V •i '^o *4<5^ ^ov^ ;<^ iS^'T. ^ ^ >, ^-^ ^-./ .^'% « •«. & »fti. .11/ Jaw* av "^v •f^i^* «& HSv » »* y ^4. %^^%T** >^ ^^ . ^!9KSf** ^ ^ ^ 0^ ^it/Tc^^ier* .1 rt •' '^0^ ^^^ o II o *^ -0/ V*<5' V^ ♦ 4? 0« •^ •i^JJ^I*^-^^ «-0 * < ^ o -^ hn ^ .^ Q ^ ^ •^ ^ s s ^ Q vj «-5 ?§ -K> ^ ^ THE COST OF COMPETITION AN EFFORT AT THE UNDERSTANDING OF FAMILIAR FACTS BY SIDNEY A. REEVE /I Illustrated with Diagrams and Photograph NEW YORK McCLURE, PHILLIPS & CO. MCMVI LIBRARY of CONGRESS Two Copies Received JAN 20 1906 £opyr!jrht Entry CCASS ^ XXc, No. /J rt COPY Y b; Copyright, 1906, by McCLURE, PHILLIPS & CO. Published January, IQ06 N TO MY COUNTRY IN THE APPROACHING HOUR OF THIS THE THIRD VITAL CRISIS OF HER HISTORY IN THE FAITH THAT TO THIS STANDARD WHEN ONCE THE INVISIBLE FOE IS DISCERNED THE WISE AND THE HONEST, THE BEST OF HER LIFE-BLOOD WILL REPAIR IN HER DEFENSE- THIS BOOK IS INSCRIBED ABRAHAM LINCOLN Speaking in Independence Hall, February 22, 1861: " I am filled with deep emotion at finding myself stand- ing in this place where were collected together the wis- dom, the patriotism, the devotion to principle, from which sprang the institutions under which we live. You have kindly suggested to me that in my hands is the task of restoring peace to our distracted country. 1 can say In return, sir, that all the political sentiments I entertain have been drawn, so far as I have been able to draw them, from the sentiments which originated in and were given to the world from this hall. I have never had a feeling, politi- cally, that did not spring from the sentiments embodied in the Declaration of Independence. I have often pon- dered over the dangers which were Incurred by the men who assembled here and framed and adopted that Dec- laration. I have pondered over the toils that were en- dured by the officers and soldiers of the army who achieved that independence. I have often enquired of myself what great principle or Idea It was that kept this confederacy so long together. It was not the mere matter of separation of the colonies from the motherland, but that sentiment in the Declaration of Independence which gave liberty not alone to the people of this country, but hope to all the world, for all future time. It was that which gave promise that In due time the weights would be lifted from the shoulders of all men, and that all should have an equal chance. This Is the sentiment embodied in the Declaration of Independence." CONTENTS PART ONE: ECONOMIC COST PAGE Introductory xiii I. Value , • • 3 11. Production and Consumption i6 III. Specialization and Coordination . . . . 35 IV. Exchange 53 V. Barter 69 VI. Emulation and Competition 89 VII. Specialization in Barter 1 1 1 VIII. Distribution 148 IX. The Economic Organism 195 X. The Growth of Dissipation 231 XL Supply and Demand 316, PART TWO: THE ETHICAL COST AND THE FUTURE L Prefatory 349 II. The Ethical Nature of Barter . . . .359 III. The Cost to the Losers 369 IV. The Cost to the Winners 381 V. The Cost to the Community 398 VI. Capitalism and Labor 503 VII. The Future: Progress without Poverty , -522 VIII. Ethical Synthesis 575 Epilogue 602 vii LIST OF ILLUSTRATIONS The Washington Arch Frontispiece " Let us raise a Standard to which the Wise and the Honest can repair. The event is in the hand of God." FACING PAGE The Congressional Library 347 " The Co-operative Distribution of Information." Advertising Signs 491 " The Competitive Distribution of Information." Grant's Tomb and the Hudson River . . .571 " Let us have Peace ! " IX PAGE lOO lOO 127 128 136 137 198 200 LIST OF DIAGRAMS FIG. 1. Emulative Efforts . . . v •« - 2. Competitive Efforts ..... 3. Natural Coordination ..... 4. Coordination distorted by Capitalism 5. Natural Coordination .... 6. Coordination distorted by Capitalism and Land lordlsm ....... 7. The Economic Organism: Section 8. The Economic Organism: Exterior 9. The Economic Organism: Section displaying the Population which absorbs the Cost of Competition — pure Barter and Barter-cost being distinguished 219 10. The Fate of the Individual Producer's Productivity. 222 11. The Comparative Growth of the Four Classes: Popu- lation 252 12. The Growth of Dissipation and the Inefficiency of the national Economic Organism .... 254 12a. The Advance of Invention, Science and Art, and what we get out of It 257 13. The Growth of Activity of Class A proportionately to that of Class D 14. The Comparative Growth of the Four Classes: In come 260 15. The Comparative Growth of Productive and Com- petitive Activities: Aggregate and Individual . 268 16. Comparative Percentages of Unemployed In the Four Classes ....... 259 270 XI vii LIST OF DIAGRAMS FIG. PAGE 17. Comparative Percentages of Unemployed in Several Avocations . . . . . . .271 18. Comparative Percentages of Unemployed in several Avocations of Negro population . . . .271 19. The Decline of Horizontal and the Growth of Vertical Competition ....... 273 20. The Tendencies of the Times in Factory-organization 278 21. The Growth of Homicide and Hanging: Chicago Tribune's Statistics ..... 308 22. The Parallel Growth of Economic Dissipation, Crime and Suicide . . . . . . .311 23. The Curve of Demand ..... 323 24. Demand and Supply Curves, and the Market . . 329 25. The Expansion of Production and Exchange by the Abolition of Barter ...... 561 INTRODUCTORY A GLANCE at any one of the outbursts of clvlli- /\ zation which history has recorded in the past X ^ reveals the world as primarily occupied with, successful at, and characterized by some one principal line of effort. Egyptian monuments, Phoenician commerce, Greek art, Roman law and politics — each of these, to the student of history, means a tremendous picture of human activity. The spectacle of an entire people given over, for generation after generation, to the development and perfection of some task assigned to it by the force of destiny is inevitably a sublime one. The task is a need grown out of the world's evolution. The doing of it involves that devotion to the ideal which carries the race of man to its highest step toward the divine. The fruit of it is a solidification of an additional course of masonry in the edifice known as human progress, upon which may be reared the later superstructure as upon a foundation. Hidden though be the original foundations in the depths below, unrevealed though the Architect's final plan, the splendor of the whole is unquestioned. Devout admira- tion is the only emotion possible to him who approaches the study of the structure in its most temporal detail. Such sentiment has characterized the serious-minded of all ages. A similar glance at the age in which we live reveals its keynote and countersign to be the production and distri- bution of wealth. However essential to daily existence xiii XIV INTRODUCTORY may have been this occupation at all times and places, hitherto it has been felt, by the unconscious philosophies of those times, to be a necessary evil and has been rele- gated to individuals or to classes who, whatever their power for the moment, were not freely considered as of the best life of the community. The sword, the cassock, or the woolsack typified the real business of men; the nec- essary commissary might demand the attention of a few who were worthy, but it was an unfortunate few. Far be it from the present purpose to perpetuate this doctrine, to teach that in ^' these degenerate days " the work of feeding and clothing itself has degraded man- kind. Man is not falling into degradation. The higher things of life still remain as highly esteemed as ever. But to their rank has been elevated, by the slow fermentation of the Baconian philosophy, the world of tools. " Arma virumque," sang Virgil. " Tools and the man," sang Carlyle. Neither the honor of arms, nor priestly sanc- tity, nor judicial dignity, nor the magic of brush, chisel, or reed has fallen in estimation. But there is rising beside them a worldwide recognition of the fact that in the feeding and housing of the race there lies as high and brave an opportunity for the formation of enduring beauty as in any of the other walks of life. The world has given itself up to the peaceable conquest of the world. The bowels of the earth, the abysses of the sea, the mys- terious power of sunlight and lightning, the still more mysterious, unfathomable possibilities of the swarm of human beings everywhere about us, — all these must be subjugated by studious humility and untiring service. To their understanding, to their intimacy, their coordination, and, finally, their control, is being given the best life that Mother Earth can produce. To produce and distribute the material boons won by such study, to the myriads who INTRODUCTORY xv have sprung from her bosom in this summer of political liberty, is the greatest and highest need of the age. To it are devoted armies of loyal men and women such as the world has never before seen, leaders worthy the command of such armies, and the moral support and guidance of sages and priests as near to God as were Moses and the prophets. The age in which we live must go down to history as the Age of Supply and Demand. It is the age when the millions demand, in the economic sense, as they never did before. Their demand is not the fitful, overwrought, short-lived cry of the famine-stricken and the oppressed of the past. Famine is always local and always weak; oppression quickly either kills or stuns. It is the demand of the healthy and the free which now is heard, — deep- breathed, sustained and sturdy, — the exultant shout of the living, not the despairing shriek of the dying; and it arouses out of the latent an equally sturdy response. To its aid comes such Supply of all things worldly good as has never before been seen. The greatest business of the world is supply. Incidentally we do a little fighting, a little legislation, a little administration. But the fight- ing is for trade, the legislation is of commerce, the admin- istration is of industrial forces. Still more incidentally and fractionally we enjoy a little decorative art, a little music, a bit of belles-lettres. But, as a race, we are not in earnest about it. Our occidental civilization is as yet at breakfast and the morning chores, so to speak, earning leisure and disposition for the amenities of the later hour. But when this preliminary task is once done, when the modern world, fed with this giant Supply, shall have learned to choose wisely between gluttony and asceticism, to the end that its days shall be filled with the inspiration of natural life, when it shall have really turned its united xvi INTRODUCTORY best energies to the production of Beauty befitting its Strength, then will the hitherto unparalleled schools of classic art pale in the light of a sun whose mere dawn is now beyond the scope of accurate imagination. In human progress of some such sort, to a goal more brilliant than the imagination can depict, most educated people believe. But the faith Is usually rather vague as to immediate detailed steps, as to ways and means by which it may be furthered. Very often, Indeed, appears in public opinion, even of the better sort, a fundamental Inconsistency: the combination of such an expressed faith In that ultimate growth, of which the present moment must of course form a part, coupled with a complete con- temnatlon of all the existing social forces which are together constituting the moment's progress. It Is in the hope of somewhat clarifying both these fields of misunderstanding: the complexity of existing forces whose Intricate play constitutes the body politic as we see It at present, and the future lines of progress which may be expected to result from their natural development, into consistency with each other and with those natural longings which ever spring spontaneously within the human heart, that the following analysis and synthesis has been undertaken and Is here presented. To this end It Is necessary to begin at the beginning. Indeed, the greatest problem Is to find the beginning. Upon what unassailable foundation may we erect our philosophies of modern economic life? Of the moral fundaments the Christian world Is sure and In agreement: love, justice, charity and Industry cover well and briefly the ground for all moral guidance. But do they, unam- plified and undefined, answer the questions of the day? INTRODUCTORY xvii Here upon our hands is the social problem: of slums, palaces, crime and corruption. Is it, can it be, after so many centuries of human progress, merely the fruit of our having also on our hands and hearts too little of love, justice, charity and industry, in their abstract moral ex- pression? Is it true that the slums are due to laziness, the palaces to industry, the crime to hatred and the cor- ruption to innate disloyalty? Are all of the economic phenomena which we see about us the direct result of moral promptings in the individual heart? Do all such spontaneous promptings find possible expression in our social conformation? All things being taken together, is this probable, or even possible? It certainly seems not. And yet, the simple old- fashioned formula for the explanation of all actions: that they are prompted within the individual heart by impulses which are beyond scrutiny outside of the psychological laboratory, beyond explanation except by the inevitable iniquity of human nature and beyond control except by moral suasion and the direct intervention of Providence, — this formula once abandoned, what may properly guide us? Where may a Baconian philosophy of social metab- olism, lacking yet a perfected psychometry, find a rock on which to plant its feet? In a social organism, what are the fundamentals? What things are of most worth? Since the days of Saint Paul the question has been asked; and never has it needed answer more urgently than now. With formulae and statistics the suffering world is rightly growing impatient. We prate of economic science; yet have we any such? The proof of a science is its ability to predict. Of social phenomena what measure of prediction do the schools offer? Our astronomy predicts its happenings to the fraction of a second. Our engineering science will spend five years of xvlli INTRODUCTORY work and millions of dollars upon a battleship or a tunnel, and predict to a hair the degree of usefulness of the result. Our meteorological bureau even predicts the movements of the wanton winds, days ahead. Yet our economic science predicts nothing. Not a war, not a panic, not a strike, not even a flurry upon 'Change does It pretend to predict, to the confidence of even a minority of Its adher- ents. Not a single legislative body or policy is guided by Its dictum. Degrees of taxation, amounts of penalties, etc., etc., are decided according to statistical record. It Is true. But not a single broad law or fundamental prin- ciple of legislative policy may It lay claim to guide. Re- garding impending war or peace, free trade or protection, expansion or contraction of the currency or of territory, punitive repression or lenient encouragement In penology, and a host of similar broad questions of public policy, it Is either dumb or a Babel, so far as any accuracy or effec- tiveness Is concerned. Men of the greatest natural In- telligence and the best of scholastic equipment differ regarding them most widely, and with no hope of ulti- mate agreement except at the cost of experiment upon a national scale. Men of the most sincere patriotism seek its guidance In public affairs of the day only to turn away mystified and discouraged. If individual opinion should quarrel with the sweeping validity of such statements as the foregoing, yet it must at least admit their truth to a degree as characterizing the present social problem. The explanation, of the situation is that economic science as yet lacks fundamental prin- ciples. It is a vast mass of undigested statistics and sec- ondary, untested formulae. To parallel such principles as that of the conservation of energy in physics, the New- tonian laws in mechanics, the Keplerian laws In astronomy or the Darwinian law In organic evolution, — principles so INTRODUCTORY xix broad and so firmly founded that their validity may be relied upon in novel contingencies where concrete evidence is entirely lacking, — it has nothing to offer. It knows not which is beginning and which is end, which is cause and which is effect, what is reality and what is empty form. To replace this chaos with a complete and adequate social philosophy may not be the legitimate aim of any one book or man. But to start right in the search for it, to begin at the beginning and to pick out the fundamen- tals, — to at least pick out one of them, — ^may properly and profitably be undertaken now. If it be done conscien- tiously it cannot but lead us upwards, into a better under- standing of that organic whole which we call Our Coun- try: which is not the earth mapped out beneath our feet, nor the skies above, nor even the mere aggregation of individual Smiths and Joneses which walk between; but which is that method and form of union of all of these features into a single organism, by cementing institutions and laws of which we may be justly proud or must be justly ashamed, into a whole of which we are each of us a part and by which, whether we will or not, whether we be patriot or traitor, millionaire or pauper, we live and we die. This is our country. To this great Absorbent, Mold, and Expression of us all, what things are of the most worth? PART I The Economic Cost VALUE IT may be that either nature or God has in mind some final purpose toward which the existence of the human race constitutes an essential step. Since the dawn of human history man has been prone to believe so. The struggles and the pain of life put upon him a pressure which he can hardly bear. His strength fails him; his courage falters; he needs help and consolation from with- out. He finds It In hope, — the hope of a reward hereafter for the fruitless endeavor here below ; or, If the faith In a life after death Is wanting, there arises at least a faith that the brief and joyless period of work allotted to us now will bring permanent joy to some ultimate development of life other than ours which shall have attained a permanent state of happy existence. All forms of prayer consist, in one way or another, of a faith that we here below con- stitute a part of an Infinite Enterprise to which our en- deavors contribute and for which, therefore, they were undertaken. The faith Is as old and as natural as life itself. And yet, when observation Is made of the details of the way In which nature conducts her daily processes of life, there Is visible no evidence of any such Ultimate Purpose. There appears only a striving after one concrete thing: Perpetuation. Man's Instinctive faith may be true. His spontaneous moral promptings may be broader In their perceptions and conclusions than are his intellectual fac- 4 THE COST OF COMPETITION ulties. There need be no denial of the existence of the ulterior goal. But if it does exist, it exists in such a way that a whole world of life is but one unit in its structure. Nature's only visible purpose is to multiply and to strengthen life. This life may mean a growth into ulti- mate permanent ascendency over all evil and suffering; it may mean hopeless struggle against degenerative forces until their irresistible march ends in death and nothing- ness. For the present it matters not. Taking the world as we see it, going only so deep as we can fathom with certainty, leaving all hopes and faiths to religion, there stands out but one fundamental fact as the base for all study of human life, either as a biological phenomenon or as the necessary starting point for all sociological dis- cussion : The Object of All Life is Life. To the one other fundamental factor plainly needed to fill out the premises — the factor of Growth — we are forced to accord a secondary position, to place it in the conclusions, so far as immediate argument is concerned, rather than in the premises. The primary force which promotes it we have as yet been unable to define. The goal toward which it is driving us is as yet announced only in the creeds of religious faith, and there often unformulated. But what- ever may prove to be the truth as to either, certain it is that they remain as corollaries to the first proposition. Growth cannot take place unless perpetuation of the pres- ent be first attained. Progress Implies primarily that provision has first been made to forefend retreat. Re- production of the existing, each after Its own kind, Is the VALUE 5 first office of life, the first law of God, the first great human fact. Also growth in numbers necessarily precedes, as a basic foundation for, growth in kind or quality. The truth of these statements is most palpable in the »ver forms of life. Here it is incontrovertible. It is a prime characteristic of all the lower orders of existence that there is very plainly no other object in view except reproduction. Every step in the development of insect or crustacean is planned to this end; and while it can be said that there are other imaginable paths of approach to the final result than those actually followed, that many of the stages of development of the individual appear to be irrelevant and to exist for other purposes, such as food- supply to other forms of life or for the sake of mere beauty, yet it can be replied with equal force that this too, in the few cases which have not yet been connected with reproduction, is life carried on for the sake of life. The consummate fact, in most of these lower levels, is that the process of procreation ends the individual life. If nature has any use for the individual insect other than the pro- duction of more insects, those duties are not performed after procreation is accomplished. That act ends activity. All duties performed before that culmination, on the other hand, must be regarded as accessory to what comes after. For instance, the storage of pollen by bees is very plainly an act performed for the sustenance of offspring. But nearly all bees store much more pollen than the young bees can consume. Viewed as a provision against loss by robbery, storm, etc., this surplus stands purely as a safe- guard against possible failure of the next generation of bees, under average conditions of interference from with- out. But viewed in its brqadest sense, this surplus is a 6 THE COST OF COMPETITION provision for the life^ if not of bees, then of bears and men. Even at so low an order of life as the insect is seen herein the elementary effort of one form of life to provide for another. The fact that it is done uncon- sciously and unintentionally does not affect the result. As the development of life in the higher and higher forms is observed, it becomes plain that this parallel sur- plus provision for other life than the immediate off- spring becomes more and more prominent. In the first place, the care for the direct offspring has become more complex. Gestation has succeeded egg-laying. Infancy under care and tutelage has replaced larval development. The amount of care bestowed upon the young has tremen- dously increased, and still grows with every advance In height and complexity of existence. But the proportion of life-effort preceding completed reproduction of the adult offspring has markedly decreased. In the insect all of life commonly precedes the mere appearance of the succeeding generation. There is no lap of generation over generation. In man not more than a third of life is past before reproduction is undertaken, and not more than two-thirds before it Is completed. The generations lap over each other until sometimes as many as three succeed- ing adults exist at the same time, with the fourth genera- tion in well-developed infancy. The remainder of the life-effort of these higher forms of life, after reproduction is cared for, very plainly goes to other ends than the care of immediate offspring. Even in the brutes this is' apparent. In embryo. Some effort is spent in organization and in the costly struggle by which leadership is determined. Food-supplies for other ani- mals are accumulated, as by the deer for the wolf; vege- table growth is fostered or regulated, as by the earthworm or the browsing herblvora or the pollen-carrying honey- VALUE 7 gatherers ; servitude is even accomplished, as in the aphides to the ants. In the last development of animal life it becomes domesticated and subservient to man. As beast of burden and as provision of food and clothing, the beasts alone made man first possible. In human life itself this parallel provision for other forms of life than that of the immediate offspring reaches its highest and widest development. Whether a man un- selfishly wills it or not, all of his life-effort, after his chil- dren are cared for, goes to support others. They will fatten upon him and upon his work, though he be a miser or a murderer. He contributes to industry, to commerce, to politics, or to art all his life long; or if he succeeds in failing to contribute even a mite to these, medical science is at the last the richer for his life, his pain and his death. If he even be no more than one unit in a column of statistiics, or a mere pestilential corpse whose presence forces mankind to consider pestilence for a moment, what little he accumulated or inherited of life has gone to enrich or to fortify the future race. Nature wastes nothing. In no department of nature is this so true as in human life. All civilization is made up of this fact. Civilization, indeed, is nothing more than this fact become a conscious one. The great majority of men recognize and strive to meet their duty to others. Military patriotism is ele- mental. The first Society arose upon its back. Man lived and died for his country almost before he had a country. Later came civic patriotism, art, science and in- vention. With their spread have come peace, freedom and enlightenment. With them, too, have come hospi- tals, asylums, refuges and reforms. Not all the evil love of all the good gold in the world has been able to lure man from his first devotion to the conservation of life; he has reserved only a secondary, minor homage for indus- 8 THE COST OF COMPETITION try and commerce. At every turn of civilized existence life is held sacred, inviolate and invaluable. No expense is held too great to warrant the extension of care to the worst mutilated body, of justice to the meanest criminal. The highest devotion known to mankind is daily visible in medicine and in nursing; the broadest patriotism is in- corporated in our common judicial system. Of all the institutions of man, the gallows and the slums alone stand in contradiction of this universal sacredness of life. Life, then, is sacred. It is the sole object of all life, of all effort, of all inspiration. For its furtherance, and for that alone, exist not only the family, the school and the factory, but all science, all art and all religion. To discuss its " worth," even to raise the question : *' Is life worth living? " with hope of profitable answer, with other object than merely to kill time, — life for the moment apparently being worth nothing better, — is a mere lack of life, is partial death or temporary insanity. For a men- suration of its value, in any external unit, is as impossible, as incomprehensible to the human intellect, as is the defini- tion of space or time. They are indefinables all. Nevertheless, man occupies and makes use of his own little atoms among the indefinables, or even among the infinities. He employs space and time, and life itself, for his purposes. He must have ideas of quantity in con- nection with them all. He must have units of measure- ment. But he needs to use rational, comparative units: of time for measuring tim'e, of space for measuring space, of life for measuring life. This measurement of Life man actually essays. As the flotsam of life is tossed before him for consideration, as love, riches or institutions, as knowledge, opportunity or inspiration, are held up for his comparative estimation, the VALUE 9 decision, speaking broadly, always finally turns upon the question : " How much of human life will it support or elevate?" Temporarily or locally fancy or ignorance may warp the judgment, and this rightful arbiter of the issue be forgotten; but sooner or later nature reduces the question to its lowest terms: "The greatest good of the greatest number." That which brings the opportunity of life to the greatest number, or in the greatest purity, or in the greatest complexity of composition, inevitably sur- vives. The fruitless fancy, the vain ambition, the selfish greed, the malevolent craze, succumbs. Art may flourish, empire may widen, knowledge may take root and grow, culture and refinement may be of the most extreme, aristoc- racy may flaunt its heraldic emblems and prune its ancient genealogical trees; yet if the solid promise of unlimited opportunity for future billions be not incorporated therein nature sets upon it her stamp of disapproval. It withers and dies, is buried and lost. In its place sprouts the seed- ling of a new life, vigorous and unlovely, but true to its duty toward the unborn hosts. It thrives and prospers. Feeding upo-n the carcass of the lost, it attains the prom- ise of which the other failed. Life is multiplied and widened and elevated. Life, the object of life, has been accomplished. This estimation of life in terms of life is a true valu- ation. It is the only possible true one. In the attempt to gain any comprehension of the idea of " worth " or " value " of life, it alone brings satisfaction. It alone is in no danger of the reductio ad absurdam, as of an at- tempted equation between minutes and inches. Yet this satisfaction referred to must keep plainly in view the narrow limitation of the valuation. It is purely a comparative one. It measures life only in terms of lo THE COST OF COMPETITION life. For instance, a clam values mud and tides and art and music solely as they are conducive to clam life. It would be a very unnatural, crazy or morbid clam which did not. But a man must value mud and tides and music and art solely as they are conducive to human life. There- fore, the two valuations must differ hopelessly. Further, there must be great difference in the value of a thing for human life between one time and another. The land, the utensil, the institution, the occupation which at one time may have had a very high value in the support of human life, at another must have a very different one. It may have afterwards lost all of its potentialities for succoring life. It may have become even destructive of life, and therefore come to possess a negative value: a thing to be cut out and destroyed, even at cost. Plainly, all hope of permanency of value must be abandoned. Nevertheless, full emphasis must be laid upon the fact that the value exists. It is a natural, concrete fact. Any imaginable Thing possesses a certain latent ability to foster human life. This ability may be re^cognized and employed; it may be Ignored and wasted. If the ignor- ance and waste apply to the entire race, It must be re- garded as inevitable at that stage of human growth, and that the thing in question possesses no immediate poten- tiality for that particular sort of life. But if the waste is only on the part of an individual, or of a fraction of the race, there then arises a question concerning the valuation of the thing under discussion by the various individuals con- cerned, and this valuation Is a thing quite apart from the natural value of the object. For instance, the petroleum-deposits of North America were known to the aborigines, but were employed not at all, or only as medicinal agents. For the support of Indian life petroleum possessed practically no value, while VALUE II bison-meat possessed much. Now that the country is populated by civilized whites the petroleum possesses great value and the bison none. Yet to the few remain- ing Indians the petroleum is still almost valueless. Orig- inally, the value of the petroleum was nearly zero and the savage's valuation of it was correct. To-day the value of petroleum is very great and the Indian's valuation of it, which has remained substantially unchanged, is quite erroneous. In the following pages, therefore, the following defini- tions and distinctions will be applied to the terms *' value " and " valuation.'' Value IS the potentiality of a thing for the support of human life and growth. In the measurement of this potentiality the average existing stage of development of the race, and hence its possibilities for utilizing the thing, must be considered; but this point once defined, — and it may or may not be included as a natural fact of environ- ment, — it may be asserted that value is a natural attribute of a thing, inalienable and unalterable by human will ex- cept as either the thing itself or the knowledge of the entire community regarding Its mode of consumption is altered as a means thereto. In this sense, value is nearly always made up of two factors: the original and the contributed. The original consists of its chemical and physical properties, its pleni- tude of distribution, its geographical or topographical accessibility, etc. The contributed is always capable of inclusion under the term scientific or technical knowledge. Thus, nearly all of the substances which are now relied upon as the raw material of modern industry were known to man before their possibilities were appreciated and util- ized. Coal was known and used before the steam-engine 12 THE COST OF COMPETITION gave to it Its present fundamental Importance in the sus- tenance of our civilization. Part of its value lies in the fact of its being coal; part has been added by man In the invention of the steam-engine. Its thus compounded value has been further supplemented by the invention of coal-gas, and again by the appearance of the gas-engine, of aniline dyes and of a thousand other additions to the technical attainments in industry which rest primarily upon our coal-supplies. There is scarcely a step in advance in modern methods of production, in any line of invention, which does not enhance the value of coal. If it be preferred, the distinction may be kept in mind that only the original value of the coal should be assigned to it, the increments due to steam-engine, coal-gas, etc., being conserved to the credit of those implements them- selves. Neither plan will be found to be ultimately cor- rect; the implements would be entirely worthless without any coal; the coal would be almost worthless without the implements. But the distinction between the two plans is quite irrelevant to our further argument and is men- tioned here merely to prevent misunderstanding and to allay fear that it might have been overlooked in the analysis. The point is, and It will be made clearer and more emphatic in later elaborations, that man, by his skill and industry, can affect existing values or produce new values; but it Is also to be emphasized that he does it solely by either discovery or Invention, by the overcoming of purely natural obstacles, to the increase of Human Knowledge. Because It is so widely accepted as axiomatic, by the average man of affairs of the day, however, that the Ideas of value and of price are Identical, especial warning Is also to be Inserted here to the effect that the understand- ing of the reader should be kept neutral as to the defini- VALUE 13 tion of price until the latter is reached In the analysis. So far Is It from the truth that value and price are synony- mous that It may be stated, as a general coincidence, that nearly all of the factors just stated as Increasingly contrib- utory to the value of a commodity actually result In a decrease In Its price. The invention of the steam-engine, for instance, which has added enormously to the value of coal, has very markedly decreased the price of coal. There is no fixed inverse relation between the two ; but, on the other hand, there is no direct one either. Valuation, quite in contrast with Value, Is the human estimation of the value of a thing, on the part of an in- dividual, of a fraction of the community or of the entire race. It must always be regarded as a human and faulty approximation to the natural reality — Value. It Is in- tensity of desire, although not always visibly expressed. In the face of proposed exchange. It is a function of the mental and psychic make-up of the individuals concerned, and differs in each. In most of our use of the term later in these pages It will be understood to signify the average valuation amongst a certain number or class of individ- uals. The context will reveal In each case which Is meant: individual Or average valuation. Valuation is easily alterable by man, without any altera- tion either of the thing itself or of the available fund of the world's knowledge regarding Its consumption, through the medium of fashion, education, persuasion, duress, emergency, etc. All that is needed, in order to affect valuation, is to influence the mental attitude of the individual, or of a number of individuals, toward the thing in question. Thus, large diamonds (to exclude the unattractive little ones utilized in the arts) possess very little real value. It 14 THE COST OF COMPETITION is doubtful if they in any way aid in the support of life or growth, even in a minor degree.^ But their valuation by certain individuals and classes is very high. Pure water and fresh air, on the other hand, are of the very highest value ; yet until recently they had a very low valuation, as compared with diamonds. Even to-day impure air and water are accepted without complaint by ladies who would feel it a hardship to be compelled to appear in evening dress without their diamonds. Diamonds will serve as an illustration, too, of how the valuation of a thing depends upon personal forces quite differently from value. The value of diamonds depends upon our knowledge as to their usefulness in the arts, at present confined to minor grinding and drilling processes. Future discovery may unearth much wider fields of pro- ductive usefulness for the diamond than these, and so enhance its value. In this sense, and this only, its value is variable with time and effort. But its valuation is arti- ficially variable in many other ways. The present high valuation of the diamond does not depend upon ignorance of the fact that it is good only for grinding. Many people who know that fact, mentally if not spiritually, still prize decorative diamonds highly. It depends upon personal vanity, in the first place, upon fashion in the second, and upon the possibility of acquiring wealth by means of mere personal attractiveness in the third. Alteration in either may take place at any time, in an individual or in an entire community, by artificial influ- ence, quite independently of any alteration in human knowledge as to the productive usefulness of diamonds. 1 This does not necessarily imply that decorative art, even as applied to personal adornment, is useless for maintaining life, in quality as well as in quantity. It merely raises the question, or assumes it negatively, for the purposes of illustration, as to whether or not the diamond is really decora- tive, as usually worn, VALUE 15 There is no fixed or natural relation between the value and the valuation of a thing. With the great majority of natural objects now undergoing study the full value is not yet perceived; valuation is far below latent value. The efficiency of valuation, so to speak, is low. It may, indeed, in this sense, be regarded as necessarily less than unity. But with many other objects, such as diamonds, alcoholic drinks, firearms and hereditary titles, the present valuation far exceeds the value. With these the explana- tion lies in the very low value of the things themselves and in the irrationality of a fashion which keeps them in favor. But, as will be developed later, quite other forces than these may lead to an excess of valuation over value. II PRODUCTION AND CONSUMPTION IT has been observed that the object of all life and activity is the support and furtherance of life. Com- plete discussion of the ways in which this most com- plex process is carried out In human affairs would carry the argument into every detail of the arts and crafts, into manufacture, commerce, legislation, literature, science and decorative art. To properly limit and direct the present inquiry within profitable bounds It Is sufficient to define it as concerning primarily the relations between the men and the things concerned only in that sort of life-support where the Value is embodied In an appreciable, material or mer- chantable thing. The process of the expenditure of human effort in the creation of Value ready for the support of further life is known as production. The process of the expenditure of Value in the production of further supplies of human energy Is known as consumption. The two together, each balancing the other, constitute that energetic cycle which Is known as economic social life. The form In which these processes take place to-day, however, In spite of their simplicity in principle. Is far too complex to admit of their being passed by with the brief definition just accorded to them. An understanding of their exact natures and limits will require considerable dis- cussion; and in this discussion, since all of these matters have long been under comment In a loose and popular fashion, many words familiar to every reader will have to be redefined. Nor will the definitions, albeit exact, i6 PRODUCTION AND CONSUMPTION 17 which have already been assigned to these words by pre- vious economic writers always be found to be satisfactory for our present purpose. The definitions here chosen for them may seem to be arbitrary ; but even so, they must be carefully adhered to If the naturally discouraging Intri- cacy of such a topic as economics Is not to be aggravated by the additional artificial difficulty of a misunderstanding of meaning. At the start, these definitions will be listed somewhat succinctly, their significance In combination being brought out more gradually only by further development. When all is finished It will be found that the limitation just assigned to the argument, viz. : that it Is to concern only the production and consumption of material, merchantable forms of Value, Is a meaningless one. It will appear that the economic phenomena, the principles of social action and their biological reaction upon the individual life which have been developed in connection with material commod- ities hold just as true when the activity concerns the Im- material, non-merchantable forms of Value germane to the fields of science, education, legislation and art, includ- ing even religious inspiration. Indeed, it is one of the reasons why economic science stands to-day as so puerile and ineffective that it has ever been emasculated at the outset by the imposition of this unnecessary limitation. Nevertheless, since the material forms of Value are the more tangible, and so the better for the purposes of illus- tration, and because they employ the greater portion of the nation's activity at present, the traditional limitation will be retained, in opening the argument at least. Land. The first prerequisite for the creation of Value, for the support of human life, is access to the natural stores of true raw material. To these stores, whether found in the field, the forest, the mine, the rivers or i8 THE COST OF COMPETITION the sea, is given, in economic parlance, the name of " land." Whichever of these it may be, the word is ever to be understood as referring only to the natural locality, or site, and never to any artificial aids to the development of its resources which may have been added to it by human labor. The more complete definition of the term land, together with a discussion of the nature of rent, will be found in Chapter VII. For the present it is sufficient to point out that the essential importance of land as the first means to the support of human life has led to its being, since history began, the prime object of contention between man and man. Not even religion or love, the two great- est epics of the race, have been able to lay claim to so great an expenditure of human life and strength, or have been responsible for so great a fund of human cruelty and suffering, as has the struggle for access to and control of the most favorable portions of nature's bounty in the form of land. Tools. With primitive man the methods of the pro- duction of wealth were of the simplest sort. Vegetable food was gathered and prey captured by the diligent use of the naked hands. The first departure from this primi- tive simplicity lay in the invention and use of tools. Decided advantage was found in the use of a cudgel to emphasize the force of a blow, or of sharp-edged shells to aid in cutting and tearing. Herewith arises the first distinction between the different sorts of things external to man, in his efforts at the production of wealth, between raw material and capital. Raw Material is the material substance which is pre- essential to and which is passed through the hands of labor in the latter's efforts at its transformation into some- PRODUCTION AND CONSUMPTION 19 thing of greater value for the support of life. In the most primitive industry it is difficult to distinguish between raw material and land. In lumbering, for in- stance, the forest-trees, grown without cultivation, stand as a purely natural resource; and in selling timber-lands the character of the trees standing thereon is usually much more of a consideration than is site or soil. When the hus- bandry applies to a vegetable form of wealth one degree more complex, as in the harvesting of grain, for instance, where the growth has had to be fostered by cultivation, it is only the soil itself which is the near approach to raw material ; the grain itself must be regarded as the fruit of labor expended in cultivation. In modern industry this complexity has grown from an incidental into an all-important feature. In considering any fractional portion of the labor of the country, raw material no longer means what it did when man turned universally and without restraint to primitive nature, to the primeval forest or the uncultivated plain, for supplies. Now almost all raw material, as the term applies to a single factory, or even to an entire industry, means the product of previous labor, placed in the hands in ques- tion for the addition to it of still further increment in value. Such raw material is merely the result of labor which has been exerted at some previous time, crystallized now into inanimate embodiment and capable of trans- portation and exchange. It is the primary purpose of labor, in its handling of raw material, to thus treat as much of it as possible, with as little loss in quantity and as great a gain in value as possible. The final rejection of the finished article to or toward the consumer is as complete as possible. Indeed, the labor cannot be considered as being productive labor at all, and therefore to be included in economic discussion, 20 THE COST OF COMPETITION unless it does Increase the value of the raw material and unless It does reject all of this Increased value toward the consumer. In both these respects will be found the char- acteristics of raw material which distinguish it from the tools or capital also employed by the labor which treats it, viz. : that the capital Is never altered in value and is not rejected toward the consumer, but is retained intact in the users' hands. It is to be noted that there are some commodities con- sumed by factories, such as coal, oil, etc., commonly known as " current supplies," which must be included as properly constituting raw material, although they disappear dur- ing the progress of the work and do not reappear as a part, in a visible, concrete sense, at least, of the finished product. Invisibly, however, they are incorporated into the work and Into the result. Capital Is the assemblage of tools, large and small, the buildings which shelter them and the work, and the permanent power-plant which drives the machinery, which Is requisite for the prosecution of modern industry. The term Includes all which labor employs, but does not con- sume or transform, which labor can produce. This definition excludes raw material, which Is, In one sense, consumed; more properly, it Is transformed and passed on. It includes all improvements on land, but excludes unimproved land, or site. Depreciation. It Is the characteristic of capital, which distinguishes it from raw material, that labor aims not at its absorption and transformation into finished prod- uct, but at Its preservation unchanged. This last always proves to be immediately impossible. All capital suffers depreciation, or loss In value, by use or by mere owner- ship. Some of this loss is a function of time only, due PRODUCTION AND CONSUMPTION 21 to decay, the cost of protection from fire, robbery, etc.; some of it, such as wear and tear, occurs only as an inci- dent to Its use. Both forms of depreciation must be made good by labor as a part of its daily task in the production of wealth. Whether the process be actually carried out or not does not affect the result. For instance, if the labor in a given factory produces goods to the valuation of $1000 each day, and during the same day the deprecia- tion of the capital employed amounts to $100, the daily production of value really amounts to only $900. If the capital and the output be owned by the same parties, the depreciation may apparently be neglected and the goods sold for $1000; but the net increase of value to the com- munity is only $900, nevertheless, and cannot be disguised into anything more. Depreciation is that portion of the labor making use of capital which is exerted in the maintenance of that capital at constancy of value; It is an inevitable incident to the continuous prosecution of productive, tool-using labor. Although the emendations to the capital often enter the factory apparently as portions of current sup- plies, or even as of raw material, or are merely charged up on the books without concrete Incorporation into the actual property, — or although it may be impossible to maintain the property In constancy of value, owing to its becoming antiquated, — depreciation belongs neither to raw material, nor to capital, nor to interest; nor is it chargeable against any other account, than labor. It is labor's net cost incurred in using the capital, in preference to working without It. The real gain to labor due to its use is found by deducting from the apparent gain the depreciation.^ 1 Since raw material is equally chargeable against labor before any net production of value may be considered to have taken place, and since 22 THE COST OF COMPETITION Wealth. The purpose of the activity of the industrial and commercial organization of the country is the pro- duction of wealth. It is commonly supposed that this production of wealth consists merely of the activity of labor (using that term in its broadest sense) engaged in operation upon raw material with the aid of land and tools. If the situation be examined more critically, how- ever, it will develop that it cannot be so tersely described, with accuracy, even when assigning to the words their broadest significance. The word wealth is commonly defined as that which has valuation in exchange, and that definition will be adhered to here. Wealth is the concrete of which valua- tion is the abstract. But we have already drawn, as a fundamental idea, a wide distinction between Valuation and Value. Diamonds possess a high valuation, and con- stitute wealth of the most unquestionable sort; but they possess almost no value. A pure and ample water-supply, on the other hand, is of the very highest value for the support of human life upon any appreciable scale; yet the degree to which such a natural resource possesses valua- tion and constitutes wealth is, while existent, insignifi- cantly out of proportion to the degree to which it pos- sesses value. The water-supply is practically incapable of exchange, and is generally deemed not a fit basis for the development of pecuniary profit. Hence it falls mainly outside of our definition of wealth. Yet, In the selection of factors of fundamental Impor- tance, It was Value, and not Valuation, which appeared as the sole firm basis for the raising of either an economic philosophy or a nation. Therefore, since it does stand, both raw material (except in the most primitive cases) and depreciation actually made good are both crystallized forms of labor, depreciation will hereafter sometimes be classified as one form of raw material. But it is not really so, with perfect accuracy. PRODUCTION AND CONSUMPTION 23 as a present fact, that the universally accepted idea of the economic world regards its duty solely as the creation of wealth, and since it now appears that wealth and value are fundamentally distinct ideas, it seems all-important to investigate carefully the difference between the two. The natural program for this investigation is first to examine the process of the production of Value, and afterwards to turn our attention to the creation of Wealth, or Valua- tion. It will aid the clearness of this task if we reserve the familiar word " production " solely for the activity aimed at the development of Value, choosing other terms, in due time, to indicate activities looking toward the acquisition of wealth and therefore to be contrasted with what is here to be called production. Production Production. In the production of wealth by the addition of value to raw material, labor undertakes two sorts of processes, viz. : transformation and transportation. Transformration is the increase in the value of the raw material, by the alteration of its form: by its sorting, cleansing, grinding, burning, smelting, baking, molding, machining, polishing, painting, packing, etc., so that it possesses a greater potentiality for the support of human life than it' did before. Transportation is the addition of value to a com- modity by the alteration of its locality, without change of form. (The definition is purposely worded to exclude any alteration in the locality of a commodity which does not enhance its value, that is, which does not increase its 24 rHK COST OF COMPKTITION potentiality for the support of human life. Effort of this last sort will receive its proper classification at a later point in the analysis.) Although this definition is of the simplest form and although the industry of transportation is one of the most familiar to all observers, it is worth while to arrest atten- tion for a moment upon the magnitude and importance of this branch of production. The underlying idea is very simple. Iu)r instance, a bushel of corn grown in the center of an agricultural district, where there is a surfeit of corn, possesses very little value, ft frequently happens that its sole value is for use as fuel. In such case it is because all the corn which could be eaten, in that locality, has been eaten ; as food it has done all possible to support life; yet there remains a surplus in surfeit. If this sur- plus be transported to a mining or a manufacturing dis- trict, where there is a surfeit of mechanical labor but a dearth of natural food-supplies, without any alteration in its form or nature whatever, it becomes immediately of great potentiality for the support of additional life. This is the sole natural reason for the world's present enormous investment and current expenditure in steam- ships, railroads, wagons and horses, and their supplies, it is the one largest single industry of the world: for a large portion of the fixed factories of the land are really only accessory portions of our transportation-system, making steel ship-plates or railway-rails, marine or loco- motive steam-engines, upholstery for cars and cabins, navigating-instruments and tables, horseshoes, coal, sails and cordage, signals, what not. Add to this the wages of the millions of sailors, railroad-men and teamsters employed and the sum total is appalling. This entire current expense to the world must be made up and over- balanced by the gain in value due to mere change in the PRODUCTION AND CONSUMPTION 25 locality of the commodities handled, or It would not con- tinue to exist. Labor, In Its efforts at the transformation and trans- portation of material commodities, cannot work under the guidance of Its own intelligence alone. No amount of education may ever hope to effect that. The laborer may be most skilled In his work, but his task covers only a small portion of the total purpose to be accomplished. If he gives proper attention to his work he cannot also have a proper survey of Its relations to the efforts of others. He fails to develop the best judgment as to the most profitable kind and degree of effort to exert. He lacks proper perspective in viewing the relations between his own pet task and the needs of the rest of the community. Someone must be reserved from the duty of prosecut- ing the actual details of the work in order that he may retire to a little distance, obtain this needed perspective and cultivate broad-mindedness and judgment. He needs to have accurate observation of the peculiarities of the individual workmen. He must not fail In skillful appre- ciation of the external environment to the work. It will not do to let goods be produced which the public do not need or want. Fo.resight is also w.anted as to future alterations In this environment: to va*riations in supplies of raw material, to fluctuations In demand from the pur- chasing public. Such is the ofl^ce of Superintendence. To direct, coordinate and control the efforts of labor, in order to bring It Into a maxi- mum efficiency of subdivision of work and of agreement be- tween Inside possibilities and outside conditions and needs. The first and most perfect development of superintend- ence arose in connection with military operations, which 26 THE COST OF COMPETITION must be considered as one department of productive labor, so important formerly to community-life was common self-defense. The reduction of the community of military laborers to a maximum of efficiency, in so far as discipline and direction can do it, has never been surpassed, in degree or perfection, in any other line of work. All more modern forms of superintendence are but the off- spring of this more or less remote ancestor. Accountance. A department of labor which may or may not be reckoned as belonging to superintendence is accountance. Whether it is to be so classed or not makes very little difference to the true understanding of the economic system. On the other hand, it is quite essen- tial to such an understanding that clear distinction be drawn between two sorts of accountance, one of which is properly to be classed as a sort of productive labor and the other as something quite different. The first sort is that which accounts for the things produced: the shop- order book, the stock-list and the shop-cost accounts, etc. Definition of the other sort of accountance will be deferred until later in the analysis. Design. A modified form of the direction or super- intendence of labor is that of design. When it borders upon the artistic it of course calls for a very different species of ability from that best adapted for true superin- tendence. Yet the need for it lies very closely in the same class, and in the following pages no further distinction needs to be drawn between the two. Design includes the work of the artist, the engineer, the chemist, the author, the educator and the drafter of proposed laws, as well as the lower orders of current conventional design. Invention. When the design lies in a field not pre- viously trodden it is called invention. The questions PRODUCTION AND CONSUMPTION 27 involved In the special value to be assigned to novelty of invention, to secure which to the inventor is the object of the patent-offices of the world, will not be entered upon between these covers. It is an important field, but it is irrelevant to our main purpose. Excluding these con- siderations, then, invention reduces to merely one depart- ment of design, that is, to one sort of superintendence. Such is the complete skeleton of our system of produc- tion. There has been as yet no discussion of Methods with which to clothe the skeleton with flesh and form, but otherwise the structure Is complete. The original raw material from the earth undergoes transformation at the hands of labor. Not all of the transformation being accom- plished in one locality, nor any of it in the place of con- sumption, transportation is added: at first from hand to hand, then from factory to factory, finally to the con- sumer. In bath processes labor makes use of capital, or tools, the current depreciation of which It must make good as it goes. In both processes It receives direction from superintendents, designers and inventors. These things together ^ land at the door of the Consumer what he absorbs in the maintenance of his existence. From the original mine or field or forest to the finished package laid in the hands of him who permanently destroys it, by its absorption in the support of human life and not by its transformation into other things, is the field of Pro- duction. It is most important that this field of activity be not confused with any other class of human-effort here- inafter to be introduced Into this scheme of analysis. Therefore the following schedule is presented, to display clearly its several parts in their proper relation to each other and to define them accurately In their segregation from all other industrial or commercial activities: 28 THE COST OF COMPETITION PRODUCTION = the Transformation plus the Transportation of Raw Material, viz.: Stock and Incidental Current Sup^ plies; From the Natural Source, viz. : The Field, The Forest, The Mine or The Sea; By Labor, viz. : Productive Labor proper, Unskilled and Skilled; Labor devoted to over- coming Depreciation, and Superintendence^ includ- ing: Organization and direction of the actual effort, Design, and Invention ; With the use of Capital, viz. : Improvements on Land, Buildings and all Tools, including both Hand-Tools and Ma- chinery ; To its Natural Destination, viz. : The Ultimate Consumer. PRODUCTION AND CONSUMPTION 29 Consumption If a closed community be Imagined, that is, one carry- ing on no trade with other outside communities, the pro- ducers would all be consumers also, each individual con- suming what some other Individual produced. Such a body politic would maintain Itself In perfectly continuous operation, without any aid from any accessory process, activity, organism or source of energy whatever, with- out or within, so long as the supplies of original raw material: the mines, the fields and the forests, held out. Such a self-supporting body politic. In essential. Is each state. Foreign trade may come as an addition to these activities, broadening, enriching and elevating the national life above what it otherwise would be. Other internal activities may be added to the purely materialistic ones just listed. These may be good and wholesome, and if so they may be classed merely as another sort of pro- ductive labor; the terms production and consumption may then be expanded to Include the less tangible forms of life-support supplied by religious, artistic or scientific inspiration. Or they may be evil and destructive, and therefore never to be classed as productive. But what- ever addlton of the latter sort may be necessary In order to completely include all social activities within our category, it is plain that the former classification Includes and exhibits all which may In any wise be regarded as the basis of the community-life. At the bottom, as its foun- dation, the state must be what has just been defined. However momentary exaltation or dementia may thrust up some short-lived peak of attainment above the mean level of life-support, the stable surface of natural life may never, under the law of the conservation of energy, hope to rise permanently and in equilibrium above the 30 THE COST OF COMPETITION level to which it is nurtured by its own current Produc- tion of Value, as just defined. Lower than this it may be, ft is true. Moral obliquity on the part of the individual, false religion, false law, false public opinion or a racial unfitness to environment on the part of the community, may slur the natural result to be expected from the metab- olism of this current supply of Value. The efficiency of transformation of economic into biological energy may be, and no doubt usually is, less than unity. But no imaginable force may ever make it greater. The sole measure not only of the economic but also of the political and ethical strength and independence of a country is the extent and the skill with which the aggregate process out- lined above is carried on. The nobility and purity of its life depends upon the degree to which all extraneous, vitiating activities are excluded. It alone produces Value. It alone contributes to the body politic the various foods upon which all current existence, — all work, all play, all genius, all patriotism, — maintains itself and upon which all growth, of whatever sort, is based. What a country lacks of Production, as defined above, it fails of real existence, is become a pretense and a parasite, fed by others and reveahng their strength, not its own. No claim may it lay to the nobility and divinity of life, except as may a fossil shell which still reveals the beauty of a life that is past and gone, or as the tottering impotence of a senility which mankind protects and reveres for what it has been. What a country possesses over and above material Production may be more complex or more deli- cate, or at least more highly esteemed; but it is all the fruit, the foster-child, the slave, — the dependent or resultant, under what name you please, — of Production: fed by it alone, rising possibly when it flourishes, dying certainly when it falls into decay. PRODUCTION AND CONSUMPTION 31 Exchange. The value which each laborer in such a productive community consumes in support of his own life is that, or a portion of that, which he has himself pro- duced. Originally, in pioneer life, this was literally so. Everything which the individual possessed was wrung from the soil by his own direct efforts. He cleared the land, built the house, raised crops, chased game for food and maintained flocks for the manufacture of cloth- ing; the housewife performed all sorts of productive operations now relegated to the factory. ^ To-day all this is changed. Each man specializes upon the production of one thing and produces that one to an amount which would constitute an enormous surfeit, were he and his family the sole consumers of it. But to-day universal Exchange enters, whereby he is enabled to trade the bulk of the special thing which he produces for the product of other laborers' toil. But what he receives and consumes is none the less the value which he himself produced, although it may not be the identical article. While he has exchanged forms of value, he has not altered amounts; he cannot get something for nothing. What he gives must be the equivalent in value of what he gets. Unless he has produced value he cannot consume value. Therefore let all fiction regarding the income of pro- ductive labor being drawn from capital, or of its being presented by employers, be forever sunk into oblivion. The laborer, unless he be interfered with, gets what value he produces. He gets it because he produces it. No complexity of method may ever alter or more than dis- guise that fact. He produces it because he wants it, for 2 In all such economic discussion the family appears, of course, as a unit, represented by the father or other male head. It is also to be noted that this method of life has now gone irretrievably from us, by a progress in the arts and sciences which cannot be reversed. 32 THE COST OF COMPETITION consumption in support of life. The opportunity to do these things ; to produce and to consume is a part of Life. Where it comes from does not concern Economics. It is commonly accepted that God gave it, with all the respon- sibilities and privileges appertaining thereunto. If the life and the privilege of living be ever found to have been separated, it is because man has sundered what God had joined. The income of value enjoyed by Labor, therefore, is what it produces, or some part of it. Accident or design may make the income less than the total amount pro- duced, by the destruction or abstraction of some portion. Nothing can ever, by any possibility, make it greater, — except, of course, by the gratuitous addition to it of some- thing taken from some other fraction of the laboring body. Productivity. The current amount of value pro- duced by an individual or a class or a community, or its rate of production, is called its productivity. It can occur only as a result of activity of some of the sorts already listed as together constituting Production. Wages. The portion of its productivity actually re- ceived by an individual or a class is called its wages. Wages might, and theoretically ought to, equal produc- tivity. In actuality it is always something less. The ratio of wages to productivity, for an individual or a com- munity, will hereinafter be known as its earning efficiency. From the above it is plain that the term wages covers the income of all of the different sorts of activity listed under Production. With many of these sorts the actual payment, in real life, is known as salary. Such is the case with most superintendence. With other sorts it is known as professional fees. Such is the case with medical prac- PRODUCTION AND CONSUMPTION 33 titioners, for Instance. They fall, in economic analysis, under the head of skilled labor; that is, they produce value and they produce it by their own exertions, not by those of others. The economic idea of wages, therefore, is far different from the popular, but loose and useless, idea of the term: of a dollar or so per day paid to an ordinary laborer, or even of five times that sum paid to a skilled manual operative. The economic term wages makes no distinction whatever between mental effort and brute strength; It relies solely upon the fact that the wealth received comes as a return for effort expended in the production of value. Consumption. Where these processes which we have just defined collectively as production end. Consumption begins. There is no natural interim. Everything in the nature of the transformation or transportation of material previous to its actual consumption (except trans- portation, which does not result in increase of value) must be regarded as existing solely for its sake. The necessity of consumption in order to maintain life is the sole economic reason for production. That which does not alter the form or character of the article itself into a greater potentiality for the support of life, or in moving it really toward the Consumer, is not aiding in satisfying Consumption and cannot be called a part of Production. This sweeping statement will receive much more atten- tion and support later in the argument. It is announced here in order to attain accuracy of definition and to draw preliminary attention to an all-important but universally neglected distinction. Further, the Consumer must not be confused with other economic classes by including under the same term the Purchaser. The purchaser is not a consumer unless he 34 THE COST OF COMPETITION consumes, unless he purchases solely for his own consump- tion, for destructive biologic absorption, and not for fur- ther sale or manufacture. To-day the great majority of purchasers represent not only intermediate, incidental steps in the great process of Production, but they represent activities which are not even incidental thereto, but which occupy a quite distinct class because evincing a quite dis- tinct nature. Ill SPECIALIZATION AND COORDINATION FROM the bare essentials of the process of produc- tion attention may now progress to a considera- tion of its parts and of the method of their inter-relation. Modern methods of production not only illustrate, but they are fundamentally characterized by, a law, a pro- cess, which runs continuously and insidiously through all forms of organic existence. Not only are all economic processes based upon it, but all other organisms than the economic body politic exemplify it. In its broadest sense, in their animate activities. So universally does this law underlie all natural phenomena, including, therefore, all economic phenomena, that it Is necessary to devote to Its discussion this separate chapter. All through the current work it will be referred to and exemplified repeatedly. Only when this argument Is finished will the reader pos- sess the writer's sense of Its importance in economic thought. This law Is that of coordination and specialization. It can be defined best by illustration, and for this pur- pose it must be reduced to its simplest possible form. To this end will be appropriated Mr. Walker's familiar illustration of the typical primordial economic society: the supposititious colony of fishermen abiding upon a rocky shore and relying solely upon the sea for Its food-supply. It Is to be supposed that It possesses no boats nor other implements of its trade, except the simplest hooks and 35 36 THE COST OF COMPETITION lines. In It the head of each family must be regarded as supplying by his own labor all of the wealth consumed therein; and that wealth must consist solely of fish. Under these primitive conditions of production man would be subject to the maximum of hardship and of uncertainty of existence and the minimum of comfort and ease. The natural expansion of population would soon bring life into sharp contact with that limiting law of primitive existence. The Law of Diminishing Returns This law, stated most briefly, covers the fact that, as increasing supplies of labor are expended upon a given natural field of effort, the return to each additional laborer becomes inevitably less and less; that is, on any given fish- ing-waters, or hunting-ground, or tillable field, or natural opportunity of any sort whatever, the greater the amount of labor or the greater the number of workers on that field the less must be the return per unit of labor. The first comer gets the most fertile portion of the field or raises that amount of grain which grows with the least attention; perhaps, as In savage life, using only that which grows without any cultivation. Each additional bit of labor is spent in forcing from more and more reluctant soil a smaller and smaller response In fruit. In the present Illustration, in the colony of fishermen, the best fishing-grounds would soon be monopolized or fished out. Less productive ones would have to be resorted to by the later comers, and as the community grew In size the average production of fish per man would grow steadily less and less. Moreover, from the adver- sity of variation In natural condition of environment there SPECIALIZATION AND COORDINATION 37 would be no shelter. When fish were plenty all would be well; but when fish were scarce the population which had been allowed to come into existence by the previous plenty would have no other recourse than to starve. Finally, a diet so narrow as an unvaried one of fish, even in plenty, would be quite inadequate to support a grade of life higher than a very low type of savage. Nevertheless, for the sake of clearness of analysis, it is to be supposed that primarily these people had nothing to eat but fish. The conditions which are thus illustrated in their simplest form, if assumed to apply to the whole of modern society, with its complex organization, would place it approximately in the same precarious, uncomfortable and primitive condition as to its food-supply that weighs upon savage life. The only difference would be in degree. All that is necessary for this assumption is to suppose the exaggeration of the law of diminishing returns to cover every form of raw material, instead of a single one, and the most civilized society must stand face to face with more or less complete famine at all times. The devices of scientific production for meeting this state of affairs: the invention of more rapid and efficient machine-methods as a substitute for hand-labor, the accumulation of stocks, the development of cold-storage warehouses, etc*, could never hope to do more than modify this rigorous fate, never to remove it. So long as each man should confine his efforts to the supply of his own wants, and his methods to those of his neighbors, no matter how rapidly all might improve their methods simultaneously, the community must always find itself periodically face to face with famine. This assumption, backed as it is by the more than super- ficial evidence that this is just the situation in which even civilized humanity finds itself, has actually been made and 38 THE COST OF COMPETITION formally enunciated, now nearly a century ago. It received prompt and wide adoption, under the name of the Malthuslan doctrine, after Its propounder, Mr. Mal- thus. Translated into the most general terms, to fit broadly all occasions, this doctrine may be stated as follows : That population tends to increase with a geometric ratio, while the increase in total productivity is not pro- portional to it. Hence, the growth of population expands against the limits of food-supply as a balloon against Its net, and must perforce burst its bounds in ugly waste of life In ** war, famine and pestilence." This doctrine fell upon the public ear at a time when British labor-agitation and factory-legislation made It very acceptable to the privileged, and hence conservative, classes. It was hailed as conclusive proof that the horror of a ** surplus population " was Inevitable, that It was from the hand of God, and that legislation looking toward its modification or amelioration was therefore futile and absurd. This attitude and doctrine have survived until the present day with surprising tenacity. The privileged classes love the doctrine, because it frees their conscience from pressure toward the modification of their privileges. The doctrinaires love it because it Includes a reference to the great, underlying law of all human existence, of all organic existence, in fact, which has not yet attained its zenith and become mordant: That the natural force of growth will always press against the natural limitations of free growth until pain results. But this broad law has never broadly justified the artificial perpetuation of unnecessary pain. Man's instinctive revolt against suffer- ing on the part of his fellow-man has proven more accu- rate, in experience, than has the half-work of pure intellect. SPECIALIZATION AND COORDINATION 39 For a broad glance over the past shows that every atom of accumulated history, taken in Its proper relation to the rest and not piecemeal, gives the denial to the broad and exclusive applicability of the Malthusian doctrine. The average Individual productive power has too obviously increased, and not decreased, taking all classes Into account, with the passage of the centuries. The average activity of famine, pestilence and war in human affairs is steadily on the decline. No party is so vehement In urg- ing that wages and standards of living are higher to-day than ever before as is the laissez-faire school of conserva- tives; yet they are the very ones who cling to the Mal- thusian idea with the energy of despair. The suspicions which are aroused by these fundamental discrepancies between the facts of history and the Mal- thusian doctrine are rapidly aggravated when inquiry is made Into the basis for its projection. This basis is the assumption that the law of decreasing returns may prop- erly be applied to modern economic society as a whole. Let us Investigate the validity of this assumption. The effectiveness of the law of decreasing returns depends absolutely upon one assumption in the premises, viz. : That each additional item of labor expended upon a given natural field of opportunity shall take up the same task in the same manner as that already at work. The newcomers must use the same tools and the same methods as those already in use.^ The raw material must pass through the various pairs of hands in parallel, as the 1 The reader is to note most carefully that improvement in method, by the application of inventive science, is no answer at all to this situation, except in so far as it may aid one individual or class for a short period of time. So soon as the improved method has become a matter of general adoption the situation is just what it was before the invention was made, as to the jeopardy of life and happiness. A larger population has sprung into existence and enjoys that jeopardy, but that is the sole gain. 40 THE COST OF COMPETITION electricians say, dividing itself between them quantita- tively. Under this assumption, and this only, the law holds true and the resultant famine and pestilence ensue. Fortunately, this is an assumption which is warranted in the current history of modern industry only in a semi- occasional and microscopic way. Instead, it has always been true that, upon any field of effort whatever, so soon as the natural increase in population thrust upon that field an amount of homogeneous labor which, by the law of decreasing returns, exerted an appreciable pressure upon the workers (political liberty being assumed to exist) , that body of labor split itself up into a number of cooperative departments, each concerning itself with only a single portion of the task. From a state of homoge- neity it became heterogeneous. Under such conditions the raw material would pass through the several portions of the laboring body in series, instead of in parallel. Within each portion, of course, the work would be divided in parallel, according to the number of individuals composing it, and within that portion the law of decreasing returns would remain in full power. But to the now composite body of laborers as a whole it would no longer apply. Between the several departments conditions would be quite different. Each department would specialize itself upon its separate por- tion of the task and devote itself solely to it, and the only limit to the extension of this process lies plainly in the number of workers. Only when each individual has become a specialist, constituting himself an entire depart- ment of the community's work and developing his own special methods, will the specialization be complete. From such specialization great gain in efficiency would ensue. It would be derived from two sources: SPECIALIZATION AND COORDINATION 41 (i) Economy of Time. The losses of time inciden- tal to preparation for and cessation from work, both of which are incurred when change is made from one to another sort of labor, would be then reduced to a minimum. (2) Increased efficiency of individual effort, due to the skill which results from long-continued practice at one simple task. The illustrative community of fishermen has purposely been restricted to such simplicity that the process of sub- division and specialization of labor there finds very little opportunity for application. Nevertheless, even there it is obvious how great would be the increase in the pro- ductivity of the entire community if, instead of each man doing for himself all of the different sorts of thing involved in fishing, quite independently of the rest, the three distinct tasks: (i) securing bait, (2) fishing and (3) transporting fish and bait along the shore, were allotted to three separate subdivisions of the laborers. The gain would obviously be most marked. Under these narrow limits of possible complexity of industry the population would soon expand to a compres- sion against the limits of opportunity as painful as it was originally. But this is only because of the artificial limitation of complexity, to a three-part form. If, on the other hand, inventive effort is supposed to enter, bringing with it canoes, dories, trawls, nets, schooners and steamers, each used by separate tradesmen In a specialized way, the progress toward the opulence of to-day is obvious. Nor Is this advance at all due to the ingenuity of the Inventor and the efficiency of these more complex devices. To appreciate the truth of this statement imagine the modern fishing-gear completely In existence, but suppose 42 THE COST OF COMPETITION each fisherman compelled by law or his own ignorance or bigotry to do all of these several tasks himself, not subdividing them and cooperating with his fellows, but each man doing everything Incidental to the transfer of the fish from the sea to the table: securing his own bait, making his own lines and nets, propelling his own boat, catching his fish and peddling his catch on shore. Plainly not a fishing-steamer, not even a schooner or a sloop could leave port; hardly could a net be cast, or a trawl be set and run. Fishing by hand-line would be the only method available; ten miles from market would be the maximum radius of operation. ^ 2 The law, if it be stupid enough, may do this very thing, may prohibit labor from coordination and specialization to the fullest extent possible with the tools already existant. It not only may do it, but it now does it, in an equivalent which diflfers from the illustration just presented only in the greater magnitude of its power for mischief. Massachusetts, for instance, boasts the finest industrial laws in the world; yet its statutes throw every possible obstacle in the way of its citizens cooperating with each other to the greatest possible degree, by their discouragement of com- bination. In Worcester, for example, the interurban trolley-traffic with Leicester and Spencer was forced for years to travel along a crooked, slow and most unattractive back-route paralleling the straight Main-Street line to the center of the city, simply because the motormen of the Leicester cars were forbidden to cooperate with the operatives of the local city lines by using the same tracks ; because, forsooth, the two sets of men were employed by different competing companies. Since legal permission to consolidate was obtained and the competition has died out, the back-route has been used only by small cars running thrice hourly. There was no natural reason whatever for any through traffic passing that way. Yet for years a large volume of passenger-traffic was artificially compelled by law to go by that route. How many hours of aggregate time and how many foot-tons of nervous energy for how many people were wasted for the community during all those years no one will ever know. What good the citizens ever got from this duplication of managing companies and the competition between them no one can say. The price was the same under both plans — or even higher, considering the absence of transfer- privileges, under competition — and under competition the service was very much the poorer. Yet this state of affairs was thrust upon us by Massa- chusetts law and supported by Massachusetts public opinion. Every reader, whatever his locality, can parallel this illustration for his i SPECIALIZATION AND COORDINATION 43 The only opportunity for the further development of specialization by the primitive community of fishermen in illustration would be that by the Introduction of super- intendence. Each of the three departments: of bait- supply, fishing and transportation, respectively, might prof- itably allot to one man, with assistants, the duties of fore- man. There would also be need for a central bureau of communclatlon between the three. This would very con- siderably widen the opportunity for specialization, from a three-part to a seven-part form. By this added super- intendence, too, invention would find its natural and easy path for entrance. In the organization thus outlined would be visible, for the first time In these pages, the modern factory-system. Under any such system the characteristic of its method of Organization is that It involves (a)^ The subdivision of the total available fund of labor into parts. (b) The specialization of these parts upon their sev- eral tasks. (c) A truly cooperative coordination of the parts into a concrete, organic whole. This subdivision and speciali- zation may be carried as far as the complexity of the com- plete task or the number of laborers permits. Either may constitute the limit. In the latter case, of course, each department would consist merely of a single laborer. Under these conditions comes into operation, in place own district. The entire American express-train service on the steam- roads, of which we boast superiority over the rest of the world, has been rendered possible chiefly by the consolidation and cooperation of the myriad of little roads of fifty years ago. There is hardly a mechanical device which now contributes to speed, comfort and safety in that traflic which would still be profitably available were these consolidations to dis- solve back into the multiple independent managements of, say, 1855, when it took five changes of cars and a long day's hard labor to travel from Boston to New York. 44 THE COST OF COMPETITION of the Law of Decreasing Returns, as the total fund of labor increases, The Law of Increasing Returns That when any two or more laborers at a given task jplit up that task into two or more distinct and different portions, upon each of which a corresponding portion of the available labor-force concentrates its efforts and atten- tion, the average individual productivity of the community is increased, in proportion to what it was previously , by a ratio consisting of some geometric power of the number of subdivisions of the task. This law may be given simple mathematical statement in the following form: If P^ be the average total pro- ductivity of a community where the general body of pro- ductive labor is partitioned into m subdivisons, and if a be a coefficient, then F^am'' .... (1) Since the average individual productivity is the average total productivity divided by the industrial population, then, if « be the number of workers, and p^ the average individual productivity, V P' ^' (2) n n But these equations can hold true only wh^e « is a con- stant or else where the natural opportunity is so wide, as, for instance, in a virgin continent, that ordinary increase in the population feels no action of the law of decreasing returns. The effect of the law of decreasing returns under a pressure of increasing population against the limits of SPECIALIZATION AND COORDINATION 45 natural opportunity may be expressed as follows: If P'' be the average total productivity of a community where the general productive task is subdivided between the several workers in parallel, where n is the variable number of workers and consumers and b is 3. coefficient, then F'^bn' . . . . (3) If />" be the average individual productivity under such conditions, f=?l = bf^-^ ... (4) n If p be the average individual productivity under a variation of both industrial population and of number of subdivisions of task, that is, the degree of specialization and cooperation being a variable and less than complete, then p = ab m" n''^ . . . (5) If It be assumed that the degree of specialization possi- ble is determined by the population, the number of sub- divisions tending ever to increase with the population until the number of workers within each subdivision re- mains at a fixed average, which seems to be the condition of equilibrium in the face of economic, inventive and populative growth, then, c being the reciprocal of this minimum number, m =^ en . . . . (6) and p=ab €"7^'^-^= Cff^y^ . . (7) In this equation C would be a constant for any known social configuration, as would also h^ x -\- y -^i. In the actual economic society, where all conditions are constantly fluctuating, the general equation (5) is of 46 THE COST OF COMPETITION course the only one which may apply with accuracy. Nevertheless, it is broadly true that the statements made in equations (6) and (7) do apply approximately. From the data at hand it is impossible to assign to the exponents x and y any values at all exact. Indeed, they are neither of them constants. But from the form of the equations, from the verbal statement of the Laws of In- creasing and Diminishing Returns and from our general knowledge of public facts, the following observations may be laid down with confidence: ( 1 ) The value of x must be a positive quantity, usually exceeding unity. (2) The value of x will be a maximum when w is a minimum, and will always be an inverse function of m. That is to say, the first subdivision of a homogeneous community into specialization does the most good. Further subdivision and specialization accomplishes less and less. This statement, it must be noted, assumes a stationary condition of inventive science and, therefore, a fixed field for differentiation. But each step in advance in technical science increases the complexity and hetero- geneity of industry, and hence opens a new gate to the profitable expansion of specialization and coordination; that is to say, a fresh chance to increase m without de- creasing X, Thus the value of x can remain positive until the number of subdivisions has equalled the industrial population, beyond which limit it is physically impossible to go. While this last statement may be strongly ques- tioned, from the evidence of existing industrial conditions, yet it will develop, before the anaylsis is finished, that the present limitation of the indefinite increase of the variable m is not due to the fact that x naturally becomes equal to zero, but to the fact that another and quite distinct factor of inefficiency enters to cancel and conceal its effect. II SPECIALIZATION AND COORDINATION 47 (3) The value of y must be positive, but less than unity; for it is clear that while an increase in the popula- tion, under a fixed regime, must increase the difficulty of production, yet the difficulty does not increase in full pro- portion. Each increment of population does succeed in finding some addendum to the natural resources of the community which, even if decidedly less than the average resources enjoyed by all of the individuals who have pre- ceded him, is still only slightly less advantageous than that enjoyed by the one individual who next preceded him in the search for opportunity. ' (4) The value of y must remain positive, to whatever extent the population may increase, at any rate to any limit now visible to the imagination. For even if it be true that the civilized world, in its occidental expansion of population, has now swung completely around the globe and has begun to feel a rigid limit to the further expansion of its geographical footing, yet the one signifi- cant fact of the times is that scientific and inventive re- search is daily becoming more rapid and effective in its progress, opening ever wider fields of natural resource quite distinct from the geographical; while at the same time a topic of the day of growing importance is the rising fear that the rate of increase of the population is in danger of decline. While it will be shown later that the latter is an incidental, instead of a fundamental, factor, yet the former is not. It may be expected to grow more effec- tive with the progress of the centuries. (5) All this being so, and consequently the value of y — being ever negative In value, it is plain from Equa- tion (5) that, under the normally existent condition of affairs, any increase in the value of n, or in population, must decrease the average individual productivity by set- ting into operation the Law of Decreasing Returns, while 48 THE COST OF COMPETITION any Increase In the value of m, the degree to which the process of specialization and coordination Is permitted to enter, sets Into operation the Law of Increasing Returns, to the elevation of the average Individual productivity. The first Is an increase In the number of workers working in parallel; the latter Is an Increase In the number of work- ers working in series. (6) The net value of the exponent x -\- y — i will depend, of course, upon the departure of x and y from the mean value of \- When they average that quantity In value the value of the exponent will be zero, and the aver- age individual productivity will remain stationary under fluctuations of population and method; when they are higher In value the Individual productivity will Increase with the population; when they are less In value the Indi- vidual productivity will decrease with the expansion of the community. The natural tendency of progress. In the face of human nature and Its limits In Intelligence and adaptability, is for n to Increase alone, m remaining a con- stant and c decreasing In proportion with n. But this line of progress develops diminishing returns and places life under uncomfortable pressure. While not taking the position that this pressure urges the Individual directly and consciously toward specialization. It can be stated un- hesitatingly that the agitation resultant from this pressure Indirectly develops specialized methods, which then sur- vive as the most fit; while the pressure does directly urge the individual away from the attractive freedom of Inde- pendent action and lead him to subject himself to the restraints of cooperative specialization. In both ways, therefore. Increase of population leads to a loss of eco- nomic equlllbrum which Is regained only when m increases with n and c remains a constant. In this connection, too, it is Important to note that the SPECIALIZATION AND COORDINATION 49 value of X Is greater the greater Is the dissimilarity of the several parts Into which the total Industrial task Is sub- divided for specialization. It is naturally greatest when the subdivision is first undertaken, growing less and less as the subdivision becomes more effective and the differ- entiation of task from task approaches the possible limit. (7) It is of the utmost importance to note that the limit to the degree of specialization which has been effec- tive in history has seldom or never been the physical or natural one. In the various countries and at various times the social Institutions inherited from the past, exist- ing in the form of law, custom and popular prejudice, ex- pressed through religious rule or doctrine, caste-law, established class-privilege, monarchical oppression, or through mere fixity of mental temperament, have sepa- rately or together confined the possibilities of altering the methods of an established industry, or of introducing a new industry, far below what they otherwise might have been. With the progress of human Intelligence and lib- erty throughout the centuries this limitation has ever be- come more and more elastic and has given way more and more readily to the pressure of individual enterprise. In our own country and times this combination of geograph- ical, political and intellectual liberty is apparently greater than at any other time or place. In consequence, the ex- pansion of the process of specialization and coordination, and the resultant production of wealth, have become phenomenal. Yet it Is to be noted here, as already stated, that the bars which hem this expansion of method from its natural limits are not yet all down. One institutional one of great force and rigidity remains unassailed. To dis- cuss the nature of this bar is the office of later pages; but for the understanding of these present ones it is sufficient to keep well in mind this fact. 50 THE COST OF COMPETITION (8) It is finally of the utmost Importance to note that when the conditions exist for the operation of the Law of Decreasing Returns the arrival of each additional member to the community, whether by birth or by immigration, stands as a detriment to the welfare of those already there. Under conditions which would force the Law of Increasing Returns into operation the opposite would be true : each additional arrival would ameliorate the lot of life for those already at work. While the effect of any single case, in a community of appreciable size, would be invisible, yet sooner or later the phenomenon must become publicly felt. It will then find expression in a myriad of different ways, chiefly of ethical import: in a body of law and public opinion antagonistic to and hypercritical of those appar- ently " crowding in " In the former case, or a public atti- tude of welcome to all without question in the latter. Between these two Laws: of Increasing and Decreas- ing Returns, respectively, although in their opposite ex- tremes they bear the strongest possible mutual contrast as to their effect upon the fortunes of mankind, there is no sharply visible dividing line. Mathematically the division Is sharp : values for the exponent x -\- y — i above zero proclaim increasing, those below decreasing, returns. But in actual life there is no method known as yet for ascertaining what is or what will be the value of the exponent, except the purely empirical one of cut-and- try experience. Both variables, x and y, are at work at once. The population Is ever increasing; so Is the com- plexity of all industry. We do know, however, that the greater the complexity of the total task and the greater the freedom to develop its possibilities by substituting scientific methods of combination and cooperation for the old-fashioned parallel and uncommunicative, or even SPECIALIZATION AND COORDINATION 51 jealous, independence, the greater will be this exponent which measures the geometric ratio of increase of individ- ual productivity and welfare with growth of population and material knowledge. The scientists and inventors are caring for the growth in physical complexity needed to permit a constantly increasing degree of specialization; let the legislators look to it that they supply the requisite freedom for following up this opportunity with a corre- sponding growth of cooperative coordination. For spe- cialization, without coordination to a single undivided end, is both useless and impossible. The actual operation of the Law of Increasing Returns is so obvious upon every hand that it seems needless to call attention to it. Not only is every factory, with its little army of cooperative workmen, its multitude of departments and its complex refinement of organization an example of its truth, but the entire circle of factories, industries, trades and professions, organized, specialized and correlated by the interdependence of the natural forces with which they deal, is another and a greater one. Each step in the progress of modern science expands in extent and develops in intricacy the net of mutual attrac- tions between the erstwhile independent industries. In fact, the entire aspect of modern, international civiliza- tion, from the world-circle as a maximum down to those little individual groups of workers wherein subdivision is impossible, as a minimum, is nothing but one vast illustra- tion of coordination and specialization, with the resultant creation of increasing returns to each worker with each advance In complexity of differentiation. Just as it has developed the fishing-industry from the primitive hand- line and spear to the modern fleet of high-speed schooners and steamers, so has it brought all other industry from the days of the pioneer jack-at-all-trades, with the household 52 THE COST OF COMPETITION spinning-wheel, loom and shop, to the present magnificent intricacy of organization and perfection of output. In- vention is not what has done it. Invention has done its share; but the most skilful invention, without co- ordination, is as helpless toward accomplishing it as is the discovery of new supplies of raw material. Each of these accomplishments, in its every detail, has lain equally latent throughout the ages, awaiting the day of that advance in civilization which might make it profitable for them to come forth. Every single invention has appeared before man was sufficiently coordinated properly to make use of it, just as each form of raw material has been dis- covered before full knowledge of Its potential value was attained. What both have waited upon has been the advent of the political and intellectual freedom of man, his emancipation alike from oppressive law and repressive bigotry, to make possible those changes in his methods which might develop these- bare potentialities Into profit- able properties. For instance, our Americaa bridge-builders, working In India with native labor, found that whereas each Amer- ican workman is ready, upon need, to take up any job on the construction, each native Is prevented, by caste, from doing more than one thing. The resultant inefficiency may be imagined. Thus, in India, Is progress In pro- ductivity chained down by caste. Here in America we have no rigid caste; but our progress in productivity Is perceptibly hampered, nevertheless. We are shackled by both written and unwritten law : by the fear which lies In nearly every man's heart to adopt methods truly coopera- tive, because they may be novel, and by the public statutes which embody that general fear in the law of the land. IV EXCHANGE IT has been pointed out that the grade of life possibly attainable in the illustrative seashore colony which subsisted solely upon fish could never be anything more than a very low one. The reasons were : ( 1 ) The brutal effect upon the population of every variation in the natural supply of raw material : of inevit- able famine when fish were scarce, of no alternative to gluttony when they were plenty ; and (2) The depressing effect of mere monotony of existence. Let it be supposed, however, that the situation is im- proved by a treaty of peace with an inland tribe of hunters, who bring to the shore game which they are willing to exchange for fish. The gain here is manifold on both sides. In the first place comes a purely biologi- cal gain, under the natural law that diversity of envi- ronment (in this case, of diet) leads to diversity of talent. In the second place, the natural irregularities of food- production are somewhat smoothed over. When fish are scarce game is apt to be plenty, and vice versa. More- over, in times of such scarcity of fish It would naturally result that the difficulty of obtaining the few fish would lead to a high price for fish in terms of game, and the few fish of the fishermen would bring them in much more nutriment, In the shape of game, than if exchange had been impossible. The same Is true of the hunter in the case of 53 54 THE COST OF COMPETITION a game-famine; for the chances are doubly against the simultaneous occurrence of famine of both fish and game. Again, when fish are plenty, instead of their being wasted by a population unable, even in savage gluttony, to enjoy more than a portion of them, it becomes possible to purchase with them supplies of game of a more rare sort, coming from distant and inaccessible localities and considered as a luxury. The biologic response to this step In evolution would be prompt. The standard of living would be elevated, as regards both security and diversity of life, the two corner- stones of civilization. Exchange. Thus is added, to the processes already listed as together constituting Production, Exchange. Exchange occurs as a connecting link between the several steps of specialized production, and also between produc- tion and consumption. The pure process of exchange, as the word will be strictly used in these pages, involves the two following activities, and no others: (i) Mutual transfer of ownership between two co- operating Producers or bodies of Productive Labor, or between Productive Labor and Consumer, for the purpose of mutual benefit in obtaining thereby an article better fitted for consumption by each, either as raw material for the further production of value or in actual consumption in the support of life; for these are the only sorts of trans- fer between Individuals which can result In an increase of Value to the community; (2) Accountance or record of the above. The value of exchange is to be expressed In the same language which was applied to transportation. The two are practically Inseparable. In some cases transportation occurs without exchange of ownership, as does also ex- change without transportation; but such cases are In the EXCHANGE 55 minority. Yet the difference in nature between transpor- tation and exchange should be kept clear and distinct. Transportation is valuable In that It alters the natural en- vironment of the commodity: corn surrounded by corn- fields is of little value ; that same corn surrounded by fac- tories or coal-mines becomes of great value. Exchange is valuable in that It alters the human environment of the commodity. When bread passes from the possession of a baker to that of a shoemaker It gains in value ; but bread sold from one baker to another is still, supposedly and naturally, surrounded by a surplus of bread and no gain in value ensues.^ Since the great majority of people maintain a permanent locality of residence, transportation usually means change of ownership as well as change of locality. But It is the question of alteration of environ- ment which establishes the gain in value or the lack of It. Without perfectly free exchange between the several subdivisions of laborers specialization cannot be effective, nor even effected. Its very existence Is coupled with the word coordination. No community can develop the value lying dormant in Its latent potentiality for specializa- tion and coordination unless it removes absolutely all obstacles from the path of exchange. It Is by this means that the splendid system of special- ization visible in our modern factory-system has been brought about. There the coordination Is the most per- fect devisable. No obstruction to the freest possible ex- change is permitted. Not only do the pattern-shop, the 1 Here is visible one of the inconsistencies of the commercial market. On 'Change, if wheat be sold to one already possessing a surfeit of wheat, giving him a "corner," the price is increased. There is, however, no in- crease in value to justify this rise in price. When the market "breaks" and those possessing a surplus of wheat begin to sell, the value released to the community is obvious; but the price of wheat, instead of being increased by its increase in value, is decreased. 56 THE COST OF COMPETITION foundry and the machine-ship, for instance, of any manu- facturing establishment cooperate, by consultation, etc., so as to direct their efforts best to the common end, but the articles which pass from one to the other, forming the finished product of one department and the raw material of the next, do so under a splendid system of cooperative liberty. The pattern-shop is credited with what patterns it turns out, not because the patterns are themselves sal- able to the public, but because the foundry needs them. The foundry is credited with the crude castings which it produces because the machine-shop needs them. Each department is charged with its own proper expense. The machine-shop is charged with the castings received as raw material and is credited with the finished product; which, it may be supposed, is the first step in the combined opera- tions which results in an article salable on the open market or consumable in the economic sense. Herein the value of exchange without transportation is purely that it makes possible specialization. The iron- establishment works under such a system at a much greater efficiency than it would if each man tried to make his own patterns, form his own mold, pour it and then machine his castings himself, in turn. Such methods have been fol- lowed. They formed, in the beginning, the foundation of our country's economic greatness. But they are now out- grown, antiquated and fearfully inefficient In comparison with modern ones. The Central Office. The device which effects this exchange with such perfect smoothness and justice is the Central Office. Everything produced by any of the de- partments belongs, nominally, to it. The value produced, as was stated before, really and obviously belongs to the individual workers who produced it; but it is found that the only way to conserve to them this value, in the face of EXCHANGE 57 the complexity of modern Industry and trade, Is for the ownership of all commodities In the shop to be legally vested In the Central Office ; which guarantees, In effect, to return to each Individual the value which he has pro- duced. The Central Office of course cannot accomplish this service without cost, and must charge for It. The value which each Individual produces Is taxed to a certain pro- portion, which tax Is retained In the Office to maintain Its expenses. The remainder, which Is really the value actually produced by the workman. If the transaction has been equitably conducted, Is returned to him under the name of wages: his real productivity being his apparent productivity minus the tax for cost of exchange. Because the privilege of exchange much enhances his apparent pro- ductivity, his wages, or his real productivity, amounts to more, even when thus taxed therefor, than they would without the privilege of exchange. Therefore, since exchange produces value, by absorbing raw material in the way of ledgers and ink, and labor in the form of clerks, aiding production by widening coordinate specialization, this Central Office Is properly to be classed as one of the specialized departments of productive labor. If so. It would be under the name of Accountance, as a part of Superintendence. But such classification, as was noted on page 26, can include only shop-order, shop-cost, stock-list or similar accountance. That Is, the Central Office of the Factory Proper, engaged In supervising exchanges within the producing organization alone, must be kept distinct from the Central Office of the Business, which Is engaged In supervising and promoting exchanges with the outside world, — although they often occupy the same room and absorb portions of the efforts of the same Individuals. It is next to be noticed that Into the activities of this 58 THE COST OF COMPETITION entire productive organization no individual legal owner- ship enters. Not a man in the factory, from doughboy to superintendent, legally or nominally owns a bit of the work which he is striving to perfect or the tools with which he works. Every one of them receives his income in the form of wages. He works absolutely without any sense of proprietorship. He knows no " mine " or '' thine '' until payday arrives at the end of the week. Then, and not before, he is free to enjoy, as his own, the value which he has actually produced by his past efforts and which now lies, inseparably amalgamated with that of a thousand other cooperative workmen, dissolved and invisible within the fruit of their common toil. This absence of legal ownership or of sense of personal possession applies to almost every step in the entire modern productive system. Each man works for wages, not for the sake of making things for his own gratification. Here and there is a small factory which is superintended, more or less, by its owner; there are even still some where work- man and proprietor are identical; but they are small in size, unimportant in number and character when compared with the more fully developed productive enterprises, and they are on the steady decrease. They are comparatively unprofitable. They belong to a past age and are slowly but steadily falling into disuse, to give place to their now adult offspring, who do the bulk of the world's work and give to modern industrial society its characteristic ear- marks : the factories devoid of personal ownership. For in the truly modern affair the owners are cornpletely absented from the productive processes. They neither know nor care what is going on, except as it is visible in the results. They hire an able superintendent, pay him several thousand a year of wages, and expect him to prove that the value he produces is greater than that. If he EXCHANGE 59 does not, he either receives less in the future or else he changes his occupation. Even in those cases where the owner Is present and spends a portion of his time In superintending the produc- tive processes of his mill (as contrasted with the commer- cial processes of his selling-office), this distinction must ever be kept clear : That during that portion of his time he is a superintendent, and not an owner. The portion of his Income which Is creditable to this portion of his time, equal to the value produced by that portion of his services, should be charged against the enterprise and credited to him as a salary for superintendence. In economic parlance it would be known as wages. The remainder of his Income, usually the far greater portion, Is to be credited to him on the score of ownership of capital or for business management, to be classified prop- erly later In the analysis. The one set of persons, too, to whom the message of this analysis is both specially addressed and especially Important, are these same manu- facturers and business-men of duplex activities. Classification by Activities, Not by Individuals Therefore, In considering the limits of the system prop- erly to be defined as the Productive Organization, throughout all of which exchange Is effected In the free and cooperative manner already described, they should never be expected to be found coincident with the limits demarking certain classes of people. They coincide, on the other hand, with the limits demarking certain classes of action. As a great many, though not the majority of, individuals divide their time between several quite dis- tinct sorts of activities, they thereby find themselves prop- 6o THE COST OF COMPETITION erly classified, at one hour or another, in as many quite distinct departments of economic society. Just as, in other walks of life, a man may be, at different times within a year or a week, a Sunday-school superintendent and a thief, or a philanthropist and a careless distributer of typhoid-germs throughout his community, so, in the economic fields of action, a man may within a single hour compass activities so opposite In their effect upon the com- munity as to constitute him a veritable Dr. Jekyl and Mr. Hyde. He may, and often does, occupy himself at one hour with work the unconscious undoing of which absorbs his next; and yet he and the public, looking too closely only at what is visible In him, the Individual, and his immediate task, may be quite unconscious of the change and of the contrast. Indeed, It Is the main underlying object of this analysis to draw the mind of the reader, for awhile, away from the habitual plan of marking distinc- tions so uniformly between contrasting classes of persons and to substitute therefor, as the only safe guide In eco- nomic thought and action, the habit of drawing all fun- dajnental distinctions between contrasting classes of activity. For this purpose It Is worth while to spend a little time upon an Illustrative case. Let it be supposed that an industrious and upright dairyman is careless as to the cleanliness of his cows, his farm and his neighbors. Indeed, we may even suppose him to be of marked cleanliness of disposition, keeping his milk-cans well scoured and his farm-buildings neatly painted; yet let it be supposed, at the same time, that he is ignorant and bigoted In his mental attitudes, that he refuses to read even the most popular treatises upon the biology of disease-propagation and snorts In disgust at what he calls the modern fads of the scientific health- EXCHANGE 6i boards. It is quite imaginable, indeed, it is a common fact, that such a man may become at once a distributer of rich, attractive milk and of typhoid-germs. In the former capacity he is a producer of value and a public benefactor; in the latter he is a destroyer of human life and an enemy of mankind. These two activities, of natures the most contrasted, he maintains simultaneously. Of the excellence of the one he is justly, often intensely, proud. Of the very existence of the other he is unconscious. He is a malefactor upon a tremendous scale, not from evil disposition, nor from hasty temper in the face of provocation, nor from inherited weakness in the face of temptation, but from simple crass ignorance of the true nature of his everyday acts. If detected and arrested in his career by the keen eye of science and the strong arm of the law, his most natural feeling is one of injustice and of righteous indignation. Yet it is none the less true that the very existence of human society demands his suppression, not as an immoral indi- vidual nor as a producer and distributer of milk, but as a producer and distributer of death by typhoid. The only thing which will possibly accomplish this suppression is his education; and since he has rejected all opportuni- ties for voluntary education by more comfortable means, imprisonment or fine is imposed by force as the only known means of teaching him his lesson. It is particularly to be noted that the evil of the original situation excludes, on the part of the guilty indi- vidual, all question (a) Of morality or immorality of impulse, (b) Of individual consciousness or unconsciousness of guilt, or (c) Of public condemnation or approval of his acts; that is, the distribution of typhoid-germs was just as fatal 62 THE COST OF COMPETITION before the health-boards discovered It and aroused public law and sentiment against It as it was afterwards. Such was the unalterable-, natural fact. It Is quite proper to Introduce at this point the Idea that the factories, offices and Individuals of our Industrial organization cover daily activities which, when closely examined, prove to be a composite of two or more very different sorts. Some of these activities are of the very greatest value to the community. Some are fraught with disease and death for the society and the individual. In the separation and the classification of these activities It Is worse than useless to attempt either to sort out the indi- viduals themselves, or their good or bad motives, or their good or bad consciences, or the approval or disapproval of the public. It Is safe and sane only to look to the nature of the moment's action and to the natural fact of its inevitable result. Should the conclusions which are forced upon us by such a method of analysis prove to be In wide disagreement with current public opinion, no more mysterious explanation is needed than the presence of widespread public ignorance of cause and effect In the field of economic energies. The very hopeful sequel to these conclusions Is that nothing more difficult of attain- ment is needed, in remedy, than education. The vastly more difficult task of widespread moral regeneration is eliminated. Pure Exchange and Exchange Alloyed with Barter. At this point in the analytical observation of modern productive methods Is reached a contrast so marked as to be, In the nature of affairs, exceedingly sur- prising were it not that past history explains Its origin. It appears that the absolute freedom and perfection of the system of exchange which has just been described as EXCHANGE 63 characterizing the modern factory, and which has per- mitted that growth of specialization from which all modern opulence is sprung, is not in universal, nor even in major, adoption for all exchange. Exchange within the factory is universally carried on thus perfectly, it is true; but exchange without, usually from one factory to another, and always between factory and consumer, is carried on upon a totally different, indeed upon a quite opposite plan. Whereas within the factory occurs ex- change pure and simple: the interchange between two parties of the possession of an article for the sake of the addition of further value to it, in this second plan occurs exchange coupled with barter. In the first case the sole motive is the Value naturally inherent in Exchange (p. S^) ; in the second this motive becomes quite secondary. The first step in defining to the understanding these two methods of exchange so as to fully grasp their opposite characteristics would seem to be to draw the line demark- ing the two fields of their respective activities. But in attempting this some difficulty arises. It seems impossible to classify their territories of adoption according to any distinguishing characteristic, without or within. There does not appear to be any broad difference, either in time, place or manner of surrounding conditions, which deter- mines which of the two should be used in any given case. For instance, geographical distance of separation has nothing to do with it. Factories located in the most dis- tant states sometimes exchange upon the free, coopera- tive plan, thus constituting themselves separate depart- ments of a single enterprise; while factories existing side by side often rely upon exchange coupled with barter for the mutual intercourse whereby they cooperate in the final supply to the Consumer. Upon the other hand, both statements may be directly reversed and still be in truth. 64 THE COST OF COMPETITION Again, size has nothing to do with It. Some of the largest factories cooperate with others equally large, though most of the large ones rely upon communication through the medium of barter. On the other hand, the size of the aggregations of labor which are commonly found cooperating in exchange without barter may range downwards to a single man each. Once more, character of work has nothing to do with it: tasks both very similar and very dissimilar exchange on either plan. Coal-mines or oil-refineries with rail- roads, street-railways with police-departments, coastwise navigation with inland copper-mining, illuminating-gas with federal legislation: these most opposite and Irrele- vant services all meet, in certain Instances, in this freely cooperative spirit. In other cases, services of the most intimately related and Interdependent character, such as the mail, the telegraph, the telephone and the railroad serv- ices, gas-making and the supply of electrical power, heat and light in cities, etc., not only do not exchange freely and cooperatively, but they refuse to try to do so, even when the obvious advantages to the community latent In the proposition are portrayed to them; and in this refusal they are frequently upheld alike by public opinion and by the law. When attention Is turned to the question of singleness of ownership of the tools utilized as a factor in deter- mining where barter shall be added to exchange and where not, there is temporary promise of a clew to an explana- tion; but it melts upon examination. Many of the larger enterprises owned by a single legal Individual exchange under barter; or at least they assert to the public, in the most indubitable terms, that they do. Enterprises owned by separate Individuals, on the other hand, by men of the most distant interests and characteristics^ are found upon EXCHANGE 65 examination, or by accident, to be exchanging coopera- tively, under the methods known as pools, agreements, mergers, etc. There is no basis for accurate or satisfac- tory distinction between the two plans by reference to singleness of legal ownership. Wherever the line may actually be drawn, — and it can never be drawn in the same place upon two successive days, — certain it is that nothing determines it except the unwritten law of changeable public sentiment or the changeable written law of the statute-book. There is no rational nor natural nor absolute support back of the vacillating distinctions which are drawn between the use of the two methods. Enterprises, services and individ- uals which one week conduct themselves with the bit- terest mutual antagonism are found to be, on the follow- ing week, warmly cooperating. Individuals will trans- pose their mental attitude toward the two methods, from the most vigorous prosecution of barter to the most cor- dial support of cooperative exchange, or vice versa, in a day. A change of employment, or the sale of a mill or a business, will so metamorphose them. Wherefore must the searcher after accurate knowledge end this quest with the statement that the distinction drawn between these two widely contrasted methods is entirely haphazard in character: that it is not founded upon any principle, either geographical, mechanical, economic or religious. In the progress of events from the primitive past from which barter has been inherited it has happened, in the different lands, that different industries and different individuals have been first in being freed from its burden and left free to carry on their exchanges in the natural fashion. The others are still addicted to barter by habit or custom, or are compelled to it by law. Thus, in England it has been customary, at least to within a few 66 THE COST OF COMPETITION years, for the gas-makers to exchange with the community of consumers of gas upon the free, cooperative plan, while the water-providers exchanged by barter. In America it is just the opposite : the water-service is usually operated cooperatively, while nearly all of the gas-suppliers barter with the community. For barter is not exchange. It is a process quite addi- tional to exchange. While it is commonly referred to as a method of effecting exchange, it will readily appear, upon thought, that the pure method of ef eating exchange is always present, even when barter is superimposed. The commodities change owners, using the term owners to include full temporary control for the purpose of addi- tion of value by further transformation; full account of the transaction is kept, by labor allotted to that task. That is the entire jurisdiction of Exchange. The process and its purpose is completed thereby. Every possible enhancement of Value of a commodity which can result from a change of hands, whether to the extent of mere temporary control or of permanent legal ownership, has been thus accomplished. On the other hand, both the process of barter and the objects which induce its undertaking are quite distinct from and additional to the above. It is altogether in the form of an appendage, wholly external to the productive pro- cesses of transformation, transportation and exchange, that barter is superimposed upon this last. So true is this that in most of the modern industrial enterprises exchange is carried on by one set of individuals: the shop-superin- tendents, order-clerks, shipping-clerks, stock-clerks, etc., all salaried or wage-paid individuals, while the barter is carried on by a quite distinct organization: of owners, officials, salesmen, commercial travelers and advertising- agents, with their assistants, the stenographers, printers, EXCHANGE 67 etc. But whether this separate organization exists or not, the activities are none the less separate and distinct, even opposite, in their nature and In their effects. Indeed, the effects of the two sorts of activities are much more strongly contrasted than possibly can be the personal characteristics of the two sets of people, even when sep- arate. The task of bringing clearly before the reader this fundamental contrast must be reserved to the following chapter upon Barter. Before turning to it, however, it will be well to review and summarize what has already been established. Summary. The word Production, now capable of being given a more detailed significance, will be used here- after to cover broadly the processes and the organization now completely outlined as consisting of: (i) The Transformation of material more or less raw Into some other form of greater value for consump- tion by and the support of human life; (2) Its Transformation, either between persons en- gaged In the above processes or between the last one in their series and the actual Consumer, who absorbs and destroys the article In support of his life or growth; (3) Its Exchange between any of the parties listed in the two previous paragraphs. The table displayed upon page 28 may be taken as the amplification of any one of these three paragraphs, or of all three combined. This definition includes all superintendence and all accountance necessarily Incidental to the processes defined. It excludes, on the other hand, {a) All transportation which does not enhance the consumptive value of the article transported by altering its natural environment to one more favorable to con- sumption ; ' 68 THE COST OF COMPETITION (b) All superintendence not engaged in directing the actual handling, transforming and transporting of the goods, or engaged in unnecessary, valueless transportation or transformation; and (c) All accountance accessory to such unproductive effort. This is Production. This alone produces what we Con- sume. All other activities of the body economic are external thereto. Their definition and discussion, in the chapters which are to follow, will much augment, by light from the opposite side, the clarity of the definition which has thus been finally accomplished. But it is the object of the chapters preliminary to this point to make clear to the reader that this is indeed Production, the only set of processes possibly to be defined by that name ; that, as thus defined, absolutely every iota of value now existent, every material particle capable of supporting human life or growth, is now actually produced, completely , from the original mines, fields, forests and sea to the time and place of actual consumption in the support or elevation of human life, by these processes thus listed under the name of Pro- duction, AND BY NONE OTHERS. « V BARTER THE office of barter, as an accessory to exchange, is the determination of the Valuation to be as- signed to the Values exchanged. Valuation, it will be remembered, is the psychic atti- tude of an Individual toward a given Value. Whereas value is a natural fact, measurable in terms of the life springing from it, valuation is a quite independent vari- able, sometimes greater and sometimes smaller than the value with which it is associated. Whereas the biologic equilibrium of life, dependent as it is upon the value which supports it, always brings us back, sooner or later, more or less closely, to a truer estimation of values, yet temporarily such estimation or valuation may wander far astray from the truth. The plan at present relied upon for its determination and limitation is Barter. Not that we know of no other way. Vast volumes of exchange are carried on, con- tinuously and stably, without any aid from barter what- ever. The central office of a factory, for instance, seldom has any difficulty in determining the valuations needed when the foundry exchanges with the machine-shop; yet these valuations are true and natural, not artificial ones, determined solely by volume and intensity of supply and demand. Although not equal to, they are closely and accurately proportional to, the true values. Very little, if any, labor-difficulty based upon internecine jealousy 69 70 THE COST OF COMPETITION over such valuations is reported. Yet no barter between the two departments party to the exchange occurs. The foundry does not appoint an agent who shall bargain for its workmen with the agent of the pattern-shop and the agent of the machine-shop over the price at which rough castings shall be entered against finished ones in the books of the central office, or over the price at which molders' time shall be charged as compared with machinists' time; nor do the inevitable accessories of such a policy: the advertising, the drummers, the restriction of output, the retention of legal counsel, etc., etc., characterize the rela- tions between the several departments. Such a policy would not for one instant be permitted by the factory- manager. As a gross Interference with the efficiency of production, the parties attempting it would be immediately excused from all further participation In the service and the pay. The internal reciprocations of the factory, in Its present standard form, consist of pure and simple economic exchange, and not the slightest difficulty In keep- ing It so arises from the frailties of human nature. In outside transactions barter exists. In fact, solely because it was used in the remote and barbarous past and because we have not yet finished with Its abolition. Every step in the growth of that factory-system which has so Indelibly characterized the history of the past two centuries has consisted of the gradual elimination of barter from exchange during specialized production. Indeed, the phenomenal expansion of productivity and reduction of productive costs during the past century Is due much more to this process than to any advance In purely technical methods and devices. The process of its elimination is merely not yet finished. If Its elimination from exchange between producer and consumer and between capitalist and laborer had been equally steady, rapid and thorough. BARTER 71 there is little chance that this book would ever have needed to be written. Barter Is best defined by Illustration, and for this pur- pose the exchanging communities of fishermen and hunters will serve excellently well. In order to make the simile as close as possible to the probably historical order of events, let it be supposed that the tribes of fishermen and hunters originally existed in a state of perpetual savage warfare. This would narrowly limit the activities of both parties, both geographically and as to liberty for specialization. Those living on the shore would find their food In the sea ; nor could they search for a wider diet for fear of the warlike hunters of the hills. Those living inland subsisted upon game or upon their flocks, never thinking of communication with other tribes except for the sake of plunder or rapine. The result would be in each case a narrow limitation of the possibilities of life, •practically as narrow as if no other tribe existed. Under these conditions exchange would enter as one of the rewards of peace. Barter, or the exchange between individuals upon a basis of price to be settled solely by themselves, demands, as a preessential to Its existence, comparative physical peace between the negotiating par- ties, amounting to a truce, at least. Lacking this, it ceases to be barter and becomes robbery. But the difference between the two lies in this alone, and not at all in the question of moderation or exorbitance of price exacted. But economically speaking, peace would constitute merely an amalgamation of the two tribes Into a single community, scattered geographically and divided politi- cally, to be sure, but one in their common interests In the securing of diversified wealth. So far as economics Is concerned, the segregation of the separate services or Industries might consist of their allotment to separate 72 THE COST OF COMPETITION tribes, or merely to separate trades in a single tribe. Politi- cally the difference might be great; economically it would be nil. Under such peaceful conditions, therefore, when game is brought to the seashore or fish to the hills for the pur- poses of exchange there arises immediately a question as to price. The true value of the goods submitted is unknown. The savage intellect has acquired no biolog- ical laboratories, nor statistical bureaus for its determina- tion. So would be brought into play, in their stead, barter as to valuation. Here, again, would trouble arise. The community of savages has no means for determining even the average valuation of the goods by the community; it does not possess sufficiently intelligent organization to perceive things as a unit. It has, in short, no Central Office. Therefore is recourse necessarily taken, purely as a matter of primitive ignorance, to individual valuation as a deter- minant of price, and the exchange is made upon that basis. The parties are left strictly to themselves. Interference in their little duello of bargaining-abilities is held to be as dishonorable and reprehensible as is interference in any other sort of duello. Thus arose the " free social contract." As civilization advanced it has been found necessary to Interfere, to the extent of prohibition, with every other sort of duello. With barter the interference has as yet been only partial. The price thus determined upon would not, of course, be coincident with the valuation of the goods by either party to the exchange. It would be in the nature of a mean between the two. When the price were determined as the result of merely a single negotiation, between two parties only, it possesses no outside effectiveness. When it was the result, more or less indirectly, of a large number BARTER 73 of such negotiations it would become a market-price. These considerations lead to the following definitions: Price is the 'nearest available measure of individual valuation. Market-price is the similar measure of average valuation. Prices paid by individuals may depart considerably from the market-price. Price is not an exact measure of valuation because the valuation may exceed the price paid, or be less than the price accepted, by a considerable proportion without being evident in any alteration of the visible price from the mar- ket standard. In fact, the primary requisite for exchange is that the purchaser's valuation of the article must exceed the price asked before purchase can be made; the seller's valuation must be less than the price offered before a sale can be effected. It is difference in valuation which over- comes the natural resistance to exchange, just as differ- ence in head overcomes the resistance to flow of water or difference in temperature the resistance to flow of heat. Price is merely a mean ratio of the two valuations of the two respective commodities on the part of the two parties to the exchange : the number of fish which shall be exchanged for a haunch of venison, for instance, or vice versa. When price is stated in terms of money it expresses the relation of the valuation of each article In question to that of another commodity, usually gold, which is chosen as a standard of reference. We thus have no absolute measure of valuation. Barter. It Is clear that the price obtained in exchange coupled with barter, for each commodity respectively in terms of the other, for game in terms of fish or for fish in terms of game, depends upon the balance of power between two pairs of factors, one pair on each of the two sides of the bargain: 74 THE COST OF COMPETITION (i) Between the individual productivities of the two parties to the bargain; that is, the amount of game or fish brought to market by each laborer as the result of a given amount of labor. The equation between these two forces results in the natural price, or the equation of pure value. In such an isolated case as a single bargain, irrespec- tive of market averages, the value might not properly be called pure. It would have to be assumed that the rela- tion between productivity and cost of supporting life is the same in these individuals as in the average of the com- munity. The only thing necessary to make the statement true, therefore, is to expand the factors resting upon individual productivity into others resting upon the average productivity of the community. This is the pro- cess relied upon in all the cooperative exchanges between the various departments which enter into the modern fac- tory-system; they are all based upon the natural price of the work done in the several departments, each in terms of the others. (2) Between the comparative abilities of the two par- ties, respectively, to force the price accepted by the other away from this natural price, by driving a good bargain. It is this equation of forces which alone constitutes barter. The natural price is the result of perfectly free exchange, under a peaceful and equitable equation of the comparative productivities and the comparative values. Such exchange permits specialization and coordination and is productive of value. It and its price are therefore legitimate and essential features of a modern system of production. The barter-price, on the other hand, is the result of the modification of free exchange by barter, by forces quite aside from those determining the natural price. Their nature and their fruits belong quite outside the field of BARTER 75 production, which Is complete In the combination of labor with free exchange, and are to be determined only by more extended Investigation. The process of barter Is properly divisible into two subdivisions : (a) The alteration, by one of the two parties to the exchange, of the other's valuation of his own portion of value offered In market, by persuasion or by deception as to the natural price ; In which case the victim Is unconscious of the wrong being perpetrated upon him In the diversion of the price away from the true and natural one. (b) The forcing, by the one, of the price accepted by the other away from the latter's valuation of his goods and toward his own valuation, either by utilizing an environment which places the other under the duress of a painful alternative if he refuses to exchange, or by coercion through fear of the same, even though It be not Imminent; In which case the victim Is conscious, but help- less, either from his own weakness or from the disadvan- tages of his environment. As stated above, the natural price of an article Is a function of comparative Individual productivities and can be affected only by the education of the producer, by the discovery of new supplies of raw material or by the inven- tion of new machines or methods of production. It Is toward these goals that all education, all Sicience and all invention are directed. But as they affect equally. In the end, almost all commodities produced, and all Individuals composing the laboring body, they naturally have little effect upon the natural price, even temporarily. Now and then some exceptional step in advance places one com- modity or another, some worker or another, temporarily In advantage. But as the higher price of the commodi- ties, or the lower price of the labor thus left temporarily 76 THE COST OF COMPETITION in the rear offers an exceptional inducement to them to ameliorate their condition, to which they must sooner or later respond, there results the following inevitable law of equilibrium : Neither improvements in the arts or sciences nor any advance in the average of general or technical intelligence of labor tends to permanently alter the natural price of exchange between any two staple commodities, or between any two staple classes of productive labor. New commodities, of course, are continually entering the field, through discovery or invention. They enter fairly gradually, and while they are doing so this law will obviously not apply. But once the novelty of their manu- facture is gone and they are fully established as staple products of the community, the above holds true of them. In order to correctly understand barter, further analysis of its detail is necessary. Let it be supposed^ for illustra- tion, that a single hunter should meet a single fisherman, each laden with the fruits of his trade and each anxious to exchange a portion of it with the other, in order to obtain a greater diversity of diet. Their trysting-place, whether by the shore or inland, is the market. To it is brought fish and game, cleaned and ready for the spit. Production, including transportation, is already complete. Except for the final transportation to the family-table, or the savage substitute therefor, each commodity is ready for final consumption in the support of life; and this, it will be supposed for the present, is the sole object of the exchange, as it was of the productive effort preliminary thereto. Except for the difficulty as to the unknown com- parative valuation, or price, there is no reason why each should not pick up his proper share of the other's things and return home. ' If so, no effort, either muscular or BARIER 77 nervous, would have been expended in any other way than In production, including the necessary transportation. To adjust this matter of valuation, however, — as a method of solution of a purely intellectual question, — enters barter. In this process each party sees promptly his opportunity to increase his wealth otherwise than by producing it. To illustrate, let it be supposed that, in the then existing stage of existence, a day's labor on the part of the average savage would secure ten hares, or thirty fish, and that either of these same quantities of food would support for one day the average family of such a size as would, in the long run, keep the population stationary. It is only under stationary conditions of growth of all sorts, in wealth and refinement as well as in population, that an average day's labor produces only an average day's consumption. For simplicity's sake it is now to be supposed that such is the case. But whether this be so or not, values produced are always to be measured by their power to support life as they are consumed, and not by the amount of life absorbed in producing them.^ Therefore, the natural price of one hare is three fish, because it is in that proportion that they will equally support the savage race. 1 Herein lies the error of the economic philosophy of Marx. He takes the day's labor as the fundamental unit of measurement, disregarding the question as to whether that effort be wisely or unwisely directed, toward or away from the best needs of the community. By accepting the life-sup- porting power as the basic measure of value this error is avoided. Just what sort of life is to be considered the most valuable, — for there are, of course, many sorts, requiring as many different grades of supplies for their maintenance, — is not a question of economics at all, but of ethics. These questions must be settled entirely outside the field of economics, by the standards of taste, religion and philosophy which prevail at the time. Once thus settled and incorporated into public opinion, it is the business of economics to supply life's material needs. The extent to which it per- forms this task is the standard to which all measurements within its borders must be referred. 78 THE COST OF COMPETITION If the savage community had had sufficient intelligence and patriotism to establish, by mere statistical record, the natural price between fish and hares, and to publish this fact from day to day or month to month, enforcing it as we now enforce fixed street-car fares, hack-fares, postal charges and tax-rates, all would have been simple. But it did not. Therefore, the question as to how many fish the hunter was to get for each hare, or how many hares the fisherman was to carry home as the result of his day's fish- ing, remained wide open. This fundamental fact is to be noted at the start, to be reiterated and emphasized at every possible point: Pro- duction was already finished and could not be extended by any sort of further effort. There lay the game and the fish on the market. No further effort could or did pre- tend to increase their number, their weight or their life- supporting value in any way. Each man possessed at the start an equal amount of nutriment in his stock of pro- visions. By exchanging half of it for half of the other fellow's, each would still have the same amount of nutri- ment, capable of supporting the same amount of animal life; only, by its twofold diversity, it would then be able to support a higher quality of life than before. But this gain is accomplished by Exchange pure and simple. Bar- ter, coming additionally to this process, aims at a quite different sort of gain. For the total quantity of life-supporting nutriment owned by the two parties cannot be, and is not honestly pretended to be, altered by barter. It is the proportion- ate distribution of wealth between the two parties alone which barter aims to influence and to modify. For, as the result of exchange alone, at the natural price, each man would depart from market with five hares and fifteen fish. But In barter each sees his opportunity, as stated before, BARTER 79 to secure wealth without producing it; the only way, of course, being to get away from the other fellow some of the wealth which the latter has produced. If the hunter, for instance, by persuasion or deception as to the quality of either of the commodities or as to their natural price, or by securing a time for exchange when the fisherman is in especial need of game, or by selecting a place where violence may be threatened without danger of punish- ment by the tribe, or by the promise of influence with a sweetheart, a chieftain or an enemy, — if by any such means he can force his neighbor to accept one hare for four fish instead of one for three, then, as the result of the barter, the hunter will depart from market with five hares and twenty fish and the fisherman will return home with live hares and only ten fish, — to what domestic fate we may leave to the imagination. As the net result of the day's efforts, therefore, the hunter has produced five hares and fifteen fish by produc- tive effort (hunting, transportation and exchange) and has also acquired five fish by barter; the fisherman has produced five hares and fifteen fish by productive effort (fishing, transportation and exchange) and has lost five fish by barter. Price-tendency under Barter. Herein arises the second important characteristic of the situation: If the fisherman finds life more endurable upon a daily diet of five hares and ten fish than he did upon thirty fish alone, he will return to the market on the morrow, to be again outdone by the hunter at barter; if not, he will remain away until the hunter becomes more moderate in his demands. If, on the other hand, life would be more enjoyable for the fisherman even upon so low a diet as five hares and only five fish than it would upon thirty fish alone, and if the limits of either the hunter's seductive or 8o THE COST OF COMPETITION overbearing disposition or of his command of intrigue have not yet been reached, these processes will most naturally be expanded until the hunter's daily income has become five hares and twenty-five fish, while the fisher- man's is reduced to five hares and five fish. For this is the line of least resistance. It is easier and, to dispositions fitted for it, pleasanter to barter than to produce. To produce means effort sustained over a period proportional to the value acquired. To bargain successfully is to miain- tain the proper attitude for a few minutes only; the effort being not at all proportional to the reward, whether five fish or ten, but to the difference between the comparative personalities and advantages of the two contending parties. From these considerations Is established this law: Barter added to Exchange inevitably tends to directly reduce the income of the loser to the minimum which leaves life at all preferable to the more primitive level of existence without exchange. Barter a Negative of Productivity. Such would be the intercourse between hunter and fisherman if the latter were a quiet, unaggressive Individual, devoted to his day's work and knowing little and caring less about diplomacy, intrigue or antagonism — as, most fortunately, is true of the majority of mankind. But let it be sup- posed, on the other hand, that the fisherman who greeted the hunter turned out to be one of his own ilk, matching him evenly in ability to barter. Then would result two things : ( 1 ) Each would return home, on the average, after all their dickering, with the five hares and fifteen fish which each would have had had they exchanged without any barter at all', that Is, at the natural price. (2) The natural hope of being able to effect a better BARTER 8 1 result than this, legitimately supported by the very high reward allotted to barter, per unit of time, when it is suc- cessful at all, would lead to their spending more and more time each day at bargaining with each other, until the time devoted to production became so restricted that the quantities of fish and game brought to market no longer tempted quarrel over them. This hope of quicker and easier success by barter than by production is the gambler's hope. It is seen to bring the gambler's reward. From this second consideration arises the law: Barter added to Exchange inevitably tends to restrict the pro- ductivity of both parties to the barter to the minimum which leaves existence at all preferable to the more primi- tive level attainable without exchange. Barter a Parasite. Combining these two laws, there results this all-important conclusion: Barter is a pro- cess parasitical upon Exchange so destructive to the latter and, with it, to the Production dependent upon exchange, and to the Life engaged in both and dependent upon them for support, that it limits their existence and activity to the minimum which will afford a supporting food-supply to the barter which preys upon them. This minimum is slightly greater than the productivity possible without either exchange or barter, hut is vastly less than that possible with pure exchange alone. That is to say, given a certain field for exchange, a field of value-production potential for a certain degree of expansion by the advent of exchange, and the presence of barter entering with the exchange will permit the latter to enter and to grow only to that degree which barely constitutes progress at all (else would no entrance take place) and which leaves the maximum portion of the latent potentiality for growth-support absorbed by unpro- ductive effort at barter. 82 THE COST OF COMPETITION Barter an Evil in Two Distinct Directions. In these fundamental characteristics of barter which have just been noted there lie visible in embryo two very dis- tinct wrongs, both of which are inherent in the nature of the institution. Both of these must inevitably rise and grow, under political and geographic freedom, to the greatest extent tolerable by society, wherever prices are largely left open to settlement by individuals, independently of natural law and public responsibility. These two are : (a) The wrong done the individual less capable as a barterer (although capable as a producer to any imagin- able degree) by the extraction from him, by force of will or circumstance, of a portion of what he has already produced; (b) The wrong done to the community, in the consump- tion of time and nervous energy in useless, because non- productive, barter and visible in the decreased supply and the enhanced market-price of the commodity in question. The first of these is plainly visible in the elementary illustration. In modern times it has very greatly increased in magnitude, by the exaggeration of the unbalance between the contending parties far beyond what it could be between any two individuals, by the combination of individuals on the selling side with no corresponding com- bination on the buying side against it. It is this which is the foundation of all of the current outcry against " the trusts." But in this the wrong has grown only in magni- tude, not in character. The second of these two wrongs is by no means so easily discernible. In the elementary illustration it is obscure partly because of the deliberately assumed lack of any coherent social entity which might be palpably wronged by the mere existence of the barter, and partly because of the obvious freedom of other individuals, in BARTER 83 so elastic an environment as this elementary society, to operate quite independently of the haggling pair. In modern society both of these conditions are absent. Society is a unit, whether it will own up to It or not; the Institutions adopted by the majority, which never sees clearly what It Is doing, must be accepted by the minority. In its modern development, however, this second form of wrong Is still obscure, not because It is small or unimpor- tant but because of the blinding intricacy of the field in which it Is active. Yet Is it most important to call attention at this point to the fact that It is this second form of offense Involved in barter, the one against society at large, which now con- stitutes by far its most Important phase. It has not only grown enormously . In magnitude, but its ramifications have worked their Insidious way throughout the social structure until the entire fabric of individuals and Institu- tions, material, intellectual and moral, has been permeated and distorted by its poisonous presence. The victim suffers, as does one with gout or leprosy, knowing only the pain but not the cause. So complex Is the medium through which this offense Is committed, so multiplex is the community-victim Itself which suffers from it, that it will take the remainder of these pages to properly Identify the crime and indict the offending Institution. Yet Is it Important to state here most emphatically that It is not the direct crime of violence operative against the individ- ual, in barter, which causes the most suffering; It Is the crime of passive error operative against the community which makes to-day the problem of the future existence of society an appalling one. It Is not the profit-making, the profit which Is extorted from the consumer, which does him the most harm; It is the profit-seeking, the time spent by the barterer in antagonism and failure, which 84 IHE COST OF COMPETITION undermines his neighbor's purchasing-power and which robs the rich and the poor alike of their natural heritage in a new continent: material welfare, peace on earth and good will to men. It is not gold, but the legalized strife for gold, which is the root of all evil. In spite of the wide contrast in superficial appearance between our simple illustrative case of the hunter and the fisherman, offered to aid in the clear definition of the terms used, and the complexities of modern industry, it is to be especially urged that it supplies complete proof for these propositions in their utmost application. The dif- ference is solely one of degree, not of kind. It cannot, however, furnish a complete understanding of their breadth and depth. That will finally be found in the corroborative way in which every more complex appear- ance of these processes in actual economics develops these same resultant symptoms. Of these symptoms the fol- lowing pages will present what are possible within the purposed scope of this work. But to the thorough student the real proofs are to be found in the myriad of items of news of current economic life which reach us through the medium of the daily and weekly press, as well as in the various statistical reports of the scientific and governmental bodies. Interpreted in terms of these simple illustrations they will be found to be identical with them, except that they are become very much more com- plex and intricate in form by the interlacing with them of the many extraneous factors of life which have here been properly eliminated and by the mere multiplication of individual parts. Internal Barter. Before going any further into the detailed characteristics of barter there must be identi- fied to the reader another sort of barter, not commonly BARTER 85 known by that name nor superficially resembling this first form, but which Is nevertheless quite Identical with it In the nature of Its efforts, of Its reaction upon the Individuals exerting It and of Its results to the community. Thus far has been considered the phenomena arising from barter within merely a single pair of Individuals, members from each tribe or trade respectively. The situation now needs expansion until each tribe shall enter Into the pro- cess In Its entirety. Let It be Imagined that the community of fishers have been for a long time without meat. Fish are plenty, but no game Is to be had. Finally there appears upon the scene a hunter with a hare upon his back, willing to trade for fish. As the hare will not cover more than one table, there arises Immediately the question: Who amongst the fishermen shall have the privilege of exchange? For the purposes of illustration, it will be assumed that the hunter Is a close-mouthed fellow, who holds himself silently aloof from negotiation until the rabble of con- tending fishermen shall have settled this question among them. For the time, therefore, his personality does not enter the question. It Is also to be assumed that the desire for game is equally Intense on the part of all the fisher- men. But this Is assumed for simplicity's sake only; dif- ference between the fishermen in taste for game would not affect the situation except to confine the final competition for the privilege of exchange to a portion, instead of to all, of the fishermen. Into the settlement of this question. Who among them Is to have the privilege ? the two factors already mentioned will enter: (i) The comparative productivity of each individual fisherman ; that Is to say, which one can display the largest pile of fish as the result of the day's labor. 86 THE COST OF COMPETITION (2) The comparative skill of the several fishermen in attracting the attention of the hunter and in persuading or deceiving him into the belief that this one's fish are better and his neighbor's are worse; or in driving his neighbors by threats into the background, — thus decreasing the pro- duction of fish, so far as visibility in that market is con- cerned; or, it might possibly be, in skill and judgment in offering a good price for the hare to-day in the certainty that by the morrow it could be re-sold to present competi- tors for a better price than they were now willing to give. This wrangle among the fishermen must be imagined as completely settled before the hunter comes into con- sideration at all. The question being settled amongst them is not: What price shall we get for our fish? but: Who among us is to have the privilege of exchange with the hunter at all? This privilege stands to the struggle between the several fishermen exactly as the extra five or ten fish to be had by barter did to the struggle between the single fisherman and the hunter. There is oppor- tunity for only one to exchange. If one gets it the others must lose it. The struggle does not in any way hope to increase the opportunity for exchange, which amounts to one hare, no more, no less. It does not aim at determin- ing the rightful owner of the privilege; that would be properly settled by record of the fish brought to market each day by each individual: the natural price of that individual, so to speak, in the face of the coveted privilege of exchange. It is purely a struggle initiated by the most selfish to reserve this privilege each to himself, by its re- moval away from the individual excelling in productive skill or energy, whose natural price for the privilege would be the highest, to the individual who excels in ability to barter. In the case of each sort of barter: that between the BARTER 87 solitary hunter and fisherman and that among the several fishermen, the question raised and settled is one of identity of ownership, not of total quantity of goods. It is one of specific or relative valuation, not one of absolute value. If there be more of value on one side .of the parley than there were in the first place, as the result of skill in barter, there will be less on the other. The Double Nature of Commercial Success. Success in either sort of contest may be forwarded by superiority in either one of two fields : In production or in bargaining. In the first field will arise a natural, whole- some desire on the part of each healthy worker to surpass his fellows: selfish, if you please, but nevertheless con- ducive to greater wealth in the community and to greater health and wealth for the individual. In the second field will also naturally arise a similar desire for personal superiority; but that it is unwholesome for both Individual and community in its results and quite in contrast to the first it is the task of these following pages to demonstrate. This desire, evinced in the field of production, we shall call emulation. That in the second field we shall call either barter or bargaining or competition, almost synony- mously. So far as all economic and ethical characteristics and results are concerned the latter three terms are exactly synonymous; the laws stated in terms of one are equally true of the other. The only distinction to be made in any event is a minor one of form, as already brought out. But as a single term Is much needed which shall serve to cover, in blanket-fashion, all effort of this character within the community, this minor distinction of form will be neglected and the term competition will be used to include all three, and as contrasted with emulation. Indeed, one of the prime objects In so doing is to bring home to the reader the clear Impression that all activity of this nature^ 88 THE COST OF COMPETITION no matter In what walk of life it may occur, or with what tools or aims, or whether with consciousness of its evil fruits or otherwise, carries with it inevitably the concomit- ants and results here to be broadly ascribed to it. In the case of both emulation and competition the In- stinctive individual impulse to surpass and succeed Is natural. Physiologically they are identical. The economic results of the two, however, are as opposite as the antipodes. Because these words emulation and competition have never before been contrasted, to the author's knowledge, nor used with any technical significance equally exact with that assigned to them here, and because It is the prime object of this entire volume to draw out their contrast and significance, a separate chapter will be devoted to their definition and discussion. VI EMULATION AND COMPETITION THE word competition, as defined by the diction- aries, is practically synonymous with the words emulation and rivalry. The modern use of the word, however, in its commercial connections, has come to have so widely different, so distinct, so very antithetical, a meaning from these former synonyms that it seems need- ful to write this book to call attention to the fact. For the purposes of this volume, therefore, the two main ideas which we have already begun to contrast, in their economic aspect, under the terms Production, on the one hand, and Barter or Bargaining, on the other, will be considered in further distinction, in their ethical aspect, under the names of Emulation and Competition.^ Emulation. Every activity of man calls for a cor- responding psychic impulse, to stand sponsor as its cause. In the case of activity directed toward the production of value, this impulse may be any one, or all together, of three quite distinct ones. In the first place may come desire, the relation between the man and the thing which he hopes to enjoy, when produced, in consumption. In the second place may come initiative, the wholly self-con- tained and instinctive impulse which arises within the individual from a surplus of muscular, mental or nervous energy. In the third place comes emulation, the impulse 1 The word rivalry is excluded, as possessing romantic associations which unfit it for the cold-blooded work of economic analysis. 89 90 THE COST OF COMPETITION which depends solely upon the individual's association with other individuals engaged In the same line of work. Since this discussion concerns only questions of the economic relations existing between man and man, cognizance will be taken here only of the last-named Impulse, emulation, and In these pages it will be understood as meaning only that personal pride in, and the strife for, comparative success over one's fellows which arises within the individual who finds himself one among a company all of which Is active in the field of Production. Competition. Since production, as has just been stated, may be the result of any one, or all, of these three psychic Impulses, it Is necessary to have one term for the particular impulse In which we are interested and another for the economic activity common to all three. In the case of activity in barter, however, there can be only one sort of causative impulse, and that One is based upon the relations existing between the individual and his fellows. It is quite possible to imagine a man as undertaking Pro- duction, from either desire or initiative, when competely isolated from all other men. It Is impossible, however, to Imagine him as undertaking Barter except as a form of relationship toward another Individual. There is there- fore no need to distinguish between the psychic impulse and the resultant activity. The word competition will be used to denote either the actual activity In the field of barter, — that is, in effort aimed at the transfer of value ALREADY PRODUCED from one ownership to another, by any other means than illegal violence, — or the spirit which lies back of It. To go still further back Into biological processes, the original psychic impulse which leads the Individual to assume the competitive attitude may be, under existing laws and conditions, any one of quite a number. It may EMULATION AND COMPETITION 91 be envy, greed or wanton vindictiveness, upon the one hand, or the most natural and wholesome impulses of self- preservation, acting under necessity, upon the other. Like the dealer in impure milk, the conscience of the competing individual may cover any degree of consciousness of guilt, from the most brutal disregard of other persons' welfare to the most thoughtless acquiescence in an existing state of affairs which there is no apparent reason or way to alter. With all of this, economic discussion has no concern. That Is the business of the moralist. But when any one of these impulses has led the individual to assume the competitive economic attitude toward his fellows there is necessarily present a corresponding competitive psychic attitude which, as a matter of relations between men, it is proper to recognize and name. And since, whatever may have been the original impulse, the result to the outside community, as in the case of the ignorant dairyman, is equally destructive, one name will suffice to cover the entire phenomenon. To both the psychic attitude and the economic activity, therefore, is assigned the name com- petition. The word will be understood to cover impar- tially the dicker over the price of exchange between sepa- rate goods or trades, or over the price of labor, and the strife between individuals over questions of privilege of ex- change; it must consequently include also all questions of legal ownership of goods or privileges. Emulation and Competition Compared. As already pointed out, production may or may not be conducted in a spirit of emulation, or of personal pride, either arrogant or charitable, in one's superiority over one's neighbor. Undoubtedly the best grade of productivity is developed by Its presence. Nevertheless, both Initiative and desire furnish good seconds. But barter, on the other hand, cannot possibly be conducted without a sense of 92 THE COST OF COMPETITION relationship toward one's fellows; and even a cursory examination will reveal the fact that the competitive rela- tionship is not and cannot be a pleasant or a wholesome or an unselfish, Christian one, whatever may be the nature of its results. It is, in its very essence, an egotistical, over- bearing thing, conceivable with the doer only in relation to the overcoming of other people. Whereas a great deal of very useful production is carried on solely for the love of the work done, with almost entire unconsciousness of what anyone else is doing in similar lines, with objective consciousness only of the raw material in hand, competi- tion, on the other hand, from its very nature, can be objec- tively conscious only of other individuals : those whom it seeks to contravene. What the emulator gains by his striving no one else loses; it comes from the unending bounty of nature. But what the competitor gains can possibly come only from his opponent's loss. With com- petition, therefore, in order to completely describe its nature, there must be added the idea of an aggressive desire and attempt at circumvention, frustration and annul- ment of the other's efforts and enjoyment which is quite foreign to emulation. ^ Only in the most unnatural individuals is the natural, wholesome emulation of two men who are working side by side at a common task tainted with an unnatural, sickly 2 W^hen the present argument reaches the point of considering what is called "barter-cost" it will be seen that a great many individuals are engaged in competitive activity as hirelings of the leaders in the struggle. They are paid a salary or wages to "push" some article. In their en- deavors to do this honestly and well they are often quite unconscious of the true nature of their efforts. They are doing their best to earn their income, and whatever success crowns their work seems to them merely as so much good created out of nothing. It will be seen later that this never can be true. But the point now to be emphasized is that they can honestly think so only when their station in the competitive ranks is a com- paratively low one. Their employers always know well that each sale they may make, each contract they may close, is merely one drawn away from the enjoyment of an equally hungry competitor. EMULATION AND COMPETITION 93 envy,, which meanly seeks the destruction of the other's goods more than it does the increase of one's own. There are such men, but they are fortunately in the extreme minority. With competition, however, it must be recog- nized at the start that the underlying idea of the whole process is just this hope of undermining another's welfare. As already pointed out, it does not necessarily arise from inherent meanness of spirit on the part of those entering upon barter; but it not only begets it, but it demands its cultivation before marked success may possibly be attained. It exists primarily because the institution adopted by public opinion for the determination of the price of ex- change permits no other attitude, permits increase of one's own goods, in exchanging, only through the medium of the active decrease of another's goods. Since all men are at all times most anxious to carry on, from mere appetite, the greatest volume of exchange and con- sumption possible, there is plainly no need to promote these processes. There is no need of other prelimi- nary to exchange, after production, than the determina- tion of an equitable price. Such a determination would appear, to the rational investigator, to be a mere ques- tion of accurate record of individual production, a purely intellectual question, its peaceful scientific settle- ment, in a civilized community, to be accomplished by rea- son and to be protected by law. But the reference of the matter to barter for settlement allows the public reliance to lapse, instead, to a balance of personal forces which are quite other than rational; in reality to the clumsy method of approximation known as the trial by nerve-duello. In all forms of duello success may be at- tained only by doing harm to one's opponent; but for refinement of veiled malevolence, of result if not of will, the duello which was relied upon in questions of criminal 94 THE COST OF COMPETITION law before the Carlovinglan kings cannot compare with the form of duello known as barter which is relied upon by the twentieth century for the settlement of all questions of economics. The instinctive contemnation of its spirit, by all peoples at all times, is best attested by the attitude of the world toward the Jewish people and their racial avoca- tion. But it is not the pawn-broker nor the ready-made- garment dealer of New York's East-Side, operating upon a microscopic scale, who best typifies the meanness of barter. It is the stock-market and its offspring, the " trust," operating upon a scale in which millions are units, respected, upheld and deferred to by the highest In the land, with its " corners," Its forced sales. Its purchases " short " and its deliberate fluctuation, whether by " bulls " or by " bears," of the valuation of securities owned by helpless individuals scattered all over the land, — solely in order that self may gain through loss by the opposing faction and by the public, — which Is by far the baldest Instance of this process now extant. Emulation vs. Competition in Relation to the Commonwealth. In emulation the underlying Idea Is to produce more wealth than one's neighbor. The funda- mental impulse back of this Idea may be taken. If you choose, to be pure selfishness, that one's self may enjoy the consumption of more wealth. But If this selfishness be compelled to seek satisfaction by exertion against natural obstacles, then must one's neighbor be benefited incidentally to one's self. It is only when the selfishness Is permitted to seek gain by another's loss, by exertion against human resistance, that it may become harmful to anyone but self. But if this be forbidden and the selfish- ness be guided into emulative channels, there arises closely second to it the pleasant consciousness that the extra effort Is resulting in a gain to the community as a whole. The EMULATION AND COMPETITION 95 worker and the rest of society are both better off for his emulative striving; there are more goods in the world; all commodities are more easily obtainable. His neighbor is no worse off than before, except for what loss of pride accompanies defeat in honorable contest, breeding lusty stimulus to further effort. As this reaction always appears in the neighbor, to some degree at least, the result of the emulation is an increase of the loser's wealth as well as in the winner's. Both of them produce and possess more wealth, as the result of the contest, than they did before : one with and the other without added honor and prestige. Therefore it is to be stated with especial emphasis, as the thing primarily characteristic of the nature of emula- tive production, that, whether it be undertaken from the most sordid or from the most altruistic of motives, the results accruing to all parties actively concerned, and to the public outside, are alike a gain in wealth and in bodily com- fort, the latter differing between the several parties only in degree. But in competition the underlying idea is just the opposite of this increase in the production of wealth. It is to secure more wealth to the striving individual alone, not by producing more from the bosom of Mother Earth, by making two blades of grass grow where one grew before, but by getting it away from the store already ac- cumulated by one's neighbor; and if, incidentally to the effort, the neighbor may only be somewhat discouraged also, so that he shall not resist so strenuously the next time, why that is further gain to the bargainer. Barter Further Defined. In its present form, com- plicated as it is by the intricacy of modern life far away from the simple elementary bargain between fisher- man and hunter which was adduced for the sake of illus- tration, barter may be defined as the forced passage through one's hands of the ownership of either goods or 96 THE COST OF COMPETITION the chance to labor at the greatest possible profit to the temporary owner, or, what is the same thing, at the greatest possible cost to the community of the value con- cerned. This means that, in the case of goods, the result- ant price will be the highest which may possibly tempt pur- chasers; in the case of labor it means that the lowest wage will prevail which will possibly tempt labor to exertion. The standard phrase for this method in railroad economics is " charging all the traffic will bear." The same practice is the standard, and the only successful, policy in all forms of business. The widespread delusion that business-effort consists in keeping prices as low as possible merely shows how universally the profit-seekers have been able to deceive the public, often including themselves. The con- stant aim of all business-endeavor is undoubtedly to make prices seem low. Owing to the opposition of the other dealers in the same line it is undoubtedly also the aim to make prices actually as low as possible, — if the word pos- sible be interpreted as meaning " consistent with getting the maximum of profit transferred from the community to their own pockets." Even if " quick sales and small prof- its " be the motto which leads to success, it none the less remains an incontrovertible fact that if the seller thus derives a greater net income he has drawn from the pockets of the people a greater tax for his support; nor does the fact that he has handled more goods offset the loss, for it will be developed later that the total amount of goods thus handled to the community cannot be increased by any such means. What he has handled his competitors have failed to handle; and if the quick sales have been artificially stimulated by extra expense in adver- tising, for all this, too, the buyer must pay, and the cost to the community is thus doubly increased, although trebly disguised. EMULATION AND COMPETITION 97 When the final survival of the fittest proclaims the most successful business-man, it always develops that he became so because he concentrated his skill and effort not upon keeping down the cost of production, but upon keeping up prices. The common run of little profit-seekers, who scrape along upon what they consider to be a bare living, always make this mistake, of honestly trying to sell near the cost of production, — though where is the one who strives purely in this line ? The successful fellows are those who abandon all pretense of handling goods and perform- ing service; who go in, instead, simply to " make money.'* And they do make money, because times are " good," when prices are at their highest, which is naturally the time of greatest hardship to the consumer. For all of such effort, whether of trying to buy cheaply or to sell dearly, society as a whole cannot possibly be any the richer ; the loser at the game is certain to be the poorer. While this effort is not, of course, to take away the other's wealth by visible physical force, which would be bald robbery, yet it is the nearest possible thing to this which escapes the eye or the hand of the law: the persuading him to relinquish his legal title to his wealth (or to that portion of it which constitutes the profit under dispute) under the artificially created and more or less forced idea that it is profitable, or expedient, or necessary for him to do so, when it is not. Whatever the method, however, or the conscious motive behind it, the effort is aimed straight at the other's loss ; in no other way can barter suc- ceed in amassing wealth or in demonstrating the personal superiority of its initiator. ^ 3 In the State of Ohio exists a factory which has become world-famous as exemplifying the most advanced ideas as to the most humane methods of organization of workmen under the modern factory-system. To de- scribe in detail the democratic, cooperative government of its depart- inents by committees, the bathrooms, tjj^ ^JBing-rooms, the retiring-rooms 98 THE COST OF COMPETITION It IS only the tremendous complexity of modern indus- try and commerce which prevents its always being per- fectly plain to the bargainer, and to the onlooker, that what he gains by bargaining the other must lose. So prev- alent is barter as the standard avocation of the most prominent classes of society that it is this fact alone which preserves one's faith in the general uprightness and generosity of the race. Because of its inevitably being, however, an attempt at loss to one's opponent, it may be stated with the utmost deliberation and earnestness that premeditated entrance into barter with another over the price of goods or of labor the quality of which is not in question, whether it concerns a ten-cent haircomb or a for the women-employees, etc., would quickly identify the place to the reader; for in these points it is unique. The president of the corporation I know personally to be one of the most generous of men. The vacation- trips in summer and entertainments in winter which he presents to his employees are phenomenal in their open-handedness. Yet at all this feast of altruism attends a skeleton. It occupies the center of the works and constitutes the explanation of the source of the power and wealth which permit this generosity. I call it "the cemetery," the graveyard of men's hopes and happiness. It is a room some fifteen feet square, as I remember it, almost devoid of windows and doors, the walls of which are lined to the ceiling with shelves. Upon the shelves are samples of every machine, originally competitive with the enterprise in question, which it succeeded in driving off the market before it could attain to the ability to give trips to the World's Fair to hundreds at a time. These machines are not upon the shelf, literally and figuratively, because their mechanical design possessed no value; for very many of their essential features are now made use of, incorporated into the design of the victorious corporation. They are there because the law of barter permits a competitor whose goods possess merely a greater (but not the only) value to entirely cancel the earning-capacity of competing goods which possess a very substantial, but a lesser, value. How many broken hopes and broken families are represented by this cemetery no one may ever know, with accuracy; but anyone who looks upon the display can readily believe that our generous- hearted president must labor in charity for more than one lifetime before he can erase from the books of the recording angel the account of what he has done — was forced by existing law and public opinion to do, perhaps with no malevolence on his part — in ^'establishing his business." EMULATION AND COMPETITION 99 ten-million-dollar railroad, is as thoroughly and funda- mentally a selfish and unchristian act as is any open to human choice. The fact that familiarity with the sordid deed has bred respect, or at least toleration, for it does not alter the truth as to its inherent nature. Emulation and Competition Contrasted. In order to demonstrate the truth of this statement and to com- plete the distinction between the two opposite pro- cesses. Emulation and Competition, in their fundamental type, the following parallel columns are presented, to contrast their opposite effects upon the surrounding body politic, as well as their reactionary effects upon their followers : EMULATION is strife to see who may add the most wealth to self and to the body politic simulta- neously, by increasing one's natural productivity. It con- stitutes the chief motive power of production, and therefore of pure exchange, or true commerce. COMPETITION is strife to see: (i) Who may secure away from his neighbors the chance to begin to produce wealth; for the ability to find a market for one's goods or labor, at any price, is a plain preessential to production; (2) Who may acquire from his neigh- bors the most of their wealth, by exalting prices in selling to them or by depressing prices in buying from them, in so far as ability will permit; (3) Who may most decrease the wealth of the body politic (though the barterer is not conscious of this purpose except when he tries to beat the govern- ment) (a) By excluding others from the privilege of exchange or of labor; that is, by controlling the market; or (b) By decreasing production so as to maintain or exalt prices; For by either plan the active, aggres- sive bargainer wins. Either process con- stitutes a restraint of trade, — a restraint merely of the other fellow's trade, as the bargainer sees it, but none the less a re- straint of the total volume of trade. lOO THE COST OF COMPETITION In emulation the efforts are side by side, or parallel, and the economic resultant to society must consist of the sum of the individual forces exerted. This is shown in In competition the efforts are face to face, or opppsing, and the economic re- sultant to society must consist of the dif- ference of the forces of the several indi- viduals. This is shown in Fig. 2. If mil represent, each by its direction and R P Fig. I. Emulative Eiforts Fig. 2. Competitive Efforts Fig. I. If mil represent, each by its direction and magnitude, the productivi- ties of a number of individ- ual producers, of differing ability, active upon a given field of production FF, then (i) Their directions must be substantially parallel. Equilibrium insures this. Education, imitation and ri- valry all lead the individual to harmonize his efforts, in magnitude, the forces exerted by the same Individuals as in Fig. 1, but now active in competition about the common cen- ter C, then : (i) Their directions must be either centripetal or centrifugal; that is, either seeking a single objective opportunity for sale, exchange or employment, or else seeking to divert a given single subject- ive opportunity (a purchaser) each into EMULATION AND COMPETITION lOI production, with the general trend of advance. (2) The resultant net productivity of value to the community is shown by R and is practically equal to the sum of the component forces. his own shop. (The average number of such radial forces about a single center, in actual life, is about live or six.) (2) The resultant net productivity of value to the community is shown by R, the geometric resultant of IIIII. This is, in one sense, equal to the difference of the component forces. If one man's effort or efficiency should increase at any time, it may be expected, from the natural spirit of rivalry, that the eifforts of the others will increase similarly, in response. This is equally true on either side. Therefore : (3) The resultant net gain to the community, in such case, must be approxi- mately as many times the increase of the original worker as there are co- workers. (3) The resultant net gain to the com- munity, in such case, must bear a very small proportion to the total increase in effort. If the growth of each worker's eifort is in uniform proportion to his orig- inal effort, the net gain to the com- munity must bear the same proportion to the total increase of effort that R of Fig. 2 does to the sum of all the I-forces (R) of Fig. I. If the growth of each worker's efFort were alike, there would be no resultant change in R: the net gain to the community from all this increase in skill and energy ivould be just zero. (4) The direction of the common progress of society is in the direction of each man's efforts. Therefore, the direction of individual mo- tion, which is determined by the effect of the resultant force upon the common mass, is always positive. It is in the direction of his own effort and of the community- effort. Each citizen observes (4) The direction of the common prog- ress of society is in the direction of the efforts of less than one-half of the competi- tors. Therefore, the direction of individ- ual motion, which is determined by the effect of the resultant force upon the common mass, is very largely negative. A large proportion of the competitors ob- serve that their individual efforts are crowned with failure and that their mo- tion is an enforcedly backward one, hope- lessly overcoming their most strenuous I02 THE COST OF COMPETITION his efforts crowned with suc- cess and stamped with the approval of the community. His moral attitude is, there- fore, one of gratification, enthusiasm, renewed hope and patriotic pride. His physical attitude becomes a corresponding one of re- newed vigor. His pride in his work sustains him more than does the food which it brings to him. efforts. {Bradstreet's reports that some- thing like 90 per cent, of all new com- mercial ventures are failures.) The re- sultant moral attitude is therefore one of disappointment, of dejection, of sullen enmity or vengeful rage, according to the individual make-up. The worker's phys- ical attitude becomes either one of list- lessness or, if vigor be retained, it tends to be diverted into moral dissipation or into violence, as occupations bringing more satisfaction than does labor. He is tempted to become, — indeed, he is forced to choose between becoming, — either a cynic, a drunkard, a gambler, a tramp, a criminal, a lunatic, a suicide or an an- archist. Escaping all of these, — for there are all degrees of entanglement in this situation, — he is at least forced into that familiar class where we speak of him, as kindly as we can, as one who has " lost his grip." (5) The velocity of prog- ress, due to the action of the resultant force upon the common mass, is much greater than that which would be due to the efforts of the individual alone. Each has the sense that the others are helping him. The moral and physical well- being just noted is still fur- ther enhanced thereby. (5) The velocity of progress, due to the action of the resultant force upon the common mass, even as observed by those with whose efforts it coincides in direc- tion, is discouragingly small. Even to the successful man success does not seem prompt or complete or satisfactory. It is tasteless. He awakens, usually in later life, to the bitter realization that the ut- most skill in bargaining cannot possibly win one happiness. (6) With the individuals associated in emulation there is no inducement to depart from parallelism and there is every inducement to per- fect it. (6) In competition there is every in- ducement to attain the minimum of par- allelism and the maximum of concentra- tion about a common center. When the forces are centrifugal it is plain that the system is in stable equilibrium: that the resultant will move the common mass toward a point where all the forces are equally centrifugal, the resultant is zero EMULATION AND COMPETITION 103 and no more motion is possible. When the forces are regarded as centripetal, any- angular gap on one side, which alone could make the resultant R of appreciable size, reveals an opportunity for the en- trance of a new competitive force, the addition of which will bring the system again into the maximum degree of neu- trality. It will be proven later that there always exists upon the outside of any such system a pressure which will force into It additional centripetal energy whenever opportunity occurs. ( See page 184.) This last statement in regard to competition is the same, In other form, as that given on page 81. Complete bal- ance of the radial forces would, of course, result in no motion at all. The truth of the law is shown by the fact that such deadlock as this is exactly what Is occurring repeatedly, In actual commerce, under the name of " hard times " ; but it Is only local and temporary. Some motion of trade must be permitted, of course, else the radial forces would lose their sustenance and die away. But It always tends toward a minimum, so far as barter Is influential in guiding it. It Is emulation alone which promotes all industry and all commerce; it is competition alone which limits that activity to Its present repressed configuration. The play of forces which has just been discussed in an abstract, general aspect develops concrete illustrations in any walk of Industry or commerce which one may choose to enter. In any such case It Is vain to expect that the regrettable effects of competition will be visible in the pe- cuniary returns, or the lack of them, awarded to the parties directly engaged therein. Indeed, quite the oppo- site Is true. The most gainful of all occupations, to the individual. Is successful barter. This paradox, that the I04 THE COST OF COMPETITION one line of effort which accomplishes practically nothing more than the negativing of a neighbor's equal effort in the opposite direction should be more highly rewarded by the community than is effort productive of value, consti- tutes the last and heaviest indictment of the competitive system on the score of injustice ; but the explanation of the fact involves a discussion of the interaction of two such systems as Figs, i and 2 when operative side by side within the same community. This task involves more than the simple diagrams just presented and must be deferred to a later page. Nevertheless, no actual incident of competi- tive commerce can be investigated, in terms of what has preceded, without according full evidence of the absurdity and the inefficiency, if nothing more cruel, which is ever characteristic of the competitive plan of procedure. For instance, let it be known in the open market that a certain mill-owner desires a steam-engine. In this case the consumer is not one of the common populace, influenced by the fashion of the hour or any similar whim. He is neces- sarily a man above the average of intelligence, although it is quite proper to assume that he is not an engineer. He enters the market impelled by quite other motives than psychic desire. He has no craving for steam-engines to be gratified. On the other hand, he probably decides to buy one with great reluctance; he would much prefer to keep his money in his pocket. But he needs an engine to perform a certain service in his factory. He knows what that service is, but he is not supposed to know what sort of engine will best perform it; that is the business of the professional engineer. The supply of that engine, on the other hand, will not ordinarily bring with it the myriad of economic questions arising in the production of any finished article from the raw material, such as land-rent, interest, taxes, etc. With EMULATION AND COMPETITION 105 engines of moderate size experience has resulted in the sur- vival of a half-dozen standard types, each of which is especially fitted for some particular sort of service. It is the buyer's task to select the correct type to suit his own particular conditions. Nearly all engines are built by one party and sold by another. To the seller they come from the factory com- plete and unalterable. They appear to him as a box ready , for shipment and a charge upon his ledger. Of all I economic and engineering questions which lie back of those items he Is totally unconscious, economically speaking, if I not in actuality. But between the mill-owner who needs an engine and j the series of boxed engines awaiting his orders in their ! warehouses there arise two questions. ( I ) Suitability to his purpose ; (2) Price. j To settle these questions there journey to his mill-office I a set of representatives of the several engines : commercial I travelers of the highest type, practically all of them col- lege-bred engineers, usually of good family and in the pride of their youth. Their object in coming is threefold : ( 1 ) To secure the order; (2) To take it at a good price; and (3) Quite Incidentally to the others, to furnish the buyer with the engineering information necessary for an intelligent choice productive of value and satisfaction. The Importance given to these several objects, In the mind of the seller, is In the order named. Their impor- tance to the buyer and to the community, as a matter of fact, is exactly the opposite: (3) should come first and (i) and (2) should not enter, to the consumption of valuable time and effort in no production of value, at all. It is also properly to be assumed that the several io6 THE COST OF COMPETITION engines are all equal In the honest quality of their work- manship. It is usually so in actual practice, if we exclude a small and utterly worthless minority ; but their different designs make them of varying suitability to the mill- owner's purpose. What are the results, to both parties to the conference, of this method of attaining a choice? As to the salesmen and their backers : ( 1 ) One only can possibly secure the order, The^ rest are inevitably condemned to failure. There are any- where from two to ten of them. Any one of them could have given all the information needed, aided the buyer to a really intelligent selection, taken the order and had the engine shipped, in one-tenth of the time actually con- sumed, had he been paid his same salary to represent all of the engines impartially. But instead, all but one of these young men are Inevitably destined to journey, argue, scheme and worry, wait and go home again, probably repeatedly, utterly In vain. An efficiency of result ranging anywhere from fifty down to ten per cent, of the con- tributed effort certainly does not speak well for the intelli- gence of the competitive plan, in the light of modern refinements of efficiency. (2) The order has to be taken at the lowest price at which the winning representative can afford to handle the job and continue to do business. Although the efforts of the five losing salesmen have finally left in his hands the job, the privilege of building an engine, they have at least forced him to accept the task at a remuneration so low that It is questionable whether he wants it or not. So productive of human happiness to all Is this plan! As to the buyer: ( I ) Instead of having the comparative advantages and disadvantages of the several machines laid impar- EMULATION AND COMPETITION 107 tially before him, that he may make intelligent and accu- rate choice, he has had to contend with the efforts of six intelligent young men attempting to blind him and guide him in six different directions. In a maximum amount of time and effort he has obtained a minimum amount of information, of a minimum quality as to reliability and lucidity, — if, indeed, he has not been accorded a deal that he were richer without. Any one of the six young men, if he had been equally supplied with the records of the several engines, if he had been impartially related to all of them and had not been interfered with by the other five, could have aided the mill-owner to a far more intelli- gent decision in one-tenth of the time actually taken for negotiation. But no one of them is permitted to try to furnish true information. He need not always deliber- ately lie, although the temptation is great and human nature is weak; but he must confine himself to those half- truths which throw the best light on his own engine and which derogate the others by inference, — a procedure which is separated from unmitigated deception by an utterly impalpable line. If, for instance, his professional judgment leads him to believe that another engine than his own would better suit the service proposed, his whole atti- tude is inevitably either one of falsehood to the buyer or of falsity to his employer. (2) As to price, that shows the worst failure of all. The engines were already in the seller's hands, perfect and complete, before negotiation opened. When it is con- cluded one of them is transferred to the purchaser's ownership, absolutely without alteration or Improvement, at just about twice its completed cost as it left the factory. For of course the selling-houses are not doing business at a loss, — " for their health," as the phrase goes. If they sell an engine only once out of every six expeditions made io8 THE COST OF COMPETITION by their salesmen, that one sale must bring in enough gross profit to cover the cost of all six negotiations, with a margin over for net profit. It is inevitable that the consumer shall pay the whole cost of competition. But what he loses the seller does not gain. Most of It has been lost in abortive effort. It has already been pointed out that the seller failed in all of his objects except to scrape what he considers a bare living. How completely has the buyer failed, also ! He started out to buy at the lowest price possible. But he started out in the wrong way: the rriethod of barter; and when it is finished and he has paid the cost of conducting the barter he finds that his engine has cost him twice what it would have if there had been no barter, if all the bargainers were out of the way, with exchange left free and unhampered, promoted only by natural desire, by the law of supply and demand. Then he would have gone to a warehouse where all the engines were displayed, side by side, each with its record published in full: its failures and its successes, and where all were represented impartially by a single salesman skilled as to the proper field for each. There he would have purchased with a maximum of accuracy and a minimum of time and effort. As to the engine itself: (i) The primary effect of the salesmen's efforts Is to conceal, to the maximum degree possible, the true com- parative merits and demerits of each. But the sole guide to all evolutionary progress is the survival of the fittest. There is no line in which it is more essential to our material prosperity than In the consumption of articles involving technical skill in their production. To the prompt and accurate establishment of which of these Is, in any case, the most fit to survive, all barter stands, with all the power with which it stands for anything, as an EMULATION AND COMPETITION 109 absolute block. The only method of exchange and con- sumption under which the merits and demerits of each aspiring applicant for public favor shall be accurately determined with the maximum celerity is that of perfectly free exchange. The consumer will stand as the censor, with all the interest and all the impartiality which can be brought into the case: If he only be given that chance to Intelligently express himself which free exchange awards. The only advocate needed by any novel device or proposi- tion is the enthusiasm of its originator and Its own inherent merit, — -and both the personality of the salesmen and the material worth of the article which lie back of modern commercial success are very different from this indeed. It is further to be remembered that all questions back of the complete engine, boxed and shipped, were neglected. If there be need for emulation in order to attain to good engine-design and construction, there is the place for it; it cannot possibly enter the field of barter just described. But if the box be only opened, what a mass of competitive waste, instead of productive emulation, is laid bare! Every item In the entire engine: every standard screw, every pound of pig-iron, every day of labor; every adjunct to the making of any of them : every building, every tool, every piece of land, every mile of transportation, which has entered Into the furnishing of every minor item of the whole completed structure, — has been subject to the same competitive haggling over price and quality as that just outlined: just as unnecessary, just as Inefficient, just as costly ! At every step has this enormous burden of wasted effort and obscured truth been piled up until, to quote Carlyle freely, the greatest wonder Is that anything ever does manage to get itself somehow done, at any price, how- ever great. no THE COST OF COMPETITION Yet this is competition at its best, between intelligent parties, over goods where there is solid ground for tech- nical decision, where mere whim is not the chief motive in the buyer's choice, to tempt the evil powers of the seller, and where the prize at stake is a few dollars, more or less. Most commonly, with the staple commodities such as wheat, coal, cotton, etc., where the differences among a number of samples is to be determined only by microscope or test-tube, the needlessness, the obliquity and the waste of commercial barter are far worse than in the field described. What it is at its worst only God knows. Even in the sale of goods where the buyer is the ultimate consumer, instead of a mere director of its use, it is far worse. If it costs as much to sell a steam-engine as it does to build it, with a sewing-machine it costs twice as much and with a shoe or a sheet of paper five times as much. As the article decreases in size and importance this ratio grows, until in some of the minor articles of daily consumption It reaches several fold. In the exchange of ownership in the organizations where these things are made or sold, in the stock- exchanges of the world — where exchange, now no longer a pure hand-maiden to production, has become prosti- tuted to the pleasure of and maintained or starved at the mere whim of Barter — the evil of the Institution becomes far worse. The worst we shall never know. Not all the legislative and judicial probings of beef-trusts, railroad rates or insurance-company Investments may ever hope to unearth more than a tithe of the scandal. But in no such case does the evil develop as It does In the purchase and sale of labor. Here the things at stake are life and family, soul and honor, — not merely dollars. To even partly appreciate the situation we must first know more about it. VII SPECIALIZATION IN BARTER TO-DAY society has grown, In complexity of organization, far beyond the primitive period when each producer carried his goods to market and there bargained over their exchange for others. The same arguments which had already led to specialization in production, whereby, even in those primitive days, each man was a butcher, a baker or a candle-stick maker, and not all three at once, would naturally, and eventually did, lead to a further subdivision In specialization: namely, that between production on the one hand and barter on the other. If barter Is to exist at all. If It be true that we have not yet learned how exchange may be effected with- out It, It were plainly better that those individuals who were equipped by nature to succeed best as producers should concentrate all their time and talent upon produc- tion, while those best adapted for bargaining should devote all of theirs to that avocation. This specialization was not effected until very late In the history of economic evolution. At a very early period arose the merchant, to be sure, whose time was largely and Is now often wholly given to competition ; but his use- fulness in the economic world was also largely due to the fact that he carried a stock of goods. When the political environment of production and exchange was more un- certain than it Is now, and when lack of transportation exposed each locality to the full measure of local irregular- III 112 THE COST OF COMPETITION ity In production, the necessity for carrying stocks of goods was much more vital than It Is now. Competition, too, was narrowly restricted by political limitations and the lack of transportation. In consequence, the merchant of the earlier centuries was much more a supervisor of deposit of goods for exchange and an Insurer against fluctuation In valuations than he was a bargainer In the modern sense of the term. To-day, however, this relation Is quite reversed. To-day he very often possesses no stock of goods at all; all of his business Is done on the basis of orders upon the warehouses owned by someone else, or by orders upon someone who possesses such orders : securities, as they are called. Reverting again to primitive Illustrations of economic principle, rather than to early periods of economic history. It may easily be Imagined how the Illustrative community of fisher-folk soon gravitated Into a better plan for barter with the hunters than the one previously described. The competition between the fishermen for the privilege of exchange would soon develop the fact that some one or more among them possessed exceptional talent for driv- ing a bargain. Such persons could of course bring home from market a greater proportion of hares for a given supply of fish than could the average fisherman. Hence, it would pay the majority of the fishermen to strike an agreement with these Individuals, saying: *' You repre- sent us at market, taking charge of our fish there, exchang- ing them for hares upon the best basis you can secure, and bring us back the hares. For your time and trouble we will then pay you In both fish and hares." As that method would save for both parties the split in character of work, between fishing and going to market, it would constitute a gain for both of them. It would soon develop, of course, that one bargainer SPECIALIZATION IN BARTER 113 could handle the fish of a great many fishermen. Nor would It be long before the hunters, perceiving the gain which the fishermen had effected by thus organizing them- selves, would follow suit. Thus would the community divide Itself, for the first time. Into the two fundamental classes of modern economic organization : ( 1 ) The Producers of Wealth, the greater in numbers and, on the average, the lesser In skill ; and (2) The Bargainers for Valuation, in the minority as to numbers, but embodying the bulk of the community's fund of nervous energy. The dividing line between these two classes, it Is to be noted, runs across all of the lines which divide the trades one from another. Each line of production possesses both Its producers and its bargainers. But at the present time the complexity of organization Is such that each of these two classes appears as Itself Involving many sub- divisions. Into speclahzatlon upon some special field of or aid to production or bargaining, as the case may be. This statement brings us Into contact with the most Important of all of these special applications of barter: Capitalism The subject must be opened with the following pre- liminary definitions. The term capital will be found to have been more fully defined upon page 18; the term capitalism will be more fully defined upon page 139 and following. A full comprehension of both terms is to be had only from the context. Capital. Capital Is the material creation of labor, such as tools, buildings, etc., which labor amasses and uses in its productive efforts for the further creation of value, or the earning of wages. 114 THE COST OF COMPETITION Capitalism. Capitalism is the legal ownership of cap- ital by the capitalist. It is a creation of legal artifice, not of productive labor, and is used for the collection of interest or dividends, and not for the production of Value. To illustrate the distinction drawn here let us revert again to the hypothetical community of fishermen. It may be imagined that at first the available instruments of Industry were nothing more than lines, hooks and bait. The producers were compelled to stay on shore and fish from the rocks. Then, supposes General Walker, some one among the savages more enterprising than the rest, instead of wasting in sleep and gluttony the spare time afforded by a season of plenty, took his store of dried fish into the woods and there devoted his time and ingenuity to the construction for himself of, first, a raft, and later, as he became more skillful, a canoe. It is obvious how the possession of this canoe might expand the productive power of this man. Not only are fish apt to be more plenty offshore, but they are usually less variable In supply; and even when variable or wanting in one off- shore locality another might be sought, with the help of the canoe, where plenty existed temporarily. In General Walker's picture of such an elementary economic community he proceeds to develop from the situation the power which the canoe-builder's thrift and ingenuity had given him over his fellows: how he soon found it more profitable to stay ashore, hiring out his canoe to the fisherman who would give him the most fish for the use of It; how the additional leisure gained In this way permitted the building of more canoes and their rental ; how these rentals accumulated and multiplied until they amounted to plethora, and our primitive capitalist retired from active life to live in ease upon the returns from his past labor. SPECIALIZATION IN BARTER 115 Such is the attractive picture of worldly independence as the result of thrift and industry drawn by General Walker, with the moral plainly pointed that such is the path which anyone may tread to the same goal, if supplied with the same fund of honorable thrift and industry to begin with. It is quoted here because it typifies the exist- ing popular conception of affairs among a very large pro- portion of educated people. More careful analysis, however, does not justify the same conclusions. It reveals, in the first place, that the process described by General Walker as a single elementary one is in fact complex and composite; that, in the second place, the nature and effects of its several parts are quite opposite in character; and that, finally, the existence of one of them in the body politic accounts in full for the very obvious fact that not everyone, nor even the majority, of those endowed with commendable thrift may hope for economic competence, not to mention independence, and that the people who do win these things very often display qualities quite the opposite of these. In the first place, it is important to eliminate the ques- tion of inventorship and its rewards from that of mere ownership; for this portion of the question is quite irrele- vant to the rest. Invention is merely a specialized form of labor; usually more productive than the other forms, it is true, and therefore deserving of reward with greater enjoyment of material wealth. But here must be reiterated with emphasis the plain fact that invention is indeed a mere form of labor, properly enjoying what It produces, as should all other labor, hut no more. Just what this quantity is may not be stated too dogmatically nor too simply. Moreover, the question is quite irrele- vant; for we are engaged, at present, in study of the proper distribution of wealth, not between one class of productive ii6 THE COST OF COMPETITION labor and another, but between productive labor on the one hand and capitalism on the other. Therefore the question of the proper reward for invention must be eliminated. It will be supposed that the art of canoe- building is already in existence and that the energetic young savage of the illustration merely copies others in building his canoe. If we suppose him advanced to the degree of success where he is recognized as a canoe-builder and is freed from the burden of using his canoes himself in fishing, by exchanging his current product of canoes for current supplies of fish, he then occupies merely the position of a specialized form of Labor engaged in Pro- duction, as do also the bait-diggers, line-spinners, etc. If law, order and equity be supposed to prevail, he enjoys in this way the full product of his labor. If so, no more current income than this can come to him in recognition of his current labor except as an abstraction from some- one else of the wealth produced by their current labor. What, then, is the exact significance of the income enjoyed by the retired canoe-owner of General Walker's illustra- tion ? To repeat, it cannot be value received as an equiva- lent for the labor expended in building the canoe; for such value is merely wages. That value the canoe-builder still holds in his hands, in the form of the legal ownership of the canoe itself, and can convert it into fish or cash at any time that he chooses to sell the canoe. Moreover, the in- come which he draws from the rental of his canoes has nothing to do with labor on his part, either past or current; he continues to draw this income even when he remains perfectly idle. It cannot be replied that he has to expend some time and effort in keeping his canoes in repair; for the fishermen using them must make good this expense. They have not begun to pay him a real net income or rental until after they have done so. The net income which he SPECIALIZATION IN BARTER 117 enjoys and which alone is properly to be called Interest is what they pay him over and above this expense. In short, this expense in maintaining the constancy of value of capital, its depreciation, must be paid by labor before either labor or the capitalist can derive any benefit from the existence and use of the capital. The next point to be noted, and the one of maximum significance, is that if all of the fishermen were equally equipped with canoes no net rental could be had for their hire. Any fisherman temporarily in need of a canoe, through the disability or absence of his own, occasionally might wish to hire one. But if so, it always develops that he can borrow one without hire. There are, on the average, as many chances of some neighbor being tem- porarily unable to use his own canoe as there are of some active fisherman being temporarily In need of one. There- fore It results that the rental which he is called upon to pay amounts to no more than the actual depreciation of the capital which he has borrowed. This Is exactly what takes place to-day In remote seaside communities, whither the summer-boarder has not yet penetrated in appreciable quantity: the rental of boats Is, to the city-person's Idea, absurdly cheap. But It Is not; It Is merely naturally cheap, covering depreciation only. The opposite situa- tion Is visible, however, so soon as there arrives in the community a substantial addition to its population In the shape of summer-boarders. These people possess no boats whatever. They do very much need them, how- ever, else will their vacation be a failure ; and, while they own no boats, they are equipped with purchasing-power, as are the active fishermen. Therefore the hire of boats rises markedly, and the mere ownership of a boat, without any expenditure of energy in using it, now becomes a source of current income. ii8 THE COST OF COMPETITION In the modern fishing-community, wherein the avocation may not be followed, in certain lines, without the aid of a steamer or a schooner, the situation is the same. The common fisherman, deckhand or pilot is, economically speaking, like the summer-boarder. That is, he needs the steamer for his uses. He has no steamer himself. He has, however, wherewith to pay others for the use of one: not immediate purchasing-power, but the productive power of strong and ready muscles instead. Out of this current productive power he pays a current hire for the use of the steamer, called interest, to the steamer-owner who remains idle on shore. To be sure, he is not con- scious of this payment, by the name of interest; but it is made, nevertheless. What he calls his wages is his real productivity with the interest on the steamer's valuation, etc., deducted before it is returned to him In cash. Therefore it must be obvious that the interest on the use of capital, which General Walker typified by the rental-price of the canoe, is in reality a money-measure of the need of him who has not, as perceived and enforced by him who has. It Is plainly a direct function of relative difference in wealth and in need between the several indi- viduals or classes of the community. It must sink to zero when those differences become zero. The lessons to be drawn from this observation are primarily three in number, viz. : ( I ) There is no possibility whatever of all individuals attaining incomes from the ownership of capital. If all citizens, or even the great majority of them, should suc- ceed in following the example, too often self-extolled, of the " self-made " man and accumulate capitalism to an extent equal with him, the immediate result would be that SPECIALIZATION IN BARTER 119 no one would any longer draw any income in the shape of interest, dividends, etc. The current rate of interest would sink to zero. However fast the masses may suc- ceed in accumulating capitalism, in savings-banks or other form, it is only to the degree that the larger capitalists accumulate more rapidly than they that interest-rates (actual, not apparent) may be maintained. (2) Since interest is drawn in complete idleness, after the initial effort whereby the capitalism was hired out or '' invested " and the agreement upon the interest-rate was established, it can in no sense be regarded as the return to the capitalist of the value of any productive labor, either past or current, upon his part. The past labor, if any, of acquisition of his capitalism is conserved to him in his ownership of the principal of his *' capital," which he can liquidate at any time that he desires his pay for that labor. Of current labor on his part there is none; he works only when his capitalism needs reinvest- ment, which is just when it fails to draw to him an income. This income, or interest, therefore, can be regarded as nothing else than a bald abstraction by the capitalist, from the productive labor which hires and uses his capital, of a portion of the value which the latter produces, which is demanded and collected solely because the capitalist possesses the power to demand and collect it. (3) The portion so abstracted naturally becomes, by gravitation, the maximum which labor can pay and still have left to itself a surplus, in the form of wages, which is somewhat greater than it would have enjoyed had it refused to hire the capital and had continued in hand-labor instead. If it be said that herein, at last, is the justification of capitalism: that it merely transfers to the owner of the capital the productive power of that capital, as evidenced I20 THE COST OF COMPETITION by the Increased productivity of labor with, as compared to without it, the reply Is fourfold, viz. : (i) What potentiality for the production of value lies in any original form of capital, such as a novel or useful invention, over the methods previously prevailing most obviously belongs, If to any individual, to the inventor. At present he seldom gets it; but if he does not, the capitalist certainly cannot step Into his shoes and claim It upon the same grounds. (2) What potentiality for the production of value lies In later replicas of the original invention, by whomever created. Is immediately visible In the market-price of these duplications; that is to say. In the principal-value of the capital. The only money which can honestly be demanded upon the basis of this claim Is a single payment of this price. If the law is to prevent swindling, by re- peated collections from the community for a single value produced, It should permit the capitalist to be paid for the creation of his capital only once. That Is the only pay- ment which It permits to any other sort of creative labor, no matter how continuously productive to the community the fruit of that labor may ever afterwards be. That is, it should protect the capitalist In the ownership of his principal; but all current payments which he may receive for its use, over and above actual depreciation, should be compelled by law, in ordinary justice, to count as pay- ments in purchase of the capital. This Is equivalent to saying that the true Interest should be zero. In other words, the claim with which this paragraph Is headed, if logically analyzed, furnishes no legitimate explanation of interest. Standard Oil dividends, for Instance, are reported to have ranged as high as 42 per cent, per annum. Dis- counting all considerations of watered or otherwise inflated SPECIALIZATION IN BARTER 121 valuations of stock, how many times must the original labor which w^as expended in producing the real capital, which this theory burdens with the responsibility for all of this interest, have been reimbursed for its exertions, since 1875? And still this labor is not paid — according to the argument that it is the original creation of the capital which justifies the drawing of interest. It has not begun to be paid. It still holds the full value of the principal as certificate of this work done so long ago. For this work it will acknowledge full payment only when, in addition to all of these payments of interest, the principal is liquidated. On all other stocks, usually earn- ing lower rates of interest, although the absurdity of the claim may not be so palpable, the injustice is just as pure. (3) This point can be brought out still more clearly if there be introduced into the elementary illustrative case still another step in specialization, one which is now an almost universal fact in modern industry : the one between the real production of capital and its mere idle ownership. We may imagine our canoe-builder, for instance, become so prosperous that he can afford to sit in the shade and to hire, with a portion of the rentals drawn from the canoes already in use, canoe-builders and repairers to work for him daily. These men receive wages for their daily work. It is ordinarily supposed that, in simple justice, they receive the value which they produce — this value being, as in any case, the gross value created minus the cost of the '' central-office " direction and accountance. If so, then the indebtedness for the original creation of the capital is canceled forever there and then, and no further just claim for payments of any sort may ever after be based thereon. If, on the other hand, interest be a sort of deferred payment, to the producer of capital, of that por- 122 THE COST OF COMPETITION tlon of the value which he created which was not paid to him at the time when the capital was created, then these hired creators of capital are not receiving just wages at the hands of their employer; he must be holding back something of their value produced, and when it later finds its way into his hands he is bound to turn it over to them. He cannot pose otherwise than as a trustee. If he holds back this portion of their natural wages and does not later turn it over to them, then is this merely another way of transferring value from its producer to one able to acquire It by force of circumstance; that Is to say, the employer assumes toward his employee the same attitude as the armed hunter did In bargaining with the unarmed fisher- man. It Is needless to say that actual interest-payments do not pretend to follow these lines of disinterested trusteeship at all. They therefore must not lay claim to the principles lying back of them. (4) The final point of significance as to the nature of interest Is that the great bulk of capitalism upon which interest Is now being drawn never was created by the capitalist at all. It was won by barter or was Inherited. Therefore the question as to the true nature of the capital- ist's proper income: interest, — whether rightful or the opposite, — turns upon the value to the community of the Capitalist's mere suzerainty of these replicas of Inven- tion's novelty, which were produced by Labor and acquired Into legal ownership by the Capitalist by methods yet to be explored. All of these considerations unqualifiedly Identify capital- ism and the collection of Interest as a species of barter. The points of coincidence whereby this identity are estab- lished are: (i) It has nothing to do with Production. Capital SPECIALIZATION IN BARTER 123 has, but Capitalism has not; and the capital is furnished by Labor, not by the Capitalist. (2) Its amount is determined and its payment assured solely by might, of legal possession on the part of the capitalist and by force of need on the part of the bor- rower, the laborer. (3) It universally tends to expand against its ultimate limit: the ability of the user to make the interest-payments and still earn wages slightly better than what he might earn without the capital. Therefore capital and interest-drawing will hereafter be regarded as merely one form of barter or competition, and will be understood as included within those terms. In capitalism the competition is between classes, the capitalist- class vs. the borrowing (or producer) class, instead of between trades or between individuals, as were the two forms of competition already discussed. We shall con- trast the former with the latter by the terms vertical and horizontal competition, respectively; but except for this difference in relative position of the contending parties the two forms of competition are identical in nature. These statements have not been founded at all, It is to be noted, upon any denial that labor is better off with capital, even under capitalism, than it was previously. It merely denies the self-righteous explanation of interest as an institution warranted by considerations of justice. The existence of capital, — the material tools used by the pro- ducing laborer, — is warranted by its beneficent effect upon general and individual productivity. The existence of capitalism is not warranted by any consideration except that we do not know how to get rid of it. That the incre- ment in productivity due to the use of capital should go back to the capitalist, either in whole or In appreciable part, as a matter of justice, is denied in toto. It comes 124 T'HE COST OF COMPETITION back to the capitalist, In large part, simply because he can make It come back. All pretense that he, purely as a capitalist and not as a laborer specialized Into superintend- ence, either produces this Increment himself, or that he himself aids labor to produce It, Is absolutely without foundation — as will appear even more clearly as the analy- sis develops. As with many other pairs of activities between which sharp contrast is to be drawn, these of the creation and the ownership of capital, or of the use and the ownership, may both find expression, at times and in part, within a single individual. Such an one may devote a portion of his time to each of the two; or here, since one " activity " is idleness, — the activity consisting solely In the consumption of wealth produced by the activity of others, a negative activity, — all of his time may be absorbed in productive labor, for which he enjoys full return In the form of *' wages," while the Income from his ownership of capital comes quite in addition to that. If it be urged that the capitalist runs constant risk of not being able to obtain profitable Investment, or to liquidate his capital Into its orglnal money-value upon need, owing to constant fluctuations in commercial valu- ations, the reply Is threefold: ( I ) The individual's voluntary risk Is of no value to the community and there Is no reason why it should reim- burse him therefor. Piracy runs risks, in prosecuting its business upon the high seas, — of a gallows erected by its own lawlessness. So does anarchy. In handling dynamite. The burden of proof remains upon the capitalist to show how his risk aids the community. It is of his own making and his own choosing. If he had sold his capital for cash at the time of its first creation, not attempting to keep it for the sake of prying interest out of other people's pockets SPECIALIZATION IN BARTER 125 with It, there would have been incurred no risk of losing it. The risk would then have been distributed over the entire community and have become insensible. (2) The risk Is not so great but that (a) it Is over- balanced by the average rate of Interest, so that there always results to the capitalist, In the long run, a hand- some net income; and but that (b) capitalism steadily accumulates; that is, that the capitalist enjoys the situation and constantly seeks to accentuate it. (3) The risk is Incurred solely because It Is the aim of all barter to fluctuate prices, and because all capitalism and all barter are operated upon the principle of cannibal- ism. That Is to say, if one capitalist should find at any time that his capitalism had depreciated, or flown alto- gether, it could be only because he had taken too heavy a pirate's risk and attacked too powerful or too empty a galleon, or because some other capitalist or barterer had caught him napping and had gobbled him up.^ 1 If the question which must be answered ultimately: What is it which determines, in actual life, which individual is to be the capitalist, absorb- ing interest, and which the non-capitalist, paying it?— if this question is to be given its preliminary answer here, that answer may be founded upon what has just been said. With the great majority of self-respecting individuals of cultivated taste, barter and capitalism still savor far too strongly of the methods and manners of eighteenth-century piracy, not to mention the cannibalism of a still earlier period, to permit them to enter Into It with that zest which alone commands success. We have outgrown the institution barter, not only as a unit-nation, but as a question of indi- vidual taste. Such individuals, therefore, chooSe instead either honest, honorable toil or some one of the equally honorable professions. That these classes include the ablest and most valuable citizens the country possesses, whether measured by economic or by ethical standards, cannot be proven here. But the question is not dodged nor minimized, and is given full treatment later, in its proper place. In fact, since it is the test of value of all studies In sociology that they shall reveal the destiny of the Individual, it is the main object of this book, ultimately, to bring out this very fact: that our most valuable citizens are amongst those who fail to accumulate capitalism. 126 THE COST OF COMPETITION The situation In the illustrative community of fisher- men, after the advent of capital and the capitalist, Is there- fore four-sided. First comes Labor-Specialized-upon- Fishlng, which can produce more with the canoe than with- out It. Next comes Invention, which has created by past effort the Idea which constitutes the difference In value of Labor's productivity with and without the canoe. Inven- tion Is therefore one form of specialized productive labor: Labor-Specialized-upon-Invention. Kext comes Labor- Specialized-upon-Canoe-buildlng, which would ordinarily, or in natural justice and freedom, exchange, with permis- sion from the Inventor or after proper payment of his value-produced to him, with Labor-SpecIalized-upon-FIsh- ing at the natural price. Finally comes the Capitalist, producing nothing currently, nor trying to do so, but own- ing replicas of Invention's novelty, for the use of which Labor prefers to give him the bulk of the increased value produced with Its aid (instead of giving it to Invention, who is unable to enforce its payment to him) rather than to get none of it by refusing to use the canoes at all. The natural and the artificial relations of these four Individuals or classes is shown in Figs. 3 and 4 respectively. In them, P^ represents productive labor specializing upon the transformation of the raw material itself Into finished articles fit for human consumption; Pg represents produc- tive labor specializing upon the supply of the tools, or capital, used therein ; I represents Invention and C capital- Ism. Fig. 3 shows the first three in their natural associa- tion, each credited with the value he produces and coopera- tively exchanging this value with the others in order to produce a complete net result for life and progress. If w^e call, for the purposes of Illustration, the proportion of the selling-valuation of that net result which Is accorded to labor, as wages, as the net result Itself, neglecting for SPECIALIZATION IN BARTER 127 the time any question as to their actual identity, then it may be said that this is exactly what occurs in every fac- tory possessing a tool-maker and a designer. Pi is the operative, Pg is the tool-maker and I is the designer for both. Under the guidance of the Central Office, which keeps a record of the average productivity of each, they exchange cooperatively, upon the basis of natural^ price, with no consciousness of either capitalism or barter in con- nection therewith. And the Central Office is itself a part of the wage-earning labor-body, a portion of Pi- In so far as ail questions of human nature are concerned, it is Fig. 3. Natural Coordination not only true that such method of exchange is perfectly feasible, but it is an existent fact that it is the only one now known in the daily lives of some ninety per cent, of the individuals now carrying on all productive industry. Bringing the question of capitalism again into the situa- tion, however, \t is to be recalled that capitalism intervenes 128 THE COST OF COMPETITION between the three, although they are quite unconscious of it in their daily tasks, in every exchange which they make with each other beyond the factory-walls. Neither di- rectly nor indirectly, visibly nor obscurely, do they barter with each other ; but at every such exchange between them arises the opportunity of the Capitalist to barter, to put the interest-extractive pressure upon them or upon the public: with what effectiveness, although little time Is visibly spent at It, will be developed as the analysis pro- ceeds. These actual relations are shown by Fig. 4. Fig. 4. Coordination Distorted by Capitalism Here capitalism intervenes between one portion of labor and another, or between either and invention, in whatever exchange between them Is essential to industry and pro- gress. The exchange takes place anyhow ; it must, or the specialization and cooperation of the three must cease. But It Is now warped from its naturally straight lines of SPECIALIZATION IN BARTER 129 communication so as to pass within the control of capital- ism. As it does so the value of the exchange is tapped for the income which capitalism enjoys : Interest. Summary. In view of all these considerations the fol- lowing principles of equity are laid down as axiomatic: (i) The only return honestly earned in the original production of capital is that reserved to any other form of productive labor, viz.: the value produced. This once conserved to the producer by the community, in a single net payment for a given lump of material capital pro- duced, any demand for a second or a greater payment, or for a series of current payments, such as interest, amounts to extortion pure and simple, — under what pressure will be seen later. ( 2 ) The gain In productivity of labor due to the exist- ence of capital, over what it was without it, if to be divided by Labor with anyone, should go in part to the Inventor, as to another form of productive labor; but the question as to what portion should go to each is here deliberately neglected, as irrelevant to the main question. (3) The doctrine that Interest is earned by current service performed for society by the Capitalist will not bear investigation. In the first place, the interest is paid only during those periods when the Capitalist is idle ; and value cannot be produced, and if not produced is not earned, by idleness. In the second place, the ownership of capital is retained by the Capitalist at his own behest, as a privilege, solely for the purpose of drawing the income under discussion, and not as a patriotic or philanthropic piece of self-sacrifice. For instance, the chief source of our present municipal corruption is the enormous sums which the Capitalist is willing to spend for the privilege of owning the productive capital used by labor in main- I30 THE COST OF COMPETITION taining urban transportation, the supply of gas and elec- tricity, and similar public services. If the canoe-owner had so much desired to benefit either the individual fisher- man or the community with his canoes he would have sold them to the one or the other for their equivalent in fish, as soon as built; for he would then have received, in consum- able form, the full value of his labor, the value produced, and could therefore hardly pose as an altruist; while the utmost service which he could perform for society and for which he could equitably ask pay had then been done. In actual life to-day the same thing is true : the greatest service which the capitalists might do for society would be to sell their capital to the community immediately, instead of holding it for the purpose of drawing interest, and to cease to be capitalists. But this is the last thing they wish to do. If Mr. Carnegie would only cease presenting to the people, in the form of libraries, a portion of the millions which his ownership of his steel-works pries out of them, and would give or sell to them the steel-works instead, he might have a better chance than now promises, at the needle's eye in that dread hour which all must meet : when, as he says, to be rich, to own capitalism, is to be disgraced. It may be replied to this that it were futile for Mr. Carnegie to so present his steel-works to the American people, for their value would soon be dissipated in the hands of the politicians. What is the objection, then, to Mr. Carnegie's presenting himself to his country, along with his steel-works? He has handled them most effec- tively, in the past, for the purpose of raising and maintain- ing the prices of steel, — that being the sole measure of success in private capitalism. Why could he not be trusted to handle them just as effectively, in the future, for the depression of steel-prices to the natural cost of SPECIALIZATION IN BARTER 131 production? — were It only once understood, In the minds of all of us, that the works were to be owned by and run In the Interests of the American people, and that his sole pride of success lay In accomplishing that public good to the utmost ! Could we not well afford to voluntarily pay him then a fixed annual salary of $1,000,000, twenty times what we pay our national executive, one-twentieth of what Mr. Carnegie's capitalized steel-works now squeeze out of us by force? Could we not then build our own libraries, to fifty times the present scale of construction, and cement them into our community-life with a much better grade of public self-respect than now? Could we not then live upon that modest Income in sufficient comfort, and with a sus- taining honor, finding in both a fair recompense for doing what Lincoln did for a few thousands only, and what Washington did for '' the empty honor " alone, viz. : to serve his country with a single eye to Its welfare as a whole? When Mr. Carnegie shall have honestly an- swered these questions to himself he need no longer dread the straight and narrow passage through the needle's eye. He will have already passed through, and with what tra- vail none but he shall ever know. (4) The Immorality of the practice of interest-drawing is obvious from the premium which It places upon idleness. The privilege of drawing interest never persuaded any- one, successfully, into productivity. It persuades them directly away from productivity. Into barter; and when barter has accumulated enough, away from barter into idleness. No one who has spent his life In production draws an appreciable Income in the form of interest. Not even inventors, according to Mr. Edison, ever make money by inventing; they make it, if at all, as business men, by successful barter over their inventions. Every existing income of appreciable size which consists of Inter- 132 THE COST OF COMPETITION est upon invested capital is drawn from a fortune originally accumulated by barter. The simple fact is, the exaction of Interest from Labor for the use of capital is a parasitical process attaching it- self to the Exchange between Labor-Specializing-upon- Tool-making and Labor-Specializing-upon-Tool-using, exactly as Barter is a parasite upon exchange between labor using one sort of tools and raw material and labor using another sort. The characteristics of the two para- sites are exactly alike. Every generalization or law pre- viously stated or hereinafter to be deduced in relation to barter holds equally true of the drawing of interest from the idle ownership of capital. The pressure which is, put upon productive labor to give up this strength to the para- site is exerted in a different fashion, to be sure, but the difference is in form only. In barter it falls directly from the barterer upon the laborer; in capitalism it falls indi- rectly, and therefore more obscurely. But it is the same force in each case. Rent. Into exactly this same classification, too, falls the income, scientifically defined as rent, which is secured by the idle ownership of Land Land possesses value for the purposes of either manu- facture or residence, quite aside from any artificial im- provements which may have been imposed thereon by labor, in either or both of two ways: ( 1 ) By its geographical or topographical conforma- tion ; (2) By its relation to the artificial improvements and the current exertions of Labor upon adjacent land. SPECIALIZATION IN BARTER 133 Neither of these Items can be altered by any effort upon the part of the occupier of the land. The second one can be, and normally always Is, markedly altered by labor, but it Is by that of the other members of the surrounding com- munity. Therefore there is no reason why either of these two values should be conserved to the occupier, as his property, by law. Thus, to manufacture Iron is needed a locality whither coal and ore can easily be brought and whence iron can easily be shipped: all, presumably, by water. This facility, aside from any improvements for navigation attained by the expenditure of labor and which would constitute capital, is unalterable. The value which attaches to a locality In view of these facilities is quite dis- tinct from the value due, for instance, to contiguity to a great city; for this latter value is markedly alterable by those who build the city, whereas the former Is not. The larger and the nearer the city is built to the locality In question, the greater becomes the value of the latter as land; yet in the production of this value the iron-manufac- turer, as such, could have no part. Reverting to the law of decreasing returns, It will be remembered that the greater the population supported upon a given territory by the parallel exertion of similar effort, the poorer would become the later portions of land drawn into service. The latest comer would take the poorest land because it were the best available. But it is to be plainly noted that standards of ethics take no cogni- zance of priority of birth or of occupation by force. The law of the land does, it is true, but It Is justified therein by no standards of equity recognized by the broadest inter- pretations of the Christian faith. To push in ahead of the weak, and then to claim protection as one in the right, is the policy of ruffianism or of thoughtless childhood, but not of Christian men and women. So far as natural law 134 THE COST OF COMPETITION is concerned, on the other hand, the true method is always just the opposite: the later form of life is constantly and rightfully overruling and displacing the earlier, securing and utilizing its opportunities by newer, better, higher methods of life. As the Scripture saith: " And the last shall be first." Therefore, the least which society can properly do in this connection is to recognize that the lateness of arrival of him to whom is allotted the poorest land is an event which cannot in equity be either charged against him or credited to anyone else. Whatever it may bring to the community, of good or bad, is a community-event, to be shouldered by it as a unit. Or, to take a more religious view of the case, mankind finds itself relying upon the land for life as a fact of God's creating. God gave to man the land, to dwell upon in peace and justice. Therefore, since the Christian faith makes no distinction between individuals, in its value each possesses an equal right, as a birth-right. From either standpoint, the only rightful basis for the legal distribution of land-values is to consider each citizen, by right of birth, as an equal share-holder in the value of the total land available, although its actual occupation may be taken up and enjoyed by the different members of the community in the most diverse fashion. Its average productive power per acre per capita would then constitute the natural rent of land, or the value assignable to each citizen as his share. Since each enjoys the use of land to some other quantity or value than this, — greater or smaller, at his pleasure, — if its current productive value be greater than the natural rent, he owes the surplus to the community; if it be less, the community owes him the dif- ference. These two sums of debits and credits are of course equal, and balance each other. The community SPECIALIZATION IN BARTER 135 stands merely as a clearing-house for the transfer of value from those who enjoy more than their proper share of land-value to those who enjoy less.^ Upon this natural relation between the community and the individual In regard to land is superimposed the arti- ficial device called the legal ownership of land. In its relation to the natural attitude between citizen and citizen it stands in exactly the same attitude, and exists for exactly the same purpose, as does barter in regard to one sort of exchange and capitalism to another: as a parasite. For natural rent is, of course, merely one form of Exchange : that between Labor Specializing upon Land-using and Labor Specializing upon Tool-using. Since land, as well as labor, produces value, exchange is necessary in order to circulate that value throughout the community. The only natural and equitable m'ethod of effecting this ex- change is by natural rent. But in this exchange selfish- ness sees again an opportunity for the gain of wealth with- 2 It is this natural rent for land which underlies Mr. Henry George's single-tax plans. As to the practicability of those plans for attaining the payment of a natural rent in actual life, or of any substitute plans, the writer wishes to raise no question whatever at present. He wishes merely to point out the existence of such a rent, as the only natural and just one, whether practicable or not, and as the only one upon which can be based an accurate analysis of the equities and inequities of modern industry. To grasp this clearly it is necessary to point out, as Mr. George did not, that the average net rent of the community, viewed in this way, must be zero. That is, since the advantage of using land of high value does not stay in the hands of the user, half the community would choose to occupy land of inferior value and to receive from the other half, occupying the more valuable land, their share of its productivity. The former half would "pay" a negative rent. The whole proposition depends upon a recognition of the principle that the land (not its improvements) belongs to the community and cannot, by any distortion of the idea of equity, really " belong " to any individual : a principle so axiomatic in its fundamental justice that it receives to-day practically universal acceptance, although the practicability of incorporat- ing it into workable statute law is almost as widely rejected. 136 THE COST OF COMPETITION out the labor of creating it, by the taxation of exchange. By creating a legal fiction called a title to the land It is able to distort the payments for land-use away from the natural rent Into a greater commercial rent, and to thus divert into its own pocket the difference. This last is the maximum which Labor-upon-Land can consent to pay and Fig. 5. Natural Coordination still derive a net benefit from the land sufficient to persuade It to continue tenancy. In thus securing something for nothing and in thus " charging all the traffic will bear," landlordism Is exactly like any other sort of capitalism; and both are one form of barter. Between capital and land,^ both of them 3 Upon this distinction between land and capital: that one is made by God and the other by man, Mr. George bases all of his distinctions be- SPECIALIZATION IN BARTER 137 material things, — one being artificial and the other nat- ural, — there is a wide economic difference, to be sure. Between capitalism and landlordism, both of them legal artifices, there is no difference whatever, either in principle, method or result. Fig. 6. Coordination Distorted by Capitalism and Landlordism To illustrate this relation. Figs. 3 and 4 are here expanded into Figs. 5 and 6, which give respectively the tween landlordism and capitalism. From it he deduces all of his conclu- sions as to the former being the source of all of our social evils. That Mr. George is right in condemning landlordism I am very glad to uphold. In fact, to his clear-headed work up to this point I am myself much in- debted for a correct start through the maze. But to the remainder of his conclusions this entire volume takes the broadest exception. 138 THE COST OF COMPETITION natural and the artificial relations in exchange between labor specialized in different directions when the questions of land and landlordism, as well as capital and capitalism, are added to the question. In them, L represents land- value and R commercial rent or landlordism; the other signs are used as in Figs 3 and 4. The same distortion of the natural path connecting land with labor in exchange, so as to lead it within the control of landlordism, occurs here, as is shown (in both pairs of figures) between the Invention and production of capital and the labor which uses it. Both of the former can reach the Labor engaged in making actual, consumable commodities only through Capitalism; the Labor using land can reach any of them only through Landlordism. Before further progress can be made in the analysis of social energetics a summary of what has been accomplished must be presented, in the form of a series of definitions. Those of Production (see page 28) and Barter (see pages 69, 73 and 95) are not repeated here. Land-value or Natural Rent is definable as the cur- rent ability of a given piece of ground, due {a) to its topography and (b) to Its geographical relation to the labors of the community, to support life. There is no possibility of equating land-value with labor-value, nor nat- ural rent with wages; they can he expressed only compara- tively, in terms of the life-supporting ability {under like labor) of other portions of land. This is why the net average natural rent must be zero: In order to eliminate land from the equation of labor-values entirely, leaving the latter free for equation without the presence of an unknown quantity. Land-value or natural rent excludes all consideration of artificial improvements upon the land. SPECIALIZATION IN BARTER 139 Landlordism is the legal, idle ownership or control of land, with the enjoyment of its commercial rent. It is one form of Capitalism. Commercial Rent is the excess over natural rent of the current payments exacted from Labor by Landlordism for the use of the land. It is a tax imposed upon exchange between those using the land in one form of production and those prosecuting production in other forms or locali- ties. In this it is one form of Barter. The term rent is often used, in actual life, to include payments made for the use of buildings or land-improve- ments; but these latter are not true rent at all, but are interest paid upon Capitalism. Capital Is the material product of labor which is uti- lized by labor in the further production of value. Depreciation Is the natural and Inevitable loss In value of capital with time and use. It must be made good by Labor using capital before exchange with other lines of production can be effected. Capitalism Is the legal, Idle ownership of capital, with the enjoyment of Its artificial net income: Interest. It is almost one with Landlordism. In fact, the word capital- Ism will usually be used, hereafter, to include both ideas.* Interest Is the surplus over depreciation collected by the idle Capitalist for the privilege of use of his capital In production by Labor. It is a tax upon Exchange between the value thus produced and other forms of value. In this it is one form of Barter, 4 Capital and capitalism must never be confused. Capital is a material thing, a tool, and can originate only in productive labor. Capitalism is an institution, a legal artifice, and originates, in the great majority of cases, solely in barter. I40 THE COST OF COMPETITION The Two Economic Divisions of Society From these items thus defined, with the others given in previous chapters, may be built up the complete anatomy of the modern economic organism. It appears in a dual, Janus-faced form, as displayed on pages 142 and 143, each aspect arrayed under its characteristic cognomen; viz. : Production and economic Dissipation, respectively. Economic Dissipation. These two terms. Produc- tion and Dissipation, are strongly contrasted in their eco- nomic significance. The first of these terms we are now in a position to well understand. It was defined on page 28, and the discussion since then of the phenomena of special- ization and coordination must have given it a clear light. The significance of the second of these terms is only now about to be brought out. It will first receive preliminary definition as covering all economic activity not productive of value. Its complete definition, even in outline, can be had only from the two following full-page tabulations of the characteristics of production and dissipation respec- tively. Its full comprehension can be had only after the most exhaustive discussion and deliberate reflection. This one volume alone, while devoted especially to this task, is altogether incommensurate with its size, its intri- cacy or its importance. In the following exhibit there is only one item which calls for immediate discussion. This is the statement that Production consists solely of the overcoming of material or brute obstacles, while at the same time superintendence is included in Production. Many a man who has engaged more or less in superintendence will say that it consists largely in overcoming human obstacles, SPECIALIZATION IN BARTER 141 The case well illustrates just the main point which is sought to be brought out, in one of its more obscure occur- rences. The superintendence of to-day combines two dis- tinct duties : ( 1 ) The organization and education of labor of an inferior, degree of intelligence into the maximum possible efficiency ; (2) The exhortation or compulsion of labor which has already contracted to perform certain duties at an agreed price to fulfillment or over-fulfillment of its agreement. The first is purely productive effort. It naturally should, and it usually does, meet with the heartiest cooperation on the part of subordinate labor; the under- standing of the laborer may sometimes be small, but the spirit is willing. Whenever this is not so it is because of the constant presence of (2) and its association, in the mind of the laborer, with the superintendent's every effort. The second is purely barter in character. The work was agreed upon at a fixed price per day. In reaching that agreement the laborer is at all times conscious of the fact that the wage is low because its every diminution goes into his employer's pocket; what he doesn't get as wages the employer gets in the form of profit. He accepts because he can get no better. He knows, too, that the less which he does per day for a given wage, all of his class uniting in the same policy, the greater will be the wage per day. (For the proof of this statement see pages 155 to 192.) All of these ideas unite to form in labor's mind a most natural antagonism to the desires of any agent of its employer's interests; which, for this portion of his time and effort, the superintendent is. The laborer's will therefore assumes an attitude of resistance. He embodies psychologically for the first time (and therefore gets the blame for) what the wage-system has embodied 142 THE COST OF COMPETITION DIVISION I PRODUCTION The CREATION of VALUE: By the Transformation and Transportation Of Raw Material, viz.: With the use of Capital, viz.: In the hands of Labor^ viz.: In Specialization and Co-oper- ation : Through the medium of From the Natural Sources of Value, viz.: Stock and Incidental Current Supplies; Improvements on Land, Buildings, and all Tools, including both Hand-tools and Machinery; Productive Labor proper, unskilled and skilled, Labor devoted to balancing Depre- ciation, and Superintendence, including Organization and Direction, Design, and Invention ; Among a host of Trades, Arts and Professions (excluding only Civil Law) ; Exchange ; The Field, the Forest, The Mine and the Sea; To its Natural Destination, viz. : The ULTIMATE CONSUMER. It consists solely of the overcoming of Natural, Material, Inanimate or Brute Obstacles. It brings to each Worker, in so far as it is uninterfered with, What He Produces, except as he may choose to divide with the Incapables: The Sick, the Maimed, the Insane, the Orphans, the Criminals, etc. It is devoted solely to The SUPPORT of HUMAN LIFE and GROWTH, and is the sole means to that end in the possession of Society. SPECIALIZATION IN BARTER 143 DIVISION II DISSIPATION The CONTROL of VALUATION: By Barter or Competition over the Price or Opportunity Of Raw Material; Of Land, viz.: Geographical Site; Of the use of Capital, viz.: Improvements on Land, Buildings, Tools, Machinery; Of Partially Completed Prod- uct; Of Labor exerted productively with and upon the foregoing; and Of The Final Product; The Value ultimately reaching the World of Consumers, for the Sup- port of Human Life and Growth; By Taxing Exchange between any two of these six foregoing items, With the aid of Landlordism: The legal, idle Onvnership of Land; With the aid of Capitalism: The legal, idle Ownership of Capital; With the aid of Barter pure and simple, viz.: The active diversion of Market-Prices, whether of Commodities or of Labor, away from the Natural Price; In Civil Controversy: Between a Host of rival Dealers, Salesmen, Agents, Corporations, Trusts, Syndicates, Promoters, etc., and their Assistants: the Civil Lavoyers. It consists solely of the overcoming of The Resistance of the Human Will and Intellect, By means of Skillful Persuasion, Of Misguidance by Half-truths, Of Downright Deceit, Of the Exploitation of Discomfort and Duress, Pride and Fear, Of the Active Creation of a Deforming Pressure against True and Normal Life. It is devoted solely to the transfer to each Devotee of a portion of the VALUE WHICH SOMEONE ELSE has PRODUCED, It concerns solely the Distribution Among Individuals, and not the Creation of Value. It does absolutely nothing for THE SUPPORT of HUMAN LIFE and GROWTH. 144 THE COST OF COMPETITION causatively as a fundamental institution in our static law, viz. : antagonism of interests as the sole guide in the dis- tribution of wealth. This resistance constitutes Labor's chief method of barter, whether displayed at the moment or deliberately systematized in organized effort, in strike or boycott. In this sense the laborer as well as the super- intendent spends a portion of his time in barter; but it is a very small portion of the whole for the former.^ Economic Production and Economic Dissipation. In the light of the above exhibit it is proper to repeat our definitions of Emulation and Competition in final official and expanded form and to show their identity, as psychological impulses, with the two broad divisions of economic activity into which we have just seen the indus- trial and commercial world to be divided, into Production and Dissipation, respectively. At the same time the demarcation between the two divisions in the familiar affairs of everyday life may be made more plain. Emulation is the rivalrous spirit finding expression in increased Activity of Production of Value. Competition is the rivalrous spirit, and also the resultant act, when finding expression in increased Intensity (but not necessarily activity) of Barter over Valuation. It is antagonism in the determination of market-prices. It includes all activity expended in influencing the direc- tion of demand (ordinarily called "finding a market") so that purchasing-power which might be expended upon a competitor's goods, or upon some entirely different com- modity, is diverted into one's own direction. It includes all rigidity of purpose, when evinced in the idle ownership of land or capital, aimed toward the restriction of the use of these necessary adjuncts to the production of value 5 For a continuation of this topic see pages 244 and 504. SPECIALIZATION IN BARTER 145 by labor and to labor's exchange with the consumer, to the end that both laborer and consumer will be ready to pay a greater tax for the privilege of their use. It includes : ( 1 ) All commercial negotiation f (2) All but a mere tithe of all advertising;*^ (3) All commercial traveling, solicitation and com- mission-agency, and all commercial correspondence carried on with the same in view; (4) The activities of all combinations of individuals looking to the wielding of greater power against their economic adversaries, such as corporations, consolidations, trusts, pools, and lock-outs; all labor-unions, strikes and boycotts ; (5) All employment or sale of labor, in the sense of the negotiation of an agreement preliminary to going to work, or of the reopening of that contract at any future time ; (6) The promotion and financing of all commercial enterprises, old or new, except pure invention, and hence nearly all banking, all brokerage, and all insurance, mort- gage and pawn-shop loans; (7) All stock-manipulation, trading or gambling, 6 A great deal of such negotiation, especially in retail trade, Involves the communication of information concerning quality, etc., of goods. In so far as the information thus contributed is true and reliable, and is known to be so with that confidence on the part, of the recipient which alone can make it of use to him, it is productive . of value and its cost should be classed with Production. But it is plain that such a process is always preliminary and incidental to and quite distinct from true negotiation, which consists purely of the discussion of price. "^ The reader who is inclined to question the validity of including advertising as a non-productive species of effort is referred to a discussion of this topic on pages 170-175. The question naturally arises at this point in the analysis, but its answer is preferably deferred until some further definitions can be introduced. 146 THE COST OF COMPETITION whether on 'Change or in the prosecution of one's private business; (8) All expenses for corporation-law or commercial counsel, for lobby or for " influence "; (9) All civil suits looking toward the settlement of disputes as to valuation or ownership, which includes all civil law; (10) All multiplication of accounts because of any of the above; (11) All cost of employing, organizing and superin- tending all assistant labor directed into the furtherance of the above processes. The Homogeneity of Competitive, Dissipative Effort. The classification just listed includes within each class industrial activities which bear, superficially, the greatest dissimilarity. Yet it has been the office of the preceding pages to demonstrate that in their inherent nature they are alike. It will be the office of later pages to prove that they are properly to be styled as dissipative, and that in their effects upon the individual and the com- munity they are also alike. They together constitute a single homogeneous institution. In all following analysis, therefore, it will be taken as demonstrated that it makes not the slighest difference in the amount of the evil wrought, but merely in the form of its detail, whether the competition under discussion makes use of land-values, capital, the circulating medium, the opportunity of daily labor, a market for material commodities or the most impalpable of personal forces promotive of progress, as the basis for its negotiative and dissipative activities. This position the sequel will be found to uphold. In each of these cases the effect upon the community will prove to be equally bad. Each is equally responsible. No one of SPECIALIZATION IN BARTER 147 them Is a cause, the rest being effects. All are parts of one whole. The remedy to be effected by the removal of any one of them will be fractional only, and propor- tional to the degree of Its presence. Only the excision of Division II In its entirety, from each department of indus- try where it appears, can accomplish aught. Finally, and most Important, the cure thus accomplished will not be coincident with the confines of the excision, thus to be identified as its result, but will be almost equally dis- tributed, by the fluidity of life, throughout the community, so that the Identity of cause and effect will be traceable only by the most careful of analyses. Just as the debili- tating effect of cancerous growth In the human body Is felt In all of its functions, almost regardless of the loca- tion of the cancer, so Is the effect of this evil Institution of barter, now harbored within each organ of the body poli- tic, felt to its uttermost fibre. Just as the removal of the cancer relieves the patient from head to heels, so will the excision of barter from any one of our economic organs lift the brakes from trade and life in all directions almost equally. VIII DISTRIBUTION THE wealth of material commodities which sup- ports all life, growth and enjoyment for a com- munity arises, then, from the efforts of only one division of the industrial body: the Producers. By the processes of exchange, modified by barter, this wealth is divided between, or " distributed " to, the several classes and individuals of society for their consumption and sup- port. Obviously, all which the Competitive Division enjoys is a portion of what the Productive Division pro- duced and was forced to share with them. It will soon be made obvious that the productive division is forced to place its entire product in the hands of the competitive division, to receive back again only that minimum portion which will persuade it to remain active In production. If the exchanges were carried on literally, as they were Imagined to be In the elementary Illustration of fish and hares, the goods being actually brought to market and visibly exchanged there, this fact would be much less obscure than it is at present. (See page 79.) But the complexities of modern industry forbid that simple and transparent method. Instead, the device called money is Introduced. Each producer exchanges the product of his labor for money, which, supposedly at least, undergoes no depreciation with time nor loss by subdivision, which he can keep and accumulate or subdivide for whatever pur- poses in exchange he may be Inclined to accomplish. In 148 DISTRIBUTION 149 this way money Is a tremendous convenience; so much so, In fact, that Its presence Is one of the first essentials to speclahzatlon. Yet money Itself does nothing. It Is merely a certificate of value produced; It can produce no value. While there are many minor points connected with our present supply of money which are Intimately Interwoven with and rely upon the distinctions which are emphasized In this volume, yet they need not be Introduced Into the argument. They stand. In relation to It, In the nature of Incidental results, not causes. In the main, money stands as stated : as a mere certificate of value produced. When- ever and wherever money may appear to be Itself active In the extraction of value from the producing classes. It Is as a mere Incidental tool In the hands of the bargainers. It would be well. Indeed, If the people's supply of money might be removed from all Influence of private Interests. Yet If this were once done, while It would constitute a gain for the people. It would remove from the field of barter only one of Industry's tools among ten thousand upon which barter Is fastened; and the one, too, with which the barterers themselves least like to tamper. The alleviation of pressure thereby would be scarcely perceptible. This Is the lesson needful to be learned by Mr. Bryan and the populists. Value and Valuation. The primary factor in the exchange of value-produced for Its money-equivalent Is the relation between value and valuation. Value Is expressible directly only In terms of life Itself, or Indirectly In terms of the goods which will support life. Valua- tion Is measured In money: gold, we will assume. Gold Is merely one commodity among many others, produced by labor and having Its comparative valuation based, ulti- mately, upon the amount of exertion required to pro- I50 THE COST OF COMPETITION duce it. Thus, let It be supposed that some discovery, such as quartz-milling or a new goldfield, should suddenly halve the cost (measured in human exertion) of produc- ing gold. Then immediately the prices of all other com- modities and of labor would simultaneously be doubled. Their mutual comparative valuation (and all valuation is comparative) would remain unchanged; that of gold would have fallen. All prices (valuations expressed in terms of gold) would be doubled; but no life-supporting commodity would be harder to procure. The Conservation of Economic Energy. The aggregate value currently produced hy a community is equal to the aggregate valuation currently distributed throughout its membership.^ 1 This equation cannot be written mathematically, because we have no accepted unit for the measurement of life. Population is at present our only exact measure, and it omits all consideration of comparative worth of individuals. As to the basis upon which this last should be estimated, that belongs to the department of ethics, not of economics. Even there we have no unit of measurement, or rather, no means of applying it. The unit accepted by Christian philosophy is the unit of unselfishness: the degree to which a given life supports other life, in quantity and quality. But this is merely measuring life in terms of life, as we do length in terms of length: which was stated at the outset to be the only method possible. Moreover, it is very difficult to measure how far one life accomplishes the support of other life. Some of the best-intentioned lives not only fail to accomplish much in this direction, but they are actually, although uncon- sciously, destructive of other lives. On the other hand, some of the most effective work in the support of other lives is done by individuals and classes which are not now recognized as philanthropic, or even as being valuable to the community. Therefore, this equation between aggregate Value and Valuation is best left just as it stands: stated in words only. It is the prime object of this part of the work to show how far our pres- ent economic system wanders astray from its sole reason for existence: the support of human life. For that purpose the life of any community, as it stands, will be taken as the basis from which to measure departures, with- out any further comment upon the comparative worth of different sorts of individual life. The life of the community itself, including its self- chosen ethical standards, is to be the temporarily unquestioned unit of measurement. DISTRIBUTION 151 This law will be regarded as axiomatic. Its substan- tiation rests upon the law of the conservation of physical energy, of which it constitutes merely one special statement. Although no statistical proof can be adduced to uphold this law, its foundation upon the principle of the natural conservation of energy being much more firm, yet it is often visible in actual commerce how rigidly aggregate value and aggregate valuation (aggregate purchasing- power) are linked together. Either may act as a cause, the other being limited thereby. Sometimes limited pur- chasing-power limits actual productivity; sometimes limited actual productivity limits purchasing-power. The first is true in hard times, when buyers cannot be found and " overproduction " is rife; the second is true in " boom " times, when workers enough cannot be found and business is hampered by delayed fulfillment of orders. In either case the two are equal. Price. The outline analysis of industrial activities dis- played on pages 142 and 143, including both Production on the one hand and Competition or Dissipation on the other, covers all of the different sorts of effort now con- tributive to the placing in the Consumer's hands of any finished commodity and to the determination of the price which he shall pay for it. Just as the Producer is the sole source of all Value created from the earth, so is the Con- sumer its sole destination for final absorption and dissipa- tion into dust again. Therefore is the Consumer to be regarded as the sole source of that current of Money, useful as a certificate of Valuation but otherwise worth- less for the support of human life, which flows in the opposite direction, from Consumer to Producer, to main- tain a record of the life-giving current of Value flowing from Producer to Consumer. The price which the latter 152 THE COST OF COMPETITION pays for any article, then, must cover every item of all these many sorts of effort. He Is the sole Patron of Industry. His money purchases the raw material, buys or hires the machinery with which to work It, hires the labor to operate It, employs the superintendent or employer to supervise the labor, and subsidizes the barterer to barter over It. There Is no other possible source of Pay for all these things than he. Therefore let It ever be remembered, when the price of anything In the open market be referred to, that It consists of the summation of the costs of all of the items tabulated on pages 142 and 143 as making up respectively the two Divisions of the industrial body: Production and Com- petition, or Production and Dissipation. The Inclusion of all of the Items belonging to Division I Is actively, though often obscurely, enforced by the operation of Natural Law, Inflexible to the human will. The Inclusion of all those belonging to Division II is actively, though often unconsciously, enforced by the operation of Human Law, which Is variable at will. The Money-Scale. The ratio existing between the aggregate Value and the aggregate Valuation In a given community will be called its money-scale of valuation. It Is Its valuation of human life expressed in money. The lowest terms to which It can be reduced are the daily § Income of the "average" man; but In this the word average covers such extremes of difference that it is scarcely a help to the understanding. Into this ratio two factors enter: ( I ) The average productivity of the individual, taken for the entire community. This factor is of use only in comparing one community with another. As it is our prime purpose to study only the Internal anatomy of any given single community, in this case the American nation, DISTRIBUTION i53 this factor will hereafter be neglected, as lying in the premises. (2) The amount of Competition existing within the community; that is, the extent to which Division II appears in the community's activities. Since the Value is produced only by the Productive Division, while the distribution of Valuation takes place throughout all classes, it becomes immediately evident that The aggregate current Valuation distributed in a com- munity is to its aggregate current Value produced, distrib- uted and consumed {which ratio constitutes its average Money-scale) as its total industrial and commercial effort (Division I plus Division II) is to its total productive effort (Division I alone). To the elaboration and better understanding of this law return will be made after considering some further necessary definitions. Purchasing-Power and Its Social Distribution The aggregate Value currently produced by a com- munity for its support, and thus made available for dis- tribution amongst its several classes and individuals, is translated, before such distribution, into Valuation in money-form, by multiplication by the money-scale. It is in this form that each individual receives his current income of purchasing-power. It is because of this fact that he commonly looks too closely at the total fund of money available in a community, as a measure of its pros- perity, instead of at the total fund of Value produced. But it is ever to be remembered that what supports life is Value only, and that the aggregate current production of Money-valuation may be swelled indefinitely, by increas- 154 THE COST OF COMPETITION ing the money-scale of average Price, yet will the com- munity be not one whit better off ; indeed, as will be seen later, it will be worse off. To these several allotments of Valuation, or forms and sizes of current individual income, it is convenient to assign distinguishing names. This distinctive classifica- tion of sorts of income must naturally align itself with the classifications and distinctions already listed, of eco- nomic activity into Production and Competition and of psychic impulse into Emulation and Competition. Upon the same basis the total amount of Valuation currently distributed throughout the community naturally divides itself into two strongly contrasted divisions, namely Wages and Dissipation. Wages. The income alloted to productive effort, whether by class or by individual, is to be called wages. The term includes, as well as what are ordinarily called wages, all salaries, when paid for pure superintendence or for professional work other than civil law, such as in education, journalism, histrionics, etc., and all professional and artists' fees, again excluding fees in civil law. It excludes what are ordinarily called wages when the latter are paid for assistance in any of the sorts of effort which have been already defined as competitive. Dissipation. The income allotted to the bargaining division of society, as a unit, will be called dissipation.'^ Following the schedule of page 143, it is divisible into three several classes or portions, viz. : (i) That won by the idle control of land-titles, in so far as they affect natural site only, to be called rent, (2) That won by the idle control of the legal titles to 2 The reasons for the choice of this term, and its further definition, will be found on pages 162 and following. DISTRIBUTION i55 capital, called " securities," to be called interest. It includes all dividends and the so-called " rent " of build- ings and land-improvements (which is excluded from the technical economic term rent) , as well as what is commonly called interest. (3) That won by barter pure and simple, active In exchange as contrasted with the idleness of landlordism and capitalism, to be known as gross profit. Individuals engaged in active business and also having an owner's interest in the property involved in that bus- iness derive an income which is properly the sum of all three of these quite distinctive subdivisions, although to them it appears as a single net income. A man so situated insists upon receiving a greater return for his time than If he made the same exertion but owned no property In the business. He recognizes that he must be paid, in addi- tion to the income won by current effort, the same sums which he would receive were his land and his capital bor- rowed for use in business by other parties. Or, obversely, he is not content to draw from his land and capital, while actively superintending their use, only that interest which borrowers would pay him while he remained idle ; he must have from his business, in addition, the salary which he could earn by hiring out his efforts to others. If, at the same time, he spends a portion of his time and strength in actually forwarding production, an accurate analysis of his income must also set apart one portion of it as pure wages, although he may receive his money quarterly, or even be paid no fixed periodic sum at all. This illustration Instances the frequency with which one man may occupy simultaneously three or four quite dis- tinct economic classes, his activities In each having pos- sibly the most unlike, or even quite opposite and incon- 156 THE COST OF COMPETITION sistent, effects upon the community. Yet of these funda- mental distinctions he is usually quite unconscious. He may be accurately likened to the farmer who supposedly ran a dairy-farm too ignorantly or too carelessly. It will develop, as the argument proceeds, that certain of these forms of business-income just listed are, unconsciously to their promoters, as baneful to the community as are the dairyman's typhoid-germs, and should equally be exter- minated by law. This does not mean, whether the individ- ual be a dirty farmer, a grasping profit-seeker or a vio- lent trades-unionist, that he himself is to be broadly con- demned to extermination. Instead, his activities are to be sharply differentiated in the public mind, including his own, and the law and public opinion are to be so changed as to discourage the one and encourage the other, by an elimination of the Institutions which have brought the de- structive one Into existence. Gross Profit, Barter-cost and Net Profit. The gross profits, whether referred to the aggregate for the community or to those won In any single business, must be further divided Into two contrasted portions, each of which is received by one of two contrasted subclasses of the general Division of the Barterers themselves, viz. : (a) The heads or directors of the competitive organ- ization, who either alone actually do the negotiating or at least monopolize the control and direction of it; and (b) A host of assistants who would otherwise belong to the productive class, earning wages, but who, because their efforts are absorbed by barter, must become classed as bargainers. Thus, to illustrate, a printing-shop is ordinarily a productive establishment. But If we imagine its entire output to be absorbed, In the form of advertis- ing-matter, by a captain of barter, the entire printing- organization, foreman and journeymen included, becomes DISTRIBUTION 157 enlisted under his banner, aiding him to fight his battles with his competitors, and is therefore to be classed with the bargainers, although personally these men are entirely unconscious of conducting any negotiation. The same is true of nearly all stenographers, of the majority of book- keepers (those not engaged in shop-accountance of work actually done) and of all civil lawyers. Store-clerks and salesmen spend a large part of their time and effort in this class, by personally conducting negotiation upon a small scale or by having their time occupied by the efforts of purchasers to buy cheaply. Although they also perform the necessary and productive task of parceling out retail goods, yet a greater portion of such purchasers are acces- sory to negotiative effort than is at first apparent. The purchases are made in smaller quantity at a time and at a greater number of localities than would be the case were all goods known to be labeled with their true quality and at actual cost by an agent employed by all of the factories at once to represent them impartially to the buyer. Wit- ness the dry-goods bargain-counter: three-quarters of the effort outside the counter, and its counterpart within, is wasted over the uncertainty as to just where may be had the most value for a given price. The income of these assistants In barter is ordinarily known as a wage or a salary or a fee ; yet in reality it is a share of the gross profits, and must be named as such. Therefore the gross profits are divisible into two portions, viz.: (a) The income allotted to assistants at barter, to be known collectively as barter-cost and Individually as bar- ter-wages; and (b) The remainder of the gross profits after the deduc- tion of barter-cost, to be known as the net-profits, which are enjoyed by the true bargainer. 158 THE COST OF COMPETITION It will be noted that the terms " gross profits " and '* net profits " possess in economic study a somewhat different, although parallel, significance from that given them in commercial life. Income and Purchasing Power. Viewing the com- munity as a unit, the distribution of wealth takes place under the following names, viz. : ( 1 ) Wages, going to the active Producers of Value ; (2) Rent, going to the idle Owners of Sites; (3) Interest, going to the idle Owners of Capital; (4) Barter-cost, going to the active Assistants of the actual barterers; and (5) Net Profits, going to the active Barterers themselves. The last four of these sections combine to expand or inflate the aggregate Value which is created for the com- munity by the Producers (or Section i) alone, and which should naturally be exclusively their property, receivable as wages, into the aggregate Valuation which is distributed to the several classes and millions of individuals compris- ing all five Sections, or the entire community-income. The share of Valuation reaching each class or individual constitutes its Income, The share of the aggregate Value available in the com- munity for the support of life which this share of the aggregate Valuation, or income, will purchase constitutes the purchasing-power of the class or individual in ques- tion. That is to say, the aggregate Valuation of the com- munity currently distributed in the form of wages, rent, interest, barter-cost and net profits brings about an exactly parallel and proportionate distribution of the aggregate Value or Life-support currently available; but in each case the latter is less than the former by the ratio existing between wages-plus-rent-plus-interest-plus-barter-cost-plus- DISTRIBUTION 159 net-profits, on the one hand, and wages alone on the other. The Producers receive less than what they produced by this ratio, and the bargainers receive the remainder although having produced nothing at all. The Economic-Biological Cycle.^ It is the office of the human body to absorb material and spiritual energy in the form of food, warmth, education, inspira- tion, etc., and to develop therefrom, by transformation and distribution to the various organic centers, organic activity; and it is the office of this activity, under Its own automatic mental and moral guidance, to develop from its natural environment a fresh supply of food, warmth, education, inspiration, etc., to take the place of that just consumed. Such a series of processes constitutes what is known, in scientific terminology, as an energetic cycle. Since national life has now developed to a point where It Is as Impossible as It Is undesirable for each individual organism to create literally what it consumes, thus com- pleting the cycle within itself upon a necessarily minute and elementary scale, it has become the natural office of human society, of the body economic and politic, to dis- tribute to the individuals needing it for reabsorptlon the aggregate supply of life-support currently created by the aggregate community of interactive individuals. To this task. Indeed, is now devoted the major portion of the Intellectual and nervous strength of the community. But the energetic cycle has thereby now become duplex. Upon the one side, the biologic is a most Intricate series of organic processes whereby material energy is absorbed, transformed, distributed and rejected in the several forms of bodily energy: muscular, mental and nervous. This 3 The matter under this heading will be of little interest to those who have made no study of the general science of energetics. i6o THE COST OF COMPETITION side of the cycle is of interest to the biologist and the psy- chologist, but not to us. On the other side, the economic, counterbalancing that just described, is an almost equally intricate series of economic processes whereby muscular, mental and nervous energy is absorbed, transformed into Value, distributed and rejected to the various individuals as material for the next cycle. It is this side of the cycle which constitutes our proper topic. The Efficiency of the Economic Cycle. Under the law of the conservation of energy these two series must ever be currently equal to each other, except for any dissipation of energy into heat which may occur inciden- tally to the conduct of either. When such dissipation is absent the efficiency of the cycle will be unity. Otherwise it will be less. It can never be greater. The form of energy which is absorbable by the human organism to the furtherance of life is Value. The poten- tial energy absorbed in this form may or may not reappear as vital energy. If it all does so, the biological efficiency of the individual is perfect; if not, biological dissipation is present, either bodily, mental or moral. Such biological dissipation is solely an individual phenomenon. It can be remedied solely by forces acting through the individual, although they may originate and terminate anywhere. The form of economic energy which this resultant biologic energy again throws back into the economic field may or may not be Value. If it is, the life-effort is Pro- ductive. If it is not, the life-effort is Competitive, or economically Dissipative. Economic dissipation is then present. Such dissipation is solely a social, and not an individual, phenomenon. It can be remedied only by forces acting upon the institutional relations between man and man. It is immune against all efforts directed through the individual alone. DISTRIBUTION i6i When neither form of dissipation is present the four forms of energy, viz. : ( 1 ) The Economic Value, potential for life, which is absorbed, (2) The resultant Life, (3) The Economic Value produced by that life, and (4) The Valuation into which 3 Is converted for dis- tribution, as a prerequisite to its absorption again — must, under the law of the conservation of energy, all be equal. The efficiency of the cycle would then be perfect. The goods purchased with the aggregate or average income of valuation will support an amount of life equal to that con- sumed in their original production. Indeed, in all com- munities not stationary or in decadence they will support more. Biologic growth, entering between i and 2, brings in a coefficient much greater than unity. Men, as maple- trees, multiply and develop if properly fed. This Is the root of all social health and community-growth. Biological and Economic Dissipation. The pro- cesses which interfere with this perfection of efficiency of the cycle are these, viz. : ( 1 ) Biological dissipation, occurring between Forms I and 3, through 2, of the above paragraph; and (2) Economic dissipation, occurring between Forms 3 and I, through 4. Biological dissipation consists in the expenditure of pur- chasing-power for, and the consumption of, goods which do not develop a commensurate amount of life-activity, which may be available for the further equivalent produc- tion of value. Such is the case of the sick man who can- not assimilate his food, of the well man who buys whisky when he needs bread or who commissions a steam-yacht i62 THE COST OF COMPETITION for his health when what he needs is active outdoor exer- cise, such as ditching.* Economic dissipation consists in the consumption of life in an activity which is not directed toward the creation of Value, but which is directed toward the annulment of other men's efforts. It consists in a transformation of. a portion of the Value of Number 3 (page 161) into heat, by friction and Impact, before it can reappear as the Value of Number i. Such Is the case with him who receives money for other effort In the economic field than produc- tive effort, or for none at all. Such Is the case with the capitalist class and with all bargainers and their assistants; for such is the nature of all of the activities classified under Division II in the exhibit of page 143. In this case the dissipation of life Is not so obvious as it Is in the case of biological dissipation, though none the less true. It becomes distinct upon sufficient analysis. In this case, the one who produces nothing but the annulment of some other man's equal efforts In the opposite direction secures, by barter, some of the purchasing-power 4 Herein is excellent illustration of the difference between Value and Valuation. Because of the life which went into the making of the whisky, which might otherwise have gone into the production of really useful commodities, it possesses a valuation equal to those commodities. But while their value, as life-supporters, might be considerable, the value of the whisky is almost zero. The same is true of the steam-yacht. Used properly, to serve the recreation of men and women truly in need of outdoor idleness, because wearied in the work of serving the world, it is a matter of value. Used as a means of distraction to a man overburdened with effort at amassing unenjoyable quantities of wealth and wearied with all the other distractions which money can buy, or as a means of display of wealth and power over other men, it is barren of life-promoting Value. But in either case it embodies Valuation, because it requires valu- able effort to create and maintain it. The same is true of gold. It serves a real need of human existence, for the filling of teeth, etc., to just about the same proportion of its total production as does whisky as a medicine or the steam-yachts as health-givers; that is to say, to an insignificant degree. Yet it possesses a very high and stable valuation because of the very stable proportion of effort required to produce it. DISTRIBUTION 163 developed by the effort of the producer. Therefore, that value properly belonging to one Individual, and commen- surate, according to biological equilibrium, with his natural Individual productive and consumptive power, Is now divided between two or three Individuals. Ergo, neither portion can be commensurate with the life which commands It. If, as Is the case In actual life, one Individual enabled by barter to exist without productive effort draws upon some nine others, — producers, — for contributions to his Income, the former's purchasing-power may considerably exceed theirs In amount. For example, following figures as nearly representative of current fact as present knowl- edge enables, let It be supposed that the aggregate pro- ductive power of the nine producers be, say, 900, or an average of 100 apiece, their Individual productivities ranging anywhere from 50 to 500 apiece. Suppose that the tenth man, by barter, secures from each of them two- thirds of this, or an aggregate of 600. Then would their purchasing-power be one-third of their productive power, or an average of 23 (ranging from 17 to 167) apiece; while his, at 600, is eighteen times as great. It Is because this obscure economic dissipation is an instance of the dissipation of life into nothingness, quite as much as is the more familiar and obvious biological dis- sipation, that all of the activity expended or latent In com- petition has been styled Dissipation. In both cases life, time and effort are expended in a direction thought to be productive of value, but which is not. In the first case It was in the manufacture of whisky, which men think they need when they do not; in the second case It was in the promotion of sales or prices. In the collection of rent or interest, — In short, in barter, — which men think is a neces- sary part of the conduct of economic life, when it is not. i64 THE COST OF COMPETITION In their economic aspects the two sorts of dissipation are exactly alike : each directly wastes life by expending it in useless effort; each indirectly leads to a much greater ethical loss as a sequel. But because the first sort of dis- sipation is already well covered with a full literature of analysis and statistics, attention will here be reserved, in our use of the word, to economic dissipation only. It is important to note that in the case of economic dis- sipation, whether through the medium of barter or of the idle extraction of interest or rent, the dissipation occurs when the time and effort are expended in the bargaining (when the latter is active), or when it is expended in the making of the goods purchasable by the interest-money when the barter is of the idle form. No later act can ever recall that waste. The money won by the barter may be spent in further moral dissipa- tion, in riotous living, demoralizing to the community by its example; or it may be spent in leading an exemplary commercial life, elevating to the community by its exam- ple. Yet to the economics of the community there is no difference between the two; in each case productive effort is expended without returning to its originator the value of his production. Again, the money won by the barter may be hoarded into colossal fortunes, involving further dissipation of life in the squeezing of interest-payments out of the pro- ducers, or it may be spent for steam-yachts or libraries. Here there is a difference, between whether the second, later phenomenon of dissipation shall occur or not; but it is not one which can ever hope to cancel the dissipation involved in the original barter. The popular fallacy that it makes no difference to the material welfare of the community how a man gets his money so long as he spends it again, " keeping it in circula- DISTRIBUTION 165 tlon," cannot- be too deeply condemned. Futile activity does no one any good. The money he returns to the com- munity will not support it. It is what it will buy. And his activity in securing this money, to be poured through his hands without feeding him into productive activity, has not increased by one atom the supply of purchasable goods. It has increased, on the other hand, the money- scale, the inflation of the average price of a given amount of life-supporting Value, and has decreased the purchas- ing-power of every dollar throughout the land. The men whom he hires to build him his steam-yachts and palatial " cottages " are apparently better off in having employ- ment when otherwise they might be idle ; but their fellows all over the land are losing every dollar that they gain, and more, by the method of their employment. It will become plain, indeed, that the only reason why any man has grounds for being grateful for the privilege of employ- ment is that barter takes place in the land and robs his neighbor of that privilege. The Efficiency of the Industrial Body. From these considerations, that Division i of the Industrial Body alone operates to its support while Division 2 joins with Division i in consuming what the latter produces, the accurate statement of the efficiency of the Body, as a unit and as a method of organization, — with no reference whatever to the intellectual, moral or muscular efficiency of its individual members, but taking these as the starting- point and considering the Industrial Body as a machine in which these individuals are either properly or improperly related to each other, — is obvious. The efficiency of the industrial organization of a com- munity is the total activity effective in Production of Value divided by the total activity of the entire industrial organi- zation visible in Income of Valuation. i66 THE COST OF COMPETITION The efficiency of organization of an industrial body may be further defined as the proportion between the Value actually produced and that which would he produced were all prices settled by rational, central-office methods instead of by barter. These two definitions will be found to be synonymous with each other and with the ratio of Wages- divided-by-Total- Valuation mentioned on page 153. The Dissipative Activity Greater than the Dis- sipative Population. It has been pointed out that the rewards won by barter, per unit of time or exertion, are far superior to those remaining to production, and that in natural equilibrium they must remain so; in fact, that the lion's share goes to the barterer, the producer getting only enough to persuade him to continue production. Therefore the individuals who are attracted from the field of production into that of barter include some of the ablest in the land. The ability which they possess is always of a combative, coercive sort, whereas the more purely creative ability seeks the arts and professions ; but it is nevertheless ability. This fact is to be remembered in connection with the illustration given on page 163. It is altogether prob- able that the purchasing-power which the barterer is there supposed to accumulate is considerably below his .natural productive power, which last can be brought out only when he alters from his antagonism to the nine, in barter, to co- operation with them in production. Whereas he wins 600 by barter he could probably produce 900 if there were no barter. But in any event it is fair to assume that his latent productivity is at least equal to 600. Had it been developed by conserved freedom of exchange the aggre- gate for the ten of them would have been 900 plus 600, or 1500, an average of 150 apiece- — as contrasted with an average of 90 apiece for the entire community, or 33 apiece for the producers, under barter. Had the purchas- DISTRIBUTION 167 ing-power been allotted to each in equality with his produc- tion, as is only just, the nine would have averaged 100 apiece, while the tenth would have received his 600. This gain of two-thirds in average individual wealth, it is to be especially noted, is accomplished by the transfer from Division 2 to Division i of only one-tenth of the population; but it carries with it four-tenths of the total productivity, or more. In other words, with cooperation substituted for competition in any community, including no allowance for the increase in average individual pro- ductivity properly to be expected from production on a larger scale, the better sustenance and hope of the opera- tive, etc., etc., but considering only the metamorphosis of barterers into producers, it is certain that the latter would be very much the gainers and the former in no sense the losers by the change. So far as any difficulty of a single personality's assum- ing either role is concerned, this metamorphosis is one now undertaken by a large proportion of our smaller manufac- turers and business men from one to a dozen times each day. They change occupations, from producer to bar- terer and back again, each hour, and are all unconscious of the transformation. The psychological problem of ac- complishing it, therefore, does not exist. That the material is there, ready for the supposititious permanent change, is a matter of the most cursory observation. The biggest men of any industrial community are uni- versally to be found in the ranks of its barterers. Their incomes are bigger even than they. While it is common for the incomes of the barterers to range from one-half to one, or even seven millions per year, it is the exceptional professional man who can secure fifty to one hundred thousand, or even ten thousand. To the chief adminis- trator of our national affairs we allot the former figure. i68 THE COST OF COMPETITION The average income of the producers is about four hundred per year. The Fundamental Law of Distribution Purchasing-Power. According to the Law of the Conservation of Energy, purchasing-power (or Valu- ation) may never arise except as the equivalent of a preceding production of Value (see page 153). This aggregate Value suffers translation into Valuation before distribution, however, by multiplication by the money- scale, which was defined (pages 152-153) as the propor- tion of total to productive activity. Therefore, so long as any competitive or non-productive effort whatever exists, so long as Division 2 possesses any magnitude what- ever, this multiplier will be greater than unity and the translation of Value into Valuation will constitute an infla- tion. That is, if one-half of the total effort of the com- munity be expended in competition, for instance, then all prices are necessarily, on an average, just twice the true value of the goods. A given purchasing-power will return to the spender just one-half the life-support which it cost, which it ought to return and which it would were there no barter present. Looking at this same point from the opposite direction, — for it is all-important that it be clearly grasped, — the aggregate productivity is just one-half of what it might be were all existent activity directed into the productive divi- sion of society. Therefore the aggregate purchasing- power of the community will purchase just one-half of its own natural productivity. In other words, the average individual income will purchase only one-half of the aver- age individual's productivity — which is the average actual production per individual. In brief : DISTRIBUTION 169 So long as any competition whatever takes place, the purchasing-power of the entire community must be less than its natural producing-power by the proportion of that competitive to the remaining productive effort.^ Demand and Consumption. It is difficult to bring clearly before the mind the importance of this conclusion in its bearing upon our common views of economic rela- tionship. To the average man it stands as axiomatic that trade needs to be stimulated or else it would not exist, that 5 This fact may be more clear If restated in mathematical terms: Let the total industrial activity of the land be T and the portions of it which are directed into productive and competitive channels, respectively, be C and P. Then C+P=T . . . (1) Let / be the market-price of the aggregate commodities created by the industrial body, let p be the natural price, or productive cost, of the same and let c be the cost of competition thereover, or the inflation of their value into their valuation. Then c-\- p=t . . . (2) Further, C : c = P : p = T: t . . (3) C, P and T are quantities of vital activity, for which we have no units of measurement; c, p and / are quantities of valuation and are measurable in money. From Equations (2) and (3) is derived But in any community where exchange is operated, under the protection of law, at perfect efficiency, the relation of purchasing to producing power must be that which would prevail in a community where there were no necessity for exchange, where each man consumed exactly what he pro- duced, namely, unity. Since, under exchange, the purchasing-power varies inversely as the market-price, other things being equal, it may be said from Equation (4) that the dependency of purchasing-power upon the volume of competition may be stated as a direct proportionality to the c quantity. 2 — Tjr, 170 THE COST OF COMPETITION the volume of trade depends upon the whim of the pur- chaser, that overproduction exists because It exceeds the natural, biologic ability of the community to absorb and consume ; that, nevertheless, there Is no limit to the demand for labor, so that any person really desiring employment can find It; and finally, that every man needs artificial stimulation to labor or else he will be idle, for obviously If he Is Idle it is because he wishes to be. That these several doctrines are not only hopelessly inconsistent with each other, but are almost the direct opposite of the natural facts, it Is a simple matter to demonstrate. In the Inverse relationship of volume of purchasing-power to volume of competition which has just been proven we are equipped for the first time, however, with the necessary means. The first step in this demonstration is to call attention to the more than obvious, to the Insistent, fact that to human desire, to purely biologic demand, there Is no limit. There Is no limit, visible or Imaginable, to the human con- sumption of goods. Of any one commodity, to be sure, there Is a natural limit to consumption per capita. But let surfeit In this one line be only just attained and there Is already upon Its heels a hunger for what was before not thought of. What was luxury, perhaps only dreamed of, yesterday. Is to-day a matter of current consumption. To-morrow It will be an absolute necessity. This Is current growth. It Is absolutely wholesome. Not only Is the worth of a people not measured by the extent of Its "economy," Its "thrift," Its parsimony; it Is measured by the exact opposite — by the amount of wholesome commodities which it is able to procure and consume. That people is the strongest which absorbs the most. There Is undoubtedly such a thing as unwholesome indl- DISTRIBUTION 171 vidual appetite: sometimes exaggerated to gluttony and extravagance; sometimes perverted into an appetite for destructive things, such as opium or strong drink. But in every case it proves, upon investigation, to be merely the natural appetite diverted and distorted by unwhole- some forces which are wholly extraneous to the question of appetite itself. Another condition which must accompany this state- ment is that the appetite, in order to be wholesome, must create what it consumes. In our present organization of society this is often far from true. In a minority at the top gratification is out of all proportion over and above the necessity for creative exertion. In a majority at the bottom the necessity for creative exertion is out of all pro- portion over and above the opportunity for gratification. Appetite is in the first case overfed and under-exercised. In the latter case it is underfed and repressed, and re- pressed life always becomes deformed. The criterion of individual worth to the community is a hearty, unlimited appetite for all things good: an appetite won from a hard day's work behind one — fed the day before with a square meal, of bodily, mental and spiritual pabulum, and looking forward to the same to-day and to-morrow. Such an appetite means vigor of life. Vigor undertakes and performs tasks without the whip, without hire, without persuasion, without allotment even. It makes work for itself, and breaks it, for mere joy of working. A man who does not desire and enjoy work is just as sick, just as properly a public burden, as he who does not desire his dinner and, after that, all other things which he can procure by wholesome exertion and without robbery of other people. It is the prime business of the motor-nerves, too, to lead us to seek the things which appetite desires. We do not 172 THE COST OF COMPETITION need to be begged to buy shoes when barefoot, nor to seek food when hungry. Natural impulse leads us to do those things. If there were not an advertisement issued, not a soliciting salesman in the land, all of the current pur- chase and consumption of standard articles would continue. Only novelties would need to be announced, and then merely in a passive way, bulletin-fashion, in any publicly understood method and locality, as of new books in the book reviews, or by mere display in the single bazaar which would then replace the present bewildering plurality. But the bulk of all advertising, on the other hand, is con- centrated not upon the novelties of any real Value, — not mere catch-pennies, — which " sell themselves," but upon the staple commodities. There are no fields in which advertising is more frantic or competitive introduction more vehement, than in the staple commodities: food- stuffs, clothing, soap, steel, house-lots, etc., of which there could be no possible need of enticing consumption except that the purchasing-power is limited to less than what is offered and that an artificial reward profit is attached to its enticement in one direction rather than another. This is the prime fact of the situation : that the limit of human consumption, and therefore of economic demand, of volume of trade, of factory-activity and of the market for labor, is not at all dependent upon any factor of biologic desire, individual whim or personal will, all of which possess no limits whatever, but upon the purely economic factor of purchasing-power. And while there is room for endless argument as to the ability of the indi- vidual will to affect the purchasing-power of one individual as compared with another, there is no chance whatever for argument as to his ability to control the total purchas- ing-power, by means of either advertising or solicitation. For if any individual, with the help of any purely biologic DISTRIBUTION 173 factor within himself whatever, should succeed in expand- ing his vital activity, skill, endurance, etc., with the object of thus expanding his purchasing-power, he expands simul- taneously his and the community's potentiality for produc- tive power. If he direct his new activity into productive lines, he expands both the purchasing-power and the pro- ductive power of the community equally. If he direct it into competitive lines, he may expand his own purchas- ing-power, at the expense of others, but he has left un- touched the total volume of purchasing-power and there- fore the economically limited volume of production. The important conclusion to be drawn from this argu- ment is that the present existing and universally accepted fact that there should always be more sellers than buyers and more laborers than vacancies, with the seller and the laborer always maintaining a natural attitude of solicita- tion, is a purely unnatural and artificial situation; indeed, that it is quite the reverse of the natural. Naturally, ex- change should be sought solely by the buyer, who alone proposes to enjoy the subsequent consumption of the goods. Similarly, the employer should seek the chance to employ his man, with the same avidity and partial lack of success as we each of us seek time and strength for doing what we ourselves desire to do. The sole reason why this is not so to-day is the presence of an enormous volume of competitve effort in the community. This presence exerts a twofold evil effect upon the atmosphere of both trade and employment. In trade it (a) accompanies the privilege of trade with the privilege of taxing the trader, and (b) reduces the volume of purchasing-power. Both processes lead to the crowding of men into trade, as pref- erable to labor, and to their frantic jostling of each other to secure to themselves and away from the others the limited field for exchange. It likewise operates. In em- 174 THE COST OF COMPETITION ployment, (a) to accompany the privilege of employing others with the privilege of retaining a portion of their productivity, and (b) to the restriction of the volume of manufactures to less than the available volume of produc- tive labor. Therefore the cool indifference of the buyer, and the struggle of the seller to secure his favor, find com- plete counterpart in the cool indifference of the employer to the string of applicants for work which he finds at his door each morning and in the struggle of the laborers to secure the limited opportunity open to them. Since the demand for labor in the factories depends solely and directly upon the volume of exchange currently effected with the ultimate consumer in the retail shops, it is sufficient to discuss the latter alone, as covering both. To this end it is important to scrutinize carefully the nature of the efforts of the barterers in their desire to " promote trade." Upon examination it appears that their aim is by no means to swell the total volume of trade. Instead, it is to divert what volume already exists into their own market, in preference to having it pass through some other barterer's hands. Indeed, their constant effort is to restrain trade — to restrain the trade of their competitors. For the total volume of trade they care only this much, that plainly the less the permitted volume of exchange the higher are prices, and the higher are prices the greater are their profits. The proportion of the total volume which passes their way is all they care for. If their absolute quantity has remained constant while its proportion to the whole increases, because the total volume has decreased, they are the winners thereby; for they are making greater profits from the higher prices while called upon to do no more work in the way of handling goods. In the offering of money-reward in the form of profit for the prosecution of competition, the public is maintain- DISTRIBUTION 175 Ing a policy which could naturally result only in just these results, and no others. That the barterers respond to it with prodigious effort at the elevation of prices, the re- striction of output, the control of the labor-market and the long list of other things which the public does not want done which constitute the present Industrial problem, is the fault of the public and not of the barterers. Until it learns this fact there Is no hope of remedy for the situation. It must learn that if It wishes prices kept down it must adopt a policy which sends the greatest rewards to him who lowers prices. Instead of to him who raises them. If It wishes purchasing-power, volume of trade and de- mand for labor, to Increase, it must first reduce the volume of the only thing which restricts these Items below their natural limit, namely: the volume of competition. As the first and most essential step In the public's learning this lesson, it will be repeated that the sole limitation to the gratification of spontaneous desire for all things and especially for novelties, the sole factor in determining the total volume of trade, is, not desire, but purchasing- power^ and that the one thing which limits purchasing power, by inflating the money-scale, is COMPETITION. It is only because barter exists, constituting economic dis- sipation, scattering to the winds the economic power of the Individual, that any effort Is needed to dispose of goods. There Is no such thing, in a natural sense, as the '' overproduction " of which so much complaint Is com- monly heard. The prime actual fact is " underpurchas- ing-power, " is a purchasing-power artificially limited by the presence of barter, — by the barter-cost of that very advertising or similar effort which seeks to promote pur- chase, — below natural desire and below natural produc- tivity. Thus does barter feed upon and block Exchange, that natural circulation between production and consump- 176 THE COST OF COMPETITION tlon which It apparently Is its sole blundering aim to promote. The Labor Market. The second broad conclusion to be drawn from this limitation of purchasing-power by the presence of barter, and one of even greater Importance to the community, Is this : The demand for productive labor is less than the supply ; each opportunity for its exertion becomes the center of competitive search by the producers, just as each oppor- tunity for a sale is a prize to the sellers. The man seeks the chance to work, Instead of, as alone Is natural, his exercising a choice between several opportunities, between several sorts of work, each of which seeks the man to do it, — choosing the sort which he can really do the best. It will be immediately replied to this, by all those who have engaged in the employment of labor, that the latter is now the case, that employers are In constant difficulty in attempting to find men able to do a certain grade of work as they wish It done. This Is undoubtedly true. It Is a broad fact which splendidly upholds the present analysis. For this ungratified search for the right man is always limited by a factor which does not find such enthusiastic promulgation at the hands of the employer as does his dissatisfaction with his employees; of the exist- ence of which, indeed, to Its full Import, he is unconscious, viz. : that the purchasing-power which rewards the work is just about one-third of that naturally accompanying the class of productivity which he desires. For the wages paid Is the Value produced by the workman, paid to him in the form of its Money-valuation. Because of the gen- eral dissipation by barter throughout the land, and not because of the workman's individual employer, his pay becomes divided by three when, in his purchases in the DISTRIBUTION 177 open market, he translates it from Money-valuation back into material, life-supporting Value of commodities. It is of course not to be said that the employer could arbitrarily multiply his wages to each man by three, so as to counteract this lapse from the natural, if he only would. It has already been barely stated, and it will be often emphasized hereafter, that the employer, because of his competition with his fellows, is stripped of all surplus income and opportunity, under the same sort, if not the same degree, of pressure as is the laborer. Because the employer's life is upon a generally more comfortable plane than that of his employees it is incidentally true that he might raise wages somewhat if he chose. But it would amount to little for each man, nor would it be permanently effective. What is referred to here is quite a different matter .-.that the wages accorded to any position open for apphcants will buy in the open market, because of the inflated Money-scale, only one-third of what they naturally ought and otherwise would if the inflation were absent. The inflation referred to here is that of prices due to add- ing to the cost of production the cost of barter. And this inflation is due not to what any Individual employer abstracts from his own employees, but to the value cur- rently dissipated throughout the entire land by the presence of barter, conducted by all the employers and capitalists together, in connection with all commodities sold. There- fore the obstacle against which the employer is wearing himself out, in attempting to obtain suitable labor, is not a lack of producers; each advertisement brings six appli- cants for one opportunity. It is against the fundamental law of the parasite Barter that he is fretting: that it leaves in the producer's hands, through the employer as its agent, only suflEicient income to maintain life in a stationary, or very nearly stationary, position, without progress in in- 178 THE COST OF COMPETITION telligerice or vim to the degree which the country, includ- ing the employer, would gladly have him possess. From all of these considerations does it appear that seller, laborer and employer are alike seeking that which is not to be found: the wasted opportunity brought back to life. For the opportunity to buy and consume, the opportunity to work and earn and the opportunity to pay wages high enough to attract intelligence and ability, were alike lost to the community, in their greater proportion, when Barter arose to its present enormous dimensions, under modern, and especially American, political and geo- graphical liberty, to eat the heart out of natural, free exchange between man and man. The Second Law of Distribution Dissipation. Economic Dissipation, taken as an ag- gregate, always tends to the maximum bearable by Pro- duction. This law holds true of either of the subdivisions of Dis- sipation: Rent, Interest, Gross Profits, Barter-cost and Net Profits, except as they interfere with and counter- balance each other in their parallel growth. In general, excepting barter-cost, they tend to increase equally. The truth of this law, if not already axiomatic from what has been seen of the elementary nature of barter, becomes further evident, by inspection, upon two counts : (i) The gain allotted to effort In barter, per unit of time, is very much greater than that allotted to productive labor. This leads to constant influx of population into the competitive from the productive walks of life. This is one of the two great forces back of that growth of the DISTRIBUTION 179 city which has so markedly characterized the last half- century. The country districts are naturally confined mostly to productive effort. The cities, particularly the largest ones, while they also compass much productive effort, are the shelters of the greater part of all barter. Production, involving only the man, the soil, the tools and natural forces, can be carried on in comparative isolation. It is not only our agriculture and mining that are scattered over the breadth of the land, but our factories as well, dotting the maps with minor towns and cities whose population is almost exclusively productive. But each factory has its New York or Chicago office, and usually no business can get to or from the factory except through these centers of competition. Barter, on the other hand, involving solely the relations between man and man, can be carried on, at its best, only where the population is con- gested into the closest possible contact, for the maximum ease of intercommunication. (2) In barter the gain is not limited to proportionality to the period of exertion, as it is in productive effort. Whereas no amount of skill, in a given state of the arts and excluding inborn genius, can exalt the income of a producer beyond a certain fairly well-defined point, there seems to be no limit yet visible to the capacity of a barterer for acquiring wealth per unit of time. (3) The power of the barterer over the producer in- creases in geometric ratio to his success. Thus, a man possessing capitalism to the amount of $10,000 will re- ceive a certain current percentage from using it in barter, and with a certain degree of uncertainty attached; a man in the same line of business to the amount of $10,000,000 (or to the same proportion of actual value of property) will make his securities earn more per dollar and will be much more certain of the continuance of his income than i8o THE. COST OF COMPETITION will the first. This Is not the day of the small capitalist nor of the minority stockholder. That is to say, the average income of each individual bargainer tends to increase, as well as does the number of bargainers. Wages. The second law, stated in terms of Produc- tion, instead of Dissipation, runs as follows : Wages, taken as an aggregate, always tend to the minimum bearable by Production. That is, since wages = Value-production minus Dissi- pation-by-Barter, as the latter tends uniformly to increase, as a proportion of the whole, wages must similarly tend to proportional decrease. This does not necessarily mean that the wage-rate is on the decrease. The wages paid in dollars and cents include four distinct factors, which must all be considered before any indication can be had as to the welfare of the recipient, viz.: {a) the wage-rate; (b) the proportional time of employment to the total time; (c) the average price of commodities; (d) the scale of the productive arts and of life In general at the period and locality In question. Each of these factors varies con- stantly. Each has had a whole literature devoted to its details. To none of them need any space be given here. Our argument is a blanket one. The welfare of the indi- vidual depends solely upon his Income of Value and Its relation to that enjoyed by his neighbors ; he cares nothing about Its valuation in dead dollars and cents. And if a steadily Increasing proportion of the community's current product of Value goes to Barter, a steadily decreasing pro- portion must be left available for Wages. There are two prime forces Influencing the average wage-value. One of these is the aggregate productivity of the wage-earners of the community. The other is the aggregate volume of barter In the land. According to the DISTRIBUTION ibi Second Law, this latter factor always exerts a downward pressure. Whether it be sufficient in power to countervail the forces tending to expand productivity, to the develop- ment of a current net decrease in wages, is not the ques- tion before us. The law merely states that the presence of barter always acts to make wages less than they other- wise would he, and as much less as the producer can stand. Natural Growth vs. Artificial Degeneration. — It is properly to be pointed out, however, that the sole force which tends to elevate wages is biological and techni- cal growth. The struggle between the two forces in their determination of resultant equilibrium, therefore, is one of money-seeking-protected-by-law against life. It will be developed, as we proceed, that while the net result of the contest, for the entire community, is and must be slow progress, as of a tug-of-war, yet for a certain large, though minor, fraction of the community it must always mean retrogression and degeneration. The Wage-System. This law of wage-depression by Barter also holds true for all the subdivisions of wages, into professional fees, salaries and payrolls, down to the individual wage-income, except as each tends to counter- balance the other. In general, they all tend to decrease equally. The doctors and the artists are packed into the same box, and under the same pressure, for all that they lie in the upper layers, as are the rriechanics and the laborers. The truth of this law Is evident In two directions: ( I ) In the Competitive-wage System. — This system, coupled with the fact that there are always more laborers than opportunities to labor, enforces the law in regard to individuals. Each individual, in securing a job, is forced to accept it at the lowest possible income upon which he i82 THE COST OF COMPETITION can survive, reproduce and maintain his level in society and in economic efficiency. (2) In the Dependence of the Factory upon the City- office. — Viewing class-aggregates, the bargaining division holds the complete advantage over the producer-division. Labor to-day, unless it can find access to land, tools and exchange, — that is, to capital and a market, — is as help- less for its own support as if every muscle were paralyzed. There was a time when an alternative was open to it, when it could choose between specialization, adopting machine- methods, on the one hand, and hand-trade distributed over several trades on the other. Then barter could exact, for the privileges of exchange, only the bulk of the superiority of specialization with tools over Jack-at-all-trades hand- production, but no more. Now this limit has almost entirely disappeared. The superiority of the factory- method is so great as to have entirely displaced the other. The producer attempting to cling to hand-methods cover- ing the bulk of even his bare needs: food, clothes and shelter, as did our grandparents, or to hand-make any one of these needs and market his product unaided, would liter- ally starve. That the limit is still there, although almost Invisible, and that barter, in Its avarice, still presses the working- people hard against It, Is evident from the sporadic sur- vival of tenement, sweatshop and household Industries in the face of the far superior factory-methods. But even these are helpless In the hands of the professional bar- gainers when it comes to marketing their goods. They suffer as much then, in the exactions of the sweater, as does the factory-hand, at an earlier stage In production, in paying his Interest upon factory-capitalization. The whole phenomenon Is of interest more as a relic of the past: a superannuated provision against the grasp of DISTRIBUTION 183 avarice, an ancient but now ruined wall against the bar- barian, than it is as a thing of any modern effectiveness for the amelioration of labor's lot. With every advance of the arts and sciences, introduc- ing automatic machine labor-savers where before indi- vidual effort was relied upon, correlating industries which before were independent, the ascendency of the factory- method over hand-production becomes more complete and irrevocable. With each such step in advance the Pro- ducer and Consumer alike become one degree more help- less in the hands of Barter. All modern complex machine- methods, the attainments of self-devoted students and in- ventors, aimed at the liberation of mankind from toil, only succeed therefore (in so far as Barter can prevail against Humanity) in riveting additional chains upon the suffer- ing millions. There is progress upwards, because the growth both of mere numbers and of ethical standards compels it; but it is made, every inch of it, against the stoutest resistance which grasping, self-feeding, parasitical Barter can maintain. (See Fig. 12^, p. 257.) It is chiefly these advances in machine-methods, which have been more rapid during the past fifty years than ever before, coupled with the material conquest of the continent and the abolition of slavery, which have sown the seed and freed the ground for such a growth of Barter during that time as economic history has never before recorded. ^ This phenomenal growth will mark this present period, in the centuries to come, not as the age of steam, nor of steel, nor of electricity : those are all yet to come, in their full- ness; but as the age of Barter, for that is soon to go, to drop away into the traditions of the ages, along with superstition, slavery and the feudal system, as the chief heraldic emblem of a luxurious and bewildering, but brutal and barbaric, nineteenth century. t84 the cost of COMPETITION The Producing Division Subdivided The Starvation-Wage. A restatement of the First Law of Distribution, in the form of the " First Law of Wages," may be made in the following form: In each class or level of productive effort, as a result of internal competition for the opportunity to labor, the majority of its individuals are led to accept the least in- come upon which they can succeed in surviving, reproduc- ing and maintaining their social and economic level. This income is known as THE STARVATION-WAGE for that class. The word starvation is used here in a technical sense. That it may not, in some levels of industry, become liter- ally true, is not to be urged; for it certainly does become sOo But on the other hand, in the majority of the more skilled grades of industry the term is properly to be interpreted in connection with the words " maintaining their social and economical level." The starvation-wage may thus be, in certain classes, $1000, or even $5000, per year, as well as the few hundreds which applies to the unskilled classes. A given skill in industry always demands, in biological equilibrium, a certain corresponding scale of life in other lines. No man's family can live in a two- room tenement and he continue long to earn the same wages as if they lived in his own modest house and lot. If a producer be forced to abandon his social pride and self- respect he abandons with it his ambition, intelligence, energy and skill. The Prosperous Producers. In each such class or level of productive effort there is a minority who receive more than the starvation-wage. These are the ones especially favored in parentage or in opportunity. As an immediate result of their margin DISTRIBUTION 185 of productivity over necessary consumption, they are engaged in growth. One or two generations later will see the family pass out of that economic level into a higher one; where they may then be receiving the starva- tion-wage, indeed, but in a class where it possesses a much more comfortable significance than before. This growth diminishes the number above the starvation-wage in the lower class and swells the ranks of the starvation-wage in the upper class. This is why the proportion above the starvation-wage in any class always tends to a minimum, and is, at its greatest, always a minority. The Unemployed. The fact that the aggregate pur- chasing-power of the community is always less than its aggregate productivity (see page 169), leads to the " Sec- ond Law of Wages," viz. : In each such class or level of productive effort there must be another minority receiving less than the starva- tion-wage, which they would be glad to get if they could. These individuals are, more or less completely , enforcedly idle. The Submerged Tenth. In the lowest level of productive effort, that of unskilled labor, the Unemployed constitute the submerged tenth. Unemployment a Function of Barter, or Compe- tition. The primary proof of the existence of this claim is the deficit in purchasing-power below productivity, which was elaborated upon pages 169 and 170. It enables the following law to be added directly to the preceding: The average proportion of Enforcedly Idle in the sev- eral classes of industry, or of the Submerged Tenth to the total population, is a direct function of the proportion pre- vailing between Competitive and Total Economic effort. This function is not a simple proportion. It is one too i86 THE COST OF COMPETITION complex for quantitative establishment at present. But the line of forces which produce it: Barter abstracting energy and ability from the ranks of Production; the con- sequent deficit in aggregate Purchasing-Power below Pro- ductivity; the synonymous current surplus of Productivity over Market Demand — all show the characteristic inevi- tableness of a chain of cause and effect. The Futility of Statistical Argument. To at- tempt to prove or disprove these things by statistics Is futile, though statistics may throw much light upon them. To make such attempt were like pouring a barrel of water into the Hudson River at Albany and attempting to prove, by gauging the flow at New York, that a barrel of water more than usual went into the sea. Nevertheless we know absolutely that water is indestructible and that the pouring of any quantity into the river at Albany, other things being unchanged, must Increase by like amount the flow at New York. Similarly we know absolutely that nothing will produce value, life-support and purchasing- power except productive effort; that for each atom of activity which climbs, seeking Success, from productive, wage-earning levels Into non-productive, profit-earning, competitive fields an equivalent atom of life Is depressed from productive, wage-earning, self-sustaining levels into the non-productive, pauperized level of Enforced Idle- ness, that equilibrium may be maintained. As the prin- ciple of the Conservation of Matter declares the truth in the flow of water, so the principle of the Conservation of Economic Energy enlightens the case of the Profit- maker and the Submerged Tenth. Human life Is drawn Into these non-productive extremes, against humanity, con- science and all higher ideals, as water Is drawn Into the clouds and Into the depths of the sea : by the Inflated life of illumined ease at the top, by the quiescent irrespon- DISTRIBUTION 187 sibllity in the darkened depths. It is axiomatic that noth- ing will alter this phenomenon except the reversal of this temporary and artificial force of gravitation and the award of the material prizes of life to the productive effort which creates them, and the allotment of nothing, of mere want and humiliation. Instead of inflated money- command of men, to the competitive effort which wastes them ; that, until this be done, to try to employ the unem- ployed is as trying to pump out the sea. The Irrelevance of Psychic Forces. — Nor can the situation be at all enlightened by any inquiry as to whether or not any Individual among the unemployed desires employment. When they first lose It they do, of course. But after a certain amount of futile wandering In search of work the natural desire to work dies out. The man becomes a tramp and the woman the same, though we call her a worse name. Desire for or against work has something to do with which individual Is chosen for Idleness. It has nothing whatever to do with the number force-drafted Into Its ranks. It Is as If a regiment were to be selected from a community according to short- ness of stature: thick soles to one's shoes might avail to keep some man out; but It would Inevitably force In another who otherwise would have gone free. The pres- sure of barter, crowding down upon purchasing power, Is arrested only by a counter-pressure of life refusing to die. A certain volume of life, engaged In this slow pro- cess, must be currently In existence, as a public burden in almshouse, prison, asylum or slum. In consequence. Whether Its resistance be voiced intelligibly, as from the laborer seeking hire, or more obscurely, as from the con- stant menace to public security latent In the tramp, the footpad and the grafter, makes no difference to the limitation of aggressive barter. The prime point Is this: i88 THE COST OF COMPETITION that Barter, in its strenuous keenness, insists ever that the resistance shall be stout, or it will bear it still further down. It is only industrial idleness, coupled either with fresh diligence and organization when recently imposed, or with hardened violence when older and grown callous, — the idleness of organized labor or that of the desperate criminal, — that may constitute a substratum of life suffi- ciently compacted to hold Barter up and keep it at bay.® The Dilution of Enforced Idleness. Nor must all of this volume of idleness be expected to appear in the form of a population each member of which does nothing at all. They nearly all do a little, during a part of the time. Some do nearly as much as will earn the starvation- wage. But they are all below it, slowly starving — usually under more comfortable names : such as consump- tion, infantile colic, etc.'' It Is this modern question of 6 A university professor is reported by the Search-Light as having studied the tramp-question in England by interviewing some 2000 wan- dering beggars as to why they did not support themselves by work. Will- ingness to work but inability to find employment was expressed by 653, or 32 per cent., of them; the answers of 445 were vague; 301 expressed the opinion that " no one ought to be obliged to work, but if some fools did so they [the vagrants] were justified in living on them"; 407 alleged plans for procuring work at certain far-off localities; the remaining 194 were living in hope until their relatives should die and leave them money. As a study in psychology these statistics are probably reliable and of value. They show the proportion of those who are still honestly seeking employ- ment as one-third of the whole, while those who have been degenerated by the enforced idleness or other causes into indifference constitute the remaining two-thirds. But as an indication of the true cause of economic idleness they are absolutely worthless. No sane man would think of approaching these two thousand unfortunate individuals as a source of reliable information upon any other topic. How can they be expected to give it upon the unusually difficult one of political economy? "^ A recent article from the pen of an eminent physician, treating of the possibility of eradicating tubercular consumption from the community, gives the following list of measures necessarily to be adopted by the people to this end: (i) Fresh air; (2) ample nutrition; (3) complete rest. How compatible is this prescription with a starvation-wage, or less! DISTRIBUTION 189 the proportion of Idleness In the time of each nominally employed laborer which Is upsetting all of the old- fashioned conclusions based upon mere rate of wages, now able to throw almost no light upon the laborer's true economic condition. It Is this partial employment which enables so few and such weak ones to successfully counter- balance the enormous might of the competitive organiza- tion : they starve so slowly that each one counts for a good deal of resistance. The resistance of life to degeneration and death Is ever astounding: courage, self-respect and physical constitution wear away so very slowly. So that It Is a kindly plan, In one aspect, this plan of partial employment: It breaks the suddenness of fall Into want and degradation, substituting for it a slow gravitation, as into quicksand, from the respectable poverty of unskilled labor Into the immeasurable depths of chaos below, where there is no self-respect, no courage, no moral or bodily stamina — only incoherent drifting where chance currents may direct, only pauperism, disease, crime and insanity: life appearing to Its wretched votaries as a vague nebula of uniformed officials, steam-heated prisons, hos- pital-wards and numbered certificates, certain to crystal- lize only finally in a nameless death and a dissecting-room burial. The Law of Barter and Wages Affects all Levels of Society. But, though this Is the worst of It, It Is not the most of it. All through the laminated struc- ture of the body economic, in every one of the upper layers, this law of action and Its Inevitable resultant phenomena find instance. No degree of average indi- vidual development may protect a superior class from Its presence. Within its ranks, even if it Include the ablest in the land, is Its due proportion of the unemployed — a 190 THE COST OF COMPETITION less proportion as the higher levels are attained, but a rigid one, never sinking to zero. This ever-present artificial repression of life is the cause and source of the desperation, distortion and atavism into crime, insanity and suicide which is con- stantly appearing in all levels of society. Psychology may explain its internal workings, heredity may pass it on from generation to generation; but it is Barter which creates it. The Repression of Genius. But with these classes, however, the unemployment is never baldly visible. Rather is it the better concealed, agreeably to culti- vated habits, than in the lower classes. Nor does it take the form of bodily starvation, as with the Submerged Tenth. A worse form, according to the standards of a civilization nominally worshiping art and progress, is reserved to it: that of the starvation of genius. For in each of us is the spark which deserves that name. When we meet the acknowledged representatives of the class, the successful in any of the lines of creative art, we modestly disclaim any literary ability, any real knowl- edge of music, any proper taste in pictorial art, still less a skilled appreciation of beauty in architecture, the first of all social arts. But down in the heart within us lies the more or less conscious faith that our words are all lies, that we know enough of these things to feel them — which is all, in the best sense, that anyone knows. We know that our feelings may not have the catholic founda- tion or the extreme sensibility of the trained professional perception. We usually know, or think, that we lack creative ability. But of the enjoyment we are certain. Of the starvation of both we are also certain; for as to how far we lack creative ability we know with certainty only that we have never, most of us, had a fair chance DISTRIBUTION 191 to find out. Our best productive strength, rewarded by Barter with one-third of its natural result, is all needed to feed the body and to give the mechanical intellect a fair degree of cultivation. The much slower and more costly development of taste, perceptivity and imagina- tion Is crowded back and out — unhappily not so far but that it remains ever upon the visible horizon, a shining Carcasonne, a feast of Tantalus, to the spirit which has only partly learned resignation and which still resents the forced surrender before a tyrannous gilded Idol, before an Institution not embodying Godhead, before that Krishna of Selfishness styled the Competitive System. In this sense, then, of being required to concentrate one's best efforts upon the tasks which are really of the least value to us and to the community, albeit the only ones for which It will award us Purchasing-Power, can be added this additional statement of the Law of Enforced Idleness: That even among those who retain the privilege of em- ployment the economic coercion is toward the maximum employment of their most material parts and the minimum employment, amounting frequently to complete idleness, of those portions of their latent ability to which civilized ethics universally accords the highest standards of value. This law applies both to questions of social ethics and to those of economics. It becomes of interest chiefly in considering the ranks of the arts and professions, includ- ing the designer and the Inventor, and the sources of their current supplies of recruits. The Rigidity of the Laws of Distribution. This relation between the volumes of barter and of enforced idleness is a rigid one. No amount of ethical effort on the part of charitable missions, the pulpit or the public 192 THE COST OF COMPETITION press, except as It may succeed in diminishing the volume or the keenness of barter, can affect it in the slightest. No amount of altruistic economic effort: no alms-giving, no employment-bureau, no vacant-lot cultivation, no forced public works, can possibly alleviate the situation, except as they may Incidentally restrict barter. Give a man money and you temporarily ease the pressure upon his class; barter will follow it up and absorb it until the pressure Is the same as before. Show him how to live upon eight cents a day, as did kindly Mr. Atkinson of Aladdin-oven fame: If his class adopts the plan sufficiently for the Idea to accomplish anything at all, wages will promptly retreat to eight cents per day In consequence. Pick a man up out of the ranks of the unemployed and arbitrarily give him a job: he Immediately absorbs the purchasing-power which was before keeping someone else at work, and somewhere else some other poor chap Is told to '' get his time " In consequence. Statistics will not reveal these things, any more than they would the futility of the perpetual-motion hopes of a half-century ago, but the law of the conservation of energy, intelligently applied, makes them both equally clear. For a century or more organized charity has struggled with the problem of how man's natural promptings toward sympathetic assistance of his needy brother might find expression in the economic world. Mere paternal alms-giving has long ago proved its futility ; it pauperizes and demoralizes the worse elements among the poor; it fails to satisfy the better. After generations of failure, bitter experience has taught organized charity the one big lesson: To cease giving alms and to offer encourage- ment and opportunity instead. The chief effort is now directed toward the finding of employment for those with- out it. DISTRIBUTION 193 It is not to be said that this effort is absolutely fruit- less. A little time is gained, at least. Any mechanism which operates to increase the fluidity of labor, to pro- mote its circulation from the locality or trade where opportunity is for the moment restricted to others where the instantaneous conditions are more favorable, tem- porarily aids labor in its struggle with the competitive classes. Some charitable labor-bureaus accomplish some- thing in this line, but most of them do not. These laws not being widely understood, any employment which removes the visible want is utilized to occupy the unem- ployed; so the effect is temporary and local only. As to the permanent alleviation of the average conditions of labor, of the average proportion of idleness in the com- munity, the futility of artificially lifting men and women from the submerged into the employed level may be asserted very positively. It is absolutely futile. To attempt to drain the sea by pumping water from it to the nearest hilltop and pouring it out upon the farther side is no more so. In fact, the competitive system almost completely shuts off all hope of the effective transfer of economic aid from those who have plenty to those who are needy. The transfer of ethical strength, of hope, encouragement and education, is all that is possible. This and the beneficial ethical reaction upon the giver which results from charitable effort constitute the sole gains to the community which may be hoped for from it. Artificially Enforced Degeneration. The En- forcedly Idle are currently engaged in industrial and social degeneration. From the class in which they are forced to be idle they gravitate finally, after a sufficient wearing away of hope and self-respect, into a lower one where they are able to secure at least the starvation-wage. This again proves that the latter subdivision tends to a 194 THE COST OF COMPETITION maximum. From whichever direction recruits enter a class, from above or from below, they enter by the door of the Starvation- Wage. When they are rising it means Hope, albeit coupled, for the time, with penury. WJien they are going down It means all the bitterness of Insuffi- cient food eaten with shame. This phenomenon of enforced Idleness Is existent In every economic class and level. Its Individuals are familiar in all the walks of life. But there is a vast dif- ference between the submergence of a member of one of the upper layers of society, having a comfortable layer below, however unwelcome, into which to sink, and the submergence of an unskilled producer. For below this layer is nothing but chaos : only pauperism, crime, suicide or, sometimes, as a gift from Heaven, " natural " death. This Is the only reason why this subdivision tends. to be a minority: Its stout resistance to slow and agonizing, or slow and stupefying, death. There is no need for the fashionable drawing-room discussion of " natural " degeneration. It is very doubtful if there be any such thing, In genus homo at least. There Is enough, and more, of the artificial sort Involved in this one Law of the Submerged Tenth to answer all the known questions and to occupy for long the intellects and consciences of those who are engaged in upholding the present commercial system. IX THE ECONOMIC ORGANISM ECONOMIC society now becomes visible as a living organism. Material capital constitutes its bones and tissue: the things with the aid of which (but not upon which) It lives and which need to be supplied only as they incidentally wear out and want repair. Material Value In Exchange constitutes Its circulation: the blood upon which It exists and which must be cur- rently manufactured as fast as life proceeds, or death ensues. Its Structure. — In attempting to Illustrate this organ- Ism diagrammatlcally, we must be guided by our past analysis. The two main divisions of the body economic, Production and Dissipation, must be demarked from each other by a horizontal plane, with the former below and the latter above; for It was shown plainly that the latter both holds the power over and Is supported by the former.^ Within Division I must be created several horizontal subdivisions, or layers, to represent respectively the more and the less skilled producers: the arts and professions at the top, the highly skilled artisans next, the ordinarily skilled mechanics who have acquired a " trade " next below, the unskilled laborers next to them, and, lowest of all, the Submerged Tenth. The diagram is an economic classification of activities, not of population; therefore, 1 See Fig. 7, page 198. 195 196 THE COST OF COMPETITION since within either division alone the productivity is pro- portional to, although not equal to, the income enjoyed, the various portions of individual activity going to make up these respective layers are to be classified therein according to money-wages received. Within Division II are also needed horizontal sub- divisions. Labor cannot produce without access to and exchange of valuation with both land and capital. The species of barter which attaches itself to this sort of exchange is capitalism. But labor also cannot either pro- duce or consume without access to exchange between trade and trade. To this sort of exchange attaches itself barter pure and simple. When labor has produced value and it has been translated into valuation, the first slice cut off therefrom in its distribution throughout the community is rent and interest, to lump these two together. From the remainder Barter next abstracts all that it can take and still leave to Production its indispensable life-blood. What is left goes back to the producer in another form of commodities, now fit for his own consumption, whereas what he produced was not. Therefore, of the two layers into which Dissipation is to be divided, the upper one, farthest away from Production and accessible from it only through Capitalism, must be Pure Barter. Next beneath, supporting Barter and resting upon Production, must come Capitalism. Capitalism thus interferes In the exchanges between Labor and The Market in two ways: ( I ) When the Labor-Value is transmuted into Money, for distribution throughout the community; that is, when the laborer is hired. Capitalism-connected-with-Produc- tion then uses its advantage in barter to keep the price of labor (which is paid in Money-valuation) as low as possible. THE ECONOMIC ORGANISM i97 (2) When the Value comes hack again to Labor for consumption, In support of its life; that is, when the laborer turns Consumer and purchases in the open market the goods which it needs to consume. Capitalism-con- nected-with-Supply then uses its advantage in barter to keep the price of commodities as high as possible. ^ Both sorts of capitalism need display in the diagram, this time side by side. In further horizontal subdivision, Capitalism might be distinguished between Landlordism, collecting Rent, and Capitalism proper, collecting Interest, respectively. Barter might be subdivided into wholesale and retail barter, respectively. But little gain in lucidity would be attained by either complication of the diagram. Such a diagram is illustrated in Figs. 7 and 8. The former is a vertical plane section across the ring shown in perspective in Fig. 8. Its further features are to be explained as follows: Its Circulation. Production is divided into its sev- eral specializations, properly to be called Trades, Each trade produces value in only a single form, relying upon Exchange to bring to it all of the other forms which it may need. Each trade possesses its portion of each of the horizontal layers : its submerged tenth at the bottom, its laborers, its skilled artisans or designers, its capitalism and its barter. Therefore the partitions between the several trades must be vertical planes. Because the direct exchange of goods for goods is now no longer possible, the circulation of value cannot take place below the barter-level Therefore the vertical par- titions separating the trades must be regarded as imper- vious walls extending up to the lower limit of Barter, just above Capitalism. There may be, of course, a very great number of these trades. To aid the eye they are 198 THE COST OF COMPETITION collected Into groups; but in fact each vertical lamina is an independent unit, shut off from its neighbor by a rigid economic wall. There are, of course, many more of them than can be depicted in the diagram. Each trade is as a well, or as a cell in a honeycomb laid flat : accessible for ingress or egress only at the top, where it meets Barter. To Barter it gives up all value which it produces; from Barter it takes in whatever sustenance It may get. But before either giving up its product to Barter for distribution, or purchasing its sustenance from Barter, it must pay its toll to Capitalism, which seals the doorway to all exchange with the outside world and abstracts its taxation from all passing traffic. In the body economic, as In all other organic bodies, there is circulation. So essential Is the circulation to the life that it is often loosely said that the circulation is the life. In the body economic this vital circulation is that of Value (not of Valuation, nor of wealth, although each atom or corpuscle of Value Is always enwrapped In Its envelope of Valuation). It consists of rotational or cyclical motion in each of two planes: ( 1 ) The vertical, shown In Fig. 7 : going on within each trade or occupation — within each Individual, Indeed. (2) The horizontal, shown in Fig. 8: from one trade or occupation to every other. The vertical circulation starts with the production of Value within the lower, or productive, layer. This Value is always, practically speaking, in a form wholly worthless to the producers themselves and unfit to sustain their life. In industry in its modern form the shoemaker, for instance, does not and cannot wear the shoes he makes,, any more than can the doctor swallow his own pills and advice. Before any of these commodities can serve to sustain life they must be transmuted into money, or sold; 'I "o!si.*?(I-^ 200 THE COST OF COMPETITION which process can be accomplished only in contact with Barter.^ But even the money so obtained is unfit, of itself, to support life; it needs first to be transmuted, by pur- chase, back into commodities again, but this time into the commodities needed by the producers for consumption in their prosecution of further life and effort. It is plain that purely vertical circulation alone could bring back to the producers only the very commodities which their particular Trade or Occupation had excreted, and could therefore accomplish little or nothing toward biological support. This difficulty is overcome by the horizontal circulation within Division II, which takes place in either direction. By its means the value of com- modities excreted by any one trade or occupation is trans- ported to any other which may need their support. Everything in Division II is perfectly fluid. Value, liquidated into Money-Valuation, circulates freely within the Barter-zone, so far as locality or ownership is con- cerned, from any one trade to any other. Capitalism does not circulate, in the proper sense of the term, that is, move continuously in a cyclical path; but it drifts freely back and forth, from any one to any other part of the organism, wherever the greatest need for it may be, with almost perfect fluidity. Therefore, the walls which separate the trades and which are impervious to all circulation of Value, are not impervious to the osmose of Capitalism. To illustrate this circulation of Value the horizontal aspect of the economic organism is shown as circular, or annular, in Fig 8. The arrows in the two diagrams show the two sorts of circulation. Production maintains ver- 2 The sale actually negotiated is that of the labor involved in producing the given commodity. The producer no longer sells the commodity he produces; instead, he sells his labor; but the price thereof is based directly upon the amount of goods which become available for sale as the result of its eiforts and the price which they will bring in the competitive market. o f^H""' - s gjv- o f. c J" i o y u W .>**, Z*