»ISiiSKi^ifr]iiii^iJ5!=!" CORNELL UNIVERSITY LIBRARY THIS BOOK IS ONE OF A COLLECTION MADE BY BENNO LOEWY 1854-1919 AND BEQUEATHED TO CORNELL UNIVERSITY The original of tliis bool< is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924031239647 COMMUNAL AND COMMEECIAL ECONOMY : SOME ELEMENTAET THEOREMS OF THE POLITICAL ECONOMY OF COMMUNAL AND OF COMMERCIAL SOCIETIES; TOGETHER WITH AN EXAMINATION OF THE CORRELATED THEOREMS OF THE PSEUDO-SCIENCE OF WEALTH AS TAUGHT BY EICARDO AND MILL. BY JOHN CAEEUTHEKS, M. Inst. C.E. "'tis not antiquity nor author That makes truth, Truth." LONDON: EDWAED STANFOED, 55, CHAEING CEOSS, S.W. 1883. PEEFACE. The laws of nature never change ; but under all circum- stances, the due and calculable effect will follow a given cause. Where the occurrences are not such as we ex- pected, BO one now thinks of attributing the discrepancy to miraculous or arbitrary changes in the laws, but it is at once known that our expectations were founded on ignorance. Should the teaching of any two sciences come into conflict, we should not attempt to reconcile them by assuming the laws of nature to be not the same in the two cases, but we should know at once that one or both of our sciences were false, and we should endeavour to correct them. The actions of men are not supernatural, but are also ?art of nature, and their effects are subject to her laws, t is a fact that the acts daily done by man will influence either for good or ill his future well-being, and right action in his daily life is a matter of vast importance to him, and to those who will come after him. If he has two sciences of conduct, and they are in conflict, it behoves him to weigh well which he will follow, for assuredly they cannot both be true, and woe betide him if he take the false one for his guide ; nature is pitiless to those who take the wrong path. ' This work is a treatise on political economy, and not on ethics : an examination of the grounds on which the latter rest would be as much beyond my limits as a dis- cussion of the binomial theorem ; but it is within my province to point out that the political economy taught in England is wholly at variance with the ethics taught every- where, and at every period of the world's history. If the iv Preface. latter is a true science, then our political economy is a false one, and if we follow it we shall be led into some slough of misery as certainly as a man will be killed who throws himself over a precipice under some erroneous theory of the results that would ensue. Our political economists, if they wish to convince the world of the truth of their doctrines, ought to give up discussing capital, prices, wages, and the other data of their science, and should address themselves to the work of proving that justice to the weak is folly, and that it is contrary to the teaching of nature to do unto others as we would have others do unto us. So long as men believe that justice and brotherly love are the true guides of conduct, they cannot accept political economy; for if the belief is right the science must, as a mathematical necessity, be wrong, and until political economy has driven out its rival, it cannot occupy its place. It is of momentous importance to know which of our sciences is true, and by which, therefore, our social life must be governed; for the whole physical, intellectual, and moral well-being of mankind depends on our knowing and doing what nature insists shall be done. No one, therefore, who has given any study to the subject, and has arrived at conclusions different from those currently accepted, need apologise for publishing the results of his work. If, indeed, he failed to do so, he would be guilty of treason to the commonwealth, however little effect he might anticipate from the publication, and it is as a duty that this treatise has been written and is novv offered to the public. J. C. Westminster, 1th December, 1882. CONTENTS. CHAPTER I. INTK0DT70TION. Logical method of the false science of wealth or plutology — Political economy the art of labour, communal economy being that of com- munal, and commercial economy that of commercial societies, while plutology ia a medley of the two, and necessarily consists of nonsense absolute or of truism Pages 1-12 CHAPTER II. WEALTH AND PBIOE. Wealth defined — Money necessary to the subdivision of wealth — Meaning of the word ^ pound' — Relative and absolute prices — Pluto- logical theory of supply and demand — The profit-fund and its numerical magnitude — Theory of value 13-26 CHAPTER III. CAPITAL AND STOCK. Current definitions — Nature of capital, and distinction between capital and stock — Realised capital — Fixed and circulating capital — Identity of profit and price , . 27-40 CHAPTER IV. BATE OF PROFIT. Current theories — Definition and explanation — Observed fall in rate of profit — Plutological explanation of the fall — Reasons why capitalists now adopt methods of production giving a less rate of profit than was formerly obtained — Assumed general law of agricultural industry on which fall in the rate is said to depend 41-67 vi Contents. CHAPTEE V. INTEREST AND BANKING. Risk of loss tends to make the rate of interest higher than it would other- wise be — Theory of supply and demand of loans — Cash in circulation the property of the tanks — Relation of rate of interest to rate of profit — Distinction between banking and money-lending, and between bills of exchange and mortgages — Depositors' rate of interest — Fictitious loans Pages 68-81 CHAPTEE VI. MONET PRICES. Current theories — Cash not necessary to commerce — Macutes, or arith- metical money — Prices when currency consists of inconvertible paper, and when of gold 82-99 CHAPTEE VII. EXPANSIONS AND CONTRACTIONS OF TRADE. Rise of prices from the issue of fictitious loans, and fall from the loans being recalled — Revival of trade when the fictitious loans become real — Bank Act, 1844 — Current theories 100-116 CHAPTEE VIII. COST OF PKODUOTION. Normal prices — Current theories of abstinence and privation — Ethical deductions 117-130 CHAPTEE IX. RENT. Eicardo's theory — So-called law of the diminishing return from land Investment of labour and of money — Accumulated labour — Neutrali- sation of natural advantages by high wages — Relation of price and labour-cost — Deductions from the so-called law of diminishing return — Supposed ethical difference between rent and profit. 131-157 Contents. vii CHAPTEK X. INOEEASE OF CAPITAL. Means by which capital is increased — Theory that well-being depends on capital — Mill's assertion that stock is the result of abstinence, and the ethical deduction — Productive and unproductive labour — '■ Motives which lead to investment Pages 158-179 CHAPTER XL FREE TRADE. Definition — Free trade does not lead to efficiency of labour — Importance of the use of the best machinery — Capitalists cannot consume their capitals — Influence of high wages on exports — When protective duties may wisely be levied — Com duties 180-210 CHAPTER XII. •POPULATION. Malthus' theory — High death-rate shows the poverty of the people, but not undue gratification of the instincts of reproduction — Non-existence of the " population difficulty " — Over-population never the cause of poverty — Famines not due to over-population — Workmen tend to multiply up to demand for labour, and not to limits of subsistence — Malthus' reply to Godwin — Increase of marriages when food is cheap — Positive and preventive checks to population — High birth-rate no sign of imprudence 211-244 CHAPTER XIII. WAGES. Current theories — The squandering of capital — Competition for employ- ment and for men — Importance to all classes of a high rate of wages. 245-260 CHAPTER XIV. TRADES UNIONS. Skilled and unskUled labour — Craft guilds — Competition of badly-paid men with those whose wages are higher — Improvements in machinery — Foreign competition and export of capital 261-269 viii Oontents. CHAPTER XV. No principles established for the guidance of the statesman — Difficulty of making taxation fall on those who best can bear it — Unimportance to the -workmen of the amount of taxation — Income tax — Taxes on implements and wages — Import duties — Foreign import duties — Protectionist reasoning of English free traders — Export duties. Pages 270-286 CHAPTEE XVI. FOREIGN TEADE. All trade is foreign — Theory that foreign trade depends on differences in relative costs of goods — Theory of equation of international demand. 287-292 CHAPTER XVII. NATIONAL DEBT. When money lent to Government would otherwise have been spent — When it had formerly been lent to manufacturers — When it would have been invested in erecting new stock — On the advisability of paying off national debts 293-299 CHAPTEE XVIII. OONCLUSION. English theories as to object of political economy — Ethical objection to changing the system of labour-direction — Economic objection to same — Objections to present system — Sketch of a communal system — Arguments employed against communism — Commercialism is inevitably doomed to be superseded 300-356 COMMUNAL COMMEKCIAL ECONOMY. CHAPTEE I. INTBODUCTION. It is now more than a hundred years since political economy came into existence as a systematic study with the publication* of the ' Wealth of Nations,' but, unlike all the other sciences, it has, in that long period, made no progress whatever, the first great work being, indeed, still the only one we possess on the subject. Scarcely had the new science appeared when it was superseded by that of which Eicardo and Mill are now the recognised authorities, and which, although called by the same name, has no more real connection with it than has astrology with astronomy. They both, it is true, take wealth for their subject-matter, as the other sciences take the heavenly bodies, but here the connection between them ends, for they are otherwise totally dissimilar, and must be studied by totally different methods. Smith's work was an ' Enquiry into the Causes of the Wealth of Nations,' a subject as capable of true scientific treatment as astronomy; Mill's work was an inquiry into the ' Nature of Wealth, and the Laws of its Production and Distribution,' a subject quite incapable of scientific treatment, and in the study of which the methods, not of astronomy, but of astrology, must be employed. Matter has no distinguishing properties constituting it wealth, any more than the stars have those properties the 2 Communal and Gommercial Economy, [chap. i. pretended investigation of which forms the science of astrology, and a study of the nature of wealth cannot, therefore, be a true science. Diamonds hare properties different from those of fiints, but it is the work of the mineralogist, and not of the economist, to study them ; wheat differs from dock-seed, but here the botanist takes up the investigation. If we wish to know why diamonds are valued by man, we must study his mental qualities, and if we wish to know why he values wheat, and not dock-seed, we must study his bodily constitution. Eicardo and Mill adopt an entirely different method ; they attribute to diamonds and wheat a virtue or quality — " value" — which causes them to be valued, and which flints and docks are supposed not to possess; and they say the former are wealth because they have this quality, while the latter are not, because they do not possess it. It would, however, be as incorrect to assert that the quality had been discovered by an investigation of the nature of the wealth, or of the laws of its production, as to say that Sidrophel had learnt from his study of the stars, the business on which Hudibras came to consult him; both the economist and the astrologer acquired their knowledge from other sources, and if dependent on their science alone would have known nothing at all about the matter. A dish of pork has value to Christian, but not to Mahommedan, ploughmen, and in order to learn what makes the difference, we must, by Mill's teaching, study, not the religious belief of the two men, for this would not be political economy and could teach us nothing of wealth, but we must learn the nature and properties of pork, and if we do so by the proper methods of our science we shall find it to possess the qualities of being useful and agreeable to Christian, and useless and disgusting to Mahommedan, ploughmen. If, however, we had not studied the religious training of the men, how much should we have known of the economic properties of pork ? A fur cloak, again, is wealth in St. Petersburg, and not in Calcutta, but we must not pay any regard to those who would assert that we have learnt this fact from our study of geography; we have really CHAP. I.] Introduction. learnt it, according to Mill, from our study of the nature of wealth, for this science alone could tell us that the cloak has the virtues or qualities of being useful and sale- able in the one place and not in the other. Wealth is defined by Mill, whom we take to be the recognised exponent of current politico - economical thought, as " all useful or agreeable things which possess exchangeable yalue,"* while value is " a general power of purchasing,"! or, what is precisely the same thing, a general power of being exchanged, for the act of pur- chasing goods with other goods is simply exchabging them. Similarly, we might have a science of stones in relation to their power of being thrown, for we know they possess such a power, since boys do throw them, but, like that of matter in relation to its power of being exchanged, it would not be a true science, as from its very nature it would consist entirely of arguments in a circle, and could not possibly teach us anything we did not know before. We know that stones when thrown travel in parabolas, and should, therefore, in our new physical science, attribute to them a virtue or power of so doing ; but we should only argue in a circle if we tried to prove from our false science that any individual stone in motion was actually travelling in a parabola. In the same way all Mill's reasoning is mere begging the question so long as he confines himself to his so-called science of wealth. The water of Loch Katrine, for instance, has no " value " when lying in the lake; when carried to Glasgow it acquires this quality and becomes wealth ; but we are only aware of the fact from our knowledge that it is there bought and sold, and if we did not possess this extraneous knowle'dge, our science would not tell us whether it was wealth or not; the water has no new qualities differentiating it from that still left in the lake, and by which its magni- tude as wealth can be learnt. Mill, it is true, says J that by being conveyed to the town it has been endowed with " a property it did not previously possess, namely, that of * Preliminary remarks. f Book iii. chap. i. § 2. X Book i. chap. iii. § 2. b2 4: Communal and Commercial Economy, [chap. i. being in the place where it is wanted," and in consequence of the utility thus conferred upon it, becomes saleable. But surely the water left in the lake, and there drunk by those who live on the banks, although not saleable, has, just as much as that which is drunk in the town, the property of being in the place where it is wanted for drinking. The " place where it is wanted " really means the place where it can be sold, and we must learn whether the article has the property of being in that place, not by studying its nature, but by seeing whether we can get it for nothing. True political economy is not the science of wealth, but the art of disposing wisely the concerted labour of societies. Such an art can have no existence unless we clearly know what result we wish to obtain from the labour, and this, in England, is not the case. It is part of the accepted creed of nearly all English statesmen that the State can- not, without violating the fundamental laws of morality, compel capitalists to dispose the labour over which they have control in a manner different from that they would have selected if left in perfect freedom ; while those who concede to the State the moral right of interference, hold that it would be foolish to exercise it. Every capitalist, it is contended, knows better than the statesman how to dispose the labour over which he has command so that it shall produce the highest possible rate of profit for himself, and as this is supposed to be identical with securing the greatest well-being for the country, interference would necessarily lessen the common well-being. The economi- cal, as distinct from the ethical, portion of this argument exemplifies a confusion of thought which runs through the whole of current political economy, or " plutology," as, in accordance with the precedent of astrology, the science taught by Eicardo and Mill may be called, in order to distinguish it from true political economy. ' A modern commercial society like England is not a com- mimity of which the members have common economic interests, and its art of labour is not the same as that of a commune. At the same time man's inherited instincts as CHAP. 1.] Introduction. a gregarious animal are so powerful, that he cannot, with- out an effort, realise this to be the case. Those living within a defined geographical area, and speaking a different language from theirneighbours, have also so many thoughts in common and have so many common interests, antago- nistic, or thought to be so, to those of their neighbours, that the feeling is greatly strengthened that they form a community and share in the gain or loss of any of their number. So far, however, is this from being the case, that, in a commercial society, every man's hand is against his neighbour in all economical matters ; if one man's ship is lost, other shipowners get higher freights and gain ; if a field of wheat is burnt, so much the better for other farmers, who will get higher prices. At the same time shipowners and farmers have common class interests against all other traders. It is the same with the workmen ; if a pestilence swept away half the shoemakers the rest would get higher wages, but at the same time shoemakers have class interests as against other workmen, and try to keep outsiders from joining their ranks. The whole class of labourers again, have common interests antagonistic to those of the capi- talists, the warfare between them often going beyond the ordinary economical limits and becoming one of violence and bloodshed. It is quite impossible that a society like this can act in concert for the common good of all, and its economy is essentially different from that of a society where loss or gain affects every member. The plutologists have not only overlooked this obvious fact, but have made their science less the study of wealth, as they call it, than a mere unmeaning medley of the two perfectly distinct studies of communal and commercial economy. They have taken the technical terms of the latter, and have given to them, by definition, meanings suitable to the former science alone, and have then assumed that the theorems of either science are equally true when the correlated technical terras of the other are substituted. Their work is thus parallel to that which would be performed by any one who defined " bulk " to be the sensation produced by light, and who then asserted 6 Communal and Commercial Economy, [chap. i. that the bulk, that is, the colour, of spheres varies as the cube of their diameters. To complete the parallel we must assume that the real bulk of spheres is proved to vary in this particular ratio, by defining a sphere to be any ponderable body which possesses the virtue or quality of so varying in bulk. This is not in the least an exaggeration of the absurdity of the theorems of plutology, which, from the very nature of the science, are all non- sense absolute if we adhere to the definitions, while, if we employ the technical terms, not as they are defined, but with the meanings in which the plutologists really employ them, we get the mere truism of which a science of matter in relation to its power of being exchanged must neces- sarily be. In such a science we must know beforehand all that we are to learn, and must attribute to matter a power or virtue of producing the phenomena we are making the pretence of explaining. Our scientific method must be that of deducing from the soporific virtues of opium the effect it will have on the human nerves. We will here by way of illustration examine one or two of the accepted theorems of plutology, leaving the more important, such as price, profit, interest, rent, free trade, wages, &c., to be discussed in special chapters. The word capital belongs only to commercial economy, in which it always means money ; circulating capital is the money spent in trade, and fixed capital the money which the implements and other stock employed in manufacture have cost or would fetch if sold; the net product of capital is the money profit, and the gross product is the net profit, together with a sum to replace the capital expended. With these definitions it is almost a truism that, assuming equal capitals to yield equal net profits, the gross product (of money) will be greater irom circu- lating than from an equal amount of fixed capital. If a man spends every year lOOOZ. in his trade, he will recover that sum yearly together with a profit, and the gross product of his investment will be, say llOOZ. a year. Had he employed a steam-engine worth lOOOZ. his gross product would have been only lOOZ., together with such further CHAP, i.j Introdudion. sum as would pay for the renewal of his engine. Plutology defines fixed capital to be steam-engines and other durable stock, and circulating capital to be the coal burnt in the engines and other stock, which, " after being once used, exists no longer as capital," and Mill actually states with perfect gravity, that using these definitions the theorem still holds good, and that circulating has more influence than fixed capital on the production of wealth,* or, in other words, that the coal does more than the steam-engine of the work of production ! From this he and Ricardo deduce that " all increase of fixed capital, when taking place at the expense of circu- lating, must be at least temporarily prejudicial to the interests of the labourers," They do not explain how engines are increased at the expense of coal, nor how, assuming this to take place, it would be prejudicial to the interests of the labourers. Both statements are, of course, without meaning, and are merely a perversion of the truism that assuming workmen to be fed only when capitalists employ them, they will remain unfed if the capitalists do not hire them, but erect steam-engines, or rear horses to perform their work. Again, it will not be disputed that, with a given rate of profit,. the capital sum and the profit obtained will vary together, both profit and capital being measured in money ; but phitology converts this truism into the state- ment that the larger the implements of production {iliai is, the capital) the larger will be the product of wealth. It does not, however, explain how the implements are to be measured, nor what scale we are to adopt in deciding whether a ship is greater or less than a brewery, or whether a hop-garden is greater than a printing-press. The wliole subject is, of course, nonsense absolute, and we can no more predicate magnitude of implements (apart from their number, weight, or bulk) than we can say the colour scarlet is equiangular. How again are we to measure the wealth produced ? Is a dish of pork wealth or not ; and what is the magnitude, as wealth, of the water of Loch * Book i. ohap. vi. § 2. 8 Cominimal and Oommeroial Eeonomy. [ohap. i. Katrine ? What unit of measure, also, are we to adopt ; what is the plutological " ricardo," corresponding to the "ohm "or "joule" of physical science by means of which we are to measure the relative magnitudes of different articles of wealth ? Here, again, we get into nonsense, for wealth being merely the means of well-being, is no more capable of measurement than is happiness. We can only escape from this horn of the dilemma by taking the other, and following the plutologists into a vicious circle of reasoning. We must measure wealth by its price, and, as will be seen hereafter,* price is, in a commercial society, only another name for profit. The magnitude of implements must be measured by their profit-producing virtues: a railway share which gives a profit of 51. a year is a capital or implement of, say, lOOZ., but if it pays lOZ. a year, and the normal rate of profit is the same, its magnitude will be twice as great. Similarly, a ship which yields a profit of lOOOZ. a year is only half as large a capital or implement of production as a brewery which yields 2000Z. a year, since its profit-producing virtue is only half as great. Our theorem thus resolves itself into the truism that the price of goods, or, in other words, the profit obtained by their manufacture, will vary with the magnitude of the implements employed, magnitude being measured by the profit-producing virtue of the implements. These are fair samples of the theorems of plutology, and come under what a mathematician would caJl the general form of the equation which describes them all ; they are nonsense absolute when we use the technical terms in their defined meanings, and mere truism when we give the terms such meanings as are necessary to our acceptance of the theorem. The aim of this treatise is to examine a few of the elementary theorems of communal and commercial economy, at the same time discussing the correlated plutological theorems. By elementary, I mean those which are so simple and obvious as to be readily deducible from the knowledge we have acquired without conscious * Infra, p. 37. CHAP. I.J Introduetion. study, and I thus stop on the boundary without pretending to enter the domains of science. Communal economy is the art or science, as we may call it, — in accordance with custom and in the absence of 'any good reason to the contrary — of so disposing the labour of communities as to obtain for the labourers the greatest possible well-being. I shall have very little to say about it in the following pages, as all that may be learnt with- out a study of statistics is so obvious and simple as to require very little discussion. Commercial economy is the science which shows how capital may be so used as to obtain the greatest material well-being for its owner. The plutologists insist that, by disposing capital wisely in the interests of capitalists, the well-being of all members of the society is equally obtained, and that the latter object is that which com- mercial economy really keeps in view. This comfort- able theory has become a good deal discredited of late years, but whether it be true or not, the proximate end sought is the well-being of those who possess capital, and commercial economy is the science which shows how it may best be obtained. It is a more complex study than communal economy, but would still scarcely require a separate treatise for the discussion of its ele- mentary theorems, if we could thoroughly divest our- selves of our communistic instincts, and keep the two sciences perfectly distinct. Tiis, however, we are practi- cally incapable of doing ; and, in spite of ourselves, we cannot discuss the acts of capitalists without taking into account their influence on others. We are thus much in the position in which a student of the art of war would be placed if commanders had to look to the political effects of their warfare, and if, like Codrington at Navarino and Bazaine at Metz, they were uncertain whether victory were desirable. The immediate as well as the ultimate aims of the two sciences are completely distinct; while communal economy seeks mainly to show how, under given circumstances, labour may be so disposed that it shall be efficient, com- 10 Communal and Commercial Economy, [chap. mercial economy has no special concern with labour or its efficiency, but only with capital and the rate of profit. The world in a commercial society belongs to the capitalists, the share of the ownership which each man possesses being his capital. In order tliat wealth may be produced it is necessary that the natural forces and agencies the world contains shall be directed in the manner which by natural limitations is necessary to the production. Workmen and horses must be set to till the land ; the sun must shine and the rain must fall upon the field, when the seed will sprout and grow ; bees must perform the labour necessary to the fertilisation of the flower, when the fruit will form and swell ; birds must join in the work by destroying the noxious insects which would otherwise destroy the harvest ; and so on. When all is done some of the agents claim a share of the product : the men and cattle must be fed ; the birds make good their right to share the wealth which their labour, as much as that of the men and horses, has produced ; and even the earth demands a part as seed for the next crop. After all deductions are made which the harshness of nature renders necessary, tiie balance belongs to the capitalist. To him it is a matter of indifference what natural agents are instrumental in the production of his wealth, and the labour of men does not, in his estimation, differ generically from that of birds or horses, and is more important only because the men are the phenomena over which he has most control. Whether the mechanical energy required for his work is derived from coal, or the fall of water, or from the strength of men or of horses is a matter with which he concerns himself only in so far tliat he will choose the most profitable to himself. He does not count his men nor measure his wealth by tlieir number, any more than he counts the bees who fertilise his plants, or than he measures the actinic force of the sun's rays which fall upon his fields. He groups together all the agents (including the workmen) that have co-operated in the production of his wealth as elements of the efficiency of his capital, and measures the resultant of all their energies by the rate oi' CHAP. I.] Introduction. 11 profit he obtains. Looking at production from Lis own point of view, he regards it as the result of his having caused the several agents to work together ; to do this is to invest capital, and he looks upon the wealth produced as the product of the investment. In a communal society the world belongs to those who labour. They also must direct the agencies of nature in the manner necessary to production, and they naturally look upon the product as the result of their own labour alone. They, no more than the capitalists, count the number of their horses or steam-engines, but group together all the agents that have co-operated in the work as elements of the efficiency of their labour. Since civilised man has for ages lived under commercial government, his language possesses no word to express the producer apart from the capitalist ; when we speak of a manufacturer, a builder, a miller, or of the producer of any kind of wares, we mean the capitalist and not the workman. If we are studying commercial economy, this is perfectly correct, so long as we do not allow the ambiguous meaning of the word producer to mislead us ; it is the capitalist who grows the corn, for if he had not set the ploughman and horses to work, it would not have been grown. In communal economy we should say the ploughman was the active agent, but we should not be more scientifically correct than in the other case, for the horse, the birds, the bees, the sun, and innumerable other agents are as necessary as the ploughman. In order to speak correctly we should require not only infinite knowledge, but also a language capable of expressing infinite thought, and as we possess neither the one nor the other, we must be content to speak elJiptically, and to ascribe the work to the agent whose iuiluence on the result is the subject of our study, namely, to the capitalist in commercial, and to the ploughman in communal, economy. We shall, however, only get into hopeless confusion, if, when discussing commercial economy, we lay any special stress on the ploughman's work, or endeavour to treat him as generically different from, or as more 12 Communal and Commercial Economy, [chap. i. important than, the horse or the plough ; his labour is merely one of many agents tending to the production of profits for the capitalist, to whom the work of production must be entirely ascribed, just as in communal economy it would be ascribed entirely to the ploughman, and not to the horse. This confusion is persistently made by plutology, and the principal part of this treatise will consist of an attempt to unravel the threads of the two sciences which plutology has tangled together. I have undertaken the task in the hope of helping, as far as my means extend, to bring political economy back into the path from which for a hundred years it has wandered, and to make it again an " Enquiry into the Causes of the Wealth of Nations." This is the first step necessary to the final end of the science, which is to show how the well-being of mankind, in so far as it depends upon labour, may best be obtained. ( 13 ) CHAPTER II. WEALTH AND PKICB. The weU-being of man, like that of other animals, depends on his environment ; some of the phenomena around him, such as the weevil or the small-pox, are hostile to his well- being, while others are friendly ; and, in accordance with the etymological meaning of the word, the latter might be called wealth. If we were engaged in the study of wealth we should have to direct our investigation as much to the rays of the sun, or the rain, or any other of the phenomena of nature which are necessary or useful to us, as to wheat or wine, and we should find great difficulty in deciding what is and what is not wealth. As foxes are, perhaps, on the whole, advantageous to rabbits, so, with greater knowledge, we might find that rattlesnakes are, on the whole, useful to man, and should have to include them in the list of our wealth along with grouse and salmon ; but our study is political economy, which is the art of concerted labour, and not the science of wealth. In a commune men labour in concert in the production of a stock of commodities to be shared amongst them, and in communal economy the word wealth would be restricted to the product of that labour. If a fisherman caught a fish for himself in his spare hours it would be as much wealth as those he added to the common stock ; but the economist would not trouble himself about it, although he would be compelled to do so if he were studying the science of wealth. In a commercial society capitalists work in concert in the production of goods to be sold to each other, or, in other words, to be divided amongst them, and iu commercial economy the name of wealth is confined 14 Communal and Commercial Economy, [chap. h. to such wares. The economist does not concern himself with the roses or potatoes a capitalist grows for his own use in his own garden, although he does so with similar articles produced by a market-gardener for sale. In pro- ducing wealth, implements and materials of various kinds, are necessarily employed, and, as they do not directly add to man's well-being, they should not, perhaps, be called wealth ; but, in order not to depart too widely from custom, we shall call them indirect wealth, or stock, while the finished product will be called direct wealth. As far as political economy is concerned, the final touch of manu- facture is given, and the commodities become direct wealth, when they are handed across the counter of the retail dealer, or otherwise transferred to the last buyer. The various articles composing the common stock to be divided amongst the members of a commune cannot be expressed in terms of each other, nor is there any common measure of wealth. We cannot say that a coat is more or less wealth than a pair of trowsers or than a leg of mutton, nor can we even say, unconditionally, that two coats are more wealth than one ; they will be so when they add more to the well-being of the owner, but not otherwise ; and it will depend on all the surrounding conditions whether this will be the case or not. It is thus impossible to divide the common stock of wealth into equal propor- tional parts, and to allot to each of the co-owners a definite share of the whole. Money is absolutely necessary to the division, and is thus an essential part of the machinery of political economy, and without which man could not labour in concert, nor exist as a social and civilised being. Actual notes or coins are not, it is true, required, but, if not employed, must be replaced by book-entry of some kind, the essential part of money being, not the tangible sovereign, but the abstract pound. In a commune, if notes, coins, or other certificates are used, a certain number must be daily issued, and if we call the total number as, each man will get - or - of the whole. If notes are not issued, but credits given at the shops or warehouses, the credits CHA.P. II.] Wealth and Price. 15 of the different men must equally consist of a number of units, and the result will.be precisely the same. If now, for convenience, the phrase " — th part of the total number of units daily issued," be replaced by the word " pound," a sum of money equal to, say ten pounds, whether in the form of notes or of credits at the shops, would be simply the fraction — of the whole daily issue. Incomes would be measured in pounds, but no one would know, or care to know, the numerical value of sa, as every one would measure his income by the quantity of some particular commodity he could buy with it, or by its value relatively to the incomes of others. If the community increased in numbers, and more commodities of all kinds were produced, the daily issue of notes or credits being at the same time correspondingly increased, prices would be unchanged, and no one would, therefore, notice or care for the increase that had taken place in the numerical value of x. The distributing officers or shopkeepers would be in- stru\3ted to sell their goods to all comers at the same prices ; if they charged no more for, say, a salmon than for a sprat, so many people in the early part of the day would buy salmon that those who came late would be unable to obtain them, although they might be willing to pay the price ; and to correct this partiality the price of salmon would be raised, that of sprats being at the same time lowered, and this would induce the early comers to take fewer of the former, and more of the latter. This principle would be applied to all goods, until every one who had money to spend could get what he wanted as readily if he went late as early to the shop, and when this result had been attained the shopkeepers would have fully performed their duty as far as relates to fixing the relative prices of goods. The absolute prices would have to be made such that the price of the whole average daily product of direct wealth would be equal to the whole, average daily issue of money ; if it were greater, all the goods produced could not be bought, nor, therefore, con- 16 Communal and Commercial Economy, [chap, n. sumed, and would accumulate in the shops for the benefit of the moths and rats, while, if it were less, the first comers would get more than their fair share, and those who had failed to come early to the shops would have to go empty- handed away. Kelative prices would obviously depend on the value which was set on the several commodities forming the common stock by those who had money to spend, and this again would depend on the whole environment of the society. Assuming the daily product to be constant, prices would vary, for instance, with the weather, for coals and furs would be more valued, and would, therefore, fetch higher prices when the temperature was abnormally low than when it was high ; or if the number was increased of those who shared the common stock the price of bread would rise and that of mere luxuries would fall, for when retrenchment became necessary owing to the higher general prices which would follow the greater issue of money, everyone would prefer to give up the luxuries rather than to lessen his consumption of bread ; or, if the relative incomes of members of the society were altered, some getting more than before, prices would again change, for the wealthy would compete for luxuries much more keenly than they would have done before their incomes were increased. If we assume all the other conditions of the community to be constant, relative prices would vary with every change in the daily product ; if the supply of all goods were proportionately increased, the prices of luxuries would rise relatively to that of wheat ; if more of any one commodity were daily obtained, its price would fall more than in proportion to the increase of the supply. It is quite unnecessary to multiply these examples, for our knowledge of tiie subject is really axiomatic, and may be summed up in the statement that relative prices depend on an infinite number of variables, none of which, however, except the distribution of incomes and the supply of goods, are capable of measurement. It may be asked why all the unmeasurable variables should not be included under one name, say " demand," and prices be CHAP, n.] Wealth and Price. 17 said to depend on the supply, the distribution of incomes, and the demand ? To this no objection could be taken ; the same is done in every science and study, and else- where in political economy, as, for instance, when the mass of goods produced is said to depend on labour and its efficiency, the latter being merely a name for all the unmeasurable elements by which the mass is influenced ; but we must distinctly understand that when we say prices depend on " demand," we are not explaining them, but only confessing our inability to do so. Demand is, however, a most unfortunate word to select for the pur- pose; not only does its etymological meaning bear no reference to that thus given to it, but it is also employed with quite a different meaning in every-day commercial life. " Value " was an excellent good word before it was iU-sorted, and expresses very exactly what is here meant : prices do not vary because goods are more or less de- manded any more than a ship's top-gallant mast comes down on to the deck because the barometer falls ; they are demanded by more or fewer buyers because, for some reason which we either do not know, or do not care to discuss, they are more or less valued than usual, and sellers alter prices with every change in value. It is, however, out of the question to use value, nowadays, as a technical term with any other meaning than " purchasing power," whatever that may be, and as no other word exactly expresses the idea, we must be content to say prices depend on supply, distribution of incomes, and other factors. The influence of variations in the supply of any particular commodity, is to alter prices in the inverse direction more than proportionately to the increase or decrease of the supply, and this axiomatic truth practi- cally sums up our knowledge of prices. A few obvious general maxims might be laid down as to the influence of particular distributions of incomes, but they are not of sufficient importance to require discussion. The plutologists have taken " demand " to be a measurable quantity of goods, and profess to explain the 18 Communal cmd Commercial Economy, [chap. n. theory of prices by its help, but their reasoning is, as might be expected, of the very wildest character. _ Mill, for instance, says the supply of a commodity is tie quantity offered for sale, and the demand the quantity demanded, and that prices depend on the ratio between the two. The latter definition is an amendment of that which he says was previously in use, namely, " the wish to possess, combined with the power of purchasing "; but, as Mill truly says, there can be no ratio between a quantity of goods and a desire, or even a desire combined with a power, and his amendment is intended to make the ratio possible. He has not, however, succeeded in removing the absurdity, which, by the way, was of his own invention, for the ratio between the quantities of goods demanded and supplied can only be that which the sword that Balaam wished for bore to a real sword with which he might have killed his ass. Even if we grant the ratio, the theory is still untenable, to use the mildest term. The demand is said to be a variable quantity of goods depen- dent on the price, which again is dependent on the demand and on the supply. The latter is also said to be dependent on the price, for when the price is low the supply is reduced by the withdrawal of part of the stock ofiered for sale, to be brought back when prices rise. Mill writes,* " In the case of food, as those who have already enough do not require more on account of its cheapness, but rather expend in other things what they save in food, the increased consumption occasioned by cheapness carries off, as experience shows, only a small part of the extra supply caused by an abundant harvest, and the fall is practically arrested only when the farmers withdraw their corn, and hold it back in hopes of a higher price, or by the operations of speculators who buy corn when it is cheap and store it up to be brought out when more urgently wanted. Whether the demand and supply are equalised by an increased demand, the result of cheapness, or by withdrawing a part of the supply, equalised they are in either case." We have here a * Book iii. chap, ii, § 4. OHAP. II.] Wealth and Price. 19 mathematical problem, namely, to find the price from our knowledge that the supply, demand, and price all vary together, which is about equivalent to finding the acreage of a circular field from our knowledge that the area, the diameter and the circumference all vary together. Even if we regard the supply as unvarying, we have still the price dependent on the demand, which again is dependent ■ on the price, and this is equivalent, unless we are prepared to deny the truth of all mathematical reasoning, to saying that the price does not depend on the demand at all, but that both depend on something else. In no science except plutology and circle-squaring is a writer held bound to discuss a train of reasoning which leads to a mathematical absurdity, and this is only fair, since he cannot possibly find a more cogent argument against the theorem he is disputing than its simple enunciation. If his antagonist is not convinced by the reasoning of arithmetic, it is a mere chance whether any other reason- ing will happen to present the subject in a point of view that will satisfy him, and in offering a further argument against Mill's theory of supply and demand, I do not expect to strengthen my position, but offer it for what it may be worth. Demand, then, being a quantity of goods which varies according to the price, let us call that demand for linen which is correlated with the price of one shilling a yard (Q), and that which is correlated with two shillings a yard (Q'). The theory now says that if Q becomes Q' then the price will rise from one shilling to two shillings ; but how does one quantity of linen become another quantity ? Or, if Q and Q' are not quantities of linen, what are they ? and how are we to express the ratio they bear to the " supply," which is linen ? Mill himself solves the problem by saying, " Let us suppose that the demand at some particular time exceeds the supply, that is, that there are persons ready to buy at the market Viilue (price) a greater quantity than is offered for sale. Competition takes place on the side of the buyers, and the value (price) rises." He thus quietly throws away the whole of his theorem and ascribes the rise in price, not to c 2 20 Communal and Commercial Economy, [chap. ii. one quantity of goods becoming another, but to " com- petition," which is nothing but the old " wish to possess, combined with the power of purchasing." The style of Mill's discussion of the subject of supply and demand is a strong witness to the woful change that has taken place in the methods of political economy since the days of Adam Smith, and to the hard treatment the latter has received from his followers. Smith gives a chapter to the consideration of prices,* and uses the un- lucky expression that the market price " is regulated by the proportion hehveen the quantity which is actually brought to market and the demand of those who are willing to pay the natural price of the commodity." The whole context, as well as the same careless use elsewhere of the words we have put in italics, shows that they are a mere inaccurate way of speaking, and that he never thought of a ratio between a quantity of goods and a " wish to possess, combined with the power of purchasing." His chapter is an interesting illustration of the manner in which changes in the inclinations or conditions of those who can buy, cause changes of prices ; but it shows no intention of giving mathematical precision to what can only be discussed in general terms. The pseudo-scientific bent of later economical thought has drawn economists away from Smith's good and sound work, and made them fasten on this mere verbal slip as the pith and marrow of the chapter. Instead of merely diawing attention to the inaccuracy of language, they have changed the whole of his work in order to make it suit the inaccuracy, and have made the impossible ratio between supply and demand the centre pillar of the temple of plutology. Prof. Cairnes, the latest and most advanced disciple of the Ricardian school, has perhaps tied the last knot in the tangle of incompre- hensibility by defining •' Demand, as the desire for com- modities or services, seeking its end by an offer of general purchasing power, and supply as the desire for general purchasing poner, seeking its end by an offer of specific commodities and services."t He says the reader will not * Book i. chap. yii. t ' Piinoiples,' part i. oliap. ii. CHAP, n.] Wealth and Price. 21 fail to observe that the ideas as thus developed are strictly analogous conceptions, between which, therefore, a ratio is possible. I, for one, shall not attempt to dispute it, but am quite prepared to admit that the supply and demand as tbus defined may bear any ratio to each other which may be contended for ; but I do not concede that a theory of prices would be comprehensible which depended on the ratio. We require no explanation of relative prices, for our knowledge is axiomatic, that they depend on the relative estimation in which the goods are held, and this again depends on the anticipated supply and on all the other conditions of the society, and more than this we cannot know until we collect and study statistics. It would be very convenient to have a word to express the quantity of goods that could be sold at a given price, but " demand " is as unsuitable for this purpose as for the other use to which plutology puts it. In common mer^ eantile use it means something very like Mill's " desire to possess, combined with a power of purchasing," but never means a quantity of goods ; nor does its etymology warrant such a meaning. Mill's authority has, however, so firmly fixed it in the phraseology of the science, that we may, perhaps, as well adhere to the meaning he has given to it, but wlienever it is thus used, the price with which it is correlated must be stated, or it has no sense at all. From omitting this precaution Mill has been led into using the word in two different meanings in the same sentence, and on this blunder to found all his reasoning on relative prices. His statement that our knowledge of the subject is com- plete and perfect is certainly as rash a one as could well be made. Even with a correct theory we should know as little of prices as the meteorologist knows of the rainfall when he has learnt that it is due to evaporation from the surface of the sea. All that we have said as to relative prices in a commune may be applied with equal correctness to a commercial society, in which the distributing officers are represented by the retail dealers, who are compelled by mutual com- petition to charge tolerably uniform prices to all buyers, 22 Communal and Commercial Economy, [ohap, ii. and to sell daily tbe average daily product, while the incomes of the memhers of the society are fixed, not by direct legal enactment, but by tlie higgling and bargaining of trade. If employers of labour formed with their work- men separate groups, cut off from all intercourse with the others as far as production was concerned, and meeting only on market days to exchange their wares, each master would be the absolute owner of all the goods he brought to market, and if he could use for his own pleasure the goods he did not sell, the market of a commercial society would be essentially different from that of a commune, and could not be treated as a fund to be divided amongst the several members. This is not, however, a fair representa- tion of the way in which wealth actually is produced. Take, for instance, a piece of velvet; the farmer produces wheat, and the corduroy-maker clothing, for the men who weave it, the coal-miner produces coal for the engine, the iron-miner iron for the renewal and maintenance of the machinery, the carter and railway company convey it to market, &c., &c. A thousand others have, in like manner, co-operated (to use the language of commercial economy) with the farmer and iron-miner in the production of their wares, and have therefore co-operated in producing the velvet, so that by the time the latter comes to market it does not belong to any one of these men, but nearly every capitalist in the society has a share in its ownership. "What is true of the velvet is true of all other goods, and the market consists not of a mass of goods, each article of which belongs to one man, but of a perennial stream of wealth, the whole of which belongs, in different pro- portions, to all the capitalists in the country. A certain share of the goods daily sold goes to the workmen, to horses and cattle, to steam-engines as fuel, &c., &c., the remainder is divided amongst the capitalists and forms the profit-fund. The latter comprises not only the goods actually consumed by the capitalists themselves, but also those paid to grooms, gardeners, doctors, and others who render services or produce wares which are not offered for sale, but which are retained for the capitalists' own use. It also includes new steam -en eines and other stock to be CHAP. II.J Wealth and Price. 23 used in increasing the profit-fund. New articles of stock to b6 employed in replacing those which have been con- sumed or worn out would not be profit, and would not be included in the fund. We cannot add together into one total a heterogeneous mass of goods, and cannot therefore express the magnitude of the profit-fund in units of wealth. The division of the fund amongst the capitalists is effected, not by measuring the goods, but by the help of money, that is, of the abstract pound, franc, or rouble, of which the coins or notes in circulation are mere visible and con- crete tokens. Each man obtains as the result of his higgling and bargaining a daily income of say - of the total daily income of the capitalist class ; and if, as before, we call the -th part of the whole a " pound," his income will be a pounds a day. In the business of a commercial society the several capitalists who co-operate in the pro- duction of any article, might conceivably settle amongst them, by bargain, the share of the finished product which each should, on its completion, obtain. This would be very inconvenient, and, indeed, practically impossible ; it is simpler to bargain for a definite proportion of the price of the profit-fund of the present day, or of a 'day three or six months hence. It is true that no one knows into how many units the total price is divided, but every one knows from experience that a pound a day will enable its owner to buy every day a hat, or a coat, or a piece of gold of the weight of a sovereign, and when he bargains to give or to receive - part of the price of a day's profit-fund, he thinks only of the hat or piece of gold it would buy. Every one engaged in trade gives and receives such pro- mises to pay money, and as the result of his higgling, gets a final daily balance in his favour, with which he can purchase goods for his own use and pleasure. Although we cannot add together dissimilar goods, nor express in one total the sum of, say, a piano and a wheel- barrow, we may, by taking one as a standard, add together 24 Communal and Commercial Economy, [ohap. ir. tlieir relatiTe prices. If, for instance, a piano sells in the market for ten times as much as a wheelbarrow, we may- say the sum of their relative prices is equal to eleven, calling that of a barrow unity, and in the same way we might say the sum of the prices of all the goods forming the daily profit-fund is equal to, say, a million, calling that of a sovereign-weight of gold unity. We might also say, elliptically, that the fund and even the income of capitalists was numerically equivalent to a million sovereign-weights of gold a day, and although this may be logically somewhat dangerous, it is so convenient that I shall do so. In a commune the price of the daily product, or, in other ■words, the number of units into which the national income is divided would be the subject of direct legal enactment ; in a commercial society it is a function of the number of legal tender notes or coins in use. If in a commune the total daily product were numerically equivalent to a million pieces of linen, and if a million pound notes were daily issued, a piece of linen would cost a pound ; if the product were numerically greater, or the issue less, prices would fall, and vice versa. If, in a commercial society, the profit-fund were numerically equivalent to a million pieces of linen, the price of one piece would be a pound, provided a certain number of sovereigns, or of inconvertible pound notes, were employed in trade, and would be two pounds if the number were doubled, or if the numerical magnitude of the fund were halved. The subject of money in a commercial society being intimately connected with banking and interest, we cannot further discuss it until we have studied the latter subjects ; we will therefore conclude this chapter with an examina- tion of the plutological theory of "Value," which all plutologists agree is of the first importance in reference to prices, the subject matter of this chapter. MiU says* that "the smallest error on that subject infects with corresponding error all our other conclusions ; and anything vague or misty in our conception of it creates confusion and uncertainty in everything else. HappUy, there is nothing in the laws of value which * Book iii. chap. i. § 1. CHAP. II.} Wealth and Price. 25 remains for the present or any future writer to clear up ; the theory of the subject is complete : the only diiSculty to be overcome is that of so stating it as to solve by anticipation the chief perplexities which occur in applying it." Notwithstanding Mill's confident statement to the contrary, I suspect there is still a great deal to be " cleared up " on this subject ; for my own part I must confess to sharing Sydney Smith's complete inability to understand what value is, and to thinking with him that no one else is much wiser in this respect. Mill says it means "a general power of purchasing " ; and as this is most em- phatically a phrase in the application of which much perplexity must occur, he proceeds at once to explain its meaning.* If, owing to a ^ad harvest, and to the removal of taxes on glass and iron, " a coat may exchange " for less bread, but for more glass or iron than before, we should not know whether its value had been altered ; but if the " cause in which the disturbance of exchange values origi- nated was something directly affecting the coat itself, and not the bread or the glass," we should say " that there had been a fall in the exchange value or general pur- chasing power of a coat." This explanation requires itself to be explained: under what circumstances may a coat exchange for anything ? The man who owns it may ex- change it, and a manufacturer of coats may sell one for a ton of iron to-day, although he got two tons last year from the same person in exchange for a similar coat, but " the cause in which the disturbance of values originated " was nothing inherent in the coats or in the iron, which are in both cases precisely similar, but is due to the altered con- ditions of the men who traded. If the incomes of English- men were equalised to-morrow, a diamond merchant would get less wheat for a diamond than he got yesterday for one of equal weight and brilliancy ; would, in this case, the disturbance originate in the diamonds or in the wheat ? or if in neither, would there be no disturbance of values ? It may, perhaps, be said that in asserting value to be a quality not inherent in goods we are leaving political economy for the all-including science of metaphysics, and * Book iii. chap. i. § 3. 26 Communal and Commercial Economy, [chap. n. that if an economist prefers to say it is inherent in the goods, he has as much right to do so as a painter has to say colour is inherent in his pigments. To this we have no objection; but we hold that the quality in question should then be called conditional and. not excTiangeahle value, since it depends on the ever-varying conditions in which the exchangers are placed; if we wish to learn whether a beef-steak possesses sufScient purchasing power to draw a shilling out of a man's pocket and purchase it, we must study the man's circumstances and not the shilling or beef-steak. In another chapter * Mill says, " The value of a thing means the quantity of some other thing, or of things in general, which it exchanges for," but he does not say how a quantity of things in general is to be measured so that we may learn whether value increases or decreases, nor why we should call a mass of iron by so unusual a name as " the value of a coat " ; if it were actually exchanged for the coat we might call it the piece of iron that was exchanged, and if it were not actually exchanged we should not know whether it ever would be, unless we knew all about the men who owned iron and coats and also about their economic conditions. Professor Cairnes says, t " The sense proper to value in economic discussion may, I think, be said to be universally agreed upon by economists, and I may, therefore, at once define it as expressing the ratio in which commodities in open market are exchanged against each other." We have here the difficulty which haunts us throughout the whole study of plutology, namely how to express the ratio that one thing bears to another quite unlike itself; that a wheel-barrow for instance bears to a sheep, or a pair of boots to a leg of mutton. The plutologists do nothing to help us in this very serious difficulty, and in the absence of clearly expressed revelation we may perhaps best assume, as the nearest approach we can make to conformity with the oracles, that value is no more than relative price, " Book iii. chap. yi. § 1. t ' Principles,' part i. chap. i. ( 27 ) CHAPTEE III. CAPITAL AND STOCK. The definition given by Mill of the word capital is perhaps the most unhappy ever employed in scientific discussion. He says it means, those things which, being the product of labour, are destined " to afford the shelter, protection, tools, and materials which the work {of jpro- duaing wealth) requires, and to feed and otherwise main- tain the labourers during the process."* How, we may ask, are we to know to what uses anything is destined except by actually seeing it employed ? and up to what distance of time is the destiny operative ? Is a house which is actually in use as a capitalist's dwelling to be considered capital because it is decreed by destiny that at some future time it will be turned into a cotton-mill? Unless we were accustomed to the scientific methods of plutology we should be entirely at a loss to know what Mill meant, but with our experience of them we have little difficulty. Plutology employs definitions not for the purpose of defining, but for the purpose of embodying the theorems to be afterwards proved ; we must, therefore, first ascertain what theorem of commercial economy Mill already knew, and with an eye to which his definition was designed. In this case it is, that any money a capitalist invests is used in the purchase of stock or is given to workmen as wages, and that as most capitalists intend to keep their money invested, and therefore to spend it, as it becomes realised, in renewing their stock and in paying their men, they have destined it to be so employed. It is immaterial what a capitalist's stock consists of, as all stock produces * Book i. chap. iv. § 1. 28 Communal and Commercial Economy, [chap. hi. for its owner not only the money which forms his profit but also that which will pay for its own renewal, and a stock of gold lace is as good for the purpose as a corduroy factory. Knowing this, Mill says it does not matter whether tlie things which are destined to afford the shelter, &c., are such as could be used for the purpose or not, provided they are destined to be exchanged for those things which are suitable. " The distinction between capital and not-capital does not," he says, " lie in the kind of commodities, but in the mind of the capitalist — in his will to employ them for one purpose rather than another ; and all property, however ill-adapted in itself for the use of labourers, is a part of capital so soon as it, or the value to be received from it, is set apart for productive re-invest- ment." The definition being thus defined away until it means, not things which are destined to be employed in the production of wealth, but things which are destined to be used as the means of buying them, we may wonder why it is essential that they should be the product of labour, or why anything should be excluded which can be used as a means of purchasing. If a man finds a pearl when eating an oyster it can hardly be said that he obtains it by means of labour, but he could still resolve to use it in buying a steam-engine, when it would be capital but for the limitation which excludes articles not produced by labour. The real object of the limitation is to exclude land, which could not, consistently with plutological ethics, be classed with the implements of production, but unless we knew this from external evidence we should not know from the definition what is and what is not capital, for there are many things besides land that cannot, without an abuse of language, be called the product of labour, but which Mill still includes in the term. We must here, as usual in plutology, know beforehand all we are to learn, or we cannot make even a beginning to our study. In every-day usage capital means money ; a manu- facturer does not say he has a capital consisting of steam- engines, food, &c., &c., but that he has invested in those things so many thousand pounds ; the things themselves CHAP, ni.] Capital and Stock. 29 he calls his stock or plant, and everything employed in trade is included in the term. Not only steam-engines, factories, and other implements of production, but the wine in a merchant's vaults, the gold lace in a shop, plate- glass, and in short, everything by means of which the owner makes a profit, is stock, and its price is capital. The essential quality of stock is not utility as an imple- ment of production, and its price is due not to its affording the shelter, protection, &c., necessary to the production of wealth, but to its yielding a profit to its owner. The capitalists of a commercial society own amongst them the lands, mines and other natural agents which are capable of being appropriated, and which are necessary to the existence of man; they also own those products of past labour which are necessary to the life and well-being of all. They are thus enabled to constrain those who do not share in this possession to work for them in producing for their benefit a perennial stream of wealth, and the essential part of their capital consists of the right or power they thus possess. No one capitalist owns all the imple- ments necessary to the production of the goods he con- sumes, and of those he is obliged to give to the workmen and cattle he employs, and they are all, therefore, depen- dent on the co-operation of their fellows. The owners of ploughs cannot keep for themselves all the bread pro- duced, but must share with the landlords, the millers, the bakers, the carriers, &c. The owner of a velvet factory must also share with the silk grower, the maker of the corduroy which his men get in wages, the farmer, the baker, &c. It is necessary to the convenient distribution of wealth that a stock of finished goods shall always exist, and the owner of such a stock will not allow it to be used unless he gets a share of the profit-fund. Every one who can thus bargain for a share of the wealth produced by hired labour is a capitalist, and the perennial profit-fund forms a common property belonging to the whole class of capitalists, the share which each obtains being the result of his higgling and bargaining with the others. Assuming equal skill and luck, the shares of all will be the same day 30 Communal cmd Commercial Economy, [chap. hi. after day, and each man's capital is measured by the pro- portion he obtains of the total income of the capitalist class. Although it is not customary to do so, capital might be thus reckoned in vulgar fractions, and a man might be said to own a capital of say th part of the total income. Where the currency consists of incon- vertible paper, an income or capital of say a rouble a day is a definite proportion of the whole daily income; the word rouble means, indeed, the arithmetical expression - th part of the income, and has no other meaning. No tJU matter what the profit-fund consists of, an income of a rouble a day will be the same proportion of the whole income so long as the number of rouble notes in use remains unchanged. Where gold is employed, the number of coins in use is variable, and an income of a pound a day is a capital or proportion of the total income equal to the ratio that a sovereign-weight of gold bears to the numerical magnitude of the daily profit-fund, when measured in gold. In practice, capital is not reckoned in this manner, a system being adopted which is nn the whole more con- venient. There is, as we shall see in a future chapter, a normal rate of profit ; any one who has a daily income of lOZ. may invest his year's income by transferring it to other capitalists, and will thereby obtain a permanent daily income of say 11., when the normal rate of profit would be 10 per cent., assuming the investment to have been made with average skill and judgment. If he makes the investment and obtains the profit, he will say his capital is 3650Z., and will probably argue that this is its amount because he actually inve.^ted that sum. In reality, however, his capital is merely the quotient derived from dividing his yearly income by the normal rate of profit. When once an investment is made the sum invested is of no importance, and is at once set aside, if not forgotten? the Great Eastern steamship, for instance, is not and never was worth the money she cost, and the capital CHAP. III. J Cajaital and Stock. 31 resulting from her ownership is the income her owners obtain, divided by the normal rate of profit, and not the sum they paid for her. It is true that when money is judiciously invested the resulting capital will be equal to the sum invested, but the essential matter is the income obtained, and not that sum. It is convenient and cus- tomary to reckon capital in this manner, and to call it a sum equal to the capitalised value of the income j and this also is the nominal price of the stock, by means of which the income is obtained, but we must remember that both capital and price of stock are mere arithmetical expressions. There is another form of capital, namely, realised capital, which we may here consider. Men often invest their profits by lending them to manufacturers, who use the money to erect new stock. The creditor is really part owner of the stock thus erected, but in practice he generally stipulates that his money shall be returned to him on a particular day. If he demands payment, the manufacturer is obliged to forego the enjoyment of his profits so that he may be able to pay his debt ; he abstains from taking from the shops the goods he might otherwise have enjoyed, and thus transfers them to his creditor. In practice creditors do not demand payment, but renew their debtors' bills at maturity and get their profit as an inducement to do so. Realised capital is thus as nominal as the nominal price of stock, and differs from it only in so far that its owner may compel some one else to save in order that he may invest or spend his money as he chooses. We have still to inquire into the meaning of "fixed and circulating capital." Eicardo says* that " according as capital is rapidly perishable and requires to be fre- quently reproduced, or is slow of consumption, it is classed under the heads of circulating or of fixed capital." He says this division is not essential, and it is fortunate that this is the case, for it certainly is not comprehensible. 'We cannot predicate unconditional durability or perish- • Chap. i. section 4. 32 Communal and Commercial Economy, [ohap. ni. ■ ability of stock; what, for instance, is the durability of coal, or wheat ? they might both last for centuries if the steps proper to their preservation were taken, while if the one is put into a furnace and the other into a ploughman's stomach, they will be rapidly perishable. Ricardo says that the clothing of a labourer lasts longer than the food he consumes ; but why is this necessarily the case ? If a workman gets at the same time a ton of wheat and a coat, it is not a mathematical certainty that the former will be consumed before the coat is worn out. In all probability the coat would outlast a pound of wheat, but could we, without abusing language, say it was more durable ? We should also be then obliged to predicate greater durability of a ton than of half a ton of wheat or of coal, and this would be of course mere nonsense. Mill's definition is equally vague : he says,* capital which " fulfils the whole of its office in the production in which it is engaged, by a single use, is called circulating capital." By way 'of illus- tration, he says tallow and alkali are circulating capita], because when once used in the manufacture of soap they "are destroyed as alkali and tallow, and cannot be employed any further in the soap manufacture, though in their altered condition, as soap, they are capable of being used as a material or an instrument in other branches of manufacture." Luckily, we are not obliged to understand these definitions, nor to ascertain from them what Ricardo and Mill meant by fixed and circulating capital, for neither adheres to his definition, but both, as usual, adopt the meanings which the words bear in every-day commercial life. Fixed capital is the money a capitalist has invested or fixed in his business, and circulating capital is the money he pays away to otlier capitalists or to labourers for their co-operation in his work. Any one who wishes to carry on a business must invest money in purchasing the necessary stock ; if he wishes to produce iron he must btiy the land, open out tlie mine, erect steam-engines, buy horses and carts, bring into cultivation a farm on which food for his men and horses could be produced, erect * Book i. chap. vi. § 1. CHAP. III.] Capital and Stock. 33 machine-shops where his engines would be repaired and renewed, and, in short, embark in an almost infinite number of occupations. In practice, of course, he would carry on only one or two of the necessary trades, and would leaye other capitalists to carry on the remainder. He would, perhaps, spend all his money in opening out the mine and in erecting the steam-engines, and would secure the co-operation of the others by giving up to them a part of the iron which was produced by their combined capitals, or rather a part of the money for which it was sold. The money he spent in his stock would be his fixed capital, and that he paid to the others would be the circulating capital he employed in his business. Or if, instead of producing iron, he wished to sell strawberries and cream, he would invest or fix his capital by buying a certain quantity of these commodities, since he could not without doing so carry on the trade he had selected. He might also buy a shop, but if he had not the neces- sary money he would hire one, and would consider the rent as part of his circulating capital. Similarly, instead of buying the land, milch cows, strawberry plants and other farming stock necessary to his business, he would share with the owner of these the money he got from the sale of the goods, and would call the price of the straw- berries and cream he bought from day to day, a circu- lating capital. By thus paying others for their co-opera- tion, he would be able to invest the whole of his own money in buying that minimum stock of strawberries and cream without which his business could not be carried on, and his money would be as much fixed capital as if it had been spent in draining land or in buying iron or gold, for he could not use it for any other purpose without aban- doning his trade. The only difference in the two cases is that in the one he could readily give up his business and take to another, as he would have his capital every night in realised form, that is, he would have either a promissory note from some one to whom he had sold his goods, or else gold or other legal tender, and this is really a pro- missory note signed by the whole class of capitalists. He 34 Commimal and Commercial Economy, [chap. hi. would, therefore, be able to buy other goods instead of the strawberries he would have bought had he not decided to change his occupation. Had his money been spent in draining land it would never come back to him in realised form, and he would never be able to change his occupa- tion unless he could sell out to some one else. It will thus be seen that the total fixed capital of a society is merely the nominal price of the stock in exist- ence, or, in other words, it is the quotient obtained by dividing the yearly income of capital by the normal rate of profit. To facilitate our further inquiry into the nature of circulating capital, we will assume that the daily profit- fund of a society is numerically equivalent to 100 units, say ounces of gold — that goods to this extent are daily produced and consumed by the capitalists, while, at the same time, the stock in use is properly renewed and maintained. If there were but one capitalist he would probably measure his wealth by his income, and would not trouble himself to measure his capital at all ; but we will assume that he does so, and that the rate of profit being 10 per cent, per annum, he reckons his capital to be 365,001) ounces of gold, or his yearly income divided by iV- There would still, however, be no subdivision into fixed and circulating capital, and this would not be made until more than one capitalist were engaged in producing the profit-fund. Our capitalist, we will now say, dies, leaving to his son A all the stock employed directly or indirectly in producing those goods which are paid to the workmen as wages, and to his other son B all the remain- ing stock. The two sons will at once begin to higgle and bargain, each trying to get for himself as large a share as he can of the 100 units of daily income, to the production of which the stock of either is equally necessary. We need not here bring into discussion the causes which would influence the final distribution, but may content ourselves with the knowledge that the total profit would be divided betw een A and B in some definite proportion ; we will say, for instance, that each gets one-half of the whole income. A would employ some of his men in CHAP, m.] CapUcd and Stock 35 working his farms and corduroy factories, others in repaT- ing his machines, and making new ones to replace those which were worn out; others, again, he would set to mine coal and iron, to obtain oil, paint, timber, &c., &c. As the result of his enterprises he would obtain, over and above the goods required to pay the men he employed, a stock of similar goods sufficient to maintain the men employed by his brother, and these goods, or rather their price, would be his protit. He would not subdivide his capital into fixed and circulating, for he would pay nothing away to his brother, who would not have co-operated with him in any way in the production of his wares. Although he would pay to his men some of the goods resulting from his investments, he would not look upon their wages as circulating capital any more than a fisherman regards in the same light the fish he catches and uses for bait, or than the gasworks so regard the gas they consume at home, or which leaks through their pipes. In his vocabu- lary the " product of goods " would mean those left to him after all unavoidable deductions and losses had been made, and would not include any which his men obtained for themselves, or which had been lost through imperfections in his machinery or methods of working. He would sell the " product " to his brother, the price he obtained being his profit, and his brother's circulating capital, while the price of the goods produced by the latter would consist of the profits of the two who had thus co-operated in their production. B would also employ his men, some in working velvet factories, others in growing silk, wine, or flax, others, again, in mining coal and iron, and in renewing his machinery, &c., &c., and, as the result of his enterprises, would obtain daily the 100 imits which formed the entire profit-fund to be divided between himself and his brother. He would, however, be unable to continue his work without his brother's co-operation, for he would be unable to pay his men with wine and velvet, and he would therefore have to buy suitable goods from his brother. It is immaterial whether B buys, himself, the goods from A, or pays his D 2 36 Communal and Commercial Economy, [chap. hi. men in cash, thus enabling them to do so ; in either case he would regard as a circulating capital the sum he paid in wages, and which is nothing more than the profits of the wages-goods producer. Sooner or later A and B would die, and would leave their property to their children, of whom one would get a farm, another a corduroy factory, another a velyet factory, or a vineyard, and so on, and the circulating capital employed would increase with every subdivision of the stock. In course of time the society would come to resemble a modern commercial society, where no single capitalist carries on more than a mere fraction of the work requi- site for the complete manufacture of goods ; but, however much the total income be subdivided, its amount will still be, as before, equivalent to 100 ounces of gold daily, and the total fixed capital will be 365,000 ounces. The retail dealer who distributes the profit-fund amongst the several capitalists may be regarded as the iinal manufacturer. He is the possessor of a supply of finished wares, a shop, and other stock, without which his trade could not be carried on, and he will, therefore, be able to appropriate to his own use a share of the profit-fund. Let us say that by the ordinary higgling of the market he secures for himself one ounce a day, and that at the moment when our dis- cussion begins he has sold the remaining 99 ounces' worth of goods for cash. His supply of finished wares is then at the lowest state to which by the requirements of his business he can allow it to fall, and he, therefore, buys from the several manufacturers a new supply. He gets coats from the tailor, wine from the vigneron, furniture from the cabinet-makers, &c., &c., paying in all, say, 80 ounces of gold, or other legal tender, for the goods they have produced during the day, and which form the entire day's profit-fund. He also pays, say, 10 ounces to the several shopkeepers, from whom he buys the bread, cor- duroy, and other goods required to pay his clerks and other workmen, or, what is precisely equivalent, he pays the money to his men, who themselves buy the goods; he pays also, say, 2 ounces to the landlord who owns the CHAP, m.] Capital and Stock. 37 ground on which his shop is built ; 5 ounces he pays to a capitalist who had lent him part of the money invested in his plant, and he also pays 2 ounces to the gasworks for the gas he fconsumes in his shop. His entire outlay is thus 99 oimces of circulating capital, and this sum, together with his own profit of 1 ounce, forms his selling price of the goods of which the whole profit-fund consists. If the tailor, the vigneron, and the other manufacturers from whom he buys goods, owned the entire stock required in their several trades they would have no outlay whatever, and they would employ the 80 ounces of money in pur- chasing goods for their own consumption from the retail dealer. This would also be the case with the baker, the corduroy seller, the landlord, the gasworks, and the others from whom the retail dealer bought goods which he did not sell again. In this manner the retailer would get back the whole of the 99 bank notes, and would be again prepared to renew his stock of goods, while the several capitalists would have obtained the share of the profit- fund to which their bargaining with each other had en- titled them. In practice all the capitalists, except, perhaps, the landlord and the money-lender, would incur some outlay in carrying on their business; the tailor, for in- stance, would not be also a farmer, and would have to buy wheat with which to pay his workmen. He would thus have to pay away some of the cash he had obtained from the retail dealer, but what he thus paid would form the farmer's profit, unless the latter had also been helped by some other capitalist, when he would also pay away some of the money he had received. We may, however, carry on the subdivision as far as we will, but we should never come to any other result than that circulating capital is no more than the machinery of book-keeping, by which the profit-lund is subdivided amongst the capitalists of the society, and that the price paid for any article, or for any work done, is merely the sum of the profits of the several capitalists whose stock was employed in producing the article, or in performing the work. If, therefore, we saw a capitalist spending 50Z. a year in buying velvet for his own use, we should know as a matter of certainty that 38 Communal and Commercial Economy, [chap. hi. the retail dealer, the velvet weaver, the farmer who pro- duced the wheat, which was paid to all the workmen employed directly or indirectly in the work, the gasworks that had supplied the gas consumed in the production, &c., &c., obtained amongst them a yearly profit of 50Z., and that if the rate of profit were 10 per cent, the fixed capital employed was 500Z. Or if we saw a railway company getting bl. a year for conveying the velvet to market, we should know that the shareholders made this amount of profit, less the profits of the farmer who fed their men, of the coal-owner who furnished them with coal, &c., &c. Or again, if we saw a workman engaged in a factory where goods for the use of capitalists are produced spending 30Z. a year in bread, we should know that the landlord, the farmer, the baker, &c., employed a capital of 300Z. in its production, and obtained a yearly profit of 30Z. If the men employed in producing wages-goods were paid by their masters in kind, as might be done, the goods they obtained would have no real price ; but, like gas burnt in the offices of the gasworks, or fish caught and then cut up for bait by a fisherman, might be entered in the books of the manufacturers at any price they chose. In practice the men are paid in cash, but this does not essentially alter the matter, and the prices of the goods simply follow those of the similar goods sold to the profit-goods pro- ducers, their own prices being fictitious. We may, for the sake of precision, express the result of our inquiry regarding prices, or profits and capital, in the concise language of algebra, and show the relation that exists between them by the formula — r where ]p = the price of any goods or of any work, and there- fore the profit obtained by those concerned. r = the normal rate of profit, s = the nominal price of the stock employed, or what is the same thing, the capital of the several co-producers. CHAP, m.] Capital and Stock. 39 The normal rate of profit (r) being independent of changes in the relative prices of goods may be taken as constant. The price (p) is variable, being dependent on the supply of goods, and on other independent circumstances ; the nominal price of stock is therefore also variable, and changes with every change in price. In common usage a capitalist would say he had made a higher or lower rate of profit than usual from temporary changes in the prices of his wares, while, as in the case of land or railway shares, where the change in price was likely to be permanent, he would say the capital had increased. In order to avoid the inconvenience of having two variable quantities under consideration at once, it is better to treat the rate of profit actually obtained as constant and equal to the normal rate, and to consider the capital of each man to vary with the price of his wares. It is usual to subdivide the price of anything into profits and wages, but unless we wish specially to discuss the latter there is no reason for doing so. The workman, in commercial economy, is simply an implement that costs nothing ; the horse, the plough, and the ploughman, are only three different wheels in the same machine, and there is no more necessity for separating price into profits and wages, than into profits and horse-feed. The corn an engine-di'iver gets is economically similar to the coal the engine gets, and they must, in any classification, go together. If we make the distinction when specially dis- cussing wages, the price will be written p = (s' + w) r, where w = the price of the stock used to produce wages- goods, and s' that of all other stock. Thus, say the yearly out-put of a factory sells for 10,000?, and that 4000Z. are paid yearly in wages, this would be written : — £ Profit of stock worth 60,000^. at 10 per cent .. 6,000 Profit of farm and other stock employed in 1 providing wages-goods, 40,000/. at 10 per \ 4,000 cent I £10,000 40 Communal and Commercial Economy, [chap. m. In order to erect a similar factory, a new investor (or group of investors) would first have to provide the necessary food for the new men he required, by bringing under cultivation a new farm, which, with the necessary plant of all kinds, would cost 40,000Z., and then to invest 60,O00Z. more in his own trade. As the second item is the price of the goods given as wages, we may substitute for it the money given to the workmen, which is generally a known quantity. Similarly, if we wished to specially discuss the price of the coals used in the factory (say 500Z. worth yearly), we should write the account thus : — Profit of stock of all kinds, except coal-mines, \ „ _„. 95,000^. at 10 per cent / '''°"" ""rofit on mine and other stock en ' coal-mining, 5000Z. at 10 per cent. Profit on mine and other stock employed in \ »(,(, £10,000 And a new investor would have to incur an expenditure of 5000Z. in enlarging existing coal-mines, or he would other- wise be unable to obtain the coal he needed. ( 41 ) CHAPTER IV. BATE OF PROFIT. The currently accepted explanation of the rate of profit has the usual plutological characteristic of being nonsense or truism, according as we give to the technical terms em- ployed their defined or their usual meaning. Professor Fawcett says,* " Profits may be defined to be the surplus which remains after the capital has been replaced which has, directly or indirectly, contributed to the production of wealth. The proportion this surplus bears to the capital which has been so expended determines the rate of profit." Here capital means " not only the food which feeds the labourers, but includes machinery, buildings, and, in fact, every product due to man's labour which can be applied to assist his industry." f Let us take, for example, a man who owns a steam-engine, and gets a yearly income from it of certain food, wine and clothes, the rate of profit will be the proportion that these things bear to the steam- engine ! As it stands this sentence is, of course, without meaning, and it can only be made sense by making it a mere truism. The only quality common to the steam- engine and the food, by which they could be compared with each other, and a ratio between them established, is their price- fetching virtue or costliness ; but the price of the engine, the sum for which it could be sold, or for which another equally good could be bought, is simply the capitalised value of the income that may be derived from it, or in other words the quotient obtained by dividing the price of the food by the rate of profit, and it is a mere argument in a circle to say the rate of profit is * Manual, book ii. chap. v. . t Book i. chap. iv. 42 Communal and Commercial Economy, [chap. iv. the ratio the profit bears to the capital, if both are measured by their prices. Mill says,* " The cause of profit is that labour produces more than is required tor its support." "If the labourers of the country collectively produce 20 per ceut. more than their wages, profits will be 20 per cent." Here again we have the difficulty of stating the ratio which a yard of corduroy bears to a bottle oF claret, or which any one commodity bears to anotlier. It can only be done by their prices, but nothing can he more untrue than that when thus measured the rate of pi'ofit is the ratio that the total profits of capitalists bear to the total wages of labourers, and the flaw in the reasoning by vyhich it is deduced is very obvious. "A capitalist's ex- penditure," he says, " consists of wages and materials. He buys the materials, but instead of doing 'so might have produced them by paying wages ; he would then have no expenditure but what was given to labourers. His gross produce would then be divided between them and himself, his share would be profit, and theirs wages." If " gross produce " means the price of the goods which are con- sumed by capitalists and labourers, it is of course true that it is divided between the capitalists and the labourers; but it does not follow that the rate of profit is the ratio the shares bear to ^x;h otlier. Even if we grant, what is not true, that th jjrice of the " materials " is equal to the sum paid to labourers, together with the profit at the normal rate on the sum so paid, it would not help Mill's argument. A cotton spinner, for instance, pays his men and buys his materials. He borrows, probably, the money with which he does so, and pays it back with interest when his goods are sold. Mill assumes that this interest is all that goes to the class of capitalists, but the manufacturer must get something for himself, and keeps a great part of the price of the cotton for his own share as rent of his factory. The share the labourers get, instead of being 100 parts out of every 110 as Mill says it would be if the rate cf profit were 10 per cent., is probably not, in England, where profits are estimated to be 10 per cent., more than thirty * Book ii. chap. xv. § 5. CHAP. iv.J Bate of Profit. 43 on the average, while the share of the unskilled workman is a very long way below the average. We have no statistics by which to estimate with accuracy the ratio that total profits bear to total wages, both being measured in money, and my figures are little more than guesses, but a very little consideration will show that they are at least much nearer the truth than those which would follow from Mill's theorem. Agriculture is one of the greatest industries of the country, but no one would assert that the wages of labour amount to ten-elevenths of the price for which the total produce of land is sold, after deducting what will pay for keeping up and renewing the plant. We know, in fact, that the labourers get about one- third. Railways publish their accounts, and we know that 55 per cent, of the gross earnings go to the share- holders as rent ; the remaining 45 per cent, pays for all materials and labour required to work and renew the rail- way. The materials include rails, locomotives, carriages, coal, iron, oil, &c., all of which have paid contributions to profits, so that not more than 25 or 30 units out of the total 100 representing the earnings of a railway go to labourers, the remaining 75 or 70 are profit. A cotton factory or an iron foundry does not pay a larger propor- tion in wages, so that on the whole it is probable that 30 per cent, of the price of the produce of their labour is the highest reasonable estimate of the share the labourers get. Senior, when disputing the accuracy of Eicardo's theorem that " whatever raises the wages of labour lowers the pro- fits of stock," gives an illustration very pertinent to the question we are discussing, and which would fully establish his point, if it were true, as both he and Ricardo take for granted that the rate of profit is the same thing as the ratio of total profits to total wages. Assuming the usual estimate to be correct, that in England the rate of profit is 10 per cent., he says* "that a rise in the amount of wages amounting to one-tenth, or from 10s. to lis. a week, if that rise is to be deducted from the capitalist's share, would utterly destroy all profit whatever. A rise of one- * 5th ed. London, 1863, p. 144. 44 Communal and Commercial Economy, [chap, iv, fifth, or from 10s. to 12s. a week, would occasion to the capitalist a loss equal to the whole amount of his former profit. A fall in wages of one-tenth would double profits, a fall of one-fifth would treble them. Now we know that general variations in the amount of wages to the amount of one-tenth or one-fifth, or to a greater extent, are not of unfrequent occurrence. Yet who ever heard of their pro- ducing such an effect on profits ? " Now, with certain reservations which we need not here discuss, Eicardo's theorem is not only true, but is also self- evident. The whole price of the goods consumed by man being divided between capitalists and labourers, if the one gets more the other must get less, the total price remaining unchanged. If, out of 100 units, labourers get 90 and capitalists 10, then a rise of one-ninth in the rate of wages would leave the capitalists none at all. Under such cir- cumstances a rise of more than one-ninth would be physi- cally impossible, for if the labourers get all they produce they cannot get more as no one else produces. The work- men might indeed get the machinery they work with given to them, as well as the whole product, but they could not consume it, and would be obliged to become capitalists whether they wanted to or not. If labourers only get 30 units out of the 100, a rise of one-ninth would only reduce the profits from 70 to 66|, and would be scarcely noticed. It is not, perhaps, true that a general rise in wages of one-ninth has ever taken place in England, but if it occurred without seriously affecting profits, it would be sufficient proof that the share of the price of the total product which goes to the capitalists is very much more than one-ninth. Wages in particular trades have risen by this amount, and even more, but only when the profits in those trades were unusually high, and when the in- creased wages did not make them lower than, or even as low as, in others. Before we begin our inquiry we must define our terms. The profit a man actually makes from his stock is the perennial stream of money which forms his daily income, and not a mere isolated payment. In the same way an CHAP. IV.] Bate of Profit. 45 investment, when traced to its root, is not the payment of a lump sum of money, but the gradual transfer to others of money forming the investor's daily profits. When a railway is built or a factory erected, the investor cannot call the stock into existence in a moment, and during the period of its construction he must transfer daily, to the man who manufacturesjt, the money to be invested. He may do tliis indirectly by saving his money and buying the stock at one purchase, but he then sends his money to the bank, which lends it to the manufacturer, and the final result is precisely the same as if he had paid the latter from day to day during the period of manufacture. If a man pays lOZ. a day in erecting a factory, continuing to do so for a year, and if he afterwards gets IZ. a day from his investment, his rate of profit will be one-tenth of his daily expenditure. If he had continued his invest- ment for only six months, and obtained 10s. a day, his rate would be one-twentieth, but in both cases the corre- lated time must be expressed. For convenience invest- ments of different durations are always reduced to the period of one year, and a man who gets 11. a day from an expenditure of lOZ. a day for a year would be said to make a profit of 10 per cent, per annum, or to get 365Z. a year from an invested capital of 3650Z. Custom is not quite fixed on this subject, and the interest during erection sometimes is, and sometimes is not, included in the sum nominally invested, but this does not really affect the question. If, for instance, the investor lays by 1 Ql. a day for a year, he will lend it, or in some other way make a profit from it, so that, instead of having 3650Z. at the end of the year, lie will have, say 3800?., and if he pa,ys this sum for a new steam-engine, will say he has invested 3800Z. If now he gets not 11. a day, but a lump sum of 380Z. at the end of each year, he will say he makes a profit of 10 per cent, per annum, but 380Z. at the end of the year is no larger an income than 1?. a day, for he will have to anticipate his profit in order to buy his daily stock of goods for consumption, and will have to pay the odd 15Z. in interest. Thus whether we take interest into 46 Commwnal and Oommercial Economy, [chap. rv. account or not, we come to the same result, and the simpler method of reckoning is to disregard it, and to call a payment of lOZ. a day for a year, an investment of 3650?., while an income of IZ. a day will be called a yearly income of 365Z., although it really is worth, perhaps, 380Z. paid in one sum at the end of the year. We have already seen that the nominal price of stock is equal to the capitalised value of the income derived from it, reckoned at the normal rate of profit, and it would, therefore, be mere reasoning in a circle to say the normal rate is the ratio which the yearly profit bears to the capital. The normal rate is not that actually being made, or actually invested money, but that which any one with money to spend could make if he invested it judiciously. A capitalist choosing the most profitable trade open to him, and thus investing so as to make the normal rate of profit, must, in order to produce wares of a given price, spend money in obtaining the necessary stock, and the larger the sum so paid, the lower, cseteris paribus, will be the rate of profit he obtains, while the largeness of the sum will depend on the whole order of the uuiverse. Say, for instance, he wished to bring a new farm into cultiva- tion by removing the stones from off it ; he would have to buy pickaxes, spades, horses, carts, &c., and would also require horse-feed, goods with which to pay men, coal, oil, and other things. The total price he would have to pay for them would depend on the size and weight of the individual stones requiring more or less costly plant for their removal, on the total weight of stones to be removed,, on the distance they had to be carried in order to get rid of them, on the depth to which they were embedded in the earth, and on innumerable other similar circumstances. It would also be influenced by the geological and geo- graphical formation of the country, which would affect the prices of iron, coal, oil, &c., and by the profits which the makers of the stock were enabled by the higgling of the market to obtain. When the farm is ready for cultiva- tion, and the investor has a stock of ploughs, horses, cattle, &c., he may begin work; but he must buy the goods with which to feed his men and cattle, and his CHAP. iv.J Bate of Profit. 47 investment is not completed until he reaps his first harvest. Part of his grain must then be set aside to purchase goods with which to pay his men during the ensuing year, to feed his cattle, to buy coals, oil, &c. ; the balance may be kept to buy goods for his own consump- tion until next harvest; the price of the goods he can thus buy daily for his own use, divided by the sum he invested daily for one year, will be the rate of profit he obtains. We thus see that the normal rate of profit depends on the whole natural and economical conditions of the society, and cannot be expressed in more simple terms than by saying it is the ratio — Daily profit obtainable by a new investment, Daily profit invested for one year, both terms being measured in fractional parts of tlie total daily income of capitalists. It is purely a term of com- mercial economy, to which, therefore, the terms of com- munal economy, such as labour, labour-cost, &c., are quite inapplicable. It is not, for instance, directly in- fluenced by the number of men required to produce a given quantity of goods, nor even by the sums paid to them in wages, as it would be immaterial to the manufacturer whether he fed a man or a horse, provided the same money would buy the goods required to maintain either, and either could do the work; the essential matter is the money-cost and not the labour-cost of goods. At the same time, our communal instincts are so strong, that we find it difficult to so completely dissociate ourselves from the working classes as is necessary to a logical study of commercial economy ; we cannot but regard wealth as the product of their labour, and can hardly believe that the rate of profit cannot be expressed in terms of the sums paid in wages and received in profit. This is, however, thoroughly illogical, for labourers are no more than one out of an infinite number of agents, whose combined actions lead to profit, and it would be as rational to expect to be able to express the rate in terms of the sums paid for horse-feed, or of the sums lost by the depredations of birds on the crops. The payment 48 Communal and Commercial Economy, [chap. iv. of wages is not even essential to a new investment; let us sa}', for instance, that a velvet-maker resolves to so improve his factory that the men he already employs will be able to produce a larger quantity of velvet than before. He transfers, therefore, to a machinist part of his daily profit, which we will say consists of velvet; the machinist keeps part for himself as rent of his factory, pays part to the coal-owner as rent of his mine, part to the gasworks as rent of their stock, part to the farmer and landlord who supply the goods with which he pays his men, as rent of their farm and farming stock, and so forth. None of the velvet goes to tlie workmen engaged directly or indirectly in improving the factory, and who would have been paid whether the new investment had been made or not, the only difference being that they would have been engaged in producing goods for their master's use, had their master not foreseen that he could get by trade with the new investor the goods he desired. The sum invested is, say, 100 pieces of velvet daily for a year, and the velvet-maker gets ten additional pieces daily without paying more wages or increasing his other outlay, and he thus makes a profit of 10 per cent. The reason why he gets this precise quantity is not because he paid a certain sum in wages, for he has paid none ; it is because the universe is so ordered that ten more pieces are pro- duced when the forces of nature are directed in one way than when they were directed in another, and the investor makes 10 per cent, because he can buy the means of causing the alteration to be made by expending 100 pieces daily for a year. If we were studying the subject of labour, we should include all the forces of nature, except labour, under one name, corresponding to the mathematical symbol (S), and should say the efficiency of labour had been increased ; but we are studying the rate of profit, which has nothing to do with labour, and has not been increased. Or if we were studying wages, we should say their efficiency had been increased since the same sum paid to the velvet-weavers led to a larger yield of velvet; but the rate of profit does not depend on the efficiency of CHAP. iv.J Mate of Profit wages, and would have been the same in this case whether wages were high or low. The method of investment by increasing the efficiency of labour is not the only one open to the investor, and he may increase his profits by employing more men and paying more wages, and if this is more profitable than the other, the normal rate is that which would be made by so doing. If the investor adopts this method and provides, at the same outlay as before, the new stock required for the production of goods with which to pay his new men, providing also a new velvet factory, and if he thus obtains ten pieces of velvet daily for his own use, his rate of profit will be the same as in the other case. Whether he will actually obtain the ten pieces by this method of production will depend, as before, on the whole order of the universe, and it would require as much knowledge of the laws of nature to foretell what rate he would make, as to foretell, by studying the anatomy of a horse, how many miles in the hour he could run, or how many hundredweights he could carry. In study- ing the rate of profit we must learn by observation what it actually is, when, with sufficient statistics, we should be able to estimate more or less closely what it would have been had any of the innumerable elements on which it depends been different. If, for instance, the iron mines had been more accessible, iron would have been cheaper, and the investor would, therefore, have paid less to the owner of mining stock, and the sum invested being thus less, the rate of profit would have been higher. In working his factory the new investor would not have to part with so much of his finished product to the ironmaster who maintained and renewed his machinery, and would, therefore, make a higher rate of profit. If the change in price were great it would, perhaps, pay the investor to entirely re-cast the design of his factory ; to use, for instance, condensing engines where he before used non- condensing, or to substitute steam for wind power, and the effect of the alteration would have to be taken into account. By tracing in this manner the several effects of the change we should eventually arrive, after a very E 50 Communal and Commercial Economy, [chap. rv. complex investigation, at the final effect on the rate of profit of a fall in the price of iron. To follow out the effect of cheaper coal would be still more complex, since it would alter, even more than a change in the price of iron, the relative prices of other stock, and the general design of the implements employed ; but the final effect would undoubtedly be to raise the rate of profit. Still more complex would be the problem of tracing the effect of a change in the wages of labour ; to do so even approxi- mately would be indeed impossible, but by making certain assumptions which, although not warranted by the actual facts, will facilitate our inquiry without leading us into serious error, we may learn in a general way the direction in which the rate would be affected. A change in the rate of wages would alter the normal relative prices of nearly all the goods produced ; but as we do not wish to discuss the effect on the rate of profit of such changes, we will assume that capitalists produce for their own use only one kind of commodity, which we will call profit-goods, while their men consume another com- modity called wages-goods. It will also be convenient to assume that one capitalist invests so as to produce, with- out the co-operation of others, the wages-goods required by all the new workmen to whom the new investment gives employment. Similarly, another capitalist makes the other necessary part of the investment, and produces all the profit-goods for the sake of obtaining which both investments were made. We will also assume that all workmen get the same pay. Making these assumptions, the accounts of the two investors would be, say, as follows : — Profit-goods Maker. Profit ou sum invested,\ „„„„ • 20,000Z /''""" Wages, 20 men at 50?. .. 1000 Gross product, 3000 units! qnno at 1? / Wages-goods Malter. £ Profit on sum invested,! -mnn 10,000/. / ^""" Wages, 20 men at 501. .. 1000 Gross product, 2000 units'! gQQQ CHAP. IT.J Bate of Profit. 51 Here the two investors by spending between them 30,0O0Z. get from their fellow-capitalists certain imple- ments and other stock which enable them to produce every year 3000 units of profit-goods, worth 3000^., and the rate of profit they obtain is, therefore, 10 per cent. The profit-goods are divided between them in proportion to the sums they contributed towards the final result, while the wages-goods are used to pay the men employed by both, as is indicated by the fact that the profits of the wages- goods maker are equal to the sum paid in wages by his colleague. Had the rate of wages been 100^. instead of 50/. a year, and had they erected factories of similar general design, they would have been obliged, in order to produce the increased quantity of wages-goods required, to erect two wages-goods factories costing 20,000/., and would have had only 10,000/. left for the profit-goods factory, which would give employment to only half the number of men, and would produce only half the quantity of goods the capitalists formerly obtained; the rate of profit would then be 5 per cent., and their accounts would be as follows : — Profit-goods Maker. Profit 10,000?. at 5 per cent. Wages 10 men at WOl. on sum itivested,\ gQ„ 1000 Gross product, 1500 units"! ,^nn at 1?. / Wages-goods Maker. Profit on sum invested,! 20,000 at 5 per cent. ../ Wages, 40 men at 100/. . . Gross product, 4000 units at\ HI / 1000 4000 5000 We might, by a simple formula, express the relation between the old and new rates of profit in tei-ms of the old and new rates of wages, and of the ratio of profits to wages, but to do so would be worse than useless, as it would only tend to encourage a confusion of thought; to which plutology is already too liable, of mistaking arithmetic for political economy. The framing of such E 2 52 Communal and Commercial Eeonom'i/. [chap, iv, a formula would be, of course, a mere mathematical exercise, and .would have no connection with the rate of profit unless we were prepared to assert that capitalists would not alter the design of their factories when wages rose from 50Z. to 100?. a year, and this, of course, we are not prepared to do. Such a change in wages would pro- duce the utmost confusion in existing manufactures: if the ratio of wages to profits in all factories were the same as in our example, the only effect would be that the incomes of all capitalists would be halved, but this is far from being the case, and the ratio is the same in scarcely two factories in the country. Those manufacturers would be ruined who paid a large sum in- wages relatively to their own profits, while others who paid little would be scarcely affected, and the trade of the country would be in an abnormal and transitional state until all stock had been renewed, as it wore out or was consumed, on the new designs which would be the most profitable under the altered conditions of the society. The normal rate of profit has, however, nothing to do with money already spent in the purchase of stock, but is that which a man with money in hand could make by investing it. In our illustration the investors might make 5 per cent, when wages are lOOZ. a year by simply working on the old lines, which gave 10 per cent, when wages were 50Z., and, conceivably, this might be the best course, but in practice they could get a higher rate of profit by using labour- saving machinery. It is absolutely impossible to foretell what the new rate would then be, as it would depend on the whole order of nature and on the' scientific knowledge of the investor ; but we may, for the sake of. illustration, assume that the investor can get for 20,000Z. a factory which, with the labour of six men, will turn out 1800 units of profit-goods a year, and that the 10,OOOZ. remain- ing out of the entire investment would just furnish the wages-goods with which to pay his men. Assuming this to be the case, the new accounts of the two factories would be — CHAP. IV.] Bate of Profit. 53 Profit-goods Factory, Sum invested, 20,000Z. Wages, 6 men at 100/. Gross product, 1800 units at\ U I £ 1200 600 1800 Wages-goods Factorif. Sum invested, 10,0002. Wages, 6 men at 100/. £ 600 600 Gross product, 1200 units\ ,„r.n atH. i ^''"" and the new rate of profit would be 6 per cent. It is important to bear in mind that there may be several designs of factory which would give the same rate of profit, although the sums paid iu wages would not be the same in all. Our investor might, for instance, appor- tion his investments a^ follows : — Profit-goods Factory, £ Sum invested, 15,000/. at 6\ „qq per cent / 9 men at 100/ 900 Gross product, 1800 units'! ^^nn at 1/. / ■" Wages-goods Factory. £ Sum invested, 15,0002. at 6\ „„„ percent / '^"" Wages, 9 men at 100/. .. 900 Gross product, 1800/. units'! ,„„„ atl/ / ^**"° Whether both this and the other system were open to him would of course depend on whether the physical and economical universe had been so regulated that eighteen men, by working machines of a particular design and price, and twelve men, by working other machines of equal price, could not only supply themselves with wages-goods, but could also produce 1800 units of profit-goods, and without a perfect knowledge of the universe the matter could not have been foretold, but we know from experience that traders make the same rate of profit when doing similar work in very different ways, as, for instance, ploughing by horse-power or by steam, carrying goods in ships, or in carts, &c. It will be. seen from the foregoing discussion that the rate of wages has no peculiar connexion with the rate of 54 Communal and Commercial Economy, [chap. iv. profit, and that such as does exist between them is founded on the fact that, since workmen must be fed, a new investor who wishes to employ new men must buy stock in order to produce the goods which will form their wages. If the rate of wages rises he must pay more for the neces-ary stock, and his rate of profit will therefore be lower, but the effect would be precisely the same if, instead of wages rising, the birds or the weevil became enabled to make good their right to a larger share of the wheat produced. The 30.000L invested would not then give the old return of 3000 units of profit-goods, since a further sum would be required to enlarge the farms and farming-stock employed. If 5000Z. more were required for this purpose, the rate of profit would fall from 10 to 8f per cent., pro- vided no change in the methods of working were made; but it is quite certain that a change would be made, as the investor would find it cheaper to spend the extra 5000Z., or a part of it, in erecting steam-engines or wind- mills, or other machinery which would enable him to carry on his manufacture with fewer men and horses, and thus to dispense with the wheat whose price had been raised by the higher wages obtained by the birds and weevil. Wealth, it must be remembered, is the resultant of the whole order of nature, the forces of which are directed by capitalists in the manner which will yield the highest rate of profit on the money invested ; if one wheel in the great machine is altered, all the others must be re-arranged, and that disposal of the whole which would, to-day, give the highest rate would have to be modified to-morrow should any change occur in the prices of any of the stock required in the work, or in any of the natural phenomena forming the environment of tbe society. It is a well-established fact that the rate of profit in the progressive countries of the world has, on the whole, declined within the period of which we have statistical knowledge, although the fall has not been continuous. It is probable that the rate has risen in England and Holland within the last fifty years, but the upward movement has now, perhaps, been arrested, and decline has again set in, CHAP. IV. J Bate of Profit. 55 this being the usual case in a society where the numerical magnitude of the profit fund is being increased by new investments. Plutology explains this fact by saying it is a general law of agricultural industry that the return from money invested in land increases in a less ratio than the outlay incurred, and that the general rate of profit therefore falls, since other capitalists must share in tlie farmer's loss. We see, for instance, land in England now worked with steam-ploughs and threshing-machines, but which a few years ago was rudely tilled with clumsy horse-ploughs, and on which the harvest was threshed with flails. The men who are fed from the land are now employed in weaving cloth by steam instead of by hand looms, and the total profit obtained is a hundredfold greater than before. At the same time we find the rate of profit to be less, and are gravely told by way of explana- tion that this is the case because it is a law of nature that land, when tilled with steam -ploughs and thresliing- machines, shall yield a less rate of profit than when worked with horse-ploughs and flails. Pre-scientific geology explained the existence of fossils in a precisely parallel manner, saying they were due to a law of nature by which stones sometimes took forms resembling those of organic matter, but geology, although a science of only yesterday, has grown into vigorous manhood, and has put away childish reasoning, while political economy, notwithstand- ing its hundred years of life, is still in its pre-scientific childhood. Absurd as this teaching may be, regarded as an ex- planation, it is, perhaps, as good as can be offered by any one who undertakes the impossible task of explaining in - concise terms the reason why the rate of profit has fallen. The rate is the commercial analogue of the efficiency of labour in communal economy, and we cannot concisely state why it has fallen, any more than we can concisely say why the efficiency of labour has increased. An econo- mist who undertook to explain why labour in England is more efficient than it was a hundred years ago, would be driven to employ some such truism as that it arises from 56 Communal and Commercial Economy. . [chap. it. the use of better machinery, that is, of machinery which makes labour more efficient. If he went a step further back and attributed it to the employment of steam-engines, electricity, Bessemer converters, &c., he wouhl leave his work only partly done, unless he included in his list every implement which has contributed to the final result, and would, after all, have to employ a truism, for steam-engines do not universally make labour more efficient, since more labour may be required to make and maintain them than would be saved by their use, and our economist would be compelled to modify his theorem until it meant no more tlian that labour had been made more efficient by the use of steam-engines in those cases where their employment made labour more efficient. It is not, however, necessary for the economist to explain why the efficiency of labour has increased ; this is an ultimate fact to be learnt by obser- vation alone, and neither requiring nor admitting of explanation. It is conceivable, although barely so, that the proportion of the total increase which has resulted from the use of steam, of electricity, of Bessemer converters, or of any other implement, might be ascertained, and any- one who wished to ascertain it might collect statistics with at least a better founded hope of success than if he were seeking the perpetual motion, but more than this can hardly be said. In the same way the fall in the rate of profit is an ultimate fact, neither requiring nor admitting of explana- tion ; with sufficient statistical knowledge we might con- ceivably be able to apportion to tlie several changes which have been made in the methods of production the share they have produced of the total effect, but the only way in which we can concisely explain the eii'ect itself is by saying that more costly stock is now used in order to obtain a given profit. We do not, of course, advance this as an explanation, any more than we think the greater efSciency of labour has been explained when we say it is due to the employment of better implements ; it is no more than another way of stating that the rate has fallen, and is convenient only because it directs attention to the CHAP. IV.] Bate of Profit. 57 fact that the rale is the ratio which the profit bears to the price of the stock employed. The first step towards a rational study of the subject (assuming that such a study could be anytlnng more than an irrational waste of time) would be the collection of statistics, and as this has not been done, we must either leave the subject without further discussion, or make, by way of illustration, assumptions having no relation whatever to the actual facts of the case. Taking the latter plan, we will assume that, in the early days of commercialism, labourers were paid in corn alone, or in some other product of agriculture, of which the harvest came once a year. We may disregard the pointed sticks and the other simple implements employed in pro- duction as too unimportant to be taken into account, and we may thus assume that the year's harvest formed the entire stock of the society. If under these circumstances 99 men could produce sufficient food to maintain them- selves and one other man, the product of whose labour formed the capitalist's profit, the rate would be 1 per cent., since the total capital invested would be the price of 100 men's wages, and the total profit that of one man's; or, in other words, since the total yearly profit would, if invested, be equivalent to TSTrth part of the capital em- ployed. By improving the methods of production the capitalist might, perhaps, without adding perceptibly to the cost of the implements, increase the efficiency of labour until, say, 50 men could produce the food needed for all, when the rate would rise to 50 per cent, since the men could then, besides supplying themselves with food, produce in two years a new capital-stock similar to that already employed. In order still further to increase the efficiency of labour, more costly implements would perhaps \be necessary, when, say, 25 men could produce the food risfluired by the whole number, and the total profit would be\lie wages of 75 men, but the rate of profit might be higher or lower than before, since the men might require less or more than two years in order to produce a stock similar to that from the ownership of which the capitalist derived his profits, that is, not only the corn required to 58 Communal and Commercial Economy, [chap. it. support 100 men for the year, but also the new implements with which they worked. In modern days a new invest- ment which has for its end the addition of, say, a further supply of cotton to the profit-fund, entails the construction of a costly cotton-mill in Manchester, of a new Atlantic steamer, a new railway, a new farm in Manitoba, and much other stock, and the rate of profit is less than 50 per cent., because the cotton-spinners, the sailors and stokers of tlie steamer, the railway servants, the Manitoba farm- labourers, and the others to whom the new investment gives employment could not provide themselves with wages-goods and also produce, in two years, a new stock similar to that with which they work, and this even though they were supplied with suitable implements, the cost of which was as great as that of the stock in question. We have here, for the sake of illustration, committed the plutological error of treating the labour of man as gene- jically different from that of horses, or from any other of the forces of nature. In reality the rate of profit is less than 50 per cent., not because these individual men, nor even because this particular number of men, could not produce a new stock in two years, but because the capitalist could not in any manner have invested his money so that it should produce for him the new steamer and the other stock. As the result obtained from the investment he actually made of his money, he gets a certain quantity of cotton goods to be put into the common profit-fund, say lUOO bales yearly. Had he spent his money in erecting gold-mining stock he would have obtained, say, 1000 ounces yearly, and the price of a bale of cotton will there- fore be one ounce of gold. Had he spent his money in erecting a shipbuilding yard, a plough foundry, a rail- rolling mill, a machine shop for the production of cotton- machinery, &c., &c., he would have been able to produce a perennial stream of new Atlantic steamers, of new cotton- mills, of implements required on Manitoba farms, &c.,and if he could have produced in two years a complete assort- ment of these implements, the total price of the lot would have been 2000 ounces of gold, and the rate of profit CHAP. iv.J Rate of Profit. 59 would have been 50 per cent. As a matter of fact be cannot do so, and the rate is less than 50 per cent. ; but we can no more explain why this is the case than we can explain why he could get only 1000 ounces of gold, or 1000 bales of cotton; these are all ultimate facts to be learnt from experience alone, and when thus learnt, to be accepted without further discussion, just as we accept as final and ultimate the facts that a man is not so big as an elephant, nor so fleet as a gazelle. If the end which capitalists endeavoured to gain was to make labour efficient, we should not be called upon to enter into any discussion of the reasons which have led them to construct Atlantic steamers rather than simply to increase the number of their canoes, or to erect power- looms rather than to increase the number of their hand- looms. They care nothing, however, for the efficiency of labour, the end they seek being to so invest their money as to obtain the highest possible rate of profit for them- selves, and some allusion must therefore be made to the reasons which have led them to abandon the more, iu favour of the less profitable methods of production. It is evident from what has already been said, that a complete investigation of this subject would require a knowledge of the whole course of nature, and of the economic circum- stances of the world. We must, therefore, confine our attention to those few causes of which we have some statistical knowledge, however slight, and which are at the same time the most obvious. Of these the rise that has taken place in the rate of wages is, far and away, the most important. If English wages fell to sixpence a day, the only immediate result would be a gain to the capitalists, who would import goods for their own use instead of the wheat now imported for their men, and would export, in exchange for profit-goods, much of the wealth now pro- duced at home and used as wages-goods. A great change in the methods of production would, however, at once begin; instead of erecting costly cotton-mills, new in- vestors would erect hand-looms, and as they would thus save in interest much more than they lost in wages, they 60 Communal and Commercial Economy, [chap. iv. would make a higher rate of profit than even the advanced rate made in the existing factories. The latter would not be renewed as they wore out, but would be replaced by hand-looms, and the number of men required to produce the present output of cotton would be increased a hundredfold. Leaving out of the account the question of feeding the men, there would still be many difficulties in the way of carrying on business under these conditions. The convenient sites for factories near the ports and rail- ways would soon be occupied, and a new investor would have not only to erect his mill, but would also have to buy horses and carts, to cultivate a farm for the production of horse-feed, and to incur many other expenses from which those living near the ports were relieved, and he would make a lower rate of profit than they. The fall in the rate would induce him to employ better machinery. Let us say, for instance, that at the port the most profitable sort of factory, and that which, therefore, was employed, is one in which the accounts are as follows : — £ Cost of factory, 10,000/. at 25 per cent. . . 2500 300 men at 7Z. 10s 2250 Cost price of output £4750 Another c^ass of factory might, we will say, be employed, in which, for a similar output, the accounts would stand thus — £ Cost of factory, 14,000/. at 23 • 2 per cent. . . .^250 200 men at 7/. 108 1500 £4750 No investor would adopt the latter plan of factory, as he would make only 23 '2 per cent, on his money, instead of the 25 per cent, he would have made had he adopted the former plan, but for those who lived away from the ports the circumstances would be different. We will say that an inland capitalist has to spend 5000Z., in buying horses and carts, in cultivating land for horse-feed, in erecting wages -goods factories for the support of his carters, &c., CHAP. IV.] Bate of Profit. 61 &c. If lie adopted the same design of factory as those living .at the port his accounts would stand thus — £ Cost of factory .. 10,000 Cost of other stock 5,000 £ 15,000 at 16| per cent. 2500 300 men at 7i. 10s 2250 £4750 He would thus, while producing with similar looms the same quantity of goods, and selling them at the same price, make only 16f per cent, on his outlay, while his maritime colleagues were making 25 per cent., but this would not be his best method of production, as by adopting the second plan of factory he would make a higher rate of profit, and his accounts would stand thus — £ Cost of factory .. 14,000 Cost of other stock 5,000 £ 19,000 at 17 • 1 per cent. 3250 200 men at 7?. 10s 1500 £4750 As he thus makes 17 • 1, instead of the 16f per cent, he would have obtained by tbe other design, he would improve his machinery, and would employ only 200 men in doing the work, to perform which 300 would otherwise be required ; and those living at the port would have to follow his example, for the landowners would demand a rent, the payment of which would put the manufacturers in pre- cisely the same position as if they had been obliged to buy horses and carts like those living in the inland districts. In practice, inland manufacturers, although they lost on account of their distance from the port, might, perhaps, gain from being nearer the iron and coal mines, and the rate of profit might not fall ; but where, as by our supposition, wages are at or near the starving point, money-wages must be raised with every increase in the 62 Communed and Commercial Economy, [chap. iv. price of corn, and it is almost certain that as more corn is grown its price will rise. Even though the whole land of the country possessed the same chemical and mechanical properties, a farmer who wished to produce more corn without changing his methods of cultivation would have to take up new land further from his market, and would, therefore, have to increase his outlay by buying horses, carts, &c. His rate of profit would, therefore, fall, even though part of the fall were avoided by the use of better machinery. The cotton manufacturer who bought the new corn in order to feed new cotton operatives, would not be obliged to go so far from the place most suitable for his business,, since cotton factories occupy much less space than the farms from which the men are fed, and if the relative prices of corn and cotton remained unchanged, he would make a higher rate of profit than the farmer. The ordinary higgling of trade would equalise the rates in the two occupations, by causing a rise in the price of corn. In practice lands are not all of similar quality, and the new farmer would, perhaps, be obliged to drain the new land he took up, or to add clay or sand to it, or to erect a manure factory, before he could obtain, for a given further outlay, the same yield of corn as those already in the business obtained without this preliminary expenditure. His additional outlay would still further reduce his rate of profit, and also that of the cotton manufacturers, and both would then find it profitable to use better machinery. Other farmers would have to pay rent for their land, and they also would be driven to direct the labour of their men more wisely than they had hitherto done, and to improve their methods of cultivation. If the rate of wages rose, new farms would have to be ctiltivated and new wages-goods factories erected, so that the higher wages might be paid, the cost price of these be- ing an addition to the investment required in order to produce cotton ; the rate of profit would thus be greatly reduced, when power-looms and Atlantic steamers would become more profitable than the wretched implements capitalists would employ if wages were sixpence a day. CHAP. iv.J Bate of Profit. 63 It sometimes happens, and the industry of England is now a case in point, that the profit-fund may be greatly increased without any great fall in the rate of profit. The best method of investment now open to English capitalists is to erect new cotton-mills or other stock, differing in no material respect from those already in use, but this can be done only because new farms, differing in no material respect from those already in use, are being at the same time brought into cul- tivation in IHinnesota and Manitoba. Sooner or later, however, it will be impossible to continue the present methods of investment, as the lands in the west which can be best cultivated by the methods now adopted will be all occupied. As soon as this occurs capitalists will obtain more corn with which to feed the men and horses they require for their new cotton-mills by making labour more efficient on the existing farms; they will erect manure factories, substitute steam for horse-power, &c., &c., and the rate of profit will decline. Or the capitalists may adopt the other method open to them, and without obtaining more wheat may increase their profits by erect- ing better mills, in which the existing number of men will be able to produce more cotton goods. Or, finally, they may adopt both plans, and may increase the efficiency of labour, both in growing wheat and in weaving cotton, but whichever plan they may adopt they will obtain only a less rate of profit than before. This will not be due to any "laws of industry," and the employment of such a phrase in reference to the subject is a mere misuse of language. Nature cares nothing for the rate of profit, but makes wheat grow or wither without stopping to reckon whether the capitalist will or will not make the current rate of profit on his investments. The true reason of the decline in the rate is tliat capitalists select the most profit- able methods of production at their disposal, and when these are no longer suitable are obliged to fall back on the less profitable. They may, of course, have miscalcu- lated, and the rate may rise when the new methods are adopted, or scientific discoveries may enable them to change their methods for others giving a higher rate. 64 Communal and Commercial Economy, [chap. iv. but experience shows that in the long run methods have been adopted in which the price of stock is more costly relatively to the profit than was the case when the stock consisted mainly of hand-looms and wooden ploughs. The manner in which the plutological " general law of agricultural industry " exerts its influence on the rate of profit is said by Mill* to be by adding to the income of landlords at the expense of capitalists. The total wealth produced, he says, is divided amongst landlords, workmen, and manufacturers. If the first get more, the others must get less, and as he assumes the rate to be the ratio that total wages bear to total profits, it follows that it must fall as rents increase, if wages are unchanged. We have now seen that the rate of profit is something quite different, but this theory requires further examination, as it is one which, as far as 1 am aware, is accepted by all plutologists, and it shows in a very unmistakable way the extraordinary confusion between cause and effect that runs through all their teaching. In the first place the rate does not at all depend on the amount of rent the landlords get ; it might be very low when they get none, or high when they get a great deal. We will use, as an illustration, a society where 1000 men produce enough food for 2000, and are employed in doing so, while the other 1000 are kept as retainers. There is no stock in use except the food required to maintain the workmen, for the simple ploughs they use may be looked upon as too unimportant to be taken into account, and the rate of profit is therefore 50 per cent. Now take another country where 1000 men also produce enough to feed 2000, and where, therefore, the efficiency of labour is the same. Of the 1000 producers, however, only 500 are husbandmen, and the others are employed in maintaining and renewing steam-ploughs and other costly stock required to work a less tractable kind of land. The rate of profit would no longer be 50 per cent. The capital invested in the first case would be the price of 2000 measures * Book iy. chap. iii. § 3. CHAP. IV.] Bate of Profit. 65 of wheat, paid as wages; in the second it would be the same sum paid in wages with, say, 8000 added for the original price of the steam-ploughs, and of the factories in which their maintenance and renewal is carried on, and the rate would be 10 per cent. There is here no question of rent, as landlords get none in either case, and any one who liked might take what land he wanted for nothing. The whole course of the currently-received argument on this subject reads less like serious science than like a page from Alice's adventures in Looking-Glass Land, where everything comes wrong, where left is right, and right left, where to go towards a place you must walk away from it, and where things generally are wrong side before. We may condense it into the four following propositions : — 1st. Increase of population by increasing the demand leads to an increase of the quantity of wheat produced. 2nd. The increased quantity leads to a rise in its price, as it can only be obtained by resorting to inferior land. 3rd. The high price enables landlords, whose revenues are measured in wheat, to obtain more of the total product of labour, 4th. Owing to landlords obtaining more of the total product of labour, the rate of profit falls. Every one of these propositions must be held up to the looking-glass to be read. 1st. It is not an increase of population that leads to an increased production of wheat, but an increased produc- tion that allows a larger population to live. If increasing population led to an increase of the quantity of wheat grown, there would be more reason than 'there is in the pious faith that when God sends mouths he sends food to fill them. Wheat is grown, not because there are people to eat it, but because capitalists want more workmen to make velvet for them, and must grow wheat with which to pay them. The more wheat they grow, the larger the population may and does become. F 66 Communal and Commercial Economy, [chap. tv. 2nd. It is not the increased difficulty of obtaining wheat that causes its high price, but the high price that leads farmers to grow more of it in spite of the larger in- vestment required. No one, in buying, asks or cares what money was invested, nor what profit the grower will make, but the grower himself takes care not to grow anything the price of which will not give him the normal rate of profit, and until the price rises will not grow more wheat by commercially inferior methods. 3rd. It is not the high price that gives the landlord more of the product of labour, for the price is only the expression of what he gets. The price of a thing is simply a definite proportion of the whole income derived from capital, and the proposition that the landlord gets a larger proportion because his price rises, is much like saying that a boy who yesterday got half an apple and gets three-quarters to-day, owes the improvement in his circumstances to the ratio | having increased to |. The increase of the landlords' wealth is due to increased scientific knowledge, and to other changes in the con- ditions of the society which enable their men to produce more wheat. They are, therefore, able to keep more men employed in the production of velvet and other goods for their own use, while the same causes which have led to the increase in the quantity of wheat they obtain, have caused a still greater increase in the quantity of velvet which one man can produce. Although the landlords have not had the wit to keep for themselves the whole of the increased product of velvet, as they might have done, they have kept a share of it, and get more of the good things of life than their forefathers enjoyed. 4th. It is not due to landlords getting more of the total product that the rate of profit falls, but they get more as an indirect effect of the fall in the rate. If A has 1000 men at work, growing 2000 measures of wheat yearly, and gets 1000 measures as profit, he will have at his command the labour of 1000 servants, whom he may employ as he chooses. If now, B takes a neighbouring farm, on which 1000 men produce only enough to main- CHAP. IV.] Bate of Profit. 67 tain 500 others, his rate of profit will be less than that of A, but the latter gets no more and no less than before ; he still has the services of his 1000 men. If, however, B, instead of growing wheat, erects a velvet factory, and buys from A the wheat he requires to pay his men, he will have to sell his velvet at prices which will make A better off than if the rate had not fallen, but the rate did not fall because A became better off ; he became better off because the previous fall in the rate enabled him to higgle with B to greater advantage. F 2 68 , Communal and Commercial Economy, [chap. v. CHAPTER V. INTEREST AND BANKING. The theory of interest given by the plutologists is not more satisfactory than that of the rate of profit, and indeed is no explanation of the subject whatever. Mill says* profits are made up of remuneration for the risk of employing capital, for the abstinence implied by the accumulation of it, and for the labour of superintending its employment. The labour we may disregard, for the wages of a manager would not be treated as part of the profit, but would be charged to the price of labour, and if the capitalist is his own manager, he ought to charge his time to the business. Again, the rate of interest in no way depends on the " abstinence implied by the accumu- lation " of the capital ; the profit which Jacob made when he invested his mess of pottage depended not on his own abstinence, but on his brother's necessities, and would have been the same whether he had himself been on the point of starving or had been so well fed that he would have given his capital to the dogs, but for his good fortune in finding a profitable investment for it. Plutological abstinence has no sort of connection with that of every- day life, but is something of which the variations depend on those of the income obtained, and instead of learning the amount of the income from the abstinence, we can learn the amount of the abstinence only from the income. Mill logically deduces that since profit consists of interest, together with a fund suiScient, on the average, to cover all losses incident to the employment of capital, the rate of interest must be, not only lower than the rate * Book ii. chap. xv. § 1, and Book iii. chap, xxiii. § 1. CHAP. V.J • Interest and Bunking. 69 of profit by at least the amount of the risk, but that it must be still lower, as it would not pay any one to borrow if he had to pay the full profit he made, less what would ensure him against risk; hence he comes to the opinion* that money-lending could never exist as a trade unless bankers could borrow for less than they lend. Mill here con- fuses two perfectly distinct subjects, namely, banking and money-lending, but in neither the one nor the other is the theory tenable that they could not exist as trades unless the trader borrowed for less than he lent, nor is it true that manufacturers could not afford to pay the full rate of profit on their loans. In a primitive society where banin'ng is scarcely, or not at all, developed, a manufacturer who has a sum of money with which to erect and work a factory, will be obliged either to keep part of his money in cash, in order to carry on his business, or to borrow. In the former case he would have to be content with a less costly factory than in the latter, and as large factories give nearly always a higher rate of profit than small, it would pay him better to erect the larger factory, and to pay the money-lender the full rate of profit on his advances. He would not take risk into his calculation, for the fear of making less than the normal rate would be balanced by the hope of making more. The average gun- powder manufacturer does not make more than others; those whose factories blow up make less, and those who are lucky make more, but the average may be even below the normal rate, since men have generally such trust in their own good luck and good management as to enter into the risky trades even when the average profit is less than usual. The money-lender, while incurring some risk, does not share in any unusual gains, and as far as risk is taken into account at all, it tends, therefore, to make the rate of interest paid by manufacturers higher, and not lower, than the rate of profit. Notwithstanding this explanation, Mill goes on to say t that the rate of interest is the result of supply and demand, and will be "such as to equalise the demand for loans * Book iii. chap, xxiii. § 2. t Book iii. chap, xxiii. § 1. 70 Gommunal and Commercial Economy, [ohap. v. ■with the supply of them. It will be such that exactly as much as some people are desirous to borrow at that rate, others shall be willing to lend." We have here the usual question-begging, of which the so-called law of supply and demand entirely consists ; if a man will borrow lOOOZ. at 10 per cent., the law takes for granted that he will be prepared to borrow a larger sum at 5 per cent., and then assumes that it has been proved that he will take the larger sum, not because he wants it, but because he would take the lOOOZ. at 10 per cent. In the case of com- modities, an increased demand at a given price is nearly always accompanied by a demand at a higher price, which would absorb the supply, and there is some excuse for mistaking the concomitant for the cause, but this is not true of loans. A man may be willing to borrow a certain sum at almost any rate of interest, and yet be unwilling to borrow a penny more, though he might get it for next to nothing ; or he may be willing to borrow an unlimited sum at one rate, and yet be unwilling to borrow a penny at a higher; or, again, he may be ready to borrow say lOQOZ. at 10 per cent., to be repaid in a year, and yet refuse to take the money at 5 per cent., if he is to repay it in a month. The demand for loans, at less than the rate of profit and at long dates, is unlimited, for the borrower could invest the money in new factories, which would give that rate, and the difference would be his own. If, however, the loan were only offered on the condition that he should repay it in six months or a year, he would decline to borrow even at a much lower rate, as he would know quite well that he could not comply with the con- ditions. There is scarcely a factory in England which would not, if more money were spent on it, produce its wares more cheaply, and the manufacturer might profit- ably borrow at a rate even above his rate of profit, if he could get the money for ten or twelve years. Say his factory is worth 10,000/., giving a profit of lOOOZ. a year, and that by spending 5000Z. more on improvements, he can so cheapen his waves as to get 11 per cent, on the full sum of 15,000Z. ; he could then afford to borrow at more CHAP. V.J Interest and Banking. 71 than 11 per cent., for if he paid that rate his income would be llOOZ. a year instead of 1000/., and he could afford to share with his creditor the lOOZ. of extra profit he thus makes. Practically, however, no one can borrow at these long dates, and if a manufacturer has not sufficient capital to erect a suitable factory, he gets a partner to join him, or, in other words, pays the full rate of profit, and can then borrow at short dates from the bank such sums as he requires to carry on business. He will have to pay for these loans a rate of interest much below the normal rate of profit, and the aim of this chapter is to ascertain on what that rate depends. To facilitate our inquiry we shall assume that at a particular moment there is no debt within the society, but that every manufacturer is the absolute owner of all the stock at that moment in his possession. The farmer has not only his bare farm in stubble, but also the whole stock of wheat produced by the harvest ; the miller has a small stock of wheat and of flour besides his mill; the baker has a small stock of flour and of bread, and so forth. In order that industry may go on it is necessary that the farmer shall transfer his wheat to the miller, and the miller his flour to the baker, &c. ; let us first assume that this transfer takes place daily, and that every one buys every day from the shops his day's stock of profit-goods, all payments being made by check. The whole of the checks being sent in to a clearing-house and booked, will exactly balance each other, leaving neither debit nor credit in any one's account. The farmer sells, say, lOZ. worth of wheat to the miller, giving also a check to the plough-maker for, say, 2Z., and for 3Z. to others; the balance, equal to 51., is his profit, with which he buys goods for his personal use, giving a check to the dealer. The miller gives a check for 101. to the farmer, and the account of the latter is thus cleared ; he gives one also for, say, 21. to the retail dealer of profit-goods, but as he gets checks for, say, 21. from the plough-maker, and 101. from others, his account is also cleared. Every one thus gets his daily profit, still maintaining his stock of goods 72 Communal and Commercial Economy, [ohap. v. undiminished, for what he sells as finished wares is re- placed by what he buys and works up during the day. If now the farmer advanced a month's supply to the miller, the latter might simply give as before a check for 101. every day, and the accounts would still balance, but if, instead of doing so, he gave a promise to give a check at the end of the month for the full amount of 300Z., there would be a disturbance in the trade of the society. The farmer would be unable to pay for his goods at the shop, and would ask for credit ; if the shopkeeper obliged the farmer, he would himself have to get credit from the manufacturers, and the manufacturers from the miller, with whom the circuit would close, as he could give credit to the extent of the price of the wheat he had obtained from the farmer, and more than this would not be re- quired. At the end of the month the accounts would again balance, as the farmer's debits would just equal his credit with the miller, and the debit of the latter with the farmer would just balance his credits with the manufac- turers, whose debits with the miller would again balance their credits with the shopkeeper. We have so far taken no account of interest, but, as trade is actually carried on, the farmer would certainly charge interest, if the miller were compelled by the re- quirements of his trade to get a month's stock at once. If the shopkeeper did not then charge interest on his advances to the farmer, the latter would gain all that he obtained as interest from the miller, but the competition of others would then compel him to lower the price of his wheat, until he obtained only the same income as before. In reality the shopkeeper would charge interest, when the farmer would not be compelled to lower his prices, and the accounts of the various co sharers of the profit- fund would therefore balance, when interest was charged precisely as if it were not charged, the only difference being that the nominal transactions of each trader would be larger ; all would buy and sell the same quantity of goods at the same prices as before, and would, besides, pay and receive equal amounts of interest. We might, there- CHAP, v.] Interest and Banking. 73 fore, if all transactions were effected without the use of cash, entirely disregard interest paid on the mere transfer of goods from one manufacturer to anotlier, whose trade it is to continue the manufacture, but practically cash is required, and its use makes the subject of interest more important. Let us assume that the miller is obliged by the require- ments of his trade to buy at one time a month's supply of wheat, and that he is obliged to pay for it in gold. At the moment when all accounts balance, and no one has any debt, he will have a stock, consisting not only of the implements of his trade, but also of a sum of cash with which to buy his month's stock of wheat ; he will thus have to make a larger investment in order to carry on his trade, getting, therefore, a larger income, and this he will do by being able to charge higher prices for his wares. It will be more convenient to introduce a new capitalist, whose stock consists of the money thus required, and who gets his income by lending to the miller, whose income will be the same as before, but as he must pay interest for the gold he borrows, he will still be able to charge a higher price for his flour, and the difference will be the income of the gold-owner, or bank. Wlien the miller buys wheat he borrows from the bank, and pays the borrowed money to the farmer. The latter cannot lend it, for he requires it himself to buy from day to day his profit-goods and to pay other capitalists, such as the plough-maker, who co-operate in the work of his farm. Although he thus has cash in hand, he gets no interest for it, and cannot raise the price of his wheat. The money is merely a certificate that he is the real owner of the wheat he has nominally sold ; if cash had not been era- ployed he would have the miller's daily check for 10^. with which to clear his accounts, and the cash is merely the note of hand of the whole class of capitalists. The plough-makers and others, who are paid in cash by the farmer, use the coins to pay the miller, who thus recovers by the end of the month the cash employed, and when he pays it in to the bank the accounts of the whole society 74 Communal and Commercial Economy, [chap. v. are again balanced, and every one has his stock free of debt. Now let us assume that the bank, instead of lend- ing in cash the whole price of the wheat, lend a part only, at the same time, however, taking upon themselves the miller's debt by allowing him an overdraft. They would still charge the same sum for interest, but sooner or later tlie competition of other bankers would compel them to reduce the rate they charged, until they obtained no more than the normal rate of profit on the normal price of their own stock. If bankers were not obliged to keep more cash than that actually on loan, the rate of interest would be half the rate of profit when credits consisted half of cash and half of overdraft, but they are obliged to keep locked up in their vaults large reserves of money, on which also they must get a profit, so that the rate of interest will be higher on this account. It is quite imma- terial whether actual cash is handed across the bank- counter or not, and the result would be the same if the whole of the miller's credit were in the form of bot k-entry, and the money which forms the bank's stock were all locked up in its vaults, never seeing the light ; the essen- tial matter is that the bank must get the full rate of profit on the money it is obliged by the requirements of its business to own, and is prevented by the competition of other bankers from charging higher interest than will give that rate. The money in circulation is quite as much the property of the bankers as a horse on hire is the pro- perty of the livery-stable keeper. When, for instance, the bank lends actual cash, say, for a month to A, and at the end of the month A pays by getting a bill from B dis- counted, the cash remains in circulation,' but is still the property of the bank, on which it still gets interest, and for the due return of which B is responsible ; B may transfer the responsibility to C, and so on throughout the alphabet, but until the actual cash is brought back to the bank tlie account cannot be closed, and interest is still being paid. If a miser gets hold of the money and puts it away into a chest, then prices fall, and more gold is produced to re- place that which was withdrawn, but until this is done CHAP, v.] Interest and Banlcing. 75 some one will be unable to meet his indebtedness to the bank, and must get his bills renewed, or, failing that, must induce the bank to take goods instead of gold, and to this extent to cease to be a banker. The miser's cash is really in circulation until it is replaced by new money, or until the bank has accepted goods instead of it. When a complete system of banking is once fairly intro- duced, no trader would keep cash as part of his stock-in- trade, for he would not be able to raise the prices of his wares more than would give him a profit equal to the current rate of bank interest. He would, therefore, export it, or use it to pay his debts to the bankers, who thus become the owners of all the cash in the country, whether in circulation or stored in their vaults, and the rate of interest thus bears the same ratio to the rate of profit that the total stock of cash, whether in circulation or in reserve, bears to the total average outstanding credits of the banks. The rate of interest will evidently be higher relatively to the rate of profit in a country where cash is largely used than where accounts are paid generally by check. This is equally true where the currency consists of notes, whether convertible or not, where they are issued by government or by banks possessing a monopoly of the right of issue, but if all banks have the right of issue, their competition against each other will prevent them from deriving profit from their right, and the rate of interest will not be higher on account of a large quantity of such money in circula- tion, except in so far as larger reserves are then required. The bank runs no serious risk in granting an overdraft to a manufacturer to enable him to buy materials and stores to be worked up into finished goods. When the miller in our example buys a month's stock of wheat, the bank always has the wheat as security, and the debt will be paid from the price of the flour into which it is converted. If, therefore, the miller is honest, and no accident occurs to his mill or other stock, he can always pay such debts. Even when, as he generally does, he undertakes to pay for the month's stock in, say, a week, there is but little risk. The debt is the only fund from which the farmer 76 Communal and Commercial Economy, [chap. v. can derive the money required to meet his personal ex- penditure, and to pay the plough-maker and others who co-operate in the work of his farm, and the farmer's re- quirements will be fully met if he gets paid uniformly throughout the month. He will, therefore, at the end of tlie week willingly renew for another week three-fourths of the miller's debt, for if ho refused to do so he would be paid in cash, which he would be compelled to keep in his safe to be expended from time to time as required, and he would thus lose interest. There would thus be no prac- tical danger of any one being called upon to pay a debt, before, in the ordinary course, the money would have come into his hands from his current business, provided all debts were incurred simply for the purpose of transferring from one manufacturer to another unfinished wares and materials. This is not, however, the case. In actual trade scarcely any manufacturer in the country is the sole owner of the whole of his fixed stock, that is of the imple- ments of his trade, and of that minimum stock of finished and partly worked goods and of materials and stores which he is obliged by the requirements of his trade always to have on hand. Nearly every one is in debt for a portion of the price of these things, and his creditor is really a partner who has reserved the right of withdrawing from the partnership by demanding payment of the debt. If the manufacturer borrowed for a long time, say, ten or twelve years, he would run no risk, as he could in that time recover from his business the borrowed money, but no business man or banker would lend for such a period, except at the full rate of profit ; they will lend at short dates for the usual rate of interest, since they borrow from others at a still lower rate the money they thus lend, but as they cannot themselves borrow they cannot safely lend at long dates. The manufacturer might also borroW at long dates from those who lend to the banks, but he would have to give a mortgage on his factory, and this would so reduce his credit with the banks that he would find it difficult to get his necessary banking credit. He, therefore, generally prefers to borrow at short dates, even CHAP, v.] Interest and Banking. 77 though he tliereby incurs whatever risk there may be of not getting his bills renewed from time to time, should his creditors wish to utilise their money in erecting new i'actories for themselves. These loans form no part of pure banking, but belong to the trade of money-lending. The aim of banking is to facilitate the subdivision of the profit-fund amongst the several co-producers, but it has nothing to do with altering the distribution which would otherwise have been made. Money-lending, on the other hand, has nothing to do with the means by which profits are allocated to those who have won them, but is the transfer of a profit actually made from the man who has won it to another, who, but for the loan, would not have obtained the money or goods. Mr. Hankey says,* nothing would be easier " to conduct than the business of a banker, if he would only learn the difference between a mortgage and a hill of exchange." This means, if he would only learn whether the loan he grants will be used to take frorn the profit-fund goods the borrower would not otherwise have obtained, in which case it is a mortgage; or whether it will be used as a mere implement of book-keeping to facilitate the sub- division of the fund, when it will be the discounting of a bill of exchange, whether a bill is actually signed or not. Mr. Hankey gives the following as an example of a real mortgage, although called a bill of exchange : — " Is^ January, 1866. " Six months after date pay to the order of 5000Z., value received as per contracts. A.B. " To the Kailway Company." " This bill, drawn by a railway contractor, will become due on 1st July, 1866. The railway company will have no cash in hand to pay the bill, unless they are able, as they intend, to raise it on their debentures ; that is, borrow the money from some capitalist to enable them to meet this engagement." In this case the bill bears on its face * 'Banking,' p. 22. 78 Communal and Commercial Economy, [chap. v. the mark of its being a mortgage; the banker would know quite well that the money would be used by the contractor to take from the profit-fund pickaxes and wages- goods which he had not earned, and that the bank had really lent the money on mortgage, or had become a share- holder in the railway. The following is another example : — " Liverpool, Isi January, 1866. " Three months after date pay to the order of 2000Z., value in cotton, ex. Victoria and Jupiter. E. H. "To " Brokers, Liverpool." " The cotton here referred to is in course of shipment from America, and when it arrives it will be put in the hands of the acceptor of this bill, who will then be enabled to borrow money from his bankers by pledging the dock warrants." This, in my view, is not a mortgage, but a true bill of exchange, as it merely enables the American cotton-grower to take from the profit-fund the goods to which he is entitled. It is true that the acceptor of the bill will be unable to pay, unless he can borrow again, but this is merely because the time of three months is too short to enable him to sell the goods before the bill matures. If, however, it had been drawn at six months, the goods would have been sold and the cash provided without the necessity of any one abstaining from the use of all the profits he made. In the case of the railway contractor, the bill could never be paid unless some one abstained from using for his immediate gratification the profits he had won, since the pickaxes and other goods would have been consumed, and the contractor would have in place of them, not money, as would have been the case had the pickaxes been bought for resale, but a railway share, with which he could not clear his debit at the bank. A bank is properly no more than a clearing-house in which the bargains of the several part-owners of the profit-fund are recorded and balanced. Its stock consists properly only of the gold it lends, and which is used to CHAP. V.J Interest and Banhing, 79 induce one trader to trust his stock to another, whose business it is to carry on the manufacture, and its over- drafts and promissory notes should be employed only for the same purpose. It is, however, impossible always to distinguish between a mortgage and a bill of exchange. A cotton-spinner, for instance, may use the money he borrows to buy raw cotton, when it would be a banking loan ; but he might also use it to enlarge his factory, when it would be a mortgage, and as the bank cannot interfere they are almost compelled to carry on the trade of money- lending in conjunction with that of banking. The bank as a money-lender acts only as agent for others, receiving money on deposit at somewhat below the current rate of interest and lending it at the full rate, thus making a profit on the transaction. The depositors are people ignorant of business, or who do not wish to enter into the bustle and struggle of mercantile life, or whose capital is so small that they could not erect with it a suitable factory, or who will shortly require their capital iti realised form, and cannot, therefore, invest it perma- nently ; they prefer, therefore, to lend to the bank for a great deal less than the normal rate of profit. As they may at any time withdraw their deposits in order to utilise them more profitably, the bank is obliged to pro- vide for their possible demands, and does so by keeping part of its own capital invested in government securities, railway debentures, loans at short dates to firms of good standing, and in other forms of debt which may easily be sold if necessary, but which yield less than the normal rate of profit. The depositors have to pay the difference between the profit actually made on this nominal capital and that which might be made by investing an equal amount in the manufacturing trades. They also pay part of the cost of managing the bank, making good also the bad debts which, even with prudent management, occa- sionally occur, and the depositor's is lower than the current rate of interest by at least suflBcient to meet all these charges, while the competition of the several banks against each other will prevent it from falling lower. 80 Communal and Commercial Economy, [chap. v. The deductions at whicli we have arrived are not, in all probability, materially modified by the fact that bank- ing and money-lending are carried on together. If, for instance, the current rate of interest were higher than would be the case if true banking were a separate trade, bill-brokers and those bankers who confined their business most exclusively to the discounting of true bills of exchange would be able to outbid their competitors and to compel them to lower the rate ; while, if the rate of interest were too low, the banks at the same time making good the resulting loss by keeping the rate paid to their depositors also too low, loan and mortgage companies would outbid them and compel them to raise both rates. There is, however, a disturbing cause which we have not taken into account, and which would make the depositor's rate of interest higher than would follow from our reason- ing. We have assumed that the money-lending business of a bank is confined to lending again the money which had been sent to it by its depositors. If, however, its credit is good, it may increase its income at the expense of others by lending a fictitious money which it does not really possess, since it may grant overdrafts beyond the money actually lent to it. The borrower takes from the profit-fund a new steam-engine, for instance, and otlier capitalists necessarily lose what he takes, for it would otherwise have remained in the profit-fund to be divided amongst them all. The bank gains the interest paid by the borrower, but as it cannot permanently make more than the current rate of profit on its own capital it is obliged by competition to part with this extra gain, doing so by raising the rate paid to its depositors, and if the quantity of fictitious loan is large, the bank may thus pay as high a rate to its depositors as it gets from those to whom it lends. Whether a bank may safely thus use its credit depends more on the custom of the country than on anything else; in England, perhaps, but little ficti- tious loan is issued ; certainly much less than in Scotland, where the margin between the rates of interest paid and received by bankers is very small. In so far as these CHAP, v.] Interest and Banking. 81 loans may be safely made they cease to be iirtitious, and are as much part of the bank's stock as is the goodwill of a business. If the bank were wound up it would lose this additional capital, for the borrower could not pay the bill of exchange he had given, and the bank would have to do so by paying gold, but would then get the steam-engine in exchange. If, hereafter, we have occasion to speak of fictitious loans we shall use the term to describe those which are over and above the amount which the bank could safely and prudently issue. G 82 Communal and Commercial Economy, [chap. vi. CHAPTER VI. MONEY PRICES. As a first step towards our study of the theory of money prices in a commercial society, we will examine that accepted by plutology and the reasoning by which it is supported. Since money and price are terms of communal as well as of commercial economy, and have nearly the same meaning in both, plutologists have not in this case been compelled by the scientific methods they adopt to make their theory nonsense absolute, and have been confined to the other kind of nonsense of which their science consists, namely, truism. When Mill tells us that under certain circumstances prices vary directly as the number of coins in actual circulation, his statement is not nonsensical, like that, for instance, in which he asserts that the goods a capitalist obtains as profit bear a particular ratio to the factory which forms his stock ; it may be true, or, at the worst, it may be untrue, while the other statement can be neither. The reaKoning, however, by which he attempts to prove his statement is mere argument in a circle, since he adheres to the methods proper to the science of wealth, and ascribes to the coins a circulating virtue, or, as he says he would prefer to call it, an "efficiency" by which prices are ruled, while at the same time the eflSciency is merely " the average number of purchases made by each piece {of money) in order to -effect a given pecuniary amount of transactions," * that is to buy goods of a given price. We are thus expected to learn the efficiency from the price, and then to learn the price from the efficiency. Mill's train of argument is as follows :— Since all the goods in the * Book iii. chap. viii. § 3. CHAP. VI.] Money Prices. 83 market and all the money in circulation are " seeking each other for the purpose of being exchanged," therefore, when the goods are all bought their total price will be the money given for them, that is, all the money in circula- tion. This, as he tells us, assumes that the goods are sold only for money, that they are sold only once, and that the money is used only once in buying them ; it also assumes, although he does not tell us so, that the price of all the goods at one time in the market is equal to the number of notes in circulation, which is precisely what he undertook to prove. It is well known that the same coin may be used more than once, and to complete the theory " each pound or dollar must be counted for as many pounds or dollars as the number of times it changes hands " before all the things on sale at one time are purchased and finally removed from the market. The goods, also, are often bought more than once, and must be multiplied by the number of times they are bought. Reckoning them in this manner, he says that prices will vary with " the quantity of money in circulation multiplied by what is called the rapidity of circulation." The complete unconsciousness of any flaw in his argu- ment with which Mill thus assumes that he has proved prices to depend on the quantity of money in circulation is very remarkable in the author of an esteemed work on logic. All he has really done is to tell us, what we knew before, that if, say, a hundred pound-notes are used three times in buying certain goods, the price of the goods is 300Z. Had he stopped at this point he could not possibly have inveigled any one into thinking that the reason had been explained why this particular sum was the price of the goods, but by using the phrase " rapidity of circula- tion " to indicate the number of times the coins are used, he suggests something inherent in the coins which com- pelled them to circulate three times, and thus to fix the price of the goods. Still more strongly does the term " efSciency," which Mill proposes instead of " rapidity of circulation," suggest this inherent circulating virtue, with- out which he would have been unable to convert a truism G 2 84 Communal and Oommercial Economy, [chap. vi. 80 obvious that no one could ever have mistaken it for any- thing else, into another which might escape careless notice. Since coins that are kept safely iinder lock and key in the vaults of a bank cannot exert, as they would if cast loose on society, the circulating power they possess, they can have no influence on prices, and Mill, therefore, says they have none. On the other hand, credit may be used to purchase goods, and prices will depend not alone on the money in circulation multiplied by its efficiency, but also on the amount of credit. Some forms of the latter, again, are more influential in fixing prices than others, since the instruments in which they are embodied possess different efficiencies as money ; bank-notes, for instance, are more efficient than bills, and bills than book credit. " When," therefore, " credit comes into play as a means of pur- chasing, distinct from money in hand, . . . . the connection between prices and the amount of the circulating medium is much less direct and intimate, and such connection as does exist, no longer admits of so simple a mode of expression." Here, again, if we deny to bank-notes or other instruments of credit any independent circulating virtue we come back to the original truism. A certain quantity of goods is sold, partly for cash and partly for promises to pay cash, and the price of the goods is the number of pounds given for them. If the money, whether legal tender or not, is used more than once, this will be because a single use would not buy the goods ; the money will not circulate of itself, nor make prices higher or lower according as its efficiency is greater or less. We may learn the " efficiency " of coins, if we wish to do so, from the prices of goods sold and the number of coins in circulation, as we may learn the " carrying power " of a gun by measuring the distance the cannon-ball travels, but we cannot learn prices from the efficiency, any more than we can learn the distance from the carrying power. Efficiency of money should no more be employed as a scientific term in political economy than carrying power in the study of projectiles, but whereas in all other sciences we have long ceased to explain phenomena by the OHAP. Ti.] Money Prices. 85 powers of producing them which matter possesses, political economy still employs no other method. To give a nu- merical example of Mill's theory, we will assume that there are certain goods for sale the purchase of which would be "a pecuniary amount of transactions " equal to 3000Z. ; there are also 1000 notes in circulation, and these will purchase the goods ; their efficiency is, therefore, such that by circu- lating three times they could effect a pecuniary amount of transactions of 3000Z. Since, now, the notes and the goods " are seeking each other for the purpose of being exchanged," they will, therefore, be exchanged, and the price of the goods will be 1 OOOZ. multiplied by three, or 3000?. Compare this with Gulliver's scientific explana- tion of the movements of the floating island and " change places, handy-dandy, which is the justice, which is the thief ? " — which is the science, which is the satire ? Grulliver explains that the island is raised four miles from the earth by the magnetic virtue it possesses, but will not rise higher because the virtue extends no further, and the critics say the satire is here too coarse and obvious, that Swift knocks his adversaries down with a cudgel instead of pricking them delicately with a rapier. At the same time we are asked to regard it as sound science when Mill says the price of a hat is raised to twenty shillings by the circulating virtue or efSciency of the coins in use, but will not rise higher because the virtue is insufficient to raise it higher ! Money and goods do not seek each other for the pur- pose of being exchanged ; a man with a five-pound note in his pocket may walk down the street and pass ten thousand lots of goods, the purchase of each of which would be a pecuniary transaction amounting to bl., but the note would not drag him into the shop in order that it might there exert its purchasing power and be ex- changed for the goods it was seeking. If the man took the note with him into the shop it would lie inert in his pocket while he and the shopkeeper settled by higgling the prices at which the one would buy and the other would sell the goods.. The cash might not even be used 86 Communal and Commercial Economy, [chap. vi. to buy goods at all, but miglit be sent to the bank and there put under lock and key, when its circulating efficiency would be destroyed, but the man and the shop- keeper would still bargain as before, and the bargaining of a man with a five-pound note in bis pocket will not differ from that of the same man when he has sent his money to the bank, nor will the resulting prices be different. Cash is simply an implement used to facilitate trade; and its price, that is the fraction of the daily income of capital that may be obtained in exchange for it, is fixed by the higgling of traders in precisely the same manner as that of steam-engines or other stock. A commercial society, like a commune, cannot exist without money, although cash may not be required. If two men who possess the power of compelling labourers to work for them agree to combine their capitals, and that the one shall grow wheat with which to feed all the men, while the other employs those who are not required for this purpose in weaving velvet, they must agree between them as to how the Telvet shall be divided. In this simple case we should scarcely get beyond barter, for tlie velvet would be exchanged i'or the wheat, or the latter would be given for a promise to pay velvet when it was made ; but if a third man joins the society and produces wine, money at once comes into play. If the wine- grower buys wheat, agreeing to pay for it a certain quantity of velvet, while at the same time he knows that he will pay wine, his contract is really a promise to pay, not velvet, but such a quantity of other goods as shall be numerically equivalent to a piece of velvet. This becomes still more decidedly the case when the commodity he agrees to pay is one, like gold, which is very little used as an article of consumption, and such an agreement is a promise to pay not a sovereign, but a pound, that is, a certain definite proportion of the total income of capitalists. It is not necessary, although it is highly convenient, that there should be any concrete tokens by the transfer of which an agreement to pay a pound should be legally fulfilled, and commerce might conceivably be carried on without them. GHAP. VI.] Money Prices. 87 Mill, quoting Montesquieu, says * there are certain African tribes who actually transact business with a purely arith- metical money, and reckon prices in macutes, altliough there is no such thing as a concrete macute in existence. It is not easy to guess how such a system originated, unless macute, like pecunia, is simply the old name of a useful commodity which had formerly been employed as a measure of prices, but which had long ceased to be used for the purpose. In whatever way, however, it began, tlie system, when once established, would enable the tribes to carry on a commerce of even some complexity, more especially if goods were exchanged only at periodical markets. Prices, it will be remembered, do not fix themselves without human interference, as the water in a river fixes its velocity in accordance with the inclination and form of the river-bed, but are the result of the, bargaining of traders who are guided in tlieir bargaining by the prices which ruled before. When our African merchants brought their goods to market and began to trade, they would remember the prices which had been current at the last market, and all would expect to buy and sell at about the same prices again, unless some- thing had occurred in the meantime to alter the relative estimation in which their particular wares were held. If A had sold oxen before for five macutes apiece, he would offer them again at this price ; and if he sold one to B, would buy, say, five sheep from C at a macute each, and would refer C to B for payment, thus balancing his account. would sell his sheep at this price because he had been used to do so, and his customers would not offer more for similar reasons. He would, perhaps, buy linen for five macutes from D, whom he would also refer to B for pay- ment, and his account would be balanced. In this manner the whole of the goods brought to market would be dis- tributed amongst the several traders precisely as if cash had been employed, and every one would go away with his accounts fully balanced. At the next market the same process would go on, and prices might vary very little even during long periods ; but if from any cause they did * Book iii.ohap. yii. § 1. 88 Communal and Oommereial Economy, [chap. vi. vary, there would be nothing to bring them back to a normal standard. Changes in prices under this system would be like the deviations which would take place in the course of a steamship that had lost her rudder ; they would not be sudden, but might, and probably would, become very great in course of time. Even in England the pound is often for years together little more than a macute, and traders buy and sell with scarcely any reference to the normal price of gold. During those fits of trustfulness which periodically come over capitalists no one demands payment in cash, and prices are fixed by some vague general belief on the part of capitalists that they will be higher or lower than those of the day before. Although the commercial steamship has in this case a rudder, it is not used, and she wanders as erratically as though without one ; some one then suddenly takes the helm by demanding payment in gold, when the ship is violently brought round until she perhaps deviates as far in the opposite direction from the normal course she would have followed had the rudder been kept constantly in use. A society which measured prices in macutes could carry on an extensive trade only under great disadvantage. Contracts to pay money at a distant date could hardly be made, owing to the instability of prices, and as no one could do business except with those who knew his cir- cumstances, and trusted his honesty and prudence, every one would be obliged to produce for himself many of the materials of his trade, although a greater subdivision of in- vestment would be advantageous to all. Let us assume that in such a society the art of banking were invented, and that the State issued a number of notes decreeing them to be a legal tender for the payment of a macute or pound. The manner in which they were issued would be imma- terial ; the State might give them to a bank, either getting goods in exchange or not, or it might use them to buy goods from the shops. In the latter case capitalists would of course lose the goods the Government took, but would get in exchange a proportionate share of the new notes, CHAP. vr.J Money Prices. 89 and might sell them to those who wished to become bankers. In any c^se the banlc would be established, and would have, as stock, a certain number of notes, which would be freely taken as payment for goods, the current scale of prices being such that a note would purchase the same goods that before cost a macute. It is essential to the solution of our problem that there shall be prices to begin with, for if the notes could not be used to buy goods they would not be cash. In practice, paper currencies have grown out of those which consisted of the precious metals, and notes when first issued were accepted as pay- ment for goods of equal relative price to the metal they represented. In our imaginary society they would be taken at the prices then current, and a note would buy a piece of velvet if the market price of the latter had been a macute at the time the notes were issued. As the known wealth of the banks would give them credit with the public, they would be able to give banking accommo- dation to traders much beyond the number of notes they owned. A check on the bank would pass nearly every- where as freely as cash, and where it would not pass actual notes would be used ; we may, therefore, treat bank accommodation as identical with cash, it being understood that a certain proportion consists of actual notes. Cash or bank credit is more advantageous to some traders than to others, and even the same trader can carry on some parts of his business on his own individual credit as well as with that of the bank, while for other parts the bank's assistance becomes very advantageous. For verbal con- venience we will, however, assume that every trader works entirely with bank, or entirely with his own, credit, and that all have the same income, numerically equivalent to 100 pieces of velvet. A, we will say, would be able to work so much more advantageously if he had bank credit that he would gain 11 pieces of velvet annually, B, 10 pieces, and C, 9 pieces, while there are many traders who would gain more than A, and many others who would gain less than 0. It will be remembered that bank accommo- 90 Communal and Commercial Economy, [chap. ti. dation is required solely for the purpose of buying materials, wages-goods, and other articles to be employed in com- pleting the manufacture of commodities, and that when prices are high all traders will require more accommodation than when they are low, since they will have to pay more money for everything they buy. It is also important to remember that with a given rate of interest a trader pays to the bank the same proportion of his income, and there- fore the same proportion of his net product of goods, whether prices are high or low, and that he will, in deciding whether he can advantageously accept accommodation, look therefore only to the rate of interest. If prices are high he will require much accommodation and will pay much money for it, but the price of his finished wares being proportionately high, he will pay no larger a proportion of his income than wli^n the general pitch of prices is low. When the bank begins to trade, the pitch of general prices is such that a piece of velvet costs a macute, and we will assume the issue of notes to be such that at tjiis price the bank can accommodate A, and all who would gain more than he from having a bank credit. A would have to pay 11 pieces of velvet, or their price, for the credit he obtained ; if the bank offered it for less, B, who would gain 10 pieces by having credit, would ask for accommo- dation, which could not be given if A also obtained it, for the bank cannot with a limited stock increase its business indefinitely, and the ordinary higgling between the bank and A and B would give the accommodation to A, and would compel him to pay 11 pieces of velvet for it. The bank could not demand from its other customers more than A paid, for if the rate of interest were raised, A would not deal with them, but would work on his own credit, and part of the bank's money would thus be unemployed. The total income of the banks will thus be equal to 11 per cent, of that of A, and of all their other customers. If this gave more than the normal rate of profit on the whole issue of notes, banking would be a specially profitable trade ; a man with lOOOZ. in cash would get a larger income CHAP. VI.J Money Prices. 91 by becoming a banker than he would by buying a steam- engine with his money, and competition for cash would arise, owing to those who owned goods being anxious to sell them for cash so that they might become banlters. The ordinary bargaining of trade would then cause a fall in the prices of goods, when the business of A, and of the other customers of the bank, would be insufficient to employ all the bank's credit. In order to induce B to trade with them they would have to lower the rate of interest until they obtained only 10 per 'cent, of the incomes of their customers, and if this gave them exactly the normal rate of profit on the notes they owned, prices would then remain stationary. Had the original issue of notes been sufficient at the assumed pitch of prices to accommodate C, the banks would get only 9 per cent, of their customers' income, and if this were not sufficient to give them the normal rate of profit, prices would rise until none who were unwilling to pay such a rate of interest as would give the bankers the normal rate of profit could obtain accommodation, while all who were willing to do so were accommodated. When this had been brought about the total income of the banks would be sufficient to buy a certain proportion of the net product of their cus- tomers, whose products again would be a certain proportion of the total profit-fund. Both proportions depend on the trustfulness of capitalists in the honesty and prudence of each other ; if traders trusted the bank more completely, the latter would become little more than a clearing-house, and would be compelled by the competition of other banks to put up with only a small proportion of the income of its customers; if, on the other hand, traders trusted each other more completely, they would gain but little from having bank credit, and would therefore make but little use of it, and would pay but little for it. We may thus summarise in algebraical language the theory of money prices : — „ Or Qr = xm, or x = — , m 92 Communal and Commercial Economy, [chap. vi. where G = the number of legal tender notes or coins in use. r = the normal rate of profit ; r being therefore equal to the total income of bankers. X = the price of the total daily or yearly profit- fund, according as r is the daily or yearly rate of profit, m = a coefficient dependent inversely on the bank- ing facilities enjoyed by the society, and on the trustfulness of capitalists in each other's prudence and honesty, m will be equal to the proportion of the entire profit-fund which bankers obtain as profit (the goods being compared by means of their relative prices). Hence the price of the total profit-fund will vary directly with the currency and the rate of profit, and, assuming all relative prices and the total magnitude of the fund to be constant, general money prices will also vary in the same proportion. The rate of profit does not, however, generally vary without a corresponding change in the profit-fund, and practically no change in general prices follows its variations. A rise in the price of any one article will cause a fall in that of one or more other articles, for, the total price being constant, if that of any one becomes greater, those of all others must become less. A variation in m would cause a proportional inverse variation in x, and it is conceivable that the trustfulness of traders in each other or in tbe banks should become so perfect that cash would be entirely supplanted by book-entry, when m would vanish and prices would become infinite, unless all the notes and coins were withdrawn from trade. In the general commerce of the world cash was intro- duced gradually by traders, and consists of the precious metals. In this case the same formula applies as where paper is employed, but the currency, instead of being the independent variable and regulating the normal prices of goods, is made to vary in such proportions that one pound or macute shall always buy a fixed and definite weight of gold, and the quantity in use will, therefore, depend on CHAP. VI.] Money Prices. 93 the income which bankers can obtain by means of their stock of cash. Bankers obtain an income, not because they have gold, but because they can facilitate the work of otlier traders, and will get no more if their stock is unnecessarily large than if they managed their business more skilfully. When, therefore, owing to improved banking, or to other cause, the coefficient m decreases and prices rise, bankers export part of their cash, or sell it for consumption in the arts, when prices return to their former standard, and a pound again buys goods of equal normal price with a sovereign- weight of gold. If from an increase of the numerical magnitude of the profit-fund, or from any other cause, prices fall, it becomes profitable to employ, as banking stock, gold which would otherwise have been consumed in the arts, when prices rise. If banking were so much improved that cash was no longer required, every coin would be removed from commerce, but a pound would still mean such a proportion of the total daily income as would buy a sovereign-weight of gold or other goods of equal relative price, and commerce would be carried on precisely as if there were visible tokens of a pound in daily use. If the currency consisted of inconvertible notes, and the Government regularly with- drew from circulation such a number as would keep the price of a sovereign-weight of gold precisely equal to a pound, the whole of the notes would similarly vanish. Promises to pay notes could then never be fulfilled, for there would be no such thing in existence, but no one would ever demand fulfilment, unless he wished to take an unfair advantage of his debtor, for the notes would be of no use as banking stock, and the debtor's check would enable bim to get goods from the shops. In this case the pound would again become a macute, and prices would follow the general impressions of traders that they would be higher or lower than those of the day before, while there would be nothing to bring them back to a normal standard after they had once varied. The use of algebraical formulae in the study of political economy is always dangerous, as it tends to suggest that 94 Communal and Commercial Economy, [chap, ti, prices, currency, &c., have inherent powers of varying or circulatinor, as tlie case may be, and that, for instance, prices chanp:e lecause there has been a change in the currency. This, however, is not the case any more than the carriage moves because the wheels turn round ; prices depend on higgling alone, and unless we can trace the manner in which a new issue of money, or a change in the rate of profit, or increased trustfulness of capitalists in each other, affects the higgling of the market, we are. always liable to error if we assume that prices will vary from any of those causes, since we are liable to forget or to overlook the assumptions we have made in framing our formulae. We will, therefore, examine in detail the manner in which changes in the factors of our formula cause changes of prices. In actual commerce bankers are also money-lenders, having true mortgages passing through their hands disguised as bills of exchange, and this fact somewhat modifies the manner in which bargaining takes place. When the pitch of general prices is high, and traders consequently require large bank credits, the banks begin to get alarmed at the extent of their business compared to their stocks, and call in some of their true loans, so that they may increase their cash reserves. Tlieir debtors can pay only in cash, and in order to obtain it are compelled to force their sales of goods by lowering prices, when the bank's business falls off at once. Even if existing bankers were content to keep their reserves low, their depcjsitors and other owners of promises to pay cash would be induced by the high profits of banking to call in their debts, so that they might themselves become bankers, and the same result of a fall in general prices would take place. If, on the other hand, the general pitcli of prices is low, the reserves of the banks will be needlessly large, and, in order to lessen them, the bank will either have to lower the rate of interest, and thus induce traders to accept accommodation who could do very well without it, or to issue the money as true mortgage loan. The former method is one the banks naturally dislike, and in practice, when they begin to farce their business on the market. CHAP. VI.] Money Prices. 95 tliey do 80 rather by lending to solvent firms money which they know will be employed in purchasing new stock, and not for purely banking purposes. The borrower takes goods, say a new steam-engine, from the profit-fund, and other capitalists, of course, lose the goods thus taken, but obtain in exchange a proportionate share of the cash or credit which the bank has issued, and will pay it into the bank, thus paying off part of their morfgage loans. A rise in prices would not necessarily follow ; prices are the result of bargaining between those who have goods and those who have money, and will not change unless a change takes place in the relative estimation in which goods and money are held. If it was a matter of complete indifference to traders whether they obtained tlieir ordi- nary stock of profit-goods for consumption, or whether they obtained a share of the money issued by the bank, and thus paid off some of their mortgage debts to the latter, no rise in prices would follow the issue. The only change would be that the bank, while losing what was practically a mortgage on the stock of their old customers, acquired one for an equal sum on the new steam-engine. Their reserves would still be needlessly large, and they would continue to issue true loans, until, in the course of years, the increased banking transactions required for working the new stock, restored their entire transactions to that correlation with their capital which was just necessary to their safety and stability. As a matter of fact, however, traders are not indifferent as to whether they enjoy their incomes or save them ; if tliey save, it is because they have children to provide for, or for some other good reason, and they will not be. influenced by any action the bank may take. When, therefore, the new money is issued, traders will not be indifferent as to whether they get goods or notes, but will prefer the former, and when this is the case, those who have goods to sell will soon find it out, and will raise prices. The result would be precisely the same if the State issued more notes, or if new gold mines were worked ; the new cash would in either case be used to take goods from the profit- 96 ComrnvMol and Commercial Economy, [chap. vi. fund, and traders would pay their debts to the bank with the cash they obtained instead of the goods taken by the issuer. The bank would re-issue the cash as true loan until the competition of traders for goods raised prices so much that the new cash could be profitably used as banking stock, or until the same result was, in course of time, brought about by the increased business of the society. Although, as we haye just said, men save voluntarily only when they have some definite end to gain, they are apt to keep as capital a sum they have involuntarily ' " saved ; and when new cash is issued, and they are com- pelled, whether they will or not, to go without the goods taken by the issuer, they are more apt to pay their debts with the money they get in exchange, than they would have been to go voluntarily without the goods. Hence a new issue of cash is likely to lead to increased investment, and the mines of California and Australia have almost, certainly been instrumental in causing a large increase of population in Europe and America by inducing capitalists to erect more factories, and to furnish food for more work- men. In the same way the issue of inconvertible notes generally made by a country which is engaged in a great war, leads to an expansion of trade. A change in the rate of profit may arise from a change in the rate of wages ; if, for instance, the latter falls, ( „ goods which had hitherto been paid to workmen are trans- ferred to the profit-fund, and the numerical magnitude of the latter is, therelbre, increased. If bankers cannot share in the gain, banking will be an undesirable business, and unless, therefore, the rate of interest can be increased, prices will rise owing to the competition of those who have cash, and wish to exchange it for steam-engines or / ,2 other stock. If the increase in the profit-fund did not increase the amount of banking accommodation re- quired, the bank would be unable to raise the rate of interest, since, if it did so, it would be unable to keep all its cash and credit employed ; a rise in prices would, v \ therefore, take place, when the rate of interest could also CHAP. vi.J Money Prices. 97 be raised, since the bank could not, at the new pitch of S rices, accommodate all its former customers, and could emand a higher rate from those whom it could accom- modate. In reality, the change in the rate of wages does, more or less, affect the demand for bank accommodation, since the workmen employed in producing wages-goods are, to some extent, paid in kind. If they were entirely thus paid, the goods they received would be as much outside the ordinary commercial world as is the gas con- sumed at the gasworks, and their manufacture would be carried on without the bank's assistance. When wages fell, part of the goods formerly paid to the men would become profits, and would be offered for sale, when cash or bank credit would be required in order to transfer them from hand to hand. The increased banking business thus required would enable tiie banks to raise the rate of in- terest without any previous rise in prices. In Europe, how- ever, farmers and other wages-goods producers sell nearly the whole of their product, paying almost the whole of their men's wages in cash ; and a fall in the rate of wages would have little influence on the demand for bank accom- modation, and would, therefore, cause such a rise in prices as would permit the rise in the rate of interest necessary to make banking as profitable as other trades. The rise in prices would not be, of course, proportional to the rise in the rate of profit, and would practically be very small. Eeturning to the formula x = — , if the mcrease m the rate of interest took place without any rise in prices, the bankers would obtain the same proportion as before of the profit fund, and x would increase proportionately with »• ; if a rise in prices took place, bankers would obtain the same money income as in the other case, but would not be able to buy with it so large a proportion of the profit- fund ; m would, therefore, be less than before, and x would increase more than proportionately with the increase of the rate of profit. The rate of profit may also rise owing to an increase H 98 Communal and Commercial Economy, [chap. ti. of scientific knowledge, which enables new investors to obtain a larger return of profit-goods from a given invest- ment. In this case also, the numerical magnitude of the profit-fund would be increased, provided the new inven- tion could be adopted in existing factories. Larger banking accommodation would, therefore, be required, and the bank would be able to raise the rate of interest, so that no general rise in prices would occur ; in this case also X would increase proportionately with r. If wages rise, the rate of profit will fall, and goods formerly forming part of the profit-fund will be trans- ferred to the wages-fund. The demand for bank accom- modation being scarcely affected, the bank will not 'be compelled to lower the rate of interest, and will continue to make the old rate of profit on its capital, when banking will be a specially profitable trade, and prices will fall owing to the desire of investors to obtain cash so as to become bankers. In this case bankers will obtain a larger proportion of the profit-fund, and the total price of the latter will decrease more than proportionately with the rate of profit. The rate may also decrease owing to a larger investment being required, in order to add a given quantity of goods to the profit-fund ; if, for instance, while all existing farms, mines, and factories produce as much as before, a new investor is compelled to spend as much on his new factories, and more on his new farms, than former investors, he would make a lower rate of profit, and the ordinary competition of trade would enable land- owners to obtain a larger share than before of the profit- fund ; bankers would, therefore, obtain less, and the co- efficient m being lessened, the total price of the profit- fund would increase, although it consisted of the same goods as before, or, in other words, general prices would rise. Changes in the remaining factor m of the formula, affect prices in precisely the same manner as changes in the number of coins or notes in use. When capitalists become more trustful of each other, they require but little accommodation from the banks ; the reserves of the latter CHAP. VI.] Mon&y Prices. 99 become unnecessarily large, and are issued as true loan, thus causing, in the manner already described, a rise of prices, or an increase of the profit-fund. "Where the currency consists of the precious metals, variations in prices would be merely temporary. When the bank's reserves were low, and general prices fell, owing to its endeavour to strengthen them, that of gold would not do so, since it could be employed to pay debts. Its high relative price would discourage its use in the arts, and would encourage its production or importation until the stock of cash were raised to the proper standard^ when the prices of all goods would return to their former relation to that of gold. When the reserves were large, and the banks wished to get rid of their excess of gold, they would either export it or force it into the market for consumption, when its relative price would fall and the production of more would be discouraged, while the consumption would be increased until the excess of cash disappeared. Nothing will, therefore, have any perma- nent influence on general prices where the currency con- sists of gold, except a change in the normal relative price of the latter, and nothing will influence the total price of the profit-fund, except a change in its numerical magni- tude when measured in units of gold. u 2 100 Communal and Commercial Economy, [chap. vn. CHAPTER VII. EXPANSIONS AND CONTEAOTIONS OF TKADE. All our arguments regarding prices and interest rest on the assumption that creditors will always read between the lines of the promissory notes they hold, and recognise that the true meaning of the promise is not gold or notes, but goods. This they generally do, but about every eight or ten years a panic arises, and they then demand what is written in the bond, — that is, they insist on being paid in legal tender. It would be physically impossible to satisfy them, as the number of notes at any time in existence is, even in a society well supplied with currency, much less than the number of promises to pay notes, and nothing can then be done but to let the manufacturers be ruined, or to set the printing-presses of the Bank in motion. During panics, or other great disturbances of trade, prices of goods and of loans are too irregular to be ex- pressed in any formula. Our deductions rest on the hypothesis that things go on in a particular manner, and are worthless when the actual facts are not in accordance with the hypothesis. We shall not improve our position by falling back on the law of supply and demand, which, like all the other reasoning of plutology, is mere argu- ment in a circle; we know that during a panic prices fall and the rate of interest rises because manufacturers are then called upon to pay in cash debts they never expected to have to pay at all, and are unable to get the money ; but it is no explanation of the matter to say the demand for money has increased, causing a fall in prices, for this is merely saying in other words that prices have CHAP. VII.] Expansions and Contractions of Trade. 101 fallen, and tells us nothing we did not know before. The hypothesis on which our reasoning rests is that monej- lenders always renew that part of their debtor's bills which i'orms their own stock. The free or realised capital of a money-lender is really quite as nominal as the price of a steam-engine, and no more forms part of the usual cash transactions of the society than does the price for which the engine might be sold. A money-lender must keep his money perpetually on loan, or he loses his income; his debtors, who compose the manufacturing class, give him promises to pay the whole sum in two or three months, but it is always understood that the capital sum will be lent again, and only the profit demanded. If one lender will not renew it is expected that another will do so, but if all refuse, the borrower must go into the bankruptcy court. To avert that misfortune he will sell his goods for ready money at any sacrifice, and will promise almost any rate of interest for present accommo- dation, but it is mere waste of time to try to lay down a formula which will tell us what price he will get for his goods, or what rate of interest he will have to pay, and it is mere trifling to say the prices, or the rate, will depend on the demand and supply of goods and loans. When trade has been for some time in a normal and uneventful state there are few bankruptcies, and capi- talists gradually get to trust each other more fully than usual. Bankers are then inclined to make use of their credit, and to issue fictitious loans by granting overdrafts or discounting bills to be expended in the purchase of new stock, although no new deposits have been lodged with them to warrant the transaction. The checks with which the borrowers pay for the stock might be employed in clearing off some of the manufacturers' debts to the bank, but as the manufacturers prefer spending their incomes to paying their business debts when not specially urged to do so, they begin to compete with each other for goods, and prices rise. Their true banking loans consequently in- crease and the bank is enabled to raise the rate of interest, thus making a larger profit. Trading on credit being 102 Communal and Commeroial Economy, [chap, vn, very profitable, every one who can do so avails himself of the trustfulness of the bank and enlarges his factory or other stock. Every additional fictitious loan leads to a rise in general prices, and in due time the work- men, seeing the prosperity of their masters, begin to demand higher wages, which they generally succeed in getting, although the rise seldom does more than make good to them the rise in prices. Money-lenders also and the bank's depositors, seeing that by turning to manufactur- ing they could make much larger profits, begin to demand a higher rate of interest, which they also obtain. If the outlay of all traders consisted of the same proportions of wages and interest, the rise in the rates would simply restore the relative incomes of all to their former scale, but this is far from being the case. One manufacturer may work costly stock with few men, and another may produce wares of equal price by employing more men with less costly stock, and a rise in wages would affect the latter much more than the former. One man, again, may own nearly all his fixed stock, and may pay very little for his materials and stores, and he would be scarcely affected by a rise in the rate of interest, while another may owe nine-tenths of the price of his fixed stock, and may have to buy costly materials, so that a rise in the rate of interest would be a serious loss to him. When the rates of interest and wages rise, those who are most affected begin to get into difficulties, and are perhaps unable to meet their engagements and become bankrupt, and if the number of bankruptcies is large a panic may set in. Money-lenders then demand payment in cash, which cannot be obtained, and industry becomes com- pletely disorganised. Besides those who are honestly panic-stricken, there are many shrewd and not very scrupulous creditors, who would like to ruin their debtors so as to force a sale of their factories, which they would themselves step in and buy. These also take ad- vantage of the times, and insist on being paid in legal tender. It is desirable, or at least it is generally thought so, that neither the folly of the one, nor the greed of the CHAP. VII.] Expansions and Oontraotions of Trade. 103 others, slionld be allowed to bring unmerited ruin on the manufacturers, who, as usual when in trouble, run to Government for help. They require means of meeting the promises they have made to pay gold or Bank of England notes, and, although Government cannot get gold for them, it can authorise the Bank to print notes by the ream. As soon as this is done, the panic generally stops. Every manufacturer who has stock, or consols, or land, or anything which in ordinary times could be sold for cash, gets advances of notes from the bank and pays his debts. The panic-stricken creditor can do nothing with the notes but take them back to the bank for deposit, as he is afraid to lend them. He thus loses nearly the whole of his income, and the bank might, with advantage to itself, go on issuing or re-issuing notes until it had a lien on all the factories in the country, and got a large share of their product. The shrewder men, who hoped to force sales or to lend their money at exorbitant rates, find they cannot 'do so, and give up the fight by renewing their debtor's bills. Matters do not, however, fall back at once to their old state, and in tracing the changes that occur it will be verbally convenient to assume that all act in the manner which, as a matter of fact, is adopted by only a -compara- tively small number. We will, therefore, assume that all who had hitherto lent money directly to traders become too frightened to do so, and deposit their money with the bank, by whom the whole money-lending business of the society is, therefore, transacted, and whose deposits are consequently largely increased, but whose mortgage loans are at the same time increased by an equal sum, as well as by the whole of the fictitious loans it had itself issued. The bank's total transactions need not necessarily be larger than before, for the low pitch of general prices of goods may so much reduce the amount of pure banking loans required, that, even when the unusually large mort- gage loans are added, the total may be not more than the banking loans by themselves amounted to when prices were high. A bank is not, however, in so safe a position 104 Communal and Commercial Economy, [chap. vii. when a large proportion of its loans consists of mortgages as when they are true banking loans. In the latter case its debtors clear their accounts periodically; a corn merchant, for instance, who borrows lOOOZ. with which to buy corn, will pay his debt when the corn is sold, but if 5001. of the amount had been spent in erecting his granaries he would be unable to pay this sum for years ; the money, though perfectly safe in the end, is so tied up that the bank could not use it if required for its own purposes, and bankers are very unwilling to have much of their capital thus beyond their control. Pressure is, therefore, put upon the bank's debtors to pay up part of their permanent debits, but in the circumstances in which by our supposition they are placed, it is a mathematical impossibility for them to do so. Debts can be paid only in goods or in gold, and as the bank will not take the former, and as all of the latter which can be applied to the purpose is still buried in the bowels of the earth, the debts must remain unpaid until the bank (including its deposi- tors in the word) changes its mind and accepts goods, or until time has been given for more gold to be mined. The coins actually in the country belong already to the bank, from whom the ownership never departs, and are not, therefore, available for the purpose of paying off mort- gage debt; a few may be obtained from abroad, and these are purchased and paid in to the bank, whose re- serves increase, notwithstanding the large quantity of gold required for circulation, owing to the distrust of each other which traders now entertain. The quantity thus obtainable is, however, relatively small ; foreign gold belongs to foreign bankers, and if it is exported some one will be unable to meet his engagements to the bank, and must get bills renewed which, in the ordinary course, he would have paid, but this he will not be able to do unless credit abroad is improving, and the banks are becoming more liberal in granting accommodation. Foreign bank depositors may, inleed, and frequently do, demand gold from the bank, and send it to a country suffering under a coulraction of trade, where it is employed in the purchase CHAP. vn.J Expansions and Contractions of Trade. 105 of Government stock, railway shares, and other sound, non- speculative securities ; but foreign bankers, finding their reserves decreasing, raise the depositor's rate of interest, which arrests the movement, or restrict their accommo- dation, which produces the same effect. Assuming that all the obtainable gold had been used in paying debt, a large balance would still remain, and the manufacturers would be called upon, under threats of bankruptcy, to pay it, notwithstanding the impossibility of their doing so. They have no hoards of gold, and their creditors will not accept in payment a share of their factories, for no one who can help it is inclined to invest in manufacturing industry just at the time when all manufacturers are in trouble, and when prices are low; they all, therefore, prefer to keep their money in the form of claims on the raanufactuting class. The very last thing the latter would think of doing at this particular time would be to enlarge their factories, or to erect new ones, even if they had the money with which to do so, and the stock usually em- ployed in such work is obliged to lie idle ; blast furnaces, iron-rolling mills, iron and coal mine^, quarries, brick- yards, &c., &c., therefore stop work, and the men are dismissed. Both men and masters being thus obliged to retrench, the prices fall of the goods they used to consume, or the factories which produced them are closed or run on short time, thus adding to the troubles of the manufac- turers. The banks, however, still keep the screw more or less vigorously applied, and the anxiety of manufacturers to obtain cash keeps prices low. The manufacturers in their trouble also endeavour to save money from their personal expenditure, but this is a hopeless attempt, for there is no one to buy the goods they abstain from con- suming. The bankers and creditors will not spend more than their income, no matter how cheap goods may be, and the final result of the attempted economies of the manufacturing class is thus, by increasing the supply offered for sale, to still further lower prices, and, perhaps, by this means to induce the labourers, bankers, and credi- tors to lay by money ; and every penny so laid by is an 106 Communal and Commercial Economy, [chap. vii. addition to the debts of the manufacturers. The latter pay the other classes in money, say, by check on the bank, and if the money is saved the check simply goes to the manufacturer's debit, while the unbought goods remain on his hands, and he must lower his prices in order to get rid of them. The result is the same if payments are in cash, for if labourers or others take cash, which they have received from the manufacturers, and deposit it with the bank, the manufacturer will be unable to meet so much of his indebtedness to the latter ; in short, all whose income consists of money can save it by becoming creditors of the manufacturers, since they are not compelled to buy goods ; but manufacturers are compelled to sell all their goods for what" money is offered, and to recognise as a debt all money they have promised to pay, but which the sale of their goods will not meet. The manufacturing class when they endeavour to save by abstaining from the use of the goods produced are really making a hopeless attempt to palm off on Nature the bad coin, abstinence, for the good money, labour. Saving to be of use must be investment — that is, the directing of labour to the production of stock, by which more men may be employed and more wealth produced, but this kind of saving they have entirely abandoned, and no other is of the least use. As the contraction of trade continues, and the savings of the labourers and creditors accumulate as deposits with the bank, the depositor's rate of interest falls, for bankers are not very anxious to obtain, nor do they com- pete very zealously against each other for, deposits which, from the nature of the case, must consist of debts due by those whose debits are already too large ; and, sooner or later, depositors begin to get weary of the moderate returns they get, and resolve to withdraw their money in order to embark in manufactures. This marks the dawn of a new industrial day, in whose rays the fogs of debt and difficulty in which the manufacturers are enveloped will melt away as quickly as in the past night they had accumulated, for every pound withdrawn from the bank's deposits is simply a gift to the manufacturers, and must CHAP. 711.] Expansions and Contraetions of Trade. 107 almost necessarily be used by them to pay their debts. The check, the actual piece of paper, with which the depositor pays for the goods he buys, cannot itself be con- sumed, nor could the gold, had he demanded it from the bank in order to make his purchase, and the only use to which it can be applied by the manufacturing class into whose hands it comes is the payment of debt to the bank. It must be remembered that (when the creditor class does not save) the income of the manufacturing class consists of the price of the goods left in the profit-fund after the money they have paid to their creditors has been spent. Let us say, for instance, that the daily profit-fund consists of goods numerically equivalent to 100,000 pieces of cloth worth 100,000/., and that manufacturers have to pay daily 50,000?. to their creditors who spend the whole of their income. The manufacturers would then get 50,000i a day, and would be able to consume goods numerically equivalent to 50,000 pieces of cloth, or to use as stock what they did not consume, and which, in this case, would consist of steam-engines, &c. If the creditors then resolved to save 10,OOOZ. a day and prices were unchanged, they would consume only 40,000 pieces, leaving 60,000 for the manufacturers, but at the same time acquiring a practical mortgage on the stock of the latter for 10,000Z., for they would have in their possession an un- expended check for this amount which they would deposit with the bank. Although the manufacturing classes could not prevent the creditors from acquiring this mortgage, they could reimburse themselves by employing, as stock, the goods thus left on their hands, but during a contraction of trade they will not adopt this method, and endeavour to save by simply leaving the goods unconsumed. The result, if prices remain unchanged, must then necessarily be that the goods will simply accumulate in the ware- houses; but, practically, prices are lowered until the creditors can buy for the 4O,0O0Z. they resolve to spend, not only the goods they would have enjoyed had they spent all their incomes, but also those the manufacturers, in their futile endeavour to save, throw upon the market. 108 Commwnal and Commercial Economy, [chap. vii. When trade begins to revive the creditors spend in the purchase of goods (and it is immaterial whether they take velvet or steam-engines) not only their 50,000Z. of income, but also, say, 10,0O0Z. of capital, that is, of debts due to them, and if prices remain unchanged, will get goods numerically equivalent to 60,000 pieces, leaving 40,000 pieces for the manufacturers. When the purchases are completed the manufacturers will have not only the usual checks for 50,000Z. received in payment of goods sold to the creditor class, and which balance the checks given by them in payment of the daily interest due, but also a check or gold, for lO.OOOZ., and this, when sent to the bank, is simply a reduction of their indebtedness. In practice, prices will not probably remain unchanged ; sellers will soon feel that there is a new buyer in the market, and. will raise prices so that the creditor class may not get more nor even so much for their 6O,000Z. as they would have got for 5O,O00Z. It must, however, be borne in mind that prices depend on the relative estima- tion in which goods and money are held, and that, although the competition of a new buyer may affect prices, this is a mere ripple on the surface, and that the bank manager is the ruler whose will the great tide of prices obeys. If he resolves to restrict accommodation, and threatens his customers with a refusal to renew their bills, their anxiety to obtain cash with which to pay him will keep prices low in spite of increased sales, and although the effect of withdrawal of deposits may be directly to raise prices, its indirect effect is much more powerful. When the bank manager makes up his books after the day's work, he will find his deposits and his outstnnding credits to have been both reduced by 10,OOOZ., and this fact will make him less rigorous with his debtors. As confidence in the revival of trade increases, more and more of the bank's deposits are removed, and its outstanding credits consequently reduced, and finally the bank ceases to call upon its debtors to pay their mortgage debts. Manufacturers having now the choice between paying their debts or spending on their own enjoyments the sums they consider CHAP. VII. J Expansions and Contractions of Trade. 109 desirable and suitable in their rank and circumstances, prefer the latter, and their preference for p;oods OTer money leads to a rise of prices, and, thereJFore, to an increase in the quantity of accommodation required for purely banking purposes. When the bank finds its trans- actions to be in this manner restored to that due propor- tion of banking and mortgage loans, and to that due amount of both which in the ordinary state of banking credit makes its position sound, it exerts precisely such pressure on its debtors as will keep prices at their normal rate, that is, it does not demand payment of existing mortgage loans, but refuses to increase their amount, except in so far as its own deposits are increased. The foreign gold which had been brought in when prices were low is now sent abroad in purchase of goods, or in buying back the railway shares and other securities which had previously been sold, until the bank's reserves are again of their proper magnitude. Everything is then restored to its normal rate, but after a longer or shorter period the depression is forgotten, credit becomes good, the banks begin to force their business on the market, prices rise, and a new expansion of trade results, to be followed in due course by a contraction. The bank's transactions will not return to their normal state, nor trade, therefore, be fully restored, until the increased savings of the creditor class amount to at least as much as the issue which had been made of ficti- tious loan, nor until these savings have been invested in existing /aetories. The contraction of trade is due to the efforts of the bank to restore itself to the position it held before it issued the fictitious loans, and this cannot be accomplished until savings sufficient to cancel the loans have been made and invested, or, in other words, until the fictitious loans have become real. Let us assume that the bank has 100,000?. deposited with it, and lent out again to manufacturers, and that it has also issued 10,OOOZ. of fictitious loan which it now insists shall be paid up. If the creditor class saves by spending part of their income in steam-engines or other stock, the manufacturers will 110 Communal and Commercial Economy, [chap, vii. obtain only the usual checks for 50,000Z. daily, but as they give checks for the same amount to the creditors, their bank accounts will not be altered. If the depositors withdraw 10,000?. from the bank and spend it in pur- chasing goods or in buying a share in existing factories, the manufacturers will get checks for 60,000Z., while they give others for only 50,000Z.," and their mortgage loans will be reduced by 10,O0OZ., but as theibank's deposits had been reduced by the same amount there would still be 10,000Z. of fictitious loan in existence. If, however, the depositors spent only 40,000?. in goods, and with the remaining 10,000?. bought a share in an existing factory the manufacturers would get checks for 50,000?., but would give to their creditors others for only 40,000?. Their mortgage debts would then be reduced to 100,000?., which is exactly the sum deposited with the bank, and which it can, therefore, safely and prudently allow to remain on loan ; — the fictitious loan would have disappeared. It is necessary that this investment by the creditor class in existing factories shall be real ; that is, it must consist of an actual purchase of a business or of a real mortgage at long dates. If the mortgage is disguised as a bill of exchange the bill will come to the bank for discount, and the mortgage loans of the latter will be too large, as it will discover by finding that its customers do not periodi- cally clear their accounts as would be the case if they borrowed only for banking purposes. The misery caused by this irregularity in the march of industry is so great, that proposals by which it may be- prevented are abundantly made, but, as usual in economic statesmanship, no one clearly knows what he wants, or at all events what he is prepared to pay for it, and is, there- fore, pretty certain to fail in getting it. During tbe de- pression of trade now passing away, there were in England hundreds of thousands of skilled and industrious work- men hanging idly round the doors of closed factories, while the men into whose hands the direction of labour bad been entrusted were helplessly bewailing the hard CHAP. VII. J Expansions and Contractions of Trade. Ill times and praying for better, as if the production of wealth were a matter as far beyond man's control as the occurrence of storms or of earthquakes. Had a visitor from Utopia come to the country and been asked what steps could be taken to open the factories and to prevent their being closed again, he would probably have suggested that a system of labour-direction should be given up which had proved its badness by such a reductio ad absurdum, and that some one (say the young ladies of the Telegraph Department) should be instructed to take the management and to devise means of setting the factories to work. If his advice were followed and the young ladies' hands were not tied by restrictions practically con- fining them to the present system, not only would all the factories be in full work in a week, but a period of pro- sperity would set in such as England never saw, and it would not be followed by a relapse. No commercial states- man would, however, adopt so revolutionary a scheme as to take the direction of labour out of the hands of the capitalists, no matter how shamefully they mismanaged it ; interference would indeed be considered a wicked wrong-if done openly and avowedly. With, however, that strange disregard of things and reverence for names that characterises commercial ethics, the statesman would be considered justified in really taking the management out of the capitalists' hands, if only he could do so in some round- about way. Here, however, the practical difficulty arises that roundabout means to an end are never successful, and there is always great difficulty in hitting that precise amount of indirectness which would just remove from the statesman's interference with capital enough of the im- morality inherent in the act to make it permissible to a conscientious legislator. But little has, therefore, actually been done to prevent fluctuations of trade, and the Bank Act of 1844 is the only egg that has fairly come to hatching out of the great number of more or less addled ones that have from time to time been laid. The funda- mental theorem on which the Act rests is, that prices 112 Communal and Commercial Economy, [chap. vii. dt^pend on the number and tlie circulating virtue of coins, and that if the number in circulation be duly regulated, prices will never be able to rise so high as to cause an expan- sion, nor to fall so low as to cause a contraction of trade. If, owing to an issue of fictitious loans, prices rise, gold will be exported, but if it be taken from the circulation the effi- ciency of that still left will then be unable to keep prices at their high standard, and they will again fall, or, at least, not rise higher ; but if the exported gold be replaced by bank notes whose circulating virtue is equal to that of the gold itself, prices will continue to rise, production will be encouraged, and an expansion of trade will ensue, to be followed in due course by a contraction. The Act, by forbidding the issue of more than a certain number of notes, except in exchange for gold, causes the currency to consist largely of coins, at the same time effectually pre- venting the substitution of notes for any gold that may be withdrawn from the currency for exportation, and it was confidently expected that this would prove a certain means of lowering prices whenever they became abnor- mally high, and that, therefore, no expansion of trade could ever assume serious dimensions.* An expectation founded on such a basis was not likely to be fulfilled, and the Act, instead of putting an end to commercial revulsions, is itself put an end to by them, since it has to be suspended when- ever they occur. Prices do not depend on the number of coins in circulation, and would be the same however much it might vary, or whether there were any in circulation at all, and whatever influence the Act may have is due to other causes than its supposed regulation of the currency. That it has some influence in narrowing the swing of trade vibrations is possible, although no rational explana- * "I think myself justified in affirming that the mitigation of com- mercial revulsions is the real, and only serious purpose of the Act of 1844. I am quite aware that its supporters insist (especially since 1847) on its supreme efficacy in ' maintaining the convertibility of the bank- note.' But I must be excused for not attaching any serious importance to this one among its alleged merits. Tlje convertibility of the note was maintained and would have continued to be maintained, at whatever cost, under the old system." — Mill (note to Book iii. chap. xxiv. § 3). CHAP, til] Expansions and Contractions of Trade. 113 tion has been given of the manner in which it is exerted, but in any case the influence must be very slight. When prices rise, gold becomes the most profitable commodity tor export, and, under the Act, will be drawn from the currency ; but even if we grant that without the Act it would be replaced by bank-notes, the issue of which would be really a fictitious loan, the influence on an expansion of trade would be small. Exported gold is held abroad with a very lax grip, since it is a mere addition to the already sufficient stocks of the foreign banks, and on a fall in prices will be sent back almost at once in ex- change for goods. If, therefore, a few millions less of fictitious loan (the cause of all disturbance) are issued uuder the Act than would be the case without it, the error is so easily corrected as to be unimportant ; but, as a matter of fact, if the Act did not exist there would be no gold in circulation, for the Bank would issue notes to replace it, and there would not, therefore, be a larger amount of fic- titious loan than at present. When once a panic sets in and creditors demand payment in cash, nothing can keep the manufacturers from ruin but a new issue of notes, or at least the knowledge that if required they would be issued, and the Act, by forbidding this to be done, is purely mis- chievous, if we assume the desirability of keeping the manufacturers from ruin. It is not, however, quite certain that we can make this assumption, for if manufacturers knew that the State would not step in to save them, they would not be so rash in making promises they knew quite well could not be fulfilled, but would take steps to make their creditors real partners in their business, and would substitute co-operation for money-lending, or would at least cease to disguise their mortgages as bills of exchange, and would borrow only at long dates money to be spent, in fixed stock. Banking would then be confined to its legiti- mate work of subdividing the profit-fund amongst the proper owners, fictitious loans would not be made, and commercial revulsions would be unknown. Contraction of trade is attributed by plutology to over- consumption, and the remedy proposed is to abstain as I 1 14 Communal and Commercial Economij. [chap. vir. much as possible from consuming those goods we have left. We are said to haye consumed during the preceding expansion not only our income, but also our capital, and to have lived at too extravagant a rate ; having thus become poorer we must recover our lost position by those commercial virtues, abstinence and self-denial. We have also, it is said, converted too much of our circulating into fixed capital, and as we cannot re-convert the fixed to the circulating form, we must produce more of the latter, and not consume it, but accumulate it. We have here first the ambiguous meaning of the word " accumulate," which in commercial economy means to accumulate capital, that is, the right or power of enjoying the product of other men's labour. This can only be done by employing those men whose labour is already our property in the production of goods for the use of new men, and of implements with which they can work. There is no such thing in commerce as accumulation in the ordinary meaning of the word, for goods are consumed as soon as they are produced. It is true that we are compelled by the natural properties of our wealth to have a stock always on hand; the harvest comes only once a year, and we are obliged to store it in granaries, but we consume the year's stock within the year, and should benefit no one but the rats if we accumu- lated the harvests of several years, unless, indeed, like Pharaoh, we anticipated a drought. So with iron, cotton, and all other forms of wealth, we accumulate no more than we can help, and a manufacturer whose stock is increasing lessens or stops his production. As Adam Smith says, " con- sumption is the sole end and purpose of production," and " accumulation " would be pure folly ; if we have the goods, the only use we can put them to is to consume them as fast as we can, taking care only to make them last until more can be obtained ; and more can be obtained by labour only, and not by abstinence. Secondly, we have the usual double meaning of the word capital. When a monied man erects, say, a brewery, he does not convert beef and corduroy into stone walls and machinery, but only changes the form of his capital ; he formerly obtained the product CHAP VII. j Expansions and Contractions of Trade. 115 of other men's labour by lending money to a manufacturer, he now does so by employing men to produce for him beer, which he can sell for other goods. He thus converts his nominal free capital into the nominal price of imple- ments, but his doing so does not lessen the quantity of circulating capital in existence, for the latter is merely the account keeping by which the profit-fund is divided amongst the several capitalists. A monied man is, as we have already said, really the partner of the manufacturer to whom he lends ; the latter had a sum of money with which to erect his factory, and to provide the first stock of materials, wages-goods, and other things required. Know- ing that a costly factory is more profitable than one less costly, he gets from the money-lender a further sum to add to his own capital. If the creditor resolves to withdraw from the partnership and to erect a factory for himself, he may do so, but the manufacturer must then forego the use of his profits so as to pay his debt. The goods he thus, against his will, abstains from consuming, are used to buy a new fac- tory for his creditor. During the process trade is disturbed, but when once it is completed both factories produce wealth for the use of their owners, and there need not be a subse- quent collapse of trade: If, however, the creditor while demanding payment will not take goods, the only coin his debtor has, the latter will be at his mercy, and, so long as this dead-lock continues, trade will be disorganised and new factories will not be erected. Abstinence and self- denial are not the virtues required in order to restore trade, but a rational self-interest, which would induce traders to take the only possible means of getting from nature the wealth they desire, namely, by keeping their men and factories in full work. An expansion of trade with a subsequent revulsion is apt to arise when any new opening for the investment of money presents itself; as, for instance, new Government loans at home or abroad, new industrial discoveries such as that of railways, &c. When Government wants to borrow, or when railway companies are started, many of the bank's depositors withdraw their money in order to employ it in ] 16 Communal and Commercial Economy, [chap. vii. the new investment, but the banks are not thereby in- duced to withdraw as suddenly the accommodation given to their customers. If they did so, the manufacturing class would be compelled to save from their consumption the whole of the goods taken by Government with the borrowed money, or paid to those who build the railway ; but in fact the manufacturers get fictitious loans from the bank, and do not feel called upon to save at all when prices rise owing to their competition for goods. The rates of interest and wages rise in due course, and many traders become unable to meet their engagements ; credit declines, the bank tries to realise its fictitious loans, and the contraction of trade becomes fully established. When a new issue of money is made, whether in the form of inconvertible notes or of gold, or when, owing to improve- ments in banking, the existing stock of money becomes greater than, at current prices, is necessary, an expansion of trade takes place ; but in this case no contraction need follow, since no fictitious loans are made. The money, however used by the original issuer, is eventually paid to the money-lenders in liquidation of debt, and is re-issued by them as true loan to be employed in erecting stock, which would not have been produced had the money not been issued. Prices eventually rise, but since the position of the banks is perfectly safe and stable, they exert no unusual pressure on their debtors, and the higher prices are permanently maintained, ( 117 ) CHAPTER VIII. COST OF PBODUOTION. When capitalists invest or re-invest their money, they naturally endeavour to obtain the highest possible rate of profit, and their mutual competition tends to make the prices of work and of goods such that all new investments yield the same rate. Normal prices, therefore, are such as would give new investors the normal rate of profit, and current prices will never for long together differ greatly from the normal price. Adam Smith, when discussing this subject,* says that when a commodity is sold for the natural, as he somewhat unhappily calls what we, following Professor Oairnes, have called the normal price, it " is then sold precisely for what it is worth, or for what it really costs the person who brings it to market ; for though in common language what is called the prime cost of any commodity does not comprehend the profit of the person who is to sell it again, yet if he sells it at a price which does not allow him the ordinary rate of profit in his neigh- bourhood he is evidently a loser by the trade ; since by employing his stock in some other way he might have made that profit." Plutology seizes upon the word cost, which Smith here, with perfect propriety, uses in the sense of price as looked at from the buyer's point of view, and then Eroceeds to turn the whole of his teaching into nonsense y confusing this cost with the cost of production, and by asserting that prices tend to be equal, not to the normal price, but to the sacrifices and privations of which pluto- logical cost of production consists. Mill writes,t "The latent influence by which the values of things are made to ♦ Book i. chap. vii. t Book iii. chap. iii. § 2. 118 Communal and Commercial Economy, [chap. viir. oonlorm in the long run to the cost of production (read, to the normal price) is the variation that would otherwise taice pkce in the supply of the commodity. The supply would he increased if the thing continued to sell above the ratio of its cost of production (read, above its normal price), and would be diminished if it fell below that ratio." This is a complete and accurate explanation tof the manner in which" prices are kept by the competition of investors nt or near a certain normal price, but what connection has it with cost of production? The disconnection of the two things is so complete that argument on the subject is as impossible as if he had said it was a latent influence by which prices are made to conform in the long run to the rotundity of the earth. Of course, if the phrase cost of production meant merely the normal price, Mill's teaching would be quite correct, and the only objection we could make v\ ould be to the employment of the words with such a meaning ; but this is not the case, and his reasoning is therefore absolutely and entirely inconsequent. He shows that if the price of 51. per ton of iron would give a new investor the normal rate of profit while the current price is 6?., investors will increase the supply and the current price will fall to 51. ; if the current price is 41., less iron will be produced and the price will rise to 51 ; instead of deducing from this that iron will generally sell for about 57. a ton, he makes the absurd and inconsequent deduction that its price will be equal to the toil of the labourers, plus the abstinence of the capitalists who produce the iron, since these are, he says,* the elements of which cost of pro- duction is composed. By another feat of logical leger- demain Mill next assumes that cost of production is the same thing as the sums obtained as a reward for having undergone the toil, and for having exercised the abstinence constituting the cost, and the final form of his theorem is that normal prices are equal to the «um of the wages obtained by tlie labourers who produce the goods and the profits of the capitalists by whom the men were employed ; this sum being afterwards called the cost of production, » Book i. chap. ii. § 1 and § 2. Book iii. chap. iv. § 1 and § 4. CHAP. Yin. J Oost of Production. 119 while labour and abstinence are allowed to disappear from the scene. Even if it were true that normal prices are equal to the sum of normal wages and profits, Mill would have done nothing to prove it, for variations in tlie supply, which he says are the latent influence by which prices are ■made to conform to this sum, have no such influem-e, and only make prices such that new investors would make the normal rate of profit. In fact, however, prices, whetlier normal or not, consist of profits alone, and are not equal to the sum of wages and profits. Let us say, for instance, that a capitalist has horses and carts worth 1000/., the normal rate of profit being 10 per cent., and that he employs his stock in drawing gravel from the gravel-pit to the town, paying 500Z. in wages. By Mill's theory the price of a year's supply of gravel would be 600Z., but if the capitalist sold it at this price he would soon be in the bank- ruptcy court, as he would have to pay, say, 300Z. a year for hoi-ue-feed, and, say, lOOZ. a year as rent of the gravel- pit, and in order that he might get the normal rate of profit on the money he had invested, tlie price of the gravel would have to be lOOOZ., or the sum of rent, profits, wages and horse-feed. The sums paid in wages are, as we saw in the chapter on capital, the profits of the wages- goods producer, those paid in horse-feed are the profits of the horse-feed producer ; tlie price of the gravel, whether normal or not, being simply the sum of the profits of the several co-producers. If lOOOZ. is the normal price, this is not due to the fact that tiie several co-producers obtain this sum amongst them, but to the fact that a new investor who wished to convey an equal quantity of gravel to the town would have to invest 10,000Z. in buying horses and cart^, in erecting a wages-goods factory, in bringing into cultivation a field in which to grow horse-feed, and in obtaining all the other stock required directly or indirectly for the work; and to the fact that, the normal rate of profit being 10 per cent., no one will enter into the business unless he can make lOOOZ. a year profit by so doing. If by spending 9000Z. he could have obtained the gravel, or if the normal rate of profit had been 9 per cent., the 120 Communal and Cummercial Economy. [chap. vrir. normal price would have been 900?., and one or all of the co-producers would have obtained less profit measured in money, although, it is important to note, as much gravel would have been obtained, and the class of capitalists would have been as well off as if the larger sum had been made. Mill's theory that the normal price is lOOOZ. because the several co-producers obtain this sura, is one of many cases in which plutology sets the cart to draw the horse, for they obtain lOOOZ. in the ordinary course of trade because that sum is the normal price. If we wish, in deference to our communal instincts, to say price is composed of wages and profits, we must modify the definition of the latter word, and make it signify the profits of all the co-producers except the manufacturer of wages-goods, but we do not thus get any nearer to accept- ing Mill's theory, for " price " and " cost of production " are still related to each other, not as effect and cause, but as similar effects of similar causes. The price of to-day's wealth is the cost of production of tliat of to-morrow's, and they are related to each other precisely as are to-day and to-morrow. They are not necessarily nor really equal, but as the astronomer takes for discussion an ideal world in which all days are equal, so the economist takes an ideal society in which the income of one day is similar and similarly distributed to that of another. He then has to do with prices, wages, and profits that never vary, and may be called normal ; the sum of normal wages and profits will then be equal to normal prices, because wages and profits, whether normal or not, are by definition the com- ponent elements of price, but if he tries to prove that normal wages and profits have an influence on prices, making them tend to equality with a normal price, he gets at once into a flagrant argument in a circle. For instance, the price of the total work done by the Great Eastern steamship is much less, and that of the work done by the Great Northern railway is much greater, than would give the normal rate of profit on the sums originally paid for the stock, and in order to get over the difficulty presented by cases of which these may be taken as representative. OHAP. VIII.] Cost of Production. 121 plutology is obliged to declare that, in the case of an un- lucky undertaking, only so much of the total investment must be included as obtains the normal rate of profit, and if the investment is unusually good, only so much of the profits must be included in cost of production as would give the normal rate. If all the money invested in shipping before the Qreat Eastern was built gave the normal rate, this it is contended was due to the fact that freights are normally equal to the sum of normal wages and profits ; after she was built the price of freight would be less than would give the normal rate on the sum actually invested, but it would still be equal to the sum of normal wages and profits, since we must include in the invested money only so much of the price of the great ship as earned the normal rate. In the same way, if all railways, before the construction of the Great Northern, paid the normal rate on their original prices, railway freights would, after that event, still be necessarily equal to cost of production, since, although the profits actually made were above the normal rate, only so much of them must be included in cost as would give the normal rate ; the balance would be rent, which we are assured forms no part of the cost of pro- duction. Even plutology can hardly furnish a better example than this of the pure circular argument. It would be impossible to use the phrase " cost of pro- duction " to denote the sum of wages and profits without being continually led astray by the ordinary meaning of the words, and plutology has been led, by the secondary meanings they suggest, into trains of thought and reasoning the dream -like incoherence of which is paralleled only in Mr. Lewis Carrol's delightful tales of Wonderland. The cost of producing anything is the toil undergone by those who produce it, and it would be difficult to name anything more unlike this cost than the goods consumed by masters and men during the produc- tion, but as the goods are called the cost of production, plutologists have been constrained to try and prove that they really are, or, at least, that they measure, privations borne by the capitalist. Wages are said to represent a 122 Communal and Commercial Economy, [chap. viii. loss to him of the well-being he might have enjoyed hy consuming the goods himself, and the privation he thus suffers is part of the cost of production. " If a person," says Mill, " has a store of food, he has it in his power to consume it himself in idleness, or in feeding others to attend on him, or to fight for him, or to sing and dance for him. If, instead of these things, he gives it to productive labourers to support them during their work, he can, and naturally will, claim a remuneration from the produce." But this is precisely what he does; he does hire men to sing and dance for him, and to make velvet fur him, and to grow wine, and generally to spend their lives in ministering to his pleasures. It is because he can and does this that he is a capitalist, and it is surely an absurdity to say he undergoes privation or helps in the work of production because he employs some of the men ill providing the food the others require to enable them to live and serve him. If the men could and would work for him without food and he still kept some of them at work in its production, he might be said to undergo privation, for he would be depriving himself of the services of the men so employed ; but he would then be giving them, not wages, but alms, which are not included in the (ilutological cost. He pays wages, because if he does not do so he cannot get men to sing and dance for him, or to furnish him with the food and clothes he requires to enable him to live in idleness, and he produces wages-goods only that he may be able to pay the wages. Ttiis is not privation, and even if it were it would be no part of the cost of production ; we may grant that capi- talists spend their lives in one unending round of privation, and deserve all they obtain, but their profits, regarded as the reward of their virtue, belong to the science of ethics and not to politi(;al economy. The economist cannot treat them as cost, knowing there is but one cost of production — ^the irksomeness of toil ; labour is the only coin nature will take in exchange for her wares, and privation is a bad shilling that cannot be foisted on to her. A capitalist cannot, with more propriety, speak of wealth' CHAP. vm.J Cost of Production. 123 as the product of his privations in paying wages, than a highland freebooter of old, who levied black-mail from his lowland neighbours, could have spoken of their herds and crops as the product of the privation he underwent in not robbing them outright. He had the power to take their wealth, and to apply it to his own use, and if he had exercised it there would have been neitlier herds nor lowlanders left. He abstained from doing so, and the herds increased and multiplied. To use Mill's words, " he could, and naturally did, claim a remuneration from the produce," but it would be a misuse of language to say his abstinence, or the privations attending it, formed part- of the cost of production of the lowlanders' wealth. It is true that, but for his abstinence, the lowlanders would have died of hunger, and he might have had a good moral claim to all he got, but his claim would not rest on his having co-operated with the lowlanders in the production of the goods. The payment of wages forms, however, by far the smaller part of the cost of production, the consumption of profit-goods forming, iu England, at , least two-thirds of the whole. At first sight it is difficult to connect the enjoyment of profits with privation, and it would seem very absurd of the queen who ". . . . was in tlie parlour eating bread and honey," if, in explaining plutology to the bees, she were to' tell them that her eating the honey was the principal part of the cost of producing more, while the rest of the cost consisted of the privation she underwent in leaving them enough to keep them alive so that they might gather more for her and themselves next season. When, how- ever, we come to study the subject by the light of plutology, we find that the maintenance of their incomes is effected by a process which Professor Cairnes tells us is, for the great mass of capitalists, "a really painful one," and that the " abstinence " they are compelled to exercise is so disagreeable, and at the same time so necessary, that 124 Communal and Commercial Economy, [chap. vni. we are justified " in co-ordinating abstinence with labour among the elements of cost of production," This absti- nence " is the name given to the sacrifice involved in the advance of capital."* A millionaire, instead of enjoying his 50,000Z. a year, might if he chose dismiss his men and consume in wild riot the steam-engines and factories which form his stock, and the abstinence he exercises in not giving way to his natural desire to do so, is the painful process which forms part of the cost of production. A man with lOOOZ. a year does not exert so great a strain on his inclinations, and the cost he incurs is, therefore, less, in the proportion of 1 to 50, while a capitalist with only 101. a year exercises scarcely any abstinence at all, but such as he does exercise is a sacrifice, not only analo- gous to that made by the labourer, but which can even be weighed and measured against the toil and the risk of bodily injury which the latter undergoes. This being established (?), the plutological theories of prices, profits, and wages are really complete, for everyone's income is said to be proportional to the share of the cost which he undergoes, while prices are said to be proportional to the sum of the several costs incurred by all employed in pro- ducing the wares. A man, for instance, who owns a shop, some cloth, needles, thread, &c., and abstains from con- suming them, makes a painful sacrifice equal to, say, a. The journeyman tailor whom he employs makes also a painful sacrifice by working all day in the shop, and this is equal to, say, i. The income of the master-tailor will, therefore, be to that of his workmen as a to 6 : if it is twice as painful to abstain from consuming a shop as it is to work in it all day long, then the master's income will be twice that of the journeyman, and if it is five times as painful, the income will be five times as great ! In the same way a shoemaker and his man make sacrifices in producing a pair of shoes, and if we find them to be, when added together, only one-tenth of the sum of the sacrifices made by the tailor and his man when producing a coat, then we shall know that the relative prices of a ♦ Cairnes' ' Leading Principles,' part i. chap. iii. CHAP. vin.j Cost of Production. 125 coat and of a pair of shoes will ba as 10 to 1. Tiiis is, of course, not true of every individual coat and pair of shoes, for, as Piofessor Cairnes says, " the relation which compe- tition establishes between co-t and value is one, not between the value of particular commodities and the sacrifices of the individual or individuals who have pro- duced each such commodity, but one between commodities taken as sorts and their cost of production. We cannot, for example, assert that a particular pair of shoes will exchange against a particular coat in proportion to the sacrifices undergone respectively by the shoemaker and the tailor in the actual case; but we may assert that within a given field of competition, shoes, as one sort of commodity, will exchange against coats in this proportion. The costs, therefore, to which the values of particular commodities correspond are not the particular sacrifices undergone in producing each commodity, but the average sacrifice undergone in producing each sort of commodity. We may, therefore, state broadly that differences in the sacrifices incident to production, whether of labour or of abstinence, which are due to peculiarities either in the physical, mental, or social circumstances of individuals, are to be excluded from consideration in estimating cost of production. What we have to do with is, not individual sacrifice, but the average sacrifice of each industrial class. "This point being cleared up, we can have no difiiculty in seeing how cost in its principal elements is to be com- puted. In the case of labour, the cost of producing a given commodity will be represented by the number of average labourers {Query — What is the average between a blacksmith amd a barmaid ?) employed in its production — regard at the same time being had to the severity of the work and the degree of risk it involves — multiplied by the duration of their labours. In that of abstinence, the principle is analogous ; the sacrifice will be measured by the quantity of wealth abstained from taken in connection with the risk incurred, and multiplied by the duration of the abstinence." I have made this long quotation from Professor Cairnes 126 Communal and Commercial Economy, [chap. viii. principally to prevent suspicion that I am mis-stating the theory of abstinence as generally accepted by plutologists, and, perhaps, even attempting the impossible by trying to burlesque it. I have no intention of replying to it in detail, but shall content myself with denying the data on which it rests ; namely, that capitalists can consume their stock, or obtain moi"e goods for their own consumption, except by hiring more men, or by employing more wisely the number they actually employ ; that incomes are pro- portional to privations undergone ; and that normal prices depend on the sum of normal wages and normal profits. This theory of the rewards of sacrifice, perhaps owes its existence to a wish to defend the present system of industrial government, and is, at all events, used for that • purpose. Since the wealth daily produced is the product of the capitalist's abstinence, it is argued that it could not be taken from him, nor the commercial system overturned, without robbery as immoral as that by which the system was originally founded. The system rests, it is said, not like the one of war and violence, from which it is histori- cally descended in a direct and unbroken line — on " . . . . the good old rule . . . . the simple plan, That they should take who have the power And they should keep who can," — but on justice, right, and honesty : the thorn has, in this case, produced grapes, and figs now grow on the tliistle. Instead of every man robbing his neighbour, or being robbed, everyone now gets what his sacrifice has produced, and he gets neither more nor less than is justly due to the cost he has borne, this happy result being the direct child of the old and uiijust system. The toiling poor, indeed, may think there is a good deal of family likeness between the two systems, and that the modern animal, although it may claim to be a true sheep, not only had a she-wolf for its mother, but acts in the fold very much as its mother would have done. If, however, there is no better defence of the system CHAP. VIII.] Cost of Production. 127 than that wealth is produced by the abstinence of capi- ta^sts, it is, logically, in a very defenceless state. Another sophism used in defence of the system is, that labourers liave no rights in the product of their labour, having been already rewarded by their wages, whicli were the product of previous labour. They cannot, it is said, afford to wait until the harvest, while the capitalists can ; they, therefore, get their reward from existing weahh while the capitalist waits for his until that of the future is ready. "Wages and profits are thus said to be not con- temporaneous, and there is a third class of wealth which seems to be anterior to both. Mill divides* workmen into two classes ; the one labours in the production of wealth and gets its remuneration from the product, such are "the miller, the reaper, the ploughman, the plough- maker, the wagoner and wagon-maker, and even the sailor and ship-builder," employed in producing bread. The other class consists of the men who produce the food the former consume^ while working, and their remunera- tion is said to be derived, not from tiie food they produce, but from " previous food." What does all this mean ? The reward of all classes consists of the food they eat and of the clothes they wear, which are certainly never the product of future labour. All eat the grain of last harvest, and are employed about producing that of next year. The labourers, including the managers and directors, co- operate by giving their labour ; the capitalists are placed by their lucky stars in the position of having nothing to do but to give their assent, but they cm no more post- pone until a future day their consumption than can the labourers. Let us take, for instance, a parcel of wheat grown in the same field, ground in the same mill, baked in the same batch, and finally distributed by the same man. One loaf goes to a manufacturer, and is profits ; another to his workman, and is w ages ; a third would be " previous food," the reward of the man who produced the food which fed other producers of wealth. Profits, wages, and " previous food " ai-e not contemporaneous if we accept * Book i. chap. ii. § 2. 128 Communal and Commercial Economy, [chap, viii* this teaching, but if we free ourselves from the whirlpool of words which forms so large a part of plutology, and study things instead of names, we must recognise that tl)e three loaves are contemporaneous. The object of our study is to learn what influences the distribution of wealth, and not what the share of each man is, or may be, called. If workmen get, year after year, say one-half of the f)roduct of their labour, or rather the product of the abour of half their number, it is immaterial whether we call it a reward for having produced the wealth or for being employed in the production of more, or whether we call it a reward at all. The workmen get their share, not because they have a moral right to it, or because capi- talists distribute wealth to those who deserve it, but simply and solely because they can get it. It is the same with the capitalists, and each gets what he can make good his right to, and not what he deserves as a reward for having undergone toil or for having exercised abstinence. Life, in a commercial society, is a struggle to obtain possession of the wealth pro- duced ; the workmen can share only by labouring in the production of more, and the majority of capitalists only by lending the iinplements required by the workmen. The ownership of existing direct wealth does not rest with the whole class of capitalists, but almost entirely with the owners of money and debts. Implement owners may, and nearly always do, own nothing but their implements, and their right to share in the wealth their implements pro- duced rests on exactly the same basis as that of the labourers. The money owners have, or could take, the goods, without which both labourers and manufacturers would starve, but they dare not keep them, or they would themselves starve. They are, therefore, quite ready in their own interest, to advance their goods to the other classes to enable them to work, and to produce more wealth, of which they will become the nominal owners, but which they will have to share again with the others. Say that A is a manufacturer owning his implements and nothing else. Having no wages-goods, he can hire no CHAP. Tm.] Cost of Production. 120 workmen, and having no profit-goods, he would starve, in spite of his stock, if he could not borrow. B has goods, but no implements, and is therefore obliged to share with A, who again must share with the workmen. It will depend on the higgling of trade how much of his goods B will be able to keep for his own use, and how much he will be compelled to give to the others. Say he has 1500^., and lends lOOOZ. for a promise to repay 1500/. when the new goods shall have been sold. He will then have 500Z. for himself, and will still retain his power of sharing in future wealth. B gives 500Z. to his men, and consumes the other 500Z. himself. When his goods are finished they sell for 1500?., which he pays to A, and is again penniless. He, like A, has had 500?., and retains his power of sharing in what he produced by having kept his implements in good order. The workmen have also had 500?., and have likewise retained their power of sharing by retaining their skill and health. It is the veriest sophistry to say' there is any essential difference in the three cases, or that labourers and capitalists get their rewards from different- stocks. They all get their daily pay from the wealth that is daily produced, which is divided amongst them, as they are able to wrest more or less of it from the general stock. It does not in the least matter who is the nominal owner, as he is obliged to share with the others. Under existing circumstances, the nominal ownership rests almost entirely with the creditor class — the bankers and money- lenders ; but even if the implement owners worked entirely with their own capital, and owned, nominally, all the goods they produced, it would not change matters, as they would be compelled to share with the labourers. It is true that by the letter of the law they might, if they chose, refuse to do so, when the workmen would die of hunger, as they themselves would also do unless they set to work to produce wealth by their own labour. It is, however, no part of the study of the economist to investi- gate what would happen under such a supposition as this ; he takes as a postulate that the society shall continue to exist without great change in its conditions, and there- 130 Communal and Commercial Economy, [chap. vni. fore assumes that no sucli mania of suicide seizes the capitalists, but that they shall continue to exercise the self-denial implied in their not starving the goose that lays the golden eggs, at least until they have invented an iron goose that will lay eggs for them without being fed, when, of course, in the legitimate competition of trade, they would save the cost of feeding the old one, and would let it die of hunger, or graze for itself where- ever it could find grass. A would call the sum of the money that his men got, that he got himself, and that B did not give him, the " cost of production " of his wares. The inappropriate- ness of the name is evident, he ought to call it the money nominally owned by B, that, under the higgling of the market, was allotted to himself, his men, and to B. ( 131 ) CHAPTEE IX. KENT. Mill tells us that the theory of rent first propounded by Dr. Anderson, and afterwards re-discovered by Sir Edward West, Malthus, and Ricardo, may be called the pons asinorvm, of political economy, and that " there are few persons who nave refused their assent to it, except from not having thoroughly understood it." If, however, we are careful to use the technical terms with only one meaning, we shall find it to be like the rest of plutology, nonsense, or truism, according as we define the terms. Eicardo says, " Rent is that portion of the produce of the earth which is paid to the landlord for the use of the original and indestructible powers of the soil," and by the theory will be equal to the excess of produce which the land in question yields, " with an equal employment of capital and labour," over that yielded by the least fertile land in profitable cultivation. Here if capital means the implements of production, as defined, we have the usual difficulty of not knowing how to measure those employed in working land, nor what scale we are to use in deciding whether the sum of a plough and a horse is greater or less than that of a spade and a greenhouse, or whether a steam- engine is more implement than a threshing-machine. How again are we to measure the labour employed ? One farmer employs ploughmen and other male servants, while a second employs dairymaids. Is the quantity of labour merely- the number of human beings employed, multiplied by the number of days they work, or must we take some other measure ? The context shows that Mill and Ricardo assume labour to be measured by wages, and that a dairy- 132 Communal and Oommereial Economy, [chap. ix. maid who gets 30Z. a year must be reckoned as f of a ploughman who gets 50Z., while the ploughman would be reckoned as ^ of an overseer who got 101. ; but they do not inform us who is the normal labourer whose economic value is unity, and without this necessary knowledge we cannot measure the quantity of labour employed, even if we make the large concession that we are keeping within the limits of common sense when we say a dairymaid is f of a ploughman. Even if we could learn the quantity of labour, and also how to express in one total the various implements employed, we should be still as hopelessly astray as ever, i'or we have no means of expressing labour in terms of ploughs or steam-engines. The same may be said of the " produce " ; we cannot add a bushel of wheat and a leg of mutton into one total, and cannot, therefore, say whether the "produce" of one farm is greater or less than that of another. On the whole' we must, therefore, give up Ricardo's theory of rent as a mere unintelligible medley if we use the terms as defined, and must now test it when we use them in the sense which, from the context, is clearly in- tended. The theory will then read that rent is that portion of the price of the produce of land which is paid to the landloid, &c., &c., and is equal to the excess of the price over that yielded with an equal investment of money by the least fertile land in profitable cultivation ; but we have still to ask what is meant by "fertility"? The sands of Arabia are less fertile, if we use the word in its common meaning, than the wilderness of the Amazon, but the superior fertility of the latter does not make it yield a rent, and in discussing our theory we must clearly use the word with some other meaning. In communal economy one field would be considered more fertile than another if it yielded a larger produce to the labour of an equal number of men of, as near as we could judge, equal skill and vigour, but the fertility is purely conditional. Although, for instance, field A may yield to the labour of one man working with a spade a larger produce, and be, therefore, under these conditions, more fertile than field CHAP, rx.] Bent. 133 B, it does not follow that their relative fertilities would not be reversed if half-a-dozen men were employed with similar spades on each field ; or if both gave equal pro- ducts when cultivated with horse-ploughs, the products, and, therefore, the fertilities, might be very different if steam-ploughs were used. Or, again, if horse-ploughs were used on one, and steam-ploughs on the other, the yield to equal labour would, perhaps, be much greater in the latter case, and the fertility would, therefore, be greater, although it might have been less when both were ploughed by horses. Conditional fertility, in short, is no more an attribute of the laud than of the plough ; it is merely the ratio — Number of units of produce yearly Number of workmen employed in production ' and since this is also the ratio by which efBciency of labour is measured, the economist may adopt the latter term, and need not trouble himself about fertility at all. When one field is said to be more fertile than another, no more is meant than that labour as actually employed upon it is more efficient than on the other. Even if we employ the needless, and therefore worse than useless, term, we should not endeavour to compare the relative fertilities of two fields in which dissimilar products, say, wheat and potatoes, are grown, since they are incommensurable. If we measured the produce by the price of the goods, the ratio would be — Number of pounds for which goods were sold . Number of workmen producing the goods but with this definition we might with equal propriety speak of the relative fertilities of a cornfield and of a brewery, or of a dairy-farm and a theatre, and should be almost certain to fall into error by forgetting that the fertility which we were discussing had no sort of connec- tion with the usual meaning of the word. 134 Communal and Commercial Economy, [chap. ix. In the theory of rent the word does not even mean the ratio — Number of pounds for which produce is sold Number of workmen producing the goods and has, indeed, no reference to labour whatever. If, for instance, one farm is most profitably worked by employing ten men, and another, which produces an equal quantity of wheat, by employing five men and ten horses, the former would yield the higher rent, and would be con- sidered the more fertile, if the wages of five men were less than the cost of keeping ten horses. The ratio which represents so-called fertility in commercial economy is that which the profit, measured in money, bears to the normal price of the farmer's stock ; with any other meaning Bicardo's theory is glaringly wrong, while with this mean- ing it is a bald truism. The fertility of land is simply its " profit-producing virtue," and as all profit above that which gives the farmer a certain return is called rent, the higher the rent the greater will be the fertility, and we get into a circle v\hen we also say the greater the fertility the higher will be the rent. It is so notorious that rent does not depend on natural fertility that Mill has been driven to ascribe to land another quality, " situation," which, together with fertility, forms its " goodness."* An acre of land in Lombard Street or in Kent is of better quality than one in Minnesota, and yields, therefore, a higher rent ; but this is only another vicious circle, for we can measure the relative goodness of lands only by the rents they yield, and " goodness," lijce Kicardo's " fertility," is merely " rent-producing virtue." Rent, like profit, with which it is identical, depetids on the whole physical and economical environment of the society, and cannot be expressed more simply than by saying, as was said by Adam Smith, that it is the share of the money-profit of farming which the farmer is compelled by competition to pay to the landowner. If a bridge between the farm and the market-town is washed away, and is not rebuilt, the * Book ii. chap. xti. § 2. OHAP. IX.J Bent. 135 rent of the farm will fall, but it is surely a misuse of words to say, with Eicardo, that the bridge which was destroyed was one of the original and indestructible powers of the soil, or, with Mill, that it was one of the elements of the goodness of the land ; and unless we do so we cannot consent to the theory that rent depends on fertility or goodness. Intimately connected with the theory of rent is the so- called "law of the diminishing return from land," by which, as Mill * states it, " every increase of produce is obtained by a more than proportional increase of labour to the land." The whole fabric of plutology is founded on this theorem. " The question," says Mill, " is more important and fundamental than any other ; it inyolves the whole subject of the causes of poverty in a rich and industrious community, and unless this one matter be thoroughly understood, it is to no purpose proceeding any further in our inquiry." Again, he says, " This general law of agricultural industry is the most important propo- sition in political economy. Were the law different nearly all the phenomena of the production and distribution of wealth would be other than they are." We should expect in any study but plutology that a theorem so im- portant and fundamental, and on the truth of which the whole science is thus declared to rest, would be tested in every possible manner, and more especially by being com- pared with the actually observed facts of life. This, however, is not done, and the reasoning by which it is supported is no more than the usual medley of communal and commercial economy, in which investment and profit are taken to be the same thing as labour and produce. MiU's argument is as follows : — " If the land A yields a thousand quarters (of corn) to a given outlay in wages, manure, &c., and in order to raise another thousand re- course must be had to land B, which is either less fertile, or more distant from the market, the two thousand quarters will cost more than twice as much labour (read : * Book i. chap xii. § 2. 136 Commwnal and Commercial Economy, [ohap. ix. mil require more than twice as much outlay) as the original thousand .... Instead of cultivating the land B, it would be possible by higher cultivation to make the land A produce more .... But that it {the increased produce) is obtained at a more than proportional increase of expense is evident from the fact that inferior lands are cultivated. Inferior lands,or lands at a greater distance from the market {read : lands from which only a lower rate of 'profit can he obtained), of course, yield an inferior return, and an in- creasing demand cannot be supplied from them, unless at an augmentation of cost, and, therefore, of price." With the necessary assumptions and reservations, we grant all that Mill thus contends for in regard to the diminishing return of profit from a given investment, and the augmen- tation of the price of wheat, but this does not show that by a law of nature the labour-cost of wheat increases as more produce is got from a given surface of land, for the two theorems have no sort of connection with each other. In cultivating land certain methods of procedure must be employed, and assuming each method to yield a different rate of profit on the money required for its adoption, and assuming also that method to be adopted which gives the , highest rate possible in the particular circumstances of the society, any change in the methods must necessarily cause a fall in the late, even though the efficiency of labour be thereby increased. If, for instance, in the exist- ing circumstances of England horse-ploughing pays best on a particular farm, and steam-ploughing be adopted, the farmer will make a lower rate of profit, although the better tillage may cause a larger yield of produce, while the number of workmen would be lessened, since the steam-plough requires for its working, maintenance, and renewal fewer men than the horse-ploughs. This is not a peculiarity of agricultural industry, but, like all other mere arithmetical facts, applies equally to cloth-making. There is a certain method of manufacturing cloth which pays best ; in England, for instance, power-looms pay better than hand-looms, while in India the latter are the more profitable. If we assume the manufacturers of both CHAP. IX. J Bent. 137 countries to have adopted the method which, under the circumstances of the country, is the most profitable, any change will result in a lower rate of profit, but it would be absurd to contend that the substitution in India of power- for hand-looms would cause a rise in the labour-cost of cloth. It will be noticed that this reasoning rests on the assump- tion that one method of production is more profitable than the rest, but in practice there are generally many methods by which the same rate of profit would be obtained. In England, for instance, steam-ploughs might often be employed where horse-ploughs are now used, and the farmer, if he had more money and wished to invest it in his farm, might do so by buying a steam-plough, without suffering any decrease of the rate of profit. In the same way power-looms are in some parts of India as profitable as hand-looms, and the manufacturer will make the same rate whichever method of manufacture he may adopt. This well-known commercial fact seems to be a great difficulty to the plutologists, so much so that Mill ascribes its existence to miracle, for after stating that more money might be invested in English farming and still be found to pay the present rate of profit, even at the present price of wheat, he explains the possibility of this occurring by saying " the general law of the diminishing return from land would have undergone to that extent a temporary supersession."* Laws of nature do not, however, outside of plutology, undergo supersessions, temporary or otherwise, and those of the production of wealth are as unchange- able as the rest, being, indeed, no other than the physical laws of matter. The quantity of wheat grown depends on the chemical and other laws by which plant-life is governed, and no more varies with the labour employed or the money invested' than the mechanical energy of gunpowder varies with the number of men employed in its production, or with the costliness of the chemicals of which it is compo.sed. It is, for instance, necessary to growth that the soil shall be more or less pulverised, but whether or not the pulverisation be due to man's labour * Book i. chap. xii. § 2. 138 Communal and Commercial Economy, [chap. ix. is a matter of complete indifference, and the result would be the same whether ten thousand men had broken up the soil with their fingers, or ten men had done it with a steam-plough. In the same way cloth is woven by the flight of the shuttle, and if men slowly pass the shuttle from side to side by hand, but little cloth will be made compared to the quantity the same number of men could weave if they employed steam-engines. Here, also, the product is not a function of the labour employed, but of the speed of the shuttle, and in order to learn the laws of the production of cloth we must study mechanics and not political economy. The physical laws of the universe do not, as far as we know, put any limit with which we need trouble ourselves to the speed of shuttles, nor to the number one man can look after, and. as long as wool can be obtained, there is, therefore, no ascertainable limit to the quantity of cloth one man can weave ; nor is there, as far as we know, any physical limit to the speed of ploughs and reaping-machines, nor to the area one man can till in any given manner, and there would, therefore, be no limit to the possible quantity of wheat he could produce if the world were of infinite dimensions, or the yield from a finite area could be indefinitely increased. This, however, is not the case, for the world is not infinite, and the possible yield from an acre of land is also limited by laws with which we are acquainted. However the land be tilled and manured, a point would eventually be reached when any further yield would be arrested by want of space for the grain to occupy, if by nothing else, and nothing man could do would then add an ear of corn to the harvest ; but even when this point was attained the efficiency of labour might be almost indefinitely great, for we know of no limit to the area one man can plough and reap. Popu- lation may, therefore, multiply up to the point where further production of grain is physically impossible, and may yet have to employ only a very small proportion of their number in the work of its production. It is thus evident that the " law of the diminishing return " is quite imaginary, but it will, perhaps, be instruc- tive to trace more in detail the errors in the plutological CHAP. K.] Beni 139 argument. In commercial economy the director of labour cares nothing for the efficiency of labour, and if lie obtained thereby, for himself, the same rate of profit, would employ a hundred men to do work which ten might do as well with the help of steam-engines or horses, and we need not therefore be surprised that the efficiency of labour varies greatly in different fields. Even in a commune this would be the case, although to a much less extent, for the communal director does not seek efficiency of labour as an end, but only as a means to the well-being of the labourers. He might, therefore, continue to work land with horse-ploughs although an equal number of men could, with steam-ploughs, obtain a larger yield, at the same time maintaining and renewing all the stock employed ; for he might consider it better to submit to a less efficiency of labour rather than incur the present expenditure necessary to the manufacture of the first stock of steam-ploughs. Or he might bring new land under cultivation because the preliminary cost of doing so was less than that of improving the implements necessary to force from the existing land the additional yield of wheat while still maintaining the old efficiency of labour; in short, the director of labour in a commune would be influenced not only by a desire to make future labour efficient, but also by a desire to incur as small a present expenditure as possible in providing the implements necessary to the work, whether that expenditure be directed to draining the land and removing forests, or to erecting steam-ploughs and other m achinery. If, therefore^ we find 100 men producing, on land A, 100 measures of wheat yearly, besides maintaining and renewing all the stock, while on land B, 100 men produce only 90 measures, the true deduction to be made is not, as plutology argues, that 100 additional men could not wring from land A more than 90 additional measures, but that when land B was brought under cultivation a less preliminary expenditure was incurred than would have been required to provide the implements necessary to enable 100 men to increase the yield of A by more than 90 measures. This preliminary investment, as it may be called, of 140 Communal and Commercial Economy, [chap. ix. labour in communal economy, is more or less analogous to the preliminary investment of money in commercial economy, and the increased yield of wheat obtained in the one is also analogous to the increased profit in the other ; but we must not fall into the error of assuming that these terms may be interchanged at will without affecting the truth of our theorems. It is a fact, for instance, that the money investment, on a given field, necessary to the obtainment of a given additional frofit, has, in the past, increased, and will probably increase in the future, as the total investment becomes greater ; but we cannot trans- pose this into the theorem that the labour investment required in order to obtain, without a falling off in the efficiency of labour, a given further yield of produce, has in the past increased, and will increase in the future. lu the first place, profit and produce are not synonymous, nor do they vary together ; a farmer may, for instance, by dismissing half his men and selling his horses, at the same time buying a steam-plough, obtain the same or a greater profit, while the total yield was even lessened. For the sake of argument, however, we will overlook this, and assume a greater profit to be identical with a greater produce, but still the labour investment necessary to in- crease the produce without lessening the efficiency of labour may indefinitely decrease in the future, for there is no limit to the possible efficiency of labour in the work of felling trees, removing stones from land, laying drain- pipes, constructing ploughs and other machinery, making artificial manure, &c., &c., and these are the kinds of work to which the investment is applied. Whatever may be, however, the efficiency of labour, the price of such work will be the same, assuming, as for verbal con- venience we must, the efficiency to affect gold-mining and other industries in a similar manner. If, for instance, ten men produce yearly a steam-plough or a piece of gold of a certain weight, and if, the efficiency of labour becoming greater, the same men afterwards produce two ploughs, or two pieces of gold, we must assume that the price of the plough will be unchanged although its labour-cost will be CHAP. IX.] Bent. 141 lessened by one-half. Even, therefore, though we grant that a continually increasiog investment of money is required in order to obtain a given additional yield of wheat, we are not compelled to admit that the labour- investment required in order to obtain a given yield from a given future labour must also increase — the two theorems have no connection whatever with each other. When the preliminary labour ■ investment is made, further labour is required to work, maintain, and renew the implements resulting from it, while the money in- vested by a capitalist requires no further investment, but will continue for ever to yield its return. Of course, if the farmer does not himself procure all the stock required to work his farm, he will have to give up to those who co-operate with him part of the produce or of its price ; if he does not erect a factory where his ploughs may be repaired and renewed, he will have to pay some one else • for repairing and renewing them ; and if his farm does not produce all the goods paid as wages to his men, or to those who repair his ploughs, he will have to pay some- thing to the capitalist who erected the stock required for their production ; but if we assume the farm to include all the stock required, directly or indirectly, for the produc- tion of wheat, it will, when once brought under cultiva- tion, yield for ever its profit to the owner without any further outlay on his part. We thus see that the analogy between the investment of money and that of labour, and between profit and produce is too slight to permit us to argue that what is true of the one will be also true of the other ; but the whole reasoning of plutology rests on the interchange of these terms, and on a further confusion of thought by which investment of money is treated as if it were identical, not only with investment of labour, but also with the labour ever afterwards required to work, maintain, and renew the farm and farming-stock. The train of reasoning employed may be thus stated. The profit obtained from a given investment of money in agri- culture has, in Europe, decreased in the past, and will probably decrease in the future, as the total yield from 142 Communal and Commercial Economy, [chap. ix. the land is made greater. But, by interchanging the terms of communal and commercial economy, " profit " is equivalent to " produce," and " investment of money " to " investment of labour," therefore the produce derived from a given investment of labour decreases as the total yield from the land is increased ; but " investment of labour " is equal to the " labour ever afterwards employed in working, maintaining, and renewing the land and farming-stock," therefore the produce derived from a given labour decreases also in the same ratio, and " every increase of produce is obtained at a more than propor- tional increase of labour to the land." By a short cut, the above logical path leads to the deduction that the observed rise in the price of wheat proves of itself the law of the diminishing return, for if the profit from a given investment of money in agriculture, that is, the produce from a given labour, did not decrease from day to day as the total yield was increased, the price of wheat would not rise. A theorem supported by so notable an argument could scarcely fail to bring its authors into logical trouble, and to necessitate the adoption of further reasoning of the same kind in order to explain facts too obvious to be alto- gether ignored. Every one knows that the ef&ciency of agricultural labour in Lincolnshire is greater than in most parts of England, even than in those which were cultivated when Lincolnshire was still a swamp, and, as this fact, if imexplained, would subvert the theorem of the diminishing return from land, an explanation of some sort has to be given. Mill's assertion that this is a case of temporary supersession of the law is not generally accepted, and other writers, perhaps unwilling to make their science depend on miracle, prefer a different explanation, and contend that the money invested in draining the land is " accumulated labour." Although, therefore, less imme- diate labour is spent in producing a bushel of wheat in Lincolnshire than elsewhere, more acewmulated labour is spent, and the total, immediate and accumulated together, is greater, and the law of the diminishing return, there- CHAP. IX.] Bent. 143 fore, holds good in this case also. McCulloch* has carried out this train of thought to its legitimate end, and says, " suppose, to illustrate the principle, that a cask of new wine which cost 50Z. is put into a cellar, and tliat at the end of twelve months it is worth 551., the question is : Whether ought the 51. of additional value given to the wine be considered as a compensation for the time the 50Z.-worth of capital has been locked up, or ought it to be considered as the value of additional labour actually laid out on the wine ? I think it ought to be considered in the latter point of view Still better to illus- trate this proposition, let us suppose that an individual has two capitals, one consisting of 1000?.-worth of new wine, and the other consisting, of 900Z.-worth of leather and 100Z.-worth of money. Suppose now, that the wine is put into a cellar, and that the 1001. is paid to a shoemaker, who is employed to convert the leather into shoes. At the end of the year this capitalist will have two equivalent values, perhaps llOOZ.-worth of wine and 1100?.-worth of shoes." McCulloch argues that in this case the labour- cost of the wine and the shoes is the same, but that " the shoes were produced by nine-tenths of accumulated labour, or capital, and one-tenth of immediate labour, while, on the other hand, the wine was wholly produced by means of capital." Mill, while insisting that the path which leads to this logical chasm is the true path of science, declines to follow McOuUoch's heroic leap, and stands shivering on the brink, unwilling to go forward, and unable to go back without giving up the whole of his science. He argues that the labour-cost of corn is daily rising, as is evidenced by the known and admitted rise in its price, and he does not consider it necessary to offer, or to seek, any further evidence on the subject, for he assumes it to be an indisputable and undisputed truth that a rise in price proves a rise in labour-cost. When attacking the arguments of Mr. Carey, he says,t " Mr. Carey himself unconsciously bears the strongest testimony to the reality of the law (of diminishing return) he contends against, for * ' PrinoipleB,' part iii. § Vi. t Book i. chap. xii. § 3. 144 Communal and Commercial Economy, [chap. ix. one of the propositions most strenuously maintained by him is, that the raw products of the soil, in an advancing community, steadily tend to rise in price. Now the most elementary truths of political economy show that this could not happen unless the cost of production, measured in labour, of these products, tended to rise." If, as Mill thus says, prices cannot continue to rise unless the labour- cost rises, then McOuUoch is right in asserting the labour- cost of old, to be greater than that of new, wine, for its price is certainly higher ; and Mill, in refusing to follow McCulloch, refuses also to follow his own argument to its legitimate, although absurd, conclusion. The advancing price of wheat does not at all show its labour-cost to have risen, and is due to, or rather is only a statement of, the fact that the share of the profit-fund obtained by the capitalists who bring a bushel of wheat to market has increased relatively to that obtained by those who bring a yard of cloth or an ounce of gold. If we looked at the matter from the landlord's point of view, we should admire the bounty of nature, which gives a continually increasing return of wealth to reward the merit of those who cause wheat to be grown ; but the phase of thought has for ever passed away in which the landowner was regarded as the dispenser of benefits to all who laboured for him, and a science of plutology is, for us, impossible in which the wealth of nations would be measured by the incomes of landlords. The economic gods of our forefathers have been deposed, and we are now as likely to see Woden's statue worshipped in West- minster Abbey as to see the landlord again looked up to as the hlaford, the bread-giver, to whose kindly care we owe our lives and happiness. His place has, in the modern plutological Walhalla, been given to the capi- talist, who is now regarded as the head-spring of wealth, to whom we owe everything, and from whose point of view our political economy must be studied. The wealth of nations must, therefore, be measured by the income of capitalists, and everything which tends to lessen their profits must be regarded as an adverse circumstance that CHAP. IX.J Bent. 145 neutralises the gifts of nature, and turns the stream of events into a channel less favourable to man than a kindly Providence had intended. Naturally, therefore, we look upon the rising price of wheat as a calamity, since it gives to the landlord a continually increasing share of the wealth produced by labour. To us who look at the universe through the smoke of factories, the landlord is a mere parasite, reaping where he has not sown, and gathering where he has not strawed ; the wealth he thus enjoys is the product of our own servants' toil, and belongs, therefore, justly to us, for whom alone was it intended that the primal curse should be so far lightened that we might eat bread in the sweat of our brother's face instead of in that of our own. We, like Mark Antony, have won the mastership of the world by our own merits, and feel it to be intolerable that the landlord, a mere Lepidus, should share in our possession ; — " This is a slight unmeritable man Meet to be sent on errands : is it fit, The iwo-fold world divided, he should stand One of the two to share it ? " Plutologists do not formally declare this to be the true standpoint from which political economy ought to be viewed, their faith in the matter being, indeed, far too perfect to allow the thought of doing so ever to come into their minds, but the whole of their work clearly shows that the fundamental axiom on which their reasoning rests is that the only end for which labour is, or ought to be, undertaken, is the production of profits for capitalists. Sir Thomas Brassey, for instance, says,* '' It is the opinion of Mr. Lothian Bell, one of our highest authorities, that after all the efforts of our ironmasters to con- tend with the difficulty of high-priced labour by the improvement of machinery, labour costs 15 per cent, more in England than on the Continent ; and this disad- vantage, in his opinion, entirely neutralises the advantages we derive from our great facilities in the proximity of our iron-mines to our coal-beds." Such a sentence as this * ' Work and Wages,' chap. i. 146 Communal and Commercial Economy, [chap. ix. would be, of course, sheer nonsense if the matter under discussion were the production of iron, but in reality Sir Thomas Brassey, like other plutologists, looks at the world from the capitalist's point of view, and thinks the end of labour is the production of profits. High wages in England place the ironmaster in a position no better than that occupied by foreign masters whose iron-mines are more distant from the coal-beds, but who pay a lower rate of wages to their men; and although the English workman produces more iron than his foreign fellow, the bounty of nature which enables him to do so is com- pletely neutralised, since his labour does not produce a higher rate of profit ! The same author again* endeavours to prove that those theorists were mistaken who, during the depression of trade that followed the panic of 1866, " doubted the recuperative powers of English industry," and he does so by showing that " On a general review of the subject, the profits of trade in England in the last quarter of a century cannot but be regarded as satisfac- tory. If the returns had been larger, employers would have encountered more severe competition ; and though wages may be a little higher in England than abroad, our superior machinery and greater command of capital as yet compensate for the difference." Here also it is evident that industry is measured solely by the profits obtained, and this is the keynote, not only of Sir Thomas Brassey's work, but of those of the whole school to which he belongs. He is, perhaps, somewhat more profoundly unconscious than other writers of the possibility of looking at industry from a different point of view, and expresses his thoughts with greater and more amusing frankness, but his thoughts are those of plutologists generally, and are not peculiar to himself. The following quotation from Professor Fawcettf shows what is taught at Cambridge, and what we must, therefore, consider to be orthodox political economy : — " America and England have conferred upon each other the most important mutual benefits. Cheap food is essential to England's ♦ ' "Work and "Wages," chap. viii. f Manual, book i. chap. viii. CHAP. ix.j Bent 147 progress, and our greatest supplies are obtained frotn America. Cheap labour is the most valuable gift to America, and our surplus population, which would become burdensome to us (that is, to us who are capi- talists, and not " population ") if there had been no emigra- tion, is providing America with the labour she so much needs." If the end of labour is to give a high rate of profit, then, no doubt, America (that is, American capi- talists) gains by getting cheap labour from England ; it is a valuable gift to her, and the clieaper it is the better, but labourers may be excused if they refuse to consider it an advantage, or to grant that high wages, if they existed, would neutralise the gifts that man has received from nature and science, or to take as self-evident that their place in the universe is only to produce profits for others. They may reasonably argue that a science which professes to teach the limitations that natural law has placed to the production of wealth by man's toil, should regard neither rent nor profit, but only labour-cost, and if we look at the subject from this point of view, we shall find the laws of the production of food to differ in no respect from those which limit the production of other goods. If England be- came a commune to-morrow, and guided her labour wisely, the labour-cost of all goods would gradually decline, as will be tke case also, in a less degree, under commercial govern- ment, but there is not the slightest reason for thinking that the cost of wheat would, with a wise disposal of labour, decline less rapidly than that of cloth, nor that a larger preliminary investment would generally be required in agricultural than in manufacturing industry in order to increase in the same ratio the efficiency of labour. In order that the present number of workmen should produce more wheat, it would be necessary to invest labour in replacing impleoaents of all kinds with others of better design, in draining the land, in erecting manure factories, &c., &c. ; and in order that one man might weave more cloth, labour would have to be invested in erecting new and more costly factories. In both cases a complete recasting of the methods of working would be necessary ; L 2 148 Gommtmal and Commercial Economy, [ohap. ix. it would not be sufficient to simply increase the number of ploughs, for instance, so that the land might be twice ploughed instead of once, for the increased yield would not be even proportional to the increased labour, as we know from abundant experience gained in Ireland and elsewhere ; nor would it be sufficient to simply double the number of shuttles ; but in both cases entirely different methods of working would have to be adopted, and we have no reason whatever for thinking the universe to be so ordered that the labour-cost of the one set of new implements would be greater than that of the other ; it may cost more to substitute threshing-machines for flails, than to substitute power- for hand-looms, and a manure factory may be more costly than a set of Bessemer con- verters, but it would be foolish to assume that the balance of cost must always be against agriculture. Since there is no connection between the labour-cost of implements and the product obtained by working them, we can never frame a formula by which the one may be learnt from the other, and our only accurate method is to actually con- struct the implements, and learn by trial what they will produce. We should probably find the efficiency of labour in wheat-growing to be at one time increased more, and at other times less, than in weaving, the investments being equal for equal numbers of men, and the fact that it had been more with the, last investment, would not teach us that it would not be less with the next. Even, therefore, if in the past the labour-cost of wheat has, in proportion to the investments made, decreased less than that of cloth, we cannot thence deduce that in the future the relation will not be reversed, and if we wish to learn what will, ten years hence, be the relative labour-costs of the two, we must study, not statistics of their past rela- tions, but the physical laws and phenomena of the uni- verse, and those mental and other qualities of men which lead them to invest with the view of increasing the efficiency of labour. We know that in the past the labour-cost of iron has fallen relatively to that of wheat, but it is as absurd to ascribe this to a general law of a^ri- CHAP. IX.] Bent. 149 cultural, as to a general law of miuing, industry, for in both cases our knowledge of the law is derived solely from the fact we are pretending to explain by its help. In order to really learn the cause we should haye to under- take precisely such an investigation as would be necessary to learn why the labour-cost of gold is, to-day, greater or less, as the case may be, relatively to that of copper, than it was fifty years ago ; that is, we should have to study the whole physical and economical univei'se, and as this would be an absurd undertaking, we must be content to accept the fact as final and ultimate. The labour-cost of goods of all kinds is what men choose to make it, and if capitalists had in the past wished to make that of wheat decrease more than that of iron, they would have spent more money in improving agricultural implements, and less in improving those employed in the production of iron. They have not done so, but we cannot say why they have not, unless we are content with the very simple reason that they did not wish to. We may explain why the price of wheat tends, in a commercial society, to rise relatively to that of most commodities, and may, if we like to use ridiculous language, ascribe the rise to a general law of agricultural industry. If more cloth is wanted, a capitalist can produce it by erecting a new loom similar to, and costing the same as, those already in use, and he can generally find a plot 6f land where it may be erected, and which is practically as convenient as the land already occupied. He will thus make the same rate of profit as before, even though the price of his wares remains unchanged. He will, however, require corn with which to feed the new men who work his new loom, and the farmer will produce it, but the latter cannot do so by simply getting new ploughs and other implements similar to those he already employs, for he cannot find a new plot of land similar to that he already owns. He must, therefore, entirely re-cast his methods of working ; must employ steam-ploughs, erect manure factories, &c., &c., and will thus obtain a larger yield of corn, but he will not make the same rate of profit as before on the first cost 150 Communal and Commercial Economy, [chap. ix. of his stock, as is evidenced by the fact that he did not before use the new implements'. By the ordinary higgling of trade the diiference will be paid partly by the cloth- maker, and this will be effected by his being obliged to p:iy a higher price for the corn he pays to his men. The effect of the larger preliminary outlay in new stock is not, however, to increase the labour-cost of corn, but, in nine hundred and ninety-nine cases out of a thousand, it will be to lower it. The higher price of the corn paid to his men will also induce the cloth-maker to use labour- saving machinery, or, in other words, to lessen the labour- cost of cloth. We can, however, leai-n only irom actual experience whether the labour-cost of the corn, or of the cloth, will be reduced in the higher ratio, and the relative prices will tell us nothing about it, for in either case the price of the corn will be greater. By way of escaping from some of the necessary corol- laries of their law of the diminishing return, plutologists insert the saving clause that they do not deny the abso- lute possibility of increasing the yield without increasing the labour-cost, but only assert that this cannot be done unless men know how to do it, or as, for the sake of statelier tone, it is expressed, unless they possess the requisite agricultural knowledge and skill, but we must ask what is the use of a science which consists of truism like this ? If any one asserts it to be a law of iiature that men cannot cross the Thames, he states what is untrue, as we know from the fact that men do daily cross the river, and have done so, to our knowledge, for hundreds of years ; but if he adds that his assertion is made with the proviso that men cannot swim, or build boats, or bridges, or balloons, or in any other manner get across, he escapes, indeed, from untruth, but does not attain to truth, for he merely falls into nonsense, and this is precisely analogous to the teaching of plutology on the subject of the law of the diminishing return from land. If, like the coral insect, man was unable to alter his methods of producing wealth, the law would certainly be a reality ; if, for in- stance, he could do nothing to the land but plough it, and CHAP. IX.J Bent. 151 could use ploughs of one particular design only, he would first cultivate the lands which, when tilled with those ploughs, gave tlie highest return to his labour, and when these were all occupied, would obtain from the remaining land only a lower return. As a matter of fact, however, he can change the design of his ploughs, and when this method will not serve his turn, he can change the land by removing trees, by draining it, by adding clay where it is too sandy, and sand where it is too stiff, by adding manure or other chemicals favourable to plant-life, &c. ; or he may, by selecting the seeds, modify the plant itself, and by one or all of these methods he can obtain what- ever wheat the world is physically capable of growing, and this without giving very much labour to the work. It is quite true that be could not do all this in a day, because the knowledge of bow to do it, and the necessary implements and machines can be acquired only in a gradual manner. In studying political economy, the continuity of man's existence must never be lost sight of; his methods of production to-day are formed in part by those of yesterday, and will, in their turn, influence those of to-morrow, but the march of industry is not, or at least need not be, and has not been, towards a less and less, but always towards a greater and greater, efficiency of agricul- tural laboui-. The law of the diminishing return being once' established (by being turned into a truism) with the help of the saving clause about agricultural skill, it becomes easy to drop the latter and to assume the law to be real and un- conditional, when poverty is at once explained, and the blame of its existence thrown upon nature. "Had the law been other than it is," the increased efficiency of labour in other branches of industry would not have been counterbalanced by lessened efficiency in the production of food, and there would have been enough for all, but un- fortunately, though one man can now weave with power- looms as much cloth as a whole village of hand-loom workers, it requires more than a whole village of farm- labourers to produce as much corn as one of their fore- 152 Communal and Commercial Economy, [chap, rx, fatlieLS could have grown, and poverty, therefore, instead of disappearing with advancing science and civilisation, necessarily becomes day by day more common. It is thus the natural law of the diminishing return, and not the artiiicial laws of commercial selflsliness which "involves the whole subject of the causes of poverty in a rich and industrious community." As a matter of fact it is well known that during the whole historical period of England the efSciency of labour in producing food has been steadily increasing, and that a continually increasing propoi-tion of the whole number fed can be spared from the work of food- production and set to other employments, or allowed to pass their lives in utter idleness. Facts, however, are not matters with which plutology concerns itself, and since its existence depends on the theory that the labour-cost of grain increases from day to day, it must stick to the theory in spite of facts ; but we who are more interested in political economy than in plutology, must travel by other paths. We know .that the eiBciency of labour has increased in all economically important branches of industry, and that poverty is, therefore, due to the laws of nature in no other sense than drunkenness is so due ; we may be poor, as we may be drunken, if we take the necessary steps to become so, but if we prefer to be wealthy, nature will not oppose us nor put the slightest hindrance in our way. If the same proportion of the population were employed to-day in the production of wages-goods, as was the case in the days of King Knut, poverty would be unknown, for one man can now produce ten times as much food as his forefather could have done, and this in spite of the grossest misdirec- tion of labour. Instead of earnestly seeking how to make labour efficient, the directors of labour in a commercial society do their utmost to prevent improvement, except in so far as it may be obtained without a fall in the rate of profit, and such as has been made has been forced upon them against their will, and in spite of their most strenuous endeavours to prevent it. Capitalists, to whom the direction of labour is entrusted, have throughout endeavoured, and stUl do so, to obtain, not the greatest CHAP. IX.] Rent. 153 efficiency of labour, but the highest rate of profit, and since every change in their methods of working lowers the rate of profit, even when it increases the efficiency of labour, they exercise their best ingenuity in preventing the necessity for cbange, instead of trying to discover how change could best be nude. If the lands of England had been unlimited in extent, and all were naturally similar to those which our forefathers cultivated, capitalists would have gone on extending their farms and working them with the same rude appliances, for they could not use better machinery without causing a fall in the rate of profit. The new profit-woikmen they would thus have been enabled to maintain would have been employed in working hand-looms, and the other rude machine? then in use, for better machines could be employed only at the cost of a fall in the rate, and this capitalists will never willingly submit to. Fortunately land is not unlimited, and as soon as the fields were occupied which gave the highest rate of profit when worked on the old plans, the rate fell, and it became profitable to use machinery of a better description. A fall in the rate of profit, instead of being synonymous with a decrease in the efficiency of labour, as plutology makes it, is thus really the indirect cause of its increase, for capitalists will not make labour more efGcient until the rate falls. It is not, of course, con- tended that a fall in the rate leads to increased efficiency of labour in every case, and sometimes the opposite occurs, or may a.t least conceivably do so. When the rate is, say, 20 per cent., there is some land not in cultivation, which, if worked by the same methods and with the same number of men as neighbouring fields, would yield only, say, 18 per cent., the difference being due to a less product. If the rate fell to 18 per cent, this land could be cultivated, and if worked by the old methods the product would have a higher labour-cost. In practice it would generally be worked by improved machinery, and the labour-cost would not be higher, but this would not, perhaps, be invariably the case, and a fall in the rate of profit may thus be, in some local and insignfficant cases, accompanied by a 154 Communal and Commercial Economy, [chap. ix. temporary decrease in the efficiency of agricultural labour. English plutologists have attributed very undue im- portance to the subject of rent, and have devoted much time and space to its consideration. This, no doubt, arose from their habit of looking at political economy solely from the capitalist's point of view, and from their con- sidering an increase in the landlord's income to be a national calamity, while an increase in that of the capitalist is regarded as a national gain. They, and more particiilarly those of the Manchester school, even look upon rent and profit as things not only economically, but also ethically different, for the latter is regarded as the just reward of privations undergone by the recipient, while the former is no more than an evil legacy of the feudal system. This is no longer a matter of merely speculative interest, but is becoming, or rather has become, a question of practical statesmanship. The Manchester school, who are now perhaps the most influential class in English politics, hold that, since the landlords have no moral right to their rent, the State may, and should, deprive them of it, either trans- ferring it to tiie tenants or applying it to the reduction of taxation, thus " relieving capital of the burdens that press so heavily upon it," or in other words adding it to the incomes of capitalists. There is, however, no real difference, ethical or economical, between rent and profit, for they are both shares of the product of Inbour, obtained by those who own the implements of production, and the landlord is a partner with the rest in the production of a profit-fund to be divided amongst them all. His right to what he gets rests on precisely the same foundation as that of the capitalist, and the latter, in disputing the landlord's title, raises at the same time the question of his own. There can be no doubt of the perfect honesty and sincerity of the belief of capitalists of the Manchester school that their title is perfect, and that no one whose moral nature is not perverted could for a moment dispute their full moral right to take and enjoy the wealth produced by others. The very fact, however, that they can see a flaw CHAP. IX. J Bent 155 in the landlord's title which the landlord himself cannot see, might teach them that others may see a iiaw in theirs which is inTisible to themselves, and that a man is not necessarily a thief, or worse, because he declares the whole system of commercial government to be founded on wrong and injustice, and therefore on folly. It is not, to a work- man, a self-evident proposition that the wealth which his toil has produced must, by all the laws of honesty and justice, belong to some one else, and he asks for proof. That given proves too much, for it would equally justify slavery, or almost any other villany. A slaveholder might grant the slave trade to be immoral, and that the man who stole a black from Africa did wrong, and that perhaps his own forefather who bought the slave might have been unable to justify the act. The original slave is, however, dead and buried, and the wrong he suffered cannot be righted ; his descendants are not wronged, for it is due to the abstinence of the slaveholder that they are alive. Had he not deprived himself of wealth which was his own undisputed property, and given it for their support, they would have died as soon as they were weaned. They are thus the product of his abstinence, and belong by right to their producer. If he sets them to produce wealth, they can have no property in the product, as they were rewarded beforehand by their maintenance. In the same way the capitalists would perhaps grant that those who originally appropriated the world and all that it con- tains to their own use acted unjustly, and that the free men who were thereby compelled to become hired work- men were wronged. The latter are, however, now dead and forgotten, and the present workmen are not wronged by the present capitalists, who, having inherited or pur- chased from the natural heirs of the former owners the property they enjoy, are therefore guiltless of the original robbery. As to the men, their very existence is due to the abstinence of the capitalists, for if the latter did not produce wheat for their maintenance they would starve. This meritorious action does not, however, lay the capitalists under any obligation to maintain the men 156 Communal and Commercial Economy, [chap. ix. whom they have produced by their abstinence, and the men, although in the world, have no share in its ownership, and cannot, therefore, maintain themselves. If the capitalist employs them, they can have no claim to the wealth they produce, for they obtained, in their wages, the full equiva- lent of their labour. The wealth belongs, therefore, to the capitalist, and the workmen are, as before, empty-handed and homeless, and must enter into a new agreement to barter their work for present support. To this reasoning the reply is that the means do not justify the end any more than the end the means, and that, if an action cannot be defended in itself, it will remain indefensible, however innocent or praiseworthy may be the means by which we acquire the power of performing it. If to keep slaves is wrong in itself, we have no right to make slaves of men wbo, but for our lielp, would have died, or have fallen into even worse slavery ; and if we have no original natural right to take by force from a man that which his labour has produced, we cannot acquire the right by giving him back a part of it, even though we adopt the ingenious plan of calling what we keep the reward of our abstinence in not keeping the whole, and the part we give back the purchase- money of what the labourer will produce in the future. Nor does it better our position to call the whole transaction a fair and just barter in which we give to the labourer something he wants in exchange for something we want, and which lie may take or leave as he thinks best in his own interest. Mere skilful manipulation of words and names does not alter things, and, call it what we will, the fact remains that workmen are forcibly kept in a position where they are obliged to give up the principal part of what their labour produces. Jacob, no doubt, represented to himself and to others, that his trade with his brother was perfectly fair and straightforward ; he had a mess of pottage for sale, which Esau was free to buy or let alone ; if he thought the price too high he ought not to have purchased; but having done so it would be most un- reasonable, besides being unbrotherly and ungrateful, to say his birthright had been unjustly taken from him, or CHAP. IX. j Rent. 157 that his brother had acted in a mean and dishonest way. The transaction would not, however, be altered in its nature by the names Jacob might apply to it, and if Esau's rights were such that it would have been wrong of Jacob to take them by force or by stealth, we must grant that the barter by which he acquired them was quite as immoral as if he had adopted the simpler plan, for if there is such a thing as morality at all which distinguishes between what a man may legally do, and what he ought to do, then it must condemn our taking advantage of any one's distress to drive a hard bargain with him. In the barter between capital and labour, the former offers a mess of pottage which the latter must take or die ; Jacob, at least, offered something he had himself prepared, but labour has to take in payment not a kid' from the flock, but a mess of venison which itself had hunted and cooked. It is no doubt unjust to say "property is theft," for property is perfectly legal, and what is legal is, in com- mercial economy, right ; but it is absurd of capitalists to say their rights rest not on the law, or on superior force, but on truth and justice, and to accuse any one who disputes them of having a perverted moral sense. As long as they are on the " windy side of the law," it is right and proper that they should be defended, for if every one acted according to what he tiiought best, society could not hold together, but society has a perfect right to alter the law, and a change which gave to those who produce it the right of deciding how wealth shall be distributed, would tend towards correcting an existing injustice, and would not be an injustice of itself. 158 Communal and Oommercicd Economy, [chap. x. CHAPTER X. INCBEASE OF CAPITAL. To increase capital is, in the estimation of plutologists, the great end towards which human endeavour should be directed, and we will, therefore, discuss the means by which it may be done. Eeturning to the formula given P in the chapter on Capital, namely - = 8 ; this would be, if we take the whole society into account, ? = s. r where P = the total price of the profit-fund, r = the normal rate of profit, S = the total nominal price of stock, or the total capital of the society. The total capital (S) can obviously increase only when the total price of the profit-fund is increased, or the rate of profit lowered. We saw in the chapter on Money Prices * that a change in the rate of profit is generally accom- panied by a corresponding change in the price of the profit-fund, and since, therefore, both terms of the frac- P tion — would vary together, a change in the rate of profit would not usually influence the capital of the society, and we may, therefore, at once turn to the other factor on which it depends, namely, the price of the profit-fund. This, as we have already seen, depends on the number of coins or notes in use, and on other factors which we may here consider as constant, and there is thus but one way in which capital may be increased, namely, by increasing * Ante, p. 96. CHAP. X.] Increass of Capital 159 the currency. If new mines were discovered by working which a higher rate of profit could be obtained than in other trades, or if new and more profitable methods were invented of working the old, more gold would be produced and added to the currency, when the total price of the profit-fund would rise, and capital would be in- creased ; the same result would also follow the issue of more inconvertible bank-notes. The plutologists insist that this is a fall in the value of gold and notes, and not an increase of capital, but as, according to Mill, value is a relative term, and it is a contradiction in terms to say the value of one thing can fall without that of others rising, we must admit that the value of the profit-fund has been increased by the change in the currency, and that the value of the stock in use has increased in the same ratio. The objection to admitting an increase in the currency to be an increase in the value of all commodities arises solely from the impossibility of using the word value without being influenced by its common meaning. Mill says,* " The only thing which in this case is really altered in value is money " ; but how are we to reconcile this with his other statement that it is a contradiction in terms to say one thing alone can be altered in value ? It is quite true that an increase in the currency does not increase the value of goods if we use the word in its common mean- ing ; it does not make them more useful, nor does it add to the well-being of either workman or capitalist ; but we are studying the magnitude of capital and of the profit- fund, and not utility or well-being, and as the word mag- nitude has no meaning when applied to either except in relation to their price, we come back to the original state- ment that the employment as currency of more gold or notes causes an increase of capital, since it leads to the division into a larger number of units of the total income of capitalists. Where the currency consists of incon- vertible paper it is impossible to increase capital except by issuing more notes; the numerical magnitude of the profit-fund may be increased, but its price will be un- * Book iii. chap. i. § 4. 160 Commvmal and Commercial Economy, [chap. x. changed, and the magnitude of capital is simply the price divided by the normal rate of profit. It will, however, be more convenient to discuss this subject on the assump- tion that gold is employed as currency, and that the latter is increased only when capitalists find it profitable to add to it. There are but two actions which a capitalist in pursuit of his own advantage would take, and which would make it profitable to any one to add to the currency and thus to increase capital. First, new men may be reared, maintained, and employed in working a new profit- goods factory, when the numerical magnitude of the profit- fund will be greater than before, and if the number of capitalists who share it is not correspondingly increased they will be better off, but their capital, measured in the only manner in which it can be measured, namely in money, will be unchanged, unless the currency is increased. If this were not done, the effect of the investment would be to lower all prices except that of gold ; but as nothing has occurred to alter the normal relative prices of gold and other goods, it would become profitable to produce or import gold, when general prices would gradually return to their former standard, and the price of the profit-fund, and, therefore, the capital of the society, would be in- creased proportionately with the numerical magnitude of the fund. The second action which would lead to an increase of capital is to employ the existing workmen, not in producing more wages-goods for the maintenance of new men, but in improving the existing factories, so that the men already employed can produce a larger quantity of profit-goods. If this be done, general prices will fall, and in the ordinary course it will pay to add gold to the currency until they are restored to their old standard, when the total price of the profit-fund will be greater than before and capital will be increased ; but if from any cause the currency is not increased, prices will be lower but capital will be unchanged. In short, capital is simply a multiple of the currency — a mere arithmetical expression, having no more influence on human happiness than the notes and coins which are the numerals in which CHAP. X. J Increase of Capital. 161 it is written. When more workmen are employed, some- thing of economic importance is done, and its effect on human happiness is worthy of study ; this is also true of furnishing tlie existing workmen with tools which are better and at the same time more costly than were used before, but the two acts are not identical, nor do they even resemble each other, and the system of classification which places them together, because they both have the indirect effect of making it profitable to add to the currency, is quite as useless and absurd as that by which Monmouth and Macedon were bracketed. On the other hand, an increase in the profit-fund which results in lower prices of goods and not in an increase of capital, is identical with that which increases capital but does not lower prices, and in studying the wealth of nations they should be classed together, since their effect on human well-being is the same. This is not, however, done by those who try to convince us that the well-being of all classes depends on the increase of capital. It is true that they generally take for granted that the production of other commodities is affected in the same manner as that of gold, and that changes in the total price of the profit- fund indicate, where gold is used as currency, not only changes in its numerical magnitude when measured in units of gold, but also when measured in other goods ; but even if we accept this, we are not justified in using capital as a measure, and still less in declaring it to be a cause, of well-being, and this plutology takes as an axiom about which argument would be as foolish as to argue whether the whole is greater than the part. Any one who, adopting the very unplutological system of learning his facts by observation and not by deductive reasoning, pointed to the economic wretchedness of the majority of Englishmen, and still more of Irishmen, and to the anxious, careworn lives of the majority of even capitalists, and argued, that the people of Great Britain were not economically happy, would have statistics triumphantly produced against him to show that capital had enormously increased, that the population of all the towns had M 162 Communal and Commercial Economy. [ohap. x. I doubled within a generation, and that every new man who laboured was adding to the national capital. Against roofs like these that Englishmen are well off, it would e considered mere trifling to urge that all the workmen live in houses such as ought not to exist in any country, and still less. in one where the steam-engine is known, and that many live in dens where neither health nor decency is possible ; that their lives consist of a round of laborious and ill-requited toil, varied by enforced leisure which is worse than the toil itself; that even the masters in great part spend their lives in harassing care and uncertainty, and that only a few really enjoy the economic well-being that, with a tithe of our present knowledge of science, might be the lot of all. To all this the orthodox reply is, that capital is the only cause of economic well-being, and if people are wretched in spite of its increase, this shows that wretchedness is due to the physical environment of the society as well as to the harshness of the laws of nature. Our children will probably wonder at the present theory as much as we wonder at that of the mercantile system, and will be unable to bring their minds into the state of intellectual sympathy with us necessary to follow the train of thought that brings us to the strange conclu- sion that, in spite of our scientific knowledge, famine, poverty, and wretchedness are still as necessary parts as ever of our social life. Still more difficult will they find it to understand how we look upon the necessity, as proved by the fact, that these miseries exist in spite of a great increase of capital, or how we have come to take capital as either a means or a measure of well-being. It will, perhaps, be said that those who attribute impor- tance to the increase of capital do not mean by the word the mere arithmetical abstraction I assume it to be, but the accumulated stock which is employed in trade of the product of past labour. When, however, we talk of the relative magnitudes as wealth of stocks of miscellaneous goods, we are talking nonsense. How are they to be measured ? Is a mariner's compass more or less than a diamond, and which has the greater CHAP. X.J Increase of Capital. 163 influence on well-being? There is only one way of measuring goods, and that is by their prices, but price is not a measure of the well-being conferred by commodities, nor therefore of their magnitudes as wealth. Even if it were, and if we could say with certainty that a coat, for example, which costs 51. gives its purchaser five times as much pleasure as the trowsers to match, which cost only \l., still the magnitude of our capital stock (measuring it by its price) would have no influence in fixing the magni- tude of the wealth we enjoy, however we measure the latter. Stock is accumulated oidy in so far as is made necessary by the natural limitations under which we work ; in order to obtain coats we must first produce cloth, and as time is required to take the latter from the factory to the tailor, we must always have some cloth on hand, but the quantity is not the cause of our getting coats any more than the mill-pond causes the stream ; it is merely a reservoir into which a stream is continually flowing, and out of which an equal stream is being taken. We also require machinery ;^to make it is part of the work of making coats, — but its price does not influence the number of coats produced, and is no more than the quotient obtained by dividing, by the normal rate of profit, the proportion which the owner of the machinery obtains of the total profits of capitalists. The efficiency of man's labour depends on the whole of his environment, and not on whether the production of machinery forms a neces- sary part of his work. If two workmen, by keeping one employed in making and maintaining machinery, can produce two coats a day, the result is the same as if they could make the same number without machinery, and the number of coats they produce can be learnt only by counting them, and not by ascertaiuiug the magnitude of the machinery employed. As soon as we try to conceive how a commune would measure its stock of' implements we see how absurd the whole problem is. Not being plutologists, we would scarcely compare a hand-loom with a power-loom by their relative " coat-producing virtues," but unless we accept this scale the attempt to compare M 2 164 Communal and Commercial Ecorxymy. [chap. x. their magnitudes is simply nonsensical, and even this scale fails us when we try to compare a power-loom with a pump. Man uses in his industry but one implement, and this comprises the whole world ; he has, by his labour from the earliest days, modified the world and made it more suitable for his comfortable existence, but he has not increased its magnitude. He has placed in it coats, houses, and other articles of direct wealth, which he uses and enjoys, but which are beyond the ken of the econo- mist for the very reason that they are in use and being enjoyed. He lias also taken the necessary steps to obtain more coats and houses to be used when the others are consumed, and since the production of machinery is a necessary part of the work, it has been produced. In a commercial society, as in a commune, the implements and other stock in existence are incapable of measurement; we may ascertain their price if we know the rate of profit and the price of the profit-fund, for their price is simply that of the profit-fund divided by the rate of profit, but the magnitude of the sum to be divided is not fixed by that of the quotient. The aim of the director of labour is well-being, and not the increase either of capital or of the numerical magnitude of the daily stock of goods produced. In a commune the well-being of the labourers is the end sought, and in a commercial society the well-being of the capitalist who directs the labour. In the former case the numerical magnitude of the total stock of direct wealth daily pro- duced may be taken as a rough scale for comparing the relative well-being of different communities, but in the latter this is not the case. We cannot add together a man with lOOOZ. and another with 50Z. a year and call them two men of an average income of 525Z., and we cannot, therefore, from our knowledge that two men share between them goods worth 1050?. a year, deduce that neither suffers from actual want, nor can we properly speak of the two men as members of a community: they are merely two indi- viduals having no common economic interests, although they may have other interests in common, and may com- bine for the purpose of advancing the latter, A large CHAP. X.J Increase of Capital. 165 profit-fund tends to the furtherance of many of those interests which the members of a commercial society have in common, and we will, therefore, discuss the means by which it may be increased, and the motivt^s which lead capitalists to take the steps necessary for the purpose. The former subject is of itself simple enough, but has been brought into confusion by the misuse of language to which the plutologists have been driven in their efforts to combine communal and commercial economy, and to defend the ethics of the latter. If a commune wishes to make labour more efficient, it must comply with the conditions which nature has attached to their attaining their object. If, for instance, they have hitlierto carried water in buckets from the stream to the town, and resolve to make it in future flow by gravitation through pipes, they must, as a matter of necessity, first lay down the pipes through which it is to flow. The men who make and lay the pipes might have been employed in carrying water in buckets, and the water they might have carried is lost to the community. Similarly, when the harvest is ready for the sickle, the community might set a few men to cut sufficient for the day's consumption, and might then keep a large number employed in fishing or hunting, or in doing something else to add to the immediate well- being of the society. Instead of doing so, however, they go without the fish and venison they might have obtained, and set all the men to garner the crops. Or, again, if a boy is let loose in an orchard, he may apply himself to a gooseberry-bush aud utilise the whole of his time and labour in plucking and eating gooseberries; or he may leave the gooseberries unplucked, and go to the other end of the orchard for a ladder, so that he may get up into a peach-tree. In all these cases we may, if we choose to misuse words, follow the example of the plutologists and say that abstinence was exercised in order to obtain the goods actually enjoyed, but we should be speaking much more rationally if we said labour had been disposed in the manner which was necessary to their obtainment. It is a law of nature that a man cannot be in two places at once, nor doing two different pieces of work at the same time ; 166 Communal and Commercial Economy. [chap. x. if he is employed iu making pipes, he cannot also be carrying water in buckets ; if he is cutting corn, he cannot also be hunting deer; if he is carrying a ladder to a peach-tree, he cannot also be plucking gooseberries. If, therefore, we want pipes or peaches we must go without the water or gooseberries we might hare otherwise obtained, and the director of labour must decide which employment will add most to the well-being of those for whose ad- vantage he is concerned. Since all animals, and man in particular, are possessed of reason and foresight, the future is always taken more or less into account, whether the labour is directed by man or by the brutes ; and the com- munal economist, therefore, cuts all the harvest at once, although a great part of it will not be required for months, and will, in the meantime, be a source of anxiety rather than of well-being, and he lays pipes although it may be a year or more before water can possibly flow through them. The community has also the power, if it chooses to exercise it, of starving any of its members and of dividing the goods they would otherwise have obtained amongst the others ; when, therefore, it does not exercise its power, but employs the men in making and laying pipes, we may, by a similar misuse of language, say that the community, in feeding the men, abstains from enjoy- ing the goods the latter obtain. This* employment of the word abstinence is of course quite indefensible ; when a commune employs labour in harvesting grain, or in laying pipes, or in building tunnels or railways, or in doing any other work which will increase its future well-beiug, it exercises foresight and an enlightened regard for its own interests, but not abstinence. Plutology is not content with thus misusing words, but goes on to say that the commodity produced, say the pipes, is the product of the abstinence exercised by those who go without the water the pipe-makers might have carried, and of the privations borne by those who abstained from eating the food the pipe-makers consumed. According to Mill's second funda- mental theorem respecting capital* (that is, respecting * Book i. cliap. v. § 4. CHAP. X.J Increase of Capital. 167 pipes, &c.), " it is the result of saving," including in the latter word "privations, which, though essentially the same with saving, are not generally called by that name, because not voluntary." Hence the ethical deduction follows that the pipes when laid, and the water which will ever afterwards ilow through them, justly belong to the men whose abstinence produced them. If, however, we keep to the use of words which is customary in other sciences than plutology, we shall say that the pipes are the result of the labour of those who made and laid them, or if we wish to be more exact, we shall say they are the result of the whole order of the universe, but that, as human labour is the only element we have under discus- sion, we must attribute to it the entire result. We know that if horses had not helped in many stages of the work the pipes would not have been laid at all, but we do not, therefore, recognise that they have any moral right to share in the water which flows through the pipes, and the commune would prevent the horses from drinking if they thought it desirable in their own interest to do so. The right of the commune to act in this manner would be defended, not on the absurd plea that they had been obliged to feed the horses in order to get them to work, but on the broad principle that man is the master and has a natural right to make horses work for him. In commercial economy we look at the production of wealth from the point of view of capital, and must ascribe the product to the investment of money, and not to labour. The water-pipes belong, however, to the investor, not because he was obliged to feed the men and horses who laboured, but because the capitalist is the master, and can and does make non-capitalists and horses work for him. The claim of ownership on account of the capi- talist's abstinence is utterly beside the matter. When the mate of a collier brig is asked by the skipper whether he will take brandy or rum, and chooses the latter, he does not get the rum as a reward of his abstinence in not taking brandy when he had the power to do so, and his moral right to take what he gets must be defended on 168 Communal and Commercial Economy. [chap. x. quite other grounds. So the capitalist who has the choice of taking either velvet or water-pipes, does not get the pipes if he chooses them, with all their contingent advan- tages, as the reward of his abstinence in not taking velvet when he had the power to do so, but because he has and exercises the power of directing the forces of nature (in- cluding the labour of men and horses) so that they shall produce for him any kind of goods he prefers. His absti- nence would be a perfectly good plea for refusing to shaie the ownership of his pipes with another capitalist who had taken velvet, and had worn it out, but he cannot thus reply to the labourers or the horses, by whose labour the / pipes were produced. In the same way a slaveholder might fairly say he had been robbed, if the State, that is, other capitalists, had freed his men without compensating him, but he could not say the same if the men had risen against him, and freed themselves. The capitalist's moral right to use his power for his own benefit is a matter with which commercial economy has nothing to do, as its aim and scope is confined to showing how he may best so use it, and we need not, therefore, here further discuss the subject, but may return to the matter we had in hand when we were led into this digression, namely, the means to be adopted in order to increase the numerical magnitude of the profit-fund. Capitalists, like communists, are bound by the laws of nature, and, if they wish to obtain more velvet than before, must direct the forces of nature to its production ; or, looking at the matter from a human point of view, they must either employ more workmen or direct in a more skilful manner the labour of those they already employ. Whether it is desirable to increase the profit-fund, or at least to do so on the conditions which nature has attached to the process, is not a question to which a general answer can be given. If all capitalists invested all their profits, except what was required to give them the bare neces- saries of life, the numerical magnitude of the profit-fund would increase very much more rapidly than at present; but it will hardly be contended that it is desirable that CHAP. X.J Increase of Capital. 169 they should act in this manner. Where the fund of to- morrow can be increased without lessening that of to-day it ought, of course, to be done, but when increased profits can be obtained only by investment, it is a question for the statesman, and not for the economist, to decide whether in any particular country investment is being made as rapidly as is desirable, and if this is not the case it is equally the work of the statesman to devise menns to induce or to compel capitalists to invest more largely. The economist's work is completed when he has drawn attention to the not very recondite truths that more goods (the product of labour) can be obtained only by employing more men or by making labour more efficient, and when he has shown, as will be done in the chapter on Free Trade, how labour can be made efficient in so far as the efficiency is influenced by the commercial system of labour- direction. We might, therefore, at once turn to the other subject we have to investigate, namely, the motives which lead capitalists to invest of their own free will, but as this is a convenient place to inquire into the effect which investment has, or is supposed to have, on the working classes, and on "society at large," we will devote a few pages to the inquiry. A complete investment, looking at it from the workman's standpoint, consists essentially of two parts — first, the pro- duction of goods for the maintenance of workmen, and, secondly, of the production of implements with which they can produce goods such as their masters wish to consume. The first part may be looked upon as a complete invest- ment, for men may be kept as retainers to wait upon their masters, and will then require no implements ; the second part cannot, however, be made unless the first be made beforehand, as implements without workmen are useless. In a large society, such as England, these separate parts are generally made contemporaneously, but we may con- veniently treat them as following each other, and will assume that the profit-workmen of a society consist of men who are kept by their master, a farmer, as retainers. 'A new capitalist, we will say, now comes with a velvet- 170 Communal and Commercial Economy. [chap. x. factory, and a sufficient stock of velvet with which to begin trade. In order to carry on his manufacture he must sell his velvet to the farmer for wages-goods, with which to hire men to work his factory, but the men he employs are not an addition to the total number of work- men employed, for the farmer having sold his wages-goods will no longer be able to keep retainers, who will become velvet-makers. In the latter occupation they are just as much retainers of the capitalist class as they were before, the only difference being that whereas, before, they served the farmer alone, they now serve the velvet-maker as well, who obtains a share of the product of their labour. Profit- workmen are the retainers of all who consume the wares they produce, and investments which merely furuish im- plements for the production of profit-goods, or substitute others of a more costly description for those before in use, give no additional employment to workmen, but merely change the occupation of those who in any case would have been employed. The workmen are so far benefited by the first half of the investment, that they may, without imprudence, rear larger families, as the larger production of wages-goods will furnish the wages of a larger working population. We shall see in the chapter on Wages, that investment does not influence the rate of wages, and the benefit to the workmen is, therefore, con- fined to this privilege of being permitted to furnish the capitalists with the larger number of servants they require. As the capitalists who produce wages-goods get for their profit the goods which are paid to all workmen besides their own, they are, therefore, primarily, the owners of all the profits produced. If a velvet manufacturer gets a profit, it must be by selling his wares to the producer of wages-goods. If he gets in exchange for velvet produced by one man's labour more wages-goods than will pay the man, he will be able to employ others in his own personal service, and will thus get a profit on his factory. In the old feudal days, the landlords, who form the most impor- tant section of the wages-goods producers, were the only CHAP. X.J Increase of Capital 171 capitalists. Instead of setting their retainers to make, and afterwards to work, velvet-factories, they foolishly allowed others to do so by supplying them with the necessary wages-goods. They themselves have gone on extending their farms and growing more wheat, which they might have used as a means of hiring more men, whom they might have employed in the production of velvet and other commodities, but instead of doing so they sell their goods to the manufacturers, giving wheat that would pay the wages of, say, two men in exchange for velvet produced by one, and thus enabling the manufacturers to become wealthy. The landlords still have tlie power of keeping to themselves all the profit-labour ; they have only to abstain from buying velvet, when all the workmen employed in making it must be dismissed, and would immediately become their servants. The velvet-factories would become worthless, and might be bought for a song, or new factories might be quickly erected, and would .belong to the landlords. In England a combination of wages-goods producers would not be successful unless the importation of foreign grain were prohibited, which will probably never again be done ; the landlords of England, but not of the whole world, have let slip their opportunity of becoming the complete masters of the society, but if the working classes should ever become the owners of the fields and factories used in the production of wages-goods, all capitalists would be at their mercy. When the first step of an investment has been made, and the number of profit-workmen consequently increased, if the new men are kept as retainers to wait upon their masters, or to cultivate pleasure-gardens, or to produce wares of any kind that are not offered for sale, they are called by plutology unproductive workmen, whose labour does nothing to enrich the society, while they impoverish it by what they consume. If now their masters find they may derive more pleasure from this labour by applying it to the production of velvet or other material products, and wisely set the men to make, and afterwards to work, factories for that purpose, the men become productive 172 Communal and Commercial Economy. [cHiP. x. labourers whose work enriches the society. If a capitah'st prefers wearing velvet to growing roses and asparagus, and takes the only possible way of gratifying his desires, namely, by making the necessary machinery, he is sup- posed to be doing good to others, because he has increased the number of factories, and, therefore, the wealth of the world. If he preferred the roses, and were a patriotic man, he would sacrifice his wishes to a sense of duty, and instead of spending Ms income in the support of mere unproductive workmen like flower-gardeners, would pro- duce velvet for his own use. The society would be better off in some mysterious way by the velvet he wears ; the velvet would sooner or later wear out, and even Mill grants * that the society would then be no better off than if he had grown roses or paid for a stall at the opera, but while he was wearing it the society was the richer by what the velvet had cost. It is not easy to see who form the society which is thus enriched or impoverished according as capitalists take their pleasure in one way or in another. Certainly not the workmen, for as long as a certain pro- portion of their number is employed in producing goods to maintain them all, it is a matter of the most complete indifference to them whether the others are set to make velvet or to draw water in a sieve. The capitalists are better off when they get velvet instead of direct services only when they prefer the former. They do not set all their men to work machines, simply because the direct services of a certain number are worth more than their labour would be in any other form, and capitalists would become poorer instead of richer by setting the men to make and work velvet-factories. A man who prefers roses to velvet is richer when he employs his share of the labour which furnishes all profit in producing rose-gardens rather than velvet-factories; his men are as happy as gardeners as they would be as velvet-makers, and he will not be tempted by a compulsory use of velvet to provide for a larger number of new servants than he would have provided for had he been permitted by his conscience * Book i. chap. iii. § 5, OHAP. X.J Increase of Capital. 173 or by public opinion to employ them in the way which added most to his own pleasure. Nor is it clear what is meant by the society becoming richer. Is wealth to be measured by price ? or, if not, how are we to measure it ? If all capitalists invested all they could by employing nearly all their profit-workmen in the production of wages- goods for the support of an increasing population, the gold-price of the factories and of other material wealth in existence would be much greater than at present, even though no one, whether workman or capitalist, got more than the bare necessaries of life ; but would the society be therefore wealthier ? The more carefully we study the teaching of plutologists, the more difficult do we find it to understand what they mean, and we shall get on all the better if we abandon most of their theorems ; the first to be got rid of is that there is a " society " whose well-being is to be considered apart from that of the men who com- pose it, and another is that wealth is useful for its own sake, apart from the well-being it confers. Of the hundred motives that lead capitalists to invest or to expend their profits, none are measurable, and all we can say of them is that they have a tendency to increase or to lessen, as the case may be, the total amount invested. We cannot apportion to each the share of the investment it has caused, nor say that of every thousand pounds spent in new implements so much was due to a desire on the part of capitalists to provide for their old age, so much to love of their children, so much to a habit of saving, or to a feeling of duty, and so forth. We cannot even say which of the several motives is the strongest, nor what steps should be taken by the practical statesman to strength-en one or all of them should he consider it desir- able to do so. The subject, like all requiring an intimate knowledge of the human mind, is of great difficulty and complexity, and I shall do no more than endeavour to trace, in the slight and superficial manner to which, in the absence of statistics, we are confined, the influence of two elements that we know to be influential. We know that few men will invest when their incomes 174 Communal and Commercial Economy, [chap. x. are decreasing, or that they will at all events be much more inclined to do so when their incomes are increasing, provided, of course, there is some motive to induce them to invest at all. A man who had been accustomed all his life to 50?. a year would probably invest if he got a second 501., while if he had been accustomed to the lOOZ. from the beginning he would probably spend it all, considering it impossible to do more than barely live upon so small an income. The actual amount of the income has com- paratively little iniluence on the proportion invested; a man who had been accustomed to 50,000Z. a year would think it a great hardship if his income were reduced to 25,000?., and would under those circumstances probably invest very little, unless impelled to do so by some unusually strong motive. He would feel, like the man with lOOZ. a year, that investment was impossible with so small an income ; he would speak of the many expenses he was obliged to incur, of the necessity he was under, as a man of position, to keep up his country-seats and houses in town, to enter- tain in the costliest manner his friends and neighbours, and generally to take the lead in all matters requiring wealth. It would be unbearable to him to sell or let his houses to a wealthier man, to dismiss his retinue, and to withdraw from those amusements which his lessened income would not permit him to enjoy if he also invested a part for his children. Use is a second nature, and he would be so accustomed to his former luxury, that he would, unless a man of more than average common sense, live as expensively as he could, and would cease to invest. So strong is the dislike most men feel to reducing the scale of their expenditure that we may lay it down as a rule that but little investment will be made when the total income of capital is decreasing, and when, therefore, it would be necessary for the investor to live in a less luxurious style than he had been accustomed to ; and that, on the other hand, if the total income is increasing in- dependently of investment, a large proportion will be invested provided there is any motive for doing so. We also know that the desire to provide for children is CHAP. X.] Increase of Capital. 175 one of the most powerful incentiTes to investment. If a man has several sons lie will generally live frugally, so as to be able to give them a start in life ; while if he has but one, he will be more likely to live up to his income, and to feel that he has done enough if he leaves unimpaired the ■stock from which the income is derived. In so far, there- fore, as the number of children which capitalists have is independent of the economic conditions of the society, we may lay it down as a rule that if, on the average, they have small families, they will not invest even when the total income of capital is increasing, but will be content to renew their implements as they wear out with others which, although more scientifically designed, are not more costly, and that they will not take any steps to increase the number of profit-workmen. If, on the other hand, they had large families, the general scale of living would pro- bably be less costly, and large investments would be made so that the children might be left in comfortable circum- stances. It^ is not, however, the case that the number of children born is a matter altogether independent of the eco- nomic circumstances of the society, or beyond the control of the parents, and the average man, or, as we do not wish to come here into conflict with the plutologists, we will say the average capitalist, will not have so many children that he cannot reasonably hope to provide for those who reach maturity in that state of comfort which he himself has enjoyed; nor will he submit to greatly reduce the scale of his own living so as to provide for children, but will prefer to marry later, and have a smaller family. If, therefore, the total income of capitalists is not increasing independently of investment, it is probable that the total sum invested will not be large relatively to the total income, as capitalists would then be obliged to greatly reduce the scale of their own expenditure, and would prefer to have fewer children, when investment would be unnecessary. It does not follow that capitalists will always have as many children as they can provide for, and although with increasing total income they will probably have large families, they may stop far short of the number which 176 Communal and Commercial Economy. [chap. x. would just maintain the average income at the former standard. The total income can be increased without further in- vestment only by inventing new implements which will produce goods more cheaply than the old, or by a rise in the rate of wages, which will induce manufacturers to employ more fully the knowledge they already possess, and unless scientific knowledge is increasing or wages rising we cannot expect a large proportion of the yearly income of capital to be invested, nor can we do so, even under these conditions, unless capitalists have, on the average, several children to provide for. In a new country where land is abundant, and where a young man by rough- ing it for a few years is tolerably sure of a comfortable livelihood, investment will be largely made, even though the average efficiency of labour is stationary. The father's income is steadily increasing, and even when investing money for his children's advantage he can afford every year to spend more on his own account, so that he has no scruples about having a large family. The son, while still scarcely more than a boy, takes a new farm for himself, and a wife being a necessary part of liis stock-in- trade, he marries ; if he has children his natural affection induces him to provide for them in the simple manner in which he was himself provided for, and he invests for them by buying a new farm. As the commercially- fertile land becomes occupied, and it becomes more difficult to provide for children, parents marry later and have smaller families, until, as is the case in China and other Eastern countries, the capitalist population becomes stationary, when invest- ment almost ceases, and the labouring population becomes, therefore, stationary also. An increase of scientific know- ledge, provided it showed how new implements could be made which, for a given expenditure, not of labour, but of money, would give a larger yield of goods, would enable capitalists to invest part of their incomes without lessening their personal consumption, and would probably lead them to increase the number of their children, and therefore to invest. Knowledge which merely showed bow to make CHAP. X. J Increase of Capital. Ill labour more eflScient would have no influence, as it would not be used; the Indian knows as well as the English capitalist how to make railways, hut so long as the rate of profit is 25 per cent, he will prefer to employ the primeval bullock-cart, and railways or other costly stock can be built in India only by the State, or by foreigners who are content with a lower rate of profit. The theory of saving or investing as given by plutology is as follows. Men invest so as to make a profit, and therefore the higher the rate of profit the more investment will be made ; if wages are high the rate will be low, and high wages thus lessen the sum invested, while low wages increase it.* There is in every country a certain minimum rate required " to call the accumulative principle leading to the investment of capital into action."! If capitalists cannot get this they will not invest. This is much like saying that the speed of railway trains depends on the power of the engines ; that every railway has engines of different power ; and that, therefore, the speed on different lines is different ; but on no line can trains go faster than the engines can draw them. It is, no doubt, true that men will not invest unless they hope to obtain that for the sake of which the investment would be made, namely, an income, just as the railway manager will not run trains unless it pays to do so ; but if no trains were run he would not be a railway manager, and unless some investment or re-investment were made there would be no capitalists. The speed that on any railway is actually found to exist does not depend on the engines, but is that which, taking into account the characteristics of his railway, the higher cost of fast trains, the likelihood of more passengers being induced by high speed to travel * It is elsewhere contended that large investments cause high wages, and we thus get the usual argument in a circle ; low wages cause a high rate of profit, laige investments and high wages, while high wages by a similar process produce low wages. It is a pity capitalists have not sufficient faith in their science to act as it dictates, and to raise their men's wages as a ready means of defeating the trades unions, and of producing low wages. t Caime's ' Leading Principles,' part ii. chap. iii. N 178 Communal and Commercial Economy, [chap. x. by his line, and a hundred other elements, the manager thinks would giye the highest profit, and he then makes his engines suitable to give the speed. There is a higher limit to the speed which could not be passed unless managers could get better engines than have yet been invented ; but under present conditions it is of no import- ance, as engines can even now be made to run faster than the managers desire. In the same way the capitalist in pursuit of an income invests or re-invests, and fixes the amount of his transactions by his circumstances ; he counts the number of his children, and reckons the likelihood of their requiring a large sum in order to maintain their rank in life ; he weighs his own dislike to go without things he would willingly possess against his dislike to leave his children less well off than himself, and, in short, takes into account the whole of his environment, and then selects the amount of investment or of re-investment that he considers best, and acts accordingly. As in the case of the speed of trains, there is a higher limit which the capitalist cannot pass, for he can invest no more than his total profits, nor even so much, but this limit is of no practical import- ance, since capitalists never invest as much as they possibly can, nor is it desirable that they should do so. The higher the rate of profit, the more will a capitalist possessing 'a given sum be dhle to invest, but it does not follow that the amount he will invest is a function of the rate. We are sufficiently skilled in the art of railway management to know that the rate influences the speed of trains, but we are by no means so far advanced in political economy as to know whether it influences investment. It would he rash, with our present ignorance, to say absolutely that it does not, but whatever influence it may have must be small. A man, for instance, has a factory the product of which sells for 3000Z., the price consisting of lOOOZ. profit, and 2000Z. wages ; he will, perhaps, invest a part of his in- come so as to provide for his children, or to become richer as he grows older, or for some other reason. Let us assume that under the conditions in which he is placed, a reason- able man who wishes to make such provision for the future CHAP. X.] Increase of Capital. 179 as wisdom would dictate, invests 500?. a year, and that the conditions are such that by so doing he gets another factory at the end of twenty years, as good as the one he had at first. Now take the case of a similar factory in another country where the rate of profit is higher. The product sells, as before, for 3000Z., but, wages being lower, the price consists of 2000Z. profit and lOOOZ. wa,ges. If, like the other man, the owner invested 500Z. a year, he would also get a new factory at the end of twenty years, for the difference in the rates of profit has no influence on the price of new factories. If it was wise and reasonable in the first case to make no further provision for the future than to double the capital in twenty years, it would be equally so in the second, and any further investment would be mere folly, and would not be made. N 2 180 Communal and Commercial Economy, [chap. xi. CHAPTER XI. FKEE TRADE. To dispute its teaching in regard to free trade, is a crime against plutology even greater than to deny the theory of rent, and argues a still less logical mind ; but if we examine it carefully, we shall find it to be, as usual, a mere medley of theorems, which, when kept distinct, no one dreams of disputing, but which, when combined, are nonsense. The interference with capital effected by customs duties and bounties on export or import, is a very unimportant part of the great subject of free trade, by which we mean the free right of capitalists to invest their money in the manner they think best. Plutology argues that if left perfectly free and untrammelled they will so invest it as to obtain for themselves the highest possible rate of profit, and to this we have no serious objection to make ; but we do object to the confusion of thought which takes for granted that a high rate of profit is the same thing as a high eificiency of labour, and still more to the contention that it is identical with a high state of well-being for the members of the society. This is mere confusion between commercial and com- munal economy; the former of which has as little to do with efficiency of labour or the well-being of the society, as the latter has with the rate of profit. A commercial society is a mere assemblage of individuals without common economic interests, and although we may speak of their common advantage when discussing those subjects — such as their military power — in which all are similarly interested, we cannot do so when discussing their political economy, since what may be advantageous, to one man is often or generally the reverse to another. CHAP. XI.J Free Trade. 181 There are, for instance, in India many capitalists who produce raw-cotton and food for workmen, and who give both to native weavers, getting back a certain quantity of cotton goods ; the Manchester manufacturers are very keen to get the Indian duty on cotton removed, as they think the capitalist would then be induced to send his raw-cotton and food to England, when they would give him in ex- change more cotton goods than he now gets. The capitalist would gain by the change, and the native weaver would starve, but we cannot say that India would be thereby benefited, unless we mean by the word simply the Indian capitalist who trades with Manchester. If, however, we include the weavers, the statement would be neither true nor untrue, but simply unmeaning, in the absence of any scale by which to measure the quantity of cotton added to a capitalist's income that would be equivalent to the starving of a weaver. It would be mere hypocrisy to pretend to believe that if Ireland enjoyed the advantages of real free trade, the tenants would not be all turned off their farms, and the latter laid down in grass for the supply of the English market with meat and dairy produce. It may reasonably be argued that the landlords and other capitalists would thereby gain, but whether the Irish people would do so is a matter of definition, and unless we define the Irish people to mean the capitalists, the statement that free trade in Ireland would be an economic advantage is one about which argument would be wasted, as it has no meaning. It is always contended that in the long run the working classes gain by everything that benefits the capitalists, even though there may be great present suffering, and that if Irishmen would only allow themselves to be starved or otherwise removed from a country where half of them are worse than useless, since they lessen rather than increase profits, the resources of the country would soon be so developed that the children of those who remained would be as well off as, under perfect free trade, the Dorsetshire farm-labourer has become. This may be true, but still we cannot say that Ireland would thereby gain, for the word 182 Communal and Commercial Economy, [chap. xi. Ireland includes the present Irish peasant, and he would not gain by being starved or forced to emigrate, or at least he thinks so, and in such a matter we must accept his opinion, for no one else can judge for him. When a new labour-saving machine is invented, many workmen are often thrown out of employment, and suffer in consequence; but it is said that, in course of time, the inven- tion induces capitalists to bring new farms into cultivation, and to thus furnish food for more men than ever, so that the working-classes as a whole benefit by the improvement. Even if we grant the premisses, the conclusion does not follow, for who is to decide whether it is better to starve Dick so that Harry and Tom may be induced to marry earlier and rear more children ? Dick and the others do not form a community, and we cannot speak of their average well-being; we must consider their individual circumstances, and all we can say is that an improvement in machinery is injurious to Dick, and more or less bene- ficial to others. If the mills of Manchester suddenly acquired the property of working without man's assistance, the present workmen would be set adrift, and would gain nothing even if they found other employment, although the capitalists would decidedly gain by the change. Simi- larly, if as much i^heat as is now grown fell, like manna, on to the land, the landowners would gain, but even if the ploughmen were set to other work they would be no better off than before, while it is more than likely that they would suffer by what was so great a benefit to others. It is con- tended, however, that even if they do not gain at once they will shortly do so, ior the larger profits of capitalists will lead to larger Investments, to an increased demand for labour, and to the employment of a large number of workmen who would otherwise be unemployed. In fact, we have, underlying the theory of free trade, the whole monstrous and illogical theory of population. A stream of children is said to be pouring into the world only to starve, and if capitalists can be induced to feed a few. more of them, and to rear them as their servants or workmen, the number thus rescued will be so many saved from a OHAP. XI.J Free Trade. 183 lingering and painful death. Hence increase of invest- ment, and, therefore (generally), of the working population, is in itself a boon, and plutologists point with pride and congratulation to the continually increasing population of England, although there is not a "town, village, hamlet or farm in the country that is not a national disgrace. It is tacitly assumed that, wretched as too many of the workmen are, they would be still worse off if new investments were not being continually made ; the same number of children would, it is said, be born, many of whom would starve, but many would grow up and compete for employment, thus . lowering wages, unless new investments were being made ; and as free trade is assumed to increase the efficiency of labour, and to thus give the capitalists a larger stock from which they can and will save, the conclusion foUows that the working classes gain by free trade. We shall, in due course, discuss the theories of population and wages, and shall find that the number of children reared varies with the demand for workmen, and that greater or less invest- ments would therefore merely increase or lessen the birth- rate amongst the working classes. The workmen thus gain no more than the privilege of being able to marry earlier when capitaKsts make large investments; they obtain no better wages, nor would they do so by restricting the number of their children. We have also seen that a high efficiency of labour has no influence on the sums in- vested, so that, even if free trade caused a high efficiency, which it does not, the working classes would have no interest in the matter. Their well-being depends on entirely different causes from that of capitalists, and in discussing free trade we must leave them entirely out of the account. The capitalists would all gain if labour were so directed as to be efficient, and plutology assumes, as a matter no more requiring proof than Euclid's axioms, that a high rate of profit is identical with a high efficiency of kbour. With this assumption no further proof than its enunciation is required of the theory that free trade is beneficial to capitalists, for no one disputes that they will generally 184 Communal and Commercial Economy, [chap. xi. make a higher rate of profit on their investments when acting freely, than when interfered with by the State. Eate of profit is not, however, the same thing as efficiency of labour, and instead of being a mere identical proposition, the free trade theory is really a contradiction in terms, for if labour is so directed as to make the one a maximum, it cannot be so directed that the other shall be a maximum also. If for instance, a certain work is to be done, say to empty a pond within two years, the manager, if he sought to perform it with the minimum of labour, would employ, say, 100 men for one year in erecting pumps, which they would work during the second year, this being, we will assume, the most efficient employment of the labour. A capitalist who had the same work to da would endeavour to do it at the lowest money-cost, and would not adopt the same method. If he actually set 100 men for a year to make pumps, the cost of the latter, assuming the ratio of wages to profits to be, what it probably is in England, namely 1 to 2, would be as folJows :— £ Profit on pump -making stock 10,000 Wages, 100 men at, say, 50/. 5,000 Total cost of pumps £15,000 and the cost of draining the pond would be — Cost of pumps 15,000 Interest on above for 1 year, at 10 per cent. .. 1, 500 Wages of 100 men at 50i. 5,000 Interest on above, say 260 Total cost £21,750 By employing less costly stock he could do the work for less money, and would employ, say, 178 men for one- tenth of a year in making buckets, the price of which would be — £ Profit on bucket-making stock 1780 Wages, 178 men for ^l of a year at 60/ 890 Cost of buckets £2670 CHAP. XI.J Free Trade. 185 and the cost of draining the pond would be — £ Cost of buckets 2,670 Interest on above for 1^ year 507 Wages, 178 men for 1^5 year, 50; 16,910 Interest on wages for iJ^j year 1,606 Total cost £21,693 As the work would cost a few pounds less by this method, the capitalist would naturally adopt it, thus making the rate of profit a maximum, but employing 178 men to do what, by the other method, 100 men could have done. In the one case the manager measured cost in labour, and in the other in wages, plus profits of his stock, and so long as the latter item exists, that is, so long as capitalists obtain a profit from any stock besides wages-goods, that disposal of labour which makes the rate of profit a maxi- rhum must, as a mathematical necessity, fail to make the efficiency of labour a maximum also. Efficiency of labour is a term of communal and not of commercial economy, in which it is replaced by efficiency of capital. Capitalists do not in the least care whether their work is done by 10 men and 100 horses, or by 10 horses and 100 men; they have nothing to do with the ratio — Number of units of goods produced Number of workmen -producing the goods' and each director of labour concerns himself only with the ratio — Number of pounds of profit for himself Number of pounds he has to invest He knows that his individual efforts would have but a small effect on the total profit-fund, and therefore he gives his energies, not to making it large, but to getting the largest share of it he can, and the final result is that although each capitalist may make a high rate of profit on his capital, labour is misdirected, and the whole class 186 Communal and Commercial Economy, [chap, xl obtain only a fraction of the wealth better management would give them. Let us for illustration assume that a society consists of two capitalists, one a velvet-maker, and the other a producer of wages-goods, and that their accounts stand thus — Vdvet-Maher. £ Gross product, 3000 pieces 1 „„„„ at 1? J Wages of 30 men at 50?. . . 1500 Profit £1500 Wages-goods Maker. Gross product, 3000 units at\ \l. 3000 Wages of 30 men at 50/. . . 1500 Profit £1500 The rate of profit being 10 per cent, and each man getting 1500Z. ayear, the capital of each is 15,000?., and a total investment of 30,000Z.is required in order to produce a profit-fund of 3000 pieces of velvet. Instead of the particular design he actually used, the velvet-maker might, we will say, have adopted one which would have given him a gross product of 2000 pieces, of which 1500 would, as before, be his profit, and tbe price of the remaining 500 would be sufficient to pay the less number of men he required. This would be, of course, a better factory than the other, if we measure " goodness" by the efficiency of labour, since one-third of the number of men employed in working it will produce two-thirds of the former product of velvet. As efficiency is, however, a matter about which a capitalist is profoundly uncon- cerned, and as he would make the same profit for himself with either plan, he would adopt, indifferently, the one or the other. For convenience we will assume that he would gain just such a small advantage by the less efficient design as under free trade would lead him to select it. Now let us assume that an illogical Peter or Frederick came into power, and that being guided by his eyes, and not by the reasoning of plutology, he saw that the labour of his people was, from a military point of view, being CHAP. XI.J Free Trade. 187 misdirected, since it was employed in working inferior implements when better were known, tlius giving a smaller profit-fund from which to levy taxes, and that he resolved to bribe capitalists by a bounty to use the better. The result would be that the next 30,000Z. invested would, with a different apportionment between the two factories, produce as before 3000 pieces, but only 30 men would be employed instead of 60, and the accounts of the manufac- turers would be as follows : — Vdvet-Maker. {. Gross produce, 3000 pieoes\ „„„(, at 1^ / Paid 15 men at 50^. .. .. 750 Proat .. .. i.2250 Capital invested, 22,500Z. TTages-goods Maker. Gross produce, 1500 uaits\ ,-(,« Paid 15 mea at 50i 750 Profit .. .. £750 Capital invested, 7500Z. The bounty, by inducing capitalists to choose the better design, thus doubles the efficiency of labour in the pro- duction of goods forming the profit-fund, nor would even the plutologists deny this to be the case. They have always, however, two strings to their bow, and would here say, that although efficiency of loibowr had been increased that of capital had not, and as capital is one of the requi- sites of production, there is no increase of the national wealth ; the profit-fund still consists of only 3000 pieces of velvet, and the military statesman has missed his aim, as he has no new fund from which to draw additional taxation. To succeed, he must not only make labour more efficient, but must also prevent the number of labourers from declining, and to do both is beyond his power. He may divert the investments of capitalists from one class of work to another, and bribe them to erect factories which, with a given quantity of labour, will yield a larger profit, but he can only do so by lessening in at least an equal ratio the number of men employed, and therefore leaving total profits no greater. 188 Communal and Commercial Economy, [chap. xi. and perhaps less, than before; while, as capitalists will themselves choose the design which pays them best, his interference will practically always lessen the total profit. If he could induce or compel capitalists to save more, he would then increase profits and add to the possible military power of the State, but bounties cannot have this efi'ect, and there is but one way of obtaining it, namely, by increasing the rate of profit, when more saving will be made and more men will be employed. The statesman would not be likely to accept this reasoning, nor to believe that the complex motives which induce capi- talists to employ more men can be thus concisely measured by the rate of profit. If he judged of men's actions, not by plutological teaching, but by his own observation and by his mother-wit, he would not, probably, come to the opinion that increased efficiency of labour discourages capitalists from acquiring more workmen; he would scarcely believe, for instance, that the present working population of England would have been larger had past labour been less efficient, or that it would increase less rapidly in the future should the efficiency become greater. He would, therefore, probably continue the bounty in the confident hope that the profit-fund would increase quite as rapidly as, and perhaps even more rapidly than, the efficiency of labour, and that the military power of the State would be correspondingly augmented. We may even meet the plutologists on their own ground, and show that although the rate of profit was not increased by the bounty, the " reward of the abstinence implied " by the saving of the 30,000?., was very substan- tially increased, proportionately indeed, with the efficiency of labour. I must, however, protest against the supposi- tion that I attach any importance to the matter, or con- sider the following discussion anything but the veriest trifling, notwithstanding that similar work is the whole body and soul of the arguments of plutology regarding free trade. We will suppose that our two capitalists, having resolved to invest part of their income, export 1500 pieces of velvet, getting 1500 units of wages-goods CHAP. XI.] Free Trade. 189 in exchange, and are thus enabled to hire for a year 30 new men, whom they employ in producing, by the help of the implements possessed by the society, a new wages- goods factory. Adopting the old design, they complete the work in say one year, and then set the men to work the factory, the resulting profit being sufficient to pay 30 more men, who are at once employed in the erection of the velvet-factory which they will afterwards work. When the new design is adopted the same 30 men will erect two of the smaller wages-goods factories required, and at the end of the year 80 more men may, as in the former case, be employed in erecting the velvet-factory. With the old design the latter would cost 15,000Z., and would be completed in say a year, but with the new design it would cost 22,500/., and (assuming price to be a measure of labour-cost) the men would take half as long again to erect it if labour were not more efficient, but by the hypothesis the efficiency of velvet-making labour has been doubled, and as the improvement extends to all branches of the manufacture, including that of making the machinery, the work would be completed in nine months instead of in a year as in the former case, and the capitalists would gain the profits for three months of their factory. This is not, of course, the whole gain, for they have two wages-goods factories, and only one is required to furnish the velvet-weavers with wages ; the other will maintain 15 men besides those employed in working it, and they may be drafted into the army, which will thus be larger, while capitalists still obtain as much profit for themselves as if they had been allowed to adopt the worse design. Or, if not required by the State, the men might be set to erect a second velvet-factory, which, with the help of the labour that might be paid from the profits of the first, they could complete in three months, and thus the original abstinence from the consumption of 1500 Eieces of velvet would be rewarded within the same time y two instead of by one new factory, and the capitalists would get 6000 instead of 3000 pieces of velvet added to their incomes. 190 Communal and Commercial Economy, [chap. xi. The above discussion, although neither more nor less than nonsense, is in strict conformity with the methods of plutology, and if adTanced by a professed student of that science would be treated with perfect gravity and perhaps with respect. The reasoning might be refuted and the conclusions refused, but no one would think the whole subject a mere burlesque, nor, indeed, deny that it was of the first importance, and if the conclusion were accepted that a bounty would increase the rewards of abstinence, then it would be taken as a truism that the State should grant the bounty. To reward handsomely the abstinence of capitalists is the main end of statesman- ship, for if it were not suitably rewarded the world would cease to revolve and chaos would come again. In England profits are said to be already so low that it is scarcely worth while being a capitalist at all, and Sir Thomas Brassey* warns the workmen that although "want of opportunity for thought and cultivation is their greatest privation .... they must recognise the necessity of developing to the utmost their energy and skill, in order to justify a demand for diminished hours of labour in an industry {that of England) in which the profits of the employers are already so moderate that they cannot be further reduced without altogether preventing the invest- ment of the capital in their business." We must ask what is this abstinence, this terrible privation which capitalists undergo for the good of others, and which is in England so niggardly rewarded with a few paltry hundreds of millions a year ? While they are taking their ease, in- dustrious workmen all over the world are labouring for them ; the coal-miner buries himself in the bowels of the earth so that their fires may be lighted, the farm labourer toils late and early to furnish their tables ; industrious Chinamen grow tea for them, and West Indian negroes sugar ; sailors " brave the stormy Spirit of the Cape " to bring them luxuries from the uttermost ends of the sea, and, turn where we will, we find a toiling, busy multitude whose whole work in life is to be serviceable to capitalists. * ' Work and Wages,' chap. vi. CHAP. XI.] Free Trade. 191 If Sir Thomas Brassuy would modestly consider his own merits he could hardly thinli that any benefits he confers upon the world are insufficiently rewarded by services like these, or that he has any right to turn to these people and tell them that when they have done all they are still unprofitable servants, or at least so little profitable that they are hardly worth keeping. When we see what capi- talists actually do, we find that {q^ua capitalist) their whole work and duty in life is to take the goods the gods provide, and that their abstinence consists of opening their mouths for the plums to drop in. The earth is theirs and the fullness thereof, and the workmen stand ready, hat in hand, to receive their orders. If they want velvet, they have but to give the command, when iron furnaces are put in work, and machine-shops erected, so that their factories may be built; if they prefer houses and gardens, these are prepared for them, or if they wish to have a troop of servants to follow them, the workmen will be grateful for leave to swell the procession. The only abstinence they do or can exercise is to decide in what form their servants' labour will please them best ; it is true that if they want velvet they cannot get it until the factory is first built, and if they want houses they must wait until their men can erect them, but it is surely a misuse of language to say a man exercises abstinence who employs his servants in the only way in which their ser- vices can obtain for him that which he most desires ; and this is equally the case when his desire is for more ser- vants, and when he, therefore, takes the necessary steps to obtain them, namely, the cultivation of new farms so that some of his new men may furnish food for the others who wiU directly serve him. When a capitalist tells his men that he will spend his money instead of investing it, and thus leave them to starve, should they demand a larger share of the product of their own toil, or some hours in the day " for thought and cultivation," he shows that his ideas of political economy are as faulty as his ethics, for he cannot carry out his threat. If he ceases to be, directly or indirectly, the employer of men, he will starve 192 Communal and Commercial Economy, [chap. xi. or become a workman himself, and all the talk of plutolo- gists about capitalists consuming their capital is as absurd when the word is used in its ordinary meaning as when it means steam-engines. No one can consume what does not exist, and if a capitalist wishes to get more luxuries he must employ more men to produce them. He can sell his stock to other capitalists, and spend the money only when others are willing to give up the use of luxuries for the sake of buying his stock, but if all want to spend more, the only way they can do so is by becoming the masters of more workmen. It might be thought from the language commonly used by capitalists that labour, instead of being necessary, was a hindrance to the production of their wealth, and that, but for their benevolence in feeding the workmen, they could live more luxuriously than they do, since they could go on spending money in the purchase of goods, even though workmen ceased to exist. It is, how- ever, clear enough that if labour were suspended for even the shortest period, the wealthiest capitalist would starve as surely as the poorest workman. Their wealth consists only of what they get day by day from their men, and would cease at once if their men .ceased to labour. .At present they get in England about two-thirds of the whole, measured by relative prices, but if they could get only one-third, or only one-tenth, they would be as keen to get workmen as they are at present. Their abstinence con- sists of getting as much as they can, and would not be lessened even though they got much less than they do. This virtue is not of so high a quality that the State is morally bound to reward it ; and if the State had not ends of its own to gain, for which revenue is necessary, it would be mere waste of thought and energy to interfere with capitalists so as to make them wealthier. As, however, the State does require revenue, it becomes the duty of the military statesman to increase to the utmost the revenue of capitalists so long as he does not thereby lessen that of the labourers. It is a mere identical pro- position that with a given number of workmen the income of capital will depend on the efficiency of labour, and the CHAP. XI.] Free Trade. 193 first duty of the State is to make labour efficient. Having done so, it must next, in order still further to increase revenue, endeavour to increase the working population by inducing capitalists to augment the number of their ser- vants. This latter is a subject far too complex for con- sideration in such a treatise as the present ; whether capi- talists will invest their profits or not depends largely or principally on whether they have children to provide for, and the motives which lead them to have children cannot be concisely expressed in an algebraical formula. We know from ample experience, and it is also a priori, probable that increased efficiency of labour has no ten- dency to discourage the increase of population, but that it has probably the opposite effect, and that, therefore, any action of the State which led to a better disposition of labour would also lead to increased total income from capital. The statesman has thus nothing to do but to open his eyes and see whether labour is being wisely dis- posed, and if he sees that it is not, then to compel capi- talists to dispose it wisely. He will know that statesman- ship is not, as plutology makes it, the successful solution of a problem of compound interest, and he would make labour efficient, even if to do so lessened the reward of abstinence. At the same time it is really a contradiction in terms to say that capitalists as a class can lose money by being compelled to so direct their investments that labour shall be made as efficient as in the actual state of scientific knowledge is possible ; — the utmost they can lose is that they may be compelled to invest, when they would rather spend their money. If a man resolves to keep another pair of carriage-horses, and exercises " the absti- nence implied by the accumulation" of the corn with which to feed them, it is to his interest that the horses shall be of the most suitable kind, and if he would, when left to himself, get a worse, he gains by being compelled by the State to get a better breed. The only justification of the State's interference would be that the breed which was really the best for the capitalist was also that which would be the best for the army if the horses were required o 194 Communal and Commercial Economy, [chap, xl for the public service. In the same way, if the capitalist resolves to keep another pair of workmen as producers of a profit-fund, and exercises the abstinence implied by the accumulation of the goods with which to feed and main- tain them, the class of capitalists gains by his being com- pelled to employ them in the manner which will produce the maximum of wealth. In practice the investor carries on only a small part of the work required to produce the finished wares, and he has to share with other capitalists the product of his men's labour ; he may thus get more for himself with a small total product, of which, however, he keeps the greater part, than with a larger product of which he pays to others a larger proportion, but his gain is necessarily a loss to the rest, and in the long run a loss to himself, for others act as he does, and where all pro- duce less than they might have done, the share which each obtains will be less than if all had produced more. Here the State in its capacity of tax-gatherer is justified in interfering and in compelling each man to employ his new workmen in the production of better implements than he would otherwise use, so that their further labour may be more efficient. It thus attains its end of in- creasing the national revenue, while at the same time the capitalists gain the incidental advantage of becoming more wealthy. The latter is not directly a matter of in- terest to any one but the capitalists themselves, and is not of itself a subject worth the study of those not individually concerned, but the use of the best known machinery is important to all whose lives are not spent in the unending toil to which the labouring classes are doomed, and who are not cursed with that " want of opportunity for thought and cultivation " which Sir Thomas Brassey says is the workman's greatest privation. Where capitalists desire to make labour efiScient they will more and more employ the knowledge they have acquired of the laws of nature, while every such employment forms a new experiment leading to further knowledge. Science, and therefore civilisation, really depends on the use of good machinery ; the workshops of industry are (the great laboratories in CHAP. XI.] Free Trade. 195 wMch. its experiments are made, and if it ever becomes the interest of those who direct labour to fall back to the employment of mere animal force, or even to rest content with the tools now used, science and civilisation will together languish and die. A wise disposal of labour is thus the one thing in which all are interested, and if free trade does not lead to a wise disposal it stands condemned. Whether it does so is not to be learnt from deductive reasoning or by studying the science of compound interest, but by looking aroumi us. In England, which in this respect is one of the best, or rather one of the least badly managed societies, we see men mowing with the scythe, and others binding the sheaves, as if mechanical reapers and binders were unknown ; land is still being ploughed by horse- power, although the steam-plough would save four-fifths of the labour ; earth is being dug by hand which the steam-excavator would do ten times as cheaply if cost were measured in labour, and in every branch of industry we see half-a-dozen men employed in doing what one could do as well. This is not employing labour wisely, and if the State could, by bounties or otherwise, induce capitalists to employ it with even that moderate wisdom shown in those workshops and factories where the best implements are used, which, in the economical conditions of the country, are found to pay, the income of English capitalists Avould be immensely increased. If we turn from England to India or Ireland, we find a labour system so bad that human ingenuity could hardly make it worse, and a bounty of almost any amount on any industry, if so given as to lead to the employment of the best known machinery, would increase the efficiency of labour. It would not, perhaps, be wise to give a bounty on the erec- tion in Ireland of green-houses and furnaces, by the help of which sugar could be grown, but if it were done the income of capital would be increased and the Irish people would get their sugar at a lower labour-cost than they do at present by trade, under a system which sets a hundred men to do what one might easily do as well. Foolish as such a bounty would be, it would be less foolish than to o 2 196 Communal and Commercial Economy, [chap. xl. leave the direction of labour to men who misdirect it so shamefully as is actually done, or to maintain a labour system in which the directors cannot, without immediate loss to themselves, direct it in a better manner. So, if the statesman wishes to increase the efficiency of Indian labour, and therefore the profit-fund of India, the way to do so is not, as Manchester recommends, to starve the Indian weaver by flooding the country with English cotton, but to bribe or compel Indian capitalists to erect factories similar to those of Manchester, There are, of course, objections to State interference in a commercial society, and the evils of granting bounties might, and probably would, more than counterbalance the advantages, but it is the work of the statesman and not of the economist to balance one against the other. The work of the latter is done when he insists that arithmetic and not plutology is the true science, and that more wealth will be produced in proportion as labour is made more efficient. It would in any case be practically impossible for the statesman to do more than correct the most glaring abuses, for he could not interfere in every branch of industry, but if, from a rise in the rate of wages, labour became more precious, the interests of the capita- lists themselves would be engaged on the side of reform, and they would become wealthier by what they, in their short-sighted selfishness, always speak of as a national calamity. The fund from which high wages are paid is not the profits of capitalists, but . the inexhaustible store of nature, who freely gives to those who wisely ask of her. English capitalists are wealthier than those of India or Russia, not in spite of, but on account of, the higher rate of English wages. With every rise in wages and con- sequent improvement in machinery the inventiveness of mechanics would increase, and the capitalists would gaia from the greater efficiency of labour. There is no limit to this wealth-giving race, for the liberality of nature is boundless. The rise in wages might be of course so rapid that capitalists would temporarily suffer, but within wide limits they gain with every increase of wages, and the CHAP, XI. J Free Trade. 197 latter might be, in one generation, doubled over and over again with advantage to the masters as well as to the men. Instead of combining to keep down wages, the manufac- turers should combine to raise them. Every man loses, it is true, by high wages in his own factory, but he gains tea times more by their being high in those of his neighbours. If he could induce others to pay more while he paid less, he would gain at both ends, but as this cannot be done he should look to the more important matter and not sacrifice a pound of income for the sake of saving a shilling of expense. High wages would also gain another end dear to the English plutologist, namely, that of enabling English manufacturers to undersell those of other countries, and thus to extend the area of their business, and perhaps eventually to attain to that ideal state when England would be a mere workshop, in which neitber tree nor flower was seen, where the brooks were all loathsome sewers, and the sky a black and stifling fog. That high wages would bring about this happy end, or are at least necessary to its attainment, is quite opposed to the teaching at present in fashion, but it follows irresistibly from that of Ricardo himself, who has shown that a rise in wages, by causing a fall in the rate of profit, " would lower the relative values of those commodities which were produced with a capital of a durable nature, and would proportionately elevate those which were produced with capital more perishable." * The durability of the stock is not the real element to be considered ; buckets may be as durable as steam-pumps, but a rise in the rate of wages would increase the normal price of water raised in buckets much more than that of water raised by steam-puinps. Durability of stock is, indeed, a term of communal and not of commercial economy. In the latter all stock is everlasting, since it is perpetually renewed out of gross profits ; a capitalist's stock of wheat, coal, corduroy, and other articles which are passed on from hand to hand, may be compared to the water at a parti- cular spot in a river, and which is always present although not composed of the same identical drops, while fixed stock * Chap. i. § V. 198 Communal and Oommsreicd Economy, [chap. xr. is like that in a lake which changes but little from day to day. We need not, however, follow Eicardo's argument, but may make an independent investigation of the influence on the export trade of an increase in the rate of wages. All goods may be produced, and all work performed, in more ways than one ; in order to raise water we may use a bucket and rope, or a hand-pump, or pumps worked by horses, wind, or steam ; in order to produce cotton goods we may employ hand-looms, or other and better machinery, and the particular machine which can most profitably be employed by an independent capitalist who owns only part of the stock required for the complete manufacture of goods, will depend, cseteris paribus, on the rates of profit and of wages : if he uses very good and costly stock he will lose more in interest than he saves in wages, while, if he employs very rude machinery, he will lose in wages more than he saves in interest on the first cost of his stock. Let us say that Belgium and England compete, by exporting cotton goods, for the products of foreign countries, and that in both countries the rates of wages and profit ^re 50Z, a year, and 10 per cent, respectively. Of the infinite number of ways in which cotton can be worked, we will take three examples, as follows; assuming the total product to be the same quantity in all cases. No. 1. ^ Profitsofstook, 60,000?. at 10 per cent. .. 6000 Wages, 50 men at 50i 2500 Normal price of product £8500 No. 2. ^ Profits of stock, 40,000?. at 10 per cent. . . 4000 Wages, 85 men at 50/ 4250 Normal price of product £8250 No. 3. Profits of stock, 20,000/. at 10 per cent. .. 2000 Wages, 130 men at 50/ 6500 Normal price of product £8500 CHAP, XI.J Free Trade. 199 With these particular rates of wages and profit the second method of manufacture would be the most profit- able, and would be adopted in both countries, which would compete in neutral markets on equal terms. We will now say that wages in Belgium rise to 60?., and that the rate of profit consequently falls to, say, 7 per cent. The new normal prices in Belgium will then be — No. 1. £ Profits of stock, 60,000^. at 7 per cent. .. 4200 Wages, 50 men at 60i. 3000 Normal price £7200 No. 2. £ Profits of stock, 40,000?. at 7 per cent. . . 2800 Wages, 85 men at 60/. 5100 Normalprioe £7900 No. 3. £ Profits of stock, 20,000/. at 7 per cent. . . 1400 Wages, 130 men at 60?. 7800 Normalprioe £9200 The first method of production would now be the most profitable, and the competition of Belgian manufacturers amongst themselves would compel them to sell for 7200Z. the same quantity of cotton for which they had formerly obtained 8250^., and the English manufacturer, who could not sell for less than before without taking a lower rate of profit than obtained in England, would be driven from the market. His proper action to meet the emergency would be to try and form a masters' association for the purpose of raising wages and of thus lowering the rate of profit, and if he failed in his endeavour he might even put up with lower profits himself and quietly sell his goods at the new price. It is not very likely that he would do 200 Communal and Commercial Economy, [chap, xi, either the one or the other, but he would probably tura to the other possible alternative, and would pathetically appeal to his workmen to submit to a reduction of wages so that he might continue his trade on the old terms. He would quote to them Sir Thomas Brassey's words that "dear labour is the great obstacle to the extension of British trade," and would warn them that if it were not made cheaper the commercial supremacy of England would soon be a thing of the past. To this wretched greediness the true reply would be that the commercial supremacy of England is due entirely to the relatively high rate of English wages, and is now being disputed solely because wages have risen much more abroad than at home, but for the sake of our argument we will assume that the capitalist's eloquence convinces the men, who submit to a reduction of pay, and agree, in the interests of British supremacy, to take 40Z. a year, thus maintaining the old rate of profit. The new normal prices in England would then be — No. 1. £ Profit of stock, 60,OOOZ. at 10 per cent 6000 Wages, 50 men at 40/. 2000 Normal price £8000 No. 2. £ Profit of stock, 40,000?. at 10 per cent. ., 4000 Wages, 85 men at 40? 3400 Normal price £7400 No. 3. £ Profit of stock, 2O,O00Z. at 10 per cent 2000 Wages, 130 men at 40?. 5200 Normal price £7200 The third method of manufacture would now be the most profitable, and when it was adopted, England could CHAP. XI.] Free Trade. 201 again compete with Belgium in foreign markets, and manufacturers would speak approvingly of the patriotic self-sacrifice of the workman, which had enabled them to sell cotton at a cheaper rate, by deteriorating instead of by improving their factories, and had thus saved England from falling from her high place in the commercial world. But is England's supremacy thus assured ? Does it really require argument to show that Belgium, in pulling down factories in which eighty-five men were required to do a certain work in order that she might erect others in which fifty men could do the same, was making a stride forward in the manufacturing world, and putting herself in a better position to purchase the goods of other countries ; while England, in replacing her old factories with others in which 130 men were required, instead of eighty-five, was going backwards ? Can the solution of any number of problems in compound interest, convince any reasoning man, that such a palpable absurdity is true as is implied in the opposite of these propositions ? Or is it really necessary to discuss with the plutologists the amount of privation the unhappy capitalists would have to undergo, in order to erect the better factories ? Let us carry the illustration a step further, and say that Belgian wages rose to lOOZ. a year, the rate of profit falling to, say, 4 per cent. Still better factories would now become the most profitable, and normal prices would be, say, — Profit of stock, 100,000?. at 4 per cent 4000 Wages, 10 men at 100? 1000 Normal price £5000 If England wished to sell the goods at this price, wages must again be lowered and still worse factories employed, when she would again be able to compete with Belgium, just as the hand-looms of India can now compete with Manchester, so long as Indian wages are kept at the starving point. 202 Communal and Commercial Economy, [chap. si. We have so far assumed the fall in English wages to be confined to the cotton-weavers, but it would clearly be impossible to pay them less than other workmen, and either wages would not fall in that trade, or they would fall in all. In the former case, England would have been long driven out of the foreign markets, which would be supplied exclusively by Belgium, while if wages fell in all trades the rate of profit would rise and would be, perhaps, 25 instead of 10 per cent. The final normal price of the cotton would then be, say, — £ Profit of stock, lOOOZ. at 25 per cent 2.50 Wages, 200 men at 23ii 4750 Normal price £5000 Starvation would here prevent any further reduction in wages, and if the Belgian rates still rose England's competition would be at an end, while Belgium would go on producing cotton for the whole world who had anything to sell which Belgian manufacturers cared to buy. Let us now consider what would be the position of the capitalists in the two countries; in Belgium, 10 men pro- duce a profit of iOOOZ., and in England 200 men produce 250Z., or a million men "produce a profit of 400,000,000Z. and of 1,250,000Z. in the two countries respectively. In the name of common sense, which is, assuming equal popu- lations, the more likely to have a large foreign trade ? It will here be said by the plutologists, that in order to amass the vast capital which would give a profit of 400,000,000Z. per million of the working classes, the Belgian manufacturers would have been obliged to exer- cise a superhuman abstinence, and to undergo privations beyond the power of weak mortals to endure, but we may ask at what stage of the progress was this necessary? When wages first rose the Belgian manufacturers would lose the extra goods the workmen obtained, for they would not be able to alter their factories by a wave of CHAP. XI.] Free Trade. 203 the hand, and the old ones would be worked until they wore out. This is the whole privation the capitalists undergo. Let us say that in a particular country wages are doubled, and that the capitalists then get no profits whatever, but knowing that they will soon be richer than ever, they beg or borrow from the men and continue their work, resolving to replace their machinery and other stock as it wears out or is consumed, with other of better design. They would first direct their attention to the machines used in making and maintaining other machines, and by improving the design the efficiency of labour would be, say, doubled. With this extra force at their command they would next turn to the profit-goods factories, which would be so much improved that the men employed in working them would produce twice as much as before, when the privations of the capitalists would be at an end as their old income would be restored to them. They would then turn to the wages-goods factories, the product of which would also be doubted; new men, drawn from the natural increase of the population, could then be maintained, and if kept permanently employed in pro- ducing new wages-goods factories a permanent stream of new men could be kept up who would be employed in the production of profit-goods until the increase of the profit- fund was arrested by the impossibility of crowding more men into a world of finite dimensions, aud all this increase of wealth would be the reward of the privations the masters were compelled to undergo when wages rose. Plutology would, however, here say that this was not true plutological privation, which is something inherent in, and inseparable from, an income, and is measured only by the latter; a man with 20,000Z. a year suffers twice the privations, and makes twice the sacrifices of a man with only 10,000Z. a year, but if he lost half his income the wind would be tempered to the shorn lamb, and his privations would be reduced in the same proportion. Of course, when privation and sacrifice are measured by income we must grant that the Belgian capitalists in our 204 Communal and Commercial Economy, [chap. xi. illustration, as they became wealthier owing to the rise in wages, were obliged to undergo enormous privations and to make enormous sacrifices, compared to those of their English fellows, but in granting this we must remember that plutological privation is not the same as that of everyday life, and is much more easily borne. The word free trade is, in England, almost confined to the non-interference of governments in the export and import trades between different countries, and where im- ports consist largely of food the subject is of importance ; otherwise, however, it is so unimportant relatively to the home trade as to be scarcely worth discussion. If the whole labour of the country is being misdirected, it is not of much importance whether a small fraction of it is being somewhat worse or better directed than the rest, and I here discuss the matter rather in accordance with custom than from considering it worth discussion. We are met at the threshold with the difficulty which everywhere presents itself in the study of commercial economy, namely, that we do not know the end sought by the economist or economical statesman. If we accept the teaching of Manchester it would be a contradiction in terms to assert that a country can gain by State interference, for the Manchester school starts with the axiom that a nation enjoys the highest well-being possible in the cir- cumstances in which nature has placed it when capitalists are freely permitted to invest their money in the manner which seems best to them. If we grant this, then political economy is an impossible art, and Gobden, the apostle of laissez faire, was a great statesman, while Peter and Frederick, the advocates of State interference, were mere meddling blockheads — surely a redvMio ad dbsurdum. I am quite willing to admit that customs dues form a very clumsy and uncertain weapon with which to fight the evils of commercialism, but this is no reason why they should not be used when no better can be had ; the mari- ner's compass is an uncertain guide across the ocean, and often leads ships on to the rocks instead of into port, but CHAP. xi.J Free Trade. 205 it does not, therefore, follow that we should abandon it, and give up navigation until a better guide is discovered. A statesman would certainly gain more quickly the end sought by all who are worthy of the title, namely, that of making labour more efficient, if he went more directly to work than by imposing import duties ; but if from any cause he is unable to adopt the better, he may fairly adopt the inferior methods. He must not, however, lose sight of the fact that the end sought is not the protection of capitalists, who stand in no need of the statesman's help, but to increase the efficiency of labour, and since customs duties do not always produce this effect, it would be as foolish to impose them without thought or study as to undertake to navigate a ship without having studied the variations of the compass. At the same time they are, under some circumstances, a perfectly legitimate and effective means by which capitalists may be induced to dispose more wisely the labour over which they have command. In Russia, for instance, the rate of wages is lower than in England, and labour is consequently worse directed and less efficient. If, therefore, Eussia buys cotton from England, paying, say, in gold, she will have to give the product of perhaps five miners' labour in exchange for that of one English cotton-weaver. If now she imposes a prohibitive duty, cotton will be woven at home, and the Russian statesman has no more to do in order to learn whether the change has been beneficial than to count the number of men employed in the cottoa-mill, and to com- pare it with the number of gold-miners who would have been required in order to obtain the cotton indirectly by trade with England ; if the number is less, then the pro^ tection has caused a gain ; if more, it has caused a loss. The plutologists argue that there would be a loss in either case, for if the statesman had not interfered the capital invested in the cotton-mill would have been directed to the cultivation of new farms for the support of new miners, and to the opening of new mines, and the product of the 206 Communal and Commercial Economy, [ohap. xi. latter would have purchased more cotton from England than was produced by the Eussian mill. They would even go so far as to say that labour had been made less efficient, for the capital invested produces a less rate of profit ; but capital is accumulated labour, and the end of labour is the production of a high rate of profit, therefore, labour is less productive, or in other words less efScient. To this the statesman would reply that capital is not labour, and that if one weaver can make as much cotton as five miners could obtain by trade, the efficiency of Eussian labour in the obtainment of cotton has been in- creased fivefold. The rate of profit no doubt has fallen, but the very object the statesman has in view is to induce capitalists to employ costly stock, the use of which is practically incompatible with a high rate of profit. He wishes to assimilate Eussian industry to that of England, to substitute steam-ploughs and excavators for the wooden ploughs and spades of his country, to drive hand-looms out of existence, and to replace them with looms driven by steam, and this he cannot do while maintaining the existing rate of profit. Eussian workmen may maintain themselves and produce in a year or two a stock of new ploughs and looms similar to those with which they now work, but they could not produce in the same time a new stock of steam-ploughs and power-looms, and if they work with the latter the rate of profit will be lower than if they worked with the ruder and simpler implements. The statesman would, therefore, care nothing about having caused a fall in the rate of profit so long as it was accompanied by an increase in the efficiency of labour; his object is to make the total profit-fund greater than it was, and he knows that increased efficiency of labour will have this effect, since it will not lead to a lessening of the number of men employed. If, there- fore, it is a fact that protection in Eussia and other con- tinental countries has led to the erection of better factories than would otherwise have existed, protection has been beneficial, and we shall learn the facts of the CHAP. xi.j Free Trade. 207 case, not by solving arithmetical problems, after the fashion of plutology, but by observation and the collection of statistics. No arithmetical study would teach us, for instance, whether the erection of Krupp's great works at Essen would have been undertaken without protection, nor whether their erection has increased or lessened the total profit-fund of Germany, and in the absence of statis- tics we can learn very little about the matter. It is, however, pretty certain that under free trade Germany would have imported steel from England and Belgium, and would have invested the money which has actually been spent at Essen, in bringing into cultivation new vineyards, the product of which would have been exported in order to pay for the steel. It is also pretty certain that the number of men required to work the Essen shops is very much less than would have been required to work the new vineyards, and if this really represents the facts of the case the German statesmen whose acts have resulted in the erection of Krupp's works can afford to treat with contempt the free trade argument that the total money invested in Germany yields a lower rate of profit than would have been the case had capitalists not been inter- fered with ; the end they sought was not a high rate of profit for German capitalists, but something which in the actual circumstances is incompatible with it, namely, a high efSciency of German labour. There is no royal road to knowledge in political eco- nomy, and the statesman must be content to adopt that employed in all the other sciences, and must laboriously study facts, which he can do only by the collection of statistics. Without these he will be more likely to do harm than good by levying protective duties, and instead of making labour more efficient he may only divert it from a bad into a still worse channel. Instead of getting capitalists to erect good power-looms the Eussian states- man may only succeed in getting them to erect hand-looms, by which ten weavers may be required to produce the cotton that five miners might have obtained by trade, or 208 Communal and Commercial Economy, [chap. xi. Prussian ironmasters may be induced to work mines so inferior to those of England and Belgium that more men ■will be required to produce steel directly than would have been needed to obtain it indirectly by trade ; and since the statesmen of Europe work practically without study or statistics, the chances are that nine-tenths of the pro- tective duties now levied do more harm that good, more especially in America and the English colonies, where wages are high, and where, therefore, labour is less badly directed than elsewhere. There is, perhaps, one rule sufficiently general to be always adopted, namely, that protection should never be given against the competition of countries where the rate of wages is lower or even not higher. The object of the protection is to induce capitalists to employ machinery similar to that used abroad, and this it will never be advantageous to do unless the foreign is higher than the home rate of wages, for in no other case will the foreign machinery be better than that which, without protection, would be employed at home. If America gave up its protective duties, capitalists in the eastern states would not be able to make so high a rate of profit as they now get by taxing their western fellows, but they would still continue their investments even at the lower rate, and would improve their machinery, thus increasing the total income of capital, and raising America to the first place amongst the manufacturing countries of the world, the first place being that which is her due, owing to the higher rate of wages her workmen obtain. when the protected commodity forms the main article of the food of the working-classes, new elements are in- troduced into the discussion. The higher price of wheat arising from protection would perhaps not be a direct loss to the workmen, as the rate of wages would probably be higher if food were dear, while a high rate of wages is a benefit even when it does not benefit the workmen, since it leads to increased efficiency of labour. It is true that there might be some waste of labour under protection in growing wheat at home, which would be obtained at a less labour- CHAP. XI.] Free Trade. 209 cost from abroad, but this will not be great unless the duties are prohibitive. The landlords would also obtain a larger shave of tlie profit-fund than if there were no duty, but this also is unimportant to the statesman, for if the fund is to be divided between A and B, it matters very little to any one but themselves which gets most, and the statesman may consider the benefit to the landlord as counterbalancing the loss to the capitalist. Tiie real objection to the tax lies in the fact that the yield of wheat varies greatly from year to year, and that wages do not follow the consequent variations in price. Let us say that a workman's average expenditure consists of 50 units of money spent in buying bread, and 50 units in other com- modities "; if the price of bread is doubled he can still get on without starving, as he can spend 100 units in buying it. If now, owing to protection, the price of wheat were permanently doubled, and wages rose in consequence to 150 units, the workman would be as well off as before if the price of wheat never varied, but a short harvest would still double its price, and he would have only 150 units of money with which to buy bread costing 200, and would thus suffer the pangs of actual hunger, besides losing all the other commodities he ordinarily enjoyed, and which he would have lost in any case. A short harvest will have even more influence iu raising the relative price of wheat under protection than under free trade, and the sufferings of the workmen will thus be not only more severe, but also more frequent. When corn is cheap it is extravagantly used, neither rich nor poor being very careful that there shall be no waste, and much is used for other purposes than for human food. It is employed in making beer, in feeding hogs and cattle, and in a thousand other ways, so that when the harvest is short retrenchment can be made without bringing actual hunger. The higher the normal price of corn, the less will be used for other purposes than food, and the more nearly will the usual supply approximate to the quantity required to feed the population. When the harvest is short, those who have the money to do so will still consume nearly as much corn p 210 Commvmal and Commercial Economy, [chap. xi. as before, for they will not retrench by using less bread, and there is no other form in which retrenchment will much influence the stock available for the workmen, on whom the whole deficiency thus falls. A protective duty on corn is thus, perhaps, the very worst that could be devised, but it is fortunately not likely that the working classes will ever again permit one to be levied. ( 211 ) CHAPTER XII. POPULATION. If the reasoning of plutology on the subject of population were sound, poverty, with its attendant misery, would be an unavoidable evil, and the whole serious business of life would rightly and almost necessarily be, as under the com- mercial system it is, a mere selfish struggle to keep others in want for fear of being kept in want by others. This is not the highest morality of which man is capable of at least dreaming, nor can we with any modesty treat as mere dreamers the greatest men of all lands and of all times, who have one and all taught that to act with fairness to the weak as well as to the strong, is a sound maxim of practical ethics to be used in everyday work, and not merely to be kept as a formula for repetition on Sunday. We are, however, so steeped in commercialism, and our moral senses are so twisted and warped by its wretched ethics, that we cannot raise ourselves to the level of these great men, nor make even an endeavour to follow their precepts. We willingly abandon those who we know ought to be our leaders, in order to follow others whose mental powers are not above our own, and who tell us that maxims like these are fit only for children ; that men of practical common sense know that in the stern work of life the true doctrine is to— " Be to the poor like any -wliunstane, And haud their noses to the grunstane," or at least to compel others to toil so that we may enjoy the product of their labour, and when we can vith advantage to ourselves plunge others into want and p 2 212 Communal and Commercial Economy, [chap. xir. misery, then to do so without a scruple. While thus fol- lowing the worse, we are still unable quite to forget the better doctrine, and quiet our conscience by hiring men at handsome salaries to preach the better on Sunday, at the same time, however, taking the precaution to hire others at a cheaper rate to put any one into gaol who says on Monday that the two doctrines no more adhere and keep place together than the Hundredth Psalm to the tune of ' Green Sleeves.' This inconsistency cannot be defended ; we should either frankly accept the ethics of commercialism and cease to waste money in teaching doctrines utterly incompatible with them, or we ought to endeavour, at any cost, to substitute for commercialism a system of labour organisation under which it would be at least possible to be guided in our lives by that higher code of morality which in theory we approve. Plutology asserts that any attempt to remove poverty must result in failure, as nature has established a law of population which makes success impossible; and the result would be, not to improve the condition of the poor, but to drag down the wealthy to their level. This theory is always urged by our practical and common-sense leaders as a full defence of their neither doing nor trying to do anything to improve the condition of the poor, and by our moralists of their sharing themselves in the spoils that are wrung from the labourers. It would, however, be un- fair to plutology to ascribe to its teaching any very im- portant influence on the acts of statesmen or on the sermons of divines, or to treat it as one of the causes of the low pitch of our economic ethics. It never rises to 1;he dignity of erring in an honest search after truth, and of thus misleading others, its work being confined to the discovery of words of ambiguous meaning, by the use of which as double middle terms, the accepted theorems, ethic and economii',of commercialism, may be in a manner proved to be part ot natural law ; its false teaching must be therefore considered the result, and not the cause of the miserable sophistries by which we are enabled to reconcile our Monday work with our Sunday words. We CHAP. XII.] Population. 213 could not with comfort see the poverty around us unless we could prove it to be unavoidable, or due to the incon- tinence and other faults of the poor, and the theory of population by tlie happy discovery and use of the word tendency i'urnishes the desired proof. Malthus says,* the principal object of his essay is to examine one great cause, among the effects of which may probably " be reckoned a very considerable portion of that vice and misery, and of that unequal distribution of the bounties of nature, which it lias been the unceasing object of the enlightened philan- thropist in all ages to correct. The cause to which I allude is the constant tendency in all animated life to increase beyond the nonrisiimeut prepared for it." He does not explain what he means by tendency, and if we give the word its most common meaning his statement is untrue ; animated life never did, and never will increase beyond the point where its nourishment fails ; if men, or l-abbits, or docks can get no nourishment they at once necessarily cease to increase. He then shows from statistics that in America population had for a century and a half doubled every twenty-five years, and says, " It may safely be pronounced, therefore, that population when unchecked goes on doubling itself every twenty-five years, or increases in geometrical ratio." He next asserts, in accordance with " the law of diminish- ing return from land," that although a large number of labourers may obtain from a given area of land a larger produce than a smaller number could obtain, the difference would not be proportional to the difference in the numbers, and says, " It may be fairly pronounced, therefore, that considering the present average state of the earth, the means of subsistence under circumstances the most favour- able to human industry could not possibly be made to increase faster than in an arithmetical ratio." Here, then, we have in full the Malthusian principle of population, namely, that it tends to increase in geometrical, while subsistence tends to increase only in arithmetical ratio. Millf says this is a mere passing remark, hazarded by way * Book i. chap. i. t Book ii. ohap. xi. § 6. 214 Communal and Commercial Economy, [chap. xn. of illustration, and not really intended to give numerical precision to things which do not admit of it ; and we must therefore fall back on the statement which Mill and all other followers of Malthus accept, that population tends to increase faster than the means of subsistence, although the exact ratio may be unknown ; but we are left still in the dark as to what this means. The statement as it stands is, of course, untrue, for even if children and food were inde- pendent, self-creating phenomena, possessed of independent powers of coming into the world or of abstaining from doing so, population, that is the number of people alive, would have no tendency to increase in a higher ratio than the food required to maintain it, since it is a physical im- possibility that it should ever do so. As a matter of fact, neither children nor food come into the world by reason of their own independent actions, and we cannot predicate either of population or of subsistence any tendency to increase at all. We know as a physiological fact that if all women had as many children as they are physically capable of bearing, they would on the average have nearly a dozen ; and as an arithmetical fact, that if all or nearly all the children lived and the girls were equally prolific, the population would be doubled in a few years.' This is the whole " principle " (if we are to employ that word) of population, but we owe our knowledge of it to other sources than the studies and investigations of Malthus and the plutologists. We have elsewhere * discussed the " law of the diminishing return from land," which forms the " principle " of subsistence on which, together with the " principle " of population, the current theories pro- fessedly rest, and we have seen it to be entirely imaginary ; but as we do not deny that great evils would follow an undue exercise of the reproductive powers, we will not here quarrel with the badness of the foundation, but will examine the superstructure as fully as if the foundation had been good. The law of the diiriinisiiiDg return is not indeed essential to the theory that poverty would arise f 1 om an undue exercise of the power of reproduction, for * Ante, p. 135. CHAP. xn.J Population. 215 there is another " principle " which would, or at least might, bring poverty into the world if women reared as many children as they are physically capable of bearing. A man with half a dozen sons not only has to share with them the wealth he might otherwise have enjoyed himself, but has also to erect the stock without which they would be unable to earn their own living when they arrived at mature age. He would, under some circumstances at least, be unable to do this in a proper manner, and would have to start them in life with implements (or, in com- mercial economy, with capitals) inferior to those he had himself obtained from his father ; if he had always worked with steam-plouglis, he would, perhaps, supply them with horse-ploughs only, and they in their turn would leave their sons only spades, so that the efficiency of labour would steadily decline, while, if he had had but one son, he would have been able, like his father before him, not only to maintain and renew the stock he had inherited, but would have been able also to improve it and to leave his son better off than he himself had been. When once the efficiency of labour has reached a certain point, this reasoning does not apply, or, in the language of plutology, this law of nature undergoes supersession. With a wise direction of labour and an equal distribution of the product. Englishmen, for instance, could not only maintain them- selves in ease and comfort, but could also launch in life as many children as their wives could possibly bear, and this with implements even better than they had themselves inherited. The efficiency of labour would therefore con- tinue to increase, although at a much slower rate than would be the case had they restrained their reproductive instincts. For the sake of argument, however, we will admit that nowhere in the world has this efficiency of labour been attained, and we will conceile to Malthus that a rapid increase of population would lead to a falling off in the efficiency of labour, and, sooner or later, to poverty. We might, from these " principles " of popula- tion and subsistence, make a few deductions of vast im- portance in political economy, but they are all, when true, so obvious, that it would be a mere waste of paper and ink 216 Communal and Commercial Economy, [chap. xii. to write them. Those made by plutology are not, howeyer, true, nor could they be deduced except by the methods of that science. It is a mere misuse of words to call the physiological and arithmetical truths of which the principle of population consists a tendency to double every twenty- five years, and the assumed principle of subsistence a tendency to increase at a slower rate, but this misuse of language is the source from which all the deductions of plutology are drawn. In another chapter * Malthus says, " According to the principle of population, the human race has a terdency to increase faster than food. It has, there- fore, a constant tendency to people a country fully up to the limits of subsistence, &'c." This jump to the every- day meaning of the word tendency takes us a very long way towards the desired conclusion, and the final step is made by tacitly substituting the " working classes " for the " human race." The syllogism is then complete, and plu- tology complacently draws the conclusions which follow from these notable premisses, e.g. it would do no good to give the workmen higher wages, for they would only people the country up to the new limits of subsistence, wlien they w ould be as wretched as ever ; it would be worse than useless to give them the whole product of their labour, for the same result would follow, and the world would lose the advantages derived from a leisured class, some at least of whom cultivate science, art, and literature ; it is, there- fore, right and moral for those who have the power of appropriating the product of the workmen's labour to exercise their power, to enter into combinations to keep wages at what is thus seen to be their natural rate, and generally to get as much as they possibly can out of the men, who would only waste whatever wealth they were allowed to keep in rearing more children. These being the propositions to the proof of which plutology had set itself, it has nothing left to do but to write Q. E. D., and we may comfortably continue to show our disinterested love for our neighbour by making him work for us. Although children have no independent tendency to * Book iii. chap. xiv. CHAP, xn.] Population. 217 come of themselves, mankind are led by their instincts to bring them into the world, but even if we granted, which we do not, that these instincts are so powerl'ul that they can be resisted only with great difficulty, we should not be compelled to admit this to be a sufficient justifica- tion of the commercial system. It would be an excellent argument in the mouth of an Afghan statesman who was opposing the introduction of a strong government and the settlement of intertribal feuds by peaceful process of law instead of by war. He might forcibly contend that population would increase at an alarming rate if men were permitted to die of old age instead of being knocked on the head in battle, and might draw a vivid picture of a society forced to choose between infanticide and hunger, and triumphantly point to the comparative happiness of life under a warlike government, where men, although they might not live long, at all events suffered want only as the result of unusual mishaps, and where they were not compelled to outrage every feeling of humanity by killing their own children. The plutological argument rests on the assumption that under commercial govern- ment the population does not unduly increase because the children who are not required are all killed off by want. But surely this is infanticide, and a society which ad- ministered a dose of prussic acid to half the children born would equally gain the end of keeping population within bounds, and would do so in a less immoral manner than if the children were allowed to die of want, as the consequent suffering would be less. If we have only the choice between war and killing off the children, either by want or by poison, the former would be clearly the better, and the Afghan statesman's argument would be unanswerable. Fortunately this is not the case, for the assumption that man will multiply up to the limits of his means of subsistence, which both Afghan and commer- cialist take for granted, is false, and the infanticide antici- pated by the one, and of which the other is actually guilty, is wholly unnecessary. The commercialist does not even argue logically from his premisses, for he actually pro- 218 Communal and Commercial Economy, [chap. xii. poses to induce the capitalists, on whose increase that of all other classes mainly depends, to restrict the number of their children, by giving them the means of rearing an almost unlimited number. He excuses this complete inversion of his argument by saying the capitalist will not act like other men ; he will not, simply because he has the means of feeding them, get as many children as he can, for he would have to provide for them as they grew up, which he could do only by lessening his own expendi- ture, and sooner than do this he will take care to have only a small family. We have no objection to the con- clusion of this argument, which is, indeed, precisely that for which we contend ; men will not multiply up to the limit of the means of subsistence if they have any reason not to do so ; but by what process does the plutologist arrive at the conclusion that others are not influenced by the same motives as the capitalist ? If the latter is not driven by an instinct too strong for control to beget as many children as he can, why is it taken for granted that the instincts of a farm labourer or of a carpenter are not equally manageable? The fact is, that the two great classes of society are so separated by the commercial system that the wealthy unconsciously argue as if the poor were a completely different and inferior race, which is, however, far from being true. The labourer is a reason- ing being who is quite as much guided by his reason as a capitalist, and if he exercises to the utmost his power of getting children it is because he has no reason to refrain, but, as a matter of fact, he never does so. In England the number of children born is, even amongst the worst- paid labourers, less than it would be if no restraint were exercised, and a carpenter or other artisan has, on the average, still fewer children than an unskilled labourer. The plutologist professes to prove from statistics that the labouring classes multiply in a reckless manner; he finds that more than half the children born in the pooresl ranks of life die of privation in childhood, and takes this as a sufScient proof of his contention, although it really proves no more than that poverty is unfriendly to infant CHAP, xa.] Pojaulation. 219 life. Children die young in all ranks of life ; if a prudent capitalist wishes to rear three, and if, on the average, one in four died young, he would hare four children ; in the artisan class, the conditions of life being less favourable to infants, half of those born may die in childhood, and the average artisan who wished to rear three would have six ; in the worst paid trades only one-third of the children may struggle to maturity, when the average worknan would have nine children. If, in the case of the capitalist, and even of the artisan, we say population is restricted by prudence, why, in the case of the farm labourer must we say it is restricted by starvation ? or that his passions are so far bayond his control that we are compelled, in self- defence, to keep him in want and wretehedness for fear his children should not starve? . There would be some reason in such a contention if he belonged to an inferior race, and if at the same time he really did beget as many children as he possibly could ; blit the former we know to be not the case, and we should be equally sure of the latter if we studied political economy by the methods we adopt in all other studies, and learnt our fundamental facts by observation and not by deductive reasoning. Even in the poorest ranks of life we find the great majority of girls of eighteen or twenty without babies, although we know that if they exercised no restraint on their instincts they would have had them ; we also find many women of forty with only two or three children, or perhaps with none at all, but who were physically capable of having had a dozen ; we see also an immense multitude of unmarried women of all ages acting as domestic servants, and yet in spite of these facts we say the work- ing classes exercise no restraint, but get children so freely that all we need do in discussing the subject is to learn what is the highest possible rate of increase in the human species, and to call that the rate at which labourers tend tb multiply, and at which they would multiply if their wages were raised. That such reasoning was ever seriously employed is a melancholy proof of the ease with which man allows his selfish interests to destroy his logical 220 Communal and Commercial Economy, [chap. xii. powers. If population renlly were restricted by starva- tion no workman would be able to rear more children than the average, for, if one could do so, all could do so equally well, and the very fact that, amongst men getting equal wages, one rears, say, four and another a dozen, shows that the former was restrained by some cause besides poverty Irom rearing at least eight more ; and in the ordinary course that cause would be prudence. The " population difficulty " is a pure invention of plutology to account for and to excuse low wages, and has no real existence. Although in this, as in all other matters, there are individual differences, the average man in not a slave to his reproductive instincts, but is so com- pletely their master that, whenever he has the least interest in so doing, he restrains them with so much ease that he is quite unconscious of effort. A young American of nineteen or twenty will marry if he is about to take up a new farm, as there would be no imprudence in doing so ; but if it is convenient for him to stay a few years longer on his father's farm he will postpone his marriage and think no more about it. A girl of seventeen or eighteen will marry and have children if the destined youth comes and asks her, but if he waits until she is six-and-twenty, or six-und-thirty, she will also wait. Whether, however, she is a duchess or a dairymaid, she would be equally astonished a,t being told that in so doing she was painfully resisting an instinct so powerful that few can resist it even when to yield will plunge them and their children into want and misery. If left to discover this for herself she would probably remain in ignorance all her life, and would think the instinct so weak that although she might prefer gratifying it by getting married, she would resist it rather than submit to the loss of any perceptible share of the comforts and luxuries to which ishe had been accustomed. A young man who will come into a fortune on attaining his majority does not look forward with longing to that day so that he may then get married, but is, as a rule, sufficiently calm on that subject, and looks forward rather to the enjoyment of a yacht or CHAP. xn.J Population. 221 of a trip to the Continent, or perhaps to a season's shoot- ing in the backwoods of Canada, and puts off his marriage without being conscious of any great self-restraint, until he thinks he is old enough not to be troubled with a family so large that he could not provide for them in a suitable manner, without subjecting himself to the loss of comforts he had been accustomed to, and which he really prefers to the gratification of his instincts. Young car- penters and farm labourers are quite as philosophical, and we should not know from their appearance or other out- ward signs, nor indeed should we know it at all unless the plutologists had told us, that young men and women of these classes who have reached the age of puberty and are still unmarried, are carrying about with them a weary load of care in the form of ungratified instincts. At the same time young men and women of all ranks generally wish to be married and to have children, and it is important to know by what rule they ordinarily guide their conduct. We need scarcely take the trouble to open our eyes in order to see that they do not act without foresight and self-restraint, and that the human race does not tend to people a country up to the limits of sub- sistence. Whether we look to England, France and Ger- many, or to India, China and Japan, or even to Zululand and Afghanistan, we see that a large proportion of the people are employed in other work than in preparing the mere necessaries of life, and that, therefore, food is adapted to population, and not population to food. We may, indeed, follow Malthus to tlie wretched people of Terra del Fuego or of New HoUan'l, when we shall find the population obtaining no more than the barest necessaries, but this has not arisen from their having peopled up the country until they were reduced from comfort to misery, and the result would be the same though half or nine- tenths of them were swept from the face of the earth. The remainder would still, from lack of knowledge, be unable to wring from their environment more than they obtain at present. Over-population is never tlie cause of poverty to adult man, and very rarely is it so even in the 222 Communal and Commercial Economy, [chap. xii. case of plants and the lower animals. The full-grown trees of the densest forest obtain all the nourishment re- quired for healthy life, and the struggle for existence lies between the saplings or between them and the aged trees that are tending towards decline. With the lower animals, where man has not interfered, the struggle is less for food than for escape from predatory enemies, who, by destroy- ing the young and weak, leave the others in sufScient comfort. Even where man has disturbed the balance of nature, as for instance by turning rabbits loose on islands where they have no enemies, the difference of the seasons restricts to the feeble the hardships that would otherwise press on all, and we do not find the whole race in an emaciated condition, but the adults are as plump and well fed as if weasels and foxes abounded. When the grass is withered by the summer's sun, or when the snow lies thick on the ground, all the rabbits suffer, and are compelled to eat food unsuitable for the young and weak, who perish, but which enables the stronger adults to survive to better times. Even in seasons of greatest scarcity there is some food on which the young can thrive, or the species would become extinct, and the more dense the population of the warren the more keen will be the competition for what there is and the higher the death- rate among the young, but the adults would be little affected : they suffer not so much from absolute scarcity of the food they get as from its inferior quality, and they would suffer no more even though the population were largely increased. The more nearly the climate approximated to a perennial spring, or at least the more uniform the supply of suitable food, the larger would be the proportion of rabbits who suffered from over-population, but as the world actually is, even where they have been placed on islands with a genial climate, the majority seem to enjoy as much comfort as if they lived under more natural conditions. Man being generally the hunting and not the hunted animal, is somewhat in the condition of these rabbits, but his supply of food suitable for the young is peculiarly variable ; the fish leave the rivers, and the beasts and CHAP. XII. j Population. 223 birds migrate while the untilled land giyes but a scanty haryest. The young, like the adults, must therefore sub- sist, if they can, on roots and bark, and in consequence perish so fast that the fullest exercise of the reproductive powers can give but a moderate increase of population, however sparsely the country may be peopled. . The wretchedness of the adult Fuegian would be scarcely if at all lessened by a decrease in the population, for there is always plenty of bark and roots in times of scarcity; it arises from the unskilfulness with which he wars with nature, and not from the competition of his fellows. The f circumstances of the children would be improved if the ^population were smaller, and the death-rate would decline, thus causing an increase of the population until the conse- quent higher death-rate amongst the young arrested it. Civilised man, by storing the grain of autumn, makes the supply of food uniform throughout the year, and if he exercised to the utmost .his reproductive powers could never escape from the universal poverty of savage life ; but here the very foresight which led him to store the grain, and thus to remove nature's harsh preventive of wide-spread poverty, stops him" from bringing into the world children who not only would be miserable them- selves, but would deprive him of comforts to which he had been accustomed. He, then, is, or under wise and just laws would be, free from all poverty except that arising from scarcities which he had been unable to foresee, or against which he had not been wise enough to provide. The frequent recurrence of famines is urged by pluto- logists as a proof that the human race tends to people up to and even beyond the average means of subsistence. In the Orissa famine, where two, out of a total of 20, millions died, it is contended that 18 millions was the maximum which the country could, in the actual state of agriculture, permanently maintain. In average years it would maintain 20 millions, and population accordingly, it is said, increased up to that number; but when the monsoon failed, the number was forced by a law of nature to fall back to the maximum 224 Communal and Commercial Economy, [chap. xii. which could be permanently maintained, and two millions accordingly died of hunger. This is, however, begging the whole question, and assuming that the whole 20 millions were employed in producing food. In reality perhaps one-fourth were employed as retainers, merely waiting on and gratifying the ostentatious instincts of capitalists; had they been employed in producing food the product would have been siifficient to support 25 millions in ordinary years and 22J millions during the famine, and even in that year the food of 2^ millions might have been thrown into the sea without loss. Had Orissa always kept its population at 18 millions, the number which by the plutological theory it could per- manently maintain, the food ordinarily produced would have been that suitable for 18 millions, and when the monsoon failed, it would have been reduced in the same proportion as actually occurred, and the same proportion of the population would have died. The famine was not due to excessive population, but to a lessening of the usual stock of food when no provision had been made to meet it. In the same way the Irish famine was due to the failure of the potato crop, and not to excessive popu- lation. Had the latter been counted by hundreds instead of by millions the same proportion would have died, unless they had had something besides their potatoes to fall back upon, and this they would not have had uader such a system of labour-direction as obtains in Ireland. Malthus, without actually saying it in so many words, really argues as if his theory were that the working' classes, and not the human race, tend to people up to their means of subsistence, but in this case also we need no extended observation to show the theorem to be not in accordance with the facts of life. The working classes, that is, those who live on wages and not on profit, com- prise men from the Prime Minister downwards who have very large incomes ; but, confining ourselves to one trade, we will say the manager, the engine-drivers, and the gate-keepers of a railway are all workmen. The first does not, and could not if he wished to, people up to his CHAP. xn.J Population. 225 means of subsistence ; even the engine-drivers could not do so, and the gate-keepers, although perhaps they could, certainly do not, but spend a considerable proportion of their pay in luxuries not necessary to their subsistence. There are workmen, the commercial analogues of the unhappy Fuegian, who never get much more than the bare necessaries of life, and they may in a sense be said to people up to the limits of subsistence, for they reproduce their kind even though they get little more than will keep them alive ; but this is a very different thing from their bringing poverty upon themselves by over-breeding, which plutology says they do, and proves by the con- vincing arguments that their wives are physically capable of having a dozen children, while a hundred men cannot get a hundred times as many potatoes off an acre of ground as one man could get. There would be some pith in the argument if the men were working their own land which they had obtained by inheritance from their fore- fathers, and if, owing to continual subdivision amongst the children, each man had only a small part of the ground his forefathers had owned, but without these assumptions the argument is not such as to require serious refutation. It is founded, not on any principles of population that have been discovered, but on the current theory that wages vary inversely as the supply of workmen, and on a confusion of thought by which the number of babies born is sup- posed to measure the number of men seeking employment. The whole current doctrine of population is really no more than the usual confusion between commercial and communal economy, and when Malthus deduces, from the wholly irrelevant physiological and physical laws of the production of children and food, that the human race has a constant tendency to people a country up to the limits of subsistence, he is adopting the true plutological method of assuming that a theorem if true in the one science must also be true when the analogous technical terms of the other are employed. He had learnt from independent sources that the working classes tend to, that is nearly always do, multiply up to the demand for labour, or, in other words, Q 226 Communal and Commercial Eaonomy. [chap. xii. they rear as many children as capitalists want to employ, and in spite of rhyme and reason, and of the plainest evidence of our senses, declares this to prove that the human race tends to multiply up to the limits of subsistence. If the working classes really did act as he says they do, a society would be impossible in which the workman enjoyed more than the bare necessaries of life, for if a man had wages which would support a dozen children, he would at once beget them, and if they would support a hundred, he, or his sons or grandsons, would beget them, even though the latter were unemployed, for popu- lation constantly tends to people up to the limits of subsistence. We may, however, at least conceive such an anomaly as a society where all the workmen had higli wages and where population was stationary. Under such circumstances marriage would take place late in life, and the sons would simply succeed to their fathers' situations when the latter died. If now a pestilence carried off many of the workmen, the young men, instead of waiting for years, would get the situations at once, and many would at once marry, when a great increase in the pro- portion of births would take place, but this would not be due to any increase of the means of subsistence, but to a larger number of permanent situations being at this time thrown open to the workmen^ who, being then reasonably sure that they could, without reducing their own comforts, maintain a family, did not hesitate to marry, although they were too prudent to do so when their fathers were alive. This is what actually takes place ; Malthus, for instance, shows from the registers of births, deaths, and marriages, that when in Prussia and Lithuania a plague had destroyed, in the year 1709-10, one-third of the people, the marriages rose from 6082 to 12,028, and the births from 26,896 to 32,522. The just deduction to be made from this fact is, that 6000 men and an equal number of women of marriageable age, and who wished to marry, would have remained single had not the death of their elders made marriage prudent by furnishing the men with situations suitable to their rank in life. To deduce from it that CHAP. XII.J Population. 227 population was prevented from increasing because more food could not be obtained is simply ridiculous, and it is still more absurd to assert that it proves man's reproductive instincts to be so powerful that the only means by which population can be kept within bounds is to starve half the children who are born. These, however, are the deduc- tions made by plutology, and on which it rests its defence of the commercial system. Nearly the whole of Malthus' " Essay on Population " consists of records similar to this, and which prove con- clusively that it is the demand for labour to which the working classes people up ; where the number of vacant . situations increases, more marriages and births follow, where it decreases, marriages and births at once fall off. Even Malthus himself gives this explanation, for, in discussing the low death- and birth-rates of Switzerland,* he says : " When from these or from any other causes whatever, a great mortality takes place, a proportional number of births immediately ensues, owing both to the greater number of yearly marriages from the increased demand for labour, and the greater fecundity of each marriage from being contracted at an earlier and naturally a more prolific age." Here, then, we have the human race con- stantly tending to people up, not to the means of subsis- tence, but to the demand for labour, that is, so as to fill the vacant occupations. That this is the case as far as hired workmen are concerned we fully grant,! but by what process of ratiocination is it deduced from the major premiss that population in America doubles in twenty- five years, and the minor, that the yield of produce from a field cannot be indefinitely increased by employing more men in working it ? The true principle of population deducible from the facts which Malthus has collected, and from the knowledge of life which we have unconsciously acquired, is not that man * Book ii. chap. v. t It nrast not, however, be forgotten that if workmen do not multiply up to the demand for labour, the latter will decrease down to the number of the workmen. See infra, p. 257. Q 2 228 Communal and Commercial Economy, [chap. xii. produces as many children as lie possibly can, leaving starvation to thin their ranks, but that, on the average, he limits the birth-rate until it produces the number of adults which it is prudent to rear. Even plutology admits this to be the case as far as the capitalists are concerned, and the registers fully establish the fact that the workmen postpone marriage to a later age, and have fewer children than would be the case if they were not influenced by prudence, and they show, with scarcely less certainty, that workmen are guided in their lives by the same motives as capitalists, and that they do not, on the average, marry until they are tolerably certain that they will be able to rear their families, and to start their sons in life, in the same rank they themselves have occupied. It is not, of course, contended that young carpenters or farm labourers calculate when they marry how many children they will have, nor the number of men that will be required to meet the capitalists' investments or re-investments, from which alone employment can be obtained, but they regulate their conduct as regards marriage by the customs of their class, and these are founded on the average number of children reared, and on the demand for labour. If more children are reared than capitalists wish to employ, many wiU, on reaching maturity, be unable to find employment, or all will be often out of work, and all will resist their irresis- tible instincts and postpone marriage until they get steady employment; thus a custom of postponing marriage until a particular age gets gradually established, and the number of adults reared is brought into correlation with the number required by the capitalists. Changes in the habits of capitalists, or in the methods of production, and a hundred other causes, may increase or lessen the demand for new labourers, but this will not at once affect the supply, and the number of men out of work will therefore be less or more than usual ; but in the long run the work- men meet the demand of the market with considerable accuracy. There are, it is true, nearly always men of all ranks out of work, but this arises from the defective pianagement of capitalists rather than from an excess of CHAP. XII.] Population. 229 labourers; industry does not go on with the regularity it would under good management, and during depressions of trade many factories are idle which at other times can hardly get the men they require, but when trade is in a normal state, neither depressed nor expanded, there are comparatiTely few men out of work. The rate of wages the men obtain will have an important influence on the age at which they will marry, for few pro- positions are better established than that poverty causes a high mortality of infants, and the lower the rate of wages, the earlier will marriage take place, and the higher will be the proportion of births and deaths to the number of the whole population. Poverty is thus the cause, and not the effect, of a high birth-rate, and it is even conceivable that wages might be so low that a full exercise of the repro- ductive powers would be not more than sufiBcient to furnish the number of adult workmen who would find employment, but this is probably not the case anywhere in Europe, nor is it the case that any class of workmen do exercise to the utmost their reproductive powers. Although the real bearing of Malthus' arguments is thus to show that the working classes tend to multiply up to the demand for labour, and this is even what he sometimes formally states to be the result of his inquiry into the laws of population, he is at the same time led into the confusion inseparable from calling things by the wrong name, and draws conclusions which would logically follow if the means of subsistence were the limit to which population increased, but which are completely incon- sequent when we substitute for subsistence the word em- ployment. He quotes,* for instance, a passage from Godwin in order that he may reply to it, and as his reply is characteristic of his reasoning, and embodies very fully his theories, I will discuss it at some length. " In a chap- ter on the benefits attendant upon a system of equality, Mr. Godwin says : ' The spirit of oppression, the spirit of servility, and the spirit of fraud, these are the immediate growth of the established administration of property. * Book iii. chap, ii. 230 Communal and Commercial Economy, [chap. xn. They are alike hostile to intellectual improvement. The other vices of envy, malice, and revenge, are their insepar- able companions. In a state of society where men lived in the midst of plenty, and where all shared alike the bounties of nature, these sentiments would inevitably expire. The narrow principle of selfishness would vanish, no man being obliged to guard his little store, or to provide with anxiety and pain for his restless wants ; each would lose his individual existence in the thought of the general good. No man would be an enemy to his neighbours, for they would have no subject of contention ; and of consequence philanthropy would resume the empire which reason assigns her. Mind would be delivered from her perpetual anxiety about corporal support ; and be free to expatiate in the field of thought which is congenial to her. Each would assist the inquiries of all.' " This," says Malthus, " would indeed be a happy state. But that it is merely an imaginary picture, with scarcely a feature near the truth, the reader, I am afraid, is already too well convinced, " Man cannot live in the midst of plenty. All cannot share alike the bounties of nature." We ask why cannot man live in plenty? and the reply is, because statistics prove that although men will not marry and have children unless they have a reasonable hope of being able to rear their children without being themselves obliged to give up comforts to which they have been accustomed, still no sooner do they get employment giving such a hope than they at once get married. This is what Malthus has proved, but as, instead of "employment," he uses the word " subsistence," he deduces that man cannot live in the midst of plenty, instead of deducing, as he ought, that hired workmen cannot live in the midst of unfilled situations in their own rank of life since they would then marry earlier and rear sufficient children to fill the situations. The means of subsistence have no influence whatever until we come down to the commercial Fuegians in the very poorest ranks, and even then the influential element is employment and not subsistence, and confusion CHAP, xn.] Population. 231 between the two arises only from the wages being no more than equal to the means of subsistence. The average railway manager does not rear so many children that he cannot place them all in business in his own rank of life, and very few are compelled by the number of their children to send some to drive the engines ; nor does an engine-driver rear so many that he has to make some of them gate-keepers, nor does the gate-keeper rear more than will find employment in his rank. Each class regu- lates its marriages according to employment and not to subsistence, and if the wages of all rose to be equal to those of the manager, the men, not being by nature intel- lectually nor morally inferior to him, would act as pru- dently as he does. The death-rate would decline, owing to the children not being killed off by want, and the birth- rate would be lessened so that the number arriving at maturity should still be, as before, duly correlated to the number of vacant situations. That a great and sudden increase of wages in the poorest classes should be at once followed by a decrease in births exactly proportionate to the lessened mortality is not, perhaps, to be expected. The men are guided in the age at which they marry, not by a careful calculation of their chances of having large families, and of the probable number of situations to be vacant at the time their children will reach maturity, but by customs gradually founded on these factors. A sudden rise of wages would not, at first, induce them to postpone marriage, but would probably have the contrary effect, and the birth-rate would increase, but in a very few years it would be checked. At present there are many children boru who would not have been born at all had the elder children of the family not died, ^and when parents found that the majority of their children lived they would exer- cise more restraint after marriage than they now do. We are not, however, in this discussion, restricted to deductive reasoning from tlie elementary principles of human nature, for we have actual experience to guide us. The French Eevolution caused a sudden and enormous improvement in the condition of the lower classes, and the result was a 232 Communal and Commercial Economy, [chap. xii. decrease in the birth-rate, Malthus says * " The improved condition of the labouring classes in France since the Kevolution, has been accompanied by a greatly diminished proportion of births, which has had its natural and neces- sary effect in giving to these classes a greater share of the produce of the country, and has kept up the advantage arising from the sale of the church lands and other national domains which would otherwise have been lost in a short time. The effect of the Eevolution in France has been to make every person to depend more upon himself and less upon others. The labouring classes are, therefore, become more industrious, more saving, and more prudent in marriage than formerly ; and it is quite certain that with- out these effects the Eevolution would have done nothing for them." If we read the facts Malthus thus gives us by the direct light of nature, and not through the inverting glasses of plutology, the sentence would be that "the Eevolution improved the condition of the labouring classes in France, and gave them a greater share of the produce of their own labour. Their greater wealth and freedom raised them from a position little above that of beasts of burden to the dignity of manhood, and made them more industrious and prudent. The high death-rate caused by poverty formerly made prudence in marriage unnecessary, but when their children lived they, like reasoning beings, restricted the birth-rate. Had they not done so, they would soon have lost all the Eevolution gave them, but being men and not rabbits they were not impelled by instincts beyond their control to people up to the limits of subsistence, and obeying without difficulty or even con- scious effort the dictates of wisdom, had no more children than could find the means of earning a living in that state of increased comfort the Eevolution had brought within their reach." Other people would act as wisely as the French peasant, and plenty would not bring in its train a perpetually increasing stream of children to drown the world in poverty. Man can live in the midst of plenty. * Book iii. chap, vii CHAP. XII. J PopulaUon. 233 We next ask why " all cannot share alike the bounties of nature " ? and we get for reply, because " a theory that will not admit of application cannot possibly be just," and no theories of equality admit of application. Malthus, in gentle derision of Godwin, supposes England to be an island where all causes of vice and misery are removed, where all men are equal, where the labours of luxury are at an end, and where the necessary labours of agriculture are shared amicably among all, and where the spirit of benevolence, guided by impartial justice, divides the pro- duce among all the members of society according to their wants. He then applies the oft-repeated formula that population would tend to increase every twenty-five years, as the numbers 1, 2, 4, 8, 16, 32, &c., and food as 1, 2, 3, 4, 5, 6, &c., and shows that in fifty years "A quantity {of food) equal to the frugal support of 33 millions would be to be divided among 44 millions." " Alas ! " he then says, " what becomes of the picture, where men lived in the midst of plenty ; where no man was obliged to provide with anxiety and pain for his restless wants ; where the narrow principle of selfishness did not exist ; where the mind was delivered from her perpetual anxiety about cor- poral support, and free to expatiate in the field of thought which is congenial to her ? This beautiful fabric of the imagination vanishes at the severe touch of truth. The spirit of benevolence cherished and invigorated by plenty is repressed by the chilling breath of want. The hateful passions that had vanished reappear. The mighty law of self-preservation expels all the softer and more exalted emotions of the soul. The temptations to evil are too strong for human nature to resist. The corn is plucked before it is ripe, or secreted in unfair proportions ; and the whole black train of vices that belong to falsehood are immediately generated. Provisions no longer flow in for the support of a mother with a large family. The children are sickly from insufficient food. The rosy flush of health gives place to the pallid cheek and hollow eye of misery. Benevolence, yet lingering in a few bosoms, makes some faint expiring struggles, till at length self-love resumes 234 Communal and Commercial Economy, [chap. xn. his wonted empire and lords it triumpliant over the world." Then, after some further illustration, he says, " And thus it appears that a society constituted according to the most beautiful form that imagination can conceive, with benevo- lence for its moving principle instead of self-love, and with every evil disposition in all its members corrected by reason, not force, would from the inevitable laws of nature, and not from any fault in human institutions, degenerate in a very short period into a society constructed upon a plan not essentially different from that which prevails in every known state at present; a society divided into a class of proprietors and a class of labourers, and with self- love for the mainspring of the great machine." This is a melancholy picture, but if it is true to nature, why do we persist in pretending to believe those who preach the doctrine of love, and not of self-love ? Malthus, but for the happy faculty with which we are all endowed and of which he possessed an abundant share, namely, that of being illogical, would have, felt himself in a very embarrassing position, when as professor of politi- cal economy he taught that "a theory that will not admit of application cannot be just," and that no theory of conduct in life is capable of application unless it is founded on self-love and selfish struggle to compel others to serve us ; while as a clergyman he had to preach that we must love our neighbour as ourself, and do unto others as we would that others should do unto us. The two lines of conduct are incompatible, and we cannot follow both ; we must either refuse to believe what Malthus taught in church, or what he taught in college. The reasoning by which we are to be convinced that man is debarred by " the inevitable laws of nature, and not by any fault in human institutions," from ruling his social life by a higher code of morals than we now use, is simply the old argument over again. If, he says, there were no anxiety about the future support of children, and more especially if, as Godwin, with his peculiar theories of marriage, proposed, the intercourse between the sexes were unshackled, " I do not conceive there would be one CHAP. XII.] Population. 235 woman in a hundred of twenty-three years of age without a family." He also assumes that they would not only begin young, but would continue, as long as nature permitted, to have children, and that, consequently, population would double every fifteen years, or, "to be quite sure that we do not go beyond the truth, we will only suppose the period of doubling to be twenty-five years." Making these assumptions, which are of course the whole matter in dispute, he then proceeds, more suo, to solve some quite irrelevant arithmetical problems. In twenty-five years the population would have increased, he says, from 11 to 22 millions, and food might be increased so as to give all enough to eat ; during the next period no one who knows anything about land would think it possible to increase the food sufficiently to feed 33 millions ; but " the exuberant strength of the argument allows of almost any concessions," so this is granted, but as the population would have become 44 millions, it follows that, even making this great concession, 11 millions must starve. It is really impossible to understand how any one ever came to regard these figures as relevant to a discussion of political economy, or as anything more than arithmetic ; of course, if we double 11 millions twice we get 44 millions, and if we add 11 millions twice we get 33 millions, and if we assume the figures to represent the increase of popula- tion and food, or of boys and marbles, or of anything else, it would not make the arithmetic false. The question we are discussing is not, however, whether twice two are four, but whether the assumption is true that women are compelled by an inevitable law of nature to have so many children that population would double in twenty-five years, unless many of the children were starved or otherwise made away with. The plutologists persistently declare the two propositions to be practically identical, and that any one who denies the assumption denies either the truths of arithmetic, or the not less thoroughly established fact that women have the power of bearing several children. All the figures Malthus gives us to show the rate at which population may, under the most favourable circumstances, 236 Communal and Commercial Economy, [chap. xii. increase, are perhaps interesting as physiology, but have no practical bearing on political economy, for the study of which it is sufficient to know what was known before Malthus wrote, that women can bear as many children as will permit an increase of population, and that a con- tinually increasing population would eventually fiU to OTerjBowing a world of finite dimensions. We need not formally state elementary truths of this kind, however necessary a knowledge of them may be to our study, any more than we need formally state that twice two are four; the latter fact is as true as the others, and knowledge oif it is as necessary to a study of political economy, but every one knows it, as he knows the other truths, without being specially instructed. Admitting as we do these elementary facts, we are not, however, compelled therefore to admit as a deduction from them that women are compelled by the inevitable laws of nature to have as many children as they can, and unless Malthus insists that this deduction really follows from his figures, the latter are as irrelevant as a comparison of the numbers of planets and of moons in the solar system. It may, perhaps, be contended that he does not himself make the deduction, for he says only that men and women will take no thought about the number of their children only when they have no anxiety about the future support of the children ; but if this is all he means, we may ask when the inevitable laws of nature come into play ? In Godwin's ideal State, as in every other possible or conceiv- able society of reasoning men, every one would know that an excessive increase of population must bring poverty, actual or comparative, on all, and all would have anxiety about the future support of the children, so that the popu- lation would never be allowed to reach 44 millions, while there was food only for 33 millions, and Malthus' reply to Godwin is no reply at all. In reality his whole reply consists simply of the unsupported assumption that, in a commune, thought of the future would not be so great as in a commercial society, nor sufficient to prevent women from having too many children. This may reasonably be CHAP. XII.] Population. 237 contended, but what support is given to the argument by the arithmetical and physiological facts of which the great " principle of population " consists ? It is one of the most popular arguments against communism that the penalty for having more children than was wise would not fall with sufficient directness on the parents to act as an effective check on population, and Malthus says it would be im- possible to devise means to make it do so without resorting to methods that are either " unnatural, immoral, or cruel in a high degree," so that we cannot do better than main- tain the present system, under which one-half of the children born are simply murdered, this desirable result being obtained by compelling a great part of the people to pass their lives in excessive toil and grinding poverty. This system is neither cruel nor immoral! He justly condemns " the detestable means of checking population proposed by some ancient law-givers," but Plato might reasonably argue that our registers of births and deaths show a disregard of infant life and of the plainest laws of morality greater than his proposal to destroy all the children who were not required. We need not go beyond Malthus himself to iind a refu- tation of his statement that the only permissible means of making the inconveniences of a too rapid increase of popu- lation fall on the parents, lie in such a distribution of wealth as shall prevent many from rearing to maturity the children they bear. His theories apply to capitalists as well as to workmen ; duchesses and the Avives of million- aires are naturally as prolific as washerwomen, and if they bred as fast as they could the population of their class would increase as the numbers 1, 2, 4, 8, 16, 32, 64, &c., while food would increase only as 1, 2, 3, 4, 5, 6, 7, &c., and the argument that universal poverty would eventually arise has just as much " exuberant strength " when their increase alone is taken into account as when that of the working classes is also considered. At the same time we see that it does not arise, and we know that the capitalist- population is restricted neither by means which are " un- natural, immoral or cruel," nor yet by the poverty of the 238 Communal and Commercial Economy, [chap. xii. parents, whose only loss from having too many children would be the money required to rear them and launch them into life. The same penalty of a loss of money is quite open to a commune, and a tax on those who married too early, or who had too many children would be the most violent method to which it would be necessary to resort, but it is very unlikely that even this would be necessary. The know- ledge that poverty would follow from too rapid an increase of population would be quite as certain in a commune as in, say, the artisan class of a commercial society, and would, as it actually does with the artisans, prevent too early marriage. A carpenter has no strong personal reason, beyond the mere expense of rearing them in childhood, for not having many children, for he might reasonably hope that if he had a dozen they would all find employ- ment as they grew up, but the knowledge that wages would fall if all artisans had a dozen children is sufS- cient on the average to prevent them from doing so. It is, indeed, far more likely that a commune would find it difficult to do much more than maintain its numbers, for if women were not obliged to marry as a means of subsis- tence they would be very apt to act like young men of fortune, and to postpone marriage until they had had their share of those amusements and enjoyments with which a rising family would seriously interfere. Their instinct of reproduction is not that overwhelming power it is represented to be, and would, perhaps, generally be fully gratified by one or two children to keep green in the world the memory of their parents. There is still one argument on which a few remarks may not be out of place. It is found from the registers that when bread is cheap the number of marriages in- creases, and when it is dear the number falls off, and this fact is held to prove great improvidence on the part of the working classes ; but the argument cuts both ways, and may logically be used to show, not imprudence, but prudence. If the working classes acted absolutely without thought, as they are accused of doing, the marriage rate would be perfectly uniform, and the fact that so slight CHAP. XII.J Population. 239 and temporary a thing as a rise in the price of food makes them postpone marriage shows how thoroughly they have their instincts under control. In reality, however, the price of bread is not the influential cause, but the expan- sion of trade which always accompanies a good, and the contraction which accompanies a bad, harvest. When, owing to a good harvest at home, less food is imported, capital which would otherwise have been employed in the trade has to find employment elsewhere, and this it can only do by the erection of new stock and the employ- ment of more men. Thus some workmen, who, in the ordinary course, would not have found permanent situations for, perhaps, a year or two, are enabled prudently to marry at once, and they avail themselves of their chance. When the harvest is short, capital that would otherwise have been invested in erecting new stock is employed in buying foreign grain, and the workmen who, in the ordinary course, would have been able to marry at once, prudently postpone their marriage until they get permanent em- ployments. It would be improper to close this chapter without referring to what Malthus calls the preventive and positive checks to population, but his whole treatment of the subject is so confused that it is difficult either to explain or to refute his theories; like Benedick's bad parts, Malthus' arguments generally maintain so politic a state of evil that they will not permit any good argument to inter- mingle with them. There are certain arithmetical truths usually employed in the study of the registers of births, marriages, and deaths, and Malthus always treats these as if they were in some special manner connected with political economy. It is, for instance, a mathematical certainty that if births and deaths are equal, population must be stationary, and if population is stationary, then a high birth-rate must be accompanied by a high death-rate, and he seems to think that these theorems derive their truth from the laws and limitations under which man maintains his existence. Under any other supposition there would be not the slightest connection between his 2-10 Communal and Commercial Economy, [chap. xii. deductions and the premisses from which he draws them, but the theorems are, of course, mere arithmetical facts, which are equally applicable to putting marbles into, and taking them out of a bag ; if the number put in daily is equal to that taken out, the number in the bag will remain constant ; if the number in the bag is constant and many are taken out, then of necessity many are also put in. Now Malthus says that •where the numbers in two different bags are constant and equal, if the number daily taken out of bag No. 1 is large, and that taken out of bag No. 2, small, this would show tliat the constancy of the number in bag No. 1 was maintained by taking many out, while in the case of bag No. 2 it was maintained by not putting many in. This really is the whole of his theory regarding the checks to population. Let us say there is a community in which the births and deaths are 100 daily, and in which population is stationary. We require here no study of the laws of population in order to learn why it is not increasing, for arithmetic tells us that it is because there are as many deaths as there are births; there are as many marbles taken out of the bag as are put in. Malthus says popula- tion does not increase, partly because, owing to the "pre- ventive check," the number of births is not as great as is physically possible, and partly because, owing to the " positive check," the death-rate is higher than would be the case if the climate were healthier, or the people better fed, or the women and children more kindly treated ; but such a statement is, of course, downright nonsense, and population is stationary for no other reason than that the births and deaths are equal. The community has the power of regulating the number of births, and if they reduced it to 50 a day population would decrease, unless the number of deaths also fell to 50 a day, but as the latter event would not at once occur, the population would decrease until the daily deaths were 50 a day, when it would become stationary. Here the temporary decrease and the eventual constancy of the population would be due, not to the "prudential check," but to the simple CHAP. xii.J Population. 241 mathematical laws, that if the number removed by death is greater than the number of births, population must decrease; and if it is equal, population must remain constant. In the same way, if the number of births were increased to 200 a day, population would temporarily increase, because no immediate effect would be produced on the number of deaths, but sooner or later the deaths would become equal to the births, for all who are born must die, and population would then become stationary. Here again we are studying arithmetic and not political economy. In order to connect the registers of births and deaths with political economy we must bring some econo- mical facts into the discussion, and of these the most important is that poverty causes a high death-rate. If, therefore, we find the death-rate to be high, and we know the climate to be healthy, we may with almost perfect certainty conclude that many of the people are poor, but this is the only deduction we can legitimately draw from our premisses. We know nothing about the prudence or imprudence of the people, and if we wish to learn any- thing about it we must make an independent investigation. We might, perhaps, contend that life is not worth having if we are to live in poverty, and that the fact that the poorer classes reproduce their kind is of itself a proof of imprudence, but unless we take up this position our know- ledge that poverty causes a high death-rate is of no importance in our investigation. A farm labourer may think life worth having, and if his opinion is correct he does not act imprudently in rearing a son to replace him, even though, in order to do so, he must beget three who will die in childhood. In a commune which had made any considerable advance in scientific knowledge, and in the arts of government and of labour, and which possessed a country naturally suitable to man's existence, poverty would indicate imprudence, since it could arise only from too rapid an increase of population, and might have been prevented by restricting the birth-rate ; but in a commercial society this is not the case. Poverty may there arise from other causes, a very 242 Communal and Commercial Economy, [chap. xti. unequal distribution, for instance, of the product of labour, or a system of labour-direction which, althongb the best possible under commercial government, was still so faulty as to make labour inefficient. In order to learn whether, in any commercial society, poverty does actually arise from an unwise exercise of the reproductive powers, or wlietber it is due to either of tiie other causes mentioned, we must open our eyes and look, for Malthus' two celebrated series of numbers, 1, 2, 4, 8, 16, 32, 64, &c., and 1, 2, 3, 4, 5, 6, 7, &c., will tell us no more about it, and have no more connection with it than has the precession of the equinox. In England, bad as the direction of labour is, compared to what, with our scientific knowledge, it might be, it is still good enough to banish poverty if the product were equally divided, and the poverty which disgraces the country is, therefore, not due to the inefficiency of labour which would follow a too rapid increase of population. In Ireland, or at least in a large part of it, labour is so wretchedly directed that poverty would exist even though the product were equally distributed, but it will scarcely be contended that if all Irishmen were employed in work- ing the best implements which science has taught us to make, they would be unable to wring from the soil sufficient food, or to produce wares which would buy food from abroad. Poverty in Ireland, as in England, is not due to too rapid an increase of the population of the earth, but to olher causes, and the imprudence which has pro- duced it is not that of undue gratification of the re- productive instincts, for had labour been wisely directed, and the product fairly divided, the present number of Irishmen might have been living in comfort, and even in luxury. The whole of Malthus' work, instead of being a " Treatise on the Principle of Population," consists simply of the assumption that wages vary in the inverse direction with the number of babies born to the working classes. He finds a high birth-rate and poverty together, and triumph- antly says here is a proof of my theory that imprudence is the cause of poverty, Upr if the workmen had had fewer CHAP, xir.] Population. 243 children they would have got higher wages. It is not easy to see what influence on wagefe a bahy can have who dies before he is a year old, but even if it be true that his birth will lower the wages of the father or of the brother who survives, still Malthus does nothing to prove it ; the utmost he has done is to draw our attention to what we knew before, that poverty causes a high death-rate, and that in order to maintain population a high death-rate must be a"companied by a high birth-rate. In fact, of course, babies do not influence the labour-market, and even assuming what, however, we deny, that wages vary in- versely with the number of workmen, a high death-rate would still indicate only poverty, but not imprudence. There is some number of children which it would be not imprudent to rear to maturity, say one to each family ; if this number is reared and wages are low, three must be born, of whom two will die young and not influence the rate of wages ; if wages were higher infant mortality would be less, when, say, two births would be sufficient to give one adult, and the birth-rate would be less than in the other case. It is thus evident that even with perfect prudence on the part of workmen the birth- and death-rates may be high or low, and we learn nothing from the registers but that the parents are poor j we cannot transfer to commercial economy the theorem which is true in communal economy, that poverty is due to the incontinence of the poor, or at least to that of their fathers, and we must ask our moralists for some better defence of commercial ethics than that which Malthus gives us. His train of reasoning is, that population may, and in some cases has, doubled in twenty- five years, therefore it tends to do so ; therefore it will do so unless many "of the children are starved ; therefore all cannot live in the midst of plenty ; therefore human exist- ence is necessarily a race for life in which the poor are overthrown and trampled on by the rich ; therefore those who hold that we should do unto others as we would that others should do unto us, or that we should act with fair- ness and justice even to those who are unable to compel us to do so, are fools and weaklings who advocate "a K 2 244 Communal and Oommereial Economy, [chap. xii. theory that will not admit of application, and cannot," therefore, "possibly be just." This reasoning has not such overwhelming strength as to convince any one who did not wish to be convinced, that a better system of social government is impossible than that under which we live. ( 245 ) CHAPTER XIII. WAGES. The theory of wages accepted by plutology is thus stated by Mill.* " Wages, then, depend mainly upon the demand and supply of labour, or, as it is often expressed, on the proportion between population and capital." The latter word, by definition, means those things which are destined to furnish the shelter, tools, and materials required for producing wealth, and to feed and otherwise maintain the labourers : and the theory when expressed in algebraical language is that a warehouses + b steam engines + c bales of ■wool + d yards of corduroy + &c. e managers + / engine-drivers + g shepherds + A factory girls + &o. = mm shillings a week. This is one of the two forms which all plutological theorems take, namely, nonsense absolute; and Mill is careful to give us also the other form of bare truism, for he says that in this case capital does not mean what it means elsewhere, namely, warehouses, steam-engines, railways, &c., but the sum paid in wages, and that, although elsewhere . the wages of footmen, actors, and other so-called unpro- ductive workmen are not to be considered capital at all, they must here be included. With this definition he has no difficulty in proving that the rate of wages depends on capital and population (the latter word meaning the number of people who receive wages), and he clinches his argument by saying, " Wages (meaning of course, the general rate) cannot rise but by an increase of the aggregate funds employed in hiring labourers, or a * Book ii. chap. xi. § 1. 246 Communal and Commercial Economy, [chap. xiii. dimimition of the number of competitors for hire ; nor fail, except either by a diminution of the funds devoted to paying labour, or by an increase in the number of labourers to be paid." No one will, we think, be inclined to deny this, but we are not, therefore, obliged to acknowledge that because wages depend on capital when the word is used with a definition specially designed to make the statement a truism, they therefore depend on it when it means the price of the total stock of the society, and this is what plutology insists has been proved by Mill's theory of wages. Not a shadow of further proof is given of this latter statement, and it is opposed to the teaching of all our observation ; we know that the price of stock in England has increased within the last fifty years in a ten-fold higher ratio than the number of work- men, but wages have not risen ; we see that a railway company who hire one driver and stoker to work a loco- motive worth lOOOZ., hire only the same number of men and pay only the same wages to work one worth 3000Z. ; an Atlantic steamer requires a scarcely larger wages-fund than a sailing-ship of one-tenth of her price ; a steam- plough is worked by a mere fraction of the number of men that would be required to work common ploughs of the same cost. If we compare the implements used in dissimilar trades, the want of any connection between their prices and the sum paid in wages becomes still more apparent ; while two men work a locomotive worth 3000Z. it would require ten thousand navvies to work a stock of shovels, and half a million tailors to work a stock of thimbles of equal price. In the face of these and of other obvious facts we require a great deal better reasoning than plutology furnishes before we can accept the statement that either the rate of wages or the wages-fund is a func- tion of the price of stock. It is clear from what has been already said,* and is indeed the plainest of truisms, that the wages-fund can be influenced only by that kind of investment which takes the form of producing wages- goods, and conversely it follows that if the whole of the * Ante, p. 170. CHAP, xin.] Waffes. 247 machines and other implements used in the production of goods to be consumed by capitalists, vanished like Aladdin's palace, the wages-fund would be neither greater nor less than before. The whole of the producers of such goods, who, in England, own probably two-thirds (measured by price) of the stock of the country, might if they chose play the spendthrift, and expend their fortunes as fast as they could, but their doing so would have no influence on the wages-fund so long as the producers of wages-goods continued to live as nearly in the same style as before as the altered circumstances would allow. Let us assume that the former class are seized with a sudden desire to consume their capitals as it is called, that is, to live at so extravagant a rate that they would in a year or two be obliged to work for their living. "What steps would they take to realise their wishes? Their sudden desire to secure for themselves more of the good things of life would not give them the power of doing so, nor enable them to wrest from the others a larger share of the profit- fund. If one man alone wishes to squander he can gene- rally find another who wishes to invest, and may sell his stock, when he may consume the goods which had been prepared for the use of the other, but this merely puts A in the place of B, and is not squandering on the part of the whole class of capitalists, which is a feat practically beyond their power. The quantity of goods available for consump- tion cannot be increased by the mere wish that it should be, and if capitalists want to consume more velvet or wine they must employ more men, first in making and after- wards in working the necessary implements; that is, instead of being more extravagant, they must begin by investing or saving. Perhaps when they saw the impos- sibility of increasing their consumption of goods unless they first produced them, they would go on the other tack, and increase the number of their servants. They would dismiss all men employed in repairing and renewing their machinery, and would* thus have left on their hands the goods that would otherwise have been given to these men in wages, but in order to turn them to account they would 248 Communal and Commercial Economy, [chap, xin, have to employ the same men as retainers. Steam- engines, railways, ships, warehouses, &e., would no longer be made, and those already in existence would one by one wear out. As one factory after another stopped working, its owner would be ruined and the workmen dismissed. Let us now tarn to the producers of wages-goods ; they can get wine, velvet, and other profit-goods only by trading with those who produce them, and no change in their circumstances would at first take place, since the profit- goods makers would continue to employ the same number of men and would require the same quantities of wages- goods as before, for which they would have to pay the same quantities of wine and velvet. When the profit-goods factories fell to pieces and the men employed in them were thrown out of work, the ex-capitalist who had owned them would no longer be able to pay for the wages-goods he had formerly bought, and the wages-goods maker would have them left on his hands. By the hypothesis he wishes to live as before, and will therefore employ the dismissed men to make and work machines to give him the velvet he is no longer able to buy. The goods he produces are not of a kind he would care to use ; a corduroy-maker^ for instance, seldom wears goods of his own make, and would have to give them in wages in order to get any benefit from owning them. Bread and many other things are used by both rich and poor, but a capitalist who had a stock of them left on his hands which in the ordinary course would have been consumed by labourers, would not be able to increase his own consumption, and would equally be obliged to use them in paying wages. Even if wages-goods producers could consume, themselves, the goods they produce, the very fact that they did not do so in the past shows that they would not do so even though the profit-goods makers allowed their factories to wear out, and that they would employ their new servants in making new factories to replace the old. A farmer who gives a measure of wheat in exchange for a piece of velvet shows by doing so that when he brought into cultivation the laud on which the wheat was grown he took what he CHAP, xiii.] Wages. 249 considered the readiest means of getting velvet. Had he not been certain that he would be able to get it by trade he would have erected a velvet factory instead of enlarging his farm, and when circumstances change so that he can no longer get from his men's labour the goods he prefers, he will be induced by the same common sense which influenced him before to employ his men in the way he considers most conducive to his own pleasure, that is, in producing velvet, of course erecting first the fac- tories necessary for the work. We shall here probably have the abstinence theory brought forward, and shall be told that people who want velvet and consider its produc- tion the best means of obtaining well-being from the labour of their servants, will prefer to go without it sooner than submit to the limitations which nature has placed on its production, but even if we grant this, in spite of the fact that capitalists had already, by actually erecting them, shown that they would erect factories sooner than go without the goods they want, we should still be unable to grant that the wages-fund would be affected, for the wages-goods producers would at least prefer to have gardens, pleasure-grounds, horses, and troops of servants to wearing double supplies of corduroy, and eating double rations of bread, and the men who before produced velvet for them would be still employed as retainers. Even if the wages-goods producers shared the madness of unthrift with which their fellow capitalists were seized, the wages-fund would not at once be affected. They would be unable to consume more goods than before unless they first produced them, and could only play the spendthrift by taking as retainers the men who were employed in the work of repairing and renewing their implements, and until the factories began to wear out the same quantities of goods would be produced, but then the supply would fall off and the whole society would perish, masters and men together. It is thus seen that the implements employed in pro- ducing goods to be consumed by capitalists have no ia- fiuence on the wages-fund. 250 Communal and Commercial Economy, [ohap. xiri. If inyestmeDt takes the form of erecting more costly stock, by means of which the existing number of workmen may produce a numerically larger profit-fuud, it is clear that the change will not enable the workmen to demand higher wages, and as their number is unchanged the total sura paid in wages will be as before. Where the invest- ment leads to the production of more goods suitable for workmen, and to the employment of new men, the fund will of course be increased, but the plutologists set the cart to draw the horse when they say the additional amount fixes the rate of wages ; it is quite the other way, for the rate of wages the new men vvill obtain fixes the addition to the fund that must be made in order to employ a given number. We have already, in the chapter on Increase of Capital,* discussed the motives which lead capitalists to increase the number of their workmen, and in order to study the causes of the other factor of the wages-fund, namely, the rate of wages, we will take a supposititious example. We will assume that the population, both capitalists and workmen, is stationary ; that the latter are employed at a rate of wages, say ten shillings a day, which has long been un- changed, and that none are out of work, while all the capitalists have their farms and factories fully supplied with men. We will now suppose that one employer of labour tells his men that in future he will pay only one shilling a day instead of ten ; what could his men do in the absence of combination but take what was offered? They could not go to any other employer, for all have as many men as they require to work their .existing imple- ments, and the fact that they have not done so in the past shows that none wish to give up present income for the sake of adding to their capital ; none will therefore invest in making new implements to give to the unemployed. The latter would, perhaps, offer to work for less than the current rate of wages, and if taken on, an equal number of the others would have to be dismissed ; they in their turn would offer to work for still less, and so on, until the * Ante, p. 173. CHAP, xiii.] Wastes. 251 rate of wages fell to what the masters thought best in their own interest to give. The same result would follow still more rapidly if the number of workmen exceeded, by however small a proportion, the number whom the capitalists wished to employ. Capitalists always want wages to be low, and are con- tinually feeling the market by trying to lower them. If they find they can- do so and still keep the number of men they want, they will lower them still further, and so on ad libitum ; if the total number of men seeking employment is sufficient to give all capitalists as many as they want, that is, as many as they care to supply with implements, then wages will go on falling, provided the men compete freely against each other. To this law it is due that the wages of workmen who have no trades' unions or guilds, are never, except under unusual circum- stances, more than barely sufficient to enable them to work and to rear such a number of children as the capi- talists will hereafter want to employ. To explain this unhappy fact the theory is advanced by nearly every writer who has tried to explain it, that the working classes have been so recklessly improvident in getting children that the extra labour required to feed them has counter- balanced the gain we have acquired from more efficient labour in all other branches of industry. Agricultural labour is not better paid to-day than it was a thousand years ago, as we know from the fact that a fall in existing wages would simply starve the workmen. But does any- one seriously think that the proportion of the whole popu- lation of England now employed in raising food is greater than it then was ? We have the clearest possible evidence that the average efficiency of food-procuring labour is increasing every day ; that a larger and larger proportion of the number fed may, and do, apply their labour to the production of other things, or to producing ncthing at all ; and yet we have the law of the diminishing return from land grarely quoted to show that poverty is due to our being forced to till worse land than before, so as to get the food required by our larger population. The efficiency of 252 Communal and Commercial Economy, [chap. xiii. labour has greatly increased in all industries, including agriculture, more especially if we include under the latter term the trades whose product is exported to pay for food. The proofs of it are seen on all sides, and it is sheer folly to dispute it. Workmen have, however, except in favoured trades, derived little or no advantage from this efficiency, and it is at least an open question whether the agricul- tural workmen of England are economically as well off as their forefathers of a thousand years ago. Nothing strikes a traveller so forcibly, on his return to England after a few years' absence, as the miles of new streets that have been built for the use of men with from lOOOZ. to 5000Z. a year. Middlesex, Surrey, Kent, and the other counties around London are nearly covered with them, and it is the same around all the other large towns. More pretentious buildings, which the advertisers call " palatial mansions," have increased quite as fast, but the dwellings of the labourers are as poor and wretched as ever. The whole increase in the efficiency of ^labour has gone to increase the number of capitalists, and the average style of their living. If, while the working population is stationary, one capi- talist, A, wishes to invest by employing more men, he will find it necessary to raise the rate of wages so as to entice men from others, say from B. The latter must accept the necessity of becoaiing poorer, either by allowing A to take some of his men, and thus to leave himself short-handed, and with his stock only partially employed, or by raising the rate of wages so as to induce his men to stay with him. It will depend on how many men B has which would be the best course for him to adopt ; if he has many, it will be better for him to let A take those he wants and to keep the wages of the rest at the old rate, but if he resolves to keep his men he must raise wages. A would then offer a still further advance, to which B would reply by another, and so on until neither could pay more for the simple reason that the men got the whole product of their labour. There would be, under perfectly free competition, no stopping place short of this extreme result. Let us CHAP, xin.] Wages. 253 say, for instance, that A and B both employ 100 men, paying them 100 cents a day, and making a profit of 100 cents from each man's labour, and that both factories could give occupation to 101 men. A would not raise wages by a cent a day, as he would lose as much from paying higher wages as he would gain from having another workman, but he could profitably raise them by half a cent, which we will say he does, and gets a man from B, who loses at both ends, since he not only has to pay higher wages but has fewer men employed ; B then raises wages by another half cent, and gets two men from A, and so on. In course of time the men would get, say, 150 cents a day, leaving only 50 cents profit for the masters, but it would still be profitable for each employer to raise the rate by one-third of a cent, so as to entice men from his rival, and even when wages were 199 cents and profits only 1, it would still be profitable to make a small advance, which, under perfectly free competition, would be made. If, therefore, wages depended on competition, they would always be at what Bicardo calls the natural rate, that is, they would be just sufScient to keep the workman alive and enable him to rear the children required by capitalists ; or else they would be such as to give him the whole product of his labour ; the former rate would rule whenever the working classes reared as many children as the capitalists wanted, and the latter when the number of children fell short of the capitalists' require- ments. The former result does actually take place, and is, indeed, common enough. Whatever a man's lot in life may be, he becomes used to it, and as he thinks what is good enough for himself is good enough for his children he does not hesitate to rear as many children as he may reasonably hope will find employment and wages similar to his own ; the working classes thus adapt their customs in regard to marriage to the investments of capitalists. Where the latter freely invest and thus furnish employ- ment to a large number of new men, workmen marry early and have large families ; where it is difficult to settle the young in life, they marry late ; but so long as their 254 Communal and Commercial Economy, [chap. xiir. children find employment they do not hesitate to haye them. They thus furnish to the capitalists as many men as the latter require, and when this is the case, wages will, under free competition, fall as low as they possibly can. There is a lower limit below which they cannot fall, namely, the starving-point. If a man must starve whether he works or not, he will prefer to do it without working, and wages cannot fall below that rate which will keep him alive, nor even below that which will enable him to rear the children required by the capitalists, for in this case competition for labour would take place and wages would rise. If the workhouse gives out-door relief, the workman will be com- pelled to accept wages, which would not alone enable him to live, and to eke them out with what he gets from the workhouse ; and so long as more relief were given the rate of wages would continue to fall. This would take place even though the working population were stationary, pro- vided the capitalists were not, by new investments, fur- nishing employment for an increasing number ; it would not be due to incontinence on the part of workmen, but to their want of combination. Fortunately, competition is not always free, and there is often a combination, tacit or expressed, not to work for less than a certain rate. Men out of work often refuse to accept lower wages than are current, and will even half starve sooner than do so. In most trades there is a cus- tomary rate which has come to be looked upon as fair and reasonable, and any attempt on the part of masters to lower it is pretty sure to be resisted, while tlie master would equally resist any attempt on the part of the work- men to raise it. Trades requiring special and costly training are generally better paid than others, and this may be due to some extent to competition, but principally it arises from a feeling that it is right and proper. The men thinking so, refuse to take less, and as the masters are influenced by the same opinion they do not care to enter into disputes on the subject. It is true that if higher rates were not paid there would soon be a scarcity CHAP, xm.] Wages. 255 of men in these trades, and they would eventually be paid under competition alone, but the masters do not allow themselves to be inflaenced by a future nearly a genera- tion away, and would cut down wages without a scruple if they were not prevented by the tacit combination of the men. The effect of free competition is very marked in the case of women's wages. They have not, except where they are the wives or daughters of workmen, acquired the most elementary knowledge of how to combine, and their wages are lower than those of men, even when they do the same work, and do it equally well, or even better. They com- pete more freely than men against each other, and there is no counterbalancing competition amongst their em- ployers. If workmen do not compete against each other, the rate will be the lowest the men will take. There must always be war between masters and workmen on this subject, as there is nothing to mark what is " a fair day's pay for a fair day's work." If the masters resist a rise in wages, or the workmen a fall, production must stop until one or the other yields. Even if the men succeed in raising the daily rate of pay, they have not done all that is required to raise their wages. They would be as well off at a low rate as at a high, if in the first case they had steady work, and in the latter were unemployed haK their time. There will be no more employment than the invest- ments or re-inveStments made by capitalists will provide, and if workmen choose to rear more children than capi- talists choose to employ, then some of the men must be always out of work. A reduction in the rate of pay would not, as we saw in the chapter on Increase of Capital, induce capitalists to provide for more men, so that the higher rate would be all clear gain to the workmen if it did not induce them to rear more children. If it did, however, the higher pay would not be a benefit to them, except in so far as they would gain the leisure they have when out of work — a very doubtful gain. We will now turn to that other result of free compe- 256 Communal and Commercial Economy, [chap. xin. tition, which would give to the workmen all or nearly all they produce. It is scarcely necessary to say that it has never actually occurred, nor is there any probability of its ever doing so, for there is no such competition amongst capitalists as we have assumed, but, on the contrary, a permanent and thoroughly effective combination to keep down the rate of wages. Competition between capitalists for labour is not, indeed, a factor of sufficient importance to be taken seriously into account in discussing the subject of" the rate of wages, as its influence is confined to merely local and temporary cases. When a new railway is started, the number of men in the district is temporarily below the capitalists' requirements, and a sufficient rise in wages must be granted to induce men to come from other districts, and even to take men from other capitalists. The latter do not enter into competition, partly because they would lose as much or more from paying higher wages to the men they keep than they would by working for a time short-handed, and partly because tbey know the railway contractor would make a further advance. They are, therefore, content to put up with the loss they know to be unavoidable, and perhaps contrive to do without the men by employing labour-saving machinery. When the railway is completed, the men leave the district, and wages again fall to the old standard, unless the men, having been accustomed for a time to the higher rate, refuse to work for less. Sometimes the capitalists of a whole country are induced by some political change to become more frugal and to invest more than usual, and in this case there would be more or less competition and a rise in wages, until the workmen got into the way of marrying earlier and produc- ing more children. This is not probably the usual sequence of events, the rise in wages being generally the precursor and cause of the larger investments ; the decided improve- ment in the condition of many classes of workmen which has taken place of late years on the Continent arose pro- bably from increasing intercourse with America, which enabled them to demand higher wages. The high wages again compelled capitalists to direct labour in a less CHAT. xin.J Wages. 257 absurd and wasteful manner, and to become wealthier, ■while increasing wealth led them to invest more freely than before. If we leave out of account all merely temporary or local cases, the competition of capitalists may be said never to come into play. In the first place the working classes will always in the long run provide as many children as will find ready employment, and in the second place there would be no continued competition even if they did not. Capitalists obtain their incomes through the instrumen- tality of their factories and other stock ; if they enlarged their factories while more workmen were not obtainable, they might, and probably would, begin to compete against each other for men, but their competition would not furnish the men they wanted, and no matter what wages they gave they would still be always short-handed. We must credit them with common sense, and assume that as their factories wore out they would renew them on the smaller scale, or on the different design, which experience showed they could keep fully manned, as they would obtain as large an income from a small factory fully employed as from one twice as large and costly which was always working with only half its complement of men. If they possessed the necessary scientific knowledge, and were still resolved to invest, they would adopt the other method of doing so, that is, they would erect more costly factories, which with the men available would pro- duce more goods. They would then require no more men than they could get, and wages would fall to the minimum. K they, did not possess this knowledge their incomes could not be increased, and tbey would have to choose between reducing their families to one son each on the average, as the workmen did, or to leaving their children less well off than they themselves had been. They would in all probability choose the former alternative, when the principal incentive to investment would -disappear and they would be content simply to renew their stock as it wore out, and would again require no more men than were obtainable, and wages would fall. If they adopted the 258 Communal and Commercial Economy. foHAP. xm other alternative tlie average income of capitalists would become less and less with each generation, and in the end they would have to restrict the number of their children, or they would be no better off than their workmen, when investment would cease, and wages fall. Thus, although there might be competition for men during a longer or shorter period, it would not be permanent ; as long as it lasted the society would be in a state of unstable equi- librium, and would, perhaps slowly, but with perfect certainty, return to the state where wages are at what Bicardo so justly calls their natural rate. Workmen have no permanent interest in refraining from having as many children as the capitalists choose to provide with employ- ment; ' If they have more they will have to maintain them directly or indirectly themselves, but if they have fewer they will still get no higher wages, and their conti- nence will only induce an equal continence on the part of their masters. We may now state, as the result of our inquiry, that the requisites of a high yearly rate of wages are : — 1st. A determination on the part: of the workmen to have good pay, together withja combination strong enough to make their determination effective. This would secure a high daily rate of pay. 2nd. A correlation between the increase of the work- ing population and the number of men whom capitalists wish to employ. If the former is too great there will always be men out of work, no" matter what the rate of wages may be, and the average yearly rate will be low even when the daily rate is high. It need scarcely be said that wages paid to foreigners will not feed English workmen, and that if English capi- talists invest abroad it will be the same to Englishmen as if they had not invested at all. Even if the subject of wages be looked at solely from the standpoint of the labourers, it is by far the most impor- tant within the range of commercial economy, and to raise wages to the highest possible point by any means within his CHAP. xin.J Wages. 259 reach would be the first duty even of the statesman whose view was bounded by so narrow a horizon ; but it is of nearly as much importance to all classes that wages shall be high as to that of the labourers themselves. We have already seen that efficiency of labour, although the result of scientific knowledge and of civilisation, reacts on what produced it, as the forests on the mountain-side increase the rainfall to which they owe their existence, and that high wages are essential to efficiency. Many writers on political economy have alluded to the important influence of high wages in stimulating invention, but their far more important influence in inducing capitalists to make use of existing knowledge has been almost entirely overlooked. Low wages, while a curse to the workmen, are a loss to the capitalists themselves, by preventing them from making the best use of the labour at their disposal. It is a loss, for instance, to Indian masters that it is cheaper for them to hire two workmen to carry earth in baskets than to make a wheel-barrow which would enable one to do the same work. Both masters and men would be better oif if wages were higher, and both masters and men in England would be better off if wages were so high that the present implements in use would be thrown aside as too wasteful of labour. So long, however, as wages are low, each capitalist will use bad implements instead of good, and will do his best to still further reduce wages. It is the immediate interest of all to bring their country to the state of stable equilibrium towards which commer- cial societies tend, that is, where the labourer can barely live on his wages. Favourable circumstances may for a time delay their success, as, for instance, an abundance of new land that may be had for the taking, or a public spirit amongst the workmen which prevents them from competing against each other, but these are in their nature of only temporary application. The land will sooner or later be exhausted, which a single, isolated workman can bring under cultivation without the appliances which, although the resultant of the thought and labour of the whole society from the earliest days, are the peculiar pro- s 2 260 Communal and Commercial Economy, [chap. xin. perty of the capitalists. Workmen will then be compelled by hunger to take what wages the capitalist chooses to give, and he will neyer willingly giye more than enough to keep them alive. But for the new lands of America it is highly improbable that wages would anywhere be above the natural minimum, and as soon as the waste lands are occupied the commercial system will drop to its normal state ; wages will fall lower and lower, and it will become less and less the interest of capitalists to employ costly stock, as it will become cheaper for them to hire men to do work now done by machinery. When inventions and discoveries are no longer utilised they will no longer be made, for men will not continue to devote their lives to studies which can have no practical results ; thought that leads to nothing serviceable to mankind soon degenerates into trifling, and if science were a study necessarily barren of useful results it would have been already in its decline. At present, when wages are in many trades above the natural minimum, capitalists find it to theii; advantage to use, although only to a small extent, the knowledge they possess ; but as wages fall this will no longer be the case, stagnation, and eventually decline, will follow, and history will repeat herself when the polite and civilised nations of Europe sink into barbarism, or into a still more hope- less state, like that of China. ( 261 ) CHAPTEE XIV. TRADES UNIONS. Workmen having a not unreasonable disbelief in the theory that their rate of pay depends on the ratio they bear to the tools with which they work, have established trades unions in the hope of being able, by organised combination, to compel their masters to pay higher wages. The masters for the most part profess to give full credence to the theory, and to believe that nothing either they or the workmen can do will have the least influence on wages ; but, as Cromwell took a bond from Providence by seeing that his powder was dry, so the masters endeavour to prevent an infallible law from failing by forming masters' unions, and reply to strikes by lock-outs, thus practically acknowledging that they have learnt from their men that wages depend, not on supply and demand, but on combination. It is as difficult to foretell which side will win in the war thus formally declared, as it is to foretell the result of other wars, and the most we can do is to count the battalions which either side can bring into the field. The present rate of wages in England is not at or near the natural minimum, except in what are most incorrectly called the unskilled trades, and if we could account for this fact we should be able to estimate with some certainty the workmen's chances of victory or defeat. This problem is, however, as complex as that of accoimting for the present distribution of power amongst the three estates of the realm, and little can be done without such a careful study of the history of the subject as would lead us far beyond the scope of this treatise. The influence of the 262 Communal and Commercial Economy, [chap. xiv. old craft-guilds, and of the bye-laws they passed and en- forced for regulating the number of apprentices to be employed, is attested by history, and has left its impress on the language of commercial life in the current dis- tinction between the skilled and unskilled trades. Skill, like fertility, is a term of comparison ; we may compare the skill of two navvies, or of two bricklayers, and express it by the ratio which the number of yards of earth or of rods of brickwork that one man could execute in a day bore to the number the other could execute, but we could not compare the skill of the navvy with that of the brick- layer any more than we could compare the fertility of a potato-field with that of an orchard. When one trade is, in common usage and in plutology, said to require more skill than another, what is really meant is that one is better paid than the other, for there is no other test than wages of the skill required. A lad learns to use a saw or an adze, and even a transit instrument or a spectroscope, quite as readily as a scythe or a billhook, and the pro- portion of lads who could not learn to use an adze without cutting themselves or spoiling the tools, is no larger than in the case of scythes. In communal economy a farm- labourer would be considered quite as much a skilled workman as a carpenter or an astronomer, while in com- mercial economy neither the workman nor his skill are the subjects of study, the only important matters being the sums invested and obtained in profit. Plutology- combines the two sciences and confuses their technical terms, getting of course into the usual argument in a circle, the wages in different trades being said to be proportional to the skill required, of which the wages paid are the only measure. Still maintaining the confusion of thought, the difference in skill is attributed to the cause that really does make the difference in wages, namely, that the one workman has served an apprenticeship, while the other has not. The apprenticeship is one of the means by which carpenters, for instance, get higher wages than farm- labourers, but it is as absurd to attribute greater skill to the one man than to the other, as it would be to say a CHAP. XIV. ] Trades Unions. 263 plough is more efficient than a balloon, or a mariner's compass than an Armstrong gun. The confusion is ex- cusable when made by those who do not profess to be studying or explaining a science, and would readily arise from the craft-guilds making it necessary to serve an apprenticeship before exercising the craft, and from the fact that the guilds that did so were better paid than those which did not. All the guilds were not equally successful in raising or maintaining the rate of wages, any more than the old parliaments of Europe were all equally successful in pre- serving the liberties of the people ; but to learn the causes of the failure of one or of the success of another, or why some crafts had guilds and others not, is a problem too complex for discussion in a treatise that professedly stops short of the point where study and science begin. As the craft-guilds one by one lost their legal powers, they were succeeded by combinations of the men more or less open and declared, and finally by the modern trades unions, which propose by the same means as were adopted by the guilds to attain the same end. Their object is not as is generally supposed to keep the supply of labourers below the demand, and neither they nor their foregoers the guilds ever wished to prevent the masters from obtaining as many men as they wanted to employ. Their aim is simply to keep the supply from so much over- running the demand as to break down the combination by which it is hoped that relatively high wages will be obtained. So long as the number of workmen seeking employment is not greatly in excess of the number re- quired to work the existing implements there will never be many out of work, nor in the ordinary course will anyone be out of work for long together. If, therefore, the rate of wages is above the minimum, the men will not be driven by hunger to bid against each other, nor to accept lower wages than the public opinion of the rest considers fair ; but if the masters were permitted to employ as many apprentices as they ehose, they might easily overstock the market by bringing children from the 26-t Communal and Commercial Economy, [chap. xiv. worst paid trades, when no combination would be strong enough to keep those who had long been out of work from accepting lower pay. The masters are not sufficiently united to consciously adopt so Machiavelian a scheme, and would not employ apprentices unless it were directly profitable to do so, but this really is the case. A lad of fourteen who serves for seven years for his bare main- tenance is a very profitable workman, and the guilds were wise in restricting the number who could be employed, for the worse paid workmen would continue to furnish supplies of lads until the wages of both trades were equalised, not by raising those that were low, but by lowering those that were high. It is also profitable, although in a less degree, to hire untrained men at low pay, and the trades unions, like the guilds, propose to prevent the masters from doing so, for if it were permitted the worse paid workmen would flood the market even without causing a scarcity of men in their own trade, for those who remained in the latter would furnish a sufficient number of children to replace the men who had migrated. The guilds had the great advantage of having the law on their side, and could thus, without resorting to violence, prevent the masters from either employing too many apprentices, or from hiring men who had not been legally trained, and the men themselves having an interest in not rearing more children than could be apprenticed, acted, as on the average they always do, like reasonable beings, and kept the number of their children in correlation with the demand. The competition for employment was thus in most crafts kept within manageable limits, but the guilds gradually lost their power, and were unable to enforce their bye-laws ; the law was openly defied by the masters, who not only employed an excessive number of apprentices, but also hired men not legally belonging to the crafts, and eventually the legal powers of the guilds were one by one repealed. The trades unions have no legal power of en- forcing the action they consider necessary to their success, and hold, therefore, a much weaker position than the guilds, but on the other baud they hope to make up for CHAP, xrv.] Trades Unions. 265 this inferiority by better organisation, and by binding into one union all men of the same craft in the country. Although it is impossible with any confidence to predict their failure or success, we cannot but see that the unions have to encounter precisely the same foes that proved too strong for the guilds, and that they have no better weapons with which to meet them. Even, if they succeeded in their organisation, and each trade had its union embracing all the men of the craft, they would still be in perpetual danger of defeat so long as wages differed in different trades. If a mason's labourer gets three shillings a day, and a mason five, by what law of honour or justice is the former obliged to refuse four shillings for fear of loweriHg the wages of the mason to the same scale? There is absolutely nothing to prevent him from doing so, and if by some improved machinery the labourer became able to do the mason's work, he would be perfectly justified in taking his four shillings a day. This would defeat the inason's union, but would not lead to permanently higher wages for masons' labourers, for the latter would supply as many children as could find employment at the rate of wages to which they were themselves accustomed, that is, at three shillings a day, and the result would be that in a few years the wages of both trades would settle at that rate. The whole tendency of scientific discovery is towards the substitution of mechanism for manual skill, and we may expect that in most trades inventions will be made which would enable men not belonging to the union to do the work hitlierto done by those who belonged to it, when wages would fall to the rate current in the worst paid craft. We may also expect that great and sudden im- provements of machinery will be made in many trades, when the union would be defeated even without external competition, for the number of men required would be temporarily lessened and competition for employment would become inevitable. To these two causes the failure of the guilds was mainly due ; first, the existence of a large class of badly-paid men, ever ready to compete with those whose wages are higher, and who are justified by 266 Communal and Commercial Economy, [chap. xrv. every reasonable law of honour in doing so ; and secondly, temporary reductions in the demand for men in a particular craft. Trades unions will not remove these causes of failure, nor in all human probability will they be able to resist them. So long as they adhere to the aims they at present pursue, and to the means of attaining them they at present adopt, success appears to me to be well-nigh impossible. It is as if the men who drained the Lincoln- shire fens had each dammed off his own field, and endeavoured by constant watchfulness and incessant pump- ing to keep his land free from water ; they would certainly have failed, while by deepening and improving the outfalls and thus removing the water instead of fighting against it, they succeeded at a tithe of the cost the separate dams would have required. So the unions of the highly paid trades should turn their attention less to their own shops than to the farm-labourers and other so-called unskilled workmen ; if by instructing them in the unfamiliar art of combining, by supplying them with the means of sub- sistence when on strike, and by helping them in other ways they enable them to get another shilling a day, it would be a step towards their own advancement, as it would relieve the pressure of water against their own dam. When all workmen get the same pay, there will no longer be excessive competition for employment, as the number of workmen will never be in excess of the demand; a farm-labourer who is accustomed to two shillings a day, will rear as many children as will find employment at that rate, and if his sons are offered work at carpentry or mason- work they will accept it, provided they get the two shillings they are accustomed to. No reasonable carpenter or mason can say they would act dishonourably in so doing, and in order to prevent them from competing the higher paid men have no alternative but to employ force, whether as the guilds did under cover of an Act of Parliament, or openly by assaulting them. As soon as this is done, the so-called skilled trades become in the eyes of the others simply capitalists against whom it is right to con- tend, and they will not then be long permitted to employ CHAP. xiv.J Trades Unions. 267 the force without which success is impossible. If the farm-labourer got five shillings a day, which we will take to be the wages of a mason, he would not rear children who conld get employment only at four shillings, and if the masters endeavoured to lower mason's wages to the latter rate there would not be a supply of new men forth- coming to replace the men on strike ; the masons would then be in the best position they can hope to obtain in their struggle with capital, as they would be relieved from all fear of being undersold in the labour-market, and the contest would be reduced ' to one of endurance. Even under these favourable conditions the men \yould not probably succeed against an equally united masters' union, but the question is scarcely worth discussing, for if the men were all united on the one side into one trades union, and the masters on the other into one association, the real matter for discussion would be the action which the army would take, as the dispute would be settled by them, and would be thus taken beyond the limits of commercial economy. We have so far taken no account of the competition of foreign workmen, but it is evident that if men could be obtained from abroad the unions would completely break down. An Act of Parliament might prevent the actual importation of foreigners, and masons, footmen, and others whose services can be made use of only when their work is performed in the country, would be relieved from foreign competition, but this would not be the case with the pro- ducers of commodities capable of being ^onveyed from place to place. If English capitalists can get velvet and other goods manufactured more cheaply abroad, they will export the wages-goods which would otherwise have been given to English workmen, so as to hire foreigners to erect and afterwards to work their factories. The foreign work- men need not come to live in England, as their services may be packed in bales and shipped to their masters. If capitalists invested their money abroad as readily as at home, no combination of English workmen could raise wages so high as to reduce the rate of profit in England 268 Communal and Commercial Economy. [cha:p. xiv. below the rate in India or in any other foreign country to which capital could be safely exported. The rate of wages throughout the world would be equalised, and would .be no higher than the Indian rate, unless Indian workmen combined, of which there is no present probability. The utmost benefit that English workmen can reasonably hope to get from their unions is, therefore, to keep wages as high as capitalists will submit to pay rather than invest abroad; in India a union, if it comprised all classes of workmen, might raise wages as high as they now are in England ; in America it might also succeed, as the rate of profit there is high, but in England, where the rate is lower than in most foreign countries, success will not be attained unless the export of money can be prevented, and there does not seem to be any feasible means of pre- venting it. Already vast sums, or rather vast quantities of stock are being sent abroad, and if wages in England rise higher still more will be sent, which will throw so many men out of work at home that no trades union would have power to prevent competition for employment, and a consequent fall in wages. English workmen are now perhaps enjoying the highest wages the commercial system as established in England permits, and the future tendency will be rather to depress than to raise them, as it is daily becoming safer to trust money out of sight and reach of the owner and to invest it in foreign countries that have a higher rate of profit. Perhaps in a few hundred years, when foreign rates of profit shall have fallen, English workmen may renew the war with some chance of success, but at present they must be content with such wages as will not drive capital abroad. If they insist on getting more they may temporarily succeed, but the mills of Manchester will be renewed as they wear out, not on the Irwell, but on the Ganges, and the men who would have worked them will have to emigrate to newer lands where the commercial system has not yet been able to exert all its baneful influence. It is always maintained by plutologists that the export of stock, although it might be injurious to English work- OHAP. xiv.j Trades Unions. 269 men, would benefit those of India, whose wages would rise, but this would not be the case. If better implements were employed in India, one man would do the work now giving employment to a hundred ; the ninety-nine would be dismissed, but as the wages-goods for their use would still be produced they would be set to other work, or this would at least be the case if workmen could be readily turned from one trade to another. In practice they would be cast adrift and left to starve^ while younger men who could more readily learn the new trades would be reared for the purpose. There would be employment for the same number as before, neither more nor less, and nothing would have occurred to lead directly to a rise in wages. Indirectly the workmen would probably gain, for they would have to be collected into gangs, and would learn to combine and strike for higher pay as soon as they began to work under one roof. It is to this effect of the steam- engine and not to the increased efficiency of labour it causes, that English workmen owe any advance in wages they may have obtained within the last hundred years. The farm-labourer still works singly and still works as cheaply as he did a thousand years ago. 270 Communal and Commercial Economy, [chap. xv. CHAPTER Xy. TAXES. As soon as it becomes necessary to levy taxes the states- man must abandon the humble task of doing nothing, which in England passes for sound statesmanship, since action of some kind must then be taken, and he can only act at random if he has no certain rules to guide him in his necessary interference with the distribution of wealth amongst the several members of the society. Whoever pays taxes must necessarily suffer a loss, and unless we know the principles which should be followed in selecting the individuals who ought to lose, it is impossible ration- ally- to discuss the merits of any particular system of taxation. Ten pounds taken from a man who earns only from 301. to 40?. pounds a year, would be a serious loss to him, while the same amount levied from a man whose income was 5000Z. a year would be scarcely appreciable. In deciding how taxes shall be levied, are we to allow for the loss of well-being they would cause ; and if so, is this alone, or are other matters also to be considered ? A man with wool, a year, dependent on his labour, is not as well off as if he derived it from rent of land ; is he to be taxed less heavily on that account ? Adam Smith made an attempt to give a rule for the guidance of the statesman. " All," he says,* " should con- tribute in proportion to the revenue they enjoy under the protection of the State. The expense of government to the individuals of a great nation is like the expense of management to the joint tenants of a great estate, who are all obliged to contribute in proportion to their respective * ' Wealth of Nations,' book v. chap. ii. part ii. CHAP. XT.] Taxes. 271 interests in the estate." Before taking this maxim for granted, we must know how the company came into pos- session of the estate, and what are the conditions of co- partnership. It would not be fair to make the holders of railway debentures share in the cost of working the rail- way, as the terms of co-partnership provide that they shall not do so. We have not got the " social contract " to refer to, and can only settle what its terms were by assuming that they were fair and just, which leaves us precisely where we were before. We get no assist- ance in ascertaining what is fair and just from Smith's imaginary joint tenancy, and must, therefore, settle, quite independently of it, the principles ou which taxation should be levied. This opens up the whole question of what political economy is. It is the art of procuring, by means of labour, well-being for some one, but until it is known for whom, we are like a ship's captain who does not know for what port he is bound. Tuining to the acts of the statesman, in order to learn from them the principlps by which he is guided, we see that he has none, but is wandering aimlessly about the ocean, going a little way towards one port and then back towards another and again off to a third ; his track when marked on the chart gives no indication of a preference for one place over another. He takes the maxim that the poorest should not be taxed, and follows it by relieving them from income-tax, but immediately goes on the other tack of levying the heaviest duties on the goods they consume. He then raises the claptrap cry of a "free breakfast- table " ; takes the duty off sugar and puts it on to beer, as if it made any diffej-ence to a working-man whether when a shilling is taken from him it is taken as a tax on his breakfast or on his dinner. Or the statesman lets cheap claret go with a light duty so as to encourage the use of harmless drinks, but he still keeps beer heavily taxed. Tobacc-o and alcohol pay specially heavy duties as being injurious to thoso who use them ; but the prin- ciple of making the economist the guardian of the moral and physical liealth of the community is not logically 272 Communal and Commercial Economy, [chap. xv. followed, and, fortunately, he does not in many cases try to make us eat and drink what he thinks best for us. There is one and only one maxim kept steadily in view, and that is that taxes shall be levied from those who have least power of resistance. If a new tax is proposed and those who would suffer by it make loud enough outcry and have votes, they are pretty sure to get it turned on to others who are more patient or less powerful ; hence the greater part of the revenue is generally raised by taxing with special heaviness the goods consumed by the working classes, who can, or at least do, make least resistance. It is true that, as matters now stand in England, this is really a tax on capitalists, but neither the capitalists when as the governing class they imposed it, nor the workmen themselves, were aware that such would be the case; and (as with most of the practical problems of commercial economy) it is uncertain to what extent the actual condi- tions are in accordance with the hypothesis from which we deduce that a tax on the goods usually consumed by workmen really falls on their employers. As the economist who accepts modern teaching on the subject does not concern himself with plans aiming at definite practical ends, or at least does not know what definite end is sought, he can do no more in regard to taxation than to point out how and on whom, under certain assumed conditions, any special fax would fall. It is not his place to show on whom it would be desirable that the tax should fall, as this will be settled by others who will not necessarily, nor probably, beguided by economical considerations. It will be his duty to devise plans by which the intention to make taxation fall on particular classes or persons shall be carried out, and to foretell the effect of any particular tax on the well-being of those who pay it or are influenced by it. Having no data, he must assume those on which his reasoning will rest. That it is not an easy problem to make taxation fall on those who are intended to bear it, is shown by the difficulty of increasing that of even a wealthy country like England without causing great distress, while if those could be CHAP. XV.] Taxes. 273 and were compelled to pay who are best able, it is not too much to say that England could raise in taxes an annual sum of at least 300,000,000?. without causing distress to any one. To take, as an instance, the wearers of black silk hats j it would not cause them any distress if taxation so fell as to make them wear the more comfort- able " wide-awake," which indeed they adopt as soon as they escape from the tyranny of London public opinion to the less-feared tyranny of that of Paris or Berlin. There is, perhaps, as much as 1,000,000?. yearly spent in England in hats, and umbrellas which are wanted only to defend the hat, and if we deduct 500,000?. to pay for less costly head-gear we have a balance of 500,000?. left. Women's head-dresses would give a still larger sum, so that we may reckon on, say, 1,000,000?., as the taxation that might be levied if the unnecessary labour now spent in making head-gear were applied to the production of wages-goods to pay the army and navy. In the same way one luxury after another might be cut down until the whole sum of 300,000,000?. was raised without causing real suffering to any one. It would be, of course, a misfor- tune if England were obliged to spend so much of its labour in government expenses, but it would not be so great a misfortune as to cause serious unhappiness if taxa- tion fell on those who best could bear it. If, however, 1,000,000?. were actually added to the taxation, it would not be met by transferring labour from hat to wages-goods making. Capitalists would at first invest less, and less wages-goods would be made than if there were no tax, so that less food would be provided for the rising population, and instead of causing no suffering at all, the tax would cause the bitter suffering of hunger to the poorest classes. If the tax became permanent, capitalists would gradually accommodate their expenditure to their new conditions, regarding it in the same light as a mortgage on their estates, and they would regulate their expenditure to their incomes less the tax. A decrease of taxation, on the other hand, would go in great part to enable the labourers to marry earlier and have larger families, as T 274 Communal and Commercial Economy, [chap. xv. capitalists would be more likely to invest it than if the amount had always formed part of their effective incomes. The effect of long-continued taxation is the same as if labour were less skilfully employed, or less efficient, and as the general rate of wages does not in the least depend on the efficiency of labour, so also is it independent of long-continued taxation. It does not matter to the work- men, as a class, in what manner taxes are levied, nor whether they are heavy or light. Wages depend not on what the workmen produce, but on the share they are able to keep for themselves, and a high ratio of profits to wages does not enable them to fight to better advantage than when the ratio is low ; the ploughmen who work the rich lands of Kent get no higher wages than those who plough the sterile shingles of the highlands of Scotland. Taxation is a matter affecting capitalists alone ; their revenues consist of the total product of labour less what they are obliged to pay in wages and in taxes, and wages would not be higher though there were no taxes at all. They have scarcely, if at all, risen under the influence of the steam-engine, which has increased the efficiency of labour a hundred times more than would follow from the entire remission of taxation, and it is simply ludicrous to talk of the petty economies or extravagances which the Chancellor of the Exchequer can make as if they were of vital importance to the working classes. They are so far important that they make a change in the course of events, and increase or lessen temporarily and very slightly the number of situations available for the employment of the young, but it is of no more importance whether the per- manent long-continued taxation of England be 80,000,000Z. or 300,000,000Z., than whether capitalists wear silk hats or felt ones, or keep one footman or half a dozen. If the higher sum were, and had long been, spent yearly by Government, there would, perhaps, be fewer capitalists, or if their numbers were unchanged, they would live less luxuriously, unless the heavy taxes had induced, them to dispose, as they easily might, the labour under their con- trol more skilfully, but in any case the taxation would not CHAP. XV.] Taxes. 275 lessen their independence, their leisure, their pre-eminence, nor their happiness, nor would it lessen the rate of wages, nor even the number of men employed. Nearly all econo- mists admit that a transfer of property from one capitalist to another does not affect the wealth or well-being of " the country at large," nor influence the number of men em- ployed. If A has a mortgage on B's land, and the State by an arbitrary law declared mortgages to be no longer valid, A would become poorer and B richer than before, but " the country at large " and the workmen would not be affected. Similarly, if B owned his land free of debt, and the State gave A a mortgage on it, B would lose and A would gain, but the workmen and all others would be neither richer nor poorer. We may extend this theorem to factories and to all other stock, and if the State declared the Chancellor of the Exchequer to be the owner of one-half or three-fourths of all the stock in existence, "the country at large" and the workmen would be no more affected than if it were given to any one else. If the Government spent its share of the profit-fund in hiring soldiers, most of the latter would be a clear addition to the population, while other workmen would be' neither better nor worse off than before, the only difference being that many men who otherwise would have been employed in producing velvet or other wares to be consumed by capitalists, would be employed in producing food to feed the army. The conscription in continental countries is not a tax on hired workmen except in so far as the men prefer other work to soldiering, or, as they get lower wages when in the public service than when working freely for hire ; and even this tax, when it exists, is more than repaid, for a term in the army is as useful educationally as a term at college, and might easily be made ten times more useful than it is. I do not propose to discuss fully the effect of particular taxes, but shall confine myself to the consideration of such of the generally accepted theorems as may seem to require further discussion. Eicardo* contends that an income tax, or a tax on * ' Piinoiples,' chap. xr. T 2 276 Communal and Commercial Economy, [chap. xt. profits, would alter the relative prices of goods, since differeDt commodities require for their manufacture different proportions of fixed and circulating capital. If one man has a capital fixed in buildings of 8000Z., and employs 2000Z. of circulating capital, the normal price of his wares will be, according to Eicardo, — £ Profit on fixed capital, 20 per cent, on 8000?. 1600 Circulating capital 2000 Profit on ditto at 20 per cent 400 Total price of wares £4000 Another capitalist has also 10,000?., but only 2000Z. is fixed in buildings, and the price of his wares will be — £ Profit on fixed capital, 20 per cent, on 2000?. 400 Circulating capital 8,000 Profit on ditto at 20 per cent 1,600 Total price of wares £10,000 Each man gets a profit of 2000Z. a year, and Ricardo says that if a 10 per cent, income-tax is levied, the first will sell his wares for 4200?., and the other for 10,200Z., the rise in one case being five, and in the other only two per cent. He forgets that circulating capital, by his own definition, is only another name for goods, and that if the tax raises the price of goods it must raise that of the circulating capital also, when the prices would be as follows ; — 1st Case. 2nd Case. Profit on capital 2000 Circulating capital £2000 Increase caused bv tax 200 2200 Tax on profits 200 Profit on capital 2000 Circulating capital £8000 Increase caused by tax 800 8800 Tax on profits 200 £4400 £11,000 CHAP. XV.] Taxes. 277 and the relative prices are as before, so that even by his own teaching Eicardo's theory is untenable. We have seen elsewhere * that the price of goods is merely the sum of the profits of the several co-producers, and if all profits are taxed, then all the items composing the price will be similarly affected. Goods which sell for 10,OOOZ. have yielded a profit of 10,000Z., and if we assume that a tax on profits will raise prices, and that the latter will become 11,000Z., then the same reasoning would show that goods worth 4000Z. would rise to 4400Z. In reality prices would not be affected by a tax on profits. The Government is merely a capitalist, and a transfer to it of part of the incomes of all capitalists would not affect the numerical magnitude of the profit-fund any more than does the transfer by mortgage of part of the ownership of land or other stock from one capitalist to another. But for the tax each man would have taken certain goods from the profit-fund, and the tax merely compels him to take less, while the Government takes the balance. If, therefore, the currency consisted of inconvertible notes, no change in the total price of the profit-fund would occur, and a rise in the price of one article would lower those of all others ; where all goods are equally taxed, as by a tax on profits, the sum of the several falls would be just equal to the rise that would take place if one article were singly taxed, and money prices would all remain unchanged. If before the tax an ounce of gold could be imported in ex- change for a ton of iron or a piece of cloth, this could still be done after the tax, and no change in gold prices would occur. An objection is often made to the income-tax, that since investments are made out of income, if the latter is taxed the greater part of what is collected will be so much in reduction of the total sum invested ; hence it is argued that those who invest part of their incomes should be relieved of taxation in the hope that they will be induced to invest still more, while those who do not invest should be compelled to pay the taxes of their more frugal col- leagues. If A has lOOOZ. a year, and spends it all on his * Ante, p. 37. 278 Communal and Commercial Economy, [chap. sv. present enjoyments, while B, who also has 1000Z.,a year, spends only 500Z. and invests the balance in erecting a new factory, it is supposed to be better to make the first pay not only his own 100?. a year of taxes, but also the lOOZ. of his neighbour, or at least a part of it. If both are equally taxed. A, it is urged, will spend 900Z. on him- self and B 500Z., and there will be only 400Z. invested, but if A is taxed 200Z. and B not at all, the foimer will spend only 800Z., as he can get no more, and tbe latter 500Z. as before, thus leaving 500Z. to be invested. We are not discussing the ethics of commercialism, and need not stop to consider the justice of taxing one capitalist for the benefit of another who is quite as well off, while to do so for the benefit of the working classes is confessedly im- moral, but we may examine the argument by which it is proved that a tax on expenditure and not on revenue causes larger investments to be made. It would be sound enough if A and B in our example were both driven by an irresistible instinct which compelled A to spend all he could get, and B to spend 500Z. a year, neither more nor less, and to invest the remainder of his income, but is this the case ? B invests because he wishes for some reason or other to have a new factory ; if he has his lOOOZ. a year free of taxes, and invests 500Z. a year, which will give him in twenty years a factory as good as that from which he derives his present income, he does so because he prefers the prospect of another lOOOZ. a year after twenty years to the present enjoyment of the goods he could buy with his money. If there were another man, a duplicate of B, but with only 900?. a year, we cannot say positively what his actions would be, but it is fair to assume that he would invest such a sum as would give him a second 900?. a year after twenty years. If now B is taxed lOOZ. a year he will be in the position of his duplicate, and will invest what will give him another 900?. a year free of taxes, or 1000?. a year including taxes, after twenty years ; that is, he will invest precisely as much as he did before. If A spent 800?. a year and B only 400?., A would pay twice as much as B if expenditure alone were taxed, but there is no reason for CHAJ. XV.] Taxes. 279 supposing that this would lead to more investment than if each paid the same, for A would be neither more nor less likely than B to pay his taxes out of money he would otherwise have invested. A better argument in favour of taxing expenditure, and not revenue, is that the factory which results from new investment is not wealth, but only a means of procuring wealth in the future. If, then, men are to be taxed in proportion to their wealth the factory should be free. A tax on all implements used in trade would be an income-tax on all capitalists. The factory owners, who actually paid it, would recover a share of it from the monied class by obtaining a higher rate of profit than they, and as implements can be more easily valued than the incomes derived from their use, this would be an excellent tax if it had not the serious drawback of increas- ing the unnatural dearness of work, the price of which consists more of profits of stock than of wages, and of thus making it more profitable to work with bad and cheap, than with good and dear machinery. Wages being nothing more than an implement, a tax on them would be also a tax on capitalists. Labourers would be able to force up their wages to meet it. Such a tax would help to correct the unnatural cheapness of work, the price of which consists largely of wages, and would induce capi- talists to improve their machinery ; it would be, in fact, a tax paid by nature alone, for the increased efficiency of labour due to the better machinery it would induce the capitalists to use would more than pay the tax. There is, of course, the drawback that perhaps the labourers would have to pay part of it, owing to their being unable to raise their wages sufficiently to meet it, but this danger is probably imaginary. If it is real, however, it would be illogicul to allow it any weight, so long as the goods the labourers consume are taxed, for they could certainly increase their wages as easily to meet a direct as an in- direct tax. The practical difficulty of taxing wages will probably prevent its ever being done. So long as workmen look for higher wages to anything but their own power of 280 Communal and Commercial Economy, [chap. xv. combining the)- will think it a tax on themselves, and as their masters can seldom in matters of political economy- see further than their own shop-doors, they would always encourage their men to agitate against it. If capitalists would only remember that the whole product of labour belongs to them, they would not oppose a tax which would have the effect of increasing that product, or which at least would decrease it less than any other tax. The most important taxes on commodities, although their importance has certainly been exaggerated, are those levied on import and export. With regard to the former, economists are tolerably agreed that the consumer is the real taxpayer, except in the case of goods the supply of which cannot be made equal to the quantity that would be consumed if they were offered at the normal price, in which case the foreign producer, who must have more or less command of special facilities of production, pays some or all of the tax. The opium trade betweeB India and China is a case in point ; India has land which produces better opium than can be grown elsewhere, and if there were no import duty into China, could sell its whole crop at a certain price, making a profit much above the normal Indian rate. If China levies an import duty, India cannot raise the price, or the whole crop would not be bought, and it must either pay the whole duty and sell opium at the old price, or be content to sell a smaller quantity at an advanced price. Similarly, wines of special excellence would not necessarily be sold at lower prices were the duty on import into England remoyed, but the foreign vigneron might gain the whole sum remitted unless he preferred to increase the consumption in England by lowering the price. Notwithstanding the protestations of English statesmen and manufacturers of their firm attachment to free-trade principles, their public acts and speeches regarding import duties tend to raise the doubt whether they are not good protectionists at heart, since they seem to take for granted the fundamental protectionist maxim that foreign trade is useful as a vent for home manufactures, and not as a means CHAP. XV. J Taxes. 281 of obtaining from abroad goods wbich cannot so cheaply be made at home. When the commercial treaty with France was entered into Napoleon's share in the matter was perfectly correct from the economic point of view ; he knew or thought that the numerical magnitude of the profit- fund when measured in other commodities than gold would be increased by lower import duties, and rightly wishing to gainfor French capitalists that advantage, he used the treaty as a means of reconciling them to a freer trade than they would otherwise have cared for. No exception can be taken to his action on economical grounds, but Cobden's share in the matter can only be defended by granting everything the protectionist demands. If foreign trade is useful only because it enables a country to obtain foreign products, then foreign import duties are injurious to England only when they prevent her from getting the goods she wants. If carried out to the logical extent of absolutely destroy- ing trade, England would be unable to get wine from France, or wheat and raw cotton from America, but so long as those countries import tea from China, tobacco from Havannah, and other goods from other countries England loses nothing. Let us say, for instance, that America imports from China lOOOZ.-worth of tea, and from England lOOOZ.-worth of iron, paying China with cotton goods and England with wheat. A prohibitive duty is now put on the import of iron into America, and capital is then diverted from cotton-weaving to iron-making, while in England it is diverted from iron-making to weaving cotton for export to China. England will still get the wheat she wants, and, although her export trade to America is destroyed, her exports to China are increased, while America's export trade to China is destroyed. As any s