-vj HnU (ttoUcge of 'AgrtcuUuw Ki (SkOtmH Intvecattg Jttiara. JH. f. HB i7i.7.%7""""'^^^«y Library Jjjjue to the economic labyrintt^ 3 1924 013 754 712 Cornell University Library The original of this book is in the Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/cletails/cu31924013754712 CLUE TO THE ECONOMIC LABYRINTH CLUE TO THE ECONOMIC LABYRINTH BY MICHAEL FLURSCHEIM Author of ' Auf friedlichem IVefe," " Der einnige Retiungsweg," "Rent, Interest, and Wages," " The Real History of Money Island," etc. LONDON SWAN SONNENSCHEIN & CO., LIM. PATERNOSTER SQUARE g> -^2.^7/ I DEDICATE THIS BOOK TO THE PEOPLE OF NEW ZEALAND PROGRESS The time is ripe, and rotten-ripe, for change ; Then let it come : I have no dread of what Is called for by the instinct of mankind ; Nor think I that God's world will fall apart Because we tear a parchment more or less. Truth is eternal, but her efBuence, With endless change, is fitted to the hour ; Her mirror is turned forward to reflect The promise of the future, not the past. He who would win the name of truly great Must imderstand his own age and the next, And make the present ready to fulfil Its prophecy, and with the future merge Gently and peacefully, as wave with wave. The future works out great men's purposes ; The present is enough for common souls. Who, never looking forward, are indeed Mere clay, wherein the footprints of their age Are petrified forever ; better those Who lead the blind old giant by the hand From out the pathless desert where he gropes, And set him onward in his darksome way. I do not fear to follow out the truth. Albeit along the precipice's edge. Let us speak plain : there is more force in names Than most men dream of ; and a lie may keep Its throne a whole age longer, if it skulk Behind the shield of some fair-seeming name. Let us call tyrants tyrants, and maintain That'only freedom comes by grace of God, And^all that comes not by His grace must fall ; For men in earnest have no time to waste In patching fig-leaves for the naked truth. —James Russell Lowell, CONTENTS CHAPTER I Wanted, a New Gospel : The Old Gospel, i ; Change of the Problem, 3 ; The New Gospel, 12 ; Help given by Religion, 13. CHAPTER II The Land : Bridge Building, 14 ; Principles of Land Reformers, 16 ; Monopoly Character of Land, 18 ; Free Trade in Land, 22 ; Defence of the Freehold, 23 ; Peasant Proprietors, 26 ; Concentration of Pro- perties, 28 ; Power the Basis of Land TitleSj 33 ; Despotism better than Anarchy, 34 ; Equal Division impossible, 35 ; What destroyed the Mark, 36 ; Why not make the Community the Owner, 37 ; DiiFerence between the Lease System and that of Mark or Mir, 38 ; Distribute the National Rental for Pensions or for the Relief of Taxation, 39 ; How to limit Land Accumulations, 43 ; Limitation of the Right of Inheritance, 43 ; A Limitation of the Amount of Land which one Family may own, 44 ; A Taxation of Land Values, 45 ; Value, 45 ; Improvements a Title to Ownership, 47 ; Interest on Improve- ments, 49 ; The Single Tax, 50 ; Principles of Taxation, 5 r ; Income, Mortgage, and Bond Taxes, 51 ; Indirect Taxes, 53 ; Rent not included in Price, 54 ; Shop Rents and Prices, 56 ; Objection, 57 ; Rating of Ground Rents, 58 ; Cheapening of unimproved Land changes the Case, 59 ; Rating on unimproved Values, 59 ; Confiscatory Nature of Land Tax, 60 ; The Abrogation of Private Land Ownership, 60 ; Progress and Poverty, 61 ; Land Taxation is not Land Restora- tion, 62 ; Land Taxation would not prevent Land Monopolisa- tion, 64 ; Land Taxation would not put an End to the Abuses of Landlordism, 65 ; Self-interest does not insure best Use, 69 ; The Case changes under Land Nationalisation, 70 ; Cash Payment is not the sole Nexus of Man with Man, 71 ; Henry George's Motives, 73 ; Confiscation or Compensation, 73 ; Force against Force, 75 ; The Seller calling his Customer a Thief, 76 ; A bad Precedent, ^^ ; Honesty the best Policy, ^^ ; Attack against Herbert Spencer, yy ; Compensation for a Tax, 78 ; A Grievance against Spencer, 78 ; Land Nationalisation a Shock to present Customs and Habits of Thought, 79 ; Land Nationalisation involves Extension of Government Machinery, 80 ; No fear of Corruption in Tax Collection, 81 ; Single-Tax the easiest Method of carrying the Reform, 81; Certainly the most Dangerous, ix X Contents 8 1 ; Rebate of Rent Bill, 82 ; Referendum as a Protection, 83 ; Occupation, not Freehold the old Form, 83 ; Opposition of Land- owners to Single Tax, 84; Appeal to the Lower Motives, 85; Danger of mixing Land and Tariff Problem, 85 ; The Mortgage the most serious Obstacle, 85 ; Cutting the Dog's Tail piece-meal gives more Compensation than immediate Land Purchase, 86; The most practical and honest Method, 87 ; The State's Right of Pre-emption at Present Prices, 89 ; Building Regulations do not affect House Rents but Land Values, 90 ; Taxing vacant Building Lots, 91 ; Defence of Non-Compensation, 91 ; The Freehold doomed, 93 ; Unearned Incre- ment made by Public Improvements, 94 ; Limitation of Right of Pre- emption, 95 ; Effects of the Law, 96 ; Tax and Take, 97 ; Lease in Perpetuity, 97 ; Administration of the Public Land, 99 ; Length of Leases, 99 ; City of Wellington Leases, 100 ; Risks of the Tenant, loi ; Betterment Clause, 102 ; Lease of Hamburg's Free Port, 102 ; Contrast with such far-seeing Policy that practised in Australia, 103 ; Close Build- ing, 104 ; Szegedin and Galveston, 105 ; Fanaticism on Special Methods kept us back, 105 ; The Ashbourne Acts, 106 ; The Capitalist the worst Landlord, 107 ; Germany's Land Reform in China, 107 ; Our Colonies' suicidal Land Policy, 109 ; Investment of Capital in Land welcomed, III ; The Freehold handicaps the Land-user, 112 ; The Interest of the Landlord is always opposed to the Interest of every other Class in the Community, 113; Laying the Blame at the Wrong Door, 114; Attack the System, not those who profit by it, 115; Other Aspects of the Land Problem, 121. CHAPTER III Money : (i) Definition of Classification, 122 ; Confusion of Paper Money and Paper Currency, 124 ; Elastic Boundary Line between Class I and Class 2, 125 ; Money Evolutions, 126 ; Preference given to certain Metals, 127 ; Token Money the Means of Exchange of a higher Civilisation, 128 ; (2) The Value of Money, 130 ; The Value of Money is its Purchasing Power, 130 ; In Gold Currency Countries the Value of Money is the Value of Gold, 130 ; Cheap and dear Money, 131 ; The Quantity Theory, 133 ; Influence of Circulating Quantity, 133 ; Rapidity of Circulation, 133 ; Influence of Barter, 134 ; Influence of Credit, 134 ; Money Debts and Money Stock, 135 ; State of Credit affects Prices more than Money Stock, 137 ; The Course of the Crisis of 1847, 137 ; The Financial Crisis of July, 1893, in the United States, 138; The Chronic Crisis, 139 ; The Gold Basis an Inverted Pyramid, 140 ; Bimetallism, 142 ; Gresham's Law, 143 ; Cost of Production, 145 ; Price of precious Metals determines Cost of Production, 145 ; Specula- tion and Mining, 147 ; The Effect of Bimetallism on the Value of Money, 148 ; Waste of Productive Power, 150 ; Enriching of Mine Owners, 151; The Old Commodity Money Groove, 151 ; Standard and Measure of Value, 152 ; Wheat Proposed as Money, 154 ; Superiority of Money which the Workers can produce, 156 ; Leo Contents xi Tolstoy's Illustration, 156; The Great Difference bettireen a Money consisting of the Ordinary Produce of Labour and one which can only be obtained through the Sale of such Produce, 158 ;■ Money is not merely a Measure of Value and Means of Exchange, but is also demanded in Payment of Debts, 159; Power of Usury produced by our Legal Tender Money, 159 ; A nice Standard of Value, indeed, 160 ; The Power of Habit, 160 ; The Financier's Gospel, 160 ; Money as a Store and Representation of Wealth, 161 ; Labour Time, 163 ; Only what is Marketable can be a Standard of Value? 164; What is the best Standard of Value? 164 ; Has Token Money Market Value? i6=; ; Facts prove the Money Quality of Token Money, 167 ; The Assignat Scare, 168 ; Paper Money can be made a better Standard of Value than Gold or Bimetallistic Money, 168 ; The History of the American Greenbacks, 169 ; Exaggeration and Jladicalism defeat their own ends, 171 ; Single Taxers afford another Example, 171 ; Co-operative Settle- ments, 172 ; The Greatest Enemies of a Rational Currency, 172 ; There can be only one kind of Security behind Money of our Third Class, Token Money, and that is its Wealth-Purchasing Power, 172 ; Not a single Case is known in Modern History where an inconvertible Paper Money was issued under Normal Conditions, 173 ; A perfect Standard of Value for Money, 173 ; Money Circulation regulated by a Tabular Standard of Prices, 174 ; Normal Table, 175 ; History of the System, 176 ; Differing from former Tabular Standard Proposals, 177 ; Difficulties, 179 ; Retail Prices, 180 ; Raw Materials, 180 ; Land Values and Rents, 180; Wages, 181 ; Methods of Issue, 182 ; Crises Prevented, 183. CHAPTER IV The Effect of a Scientific Paper Currency : {a) In National Inter- course : Crises are Chronic, 185 ; The destructive Effects of our Currency, l85 ; A Money-lender and his Victims, 187 ; Part played by Land Owner- ship, 187 ; Scientific Currency gives immediate Help, 187 ; The Causes of the Crisis not due to Changes in the Process of Production, 188; Over-production, 189; Supply and Demand kept apart by Money Monopoly, igo; Effect of Wealth Accumulations, 192; Hoarding not the Cause, 193 ; Two Kinds of Circulation, 193 ; The Effect of Accumulation on Circulation, 194 ; Temporary Revivals of Trade ex- plained, 197 ; The Reaction, 198 ; The Crisis, 200 ; Want of Employ- ment and its Effects, 301 ; Effect of the new Currency, 201 ; Merchandise becomes a Security, 202 ; Unlimited Basis of Credit, 203 ; Over-production in reality Under-consumption, 204 ; Wage Fund Fallacy, 204 ; Absence of Tools not responsible for Want of Employ- ment, 205 ; Superior Tools do not render inferior Ones worthless, 205 ; Want of Capital in this sense never needed to exist, 206 ; Over-produc- tion shows an Excess of Capital, 207 ; The new Money, by taking out of the Way the worst Obstacle, 208. {b) International Intercourse : xii Contents Part played by Gold, 209 ; Gold unnecessary internationally if Com- modities are paid for with Commodities, 210 ; Relative Unimportaiice of International Trade, 211 ; Commodities often are not paid for with Commodities, 212; Importations paid with Tribute Claims, 214; Favourable Balances always best, 215 ; Error of Adam Smith, 216 ; Fatal Influence of Adam Smith, 217 ; " Money necessarily runs after Goods, but Goods do not always necessarily run after Money," 218 ; Interest forgotten, 219 ; Effect of unfavourable Trade Balances, 220; Adam Smith and Trade Balances, 222 ; A false Premise, 223 ; Birds of a Feather, 224 ; Ricardo's Reasoning, 225 ; Quantity Theory called in, 225 ; " The King and his New Clothes," 227 ; Debt the ignored Result, 228 ; New Zealand's Case, 230 ; Interest often makes the Cheapest Market the Dearest, 231 ; The Case would be different if Interest did not exist, 231 ; Employment of Local Labour the main Factor, 232 ; The Case of John and Bill, 232 ; An absurd Waste of Power, 234 ; Reciprocity of Trade, 235 ; Balance of Trade and Financial Balance, 235 ; Defective Balance-sheets and still more Defective Conclusions, 236 ; " Confusions arising from the Ignorance of the Part Money plays in Business," 238 ; Merchandise Wealth and Money Wealth, 239 ; The real Balance to be considered is the Financial Balance, 241 ; Effect of Currency Reform on Balance, 241 ; Balances of different Countries, 243 ; Method of International Settlements, 243 ; Gold at a Premium, 244 ; Favourable Effect of Gold Premium on Balance, 245 ; Effect of the Gold Premium in New Zealand, 246 ; International Price Relations under a Scientific Currency, 247 ; Restriction of Paper Circulation only meant in a Relative Sense, 250 ; Our Colonies have the Power to make such far-reaching Changes, 251 ; Paper Money Countries make all possible Efforts to come back to a Gold Currency, 251 ; A Great Crime, 251 ; Who are the Men whose Judgment usually prevails in such Matters ? 254 ; The Routine Groove, 255 ; A dangerous Habit, 256, CHAPTER V Free Trade or Protection : Favourable Balance Primary Object, 257 ; Narrowing down the Subject, 258 ; Certainty of Reciprocity, 259 ; Arguments on the Side of Free Trade, 260 ; Employment the First Question, 261 ; The Farmer's Case, 262 ; The Case of the American Secessionists, 262 ; The Case of New Zealand, 264 ; Increase of Land Values, 266 ; Independence, 266 ; The Case of Britain, 267 ; England's Landed Aristocracy with its Rent-raising Corn Tolls, 267 ; The Dear Loaf, 268 ; Cobden's Policy of 1846 under the totally changed Con- ditions of 1900, 268 ; "An American View of the British Industrial Situation," 269 ; Bounties are preferable to Protective Duties, 270 ; Duties, or Part of them, are often paid by the Foreign Importer, 270 ; Saving by Increase of Turnover, 271 ; Selling with Loss to kill Com- petition, 273 ; Protection handicaps Foreign Trade, 274 ; " Self- Contents xiii Sufficiency," 274 ; The World's Workshop, 274 ; Applied to New Zealand, 275 ; Protection does not raise Wages, 276 ; Free Trade Statistics, 277 ; Free Traders forget Railroads, Steam Engines, etc., 278 ; Protection enables Domestic Producers to combine, 280 ; Exploita- tion by a Home Syndicate is preferable to that by a Foreign One, 281; If Free Trade is beneficial Nationally why not Internationally ? 282 ; Federation, 283 ; Protection forces Hot-house Plants, 284 ; The Waste of Protection, 285; Prbtection not always Best, 285 ; Imperial ZoUverein, 286 ; An Imperial Protective Tariff, 287 ; The Position of the Colonies, 287 ; Reciprocity required, 288 ; Henry George's Robinson parable, 288 ; The Parable modernised, 291, CHAPTER VI Banking : State or Private Banks, 293 ; The Danger of Inflation, 293 ; Security in times of War against Seizures, 294 ; Fear of State Adminis- tration, 294 ; Banking Profits, 295 ; Exploitation of the People's Stupidity, 297 ; The Question of Security, 298 ; National Banks of the United States, 298; 'Two's' at 106, 299; Circulus Vitiosus, 299 ; Law needed to prevent the lending out of Free Deposits, 300 ; Scotch System of Banks of Issue, 302 ; Advantage of such a Law to the Community, 303 ; The People their own Bankers, 304 ; Raffeisen Bank, 305 ; State Bank and People's Banks, 305 ; Our Banks a per- manent Danger, 306 ; Immediate Help, 307 ; Methods of Issue, 308 ; Currency Reform without a State Bank preferable to a State Bank without Currency Reform, 309. CHAPTER VII Interest: Interest Condemned, 3 10; Interest the Result of the Productivity inherent in Capital, 311 ; The Element of Time, 312 ; Force of Habit, 314 ; Interest is the Reward of Abstemiousness, 315 ; Capital Produc- tion will stop if no more Interest is obtaiinable, 315 ; The Capitalist's personal use of Wealth limited, 316 ; Accumulations rendered possible by secured Rent and Interest, 317 ; Self-consumption becomes almost infeasible, 317 ; Our Millionaires are not extravagant enough, 318 ; Millionaires and Poverty in the Union, 319; "Or to lie idle," 320 ; Turgot's Simile, 321; Interest holding back Civilisation, 321 ; With the Disappearance of Interest, these and Thousands of other great Works will be carried out, 322 ; Interest and Money Reform, 323 ; Interest and Free Trade, 324 ; Interest is in Reality the greatest Obstacle to Saving, 324 ; Interest is Tribute, 326 ; Arithmetical Proofs, 326 ; An Allegory, 327 ; Private Land Ownership the Mother of Interest, 334 ; Gold and Silver Legal Tender the Father of Interest, 336 ; Gross Interest and Interest Proper, 336 ; Wages and Interest rising and falling together, 337 ; Distinction between Net Interest, or Interest Proper, and Gross Interest, is one of the most Momentous in Practical Life, 338 ; The lower the Net Interest the higher is the Gross Interest, 340 ; Laws against Interest useless, 340. xiv Contents CHAPTER VIII Capital and Capitalism : Definitions of Capital, 342 ; Capital as Pro- perty which can procure an Income without any Work on the part of its Owner, 343 ; Orthodox Definition confusing, 344 ; Throws together Tools and Tribute Claims, 344 ; Perfection or Ownership of Tools, 345 ; Capitalism, 346 ; Curses Capital as the worst Enemy of Labour, ^^ ; Tribute Claim Capital constitutes the Bulk of the World's Capital, 347 ; The Social Problem, 349 ; Want through Superabundance, 350 ; The Solution, 351 ; Truth at the Bottom of Mercantilism and the Wage Fund Bogey, of the Over-population and Over-production Swindle, 352 ; Money, not Land, the Principal Villain, 353 ; Financial Panic, 355 ; Money Reform is the Thin End of the Wedge, 355 ; Currency Reform would give a strong Helping Hand to Land Reform, 357 ; The Market Rate of Interest is bound to fall much faster in a Country with Nationalised Land, 358 ; The Interest Rate has been gradually going down, 360 ; Slave Values and Land Values, 361 ; Historic Precedents, 362 ; Outside Investments in Tribute Capital, 363 ; Immense Free Capital, 363 ; One-sided Growth of Wealth, 364 ; The Problem cannot be fully faced unless we enter by the Currency Gate, 365 ; Profit, 373 ; Risk, 374 ; The Wage System, 377 ; The Employers' Exhortations, 377 ; Wages and Purchasing Power, 377 ; Our Labour Laws, 380 ; Poison against Poison, 380 ; What is bad in Principle is good in Practice, 381 ; War and Business, 382 ; Temperance, 383 ; Prison Reform, 385 ; Waste in Distribution, 386 ; Other Waste of all Kinds, 386 ; New Inventions, 387 ; Eifects of the Reform, 388; False Friends, 388; The Worker's real Interest, 389; Two Fundamental Truths underlying the Land and the Currency Questions, 390 ; An easy Matter for Labour to free itself from all Debts, 391 ; Deferred Consumption, 392 ; A Precedent, 392 ; An Immigrant from another Planet, 393 ; The Bull Game, 394 ; Gold and Land Monopoly, 395 ; The Conflict is no more between Employer and Employed, or between Wealth and Poverty, but between Monopoly and Freedom, 396 ; Not Competition, but want of Openings, 396 ; Open the Gates, 397 ; The Terrible Danger, 397 ; Enlightened Self-interest, 398. CHAPTER IX E5CCHANGE Banks and Co-operation : Exchange Banks, 400 ; Owen's Labour Exchanges, 405 ; American Labour Exchanges, 406 ; New Zealand Labour Exchange, 408 ; Exchange and Mart, 409 ; Notes or Cheques, 412 ; Wage Workers and the Exchange, 415 ; Store- keeping added, 418 ; Proudhon, the French Pioneer of Exchange Banks, 418 ; Bonnard's Exchange Bank, 419 ; The Guernsey Market Hall and similar Experiments, 420 ; Co-operation and Exchange Bank- Contents xv ing, 420 ; Open Letter to the Chairmen of the Co-operative Wholesale Societies of England and Scotland, 421 ; The Future of Co-operation, 425 ; A Co-operative Bacon Factory on Exchange Bank Principles, 427 ; Relation between Exchange and State Currency, 432 ; The Great Calamity on Robinson's Island, 434 ; How to solve the Problem of the Unemployed, 444 ; " To-morrow," 450 ; Co-operators as Voters, 454 ; Co-operative Households or Associated Homes, 455. CHAPTER X Democracy : The Plea against Democracy, 458 ; The Suffrage, 463 ; Neo- Malthusianism, 463 ; Property Qualification, 464 ; Voting Systems, 465 ; Second Ballot, 465 ; Direct and Indirect Election, 466 ; The Proportional or Effective Vote, 467 ; The Proportional Vote in -Tasmania, 470 ; It destroys the Power of the Caucus, 471 ; Faddists and the Proportional Vote, 472 ; It favours the Rich, 473 ; Representa- tion of Trades, 477 ; Bye- Elections, 477 ; The " Scrutin de Liste," 477 ; Plumping, or the Multiple Vote, 478 ; The Ballot, 478 ; Imperative Mandate, 479 ; The direct Vote, or the Referendum and the Initiative, 481 ;. Special Treatment of Land Laws, 482 ; Rebates of Rent, 483 ; Second Chambers, 484 ; Age Franchise for the Second Chamber, 485 ; The Executive, 486 ; Monarchy and Titles, 486 ; The Cabinet, 487 ; Elective Executives, 487. CHAPTER XI Socialism : The Author's Evolution, 489 ; Deduction and Induction, 489 ; Power of Auto-Suggestion, 490 ; The Socialist Prison, 492 ; A Different State, 492 ; The Introduction of Socialism, 493 ; Step by Step, 494 ; The Motherland, 495 ; Revolution, 495 ; Trusts, 497 ; The People's taking Possession of theTrusts,499; Precedents in the Domain of Political Union, 500 ; The Russian Empire, 500 ; The Despotism of Socialism, 501 ; Lord Gobbleland and the Communist, 502 ; John Stuart Mill's Opinion, 504 ; The Restraints of Communism would be Freedom in Com- parison, 504; General Sameness, 506; Prison preferred, 506; The Ship of State, 507; Incentive to Exertion gone, 508; What has this Progress done for the Masses of our Population ? 508 ; The Certainty of always finding Employment, 509 ; Gain is the main Stimulant to Work, 5x2 ; Loafers and lazy Vagabonds, 5x3; Unpleasant Work, 514; Who will do the Scavenging? 515 ; Nobody would save under Socialism, 5x6; Equal Division of Wealth, 517 ; No Confiscation, 5x8 ; Victorious Socialism, 5x9 ; Fire Insurance, 520 ; Interference with the Tax-payer, 52X ; State Monopoly and Distribution, 522 ; The Competitive System, 528 ; Com- munism, 530 ; The Debt to the Past, 53X ; We are not Ripe for xvi Contents Socialism, 534 ; Education for Socialism, 535 ; Competitive Examina- tions, 536 ; Latin and Greek, 538 ; Grammar, 540 ; Evolution towards Communism, 541 ; Advice to Socialists, 543. CHAPTER XII Conclusion, - - - 544 ERRATA Page 6, line 15, read $11-26 for $12-6. Page 6, line 29, read $46'66 for $15-66. Page 7, line 14, read $24-62 for $462. Page 55, line 3, read "of" for "to." Page 87, line 4, after "ratio," instead of full stop put comma, and add : " equivalent to the full rent for 33 years." Page 96, line 22, after " valuation," insert " as.'' Page 177, line 22, read "Scorpe" for "Sorpe." Clue to the Economic Labyrinth CHAPTER I WANTED : A NEW GOSPEL The Old Gospel A CARAVAN trudges wearily through the hot sand of the desert. At last an oasis is reached, and all rush toward the life-giving fluid. But only a meagre quantity is found, hardly suflRcient for all, and already the more vigorous travellers are making use of their strength to monopolise this supply. Weak and tired pilgrims whose strength had barely sufficed to permit their reaching the oasis despair of being able to force their way to the spring. Fortunately the leader approaches, and his exhortations are heard. He asks the strong ones to moderate their greed, and to let their poor brethren obtain some of the water. He shows them how wrong it is for them to store away water for future use before others have as much as quenched their thirst. Who has not heard this gospel, preached in the holy writings of all peoples, resounding from every pulpit of our churches ? They are old, very old, these admonitions — as old as humanity. Our parents have heard them before us, their parents before them, and their echoes come down to us, faintly and more faintly, from the ever-receding generations of the past. But do not let us, in pondering over these glorious teachings of the brotherhood of man, of unselfish love and devotion, of charity and benevolence, of the division of the last loaf and coat, forget to look after our caravan, which, meanwhile, has continued its march. A 2 Clue to the Economic Labyrinth The desert now lies behind the pilgrims, and a wonderful valley opens before their astonished eyes. As far as they can see extends quite a forest of fruit trees bending under their precious loads, while blooming meadows crossed by lovely little rivulets invite the wanderer to a delicious rest. Sweet feathered songsters fill the balmy air with their delightful melodies. A real paradise, from which cares and troubles of any kind seem forever banished, opens its inviting arms to our footsore travellers. Nearer and nearer they approach to it ; already they see the entrance of the valley, and in a few hours they expect to rest there refreshed and happy. But, oh, how dreadful! A roaring torrent separates them from the valley; its foaming rapids interpose a seemingly impassable barrier between our poor pilgrims and the lovely paradise. A few intrepid men throw themselves into the seething waters ; but most of them perish before the eyes of their companions, who cannot succour them. Only a few hardy swimmers succeed in reaching the opposite shore. The majority cannot swim and must remain on the desert side of the stream. By irrigating the soil they raise scanty crops, and with the help of the fruits thrown over from the other side they manage to eke out a bare living. Unfortunately, most of the fruit thus thrown fails to reach the desert bank of the stream, and that which is successfully aimed is nearly always injured in its fall. The majority of the lucky ones, however, prefer to take their ease in the paradise they have attained to, little heeding the entreating voice of the leader which is wafted to them over the stream. Again and again it makes itself heard, that old and well- known command of charity, and more than ever since the world exists it is obeyed. A few of the successful swimmers, a I.eo Tolstoy, for instance, seeing how little can, after all, be accomplished by almsgiving, renounce their enjoyments rather than monopolise them ; and, at the risk of life, return to their brethren so that they may partake of poverty with them. Good, well-meaning men they, and those also who without tiring throw fruits over, most of which are spoilt or never arrive, and are carried to the ocean by the waves of the stream, Wiser men, however, those few exceptional thinkers who spend Wanted; A New Gospel 3 day and night of their lives considering whether it might not be possible to construct a bridge by which the whole caravan could be brought over into the happy valley. They are not in the least deterred by the jibes or threats of the others, even of those whom to help they strain every nerve. " A bridge over such a wide and unfathomable stream ! What a Utopia ! The fools had better make use of their precious time to throw us some more fruits ! " Such are the shouts occasionally coming over to them from the other shore. Humanity has arrived at the border of the desert through which it has been wandering during so many centuries. A hard and continuous fight against terrible odds has marked the different stages of the struggle so far. Where the stronger managed to secure a larger share the weaker one suffered in consequence, and the exhortations of the moral leaders again and again demanded justice, or at least charity. The religious writings of all nations, their codes of morals, are filled with such demands. Where entreaty proved without effect, threats had to help. The most terrible torments of supposititious hells, cruel inventions of human fanaticism, have been shown in prospective to the hard-hearted rich, whose entrance into heaven has been made to appear more difficult than the passage of a camel through a needle's eye, Change of the Problem Meanwhile, gradually, almost imperceptibly, the outlook on the march has changed. Let us listen to some of the observers. " On the virgin soil of America's prairies 100 men, with the help of powerful machines, produce in a few months the bread required by 10,000 men during a year. The wonders obtained in industry are still more astonishing. With those intelligent beings, the modern machines, the accomplishments of three or four generations of inventors, mostly unknown, 100 men produce the clothing which 10,000 men require during two years. In well-organised coal mines 100 men extract yearly enough fuel to supply warmth for 10,000 families in a rough climate." (Kropotkine, " The Conquest of Bread." i) As man does not only need bread, clothing and fuel, let us ' Translated from the French edition. 4 Clue to the Economic Labyrinth double, yea, even treble the number of men required to cater for his wants, and we arrive at the result that less than one-tenth of the population could supply all with the necessaries of life. This accords with the calculation of others, Dr. Theodor Hertzka, for instance, the well-known Austrian sociologist, who figures out what labour will be required to produce the common necessaries of life for the 22,000,000 inhabitants of Austria ; with the result that all industries— agriculture, architecture, building, flour, sugar, coal, iron, machine building, clothing and chemical production— need 615,000 employed 11 hours per day 300 days a year to satisfy every imaginable want. But these 615,000 labourers are 12-3 per cent, of the population able to work, excluding all women and all persons under 16 years or over 50 years of age. Hence, should the 5,000,000 men instead of 615,000 be engaged in work, they would need to work only 36'9 days every year to produce everything needed for the support of the population of Austria. But should the 5,000,000 work all the year — say 300 days— each would need to work only one hour 2\ minutes per day. To produce all the luxuries in addition, these 5,000,000 would need to work only 2 hours and 12 minutes a day for only 2 months in the whole year. A whole book could be filled with statistics proving our immense progress in the arts of production and communication. I only give at random a few items as I find them among my scraps. From an address delivered by Professor Frank Parsons in Boston : " Steam and electricity, and mechanical contrivances have multiplied the productive power of labour many-fold. A sewing machine will do the work of 12 to 15 women. A M'Kay machine enables one workman to sole 300 to 600 pairs of shoes a day ; while he could handle but 5 or 6 pairs a day by former methods. A good locomotive will pull as much as 800 horses or 8,000 men ; 4 men with the aid of machinery can plant, raise, harvest, mill, and carry to market wheat enough to supply with bread 1,000 people for a year. A girl in a cotton mill can turn out calico enough in a year to clothe 12,000 persons, more or less, depending somewhat on the size of the persons, and the number of changes of cotton they have. The total machine power of the country is equivalent to the labour of half a billion willing slaves, or an average of 20 to every human worker. On the basis of human slavery, the Athenians Wanted: A New Gospel S built up a civilisation in which every free man might have ample leisure for culture, and civic and social life. On the grander basis of service by the power of Nature; we are building a civilisation in which all shall be truly free, and shall enjoy ample leisure for development and association with far greater means for both than the Athenians ever possessed. In Athens, in her palmiest days, there were 5 or 6 slaves for every free man ; our machinery already equals 20 for every worker, and in another fifty years may equal 40, 50, 60, or more for every man ; or 100, perhaps, for every family. And these splendid servitors of steel and brass are exempt from the pangs of hunger and cold, are never oppressed with weariness, lose no liberty in their servitude, and find no misery in subjection." From Brotherhood of May, 1900: "Mr. Ernest H. Crosby tells of a factory he inspected where the manufacture of cheap socks was carried on. The manager showed him 400 sock- making machines. The machines run 24 hours a day, and only 50 boys are needed for all shifts ; 5,000 dozen of socks are made daily. Under the old method, this work would have required about 50,000 men or women." The thirteenth Annual Report of the National Commissioner of Labour (America), for 1898 takes up the subject of hand and machine labour, and is one of the most exhaustive documents of its kind that has ever been issued. Herewith are given a few extracts from tlie Report, as showing the number of men employed, the time consumed in manufacture, and the cost of certain articles : — Ten ploughs, which cost $54.46 by hand labour, and on which 2 men were employed a total of 1,108 hours, cost, when made by machinery, $7.90, and took 52 men a total of 37 hours and 28 minutes to make. One hundred blank books cost $219.79 when made by hand, and on them 3 men were employed a total of 1,272 hours. The same number of books made by machinery cost $69.97, employing 20 men 245 hours. Ruling 100 reams of paper by hand took i person 4,800 hours and cost $400, while 2 persons did the work by machine in 2 hours and 45 mintites, costing only 85 cents. One hundred pairs of men's fine boots, made by i person 6 Clue to the Economic Lahyrinth by hand in 2,225 hours, cost $556.24, while by machinery it took 296 hours with 140 men employed, and cost $74- 39- One hundred pairs of women's fine shoes, made by hand by I workman in 1,996 hours, cost $499- 16. By machinery it would take 140 workmen a total of I73 hours, and cost $54.65. To make 100 dozen of brooms by hand took 9 men a total of 445 hours' time and cost $73-1 9- By machinery the same work was done in a total of 295 hours' time, and cost $47-93. with 105 hands employed. One gross of wire-drawn brushes cost $16.75 when made by hand, employing 12 men a total of 3CX) hours. By machinery the same work was done in a total of 27 hours' time, employing 25 men and costing $3.70. Forty gross of vegetable ivory buttons cost $12.6, employing 6 men a total of 115 hours, while by machinery the same work was done by nine hands in a total of 14 hours, and cost $1.68. One thousand yards of Brussels carpet by hand cost $270 in a total of 4,047 hours, 18 men being employed. By machinery the work was done by 81 men in a total of 509 hours, and cost $9i-2S- One thousand axle clips made by hand took 2 men a total of 6&6 hours' time, and cost $233.33. By machinery it took 9 men a total of 23 hours, and cost $4.28. A large reduction in cost and hours of labour is exhibited in the manufacture of carriage hardware and equipments. The cost of a buggy made by hand, 6 persons being employed a total of 200 hours, was $15.66. By machinery one can be made at a cost of $8.09, employing 1 16 hands in a total of 39 hours. One hundred men's fine coats cost by hand $603.91, while by machinery they can be made for $201. Engraving a woodcut 7I by 9 inches by hand cost $47.80. Made by machinery the cost was $14.40. Fifty dozen files cost, when made by hand, $131. Made by machinery, the cost was $28. Lithographing 1,000 copies in ten colours, size 10 by 15, cost by hand $92.87, and by machinery $52.75. It has been estimated by M. Chevalier (Hearne's "Plutology,' pp. 170, 171) that "the labour of one American in the trans- Wanted: A New Gospel 7 port of goods was as effective, in the year 1841, as the corti- bined labour of 6,657 subjects of Montezuma." But in this year 1901 it is probably as 120,000 to one. Sir Frederick Bratnwell estimates that the engine of an Atlantic liner does the work of 117,000 rowers. It is stated that in India a good spinner will not be able to complete a hank in a day, but in Great Britain and America one man usually attends a mule containing 1,088 spindles. Each of them spins three hanks a day ; thus the assisted labour of the Anglo-Saxon is to the unassisted labour of the Indian as 3,264 to I. Mulhall estimated that the steam power in use in " 1899 was equal to the energy of 55,580,000 horses. In publishing magazines, the time for 10,000 copies has fallen from 170 to 14 hours, and the cost from $302.50 to $4.62. The cost of making 1,000 lbs. of bread has been reduced from $5.59 to $1.55, and in work-time from 28 to 8 hours. Making 500 lbs. of butter has been cut down from 125 to 12 hours, and the labour cost from $10.66 to $1.78. In mining 100 tons of bituminous coal, the work has been reduced from 342 hours to 188 hours within the past decade. Ploughing i acre of land has been reduced by machinery from 10 hours to 5 hours ; manuring from 25 hours to i hour ; digging trees takes one- twelfth of the time previously necessary, and the self-binder has reduced harvesting down to one-eighth, while the ratio in threshing is 32 to i of the machine. The figures given above as the cost of articles is for labour only. Mr. Samuel Brown, President of the Industrial Association of New Zealand, stated in his address of September 25, 1899, that the proprietor of Kirkpatrick's Jam Factory, with about four boys and five machines, turns out about 3,000 jam tins in a day. In California they use a single automatic machine, about 100 feet long, which turns out 300,000 tins per day. Leone Levy has calculated that to make by hand all the yarn spun in England by the use of the self-acting mule would take 100,000,000 men. It is reckoned that 30 men, with modern machinery, could do all the cotton spinning done in Lancashire a century and a half ago. William Godwin Moody of Brooklyn, author of " Land and Labour in the United States," and " Our Labour DiflBculties," sworn and examined before the Senate Committee on Educa» 8 Clue to the Economic Labyrinth tion and Labour, in 1885. says: "Now one girl with her loom will weave as much cloth as could 100 women m my mother s time. One man will go into the field to-day and will do the work that required from 50 to 100 men to do when 1 was a boy." Question. "Do you mean in agricultural pursuits? Answer. "Yes. A single man with a reaping machine, one of the smallest capacity, with 6 or 7 feet cutting board, will go into the field and will cut and bind from 15 to 20 acres of grain in a day of ten hours. When my father went into the field with a sickle upon his arm, it took four men a full day to cut and bind a single acre, and the Scotch Agricultural Society reported, in an examination upon that matter, that it required five men for one day to cut and bind one acre of grain ; but now one man will cut and bind from 15 to 20 per day; or, going beyond that, one of the improved machines will cut and thresh and sack the yield of 50 acres in a day." In November, 1899, I read a report in the papers that the new cigarette-making machine will throw out of work 1,500 girls in Liverpool, and many more in other cities. The machine rolls from 500 to 800 cigarettes in a minute. It is estimated that 140,000 shoe-makers can now do as much work as 2,500,000 could have done in the same time 100 years The work required to produce those wonder-working Alladin lamps, the labour-saving machines, has decreased in the same measure. The number of workers saved by planing, shaping, slot- ting, and milling machines alone is incalculable, and the most of the work they do could not have been done at all by file and chisel. The improvements in this department follow each other daily. My friend John Richardson, managing director of the engineer- ing works of Robey & Co., Lincoln, showed me a little machine by which conical cog-wheels were cut at a cost of a penny a piece which formerly had cost eight shillings each. And so I might go on and on for hours. We see, as far as productive power is concerned, that the paradise of our picture has been reached. Where this power has increased more than twenty-fold in the course of centuries there ought to be more than enough for all, and another gospel ought to take the place of that which long ages have so accus- tomed us to that the following admonition of an American Wanted: A New Gospel g Fabian is quite in its place : " London boasts of her ;^6,OCX),ooo in missions, etc., besides uncounted sums in private almsgiving, while New York records with pride her ;^ 1,000,000 spent in municipal charity, her ;^i, 000,000 in organised charity, her ;^ 1, 000,000 given by societies, ;^ 1,000,000 by churches, and ;^2,ooo,ooo of private personal giving — ;£'6,ooo,ooo in all. " Instead of exulting in the fact that she gives ;^6,ooo,ooo a year ' to the poor,' New York should rather hide her head in shame that she has so many poor to give to. What sort of an economic system is this which works so badly that ;^6,ooo,ooo a year will scantily serve to patch it up to keep it going ? Is this peace or is it war which requires a city to expend ;^6,ooo,ooo a year in the gathering up and caring for part of the crushed, the diseased, the mangled, and the disabled of its citizens ? " A really intelligent community would as soon think of boast- ing of its epidemics and diseases as of its expenditure for ' the poor ' — would as soon vaunt itself on the length of its death list as upon the magnitude of its charities. Pompous rehearsals of the sums given ' for sweet charity ' are to be sighed over rather than rejoiced in." I add two poems by noble women who have awakened to the truth that something far better is required than mere charity : — GOD'S WORLD. " Ye mustn't make this earth too good," Says Aunt Maria Jane ; " It gives us Christian work to do Relievin' of its pain. " Things always has been bad down here In this poor vale of tears ; An' what's bin always must jest be Thro' all our mortal years 1 " I hain't no use for them new ways You call reform ; it's sin To try to change what's bin ordained — The Lord to fight agin. " Fer sorrers that the Lord has sent To try us here below, If patient borne, will reap reward When we to Heaven shall go." 10 Clue to the Economic Labyrinth But spite of Aunt Maria Jane, And good folks such as she, We're going right ahead to cure This old world's misery. I think the Angels must be tired Of winging it above. And that they'd like to walk with us On earth in brother-love. But first we've got to make it fit For Angel feet to tread ; So where the devil's brambles grow Let's plant God's flowers instead. Mary P. Irving, in the Social Gospel. WHAT IS TRUE CHARITY.? I GAVE a beggar from my little store Of well-earned gold. He spent the shining ore And came again, and yet again, still cold And hungry as before. I gave a thought, and through that thought of mine He found himself a man, supreme, divine, Bold, clothed, and crowned with blessings manifold, And now he begs no more. —Ella Wheeler Wilcox. The great problem of the twentieth century is to find out why actual wealth production, instead of keeping pace with productive power, lags more and more behind it \ why the chasm between the two becomes deeper from year to year, why it appears more unbridgable with every new advance in pro- ductive facilities. To build a bridge across this chasm is the task before us — the thought which is to clothe the beggar — the cure of this old world's misery. To implore or threaten the luckier ones, who through greater force or ability, or through more favourable circumstances, have succeeded in entering the desired paradise is an anachronism ; for a fraction of the intellect thus wasted would build the bridge that allows the meanest to enter the realm of abundance. Citizens of a new world, while you slept the new day dawned. Up to your new work! Cease your wailings for charity and Wanted: A New Gospd ti your threats against the rich; begin ramming the piles of the bridge that will lead froni misery to prosperity ! ^ This call is meant not only for the ministers of religion, for the preachers of morals and ethics, who make a speciality of appealing to the fortunate, expecting the millennium from their sacrificing spirit. No, it is also intended for a totally different class : it is addressed to the revolutionary forces, to social democrats and anarchists; it is addressed to all workers for reform. Here they are inciting the people against the employers of labour, or against landlords, or against plutocracy, or against the organisers of trusts, etc. Leave these men alone ; let them eat their fill — do not even envy them ; but use your whole time and power to reform the conditions which have created this sad spectacle of over-feeding in the midst of want. If you come to look a little closer you will find as noble men in their ranks as amongst yourselves. They will cease to oppose you, they will even fight on your side — many of them do so already — as soon as you prove to them that you are not their antagonists, that your victory will not take a single enjoyment from them, will even add one far beyond any they can now call their own : the feeling of unalloyed happiness, such as they cannot know under present conditions. Who can be happy, surrounded by want and misery? Make it clear to them that you do not demand even as much spirit of sacrifice as the preachers do, that you want to leave to the rich all they possess of labour's products, the full enjoyment of their savings. They may even add to their hoards by means of their skill and enterprise. You only ask them to help you in the construction of the bridge so that others, too, may get a chance of gathering their share of the still untouched fruits.^ Or at least, demand of '^ In the chapter on " Socialism " I shall treat the question whether I have the right to call the present position of our workers a miserable one in the absolute meaning of the word " misery " ; but there cannot be the shadow of a doubt that I may speak of " relative misery " when our latent productive power supplies the standard of comparison. 2 Christ's admonition to the rich man : " Go and sell that thou hast and give to the poor " is still preached by some sincere social reformers of our time ; though the same men would never advise a soldier to throw away his gun and fight without arms. To make any headway with the reform work in our days, the sinews of war are more necessary than ever, and far from 12 Clue to the Economic Labyrinth them what Carlyle demanded of England's governing class "Anti-Corn Law League asks not, Do something; but, Cease your destructive misdoing, Do ye nothing. ... No ; in- stead of working at the Ark, they say : ' We cannot get our hands rightly warm ' ; and sit obstinately burning the planks. No madder spectacle at present exhibits itself under this sun. . . . We will say mournfully, in the presence of Heaven and Earth, that we stand speechless, stupent, and know not what to say. That a class of men entitled to live sumptuously on the marrow of the earth, permitted simply, nay entreated, and as yet entreated in vain, to do nothing at all in return was never heretofore seen on the face of this planet." The New Gospel Let us bear no ill-will toward anybody who makes use of existing conditions to get on; let us try to change the con- ditions which permit the few to prevent the progress of others. As long as the trees are full of fruit the stores accumulated by some are not in the least in our way, provided the access to the trees remains open. Our sole task must be to open the road and to grant fair-play. This is the new gospel that is wanted. In place of the old one — exhorting, pillorying, and condemning the rich — we must proclaim the new, which attempts to break down the barrier opposing the access of all to wealth. Instead of appealing to justice and charity to obtain alms, we must create reforms that enable us to dispense with alms. But nothing can be done until we have found out the nature of the reforms required. It is useless to call for an assault of Error's battlements as long as the position of the fort is totally unknown. No orders can be issued to the man at the helm unless a correct chart shows us where to find the desired port. Help gfiven by Religrion But when once the path lies clear before us, the help of the old gospel's preachers will be invaluable — the help of those ex- reproaching philanthropists with making money in whatever honest way they can, and then using their means to forward reform, we ought to be glad to see them acquire more room to their elbows for the good work. (See more on this subject at the close of next chapter.) Wanted: A New Gospel 13 cellent men and women who know how to approach the hearts of the people, backing their appeals by arguments of a trans- cendental order. As to the nature of these arguments, I should have much to say if it were not so far apart from the purpose of this work. I can onl^fitimate my belief that the men of the churches leave unused the best weapon offering to their hands in daily increasing efficiency. I speak of Psychic Science or Occultism, not to be confounded with the ordinary Stance spiritism, from which it is as far apart as Astronomy is from Astrology, or Chemistry from Alchemy. As the master-mind of modern Psychic Science, Dr. Karl du Prel, so well expressed it : " The teachings of ethics are left in mid air when the meta- physical feeding ground is abstracted — the belief in our con- tinued existence after physical death, Rome's history shows how little materialism and morals can co-exist for any extended period. As long as our creeds base themselves on traditions only they cannot save the belief in immortality. Unfortun- ately, their best ally, Occultism, which offers them the scientific proofs of the great truth, the only kind of proofs accepted by the majority of our educated men, is spurned by them." A people fallen into materialism is doomed. Mobocracy and Tyranny govern in turn, as the ignorant or the educated gain the mastery for a time. In the end, the latter generally keep on top, without lasting advantage for the community, as long as governors and governed are alike destitute of that higher aim which barren materialism never affords, because it cannot truly penetrate into the phenomena of life. Again, the downfall of a tyrant is no real advantage while Nihilism prevails on the opposing side. Of what benefit can the death of a Julius Csesar be when a Brutus is a common cut-throat, who, as Cicero's letters prove, through his man of straw, Scaptius, extorted 48% interest from the town of Salamis, in Cyprus ? The victory of such a man could never have checked Rome's rapid decline. Without morals there cannot be any real revival, and without transcendentalism morals are bound to deteriorate. CHAPTER II THE LAND THE EARTH FOR ALL. Thus saith the Lord : " You weary me With prayers, and waste your own short years Eternal Truth you cannot see Who weep, and shed your sight in tears. "In vain you wait and watch the skies, No better fortune thus will fall ; Up from your knees I bid you rise And claim the Earth for all. " They eat up Earth, and promise you The Heaven of an empty shell ; 'Tis theirs to say ; 'tis yours to do ; On pain of everlasting Hell. " They rob, and leave you helplessly For help of Heaven to cry and call, Heaven did not make your misery, The Earth was given for all. " Behold in bonds your Mother-Earth — The rich man's prostitute and slave ; Your Mother-Earth, that gave you birth — You only own her for a grave. " And will you die like slaves, and see That Mother left a bounden thrall ? - Nay ; rise like men, and set her free A heritage for all." —Gerald Massey. Bridg^e Building The introductory chapter has opened before our eyes the vista of a paradise — neither far away, in regions accessible only to the fond dreamer's eyes ; nor one of those Fata Morgana' 14 The Land 15 like Utopias which disappear wherever practical workers try to approach them — ^but it is very near, and longing humanity will easily attain to it when the required bridge is built across the river which now forbids their entrance. No greater achievement has ever taxed human ingenuity, and thousands of brave souls are engaged in it from morn till night, following the labours of craftsmen gone before, who gave their life-blood for the cause. None nobler than thou, my departed friend, whose mighty voice, first heard from the distant eastern shores of the Pacific, whose western waves now roll here at my feet, called me, like so many others, into the ranks of fighters for the great reform ! Little can it matter that thou didst not clearly see the whole of the plan of the bridge's construction, and little didst thou care. It sufficed thee to show the place where the foundation of a main pier has to be laid, and to call together the workers with thy mighty clarion, "Progress and Poverty," like the bugle notes of the dying Roland, ranging over mountains and valleys, over seas and continents, with a wonderful perennial sound not likely to be forgotten as long as true hearts live on this earth of ours. Gladly thou didst welcome all willing to help in this great work of pier-building, even if their bridge plans did not quite coincide with thine own. History shows on hundreds of pages how often the disciple's fanaticism takes the place of the master's modest tolerance. The publican and sinner whom Jesus Christ broke bread with are burned at the stake, in His name, by men professing to be His only true followers. Henry George also found many fanatical disciples, not satisfied with the recognition of the fundamental truth taught by their great master, that the land of this globe belongs to humanity as its inalienable birthright. Not content with the great truth which overthrows the old faulty building of orthodox political economy constructed on the sand foundation of private land ownership, those disciples at once went to work to erect a new orthodoxy, excluding the most earnest co-workers because they differ from the master's teachings in details to which he himself did not by any means attach first-rate importance. I can prove this by the reproduction of a letter I received from Henry George in the earlier period of our intercourse. The letter refers to one of those points in which I always differed from him ; his theory of 1 6 Clue to the Economic Labyrinth interest. When we compare the modesty of the propounder with the asperity with which some of his followers stand up for this theory— which to them has become a dogma—we come to realise that Henry George's ideas are not always identical with Georgism. The letter is dated from New York, September 21, 1888: " Dear Mr. Flurscheim,— I learn through our mutual friend, Mr. Prang, that you are irritated at the manner in which I have treated your comipunication about interest.^ I am sorry for this, as I have a very high opinion of you, and a very high apprecia- tion of the work you are doing. But the difference between us in regard to interest, though it may be a matter of great theoretical importance, is a matter, at the present time, at least in the United States, of no practical importance ; and I have been so intensely occupied with pressing matters that it has been im- possible for me to give that attention to any theoretical matter that I am sure you would like me to give if I were to make an answer to you. As soon as I get again a little of the leisure I so much long for, and have been for such a time deprived of, I will carefully consider your propositions and make a review ; but for the present every nerve is strained in the effort to push forward what is of immediate concern. I have never thought differences between men who hold common views on the most important propositions to be of much account. If we all work in our own way, the truth is certain to come uppermost at last. "With much esteem and cordial good wishes, I am, yours very truly, " HENRY GEORGE," Principles of Land Reformers But whatever difference there may exist between Henry George's views and my own in regard to the question mentioned in this letter : the effect which the restoration of the land to the community would have on interest, and the part played by it in the social problem, or in regard to ether sections of the problem, there never has remained the least doubt in my mind that no programme of social reform can have the least claim to thoroughness, can have the smallest prospect of success unless ' If I remember right, he had not answered my letter, The Land xj it includes the great truth which will never again be forgotten, the truth for ever associated with my departed friend's name, the truth expressed in the words of the resolution unanimously passed by the International Congress of Land-Reformers (land- law-reformers would be the correct word, but its length has gradually caused the adoption of the shorter title) at Paris, called by Henry George, William Saunders, and myself, June 10, 1889: — " L'assembl^e consid^rant que le sol n'est pas le produit du travail, qu'il est la matiere premiere ou la source d'oii celui-d tire tout ce qui est n6cessaire a I'existence ; consid6rant que le travail doit constituer la base rationelle de la propri^t6 ; con- siderant que I'appropriation individuelle du sol, a pour con* sequence le pauperisme, I'esclavage ou I'exploitation du travail ; considdrant, enfin, que cette situation sociale engendre des dangers qui finiront par rendre tout ordre impossible ; declare que la propriety individuelle du sol doit disparaltre et se trouver remplacee par son appropriation au profit de tous." " Whereas the land is not a product of labour, but the raw material or the source from which labour draws all that is necessary to existence ; whereas labour must constitute the legitimate or rational basis of property ; whereas the individual appropriation of the soil entails pauperism, the enslaving or exploitation of labour ; whereas, finally, this social situation causes dangers which would end by rendering all order im- possible ; this meeting declares that individual property in the soil must disappear and become replaced by appropriation for the benefit of all." It was the compromise finally agreed to by single taxers and land nationalisers, by the disciples of Collin, and the adherents of a surface-tax {impdt mdtrique) as well as by socialists.* By land we understand the body of our earth. Without land we cannot live, and the quantity of land is strictly limited ; while the products of human labour can practically be increased without any limit, provided man has free access to land, to iThe minutes of the Congress have been published under the title " Congrfes International pour la Reforme Agraire et Sociale," by the Librairie de "La Revue Socialiste," 8 Rue des Martyrs, 189^ ; with a rectification, dated October i, 1889 ; both signed by A. Toubeau, General Secretary of the Congress. (The English translation is mine.) li i8 Clue to the Economic Labyrinth natural opportunities. Tlie result of this limitation is the possibility of monopolisation. If anyone produces a chair,^ he cannot thereby prevent anyone else from doing the same thing, and there can be no monopolisation of chairs in the long run, because they can be produced in any quantity, so that the supply soon reaches the demand. Monopoly Character of Land The case is entirely different with land. Any withholding of land from the market narrows the market to that extent; and as no human labour can produce land, production cannot restore the old level between supply and demand. The terms which the land monopolists can obtain from land users depend on the extent of the monopoly. Where no other land is obtainable, these terms may be even harder than those under which the slave works for his master. This is illustrated by the answers given to Mr. Lionel Decle, of the Daily Telegraph Expedition from the Cape to Cairo, by a former slave whom he found in a very miserable condition. Asking the man what had happened to him, "Ah, Master," replied the man, "you see, now I am a man, a free man, and my stomach is empty." " How is that, and why did you apply for your freedom ? " " Well, Master, the missionaries came to the Shambes gardens and told us, ' Why do you work for another man when you can work for yourself? Now, when you earn a rupee you must take half of it, or even more, to your master, while, if you were free, you would keep the whole of the rupee for yourself.' Well, Master, the missionaries talked so much that a lot of us went and asked for our freedom, and obtained it ; but then our master said, ' You are no longer my slave, therefore you go away from my garden.' Our master added that if we cared to pay him ten rupees a month he would allow us to retain our house and garden. When we were slaves we always had some money to buy clothes, meat, or fish, or to get tobacco ; but now all we earn hardly enables us to pay our rent, and our stomach is empty. In vain we went to the Government, and said, ' We do not want to be free any longer. Here is your paper, please write on it that we are slaves again j' but the Government, answered that they could make us free, but could not make us The Land 19 slaves. Now, Master, is that rig^ht ? The missionaries said that when we should be free we would be able to do as we liked. We want to be slaves, and the Government say, ' No.' That is very bad, Master — very bad." I personally observed similar conditions among the negroes of Virginia a few years after the close of the secession war. Sometimes no terms at all may be obtainable, and death of the landless man may be the result, as has been the case with several of the victims of clearances.' In fact, we can just as little live without land as we can live without air, even if the monopolisation of land did not include that of the air over the land. " I conceive it indisputable that to pass over land in a balloon at whatever height, without the owner's or occupier's license, is technically a trespass." (Sir Frederick Pollock.) Philip Laidlaw, in an article in the Strand Magazine for January on " Windmills — Old and New," says an old Bohemian chronicler mentions "that before 718 all the mills in Bohemia were windmills." These machines came into general use in Western Europe about the beginning of the twelfth century. The charters granted to convents now began to include permission to erect windmills. Shortly afterwards these structures had become so common that the Pope issued a special edict, compelling them to pay tithes to the church. The question as to the ownership of the wind often raised conflicts between the land-owners and the clergy. An example is related in the annals of an old monk : " Since our monastery," he says, " had no cornmill, they resolved to build one. When the lord of the land heard of it, he did everything in his power to prevent it, saying that the wind in Zealand belonged to him, and that no one might build a mill there without his consent. The matter was therefore referred to the Bishop of Utrecht, who replied in a violent passion that no one has power over the wind in his diocese but himself and the church at Utrecht, and immediately granted full power by letters patent to the convent to build for themselves and their successors a good windmill wherever they might chose." William A. Phillips, in "Labour, Land, and Law: a Search for I See, for instance, the report of the Sutherland clearances in " Land Nationalisation," by Alfred Russel Wallace; 20 Clue to the Economic Labynnth the Missing Wealth of the Working Poor," gives an excellent illustration of what we call property, by beginning his book with the following tale : " It is related that a certain Eastern potentate fell into the impecunious condition common to many of his predecessors, and set his wit to work to devise a remedy. A farmer of imposts who had often aided him, in this dilemma came to his rescue. He offered him sixty thousand tomans for all the winds that should ever blow over Cashmere. The monarch at first affected to be staggered at the proposition. He was unable to find anything in precedents to warrant it, but although a believer in the doctrine that whatever is is right, he was forced to admit that a monarch may introduce useful innovations. Of course, it was assumed that he was the supreme owner and disposer of all things in his dominions, not only for his own brief erratic span of life, but for all time ; and so he came to the conclusion that, as everything in the world which could be was sold, there was no good reason why the winds, unstable though they might be, should be exempted, if a purchaser could be found. After a proper amount of preliminary haggling a sale was made, and the transaction legalised by all that signatures, seals, and parchment could do for it. "Before the public had fairly got over laughing at the absurd- ity of this novel bargain, the owner of the wind issued a pro- clamation forbidding all persons in Cashmere from using his wind to turn their windmills, winnow their corn, propel their vessels, or employ it in any other manner, until they had first entered into agreements with him and obtained leases for the various localities, covenanting to pay certain amounts for the privilege. Then the laughing turned to lamentation. The monarch met the torrent of petitions and complaints by ' affecting to deplore the circumstance. He could not foresee, of course, all that had occurred ; but his sacred word was involved. Rulers of that type are usually very particular about their sacred word. Driven to desperation, the inhabitants contributed the amount that had been paid for the wind, and tendered it to the sovereign, so that this unheard-of transaction could be cancelled. "The matter was not to be so easily arranged. The owner of the winds of Cashmere would not think of such a thing. He The Land 21 had acquired a vested right in them. Since it had become purchasable the wind had greatly risen — in price, at least. Wind stocks were on an upward market. The owner insisted that his title was good. He did not claim it merely by his right of discovery of the commercial value of the wind, or that he had been the first to pre-empt this privilege ; but he had fairly bought it from the representative of government, and declared that his title was begirt and founded on all that was sacred in law or the theory of eminent domain and supreme authority. It would be altogether unfair to ask him to surrender this valuable privilege for anything less than what it might bring him in case he should be allowed to keep it. The proposition of the people was merely a bald scheme of robbery. It was subversive of all property rights, was socialistic, agrarian, and revolutionary, and to force him to accept of a price so inade- quate would strike a fatal blow at the best interests of society, and undermine the whole fabric on which the rights of property rested. " This reasoning was, of course, entirely conclusive to the monarch, who was undoubtedly the confederate of the farmer of imposts ; but as human endurance can only be stretched to certain limits, it was agreed between them that a fair price for the wind at that date would be ten times what was originally paid for it. This amount was finally raised by a long-suffering people, who merely exacted a promise from the commercial monarch that he would never sell the wind again, but permit it in God's providence to blow over them free and unrestricted as of yore.'' How ridiculous this story appears to all of us ! And yet there are millions, among them many teachers of political economy, who laugh at us when we oppose ourselves to private ownership of land, as if land were less a part of creation than the wind, and as if men could live better without it. The fact is, we might get along without the wind, but we could never live a second without the land. The ownership of land does not only include that of the air, but also that of the sun. The Literary Digest says : " Mr, Riis finds that sunlight is reckoned into the rent almost as if it were gas or electricity ; a flat with one ray of sunlight costs sixpence a week more than a flat with none ; a front flat ' where the sun comes right in your face ' is seventeen shillings 22 Clue to the Economic Labyrinth a week; a rear flat where it doesn't come in at all eleven shillings a week. In the depths of last winter Mr. Riis found a family of poor Jews paying eight shillings a week for the privilege of living under a flight of stairs in an abandoned piece of hallway, and the youngest first saw tenement daylight there." Still quoting from Mr. Riis on tenement house life in New York, the Literary Digest continues : " In one case I found, in mid-winter, tenants living in sheds built of odd boards and roof tin, and paying four shillings a week for herding with the rats." Also the climate is included in the land title. The London Echo says : "Everywhere we find the advertisers offering for sale the climate, the natural resources, the municipal advantages, the geographical convenience, the travelling facilities of the neigh- bourhood ; quoting them as reasons why landlords should get high prices or high rents for their sites. The ' simply perfect climate' of Tunbridge Wells and the 'bracing' air of the Essex coast ; the ' magnificent views ' over sea or land ; the ' excellent train service,' nearness to railwaystation, or to a populous town affording a good market, are quoted, exactly as the Leeds auctioneer cites the nearness of the State Court Justice and the Municipal School Board Office as reasons why the landlord, like Oliver Twist, ' asks for more.' " On the other side, a humorous land reformer praised the mosquitos of the New Jersey suburbs of New York, because without them the rent would have been too high for him. The measure of liberty possessed by any man depends, there- fore, in the first place, on his command of access to land ; the form of government only comes in the second place. A land- owner in despotic Russia is a freer man than a landless journey- man in free England or America. The owner of a Turkish Vakuf (a kind of perpetual lease of government domain or trust land) is more independent than a German peasant with a few acres loaded with mortgages. Free Trade in Land The essential distinction between land whose stock is limited and cannot be increased at will, and the products of labour The Land 23 which can be indefinitely multiplied, has become somewhat obscured in modern habits of thought, so that even many quite clear-sighted men of our time cannot see any reason why a man should not be able to obtain as full a title to a piece of land as to a pair of boots. We can easily account for this. The very fact that land can be bought in the market like boots and shoes hides its monopoly nature, and the essential differ- ence between the two kinds of merchandise. How can we speak of land as having a monopoly character, when, as a rule, we can buy as much of this merchandise as of any other? when the same newspaper in which all kinds of merchandise are offered gives us also long lists of land for sale in all parts of the country? In this sense, it seems, we cannot persistently speak of a monopoly, except in certain cases where entail or other causes keep land out of the market, and yet we shall see farther on that the monopoly character of land is even more felt where it is freely saleable than where it is entailed for the benefit of a limited number of families. Anyhow, it is quite certain that land reform would be much further advanced if entail were the rule instead of being the ex- ception. The great difficulty under which land reformers have to labour is just that of establishing the dangerous effects of the monopoly where, to all appearance, land is as freely obtainable in the market as chairs and tables or any other product of human labour. They have to show that those would-be re- formers who expect to destroy the monopoly nature of land by freeing it from any kind of entail are more dangerous reaction- aries than the most violent Tory, the fundamental tenet of whose conservatism consists in the conservation of the land to its present owners. Defence of the Freehold "The desire to own a piece of land is innate in human nature." These are the words with which we can daily hear the freehold defended. "The desire to knock down or to enslave our fellow-man is innate in human nature," was once as thoroughly acknowledged by humanity as the principle just enunciated. Scalping an enemy, eating the vanquished, once formed part of the nature of the North American Indian and 24 Clue to the Economic Labyrinth the South Sea Islander respectively. We have outlived that time, as far as the reign of civilisation extends. Men have found out that they are happier all round, the strongest in- cluded, if they obey laws given by the majority, even where the force is on the side of the minority. We give to a feeble woman the same vote as to a strong man, and still prosper. The time is at hand when we shall recognise even more clearly that the desire to own a piece of land is still more opposed to human happiness than the desire to knock down fellow-men.' We have already got so far as to recognise that * 1 cannot abstain from quoting the opinion of my old friend, A. J. Ogilvy of Tasmania, on this subject, put forth in his usual concise and eloquent way : " ' But,' we are told, ' you forget the land hunger. Man naturally craves for the absolute ownership of the soil he tills, and without it loses half the stimulus to exertion. He wants to sit under his own vine and fig-tree.' " Here are three statements rolled into one. Take the last first. ' He wants to sit under his own vine and fig-tree.' " True ; and the result of your system of absolute ownership is that ninety- nine men out of one hundred can get no vine or fig-tree to sit under, and the hundredth finds that the vine and fig-tree under which he sits are not his but his landlord's, who charges him heavily for the privilege, and this even though he has planted the tree himself, and watered it with the sweat of his toil. " Year by year, all over the civilised world, the ownership of the land is passing out of the hands of the occupier. One man rears the fruit, another stretches his hand and takes it. The very institution which you defend as securing to the producer the full value of his produce is the institution that compels him to part with it. " How comes this? " Because the unearned increment, though certain, is deferred, and falls, therefore, to him who can afford to wait, and who accordingly lies in wait, " Sooner or later the day comes when a mortgage has to be redeemed, or death brings the property into the market, and then the man of large and independent means, who does not mind getting a low rate of interest for a while in consideration of large profits hereafter, easily outbids the working owner, who has to earn his living, and must have quick returns. " Thus it is that not only is the rich non-occupying owner fast superseding the poorer working owner, but the large non-occupying owners are also eating up the small ones, and the tendency of the times is for the whole land of the country to pass gradually into the hands of a few enormously rich people. " We have not got into this second stage yet out here, but we are well on into the first. And so inevitably and steadily land is coming to belong, not tq hinj who hqs th§ bgst right to it, i^ot to hin^ who wants it most, not to' him The Land 25 the unconditional freehold is impossible. We have come to see that we cannot allow a few men to hold immense tracts which could form the homes of thousands of their fellow-men if these were allowed to take up land on fair terms. People, however, are less familiar with the fact that a more extended division of properties — peasant proprietorship — with who will put it to the most productive use, or even to any use at all, but to him who can afford to give most for it for the mere purpose of squeezing other people. "You offer the name, but you cannot confer the reality. We withhold the name, but guarantee the reality. " For what is the land hunger ? ' " It is the natural craving for a permanent home, and for the fruits of our labour ; and we guarantee both these ; you do not. " The natural desire of a man is for a dwelling which he can regard as his home for so long as he chooses to dwell in it ; for a piece of land which he can cultivate and build upon and improve as his interest or fancy may dictate without the fear of a notice to quit, and the certainty that when he quits of his own accord he can realise the full value of his improvements at the time of his retiring. " If you say further that all these things shall be his own, you are con- ferring no further privilege. You are only summing up the privileges already enumerated in a compact, sweet-sounding phrase. " That he shall possess his home so long as he chooses to dwell in it, his land so long as he chooses to till it, this is the land hunger. But to want to own the land without using it, to leave and yet retain the ownership for the mere purpose of preventing other people from using it except on payment, this is not the land hunger at all. " Directly a man has lost the desire to dwell in his home and till his land, and wants to go elsewhere and live on the rent, he has lost the land hunger, and retains only the ordinary desire to make money. " Therefore, when under these circumstances we require him to give up the land, securing to him the value of his improvements, we violate no craving of his nature ; we only take from him what he has ceased to value, the land ; and allow him the one thing he continues to value—his money — to invest elsewhere. " Further, it is the nature and not the extent of the occupancy that satisfies the land hunger. A home and land enough to afford employment are all that is wanted for the purpose. " The Irishman's poor cabin is as much his home to him as the duke's palace is to him ; and an acre or two satisfies the craving to be working for oneself as thoroughly as 1,000 acres would. Therefore so long as we leave a man land enough to provide him full employment, much more when we leave him enough to employ many hired servants, we may take, at a valuation, the broad acres on which he merely runs his flocks without jarring any legitimate feeling." 26 Clue to the Economic Labyrinth free-trade in land, is as inevitably leading back to concentration, as brooks and rivulets finally help to form oceans. The best proof of this fact is supplied by the history of France, since that memorable night of August 4, 1789. overthrew feudalism and introduced a century of free-trade in land. Peasant Proprietors A. Toubeau, a French author best known for his advocacy of intensive agriculture in " La Repartition Metrique des Imp6ts " (Paris, Librairie Guillaumin, 1880, 2 vols.), drew attention to some surprising statistical data regarding the division of the French soil, in a paper which first appeared in the Philosophie Positiviste of July and August, 1882, and later on as a reprint. Its title is " Le Proletariat Agricole en France depuis 1789. 'D^pr^s les Documents Officiels." Who would have believed without these official figures that only one-tenth of the French soil is owned by peasant proprietors, by men who cultivate their land with their own work ? No doubt most of the members of the International Congress of Land Reformers — -of which Toubeau was elected secretary — learnt this fact for the first time from his lips. In round figures, the official " Statistique Internationale de I'Agriculture de 1873" — from which Toubeau took his data — gives 49 million hectares ( i hectare = z\ English acres) as the surface of France after deducting the area taken up by rivers and lakes. The area covered by forests, heath, swamps, grazing land, etc., amounts to about one-third of the whole = 16 million hectares. Houses and gardens take another million. Another third of 16 million hectares is leasehold property cultivated by tenants. Of the remaining third, 12 million are taken up by large properties. They represent 60,000 farms of 200 hectares on the average. This part of the soil is cultivated by labourers. For the peasant proprietor 4 million hectares are left, to which we may add a certain amount of the grazing land, of the gardens, and the house area, say i million hectares. We thus arrive at the stupendous fact that in the paradise of the peasant proprietor only one-tenth of the soil belongs to men who work it with their own hands. The number of these properties is 2 millions, with an average surface of 2\ hectares. The latter The Land 27 figure seems to be in contradiction with the statistical tables, which give us 14 million properties belonging to a million pro- prietors which, when. we add the members of their families, makes the bulk of the nation land-owners. Now, one-half of these 14 million properties pay less than $ francs land tax, and on 3 or 4 million of these the tax cannot be collected at all, either because the owners are insolvent or because the properties are so small that the expenses of collection would be greater than the amount of the tax. In fact, the Government statistician realises that a great number of these so-called proprietors are such only by name. He says : " Half of the land-owners possess only a small house with a very modest garden, sometimes an insignificant portion of an old common, or an undivided portion of a yard, open space, passage or building lot. In this way, in a great number of cases, in reality they have only the name of proprietors." Four million more pay only a land tax of from 5 to 20 francs, and therefore their holdings are so insignificant that their owners cannot make a living off their land. Toubeau then deducts the larger owners, the townpeople, etc., and thus arrives at his figure of 2 million families who subsist on their own land. The number of 3^ million holdings given in the official statistics shows that if Toubeau erred he did so on the right side ; because, of these 3 J millions, quite a number often be- ■ long to one proprietor, and \\ million of them are worked by tenants, while the balance of 2 million includes the large pro- perties worked by labourers. Anyhow, the number of peasant proprietors does not affect the quantity of land owned by them, which — as Toubeau shows — is not over one-tenth of the French soil, and here we have to consider that a man cannot be called a proprietor in the full sense of the word if a great part of his property is mortgaged, and thus practically belongs to the mortgagee. Under the French system of an equal division of inheritances the partition of the small properties is continually progressing. If no immediate partition of the land takes place one of the children takes over the land, while the others take the mortgage for their share, which then is sold to outsiders. This only means deferring the partition in many cases where land has finally to be sold to satisfy the mortgagee. If the small properties get' thus subdivided through inheritance, the 28 Clue to the Economic Labyrinth same cause has a tendency toward increasing the large pro- perties. Rich people are in the habit of leaving wills, and for one case where such a will divides a large real estate, because there are not enough other assets to satisfy the other heirs, there may be ten where small properties which come into the market are bought by some rich man to enlarge his neighbour- ing domain. Concentration of Properties The formation of large estates is the inevitable result of free trade in land, experienced everywhere since the times of old Rome, when Plinius found in large landed properties the cause of Italy's ruin. Thus in France, in the reputed paradise of the peasant pro- prietor, the number of holdings worked by paid hands or by tenants almost equals those of the peasant proprietors. And the proportion is likely to become more unfavourable from year to year, through division by inheritance and increase of mortgages.^ ' The following verses from Land and Labour, the excellent organ of the English Land Nationalisation Society, illustrate in a happy vein the chances the average peasant has, under the present free trade in land system, of securing enough land to make a bare living on : — THREE ACRES AND A COW. " I hear thee speak of a bit o' land. And a cow for every labouring hand ; Tell me, dear mother, where is that shore, Where I shall find it and work no more ? Is it at home this promised ground. Where the acres three and a cow are found ? Is it where pheasants and partridges breed ? Or in fields where the farmer is sowing his seed ? Is it on the moors so wild and grand I shall find this bit of arable land ? " " Not there ! not there, my Giles ! " ' ' Eye hath not seen that fair land, my child. Ear hath but heard an echo wild — The nightmare of an excited brain, That dreamers have like Chamberlain. The Land 29 Toubeau's opinion that actually the peasants owned more land before the French Revolution than they do in our time is justi- fied by a passage I find in H. Taine's " Les Origines de la France Contemporaine. L'ancien Regime," p. 453: "Vers 1760 un quart du sol, dit-on, avait deji pass6 aux mains des travailleurs agricoles." ("Towards 1760, it is said that one quarter of the soil had already passed into the hands of the agricultural workers.") On the preceding page Taine describes how many domains pass into the hands of merchants, lawyers, rich townpeople ; a process also going on in our time wherever land can be freely bought in the market. The reason is obvious. Land is indestructible, whereas the products of labour are more or less shortlived. Land cannot be carried away by thieves like most of the things produced by man ; while almost all products of human labour decrease in value through the lapse of time, unless new labour is added, the value of land, as a rule, increases. Fallow land becomes richer in chemical components, or trees yielding fuel and timber grow spontaneously. Anyhow, its price rises under normal conditions through the greater demand that follows the growth of population and wealth.^ Far away, beyond the ken Of sober, practical business men ; Far away beyond the sight Of men whose heads are screwed on right ; Where castles in the air do stand, Behold the cow and the bit o' land ! 'Tis there ! 'tis there, my Giles ! " ' " It is a favourite dogma of some reformers that all the evils of the present day would be got rid of by what they term ' free trade in land.' They seem to think that if all obstacles to the sale and purchase of land were abolished, if entails of all kinds were forbidden, and the conveyance of land made as cheap and expeditious as it might easily be, the obstacle that now exists to the growth of a body of peasant proprietors would be got rid of. This notion appears to me to be one of the greatest of all delusions. The real obstacle to peasant proprietorship or small yeoman farmers in this country is the land hunger of the rich, who are constantly seeking to extend their possessions, partly because land is considered the securest of all investments, and which, though paying a small average interest, affords many chances of great profits, but mainly on account of the political power, the exercise of authority, and widespread social influence it carries with it. The number of individuals of great wealth in this country is enormous, and 30 Cliie to the Economic Labyrinth The very reverse takes place with most products of human labour. Independent of the destructive effects of time on them, the price at which their equivalent can be produced falls con- tinually owing to our progress in the arts. It is to be expected that under such conditions the rich and knowing investors give the preference to land, and this raises still more its selling price. In this way the rate of interest at which rent is capitalised into the selling price of land falls so low, the selling price becomes so high that the worker who needs land prefers to rent it, or is forced to do so, as he has not got the means to buy. The little capital he possesses is wanted in his business, and anyhow, cannot be invested at the low rate of interest with which the rich land- owner is contented. Or, if he buys, and borrows part of the purchase money on a mortgage, usually the rate of interest of this mortgage is so much higher than the rate yielded by the land that a two-third mortgage generally swallows the whole of the rental value. This explains how, even in countries like France, where only a hundred years ago the Revolution threw a great part of the feudal property into the market, the number of tenants and labourers who work on other people's land by far exceeds that of the men who work their own freeholds. It is even more astonishing that the same fact obtains in the United States, a country most of whose land — within the memory of the living generation — was thrown open practically free of cost to the hardy pioneers. According to the census of 1880, 26% of the farmers were tenants. In 1890 the percentage rose to 34%. The census of 1900 is not accessible yet, while I am writing this, but will undoubtedly show a further increase. Of the families occupy- ing their own farms, as many as 43% lived on encumbered farms in 1890. The average percentage of encumbrance was 3S"55%- Of families occupying homes in towns and cities, only 38'9% owned their homes, and of these 75% were encumbered. owing to the diminution of the more reckless forms of extravagance, many of them live far below their incomes, and employ the surplus in extending their estates. The probabilities are that men of this stamp are increasing, and will increase, and the system of free trade in land would serve chiefly to afford them the means of an unlimited gratification of their great passion." ("Studies Scientific and Social," by Alfred Russel Wallace.) The Land 31 The average rate of interest of farm mortgages was 7"07%, on homes 6"23%. These figures prove that the same process goes on in the Transatlantic Republic, as in every part of the world. Every- where the land is alienated more and more from the men who work it ; everywhere the process of concentration in the posses- sion of the minority goes on rapidly, whether it be in the form of direct ownership or mortgage. According to Alfred Russel Wallace, Mr. Arthur Arnold has ascertained that the 525 members of the peerage own 1,593 separate estates, comprising an area of more than 15,000,000 acres; or, allowing for roads, rivers, towns, and public property, about one-third of the whole land of the United Kingdom. Fourteen landlords in Scotland possess over 100,000 acres each, and one of them, the Duke of Sutherland, owns 1,176,454 acres, almost the entire county, whose area is only 1,197,846 acres. Macaulay,in Chapter III. of his " History of England," where he treats of the yeomanry, says : " If we may trust the best statistical writers of that age (1685), not less than a hundred and sixty thousand proprietors, who, with their families, must have made up more than a seventh of the whole population, derived their subsistence from little freehold estates. The average income of these small land-holders — an income made up of rent, profits, and wages — was estimated at between 60 and 70 pounds a-year. It was computed that the number of persons who tilled their own land was greater than the number of those who farmed the land of others. I have taken Davenant's statement, which is a little lower than King's." What a change for the worse these figures present ! Con- sidering the difference in the value of money, we must take at least ;£^ioo a-year as the equivalent of the ;^6o to £^0 of 200 years ago. Now, we certainly cannot go below holdings of 5 acres when we want to find men who can make an income of ;£'ioo from the land, and the total number of holdings above 5 acres, and not exceeding 50 acres, in 1889, was for all England and Wales 203,861. The Financial Reform Almanac, from which I take these figures, does not give the number of these holdings which are freeholds ; but to anyone knowing England, it is evident that only a very small proportion of this land is owned by the parties who cultivate it. On the other hand. 32 Clue to the Economic Labyrinth Macaulay may have included holdings above 50 acres. Erring largely on the right side by equalising the two figures, and compensating the two causes of error, we arrive at the con- clusion that, in spite of an eight-fold increase of population, the number of people who make a living on their own land has not increased, while it ought to be eight times greater. Where, 200 years ago, " the number of persons who tilled their own land was greater than the number of those who farmed the land of others,"' it is notorious that tenant farming is the rule in the England of 1900, and a man's tilling his own land has become such a rare thing that it plays a very insignificant part in the English corn supply. Coming to one of the newest countries, to New Zealand, we find that the Year Book of 1900 gives the number of occupied acres for 1899-1900 at 34,422,653, of which 26,161,068 were in 3,521 holdings above i.ocx) acres. As in many cases one man owns several holdings, the num- ber of owners evidently is even smaller. We may safely say that one-seventieth of the people own three-quarters of the land, or about 800 men own 60%. But even this does not give the full extent of the lugubrious picture. The total of mortgages registered in the whole country, March 31, 1899, was ;^3 3,000,00, which is about 40% of the unimproved value of the land. The average interest rate was 5'37o. Proportionately, more of this debt has evidently been incurred by the smaller farmers, and so we may say that certainly not over one-third of their 30%, i.e., only 10% of the land remains unencumbered in the hands of the working masses. No further comment is needed. In those countries where the remnants of feudalism are still in existence, the plutocrat gradually takes the place of the noble, and is usually a harsher master. He has not been connected by a family tradition of centuries with the land and its occupiers ; to him his land is nothing but the equivalent of other investments which he gave up for it. Its rent replaces the interest which these investments yielded, and he expects this rent to fall in somewhat after the quasi-automatic process in which his coupons were cut and cashed before he exchanged the bonds to which they were attached for the land he bought with their proceed As he never cared who had finally to pay The Land 33 the interest represented by these coupons, so the tenant of his land to him is merely a rent-paying machine, to be exchanged for another as soon as it does not regularly perform its functions. Power the Basis of Uand Titles Intentionally, I have not brought forward the stock argu- ment of land reformers against private property in land, based on its not being a product of human labour, but the creation of God, who destined it for all, and not for some human beings. In my mind, the argument has some flaws, and — what is more important — it is not needed. Iron, <;oal, building stone — in fact, all primeval matter — is created by God for all men, and yet not even the most radical land reformer objects to their appropriation by individuals under certain conditions. It has also been said that if God has given the land to humanity as a whole, a nation has just as little right to appro- priate it as an individual. Fortunately, there is not the least need for this line of argumentation. Expediency, armed with the necessary power, has always been the only determining factor in man's relations to land, and probably always will be. Bodies of men powerful enough to defend the land they occupy against outsiders, be they called tribes, states, or nations, always have claimed, and always will claim, the right of control over the land they have po'ssessed themselves of, and have made light of the rights which the rest of humanity might claim. As power, exercised towards outsiders, was the foundation of the nation's property rights over the land it occupied, so power exercised towards indivfduals inside the community's bounds proved the basis of the tenure under which the community's land was, and is, held by the individuals of whom it is composed. This power may be wielded by different parties ; it may be exercised by a despot, or an oligarchy or a democracy; its effect is to coerce a certain number of individuals. A majority in a republic is more despotic than the Czar of Russia or the Sultan of Turkey, because the autocrat may find himself effectually opposed by the masses of the nation ; while the very fact of majority rule presupposes an insufficient power of resistance on the part of the minority. c 34 Clue to the Economic Labyrinth Despotism better than Anarchy Nor is this undesirable, for the worst government is better than no government, than anarchy, which practically, instead of doing away with the reign of power, only substitutes a number of power centres detrimentally opposing each other. However reactionaries and liberals may differ in regard to their pre- ferences for the British constitution or the systems of govern- ment obtaining in Russia or India, they will cordially agree that the centralisation of power in either of these countries has been an immense progress over the anarchy of the past. No- body in the British Isles will look back with longing regret to the times when Mercia fought with Wessex or Northumbria ; or when the Macdonalds, Camerons, Campbells, Macintoshes, Macleans were waging wars of extermination against each other, or when the feuds of the Pentarchy were rending Ireland. Whatever accusations may be brought against the despotism of the Russian autocrat, nobody in his vast empire will wish a return of that terrible time when the innumerable little despots, scattered over the area now occupied by the Russian Empire, invaded each other's territory, burnt the crops, and drove away the cattle of the subject, if they did not kill him or carry him off as a slave. The Czar may be a hard despot, but one despot is better than a hundred who war with each other, and life and property certainly enjoy a security in the present Russian Empire such as this section of God's earth never dreamed of in olden times. The British yoke in India may weigh heavily on the poor Ryot, but at leasthe can cultivate his field in security, free from the continuous inroads of neighbouring chieftains. But wherever the anarchist's strange theories may find application, in no direction are they so impossible as where the division of the land comes into play. It may be inconvenient to find a hundred different weights and measures or systems of currency in the same country, because no central authority can procure general acceptance for one special system. It may prove disastrous to have club law take the place of. a legally instituted police ; but it is absolutely unthinkable to leave land occupation to the accident of anarchism, to declare the land of the nation free to anybody who wants to occupy it, subject to The Land 35 the equal freedom of everybody else. The peasant who grows a crop will do so only where he can hope to gather the harvest. Where anyone who pleases can come and occupy land between sowing and harvest time, all will starve because nobody will work where there is no surety of reaping. Improvements will not be made where their enjoyment is not guaranteed to the improver. Roads are only possible where agreements are made and kept which prevent the encroachment of the plough, and where those who want the road will come to some terms as to its location. But such agreements are impossible where a single landholder can hold out and refuse his sanction, relying on the absence of any law coercing him into submission. Some kind of legal tenure of the land will be found indispensable, and under any condition will be preferable to no tenure. Equal Division impossible Legal tenure may, however, be unjust and inequitable tenure, and certainly cannot exclude demands for justice and equity. In regard to land ownership, the idea we must strive for is the attainment of the greatest good for the greatest number. That tenure of land which accomplishes this end must be the best, and ought to be striven for. The supreme question, therefore, will be which system of land tenure is most likely to result in the greatest good for the greatest number. From the facts pro- duced, we have already learned that an equal division of land among the people, with the full right for each to do with his share what he pleases, has proved a failure ; for though free trade in land has nowhere in the world departed from equal possession, the result would not have materially differed if there had been such a departure. The same causes would still have produced the same effects ; and though the ultimate result, the concentration of ownership in the hands of a minority, might have been put off a little farther, there could be no final escape from it. The difference in the size of families, in the ability and disposition of land-owners, would have worked in the same direction in which they are working wherever land can be freely sold and bought. I leave out of sight the diffi- culties inherent in the different value of the land, because these might perhaps be got over by an adjustment of quantity 36 Clue to the Economic Labyrinth according to quality. Anyhow, such an adjustment could only be made at the outset, and would not prevent new differences of value from arising through causes independent of the owners' personal exertions, such as the massing of population at given points, the discovery of valuable deposits, the construction of public highways, political causes, etc. The objection might be made that an equal division of land need not include the right of selling this land or even mortgag- ing its proceeds, its rental income, and that the inequality re- sulting from the different size of families or differences in value due to the causes just mentioned might be got over by periodical redivisions. We can, however, see at the first glance that such an expedient, though it might be applicable in a state of barbarism, would not be practicable in a highly civilised community. A nomadic people could easily change the grazing area allotted to each family without thereby committing an injustice, for in case of a redivision, their only improvement, the tent or hut, would be removable to the new allotment. In a higher state of culture, however, such a redivision generally involves a spoliation of improvements due to the work of the occupier, which grows more serious with every progress in the arts of production and distribution. What destroyed the Mark This fact was mostly responsible for the gradual disappearance of the Mark, more so even than the violence and ruse of the powerful squatters, as in colonial language we should call the chiefs who — with the slaves they had made in war — had gradually occupied waste land within or in the neighbourhood of the Mark, and thus had grown in wealth and power. The same agency will also dig the grave of the Russian Mir, unless a reform in the direction indicated farther on can be secured. Separating from a farmer's estate a field which his assiduous labour has changed from a desert into a garden — through irri- gation, drainage, manuring, crushing and removal of stones, and planting of fruit-trees — might perhaps be rendered more toler- able by forcing the new possessor benefiting by such improve- ments to compensate the former owner ; but what could be done where a large factory has been erected on the land? The Land 37 Cutting off a piece of this factory might not only destroy the value of the remainder, but the possession of this piece would probably be absolutely useless to the new owner. The land requirements of the different trades vary. The artist may prefer a crag on the sea-shore — where his muse obtains its inspiration from the roar of the mighty waves — to the broad acres he inherited, and which he cannot sell to others who would be happy with the fertile land. It is true we may give him the right of letting his land and no doubt, in this way the most perfect adjustment of land occupation might be arrived at, as every man would easily find just the quantity and quality of land best adapted to his wants. Nothing would be in the way of our artist's spending the rental income derived from his land on his favourite cliff; or would prevent the manufacturer from extending his buildings on leased ground. This ground might be obtained by him at the outskirts of a populous city, where he can find plenty of skilled hands and a convenient market for his products ; while his own patrimonial acres — which chance located far away from the hives of industry ^are let to a farmer. Indubitably, all this could be done by setting to work a most cumbersome apparatus. The mere labour involved in the periodical redivisions would be so immense and complicated that no practical statesman would for one single moment entertain the plan. But even if this difficulty could be got over, what a waste of power would be required by the work of leasing and renting! What a rare field of exploitation the system would offer to unscrupulous middle- men ! Our innocent and inexperienced artist would be bam- boozled into accepting a mere pittance for his valuable land ; while the owner of the cliff, knowing the other's predilection for the place, might extort a rack rent from him. We should finally be forced to have the letting of the land attended to by the public authorities, who also would adjust rents according to their market value, so that the ignorant could not be despoiled by the cunning. Why not make the Community the Owner? But why not, in this case, also do away with the difficulty or even impossibility of adjusting the division of freeholds ? Why 38 Clue to the Economic Labyrinth not make the community the only freeholder, the trustee of the citizens as a whole, that lets the land for the trusters, and then divides the rental income amongst them ? When a number of brothers inherit a piece of land, they do not first divide the land and then proceed to a general higgling amongst each other, where those who do not want to use the land try to get the best rental they can for their special piece from those who want to occupy the land. Those who do not want the land might be in as bad a fix as those who do. A combine among the latter might despoil the others ; or some sly owners might draw out the negotiations for their special pieces, until some of the brothers who want to farm the land, after having taken the surrounding plots, could not get along without these special areas, and would be forced to pay a rack rent for them. No, the only correct policy of the brothers would be to put the land into the hands of trustees, who, as it cannot be sold, let it to the best advantage, and then divide the rent equally among the owners of the land. If any of them want to use the land they will put in their bid, and will rent it if the amount of the rent leaves them a sufificient margin. If it does not, if an outsider pays more rent, even this will result to their benefit, because their share in the rental increases correspondingly. In fact, they only allowed the land to come into other hands because they found that their share in the rent could get them other land to better advantage. In the same way, a large section of land reformers have come to the conclusion that the only feasible way of giving to all citizens an equal right in the nation's land is to have its title vested in the community ; and to demand from each land user a contribution to the common fund proportioned to the advan- tage realised by him out of the common inheritance. Difference between the Lease System and that of Mark or Mir We see at once how different such a system is from those of the Mark and Mir with their periodical redivisions. The latter systems halt on the road from entire communism to individual- ism, but still retain the great vice inherent in communism, as well as in its opposite pole, extreme individualism : the con- The Land 39 fiscation of the worker's product for the benefit of the drone. The system of common ownership with individual occupation and production on land rented from the community, with full security for the improvements made by the occupier, eliminates the objectionable feature of the historic institution without incurring the danger inherent in the extension of individualism to the ownership of the land itself. Distribute the National Rental for Pensions or for the Relief of Taxation The use made by the community of the rent has nothing to do with the principle. We know that almost all land-reformers do not purpose a division of the fund thus collected among the citizens, but prefer to use the fund for public necessities, instead of — according to the present methods — raising the means for these by taxation, which, however, in no way invalidates the principle. For reasons I shall at once proceed to give, I pro- pose to distribute the income obtained from the land — after the land has once been acquired and paid for — among the people, in the shape of ample old age and invalidism pensions for all citizens without any exception ; and to raise the cost of all other public expenditure on the old system, anyhow until the rental income has grown large enough to provide for both purposes. I agree that there can be no more just system of taxation than that which raises the revenue from the public domain, and yet expediency may recommend my proposal. The power of vested interests is so strong that land restoration will never be carried unless we succeed in kindling the en- thusiasm of a considerable section of the people, and I maintain that the mere prospect of a relief from taxation will never accomplish this end. Let us take as an example the two countries where,from entirely different causes, the prospects of land restoration seem brightest : Great Britain and one of her youngest children. New Zealand. Great Britain, because it is the one country in the world where the heaviest load is found resting on the weakest support, where the most iniquitous division of the land is as yet tolerated by one of the most democratic peoples of the world. It can only be a question of time, and not a long time at that, when this 40 Clue to the Economic Labyrinth democracy will be sufficiently enlightened as to its rights and powers to put an end for ever to the abuses of many centuries. New Zealand, on the other hand, may fairly be regarded, socially, as the most advanced colony of the British or any other empire ; and already its land laws have progressed within the very confines of land restoration. The Land for Settlements Act of 1892 authorises the purchase of private lands by the Government, and the Act of 1894 even gives the power of compulsory purchase where the Government cannot agree with the owner as to price. The extension of this law so as to include town property would practically supply the full powers the State requires for the gradual introduction of land national- isation. The systems of tenure of crown land at present in existence would equally necessitate only a few slight changes to make them almost perfect. The perpetual lease system could be maintained, but the rent would have to undergo periodical revaluations. Such revaluations are practically in force under another system of tenure allowed by the Act, which would only have to be divested of the clause that entitles the tenant to acquire the fee simple of the land. I shall yet have to say a few words on this subject farther on. In Great Britain, the majority of the people are practically exempt from taxation, with the exception of rates ; and these, as I shall show when the question of ground rent is discussed, are in effect already borne by the land. The income tax, as in New Zealand, only falls on a small minority of the nation, and a minority also pays the bulk of stamp taxation. Leaving aside the taxes and duties on alcoholic drinks and tobacco — voluntary taxes which nobody need pay unless he puts himself under the government of King Alcohol and Prince Nicotine— the majority of the English people do not pay over a shilling a head per year. I need not point out how small the seduction offered by the prospect of shifting the shilling on to the land must be for the average proletarian. Making the same exception in regard to drink and tobacco, as well as rates for New Zealand, the load is not heavier ; for all other customs and taxes paid here by the majority of the people hardly exceed a penny a day per head, and this daily penny has no more significance for the New Zealand proletarian The Land 41 than the yearly shilling has for his English colleague. The hope of saving a penny a day will certainly not make him a Single-Taxer ; especially when he considers that part of this penny is sacrificed for the protection of local industries, and may be more than brought back by the chance of employment thus secured.^ Now let us see what we could do in the way of old age and invalidism pensions if the rent of the land were spent for this purpose. The New Zealand statistics of 1896 of the number of people over 60 years living at one and the same time give us the figure 53*4 in 1,000. As we have to add the cases of invalidism before the age of 60, we may increase the ratio to 60. But, of course. New Zealand could not wish to become the refuge of all the old people in the world. The pensions could only be the equivalent of work done and money spent in the colony by citizens during a certain number of years, say thirty. This would considerably reduce the number of pensioners ; let us say to 40, to remain on the right side. The rental income of the State at the present valuation would not be less than ;^4,ooo,ooo a-year, while 40 pensioners per 1,000 inhabitants would create a pension demand for 30,000 people, excluding Maoris, as long as their land is not included in the assets of the State. £\ a week would demand a little over a million and a half of the 4 million income, and this would leave enough for the interest service of the bonds issued in payment of the land, of which more farther on, where we shall ' The number of people payihg an income tax in New Zealand is only S,6oo. The stamp tax does not affect the majority of the people to any noticeable extent ; but let us put one quarter of the ;£86o,ooo of 1899 to their charge. The land tax does not count for them either, as there is a £,100 exemption, and the majority does not reach this limit. What the citizen spends for the use of the railways, as little as gas and water rates, or tramway fares, or money spent for the purchase of goods, can count as a tax. Of the custom duties, amounting to ;£2,o42,oo2 in 1899, we have to deduct ^825,408 for alcoholic liquors, for tobacco in its different forms, for opium, and for parcels post, which, strangely enough, figures under this heading. The balance of ^1,216,596, to which we have to add ;^2i5,ooofor the stamp tax, gives us a charge of £1 i6s. per head of population per year, or about i^ penny a day. If we include alcohol and tobacco we reach twopence a day, excise duties included. 42 Clue to the Economic Labyrinth also see how the increase of the rental income through growth in wealth and population can in a very short period redeem the debt incurred. By the time when this growth of population through births and immigration will have increased the outlay for pensions, the debt will be paid back, and the full amount of the rental income will be available for pensions. Taking into account the correspondingly great increase of rent due to the effects of reform, a gradual rise of the pensions to £2 a week, or £\ for a married couple at the pension age, would be possible, unless part of the income were ear-marked for other public purposes. I cannot find the age figures of Great Britain, and sub- stitute those of a country with about the same rates of increase and emigration — of Germany in 1880, which are 78 people of 60 years per 1,000 of population. This would give about 3,000,000 pensioners, dividing a rental income of ;£' 1 50.000,000. Though only £'-jO a head are thus obtained, or ^100 for a married couple above the pension age — the saving in poor rates and the exclusion of certain immigrants balancing previous invalidism — we must consider that the relatively lower wages and standard of comfort tend to equalise the effect, and would thus give the same incitement to fight for the reform as the higher amount of the Pacific colony. The effect this reform would have on the spirit of the community can only be guessed at. Once the spectre of want and old age is banished from the hearth, the present hard struggle for life will lose most of its virulence. Men will be less grasping and will retire earlier from money earning, and will thus give a chance to other men who take their places. The whole moral constitution of the people would gradually undergo a radical change. The mere prospect of such a reform through land restoration would kindle the popular enthusiasm to an extent which any possible economy in taxation could never produce. There can be no doubt as to the greater attractiveness of such a proposal, and the different effect it would have regarding the average voter, to whom the Single Taxer offers the immense sum of a penny a-day per individual in one country, and a shilling a- year in the other. And let'us not forget that the very first point to be gained The Land 43 must be the conversion of the man of the people to the principle of land restoration. The ways and means of obtaining the land for the people — which I shall now proceed to discuss — are only a secondary consideration. How to limit Land Accumulations To satisfy those who, in spite of the facts and arguments against private land ownership, insist on maintaining it, I shall include proposals towards a limitation of land accumula- tions in single hands. The dangers to the commonwealth which accrue from the increase of direct or indirect (mortgages) land possession in the hands of the few can be met in the following ways : — 1. By means of limitation of the right of inheritance. 2. By limitations of the amount of land which one family may own. 3. By a taxation of land values. 4. By an abrogation of private land ownership. 1. Limitation of the Right of Inheritance The right of bequeathing property is, next to that of owning it, a great inducement to produce and save wealth. As such, it has been recognised by every civilised community, and a limitation can only be desirable where not only the end in view is not attained, but where the opposite effect is produced. As we progress in our work we shall see that private property in land is principally responsible for the restriction of the produc- tion and saving of wealth, and that this effect increases with the size of the properties. Under such conditions an unlimited right of bequest for such properties, which would result in their further extension, would counteract the very purpose for which the right of bequest is granted. The State, therefore, has not only the right — the limits of its rights are only those of its power — but the duty of limiting bequests. The Colins School of land reformers (Agathon de Potter, in Brussels, Colins' best known disciple, still keeps up his master's 44 Clue to the Economic Labyrinth standard) proposes an inheritance tax of 25% wherever there are no direct heirs, and complete confiscation where the defunct leaves neither direct heirs nor a will. Colins does not want to tax direct heirs, as he considers parents and children common owners of the family property, I do not think the proposal an extravagant one, though it includes all classes of property, and not only land. We often have cases where rich men die intestate, without children, wife, parents, or brothers and sisters, and where greedy lawyers try to find distant relatives for whom to claim the property, relatives who never saw the deceased, perhaps never even heard of him, and who certainly did not do as much for him, nor give him so much help in accumulating his fortune, as the community in which he lived. No public interest can be served by securing the inheritance to such people, and even where a testament is found there can be no injustice in allowing the community to come in as another indirect heir to the amount of one quarter of the property. The State might use this income for the pur- chase of land, even if other methods of land restoration should be carried concurrently. However, many who judge this pro- posal too radical cannot object to an inheritance tax on real estate, or even a heavy tax whenever land changes hands, such as exists in France and its former provinces, Alsace and Lorraine. By confiscating any excess of land possessions left by the defunct beyond a certain value, we might obtain : 2. A Limitation of tlie Amount of Land which one Fanniiy may own This limitation could not very well be one of area, for one square foot of city land is often more valuable than a whole acre of farming land. But even if we take value as a basis, another difificulty, that of indirect forms of ownership, presents itself The mortgagee who collects the rent under the name of interest is practically the rent-owner, and as such the real land- lord ; the nominal owner serves only as the cat's-paw which takes the chestnuts out of the fire. If we try to include mortgages in the amount of land values permitted to one family, we arrive at another difficulty : The Land 45 the indirect ownership of mortgages. Anyone who invests money in a bank, savings bank, or insurance company, is an indirect mortgage-owner, for the money these institutions invest for him is usually put out on mortgages. Thus this method of avoiding too much inequality in land possessions would meet with the greatest difficulties. 3. A Taxation of Land Values Henry George, though not the originator, is the most successful and the best known champion of this system of land restoration. The proposal bases itself on the right of the community to levy taxes for the defraying of public expenses, and the assumption that there cannot be found a more appropriate object of taxation than land. There is no doubt that much can be advanced in favour of a land-value tax. Before I criticise the theory I shall produce three very strong arguments in its favour, (a) Land values are created by the community ; consequently the community has a certain claim to the revenue yielded by these values. As those who never looked very closely into the subject may dispute the premise of this syllogism, it will have first to be proved. To begin with, we must settle once for all the definition of Value Value fills such a considerable portion of economic literature that the reader may feel uneasy at this juncture. His fears are groundless ; my definition will not fill as many lines as there are chapters— nay, tomes — of other writers on this topic; for it is my firm belief that the world has not been advanced one step by these tedious elaborations, to which we may well apply Macaulay's estimation of ante-Baconian philosophy : " Words, and more words, and nothing but words, had been all the fruit of all the toil of all the most renowned sages of sixty genera- tions. . . . The taint of barrenness had spread from ethical to physical speculations." (Essay on Lord Bacon.) We may add, and not only to physical speculations but to speculations of a still more practical nature — to those of political economy. 46 Clue to the Economic Labyrinth If anything were necessary to prove how thoroughly infected all domains of human thought have been through scholasticism, it may be found in the fact that two and a half centuries after the Novum Organum, the science which has the task assigned to it of teaching humanity a fairer and juster system of pro- duction and distribution prefers to waste its precious oppor- tunities in barren speculations about the nature of "Value." I shall make short work of the monster. I shall at once simplify my task by leaving " Value in use " entirely aside, for it is self-evident that an object must have value in use before it can have a market value or value in ex- change, the only kind of value economic science ought to concern itself about. For this reason, we need not trouble about certain values in use which have no market value because of their abundance, such as water and air under normal conditions. Anything has a market value for which something else is currently offered in exchange. We can call this other thing its price. Only what has a price has value ; and price alone determines value in an economic sense, the only kind of value we are concerned with in this treatise. We can safely resign the balance of the whole value-iield to those parties who are fond of scholastic playthings ; and therewith I have done with that bugbear of students in the field of economics, with Value. Nor can the definition of Land values offer us any difficulties after this. Land can only have value if someone is ready to give something for it. For persons living outside of human intercourse, land has no value in an economic sense. That it has value and use like air and water does not concern us, as our business is only with market value, with price. Land may be without value even in the presence of a certain amount of population : if there is more of it available than is wanted, and if nobody makes any improvements which give a special value to certain sections. The virgin land of certain parts of the Amazon basin has no value, though it is perhaps the most fertile land on earth ; because it is only used in its primitive state as a hunting ground by Indians who virtually own far more of it than they want, and who, therefore, would not pay anything for any part of it. In Great Britian, where 40,000,000 people live on 122,000 square miles, land would have a value even if it had never been improved, if it were an immense TIte Land 47 primeval forest to which the 40,000,000 people come from neighbouring wealthy countries to camp out and hold picnics, to fish and to shoot. The desire of monopolising certain areas of the grounds would bring bids from the pleasure- seekers. The simple presence of people who want to occupy more land than can be had for the mere taking gives value to land, and ought to teach defenders of private property in land that claims to possession — based on improvements made by the owner on his land — cannot be recognised. Improvements a Title to Ownership Our tourists would certainly not grant the title to a hundred acres of splendid deer forest, for which many of them would willingly pay large sums, for the mere erection of a hut worth a few pounds. Nor would the case be altered if magnificent palaces took the place of the hut, as long as they, the common proprietors of the land, are just as much excluded from the palaces as from the hut. It will be easy to show, however, what an insignificant part the improvements made by the owner of any single piece of English land play in the sum total of value which this land possesses. In the midst of a wilderness inaccessible to human -beings, what would his palace, his orchard, his park, his fields be worth ? Would their value begin to approach that which this same land, left in its pristine state, would possess if it alone had been left untouched, while all around it arose that England of the twentieth century we all are familiar with ; that beautiful country, partly a hive of industry, partly a garden ; intersected by excellent roads and railways, telegraphs connecting its thriving cities and its charm- ing country houses ; filled with the wealth of all nations of the earth ? The timber of the virgin forest alone on that land might be worth more than the average improvements found on such an area. And our landlord certainly cannot contend that all these improvements around him, which produce the value of this wilderness, are due to his work. The value of this piece of forest land was almost nil a couple of thousand years ago, and what raises this value so high in our time is the mere presence of human beings, as w?ll as their present and past labour, but 48 Clue to the Economic Labyrinth not their labour on this special piece of land. It is the labour spent all around it, the labour of ages, the labour of Humanity. A Stephenson broods over the problem of transportation by steam-driven waggons on iron-shod roads ; others invent new ploughs, sowing, and reaping, and threshing machinery — and land far off in Dacota's prairies, as worthless before as the water of the ocean, acquires an immense value. Not through the work of the cultivator which covers it with the waving corn ; for he is getting his dues from the proceeds of this corn after the rent of the land has been paid. This rent is due, not to the corn which can be grown on the land, for that could have been done since immemorial times, but to the railway which permits the sale of this corn in the London market, cheaper than the Essex farmer can supply it, which puts the farmer into communication with the rest of the world, from whence all he needs is brought to his door at reasonable rates. It is further due to the inventors of that machinery which enables one man to do the work of ten. An inventor finds a system of freezing establishments and cool storage ships, through which carcases of sheep and cattle can be cut up by the Smithfield butcher and served to the Londoner as fresh as the meat of animals slaughtered yesterday within the confines of the metropolis — and millions of Australasian acres double and treble their value in consequence. Talk of this value being due to the improve- ments of the landlords ! Why should they be entitled to land values produced by this and similar work done all over the world, including the work of the meanest hand in an English factory, which enables him to buy this Australasian meat, and thus pay some of the rent of the distant land ? Therefore only Humanity, or its delegate, the nation, can be the rightful heir of the fruits of this work of present and past generations, which also made the England of to-day. The nation alone can rightfully claim the additional value which the labour and the mere presence of the people gave to each separate piece of land beyond the market value of its improvements. We are in the habit of calling this additional value the unearned increment — a misnomer, according to Miss Helen Taylor, " because those who earn it don't get it, and those who get it don't earn it," The Land 45 Interest on Improvements The advocates of private land ownership, in their attempt to justify their monopoly, have tried to justify their title to the improvements made by them or their predecessors on their land. In the writings of one of their most zealous defenders, the French economist, Pierre Paul Leroy Beaulieu, I have met with even the claim of interest on the improvements of the past ; by which process he easily succeeds in proving that the capital in- vested in improvements actually exceeds the selling value of the land, including the improvements. It has often been shown that a penny invested in the time of Christ at S% compound interest reaches a sum exceeding the value of a globe, as large as our earth, made of solid gold. The French writer seems to look at interest as the natural automatic increase of capital, instead of considering it a tribute which one man can extort from another under certain circumstances, and he leaves out of sight altogether the income realised from the land and its im- provements, [f this income did not come up to that which the capital in question would have realised in other departments of investment, it is the fault of the investor, not of the land on which the money was invested. The land might rightly claim that if the man had never come near it, it would have yielded a certain rent in timber growth, and if he had let it to farmers on a long lease, he would have realised some rent besides gaining all the improvements which the farmers made on it. If, instead, he chose to put up palaces in which he spends only a few months of the year, or fenced the land as a deer park to afford him amusement for a few weeks, this was his business, and he could just as little expect a return from such outlay as from money lavished in costly banquets. But to make such waste of capital and the income which it might have brought, when invested in French Rentes, serve as an equivalent for the monopoly of this land which he enjoys is even worse than the mere ignoring of the value which the virgin forest would possess — which his ancestors found on the land. He calculates like the customer mentioned in a story I gave in " Rent, Interest and Wages." A man asks for a herring in a grocery store. He obtains it, u so Clue to the EconoiHic Labyrinth but changes his mind, and demands a piece of cheese^ instead. As he is going out with his cheese, the shopkeeper reminds him that he did not pay for the cheese. " Why, I gave you^ the herring in exchange." " But you did not pay for the herring." "Certainly not. Didn't I give it back to you?" The shop- keeper could not deny the fact ; but still felt puzzled how it was that— though everything seemed all right— he had sold a piece of cheese without getting any money in return. The same conversation takes place between the people and the landlords. " You did not pay for your land," say the people to the landlords who make off with their booty. " No ; but you know, I gave the improvements, which are worth as much as the original soil and the virginal forest would be to-day." " Yes, but you did not pay for the original soil." " Certainly not, as I did not keep it, you know." The Singrle-Tax But Henry George — though he maintains that even the im- provements are not made by the land-owners, but by those whose labour they commanded in part payment of rent — wants to let bygones be bygones ; and he is fully prepared to leave the improvements to their owners, to tax only the unimproved value, as it is generally expressed, meaning the value of the land after deduction of the improvements. In other words, he wants to tax away the economic rent of the land by gradually raising the tax until it reaches this height. The advocates of this system are called Single-Taxers, be- cause they justly assert that this tax, after it once confiscated the full economic rent, would supply the Government with an income ample enough to permit the cessation of any other kind of taxation, and still would yield a considerable fund for public improvements. These, again, have the effect of increasing rental values, and, consequently, the income of the community, and this increase gradually pays for the improvements. The more public improvements, the more rent can be paid ; the greater, consequently, the income from the Single-Tax which is to pay for the improvement. This elasticity of the land-value tax, which makes it grow with the disbursements of the public treasury for public improvements, is its best feature. When The Land 51 the Statebuilds a railroad through a section of country hitherto excluded from such a convenience, the principal benefit of it is reaped by the people whose land it passes, while the community which builds the road has to pay the expenses of it, and for a long time may not even recoup the interest on the disbursed capital. Under the Single-Tax, the increased rental income from the land through which the new road passes will — in most cases— not only pay the interest of the capital, but will also yield a sinking fund which soon pays back the capital. Roads, harbours, canals, tramways, telegraph lines, school buildings, public parks, museums, reading rooms, gas and electric lighting, canalisation, etc., thus make land values rise in their neighbour- hood, and they are gradually paid for by the increased rental, if it is taxed away by the community. To a certain extent, even military expenses, by ensuring the protection of the citizen, increase rents, and thus could be reimbursed. Principles of Taxation A land-value tax is the only tax on the principle of justice capable of yielding a sufficient income to the community. To enable this to be understood, I must point out that there are two principles of taxation : i. Taxation according to paying capacity. 2. Taxation according to benefit received. Though System 2 is the only just one. System i prevails, because the only tax of the second category which could be made to yield a sufficient income — the land-value tax — meets the opposition of the most powerful class : the land-owners, who until recently have controlled the legislative power in most countries. The income from State railroads belongs to the same category ; but I think Germany is the only country where they pay enough profit to bear a considerable part of public expenses. Most of our taxes do not allow quite so exact a classification as the two kinds just mentioned, for generally both principles are represented to a certain degree. Income, iViortgagfe, and Bond Taxes are characteristic taxes on the first principle, the ability tcj pay, though even here the benefit-received principle is not quite' 52 Clue to the Economic Labyrintk excluded. After all, the income from such sources could not be obtained without the protection of the State, which, to a certain extent, furnishes the equivalent of the tax. The great defect of the income tax, as at present collected, is that, instead of taxing the income at its source, it taxes it at its mouth. Instead of taking hold of it where made, it attacks it where it is spent. For instance, a German lives in England, and spends there an income received from German mortgages. What does England— which takes, say, tenpence or a shilling in the pound from his income — do more for him than it does for the butcher who supplies his meat, and why should he pay a hundred-fold tax ? His life is as well protected as that of his butcher, but not better, and his property is mostly protected by Germany, for in England he owns nothing but some furniture of no consider- able value. The unjust tax may drive him away, and this will be a dead loss to all those who made money as his purveyors, and to the community which profited by the man's increased consumption of dutiable merchandise, as well as by the taxes and duties paid by the purveyors in consequence of the income derived from his orders. Zurich's high income tax has thus driven or kept away many rich people. The trouble is, however, that when we come to the source of incomes there is much that we cannot attack. We might thus reach incomes from profits, but a tax on an important source of incomes — a tax on mortgages and bonds — is simply shifted on the borrower as soon as the running contract is terminated. He has to pay it in the shape of an increased interest rate; for, as a rule, capital can demand and obtain as much interest from one kind of secure investments, and in one country, as it gets from other investments and countries offering the same security. Incomes derived from rent of land and houses are discussed farther on, in connection with land-value taxation. The fact that all radicals and democrats are agreed that the income tax, as commonly levied — the main tax on the ability-to-pay prin- ciple—is the justest, and that the indirect imposition is the worst kind of taxation, affords striking proof of the confusion that generally prevails regarding justice and injustice. In ordinary life, it is considered that a man who has rendered a service to another for a consideration can justly demand this consideration ; and that, on the other side, a man who claims The Land 53. from a fellow-man a certain sum, on no other ground than that the other man can afford to pay it, is called — according to the way in which he enforces his claim — a robber, extortioner, or a beggar. Indirect Taxes Yet when the State claims its money on no better grounds, our democrats call it a just principle of taxation ; and the indirect taxes levied by our custom-houses are looked at as most detestable because they exact proportionately more from the poor than from the rich. However, when we look at the question merely from the vantage ground of a correct taxing prin- ciple, we find that raising revenue by income tax is often more unjust than levying custom duties for the needs of the State. The man who pays custom duties receives a greater benefit in return than the payer of an income tax. The absence of the service rendered by the State in the field of transportation, communication, and protection against robbers, would raise the prices of all classes of goods much more than the highest tariff. In fact, custom tariffs are the successors of those well-known tolls levied by robber knights and princes upon the merchant who passed along the roads thus controlled, as the cost for exemption from robbery and murder. This black-mail is still levied by the Bedouins of Arabia. In all civilised countries, the insecurity and inferiority of the roads and means of transporta- tion have been such that they were absolutely prohibitory to trade, in most classes of goods, beyond the nearest neighbour- hood ; and that no tariff known in our times ever exercised such an effect on prices. Whereas, therefore, the State might claim to render some kind of service for the custom duties levied by it, we have seen that it certainly does not always render such service in the case of the income tax. I can give no better example — in proof of the absolute injustice of prevalent ideas — than to judge by this criterion the taxes levied by the State for the use of our railways, post offices, and telegraphs. Would it be just to make a rich man pay a much higher fare than a poor man, or to treble the postage on his letters or telegrams, merely because he can better afford it than the poor? We do not charge Rothschild ;^ioo 54 Chie to the Economic Labyrinth for a ticket which a poorer man would get for a shilling because his income exceeds two thousand-fold that of the other, but demand the same fare from any passenger who uses the same class for the same distance. Whoever finds this just cannot uphold the income tax, as now levied, and can certainly not raise it to the sky while running down indirect taxation. The only tax which is absolutely just, from both points of view, from that of the benefit-received principle as well as from that of paying capacity, and which, at the same time, could be made to yield sufficient revenue to permit the repeal of all other taxes, is a land-value tax. Nobody pays more for his piece of land than others would be willing to pay in his place ; the man who uses more, or better land, pays pro- portionately more than the one who uses less and inferior land ; and he can afford to do so, because if he puts the land to the best use, it is bound to yield him a proportionately higher income. (b) A Land-value tax cannot be shifted. Most of the other taxes can be shifted, and the person who pays a tax to the State often makes a profit on it. The importer who pays the custom duty adds his profit to the outlay, and so does each further middle-man between him and the consumer. The lawyer who pays the stamp duty on a contract, or for the registration of a company, charges for this work and outlay over and above the tax. The producer and middle-man adds his taxes, includ- ing his income tax, to the cost price of his wares, to recoup the tax. Can there be any doubt that if the State should impose a tax amounting to one-half of the income made by our physicians, these practitioners would simply double their fees to preserve their former income required for the support of their families ? Rent not included in Price The case is entirely diiferent with a land-value tax. Such a tax takes part or the whole of the rental income, and though there are exceptions, we may consider it a general rule (except for storage rent, the rent paid by wage workers'which influences wages, etc.), that rent is not added to the price of goods.i This ^ Though rent, as a rule, is not included in price, it is always included in the proceeds. An acre of land which produces 50 bushels where the margin The Land 55 is a self-evident conclusion from the law of rent usually attri- buted to Ricardo/ according to which rent is the additional yield to better (better in the sense of quality as well as location) land over the yield of the most inferior land yet in use, for this latter land would not be used if it did not yield enough to pay the usual wages and the minimum income of capital elsewhere attainable. The price obtained for produce from such land on the margin of cultivation must constitute the market price for two very simple reasons : 1. The produce from better land cannot be sold higher, as the produce from the land on the margin of cultivation would under- sell it. If it did not do so, still inferior land would come into use, which, under the higher price obtained, would form the new margin of cultivation, while land on the former margin would now yield rent. If this would cause an over-supply prices would go down, the margin of cultivation would be narrowed again — because the last land added to the area under ' cultivation would have to be abandoned, as the lower price does not pay cost. 2. Prices on the better land could not be reduced lower either; for in this case the narrowing of the margin of cul- tivation would result. As soon as this would cause an under- supply prices would rise, and the margin of cultivation would be forced out again until the price of produce from the land on the margin would just pay wages and interest, but no rent ; or in other words, this cost price would be the market price.* It is clear that under such conditions it matters not who gets the surplus made on the better land, as prices are not influenced- by the rent-yielding land, but by the land on the margin which pays no rent at all. Let us even suppose that some of this better land were in the hands of a philanthropist, who refuses to of cultivation produces only 20 bushels per acre, yields 30 bushels rent ; while the price of each bushel is determined by what a bushel has cost at the margin of cultivation, and this does not include rent. The proceeds of the 50 bushels certainly include rent to the amount of 30 bushels. 1 As J. R. M'CuUoch says in his preface to Ricardo's works : the theory generally associated with Ricardo's name was first advanced by Dr. Anderson in 1777, then by Malthus and Sir Edw. West. * It is almost unnecessary to observe that rent is an income, whether this income is paid to the landlord by another party or whether it forms ipart of the benefit he draws from his personal use of the land. §6 Clue to the Economic Labyrinth reap any profit out of his land, but sells his produce at cost price. As his lower price would not reduce prices all round because his crop does not satisfy the demand, and as those on the margin cannot sell cheaper, the only result would be that those lucky parties who have the chance of buying the cheaper produce, pocket the rent which the land-owner declined to appro- priate ; the general market price would not be affected, as it is dictated by the cultivators on the margin. We must once for all make up our mind that economic rent is not an exaction of the land-owner, but the result of inevitable conditions. To understand what a land-value tax really means, we must thoroughly imbue ourselves with this fact, and therefore it may not be amiss to prove it by another example. Shop Rents and Prices No idea is more prevalent than that prices in shops situated in expensive locations are necessarily higher than those in cheaper quarters, because the rent of the first-class shops has to be added to the prices. Though the fact that prices in fashion- able quarters are often higher cannot be denied, it is merely be- cause a richer class of customers is reached, which readily pays higher prices, in the more or less justified expectation of a better quality ; but these prices are not the result of the higher rent — the reverse is true. Rents are higher in central quarters princi- pally because larger sales can be made through the central loca- tion, which causes more people — and aclass ableto paygood prices — to pass the shop. Leaving the rich customers out of the case, and only looking at the eiifect of the greater concourse of cus- tomers, goods can be and are — as in the case of the large depart- ment stores — sold cheaper in a central street than in the cheap shop of the suburb or in out-of-the-way streets, because the larger sales permit buying in larger quantities, at cheaper prices and with less freight. The higher rent is not obtained from higher prices, but from increased sales, just as the rent of the superior land is not the outcome of higher prices, but of a more abundant crop, or reduced cost of production and transportation, or both causes combined. As rent does not form part of the price in either case, it cannot be shifted on the customer. Wheth^j- the shopkeeper is his own lancjlord, or \yhether, iq The Land 57 consequence of an old unexpired lease or the liberality of his landlord, he pays less rent than his competitors, does not in- fluence his prices, which will follow the fluctuations of the market and prices of competitors. If the shop were given to him rent free by a philanthropist, the public would not buy there a penny cheaper ; the shopkeeper would merely add the economised rent to his profits. Consequently, taxing away the whole or part of rent does not in the least influence prices, and thus a shifting of the tax on the customer is impossible. The only man who will pay the tax in the end, and who cannot shift, is the landlord. He exacts the highest rent he can get, and, never mind what taxes he has to pay, he will, as a rule, squeeze just as much out of the tenant as he can, no more, nor less. Objection One objection has been made to this. It has been said that, through the shifting of a tax from his shoulders to those of the landlord, the tenant is relieved, and consequently his rent-paying capacity increases, so that the landlord can to that extent recoup his tax outlay from a raised rent, and then shift it upon the tenant. One of Scotland's greatest landlords, the Duke of Argyll, acknowledges that even compensation for improvements will not benefit the tenant so much as is generally supposed, because the privilege itself will have a pecuniary value ; that is to say, a landlord will demand, and the tenant can afford to give, a higher rent in proportion. A number of facts from everyday life uphold the objection. When the toll of a halfpenny on Waterloo Bridge was taken ofi", the owners of the houses on the right shore of the Thames near the bridge raised their rents sixpence a week — the amount saved by their tenants through the reform ; and no doubt when the house-owners' leases ran out they had themselves to pay a corresponding increase to the ground-owner. If the toll had been charged to the ground-owners, they would have recouped it as soon as the current leases were terminated. Until then they would have made a loss to the benefit of the house-owners, not of the workers who lived in the houses. The cheap fares PO the n?w Central Underground Railway in London had a 58 Clue to the Economic Labyrinth similar effect on the rents at Shepherd's Bush and other sections. If a public benefactor in a certain town made a will in which he left a yearly income of ;^S0 to every family living in the town, and only during residence there, the tenants of the town woul'd profit by the gift merely while their leases were running. After that date they would pay the ;^S0 in increased rent ; and it would not help them the least to build houses of their own, for, if they leased land for the purpose, the land-owner would at once charge an additional rent of £i^o over and above the rent paid before the bequest. If they bought the land they would have to pay the capitalised value of the additional rent. The landlords would be the only beneficiaries of the rich man's will. This is proved by historical precedents. The free or cheap bread, and the free public games of old Rome, did not benefit the people, but the landlords, who obtained a higher rental through the influx of population due to the advantages reaped by an inhabitant of the city. Goschen, Secretary of the Navy, was therefore quite correct when he refused to raise the wages of the Woolwich arsenal workers on the ground that this would only benefit the land-owners, that wages had risen 20% within the last ten years, with the result of a rise of 50% for the rents of working-men's dwellings. The objection would even hold good in case the proceeds of the tax were used for old age pensions, as these would relieve tenants from the necessity of saving for old age, and thus increase the fund they could spare for the rent. Rating: of Ground Rents On these grounds an attack has been made against the agitation for the rating of ground rents in England. It has been said that such a change would benefit the tenant only as long as his lease runs ; after that he would have to fully repay the rates of the landlord in an increased rental. That if a tenant can now afford to pay ;^ioo rent, and £10 rates, he will be able to pay ;^i30 rent the moment the ;^3o rates are paid by the landlord ; and that he will be made to pay the higher rent as soon as the old lease has run out. That the public at large would not be benefited in the least, but only those fortunate tenants who hold a long lease ; while those who have to make The Land 59 a new one would at once have to pay the new rate under the name of rent. That wherever, as is mostly the case in England, a third person comes in between the ground-owner and the occupant of the house — the tenant of the ground, the house- owner — the new system of rating would only result in an extra profit for the latter, who usually takes a lease for the ground on long terms, while the occupant of the house who only makes a short lease would at once, or as soon as his short lease has run out, pay in additional rent what he saves in rates. What holds good in regard to rates is valid also as to taxes. Any relief in taxation increases, while new taxes diminish the rent-paying capacity of the tenants. Cheapening of unimproved Land changes the Case Little could be answered to this objection if it were not for another element left out of account. The new system of rating falls also on those landlords who have not made improvements on their land. Though they maj' recoup future rates or taxes on their ground rents when they once have leased their land to builders and thus obtain a ground rent, while they hold the land out of use the new rates or taxes are a dead loss to them. This will make them more inclined to sell or lease even at reduced rates, which will cause increased building, and thus by increasing the supply of houses will have a tendency to bring down rents. Rating on unimproved Values This effect will be further strengthened if the taxes are no more levied indiscriminately on land and improvements, but, as in New Zealand, on the land alone. Rating on unimproved values, as they call it in Australasia, becomes more and more popular in the colonies, and proves very beneficial. The man who improves land which has lain out of use receives encouragement at the same rate at which the speculator is discouraged. The former will no more be fined for giving employment to labour, and for increasing the wealth of the country ; and the higher the tax, or rate, the greater the 6o Clue to the Economic Labyrinth benefit realised by the community as a whole, and by all workers in particular. {c) The ease of control and collection forms another advantage oiifered by a land tax. Land cannot be hidden; it is always openly exposed to the tax-gatherer's eyes. Its value can easily be found, as it depends on the rents whose rise and fall can be controlled. Confiscatory Nature of Land Tax I have now shown the decided advantages which a land-value tax has over all other taxes ; but one of its very virtues supplies a point of vantage from which this tax has been most seriously attacked. The fact which so strongly distinguishes it from other taxes, that it cannot be shifted, imparts to it the character of a confiscation. The value of land resembles that of a slave in so far as both are the market price of a tribute claim. A slave is worth ;^ioo when, after deducting all expenses, £\o or ;^I5 can be cleared through his labour; because this tribute claim of £\o or ;^I5 can be sold in the market for ;^ioo. A piece of land is worth ;^ioo if a rental of £i, can be realised from it, provided 20 years' purchase, or a capitalisation of 5^, is the price paid by the market for this class of tribute claims. If the State taxes away this rental value of ;^5 without any com- pensation, it confiscates the ;^ioo capital value. If it only taxes away £2 los., it confiscates £i^o of property, and even a mere shilling in the pound of rental value takes away Ss. of the ;f 5 tribute bought for the ;^ioo, and consequently confiscates £l of the £\oq} I shall have more to say about this question of confiscation and compensation during the discussion of the fourth method of fighting the danger of land monopoly, 4. The Abrogration of Private Land Ownership Of all which has ever been written about this subject, nothing can approach the wonderful work of Henry George, the pioneer of the modern land reform movement. 1 The same holds good in every single case where, through a shifting of rates on unimproved land values, the tax on the land is raised more than is taken off from the improvements. The Land 6i "Progrress and Poverty" has opened a new world to untold thousands of men who had previously refrained from social reform work, because socialism did not seem attainable or even desirable, and other solutions appeared hopeless. The mere looking out for such meant a dive into the dismal abyss which the science of economics presented to the ordinary mortal, until Henry George's poetic prose, his wonderful imagery, a limpid style such as had not been known since Macaulay fascinated his hosts of readers, rendered economic subjects more attractive than the ordinary novel. Here lies the imperishable merit of the book, not in its scientific theories, which unfortunately contain many sad errors. The book is too well known to require any recapitulation. To those of my readers who have not read the work, I merely give the advice to study it before they go on with the present book. They may not agree with everything in it ; in fact, if they have any notion of economic realities they will shake their heads over several strange theories, such as the relations George finds between wages and interest, his absolute negation of the wage-fund theory, his ideas as to the cause underlying com- mercial depressions. But they will acquire the absolute conviction that justice and expediency demand that the owner- ship of the soil must belong to the people as a whole, and that no thorough-going reform in the social domain is at all possible without the restoration of the land to the people. With unmitigated delight we follow the author's sledge-hammer strokes against the greatest crime man ever committed on this planet — the crime of selling and pawning God's own, this earth, the great heritage of humanity. One after another of those sophistic defences with which the usurpers and their gang of venal or ignorant lackeys have tried to prop up the foul thing crumbles before those mighty strokes. Nothing will hold together; not the right of discovery^ or first occupation, claimed by the human mite left stranded for a few seconds by the ocean of time on some little nook of this globe, which, according to his mitish knowledge, was never before alighted upon by any fellow-mite of his. Whereupon the little mite prefers a title to that nook for all times to come, including the right of 62 Clue to the Economic Labyrinth use and abuse, of letting to fellow-mites against heavy tribute, or withholding the use, though fellow-mites should die miserably in consequence. Not the right of conquest based on superior power, driving other mites from the locations previously occupied by them : a dangerous title anyway, for it legitimises Democracy's claim to the right of expropriation without compensation, whenever it has the power to enforce the claim. Not the right of purchase from other mites, whose title, after we have proceeded backward through the centuries, finally finds itself based upon some such pretence of first occupation or con- quest. Not any right whatever given by king or parliament ; by His Majesty, the chief mite, or the mite-hive's representa- tives. Not even the assent of all the mite-hives which ever passed over this little globular speck in the universe during a few pulse-beats of eternity, on their journey from the unknown to the unknowable, even if this assent be engrossed ever so visibly on the hides of defunct sheep, goats, or asses. Can a thief give a valid title to his booty ? Land Taxation is not Land Restoration With kindling eyes you read on and on, more and more eager to follow the great leader to the ramparts where the advocates of wrong vainly try to defend their parchment fortresses. Alert you listen for that word of command by which the glorious captain will direct to the first point of attack. At last you come to the study of Chapter II., of Book VIII. Can you believe your eyes ? Are you reading aright ? Is it possible that the very man who has just proved with a logic as transparent as crystal that private property in land is doomed and must be exterminated if humanity is to live, that this very man now advises you to leave this property in the possession of its present owners, on the grounds of expediency, and to con- tent yourself with taxing it ? Again and again you read the page ; but there it is, it cannot be wiped out. The prophet was a poor, erring human being after all. Not that I object to the taxation of land values. I have already shown that I entirely agree with Henry George when he places this system of taxation over any other. If " Progress and Poverty " had intended to be a book on the principles of The Land 63 taxation, I should say, without any qualification, that its author made out a good case for the tax he proposes, I should only make some reservation as. to the right of present land-owners to compensation, which he denies. Before entering into this question the first point to be decided is whether even a tax of twenty shillings in the pound is equivalent to land restoration ? Does it mean that the community can dispose of the land as it wants to ? We are forced to deny this at the outset. The tax does not even touch the power of the land-owner to use and abuse his land as he sees fit. Provided he pays his tax, nobody will prevent another Duke of Sutherland from clearing thousands of hard-working people from his land, from their Fatherland, from making another of those bloody entries in Clio's book by which his family scutcheon has for ever been tarnished. All that will be asked of him is to pay the highest rent which the poor, despairing crofters — driven unmercifully from the homes and the soil which they and their forefathers had tilled in the sweat of their brows — would have been willing to pay. What of that? His income from other sources, from bonds and stock of all kinds, from houses and factories, allows him this sport. He wants a deer park, and he can afford to pay for it as well as the American Winans who bought Scotch land from sea to sea for this purpose. Nor would it prevent facts like those reported in the follow- ing newspaper extracts : A Millionaires Freak. — Mull, an island on the coast of Scotland, is the property of Earl Beauchamp. It has an area of 237,000 acres, and a population of 4,691 living in 1,030 houses. Among its products are oats, barley, flour and potatoes, and the inhabitants have also had a fair export trade in sheep and cattle. A millionaire has recently secured the sole ownership of the island, and wishes to turn it into a deer park for the ainusement of himself and friends. He has, therefore, given the whole population notice to quit, and has decreed the pulling down of all the houses. — Barrier Truth. Deer Forests in the Highlands. — The acreage of deer forests in Scotland is increasing. Fifteen years ago they extended in the Highland counties to 1,711,892 acres; last year they were 2,287,297 acres. These figures are exclusive of certain 64 Clue to the Economic Labyrinth forests, such as Glencannich and North Affaric, with regard to which no return has been obtained. I observe, says a London correspondent, from the Parliamentary Report issued on Wednesday last, that in several cases the sheep farms of 1883 have become the deer forests of i?,gS.—The Highlander. Land Taxation would not prevent Land Monopolisation Suppose that Rothschild and a few hundred other million- aires in England and America should share this whim to turn Great Britain into a deer park, and British landlords should sell at reasonable figures because of the new tax, which destroys the selling value of their land. Under existing laws, what could prevent these men from having their will ? Certainly not the land-value tax, even if it were as high as it would be were the present values taken as a basis of calculation, i.e., 150 million pounds a-year. The income of Rockfeller and Carnegie alone is at present valued at 12 to 15 million pounds each; that of the Rothschild families is about as high ; and without going any farther, we have already obtained one quarter of the yearly tax required. But how long would it be required? How long would there be a rental value of 1 50 million pounds in a depopulated England, in that magnificent new deer park ? That value would follow British enterprise wherever the evicted people went. Australia, New Zealand, Canada, South Africa, would see their land values rise as the British land values fell ; and finally, the 150 million might be reduced to something like 5 shillings an acre, to 20 million pounds, or less even, a mere trifle for such magnates.* But I need not demand such a stretch of the reader's imag- ination to make him perceive that land taxation and land restoration are totally different affairs. 1 Since I wrote this, I have read that Dr. William Clarke published an article in the Contemporary Review of December, 1900, in which he pre- dicts that England will gradually be turned into the pleasure domain of the world's aristocracy and plutocracy. The population which did not emigrate would serve as their flunkeys and shopkeepers. The Land 65 Land Taxation would not put an End to the Abuses of Landlordism In fact, I can see no reason why the proposed system should at all do away with some of the worst abuses of landlordism, abuses of daily occurrence. Even in Germany, where property is much more equally divided than in England, there are instances of large land-owners who buy up all the surrounding land until whole villages disappear, sometimes to let the land become overgrown with forest. The same takes place in Austria. Henry George's plan would not in the least increase the financial sacrifice of such purchasers. They would have to buy only the improvements, as the unimproved value of the land disappears in consequence of the tax, and this tax would not be higher than the present interest on their purchase money. Nor could a mere land-value tax do away with cases like the following, which are quite of common occurrence in England and Scotland. Here are a thousand acres, used as grazing land for sheep, and yielding the landlord a net rental of ;£■ 1,000 in sheep and wool ; after labour to the amount of, say, as much as ;^200 has been paid for. If the land were let out in allot- ments, it would yield a rental of £2. an acre ; and it would keep at least 100 families against 2 in the other case. The gross product would be about four times as large, or even more ; but the landlord prefers the lesser income, because the division into small holdings would interfere with his sport. In the Paris Congress of land-reformers, my departed friend, William Saunders, in narrating his Wiltshire experiences, told of a landlord who preferred to accept 15 shillings an acre from a farmer rather than £% paid for allotments — a rent at which the labourers, his tenants, yet made a living, while the farmer failed.i What difference would a tax make in such cases ? The land- lord would simply pay the tax, even though it should reach the 1 Sport may not have been the only cause for this anomaly. The land- lord was perhaps afraid that allotments would render the labourers too independent, so that farmers would have to pay higher wages, and thus be uijabl? to afford as much rent, E 66 Clue to the Economic Labyrinth height of the rent offered by the crofters, and would still retain the farmer (and his sheep) who takes part in the hunt, instead of interfering. The State could not prevent this comparatively unproductive use of the land — unproductive in a double sense : in wealth and in men. Under the single tax all it has a right to claim is its tax.' 1 My friend, A. J. Ogilvy, of Tasmania, one of the finest intellects in the Southern hemisphere, in an article written for Land and Labour (August, 1900) gave seven reasons for withholding land, of which I here quote the last three, as those which would not be affected by a mere land tax. I have already given one of these in the text, but Mr. Ogilvy's terse expressions and happy illustrations can only be of additional help in elucidating an important truth : (5) Business withholding. Most people are under the impression that it is the more productive use of the land that brings the highest rent, and so that high rents enforce productive use. This is a great mistake. A small pro- duct which a man can keep all to himself is more to him than a much larger product which he must share with many other people. Under exist- ing conditions the labouring man is regarded by the landlord, by the em- ployer, and too often by the economist, as a mere expense to be kept down ; his wages being regarded as the cost of the product (to the country as well as to the employer), instead of what it really is, his share of the product (whether paid out of the product or advanced beforehand is immaterial). Suppose the owner of 100 fertile acres, putting his land down to grass, can make it yield ;£ 1,000 in meat, without any expensive wages, he himself doing what little work is required, thus clearly he can keep all that £\, offered by the crofters, and it might be found a profitable business, from the mere financial point of view. The farmers would not only pay other taxes, besides their rent, but their wants would pro- vide with employment a number of industrial workers, who, in their turn, pay rent and taxes ; these, again, want goods from others, and taking all into account, the increase of public income may be much greater than the excess of rent which the sportsman would be willing to pay. Under the single-tax system, as I have just shown, a com- bination of rich men could buy the whole land of Great Britain, and could keep it as long as they paid the same land-value taxes which the British people would be willing or able to pay, with the certainty that this tax would be very much reduced after the population had once been forced to emigrate. Would this be possible under land nationalisation ? Can it even be imagined that the State would let Great Britain to a syndicate, if the syndicate offered a higher rent than the English nation ? That this nation would decide to give up its national existence, and to leave the country of its birth because a higher rent could The Land . 71 be obtained from this land, a rent which, after the people left, would belong to the syndicate which paid it ? It requires a pretty strong imagination merely to think out such an absurdity, and yet — as I indicated before — we have only to multiply the Sutherland, Winans, Carnegie, & Co. with a certain figure, and we have a syndicate strong enough to buy the land of Great Britain. The fear of too high a taxation need not frighten them very long, for they would at once give notice to their 40,000,000 tenants, and after their emigration the syndicate would reduce the tax to suit its own convenience. That such an event is practically impossible is not counter-argument, because it is only saying in other words that the single-tax is impossible. " Cash Payment is not the sole Nexus of Man with IVian, how far from it ! " says Carlyle. Though the single-tax state could not, the land-owning state would soon find that out, and would lease the land on principles not quite following the mere " supply and demand " theory. Cases would arise where a high- born or low-born capitalist offered a million pounds a-year for a certain county of Scotland, whereas fifty thousand poor crofters could afford only £\Q each, and yet the crofters would be allowed to continue raising oats and hearty men and women on the land, whereas the capitalist would have to look elsewhere for partridge coverts. For, fortunately, no agent of Lord Gobbleland or of John Brown — retired partner of Smith, Brown, & Baker — would have the letting, as they would even under the single-tax ; but poor Hodge, who wants a little croft on which to grow potatoes for his children, and Jones, the artisan, and Mill, the factory hand, who want a home market for their goods, not barred off by protective Chinese walls, and who know that fifty thousand crofters use more shirts, coats, boots, and hats, and other manufactures or produce, than a dozen Gobblelands : these are the men whose agents will have the letting of that land. Even if their agents will collect ;^SOo,ooo less a-year, and even if the tax-paying power of the 50,000 tenants and their purveyors should not make up the deficit in the common purse, they will not mind so very much, as long as their — the 72 Clue to the Economic Labyrinth people's— eating, their shirt and coat-wearing power continues to grow, which, strange to say, has more weight with these deluded beings then all the calculations of learned professors, who want to convince them that they are acting against all the tenets of a sound economic doctrine, according to which the land ought to go to the highest bidder. That it is not the State's business to procure employment to such men as they. That such unscientific proceedings would merely result in a further over-population. That if there is no demand in the market for their work or produce, they must get out of the country as fast as they can, or put on khaki to shoot Chinese and other people who presume that they can do as they like in their own country, instead of recognising that their paramount God-taught duty is to buy the over-produced goods of Old England. The idea of wasting ;^5oo,0O0 rental income of the State to provide a market for 5 million pounds' worth of home manufactures, and thus sustaining not only the 50,000 crofters and their families, but also many thousands more, who exchange manufactures for their food and raw materials ! To provide, instead of this, only a living for Gobbleland's 50 game- keepers may be a poor policy, but by letting the nation's land according to the gospel of Supply and Demand we have at least the consolation of working within the lines of orthodox political economy. It is true. Supply and Demand will not defend Eng- land should the foreigner succeed in invading the country. Nor would it feed the nation if some day foreign fleets cut off the corn fleets of distant regions ; or when those corn-growing regions have joined the ranks of England's enemies. Lord Gobbleland's partridges certainly would not go very far towards supplying the necessary food ; the oats grown by the 50,000 crofters might do us more good. Their arms, and those of the artisans and mill-hands they provide with a living, will form a better army than the fifty gamekeepers — officered by Gobble- land, if he is not in India tiger-shooting or taking his ease in Paris. But what does all that signify when Gobbleland's ;^500,ooo additional land tax is taken into consideration? The Land 73 Henry George's Motives It IS almost unbelievable that a man like Henry George should have thus left the straight plain road he had opened, and should instead have chosen a crooked by-path full of thorny weeds, and ending in a quagmire. For such a course, he must have had most powerful motives, certainly worth examination. When we investigate his reasons our astonishment increases, for all he has to say in explanation of such a sudden departure from the principle which the whole book has been advocating is contained in the following few lines : — " To do that (formally confiscating all the land and formally letting it out to the highest bidders) would involve a needless shock to present customs and habits of thought — which is to be avoided. To do that would involve a needless extension of Government machinery — which is to be avoided. It is an axiom of statesmanship, which the successful founders of tyranny have always understood and acted upon — that great changes can best be brought about under old forms. We, who would free men, should heed the same truth. It is the natural method. When Nature would make a higher type, she takes a lower one and develops it. This is also the law of social growth. Let us work by it. With the current we may glide fast and far. Against it, it is hard pulling and slow progress." That is all. Confiscation or Compensation George, as we see, sets out from the axiom that land nation- alisers want to confiscate the land, though most land nationalisers, like myself, will fail to remember ever having met one single partisan of our special method of land restoration who even dreamt of proposing such a measure. It is, however, quite consistent with George's convictions to leave out of consideration any other method of accomplishing land restora- tion of any kind. ^4 Clue to the Economic Labyrinth The idea of compensation is so absolutely antagonistic to his thoughts and principles that he cannot even conceive how land nationalisers who propose compensation — and as I have just said, they all do— can be honest. In his opinion, we do not really want to obtain the land for the people at all ; we only want " to draw a red herring across the track " of land restorers, as a single taxer once stigmatised my work for land national- isation in New Zealand. George's words are : " For to say that men must be compensated if they are prevented from doing a thing is to say that they have a right to do that thing. And this those who intelligently advocate compensation know. Their purpose in advocating compensation is to prevent abolition " (" A Perplexed Philospher," p. 276). Now, it is certainly not a feeling of unkindness towards co-workers on another plan which begot such thoughts, for he was the kindest of men and the most loyal of friends. No, it was his firm and unshakable conviction of the absolute injustice of compensating anybody for ceasing to perpetrate a wrong. Private land ownership, in his eyes, is a theft, and if anybody were to be compensated, let it be not the robbers, but their victims, the landless people whose heirloom has been taken away from them since times immemorial. " Let bygones be bygones," I have heard him say repeatedly in public, " only don't sin any more ! " . . . " Let the people forgive the past, the immense amounts wrested from them by the landlords, and only demand to be at last reinstated in their rights." According to him, it makes no difference how the land-owners got into possession, whether they inherited, stole, or bought their land in good faith. The law demands restitution without compensation from anybody who bought stolen property ; why should there be any difference whether the stolen object is a watch or a piece of God's earth ? ^ He usually compared private land ownership with slave property. Both confer the right of claiming the work of fellow- men without any compensation. In fact, we might say that the slave-owner gives at least some kind of compensation to the * In fact, the case of the watch is much harder, for the temporary owner might have bought it in good faith ; but everyone is bound to know that the land of this earth has been created for all men by its Maker. The Land ?5 slave whose services he makes use of, for he feeds and clothes him, provides him with shelter, medical advice and assistance ; whereas the landlord demands his rent, little caring how the tenant makes a living. The tenant often has to work harder than a slave to pay his landlord, and has to find himself. "Compensation for the selling value of a slave, which disappears on the refusal of the community longer to force him to work for the master, means the giving to the master of what the power to take the property of the slave may be worth. What slave-owners lose is the power of taking the property of the slaves and their descendants; and what they get is an agreement that the Government will take for their benefit and turn over to them an equivalent part of the property of all. The robbery is continued under another form. What it loses in intension it gains in extension. If some before enslaved are partially freed, others before free are partially enslaved." (" A Perplexed Philosopher," p. 263.) Other arguments are given, and more might be added. Force agrainst Force A strong one has already been alluded to on a previous page. The original title — in Europe, anyhow — is based on conquest in the last resort, on the right of the strongest. Since the people as a whole are stronger than the land-owners, the latter could have no valid objection to confiscation were the people sufficiently united for land restoration to overcome by force any possible resistance, for the new title would have the same foundation as the one it superseded. History has seen such cases. On that memorable night of August 4, 1789, ^of which Carlyle says : " Dignitaries, temporal and spiritual ; Peers, Archbishops, Parliament-Presidents, each outdoing the other in patriotic devotedness, come successively to throw their own untenable possessions on the altar of the Fatherland. With louder and louder vivats — for indeed it is after dinner, too — they abolish Tithes, Seignoral, Dues, Gabelle, excessive Preservation of Game; nay. Privilege, Immunity, Feudalism root and branch." It was a voluntary surrender only in appearance ; in reality, 76 Clue to the Economic Labyrinth the old spent force which had conquered the privileges yielded to the new force which did not content itself with what was surrendered, but confiscated a good part of the remaining monopoly, the property of the land itself. When a people emerges from despotic Government, and takes its destinies into its own hands, assuredly it may also overthrow the institutions of the old regime ; revolution has its own laws, those of the stronger.^ The Seller calling his Customer a Thief But what shall we say of some aged New Zealand single- taxers who for the last thirty or forty years have helped to make the laws of this country, recognising private land ownership as a matter of course, selling the land of the nation and taking hard cash for it, by which to reduce their own taxation, when now, after having become converts of Henry George, they declaim against the wrong of compensating the very men or their successors whose money they took ? George denied the right to compensation to a man who had bought a watch from a thief, even though he did not know it was a stolen watch ; but he certainly did not think the thief justified in reclaiming the watch without payment from his customer, and to call him a robber who bought stolen goods. 1 So has reaction, the revolution backward. The following passage taken from Macaulay's " History of England," Chapter II., shows to members of the English Liberty and Property Defence League— a league of drones formed for the defence of the liberty of exacting tributes from the land-using workers and of the property wrested from the people, the land — that their party supplied a very valuable precedent how to treat vested rights, even where founded on cash payment. Their own actions in the past have deprived them of their strongest defence against plans of confiscation. Single-taxers may point out to them of how little value they accounted the right based on honest purchase, how it was they who first in England made use of Henry George's argument that the owner of stolen property has the right to take possession of it without any compensation wherever he finds it, never mind what consideration has been given by the actual possessor. " Property all over the kingdom was again changing hands. The national sales (under Cromwell) not having been confirmed by Act of Parliament, were regarded by the tribunals as nullities. The bishops, the deans, the chapters, the Royalist nobility and gentry re-entered their confiscated estates, and ejected even purchasers who had given fair prices." The Land 77 A bad Precedent A State which could proceed on these lines would furnish a very bad precedent. To-day she confiscates the land which she sold for hard cash, because private land ownership is robbery ; to-morrow she declares that the public debt has long since been more than repaid by the interest the creditors have received in the course of years, and interest is robbery. Consequently, the debt is repudiated, without any other compensation to bond- l^olders than to call them robbers, never mind whether they are the original lenders or those who bought their papers only yesterday, trusting in the State's good faith. The day after, anarchists obtain the majority, and declaring every employer a robber, they confiscate the factories built by the workers, and, of course, as they make out, belonging to them by right.^ Honesty the best Policy We can leave the question aside whether the confiscation of the land is a crime or a justified action, for Talleyrand's famous words applies here : " C'est plus qu'un crime, c'est une faute." (It is more than a crime, it is a blunder.) Even the proverbial Yankee who sent his son into the world with the advice, " Make money, honestly if you can, but make money anyhow ! " pre- ferred the honest way if it was as practicable. If I shall there- fore succeed in proving that compensation is the only practi- cable plan, and further, that it is the cheapest, I should think that we may as well take that way which most people in our genera- tion believe to be the only honest way, never mind what George and his disciples may consider about it. Attack against Herbert Spencer It is not with books like "A Perplexed Philosopher" that such men as Herbert Spencer are gained over to our side. The 1 If there were no other way but confiscation to obtain land restoration, I should agree with Proudhon when he said that if he had to shoot loo innocent men to save 10,000, he would give the order to have them shot. I should agree even if I were one of the hundred ; but fortunately, there is an alternative in our case. 78 Clue to the Economic Labyrinth great sociologist certainly acted wrongly when he gave up the idea of land restoration because he could see no practical way of accomplishing it without wronging the present owners. Such a withdrawal was not moral in a man who had recognised that " with this perplexity and our extrication from it abstract morality has no concern. Men having got themselves into the dilemma by disobedience to the law must get out of it as well as they can, and with as little injury to the landed class as they may." Henry George would have been better entitled to cast stones at Herbert Spencer if " Progress and Poverty " had proposed a practical reconcilement of the interests of the people with those of the land-owners. Compensation for a Tax On p. 282 he reproaches Herbert Spencer for not even so much as alluding to his proposal of taking land values, not land ; for ignoring it " because there is on that line no place for proposing or even suggesting compensation. Compensation to the ultimate payers of a tax is something unheard of and absurd." Even here George is wrong, as I had pointed out to him long before he wrote this passage. When in 1865, in Prussia, the land tax was imposed on the properties of certain nobles, who, as former independent sovereigns, i.e., direct dependents of the German Empire, had been exempt from this tax, they were compensated to the full capitalised amount of the tax (at 4|%, 22 years' purchase), because a tax on land confiscates a pro- portionate part of the land's value, as the land is nothing but the capitalised rent, and any deduction from this rent corre- spondingly reduces value or selling price. Whether we take away a man's land, or the rights which this land gives him, and which alone constitute its value, amounts to the same thing. If we give him no compensation we are guilty of confiscation. A Grievance against Spencer I should have a better right to accuse the illustrious Spencer that he maintains errors long after he had a chance of correcting The Land 79 them. After his letter in the T'iWj (November, 1889), giving as his principal reason against carrying through land nationalisa- tion that the interest which would have to be paid to raise the funds required to compensate land-owners would exceed the rent obtained by the State, I showed him in a letter how, through the rise of rent on the one side and the falling of the interest rate on the other, there would be a growing surplus sufficient to pay off the whole debt within a measurable time. Granting, as implied in the answer I received, that pressure of work and the state of his health prevented the philosopher from giving a complete reply, still he cannot be excused for failing to investigate the facts placed before him. If found true, as they were bound to be, they withdrew the foundation on which his opposition to land nationalisation had been based, a reform without which — according to him — the law of equal freedom is infringed. Land Nationalisation a Shock to present Customs and Habits of Tliougriit As confiscation is not on our programme, let us see what else George has to oppose to land nationalisation. " It would involve a needless shock to present customs and habits of thought." Certainly not in England, where by far the greatest part of the land does not belong to the people who use it, and is not used by those who own it ; where it does not change to any great extent existing habits and customs, whether the tenants have to pay their rents to the agent of the Duke of Westminster, Buccleuch, etc., or to the agent of the Government. Even in the United States, as we have seen, about three-eighths of the land is worked by tenants, and most of the rest is mortgaged heavily, so that the nominal owner is practically the tenant of the mortgagee. Similar conditions exist in Germany, France, Italy, etc. If we take all this into consideration, we come to the conclusion that, after all, the substitution of the State for the private landlord would not involve so great a shock to existing customs and habits. But to impose a tax that shall gradually grow until it swallows the whgle rental ve^lue of the land, thus gradually to confiscate So Clue to the Economic Labyrinth the basis of property guaranteed by the State like any other property, to put on the shoulders of one class of citizens the whole of the State's charges, this, according to Henry George, could be done without any needless shock to present customs and habits. Land Nationalisation invoives Extension of Government IViachinery He goes on : " To do that (nationalise the land) would involve a needless extension of Government machinery, which is to be avoided." When George wrote this he was almost totally unacquainted with the political condition of European countries ; he reasoned from the impressions received in his native country, the United States. Even thus he left out of consideration the working of cause and effect. Instead of arguing : The powerful monopolies which have arisen out of private land ownership have corrupted our Government machinery to such an extent that we cannot possibly entrust it with the administration of the land of the nation ; he ought to have reasoned : The destruction of those influences which have made the administration of the United States the most corrupt on earth can alone restore purity of administration to such a degree that we may safely confide the land of the people to their Government ; and the restoration of the land to the people is the best way to attain such a reform. If he had gone to Germany he would have found the Prussian State domains the best administered farm land in the country. The States' forests are models of a perfect management. The effects of land nationalisation on employment would render Government employees more independent and less liable to obey unjust dictates from above, so that even the political dangers which he might fear from a further extension of Government influence would be less than under the present administration. A land-owning democracy where every citizen has a stake in the country is certainly less corruptible than a landless rabble, Tke Land gi No fear of Corfu^tion in Tax Collection And, must we ask, has corruption no Influence on tax collec- tion? When we behold American officials, charged with the assessment of personal property, so blind that they cannot see the contents of large palaces full of the most valuable furniture and objects of art, but value them as if they were not in exist- ence, and as if the millionaire who exhibits them daily to his guests possessed bare walls and the simplest pine furniture ; when we see the Mayor of Cleveland, Tom L. Johnston, prove to the railway pass-owning tax assessors that their assessments of railway property are made at only one-tenth of the actual value, can we expect such officials to obtain much better eye- sight when once they have to tax the State's land values ? It is true these are more visible still than the contents of the palace or the property of a railroad, but a much thicker gold varnish is at hand to render opaque the taxing official's spectacles. Singfle-Tax the easiest Method of carryings the Reform " It is an axiom of statesmanship, which the successful founders of dynzisties have understood and acted upon — that great changes can best be brought about under old forms. We, who would free men, should heed the same truth." Certainly the most Dangferous Perhaps, but not when the old form threatens to bring back the old contents some day. Who guarantees us against a repetition of historical facts, such as those connected with the English land tax? Every land reformer is familiar with the manner in which the landlords used their legislative power to reduce this tax, a remnant of their military duties in times of feudalism, to about one twenty-fifth of its original signification, by leaving the valuation on which it was imposed unchanged 82 Clue to the Economic Labyrinth since the time of William III., whereas the value of the land increased twenty-five-fold since.^ Or take German experience, showing how even those nobles who were compensated for subjecting themselves to the land tax helped in the agitation to have this tax practically repealed by demanding that its proceeds should be used to relieve the rates, which were mostly on the shoulders of the big land-owners. The German " Lex Huene " and the so-called " Landlord relief bill " of the present English Tory Government are twins, but the German case is even more iniquitous. Only a generation had passed since the equivalent of the tax had been handed over to these Prussian landlords in interest-paying State bonds ; who could have anticipated that so soon a time would arrive when these very men, while complacently continuing to cash the interest coupons of these bonds, would try to get rid of the tax they had undertaken to pay with the proceeds of these same coupons ? And a time would come alsowhen a newking knows not Joseph, when Henry George's work is forgotten, and when the land- holders unite in the fight against this victorious single-tax with the success which united and strong minorities often have gained against divided and indifferent majorities. Shall we, with open eyes, expose our children to this danger? No; the hydra. Land Monopoly, can never be effectually destroyed until we cut off and burn out all its heads, the land titles as well as the rental income. Otherwise we shall see the experience of old Hercules repeated : while one head is being destroyed, others are speedily regrowing. Rebate of Rent Bill The burning out has to be done by provisions against such outrages as the " Rebate of Rent Bill " brought in at the end of the 1900 session of the New Zealand legislature. Here we had a Government deliberately attempting to make a present to State tenants of 10% of their rents, which means courting the favour of these tenants by giving to them the land values of the ^ If this tax had been collected from the actual value of the land as it ought to have been, its proceeds would have redeemed England's public debt, if the debt had been contracted in such a case. The Land 83 people. Such attempts are doubly reprehensible where, by a 999 years' lease, the unearned increment of ten centuries is gratuitously thrown away, and though the danger is not so great as in the case of a land tax, it cannot be over-estimated. Where the whole of the land belongs to the nation there will be naturally more State tenants than at present, and consequently the number of electors to be influenced by such gifts must be proportionally much greater. Who guarantees us that the Seddon of another generation might not offer to relieve the tenants of half the rent they agreed to pay, or even the whole ? Kefereridum as a Protection The case proves the old truism that economic and political reform must go together. The most advanced political freedom has no guarantee of permanence where the economic and social position of the people is on a low level, of which Rome's history supplies the best illustration. On the other side, it is equally true that not only are political arms required to fight the battle of economic reform, but that political reform affords the sole means of preserving the results of victory. The land and its fruits can only be secured to the nation by preventing the servants of the nation from becoming its masters, by giving the citizen the power of effectually carrying out his will through the referendum. Where the constitution cannot be changed without a referendum of two-thirds or three-quarters of the people, and where the new land laws are made a part of the constitution, attempts of the nature just described are effectually barred. (See also Chapter XI.) Anyhow, the possibility of future wrong supplies no ground for continuing the present injury. Efforts for the recovery of stolen goods ought not to be stopped by the possibility of losing them through future theft. Occupation, not Freehold tiie old Form If Henry George wanted to conserve old forms he certainly ought to have fought the freehold, which is a comparatively modern form. In past time very few people in Europe worked their land under any other title but that of tenancy, and even now it is the prevailing system in many countries, in Great §4 Clue to the Economic Labynnth Britain especially, but even in peasant proprietor France. _ In the United States it is not the rule yet, but soon will be if things progress as in the past. But even supposing the freehold to be the old form, would it be real statesmanship to bring about the great change by this method, as George proposes? The very reverse is true ; in fact, his system is the only one which has absolutely not the least chance of ever being carried through. If confiscation should ever solve the land problem, if the people should ever reach the state of mind without which such a measure cannot possibly be carried— looicing at might as right— they will not stop at mere taxation ; they will take the land and all there is on it. Not single-taxism but communism would be the result of such a mental state, and a much more logical result, too. Opposition of Land-owners to Single-Tax For of all the vain delusions under which single-taxers sufTef, the worst is the professed belief that land-owners will voluntarily consent to the imposition of the single-tax. They would not dream of such a thing even if the impossible could be proved to them, «'.«., that they would gain more through the relief from all other taxes than they would have to pay, even if taxed 20 shillings in the pound on unimproved land values. One of my best friends in New Zealand, a farmer owning about 500 acres, which is by no means a large farm in this country, a convinced socialist, would not listen to single-taxism because he could not see why land-owners alone should have to bear all taxes, while the majority of the people were relieved altogether. That is human nature, and we have to reckon with it. Besides, no juggling with figures could make him see how this relief from taxation of all non-land-owners would not increase his own charges. Leaving out of consideration the fact that all our small landholders in town and country entertain the hope of some day extending their holdings, and thus entering that class which, according to the single-taxers, will have to bear the brunt of the battle, it is rathei" disgusting thus to play the ■" beggar your neighbour " game. The Land 85 Appeal to the lower Motives " Vote for this law ! It will not hurt you ; it will only weigh upon the richer men ! " is certainly not a battle-cry apt to inspire a nation. This appeal to the lower instincts invariably and justly proves to be a bad policy. If, in this instance, it were effective, the single-tax would give no final satisfaction ; far beyond the intention of its apostles, the ultimate goal would be sought. Danger of mixing- Land and Tariff Problem Another serious objection to the single-tax campaign is that, by substituting a tax and practically a tariff problem for the great land reform, it shifts the entire battle-ground, to the great disadvantage of the reform. Many people who are enthusiastic for land restoration do not believe in free trade : the aim and outcome of single-taxism, which preaches the substitution of the land tax for all other taxes and duties. It has been the cause of creating antagonism to land reform from motives absolutely strange to the same. A man may honestly believe that protective duties benefit his country, and still he may be an ardent land reformer. The intermixture of tariff legislation and land reform has thus done a great deal of harm, especially in the United States and the British Colonies. In these countries many enlightened men are thorough protectionists who, in that respect, have to stand up against men with whom they are united in the fight for a much more important issue. The Mortgage the most serious Obstacle But all this is nothing compared with the most serious obstacle in the path of a single-taxer, the mortgage. To tax away the rental value of the land destroys the best part of the mortgagee's security, and mortgagees are smart enough to be perfectly conscious of this fact. They would be absolutely unmindful of their interests if they did not carefully watch the chances of success which single-taxism might have. Long before its principles could ever be embodied in a law, mortgages would be called in all over the country. It can easily be 86 Ciue to the Economic Labyrinth imagined that in these circumstances new mortgages could not be contracted, and nothing would remain to the unfortunate land.owners but to submit to a public sale. The prices which the land would fetch in such a market would not pay off the mortgage, and the mortgagee would not only enter into posses- sion of the land with all its improvements, but probably also of his debtor's other property as well, while the poor mortgagor would be completely ruined. Do single-taxers really believe that our farmers will join their ranks with such prospects before them, never mind what the future effect of the measure may be? I, for my part, have never yet met with such self-sacrificing farmers in my life, and I have known a good many. Indi- vidualists as they are, you could much sooner obtain their adhesion to communism pure and simple, which, at least, would give them an equal share in the total wealth. Cuttingr the Dog's Tail . piece-meal gives more Compensation than immediate Land Purchase Difficulties like these are too glaring to quite escape the notice of George and his followers. As is usually the case, where the straight path has been left concession has had to follow concession, each step taking them farther away from the original goal : Land restoration. They came to the conclusion that it would not do to cut the dog's tail all at once, but that a gradual increase of the tax until the twenty shilling in the rental pound or one shilling of the capital value pound have been reached, would be the only method likely to be carried. They — the radical anti-compensationists — do not see that this system would leave much more of the unearned increment in the hands of the present land-owners than a rational system of land nationalisation. It is easy to prove this. The most optimistic single-taxer will agree with me that, even in as progressive a country as our New Zealand, it would under no conditions be possible to increase the present penny tax — from which, moreover, most land-owners are exempt, or the law could not have been carried — as much as half a penny in the pound for every legislative term of three years, especially if ex- emptions are done away with. However, even at thisextraordinary rftte of progression, which could never be carried through, it would The Land 87 take 66 years to obtain the full rental income for the State. During these 66 years the land-owners would continue to draw the unearned increment, though in a continually decreasing ratio. So the very party who are in deadly opposition to any kind of compensation, whose founder even charged those who want to give compensation with a desire to prevent abolition altogether, this very party proposes a programme which, as I shall now show, takes the odium of confiscation on its shoulders, and yet gives actually much more compensation than land nationalisers, who want to purchase the land at its full market value. As Joseph Hyder, the able general secretary of the English Land Nationalisation Society, said in a paper of February 8, 1899: "The real controversy is not between compromise and no compromise, but between two or more different compromises ; not between compensation and no compensation, but between two or more different methods of compensation. For to say that landlords shall keep all the rent, less whatever tax can be levied upon it, is in reality to offer compensation in the hope that it may afterwards be cut down by taxation." The most Practical and Honest Method Now let us find out what could be done by honest compen- sation. The State would purchase the land at its present price, and would issue debentures for the amount. The question whether these debentures are to be given to the land-owners, as Mr. Edward Withy proposes in his excellent pamphlet, " How to nationalise Ground-rent," or whether the land-owners are indemnified from the proceeds of the debentures sold in the money market, is a mere question of expediency. In either case the State can realise a benefit from the very beginning, through the difference in the rate of interest paid by the debentures and the land values respectively. We may not find everywhere such a difference in favour of the State as was found in Ireland, where the Ashbourne Acts used it for the purpose of buying the land for the tenants. When we shall have occasion to revert to this operation we shall see that, in spite of a rent reduction of 25%, the State was enabled to pay for the land within 46 years, by the mere profit made between the rental income of the land received and the interest paid out on the consols issued 88 Clue to the Economic Labyrinth for the purpose. The difference between the 3^% at which New Zealand could at present obtain the money through bonds secured by the rental income of the country, and the 5% (20 years' purchase) at which the rent of our land values is calcu- lated, permits us to redeem the bonds within the same period, as we save the Irish rent reduction of 25%. Another element, however, which was left out of sight in Ireland, to the great injury of the State, must be taken into consideration. It is the rise of land values in a progressive country. Charles Wicksteed, in the "Land for the People," calculates this increase by itself, in England, will repay the bonds within 40 years. The increase is, however, much more rapid in New Zealand, where, within the memory of living man, the present value of the unimproved land of over 84 millions has been created. It is true that between 1891 and 1899 the Government valuation shows only an increase on unimproved land values of about if/ 3. year ; but after land nationalisation the percentage would be much greater through the influence of the new state of affairs. When in later chapters I present a fuller conception of the deleterious effect of our existing land laws upon our economic development, it will be possible better to appreciate the great influence on this development expected as a result of land nationalisation and the inevitable outcome of progress. A rise of rent is bound to follow, a rise which will exceed all our present anticipations, without our having to dread rack-rents in a country that has millions of acres still in the bush state, and millions more that are not utilised to anything like the produc- tive use they are capable of. On the other side, the rate of interest may rise for short periods, but it has a tendency to fall ; and when we shall enter into the reasons of this phenomenon, we shall also see the accelerating effect which land nationalisa- tion is bound to have on the process. It is impossible to estimate the exact collective effect of all these causes ; but I have come to the conclusion that the difference between the income of the State from the nationalised land and its payments for the interest of the bonds by means of which the land was purchased will permit the redemption of the bonds within 20 years, possibly within 15 years. Ten years more might be required if part of the income is used for old age pensions from the beginning. The land will thus be honestly paid for, aqd The Land 89 yet the people will have given less unearned increment to the land-owners than the confiscation system, which leaves them the full rental for 33 years, would have done. If my calculation is thought an optimistic one, it is certainly not so optimistic as the hypothesis on which I assumed the 66 years required by the single-tax for the complete nationalisation of the rent. Instead of purchasing the whole land at once, the State might do so by instalments, as she_ is doing to-day. However, this would entail two great inconveniences. In the first place, too much room would be left to personal influences exercised either in getting the State to hasten or to postpone the purchase of sp'ecific properties, according to the advantage anticipated by the sellers. In fact, accusations of this nature have already been preferred regarding certain purchases made by the New Zealand Government. In the second place, deferred purchasing might considerably raise the price the State would have to pay through accruing unearned increment : the rise in value. The State's Rigrht of Pre-emption at present Prices The only way to prevent this latter inconvenience might be to fix once and for ever the price at which the State shall have the right of pre-emption ; but the reproach would not be unjustified that this right would entail a certain amount of confiscation, though by no means so palpable as that of the single-tax scheme. Parties who paid more for land than its present rental warranted because they counted on the future increase, willing, meanwhile, to lose a certain amount in interest and taxes, would find this hope cut off"; because, at the period when the higher rental would under existing conditions ensure them the higher selling price, the State would step in with its right of pre- emption at the old price, and thus deprive them of the expected compensation for their outlay. If the State took their land at the present market price, they would have no right to complain, because this market price includes the present valuation of future expectations. The moment, however, that a law cuts off these expectations, the market price would at once fall con- 90 Clue to the Economic Labyrinth siderably ; and this difference between the two market prices gives the exact measure of the amount confiscated by the new law. Something might be said on the other side, though. The law-giving power of the community is continually exercised to the detriment of one class or to the profit of another, without any compensation on either side. When a duty is abolished, we do not dream of compensating merchants who hold a certain stock of the article for which they paid the duty ; though they may have to lose the amounts thus disbursed because their competitors who now import duty free can undersell them. Nor does Government, when it imposes a new duty, make a claim against those who imported goods before the new law took effect, and thus make a profit. Nor did I ever hear of compensation to manufacturers for new labour laws : limiting working hours, allowing claims to the workers for accidents, or entailing a compulsory raising of wages through arbitration, never mind how much these laws may affect the business prospects. Building Regfulations do not affect House Rents, but Land Values New building regulations are bound to exercise a certain influence on building land, and yet I do not think it is usual to compensate land-owners in such a case. In no country, except England, perhaps, do we find greater veneration for vested interests than in Germany ; and yet when — several years ago — new building regulations were adopted for certain suburbs of Berlin, which restricted the height of houses below the limit permitted in the interior of the city, and which made com- pulsory a larger area of open space to each house, though there was a great outcry I never heard of any demand for compensa- tion. Still, it was inevitable that these regulations should, for a time, influence land values injuriously, as observers of the laws followed by landed property had maintained against superficial reasoners who pretended that the law would raise the price of houses and rents. Rents do not fall where, as in America, buildings over twenty stories high — the so-called sky-scrapers — are permitted ; nor do they rise where only one-storied The Land 91 cottages are allowed ; but where twenty stories can be built on a given area, the price of the land will necessarily be higher than where only one story is permitted. In the one case, the land-owner alone is benefited ; in the other,, he alone loses. Rent determines land values ^ not land values rent. The height of rent corresponds to the squeezability of tenants ; the value of the land to the price obtainable for the squeezing privilege, a price entirely dependent on the extent of the squeezing power. Taxing: vacant Building: Lots Conservative Germany does not stop at this inroad upon the vested rights of speculators without any compensation. The privilege has lately been given to Prussian towns to introduce a new system of taxing vacant building lots ; and in one town after another, the municipalities make use of the privilege, to the great advantage of the tax-ridden citizens. The old system was to rate according to actual revenue, which left these lots practically tax free ; the new plan is to rate them according to potential revenue, i.e., the revenue which could be obtained by building houses on the vacant land instead of waiting for a future rise. Of course, the speculator who bought in the hope of an eternal continuance of the former injustice loses through the reform ; and yet nobody dreams of compensating the poor fellow. It is strange that progressive New Zealand has not as yet introduced this simple reform, which ought to be acceptable even to those who are opposed to leaving improvements untaxed. There is no necessity to shift the basis of rating from rental to land values for this purpose. All that is required is to tax the rental which the vacant land would fetch if leased for building purposes, instead of rating on agricultural rents in the midst of a growing city. Defence of Non-Compensation A strong point in defence of non-compensation was made by Mr. Geo. Fowlds (M.H.R. and President of the New Zealand 92 Clue to the Economic Labyrinth Single-Tax League) in the New Zealand Herald of June 3, 1900, replying to a correspondent of that paper: " Mr. Upton asks : Most of the land in New Zealand having been bought from the Government, would it be right on the part of the Government to deprive the buyers of the whole monetary value of the land so bought? " Without compensation ? Certainly not. I never made such a proposal, and I don't know of any single-taxer who ever did. What I have said is that, taking the land-owners as a class, they have been compensated by the Government in the form of services to the extent of three or four times the amount they have paid to the Government. Even then I don't propose that the Government should suddenly stop the process of compensa- tion, but that they should gradually stop it by charging the land-owners an increasing proportion of the cost of the services rendered them every year. In addition to this, we propose com- pensating them further by abolishing all the taxes at present paid by them. Surely Mr. Upton should understand that all taxes are only a payment for services rendered, and any rational discussion of taxation must consider the question as to who receives the value of Government services. " The contention of single-taxers is that the value of all public services is expressed in land values, and that the land- owner possesses the power, which he never fails to exercise, of collecting the value of those services in the shape of rent. That the landless, having paid their share of the cost of public services to the land-owner in rent, are robbed when the Govern- ment calls on them to pay a second time in the form of customs and other taxation," It gives me pleasure also to quote some of my friend's clos- ing words in this discussion, which allow the hope that he and his fellow single-taxers, with the exception, perhaps, of a few incorrigible fanatics, will yet join hands with land nationalisers to win the great battle with united forces : " The British generally solve their difficulties by compromise, and it is possible that Mr. Upton's suggestion of buying out the present owners may be adopted before a final settlement is reached, but I gould not admit that such a course would be a The Land pj fairer way than a gradual change in the incidence of taxation, which I advocate." I do not wish my friend to surpass me in generosity, and I make concession for concession. I may, therefore, freely tell him that, if through the opposition of landlords land national- isation on the basis of compensation had no chance of passing, I should be quite ready to serve them as Abraham Lincoln served the confederates when he confiscated their sUve pro- perty. We poor human beings sometimes have to decide between two evils, and in this case confiscation once for all directed cigainst a comparatively insignificant minority is cer- tainly a lesser evil than confiscation of the majority's earnings carried on for ever. The Freehold doomed Fortunately, in New Zealand, at least, there is little fear that we shall ever have to use revolutionary means. Our islands are inhabited by a law-abiding people, who prefer evolution to revolution. Extreme parties have comparatively few followers. I may be mistaken, but I believe that single-taxers have frightened as many liberal thinkers away from land reform as they have converted to its just principles. Their non-com- pensation fanaticism has been the best ally of their conservative opponents, just as these have given them the strongest support by their uncompromising championship of the freehold. The freehold has played its part in human history. As a reaction against wasteful land communism, it has done ^^ood for a time ; but since it has become less a safeguard of the honest worker than the most formidable weapon of oppression in the hands of the drone, its days of usefulness are over. Lord Gobbleland and his partners in the city, with safes full of land-mortgage deeds, find less and less following among the hard-working men behind the plough and work-bench who own some encumbered freehold. The hard facts of everyday life begin to teach these small freeholders the important lesson that land reform will benefit them far more as workers than it will make them lose as land-owners. Once these men have found the camp they really belong to, the power of old-time conservatives will be gone for ever. If the latter are as prudent and far-sighted in their 94 Ctue to the Economic Labyrinth political capacity as they have been in money-making they will understand the signs of the times, and will not be fools enough to throw themselves into the way of the wheel of pro- gress, when there is absolute certainty that, though they may slightly impede its advance, their crushed and mangled bodies will mark the track of its final course. . Unearned Increment made by Public Improvements It is curious that the same speculator who demands com- pensation when any new law cuts off some future increment he counted on will not dream of offering a part of the profit he makes through the construction of a new road or railway to the State which made the improvements. In fact, it is notorious that in the past millions upon millions have thus been thrown into private pockets through the work done by other men or by the community, while the owners of these pockets have taken no share in this work. The Manawatu railroad, completed in 1886, has cost £767,66$; seventeen years later, in June, 1900, the increase of land values along the road was estimated by the New Zealand Times at ;^4,ooo,ooo. Part of the increase has benefited the Company, to whom a certain amount of Government land had been given as a subsidy ; but the bulk probably went into the pockets of men who never took a single share. When Sir Julius Vogel carried his great improvement scheme — to which a great part of the public debt of New Zealand is due — he proposed that the community should reserve alternate sections along the planned roads. Private speculators were too powerful to allow such a scheme to pass, and private- speculators have pocketed the millions of increment created through the new roads. It is not too much to say that if the community had kept the land along- side the roads, only leasing it at periodical revaluations, instead of selling the fee simple, by this time the entire debt contracted for the roads would be paid off. Will the Government be any wiser, or rather, will it be better able to withstand the onslaught of private speculation in the case of the new roads under con- struction ? Will the community benefit by the work it pays for, or will the main profit go to speculators fortunate enough to The Land ne monopolise the land along the road mostly to be benefited by the new means of communication ? We shall see. Limitation of Rigfiit of Pre-emption Anyhow, the right of pre-emption to be given to the com- munity might be subject to certain limitations to prevent it from hitting not only the speculator, but also the- bond-fide settler. The latter might be exempted from the operations of the law for land not exceeding a certain value ; and this exemption might even be extended to his direct heirs whilst they continue to occupy the land personally. It is demanded by equity, at least, so far as our colonies are concerned.. The pioneer who settles in a wilderness has to encounter many troubles which later comers are exempt from, troubles which he would not undergo if the unearned increment did not supply an induce- ment. We might, however, secure him that unearned increment which he obtains by his personal use of the land, without leaving him that which he wrings out of others using the land after him. As long as he cultivates the land, let him enjoy the low rent which he pays on his perpetual leasehold, or in the form of the interest of his lower purchasing price, in case he has a freehold. We may even leave this advantage to his direct heirs as long as they, too, are bond-fide settlers ; and it will be an inducement for them to remain on the land, instead of selling out, for, in case of selling, they would only obtain the price which their land had when valued at the time the law was passed. This would mean a decided loss to them, and few would give up their heir- loom which, as long as they work on it, yields them an income far in excess of what is due to their labour at market value. The community gives them this reward for the pioneering work they or their fathers have done, but this reward lasts only whilst they are bond-fide settlers. The very moment they want to sell, they become speculators in land values, and any profit made in this way is confiscated by the community, which thus obtains the increment due to increase of population or national wealth, and not to the personal work of the settler ; the settler being fully compensated for this work by retaining a claim for his improvements, and by the low price at which he had the use of the land as long as he did use it. The State's right of pre- emption holds also good in case the settler lets his land. 96 Clue to the Economc Labyrinth This does not apply to farmers only. The man who bought a piece of ground in a Wellington suburb at a time when it was only sparsely settled helped to attract other settlers, and thus created — to a certain extent — the increased value of his land- As long as he and his direct descendants live on the land with- out selling or letting any part of the grounds, and under the supposition that the value of the lot does not at any time exceed a certain limit, let the exemption operate. There is no need, however, to give him the increase of its value when he sells or lets the land or leaves it to an indirect heir. In this case the community takes the unearned increment by purchasing at the original valuation. Effects of the Law A law of this nature would have the advantage of effecting at once an immense deal of good by doing away with the dog-in- the-manager policy of land speculators, who now hold land for a rise. Such a rise would no more benefit them. As soon as the rental income increased sufficiently to pay the interest on the bonds for its purchase, the State would step in, and would make use of its right of pre-emption at the old valuation. With such knowledge, nobody would be inclined to pay more than that valuation, the land would be lost at purchase price just at the time when the increase of rent began to yield a profit Nor could the speculator forego present interest on his investment in expectation of compensation in the future through a profit on his purchase price. The new law disappoints this expectation, and forces him either to put his land to the best use or to sell. Building land in our towns will come into the market in large quantities, and prices will go down until they become accessible to purses which at present cannot afford to buy. In agricultural land, the speculator will equally yield the place to the farmer, and where the two are found in one and the same person, farming will gain where speculation loses. Here we have a farmer who holds 10,000 acres which he uses as grazing land. As such, it does not pay more than a very moderate rate of interest ; in fact, not moje than he has to pay to the mortgagee ; but he knows that in a few years the increase of population will so raise the price of this land that The Land gy the profit he can make in selling it will amply repay for the meagre income of the past years. Therefore he keeps the land in a semi-barren state, while men inured to hard work would willingly give it high cultivation if they could but obtain it at a reasonable figure. The new law, by cutting off all expectation of a rise in price, would at once induce the farmer to offer his land, or most of it, to the highest bidder, retaining only a small section for his own intensive cultivation. Thus, under the new law, the worst curse of landlordism will all at once begin to disappear even before the State has taken up a single section. Tax and Take If Henry George had advocated some plan of this sort, land reform would have progressed much faster, instead of being hardly further advanced, perhaps less hopeful in his own country at the present date than it was fifteen years ago. Confiscation has no chance to succeed unless it be through a bloody revolution — which may come there sooner or later — and then much more than the land would be taken. Great Britain is differently circumstanced. The imposition of a higher land tax may have a better chance there for the present than land nationalisation, through the fact that the Upper House can prevent the latter, but cannot reject tax bills. There may be hope of success for the principle of British land nationaliser's " Tax and Take " ; which means, tax to reduce land values and purchase at the reduced value after the House of landlords has been frightened through the tax into conceding land nationalisation. The valuation for the tax collector might be left to the land-owners, with the privilege for the State to pur- chase at such valuation. The colonies, however, are likely to adopt land purchase as their most practical method of land restoration. New Zealand especially has already made a good move in this direction, not only by valuing land separately from the improvements, and taxing only the value of the land, but by making a practical beginning with land purchase. Lease in Perpetuity The time cannot be far off when her statesmen will recognise that such a valuable instrument ought to be applied to a far G 98 Clue to the Economic Labyrinth better purpose than the mere breaking up of large estates ; strengthening the tree Landlordism by increasing the number of its roots. The land so obtained, as well as that yet in possession of the Crown, ought not to be sold, under any condition, or in any form. Certainly not in that hypocritical form called " Lease in Perpetuity." As such leases are free from any future re- valuation, the present rent running for 999 years without any increase, the system is practically a sale in fee simple, with the advantage for the buyer of not having to pay up a single penny, while obtaining the loan of an eternal mortgage. It is a blot on New Zealand's statute-book. Nor can the Premier under whose administration the law was passed plead ignorance, for he wrote the following passage in an article contributed to the Dunedin Echo of April 15, 1882, signed with his full name — ■/. Ballance : " Mr. George would not pay from the public exchequer for the economic errors of society in the past, but would make the individual who accepted the guarantee of the State the victim of national wrong-doing. To state this doctrine is to condemn it ; and it is the blot on a work which, so far as it refers to the economic advantages of State ownership, has comprehensively and conclusively dealt with the subject." The same man who wrote these lines, which show how fully he recognised the duty of the State to stop the " national wrong-doing " of parting with the nation's property, signed an Act which deliberately parted with the unearned increment of the next ten centuries to short-lived individuals lucky enough to apply for such leases in perpetuity. T am told he yielded to strong pressure brought upon him, and that it was the only way of carrying through the Land Settlements Act ; that it was a question of freehold or 999 years ; that only thus could a wedge be driven into the freehold superstition ; that the Act prevents anybody from leasing more than one section, and demands occupation. His resignation might have brought in the landlord party, who would have perpetuated the stealing of the birthright of unborn generations as in the past. Let us hope that a man with as much good intention, but with more backbone, will soon arise to right this foul wrong, and thus gain an everlasting claim upon the gratitude gf posterity, The Land 99 The worst of this gift of a thousand years' increment is that it was an entirely gratuitous one, for not an acre of land less would be improved if, instead of this outrage of an un- changing rental for all eternity — I beg pardon, for only 999 years — periodical revaluations had been instituted ; the more so as this system already exists in our statute book. It is true it exists only with the right of purchase given to the tenant, which ought certainly to be abolished in any case. With these changes in the present system, and the extension of the law's applicability to the whole land of the country, urban land included, a new era would begin for New Zealand, and for the world, to which it supplies a valuable object lesson. Administration of the Public Land The system of administration of the public land need not give us much concern. We have enough precedents to prove that the officials of public bodies are as capable of under- taking this work as the agents of our landlords. The Prussian administration of the royal domains may be considered the model of a perfect management, and the Birmingham adminis- tration of the land belonging to the city is accounted as, at least, equal to any management of private landlords. Neither will the question how the management and revenue is to be divided between the central and local governments offer insuperable difficulties. The Length of Leases or rather, the periods of revaluations of rents, presents a more disputable field. In.any case, I do not think that these periods ought to extend as far as many leases of city property given by English landlords, i.e., 99 years. The only advantage which the private land-owner may find in such long terms does not exist for public bodies. The former has the tendency to prefer advantages obtainable during his own life to the superior opportunities of his successors. A tenant who obtains a 99 years' lease will certainly pay a somewhat higher rent than he would for a shorter lease. The additional amount thus realised by the lessee may be a mere trifle when compared with the loss 100 Clue to the Economic Labyrinth in the next generations, with their largely increased rental values ; but the proverbial bird in the hand will not fail to claim its superiority over ever so many in the bush. Public bodies, however, are longer lived than individuals, and though, un- fortunately, often addicted to a very short-sighted policy, are not quite so inclined to sacrifice the future for the present. The long-lived lessor will find it good business to take advantage of the short-lived lessee's natural inclination to value the shilling which he himself enjoys higher than the pound which he might save for his unborn heir, and to prefer shorter leases at lower rents to longer leases at presently higher — but in future much lower rents. The privilege reserved by English landlords of con- fiscating improvements after the longer lease has run out does not add much to the inducement of the long lease, and prevents improvement on the property towards the expiration of the lease. City of Wellington Leases I should prefer the system adopted by the City of Wellington in its leases of the reclaimed land (land formerly covered by the sea). The land is leased for a term of 2 1 years at a stip- ulated rent. The tenant has to pay rates, taxes, assessments of any kind. At least six months before the expiration of the lease the tenant can demand a valuation of the rent for another term of 14 years, and so forth. Three valuers are appointed ; one by the tenants, one by the corporation, and the third by the two valuers thus appointed. In ascertaining such new rental, the valuers shall not take into consideration the value of any build- ings or improvements then existing upon the premises, but they shall value " the full and improved ground-rental of the premises " that ought to be payable during the new term. The corporation prescribes the kind of building which the tenant has to erect on the land. The tenant has a right to have his lease renewed by, the corporation at the new valuation. If he does not demand a valuation, it means that he has no wish to renew the lease ; and the corporation enters into possession of the land and improvements without paying for the latter. The tenant's only chance to get compensation for them is to find a person who will take the lease off his hands and pay him something for the improvements. The Land lot Risks of the Tenant Of course, it may happen that these improvements, though they have been very costly, are worthless under the circum- stances. Let us suppose, for instance, that when the tenant took the lease, the quarter of the city that he erected buildings in was looked upon as a fine location for residences, but, through the growth of the town, had become a business locality — as has oc- curred in certain portions of New York City — and in consequence of this change, the ground-rent for the land has been considerably raised. In this case he could only recoup by increasing the rent of thie residence built on the land, which is impossible, because the locality is much less desirable for such a purpose than it was before ; whereas its inner arrangements render the house absolutely unfit for business purposes. As the rent can thus be recouped only by pulling down the house and building business premises on the ground, no tenant could be found who would pay more for the house than what can be obtained from parties contracting for its removal. Or business premises might have been erected which were perfectly suitable 21 years before, and paid well at the lower rent ; whereas now, when the rent is raised, only a building of much larger dimen- sions could be made to pay. If the land were freehold, the owner would not hesitate to pull down the old building and erect a new one, provided the increased rent not only pays the interest of the new building, but also soon refunds the cost of the old one ; or in other words, provided the unearned increment obtained from his land amply compensates him. But under the changed conditions this increment goes to the community, and tenants, in tendering, have to take into account any possible loss on their improvements. They will not rent unless they feel sure that the rent they pay will allow them to lose on the improvements when the lease runs out. The condition that the tenant has to pay rates, taxes, and assessments of any kind under the Wellington system renders a special Betterment Clause unnecessary, which, however, ought to be inserted in every rating Act. Any increase in the rental value directly traceable 16i Clue to the Economic Labyrinth to public improvements made in the neighbourhood of any property ought certainly accrue to those who pay for such im- provements. Even under the Wellington Corporation leases, where the city benefits by such improvements after 21 years, there is no reason why the lessee should obtain the full benefit of any betterment through public improvements made while his lease runs. A new tram line passes the land he holds ; a railway station is erected ; a park is opened in its immediate neighbourhood, or the street is widened. All this is done at the expense of the public. It would certainly not be fair to make a present to the lessee of the increase in rental value thus created, which was not expected at the time the lease was made ; to let him reap where others sowed. The betterment clause would force him to contribute to the improvement in proportion to the profit he derives from it, giving him the benefit of the doubt as to the exactness of the assessment. Lease of Hamburg's Free Port A very valuable lesson as to land administration has been supplied by the little State of Hamburg, in Germany. When the new free port was constructed in 1884, a contract was made between the senate of Hamburg and the Norddeutsche Bank, by which 30,000 square metres of the 40,000 square metres (i i acres) belonging to the State in that section were — not sold, as our short-sighted New Zealand authorities sold the land traversed by our railroads — but leased to the bank, on terms which left in the possession of the community the increase of value certain to follow the improvements it created. It was done without any oppressive condition against the bank, and the company founded by it — which both did a profitable business. The State became, so to say, a partner of the company, putting in its land against the company's capital. The buildings were valued at 300 marks (;£'i5) per square metre, while the State put in its land at 50O marks, and shared in the profits at the rate of 5 to 3 ; every surplus beyond 3^% being counted as profit. In this way the State has received a yearly rental of 525,000 marks since 1889 for its 8 acres. But that is not all ; for, beyond its share, the State obtains another 10% of the net profits made by the company. The Land 103 after the 3 J% and a moderate reserve are deducted, and this 10%, with the accumulating interest, is employed to purchase for the State shares of the company. A yearly lottery determines the numbers which have to be given up for this purpose at par. In the year 1900, the State had thus obtained shares to the amount of 223,000 marks. Finally, since 1899, the State has the right of purchasing the remaining shares at a price not under 1 10% and not above 150% (from 22 to 30 shillings per pound). It is calculated that without paying out a single penny the State will own the whole property within 50 or 60 years. The Deutsche Volksstitnme, from whose 2nd August number of 1900 I extract the above information, says that this system, which thus rescued the land from private speculation and made it subserve the public interest, has in no way hurt the development of the Hamburg free port ; nor have buildings of inferior value been constructed on the leased ground. On the contrary, the build- ings, constructed on plans approved by the State, are of a superior quality, and the company has not found the least difficulty in obtaining mortgages. Eight million marks have been borrowed in this way on a building value of about double the amount. The dividend has been 5% of the capital invested, which in Germany is considered quite satisfactory. Contrast with such far-seeingr Policy that practised in Australasia where the State as good as gave away the land of the people to enrich private speculators. When we hear of £7^0 a foot frontage paid in Sydney, in 1900, for land opposite the Post Office — land once belonging to the people, and sold for a trifle — we cannot understand how our legislators can waste their time on idle personalities and party squabbles instead of setting their heart to right so grievous a wrong, or at least trying their best to stop the further waste of the public domain. Daily, hourly the same misdeeds are perpetrated before our eyes. Millions created by the people's sweat are allowed to swell the wealth of a few rich men. A single walk through one of our colonial cities ought to bring the blush of shame to our legis- lators' cheeks. In one part of the same they see thousands of people crowded in slums ; in another wide fields meet their eyes. I04 Clue to the Economic Labyrinth with cattle grazing, until some speculative land-owner exacts bis tribute from workers wishing to erect homes. Close Buildins Yet land reformers have been accused that their success would produce close building. Certainly closer building where acres are kept waste by speculating holders, possibly by wills of former owners, dead men who command that the living have to go miles farther out than they want to ; so that tramways and 'buses, water and gas pipes, drains, telephone wires, pavements and side-walks have to be extended without any necessity, thus uselessly doubling municipal rates.^ But with equal certainty there will be no such close building anywhere as we now find in our slum districts. Why, the population of Auckland and its environs might easily exist on one-half of the present area, and still every household could be supplied with a building lot of over a third of an acre, after enough space has been reserved for commodious roads and suiKicient parks.^ But under common land ownership, when the increase of rental values would flow into the pockets of the community, transit could be established rapid enough to bring the tenth mile from the Post Office nearer than the fourth is at present, for the higher rents of the land thus opened up for suburban dwellings would pay for the outlay. The citizens who want large gardens could thus be suited without requiring more time to reach their place of business. These people could as well as now afford the enjoyment of such gardens and parks. The sacrifice would not be greater, for the rent paid to the community would * In this way most of Auckland's suburbs cannot afford to pay for public water-supply and drainage. If the speculators' open spaces were built upon the increased number of inhabitants, or the reduced area of the suburb, would lessen the cost of such public works sufficiently to at once permit their installation. * I calculate that about 10,000 households now exist on an area of 10,000 acres, or about 16 square miles. Taking off as much as 1,500 acres from half this area for roads, parks and public buildings, the remaining 3,300 acres would give over one-third of an acre, or a building lot of 70 ft. by 300 ft. to each household. TJie Land 10$ simply take the place of the interest on the purchase money of their estates, which they now forego for their private pleasure. Szegredin and Galveston Our system is, anyhow, the greatest enemy of safe and hygienic sites for cities. We cannot find a better illustration of this than Szegedin and Galveston. The former became a victim to the floods of the Theiss in 1879, the latter to the waves of the ocean in 1900. For both, better locations could have been found, secure against the recurrence of such catas- trophes. But in such an alternative, the landlords would have lost the value of their sites ; therefore new houses were built, and cities arose on the old inconvenient locations. In any similar emergency, were the community its own landlord, it would at once condemn the old place, and would select a better position for the new town. Fanaticism on special Methods kept us back We should be much farther advanced if it were not for "the stubborn zealotry of single-taxers, who insist on their special " ism," oppose all other methods proposed, and thus prove the worst enemies of land restoration. The final answer I usually get from their leaders, when I have driven them into a corner, when they can no more gainsay my arguments, is : " Let this proposal (of compensation) come from the land-owners, not from us ! " As if land-owners all over the world were not per- fectly satisfied with their monopoly ! As if they could be expected to initiate land reform of any kind ! Many of them will oppose both land nationalisation and the single-tax ; but whereas we can get them to meet us halfway on a plan of com- pensation, they would fight tooth and nail any attempt at confis- cation. America had a civil war of four years' duration on less incitement. The proverb says : " Build a golden bridge for your enemy," and it is for us to propose fair means and ways to attain our end ; we must not wait for the other side to take the initiative. If they do take it, it will be on the lines of British landlords when they passed. lo6 Clue to the Economic Labyrinth The Ashboufne Acts for Ireland, which strengthened landlordism by widening its base, just as our own Land for Settlement Acts have done. However, even the Ashbourne Acts — although they merely created new land-owners — have rendered a great service by showing how easily compensation can be carried through with- out costing the people one single penny. We have already seen how the land was paid for by means of the difference between the cheaper interest rate at which the State could obtain the pur- chase money, and the higher rate at which the rent was capitalised in the land price. In this way, though a reduction of rents to the amount of 25% was allowed, the land is paid for within 46 years. But instead of belonging to the State at that period, through whose good credit the operation had become possible, it was made in favour of certain privileged individuals, besides the former landlords. The tenants who accidentally were in pos- session at the time of the law became landlords without paying a single penny, by simply continuing to pay their old rent reduced by one-quarter for the next 46 years, unless they pre- ferred to purchase right out at the official valuation. The Times of January 28, 1890, gives the inevitable results. One tenant bought the farm he cultivated at ;^S50, and sold it, subject to the repayment of this sum, for £970. Another farm bought for ;^S38 was sold, subject to the purchase money, for ;£'i,28o. One which had fetched £7SS was sold by the fortu- nate tenant who obtained possession of it through the new law, subject to the purchase money, for ;^ 1,725. £3,975 profit were made in these three cases ; more than three-fold the purchase money was obtained. Those who bought at such onerous terms pay, in the shape of interest, a more burdensome rent than their forerunners, when their state of distress resulted in the legisla- tion which, from oppressed, made them oppressors. It matters little whether the title under which the power of oppression is exercised is that of the landlord or that of the mortgagee, whether the tribute is called rent or interest, whether the oppressor is the nobleman, whose ancestors had conquered the land, or the former tenant, who has been fortunate to enter into possession when the new law passed, and who retires from active work. The Land 107 supported In a town by the new tenant's or mortgaged owner's labour. The Capitalist tlie worst Landlord Experience shows, in fact, that the capitalist usually proves the worst master of the two. When even he disappears from the scene, through the sale of his mortgage, the case becomes more desperate still for the poor mortgaged farmer. As I already pointed out in the case of the French cultivators, the lord who once owned the land had at least some sort of personal connection with his tenants. He probably had been born and brought up in the castle, had known hi| tenants from childhood, and his exactions were frequently tempered by some kind of feeling, unless he was an absentee landlord who left all powers to his agent. To the Savings Bank which buys the mortgage the question becomes one of mere figures : it is no more a question of one man's relation to his fellow-man who works for him, but that of the impersonal Capital to its interest. The right of Capital to interest has become such a self-evident one, that anybody who refuses to pay his interest dues is considered as defrauding Capital of its rights. Neither can the Savings Bank be blamed for not granting facilities, as it is merely the agents of others who have brought their savings. The real land- lord is yonder poor widow, who has invested her few savings in the bank ; or perhaps the farmer's own labourers, who have not the least idea where their interest comes from, and dream not that they are the oppressors of their poor master, who bitterly refers them to his own misery when he refuses to raise their wages. England has thus shown how compensation can be given without any cost to the taxpayer, but instead of using the system for the nationalisation of the land, she has made it an instrument to strengthen landlordism. Germany's Land Reform in China Germany, on the other side, in her Chinese colony, has made a beginning of land nationalisation, though not on the best system. The State buys the land from the original occupiers at io8 Clue to the Economic Labyrinth a certain price based on the land-tax paid by them, or rather the land-rent, as the soil of China nominally belongs to her Emperor. The land is then sold to the settlers at the market prices resulting from supply and demand. The right of pre- emption is reserved to the State, in case the buyers want to sell at any future time. If the Government makes no use of this right, it demands a tax of 2% on the selling price, and further- more, one-third of the unearned increment, of the profit made on the original price — of course, taking first account of the im- provements made by the owner. This third has to be paid, any- how, once within 25 years, whether the land changes hands or not. In addition to this, a yearly tax is demanded amounting to 6% of the selling value of the land. This tax cuts off the soil under the feet of land-hoarding speculators, who, besides the interest on their outlay, lose every year as much as 6% of the selling value of the land they leave unused ; and, in the best of cases, they have to give up one-third of their final profits. It is understood that the 6°/o cannot be deducted from the profits from which the State gets her third. As the tax is one of the conditions of the purchase, all the advantages of a land-value tax are reaped by the State without the stigma of confiscation. A valuable proof as to the progress land reform has made in Germany since the German Land Reform Society was founded, through my instrumentality, in 1888, a time at which the mere idea of land nationalisation was generally ridiculed in the Fatherland, is furnished by one part of the address with which the Government's representative, Contre-Admiral Tirpitz, intro- duced the new law in the Reichstag. He put stress on the fact that the financial point of view had stood in the second line only in the motives which caused the Government to bring forth this law. Better than this, a representative of the " Bund der Landwirthe," the league of the Agrarians, Germany's big land-owners not only approved of the law, but would have liked to see the third of the State's share in the profits raised to one- half. The manner in which this progressive law may affect the development of the German colony will be shown when the present political complications are got over. This pro- cedure on the part of a monarchic State throws a strong light on the backwardness of our democratic New Zealand, which The Land 109 purchases the land from its present owners merely to give it away to new landlords. Our Colonies' suicidal Land Policy A new colony cannot commit a greater fault than to sell its land ; there cannot be a more invidious and dangerous wa^ of raising funds. No money that flows into the public treasury can be more costly. It is selling the nation's birthright for a pottage of lentils. Land is sold right out at a price which, a number of years later on, would in some cases be willingly paid for a month's or even a week's rent.^ If New Zealand had kept its land, the rent by this time could pay for the maintenance of the Government, after taking into account the money obtained for it, with interest added. If the land were the property of the nation its railroads would have been paid over and over again by the increased income from the land in the neighbourhood, and there would be ten times as many railroads as there are. I have already illustrated this in the case of the Manawatu rail- road, the cost of which would now be paid by a mere four years' rental income of the land through which it passes. The State as land-owner could run its railroads on quite a dif- ferent principle from the one now in force. It might adopt the 1 This sounds like exaggeration, but only to those who never paid any attention to the subject. As an illustration take one case of many from a West Australian single tax paper. Taxation, of August i, 1900 : "^« Object Lesson. — Five years or so ago the Government sold a block of land in Kalgoorlie for the sum of £^0. They had this land in trust for the pre- sent and future generations, and, like the man of old, they sold the people's heritage for a mess of pottage. The other week this same piece of land was leased for a term of ten years at a weekly rental of ^40, and in addition to paying as much every week as the Government received altogether, the leaseholder has to put improvements on to the extent of £t,ooo, which at the end of his term he leaves to the landlord. As a proof that the lease- holder is not paying more for this natural opportunity than it is worth, the gentleman who supplied us with the information said he offered the same rent, and was prepared to-morrow to give the man who is paying £i,o per week the sum of ;£i,ooo on his bargain. Nine men out of every ten will tell you that this piece of land ought not to have been sold. What has made this particular piece of land so valuable ? The people of Kalgoorlie in parti- cular, and the people of West Australia in general. Who should receive this increased value in the shape of higher rents ? " 1 10 Clue to the Economic Labyrinth plan on which the owners of American sky-scrapers run their lifts ' — whose free use is given to the public, the increased rent of the offices more than paying for the expense. In the same way the higher rent of the public lands resulting from giving the use of our railways to the public free of charge or at nominal fares^ freights at cost, would amply pay the running expenses. The same holds good for all other public improvements. It was a disastrous policy of New Zealand to leave this increment in the possession of private individuals, instead of reserving it for the community. I find the following report in an article of Professor Ruski, of Odessa, Russia : "The Russian Government shows by its actions how de- cided it is to prevent the land from becoming an object of speculation. After the construction of the great Siberian railway, it has been often tried to obtain land near the new stations. The Government has refused all offers. However, anyone who enters into the engagement to construct a house and to cultivate the land, or to carry on an industry, can have as much land as he requires, at a moderate rent, for ninety-nine years." Despotic Russia is doing what democratic New Zealand refused to do when Sir Julius Vogel proposed it as the basis of his railway policy. Who has profited by his defeat in the Legislature ? The farmers ? Certainly not, for all they want Is a low rent, which compensates them for the risks of the pioneer. If this low rent had been secured to them for their, and perhaps for their children's, lifetime, it would have compensated them well for their pioneer work. No, the farmers did not need the unconditional freehold to pay them for their work, but the speculators wanted such rights, and the speculators made fortunes by their victory, for it was they who had defeated Sir Julius Vogel. Many of them, or their children, sit in London and live in luxury on the hard-earned rent paid by New Zealand farmers, and it is immaterial whether this rent is paid on a leasehold or in the shape of interest on purchase money. If this income had gone into the pockets of the community, it would have relieved the farmers of other charges loaded upon them to pay the interest on our railway debt. This debt would be paid by this time out of the increased The Land \ \ \ value of the land which was made accessible by the roads, instead of being a perpetual burden on the people, who have to pay heavy interest to bond-holders, whereas speculators have pocketed the increment created by the railroads. Investment of Capital In Land welcomed Such things could not be if the people at large, and even its most intelligent men, did not wade knee-deep in the mire of ignorance in regard to this subject. How often the leaders of our best editors give expression to joy at being able to signal evidences of outside capital coming in to invest in this colony's lands, and that land values are booming ! I wonder whether the poor, down-trodden hind of the Middle Ages rejoiced at the increase of castles, and at the prospect of a new donjon arising on the rocks above his humble roof — a stronghold from which the oppressor's armed minions would soon come forth to demand a heavy tribute in labour and kind ; or whether the merchant of those days was happy in the prospect of a new toll-gate arising to bar his road and exact blackmail ? What else is it when capital comes here to buy land as a speculation, and makes money by a rise of values? The money is not given us ; it is merely invested in a net with which to catch more, much more than was paid out. The man who pays this money does so merely to exact more from somebody anxious to work the land at some future day, I heard of a Scotch capitalist who, a few years ago, came here for the purpose of investing money in New Zealand land, and who had the chance of being the only bidder at an auction sale where 50,000 acres of land, north of Auckland, were sold. He obtained them at the first bid, at 5 shillings an acre. The man will probably hold the land until he can get at least a pound an acre, perhaps without spending a penny for improvements, unless he allows some of the rent he obtains meanwhile to go towards improving the land to a certain extent. And when he finally gets his pound an acre, when the value of his 50,000 acres has risen from ;^I2,500 to ;^50,ooo, our press will rejoice at the country's prosperity exhibited by the increase of its land values. Certainly higher land values are an indication of gre^t^r wealth, in the same way in which rank weeds indicate a 112 Clue to the Economic Labyrinth good soil, but just as we have to extirpate the weeds before we can use the good soil which brought them forth, so the destruction of land values will open the land to the wealth- strewing cornucopia of Ceres. What good can such an investment do to the colony ? The man did not come to stimulate New Zealand production, but to thwart it. If he had not made a bid, nothing would probably have remained to the former speculator — who had to sell for some reason or other — but to let bond-fide settlers have the land at a price which permitted them to develop it at once. Investments of this kind remind us of certain others made in rifles and pistols by amiable gentlemen who earned a living with such tools on the king's highway. Mere instruments of extortion have been bought in either case, and our editors applaud such banditti operations. Only investments in land which signify payments for improvements are investments of value to the country, and these are kept back by the other spurious kind. The Freehold handicaps the Land-user The more a farmer is forced to spend for the acquisition of the land, the less is left to him for its improvement. De Lavergne, the enemy of peasant proprietorship, speaks of "That turning aside of capital from the cultivation of the land to its purchase, which is one of the chief vices of our French rural economy." Unprovided with sufficient capital for improving and culti- vating the land, the poor farmer has to take up a mortgage, and when once this parasite has taken possession of him his destruction is only a question of time.^ Lacontex says : " Getting rid of one order of landlords and their rents, they have subjected themselves to another, though invisible order, the mortgagees, and to their heavier and more rigid rents." '^ I know a poor man now earning a hard bread by canvassing who came to this country with ;£4,ooo, a capital with which he might have made a fortune on leased land ; but he bought a farm for the money and had to borrow capital to work it by giving two mortgages on his land, amounting to ;£2,6oo. At the next crisis a mortgage was foreclosed ; all he possessed just paid his debts, and he was turned loose upon the world, a ruined man- The Land ilj The same holds good also for land used for ptirjioses of Residence. The money now paid out to buy the land then will build the houses. House rents are cheaper in England than ori the continent, other conditions being similar, because the land; lord is satisfied with the interest bri the preseht value of thd land which remains in his possession, whilg the interest on the continental purchase is paid on a price including the value of the future increment. When Ricardo says with perfect justice: "It follows then that The Interest of the Landlord Is always opposed to the Interest of every other Class in the Community," we must not narrow down the term to the man who holds the title, when the real landlord may be the capitalist who holds a mortgage on the other's land, and who uses him merely as the sponge with which he sucks the life-blood of the land-user. And I repeat : you cannot get at the mortgagee unless you cut at the root — " private land-ownership." Taxing him is absolutely use- less, for he will simply add the amount of the tax to the rate of interest he claims, as has been proved in NewZealand and Switzer- land. The case of the people is most hopeful where, as in England, landlord and farmer are usually two different persons, and most hopeless where the cultivator is nominally the owner of the land he works. When a shoemaker is in distress, we are not in the habit of bewailing the fate of the poor land-owners because accidentally some shoemakers own their shops and the land these are on. On the contrary, we are rather inclined to look at the exactions of land-owners as one of the causes from which the trade is suffering ; but we are only too apt to pity the landlords in times of agricultural depression. In reality, the interest of the farmer, as such, is entirely separated from that of the land-owner, and the sooner the two are divorced the better it will be for the working partner. Farmers ought to be the^ most energetic land reformers, for the land is their principal tool, therefore land usury affects them most deeply. It is better for them to lease land than to buy it, for it leaves them more capital for their business, and it is certainly to their advantage to have the rent which they pay anyhow, go into the pockets H 114 Clue to the Economic Labyrinth of the community they are a part of rather than into those of a monopolist. Laying the Blame at the wrong: Door When a school-boy, I read in our primer of a way snakes have of biting the stick which strikes them, not the man who wields the stick. We need not laugh at the simplicity of the snakes, for we generally act just like them where the land-owner is concerned. Take, for instance, reports like the following : " It is common in parts of London to find a notice, ' Part of a room to let.' The question appears to be fast approaching a climax. It is no longer within the means of working men, earning ordinary labourer's wages, to provide decent house accommodation. Only the other day no fewer than seventeen people were found inhabiting a single room in Camberwell. Among some families in Spitalfields the beds are rented on the eight hour principle, having three different sets of sleepers every twenty-four hours. Such a statement would be incredible were it not well authenticated. The officials of the local authorities do not know what to do. The report affirms that fully a fifth of the total population of London are over-crowded, in spite of the law. That is, 900,000 people are in illegal occupation of rooms. There are nearly 400,000 people living in London in what Mr. Sydney Webb calls ' the soul-destroying conditions of the one-roomed home.' There are 3,000 living eight and more in a room, and 9,000 living seven and more in a room, and there are over 26,000 living six and more in a room. In describing some of the cellar dwellings in London, the report tells of a number of children who took turns at keeping awake to keep rats off the others.. It is horrible. Yet this is a civilised country, and this is the end of the marvellous nineteenth century. " In this crushing and crowding for room to live the property sweater scores at every point." This is the conclusion usually reached. The owners of these tenement or slum houses are the usurers at whose door the whole blame lies. Not often do we find the real source of the evil indicated as in this case, where the People's Journal, DundeCj The Land 1 1 5 continuing its comment on the Bethnal Green Vestry's report, says: " The cry of ' No room to live ' is another form of the everlasting land question. The slum landlord gets all the benefit" Attack the System, not those who profit by it I do not want this looked at in the light of an attack on the land-owning speculators. I am attacking the right of private land-ownership, not the land-owners, whom I think in their full right to invest their money as they please, and who are fully justified in their business transactions, even if they are sincere land reformers. So also with opponents of our gold currency if they elect to buy gold shares. One might as well reproach the socialist Bebel with having been an employer of labour. On the contrary, we should be justified in doubting the good faith of the land reformer, who professes that under existing laws land offers the most remunerative and the only safe invest- ment, and who, notwithstanding, places his money in industrial enterprises which he asserts to be superlatively hazardous. When I myself was accused on these grounds I used to tell the story of the dog trained to fetch the meat from the butcher. Once upon a time, half-a-dozen other dogs attacked him, and forced him to put the basket down. He defe'bded the meat against his enemies as well as he could ; but when he saw that he could not prevail, he took his share. My forbearing from buying land would not make it common property, would not give it back to its rightful owners, the people ; but would simply cause another to buy it in my stead. Nor would the leaving my capital to my banker without interest prevent him from taking interest for it from those who borrow it from him. I should simply increase the power of others to defend the present system, while weakening my means of assailing it. In an article on Tom L. Johnston, one of the foremost single- taxers in the United States, Louis F. Post, the able editor of the Public, takes the same stand : " If in his business dealings he may at any time have been accused of resorting to the arts of the monopolist, that is because t i6 Clue to the Economic Labyrinth he makes a clear distinction between things as they are and as they ought to be. Whoever would be rich in these days must resort to the arts of the monopolist. No successful business man is free of that taint. The real issue is not whether a man is a monopolist or tries to be one, but whether he tries to perpetuate the conditions and institutions that make the arts of the monopolists prime conditions of business success. On this issue Johnston's skirts are clear. He realises that with things as they are a veritable car of juggernaut is passing over the writhing masses of mankind, crushing them under its ponderous bulk. He knows that this ought not to be, and he appeals to the people to stop it. He offers to help them stop it He endeavours to stop it. But he refuses to be crushed. * So long as you allow this infamy,' he exclaims, ' I shall try to get a place on the car instead of under the wheels ; but I will help you to abolish the whole thing.' " He has got a place on the car, a comfortable one as such places go ; but from this point of vantage he is doing all that one man can to hinder its murderous progress. In his business life, that is, Johnston takes advantage of conditions as they are to make money. But he does not fool his own conscience, nor insult the intelligence of his generation, by pretending that the industrial conditions which foster fortunes so made are beneficent. He knows the conditions are foul, he knows why they are foul, he denounces them as foul, and in all his civic relations, whether as office-holder, politician, agitator, or simple voter, he does what he can to abolish them. " His attitude in this respect may be best illustrated by an answer he once gave in Congress : ' As far as I am personally concerned I am a thorough-going monopolist, and would be willing, outside of this hall, to take advantage of any of the bad laws that you put upon the statute-books ; but I will not defend them here.' " That declaration describes Johnston exactly. In business he is a monopolist ; but unlike the other great monopolists, he does not carry his business interests into his political life." It is here, I think, that social democrats are committing their most grievous mistakes. It is true that the employer is the sponge which sycks up the profit, the greater value (Mehrwerth,- The Land wj as Marx calls it) of labour's jproduct, but only to yield it to the rent and interest lords, as well as to the middle-men, who together press it out of him as quick as he gets it, barely leaving him on the average the hard earnings of his own work, and, what is worse, taking the power from him of increasing production to its full potentiality. Stirring up the workers against their employers unnecessarily creates bad feeling on both sides, and thus prevents both parties from getting at the full truth, and then combining their forces in the attack upon the real enemy. Which is the best policy? To attack the man whose footstep has involuntarily started an avalanche, or to try to protect the valley from such curse ? But even those who sent the wanderer on his journey are as guiltless as the poor fellow who himself was buried by the avalanche. Through circum- stances over which they had no control, through ignorance, habit, prejudice, descent, education, the land and money lords have become the innocent wheels in a machine which crushes millions beneath its rollers. As a general thing, they imagine that they accomplish a social duty in interlocking their cogs, well greased, into those of the other wheels of the machine. Even the voluntary retirement of the single wheel cannot stop the working of the mechanism, because at once other wheels would automatically take its place. Let us fight with all our power against the evil, and, if we are victorious, the evil-doer will disappear. I do not think that anybody ever expressed this sentiment more forcibly than my old friend and co-worker, A. J. Ogilvy, when he wrote the following article in the columns of Land and Labour (June, 1900): " GREED. — This is a protest against the habit, too common amongst us, of charging this and that exploitation of the workers to greed : the greed of the landed, the monied, or other privileged or powerful class. " Greedy people, of course, there are in these as in all classes, but in no one class more than another; and these wholesale charges recoil upon ourselves, doing perhaps more harm than all the arguments and influence of our opponents put together. " For even with the greedy ones it is not greed that makes ii8 Clue to the Economic Labyrinth them do the things we denounce, but mistaken ideas as to their rights, backed up by the teachings of a false political economy, and confirmed by immemorial custom behind and universal practice all round. " It is not greed, but fair honest business, to try to get the full market value {i.e., the best price going) for whatever we have to sell, lend or let, and to give no more than the market value for whatever we have to buy, borrow, or hire, so long as we believe honestly in our right to dispose of or to acquire it. No one blames the farmer for taking advantage of bad harvests to ask the abnormally high price going for his grain, and this notwithstanding that the high price means a pinch to the poor ; for scarcity means that there is not enough to go round, and so someone must go short in any case, whatever the price, and the high price actually works for good by compelling care and economy in the use, and so making the scant supply spread wider or last longer ; and high prices at one time are but fair compensation for low prices at another, and for risk at all times. " Also if he thinks the price likely to rise still higher, he is quite justified in holding on for the expected rise so long as he does not deliberately try to force the price up by ' cornering ' ; by producing an artificial scarcity on top of the genuine one. The same thing holds true with the merchant in regard to his goods, and the worker in regard to his labour. It is only care- less indifference or weakness of character to let your commodity go for less than its market value. If you want to be benevolent or public-spirited, you can be so more effectively by insisting on your full price and righteously applying the proceeds than by letting your goods or services go cheap, which rarely benefits the right person. " Now what we have to realise is that the landlord, in trying to get the most rent, the money-lender the highest interest, and the employer the most work done at the smallest cost, is acting on the same ordinary accepted business principles as the farmer in regard to his grain, the merchant his goods, and the labourer his service ; and not only does he honestly believe that he has the same right to do this, but so also do the public generally, including even the very people who suffer : the land- user, the money-borrower, and the employee, who conversely and very properly tries to get the highest wages he can. Each The Land 119 believes that a thing is worth what it will fetch, and that this ' worth ' — this market value — can only be ascertained by the ' higgling ' of the markets ; that the owner of the thing has the full right to get it without exposing himself to accusation of greed. If the whole idea is a mistake, it is a universal (or almost universal) mistake, and no class in particular is to be blamed for it. " These hasty and sweeping accusations of greed not only exasperate the accused, and set them determinedly against us, when many of them are good men open to conviction if only fairly approached; but they arouse indignation and opposition in the tens of thousands of honest men who do not belong to the classes attacked, but are their friends and neighbours, and who, knowing that this attack is unjust, set us down as violent fanatics, whose arguments are not worth serious attention. " I meant to have illustrated my argument by applying it to particular cases, such as the withholding of building sites, the extortionate demands for allotment rents, and even that crime of crimes, the highland clearances (if that can be called a crime which is atrocious only in its nature, and not in any criminal intent of the perpetrators), and to show in each case how special and specious arguments, even of disinterested economists, helped to delude the doers of the wrong acts, in the belief not only that they were strictly within their rights, but often (especially in regard to the worst of all, the clearances) that they were really acting for the public good ; but space forbids. " But there are two other causes at work, besides mistaken ideas as to rights, which if they do not create, at any rate intensify the evils we deplore : " I. That in regard to sweating ; the sweater in most cases is himself sweated, and driven to sweat others in his struggles to keep his own head above water. If he is not directly sweated by extortionate rent, crushing interest or insufficient salary, he is sweated by that terrible cut-throat trade competition that cuts profits down to the quick, and makes ordinary business some- thing like the struggles of drowning men, each pulling the other down in his attempt to keep himself up. " 2. The other cause, less commonly noticed, is the delegation of responsibility and consequent loss of the sense of it, due to the growth of Joint Stock Companies. Enterprises are now carried 120 Clue to the Economic Labyrinth on on so large a scale that they are fast passing out of the hands of the old 'Captain of Industry,' the single specially gifted organiser and owner of enterprise, and are fc^lling into the hands of a multitude of obscure shareholders who leave the manage- ment of the affairs to directors, who being in turn mere paid agents, consider they have no right to be magnanimous with the property of their employers, or to consider nice questions of ethics, but are bound to carry out strict business principles to the bitter end ; while their employers, the shareholders, consider that the whole responsibility of the business is on the shoulders of the directors, and look merely for their dividends, never ask- ing inconvenient questions as to how the dividends are got. They are mere sleeping partners, absolutely asleep so far as the management is concerned, only waking up now and again when dividends fall to make spasmodic inquiry as to the cause of the fall ; never as to the strict equity of the source. You may hear complaints from them that such and such an officer is inefficient, never that he is under-paid or over-worked (unless it involves a risk to their interests), or that such-and-such requisites might be procured elsewhere ; never that the extra cheapness elsewhere is due to sweating. " Which of us, indeed, even amongst the loudest declaimers against Greed, has not insured his life or his property, or invested savings at interest ? And yet how many of us have ever paused to reflect how it comes that our insurance is assured, our pre- mium is as low as it is, and how the interest on our savings accrues ? If we did, it might begin to dawn upon us that our insurance and our interest are due to the Insurance Co. and the Savings Bank, both acting consistently on the strict business principles of getting everything in the cheapest and disposing of it in the dearest market ; taking every advantage the market offers of scarcity of goods, scarcity of money, scarcity of employ- ment; conduct which, quite natural and legitimate in itself, and actually for the public good amongst a really free people, does under existing conditions of monopoly of natural resources exhibit itself as sweating. " So long as natural resoyrces are made an article of com- merce, to be bought up by the rich, granted to or withheld from us at their pleasure, and used as an 'investment' to exact tfibiite from the workers, so long wiH the naturally bountjl^ss The Land I2i field of employment be artificially restricted, and more workers be seeking work than work offering for workers ; and so long will the evils we deplore follow inevitably, competition for employment forcing down wages and lengthening hours. It is the institution which is at fault, not the people who happen to represent it for the moment Let us cease, then, hurling base- less and exasperating accusations against these, and attack the institution only." Other Aspects of the Land Problem I should say much more here upon this great subject of land reform. I have not even touched upon any but the direct effects of private land-ownership produced by the mere withholding of our mother earth from fellow-beings who famish without it. I have not discussed the most important relation of rent to in- terest, as one of its progenitors, nor have I done more than merely indicate the part Land's indestructibility plays in the building and maintaining of wealth concentrations, and their effect on employment. These aspects of the great problem can only be approached after other social factors have been duly considered. Our next step will be to investigate the nature and the influence of one of these factors, equivalent^ — by many regarded as superior — in importance to Land : Money. CHAPTER III MONEY "Gold! gold! gold! gold! Bright and yellow, hard and cold ; Molten, graven, hammered and rolled ; Heavy to get and light to hold ; Hoarded, bartered, bought and sold, Stolen, borrowed, squandered, doled ; Spurned by the young, but hugged by the old To the very verge of churchyard mould ; Price of many a crime untold ; Gold! gold! gold! gold!" —Thomas Hood, \— DEFINITION AND CLASSIFICATION If Land is the skeleton of the social body, if Labour supplies its muscles, Money may be regarded as its life-blood, without which the muscles do not move and the bones remain an inert mass. As blood was circulating for millions of years before Harvey expounded the system of its circulation, so money, even in our days, is used by millions who have not the least con- ception of its real nature. Many of those who know most about it have a personal interest in concealing their knowledge. So early as 1577 we find the keen and piercing intellect of Bodin remarking thus ; " For men have so well obscured the facts about money that the great part of the people do not see them at all. The moneyers do as the doctors do, who talk Latin before women, and use Greek characters, Arab words, and Latin abbreviations, fearing that if the people understood their receipts they would not have much opinion of them." (Quoted from Dunning's " Philosophy of Prices.") I do not wish to fatigue the reader with the many conflicting definitions given of Money by economists, but shall follow the Money 123 course adopted through the whole of this book, of taking the word as nearly as possible in the meaning given to it by the custom of everyday life. In this sense I shall confine the term to anything which is legal tender for debts, i,e., which has to be accepted as the final settlement of a debt by the creditor to whom it is tendered. In Great Britain sovereigns and half- sovereigns are legal tender for all debts ; smaller coins are only legal tender for debts up to 40 shillings, and Bank of England notes for all debts above £i„ except the debts of the Bank. British coins and Bank of England notes, therefore, are Money in Great Britain. Other means of payment or exchange, such as those bank-notes which are not legal tender, cheques, bills of exchange, promissory notes, etc., are not money, but money representatives, money promises. They are included with money under the general name of currency ; but whereas money is only that which has been made legal tender for debts, currency is anything which passes as a means of exchange and payment Money is always currency ; currency is not always money. There are three kinds of money. I. Any kind of merchandise may be made money by law or general agreement. We might call this money merchandise money, or commodity money. A number of different kinds of merchandise have been chosen as the money commodity at different times and in different countries. Cattle has been mostly used, of which " pecuniary " (from " pecus " = cattle) still reminds us. Different metals paid out by weight come next in order. Certain shells, salt, fish hooks, etc., have been or still are money in certain countries. Whether a special form is given to the money commodity, whether it is marked by some kind of stamp, or whether the special form and the stamp exist con- currently, makes no difference so long as the value of the money, as such, does not differ from that of the raw material it contains, the newly-minted English sovereigns and American gold coins, for instance. It is self-evident that the parity between the value of the coin as money and the coin as bullion exists only so long as no abrasion has taken place, and can only be maintained while free coinage exists, for without free coinage, which enables any possessor of bullion to change it into coins of equal value, coinage becomes a monopoly, and coins obtain a monopoly value liable to differ from their bullion value. With- 124 Clue to the Economic Labyrinth out free coinage gold coins enter the confines of money class 2. 2. The stamp is applied to a commodity which would fetch an appreciable price even if the stamp had not been added ; but the stamp increases this value, more or less. Silver, copper, and nickel coins at present belong to this class, and also gold coins which, through seignorage or wear and tear (unless the State gives new ones for them without cost), have a higher value as money than they possess as bullion. Class 2 offers a transition to class 3. 3. The commodity value has entirely disappeared, the value imparted by the stamp alone remains. We have reached Token Money ox Money of account. In our time it is exclusively known in the form of paper money — not to be confounded with bank- notes payable or supposed to be payable in coin. The best known prototype of this class is represented by the French Assignats of the eighteenth century; but money of this kind was used in remote antiquity, in China, Rome, Lacedaemon, and Carthage in the shape of small pieces of leather supplied with certain signs. The wooden tallies issued by the English Treasury up to the reign of William III. belong to the same class. They were accepted in payment of taxes by the Treasury, but not paid in gold or silver. Confusion of Paper Money and Paper Currency What has more than any other cause contributed to compli- cate the money problem is the difficulty of drawing a sharp line between this third class of money and one special kind of currency, a certain kind of money representatives called bank or treasury notes. Where these are merely money promises, they are not money ; but where they have been made legal tender they are legitimate money, even though, as in the case of the Bank of England notes, the bank has to pay gold for them at any time. With most of the legal tender bank or treasury notes this obligation does not exist ; for though at some time or other coin was obtainable for them, the practice has become obsolete, and to all ends and purposes they are just as much mere tokens or paper money as the French Assignats were, Money 125 To this class belong the notes of Argentina,' Brazil, Greece. Portugal, Spain, Italy, Turkey, etc. For Austria-Hungary and Russia there was an intention of resuming specie payments after a very long period of non-convertibility ; but I do not know whether the payments have been permanently resumed in the case of Austria, except in money of the second class, of silver coins ; or whether, regarding Russia, gold payments have been maintained since they were begun a few years ago. At that time, in spite of the text of the notes promising coin, the people had so entirely ceased to associate paper roubles with coin that the peasants in many cases refused the new coins, because in their eyes — exclusively familiar with the paper — they were not roubles.^ Elastic Boundary Line between Class 1 and Class 2 Though the hybrids just enumerated are responsible for most of the confusion reigning in the field of currency reform, the elasticity, of the boundary line between class i and class 2 is equally productive of confusion. Thus the main bone of contention between monometallists and bimetallists is the ' The Argentine Republic offers an interesting example of the hybrid nature of certain kinds of paper money. In 1869 the province of Buenos Ayres issued real paper money, on which was printed : " La Provincia de Buenos Ayres reconoce este billete por i peso moneda corriente." (The province of Buenos Ayres recognises this note for i peso current money.) The present paper money of the Argentine Republic has the inscription : " La nacion pagara all portator a la vista por medio del Banco de la nacion Argentina i peso." (The nation will pay to bearer at sight through the bank of the Argentine nation i peso.) Which means that for the paper another paper of the same kind is handed over on demand, as this paper is legal tender money, and is issued even for small change down to 5 centavos. As a peso in paper is worth is. lod., the 5 centavos paper is worth about a penny. , No other money, no gold or silver coins, are paid out by the State, or by the bank. These notes are not only a hybrid between paper money and money representatives, but also one between treasury and bank-notes. ^ This recalls a remark made by Thompson, in his " Political Economy " of the Scotch bank-notes down to 1845 : " The people will take guineas instead if they must, but they pass them off as soon as possible, as a pretentious, unthrifty, eminently un-Scottish kind of money, much inferior to a native bank-note coined in any corner of Scotland." 126 Clue to ihe Economic Ldbynnth question whether or not the value of gold or silver as merchan- dise can be kept at par with their money value where both are made legal tender for all debts, after a permanent relation between the amounts of metal respectively used in the gold and silver coins has been established; or, in other words, whether both together can be kept within our first money class. It is evident that, whenever the merchandise value falls below the money value, the coin has, for the time, passed from class i into class 2. A possible temporary excess of the merchandise value over the money value can be left out of account, because dealers in the precious metals will at once take care to eliminate such coins from the money domain altogether by selling them as bullion for melting purposes. Coins selling at a premium in legal tender are practically no longer money, but a merchandise. Money Evolutions Without wishing to prejudge at this stage which class of money proves the best in practice, we can at least conclude that each presents a degree of evolution from the preceding class, an evolution corresponding to a more advanced state of civilisation, just as class i itself was a decided progress from primitive barter. It is barter still, but improved barter ; or, as it has also been called, a double barter. The tailor who wanted to ex- change a coat for a table had not only to find a person who wanted a coat, but one who at the same time had a table to dispose of. If by general agreement, or by law, certain commodities are accepted in exchange by everybody, whether specifically required or not, because, through this general acceptance, other things which are required can be procured for this special commodity, the work of our tailor is much simplified. He has only to find someone who wants a coat and is willing to give the generally accepted commodity for it. He is sure then to obtain a table if one is in the market, even if the owner of the table does not want a coat ; because the latter will certainly accept the special commodity, for which he in his turn can obtain anything he may need. The next step will be that the community makes its taxes and fines payable in this special generally accepted commodity ; and finally, not only prices of all goods and services are computed in the Monty 127 quantities of the special commodity for which they are ob- tainable,' but debts are also figured in the same way, and any person can liberate himself of a debt by simply tendering the promised quantity of our commodity, which thus has become legal tender, and consequently money. When it is supplied in exchange for anything else, or when it is handed over for a debt, we call the transaction a payment; bartering becomes buying and selling. Preference given to certain IVletals It is generally considered that the adoption of certain metals as the money commodity, because of their comparative in- destructibility, their divisibility and their general use in the arts or as ornaments, marked a further progress. We shall yet have to consider later on whether another of their qualities — their scarcity — usually given as their principal claim to the money honour, was not more in the nature of a disqualification than of a benefit through the dangers it involved. Another good quality of metals, usually stated, is their impressionability. It offers the great advantage of delegating the trouble of weighing and assaying each piece of metal to special parties, instead of forcing this work on every receiver of money. It is a perfection, however, which in its consequences supplied the most powerful weapon for the gradual but certain dethronement of the precious metals from their money kingship. Gradually the stamp itself obtained a value more and more independent of that of the raw material to which the stamp was applied, until, after class 2 was passed, the value of the raw material entirely disappeared, and class 3, token money, was reached — a class perhaps even more ancient than class i and class 2, as the money of some high civilisations of the past belonged to it, and capable of a perfection to which the other classes cannot aspire. ^ Jevons draws special attention to this function as a measure of value by pointing out that " between one hundred articles there must exist no less than 4,950 possible ratios of exchange ... all such trouble is avoided if any one commodity be chosen, and its ratio of exchange with each other commodity be quoted." 128 Clue to the Economic Labyrinth Token Money the Means of Exchange of a hig'her Civilisation The money of the first class is the remnant of a stage of development not far distant from the savage condition. Credit, the child of confidence and trust, is not born. The money- accepted has as much value as the commodity or service which is supplied for it, if sold as an ordinary merchandise. The money of the third class, however, has no other value but that imparted by the stamp, which causes those with whom we are dealing to supply goods or services of a certain market value for this money. It has no mercantile value by itself, in- dependent of its stamp, for the material on which the stamp has been affixed is practically worthless in this small quantity. Parting with valuable goods for a mere token of no independent market value presupposes a certain amount of trust in others, the trust that they will pay the same honour to the stamp as the party who accepted it. Robert Ellis Thompson says, in his " Political Economy," p. 152: "If barter may be compared to the rude mode of transportation on human backs, and coin to transportation in carriages by horses, paper money is the steam carriage, whose use calls for larger precautions against danger, but whose superior utility far outweighs that consideration " ; and further on, pp. 156, 157 : " The third and the most perfect form of money is money of account. It possesses in a still higher degree all the advantages that make paper money better than coin." (Under paper money Thompson understands bank-notes : money pro- mises.) " As much as paper money is less material than coin, by so much is money of account less material than paper money." After comparing it with a flying machine as related to a steam carriage, he goes on : " It is the money of civilisation ; its use involves a degree of intelligent insight into the true nature of wealth and of exchanges ; and a strong confidence in the genial honesty and trustworthiness of mankind, that are impossible to the savage or half-civilised man. ... It originated in the communities of Italy ; from there it came to Amsterdam, Hamburg and Stockholm." Thompson here leaves out of sight the token money of ancient times, of China, Carthage, Rome, Sparta, etc. He Money 1 29 relates that the republics of Venice and Genoa authorised their creditors to establish banks on the basis of the certificates of the city's debt. After stating that the bank of Venice dated from 1 171, he proceeds : " Then to secure a uniform currency, the Government decreed that all wholesale transactions should be paid in the form of a transfer of bank stock — unless otherwise stipulated — so that whoever had a boxful of coins gathered from the four quarters of the earth through the manifold channels of Venetian trade took them to the bank to get credit upon its books according to their weight and fineness. The standard by which their value was estimated was called 'money of account,' to dis- tinguish it from the various moneys that were translated into it. The Government treated these masses of coin as payment for the privilege of a credit in the bank's book, and all idea of their repayment was lost sight of. "Yet, in 400 years, or until the conquest of the city by Napoleon I., the money of account circulated freely, and was at a premium in coin ; trade proceeded with a rapidity previously unknown ; no Venetian ever raised his voice in complaint of an institution which was the pride of the city and the envy of Europe. When the French destroyed it they found no funds to reward-them" The "Encyclopedia Britannica" gives the following under " Banking " : " Historians inform us that the republic, being hard pressed for money, was obliged, upon three different occasions, in 1156, 1480, and 1510 to levy forced contributions upon the citizens, giving them in return perpetual annuities at certain rates per cent. The annual dues under the forced loan of 1156 were, however, finally extinguished in the sixteenth century, and the offices for the payment of the annual dues under the other two loans having been consolidated, eventually became the Bank of Venice. This might be effected as follows : The interest on the loan to the Government being paid punctually, every claim registered in the books of the office would be considered as a productive capital ; and these claims, or the right of receiving the annuity accruing thereon, must soon have been transferred by demise or I30 Clue to the Economic Labyrinth cession from one person to another. This practice would naturally suggest to holders of stock the simple and easy method of discharging their mutual debts by transfers on the office books, and as soon as they became sensible of the advantages to be derived from this method of accounting, bank money was invented. It will, however, be seen that the estab- lishment thus described was at first no more than the transfer office of a national debt, transfers of which were accepted at par in discharge of private debts, and it is indeed said that the funded debt transferred sometimes commanded 'agio' or premium, above the current money of the republic." In " Munera Pulveris," p. 21, John Ruskin says : " The use of substances of intrinsic value as the material of a currency is a barbarism, a remnant of the conditions of barter, which alone renders commerce possible among savages." In thus considering the third class the highest evolution of money, I do not wish to prejudge the question whether it is also to be considered the best money under any circumstances, for this important question will be treated later on. Our first task was to define and classify. U.—THE VALUE OF MONEY There can be only one way of finding the value of money : it is to obtain the price of goods of all kinds. In other words, The Value of Money is its purcliasingr Power There is no other gauge ; just as money measures the value of merchandise, so merchandise measures the value of money. This holds good for money of all three classes, with the only difference that, as the value of the money of the first class corresponds to that of the merchandise it is composed of, it is immaterial whether we speak of the value or price of this merchandise or that of the money made out of it. in Gold Currency Countries the Value of Money is the Value of Gold Gbld is the money material adopted by the principal com- mercial nations which are using money of the first class ; for Money 1 3 1 even in the three bimetallistic countries : France, Switzerland, and Belgium (I leave Italy and Greece out of account, being for the time practically paper currency countries), the silver money no more belongs to the first class, since free coinage has been given up — of which more when we discuss bimetallism. Con- sequently, we may as well speak of the value of gold in these countries when we speak of the value of their money. It is immaterial whether, for instance, in England we speak of the value of the pound sterling, or of the value of the 1 23*374 grains troy of standard gold composing it, as anyone who carries this quantity of gold to the British mint can obtain a sovereign for it, a right to which we give the name of Free coinage. Cheap and dear Money This definition of the value of money is certainly simple enough, and seemingly beyond any possible chance of dispute ; yet even here, as everywhere in monetary science, confusion has crept in, and we cannot proceed without devoting some space to two causes of error. One is due to the jargon of the Stock Exchange. When its devotees speak of cheap or dear money, they do not mean the only thing which these words really signify : the increased or decreased purchasing power of money or gold, its appreciation or depreciation, but the rate of interest at which money can be borrowed. We often find money very cheap — in Stock Ex- change parlance — in times of commercial depression, because capital is shy, and prefers the 2^7o to 3% it can obtain on best securities to any percentage offered in commerce, which, in times when the discount of the Bank of England is at its lowest, often cannot obtain money at all unless a security is offered that the average business-man cannot supply. The rate of interest is low, but the risk premium is exceptionally high. This difficulty of finding money, this height of the risk premium, forces the business world to sell goods at any price ; and usually such times of exceptionally low rates of interest are accompanied by low prices. But low prices of merchandise mean a high price of money, whose purchasing power has risen, has appreciated. Thus when the bill-broker says that money is 132 Clue to the Economic Labyrinth cheap, it is dear. On the other side, when he finds it dear, it is cheap ; because when industry and commerce are flourishing, when capital finds remunerative investment in business, it does not compete so sharply for the securer investments bearing a lower rate of interest. In such times the price of consols falls, because many people sell them to take stock in industrial enter- prises, and the Bank of England rate rises because the business world eagerly offers bills for discount. But when industry and commerce are in a flourishing condition, prices generally have a rising tendency, and, consequently, the purchasing power of money becomes reduced. So money is cheaper at the very time when the broker tells us that its price has risen. But this is not the only source of error in this field. When the fall of prices during the last thirty years is discussed, you often hear that this does not imply the appreciation of gold, but that it means, through our technical progress, goods are pro- duced at lower prices. The worthy gentlemen who reason in this way forget that their argument is on a level with that which denies that John is taller than Charles because Chai-les is smaller than John. It is absolutely immaterial whether less gold is given for woollen goods because woollen goods can be produced at one-half the price of thirty years ago — the same worker being able to spin and weave during the same number of working hours a much greater quantity of wool by means of our improved machines — or because gold has become scarcer and costs more to produce. All we want to know is whether or not it is true that twice as many woollen goods have to be given for the same quantity of gold. If they have, then the purchasing power of gold measured in woollen goods has doubled, and if all other goods have fallen in price at the same rate gold has correspondingly appreciated. If, on the other side, the new gold-mines opened within the same period had produced so much gold that the offer of gold in the market had increased much more rapidly than the supply of all other classes of mer- chandise for gold, the prices of merchandise might have risen in spite of reduced cost of production, and gold would have depreciated. Money 133 The Quantity Theory The relation between the quantity of money offered for goods and the quantity of goods supplied for money — in other words, the law of supply and demand — determines not only the price of goods, but also, at the same time, the price or the value of money. We must be very careful, however, before we infer from this definition — usually called the quantity theory — that there is anything like a fixed relation between the quantities on both sides of the equation, such as, for instance, John Stuart Mill seems to assume, when he says (Book III., Chapter VIII., par. 2 of his " Principles of Political Economy ") : " If the value of money in circulation was doubled, prices would be doubled. If it was only increased one-fourth, prices would rise one-fourth." He qualifies his dogma, however, in Chapter XIII. of the same book, when he discusses the effect of credit on prices. He could not fail to see that elements more powerful than the mere money or goods quantity come into play which make such a raw conception of the quantity theory impossible. Influence of Circulating Quantity He certainly realised that it is not the quantity of the money stock we must consider, but the quantity which circulates in the market. Money may be plentiful, but it may be locked up in the safes of misers ; and the poor producer who wants to sell his goods to obtain the money he needs may find a good deal of truth in the facetious German saying : " Money by itself does not confer happiness unless we possess it." Prices may thus be very Ipw, in spite of a large stock of money. Then we have the Rapidity of Circulation which plays an important part in the problem. Francis Bowen illustrates this influence well when he says : " The circulation of money and merchandise bears some relation to the momen- tum spoken of in physical science, which is composed of the velocity multiplied by the mass. The movements are equal, though the velocity should be increased ten-fold, provided that the mass is but one-tenth as great. So also the momentum of wealth is its value multiplied by the rapidity of its circulation." 134 Clue to the Economic Labyrinth Influence of Barter On the other hand, the quantity of goods offered in the market by itself has no influence on the prices of goods and money, but only the quantity offered for money. Where exchange trans- actions are mostly done by barter, a comparatively small quantity of money may correspond to a much larger turnover of goods than where business is done solely on a cash basis. And barter has played, and plays, a much more important part in business transactions than many people are aware of. Many of our colonial farmers' business transactions are thus performed on the basis of mutual exchange. Prices and sums are ex- pressed in money, but no money passes. In some parts of the world even barter has not been reached yet for many goods which city people obtain only by purchase. In industrious New England, for instance, the farmer's wife, during the first half of the nineteenth century, still made her own soap, candles, sugar (maple), linen, and part of the woollen apparel of the household. The farmer brewed his own beer or pressed a sour wine from poor grapes. Rosegger, an Austrian author still living, tells us in one of his most humorous writings, from his own experience, how the peasants in his native village tanned their own leather, which the shoemaker, while he boarded in their houses, made into shoes in exchange for produce, in the same way in which the weaver made cloth from the homespun wool or yarn. Most of the furniture was home-made, from the table and chair to the mattress and bedcover made from home- spun flax, and filled with hair cut from the farmer's own horses, or feathers from the geese of the barnyard. That a great part of the business with savages is done by barter is well known. Influence of Credit But barter in our time is a less important substitute for money in business than credit, and especially one form of credit money representatives. In some countries the cheque does the most work of this class. A buys some goods from B, B from C, C from D, and so on until Z buys from' A. Each gives a cheque ; and if all transactions have been made on the same Money 135 day, all these cheques come into the bank at about the same time, and they are booked for and against the parties. A large turnover may thus take place without a penny of money having passed, even if the parties have different banks ; for the banks among themselves have an institution, called a clearing house, where all bring their cheques payable on the other banks, and these are compensated just as the cheques of the customers who bank in the same establishment are compensated in the books of this bank. In England, the balances are paid by cheques on the Bank of England ; and thus many billions are turned over without a single coin. " In a return," says M'Leod, " laid before Parliament by an eminent City firm, it was shown that out of ;£'2,ooo,ooo payments and receipts by the firm, only ;S'40,986 were paid in gold, silver, and copper, all the rest in different forms of credit, and some bankers found that in banking only .0025 per cent, were paid in coin ; all the rest in credit." Money Debts and Money Stock Next to cheques : bank-notes, bills of exchange, promissory notes, and I.O.U.'s are the principal forms which the irioney representatives usually take. It is very difficult to estimate their quantity relation to the money stock. Anyhow, I think M'Leod's estimate exaggerated when he calculates the credit resting on no millions of actual coin in Great Britain to amount to 10,890 millions; or about one hundred pounds of credit to each pound of coin. We cannot take as a basis of calculation the proportion of coin paid in the daily business transactions, for this would leave out of account the stock hoarded by the public and the banks. We must add the debts of all kinds which are payable in coin, and take their proportion to the stock of coin and bullion. In this way I came to the conclusion that the relation certainly does not exceed 40 to i ; and if we deduct those debts which are compensated by other debts due to the debtor, the proportion will probably not exceed 30 to I, and may perhaps come down to 20 to i. According to the Director of the United States Mint, the assumed debts of the world payable in gold in the year 1893 were ;^i 2,000,000,000, while the stock of the world's gold amounted to ;£'7 16,52 1,000, 136 Clue to the Economic Labyrinth which is 17 to I ; but I think this a good deal below the real relation. Even this lowest figure is, however, quite ominous enough, for it simply means that if all creditors, after a com- pensation of mutual debts, press for the payment of the balance in money, only one pound for seventeen can be forthcoming. If we assume that even our large financial concerns owe about six times more than their money stock amounts to, we are on the safe side. J. C. Leaver states in Money, p. 20, that the chief London banks, exclusive of the Bank of England, owe to the public ;^227,ooo,ooo, and that the cash in hand and at the Bank of England amounts to ;^27,ooo,ooo. Mr. George Clare, in his " Money Market Primer," which has been included in the list of books recommended by the Council of the Institute of Bankers, says: "The sum due on 31st December, 1890, by the banks of the United Kingdom, under the head of Deposit and Current Accounts, was estimated by the Economist on the basis of the balance-sheets published by the joint stock establishments at, in round numbers, 650 million pounds, while our whole stock of legal tender does not exceed 126 million pounds . . . and of these 126 millions it is quite likely that half to two-thirds are in actual circulation among the people, leaving a balance of, say, 50 or 60 millions available for banking purposes." (Pp. 48, 49.) A similar state of affairs obtains in the colonies. Our New Zealand banks, including the saving banks, owed in 1900, for deposits, about ;^2 1,000,000, to which about ;^ 1,000,000 due for bank-notes has to be added, for which about ;^2,700,ooo of gold and silver coins and bullion was on hand: only about one pound to eight due. If we deduct ;^8,ooo,ooo of fixed deposits for which a certain time is given within which the banks are sup- posed to be able to raise the money — a very vain hope when we consider the similar position of the English money market and of other countries, and the fact that financial crises usually extend all over the world — we have still ;£■ 14,000,000 left which the creditors may claim from one day to another, and of which only four shillings in the pound can be paid. Money 137 State of Credit afFects Prices more than Money Steele Under such conditions, the actual money stock can only have an indirect effect on prices, and consequently on the value of money. Th. Tooke and W. Newmarch, in " A History of Prices and of the State of the Circulation from 1793-1837," give some interesting facts, showing how the state of credit is of much more importance than the money stock, and how periods of low prices at different occasions coincided with a larger, and of higher prices with a smaller money stock. Most instructive is The Course of the Crisis of 1847 The prices at the Stock Exchange fell enormously ; from one day to another as much as i^% discount was paid, which is at the rate of 450% per year. General ruin was in view, when at last the Government promised a suspension of Peel's Act. - At once the panic disappeared, and large treasures of sovereigns and bank-notes came out of their hiding-places. That there was no exceptional demand for gold was proved by the fact that during the whole time of the crisis there was no diminution in the issue of bank-notes ; and what is more, as soon as the permission was given to the bank to issue more notes, not quite ;f400,ooo in all were demanded. This was specially mentioned in the defence which the Chancellor of the Exchequer made in the House of Commons on the 30th of November. He said that the money in the hands of the public was absolutely sufficient, but that its circulation was lamed by a panic fear, as all reports received by him proved. The Government was asked for assistance from all sides, but everyone said : " We don't want any bank-notes, we want confidence. Tell us that you will assist us, and we have enough. When we know that we can obtain bank-notes we do not need to take them. It is indifferent how high the interest rate demanded, confidence will at once return." Here we see clearly that it was assuredly not the gold coins which the people wanted, and not even the bank-notes, but only the certainty that they could obtain them in case they wanted them. Bank-notes, they knew, could not be converted 138 Clue to the Economic Labyrinth into gold in case the attempt had been made to any large extent ; for even in ordinary times, without any repeal of Peel's Act, the issue of isf million pounds of notes is permitted to the Bank of England (at that time not less than 14 millions) with- out any gold cover ; and the suspension of the Act might have largely increased the amount for which no coins and no bullion were in stock. The people made no attempt to demand gold for their notes. The notes were legal tender, they could be used to pay off liabilities, and that was all they wanted. We have thus arrived at the conclusion that in the last resort the condition of credit determines the value of money, a credit the foundation of which is the certainty people possess, or be- lieve to possess, that monetary engagements can be regularly kept, that the money promised will be forthcoming when due and demanded. The actual money stock of the country — as a remarkable historical example has shown us, and as the facts of every-day life prove — plays a much less important part than other causes of which the temporary disposition of the money- owners is the principal one. When I use the word " money- owners," I do not merely mean the rich, powerful as their influence necessarily must be. The Financial Crisis of July, 1893, in the United States, though it may have been started by rich speculators who, for purposes of their own, produced a tightening of the money market, was principally caused by the fears of the poor savers, who became afraid for their balances at the savings banks, and came in crowds to claim their own in cash. Savings banks cannot keep much ready money in stock, but are forced to invest the deposits for more or less extended terms, so that they may obtain the interest which their depositors claim from them. If an exceptional demand be made on them, when a tightness in the money market disables them from borrowing at reason- able terms enough to tide them over the temporary difficulty, they must of necessity suspend payment. The simultaneous demands made by their depositors thus caused a general suspension of these banks. Other financial institutions, whose creditors pressed for money in the same way, followed suit, and Money 1 39 finally the excitement of the small savers became the panic of the nation. Money was as good as unobtainable, and as much as 1% per day, or 180% per year, was paid by solvent parties offering the best kind of securities. This crisis of 1893 is especially instructive because there was no exceptional cause for the sudden alarm. No war threatened the country or the world ; no catastrophe of nature had caused unexpected losses ; the crops were good. The Chicago Ex- hibition brought millions into the country and into circulation ; politics indicated fair weather. It was merely the case of a sleep-walker quietly stepping across a chasm. He has not the least fear ; he has passed over much more hazardous places before without heeding them. But suddenly something or other awakens him ; he becomes conscious of his danger ; he sees it, and headlong he falls. The chasm between the amount of money due and the actual money stock may have been much wider at other times ; but the people did not realise it, and went on with their daily routine without paying special attention, when a mere trifle occurred : a report from somewhere that there was danger of suspensions — a danger threatening them all the time and sometimes even with much greater force, but a report now, spreading and swelling through the very effects it brought about. When this report made them start and survey the position, they immediately recognised the patent fact that there was absolutely no money to be got if they really should choose in a body to claim their dues. The simplest calculation would have shown this all along ; but their thoughts were elsewhere, and thus they had not seen what suddenly — like an apparition illuminated by the lightning of an ink-black night — gave challenge to their horror-smitten minds. The Chronic Crisis But not all are sleep-walking, awakening only in panic times, and dearly paying for their previous blindness. Our financiers have their eyes open all the while, and though they do not know the hour of the impending catastrophe, they see the chasm and they know their danger. This knowledge finds its expres- sion in the high risk premium demanded, so high that the average debtor cannot pay it, and eventually collapses beneath 140 Clue to the Economic Labyrinth it. The permanent load of usury presses with a much heavier weight on the people than the dangers and losses of the occasional crises. These are the acute outbreaks of a chronic disease which is sapping the life-energy all along, growing in violence from year to year, from crisis to crisis. Take away this terrible nightmare generated by the certainty that whenever an exceptional demand for money may occur a crisis must ensue, and our wild struggle for life will have lost its intensity at once. But this struggle must be hopeless with a money whose quantity corresponds to that of a certain precious metal, a quantity so ludicrously small when compared with the demand that a credit building about thirty times the height of the narrow foundation had to be erected on it to enable us to carry on at all. The Gold Basis an Inverted Pyramid Jonathan Duncan, in a highly interesting little volume, " The Principles of Money demonstrated, and BuUionist Fallacies refuted," which appeared in London in 1849, touches this im- portant subject. I quote his Chapter XIV. in full. At that time the credit building was not so high as in ours, though even then it exceeded Duncan's estimation of ten to one, if we include mortgages, the public debt, etc., which the author did not count in : " That the use of Money is now so economised that Gold is sufficient for all Purposes. " This fallacy mainly rests on the clearing-house system of the twenty-four London bankers, who settle their drafts twice a day by the payment of balances, and these transactions amount, in the year, to ;£^i,50o,cx)0,ooo, which immense sum is liquidated by a comparatively insignificant sum of money. This contriv- ance, however, is a proof .that the instrument of exchange is altogether incommensurate with commercial necessities, which inconvenience the bankers are compelled to overcome by economising money. " But this does not put the arguments in a full and clear light. This country could not sustain itself without a very ample use of the credit system, in the shape of promissory notes and bills Money 141 of exchange, which are always floating to the extent of 250 to 300 millions. These rest on the metallic basis of 2Z\ millions of gold, according to the Earls of Liverpool and Ripon, or of 30 millions of gold, if we take higher estimates. The gold basis, therefore, may be compared to an inverted pyramid. If, then, the basis consists of 30 millions, and the credit transactions amount to 300 millions, the basis is to the superstructure in the ratio of one to ten, since each million of gold sustains 10 millions of paper. Take away one-third of the basis, and then you remove 100 millions of credit securities, and a large stride is made towards barter j remove the whole basis, and money entirely disappears, and the system of barter is completely established. Such was very nearly the case in 1825, and such would literally have been the case in 1847 had not the Govern- ment letter to the Bank of England suspended the action of the bill of 1844. " If, in addition to the London clearing house, we include the credit transactions of Liverpool; Manchester, Glasgow, and Bristol, and all the agricultural produce of the country, and consider that we have only 30 millions of gold to perform the business of 30 millions of people, we find that we have only £ i a-head. Then let a revolution come, which nothing is more likely to cause than a metallic currency, and those who now account themselves worth ;^20,ooo, ;^ 50,000, or a million of pounds sterling, would be only worth 20s., unless in the scramble some got more than their share, in which case others would be penniless. It follows, therefore, that if the national affairs were wound up, we could only pay a solitary shilling in the pound, after having applied a sponge to the national debt, of which not a single farthing could be liquidated. It is also undeniable that if the depositors in the savings banks were to make a universal demand for payment, national bankruptcy would be inevitable, unless that calamity were warded off by a suspension of cash payments." The danger inherent in this state of things has been realised by growing numbers of thinking men, and it is the soil on which a strange plant has grown, called 142 Clue to the Economic Labyrinth Bimetallism Bimetallism has been attacked on the ground that it is impossible to make two precious metals at the same time the standard of value, that if both are coined as legal tender money, one of them has generally to lose its money character, becoming a mere merchandise for the time. This seems plausible, for bimetallism presupposes free coinage of both metals at a certain unchangeable ratio. Suppose this legal ratio to be twenty to one, this would mean that anybody bringing to the- mint 123.374 grains troy of standard (23 carat or 11/12) gold has a right to claim for it a new gold sovereign containing the same quantity of gold ; and anybody bringing to the mint twenty times the 123.374 grains (=5.14 ounces troy of 11/12 silver), can claim one pound sterling in silver coins, which are to be legal tender for all debts, just like the gold sovereign. But will the market price of the two metals — which follows supply and demand — permit the maintenance of a fixed ratio ? You could certainly not buy in the market the 5.14 ounces troy of 11/12 silver for nineteen shillings, and thus make a shilling profit on every pound sterling coined, never mind how much lower twenty pounds of silver could be produced than one pound of gold, as long as the mint gives one pound sterling's worth of shillings which are legal tender for the silver. But the price of money would fall together with, and in the same way in which the price of silver falls ; the price of merchandise would rise, and especially one class of merchandise — gold, provided its cost of production did not cheapen in the same proportion with that of silver. It is certain that if it costs more to produce one pound gold than twenty pounds of silver, the price of standard gold must rise above one pound sterling for 123.374 grains ; and consequently, not only will no more gold come to the mint which gives only a sovereign for this quantity, but the existing gold sovereigns will be withdrawn from the market and will sell as bullion, provided they have not suffered too much from abrasion. Money I43 Gresham's Law would come into operation, according to which the better mbney is driven out of the market by the inferior one,^ and the coi.ntry will practically have a silver currency. This is not a mere theory, but has been the result of bimetallism wherever tried. Generally either gold or silver became a merchandise, and was withdrawn from its circulation as money, at least as far as wear and tear had not too much reduced the weight of the coins. My own experience during my apprenticeship in a banking house proved to me the fact most unpleasantly in the beginning of the sixties. It was a continual calculation whether gold was at a premium, or silver; and accordingly, gold or silver coins of different kinds were bought to be sold as bullion. Many a weary day had I to assort five-franc pieces into four different kinds. Those up to and including Louis XVIII. contain a certain amount of gold, and tli,erefore were sold to Allard's refining establishment at Brussels. Those of Charles X. contain less gold, and were sent separately, fetching a little less. The newest pieces after these reigns, those of Louis Philippe, the Republic, and Napoleon III. were sorted out to go off as silver bullion to Amsterdam ; while those of these last three reigns which were too much worn to pay as bullion were sent to the nearest branch of the Bank of France, and we drew bills of exchange on Paris against them. They alone were left in circulation, or in the vaults of the bank ; the others disappeared, as fast as bankers and money-dealers could get hold of them. ^ Better and inferior in the sense of the market price of the material coined. As William A. Whittick points out in his " Value and an Invariable Unit of Value" (Philadelphia, 1896) : "The best money is that money that performs the money function the best and at the least cost. - The use of a valuable metal as a tool of exchange is just as absurd as would be its use in the manufacture of spades and shovels, and other tools of industry. An iron or steel shovel would always drive out a gold shovel, just as cheap money drives out dear money. For three centuries this paradox has been the apologist of an absurd system of money — a system in conflict with the universal law that the fittest survives. The money that runs away from its duties — that refuses to circulate — is, according to this absurdity, the best money. The soldier who runs away from the field of battle is, by this reasoning, the bravest and best soldier,'' 144 Cl''^^ t" ^^^ Economic Labyrinth Gresham's law began to produce its usual effects : the moi^jey with the greatest raw material value disappeared from ^he money into the bullion market. National bimetallism woiild then have received its doom if France had not resolutdjy maintained free coinage for both metals, in spite of the faU|ng of gold below its ratio value ; if she had then stopped /ree coinage of gold, just as she stopped free coinage for silver in our time. The consequence would have been the de- monetisation of gold, and a silver monometallism for the same reason which at present gives us gold monometallism : the influential men in all countries, the great financiers and capitalists, preferring the scarcer and dearer metal as the money material, for their money claims upon their debtors thus obtained a greater purchasing power. There is nothing in this which reasonable bimetallists will not agree to, as they are fully aware that bimetallism can only succeed if carried internationally : if all commercial nations — anyhow, the principal ones among them — open their mints to the free coinage of gold and silver to any amount, both metals being legal tender for all debts. This would so increase the demand for silver that its price could never fall below the relative money value assigned to it by the law. The use as money is paramount to any other to such a degree that the market value of the metal is bound to conform to its money value as long as the value of its use in the arts does not prime the money value, which might finally be the case if the money value fell too low. This might happen to silver in case the ratio between the two metals were put farther apart than the present market price of silver puts it, if this ratio were beyond 30 to I. As far as gold is concerned, the limit of the ratio in the opposite direction also depends on the value which gold would maintain for its use in the arts, independent of its money value. The ratio was as low as 6 to i in Japan in the sixteenth century, and if Boeckh's " Political Economy of Athens " is to be believed, there were even times when silver had a superior value to gold. But how about Money f4^ Cost of Production ? Price never can keep far apart from cost of production where* ever a commodity is regularly produced ; and if silver costs 30 times less to produce than gold, it seems that no law in the world can permanently change this ratio of value. This is correct ; but in thus reasoning, we ignore the influence which the demand has on cost of production. Ricardo's rent law is still more applicable to the precious metals than to wheat, for while a larger consumption of wheat is soon met by a correspondingly increased production through a slight pushing back of the margin of cultivation (see p. 55), the scarcity of the precious metals renders this effect on the margin much more powerful. It is quite certain that the remonetisation of silver would make mines paying which now lie untouched, just as the demonetisation of this metal has stopped the working of many mines which before yielded a dividend. The farther the margin is forced back, i.e., the less fertile the least paying mine yet worked, the higher is the cost of production, and, according to Ricardo's law, the cost at the margin determines the market price. Price of precious IVIetals determines Cost of Production In other words, it is not the cost of production which dictates the price of the precious metals so much as their price influences cost of production. The remonetisation of silver would at once open to it the money market, together with gold ; and its value, as money, would dictate its price as long as this Value is not inferior to that in the arts. As the latter is now found at a ratio to gold which bimetallists would never adopt, the ratio of 30 to i, whereas the ratio they propose varies between 20 to i and 15 to i,we mayleaveout of consideration this contingency of the value of silver in the arts ever exceeding its money value under bimetallism. Thus the only question will be how far down the limit of the ratio might bd ejitended without forcing gold out of the money market. This question cannot be answered, for nobody can foretell what value gold will K 146 Ctue to the Economic Labyrinth preserve after it ceases to be used as money. Some say that under such a contmgency it would not be worth one-tenth of its present price ; which is probably an exaggeration, when we consider that silver only fell to one-half after its partial degradation.^ Anyhow, I think even a reduction of the ratio to that of Japan in the sixteenth century of 6 to i need not necessarily drive gold out of the money market ; and as long as this does not happen, such a ratio would simply mean that new silver mines will be opened and gold mines will be closed until the least fertile silver mine produces six pounds of silver at the same cost at which the least fertile gold mine produces one pound of gold. To understand this we have only to remember (see p. 55) that the cost at the margin of cultivation determines the price, and that in mines more fertile than those on the margin the saving in cost is paid out as rent or royalty, but has no influence on the price. The reduced gold price would cause mines to be abandoned which now are worked ; others would yield a re- duced rent, or cease to pay rent altogether. However, I have to add a few words in regard to another element entering into the cost of mine produce particularly, though not quite absent in other fields of production : Speculation, ^ An interesting example showing how gold can even fall in value where it is not legal tender, in spite of its possessing that dignity in other parts of the world, is given by R. H. Patterson in " The Economy of Capital ; or, Gold and Trade " : " In December, 1864, during the dearth of money at Calcutta, merchants who took £20,000 in gold to the bank could not get a single bank-note or rupee advanced on it. The gold was of no use to them as money, nor could they get money in exchange for it. ' The price of gold in Calcutta,' said the Bombay Times of January g, 1864, 'sank early in this month so low that it could have been reshipped to London at 3°/„ profit.' In other words, although gold is the standard of Europe and America, and although it has been used for centuries as money in India, the fact of its not being legal tender in that country sufiSced to lessen its value to the extent of 4}4°lo." When once a rational paper currency will begin its triumphal march round the world, when one country after another will sell its gold stock, it is quite certain that those last in the race will be the heaviest losers, as is the case with silver at present. Money ti^ Speculation and Mining: Del Mar states that the 90 million pounds sterling of gold produced in California, from 1848 to 1856 inclusive, cost in labour alone some 450 millions, or five times its mint value ; but this is not the economic cost I mean. His cost price includes the element of speculation, of gambling,^ which makes lotteries such paying enterprises, because the dazzling effect of great prices entirely blinds the gambler to the well-known fact that, on the average, a lottery ticket only brings back a fraction of the price paid for it. This element of gambling may be responsible for the fact that certain gold and silver mines are worked though they swallow every penny expended, in the hope ' I do not wish it to be understood that I accept Del Mar's figures. He arrives at them by calculating the labour of miners at the wages paid during the mining boom, figuring from £■}, per day for the year 1848 down to 16 shillings per day in 1856 ; and not satisfied with this, takes 300 days a-year as the regular working time. Even assuming these were only living wages, as cost of living was extraordinarily high, we have to go farther back to the providers of victuals, clothing, etc., before we can find the ultimate real cost of the gold. For instance, as much as a shilling was paid for an onion, and other things were in the same proportion. Now supposing the raising and bringing to market of 600 onions took a day's work for one man, can we count the £,y) thus made as the real cost of the onions ? If such a farmer got fifty times as much for his labour as it was worth in ordinary times, even by taking into consideration his own greater outlays for neces- saries of life which he could not produce himself, have we a right to count the miner's labour, thus artificially raised in cost price, at this false level ? If all those who supplied the miners with necessaries of life had only counted the usual wages of their labour, the miner would have been as well off with a fraction of the wages thus counted, and we certainly cannot reckon the extra profits so made in the cost of the gold. In fact, wages were artificially inflated, and as much has to be deducted on this score as on that of labour time. The idea of counting 300 days in the year on the average as really worked by thousands of dissolute men who, through debauchery and disease, often were more days idle than busy ! If we reduce Del Mar's figures accordingly, it is questionable whether a deficit will remain, especially when we consider that a good portion of the miners were shiftless men, adven- turers who would have done very little work of any other kind if this work had not turned up. Del Mar entirely ignores the fact that there is such a thing as want of employment in this world ; he seems to assume that every man born finds in his cradle a billet for every year of his life at the regular rate of wages for 300 days. When we find such calculations or those of 148 Clue to the Economic Labyrinth of finally striking the long-expected lode ; but still there remains a margin beyond which speculation refrains, and this is the margin which must rise with the depreciation and fall with the appreciation of the metal. Speculation may have the effect of forcing the margin beyond its economic level, but this artificial level must finally follow the same laws as the economic one. The Effect of Bimetalism on the Value of Money Whether and how far bimetallism would force back the margin of production in gold mines, thus cheapening its cost by destroying the rent of now rent-yielding mines, depends on the question whether the large increase of legal tender money would have a price-depressing effect on money or not. It may Lewis A. Garnett, manager of the San Francisco Assaying and Mining Works, who counts 100,000 persons as employed on the extraction of the precious metals in 1869, costing at the rate of 12 shillings per day during 300 days in the year ; ;£i8,ooo,ooo against a production of only ;£io,ooo,ooo worth of metals — we wonder where such reasoners obtain their absolute certainty of 300 days' regular and good wages for 100,000 men if there had been no gold-mining. There is no need for such exaggerations. Even the real figures supply a sufficiently stem accusation against our money system, which is at the bottom of such waste of economic power j to which has to be added the ruin brought down upon fertile lands through placer and hydraulic mining. Del Mar estimates that 20,000,000 acres have been — in the United States — torn up by placer mining alone ; and a report from the Agricultural Bureau of the country computes the annual damage done by hydraulic mining at ;£2,4oo,ooo a-year, which comes up to the whole yield from hydraulic mining and drifting. Add to this loss the corrupting influences upon soul and body of such a congregation of adventurers coming together from all parts of the world, whose very work is a kind of gambling, and whose terrible hardships are a prolific cause of disease and death I Certainly the accounts need no swelling by the voluble pens of statistic manufacturers. That the association of mining and gambling is not new is proved by the following passage from Adam Smith : " The same most respectable and well-informed authors (Frezier and Ulloa) acquaint us that when any person undertakes to work a new mine in Peru, he is universally looked upon as a man destined to bankruptcy and ruin, and is on that account shunned and avoided by every- body. Mining, it seems, is considered there in the same light as here, as a lottei-y in which the prizes do not compensate the blanks, though the great- ness of some tempts many adventurers to throw away their fortunes in such unprosperous projects." Money 149 seem preposterous merely to express a doubt as to the absolute certainty of a general depreciation of money under bimetallism ; but I have already shown that we must not accept the quantity theory in the literal sense given to it by some tyros. Never mind what kind of money the twentieth century may have, business will continue to be done by means of the money representative, the money promise ; but this assuredly does not signify that the amount of the stock behind the promises is of no importance whatever. The admission of silver would certainly increase this stock ; but whether this increase would be sufficient is another question, as I shall presently show. Taking the price of silver as it stood before its demonetisation began, thirty years ago, the actual yearly production of both metals will not much exceed 100 million pounds sterling. From this we should have to deduct a very considerable part, at least one-half, for abrasion, loss, and use in the arts ; but I refrain, because we have to add, on the other side, the increase of the silver yield through the opening of new mines, which would be rendered possible by the rise in price following its remonetisation. Our present stock of gold is figured at 800 million pounds ; that of silver is unknown, as we cannot even guess at the amounts hidden and circulating in the East. Let us add another 800 million, and thus bring the total of our stock of precious metals to 1,600 millions. The yearly increase would, therefore, be one-sixteenth of the existing stock. To reach the amount of money promises so as to make our money representatives represent a reality instead of a dangerous fiction, our stock of 800 million pounds gold, which forms the basis of a credit building of, say thirty times its basis, would have to be in- creased to 24,000 millions of the new bimetallistic money. Even if we considered our present stock of silver available — and certainly the stock in the East will never come into our Western civilisation or into the vaults of our banks — it would take, at the present rate of production, 224 years before the 24,000 millions were reached. But this calculation presupposes two conditions : (i) Our gold and silver production must never fall below the present figures ; and, what is much more important, (2) Our turnover must not increase. Now, whoever has realised the enormous increase of trade within the past century, in spite of the fettering eflfect which ISO Clue to the Economic Labyrinth our social conditions have exercised, with our currency system as one principal hindrance, will agree with me when I prognosti- cate such an immense increase for the next couple of centuries that, before the 224 years are passed, money representatives would have got farther ahead-of the actual money stock than in our time, increased as the stock would be by the addition of silver; so that the basis of this circulation would certainly not be as broad as the one we now possess: 20 to i or 30 to 1. Independent of this, however, the mere cheapening of merchandise production through further technic progress would, as in the past, cause an appreciation of money. For the time being, the remonetisation of silver might be beneficial for all that. The mere temporary widening of the insecure foundation on which our whole financial circulation rests would greatly revive confidence, and would largely increase credit and trade ; until soon the money promises would as much outrun the money stock in both metals as they are now exceeding the gold stock. For a time prices might rise, and thus debtors would be eased in a double manner. The depreciation of the money would reduce their debt, and the greater demand for products of labour would give them a chance of satisfying their creditors. Waste of Productive Power But this help would only be a temporary one, and would be obtained at a ridiculous sacrifice. . Millions more of workers would be employed in digging ores from the ground, extracting, transporting, and perhaps also coining these precious metals ; as well as in feeding, clothing, housing the metal producers; making the water-pipes, machines and tools they require ; or providing the means of transportation, etc. And what would be the real practical outcome of all this labour ? Simply taking the money material out of one set of earth-holes to put it into another, where most of it will practically be as undisturbed as before the miners went down to get it, that it might be shifted from the vaults of Nature to the vaults of the banks. There the silver and gold can lie till Doomsday, without serving any other use than to form the basis of the credit paper circulation which will always be the real tool of exchange and payment. Money 1 5 1 Enriching: of Mine Owners I forgot another result: the creation of a large number of new millionaires and the further enriching of others, the- ownets of the gold, and especially the owners of the silver mines. How far the latter form the officers of the bimetallistic army of which the debtor class are the soldiers may be left un- invest^ted. This is the plight we have come to at the dawning of the twentieth century by dragging into it that old fetish of a past civilisation : the commodity money. The old Commodity iVSoney Groove Prince Bismarck once told a story in the German Reichstag of a ferocious watch-dog kept on a chain for a dozen years be- cause he might otherwise have proved dangerous. For twelve long years the animal ran forward and backward in front of its kennel, as far as the chain would permit, until a deep rut had been worn into the ground in the form of a semi-circle. Mean- while, the dog's teeth gradually decayed, danger faded away, and liberty was at last granted to him. The chain was taken off, and the dog released. The poor creature might have gone where it listed, but habit had so accustomed it to its old groove at the chain's length that it continued in this groove until it died. A stupid dog ! Certainly ; but are we less stupid in continuing in the old groove of commodity money, the old relic of primitive barter, when the greater part of our business is actually done by means of mere tokens only. Like the dog, we do not make use of our liberty to run free from the old chain from which in reality we have long since been released — the old chain of distrust and ignorance. Why continue making believe we trade by means of gold and silver ? a belief sadly destroyed to our great cost whenever we want to put it to practical test. As the currency of our world is in reality money of our third class — token money to the extent of at least nineteen-twentieths, — why preserve the virtually worthless one-twentieth which exposes us to such terrible dangers, when practically the ques- tion in nineteen cases out of twenty lies not between gold and paper money, but between no gold money and paper money ? Because we must have some 152 Chie to the Economic Labyrinth Standard and Measure of Value is the reply we mostly obtain even from comparatively unpre- judiced men. A nice standard of value indeed, which has appreciated almost lOO per cent, within the last thirty years ! The very quality of the precious metals, which their defenders always fall back upon, makes them a bad standard of value. I mean their intrinsic value, as it is falsely called. Falsely, for there is no such thing as an intrinsic value. Value — in the sense of market value, here meant — is a relation, the mere result of supply and demand. Where was the intrinsic value of the bag of gold found by the dying Arab in the desert ? Gladly he would have given it for a drink of water ; but the water was not forthcoming, and the gold was valueless. No supply of water, no demand for gold in the water market then and there ! It is true gold has a market value in most times and places, and water has not ; but it is not true that this gives us a right to call value intrinsic in one case, and refuse to call it intrinsic in the other, nor does the value of gold remain more stable than that of most other commodities. The friends of gold money point to the large stock which serves as a huge reservoir to eliminate the effect of a varying supply, but the very effect of this large stock disqualifies gold as a standard of value. As value is a relation, the most ser- viceable standard must be the one which most closely keeps unchanged its relation to the objects it has to measure. It is true that an unchangeable yard-stick is a better standard of length than a changeable one, but it is true only under existing conditions. In a world, however, in which everything without exception gradually grows^ or in which everything decreases in size in the same proportion, though an unchangeable yard-stick might have the advantage of showing the general rate of growth or of diminution of things, and thus form a scientific instrument of great value for philosophers who are interested in such phenomena ; still, such yard-stick would not be as practical and advantageous for the purposes of everyday life as one which changed in size at the same rate with everything else. To the merchant who purchased cloth by the unchangeable yard-stick before the cloth iricreased in lengthy and who sells the cloth by Money 153 measure at the old price, the increase would yield an extra- ordinary profit, and his customers would be losers at the same rate. If, on the other hand, everything in the world — except the yardrstick — became shorter, the merchant would lose, if under a contract to supply goods at the old prices with- out any regard to the change of length. Which is exactly what happened in regard to goods sold by the gold yard-stick, whose admirers boast that it has remained unchanged while other things have varied. The man who, for the last thirty years, has been under a contract to supply a regular quantity of goods yearly — say, as rent for land — has this land much cheaper than his neighbour who pays a money rent, for the same amount of money will now buy more goods, and the same quantity of goods will fetch less money in the market than they did thirty years ago. We have always to keep in mind that the price of goods measures the price of money as much as the price of money measures that of goods. More goods have to.be sold to pay now a money debt of twenty or thirty years' standing than were obtainable for the money when it was borrowed. And a money of this class is called a perfect standard of value ! Just as a yard-stick, which increases or decreases in length in the same proportion with all other things in this world, would be a much better measuring instrument of length than an unchange- able one, so a money which changes its value in exact propor- tion with that of all kinds of merchandise would be a much better measuring instrument of value, to all intents and purposes, than one the value of which remained unchanged. As value, in its economic sense, is a mere relation, the standard which changes as the things it measures change, and thus keeps up the same relation to them, is more perfect than the standard which has remained fixed, and has thus varied in the only direction in which its stability is of practical importance : in its relation to the things it measures. Thus the defenders of silver are perfectly correct when they maintain that silver has for the last three decades been a more perfect standard of value than gold because its price fell with that of other merchandise. An amount due in silver since the last thirty years now buys about the same quantity of merchandise as it bought then, while an amount of gold then borrowed buys almost double what it could buy at that time. 154 Clue to the Economic Labyrinth But we have not the least guarantee that this relation will keep up for the next three decades. Processes of manufacture may be found which reduce the cost of all kinds of merchandise one- half, while silver becomes scarcer and rises in price instead of falling at the same rate as other goods. In this case our children would be in the same predicament with silver debts incurred in our time as we are in regard to gold debts due since 1 870. After what I have said about the relation of the money quantity to the turnover, according to which it is not likely that even the greatest increase in silver-mining which we could expect would be likely to keep up with the growth of our turnover in merchandise and our money demand, it may be realised that such a change in the relation of the silver price to the price of merchandise would almost inevitably occur. Wheat proposed as Money Nor will it help us to look round for other classes of mer- chandise to serve as the money commodity, for we never have any certainty that their price relation to other commodities will not vary considerably in the course of time. Wheat has been proposed, for instance. We shall presently discuss the one great advantage which wheat money has over that made out of the precious metals, which goes far to balance its acknowledged inferiority in other directions, evinced by the facts that, value for value, wheat is much more voluminous than gold and silver, and that the precious metals are comparatively indestruc- tible ; while wheat is subject to all kinds of destructive influences. Besides the cheaper storage, we can therefore accumulate an indefinite amount of gold and silver, but not of wheat, unless we artificially reproduce the conditions of Pompeii, where wheat grains have been found which germinated after eighteen cen- turies ; or of Egypt's mummies, which bestowed a much longer continuance of vitality. As such a system of preservation would be too costly to be of any practical worth, wheat would never be as perfect a store of value as gold and silver. But even if such a storage were practicable, it would merely result in intensifying another defect which wheat shares with the precious metals : the changing relation of its cost of production to that of other merchandise. The larger the store of wheat we should Money 155 have to accumulate, the more land for wheat culture would be needed, the farther back the margin of cultivation would be forced, and consequently the higher the wheat price would rise. The clumsiness of wheat as money, independent of the cost of storage, would not be so great a drawback as we might think at the first look. That a bushel of wheat is not as handy a means of exchange as a half-crown is undoubted ; but that a paper .note promising a bushel of wheat is as easily pocketed as a paper note promising a half-crown is equally true, and also that most of our business is done by means of paper representatives. Even the smallest payments might be, and are, thus made. An Argentine five cents bank-note is worth a trifle more than a penny, and our half-penny postage stamps are also passing as money among the people. The wheat would remain in the storehouses as the gold and silver bullion are doing, only to be handed over in the exceptional cases in which the holders of the wheat warrants, the new bank-notes, would want the real money. The want of scarcity is the other indictment made out against wheat — an indictment the very preferring of which exhibits the degree to which the financiers have influenced public opinion. They have made us look at scarcity as a good quality of money, because it makes the latter such a dangerous weapon in the hands of the money owners. The scarcer the money material, the stronger the monopoly which the possession of money con- fers, the tighter the corner into which the money creditors can squeeze the money debtors, the higher the usury they can exact from them. In fact, here we have the unavowed reason why the financiers have used their powerful influence to force through the demonetisation of silver, and thus to increase the scarcity of the money material. That England, the world's creditor, has always been the stronghold of monometallism, is not a mere accidental coincidence. Through the demonetisation of silver the debt due to its capitalists has been increased in purchasing power by untold millions, and the tribute chain they have laid on the balance of the world has been made proportionately heavier. IS6 Clue to the Economic Labyrinth Superiority of IVioney which the Woricers can produce Cattle and wheat money are certainly clumsy currencies, but they have one immense superiority over gold and silver money : everybody can produce wheat or raise cattle by his labour, pro- vided he can gain access to land, the condition without which existence is impossible. But few can gain access to paying silver or gold mines, and to obtain this class of money somebody has to be found who is ready to sell it for other goods. The more the productive power of labour increased, and consequently the easier it was for the money owner to procure those other goods, the more difficult it became for the producer to exchange his product against the scarce gold or silver money. The owner of this money has his choice among the products of the land. All are at his disposal ; the producers are at his feet, anxious to sell their goods for the scarce money which they not only need to buy necessaries of life with — barter might do that to a certain extent — but mainly to pay money debts, which are growing all the time, through the usurer's interest charges in consequence of the very difficulty of obtaining the money. With a money con- sisting of ordinary products of labour the usurer's chain could never have been forged ; for while on the one hand the debtor could produce the money by means of his labour, not depend- ing on the goodwill of a customer who owns the scarce metal money, on the other the treasuring of this money through its perishability necessitates so much labour that the money owner perforce becomes more dependent on the worker than the worker on him. Leo Tolstoy's illustration Count Leo Tolstoy illustrates this important difference between money which the people can — and one which they cannot — produce, in one of his little essays, called " Money." He refers to the recent history of the Fiji Islands as told by Pro- fessor Yanjou in the Literary Magazine : " The inhabitants of the islands were prosperous. But in 1858 the kingdom found itself in a desperate condition : the Fiji nation and its king, Kakabo, wanted money. They needed 45,000 dollars to com- Money 157 pensate the United States for alleged injuries that had been inflicted by Fijians upon certain citizens of the American Republic. To collect the tax, the Americans sent a squadron, which suddenly seized some of the best islands as collaterals, and threatened to bombard and destroy the settlements if the tax should not be paid to the American representatives at the specified dates. . . ." As the Americans raised their tax to 90,000 dollars, " Kakabo, pressed from all sides, and unfamiliar with European methods of credit transactions, acted upon the suggestions of European colonists, and tried to raise money from Melbourne merchants, at any rates and conditions, not hesitating to yield his kingdom to private parties. At Kakabo's instigation, then, a stock company was formed at Melbourne. This stock company, which called itself the ' Polynesian Association,' made contracts with the rulers of Fiji, stipulating for itself the most advan- tageous terms. Undertaking to pay the debt due to the American Government in instalments at specified times, the Company, in consideration of this, received at first 100,000 and then 200,000 acres of the best land, chosen by itself j ex- emption from all taxes and duties, for an unlimited time, for its factories, operations and colonies, and the exclusive right, for a long period, of maintaining banks of issue, with the privilege of the unlimited issue of notes." Then the story goes on to tell how finally the king was forced to levy a direct tax in money, to raise which the natives sold their produce at any price, or they borrowed money on their produce at usurious rates ; or else they had to go to the planter and sell their labour-power, at wages reduced as low as one shilling a week for an adult man, in consequence of the large and simultaneous supply. Hence, merely to pay this tax, the Fijian had to abandon his home and sell himself to the planter for at least six months, often having to go very far, to another island, in search of employment. Or six months' prison for failure of the tax was the lot of the man, which meant forced labour for the first white settler who offered to pay the tax and costs for the prisoner. " At first the duration of this forced labour was limited to six tnonths, but subsequently bribed judges easily extended the term to eighteen months, often renewing the sentence at its iS8 Clue to the Economic Lahynntk expiration. Very speedily, in a few years, the whole aspect of the economic condition of the Fijians was completely changed. Entire districts were impoverished and depopulated. The entire population, except the aged and infirm, worked for the white planters, to obtain the money needed for the payment of the tax, or to satisfy the judgment of the Court. The women in Fiji do hardly any field work, and therefore, in the absence of the men, the households were neglected or utterly abandoned. In a few years the population of Fiji became the slaves of the white colonists." The sad tale goes on to tell of the final annexation by Great Britain, and the abolishment of the poll tax ; with the further great improvement that produce was accepted in payment of taxes by the Government, to provide for the expenses of the administration, " until such time as will see money more plentiful on the islands." I have quoted so extensively from this tragic little tale of real life because I wanted to show The Great Difference between a Money con- sisting of the ordinary Produce of Labour and one which can oniy be obtained througrh the Saie of such Produce If the tax levied on the Fijians had been demanded in cocoa- nuts, the impost might have enforced some extra labour and some privations ; it could have been paid, though, without any outside help. But the tax was demanded in something not existing and not producible on the islands — gold and silver coins, or the raw material out of which such coins are manu- factured. To obtain these things, the islanders had to appeal to the privileged parties who could procure them, and had to accept any conditions those men chose to impose. As Tolstoy very correctly points out, we are too apt to forget that Money 159 Money is not merely a Measure of Value and Means of Exchangre, but is also demanded in Payment of Debts Whatever advantages the precious metals may offer in the two first-mentioned qualities are greatly outweighed by the terrible danger their use as money implies in consequence of their having been made exclusive legal tender for debts. We have seen that the amount of debts in gold currency countries exceeds at least twenty-fold the value of the gold they possess, which gold is practically the only legal tender for these debts. Power of Usury produced by our Legal Tender Money The power of extorting interest for the loan of the scarce money enables the money owners to double their demands within fourteen years at 5%, a percentage rather below the average rate of gross interest (interest proper, plus risk premium). Experience has confirmed what arithmeticians could foretell in such a case — that the chain of usury weighing upon the workers gets heavier from year to year, while the victims' power of self-ransom grows weaker and weaker. There is no need even to call in taxation, which Tolstoy sees in the foreground : taxation payable in something which can be procured only from the party who imposes the taxes, or anyhow from those who are behind him with their Government bonds, whose coupons are nothing but indirect orders addressed to the tax-gatherers. Thus the monopolists of the scarce money have it in their power to fix their own prices at which they will accept labour's product, or even to decide whether they will be gracious enough fo accept it at all. The whole of our civilised world has become an enlarged Fiji, whose inhabitants are the slaves of the money power, with the titular dignity of free workers. In the case of skilled labour the title may be even more sonorous, though the facts are unaltered. The poor professor at a German university, to whom the State gives the title " Hofrath " to make up for a not forthcoming increase of salary, is just as really a slave of the money power — under-paid and bowed down by the cares of i6o Clue to the Economic Labyrinth keeping soul and body together, of educating his children and keeping up appearances — as a simple labourer, with whom he perhaps would like to exchange roles. Need we wonder that, under such conditions, the wealth purchasing power of gold increases from year to year — that since three decades it has almost doubled ? A nice Standard of Value, indeed ! A standard changed at the will of the creditor class, who, besides the regular and certain increase of their claims which the widening gulf between the demands of com- pound interest and the gold-earning power of labour creates can at any time force on a financial panic that will put the produce of the workers at their mercy. It is just as valuable a standard as a yard-stick which a merchant can lengthen at his own good will when he goes round to make his purchases of dry goods. The Power of Habit If it were not for the power of that wonder-working giant, Habit, the fact — that with the full knowledge of all these con- ditions, we are still religiously conserving the gold standard — would be inconceivable. Only habit — which veils our eyes so that we see without observing the wonders of Nature all around us : the development of the tiny acorn into the mighty oak, the metamorphosis of the humble caterpillar into the brilliant butterfly — only habit makes us support the worst monstrosities without even thinking about them. And even where we think, it is generally in the direction of justifying or even sanctifying that which is, and merely because it is. As an amusing proof of this truism, I cannot abstain from quoting a few passages out of " Money and its Laws," by Henry V. Poor. (Kegan Paul, 1877.) The Financier's Gospel " They (the precious metals) are the foundation upon which rests the superstructure of civilised society. Without them there could have been no exchanges, no wealth, no government, Money i6i no institutions, no Iiistory ; nothing but the eternal iteration of savage or barbarous existence. . . , Without them utter chao^ would at once take the place of the order which now conducts to prosperous ends the industry of every labourer. . . . A^ without such standards there could be neither industry, wealth, nor civilisation, the inference is irresistible that the universal demand for the precious metals at their cost, and the uniformity of their supply, are, equally with moral laws, 'part of God's providence with man.' " Then, speaking of the possibility of leaving money for the endowment of scientific institutions, and pointing out that this could not be effected by " dedicating thereto great store of food or clothing," which are speedily perishable, he says that, " in this way, through silver and gold, man can invest himself, as it were, with the attributes of immortality. . , . No commercfal .people ever have adopted, nor will they ever voluntarily adopt, standards of value other than those providentially appointed." The man evidently believes in a .bimetallistic providence, and if ever he should become a monometallist, he will have to change not only his currency theories, but also his theology and religion. H. D. Macleod once made the striking comparison of modern circulation to the movements of a peg top which spins round on a very fine metallic point. As civilisation rests upon circulation, it is no wonder our civilisation is in continual danger of toppling over, and that it keeps going only by continual whipping! Under such conditions we need no longer be surprised at Mr. Poor's giddiness. Not everybody can stand the continual turning of a top on which he is forced to dwell. My quotation from this amusing book reminds me that I have totally omitted to discuss the function of Money as a Store and Representation of Wealth The fact is, I could not well imagine that anybody in our times should be so hare-brained as to recur to such an obsolete conception, unless the reading of " A Thousand and one Nights," with its treasure-troves and its Ali Baba caves, or of Dumas' 1 62 Clue to the Economic Labyrinth "Monte Christo," has turned his poor head. Our modern Monte Christos, our Rockefellers, Rothschilds, Vanderbilts, Carnegies, etc., own very little gold and silver; the security of their wealth rests on something much more solid — on human stupidity, which makes something exclusive legal tender which does not exist in nineteen cases out of twenty, and so gives the power of claiming enormous tributes to the creditor class ; on still greater human stupidity, which permits the few to own part of God's earth given to all, and to claim tribute from those who want to use it. The wealth of our present world, including the land values, exceeds by far 80 billion pounds sterling, while the total value of its precious metal stock certainly does not reach 2 billions ; in fact, would not reach one billion if the precious metals were demonetised. Of every ;^so of wealth £1 now is, of every ;^ioo of wealth £1 would then be, based on the possession of gold and silver. And such things are called stores of wealth ! An American lady wrote a tale lately, describing the dis- covery of immense deposits of gold. The State, their owner, distributes the metal ainong the people at the rate of $10 of gold per day per inhabitant. The result is a general catas- trophe, because not one of these " rich " people wants to work any longer, and all would have had to starve if the gold had not finally been confiscated and destroyed. Let us contrast with this starving Golconda our New Zealand as it would be if it had not a particle of gold or silver either ^bove or below the ground, but simply its present thrifty population, its soil, climate, and minerals of different kinds, exclusive of the precious metals. Does anyone imagine that production and distribution would stop, that less wealth would be produced ? On the contrary, it will be quite clear to all who have learnt to understand the real function which the precious metals and the money made out of them are playing in our economic system, that, once freed from their pernicious effect on distribution, and consequently on production of wealth, our country would soon be much richer in everything required by human beings, and that our civilisation would rise to higher levels, in spite of our Poor friend and his co-religionaries. Money 163 Labour Time Another standard of value — labour time — has often been proposed, and, in one case at least, tried : in Owen's " Labour Exchanges" {see Chapter IX.) — a very poor standard, as the failure of Owen's experiment proved. A good standard only with men like that peasant who had his tooth extracted by a celebrated dentist, and who protested when he was asked to pay ten shillings for the operation: "Ten shillings! Why, man, our barber at home only charges me a shilling, though he pulls me about the room for a couple of hours, and you want ten shillings for two seconds ! " Until the period arrives when communist Utopias become reality, until the hour spent by an Andrea del Sarto at his canvas or by a Newton at his desk shall be estimated as valuable and worth the same pay as that spent by a washer- woman at her tub or a crossing-sweeper with his broom, labour time — as a measure of value — must be relegated to the domain of those day-dreams which give a zest to the poet's compositions, but which are better left out of economic dissertations. As long as labour is paid according to its market value — found as the result of supply and demand, the higgling of the market \ as long as its price does not correspond to mere time units, so long will the labour-time standard remain a mere theory — and a false one at that — without any practical application, in spite of the most learned disquisitions of a Karl Marx and his fanatical disciples. The device of counting skilled labour in multiples of ordinary labour does not advance us in the least, so long as there can be no fixed rule for the magnitude of the multiplier.' ' Proudhon expressed it in these words : " The value of labour is a figurative expression, an anticipation of effect from cause. . . , Ifis a fiction by the same title as the productivity of capital. Labour produces, capital has value ; and when, by a sort of ellipsis, we say the value of labour, we make an ' enjambment,' which is not at all contrary to the rules of language, but which theorists ought to guard against mistaking for a reality. Labour, like liberty, love, ambitiqn, genius, is a thing vague and indeterminate in its nature, but qualitatively determined by its object ; that is, it becomes a reality through its product. When, therefore, we say : This man's labour is worth five francs per day, it is as if we should say : The daily product of this man is worth five francs," 164 Clue to the Economic Labyrinth Only what is Marketable can be a Standard of Value It seems unnecessary to insfst upon the fact that nothfng can be a standard of value without being obtainable In the market. It is a truism ; for how can we gauge a standard of value except by the result of supply and demand in the market ; and how can this result be obtained unless there is a real supply ? To find out the value, the standard of money, it must be offered in the market like any merchandise, and only its regular and permanent supply can enable us to effect a continual verification of its price relations to other merchandise. If I at all insist on this self-evident truth, it is because I have often met with the assertion that gold might .be preserved as a standard of value for paper money, even though the paper were not convertible into gold, a single gold piece being sufficient to preserve the standard. The persons who maintain such non- sense cannot see that the value of this gold piece is its purchasing power for goods, which can be estimated in no other way but by a market operation, and this single market operation may take our gold piece out of the market for ever. Where is now the standard for all other market operations ? It is self-evident that these market operations must be continuous, as the purchasing power of gold in general can be found only by the regular supply of gold for other goods offered in exchange. In other words, neither the value of gold nor that of any other commodity can be found in any other way but by the higgling of the market, which higgling implies the offer of the real Article in quantities more or less corresponding to the demand, and nothing can be a standard of value without having market value. What is the best Standard of Value? Criticising standards of value can be productive of little good unless something better than the existing ones is proposed j for even an inferior standard is better than none at all. From the negative part of my work I therefore now proceed to the positive. From the pulling down business I come to the constructive department. Money j x6f, The money of the first class has been found wanting; The money of the second class is only money of the third das^ burdened with an unnecessary expensive raw material. Instead of putting the money stamp on cheap paper it is affixed to expensive silver, copper, nickel, or whatever material coins are made of. Much labour is wasted ; and for all that, forgery is easier than in the case of paper money, the raw material of which can be prepared in a special way with water marks, and other distinctions, which are imitable by paper makers only^ and their trade cannot so easily be followed in secret as that of the coiner. J. Shield Nicholson, in "A Treatise on Money," says (p. 220) : " As to forgery, it is a curious fact that in Scotland spurious sovereigns are more frequently met with than forged £,1 notes ; and the art of engraving notes has made much progress since England had £\ notes in circulation (1S26)." Has Token Money Market Value ? We shall now pass on to class 3 : the pure token money. The first objection against this kind of money will belong to the intrinsic value domain which I have already exhibited at its real worth. But even on the principle that value is a relation, it seems impossible to compare a thing which has no market value at all with real wealth, with merchandise of any kind. At least, such has been the objection made by men like Professor Karl Knies (Heidelberg), who has written some valuable books on money and credit. According to him, money must be a merchandise, because you can as little measure the value of a commodity by anything else but the value of another commodity as you can measure a length without something that has a length. We might agree with the learned gentleman without, in consequence, being compelled to exclude inconvertible paper money from the money category. What is the autograph of a celebrated man ? What is a postage stamp when cancelled by the post office? Are they a commodity, a merchandise or not? Both sell as merchandise in the market, and FroTessor Knies cannot take their merchandise quality from them. . He will also have to agree with me that their merchandise or- market I66 Clue to the Economic Labyrinth value In no way depends on the amount of labour they embody, as the exploded theory of Ricardo and others would demand.^ To a certain extent their value depends on their scarcity, for an autograph which can be had by the million or a common cancelled postage stamp which can be had anywhere for the asking are practically worthless, even if the former is in the handwriting of the most celebrated man, or if the other has the most beautiful picture impressed on it. But scarcity alone does not give value to an autograph ; for the signature of an illiterate boor who only wrote his name once in his life does not gain any value thereby. The only real element of value in an economic sense in these, as in all cases, is supplied by the market, by supply and demand. Value is the price which the market is ready to pay. This makes a picture of Raphael valuable in our markets, while in the markets of Central Africa it might not fetch as much as its canvas without the painting on it. This gives value to the autograph, to certain cancelled postage stamps, and to the piece of paper money. There is no difference from an economic point of view between the value of Raphael's Madonna, an autograph, a cancelled or uncancelled postage stamp, and an inconvertible bank or treasury note. Their value is what they will fetch in the market. The motives of the buyers have as little to do with the matter as in any other case. A race-horse which has just won the Derby will equally be a merchandise whether bought with the intention of making sausages from it or of winning races through its help. Nor will the merchandise character of a piece of paper be changed in the least, whether it is bought because a great artist painted something on its surface, because a great man appended his signature to some words written on it, or because the Government applied a certain stamp. Neither does it make any difference whether the picture is bought for its artistic value or for its scarcity, for the purpose of adorning a drawing-room or of completing a collection. The economic classification of the postage stamp ^ Professor Senior says very correctly : " Any cause of limiting supply is just as effective a cause of value in an article a^the necessity for labour for its production. The cost of producing money is only important as affecting the supply. Limit the supply, and it does not matter whether there be any cost of production or not." Money 167 or bank-note does not change in the least, whether they are bought for a collector's album, or if the one is used to prepay a letter and the other to purchase goods. The fact that a certain piece of paper printed with certain signs is accepted as money at a certain price in the market does not change its commodity character ; and in so far we might as well have refrained from dividing money into three classes. In thus dividing it, we do not pretend that the money of our third class is not as much a commodity as our money of the first class ; but merely that, whereas money of the first class maintains its market value after it ceases to be money — a new gold sovereign being worth a pound sterling even if sold as bullion — the money of the third class loses its market value after losing its money quality. Even this is only true within certain limits ; for if all gold coins cease to be money after gold has been demonetised^ their value as bullion will no doubt decrease thereby ; and paper money, though demonetised, may still conserve a value for collectors or amateurs of certain classes of wall-paper. Facts prove the Money Quality of Token Money In this way, I maintain that token money is money ever! according to the German professor's definition. Not that I value this definition; it contradicts that given by others who more correctly define as money anything which is universally accepUd in payment — and this is equivalent to the definition I adopted : only that which is legal tender for debts is money. If, accord- ing to a vulgar saying, the best proof of the pudding is in the eating, the best proof of the money quality of inconvertible paper notes is that they pass as money in many countries of the earth. Facts, however, have no such power over academicians as oyer ordinary mortals. They often act like the physician who had declared a patient incurable, and who, when the man had the impudence to recover in spite of the doctorial dictum, quietly told him : " Scientifically you are dead, sir ! " Or our learned professor may imitate one of his colleagues, who, when shown that facts did not agree with his theory, replied: "So much the worse for the facts ! " 1 68 Clue to the Economic Labyrinth The Assignat Scare It is, however, insufBcient to prove that paper money exists scientifically as well as practically ; we have to show that it is a better money than our metal money, or any money of our first and second classes. The general opinion is that paper money has been a failure. Gold may have appreciated considerably within the last three decades, but it never has shown such variations of value as most of the paper money we are ac- quainted with. As a warning example, three different historic cases are produced : Law's bank paper, the French Assignats, and the notes of the American confederacy. From parity with gold to no value at all are fluctuations which no commodity money ever experienced ; and it is not to be wondered at that, with all their drawbacks, our gold, or gold and silver currencies, are generally considered as superior to a paper currency. The ground thus taken seems unassailable, for the money of our first two classes can never lose its value to such an extent as paper money ; but for all that, I intend to prove that Paper Money can be made a better Standard of Value than Gold or Bimetal I istic Money Adam Smith, M'Culloch, Ricardo, Tooke, Stuart Mill, Jevons, and other great authorities, have freely acknowledged, and the facts of every-day life have proved, that paper notes, though inconvertible into gold, if made legal tender, can be kept at par with gold, under certain conditions, i.e., if they take the place of gold withdrawn from circulation. Nor will any noted economist doubt that they may even be at a premium when compared with gold coins, where these are demonetised and where paper alone is legal tender, isf million pounds of the notes issued by the Bank of England are inconvertible into gold, and yet they are at par with gold, as they will always be required for internal circulation. That paper money has often been of great benefit —even where it did not keep at par with gold— is also well known. R. H. Patterson says in " The Economy of Capital " (p. 447) ; " How did England manage from 1797 to 1815, when there was Money 1 69 hardly a guinea in circulation ? That period was the most try- ing which the British Empire ever came through, a period re- markable for a great expansion of our trade and commerce; nevertheless, though gold almost disappeared from circulation, no difficulty was found in settling the foreign exchanges ; and the Government was even able besides to obtain large sums of metallic money to pay and feed our armies abroad and to subsidise those of other states." The difficulty remains of finding the exact margin for the quantity of inconvertible paper money which can be kept floating at par. Must not the paper depreciate, when a certain amount required for internal circulation is overstepped, when, according to Gresham's law — that the bad money drives out the good — the gold coins have disappeared, and gold has to be bought at a premium for outside payments ? The History of the American Greenbacks has shown this very clearly ; for it belongs to one of those ex- aggerations or downright falsehoods, which have helped more than anything else to discredit paper money, that its advocates pretend : what brought greenbacks into disrepute, what finally reduced their gold-purchasing power to almost one-third of their nominal value,^ was the law which made the interest of certain loans and the custom duties payable in gold. These people do not reflect for one moment what the loans were contracted for. At that time many goods required by the country, especially for war purposes, could not be produced fast enough within the States, and had to be bought outside where greenbacks were not accepted, but where gold or other saleable merchandise of some kind were dernanded in exchange. Now for the time the mer- chandise or gold thus demanded could not be produced in sufficient quantity, and money had to be borrowed abroad to pay for the passive trade balance. The parties who lent this money wanted their capital and interest guaranteed in gold ; for nobody could tell whether greenbacks would ever procure them gold at their face value or goods at a corresponding price, when even the very continuance of the Union was in question. 'On July II, 1864, the proportion became 285 dollars in greenbacks for 100 dollars gold. 170 Clue to the Economic Labyrinth So the foreign loans had to be made payable in goldj capital and interest, and it became necessary to ensure a sufficient gold revenue to pay for the incurred debts. It is true the Govern- ment might have accomplished this otherwise than by making the duties payable in gold. These duties might have been made payable in greenbacks, with which the Government would have bought in the market the gold it required. But foreign exchanges naturally were against a country which had an unfavourable balance of trade to pay for with a soon-exhausted gold stock. Gold had to be borrowed in some way or other at its market price, which grew with the demand for it. The Government's financial measures had nothing to do with the premium thus paid for gold, which was made by the foreign exchanges. Even if the duties and loans had been made pay- able in greenbacks, the premium paid for the gold needed to pay the outside debts would have been just as high. The foreign creditors who had to lend gold would never have ac- cepted greenbacks above their market price in gold, a price dictated by the foreign exchanges ; and instead of paying duties in gold which they had to purchase at a premium with greenbacks, the importers would have had to pay their duties in greenbacks, but the amount of the duty would have been raised sufficiently to enable the Government to purchase the gold it needed. The only difference would have been to force the importers to provide the Government with enough greenbacks to buy gold, instead of having to buy the gold themselves. Greenbacks were bound to fall in value in either case, as long as their issue exceeded a certain quantity demanded for internal circulation ; and more money being required to pay for outside goods, more greenbacks had to be offered for gold in the market. Still, their fall would never have been so considerable if the Government had not committed the folly of authorising the so- called " National Banks " to issue a currency of their own, even making them a present of the interest profit thus obtained. This concession added unnecessarily to the inflation. The friends of paper money would do well to profit by an experience daily realised in any department of reform work : the experience that Money \j\ Exasereration and Radicalism defeat their own Ends Temperance reformers, in English-speaking countries, instead of working for mere temperance, fight for total prohibition, and thus make enemies of many who detest the use of alcoholic drinks, but shrink from infringing the freedom of the individual. If they took example by those countries which are working on the Gothenburg or related systems — aiming at decrease of drunkenness — they would be much farther advanced. Fifty years ago the annual consumption of alcohol in Scandinavia was 30 litres (nearly 7 gallons) per individual. It has now been reduced to 2 litres ; and in Norway delirium tremens has become an almost unknown disease. An anti-treating law — fining the publican who serves liquor to any person who does not pay for his own drink — might do away with one of the most prolific causes of drunkenness, and one of the most idiotic limitations of personal liberty : the unwritten law which, in the colonies, at least, compels every member of a party of friends who meet at a bar to pay for the whole group, so that each individual pays in turn, and each drinks far more than he would have imbibed otherwise — with inevitable consequences. Tem- perance would also be promoted by all improvements in the economic condition of the people ; for experience demonstrates that misery causes drunkenness quite as much as drunkenness causes misery. Singfle Taxers afFord another Example of radicalism overshooting its own mark. Their opposition to any kind of land restoration which includes a system of com- pensation has done more to keep back the progress of the great idea than any other cause. I lately met one of their class, a highly estimable gentleman, who, though he would not deny the fact that land nationalisation by purchase must bring the land into the people's possession in less than one-quarter of the time, and at less cost than the system of gradual confiscation by means of a tax, simply answered that he would never sacri- fice principle to expediency. My reply that principle did not weigh so much with me as the wish to save millions of our own 172 Clue to the Economic Labyrinth contemporaries from misery, instead of postponing the full effects of the reform for generations yet to come, did not seem to make any impression. I have seen Co-Operative Settlements go down because of a similar radicalism which insisted on complete communism, that finally broke up the society, instead of consenting to a more moderate kind of socialism which might have maintained the organisation. If anywhere, such radicalism is truly pernicious in the domain of currency reform. The Greatest Enemies of a Rational Currency are those radical apostles of paper money to be issued to any amount, secured by wealth of some kind, preferably real estate. This class of currency reformers finds its principal adherents among land-owning farmers, who thus hope to obtain from the State cheap money on mortgages. Such a new concession made to land-owners would merely add to the unearned incre- ment by forcing up the prices of land, and thus the compen- sation which the community would have to pay some day when the people take back their own ; but leaving this aside, the whole plan shows an entire ignorance of the currency question. The plan is condemnable, because There can be only one kind of Security behind Money of our Third Glass, Token Money, and that is Its Wealth-purchasing: Power If real estate is the wealth on which the money is issued, the money is only good if the real estate can at any time be ob- tained for it, which is not at all the intention of the men who propose the plan. They do not dream of handing over their farms and houses to anyone who presents the money lent to them on such security. They merely want to keep this money for an indefinite time, or anyhow for an extended period, at a Money 173 low rate of mteriest. Their real estate is not in the market for the money they received ; in fact, usually it is not in the market at all, most certainly not at those very periods when people want to see something substantial for the paper in their hands — those times of crises and panics ; for at such moments their property would certainly not fetch more than was borrowed on it, and probably not even that. Thus the security is no security at all in the only sense in which a security is needed, i.e., to keep up the full purchasing power of money, the security that is quantity, corresponds to the quantity of merchandise offered for money in the market Currency reformers of this class have done more to retard money reform than the most conservative gold monomaniacs. Can we blame the latter if they stick to their gold standard as long as experience justifies them in the belief that gold, with all its fluctuations of value, is after all not subject to such vagaries in this direction as most of the paper currencies on record ? But they leave out of sight the fact that Not a single Case is known in modern History where an inconvertible Paper Money was issued under normal Conditions for the purpose of providing a better money than metal coins. Invariably sUcb money was issued in times of wars or revolu- tions, or at least as the result of acute financial distress. Under such conditions it could not be expected that the issue would conform to certain rules adapted to maintain a fixed standard of value for the paper, which does not prove that such rules might not be devised. On the contrary, a closer investigation will show us the feasibility. A perfect Standard of Value for Money is reached when the average price of merchandise does not vary, and this can only be obtained where the quantity of the money supply in the market adapts itself to the demands of the market, where at once more money appears when prices tend to go down, and disappears when the tendency is in an upward direc- '74 Clue to the Economic Labyrinth tion. This is impossible in the case of metal money, whose supply depends on the goodwill of those who control the bullion market ; but it is within the reach of possibility in the case of paper money, which can be supplied to any amount at the shortest notice, whose issue can thus be adapted to the market's exigencies, more money being issued when prices fall, and money being retired from circulation when prices rise. Thus, whereas our present law fixes the price of gold, the new task is to fix the average price of goods in general. Money Circulation regrulatecl by a Tabular Standard of Prices All we have to do is to keep a watch on the average prices of goods, and to regulate the money circulation accordingly. All those commodities which constitute an appreciable portion of the general turnover have to be tabulated, their prices being multiplied with the ratio which their turnover bears to the total of the yearly turnover of the country. The addition of the products thus obtained gives us the average figure which has to guide us in the issue or withdrawal of the paper money. To make this clearer, I shall give an example taken from " Die Anpassung des Geldes und seiner Verwaltung an die Bediirfnisse des Modernen Verkehrs," (The adaption of money and of its administration to the wants of modern circulation), by Silvio Gesell. (Buenos Ayres, 1897.) Taking the total turnover of the country to be represented by the figure 1,000, he gives the relative turnover of the following commodities, which here are supposed to comprise all com- modities bought and sold in the country during the year, by the first figure annexed to each. He then makes the figure i.oo represent what has been agreed to stand for the normal price, reducing all future prices to a percentage of i.oo. The last column gives the tabular standard. Money 175 Normal Table \rticle. Quantity. Price. Amount. Butter 100 1. 00 100 Coffee 10 1. 00 10 Linen 60 I.OO 60 Fruit 30 1. 00 30 Com 300 I.OO 300 Meat 100 I.OO 100 Silk 50 I.OO 50 Sugar 100 I.OO 100 Wine ISO I.OO ISO Wool 100 I.OO 100 1,000 1,000 Now he takes two other periods at which the relations of quantities and prices have changed, as in the following list : First Period compared. Article. Quantity. Price. Amount. Second Period compared. Quantity. Price. Amount. Butter no 89 97.90 120 102 122.40 Coffee 15 los 1S7S IS 84 12.60 Linen 40 67 26.80 30 45 13-50 Fruit 40 "S 46 50 102 51 Com 280 III 310.80 270 93 251.10 Meat 130 107 139- 10 140 120 168 Silk 45 86 38.70 40 70 28 Sugar I3S 106 132.50 150 95 142.50 Wine 125 81 101.25 120 105 126 Wool 90 88 79.20 65 79 51-35 1,000 988.00 1,000 966.45 The results show that in the first period prices have fallen i"20/^, in the second even 3"34%, below the normal rate, and, of course, money has appreciated accordingly ; never mind what has been the cause of the price fall. Whether this fall is the con- sequence of a greater scarcity of money or of reduced cost of production is absolutely immaterial. All we have to take into consideration is the changed relation between the value of money and the value of merchandise. If the change is in favour of money, »>., if the same quantity of money buys more 176 Clue to the Economic Labyrinth goods, or if less money buys the same quantity of goods, money has appreciated ; and, in the opposite case, it has de- preciated. To bring back the normal relation between the two, more money has to be issued in the first case; in the other, money has to be withdrawn from circulation. It is a matter of indifference which name we give to the new money units. We may call them tom-toms, pounds, dollars, francs, or whatever we please. Whatever we call them, they will represent nothing but a certain and unchangeable average quantity of goods and services which are obtainable for the unit in the market. The figures of the average price table deter- mine this quantity once for all. It is also immaterial on which prices we base the first standard table. We may adopt the prices of the year in which the reform is introduced, or we may take the average of a number of preceding years, as Wallace proposes ; and if we consider certain prices as temporarily too low, we may put them in at higher figures ; though to avoid any unnecessary departure from our habits, it is not advisable to go very much above existing prices or to adopt any new name for the unit. The objection that our new paper pound will be something different from the real meaning of the word — a gold piece containing 123.374 grains of standard gold — has certainly little weight when we consider that this gold pound has itself departed from its real signification : a pound's weight of cer- tain silver coins. Gradually the coins were made to contain less and less silver, until finally the value of the pound sterling became reduced to its present standard. In Russia, where the paper rouble had taken the place of the gold or silver rouble for half a century, the new gold rouble lately issued was adapted to the paper rouble and not to its metal ancestor, containing 40% less gold than the latter. History of the System It may never be found out who was the first to reach the simple solution of the problem here given ; and, as is often the case with great inventions and discoveries, it is very likely that the idea germinated at the same time in different heads. Gesell has not been the only inventor of this excellent system. England's greatest living scientist, Alfred Russel MdH£)> 177 Wallace, added another leaf to his laurel wreath by his pro* posal of a paper currency whose circulation is regulated by the prices of merchandise. I found the essay in the Clarion, end of 1898. Wallace's system is not so exact as that of Gesell. If I understand him correctly, he fixes once for all the quantity relations of the different articles, whereas Gesell takes the actual figures of the year. I further met the proposal of this scheme in "Money and Social Problems," by J. Wilson Harper, published in 1899. I cannot find out how long before this date the author held the Idea, which also forms the basis of an article published by the Hon. C. L. Poorman, editor of the Ohio Bimetallist (middle of 1899). It is likely that this is only a repetition of the same proposal made by the latter at a previous datci Differing from former Tabular Standard Proposals This excellent scheme must not be confounded with the so- called tabular standard or multiple standard device mentioned in " Money " by W. Stanley Jevons, and, according to him, first pro- posed in 1822 by Joseph Lowe, eleven years later by G. Poulctt Sorpe, and in 1838 by G. R. Porter. According to the Arenas the idea of the multiple standard was carried out in practice as much as forty-two years before Joseph Lowe proposed it. The magazine published a reproduction of a Treasury Note issued in 1780 in the State of Massachusetts, which indicates that their currency of that time was not reckoned so stable as currency now is in England. The note promises repayment not of So much gold, but of a sum equivalent to given quantities of corn, beef, wool, and leather. This multiple standard was intended as a safeguard against fluctuations in the currency, and is described by the editor as the most nearly honest piece of money ever issued in a civilised state. The only point of resemblance between the two systems is in the method of finding an average of merchandise prices by tables. Apart from this, the " tabular standard " is just as impracticable as the system advocated by Gesell, Wallace, etc., is easily applic* able. Any business man can see this at the first glance, when he 1^8 Clue to the Economic Labyrinth knows that the originators of the tabular standard idea propose to adjust all payments for debts or contracts according to the variations of their table results. Supposing, for instance, that these tables show a decrease of the average price standard of io%, all debts and contracts are in that case reduced io%, because money has appreciated to this extent, and con- sequently, it is only just that the creditors receive so much less of this more valuable money. The amount of pensions, salaries, fines, taxes, duties, etc., is also to change all the time according to the results of the tabular standards Just imagine what that means! A man has to pay his butcher a bill of last year, another has signed a promissory note, and so on through thousands of mutual engagements of daily life. Before any payment is made the tabular standard must be consulted, a discount has to be taken off or a premium is added, according to this tabular standard ; and these complicated calculations are to be carried on daily, hourly, and mostly by men to whom the job of multiplying quantities v/ith prices and adding the products, when they buy a bill of goods, is just complicated enough. When they have borrowed money, the calculation what they have to pay is hard enough for them ; and now they are also to add or deduct percentages varying with the money standard. Most of them will have to rely on the cleverer people who understand " this new fad " ; and we know what that often means. Adding another trap for the unwary, and heaping additional work on everybody, would cause the tabular standard to be looked at as such an unmitigated curse that people would rather put up with all the dangers of our monetary changes than correct them in this insane fashion. The general abhorrence of inconvertible paper money enter- tained by most English economists of that period, alone can explain how such intelligent men should have stumbled — by the only practical application of the tabular standard — into such impossible proposals. Had they been less prejudiced they would easily have seen that, instead of using their standard to change money obligations, leaving the money itself untouched, the obligations might have been left untouched by changing the money circulation accordingly to the standard. By thus approximating the price of money to the price of merchandise, its only gauge, the value or price of money, its purchasing Money 179 « power, remained invariable, and obligations could safely be left alone. The way of ascertaining the standard had already been improved from the original raw notion of simply taking the prices of a number of articles and finding the arithmetic or geometric middle — the system used by Laspeyres, Scetbeer, Jevons, and others — to the method proposed by the German professors Drobisch in 1871, and J. Lehr in 1885, of taking into consideration the quantities of each merchandise. Difficulties Professor Erwin Nasse sees a certain difficulty in the work of exactly finding the quantities of the different articles which are to form the basis of the calculations. Others have discussed the question whether wages and tools of production, or whether land values, i.e., rent, ought to be included in the lists. In any case, we shall never quite eliminate all sources of inaccuracy ; but by the wanderer lost in the wilderness, even the rough indications of the native he meets as to direction and distance will be welcomed. He will not refuse to avail him- self of them because a map with exact delineations would be preferable. Even an approximate price standard is better than none at all, and certainly no system of tables made out on the best available data would hide from us fluctuations like those which have almost doubled the value of money within the last three decades, or which, in the English crisis of 1857, caused the prices of the principal staples to fall 27% within two weeks ; not because their cost of production had decreased so much within that short period, but because money had suddenly become exceptionally scarce. R. H. Patterson, who gives statistics in "The Economy of Capital" (p. 190), mentions another price fall of cotton, going down from 7 to 43j% for the different numbers between August 15 and November 5, 1866, in consequence of the scarcity of money (p. 366). It would never do to give up the attainable because perfection seems out of reach. However, I do not think the difficulty quite so great as Nasse finds it. Of course, we would not take I So Cttu to the M^oHOtntc Labyrtntk Retail Prices, but the prices obtained by the producer and those paid by the importer. If we also gave retail prices, we should only increase the total of each article in the same proportion without affecting the result. If prices vary in different parts of the country, we should take the middle price. Raw IViaterlals would figure several times in the list wherever they are used as the component of other merchandise; but so would manu- factures which enter into the composition of other fabrics, such as leather in shoes and saddlery wares, cotton thread in cotton cloth, etc. This can only affect the quantity relation which each article can claim ; but as the same addition to quantity takes place in all branches of manufacture it would not sensibly affect the final result It makes no difference whether in our lists the price of every article is multiplied with half or double the quantity : the average will not change thereby. Neither can it well be avoided that some manufactures which enter into the composition of others will not appear in the list, because they are produced in the same factory, and thus do not pass through the market ; as, for instance, where the yarn is spun and weaved in the same works, or where the tannery and boot factory are in one hand, and thus will only figure once where others manu- factured by different firms are counted twice. This does not matter much, however, as such causes of error will occur in different branches, and thus will compensate each other in a certain measure. Land Vaiues and Rents* on the other hand, ought not to figure in the list, for their relation to the value of money is not the same as that of the products of labour. Though both rise with the fiSe of prices and the depreciation of money, it does not follow that the opposite tendency will force them down ; for the simple reason that the fall of prices in our times is mostly due to the greater pro- Money i8i ductivlty of labour in consequence of technic improvements, and that the fall has by no means kept pace with the increase of this productivity. The surplus appears to a small extent in a rise of wages, to a larger extent in the increase of profits, in- cluding interest, but chiefly displays itself in the rise of rent. Rent and land values have risen much faster than the value of our metal money, which is easily accounted for by the fact that, though the quantity of our metal money does not increase so rapidly as the productivity of labour, still it increases quicker than the surface of available land. The price of the latter, therefore, is forced up more rapidly, especially as a growing portion of it is absorbed by the necessity of providing the in- creasing population with house-room. The inclusion of land values and rents in our tabular standard would therefore simply falsify the result. We might see prices of goods fall with rising land values and rents, and if we included the latter in the tabular standard they would produce a corresponding counter effect on the influence of the price fall, and thus prevent a sufficient issue of new money. On the other hand, an issue of money would cause such an upward tendency of land values that the currency restriction this would entail would overstep the real necessity. The question whether Wages ought to figure in the list, or not, is a little more complicated. In Chapter VIII. we shall see that, at present, wages enter into the retail price of goods to the amount of not over one-sixth, and that labour could conquer enough of the remaining five- sixths to treble its wages, without thereby raising the price of goods paid by the workers as consumers. Any future increase in the productive power of labour could further increase wages without raising prices. If wages figure on the list their rise restricts the money issue, and consequently reduces prices. A fall of prices thus producpd, on the other hand, reduces wages. The effect of such a reduction on the tabular standard causes circulation to increase and prices to rise, until finally the point of rest would be found in a partial fall of prices and a partial rise of wages. Prices might, for instance, fall to one-half, and 1 82 Clue to the Economic Labyrinth money wages double, which would be identical with a four-fold increase of wages measured by their purchasing power. If, under the same conditions, wages are not counted in the list, the average prices of goods remain unchanged, and money wages increase four-fold. Their purchasing power would be the same in either case. I think it is better to leave the average prices of goods at the same level, and therefore to omit wages from the list, be- cause not only much work is saved, but a rise in the purchasing power of wages through a reduction of prices would have to be shared by the workers with the savers, the purchasing power of whose economies must rise with every fall in prices. The objection might be made that this would mean a discrimination to the absolute loss of those who live on their incomes, because the wages of domestic servants would also rise without causing a reduction of merchandise prices ; but persons who keep servants could well afford the slight difference, even if it has not been made good to them by their higher earnings and greater saving power as workers. Still, I see no reason why wages of domestic servants and all other wages which do not enter into the prices of tabulated products should not be tabulated. Methods of Issue We now come to the methods of issuing the paper money or of contracting the circulation when needed. Different systems are possible, and each would probably find a partial application. To a certain extent, the State would probably issue the money for public works of different kinds — for salaries and wages, for the defence of the country, etc. — and would accept it for duties, taxes, fares, freights, etc. Beyond this, the system of issue practised by our banks would no doubt be followed ; overdrafts would be allowed and bills discounted. This system supplies the simplest mode of reducing the circulation when necessary, by calling in overdrafts, temporarily raising the rate of discount or stopping discount altogether. Money 183 Crises Prevented The danger- nowr connected with such a procedure — crises often being precipitated- through the very efforts which the banks make to prevent them — could not exist under the new system. The reason is obvious. A financial crisis and a fall of prices are inseparable, for every merchant who is in financial difficulties naturally first tries to sell his stock at a sacrifice, if necessary, to obtain ready money ; and wherever many merchants are making the same efforts simultaneously — as must be the case in any crisis — a rapid fall of prices must result. The case of the 1857 crisis, with its price fall of 27%, has illustrated this to us. But when prices fall under the new system money is immediately issued, and will meet a ready demand, because this very fall of prices shows that for the time there is not money enough in circulation ; and this new issue must at once put an end to the crisis. Or rather, there will not be an end because there is no beginning, of which the crisis of 1847 furnishes an illustration : the trouble disappeared as soon as the Government showed its readiness to help. We saw that, practically, the Bank of England did not even make use of its privilege to issue more notes to any extent worth mentioning, for as soon as it was known that the notes could be obtained they were no longer demanded, because at once all over the country the money came out of its hiding-places. The United States crisis of 1893 was brought on merely because the depositors in the banks did not think they could get their money ; and often, in a panic, we find people coming to demand their balances, and at once depositing the money again after they have obtained it. In fact, the first barometric sign of a trade depression, and its outcome, a financial crisis, is a fall in prices ; and where such a fall at once brings more money into the market and thus stimulates the demand for merchandise, the prices must as quickly rise again, and the depression must cease. However, this is a subject better treated later on, when we in- vestigate the economic effects produced by a scientific paper money. Nor is this chapter the place to discuss the question whether the issue of the paper had better be left to private banks or to a Sta^e bank. My purpose here was merely the definition J 84 Clue to the Bcmomic Labyrinth and classification of money in the first line, its value in the second. The proof had to be supplied that it is possible to create a paper money which can be relied on to maintain its standard of value better than gold coins, the limited stock of which can be cornered at any time with ease, in a world where a mere hundred of our millionaires are worth 1,200 million pounds — an amount one and a half times as high as the whole stock of our gold. Whereas the issue of gold money is narrowly limited by the existing gold stock, that of paper money can be adapted to the demands of the market. Cornering and locking it up can in no way influence the market, because at once other money will take the place of the money withdrawn. Paper money is thus the only money the value of which can be made as good as unchangeable, CHAPTER IV THE EFFECT OF A SCIENTIFIC PAPER CURRENCY (a) in National Intercourse Crises are Chronic It is much easier to show how financial crises arise than how we ever are free of them. In reality, the chronic form of the crisis never quite leaves us, and it is only its acute phase which is meant when we speak of periodically recurring crises or financial depressions. That even the acute stage has not become permanent can only be ascribed to that wonderful adaptability of our human nature which enable^i us to scrape our way in all climes and under all kinds of conditions. Two factors are at work : an almost incredible increase of trade, and a money to do it with not adequate to the service required. To make the money correspond to the turnover to which it has to minister, its quantity requires at least a twenty- fold increase ; and this amount would again have to be increased four-fold were latent trade possibilities to be considered : that immense increase of our turnover which would ensue if the obstacles presented by inadequate means of exchange were removed. These are the factors with which our powers of adaptability have to cope. We know how they accomplish the task : how on the narrow money basis an immense credit building has been erected, in which trade lives and moves as well as it can. A building about thirty times as high as its base, a dangerous structure, but after all — though a great deal too narrow — so wonderfully well built that, unless a depression in the com- mercial or political atmosphere brings disturbing air currents, 185 1 86 Clue to the Economic Labyrinth apt to shake the flimsy fabric, or unless the earthquake of panic tears away part of the base, it stands for a time praised by all beholders, especially by those who collect the rent of the house. A high rent, forsooth, as it must be where such a risk premium has to be taken into account ; a rent which is bound to ruin those who have to pay it in the shape of usury ; a rent rapidly increasing through compound interest, and thus render- ing the sojourn in the flimsy structure more intolerable from day to day. The destructive Effects of our Currency To leave allegory and come back to plain business language, I simply invite the reader to look a little closer into the nature of the currency which serves as our medium of exchange. Those cheques, drafts, promissory notes, etc., are not passed without sacrifice by those who use them as a means of payment. The profit they expect from their business transactions may not cause the interest they pay to appear exorbitant for the time, but this interest is secured to the creditors by the most valuable possessions of the debtors. The hopes of profit in most cases prove evanescent, as they are bound to do in a business world existing under the Damocles sword of the con- tinual danger that they owe from one day to another a money which — in nineteen cases at least out of twenty — does not exist. Too many unahticipated losses come in on every side, while ex- pected profits are reduced through hundreds of causes. On the other hand, interest accumulates with the certainty of death, and nobody better realises the rapid passage of time than the man who has signed a P.N. due at a certain date. If the creditors were forced to accept in payment merchandise or services at fair prices, things might be arranged more easily, for our pro- ductive power is immense ; and great as the debt is, if it could be paid with goods and services, it would soon be cancelled, capital and interest. But the creditors do not accept this kind of payment, or if they do exceptionally, it is only in case they can at once sell the goods for cash without any loss. The amounts thus due are so enormous, however, thatwhere such sales are tried on a large scale, prices are considerably forced down. Ruin stares the debtor in the face ; and it comes certainly when The Effect of a Scientific Paper Currency 187 the creditor realises on whatever securities are in his hands, the result being a further impoverishment of the debtor class to the benefit of the rich. In my first book, written in German, " Auf Friedlichem Wege" (1884), I drew from every-day life the picture of A Money- Lender and his Victims A farmer borrows money from the money-lender to increase his stock ; a manufacturer because he wants to add to his plant ; a builder to construct some houses ; a merchant to obtain more business capital. All give mortgages to the capitalist. Their enterprises, somehow or other, do not come up to expectation^, and the final outcome is the ruin of the debtors ; while the creditor who buys in their properties at the sale, and realises on them when times are a little better, becomes still richer. As a rule, the well-secured money-lenders play the part of the croupier at Monte Carlo. Those who deposit their money on his tables may, once in a while, haul in a gain ; but in the long run, the croupier rakes in most of the money within his reach. He plays on the certainty of mathematical average results, while the gamblers count on mere occasional possibilities. Part played by Land Ownerslilp No doubt private land ownership plays an important part in this game, in which the workers are the losers, while those who can secure their wealth through the monopolisation of Nature's indestructible resources, sold or pawned to them, become con- stantly richer ; and certainly no permanent reform is possible unless we manage to withdraw this security out of the hands of the few by making it the property of all. Unfortunately, many clear-sighted men who have mastered this great truth do not realise the important function which our present currency system plays in the process. Scientific Currency gives immediate Heip That a scientific paper money would render an acute financial crisis impossible was demonstrated in the last chapter. Every 1 88 Clue to the Economic Labyrinth such crisis is accompanied by a fall of prices, and with the scientific currency any fall would at once call forth a corre- sponding issue of money. At once, for the officials entrusted with this work need not wait for the periodical statistics when without their aid a fall of prices is clearly observable. The tabular standard will be merely the instrument for final adjustment of the more delicate oscillations and to prevent abuse. Of course, there always will be unsuccessful men who cannot pay their debts, and whom no reform of any kind could help. Such men will have to be weeded out of the special field of work for which they are not adapted, and helped to find their legitimate scope. There always will be Micawbers ; but even Micawber found his sphere of action after repeated failures had shown him how not to do it, and this process would be much facilitated through social reform. We leave the exception and come to the rule, to the man who would remain solvent if his work, or the result of this work, his product, were saleable at paying prices. Our bank- ruptcy courts would have very little to do if this class were exempted from its operations, nor would the waste inherent in our present system of distribution be so great. It is just this difficulty, experienced by our producers, of selling their product at paying prices which forces thousands out of the productive field into that of distribution. The unsuccessful tradesman further increases the army of shopkeepers, of whom a fraction might do the economic work of the lot ; so that most of them are mere drones, or — to express the fact more correctly — most of the work done by them as a class is wasted. The Causes of the Crisis not due to Changres in the Process of Production Our most important task, therefore, is to find out how the producers are to be enabled to sell their product regularly at a price which pays them decent wages for their labour. The times are past when economists could console themselves and their readers with the reflection that — through the intro- duction of new machinery increasing the supply in some special The Effect of a Scientific Paper Currency 189 field of production, or the changes of fashion diminishing the demand in another — temporary want of employment may be caused which will soon be adjusted by a new distribution of productive forces. If temporary want of employment were the cause of the crisis we should grow out of it, instead of getting deeper into its meshes from year to year ; for the very nature of our modern system of production and distribution tends in the direction of superseding those difficulties which in former times were in the way of any change in the department of production to which a worker belonged. If there was an over-production of shoes and an under-production of textiles, it was impossible for the shoemaker without work to obtain employment by weaving cloth, nor could the weaver in the reverse case do much good at shoemaking. The type-setter could not build machines, and the machinist could not have made any wages at type-setting. Then there was the difficulty of communication and transporta- tion, which caused over-supply of workers in one place when there was a great demand for them in another. Our progress in the arts has changed all that. The shoe- maker can soon learn to mind some of the machines used in the textile factory, and the weaver can learn in a few days how one of the auxiliary machines in the shoe-works is managed. The type-setter can at once mind a milling machine after he has been shown its simple working, and the mechanic will soon learn how to work a linotype. The telegraph informs the whole world, within a few hours, that workers are required in a certain place, and steam-boat and locomotive carry the unemployed thither. When "Over-Production " Is spoken of nowadays, something entirely different from this local or departmental dislocation is understood. We mean that strange and seemingly unaccountable phenomenon that in all fields of production— almost without exception — efficient workers bewail the growing difficulty they find in disposing of their products, or of the work creating the products. Over- production and want of employment have become so habitual a complaint that we have gradually ceased to realise the ^90 Clue to the Economic Labyrinth enormity of this phenomenon. One single moment's con- sideration, however, suffices to restore its vivid colours, tem- porarily effaced by the mere force of habit. We speak of an over-production of clothing in a world in which millions have not half as much clothing as they need. " Too many shirts ? Well, that is a novelty in this intemperate earth, with its nine hundred millions of bare backs!" says Carlyle. In our cities builders complain that too many houses have been built, at a time when thousands are crowding into slums, or seeking shelter under the arches of bridges and in public parks because they can obtain nothing better. The farmer tells us that food production does not pay because the competition is too great — too much is produced, and millions have not enough to eat ! And so it goes through all departments of production, whatever the name. What can it all mean ? Is there a deficiency in the means of transportation, often in the past the cause of starvation in one section of the world, while corn was being fed to the hogs in another ? This obstacle diminishes from year to year, and does not apply in our case, with unsaleable goods of all kinds in the midst of the very people who need them. No, here it certainly is not distance that prevents an interchange of goods and services. Why, we have tailors wearing insufficient cloth- ing because there is such an over-abundant stock on hand that they are denied employment, and thus deprived of the means wherewith to buy cloth! We have carpenters, bricklayers, stone-cutters, and other workers in the building trade who are without shelter because too many houses lack buyers or tenantsi and building has had to be stopped for a time ! Do not such every-day sights teach us that neither the distance intervening between supply and demand nor the deficient organisation of production can be to blame ; otherwise how could there be an unsatisfied demand for goods in the very trades wherein the producers in vain look out for purchasers ? Supply and Demand kept apart' by Money Monopoly If productive power and purchasing power Werd identical, such a state of things would be impossible ; but situated as we The Effect of a Scientific Paper Currency 191 are, purchasing power can only be obtained, as a rule, through the command of money or its representatives. As long as this money consists only of a scarce commodity in itself absolutely inadequate to perform the service expected from it, the break between productive power and purchasing power cannot be filled up. Half a century ago Jonathan Duncan recognised the real nature of the crisis. I quote from his work already mentioned : " We have shown that, in the natural state of things, produC' tion can never exceed consumption, and that what is called over-trading in goods really means the under-production of money. It means that more commodities are brought to market than can be distributed, not because people do not want them, but because the instrument of distribution is incommen- surate. If the wharves of a maritime port were choked up with goods which another country desires to possess, as, for instance, corn at New York needed in England, but that there were an insufficiency of ships to freight the corn to London or Liverpool, it would be very illogical to say that the Americans had over-traded in the production of corn ; the case would be one of under-production of vessels, manifesting the absence of the instrument of distribution. A railway station further illustrates the argument. If there were more passengers than the train could carry, the directors, looking to their own interests, would not insist that the passengers were excessive, and complain of over-travelling, but decide that the means of con- veyance were inadequate, and at once increase the number of carriages and locomotives. The question, then, amounts to this : Would there be any glut of produce if money were permitted to increase as fast as produce increased ? But we may certainly answer this question in the negative, and the answer subverts the whole of Mr. Loyd's theory. Whence arise the convulsion, pressure, and stagnation which Mr. Loyd pronounces inevitable, and as certain to recur periodically in established cycles? Surely not from the reluctance of hungry people to consume food, or from' the refusal of people in rags to wear warm and decent clothing ; yet we are told that all the evil proceeds from the fact of those very people having been too industrious ; they have over-tradedj they have created too much, and the penalty is 192 Clue to the Economic Lahyrintk famine and nakedness ! Under this theory, the condition of the productive classes is truly pitiable ; if idle, they are treated as rogues and vagabonds ; if industrious, they are deprived of bread." Without the help of credit in its different shapes, prices would have gone down very much deeper than they did. The value, the purchasing power of money, would have become much greater than it is in China to-day, or was in England in the thirteenth century, when, according to Thorold Rogers, a carpenter received 2|d. a day, and an ox could be bought for 8 shillings ; for taking into consideration our increased productive power, it is probable that our money stock is relatively smaller than it was at that period. This in itself would be no misfortune, for Thorold Rogers proves that, in the latter part of the fourteenth century anyhow, wages in England were higher than in our time when measured by purchasing power. It would, however, be ruinous if debts be taken into consideration — debts continually increasing not only through the effect of compound interest, but also of a money appreciation incomparably exceeding that of the last thirty years. Our credit has prevented such extremities, but this credit, much as it has extended, cannot keep up with the increasing demand made through our increasing productive power, because it is less and less accessible to those who need it most Here we have an element of the crisis which has been little understood, and which needs careful consideration. Effect of Wealth Accumulations It is notorious that never in the history of the world have such enormous accumulations of wealth in the hands of a few men been known. Mr. James Burnley lately wrote about this subject in Chambers's Journal, in a series of articles entitled, "Studies of Millionaires." He enumerates lOO men whose wealth aggregates to a total of about 1,200 million pounds, which gives to each an average of 12 millions, or about half a million in- come. Only a few of these men ever spend the whole of their income ; most of them save a large part, and thereby further increase the immense amounts put by for a rainy day, not The Effect of a Scientific Paper Currency 193 reflecting that these very precautions hasten the approach of a cyclone against which no wealth shelter will avail. Hoarding not the Cause This never occurs to them, for few men comprehend how this saving can disturb in any way our process of circulation ; how it can affect the stock of money available as a basis of our credit building ; since it is well known that the habit of hoarding ready money has gone out of fashion, and that even the richest keep very little money or bullion on hand. Savings are now in- vested again in some way or other, and thus are given back into circulation. Two Kinds of Circulation However, there is a great difference between a circulation of money passing from hand to hand, from the man who received it in payment, into the market as a direct purchasing medium for goods and services, and the money which merely comes into circulation from the hands of somebody who obtained it from a capitalist in payment for land, mortgages, bonds or similar investments. This will be more easily understood by illustrative com- parison : Jones, a producer, receives money from Plutus, one of our 100 multi-millionaires, in payment of a piece of land ; while Giles, another producer, is paid cash by Plutus for some sort of merchandise. In the case of Giles, circulation is not affected ; what has been paid out by him as a producer comes back to him, for though sales may occasionally entail a loss, as a rule the producer who sells goods to a consumer makes wages or even a profit. This is well understood, so well that it has been assumed to apply to the other kind of transaction likewise. Our economists could find no difference — as far as the process of circulation is concerned — between the transaction in which the capitalist buys directly or indirectly from the producer any product of labour, and the one in which he merely pays or lends to the producer the money for something which is not a product of labour ; in our illustration : land. And yet the difference between the two transactions is ominous. 194 Clue to the Economic Labyrinth The Effect of Accumulation on Circulation We assume that in the possession of Jones the land had been an instrument of credit. His bank allowed him an overdraft on the title-deeds. This overdraft has to be made good before the deed is returned ; and thus the money obtained from Plutus merely takes the place of the money formerly obtained from the bank by Jones. No new money has been paid into his busi- ness funds, and not one single penny has been added to his purchasing power. " But," will be replied by our economists, " the credit given to Jones by the bank and repaid by him will now be given to someone else, who will use it to purchase goods with ; and we are practically right in saying that, as far as the process of cir- culation is concerned, it can make no difference whether this purchase has been made by the land-purchasing Plutus or by some other person to whom his money was passed over." This would be true if the bank had to refuse further loans on good land until the debt of Jones was repaid ; but such is not the case — would only be the case if the bank merely lent out real money. We have seen that this is not the system of banks all the world over ; in New Zealand, for instance, the advances and loans made by our banks in 1900 attained to £"17,000,000. The whole money in the country did not exceed ;£'3,ooo,ooo ; but the institutions, including the savings-banks, owed for deposits and bank-notes nearly ;£^2 2,000,000. They had merely lent the money brought in by one set of people to another set. They acted as a kind of book-keepers of a sort amidst the business people of the country, who practically lent each other money, or rather the hope of getting money in case it was wanted ; for very little money passed or even existed in the country. For this work of book-keeping and for the guarantee undertaken by them, the banks have enriched themselves by many millions since this colony was founded, of which more in the chapter on "Banking." The mere fact of having no money does not in the least deter our banks from giving credits, from allowing the debtors to draw cheques ; because they know that the cheques will come in as deposits on the other side, and generally real money will neither be The Effect of a Scientific Paper Currency 195 demanded, nor could it be paid if demanded in six cases out of seven. The result, therefore, of the transactions between Plutus and Jones will be that a rich man, who does not overdraw his account at the bank, bought land ; on the strength of which a poor man drew a certain amount of cheques, which he now repays with the cheque obtained for his land from the capitalist who bought this land. Thus the currency originally given to the capitalist by his rent or interest debtors does not return into circulation, as the transaction has not enabled the land seller to increase his right of cheque drawing. Jones merely repaid his debt to the bank, and there the matter ends. The debtors of a rich man pay him their interest or their rent. The money has been paid to them by other workers, who expect to find employment through the continued circulation of this money ; but they are disappointed. The money has left the market, and it is kept out of the market. It has done nothing but change the basis of a given worker's cheque opera- tions. Instead of drawing his cheques on the basis of an over- draft secured upon a piece of land, Jones now draws them on account of the cheque obtained from Plutus. If land, bonds, or other securities of this kind, on which the banks allow over- drafts, were unlimited in amount, this would not matter; for someone else would obtain a credit on such security from the banks, and the cheques drawn on this new account would take the place of the repaid overdraft in circulation. But the quan- tity of such securities is limited ; and, while credit is not refused to those who can supply them, from year to year more of these securities come into possession of a class of people too rich to re- quire credit, and who do not use them as a basis of credit money, of currency circulation, as the parties who sold them had done. In this way the accumulations of the rich disturb the equilibrium between supply and demand ; in this way the money obtained by them does not return into circulation. The subject is too important and too new to meet full under- standing at once, and yet without clear comprehension at this point, a vital part of the problem must remain an unsolved riddle. I therefore beg my readers not to skip, but, on the con- trary, to thoroughly study, again and again, this momentous relation between wealth distribution and the supply of the 196 Clue to the Economic Labyrinth circulating medium. To give all possible help on my part, I shall now sum up the subject by condensing its principal features into as few sentences as possible. M is the effective legal tender money stock of the world, practi- cally represented by 800 million pounds sterling of gold coins and bullion. Part of this stock circulates, part of it is hoarded by parties who do not issue any credit money for it, and the balance lies dormant in the vaults and safes of the banks and the business world to serve as the basis of a thirty-fold credit money circulation : C (money promises or representatives). To simplify, we shall leave the circulating money out of account as too insignificant when compared with the total of the circu- lation, and also the hoards not used as a basis of credit money; for this kind of money has practically disappeared from the world for the time, and we shall consider 30 C as representing the whole circulation. Thirty C is not enough to supply a means of exchange sufficient to enable the expansion of trade : T, to keep step with that of productive power : P, so as to preserve its level with buying or purchasing power : B. Unless B = P, commercial depressions and want of employment are unavoidable. Through improved machinery and other causes P doubles to 2 P, but B can only advance to 2 B if T can advance to 2 T. This is only feasible if 30 C can advance to 60 C (The increase of M itself through minirtg — after abrasion, use in the arts and hoards not serving as the base of C are deducted — is too insignificant when compared with the enormous increase of P and T to need consideration.) Such an advance is dangerous, even where the best of securities are offered, as long as M alone is legal tender ; for it signifies that 60 instead of 30 promises of money are to rest on one single M as their basis; but our capitalists are willing to run this danger where what they consider good security is supplied. These securities are prac- ^ Of course, I have no pretension of asserting that this is mathemati- cally the case, for a great deal depends on the rapidity of the circulation. The same amount of currency can supply a much more extensive trade where telegraphs and railroads exist than where more primitive modes of communication obtain. But assuming an existing intensity of the circulating process as remaining unchanged for the time, my formula can safely be adopted, The Effect of a Scientific Paper Currency 197 tically only of two kinds: i, land or monopolies connected with it; and 2, the bonds of governments or public bodies. The latter may safely be left out of consideration where such a large amount of new securities is required as the increase of 30 C to 60 C implies, though every succeeding year sees an average issue of over ;^ 100,000,000 new bonds. We must also take into account that a very large part of these bonds are in, or gradually come into the possession of the rich, who do not use them as collaterals for credits. Nor are they needed ; for — though the surface of the land does not increase, land values — L— ^grow with P. But, as shown in the case of Jones and Plutus, L is continually passing from the possession of those who use it as a security for the issue of C into that of men who require no credit. Later on, we shall investigate the causes which tend to accelerate this transfer, and so increase the rapidity with which the gulf widens between the demand of larger quantities of C and the possibility of supplying the security, the collaterals, without which C is not forthcoming. The form which C takes is immaterial. In Germany the banks give their credits in the shape of their acceptances on bills of exchange, drawn upon them by the debtor, usually at three months' date, which then are discounted or circulate as a means of payment, and thus take the place of the overdrawn cheque, customary with us. Temporary Revivals of Trade Explained As C thus lags behind the demand, B, T, and P have to suffer, and the crisis is inevitable. Once the foregoing causes of the growing discrepancy between productive and purchasing power are well understood, the occurrence of crises will consequently no more excite surprise ; the difficulty will only be to understand how we ever can have comparatively good times as long as the described fundamental cause is at work. Even this, however, can easily be explained. We must not forget that the real nature of the evil is almost absolutely unknown. A few students of economic science may have an inkling of the truth ; but the masses,including our captains of industry and commerce, have come to look at commercial and financial crises somewhat in the lightof meteorological phenomena, certain to occur at more or less regular intervals, forgotten as igS Clue to the Economic Labyrinth soon as they are over — ^just as a fine sunshine will make us turn out light-heartedly in thinner garments, as if rains were done away with for ever, quite unmindful of the fact that only yesterday we were caught in a shower which wetted us all through. In the same way, the least sign of returning prosperity finds us all eager to make up for the enforced abstinence of the depression we have just endured, and this very infectious hope- fulness must naturally have the effect of stimulating business. It matters little what may have produced the first signs of reviving trade. It may be a war, with its destruction of labour's products, and its requirements of life and property annihilating machinery, its withdrawal from the labour market of thousands of strong men, whose consumption temporarily increases, and whose absence from competition enables those who remain to obtain full and paying employment, and thus to also augment their consumption. Or there may have been expensive changes in armaments such as followed that onslaught of the Merrimac on the wooden ships of the Union fleet which introduced an era of armoured ships ; or experiences like the Prussian victories in the sixties which forced all nations to exchange the obsolete muzzle loader for our modern guns. Or some great progress in the technic field, such as the last two decades experienced in electrotechnics, may have called forth a large demand for products of labour. However the temporary revival came about, its effects are over-estimated and its transi- toriness is ignored. At once hope rises on all sides, and this effect reacts upon the cause. The retailer gives larger orders than the increased demand warrants, the merchant lays in a larger stock to be better prepared to meet the requirements of the trade, and the factories working at full pressure increase their facilities by adding new buildings and more machinery. The so-induced demand for more workers raises wages, con- sumption is correspondingly increased, the demand becomes greater, and thus is seemingly justified the assumption that at last the good times have really come. The Reaction But the same forces have been at work all the time ; have been, in fact, intensified by the revival. The increased demand Tlie Effect of a Scientific Paper Currency 199 .for goods has further stimulated the inventive spirit; enter- prising manufacturers have introduced improved machinery which enables them to produce more with the same number of hands. For a time the banks have been a little easier in allowing overdrafts, and capitalists who otherwise would have invested only in the best securities are infected by the general hopefulness, and invest money in business. They become silent partners, buy stock in newly founded limited companies, or lend money at interest. Only the small fry, however, are caught in that way ; the men of Mr. Burnley's list are too old hands at the business not to know that, though temporary profits might thus be obtained, in the long run nothing is gained — that, in fact, the final losses overbalance temporary profits. Their experience has shown them that large fortunes can only be preserved and increased by investments in monopolies of some sort, and whether such monopolies con- sist in the possession of farms, building sites, mines, quarries, forests, oil wells, telegraph lines, canals or railroads, they are all summed up under the heading of land-ownership or land con- trol, if we leave patents out of sight as of only short duration. They therefore let the little ones buy the stock of manufactur- ing concerns, while they content themselves with owning the land on which cotton and wool are produced, the coal, iron, copper, tin mines, and other sources of the raw materials needed by the factories, certain that in time all will come to their mill, as the oil refineries had to submit to the raw oil monopoly. All they will do beyond this to help the new companies is to give them credits on the strength of their land, certain that sooner or later the whole property will thus fall into their hands without any further outlay. Anyhow, the old process of a gradual passing of land values out of the possession of the masses who have used them as a basis of credit money, into the hands of men who do not need any credit, is bound to continue all the time, and finally to produce its effect on the currency. Its restriction through these permanent causes continues, while the inflation through the transient causes naturally can only be of a temporary nature; for the excep- tional demand caused by the war and other causes ceases sooner or later, and the increased taxation which the war entailed further reduces the purchasing power of the masses, while the 200 Clue to the Economic Labyrinth influx of the dismissed soldiers, now competing in the wage market, depresses wages and thus further reduces the demand of consumers. Add to this the increased output from all those new factories built during the revival, and it will easily be seen how it happens that first the shopkeepers find themselves loaded with more stock than they can expect to sell for some time in consequence of the decreased demand, and even forced to ask prolongations of bills from the merchants, who, being met by the double trouble of decreasing orders and slower payments, get into difficulties which soon reach the manu- facturer and farmer. Credits in the bank are reduced, and the interest rate paid by the traders rises just when both the demand for goods diminishes, and when the money for sales comes in more slowly.' Workers are dismissed, or others put at half time, which again decreases consumption, and thus further strengthens the effects of the depression. The Crisis The depression soon degenerates into a crisis, and when a ievf large failures have frightened the banks into greater caution, and thus into precipitating fresh failures, the crisis becomes a panic, and the panic intensifies until the strongest do not know whether they will be able to weather the storm. Business now offers the phenomenon of a river which has been stopped in its course by some obstacle in its bed. It rises and rises until the moment arrives when the stowed waters burst their bounds with terrific effect. Thus the temporary arrests of the chronic crisis stream, called revivals of business, have no other effect but to substitute the crash for the gradual descent. To use another metaphor, these business revivals are only the advanc- ing waves of a receding tide. The careless observer, seeing one particular wave come inshore farther than its immediate predecessors, may conclude that the tide is rising, when, in ' " On the first intimation of a scarcity (of money) tlie rate rises, and they who must have money to pay the current expenses of large establishments, or to meet their outstanding obligations, are at the mercy of the lender. The captains of industry, and, through them, their labourers, are no longer the masters but the servants of capital."— Robert Ellis Thompson, " Political Economy" (p. 152). The Effect of a Scientific Paper Currency 201 reality, it is rapidly running out. So those who look super- ficially on business revivals are too apt to ignore the fact that the tide is still running out in spite of the few advancing waves which impress them. That another catastrophe is rapidly approaching while I am writing this in June 1901, may not yet be visible to unpractised eyes, nor do I claim extraordinary powers of perception when I predict a collapse of trade in the near future. As long as the heavy expenses in South Africa continue, the exceptional demand may, for a time, stave off this collapse, but it is sure to come soon after the peace. In fact, since a century, all great wars have been followed by trade depressions within a year or two, rarely three, after the conclusion of peace. This appears quite natural to. any one who has studied the causes of the comparatively good times we have j ust enjoyed, and those of the chronic crisis of which these good times can only be a short interruption. Not only must such interruptions become shorter and shorter all the time, but even what we style a revival would have been looked at as a moderate crisis half a century ago. Want of Employment and its Effects At the height of our booms even a growing difficulty of find- ing paying employment in any branch of occupation stares us in the face, and the preoccupation of parents in looking out for an opening in life for their children is one of our saddest spectacles. Those who have the bestowal of Government offices know something of this ; for it is quite natural that the increasing difficulty of finding work in the channels of business, of making a decent living by farming, manufacturing, or selling goods, by teaching, healing, pleading, etc., forces men and women to sup- plicate for any kind of Government work. The dangers arising from this are best exemplified in the United States, where office-hunting has corrupted the whole of the political machinery. No remedy will avail against this and other grow- ing evils, unless we can get at the foundations of our present money system and our existing land laws. Effect of the new Currency Now we have arrived at the point where the full effects of a scientific paper currency can be understood. So far, we could 202 Clue to the Economic Labyrinth only see how such a currency could put a stop to the sudden collapses we are so used to, by means of its price-maintaining power, but we could not discern how it could prevent the chronic crisis : the slowly but surely widening gulf between productive and purchasing power. We have realised that credit, our real means of exchange, the basis of circulation, and consequently the condition without which production becomes impossible, is founded on a limited amount of securities gradually passing into the possession of the creditor class from that of the debtor class : the producers. Thus the production, and consequently the purchasing power of the latter, is more and more crippled. Therefore, unless the new currency can be made accessible — not only to the owners of land values and bonds, but to the producers at large — we can never expect it to prove a real remedy in our chronic disease of under-consumption, alias over-production. Merchandise becomes a Security This accessibility of the proposed currency to the producers is reached through bringing into the foreground a new class of securities, which, under I'present conditions, play a relatively unimportant part in finance: Merchandise, the product of labour. What at present causes its partial exclusion from the rank of credit collaterals, and restricts the security value of certain classes of merchandise which are accepted as collaterals, is the risk of a decrease in their value. Part of this risk, caused through the perishability of all products of human labour, can, to a certain extent, be eliminated by insurance and safe storage. This risk is comparatively small with most products which do not partake of the nature of food-stuffs. The risk due to price variations, however, is comparatively great, as our daily market quotations prove, and especially the results of our auction sales. It is well known that the latter, except for certain raw materials of very extended use, often bring only a fraction of cost price ; and as auctions must always serve as the simplest means for a creditor to realise on his security, it is not astonishing if, in present circumstances, capitalists are very chary of giving credits on merchandise. This must entirely change in the case of a money based on the prices of merchandise, especially when the prices realised at auctions are taken into account proportion- The Effect of a Scientific Paper Currency 203 ately to their share in the general turnover. The more the reform makes advances on merchandise the rule instead of the exception, the more will this share grow in importance. The very result of the reform on prices realised under these conditions will tend to give to the auction system the pre-eminence in the methods of distribution. Manufacturers and farmers, producers of all kinds, will resort to this simple method of disposing of their produce at wholesale, in preference to any other, as soon as a certain reliance can be placed on the prices obtained. And, on the other hand, this reliance will be strengthened in the same measure in which auctions predominate ; for as auctions pre- dominate, their prices will gradually become the almost exclusive gauge for the money-issuing department of the Government ; and the effect of the money issue, in its turn, will steady the auction sale prices. Unlimited Basis of Credit The new basis of credit thus created in most departments of production is of such an elastic nature that its monopolisation becomes an absolute impossibility. Its limits are co-equal to those of production, which in our time are practically limited only by the demands of consumption. Merely the want of customers limits our present production, which does not begin to approach the extent of our latent productive power. If the goods could be sold, our production, even without new inven- tions, would soon double, treble, quadruple its present total ; and new labour-saving inventions will be forthcoming as soon as the demand for the product justifies their use. It seems certain that within a very short period a ten-fold increase of production could be reached, principally because the waste of power inherent in the present system would disappear with the demand for more goods. I shall treat this part of the subject in the chapter on " Socialism." Here I only want to add that the certainty of obtaining a market at regular prices will to such a degree eliminate the risks of business that practically the pro- duct will not even be demanded as a basis of security. The productive power — i.e., personal security — will largely take the place of the lien or pawn, as it already does with the German Raiffeisen banks, whose losses are absolutely insignificant. (See under " Banking," Chapter VI.) 2o4 Clue to the Mconomtc Labyrinth Over-production in reality Under-consumption I have shown how our so-called over-production is in reality only an under-consumption. The insufficient purchasing power of the workers narrows the market for their product, and, of course, for their labour, anxious to bring forth this product. This narrowing of their market must, on the other side, reduce their purchasing power for the product of their labour ; and thus cause and effect react on each other in the disastrous way with which our eyes are, unfortunately, so familiar. It is mostly due to socialist writers that this real cause of a restricted production has been more and more recognised, and that the spell has been destroyed which was thrown over this problem by the false theories of celebrated economists of the Adam Smith, Malthus, and Stuart Mill type ; an artificial veil which more than anything else has hindered an earlier penetration of the seeming mystery. Wage Fund Fallacy The question is too important not to justify my entering a little closer into this part of the subject. In Chapter II. of Book IV. of his " Inquiry into the Nature and Causes of the Wealth of Nations," Adam Smith resumes in the following sentences what he explained more elaborately in Chapter II. of Book II. : " The general industry of the society can never exceed what the capital of the society can employ. As the number of workmen that can be kept in employment by any particular person must bear a certain proportion to his capital, so the number of those that can be continually employed by all the members of a great society, must bear a certain proportion to the whole capital of that society and can never exceed that proportion. No regulation of commerce can increase the quantity of industry in any society beyond what its capital can maintain. It can only divert a part of it into a direction into which it might otherwise not have gone, and it is by no means certain that this artificial direction is likely to be more advantageous to the society than that into which it would have gone of its own accord." The Effect of a Scientific Paper Currency 205 This wage fund idea is also the foundation of John Stuart Mill's " Principles of Political Economy " ; it is likewise at the bottom of Ricardo's fallacies, and of hundreds who followed these beacon lights into the eddies of a disastrous shipwreck. I use these last words with full deliberation, as an expression of my firm opinion that these teachings have helped more than any other cause to retard our advance by obscuring the real jyoblem, and thus preventing its earlier solution. I hope that before I have done with the present chapter the reader will share my conviction. As there is plenty of land, if freed from monopoly, to supply food and raw materials; and as, besides, the unemployed workers are fed anyhow, as paupers, we can only take Smith's Capital in the sense of tools, if we reserve money and credit for special consideration. Absence of Tools not responsible for Want of Employment To begin with, I think it cannot be proved that the employ- ment of workers ever depended on the amount of tools possessed by the society of which they formed a part. There is not a single case found in the history of nations, of men being unemployed merely because they could not procure tools of production ; though there certainly are plenty of cases where there was too much work through the imperfection of such tools. If the old Egyptians had had our modern machinery, a fraction only of the hundreds of thousands employed in constructing those gigantic stone' monuments which so elo- quently speak of their waste of human labour would have been employed on this work, or more work of the same kind would have been produced. It is not the lack of perfect tools, but the very efficiency of our modern machinery, which is directly responsible for the want of employment our workers complain of, whatever the indirect cause may prove to be. Superior Tools need not render inferior Ones worthless But it may be replied that wherever more perfect tools are generally used, inferior tools practically become worthless, because competition by means of their use has become 2o6 Clue to the Economic Labyrinth impossible; and that, in this sense, Smith and his followers were in the right. My answer is that : 1. Men provided with inferior tools have mutually supplied each other, and are supplying each other with the necessaries of life, without being in the least interfered with by others who use better implements. Even in some of our most civilised European countries communities are met with, especially in mountain districts not yet opened by railroads, where thp people live comparatively well, and where scarcity of em- ployment is as good as unknown, though their tools and processes of production belong to a period lying at least a century behind us. It is true that when our modern im- plements intrude into their mountain solitudes the just named scourge of modern times begins to show its face. During one of my tramps in the Bavarian mountain districts I entered into conversation with a peasant. We talked of the railroad which was going to be built through the section, and which had just reached its confines. " Formerly the peasant carried the gentleman, now the gentleman carries the peasant," was his criticism, which, in a few words, contains a deep meaning. He wanted to tell me that before the railway comes the peasant drives the travellers, and thus makes money, enabling him to purchase things he wants. Now the capitalists of the city carry the peasant on their railway ; and instead of making money through the use of his carriage and horses, the peasant himself has to buy a railroad ticket if he wants to travel, as he had to sell his conveyances for want of customers. His income has gone, his expenses have increased. All this is true, but if these people are fully employed and make a good living as long as they are only using their primitive tools, and if, as soon as modern improvements arrive, the same troubles and difficulties as to employment arise which obtain in more civilised parts, this can certainly not be ascribed to the want of capital ; rather to an intrusion of too much capital. 2. In fact, a Want of Tool Capital never needed to exist as long as our world has been inhabited by man. When the pierced bone was used as a needle, a curved stick as a plough, The Effect of a Scientific Paper Currency 207 a sling as an implement of the chase and as a means of defence, as many pierced bones, crooked sticks and slings were produced as the workers wanted. And in our time, when the sewing-machine has taken the place of the bone needle, the steam plough that of the stick, and the Mauser or Martini rifle, the Crupp gun and Maxim that of the sling — sewing-machine makers, instead of finding the least difficulty in supplying any amount of machines required, are only too anxious to obtain more orders ; and were a machine needed for every man, woman, and child in the universe, it could be forthcoming in a comparatively short time. Nor have I ever heard that steam ploughs and other implements could not be supplied in any quantity needed ; unless there was a sudden unexpected pressure, soon relieved by increased facilities for production. The same holds good in regard to arms arid any other thing produced by human hands. There is not a single article against which the cry of "Over-production" has not been repeatedly raised. Over-production shows an Excess of Capital This complaint certainly does not show a deficiency in machinery, but that the supply of goods exceeds the demand, and the demand falls because the workers do not receive wages corresponding to the increased efficiency of the machines. Our means of production, defective as they are to a certain extent — principally because we cannot let them have full play for fear of the consequences — supply at least ten times as much per day's work as the more primitive tools of two centuries ago ; but it is clear that with these facilities there can only be work for all if consumption also increases ten-fold. This it can only do if either the wages of the workers have their purchasing power ten-fold increased, or — if this is not done — that the comparatively few people to whom the bulk of the purchasing power belongs consume the produce in their turn. As wages have by no means increased to anything like the proportion mentioned, and as the number of people who obtain the lion's share of the product is by far too insignificant to enable them to consume the surplus, there can only be one result : the reduction of the number of 2o8 Clue to the Economic Labyrinth hands employed in production. If the waste in distribution, through the unnecessarily large number of middlemen, the waste through militarism and its consequences, destructive wars, the waste through devil Alcohol, through circumlocution offices, through strikes and other restrictions in production brought about by labour unions, through flunkeyism, etc., were not there to tap off part of the superfluous blood, our social body would long ago have been subjected to a stroke of apoplexy. Want of employment, as we know it, is not the product of too little capital (instruments of production), but of too much— of capital too abundant for our existing distribution of wealth and it is not more of this wealth or of wealth-creating power we want just now, but a more equal distribution. The new Money, by taking: out of the Way the worst Obstacle in this direction, will increase consumption accordingly. The increasing consumption must necessarily give a freer rein to our productive power, and call forth from latency into actual existence immense quantities of wealth. This wealth, in its turn, by serving as a security for a money credit, supplies its producers with the means of changing wealth into purchasing power — into money. There can be no danger of producing too much wealth under such conditions : where demand keeps pace with supply, and where accordingly prices do not fall. A fall would, however, result from a non-consumption of part of the newly created wealth — consumption in the sense of use, for, to keep the economic machinery moving, it matters not whether the product of labour is consumed in the form of bread and meat or of railroad locomotives, canals, and school-houses. Such an under-consumption now results from the use made by our rich of their incomes. By not spending, but merely ex- changing them for the purchase of credit instruments which they do not put to the same use as the former owners — to pro- cure money representatives in the way just seen — they restrict the market and press down prices. But under the new system, when prices fall new money appears in the market, The E^ct of a Scientific Papeif' Currency 260 eagerly demanded by those who handed their own money to their rich creditors. The debtor class will be able to obtain this new money on reasonable terms, because the products of their labour then supply sufificient security through the removal of the danger now presented by a fall in prices, and thus thg withdrawal of money or money representatives by the creditor class will cease to do any harm. The effect which the changed conditions have on the interest rate, how they will reduce the interest tribute paid by the producers to the capitalists, and thus bring about a better distribution of wealth, will be shown later on. The new relation this will bring about between labour and its employers, and the effect it will have on the purchasing power of the masses, will then also be treated. The proof will then be furnished that the new money Is bound to immensely increase production, for which a ready inland market is found through an equally increasing consumption. But even without taking into consideration the effect of the new currency on the interest rate, it will be possible to realise our independence of foreign markets through the possibility of an indefinitely exten* sible home consumption, and thus to face that great bugbear in the way of paper money, the international market, to treat of the effect a scientific paper currency produces on international trade. This we shall now discuss. (b) International Intercourse Part played by Gold Many who concede the superiority of a good paper money over gold coins cannot see how gold can be dispensed with in international trade. It seems to be of the greatest importance to possess one special merchandise which, through the fact that it can be coined into money at certain rates in our principal commercial couritries, is at once saleable at a fixed price every- where. Wherever free coinage of gold exists — which, as we have seen, means that anybody can bring gold to the mint and demand its coinage at certain rates — gold is practically money, even in the bullion state ; and all those countries where this is the case preserve an almost invariable exchange rate in their mutual relations. The variation of such foreign exchanges iio Ctue to ike Edondmtc Labyrinth can, as a rule, never exceed the cost of sending gold from one to another ; of course, including insurance and the interest loss.^ The question will therefore have to be discussed how a paper currency whose value in the home market ^ remains un- changed will compare with gold as a means of international intercourse. Gold unnecessary internationally if Commodi- ties are paid for with Oommodities This task would be very much simplified if I could ac- knowledge the principle that in the long run goods are always paid for with goods, a principle which forms the foundation of the free trade school, for in this case I should simply be able to restrict the part played by gold in international exchanges to that of a temporary regulation of accounts, just as useless in- ternationally as it is nationally. There, as here, clearing-houses could keep accounts carrying over temporary balances for a time, certain that very soon shipments of goods or rendering of services (freighting, for instance) would finally settle the accounts. However, even my disbelief in the great free trade axiom would not make me accept the services gold performs in international trade as a reason for abstaining from the introduction of a ^ I repeat here what I said in the last chapter : that without free coinage gold coins pass from money class i to class 2 ; because there are wiseacres who ascribe all our currency troubles to the abandonment of the coining monopoly by the crown under Charles II., in 1666, and to subsequent free coinage. Coinage monopoly can only keep English gold coins in class 1 if the State buys all the gold offered in the market at the fixed rate, i.e., ;£$ 17s. gd. per ounce, which produces absolutely the same effect as free coinage. If class i is to be abandoned, it is certainly better to enter at once class 3, which practically, by taking a Cheaper money material, presents all the advantages of class 2 without its drawbacks. Unless coins are kept at parity with a fixed quantity of gold, the international exchange rate can no more be kept near par, and thus the only advantage of a gold currency is lost. ' "Home" market in the colonies is often used for the English market, while they say " local " market when they mean their own market. In the United States they mostly use the expression "domestic." In this work "home," "local," and "domestic" market are used indiscriminately for the same idea, while "English" market is said where a colonial would speak of "home" market. The Effect of a Scientific Paper Currency 2ii scientific paper currency. We poor human beings often have to decide for the lesser evil, and if gold harms us more in the home trade than it benefits us in international intercourse, its doom should be sealed. Relative Unimportance of international Trade What is international trade even now when compared with national trade? It will play a " ridiculously insignificant part when the full effects of scientific paper currency are produced in the home trade, effects which, as we have seen and shall yet see more clearly later on, must consist in an immense increase of production and consumption. Look at the state of things our business world actually presents to our eyes ! It reminds me of a party sitting round a table on which a tureen is placed containing not half enough soup for all the guests. There they sit, trying with all their power to ladle some of the soup into their own plates, and being in each other's way, they spill most of the scanty victual, so that not even that modicum is obtained which a fair division would have given., It even seems that the mere feat of spilling some soup which a neighbour just managed to secure gives them satisfaction akin to that of having filled their own plate. And all this time there is a full tureen of soup on a little table behind each guest, more than sufficient to satisfy his appetite; but though he occasionally sups a spoonful or two from his own tureen, as a rule he wholly neglects this personal supply, and concentrates his attention on the tureen of the common table. Crazy, these folks, are they not? Fit for a lunatic asylum ? Certainly, but are we not doing exactly the same thing in regard to our two trade tureens : the home trade and the international one ? There is no country in the world whose citizens would not be better customers for its products than any foreign or colonial market whatever, if their purchasing power were kept at the level of their productive power ; and yet, instead of tenderly nursing this purchasing power by just laws, we use up our whole strength in the attempt to conquer foreign markets, be it even by means of costly wars, as in China at this very moment. If the powers engaged in the unjust work of forcing a nation— which wants to be left alone — to fling wide open its doors to outsiders would employ the means 212 Clue to the Economic Labyrinth thus wasted and the human activity thus worse than thrown away, to organise production and distribution in their own countries on a better basis, the turnover thereby obtained would far exceed any sales ever expected in the Chinese markets. Wars and waste by custom-houses and frontier spying are the methods by which they spill the contents of the few spoonfuls they succeed in ladling out of the foreign tureen, which at the best contains not one-tenth enough food for them all, while they would only have to turn round towards their own tureen, labelled "home trade," to eat with comfort and satisfaction as much as they choose. One single shilling a working day more purchasing power given to 40 million Britishers would mean an additional home consumption of 600 million pounds sterling a-year, or almost twice as much as the total amount of British exports. I cannot refrain from quoting Miss Mara De Bernardi, the talented daughter of G. B. De Bernardi, the founder of the American Labour Exchanges, oh the folly of looking for foreign markets while the demands of our home consumers are unsatisfied : " Tramping the highways and byways of the nations, shelter- less, cold, shivering to-day under the blasts of a premature winter, doomed to bleak and comfortless nights beside the grudging fire of some discarded railroad tie, or, at be^t, to the shelter of some farmer's friendly surplus of hay, from Maine to California, and from Washington to the land of southern flowers, wanders the countless market for America's wood and coal, and lumber and brick and stone — the homeless, houseless waif of over-production. A humbled petitioner at the kitchen doors of the generous housewives of the land, with manhood crushed and dying beneath the awful Juggernaut of beggary, stands the numberless market for America's wheat and corn and boundless stores of food — the hunger-haunted victims of over-production. In their wretched rags, their cold, pinched faces, blue and strained, the tattered children of the land shiveringly proffer their claims to Dixie's cotton yield — the ill-clad victims of the nation's surplus stores. And they weary the pavements of our streets with their endless, aimless passing to and fro, and harass the very peace of the nation with their ceaseless im- The Effect of a Scientific Paper Currency 213 portunities for the making and the taking of the surplus of the world. And sometimes, when the struggle for human existence grows too great, some reckless, heartsick victim of too much unused clothes and food and shelter in the world drifts off to meet the everlasting bounty and abundance of the hereafter, down some icy river, or on some outgoing ocean tide — a market lost to the over-production of the world by the crime of that world's own folly and neglect ; a market which neither the sacrifice of human liberty nor the shedding of human blood was required to conserve, but which only the kindness and simple justice of a common humanity would have held inalienable ; a market which could proffer not idle, useless, cruel gold, but honest toil for honest toil ; a market which relieves alike the victim of over-production and the victim of over-work. A market for our surplus in China ? It is praying for recognition, and dying of neglect at our nation's very doors." Commodities often are not paid for with Commodities Unfortunately, things are not so simple as the scholar at his desk decrees, and the facts of practical life show us that goods are not paid for with goods even in the long run. There is such a thing as Debt in this world, and we have seen that its payment usually has to be made in money which in our present inter- national financial relations means Gold. Now, of course, it may be said that gold is as much a merchandise as any other, and payment in gold would not at all invalidate the principle that commodities are always paid for with commodities. But gold is as little obtainable for international debts as for national ones, and its representatives must take the place of the real article. That this is actually the case is known by all who derive their knowledge from the facts of every-day life and not from dusty volumes of mere theorists. Of course, the money representatives accepted internationally do not include some of those mostly used internally, such as bank-notes and cheques, for these are of no use where they do not circulate as currency. 214 Clue to the Economic Labyrinth Importations paid with Tribute Claims Only interest-bearing titles are accepted, such as bills of exchange, mortgages, and principally Government and other public bonds. Besides these methods of paying for goods where goods are not accepted in return, titles of land, houses, mines, factories, and other industrial enterprises in some form or other — usually stock of limited companies — must serve to balance the accounts. The argument has been advanced that debt has to be paid some day, with the inference that this only means a postponement of the final exportation of goods to pay for them, but this is not necessarily the case ; the creditors and investors may be, and mostly are, quite satisfied to draw their yearly interest or dividends, leaving the debt itself standing. Even the interest may not be demanded for a time, but may be capitalised, and thus, through the force of compounding, further increase the debt. That this is actually the case is proved by the fact that England is said to be the world's creditor to the amount of over 2,500 million pounds sterling, if we include those investments which cannot be directly called a loan, but practically are so to all ends and purposes. Whether an English capitalist holds a mortgage on American or colonial lands, the interest on which has to be remitted to him, or whether he is the owner of the land and receives his re- mittance under the title of rent, makes practically no difference, just as little as if his income is derived from the interest coupons of American and colonial bonds, or from dividends of coal mines. In either case he forces the American and colonial workers to pay him a tribute in money or its equivalent, as the result of some title held by him. When we describe the process by saying: The English exporter of goods to the United States or colonies to a certain extent took tribute claims instead of goods in payment, we have best generalised the nature of the process. If goods were always paid for with goods, where would the tribute claims come from ? The fact that we usually express the matter differently, that we speak of English capital invested in the United States, does not in the least alter the real process. The capital which England supplied was not money, for gold as a rule came The Effect of a Scientific Paper Currency 215 from America and the colonies to England, and not vice versd. The international gold export and import balances have gener- ally shown a decided preponderance of American and colonial exports to England over English exports to America and the colonies. What England really sent was merchandise, for which less merchandise came in return. And if the trans-marine coun- tries now export more goods to England than they obtain from that country, it may not at all mean that at last they are repaying the surplus they formerly received by the excess of their shipments, but simply that these countries pay with goods the whole or part of their interest debt to England, while the debt remains as it stood, or, as is really the case — as far as the colonies are concerned — the total of tribute claims has in- creased during the course of years through compound interest, or the unearned increment on land and other natural resources connected with land ; in other words, on monopoly values. Favourable Balances always best American free-traders, like Louis Post, in the Public, may be quite correct in asserting that the Union does not get anything in return for its excess of exports over imports, and thus does not obtain any increase of national wealth by the favourable balance of trade of which its protectionists are so proud ; and yet his opinions are entirely erroneous if they tend to the conclusion that his country reaps no advantage from its favourable balance. It reaps as much advantage as any debtor who pays the interest on his debt or part of it, instead of allowing it to accumulate. If the Union's balance of trade should have continued to be a passive one, this would gimply have resulted in a further increase of the tribute she owes to England and other countries ; and if England had an active balance of trade instead of a passive one, it would only mean that instead of spending part or the whole of its tribute dues — now said to exceed 100 million pounds a year — it would act like a miser who grows richer all the time through the non- consumption of his wealth. 310 Clue to the Economie Labyrinth Error of Adam Smith By correcting a gross error so prevalent in the free trade press, I do not thereby declare against the principle of free trade and become an advocate of protective tariffs. I shall have a few words to say about this question farther on ; at this juncture I simply assert that a favourable or active balance of trade is better than an unfavourable or passive one. Though this seems a mere truism, it has been hotly disputed, even by such a man as Adam Smith, The great Scotchman had the misfortune of many a general, who, in ,the ardour of pursuit, ventures too far and is in turn defeated. In fighting the errors of mercantilism he also attacked its truths, and thus himself fell into a much greater error than the one he fought. He justly denied that wealth consists only in money or in gold and silver; he denied that the precious metals represent the most precious part of wealth. He saw clearly that we might dispense with gold and silver more easily than with iron or copper; that we might even, live without the two precious metals ; while ^we cannot exist without food, clothing and shelter. But here his perception of the real nature of the problem ended. In Book IV., Chapter I., he says : " Though goods do not always draw money so readily as money draws goods, in the long run they draw it more necessarily than even it draws them. Goods can serve many other purposes besides purchasing money, but money can serve no other purpose besides purchasing goods. Money therefore necessarily runs after goods, but goods do not always or necessarily run after money. The man who buys does not always mean to sell again ; whereas he who sells always means to buy again. The one may frequently have done the whole, but the other can never have done more than one-half of his business. It is not for its own sake that men desire money, but for the sake of what they can purchase with it." Even a learned professor cannot be absolutely blind to the facts of every-day life, and I hardly believe that Smith could have made such statements if he had lived a hundred years later. In the twentieth century it is easy even for a uni- versity professor to point out the absolute incompatibility The Effect of a Scientific Paper Currency 217 of such theories with the facts of real life. An immense increase of productive power has been the signature of the hundred and twenty-five years that have passed since Adam Smith wrote these sentences in his mother's house at Kirkcaldy, in the quiet study of the scholar, carefully shut off from any intercourse with the outside world ; and our folly in making a scarce yellow metal our exclusive legal tender money has brought about a wild chase of goods after money, while the kind of investments favoured by our rich money owners clearly shows that money can do other work besides buying goods. To comprehend this, even if he had lived in our time, would have presented some difficulty to him. The author of the " Theory of Moral Sentiments" would indeed have found it hard to understand the motives which can actuate our Rothschilds, Rockefellers Westminsters, etc., in their accumulations of millions. They can never expect to use the money for the purchase of goods, for the greatest imaginable extravagance cannot conceive of such an expenditure. They consume only a fraction of their income, and use the balance to add to their wealth ; not in the form of tangible products of labour, which would be equivalent to consumption as far as the goods-purchasing use of the money goes, but of tribute claims in the shape of land titles, mortgages, bonds, etc. — mere strings to which the world's money is attached, to be pulled in at the will of the string-holders. But whatever the motives may be, the fact remains that immense amounts of money or money claims are thus used for " other purposes besides purchasing goods," amounts exceeding by far the whole money stock of the world. And the well-known consequences of this fact are that everywhere goods of all kinds go a-begging in vain for money, while money haughtily refuses to buy goods. Fatal Influence of Adam Smith My poor fellow-citizens, you hard-working farmers, manufac- turers, traders, professional men, I know you are too busy ever to peep info books like that here spoken of; but do not make light of this matter, for this « Wealth of Nations " has done, and is doing, you more harm than you can possibly imagine. It has dominated economic thought for many decades, and its influence 2l8 Clue to the Economic Labyrinth on our economists — and, through them, on our statesmen — must not be under-estimated even at this date ; though the halo which once surrounded it has somewhat paled in the light of modern facts. It even now forms the stock-in-trade of those verbose scribblers who try to impose by great names and well- sounding phrases where facts and logic refuse their support when they try to prove to you that black is white and white black. What a consoling theory for you to learn that " Money necessarily runs after Goods, but Goods do not always necessarily run after Money." when the bank calls for the immediate payment of your over- draft ! Try what the manager will say when you refer him to this gospel of Smith and his disciples that " money necessarily runs after goods," and that you will be sure to pay him as soon as your share of this money overtakes your share of goods ! And even if he should consent to wait because you still own some land which you can pawn, interest has a very unpleasant habit of cumulating, so that the day will come when the original amount which you borrowed has doubled, and when you have to part with the last piece of land you had secured as a place for a home. What does it matter? Console yourself; some day or other money necessarily runs after goods ! Meanwhile, you see the money owner quietly lend this money out on best security at usury rates and " join house to house, lay field to field, till there be no place, that they may be placed alone in the midst of the earth." "Woe to them," says Isaiah; but woe unto you, too, the victims of this system which continually increases a purchasing power that is not at all exercised in the way decreed by the philosopher from his study chair ; not even indirectly, for it is merely used to further cripple the usurer's victims, to force them to bring most of the money they would like to buy goods with to the usurer, who again employs this money in the same nefarious fashion as before. Certainly the mercantilists were wrong when they ascribed to gold and silver special qualities which they do not possess, but they were absolutely in the right when they found a great difference between money, t.e., those kinds of merchandise to which the The Effect of a Scientific Paper Currency 219 money monopoly had been given, and other commodities. Their experience of every-day life taught them that-a man who sells less goods than he buys, and thus spends money, is not so thrifty as the man who sells more than he buys, and consequently saves money. Granted that the former may seem better off for the time if his stock of goods is worth more than the money paid for them, but goods are subject to all kinds of depreciations. They may be eaten by rats and vermin ; they may be destroyed or injured by wate'r, fire, storms, earthquakes, or men ; they may be stolen, they may rust or get out of fashion. Business depressions may reduce their selling prices. New inventions may render them worthless, and storage expenses may be so heavy as to finally double their cost price. The money which, according to Smith, should be necessarily running after them, according to every-day" life gradually doubles itself through compound interest, whereas the goods become valueless. While all the forces of Nature and society will diminish the latter, every day in the calendar will increase the other. The money deficit continually grows, the goods which are supposed to represent the deficit continually decrease in value. On the other hand, the man who sells more than he buys puts money aside on which he obtains interest, and thus he can quietly wait for the period at which the very want of this money will throw goods into the market at reduced prices, when he will proceed to make up his stock of goods. Which of the two will have the more valuable stock of goods in the end? And does the case change in the least where a number of men are substituted for the individuals whose transactions have just been investigated, when we look at the facts presented by the. trade of nations? A nation which exports more goods than it imports, and thus obtains a money balance, can invest this money for the purchase of goods when a suitable time arrives ; and, as in the case of England, that time may be put off so long that the mere interest due on the money will buy more goods than the original capital balance amounted to. Interest forgrotten Smith seems to have entirely left out of account that there is such a thing as " Interest " in this worid when he uttered the 220 Clue to the Economic Labyrinth wonderful wisdom above quoted. In real transactions, how- ever, this simple factor has completely proved the folly of running into debt where no absolute certainty exists that the advantage accruing to the debtor is at least as great as the interest he has to pay figures up to ; and in general, as we shall yet see in the chapter on " Interest," this advantage lies with the secured interest-getter. The mercantilists have thus been completely upheld by the universal opinion of the whole business world — except those of its members who studied books on political economy of the Smith pattern — in standing up for the most favourable balance of trade obtainable. Effect of unfavourable Trade Balances What the contrary means is best illustrated by Portugal's history during the last two centuries, as told by Friedrich List in his " Das Nationale System der Politischen Oekonomie." I translate from the fifth chapter of the first book. List's quota- tions from English sources are thus twice translated, so that the text may slightly differ from the original, which is not at my disposal : "'When Count Erceira became Minister of Portugal, in 1681, he conceived the plan of erecting woollen factories to thus work up the country's own raw material and to supply the mother country, as well as her colonies, with her own manufactures. For this purpose, artisans were imported from England, and in consequence of the support given them, woollen factories began to flourish so quickly that already, after three years, the import of foreign woollens could be prohibited. From this time forth Portugal supplied herself and her colonies with her own manufactures, made from the local raw material, and, according to the testimonial of English writers, prospered thereby exceedingly.' {British Merchant, Vol. III., p. 69.) "... But in the year 1703, after the death of Count Erceira, the celebrated English Minister, Methuen, succeeded in con- vincing the Portuguese Government that Portugal would gain very much if England permitted the import of Portuguese wines at a duty amounting to one-third less than that of other nations, for which Portugal would permit the importation of The Effect of a Scientific Paper Currency 221 English woollens at the duty of 2370 which existed previous to 1684. Immediately after the ratification of the treaty of conj- merce Portugal was inundated with English manufactures, and the first consequence of this inundation was the sudden and complete ruin of the Portuguese factories, a success similar to that of the later Eden treaty with France, and that of the cessation of the Continental system in Germany. "According to Anderson's testimony, Englishmen were already at that time very experienced in the art of declaring their goods under their value, so that practically they only paid one-half of the duties fixed by the tariff. (Anderson, Vol. III., p. 67:) " ' After the prohibition was levied ' (says the British Mer- chant), ' we carried away so much of their silver, that they kept very little for their necessary occasions. Then we went for their gold.' (Vol. III., p. 267.) " This business they continued until recent times ; they ex- ported the precious metals which the Portuguese received from their colonies and carried a great part of it to East India and China, where they exchanged them against merchandise which they sold on the European Continent for raw materials. The yearly importation of Portugal from England exceeded the export to the amount of one million pounds sterling. This favourable balance of trade forced down the rate of exchange to the disadvantage of Portugal 1 5%. ' We gain a more con- siderable balance of trade from Portugal than from any other country ' (says the editor of the British Merchant in his dedi- catory memorial to Sir Paul Methuen, son of the celebrated Minister). ' We have increased our importation of money from there to one and a half million pounds sterling, while formerly it only amounted to half a million.' (British Merchant, Vol. III., pp. 15, 20, 33, 38, no, 253, 254.)" The inevitable consequence of this drain of Portugal's precious metals and money was the institution of an incon- vertible paper money which, whatever services it rendered to internal trade, could not pay the yearly debt resulting from the annual deficit of the trade, balance-sheet, and other means of payment had to be found. Then began the usual cycle of mortgages on Portuguese land handed over to British capital- 222 Clue to the Economic Labyrinth ists ; of Portuguese Government bonds emigrating to England ; of the dominion of British capital in Portugal — capital imported in the shape of woollen goods, for which no wine was taken in payment, and accumulating in the usual way through compound interest, until one of the richest countries had become one of the poorest, until finally national bankruptcy, more or less veiled, had to alleviate the intolerable burden. Adam Smith and Trade Balances Adam Smith could see no disadvantage to Portugal and no advantage to England resulting from these conditions, and it is highly interesting to ascertain by what kind of logic such contradictory facts could be made to coincide with the pre- conceived theory of deductive reasoning. He thinks that there can be no advantage in thus obtaining gold and silver from Portugal, for "the more gold we import from one country, the less we must necessarily import from all others. The effectual demand for gold, like that for any other com- modity, is in every country limited to a certain quantity. If nine-tenths of this quantity are imported from one country, there remains a tenth only to be imported from all others. The more gold, besides, that is annually imported from some particular countries, over and above what is requisite for plate and for coin, the more must necessarily be exported to some others ; and the more that most insignificant object of modern policy, the balance of trade, appears to be in our favour with some particular countries, the more it must necessarily appear to be against us with many others." (Book IV., Chap. VI.) So many words, so many errors ! Certainly Smith could not know 125 years ago that England, in the year 1901, has become the world's creditor and capitalist to the amount of something like 2,500 million pounds sterling, merely through lending out her gold and silver, after having received it, or without at all receiving it ; by letting the debts accrue which become due to her in consequence of her active balance- sheets. He could not know this, nor did he know how affairs stood in his own time. He had the courage to write a book on political economy, without ever having been in active busi- ness life ; without knowing more of it than a student can learn The Effect of a Scientific Paper Currency 223 at his desk. Henry Thomas Buckle, in his " History of Civilisa- tion in England" (Vol. I., p. 249), says: "The 'Wealth of Nations ' is entirely deductive, since in it Smith generalises the laws of wealth, not from the phenomena of wealth, nor from statistical statements, but from the phenomena of selfishness, thus making a deductive application of one set of mental principles to the whole set of economic facts. The illustrations with which his great book abounds are no part of the real argument ; they are subsequent to the conception. . . ." However, even Adam Smith knew that money can be lent out at usury internationally as well as nationally, and that there is such a thing as land purchased with gold, which land yields rent to its owner, whether that owner lives in England or in Portugal ; also that there are really cases of continually favourable and continually unfavourable balances. A False Premise The worst trick in his speculations on international trade was played on him by the wonderful discovery he had made that " the general industry of a society can never exceed what the Capital of the society can employ," which we had already a chance of admiring in the first part of this chapter. Upon this false premise his whole ideas of trade policy have been built up, and it is no wonder that the conclusions thus drawn from a false major are absolute nonsense. If it were true that a society could not increase its industry beyond fixed limits, it would be quite correct to conclude that the introduction of any new industry must correspondingly hamper one already exist- ing, and that therefore the industries for which the country is best adapted are preferable to those of a more exotic nature. No use, consequently, to protect any industry, for what cannot maintain itself without such artificial methods had better make room for what is more congenial to the soil. As I have shown, the assumed fact does not exist ; there is practically no limit to the extension of a society's industry. On the contrary, the more industries a nation possesses, the more industries it will have room for. If spinning flourishes, weaving succeeds ; and if both have reached a certain development, the manufacture of spinning and weaving machinery will pay, which in its turn 224 Clue to the Economic Labyrinth gives an opening to foundries ; these to iron and coal mines, etc. Unfortunately, authority plays a very pernicious part in public opinion. Carlyle's "thirty millions, mostly fools," are too much in the habit of following some men with great names like sheep running behind their leader, or we would be farther advanced. The first work urgently required before a sound building can be erected is to clear out of the way the old ruins. No headway can be made unless the work done by certain men of great renown is valued at its real worth, unless we fully recognise in which way these theory-mongers have managed to stultify themselves and the trusting public, which, though it does not understand their reasoning, estimates their depth by their abstruseness. It is taken in so much easier through the mutual support these philosophers give one another, through the flocking together of these Birds of a Feather. Here we have some wonderful theories on our present topic, hatched, in support of Smith's nonsense, by David Ricardo, a man who, though a speculator at the Exchange, had never any practical experience of mercantile business ; which another theorist and deductive reasoner, John Stuart Mill, and still others of the same guild, are so delighted with that they debit the nonsense as if it were based on observations of real facts, and not merely on pure baseless inventions concocted at the scholar's desk. Adam Smith's deductively - found theories about international trade, culminating in Jean Baptiste Say's proclamation that commodities are paid for with commodities, had so delighted the imaginative Ricardo that he set to work to substantiate this assumption, even in the extreme instance of one country producing everything — without excep- tion — cheaper than another country, as, for example, may occur with Japan. If that country, with its low wages, continues to progress in industrial development as it has done during the last three decades, there may soon be hardly any article which cannot be produced more cheaply there than anywhere else in the world. The Effect of a Scientific Paper Currency 225 RIcardo's Reasoningr, by me applied to the case of Japan and New Zealand, runs on the following lines : Suppose that Japan requires for the pro- duction of a certain quantity of iron a year's work of 80 men, which we call 80 units, while New Zealand needs the work of 120 men for one year, or 120 units, to produce the same quantity. For woollens, the same quantity for which we require 100 units Japan only requires 90. Still, thinks Ricardo — and Stuart Mill, etc., with him — though both articles are cheaper in Japan than in New Zealand, it would pay Japan to export iron to New Zealand, and to import woollens from New Zealand, because, in that case, she would obtain for a quantity of iron, which cost her only 80 units, as much of the woollens as 120 units can manufacture in New Zealand. As 100 units of New Zealand woollens are worth 90 in Japan, 120 are worth 108, and so Japan would obtain 108 units of wool for an outlay of 80 units. She would, therefore, find a considerable profit in the transaction, though the imported woollens are actually dearer in New Zealand than in Japan. Also, New Zealand would benefit, for the iron which she paid with 108 units of woollens would have cost 120 units if produced in New Zealand, and by spending the labour on woollen production more iron was produced with the same quantity of labour than if she had produced both the iron and the woollens. Even the deductive reasoning evolved at the scholar's desk has its limits where the opposing facts are too clear and simple ; and thus Ricardo could not quite blind himself to the obvious inference that in a case like the one here given, Japan need not at all take the dearer woollens, but might insist upon cash payment, and thus be still better off than if she paid herself in woollens. But the theory has to be maintained at any cost, in spite of the obstreperous facts, and so a new theory has to be invented to buttress up the other. Quantity Theory called in The quantity theory in its rawest form — in which form, as I have shown, it is absolutely false — has to be called in, and thus 226 Clue to the Ecoyiomic Labyrinth the following reasoning is arrived at by the great theorist. Japan actually begins by shipping iron and woollens to New Zealand, requiring to be paid in gold. This naturally pro- duces a scarcity of money in New Zealand which lowers prices there ; while the importation of so much money into Japan increases the money circulation, and consequently raises prices in that country, until finally not only it no more pays to export iron from Japan to New Zealand, but, on the contrary, woollens can now be imported from New Zealand to Japan, until the monetary balance is again brought to its level in both countries through the re-exportation of gold from Japan to New Zealand. Wonderfully simple, is it not ? I should gladly join in the hearty laugh of any practical business man who reads these splendid elucubrations if the subject were not too serious alto- gether ; for we must not forget that Ricardo does not stand alone in this reasoning. John Stuart Mill and many others walk in his footsteps. One of them, the American economist, Amasa Walker, finds in this fallacy the strongest argument against paper money. " By substituting a money which derives its currency from the authority of Government for the money of the commercial world, a country loses in the very act of doing so all the benefit of the automatic distribution of money through the agency of price over the commercial world. We have seen that any excess in the money of the country above its distributive share of the money of the world makes that country a good country to sell to because prices there are high, and a bad country to buy from for the same reason ; and that, in consequence, imports being increased and merchandise exports diminished, the excess of money which caused the temporary disturbance of prices passes easily and quickly off on settlement of the balance. "The amount of paper money in a country is not to be regulated in this way . . . hence the regulation of such a money is not automatic. It has got to be done by hand . . . the paper has no outlet for foreign trade." And these are the men whose opinions are continually dinned into our ears wherever and whenever we touch the existing The Effect of a Scientific Paper Currency 237 system. They are the evangelists whose gospel is preached by people who do not understand it, to others who have never given it a thought, but who accord their willing assent, even where their personal interest is not served by the teachings, for the same reasons which made the swindle of the two adventurers in Andersen's ''The Kinif and his New Clothes" so successful. These men had engaged to spin and weave for the king a suit of clothing which had the wonderful quality that only those could see the garments who were gifted and capable. In reality, the men made but a pretence of spinning and weaving, while their spindle and loom were empty ; the money received for the expensive raw material they said they required being put into their pockets. The king wanted to know how the work progressed, and sent his ministers, who, though they did not see anything, gave glowing reports of the magnificent stuff, for not seeing it meant stupidity and in- capacity. Finally the king himself went, and praised the artisans' work, for the same reasons kept him from acknow- ledging that he really saw nothing. At last the clothing, which did not exist, was to be worn in a great procession of state, and the swindlers acted as if they clothed the king with the imaginary dress — which was much admired by everybody in town, as the wonderful qualities of the stuff had been made known, and consequently nobody wished to appear, less wise than the others who pretended to see the clothes. Only a child said : " But he has not got anything on ! " and thereupon one after another whispered the same truth, not daring to tell it aloud, while the king gravely continued his march in the procession. How often have I met with these ministers, this king, and this crowd ; how rarely with the child ! In concerts, where every listener was bored by certain classical music, and yet turned up his eyes with pretended admiration, not to be sup- posed ignorant and destitute of taste. In Italian galleries, before the pictures of old masters I have heard the loudly expressed admiration of men and women who really were bored by what they saw, for they did not like it half so well 228 Clue to the Economic Labyrinth as any interesting chromo in a shop window. Books which nobody reads are praised in the same way, and for the same reason ; and how can you expect Mr. Smith and Mr. Brown to doubt any statement backed by big names like those men- tioned, when such action would merely advertise their own ignorance ? Fortunately, I am not the only child in the crowd daring to say, " But I cannot see any clothes ! " For- tunately, the spirit of investigation is gaining ground rapidly, for the contradictory facts have become too obtrusive to be longer hidden under any amount of fine phraseology. Debt the ignored Result After my reduction of the quantity theory to its true dimen- sions, after my specification of the part played by credit in circulation, and especially after my demonstration of the real nature of international settlements, I need not say much in the way of illustrating the astonishing theories and their justifica- tion here put before us. Any practical business man knows that, in an illustration like the one just drawn, Japan would regularly send iron and woollens to New Zealand ; and as we have no money to pay for the goods, if we cannot export goods in return, the result would merely be a further indebtedness of our country. Japan would make herself paid by accepting New Zealand bonds, mortgages, etc., and would gradually play the part towards us which England has been playing towards Portugal. We have seen that the loss of her silver and gold to England did not bring any remedy in the shape of suffi- ciently lower wages and prices in Portugal to enable that country to compete in woollen manufactures with England, or to send a correspondingly larger quantity of wine there. Nor did the gold and silver obtained by England increase the cost price of its manufactures so as to disable it from competing with Portugal. In Portugal an inconvertible paper currency took the place of its metal money, and gold rose to a premium ; but competition with the English manufacturer did not become easier for that, as improved processes of manufacture, rendered possible through the larger turnover, made up for any losses English importers incurred through the Portuguese gold premium; in spite of its cheapening, effect on the wine prices. The Efect of a Scientific Paper Currency 229 Instead of English prices having risen through a larger stock of gold and silver, they had gone down, for the increase in England's stock of precious metals had not kept pace with the demand resulting from the growth of its turnover, leaving entirely aside the fact that the imported gold and silver, as far as it could be spared, was at once paid out again in other markets, and finally invested in foreign bonds, land, and mort- gages. England grew richer and better able to further improve her machinery and manufacturing facilities, so that woollens were made cheaper than ever before, while impoverished Portugal found still greater difficulties in competing with the powerful importer. We must not forget that it is impossible for the poor to establish a new industry, or even to keep up an existing one in an open market against a powerful competitor. The well-known dodge of under-selling — even if for a time the work has to be done at a loss, until the poorer competitor is ruined — has been regularly resorted to by the powerful American trade combines, so as to force resisting firms to come in or to close them up ; and the same trick, as we shall see farther on, has often been used internationally by England. After all, when we speak of Portugal as exporting and im- porting, it is not the country, but its manufacturers, farmers, and merchants who are meant, and it is the effect on their finances which must first be taken into account. The country's finances only suffered indirectly through its bonds going abroad, and through the decrease of the tax-paying power of the people. The interest of the bonds was payable in gold or silver, which had to be procured by the Government in a market from which the precious metals were disappearing. The premium which had to be paid under such conditions to obtain the gold or silver had to be raised by additional taxation in a country already weakened in its resources through the decay of its industries. Finally, the interest of the national debt had to be paid by means of new loans raised abroad at increasingly unfavourable terms until, in the end, the national credit went down altogether. In short, as all States are largely indebted, the difference is this : A State with active financial balances is indebted to her own citizens, while the State with the passive balance becomes the debtor of foreigners. The former can gradually pay the debt by taxing the creditors ; the latter has 230 Clue to the Economic Labyrinth no such power, as we generally cannot tax the citizens of other countries. The experiment of levying a tax on the interest due abroad has been tried and found a bad policy, for such a breach of faith with creditors had to be dearly paid when new credits were needed. Where the tax is agreed upon from the beginning, it is simply added to the interest rate by the foreign creditor, and is thus paid by the domestic tax-payer. New Zealand's Case We need not go so far as Portugal to see the effect of passive financial balance-sheets. I estimate New Zealand's present debt abroad — if we add the debts of the State, the public bodies, and the private indebtedness to the people of other countries — at 90 million pounds sterling ; costing us not less than 4 million pounds yearly interest. Our average excess of exports over imports during the last fourteen years was only about 2\ niillion pounds a-year, so that our indebtedness increased at the rate of i§ million pounds a-year. The indebtedness is due to former passive trade balances, which, even so recently as 1873- 1885, averaged;^ 1,280,000^ a-year. The deficit of ;^ 16,600,000 accruing during these thirteen years — which, as the heaviest balances against Us fall into the first years of the series, we may average to date from 1 878 — must have cost us at least 50 million pounds by this time, if we count interest at the rate of 5% only, which is altogether too low when we consider the influence on the average rate which the high interest paid by private borrowers during that period exercised. To this have to be added the older debts, much more increased through accumu- lation in consequence of the higher rate and longer period. Deducting on the other side the interest payments through favourable balances, we obtain another 40 million pounds to be added to the 50 millions, the whole 90 millions being the- outcome of an excess of imports, with compound interest added. 3- If it is true that in igoi a passive trade balance of i million pounds sterling is struck, this means a passive financial balance of 5 millions. The Effect of a Scientific Paper Currency 23 1 Interest often makes the Cheapest Market the Dearest Not only Smith, Ricardo, Mill, and their disciples, but pretty well all who discuss trade politics in our time, have taken little or no account of this multiplying power of interest. They do not realise that buying in the cheapest market, on credit, may finally prove to have been a buying in the very dearest market. What was bought fourteen years ago at 15 shillings on credit costs us to-day 30 shillings at 5% compound interest ; and we certainly would have done better to buy at £\ in our own market. If, through our importation, a corresponding amount of our own labour had to remain idle, which, if put to work, would have produced the goods, and if we had to feed these men, anyhow, there is an effective loss of 30 shillings in a transaction which seemingly showed a profit or saving of 5 shillings. And when we consider that £1 left for icx) years at 5% compound interest figures up to ;^I40, we can easily see that no amount of saving in the purchase price can make up for the final loss caused through buying on credit where this could be avoided. The Case would be difFerent If Interest did not exist, for then debt would only mean deferred payment in goods of some sort The theory that commodities are paid for with commodi- ties would be true. There need be no more fear of importation without a corresponding exportation. In fact, the longer this exportation is deferred the better for the debtor, who would have the free enjoyment of the imported wealth until such time as the importer chose to pay himself by exportation. Better still if he omitted this exportation altogether ; it would mean that he made a gift of his wealth. All the stock arguments of free traders would then be as correct as now they are false. False, because they are building a correct principle on a false basis, forgetting that to obtain a positive figure out of a negative one we must multiply it by another negative. Interest is negative, free trade is positive: result of multiplication negative. Prevention of importation is negative, and Us multiplication 232 Clue to the Economic Labyrinth with the negative interest gives a positive result. Interest is a poison, so is protection, and the counter-poison may destroy the dangerous effects of the poison. Employment of Local Labour the main Factor I agree that the assumption of unemployed labour as an effect of importation is to a certain extent unwarranted. At the foundation of a colony it may, for instance, be considered a good policy to borrow capital, say in the shape of imported tools and machinery, because the workers are all employed on better paying work, and the saving due to the importation may be far greater than the interest on the debt amounts to. As soon, however, as a period is reached when workers are unemployed, or insufficiently employed, in consequence of the importation of goods which could as well have been made locally, the position changes. The fact that the article thus imported could not have been made as cheap in the colony can be given as a good reason for the importation only if it can be claimed that, in con- sequence of this importation, something else could be exported which has cost less laboyr, and by which the imported article was directly or indirectly paid for. In no case could an excess of importation be justified by such an argument ; for this very excess, in the face of unemployed or insufficiently employed labour, means that we have borrowed abroad at interest what our own unemployed could have produced at home. To see this more clearly, let us transfer the illustration from the trade between the collectivity of individuals of different countries to some single individuals of the same country. The Case of John and Bill John, a tailor, needs some chairs. If he were fully occupied at his trade he would act very unwisely in making these chairs himself. He is not skilled in such work, and it would demand ten times as much of his time as Bill, an experienced cabinet- maker, requires for the purpose. John would do much better to make a coat in the time, and buy chairs out of the proceeds, The Effect of a Scientific Paper Currency 233 certain that the same labour time thus spent will buy more chairs than if he spent it on chair construction. How would it be, however, if through a too limited demand for coats, John were only half employed ? Would he not prove a better householder if he spent his idle time on chair-making than if he were to buy those commodities on credit or with his savings, sitting in his shop, and looking out of the window all the time ? Now let us spin out the story a little farther, and let us assume that Bill, too, is only half employed, but sadly needs a coat. Would not Bill do better to make this coat by his own labour in his idle time, never mind how long this will take, than to run into debt for it, or pay out money saved for a rainy day ? No doubt the most practical way for both would be fo use their unemployed time to work for each other. John would make Bill's coat in one-tenth of the time in which Bill could make it, and the same thing would happen in regard to Bill's taking John's place as a chair- maker. Certainly both parties would fare much better by such an exchange ; and no doubt they would do this if feasible. But the two do not know each other, and barter between them is out of the question, as it practically is in the greater part of ordinary business affairs. John finds that his cheapest way of getting chairs is to buy them at the next furniture dealer's, and Bill buys his coat in a department store. Both these middlemen — for some reason or other — have no use for the labour of the two artisans. Perhaps they can buy imported goods cheaper. Both artisans borrow money from a usurer to buy the things they want, or . they run up a bill at the store. Would it not be far better for John and Bill if, in some way — let us say, for instance, by means of a prohibitive duty — they were prevented from buying the cheap goods ? Never mind what the addition to the price might be ; they would be better off if the goods were made locally, and if they thus obtained employment. What would it matter if Bill had to pay £<) for a coat which could have been imported for £\, and if John gave as much as £t) for the same chairs which could have been laid down in the country for ;^i ; when the real result was simply that John made a coat in exchange against Bill's chairs, and Bill made chairs in payment of John's coat? In this case, the amount at which both com- modities figured in the mutual accounts would prove absolutely 234 Clue to the Economic Labyrinth indifferent. Anything was better than to have two willing workers sit idle in their shops that they might give employment to foreign workers. Under such conditions, even An absurd Waste of Power such as Adam Smith describes in the second chapter of Book IV. may prove the lesser of two evils. " By means of glasses, hot-beds, and hot-walls, very good grapes can be raised in Scotland, and veiry good wine can be made of them at about thirty times the expense for which at least equally good can be brought from foreign countries. Would it be a reasonable law to prohibit the importation of all foreign wines merely to encourage the making of claret and Burgundy in Scotland?" My answer is: If the foreign wine-producing countries will not accept British goods in payment for wine, while Scotch workers, in consequence of this refusal to accept the products of their labour in payment, cartnot find any work to do, it would decidedly be better policy to set them to digging coal, making and laying steam-pipes, building and heating hot-houses, therein to raise grapes, than to reduce these willing workers to a pauper's state, fed by the produce of other workers. The cheapest foreign wine for which we have to run into debt, through compound interest, will finally be the dearest we ever bought, and workers, who otherwise would have to be fed in idleness, can be looked at as working for nothing. Those who always speak of the consumer who ought to buy in the cheapest market forget that at least 95% of the population are first producers before they can be consumers, and that therefore the producer's interest must be nearest to their hearts. Unfortunately, from the non-producing minority arise those whose position gives them the power of directing the nation's policy. I wish it to be understood that, so far, I have not in the least stood up for protection ; the problem of tariff policy will be treated in the next chapter. Here I only had to show that buy- ing in the cheapest market is not always the best policy ; that this cheapest market may after all prove the dearest ; that under any condition The Effect of a Scientific Paper Currency 235 Reciprocity of Trade has to be aimed at, I know that the great Scotch professor treated this principle with utter contempt. In Part II. of the third chapter of Book IV. he says: "The sneaking arts of underling tradesmen are thus erected into political maxims for the conduct of a great empire ; for it is the most underling tradesmen only who make it a rule to employ chiefly their own customers. A great trader purchases his goods always where they are cheapest and best, without regard to any little interest of this kind." It would have been better for the world if Adam Smith had been either an underling tradesman or a great trader, before he set about writing on the business of such persons. Even the great trader would have told him that nothing is cheiap which you have not the money to pay for ; and that if buying in the cheapest market results in a corresponding loss of custom, he will not buy there. Unfortunately, a single great trader, as a rule, does not as certainly lose customers where he withholds his own custom as the "underling tradesmen" do, or much of this chapter might have been left unwritten. Usually an importer does not in the least care which nation proves the best customer of his own country when he gives his orders. He merely compares price-lists and qualities, and then orders his goods. In fact, he can hardly act differently, or the competition would swamp him. Nor is it his business to attend to such matters. His Government has to look out for measures which prevent the community from running into a permanent and growing debt by its international trade. Balance of Trade and Financial Balance Not to be misunderstood, I must add a short explanation. Favourable, active, positive, or unfavourable, passive, negative balances of trade do not necessarily correspond with similar financial balances. A balance of trade may be active and the financial balance passive, as is the case in New Zealand at the present time ; and the trade balance may be passive and the financial balance very active. England has long shown the most prominent example of such a country. Its imports 236 Clue to the Economic Labyrinth exceed its exports considerably, but generally the deficit has not reached the amount due from other nations on interest, rent and profit account ; while our poor colony, in spite of its favourable balance-sheets, runs deeper and deeper into debt because the interest debt due to England is much higher than the balance of trade in our favour. If our balance of trade were passive, or if our exports only just balanced our imports, we should simply incur yet greater indebtedness; and if England had a less passive balance or even an active one, she would become richer still. As I said before, she would act like a miser who does not spend his income, who increases it all the time by putting out his savings at interest. Defective Balance-sheets, and still more Defective Conclusions We must not leave out of sight, either, the fact that trade balance-sheets are very defective, that imports are often under- valued to save duties, and that the statistics of exports are very deficient. The prices realised in foreign markets differ, often materially, from those at which the goods figure in our export lists. Nor am I less familiar with the argument frequently ad- vanced in our, free trade literature that the larger amount of imports shows a corresponding profit made by the importing country through getting more in return than it paid out. For instance, it is said that a manufacturer of country A ships a certain amount of cotton goods that cost him £1,000, which he sells in country B for £1,200 worth of ivory. This ivory fetches in A ;^i,5oo. The exports of A now figure at ;£'i,ooo, and its imports at ;^i,Soo, which gives a passive balance of ;£'500 ; but instead of running into debt for this amount, our manufacturer has actually made a profit of ;^Soo, and the country has ;£'soo more of wealth than it had before, without owing a penny. Country B is better off, too ; for the ivory there costs originally only ;£'i,ooo, while the cotton goods bought very cheap at ;^ 1, 200 sell for ;^i,soo; so that actually country B is also ;^S00 richer than it was before, and no debt has been incurred, though its imports figure at ;^i,500, while the exports were only ;^i,ooo. People who reason like this are of the Adam Smith line of The Effect of a Scientific Paper Currency 237 deductive philosophers, supremely superior to actual data, which they manipulate according to their pet theories. To begin with, exports do not figure, or, in a correct balance- sheet, ought not to figure at cost price, but at selling price ; and imports do not figure at selling price at home, but at their cost price abroad, with freight added or left out of account. Calculating in this manner, country A exported ;£'i,200 worth of cotton goods and imported £1,200 worth of ivory, and country B imported ;^r,200 worth of cotton goods and exported ;£"i,200 worth of ivory. The only item in this transaction which may swell or diminish the financial balance in both cases is the freight, which is in favour of the country that earns it. Freights are often added to imports and deducted from exports. The great variety of ways in which the values of exports are calculated furnishes the principal cause why the totality of all imports in the world considerably exceeds the exports, which otherwise would be impossible, for if the ex- ports of one country exceed its imports, the imports of another ought to correspondingly exceed its exports. Exports are often calculated at average prices not corresponding with the real figures ; or at wholesale market prices which, for the principal exports, closely correspond with the selling price abroad, minus commissions, interest and freight. The main reason, however, for the excess of export figures is found in the comparative reliability of import statistics, the result of forcing all imports through custom houses ; while statistics of exports are usually very loosely handled, with very uncertain valuations. The money spent in travelling abroad is an important item in the financial balance of rich countries on the passive side of the financial balance; that brought in by immigrants and tourists has to be added on the active side. (Six million pounds are spent yearly in Switzerland by tourists.) These are A B C matters which any business man knows, but business men are not the raw material from which our officials who draw up the trade balance-sheets are made. Nor do business men, as a rule, write books on economics. This work is usually undertaken by scholars who know as little of practical business as Adam Smith did when he evolved his trade policy principles from his brain, undisturbed by the troublesome observation of real facts, 238 Clue to the Economic Labyrinth I have no wish to depreciate the merits of the great Scotch thinker, but he undertook an impossible task ; for it is as im- possible to do justice to economic subjects without practical business experience as to bake wheaten bread without any wheat. This is the reason also why " Protection and Free Trade," by Henry George, though written in his best style, is the poorest of his books. As little as Smith had he ever been in business, and experiences which to a business man have become flesh and blood are to men of this kind undigested raw materials or terra incognita. Most interesting in this respect is Chapter XIII. of George's book, " Confusions arising from the Use of Money," which ought to be styled : "Confusions arising from the Ignorance of the Part iVIoney plays in Business." Because a man who barters with another strikes the better bargain the more value he obtains in return for what he gives, George concludes that the more the value of her imports pre- ponderates over that of her exports, the richer a nation must be. His reasoning, like that of all free traders, is based on the "com- modities pay for commodities " fallacy, which assumes cases of barter where, in reality, purchase and sale, /.^., money transactions, are carried on. Under the money system a nation's imports, like an individual's purchases, represent not income but expenditure, unless they are obtained as a gift ; while exports are sales, and represent income instead of expenditure', if they are not given away gratis. In this way George is kept from realising the great difference involved in the use of money. The adoption of one scarce metal as legal tender, as the only commodity with which a man can free himself of a money debt in those countries which are generally kept in view when international" trade is con- sidered, has entirely changed the conditions. As I have already shown, market value is the only value which economists have to deal with, and market value under barter is entirely different from market value realised in the market where goods are sold and bought for money. The Effect of a Scientific Paper Currency 239 Merchandise Wealth and Money Wealth This is entirely left out of sight by Adam Smith when hq says, in the chapter last mentioned : "Asa merchant who has a hundred and ten thousand pounds' worth of wine in his cellar Is a richer man than he who has only a hundred thousand pounds' worth of tobacco in his warehouse, so is he likewise a richer man than he who has only a hundred thousand pounds of gold in his coffers." If the professor had asked the first bank manager he met to whom he would give the largest credit, the answer would have shown him how the wealth of his two men — that of the wine merchant and that of the man with the money-— is estimated by the official valuator of this department from the money market point of view. The man with the gold in his coffers would only require to transfer this gold to the vault of the bank for safe keeping, and could at once obtain permission to draw cheques to the full amount of the gold ; while it is questionable whether a cautious bank manager would grant any overdraft at all to the man with the wine. At the most it would be a small fraction of the cost price of the wine, even if a lien were given on it. Exr perience has taught such men that the value of wine depends entirely on that of the man who owns it. If a person does not understand his business, he may spoil this wine through false treatment, so that it is not even worth as much as vinegar ; or he may have misjudged his market, may have bought light wines when there is only a demand for strong ones. He may have a bad reputation in the trade, so that, even though the wine be genuine; buyers are afraid of its having been adulter- ated, and do not want it at any price. One of his employees, incensed at some bad treatment, may go into the cellar and open all the spigots, letting the wine run away. Or a financial crisis may force on general retrenchment, and wines become unsaleable for a time, or saleable only at a ruinous sacrifice. All these and many other considerations may prevail with the banker to refuse advances to the wine merchant, where the moneyed man is aillowed to draw up to the fi)ll value of his gold. Commercial crises preach the Ojosj; eloquent lesson ^s to the 240 Clue to the Economic Labyrinth difference between the value of merchandise and that of money by showing that, though the value of merchandise measures that of gold as much as the value of gold measures that of merchandise, there is a great difference between the two in the facility of realising the value. Professor Roscher reports five large spinning establishments in Manchester, valued at ;£'2 12,000, which, in the crisis of 1841-42, were sold at .^66,000. Facts of this order are not confined to commercial crises. I have met with different cases within my business experience, where in ordinary times even a smaller quota of the cost price has been obtained at forced sales. The mercantilists may have been less accomplished thinkers than the founder of the free trade school, the patron saint of Manchester ; but they certainly were better business men. They knew that in international accounts the same principle obtains as in the dealings of private citizens, that, in both cases, it matters little how rich each party values himself, but very much how he can pay his way. A merchant may sell goods which have cost him only ;^io,ooo for ;^i2,ooo, and buy in exchange goods valued at ;^ 20,000 for only ;^i8,ooo and yet become a bankrupt when he is held up for the balance of ;^ 6,000 he owes, at a time when the goods he bought will not sell, or sell only at half their value. Even if longer credit is obtained so that he need not sell at a loss, interest has a nasty habit of increasing the debt until finally a gross profit may change into a net loss. That the same thing really happens in the trade of nations has already been shown. Our New Zealand has certainly done a paying business in her foreign trade. Our farmers had to spend much less labour on the pro- duction of the wool with which they paid for their fencing wire than if this labour had been directly applied to the manufacture of the wire ; but for all that, the compound interest on the excess of imports, valuable as they were, and much as they increased the wealth of the country, may in the course of years raise the cost of the fencing wire beyond its value, and may prove that New Zealand has very expensive fences after all. And even if this were not the case, it is certain that if our creditors sold us out some day to recoup their money, the losses which we should have to sustain on our assets would by far exceed our profits. If all our mortgagees called in their mortgages, whenever due, in consequence of a great money The Effect of a Scientific Paper Currency 24 1 tightness or some other cause, our land, including the improve- ments, under the unfavourable market conditions thus created would certainly not fetch the amounts borrowed on it ; so that the farmers would have to sacrifice everything else they own, and even then probably be unable to pay twenty shillings in the pound. A favourable balance of trade must therefore be the most serious consideration of statesmen, except in the case of creditor ' countries like England and Holland, which have large interest dues partly or wholly accepted in merchandise from their debtors. The real Bsilanee to be considefed Is the Financial Balance I repeat this for the purpose of cutting off shallow free-trad^f jokes like that of merchandise intended for importation, but burned at sea. Its destruction, it is said, diminishes imports, and thus procures a better balance of trade ; ergo, it is better for a country if cargoes of this kind are lost than if they arrive in safety. Certainly in such a case the actual imports are lessened, but the financial balance remains the same as if the ship had arrived, for the goods have to be paid for if they run at the risk of the importing country, and if they do not, other goods will take their place ; they are as if they never had left their home port. Effect of Ourrency Reform on Balance Having cleared the way to a thorough understanding that— • in ordinary circumstances, and certainly as long as interest accumulations are likely to exceed any advantage enjoyed by the debtor — " keep out of debt " is good advice, whether given to an individual or to that congregation of individuals which we call a nation, we have now to investigate how far an improved currency can help in this direction. Later on we shall try to find what tariff policy is likely to prove most favourable for the purpose. I shall first try to prove that the introduction of a paper currency cannot affect the country's financial balance injuriously, Q 242 Clue to the 'Economic Labyrinth provided there is no such inflation that the credit of the country is injured at home and abroad, and this is out of the question with a scientific paper currency as here contemplated. Where exports exceed imports, if a gold balance is claimed by the country in question, it matters little what currency it may possess. If it has a gold currency, it will import as much gold as it needs, and no more ; the balance will either be used to pay debts with, if it is a debtor country like New Zealand, or to be lent out, if it is a creditor country like England. Where imports exceed exports, a creditor country, pays the passive balance with its capital and interest dues abroad, and a debtor country runs farther into debt, never mind what currency either country may have. Should it insist on maintaining a gold currency, and consequently be compelled to reserve a certain gold stock, the debt incurred must increase faster than it could do in a country which uses paper currency, and which is thus at liberty to spend all its gold in paying for the excess of imports. In any case, the gold will not go abroad as money, but as a merchandise, as Jonathan Duncan, in the book already mentioned, correctly says : " How, then, should we pay the balances on our foreign trade, since the money of the State and the money of commerce, not circulating beyond our own shores, would be confined to our domestic transactions? We should pay the balances on our foreign trade, as we now pay them, in gold, but with this differ- ence : that we should pay them in gold as a commodity and not as money, and consequently at the market price of that metal, and not at the mint price. We buy the wines of France, the tallow of Russia, and the wheat of America at their respective market rates ; and if foreigners want our gold, instead of our woollens or hardware, we are fools indeed if we pay them in a fixed price, when they charge us in a variable price. We are only going back to the double currency already described as in use in the old cities of Greece; and without wishing to be uncourteous, we prefer the wisdom of Lycurgus and Plato to that of Sir Robert Peel and Mr. Jones Loyd." The Effect of a Scientific Paper Cttrrency 243 Balances of different Countries A cursory review of the balance-sheets of the different countries of the globe presents active and passive countries (countries with favourable and unfavourable balances) with gold currencies, and active and passive countries with paper money. I first give the gold currency countries, and add P for passive and A for active ; after which I shall in the same way give a list of the paper countries. I take the trade balances of the beginning of the eighties as the latest I find just at hand. (Russia had still a paper currency at that time.) (a) Gold Currency Countries Great Britain P, Germany A (now passive), France P, United States A, Netherlands P, Belgium P, Switzerland P, Sweden P, Norway P, Denmark P, British North America P, West India A, Egypt A, Uruguay A, Paraguay P, New Zealand P (now active), Australasia, as a whole, now A, Ecuador A. ih) Paper Currency Countries Russia A, Austria A, Italy P, Spain P, Portugal P, Greece P, Turkey P, and the whole of South and Middle America (not including Ecuador, Uruguay, and Paraguay, which have maintained a gold currency) A. iViethoci of international Settlements If present conditions did not change in such a case, our New Zealand, in passing from her gold currency to a scientific paper currency, would, as she now does, pay for her imports by means of her exports. (I hope I need not go into details to show how the exporter draws on England for the proceeds of his exports, and how the importer buys the draft directly or from the banks to pay for his imports.) The surplus of the export proceeds is paid in gold by the foreign countries, which gold, as a rule, does not come here, but is paid for the interest dues of our English creditors! As this surplus is not.enough to pay for the whole 244 Clue to the Economic Labyrtntk of these dues, we have to borrow more gold on bonds and mortgages; and this would continue if nothing else changed, never mind what our currency may be. Our mortgage debtors and the treasuries of the State and the public bodies would have to find directly or indirectly (through taxation) the gold to pay their interest dues as they now do, either through exports or new gold debts. Gold at a Premium That the gold they have to borrow might be held at a premium, after gold is no more the basis of our currency, even in case of the scientific currency here proposed, does not at all change matters, for so would the gold proceeds of our exports be at a premium. To make this clearer, let us take our trade of 1899, and let us give the figures under two suppositions : i, under the present gold currency ; 2, under a paper currency accompanied by a temporary gold premium of 25%, £\o in London, while fencing bought with the ;^8o realised in London would bring £\qo va. New Zealand. Now, as before, ;^ 1 00 in our' money would be realised for the wool and paid for the wirfe. 348 Que to the Economic Labyrinth 2. Wool and other exports of our country have gone down one-half in London, while the price of wire and other imports has remained stationary. As the price of our wool and other principal exports depends on th? London market, a fall of our prices in such a case is inevitable, To obtain an easy calculation, let us suppose that our whole turnover is divided into three equal parts : (i) our exports amount to one-third of the whole ; (2) our imports figure up to another third ; and (3) our turnover in goods locally produced and consumed constitutes the balance. The last third, we suppose, to be divided into two equal parts; (i) raw materials and food stuffs such as we export, and (2) manufactures such as we innport, leaving out of consideration that our local production and consumption contain many articles as good as never exported or imported, and assuming the exact conformation of local prices to foreign ones. Under these conditions, a price fall of 50% in group i : exports, would reduce the average price of the whole turnover one-third of 50%, or i6|. Our tabular standard would consequently fall to 833J, with the immediate result that more money is issued until the old average of 1,000 has again been reached. As we can only change our own price level, and not that of the gold countries whose level is 833J, this would simply mean that the international means of exchange — gold — would rise to 20% premium for 833^:1,000=100:120. The outcome would be that the local price of exports, which always corresponds to the foreign price, reaches 50 plus 20% =60; the price of imports would rise to 120. As the last third of the turnover is supposed to consist of the same two parts, one-half would not go up beyond the foreign price of 60, under our assumption ; and the other, as we leave freights and protective duties aside would not exceed the price of 120. Our price tables would now figure as follows : Exports, .... 33j% at 60 = 200 Imports, .... 33j7„at 120 = 403 Local products for local use, j {^'^ ^^ ,^ = l^ 900 The Effect of a Scientific Paper Currency 249 To reach 1,000, more money is issued, until we arrive at a gold premium of 33^, with the result: Exports, .... 33^7° at 66§ = 222.22 Imports, . , . . 33j% at 133-J = 444.45 Local products for local use. { ^^^ ^ ^^ Z ^^ 1,000.00 The relation of prices is now exactly the same as it would be under a gold currency, for a reduction in the price of exports of 50% in gold prices with unchanging prices of manufactures means that it requires twice the quantity of raw material and food stuffs to purchase a given quantity of manufactures as before, and to obtain 66f, while 1 33 J has to be paid, means exactly the same thing. I come now to 3. The prices of exports have remained stationary, and the prices of imports have gone down. There would be an increase of importation which forces down the general price level, and brings out more money, until prices all round have risen higher than those of the world's market, with a corresponding gold premium which handicaps importations, while it gives a protec- tion to the domestic manufacturer, and also stimulates the production of raw materials and food stuffs, so that the balance soon will be more favourable. 4. Prices of imports rise, while those of exports remain stationary. The higher prices of imports cannot force up those of domestic manufactures, because the average price standard is now raised, and a restriction of the money circulation takes place. As the unaltered foreign prices obtained for produce pre- vent these from going down, the whole of the price reduction resulting from the restriction falls on domestic manufactures, as it is not generally in our power to force down the price of imports. Thus domestic goods become cheaper than imports, and the latter decrease, to the benefit of our balance of trade and general prosperity. There would be no gold premium in this case, unless our unfavourable financial balance brought it on, in 250 Clue to the Economic Labyrinth which case imports would be still more handicapped to the benefit of local manufactures. Restriction of Paper Circulation only meant in a Relative Sense When I mention restriction, I wish it to be well understood that I use the word in a relative, not absolute, sense. In fact, a relative restriction does not in the least interfere with an absolute increase of the money circulation. Restriction in such a case signifies a lowering in the rate of increase. That an increase can take place without affecting the value of money is illustrated by the case of Brazil, given in the report of the Committee on Indian Currency, of 1893 (P^"". 92) : " The case of Brazil is perhaps the most remarkable of all, as showing that a paper currency without a metallic basis, if the credit of the country is good, can be maintained at a high and fairly steady exchange ; although it is absolutely incon- vertible, and has been increased by the act of the Government out of all proportion to the growth of population and of its foreign trade. The case, it need hardly be said, is not quoted as a precedent which is desirable to follow. The Brazilian standard is the mil reis, the par gold of which is s/d. A certain number were coined, but have long since left the country, and the currency is, and has since 1864 been, inconvertible paper. The inconvertible paper was more than doubled between 1865 and 1888, but the exchange was about the same at the two periods, and very little below par or 27d." When we come to the chapter on " Banking," I shall try to show how little remarkable such a case is, and how far more than a doubling of our New Zealand money would have to take place before a depreciation of our currency would result, or even before the appreciation would stop. I shall give a special chapter to the discussion of the much- ventilated problem of our tariff policy, so as to find out whether we might not hasten the arrival of the happy time which will see us pay our way without running deeper into debt, by going in either for free trade or for protection. The Effect of a Scientific Paper Currency 251 A few concluding remarks arej however, necessary before I can close the present chapter. The question will be asked whether Our Colonies have the Power to make such far-reaching: Changres as those here proposed. The Coinage Act, 1870 (Imperial;, consolidates the whole coinage law, and perpetuates Peel's law of 1 8 16- 1 8 19, establishing the gold standard. This law is applicable to all British possessions, including, of course. New Zealand, but it contains a provision (sec. 4), in the following words : " Nothing contained in this Act shall prevent any paper currency which, under any Act or otherwise, is a legal tender from being a legal tender." So that there is nothing, even in that Act, to prevent New Zealand having its own legal tender currency, because the Act contemplates it. Till a colony has its own special currency, however, all its pecuniary contracts within the Empire are payable in sovereigns, unless there be an express stipulation to the contrary. Another question I have sometimes met refers to the apparently strange fact that so many Paper Money Countries make all possible Efforts to come back to a Gold Currency Russia and Austria, for instance, while India, after first stopping free coinage for silver, is preparing for a gold coinage. I begin with India, by reprinting an article I con- tributed to the New Zealand Times of Wellington, in 1899, and which will be better understood when we refer to the quotation from J. Shield Nicholson (p. 245) : A Great Crime The People of India in Danger. — One of the most horrible crimes is in contemplation, if the papers give us a correct 252 Clue to the Econoinic Labyrinth report. The introduction of the gold standard is intended for India. A famine taking off fifty million people, an inundation devastating half the country, a pest decimating the population, would not be half as disastrous in their consequences as this dastardly outrage, if it should really be carried out. It would increase ten-fold the crushing load which the usurer piles on the miserable ryots. Stopping the free coinage of the silver rupee had already fatal results, as any restriction of currency, of the life-blood of commerce, is bound to have. Making gold the exclusive tender for all payments, taxes included, would infinitely increase the sufferings of the Indian population. All the oppressive acts combined of their Moguls would not have hurt them so much as this one act of British legislation, if it should come to pass. If we ask how such things are possible, we have not far to seek. A little passage taken from Rudyard Kipling's " Story of the Gadbys " speaks volumes ; "DOONE. 'I fancy I see myself taking a wife on these terms.' " Makesy. ' With the rupee at one and sixpence ! The little Doones would be little Dehra Doones, with a fine Mussoorie accent to bring home for the holidays.' " DooNE. ' Yes, it is an enchanting prospect. By the way, the rupee hasn't done falling yet. The time will come when we shall think ourselves lucky if we only lose half our pay ! ' " CURTISS. ' Surely a third's loss enough. Who gains by the arrangement ? That's what I want to know.' "Blayne. 'The silver question! I'm going to bed if you begin squabbling.'" There you are. The pay of the dominant class loses in purchasing power at home or for home goods, and therefore silver must be demonetised. The ryot does not notice that the rupee is only one and sixpence (now one and fourpence). His rupees buy as much of the local products as before, and his wages do not increase, or anyhow, the difference in both is not very great. It is the dominant class that loses when taxes — though they weigh as heavily as before on the natives — have been considerably reduced when measured in English money, which means that the tribute taken by the conqueror does not yield as much as before. The law-giving caste sees only the tribute The Effect of a Scientific Paper Currency 253 and its purchasing power at home. Salaries and pensions became more and more reduced as silver went down, and so silver has to go, gold has to take its place, never mind what the effects on the welfare of the people will be. And not only the people of India ; the effects will be felt all over the world, and worse in countries which are as poor in gold wealth as New Zealand. It is estimated that a gold currency in India would absorb one hundred million pounds sterling of gold. The estimate is certainly not exaggerated, for it only gives seven shillings and sixpence per head of popula- tion, whereas in England we can count about four pounds per head. It would estimate the Indian circulation of gold at only one-eleventh of the English, and it will hardly be less. Well, a hundred millions are over one-tenth of the present gold stock of the world, which is becoming more insufficient from year to year, because debts are increasing much faster than the gold stock does through mining and dredging. The result must be that our financial miseries will become much heavier, not only to the amount of one-tenth, as the arithmetical relation would seem to indicate, but in a much greater measure, because every pound of gold has to serve as a foundation for a credit money superstructure about twenty to thirty times as high. Subtracting one-tenth of the base increases so much the over-weight of the superstructure that the overhanging part projects too far away from the centre, and the whole building comes down with a crash.^ Those parts of the building which are already most over-weighted will fall first, and for this reason the Indian currency question is of overpowering interest for New Zealand. In India it is a question between the governing and the lower classes. In the rest of the world it means the increasing domination of capital over labour. The influential creditor classes and the salaried officials of the State are under the impression that they gain by currency '^appreciations, though the final effect of our gold mania must bring ruin to all classes by shaking the very foundations of society. And, let us ask. 254 Clue to the Economic Labyrinth Who are the Men whose Judgment usually prevails in such Matters? The statesman ? I do not wish to estimate him as low as Adam Smith did when he spoke of him as " that insidious and crafty animal, vulgarly called a statesman, or politician, whose councils are directed by the momentary fluctuations of affairs." ("Wealth of Nations," Book IV., Chapter II.) But I must agree with Buckle when he expresses his opinion of the rulers of a country : " Such men are at best only the creatures of the age, never its creators. Their measures are the result of social progress, not the cause of it." (" History of Civilisation," Vol. I., Chapter V.) Under party government the statesmen are supposed to represent the opinion of their party, and in money questions the state of things which the historian Douglas found existing in the paper-money period of New England, and also in the French Revolution, still obtains all over the world. " Parties," he said, " were no longer Whigs and Tories, but creditors and debtors." The bankers and financiers ? My personal experience of this class — of whom I have known quite a number during my seven years of banking experience, some of them being near relations — has taught me that these very bankers and financiers are of all men in the world least capable of pro- nouncing a correct judgment on the great currency problem. They cannot see the forest for the trees. One of my uncles — the well-known chief of a renowned bank, whom the French Minister of Finance, Puyier-Quertier, called in council to have his advice as to the settlement of the German War indemnity — to the best of my knowledge, never read a single book on political economy. Of course, the knowledge of such practical specialists is often worth more than that of any professor, but only as far as their routine business goes. Any move outside, and they lose their way entirely. This would not matter so much if they suspected how little they really know of prin- ciples on which their whole life-work has been built up, and if they did not confidently pronounce as experts upon such ques- tions. And the opinion of such men determines the fate of nations ! Not that I blame them. The Effect of a Scientific Paper Currency 255 The Routine Groove It is very likely that if I had continued in the banking line for the balance of my days, I should know just as little about banking as most of our bankers do. Routine would have done its usual task of excavating its deep groove into my brain roads, out of which my thoughts could just as little emerge as a cart can turn in some of our New Zealand clay-road ruts. It is much easier to make headway on never- trodden soil than in such deep grooves. No wonder, therefore, that some of our most important inventions, discoveries, and reforms have been made by non-professionals. No tailor could ever have invented the sewing-machine. The idea of putting the slit of a needle near its point would never have occurred to men who, through- out their whole lives, threaded their little instrument at its. other end. The teacher, Rowland Hill, forced through the penny postage against the opposition of England's Postmaster- General ; and when we go through the whole history of the zone tariff in Hungary, Austria, and Russia, when we peruse the names of Brandon, Gait, Perrot, Vaile, Engel, and Hertzka, we do not find a single man who ever had anything to do with railroad administration or management. It was not a telegraphist, but a poor school teacher, who invented the telephone, and a professor who perfected it. Arkwright, a barber, not a spinner, invented the celebrated spinning-frame. I remember that when I saw glass-blowing for the first time, about thirty years ago, I asked the foreman why compressed hot air was not substituted for human lungs. He smilingly con- descended to explain to the ignorant layman that only in this way could the necessary pressure be adjusted. Now the work is done by compressed air to a large extent, and if there had been only two men on whom the world had to depend for an improvement of the process — the experienced foreman who from boyhood had seen the work done in the old way, and the ignorant new-comer who never had seen it done at all, the chances were certainly in favour of the latter. I need not add another word in reply to the conclusions drawn from the conversion of Russia, Austria, and India, 2S6 Clue to the Economic Labyrinth unless it be a reference to the follow-my-leader habit of so many animals — A dangrerous Habit if practised in the special domain we are prospecting in this chapter. If anywhere, "the devil takes the hindmost" risk applies here. Just as those nations which waited too long in parting with their silver, after Germany had begun to sell her own stock, had to, or will have to, submit to great losses, so when once the demonetisation of gold begins — as Gesell points out — the most conservative States will be the greatest sufferers. I am afraid that Britain will be the country most likely to find herself among the last gold-bugs. There is strong hope for New Zealand, though, if we are allowed to give a wider signification to the words pronounced by her Premier during the last sitting of the Parliament of \yoo\ "I am looking forward to using State paper, and that before very long, for paying State claims with." CHAPTER V FREE TRADE OR PROTECTION Favourable Balance Primary Object This part of the work has been much facilitated by the exposure of the dangerous fallacy contained in the proposition that com- modities, are paid for with commodities. Payment for importa-. tions can be, and often is, made with property titles of different sorts, which have the power in common of conferring the right to claim money tributes from the country or its citizen by whom the titles are signed — tributes going under the names of interest, rent, royalties, profits, dividends, etc. By recognising this we have found that passive balances of trade are slavery chains, which become heavier from year to year through the terrible force of compound interest ; unless the passive trade balance is compensated by an active financial balance, as in the case of England, where the trade balance is very passive, and the financial balance very active, in consequence of tribute dues which have arisen during long years of active trade balances. A continuation of uncompensated passive trade balances must in the end as surely ruin a nation as a continued excess of spendings over income must ruin an individual. Even an active trade balance, if, as in New Zealand, the financial balance continues passive, may stave off ruin, just as little as an excess of sales over purchases can save a merchant, so long as his profits do not suffice to pay his yearly rent and interest dues and other expenses. Even nations with active financial but passive trade balances, such as England, would be better off still if their trade balances were active or less passive, in the same way in which individuals, prosper financially by not spending thoir incomes. ^ 257 - • R 258 Clue to the Economic Labyrinth The self-evident conclusion from the foregoing leaves the choice between free trade and protection simply dependent on their prospective influence on the balance of trade. Narrowing down the Subject Every other aspect of the question must be relegated to the background. " To be or not to be (free of debt), that is the question," a question of as ominous import in the case of a nation as of an individual ; for debt, payable in a non-obtainable com- modity, growing from year to year through interest tribute, is a load with which human ingenuity in vain grapples, which giant labour's powerful muscles cannot lift. Such narrowing down to the economic aspect only is not un- accompanied by pain on my part, especially as the process is not limited to this particular division of the great social problem. My readers may well believe me that the ethical side of this pro- blem, and of every single part of it discussed in this book, appeals to me with as much force as to any of them. The great ideal of free trade among nations, the levelling of frontier barriers, free intercourse gradually leading to a reign of universal peace and brotherhood, where men are co-operating on the principle of the golden rule, are dreams gleaming as vividly before my spiritual eyes, are hopes as ardently cherished in my innermost heart as they are in that of a different class of writers, whose works will delight yet unborn generations. I cannot vie with their fertile brush when it paints us the picture of the wonderful palace of humanity's future. But the most beautiful castle on canvas cannot give us shelter when a storm is brewing ; even the humblest but real cottage is preferable. Sawing and fitting timber, hewing rough stones, laying bricks, handling mortar, certainly do not need as rare gifts as those with which great poets are endowed ; but for all that, the work of the carpenter, the stone-cutter, the bricklayer, and the mason are urgently required. Feeling that the great Architect of the universe has with a purpose apprenticed me to the humbler crafts, I try to do the special work required of me. Whoever expects me to appeal to brotherly love in these pages, to justice and charity ; whoever waits for solemn adjuration to bow to the divine command enjoining us to lead a less selfish and mercenary life, Free Trade or Protection 259 will wait in vain. All I want to do in this book of mine is to clearly point out what improvements in our economic system are not only necessary and urgently demanded, but for which of them we are so far prepared that the practical statesman can dare to begin work on them. I want to analyse our errors, and to prove how they can be remedied: by simple legal enact- ments, or voluntary organisations, without any revolutionary tendency ; by a system of gradual evolution appealing even to the most timid of men. Wherever I propose a measure, I do not try to show how it will promote the highest virtues, how it will make a demand on our self-denial and sacrifices ; but, on the contrary, I only prove that our enlightened self-interest will thus best be served, and only on the success of this demonstra- tion do I place my expectation of final victory. In a work of this character the theoretical question, whether universal free trade be desirable or not, necessarily must be subordinated to the practical one whether the free opening of its frontier is the best policy for a country to pursue, even if there is no Certainty of Reciprocity and this question I most emphatically answer in the negative. Even Old England, for half a century under the spell of Smithism and Cobdenism, begins to perceive that persistence in a free trade policy, independent of any response on the part of other nations, is not always conducive to good results. The changes in the tariff made by her present parliament are mostly made with a view to revenue, and certainly do not show any pronounced tendency towards protectionism ; but " II n'y a que le premier pas qui coute," and the Rubicon has been passed. It is all very well for the wolf to preach to the sheep that the free right of mutually devouring each other is one of the most sacred adjuncts of free individualism among animals, as long as the case only lies between him and the sheep, for he well knows that, though cases where wolves have devoured sheep have been reported in this world of ours, nobody ever heard of sheep making a meal of wolf-flesh. The case begins to change, however, when a tiger appears on the scene, who occasionally, when he cannot find anything more appetising, indulges in a 26o Clue to the Economic Labyrinth little wolf-flesh. The right of mutual devouring now begins to be proclaimed somewhat less loudly than before. As long as England — through the start which her position,, her natural resources, and the temporary weakness of her commercial rivals had given her — could undersell the whole world, the gospel of Cobdenism was preached with all the zeal of the convert who wanted to preserve other people from the bad habits out of which she had just emerged, and which (as, we may say in parenthesis) had done her a lot of good. But, unfortunately for her, others, seeing her former success, had chosen to rather profit by the example of her past mode of life^ through which she had acquired such enormous strength in a time of general debility. They thought that they, too, while yet in a poor state of industrial health, might try the baby food which has so successfully been used by their powerful rival, until they had gained a little more strength, until they had gradually grown out of the sheep's feeble frame, until strong teeth and claws had made their appearance, so that it almost looked as if the sheep had changed into a ferocious tiger. When the United States and Germany had grown so strong in the nursery Protection that f hey began to undersell the old giant in his own market, the case began to show quite different features under such unwonted conditions. As J. Buckingham, in "The Curse of Cobden, or John Bull v. John Bright," correctly says : "It is hardly to be expected that foreigners, who did not copy England at the time of her prosperity, will do so now in the time of retrogression." We shall now investigate the Arg^uments on the side of Free Trade. I. Protection gives a monopoly to the local producer by freeing him from the foreigner's competition, and thus enables him to extort higher prices from the consumer. A bounty given by the State to the local producer to enable him to bear up against foreign competition would cost the people less than to raise prices through a protective tariff, especially as the middlemen add their profits to the duty, and thus further increase the cost of the goods to the consumer. Again and again we hear our New Zealand farmers complain Free Trade or Protection 261 against the high prices they have to pay for the products of in- dustry, to the benefit of trades unionists and their employers, while they are unable to obtain a single penny more for their wool and meat Perhaps better prices might even be realised for their pro- duce if the English consumer were freed from the trammels we put upon the sale of the products with which he pays for our food and raw materials. In the same way, the English manufacturer rebelled against the protection of the farmer by corn laws, which raised the cost of living, and consequently of manufactures. This is certainly a powerful indictment against protection, and, unless a good defence can be brought forth, an important point has been scored on the side of free trade. Let us now see what the other side has to say in defence. Employment the first Question There is an Irish saying : " In old Ireland you can buy ^ bushel of potatoes for sixpence, but the difficulty is to get the sixpence." The question of cheapness or dearth comes next to that of employment. Our example of John the tailor, and Bill the cabinet-maker, has shown us that there are cases where the dearer price is by far the cheaper ; because, in consequence of the addition to the price, two producers found employment, and thus became consumers of each other's goods, the very source of their employment. We have seen that if cheaper coats and cheaper chairs had been imported, neither of the two men could have obtained what he wanted, because he had no money to buy it with ; whereas the exclusion of the imported cheap goods enabled both to go to work, and to buy what they needed. The price they paid was immaterial, because, in reality, each paid the other with his labour. We have also seen that imports do not necessarily bring corresponding exports in their train, for, as a rule, buyers never investigate which country is their own's best customer, but which goods are cheaper and better. But how does the case of John and Bill, two artisans trading with each other, affect 262 Clue to the Economic Labyrinth The Farmer's Case? How about the higher prices he is forced to pay for his in- dustrial products ? Why should he pay more for his boots and clothing without obtaining more for his wool and meat ? The Case of the American Secessionists A great grievance, no doubt, and one which almost brought about the secession of the Southern States of the American Union from the North. It is well known that the peculiar institution of slavery supplied only the ready fire-brand which kindled the war, while the real cause of dissatisfaction with the Union originated in trade grievances. The cotton and sugar planters of the South saw no reason why they should pay the Yankees much higher prices for manufactures than they would have paid to Europeans if the high protective duties imposed in favour of the Northern manufacturers were done away with. It was an extortion to which they would not submit any longer, and the question of the new territories' right to keep slaves merely ignited the material more than ready for combustion. In one way, however, it was an exceptional position that could not be paralleled anywhere in the world. Nowhere was there such a sharp sectional separation in the same country between two great branches of human industry, between agriculture and manufacture. But even here the last three decades have amply proved that the real and lasting interests of the South were better served by a maintenance of the Union, though only considered from the one-sided vantage point of trade. The opening of the far West, the immense increase of population in the Northern and Western States, ensured a large home market for the cotton and sugar of the South, which can never be closed by foreign interference, and which has gradually assumed an importance not dreamt of in i860. In 1897, 61 million dollars' worth of cotton were sold within the country, half as much as the average exports of cotton from 185 1 to i860 amounted to. The time cannot be very far distant when the home trade of the country will be a better customer for the cotton planters than all foreign markets combined had been before the secession Free Trade or Protection 263 war. Here no tariff can shut them out, such as may some day differentiate between American cotton and that raised in the colonies of the industrial States of Europe. No foreign fleet can interfere with the shipment in case of a war. No cheaper produce may take the place of American produce in the way in which German beet sugar closed- the market against American cane sugar, so that the whole exportation of the States of all kinds of sugar — glucose and molasses — in June, 1898, amounted only to about five million dollars; when, as far back as i868, in spite of the disturbances brought about by the war, the export figures of cane sugar alone amounted to sixty million dollars. Now pretty well the whole of the sugar production of almost 300,000 tons is sold within the country. Under secession the North and West would have consumed German beet sugar paid with American products of industry, and the Southern planter would have had to close his sugar mills. But another phase has come in lately, totally unexpected forty years ago. West Virginia and Alabama's coal and iron mines have opened a vista of unlimited industrial developments. It is said that almost nowhere in the world can iron be produced under more favourable conditions, and the proximity of the raw material, as well as the milder climate, promise a great future to the Southern cotton manufactures, for which not only the North and West immediately offer a large and paying market — which might have been cut off by a protective tariff if secession had been successful — but the Union has begun to export cotton goods to the amount of 17 million dollars for 1897-98. I leave out of consideration the many other advantages of union, and all the dangers and troubles inseparable from secession, prin- cipally the long boundary line watched by custom-house officials, and the standing armies defending each section against the other, as in the South American Republics, with the per- manent danger of destructive wars. I have simply shown that even here — where everything spoke in favour of Southern liberation from Northern protectionism — the final result has been a benefit also to the agricultural portion of the entire Union through the industrial development of the North and West. 264 Clue to the Economic Labyrinth The Case of New Zealand But such sectional divisions are not found in our own country, with its relatively large number of industrial cities and towns dispersed over the whole length of the islands. Here the in- terchange between town and country, between the farm and the factory, is by far more intimate than between the two large sections of the American Republic. Our industrial workers consume a certain portion of the farmer's product, and certainly the best paying portion ; for fruit, vegetables, potatoes, milk, fowls, etc., pay better than wool and wheat. Frozen meat sent to England does not yield as much as fresh meat eaten locally, nor are the same prices realised for exported butter as for the fresh butter sold in the local market. But even assuming that for a time the farmers would save money if the tariff were abolished, because the savings through cheaper prices of im- ported goods exceed the profits made through the consumption due to local industries, plus the contribution to the public ex-- penses made by the Customs' revenue — would such abolition be a wise policy in view of the near future ? It is generally recog- nised that no nation can prosper through exclusively developing her agricultural resources, leaving the industrial domain uncul- tivated. Poland has exhibited the fate of such a nation. Her selfish rural aristocracy found it paid better to ship their produce to foreign markets and to buy with it foreign manufactures, instead of — by temporary sacrifices — nursing a home industry which supported a free middle class, whose sturdy arms would have been better able than the miserable serfs to defend her in the days of danger ; whose intelligence would have preserved her from the decadence which made her Government a by-word in the whole world. Just as a father, instead of spending his substance, puts something aside for his progeny, and so for his own future, so a nation nursing industries provides for the day to come. Only in this way, only through a mixed population, through the intellectual, physical, and commercial intercourse of country and town can we obtain that full development of a nation's resources without which she is bound to remain behind in the struggle of life. Free Trade or Protection 265 Utilisation of Natural Resources rendered possible Mighty rivers descend from the mountains to the sea, and nobody makes use of their immense power to turn millions of busy wheels in the humming hives of industry. The coal which could set into motion millions of horse powers ; the iron which could take the thousands of shapes that man's inventive spirit is capable of giving it, which is ready to serve in the rail on which the fast locomotive winds its way from one end of the country to the other ; in the bridges that span chasms and rivers; in the wires keeping the farmer's cattle from roaming about ; in the shape of engines with the power of millions of men, or of machines performing the most delicate work in industry's domain — these and other treasures remain unused in the bowels of the earth. Of all the metals — leaving trifling exploitations out of account — the yellow fetish. Gold, alone is dug and washed out, because it alone need not fear underselling in a market whose master it has become by bad human laws. It alone needs no protection against a ruinous competition in the world's trade, as all other goods are pressing forward offering themselves in exchange for it, each trying to tread down the other in the wild race for the scarce substance. Development of a Higrher Humanity The soil cannot bring forth its best crop : highly, cultivated men and women, where it is devoted merely to an extensive system of agriculture, or to cattle and sheep-raising — the occupation of the savage after he emerged out of the hunting and root-eating stage. A country like New Zealand, as a mere sheep and cattle station, a dairy farm and wheat field, would not feed as many thousands of inhabitants as it can hundreds of thousands where agriculture and industry co- operate, each forcing on the other to a higher stage of development. 266 Clue to the Economic Labyrinth Increase of Land Values Where ten pounds was the highest selling price and ten shillings the utmost rent obtainable for an acre of land used only by sheep, large sums are in vain offered for the single square foot of the industrious city. Where a crushing taxa- tion could not pay for the most necessary means of communica- tion to bring the farmer's produce to market, so that money had to be borrowed abroad, the mere rental of the land could provide amply for all the needs of the State, though she under- takes tasks which the simple cattle-raiser never dreamt of. If the farmer wants to prepare such a future for himself and his children, he must cease nagging at the few pounds more paid for his fencing-wire, clothing and furniture. The account will be amply made good some day or other. At the close of the chapter I shall illustrate the relative position of the farmer and the manufacturer by transferring the case to the simple relations of Robinson's island. Here I only add a quotation from R, E. Thompson's " Political Economy " : " It (protection) promotes association between members of the same nation by producing variety in their employments ; while free trade between more and less advanced nations always has resulted in the destruction of association among the people of the less advanced, and in their reduction to monotony of occupation." Independence There is another important point of view, however, from which the nursing of local industries recommends itself. Im- portation is all very well as long as peace reigns, as long as the communications are not interrupted; but woe to the nation which, in conflict, cannot obtain certain necessaries of life, because she cannot produce them at such a short notice, while those from whom she used to buy them cannot supply them for the time — an unfortunate and unworthy position, pardonable in a child, but not where a self-dependent man is concerned. It is true this danger is not so great in countries like ours, which grow their own food, and which can manage to exist for some time without the importation of certain manu- Free Trade or Protection 267 factures, as where the people have to depend on other nations for their daily bread. The Case of Britain Certainly Britannia still rules the waves ; but will she always do it? A single invention, the armour-plating of warships, reduced the world's wooden fortresses to worthless playthings — as the Merrimac proved to the United States' fleet in the waters of the Chesapeake — and in the next naval war a per feet submarine boat may in the same manner supply the proof that all our floating colossi are at the mercy of a few invisible dwarfs, surreptitiously creeping under their immense bellies to blow them out of existence, just as a pigmy may kill a giant. What then? Who will feed England's millions when cheap American wheat will have driven out of cultivation the last acre of the remaining 24% of English soil yet under tillage, and when foreign granaries are kept from bringing in their welcome loads by hostile armaments ? Engrland's landed Aristocracy, with Its rent- raisingr Corn Toils, in a time of poor means of communication, whe"n no competi- tion of foreign wheat threatened to throw English fields out of cultivation, has been justly punished by the complete downfall of their system. Even in our time, all who realise the wrong of private land ownership must find it hard to contemplate the rise in rental values which is sure to follow any attempt to restrain the importation of corn. Of course, land restoration would entirely do away with this difficulty by giving back to the people in the shape of the State's rental income what they pay on account of corn duties ; but in the meantime, if land- lords have to be enriched, let England enrich her own rather than those of America, since in that way most of the money will be spent in the country, paying its taxes and supporting its producers. It has become a question of serious concern to England whether the present freedom of importation is to continue unchecked. None of the powerful arguments brought forth in Cobden's time applies to a period when, at the price 268 Clue to the Economic Labyrinth of imported wheat, the cultivation of the cereal is frequently unprofitable, even on land given rent free. The dear Loaf 7 It has been calculated that the mere saving which municipal or co-operative bakeries would produce by eliminating the wasteful little concerns would more than balance the addition to cost incurred by a corn toll big enough to exclude foreign importations. D. Till, the owner of a flour mill and a bakery in Bruck a. d. Muhr, Austria, has written a number of pamphlets advocating the municipalisation of bread production. From one of them," Die Umwandlung des Getreides in Brod,""The Transformation of Corn into Bread" (Graz, 1894), I take that the new system he advocates, besides giving a healthier bread, free from the danger of contagion due to the diseases of the workers at present employed in unhealthy dens, under the most unhygienic conditions, could save 9 florins in cost of production for every 100 kilo of floiir baked into bread. This gives a saving of £7 los. per ton of flour. As 82 kilo of flour correspond to 100 kilo of wheat — leaving the value of the bran out of sight altogether— we find that a duty of £^ 3s. per ton could be paid on wheat without increasing, the present price of bread. The price of wheat, therefore, could be almost trebled without raising that of bread, if we make up the difference by improved methods of production and distribution for the finished article. Quite apart from the important consideration of a food supply in the case of war, I feel certain that England has not been well inspired in adhering to Cobden's Policy of 1846 under the totally changed Conditions of 1900. Under the protective policy of the United States, the disproportion between England's export to that country and its imports from there has been growing continually in favour of the United States. The exports have only grown from 17 million pounds in 1854 to 21 millions in, 1807-98, while the imports from the United States have gradually increased from 30 millions in 1854 — falling as low as 18 millions in 1864 because Free Trade or Protection 269 of the locked-up cotton and sugar from the South — to 106 trillions in 1897-98. I feel certain that England's strict adherence to the principles of 1846 is mostly responsible for this almost seven-fold increase of her passive balance in her trade with the Union. If England had adopted the protective policy of the principal continental nations of Europe, if she had raised the duties on American corn in the same proportion in which the United States raised their tariffs on Engljsh goods, these tariffs would never have come into action, or would soon have been reconsidered. England is America's best customer, and the American farmer's vote would have settled American exclusive- ness very rapidly. America, through her protective policy, made herself more and more independent of British importations. Why should not Britain follow the lead of Germany and France, and try to make herself independent of American importations ? It is true that England has yearly interest and rent dues abroad which are paid in importations ; or rather, strictly speaking, it is not England ^which has these dues, but a number of prosperous English men and women, who indirectly spend their money in the countries where their income comes from by having its produce imported. This may be only fair, but does not in the least benefit the poor English worker, who is only too anxious to produce these good things for them by his own labour, and who, in consequence of this foreign importation for which no English goods are exchanged, is without employment. The Forum of June, 1901, contains an article by John P. Young : f' An American View of the British Industrial Situation in which, among other interesting data, the following facts are given : The consumption of raw silk in Great Britain rose from i;£'2,400,ooo in 1823 to ;^ 10,750,000 in 1857. The value of silk fabrics in the latter year amounted to ;£'2 1,500,000. In 1898, the result of free trade was shown in a falling off of raw silk importation to ;£'2,i38,9i2, an importation of silk goods to the , amount of about ;^ 16,000,000 — minus re-exports — against an exportation of ;^2,400,goo. " It (the British silk industry) was needlessly sacrificed, to a theory," says Young. 270 Clue to the Economic Labyrinth In the United States, protection of an infant industry has brought about the magnificent result that from importing every single particle of silk goods the astounding fact has evolved that the United States' silk textiles manufacture now is in excess of the manufactures of France, and that every portion of it is con- sumed in the country. It is true the prices are higher than in England, but what does that matter if people are thus employed who could find no other work? Their immigration has bene- fited the country far more than the trifling addition to price can have done harm. The large amount of this production, which is consumed by the working classes, shows a state of well-being quite in accordance with the thdory that the possession of a paying home market ensures a better living to the masses, in spite of higher prices, than lack of employment accompanied by and caused through cheap prices. " Potatoes only cost sixpence a bushel, but the difficulty is to get the sixpence." It has been argued that Bounties are preferable to Protective Duties, because the latter act as indirect taxes which fall proportionately heavier on the poor than on the rich, especially as the additions of importers and other middlemen largely raise the original cost. I concede that there may be cases where a bounty for a time would be preferable to a duty on imports, as, for instance, where certain domestic manufactures are as yet too insignificant to render a raising of the price advisable for the sake of finding employment for a few men. It would sometimes pay better to feed such men at the expense of the community than to raise the price of the goods they produce to an amount far exceeding the wages they earn. As a rule, however, protective duties will prove more beneficial than bounties ; because the Duties, or part of them, are often paid by the Foreign Importer, whereas bounties are always at the charge of the domestic tax payer. Our modern system of manufacturing is remunerative only if large quantities are produced, and if work goes on at full time. Free Trade or Protection 271 Saving by Increase of Turnover Let us assume that a special machine, which does the work of a dozen workers employed on inferior machines, costs £i,(xyo, and is worked by one single hand. Now let us figure cost of production with such a machine, worked continuously in three shifts of 8 hours each, or by one hand working only 8 of the 24 hours. Interest and depreciation (not through wear and tear only, but mostly through the certainty that before the machine is ten years in use an improved model comes in which forces the manufacturer to discard the old one) are the same in either case, at 1 5% = ;^ 1 50 a year. Nor are general expenses notably higher, whether a machine is used during 8 or 24 hours ; for not a single manager, book-keeper, salesman, messenger, etc., is added to the staff for the extra work. The interest on the building amounts to the same, whether the factory works full or half, and the motive power does not cost correspondingly more. In the case of water power, the extra work costs practically nothing, as the water runs away unused wherever it is not fully employed, with- out any notable saving in its cost for the working hours. In my own factory, it would many a day have cost me much less to run night and day than to rest at night in hard winters, when standing still caused the turbines to freeze, while the motion kept the ice from forming. Let us in this way put down the quota of general expenses falling on the machine, which cannot be saved by working less time, at another £1^,0 a year. The raw material used on the machine per 8 hours' work amounts to £\ ; special expenses and the wages of a man for one shift, 10 shillings. In this case the cost of the finished article, if only 8 hours a-day are worked, figures up to £t^o for one year's production per machine. The manufacturer adds 20% profit, and sells at £^X). Now let us figure on the supposition that three shifts are kept at work during the 24 hours, so that three-fold the quantity is produced during the year. Cost of unchanging items : machine and general expenses is £lOQ as before ; while wages, materials, and special expenses have to be trebled = ;£'i, 350. Adding the £}po, we obtain £1,6^,0 as the cost of the total quantity ; or one-third =;^S5o, as the cost of the same quantity which before 272 Clue to the Economic Labyrinth has cost £jyi. By now adding 20%, the product can be sold for ;^66o, which before could not be supplied at less than £gao, and yet the total of yearly profits per machine has risen to ;^330 from £\%0 — has more than doubled. Now, let us suppose that full employment for the machines is only possible if a certain foreign market can be kept open, which, up to that time, had freely admitted the article, but which now puts on a protective duty of 30%. Let us further suppose that one-third of the output had been shipped to that foreign country, while two- thirds were sold in the domestic market, and that the price of £