Principles of Economics

§ 2. It has already been noted that if population increased in high geometrical progression uninterruptedly for many generations together in a country which could not import food easily, then the total produce of labour and capital, working on the resources provided by nature, would barely cover the cost of rearing and training each generation as it came: this would be true even if we supposed that nearly the whole of the national dividend went to labour, scarcely any share being allotted to capitalist or landowner
*153. If the allowance fell below that level, the rate of increase of the population must necessarily shrink; unless indeed the expenses of their nurture and rearing were curtailed, with a resulting lowering of efficiency, and therefore of the national dividend, and therefore of earnings.

But in fact the check to the rapid growth of population would probably come earlier, because the population at large would not be likely to limit its consumption to bare necessaries: some part of the family income would almost certainly be spent on gratifications which contributed but little to the maintenance of life and efficiency. That is to say, the maintenance of a standard of comfort, raised more or less above that which was necessary for life and efficiency, would necessarily involve a check to the growth of population at a rather earlier stage than would have been reached if family expenditure had been directed on the same principles as is the expenditure on the nurture and training of horses or slaves. This analogy reaches further.

Three necessaries for full efficiency—hope, freedom and change
*154—cannot easily be brought within the slave’s reach. But as a rule the shrewd slave-owner goes to some trouble and expense to promote rough musical and other entertainments, on the same principle that he provides medicines: for experience shows that melancholy in a slave is as wasteful as disease, or as cinders that clog the furnace of a boiler. Now if the standard of comfort of the slaves were to rise in such a way that neither punishment nor the fear of death would make them work unless provided with expensive comforts and even luxuries, they would get those comforts and luxuries; or else they would disappear, in the same way as would a breed of horses that did not earn their keep. And if it were true that the real wages of labour were forced down chiefly by the difficulty of obtaining food, as was in fact the case in England a hundred years ago; then indeed the working classes might relieve themselves from the pressure of Diminishing Return by reducing their numbers.

But they cannot do so now, because there is no such pressure. The opening of England’s ports, in 1846, was one among many causes of the development of railways connecting the vast agricultural lands of North and South America and Australia with the sea. Wheat grown under the most advantageous circumstances is brought to the English working man in sufficient quantities for his family at a total cost equal to but a small part of his wages. An increase in numbers gives many new opportunities for increased efficiency of labour and capital working together to meet men’s wants; and thus may raise wages in one direction as much as it lowers them in another; provided only the stock of capital required for the new developments increases fast enough. Of course the Englishman is not unaffected by the law of diminishing return: he cannot earn his food with as little labour as if he were near spacious virgin prairies. But its cost to him, being now governed mainly by the supplies which come from new countries, would not be greatly affected either by an increase or by a diminution in the population of this country. If he can make his labour more efficient in producing things which can be exchanged for imported food, then he will get his food at less real cost to himself, whether the population of England grows fast or not.

When the wheat-fields of the world are worked at their full power (or even earlier, if the free entry of food into England’s ports should ever be obstructed), then indeed an increase of her population may lower wages, or at all events check the rise that would otherwise have come from the continued improvement in the arts of production: and, in such a case a rise in the standard of comfort may raise wages merely by stinting the growth of numbers.

But, while the present good fortune of abundant imported food attends on the English people, a rise in their standard of comfort could not increase their wages, merely by its action on their numbers. And further if it were obtained by measures which forced down the rate of profits on capital even further below the level, which can be got in countries which have a greater power of absorbing capital than England has, it might both check accumulation in England, and hasten the exportation of capital: and in that case wages in England would fall both absolutely, and relatively to the rest of the world. If on the other hand a rise in the standard of comfort went together with a great increase in efficiency; then—whether it were accompanied by an increase in numbers or not—it would enlarge the national dividend relatively to population, and establish a rise of real wages on an enduring basis. Thus a diminution by one-tenth of the number of workers, each doing as much work as before, would not materially raise wages; and therefore a diminution by one-tenth in the amount of work done by each, the number remaining unchanged, would lower wages in general by one-tenth.

This argument is of course consistent with the belief that a compact group of workers can for a time raise their wages at the expense of the rest of the community by making their labour scarce. But such strategy seldom succeeds for more than a short time. However strong the anti-social obstacles which they erect against those who would like a share of their gains, interlopers find their way in; some over the obstacles, some under them, and some through them. Meanwhile invention is set on foot to obtain in some other way, or from some other place, things of the production of which the compact group thought to have a partial monopoly: and, what is even more dangerous to them, new things are invented and brought into general use, which satisfy nearly the same wants, and yet make no use of their labour. Thus after a while those, who have striven to make a shrewd use of monopoly, are apt to find their numbers swollen rather than reduced, while the total demand for their labour has shrunk: in that case their wages fall heavily.

§ 3. The relations between industrial efficiency and the hours of labour are complex. If the strain is very great, a man is apt to be so tired by long work that he is seldom at his best, and is often much below it or even idling. As a general, though not universal rule, his work is more intense when paid by piece, than when paid by time; and, in so far as this is the case, short hours are specially suitable to industries in which piece-work prevails
*155.

When the hours, the nature of the work done, the physical conditions under which it is done, and the method by which it is remunerated, are such as to cause great wear-and-tear of body or mind or both, and to lead to a low standard of living; when there has been a want of that leisure, rest and repose, which are among the necessaries for efficiency; then the labour has been extravagant from the point of view of society at large, just as it would be extravagant on the part of the individual capitalist to keep his horses or slaves overworked or underfed. In such a case a moderate diminution of the hours of labour would diminish the national dividend only temporarily: for as soon as the improved standard of life had had time to exert its full effect on the efficiency of the workers, their increased energy, intelligence and force of character would enable them to do as much as before in less time; and thus, even from the point of view of material production, there would be no ultimate loss, any more than there would be in sending a sick worker into hospital to get his strength renovated. The coming generation is interested in the rescue of men, and still more in that of women, from excessive work; at least as much as it is in the handing down to it of a good stock of material wealth.

This argument assumes that the new rest and leisure raise the standard of life. And such a result is almost certain to follow in the extreme cases of overwork which we have been now considering; for in them a mere lessening of tension is a necessary condition for taking the first step upwards. The lowest grade of honest workers seldom work very hard. But they have little stamina; and many of them are so overstrained that they might probably, after a time, do as much in a shorter day as they now do in a long one
*156.

Again there are some branches of industry which at present turn to account expensive plant during nine or ten hours a day; and in which the gradual introduction of two shifts of eight hours, or even less, would be a gain. The change would need to be introduced gradually; for there is not enough skilled labour in existence to allow such a plan to be adopted at once in all the workshops and factories for which it is suited. But some kinds of machinery, when worn out or antiquated, might be replaced on a smaller scale; and, on the other hand, much new machinery that cannot be profitably introduced for a ten hours’ day, would be introduced for a sixteen hours’ day; and when once introduced it would be improved on. Thus the arts of production would progress more rapidly; the national dividend would increase; working men would be able to earn higher wages without checking the growth of capital, or tempting it to migrate to countries where wages are lower: and all classes of society would reap benefit from the change.

The importance of this consideration is more apparent every year, since the growing expensiveness of machinery, and the quickness with which it is rendered obsolete, are constantly increasing the wastefulness of keeping the untiring iron and steel resting in idleness during sixteen hours out of the twenty-four. In any country, such a change would increase the net produce, and therefore the wages of each worker; because much less than before would have to be deducted from his total output on account of charges for machinery, plant, factory-rent, etc. But Anglo-Saxon artisans, unsurpassed in accuracy of touch, and surpassing all in sustained energy, would more than any others increase their net produce, if they would keep their machinery going at its full speed for sixteen hours a day, even though they themselves worked only eight
*157.

It must however be remembered that this particular plea for a reduction of the hours of labour applies only to those trades which use, or can use, expensive plant; and that in many cases, as for instance in some mines and some branches of railway work, the system of shifts is already applied so as to keep the plant almost constantly at work.

There remain therefore many trades in which a reduction of the hours of labour would certainly lessen the output in the immediate present, and would not certainly bring about at all quickly any such increase of efficiency as would raise the average work done per head up to the old level. In such cases the change would diminish the national dividend; and the greater part of the resulting material loss would fall on the workers whose hours of labour were diminished. It is true that in some trades a scarcity of labour would raise its price for a good long while at the expense of the rest of the community. But as a rule a rise in the real price of labour would cause a diminished demand for the product, partly through the increased use of substitutes; and would also cause an inrush of new labour from less favoured trades.

§ 4. It may be well to try to explain the great vitality of the common belief that wages could be raised generally by merely making labour scarce. To begin with, it is difficult to realize how different, and often even opposed, are the immediate and permanent effects of a change. People see that when there are competent men waiting for work outside the offices of a tramway company, those already at work think more of keeping their posts than of striving for a rise of wages; and that if these men were away, the employers could not resist a demand for higher wages. They dwell on the fact that, if tramway men work short hours, and there is no diminution in the number of miles run by the cars on existing lines, then more men must be employed; probably at higher wages per hour, and possibly at higher wages per day. They see that when an enterprise is on foot, as for instance the building of a house, or a ship, it must be finished at any cost, since there is nothing to be gained by stopping half way: and the larger the slices of work on it done by any one man, the fewer slices of work on it will be left for other people.

But there are other consequences more important, though less obtrusive, which need to be considered. For instance, if tram workers and building operatives stint their labour artificially, tramway extensions will be checked; fewer men will be employed in making and working tramways; many work-people and others will walk into town, who might have ridden; many will live closely packed in the cities who might have had gardens and fresher air in the suburbs; the working classes, among others, will be unable to pay for as good housing accommodation as they would otherwise have had; and there will be less building to be done.

In short the argument that wages can be raised permanently by stinting labour rests on the assumption that there is a permanent fixed
work-fund, i.e. a certain amount of work which has to be done, whatever the price of labour. And for this assumption there is no foundation. On the contrary, the demand for work comes from the national dividend; that is, it comes from work. The less work there is of one kind, the less demand there is for work of other kinds; and if labour were scarce, fewer enterprises would be undertaken.

Again, constancy of employment is dependent on the organization of industry and trade, and on the success with which those who arrange supply are able to forecast coming movements of demand and of price, and to adjust their actions accordingly. But this would not be better done with a short day’s work than with a long one; and indeed the adoption of a short day, not accompanied by double shifts, would discourage the use of that expensive plant, the presence of which makes employers very unwilling to close their works. Almost every artificial stinting of work involves friction, and therefore tends, not to lessen, but to increase the inconstancy of employment.

It is true that, if plasterers or shoemakers could exclude external competition, they would have a fair chance of raising their wages by a mere diminution of the amount of work done by each, whether by shortening the hours of labour or in any other way; but these gains can be got only at the cost of a greater aggregate loss to other sharers in the national dividend; which is the source of wages and profits in all industries in the country. This conclusion is emphasized by the fact, to which experience testifies and which analysis explains, that the strongest instances of a rise in wages attained by trade union strategy are found in branches of industry, the demand for whose labour is not direct, but “derived” from the demand for a product in making which many branches of industry co-operate: for any one branch, which is strong in strategy, can absorb to itself some share of the price of the ultimate product, which might have gone to other branches
*158.

§ 5. We now come to a second cause of the vitality of the belief that wages can be raised generally and permanently by checking the supply of labour. This cause is an underestimate of the effects of such a change on the supply of capital.

It is a fact—and, so far as it goes, an important fact—that some share of the loss resulting from the lessening of output by (say) plasterers or shoemakers, will fall on those who do not belong to the working classes. Part of it will no doubt fall on employers and capitalists, whose personal and material capital is sunk in building or shoemaking; and part on well-to-do users, or consumers, of houses or shoes. And further if there were a general attempt by all of the working classes to obtain high wages by restricting the effective supply of their labour, a considerable part of the burden resulting from the shrinkage of the national dividend would doubtless be thrown on other classes of the nation, and especially on the capitalists, for a time: but only for a time. For a considerable diminution in the net return to investments of capital would speedily drive new supplies of it abroad. In regard to this danger it is indeed sometimes urged that the railways, and factories of the country cannot be exported. But nearly all of the materials, and a large part of the appliances of production are consumed, or worn out, or become obsolete every year; and they need to be replaced. And a reduction in the scale of this replacement, combined with the exportation of some of the capital thus set free, might probably so lessen the effective demand for labour in the country in a few years, that in the reaction wages generally would be reduced much below their present level
*159.

But though the emigration of capital would not in any case be attended by much difficulty, owners of capital have good business reasons as well as a sentimental preference in favour of investing it at home. And therefore a rise in the standard of life, which makes a country more attractive to live in, is sure to counteract to some extent the tendency of a fall in the net return on investments to cause capital to be exported. On the other hand an attempt to raise wages by anti-social contrivances for stinting output, is certain to drive abroad well-to-do people in general; and especially just that class of capitalists whose enterprise and delight in conquering difficulties is of the most importance to the working classes. For their ceaseless initiative makes for national leadership and enables man’s work to raise real wages; while promoting an increased supply of those appliances which make for efficiency, and thus sustain the growth of the national dividend.

It is true also that a general rise in wages however attained, if spread over the whole world, could not cause capital to migrate from any one part of it to another. And it is to be hoped that in time the wages of manual labour will rise all over the world, mainly through increased production; but partly also in consequence of a general fall in the rate of interest, and of a relative—if not absolute—diminution of incomes larger than are necessary to supply the means of efficient work and culture even in the highest and broadest senses of these terms. But methods of raising wages, which make for a higher standard of comfort by means that lessen rather than promote efficiency, are so anti-social and shortsighted as to invoke a speedy retribution; and there is perhaps little chance of their being adopted over any great part of the world. If several countries adopted such methods, the others going straight for raising the standards of life and of efficiency, would speedily attract to themselves much of the capital and of the best vital force away from those who followed an ignoble restrictive policy.

§ 6. In this discussion it has been necessary to adhere to general reasoning: for a direct appeal to experience is difficult; and, if made lightly, it can but mislead. Whether we watch the statistics of wages and production immediately after the change or for a long period following it, the prominent facts are likely to be due chiefly to causes other than that which we are wishing to study.

Thus if a reduction of hours resulted from a successful strike, the chances are that the occasion chosen for the strike was one when the strategical position of the workmen was good, and when the general conditions of trade would have enabled them to obtain a rise of wages, if there had been no change in the hours of labour: and therefore the immediate effects of the change on wages are likely to appear more favourable than they really were. And again many employers, having entered into contracts which they are bound to fulfil, may for the time offer higher wages for a short day than before for a long day. But this is a result of the suddenness of the change, and is a mere flash in the pan; and, as has just been observed, the immediate results of such a change are likely to be in the opposite direction to those which follow later, and are more enduring.

On the other hand, if men have been overworked, the shortening of the hours of labour will not at once make them strong: the physical and moral improvement of the condition of the workers, with its consequent increase of efficiency and therefore of wages, cannot show itself at once.

Further, the statistics of production and wages several years after the reduction of hours are likely to reflect changes in the prosperity of the country, and especially of the trade in question; of the methods of production; and of the purchasing power of money: and it may be as difficult to isolate the effects of reduction of the hours of labour as it is to isolate the effects on the waves of a noisy sea caused by throwing a stone among them
*160.

We must then be careful not to confuse the two questions whether a cause tends to produce a certain effect and whether that cause is sure to be followed by that effect. Opening the sluice of a reservoir tends to lower the level of the water in it; but if meanwhile larger supplies of water are flowing in at the other end, the opening of the sluice may be followed by a rising of the level of the water in the cistern. And so although a shortening of the hours of labour would tend to diminish output in those trades which are not overworked, and in which there is no room for double shifts; yet it might very likely be accompanied by an increase of production arising from the general progress of wealth and knowledge. But in that case the rise of wages would have been obtained in spite of, and not in consequence of, a shortening of hours.

§ 7. In modern England nearly all movements of the kind which we have just been discussing are directed by trade unions. A full appreciation of their aims and results lies beyond the scope of the present volume: for it must be based on a study of combinations in general, of industrial fluctuations, and of foreign trade. But a few words may be said here on that part of their policy which is most closely connected with standards of life, and work, and wages
*161.

The increasing changefulness and mobility of industry obscure the influences both for good and for evil which the earnings and industrial policy of any group of workers in one generation exert on the efficiency and earning power of the same group in a later generation
*162. The family income, from which the expenses of rearing and training its younger members must be defrayed, seldom comes now from a single trade. The sons are less frequently found in their father’s occupation: the stronger and more strenuous of those to whose nurture the earnings of any occupation have contributed are likely to seek higher fortunes elsewhere; while the weak and the dissolute are likely to descend below it. It is therefore becoming increasingly difficult to bring the test of experience to bear on the question, whether the efforts, which any particular trade union has made to raise the wages of its members, have borne rich fruit in raising the standard of life and work of the generation reared by aid of those high wages. But some broad facts stand out clearly.

The original aims of British trade unions were almost as closely connected with the standard of life as with the rate of wages. They derived their first great impulse from the fact that the law, partly directly and partly indirectly, sustained combinations among employers to regulate wages in their own supposed interest; and prohibited under severe penalties similar combinations on the part of employees. This law depressed wages a little; but it depressed much more the strength and richness of character of the workman. His horizon was generally so limited that he could not be fully drawn out of himself by a keen and intelligent interest in national affairs: so he thought and cared little about any mundane matters, except the immediate concerns of himself, his family and his neighbours. Freedom to combine with others in his own occupation would have widened his horizon, and given him larger matters to think about: it would have raised his standard of social duty, even though this duty might have been tainted with a good deal of class selfishness. Thus the early struggle for the principle that workmen should be free to do in combination the counterpart of anything which employers were free to do in combination, was in effect an effort to obtain conditions of life consistent with true self-respect and broad social interests, as much as a struggle for higher wages.

On this side of the field victory has been complete. Trade unionism has enabled skilled artisans, and even many classes of unskilled workers, to enter into negotiations with their employers with the same gravity, self-restraint, dignity and forethought as are observed in the diplomacy of great nations. It has led them generally to recognize that a simply aggressive policy is a foolish policy, and that the chief use of military resources is to preserve an advantageous peace.

In many British industries Boards for the adjustment of wages work steadily, and smoothly, because there is a strong desire to avoid waste of energy on trifles. If an employee disputes the justice of any judgment passed by his employer or foreman on his work or his remuneration for it, the employer in the first instance calls in the trade union secretary as arbiter: his verdict is generally accepted by the employer; and of course it must be accepted by the operative. If beneath this particular personal dispute there is a question of principle on which no clear agreement has been reached by the Board, the matter may be referred for discussion to the secretaries of the employers’ association and the trade union in conference: if they cannot agree, it may be passed on to the Board. At last, if the stake at issue is large enough, and neither side will give way, the issue is relegated by a strike or a lock-out to the decision of force. But even then the good services of several generations of organized trade unions are seen in the conduct of the contest; which generally differs in method from the contest waged between employers and employed a century ago, very much as honourable war between modern civilized peoples does from fierce guerilla war among wild peoples. Self-control and moderation of manner overlying resolute purpose distinguish the British delegates above others at an international labour conference.

But the very greatness of the services which trade unions have rendered imposes on them corresponding obligations.
Noblesse oblige: and they are bound to look with suspicion on those who exaggerate their power of raising wages by particular devices, especially when such devices contain an anti-social element. There are indeed but few movements which are without reproach: some destructive influence lurks in nearly every great and good effort. But the evil should be stripped of all gloss, and carefully examined, so that it may be kept down.

§ 8. The chief instrument by which trade unions have obtained their power of negotiating on even terms with their employers is a “Common Rule” as regards the standard wage to be paid for an hour’s work of a given class, or again for piece-work of a given class. Custom and the rather ineffective assessments of wages by Justices of the Peace, while hindering the workman from rising, had also defended him from extreme pressure. But, when competition became free, the isolated workman was at a disadvantage in bargaining with employers. For, even in Adam Smith’s time, they were generally in agreement, formal or informal, not to outbid one another in the hire of labour. And when, as time went on, a single firm was often able to employ several thousands of workmen, that firm by itself became a larger as well as a more compact bargaining force than a small trade union.

It is true that the agreements and understandings of employers not to overbid one another were not universal, and were often evaded or broken. It is true that when the net product due to the labour of additional workers was largely in excess of the wages that were being paid to them, a pushing employer would brave the indignation of his peers, and attract workers to him by the offer of higher wages: and it is true that in progressive industrial districts this competition was sufficient to secure that no considerable body of workers should remain for long with wages much below the equivalent of their net product. It is necessary to reassert here the fact that this net product, to which the wages of a worker of normal efficiency approximate, is the net product of a worker of normal efficiency: for a suggestion has indeed been made by some advocates of extreme enforcements of the Common Rule, that competition tends to make the wages of the efficient worker equal to the net product of that worker who is so inefficient that the employer can barely be induced to employ him at all
*163.

But in fact competition does not act in this way. It does not tend to make weekly wages in similar employments equal: it tends to adjust them to the efficiency of the workers. If
A will do twice as much work as
B, an employer on the margin of doubt as to whether it is worth his while to take on additional workers, will make just as good a bargain by taking on
A at four shillings as by taking on
B and another at two shillings each. And the causes which govern wages are indicated as clearly by watching the marginal case of
A at four shillings as that of
B at two
*164.

§ 9. Speaking broadly then it may be said that trade unions have benefited the nation as well as themselves by such uses of the Common Rule as make for a true standardization of work and wages; especially when combined with a frank endeavour to make the resources of the country go as far as they will, and thus to promote the growth of the national dividend. Any rise of wages or improvement in the conditions of life, and employment, which they may obtain by these reasonable methods, is likely to make for social wellbeing. It is not likely to worry and dishearten business enterprise, nor to throw out of their stride those whose efforts are making most for national leadership: nor will it drive capital abroad to any great extent.

The case is different with applications of the Common Rule which make for a false standardization; which tend to force employers to put relatively inefficient workers in the same class for payment as more efficient workers; or which prevent anyone from doing work for which he is capable, on the ground that it does not technically belong to him. These uses of the Rule are
primâ facie anti-social. There may indeed be stronger reasons for such action than appear on the surface: but their importance is apt to be exaggerated by the professional zeal of trade union officials for the technical perfection of the organization, for which they are responsible. The reasons are therefore of a kind for which external criticism may be serviceable, in spite of its aloofness. We may begin with a strong case, on which there is now relatively little difference of opinion.

In the days when trade unions had not learnt full self-respect, forms of false standardization were common. Obstacles were put in the way of the use of improved methods and machinery; and attempts were made to fix the standard wage for a task at the equivalent of the labour required to perform it by methods long antiquated. This again tended to sustain wages in the particular branch of industry concerned; but only by so great a check to production, that the policy, if generally successful, would have greatly curtailed the national dividend, and lessened employment at good wages in the country generally. The service which the leading trade unionists rendered to the country by condemning this anti-social conduct are never to be forgotten. And though some partial relapse from its high principles on the part of an enlightened union led up to the great dispute of 1897 in the engineering trade, the error was quickly purged of at least its worst features
*165.

Again, false standardization is involved in a practice, still followed by many unions, of refusing to allow an elderly man, who can no longer do a full standard day’s work, to take something less than standard wages. This practice slightly restricts the supply of labour in the trade, and appears to benefit those who enforce it. But it cannot permanently restrict numbers: it often involves a heavy burden on the benefit funds of the union, and it is generally shortsighted even from a purely selfish point of view. It lowers the national dividend considerably: it condemns elderly men to take their choice between oppressive idleness, and a weary struggle to work harder than is good for them. It is harsh and anti-social.

To pass to a more doubtful case:—some delimitation of the functions of each industrial group is essential to the working of the Common Rule: and it is certainly in the interests of industrial progress that every urban artisan should seek to attain high proficiency in some branch of work. But a good principle is apt to be pushed to evil excess, when a man is not allowed to do a certain part of the work on which he is engaged, though it is quite easy to him, on the pretext that it belongs technically to another department. Such prohibitions are of relatively little injury in establishments that make large numbers of similar goods. For in these it is possible so to arrange the work that there is fairly uniform employment for an integral number of operatives of each of many different classes: an
integral number, i.e., one with no ragged fringe of workers who earn a part of their living elsewhere. But such prohibitions press hardly on small employers; and especially on those who are on the lower rungs of a ladder that may lead in two generations, if not in one, to great achievements that make for national leadership. Even in large establishments, they increase the chance that a man, for whom it is difficult to find work at the time, will be sent to seek employment elsewhere; and thus swell for the time the ranks of the unemployed. Delimitation then, though a social good when applied moderately and with judgment, becomes an evil when pushed to extremes for the sake of the minor tactical advantages which it offers
*166.

§ 10. Next we may pass to a still subtler and more difficult matter. It is a case in which the Common Rule appears to work badly, not because it is applied harshly: but because the work, to which it is set, requires it to be more perfect technically than it is, or perhaps can be made. The centre of this matter is that the standards of wages are expressed in terms of money: and since the real value of money changes from one decade to another, and fluctuates rapidly from year to year, rigid money standards cannot work out truly. It is difficult, if not impossible, to give them appropriate elasticity: and that is a reason against extreme applications of the Common Rule, which must perforce use so rigid and imperfect an implement.

The urgency of this consideration is increased by the natural tendency of trade unions to press for a rise in standard money wages during inflations of credit, which raise prices and lower the purchasing power of money for the time. At that time employers may be willing to pay high wages, measured in real purchasing power and still higher wages in terms of money, even for labour that falls somewhat short of the standard of full normal efficiency. Thus men of but second-rate efficiency earn the high standard money wages, and make good their claim to be admitted as members of the union. But very soon the inflation of credit subsides, and is followed by a depression; prices fall, and the purchasing power of money rises: the real value of labour falls, and its money value falls faster. The high standard of money wages, attained during the inflation, is now too high to leave a good margin of profits even on the work of fully efficient men; and those, who are below the standard of efficiency, are not worth the standard wages. This false standardization is not an unmixed evil to the efficient members of the trade: for it tends to make their labour more in demand, just as does the compulsory idleness of elderly men. But it does so only by checking production, and therefore checking the demand for the labour of other branches of industry. The more such a policy is persisted in by trade unions generally, the deeper and the more sustained is the injury caused to the national dividend; and the less is the aggregate of employment at good wages throughout the country.

In the long run every branch of industry would prosper better, if each exerted itself more strenuously to set up several standards of efficiency for labour, with corresponding standards for wages; and were more quick to consent to some relaxation of a high standard of money wages when the crest of a wave of high prices, to which it was adapted, had passed away. Such adjustments are full of difficulty: but progress towards them might be hastened if there were a more general and clear appreciation of the fact that high wages, gained by means that hinder production in any branch of industry, necessarily increase unemployment in other branches. For, indeed, the only effective remedy for unemployment is a continuous adjustment of means to ends, in such way that credit can be based on the solid foundation of fairly accurate forecasts; and that reckless inflations of credit—the chief cause of all economic malaise—may be kept within narrower limits.

This matter cannot be argued here: but a few words may be said in further explanation. Mill well observed that “What constitutes the means of payment for commodities is simply commodities. Each person’s means of paying for the productions of other people consist of those which he himself possesses. All sellers are inevitably, and by the meaning of the word, buyers. Could we suddenly double the productive powers of the country, we should double the supply of commodities in every market; but we should, by the same stroke, double the purchasing power. Everybody would bring a double demand as well as supply; everybody would be able to buy twice as much, because everyone would have twice as much to offer in exchange.”

But though men have the power to purchase they may not choose to use it. For when confidence has been shaken by failures, capital cannot be got to start new companies or extend old ones. Projects for new railways meet with no favour, ships lie idle, and there are no orders for new ships. There is scarcely any demand for the work of navvies, and not much for the work of the building and the engine-making trades. In short there is but little occupation in any of the trades which make fixed capital. Those whose skill and capital is specialized in these trades are earning little, and therefore buying little of the produce of other trades. Other trades, finding a poor market for their goods, produce less; they earn less, and therefore they buy less: the diminution of the demand for their wares makes them demand less of other trades. Thus commercial disorganization spreads: the disorganization of one trade throws others out of gear, and they react on it and increase its disorganization.

The chief cause of the evil is a want of confidence. The greater part of it could be removed almost in an instant if confidence could return, touch all industries with her magic wand, and make them continue their production and their demand for the wares of others. If all trades which make goods for direct consumption agreed to work on, and to buy each other’s goods as in ordinary times, they would supply one another with the means of earning a moderate rate of profits and of wages. The trades which make fixed capital might have to wait a little longer: but they too would get employment when confidence had revived so far that those who had capital to invest had made up their minds how to invest it. Confidence by growing would cause itself to grow; credit would give increased means of purchase, and thus prices would recover. Those in trade already would make good profits, new companies would be started, old businesses would be extended; and soon there would be a good demand even for the work of those who make fixed capital. There is of course no formal agreement between the different trades to begin again to work full time, and so make a market for each other’s wares. But the revival of industry comes about through the gradual and often simultaneous growth of confidence among many various trades; it begins as soon as traders think that prices will not continue to fall: and with a revival of industry prices rise
*167.

§ 11. The main drift of this study of Distribution then suggests that the social and economic forces already at work are changing the distribution of wealth for the better: that they are persistent and increasing in strength; and that their influence is for the greater part cumulative; that the socio-economic organism is more delicate and complex than at first sight appears; and that large ill-considered changes might result in grave disaster. In particular it suggests that the assumption and ownership by Government of all the means of production, even if brought about gradually and slowly, as the more responsible “Collectivists” propose, might cut deeper into the roots of social prosperity than appears at first sight.

Starting from the fact that the growth of the national dividend depends on the continued progress of invention and the accumulation of expensive appliances for production; we are bound to reflect that up to the present time nearly all of the innumerable inventions that have given us our command over nature have been made by independent workers; and that the contributions from Government officials all the world over have been relatively small. Further, nearly all the costly appliances for production which are now in collective ownership by national or local Governments, have been bought with resources borrowed mainly from the savings of business men and other private individuals. Oligarchic Governments have sometimes made great efforts to accumulate collective wealth; and it may be hoped that in the coming time, foresight and patience will become the common property of the main body of the working classes. But, as things are, too great a risk would be involved by entrusting to a pure democracy the accumulation of the resources needed for acquiring yet further command over nature.

There is therefore strong
primâ facie cause for fearing that the collective ownership of the means of production would deaden the energies of mankind, and arrest economic progress; unless before its introduction the whole people had acquired a power of unselfish devotion to the public good which is now relatively rare. And, though this matter cannot be entered upon here, it might probably destroy much that is most beautiful and joyful in the private and domestic relations of life. These are the main reasons which cause patient students of economics generally to anticipate little good and much evil from schemes for sudden and violent reorganization of the economic, social and political conditions of life.

Further, we are bound to reflect that the distribution of the national dividend, though bad, is not nearly as bad as is commonly supposed. In fact there are many artisan households in England, and even more in the United States in spite of the colossal fortunes that are found there, which would lose by an equal distribution of the national income. Therefore the fortunes of the masses of the people, though they would of course be greatly improved
for the time by the removal if all inequalities, would not be raised even temporarily at all near to the level which is assigned to them in socialistic anticipations of a Golden Age
*168.

But this cautious attitude does not imply acquiescence in the present inequalities of wealth. The drift of economic science during many generations has been with increasing force towards the belief that there is no real necessity, and therefore no moral justification for extreme poverty side by side with great wealth. The inequalities of wealth though less than they are often represented to be, are a serious flaw in our economic organization. Any diminution of them which can be attained by means that would not sap the springs of free initiative and strength of character, and would not therefore materially check the growth of the national dividend, would seem to be a clear social gain. Though arithmetic warns us that it is impossible to raise all earnings beyond the level already reached by specially well-to-do artisan families, it is certainly desirable that those who are below that level should be raised, even at the expense of lowering in some degree those who are above it.

§ 12. Prompt action is needed in regard to the large, though it may be hoped, now steadily diminishing, “Residuum” of persons who are physically, mentally, or morally incapable of doing a good day’s work with which to earn a good day’s wage. This class perhaps includes some others besides those who are absolutely “unemployable.” But it is a class that needs exceptional treatment. The system of economic freedom is probably the best from both a moral and material point of view for those who are in fairly good health of mind and body. But the Residuum cannot turn it to good account: and if they are allowed to bring up children in their own pattern, then Anglo-Saxon freedom must work badly through them on the coming generation. It would be better for them and much better for the nation that they should come under a paternal discipline something like that which prevails in Germany
*169.

The evil to be dealt with is so urgent that strong measures against it are eagerly to be desired. And the proposal that a minimum wage should be fixed by authority of Government below which no man may work, and another below which no woman may work, has claimed the attention of students for a long while. If it could be made effective, its benefits would be so great that it might be gladly accepted, in spite of the fear that it would lead to malingering and some other abuses; and that it would be used as a leverage for pressing for a rigid artificial standard of wages, in cases in which there was no exceptional justification for it. But, though great improvements in the details of the scheme have been made recently, and especially in the last two or three years, its central difficulties do not appear to have been fairly faced. There is scarcely any experience to guide us except that of Australasia, where every inhabitant is part owner of a vast landed property; and which has been recently peopled by men and women in full strength and health. And such experience is of but little use in regard to a people whose vitality has been impaired by the old Poor Law, and the old Corn Laws; and by the misuses of the Factory system, when its dangers were not yet understood. A scheme, that has any claim to be ready for practical adoption, must be based on statistical estimates of the numbers of those who under it would be forced to seek the aid of the State, because their work was not worth the minimum wage; with special reference to the question how many of these might have supported life fairly well if it had been possible to work with nature, and to adjust in many cases the minimum wage to the family, instead of to the individual
*170.

§ 13. Turning then to those workers who have fairly good moral and physical stamina, it may be estimated roughly that those who are capable only of rather unskilled work constitute about a fourth of the population. And those who, though fit for the lower kinds of skilled work are neither fit for highly skilled work, nor able to act wisely and promptly in responsible positions, constitute about another fourth. If similar estimates had been made in England a century ago, the proportions would have been very different: more than a half would have been found unfit for any skilled labour at all, beyond the ordinary routine of agriculture; and perhaps less than a sixth part would have been fit for highly skilled or responsible work: for the education of the people was not then recognized as a national duty and a national economy. If this had been the only change the urgent demand for unskilled labour would have compelled employers to pay for it nearly the same wage as for skilled: the wages for skilled labour would have fallen a little and those for unskilled would have risen, until the two had nearly met.

Even as it is, something like this has happened: the wages of unskilled labour have risen faster than those of any other class, faster even than those of skilled labour. And this movement towards the equalization of earnings would have gone much faster, had not the work of purely unskilled labour been meanwhile annexed by automatic and other machinery faster even than that of skilled labour; so that there is less wholly unskilled work to be done now than formerly. It is true that some kinds of work, which traditionally belong to skilled artisans, require now less skill than formerly. But, on the other hand, the so-called “unskilled” labourer has now often to handle appliances too subtle and expensive to have been safely entrusted to the ordinary English labourer a century ago, or to any people at all in some backward countries now.

Thus mechanical progress is a chief cause of the great differences that still exist between the earnings of different kinds of labour; and this may seem at first sight a severe indictment: but it is not. If mechanical progress had been much slower the real wages of unskilled labour would have been lower than they are now, not higher: for the growth of the national dividend would have been so much checked that even the skilled workers would generally have had to content themselves with less real purchasing power for an hour’s work than the 6
d. of the London bricklayer’s labourer: and the unskilled labourers’ wages would of course have been lower still. It has been assumed that the happiness of life, in so far as it depends on material conditions, may be said to begin when the income is sufficient to yield the
barest necessaries of life: and that after that has been attained, an increase by a given percentage of the income will increase that happiness by about the same amount, whatever the income be. This rough hypothesis leads to the conclusion that an increase by (say) a quarter of the wages of the poorer class of
bonâ fide workers adds more to the sum total of happiness than an increase by a quarter of the incomes of an equal number of any other class. And that seems reasonable: for it arrests positive suffering, and active causes of degradation, and it opens the way to hope as no other proportionate increase of incomes does. From this point of view it may be urged that the poorer classes have derived a greater real benefit from economic progress on its mechanical and other sides, than is suggested by the statistics of their wages. But all the more is it the duty of society to endeavour to carry yet further an increase of wellbeing which is to be obtained at so low a cost
*171.

We have then to strive to keep mechanical progress in full swing: and to diminish the supply of labour, incapable of any but unskilled work; in order that the average income of the country may rise faster even than in the past, and the share of it got by each unskilled labourer may rise faster still. To that end we need to move in the same direction as in recent years, but more strenuously. Education must be made more thorough. The schoolmaster must learn that his main duty is not to impart knowledge, for a few shillings will buy more printed knowledge than a man’s brain can hold. It is to educate character, faculties and activities; so that the children even of those parents who are not thoughtful themselves, may have a better chance of being trained up to become thoughtful parents of the next generation. To this end public money must flow freely. And it must flow freely to provide fresh air and space for wholesome play for the children in all working class quarters
*172.

Thus the State seems to be required to contribute generously and even lavishly to that side of the wellbeing of the poorer working class which they cannot easily provide for themselves: and at the same time to insist that the inside of the houses be kept clean, and fit for those who will be needed in after years to act as strong and responsible citizens. The compulsory standard of cubic feet of air per head needs to be raised steadily though not violently: and this combined with a regulation that no row of high buildings be erected without adequate free space in front and behind, will hasten the movement, already in progress, of the working classes from the central districts of large towns, to places in which freer playroom is possible. Meanwhile public aid and control in medical and sanitary matters will work in another direction to lessen the weight that has hitherto pressed on the children of the poorer classes.

The children of unskilled workers need to be made capable of earning the wages of skilled work: and the children of skilled workers need by similar means to be made capable of doing still more responsible work. They will not gain much, they are indeed more likely to lose, by pushing themselves into the ranks of the lower middle class: for, as has already been observed, the mere power of writing and keeping accounts belongs really to a lower grade than skilled manual work; and has ranked above it in past times, merely because popular education had been neglected. There is often a social loss as well as a social gain when the children of any grade press into the grade above them. But the existence of our present lowest class is an almost unmixed evil: nothing should be done to promote the increase of its numbers, and children once born into it should be helped to rise out of it.

There is plenty of room in the upper ranks of the artisans; and there is abundant room for new comers in the upper ranks of the middle class. It is to the activity and resource of the leading minds in this class that most of those inventions and improvements are due, which enable the working man of to-day to have comforts and luxuries that were rare or unknown among the richest of a few generations ago: and without which indeed England could not supply her present population with a sufficiency even of common food. And it is a vast and wholly unmixed gain when the children of any class press within the relatively small charmed circle of those who create new ideas, and who embody those new ideas in solid constructions. Their profits are sometimes large: but taking one with another they have probably earned for the world a hundred times or more as much as they have earned for themselves.

It is true that many of the largest fortunes are made by speculation rather than by truly constructive work: and much of this speculation is associated with anti-social strategy, and even with evil manipulation of the sources from which ordinary investors derive their guidance. A remedy is not easy, and may never be perfect. Hasty attempts to control speculation by simple enactments have invariably proved either futile or mischievous: but this is one of those matters in which the rapidly increasing force of economic studies may be expected to render great service to the world in the course of this century.

In many other ways evil may be lessened by a wider understanding of the social possibilities of economic chivalry. A devotion to public wellbeing on the part of the rich may do much, as enlightenment spreads, to help the tax-gatherer in turning the resources of the rich to high account in the service of the poor, and may remove the worst evils of poverty from the land.

§ 14. The inequalities of wealth, and especially the very low earnings of the poorest classes, have just been discussed with reference to their effects in dwarfing activities as well as in curtailing the satisfaction of wants. But here, as everywhere, the economist is brought up against the fact that the power of rightly using such income and opportunities, as a family has, is in itself wealth of the highest order, and of a kind that is rare in all classes. Perhaps £100,000,000 annually are spent even by the working classes, and £400,000,000 by the rest of the population of England, in ways that do little or nothing towards making life nobler or truly happier. And, though it is true that a shortening of the hours of labour would in many cases lessen the national dividend and lower wages: yet it would probably be well that most people should work rather less; provided that the consequent loss of material income could be met exclusively by the abandonment by all classes of the least worthy methods of consumption; and that they could learn to spend leisure well.

But unfortunately human nature improves slowly, and in nothing more slowly than in the hard task of learning to use leisure well. In every age, in every nation, and in every rank of society, those who have known how to work well, have been far more numerous than those who have known how to use leisure well. But on the other hand it is only through freedom to use leisure as they will, that people can learn to use leisure well: and no class of manual workers, who are devoid of leisure, can have much self-respect and become full citizens. Some time free from the fatigue of work that tires without educating, is a necessary condition of a high standard of life.

In this, as in all similar cases, it is the young whose faculties and activities are of the highest importance both to the moralist and the economist. The most imperative duty of this generation is to provide for the young such opportunities as will both develop their higher nature, and make them efficient producers. And an essential condition to this end is long-continued freedom from mechanical toil; together with abundant leisure for school and for such kinds of play as strengthen and develop the character.

Even if we took account only of the injury done to the young by living in a home in which the father and the mother lead joyless lives, it would be in the interest of society to afford some relief to them also. Able workers and good citizens are not likely to come from homes, from which the mother is absent during a great part of the day; nor from homes, to which the father seldom returns till his children are asleep: and therefore society as a whole has a direct interest in the curtailment of extravagantly long hours of duty away from home, even for mineral-train-guards and others, whose work is not in itself very hard.

§ 15. In discussing the difficulty of adjusting the supply of industrial skill of various kinds to the demand for it, attention was called to the fact that the adjustment could not be nearly accurate, because the methods of industry change rapidly, and the skill of a worker needs to be used for some forty or even fifty years after he has set himself to acquire it
*173. The difficulties which we have just discussed turn largely on the long life of inherited habits and tones of thought and feeling. If the organization of our joint-stock companies, of our railways or our canals is bad, we can set it right in a decade or two. But those elements of human nature which have been developed during centuries of war and violence, and of sordid and gross pleasures, cannot be greatly changed in the course of a single generation.

Now, as always, noble and eager schemers for the reorganization of society have painted beautiful pictures of life, as it might be under institutions which their imagination constructs easily. But it is an irresponsible imagination, in that it proceeds on the suppressed assumption that human nature will, under the new institutions, quickly undergo changes such as cannot reasonably be expected in the course of a century, even under favourable conditions. If human nature could be thus ideally transformed, economic chivalry would dominate life even under the existing institutions of private property. And private property, the necessity for which doubtless reaches no deeper than the qualities of human nature, would become harmless at the same time that it became unnecessary.

There is then need to guard against the temptation to overstate the economic evils of our own age, and to ignore the existence of similar and worse evils in earlier ages; even though some exaggeration may for the time stimulate others, as well as ourselves, to a more intense resolve that the present evils shall no longer be allowed to exist. But it is not less wrong, and generally it is much more foolish, to palter with truth for a good than for a selfish cause. And the pessimist descriptions of our own age, combined with romantic exaggerations of the happiness of past ages, must tend to the setting aside of methods of progress, the work of which if slow is yet solid; and to the hasty adoption of others of greater promise, but which resemble the potent medicines of a charlatan, and while quickly effecting a little good, sow the seeds of widespread and lasting decay. This impatient insincerity is an evil only less great than that moral torpor which can endure that we, with our modern resources and knowledge, should look on contentedly at the continued destruction of all that is worth having in multitudes of human lives, and solace ourselves with the reflection that anyhow the evils of our own age are less than those of the past.

And now we must conclude this part of our study. We have reached very few practical conclusions; because it is generally necessary to look at the whole of the economic, to say nothing of the moral and other aspects of a practical problem before attempting to deal with it at all: and in real life nearly every economic issue depends, more or less directly, on some complex actions and reactions of credit, of foreign trade, and of modern developments of combination and monopoly. But the ground which we have traversed in Books V. and VI. is, in some respects, the most difficult of the whole province of economics; and it commands, and gives access to, the remainder.