.\" Were the increment tax introduced into a new community before\nany one had purchased land, it would clearly be a fair and valid\nlimitation on the right of ownership. Those who should become owners\nafter the regulation went into effect in an old community would be in\nexactly the same moral and economic position. Finally, there exists\nsome kind of legal precedent for the proposal in the present policy of\nefficient governments with regard to the only important increases that\noccur in the value of goods other than land; namely, increases due to\nthe possession of monopoly power. By various devices these are either\nprevented or appropriated by the State.\n\nThose persons who are landowners when the increment tax goes into\neffect are in a very different situation from those that we have just\nbeen considering. Many of them would undoubtedly suffer injury through\nthe operation of the measure, inasmuch as their land would reach and\nmaintain a level of value below the price that they had paid for it.\nThe immediate effect of the increment tax would be a decline in the\nvalue of all land, caused by men's increased desire to sell and\ndecreased desire to buy. In all growing communities a part of the\npresent value of land is speculative; that is, it is due to demand for\nthe land by persons who want it mainly to sell at an expected rise,\nand also to the disinclination of present owners to sell until this\nexpectation is realised. The practical result of the attitude of these\ntwo classes of persons is that the demand for, and therefore the value\nof land is considerably enhanced. Let a law be enacted depriving them\nof all hope of securing the anticipated increases in value, and the\none group will cease to buy, while the other will hasten to sell, thus\ncausing a decline in demand relatively to supply, and therefore a\ndecline in value and price.\n\nAll persons who had paid more for their land than the value which it\ncame to have as a result of the increment tax law, would lose the\ndifference. For, no matter how much the land might rise in value\nsubsequently, the increase would all be taken by the State. And all\nowners of vacant land the value of which after the law was passed did\nnot remain sufficiently high to provide accumulated interest on the\npurchase price, would also lose accordingly. To be sure, both these\nkinds of losses would exist even if the law should cause no decline in\nthe value of land, but they would not be so great either in number or\nin volume.\n\nLandowners who should suffer either of these sorts of losses would\nhave a valid moral claim against the State for compensation. Through\nits silence on the subject of increment-tax legislation, the State\nvirtually promised them at the time of their purchases that it would\nnot thus interfere with the ordinary course of values. Had it given\nany intimation that it would enact such a law at a future time, these\npersons would not have paid as much for their land as they actually\ndid pay. When the State passes the law, it violates its implicit\npromise, and consequently is under obligation to make good the\nresulting losses.\n\nIs it not obliged to go further, and pay for the positive gains that\nmany of the owners would have reaped in the absence of the law? For\nexample: a piece of land is worth one thousand dollars the day after\nthe tax goes into effect, and that was exactly the price paid for it\nby the present owner; another piece has the same value, but was bought\nby the present owner for eight hundred dollars. While neither of these\nmen suffer any loss on their investments, they are deprived of\npossible gains; for had the law not been enacted their holdings would\nbe worth, say, eleven hundred dollars. Nevertheless, they are no worse\noff in this respect than those persons who buy land after the\nincrement tax goes into effect, and have no greater claim to\ncompensation for abolished opportunities of positive gain. As we have\nseen above, the certain advantages of the measure to the community,\nthe doubtful advantages to individuals of profiting by changes in\nprice which do not represent labour, expense, or saving, show that the\nowners have no strict right to compensation. And it is still clearer\nthat no landowner has a valid claim on account of value increases that\nwould have taken place subsequent to the time that the measure was\nenacted. There is no way by which owners who would have held their\nland long enough to profit by these increments can be distinguished\nfrom owners who would not have availed themselves of this conjectural\nopportunity, nor any method by which the amount of such gains can be\ndetermined.\n\nOn the other hand, it might be objected that, in reimbursing all\nowners who suffer the positive losses above described, the State is\nunduly generous; for if the law had not been enacted many of the\nreimbursed persons would have sold their holdings at a price\ninsufficient to cover their losses. But these cannot be distinguished\nfrom those who would have sold at a remunerative price. Hence the\nState must compensate all or none. The former alternative is not only\nthe more just all round, but in the long run the more expedient.\n\nIn view of the social benefits of the increment tax, especially the\nremoval of many of the inequities of the present taxing system, the\nState might sometimes be justified in making good only a part of the\nlosses that we have been discussing. But this could probably occur\nonly for administrative reasons, such as the difficulty of determining\nthe persons entitled to and the amounts of compensation. It would not\nbe justified merely to enable the State to profit at the expense of\nindividuals. And, in any case, there seems to be no good reason why\nthe unpaid losses should amount to more than a small fraction of the\nwhole.\n\nIn the foregoing pages we have been considering a law which would from\nthe beginning of its operation take _all_ the future increments of\nland value. There is, however, no likelihood that any such measure\nwill soon be enacted in any country, least of all, in the United\nStates. What we shall probably see is the spread of legislation\ndesigned to take a part, and a gradual growing part, of value\nincreases, after the example of Germany and Great Britain. Let us\nglance at the laws in force in these two countries.\n\n\n_The German and British Increment Taxes_\n\nThe first increment tax (Werthzuwachssteuer) was established in the\nyear 1898 in the German colony of Kiautschou, China. In 1904 the\nprinciple of the tax was adopted by Frankfort-am-Main, and in 1905 by\nCologne. By April, 1910, it had already been enacted in 457 cities and\ntowns of Germany, some twenty of which had a population of more than\n100,000 each, in 652 communes, several districts, one principality,\nand one grand duchy. In 1911 it was inserted in the imperial fiscal\nsystem, and thus extended over the whole German Empire. While these\nlaws are all alike in certain essentials, they vary greatly in\ndetails. They agree in taking only a per cent. of the value increases,\nand in imposing a higher rate on the more rapid increases. The rates\nof the imperial law vary from ten per cent. on increases of ten per\ncent. or less to thirty per cent. on increases of 290 per cent. or\nover. In Dortmund the scale progresses from one to 12-1/2 per cent.\nInasmuch as the highest rate in the imperial law is 30 per cent., and\nin any municipal law (Cologne and Frankfort) 25 per cent.; inasmuch as\nall the laws allow deductions from the tax to cover the interest that\nwas not obtained while the land was unproductive; and inasmuch as only\nthose increases are taxed which are measured from the value that the\nland had when it came into the possession of the present owner,--it is\nclear that landowners are not obliged to undergo any positive loss,\nand that they are permitted to retain the lion's share of the\n\"unearned increment.\"[96]\n\nIt is to be noted that most of the German laws are retroactive, since\nthey apply not merely to future value increases, but to some of those\nthat occurred before the law was enacted. Thus, the Hamburg ordinance\nmeasures the increases from the last sale, no matter how long ago that\ntransaction took place. The imperial law uses the same starting point,\nexcept in cases where the last sale occurred before 1885. Accordingly,\na man who had in 1880 paid 2500 marks for a piece of land which in\n1885 was worth only 2000 marks, and who sold it for 3000 marks after\nthe law went into effect, would pay the increment tax on 1000\nmarks,--unless he could prove that his purchase price was 2500 marks.\nIn all such cases the burden of proof is on the owner to show that the\nvalue of the land in 1885 was lower than when he had bought it at the\nearlier date. Obviously this retroactive feature of the German\nlegislation inflicts no wrong on the owner, since it does not touch\nvalue increases that he has paid for. Indeed, the value of the land\nwhen it came into the present owner's possession seems to be a fairer\nand more easily ascertained basis from which to reckon increases than\nany date subsequent to the enactment of the law. On the one hand,\npersons whose lands had fallen in value during their ownership would\nbe automatically excluded from the operation of the law until such\ntime as the acquisition value was again reached; on the other hand,\nthose owners whose lands had increased in value before the law went\ninto effect would be taxed as well as those whose gains began after\nthat event; thus the law would reach a greater proportion of the\nexisting beneficiaries of \"unearned increment.\" Moreover, it would\nbring in a larger amount of revenue.\n\nThe British law formed a part of the famous Lloyd-George budget of\n1909. It taxes only those increments that occur after its enactment.\nThese are subject to a tax of twenty per cent. on the occasion of the\nnext transfer of the land, by sale, bequest, or otherwise.[97] In some\ncases this arrangement will undoubtedly cause hardship. For example:\nif land which was bought for 1,000 pounds in 1900 had fallen to 800\npounds in 1909, and were sold for 1,000 pounds in 1915, the owner\nwould have to pay a tax of twenty per cent. on 200 pounds. This would\nmean a net loss of forty pounds, to say nothing of the loss of\ninterest in case the land was unproductive. It would seem that some\ncompensation ought to be given here; yet the rarity of such\ninstances, the administrative difficulties, and the general advantages\nof this sort of legislation quite conceivably might forbid the\nconclusion that the owner was made to suffer certain injustice. The\ncompensating social advantages of the increment tax as well as of\nother special taxes on land, will receive adequate discussion\npresently.\n\n\n_Transferring Other Taxes to Land_\n\nAnother taxation plan for reducing the evils of our land system\nconsists in the imposition of special taxes on the _present_ value of\nland. As a rule, these imply, not an addition to the total tax levy,\nbut a transfer of taxes from other forms of property. The usual\npractice is to begin by exempting either partly or wholly buildings\nand other kinds of improvements from taxation, and then to apply the\nsame measure to certain kinds of personal property. In most cases the\ntransfer of such taxes to land is gradual, extending over a period of\nfive, ten, or fifteen years. The plan is in operation in Canada and\nAustralasia, and to a slight extent in the United States.\n\nIt has received its greatest development in the western provinces of\nCanada; namely, British Columbia, Alberta, Saskatchewan, and Manitoba.\nThe cities of Edmonton, Medicine Hat, and Red Deer; Vancouver,\nVictoria, and thirteen others of the thirty-three cities of British\nColumbia; all the towns of Alberta except two; all but one of the\nvillages of Alberta, and one-fourth of those in Saskatchewan; all the\nrural municipalities and local improvements districts in Alberta,\nManitoba, and Saskatchewan, and 24 of the 28 in British\nColumbia,--exempt improvements entirely from taxation. The three\ncities in Alberta which retain some taxes on improvements; all the\ncities and towns and three-fourths of the villages in Saskatchewan;\nthe four largest cities in Manitoba; and a considerable number of the\nmunicipalities in Ontario (by the device of illegal under-assessment\nin this instance),--tax improvements at less than full value, in some\ncases as low as fifteen per cent. Land is invariably assessed at its\nfull value. It is to be observed that these special land taxes provide\nonly local revenues; they do not contribute anything to the\nmaintenance of either the provincial or the dominion governments. The\nreason why the local jurisdictions have adopted these taxes so much\nmore extensively in Alberta than in the other provinces is to be found\nin a provincial law enacted in 1912, which requires all towns,\nvillages, and rural areas to establish within seven years the practice\nof exempting from taxation personal property and buildings.\nSaskatchewan permits cities and towns to tax improvements up to sixty\nper cent. of their value, while British Columbia and Manitoba leave\nthe matter entirely in the hands of the local authorities. The\nprovincial revenues are derived from many sources, chiefly real\nestate, personal property, and incomes; but British Columbia,\nSaskatchewan, and Alberta levy a special tax on unimproved and only\nslightly improved rural land. The rate of this \"wild lands tax\" is in\nBritish Columbia four per cent., and in the other two provinces one\nper cent. Some of the municipalities of British Columbia and\nSaskatchewan also impose a \"wild lands tax.\" By a law passed in 1913\nAlberta levies a provincial tax of five per cent. on the value\nincreases of non-agricultural lands. A movement for the reduction of\nthe tax on buildings has developed considerable strength in the\neastern provinces of Ontario, Nova Scotia, and New Brunswick.[98]\n\nNew Zealand and most of the states of Australia have for several years\nlevied special taxes on land, consisting mainly of general rates on\nestates of moderate size, and a progressive super tax on large\nestates. The Commonwealth of Australia also imposes a tax of one penny\nin the pound on the value of land. A considerable proportion of the\ncities and towns in both New Zealand and Australia derive practically\nall their revenues from land, exempting improvements entirely. In both\ncountries, however, the bulk of the total revenue is obtained from\nother sources than land taxes. In New Zealand they yield less than\nthirteen per cent. of the national receipts.[99]\n\nPittsburgh and Scranton were required by a law enacted in 1913 to\nreduce the local tax rate on buildings at such a pace that in 1925 and\nthereafter it would be only one-half the highest rate on other forms\nof property. Everett, Wash., and Pueblo, Col., within recent years\nadopted by popular vote more sweeping measures of the same character,\nbut the Everett law has never gone into effect, and the Pueblo statute\nwas repealed two years after it had been passed. In many cities of the\nUnited States, buildings are undervalued relatively to land by the\ninformal and illegal action of assessors. The most pronounced and best\nknown instance of this kind is Houston, Texas, where in 1914 land was\nassessed at seventy per cent. of its value and buildings at only\ntwenty-five per cent. In 1915, however, the practice was forbidden by\nthe courts as contrary to the Texas constitution. At more than one\nrecent session of the New York legislature, bills have been introduced\nproviding for the gradual reduction of the tax on buildings in New\nYork City to a basis of fifty per cent. of their value. While none of\nthem has been passed, the sentiment in favour of some such measure is\nprobably increasing. A similar movement of opinion is apparent in many\nother sections of the country.\n\nOn the whole, the special land taxes of Canada and Australasia are not\nremarkably high. They seem to be as low or lower than the average\nrates imposed on land, as well as on other forms of general property,\nin the United States. In the provinces, the special land taxes provide\nonly a small portion of the total revenues; in the cities and towns,\nthere are, as a rule, other sources of revenue as well as land, and\nthe expenses of municipal government are probably not as high as in\nthis country. Hence the land taxes of Canada have not reached an\nabnormally high level, and are probably lower than most persons who\nhave heard of them would be inclined to expect. The chief exceptions\nto the foregoing statements are to be found in the \"wild lands tax\" of\nBritish Columbia, and in the land taxes of some of the towns (not the\ncities) of Alberta. A rate of four per cent. on unimproved and\nslightly improved rural land is extraordinary in fiscal annals, and is\nscarcely warranted by any received principle of taxation, although it\nmay possibly be justified by peculiar social and administrative\nconditions in the province of British Columbia. Some of the smaller\ntowns of Alberta which adopted the land tax during the recent period\nof depression have been compelled to impose even higher rates, the\nmaximum being reached by Castor in 1912, with a rate of 8-1/2 per\ncent. As a natural consequence, a large proportion of the land in this\ntown was surrendered by its owners to the municipality. While this\namazing tax rate is probably temporary, and is likely to be lowered\nafter the return of the average conditions of prosperity, it inflicts\nunfair hardship upon those owners whose circumstances are such that\nthey must give up their land, instead of awaiting the hoped for\ndecline in the rate of taxation.\n\n\n_The Morality of the Plan_\n\nThe losses of various kinds that would result from the transfer of\nother taxes to land may be thus summarised. Land would depreciate in\nvalue by an amount equal to the capitalised tax. For example; if the\nrate of interest were five per cent., an additional tax of one per\ncent. would reduce land worth one hundred dollars an acre to eighty\ndollars. This decline might, indeed, be partly, wholly, or more than\noffset by a simultaneous rise due to economic forces. In any case,\nhowever, the land would be worth twenty dollars less than it would\nhave been worth had the tax not been imposed. For some owners this\nwould mean a positive loss; for others it would signify mere failure\nto gain. The latter would happen in the case of all those owners who\nat any time after the imposition of the tax sold their land at as high\na price as they had paid for it. Not all of the owners whose land was\nforced by the tax to a figure below their purchase price would suffer\npositive loss; for the land might subsequently rise in value\nsufficiently to wipe out the unfavourable difference. In this respect\na special tax on the present value of land has a different effect from\na tax that appropriates all the future value increases. Only those\nowners who actually sold their land below their purchase price could\ncharge the former tax with inflicting upon them positive losses. In\nthe case of the land exemplified above, the owner who sold at ninety\ndollars per acre could properly attribute to the tax a loss of ten\ndollars; the owner who sold at eighty dollars would have a grievance\namounting to twenty dollars; and a loss would be suffered by any owner\nwho sold for less than eighty dollars. In the second place, all owners\nof vacant land who sold at a price insufficient to provide for\naccumulated interest on the purchase price, could justly hold the tax\nresponsible, so long as the deficiency did not exceed the\nvalue-depreciation caused by the tax. Thirdly, all persons whose land\nhad an unusually high value relatively to the value of their exempted\nproperty, would suffer losses as taxpayers. They would lose more\nthrough the heavier land taxes than they would gain through the\nlighter taxes, or the absence of taxes, on their other property.\n\nTo compensate all owners who underwent these three kinds of losses\nwould be practically impossible. The number of persons would be too\nlarge, the difficulty of proving many of the claims would be too\nexpensive, and the compensation process would be too long drawn out,\nsince it would have to continue until the death of all persons who had\nowned land when the last instalment of the increased land taxes went\ninto effect. Therefore, the losses in question must be counterbalanced\nby other and indirect methods. These will be found mainly in the\nfollowing considerations: the amount of the new taxes; the gradual\nmethod of imposing them; and their socially beneficial results.\n\n\n_Amount of Taxes Practically Transferable_\n\nAccording to Professor King's computations, the total rent of land in\nthe United States in 1910 was $2,673,900,000, while the total\nexpenditures of national, state, county and city governments were\n$2,591,800,000.[100] In his opinion (p. 162) \"the rent would have been\nbarely sufficient to pay off the various governmental budgets as at\npresent constituted, and with the growing concentration of activities\nin the hands of the government, it appears that rent will soon be a\nquantity far too small to meet the required changes. With increasing\npressure on our natural resources, however, it is probable that the\npercentage of the total income paid for rent will gradually increase\nand, since this is true, the lag behind the growing governmental\nexpenses will be considerably less than would otherwise be the case.\"\n\nA change in our fiscal system providing for the immediate derivation\nof all revenues from land taxes would, therefore, involve the\nconfiscation of all rent, and the destruction of all private land\nvalues. Land would be worth nothing to the owners when its entire\nannual return was taken by the State in the guise of taxes. Even if\nthe process of imposing the new taxes on land were extended over a\nlong term of years the same result would be reached in the end; for\nwhatever increase had taken place in the economic value of land during\nthe process would in all probability have been neutralised by the\nincrease in governmental expenditures. It is evident, therefore, that\nthe proposal to put _all_ taxes on land must be rejected on grounds of\nboth morals and expediency.\n\nLet us suppose that all national revenues continued, as now, to be\nraised from other sources than land, and that all state, county, and\ncity revenues remained as they are, except those derived from the\ngeneral property tax. This would mean that all the following taxes\nwould be unchanged: all federal taxes, the taxes on licenses of all\nkinds, all taxes on business, incomes, and inheritances, and all\nspecial property taxes. If, then, the whole of the general property\ntax were concentrated on land; that is, if all the taxes on\nimprovements and on all forms of personal property were legally\nshifted to land,--the entire revenue to be raised from land would in\n1912 have amounted to $1,349,841,038.[101] This is slightly more than\none-half of Professor King's estimate of the total rent for 1910,\nwhich was $2,673,900,000. But this figure equals four per cent. of the\nland values of the country; hence the concentration of the general\nproperty tax on land would mean a tax rate of two per cent. on the\nfull value of the land.\n\nHow much would this change increase the present rate of land taxes,\nand decrease existing land values? While no accurate and definite\nanswer can be given to either of these questions, certain\napproximations can be attempted which should be of considerable\nservice.\n\nIn 1912 the average tax rate on the assessed valuation of all goods\nsubject to the general property tax was .0194, or $19.40 per thousand\ndollars.[102] The assessed valuation of taxed real property and\nimprovements (land, buildings, and other improvements) was nearly\nfifty-two billion dollars, while the true value of the same property\nwas nearly ninety-eight and one-half billions.[103] Consequently, the\nactual tax rate of .0194 on the assessed valuation was exactly one per\ncent. on the true value of real estate. On the assumption that both\nland and improvements were undervalued to the same extent, the land\ntax was one per cent. of the full value of the land. If now we take\nThomas G. Shearman's estimate, that land values form sixty per cent.\nof the total value of real estate, we find that the taxes derived from\nland constituted only forty-four per cent. of the total revenues\nraised by the general property tax. To concentrate the whole of the\ngeneral property tax on land, by transferring thereto the taxes on\nimprovements and on personal property, would, accordingly, cause the\nland tax to be somewhat more than doubled. It would be slightly above\ntwo per cent. on the full value of the land. This is the same estimate\nthat we obtained above by a different process; that is, by comparing\nProfessor King's estimate of land value and rent with the total\nrevenues derived from the general property tax.\n\nHowever, it is not improbable that sixty per cent. is too low an\nestimate of the ratio of land values to entire real estate values. In\n1900, farm land and improvements, exclusive of buildings, formed 78.6\nper cent. of the value of real estate, i.e., land, improvements, and\nbuildings. In 1910, the per cent. was a little less than 82. Now it is\nquite unlikely that the value of non-building improvements on farms\namounted to the difference between sixty per cent. and seventy-eight\nper cent. in 1900, or between sixty per cent. and eighty-two per cent.\nin 1910. Hence the value of farm land is something more than sixty per\ncent. of farm real estate. On the other hand, the value of factory\nland in 1900 formed only 41.5 per cent. of the total value of factory\nland and buildings, while the value of city and town lots in five\nrural states varied from 34 to 62 per cent. of this species of real\nestate.[104] In Greater New York land constitutes 61 per cent. of real\nestate values.[105] Owing to the lack of data, the average ratio for\nall kinds of real estate for the whole country is impossible of\ndetermination. If the estimate of seventy per cent. be adopted, which\nis probably the upper limit of the average proportion between land\nvalues and real estate values throughout the country, the portion of\nthe general property tax now paid by land amounts to about fifty-two\nper cent. Consequently the imposition of the whole general property\ntax on land would not quite double the present rate on land. To the\nfirst of the two questions raised above the answer can be given with a\nfair amount of confidence that the transfer of improvement and\npersonal property taxes to land would cause land taxes to be about\ntwice what they are at present.\n\nTo the second question, concerning the extent to which land values\nwould fall in consequence of the heavier taxes, the answer must be\nsomewhat less definite. The added land taxes would be about one-half\nthe present general property taxes, or $675,000,000. This is about one\nper cent. the total land values of the country. One per cent. of land\nvalues capitalised at five per cent. represents a depreciation of\ntwenty per cent. in the value of land; capitalised at four per cent.,\nit represents a depreciation of twenty-five per cent. For example; if\nland worth one hundred dollars an acre returns to its owner a net\nincome of five dollars annually, the appropriation of one dollar by a\nnew tax will leave a net revenue of only four dollars; capitalised at\nthe current rate of five per cent., this represents only eighty\ndollars of land value, or a depreciation of twenty per cent. If the\nland has the same value of one hundred dollars, and still yields only\nfour dollars revenue, a deduction of one dollar in new taxes will\nleave only three dollars net; capitalised at the current rate of four\nper cent., this represents only seventy-five dollars of land value, or\na depreciation of twenty-five per cent. Using the other method of\ncalculation, which estimated the present tax rate on the full value of\nland at one per cent., we get exactly the same results; namely, the\nnew tax is one per cent., which is equivalent to a depreciation of\ntwenty per cent. or of twenty-five per cent., according as we assume\nan interest rate of five per cent. or of four per cent. Suppose,\nhowever, that the assessors do not undervalue land to the extent that\nwe have been assuming; suppose that the present rate of .0194 on\nassessed valuation is equivalent to, not merely one per cent., but one\nand one-half per cent. of the full value of land. In that hypothesis\nthe additional tax would likewise be one and one-half per cent., which\ncapitalised at five per cent, would represent a depreciation of thirty\nper cent., and at four per cent. a depreciation of thirty-seven and\none-half per cent. Combining in one generalisation the various\nsuppositions made in this paragraph, we estimate the depreciation of\nland values resulting from the proposed tax transfer as somewhere\nbetween twenty and forty per cent.\n\nWe have considered two hypothetical transfers of taxes to land. The\nfirst we found to be out of the question because it would appropriate\nthe whole of the rent and destroy all private land values. The second\nwould apparently amount to two per cent. of the value of land, and\ncause land values to depreciate from twenty to forty per cent. It is\nunnecessary to consider the probable effects of any plan that would\ninvolve heavier land taxes than the second; that is, the scheme of\nimposing all the general property tax on land; for it represents the\nextreme feasible and fair limit of the movement within, at any rate,\nthe next fifteen or twenty years.\n\nEven this degree of tax transference would be unjust to the landowners\nif it were brought about at once. No social or other considerations\nexist that would justify a depreciation in land values of from twenty\nto forty per cent. If, however, the process were extended over a\nperiod of, say, twenty years, the decline would be only one or two per\ncent. annually, which is considerably less than the rate at which farm\nlands and the land in large cities have risen in value during recent\nyears. Under such an arrangement the great majority of owners would\nprobably find that the depreciation caused by the heavier land taxes,\nhad been more than offset by the upward tendency resulting from the\nincreased demand for land.\n\nNevertheless, there would still be positive losses of the three kinds\ndescribed a few pages back; namely, to owners who sold land below the\nprice that they had paid for it; to owners who sold vacant land at a\nprice insufficient to cover accumulated interest on the investment;\nand to owners whose aggregate tax burdens were increased. Some degree\nof each of these sorts of losses would be due specifically to the new\nland taxes. As noted above, public compensation in all such cases\nwould be impracticable. Consequently the justification of a law that\ninflicts such losses must be found, if it exists, in social\nconsiderations.\n\n\n_The Social Benefits of the Plan_\n\nThese may be summed up under three heads: making land easier to\nacquire; cheapening the products and rent of land; and reducing the\nburdens of taxation borne by the poorer and middle classes. An\nincrease in the tax on land would reduce its value and price, or at\nleast cause the price to be lower than it would have been in the\nabsence of the tax. This does not mean that land would be more\nprofitable to the purchaser, since he is enabled to buy it at a lower\nprice only because it yields him less net revenue, or because it is\nless likely to increase in value. The value of land is always\ndetermined by its revenue-producing power, and by its probabilities of\nprice-appreciation. Consequently, what the purchasers would gain by\nthe lower price resulting from the new tax, they would lose when they\ncame to pay the tax itself, and when they found the chances of value\nincreases diminished. If a piece of land which brings a return of five\ndollars a year costs one hundred dollars before the new tax of one per\ncent. is imposed, and can be bought for eighty dollars afterward, the\nnet interest on the purchase price has not changed. It is still five\nper cent. Hence the only advantage to the prospective purchaser of\nland in getting it cheaper consists in the fact that he can obtain it\nwith a smaller outlay of capital. For persons in moderate\ncircumstances this is a very important consideration.\n\nIn the second place, higher taxes would cause many existing owners\neither to improve their land, in order to have the means of meeting\nthe added fiscal charges, or to sell it to persons who would be\nwilling to make improvements. And the desire to erect buildings and\nother forms of improvements would be reinforced by the reduction or\nabolition of taxes on those kinds of personal property which consist\nof building materials. An increase in the rapidity of improvements on\nland would mean an increase in the rate at which land was brought into\nuse, and therefore an unusual increase in the volume of products. This\nvirtual increase in the supply of land, and actual increase in the\nsupply of products, would cause a fall in three kinds of prices: the\nprice of products, the rent of land, and the price of land. The last\nnamed reduction would be distinct from the reduction of land value\ncaused in the first instance by the imposition of the tax.\n\nIn the third place, the reduction, and finally the abolition, of taxes\non improvements and personal property would be especially beneficial\nto the poorer and middle classes because they now pay a\ndisproportionate share of these charges. Lower taxes on dwellings\nwould mean lower rents for all persons who did not own their homes,\nand lower taxes for all owners whose residence values were unusually\nlarge relatively to their land values. And the tendency to lower rents\non dwellings would be reinforced by the lower cost of building\nmaterials resulting, as noted above, from the increased supply and the\nlower tax on this form of personal property. Lower taxes on that\nspecies of personal property which consists of consumers' goods, such\nas household furniture and wearing apparel, would lessen the present\ninequity of taxation because this class of goods is reached to a much\ngreater extent in the case of the poor than in the case of the rich.\nIt is not easy to conceal or to undervalue a relatively small number\nof simple and standard articles; but diamonds, costly furniture, and\nluxurious wardrobes can be either hidden, or certified to the assessor\nat a low valuation. As for those forms of personal property which are\nof the nature of capital and other profit producing goods, such as\nmachinery and tools of all kinds, productive animals, money,\nmortgages, securities, the stocks of goods held by manufacturers and\nmerchants, and likewise buildings which are used for productive\npurposes,--the taxes on all these kinds of property are for the most\npart shifted to the consumer. The latter ultimately pays the tax in\nthe form of higher prices for food, clothing, shelter, and the other\nnecessaries and comforts of life.[106] Now a tax on consumption is\nnotoriously unfair to the poorer and middle classes because it affects\na greater portion of their total expenditures, and takes a larger per\ncent. of their income than in the case of the rich. Hence the removal\nof the taxes specified in this paragraph would be at once the\nabolition of a fiscal injustice, and a considerable assistance to the\nless fortunate classes.\n\nAll those landowners who occupied rented dwellings would benefit by\nthe reduction in house rent, and all landowners without exception\nwould reap some advantage from the reduction or abolition of the taxes\non consumers' goods and on the various forms of producers' goods. It\nis not improbable that a considerable proportion of them would gain as\nmuch in these respects as they would lose in the capacity of\nlandowners.\n\nWould the social benefits summarily described in the foregoing\nparagraphs be sufficient to justify the increased land taxes in the\nface of the losses that would be undergone by some landowners in the\nthree ways already specified? In view of our ignorance concerning the\nprobable amount of benefits on the one hand and losses on the other,\nit is impossible to give a dogmatic answer. However, when we reflect\non the manifold social evils that are threatened by a rapid and\ncontinuous increase in land values, and the resulting decrease in the\nproportion of the population that can hope to participate in the\nownership of land, we are forced to conclude that some means of\nchecking both tendencies is urgently necessary for the sake of social\njustice and social peace. The project that we have been considering;\nnamely, the transfer of taxes on improvements and on personal property\nto land by a process extending over twenty years, seems to involve a\nsufficiently large amount of advantage and a sufficiently small amount\nof disadvantage to justify systematic and careful experiment.\n\n\n_A Supertax on Large Holdings_\n\nEvery estate containing more than a maximum number of acres, say, ten\nthousand, whether composed of a single tract or of several tracts,\ncould be compelled to pay a special tax in addition to the ordinary\ntax levied on land of the same value. The rate of this supertax\nshould increase with the size of the estate above the fixed maximum.\nThrough this device large holdings could be broken up, and divided\namong many owners and occupiers. For several years it has been\nsuccessfully applied for this purpose in New Zealand and\nAustralia.[107] Inasmuch as this tax exemplifies the principle of\nprogression, it is in accord with the principles of justice; for\nrelative ability to pay is closely connected with relative sacrifice.\nOther things being equal, the less the sacrifice involved, the greater\nis the ability of the individual to pay the tax. Thus, the man with an\nincome of ten thousand dollars a year makes a smaller sacrifice in\ngiving up two per cent. of it than the man whose income is only one\nthousand dollars; for the latter case the twenty dollars surrendered\nrepresent a privation of the necessaries or the elementary comforts of\nlife, while the two hundred dollars taken from the rich man would have\nbeen expended for luxuries or converted into capital. While the\nincomes of both are reduced in the same proportion, their\nsatisfactions are not diminished to the same degree. The wants that\nare deprived of satisfaction are much less important in the case of\nthe richer than in that of the poorer man. Hence the only way to bring\nabout anything like equality of sacrifice between them is to increase\nthe proportion of income taken from the former. This means that the\nrate of taxation would be progressive.[108]\n\nIt is in order to object that the principle of progression should not\nbe applied to the taxation of great landed estates, since a\nconsiderable part of them is unproductive, and consequently does not\ndirectly affect sacrifice. But the same objection can be urged against\nany taxation of unoccupied land. The obvious reply is that the equal\ntaxation of unproductive with productive land is justified by social\nreasons, chiefly, the unwisdom of permitting land to be held out of\nuse. The same social reasons apply to the question of levying an\nexceptionally high tax on large estates, even though they may at\npresent produce no revenue.\n\nWhile the tax is sound in principle, it is probably not much needed in\nAmerica in connection with agricultural or urban land. Its main sphere\nof usefulness would seem to be certain great holdings of mineral,\ntimber, and water power lands. \"There are many great combinations in\nother industries whose formation is complete. In the lumber industry,\non the other hand, the Bureau now finds in the making a combination\ncaused, fundamentally, by a long standing public policy. The\nconcentration already existing is sufficiently impressive. Still more\nimpressive are the possibilities for the future. In the last forty\nyears concentration has so proceeded that 195 holders, many\ninterrelated, now have practically one-half of the privately owned\ntimber in the investigation area (which contains eighty per cent. of\nthe whole). This formidable process of concentration, in timber and in\nland, clearly involves grave future possibilities of impregnable\nmonopolistic conditions, whose far reaching consequences to society it\nis now difficult to anticipate fully or to overestimate.\"[109] In\nJanuary, 1916, the Secretary of Agriculture called the attention of\nCongress to the fact that a small number of corporations closely\nassociated in a policy of community of interest were threatening to\nsecure and exercise a monopoly over the developed water power of the\ncountry. Ninety per cent. of the anthracite coal lands of Pennsylvania\nare owned or controlled by some nine railroads acting as a unit in all\nimportant matters. For situations of this kind a supertax on large\nestates would seem to hold the promise of a large measure of relief.\n\nTo sum up the main conclusions of this very long chapter:\nExceptionally valuable lands, as those containing timber, minerals,\noil, gas, phosphate, and water power, which are still under public\nownership should remain there. Through a judicious system of loans,\ndeserving and efficient persons should be assisted to get possession\nof some land. Municipalities should lease rather than sell their\nlands, and should strive to increase their holdings. To take all the\nfuture increases in the value of land would be morally lawful,\nprovided that compensation were given to owners who thereby suffered\npositive losses of interest or principal. To take a small part of the\nincrease, and to transfer very gradually the taxes on improvements and\non personal property to land, would probably be just, owing to the\nbeneficial effects upon public welfare. A supertax on large holdings\nof exceptionally valuable and scarce land would likewise be beneficial\nand legitimate.[110]\n\n\nREFERENCES ON SECTION I\n\n     ASHLEY: The Origin of Property in Land. London; 1892.\n\n     LAVELEYE: Primitive Property. London; 1878.\n\n     WHITTAKER: The Taxation, Tenure, and Ownership of Land.\n     London; 1914.\n\n     PREUSS: The Fundamental Fallacy of Socialism. St. Louis;\n     1908.\n\n     GEORGE: Progress and Poverty; and A Perplexed Philosopher.\n\n     MARSH: Land Value Taxation in American Cities. N. Y.; 1911.\n\n     FILLEBROWN: A Single Tax Handbook for 1913. Boston; 1912.\n\n     YOUNG: The Single Tax Movement in the United States.\n     Princeton; 1916.\n\n     SHEARMAN: Natural Taxation. N. Y.; 1898.\n\n     MATHEWS: Taxation and the Distribution of Wealth. N. Y.;\n     1914.\n\n     CATHREIN: Das Privatgrundeigenthum und seine Gegner.\n     Freiburg; 1909.\n\n     FALLON: Les Plus-Values et l'Impot. Paris; 1914.\n\n     NEARING: Anthracite. Philadelphia; 1916.\n\n     HAIG: Final Report of the Committee on Taxation of the City\n     of New York; 1916.\n\n     The exemption of Improvements from Taxation in Canada and U.\n     S.; 1915.\n\n     Some Probable Effects of Exemption in City of New York; 1915.\n\n     KELLEHER: Private Ownership. Dublin; 1911.\n\n     Proceedings of the 1913 Meeting of the American Economic\n     Association.\n\n     U. S. COMMISSIONER OF CORPORATIONS: Reports on the Lumber,\n     Petroleum, Steel, and Water Power of the United States.\n\n     SELIGMAN: Essays in Taxation; Shifting and Incidence of\n     Taxation; and Progressive Taxation in Theory and Practice.\n\n     Also the works of Taussig, Devas, Carver, Pesch, King,\n     Vermeersch, Willoughby, and the Commission on Industrial\n     Relations, all of which are cited at the end of the\n     introductory chapter.\n\nFOOTNOTES:\n\n[84] \"Summary of Report of the Commissioner of Corporations on the\nTimber Industry in the United States,\" p. 3.\n\n[85] \"Report of the Commissioner of Corporations on Water Power\nDevelopment in the United States,\" pp. 193-195.\n\n[86] Idem, pp. 4, 5.\n\n[87] \"Abstract of the Thirteenth Census,\" p. 552.\n\n[88] Cf. Marsh, \"Land Value Taxation in American Cities,\" p. 95.\n\n[89] Municipal purchase and ownership of land have been advocated by\nsuch a conservative authority as the Rev. Heinrich Pesch, S.J.\n\"Lehrbuch der Nationaloekonomie,\" I, 203.\n\n[90] As we shall see in a later chapter, the confiscation and\ninjustice would be smaller if the State should simultaneously abolish\ninterest. In any case, the decline in land value resulting from\ncomplete confiscation of rent should be made up to the private owner\nby public compensation.\n\n[91] \"Principles of Political Economy,\" book V, ch. 2, sect. v.\n\n[92] \"Progressive Taxation in Theory and Practice,\" 1908, p. 130.\n\n[93] Cf. Taussig, \"Principles of Economics,\" II, 516: Seligman, \"The\nShifting and Incidence of Taxation,\" p. 223.\n\n[94] The \"discrimination\" objection is put in a somewhat different\nform by the Rev. Sydney F. Smith, S.J., in an article in _The Month_,\nSept., 1909, entitled \"The Theory of Unearned Increment.\" His argument\nis in substance that if the people of a city can claim the increases\nin land values which their presence and activity have occasioned, the\npurchasers of food, clothes, books, or concert tickets are equally\njustified in claiming that, \"having added to the value of the shops\nand music halls, they had acquired a co-proprietary right in the\nincreased value of the owners' stock, and the owners' premises.\" While\nthis argument is specifically directed against those who maintain that\nthe \"social production\" of values confers a right thereto, it affects\nto some extent our thesis that there is a vast difference between\nvalue-increases in land and in other goods. Father Smith seems to\nconfuse the origination of value with the increase of value. The\npresence of consumers is an obvious prerequisite to the existence of\nany value at all in any kind of goods, but labour and financial outlay\non the part of the producers of the goods are an equally indispensable\nprerequisite. The reason why the value is appropriated by the latter\nrather than the former is that this is clearly the only rational\nmethod of distribution. What we are concerned with here, however, is\nnot this initial or cost-of-production-value of artificial goods, but\nthe _increases_ in value above this level which are brought about by\nexternal and social influences. Theoretically, the State could as\nreasonably take these as the increases in the value of land;\npractically, such a performance is out of the question, for the simple\nreason that such increases are spasmodic and exceptional. If Father\nSmith thinks that \"food or clothes, or books, or concert tickets\"\nregularly advance above the cost-of-production-value, he is simply\nmistaken. Since these and other artificial goods bring to their owners\nas a rule no socially occasioned increments of value, they and their\nowners are in quite a different situation from land and the owners of\nland.\n\n[95] Cf. Seligman, \"Progressive Taxation in Theory and Practice,\" part\nII, chs. ii and iii; also the classic refutation of the \"benefit\"\ntheory by John Stuart Mill in \"Principles of Political Economy,\" book\nV, ch. ii, sec. 2. The traditional Catholic teaching on the subject is\ncompactly stated by Cardinal de Lugo in \"De Justitia et Jure,\" disp.\n36; cf. Devas, \"Political Economy,\" p. 594, 2d ed.\n\n[96] Cf. Fallon, \"Les Plus-Values et l'Impot,\" pp. 455, sq.; Paris,\n1914; Fillebrown, \"A Single Tax Handbook for 1913\"; Boston, 1912;\nMarsh, \"Taxation of Land Values in American Cities,\" pp. 90-92; New\nYork, 1911; \"The Quarterly Journal of Economics,\" vols. 22, 24, 25;\n\"The Single Tax Review,\" March-April, 1912; \"Stimmen aus Maria-Laach,\"\nOct., 1907.\n\n[97] See the references in the second last paragraph.\n\n[98] The most comprehensive and reliable account of the special land\ntaxes in Canada is contained in the report prepared for the Committee\non Taxation of the City of New York, by Robert Murray Haig, Ph.D.,\nentitled, \"The Exemption of Improvements from Taxation in Canada and\nthe United States\"; New York, 1915. See also Fallon, op. cit., pp.\n452-455.\n\n[99] Cf. Fallon, op. cit., pp. 443-452.\n\n[100] \"The Wealth and Income of the People of the United States,\" pp.\n158, 143.\n\n[101] \"Abstract of Bulletins on Wealth, Debt, and Taxation,\" p. 16; U.\nS. Census, 1913.\n\n[102] Idem, p. 15.\n\n[103] Idem, p. 16; and Bulletin of the Census on \"Estimated Valuation\nof National Wealth,\" p. 15.\n\n[104] \"Special Report of the Twelfth Census on Wealth, Debt, and\nTaxation,\" pp. 12, 13.\n\n[105] Haig, \"Probable Effects of Exemption of Improvements....\", p.\n23.\n\n[106] Cf. Seligman, \"The Shifting and Incidence of Taxation,\" pp. 187,\n245, 272, and all of part II; N. Y., 1899; Taussig, \"Principles of\nEconomics,\" II, 518-549, and chs. 67-69.\n\n[107] Cf. Fallon, op. cit., pp. 442, sq.\n\n[108] Cf. Vermeersch, \"Quaestiones de Justitia,\" pp. 94-126; Seligman,\n\"Progressive Taxation in Theory and Practice,\" pp. 210, 211; Mill,\n\"Principles of Political Economy,\" book V, ch. ii, sec. 3.\n\n[109] \"Summary of Report of the Commissioner of Corporations on the\nLumber Industry in the United States,\" p. 8.\n\n[110] Probably the most concrete and satisfactory discussion of the\nincrement tax and the project to transfer improvement taxes to land,\nis that presented in the \"Final Report of the Committee on Taxation of\nthe City of New York\"; 1916. It contains brief, though complete,\nstatements of all phases of the subject, together with concise\narguments on both sides, majority and minority recommendations, a\ngreat variety of dissenting individual opinions, and considerable\ntestimony by experts, authorities, and other interested persons.\n\n\n\n\nSECTION II\n\nTHE MORALITY OF PRIVATE CAPITAL AND INTEREST\n\n\n\n\nCHAPTER IX\n\nTHE NATURE AND THE RATE OF INTEREST\n\n\nInterest denotes that part of the product of industry which goes to\nthe capitalist. As the ownership of land commands rent, so the\nownership of capital commands interest; as rent is a price paid for\nthe use of land, so interest is a price paid for the use of capital.\n\nHowever, the term capital is less definite and unambiguous, both in\npopular and in economic usage, than the word land. The farmer, the\nmerchant, and the manufacturer often speak of their land, buildings,\nand chattels as their capital, and reckon the returns from all these\nsources as equivalent to a certain per cent. of interest or profit.\nThis is not technically correct; when we use the terms capital and\ninterest we should exclude the notions of land and rent.\n\n\n_Meaning of Capital and Capitalist_\n\nCapital is ordinarily defined as, wealth employed directly for the\nproduction of new wealth. According as it is considered in the\nabstract or the concrete, it is capital-value or capital-instruments.\nFor example, the owner of a wagon factory may describe his capital as\nhaving a value of 100,000 dollars, or as consisting of certain\nbuildings, machines, tools, office furniture, etc. In the former case\nhe thinks of his capital as so much abstract value which, through a\nsale, he could take out of the factory, and put into other concrete\ncapital forms, such as a railroad or a jobbing house. In the latter\ncase he has in mind the particular instruments in which his capital is\nat present embodied. The capital-value concept is the more convenient,\nand is usually intended when the word capital is used without\nqualification. It is also the basis upon which interest is reckoned;\nfor the capitalist does not measure his share of the product as so\nmany dollars of rent on his capital-instruments, but as so many per\ncent. on his capital-value.\n\nCapitalists are of two principal kinds: those who employ their own\nmoney in their own enterprises; and those who lend their money to\nothers for use in industry. The former may be called active\ncapitalists, the latter loan-capitalists. Perhaps a majority of active\ncapitalists use some borrowed money in their business. To the lenders\nof this borrowed money or capital they turn over a part of the product\nin the form of interest. When, therefore, interest is defined as the\nshare of the product that goes to the capitalist, it is the owner of\ncapital-value rather than of capital-instruments that is meant. For\nthe man who has loaned 50,000 dollars at five per cent. to the wagon\nmanufacturer is not, except hypothetically, the owner of the buildings\nwhich have been erected with that money. These are owned (subject\npossibly to a mortgage) by the borrower, the active capitalist. But\nthe abstract value which has gone into them continues to be the\nproperty of the lender. As owner thereof, he, instead of the active\ncapitalist, receives the interest that is assigned to this portion of\nthe total capital. Hence interest is the share of the product that is\ntaken by the owner of capital, whether he employs it himself or lends\nit to some one else. While the fundamental reason of interest is the\nfact that certain concrete instruments are necessary to the making of\nthe product, interest is always _reckoned_ on capital-value, and goes\nto the owner of the capital-value. It goes to the man whose money has\nbeen put into the instruments, whether or not he is the owner of the\ninstruments.\n\n\n_Meaning of Interest_\n\nInterest is the share of the capitalist as capitalist. The man who\nemploys his own capital in his own business receives therefrom in\naddition to interest other returns. Let us suppose that some one has\ninvested 100,000 dollars of borrowed money and 100,000 dollars of his\nown money in a wholesale grocery business. At the end of the year,\nafter defraying the cost of labour, materials, rent, repairs, and\nreplacement, his gross returns are 15,000 dollars. Out of this sum he\nmust pay five thousand dollars as interest on the money that he has\nborrowed. This leaves him a total amount of ten thousand dollars, as\nhis share of the product of the industry. Since he could command a\nsalary of three thousand dollars if he worked for some one else, he\nregards his labour of directing his own business as worth at least\nthis sum. Deducting it from ten thousand dollars, he has left seven\nthousand dollars, which must in some sense be accredited as payment\nfor the use of his own capital. However, it is not all pure interest;\nfor he runs the risk of losing his capital, and also of failing to get\nthe normal rate of interest on it during future unprosperous years.\nHence he will require a part of the seven thousand dollars as\ninsurance against these two contingencies. Two per cent. of his\ncapital, or two thousand dollars, is not an excessive allowance. If\nthe business did not provide him with this amount of insurance he\nwould probably regard it as unsafe, and would sell it and invest his\nmoney elsewhere. Subtracting two thousand dollars from seven thousand,\nwe have five thousand left as pure interest on the director's own\ncapital. This is equivalent to five per cent., which is the rate that\nhe is paying on the capital that he has borrowed. If he could not get\nthis rate on his own money he would probably prefer to become a lender\nhimself, a loan capitalist instead of an active capitalist. This part\nof his total share, then, and only this part, is pure interest. The\nother two sums that he receives, the three thousand dollars and the\ntwo thousand dollars, are respectively wages for his labour and\ninsurance against his risks. Sometimes they are classified together\nunder the general name of profits.\n\nLet us suppose, however, that the gross returns are not 15,000\ndollars, but 17,000. How is the additional sum to be denominated? In\nstrict economic language it would probably be called net profits, as\ndistinguished from normal or necessary profits, which comprise wages\nof direction and insurance against loss. Sometimes it is called\ninterest. In that case the owner of the store would receive seven\ninstead of five per cent, on his own capital. Whether the extra two\nper cent. (2,000 dollars) be called net profits or surplus interest,\nis mainly a matter of terminology. The important thing is to indicate\nclearly that these terms designate the surplus which goes to the\nactive capitalist in addition to necessary profits and necessary\ninterest.\n\nAt the risk of wearisome repetition, one more example will be given to\nillustrate the distinction between interest and the other returns that\nare received in connection with capital. The annual income from a\nrailway bond is interest on lender's capital, and consequently pure\ninterest. Ordinarily the bondholder is adequately protected against\nthe loss of his capital by a mortgage on the railroad. On the other\nhand, the holder of a share of railway stock is a part owner of the\nrailroad, and consequently incurs the risk of losing his property.\nHence the dividend that he receives on his stock comprises interest on\ncapital plus insurance against loss. It is usually one or two per\ncent. higher than the rate on the bonds. Since the officers and\ndirectors are the only shareholders who perform any labour in the\nmanagement of the railroad, only they receive wages of management.\nConsequently the gross profits are divided into interest and dividends\nat fixed rates, and fixed salaries. When a surplus exists above these\nrequirements it is not, as a rule, distributed among the stockholders\nannually. In railroads, therefore, and many other corporations,\ninterest is easily distinguished from those other returns with which\nit is frequently confused in partnerships and enterprises carried on\nby individuals.\n\n\n_The Rate of Interest_\n\nIs there a single rate of interest throughout industry? At first sight\nthis question would seem to demand a negative answer. United States\nbonds pay about two per cent.; banks about three per cent.; municipal\nbonds about four per cent.; railway bonds about five per cent.; the\nstocks of stable industrial corporations about six per cent. net; real\nestate mortgages from five to seven per cent.; promissory notes\nsomewhat higher rates; and pawnbrokers' loans from twelve per cent.\nupwards. Moreover, the same kind of loans brings different rates in\ndifferent places. For example, money lent on the security of farm\nmortgages yields only about five per cent. in the states of the East,\nbut seven or eight per cent. on the Pacific coast.\n\nThese and similar variations are differences not so much of interest\nas of security, cost of negotiation, and mental attitude. The farm\nmortgage pays a higher rate than the government bond partly because it\nis less secure, partly because it involves greater trouble of\ninvestment, and partly because it does not run for so long a time. For\nthe same reasons a higher rate of interest is charged on a promissory\nnote than on a bank deposit certificate. Again, the lower rates on\ngovernment bonds and bank deposits are due in some degree to the\npeculiar attitude of that class of investors whose savings are small\nin amount, who are not well aware of the range of investment\nopportunities, and to whom security and convenience are exceptionally\nimportant considerations. If such persons did not exist the rates on\ngovernment bonds and savings deposits would be higher than they\nactually are. The higher rates in a new country on, say, farm\nmortgages are likewise due in part to psychical peculiarities. Where\nmen are more speculative and more eager to borrow money for industrial\npurposes, the demand for loans is greater relatively to the supply\nthan in older and more conservative communities. Therefore, the price\nof the loans, the rate of interest, is higher.\n\nIn one sense it would seem that the lowest of the rates cited above,\nnamely, that on United States bonds, represents pure interest, and\nthat all the other rates are interest plus something else.\nNevertheless, the sums invested in these bonds form but a very small\npart of the whole amount of money and capital drawing interest, and\nthey come from persons who do not display the average degree either of\nbusiness ability or of willingness to take risks. Hence it is more\nconvenient and more correct to regard as the standard rate of interest\nin any community that which is obtained on first class industrial\nsecurity, such as the bonds of railroads and other stable\ncorporations, and mortgages on real estate. Loans to these enterprises\nare subject to what may properly be called the average or prevailing\nindustrial risks, are negotiated in average psychical conditions, and\nembrace by far the greater part of all money drawing interest;\nconsequently the rate that they command may be looked upon as in a\nvery real and practical sense normal. While this conception of the\nnormal rate is in a measure conventional, it accords with popular\nusage. It is what most men have in mind when they speak of the\nprevailing rate of interest.\n\nThe prevailing or standard rate in any community can usually be stated\nwith a sufficient approach to precision to be satisfactory for all\npractical purposes. In all the Eastern States it is now about five per\ncent.; in the Middle West it is somewhere between five and six per\ncent.; on the Pacific coast it is between six and seven per cent. The\nsupreme court of Minnesota decided in 1896 that, in view of the actual\nrates of interest then obtaining, five per cent. on the reproduction\ncost of railroads was a fairly liberal return, and could be adopted by\nthe state authorities in fixing charges for carrying freight and\npassengers.[111] A few years later the Michigan tax commission allowed\nthe railroads four per cent. on the reproduction cost of their\nproperty, on the ground that investments which yielded that rate in\naddition to the usual tax of one per cent. (or five per cent. before\nthe deduction of the tax) stood at par on the stock market.[112] In\nother words, the prevailing rate was five per cent. At the beginning\nof the year 1907, the railroad commission of Wisconsin fixed six per\ncent. as the return to which the stockholders of railroads were\nentitled, because this was about the return which investors generally\nwere able to get on that kind of security. In the view of the\nCommission, the current rate of interest on railroad _bonds_, and\nsimilar investments, was about five per cent.[113] The significance of\nthese decisions by the public authorities of three states is found not\nso much in the particular rates which they sanctioned as in the fact\nthat they were able to determine a standard or prevailing rate.\nTherefore a standard rate exists. At the same time it is interesting\nto note that in all three states the rate of industrial interest was\ndeclared to be about the same, that is, five per cent. Perhaps it is\nsafe to say that, throughout the greater part of the industrial field\nof America, five or six per cent. is the prevailing rate of interest.\n\nWhat causes the rate to be five per cent., or six per cent., or any\nother per cent.? Briefly stated, it is the interplay of supply and\ndemand. Since interest is a price paid for the use of a thing, i.e.,\ncapital, its rate or level is determined by the same general forces\nthat govern the price of wheat, or shoes, or hats, or any other\ncommodity that is bought and sold in the market. The rate is five or\nsix per cent. because at that rate the amount of money offered by\nlenders equals the amount demanded by borrowers. Should the amount\noffered at that rate increase without a corresponding increase in the\namount demanded, the rate would fall, just as it would rise under\nopposite conditions.\n\nSupply and demand, however, are merely the immediate forces. They are\nthemselves the outcome or resultant of factors more remote. On the\nside of supply, the principal remote forces which regulate the rate of\ninterest are: the industrial resources of the community, and the\nrelative strength of its habits of saving and spending. On the side of\ndemand, the chief ultimate factors are: the productivity of\ncapital-instruments, the comparative intensity of the social desires\nof investing and lending, and the supplies of land, business ability\nand labour. Each of these factors exercises upon the rate of interest\nan influence of its own, and each of them may be assisted or\ncounteracted by one or more of the others. Precisely what rate will\nresult from any given condition of the factors, cannot be stated\nbeforehand, for the factors cannot be measured in such a way as to\nprovide a basis for this kind of forecast. All that can be said is\nthat, when changes occur on the side of either demand or supply, there\nwill be a corresponding change in the rate of interest, provided that\nno neutralising change takes place on the other side.\n\nFOOTNOTES:\n\n[111] \"Final Report of the Industrial Commission,\" pp. 410, 411.\n\n[112] \"Report of the Industrial Commission,\" vol. IX, p. 380.\n\n[113] \"Publication No. 32 of the Railroad Commission of Wisconsin,\"\npp. 165, 166.\n\n\n\n\nCHAPTER X\n\nTHE ALLEGED RIGHT OF LABOUR TO THE ENTIRE PRODUCT OF INDUSTRY\n\n\nIn a preceding chapter we saw that Marxian Socialism is logically\ndebarred from passing _moral_ judgment upon any social institution or\npractice.[114] If social institutions are produced necessarily by\nsocio-economic forces they are neither morally good nor morally bad.\nThey are quite as unmoral as rain and snow, verdure and decay,\ntadpoles and elephants. Consistent Socialists cannot, therefore,\ncensure on purely ethical grounds the system of private capital and\ninterest.\n\nThis logical requirement of the theory of economic determinism is\nexemplified in much of the rigidly scientific discussions of\nSocialists. Marx maintained that the value of commodities is all\ndetermined and created by labour, and that interest is the surplus\nwhich the labourer produces above the cost of his keep; nevertheless\nMarx did not formally assert that the labourer has a moral right to\nthe whole product, nor that interest is theft. He set forth his\ntheories of value and surplus value as positive explanations of\neconomic facts, not as an ethical evaluation of human actions. His\nobject was to show the causes and nature of value, wages, and\ninterest, not to estimate the moral claims of the agents of\nproduction, or the morality of the distributive process. In his formal\ndiscussion of the theory of value and of surplus value, Marx said\nnothing that implied a belief in genuine moral responsibility, or\nthat contradicted the principles of philosophical materialism and\neconomic determinism. It is, therefore, quite erroneous to infer that,\nsince the Marxian theory attributes all value and products to the\naction of labour, Marxian Socialists must condemn the interest-taker\nas a robber.\n\nNeither Marx nor any other Socialist authority, however, has always\nheld consistently to this purely positive method of economic\nexposition. When they declare that the labourer is \"exploited,\" that\nsurplus value is \"filched\" from him, that the capitalist is a\n\"parasite,\" etc., they are expressing and conveying distinct moral\njudgments. In their more popular writings Socialist authors do not\nseriously attempt to observe the logical requirements of their\nnecessitarian philosophy. They assume the same ethical postulates, and\ngive expression to the same ethical intuitions as the man who believes\nin the human soul and free will.[115] And the great majority of their\nfollowers likewise regard the question of distribution as a moral\nquestion, as a question of justice. In their view the labourer not\nonly creates all value, but has a just claim to the whole product.\n\n\n_The Labour Theory of Value_\n\nThis doctrine is sometimes formally based upon the Marxian theory of\nvalue, and is sometimes defended independently of that theory. In the\nformer case its groundwork is about as follows: By eliminating the\nfactors of utility and scarcity, Marx found that the only element\ncommon to all commodities is labour, and then concluded that labour is\nthe only possible explanation, creator, and determinant of value.[116]\nSince capital, that is, concrete capital, is a commodity, its value is\nlikewise determined and created by labour. Since it cannot create\nvalue, for only labour has that power, it can contribute to the\nproduct of the productive process in which it is engaged only as much\nvalue as it originally received. Since it is only a reservoir of\nvalue, it cannot transfer more value than it holds and possesses. In\nthe words of Marx, \"the means of production transfer value to the new\nproduct, so far only as during the labour-process they lose value in\nthe shape of the old use-value. The maximum loss of value that they\ncan suffer in the process is plainly limited by the amount of the\noriginal value with which they came into the process, or, in other\nwords, by the labour time necessary for their production. Therefore,\nthe means of production can ever add more value to the product than\nthey themselves possess independently of the process in which they\nassist. However useful a given kind of raw material, or a machine, or\nother means of production may be, though it may cost 150 pounds, or\nsay 500 days' labour, yet it cannot, under any circumstances, add to\nthe value of the product more than 150 pounds.\"[117]\n\nTo view the matter from another angle: capital contributes to the\nproduct only sufficient value to pay for its own reproduction. When,\nas is the normal usage, the undertaker has deducted from the product\nsufficient value or money to replace the deteriorated or worn out\nmachine, or other concrete capital, all the remaining value in the\nproduct is due specifically to labour.\n\nWhen, therefore, the capitalist goes further, and appropriates from\nthe product interest and profits, he takes a part of the value that\nlabour has created. He seizes the surplus value which labour has\nproduced in excess of the wages that it receives. In ethical terms, he\nrobs the labourers of a part of their product.\n\nIt is not necessary to introduce any extended refutation of this\narbitrary, unreal, and fantastic argument. \"The theory that labour is\nthe sole source of value has few defenders to-day. In the face of the\noverwhelming criticism which has been directed against it, even good\nMarxists are forced to abandon it, or to explain it away.\"[118] It\nmay, however, be useful to recount very briefly the facts which\ndisprove the theory. Labour creates some things which have no value,\nas wooden shoes in a community that does not desire wooden shoes; some\nthings have value, exchange value, although no labour has been\nexpended upon them, as land and minerals; the value of things is\nsometimes greater, sometimes less, proportionately, than the labour\nembodied in them; for example, paintings by the old masters, and last\nyear's styles of millinery; and, finally, the true determinants of\nvalue are utility and scarcity. If it be objected that Marx was aware\nof these two factors, the reply is that he either restricted them to\nthe function of conditions rather than efficient causes of value, or\nattributed to them an influence that is inconsistent with his main\ntheory that labour is the sole determinant of value. Indeed, the\ncontradictions into which Marx was led by the theory are its\nsufficient refutation.[119]\n\nWith the destruction of the labour theory of value, the Marxian\ncontention that capital contributes only its own original value to the\nproduct is likewise overthrown. The same conclusion is reached more\ndirectly by recalling the obvious facts of experience that, since the\njoint action of both capital and labour is required to bring into\nbeing every atom of the product, each is in its own order the cause of\nthe whole product, and the proportion of the whole that is\nspecifically due to the casual influence of either is as incapable of\ndetermination as the procreative contribution of either parent to\ntheir common offspring. The productive process carried on by labour\nand capital is virtually an organic process, in which the precise\namount contributed by either factor is unknown and unknowable.\n\nIn so far, therefore, as the alleged right of labour to the whole\nproduct is based upon the Marxian theory of value, it has not a shadow\nof validity.\n\n\n_The Right of Productivity_\n\nBut the claim is not necessarily dependent upon this foundation. Those\nSocialists who have abandoned the labour theory of value can argue\nthat the labourer (including the active director of industry) is the\nonly _human_ producer, that the capitalist as such produces nothing,\nand consequently has no moral claim to any part of the product.\nWhatever theory of value we may adopt, or whether we adopt any, we\ncannot annul the fact that interest does not represent labour expended\nupon the product by the capitalist.\n\nNevertheless, this fact does not compel the conclusion that the share\nof the product now taken by the capitalist belongs of right to the\nlabourer. Productivity does not of itself create a right to the\nproduct. It is not an intrinsic title. That is to say, a right to the\nproduct is not inherent in the relation between product and producer.\nIt is determined by certain extrinsic relations. When Brown makes a\npair of shoes out of materials that he has stolen, he has not a right\nto the whole product; when Jones turns out a similar product from\nmaterials that he has bought, he becomes the exclusive owner of the\nshoes. The intrinsic relation of productivity is the same in both\ncases. It is the difference of extrinsic relation, namely, the\nrelation between the producer and the material, that begets the\ndifference between the moral claims of the two producers upon the\nproduct.\n\nThe right of the producer is conditioned by certain other and more\nfundamental relations. Why has Jones a right to the shoes that he has\nmade out of materials that he has bought? Not because he needs them;\nhe is not alone in this condition. The ultimate reason and basis of\nhis ownership is to be sought in the practical requirements of an\nequitable social distribution. Unless men receive an adequate return\nfor their labour, they will not be able to satisfy their wants in a\nregular and sufficient manner. If they are forced to labour for others\nwithout compensation, they are deprived of the opportunity to develop\ntheir personality. They are treated as mere instruments to the welfare\nof beings who are not their superiors, but their moral and juridical\nequals. Their intrinsic worth and sacredness of personality is\noutraged, their essential equality with their fellows is disregarded,\nand their indestructible rights are violated. On the other hand, when\na producer, such as Jones, gets possession of his product, he\nsubordinates no human being to himself, deprives no man of the\nopportunity to perform remunerative labour, nor appropriates an\nunreasonable share of the common bounty of the earth. He has a right\nto his product because this is one of the reasonable methods of\ndistribution.\n\nIn fact, it is the exigencies of reasonable distribution that\nconstitute the fundamental justification of every title of ownership.\nThe title of purchase by which a man claims the hat that he wears; the\ntitle of inheritance by which a son claims the house that once\nbelonged to his father; the title of contract through which a labourer\ngets wages, a merchant prices, and a landlord rent,--are all valid\nsimply because they are reasonable devices for enabling men to obtain\nthe goods of the earth for the satisfaction of their wants. All titles\nof property, productivity included, are conventional institutions\nwhich reason and experience have shown to be conducive to human\nwelfare. None of them possesses intrinsic or metaphysical\nvalidity.[120]\n\nTherefore, the Socialist cannot establish the right of labour to the\nfull product of industry until he proves that this so-called right\ncould be reduced to practice consistently with individual and social\nwelfare. In other words, he must show that to give the entire product\nto the labourer would be a reasonable method of distribution. Now the\narrangement by which the Socialist proposes to award the whole product\nof labour is the collective ownership and operation of the means of\nproduction, and the social distribution of the product. If this system\nwould not enable the labourer and the members of society generally to\nsatisfy their wants to better advantage than is possible under the\npresent system, the contention that the labourer has a right to the\nentire product of industry falls to the ground. The question will be\nconsidered in the following chapter.\n\nFOOTNOTES:\n\n[114] Cf. Engels, \"Socialism: Utopian and Scientific,\" pp. 45, 46; and\nHillquit-Ryan, \"Socialism: Promise or Menace,\" 103, 104, 143-145.\n\n[115] Cf. Hillquit-Ryan, op. cit., pp. 75, 76.\n\n[116] \"Capital,\" pp. 1-9.\n\n[117] Op. cit., p. 117; Humboldt Edition.\n\n[118] Skelton, \"Socialism: A Critical Analysis,\" pp. 121, 122.\n\n[119] Cf. Skelton, loc. cit.\n\n[120] The exaggerated claims made on behalf of social productivity in\nthe matter of land values have been examined in a previous chapter.\nSimilar exaggerations with regard to capital will be considered in\nchapter xii.\n\n\n\n\nCHAPTER XI\n\nTHE SOCIALIST SCHEME OF INDUSTRY\n\n\n\"Never has our party told the workingman about a 'State of the\nfuture,' never in any way than as a mere utopia. If anybody says: 'I\npicture to myself society after our programme has been realised, after\nwage labour has been abolished, and the exploitation of men has\nceased, in such and such a manner,--' well and good; ideas are free,\nand everybody may conceive the Socialist State as he pleases. Whoever\nbelieves in it may do so; whoever does not, need not. These pictures\nare but dreams, and Social Democracy has never understood them\notherwise.\"[121]\n\nSuch is the official attitude of Socialism toward descriptions of its\ncontemplated industrial organisation. The party has never drawn up nor\napproved any of the various outlines of this sort which have been\ndefended by individual Socialists. It maintains that it cannot\nanticipate even the essential factors in the operation of a social and\nindustrial system which will differ so widely from the one that we\nhave to-day, and which will be so profoundly determined by events that\nare in the nature of the case impossible to prognosticate.\n\n\n_Socialist Inconsistency_\n\nFrom the viewpoint of all but convinced Socialists, this position is\nindefensible. We are asked to believe that the collective ownership\nand operation of the means of production would be more just and\nbeneficial than the present plan of private ownership and operation.\nYet the Socialist party refuses to tell us how the scheme would bring\nabout these results; refuses to give us, even in outline, a picture of\nthe machine at work. As reasonably might we be expected to turn the\ndirection of industry over to a Rockefeller or a Morgan, making an act\nof faith in their efficiency and fairness. We are in the position of a\nman who should be advised to demolish an unsatisfactory house, without\nreceiving any solid assurance that the proposed new one would be as\ngood. To our requests for specific information about the working of\nthe new industrial order the Socialists, as a rule, answer in terms of\nprophesied results. They leave us in the dark concerning the causes by\nwhich these wonderful results are to be produced.\n\nFrom the viewpoint of the confirmed Socialist, however, this failure\nto be specific is not at all unreasonable. He can have faith in the\nSocialist system without knowing beforehand how it will work. He\nbelieves in its efficacy because he believes that it is inevitable. In\nthe words of Kautsky, \"what is proved to be inevitable is proved not\nonly to be possible, but to be the only possible outcome.\"[122] The\nSocialist believes that his scheme is inevitable because he thinks\nthat it is necessarily included in the outcome of economic and social\nevolution.\n\nNeither the premises nor the conclusion of this reasoning is valid.\nThe doctrines of economic determinism, the class struggle, the\nconcentration of capital, the disappearance of the middle classes, the\nprogressive pauperisation of the working classes, and all the other\ntenets of the Socialist philosophy, have been thoroughly discredited\nby the facts of psychology, the experience of the last half century,\nand the present trend of industrial and social forces.[123] Even if\nthe Socialist outcome were inevitable, it would not necessarily be an\nimprovement on the present system. It might illustrate the principle\nof retrogression.\n\nSince we cannot make an act of faith in either the inevitableness or\nthe efficacy of the Socialist industrial scheme, we are compelled to\nsubmit it to the ordinary tests of examination and criticism. We must\ntry to see what would be the essential structure, elements, and\noperation of a system in which the means of production were owned and\nmanaged collectively, and the product socially distributed. In\nattempting to describe the system, we shall be guided by what seems to\nbe inherently necessary to it, and by the prevalent conception of it\namong present day Socialists. In this connection we have to observe\nthat some of the criticisms of the Socialist order attribute to it\nelements that are not essential, nor any longer demanded by the\nauthoritative spokesmen of the movement; for example, complete\nconfiscation of capital, compulsory assignment of men to the different\nindustrial tasks, equality of remuneration, the use of labour checks\ninstead of money, the socialisation of all capital down to the\nsmallest tool, and collective ownership of homes.\n\n\n_Expropriating the Capitalists_\n\nThe first problem confronting a Socialist administration would be the\nmethod of getting possession of the instruments of production. In the\nearly years of the Socialist movement, most of its adherents seemed to\nfavour a policy of outright confiscation. Professor Nearing estimates\nthe total property income now paid in the United States as, \"well\nabove the six-billion-dollar mark.\"[124] Were the Socialist State to\nseize all land and capital without compensation, it could conceivably\ntransfer more than six billion dollars annually from landowners and\ncapitalists to the community. Not all of it, however, would be\navailable for diversion to the labourers. According to the\ncomputations of Professor King, about two billion dollars were in 1910\nsaved and converted into capital.[125] A progressive Socialist r\u00e9gime\nwould want to appropriate at least that sum for the renewal and\nincrease of the instruments of production. Consequently, it would have\nonly four billion dollars to add to the present total income of\nlabour. This would be equivalent to $43.50 for every person in the\nUnited States.\n\nDesirable as would be such an addition to the remuneration of labour,\nit could never be realised through the process of confiscation. The\nowners of land and capital would be sufficiently powerful to defeat\nany such simple scheme of setting up the collectivist commonwealth.\nThey constitute probably a majority of the adults of our population,\nand their economic advantages would make them much stronger relatively\nthan their numbers.[126] Ethically the policy of confiscation would\nbe, on the whole, sheer robbery. To be sure, not all owners of land\nand capital have a valid claim to all their possessions, but\npractically all of them hold the greater part of their wealth by some\nkind of just title. Much land and capital that was originally acquired\nby unjust means has become morally legitimatised by the title of\nprescription.\n\nThe majority of present day Socialists seem to advocate at least\npartial compensation.[127] But this plan does not seem to offer any\nconsiderable advantage over complete confiscation. As regards\nmorality, it would differ only in the degree of its injustice; as\nregards expediency, it would be at best of doubtful efficacy. If the\ncapitalists were given only a small fraction of the value of their\nholdings they would oppose the change with quite as much\ndetermination as though they were offered nothing; if they were paid\nalmost the full value of their possessions there would be no\nsubstantial gain to the community from the transfer; if they were\ncompensated at a figure somewhere between these two extremes their\nresistance would still be more costly to the State than the extra\namount required to make full compensation.\n\nFinally, if full compensation were offered it would have to take the\nform of government obligations, securities, or bonds. If these did not\nbear interest the great majority of capital owners would regard the\nscheme as partial and considerable confiscation, and would fight it\nwith determination and effectiveness. If the State bound itself to pay\ninterest on the bonds it would probably find itself giving the\ndispossessed capitalists as high a rate of return on their capital, as\nlarge a share of the national product, as they receive under the\npresent system. Consequently, the expropriation of the capitalists\nwould bring no direct and pecuniary gain to the labouring classes.\nIndeed, the latter would suffer positive loss by the change, owing to\nthe fact that the State would be required to withdraw from the\nnational product a considerable amount for the maintenance, renewal,\nand expansion of the instruments of production. At present the\ncapitalist class performs the greater part of this function through\nthe reinvestment of the incomes that it receives in the form of\ninterest and rent. The average Socialist entirely ignores this\ncapitalistic service, when he draws his pessimistic picture of the\nvast share of the national product which now goes to \"idle\ncapitalists.\" So far as the larger capitalist incomes are concerned;\nthat is, those in excess of twenty-five thousand dollars annually, it\nis probable that the greater part is not consumed by the receivers,\nbut is converted into socially necessary capital instruments. Since\nthis would not be permitted in a Socialist order, the capitalists\nwould strive to consume the whole of the incomes received from the\npublic securities, and the State would be compelled to provide the\nrequired new capital out of the current national product. In a word,\nsociety would have to give the capitalists as much as it does at\npresent, and to withhold from the labourers for new capital an immense\nsum which is now furnished by the capitalists.\n\nIt is undoubtedly true that the richest capitalists would be unable to\nexpend the whole of their incomes upon themselves and their families.\nIf they turned a considerable part of it over to the State, the\nsurrendered sum would be available as capital, thereby reducing the\namount that the State would need to take out of the national product\nfor this purpose. Were all those possessing incomes in excess of fifty\nthousand dollars per family to give up all above that amount, the\ntotal thus accruing to the State would be a little more than one\nbillion dollars.[128] But this would be only one-half the required new\ncapital. A part of the additional one billion is now provided out of\nwages and salaries, but the greater part probably comes out of rent\nand interest. Under Socialism this latter portion would have to be\ndeducted from that part of the national product which at present goes\nto the workers and is consumed by them. Hence they would undergo a\nloss of several hundred million dollars.\n\nOne reply to this difficulty is that the total product of industry\nwould be much increased under Socialism. Undoubtedly an _efficient_\norganisation of industry on collectivist lines would be able to effect\neconomies by combining manufacturing plants, distributive concerns,\nand transportation systems, and by reducing unemployment to a minimum;\nbut it could not possibly make the enormous economies that are\npromised by the Socialists. The assertion that under Socialism men\nwould be able to provide abundantly for all their wants on a basis of\na working day of four, or even two, hours is seductive and\ninteresting, but it has no support in the ascertainable facts of\nindustrial resources. Even if the Socialist organisation were\noperating with a fair degree of efficiency, the gains that it could\neffect over the present system would probably not more than offset the\nsocial losses resulting from increased consumption by the compensated\ncapitalists.\n\nBut the proposed industrial organisation would not operate with a fair\ndegree of efficiency. According to present Socialist thought,\nindustries that are national in scope, such as the manufacture of\npetroleum, steel, and tobacco, would be carried on under national\ndirection, while those that supplied only a local market, such as\nlaundries, bakeries, and retail stores, would be managed by the\nmunicipalities. This division of control would be undoubtedly wise and\nnecessary. Moreover, the majority of Socialists no longer demand that\n_all_ tools and all industries should be brought under collective or\ngovernmental direction. Very small concerns which employed no hired\nlabour, or at most one or two persons, could remain under private\nownership and operation, while even larger enterprises might be\ncarried on by co-operative associations.[129] Nevertheless the attempt\nto organise and operate collectively the industries of the country,\neven with these limitations, would encounter certain insuperable\nobstacles. These will be considered under the general heads of\ninefficient industrial leadership, inefficient labour, and\ninterference with individual liberty.\n\n\n_Inefficient Industrial Leadership_\n\nUnder Socialism the boards of directors or commissions which exercised\nsupreme control in the various industries, would have to be chosen\neither by the general popular vote, by the government, or by the\nworkers in each particular industry. The first method may be at once\nexcluded from consideration. Even now the number of officials chosen\ndirectly by the people is far too large; hence the widespread\nagitation for the \"short ballot.\" Public opinion is coming to realise\nthat the voters should be required to select only a few important\nofficials, whose qualifications should be general rather than\ntechnical, and therefore easily recognised by the masses. These\nsupreme functionaries should have the power of filling all\nadministrative offices, and all positions demanding expert or\ntechnical ability. If the task of choosing administrative experts\ncannot be safely left to the mass of the voters at present, it\ncertainly ought not to be assigned to them under Socialism, when the\nnumber and qualifications of these functionaries would be indefinitely\nincreased.\n\nIf the boards of industrial directors were selected by the government,\nthat is, by the national and municipal authorities, the result would\nbe industrial inefficiency and an intolerable bureaucracy. No body of\nofficials, whether legislative or executive, would possess the varied,\nextensive, and specific knowledge required to pick out efficient\nadministrative commissions for all the industries of the country or\nthe city. And no group of political persons could safely be entrusted\nwith such tremendous power. It would enable them to dominate the\nindustrial as well as the political life of the nation or the\nmunicipality, to establish a bureaucracy that would be impregnable for\na long period of years, and to revive all the conceivable evils of\ngovernmental absolutism.\n\nThe third method is apparently the one now favoured by most\nSocialists. \"The workers in each industry may periodically select the\nmanaging authority,\" says Morris Hillquit.[130] Even if the workers\nwere as able as the stockholders of a corporation to select an\nefficient governing board, they would be much less likely to choose\nmen who would insist on hard and efficient work from all subordinates.\nThe members of a private corporation have a strong pecuniary interest\nin selecting directors who will secure the maximum of product at the\nminimum of cost, while the employ\u00e9s in a Socialist industry would want\nmanaging authorities who were willing to make working conditions as\neasy as possible.\n\nThe dependence of the boards of directors upon the mass of the\nworkers, and the lack of adequate pecuniary motives, would render\ntheir management much less efficient and progressive than that of\nprivate enterprises. In the rules that they would make for the\nadministration of the industry and the government of the labour force,\nin their selection of subordinate officers, such as superintendents,\ngeneral managers, and foremen, and in all the other details of\nmanagement, they would have always before them the abiding fact that\ntheir authority was derived from and dependent upon the votes of the\nmajority of the employ\u00e9s. Their supreme consideration would be to\nconduct the industry in such a way as to satisfy the men who elected\nthem. Hence they would strive to maintain an administration which\nwould permit the mass of the labour force to work leisurely, to be\nprovided with the most expensive conditions of employment, and to be\nimmune from discharge except in rare and flagrant cases. Even if the\nmembers of the directing boards were sufficiently courageous or\nsufficiently conscientious to exact reasonable and efficient service\nfrom all their subordinates and all the workers, they would not have\nthe necessary pecuniary motives. Their salaries would be fixed by the\ngovernment, and in the nature of things could not be promptly adjusted\nto reward efficient and to punish inefficient management. So long as\ntheir administration of industry maintained a certain routine level of\nmediocrity, they would have no fear of being removed; since they would\nbe supervised and paid by public officials who would have neither the\nextraordinary capacity nor the necessary incentive to recognise and\nreward promptly efficient management, they would lack the powerful\nstimulus which is provided by the hope of gain. In the large private\ncorporations, the tenure of the boards of directors depends not upon\nthe workers but upon the stockholders, whose main interest is to\nobtain a maximum of product at a minimum of cost, and who will employ\nand discharge, reward and punish, according as this end is attained.\nMoreover, the members of the boards, and the executive officers\ngenerally, are themselves financially interested in the business and\nin the maintenance of the policy demanded by the other stockholders.\n\nAll the subordinate officers, such as department managers,\nsuperintendents, foremen, etc., would exemplify the same absence of\nefficiency. Knowing that they must carry out the prudent policy of the\nboard of directors, they would be slow to punish shirking or to\ndischarge incompetents. Realising that the board of directors lacked\nthe incentive to make promotions promptly for efficient service, or to\ndischarge promptly for inefficient service, they would devote their\nmain energies to the task of holding their positions through a policy\nof indifferent and routine administration.\n\nInvention and progress would likewise suffer. Men who were capable of\ndevising new machines, new processes, new methods of combining capital\nand labour, would be slow to convert their potencies into action. They\nwould be painfully aware that the spirit of inertia and routine\nprevailing throughout the industrial and political organisation would\nprevent their efforts from receiving quick recognition and adequate\nrewards. Inventors of mechanical devices particularly would be\ndeprived of the stimulus which they now find in the hope of\nindefinitely large gains. Boards of directors, general managers, and\nother persons exercising industrial authority would be very slow to\nintroduce new and more efficient financial or technical methods when\nthey had no certainty that they would receive adequate reward in the\nform of either promotion or money compensation. They would see no\nsufficient reason for abandoning the established and pleasant policy\nof routine methods and unprogressive management.\n\n\n_Inefficient Labour_\n\nThe same spirit of inefficiency and mediocrity would permeate the rank\nand file of the workers. Indeed, it would operate even more strongly\namong them than among the officers and superiors; for their\nintellectual limitations and the nature of their tasks would make them\nless responsive to other than material and pecuniary motives. They\nwould desire to follow the line of least resistance, to labour in the\nmost pleasant conditions, to reduce irksome toil to a minimum. Since\nthe great bulk of their tasks would necessarily be mechanical and\nmonotonous, they would demand the shortest possible working day, and\nthe most leisurely rate of working speed. And because of their\nnumerical strength they would have the power to enforce this policy\nthroughout the field of industry. They would have the necessary and\nsufficient votes. In a general way they might, indeed, realise that\nthe practice of universal shirking and laziness must sooner or later\nresult in such a diminution of the national product as to cause them\ngreat hardship, but the workers in each industry would hope that those\nin all the others would be more efficient; or doubt that a better\nexample set by themselves would be imitated by the workers in other\nindustries. They would not be keen to give up the certainty of easy\nworking conditions for the remote possibility of a larger national\nproduct.\n\n\n_Attempted Replies to Objections_\n\nAll the attempts made by Socialists to answer or explain away the\nforegoing difficulties may be reduced to two: the achievements of\ngovernment enterprises in our present system; and the assumed efficacy\nof altruism and public honour in a r\u00e9gime of Socialism.\n\nUnder the first head appeal is made to such publicly owned and managed\nconcerns as the post office, railroads, telegraphs, telephones, street\nrailways, water works, and lighting plants. It is probably true that\nall these enterprises are on the whole carried on with better results\nto the public than if they were in private hands. It is likewise\nprobable that these and all other public utility monopolies will\nsooner or later be taken over by the State in all advanced countries.\nEven if this should prove in all cases to be a better arrangement from\nthe viewpoint of the general public welfare than private ownership and\nmanagement, the fact would constitute no argument for a Socialist\norganisation of all industry. In the first place, the efficiency of\nlabour, management, and technical organisation is generally lower in\npublic than in private enterprises, and the cost of operation higher.\nDespite these defects, government ownership of public utilities, such\nas street railways and lighting concerns, may be socially preferable\nbecause these industries are monopolies. Inasmuch as their charges and\nservices cannot be regulated by the automatic action of competition,\nthe only alternative to public ownership is public supervision.\nInasmuch as the latter is often incapable of securing satisfactory\nservice at fair prices, public ownership and management becomes on the\nwhole more conducive to social welfare. In other words, the losses\nthrough inefficient operation are more than offset by the gains from\nbetter service and lower charges. Three cent fares and adequate\nservice on an inefficiently managed municipal street railway are\npreferable to five cent fares on a privately owned street railway\nwhose management is superior. On the other hand, all those industries\nwhich are not natural monopolies can be prevented from practising\nextortion upon the public through regulated competition. In them,\ntherefore, the advantages of private operation, of which competition\nitself is not the least, should be retained.\n\nIn the second place, practically all the public service monopolies are\nsimpler in structure, more routine in operation, and more mature in\norganisation and efficiency than the other industries. The degree of\nmanagerial ability required, the necessity of experimenting with new\nmethods and processes, and the opportunity of introducing further\nimprovements in organisation are relatively less. Now, it is precisely\nin these respects that private has shown itself superior to public\noperation. Initiative, inventiveness, and eagerness to effect\neconomies and increase profits are the qualities in which private\nmanagement excels. When the nature and maturity of the concern have\nrendered these qualities relatively unimportant, public management can\nexemplify a fair degree of efficiency.\n\nIn the third place, the ability of the State to operate a few\nenterprises, does not prove that it could repeat the performance with\nan equal degree of success in all industries. I can drive two horses,\nbut I could not drive twenty-two. No matter how scientific the\norganisation and departmentalisation of industries under Socialism,\nthe final control of and responsibility for all of them would rest\nwith one organ, one authority, namely, the city in municipal\nindustries, and the nation in industries having national scope. This\nwould prove too great a task, too heavy a burden, for any body of\nofficials, for any group of human beings.\n\nFinally, it must be kept in mind that the publicly operated utilities\nare subject continuously to the indirect competition of private\nmanagement. By far the greater part of industry is now under private\ncontrol, which sets the pace for efficient operation in a hundred\nparticulars. As a consequence, comparisons are steadily provoked\nbetween public and private management, and the former is subject to\nconstant criticism. The managers of the State concerns are stimulated\nand practically compelled to emulate the success of private\nmanagement. This factor is probably more effective in securing\nefficiency in public industries than all other causes put together. In\nthe words of Professor Skelton: \"A limited degree of public ownership\nsucceeds simply because it is a limited degree, succeeds because\nprivate industry, in individual forms or in the socialised joint stock\nform, dominates the field as a whole. It is private industry that\nprovides the capital, private industry that trains the men and tries\nout the methods, private industry that sets the pace, and--not the\nleast of its services--private industry that provides the\never-possible outlet of escape.\"[131]\n\nThe Socialist expectation that altruistic sentiments and public honour\nwould induce all industrial leaders and all ordinary workers to exert\nthemselves as effectively as they now do for the sake of money, is\nbased upon the very shallow fallacy that what is true of a few men may\nvery readily become true of all men. There are, indeed, persons in\nevery walk of life who work faithfully under the influence of the\nhigher motives, but they are and always have been the exceptions in\ntheir respective classes. The great majority have been affected only\nfeebly, intermittently, and on the whole ineffectively by either love\nof their kind or the hope of public approval.\n\nA Socialist order could generate no forces which would be as\nproductive of unselfish conduct as the motives that are drawn from\nreligion. History shows nothing comparable either in extent or\nintensity to the record of self surrender and service to the neighbour\nwhich are due to the latter influence. Yet religion has never been\nable, even in the periods and places most thoroughly dominated by\nChristianity, to induce more than a small minority of the population\nto adopt that life of altruism which would be required of the great\nmajority under Socialism.\n\nMoreover, the efficacy of the higher motives is much greater among men\ndevoted to scientific, intellectual, and religious pursuits than in\neither the leaders or the rank and file engaged in industrial\noccupations. The cause of this difference is to be sought in the\nvarying nature of the two classes of activity: the first necessarily\ndevelops an appreciation of the higher goods, the things of the mind\nand the soul; the second compels the attention of men to rest upon\nmatter, upon the things that appeal to the senses, upon the things\nthat are measurable in terms of money.\n\nThere is a special fallacy underlying the emphasis placed by\nSocialists on the power of public honour. It consists in the failure\nto perceive that this good declines in efficacy according as the\nnumber of its recipients increases. Even if all the industrial\npopulation were willing to work as hard for public approval as they\nnow do for money, the results expected by Socialists would not be\nforthcoming. Public recognition of unselfish service is now available\nin relatively great measure because the persons qualifying for it are\nrelatively few. They easily stand out conspicuous among their fellows.\nLet their numbers vastly increase, and unselfishness would become\ncommonplace. It would no longer command popular recognition, save in\nthose who displayed it in exceptional or heroic measure. The public\nwould not have the time nor take the trouble to notice and honour\nadequately every floor walker, retail clerk, factory operative, street\ncleaner, agricultural labourer, ditch digger, etc., who might become a\ncandidate for such recognition.\n\nWhen the Socialists point to such examples of disinterested public\nservice as that of Colonel Goethals in building the Panama Canal, they\nconfound the exceptional with the average. They assume that, since an\nexceptional man performs an exceptional task from high motives, all\nmen can be got to act likewise in all kinds of operations. They\nforget that the Panama Canal presented opportunities of self\nsatisfying achievement and fame which do not occur once in a thousand\nyears; that the traditions and training of the army have during many\ncenturies deliberately and consistently aimed and tended to produce an\nexceptionally high standard of honour and disinterestedness; that,\neven so, the majority of army officers have not in their civil\nassignments shown the same degree of faithfulness to the public\nwelfare as Colonel Goethals; that the Canal was built under a r\u00e9gime\nof \"benevolent despotism,\" which placed no reliance upon the \"social\nmindedness\" of the subordinate workers; and that the latter, far from\nshowing any desire to qualify as altruists or public benefactors,\ndemanded and received material recognition in the form of wages,\nperquisites, and gratuities which greatly surpassed the remuneration\nreceived by any other labour force in history.[132] In a word,\nwherever in the construction of the Canal notable disinterestedness or\nappreciation of public honour was shown, the circumstances were\nexceptional; where the situation was ordinary, the Canal builders were\nunable to rise above the ordinary motives of selfish advantage.\n\nBeneath all the Socialist argument on this subject lies the assumption\nthat the attitude of the _average man_ toward the higher motives can\nby some mysterious process be completely _revolutionised_. This is\ncontrary to all experience, and to all reasonable probability. Only a\nsmall minority of men have ever, in any society or environment, been\ndominated mainly by altruism or the desire of public honour. What\nreason is there to expect that men will act differently in the future?\nNeither legislation nor education can make men love their neighbours\nmore than themselves, or love the applause of their neighbours more\nthan their own material welfare.\n\n\n_Restricting Individual Liberty_\n\nEven though human nature should undergo the degree of miraculous\ntransformation necessary to maintain an efficient industrial system on\nSocialist lines, such a social organisation must soon collapse because\nof its injurious effect upon individual liberty. Freedom of choice\nwould be abolished in the most vital economic transactions; for there\nwould be but one buyer of labour, and one seller of commodities. And\nthese two would be identical, namely, the State. With the exception of\nthe small minority that might be engaged in purely individual\navocations, and in co-operative enterprises, men would be compelled to\nsell their labour to either the municipality or the national\ngovernment. As competition between these two political agencies in the\nmatter of wages and other conditions of labour could not be permitted,\nthere would be virtually only one employer. Practically all material\ngoods would have to be purchased from either the municipal or the\nnational shops and stores. Since the city and the nation would produce\ndifferent kinds of goods, the purchaser of any given article would be\ncompelled to deal with one seller. His freedom of choice would be\nfurther restricted by the fact that he would have to be content with\nthose kinds and grades of commodities which the seller saw fit to\nproduce. He could not create an effective demand for new forms and\nvarieties of goods, as he now does, by stimulating the ingenuity and\nacquisitiveness of competing producers and dealers.\n\nPrices and wages would, of course, be fixed beforehand by the\ngovernment. The supposition that this function might be left to the\nworkers in each industry is utterly impracticable. Such an arrangement\nwould involve a grand scramble among the different industries to see\nwhich could pay its own members the highest wages, and charge its\nneighbours' members the highest prices. The final result would be a\nlevel of prices so high that only an alert and vigorous section of the\nworkers in each industry could find employment. Not only wages and\nprices but hours, safety requirements, and all the other general\nconditions of employment, would be regulated by the government. The\nindividuals in each industry could not be permitted to determine these\nmatters any more than they could be permitted to determine wages.\nMoreover, all these regulations would from the nature of the case\ncontinue unchanged for a considerable period of time.\n\nThe restriction of choice enforced upon the sellers of labour and the\nbuyers of goods, the utter dependence of the population upon one\nagency in all the affairs of their economic as well as their political\nlife, the tremendous social power concentrated in the State, would\nproduce a diminution of individual liberty and a perfection of\npolitical despotism surpassing anything that the world has ever seen.\nIt would not long be tolerated by any self respecting people.\n\nTo reply that the Socialist order would be a democracy, and that the\npeople could vote out of existence any distasteful regulation, is to\nplay with words. No matter how responsive the governing and managing\nauthorities might be to the popular will, the dependence of the\nindividual would prove intolerable. Not the manner in which this\ntremendous social power is constituted, nor the personnel of those\nexercising it, but the fact that so much power is lodged in one\nagency, and so little immediate control of his affairs left to the\nindividual,--is the heart of the evil situation. In a word, it is a\nquestion of the liberty of the individual versus the all pervading\ncontrol of his actions by an agency other than himself. Moreover, the\npeople in a democracy means a majority, or a compact minority. Under\nSocialism the controlling section of the voting population would\npossess so much power, political and economic, that it could impose\nwhatever conditions it pleased upon the non-controlling section for\nan almost indefinite period of time. The members of the latter part of\nthe population would not only be deprived of that immediate liberty\nwhich consists in the power to determine the details of their economic\nlife, but of that remote liberty which consists in the power to affect\ngeneral conditions by their votes.\n\nIn the last chapter we saw that the claim to the full product of\nindustry, made on behalf of labour by the Socialists, cannot be\nestablished on intrinsic grounds. Like all other claims to material\ngoods, it is valid only if it can be realised consistently with human\nwelfare. Its validity depends upon its feasibility, upon the\npossibility of constructing some social system that will enable it to\nwork. The present chapter has shown that the requirements of such a\nsystem are not met by Socialism. A Socialist organisation of industry\nwould make all sections of the population, including the wage earning\nclass, worse off than they are in the existing industrial order.\nConsequently, neither the private ownership of capital nor the\nindividual receipt of interest can be proved to be immoral by the\nSocialist argument.\n\nSince private ownership and management of capital are superior to\nSocialism, the State is obliged to maintain, protect, and improve the\nexisting industrial system. This is precisely the conclusion that we\nreached in chapter iv with reference to private ownership of land. In\nchapter v we found, moreover, that individual ownership of land is a\nnatural right. The fundamental considerations there examined lead to\nthe parallel conclusion that the individual has a natural right to own\ncapital. But we could not immediately deduce from the right to own\nland the right to take rent. Neither can we immediately deduce from\nthe right to own capital the right to take interest. The positive\nestablishment of the latter right will occupy us in the two following\nchapters.\n\nFOOTNOTES:\n\n[121] Wilhelm Liebknecht, cited in Hillquit's \"Socialism in Theory and\nPractice,\" p. 107.\n\n[122] \"Das Erfurter Program,\" cited by Skelton, op. cit., p. 178.\n\n[123] Cf. Skelton, op. cit., ch. vii; Bernstein, \"Evolutionary\nSocialism,\" pp. 1-94; Simkhovitch, \"Marxism vs. Socialism,\" _passim_;\nWalling, \"Progressivism and After,\" _passim_; Hillquit-Ryan, op. cit.,\nch. iv.\n\n[124] \"Income,\" p. 152.\n\n[125] \"The Wealth and Income of the People of the United States,\" p.\n132.\n\n[126] Cf. Hillquit-Ryan, op. cit., pp. 107, 136.\n\n[127] Cf. Hillquit-Ryan, op. cit., pp. 73-77; Skelton, op. cit, p.\n183; Walling, \"Socialism as It Is,\" p. 429.\n\n[128] Cf. King, op. cit., pp. 224-226.\n\n[129] Cf. Kautsky, \"The Social Revolution,\" pp. 166, 167;\nHillquit-Ryan, op. cit., p. 72.\n\n[130] Hillquit-Ryan, op. cit., p. 80; cf. Spargo, \"Socialism,\" pp.\n225-227.\n\n[131] \"Socialism: A Critical Analysis,\" p. 219.\n\n[132] Cf. \"The Panama Gateway,\" by Joseph Bucklin Bishop, p. 263.\n\n\n\n\nCHAPTER XII\n\nALLEGED INTRINSIC JUSTIFICATIONS OF INTEREST\n\n\nIn his address as President of the American Sociological Society at\nthe annual meeting, Dec. 27, 1913, Professor Albion W. Small denounced\n\"the fallacy of treating capital as though it were an active agent in\nhuman processes, and crediting income to the personal representatives\nof capital, irrespective of their actual share in human service.\"\nAccording to his explicit declaration, his criticism of the modern\ninterest-system was based primarily upon grounds of social utility\nrather than upon formally ethical considerations.\n\nA German priest has attacked interest from the purely moral\nviewpoint.[133] In his view the owner of any sort of capital who\nexacts the return of anything beyond the principal, violates strict\njustice.[134] The Church, he maintains, has never formally authorised\nor permitted interest, either on loans or on producing capital. She\nhas merely tolerated it as an irremovable evil.\n\nIs there a satisfactory justification of interest? If there is, does\nit rest on individual or on social grounds? That is to say: is\ninterest justified immediately and intrinsically by the relations\nexisting between the owner and the user of capital? Or, is rendered\nmorally good owing to its effects upon social welfare? Let us see what\nlight is thrown on these questions by the anti-usury legislation of\nthe Catholic Church.\n\n\n_Attitude of the Church Toward Interest on Loans_\n\nDuring the Middle Ages all interest on _loans_ was forbidden under\nsevere penalties by repeated ordinances of Popes and Councils.[135]\nSince the end of the seventeenth century the Church has quite\ngenerally permitted interest on one or more extrinsic grounds, or\n\"titles.\" The first of these titles was known as \"lucrum cessans,\" or\nrelinquished gain. It came into existence whenever a person who could\nhave invested his money in a productive object, for example, a house,\na farm, or a mercantile enterprise, decided instead to lend the money.\nIn such cases the interest on the loan was regarded as proper\ncompensation for the gain which the owner might have obtained from an\ninvestment on his own account. The title created by this situation was\ncalled \"extrinsic\" because it arose out of circumstances external to\nthe essential relations of borrower and lender. Not because of the\nloan itself, but because the loan prevented the lender from investing\nhis money in a productive enterprise, was interest on the former held\nto be justified. In other words, interest on the loan was looked upon\nas merely the fair equivalent of the interest that might have been\nobtained on the investment.\n\nDuring the seventeenth, eighteenth, and nineteenth centuries, another\ntitle or justification of loan-interest found some favour among\nCatholic moralists. This was the \"praemium legale,\" or legal rate of\ninterest allowed by civil governments. Wherever the State authorised a\ndefinite rate of interest, the lender might, according to these\nwriters, take advantage of it with a clear conscience.\n\nTo-day the majority of Catholic authorities on the subject prefer the\ntitle of virtual productivity as a justification. Money, they contend,\nhas become virtually productive. It can readily be exchanged for\nincome-bearing or productive property, such as, land, houses,\nrailroads, machinery, and distributive establishments. Hence it has\nbecome the economic equivalent of productive capital, and the interest\nwhich is received on it through a loan is quite as reasonable as the\nannual return to the owner of productive capital. Between this theory\nand the theory connected with \"lucrum cessans\" the only difference is\nthat the former shifts the justification of interest from the\ncircumstances and rights of the lender to the present nature of the\nmoney itself. Not merely the fact that the individual will suffer if,\ninstead of investing his money he loans it without interest, but the\nfact that money is generally and virtually productive, is the\nimportant element in the newer theory. In practice, however, the two\nexplanations or justifications come to substantially the same thing.\n\nNevertheless, the Church has given no positive approval to any of the\nforegoing theories. In the last formal pronouncement by a Pope on the\nsubject, Benedict XIV[136] condemned anew all interest that had no\nother support than the intrinsic conditions of the loan itself. At the\nsame time, he declared that he had no intention of denying the\nlawfulness of interest which was received in virtue of the title of\n\"lucrum cessans,\" nor the lawfulness of interest or profits arising\nout of investments in productive property. In other words, the\nauthorisation that he gave to both kinds of interest was merely\nnegative. He refrained from condemning them.\n\nIn the Responses given by the Roman Congregations from 1822 onward to\nquestions relating to the lawfulness of loan-interest, we may\nprofitably consider four principal features. First, they declare more\nor less specifically that interest may be taken in the absence of the\ntitle of \"lucrum cessans\"; second, some of them definitely admit the\ntitle of \"praemium legale,\" or civil authorisation, as sufficient to\ngive the practice moral sanction; third, they express a genuine\npermission, not a mere toleration, of interest taking; fourth, none of\nthem explicitly declares that any of the titles or reasons for\nreceiving loan-interest will necessarily or always give the lender a\n_strict right_ thereto. None of them contains a positive and reasoned\napproval of the practice. Most of them merely decide that persons who\nengage in it are not to be disturbed in conscience, so long as they\nstand ready to submit to a formal decision on the subject by the Holy\nSee. The insertion of the latter condition clearly intimates that some\nday interest taking might be formally and officially condemned.\n\nShould such a condemnation ever appear, it would not contradict any\nmoral principle contained in the \"Roman Responses,\" nor in the present\nattitude of the Church and of Catholic moralists. Undoubtedly it could\ncome only as the result of a change in the organisation of industry,\njust as the existing ecclesiastical attitude has followed the changed\neconomic conditions since the Middle Ages.\n\nAll the theological discussion on the subject, and all the\nauthoritative ecclesiastical declarations indicate, therefore, that\ninterest on loans is to-day regarded as lawful because a loan is the\neconomic equivalent of an investment. Evidently this is good logic and\ncommon sense. If it is right for the stockholder of a railway to\nreceive dividends, it is equally right for the bondholder to receive\ninterest. If it is right for a merchant to take from the gross returns\nof his business a sum sufficient to cover interest on his capital, it\nis equally right for the man from whom he has borrowed money for the\nenterprise to exact interest. The money in a loan is economically\nequivalent to, convertible into, concrete capital. It deserves,\ntherefore, the same treatment and the same rewards. The fact that the\ninvestor undergoes a greater risk than the lender, and the fact that\nthe former often performs labour in connection with the operation of\nhis capital, have no bearing on the moral problem; for the investor\nis repaid for his extra risk and labour by the profits which he\nreceives, and which the lender does not receive. As a mere recipient\nof interest, the investor undergoes no more risk nor exertion than\ndoes the lender. His claim to interest is no better than that of the\nlatter.\n\n\n_Interest on Productive Capital_\n\nOn what ground does the Church or Catholic theological opinion justify\ninterest on invested capital? on the shares of the stockholders in\ncorporations? on the capital of the merchant and the manufacturer?\n\nIn the early Middle Ages the only recognised titles to gain from the\nownership of property were labour and risk.[137] Down to the beginning\nof the fifteenth century substantially all the incomes of all classes\ncould be explained and justified by one or other of these two titles;\nfor the amount of capital in existence was inconsiderable, and the\nnumber of large personal incomes insignificant.\n\nWhen, however, the traffic in rent charges and the operation of\npartnerships, especially the \"contractus trinus,\" or triple contract,\nhad become fairly common, it was obvious that the profits from these\npractices could not be correctly attributed to either labour or risk.\nThe person who bought, not the land itself, but the right to receive a\nportion of the rent thereof, and the person who became the silent\nmember of a partnership, evidently performed no labour beyond that\ninvolved in making the contract. And their profits clearly exceeded a\nfair compensation for their risks, inasmuch as the profits produced a\nsteady income. How then were they to be justified?\n\nA few authorities maintained that such incomes had no justification.\nIn the thirteenth century Henry of Ghent condemned the traffic in rent\ncharges; in the sixteenth Dominicus Soto maintained that the returns\nto the silent partner in an enterprise ought not to exceed a fair\nequivalent for his risks; about the same time Pope Sixtus V denounced\nthe triple contract as a form of usury. Nevertheless, the great\nmajority of writers admitted that all these transactions were morally\nlawful, and the gains therefrom just. For a time these writers\nemployed merely negative and _a pari_ arguments. Gains from rent\ncharges, they pointed out, were essentially as licit as the net rent\nreceived by the owner of the land; and the interest received by a\nsilent partner, even in a triple contract, had quite as sound a moral\nbasis as rent charges. By the beginning of the seventeenth century the\nleading authorities were basing their defence of industrial interest\non positive grounds. Lugo, Lessius, and Molina adduced the\nproductivity of capital goods as a reason for allowing gains to the\ninvestor. Whether they regarded productivity as in itself a sufficient\njustification of interest, or merely as a necessary prerequisite to\njustification, cannot be determined with certainty.\n\nAt present the majority of Catholic writers seem to think that a\nformal defence of interest on capital is unnecessary. Apparently they\nassume that interest is justified by the mere productivity of capital.\nHowever, this view has never been explicitly approved by the Church.\nWhile she permits and authorises interest, she does not define its\nprecise moral basis.\n\nSo much for the teaching of ecclesiastical and ethical authorities.\nWhat are the objective reasons in favour of the capitalist's claim to\ninterest? In this chapter we consider only the intrinsic reasons, those\narising wholly out of the relations between the interest-receiver and\nthe interest-payer. Before taking up the subject it may be well to\npoint out the source from which interest comes, the class in the\ncommunity that pays the interest to the capitalist. From the language\nsometimes used by Socialists it might be inferred that interest is\ntaken from the labourer, and that if it were abolished he would be the\nchief if not the only beneficiary. This is incorrect. At any given time\ninterest on producing capital is paid by the consumer. Those who\npurchase the products of industry must give prices sufficiently high to\nprovide interest in addition to the other expenses of production. Were\ninterest abolished and the present system of private capital continued,\nthe gain would be mainly reaped by the consumer in the form of lower\nprices; for the various capitalist directors of industry would bring\nabout this result through their competitive efforts to increase sales.\nOnly those labourers who were sufficiently organised and sufficiently\nalert to make effective demands for higher wages before the movement\ntoward lower prices had got well under way, would obtain any direct\nbenefit from the change. The great majority of labourers would gain far\nmore as consumers than as wage earners. Speaking generally, then, we\nmay say that the capitalist's gain is the consumer's loss, and the\nquestion of the justice of interest is a question between the\ncapitalist and the consumer.\n\nThe intrinsic or individual grounds upon which the capitalist's claim\nto interest has been defended are mainly three: productivity, service,\nand abstinence. They will be considered in this order.\n\n\n_The Claims of Productivity_\n\nIt is sometimes asserted that the capitalist has as good a right to\ninterest as the farmer has to the offspring of his animals. Both are\nthe products of the owner's property. In two respects, however, the\ncomparison is inadequate and misleading. Since the owner of a female\nanimal contributes labour or money or both toward her care during the\nperiod of gestation, his claim to the offspring is based in part upon\nthese grounds, and only in part upon the title of interest. In the\nsecond place, the offspring is the definite and easily distinguishable\nproduct of its parent. But the sixty dollars derived as interest from\nthe ownership of ten shares of railway stock, cannot be identified as\nthe exact product of one thousand dollars of railway property. No man\ncan tell whether this amount of capital has contributed more or less\nthan sixty dollars of value to the joint product, i.e., railway\nservices. The same is true of any other share or piece of concrete\ncapital. All that we know is that the interest, be it five, six,\nseven, or some other per cent., describes the share of the product\nwhich goes to the owner of capital in the present conditions of\nindustry. It is the conventional not the actual and physical product\nof capital.\n\nAnother faulty analogy is that drawn between the productivity of\ncapital and the productivity of labour. Following the terminology of\nthe economists, most persons think of land, labour, and capital as\nproductive in the same sense. Hence the productivity of capital is\neasily assumed to have the same moral value as the productive action\nof human beings; and the right of the capitalist to a part of the\nproduct is put on the same moral basis as the right of the labourer.\nYet the differences between the two kinds of productivity, and between\nthe two moral claims to the product are more important than their\nresemblances.\n\nIn the first place, there is an essential physical difference. As an\ninstrument of production, labour is active, capital is passive. As\nregards its worth or dignity, labour is the expenditure of human\nenergy, the output of a _person_, while capital is a material thing,\nstanding apart from a personality, and possessing no human quality or\nhuman worth. These significant intrinsic or physical differences\nforbid any immediate inference that the moral claims of the owners of\ncapital and labour are equally valid. We should logically expect to\nfind that their moral claims are unequal.\n\nThis expectation is realised when we examine the bearing of the two\nkinds of productivity upon human welfare. In the exercise of\nproductive effort the average labourer undergoes a sacrifice. He is\nengaged in a process that is ordinarily irksome. To require from him\nthis toilsome expenditure of energy without compensation, would make\nhim a mere instrument of his fellows. It would subordinate him and his\ncomfort to the aggrandisement of beings who are not his superiors but\nhis moral equals. For he is a person; they are no more than persons.\nOn the other hand, the capitalist as such, as the recipient of\ninterest, performs no labour, painful or otherwise. Not the\ncapitalist, but capital participates in the productive process. Even\nthough the capitalist should receive no interest, the productive\nfunctioning of capital would not subordinate him to his fellows in the\nway that wageless labour would subordinate the labourer.\n\nThe precise and fundamental reason for according to the labourer his\nproduct is that this is the only rational rule of distribution. When a\nman makes a useful thing out of materials that are his, he has a\nstrict right to the product simply because there is no other\nreasonable method of distributing the goods and opportunities of the\nearth. If another individual, or society, were permitted to take this\nproduct, industry would be discouraged, idleness fostered, and\nreasonable life and self development rendered impossible. Direful\nconsequences of this magnitude would not follow the abolition of\ninterest.\n\nPerhaps the most important difference between the moral claims of\ncapitalist and labourer is the fact that for the latter labour is the\nsole means of livelihood. Unless he is compensated for his product he\nwill perish. But the capitalist has in addition to the interest that\nhe receives the ability to work. Were interest abolished he would\nstill be in as good a position as the labourer. The product of the\nlabourer means to him the necessaries of life; the product of the\ncapitalist means to him goods in excess of a mere livelihood.\nConsequently their claims to the product are greatly unequal in vital\nimportance and moral value.\n\nThe foregoing considerations show that even the claim of the labourer\nto his product is not based upon merely intrinsic grounds. It does not\nspring entirely from the mere fact that he has produced the product,\nfrom the mere relation between producer and thing produced. If this is\ntrue of labour-productivity we should expect to find it even more\nevident with regard to the productivity of capital; for the latter is\npassive instead of active, non rational instead of human.\n\nThe expectation is well founded. Not a single conclusive argument can\nbe brought forward to show that the productivity of capital directly\nand necessarily confers upon the capitalist a right to the\ninterest-product. All the attempted arguments are reducible to two\nformulas: \"res fructificat domino\" (\"a thing fructifies to its owner\")\nand \"the effect follows its cause.\" The first of these was originally\na legal rather than an ethical maxim; a rule by which the title was\ndetermined in the civil law, not a principle by which the right was\ndetermined in morals. The second is an irrelevant platitude. As a\njuristic principle, neither is self evident. Why should the owner of a\npiece of capital, be it a house, a machine, or a share of railway\nstock, have a right to its product, when he has expended neither time,\nlabour, money, nor inconvenience of any kind? To answer, \"because the\nthing which produced the product belongs to him,\" is merely to beg the\nquestion. To answer, \"because the effect follows the cause,\" is to\nmake a statement which has nothing to do with the question. What we\nwant to know is why the ownership of a productive thing gives a right\nto the product; why this particular effect should follow its cause in\nthis particular way. To answer by repeating under the guise of\nsententious formulas the thesis to be proved, is scarcely satisfactory\nor convincing. To answer that if the capitalist were not given\ninterest industry and thrift would decrease and human welfare suffer,\nis to abandon the intrinsic argument entirely. It brings in the\nextrinsic consideration of social consequences.\n\n\n_The Claims of Service_\n\nThe second intrinsic ground upon which interest is defended, is the\n_service_ performed by the capitalist when he permits his capital to\nbe used in production. Without capital, labourers and consumers would\nbe unable to command more than a fraction of their present means of\nlivelihood. From this point of view we see that the service in\nquestion is worth all that is paid in the form of interest.\nNevertheless it does not follow that the capitalist has a claim in\nstrict justice to any payment for this service. According to St.\nThomas, a seller may not charge a buyer an extra amount merely because\nof the extra value attached to the commodity by the latter.[138] In\nother words, a man cannot justly be required to pay an unusual price\nfor a benefit or advantage or service, when the seller undergoes no\nunusual deprivation. Father Lehmkuhl carries the principle further,\nand declares that the seller has a right to compensation only when and\nto the extent that he undergoes a privation or undertakes a\nresponsibility.[139] According to this rule, the capitalist would have\nno right to interest; for as mere interest-receiver he undergoes no\nprivation. His risk and labour are remunerated in profits, while the\nresponsibility of not withdrawing from production something that can\ncontinue in existence only by continuing in production, is scarcely\ndeserving of a reward according to the canons of strict justice.\n\nWhatever we may think of this argument from authority, we find it\nimpossible to prove objectively that a man who renders a service to\nanother has an intrinsic right to anything beyond compensation for the\nexpenditure of money or labour involved in performing the service. The\nman who throws a life preserver to a drowning person may justly demand\na payment for his trouble. On any recognised basis of compensation,\nthis payment will not exceed a few dollars. Yet the man whose life is\nin danger would pay a million dollars for this service if he were\nextremely rich. He would regard the service as worth this much to him.\nHas the man with the life preserver a right to exact such a payment?\nHas he a right to demand the full value of the service? No reasonable\nperson would answer this question otherwise than in the negative. If\nthe performer of the service may not charge the full value thereof, as\nmeasured by the estimate put upon it by the recipient, it would seem\nthat he ought not to demand anything in excess of a fair price for his\ntrouble. In other words, he may not justly exact anything for the\nservice as such.\n\nIt would seem, then, that the capitalist has no moral claim to pure\ninterest on the mere ground that the use of his capital in production\nconstitutes a service to labourers and consumers. It would seem that\nhe has no right to demand a payment for a costless service.\n\n\n_The Claims of Abstinence_\n\nThe third and last of the intrinsic justifications of interest that we\nshall consider is _abstinence_. This argument is based upon the\ncontention that the person who saves his money, and invests it in the\ninstruments of production undergoes a sacrifice in deferring to the\nfuture satisfactions that he might enjoy to-day. One hundred dollars\nnow is worth as much as one hundred and five dollars a year hence.\nThat is, when both are estimated from the viewpoint of the present.\nThis sacrifice of present to future enjoyment which contributes a\nservice to the community in the form of capital, creates a just claim\nupon the community to compensation in the form of interest. If the\ncapitalist is not rewarded for this inconvenience he is, like the\nunpaid labourer, subordinated to the aggrandisement of his fellows.\n\nAgainst this argument we may place the extreme refutation attempted by\nthe Socialist leader, Ferdinand Lassalle:\n\n\"But the profit of capital is _the reward of abstinence_. Truly a happy\nphrase! European millionaires are ascetics, Indian penitents, modern\nSt. Simons Stylites, who perched on their columns, with withered\nfeatures and arms and bodies thrust forward, hold out a plate to the\npassers-by that they may receive the wages of their privations! In the\nmidst of this sacro-saint group, high above his fellow-mortifiers of\nthe flesh, stands the Holy House of Rothschild. That is the real truth\nabout our present society! How could I have hitherto blundered on this\npoint as I have?\"[140]\n\nObviously this is a malevolently one-sided implication concerning the\nsources of capital. But it is scarcely less adequate than the\nexplanation in opposition to which it has been quoted. Both fail to\ndistinguish between the different kinds of savers, the different kinds\nof capital-owners. For the purposes of our inquiry savings may be\ndivided into three classes.\n\nFirst, those which are accumulated and invested automatically. Very\nrich persons save a great deal of money that they have no desire to\nspend, since they have already satisfied or safeguarded all the wants\nof which they are conscious. Evidently this kind of saving involves no\nreal sacrifice. To it the words of Lassalle are substantially\napplicable, and the claim to interest for abstinence decidedly\ninapplicable.\n\nSecond, savings to provide for old age and other future contingencies\nwhich are estimated as more important than any of the purposes for\nwhich the money might now be expended. Were interest abolished this\nkind of saving would be even greater than it is at present; for a\nlarger total would be required to equal the fund that is now provided\nthrough the addition of interest to the principal. In a no-interest\nr\u00e9gime one thousand dollars would have to be set aside every year in\norder to total twenty thousand dollars in twenty years; when interest\nis accumulated on the savings, a smaller annual amount will suffice to\nproduce the same fund. Inasmuch as this class of persons would save in\nan even greater degree without interest, it is clear that they regard\nthe sacrifice involved as fully compensated in the resulting provision\nfor the future. In their case sacrifice is amply rewarded by\naccumulation. Their claim to additional compensation in the form of\ninterest does not seem to have any valid basis. In the words of the\nlate Professor Devas, \"there is ample reward given without any need of\nany interest or dividend. For the workers with heads or hands keep the\nproperty intact, ready for the owner to consume whenever convenient,\nwhen he gets infirm or sick, or when his children have grown up, and\ncan enjoy the property with him.\"[141]\n\nThe third kind of saving is that which is made by persons who could\nspend, and have some desire to spend, more on present satisfactions,\nand who have already provided for all future wants in accordance with\nthe standards of necessaries and comforts that they have adopted.\nTheir fund for the future is already sufficient to meet all those\nneeds which seem weightier than their present unsatisfied wants. If\nthe surplus in question is saved it will go to supply future desires\nwhich are no more important than those for which it might be expended\nnow. In other words, the alternatives before the prospective saver\nare to procure a given amount of satisfaction to-day, or to defer the\nsame degree of satisfaction to a distant day.\n\nIn this case the inducement of interest will undoubtedly be necessary\nto bring about saving. As between equal amounts of satisfaction at\ndifferent times, the average person will certainly prefer those of the\npresent to those of the future. He will not decide in favour of the\nfuture unless the satisfactions then obtainable are to be greater in\nquantity. To this situation the rule that deferred enjoyments are\nworth less than present enjoyments, is strictly applicable. The\nincreased quantity of future satisfaction which is necessary to turn\nthe choice from the present to the future, and to determine that the\nsurplus shall be saved rather than spent, can be provided only through\ninterest. In this way the accumulations of interest and savings will\nmake the future fund equivalent to a larger amount of enjoyment or\nutility than could be obtained if the surplus were exchanged for the\ngoods of the present. \"Interest magnifies the distant object.\"\nWhenever this magnifying power seems sufficiently great to outweigh\nthe advantage of present over future satisfactions, the surplus will\nbe saved instead of spent.\n\nAmong the well-to-do there is probably a considerable number of\npersons who take this attitude toward a considerable part of their\nsavings. Since they would not make these savings without the\ninducement of interest, they regard the latter as a necessary\ncompensation for the sacrifice of postponed enjoyment. In a general\nway we may say that they have a strict right to this interest on the\nintrinsic ground of sacrifice. Inasmuch as the community benefits by\nthe savings, it may quite as fairly be required to pay for the\nantecedent sacrifices of the savers as for the inconvenience undergone\nby the performer of any useful labour or service.\n\nSumming up the matter regarding the intrinsic justification of\ninterest, we find that the titles of productivity and service do not\nconclusively establish the strict right of the capitalist to interest,\nand that the title of abstinence is morally valid for only a portion,\nprobably a rather small portion, of the total amount of interest now\nreceived by the owners of capital. Consequently interest as a whole is\nnot conclusively vindicated on individual grounds. If it is to be\nproved morally lawful its justification must be sought in extrinsic\nand social considerations. This inquiry will form the subject of the\nnext chapter.\n\nFOOTNOTES:\n\n[133] Hohoff, \"Die Bedeutung der Marxschen Kapitalkritik\"; Paderborn,\n1908.\n\n[134] Pp. 64-67, 88, 89, 96.\n\n[135] Cf. Van Roey, \"De Justo Auctario ex Contractu Crediti\"; and\nAshley, \"English Economic History.\"\n\n[136] Encyclical, \"Vix Pervenit,\" 1745.\n\n[137] Cf. St. Thomas, \"Summa Theologica,\" 2a 2ae, q. 78, a. 2 et 3.\n\n[138] \"Secunda Secondae,\" q. 77, a. 1, in corp.\n\n[139] \"Theologia Moralis,\" I, no. 1050.\n\n[140] \"What is Capital?\" p. 27.\n\n[141] \"Political Economy,\" p. 507.\n\n\n\n\nCHAPTER XIII\n\nSOCIAL AND PRESUMPTIVE JUSTIFICATIONS OF INTEREST\n\n\nAs we saw in the last chapter, interest cannot be conclusively\njustified on the ground of either productivity or service. It is\nimpossible to demonstrate that the capitalist has a strict right to\ninterest because his capital produces interest, or because it renders\na service to the labourer or the consumer. A part, probably a small\npart, of the interest now received can be fairly justified by the\ntitle of sacrifice. Some present owners of capital would not have\nsaved had they not expected to receive interest. In their case\ninterest may be regarded as a just compensation for the sacrifice that\nthey underwent when they decided to save instead of consuming.\n\n\n_Limitations of the Sacrifice Principle_\n\nNevertheless these men would suffer no injustice if interest were now\nto be abolished. Up to the moment of the change, they would have been\nin receipt of adequate compensation; thereafter, they would be in\nexactly the same position as when they originally chose to save rather\nthan consume. They would still be able to sell their capital, and\nconvert the proceeds to their immediate uses and pleasures. In this\ncase they would obviously have no further claim upon the community for\ninterest. On the other hand, they could retain the ownership of their\ncapital, and postpone its consumption to some future time. In making\nthis choice they would regard future as more important than present\nconsumption, and the superiority of future enjoyment as sufficiently\ngreat to compensate them for the sacrifice of postponement. Hence\nthey would have no moral claim to interest on the ground of\nabstinence. In general, then, the sacrifice-justification of interest\ncontinues only so long as the interest continues. It extends only to\nthe interest received by certain capitalists in certain circumstances,\nnot to all interest in all circumstances. Therefore, it presents no\nmoral obstacle to the complete abolition of interest.\n\nSince probably the greater part of the interest now received cannot be\njustified on intrinsic grounds, and since that part of it which is\nthus justified could be abolished consistently with the rights of the\nrecipients, let us see whether it is capable of justification for\nreasons of social welfare. Would its suppression be socially\nbeneficial or socially detrimental?\n\n\n_The Value of Capital in a No-Interest R\u00e9gime_\n\nThe interest that we have in mind is pure interest, not undertaker's\nprofit, nor insurance against risk, nor gross interest. Even if all\npure interest were abolished the capitalist who loaned his money would\nstill receive something from the borrower in addition to the repayment\nof the principal, while the active capitalist would get from the\nconsumer more than the expenses of production. The former would\nrequire a premium of, say, one or two per cent. to protect him against\nthe loss of his loan. The latter would demand the same kind of\ninsurance, and an additional sum to repay him for his labour and\nenterprise. None of these payments could be avoided in any system of\nprivately directed production. The return whose suppression is\nconsidered here is that which the capitalist receives over and above\nthese payments, and which in this country seems to be about three or\nfour per cent.\n\nWould capital still have value in a no-interest r\u00e9gime, and if so how\nwould its value be determined? At present the lower limit of the value\nof productive capital, as of all other artificial goods, is fixed in\nthe long run by the cost of production. Capital instruments that do\nnot bring this price will not continue to be made. In other words,\ncost of production is the governing factor of the value of capital\nfrom the side of supply. It would likewise fix the lower limit of\nvalue in a no-interest r\u00e9gime; only, the cost of producing capital\ninstruments would then be somewhat lower than to-day, owing to the\nabsence of an interest charge for the working capital during the\nproductive process.\n\nBut the cost of production is not a constant and accurate measure of\nthe value of artificial capital. The true measure is found in the\nrevenue or interest that a given piece of capital yields to its\nowners. If the current rate of interest is five per cent., a factory\nthat brings in ten thousand dollars net return will have a value of\nabout two hundred thousand dollars. This is the governing factor of\nvalue from the side of demand. In a no-interest economy the demand\nfactor would be quite different. Capital instruments would be in\ndemand, not as revenue producers, but as the concrete embodiments, the\nindispensable requisites of saving and accumulation. For it is\nimpossible that saving should in any considerable amount take the form\nof cash hoards. In the words of Sir Robert Giffen: \"The accumulations\nof a single year, even taking it at one hundred and fifty millions\nonly, ... would absorb more than the entire metallic currency of the\ncountry [Great Britain]. They cannot, therefore, be made in\ncash.\"[142] The instruments of production would be sought and valued\nby savers for the same reason that safes and safety deposit boxes are\nin demand now. They would be the only means of carrying savings into\nthe future, and they would necessarily bring a price sufficiently high\nto cover the cost of producing them. One man might deposit his savings\nin a bank, whence they would be borrowed without interest by some\ndirector of industry. When the owner of the savings desired to recover\nthem he could obtain from the bank the fund of some other depositor,\nor get the proceeds of the sale of the concrete capital in which his\nown savings had been embodied. Another man might prefer to invest his\nsavings directly in a building, a machine, or a mercantile business,\nwhence he could recover them later from the sale of the property.\nHence the absence of interest would not change essentially the\nprocesses of saving or investment. Capital would still have value, but\nits valuation from the demand side would rest on a different basis. It\nwould be valued not in proportion to its power to yield interest, but\nbecause of its capacity to become a receptacle for savings, and to\ncarry into the future the consuming power of the present.\n\nThe question whether the abolition of interest by the State would be\nsocially helpful or socially harmful is mainly, though not entirely, a\nquestion of the supply of capital. If the community would not have\nsufficient capital to provide for all its needs, actual and\nprogressive, the suppression of interest would obviously be a bad\npolicy. Most economists seem inclined to think that this condition\nwould be realised; that, without the inducement of interest, men would\nneither make new savings nor conserve existing capital in sufficient\nquantity to supply the wants of society. Very few of them, however,\npretend to be able to prove this proposition. So many complex factors\nwith regard to the possibilities of saving and the motives of savers,\nenter into the situation that no opinion on the subject can have any\nstronger basis than probability. As a preliminary to our consideration\nof the question of abolition, let us inquire whether there exists any\ndefinite relation between the present supply of capital and the\ncurrent rate of interest.\n\n\n_Whether the Present Rate of Interest Is Necessary_\n\nIt is sometimes contended that the interest rate must be kept up to\nthe present level if the existing supply of capital is to be\nmaintained. The underlying assumption is that some of the present\nsavers would discontinue that function at any lower rate, with the\nconsequence that the supply of capital would fall below the demand.\nOwing to this excess of demand over supply, the rate of interest would\nrise, or tend to rise, to the former level. Therefore, the rate\nexisting at any given time is the socially necessary rate. The rate of\ninterest is said to be analogous to the rate of wages. For example; of\nten thousand men receiving five dollars a day, nine thousand may be\nwilling to work for four dollars rather than quit their present jobs.\nBut the other thousand set their minimum price at five dollars. If the\nwage is reduced to four dollars these men will get employment\nelsewhere, thus causing such an excess of demand over supply as to\nforce the wage rate back to five dollars. The same thing, it is\ncontended, will happen when the high-priced section of the savers,\n\"the marginal savers,\" discontinue saving on account of the artificial\nlowering of the rate of interest.\n\nThe analogy, however, is misleading. The \"marginal\" one thousand wage\nearners refuse to work for four dollars a day because they can get\nbetter compensation in some other occupation. This phenomenon has been\nproved over and over again by observation and experience. On the other\nhand, there is no experience, no positive evidence, which shows or\ntends to show that any _necessary_ group of present savers would\ndiscontinue or materially reduce their accumulations if they were no\nlonger able to secure the present rate of interest. If the rate were\nlowered simultaneously in all civilised countries the dissatisfied\nsavers, unlike the dissatisfied labourers, would not be able to get a\nbetter price for their capital elsewhere. Their only alternative\nwould be to spend their actual or potential savings for present\nenjoyment. Now we have no empirical data to justify the assumption\nthat any considerable number of savers would choose this alternative\nin preference to, say, three or two per cent. interest. The fact that\nany group of savers at present gets and insists on getting a higher\nrate, merely proves that they can get it, and that they are selfish\nenough to take advantage of the possibility. We know that some men who\nnow obtain six per cent. interest would accept two rather than cease\nto save; yet they do not hesitate to demand six per cent. So far as we\nknow, all present savers might take the same attitude. At any rate, we\ncan not conclude that they would not take less from the fact that they\nnow get more. Why then does not the rate of interest fall? If all\npresent savers are getting a higher rate than is necessary to induce\nthem to save, why do they not increase their savings to such an extent\nthat the supply of capital will exceed the present volume of demand,\nand thus lead to a decline in the rate of interest? This is what\nhappens when the price of consumption-goods rises appreciably above\nthe minimum level that satisfies the most high-priced or \"marginal\"\nproducers. There is, however, an important difference between the two\ncases. The capacity to produce more goods is practically unlimited,\nand the corresponding desire is also unlimited, so long as the price\nof the product exceeds the cost of production. The capacity to save is\nnot unlimited, and the desire to save is neutralised and sharply\nrestricted by other and more powerful desires. Hence it is quite\npossible that the price of capital, i.e., interest, is determined to\nonly a slight degree by the \"cost\" of saving, being mainly dominated\nand regulated from the side of demand.\n\nEven though many of the present savers and owners of capital should\ndiminish or discontinue their functions on account of a fall in the\nrate of interest, a reduction would not necessarily take place in the\nsupply of capital. The function of these \"marginal savers\" would in\nall probability be performed by other persons, who would be compelled\nto increase their accumulations in order to provide as well for the\nfuture as they had previously been able to provide with a smaller\ncapital at a higher rate of interest.[143]\n\n\n_Whether at Least Two Per Cent. Is Necessary_\n\nWhile admitting that the present rate is unnecessarily high, Professor\nCassel maintains that a certain important class of savers would\ndiminish very considerably their accumulations if the interest rate\nshould fall much below two per cent. This class comprises those\npersons whose main object in saving is a fund which will some day\nsupport them from its interest. At six per cent. a person can\naccumulate in about twelve years a sum sufficient to provide him with\nan interest-income equal to the amount annually saved. For example;\ntwo thousand dollars put aside every year, and subjected to compound\ninterest, will aggregate in twelve years a principal capable of\nyielding an annual income of two thousand dollars. At two per cent.\nthe same amount of yearly saving will not lead to the same income in\nless than thirty-five years. If the rate be one and one-half per\ncent., forty-seven years will be required to produce the desired\nincome. Hence, concludes Cassel, if the rate falls below two per cent.\nthe average man will decide that life is too short to provide for the\nfuture by means of an interest-income, and will expect to draw upon\nhis principal. This means that he will not need to save as much as\nwhen he sought to accumulate a capital large enough to support him out\nof its interest alone.\n\nThe argument is plausible but not conclusive. If the rate of interest\nis so low that a man must save for forty-seven years in order to\nobtain a sufficient interest-income to support him in his declining\nyears, he will rarely attain that end. In the great majority of\ninstances men who are unable to save more annually than the amount\nthat they will need each year in old age, will expect and be compelled\nto use up a part or all of their capital in the period following the\ncessation of their economic usefulness. Nevertheless, it does not\nfollow that they will save less at one and one-half per cent. than at\nsix per cent. The determining factor in the situation is the attitude\nof the saver toward the _capital sum accumulated_. He either desires\nor does not desire to leave this behind him. In the latter case he\nwill save only as much as is necessary to provide an annual income\ncomposed partly of interest and partly of the principal. If this\ncontemplated income is two thousand dollars, and the rate of interest\nis six per cent., he will not need to save that much annually for as\nlong a period as ten years. He can diminish either the yearly amount\nsaved or the length of time devoted to saving. On the other hand, if\nthe rate is only one and one-half per cent. he will be compelled to\nsave a larger total in order to secure an equal accumulation and an\nequal provision for the future. In all cases, therefore, in which the\nsaving is carried on merely for the saver's own lifetime it will be\nincreased instead of decreased by a low rate of interest.\n\nIf the saver does desire to bequeath his capital he will not always be\ndeterred from this purpose merely because he is compelled to use some\nof the capital for the satisfaction of his own wants. Take the man who\ncan save two thousand dollars a year, and with the rate of interest at\nsix per cent. assure himself an interest-income of the same amount,\nand who intends to leave the principal (some thirty-three thousand\ndollars) to his children. Should the rate fall to one and one-half per\ncent. he would be unable to accumulate and bequeath nearly such a\nlarge sum. Surely this fact, discouraging as it is, will not determine\nhim to save nothing. He will not, as Cassel's argument assumes, decide\nto leave nothing to his children, and content himself with that amount\nof saving which will suffice to provide for his own future. In all\nprobability he will try to accumulate a sum which, even when\ndiminished by future deductions for his own wants, will approximate as\nclosely as possible the amount that he could have bequeathed had the\nrate remained at six per cent. This means that he will save more at\nthe low than at the high rate of interest.\n\nThe relative insignificance of the sum which would be saved at a low\nrate might sometimes, indeed, deter a person from saving for\ntestamentary purposes. With the rate at six per cent., a man might be\nwilling to save six hundred dollars a year for a sufficiently long\nperiod to provide a legacy of twenty thousand dollars to an\neducational institution. With the rate at one and one-half per cent.,\nthe amount that he could hope to accumulate would be so much smaller\nthat it might seem to him not worth while, and he would decline to\nsave the six hundred dollars annually. Cases of this kind, however,\nalways involve the secondary objects of saving, the luxuries rather\nthan the necessaries of testamentary transmission. They do not include\nsuch primary objects as provision for one's family. When the average\nman finds that he cannot leave to his family as much as he would\ndesire, as much as he would have bequeathed to them at a higher rate\nof interest, he will strive to increase rather than decrease his\nefforts to save for this purpose.\n\nSpeaking generally, then, we conclude that the assumption underlying\nProfessor Cassel's theory is contradicted by our experience of human\nmotives and practices. Men who save mainly for a future\ninterest-income, at the same time wishing to keep the principal intact\nuntil death, and who could have fully realised this desire under a\nhigh interest r\u00e9gime, will not become entirely indifferent to it when\nthey find that they cannot attain it completely. They will ordinarily\ntry to leave behind them as large a capital or principal as they can.\nHence they will save more rather than less.\n\n\n_Whether Any Interest Is Necessary_\n\nPerhaps the best known recent statement of the opinion that interest\nis inevitable, appears in Professor Irving Fisher's \"The Rate of\nInterest.\"[144] While he does not assert explicitly that sufficient\ncapital would not be provided without interest, and even admits that\nin certain circumstances interest might disappear, the general logic\nand implications of his argument are decidedly against the supposition\nthat society could ever get along without interest. He lays such\nstress upon the factor of \"impatience,\" i.e., man's unwillingness to\nwait for future goods, as to suggest strongly that other causes of\ninterest, and the number of savers free from \"impatience,\" are quite\ninsignificant. Now, if \"impatience\" were the only cause of interest\nthe latter must continue as long as \"impatience\" continues; and if\npractically all savers, actual and possible, are completely dominated\nby \"impatience\" the abolition of interest would be socially\ndisastrous. However, neither of these assumptions is demonstrable. We\nhave just seen that the present rate of interest has other causes than\n\"impatience\"; that a large proportion of savers insist upon getting\nthe present rate, not because they require it to offset their\n\"impatience,\" but simply because they can obtain it, and because they\nprefer it to the lower rate. Therefore, the mere existence of the\npresent rate does not prove it to be necessary. By the same argument\nit is evident that the existence of any interest does not demonstrate\nthe necessity of some interest. In the second place, the number of\nsavers, present and prospective, whose \"impatience\" is so weak as to\npermit them to save without interest, is probably greater than the\naverage reader of Professor Fisher's pages is led to assume. The\nquestion whether interest is necessary cannot be answered by reference\nto the general fact of human \"impatience\"; it demands a preliminary\nanalysis of the extent to which \"impatience\" affects the different\nclasses of savers.\n\nWith interest abolished, those persons who were willing to subordinate\npresent secondary satisfactions to the primary future needs of\nthemselves and their families, would save at least as much for these\npurposes as when they could have obtained interest. Most of them would\nprobably save more in order to render their future provision as nearly\nas possible equal to what it would have been had interest accrued on\ntheir annual savings. Whether a person intended to leave all his\naccumulations, or part of them, or none of them to posterity, he would\nstill desire them to be as large as they might have been in a r\u00e9gime\nof interest. In order to realise this desire, he would be compelled to\nincrease his savings. And it is reasonable to expect that this is\nprecisely the course that would be followed by men of average thrift\nand foresight. Such men regard future necessaries and comforts,\nwhether for themselves or their children, as more important than\npresent non-essentials and luxuries. Interest or no interest, prudent\nmen will subordinate the latter goods to the former, and will save\nmoney accordingly.\n\nWhen, however, both future and present goods are of the same order and\nimportance, the future is no longer preferred to the present. In that\ncase the preference is reversed. The luxuries of to-day are more\nkeenly prized than the luxuries of to-morrow. If the latter are to be\npreferred they must possess some advantage over the luxuries that\nmight be obtained here and now. Such advantage may arise in various\nways; for example, when a man decides that he will have more leisure\nfor a foreign journey two years hence than this year, or when he\nprefers a large amount of future enjoyment at one time to present\nsatisfactions taken in small doses. But the most general method of\nconferring advantage upon the secondary satisfactions of the future as\ncompared with those of the present, is to increase the quantity. The\nmajority of foreseeing persons are willing to pass by one hundred\ndollars' worth of enjoyment now for the sake of one hundred and five\ndollars' worth one year hence. This advantage of quantity is provided\nthrough the receipt of interest. It affects all those persons whose\nsaving, as noted in the last chapter, involves a sacrifice for which\nthe only adequate compensation is interest, and likewise all those\npersons who are in a position to choose between present and future\nluxuries. Were interest suppressed these classes of persons would\ncease to save for this kind of future goods.\n\nAccording to Professor Taussig, \"most saving is done by the well-to-do\nand the rich.\"[145] On this hypothesis it seems probable that the\nabolition of interest would diminish the savings and capital of the\ncommunity very considerably; for the accumulations of the wealthy are\nderived mainly from interest rather than from salaries. On the other\nhand, the suppression of interest should bring about a much wider\ndiffusion of wealth. The sums formerly paid out as interest, would be\ndistributed among the masses of the population as increased wages and\nreduced costs of living. Hence the masses would possess an immensely\nincreased capacity for saving, which might offset or even exceed the\nloss of saving-power among those who now receive interest-incomes.[146]\n\nTo sum up the results of our inquiry concerning the necessity of\ninterest: The fact that men now receive interest does not prove that\nthey would not save without interest. The fact that many men would\ncertainly save without interest does not prove that a sufficient\namount would be saved to provide the community with the necessary\nsupply of capital. Whether the savings of those classes that increased\ntheir accumulations would counteract the decreases in the saving of\nthe richer classes, is a question that admits of no definite or\nconfident answer.\n\n\n_The State Is Justified in Permitting Interest_\n\nIf we assume that the suppression of interest would cause a\nconsiderable decline in saving and capital, we must conclude that the\ncommunity would be worse off than under the present system. To\ndiminish greatly the instruments of production, and consequently the\nsupply of goods for consumption, would create far more hardship than\nit would relieve. While \"workless\" incomes would be suppressed, and\npersonal incomes more nearly equalised, the total amount available for\ndistribution would probably be so much smaller as to cause a\ndeterioration in the condition of every class. In this hypothesis the\nState would do wrong to abolish the system of interest.\n\nIf, however, we assume that no considerable amount of evil would\nfollow, or that the balance of results would be favourable, the\nquestion of the proper action of the State becomes somewhat complex.\nIn the first place, interest could not rightfully be suppressed while\nthe private taking of rent remained. To adopt such a course would be\nto treat the receivers of property incomes inequitably. Landowners\nwould continue to receive an income from their property, while capital\nowners would not; yet the moral claims of the former to income are no\nbetter than those of the latter. In the second place, the State would\nbe obliged to compensate the owners of existing capital instruments\nfor the decline in value which, as we have already seen, would occur\nwhen the item of interest was eliminated from the cost of reproducing\nsuch capital instruments. It would likewise be under moral obligation\nto compensate landowners for whatever decrease in value befell their\nproperty as a result of the abolition of rent.\n\nNevertheless, the practical difficulties confronting the legal\nabolition of interest are apparently so great as to render the attempt\nsocially unwise and futile. In order to be effective the prohibition\nwould have to be international. Were it enforced in only one or in a\nfew countries, these would suffer far more through the flight of\ncapital than they would gain through the abolition of interest. The\ntechnical obstacles in any case would be well nigh insuperable. If the\nattempt were made to suppress interest on producing capital, as well\nas on loans, the civil authorities would be unable to determine with\nany degree of precision what part of the gross returns of a business\nwas pure interest, and what part was a necessary compensation for risk\nand the labour of management. Should the State try to solve this\nproblem by allowing the directors of industry varying salaries to\ncorrespond with their comparative degrees of efficiency, and different\nrates of insurance-payments to represent the different risks, it would\ninevitably make some allowances so low as to discourage labour and\nenterprise, and others so high as to give the recipients a\nconsiderable amount of pure interest in the guise of profits and\nsalaries. Should it fix a flat rate of salaries and profits, the more\nefficient undertakers would refuse to put forth their best efforts,\nand the more perilous enterprises would not be undertaken. The\nsupervision of expenses, receipts, and other details of business that\nwould be required to prevent evasion of the law, would not improbably\ncost more than the total amount now paid in the form of interest. On\nthe other hand, if the method of suppression were confined to loans it\nwould probably prove only a little less futile than the effort to\nabolish interest on productive capital. The great majority of those\nwho were prevented from lending at interest would invest their money\nin stocks, land, buildings, and other forms of productive property.\nMoreover, it is probable that a large volume of loans would be made\ndespite the prohibition. In the Middle Ages, when the amount of money\navailable for lending was comparatively small, and when State and\nChurch and public opinion were unanimous in favour of the policy, the\nlegal prohibition of loans was only partially effective. Now that the\nsupply of and the demand for loans have enormously increased, and\ninterest is not definitely disapproved by the Church or the public, a\nsimilar effort by the State would undoubtedly prove a failure. Even if\nit were entirely successful it would only decrease, not abolish,\ninterest on productive capital.[147]\n\nIn view of the manifold and grave uncertainties of the situation, it\nis practically certain that modern States are justified in permitting\ninterest.\n\n\n_Civil Authorisation not Sufficient for Individual Justification_\n\nThis justification of the attitude of the State does not of itself\ndemonstrate that the capitalist has a right to accept interest. The\ncivil law tolerates many actions which are morally wrong in the\nindividual; for example, the payment of starvation wages, the\nextortion of unjust prices, and the traffic in immorality. Obviously\nlegal toleration does not _per se_ nor always exonerate the individual\noffender. How, then, shall we justify the individual receiver of\ninterest?\n\nAs already pointed out more than once, those persons who would not\nsave without interest are justified on the ground of sacrifice. So\nlong as the community desires their savings, and is willing to pay\ninterest on them, the savers may take interest as the fair equivalent\nof the inconvenience that they undergo in performing this social\nservice. The precise problem before us, then, is the justification of\nthose savers and capitalists who do not need the inducement of\ninterest, and whose functions of saving and conserving capital are\nsufficiently compensated without interest.\n\nIt is a fact that the civil law can sometimes create moral rights and\nobligations. For example; the statute requiring a person to repair\nlosses that he has unintentionally inflicted upon his neighbour is\nheld by the moral theologians to be binding _in conscience_, as soon\nas the matter has been adjudicated by the court. In other words, this\ncivil regulation confers on the injured man property rights, and\nimposes on the morally inculpable injurer property obligations. The\ncivil statutes also give moral validity to the title of prescription,\nor adverse possession. When the alien possessor has complied with the\nlegal provisions that apply, he has a moral right to the property,\neven though the original owner should assert his claim at a later\ntime. Some moral theologians maintain that a legal discharge in\nbankruptcy liberates the bankrupt from the moral obligation of\nsatisfying his unpaid debts. Several other situations might be cited\nin which the State admittedly creates moral rights of individual\nownership which would have no definite existence in the absence of\nsuch legal action and authorisation.[148]\n\nThis principle would seem to have received a particularly pertinent\napplication for our inquiry in the doctrine of _pr\u00e6mium_ legale as a\ntitle of interest on loans. In the \"Opus Morale\" of Ballerini-Palmieri\ncan be found a long list of moral theologians living in the\nseventeenth and eighteenth centuries who maintained that the mere\nlegal sanction of a certain rate of interest was a sufficient moral\njustification for the lender.[149] While holding to the traditional\ndoctrine that interest was not capable of being justified on intrinsic\ngrounds, these writers contended that by virtue of its power of\neminent domain the State could transfer from the borrower to the\nlender the right to the interest paid on a loan. They did not mean\nthat the State could arbitrarily take one man's property and hand it\nover to another, but only that, when it sanctioned interest for the\npublic welfare, this extrinsic circumstance (like the other \"extrinsic\ntitles\" approved by moralists) annulled the claim of the borrower in\nfavour of the lender. In other words, they maintained that the money\npaid in loan-interest did not belong to either borrower or lender with\ncertainty or definiteness until the matter was determined by economic\nconditions and extrinsic circumstances. Hence legal authorisation for\nthe common good was morally sufficient to award it to the lender. More\nthan one of them declared that the State had the same right to\ndetermine this indeterminate property, to assign the ownership to the\nlender, that it had to transfer property titles by the device of\nprescription. And their general position seems to have been confirmed\nby the response of the Congregation of the Poenitentiaria, Feb., 1832,\nto the Bishop of Verona, the substance of which was that a confessor\nmight adopt and act upon this position.[150]\n\nAnd yet, neither this nor any of the other precedents cited above, are\nsufficient to give certain moral sanction to the practice of\ninterest-taking by those persons who would continue to save if\ninterest were abolished. All the acts of legal authorisation that we\nhave been considering relate to practices which are beneficial and\nnecessary to society. Only in such cases has the State the moral\nauthority to create or annul property rights. In the seventeenth and\neighteenth centuries the legal authorisation of a certain rate of\ninterest made that rate morally lawful simply because this legal act\ngave formal and authoritative testimony to the social utility of\ninterest-taking. The State merely declared the reasonableness, and\nfixed the proper limits of the practice. The beneficent effect of\ninterest-taking upon society was its underlying justification, was the\nultimate fact which made it reasonable, and which gave to the action\nof the State moral value. Had the taking of interest on loans not been\nallowed the bulk of possible savings would either not have been saved\nat all, or would have been hoarded instead of converted into capital.\nAnd that money was badly needed in the commercial and industrial\noperations of the time. Hence the owners of it were in the position of\npersons who regarded saving and investing as a sacrifice for which\ninterest was a necessary and proper compensation. To-day, however,\nthere are millions of persons who would continue to perform both these\nfunctions without the inducement of interest. Therefore, the public\ngood does not require that they should receive interest, nor that the\nState should have the power to clothe their interest-incomes with\nmoral lawfulness. Inasmuch as the State is not certain that the\nabolition of interest would be socially expedient or practically\npossible, it is justified in permitting the institution to continue;\nbut it has no power to affect the morality of interest-taking as an\nindividual action.\n\n\n_How the Interest-Taker Is Justified_\n\nAlthough the interest received by the non-sacrifice savers is not\nclearly justifiable on either intrinsic or social grounds, it is not\nutterly lacking in moral sanctions. In the first place, we have not\ncontended that the intrinsic factors of productivity and service are\n_certainly_ invalid morally. We have merely insisted that the moral\nworth of these titles has never been satisfactorily demonstrated.\nPossibly they have a greater and more definite efficacy than has yet\nbeen shown by their advocates. In more concrete terms, we admit that\nthe productivity of capital and the service of the capitalist to the\ncommunity, are possible and doubtful titles to interest. A doubtful\ntitle to property is, indeed, insufficient by itself. In the case of\nthe interest receiver, however, the doubtful titles of productivity\nand service are reinforced by the fact of possession. Thus\nsupplemented, they are sufficient to justify the non-sacrifice saver\nin giving himself the benefit of the doubt as regards the validity of\nhis right to take interest. To be sure, this indefinite and uncertain\nclaim would be overthrown by a more definite and positive title. But\nno such antagonistic title exists. Neither the consumer nor the\nlabourer can show any conclusive reason why interest should go to him\nrather than to the capitalist. Hence the latter has at least a\npresumptive title. In the circumstances this is morally sufficient.\n\nTo this justification by presumption must be added a justification by\nanalogy. The non-sacrifice savers seem to be in about the same\nposition as those other agents of production whose rewards are out of\nproportion to their sacrifices. For example; the labourer of superior\nnative ability gets as much compensation for the same quality and\nquantity of work as his companion who has only ordinary ability; and\nthe exceptionally intelligent business man stands in the same relation\nto his less efficient competitor; yet the sacrifices undergone by the\nformer of each pair is less than that suffered by the latter. It would\nseem that if the more efficient men may properly take the same rewards\nas those who make larger sacrifices, the non-sacrifice capitalist\nmight lawfully accept the same interest as the man whose saving\ninvolves some sacrifice. On this principle the lenders who would not\nhave invested their money in a productive enterprise were nevertheless\npermitted by the moralists of the post-medi\u00e6val period to take\nadvantage of the title of _lucrum cessans_. Although they had\nrelinquished no opportunity of gain, nor made any sacrifice, they were\nput on the same moral level as sacrificing lenders, and were allowed\nto take the same interest.\n\nAs a determinant of ownership, possession is the feeblest of all\nfactors, and yet it is of considerable importance for a large\nproportion of incomes and property. In the distribution of the\nnational product, as well as in the division of the original heritage\nof the earth, a large part is played by the title of first occupancy.\nMuch of the product of industry is assigned to the agents of\nproduction mainly on the basis of inculpable possession. That is; it\ngoes to its receivers automatically, in exchange for benefits to those\nwho hand it over, and without excessive exploitation of their needs.\nJust as the first arrival on a piece of land may regard it as a\nno-man's territory, and make it his own by the mere device of\nappropriation, so the capitalist may get morally valid possession of\ninterest. Sometimes, indeed, this debatable share, this no-man's share\nof the product of industry, is secured in some part by the consumer of\nthe labourer. In such cases their title to it is just as valid as the\ntitle of the capitalist, notwithstanding the doubtful titles of\nproductivity and service which the latter has in his favour. First\noccupancy and possession are the more decisive factors. In the great\nmajority of instances, however, the capitalist is the first occupant,\nand therefore the lawful possessor of the interest-share.\n\nThe general justification of interest set forth in the immediately\npreceding paragraphs is supplemented in the case of the great majority\nof capital owners by the fact that their income from this source is\nrelatively insignificant. The average income of the farmers of the\nUnited States is only 724 dollars per year, and of this 322 dollars is\ninterest on the capital invested in the farm.[151] Even when we make\ndue allowance for the high purchasing power of farm incomes, due to\nthe lower cost of foodstuffs and house rent, the total amount of 724\ndollars provides only a very moderate living. Consequently the great\nmajority of farmers can regard the interest that they receive as a\nnecessary part of the remuneration that is fairly due them on account\nof their labour, sacrifices, and risks. So far as they are concerned,\nthe justification of interest, as interest, is not a practical\nquestion. The same observation applies to the majority of urban\nbusiness men, such as small merchants and manufacturers. Their\ninterest can be justified as not more than fair wages and profits.\n\nAgain, there is a large number of interest receivers who are entirely\ndependent upon this kind of income, and who obtain therefrom only a\nmoderate livelihood. They are mainly children, aged persons, and\ninvalids. Unlike the classes just described, they cannot justify their\ninterest as a fair supplement to wages; however, they may reasonably\nclaim it as their equitable or charitable share of the common heritage\nof the earth. If they did not receive this interest-income they would\nhave to be supported by their relatives or by the State. For many\nreasons this would be a much less desirable arrangement. Consequently\ntheir general claim to interest is supplemented by considerations of\nhuman welfare.\n\nThe difference between the ethical character of the interest discussed\nin the last two paragraphs and of that received by persons who possess\nlarge incomes, is too often overlooked in technical treatises. Every\nman owning any productive goods is reckoned as a capitalist, and\nassumed to receive interest. If, however, a man's total\ninterest-income is so small that when combined with all his other\nrevenues it merely completes the equivalent of a decent living, it is\nsurely of very little significance as interest. It stands in no such\nneed of justification as the interest obtained by men whose incomes\namount to, say, ten thousand dollars a year and upwards.\n\nStill another confirmatory title of interest is suggested by the\nfollowing well known declaration of St. Thomas Aquinas: \"The\npossession of riches is not in itself unlawful if the order of reason\nbe observed: that a man should possess justly what he owns, and _use_\nit in a proper manner for himself and others.\"[152] Neither just\nacquisition nor proper use is alone sufficient to render private\npossessions morally good. Both must be present. As we have seen above,\nthe capitalist can appeal to certain presumptive and analogous titles\nwhich justify practically his acquisition of interest; but there can\nbe no doubt that his claim and his moral power of disposal are\nconsiderably strengthened when he puts his interest-income to a proper\nuse. One way of so using it is for a reasonable livelihood, as\nexemplified in the case of the farmers, business men, and non-workers\nwhom we considered above. Those persons who receive incomes in excess\nof their reasonable needs could devote the surplus to religion,\ncharity, education, and a great variety of altruistic purposes. We\nshall deal with this matter specifically in the chapter on the \"Duty\nof Distributing Superfluous Wealth.\" In the meantime it is sufficient\nto note that the rich man who makes a benevolent use of his\ninterest-income has a special reason for believing that his receipt of\ninterest is justified.\n\nThe decisive value attributed to presumption, analogy, possession, and\ndoubtful titles in our vindication of the capitalist's claim to\ninterest, is no doubt disappointing to those persons who desire\nclear-cut mathematical rules and principles. Nevertheless, they are\nthe only factors that seem to be available. While the title that they\nconfer upon the interest receiver is not as definite nor as noble as\nthat by which the labourer claims his wages or the business man his\nprofits, it is morally sufficient. It will remain logically and\nethically unshaken until more cogent arguments have been brought\nagainst it than have yet appeared in the denunciations of the income\nof the capitalist. And what is true of him is likewise true of the\nrent receiver, and of the person who profits by the \"unearned\nincrement\" of land values. In all three cases the presumptive\njustification of \"workless\" incomes will probably remain valid as long\nas the present industrial system endures.\n\nFOOTNOTES:\n\n[142] \"Growth of Capital,\" p. 152.\n\n[143] Cf. Gonner, \"Interest and Saving,\" p. 73; Cassel, \"The Nature\nand Necessity of Interest,\" ch. iv.\n\n[144] New York, 1907.\n\n[145] \"Principles of Economics,\" II, 42.\n\n[146] Cf. Hobson, \"The Economics of Distribution,\" pp. 259-265.\n\n[147] Cf. Fisher, \"Elementary Principles of Economics,\" pp. 396, 397.\nHowever, he does not discuss in this passage the possibility of\nsuppressing interest on productive capital by a direct method.\n\n[148] Cf. Lehmkuhl, \"Theologia Moralis,\" I, nos. 917, 965, 1035.\n\n[149] Vol. 3, pp. 617-629; 2d ed.\n\n[150] Ballerini-Palmieri, loc. cit.; cf. Van Roey, op. cit., pp.\n73-75.\n\n[151] Cf. _American Economic Review_, March, 1916; p. 46.\n\n[152] \"Contra Gentiles,\" lib. 3, c. 123.\n\n\n\n\nCHAPTER XIV\n\nCO-OPERATION AS A PARTIAL SOLVENT OF CAPITALISM\n\n\nInterest is not a return for labour. The majority of interest\nreceivers are, indeed, regularly engaged at some active task, whether\nas day labourers, salaried employ\u00e9s, directors of industry, or members\nof the professions; but for these services they obtain specific and\ndistinct compensation. The interest that they get comes to them solely\nin their capacity as owners of capital, independently of any personal\nactivity. From the viewpoint of economic distribution, interest is a\n\"workless\" income. As such, it seems to challenge that ethical\nintuition which connects reward with effort and which inclines to\nregard income from any other source as not quite normal. Moreover,\ninterest absorbs a large part of the national income, and perpetuates\ngrave economic inequalities.[153]\n\nNevertheless, interest cannot be wholly abolished. As long as capital\nremains in private hands, its owners will demand and obtain interest.\nThe only way of escape is by the road of Socialism, and this would\nprove a blind alley. As we have seen in a preceding chapter, Socialism\nis ethically and economically impossible.\n\nMay not the burdens and disadvantages of interest be mitigated or\nminimised? Such a result could conceivably be reached in two ways: the\nsum total of interest might be reduced, and the incomes derived from\ninterest might be more widely distributed.\n\n\n_Reducing the Rate of Interest_\n\nNo considerable diminution of the interest-volume can be expected\nthrough a decline in the interest rate. As far back as the middle of\nthe eighteenth century, England and Holland were able to borrow money\nat three per cent. During the period that has since intervened, the\nrate has varied from three to six per cent. on this class of loans.\nBetween 1870 and 1890, the general rate of interest declined about two\nper cent., but it has risen since the latter date about one per cent.\nThe Great War now (1916) in action is destroying an enormous amount of\ncapital, and it will, as in the case of all previous military\nconflicts of importance, undoubtedly be followed by a marked rise in\nthe rate of interest.\n\nOn the other hand, the only definite grounds upon which a decline in\nthe rate can be hoped for are either uncertain or unimportant. They\nare the rapid increase of capital, and the extension of government\nownership and operation of natural monopolies.\n\nThe first is uncertain in its effects upon the rate of interest\nbecause the increased supply of capital is often neutralised by the\nprocess of substitution. That is, a large part of the new capital does\nnot compete with and bring down the price of the old capital. Instead,\nit is absorbed in new inventions, new types of machinery, and new\nprocesses of production, all of which take the place of labour, thus\ntending to increase rather than diminish the demand for capital and\nthe rate of interest. To be sure, the demand for capital thus arising\nhas not always been sufficient to offset the enlarged supply. Since\nthe Industrial Revolution capital has at certain periods and in\ncertain regions increased so rapidly that it could not all find\nemployment in new forms and in old forms at the old rate. In some\ninstances a decline in the rate of interest can be clearly traced to\nthe disproportionately quick growth of capital. But this phenomenon\nhas been far from uniform, and there is no indication that it will\nbecome so in the future. The possibilities of the process of\nsubstitution have been by no means exhausted.\n\nThe effects of government ownership are even more problematical.\nStates and cities are, indeed, able to obtain capital more cheaply\nthan private corporations for such public utilities as railways,\ntelegraphs, tramways, and street lighting; and public ownership of all\nsuch concerns will probably become general in the not remote future.\nNevertheless the social gain is not likely to be proportionate to the\nreduction of interest on this section of capital. A part, possibly a\nconsiderable part, of the saving in interest will be neutralised by\nthe lower efficiency and greater cost of operation; for in this\nrespect publicly managed are inferior to privately managed\nenterprises. Consequently, the charges to the public for the services\nrendered by these utilities cannot be reduced to the same degree as\nthe rate of interest on the capital. On the other hand, the exclusion\nof private operating capital from this very large field of public\nutilities should increase competition among the various units of\ncapital, and thus bring down its rewards. To what extent this would\nhappen cannot be estimated even approximately. The only safe statement\nis that the decline in the general rate of interest would probably be\nslight.\n\n\n_Need for a Wider Distribution of Capital_\n\nThe main hope of lightening the social burden of interest lies in the\npossible reduction in the necessary volume of capital, and especially\nin a wider distribution of interest-incomes. In many parts of the\nindustrial field there is a considerable waste of capital through\nunnecessary duplication. This means that a large amount of unnecessary\ninterest is paid by the consumer in the form of unnecessarily high\nprices. Again, the owners of capital and receivers of interest\nconstitute only a minority of the population of all countries, with\nthe possible exception of the United States. The great majority of the\nwage earners in all lands possess no capital, and obtain no interest.\nNot only are their incomes small, often pitiably small, but their lack\nof capital deprives them of the security, confidence, and independence\nwhich are required for comfortable existence and efficient\ncitizenship. They have no income from productive property to protect\nthem against the cessation of wages. During periods of unemployment\nthey are frequently compelled to have recourse to charity, and to\nforego many of the necessary comforts of life. So long as the bulk of\nthe means of production remains in the hands of a distinct capitalist\nclass, this demoralising insecurity of the workers must continue as an\nessential part of our industrial system. While it might conceivably be\neliminated through a comprehensive scheme of State insurance, this\narrangement would substitute dependence upon the State for dependence\nupon the capitalist, and be much less desirable than ownership of\nincome-bearing property.\n\nThe workers who possess no capital do not enjoy a normal and\nreasonable degree of independence, self respect, or self confidence.\nThey have not sufficient control over the wage contract and the other\nconditions of employment, and they have nothing at all to say\nconcerning the goods that they shall produce, or the persons to whom\ntheir product shall be sold. They lack the incentive to put forth\ntheir best efforts in production. They cannot satisfy adequately the\ninstinct of property, the desire to control some of the determining\nforms of material possession. They are deprived of that consciousness\nof power which is generated exclusively by property, and which\ncontributes so powerfully toward the making of a contended and\nefficient life. They do not possess a normal amount of freedom in\npolitics, nor in those civic and social relations which lie outside\nthe spheres of industry and politics. In a word, the worker without\ncapital has not sufficient power over the ordering of his own life.\n\n\n_The Essence of Co-operative Enterprise_\n\nThe most effective means of lessening the volume of interest, and\nbringing about a wider distribution of capital, is to be found in\nco-operative enterprise. Co-operation in general denotes the unified\naction of a group of persons for a common end. A church, a debating\nclub, a joint stock company, exemplifies co-operation in this sense.\nIn the strict and technical sense, it has received various\ndefinitions. Professor Taussig declares that it \"consists essentially\nin getting rid of the managing employer\"; but this description is\napplicable only to co-operatives of production. \"A combination of\nindividuals to economise by buying in common, or increase their\nprofits by selling in common\" (Encyclopedia Britannica) is likewise\ntoo narrow, since it fits only distributive and agricultural\nco-operation. According to C. R. Fay, a co-operative society is \"an\nassociation for the purpose of joint trading, originating among the\nweak, and conducted always in an unselfish spirit.\" If the word,\n\"trading\" be stretched to comprehend manufacturing as well as\ncommercial activities, Fay's definition is fairly satisfactory. The\ndistinguishing circumstance, \"originating among the weak,\" is also\nemphasised by Father Pesch in his statement that the essence, aim, and\nmeaning of co-operation are to be found in \"a combination of the\neconomically weak in common efforts for the security and betterment of\ntheir condition.\"[154] In order to give the proper connotation for our\npurpose, we shall define co-operation as, that joint economic action\nwhich seeks to obtain for a relatively weak group all or part of the\nprofits and interest which in the ordinary capitalist enterprise are\ntaken by a smaller and different group. This formula puts in the\nforeground the important fact that in every form of co-operative\neffort, some interest or profits, or both, are diverted from those who\nwould have received them under purely capitalistic arrangements, and\ndistributed among a larger number of persons. Thus it indicates the\nbearing of co-operation upon the problem of lightening the social\nburden of interest.\n\nFrom the viewpoint of economic function, co-operation may be divided\ninto two general kinds, producers' and consumers'. The best example of\nthe former is a wage earners' productive society; of the latter, a\nco-operative store. Credit co-operatives and agricultural\nco-operatives fall mainly under the former head, inasmuch as their\nprincipal object is to assist production, and to benefit men as\nproducers rather than as consumers. Hence from the viewpoint of type,\nco-operation may be classified as credit, agricultural, distributive,\nand productive.\n\n\n_Co-operative Credit Societies_\n\nA co-operative credit society is a bank controlled by the persons who\npatronise it, and lending on personal rather than material security.\nSuch banks are intended almost exclusively for the relatively helpless\nborrower, as, the small farmer, artisan, shopkeeper, and the small man\ngenerally. Fundamentally they are associations of neighbours who\ncombine their resources and their credit in order to obtain loans on\nbetter terms than are accorded by the ordinary commercial banks. The\ncapital is derived partly from the sale of shares of stock, partly\nfrom deposits, and partly from borrowed money. In Germany, where\ncredit associations have been more widely extended and more highly\ndeveloped than in any other country, they are of two kinds, named\nafter their respective founders, Schulze-Delitzsch and Raiffeisen. The\nformer operates chiefly in the cities, serves the middle classes\nrather than the very poor, requires all its members to subscribe for\ncapital stock, commits them to a long course of saving, and thus\ndevelops their interest as lenders. The Raiffeisen societies have, as\na rule, very little share capital, exist chiefly in the country\ndistricts, especially among the poorest of the peasantry, are based\nmostly on personal credit, and do not profess to encourage greatly the\nsaving and lending activities of their members. Both forms of\nassociation loan money to their members at lower rates of interest\nthan these persons could obtain elsewhere. Hence credit co-operation\ndirectly reduces the burden of interest.\n\nThe Schulze-Delitzsch societies have more than half a million members\nin the cities and towns of Germany, sixty per cent. of whom take\nadvantage of the borrowing facilities. The Raiffeisen banks comprise\nabout one-half of all the independent German agriculturists. Some form\nof co-operative banking is well established in every important country\nof Europe, except Denmark and Great Britain. In the former country\nits place seems to be satisfactorily filled by the ordinary commercial\nbanks. Its absence from Great Britain is apparently due to the credit\nsystem provided by the large landholders, to the scarcity of peasant\nproprietors, and to general lack of initiative. It is especially\nstrong in Italy, Belgium, and Austria, and it has made a promising\nbeginning in Ireland. In every country in which it has obtained a\nfoothold, it gives indication of steady and continuous progress.\nNevertheless it is subject to definite limits. It can never make much\nheadway among that class of persons whose material resources are\nsufficiently large and palpable to command loans on the usual terms\noffered by the commercial banks. As a rule, these terms are quite as\nfavourable as those available through the co-operative credit\nassociations. It is only because the poorer men cannot obtain loans\nfrom the commercial banks on the prevailing conditions that they are\nimpelled to have recourse to the co-operative associations.\n\n\n_Co-operative Agricultural Societies_\n\nThe chief operations of agricultural co-operative societies are\nmanufacturing, marketing, and purchasing. In the first named field the\nmost important example is the co-operative dairy. The owners of cows\nhold the stock or shares of the concern, and in addition to dividends\nreceive profits in proportion to the amount of milk that they supply.\nIn Ireland and some other countries, a portion of the profits goes to\nthe employ\u00e9s of the dairy as a dividend on wages. Other productive\nco-operatives of agriculture are found in cheese making, bacon curing,\ndistilling, and wine making. All are conducted on the same general\nprinciples as the co-operative dairy.\n\nThrough the marketing societies and purchasing societies, the farmers\nare enabled to sell their products to better advantage, and to obtain\nmaterials needed for carrying on agricultural operations more cheaply\nthan would be possible by isolated individual action. Some of the\nproducts marketed by the selling societies are eggs, milk, poultry,\nfruit, vegetables, live stock, and various kinds of grain. The\npurchasing societies supply for the most part manures, seeds, and\nmachinery. Occasionally they buy the most costly machinery in such a\nway that the association becomes the corporate owner of the\nimplements. In these cases the individual members have only the use of\nthe machines, but they would be unable to enjoy even that advantage\nwere it not for the intervention of the co-operative society. Where\nsuch arrangements exist, the society exemplifies not only co-operative\nbuying but co-operative ownership.\n\nAgricultural co-operation has become most widely extended in Denmark,\nand has displayed its most striking possibilities in Ireland.\nRelatively to its population, the former country has more farmers in\nco-operative societies, and has derived more profit therefrom, than\nany other nation. The rapid growth and achievements of agricultural\nco-operation in the peculiarly unfavourable circumstances of Ireland\nconstitute the most convincing proof to be found anywhere of the\nessential soundness and efficacy of the movement. Various forms of\nrural co-operative societies are solidly established in Germany,\nFrance, Belgium, Italy, and Switzerland. In recent years the movement\nhas made some progress in the United States, especially in relation to\ndairies, grain elevators, the marketing of live stock and fruit, and\nvarious forms of rural insurance. The co-operative insurance companies\neffect a saving to the Minnesota farmers of $700,000 annually, and the\nco-operative elevators handle about 30 per cent. of the grain marketed\nin that state. In 1915 the business transacted by the co-operative\nmarketing and purchasing organisations of the farmers of the United\nStates amounted to $1,400,000,000.\n\nThe transformation in the rural life of more than one European\ncommunity through co-operation has amounted to little less than a\nrevolution. Higher standards of agricultural products and production\nhave been set up and maintained, better methods of farming have been\ninculcated and enforced, and the whole social, moral, and civic life\nof the people has been raised to a higher level. From the viewpoint of\nmaterial gain, the chief benefits of agricultural co-operation have\nbeen the elimination of unnecessary middlemen, and the economies of\nbuying in large quantities, selling in the best markets, and employing\nthe most efficient implements. As compared with farming conducted on a\nlarge scale, the small farm possesses certain advantages, and is\nsubject to certain disadvantages. It is less wasteful, permits greater\nattention to details, and makes a greater appeal to the self interest\nof the cultivator; but the small farmer cannot afford to buy the best\nmachinery, nor is he in a position to carry on to the best advantage\nthe commercial features of his occupation, such as borrowing, buying,\nand marketing. Co-operation frees him from all these handicaps. \"The\nco-operative community ... is one in which groups of humble men\ncombine their efforts, and to some extent their resources, in order to\nsecure for themselves those advantages in industry which the masters\nof capital derive from the organisation of labour, from the use of\ncostly machinery, and from the economies of business when done on a\nlarge scale. They apply in their industry the methods by which the\nfortunes of the magnates in commerce and manufacture are made.\" These\nwords, uttered by a prominent member of the Irish co-operative\nmovement, summarise the aims and achievements of agricultural\nco-operation in every country of Europe in which it has obtained a\nstrong foothold. In every such community the small farm has gained at\nthe expense of the large farm system. Finally, agricultural\nco-operation reduces the burden of interest by eliminating some\nunnecessary capital, stimulates saving among the tillers of the soil\nby providing a ready and safe means of investment, and in manifold\nways contributes materially toward a better distribution of wealth.\n\n\n_Co-operative Mercantile Societies_\n\nCo-operative stores are organised by and for consumers. In every\ncountry they follow rather closely the Rochdale system, so called from\nthe English town in which the first store of this kind was established\nin 1844. The members of the co-operative society furnish the capital,\nand receive thereon interest at the prevailing rate, usually five per\ncent. The stores sell goods at about the same prices as their\nprivately owned competitors, but return a dividend on the purchases of\nall those customers who are members of the society. The dividends are\nprovided from the surplus which remains after wages, interest on the\ncapital stock, and all other expenses have been paid. In some\nco-operative stores non-members receive a dividend on their purchases\nat half the rate accorded to members of the society, but only on\ncondition that these payments shall be invested in the capital stock\nof the enterprise. And the members themselves are strongly urged to\nmake this disposition of their purchase-dividends. Since the latter\nare paid only quarterly, the co-operative store exercises a\nconsiderable influence toward inducing its patrons to save and to\nbecome small capitalists.\n\nIn Great Britain the vast majority of the retail stores have been\nfederated into two great wholesale societies, one in England and the\nother in Scotland. The retail stores provide the capital, and\nparticipate in the profits according to the amounts purchased, just as\nthe individual consumers furnish the capital and share the profits of\nthe retail establishments. The Scottish Wholesale Society divides a\npart of the profits among its employ\u00e9s. Besides their operations as\njobbers, the wholesale societies are bankers for the retail stores,\nand own and operate factories, farms, warehouses, and steamships.\nMany of the retail co-operatives likewise carry on productive\nenterprises, such as milling, tailoring, bread making, and the\nmanufacture of boots, shoes, and other commodities, and some of them\nbuild, sell, and rent cottages, and lend money to members who desire\nto obtain homes.\n\nThe co-operative store movement has made greatest progress in its\noriginal home, Great Britain. In 1913 about one person in every three\nwas to some degree interested in or a beneficiary of these\ninstitutions. The profits of the stores amounted to about $71,302,070,\nwhich was about 35 per cent. on the capital. The employ\u00e9s numbered\nabout 145,000, and the sales for the year aggregated $650,000,000. The\nEnglish Wholesale Society was the largest flour miller and shoe\nmanufacturer in Great Britain, and its total business amounted to\n$150,000,000. Outside of Great Britain, co-operative distribution has\nbeen most successful in Germany, Belgium, and Switzerland. It has had\na fair measure of development in Italy, but has failed to assume any\nimportance in France. \"There is every sign that within the near\nfuture--except in France--the stores will come to include the great\nmajority of the wage earning class, which is a constantly growing\npercentage of the total population.\"[155] Within recent years a\nrespectable number of stores have been established on a sound basis in\nCanada and the United States. Owing, however, to the marked\nindividualism and the better economic conditions of these two\ncountries, the co-operative movement will continue for some time to be\nrelatively slow.\n\nAs in the case of agricultural co-operation, the money benefits\naccruing to the members of the co-operative stores consist mainly of\nprofits rather than interest. In the absence of the store societies,\nthese profits would have gone for the most part to middlemen as\npayments for the risks and labour of conducting privately owned\nestablishments. Forty-seven of the sixty million dollars profits of\nthe British co-operative stores in 1910 were divided among more than\ntwo and one-half million members of these institutions, instead of\ngoing to a comparatively small number of private merchants. The other\nthirteen million dollars were interest on the capital stock. Had the\nmembers invested an equal amount in other enterprises they could,\nindeed, have obtained about the same rate and amount of interest, but\nin the absence of the co-operative stores their inducements and\nopportunities to save would have been much smaller. For it must be\nkept in mind that a very large part of the capital stock in the\nco-operative stores is derived from the members' dividends on their\npurchases at such stores, and would not have come into existence at\nall without these establishments. The gains of the co-operative\nstores, whether classified as profits or as interest, are evidently a\nnot inconsiderable indication of a better distribution of wealth.\n\n\n_Co-operation in Production_\n\nCo-operative production has occasionally been pronounced a failure.\nThis judgment is too sweeping and too severe. \"As a matter of fact,\"\nsays a prominent London weekly, \"the co-operators' success has been\neven more remarkable in production than in distribution. The\nco-operative movement runs five of the largest of our flour mills; it\nhas, amongst others, the very largest of our boot factories; it makes\ncotton cloth and woollens, and all sorts of clothing; it has even a\ncorset factory of its own; it turns out huge quantities of soap; it\nmakes every article of household furniture; it produces cocoa and\nconfectionery; it grows its own fruit and makes its own jams; it has\none of the largest tobacco factories, and so on.\" Obviously this\npassage refers to that kind of productive co-operation which is\ncarried on by the stores, not to productive concerns owned and\nmanaged by the workers therein employed. Nevertheless the enterprises\nin question are co-operatively managed, and hence exemplify\nco-operation rather than private and competitive industry. They ought\nnot to be left out of any statement of the field occupied by\nco-operative production. The limitations and possibilities of\nco-operation in production can best be set forth by considering its\nthree different forms separately.\n\nThe \"perfect\" form occurs when all the workers engaged in a concern\nown all the share capital, control the entire management, and receive\nthe whole of the wages, profits, and interest. In this field the\nfailures have been much more numerous and conspicuous than the\nsuccesses. Godin's stove works at Guise, France, is the only important\nenterprise of this kind that is now in existence. Great Britain has\nseveral establishments in which the workers own a large part of the\ncapital, but apparently none in which they are the sole proprietors\nand managers. The \"labour societies\" of Italy, consisting mostly of\ndiggers, masons, and bricklayers, co-operatively enter into contracts\nfor the performance of public works, and share in the profits of the\nundertaking in addition to their wages; but the only capital that they\nprovide consists of comparatively simple and inexpensive tools. The\nraw material and other capital is furnished by the public authority\nwhich gives the contract.\n\nA second kind of productive co-operation is found in the arrangement\nknown as co-partnership. This is \"the system under which, in the first\nplace, a substantial and known share of the profit of a business\nbelongs to the workers in it, not by right of any shares they may\nhold, or any other title, but simply by right of the labour they have\ncontributed to make the profit; and, in the second place, every worker\nis at liberty to invest his profit, or any other savings, in shares of\nthe society or company, and so become a member entitled to vote on the\naffairs of the body which employs him.\"[156] So far as its first, or\nprofit sharing, feature is concerned, co-partnership is not genuine\nco-operation, for it includes neither ownership of capital nor\nmanagement of the business. Co-operative action begins only with the\nadoption of the second element. In most of the existing co-partnership\nconcerns, all the employ\u00e9s are urged, and many of them required to\ninvest at least a part of their profits in the capital stock. The most\nnotable and successful of these experiments is that carried on by the\nSouth Metropolitan Gas Company of London. Practically all the\ncompany's 6,000 employ\u00e9s are now among its stockholders. Although\ntheir combined holdings are only about one-twenty-eighth of the total,\nthey are empowered to select two of the ten members of the board of\ndirectors. Essentially the same co-partnership arrangements have been\nadopted by about one-half the privately owned gas companies of Great\nBritain. In none of them, however, have the workers obtained as yet\nsuch a large percentage of either ownership or control as in the South\nMetropolitan. Co-partnership exists in several other enterprises in\nGreat Britain, and is found in a considerable number of French\nconcerns. There are a few instances in the United States, the most\nthoroughgoing being that of N. O. Nelson & Co. at Le Claire, Ill.\n\nAs already noted, the co-operative stores exemplify a third type of\nco-operative production. In some cases the productive concern is under\nthe management of a local retail establishment, but the great majority\nof them are conducted by the English and Scottish Wholesale Societies.\nAs regards the employ\u00e9s of these enterprises, the arrangement is not\ntrue co-operation, since they have no part in the ownership of the\ncapital. The Scottish Wholesale Society, as we have seen, permits the\nemploy\u00e9s of its productive works to share in the profits thereof;\nnevertheless it does not admit them as stockholders, nor give them any\nvoice in the management. In all cases the workers may, indeed, become\nowners of stock in their local retail stores. Since the latter are\nstockholders in the wholesale societies, which in turn own the\nproductive enterprises, the workers have a certain indirect and\nattenuated proprietorship in the productive concerns. But they derive\ntherefrom no dividends. All the interest and most of the profits of\nthe productive establishments are taken by the wholesale and retail\nstores. For it is the theory of the wholesale societies that the\nemploy\u00e9s in the works of production should share in the gains thereof\nonly as consumers. They are to profit only in the same way and to the\nsame extent as other consumer-members of the local retail\nestablishments.\n\nThe most effective and beneficial form of co-operative production is\nevidently that which has been described as the \"perfect\" type. Were\nall production organised on this plan, the social burden of interest\nwould be insignificant, industrial despotism would be ended, and\nindustrial democracy realised. As things are, however, the\nestablishments exemplifying this type are of small importance. Their\nincrease and expansion are impeded by lack of directive ability and of\ncapital, and the risk to the workers' savings. Yet none of these\nobstacles is necessarily insuperable. Directive ability can be\ndeveloped in the course of time, just as it was in the co-operative\nstores. Capital can be obtained fast enough perhaps to keep pace with\nthe supply of directive ability and the spirit of co-operation. The\nrisk undertaken by workers who put their savings into productive\nconcerns owned and managed by themselves need not be greater than that\nnow borne by investors in private enterprises of the same kind. There\nis no essential reason why the former should not provide the same\nprofits and insurance against business risks as the latter. While the\nemploy\u00e9s assume none of the risks of capitalistic industry, neither do\nthey receive any of the profits. If the co-operative factory exhibits\nthe same degree of business efficiency as the private enterprise it\nwill necessarily afford the workers adequate protection for their\nsavings and capital. Indeed, if \"perfect\" co-operative production is\nto be successful at all its profits will be larger than those of the\ncapitalistic concern, owing to the greater interest taken by the\nworkers in their tasks, and in the management of the business.\n\nFor a long time to come, however, it is probable that \"perfect\"\nco-operative production will be confined to relatively small and local\nindustries. The difficulty of finding sufficient workers' capital and\nability to carry on, for example, a transcontinental railroad or a\nnationwide steel business, is not likely to be overcome for one or two\ngenerations.[157]\n\nThe labour co-partnership form of co-operation is susceptible of much\nwider and more rapid extension. It can be adapted readily to the very\nlarge as well as to the small and medium sized concerns. Since it\nrequires the workers to own but a part of the capital, it can be\nestablished in any enterprise in which the capitalists show themselves\nwilling and sympathetic. In every industrial corporation there are\nsome employ\u00e9s who possess savings, and these can be considerably\nincreased through the profit sharing feature of co-partnership. A very\nlong time must, indeed, elapse before the workers in any of the larger\nenterprises could get possession of all, or even of a controlling\nshare of the capital, and a considerable time would be needed to\neducate and fit them for successful management.\n\nProduction under the direction of the co-operative stores can be\nextended faster than either of the other two forms, and it has before\nit a very wide even though definitely limited field. The British\nwholesale societies have already shown themselves able to conduct with\ngreat success large manufacturing concerns, have trained and attracted\nan adequate number of competent leaders, and have accumulated so much\ncapital that they have been obliged to invest several million pounds\nin other enterprises. The possible scope of the stores and their\nco-operative production has been well described by C. R. Fay:\n\"distribution of goods for personal consumption, first, among the\nworking class population, secondly, among the salaried classes who\nfeel a homogeneity of professional interest; production by working\nclass organisations alone (with rare exceptions in Italy) of all the\ngoods which they distribute to their members. But this is its limit.\nDistribution among the remaining sections of the industrial\npopulation; production for distribution to these members; production\nof the instruments of production, and production for international\ntrade; the services of transport and exchange: all these industrial\ndepartments are, so far as can be seen, permanently outside the domain\nof a store movement.\"[158]\n\nThe theory by which the stores attempt to justify the exclusion of the\nemploy\u00e9s of their productive concerns from a share of the profits\nthereof is that all profits come ultimately from the pockets of the\nconsumer, and should all return to that source. The defect in this\ntheory is that it ignores the question whether the consumers ought not\nto be required to pay a sufficiently high price for their goods to\nprovide the producers with profits in addition to wages. While the\nwholesale stores are the owners and managers of the capital in the\nproductive enterprises, and on the capitalistic principle should\nobtain the profits, the question remains whether this is necessarily a\nsound principle, and whether it is in harmony with the theory and\nideals of co-operation. In those concerns which have adopted the\nlabour co-partnership scheme, the workers, even when they own none of\nthe capital, are accorded a part of the profits. It is assumed that\nthis is a fairer and wiser method of distribution than that which\ngives the labourer only wages, leaving all the profits to the\nmanager-capitalist. This feature of co-partnership rests on the theory\nthat the workers can, if they will, increase their efficiency and\nreduce the friction between themselves and their employer to such an\nextent as to make the profit sharing arrangement a good thing for both\nparties. Consequently the profits obtained by the workers are a\npayment for this specific contribution to the prosperity of the\nbusiness. Why should not this theory find recognition in productive\nenterprises conducted by the co-operative stores?\n\nIn the second place, the workers in these concerns ought to be\npermitted to participate in the capital ownership and management. They\nwould thus be strongly encouraged to become better workers, to save\nmore money, and to increase their capacity for initiative and self\ngovernment. Moreover, this arrangement would go farther than any other\nsystem toward reconciling the interests of producer and consumer. As\nproducer, the worker would obtain, besides his wages, interest and\nprofits up to the limit set by the competition of private productive\nconcerns. As consumer, he would share in the profits and interest\nwhich would otherwise have gone to the private distributive\nenterprises. In this way the producer and consumer would each get the\ngains that were due specifically and respectively to his activity and\nefficiency.\n\n\n_Advantages and Prospects of Co-operation_\n\nAt this point it will perhaps be well to sum up the advantages and to\nestimate the prospects of the co-operative movement. In all its forms\nco-operation eliminates some waste of capital and energy, and\ntherefore transfers some interest and profits from a special\ncapitalist and undertaking class to a larger and economically weaker\ngroup of persons. For it must be borne in mind that all co-operative\nenterprises are conducted mainly by and for labourers or small\nfarmers. Hence the system always makes directly for a better\ndistribution of wealth. To a considerable extent it transfers capital\nownership from those who do not themselves work with or upon capital\nto those who are so engaged; namely, the labourers and the farmers;\nthus it diminishes the unhealthy separation now existing between the\nowners and the users of the instruments of production. Co-operation\nhas, in the second place, a very great educational value. It enables\nand induces the weaker members of economic society to combine and\nutilise energies and resources that would otherwise remain unused and\nundeveloped; and it greatly stimulates and fosters initiative, self\nconfidence, self restraint, self government, and the capacity for\ndemocracy. In other words, it vastly increases the development and\nefficiency of the individual. It likewise induces him to practise\nthrift, and frequently provides better fields for investment than\nwould be open to him outside the co-operative movement. It diminishes\nselfishness and inculcates altruism; for no co-operative enterprise\ncan succeed in which the individual members are not willing to make\ngreater sacrifices for the common good than are ordinarily evoked by\nprivate enterprise. Precisely because co-operation makes such heavy\ndemands upon the capacity for altruism, its progress always has been\nand must always continue to be relatively slow. Its fundamental and\nperhaps chief merit is that it does provide the mechanism and the\natmosphere for a greater development of the altruistic spirit than is\npossible under any other economic system that has ever been tried or\ndevised.\n\nBy putting productive property into the hands of those who now possess\nlittle or nothing, co-operation promotes social stability and social\nprogress. This statement is true in some degree of all forms of\nco-operation, but it applies with particular force to those forms\nwhich are carried on by the working classes. A steadily growing number\nof keen-sighted social students are coming to realise that an\nindustrial system which permits a comparatively small section of\nsociety to own the means of production and the instrumentalities of\ndistribution, leaving to the great majority of the workers nothing but\ntheir labour power, is fundamentally unstable, and contains within\nitself the germs of inevitable dissolution. No mere adequacy of wages\nand other working conditions, and no mere security of the workers'\nlivelihood, can permanently avert this danger, nor compensate the\nindividual for the lack of power to determine those activities of life\nwhich depend upon the possession of property. Through co-operation\nthis unnatural divorce of the users from the owners of capital can be\nminimised. The worker is converted from a mere wage earner to a wage\nearner plus a property owner, thus becoming a safer and more useful\nmember of society. In a word, co-operation produces all the well\nrecognised individual and social benefits which have in all ages been\nevoked by the \"magic of property.\"\n\nFinally, co-operation is a golden mean between individualism and\nSocialism. It includes all the good features and excludes all the evil\nfeatures of both. On the one hand, it demands and develops individual\ninitiative and self reliance, makes the rewards of the individual\ndepend upon his own efforts and efficiency, and gives him full\nownership of specific pieces of property. On the other hand, it\ncompels him to submerge much of the selfishness and indifference to\nthe welfare of his fellows which characterise our individual economy.\nIt embraces all the good that is claimed for Socialism because it\ninduces men to consider and to work earnestly for the common good,\neliminates much of the waste of competitive industry, reduces and\nredistributes the burdens of profits and interest, and puts the\nworkers in control of capital and industry. At the same time, it\navoids the evils of an industrial despotism, of bureaucratic\ninefficiency, of individual indifference, and of an all pervading\ncollective ownership. The resemblances that Socialists sometimes\nprofess to see between their system and co-operation are superficial\nand far less important than the differences. Under both arrangements\nthe workers would, we are told, own and control the means of\nproduction; but the members of a co-operative society directly own and\nimmediately control a _definite amount of specific capital_, which is\nessentially _private_ property. In a Socialist r\u00e9gime the workers'\nownership of capital would be collective not private, general not\nspecific, while their control of the productive instruments with which\nthey worked would be shared with other citizens. The latter would\nvastly outnumber the workers in any particular industry, and would be\ninterested therein not as producers but as consumers. No less obvious\nand fundamental are the differences in favour of co-operation as\nregards the vital matters of freedom, opportunity, and efficiency.\n\nIn so far as the future of co-operation can be predicted from its\npast, the outlook is distinctly encouraging. The success attained in\ncredit, agriculture, and distribution, is a sufficient guarantee for\nthese departments. While productive co-operation has experienced more\nfailures than successes, it has finally shown itself to be sound in\nprinciple, and feasible in practice. Its extension will necessarily be\nslow, but this is exactly what should be expected by any one who is\nacquainted with the limitations of human nature, and the history of\nhuman progress. If a movement that is capable of modifying so\nprofoundly the condition of the workers as is co-operative production,\ngave indications of increasing rapidly, we should be inclined to\nquestion its soundness and permanence. Experience has given us\nabundant proof that no mere system or machinery can effect a\nrevolutionary improvement in economic conditions. No social system can\ndo more than provide a favourable environment for the development of\nthose individual capacities and energies which are the true and the\nonly causal forces of betterment.\n\nNor is it to be expected that any of the other three forms of\nco-operation will ever cover the entire field to which it might,\nabsolutely speaking, be extended; or that co-operation as a whole will\nbecome the one industrial system of the future. Even if the latter\ncontingency were possible it would not be desirable. The elements of\nour economic life, and the capacities of human nature, are too varied\nand too complex to be forced with advantage into any one system,\nwhether capitalism, Socialism, or co-operation. Any single system or\nform of socio-economic organisation would prove an intolerable\nobstacle to individual opportunity and social progress. Multiplicity\nand variety in social and industrial orders are required for an\neffective range of choices, and an adequate scope for human effort. In\na general way the limits of co-operation in relation to the other\nforms of economic organisation have been satisfactorily stated by Mr.\nAneurin Williams: \"I suggest, therefore, that where there are great\nmonopolies, either natural or created by the combination of\nbusinesses, there you have a presumption in favour of State and\nmunicipal ownership. In those forms of industry where individuality is\neverything; where there are new inventions to make, or to develop or\nput on the market, or merely to adopt in some rapidly transformed\nindustry; where the eye of the master is everything; where reference\nto a committee, or appeals from one official to another, would cause\nfatal delay: there is the natural sphere of individual enterprise pure\nand simple. Between these two extremes there is surely a great sphere\nfor voluntary association to carry on commerce, manufacture, and\nretail trade, in circumstances where there is no natural monopoly, and\nwhere the routine of work is not rapidly changing, but on the whole\nfairly well established and constant.\"[159]\n\nThe province open to co-operation is, indeed, very large. If it were\nfully occupied the danger of a social revolution would be\nnon-existent, and what remained of the socio-industrial problem would\nbe relatively undisturbing and unimportant. The \"specialisation of\nfunction\" in industrial organisation, as outlined by Mr. Williams,\nwould give a balanced economy in which the three great socio-economic\nsystems and principles would have full play, and each would be\nrequired to do its best in fair competition with the other two.\nEconomic life would exhibit a diversity making strongly for social\nsatisfaction and stability, inasmuch as no very large section of the\nindustrial population would desire to overthrow the existing order.\nFinally, the choice of three great systems of industry would offer the\nutmost opportunity and scope for the energies and the development of\nthe individual. And this, when all is said, remains the supreme end of\na just and efficient socio-industrial organisation.\n\n\nREFERENCES ON SECTION II\n\n     FISHER: The Rate of Interest. New York; 1907.\n\n     CASSEL: Nature and Necessity of Interest. London; 1903.\n\n     GONNER: Interest and Saving. London; 1906.\n\n     LANDRY: L'Int\u00e9r\u00eat du Capital. Paris; 1904.\n\n     MENGER: The Right to the Whole Produce of Labour. London;\n     1899.\n\n     CATHREIN-GETTELMAN: Socialism. St. Louis; 1904.\n\n     SKELTON: Socialism: A Critical Analysis. New York; 1911.\n\n     SPARGO: Socialism. Macmillan; 1906.\n\n     WALLING: Socialism As It Is. New York; 1912.\n\n     HILLQUIT-RYAN: Socialism: Promise or Menace? Macmillan; 1914.\n\n     SAVATIER: La Th\u00e9orie Moderne du Capital et la Justice. Paris;\n     1898.\n\n     GARRIGUET: R\u00e9gime du Travail. Paris; 1908.\n\n     FUNK: Zins und Wucher. T\u00fcbingen; 1868.\n\n     HOLYOAKE: The History of Co-operation. London; 1906.\n\n     FAY: Co-operation at Home and Abroad. London; 1908.\n\n     WILLIAMS: Copartnership and Profit-Sharing. Henry Holt & Co.;\n     1913.\n\n     MANN, SIEVERS, COX: The Real Democracy. London; 1913.\n\n     Also the works of Taussig, Devas, Antoine, Hobson, Nearing,\n     Willoughby, and Hitze, which were given at the end of the\n     introductory chapter.\n\nFOOTNOTES:\n\n[153] Professor Scott Nearing estimates the annual income derived from\nthe ownership of property in the United States; that is, land and all\nforms of capital, at from six to nine billion dollars. Professor W. I.\nKing gives the combined shares of the national income received by the\nlandowners and the capitalists at more than six and three-quarter\nbillions in 1910. According to the Census Bulletin on the \"Estimated\nValuation of National Wealth,\" the capital goods of the country were\nin 1912 approximately $175,000,000,000.00. At four per cent. this\nwould mean an annual income of seven billion dollars. The lowest of\nthe three estimates, six billion dollars, is equivalent to more than\nsixty dollars a year for every man, woman, and child in the United\nStates. If that sum were equally distributed among the whole\npopulation, it would mean an increase of between forty and sixty per\ncent. in the income of the majority of workingmen's families! Nor do\npresent tendencies hold out any hope of an automatic reduction of the\ninterest-burden in the future. In the opinion of Professor Scott\nNearing, \"the present economic tendencies will greatly increase the\namount of property income paid with each passing decade.\" \"Income,\" p.\n199; New York, 1915. See especially ch. vii. According to Professor\nTaussig, \"the absolute amount of income going to this [the capitalist]\nclass tends to increase, and its share of the total income tends also\nto increase; whereas for the labourers, though their total income may\nincrease, their share of income of society as a whole tends to\ndecline.\" \"Principles of Economics,\" II, 205.\n\n[154] \"Lehrbuch der Nationaloekonomie,\" III, 517.\n\n[155] Fay, \"Co-operation at Home and Abroad,\" p. 340.\n\n[156] Schloss, \"Methods of Industrial Remuneration,\" pp. 353, 354.\n\n[157] Cf., however, Mr. A. R. Orage's work, \"National Guilds,\" London,\n1914.\n\n[158] Op. cit., p. 341.\n\n[159] \"Copartnership and Profit-Sharing,\" p. 235.\n\n\n\n\nSECTION III\n\nTHE MORAL ASPECT OF PROFITS\n\n\n\n\nCHAPTER XV\n\nTHE NATURE OF PROFITS\n\n\nWe have seen that rent goes to the landlord as the price of land use,\nwhile interest is received by the capitalist as the return for the use\nof capital. The two shares of the product which remain to be\nconsidered include an element which is absent from both rent and\ninterest. The use for which profits and wages are paid comprises not\nmerely the utilisation of a productive factor, but the sustained\nexertion of the factor's owner. Like the landowner and the capitalist,\nthe business man and the labourer put the productive factors which\nthey control at the disposal of the industrial process; but they do so\nonly when and so long as they exercise human activity. The shares that\nthey receive are payments for the continuous output of human energy.\nNo such significance attaches to rent or interest.\n\n\n_The Functions and Rewards of the Business Man_\n\nWho is the business man, and what is the nature of his share of the\nproduct of industry? Let us suppose that the salaried manager of a hat\nfactory decides to set up a business of the same kind for himself. He\nwishes to become an entrepreneur, an undertaker, a director of\nindustry, in more familiar language, a business man. Let us assume\nthat he is without money, but that he commands extraordinary financial\ncredit. He is able to borrow half a million dollars with which to\norganise, equip, and operate the new enterprise. Having selected a\nfavourable site, he rents it on a long term lease, and erects thereon\nthe necessary buildings. He installs all the necessary machinery and\nother equipment, hires capable labour, and determines the kinds and\nquantities of hats for which he thinks that he can find a market. At\nthe end of a year, he realises that, after paying for labour of all\nsorts, returning interest to the capitalist and rent to the landowner,\ndefraying the cost of repairs, and setting aside a fund to cover\ndepreciation, he has left for himself the sum of ten thousand dollars.\nThis is the return for his labour of organisation and direction, and\nfor the risk that he underwent. It constitutes the share called\nprofits, sometimes specified as net profits.\n\nThis case is artificial, since it assumes that the business man is\nneither capitalist nor landowner in addition to his function as\ndirector of industry. It has, however, the advantage of distinguishing\nquite sharply the action of the business man as such. For the latter\nmerely organises, directs, and takes the risks of the industrial\nprocess, finds a market for the product, and receives in return\nneither rent nor interest but only profits. In point of fact, however,\nno one ever functions solely as business man. Always the business man\nowns some of the capital, and very often some of the land involved in\nhis enterprise, and is the receiver not only of profits but of\ninterest and rent. Thus, the farmer is a business man, but he is also\na capitalist, and frequently a landowner. The grocer, the clothier,\nthe manufacturer, and even the lawyer and the doctor own a part at\nleast of the capital with which they operate, and sometimes they own\nthe land. Nevertheless their rewards as business men can always be\ndistinguished from their returns as capitalists and landowners by\nfinding out what remains after making due allowance for rent and\ninterest.\n\nIt is a fact that many business men, especially those directing the\nsmaller establishments, use the term profits to include rent and\ninterest on their own property. In other words, they describe their\nentire income from the business as profits. In the present discussion,\nand throughout this book generally, profits are to be understood as\ncomprising merely that part of the business man's returns which he\ntakes as the reward of his labour, and as insurance against the risks\naffecting his enterprise. Deduct from the business man's total income\na sum which will cover interest on his capital at the prevailing rate\nand rent on his land, and you have left his income as business man,\nhis profits.\n\n\n_The Amount of Profits_\n\nIn a preceding chapter we have seen that where the conditions of\ncapital are the same, there exists a fairly uniform rate of interest.\nNo such uniformity obtains in the field of profits. Businesses subject\nto the same risks and requiring the same kind of management yield very\ndifferent amounts of return to their directors. In a sense the\nbusiness man may be regarded as the residual claimant of industry.\nThis does not mean that he takes no profits until all the other agents\nof production have been fully remunerated, but that his share remains\nindeterminate until the end of the productive period, say, six months\nor a year, while the shares of the other agents are determined\nbeforehand. At the end of the productive period, the business man may\nfind that his profits are large, moderate, or small, while the\nlandowner, the capitalist, and the labourer ordinarily obtain the\nprecise amounts of rent, interest, and wages that they had expected to\nobtain. That there exists no definite upper limit to profits is proved\nby the history of modern millionaires. That there exists no rigid\nlower limit is proved by the large proportion of enterprises that meet\nwith failure.\n\nNevertheless it would be wrong to infer that the volume of profits is\ngoverned by no law whatever, or that they show no tendency toward\nuniformity in any part of the industrial field. There is a calculated\nor preconceived minimum. No man will embark in business for himself\nunless he has reason to expect that it will yield him, in addition to\nprotection against risks, an income as large as he could obtain by\nhiring his services to some one else. In other words, contemplated\nprofits must be at least equal to the income of the salaried business\nmanager. No tendency toward uniformity of profits exists among very\nlarge enterprises nor among industries which are constantly adopting\nnew methods and new inventions. In businesses of small and moderate\nsize, and in those whose methods have become standardised, such as a\nretail grocery store, or a factory that turns out staple kinds of\nshoes, profits tend to be about the same in the great majority of\nestablishments. In such industries the profits of the business man do\nnot often exceed the salary that he could command as general manager\nfor some one else in the same kind of business.\n\nProfessor King estimates the total volume of profits in the United\nStates in 1910 as almost eight and one-half billion dollars. This was\n27.5 per cent. of the national product, as against 24.6 per cent. in\n1890 and 30 per cent. in 1900.[160] He interprets the fall in the wage\nearners' share which has taken place since 1890 (53.5 to 46.9 per\ncent.) as indicating a considerable increase in the share of those\nbusiness men who control the very large industries. \"The promoters and\nmanipulators of these concerns have received, as their share of the\nspoils, permanent income claims, in the shape of securities, large\nenough to make Croesus appear like a pauper.\"[161] Moreover, even\noutside this monopoly field, the more able and successful business men\nseem to have obtained in recent years what might be termed a\nrelatively large share of the product of industry. The exceptionally\nefficient undertakers, those possessing the imagination, foresight,\njudgment, and courage to take full advantage of the recent\nimprovements in the industrial arts, and in the methods of production\ngenerally, seem to have advanced in wealth and income more rapidly\nthan any other class that has been subject to the operation of\ncompetition.\n\n\n_Profits in the Joint-Stock Company_\n\nUp to this point we have been considering the independent business\nman, the undertaker who manages his enterprise either alone or as a\nmember of a partnership. In all such concerns it is easy to identify\nthe business man. Who or where is the business man in a joint stock\ncompany? Where are the profits, and who gets them?\n\nStrictly speaking, there is no undertaker or business man in a\ncorporation. His functions of ownership, responsibility, and direction\nare exercised by the whole body of stockholders through the board of\ndirectors and other officers. It is true that in very many, probably\nin most corporations, one or a very few of the largest stockholders\ndominate the policies of the concern, and exercise almost as much\npower and authority as though they were the sole owners. Neither\nthese, however, nor any other officer in a corporation receives\nprofits in the same sense as the independent owner of a business. For\ntheir active services the officers of the corporation are given\nsalaries; for the risks that they undergo as owners of the stock they\nare compensated in the same way as all the other stockholders, that\nis, through a sufficiently high rate of dividend. For example, in\nrailroads the bonds usually pay from four to five per cent., the stock\nfrom five to six per cent. The bonds represent borrowed money, and are\nsecured by a mortgage on the physical property. The stock represents\nthe money invested by the owners, and is subject to all the risks of\nownership; hence its holders require the protection which is afforded\nby the extra one per cent. which they obtain over that paid to the\nbondholders.\n\nWhile a corporation has no profits in the sense of a reward for\ndirective activity or a protection against risk, it frequently\npossesses profits in the sense of a surplus which remains after costs\nand expenses of every kind have been defrayed. These profits are\nordinarily distributed pro rata among the stockholders, either\noutright in the form of an extra dividend, or indirectly through\nenlargement of the property and business of the company. They are\nsurplus gains or profits having the same intermittent and speculative\ncharacter as the extra gains which the individual business man\nsometimes obtains in addition to those profits which are necessary to\nremunerate him for his labour, and protect him against risks. They are\nnot profits in the ordinary economic sense of the term.\n\nFOOTNOTES:\n\n[160] \"The Wealth and Income of the People of the United States,\" 158,\n160.\n\n[161] Idem, p. 218.\n\n\n\n\nCHAPTER XVI\n\nTHE PRINCIPAL CANONS OF DISTRIBUTIVE JUSTICE\n\n\nBefore taking up the question of the morality of profits, it will be\nhelpful, if not necessary, to consider the chief rules of justice that\nhave been or might be adopted in distributing the product of industry\namong those who participate actively in the productive process. While\nthe discussion is undertaken with particular reference to the rewards\nof the business man, it will also have an important bearing on the\ncompensation of the wage earner. The morality of rent and interest\ndepends upon other principles than those governing the remuneration of\nhuman activity; and it has been sufficiently treated in chapters xii\nand xiii. The canons of distribution applicable to our present study\nare mainly six in number: arithmetical equality; proportional needs;\nefforts and sacrifices; comparative productivity; relative scarcity;\nand human welfare.\n\n\n_The Canon of Equality_\n\nAccording to the rule of arithmetical equality, all persons who\ncontribute to the product should receive the same amount of\nremuneration. With the exception of Bernard Shaw, no important writer\ndefends this rule to-day. It is unjust because it would treat unequals\nequally. Although men are equal as moral entities, as human persons,\nthey are unequal in desires, capacities, and powers. An income that\nwould fully satisfy the needs of one man would meet only 75 per cent.,\nor 50 per cent., of the capacities of another. To allot them equal\namounts of income would be to treat them unequally with regard to the\nrequisites of life and self development. To treat them unequally in\nthese matters would be to treat them unequally as regards the real and\nonly purpose of property rights. That purpose is welfare. Hence the\nequal moral claims of men which admittedly arise out of their moral\nequality must be construed as claims to equal degrees of welfare, not\nto equal amounts of external goods. To put the matter in another way,\nexternal goods are not welfare; they are only means to welfare;\nconsequently their importance must be determined by their bearing upon\nthe welfare of the individual. From every point of view, therefore, it\nis evident that justice in industrial distribution must be measured\nwith reference to welfare rather than with reference to incomes, and\nthat any scheme of distribution which provided equal incomes for all\npersons would be radically unjust.\n\nMoreover, the rule of equal incomes is socially impracticable. It\nwould deter the great majority of the more efficient from putting\nforth their best efforts and turning out their maximum product. As a\nconsequence, the total volume of product would be so diminished as to\nrender the share of the great majority of persons smaller than it\nwould have been under a rational plan of unequal distribution.\n\n\n_The Canon of Needs_\n\nThe second conceivable rule is that of proportional needs. It would\nrequire each person to be rewarded in accordance with his capacity to\nuse goods reasonably. If the task of distribution were entirely\nindependent of the process of production, this rule would be ideal;\nfor it would treat men as equal in those respects in which they are\nequal; namely, as beings endowed with the dignity and the potencies of\npersonality; and it would treat them as unequal in those respects in\nwhich they are unequal; that is, in their desires and capacities. But\nthe relation between distribution and production cannot be left out\nof account. The product is distributed primarily among the agents of\nproduction only, and it must be so distributed as to give due\nconsideration to the moral claims of the producer as such. The latter\nhas to be considered not merely as a person possessing needs, but as a\nperson who has contributed something to the making of the product.\nWhence arise the questions of relative efforts and sacrifices, and\nrelative productivity.\n\nSince only those who have contributed to the product participate in\nthe distribution thereof, it would seem that they should be rewarded\nin proportion to the efforts and sacrifices that they exert and\nundergo. As an example of varying effort, let us take two men of equal\nneeds who perform the same labour in such a way that the first expends\n90 per cent. of his energy, while the second expends 60 per cent. As\nan example of varying sacrifice, let us take the ditch digger, and the\ndriver who sits all day on the dump wagon. In both these examples the\nfirst man expends more painful exertion than the second. This would\nseem to make a difference in their moral desert. Justice would seem to\nrequire that in each case compensation should be proportionate to\nexertion rather than to needs. At any rate, the claims of needs should\nbe modified to some extent in favour of the claims of exertion. It is\nupon the principle of efforts and sacrifices that we expect our\neternal rewards to be based by the infinitely just Rewarder. The\nprinciple of needs is likewise in conflict with the principle of\ncomparative productivity. Men generally demand rewards in proportion\nto their products. The validity of this demand we shall examine in a\nsubsequent paragraph.\n\nLike the rule of arithmetical equality, the rule of proportional needs\nis not only incomplete ethically but impossible socially. Men's needs\nvary so widely and so imperceptibly that no human authority could use\nthem as the basis of even an approximately accurate distribution.\nMoreover, any attempt to distribute rewards on this basis alone would\nbe injurious to social welfare. It would lead to a great diminution in\nthe productivity of the more honest, the more energetic, and the more\nefficient among the agents of production.\n\n\n_The Canon of Efforts and Sacrifice_\n\nThe third canon of distribution, that of efforts and sacrifices, would\nbe ideally just if we could ignore the questions of needs and\nproductivity. But we cannot think it just to reward equally two men\nwho have expended the same quantity of painful exertion, but who\ndiffer in their needs and in their capacities of self development. To\ndo so would be to treat them unequally in the matter of welfare, which\nis the end and reason of all distribution. Consequently the principle\nof efforts and sacrifices must be modified by the principle of needs.\nApparently it must also give way in some degree to the principle of\ncomparative productivity. When two men of unequal powers make equal\nefforts, they turn out unequal amounts of product. Almost invariably\nthe more productive man believes that he should receive a greater\nshare of the product than the other. He believes that the rewards\nshould be determined by productivity.\n\nIt is evident that the rule of efforts and sacrifices, like those of\nequality and needs, could not be universally enforced in practice.\nWith the exception of cases in which the worker is called upon\nregularly to make greater sacrifices owing to the disagreeable nature\nof the task, attempts to measure the amounts of effort and painful\nexertion put forth by the different agents of production would on the\nwhole be little more than rough guesses. These would probably prove\nunsatisfactory to the majority. Moreover, the possessors of superior\nproductive power would in most instances reject the principle of\nefforts and sacrifices as unfair, and refuse to do their best work\nunder its operation.\n\nThe three rules already considered are formally ethical, inasmuch as\nthey are directly based upon the dignity and claims of personality.\nThe two following are primarily physical and social; for they measure\neconomic value rather than ethical worth. Nevertheless, they must have\na large place in any system which includes the factor of competition.\n\n\n_The Canon of Productivity_\n\nAccording to this rule, men should be rewarded in proportion to their\ncontributions to the product. It is open to the obvious objection that\nit ignores the moral claims of needs and efforts. The needs and\nuse-capacities of men do, indeed, bear some relation to their\nproductive capacities, and the man who can produce more usually needs\nmore; but the differences between the two elements are so great that\ndistribution based solely upon productivity would fall far short of\nsatisfying the demands of needs. Yet we have seen that needs\nconstitute one of the fundamentally valid principles of distribution.\nBetween productivity on the one hand and efforts and sacrifices on the\nother, there are likewise important differences. When men of equal\nproductive power are performing the same kind of labour, superior\namounts of product do represent superior amounts of effort; when the\ntasks differ in irksomeness or disagreeableness, the larger product\nmay be brought into being with a smaller expenditure of painful\nexertion. If men are unequal in productive power their products are\nobviously not in proportion to their efforts. Consider two men whose\nnatural physical abilities are so unequal that they can handle with\nequal effort shovels differing in capacity by fifty per cent.\nInstances of this kind are innumerable in industry. If these two men\nare rewarded according to productivity, one will get fifty per cent.\nmore compensation than the other. Yet the surplus received by the more\nfortunate man does not represent any action or quality for which he is\npersonally responsible. It corresponds to no larger output of personal\neffort, no superior exercise of will, no greater personal desert. It\nis based solely upon a richer physical endowment by the Creator.\n\nIt is clear, then, that the canon of productivity cannot be accepted\nto the exclusion of the principles of needs and efforts. It is not the\nonly ethical rule of distribution. Is it a valid partial rule?\nSuperior productivity is frequently due to larger effort and expense\nput forth in study and in other forms of industrial preparation. In\nsuch cases it demands superior rewards by the title of efforts and\nsacrifices. Where, however, the greater productivity is due merely to\nhigher native qualities, physical or mental, the greater reward is not\neasily justified on purely ethical grounds. For it represents no\npersonal responsibility, will-effort, or creativeness. Nevertheless,\nthe great majority of the more fortunately endowed think that they are\nunfairly treated unless they are recompensed in proportion to their\nproducts. Sometimes this conviction is due to the fact that such men\nwrongly attribute their larger product to greater efforts. In very\nmany cases, however, the possessors of superior productive power\nbelieve that they should be rewarded in proportion to their products,\nregardless of any other principle or factor. Probably the true\nexplanation of this belief is to be found in man's innate laziness.\nWhile the prevalence of the conviction that superior productivity\nconstitutes a just title to superior compensation, does create some\nkind of a presumption in favour of its correctness, it must be\nremembered that presumption is not proof. Weighing this presumption\nagainst the objective considerations on the opposite side of the\nargument, we take refuge in the conclusion that the ethical validity\nof the canon of comparative productivity can neither be certainly\nproved nor certainly disproved.\n\nLike the rules of equality, needs, and efforts, that of productivity\ncannot be universally enforced in practice. It is susceptible of\naccurate application among producers who perform the same kind of work\nwith the same kind of instruments and equipment; for example, between\ntwo shovellers, two machine operators, two bookkeepers, two lawyers,\ntwo physicians. As a rule, it cannot be adequately applied to a\nproduct which is brought into existence through a combination of\ndifferent processes. The engine driver and the track repairer\ncontribute to the common product, railway transportation; the\nbookkeeper and the machine tender co-operate in the production of\nhats; but we cannot tell in either case whether the first contributes\nmore or less than the second, for the simple reason that we have no\ncommon measure of their contributions. Sometimes, however, we can\ncompare the productivity of _individuals_ engaged in different\nprocesses; that is, when both can be removed from the industry without\ncausing it to come to a stop. Thus, it can be shown that a single\nengine driver produces more railway transportation than a single track\nrepairer, because the labour of the latter is not indispensable to the\nhauling of a given load of cars. But no such comparison can be made as\nbetween the whole body of engine drivers and the whole body of track\nrepairers, since both groups are indispensable to the production of\nrailway transportation. Again, a man can be shown to exert superior\nproductivity because he affects the productive process at more points\nand in a more intimate way than another who contributes to the product\nin a wholly different manner. While the surgeon and the attendant\nnurse are both necessary to a surgical operation, the former is\nclearly more productive than the latter. When due allowance is made\nfor all such cases, the fact remains that in a large part of the\nindustrial field it is simply impossible to determine remuneration by\nthe rule of comparative productivity.\n\n\n_The Canon of Scarcity_\n\nIt frequently happens that men attribute their larger rewards to\nlarger productivity, when the true determining element is scarcity.\nThe immediate reason why the engine driver receives more than the\ntrack repairer, the general manager more than the section foreman, the\nfloorwalker more than the salesgirl, lies in the fact that the former\nkinds of labour are not so plentiful as the latter. Were general\nmanagers relatively as abundant as section foremen their remuneration\nwould be quite as low; and the same principle holds good of every pair\nof men whose occupations and products are different in kind. Yet the\nproductivity of the general managers would remain as great as before.\nOn the other hand, no matter how plentiful the more productive men may\nbecome, they can always command higher rewards than the less\nproductive men in the same occupation, for the simple reason that\ntheir products are superior either in quantity or in quality. Men\nengaged upon the more skilled tasks are likewise mistaken when they\nattribute their greater compensation to the intrinsic excellence of\ntheir occupation. The fact is that the community cares nothing about\nthe relative nobility, or ingenuity, or other inherent quality of\nindustrial tasks or functions. It is concerned solely with products\nand results. As between two men performing the same task, superior\nefficiency receives a superior reward because it issues in a larger or\nbetter product. As between two men performing different tasks,\nsuperior skill receives superior compensation simply because it can\ncommand the greater compensation; and it is able to do this because it\nis scarce.\n\nIn most cases where scarcity is the immediate determinant of rewards,\nthe ultimate determinant is, partly at least, some kind of sacrifice.\nOne reason why chemists and civil engineers are rarer than common\nlabourers is to be found in the greater cost of preparation. The\nscarcity of workers in occupations that require no special degree of\nskill is due to unusual hazards and unpleasantness. In so far as\nscarcity is caused by the uncommon sacrifices preceding or involved in\nan occupation, the resulting higher rewards obviously rest upon most\nsolid ethical grounds. However, some part of the differences in\nscarcity is the result of unequal opportunities. If all young persons\nhad equal facilities of obtaining college and technical training, the\nsupply of the higher kinds of labour would be considerably larger than\nit now is, and the compensation would be considerably smaller.\nScarcity would then be determined by only three factors; namely,\nvarying costs of training, varying degrees of danger and\nunattractiveness among occupations, and inequalities in the\ndistribution of native ability. As a consequence, competition would\ntend to apportion rewards according to efforts, sacrifices, and\nefficiency.\n\nHow can we justify the superior rewards of that scarcity which is not\ndue to unusual costs of any sort, but merely to restricted\nopportunity? So far as society is concerned, the answer is simple: the\npractice pays. As to the possessors of the rarer kinds of ability,\nthey are in about the same ethical position as those persons whose\nsuperior productivity is derived entirely from superior native\nendowment. In both cases the unusual rewards are due to factors\noutside the control of the recipients; to advantages which they\nthemselves have not brought into existence. In the former case the\ndecisive factor and advantage is opportunity; in the latter it is a\ngift of the Creator. Now we have seen that this sort of productivity\ncannot be proved to be immoral as a canon of distribution;\nconsequently the same statement will hold good of this sort of\nscarcity.\n\n\n_The Canon of Human Welfare_\n\nWe say \"human\" welfare rather than \"social\" welfare, in order to make\nclear the fact that this canon considers the well being of men not\nonly as a social group, but also as individuals. It includes and\nsummarises all that is ethically and socially feasible in the five\ncanons already reviewed. It takes account of equality, inasmuch as it\nregards all men as persons, as subjects of rights; and of needs,\ninasmuch as it awards to all the necessary participants in the\nindustrial system at least that amount of remuneration which will meet\nthe elementary demands of decent living and self development. It is\ngoverned by efforts and sacrifices, at least in so far as they are\nreflected in productivity and scarcity; and by productivity and\nscarcity to whatever extent is necessary in order to produce the\nmaximum net results. It would give to every producer sufficient\nremuneration to evoke his greatest net contribution to the productive\nprocess. Greatest \"net\" contribution; for a man's _absolute_ maximum\nproduct may not always be worth the required price. For example: a man\nwho for a salary of 2500 dollars turns out a product valued at 3000\ndollars, should not be given 3000 dollars in order to induce him to\nbring forth a product worth 3300 dollars. In this case a salary of\n2500 dollars evokes the maximum net product, and represents the reward\nwhich would be assigned by the canon of human welfare. Once the vital\nneeds of the individual have been safeguarded, the supreme guide of\nthe canon of human welfare is the principle of maximum net results, or\nthe greatest product at the lowest cost.\n\nIt is not contended here that this canon ought never to undergo\nmodification or exception. Owing to the exceptional hazards and\nsacrifices of their occupation, a combination of producers might be\njustified in exacting larger compensation than would be accorded them\nby the canon of human welfare on the basis of net results in the\npresent conditions of supply and scarcity. Unusual needs and\ncapacities might also justify a strong group in pursuing the same\ncourse. All that is asserted at present is that in conditions of\naverage competition the canon of human welfare is not unjust. And this\nis all that is necessary as a preliminary to the discussion of just\nprofits.[162]\n\nFOOTNOTE:\n\n[162] A very suggestive discussion of the psychology, the general\nprinciples, and the practical limitations of distributive justice,\nwill be found in an article by Gustav Schmoller, entitled, \"The Idea\nof Justice in Political Economy.\" It is No. 113 in the Publications of\nthe American Academy of Political and Social Science.\n\n\n\n\nCHAPTER XVII\n\nJUST PROFITS IN CONDITIONS OF COMPETITION\n\n\nWe have seen that profits are that share of the product of industry\nwhich goes to the business man. They comprise that residual portion\nwhich he finds in his hands after he has made all expenditures and\nallowances for wages, salaries, interest at the prevailing rate on\nboth his own and the borrowed capital, and all other proper charges.\nThey constitute his compensation for his labour of direction, and for\nthe risks of his enterprise and capital.\n\nIn the opinion of most Socialists, profits are immoral because they\nare an essential element of an unjust industrial system, and because\nthey are not entirely based upon labour. Under Socialism the\norganising and directing functions that are now performed by the\nbusiness man, would be allotted to salaried superintendents and\nmanagers. Their compensation would include no payment for the risks of\ncapital, and it would be fixed instead of indeterminate. Hence it\nwould differ considerably from present-day profits.\n\nTo the assertion that profits are immoral a sufficient reply at this\ntime is that Socialism has already been shown to be impracticable and\ninequitable. Consequently the system of private industry is\nessentially just, and profits, being a necessary element of the\nsystem, are essentially legitimate. The question of their morality is\none of degree not of kind. It will be considered under two principal\nheads: the right of the business man to obtain indefinitely large\nprofits; and his right to a certain minimum of profits.\n\n\n_The Question of Indefinitely Large Profits_\n\nAs a general rule, business men who face conditions of active\ncompetition have a right to all the profits that they can get, so long\nas they use fair business methods. This means not merely fair and\nhonest conduct toward competitors, and buyers and sellers, but also\njust and humane treatment of labour in all the conditions of\nemployment, especially in the matter of wages. When these conditions\nare fulfilled, the freedom to take indefinitely large profits is\njustified by the canon of human welfare. The great majority of\nbusiness men in competitive industries do not receive incomes in\nexcess of their reasonable needs. Their profits do not notably exceed\nthe salaries that they could command as hired managers, and generally\nare not more than sufficient to reimburse them for the cost of\neducation and business training, and to enable them to live in\nreasonable conformity with the standard of living to which they have\nbecome accustomed.\n\nEfforts and sacrifices are reflected to some extent in the different\namounts of profits received by different business men. When all due\nallowance is made for chance, productivity, and scarcity, a\nconsiderable proportion of profits is attributable to harder labour,\ngreater risk and worry, and larger sacrifices. Like the principle of\nneeds, that of efforts and sacrifices is a partial justification of\nthe business man's remuneration.\n\nThose profits which cannot be justified by either of the titles just\nmentioned, are ethically warranted by the principles of productivity\nand scarcity. This is particularly true of those exceptionally large\nprofits which can be traced specifically to that unusual ability which\nis exemplified in the invention and adoption of new methods and\nprocesses in progressive industries. The receivers of these large\nrewards have produced them in competition with less efficient business\nmen. While the title of productivity does not entirely satisfy the\nseeker for decisive ethical sanctions, it is stronger morally than any\nopposing considerations that can be invoked. It is probably as strong\nas some other principles that we have to accept as the best attainable\nin the very difficult field of industrial ethics.\n\nNevertheless, it would seem that those business men who obtain\nexceptionally large profits could be reasonably required to transfer\npart of their gains to their employ\u00e9s in the form of higher wages, or\nto the consumers in the form of lower prices. Both of these methods\nhave been followed by Henry Ford, the automobile manufacturer. Neither\nof them is certainly demanded by the principles of strict justice;\nthey rest upon the feebler and less decisive principle of general\nequity or fairness.[163] This concept is less definite than those of\ncharity and justice, and stands midway between them. It comes into\noperation when an action is obligatory on stricter grounds than those\nof charity, and yet cannot with certainty be required on grounds of\njustice. Notwithstanding its vagueness, it is sufficiently strong to\nmake the average conscientious man feel uncomfortable if he neglects\nits prescriptions entirely. It has, therefore, sufficient practical\nvalue to deserve a place in the ethics of distribution. And it seems\nto have sufficient application to the problem before us to justify the\nstatement that the receivers of exceptionally large profits are bound\nin equity to share them with those persons who have co-operated in\nproducing and providing them, namely, wage earners and consumers.\n\nIn the field of profits the canon of human welfare is not only sound\nethically but expedient socially. It permits the great majority of\nbusiness men to obtain, if they can, sufficient remuneration to meet\ntheir reasonable needs. Whether it requires society to _guarantee_ at\nleast this amount of profit-income is a question that we shall examine\npresently. It encourages efforts, and makes for the maximum social\nproduct by permitting business men to retain all the profits that they\ncan get in conditions of fair competition. Does it forbid any attempt\nby society to limit exceptionally large profit-incomes? If the limit\nwere placed very high, say, at 50,000 dollars per year, it would not\napparently check the productive efforts of the great majority of\nbusiness men, since they never hope to pass that figure. Whether it\nwould have a seriously discouraging effect upon the activity and\nambition of those who do hope to reach, and of those who have already\nreached that level, is uncertain. Among business men who are\napproaching or who have passed the 50,000 dollars annual profit-income\nmark, the desire to possess more money is frequently weaker as a\nmotive to business activity than the longing for power and the driving\nforce of habit. At any rate, the question is not very practical. Any\nsustained attempt to limit profits by law would require such extensive\nand minute supervision of business that the policy would prove to be\nsocially intolerable and unprofitable. The espionage involved in the\npolicy would provoke general resentment, and the amount of profits\nthat could be diverted either to the State or to private persons would\nbe relatively insignificant.\n\nThus far we have been considering the independent business man and\nbusiness firm, not the joint stock company or corporation. In the\nlatter form of organisation, the labour of direction is remunerated by\nfixed salaries to the executive officers, while the risks of\nenterprise and capital are covered by the regular dividends received\nby the whole body of stockholders. Consequently the only revenues\ncomparable to profits are the surplus gains that remain after wages,\nsalaries, interest, dividends, rent, and all other expenses and\ncharges have been met. These are apportioned through one process or\nanother among the stockholders. On what ethical principle can they be\nthus distributed? The general principle of productivity, or superior\nproductivity, is the only one available. If a corporation which uses\nfair methods of competition can obtain surplus gains, while the\nmajority of its competitors fail to do so, the cause must be sought in\nits superior business management. This superiority must be credited to\nthe whole body of stockholders, even though the great majority of them\nare responsible for it only in a very remote way, through their\nselection of the executive officers. The stockholders surely have a\nbetter claim to these surplus gains than any other group in the\ncommunity. At the same time, they are, like the independent business\nman, bound by the principle of equity to share the surplus with the\nlabourers and consumers.\n\n\n_The Question of Minimum Profits_\n\nHas the business man a strict right to a minimum living profit? In\nother words, have all business men a right to a sufficient volume of\nsales at sufficiently high prices to provide them with living profits\nor a decent livelihood? Such a right would imply a corresponding\nobligation upon the consumers, or upon society, to furnish the\nrequisite amount of demand at the required prices. Is there such a\nright, and such an obligation?\n\nNo industrial right is absolute. They are all conditioned by the\npossibilities of the industrial system, and by the desires,\ncapacities, and actions of the persons who enter into industrial\nrelations with one another. As we shall see later, this statement is\ntrue even of the right to a living wage. When the industrial resources\nare adequate, all persons of average ability who contribute a\nreasonable amount of labour to the productive process have a right to\na decent livelihood on two conditions: first, that such labour is\ntheir only means of sustenance; and, second, that their labour is\neconomically indispensable to those who utilise it or its product.\n\"Economically indispensable\" means that the beneficiary of the labour\nwould rather give the equivalent of a decent livelihood for it than go\nwithout it. While both these conditions are apparently fulfilled in\nthe case of the great majority of wage earners, they are only rarely\nrealised with regard to business men. In most instances the business\nman who is unable to make living profits could become an employ\u00e9, and\nthus convert his right to a decent livelihood into a right to a living\nwage. Even when no such alternative is open to him, he cannot claim a\nstrict right to living profits, for the second condition stated above\nremains unfulfilled. The consuming public does not regard the business\nfunction of such men as economically indispensable. Rather than pay\nthe higher prices necessary to provide living profits for the\ninefficient business men, consumers will transfer their patronage to\nthe efficient competitors. Should the retail grocer, for example,\nraise his prices in the effort to get living profits, his sales would\nfall off to such an extent as to reduce his profits still lower. While\nthe consumers may be willing to fulfil their obligation of furnishing\nliving profits for all necessary grocers, they are not willing, nor\nare they morally bound, to do so in the case of grocers whose\ninability to command sufficient patronage at remunerative prices shows\nthat they are not necessary to the community. The consuming public\ndoes not want to employ such business men at such a cost.\n\nNor is the State under obligation to ensure living profits for all\nbusiness men. To carry out such a policy, either by enforcing a\nsufficiently high level of prices, or by subsidising those who fail to\nobtain living profits, would be to compel the public to support\ninefficiency.\n\nIn the foregoing paragraphs we have assumed that the inability of the\nbusiness men under consideration to get living profits is due to their\nown lack of capacity as compared with their more efficient\ncompetitors. When, however, their competitors are not more efficient,\nbut are enabled to undersell through the use of unfair methods, such\nas adulteration of goods and oppression of labour, a different moral\nsituation is presented. Honest and humane business men undoubtedly\nhave a claim upon society to protection against such unfair\ncompetition. And the consumers are under obligation to make reasonable\nefforts to withhold their patronage from those business men who\npractise dishonesty and extortion.\n\n\n_The Question of Superfluous Business Men_\n\nAlthough we have rejected as impractical the proposal to set a legal\nlimit to profit-incomes, we have to admit that many of the abler\nbusiness men would continue to do their best work even if the profits\nthat they could hope to obtain were considerably smaller in volume.\nThese men hold a strategic position in industry, inasmuch as they are\nnot subject to the same degree of constant competition as the other\nagents of production.[164] Were the supply of superior business\ncapacity more plentiful, their rewards would be automatically reduced,\nand the burden of profits resting upon society would be to that extent\ndiminished. On the other hand, the number of mediocre business men,\nespecially in the distributive industries, is much larger than is\nnecessary to supply the wants of the community. This constitutes a\nsecond unnecessary volume of payments under the head of profits. Is\nthere no way by which these wastes can be reduced?\n\nThe volume of exceptionally large profits could be diminished by an\nextension of the facilities of technical and industrial education.\nThus the number of persons qualifying as superior business men could\nbe gradually increased, competition among this class of men would be\nintensified, and their rewards correspondingly diminished.\n\nThe profits that go to superfluous business men, especially in the\nclass known as middlemen, can be largely eliminated through\ncombination and co-operation. The tendency to unite into a single\nconcern a large number of small and inefficient enterprises should be\nencouraged up to the point at which the combination threatens to\nbecome a monopoly. That this process is capable of effecting a\nconsiderable saving in business profits as well as in capital, has\nbeen amply demonstrated in several different lines of enterprise. As\nwe have seen in a preceding chapter, the co-operative movement,\nwhether in banking, agriculture, or stores, has been distinctly\nsuccessful in reducing profits. Millions of dollars are thus diverted\nevery year from unnecessary profit-receivers to labourers, consumers,\nand to the man of small resources generally. Yet the co-operative\nmovement is only in its infancy. It contains the possibility of\neliminating entirely the superfluous business man, and even of\ndiminishing considerably the excessive profits of the exceptionally\nable business man.\n\nFOOTNOTES:\n\n[163] Cf. pp. 212, 213 of Castelein's \"Philosophia Moralis et\nSocialis.\"\n\n[164] Cf. Hobson, \"The Industrial System,\" chapter on \"Ability.\"\n\n\n\n\nCHAPTER XVIII\n\nTHE MORAL ASPECT OF MONOPOLY\n\n\nThe conclusion was drawn in the last chapter that the surplus gains of\ncorporations operating in conditions of competition, can justly be\nretained by the stockholders as the remuneration of exceptional\nproductive efficiency. It is, of course, to be understood that the\nproper allowance for interest on the capital is not necessarily the\namount authorised by the stipulated rate of dividend on the stock, but\nthe prevailing or competitive rate of interest plus an adequate rate\nof insurance against the risks of the enterprise. If the prevailing\nrate of interest is five per cent., and the risk is sufficiently\nprotected by an allowance of one per cent., the fair rate of return on\nthe investment is six per cent. The fact that a concern may actually\naward its stockholders ten per cent. dividends, has no bearing on the\ndetermination of the genuine surplus. If the actual surplus that\nremains after paying all other charges and allowing ten per cent. on\nthe stock, is only 50,000 dollars, whereas it would be 100,000 dollars\nwith an allowance of only six per cent., then the true surplus gains,\nor profits, are the latter amount not the former. No part of the\n100,000 dollars can be justified as interest on capital. It must all\nfind its justification as profits proceeding from superior\nproductivity.\n\nBearing in mind this distinction between the actual rate of dividend\nand the proper allowance for interest on capital, we take up the\nquestion of the morality of profits or surplus gains in conditions of\nmonopoly.\n\n\n_Surplus and Excessive Profits_\n\nSeveral of the great industrial combinations of the United States have\nobtained profits which are commonly stigmatised as \"excessive.\" For\nexample, the Standard Oil Company paid, from 1882 to 1906, an average\nannual dividend of 24.15 per cent. on the capital stock, and had\nprofits in addition at the rate of about 8 per cent. annually;[165]\nfrom 1904 to 1908 the American Tobacco Company averaged 19 per cent.\non its actual investment;[166] and the United States Steel Corporation\nobtained an average annual return of 12 per cent. on its investment\nfrom 1901 to 1910.[167] A complete list of the American monopolies\nthat have reaped more than the competitive rate of return on their\ncapital would undoubtedly be a very long one.\n\nIs it possible to justify such returns? Has a monopoly a right to take\nsurplus gains? Let us suppose a concern which is getting 15 per cent.\non its investment. Inasmuch as the risks are smaller than in\ncompetitive enterprises, six per cent. is an ample allowance for\ninterest. Of the remaining 9 per cent., 4 per cent., we shall assume,\nis derived from economies of production as compared with the great\nmajority of competitive concerns. This portion of the surplus, being\nthe reward of superior efficiency, may be retained by the owners of\nthe monopoly quite as justly as similar gains are taken by the\nexceptionally efficient corporation in conditions of competition. The\nobjection that the monopoly ought to share these gains with the\npublic, since it limits individual opportunity in a socially\nundesirable way, has some merit, but it can scarcely be urged on\ngrounds of strict justice. At most it points only to an obligation in\nequity.\n\nBy what canon of distribution can the retention of the other 5 per\ncent. of surplus gain be justified? Not by the titles of needs and\nefforts, for these have already been satisfied through the salaries\npaid to those stockholders who perform labour in the management of the\nconcern. These titles afford no basis for any other claim than that\nwhich proceeds from labour. They cannot be made to justify claims made\non behalf of capital. Not by the title of productivity, for this has\nalready been remunerated in the 4 per cent. just considered. Not as\ninterest on capital, for ample allowance has already been made under\nthis head in the original 6 per cent. As we have seen in an earlier\nchapter, the only reasons that give ethical support to interest on\ncapital are the sacrifice that is involved in some kinds of saving,\nthe possibility that interest is necessary in order to induce the\nprovision of sufficient capital, the certainty that the State would be\nunable to enforce the abolition of interest, and some presumptive\nconsiderations. Since all of these reasons and ends are satisfied by\nthe competitive rate of interest, none of them will justify the\nexaction of more than the competitive rate. It is not possible to\njustify a higher rate on either social or individual grounds.\nTherefore, the only basis that is left upon which to defend the\nretention of the five per cent. surplus that we are discussing, is the\npower of appropriation. The monopoly possesses the economic strength\nto take this five per cent. because it is able to impose higher than\ncompetitive prices upon the consumer. Obviously such power has no\ngreater ethical sanction or validity than the pistol of the\nhighwayman. In both cases the gains are the product of extortion.\n\nThe conclusion that men have no right to more than the competitive\nrate of interest, as interest, on their capital, and that a monopoly\nhas consequently no right to those surplus gains that are not produced\nby superior efficiency, is confirmed by public opinion and by the\ndecisions of the courts. The monopolistic practice of taking more than\nthe usual rate of returns on capital merely because there exists the\npower to take it, is universally condemned as inequitable. In fixing\nthe charges of public service corporations, the courts with practical\nunanimity allow only the rate of return that is obtainable in\ncompetitive conditions of investment.\n\nThe statement that the monopoly may retain those surplus gains which\nare derived from superior efficiency assumes, of course, that fair\nwages have been paid to employ\u00e9s, and fair prices to the sellers of\nmaterials, and that fair methods have been used toward competitors. In\nso far as any of these conditions is not met, the monopolistic concern\nhas no right to surplus gains of any sort. All three of the claims\njust mentioned are morally stronger than the claim to superior rewards\nbecause of superior efficiency.\n\n\n_The Question of Monopolistic Efficiency_\n\nSo much for the moral principle. What proportion of the surplus gains\nof monopoly are due to extortionate prices rather than to economies in\nproduction, cannot be known even approximately. According to Justice\nBrandeis, who is one of the most competent authorities in this field,\nonly a very small part of these gains are derived from superior\nefficiency.[168] Professor E. S. Meade writes: \"During a decade\n[1902-1912] of unparalleled industrial development, the trusts,\nstarting with every advantage of large capital, well-equipped plants,\nfinancial connections, and skilled superintendence, have not\nsucceeded.\"[169] On the other hand, President Van Hise thinks that,\n\"the weight of argument is strongly in favour of the increased\nefficiency of large combinations of industry on the average.\"[170] The\ndifference of opinion existing among students of this subject is due\nto lack of adequate data, particularly to the absence of such uniform\nand comprehensive systems of accounting as would be required to\nprovide a basis for reliable general conclusions. Opposing particular\nstatements may be equally true, because based upon different\ninstances; but general statements are little better than guesses.\n\nLet us approach the question from another side, that of prices.\nWhenever the charges imposed by monopolistic concerns upon their\nproducts are higher than those that would have prevailed under\ncompetition, the surplus gains are obviously to that extent not due to\nsuperior efficiency. They have their source in the arbitrarily made\nprices. The Final Report of the United States Industrial Commission,\nwhich was made at the beginning of the year 1902, declared that, \"in\nmost cases the combination has exerted an appreciable power over\nprices, and in practically all cases it has increased the margin\nbetween raw materials and finished products.\"[171] Since the cost of\nproduction had decreased during the preceding decade, this increase in\nthe margin, and the ensuing increased profits, necessarily involved an\nincrease in prices to the consumer. Taking the period of 1897-1910,\nand comparing the movement of prices between eighteen important\ntrust-controlled products, and the same number of important\ncommodities not produced by monopolistic concerns, Professor Meade\nconcluded that the former were sold at a \"much lower\" relative level\nthan the latter.[172] His computations were based upon figures\ncompiled by the Bureau of Labour. According to the Commissioner of\nCorporations, the Standard Oil Company \"has taken advantage of its\nmonopoly power to extort prices much higher than would have existed\nunder free competition.\"[173] The same authority shows that the\nAmerican Tobacco Company used its power to obtain considerably more\nthan competitive prices on some of its products.[174] Excessive\nprices, as measured by the standards of competition, were also\nestablished by the United States Steel Corporation, the American Sugar\nRefining Company, and the combinations in meat packing and in\nlumber.[175]\n\nA safe statement would probably be that the greater part of the\nsurplus gains of the most conspicuous American monopolies have been\ndue to excessive prices rather than to economies of production.\n\nLet us turn from the subject of unjust monopoly gains to that of\nunfair methods used by the great combinations toward their\ncompetitors. These methods are mainly three: discriminative\nunderselling, exclusive-selling contracts, and advantages in\ntransportation.\n\n\n_Discriminative Underselling_\n\nThe first of these practices is exemplified when a monopoly sells its\ngoods at unprofitably low rates in competitive territory, while\nmaintaining higher prices elsewhere; and when it offers at very low\nprices those kinds of goods which are handled by competitors, while\nholding at excessively high prices the kinds of commodities over which\nit has exclusive control. Both forms of the practice seem to have been\nextensively used by most of the monopolistic concerns of America.[176]\nThe Standard Oil Company has been perhaps the most conspicuous\noffender in this field.[177] This practice is unjust because it\nviolates the fundamental moral principle that a man has a right to\npursue a lawful good without hindrance through illicit means. Among\nthe illicit means enumerated by the moral theologians are force,\nfraud, deception, lying, slander, intimidation, and extortion.[178]\n\nThe illicit means employed in discriminative underselling are chiefly\nextortion and deception. If the very low prices at which the monopoly\nsells in the field which contains competitors were maintained outside\nof that field also, and if they were continued not merely until the\nindependent concerns were driven out of business, but indefinitely\nafterward, no injustice would be done the latter. For no man has a\nnatural right to any particular business. If a powerful concern can\neliminate competitors through low prices made possible by superior\nefficiency, the competitors are not unjustly treated. They have no\nmore just cause of complaint than the inefficient grocer whose custom\nis attracted from him by other and more efficient merchants. The\noffence is at the worst contrary to charity. But when the monopoly\nmaintains the low and competition-eliminating prices only locally and\ntemporarily, when it is enabled to establish and continue these prices\nonly because it sells its goods at extortionate rates elsewhere, the\nlatter prices are evidently the instrument or means by which the\ncompetitors are injured and eliminated. In that case the monopoly\nviolates the right of the competitors to pursue a lawful good immune\nfrom unfair interference. The lawful good is a livelihood from this\nkind of business; and the illicit interference is the unjust prices\nmaintained outside the competitive field.\n\nIn the preceding paragraph we have assumed that the extortionate\nprices are operative at the same time as the excessively low prices,\nbut in a different place. Suppose that the former are imposed only\nafter the independent concerns are eliminated. The injustice to the\ncompetitors remains the same as in the preceding case. Although the\nextortionate prices are later in time, they are the instrumental cause\nof the destructive low prices through which the competitors were\ndriven out of business. If the owners of the monopoly were not certain\nof their ability to establish the subsequent extortionate prices, they\nwould not have put into effect the unprofitably low prices. Hence\nthere is a true causal connection between the former and the latter.\nAlthough the connection is mainly psychical, through the consciousness\nof the monopoly owners, it is none the less real and effective. Its\npractical effectiveness is seen in the fact that the subsequent\npossibility of imposing extortionate prices will induce men to lend\nthe monopoly money to carry on the process of exterminating\ncompetition. The process is maintained by means of the extortionate\nprices quite as effectively as though the two things were\nsimultaneous.\n\nIn so far as the patrons of the independent concerns are deceived into\nexpecting that the very low prices will be permanent, and in so far as\nthis impression causes them to withdraw their patronage from the\nindependents, the latter are injured through another illicit means,\nnamely, deception. The competitors have a right not to be deprived of\ntheir customers through imposture.\n\nWhat is the measure of extortionate prices in this connection? How can\nwe know that the high, competition-eliminating prices are really\nextortionate? There are only two possible tests of just price. The\nfirst is the proper cost of production,--fair wages to labour, fair\nprices for materials, and fair interest on capital. If the monopoly\ndoes not raise prices above this level, it obviously does not impose\nextortionate prices, nor inflict injustice upon the eliminated\ncompetitor. Moreover, if the monopoly has introduced economies of\nproduction it may, as we have seen, justly charge prices somewhat\nabove the cost-of-production level. But it may not raise them above\nthe level that would have prevailed under competition. This is the\nsecond test of just price. No possible justification can be found,\nexcept one to be mentioned presently, for charging the consumers\nhigher prices than they could have obtained under competitive\nconditions. At such prices the monopoly will be able to secure the\nprevailing rate of interest on its capital, and all the surplus gains\nthat proceed from superior efficiency. A higher scale of prices will\nbe, therefore, extortionate, and the competitors who are eliminated\nthrough its instrumentality will be the victims of injustice.[179]\n\nThe exception alluded to above occurs when the monopoly uses the\nexcess which it obtains over the competitive price to pay fair wages\nto those labourers who were insufficiently compensated in competitive\nconditions. In such a case the eliminated competitors would have no\njust claim against the monopoly; for their elimination took place in\nthe just interest of the producers. The case, however, is purely\nacademic, since the discriminative underselling practised by our\nmonopolistic concerns has not been impelled by any such motive, nor\nhas it achieved any such result.\n\n\n_Exclusive-Sales Contracts_\n\nThe second unfair method employed by monopolies toward competitors is\nthat of exclusive-selling contracts, sometimes called the \"factor's\nagreement.\" It requires the dealer, merchant, or jobber to refrain\nfrom selling the goods produced by independent concerns, on penalty of\nbeing refused the goods produced by the monopoly. The merchant is\ncompelled to choose between the less important line of wares to be had\nfrom the former, and the more important line obtainable from the\nlatter. He will not be permitted to handle both. \"Here is somebody who\nhas been buying goods, let us say, by way of illustration, from the\nAmerican Tobacco Company, and a rival producer comes in whom the\nmerchant likes to patronise. He buys goods for a time from the rival,\nand an agent of the trust sends him a note to the effect that he must\nnot buy any more from that rival corporation; that, if he does so, the\ntrust will give all of its own goods, some of which the merchant is\nobliged to have, to another agent. That will probably bring him to\nterms.\"[180] By this method the independent manufacturer can be\ndeprived of sufficient patronage to injure him seriously, and perhaps\nto drive him out of business.\n\nThis process is one of intimidation brought to bear upon the merchant.\nThrough fear of loss he is compelled to discontinue selling the goods\nof the competing manufacturer. It is a kind of secondary boycott. As\nsuch, it is an unreasonable interference with the liberty of the\nmerchant unless its object is to compel him to do something that he\nmay be reasonably required to do. In the case that we are considering,\nthe object of the pressure is not of that character; for to drive the\nrival manufacturer out of business, or to assist in his expulsion, is\nnot a reasonable thing. The exclusive-selling contract which is forced\nupon the merchant is quite as unreasonable as though its purpose were\nto prevent him from, say, patronising manufacturers having red hair.\nBeing thus unreasonable, thus injurious to individual liberty, it\nviolates not only the law of charity but that of justice. It\ntransgresses the merchant's right to enter reasonable contracts with\nthe rival manufacturer, and if it results in a pecuniary loss to the\nformer it is an invasion of his rights of property. It likewise\nviolates the rights of the competitive manufacturer, since it is among\nthe unfair means which may not be used to prevent a man from pursuing\na legitimate good. It is an unfair means because it involves\nunreasonable intimidation, uncharity, and injustice toward the\nmerchant. When the independent manufacturer is injured through such an\ninstrumentality, he suffers injustice quite as certainly at the hands\nof the monopoly as though his property were destroyed through the\nstrong-arm methods of hired thugs.\n\n\n_Discriminative Transportation Arrangements_\n\nConcerning the third unfair method, discriminative advantages in\ntransportation, the United States Industrial Commission declared: \"It\nis incontestable that many of the great industrial combinations had\ntheir origin in railroad discrimination. This has been emphasised many\ntimes in the history of the Standard Oil Company, and of the great\nmonopolies dealing in live stock, dressed beef, and other\nproducts.\"[181] The American Sugar Refining Company has been several\ntimes convicted of receiving illegal favours from railroads, and has\npaid in fines thousands upon thousands of dollars. Sometimes the\nmonopoly has openly been accorded lower freight rates than its\ncompetitors, and sometimes it has paid the regular charges, and then\nreceived back a part of them as a refund or rebate. At one time the\nStandard Oil Company obtained rebates not only on its own shipments,\nbut on those of its rivals![182]\n\nSpecial advantages of this sort necessarily involve injustice to the\ncompetitors of the monopoly. If the low rates given to the\nmonopolistic concern are a sufficiently high price for the service of\ncarrying freight, the higher charges imposed upon the competing\nconcerns are extortionate; if the former rates are unprofitably low,\nthe difference between sufficient and insufficient freight charges is\nmade up by the independent concerns. In the former case the\nindependents pay the railroad too much; in the latter case they bear\nburdens that should properly rest upon the monopoly. The monopolistic\nconcern is partly responsible for this injustice inasmuch as it urges\nand often intimidates the railroad to establish the discriminating\nrates.\n\nAll three of the practices that we have been considering are\nuniversally condemned by public sentiment. They are all likewise under\nthe ban of statutory law. The first two have recently received\ndetailed and explicit prohibition in the Clayton Anti-Trust Act.\n\n\n_Natural Monopolies_\n\nUp to this point we have been dealing with private and artificial\nmonopolies. We turn now to consider briefly those natural and\nquasi-public monopolies which are either tacitly or explicitly\nrecognised as monopolies by public authority, and whose charges are to\na greater or less extent regulated by some department of the State.\nSuch are, for example; steam railroads and municipal utilities. When\nthe charges made for the services of these corporations are\n_adequately_ regulated by public authority, the owners of such\nconcerns will have a right to all the surplus gains that they can\nobtain. In that case a contract is made between the corporation and\nthe public which is presumably fair to both parties, and which\nrepresents the social estimate of what is just. If the public\nauthorities have not sufficiently safeguarded the interests of the\npeople, if they have permitted the charges to be so high as to provide\nexcessive returns for the corporation, the latter is under no moral\nobligation to refrain from reaping the full benefit of the State's\nnegligence or incompetence. If, however, the unduly high rates have\nbeen brought about through bribery, extortion, or deception practised\nby the corporation, the inequitable contract thus arranged will not\njustify the surplus gains thus produced. For example; if the\ncorporation deliberately and effectively conceals the real value of\nits property through stockwatering, and thus misleads the public\nauthority into permitting charges which return twelve instead of six\nper cent. on the actual investment, the corporation cannot forthwith\njustly claim the surplus gain represented by the extra six per cent.\n\nWhen the public authorities either fail entirely to regulate charges,\nor do so only spasmodically and partially, the quasi-public monopoly\nwill not necessarily have a right to all the obtainable surplus gains.\nFor a long time the express companies of the United States were\npermitted to exact what charges they pleased, and even yet the rates\non some of our railroads are not adequately regulated by the State. In\nsuch cases the charges imposed on the public are not an adequate\nexpression of the social estimate of justice, nor an adequate basis of\nlegitimate surplus gains. In the absence of sufficient public\nregulation, a quasi-public monopoly is morally bound to fix its\ncharges at such a level as will enable it to obtain only the\nprevailing rate of interest on the investment, and such surplus gains\nas it can produce through exceptional efficiency. In all such cases\nthe public service corporation is in the same moral position as the\nartificial monopoly: it has no possible basis except superior\nefficiency for claiming or getting any returns above the competitive\nrate of interest on its capital. Its only possible reason for\nobtaining more is the fact that it has the power to take more. This\nfact has obviously no moral validity.\n\n\n_Methods of Preventing Monopolistic Injustice_\n\nHow shall the injustices of monopoly be prevented in the future? So\nfar as quasi-public monopolies are concerned, all students of the\nsubject are now agreed that these should be permitted to exist under\nadequate governmental regulation as to prices and service. The reason\nis that in this field successful and useful competition is impossible.\nPublic utility corporations are natural monopolies, and must be dealt\nwith by the method of regulation until such time as they are brought\nunder the ownership and operation of the State. With regard to the\ngreat industrial combinations which have become or threaten to become\nartificial monopolies, there exists substantial agreement among\ncompetent authorities on one point, and disagreement on another point.\nAll admit that the unfair competitive methods described in an earlier\npart of this chapter should be stringently prohibited. No possible\nreason can be found for legal toleration of these or any other\ndiscriminative, uncharitable, or unjust practices on the part of\nstronger toward weaker competitors.\n\nThe disagreement among students of monopoly relates to the fundamental\nquestion of permitting or not permitting these combinations to exist.\nAccording to the first theory, of which Mr. Justice Brandeis is the\nmost distinguished exponent, no new industrial monopolies should be\npermitted, and those that we have should be dissolved. The basis of\nthis theory is the assumption that all the economies and all the\nproductive efficiency found in monopolistic concerns can be developed\nand maintained in smaller business organisations, and that the method\nof prevention and dissolution is the simplest means of protecting the\npublic against the danger of extortionate monopoly prices. Attention\nhas been called in a preceding paragraph to the impossibility of\ndetermining whether the great monopolistic combinations have on the\naverage shown themselves to be more efficient than concerns subject\nto active and adequate competition. It is significant, however, that\nin the discussion of this subject which took place at the twenty-sixth\nannual meeting of the American Economic Association, at Minneapolis in\n1913, the economists who participated were practically unanimous in\nholding that the superior efficiency of the trusts had not been\ndemonstrated, but was a matter of serious doubt, and that the burden\nof proof of their alleged superiority had been definitely shifted upon\nthose who maintained the affirmative.[183] Probably the great majority\nof the whole body of American economists would share these\nconclusions.\n\nOn the other hand, the opponents of prevention and dissolution, of\nwhom Mr. George W. Perkins is probably the most conspicuous, point to\nthe obvious economies of large-scale over small-scale production, and\ncontend that these are sufficient reason for permitting and even\nencouraging the great combinations. The power to oppress competitors\nby unjust methods of business, and the public by extortionate prices,\nshould be kept under rigid control by supervision, and government\nregulation of maximum prices. But the arguments advanced in favour of\nthis position are never conclusive. Most of its advocates fail to\nrealise, or at least to take adequately into account, the difference\nbetween large-scale production and production by a monopoly. While the\nlarge plant and the large business organisation have in many lines of\nmanufacture and trade a considerable advantage over the small plant\nand the small organisation, there is not a scintilla of evidence to\nshow that the efficiency of magnitude increases indefinitely with\nmagnitude. There is no proof that the maximum efficiency is reached\nonly with the maximum size of the business unit. On the contrary, all\nthe evidence that we have points to the conclusion that in every field\nof industrial and commercial enterprise, all the economies of\nmagnitude and of combination are obtained long before the concern\nbecomes a monopoly. There is not an industry of any importance in the\nUnited States in which all the advantages of bigness and concentration\ncannot be made operative in concerns that control as low as\ntwenty-five per cent. of the total product. The highest economy and\nefficiency can be obtained without monopoly.\n\nIndeed, this is admitted by the more reasonable advocates of the\nregulation and price-fixing policy. While maintaining that\n\"concentration must go far in order to give the maximum of\nefficiency,\" President Van Hise does not hold \"that it should go to\nthe extent that the element of monopoly enters\"; and he would have the\nlaw \"declare restraint of trade unreasonable that gets to monopoly,\"\nand fix the definite per cent. of business control which constitutes a\nmonopoly.[184] We are justified, therefore, in concluding that the\ntheory of prevention and dissolution (provided that the competing\nunits are not made so small as to destroy the certain economies of\nmagnitude) rather than the theory of permission and regulation,\nindicates the sound economic and social policy of dealing with\nmonopolies.\n\n\n_Legalised Price Agreements_\n\nPresident Van Hise advocates the regulation policy in a modified form.\nIn substance his view is that, while no corporation should be\npermitted to control the greater part of any product, monopolistic\nprice-agreements should be sanctioned and regulated by law. No amount\nof restrictive legislation, he maintains, can secure universal\ncompetition in the matter of prices. Experience shows that the\ndestructive results of cut-throat competition compel the more powerful\ncompetitors to make price agreements in some lines of business.[185]\nFor example; all the retail grocers in a city are often found selling\ncertain staples at a uniform price for long periods of time.\nAgreements of this sort should, in the opinion of President Van Hise,\nbe formally permitted by law, with the proviso that a government\ncommission should fix the maximum and possibly the minimum limits. And\nhe contends that the task of fixing fair maximum and minimum prices\nwould be much less difficult than is commonly supposed, and that it\nwould be much simpler and easier than the task of regulating railway\nfreight rates.\n\nWhatever may be the merits of this plan, it is not likely to be\nembodied in legislation in the near future. So far as we can see now,\nthe American people are committed to the policy of endeavouring to\nrestore genuine competition by prohibiting those predatory practices\nto which the great monopolies mainly owe their existence. The attempt\nwill be made to give competition a fair opportunity to prevent both\nmonopolistic control of products and monopolistic fixing of prices.\nCompetition has not enjoyed any such opportunity during the last\nquarter of a century. If this attempt should fail after a thorough\ntrial, the time will be at hand for the regulation of prices by the\ngovernment. Until that time has arrived (let us hope that it never\nwill arrive) the State will not, and should not, embark upon such a\nlarge and difficult experiment.\n\nFOOTNOTES:\n\n[165] Report of the Commissioner of Corporations on the Petroleum\nIndustry, II, 40, 41.\n\n[166] Report of the Commissioner of Corporations on the Tobacco\nIndustry, II, 26-34.\n\n[167] Report of the Commissioner of Corporations on the Steel\nIndustry, I, 51. According to F. J. McRae, the expert accountant for\nthe Stanley congressional investigating committee, this concern\nsecured 40 per cent. on the _cost_ of its property.\n\n[168] Hearings Before the Interstate Commerce Committee, U. S. Senate,\nPart XVI, pages 1146-1166.\n\n[169] _The Journal of Political Economy_, April, 1912, p. 366.\n\n[170] \"Concentration and Control,\" p. 20.\n\n[171] Page 621.\n\n[172] _The Journal of Political Economy_, April, 1912, p. 363.\n\n[173] Report on the Petroleum Industry, II, 74.\n\n[174] Report on the Tobacco Industry, II, 27.\n\n[175] Cf. Van Hise, op. cit., pp. 140, 149, 153, 159.\n\n[176] Final Report of the Industrial Commission, pp. 660-662.\n\n[177] Report on the Petroleum Industry, I, 328-332.\n\n[178] Cf. Lehmkuhl, \"Theologia Moralis,\" I, No. 974.\n\n[179] It may be of interest to recall the medi\u00e6val attitude toward\nmonopolistic exactions, as summarily stated by St. Antoninus, who was\narchbishop of Florence in the first half of the fifteenth century:\n\"When monopolist merchants agree together to preserve a fixed price,\nso as to secure an unlimited profit, they are guilty of sinful\ntrading.\" He maintained that they should not sell above the market\nprice, and should be prevented from so doing by law. See his \"Summa\nTheologica,\" III, 8, 3, iv, and II, 1, 16, ii. Present day moral\ntheologians lay down the same doctrine, and in addition condemn the\ncharacteristic monopolistic methods as unjust. See Tanquerey, \"De\nJustitia,\" nos. 776, 777; Lehmkuhl, \"Theologia Moralis,\" vol. I, no.\n1119.\n\n[180] Clark, \"The Problem of Monopoly,\" p. 35.\n\n[181] Final Report, p. 361.\n\n[182] Report on the Petroleum Industry, pp. 22, 23.\n\n[183] \"Papers and Proceedings,\" pp. 158-194.\n\n[184] Op. cit., pp. 20, 251.\n\n[185] Op. cit., pp. 254-265.\n\n\n\n\nCHAPTER XIX\n\nTHE MORAL ASPECT OF STOCK WATERING\n\n\nIn the last chapter we saw that a monopoly has no right to gains in\nexcess of the competitive rate of interest on its capital, except in\nso far as these have been derived from superior efficiency. Now\nsuperior efficiency is clearly present whenever the monopolistic\nconcern obtains surplus gains by selling its product at competitive\nprices, or at the prices that would have prevailed under competition.\nEvidently the surplus in such a case is due to the greater\nproductivity of the monopoly as compared with the average productivity\nof competitive concerns. When, however, the monopoly charges prices\nabove the competitive level, its surplus gains cannot all be\nattributed to unusual efficiency. A part if not all of them are the\nresult simply of the power to take; consequently they are immoral.\n\nOne of the means by which some monopolies have obtained unjust surplus\ngains is overcapitalisation, or stockwatering. This practice is rarely\nfound in businesses that are subject to normal competition. So far as\nthe consumer is concerned, a corporation that cannot fix prices\narbitrarily has nothing to gain by inflating its capital. Unless it\ndevelops exceptional efficiency, it cannot hope to obtain more than\nthe competitive rate of interest on its capital; if it does become\nexceptionally efficient, it can take the resulting surplus gains\nwithout arousing public resentment or criticism. In either case, it\nwill have no sufficient reason to deceive the public by exaggerating\nthe amount of its capital. When a competitive concern does water its\nstock, the object will be to defraud investors. If the scheme is\nsuccessful the unjust surplus gains are taken by one set of\nstockholders from another set of stockholders. Whenever anything of\nthis sort occurs, the deceptive devices employed are so crude and\nobvious that they present no special problem for the moralist. Even as\npractised by monopolies, stockwatering raises no principle that has\nnot been already discussed. It does, however, create some special\ndifficulties in the matter of applying the moral principles involved.\nConsequently, it may with advantage be considered in a separate\nchapter.\n\nThe general definition of overcapitalisation is capitalisation in\nexcess of the proper valuation of a business. What is the measure of\nproper valuation? According to many corporation directors, it is\nearning power. If a concern is able to get the prevailing rate of\ninterest on a capitalisation of ten million dollars, that is the\nproper capitalisation for that concern, even though the money actually\ninvested might not have exceeded five million dollars. In the opinion\nof most other persons, however, a company is overcapitalised when the\nface value of its securities is greater than the money put into the\nbusiness plus the subsequent enhancement in the value of its land.\n\"The money put into the business,\" means that which has been expended\nfor labour, materials, land, equipment, and all other items and costs\nof organising the concern, together with the sum that is necessary to\ncover the interest not obtained by the investors during the\npreparatory period before the business became productively operative.\nThe increase in the value of the land after its acquisition by the\ncompany also deserves a place in the legitimate valuation, and may\nreasonably be represented by an appropriate amount of securities.\nMonopolistic corporations have as good a right, generally speaking, to\nprofit by the \"unearned increment\" of land as competitive concerns. In\nbrief, the proper measure of capitalisation is cost: either the\noriginal cost, as just explained and supplemented; or the present\ncost of reproducing the business.\n\n\n_Injurious Effects of Stockwatering_\n\nStockwatering can become an instrument of unjust gains in two ways:\nfirst, through fraud inflicted upon some of the investors; second,\nthrough the imposition of exorbitant prices upon the consumers. The\nformer cannot occur so long as the process of inflation does not go\nbeyond earning power; for in that case all stockholders, barring\ndishonest manipulation of the company's receipts, will obtain the\nnormal rate of interest on their investment. If, however, stock is\nsold in excess of the earning power of the concern, those stockholders\nwho fail to obtain the ordinary rate of interest on their money are\nunjustly treated in so far as they have been deceived. And those\nofficers or other members of the corporation who have profited by the\ndeception of and injury to these stockholders, are the recipients of\nunjust gains. Daniel Drew inflated the capitalisation of the Erie\nRailroad from seventeen millions to seventy-eight millions within four\nyears for the purpose of manipulating the stock market; owing to\nexcessive issues of stock, the American Shipbuilding Company was\nthrown into bankruptcy to the great injury of all but one of its\nstockholders;[186] because they issued securities to buy subsidiary\nrailway lines at exorbitant prices, and to provide extravagant\ncommissions and discounts for bankers, the directors of the 'Frisco\nSystem forced it into a receivership, after having inflicted a net\nloss of four million dollars per year upon the stockholders.[187] Many\nother notable performances might be cited where stockwatering, both in\nrailroads and in industrial concerns, has defrauded investors of\nmillions of dollars, and enabled a few powerful directors to reap\ncorresponding enormous profits.\n\nAt first sight it would seem that stockwatering is of little or no\nimportance to the consumer. Since a monopolistic concern endeavours to\nfix its prices at the point that will yield the maximum net profit in\nany case, the amount of stock in existence would seem to be irrelevant\nto the problem. Nevertheless, the presence of a large quantity of\nfictitious capital whose owners are calling for dividends, sometimes\nconstitutes a special force impelling the imposition of higher prices\nand charges. \"It will happen at times that overcapitalisation does at\nleast cause a clinging to high prices. The managers of an\novercapitalised monopoly may have to face the fact that great blocks\nof securities are outstanding, very likely issued by their\npredecessors, and now held by all sorts of investors. They are then\nloath to let go any slice of its profits. We have seen that often the\nmonopoly principle of maximum net profit is not applied in its full\nsweep, especially in industries which are potentially subject to\npublic control. Where abnormal returns on the original investment have\nbeen made, concessions to public opinion in the way of low rates and\nbetter facilities are more likely to come when capitalisation has not\nbeen inflated.\"[188] The United States Industrial Commission found\nthat as regards railroads: \"In the long run excessive capitalisation\ntends to keep rates high; conservative capitalisation tends to make\nrates low.\"[189]\n\nThis indirect influence of stockwatering toward excessive rates and\nprices becomes effective in two ways. The existence of fictitious\ncapital conceals from the public the high rate of return that is\nobtained on the true valuation, thus preventing effective action for a\nreduction in prices and charges; and it sometimes causes the\nrate-making authorities to allow rates to be sufficiently high to\nyield something to the investors in the inflated capital. If a trust\nor a railroad has issued stock having a par value of twice the capital\ninvested, its rate of dividend on the entire capitalisation will be\nonly one-half the rate of interest that it is receiving on the\ninvestment. If it pays, for example, seven per cent. on all its stock,\nit will be getting fourteen per cent. on its genuine capital. While\nthe consumers of tobacco, or the patrons of a railroad, would raise no\noutcry against seven per cent. dividends, they would probably begin to\nagitate for an enforcement of the anti-trust laws, and for a reduction\nin freight and passenger charges, if they realised that they were\nproviding for dividends of fourteen per cent. Nor is the public\nadequately protected by government investigations of trusts and\nregulation of railway rates. Despite the anti-trust laws, many\nAmerican monopolies have for many years received exorbitant profits\nthrough excessive prices imposed upon the consumer; and in many of\nthese instances overcapitalisation and its resulting concealment of\nreal profits have been of considerable assistance to the extortionate\nmonopoly. In fixing railway rates, the Interstate Commerce Commission,\nand the various state railroad commissions, have been seriously\nhampered by their inability to determine the real investment of the\nroads, and to separate the genuine from the fictitious capitalisation.\nNot until the year 1913 did the national government begin the task of\nmaking a valuation of interstate railroad property, and the work will\nrequire several years. Very few of the states have made valuations of\nthe railroads within their borders. In the meantime it is certain that\nmany of the rates fixed by both the national and the state bodies will\ncontinue, as in the past, to be higher than they would have been if\nthe true value of the railroads were known and accepted as the basis\nof freight and passenger charges.\n\nThe second bad effect of stockwatering on the consumer is seen when\nrate-fixing bodies deliberately permit the charges of public service\ncorporations to be high enough to include some returns on that portion\nof the capitalisation which is fictitious. It is very difficult for\nsuch authorities to resist entirely the plea of the \"innocent\ninvestor.\" Consequently, railroad commissions and other rate making\nauthorities, and even the courts, have occasionally made some\nprovision for dividends on the \"water.\" Chairman Knapp of the\nInterstate Commerce Commission admitted a few years ago that, in\nconsidering the reasonableness of a given rate, this body took into\naccount the financial condition, and therefore the capitalisation of\nthe railroad.[190] In 1914 and 1915 practically all the great railway\nsystems of the United States made powerful, and in a measure\nsuccessful, appeals to the Interstate Commerce Commission for a rise\nin rates on the ground that they were unable to pay the normal rate of\ninterest on their securities, and hence could not obtain on\nadvantageous terms new capital needed for improvements. Had the\ncapitalisation of the roads been kept down to the actual investment,\nmost of them would have been able to pay the competitive rate of\ninterest on all their stock, and still have a sufficient surplus to\ncommand excellent credit.\n\n\n_The Moral Wrong_\n\nWhen prices or charges are made high enough to provide returns on\nfictitious capital, the consumer is treated unjustly. As we have shown\nmore than once, the consumer cannot rightfully be required to pay for\nthe products of a monopoly at a greater rate than is necessary to\nprovide the competitive rate of interest on capital in the average\nconditions of efficiency. If some concerns are able to sell at this\nprice, and still obtain surplus gains, they have a right thereto on\naccount of their exceptional productivity. But the capital upon which\na monopolistic concern has a claim to the prevailing rate of interest,\nis genuine capital: that is, the actual investment as interpreted\nabove, not an inflated capitalisation. The consumers may justly be\nrequired to pay for the use and benefit of actual productive goods;\nbut it is not just that they should be compelled to pay for the\nsupposed use of a capital that has no concrete reality.\n\nThe stockholders of the monopolistic corporation which imposes upon\nthe consumers exorbitant prices or charges through the instrumentality\nof inflated capitalisation, can become guilty of this injustice in two\nways: by promoting the improper capitalisation; and by getting\ndividends on stock for which they have not given a fair equivalent. As\na rule, the greater part of such guilt and responsibility rests upon\ncertain special and powerful groups among the stockholders. For\nexample; the J.P. Morgan syndicate which organised the United States\nSteel Corporation received for that service securities to the value of\n$63,500,000. \"There can be no question,\" says the Commissioner of\nCorporations, \"that this huge compensation to the syndicate was\ngreatly in excess of a reasonable payment.\"[191] The syndicate was\nable to exact this stupendous sum mainly because some of its members\nwere also in control of some of the companies that were brought into\nthe combination. \"In other words, as managers of the Steel Corporation\nthese various interests virtually determined their compensation as\nunderwriters.\"[192] In the opinion of the minority members of the\nStanley congressional investigating committee, \"such a sum bore no\nrelation whatever to the service rendered, the risk run, and the\ncapital advanced.\"[193] The majority of the committee characterised\nthe transaction in even stronger language. It is clear, therefore,\nthat the syndicate committed injustice toward the consumers both by\norganising a monopoly which afterward imposed unjust prices, and by\ntaking millions of dollars in securities which its members did not\nearn, and on which they received interest through the exorbitant\nprices. While this transaction is exceptionally conspicuous, it is\nsubstantially typical of the methods by which many powerful monopolies\nhave watered their stock to the detriment of the public, and the\nadvantage of a small group of directors and financiers.\n\n\n_The \"Innocent\" Investor_\n\nIs the State obliged to protect, or is even justified in protecting,\nthe innocent victims of stockwatering? That is to say, should\nrate-making authorities fix the charges of public service corporations\nhigh enough to return some interest to the purchasers of fictitious\nsecurities? All the facts and presumptions of the case seem to demand\nan answer in the negative. In the first place, it is impossible to\ndistinguish the \"innocent\" holders from those who were fully\nacquainted with the questionable and speculative nature of the stock\nat the time it came into their possession. In the second place, the\ncivil law has never formally recognised any such claim on the part of\neven innocent investors, nor any such obligation on the part of\nitself. It has never laid down the principle that any class of\ninvestors in fictitious stock has a legal or moral right to obtain the\nnormal rate of interest on such stock through the imposition of\nsufficiently high charges upon the consumers. Nor have the courts,\nexcept in isolated instances, sanctioned any such principle. On the\ncontrary, the Supreme Court of the United States, in the case of Smyth\nvs. Ames, declared that a railroad \"may not impose upon the public the\nburden of such increased rates as may be required for the purpose of\nrealising profits upon such excessive valuation or fictitious\ncapitalisation.\" In the third place, when we consider the matter from\nthe side of morals, we see that the innocent investors are not the\nonly persons whose rights are involved. If charges are placed high\nenough to cover interest on fictitious capital, the cost and the\ninjury fall upon the consumers. The latter have a right to the\nservices of utility corporations, such as railways and gas companies,\nat a fair price; that is, a price which will return to the capital put\ninto the concern the prevailing rate of interest, plus whatever gains\nare obtained by exceptional efficiency. To require them to pay more\nthan this, is to compel them to give something for nothing; namely, to\nprovide interest on capital which does not exist, and from which they\nreceive no benefit. When, therefore, the State intervenes to secure\nfair charges for the consumers, it should base them upon the capital\nactually invested and used in the business of public service.\n\nFrequently, however, the State has permitted overcapitalisation, and\ncharges sufficient to pay normal dividends thereon, for long periods\nof years. Has it not thereby encouraged investors to cherish the\nexpectation that these high charges would be permitted to continue,\nand that the fictitious stock would remain indefinitely as valuable as\nwhen it came into their possession? Is it not breaking faith with\nthese investors when it reduces charges to the basis of the actual\ninvestment? A sufficient answer to these questions is found in the\nfact that the State has never officially sanctioned the practice of\nstockwatering, nor in any way intimated that it would recognise the\nexistence of the fictitious stock when it should take up the neglected\ntask of fixing fair rates and charges. At the most, the civil law has\nmerely tolerated the practice, and the resulting extortion upon the\npublic. And there has never been a time when the greater and saner\npart of public opinion did not look upon overcapitalisation as at the\nleast abnormal and irregular. Neither from the civil law nor from\npublic sentiment have the devices of inflating capitalisation received\nthat measure of approval which would confer upon investments therein\nthe legal or the moral status of vested rights. To the \"innocent\ninvestor\" in watered stocks the maxim, _caveat emptor_, is as fairly\napplicable as to the man who has been deceived into lending his money\non insufficient security, or the man who has been induced by the\nasseverations of a highly imaginative prospectus to put his money into\na salted gold mine, or the man who buys stolen goods from a pawn shop,\nor the man who because of insufficient police protection loses his\npurse to a highwayman. In all these cases perfect legal safeguards\nwould have prevented the loss; yet in none of them does the State\nundertake to make the loss good to the innocent victim.\n\nSuch seems to be the strict justice of the situation as between the\nconsumer and the innocent investor. It may sometimes happen that a\nparticularly grave hardship can be averted from the latter at a\ncomparatively slight cost to the former. In such a case equity would\nseem to require that some concession be made to the investors through\nthe imposition of somewhat higher charges upon the consumer.\n\n\n_Magnitude of Overcapitalisation_\n\nProbably the majority of the great steam railroads, street railways,\nand gas companies that were organised during the last quarter of the\nnineteenth century inflated their capitalisation to a greater or less\nextent. Since the year 1900 the trusts have been the chief exponents\nand illustrations of the practice. According to President Van Hise,\n\"the majority of the great concentrations of industry have gone\nthrough two or three stages of reorganisation, the promoters and\nfinanciers each time profiting greatly, sometimes enormously.\"[194]\nFor example; in 1908 the \"water\" in the American Tobacco Company was\nestimated by the Commissioner of Corporations at $66,000,000; the\nUnited States Shipbuilding Company diluted its twelve and one-half\nmillion dollars of capital with more than fifty-five millions of\n\"water\"; the United States Steel Corporation contained at the time of\nits organisation fictitious capital to the amount of $500,000,000; and\nat least fifty per cent. of the common stock of the American Sugar\nRefining Company represented no actual investment.[195] Owing to the\npenetrating and widespread criticism, and the government\ninvestigations and prosecutions of the last few years, the practice of\nstockwatering has very greatly diminished. Perhaps the most flagrant\nrecent example is that of the Pullman Company, which according to the\ntestimony of R. T. Lincoln before the Federal Commission on Industrial\nRelations, distributed among its stockholders $100,000,000 in stock\ndividends between 1898 and 1910.\n\nNevertheless the temptation to inflate capital will exist until the\ndevice is stringently prohibited by law. Both the nation and the\nstates ought to adopt the policy of forbidding the sale of stock at\nless than par value, and restricting issues of stock to the amount\nrequired for the establishment, equipment, and permanent betterment of\na concern, including a sum to cover the loss of interest to the\ninvestors during the early period of the business. Any extraordinary\nrisks to which an enterprise is liable can be protected by the simple\ndevice of allowing a correspondingly high rate of interest on the\nsecurities. With such legislation enacted and enforced, neither the\ninvestor nor the consumer could be deceived or defrauded; and the\nfinancing and management of corporations would become less\nspeculative, and more beneficial to the community. The present chapter\nmay be fittingly closed with a moderate and significant statement from\nthe pen of Professor Taussig: \"It is doubtful whether the whole\nmechanism of irregular and swollen capitalisation was at any time\nnecessary or wise. Why not provide once for all that securities shall\nbe issued only to represent what has been invested?... It is\nsometimes said that freedom, even recklessness, in the issue of\nsecurities was a useful device, in that it enabled the projectors to\nlook forward to returns really tempting, and at the same time\nconcealed these returns from a grudging public.... A more simple and\nstraightforward way of dealing with the issue of securities might thus\nhave dampened in some degree the feverish speculation and restless\nprogress of railway development. But a slower pace would have had its\nadvantages also, and, not least, restriction of securities would have\nsaved great complications in the later stages of established monopoly\nand needed regulation.\"[196]\n\nFOOTNOTES:\n\n[186] Cf. Ripley, \"Trusts, Pools, and Corporations,\" pp. 207-210.\n\n[187] See Report of the Interstate Commerce Commission on these\ntransactions.\n\n[188] Taussig, \"Principles of Economics,\" II, 385, 386.\n\n[189] Final Report, p. 414.\n\n[190] Final Report of the Industrial Commission, p. 413.\n\n[191] Report on the Steel Industry, p. 38.\n\n[192] Idem, p. 39.\n\n[193] _Chicago Record-Herald_, July 29, 1912.\n\n[194] Op. cit., p. 28.\n\n[195] Cf. Van Hise, op. cit., pp. 29, 142, 149.\n\n[196] Op. cit., II, 387, 388.\n\n\n\n\nCHAPTER XX\n\nTHE LEGAL LIMITATION OF FORTUNES\n\n\nIf the taxation and other measures of reform suggested in Section I\nwere fully applied to our land system; if co-operative enterprise were\nextended to its utmost practicable limits for the correction of\ncapitalism; and if the wide extension of educational opportunities,\nand the elimination of the surplus gains of monopolies restricted the\nprofits of the business man to an amount strictly commensurate with\nhis ability and risks,--if all these results were accomplished the\nnumber of men who could become millionaires through their own efforts\nwould be so small that their success would arouse popular applause\nrather than popular envy. Their claim to whatever wealth they might\naccumulate would be generally looked upon as entirely valid and\nreasonable. Their pecuniary eminence would be pronounced quite as\ndeserved as the literary eminence of a Lowell, the scientific eminence\nof a Pasteur, or the political eminence of a Lincoln. In such\nconditions there could be no disconcerting discussion of the menace of\ngreat fortunes.\n\nIn the meantime, these reforms are not realised, nor are they likely\nto be even approximately established within the present generation.\nFor some time to come it will be possible for the exceptionally able,\nthe exceptionally cunning, and the exceptionally lucky to accumulate\ngreat riches through clever and fortuitous utilisation of special\nadvantages, natural and otherwise. Moreover, a great proportion of the\nlarge fortunes already in existence will persist, and will be\ntransmitted to heirs who will in many cases cause them to increase.\nCan nothing be done to reduce the size and lessen the number of these\ngreat accumulations? If so, is such a proceeding socially and morally\ndesirable?\n\n\n_The Method of Direct Limitation_\n\nThe law might directly limit the amount of property to be held by any\nindividual. If the limit were placed fairly high, say, at one hundred\nthousand dollars, it could scarcely be regarded as an infringement on\nthe right of property. In the case of a family numbering ten members,\nthis would mean one million dollars. All the essential objects of\nprivate ownership could be abundantly met out of a sum of one hundred\nthousand dollars for each person. Moreover, a restriction of this sort\nneed not prevent a man from bestowing unlimited amounts upon\ncharitable, religious, educational, or other benevolent causes. It\nwould, indeed, hinder some persons from satisfying certain unessential\nwants, such as, the desire to enjoy gross or refined luxuries, great\nfinancial power, and the control of immense industrial enterprises;\nbut none of these objects is necessary for any individual's genuine\nwelfare. In the interest of the social good such private and\nunimportant ends may properly be rendered impossible of realisation.\n\nSuch a restriction would no more constitute a direct attack upon\nprivate ownership than limitations upon the use and kinds of property.\nAt present a man may not do what he pleases with his gun, his horse,\nor his automobile, nor may he invest his money in the business of\ncarrying the mails. The limitation of fortunes is just what the word\nexpresses, a _limitation_ of the right of property. It is not a denial\nnor _destruction_ of that right. As a limitation of the amount to be\nheld by an individual, it does not differ in principle from a\nlimitation of the kinds of goods that may become the subject of\nprivate ownership. There is nothing in the nature of things nor in the\nreason of property to indicate that the right of ownership is\nunlimited in quantity any more than it is in quality. The final end\nand justification of individual rights of property is human welfare;\nthat is, the welfare of all individuals severally and collectively.\nNow it is quite within the bounds of physical possibility that the\nlimitation under discussion might be conducive to the welfare of human\nbeings both as individuals and as constituting society.\n\nNevertheless the dangers and obstacles confronting any legal\nrestriction of fortunes are so real as to render the proposal socially\ninexpedient. It would easily lend itself to grave abuse. Once the\ncommunity had habituated itself to a direct limitation of any sort,\nthe temptation to lower it in the interest of better distribution and\nsimpler living would become exceedingly powerful. Eventually the right\nof property might take such an attenuated and uncertain form in the\npublic mind as to discourage labour and initiative, and thus seriously\nto endanger human welfare. In the second place, the manifold evasions\nto which the measure would lend itself would make it of very doubtful\nefficacy. To be sure, neither of these objections is absolutely\nconclusive, but taken together they are sufficiently weighty to\ndictate that such a proposal should not be entertained so long as\nother and less dangerous methods are available to meet the problem of\nexcessive fortunes.\n\nFour of the nine members of the Federal Commission on Industrial\nRelations have suggested that the amount of property capable of being\nreceived by the heirs of any person be limited to one million\ndollars.[197] If we assume that by heirs the Commission meant the\nnatural persons to whom property might come by bequest or succession,\nthis limitation would permit a family of ten persons to inherit one\nhundred thousand dollars each, and a family of five persons to obtain\ntwo hundred thousand dollars apiece. Would such a restriction be a\nviolation of the right of private ownership? The answer depends upon\nthe effects of the measure on human welfare. The rights of bequest and\nsuccession are integral elements of the right of ownership; hence they\nare based upon human needs, and designed for the promotion of human\nlife and development. A person needs private property not only to\nprovide for his personal wants and those of his family during his\nlifetime, but also to safeguard the welfare of his dependents and to\nassist other worthy purposes, after he has passed away. Owing to the\nuncertainty of death, the latter objects cannot be adequately realised\nwithout the institutions of bequest and succession.\n\nAll the necessary and rational ends of bequest and succession could be\nattained in a society in which no man's heirs could inherit more than\none million dollars. Under such an arrangement very few of the\nchildren of millionaires would be prevented from getting at least one\nhundred thousand dollars. That much would be amply sufficient for the\nessential and reasonable needs of any human being. Indeed, we may go\nfurther, and lay down the proposition that the overwhelming majority\nof persons can lead a more virtuous and reasonable life on the basis\nof a fortune of one hundred thousand dollars than when burdened with\nany larger amount. The persons who have the desire and the ability to\nuse a greater sum than this in a rational way are so few that a\nlimitation law need not take them into account. Corporate persons,\nsuch as hospitals, churches, schools, and other helpful institutions,\nshould not, as a rule, be restricted as to the amount that they might\ninherit; for many of them could make a good use of more than the\namount that suffices for a natural person.\n\nSo much for the welfare and rights of the beneficiaries of\ninheritance. The owners of estates would not be injured in their\nrights of property by the limitation that we are here considering. In\nthe first place, the number of persons practically affected by the\nlimitation would be extremely small. Only an insignificant fraction of\nproperty owners ever transmit or expect to be wealthy enough to\ntransmit to their families more than one million dollars. Of these few\na considerable proportion would not be deterred by the million dollar\nlimitation from putting forth their best and greatest efforts in a\nproductive way. They would continue to work either from force of habit\nand love of their accustomed tasks, or from a desire to make large\ngifts to their heirs during life, or because they wished to assist\nsome benevolent enterprise. The infinitesimally small number whose\nenergies would be diminished by the limitation could very safely be\ntreated as a socially negligible element. The community would be\nbetter off without them.\n\nThe limitation of inheritance would, indeed, be liable to abuse.\nCircumstances would undoubtedly arise in which the community would be\nstrongly tempted to make the maximum inheritable amount so low as to\ndiscourage the desire of acquisition, and to deprive heirs of\nreasonable protection. While the bad effects of such a limitation\nwould not be as great as those following a similar abuse with regard\nto possessions, they are sufficiently grave and sufficiently probable\nto suggest that the legal restriction of bequest and succession should\nnot be considered except as a last resort, and when the transmission\nof great fortunes had become a great and certain public evil.\n\nIt seems reasonable to conclude, then, that neither the limitation of\npossessions nor the limitation of inheritance is necessarily a direct\nviolation of the right of property, but that the possible and even\nprobable evil consequences of both are so grave as to make these\nmeasures of very doubtful benefit. Whether the dangers in question are\nsufficiently great to render the adoption of either proposal morally\nwrong, is a question that cannot be answered with any degree of\nconfidence. What seems to be fairly certain is that in our present\nconditions legislation of this sort would be an unnecessary and unwise\nexperiment.\n\n\n_Limitation Through Progressive Taxation_\n\nIs it legitimate and feasible to reduce great fortunes indirectly,\nthrough taxation? There is certainly no objection to the method on\nmoral or social principles. As we have seen in chapter viii, taxes are\nnot levied exclusively for the purpose of raising revenue. Some kinds\nof them are designed to promote social rather than fiscal ends. Now,\nto prevent and diminish dangerous accumulations of wealth is a social\nend which is at least as important as most of the objects sought in\nlicense taxes. The propriety of attempting to attain this end by\ntaxation is, therefore, to be determined entirely by reference to its\nprobable effectiveness.\n\nThe precise method of taxation available here is a progressive tax on\nincomes and inheritances. By a progressive tax is meant one whose rate\nadvances in some definite proportion to the increases in the amount\ntaxed. For example, a bequest of 100,000 dollars might pay one per\ncent.; 200,000 dollars, two per cent.; 300,000 dollars, three per\ncent., and so forth. The reasonableness of the principle of\nprogression in taxation has been well stated by Professor Seligman:\n\"All individual wants vary in intensity, from the absolutely necessary\nwants of mere subsistence to the less pressing wants which can be\nsatisfied by pure luxuries. Taxes, in so far as they rob us of the\nmeans of satisfying our wants, impose a sacrifice upon us. But the\nsacrifice involved in giving up a portion of what enables us to\nsatisfy our necessary wants is very different from the sacrifice\ninvolved in giving up what is necessary to satisfy our less urgent\nwants. If two men have incomes of one thousand dollars and one hundred\nthousand dollars respectively, we impose upon them not equal but very\nunequal sacrifices if we take away from each the same proportion, say\nten per cent. For the one thousand dollar individual now has only nine\nhundred dollars, and must deprive himself and his family of\nnecessaries of life; the one hundred thousand dollar individual has\nninety thousand dollars, and if he retrenches at all, which is very\ndoubtful, he will give up only great luxuries, which do not satisfy\nany pressing wants. The sacrifice imposed on the two individuals is\nnot equal. We are laying on the one thousand dollar man a far heavier\nsacrifice than on the one hundred thousand dollar man. In order to\nimpose equal sacrifices we must tax the richer man not only\nabsolutely, but relatively, more than the poor man. The taxes must be\nnot proportional, but progressive; the rate must be lower in the one\ncase than in the other.\"[198]\n\nThe principle of equality of sacrifices which underlies the\nprogressive theory does not justify the levelling and communistic\ninferences that have sometimes been brought against it. Equality of\nsacrifice does not mean equality of satisfied, or unsatisfied, wants\nafter the tax has been collected. If Brown pays a tax of one per cent.\non his income of two thousand dollars, it does not follow that Jones\nwith an income of ten thousand dollars should pay a sufficiently high\nrate to leave him with only the net amount remaining to Brown; namely,\n1980 dollars. Equality of sacrifice means proportional equality of\nburden, not equality of net resources after the tax has been deducted.\nThe object of the progressive rate is to make relatively equal the\nsacrifices _caused by the tax itself_, not to equalise the sum total\nof burdens or unsatisfied wants that exist among men.\n\nAnother objection to progressive taxation is that it readily lends\nitself to confiscation of the largest incomes. All that is necessary\nto produce this result is to increase the rate with sufficient\nrapidity. This could be accomplished either by large steps in the\nrate itself or by small steps in the income increases which formed the\nbasis of the advances in the rate. For example, if the Federal income\ntax, which at present levies two per cent. on incomes of more than\nthree thousand dollars, and three per cent. on incomes of over twenty\nthousand dollars, should thereafter progress geometrically with every\ngeometrically progressive increment of income, the rate on incomes\nabove $640,000 would be 96 per cent.! Or if the rate should progress\narithmetically with every ten thousand dollars of increase above\ntwenty thousand dollars, it would be 100 per cent. on incomes of over\n$990,000!\n\nTo this objection there are two valid answers. Even if the rate should\nultimately reach one hundred per cent. it need not, and on progressive\nprinciples it should not, effect confiscation of an entire income. The\nprogressive theory is satisfied when the successive rates of the tax\napply to successive increments of income, instead of to the entire\nincome. For example, the rate might begin at one per cent. on incomes\nof one thousand dollars, and increase by one per cent. with every\nadditional thousand, and yet leave a very large part of the income in\nthe hands of the receiver. Each one thousand dollars would be taxed at\na different rate, the first at one per cent., the fiftieth at fifty\nper cent., and the last at one hundred per cent. If the hundred per\ncent. rate were applied to the whole of the higher incomes, it would\nbe a direct violation of the principle of equality of sacrifice. In\nthe second place, the progressive theory forbids rather than requires\nthe rate to go as high as one hundred per cent. While the sacrifices\nimposed by a given rate are greater in the case of small than of large\nproperties, they become approximately equal as between all properties\nabove a certain high level. After this level is reached, additional\nincrements of wealth will all be expended either for extreme luxuries,\nor converted into new investments. Consequently they will supply\nwants of approximately equal intensity. For example, the wants\ndependent upon a surplus of 25,000 dollars in excess of an income of\n100,000 dollars, and the wants dependent upon a surplus of 75,000\ndollars above the same level do not differ materially in strength. To\ndiminish these surpluses by the same per cent., say, ten, would impose\nproportionally equal burdens.\n\nHence the rate of progression should be degressive; that is, it should\nincrease at a constant pace until a certain high level of income is\nreached, then increase at a steadily diminishing pace, and finally\nbecome uniform on the very highest incomes. For example; if the rate\nincreased one per cent. with every additional five thousand dollars,\nreaching fifteen per cent. on incomes of seventy-five thousand\ndollars, it should be on eighty thousand dollars, not sixteen but\nfifteen and one-half per cent. On 85,000 dollars the rate should be\n15-3/4 per cent.; on 90,000, 15-7/8 per cent.; on 95,000, 15-15/16 per\ncent.; and on all sums of 100,000 and over, 16 per cent. The point at\nwhich the increments in the rate began to decline would be that at\nwhich differences in wants began to diminish, and the point at which\nthe rate became stationary would be that at which wants fell to the\nsame level of intensity.\n\n\n_The Proper Rate of Income and Inheritance Taxes_\n\nWhile the principle of equality of sacrifices forbids a rate of tax\nthat would reach or approximate confiscation, it gives no definite\nindication of the proper scale of progression, or of the maximum limit\nthat justice would set to the rate. Under our Federal law the highest\nrate on incomes is now 13 per cent.; under the Wisconsin law it is 6\nper cent.; under the law of Prussia it is 4 per cent.; and under the\nBritish act of 1909 it is about 8-1/2 per cent. Evidently a much\nhigher rate than any of these would be required to make any impression\nupon swollen fortunes. The British government recently (September,\n1915) made the maximum rate about 33-1/3 per cent. To be sure, this\nis a war measure which probably will not continue after the\nrestoration of peace. However, if it were made permanent it could not\nbe proved to be unjust, provided that it were applied to the\n_increments_ of income above a certain high limit, but not to these\nincomes in their entirety.\n\nOur present inheritance taxes are very low, averaging less than 3 per\ncent. throughout the United States. Probably the highest rate is to be\nfound in Wisconsin, where bequests to non relatives in excess of half\na million dollars are subject to a tax of fifteen per cent. It is\nclear that all the existing rates could be raised very considerably\nwithout causing a violation of justice. Some years ago Andrew Carnegie\nrecommended a tax of fifty per cent. on estates amounting to more than\none million dollars.[199] No country has yet reached this high level\nof inheritance taxes. Nevertheless we cannot certainly stigmatise it\nas unjust either to the testator or his heirs, nor can we prove that\nit is in any other manner injurious to human welfare. All that can be\nsaid with confidence concerning the just rates of inheritance taxation\nmust take the form of generalisations. The increments of the tax\nshould correspond as closely as possible to the diminishing intensity\nof the wants which the tax deprives of satisfaction; in the case of\neach heir a certain fairly high minimum of property should be entirely\nexempt; on all the highest estates the rate should be uniform, and it\nshould fall a long way short of confiscation; and the tax should at no\npoint be such as to discourage socially useful activity and\nenterprise.\n\n\n_Effectiveness of Such Taxation_\n\nThe essential justice of the measures is not the only consideration\naffecting high income and inheritance taxes. There remain the\nquestions of expediency and feasibility. Under the first head the\nobjection is sometimes raised that taxes which appropriated a\nconsiderable portion of the larger incomes and inheritances would\ndiminish very materially the social supply of capital. Immense sums of\nmoney would go into the public treasury which otherwise would have\nbeen invested in commerce and industry. Two questions are raised by\nthis situation: first, whether it might not be better for society to\nhave these sums devoted, through public works of various kinds, to\nconsumptive uses instead of to an increase in the supply of capital;\nsecond, whether the reduction in the savings and capital provided by\nthe persons paying the taxes could be offset by increases in saving\namong other classes. Even if it be assumed that the first question\nshould receive a negative answer, it is not improbable that the second\nshould be answered in the affirmative. In other words, the increased\nsaving which the poorer and middle classes would be enabled to make as\na result of the shifting of some of their burden of taxation to the\nlarge incomes and inheritances, might very well counterbalance the\ncurtailment in the investments of the wealthy classes. Even if this\npossibility were not fully realised, even if the net volume of capital\nin the community were somewhat diminished, this disadvantage might be\nmore than neutralised by the wider social benefits of the taxation\npolicy.\n\nWith regard to the feasibility of very heavy income and inheritance\ntaxes, it is sometimes contended that neither of these measures can be\nmade effective toward the reduction of abnormal fortunes.[200] It is\nheld that the successful collection of these taxes requires the\nco-operation of the persons affected by them; that if the rate should\ngo above ten or twelve per cent., the income receiver would evade the\ntax in a great variety of ways, while the owner of a large estate\nwould transfer his property outright to a trust company, which would\nafter his death make the desired distribution. The man who urges\nthese objections is a very high authority on taxation, especially on\nits administrative side; nevertheless his contentions are not\nabsolutely conclusive. In particular, it does not seem probable that\nhigh inheritance taxes could be evaded by the simple devices that he\nmentions. It ought not to be beyond the power of administrative\ningenuity to find methods of defeating such subterfuges. However, it\nis altogether likely that the possibilities of evasion would be\nsufficient to prevent the imposition of tax rates that approached\nwithin measurable distance of the borderland of confiscation.\n\nThe sum of the matter seems to be that the reduction and prevention of\ngreat fortunes cannot prudently be accomplished by the method of\ndirect limitation; that these ends may wisely and justly be attained\nindirectly, through the imposition of progressive income and\ninheritance taxes; but that the extent to which these measures would\nbe genuinely effective cannot be estimated until they have been given\na thorough trial.\n\nFOOTNOTES:\n\n[197] \"Final Report,\" p. 32.\n\n[198] \"Progressive Taxation,\" pp. 210, 211; cf. Vermeersch,\n\"Quaestiones de Justitia,\" pp. 94-126.\n\n[199] \"The Gospel of Wealth,\" pp. 11, 12.\n\n[200] Cf. Dr. T. S. Adams in \"Papers and Proceedings of the 27th\nAnnual Meeting of the American Economic Association,\" pp. 234, sq.\n\n\n\n\nCHAPTER XXI\n\nTHE DUTY OF DISTRIBUTING SUPERFLUOUS WEALTH\n\n\nThe correctives of the present distribution that were proposed before\nthe beginning of the last chapter related mainly to the apportionment\nof the product among the agents of production. They would affect that\ndistribution which takes place as an integral element of the\nproductive process, not any disposition which the productive agents\nmight desire or be required to make of the shares that they had\nacquired from the productive process. Such were many of the proposals\nregarding land tenure, and all of those concerning co-operative\nenterprises and monopoly. In the last chapter we considered the\npossibility of neutralising to some extent the abuses of the primary\ndistribution by the action of government through the taxation of large\nfortunes. These were proposals directly affecting the secondary\ndistribution. And they involved the method of compulsion. In the\npresent chapter we shall inquire whether desirable changes in the\nsecondary distribution may not be effected by voluntary action. The\nspecific questions confronting us here are, whether and how far\nproprietors are morally bound to distribute their superfluous wealth\namong their less fortunate fellows.\n\n\n_The Question of Distributing Some_\n\nThe authority of revealed religion returns to the first of these\nquestions a clear and emphatic answer in the affirmative. The Old and\nthe New Testaments abound in declarations that possessors are under\nvery strict obligation to give of their surplus to the indigent.\nPerhaps the most striking expression of this teaching is that found\nin the Gospel according to St. Matthew, ch. 25, verses 32-46, where\neternal happiness is awarded to those who have fed the hungry, given\ndrink to the thirsty, received the stranger, covered the naked,\nvisited the sick, and called upon the imprisoned; and eternal\ndamnation is meted out to those who have failed in these respects. The\nprinciple that ownership is stewardship, that the man who possesses\nsuperfluous goods must regard himself as a trustee for the needy, is\nfundamental and all-pervasive in the teaching of Christianity. No more\nclear or concise statement of it has ever been given than that of St.\nThomas Aquinas: \"As regards the power of acquiring and dispensing\nmaterial goods, man may lawfully possess them as his own; as regards\ntheir use, however, a man ought not to look upon them as his own, but\nas common, so that he may readily minister to the needs of\nothers.\"[201]\n\nReason likewise enjoins the benevolent distribution of surplus wealth.\nIt reminds the proprietor that his needy neighbours have the same\nnature, the same faculties, capacities, wants, and destiny as himself.\nThey are his equals and his brothers. Reason, therefore, requires that\nhe should esteem them as such, love them as such, and treat them as\nsuch; that he should love them not merely by well wishing, but by well\ndoing. Since the goods of the earth were intended by the Creator for\nthe common benefit of all mankind, the possessor of a surplus is\nreasonably required to use it in such a way that this original purpose\nof all created goods will be fulfilled. To refuse is to treat one's\nless fortunate neighbour as something different from and less than\noneself, as a creature whose claim upon the common bounty of nature is\nsomething less than one's own. Multiplying words will not make these\ntruths plainer. The man who does not admit that the welfare of his\nneighbour is of equal moral worth and importance with his own\nwelfare, will logically refuse to admit that he is under any\nobligation of distributing his superfluous goods. The man who does\nacknowledge this essential equality will be unable to find any logical\nbasis for such refusal.\n\nIs this obligation one of charity or one of justice? At the outset a\ndistinction must be made between wealth that has been honestly\nacquired and wealth that has come into one's possession through some\nviolation of rights. The latter kind must, of course, be restored to\nthose persons who have been wronged. If they cannot be found or\nidentified the ill-gotten gains must be turned over to charitable or\nother worthy objects. Since the goods do not belong to the present\nholder by any valid moral title, they should be given to those persons\nwho are qualified by at least the claim and title of needs.\n\nSome of the Fathers of the Church maintained that all superfluous\nwealth, whether well or ill gotten, ought to be distributed to those\nin want. St. Basil of C\u00e6sarea: \"Will not the man who robs another of\nhis clothing be called a thief? Is the man who is able and refuses to\nclothe the naked deserving of any other appellation? The bread that\nyou withhold belongs to the hungry; the cloak that you retain in your\nchest belongs to the naked; the shoes that are decaying in your\npossession belong to the shoeless; the gold that you have hidden in\nthe ground belongs to the indigent. Wherefore, as often as you were\nable to help men and refused, so often you did them wrong.\"[202] St.\nAugustine of Hippo: \"The superfluities of the rich are the necessities\nof the poor. They who possess superfluities possess the goods of\nothers.\"[203] St. Ambrose of Milan: \"The earth belongs to all; not to\nthe rich; but those who possess their shares are fewer than those who\ndo not. Therefore, you are paying a debt, not bestowing a gift.\"[204]\nPope Gregory the Great: \"When we give necessaries to the needy, we do\nnot bestow upon them our goods; we return to them their own; we pay a\ndebt of justice rather than of mercy.\"[205]\n\nThe great systematiser of theology in the thirteenth century, St.\nThomas Aquinas, who is universally recognised as the most\nauthoritative private teacher in the Church, stated the obligation of\ndistribution in less extreme and more scientific terms: \"According to\nthe order of nature instituted by Divine Providence, the goods of the\nearth are designed to supply the needs of men. The division of goods\nand their appropriation through human law do not thwart this purpose.\nTherefore, the goods which a man has in superfluity are due by the\nnatural law to the sustenance of the poor.\"[206]\n\nThat this is the official teaching of the Church to-day is evident\nfrom the words of Pope Leo XIII: \"When one has provided sufficiently\nfor one's necessities and the demands of one's state of life, there is\na duty to give to the indigent out of what remains. It is a duty not\nof strict justice, save in case of extreme necessity, but of Christian\ncharity.\"[207] Nearly thirteen years earlier, the same Pope had\nwritten: \"The Church lays the rich under strict command to give their\nsuperfluity to the poor.\"[208]\n\nThe only difference between the Fathers and Pope Leo XIII and St.\nThomas on this question has reference to the precise nature of the\nobligation. According to the Fathers, the duty of distribution would\nseem to be a duty of justice. In the passage quoted above from St.\nThomas, superfluities are said to \"belong,\" or to be \"due\" (\"debetur\")\nto the needy; but the particular moral precept that applies is not\nspecified. In another place, however, the Angelic Doctor declares that\nalmsgiving is an act of charity.[209] Pope Leo XIII explicitly says\nthat the obligation of giving is one of charity, \"except in extreme\ncases.\" The latter phrase refers to the traditional doctrine that a\nperson who is in extreme need; that is, in immediate danger of losing\nlife, limb, or some equivalent personal good, is justified in the\nabsence of any other means of succour in taking from his neighbour\nwhat is absolutely necessary. Such appropriation, says St. Thomas, is\nnot properly speaking theft; for the goods seized belong to the needy\nperson, \"inasmuch as he must sustain life.\"[210] In a word, the\nmedi\u00e6val and the modern Catholic teaching would make distribution of\nsuperfluous goods a duty of justice only in extreme situations, while\nthe Fathers laid down no such specific limitation. Nevertheless, the\ndifference is less important than it appears to be on the surface.\nWhen the Fathers lived, theology had not been systematised nor given a\nprecise terminology; consequently, they did not always make exact\ndistinctions between the different classes of virtues and obligations.\nIn the second place, the Patristic passages that we have quoted, and\nothers of like import, were mostly contained in sermons addressed to\nthe rich, and consequently were expressed in hortatory rather than\nscientific terms. Moreover, the needs of the time which the rich were\nexhorted to relieve were probably so urgent that they could correctly\nbe classed as extreme, and therefore would give rise to an obligation\nof justice on the part of those who possessed superfluous wealth.\n\nThe truly important fact of the whole situation is that both the\nFathers and the later authorities of the Church regard the task of\ndistributing superfluous goods as one of strict moral obligation,\nwhich in serious cases is binding under pain of grievous sin. Whether\nit falls under the head of justice or under that of charity, is of no\ngreat practical consequence.\n\n\n_The Question of Distributing All_\n\nIs a man obliged to distribute _all_ his superfluous wealth? As\nregards the support of human life, Catholic moral theologians\ndistinguish three classes of goods: first, the necessaries of life,\nthose utilities which are essential to a healthy and humane existence\nfor a man and his family, regardless of the social position that he\nmay occupy, or the standard of life to which he may have been\naccustomed; second, the conventional necessities and comforts, which\ncorrespond to the social plane upon which the individual or family\nmoves; third, those goods which are not required to support either\nexistence or social position. Goods of the second class are said to be\nnecessary as regards conventional purposes, but superfluous as regards\nthe maintenance of life, while those of the third class are\nsuperfluous without qualification.\n\nNo obligation exists to distribute the first class of goods; for the\npossessor is justified in preferring his own primary and fundamental\nneeds to the equal or less important needs of his neighbours. The\nowner of goods of the second class is under obligation to dispense\nthem to persons who are in extreme need, since the preservation of the\nneighbour's life is more important morally than the maintenance of the\nowner's conventional standard of living. On the other hand, there is\nno obligation of giving any of these goods to meet those needs of the\nneighbour which are social or conventional. Here, again, it is\nreasonable that the possessor should prefer his own interests to the\nequal interests of his fellows. Still less is he obliged to expend any\nof the second class of goods for the relief of ordinary or common\ndistress. As regards the third class of goods, those which are\nabsolutely superfluous, the proportion to be distributed is\nindefinite, depending upon the volume of need. The doctrine of the\nmoral theologians on the subject is summed up in the following\nparagraph.\n\nWhen the needs to be supplied are \"ordinary,\" or \"common\"; that is,\nwhen they merely expose a person to considerable and constant\ninconvenience, without inflicting serious physical, mental, or moral\ninjury, they do not impose upon any man the obligation of giving up\nall his superfluous goods. According to some moral theologians, the\npossessor fulfils his duty in such cases if he contributes that\nproportion of his surplus which would suffice for the removal of all\nsuch distress, provided that all other possessors were equally\ngenerous; according to others, if he gives two per cent. of his\nsuperfluity; according to others, if he contributes two per cent. of\nhis annual income. These estimates are intended not so much to define\nthe exact measure of obligation as to emphasise the fact that there\nexists some degree of obligation; for all the moral theologians agree\nthat some portion of a man's superfluous goods ought to be given for\nthe relief of ordinary or common needs. When, however, the distress is\ngrave; that is, when it is seriously detrimental to welfare; for\nexample, when a man or a family is in danger of falling to a lower\nsocial plane; when health, morality, or the intellectual or religious\nlife is menaced,--possessors are required to contribute as much of\ntheir superfluous goods as is necessary to meet all such cases of\ndistress. If all is needed all must be given. In other words, the\nentire mass of superfluous wealth is morally subject to the call of\ngrave need. This seems to be the unanimous teaching of the moral\ntheologians.[211] It is also in harmony with the general principle of\nthe moral law that the goods of the earth should be enjoyed by the\ninhabitants of the earth in proportion to their essential needs. In\nany rational distribution of a common heritage, the claims of health,\nmind, and morals are surely superior to the demands of luxurious\nliving, or investment, or mere accumulation.\n\nWhat per cent. of the superfluous incomes in the United States would\nsuffice to alleviate all the existing grave and ordinary distress?\nNothing like an exact answer is possible, but we can get an\napproximation that will have considerable practical value. From the\nestimates of family incomes given by Professor W. I. King, it appears\nthat in 1910 the number of families with annual incomes of less than\none thousand dollars was a little more than ten and three quarter\nmillions, and that the total incomes of those families receiving more\nthan ten thousand dollars a year amounted to a little more than three\nand three quarter billions.[212] If each of the latter class of\nfamilies should expend ten thousand dollars per year for the needs of\nlife and social position, they would have left nearly two and three\nquarter billions for distribution among the ten and three quarter\nmillion families who are below the one thousand dollar level. So far\nas the figures of Professor King's table enable us to judge, the\ngreater part if not all of this sum would be required to bring this\ngroup of families up to that standard. Possibly an income of one\nthousand dollars per family is not required to remove all ordinary and\ngrave distress; and possibly ten thousand dollars is not enough for\nthe reasonable requirements of some families. If both these\nsuppositions are true they will tend to cancel each other: the needs\nto be met will be less, but the superfluous income to be distributed\nwill be less also. Whatever be the minimum and maximum limits of\nfamily income that approve themselves to competent students, the\nconclusion will probably be inevitable that the greater part of the\nsuperfluous income of the well-to-do and the rich would be required to\nabolish all grave and ordinary need.\n\n\n_Some Objections_\n\nThe desirability of such a thoroughgoing distribution of superfluous\nincomes appears to be refuted by the fact that a considerable part of\nthe capital and organising ability that function in industry is\ndependent upon the possession of superfluous goods by the richer\nclasses. That surplus of the larger incomes which is not consumed or\ngiven away by its receivers at present, constitutes no small portion\nof the whole supply of savings annually converted into capital. Were\nall of it to be withdrawn from industry and distributed among the\nneedy, the process might involve more harm than good. Moreover, the\nvery large industrial enterprises are initiated and carried on by men\nwho have themselves provided a considerable share of the necessary\nfunds. Without these large masses of personal capital, they would have\nmuch more difficulty in organising these great enterprises, and would\nbe unable to exercise their present dominating control.\n\nTo the first part of this objection we may reply that the distribution\nof superfluous goods need not involve any considerable withdrawal of\nexisting capital from industry. The giving of large amounts to\ninstitutions and organisations, as distinguished from needy\nindividuals, might mean merely a transfer of capital from one holder\nto another; for example, the stocks and bonds of corporations. The\ncapital would be left intact, the only change being in the persons\nthat would thenceforth receive the interest. Small donations could\ncome out of the possessor's income. Moreover, there is no reason why\nthe whole of the distribution could not be made out of income rather\nthan out of capital. While the givers would still remain possessed of\nsuperfluous wealth, they would have handed over to needy objects,\npersons, and causes the thing that in modern times constitutes the\nsoul and essence of wealth; namely, its annual revenues.\n\nNevertheless, the distribution from income would apparently check the\nnecessary increase of capital, lessen unduly the supply of capital for\nthe future. Were all, or the greater part of superfluous incomes\ndevoted to benevolent objects it would be used up for consumption\ngoods; such as, food, clothing, housing, hospitals, churches, schools.\nWould not this check to the increase of capital cause serious injury\nto society?\n\nNew investment would not be diminished by an amount equal to the whole\namount of income transferred to objects of benevolence. For the\nimproved position of the poorer classes that had shared in the\ndistribution would enable them to increase their productive power and\ntheir resources, and therefore to save money and convert it into\ncapital. Again, their increased consuming power would augment the\ndemand for goods, bring about a larger use of existing capital\ninstruments, and therefore lead to an enlargement of the community's\ncapacity for saving. Thus, the new saving and capital would, partially\nat least, take the place of that which was formerly provided by the\npossessors of surplus income. In so far as a net diminution occurred\nin the community's supply of capital, it would probably be more than\noffset, from the viewpoint of social welfare, by the better diffusion\nof goods and opportunities among the masses of the population.\n\nThe second difficulty noted above, that such a thorough distribution\nof superfluous goods would lessen considerably the power of the\ncaptains of industry to organise and operate great enterprises, can be\ndisposed of very briefly. Those who made the distribution from income\nrather than from invested wealth, would still retain control of large\nmasses of capital. All, however, would have deprived themselves of the\npower to enlarge their business ventures by turning great quantities\nof their own income back into industry. But if their ability and\ncharacter were such as to command the confidence of investors, they\nwould be able to find sufficient capital elsewhere to equip and carry\non any sound and necessary enterprise. In this case the process of\naccumulating the required funds would, indeed, be slower than when\nthey used their own, but that would not be an unmixed disadvantage.\nWhen the business was finally established, it would probably be more\nstable, would respond to a more definite and considerable need, and\nwould be more beneficial socially, inasmuch as it would include a\nlarger proportion of the population among its proprietors. And the\ndiminished authority and control exercised by the great capitalist, on\naccount of his diminished ownership of the stock, would in the long\nrun be a good thing for society. It would mean the curtailment of a\nspecies of power that is easily liable to abuse, wider opportunities\nof industrial leadership, and a more democratic and stable industrial\nsystem.\n\nOnly a comparatively small portion of the superfluous goods of the\ncountry could with advantage be immediately and directly distributed\namong needy individuals. The greater part would do more good if it\nwere given to religious and benevolent institutions and enterprises.\nChurches, schools, scholarships, hospitals, asylums, housing projects,\ninsurance against unemployment, sickness, and old age, and benevolent\nand scientific purposes generally,--constitute the best objects and\nagencies of effective distribution. By these means social and\nindividual efficiency would be so improved within a few years that\nthe distress due to economic causes would for the most part have\ndisappeared.\n\nThe proposition that men are under moral obligation to give away the\ngreater portion of their superfluous goods or income is, indeed, a\n\"hard saying.\" Not improbably it will strike the majority of persons\nwho read these pages as extreme and fantastic. No Catholic, however,\nwho knows the traditional teaching of the Church on the right use of\nwealth, and who considers patiently and seriously the magnitude and\nthe meaning of human distress, will be able to refute the proposition\nby reasoned arguments. Indeed, no man can logically deny it who admits\nthat men are intrinsically sacred, and essentially equal by nature and\nin their claims to a reasonable livelihood from the common heritage of\nthe earth. The wants that a man supplies out of his superfluous goods\nare not necessary for rational existence. For the most part they bring\nhim merely irrational enjoyment, greater social prestige, or increased\ndomination over his fellows. Judged by any reasonable standard, these\nare surely less important than those needs of the neighbour which are\nconnected with humane living. If any considerable part of the\ncommunity rejects these propositions the explanation will be found not\nin a reasoned theory, but in the conventional assumption that a man\nmay do what he likes with his own. This assumption is adopted without\nexamination, without criticism, without any serious advertence to the\ngreat moral facts that ownership is stewardship, and that the Creator\nintended the earth for the reasonable support of all the children of\nmen.\n\n\n_A False Conception of Welfare and Superfluous Goods_\n\nIf all the present owners of superfluous goods were to carry out their\nown conception of the obligation, the amount distributed would be only\na fraction of the real superabundance. Let us recall the definition\nof absolute superfluity as, that portion of individual or family\nincome which is not required for the reasonable maintenance of life\nand social position. It allows, of course, a reasonable provision for\nthe future. But the great majority of possessors, as well as perhaps\nthe majority of others, do not interpret their needs, whether of life\nor social position, in any such strict fashion. Those who acquire a\nsurplus over their present absolute and conventional needs, generally\ndevote it to an expansion of social position. They move into larger\nand more expensive houses, thereby increasing their assumed\nrequirements, not merely in the matter of housing, but as regards\nfood, clothing, amusements, and the conventions of the social group\nwith which they are affiliated. In this way the surplus which ought to\nhave been distributed is all absorbed in the acquisition and\nmaintenance of more expensive standards. All classes of possessors\nadopt and act upon an exaggerated conception of both the strict and\nthe conventional necessities. In taking this course, they are merely\nsubscribing to the current theory of life and welfare. It is commonly\nassumed that to be worth while life must include the continuous and\nindefinite increase of the number and variety of wants, and a\ncorresponding growth and variation in the means of satisfying them.\nVery little endeavour is made to distinguish between kinds of wants,\nor to arrange them in any definite scale of moral importance. Desires\nfor purely physical goods, such as, food, drink, adornment, and sense\ngratifications generally, are put on the same level with the demands\nof the spiritual, moral, and intellectual faculties. The value and\nimportance of any and all wants is determined mainly by the criterion\nof enjoyment. In the great majority of cases this means a preference\nfor the goods and experiences that minister to the senses. Since these\nsatisfactions are susceptible of indefinite increase, variety, and\ncost, the believer in this theory of life-values readily assumes that\nno practical limit can be set to the amount of goods or income that\nwill be required to make life continuously and progressively worth\nliving. Hence the question whether he has superfluous goods, how much\nof a surplus he has, or how much he is obliged to distribute, scarcely\noccurs to him at all. Everything that he possesses or is likely to\npossess, is included among the necessaries of life and social\nposition. He adopts as his working theory of life those propositions\nwhich were condemned as \"scandalous and pernicious\" by Pope Innocent\nXI in 1679: \"It is scarcely possible to find among people engaged in\nworldly pursuits, even among kings, goods that are superfluous to\nsocial position. Therefore, hardly any one is bound to give alms from\nthis source.\"\n\nThe practical consequences of this false conception of welfare are\nnaturally most conspicuous among the rich, especially the very rich,\nbut they are also manifest among the comfortable and middle classes.\nIn every social group above the limit of very moderate circumstances,\ntoo much money is spent for material goods and enjoyments, and too\nlittle for the intellectual, religious, and altruistic things of life.\n\n\n_The True Conception of Welfare_\n\nThis working creed of materialism is condemned by right reason, as\nwell as by Christianity. The teaching of Christ on the worth of\nmaterial goods is expressed substantially in the following texts: \"Woe\nto you rich.\" \"Blessed are you poor.\" \"Lay not up for yourselves\ntreasures on earth.\" \"For a man's life consisteth not in the abundance\nof things that he possesseth.\" \"Be not solicitous as to what you shall\neat, or what you shall drink, or what you shall put on.\" \"Seek ye\nfirst the kingdom of God and his justice, and all these things shall\nbe added unto you.\" \"You cannot serve God and Mammon.\" \"If thou\nwouldst be perfect, go, sell what thou hast and give to the poor, and\ncome follow me.\" Reason informs us that neither our faculties nor the\ngoods that satisfy them are of equal moral worth or importance. The\nintellectual and spiritual faculties are essentially and intrinsically\nhigher than the sense faculties. Only in so far as they promote,\neither negatively or positively, the development of the mind and soul\nhave the senses any reasonable claim to satisfaction. They have no\nvalue in themselves; they are merely instruments to the welfare of the\nspirit, the intellect, and the disinterested will. Right life\nconsists, not in the indefinite satisfaction of material wants, but in\nthe progressive endeavour to know the best that is to be known, and to\nlove the best that is to be loved; that is, God and His creatures in\nthe order of their importance. The man who denies the intrinsic\nsuperiority of the soul to the senses, who puts sense gratifications\non the same level of importance as the activities of mind, and spirit,\nand disinterested will, logically holds that the most degrading\nactions are equally good and commendable with those which mankind\napproves as the noblest. His moral standard does not differ from that\nof the pig, and he himself is on no higher moral level than the pig.\n\nThose who accept the view of life and welfare taught by Christianity\nand reason cannot, if they take the trouble to consider the matter,\navoid the conclusion that the amount of material goods which can be\nexpended in the rational and justifiable satisfaction of the senses,\nis very much smaller than is to-day assumed by the great majority of\npersons. Somewhere between five and ten thousand dollars a year lies\nthe maximum expenditure that any family can reasonably devote to its\nmaterial wants. This is independent of the outlay for education,\nreligion, and charity, and the things of the mind generally. In the\noverwhelming majority of cases in which more than five to ten thousand\ndollars are expended for the satisfaction of material needs, some\ninjury is done to the higher life. The interests of health, intellect,\nspirit, or morals would be better promoted if the outlay for material\nthings were kept below the specified limit.\n\nThe distribution advocated in this chapter is obviously no substitute\nfor justice or the deeds of justice. Inasmuch, however, as complete\njustice is a long way from realisation, a serious attempt by the\npossessors of true superfluous goods to fulfil their obligations of\ndistribution would greatly counteract and soften existing injustice,\ninequality, and suffering. Hence, benevolent giving deserves a place\nin any complete statement of proposals for a better distribution of\nwealth. Moreover, we are not likely to make great advances on the road\nof strict justice until we acquire saner conceptions of welfare, and a\nmore effective notion of brotherly love. So long as men put the senses\nabove the soul, they will be unable to see clearly what is justice,\nand unwilling to practise the little that they are able to see. Those\nwho exaggerate the value of sense gratifications cannot be truly\ncharitable, and those who are not truly charitable cannot perform\nadequate justice. The achievement of social justice requires not\nmerely changes in the social mechanism, but a change in the social\nspirit, a reformation in men's hearts. To this end nothing could be\nmore immediately helpful than a comprehensive recognition of the\nstewardship of wealth, and the duty of distributing superfluous goods.\n\n\nREFERENCES ON SECTION III\n\n     ELY: Monopolies and Trusts. Macmillan; 1900.\n\n     VAN HISE: Concentration and Control. Macmillan; 1912.\n\n     STEVENS: Industrial Combinations and Trusts. Macmillan; 1913.\n\n     RUSSELL: Business, the Heart of the Nation. John Lane; 1911.\n\n     GARRIGUET: R\u00e9gime du Travail. Paris; 1909. The Social Value\n     of the Gospel. St. Louis; 1911.\n\n     HOBSON: Work and Wealth, a Human Valuation. Macmillan; 1914.\n\n     WEST: The Inheritance Tax. New York; 1908.\n\n     SELIGMAN: Progressive Taxation. Princeton; 1908. The Income\n     Tax. New York; 1913.\n\n     BOUQUILLON: De Virtutibus Theologicis. Brugis; 1890.\n\n     Also, the works of Taussig, Devas, Hobson, Antoine, Pesch,\n     Carver, Vermeersch, Nearing, and King which are cited in\n     connection with the introductory chapter.\n\nFOOTNOTES:\n\n[201] \"Summa Theologica,\" 2a. 2ae., q. 66, a. 3.\n\n[202] \"Patrologia Graeca,\" vol. 31, cols. 275, 278.\n\n[203] \"Patrologia Latina,\" vol. 37, col. 1922.\n\n[204] \"Patrologia Latina,\" vol. 14, col. 747.\n\n[205] \"Patrologia Latina,\" vol. 77, col. 87. These and several other\nextracts of like tenor may be found in Ryan's \"Alleged Socialism of\nthe Church Fathers,\" ch. i; St. Louis, 1913.\n\n[206] Op. cit., 2a. 2ae., q. 66, a. 7.\n\n[207] Encyclical, \"On the Condition of Labour,\" May 15, 1891.\n\n[208] Encyclical, \"On Socialism, Communism, Nihilism,\" Dec. 28, 1878.\n\n[209] Op. cit., 2a. 2ae., q. 32, a. 1.\n\n[210] Idem, q. 66, a. 7.\n\n[211] A comprehensive, though brief, discussion of this question and\nnumerous references are contained in Bouquillon, \"De Virtutibus\nTheologicis,\" pp. 332-348. When Pope Leo XIII declared that the rich\nare obliged to distribute \"out of\" their superfluity, he did not mean\nthat they are free to give only a portion thereof. The particle \"de\"\nin his statement, \"officium est de eo quod superat gratificari\nindigentibus,\" is not correctly translated by \"some.\" It means rather\n\"out of,\" \"from,\" or \"with\"; so that the affluent are commanded to\ndevote their superfluous goods indefinitely to the relief of the\nneedy. In the Encyclical, \"Quot Apostolici Muneris,\" he used the\nexpression, \"gravissimo divites urget praecepto ut quod superest\npauperibus tribuant,\" which clearly declares the duty of distributing\nall.\n\n[212] \"The Wealth and Income of the People of the United States,\" pp.\n224-226.\n\n\n\n\nSECTION IV\n\nTHE MORAL ASPECT OF WAGES\n\n\n\n\nCHAPTER XXII\n\nSOME UNACCEPTABLE THEORIES OF WAGE-JUSTICE\n\n\n\"It may be that we are not merely chasing a will-o'-the-wisp when we\nare hunting for a reasonable wage, but we are at any rate seeking the\nunattainable.\"\n\nThus wrote Professor Frank Haight Dixon in a paper read at the\ntwenty-seventh annual meeting of the American Economic Association,\nDecember, 1914. Whether he reflected the opinion of the majority of\nthe economists, he at least gave expression to a thought that has\nfrequently suggested itself to every one who has gone into the wage\nquestion free from prejudices and preconceived theories. One of the\nmost palpable indications of the difficulty to which Professor Dixon\nrefers is the number of doctrines concerning wage justice that have\nbeen laboriously built up during the Christian era, and that have\nfailed to approve themselves to the majority of students and thinkers.\nIn the present chapter the attempt is made to set forth some of the\nmost important of these doctrines, and to show wherein they are\ndefective. They can all be grouped under the following heads: The\nPrevailing-Rate Theory; Exchange-Equivalence Theories; and the\nProductivity Theories.\n\n\nI. THE PREVAILING-RATE THEORY\n\nThis is not so much a systematic doctrine as a rule of expediency\ndevised to meet concrete situations in the absence of any better\nguiding principle. Both its basis and its nature are well exemplified\nin the following extract from the \"Report of the Board of Arbitration\nin the Matter of the Controversy Between the Eastern Railroads and the\nBrotherhood of Locomotive Engineers:\"[213] \"Possibly there should be\nsome theoretical relation for a given branch of industry between the\namount of the income that should go to labour and the amount that\nshould go to capital; and if this question were decided, a scale of\nwages might be devised for the different classes of employ\u00e9s which\nwould determine the amount rightly absorbed by labour.... Thus far,\nhowever, political economy is unable to furnish such a principle as\nthat suggested. There is no generally accepted theory of the division\nbetween capital and labour....\n\n\"What, then, is the basis upon which a judgment may be passed as to\nwhether the existing wage scale of the engineers in the Eastern\nDistrict is fair and reasonable? It seems to the Board that the only\npracticable basis is to compare the rates and earnings of engineers in\nthe Eastern District with those of engineers in the Western and\nSouthern Districts, and with those of other classes of railway\nemploy\u00e9s.\"\n\nSix of the seven men composing this board of arbitration subscribed to\nthis statement. Of the six one is the president of a great state\nuniversity, another is a successful and large-minded merchant, the\nthird is a great building contractor, the fourth is a distinguished\nlawyer, the fifth is a prominent magazine editor, and the sixth is a\nrailway president. The dissenting member represented the employ\u00e9s.\nSince the majority could not find in any generally accepted theory a\nprinciple to determine the proper division of the product between\ncapital and labour, they were perhaps justified in falling back upon\nthe practical rule that they adopted.\n\n_Not in Harmony with Justice_\n\nFrom the viewpoint of justice, however, this rule or standard is\nutterly inadequate. It is susceptible of two interpretations. \"Wages\nprevailing elsewhere,\" may mean either the highest rates or those most\nfrequently occurring. According to the latter understanding, only\nthose wages which were below the majority rates should be raised,\nwhile all those above that level ought to be lowered. In almost all\ncases this would mean a reduction of the highest wages, as these are\nusually paid only to a minority of the workers of any grade. The\nadoption of the highest existing rates as a standard would involve no\npositive losses, but it would set a rigid limit to all possible gains\nin the future. According to either interpretation of the prevailing\nrate, the increases in wages which a powerful labour union seeks to\nobtain are unjust until they have been established as the prevailing\nrates. Thus, the attorney for the street railways of Chicago dissented\nfrom the increases in wages awarded to the employ\u00e9s by the majority of\nthe board of arbitration in the summer of 1915 because, \"these men are\nalready paid not only a fair wage but a liberal wage, when the wages\nin the same employment and the living conditions in other large cities\nare taken into consideration, or when comparison is made of these\nmen's annual earnings with the earnings in any comparable line of work\nin the city of Chicago.\"[214] In other words, the dominant thing is\nalways the right thing. Justice is determined by the preponderance of\neconomic force. Now, a rule such as this, which condemns improvement\nuntil improvement has somehow become general, which puts a premium\nupon physical and intellectual strength, and which disregards entirely\nthe moral claims of human needs, efforts, and sacrifices, is obviously\nnot an adequate measure of either reason or justice. And we may well\ndoubt that it would be formally accepted as such by any competent and\ndisinterested student of industrial relations.\n\n\nII. EXCHANGE-EQUIVALENCE THEORIES\n\nAccording to these theories, the determining factor of wage justice is\nto be found in the wage contract. The basic idea is the idea of\nequality, inasmuch as equality is the fundamental element in the\nconcept of justice. The principle of justice requires that equality\nshould be maintained between what is owed to a person and what is\nreturned to him, between the kinds of treatment accorded to different\npersons in the same circumstances. Similarly it requires that equality\nshould obtain between the things that are exchanged in onerous\ncontracts. An onerous contract is one in which both parties undergo\nsome privation, and neither intends to confer a gratuity upon the\nother. Each exchanger desires to obtain the full equivalent of the\nthing that he transfers. Since each is equal in personal dignity an\nintrinsic worth to the other, each has a strict right to this full\nequivalent. Owing to the essential moral equality of all men, no man\nhas a right to make of another a mere instrument to his own interests\nthrough physical force or through an onerous contract. Men have equal\nrights not only to subsist upon the earth, but to receive benefits\nfrom the exchange of goods.\n\n_The Rule of Equal Gains_\n\nThe agreement between employer and employ\u00e9 is an onerous contract;\nhence it ought to be made in such terms that the things exchanged will\nbe equal, that the remuneration will be equal to the labour. How can\nthis equivalence be determined and ascertained? Not by a direct\ncomparison of the two objects, work and pay, for their differences\nrender them obviously incommensurable. Some third term, or standard,\nof comparison is required in which both objects can find expression.\nOne such standard is individual net advantage. Inasmuch as the aim of\nthe labour contract is reciprocal gain, it is natural to infer that\nthe gains ought to be equal for the two parties. Net gain is\nascertained by deducting in each case the utility transferred from the\nutility received; in other words, by deducting the privation from the\ngross return. The good received by the employer when diminished by or\nweighed against the amount that he pays in wages should be equal to\nthe good received by the labourer when diminished by or weighed\nagainst the inconvenience that he undergoes through the expenditure of\nhis time and energy. Hence the contract should bring to employer and\nemploy\u00e9 equal amounts of net advantage or satisfaction.\n\nPlausible as this rule may appear, it is impracticable, inequitable,\nand unjust. In the vast majority of labour contracts it is impossible\nto know whether both parties obtain the same quantity of net\nadvantage. The gains of the employer can, indeed, be frequently\nmeasured in terms of money, being the difference between the wages\npaid to and the specific product turned out by the labourer. In the\ncase of the labourer no such process of deduction is possible; for\nadvantage and expenditure are incommensurable. We cannot subtract the\nlabourer's privation, that is, his expenditure of time and energy,\nfrom his gross advantage, that is, his wages. How can we know or\nmeasure the net benefit obtained by a man who shovels sand ten hours\nfor a wage of two dollars? How can we deduct his pain-cost from or\nweigh it against his compensation?\n\nSo far as the two sets of advantages are comparable at all, those of\nthe employ\u00e9 would seem to be always greater than those of the\nemployer. A wage of seventy-five cents a day enables the labourer to\nsatisfy the most important wants of life. Weighed against this gross\nadvantage, his pain-cost of toil is relatively insignificant. His net\nadvantage is the greatest that a man can enjoy, the continuation of\nhis existence. The net advantage received by the employer from such a\nwage contract is but a few cents, the equivalent of a cigar or two.\nEven if the wage be raised to the highest level yet reached by any\nwage earner, the net advantage to the labourer, namely, his\nlivelihood, will be greater than the net advantage to the employer\nfrom that single contract. Moreover, the sum total of an employer's\ngains from all his labour contracts is less quantitatively than the\nsum total of the gains obtained by all his employ\u00e9s. The latter gains\nprovide for many livelihoods, the former for only one. Again, no\ngeneral rate of wages could be devised which would enable all the\nmembers of a labour group to gain equally. Differences in health,\nstrength, and intelligence would cause differences in the pain-cost\ninvolved in a given amount of labour; while differences in desires,\nstandards of living, and skill in spending would bring about\ndifferences in the satisfactions derived from the same compensation.\nFinally, various employers would obtain various money gains from the\nsame wage outlay, and various advantages from the same money gains.\nHence if the rule of equality of net advantages were practicable it\nwould be inequitable.\n\nIt is also fundamentally unjust because it ignores the moral claims of\nneeds, efforts, and sacrifices as regards the labourer. As we have\nseen in the chapter on profits in competitive conditions, and as we\nshall have occasion to recognise again in a later chapter, no canon or\nscheme of distributive justice is acceptable that does not give\nadequate consideration to these fundamental attributes of human\npersonality.\n\n_The Rule of Free Contract_\n\nAnother form of the exchange equivalence theory would disregard the\nproblem of _equality_ of gains, and assume that justice is realised\nwhenever the contract is free from force or fraud. In such\ncircumstances both parties gain something, and presumably are\nsatisfied; otherwise, they would not enter the contract. Probably the\nmajority of employers regard this rule as the only available measure\nof practicable justice. The majority of economists likewise subscribed\nto it during the first half of the nineteenth century. In the words of\nHenry Sidgwick, \"the teaching of the political economists pointed to\nthe conclusion that a free exchange, without fraud or coercion, is\nalso a fair exchange.\"[215] Apparently the economists based this\nteaching on the assumption that competition was free and general among\nboth labourers and employers. In other words, the rule as understood\nby them was probably identical with the rule of the market rate, which\nwe shall examine presently. It is not at all likely that the\neconomists here referred to would have given their moral approval to\nthose \"free\" contracts in which the employer pays starvation wages\nbecause he takes advantage of the ignorance of the labourer, or\nbecause he exercises the power of monopoly.\n\nNo matter by whom it is or has been held, the rule of free contract is\nunjust. In the first place, many labour contracts are not free in any\ngenuine sense. When a labourer is compelled by dire necessity to\naccept a wage that is insufficient for a decent livelihood, his\nconsent to the contract is free only in a limited and relative way. It\nis what the moralists call \"_voluntarium imperfectum_.\" It is vitiated\nto a substantial extent by the element of fear, by the apprehension of\na cruelly evil alternative. The labourer does not agree to this wage\nbecause he prefers it to any other, but merely because he prefers it\nto unemployment, hunger, and starvation. The agreement to which he\nsubmits in these circumstances is no more free than the contract by\nwhich the helpless wayfarer gives up his purse to escape the pistol of\nthe robber. While the latter action is free in the sense that it is\nchosen in preference to a violent death, it does not mean that the\nwayfarer gives, or intends to give, the robber the right of ownership\nin the purse. Neither should the labourer who from fear of a worse\nevil enters a contract to work for starvation wages, be regarded as\ntransferring to the employer the full moral right to the services\nwhich he agrees to render. Like the wayfarer, he merely submits to\nsuperior force. The fact that the force imposed upon him is economic\ninstead of physical does not affect the morality of the transaction.\n\nTo put the matter in another way, the equality which justice requires\nis wanting in an oppressive labour contract because of the inequality\nexisting between the contracting parties. In the words of Professor\nEly: \"Free contract supposes equals behind the contract in order that\nit may produce equality.\"[216]\n\nAgain, the rule of free contract is unjust because it takes no account\nof the moral claims of needs. A man whose only source of livelihood is\nhis labour does wrong if he accepts a starvation wage willingly. Such\na contract, however free, is not according to justice because it\ndisregards the requirements of reasonable life. No man has a right to\ndo this, any more than he has a right to perpetrate self mutilation or\nsuicide.\n\n_The Rule of Market Value_\n\nA third method of interpreting exchange equivalence is based upon the\nconcept of value. Labour and compensation are thought to be equal when\nthe value of one is equal to the value of the other. Then the contract\nis just and the compensation is just. The only objection to these\npropositions is that they are mere truisms. What does value mean, and\nhow is it to be determined? If it is to receive an ethical\nsignification; if the value of labour is to be understood as denoting\nnot merely the value that labour will command in a market, but the\nvalue that labour ought to have,--the statement that wages should\nequal the value of labour becomes merely an identical proposition. All\nthat it tells us is that wages ought to be what they ought to be.\n\nIn its simplest economic sense value denotes purchasing power, or\nimportance in exchange. As such, it may be either individual or\nsocial; that is, it may mean the exchange importance attributed to a\ncommodity by an individual, or that attributed by a social group. In a\ncompetitive society social value is formed through the higgling of the\nmarket, and is expressed in market price.\n\nNow individual value is utterly impracticable as a measure of exchange\nequivalence in the wage contract. Since the value attributed to labour\nby the employer differs in the great majority of instances from that\nestimated by the labourer himself, it is impossible to determine which\nis the true value, and the proper measure of just wages.\n\nThe doctrine that the social value or market price of labour is also\nthe ethical value or just price, is sometimes called the classical\ntheory, inasmuch as it was held, at least implicitly, by the majority\nof the early economists of both France and England.[217] Under\ncompetitive conditions, said the Physiocrats, the price of labour as\nof all other things corresponds to the cost of production; that is, to\nthe cost of subsistence for the labourer and his family. This is the\nnatural law of wages, and being natural it is also just. Adam Smith\nlikewise declared that competitive wages were natural wages, but he\nrefrained from the explicit assertion that they were just wages.\nNevertheless his abiding and oft-expressed faith in the theory that\nmen's powers were substantially equal, and in the social beneficence\nof free competition, implied that conclusion. Although the great\nmajority of his followers denied that economics had moral aspects,\nand sometimes asserted that there was no such thing as just or unjust\nwages, their teaching tended to convey the thought that competitively\nfixed wages were more or less in accordance with justice. As noted\nabove, their belief in the efficacy of competition led them to the\ninference that a free contract is also a fair contract. By a free\ncontract they meant for the most part one that is made in the open\nmarket, that is governed by the forces of supply and demand, and that,\nconsequently, expresses the social economic value of the things\nexchanged.\n\nAll the objections that have been brought against the rule of the\nprevailing rate apply even more strongly to the doctrine of the market\nrate. The former takes as a standard the scale of wages most\nfrequently paid in the market, while the latter approves any scale\nthat obtains in any group of labourers or section of the market. Both\naccept as the ultimate determinant of wage justice the preponderance\nof economic force. Neither gives any consideration to the moral claims\nof needs, efforts, or sacrifices. Unless we are to identify justice\nwith power, might with right, we must regard these objections as\nirrefutable, and the market value doctrine as untenable.\n\n_The Medi\u00e6val Theory_\n\nAnother exchange-equivalence theory which turns upon the concept of\nvalue is that found in the pages of the medi\u00e6val canonists and\ntheologians. But it interprets value in a different sense from that\nwhich we have just considered. As the measure of exchange equivalence\nthe medi\u00e6val theory takes objective value, or true value. However, the\nproponents of this view did not formally apply it to wage contracts,\nnor did they discuss systematically the question of just wages. They\nwere not called upon to do this; for they were not confronted by any\nconsiderable class of wage earners. In the country the number of\npersons who got their living exclusively as employ\u00e9s was extremely\nsmall, while in the towns the working class was composed of\nindependent producers who sold their wares instead of their\nlabour.[218] The question of fair compensation for the town workers\nwas, therefore, the question of a fair price for their products. The\nlatter question was discussed by the medi\u00e6val writers formally, and in\ngreat detail. Things exchanged should have equal values, and\ncommodities should always sell for the equivalent of their values. By\nwhat rule was equality to be measured and value determined? Not by the\nsubjective appreciations of the exchangers, for these would sometimes\nsanction the most flagrant extortion. Were no other help available,\nthe starving man would give all he possessed for a loaf of bread. The\nunscrupulous speculator could monopolise the supply of foodstuffs, and\ngive them an exorbitantly high value which purchasers would accept and\npay for rather than go hungry. Hence we find the medi\u00e6val writers\nseeking a standard of _objective_ value which should attach to the\ncommodity itself, not to the varying opinions of buyers and sellers.\n\nIn the thirteenth century Albertus Magnus[219] and Thomas Aquinas[220]\ndeclared that the proper standard was to be found in labour. A house\nis worth as many shoes as the labour embodied in the latter is\ncontained in the labour embodied in the former. It is worthy of note\nthat the diagram which Albertus Magnus presents to illustrate this\nformula of value and exchange had been used centuries before by\nAristotle. It is likewise noteworthy that this conception of ethical\nvalue bears a striking resemblance to the theory of economic value\nupheld by Marxian Socialists. However, neither Aristotle nor the\nSchoolmen asserted that all kinds of labour had equal value.\n\nNow this medi\u00e6val labour-measure of value could be readily applied\nonly to cases of barter, and even then only when the value of\ndifferent kinds of labour had already been determined by some other\nstandard. Accordingly we find the medi\u00e6val writers expounding and\ndefending a more general interpretation of objective or true value.\n\nThis was the concept of normal value; that is, the average or medium\namount of utility attributed to goods in the average conditions of\nlife and exchange. On the one hand, it avoided the excesses and the\narbitrariness of individual estimates; on the other hand, it did not\nattribute to value the characters of immutability and rigidity.\nContrary to the assumptions of some modern writers, the Schoolmen\nnever said that value was something as fixedly inherent in goods as\nphysical and chemical qualities. When they spoke of \"intrinsic\" value,\nthey had in mind merely the constant capacity of certain commodities\nto satisfy human wants. Even to-day bread has always the intrinsic\npotency of alleviating hunger, regardless of all the fluctuations of\nhuman appraisement. The objectivity that the medi\u00e6val writers ascribed\nto value was relative. It assumed normal conditions as against\nexceptional conditions. To say that value was objective merely meant\nthat it was not wholly determined by the interplay of supply and\ndemand, but was based upon the stable and universally recognised\nuse-qualities of commodities in a society where desires, needs, and\ntastes were simple and fairly constant from one generation to another.\n\nHow or where was this relatively objective value of goods to find\nconcrete expression? In the \"communis aestimatio,\" or social estimate,\ndeclared the canonists. Objective value and just price would be\nascertained practically through the judgment of upright and competent\nmen, or preferably through legally fixed prices. But neither the\nsocial estimate nor the ordinances of lawmakers were authorised to\ndetermine values and prices arbitrarily. They were obliged to take\ninto account certain objective factors. In the thirteenth and\nfourteenth centuries, the factors universally recognised as\ndeterminative were the utility or use-qualities of goods, but\nespecially their cost of production. Later on, in the sixteenth and\nseventeenth centuries, risk and scarcity were given considerable\nprominence as value determinants. Now cost of production in the Middle\nAges was mainly labour cost; hence the standard of value was chiefly a\nlabour standard. Moreover, this labour doctrine of true value and\nequality in exchanges was strongly reinforced by another medi\u00e6val\nprinciple, according to which labour was the supreme if not the only\njust title to rewards.\n\nHow was labour cost to be measured, and the different kinds of labour\nevaluated? By the necessary and customary expenditures of the class to\nwhich the labourer belonged. Medi\u00e6val society was composed of a few\ndefinite, easily recognised, and relatively fixed orders or grades,\neach of which had its own function in the social hierarchy, its own\nstandard of living, and its moral right to a livelihood in accordance\nwith that standard. Like the members of the other orders, the\nlabourers were conceived as entitled to live in conformity with their\ncustomary class-requirements. From this it followed that the needs of\nthe labourer became the main determinant of the cost of production,\nand of the value and just price of goods. Inasmuch as the standards of\nliving of the various divisions of the workers were fixed by custom,\nand limited by the restricted possibilities of the time, they afforded\na fairly definite measure of value and price,--much more definite than\nthe standard of general utility. To Langenstein, vice chancellor of\nthe University of Paris in the latter half of the fourteenth century,\nthe matter seemed quite simple; for he declared that every one could\ndetermine for himself the just price of his wares by referring to the\ncustomary needs of his rank of life.[221]\n\nNevertheless, class needs are not and cannot be a standard of\nexchange-equivalence. They cannot become a criterion of equality, a\ncommon denominator, a third term of comparison, between labour and\nwages. When we say that a given amount of wages is equal to a given\ncontent of livelihood, we express a purely economic, positive, and\nmathematical relation: when we say that a given amount of labour is\nequal to a given content of livelihood, we are either talking nonsense\nor expressing a purely ethical relation; that is, declaring that this\nlabour _ought to_ equal this livelihood. In other words, we are\nintroducing a fourth term of comparison; namely, the moral worth or\npersonal dignity of the labourer. Thus, we have not a single and\ncommon standard to measure both labour and wages, and to indicate a\nrelation of equality between them. While class needs directly measure\nwages, they do not measure labour, either quantitatively, or\nqualitatively, or under any other aspect or category.\n\nAside from this purely theoretical defect, the canonist doctrine of\nwage justice was fairly satisfactory as applied to the conditions of\nthe Middle Ages. It assured to the labourer of that day a certain rude\ncomfort, and probably as large a proportion of the product of industry\nas was practically attainable. Nevertheless it is not a universally\nvalid criterion of justice in the matter of wages; for it makes no\nprovision for those labourers who deserve a wage in excess of the cost\nof living of their class; nor does it furnish a principle by which a\nwhole class of workers can justify their advance to a higher standard\nof living. It is not sufficiently elastic and dynamic.\n\n_A Modern Variation of the Medi\u00e6val Theory_\n\nIn spite of its fundamental impossibility, the concept of\nexchange-equivalence still haunts the minds of certain Catholic\nwriters.[222] They still strive to get a formula to express equality\nbetween labour and remuneration. Perhaps the best known and least\nvulnerable of the attempts made along this line is that defended by\nCharles Antoine, S.J.[223] Justice, he declares, demands an objective\nequivalence between wages and labour; and objective equivalence is\ndetermined and measured by two factors. The remote factor is the cost\nof decent living for the labourer; the proximate factor is the\neconomic value of his labour. The former describes the _minimum_ to\nwhich the worker is entitled; the latter comprises perfect and\nadequate justice. In case of conflict between the two factors, the\nfirst is determinative of and morally superior to the second; that is\nto say, no matter how small the economic value of labour may _seem_ to\nbe, it never can descend below the requisites of a decent livelihood.\n\nNow, neither of these standards is in harmony with the principle of\nexchange-equivalence, nor capable of serving as a satisfactory\ncriterion of wage justice. Father Antoine argues that labour is always\nthe moral equivalent of a decent livelihood because the worker expends\nhis energies, and gives out a part of his life in the service of his\nemployer. Unless his wage enables the labourer to replace these\nenergies and conserve his life, it is not the equivalent of the\nservice. If the wage falls short of this standard the labourer gives\nmore than he receives, and the contract is essentially unjust. In this\nconception of equivalence, energy expended, instead of cost of living,\nbecomes the term of comparison and the common measure of labour and\nremuneration. Energy expended is, however, technically incapable of\nproviding such a common standard; for it does not measure both related\nterms in the same way. The service rendered to the employer is the\n_effect_ rather than the equivalent of the energy expended; and the\ncompensation is a _means_ to the replacement of this energy rather\nthan its formal equivalent. Moreover, the formula does not even\nfurnish an adequate rational basis for the claim to a decent minimum\nwage. A wage which is merely adequate to the replacement of expended\nenergy and the maintenance of life, is really inadequate to a decent\nlivelihood. Such compensation would cover only physical health and\nstrength, leaving nothing for intellectual, spiritual, and moral\nneeds. As Father Antoine himself admits and contends, the latter needs\nare among the elements of a decent livelihood, and a wage which does\nnot make reasonable provision for them fails to comply with the\nminimum requirements of justice.\n\nThe second factor of \"objective equivalence\" is even more questionable\nthan the first. To be _completely_ just, says Father Antoine, wages\nmust be not merely adequate to a decent livelihood, but equivalent to\nthe \"economic value of the labour\" (\"la valeur \u00e9conomique du\ntravail\"). This \"economic value\" is determined objectively by the cost\nof production, the utility of the product, and the movement of supply\nand demand; subjectively, by the judgment of employers and employ\u00e9s.\nIn case of conflict between these two measures of value, and in case\nof uncertainty concerning the objective measure, the decision of the\nsubjective determinant must always prevail.\n\nThese statements are hopelessly ambiguous and confusing. If the\nobjective measure of \"economic value\" is to be understood in a purely\npositive way, it merely means the wages that actually obtain in a\ncompetitive market. In the purely positive or economic sense, the\nutility of labour is measured by what it will command in the market,\nthe movement of supply and demand is likewise reflected in market\nwages, and the determining effect of cost of production is also seen\nin the share that the market awards to labour after the other factors\nof production have taken their portions of the product. In other\nwords, the \"economic value\" of labour is simply its market value.\nThis, however, is not Father Antoine's meaning; for he has already\ndeclared that the \"economic value\" of labour is never less than the\nequivalent of a decent livelihood, whereas we know that the market\nvalue often falls below that level. In his mind, therefore, \"economic\nvalue\" has an ethical signification. It indicates at least the\nrequisites of decent living, and it embraces more than this in some\ncases. When? and how much more? Let us suppose a business so\nprosperous that it returns liberal profits to the employer and the\nprevailing rate of interest on the capital, and yet shows a surplus\nsufficient to give all the labourers ten dollars a day. Is \"cost of\nproduction\" to be interpreted here as allowing only the normal rate of\nprofits and interest to the business man and the capitalist, leaving\nthe residue to labour? Or is it to be understood as requiring that the\nsurplus be divided among the three agents of production? In other\nwords, is the \"economic value\" of labour in such cases to be\ndetermined by some ethical principle which tells beforehand how much\nthe other agents than labour ought to receive? If so, what is this\nprinciple or formula?\n\nNone of these questions is satisfactorily answered in Father Antoine's\npages. They are all to be solved by having recourse to the subjective\ndeterminant of \"economic value\"; namely, the judgment of employers and\nemploy\u00e9s. Thus his proximate factor of justice in wages, his formula\nof complete as against minimum just wages, turns out to be something\nentirely subjective, and more or less arbitrary. It is in no sense a\nmeasure of the equivalence between work and pay.\n\nMoreover, it is inadequate as a measure of justice. Should the\nmajority of both employers and employ\u00e9s fix the \"economic value\" of\nthe labour of carpenters at five dollars a day, there would be no\ncertainty that this decision was correct, and that this figure\nrepresented just wages. Should they determine upon a rate of fifty\ndollars a day, we could not be sure that their decision was unjust.\nUndoubtedly the combined judgment of employers and employ\u00e9s will set a\nfairer wage than one fixed by either party alone, since it will be\nless one-sided; but there is no sufficient reason for concluding that\nit will be in all cases completely just. Undoubtedly employers and\nemploy\u00e9s know what wages an industry can afford at prevailing prices,\non the assumption that business ability and capital are to have a\ncertain rate of return; but there is no certainty that the prevailing\nprices are fair, or that the assumed rates of profits and interest are\nfair. In a word, the device is too arbitrary.\n\nTo sum up the entire discussion of exchange-equivalence theories:\nTheir underlying concept is fundamentally unsound and impracticable.\nAll of them involve an attempt to compare two entities which are\nutterly incommensurate. There exists no third term, or standard, or\nobjective fact, which will inform men whether any rate of wages is the\nequivalent of any quantity of labour.\n\n\nIII. PRODUCTIVITY THEORIES\n\nThe productivity concept of wage justice appears in a great variety of\nforms. The first of them that we shall consider is advocated mainly by\nthe Socialists, and is usually referred to as the theory of the \"right\nto the whole product of labour.\"[224]\n\n_Labour's Right to the Whole Product_\n\nWe have seen that Adam Smith's belief in the normality and beneficence\nof free competition would have logically led him to the conclusion\nthat competitive wages were just; and we know that this doctrine is\nimplicit in his writings. On the other hand, his theory that all value\nis determined by labour would seem to involve the inference that all\nthe value of the product belongs to the labourer. As a matter of fact,\nSmith restricted this conclusion to primitive and pre-capitalist\nsocieties. Apparently he, and his disciples in an even larger degree,\nwas more interested in describing the supposed beneficence of\ncompetition than in justifying the distribution that resulted from the\ncompetitive process.\n\nThe early English Socialists were more consistent. In 1793 William\nGodwin, whom Anton Menger calls \"the first scientific Socialist of\nmodern times,\" laid down in substance the doctrine that the labourer\nhas a right to the whole product.[225] In 1805 Charles Hall formulated\nand defended the doctrine with greater precision and consistency.[226]\nIn 1824 the doctrine was stated more fundamentally, systematically,\nand completely by William Thompson.[227] He accepted the labour theory\nof value laid down by Adam Smith, and formally derived therefrom the\nethical conclusion that the labourer has a right to the whole product.\n\"Thompson and his followers are only original in so far as they\nconsider rent and interest to be _unjust_ deductions, which violate\nthe right of the labourer to the whole product of his labour.\"[228] He\ndenounced the laws which empowered the land owner and the capitalist\nto appropriate value not created by them, and gave to the value thus\nappropriated the name, \"surplus value.\" In the use of this term he\nanticipated Karl Marx by several years. His doctrines were adopted and\ndefended by many other English Socialist writers, and were introduced\ninto France by the followers of Saint-Simon. \"From his works,\" says\nMenger, \"the later Socialists, the Saint-Simonians, Proudhon, and\nabove all, Marx and Rodbertus, have directly or indirectly drawn their\nopinions.\"[229]\n\nAlthough Saint-Simon never accepted the doctrine of the labourer's\nright to the whole product, his disciples, particularly Enfantin and\nBazard, taught it implicitly. In a just social state, they maintained,\nevery one would be expected to labour according to his capacity, and\nwould be rewarded according to his product.[230]\n\nPerhaps the most theoretical and extreme statement of the theory that\nwe are considering is found in the writings of P. J. Proudhon.[231] He\nmaintained that the real value of products was determined by labour\ntime, and that all kinds of labour should be regarded as equally\neffective in the value-creating process, and he advocated therefore\nequality of wages and salaries. For the realisation of this ideal he\ndrew the outlines of a semi-anarchic social order, of which the main\nfeature was gratuitous public credit. Neither his theories nor his\nproposals ever obtained any considerable number of adherents.\n\nA milder and better reasoned form of the theory was set forth by Karl\nJ. Rodbertus.[232] Professor Wagner calls him, \"the first, the most\noriginal, and the boldest representative of scientific Socialism in\nGermany.\" Yet, as Menger points out, Rodbertus derived many of his\ndoctrines from Proudhon and the Saint-Simonians. He admitted that in a\ncapitalist society the value of commodities does not always\ncorrespond to the labour embodied in them, and that different kinds of\nlabour are productive in different degrees. Therefore, he had recourse\nto the concept of a normal, or average, day's labour in any group, and\nwould have the various members of the group remunerated with reference\nto this standard. This was to be brought about by a centralised\norganisation of industry in which the whole product would ultimately\ngo to labour, and the share of the individual worker would be\ndetermined by his contribution of socially necessary labour.\n\nAlthough Karl Marx adopted and formulated in his own terms the theory\nthat value is determined by labour, he did not thence deduce the\nconclusion that labour has a right to the whole product.[233] Being a\nmaterialist, he consistently rejected conceptions of abstract justice\nor injustice, rights or wrongs. In opposition to the methods of his\npredecessors, he endeavoured to discover the historical and positive\nforces which determined the actual distribution, and to derive\ntherefrom the laws that were necessarily preparing the way for a new\nsocial order. While he contended that rent receivers and interest\nreceivers appropriated the surplus value created by labour, he\nrefrained from stigmatising this process as morally wrong. It was\nmerely a necessary element of the capitalist system. To call it unjust\nwas in Marx' view to use language without meaning. As well might one\nspeak of the injustice of a hurricane or an avalanche. Not the\npreaching of abstract justice, but the inevitable transformation of\nthe capitalist into the collectivist organisation of industry, would\nenable labour to obtain its full product.\n\nNevertheless, it is probably true that a majority of the followers of\nMarx have drawn from his labour theory of value the inference that all\nthe value of the product belongs by a moral right to the labourer. So\ndeeply fixed in the human conscience is the conception of justice, and\nso general is the conviction of the labourer's right to his product,\nthat most Socialists have not been able to maintain a position of\nconsistent economic materialism. Indeed, Marx himself did not always\nsucceed in evading the influence and the terminology of idealistic\nconceptions. He frequently thought and spoke of the Socialist r\u00e9gime\nas not only inevitable but as morally right, and of the capitalist\nsystem as morally wrong. Despite his rigid, materialistic theorising,\nhis writings abound in passionate denunciation of existing industrial\nevils, and in many sorts of \"unscientific\" ethical judgments.[234]\n\nIn so far as the right to the whole product of labour has been based\nupon the labour theory of value, it may be summarily dismissed from\nconsideration. The value of products is neither created nor adequately\nmeasured by labour; it is determined by utility and scarcity. Labour\ndoes, indeed, affect value, inasmuch as it increases utility and\ndiminishes scarcity, but it is not the only factor that influences\nthese categories. Natural resources, the desires and the purchasing\npower of consumers determine value quite as fundamentally as does\nlabour, and cause it to vary out of proportion to the labour expended\nupon a commodity.\n\nTo-day there are probably not many adherents of the\nright-to-the-whole-product doctrine who attempt to base it upon any\ntheory of value. The majority appeal to the simple and obvious fact\nthat the labourers, together with the active directors of industry,\nare the only human beings who expend energy in the productive process.\nThe only labour that the capitalist and the landowner perform in\nreturn for the interest and rent that they respectively receive,\nconsists in choosing the particular goods in which their money is to\nbe invested. As capitalist and landowner, they do not participate in\nthe turning out of products. They are owners but not operators of the\nfactors of production. In the sense, therefore, of active agents the\nlabourers and the business men are the only producers. Whether land\nand capital should be called _productive_, whether the product should\nbe regarded as _produced_ by land and capital as well as by labour and\nundertaking activity, is mostly a matter of terminology. Inasmuch as\nthey are instrumental in bringing forth the product, land and capital\nmay properly be designated as productive, but not in the same sense as\nlabour and business energy. The former are passive factors and\ninstrumental causes of the product, while the latter are active\nfactors and original causes. Moreover, the former are non-rational\nentities, while the latter are attributes of human beings.\n\nAs we have seen in former chapters, it is impossible to prove that\nmere ownership of a productive thing, such as a cow, a piece of land,\nor a machine, necessarily creates a right to either the concrete or\nthe conventional product. The formula, \"_res fructificat domino_,\" is\nnot a self evident proposition. Nor are there any premises available\nfrom which the formula can be logically and necessarily deduced. On\nthe other hand, we cannot prove conclusively that ownership of\nproductive property does _not_ give a right to the product. Whence it\nfollows that the owners of land and capital have at least a\npresumptive claim to take rent and interest from their possessions.\nMoreover, those owners of capital who would not have saved money\nwithout the hope of interest have a just claim thereto on account of\ntheir sacrifices in saving.\n\nWould the State be justified in abolishing rent and interest, and thus\nenabling labour to obtain the whole product? Conceivably this result\nmight be brought about under the present system of private ownership,\nor through the substitution of collectivism. Were the change made by\nthe former method land and capital would no longer be sought or have\nvalue on account of their annual revenues, but only as receptacles of\nsaving. They would be desired solely as means of accumulating stores\nof goods which might be exchanged for articles of consumption some\ntime in the future. While we cannot estimate even approximately the\ndecline that would thus occur in the value of land and capital, we may\nsafely assert that it would be considerable. Unless the proprietors\nreceived adequate compensation for this loss, they would be compelled\nto suffer obvious and grave injustice. Any attempt, however, to carry\nout such a scheme, either with or without compensation, would\ninevitably fail. Rent might be terminated through the Single Tax, but\ninterest could not be abolished by any mere legal prohibition. Nor\ndoes Socialism afford a way out; for, as we have seen in a former\nchapter, it is an impracticable system. Consequently the theory of the\nright to the whole product of labour is confronted by the final\nobjection that its realisation would involve greater evils and\ninjustices than those which it seeks to abolish.\n\nFinally, the theory is radically incomplete. It professes to describe\nthe requirements of justice as between the landowners and capitalists\non the one side, and the wage earners on the other; but it provides no\nrule for determining distributive justice as between different classes\nof labour. In none of its forms does it provide any comprehensive rule\nor principle to ascertain the difference between the products of\ndifferent labourers, and to decide how the product belonging to any\ngroup of men as a whole should be divided among the individual\nmembers. Does the locomotive engineer produce more than the section\nhand, the bookkeeper more than the salesman, the ditch digger more\nthan the teamster? These and countless similar questions are, from the\nnature of the productive process, unanswerable. Even if it were\nethically acceptable, the doctrine of the right to the whole product\nis hopelessly inadequate.\n\nAs intimated above, the notion that if the labourer receives\ncompensation according to his product he receives just compensation,\nis one of the most prevalent and fundamental concepts in the\ncontroversy about wage justice. Hence we find it in certain theories\nwhich reject the doctrine of the right to the whole product. According\nto these theories, not only the labourer but all the agents of\nproduction should be rewarded in proportion to their productive\ncontributions. Instead of the whole product, the worker ought to\nreceive that portion of it which corresponds to his specific\nproductivity, that is, that portion of the product which represents\nhis productive influence as compared with the productive efficacy of\nland, capital, and business energy.\n\n_Clark's Theory of Specific Productivity_\n\nOne of the theories referred to in the last paragraph is that which\nhas been elaborated in great detail and with great ingenuity by\nProfessor John Bates Clark. As stated by himself in the opening\nsentence of the preface to his \"Distribution of Wealth,\" its main\ntenet is, \"that the distribution of the income of society is\ncontrolled by a natural law, and that this law, if it worked without\nfriction, would give to every agent of production the amount of wealth\nwhich that agent creates.\" In a r\u00e9gime of perfect competition,\ntherefore, the labourer would get, not the whole product of industry,\nbut the whole product due to his own exertions.\n\nIt is impossible, and indeed unnecessary, to enter upon an extended\nexamination of this contention. It will be sufficient to state in a\nsummary way the most obvious and cogent objections. Without making any\nexamination of Professor Clark's theory, we should expect to find it\nunconvincing. For the productive process is by analogy an organic\nprocess, in which every factor requires the co-operation of every\nother factor in order to turn out even the smallest portion of the\nproduct. Each factor is in its own order the cause of the whole\nproduct. Consequently no physical portion of the product can be set\naside and designated as wholly due to any one factor. Can we not,\nhowever, distinguish the _proportionate productive influence_ exerted\nby each factor, and the proportion of the product which represents\nsuch productive influence? This is the question to which Professor\nClark addresses himself with much ingenuity, subtlety, and labour, and\nto which he returns an affirmative answer.[235]\n\nHe contends that the amount of product added by the presence of the\nleast productive labourer in a group or establishment describes the\nproductivity of that and every other labourer for whom the man in\nquestion can be substituted. Nevertheless this marginal labourer had\nthe use of _some_ capital, no matter how little or how poor;\nconsequently the increment of product which follows his activity is\npartly due to capital. It represents something other than his own\nproductive power. If his wage equals the value of this increment of\nproduct, he is receiving something more than his specific product.\n\nIn the second place, Professor Clark maintains that the difference\nbetween what a labourer produces when he uses the whole of a certain\nsupply of capital and what he produces when he has shared that capital\nwith another labourer, represents the specific productivity of the\nrelinquished capital. Let us assume that in a given case the\ndifference is ten units of product. When the first man had the whole\ncapital to himself, the product was one hundred units; when he shares\nthe use of it with another, the total product is one hundred and\neighty units. As the two men are assumed to be equally productive,\neach has to his credit ninety units of product. Working with half the\ncapital, the first man finds that the resulting product is ten units\nless than when he was using the whole capital. Hence these ten units\nrepresent the portion that the relinquished capital contributed to the\nproduct; and if the productivity of half the capital is ten units,\nthat of the whole capital must be twenty units. Nevertheless, the ten\nunits by which the product was enlarged when the man had the whole\ncapital, did not come into being without his co-operation; hence they\ncannot be entirely attributed to the one-half share of the capital. In\nother words, the productivity of the relinquished capital seems to be\nless than ten units. It also seems to be more than ten units; for we\nmay assume that if each man were to use one-half the capital\nindependently of the other, the resulting total product would be less\nthan one hundred and eighty units, or less than ninety units for each.\nConsequently the difference between the product resulting from the\nfirst man's use of the whole capital and that resulting from his use\nof half the capital would be more than ten units; and this difference\nis specifically attributable to half the capital. Who can say which of\nthese calculations is correct, or whether either of them is correct?\n\nThe method of ascertaining specific productivity which has been\ndescribed in the last paragraph is thought by Professor Clark to\nreceive confirmation from the fact that it leads to the same\nconclusion as the first and more direct method; namely, that the\nspecific productivity of labour is expressed in the product of the\nmarginal labourer. As a matter of fact, this conclusion is yielded by\nboth methods; for the specific productivity of the first labourer\nappeared as eighty units, which was also the specific productivity of\nthe second labourer, who was the marginal labourer. As we saw in the\nsecond last paragraph, however, the marginal product is not due to\nlabour alone; hence the verification provided by the second method is\nin reality a refutation.\n\nApparently the majority of economists do not accept Professor Clark's\ntheory; for of the nine who discussed certain applications of it at\nthe nineteenth annual meeting of the American Economic Association\nonly one approved it, three were non-committal, and five expressed\ntheir dissent.[236]\n\nEven if the theory were true its hypothetical character would deprive\nit of any practical value. It assumes a r\u00e9gime of perfect competition,\nbut this assumption is so seldom realised that no rule based upon it\ncan throw much light on the question of the productivity of present\nday labourers.\n\nEven if it were exactly applicable to existing conditions, that is, if\nlabourers were actually getting their specific products, the theory\nwould not provide us with a doctrine of just wages. As we have seen in\nformer chapters, productivity is neither the only nor the highest canon\nof justice, whether as regards the comparative claims of capital and\nlabour, or as regards the claims of different labourers. The contention\nthat capital ought to command interest because it aids in bringing\nforth the product, is neither self evident nor demonstrable by any\nprocess of reasoning. Even if we should concede that the capitalist has\na right to interest by virtue of the productivity of his capital, we\nshould not therefore conclude that this right is as cogent as the\ncorresponding right of the labourer. In the former case the productive\nagency is not human nor active, but only material and passive; and the\nrecipient of the product performs no labour as capitalist, but is left\nfree to get a livelihood by personal activity. The productivity of\nlabour differs in all these respects, and the difference is ethically\nsufficient to justify the claim that the labourer may sometimes have a\nright to a part of the specific product of capital. To sum up the\nmatter in the words of Professor Wicker: \"To have proved that the\ncapitalist gets in interest what his capital produces is not to have\nproved that the capitalist gets what he has earned. To have proved that\nthe landlord gets what his land produces is not to have proved that the\nlandlord earns his distributive share.... Economics is not ethics;\nexplanation is not justification.\"[237]\n\nIndeed, Professor Clark nowhere explicitly asserts that productivity\nis an adequate rule of justice. \"We might raise the question,\" he\nsays, \"whether a rule that gives to a man his product is in the\nhighest sense just.\"[238] Scattered throughout his volume, however,\nare many expressions which might fairly be interpreted as answering\nthis question in the affirmative. The statements that distribution\naccording to product is a \"natural law,\" and that if the labourer does\nnot get his full specific product he is \"despoiled,\" suggest if they\ndo not imply that wages according to productivity is not merely the\neconomic but the ethical norm. At any rate, the assumption of\nproductivity as the adequate canon of wage justice, is very widely\nadopted, and is frequently brought forward to give sanction to\ninsufficient rates of remuneration. Hence it has been thought well to\nshow that the economic basis of the assumption, i.e., that the\nlabourer gets what he produces, is unproved and unprovable.\n\n_Carver's Modified Version of Productivity_\n\nProfessor Carver makes no attempt to ascertain or state the exact\nphysical productivity of labour as compared with that of capital, but\nconfines his attention to what he calls the \"economic\" productivity of\na given unit of labour in a given productive process.[239] \"Find out\naccurately how much the community produces with his [the labourer's]\nhelp, over and above what it produces without his help, and you have\nan exact measure of his productivity.\"[240] By this rule we can\ndetermine a man's productivity not only as compared with his\ninactivity in relation to a given industry or establishment, but as\ncompared with the productivity of some other man who might be\nsubstituted for him. Thus understood, productivity expresses the\neconomic value of a man to the industrial process in which he\nparticipates. It \"determines how much a man is worth, and\nconsequently, according to our criterion of justice, how much a man\nought to have as a reward for his work.\"[241]\n\nWhile this conception of productivity is relatively simple, and the\ncanon of justice based upon it is somewhat plausible, neither is\nadequate. To many situations the productivity test is substantially\ninapplicable. The removal from industry of the man who works alone;\nfor example, the independent shoemaker, blacksmith, tailor, or farmer,\nwould result not in a certain diminution, but in the entire\nnon-appearance of the product; and the removal of the capital or tools\nwould have precisely the same effect. According to the former method,\nthe labourer is to be credited with the whole product, and capital\nwith nothing; according to the latter method, capital produces\neverything, and labour nothing. Even when several labourers are\nemployed in an establishment, the test is inapplicable to those who\nare engaged upon indispensable tasks; for example, the engineer in the\nboiler room of a small factory, and the bookkeeper in a small store.\nRemove them, and you have no product at all; hence a rigid enforcement\nof Professor Carver's test would award them the whole product. To be\nsure, we can get some measure of the productivity of these men by\nobserving the effect on the product when inferior men are put in their\nplaces; but this merely enables us to tell how much more they are\nworth than other men, not their total worth. Moreover, even the\nsubstitution test is not always practicable. The attempt to ascertain\nthe productivity of a workman of high technical skill by putting in\nhis place an utterly unskilled labourer, would not yield very\nsatisfactory results, either to the inquiry or to the industry. In the\nmajority of such cases, the difference in the resulting product would\nprobably far exceed the difference in the existing wage rates of the\ntwo men, thus showing that the skilled worker is getting considerably\nless than he is \"economically worth.\"\n\nIn the field to which it is applicable, namely, that of more or less\nunspecialised labour in large establishments, Professor Carver's\ntheory violates some of the most fundamental conceptions of justice\nand humanity. He admits that it takes no account of the labourer's\nefforts, sacrifices, or needs, and that when unskilled labour becomes\ntoo plentiful, the value of the product may fall below the cost of\nsupporting a decent standard of living. While he looks with some\nsympathy upon the demand for a minimum wage of two dollars per day, he\ncontends that unless the labourer really _earns_ that amount, some\nother man will be paid less than he earns, \"which would be unjust.\" To\n\"earn\" two dollars a day means, in Professor Carver's terminology, to\nadd that much value to the product of the establishment in which the\nlabourer is employed; for this is the measure of the labourer's\nproductivity. If all the men who are now getting less than two dollars\na day are receiving the full value of their product, and if all the\nother workers are likewise given the full value of their product, an\nincrease in the remuneration of the former will mean a deduction from\nthe compensation of the latter.\n\nThese conclusions of ethical pessimism are extremely vulnerable. As we\nhave shown in chapter xvi, efforts, sacrifices, and needs are superior\nto productivity as claims to reward, and must be given due\nconsideration in any just scheme of distribution. Professor Carver\nwould leave them out of account entirely. In the second place, it is\nnot always nor necessarily ever true that to raise the wages of the\npoorest paid labourers will mean to lower the remuneration of those\nwho are better paid. Many workers, particularly women, are now\nreceiving less than the measure of their \"productivity,\" less than\nthey \"earn,\" less than their worth to the employer, less than he would\nbe willing to pay rather than go without their services. Professor\nCarver would, of course, not deny that the wages of all such labourers\ncould be raised without affecting the remuneration of other workers.\nEven when the poorest paid class is receiving all that its members are\nat present worth to the employer, an increase in their compensation\nwould not necessarily come out of the fund available for the better\npaid. It could be deducted from excessive profits and interest; for we\nknow well that in many industries competition does not automatically\nkeep down these shares to the minimum necessary to retain the services\nof business ability and capital. It could be provided to some extent\nout of the enlarged product that would result from improvements in the\nproductive process, and from the increased efficiency of those workers\nwhose wages had been raised. Finally, the increased remuneration could\nbe derived from increased prices. When we speak of the unskilled\nlabourer as getting all that he produces, or all that he earns, we\nrefer not to his concrete product, but to the value of that product,\nto the selling price of the product. Neither this price, nor any other\nexisting price, has anything about it that is either economically or\nethically sacred. In a competitive market current prices are fixed by\nthe forces of supply and demand, which often involve the exploitation\nof the weak; in a monopoly market they are set by the desires of the\nmonopolist, which are likewise destitute of moral validity. Hence a\nminimum wage law which would raise the price and value of the product\nsufficiently to provide living wages for the unskilled workers, thus\nincreasing their \"productivity\" and enabling them to \"earn\" the legal\nwage, would neither violate the principles of justice, nor necessarily\ndiminish the compensation of any other labouring group. To be sure,\nthe increased prices might be followed by such a lessening of demand\nfor the product as to diminish employment; but this is another matter\nwhich has no direct bearing on either the economic or the ethical\nphases of productivity and earning power. And the disadvantages\ninvolved in the supposition of a reduced volume of employment may\npossibly be not so formidable socially as those which accompany a\nlarge volume of insufficiently paid occupations. This question will\nreceive further consideration in a later chapter.\n\nIn the meantime, we conclude that Professor Carver's theory or rule is\ninapplicable to a large part of the industrial field, and that where\nit does apply it frequently runs counter to some of the fundamental\nprinciples of distributive justice.\n\nFOOTNOTES:\n\n[213] Page 47.\n\n[214] _The Chicago Daily Tribune_, July 17, 1915.\n\n[215] Article on \"Political Economy and Ethics,\" in Palgrave's\nDictionary of Political Economy.\n\n[216] \"Property and Contract,\" II, 603.\n\n[217] Cf. \"L'Id\u00e9e du Juste Salaire,\" by L\u00e9on Polier, ch. iii. Paris;\n1903.\n\n[218] Polier, op. cit., pp. 33, sq.; Ryan, \"A Living Wage,\" pp. 26,\nsq.\n\n[219] \"Ethica,\" lib. 5, tr. 2, cap. 5.\n\n[220] \"Comment. ad Eth.,\" XXI, 172.\n\n[221] Cf. Polier, op. cit., pp. 66-75; Ryan, op. cit, pp. 93, 94.\n\n[222] Cf. Polier, op. cit., pp. 92-95.\n\n[223] \"Cours d'\u00c9conomie Sociale,\" pp. 598, sq.\n\n[224] Polier, op. cit., pp. 219-359; Menger, \"The Right to the Whole\nProduce of Labour\"; English Translation. London; 1899.\n\n[225] \"Enquiry Concerning Political Justice.\"\n\n[226] \"On the Effects of Civilisation on the People of European\nStates.\"\n\n[227] \"An Inquiry Into the Principles of the Distribution of Wealth\nMost Conducive to Human Happiness.\"\n\n[228] Menger, op. cit., p. 56.\n\n[229] Op. cit., p. 51.\n\n[230] Cf. Menger, op. cit., pp. 62-73.\n\n[231] \"Qu' est-ce que la propri\u00e9t\u00e9 ou recherches sur la principe du\ndroit et du gouvernment.\" 1840.\n\n[232] \"Zur Erkentniss unserer staatswirthschaftlichen Zustande,\" 1842.\n\n[233] \"Das Kapital,\" 1867.\n\n[234] Cf. Polier, op. cit., pp. 352, sq.\n\n[235] Cf. especially chap. xxi, \"The Theory of Economic Causation.\"\n\n[236] \"Proceedings,\" pp. 23-54.\n\n[237] \"Proceedings of the 22d Annual Meeting of the American Economic\nAssociation,\" pp. 160, 161.\n\n[238] Op. cit., p. 8.\n\n[239] \"Essays in Social Justice\"; especially ch. vii.\n\n[240] Op. cit., pp. 187, 188.\n\n[241] Op. cit., p. 201.\n\n\n\n\nCHAPTER XXIII\n\nTHE MINIMUM OF JUSTICE: A LIVING WAGE\n\n\nAlthough the principle of needs is somewhat prominent among the\ntheories of wage justice, it received only incidental mention in the\nlast chapter. Considered as a comprehensive rule, this principle has\nbeen defended with less energy and definiteness than most of the other\ncanons. Considered as a partial rule, it is sound and fundamental, and\ntherefore could not have been classed among theories that are\nunacceptable.\n\n\n_The Principle of Needs_\n\nMany of the early French Socialists of the Utopian school advanced\nthis formula of distribution: \"From each according to his powers; to\neach according to his needs.\" It was also put forward by the German\nSocialists in the Gotha Program in 1875. While they have not given to\nthis standard formal recognition in their more recent platforms,\nSocialists generally regard it as the ideal rule for the distant\nfuture.[242] The difficulties confronting it are so great and so\nobvious that they would defer the introduction of it to a time when\nthe operation of their system will, they hope, have eradicated the\nhistorical human qualities of laziness and selfishness. To adopt needs\nas the sole rule of distribution would mean, of course, that each\nperson should be rewarded in proportion to his wants and desires,\nregardless of his efforts or of the amount that he had produced. The\nmere statement of the proposal is sufficient to refute it as regards\nthe men and women of whom we have any knowledge. In addition to this\nobjection, there is the insuperable difficulty of measuring fairly or\naccurately the relative needs of any group composed of men, women, and\nchildren. Were the members' own estimates of their needs accepted by\nthe distributing authority, the social product would no doubt fall far\nshort of supplying all. If the measurement were made by some official\nperson or persons, \"the prospect of jobbery and tyranny opened up must\ngive the most fanatical pause.\" Indeed, the standard of needs should\nbe regarded as a canon of Communism rather than of Socialism; for it\nimplies a large measure of common life as well as of common ownership,\nand paternalistic supervision of consumption as well as collectivist\nmanagement of production.\n\nWhile the formula of needs must be flatly rejected as complete rule of\ndistributive justice, or of wage justice, it is valid and\nindispensable as a partial standard. It is a partial measure of\njustice in two senses: first, inasmuch as it is consistent with the\nadmission and operation of other principles, such as productivity and\nsacrifice; second, inasmuch as it can be restricted to certain\nfundamental requisites of life, instead of being applied to all\npossible human needs. It can be made to safeguard the minimum demands\nof reasonable life, and therefore to function as a minimum standard of\nwage justice.\n\nHuman needs constitute the primary title or claim to material goods.\nNone of the other recognised titles, such as productivity, effort,\nsacrifice, purchase, gift, inheritance, or first occupancy, is a\nfundamental reason or justification of either rewards or possessions.\nThey all assume the existence of needs as a prerequisite to their\nvalidity. If men did not need goods they could not reasonably lay\nclaim to them by any of the specific titles just enumerated. First\ncomes the general claim or fact of needs; then the particular title\nor method by which the needs may be conveniently supplied. While these\nstatements may seem elementary and platitudinous, their practical\nvalue will be quite evident when we come to consider the conflicting\nclaims that sometimes arise out of the clash between needs and some of\nthe other titles. We shall see that needs are not merely a physical\nreason or impulse toward acquisition and possession, but a moral title\nwhich rationalises the claim to a certain amount of goods.[243]\n\n\n_Three Fundamental Principles_\n\nThe validity of needs as a partial rule of wage justice rests\nultimately upon three fundamental principles regarding man's position\nin the universe. The first is that God created the earth for the\nsustenance of _all_ His children; therefore, that all persons are\nequal in their inherent claims upon the bounty of nature. As it is\nimpossible to demonstrate that any class of persons is less important\nthan another in the eyes of God, it is logically impossible for any\nbeliever in Divine Providence to reject this proposition. The man who\ndenies God or Providence can refuse assent to the second part of the\nproposition only by refusing to acknowledge the personal dignity of\nthe human individual, and the equal dignity of all persons. Inasmuch\nas the human person is intrinsically sacred and morally independent,\nhe is endowed with those inherent prerogatives, immunities, and claims\nthat we call rights. Every person is an end in himself; none is a mere\ninstrument to the convenience or welfare of any other human being. The\nworth of a person is something intrinsic, derived from within, not\ndetermined or measurable by reference to any earthly object or purpose\nwithout. In this respect the human being differs infinitely from, is\ninfinitely superior to, a stone, a rose, or a horse. While these\nstatements help to illustrate what is meant by the dignity of\npersonality, by the intrinsic worth, importance, sacredness of the\nhuman being, they do not prove the existence of this inherent\njuridical quality. Proof in the strict sense is irrelevant and\nimpossible. If the intrinsic and equal moral worth of all persons be\nnot self evident to a man, it will not approve itself to him through\nany process of argumentation. Whosoever denies it can also logically\ndeny men's equal claims of access to the bounty of the earth; but he\ncannot escape the alternative conclusion that brute force, exercised\neither by the State or by individuals, is the only proper determinant\nof possessions and of property. Against this monstrous contention it\nis not worth while to offer a formal argument.\n\nThe second fundamental principle is that the inherent right of access\nto the earth is conditioned upon, and becomes actually valid through,\nthe expenditure of useful labour. Generally speaking the fruits and\npotentialities of the earth do not become available to men without\nprevious exertion. \"In the sweat of thy brow thou shalt eat thy\nbread,\" is a physical no less than a moral commandment. There are,\nindeed, exceptions: the very young, the infirm, and the possessors of\na sufficient amount of property. The two former classes have claims to\na livelihood through piety and charity, while the third group has at\nleast a presumptive claim of justice to rent and interest, and a\ncertain claim of justice to the money value of their goods.\nNevertheless, the general condition is that men must work in order to\nlive. \"If a man will not work neither shall he eat.\" For those who\nrefuse to comply with this condition the inherent right of access to\nthe earth remains only hypothetical and suspended.\n\nThe two foregoing principles involve as a corollary a third principle;\nthe men who are in present control of the opportunities of the earth\nare obliged to permit reasonable access to these opportunities by\npersons who are willing to work. In other words, possessors must so\nadminister the common bounty of nature that non-owners will not find\nit unreasonably difficult to get a livelihood. To put it still in\nother terms, the right to subsist from the earth implies the right to\naccess thereto on reasonable terms. When any man who is willing to\nwork is denied the exercise of this right, he is no longer treated as\nthe moral and juridical equal of his fellows. He is regarded as\ninherently inferior to them, as a mere instrument to their\nconvenience; and those who exclude him are virtually taking the\nposition that their rights to the common gifts of the Creator are\ninherently superior to his birthright. Obviously this position cannot\nbe defended on grounds of reason. Possessors are no more justified in\nexcluding a man from reasonable access to the goods of the earth than\nthey would be in depriving him of the liberty to move from place to\nplace. The community that should arbitrarily shut a man up in prison\nwould not violate his rights more fundamentally than the community or\nthe proprietors who should shut him out from the opportunity of\ngetting a livelihood from the bounty of the earth. In both cases the\nman demands and has a right to a common gift of God. His moral claim\nis as valid to the one good as to the other, and it is as valid to\nboth goods as is the claim of any of his fellows.\n\n\n_The Right to a Decent Livelihood_\n\nEvery man who is willing to work has, therefore, an inborn right to\nsustenance from the earth on reasonable terms or conditions. This\ncannot mean that all persons have a right to equal amounts of\nsustenance or income; for we have seen on a preceding page that men's\nneeds, the primary title to property, are not equal, and that other\ncanons and factors of distribution have to be allowed some weight in\ndetermining the division of goods and opportunities. Nevertheless,\nthere is a certain minimum of goods to which every worker is entitled\nby reason of his inherent right of access to the earth. He has a right\nto at least a _decent_ livelihood. That is; he has a right to so much\nof the requisites of sustenance as will enable him to live in a manner\nworthy of a human being. The elements of a decent livelihood may be\nsummarily described as: food, clothing, and housing sufficient in\nquantity and quality to maintain the worker in normal health, in\nelementary comfort, and in an environment suitable to the protection\nof morality and religion; sufficient provision for the future to bring\nelementary contentment, and security against sickness, accident, and\ninvalidity; and sufficient opportunities of recreation, social\nintercourse, education, and church-membership to conserve health and\nstrength, and to render possible in some degree the exercise of the\nhigher faculties.\n\nOn what ground is it contended that a worker has a right to a decent\nlivelihood, as thus defined, rather than to a bare subsistence? On the\nsame ground that validates his right to life, marriage, or any of the\nother fundamental goods of human existence. On the dignity of\npersonality. Why is it wrong and unjust to kill or maim an innocent\nman? Because human life and the human person possess intrinsic worth;\nbecause personality is sacred. But the intrinsic worth and sacredness\nof personality imply something more than security of life and limb,\nand the material means of bare existence. The man who is not provided\nwith the requisites of normal health, efficiency, and contentment\nlives a maimed life, not a reasonable life. His physical condition is\nnot worthy of a human being. Furthermore, man's personal dignity\ndemands not merely the conditions of reasonable physical existence,\nbut the opportunity of pursuing self perfection through the harmonious\ndevelopment of all his faculties. Unlike the brutes, he is endowed\nwith a rational soul, and the capacity of indefinite self\nimprovement. A due regard to these endowments requires that man shall\nhave the opportunity of becoming not only physically stronger, but\nintellectually wiser, morally better, and spiritually nearer to God.\nIf he is deprived of these opportunities he cannot realise the\npotentialities of his nature nor attain the divinely appointed end of\nhis nature. He remains on the plane of the lower animals. His\npersonality is violated quite as fundamentally as when his body is\ninjured or his life destroyed.\n\nWhile it is impossible to define with mathematical precision the\ndegree of personal development that is necessary to satisfy the claims\nof personal dignity, it is entirely practicable to state with\nsufficient definiteness the minimum conditions of such development.\nThey are that quantity of goods and opportunities which fair-minded\nmen would regard as indispensable to humane, efficient, and reasonable\nlife. The summary description of a decent livelihood at the end of the\nsecond last paragraph, would probably be accepted by all men who\nreally believe in the intrinsic worth of personality.\n\n\n_The Claim to a Decent Livelihood from a Present Occupation_\n\nThe claim of a worker to a decent livelihood from the goods of the\nearth does not always imply a strict right to a livelihood from one's\npresent occupation. To demand this would in some circumstances be to\ndemand a livelihood not on reasonable but on unreasonable terms; for\nthe persons in control of the sources could not reasonably be required\nto provide a decent livelihood. Their failure to do so would not\nconstitute an unreasonable hindrance to the worker's access to the\nearth in such circumstances. In chapter xvi we saw that not all\nbusiness men have a strict right to that minimum of profits which is\nrequired to yield them a decent livelihood: first, because the\ndirection of industry is not generally the business man's only means\nof getting a living; second, because the community, the consumers, do\nnot regard the presence and activity of all existing business men as\nindispensable. Of course, the community is morally bound to pay such\nprices for goods as will enable all the necessary business men,\nwhether manufacturers or traders, to obtain a decent livelihood in\nreturn for their directive functions; but it is not obliged to provide\na livelihood for those business men whose presence is not required,\nwho could vanish from the field of industrial direction without\naffecting either the supply or the price of goods, and whose\nsuperfluous character is proved by the fact that they cannot make a\nlivelihood at the prevailing prices. They are in the position of\npersons whom the community does not desire to employ as business men.\nIn refusing to pay prices sufficiently high to provide these\ninefficient business men with a decent livelihood, the community is\nnot unreasonably hindering their access to the common goods of the\nearth. Such men are really demanding a livelihood on unreasonable\nterms.\n\n\n_The Labourer's Right to a Living Wage_\n\nOn the other hand, the wage earner's claim to a decent livelihood is\nvalid, generally speaking, in his present occupation. In other words,\nhis right to a decent livelihood in the abstract means in the concrete\na right to a living wage. To present the matter in its simplest terms,\nlet us consider first the adult male labourer of average physical and\nmental ability who is charged with the support of no one but himself,\nand let us assume that the industrial resources are adequate to such a\nwage for all the members of his class. Those who are in control of the\nresources of the community are morally bound to give such a labourer a\nliving wage. If they fail to do so they are unreasonably hindering his\naccess to a livelihood on reasonable terms; and his right to a\nlivelihood on reasonable terms is violated. The central consideration\nhere is evidently the _reasonableness_ of the process. Unlike the\nbusiness man, the rent receiver, and the interest receiver, the\nlabourer has ordinarily no other means of livelihood than his wages.\nIf these do not furnish him with a decent subsistence he is deprived\nof a decent subsistence. When he has performed an average day's work,\nhe has done all that is within his power to make good his claim to a\ndecent livelihood. On the other hand, the community is the beneficiary\nof his labour, and desires his services. If, indeed, the community\nwould rather do without the services of an individual labourer than\npay him a living wage, it is morally free to choose the former\nalternative, precisely as it is justified in refusing to pay a price\nfor groceries that will enable an inefficient grocer to obtain living\nprofits. Whatever concrete form the right of such persons to a decent\nlivelihood may take, it is not the right to living wages or living\nprofits from the occupations in question. Here, however, we are\ndiscussing the labourer to whom the community would rather pay a\nliving wage than not employ him at all. To refuse such a one a living\nwage merely because he can be constrained by economic pressure to work\nfor less, is to treat him unreasonably, is to deprive him of access to\na livelihood on reasonable terms. Such treatment regards the labourer\nas inferior to his fellows in personal worth, as a mere instrument to\ntheir convenience. It is an unreasonable distribution of the goods and\nopportunities of the earth.\n\nObviously there is no formula by which such conduct can be\nmathematically demonstrated as unreasonable; but the proposition is as\ncertain morally as any other proposition that is susceptible of\nrational defence in the field of distribution. No man who accepts the\nthree fundamental principles stated some pages back, can deny the\nright of the labourer to a living wage. The man who does not accept\nthem must hold that all property rights are the arbitrary creation of\nthe State, or that there is no such thing as a moral right to\nmaterial goods. In either supposition the distribution and possession\nof the earth's bounty are subject entirely to the arbitrament of\nmight. There is nothing to be gained by a formal criticism of this\nassumption.\n\nWhat persons, or group, or authority is charged with the obligation\nwhich corresponds to the right to a living wage? We have referred to\n\"the community\" in this connection, but we do not mean the community\nin its corporate capacity, i.e., the State. As regards private\nemployments, the State is not obliged to pay a living wage, nor any\nother kind of wage, since it has not assumed the wage-paying function\nwith respect to these labourers. As protector of natural rights, and\nas the fundamental determiner of industrial institutions, the State is\nobliged to enact laws which will enable the labourer to obtain a\nliving wage; but the duty of actually providing this measure of\nremuneration rests upon that class which has assumed the wage-paying\nfunction. This is the employers. In our present industrial system, the\nemployer is society's paymaster. He, not the State, receives the\nproduct out of which all the agents of production must be rewarded.\nWhere the labourer is engaged in rendering personal services to his\nemployer, the latter is the only beneficiary of the labourer's\nactivity. In either case the employer is the only person upon whom the\nobligation of paying a living wage can primarily fall.\n\nIf the State were in receipt of the product of industry, the\nwage-paying fund, it would naturally be charged with the obligation\nthat now rests immediately upon the employer. If any other class in\nthe community were the owners of the product that class would be under\nthis specific obligation. As things are, the employer is in possession\nof the product, and discharges the function of wage payer;\nconsequently he is the person who is required to perform this function\nin a reasonable manner.\n\n\n_When the Employer Is Unable to Pay a Living Wage_\n\nEvidently the employer who cannot pay a living wage is not obliged to\ndo so, since moral duties suppose a corresponding physical capacity.\nIn such circumstances the labourer's right to a living wage becomes\nsuspended and hypothetical, just as the claim of a creditor when the\ndebtor becomes insolvent. Let us see, however, precisely what meaning\nshould reasonably be given to the phrase, \"inability to pay a living\nwage.\"\n\nAn employer is not obliged to pay a full living wage to all his\nemploy\u00e9s so long as that action would deprive himself and his family\nof a decent livelihood. As active director of a business, the employer\nhas quite as good a right as the labourer to a decent livelihood from\nthe product, and in case of conflict between the two rights, the\nemployer may take advantage of that principle of charity which permits\na man to prefer himself to his neighbour, when the choice refers to\ngoods of the same order of importance. Moreover, the employer is\njustified in taking from the product sufficient to support a somewhat\nhigher scale of living than generally prevails among his employ\u00e9s; for\nhe has become accustomed to this higher standard, and would suffer a\nconsiderable hardship if compelled to fall notably below it. It is\nreasonable, therefore, that he should have the means of maintaining\nhimself and family in moderate conformity with their customary\nstandard of living; but it is unreasonable that they should indulge in\nanything like luxurious expenditure, so long as any of the employ\u00e9s\nfail to receive living wages.\n\nSuppose that an employer cannot pay all his employ\u00e9s living wages and\nat the same time provide the normal rate of interest on the capital in\nthe business. So far as the borrowed capital is concerned, the\nbusiness man has no choice; he must pay the stipulated rate of\ninterest, even though it prevents him from giving a living wage to\nall his employ\u00e9s. Nor can it be reasonably contended that the loan\ncapitalist in that case is obliged to forego the interest due him. He\ncannot be certain that this interest payment, or any part of it, is\nreally necessary to make up what is wanting to a complete scale of\nliving wages. The employer would be under great temptation to defraud\nthe loan capitalist on the pretext of doing justice to the labourer,\nor to conduct his business inefficiently at the expense of the loan\ncapitalist. Anyhow, the latter is under no obligation to leave his\nmoney in a concern that is unable to pay him interest regularly. The\ngeneral rule, then, would seem to be that the loan capitalist is not\nobliged to refrain from taking interest in order that the employ\u00e9s may\nhave living wages.\n\nIs the employer justified in withholding the full living wage from his\nemploy\u00e9s to provide himself with the normal rate of interest on the\ncapital that he has invested in the enterprise? Speaking generally, he\nis not. In the first place, the right to any interest at all, except\nas a return for genuine sacrifices in saving, is not certain but only\npresumptive.[244] Consequently it has no such firm and definite basis\nas the right to a living wage. In the second place, the right to\ninterest, be it ever so definite and certain, is greatly inferior in\nforce and urgency. It is an axiom of ethics that when two rights\nconflict, the less important must give way to the more important.\nSince all property rights are but means to the satisfaction of human\nneeds, their relative importance is determined by the relative\nimportance of the ends that they serve; that is, by the relative\nimportance of the dependent needs. Now the needs that are supplied\nthrough interest on the employer's capital are slight and not\nessential to his welfare; the needs that are supplied through a living\nwage are essential to a reasonable life for the labourer. On the\nassumption that the employer has already taken from the product\nsufficient to provide a decent livelihood, interest on his capital\nwill be expended for luxuries or converted into new investments; a\nliving wage for the labourer will all be required for the fundamental\ngoods of life, physical, mental, or moral. Evidently, then, the right\nto interest is inferior to the right to a living wage. To proceed on\nthe contrary theory is to reverse the order of nature and reason, and\nto subordinate essential needs and welfare to unessential needs and\nwelfare.\n\nNor can it be maintained that the capitalist-employer's claim to\ninterest is a claim upon the product prior to and independent of the\nclaim of the labourer to a living wage. That would be begging the\nquestion. The product is in a fundamental sense the common property of\nemployer and employ\u00e9s. Both parties have co-operated in turning it\nout, and they have equal claims upon it, in so far as it is necessary\nto yield them a decent livelihood. Having taken therefrom the\nrequisites of a decent livelihood for himself, the employer who\nappropriates interest at the expense of a decent livelihood for his\nemploy\u00e9s, in effect treats their claims upon the common and joint\nproduct as essentially inferior to his own. If this assumption were\ncorrect it would mean that the primary and essential needs of the\nemploy\u00e9s are of less intrinsic importance than the superficial needs\nof the employer, and that the employ\u00e9s themselves are a lower order of\nbeing than the employer. The incontestable fact is that such an\nemployer deprives the labourers of access to the goods of the earth on\nreasonable terms, and gives himself an access thereto that is\nunreasonable.\n\nSuppose that all employers who found themselves unable to pay full\nliving wages and obtain the normal rate of interest, should dispose of\ntheir businesses and become mere loan capitalists, would the condition\nof the underpaid workers be improved? Two effects would be certain: an\nincrease in the supply of loan capital relatively to the demand, and\na decrease in the number of active business men. The first would\nprobably lead to a decline in the rate of interest, while the second\nmight or might not result in a diminution of the volume of products.\nIf the rate of interest were lowered the employing business men would\nbe able to raise wages; if the prices of products rose a further\nincrease of wages would become possible. However, it is not certain\nthat prices would rise; for the business men who remained would be the\nmore efficient in their respective classes, and might well be capable\nof producing all the goods that had been previously supplied by their\neliminated competitors. Owing to their superior efficiency and their\nlarger output, the existing business men would be able to pay\nconsiderably higher wages than those who had disappeared from the\nfield of industrial direction. As things are to-day, it is the less\nefficient business men who are unable to pay living wages and at the\nsame time obtain the prevailing rate of interest on their capital. The\nultimate result, therefore, of the withdrawal from business of those\nwho could not pay a living wage, would probably be the universal\nestablishment of a living wage.\n\nOf course, this supposition is purely fanciful. Only a small minority\nof the business men of to-day are likely to be driven by their\nconsciences either to pay a living wage at the cost of interest on\ntheir capital, or to withdraw from business when they are confronted\nwith such a situation. Is this small minority under moral obligation\nto adopt either of these alternatives, when the effect of such action\nupon the great mass of the underpaid workers is likely to be very\nslight? The question would seem to demand an answer in the\naffirmative. Those employers who paid a living wage at the expense of\ninterest would confer a concrete benefit of great value upon a group\nof human beings. Those who shrank from this sacrifice, and preferred\nto go out of business, would at least have ceased to co-operate in an\nunjust distribution of wealth, and their example would not be\nentirely without effect upon the views of their fellow employers.\n\n\n_An Objection and Some Difficulties_\n\nAgainst the foregoing argument it may be objected that the employer\ndoes his full duty when he pays the labourer the full value of the\nproduct or service. Labour is a commodity of which wages are the\nprice; and the price is just if it is the fair equivalent of the\nlabour. Like any other onerous contract, the sale of labour is\ngoverned by the requirements of commutative justice; and these are\nsatisfied when labour is sold for its moral equivalent. What the\nemployer is interested in and pays for, is the labourer's activity.\nThere is no reason why he should take into account such an extrinsic\nconsideration as the labourer's livelihood.\n\nMost of these assertions are correct, platitudinously correct, but\nthey yield us no specific guidance because they use language vaguely\nand even ambiguously. The contention underlying them was adequately\nrefuted in the last chapter, under the heads of theories of value and\ntheories of exchange equivalence. At present it will be sufficient to\nrepeat summarily the following points: if the value of labour is to be\nunderstood in a purely economic sense it means market value, which is\nobviously not a universal measure of justice; if by the value of\nlabour we mean its ethical value we cannot determine it in any\nparticular case merely by comparing labour and compensation; we are\ncompelled to have recourse to some extrinsic ethical principle; such\nan extrinsic principle is found in the proposition that the personal\ndignity of the labourer entitles him to a wage adequate to a decent\nlivelihood; therefore, the ethical value of labour is always\nequivalent to at least a living wage, and the employer is morally\nbound to give this much remuneration.\n\nMoreover, the habit of looking at the wage contract as a matter of\ncommutative justice in the mere sense of contractual justice, is\nradically defective. The transaction between employ\u00e9 and employer\ninvolves other questions of justice than that which arises immediately\nout of the relation between the things exchanged. When a borrower\nrepays a loan of ten dollars, he fulfils the obligation of justice\nbecause he returns the full equivalent of the article that he\nreceived. Nothing else is pertinent to the question of justice in this\ntransaction. Neither the wealth nor the poverty, the goodness nor the\nbadness, nor any other quality of either lender or borrower, has a\nbearing on the justice of the act of repayment. In the wage contract,\nand in every other contract that involves the distribution of the\ncommon bounty of nature, or of the social product, the juridical\nsituation is vitally different from the transaction that we have just\nconsidered. The employer has obligations of justice, not merely as the\nreceiver of a valuable thing through an onerous contract, but as the\n_distributor_ of the common heritage of nature. His duty is not merely\ncontractual, but social. He fulfils not only an individual contract,\nbut a social function. Unless he performs this social and distributive\nfunction in accordance with justice, he does not adequately discharge\nthe obligation of the wage contract. For the product out of which he\npays wages is not his in the same sense as the personal income out of\nwhich he repays a loan. His claim upon the product is subject to the\nobligation of just distribution; the obligation of so distributing the\nproduct that the labourers who have contributed to the product shall\nnot be denied their right to a decent livelihood on reasonable terms\nfrom the bounty of the earth. On the other hand, the activity of the\nlabourer is not a mere commodity, as money or pork; it is the output\nof a _person_, and a person who has no other means of realising his\ninherent right to a livelihood. Consequently, both terms of the\ncontract, the labour and the compensation, involve other elements of\njustice than that which arises out of their assumed mutual\nequivalence.\n\nIn a word, justice requires the employer not merely to give an\nequivalent for labour (an equivalent which is determined by some\narbitrary, conventional, fantastic, or impossible attempt to compare\nwork and pay) but to fulfil his obligation of justly distributing that\npart of the common bounty of the earth which comes into his hands by\nvirtue of his social function in the industrial process. How futile,\nthen, to endeavour by word juggling to describe the employer's\nobligation in terms of mere equivalence and contractual justice!\n\nSome difficulties occur in connection with the wage rights of adult\nmales whose ability is below the average, and female and child\nworkers. Since the dignity and the needs of personality constitute the\nmoral basis of the claim to a decent livelihood, it would seem that\nthe inefficient worker who does his best is entitled to a living wage.\nUndoubtedly he has such a right if it can be effectuated in the\nexisting industrial organisation. As already noted, the right of the\nworkman of average ability to a living wage does not become actual\nuntil he finds an employer who would rather give him that much pay\nthan do without his services. Since the obligation of paying a living\nwage is not an obligation to employ any particular worker, an employer\nmay refrain from hiring or may discharge any labourer who does not add\nto the product sufficient value to provide his wages. For the employer\ncannot reasonably be expected to employ any one at a positive loss to\nhimself. Whence it follows that he may pay less than living wages to\nany worker whose services he would rather dispense with than\nremunerate at that figure.[245]\n\nWomen and young persons who regularly perform a full day's work, have\na right to compensation adequate to a decent livelihood. In the case\nof minors, this means living at home, since this is the normal\ncondition of all, and the actual condition of almost all. Adult\nfemales have a right to a wage sufficient to maintain them away from\nhome, because a considerable proportion of them live in this\ncondition. If employers were morally free to pay home-dwelling women\nless than those adrift, they would endeavour to employ only the\nformer. This would create a very undesirable social situation. The\nnumber of women away from home who are forced to earn their own living\nis sufficiently large (20 to 25 per cent. of the whole) to make it\nreasonable that for their sakes the wage of all working women should\nbe determined by the cost of living outside the parental precincts.\nThis is one of the social obligations that reasonably falls upon the\nemployer on account of his function in the present industrial system.\nIn all the American minimum wage laws, the standard of payment is\ndetermined by the cost of living away from home. Besides, the\ndifference between the living costs of women in the two conditions is\nnot nearly as great as is commonly assumed. Probably it never amounts\nto a dollar a week.\n\n\n_The Family Living Wage_\n\nUp to the present we have been considering the right of the labourer\nto a wage adequate to a decent livelihood for himself as an\nindividual. In the case of an adult male, however, this is not\nsufficient for normal life, nor for the reasonable development of\npersonality. The great majority of men cannot live well balanced\nlives, cannot attain a reasonable degree of self development outside\nthe married state. Therefore, family life is among the essential\nneeds of a normal and reasonable existence. It is not, indeed, so\nvitally necessary as the primary requisites of individual life, such\nas food, clothing, and shelter, but it is second only to these.\nOutside the family man cannot, as a rule, command that degree of\ncontentment, moral strength, and moral safety which are necessary for\nreasonable and efficient living. It is unnecessary to labour this\npoint further, as very few would assert that the average man can live\na normal and complete human life without marriage.\n\nNow, the support of the family falls properly upon the husband and\nfather, not upon the wife and mother. The obligation of the father to\nprovide a livelihood for the wife and young children is quite as\ndefinite as his obligation to maintain himself. If he has not the\nmeans to discharge this obligation he is not justified in getting\nmarried. Yet, as we have just seen, marriage is essential to normal\nlife for the great majority of men. Therefore, the material requisites\nof normal life for the average adult male, include provision for his\nfamily. In other words, his decent livelihood means a family\nlivelihood. Consequently, he has a right to obtain such a livelihood\non reasonable terms from the bounty of the earth. In the case of the\nwage earner, this right can be effectuated only through wages;\ntherefore, the adult male labourer has a right to a family living\nwage. If he does not get this measure of remuneration his personal\ndignity is violated, and he is deprived of access to the goods of the\nearth, quite as certainly as when his wage is inadequate to personal\nmaintenance. The difference between family needs and personal needs is\na difference only of degree. The satisfaction of both is indispensable\nto his reasonable life.\n\nJust as the woman worker who lives with her parents has a right to a\nwage sufficient to maintain her away from home, so the unmarried adult\nmale has a right to a family living wage. If only married men get the\nlatter wage they will be discriminated against in the matter of\nemployment. To prevent this obviously undesirable condition, it is\nnecessary that a family living wage be recognised as the right of all\nadult male workers. No other arrangement is reasonable in our present\nindustrial system. In a competitive r\u00e9gime the standard wage for both\nthe married and the unmarried men is necessarily the same. It will be\ndetermined by the living costs of either the one class or the other.\nAt present the wage of the unskilled is unfortunately adjusted to the\nsubsistence cost of the man who is not married. Since two prevailing\nscales of wages are impossible, the remuneration of the unmarried must\nin the interests of justice to the married be raised to the living\ncosts of the latter. Moreover, the unmarried labourer needs more than\nan individual living wage in order to save sufficient money to enter\nupon the responsibilities of matrimony.\n\nOnly two objections of any importance can be brought against the male\nlabourer's claim to a family living wage. The first is that just wages\nare to be measured by the value of the labour performed, and not by\nsuch an extrinsic consideration as the needs of a family. It has\nalready been answered in this and the preceding chapters. Not the\neconomic but the ethical value of the service rendered, is the proper\ndeterminant of justice in the matter of wages; and this ethical value\nis always the equivalent of at least a decent livelihood for the\nlabourer and his family. According to the second objection, the\nmembers of the labourer's family have no claim upon the employer,\nsince they do not participate in the work that is remunerated. This\ncontention is valid, but it is also irrelevant. The claim of the\nlabourer's family to sustenance is directly upon him, not upon his\nemployer; but the labourer has a just claim upon the employer for the\nmeans of meeting the claims of his family. His right to this amount of\nremuneration is directly based neither upon the needs nor the rights\nof his family, but upon his own needs, upon the fact that family\nconditions are indispensable to his own normal life. If the wife and\nyoung children were self supporting, or were maintained by the State,\nthe wage rights of the father would not include provision for the\nfamily. Since, however, family life involves support by the father,\nthe labourer's right to such a life necessarily includes the right to\na wage adequate to family support.\n\n\n_Other Arguments in Favour of a Living Wage_\n\nThus far, the argument has been based upon individual natural rights.\nIf we give up the doctrine of natural rights, and assume that all the\nrights of the individual come to him from the State, we must admit\nthat the State has the power to withhold and withdraw all rights from\nany and all persons. Its grant of rights will be determined solely by\nconsiderations of social utility. In the concrete this means that some\ncitizens may be regarded as essentially inferior to other citizens,\nthat some may properly be treated as mere instruments to the\nconvenience of others. Or it means that all citizens may be completely\nsubordinated to the aggrandisement of an abstract entity, called the\nState. Neither of these positions is logically defensible. No group of\npersons has less intrinsic worth than another; and the State has no\nrational significance apart from its component individuals.\n\nNevertheless, a valid argument for the living wage can be set up on\ngrounds of social welfare. A careful and comprehensive examination of\nthe evil consequences to society and the State from the under-payment\nof any group of labourers, would show that a universal living wage is\nthe only sound social policy. Among competent social students, this\nproposition has become a commonplace. It will not be denied by any\nintelligent person who considers seriously the influence of low wages\nin diminishing the efficiency, physical, mental, and moral, of the\nworkers; in increasing the volume of crime, and the social cost of\nmeeting it; in the immense social outlay for the relief of unnecessary\npoverty, sickness, and other forms of distress; and in the formation\nof a large and discontented proletariat.[246]\n\nThe living wage doctrine also receives strong support from various\nkinds of authority. Of these the most important and best known is the\nfamous encyclical, \"On the Condition of Labour,\" May 15, 1891, by Pope\nLeo XIII. \"Let it then be granted that workman and employer should, as\na rule, make free agreements, and in particular should agree freely as\nto wages; nevertheless, there is a dictate of natural justice more\nimperious and ancient than any bargain between man and man; namely,\nthat the remuneration should be sufficient to maintain the wage earner\nand reasonable and frugal comfort.\" Although the Pope refrained from\nspecifying whether the living wage that he had in mind was one\nadequate merely to an individual livelihood, or sufficient to support\na family, other passages in the Encyclical leave no room for doubt\nthat he regarded the latter as the normal and equitable measure of\nremuneration. Within a dozen lines of the sentence quoted above, he\nmade this statement: \"If the workman's wages be sufficient to maintain\nhimself, his wife, and his children in reasonable comfort, he will not\nfind it difficult, if he be a sensible man, to practise thrift; and he\nwill not fail, by cutting down expenses, to put by some little savings\nand thus secure a small income.\"\n\nAll lesser Catholic authorities hold that the adult male labourer has\nsome kind of moral claim to a family living wage. In all probability\nthe majority of them regard this claim as one of strict justice, while\nthe minority would put it under the head of legal justice, or natural\nequity, or charity. The differences between their views are not as\nimportant as the agreements; for all the Catholic writers maintain\nthat the worker's claim is strictly moral in its nature, and that the\ncorresponding obligation upon the employer is likewise of a moral\ncharacter.\n\nThe Federal Council of the Churches of Christ in America, representing\nthe principal Protestant denominations, has formally declared in\nfavour of \"a living wage as a minimum in every industry.\"\n\nPublic opinion likewise accepts the principle of a living wage as the\nirreducible minimum of fair treatment for all workers. Indeed, it\nwould be difficult to find any important person in any walk of life\nto-day who would have the temerity to deny that the labourer is\nentitled to a wage sufficient for reasonable family life. Among\nemployers the opinion is fairly general that the narrow margin of\nprofit in competitive industries renders the burden of paying a family\nliving wage to all adult males unfairly heavy; but the assertion that\nthe wage contract is merely an economic transaction, having no\nrelation to justice, is scarcely ever uttered publicly.\n\n\n_The Money Measure of a Living Wage_\n\nFor self-supporting women a living wage is not less than eight dollars\nper week in any city of the United States, and in some of our larger\ncities it is from one to two dollars above this figure. The state\nminimum wage commissions that have acted in the matter, have fixed the\nrates not lower than eight nor higher than ten dollars per week.[247]\nThese determinations are in substantial agreement with a large number\nof other estimates, both official and unofficial.\n\nWhen the present writer was making an estimate of the cost of decent\nliving for a family about eleven years ago, he came to the conclusion\nthat six hundred dollars per year was the lowest amount that would\nmaintain a man and wife and four or five small children in any American\ncity, and that this sum was insufficient in some of the larger\ncities.[248] Since that time retail prices seem to have risen at least\ntwenty-five and possibly forty-five per cent.[249] If the six hundred\ndollar minimum were correct in 1905 it should, therefore, be increased\nto seven hundred and fifty dollars to meet the present range of prices.\nThat this estimate is too low for some of the more populous cities, has\nbeen fully proved by several recent investigations. In 1915 the Bureau\nof Standards put the minimum cost of living for a family of five in New\nYork City at $840.18. About the same time the New York Factory\nInvestigating Commission gave the estimate of $876.43 for New York\nCity, and $772.43 for Buffalo. In 1908, when the cost of living was\nfrom ten to thirty per cent. cheaper than to-day, the United States\nBureau of Labour found that, \"according to the customs prevailing in\nthe communities selected for study,\" a fair standard of living for a\nfamily of five persons among mill workers, was $600.74 in the South,\nand from $690.60 to $731.64 in Fall River, Massachusetts.[250]\n\nAccording to the \"Manly Report\" of the Federal Commission on\nIndustrial Relations, between two-thirds and three-fourths of the\nadult male labourers of the United States receive less than $750.00 a\nyear, and the same proportion of women workers are paid under eight\ndollars a week. A considerable majority, therefore, of both male and\nfemale labourers fail to obtain living wages. We are still very far\nfrom having actualised even the minimum measure of wage justice.\n\nFOOTNOTES:\n\n[242] Cf. Skelton, \"Socialism: A Critical Analysis,\" p. 202; Menger,\n\"The Right to the Whole Produce of Labour,\" pp. 8, sq.\n\n[243] All the questions treated in this chapter are discussed at much\ngreater length in the author's work, \"A Living Wage\"; Macmillan; 1906.\n\n[244] See chapters xii and xiii.\n\n[245] While the statement in the text applies to _all_ labourers of\nless than average ability, it obviously is applicable only to\nindividual cases among those who are up to the average. These are the\nworkers at the \"margin\" of the labour force in an establishment, those\nwho could be discharged without causing the industry to shut down. If\nan employer would rather go out of business than pay a living wage to\nall his necessary labourers of average ability, he is morally free to\ndo so; but he may not employ them at less than living wages in order\nto obtain interest on his capital.\n\n[246] One of the best statements of the evil social results of low\nwages will be found in Webb's \"Industrial Democracy,\" vol. II, pp.\n749-766.\n\n[247] See reports of these commissions in Oregon, Washington,\nMassachusetts, Minnesota, and California.\n\n[248] \"A Living Wage,\" p. 150.\n\n[249] See Bulletins of the Federal Bureau of Labour Statistics on\n\"Retail Prices\"; and Nearing, \"Reducing the Cost of Living.\"\n\n[250] \"Summary of the Report on Condition of Woman and Child Wage\nEarners in the United States,\" pp. 383, 384. The best intensive study\nof family cost of living is that published in the volume edited by\nRobert C. Chapin, \"The Standard of Living Among Workingmen's Families\nin New York City\"; 1909. It led to the conclusion that anything less\nthan eight hundred dollars was insufficient for the yearly maintenance\nof a husband and wife and three small children in Manhattan.\n\n\n\n\nCHAPTER XXIV\n\nTHE PROBLEM OF COMPLETE WAGE JUSTICE\n\n\nA living wage for all workers is merely the _minimum_ measure of just\nremuneration. It is not in every case complete justice. Possibly it is\nnot the full measure of justice in any case. How much more than a\nliving wage is due to any or all of the various classes of labourers?\nHow much more may any group of workers demand without exposing itself\nto the sin of extortion? By what principles shall these questions be\nanswered?\n\nThe problem of complete wage justice can be conveniently and logically\nconsidered in four distinct relations, as regards: the respective\nclaims of the different classes of labourers to a given amount of\nmoney available for wage payments; the claims of the whole body of\nlabourers, or any group thereof, to higher wages at the expense of\nprofits; at the expense of interest; and at the expense of the\nconsumer.\n\n\n_Comparative Claims of Different Labour Groups_\n\nIn the division of a common wage fund, no section of the workers is\nentitled to anything in excess of living wages until all the other\nsections have received that amount of remuneration. The need of a\ndecent livelihood constitutes a more urgent claim than any other that\ncan be brought forward. Neither efforts, nor sacrifices, nor\nproductivity, nor scarcity can justify the payment of more than living\nwages to any group, so long as any other group in the industry remains\nbelow that level; for the extra compensation will supply the\nnonessential needs of the former by denying the essential needs of\nthe latter. The two groups of men will be treated unequally in respect\nof those qualities in which they are equal; namely, their personal\ndignity and their claims to the minimum requisites of reasonable life\nand self development. This is a violation of justice.\n\nLet us suppose that all the workers among whom a given amount of\ncompensation is to be distributed, have already received living wages,\nand that there remains a considerable surplus. On what principles\nshould the surplus be apportioned? For answer we turn to the canons of\ndistribution, as explained in chapter xvi. When the elementary needs\nof life and development have been supplied, the next consideration\nmight seem to be the higher or nonessential needs and capacities.\nProportional justice would seem to suggest that the surplus ought to\nbe distributed in accordance with the varying needs and capacities of\nmen to develop their faculties beyond the minimum reasonable degree.\nAs we have already pointed out, this would undoubtedly be the proper\nrule if it were susceptible of anything like accurate application, and\nif the sum to be distributed were not produced by and dependent upon\nthose who were to participate in the distribution. However, we know\nthat the first condition is impracticable, while the second is\nnon-existent. Inasmuch as the sharers in the distribution have\nproduced and constantly determine the amount to be apportioned, the\ndistributive process must disregard nonessential needs, and govern\nitself by other canons of justice.\n\nThe most urgent of these is the canon of efforts and sacrifices.\nSuperior effort, as measured by unusual will-exertion, is a\nfundamental rule of justice, and a valid title to exceptional reward.\nMen who strive harder than the majority of their fellows are ethically\ndeserving of extra compensation. At least, this is the pure theory of\nthe matter. In practice, the situation is complicated by the fact\nthat unusual effort cannot always be distinguished, and by the further\nfact that some exceptional efforts do not fructify in correspondingly\nuseful results. Among men engaged at the same kind of work, superior\neffort is to a great extent discernible in the unusually large\nproduct. As such it actually receives an extra reward in accordance\nwith the canon of productivity. When men are employed at different\ntasks, unusual efforts cannot generally be distinguished and\ncompensated. Hence the general principle is that superior efforts put\nforth in the production of utilities, entitle men to something more\nthan living wages, but that the enforcement of this principle is\nconsiderably hindered by the difficulty of discerning such efforts.\n\nThe unusual sacrifices that deserve extra compensation are connected\nwith the costs of industrial functions and the disagreeable character\nof occupations. Under the first head are included the expense of\nindustrial training and the debilitating effects of the work. Not only\njustice to the worker but a farsighted view of social welfare, dictate\nthat all unusual costs of preparation for an industrial craft or\nprofession should be repaid in the form of unusual compensation. This\nmeans something more than a living wage. For the same reasons the\nunusual hazards and disability resulting from industrial accidents and\ndiseases should be provided for by higher remuneration. In the absence\nof such provision, these costs will have to be borne by parents, by\nsociety in the form of charitable relief, or by the worker himself\nthrough unnecessary suffering and incapacity. The industry that does\nnot provide for all these costs is a social parasite, the workers in\nit are deprived of just compensation for their unusual sacrifices, and\nsociety suffers a considerable loss through industrial friction and\ndiminished productive efficiency. In so far, however, as any of the\nforegoing occupational costs are borne by society, as in the matter of\nindustrial education, or by the employer, as by the devices of\naccident compensation or sickness insurance, they do not demand\nprovision in the form of extra wages.\n\nOther unusual sacrifices that entitle the worker to more than living\nwages, are inherent in disagreeable or despised occupations. The\nscavenger and the bootblack ought to get more than the performers of\nmost other unskilled tasks. On the principles of comparative\nindividual desert, they should receive larger remuneration than many\npersons who are engaged upon skilled but relatively pleasant kinds of\nwork. For if they were given the choice of expending the time and\nmoney required to fit them for the latter tasks, or of taking up\nimmediately their present disagreeable labour, they would select the\nmore pleasant occupations, for the same or even a smaller\nremuneration. And the majority of those who are now in the more\nskilled occupations would make the same choice. Hence the sacrifices\ninherent in disagreeable kinds of work are in many cases as great as\nor greater than the sacrifices of preparation for the more pleasant\ntasks; consequently the doers of the former are relatively underpaid.\nIf all wages were regulated by some supreme authority according to the\nprinciples of complete justice, the workers in disagreeable\noccupations would receive something more than living wages. Nor would\nthis determination of rewards be in any way contrary to social welfare\nor the principle of maximum net results; for the superior\nattractiveness of the other kinds of work would draw a sufficient\nsupply of labour to offset the advantage conferred by higher wages\nupon the disagreeable occupations. The main reason why the latter kind\nof labour is so poorly paid now is the fact that it is very plentiful,\na condition which is in turn due to the unequal division of industrial\nopportunity. Were the opportunities of technical education and of\nentrance to the higher crafts and professions more widely diffused,\nthe labourers offering themselves for the disagreeable tasks would be\nscarcer and their remuneration correspondingly larger. This would be\nnot only more comfortable to the abstract principles of justice, but\nmore conducive to social efficiency.\n\nTo sum up the discussion concerning the canon of efforts and\nsacrifices: Labourers have a just claim to more than living wages\nwhenever they put forth unusual efforts, and whenever their\noccupations involve unusual sacrifices, either through costs of\npreparation, exceptional hazards, or inherent disagreeableness. The\nprecise amount of extra compensation due under any of these heads can\nbe determined, as a rule, only approximately.\n\nThe next canon to be considered as a reason for more than living wages\nis that of productivity. This offers little difficulty; for the\nunusual product is always visible among men who are performing the\nsame kind of work, and the employer is always willing to give the\nproducer of it extra compensation. While superior productive power\nwhich is based solely upon superior native ability has only\npresumptive validity as a canon of justice, that is ethically\nsufficient in our workaday world. Moreover, the canon of human welfare\ndemands that superior productivity receive superior rewards, so long\nas these are necessary to evoke the maximum net product.\n\nThe canon of scarcity has exactly the same value as that of\nproductivity. Society and the employer are well advised and are\njustified in giving extra compensation to scarce forms of labour when\nthe product is regarded as worth the corresponding price. This remains\ntrue even when the scarcity is due to restricted opportunity of\npreparation, rather than to sacrifices of any sort. In that case the\nhigher rewards are as fully justified as the superior remuneration of\nthat superior productivity which is based upon exceptional native\nendowments. The amount of extra compensation which may properly be\ngiven on account of scarcity is determined either by the degree of\nsacrifice involved or by the ordinary operation of competition. When\nmen are scarce because they have made exceptional sacrifices of\npreparation, they ought to be rewarded in full proportion to these\nsacrifices. When they are scarce merely because of exceptional\nopportunities, their extra compensation should not exceed the amount\nthat automatically comes to them through the interplay of supply and\ndemand.\n\nThe canon of human welfare has already received implicit application.\nWhen due regard is given to efforts, sacrifices, productivity, and\nscarcity, the demands of human welfare, both in its individual and its\nsocial aspects, are sufficiently safeguarded.\n\nIn the foregoing pages the attempt has been made to describe the\nproportions in which a given wage fund ought to be distributed among\nthe various classes of labourers who have claims upon the fund. The\nfirst requisite of justice is that all should receive living wages. It\napplies to all workers of average ability, even to those who have no\nspecial qualifications of any sort. When this general claim has been\nuniversally satisfied, those groups of workers who are in any wise\nspecial, whose qualifications for any reason differentiate them from\nand place them above the average, will have a right to something more\nthan living wages. They will have the first claim upon the surplus\nthat remains in the wage fund. Their claims will be based upon the\nvarious canons of distribution explained in detail above; and the\namounts of extra remuneration to which they will be entitled, will be\ndetermined by the extent to which their special qualifications\ndifferentiate them from the average and unspecialised workers. If the\ntotal available wage fund is merely sufficient to provide universal\nliving wages and the extra compensation due to the specialised groups,\nno section of the labour force will be justified in exacting a larger\nshare. Even though the employer should withhold a part of the amount\ndue to some weaker group, a stronger group that is already getting its\nproper proportion would have no right to demand the unjustly withheld\nportion. For this belongs neither to the employer nor to the powerful\nlabour group, but to the weaker section of labourers.\n\nThis does not mean that a powerful body of workers who are already\nreceiving their due proportion as compared with other labour groups,\nwould not be justified in seeking any increase in remuneration\nwhatever. The increase might come out of profits, or interest, or the\nconsumer, and thus be in no sense detrimental to the rights of the\nother sections of labourers. This problem will be considered a little\nlater. At present we confine our attention to the relative claims of\ndifferent labour groups to a definite wage fund.\n\nSuppose, however, that after all workers have received living wages,\nand all the exceptional groups have obtained those extra amounts which\nare due them on account of efforts, sacrifices, productivity, and\nscarcity, there remains a further surplus in the wage fund. In what\nproportions should it be distributed? It should be equally divided\namong all the labourers. The proportional justice which has been\nalready established can be maintained only by raising the present\nrates of payment equally in all cases. All the average or\nunspecialised groups would get something more than living wages, and\nall the other groups would have their extra compensation augmented by\nthe same amount.\n\nOf course, the wage-fund hypothesis which underlies the foregoing\ndiscussion is not realised in actual life, any more than was the \"wage\nfund\" of the classical economists. Better than any other device,\nhowever, it enables us to describe and visualise the comparative\nclaims of different groups of labourers who have a right to unequal\namounts in excess of living wages.\n\n\n_Wages Versus Profits_\n\nLet us suppose that the wage fund is properly apportioned among the\ndifferent classes of labourers, according to the specified canons of\ndistribution. May not one or all of the labour groups demand an\nincrease in wages on the ground that the employer is retaining for\nhimself an undue share of the product?\n\nAs we have seen in the last chapter, the right of the labourers to\nliving wages is superior to the right of the employer or business man\nto anything in excess of that amount of profits which will insure him\nagainst risks, and afford him a decent livelihood in reasonable\nconformity with his accustomed plane of expenditure. It is also\nevident that those labourers who undergo more than average sacrifices\nhave a claim to extra compensation which is quite as valid as the\nsimilarly based claim of the employer to more than living profits. In\ncase the business does not provide a sufficient amount to remunerate\nboth classes of sacrifices, the employer may prefer his own to those\nof his employ\u00e9s, on the same principle that he may prefer his own\nclaim to a decent livelihood. The law of charity permits a man to\nsatisfy himself rather than his neighbour, when the needs in question\nare of the same degree of urgency or importance. As to those labourers\nwho turn out larger products than the average, or whose ability is\nunusually scarce, there is no practical difficulty; for the employer\nwill find it profitable to give them the corresponding extra\ncompensation. The precise question before us, then, is the claims of\nthe labourers upon profits for remuneration above universal living\nwages and above the extra compensation due on account of unusual\nefforts, sacrifices, productivity, and scarcity. Let us call the wage\nthat merely includes all these factors \"the equitable minimum.\"\n\nIn competitive conditions this question becomes practical only with\nreference to the exceptionally efficient and productive business men.\nThe great majority have no surplus available for wage payments in\nexcess of the \"equitable minimum.\" Indeed, the majority do not now pay\nthe full \"equitable minimum\"; yet their profits do not provide them\nmore than a decent livelihood. The relatively small number of\nestablishments that show such a surplus as we are considering have\nbeen brought to that condition of prosperity by the exceptional\nability of their directors, rather than by the unusual productivity of\ntheir employ\u00e9s. In so far as this exceptional directive ability is due\nto unusual efforts and sacrifices, the surplus returns which it\nproduces may be claimed with justice by the employer. In so far as the\nsurplus is the outcome of exceptional native endowments, it may still\nbe justly retained by him in accordance with the canon of\nproductivity. In other words, when the various groups of workers are\nalready receiving the \"equitable minimum,\" they have no strict right\nto any additional compensation out of those rare surplus profits which\ncome into existence in conditions of competition.\n\nThis conclusion is confirmed by reference to the canon of human\nwelfare. If exceptionally able business men were not permitted to\nretain the surplus in question they would not exert themselves\nsufficiently to produce it; labour would gain nothing; and the\ncommunity would be deprived of the larger product.\n\nWhen the employer is a corporation instead of an individual or a\npartnership, and when it is operating in competitive conditions, the\nsame principles are applicable, and the same conclusions justified.\nThe officers and the whole body of stockholders will have a right to\nthose surplus profits that remain after the \"equitable minimum\" has\nbeen paid to the employ\u00e9s. Every consideration that urges such a\ndistribution in the case of the individual business holds good for the\ncorporation.\n\nThe corporation that is a monopoly will have the same right as the\ncompetitive concern to retain for its owners those surplus profits\nwhich are due to exceptional efficiency on the part of the managers of\nthe business. That part of the surplus which is derived from the\nextortion of higher than competitive prices cannot be justly retained,\nsince it rests upon no definite moral title. As we saw in the chapter\non monopoly, the owners have no right to anything more than the\nprevailing rate of interest, together with a fair return for their\nlabour and for any unusual efficiency that they may exercise. Should\nthe surplus in question be discontinued by lowering prices, or should\nit be continued and distributed among the labourers? As a rule, the\nformer course would seem morally preferable. While the labourers, as\nwe shall see presently, are justified in contending for more than the\n\"equitable minimum\" at the expense of the consumer, their right to do\nso through the exercise of monopoly power is extremely doubtful.\nWhether this power is exerted by themselves or by the employer on\ntheir behalf, it remains a weapon which human nature seems incapable\nof using justly.\n\n\n_Wages Versus Interest_\n\nTurning now to the claims of the labourers as against the capitalists,\nor interest receivers, we perceive that the right to any interest at\nall is morally inferior to the right of all the workers to the\n\"equitable minimum.\" As heretofore pointed out more than once, the\nformer right is only presumptive and hypothetical, and interest is\nordinarily utilised to meet less important needs than those supplied\nby wages. Through his labour power the interest receiver can supply\nall those fundamental needs which are satisfied by wages in the case\nof the labourer. Therefore, it seems clear that the capitalist has no\nright to interest until all labourers have received the \"equitable\nminimum.\" It must be borne in mind, however, that any claim of the\nlabourer against interest falls upon the owners of the productive\ncapital in a business, upon the undertaker-capitalist, not upon the\nloan-capitalist.\n\nWhen all the labourers in an industry are receiving the \"equitable\nminimum,\" have they a right to exact anything more at the expense of\ninterest? By interest we mean, of course, the prevailing or\ncompetitive rate that is received on productive capital--five or six\nper cent. Any return to the owners of capital in excess of this rate\nis properly called profits rather than interest, and its relation to\nthe claims of the labourers has received consideration in the\nimmediately preceding section of this chapter. The question, then, is\nwhether the labourers who are already getting the \"equitable minimum\"\nwould act justly in demanding and using their economic power to obtain\na part or all of the pure interest. No conclusive reason is available\nto justify a negative answer. The title of the capitalist is only\npresumptive and hypothetical, not certain and unconditional. It is,\nindeed, sufficient to justify him in retaining interest that comes to\nhim through the ordinary processes of competition and bargaining; but\nit is not of such definite and compelling moral efficacy as to render\nthe labourers guilty of injustice when they employ their economic\npower to divert further interest from the coffers of the capitalist to\ntheir own pockets. The interest-share of the product is morally\ndebatable as to its ownership. It is a sort of no-man's property (like\nthe rent of land antecedently to its legal assignment through the\ninstitution of private landownership) which properly goes to the first\noccupant as determined by the processes of bargaining between\nemployers and employ\u00e9s. If the capitalists get the interest-share\nthrough these processes it rightfully belongs to them; if the\nlabourers who are already in possession of the \"equitable minimum\"\ndevelop sufficient economic strength to get this debatable share they\nmay justly retain it as their own.\n\nThe foregoing conclusion may seem to be a very unsatisfactory solution\nof a problem of justice. However, it is the only one that is\npractically defensible. If the capitalist's claim to interest were as\ndefinite and certain as the labourer's right to a living wage, or as\nthe creditor's right to the money that he has loaned, the solution\nwould be very simple: the labourers that we are discussing would have\nno right to strive for any of the interest. But the claim of the\ncapitalists is not of this clear and conclusive nature. It is\nsufficient when combined with actual possession; it is not sufficient\nwhen the question is of future possession. The title of first\noccupancy as regards land is not valid until the land has been\nactually occupied; and similarly the claim of the capitalist to\ninterest is not valid until the interest has been received. If the\neconomic forces which determine actual possession operate in such a\nway as to divert the interest-share to the labourers, they, not the\ncapitalists, will have the valid moral title, just as Brown with his\nautomobile rather than Jones with his spavined nag will enjoy the\nvalid title of first occupancy to a piece of ownerless land which both\nhave coveted.\n\nThis conclusion is confirmed by reference to the rationally and\nmorally impossible situation that would follow from its rejection. If\nwe deny to the labourers the moral freedom to strive for higher wages\nat the expense of the capitalist, we must also forbid them to follow\nthis course at the expense of the consumer. For the great majority of\nconsumers would stand to lose advantages to which they have as good a\nmoral claim as the capitalists have to interest. Practically this\nwould mean that the labourers have no right to seek remuneration in\nexcess of the \"equitable minimum\"; for such excess must in\nsubstantially all cases come from either the consumer or the\ncapitalist. On what principle can we defend the proposition that the\ngreat majority of labourers are forever restrained by the moral law\nfrom seeking more than bare living wages, and the specialised\nminority from demanding more than that extra compensation which\ncorresponds to unusual efforts, sacrifices, productivity, and\nscarcity? Who has authorised us to shut against these classes the\ndoors of a more liberal standard of living, and a more ample measure\nof self development?\n\n\n_Wages Versus Prices_\n\nThe right of the labourers to the \"equitable minimum\" implies\nobviously the right to impose adequate prices upon the consumers of\nthe labourer's products. This is the ultimate source of the rewards of\nall the agents of production. Suppose that the labourers are already\nreceiving the \"equitable minimum.\" Are they justified in seeking any\nmore at the cost of the consumer? If all the consumers were also\nlabourers the answer would be simple, at least in principle: rises in\nwages and prices ought to be so adjusted as to bring equal gains to\nall individuals. The \"equitable minimum\" is adjusted to the varying\nmoral claims of the different classes of labourers; therefore, any\nrise in remuneration must be equally distributed in order to leave\nthis adjustment undisturbed. It is a fact, however, that a large part\nof the consumers are not labourers; consequently they cannot look to\nrises in wages as an offset to their losses through rises in prices.\nCan they be justly required to undergo this inconvenience for the\nbenefit of labourers who are already getting the \"equitable minimum\"?\n\nLet us consider first the case of higher wages versus lower prices. A\nfew progressive and efficient manufacturers of shoes find themselves\nreceiving large surplus profits which are likely to continue. So far\nas the presumptions of strict justice are concerned, they may, owing\nto their superior productivity, retain these profits for themselves.\nSeized, however, with a feeling of benevolence, or a scruple of\nconscience, they determine to divide future profits of this class\namong either the labourers or the consumers. If they reduce prices the\nlabourers will gain something as users of shoes, but the other wearers\nof shoes will also be beneficiaries. If the surplus profits are all\ndiverted to the labourers in the form of higher wages the other\nconsumers of shoes will gain nothing. Now there does not seem to be\nany compelling reason, any certain moral basis, for requiring the shoe\nmanufacturers to take one course rather than the other. Either will be\ncorrect morally. Possibly the most perfect plan would be to effect a\ncompromise by lowering prices somewhat and giving some rise in wages;\nbut there is no strict obligation to follow this course. To be sure,\nsince the manufacturers have a right to retain the surplus profits,\nthey have also a right to distribute them as they prefer. Let us get\nrid of this complication by assuming that the manufacturers are\nindifferent concerning the disposition of the surplus, leaving the\nmatter to be determined by the comparative economic strength of\nlabourers and consumers. In such a situation it is still clear that\neither of the two classes would be justified in striving to secure any\nor all of the surplus. No definite moral principle can be adduced to\nthe contrary. To put the case in more general terms: there exists no\nsufficient reason for maintaining that the gains of cheaper production\nshould go to the consumer rather than to the labourer, or to the\nlabourer rather than to the consumer, so long as the labourer is\nalready in receipt of the \"equitable minimum.\"\n\nTurning now to the question of higher wages at the cost of higher\nprices, we note that this would result in at least temporary hardship\nto four classes of persons: the weaker groups of wage earners; all\nself employing persons, such as farmers, merchants, and manufacturers;\nthe professional classes; and persons whose principal income was\nderived from rent or interest. All these groups would have to pay more\nfor the necessaries, comforts, and luxuries of living, without being\nimmediately able to raise their own incomes correspondingly.\n\nNevertheless, the first three classes could in the course of time\nforce an increase in their revenues sufficient to offset at least the\nmore serious inconveniences of the increase in prices. So far as the\nwage earners are concerned, it is understood that all these would have\na right to whatever advance in the money measure of the \"equitable\nminimum\" was necessary to neutralise the higher cost of living\nresulting from the success of the more powerful groups in obtaining\nhigher wages. The right of a group to the \"equitable minimum\" of\nremuneration is obviously superior to the right of another group to\nmore than that amount. And a supreme wage-determining authority would\nact on this principle. It cannot be shown, however, that in the\nabsence of any such authority empowered to protect the \"equitable\nminimum\" of the weaker labourers, the more powerful groups are obliged\nto refrain from demanding extra remuneration. The reason of this we\nshall see presently. In the meantime we call attention to the fact\nthat, owing to the greater economic opportunity resulting from the\nuniversal prevalence of the \"equitable minimum\" and of industrial\neducation, even the weaker groups of wage earners would be able to\nobtain some increases in wages. In the long run the more powerful\ngroups would enjoy only those advantages which arise out of superior\nproductivity and exceptional scarcity. These two factors are\nfundamental, and could not in any system of industry be prevented from\nconferring advantages upon their possessors.\n\nAs regards the self employing classes, the remedy for any undue\nhardship suffered through the higher prices of commodities would be\nfound in a discontinuance of their present functions until a\ncorresponding rise had occurred in the prices of their own products.\nThey could do this partly by organisation, and partly by entering into\ncompetition with the wage earners. Substantially the same recourse\nwould be open to the professional classes. In due course of time,\ntherefore, the remuneration of all workers, whether employ\u00e9s or self\nemployed or professional, would tend to be in harmony with the canons\nof efforts, sacrifices, productivity, scarcity, and human welfare.\n\nSince the level of rent is fixed by forces outside the control of\nlabourers, employers, or landowners, the receivers thereof would be\nunable to offset its decreased purchasing power by increasing its\namount. However, this situation would not be inherently unjust, nor\neven inequitable. Like interest, rent is a \"workless\" income, and has\nonly a presumptive and hypothetical justification. Therefore, the\nmoral claim of the rent receiver to be protected against a decrease in\nthe purchasing power of his income, is inferior to the moral claim of\nthe labourer to use his economic power for the purpose of improving\nhis condition beyond the limits of welfare fixed by the \"equitable\nminimum.\" What is true of the rent receiver in this respect applies\nlikewise to the case of the capitalist. As we saw a few pages back,\nthe wage earners are morally free to take this course at the expense\nof interest. Evidently they may do the same thing when the consequence\nis merely a diminution in its purchasing power. To be sure, if capital\nowners should regard their sacrifices in saving as not sufficiently\nrewarded, owing either to the low rate or the low purchasing power of\ninterest, they would be free to diminish or discontinue saving until\nthe reduced supply of capital had brought about a rise in the rate of\ninterest. Should they refrain from this course they would show that\nthey were satisfied with the existing situation. Hence they would\nsuffer no wrong at the hands of the labourers who forced up wages at\nthe expense of prices.\n\nTwo objections come readily to mind against the foregoing paragraphs.\nThe more skilled labour groups might organise themselves into a\nmonopoly, and raise their wages so high as to inflict the same degree\nof extortion upon consumers as that accomplished by a monopoly of\ncapitalists. This is, indeed, possible. The remedy would be\nintervention by the State to fix maximum wages. Just where the maximum\nlimit ought to be placed is a problem that could be solved only\nthrough study of the circumstances of the case, on the basis of the\ncanons of efforts, sacrifices, productivity, scarcity, and human\nwelfare. The second objection calls attention to the fact that we have\nalready declared that the more powerful labour groups would not be\njustified in exacting more than the \"equitable minimum\" out of a\ncommon wage fund, so long as any weaker group was below that level;\nyet this is virtually what would happen when the former caused prices\nto rise to such an extent that the weaker workers would be forced\nbelow the \"equitable minimum\" through the increased cost of living.\nWhile this contingency is likewise possible, it is not a sufficient\nreason for preventing any group of labourers from raising their\nremuneration at the expense of prices. Not every rise in prices would\neffect the expenditures of the weaker sections of the wage earners. In\nsome cases the burden would be substantially all borne by the better\npaid workers and the self employing, professional, and propertied\nclasses. When it did fall to any extent upon the weaker labourers,\ncausing their real wages to fall below the \"equitable minimum,\" it\ncould be removed within a reasonable time by organisation or by\nlegislation. Even if these measures were found ineffective, if some of\nthe weaker groups of workers should suffer through the establishment\nof the higher prices, this arrangement would be preferable on the\nwhole to one in which no class of labourers was permitted to raise its\nremuneration above the \"equitable minimum\" at the expense of prices. A\nrestriction of this sort, whether by the moral law or by civil\nregulation, would tend to make wage labour a status with no hope of\npecuniary progress.\n\nIt is true that a universal and indefinite increase of wages at the\nexpense of prices might at length leave the great majority of the\nlabourers no better off than they were when they had merely the\n\"equitable minimum.\" Such would certainly be the result if the\nnational product were only sufficient to provide the \"equitable\nminimum\" for all workers, and that volume of incomes for the other\nagents of production which was required to evoke from them a fair\ndegree of productive efficiency. In that case the higher wages would\nbe an illusion. The gain in the amount of money would be offset by the\nloss in its purchasing power. Even so, this condition would be greatly\nsuperior to a r\u00e9gime in which the labourers were universally prevented\nfrom making any effort to raise their wages above a fixed maximum.\n\n\n_Concluding Remarks_\n\nAll the principles and conclusions defended in this chapter have been\nstated with reference to the present distributive system, with its\nfree competition and its lack of legal regulation. Were all incomes\nand rewards fixed by some supreme authority, the same canons of\njustice would be applicable, and the application would have to be made\nin substantially the same way, if the authority were desirous of\nestablishing the greatest possible measure of distributive justice.\nThe main exception to this statement would occur in relation to the\nproblem of raising wages above the \"equitable minimum\" at the expense\nof prices. In making any such increase, the wage-fixing authority\nwould be obliged to take into account the effects upon the other\nclasses of labourers, and upon all the non-wage-earning classes.\nSubstantially the same difficulties would confront the government in a\ncollectivist organisation of industry. The effect that a rise in the\nremuneration of any class would produce, through a rise in the prices\nof commodities, upon the purchasing power of the incomes of other\nclasses, would have to be considered and as nearly as possible\nascertained. This would be no simple task. Simple or not, it would\nhave to be faced; and the guiding ethical principles would always\nremain efforts, sacrifices, productivity, scarcity, and human welfare.\n\nThe greater part of the discussion carried on in this chapter has a\nhighly theoretical aspect. From the nature of the subject matter this\nwas inevitable. Nevertheless the principles that have been enunciated\nand applied seem to be incontestable. In so far as they are enforcible\nin actual life, they seem capable of bringing about a wider measure of\njustice than any other ethical rules that are available.\n\nPossibly the applications and conclusions have been laid down with too\nmuch definiteness and dogmatism, and the whole matter has been made\ntoo simple. On the other hand, neither honesty nor expediency is\nfurthered by an attitude of intellectual helplessness, academic\nhyper-modesty, or practical agnosticism. If there exist moral rules\nand rational principles applicable to the problem of wage justice, it\nis our duty to state and apply them as fully as we can. Obviously we\nshall make mistakes in the process; but until the attempt is made, and\na certain (and very large) number of mistakes are made, there will be\nno progress. We have no right to expect that ready-made applications\nof the principles will drop from Heaven.\n\nFor a long time to come, however, many of the questions discussed in\nthis chapter will be devoid of large practical interest. The problem\nimmediately confronting society is that of raising the remuneration\nand strengthening generally the economic position of those labourers\nwho are now below the level, not merely of the \"equitable minimum,\"\nbut of a decent livelihood. This problem will be the subject of the\nnext chapter.\n\n\n\n\nCHAPTER XXV\n\nMETHODS OF INCREASING WAGES\n\n\nProposals for the reform of social conditions are important in\nproportion to the magnitude of the evils which they are designed to\nremove, and are desirable in proportion to their probable efficacy.\nApplying these principles to the labour situation, we find that among\nthe remedies proposed the primacy must be accorded to a minimum wage.\nIt is the most important project for improving the condition of labour\nbecause it would increase the compensation of some two-thirds of the\nwage earners, and because the needs of this group are greater and more\nurgent than the needs of the better-paid one-third. The former are\nbelow the level of reasonable living, while the latter are merely\ndeprived of the opportunities of a more ample and liberal scale of\nliving. Hence the degree of injustice suffered by the former is much\ngreater than in the case of the latter. A legal minimum wage is the\nmost desirable single measure of industrial reform because it promises\na more rapid and comprehensive increase in the wages of the underpaid\nthan any alternative device that is now available. The superior\nimportance of a legally established minimum wage is obvious; its\nsuperior desirability will form the subject of the pages that are\nimmediately to follow.\n\n\n_The Minimum Wage in Operation_\n\nHappily the advocate of this measure is no longer required to meet the\nobjection that it is novel and utterly uncertain. For more than twenty\nyears it has been in operation in Australasia. It was implicit in the\ncompulsory arbitration act of New Zealand, passed in 1894; for the\nwages which the arbitration boards enforce are necessarily the lowest\nthat the affected employers are permitted to pay; besides, the\ndistrict conciliation boards are empowered by the law to fix minimum\nwages on complaint of any group of underpaid workers. The first formal\nand explicit minimum wage law of modern times was enacted by the state\nof Victoria in 1896. In the beginning it applied to only six trades,\nbut it has been extended at various legislative sessions, so that\nto-day it protects substantially all the labourers of the state,\nexcept those employed in agriculture. Since the year 1900 all the\nother states of Australia have made provision for the establishment of\nminimum wages. At present, therefore, the legal minimum wage in some\nform prevails throughout the whole of Australasia.\n\nIn 1909 the Trade Boards Act authorised the application of this device\nto four trades in Great Britain. In 1913 the provisions of the Act\nwere made applicable to four other trades, and in 1914 to a third\ngroup of four industries. A special minimum wage law was in 1912\nenacted to govern the entire coal mining industry of the country.\n\nThe first minimum wage law in the United States was passed in 1912 by\nMassachusetts. It has been followed by similar legislation in ten\nother states; namely, Arkansas, California, Colorado, Kansas,\nMinnesota, Nebraska, Oregon, Utah, Washington, and Wisconsin.\nCalifornia has adopted a constitutional amendment which specifically\nauthorises minimum wage legislation for women and minors, and Ohio\nadded a similar provision to her constitution which applies to men as\nwell.\n\nThe minimum wage statutes of Australasia and Great Britain cover all\nclasses of workers, but those of the United States are restricted to\nminors and women. With the exception of the Utah act, all the\nimportant laws on this subject in all three regions establish minimum\nwages indirectly, by authorising commissions and wage boards to\ndetermine the actual rates. In Australasia and Great Britain the\nstatutes do not attempt to specify any standard to which the wage\ndeterminations of the boards must conform, but the tendency in the\nformer country in recent years has been to enforce a living wage as\nthe minimum; that is, wage rates sufficiently high to provide a decent\nfamily livelihood for men, and a reasonable personal livelihood for\nwomen and minors. All the laws in America but one require the\ncommissions to establish living wages. In Utah no commission is\nprovided for, as the law itself specifies in terms of money the\nminimum rates of remuneration that the employers of women are\npermitted to pay.\n\nThe effectiveness of the laws that have been put into operation is at\nleast as great as their friends had dared to hope. According to\nProfessor M. B. Hammond of Ohio, who investigated the situation on the\nspot in the winter of 1911-1912, the people of Australasia have\naccepted the minimum wage \"as a permanent policy in the industrial\nlegislation of that part of the world.\" Professor Hammond's\nobservations, and the replies of the Chief Factory Inspector of\nMelbourne to the New York Factory Investigating Commission, show the\nmain effects of minimum wage legislation to be as follows: sweating\nand strikes have all but disappeared; the efficiency of the workers\nhas on the whole increased; the number of workers unable to earn the\nlegal minimum has not been as great as most persons had feared, and\nalmost all of them have obtained employment at lower remuneration\nthrough special permits; the legal minimum has not only not become the\nactual maximum, but is exceeded in the case of the majority of\nworkers; no evidence exists to show that any industry has been\ncrippled, or forced to move out of the country; with the exception of\na very few instances, the prices of commodities have not been raised\nby the law.[251]\n\nIn the four trades of Great Britain which were first brought under the\noperation of the Trade Boards Act, and which presented some of the\nworst examples of economic oppression, the beneficial effects of the\nminimum wage have been even more striking than in Australasia. Wages\nhave been considerably raised, in some cases as high as one hundred\nper cent.; dispirited and helpless workers have gained courage, power,\nand self-respect to such an extent as to increase considerably their\nmembership in trade unions, and to obtain in several instances further\nincreases in remuneration beyond the legal minimum; the compensation\nof the better paid labourers has not been reduced to the level fixed\nby the trade boards; the efficiency of both employ\u00e9s and productive\nprocesses has been on the whole increased; the number of persons\nforced out of employment by the law is negligible; no important rise\nof prices is traceable to the law; and the number of business concerns\nunable to pay the increase in wages is too small to deserve serious\nconsideration. All these results had been established before the\noutbreak of the war.[252]\n\nThe legal minimum wage has been carried into effect in only four\nstates of our own country. It covers practically all the industries\nemploying women and minors in Oregon and Washington, all the working\nwomen and girls of Utah, and the women and minors of a few trades in\nMassachusetts. The rates established for experienced women vary from\n$7.50 per week in Utah to ten dollars a week for some classes in\nWashington. As the first wage determinations were put into effect only\nin 1913, American experience has been too short as well as too narrow\nto warrant certain conclusions. So far as it has been applied,\nhowever, the legal minimum wage has been as successful in the United\nStates as in Australasia or Great Britain. All competent witnesses\nagree that it has brought a considerable increase in wages to a\nconsiderable proportion of the women and minors in the industries in\nwhich it is operative, and that it has neither thrown any important\nnumber of workers out of employment nor forced any important concern\nout of business. Speaking of the three leading industries in which\nminimum wages were first established in Washington, the Industrial\nWelfare Commission of that state testifies: \"Seldom has any piece of\nlegislation, in prospect, engendered so much discussion and so much\ncriticism, as did the minimum wage law, with the intricacies of its\nramifications touching almost every industry in the state, large or\nsmall, and the family of nearly every wage earner; seldom, too, has\nany law, in actuality, been so well received, its application been\naccomplished with so little open opposition, and, for a law of this\ncharacter, has been attended with so little industrial disturbance as\nthat same minimum wage law. None of the dire predictions made prior to\nthe passage of the law have come about to an extent that questions the\ngeneral efficiency of the law. There has been no wholesale discharge\nof women employ\u00e9s, no wholesale levelling of wages, no wholesale\nreplacing of higher paid workers by cheaper help, no tendency to make\nthe minimum the maximum, while the employers of the state in general\nhave been following the letter and spirit of the law, and aiding\ngreatly in its application.... The law, in other words, has advanced\nthe wages of practically sixty per cent. of the workers in these\nindustries, and has done it without serious opposition at a time when\nbusiness conditions were none too good.\"[253] The Bureau of Labour\nStatistics of the United States investigated the operation of the\nminimum wage in the mercantile establishments of Oregon at the end of\nthe first year. The conclusions of the investigators were in brief\nthat both the number and the proportion of women getting the legal\nminimum ($9.25 per week) for adults had increased, that the proportion\nobtaining more than this rate had likewise increased, that those who\nhad received a rise in remuneration did not show any decline in\nefficiency, that women had not been displaced by men, and that the\naverage increase in the labour cost resulting from the advance in\nwages was only three mills on each dollar of sales.[254] The effects\nof the Utah law during the first year of its operation were summarised\nby the Labour Commissioner, Mr. H. T. Haines, as follows: a rise in\nthe wages of a \"number of women and girls who most needed the\nadditional sums of money\"; increased efficiency of female workers\nadmitted by most employers; but few cases of women or girls utterly\ndeprived of employment by the law; none of the higher paid women\nsuffered a reduction in wages; and ninety per cent. of the employers\nare satisfied with the minimum wage statute.[255] So far as the law\nhas been applied in Massachusetts, it seems to be relatively as\nsuccessful as in the other three states.[256]\n\n\n_The Question of Constitutionality_\n\nThe principal reason why the minimum wage laws on the statute books of\nthe other seven states have not been carried into effect, is the\nuncertainty of the validity of minimum wage legislation in our\nconstitutional system. In November, 1914, a district judge granted a\nwrit of injunction, restraining the Minimum Wage Commission of\nMinnesota from enforcing their wage determinations, on the ground that\nthe law attempted to delegate legislative power, and that its\nprovisions violated that section of the fourteenth amendment to the\nUnited States Constitution which forbids any state to deprive a person\nof life, liberty, or property without due process of law. One of the\ncourts of Arkansas has taken substantially the same position. The\nsecond objection urged by the Minnesota judge is probably much the\nmore serious of the two, and is the one upon which chief emphasis has\nbeen laid in the briefs filed in various courts by the opponents of\nminimum wage legislation. As regards labour legislation, \"due process\nof law\" may be practically translated, \"reasonable and necessary\nexercise of the State's police power.\" And the police power means that\nindefinite power of the State to legislate for the health, safety,\nmorals, and welfare of the community.[257] Now it is obvious that a\nminimum wage law deprives both employer and employ\u00e9 of some liberty of\ncontract, and also that it virtually deprives the former of some\nproperty, inasmuch as it generally increases his outlay for wages. On\nthe other hand, this restriction of liberty and equivalent diminution\nof property seem to be carried out in harmony with due process of law,\nsince they constitute an exercise of the police power of the State on\nbehalf of the general welfare. Some months before the Minnesota judge\ngranted the writ of injunction against the enforcement of the minimum\nwage law of that state, a lower court and the Supreme Court of Oregon\nhad pronounced the Oregon statute constitutional, as a legitimate\nexercise of the police power. An appeal from this judgment was argued\nin the Supreme Court of the United States, Dec. 17, 1914, but no\ndecision has yet (October, 1916) been rendered. Until the highest\ncourt has spoken on the question of constitutionality, no state is\nlikely to take any further step toward establishing minimum wages.\nShould the decision of the Supreme Court be unfavourable valid minimum\nwage legislation will be impossible without an amendment of the United\nStates Constitution.[258]\n\n\n_The Ethical and Political Aspects_\n\nWhether it be considered from the viewpoint of ethics, politics, or\neconomics, the principle of the legal minimum wage is impregnable. The\nState has not only the moral right but the moral duty to enact\nlegislation of this sort, whenever any important group of labourers\nare receiving less than living wages. One of the elementary functions\nand obligations of the State is to protect citizens in the enjoyment\nof their natural rights; and the claim to a living wage is, as we have\nseen, one of the natural rights of the person whose wages are his only\nmeans of livelihood. Therefore, the establishment of minimum living\nwages is not among the so-called \"optional functions\" of the State in\nour present industrial society. Whenever it can be successfully\nperformed, it is a primary and necessary function. So far as political\npropriety is concerned, the State may as reasonably be expected to\nprotect the citizen against the physical, mental, and moral injury\nresulting from an unjust wage contract, as to safeguard his money\nagainst the thief, his body against the bully, or his life against the\nassassin. In all four cases the essential welfare of the individual\nis injured or threatened through the abuse of superior force and\ncunning. Inasmuch as the legal minimum wage is ethically legitimate,\nthe question of its enactment is, politically speaking, entirely a\nquestion of expediency.\n\n\n_The Economic Aspect_\n\nNow the question of expediency is mainly economic. A great deal of\nnonsense has been written and spoken about the alleged conflict\nbetween the legal minimum wage and \"economic law.\" Economists have\nused no such language, indeed; for they know that economic laws are\nmerely the expected uniformities of social action in given\ncircumstances. The economists know that economic laws are no more\nopposed to a legal minimum wage than to a legal eight hour day, or\nlegal regulations of safety and sanitation in work places. All three\nof these measures tend to increase the cost of production, and\nsometimes carry the tendency into reality. A minimum wage law is\ndifficult to enforce, but not much more so than most other labour\nregulations. At any rate, the practical consideration is whether even\na partial enforcement of it will not result in a marked benefit to\ngreat numbers of underpaid workers. It may throw some persons, the\nslower workers, out of employment; but here, again, the important\nquestion relates to the balance of good over evil for the majority of\nthose who are below the level of decent living. At every point,\ntherefore, the problem is one of concrete expediency, not of agreement\nor disagreement with a real or imaginary economic law.\n\nSome of those who oppose the device on the ground of expediency set up\nan argument which runs about as follows: the increase in wages caused\nby a minimum wage law will be shifted to the consumer in the form of\nhigher prices; this result will in turn lead to a falling off in the\ndemand for products; a lessened demand for goods means a reduced\ndemand for labour; and this implies a diminished volume of employment,\nso that the last state of the workers becomes worse than the first.\nNot only is this conception too simple, but it proves too much. If it\nwere correct every rise in wages, howsoever brought about, would be\nill advised; for every rise would set in motion the same fatal chain\nof events. Voluntary increases of remuneration by employers would be\nquite as futile as the efforts of a labour union. This is little more\nthan the old wages fund theory in a new dress. And it is no less\ncontrary to experience.\n\nThe argument is too simple because it is based upon an insufficient\nanalysis of the facts. There are no less than four sources from which\nthe increased wages required by a minimum wage law might in whole or\nin part be obtained. In the first place, higher wages will often give\nthe workers both the physical capacity and the spirit that make\npossible a larger output. Thus, they could themselves equivalently\nprovide a part at least of their additional remuneration. When,\nsecondly, the employer finds that labour is no longer so cheap that it\ncan be profitably used as a substitute for intelligent management,\nbetter methods of production, and up to date machinery, he will be\ncompelled to introduce one or more of these improvements, and to\noffset increased labour cost by increased managerial and mechanical\nefficiency. This is what seems to have happened in the tailoring\nindustry of England. According to Mr. Tawney, \"the increased costs of\nproduction have, on the whole, been met by better organisation of work\nand by better machinery.\"[259] In the third place, a part of the\nincreased wage cost can be defrayed out of profits, in two ways:\nthrough a reduction in the profits of the majority of business\nconcerns in an industry; but more frequently through the elimination\nof the less efficient, and the consequent increase in the volume of\nbusiness done by the more efficient. In the latter establishments the\nadditional outlay for wages might be fully neutralised by the\ndiminished managerial expenses and fixed charges per unit of product.\nThis elimination of unfit undertakers would not only be in the\ndirection of greater social efficiency, but in the interest of better\nemployment conditions generally; for it is the less competent\nemployers who are mainly responsible for the evil of \"sweating,\" when\nthey strive to reduce the cost of production by the only method that\nthey know; that is, the oppression of labour. Should the three\nforegoing factors fall short of providing or neutralising the\nincreased wages, the recourse would necessarily be to the fourth\nsource; namely, a rise in the price of products. However, there is no\ndefinite reason for assuming that the rise will in any case be\nsufficient to cause a net decrease of demand. In Oregon the increased\nlabour cost due to the minimum wage law amounted, as we have seen, to\nonly three mills per dollar of sales in mercantile establishments.\nEven if this were all shifted to the consumer--something that is\npractically impossible--it would be equivalent to an increase of only\nthree cents on each ten dollars' worth of purchases, and thirty cents\non each hundred. The reduction in sales on account of such a slight\nrise in prices would be infinitesimal. In the case of possibly the\nmajority of products, the lessened demand on the part of the other\nclasses might be entirely counterbalanced by the increased demand at\nthe hands of the workers whose purchasing power had been raised\nthrough the minimum wage law. The effect upon sales, and hence upon\nbusiness and production, which follows from an increase in the\neffective consuming power of the labouring classes is frequently\nignored or underestimated. So far as consumers' goods are concerned,\nit seems certain that a given addition to the income of the\nwage-earning classes will lead to a greater increase in the demand\nfor products than an equal addition to the income of any other section\nof the people.\n\nNevertheless, the possibility must be admitted of some diminution of\nemployment, owing to higher prices and decreased demand. And it is\ncertain that some workers would not be worth the legal minimum to\ntheir employers. A part, but probably not all, of these could find\nemployment at a lower wage, through a system of permits for \"slow\nworkers.\" Whatever the amount of unemployment resulting from both\nthese causes, it would undoubtedly be an evil of lesser magnitude than\nthat which at present follows from the under-payment of a majority of\nthe labouring population. And it could be remedied by two measures\nwhich are in any case necessary for social welfare, and which would be\nhastened by the establishment of a legal minimum wage. These are\nadequate and scientific laws and institutions to deal with the general\nproblem of unemployment, and a comprehensive system of industrial and\nvocational training.\n\nThese conclusions, then, seem to be justified: the economic objections\nto a legal minimum wage are not essentially different from those that\nmay be urged against any other beneficial labour legislation; and they\nhave been sufficiently refuted by experience to throw the burden of\nproof upon the objectors. Expediency suggests, however, that in the\nUnited States the device should be applied gradually in two respects:\nfor a few years it ought to be confined to women and minors; and when\nit is extended to men, the rates should approach the level of a\ncomplete family living wage by stages, covering, say, three or four\nyears. The former restriction would enable the law to be carried\nthrough its experimental stages with a minimum disturbance to industry\nas a whole, and with a minimum of opposition, and the latter would\ngreatly reduce the danger of male unemployment.[260]\n\n\n_Opinions of Economists_\n\nWhen the present writer made an argument for the legal minimum wage\nsomething more than ten years ago, he was able to find only one\nAmerican economist who had touched the subject, and the verdict of\nthat one was unfavourable.[261] A little over a year ago, Dr. John\nO'Grady sent an inquiry to one hundred and sixty economists of the\nUnited States to ascertain their opinions on the same subject. Of the\nninety-four who replied seventy were in favour of a minimum wage law\nfor women and minors, thirteen were opposed, and eleven were\nnon-committal; fifty-five favoured such legislation for men, twenty\nwere against it, and nineteen were disinclined to give a categorical\nanswer. About three-fourths of those who responded expressed the\nopinion that the measure would tend to increase the efficiency both of\nthe workers and of methods of production.[262]\n\nIt is worthy of note that the nine members of the late Federal\nCommission on Industrial Relations, although disagreeing widely and\nvariously on most other important questions and proposals, were all\nfavourable to a minimum wage law for women and minors.[263]\n\nThe most comprehensive and most searching criticism of the legal\nminimum wage from the viewpoint of economic theory has been made by\nProfessor F. W. Taussig.[264] While he does not commit himself\ndefinitely to the assertion that a universal minimum wage of, say,\neight dollars per week, would cause a notable amount of unemployment\namong women, he regards this consequence as sufficiently probable to\nindicate the \"need of going slow in the regulation of women's wages.\"\nSpecifically, he would have public wage boards refrain from fixing the\nminimum rates high enough to maintain women living away from home. His\nfinal and only serious argument for this position relates to the\nmarginal effectiveness of women workers. He assumes that all \"the\nfitful, untrained, indifferent women are got rid of; that all who\noffer themselves for work at the age of (say) eighteen years have had\nan industrially helpful education,--\" and then raises the question\nwhether all of them will be \"able to get distinctly higher wages than\nare now current.\"[265] Obviously the question is not serious unless it\ncontemplates the probability of unemployment for a _considerable\nproportion_. If only one per cent. or less of the women should be\nunable to find employment at the higher wages, the net social\nadvantage of the minimum wage device would be so obvious as to render\nProfessor Taussig's opposition quite unreasonable. Making the\nassumptions quoted above from his pages, let us try to see whether his\napprehensions are economically justifiable.\n\nIf they are reasonable or probable they must rest on one of two\nfundamental conditions: the occupations available to women are too few\nto absorb all that would seek to become wage earners at eight dollars\nper week; or a considerable section of them would be unable to produce\nsuch a high wage. Possibly the first of these assumptions is true, but\nneither Professor Taussig nor any other authority has presented\nevidence to support it, and it is on the face of things not\nsufficiently probable to justify hesitation in the advocacy of a\nminimum living wage. If the second assumption be correct, if the\nproduct of a considerable section of women (all adequately trained)\nwould be insufficient to yield them eight dollars per week, in\naddition to the other costs of production, the conclusion is\ninevitable that the same result would follow the attempt to pay all\nmale adults (likewise adequately trained) a family living wage of,\nsay, fifteen dollars per week. For the product of the average man does\nnot exceed that of the average woman by even as great a ratio as\nfifteen to eight. If the average woman is not worth eight dollars a\nweek to an employer in any kind of woman's occupation, the average man\nis not worth fifteen dollars. Therefore, we cannot hope, even with the\naid of a thorough system of industrial and vocational training, to\nprovide all adult males of average capacity with a family living wage\nand the minimum means of living a reasonable life.\n\nThis is a veritable counsel of despair. It implies either that the law\nof diminishing returns is already operating in this country in such a\nway as to prevent the national product from being sufficiently large\nto provide a minimum wage of fifteen dollars a week for men, and eight\ndollars a week for women; or that the product, though ample for this\npurpose, and for all the other necessary payments to the higher priced\nworkers and to the other agents of production, cannot under our\npresent industrial system be so distributed as to attain the desired\nend. For the first of these hypotheses there is no evidence worthy of\nthe name. If Professor King is right in his estimate of an average\nfamily income of 1494 dollars annually[266] the difficulty before us\ndoes not lie in the field of production. Professor Taussig seems to\nrest his fears on the second hypothesis, on the assumed impossibility\nof bringing about the required distribution; for he points out that\nincreased efficiency of the workers may, like increased efficiency of\nthe material instrumentalities of production, in the long run redound\nmainly to the benefit of the consumers, while wages may be little if\nany above the old level. If these fears are justified, if the\ndifficulty is entirely one of the mechanism of distribution, and if it\ncannot be overcome by legal enactment, then is our competitive\norganisation of industry bankrupt, and the sooner we find out that\nfact definitely the better. If the legal minimum wage will help to\nexpose such a situation, will show that, no matter how much the\nproductivity of the workers may be increased, a large proportion of\nthem must by the very nature of the competitive system be forever\ncondemned to live below the level of decent existence, then the\nminimum wage is worth having merely as an instrument of economic\nenlightenment.\n\nProfessor Taussig's argument and illustrations[267] seem to\ncontemplate a condition in which the number of women who become fitted\nfor a certain trade is excessive relatively to the demand for its\nproducts, and to the supply of women in other industries. Were\nindustrial training thus misdirected, and were the trained persons\nunable or unwilling to distribute themselves over other occupations,\nthey would, indeed, face precisely the same dilemma as do the\nunskilled workers to-day. That is; a majority would be condemned to\ninsufficient wages, or a minority to unemployment. But we have been\nassuming an _adequate_ system of industrial and vocational training, a\nwell-balanced system, one that would enable the workers to adjust\ntheir supply to the demand throughout the various occupations. In\nthese conditions the economic axiom that a supply of goods is a demand\nfor goods should become beneficently effective: the workers should all\nbe able to find employment, and to obtain the greater part of their\nincreased product. Surely Professor Taussig does not mean to commit\nhimself to the view that every increase in the productive power of the\nworkers will in the long run help them only inasmuch as they are\nconsumers, the lion's share of the additional product being taken by\nother classes. Probably such is the usual result in a r\u00e9gime of\nunregulated competition, and unlimited freedom as regards the wage\ncontract. But this is precisely what we expect a minimum wage law to\ncorrect and prevent. We rely upon this device to enable the workers to\nretain for themselves that share of the product which under free\ncompetition would automatically go to the non-labouring consumers. We\nhope that blind and destructive economic force can be held in check by\ndeliberate and beneficent social control.\n\nThe fact of the matter seems to be that Professor Taussig's argument\nis too hypothetical and conjectural to justify his pessimistic\nconclusions. It is unpleasantly suggestive of the reasoning by which\nthe classical economists tried to show the English labourers the folly\nand futility of trade unionism.\n\n\n_Other Legislative Proposals_\n\nThe ideal standard of a minimum wage law is a scale of remuneration\nadequate not only to the present needs of individuals and families,\nbut to savings for the contingencies of the future. Until such time as\nthe compensation of all labourers has been brought up to this level,\nthe State should make provision for cheap housing, and for insurance\nagainst accidents, sickness, invalidity, old age, and unemployment.\nThe theory underlying such measures is that they would merely\nsupplement insufficient remuneration, and indirectly contribute to the\nestablishment of genuine living wages. In Europe, housing and\ninsurance legislation is so common that no reasonable and intelligent\nperson any longer questions the competency or propriety of such action\nby the State.\n\nIf an adequate legal minimum wage, in the sense just defined, were\nuniversally established, the State would not be required to do\nanything further to effectuate wage justice, except in the matter of\nvocational and industrial education. This would qualify practically\nall persons to earn at least a living wage, and would enable those\nwho underwent unusual sacrifices either before or during their\nemployment to command something over and above. In other words, all\nworkers would then be able to obtain what we have called \"the\nequitable minimum.\" And the labouring class as a whole would possess\nsufficient economic power to secure substantially all that was due by\nany of the canons of distributive justice.\n\n\n_Labour Unions_\n\nThe general benefits and achievements of labour organisations in the\nUnited States down to the beginning of the present century, cannot be\nmore succinctly nor more authoritatively stated than in the words of\nthe United States Industrial Commission: \"An overwhelming\npreponderance of testimony before the Industrial Commission indicates\nthat the organisation of labour has resulted in a marked improvement\nin the economic condition of the workers.\"[268] Some of the most\nconspicuous and unquestionable proofs of rises in wages effected by\nthe unions are afforded by the building trades, the printing trades,\nthe coal mining industry, and the more skilled occupations on the\nrailroads. Between 1890 and 1907 wages increased considerably more in\nthe organised than in the unorganised trades.[269]\n\nNevertheless, when all due credit is given to the unions for their\npart in augmenting the share of the product received by labour, there\nremain two important obstacles which seriously lessen their efficacy\nas a means of raising the wages of the underpaid.\n\nThe first is the fact that the unions still embrace only a small\nportion of the total number of wage earners. According to Professor\nLeo Wolman, a little more than twenty-seven million of the\nthirty-eight million persons engaged in \"gainful occupations\" in the\nUnited States in 1910 were wage earners in the ordinary sense of that\nphrase, and of these twenty-seven million only 2,116,317, or 7.7 per\ncent., were members of labour organisations.[270] The membership\nto-day is about two and three quarter millions. If the total number of\nwage earners increased between 1910 and 1916 at the same rate as\nduring the preceding decade, the organised portion is now somewhat\nless than 7.7 per cent. of the whole. Evidently the labour unions have\nnot grown with sufficient rapidity, nor are they sufficiently powerful\nto warrant the hope that they will be soon able to lift even a\nmajority of the underpaid workers to the level of living wage\nconditions.\n\nThe second obstacle is the fact that only a small minority of the\nmembers of labour unions are drawn from the unskilled and underpaid\nclasses, who stand most in need of organisation. The per cent. of\nthose getting less than living wages that is in the unions is almost\nnegligible. With the exception of a few industries, the unskilled and\nthe underpaid show very little tendency to increase notably their\norganised proportion. The fundamental reason of this condition has\nbeen well stated by John A. Hobson: \"The great problem of poverty ...\nresides in the conditions of the low-skilled workman. To live\nindustrially under the new order he must organise. He cannot organise\nbecause he is so poor, so ignorant, so weak. Because he is not\norganised he continues to be poor, ignorant, weak. Here is a great\ndilemma, of which whoever shall have found the key will have done much\nto solve the problem of poverty.\"[271]\n\nThe most effective and expeditious method of raising the wages of the\nunderpaid through organisation is by means of the \"industrial,\" as\ndistinguished from the \"trade,\" or \"craft,\" union. In the former all\nthe trades of a given industry are united in one compact organisation,\nwhile the latter includes only those who work at a certain trade or\noccupation. For example: the United Mine Workers embrace all persons\nemployed in coal mines, from the most highly skilled to the lowest\ngrade of unspecialised labour; while the craft union is exemplified in\nthe engineers, firemen, conductors, switchmen, and other groups having\ntheir separate organisations in the railroad industry. The industrial\nunion is as much concerned with the welfare of its unskilled as of its\nskilled members, and exerts the whole of its organised force on behalf\nof each and every group of workers throughout the industry which it\ncovers. The superior suitability of the industrial type of union to\nthe needs of the unskilled labourers is seen in the fact that more of\nthem are organised in the coal mining than in any other industry, and\nhave received greater benefits from organisation than their unskilled\nfellow workers in any other industry. Were the various classes of\nrailway employ\u00e9s combined in one union, instead of being organised\nalong the lines of their separate crafts, it is quite improbable that\nthe unskilled majority would be getting, as they now are getting, less\nthan living wages. While it is true that the various craft unions in\nan industry are often federated into a comprehensive association, the\nbond uniting them is not nearly so close, nor so helpful to the weaker\ngroups of workers as in the case of the industrial unions.\n\nHuman nature being what it is, however, the members of the skilled\ncrafts cannot all be induced or compelled to adopt the industrial type\nof organisation. The Knights of Labour attempted to accomplish this,\nand for a time enjoyed a considerable measure of success, but in the\nend the organisation was unable to withstand those fundamental\ninclinations which impel men to prefer the more narrow, homogeneous,\nand exclusive type of association. The skilled workers refused to\nmerge their local and craft interests in the wider interests of men\nwith whom they had no strong nor immediate bonds of sympathy. Among\nlabourers, as well as among other persons, the capacity for altruism\nis limited by distance in space and occupational condition. The\npassion for distinction likewise affects the wage earner, impelling\nthe higher groups consciously or unconsciously to oppose association\nthat tends to break down the barrier of superiority. Owing to their\ngreater resources and greater scarcity, the skilled members of an\nindustrial union are less dependent upon the assistance of the\nunskilled than the latter are dependent upon the former; yet the\nskilled membership is always in a minority, and therefore in danger of\nbeing subordinated to the interests of the unskilled majority.\n\nFor these and many other reasons it is quite improbable that the\nmajority of union labourers can be amalgamated into industrial unions\nin the near future. The most that can be expected is that the various\noccupational unions within each industry should become federated in a\nmore compact and effective way than now prevails, thus conserving the\nmain advantages of the local and craft association, while assuring to\nthe unskilled workers some of the benefits of the industrial union.\n\n\n_Organisation Versus Legislation_\n\nIn the opinion of some labour leaders, the underpaid workers should\nplace their entire reliance upon organisation. The arguments for this\nposition are mainly based upon three contentions: it is better that\nmen should do things for themselves than to call in the intervention\nof the State; if the workers secure living wages by law they will be\nless likely to organise, or to remain efficiently organised; and if\nthe State fixes a minimum wage it may some day decide to fix a\nmaximum.\n\nWithin certain limits the first of these propositions is\nincontestable. The self education, self reliance, and other\nexperiences obtained by the workers through an organised struggle for\nimprovements of any kind, are too valuable to be lightly passed over\nfor the sake of the easier method of State assistance. Indeed, it\nwould be better to accept somewhat less, or to wait somewhat longer,\nin order that the advantages might be secured through organisation.\nHowever, these hypotheses are not verified as regards the minimum wage\nproblem. The legal method promises with a high degree of probability\nto bring about universal living wages within ten or fifteen years. The\nchampions of organisation can point to no solid reasons for indulging\nthe hope that their method would achieve the same result within a half\na century. Therefore, the advantages of the device of organisation are\nmuch more than neutralised by its disadvantages.\n\nThe fear that the devotion of the workers to the union would decline\nas soon as living wages had been secured by law, seems to have no\nadequate basis either in experience or in probability. Speaking of the\nestablishment of minimum wages in the tailoring industry of Great\nBritain, Mr. Tawney declares that it \"has given an impetus to trade\nunionism among both men and women. The membership of the societies\nconnected with the tailoring trade has increased, and in several\ndistricts the trade unions have secured agreements fixing the standard\nrate considerably above the minimum contained in the Trade Board's\ndetermination.\"[272] Similar testimony comes from Australasia. Indeed,\nthis is precisely what we should be inclined to expect; for the\nworkers whose wages had been raised would for the first time possess\nthe money and the courage to support unions; and would have sufficient\nincentives thereto in the natural desire to obtain something more than\nthe legal minimum, and in the realisation that organisation was\nnecessary to give them a voice in the determination of the minimum,\nand to enable them to co-operate in compelling its enforcement.\nIndeed, general experience shows that organisation becomes normally\nefficient and produces its best results only among workers who have\nalready approximated the level of living wages.\n\nTo be sure, the State could set up maximum instead of minimum\nwages,--if the employing classes were sufficiently powerful. But all\nindications point to a decline rather than an increase in their\npolitical influence, and to a corresponding expansion in the\ngovernmental influence of the labouring classes and their\nsympathisers. Moreover, the labour leaders who urge this objection are\ninconsistent, inasmuch as they advocate other beneficial labour\nlegislation. The distinction which they profess to find between laws\nthat merely remove unfair legal and judicial disabilities and laws\nthat reduce the length of the working day or fix minimum wages, has no\nimportance in practical politics or in the mind of the average\nlegislature. If the political influence of labour should ever become\nso weak and that of capital so strong as to make restrictive labour\nlegislation generally feasible, legislators would not confine their\nunfriendly action to the field of positive measures. They would be\nquite as ready to pass a law prohibiting strikes as to enact a statute\nfixing maximum wages. The formal legalisation of strikes, picketing,\nand the primary boycott which is contained in the Clayton Act, and for\nwhich the labour unions worked long and patiently, could conceivably\nbe seized upon by some future unfriendly Congress as a precedent and\nprovocation for legislation which would not only repeal all the\nfavourable provisions of the Clayton Act, but subject labour to\nentirely new and far more odious restraints and interferences. The\nfact that governments passed maximum wage laws in the past is utterly\nirrelevant to the question of wage legislation to-day. A legal minimum\nwage, and a multitude of other protective labour laws are desirable\nand wise in the twentieth century for the simple reason that labour\nand the friends of labour are sufficiently powerful to utilise this\nmethod, and because their influence seems destined to increase rather\nthan decrease. The contrary hypothesis is too improbable for serious\nconsideration.\n\nThe conclusions that seem justified by a comprehensive and critical\nview of all the facts of the situation, are that organisation is not\nof itself an adequate means of bringing about living wages for the\nunderpaid, but that it ought nevertheless to be promoted and extended\namong these classes, not only for its direct effect upon wages, but\nfor its bearing upon legislation. The method of organisation and the\nmethod of legislation are not only not mutually opposed, but are in a\nvery natural and practical manner complementary.\n\n\n_Participation in Capital Ownership_\n\nWhile those workers whose remuneration is below the level of decent\nmaintenance are not ordinarily in a position to become owners of any\nkind of capital, many of them, especially among the unmarried men, can\naccumulate savings by making large sacrifices. As a matter of fact,\nhundreds of thousands of the underpaid have become interest receivers\nthrough the medium of savings banks, real estate possessions, and\ninsurance policies. Every effort in this direction is distinctly worth\nwhile, and deserving of encouragement. Labourers who are above the\nminimum wage level can, of course, save much larger amounts, and with\nless sacrifices than the underpaid classes. In all cases the main\ndesideratum is that the workers should derive some income from\ncapital; but it is almost equally important that their capital\nownership should wherever possible take the form of shares in the\nindustry in which they are employed, or the store at which they buy\ntheir goods. This means co-operative production and co-operative\ndistribution. The general benefits of the co-operative enterprise\nhave already been described in chapter xiv. For the wage earner\nproprietorship in a co-operative concern is preferable to any other\nkind of capital ownership because of the training that it affords in\nbusiness management and responsibility, in industrial democracy, and\nin the capacity to subordinate his immediate and selfish interests to\nhis more remote and larger welfare.\n\nCo-operative ownership of the tools with which men work has advantages\nof its own over co-operative ownership of the stores from which they\nmade their purchases, inasmuch as it increases their control over the\nconditions of employment, and gives them incentives to efficiency\nwhich results in a larger social product and a larger share thereof\nfor themselves. As already pointed out in chapter xiv, the ideal type\nof productive co-operation is that known as the \"perfect\" form, in\nwhich the workers are the exclusive owners of the concern where they\nexercise their labour. Nevertheless, the \"federal\" type, in which the\nproductive concern is directly owned by a wholesale co-operative,\nindirectly by the retail co-operative store, and ultimately by the\nco-operative consumers,--presents one important advantage. It could be\nso modified as to enable the employ\u00e9s of the productive enterprise to\nshare the ownership of the latter with the wholesale establishment.\nSuch an arrangement would at once give the workers the benefits of\nproductive co-operation mentioned above, and render probable a\nsatisfactory adjustment of the conflicting claims of producers and\nconsumers. As intimated in chapter xxiv, such a conflict is inherent\nin every system of industrial organisation, and will become more\nevident and more acute in proportion to the strengthening of the\nposition of labour.\n\nA final reason for ownership of capital by labour deserves mention\nhere, even though it has no immediate bearing upon the question of\nremuneration. Were all labourers receiving the full measure of wages\nto which they are entitled by the canons of distributive justice, it\nwould still be highly desirable that the majority if not all of them\nshould possess some capital, preferably in the productive and\ndistributive concerns in which they were immediately interested. It\ndoes not seem probable that our economic system as now constituted,\nwith the capital owners and the capital operators for the most part in\ntwo distinct classes, will be the final form of industrial\norganisation. Particularly does this arrangement seem undesirable,\nincongruous, and unstable in a society whose political form is that of\ndemocracy. Ultimately the workers must become not merely wage earners\nbut capitalists. Any other system will always contain and develop the\nseeds of social discontent and social disorder.\n\n\nREFERENCES ON SECTION IV\n\n     ADAMS AND SUMNER: Labour Problems. Macmillan; 1905.\n\n     COMMONS AND ANDREWS: Principles of Labour Legislation.\n     Harpers; 1916.\n\n     WALKER: The Wages Question. New York; 1876.\n\n     RYAN: A Living Wage. Macmillan; 1906.\n\n     SNOWDEN: The Living Wage. London; Hodder & Stoughton.\n\n     O'GRADY: A Legal Minimum Wage. Washington; 1915.\n\n     BRODA: La Fixation L\u00e9gale des Salaires. Paris; 1912.\n\n     N. Y. FACTORY INVESTIGATING COMMISSION. Appendix to Vol. III.\n\n     TAWNEY: Minimum Rates in the Chain-Making Industry. London;\n     1914.\n\n     Minimum Rates in the Tailoring Industry. London; 1915.\n\n     TURMAN: Le Catholicisme Social. Paris; 1900.\n\n     POTTIER: De Jure et Justitia. Liege; 1900.\n\n     POLIER: L'Id\u00e9e du Juste Salaire. Paris; 1903.\n\n     MENGER: The Right to the Whole Produce of Labour. London;\n     1899.\n\n     GARRIGUET: R\u00e9gime du Travail. Paris; 1908.\n\n     NEARING: Reducing the Cost of Living. Philadelphia; 1914.\n\n     CHAPIN: The Standard of Living in New York City. New York;\n     1909.\n\n     Also the works on co-operation cited in connection with\n     Section II, and those of Hobson, Carver, Nearing and\n     Streightoff.\n\nFOOTNOTES:\n\n[251] See articles by Hammond in the _American Economic Review_, June,\n1913, and in the _Annals of the American Academy of Political and\nSocial Science_, July, 1913; and page 62 of the Appendix to the third\nvolume of the Report of the New York State Factory Investigating\nCommission.\n\n[252] See the replies of the London Board of Trade to the N. Y.\nFactory Investigating Commission, on pages 77, 78 of the volume cited\nabove; and especially the two monographs by R. H. Tawney, \"The\nEstablishment of Minimum Rates in the Chain-Making Industry,\" and \"The\nEstablishment of Minimum Rates in the Tailoring Industry.\" London;\n1914 and 1915.\n\n[253] \"First Biennial Report of the Industrial Welfare Commission of\nWashington,\" pp. 13, 15.\n\n[254] \"Effect of Minimum Wage Determinations in Oregon.\" Bulletin No.\n176 of United States Bureau of Labour Statistics.\n\n[255] From a paper read before the National Convention of the\nAssociation of Government Labour Officials, Nashville, Tenn., June 9,\n1914.\n\n[256] See Bulletins of Massachusetts Minimum Wage Commission.\n\n[257] See the excellent and varied series of papers on the subject in\nOrth's \"The Relation of Government to Property and Industry,\" pp.\n103-178. Ginn & Company; 1915.\n\n[258] The arguments for and against the constitutionality of a legal\nminimum wage are adequately presented in the briefs, respectively, of\nLouis D. Brandeis and Rome G. Brown, in the cases of Stettler _vs._\nO'Hara and Simpson _vs._ O'Hara. The former is published by the\nNational Consumers' League, New York, and the latter by the Review\nPublishing Company, Minneapolis.\n\n[259] \"Minimum Rates in the Tailoring Industry,\" p. 161.\n\n[260] One of the best statements of the economic aspect of the minimum\nwage is that by Sidney Webb, in the _Journal of Political Economy_,\nDec., 1912. Probably the most varied and comprehensive general\ndiscussion is the symposium in the _Survey_, Feb. 6, 1915. See\nespecially the excellent presentation in Commons and Andrews'\n\"Principles of Labour Legislation,\" pp. 167-200.\n\n[261] See pages 303, 304 of \"A Living Wage\"; Macmillan, 1906.\n\n[262] O'Grady, \"A Legal Minimum Wage\"; Washington, 1915.\n\n[263] \"Final Report,\" pp. 101, 255, 364.\n\n[264] _The Quarterly Journal of Economics_, May, 1916. A somewhat less\nunfavourable criticism is contained in the paper by Professor John\nBates Clark in the _Atlantic Monthly_, September, 1913.\n\n[265] Page 436.\n\n[266] \"The Wealth and Income of the People of the United States,\" p.\n129.\n\n[267] Page 437.\n\n[268] \"Final Report,\" p. 802. Washington, 1902.\n\n[269] See article by Professor Commons in \"The New Encyclopedia of\nSocial Reform,\" p. 1233.\n\n[270] _The Quarterly Journal of Economics_, May, 1916, p. 502.\n\n[271] \"Problems of Poverty,\" p. 227. London, 1891.\n\n[272] \"Minimum Rates in the Tailoring Industry,\" p. 96.\n\n\n\n\nCHAPTER XXVI\n\nSUMMARY AND CONCLUSION\n\n\nThroughout this book we have been concerned with a two-fold problem:\nto apply the principles of justice to the workings of the present\ndistributive system, and to point out the modifications of the system\nthat seemed to promise a larger measure of actual justice. The\nmechanism of distribution was described in the introductory chapter as\napportioning the national product among the four classes that\ncontribute the necessary factors to the process of production, and the\nfirst part of the problem was stated as that of ascertaining the size\nof the share which ought to go to each of these classes.\n\n\n_The Landowner and Rent_\n\nWe began this inquiry with the landowner and his share of the product,\ni.e., rent. We found that private ownership of land has prevailed\nthroughout the world with practical universality ever since men began\nto till the soil in settled communities. The arguments of Henry George\nagainst the justice of the institution are invalid because they do not\nprove that labour is the only title of property, nor that men's equal\nrights to the earth are incompatible with private landownership, nor\nthat the so-called social production of land values confers upon the\ncommunity a right to rent. Private ownership is not only socially\npreferable to the Socialist and the Single Tax systems of land tenure,\nbut it is, as compared with Socialism certainly, and as compared with\nthe Single Tax probably, among man's natural rights. On the other\nhand, the landowner's right to take rent is no stronger than the\ncapitalist's right to take interest; and in any case it is inferior to\nthe right of the tenant to a decent livelihood, and of the employ\u00e9 to\na living wage.\n\nNevertheless, the present system of land tenure is not perfect. Its\nprincipal defects are: the promotion of certain monopolies, as,\nanthracite coal, steel, natural gas, petroleum, water power, and\nlumber; the diversion of excessive gains to landowners, as indicated\nby the recent great increases in the value of land, and the very large\nholdings by individuals and corporations; and the exclusion of large\nmasses of men from the land because the owners will not sell it at its\npresent economic value. The remedies for these evils fall mainly under\nthe heads of ownership and taxation. All mineral, timber, gas, oil,\ngrazing, and water-power lands that are now publicly owned, should\nremain the property of the states and the nation, and be brought into\nuse through a system of leases to private individuals and\ncorporations. Cities should purchase land, and lease it for long\nperiods to persons who wish to erect business buildings and dwellings.\nBy means of taxation the State might appropriate the future increases\nof land values, subject to the reimbursement of private owners for\nresulting decreases in value; and it could transfer the taxes on\nimprovements and personal property to land, provided that the process\nwere sufficiently gradual to prevent any substantial decline in land\nvalues. In some cases the State might hasten the dissolution of\nexceptionally large and valuable estates through the imposition of a\nsupertax.\n\n\n_The Capitalist and Interest_\n\nThe Socialist contention that the labourer has a right to the entire\nproduct of industry, and therefore that the capitalist has no right to\ninterest, is invalid unless the former alleged right can be\neffectuated in a reasonable scheme of distribution; and we know that\nthe contemplated Socialist scheme is impracticable. Nevertheless, the\nrefutation of the Socialist position does not automatically prove that\nthe capitalist has a right to take interest. Of the titles ordinarily\nalleged in support of such a right, productivity and service are\ninconclusive, while abstinence is valid only in the case of those\ncapital owners to whom interest was a necessary inducement for saving.\nSince it is uncertain whether sufficient capital would be provided\nwithout interest, and since the legal suppression of interest is\nimpracticable, the State is justified in permitting the practice of\ntaking interest. But this legal permission does not justify the\nindividual interest-receiver. His main and sufficient justification is\nto be found in the presumptive title which arises out of possession,\nin the absence of any adverse claimant with a stronger title to this\nparticular share of the product.\n\nThe only available methods of lessening the burden of interest are a\nreduction in the rate, and a wider diffusion of capital through\nco-operative enterprise. Of these the former presents no definite or\nconsiderable reasons for hope, either through the rapid increase of\ncapital or the inevitable extension of the industrial function of\ngovernment. The second proposal contains great possibilities of\nbetterment in the fields of banking, agriculture, stores, and\nmanufacture. Through co-operation the weaker farmers, merchants, and\nconsumers can do business and obtain goods at lower costs, and save\nmoney for investment with greater facility, while the labourers can\nslowly but surely become capitalists and interest-receivers, as well\nas employ\u00e9s and wage-receivers.\n\n\n_The Business Man and Profits_\n\nJust remuneration for the active agents of production, whether they be\ndirectors of industry or employ\u00e9s, depends fundamentally upon five\ncanons of distribution; namely, needs, efforts and sacrifices,\nproductivity, scarcity, and human welfare. In the light of these\nprinciples it is evident that business men who use fair methods in\ncompetitive conditions, have a right to all the profits that they can\nobtain. On the other hand, no business man has a strict right to a\nminimum living profit, since that would imply an obligation on the\npart of consumers to support superfluous and inefficient directors of\nindustry. Those who possess a monopoly of their products or\ncommodities have no right to more than the prevailing or competitive\nrate of interest on their capital, though they have the same right as\ncompetitive business men to any surplus gains that may be due to\nsuperior efficiency. The principal unfair methods of competition; that\nis, discriminative underselling, exclusive-selling contracts, and\ndiscrimination in transportation, are all unjust.\n\nThe remedies for unjust profits are to be found mainly in the action\nof government. The State should either own and operate all natural\nmonopolies, or so regulate their charges that the owners would obtain\nonly the competitive rate of interest on the actual investment, and\nonly such surplus gains as are clearly due to superior efficiency. It\nshould prevent artificial monopolies from practising extortion toward\neither consumers or competitors. Should the method of dissolution\nprove inadequate to this end, the State ought to fix maximum prices.\nInasmuch as overcapitalisation has frequently enabled monopolistic\nconcerns to obtain unjust profits, and always presents a strong\ntemptation in this direction, it should be legally prohibited. A\nconsiderable part of the excessive profits already accumulated can be\nsubjected to a better distribution by progressive income and\ninheritance taxes. Finally, the possessors of large fortunes and\nincomes could help to bring about a more equitable distribution by\nvoluntarily complying with the Christian duty of bestowing their\nsuperfluous goods upon needy persons and objects.\n\n\n_The Labourer and Wages_\n\nNone of the theories of fair wages that have been examined under the\nheads of \"the prevailing rate,\" \"exchange-equivalence,\" or\n\"productivity\" is in full harmony with the principles of justice. The\nminimum of wage justice can, however, be described with sufficient\ndefiniteness and certainty. The adult male labourer has a right to a\nwage sufficient to provide himself and family with a decent\nlivelihood, and the adult female has a right to remuneration that will\nenable her to live decently as a self supporting individual. At the\nbasis of this right are three ethical principles: all persons are\nequal in their inherent claims upon the bounty of nature; this general\nright of access to the earth becomes concretely valid through the\nexpenditure of useful labour; and those persons who are in control of\nthe goods and opportunities of the earth are morally bound to permit\naccess thereto on reasonable terms by all who are willing to work. In\nthe case of the labourer, this right of reasonable access can be\neffectuated only through a living wage. The obligation of paying this\nwage falls upon the employer because of his function in the industrial\norganism. And the labourer's right to a living wage is morally\nsuperior to the employer's right to interest on his capital. Labourers\nwho put forth unusual efforts or make unusual sacrifices have a right\nto a proportionate excess over living wages, and those who are\nexceptionally productive or exceptionally scarce have a right to the\nextra compensation that goes to them under the operation of\ncompetition. Labourers who are receiving the \"equitable minimum\"\ndescribed in the last sentence have a right to still higher wages at\nthe expense of the capitalist and the consumer, if they can secure\nthem through the processes of competition; for the additional amount\nis an ethically unassigned or ownerless property which may be taken\nby either labourer, capitalist, or consumer, provided that there is\nno artificial limitation of supply.\n\nThe methods of increasing wages are mainly three: a minimum wage by\nlaw, labour unions, and co-operative enterprise. The first has been\nfairly well approved by experience, and is in no wise contrary to the\nprinciples of either ethics, politics, or economics. The second has\nlikewise been vindicated in practice, though it is of only small\nefficacy in the case of those workers who are receiving less than\nliving wages. The third would enable labourers to supplement their\nwage incomes by interest incomes, and would render our industrial\nsystem more stable by giving the workers an influential voice in the\nconditions of employment, and laying the foundation of that\ncontentment and conservatism which arise naturally out of the\npossession of property.\n\nAs a matter of convenience, the foregoing paragraphs may be further\nsummarised in the following abridgment: The landowner has a right to\nall the economic rent, modified by the right of his tenants and\nemploy\u00e9s to a decent livelihood, and by the right of the State to levy\ntaxes which do not substantially lower the value of the land. The\ncapitalist has a right to the prevailing rate of interest, modified by\nthe right of his employ\u00e9s to the \"equitable minimum\" of wages. The\nbusiness man in competitive conditions has a right to all the profits\nthat he can obtain, but corporations possessing a monopoly have no\nright to unusual gains except those due to unusual efficiency. The\nlabourer has a right to living wages, and to as much more as he can\nget by competition with the other agents of production and with his\nfellow labourers.\n\n\n_Concluding Observations_\n\nNo doubt many of those who have taken up this volume with the\nexpectation of finding therein a satisfactory formula of distributive\njustice, and who have patiently followed the discussion to the end,\nare disappointed and dissatisfied at the final conclusions. Both the\nparticular applications of the rules of justice and the proposals for\nreform, must have seemed complex and indefinite. They are not nearly\nso simple and definite as the principles of Socialism or the Single\nTax. And yet, there is no escape from these limitations. Neither the\nprinciples of industrial justice nor the constitution of our\nsocio-economic system is simple. Therefore, it is impossible to give\nour ethical conclusions anything like mathematical accuracy. The only\nclaim that is made for the discussion is that the moral judgments are\nfairly reasonable, and the proposed remedies fairly efficacious. When\nboth have been realised in practice, the next step in the direction of\nwider distributive justice will be much clearer than it is to-day.\n\nAlthough the attainment of greater justice in distribution is the\nprimary and most urgent need of our time, it is not the only one that\nis of great importance. No conceivable method of distributing the\npresent national product would provide every family with the means of\nsupporting an automobile, or any equivalent symbol of comfort. Indeed,\nthere are indications that the present amount of product per capita\ncannot long be maintained without better conservation of our natural\nresources, the abandonment of our national habits of wastefulness,\nmore scientific methods of soil cultivation, and vastly greater\nefficiency on the part of both capital and labour. Nor is this all.\nNeither just distribution, nor increased production, nor both\ncombined, will insure a stable and satisfactory social order without a\nconsiderable change in human hearts and ideals. The rich must cease to\nput their faith in material things, and rise to a simpler and saner\nplane of living; the middle classes and the poor must give up their\nenvy and snobbish imitation of the false and degrading standards of\nthe opulent classes; and all must learn the elementary lesson that\nthe path to achievements worth while leads through the field of hard\nand honest labour, not of lucky \"deals\" or gouging of the neighbour,\nand that the only life worth living is that in which one's cherished\nwants are few, simple, and noble. For the adoption and pursuit of\nthese ideals the most necessary requisite is a revival of genuine\nreligion.\n\n\n\n\nINDEX\n\n\n     Abstinence: as a title to interest, 182-186.\n\n     Adams, T. S.: 301, 302.\n\n     Adam Smith: 331, 341.\n\n     Agriculture: co-operation in, 217-220.\n\n     Alaska: leasing system in, 96.\n\n     Altruism: efficacy of under Socialism, 165-167;\n       promoted by co-operation, 229.\n\n     Ambrose, Saint: 305.\n\n     American Sugar Refining Company: 267, 272, 289.\n\n     American Tobacco Company: 263, 267, 288.\n\n     Analogy: economic, as justifying interest, 205, 206.\n\n     Anthracite coal: a monopoly, 75, 78, 95, 132.\n\n     Antoine, Charles: 337-340.\n\n     Antoninus, Saint: 270.\n\n     Aquinas, Saint Thomas: 63, 64, 175, 181, 208, 304, 306, 307, 333.\n\n     Arbitration: failure of, 324.\n\n     Ashley, W. J.: 9.\n\n     Astor estate: 88, 89.\n\n     Augustine, Saint: 305.\n\n     Australasia: special land taxes in, 118-120, 131;\n       minimum wage in, 401, 402.\n\n     Authorities: Catholic and Protestant, on living wage, 277, 278.\n\n\n     Basil, Saint: 305.\n\n     Bible, the: on the duty of benevolence, 303, 304, 316, 317.\n\n     Brandeis, Louis D.: 265, 275.\n\n     Business man: functions and rewards of, 237-239, 255-258;\n       no right of to minimum profits, 258-260, 362, 363;\n       the superfluous, 260, 261.\n\n\n     Canada: special land taxes in, 117-120.\n\n     Canonist: doctrine of wage justice, 333-336.\n\n     Canons of distributive justice: 243-253.\n\n     Capital: meaning of, 137, 138;\n       power of to create value, 146-148;\n       Catholic teaching concerning interest on, 175-177;\n       titles of to interest, 177-186;\n       value of in a no-interest r\u00e9gime, 188-190;\n       need for a wider distribution of, 213, 214;\n       need for ownership of by labour, 214, 229, 230.\n\n     Capitalists: two kinds of, 138;\n       expropriation of, 154-158;\n       right of to take interest, 201-209;\n       claims of, versus claims of labourers, 367-369, 390-393, 396.\n\n     Carnegie, Andrew: 300.\n\n     Carver, T. N.: 351-355.\n\n     Catholic Church: attitude of toward interest, 172-176.\n\n     Child workers: right of to a living wage, 373.\n\n     Christian conception of welfare: 316-318.\n\n     Clark, J. B.: 271, 347-351.\n\n     Compensation: to landowners, 34-39;\n       to capitalists under Socialism, 154-158.\n\n     Competition: alleged failure of, 275-278.\n\n     Confiscation: of land values under the Single Tax, 34-39;\n       of capital under Socialism, 154-158;\n       of wealth by taxation, 297, 298.\n\n     Constitutionality of minimum wage laws: 405-407.\n\n     Consumer: injury to through stockwatering, 282-288;\n       obligations of to business man, 258, 259, 362, 363;\n       versus labourer, 393-398.\n\n     Contract: onerous, 326;\n       free, as a rule of wage justice, 328-330, 370-372.\n\n     Co-operation: as a partial solvent of capitalism, 210-233;\n       essence and kinds of, 214, 215;\n       in banking, 216, 217;\n       in agriculture, 217-220;\n       in stores, 220-222;\n       in production, 222-228;\n       effect of on social stability, 229, 230;\n       as compared with individualism and Socialism, 230, 231;\n       province and limitations of, 231-233;\n       bearing of on the superfluous business man, 260, 261;\n       and on the labouring classes, 423-425.\n\n     Co-partnership: 223, 224.\n\n     Corporation: profits of a, 241, 242, 257, 258, 262, 389.\n\n     Cost of living: 378, 379.\n\n     Cost of production: of capital, 188, 189.\n\n     Credit societies: co-operative, 216, 217.\n\n\n     Defects of our land system: 74-93;\n       monopoly, 75-80;\n       excessive gains, 80-89;\n       exclusion, 90-93.\n\n     Devas, Charles: 184.\n\n     Disagreeable tasks: 384, 385.\n\n     Dixon, F. H.: 323.\n\n     Discriminative transportation contracts: 272, 273.\n\n     Discriminative underselling: 267-270.\n\n     Distribution of superfluous wealth: 303-319.\n\n     Distributive justice: canons of, 243-253, 381, 382.\n\n\n     Earth: right of access to, 358-360.\n\n     Economic determinism: inconsistent with ethical judgments, 20, 145,\n           146, 343, 344.\n\n     Efficiency: monopolistic, 265-267, 275-277, 279;\n       exceptional, 388-390.\n\n     Efforts: exceptional, as claim to rewards, 382-383.\n\n     Efforts and sacrifices: as canons of distribution, 245-247.\n\n     Ely, R. T.: 330.\n\n     Employer: gains of from wage contract, 327, 328;\n       obligation of to pay a living wage, 365-372.\n\n     Engels, F.: 20.\n\n     Ensor, E. K.: 50.\n\n     Equal gains: as a canon of wage justice, 326-328.\n\n     Equality: as a canon of justice, 243, 244;\n       of men's claims to the bounty of nature, 358, 359;\n       of rights to a decent livelihood, 360-363.\n\n     \"Equitable minimum\": of wages, 388, 390, 392, 393, 395, 397, 398,\n           399, 417.\n\n     Equity: meaning of, 256.\n\n     Exchange-equivalence: theories of, 326-340;\n       equal gains, 326-328;\n       free contract, 328-330;\n       market value, 330-332;\n       medi\u00e6val, 332-336;\n       modern, 336-340.\n\n     Exclusion from the land: 90-93.\n\n     Exclusive-sales contracts: 270-272.\n\n     Expropriation: of capitalists under Socialism, 154-158.\n\n     Extrinsic titles: of interest, 172.\n\n\n     Family living wage: 373-376.\n\n     Fathers of the Church: on private property in land, 62;\n       on duty of beneficence, 305, 306.\n\n     Fay, C. R.: 214, 221, 227.\n\n     Fisher, Irving: 196.\n\n     Fortunes: legal limitation of, 291-302;\n       directly, 292-295;\n       by taxation, 296-302.\n\n     France: co-operative production in, 223.\n\n     Fustel de Coulanges: 9.\n\n\n     Gains: excessive from land, 80-89;\n       from monopolies, 263-265.\n\n     Germany: co-operation in, 216.\n\n     Giffen, Sir Robert: 189.\n\n     Godwin, W.: 341.\n\n     Government ownership: 93-95;\n       limitations of, 163-165;\n       and rate of interest, 212.\n\n     Great Britain: co-operation in, 220-222;\n       income taxes in, 299-300;\n       minimum wage in, 401, 402.\n\n\n     Haines, H. T.: 405.\n\n     Hammond, M. B.: 402.\n\n     Henry George: on primitive common ownership, 17;\n       on first occupancy, 21-24;\n       on title of labour, 24-29;\n       on natural right to land, 30-39;\n       on right of community to land values and rent, 39-47;\n       on Single Tax, 51, 52.\n\n     Hillquit, Morris: 159.\n\n     Hobson, J. A.: 418.\n\n     Howe, F. C.: 76-78.\n\n     Human welfare: the test of property rights in land, 36-38;\n       and of a system of land tenure, 74;\n       and of increment taxes, 109-111;\n       and of titles of property, 150, 151, 244, 293-295;\n       as a canon of distributive justice, 252, 253;\n       as justifying profits, 256, 257, 389;\n       as justifying higher than living wages, 386.\n\n     Hyndman and Morris: 20.\n\n\n     Income: distribution of national, 81-83.\n\n     Incomes: injustice of equal, 244;\n       progressive taxation of, 297-302.\n\n     Increment taxes: 102-117.\n\n     Inefficiency: of leadership and labour under Socialism, 158-168.\n\n     Inheritance: legal limitation of, 293-295;\n       progressive taxation of, 296-302.\n\n     Interest: nature of, 137-140;\n       rate of, 141-144;\n       alleged intrinsic justifications of, 171-186;\n       attitude of Church toward, 172-176;\n       extrinsic titles of, 172;\n       and the title of productivity, 176-181;\n       and the title of service, 181, 182;\n       and the title of abstinence, 182-186;\n       social and presumptive justifications of, 187-209;\n       necessity of, 191-199;\n       civil authorization, 201-204;\n       how justified, 204-209, a \"workless\" income, 210;\n       possibility of reducing rate, 211-213;\n       distinguished from profits, 238, 239;\n       versus wages, 390-393.\n\n     Investor: the \"innocent,\" 286, 287.\n\n     Ireland: reduction of rents in, 69-71;\n       compulsory sale of land in, 110;\n       co-operation in, 217-219.\n\n     Italy: co-operation in, 223.\n\n\n     Justice: dependence of on charity, 318;\n       not found in prevailing-rate theory, 325;\n       nor in exchange equivalence theories, 326-340;\n       nor in productivity theories, 340-355;\n       and the wage contract, 370-372;\n       and the legal minimum wage, 407.\n\n\n     Kautsky, Karl: 153.\n\n     King, W. I: 82, 83, 122, 123, 155, 240, 310, 414.\n\n\n     Labour: as a title to land, 24-29;\n       and to products, 45;\n       and to the entire product of industry, 145-152;\n       341-347;\n       productivity of, 178, 179;\n       inefficiency of under Socialism, 162-167;\n       medi\u00e6val measure of cost of, 336, 337;\n       claims of different groups of, 381-387;\n       legislative proposals for, 416, 417.\n\n     Labour unions: efficacy and limitations of, 417-420;\n       and legislation, 420-423.\n\n     Labourer, the: claim of to rent, 71-73;\n       right of to his product, 25, 26, 28, 43, 45, 149, 150, 179, 180;\n       gains of from wage contract, 327, 328;\n       right of to a living wage, 363-369, 373;\n       versus the capitalist, 390-393, 396;\n       versus the consumer, 393-398;\n       and co-operative enterprise, 423-425.\n\n     Land: distribution of, 16, 17, 87-89;\n       large holdings of, 89, 90;\n       accessibility to, 91-95;\n       the leasing system, 95-97;\n       public ownership of, 98-100.\n\n     Landowner: right of to rent, 67-73;\n       his share of product, 80-89.\n\n     Landownership: in history, 8-18;\n       two theories of, 8, 9;\n       in pre-agricultural conditions, 10-12;\n       origin of private, 12-14;\n       prevalence and benefits of, 15-18;\n       arguments against private, 19-47,\n         by Socialists, 19-21,\n         by Henry George, 21-47;\n       private, the best system of tenure, 48-55;\n       four elements of, 48;\n       a natural right, 55-56.\n       See Henry George, Occupancy, Labour, Right, Compensation,\n             Confiscation, Defects, Rent.\n\n     Land System: defects of the existing, 74-93.\n\n     Land values: how created by the community, 40-47;\n       increase of, 83-86;\n       taxation of, 117-130.\n\n     Langenstein: 335.\n\n     Lassalle, F.: 183.\n\n     Large estates: special taxation of, 130-132.\n\n     Leadership: industrial, under Socialism, 158-167.\n\n     Leasing system: 95-97.\n\n     Legislation: for labour, 120-123, 416.\n\n     Liberty: under Socialism, 168-170.\n\n     Liebknecht, W.: 152.\n\n     Life: right to, 57;\n       true conception of, 317.\n\n     Limitation of fortunes: 291-302;\n       directly, 292-295;\n       by taxation, 296-302.\n\n     Livelihood, decent: 360-363;\n       the labourer's right to, 363-365;\n       the employer's, 366.\n\n     Living wage: the minimum of wage justice, 356-380;\n       three fundamental principles, 358-360;\n       and a decent livelihood, 360-363;\n       right of labourer to, 363-369;\n       obligation of employer to pay, 365-372;\n       for a family, 373-376;\n       and social welfare, 376, 377;\n       authorities for, 377, 378;\n       money measure of, 378-380;\n       versus other titles of reward, 381, 382, 386.\n\n     Loan capitalist: and the claims of the labourer, 366, 367, 390, 391.\n\n     Loans: attitude of Church toward interest on, 172-174;\n       and productive capital, 174, 175.\n\n\n     Maine, Sir Henry: 17.\n\n     Market value: and wage justice, 330-332, 370, 375.\n\n     Marriage: right to, 57, 58;\n       and reasonable life, 374.\n\n     Marx, Karl: 145-148, 342, 343, 374.\n\n     Materialism: in current conception of welfare, 314-318.\n\n     Meade, E. S.: 265, 266.\n\n     Menger, A.: 342.\n\n     Middle Ages, doctrines of: on interest, 172, 175, 176, 201;\n       on titles of gain, 175;\n       on wage justice, 332-336.\n\n     Minimum: of wage justice, 356-380.\n\n     Minimum profits: question of right to, 258-260.\n\n     Minimum wage: 353-355, 400-423;\n       in operation, 400-405;\n       ethical and political aspects of, 407, 408;\n       economic aspect of, 408-416;\n       opinions of economists on, 412-416, 420-423.\n\n     Modern: version of exchange-equivalence, 336-340.\n\n     Monopoly: in relation to land, 75-80;\n       moral aspect of, 262-278;\n       excessive gains of, 263-265;\n       efficiency of, 265-267, 275-277;\n       discriminative underselling by, 267-270;\n       favors to by railroads, 262, 273;\n       natural, 273-275;\n       suppression versus regulation of, 275-278;\n       by labour, 390, 397.\n\n\n     Natural monopolies: 273-275.\n\n     Natural rights: 57-59. See Rights.\n\n     Nearing, Scott: 83-85;\n       154, 210, footnote.\n\n     Needs: as a canon of justice, 244, 246, 356-358;\n       classification of, 308, 309;\n       exaggerated conception of, 314-318;\n       a standard of wage justice in Middle Ages, 335, 336.\n\n\n     Occupancy, first: as a title to land, 21-24;\n       as exemplified in increment taxes, 109.\n\n     Occupation: question of right to a livelihood from a present, 362,\n           363.\n\n     Original titles: See Occupancy, Labour.\n\n     Overcapitalization: 279-290. See Stockwatering.\n\n     Ownership: titles of determined by reasonable distribution, 150,\n           151.\n\n\n     Perkins, G. W.: 276.\n\n     Personality: as basis of industrial rights, 358-371, 374.\n\n     Pesch, H.: 215.\n\n     Pope Benedict XIV: 173.\n       Clement IV: 23.\n       Gregory the Great: 306.\n       Innocent XI: 316.\n       Leo XIII: 64-66, 306, 309, 377.\n       Sixtus V: 176.\n\n     Population: excessive increase of urban, 86.\n\n     Possession: as a partial justification of interest: 205, 206.\n\n     Possessors: obligation of to non-possessors, 359, 360.\n\n     Presumption: as a partial justification of interest, 205;\n       and the canon of productivity, 248.\n\n     Prevailing rate theory: of wage justice, 323-325.\n\n     Prices: test of extortionate, 269, 270;\n       legalized agreements fixing, 277, 278;\n       versus wages, 393-399.\n\n     Principles: three fundamental to living wage doctrine, 358-360.\n\n     Product: distribution of national, 181-183. See Labour, Labourer,\n           Right.\n\n     Production: of land values by the community, 39-47;\n       co-operation in, 222-228.\n\n     Productivity: as a title to the product, 25, 26, 28, 43, 45, 149,\n           150, 179;\n       as a title to interest, 172, 173, 176-181, 204, 205;\n       of labour and capital, 178-180;\n       as a canon of distribution, 246-249, 350, 351;\n       as justifying large profits, 255-258, 262, 388, 389;\n       as a title to wages, 341-355, 385;\n       Clark's theory of, 347-351;\n       Carver's theory of, 351-355.\n\n     Profits: nature of, 237-242;\n       as compared with interest and rent, 139, 140, 238, 239;\n       amount of, 239, 240;\n       in a corporation, 241, 242;\n       in conditions of competition, 254-261;\n       indefinitely large, 255-258;\n       minimum, 258-260;\n       surplus and excessive, 263-265;\n       in natural monopolies, 273, 274;\n       versus wages, 388-390.\n\n     \"Progress and Poverty\": 21, 22, 24, 25, 30, 34, 39, 51, 52.\n\n     Proudhon: 342.\n\n     Public honour: efficacy of under Socialism: 165-167.\n\n     Pullman Company: 289.\n\n\n     Reform: versus revolution, 94.\n\n     Rent: economic, 3-7;\n       commercial, 5;\n       how produced by society, 39-47;\n       right of landowner to, 67-75;\n       right of tenant and labourer to, 69-73, 396;\n       increase and amount of, 80-87;\n       distribution of, 87-89;\n       in United States, 122.\n\n     Rent charges: attitude of theologians toward, 175, 176.\n\n     \"Res fructificat domina\":\n       limitations of this formula, 60, 61, 104, 105, 111, 180, 345.\n\n     Revolution: versus reform, 94.\n\n     Riches: from land, 88, 89.\n\n     Right: of the individual to land, 30-39;\n       of the community to land values and rent, 39-47;\n       of the producer to his product, see productivity;\n       of private landownership, 56-66;\n       to take rent, 67-73;\n       of access to the earth, 358-360;\n       to a decent livelihood, 360-363;\n       to a living wage, 363-369, 372, 376.\n\n     Rights: three principal kinds of natural, 57-59;\n       of property, as created by the State, 202.\n\n     Rodbertus, K.: 342.\n\n     Roman Congregations: on lawfulness of interest taking, 173, 174.\n\n\n     Saint-Simon: 342.\n\n     Sacrifice: principle of in taxation, 131, 297;\n       as a title to interest, 185-188;\n       as a title of reward, 383-385.\n\n     Savers: three kinds of, 183-185.\n\n     Scarcity: effect of on rewards of productive agents, 80;\n       as a canon of distributive justice, 250, 251;\n       as justifying very large profits, and more than a living wage,\n             255-258.\n\n     Schmoller: 253.\n\n     Schoolmen: doctrines of on wage justice, 333-336.\n\n     Seligman, E. R. A.: 101, 296, 297.\n\n     Service: as a title to interest, 181, 182, 204, 205.\n\n     Shifting: of land taxes, 102, 103.\n\n     Sidgwick, H.: 329.\n\n     Single Tax: injustice of, 33-39, 100;\n       proposals and defects of, 51, 54, 108.\n\n     Skelton, O. D.: 165.\n\n     Small, A. W.: 171.\n\n     Social benefits: of special taxes on land, 127-130.\n\n     Socialism: as regards land, 49, 51;\n       not inevitable, 153;\n       expropriation of capitalists by, 154-158;\n       inefficiency of, 158-168;\n       hostile to individual liberty, 168-170;\n       not co-operation, 230, 231.\n\n     Socialists: on private landownership, 19-21;\n       on interest, value, and labour, 145-148;\n       on the collectivist State, 152, 153;\n       on morality of profits, 254;\n       on wage justice, 341-347;\n       on the principle of needs, 356.\n\n     Socialist party: of the United States, on landownership, 51.\n\n     Spargo, John: 51.\n\n     Specific productivity: as a measure of wage justice, 347-351.\n\n     Speculation: effect of on land values, 92, 93, 103.\n\n     Spencer, Herbert: 23.\n\n     Standard Oil Company: 76, 263, 267.\n\n     State, the: should permit interest, 199-201;\n       power of to create property rights, 202-204;\n       not obliged to guarantee living profits, 259;\n       fixing of maximum prices by, 275-278;\n       and the \"innocent\" investor, 286, 287;\n       and the prevention of stockwatering, 289, 290;\n       and the limitation of fortunes, 291-302;\n       and payment of living wages, 365;\n       and minimum wage, 407, 408, 420-423;\n       and other labour legislation, 416, 417.\n\n     Stockholders: claim of to surplus gains, 257, 258, 262;\n       as related to stockwatering, 279-281, 285.\n\n     Stockwatering: moral aspect of, 279-290;\n       definition of, 280;\n       injurious effects of, 281-286 and the \"innocent\" investor, 286,\n             287;\n       magnitude of, 288, 289;\n       prevention of, 289, 290.\n\n     Stores: co-operation in, 220-222.\n\n     Superfluous wealth: duty of distributing, 303-319;\n       kinds of, 308, 309;\n       a false conception of, 314-316;\n       true conception of, 318, 319.\n       See Wealth.\n\n     Supertax: on large landed estates, 130-132.\n\n     Supply and demand: as determining rent, 80;\n       as determining interest, 143, 144.\n\n\n     Taussig, F. W.: 198, 214, 282, 289, 290;\n       on minimum wage, 412-416.\n\n     Tawney, R. H.: 421.\n\n     Taxation: as a social instrument, 101, 102;\n       of increases in land value, 102-117;\n       faculty theory of, 107, 108;\n       progressive, as a method of limiting fortunes, 296-302.\n\n     Taxes: shifting of to land, 117-130;\n       social benefits of, 127-130.\n\n     Tenant: claim of to rent, 69-71.\n\n     Theologians: on private landownership, 62-64;\n       on interest, 172-176, 202-204;\n       on civil creation of property rights, 202;\n       on duty of benevolent distribution, 308, 309.\n\n     Thompson, W.: 341.\n\n\n     Undertaker: See Business man.\n\n     United States: special land taxes in, 119;\n       co-operation in, 218, 263;\n       minimum wage in, 401, 403-407.\n\n     United States Commissioner of Corporations, reports of: on Standard\n           Oil Company, 76, 263, 267, 268, 272;\n       on Steel Corporation, 79, 89, 263, 267, 285;\n       on water power ownership, 79, 95;\n       on the lumber industry, 85, 89, 94, 132;\n       on American Tobacco Company, 263, 267, 288;\n       on American Sugar Refining Company, 267, 272, 289.\n\n     United States Shipbuilding Company: 288, 289.\n\n     United States Steel Corporation: 79, 89, 267, 285, 289.\n\n     Use: right, as a confirmatory justification of interest taking,\n           206-208.\n\n\n     Value: Marxian theory of, 145-148, 333, 343, 344;\n       relation of to wage justice, 330-340;\n       and to a living wage, 370, 375.\n\n     Van Hise, C. R.: 266, 267, 277, 278, 288.\n\n\n     Wage justice: unacceptable theories of, 323-355;\n       prevailing rate theory, 323-325;\n       exchange equivalence theory, 326-340;\n       productivity theories, 341-355;\n       the minimum of, 356-380;\n       problem of complete, 381-399;\n       claims of different labour groups, 381-387;\n       wages versus profits, 388-390;\n       wages versus interest, 390-393;\n       wages versus prices, 393-399.\n\n     Wages: versus profits, 388-390;\n       \"equitable minimum\" of, 388;\n       versus interest, 390-393;\n       versus prices, 393-399;\n       methods of increasing, 400-425;\n       legal minimum, 400-416;\n       other legislation for, 416, 417;\n       labour unions, 417-423;\n       co-operative enterprise, 423-425.\n\n     Wagner, A.: 342.\n\n     Watered stock: 279-290. See Stockwatering.\n\n     Water power: in the United States, 79, 95.\n\n     Wealth, superfluous: duty of distributing, 303-319;\n       as regards a part, 303-307;\n       as regards the whole, 308-314;\n       a duty of charity or of justice, 305-307;\n       the supply of capital and business ability, 311-313;\n       false and true conceptions of, 314-316.\n\n     Welfare: a false conception of, 314-316;\n       true conception of, 316-318;\n       social, demands a living wage for all, 376, 377.\n       See Human welfare.\n\n     Whittaker, Sir Thomas: 10, 14, 28.\n\n     Wicker, G. R.: 350, 351.\n\n     Williams, A.: 232.\n\n     Wolman, L.: 417, 418.\n\n     Women: right of to a living wage, 373.\n\n\n  PRINTED IN THE UNITED STATES OF AMERICA\n\n\n       *       *       *       *       *\n\n    The following pages contain advertisements of books by the\n    same author or on kindred subjects.\n\n       *       *       *       *       *\n\n\n  Socialism: Promise or Menace\n\n  BY MORRIS HILLQUIT and JOHN A. RYAN, D.D.\n\n                                      _270 pp., 12mo, $1.25_\n\nA debate on the right or wrong of the movement in which opposing\narguments are presented dealing with various phases of the subject.\nThe attack is made by Dr. Ryan, Professor of Moral Theology and\nEconomics in St. Paul Seminary and author of _A Living Wage_. The\ndefender, Mr. Hillquit, is a practising lawyer and has been a delegate\nto national and international socialist conferences for several years.\n\n\"One of the most important books ever published, bearing on the issue\nof Socialism.\"--_Ohio State Journal._\n\n\"Many books have been written on the subject, but no better\npresentation of both sides in one volume can be found than in\n_Socialism, Promise or Menace_.... It is a fine, fair and square\ndiscussion.\"--_Congregationalist._\n\n\"Nowhere else within the covers of a single volume can be found\nsuch a satisfactory presentation of the leading arguments and\ncounter-arguments on a great question, for each debater is amply\nqualified to present his case.\"--Boston _Globe_.\n\n       *       *       *       *       *\n\n  _A Living Wage, Its Ethical and Economic Aspects_\n\n  By JOHN A RYAN, S.T.L.\n  Professor of Ethics and Economics in St. Paul's Seminary.\n\n        _Cloth, 12mo, $1.00; Standard Library Edition, $.50_\n\n\"Father Ryan's work on the Living Wage is perhaps the best exposition\nof the labor phase of the social problem. It has taken its place on\nthe shelves of public and private libraries beside other standard\nworks, while the name of the author is associated with the leading\nAmerican sociologists.\n\n\"The volume is prefaced by an introduction by Professor Richard T.\nEly, the noted American economist. As the title indicates, the subject\nis not merely treated from an economic point of view, but also in its\neconomic aspects--a course of procedure that is somewhat of a\ndeparture from prevailing discussions of economic subjects. There is a\ntendency to treat political economy as a subject related to\nmathematics. Statistics and axioms are the predominating features.\nHowever, the science of political economy cannot disregard the origin\nand destiny of man.\n\n\"'The Living Wage' is based on the principles of Christian philosophy.\nIts logic proceeds from the Christian conception of the dignity of\nman. Father Ryan's book is thus a most timely and necessary\ncontribution to sociological literature. That 'The Living Wage' has\nmet the popularity that it has, is evidence of the growing conviction\nthat the social problem cannot be solved except on Christian\nprinciples.\"--_Common Cause._\n\n\"It is refreshing to pick up a book by Dr. Ryan, who is always so sane\nand so convincing.\"--_North Western Chronicle._\n\n\"The book is considered the best presentation of Catholic economic\nthought at the disposal of the general reader.\"--_Albany Times-Union._\n\n\n\"That this economic study by Father Ryan is a solid work is evidenced\nby the fact that it was first published in 1906, and was reprinted in\n1908, 1910, and 1912.... Instead of appeals to sentiment or glittering\ngeneralities, Professor Ryan offers seasoned arguments and precise\ndoctrine.\"--_Portland Evening Telegram._\n\n\"The most judicious and balanced discussion at the disposal of the\ngeneral reader.\"--_World To-day._\n\n       *       *       *       *       *\n\n  Property and Contract in Their Relations to the Distribution of\n  Wealth\n\n  By RICHARD T. ELY, Ph.D., LL.D.\n  Of the University of Wisconsin, Author of \"Outlines of Economics,\"\n  Editor of the \"Citizens' Library,\" etc.\n\n_In two volumes, $4.00. Special Law Library Edition, Sheep, 8vo, $7.50_\n\nIn this work, which is based upon legal decisions as well as upon\neconomic principles, a leading authority on political economy\nconsiders simply and concisely one of the greatest problems now before\nthe American people. Much has been heard and written of late about\njudicial readjustment and direct government, but few who have\ndiscussed the subject have seen the heart of it as clearly as does\nProfessor Ely. Of special importance is his treatment of the police\npower, a burning question in American jurisprudence. An idea of the\nscope and comprehensiveness of the work may be gained from the\nfollowing condensed table of contents: Introduction; Book I, The\nFundamentals in the Existing Socio-Economic Order Treated from the\nStandpoint of Distribution; Part I, Property, Public and Private: I,\nProperty, Public and Private, The First Fundamental Institution in the\nDistribution of Wealth; II, Illustrations Showing the Importance of\nProperty in Wealth Distribution; III, Property Defined and Described;\nIV, Property, Possession, Estate, Resources; V, The Attribute and\nCharacteristic of Property; VI, The Social Theory of Private Property;\nVII, Property and the Police Power; VIII, What May I Own? IX, The\nConservative Nature of the Social Theory of Property; X, XI, A\nDiscussion of the Kinds of Property; XII, The General Grounds for the\nMaintenance of Private Property; XIII, A Critical Examination of the\nGeneral Grounds for the Maintenance of Private Property; XIV, XV, XVI,\nXVII, XVIII, XIX, The Present and Future Development of Private\nProperty; XX, The Transformation of Public Property into Private\nProperty and of Private Property into Public Property; XXI, The\nManagement of Public Property with Reference to Distribution; XXII,\nTheories of the Origin of Private Property; Part II, Contract and Its\nConditions: I, Introductory Observations; II, Contract Defined and\nDescribed; III, The Economic Significance of Contract; IV, Contract\nand Individualism; V, Criticism of the Individualistic Theory of\nContract and the Social Theory; VI, Contracts for Personal Services;\nVII, Class Legislation; VIII, Facts as to Impairment of Liberty; IX,\nThe Courts and Constitutions; X, Concluding Observations; Appendix I,\nPart III, Vested Interests; Appendix II, Part IV, Personal Conditions;\nAppendix III, Production, Present and Future, by W. I. King, Ph.D.,\nInstructor in Statistics, University of Wisconsin; Appendix IV, List\nof Cases Illustrating the Attitude of the Courts Toward Property and\nContract Rights and the Consequent Evolution of These Rights, by\nSamuel P. Orth, Ph.D., Professor of Political Science, Cornell\nUniversity.\n\n       *       *       *       *       *\n\n  Principles of Economics\n\n  BY F. W. TAUSSIG\n  Henry Lee Professor of Economics in Harvard University\n\n              _New edition. Cloth, 8vo, 2 vols., each $2.00_\n\n  Volume I, 547 pages     Volume II, 573 pages\n\nThe present edition of Professor Taussig's standard work embodies many\nchanges throughout the text, thus bringing his work abreast of the\nmost recent developments. The chapter on banking in the United States\nhas been entirely re-written; as it now stands, it includes a\ndescription of the Federal Reserve Bank system and a consideration of\nthe principles underlying the new legislation. 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For the smaller institutions, the book has the additional\nadvantage of containing all the necessary material required in the\nusual course in economics, and thus avoids the extra expense and\ntrouble of using several other books to supplement the basic text. In\nfact, the value and the extended use of this work as a comprehensive,\nuntechnical treatment of the subject, have led many eminent economists\nto regard it as the most notable contribution to the subject of\neconomics since the time of John Stuart Mill.\n\n\nTHE MACMILLAN COMPANY\nPublishers   64-66 Fifth Avenue   New York\n\n\n\n\n       *       *       *       *       *\n\n\n\n\nTranscriber's Notes:\n\nObvious typographical errors were corrected.\n\nHyphenation inconsistency between \"co-partnership\" as used by the\nauthor, and \"Copartnership\" as in the title of a quoted reference,\nwas retained as in the original.\n\nA few out-of-order index entries were relocated.\n\nAdvertisements: \"THE MACMILLAN COMPANY Publishers 64-66 Fifth Avenue\nNew York\" appeared at the bottom of each ad page in the original. This\nhas been reduced to one occurrence after the final ad.","title":"Distributive Justice: The Right and Wrong of Our Present Distribution of Wealth","tradition":"philosophy-ethics","translated_text":null,"word_count":139892}