The Common Sense of Political Economy

Wicksteed, Philip H.
(1844-1927)
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1910
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London: Macmillan and Co.
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1910
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CHAPTER II

SOME FURTHER ANALYSES

III.2.0

Summary.—The subjects dealt with in this chapter are the general nature of taxation, the contention that it may be placed on the foreigner and that properly arranged import duties might relieve unemployment, the meaning of borrowing for unproductive expenditure, schemes for communalising the instruments of production generally or land in particular, and Trade Unionism.

III.2.1

Taxation is the deflection of the resources of members of the taxed community from purposes which they would have selected for themselves to purposes which are selected for them by the governing power. It is justified only by the belief that the purposes to which these resources are directed are collectively more important than those from which they are deflected. To the question, "What is the test or standard of importance?" the only answer is that the power which imposes the taxes must judge of that as best it can; and according to the form of government, and the state of public opinion, or of opinion prevalent among the governing classes, this or that material or spiritual consideration will weigh lighter or heavier. It is obvious, then, that importance will be very differently weighed under different political and social conditions, but in any case the individual who differs from the government view as to the relative importance of things has to acquiesce, under penalties, in the judgment from which he dissents.

III.2.2

There is a fairly general consensus that taxation is justified when it secures objects which the great majority of the nation considers extremely important, and which they believe would not be done at all, or would not be done adequately, if they were not done collectively. The maintenance of the army and navy, and of the police force, and the law courts, are usually cited as instances in point. It is generally believed that all these things are necessary to secure civilized life, and that, if their institution and maintenance had to depend on voluntary effort and combination, uncertainty as to the action of others would paralyse each man's efforts, so that nothing effective would be accomplished. These postulates are not granted by every one, and amongst those who grant them acute divisions of opinion may remain as to the extent to which provision should be carried, the amount of taxation which it justifies, and the persons from whom the taxes should be raised. As to this last point, again, it seems easy to lay down a general principle, but impossible to determine its application except by the judgment of those who apply it. The principle is that the purposes from which the resources are deflected should be as little significant or important as possible. If any one thinks that the use of great wealth is usually considerate, enlightened and large-hearted, the use of moderate wealth generally sordid, and the use of small wealth vicious, his conception of the suitable sources of national revenue will be very different from that of the man who thinks that the pence of the poor usually minister to vital needs of extreme urgency, those of the middle classes to honourable ambitions and human comforts, and those of the wealthy to idle display and dissipation. The man who declines to accept either of these generalisations may regard the problem as a highly complex one, and may not be prepared with any general receipt for the application of the accepted principle. Or he may say that he does not trouble himself about the value of the satisfactions of this class or that; but he sees that some people get a great deal of what they want, such as it is, and others only a very little, and he would like to give them more even shares. This is merely the application of the general principle that the psychic significance of wealth declines as wealth increases. It is not scientifically capable of proof, but it derives strong support from the common sense.*79

III.2.3

But it may, in any case, be safely asserted that to the extent to which democratic sentiment, or an effectively democratic constitution, dominates the action of a community, the more even distribution of wealth will be thought of as a thing to be desired; and there will, therefore, be a tendency to throw taxation upon wealth, qualified by the fear of checking the productive energies of the community; and a tendency to relieve the relatively poor from taxation, checked only by the feeling that all who have a share in controlling the public expenditure should have something directly to lose by its unwise application.

III.2.4

But when questions of taxation and public expenditure are discussed, we often hear it said: "All taxation falls ultimately on the wage-earners, for, if a wealthy man is heavily taxed, he cannot himself spend the portion of his income which is taken by the Government, and since his income is all of it ultimately expended in wages, he will have the less to pay in wages, and will, therefore, dismiss some of his servants and workmen, who will compete with others for employment, and so reduce the average wage." We will not stay to examine the contention that the wealthy man's expenditure, all of it, ultimately goes in wages; and we will admit that, in so far as it constitutes a disturbance of economic relations, the imposition of a fresh tax is liable to produce distress and inconvenience. But, as a general principle, it is just as true, or just as false, of what the Government takes, as it is of what the individual keeps, that it is ultimately expended on wages. If the rich man pays wages to grooms, gardeners, and footmen, the Government pays wages to soldiers, sailors, and schoolmasters; and, barring the strain of change, the question is whether the marginal significance of the work done by the gardeners, grooms, and footmen is higher or lower than that of the work done by the soldiers, sailors, and schoolmasters. This may be a very serious question, but we must not allow it to be complicated by the idea that it has any connection with the problem of unemployment, except in its temporary effects if the change is sudden. And, as far as that goes, a sudden remission of taxation would have just the same effect as a sudden imposition of it. It would throw one set of men out of work and would create a demand for another set.

III.2.5

The introduction of the schoolmaster into the last illustration reminds us that there are many things beside national defence (as it is uniformly called among civilians, though if no armies and navies exist except for purposes of defence, it is difficult to see against whom any one is to be defended), and the maintenance of internal order and justice, to which the effective will of the community has determined that every man shall contribute, whether he himself thinks it sufficiently important to justify his contribution or not. When compulsory education was introduced into England, it was felt that no parent should be allowed to judge for himself whether he would or would not devote a certain amount of his resources to the education of his child. It was felt to be a question of national importance that the child should be educated, and, therefore, every parent must be compelled to educate his children, with such public and private assistance as had already been provided. Presently it was felt that the contribution of the citizen towards the education of the children of the State should be entirely independent of the question whether he was or was not himself a parent and was having his child educated.

III.2.6

On what grounds may we suppose that the individual citizen came to consider the education of every child his concern? It may be that he felt he would be relieved from some personal risk or detriment by the general enforcement of education. If it were merely argued that a community is safer and more comfortable to live in if its children are schooled, the appeal would be to each citizen's personal interest. But, if the argument were that a child who has been schooled is more likely to live a worthy and satisfactory life himself, then the person who decrees taxes for educational purposes is actuated by a desire for the well-being of the children, and that well-being becomes one of his own direct interests and purposes. If the argument were that "England" will be in a better position, commercially, morally, or intellectually, thirty years hence, and if the person who advocates the imposition of the tax is already sixty or seventy years old, his motive will be of a highly abstract and ideal nature. He desires well to a community linked by a certain historical, local, and racial continuity to the one in which he lives (and perhaps depreciates and denounces) after he is dead, and is willing to forego present satisfactions of a more personal character in order to help towards this desired end. This is rightly praised as patriotism. Or he may etherealise his purposes still further, and may wish well to future "humanity." This may perhaps be considered "emasculated cosmopolitanism"; but if his interest extends to the uncertain boundaries and nationalities of the "Empire" a generation hence, and no further, he may escape that reproach.

III.2.7

These are merely illustrations of the different principles on which different men may estimate the relative importance of purposes and objects, and they will help to explain why a large section of the nation is chronically and normally more or less indignant at the kind of things on which "their money" is being spent. Owing to the tax-gatherer the unwilling and unconvinced leave undone sundry things which they want to do, in order to secure ends which are considered more important by others, but not by themselves.

III.2.8

Before leaving the subject of national taxation, we may examine very briefly two claims that are put forward in favour of taxing foreign imports that compete with home products. It is urged that by such taxation we might either lay the burden of taxation upon the foreigner or relieve unemployment. In so far as we did the one, it will be admitted by the more clear-sighted advocates, we cannot do the other, for, in so far as the foreigner pays the tax he will import his goods, and import them at present prices, and, therefore, the market will be unaffected and the home-producer will neither employ more labour nor reap any other special advantage. But, so far as the one object is not accomplished, it may be urged, the other will be, and both are desirable.

III.2.9

Both schemes illustrate our general principle that the object of taxation is to direct resources from less to more important purposes. In the abstract the pure-blooded cosmopolitan thinker might boggle at the proposition that the purposes of the foreigner, as such, are less important than our own; but he would have to admit that, as we are at present constituted, they are more important to us; and if he genuinely believed that we are already paying the foreigner's taxes, his last scruple would vanish, and he would earnestly desire to make him pay ours. But can he? A lengthened discussion would be out of place, but a few general principles may be formulated.

III.2.10

We have seen*80 that although the expenses incurred in producing goods, and in bringing them to the market, do not determine their exchange value when there, yet their exchange value when there does determine how much expense will be deliberately encountered in order to get them there. If the expenses are raised, therefore, goods that would have been produced will be produced no more. If this holds, then, an import tax that did not produce, or was not accompanied by, a rise in prices would tend to close the market against the foreigner who now supplies it. He would not pay the tax, for he would cease to import. If, on the other hand, the price rose by the amount of the tax, he would go on importing, but would recover the tax in the higher price received.

III.2.11

But is it not possible that he has no other market, and that his resources are committed to this particular product? Certainly he may have no other market that will take the whole of what he sells to us at approximately the same price which we pay for it, and so far we have him at our mercy, much as a sufficiently powerful Trade Union might have in their power the employers whose resources were already committed to one particular trade. But, unless it can be shewn that certain resources in the foreign country are permanently and inherently incapable of producing, except at a considerably lowered efficiency, any other commodity than that for which we permanently constitute the only market, this exaction of the tax from the foreigner cannot be maintained. In any case it would contract, if it did not entirely stop, his importations, and this would tend to raise prices.

III.2.12

If a preferential system is advocated, this may be the deliberate intention. If we wish to get our wheat, for instance, from our own colonists rather than from the United States, Russia, Hungary, or the Plate River, and think this object worth paying for, it seems to be theoretically possible to exclude some of the foreign wheat by an import tax and by the consequent rise in prices to encourage not only home, but colonial wheat-growing. If the price were not raised, no result would follow, for our home-farmers and colonists already produce as much wheat as they care to do at present prices. If we contemplate damping the foreign imports and encouraging the home and colonial cultivation through a series of years during which the price of wheat will be artificially maintained at a high enough figure for our purpose, there seems to be no theoretical principle on which we can determine the extent to which the courses of the world's industry might be modified with a corresponding redistribution of its population; but we should have carefully to inquire who pays the cost, what are the risks, what is the significance of the incidental waste of disturbance, and what is the value of the contemplated results. When we duly consider these matters we shall fully understand the phrase in which the late Duke of Devonshire declined to "gamble" in the people's bread.

III.2.13

But by far the most attractive of the pleas urged in favour of such taxation as we are now considering is that it will relieve unemployment. This plea we must examine at some length. The attempt to induce any one, by a system of taxation, to buy at home what he would otherwise buy abroad is palpably an attempt to make him "employ" one set of persons instead of another, to his own economic detriment. But we may urge that such action, though to his own economic detriment, will be to the advantage of those he "employs." And in answer to the objection that it is just as much to the disadvantage of those whom he ceases to employ, we may say that as we are not interested in these last we do not mind that.

III.2.14

Two points must be made clear before we proceed to a further analysis. In the first place, we have seen*81 that there is, properly speaking, no economic theory of foreign trade as distinct from home trade. We may therefore consider putting pressure on an Englishman to deal with an Englishman or a Canadian rather than with a citizen of the United States, or putting pressure on a London publisher to get his printing done in London rather than in Glasgow or Hull, or on a villager to get his table and chairs made by the village carpenter instead of buying them in the neighbouring town, as all raising the same theoretical points for consideration. Thus the matter under investigation is the policy of directing a man's bargaining along lines which he would not choose for himself in order to benefit certain people in whom we are specially interested at the expense of others in whom we are interested less or not at all. The area and the grounds of our interest may be important in many ways, but they do not affect the economic theory. Whether we take the Empire, or the United Kingdom, or the country, or our own district, city, village, estate, or family as the area of intenser interest, the problem is the same. And in the second place, the policy of pushing others, to their economic detriment, into transactions they would not have chosen for themselves, because we desire certain results to accrue, and the desirability of our voluntarily entering upon similar transactions ourselves, at a certain sacrifice, for the sake of those same results, may be discussed together; for their investigation demands the same analysis. In other words, the question of whether it is patriotic to buy at home what it would suit me better to buy abroad, and the question whether it is patriotic to make other people do the same must ultimately depend upon a common principle for their answers.

III.2.15

Let us return for a moment to first principles. The villagers who once did their own spinning and weaving, forging and furniture-making find that they can provide themselves with the products of all these industries more satisfactorily to themselves by not working at them at all, but by sending, say, milk and fruit to the towns, and receiving tools, clothes, and furniture from them. The villagers can get better clothed by keeping cows than by spinning and weaving, and the townsfolk can get better fed by weaving cloth where they are than by going elsewhere and cultivating the soil. The distribution of the population between country and town is determined by the equation of marginal significance between food on the one hand and raiment on the other.

III.2.16

We have insisted*82 that this highly organised industry has very heavy drawbacks, but also that it is an essential condition of that materially advancing civilisation which we cannot escape, even if we would. And we have also seen that in spite of the increased general wealth which results from the new order of things, the currents of industry cannot be swiftly changed without loss and possible hardship to individuals. Certain village artisans or tradesmen are hard pressed by the competition of the towns, that is to say, by the existence of persons who, working at an advantage, can do more for the same return than they themselves have been accustomed to do. Theoretically, they should either turn to agriculture where they are, or go where they can work at a better advantage in their present trade; and whichever course tends to establish the equation of marginal significances is the better one. Anything that obstructs or retards this change is, so far, bad. Anything that softens the hardship of the transition is, so far, good. Sound thought and sound policy must distinguish between these two things with the utmost care; and the basal fact that now concerns us is that the new equilibrium towards which we are moving is economically more advantageous to all concerned than the old; and the policy of buying at home, at a disadvantage, instead of abroad tends to retard or to disturb this superior equilibrium. If a patriotic villager determines, at a loss to himself, to patronise the village artisan, he thereby holds him back, or brings him back from whichever of the courses, indicated above, the situation demands; and at the same time by withdrawing or withholding his custom from the artisan in the neighbouring town, and ceasing to send him food, he drives him to get his food in some other way, which by hypothesis is less advantageous. Thus, at a loss to himself, he has kept one man, for whom he cares, in a position of relative inefficiency, and has forced another man, for whom he does not care, into a position of relative want. There is a collective loss to the two communities jointly and severally. It is sometimes said that the doctrinaire free-trader's golden rule is, "buy in the cheapest and sell in the dearest market, and so fulfil the law of Christ." So far as he neglects, in thought or in policy, the hardships of the transition, and so far as he takes a purely material view of well-being, the taunt is justified. But, nevertheless, it is the most substantial of facts that the constant desire to further our own purposes, whatever they are, of which "buying in the cheapest and selling in the dearest market" is one aspect, is in truth the great underlying force that perpetually draws us into relations of mutual service. Largely understood, "buying in the cheapest and selling in the dearest market" is the best rule that the plain man can find for directing his own energies and those of others along the most efficient lines—efficiency, be it always remembered, being measured by reference to the things, good or bad, that men want done; and each "man" counting for more or less according to the extent of his command of the things in the circle of exchange.

III.2.17

But it may be urged that by neglecting what we have dismissed as "the incidental hardships of the transition," we have really falsified the problem. It is not a question, it may be said, of keeping a man in a relatively inefficient employment or pressing him into a relatively efficient one. It is a question of employment or unemployment for him. Now, so far as this state of things, wherever it really exists, is due to changes and fluctuations of trade, we have recognised it as a problem of urgent importance, but have seen that no tariff proposals touch it.*83 And so far as it is not a question of changes and fluctuations, it can be due to nothing but a relative inefficiency, which we are to regard as permanent. That is to say, one part of the community is asked (or is to be compelled) permanently to abstain from fulfilling certain of its own purposes for the sake of persons who, relatively speaking, are permanently inefficient. This may be, and in some cases obviously is, extremely right and proper, but the admission that a considerable portion of our own able-bodied industrial population comes permanently under this category of the relatively inefficient would be humiliating indeed, and no treatment could be regarded as anything but a palliative unless it aimed at removing, rather than providing for, such inefficiency. This consideration is quite fundamental. The disputants in current "tariff-reform" controversies will generally be found to be working on different underlying suppositions. The free-trader assumes that in considering permanent conditions the man who is employed in one industry must be regarded as withholding himself from another industry. His opponent assumes that the man his schemes are going to employ is now, and but for him will remain, out of employment. But the existence of a body of men permanently out of employment because all who have anything to give find it suits them better to deal with other people means the existence of a permanent body of the relatively inefficient.

III.2.18

But suppose we let this pass and grant that the object is desirable, we have still to ask whether the proposed means would be calculated to attain it. Our examination of this question will lead incidentally to the unmasking of a certain ambiguity in the phrase "inefficiency" so freely used in the argument just closed, and will also open some very wide questions of inter-racial policy.

III.2.19

The terms "finding work" and "giving employment" are unfortunate, for they readily ally themselves with the "lump-of-labour" habit of mind; and, therefore, though we can hardly avoid using them, we must always be on our guard against their misleading suggestions. Let us consider exactly what they mean. The Europeans have "found employment" in abundance for the unhappy natives of Congo-land, but not in the sense that the phrase connotes in Political Economy. Giving employment to a man means enabling him to provide more ample satisfaction for his wants and desires by the indirect means of serving some one else than by the direct means of serving himself. Normally, this is a mutual or two-sided relation. The industrial inhabitants of town and country "employ" each other in this sense, and the whole principle of the division of labour involves the mutual "giving of work." But it is not always easy to keep this in mind as the normal relation; and that for many reasons. In the first place the mutuality is generally indirect. The man to whom I give work is not usually the same as the man who gives me work. In the second place, our habitual use of the terms employer and employed disguises the fact that the hands really "employ" the manager or the capitalist (in the sense of enabling him to do better for himself by doing well for them) just as much as the manager or capitalist employs them. The term "employment" then conceals rather than reveals the intimate nature of the mutual relations in connection with which it is often used. But, in the third place, mutuality of employment is really subject to certain limitations. We think of the consumer as the employer and the producer as the employed, and although in a general way we know that consumption implies production and production consumption, and that the normal member of an industrial community is both producer and consumer, yet there are many and important cases in which the consumer is not a producer at all; so that we think of him exclusively as employing and not at all as being employed. To such a case we must now turn our attention.

III.2.20

We will go back to our village and will suppose that a wealthy man lives in it whose income is drawn entirely from outside its area, so that for village purposes he is a consumer and employer and nothing else. Now, it is clear that so long as he stays in the village and consumes his wealth there, it must come into the village in some shape or other without anything going out to balance it. Does it make any difference to "employment" in the village in what form this revenue comes in? Clearly it does. The rich man may have many of the things he wants made in London or anywhere else and sent down to him complete; or he may (in the last analysis) have food, beer, clothes, tobacco, and so forth, together with the raw material of the things he wants, sent into the village, and in that case the villagers may eat, wear, drink, smoke, and chew, while they are constructing the article. In the end the patron will get things that he wants, but in one case he will have "employed" outsiders and in the other case villagers. That is to say, villagers in one case and outsiders in the other will have been eating and drinking some of his revenue while making the rest of it available for his purposes. In deciding between the several courses the rich man may be guided by no considerations but those of efficiency. He may simply ask himself what suits him best. But it is also possible that he may employ relatively inefficient workers for the sake of benefiting them rather than "outsiders." If so, he is doing a kindly thing, which, if he has not good judgment, may tend to perpetuate an economically undesirable situation, but which, if he has good judgment, may simply alleviate the hardship of a transition. In any case, he makes a voluntary sacrifice himself and imposes an involuntary sacrifice on the more efficient persons from whom he withdraws or withholds his patronage.

III.2.21

But now, suppose the villagers themselves can determine what the rich man in their midst is to do. Suppose they can keep all others than themselves from entering their area, and can dictate to the consumer that he shall draw his revenue in such forms as to make him dependent upon them for transforming it into the things that will minister to the satisfaction of his desires. They can then make their terms with him as to the share of his revenue which they are to receive in reward for making the rest of it available for his purposes. If they can force him to bring it in in forms, some of which will directly suit their purposes and the rest of which will only indirectly suit his, they can take the part that suits them in return for bringing the part that potentially suits him into the form that will actually suit him. The outsiders would do the same service to the "employer" if he were allowed to employ them, and they would do it on better terms for him; but the villagers may say, "That is your gauge of efficiency, but it is not ours. We ask no more than is right, and we give as much as is due. If other people want to give more and take less we won't have it. We will keep them out and keep you in, and we will have our share of the wealth that comes to our village."

III.2.22

That is a perfectly intelligible position; and it violates no principle of Political Economy. Given the object the means are well suited to its accomplishment, and circumstances are conceivable under which it might be successful. We have had to assume that the villagers can not only regulate imports but can also prevent immigration. Otherwise the patron might be able to import a population which would be, from his point of view, more efficient than the villagers. Thus, if a tariff system could be contrived which would compel all Englishmen who draw income from foreign sources to introduce their revenue in forms, some of which would directly serve the purposes of the working population and the rest of which would only indirectly serve their own, the "amount of work" or "employment" in England might thereby be increased, but since it might be impracticable to prevent the movements of the European populations from one country to another the increase of employment might be rather to England than to Englishmen. England would tend to become a residential country, and persons of all nations who could make themselves useful to the rich residents would come to England, where their patrons might employ them, from other countries in which they might not.

III.2.23

If there is a class of inhabitants who, though not drawing their revenues from outside our selected area, are yet consumers only and not producers (such as landlords or owners of minerals), the situation is to some extent the same, but any "inefficiency" of the workers may in this case react to some extent upon the revenue to be shared. Still a policy might well be advocated either of hampering the "pensioners" in purchasing manufactured goods from outside, or of preventing immigration, or both. The hostility to Chinese labour (apart from any objection to special conditions) that is so marked in our Colonies and elsewhere is due to a feeling that certain classes or individuals are in actual command of the sources of the communal revenue, and that the labour they may consider most "efficient," from their point of view, would cut out the landless White Man from his opportunity. The idea is very probably mistaken. The voluntary presence in a country of an industrious and frugal population, willing to give much in return for little, is probably an economic advantage to all classes of the inhabitants. But the opposite belief is far from unnatural.

III.2.24

Now, let us take stock of our conclusions. It seems to be ideally possible to conceive of a system of tariff regulations which should favour the producer at the expense of the consumer. If immigration can be stopped, the producer who would not have been employed at all without the protection of the tariff may now get a living, and the producer who would have been employed may now be employed on more favourable terms; and all this at the expense of the consumer. If immigration cannot be stopped, there will be a movement of population, especially of the kind that ministers to a wealthy residential community, towards the area on which the "consumer" is allowed to employ people; and this would tend to undermine the privileged position of the producer and to throw the inefficients out of work again. In any case, the consumer who is not a producer might be forced to give "more employment," and that at a higher scale of remuneration, whether to natives or immigrants, within the area which controlled him.

III.2.25

But this whole system aims at benefiting the producer at the expense of the consumer, by prohibiting the import of things directly useful to the consumer and allowing the import of things directly and indirectly useful to the producer; and it is, therefore, entirely inapplicable to an industrial community in so far as the consumer and producer are identical, and in so far as men mutually "employ" each other at home, and also enter into the mutual relation of employer and employed with the foreigner. We may hope that a manufactured article may be excluded in the interests of the producer at the expense of the consumer if the consumer and the producer are two different people and if the consumer's revenues are independent of the terms on which he employs the producer. But if A consumes B's product and B consumes A's, and if each would be hampered in his production by being forced to make worse terms at home instead of better ones abroad, then we can hardly hope to make every one succeed better by allowing him to prevent his neighbour from taking the natural steps to success. The contrast between consumer and producer falls to the ground; for the things that one producer desires to exclude because they are his manufactured article may be those that another desires to import because they are his raw material, or because, as consumer, he wants them for himself and can get them best abroad. Oilcake is the manufactured product of the maker but the raw material of the stock farmer. Tools are the product of one manufacture and the instruments of another; and as long as we talk of "capturing neutral markets," and "finding markets for our surplus products," we cannot contemplate crippling one manufacture to help another. But enough of technicalities.

III.2.26

The central truth is this. If we can separate out persons who are consumers only from consumers who are producers also, we can imagine the interests of the former being neglected without prejudice to the latter. But, if we are considering those who are both producers and consumers, our ultimate consideration must always be for them as consumers. They produce only in order to consume. If you injure them as consumers, you stultify them as producers. Sectionally, you may benefit one man as consumer by giving him an advantage as producer at the expense of others. Collectively, you cannot. And to speak collectively of benefiting the producer at the expense of the consumer would be to speak of strengthening the means by balking the ends. Proposals to tax food, for other than purposes of revenue, are the reductio ad absurdum to which this confusion leads. To stay hunger is the first and deepest object of work or production. And if you impede the importation of food because it is an industrial product and should, therefore, be protected, you are "protecting" work against the accomplishment of its primeval and basal purpose.


III.2.27

We will now pass from national to local taxation. There is no distinction in principle between the action of the state and the action of the municipality or other administrative area; and the Poor Law furnishes, as a matter of fact, one of the chief examples of purposes recognised by the community as sufficiently important to justify compulsion in securing co-operation from the unwilling. Drainage, the maintenance of public roads, the establishment or maintenance of public parks and gardens, or of public libraries, offer further illustrations. But the library and the park stand on a different footing from the rest. It is very difficult, even ideally, to conceive of any test by which we could draw up a balance-sheet between the money cost of the army, for example, and the collective estimates of the marginal significance of a company of soldiers, or of a Destroyer, formed by the individuals composing the community. But in the case of the park or the library it is a comparatively easy matter. If a charge were made on entering the park or taking books out of the library, could it be so arranged as to make it cover the public expenditure? If not, then apparently the members of the community taken head by head would have preferred other applications of the communal resources. Each one has estimated the significance to himself of the privilege of taking out books and entering the park, and the sum of them, measured in the objective standard, does not amount to the value of the resources expended upon them. If the community is justified in the expenditure, therefore, it must be because it is convinced that the purposes balked by the levying of the tax, or its diversion to this purpose, though objectively of greater volume than the purposes accomplished by its application, are yet of less vital significance.*84 Such action is, no doubt, ethically and socially justifiable in principle, but its concrete justification can only rest on fallible estimates which cannot be objectively checked. Here, as elsewhere, the rule seems to hold that the higher and more ideal your purpose, the greater your difficulty in gaining any assurance that you have accomplished it. This is probably at the back of people's minds when they say that you must not judge municipal enterprises simply by the commercial test of whether they pay. This is perfectly true; but it is equally obvious that if we come to think that it does not matter whether they pay (or would pay if put to the commercial test) or not, we may open the door to recklessly wasteful and whimsical experiments. That an experiment does not pay is at least prima facie evidence that some other application of the resources expended upon it would have stood objectively higher on the collective scale. This may not be enough to condemn it, but it tells against it as far as it goes, and the burden of the proof lies on those who defend the expenditure.

III.2.28

In this connection we may touch on the question of the principle that should regulate the scale of wages, or, generally, of remuneration for services, paid by the government or the community. If it is more than the market rate, the public body is establishing a privileged set of persons; and by "privileged" we need not mean privileged as against the average citizen, but privileged as against other persons with whom they would be on a level but for their having been selected by the public body. The two-fold question will arise: On what principle are they selected? and, At whose expense are they privileged? Neither of these is an easy question to answer, and both are highly important. It may well be, however, that a higher than the current wage will really be economically justified. By paying better the public body may get better men and better work, even if that was not the inspiring motive. This would be a case of using the public funds for an experiment of a kind already examined.*85

III.2.29

We have now opened the way to the consideration of the far-reaching question of the extent to which it is desirable to push the municipal or other communal management of enterprises that stand on a commercial basis. The most natural industries for public bodies to enter upon are those which it is in any case deemed necessary or advisable to make monopolies, whether absolute or qualified. Railroads, tramways, letter-carrying, the liquor trade, gas and water supply, and many others, will occur at once to the mind; and every one of them offers a number of problems and suggests a number of considerations which can be debated from many points of view. The ultimate object may be to restrict trade; it may be to extend and encourage it; it may be simply to effect economies. But in all these cases the services ultimately rendered may be paid for by the individuals who desire them, and the objective test at once exists which we sought in vain in some previous cases, and which we can only apply ideally in others. Here, if the governing body submits to the financial test, it is aiming lower than in some of the previous cases, but it can be more certain that it is accomplishing its humbler aim. Sometimes, as in the case of the liquor traffic, for example, to adopt the financial test would be absolutely to renounce the purpose for which the communal action is taken; but in the case of trams or railways financial success would be a proof that the marginal estimates of the significance of the privilege secured, formed by certain members of the community, raised it to a place on the collective scale that economically justified the expenditure of the resources that had been devoted to it. But, if the money is to be not only spent but raised on economic principles, it must be raised on loan and not by taxation; for only so can we know that all concerned have got what they consider a good bargain. Now, a public body is at a great advantage in raising money on loan, but it is an advantage the basis of which it is instructive to examine. The credit of a municipality, and still more the credit of the nation, is good because no one is afraid of its becoming bankrupt; that is to say, it is not the persons who lend the money but the persons who do not that will have to bear the loss if the undertaking fails. The risk, far from being eliminated, is in the opinion of some greater (though in the opinion of others it may be less) than that of a well-guaranteed private company. The municipality, however, enters upon the competition with this advantage, an advantage which is denounced as unfair when looked at from one point of view, and should be regarded as gained at the risk of the community when regarded from another. The effective conduct of the business will, doubtless, be placed in the hands of a skilled manager, but the work of the directors and promoters will, to a certain extent, be done by volunteers, who either have a direct interest in the well-being of the community, or value the credit that attaches to public service, or enjoy managing affairs and directing enterprises, especially, perhaps, when detached from the personal risks of private business. Thus, there are sources of economy in the conducting of business by public bodies,—the easy terms on which they can raise capital, and the amount of business talent which they can secure without payment. What does this latter consideration amount to? The question being one of fact must depend for its solution upon experience rather than argument. How far is there really a store of competent business capacity which can be put into harness by motives other than economic? Not only the contractor but the general designer and conceiver of all kinds of work, as well as the mechanic who carries out the physical portion of it, are as a rule supposed to be actuated mainly by the desire to accomplish their own purposes and to put themselves in command of general resources and services to be turned in the direction they desire. How far can you give men a primary interest in the well-being of the community so that they will be willing to exercise vigilance, to give thought, to lay down far-seeing and far-reaching combinations, not in order to put themselves in command of resources to be devoted to other objects, but with the primary object of serving the community? In a word, can a succession of competent men be found to do public work for the sake of the public? And if the idea once becomes well established, will the public spirit that secures the services of such men be subject to a law of acceleration? Any amount of a priori argument may be brought to bear as to the fitness or unfitness of municipalities to undertake this or that class of work, but it can only be decided by experiment how far the persons who are fit for this kind of work can be found willing to do it as a primary object, and whether such machinery can be constructed as will give scope to the continuous and systematic exercise of their ability and goodwill. It is possible, of course, that the work thus got for nothing might be of inferior quality to the work done at high salaries, but the difference might not be worth the salary. In all these matters "collectivism" or what is (perhaps too hastily*86) called "Municipal Socialism" is not so much an economic theory as a social faith.

III.2.30

People who think that their economic advantage is seriously threatened by the willingness of other persons to do for nothing the work for which they wish to be paid will never be more amiably disposed towards their public-spirited rivals than Shylock was to Antonio, but, apart from trade jealousies, there is abundant room for difference of opinion as to the extent to which it is prudent to push our experiments. Experiments, however, there must be, and they will be the less costly and the more conclusive in proportion as they are watched by honest and competent observers who have no interest but that of the public at heart.

III.2.31

But if ever it is claimed in the name of collectivism or socialism that the exclusive ownership of the instruments of production shall pertain to public bodies, we come to questions in the answer to which economic doctrine must hold a much more prominent place. There is nothing at present to prevent the State from acquiring instruments of production to any extent; but a proposal to prohibit private citizens from holding them would seem to rest on a radical misconception of the social function of the instruments of production themselves. If our general analysis of industrial phenomena is correct, then the man who makes a tool has so far benefited the industrial community from the industrial point of view, and he can only get any good out of his tool by making a bargain with his neighbour, to that neighbour's advantage. His neighbour, then, is the better for his having constructed the tool. If the public body can increase the advantage, that is to say, if, from public spirit or otherwise, it can offer better terms than private individuals are urged by the economic forces to offer, that is so much to the good; but to prohibit the private citizen from offering terms which his neighbour will find more eligible than those offered by the State, is to prohibit him from conferring a public benefit. Probably, this would be admitted by most socialists, although many of them appear to be haunted by an idea that capital in private hands is actively oppressive and is necessarily evil, whereas in the hands of a public body it would be helpful and necessarily good. That capital in private hands may be, and often is, used for purposes injurious to some sections of the community is an indubitable fact, but the idea that the capital employed in an industry is an instrument of oppression to the workers in that industry appears to be the offspring of mere confusion of thought. The fact of a rich man employing "those who create his wealth" at a starvation wage naturally suggests that it is the existence of the capital that makes them starve, whereas in principle it is the existence of the capital that prevents them from starving. The capital, that is to say the tools and apparatus, is worth more to them than they pay for it, and is so far a benefit to them; but every humane person will wish that they should get greater benefits at a less cost, and if the State can back them with capital on easier terms, or if any agency can transfer them to other occupations in which their marginal significance will be greater, a real improvement will have been secured. The existence of the capital in private hands does not injure them (unless indeed prolonging their existence is an injury) but it does not benefit them enough to satisfy the demands of humanity. Those socialists who would allow private capital to compete with that of the State apparently admit all this. At any rate, they would concur in the action of those who do.

III.2.32

Returning to the public body, we may ask whether it should borrow capital for its enterprises or should raise it by taxation. Those who regard the receiving of interest as an evil in itself will presumably advocate the former course, but if they exclude the latter they will have to make a material sacrifice, for the satisfaction of their sentimental objection, which it will repay us to examine. Raising capital by taxation means compelling the willing and the unwilling alike to stand out of so much present satisfaction in order to secure a communal revenue in the future. Opinions will differ as to what return is adequate to justify the sacrifice. Suppose it is fixed at 5 per cent, that will mean that the effective majority of the community decides that the communal industries must be fed down to the point at which the marginal yield of capital is 5 per cent, but that less than £5 a year does not justify the enforcing of a saving of £100. Now, some members of the community would prefer to spend the share of their capital that they will be required to surrender and go without their share of the revenue it will produce; and others will think that a lower yield would justify the investment of capital and would like to save more and produce larger revenues. We may, if we like, ignore the unwillingness of the former class, and force them, without compunction, to conform to the communal standard of prudence; but nothing is gained by not allowing the others to be more prudent than the average. Suppose, for instance, that taxation (perhaps withholding dividends, which is simply a special form of taxation) has raised as much as the communal authority cares to exact as capital for the establishment of some new industrial undertaking; and suppose that a marginal significance of 5 per cent determines that amount. There will be members of the community who for one reason or another estimate future revenue relatively to present satisfactions more highly than the enforced standard requires. Suppose another £10,000 would bring the marginal yield of the capital down to 4¼ per cent, another £10,000 yet to 3¾, and yet another £10,000 to 3½ per cent; and suppose we could raise a loan of £20,000, but no more, if we offered 3¾ per cent. We should then know that we could not carry the margin of productivity down lower than 3¾ per cent without paying more for our capital than it was yielding at the margin, but that we could carry it down to that point. We may, therefore, borrow £20,000, pay for it at 3¾ per cent, and secure to the community the whole curvilinear area which stands above the rectangle of payment, beginning at a height of 1¼ above it and gradually declining to it. And this gain, against which there is nothing to set, has been secured by opening an opportunity to the more prudent of our fellow-citizens which they value. If we are amongst those who are personally willing to sink capital in the new industry till it reaches the marginal significance of 5 per cent, our more prudent neighbours have now not only helped us (as they would have done even if we had raised no loan) to drag our unwilling fellow-citizens up to our mark (which we have agreed to regard as an advantage), but have also made us a gratuitous present of further revenue. The sentimental objection against such a proceeding must be strong if it is to overrule its advantages. At any rate it is well to realise what the advantages are.

III.2.33

But the most difficult part of the collectivist problem still remains, and is not always faced. If public bodies were the only employers, on what principle should remuneration of the different agents be fixed? Is it possible to conceive of any machinery by which the marginal significance of each should be determined without anything corresponding to the present system of free experimental combination and transference from group to group, in which each individual is urged by his desire to fulfil his own purposes to seek the place in which his marginal significance to others is highest? It may be possible to give an affirmative answer to this question, but the claims sometimes made in the name of "socialism" seem to indicate that in many quarters it has never been seriously asked. We hear it urged, for instance, that the Government ought to be compelled to "find work" for every one at the standard wage. What is the standard wage? It is something that has been arrived at under the various economic pressures of the present system of industry. And the difference between the standard wage of a bricklayer and a bricklayer's labourer, or between that of a type-setter and a cab-washer, may or may not be due to privilege of birth, position, and opportunity, just as much as the difference between the standard wage of a professional man and that of an agricultural labourer. On principle it would seem as reasonable to demand, without further inquiry, employment at the standard wage for doctors and lawyers who were out of work, as for mechanics and labourers. And what is to secure the State that undertakes such a task from bankruptcy? How is it to know that all the values it secures by its organisation of human effort will cover all those it has promised in remuneration? The receipt given by Bernard Shaw—"to give every man enough to live well on, so as to guarantee the community against the possibility of a case of the malignant disease of poverty, and then (necessarily) to see that he earned it"—is a more rational one, for it would not stereotype the status quo of standard wages, and it recognises (parenthetically) that the State must secure assets equal to its liabilities. But if it is a sound receipt it ought to be capable (after the initial outlay of bringing the subject, where necessary, into condition) of reversal, and of being put in this form: "To see that every man earned enough to live well on, and then to let him have it." Let the State try to do this by all means, not recklessly indulging in random experiments and not grudging the expense of promising ones. Let it take care that the expense is laid on the proper shoulders, and finally, while opening all the opportunities that it can, let it close none that are opened by private individuals whether in isolation or in voluntary association.

III.2.34

All this should, of course, be read in the light of facts already laid down,*87 that a large part of the revenue of a community is not earned at all, and that some must, and all may, receive more than they earn.


III.2.35

Expenditure on the part of a public body that brings in revenue in any direct form is spoken of as productive. Expenditure that brings in no direct pecuniary return, such as that on armaments and more particularly expenditure in war, is spoken of as unproductive. When nations are at war they almost invariably meet a part of the expense not out of accumulations in the war-chest, or out of current taxation, but by borrowing. From whom do they borrow? What is the exact process? And who repays? Clearly the resources devoted to manufacturing ammunition, transporting soldiers, and so forth, are not created by the process of borrowing. Resources of every kind that might have been devoted to other things are devoted to the war, and in the process are destroyed or consumed. Somebody, then, has actually expended energies and resources. We have seen that expenditure is usually induced by promises. In this case the promise is an allowance of so much a year by the nation for every £100 expended on its behalf. We examined the particular terms of our last great loan on pages 239, 240. When two nations are at war, and one of them raises a loan, the persons who actually find the resources required may belong to the borrowing nation, or to neutral nations, or even to the nation with which the country is at war; but the obligation to pay is taken by the borrowing nation in its collective capacity, and will be handed down to its posterity or successors. It is obvious, then, that if posterity is to be regarded as having any rights whatever, the act of borrowing for unproductive purposes is one of extreme gravity which should only be undertaken under any conditions with compunction and a heavy sense of resultant responsibility. It is one thing to consider that a war is worth waging and paying for currently; it is another thing to determine that a war is worth waging provided that we induce certain people to pay for it on the strength of promises, only a small part of which we can fulfil ourselves, and the rest of which will have to be fulfilled by those who have never been consulted in the matter. Hence, there is some general recognition of responsibility for paying off a war debt within a period which will throw the burden substantially on the generation that made the war. But it is only this unreliable sense of obligation, or the still more spiritualised force of abstract devotion to posterity, that can sustain a determination to reduce the National Debt. If we clear the question from all sense of obligation incurred, and look upon it simply as it concerns ourselves, that is to say as presenting us with alternatives between which we may choose after our own convenience, it would seem that we shall never wish to reduce the National Debt at all, unless for certain secondary considerations which will be developed below.

III.2.36

For without any collective action being taken, it is always open to any one to pay off his share of the National Debt and reap his share of the benefit. Suppose we put an individual's share of the debt at £20 (a little above the average arrived at by dividing the National Debt by the population of the United Kingdom). All he has to do is to invest £20 in the Funds and leave it there. He will then draw 10s. a year, just the amount, according to hypothesis, that he pays in taxes. If every one had thus bought his share (in some cases, of course, more, and in other cases less than £20, for it depends on what each pays in taxes on this account), the whole could be cancelled without affecting any one's position in any way. It would, in fact, be already virtually extinguished.*88 But why do some people hold more and others less than their share of the National Debt? Some consider £2:10s. a year on government security compensates them for saving £100, or is the most desirable way of investing it if they come into possession of it. Others do not. But the Sinking Fund, by which the National Debt is reduced, compels these others, if they are tax-payers, to buy relief from annual payments at the rate of £100 purchase money for £2:10s. annual relief, though if left to themselves they do not do it. If a man who does not think permanent investment in the Funds good enough for himself nevertheless advocates the maintenance of the Sinking Fund, it would seem to be because he feels his responsibility to posterity so keenly that he is willing to relieve posterity from an annual charge of £2:10s. on terms on which he does not care to relieve himself from it; unless, indeed, he realises that he is a very small tax-payer himself, and that he is compelling others to pay in much larger proportion than himself.

III.2.37

It is, however, true that if we contemplate the odious possibility of making other wars for which we do not pay, the fact of our having retained a Sinking Fund may enable us to raise the loan on easier terms than we could otherwise have done. Indeed, apart from that, it is conceivable that our steady maintenance of a Sinking Fund may, together with other causes, so raise our credit that we may be able to reduce the interest on our National Debt by converting it. This is a process into the details of which it is not my purpose to enter. In principle it amounts to borrowing at a lower interest a sum with which to pay off our present debt, thus substituting for it another of the same amount but contracted on easier terms.

III.2.38

How far these considerations actually weigh in the counsels of the nation it would be difficult to say; but I think it is safe to assert that the anxiety of the ordinary citizen to see the National Debt reduced is in fact very largely due to his sense of responsibility to the future; and nothing can conceivably be more wholesome than the sense of our obligation to pay off our debt, for if once we got rid of it, there would be no check on reckless borrowing with the deliberate intention of paying interest only and never redeeming the debt.

III.2.39

The gravity of the act of borrowing for unremunerative or doubtfully remunerative expenditure will be fully realised when we understand that the burden we lay upon posterity thereby is one that must either be borne for ever or paid off, under a sense of public responsibility, by persons who on their own account would rather go on bearing the burden than pay the price of deliverance.


III.2.40

We have seen that a great deal of what is often thought of as municipal socialism works with capital borrowed from individuals. In such cases the municipality applies and manages the capital, but has not full ownership of it. Exactly the opposite condition of things is contemplated by land nationalisers, in the narrower sense, for they advocate the possession of the land by the community, and its application to industrial or other purposes by the rent-paying occupier. Socialists who advocate the complete programme of public possession and administration of all instruments of production are, in a broad and inclusive sense, necessarily land nationalisers, but many land nationalisers declare that they are entirely opposed to socialism. The movement for land nationalisation makes a strong appeal to instinct. It is impossible to think either of a mountain or of the soil of a city as belonging to a private individual without a certain shock. And this instinctive sense of incongruity has undoubtedly been stimulated by the elaborated conception that land, being the free gift of nature, belongs to no one and ought not to be private property, and, further, by the belief that the value of any piece of land is largely determined not by what is done to or on that land itself, but by what is done to or on the land round about it; so that a vacant site in London, which owes nothing to capital directly expended on it, may, nevertheless, be worth £50 a square foot or more. It is easy to riddle with destructive criticism all the arguments for land nationalisation, when they are stated absolutely. Why should the land values of London belong to the nation any more than to the world? If New York and all its inhabitants were destroyed by earthquake, or if Russia were swept bare, it would affect the value of land sites in London just as the destruction of the woollen industry in Yorkshire would. What right has the "nation," then, to land which belongs to humanity? Again, we have seen that it is impossible to draw a line between land and capital. A field is not the gift of nature only. It consists in the gifts of nature modified for human purposes by human toil; and so does a book, a coat, or a picture. This is recognised by land nationalisers to some extent, for they would nationalise only that element in any given piece of land, as we usually understand the term, which is not due to labour bestowed on that piece of land itself. Thus, we should everywhere nationalise the indirect value which the expenditure of capital on one piece of land confers on other pieces of land, but nowhere the direct value which it confers on the land to which it is applied! It is generally recognised, therefore, that some statute of limitations would have to be accepted, and that all values that have become practically indistinguishable from those due to the environment, and to the primitive and inalienable properties of the soil itself, should become part of the national property. The abstract distinction, then, between what nature gave and what man has made cannot be consistently maintained. Again, the value of all our possessions may be affected by the course of social or industrial progress. Changes of taste, or catastrophes, or discoveries, for which we have no responsibility, and for which we can take no credit, may secure unearned increment or inflict unearned decrement on the value either of our talents or of our possessions.

III.2.41

Nevertheless, public opinion seems to be flowing towards the recognition of the desirability in many cases of land being held by public bodies. The very fact of the impossibility of distinguishing between land and capital, and the tendency of all those products of labour which it is difficult to separate or remove from the land—drains, buildings, and so forth—to lapse into the possession of the possessor of the soil, strengthen the feeling that the possessors of the soil collectively hold its inhabitants in the hollow of their hands. The many Allotments and Small Holdings Acts which have been passed testify to the feeling that the powers implied in ownership of the land cannot be safely left to the action of the economic forces with any confidence that they will be used in the best interests of the nation. The scheme of taxing vacant building sites is evidence of the same conviction with reference to non-agricultural uses of land. Public bodies constantly require land and have to buy it, and the questions concerning the value conferred on adjacent sites by capital expended by the public on the public property rise in an acute form. If the whole area were public property, the increased values would automatically fall into that public purse, by expenditure out of which they had accrued. Again, if any industrial opportunity is opened in a particular place, which makes a man's labour worth more within a certain radius of that place than it is elsewhere, the owner of the soil can make him pay more as a condition of allowing him to live there; for the soil on which a man is worth more than on any other soil itself becomes worth more than other soil, and if its quantity is closely limited the marginal increment may be heavy.

III.2.42

These and many other considerations are pushing legislation in the direction both of the taxation and of the communalising of land. Perhaps all social and economic questions are questions of degree, and although we have seen that every kind of property is subject to increments and decrements of value by the action of others than its possessors, yet this is most conspicuously so in the case of land. And its fixity makes it particularly easy to secure its public possession. The instinct, then, that the increase of wealth due to the communal progress should fall under communal control or should be distributed amongst those who have created it, though quite incapable of being logically confined to the land, can, nevertheless, find in the land an eminently suitable subject on which to fasten.

III.2.43

We need not carry our analysis any further. It has shewn us that many doctrines and many social purposes are blended in the movements which are vaguely thought of as tending to the nationalisation of land. Taxing the unearned increment, when land passes from hand to hand, is an attempt to secure to the nation a portion at least of a value, the creation of which cannot be brought home to any assignable individual or individuals, and may, therefore, be considered as a communal product. Taxing building sites is based on a belief that the economic forces unite individual holders of land in the neighbourhood of cities into tacit combinations, which, while not benefiting them economically as a class, are detrimental to their fellow-citizens. For the theory is that by preventing the natural spread of cities they actually realise the enhanced value of their sites more slowly and in smaller bulk than they would do if they allowed the city to spread. Allotments and Small Holdings Acts, so far as they contemplate the acquisition of land by local authorities, rest to a large extent on the conviction that when cultivation of the land really offers an eligible alternative to the labourer, the small shopkeeper, or the craftsman, there is often a tacit combination to shut him out of it; or, where this is not the case, that he may require some help and encouragement in starting his new career, which it is not to the economic interest of any individual to give him, but which the nation is willing to risk for national purposes. Other points that have been touched upon are sufficiently clear without further comment. And, lastly, the example of great estates managed entirely by agents (or bursars) fosters the idea that land is a convenient form in which public bodies may hold property.

III.2.44

It is to be noted, however, that the nationalisation of land could not, in any direct or immediate form, create wealth. If the nation takes it, it must take it from somebody. No wealth would be immediately or directly destroyed and none would be created; and if any one was at once to be the richer in consequence of land nationalisation, some one else would have to be poorer. In any scheme of land nationalisation, however, a distinction must be drawn between the question from whom the wealth is to be taken and the question in what form it is to be held. Acquiring land does not necessarily mean that the land is to be taken without compensation from the persons who now own it, though it might mean that; but it must mean that the value of the land is taken from some one, unless, indeed, it should be borrowed; and in that case the burden of the interest would have to be borne by some one.


III.2.45

It would be out of the question to attempt an exhaustive analysis of the many-sided phenomenon of Trade Unionism. A Trade Union is, amongst other things, an intelligence department, enabling a man to know, better than he could find out for himself, where he is likely to find the marginal significance of his labour highest, and what that significance is likely to be. Further, it may be a benefit club, providing him with sick pay, out-of-work pay, or an old age pension. But its most characteristic functions are connected with the principle of collective bargaining. If a man earning 25s. a week thinks he is worth 28s., and his employer does not agree with him, and each is determined to act on his opinion, the man will leave his employment and will get work elsewhere if he can. The stake with which he has backed his opinion is a high one, for if he is wrong he will suffer heavily before he has found it out. And he may after all be right, in the sense that he really was worth 28s. to his employer, and would be to other employers if he could but get at them, but he may, nevertheless, fail to find any one else who will give him even 25s. On the other hand, the employer backs his opinion by a comparatively light stake, for if he loses the services of a man who would have been worth 28s. to him, and saves the wage he would have paid him, he is only the loser by the undetermined margin of the gain he would have made on employing him, and this will constitute a very small part of his income; whereas the workman risks the whole of his. The workmen, therefore, taken severally, are at a disadvantage in bargaining with the employer. If, however, the whole body, or a considerable number of them, determine to back their opinion, they will bring the stake of the employer individually to something more like equality with the individual stake made by each of them; for though it would make little difference to him to lose the services of one man, it would make a great difference to him to lose the services of many or of all of them. Moreover, by accumulating a fund they can hope to diminish their risk by gaining a power of resistance which will secure respectful treatment; and by spreading their sacrifices over a long period of preparation and accumulation they may make them at a lower total cost, should the worst come to the worst.

III.2.46

But as far as we have yet gone it would seem that both employer and employed would have an interest in ascertaining how much the man is really worth, and that the competition of the employers will tend to secure him in getting it; for, if the employers are always eager to take a man if he is willing to work for less than he is worth to them, will not every employer prefer making a shilling a week himself to seeing another make 1s. 6d.? And will he not, therefore, bid the man up until he is receiving his full economic wage? It would, therefore, seem that the machinery of Trade Unionism is a rather elaborate provision for the assistance of economic forces which are strong enough to look after themselves. But here an interesting point arises. Suppose two employers of a thousand hands each are paying 25s. a week to each of them, and that each employer knows that every man is really worth 28s. a week to him, i.e. if he lost the services of one man, at the margin of a thousand, it would reduce his own incomings by 28s. a week. It follows that it would pay each of them to take on a certain number of extra hands, not only at 25s. but at anything short of 28s. So it is generally argued that each of the employers will compete for the men with the other until the wage is raised to 28s. But this is not really so; for, if an employer took on, say, a hundred more men at 26s. or 27s., he would have to raise the wages of the thousand men he already employs by one or two shillings each. He would, if he raised wages to 26s., get a hundred new men worth 28s. each for 26s. and so make a clear profit of £10 a week, but he would have to pay a thousand extra shillings a week to his present men, and so would lose a clear profit he is now making of £50. If he got the new men at 27s., the gain would be £5 and the loss £100. The employers, of course, perfectly understand this practically, and consequently there is an automatic lock on the competition of the large employers, without the necessity of any formal combination or agreement amongst them. They will decline to bid for a few extra men and a small extra profit which would involve a greatly increased expenditure. Each, then, will contentedly remain at the point at which he stands. Theoretically, it would seem, it is only where there is a fringe of small employers that there is any effective competition amongst those already in the trade. If a small man who is not employing any hands at all, or is only employing two or three, sees his way to taking a job that would employ ten men, and making £1 a week clear profit, he may bid for them. There will only be, at most, two or three shillings a week to set against the gain. He, therefore, might become an effective competitor for labour in the market. But if the business is one that it is difficult to enter without the expenditure of large capital and the lapse of considerable time, the established employers will be shielded for a considerable period against competition from fresh employers, who have not the choice between normal and abnormal profit in the business, but only between the normal profit and none at all. This seems to be the true economic justification of collective bargaining; for, if the hands are sure of their case, they can, by the threat of a strike, place before the established employer the alternative that would face him if he were thinking of entering the trade, namely, the payment of the economic wage of 28s., or ceasing to conduct the business at all.

III.2.47

But while discovering the economic justification of collective bargaining we have also unveiled the theoretical possibility of its being an economically destructive force; for the established employer is not, after all, in the position of the man who is thinking of entering the industry. His capital is not free for other alternatives, and it is conceivable that a powerful organisation may compel him to make such terms as would have precluded him from entering the industry and will preclude others from doing so. This course, if successfully maintained and persisted in, would ruin the industry. Hence, it would appear that the action of Trade Unions in demanding a rise or resisting a fall of wages is justified only when the ideal economic position coincides with their demands. And by the ideal economic position I mean the position that would be determined by the marginal economic worth of every man if they all moved freely to the positions in which that worth was highest, depleting the less remunerative trades and so raising the marginal significance of labour in them and replenishing the more remunerative trades and so bringing down their marginal rewards to equality with those of the others. This being so, it is conceivable that an arbitrator or even a government official might be able to form a closer estimate of the actual economic position than would be arrived at by a combination of employers and a combination of employed trying their strength one against the other. On the other hand, it would be exceedingly dangerous to assume that this would be so, and only so far as it was so could the award be really effective; for, though it is conceivable that an external authority might determine that all persons employed in a certain industry should be paid at a certain rate, it would be impossible to enforce the employment of a given number of men at that rate. Men might turn to other employments, or employers might take on fewer hands, if the award did not correspond with the economic facts of the situation.

III.2.48

A number of questions arise in connection with the enforcement, whether by Unions or by the State, of a standard or minimum wage. If no one is to be employed in a certain industry at less than 28s. a week, then no one who is not deemed worth 28s. a week will be employed in that industry at all, and the ranks of the unemployed may be swelled. The unwillingness of employers to take on any but young men, and the cruel hardship suffered by men who have passed their full strength, because they cannot find employment at the standard wage and the employers are forbidden by the Unions to pay them anything less, is, with apparent justice, attributed to this cause. And all proposals for establishing a rigid minimum wage should take careful note of this. You cannot make a man worth a given wage by saying that he shall not be offered and shall not take any less. You rob him of such earnings as he could make and the community of such results as his labour could produce, and this sterilising of his powers of production seems to have no compensation. The Trade Unionists, as a body, appear to be convinced that allowing a man who is not worth the full wage to accept a lower remuneration would have a detrimental effect on their interests, but it is difficult to see any general principle on which this apprehension can be based; and possibly it may rest in part on that most natural, but socially most pernicious, conception, that we have spoken of elsewhere as the lump-of-labour theory.*89 The necessity of making some provision for their own members when out of work must act as a check upon powerful Trade Unions which might otherwise be tempted to maintain a wage which would involve extensive unemployment. Any proposal that relieves or tends to relieve those who have a powerful voice in fixing the rate of wages from this burden, so as to give the higher wage to those who are employed and throw the care for the unemployment it causes upon other shoulders, should be watched with the utmost jealousy.

III.2.49

And this brings us to our last series of remarks on the subject of Trade Unionism. If, and in so far as, the Trade Unions seek to limit their numbers, or to limit the output, and so to maintain their wage, they are seeking to establish themselves as privileged members of society, and are acting unsocially. And if, and in so far as, they successfully resist an access to their numbers which would reduce their marginal significance while increasing that of other groups (by hypothesis now lower than theirs), they are again acting unsocially, though naturally. Lastly, the justification of a strike must be that there are not a sufficient body of persons able and willing to do the work demanded at the wage offered. If the employers can find competent workers who will accept the wage they offer, that is an indication that, should the claims of the strikers be met, these others, able and willing to do the work on certain terms, would be driven to alternatives less eligible to themselves. And this, again, is establishing and maintaining a position of privilege to the detriment of the unprivileged workers. We are driven, therefore, to the hard saying that the hatred of the blackleg, however natural, has no social justification, and if ever a Union has to invoke public odium to assist it in defeating the blackleg, it seems to shew that its position is economically unsound. It is, of course, possible that the blacklegs, being inferior workmen, may really be less than worth their wage, so that permanent employment of them would be economically ruinous to the employer. In such cases the show of carrying on the business may be mere bluff, intended to demoralise the Unionists by a pretended independence of them. But, if the blacklegs are really doing the work, they are demonstrating that the Unionist claim is for a position of privilege and is anti-social. Acts of personal cruelty and spite in this connection are always formally condemned; but, under the impression (a mistaken one as I have tried to shew) that such acts are done in a good cause and are directed against men who are "traitors" not only to their own mates but to humanity, they are sometimes judged leniently or altogether condoned. If it is true that acts of cruelty and tyranny are largely practised, as is hotly asserted and as hotly denied, no one can be more interested in their extirpation than the leaders of the Trade Unions themselves.


Notes for this chapter


79.
Pages 148 sqq.
80.
Pages 373 sqq.
81.
Pages 589 sq.
82.
Pages 183 sqq.
83.
See pages 640 sqq. and cf. pages 356 sq. etc.
84.
Cf. pages 146 sqq., 189 sqq., 215 sq.
85.
Pages 209 sq.
86.
For if the Municipality borrows capital from individual lenders and pays for work and material at market rates, we are far from any accepted definition of socialism.
87.
See page 341 sq., and compare page 573.
88.
We have neglected the expense of collecting and distributing the revenue and have taken Consols at par, for the sake of simplicity.
89.
Page 354.

End of Notes


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