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padding-right: 1em;} +.x-ebookmaker .blockquot {margin: 1.5em 3% 1.5em 3%;} + +.hang { + text-align: justify; + padding-left: 1em; + text-indent: -1em; +} +.x-ebookmaker .hang {margin: .5em 3% 2em 3%;} + +.transnote { + border: .3em double gray; + font-family: sans-serif, serif; + margin-left: 5%; + margin-right: 5%; + margin-top: 4em; + margin-bottom: 2em; + padding: 1em; +} +.x-ebookmaker .transnote { + page-break-before: always; + page-break-after: always; + margin-left: 2%; + margin-right: 2%; + margin-top: 1em; + margin-bottom: 1em; + padding: .5em; +} + +.covernote {visibility: hidden; display: none;} +.x-ebookmaker .covernote {visibility: visible; display: block; text-align: justify} + +.wspace {word-spacing: .3em;} + +span.locked {white-space:nowrap;} +.pagenum br {display: none; visibility: hidden;} +.narrow {width: 60%; max-width: 20em; margin-left: auto; margin-right: auto;} + + /* ]]> */ </style> +</head> + +<body> +<div style='text-align:center'>*** START OF THE PROJECT GUTENBERG EBOOK 75629 ***</div> + +<div class="transnote section"> +<p class="center larger">Transcriber’s Note</p> + +<p>Larger versions of most illustrations may be seen by right-clicking them +and selecting an option to view them separately, or by double-tapping and/or +stretching them.</p> + +<p class="covernote">New original cover art included with this eBook is granted +to the public domain.</p> + +<p><a href="#Transcribers_Notes">Additional notes</a> will be found near the end of this ebook.</p> +<div> </div> +</div> + +<div class="section p4"> +<h1>ECONOMICS FOR HELEN</h1> +<hr class="chap x-ebookmaker-drop"> +<div> </div> +</div> + +<div class="chapter center wspace"> +<p class="xxlarge vspace bold"> +ECONOMICS FOR<br> +HELEN</p> + +<p class="p4 vspace"><span class="small">BY</span><br> + +<span class="large">HILAIRE BELLOC</span></p> + +<figure id="i_1" class="figcenter" style="max-width: 6em;"> + <img src="images/i_001.png" width="395" height="555" alt=""> +</figure> + +<p>J. W. ARROWSMITH (<span class="smcap">London</span>) <span class="smcap">Ltd.</span><br> +<span class="smaller">6 Upper Bedford Place, Russell Square, London</span> +</p> +<hr class="chap x-ebookmaker-drop"> +<div> </div> +</div> + +<div class="section p4"> +<div class="blockquot hang narrow"> + +<p><span class="smcap">The First Edition</span> <i>of this book was printed +on Hand-made Paper (Medium 8vo) and +consisted of 265 numbered copies, of which +250 were for sale. It was published in +March, 1924.</i></p> + +<p><i>This</i>, <span class="smcap">The Second Edition</span> <i>(Crown 8vo), +was also published in March, 1924</i>.</p> +</div> + +<p class="p4 center vspace smaller"> +Printed in Great Britain by<br> +<span class="smcap">J. W. Arrowsmith Ltd.</span>, 11 Quay Street, Bristol +</p> +<hr class="chap x-ebookmaker-drop"> +<div> </div> +</div> + +<div class="chapter"> +<p><span class="pagenum" id="Page_5">5</span></p> + +<h2 class="nobreak" id="Contents">Contents</h2> +</div> + +<table id="toc"> +<tr> + <td class="tdc chapsub" colspan="3">PART I</td> +</tr> +<tr> + <td class="tdc chap" colspan="3">THE ELEMENTS</td> +</tr> +<tr class="xsmall"> + <td class="tdr"></td> + <td class="tdl"></td> + <td class="tdr">PAGE</td> +</tr> +<tr> + <td class="tdr top">I</td> + <td class="tdl"><span class="smcap">What is Wealth?</span></td> + <td class="tdr"><a href="#toclink_10">10</a></td> +</tr> +<tr> + <td class="tdr top">II</td> + <td class="tdl"><span class="smcap">The Three Things necessary to the Production of Wealth—Land, Labour and Capital</span></td> + <td class="tdr"><a href="#toclink_15">15</a></td> +</tr> +<tr> + <td class="tdr top">III</td> + <td class="tdl"><span class="smcap">The Process of Production</span></td> + <td class="tdr"><a href="#toclink_27">27</a></td> +</tr> +<tr> + <td class="tdr top">IV</td> + <td class="tdl"><span class="smcap">The Three Parts into which the Wealth Produced naturally divides itself—Rent, Interest, Subsistence</span></td> + <td class="tdr"><a href="#toclink_33">33</a></td> +</tr> +<tr> + <td class="tdr top">V</td> + <td class="tdl"><span class="smcap">Exchange</span></td> + <td class="tdr"><a href="#toclink_52">52</a></td> +</tr> +<tr> + <td class="tdr top">VI</td> + <td class="tdl"><span class="smcap">Free Trade and Protection</span></td> + <td class="tdr"><a href="#toclink_61">61</a></td> +</tr> +<tr> + <td class="tdr top">VII</td> + <td class="tdl"><span class="smcap">Money</span></td> + <td class="tdr"><a href="#toclink_66">66</a><span class="pagenum" id="Page_6">6</span></td> +</tr> +<tr> + <td class="tdc chapsub" colspan="3">PART II</td> +</tr> +<tr> + <td class="tdc chap" colspan="3">POLITICAL APPLICATIONS</td> +</tr> +<tr> + <td class="tdl" colspan="2"><span class="smcap">Introduction</span></td> + <td class="tdr"><a href="#toclink_87">87</a></td> +</tr> +<tr> + <td class="tdl" colspan="2"><span class="smcap">Property—The Control of Wealth</span></td> + <td class="tdr"><a href="#toclink_95">95</a></td> +</tr> +<tr> + <td class="tdl" colspan="2"><span class="smcap">The Servile State</span></td> + <td class="tdr"><a href="#toclink_109">109</a></td> +</tr> +<tr> + <td class="tdl" colspan="2"><span class="smcap">The Capitalist State</span></td> + <td class="tdr"><a href="#toclink_115">115</a></td> +</tr> +<tr> + <td class="tdl" colspan="2"><span class="smcap">The Distributive State</span></td> + <td class="tdr"><a href="#toclink_124">124</a></td> +</tr> +<tr> + <td class="tdl" colspan="2"><span class="smcap">Socialism</span></td> + <td class="tdr"><a href="#toclink_132">132</a></td> +</tr> +<tr> + <td class="tdl" colspan="2"><span class="smcap">International Exchange</span></td> + <td class="tdr"><a href="#toclink_141">141</a></td> +</tr> +<tr> + <td class="tdl" colspan="2"><span class="smcap">Free Trade and Protection as Political Issues</span></td> + <td class="tdr"><a href="#toclink_150">150</a></td> +</tr> +<tr> + <td class="tdl" colspan="2"><span class="smcap">Banking</span></td> + <td class="tdr"><a href="#toclink_167">167</a></td> +</tr> +<tr> + <td class="tdl" colspan="2"><span class="smcap">National Loans and Taxation</span></td> + <td class="tdr"><a href="#toclink_189">189</a></td> +</tr> +<tr> + <td class="tdl" colspan="2"><span class="smcap">The Social (or Historical) Value of Money</span></td> + <td class="tdr"><a href="#toclink_201">201</a></td> +</tr> +<tr> + <td class="tdl" colspan="2"><span class="smcap">Usury</span></td> + <td class="tdr"><a href="#toclink_217">217</a></td> +</tr> +<tr> + <td class="tdl" colspan="2"><span class="smcap">Economic Imaginaries</span></td> + <td class="tdr"><a href="#toclink_230">230</a></td> +</tr> +<tr class="tpad"> + <td class="tdl" colspan="2"><span class="smcap">Index</span></td> + <td class="tdr"><a href="#toclink_243">243</a></td> +</tr> +</table> + +<hr class="chap x-ebookmaker-drop"> + +<div class="chapter"> +<p><span class="pagenum" id="Page_7">7</span></p> + +<h2 class="nobreak" id="Part_I">Part I<br> + +<span class="subhead larger">THE ELEMENTS</span></h2> +<hr class="chap x-ebookmaker-drop"> +<div> </div> +</div> + + +<div class="chapter"> +<p><span class="pagenum" id="Page_9">9</span></p> + +<h2 class="nobreak" id="THE_ELEMENTS"><span id="toclink_9"></span>THE ELEMENTS</h2> +</div> + +<p class="in0"><span class="firstword">Economics</span> is the name which people have come +to give to the study of Wealth. It is the study by +which we learn how Wealth is produced, how it +is consumed, how it is distributed among people, +and so on. It is a very important kind of study, +because it often depends upon our being right +or wrong in Economics whether we make the +whole State poorer or richer, and whether we make +the people living in the State happier or not.</p> + +<p>Now as Economics is the study of Wealth, the +first thing we have to make certain of is, <em>What +Wealth is</em>.</p> +<hr class="chap x-ebookmaker-drop"> + +<div class="chapter"> +<p><span class="pagenum" id="Page_10">10</span></p> + +<h2 class="nobreak" id="I"><span id="toclink_10"></span>I<br> + +<span class="subhead">WHAT IS WEALTH?</span></h2> +</div> + +<p class="in0"><span class="firstword">The</span> Economic definition of Wealth is subtle and +difficult to appreciate, but it is absolutely essential +to our study to get it clear at the outset and keep +it firmly in mind. It is through some muddlement +in this original definition of wealth that nearly all +mistakes in Economics are made.</p> + +<p>First, we must be clear as to what Wealth is <em>not</em>.</p> + +<p>Wealth is never properly defined, for the purposes +of economic study, by any one of the answers a +person would naturally give off-hand. For instance, +most people would say that a man’s wealth was +the money he was worth. But that, of course, is +nonsense; for even if there were no money used +his possessions would still be there, and if he had a +house and cattle and horses the mere fact that money +was not being used where he lived would not make +him any worse off.</p> + +<p>Another and better, but still a wrong, answer is: +“Wealth is what a man possesses.”</p> + +<p>For instance, in the case of this farmer, his house +and his stock and his furniture and implements +are what we call his “wealth.” In ordinary talk<span class="pagenum" id="Page_11">11</span> +that answer will do well enough. But it will not +do for the strict science of Economics, for it is not +accurate.</p> + +<p>For consider a particular case. Part of this man’s +wealth is, you say, a certain grey horse. But if +you look closely at your definition and make it +rigidly accurate, you will find that <em>it is not the +horse itself which constitutes his wealth, but something +attaching to the horse</em>, some quality or circumstance +which affects the horse and gives the horse what is +called its <em>value</em>. It is this <em>Value</em> which is wealth, +not the horse. To see how true this is consider +how the value changes while the horse remains the +same.</p> + +<p>On such and such a date any neighbour would +have given the owner of the horse from 20 to 25 +sacks of wheat for it, or, say, 10 sheep, or 50 loads of +cut wood. But suppose there comes a great +mortality among horses, so that very few are left. +There is an eager desire to get hold of those that +survive in order that the work may be done on +the farms. Then the neighbours will be willing +to give the owner of the horse much more than 20 +or 25 sacks of wheat for it. They may offer as much +as 50 sacks, or 20 sheep, or 100 loads of wood. Yet +the horse is exactly the same horse it was before. +The wealth of the master has increased. His horse, +as we say, is “worth more.” <em>It is this</em> <span class="smcap">Worth</span>, +<em>that is, this ability to get other wealth in exchange, +which constitutes true Economic Wealth</em>.</p> + +<p><span class="pagenum" id="Page_12">12</span></p> + +<p>I have told you that the idea is very difficult to +seize, and that you will find the hardest part of the +study here, at the beginning. There is no way of +making it plainer. One has no choice but to master +the idea and make oneself familiar with it, difficult +as it is. <em>Wealth does not reside in the objects we possess, +but in the economic values attaching to those objects.</em></p> + +<p>We talk of a man’s wealth or a nation’s wealth, +or the wealth of the whole world, and we think at +once, of course, of a lot of material things: houses +and ships, and pictures and furniture, and food and +all the rest of it. But the economic wealth which +it is our business to study is not identical with +those <em>things</em>. Wealth is the sum total of the <em>values</em> +attaching to those things.</p> + +<p>That is the first and most important point.</p> + +<p>Here is the second: Wealth, for the purposes of +economic study, <em>is confined to those values attaching +to material objects through the action of man, which +values can be exchanged for other values</em>.</p> + +<p>I will explain what that sentence means.</p> + +<p>Here is a mountain country where there are +few people and plenty of water everywhere. That +water does not form part of the Economic <em>wealth</em> +of anyone living there. Everyone is the better +off for the water, but no one has <em>wealth</em> in it. The +water they have is absolutely necessary to life, +but no man will give anything for it because any +man can get it for himself. It has no <em>value in +exchange</em>. But in a town to which water has to be<span class="pagenum" id="Page_13">13</span> +brought at great expense of effort, and where the +amount is limited, it acquires a value in exchange, +that is, people cannot get it without offering something +for it. That is why we say that in a modern +town water forms part of <em>Economic Wealth</em>, while +in the country it usually does not.</p> + +<p>We must carefully note that wealth thus defined +is NOT the same thing as well-being. The mixing +up of these two separate things—well-being and +economic wealth—has given rise to half the errors +in economic science. People confuse the word +“wealth” with the idea of well-being. They say: +“Surely a man is better off with plenty of water +than with little, and therefore conditions under +which he can get plenty of water for nothing are +conditions under which he has <em>more wealth</em> than +when he has to pay for it. He has more <em>wealth</em> +when he gets the water free than he has when he +has to pay for it.”</p> + +<p>It is not so. Economic wealth is a separate thing +from well-being. Economic wealth may well be +increasing though the general well-being of the people +is going down. It may increase though the general +well-being of the people around it is stationary.</p> + +<p>The Science of Economics does not deal with true +happiness nor even with well-being in material things. +It deals with a strictly limited field of what is called +“Economic Wealth,” and if it goes outside its own +boundaries it goes wrong. Making people as happy +as possible is much more than Economics can<span class="pagenum" id="Page_14">14</span> +pretend to. Economics cannot even tell you how +to make people well-to-do in material things. +But it can tell you how exchangeable Wealth is +produced and what happens to it; and as it can tell +you this, it is a useful servant.</p> + +<p>That is the second difficult point at the very +beginning of our study. <em>Economic Wealth consists +in</em> <span class="allsmcap">EXCHANGEABLE</span> <em>values, and nothing else</em>.</p> + +<p>We must be as clear on this second point as we +have made ourselves upon the first, or we shall +not make any progress in Economics. They are +both of them unfamiliar ideas, and one has to go +over them many times before one really grasps +them. But they are absolutely essential to this +science.</p> + +<p>Let us sum up this first, elementary, part of our +subject, and put it in the shortest terms we can +find—what are called “Formulæ,” which means +short and exact definitions, such as can be learnt +by heart and retained permanently.</p> + +<p>We write down, then, two Formulæ:</p> + +<div class="blockquot"> + +<p>1. <strong>Wealth is made up, not of things, but of +economic values attaching to things.</strong></p> + +<p class="p2">2. <strong>Wealth, for the purposes of economic study, +means ONLY exchange values: that is, values +against which other values will be given in exchange.</strong></p> +</div> +<hr class="chap x-ebookmaker-drop"> + +<div class="chapter"> +<p><span class="pagenum" id="Page_15">15</span></p> + +<h2 class="nobreak" id="II"><span id="toclink_15"></span>II<br> + +<span class="subhead">THE THREE THINGS NECESSARY TO THE +PRODUCTION OF WEALTH—LAND, +LABOUR AND CAPITAL</span></h2> +</div> + +<p class="in0"><span class="firstword">You</span> will notice that all about you living beings +are occupied in changing the things around them +from a condition where they are <em>less</em> to a condition +where they are <em>more</em> useful to themselves.</p> + +<p>Man is a living being, and he is doing this kind of +thing all the time. If he were not he could not +live.</p> + +<p>He draws air into his lungs, taking it from a +condition where it does him no good to a condition +where it keeps him alive. He sows seed; he brings +food from a distance; he cooks it for his eating. +To give himself shelter from the weather he moulds +bricks out of clay and puts them together into houses. +To get himself warmth he cuts down wood and +brings it to his hearth, or he sinks a shaft and gets +coal out of the earth, and so on.</p> + +<p>Man is perpetually changing the things around +him from a condition in which they are <em>less</em> useful +to him into a condition where they are <em>more</em> useful +to him.</p> + +<p><span class="pagenum" id="Page_16">16</span></p> + +<p><em>Whenever a man does that he is said to be creating, +and adding to, Human Wealth</em>: part of which is +Economic Wealth, that is Wealth suitable for study +under the science of Economics.</p> + +<p>Wealth, therefore, that thing the nature and +growth of which we are about to study, is, so far +as man is concerned, the result of this process of +changing things to man’s use, and it is through +looking closely at the nature of this process that +we get to understand what is necessary to it, and +what impedes it, and how its results are distributed +among mankind.</p> + +<p>We must next go on to think out <em>how</em> wealth +is so produced. We have already seen what the +general statement on this is: Wealth is produced +by man’s consciously transforming things around +him to his own uses; and though not everything +so transformed has true <em>Economic Wealth</em> attaching +to it (for instance, breathing in air does not produce +Economic Wealth), yet all Economic Wealth is +produced as <em>part</em> of this general process.</p> + +<p>Now when we come to examine the Production +of Wealth, we shall find that <em>three</em> great separate +forces come into it; and these we shall find to +be called conveniently “Land,” “Labour” and +“Capital.”</p> + +<p>Let us take a particular case of the production +of Economic Wealth and see how it goes forward. +Let us take the case of the production of, say, 100 +sacks of wheat.</p> + +<p><span class="pagenum" id="Page_17">17</span></p> + +<h3>1. <span class="smcap">Land.</span></h3> + +<p>A man finds himself possessed of so much land, +and when he sets out to produce the 100 sacks of +wheat, the following are the conditions before him.</p> + +<p>There are natural forces of which he takes +advantage and without which he could not grow +wheat. The soil he has to do with has a certain +fertility, there is enough rainfall to make the seeds +sprout, and so on.</p> + +<p>All these natural forces are obviously necessary +to him. Though we talk of man “creating” wealth +he does not really create anything. What he does +is to use and combine certain natural forces of +which he is aware. He has found out that wheat +will sprout if it is put into the ground at a particular +season, and that he will get his best result by +preparing the ground in a particular manner, etc. +These natural forces are the foundation of the whole +affair.</p> + +<p>For the sake of shortness we call all this bundle +of natural forces (which are the very first essential +to the making of wealth) “LAND.” This word +“Land” is only a conventional term in Economics, +meant to include a vast number of things beside +the soil: things which are not Land at all; for +instance, water power and wind power, the fertility +of seed, the force of electricity, and thousands of +other natural energies. But we must have some +short convenient term for this set of things, and<span class="pagenum" id="Page_18">18</span> +the term “Land” having become the conventional +term in Economic Science for all natural forces, it +is now the useful and short word always used for +them as a whole: the reason being, I suppose, +that land, or soil, is the first natural requisite for +food—the most important of man’s requirements, +and the <em>place</em> from which he uses all other natural +forces.</p> + +<p>We say, then, that for the production of wealth +the first thing you need is the natural forces of the +world, or “Land.”</p> + +<h3>2. <span class="smcap">Labour.</span></h3> + +<p>But we next note that this possession of natural +forces, our knowledge of how they will work, and our +power of combining them, <em>is not enough to produce +wealth</em>.</p> + +<p>If the farmer were to stand still, satisfied with +his knowledge of the fertility of the soil, the quality +of seed, and all the rest of it, he would have no +harvest. He must, as we have said, prepare the +land and sow the seed: only so will he get a harvest +at the end of his work. These operations of human +energy which end in his getting his harvest are +called “LABOUR”: that is, <em>the application of +human energy to natural forces</em>. There are no +conditions whatsoever under which wealth can be +produced without natural forces or “land;” but +there are also no conditions whatsoever under which<span class="pagenum" id="Page_19">19</span> +it can be produced without “labour,” that is, the +use of human energy. Even if a man were in such +a position that he could get his food by picking it +off the trees, there would still be the effort required +of picking it. We say, therefore, <em>that all wealth +comes from the combination of LAND and LABOUR: +That is</em>, of <em>natural forces</em> and <em>human energy</em>.</p> + +<h3>3. <span class="smcap">Capital.</span></h3> + +<p>At first sight it looks as though these two elements, +Land and Labour, were all that was needed; and +a very great deal of trouble has been caused in the +world by people jumping to this conclusion without +further examination.</p> + +<p>But if we look closely into the matter we shall +see that Land and Labour alone are <em>not</em> sufficient +to the production of wealth in any appreciable +amount. The moment man begins to produce +wealth in any special fashion and to any appreciable +extent, a third element comes in which is as +rigorously necessary as the two others; and that +third element is called CAPITAL.</p> + +<p>Let us see what this word “CAPITAL” means.</p> + +<p>Here is your farmer with all the requisite knowledge +and the natural forces at his disposal. He +has enough good land provided him to produce a +harvest of 100 sacks of wheat if he is able and +willing to apply his manual labour and intelligence +to this land. But he must be kept alive during the<span class="pagenum" id="Page_20">20</span> +many months required for the growth of the wheat. +It is no use his beginning operations, therefore, unless +he has a stock of food; for if he had not such a +stock he would die before the harvest was gathered. +Again, he must have seed. He must have enough +seed to produce at the end of those months one +hundred sacks of wheat. So we see that at the +very least, for this particular case of production, +the natural forces about him and his own energies +would not be of the least use to the production of +the harvest unless there were this third thing, a +stock of wheat both for sowing and for eating.</p> + +<p>But that is not all. He must be sheltered from +the weather; he must be clothed and he must +have a house, otherwise he would die before the +harvest was gathered. Again, though he might +grow a very little wheat by putting in what seed he +could with his hands into a few suitable places +in the soil, he could not get anything like the harvest +he was working for unless he had special implements. +He must prepare the land with a plough; so he +must have a plough; and he must have horses to +draw the plough; and those horses must be kept +alive while they are working, until the next harvest +comes in; so he must have a stock of oats to feed +them with.</p> + +<p>All this means quite a large accumulation of wealth +before he can expect a good harvest: the wealth +attaching to clothes, houses, food, ploughs, horses +for a year.</p> + +<p><span class="pagenum" id="Page_21">21</span></p> + +<p>In general, we find that man, when he is setting +out on a particular piece of production of wealth, +is absolutely compelled to add to his energies, and +to the natural forces at his disposal, a third element +consisting of <em>certain accumulations of wealth made +in the past</em>—an accumulation of food, clothing, +implements, etc.—without which the process of +production could not be undertaken. <em>This accumulation +of</em> <span class="allsmcap">ALREADY-MADE WEALTH</span>, <em>which is thus +absolutely necessary to production</em>, we call <em>CAPITAL</em>.</p> + +<p>It includes <em>all kinds of wealth whatsoever which +man uses</em> <span class="allsmcap">WITH THE OBJECT OF PRODUCING FURTHER +WEALTH</span>, <em>and without which the further wealth could +not be produced</em>. It is a reserve without which the +process of production is impossible. Later on we +shall see how very important this fact is: for every +healthy man has energy, and natural forces are +open to all, but <em>capital</em> can sometimes be controlled +by very few men. If they will not allow their +capital to be used, wealth cannot be produced by +the rest; therefore those who, by their labour, +produce wealth may be driven to very hard conditions +by the few owners of Capital, whose leave is +necessary for any wealth to be produced at all.</p> + +<p>But all this we must leave to a later part of our +study. For the moment what we have to get clearly +into our heads are these three things: (1) <em>Natural +Forces</em>, (2) <em>Human Energy</em>, and (3) <em>Accumulated +stores and implements</em>, which are called, generally, +for the sake of shortness: <em>LAND</em>, <em>LABOUR</em> and<span class="pagenum" id="Page_22">22</span> +<em>CAPITAL</em>. In the absence of any one of these +three, production of Wealth is impossible. All +three must be present; and it is only the combination +of all three which makes the process of producing +economic values possible.</p> + +<h3>POINTS ABOUT CAPITAL.</h3> + +<p>There are <em>three</em> important things to remember +about Capital.</p> + +<p>1. The first is that what makes a particular +piece of wealth into capital is not the kind of object +to which the economic value attaches, but the +<em>intention</em> of using it as capital on the part of the +person who controls that object; that is, the +intention to use it for the <em>production of future wealth</em>. +Almost any object can be used as capital, but no +object is capital, however suitable it be for that +purpose, <em>unless there is the intention present of using +it as capital</em>. For instance: One might think that +a factory power engine was always Capital. The +economic values attaching to it, which make an +engine worth what it is are nearly always used for +the production of future wealth, and so we come to +think of the engine as being necessarily capital simply +because it is an engine, and the same is true of +factory buildings and all other machinery and all +tools, such as hammers and saws and so on.</p> + +<p>But these things are not capital <em>in themselves</em>; +for if we do not use them for the production of<span class="pagenum" id="Page_23">23</span> +future wealth they cease to be capital. For instance, +if you were to put the engine into a museum, or to +keep a hammer in remembrance of someone and +not use it, then it would not be capital.</p> + +<p>And this truth works the other way about. At +first sight you would say, for instance, that a diamond +ring could not be capital: it is only a luxurious +ornament. But if you use it to cut glass for mending +a window it is capital for that purpose.</p> + +<p>2. The second important thing to remember +about Capital is that, being Wealth, <em>it is at last +consumed, as all other Wealth is</em>. Capital is consumed +in the process of using it to make more Wealth, and +as it is consumed it has to be replaced, or the process +of production will break down. Take the case of +the farmer we gave just now. He had to start, as +we saw, with so much Capital—horses and a plough +and a stock of wheat and a stock of oats, etc.; +and only by the use of this capital could he procure +his harvest of 100 sacks of wheat at the end of +the year; but if he is going on producing wheat year +after year he must replace the wastage in his +capital year after year. His stock of wheat for +food and for seed will have disappeared in the year; +so will his stock of hay and oats for keeping his +horses. His plough will be somewhat worn and +will need mending; and his horses, after a certain +time, will grow old and will have to be replaced. +Therefore, if production is to be continuous, that +is, if there are to be harvests year after year, each<span class="pagenum" id="Page_24">24</span> +harvest must be at least enough to replace all the +wastage of capital which goes on during the process +of production.</p> + +<p>3. The third thing to remember about Capital +is that Capital is <em>always the result of saving</em>: That +is, the only way in which people can get Capital is +by doing without some immediate enjoyment of +goods, and putting them by to use them up in creating +wealth for the future. This ought to be self-evident; +but people often forget it, because the person who +<em>controls</em> the capital is very often quite a different +person from the person who <em>really accumulated</em> it. +The owner of the capital is very often a person who +never thinks of saving. Nevertheless, the saving +has been done by <em>someone</em> in the past, and saving +must go on the whole time, for if it did not the +Capital could not come into existence, and could not +be maintained once it was in existence.</p> + +<p>Suppose, for instance, a man inherits £10,000 +worth of Capital invested in a Steamship Company.</p> + +<p>This means that he has a share in a number +of hulls, engines, stocks of coal and food, and +clothing for the crews, and other things which have +to be provided before the steamships can go to sea +and create wealth by so doing.</p> + +<p>All this capital has been saved by someone. +Not by the man himself; he has merely inherited +the wealth—but by someone.</p> + +<p>Someone at some time, his father or whoever +first got the capital together, must have forgone<span class="pagenum" id="Page_25">25</span> +immediate enjoyment and put by wealth for future +production, or the capital could not have come into +existence. Thus, if the first accumulator of the +capital had used his wealth for the purchase of a +yacht in which to travel for his amusement, the +labour and natural forces used in the production of +that yacht would have made wealth consumed in +immediate enjoyment, and it would not have been +used for future production as is a cargo ship.</p> + +<p>In the same way this capital, once it has come +into existence in the shape of cargo ships and stocks +of coal and the rest, would soon disappear if it +were not perpetually replenished by further saving. +The man who owns the shares in the Steamship +Company does not consciously save year after year +enough money to keep the capital at its original +level.</p> + +<p>Nevertheless, the saving is done for him. The +Directors of the Company keep back out of the +total receipts enough to repair the ships and to +replenish the stocks of coal, etc., and they are thus +perpetually accumulating fresh capital to replace +the consumption of the old. How true it is that all +Capital is the result of saving by <em>someone</em>, <em>somewhere</em>, +we see in the difference between countries that do a +lot of saving and countries that do little. Savages +and people of a low civilisation differ in this very +much from people of a high civilisation. They want +to enjoy what they have the moment they have it, +and they lay by as little as possible for the future;<span class="pagenum" id="Page_26">26</span> +only just as much as will keep them going. But in +a high civilisation people save capital more and +more, and so are able to produce more and more +wealth.</p> + +<p>Now let us sum up in some more Formulæ +what we have learnt so <span class="locked">far.—</span></p> + +<div class="blockquot"> + +<p>1. <strong>All production of Wealth needs three things: +(<i>a</i>) Natural forces, (<i>b</i>) Human energy, and (<i>c</i>) an +Accumulation of wealth made in the past and used +up in future production.</strong></p> + +<p class="p2">2. <strong>These three are called, for shortness: (<i>a</i>) Land, +(<i>b</i>) Labour, (<i>c</i>) Capital.</strong></p> + +<p class="p2">3. <strong>The last, Capital, (<i>a</i>) depends for its character +on the intention of the user, (<i>b</i>) is consumed in +production, (<i>c</i>) is always the result of saving.</strong></p> +</div> +<hr class="chap x-ebookmaker-drop"> + +<div class="chapter"> +<p><span class="pagenum" id="Page_27">27</span></p> + +<h2 class="nobreak" id="III"><span id="toclink_27"></span>III<br> + +<span class="subhead">THE PROCESS OF PRODUCTION</span></h2> +</div> + +<p class="in0"><span class="firstword">You</span> have seen how the production of wealth takes +place through the combination of these three things, +LAND, LABOUR AND CAPITAL, and you have +also seen how the wealth so produced consists not +in the objects themselves, but in the economic +values attached to the objects.</p> + +<p>Now we will take a particular instance of +wealth and show how this works out in practice +and what various forms the production of wealth +takes.</p> + +<p>Wealth, as we have seen, arises from the transposing +of things around us from a condition where +they are less to a condition where they are more +useful to our needs.</p> + +<p>Let us take a ton of coal lying a thousand feet +down under the earth and no way provided of +getting at it. A man possessing that ton of coal +would not possess any wealth. The coal lying +in the earth has no economic value attaching +to it whatsoever. It has not yet entered the<span class="pagenum" id="Page_28">28</span> +process whereby it ultimately satisfies a human +need.</p> + +<p>A shaft is sunk to get at that coal, and once the +coal is reached a first economic value begins to +attach to it. Next, further labour, capital and +natural forces are applied to the task of hewing +the coal out and raising it to the surface. This +means that yet more economic values are attached +to the ton of coal. These we express by saying +that the ton of coal at the bottom of the mine, just +hewed out, is worth so much—say 15/-; and +later at the pit head is worth so much more—say +£1. But the process of production of wealth is +not yet completed. The coal is needed to warm +you in your house, and your house is a long way +from the pit head. It must be taken from the pit +head to your house, and for this transport further +labour, natural forces and capital must be used, +and these add yet another economic value to the +coal.</p> + +<p>We express this by saying that the ton of coal +<em>delivered</em> (that is, at your house) is worth not £1, +which it was at the pit head, but £1 10s.; and in +this example we see that transport is as much a +part of the production of wealth as other work. +We also see a further example of the truth originally +stated that wealth does not consist in the object +itself but in the values attached to it. The ton of +coal is there in your cellar exactly the same (except +that it is broken up) as it was when it lay a thousand<span class="pagenum" id="Page_29">29</span> +feet under the earth with no way of getting to it. +In your cellar it represents wealth. In possessing +it you are possessing wealth to the amount of 30s. +You could exchange it against 30s. worth of some +other thing, such as wheat. But the wealth you +thus possess is not the actual coal, but the values +attaching to the coal. These economic values are +being piled up from the very beginning of the +process of production until the process of consumption +begins.</p> + +<p>Here is another case which shows how the process +of production will add values to a thing without +necessarily changing the thing itself.</p> + +<p>Suppose an island where there is a lot of salt in +mines near the surface, but with very poor pasture +and very little of it; most of the soil barren and the +climate bad. On the main-land, a day’s journey +from the island, there is good soil and pasture and +a good climate, but there is no salt. Salt is a +prime necessity of life, and it comes into a lot of +things besides necessaries. To the people of the +main land, therefore, salt, which they lack, is of +high value. To the people of the island it is of +low value, for they can get as much of it as they +want, with very little trouble. Meanwhile, meat +is of very high value to the people of the island, who +can grow little of it on their own soil, while it is +of much less value to the people of the main-land, +who have plenty of it through their good pastures +and climate. Here we have, let us say, 100 tons of<span class="pagenum" id="Page_30">30</span> +salt in the island and 100 tons of meat on the main-land. +A boat takes the 100 tons of salt from the +island to the main-land and brings back the meat +from the main-land to the island. Here wealth has +been created on both sides, although no change +has taken place in the articles themselves except +a change in position. Both parties, the islanders +and the main-land people, are wealthier through the +transaction, and this is a case where <em>exchange</em> is +a direct creator of wealth, and the transport effecting +the exchange is a creator of wealth.</p> + +<p>Strictly speaking, everything done to increase +the usefulness of an object right up to the moment +when consumption begins is part of the production +of wealth. For instance, wealth is being produced +from the moment that wheat is sowed in the ground +to the moment when the baked loaf is ready for +eating, and the wealth expressed by the loaf, that +is, the values attaching to it, are made up by all +the processes of adding values from the first moment +the seed was sown. When you eat a sixpenny +loaf you are beginning to consume values created +by the sowing of the wheat and its culture and its +harvesting and grinding, and the working of the +flour into dough, and the baking, and created by +every piece of transport in the process, the carting +of the sheaf into the rick, the carting thrashed wheat +to the mill, the taking of the flour to the baker, +the taking of the baked loaf to your house, and +even the bringing of the loaf from the larder to your<span class="pagenum" id="Page_31">31</span> +table. Every one of these actions is part of the +production of wealth.</p> + +<p>There is attaching to the process of the production +of wealth a certain character which we appreciate +easily in some cases, but with much more difficulty +in others. We have already come across it in +discussing Capital. It is this:</p> + +<p><em>All wealth is consumed.</em></p> + +<p>This is universally true of all wealth whatsoever, +though the rate of consumption is very different in +different cases.</p> + +<p>The purpose of nature is not the purpose of man. +Man only creates wealth by a perpetual effort +against the purpose of nature, and the moment his +effort ceases nature tends to drag back man’s +creation from a condition where it is more to a +condition where it is less useful to himself.</p> + +<p>For some sorts of wealth the process is very rapid, +as, for instance, in the consumption of fuel, or in +the wasting of ice on a hot day. Man with an +expenditure of his energy and brains applied to +natural forces, and by the use of capital, has caused +ice to be present under conditions where nature +meant there to be no ice—a hot summer’s day.</p> + +<p>He has brought it from a high, cold place far away; +or he has kept it from the winter onwards stored +in an ice house which he had to make and to which +he had to transport it; or he has made it with +engine power. But the force of nature is always +ready to melt the ice when man’s effort ceases.</p> + +<p><span class="pagenum" id="Page_32">32</span></p> + +<p>The moment man’s effort ceases, deterioration, +that is, <em>the consumption of the wealth present</em>, at once +begins. And this truth applies at the other end +of the scale. You may make a building of granite, +but it will not last for ever. The consumption is +exceedingly slow, but it is there all the same. And +whether the consumption takes place in the service +of man (as when fuel is burnt on a hearth) or by +neglect (as when a derelict house decays) it is always +<em>economic consumption</em>.</p> + +<p>We may sum up in the following <span class="locked">Formulæ:—</span></p> + +<div class="blockquot"> + +<p>1. <strong>Transport and Exchange, quite as much as +actual work on the original material, form part of +the Production of Wealth.</strong></p> + +<p class="p2">2. <strong>All Wealth is ultimately consumed: that is, +matter having been transposed by man from a +condition where it is less to a condition where it is +more useful to himself, is dragged back from a +condition where it is more to a condition where it +is less useful to himself.</strong></p> +</div> +<hr class="chap x-ebookmaker-drop"> + +<div class="chapter"> +<p><span class="pagenum" id="Page_33">33</span></p> + +<h2 class="nobreak" id="IV"><span id="toclink_33"></span>IV<br> + +<span class="subhead">THE THREE PARTS INTO WHICH THE +WEALTH PRODUCED NATURALLY DIVIDES +ITSELF—RENT, INTEREST, SUBSISTENCE</span></h2> +</div> + +<p class="in0"><span class="firstword">We</span> now come to that part of Economics which +has most effect upon human society, and the understanding +of which is most essential to sound politics. +It is not a difficult point to understand. The only +difficulty is to keep in our minds a clear distinction +between what is called economic law, that is, the +necessary results of producing wealth, and the moral +law, that is the matter of right and wrong in the +distribution and use of wealth.</p> + +<p>Some people are so shocked by the fact that +economic law is different from moral law that they +try to deny economic law. Others are so annoyed +by this lack of logic that they fall into the other +error of thinking that economic law can override +moral law.</p> + +<p>You have to be warned against both these errors +before you begin to approach the subject of Rent, +Profit and Subsistence. Only when we have worked<span class="pagenum" id="Page_34">34</span> +out the principles of these three things can we come +back again to the apparent clash between economic +law and moral law, the understanding of which is +so very important in England to-day.</p> + +<p>The motive of production is to satisfy human +needs, and the simplest case of production is that +of a man working for himself and his family as a +settler in a new country. He cuts down wood and +brings it where it is wanted; he builds a hut and a +bridge with it; he stacks it ready to burn for fuel. +The wealth he thus produces by his labour goes to +him and his, and because the labour he has to expend +is what impresses him most about the process, he +calls the wealth produced at the end of it: “Wealth +produced by his labour.” He thinks of his labour +as the one agent of the whole affair, and so it is +the one immediate <em>human</em> agent; but, as we have +seen, there are two other agents as well. His mere +labour (that is, the use of his brain and his muscles) +would not have produced a pennyworth of wealth, +but for two other agents: Natural Forces (or Land) +and Capital. And we shall find when we look into +it that the wealth he thus produces and regards +as one thing is also really divided into three +divisions: one corresponding to each of the three +agents which produce wealth.</p> + +<p>Being a settler living by himself and possessing +his own land and his own implements, he controls +all he produces and does not notice the three divisions. +But three divisions there are none the less present<span class="pagenum" id="Page_35">35</span> +in all wealth produced anywhere, <strong>and these three +divisions do not correspond to the moral claim +man has to the result of his labour</strong>. They are +divisions produced by the working of economic +law, which is as blind and indifferent to right and +wrong as are the ordinary forces of nature about us.</p> + +<p>These three divisions are called <strong>RENT</strong>, <strong>INTEREST</strong> +(or <strong>Profit</strong>) and <strong>SUBSISTENCE</strong>. In order to see +how these three divisions come about we must take +them in the order of <em>Subsistence</em> first, then <em>Interest</em>, +then <em>Rent</em>.</p> + +<h3>1. <span class="smcap">Subsistence.</span></h3> + +<p>In any civilisation you will find a certain amount +of things which are regarded as necessaries. In +any civilisation it is thought that human beings +must not be allowed to sink below a certain level, +and a certain amount of clothes of a certain pattern, +a certain amount of housing room and fuel, and a +certain amount of food of a certain kind are thought +the very least upon which life can be conducted. +Even the poorest are not allowed to fall below that +standard. This does not mean that no one is +allowed to starve or die of insufficient warmth. +It means that any particular civilisation (our own, +for instance, or the Chinese) has its regulation +minimum and lets men die rather than fall below +it. This “certain amount,” below which even the +poorest people’s livelihood is not allowed to fall, +is called <strong>THE STANDARD OF SUBSISTENCE</strong>.</p> + +<p><span class="pagenum" id="Page_36">36</span></p> + +<p>Most people when they first think of these things +imagine that there is some very small amount of +necessaries which, all over the world, and at all +times, would be thought absolutely essential to +man. But it is not so. The standard set is always +higher than the mere necessity of keeping alive +would demand.</p> + +<p>For instance, we in this country put into our +standard of necessity clothes of a rather complicated +pattern. We should not tolerate the poorest people +going about in blankets. They must have boots +on their feet, which take a lot of labour and material. +We should not tolerate the poorest people going +about barefooted, as they do in many other +countries, nor even with sandals. It is not our +custom. They may die of wet feet through bad +leather boots and bad, thin clothing of our +complicated pattern, but they must not wear +wooden shoes or walk barefoot or go about in +blankets.</p> + +<p>Again, we do not live on anything at random, +but upon cooked meat and a certain special kind of +grain called wheat. There are some grains much +cheaper than wheat; but our custom demands +wheat even for the poorest, if there is not enough +wheat there is a famine, and famine is preferred by +society to the giving up of the wheat standard. +Again, we insist upon even the poorest having a +certain amount of protection against the weather +in the way of houses, which must be up to a certain<span class="pagenum" id="Page_37">37</span> +standard. We do not tolerate their living in holes +in the ground or mud huts.</p> + +<p>One way and another we have set up a certain +<em>standard of subsistence</em> even for the poorest; <em>and +every community in history has, at all times, lived +under this idea of a</em> <span class="allsmcap">MINIMUM STANDARD OF SUBSISTENCE</span>. +This is so true that people will suffer +great inconvenience, even to famine, as I have said, +rather than give up the standard of subsistence. +When people are too poor to afford this least amount +of what we think necessaries effort is made to supply +them by doles or a poor rate, or something of that +kind; but the standard is not abandoned.</p> + +<p>Well, this <em>Minimum Standard of Subsistence</em> is +the first division in the Wealth produced. The +prosperous man, tilling his own land and possessed +of his own capital, consumes, of course, much more +than the bare standard of subsistence would allow. +He eats more food and better food, and has more +and better clothes and house room and fuel and +the rest than the mere standard of subsistence of +his civilisation demands. Nevertheless, even in +his case the standard of subsistence is there. It +is a minimum below which, if things went wrong, +he would not fall. Ask him to fall below it and +he would simply fail to do so. He would try to +produce that minimum amount of wealth in some +other way, or if he could not do that he would +die.</p> + +<p>This “Standard of Subsistence,” which is to<span class="pagenum" id="Page_38">38</span> +be found in its various shapes in every civilisation, +may be called “<em>The Worth While of Labour</em>.” +Human energy would not be forthcoming, the work +would not get done, unless at the very least the +person doing the work got this Standard of +Subsistence. In England to-day it is <strong>set</strong> for a +man and his family at something like 35s. to 40s. +a week. One way and another, counting for +allowance in rent and overtime and so on, even the +poorest labourer gets that, and if he did not get it +labour would stop. Our civilisation would run +to famine and plague rather than go below this +minimum.</p> + +<p>Another way of putting it is this: Under the +standard of subsistence in our civilisation in England +a man must, on the average, produce something +like £2 worth of economic values a week, otherwise +it is not worth while living, not worth while going +on.</p> + +<p>I say “on the average.” A great many people, +of course, produce nothing. But there must be +an average production of that amount to keep +society going at all, merely in labour, that is, in +human energy and brains. As a fact, of course, +the average production is much higher. But it +could not fall to <em>less</em> than this without the production +of wealth gradually coming to an end.</p> + +<p>It is very important to recognise this principle +in Economics, for it is nearly always misunderstood, +and it makes a great difference in our judgment<span class="pagenum" id="Page_39">39</span> +of social problems. You often hear people speaking +as though the subsistence of their fellows might +fall to any level so long as they had so much weight +of food and amount of warmth as would keep them +alive. But it is not so. Every society has its own +standard, and will rather have men emigrate or die +than fall below it: and that standard is the basis +of all production. <em>It must be satisfied or production +ceases.</em></p> + +<h3>2. <span class="smcap">Interest.</span></h3> + +<p>Now, if this “Worth While of Labour” was all +that had to be considered, things would be a great +deal simpler than they are. Unfortunately, there +is another “worth while” from which one cannot +get away, and which makes the second division in +the produce of wealth. This is the “Worth While +of Capital”: called “Profit” or “Interest.”</p> + +<p>We must be careful not to mix up “Interest on +Money,” that is, the word “interest” in its ordinary +conversational use, with true economic interest. +Interest on money does not really exist. It is +either interest on <em>Real Capital</em> (machines, stores, +etc.) for which the money is only a symbol, or else +it is usury, that is, the claiming of a profit which +is not really there; and what usury is exactly we +shall see later on. The thing to remember here is +that there is no such thing in Economic Science +as Interest on Money.</p> + +<p><span class="pagenum" id="Page_40">40</span></p> + +<p>We have seen that Capital cannot come into +existence unless somebody saves. We have also +seen that since it is always being consumed and +must be replaced, the saving has got to go on all +the time, if the production of wealth (to which capital +is necessary) is to continue.</p> + +<p>Now, as you will see in a minute, capital cannot +be accumulated without some motive. You only +accumulate capital by doing without a pleasure +which you might have at a certain moment, and +putting it off to a future time. You go without +the immediate enjoyment of your wealth in order +to use it for producing further wealth. That means +restraint and sacrifice.</p> + +<p>But restraint and sacrifice require some motive. +Why should a man, or a society, do without a +present enjoyment if the sacrifice is not to be +productive of future good?</p> + +<p>What happens is this: A man says: “On my +present capital I can produce so much wealth. If +I accumulate more capital I shall, in the long +run, have a larger income. I will therefore forgo +my present pleasure. I will add to my capital +and have more income in the future through my +present self-restraint.” Or again: “If I don’t +<em>keep up</em> my capital by continual saving to replace +what is consumed in production I shall gradually +get <em>less</em> income.”</p> + +<p>But here comes in a very important law of +Economics called “<em>The Law of Diminishing Returns</em>.”<span class="pagenum" id="Page_41">41</span> +After a certain point, capital as it accumulates, +does not produce a <em>corresponding</em> amount of extra +wealth. It produces <em>some</em> more, but not as much +in proportion. For instance, if you till a field +thoroughly with the use of so many ploughs and +horses and so on, you will get such and such a +return. If you add a great deal more capital in +the shape of food for more labourers and more +tillage till you treat the land as a sort of garden, +you produce more wealth from that field; but though +you may have doubled your capital you will not have +doubled your income. You will only have added +to it, say, half as much again. If you were to double +your capital again, making four times your original +amount, using a lot more food for labourers and +a lot more implements, you would again have a +larger produce, probably, but perhaps only double +your original amount: <em>Four</em> times the original +amount of capital, and only <em>twice</em>, say, the old +income.</p> + +<p>So the process goes on; and in all forms of the +production of wealth this formula applies, and is +true: “<em>The returns of increasing capital, so long +as the method of production is not changed, get greater +in amount, but less in proportion to the total capital +employed.</em>”</p> + +<p>Men developing a certain section of natural +forces get 10 per cent. on a small capital, perhaps +5 per cent. on a larger one; on a still larger one only +2½ per cent., and so on, if they apply that capital<span class="pagenum" id="Page_42">42</span> +to the <em>same section</em> of natural forces and in the <em>same +manner</em>.</p> + +<p>Well, this advantage which a man gets by adding +to his capital at the expense of present enjoyment +can be measured.</p> + +<p>For instance, a man owning a farm and tilling it +himself gets a harvest of 1,000 sacks of wheat. In +order to get this result he must have capital at the +beginning of every year—ploughs and horses, and +sacks of grain and what not—worth altogether +10,000 sacks of wheat. His income, in wheat, is +one-tenth of his capital. Every ten sacks of capital +produces him an income of one sack a year. He +says to himself: “If I were to plough the land +more thoroughly and put on a lot more phosphates +and slag and get new, improved machinery I +might get another fifty sacks a year out of the land, +but this new capital will have to be saved.”</p> + +<p>He carefully saves on every harvest, exchanging +the wheat for the things he needs in the way of +new capital, until, after a few years, the implements +and the phosphates and slag and the rest on his land, +and all his other capital is worth much more than +it used to be.</p> + +<p>Instead of being worth only <em>one</em> thousand sacks, +his capital is now worth <em>two</em> thousand sacks, and he +gets the reward for his putting by and doing without +immediate enjoyment in the shape of a larger +harvest. But though he has doubled his capital +he has not doubled his income. Instead of the<span class="pagenum" id="Page_43">43</span> +old income of 100 sacks of wheat he is now getting +150 sacks of wheat. Thus though his income is +larger, the <em>proportion</em> of that income to the total +capital is less. For 1,000 sacks of capital he got +100 sacks of wheat at harvest; but now for 2,000 +sacks of capital he only gets 150 sacks at the harvest. +Or (as we put it in modern language), his income +is no longer 10 per cent. on his capital, but 7½ per +cent. only. He has a larger income, but it is +smaller in proportion to the capital invested.</p> + +<p>Now, although the 2,000 of capital invested is +thus bringing him in a smaller <em>proportion</em> of income +than the old 1,000 did, he thinks it worth while: +because he is at any rate getting more <em>income</em>; +150 sacks instead of only 100. But there must +come a time when he will no longer think it worth +while to go on saving. Supposing he finds, for +instance, that after taking all the trouble to +accumulate and apply to his land capital to the +value of 10,000 sacks of wheat, he gets only 200 +sacks, that is 2 per cent. annual reward for all +this saving, he will not think it good enough, +and he will stop saving. The point where he stops, +the return below which he does not think it worth +while to save, marks the <em>minimum profits of capital</em>. +A man is delighted, of course, to have <em>more</em> profit +than this if he can. But the point is, he will not +take <em>less</em>. Rather than make less than a certain +proportion of income to his capital he will stop +saving, and spend all he has in immediate enjoyment.</p> + +<p><span class="pagenum" id="Page_44">44</span></p> + +<p>It is this obvious truth which makes the second +great division in the produce of wealth. You must, +as we have seen, produce enough to keep labour +going. That is, you must produce enough to satisfy +the standard of subsistence in your society; <em>but +you must also produce enough more to keep capital +accumulating</em>. You must produce, over and above +subsistence, whatever happens to be the amount +of <em>profits</em> for which capital will accumulate in any +particular society (with us, to-day, it is about +5 per cent.).</p> + +<p>It is very important to observe that this second +division, Profit, or Interest, must always be present, +no matter how the capital is owned and controlled, +no matter who gets the profit.</p> + +<p>Some people have thought that if you were to +take capital away from the rich men who now own +most of it and to give it to the politicians to manage +for everybody, this division, Profit, would disappear. +But it is not so. The people who were managing +the capital for the benefit of everybody would have +to tell the electors that they could not have all the +wealth produced to consume as they chose: a certain +amount would have to be kept back, and people +would only consent to have a certain amount kept +back on condition that they got an advantage in +the future as a reward of their immediate sacrifice. +Even if you had a Despot at the head of the State +who cared nothing for people’s opinions, this division +of profit would still be there; for it would be mere<span class="pagenum" id="Page_45">45</span> +waste to accumulate capital at a heavy sacrifice +to himself and his subjects, unless it produced a +future reward.</p> + +<p>If the Despot said, “This year you must do without +<em>half</em> your usual amount of leisure and without <em>half</em> +your usual amounts, pay <em>double</em> for your cinemas +and for your beer, and all that in order to earn +one hundredth more leisure and amusements next +year,” it would be found intolerable.</p> + +<p>So it comes to this: There are always present +in the process of production two agents, Capital and +Labour, and each of these must have in one form +or another its “Worth While,” otherwise it won’t +go on. You must satisfy the “Worth While of +Labour” and you must satisfy the “Worth While +of Capital.” If you do not, labour stops working +and capital stops accumulating, and the whole +business of production breaks down.</p> + +<div class="blockquot"> + +<p class="smaller">(Of course, we must be careful to distinguish between +the case of a private man increasing his investments and +the general increase of capital as applied to an unchanging +area of natural forces. John Smith having £1,000 invested +at 5 per cent. can save another £1,000 and another and +many more, and still get 5 per cent. But that is because +he is saving and makes up for others wasting, or because +his saving is so small a proportion of the total Capital of +Society that it has no appreciable effect. But if the total +Capital of Society be thus increased the Law of Diminishing +Returns eventually comes into play.)</p> +</div> + +<p><span class="pagenum" id="Page_46">46</span></p> + +<h3>3. <span class="smcap">Rent.</span></h3> + +<p>We arrive through this at the third division, <em>Rent</em>.</p> + +<p>Under some circumstances the “Worth While +of Labour” and the “Worth While of Capital” +can just barely be earned, and no more. Under +those circumstances production will take place, +but under worse circumstances it will not.</p> + +<p>For instance, where there is very light, sandy soil +near a heath a man finds that by putting a thousand +pounds of capital on to a hundred acres of land +he can get his bare subsistence and £50 worth of +produce over: 5 per cent. on his capital. It is +worth his while to cultivate that land, just barely +worth his while. He also possesses land on a +still more sandy part over the boundary of the +heath itself. He calculates that if he were +laboriously to save another £1,000 and take in 100 +acres of the new, worse land, he would make the +bare subsistence of the labour employed upon it, +but only £10 extra, that is, only 1 per cent. on his +new capital. He would say: “This is not worth +while,” and the too-sandy bit of land would go +uncultivated.</p> + +<p>When the conditions are such that the capital +and labour applied to them <em>just</em> get their worth +while and no more, those conditions are said to be +“<em>on the margin of production</em>,” which means that +they are the worst conditions under which men in +a particular society will consent to produce wealth<span class="pagenum" id="Page_47">47</span> +at all. Put them on conditions still worse, and +they will not produce.</p> + +<p>Now the existence of this Margin of Production +creates the third division in Wealth, which is called +<strong>RENT</strong>.</p> + +<p><em>Rent is the surplus over and above the minimum +required by labour and capital out of the total produce.</em> +(We must be careful, as we saw in the case of +“Interest” not to confuse true economic Rent with +“Rent” in the conversational sense. Thus what +is called “the rent” of a house is part of it +true economic rent, but part of it interest on the +accumulated or saved wealth, the <em>Capital</em> of its +bricks and mortar and building.)</p> + +<p>Take the case of a seam of coal, which at one +end of its run crops out on the surface, a couple of +miles on is only 1,000 feet below the surface, but +dips down gradually until, within twenty miles, +it is 10,000 feet below the surface.</p> + +<p>Under the conditions of the society in which the +coal is being mined, and in the state which the +science of mining has reached, it is found that, +at a depth of 5,000 feet, this seam is <em>just</em> worth +while mining: that is, the capital which has to be +accumulated for sinking the shafts and bringing +the miners up and down from their work, and raising +the coal to the surface, and providing subsistence +for the miners at their work, <em>just barely</em> gets the profit +below which it would not be worth while to use it.</p> + +<p>A shaft sunk at this depth, for instance, and the<span class="pagenum" id="Page_48">48</span> +machinery and stores cost £10,000, and when +you get the coal to the surface that coal will pay +the standard of subsistence of the labourers and +leave £500 profit for capital; that is, 5 per cent. +Capital will not accumulate if it gets less than +5 per cent. Labour will not be exercised if it +gets less than its standard subsistence; therefore, +the coal which lies farther along the seam, deeper +than 5,000 feet, will be left untouched. It is not +“worth while” to sink a shaft to try and get it. +It is “below the Margin of Production.”</p> + +<figure id="ip_48" class="figcenter" style="max-width: 45em;"> + <img src="images/i_048.png" width="2149" height="674" alt=""> +</figure> + +<p>What happens to the coal in the places where it +gets nearer and nearer to the surface? Obviously, +it is better worth while to sink shafts there than it +is at 5,000 feet. You only want the same amount +of labour for cutting the coal out, whether it is +5,000 feet below the surface or 2,000, and you want +much less capital and labour in sinking the shafts +and bringing the coal to the surface and getting +the miners up and down. There is, therefore, a +surplus. Thus with a shaft only 2,000 feet deep +you need, say, only £5,000 worth of capital to get<span class="pagenum" id="Page_49">49</span> +£500 worth of coal over and above the subsistence of +the labourers. 5 per cent. on £5,000 is £250—so in +that case there is a benefit of an extra £250 <em>after</em> the +“worth while” of Capital and Labour are satisfied. +Over and above what is just the “worth while” of +capital and labour for getting the coal you have in +the shallower mines extra value, and that extra +value gets larger and larger as the distance of the +coal from the surface gets less and less. The +deepest mine is on what we call “the margin of +production.” It is just worth while to work it. +The surplus values in all the shallower mines are +called RENT. If a landlord owned the coal in +quite a shallow part where it was within a +thousand feet of the surface, he could say to the +labourers and the owners of capital who were +coming to dig it out: “The mine which is working +at 5,000 feet is just worth your while. If you work +here at 1,000 feet you will have a great deal more +than 5 per cent. on your capital, and the subsistence +of labour is just the same. All this extra amount of +values, however, I must have, otherwise you shall +not work my coal.”</p> + +<p>Since the Capitalists are content to accumulate +capital for a return of 5 per cent. and the labourers +to work for their subsistence, the extra amount is +paid to the landlord. If one set of people refuse +to pay it, there will always be another set of people +who will be content to pay it and this extra amount +or surplus is called “Economic <em>Rent</em>,” which is<span class="pagenum" id="Page_50">50</span> +something, of course, much more strictly defined +than, and different from, what we call Rent in +ordinary conversation.</p> + +<p>Or again, take three farms of equal area but +varying fertility. Each requires £1,000 capital to +stock it and five labourers to work it. The £1,000 +capital demands £50 a year profit. The five labourers +need £500 in a year to meet their standard of +subsistence. The poorest farm raises just £550 +worth of produce a year. The next best raises +£750, and the best one £950 worth. Then there is +<em>no</em> economic rent on the first; it lies on the “margin +of production.” There is £200 economic rent a +year on the second, and £400 on the third.</p> + +<div class="tb">* * * * *</div> + +<p>We can sum the whole thing up and say that on +the mass of all production there are three charges:</p> + +<div class="blockquot"> + +<p>1. <strong>First, the charge for the subsistence of labour.</strong></p> + +<p class="p2">2. <strong>Next, the charge of profits, or interest, for the +reward of capital, that is, of saving, and lastly</strong></p> + +<p class="p2">3. <strong>In varying amounts, rising from nothing at +the margin of production, to larger and larger amounts +under more favourable circumstances, the surplus +value called Economic Rent.</strong></p> +</div> + +<p>These three divisions are always present whenever +wealth is produced. The same man may get all +three at once, as happens when a farmer works +good land which is his own. Or again, when one<span class="pagenum" id="Page_51">51</span> +man owns the fertile land and another man provides +the capital, and yet another man provides the labour, +the three divisions appear as three incomes of +Labourer, Farmer and Landlord receiving separately +Wages, Profit and Rent. Whether these divisions +appear openly, paid to different classes of men, or +whether they are concealed by all coming into the +same hands, they are present everywhere and always. +That is a fixed economic law from which there is +no getting away.</p> + +<p>Always remember that these economic laws are +in no way binding in a social sense. They are not +laws like moral laws, which men are bound to obey. +They are certain mathematical consequences of +the very nature of wealth and its production, which +men must take into account when they make their +social arrangements. It does not follow because +Rent or Interest are present that such and such +rich men, or the State, or the labourers, have a right +to them. That is for the moralist to decide; and +men can in such matters make what arrangements +they will. All economic science can tell us is how +to distinguish between the three divisions, and to +remember that they are inevitable and necessary. +But we must wait until a little later on to discuss +social rights and wrongs under Applied Economics +and continue here for the present to confine ourselves +to the Elements of economic law alone.</p> +<hr class="chap x-ebookmaker-drop"> + +<div class="chapter"> +<p><span class="pagenum" id="Page_52">52</span></p> + +<h2 class="nobreak" id="V"><span id="toclink_52"></span>V<br> + +<span class="subhead">EXCHANGE</span></h2> +</div> + +<p><strong>EXCHANGE</strong> is really only a form of production, +as we saw in the illustration of the island with salt +and the main-land with meat. When the exchange +of the things is of advantage to both parties it creates +wealth for both, and profitable exchange is, therefore, +when it takes place, only the last step in a general +chain of production.</p> + +<p>But Exchange is so separate an action that students +of Economics have agreed to treat it as a sort of +chapter by itself, and we will do so here.</p> + +<p>The characteristic of Exchange is that you take +a thing from a place where it has less value to a +place where it has more value, thus adding an +economic value to the thing moved and so creating +wealth. In the same transaction you bring back +something else against it, which has more value +in your own place than it had in the place from +which you took it, that is again adding an economic +value and therefore creating wealth. We saw how +this was in the case of the salt and the meat, and<span class="pagenum" id="Page_53">53</span> +so it is with thousands upon thousands of exchanges +going on all over the world.</p> + +<p>For instance, we in England have grown fond of +drinking tea in the last 200 years. But our climate +will not allow us to grow tea. Tea can only grow +in a very hot country.</p> + +<p>Now in very hot countries specially heavy labour +upon metal work is not to be expected. Men are +not fit for it. But in this cool climate men are fit +for it, and also men here have through long practice +become very skilful at working metal: smelting iron, +for instance, and making it up into machines.</p> + +<p>Therefore, there is a double advantage to us and +to the people who live in the hot countries where +tea is grown if we <em>exchange</em>. We send them metal +things that we have made and which are useful +to them, and which they could hardly make +themselves, or only with very great difficulty (and, +therefore, at a great expense of energy), and we get +from them tea, which we could not grow here +except in hot houses: that is, at much more expense +of energy than is needed in the countries where +tea grows naturally out of doors.</p> + +<p>When there are present two or more objects of +this kind, such that the exchange of them between +two places will benefit both parties, we may speak +of “<em>a potential of exchange</em>,” stronger or weaker +according to the amount of mutual advantage +derived.</p> + +<p>This word “potential” you will not find yet in<span class="pagenum" id="Page_54">54</span> +many books, but it is coming in, for it is a very +useful word. It is taken by way of metaphor from +Physical Science. When there is a head of water +over a dam, or a current of electricity of such and +such an intensity, we talk of the “<em>potential</em>” and +measure it. For instance, we say this electrical +current is double the potential of that, or the head +of water working such and such turbines is at +double the potential of another head of water in +the neighbourhood. In the same way we talk of +a “potential” of exchange, meaning a tendency +for exchange to arise between two places or people +because it is of mutual benefit to both.</p> + +<p>Potentials of exchange come into existence not +only through difference of climate or differences of +habit, but also through what is called the +<em>Differentiation of Employment</em>, which is also called +Division of Labour.</p> + +<p>Thus two countries may be both equally able to +produce, say, metal work and silk fabrics, and yet +if one of them concentrates on getting better and +better at metal work and the other on getting +better and better at silk fabrics, it may well be +that both will benefit by separating their jobs and +exchanging the results. And this is true not only +of two countries, but of individuals and groups.</p> + +<p>The cobbler does not make his own clothes. He +makes boots, and by learning his trade and getting +used to it makes them much better and in a much +shorter time than other men could, and therefore<span class="pagenum" id="Page_55">55</span> +makes a pair of boots with less expense of energy, +that is, <em>cheaper</em>, than another man would. The +tailor can say the same thing about making clothes. +So it is to the advantage of the cobbler to exchange +his extra boots against the extra clothes the tailor +has made.</p> + +<p>In general: intelligent societies always tend to +build up a very wide-spread system of exchange, +because intelligent people tend to concentrate +each on the job that suits him best, and also because +intelligent people discover differences of climate +and soil and the rest which may make exchange +between two places a mutual advantage for both.</p> + +<p>It is indeed a great mistake to do as some modern +people do, and put Exchange in front of Production. +Thus you hear people talking as though the trade +a country does, the total amount of its exports and +imports, were the test of its prosperity, whereas +the real test of its prosperity is what it has the power +to consume, not what it manages to exchange.</p> + +<p>But still, though it comes at the end of Production +and must never be made more important than the +whole process of Production, Exchange is present +universally wherever there is active production of +Wealth. Thus the group of people who build ships +are really exchanging what they make against +the produce of other people who make clothes and +grow food and build houses, and the rest of it; +and in a highly-civilised country like ours much +the greater part of the wealth you see consumed<span class="pagenum" id="Page_56">56</span> +around you has gone through many processes of +exchange.</p> + +<p>There are a few elementary Formulæ concerning +Exchange which it is important to remember.</p> + +<div class="blockquot"> + +<p>1. <strong>There is a Potential of Exchange, that is, +exchange tends to take place, when of two objects +the proportionate values are different in two different +communities.</strong></p> +</div> + +<p>It is not very easy to understand the meaning +of this until one is given an example. Supposing a +ton of coal from England to be worth £2 by the time +it is delivered in Cadiz, and supposing that making +a dozen bottles of wine in England, with all the +apparatus of hot-house grapes and the rest of it, +came to £5 of expense. Supposing that in Cadiz, +from the small coal mines near by, they can produce +coal at only £1 a ton, but on account of their +climate they can produce a dozen of wine for a +shilling. Then you get this curious situation:</p> + +<p>It pays the exporting country, England, to sell +coal in Cadiz <em>at less than its English economic value</em>, +and to import the wine from Cadiz. It pays your +English owner of coal, although the values attaching +to it by the time it has got to Cadiz are £2 a ton, to +sell a ton of coal there for only £1, and to exchange +that against the wine of Cadiz, and bring that back +to England. At first sight it sounds absurd to say +that selling thus at a lower value than the cost of +production and transport can possibly be profitable.<span class="pagenum" id="Page_57">57</span> +But if you will look at it closely you will see that it +is so.</p> + +<p>If the Englishman had tried to make his wine +at home it would have cost him £100 to make +twenty dozen bottles, but when he has sold his +coal at Cadiz for £1 he can with that £1 buy twenty +dozen of wine and bring it back to England. He +is much the wealthier by the transaction, and so +is the man at Cadiz. The Cadiz man could have +spent his energies in digging out a ton of coal near +Cadiz instead of importing it, but the same energies +used in making wine produce enough wine to get +him rather more coal from England.</p> + +<div class="blockquot"> + +<p>2. The second Formula to remember about +Exchange is this: <strong>Goods do not directly exchange +always one against the other, but usually in a much +more complicated way, by what may be called</strong> +<em>Multiple Exchange</em>.</p> +</div> + +<p>Of course, the vehicle by which this is done is +a currency, or <em>money</em>, which I will explain in a +moment; but the point to seize here is that exchange +is just as truly taking place when there is no direct +barter of two things but a much longer and +complicated process.</p> + +<p>For instance, a group of people called a Railway +Company in the Argentine want a locomotive. +A locomotive can be produced cheaper and better, +that is, with less expenditure of energy for the +result, in England than in the Argentine. But<span class="pagenum" id="Page_58">58</span> +on the other hand, England wants to import tea. +Now the Argentine grows no tea. What happens? +How does England get the tea? That locomotive +goes out to the Argentine. An amount of wheat +sufficient to exchange against the locomotive goes +against it, <em>not</em> to England, but to Holland, a country +which, like us, has to import a lot of wheat. As +against the wheat sent to Holland, the people in +Holland send, say, the cheeses which they make +so well, on account of their special conditions, and +the consignment goes to Germany. The Germans +send out a number of rails equivalent to the number +of cheeses and of the wheat and of the locomotive, +as they are very good at making rails, and have +specialised on it. But they do not send the rails +to Holland. They send them to some Railway +Company which has asked for them in Egypt. The +Egyptian people send out an equivalent amount of +cotton, which they can grow easily in their climate, +and this cotton goes to mills in India, and against +it there comes an equivalent amount of tea, but +the tea does not go back to Egypt. It goes to +England.</p> + +<p>There you have a circle of Multiple Exchange in +which everybody profits by the exchange going on, +although it is indirect. In the same way, of course, +it is true that all of our domestic exchanges at home +are multiple. If I write a book which people want +to read, whereas I want not books but several +other things, boots and fuel and furniture, I do not<span class="pagenum" id="Page_59">59</span> +take my books round to the man who provides boots +and to the one who provides fuel and to the one +who provides furniture. I go through the process +of selling my book to a publisher, and through an +instrument he gives me, called a cheque (I will +explain this when we come to the point of money), +I can obtain boots and fuel and furniture to the +amount of the value of the books of mine which my +publisher will sell. Yet when exchange is thus +highly indirect and multiple it is just as much +exchange as though I went and bartered one book +for one pair of boots with the cobbler.</p> + +<p id="f3">3. The third thing to remember about Exchange +is of the utmost importance, because it has given rise +to one of the biggest discussions of our English +politics. The Formula runs <span class="locked">thus:—</span></p> + +<div class="blockquot"> + +<p><strong>Other things being equal, the greatest freedom of +exchange in any given area makes for the greatest +amount of wealth in that area.</strong></p> +</div> + +<p>It ought to be self evident, but it is astonishing +how muddled people get about it, when they become +confused over details and cannot see the wood for +the trees. It ought, I say, to be self-evident that +if you leave Exchange quite free, anybody being +at liberty to produce what he can produce best, +and exchange it for things which other men can +produce better than he, both parties will tend to +be the richer by such freedom and the wealth of +the whole country will be greatest when all exchanges<span class="pagenum" id="Page_60">60</span> +in it are thus left free to be worked by the sense of +advantage.</p> + +<p>If there were a law, for instance, preventing +me from buying etchings, or preventing Jones, the +etcher, from buying books, Jones would have to +write his own books (or do without them, which +is what he would do), and I should have to etch +my own etchings, which would be exceedingly poor +compared with the wonderful etchings of Jones. +We are obviously both of us better off if we are left +free to exchange what we can each make best. And +so it is with all the countless things made in a State.</p> + +<p>This principle applies not only to a particular +nation but to the whole world. If you left the whole +world free to exchange the whole world would be +the richer for it. And any interference with +exchange between one nation and another lessens +the total possible amount of wealth there might +be in the world.</p> + +<p>So far so good; and, as I have said, such a truth +ought to be self-evident. But here there comes +in a misunderstanding of its application, and that +misunderstanding has made any amount of trouble. +It is so important that I must give it a separate +division to itself.</p> +<hr class="chap x-ebookmaker-drop"> + +<div class="chapter"> +<p><span class="pagenum" id="Page_61">61</span></p> + +<h2 class="nobreak" id="VI"><span id="toclink_61"></span>VI<br> + +<span class="subhead">FREE TRADE AND PROTECTION</span></h2> +</div> + +<p class="in0"><span class="firstword">Nations,</span> as we know, put up tariffs against goods +which come from abroad: That is, their Governments +tax imports of certain goods and thereby +interfere with the freedom of exchange. For +instance, the French have a tax of this kind upon +wheat. Wheat grown in France will cost, let us +say, £1 a sack, but the Argentine can send wheat +to France at an expense of only 10s. a sack, because +the land there is new, and for various other causes. +If the wheat from the Argentine were allowed to +come in freely, and the French to export against it +things which they can make more easily than wheat +they would have more wheat at a less total expense; +but they prefer to put a tax of ten shillings upon +every sack, that is, to put up a barrier against +the import of wheat from abroad, and so keep up +the price artificially at home.</p> + +<p>When a nation does this with regard to any object +that may be imported, if the object can also be +produced within the nation (which it nearly always +can) it is said to <em>protect</em> that object, and the system<span class="pagenum" id="Page_62">62</span> +of so doing is called <strong>Protection</strong>. The word arose +from the demand of certain trades to be “protected” +by their Governments without considering whether +it was for the good of the whole nation or not. It +obviously would be a very nice thing for people +who breed sheep, for instance, in this country, +if all mutton coming from the Colonies were taxed +at the Ports, while the mutton grown inside the +country were not taxed; for in this way the value +of the mutton would rise in England, and the rise +would benefit the sheep owners. But it would +be at the expense of all the other people who did +not grow sheep, and who would have to pay more +for their mutton.</p> + +<p>As opposed to this system of <em>Protection</em>, and +interfering with international exchange by a tariff, +intelligent people a long lifetime ago began to +agitate for what they called “<strong>FREE TRADE</strong>,” +that is the putting of no tariff on to an import, +or at least no tariff high enough to give an artificial +price to the producer of the same thing at home. +Thus, when England was completely Free Trading +(which it was until the war) there was a tariff on +tea; but that was not Protection, for those who +would try to grow tea here would have to grow it +in hot houses and at an enormous expense, and the +tax on tea, though heavy, did not make it anything +like so dear as to make it worth while to produce +tea here.</p> + +<p>Another principle of Free Trade was that if it<span class="pagenum" id="Page_63">63</span> +was thought advisable to put a tariff on to anything +coming into the country which could be produced +in the country, then you would have to put what +was called “<em>an equivalent excise</em>” on the thing +produced at home. For instance, in order to get +revenue, one might put a tax of a 1d. on the pound +on sugar coming from Germany, but, according to +the doctrine of Free Trade, you must put a similar +excise (that is, a home tax of 1d. on the pound) +upon any sugar produced in England. If you did +not do that you would be benefiting the sugar +manufacturer in England at the expense of all other +Englishmen, which would be unjust and also make +England less wealthy because it would be inducing +Englishmen to make sugar by offering them a reward +and so take them away from some production for +which they were better fitted.</p> + +<p>This idea, that Free Trade must necessarily be +of advantage to everybody, and that it was only +stupidity or private avarice which supported +Protection, was very strong in England, and, in +the form you have just read, it seems beyond +contradiction.</p> + +<p>But if you will look closely at <a href="#f3">Formula No. 3</a> +written in the last division on <a href="#Page_59">page 59</a> you will see +that there is a fallacy hidden in this universal +Free Trade theory. It is perfectly true that free +exchange over any area tends to make the wealth +of all that area greater, and if the area include the +whole world, then free exchange all over the whole<span class="pagenum" id="Page_64">64</span> +world, that is, complete Free Trade, would make the +world as a whole richer.</p> + +<p><em>But it does not follow that</em> <span class="allsmcap">EACH PART</span> <em>of the area +thus made richer is itself enriched</em>. That is the +important point which the Free Trade people missed, +and it is this which supports, in some cases, the +argument for Protection.</p> + +<p>If we allow free exchange everywhere throughout +England, England as a whole will, of course, be the +richer for it; but it is quite possible that Essex will +be the poorer. If we allow Free Trade throughout +all Europe, Europe will be the richer for it; but it +is quite possible that some particular part of Europe, +Italy or Spain, may be made poorer by the general +process, and as they don’t want to be poorer they will +by Protection and tariffs cut themselves off from the +area of free exchange.</p> + +<div class="blockquot"> + +<p><strong>There are conditions where an interference with +free exchange over the boundaries of a particular area +make that area richer: when those conditions +exist, there is what is called an Economic Reason +for Protection.</strong></p> +</div> + +<p>So we may sum up and say that the theory of +universal Free Trade being of benefit to the world +as a whole is perfectly true. If we are only considering +the world, and do not mind what happens to some +particular area of the world, then the case for Free +Trade is absolute. But if we mind a hurt being +done to some particular area, such as our own<span class="pagenum" id="Page_65">65</span> +country, more than we mind the hurt done to the +world as a whole, then we should look at our +particular conditions and see whether our country +may not be one of those parts which will be drained +of wealth by Free Trade and will be benefited by +artificially fostering internal exchanges.</p> + +<p>In the second part of this book I will go into +this again, and show how the discussion arose in +England and what the arguments are for and +against Universal Free Trade, and how true it is +that a sound economic argument for Protection +exists.</p> +<hr class="chap x-ebookmaker-drop"> + +<div class="chapter"> +<p><span class="pagenum" id="Page_66">66</span></p> + +<h2 class="nobreak" id="VII"><span id="toclink_66"></span>VII<br> + +<span class="subhead">MONEY</span></h2> +</div> + +<p class="in0"><span class="firstword">When</span> people begin exchanging by bartering +goods one against another they at once find that +there is an awkward obstruction to this kind of +commerce; at least, they find it the moment there +are more than two of them. It is this: That the +person they are nearest to for the striking of a +bargain may not want, at the moment, the particular +thing they have to offer, but something else which +a third party has who is <em>not</em> present.</p> + +<p>For instance: John is a hunter who has a surplus +of skins to offer. He can get skins easier than +other people. William, farming good soil, has +surplus wheat to offer, and Robert, living near a +wood and skilled as a woodman, has extra wood to +offer. John wants wood. He takes one of his +furs to Robert and says: “I will give you this +fur for a cartload of wood.” But Robert may +answer, “I don’t happen to want a fur just now. +What I do want is a sack of wheat.”</p> + +<p>Either no transaction will take place on account +of this hitch, or one of these two things will happen: +Robert will take the fur from John and give him his<span class="pagenum" id="Page_67">67</span> +cartload of wood, and will then take the fur over to +William, and see whether William wants a fur in +exchange for some wheat. Or John, very much +wanting the wood, will go to William, and if +William wants a fur, will exchange it for wheat; +then John will take the wheat back to Robert, and +exchange it for the wood that he wants.</p> + +<p>That is the sort of complicated and clumsy come-and-go +that will be continually happening even +with quite a few exchangers, and with quite a small +number of articles. When it came to a great number +of exchangers and a great number of articles the +trouble would grow impossible and exchange would +break down.</p> + +<p>But things arrange themselves thus: It is soon +found that one of the things which are being +exchanged is easier to carry than the rest, and +perhaps lasts longer and also can be easily used +in small or large amounts. For instance, in the +case of our three producers, John, William and +Robert, <em>wheat</em> might easily appear in this character. +People always want wheat sooner or later. It keeps +well. It is not very difficult to transport, and you +can divide it into quite small amounts, or lump it up +in large amounts.</p> + +<p>So the chances are that when any of the three +wanted to benefit by getting rid of some of his +surplus produce he would get into the habit of taking +<em>wheat</em> in exchange, even if he did not want it for +the moment. For he would say to himself: “I<span class="pagenum" id="Page_68">68</span> +can always keep it by me and then exchange it +against somebody else’s produce when that somebody +else happens to want wheat”. Soon you would +find each one of the three would be keeping a little +wheat by him for the purpose of saving tiresome +journeys to effect complicated double exchanges, +and the wheat so used by all three of them would +be in effect <strong>MONEY</strong>. It would be used as a common +medium of exchange to facilitate the disposal of +goods one against the other, without the elaborate +business of making special barters, after long search.</p> + +<p>Mankind has found, in most cases, that where a +very large number of articles were being exchanged +<em>two</em> in particular naturally lent themselves to this +particular use, and those two were <span class="allsmcap">GOLD</span> and +<span class="allsmcap">SILVER</span>. They have also used bronze, and even +iron and in some places rare shells, and all sorts of +other things. But gold and silver came to be for +nearly all mankind, and are now for all civilised +mankind, the objects which most naturally are used +as money.</p> + +<p>The reason for this is as follows:</p> + +<p>The thing which naturally becomes money out +of all the things that are exchanged will be that +which best combines a certain number of qualities, +some of which we have already mentioned, and of +which here is a list.</p> + +<p>1. It must be portable, that is, a large weight +of it must take up little room, so that quite +considerable values can be taken easily from place<span class="pagenum" id="Page_69">69</span> +to place—for money has to be always moving from +one to another to effect purchases and sales.</p> + +<p>2. It must be easily divisible, for one is always +wanting to use it in all sorts of amounts, very little +and very large.</p> + +<p>3. It must keep. That is, it must not deteriorate +quickly, or it would have very little use as Money.</p> + +<p>4. It must be of an even quality, so that, wherever +you come across it, you may count on its being pretty +well always the same, and therefore weight for weight +of the same value.</p> + +<p>5. It must be more or less stable in value. It +would be difficult to use as money some object +which was very plentiful at one moment and +suddenly scarce at another; very cheap this year, +and very dear next year—such as are, for instance, +agricultural products depending upon the season.</p> + +<p>Now of all objects Gold and Silver best fulfil +all these requirements. Precious stones are more +portable, value for value. A £1,000 worth of +diamonds takes up less space and is less heavy than +a £1,000 worth of gold. And precious stones are +fairly stable in value and also keep very well; but +they are not easily divisible. Again, they are +not of the same standard value in all cases. They +vary in purity. But gold and silver have all the +qualities required. Gold hardly decays at all +through the passage of time, and silver very little; +and each, but especially gold, is valuable for its +bulk, and its value is fairly stable, and each is<span class="pagenum" id="Page_70">70</span> +easily divisible and can therefore be presented in +any amount, from a tenth of an ounce to a hundred +pounds weight.</p> + +<p>So, by the mere force of things, Gold and Silver +became the Money of mankind. People kept gold +and silver by them in order to effect their exchanges, +and very soon a producer did not feel himself to +be exchanging at all (in the sense of exchanging +goods against goods), but thought of the affair as +<em>Buying and Selling</em>. That is, of exchanging his +produce, not against other produce, but against +gold and silver, with the object of <em>later</em> re-exchanging +that gold and silver for other things that he needed.</p> + +<p>Money, once thus established, is called <strong>A MEDIUM +OF EXCHANGE</strong> and also <strong>CURRENCY</strong> or <strong>THE +CIRCULATING MEDIUM</strong>. It is called “currency” +and “circulating” because it goes its round through +society, effecting the exchanges, and this running +around or circulating gives it its name: “That +which is current” from the Latin for “running.” +That which “circulates” from the late Latin word +for “going the rounds.”</p> + +<p>When gold and silver become the money of +mankind it is important to be able to tell at once +the exact amounts you are dealing with. This, +under simple conditions, is done by weighing; but +it is more convenient to stamp on separate bits of +metal what weight there is in each, and that is +called “coining the metal.” All that a Government +does when it makes a sovereign is to guarantee that<span class="pagenum" id="Page_71">71</span> +there is so much weight of gold in the round disc +of metal which it stamps.</p> + +<p>Money does not only fill this main function of +being a medium of exchange, that is, of making a +vast quantity of complicated exchanges possible, +it also has great social value as a measurer or +standard, and soon after money comes into use +men begin to think of the economic values of +things in terms of money: that is, in what we call +“<strong>Prices</strong>.”</p> + +<p>All things which men produce are fluctuating +the whole time in value. There is now rather +more of one article, and now rather less. A sack of +barley at one moment will exchange exactly against +a sack of wheat, and then in a few weeks against +rather less than a sack of wheat. Meanwhile, where +it used to fetch a lamb in exchange it may, in a +few months, need two sacks for a lamb; and so +with all the hundreds and thousands of other +objects. When we have money the whole mass +of transactions is referred to the current medium, +and that is of immense social value. For no one +could keep in his head all the changing exchange +values of a multitude of articles one against the +other, but it is easy to remember the exchange values +against one standard commodity, such as gold. +And whatever the exchange value is in gold we +call the <strong>price</strong> of the article.</p> + +<p>For instance, when you say that a house is worth +£500, that that is the “<em>price</em>” of the house, you<span class="pagenum" id="Page_72">72</span> +mean that the amount of gold you would have to +exchange to get it is about Ten Pounds weight of +the metal. And when you say that the price of +a ticket to Edinburgh is £4, you mean that the +service of taking you to Edinburgh in the train will +be exchanged against about an ounce of the metal +gold.</p> + +<div class="tb">* * * * *</div> + +<p>I now come to a most difficult point about money +and prices which is rather beyond the elements of +Economics, but which it is important to have some +idea of, though it is very difficult.</p> + +<p>There is a very interesting study in Economics +called “<em>The Theory of Prices</em>,” showing why <em>all +prices on the average</em> (what is called “General +Prices,” that is the value of all goods <em>in general</em> +as measured against gold) sometimes begin to go +up and at other times go down: Why goods as a +whole begin to get dearer and dearer in gold money, +or cheaper and cheaper. It is a complicated piece +of study, and people dispute about it. But the +general rules would seem to be something like this: +The exchange value of things against gold, or the +value of gold, against the things for which it exchanges +(that is prices) is made up of two things: <em>First</em>, +the amount of gold present to do the work of +exchange; <em>Secondly</em>, the amount of work you can +make it do in exchange: The pace at which you +can get it to circulate. It is obvious that one piece +of gold moving rapidly from hand to hand will do<span class="pagenum" id="Page_73">73</span> +as much work in helping exchanges to be carried +out as ten pieces moving ten times more slowly.</p> + +<p>If, for any reason, the total amount of gold +becomes suddenly smaller or suddenly larger, or +if the pace at which it is used changes very quickly, +then prices fluctuate violently.</p> + +<p>Supposing you could, in a night, take away half +the gold in circulation. Then, of course, the +remaining gold would become much more valuable. +In other words, prices would fall. For if an ounce +of gold is rarer and more difficult to get than it +was, it will exchange against, that is, “buy” more +than it did; this means that “the price of things +has fallen.” We used to say, for instance, that +a quarter of wheat was worth an ounce of gold. +But if we suddenly change the amount of gold so +that gold becomes much rarer and more valuable, +perhaps an ounce of gold will buy not one quarter +but two. The price of one quarter used to be +an ounce of gold. Now the price is only half an +ounce of gold. Wheat has become cheaper in +proportion to gold, and “prices,” that is, values +measured in gold, in money, have fallen.</p> + +<p>The same thing would happen if you did not +lessen the amount of gold in circulation but made +the circulation much more sluggish. The amount +of gold in circulation would be the same, but as it +went its rounds more slowly it would be more +difficult to get a certain amount of gold in any +one place at any one time.</p> + +<p><span class="pagenum" id="Page_74">74</span></p> + +<p>Prices, then, depend upon the actual amount of +money that is present to do the work, <em>and</em> the pace +at which it is made to go the rounds: or (to put +it in technical terms), on the amount of the currency +<em>and</em> its “<em>efficiency in circulation</em>.”</p> + +<p>Now, there is in the human mind a very strong +tendency to keep prices stable. We think of them +by a sort of natural illusion as though they were +absolute fixed things. We think of a pound, and +a shilling, and five pounds as real, permanent, +unchanging values. If we find that quite suddenly +five pounds will buy a great deal more than it used +to, or quite suddenly a great deal less, if we are met +by a sudden and violent fluctuation in prices of +this kind, our minds tend, unconsciously, to bring +things back, as much as possible, to the old +position; and I will show you how this tendency +works in practice.</p> + +<p>Supposing a very great deal of gold, for some +cause, were to disappear. People suddenly find prices +falling very rapidly. A man with a £1,000 a year +can buy twice as many things, perhaps, as he used +to buy. On the other hand, a man with anything +to sell can only get half the amount he used to +get. For gold has become rarer, and therefore +more valuable as against other things.</p> + +<p>What is the result? <em>The result is a very rapid +increase in the pace at which the gold circulates.</em> +Every purchaser feels himself richer. The gold +is tendered for a much larger number of bargains,<span class="pagenum" id="Page_75">75</span> +and though the mind, by this illusion it has of +gold value as a fixed thing, cannot bring the actual +gold back, what it can do is so to increase the second +factor, <strong>Efficiency in Circulation</strong>, as largely as to make +up for the lack of gold; and under the effect of +this prices will gradually rise again. In the same +way, if the mass of current medium by some +accident becomes suddenly increased that should +lead to an equally sudden rise in prices; but the +unconscious tendency of the human mind to keep +prices stable sets to work at once. Efficiency in +Circulation slows down, the new large amount of +currency works more sluggishly, and, though prices +rise, they do not rise nearly as much as the influx +of money might warrant.</p> + +<p>We see, therefore, that the factor in the making +of prices called “Efficiency in Circulation” works +like a sort of automatic governor, tending to keep +prices fairly stable; but of course it cannot prevent +the gradual changes, and sometimes it cannot +prevent quite sharp changes, as we shall see a little +later on. For the moment, the interesting thing +to note about Efficiency in Circulation is that +we owe to this factor in prices the creation of <em>paper +money</em>.</p> + +<p>If, with only a certain stock of gold to work on, +business rapidly and largely increases, if a great +many more things are made and exchanged, then, +as the gold will have a lot more work to do—and +so become more difficult to obtain in any one time<span class="pagenum" id="Page_76">76</span> +or place—that should have the effect, of course, +of making it more valuable, that is, of lowering +prices.</p> + +<p>Now with the beginnings of modern industry, +about a hundred and fifty years ago, a vastly greater +number of things began to be made than had ever +been made before, and the number of exchanges +effected multiplied ten, twenty and a hundredfold. +The stock of gold, though it was increased in the +nineteenth century by discoveries in Australia and +California, and later in South Africa, would have +been quite unable to cope with this flood of new work, +and prices would have fallen very much indeed, +had it not been for the creation of <em>Paper Money</em>. +Paper money was a method of immensely increasing +Efficiency in Circulation.</p> + +<p>This is how it worked.</p> + +<p>A Bank or a Government (but especially the Bank +of England, with the guarantee of the Government) +would print pieces of paper with the words: “I +promise to pay to the bearer of this Five Pounds.” +Anyone who took one of these pieces of paper +to the Bank of England could get Five Golden +Sovereigns. But since this was publicly known, +people were willing to take the piece of paper <em>instead +of</em> the five sovereigns.</p> + +<p>If you sold a man a horse for fifty pounds, you +were just as willing to take ten five pound notes +for him as fifty sovereigns. They were more +convenient to carry, and you knew that whenever<span class="pagenum" id="Page_77">77</span> +you wanted the actual gold you had only to go +to the bank and get it.</p> + +<p>Because people were thus willing to be paid in +paper instead of in the actual gold, a large number +of notes could be kept in circulation at any one time, +and only a small amount of gold had to be kept in +readiness at the Bank to redeem them. In practice +it was found that very much less gold than the +notes stood for was quite enough to meet the +notes as they were brought in for payment. Much +the most of the note circulation went on going the +rounds, and in normal times it took a long time for +a note on the average to be brought back to the +Bank.</p> + +<p>You can see that this dodge of paper money +had the effect of increasing the total <em>amount</em> of +the current medium in practice, and of greatly +increasing its Efficiency in Circulation. Moreover, +it made the Efficiency in Circulation very elastic, +because in times of quiet business, more notes would +go out of circulation and be paid into the bank, +while in time of active business more notes would +go on circulating.</p> + +<p><em>So long as every note was redeemed in gold every +time it was brought to the bank, so long as the promise +to pay was promptly kept, the money still remained +good; the paper currency did not interfere with the +reality of the gold values, there was no upsetting of +prices, and all went well.</em></p> + +<p>Unfortunately, Governments are under a great<span class="pagenum" id="Page_78">78</span> +temptation, when they have exceptionally heavy +expenses, to falsify the Currency. People get so +much in the habit of trusting the Government +stamp on paper or metal that they take it as part +of nature. What the Government is really doing +when it coins a sovereign is giving a guarantee +that this little disc of yellow metal contains 123 +grains of gold with a certain known (and small) +amount of alloy to make the gold hard. When the +Government has to pay a large amount in wages, +or for its Army and Navy, or what not, it is tempted +to put in less gold and more alloy and keep the +old stamp unchanged, and that is called “Debasing +the Currency.”</p> + +<p>For instance, the Government wants a hundred +tons of wheat to feed soldiers with, and the price +of wheat in gold at that moment is Ten Sovereigns +a ton. It says to a merchant, “If you will give me +a hundred tons of wheat, I will give you a thousand +sovereigns.” But when it comes to paying the +thousand sovereigns, instead of giving a thousand +coins with 123 grains of gold in each, it strikes a +baser coin with only a hundred or less than a hundred +grains in each, and pays the merchant with these. +It is a simple form of cheating and always effective, +because the merchant thinks the sovereign is genuine. +Only when these bad sovereigns get into circulation +they naturally find their level in gold; for people +begin to test them, and find that they have not +got as much gold in them as they pretend to have.<span class="pagenum" id="Page_79">79</span> +Then, of course, prices as measured in this new +base coin rise. If the Government wants to buy +another hundred tons of wheat it must offer more +than a thousand of the base coins; it must offer, +say, thirteen hundred of them. But again it is +tempted to put even less gold into the coins with +which it pays for the second lot of wheat, and so +the coin gets baser and baser, until at last, perhaps, +a sovereign will not really be worth half what it +pretends to be. Governments in the past have +done this over and over again, but it was not until +our time that the worst form of debasing the +coinage came in.</p> + +<p>It came in as a result of the Great War, and we +are all suffering from it to-day. This last and +worst form of debasing coinage worked, not through +cheating about the metal, but through a trick played +with paper money.</p> + +<p>Before the war, if you got a Five Pound note +saying “I promise to pay Five Pounds” the promise +was kept and the five golden sovereigns were there +for you whenever you went with your note to the +bank and asked for them; but when the Government +had these very heavy expenses to meet on account +of the war, they first began making difficulties about +paying when people brought their paper to the bank, +and at last stopped paying altogether. At the same +time, they did everything they could to get the gold +out of private people’s hands and to make them +use paper money instead. The consequence was<span class="pagenum" id="Page_80">80</span> +that, people being so accustomed to think of a paper +guarantee of the Government exactly as though it +were real money, readily took to the new notes and +used them as money, thinking of these wretched +bits of paper exactly as though they were so many +golden sovereigns. The Government could go on +printing as many bits of paper as it liked, and they +would still be used as though they were real money. +So long as the amount of paper printed was not +more than <em>would have been printed</em> when the notes +were redeemable, and when the currency was on +a true “<em>Gold Basis</em>,” no harm was done; but of +course it paid the Government to go on printing +a great many more notes than that, because, when +it could make money thus cheaply, it could pay +for anything, however great the expense; but at +the cost, of course, of debasing the currency more +and more.</p> + +<p>This kind of money, forced upon people, pretending +to be the same as real money but actually without +a Gold Basis, is called <em>Fiat</em><a id="FNanchor_1" href="#Footnote_1" class="fnanchor">1</a> money, and that is +the kind of money the whole world has to-day, +except those countries which did not take part in +the Great War, and the United States which did +not ever give up its gold basis.</p> +<p><span class="pagenum" id="Page_81">81</span></p> +<p>Of the different European fighting countries, +however, ours did best in this matter. We are +still living on Fiat money, and we have much more of +it than we ought to have. But the French have +more in proportion, so that prices measured in <em>their</em> +money are now (1923) more than three times what +they would be in gold. The Italians are worse +off still. With them it is four times. With the +Germans it is millions of times, and their currency +has quite gone to pieces; a paper coin in Germany +is worth (at the time I write, October, 1923) <em>ten +million</em> times less than the real metal coin which +it is supposed to represent.</p> + +<p>This is one of the very worst things that has +happened on account of the war, for as the money +now being used all over Europe is not real money, +no one feels certain whether he can get his debts +really paid, or whether his savings are safe, or +whether a contract made for a certain payment +a few months hence will be really fulfilled or not. +A man may lend a thousand francs or marks or +pounds for a year, and then at the end of the year, +when he is to be paid back, he may be paid in coin +which has got so much worse that he is really +receiving only half or a tenth or a thousandth of +the real value he lent. A man in Germany sells +a hundred sheep for so many marks, to be paid for +in a month; and at the end of the month the marks +will only buy ten sheep!</p> + +<p>This piece of swindling, which has been the<span class="pagenum" id="Page_82">82</span> +note of the last five years, is the first point we have +touched on so far where a problem in Economics +and the study of economic law brings one up +against questions of right and wrong.</p> + +<p>It is morally wrong for the Government to swindle +people out of their property by making false money. +What is the way out, allowing for Economic Law? +It is morally wrong that some men should starve +while other men have too much: allowing for +Economic Law, what is the way out of such evils?</p> + +<p>As you go on in the study of Economics you +find quantities of questions where you have to +decide whether economic laws render possible +political actions which you would very much like +to undertake, and which seem right and just. +Many such actions, though one would like to undertake +them, cannot be undertaken because our study +of Economics has shown us that the consequences +will be very different from what we hoped.</p> + +<p>On the other hand, a great many people try to +get out of what it is their duty to do politically by +pleading that Economic Law prevents it.</p> + +<p>Before ending these notes, then, we must go into +the main questions of this kind, and see what there +is to be said, in the light of economic knowledge, +for our present system of society, which is called +<strong>Capitalism</strong>; for other systems in the past such +as <strong>Slavery</strong>; for <strong>Private Property</strong>; for the various +theories of <strong>Socialism</strong>; for and against <strong>Usury</strong>, +and so on.</p> + +<p><span class="pagenum" id="Page_83">83</span></p> + +<p>It is necessary to go into these points even +in the most elementary book on Economics, +because the moment one begins the practical +application of one’s economic science these questions +at once arise; to answer them rightly is the most +important use we can make of economic knowledge.</p> +<hr class="chap x-ebookmaker-drop"> + +<div class="chapter"> +<p><span class="pagenum" id="Page_85">85</span></p> + +<h2 class="nobreak" id="Part_II">Part II<br> + +<span class="subhead larger">POLITICAL APPLICATIONS</span></h2> +<hr class="chap x-ebookmaker-drop"> +<div> </div> +</div> + + +<div class="chapter"> +<p><span class="pagenum" id="Page_87">87</span></p> + +<h2 class="nobreak" id="INTRODUCTION"><span id="toclink_87"></span>INTRODUCTION</h2> +</div> + +<p class="in0"><span class="firstword">So</span> far I have been putting down the elements of +Economics just as one might put down the elements +of Arithmetic. But Economics have, just like +Arithmetic, a <em>practical application</em>: if it were not +for this, there would be no real use in studying +Economics at all.</p> + +<p>For instance: we find out, when we do the +elements of Arithmetic, that solid bodies vary with +the cube of their linear measurements. That is the +general abstract principle; but the <em>use</em> of it is in +real life when we come (for instance) to measuring +boats. We learn there from Arithmetic that, with +boats of similar shape, a boat twice as long as +another will be eight times as big; it is also by +using the elements of Arithmetic that we can keep +household accounts and do all the rest of our work.</p> + +<p>It is precisely the same with Economics. We +are perpetually coming upon political problems +which Economics illustrate and to which economic +science furnishes the answer—or part of the answer—and<span class="pagenum" id="Page_88">88</span> +that is where the theoretical elements of +Economics have practical importance.</p> + +<p>For instance: once we know the elementary +economic principle that rent is a surplus, we +appreciate that it does not enter into cost of +production. We do not try to make things cheaper +by compulsorily lowering rent. Or, again, when +we have learned the nature of money we can +appreciate the dangers that come from using false +money.</p> + +<p>In these political applications of Economics we +also come upon what is much more important than +mere politics, and that is the question of right and +wrong. We see that such and such a thing ought to +be so as a matter of justice; but we may blunder, +as many great reformers have blundered, in trying +to do the right thing and failing to do it, because +we have not made a proper application of our +economic science. And the opposite is also true: +that is, a knowledge of Economics prevents their +being wrongly applied by those who desire evil. +Many men take refuge in the excuse that, with the +best will in the world, they cannot work such and +such a social reform because economic science +prevents their doing what they know to be right. +If we know our Economics properly we can refute<span class="pagenum" id="Page_89">89</span> +these false arguments, to the great advantage of +our own souls and of our fellow-men.</p> + +<p>For instance: it is clearly our duty to-day to +alleviate the fearful poverty in which most +Englishmen live. A great many people who ought +to know better say, or pretend, that economic laws +prevent our doing this act of justice. Economic +laws have no such effect; and an understanding of +Economics clears us in this matter, as we shall see +later on.</p> + +<p>We have hitherto been following the statement +and examination of economic laws: that is, the +<em>theoretical</em> part of our study and its necessary +foundation. Now we go on to the <em>practical</em> part, +or “Applied Economics,” which is the effect of +those laws on the lives of men.</p> + +<p>Before leaving this Introduction I think it is +important to get quite clear the difference between +what is called “theoretical” study and the practical +application of such study. People are very often +muddle-headed about this, and the more clearly +we think about it the better.</p> + +<p>A theoretical statement is a statement following +necessarily and logically from some one or more +known first principles. Thus, we know that two +sides of a triangle are longer than the third, so we<span class="pagenum" id="Page_90">90</span> +say it follows <em>theoretically</em> that a straight road from +London to Brighton is quicker motoring than +going round by Lewes. But the number of first +principles at work in the actual world is indefinitely +large. Therefore one must test any one theoretical +conclusion by practice: by seeing how it works. +Because, side by side with the one or two first +principles upon which our theory is built, there +are an indefinitely large number of other first +principles which come into play in the real world. +Thus there is, in motoring, the principle that speed +varies with road surface. So the way round by +Lewes may be quicker than the straight road if +it has a better surface. There is yet another +principle that speed is checked by turnings in the +road, and it may prove that on trial the two ways +are about equal.</p> + +<p>Or again: we know that the tidal wave is raised +on either side of the earth, and that there is, therefore, +about twelve hours of even ebb and flow, +six hours each on the average and taking the world +as a whole: because the earth takes twenty-four +hours to go round.</p> + +<p>But if you were to act upon that first principle +<em>only</em> in any one part of the world, and to say without +testing the thing in practice, “I can calculate the<span class="pagenum" id="Page_91">91</span> +tide theoretically,” you would very often wreck +your ship. For many other principles come into +play in the matter of the tide besides this twelve-hour +period. In one case the tide will be delayed +by shoals or by the current of a river. In another +there may be two or three tides meeting. In a +third the sea will be so locked that there will be +hardly any tide for many hours, and then a rush +at the end—and so on.</p> + +<p>Now it is just the same with Economics. Your +economic first principle makes you come to such +and such a <em>theoretical</em> conclusion. But there are +a lot of other first principles at work, and they may +modify the effect <em>in practice</em> to any extent. When +people object to “theoretical dreaming,” as they +call it, they mean the bad habit of thinking that +one conclusion from one particular set of first +principles is sufficient and will apply to any set of +circumstances. It never does. One has always +to watch the thing in practice, and see what other +forces come in.</p> + +<p>In the political applications of economic science +we have to deal with the effect of human society +upon economic law. For instance: economic law +tells us that, given a certain standard of living for +labour—the “worth while” of labour—and a certain<span class="pagenum" id="Page_92">92</span> +minimum profit without which capital will not +accumulate—the “worth while” of capital—there +is, as we have seen, a lowest limit of production; +a set of conditions below which production will +not take place. Land which is below a certain +standard of fertility will not be farmed; a vein of +metal below a certain standard of yield will not +be mined under such and such social conditions. +But all circumstances in which production has +greater advantages than this lowest limit produce a +surplus value called “Rent.” That is an economic +law, and it is always true.</p> + +<p>But it does not follow that the owner of the land, +for instance, will get the full economic rent of the +land. There may be customs in society, or laws, +by which he is compelled to share with the tenant. +The theoretical economic rent is there all right, +but one cannot deduce from this truth that the +landlord will necessarily and always get the whole +of it. And so it is with every other political +application.</p> + +<div class="tb">* * * * *</div> + +<p>Having said so much by way of Preface, let us +turn to the particular problems, and first of all +consider the idea which underlies all practical +economic conclusions, the idea of <strong>Property</strong>.</p> + +<p><span class="pagenum" id="Page_93">93</span></p> + +<p>The very first governing condition of economic +production and distribution in the real world is +the condition of <em>control</em>. Who <em>controls</em> the process +of production in any particular Society? Who +in it owns (that is, has the right and power to +use or leave idle, to distribute or withhold) the +means of production, the stores of food and clothing, +and houses and machinery? On the answer to +that question depends the economic structure of +a society. This control is called <em>Property</em>, and as +the first thing we have to study in practical +Economics is the character of <em>Property</em>, we will +make that the first division of our political +applications.</p> +<hr class="chap x-ebookmaker-drop"> + +<div class="chapter"> +<p><span class="pagenum" id="Page_95">95</span></p> + +<h2 class="nobreak" id="PROPERTY"><span id="toclink_95"></span>PROPERTY<br> + +<span class="subhead"><span class="smcap">The Control of Wealth</span></span></h2> +</div> + +<p class="in0"><span class="firstword">All</span> the political application of Economics—that +is, all the application of Economic Science to the +conduct of families in the State—turns on The Control +of Wealth, and of the things necessary to make +wealth.</p> + +<p>The first thing to grasp is that <em>someone</em> must +control every piece of wealth if it is to be used to +any purpose. Every bundle of economic values in +the community must be under the control of some +human will; otherwise those pieces of wealth +“run to waste,” that is, are consumed without use +to mankind. For instance, a ton of threshed +wheat represents a bundle of economic values. It +represents a piece of wealth equivalent, in currency +measure, to say £16. If no one has the right to +decide upon its preservation and use, when and +how it is to be kept dry and free from vermin, when +and how it is to be ground and the flour made +into bread, then it will rot or be eaten by rats, +and in a short time its economic values will have<span class="pagenum" id="Page_96">96</span> +disappeared. It will be worthless. The £16 worth +of wealth will have been “consumed without use”; +in plain language, wasted. But if wealth were all +wasted humanity would die out. So men must, of +necessity, arrange for a <em>control</em> of all wealth, and this +they do by laws which fix the control of one parcel +of wealth by one authority, of another by another; +men make laws allowing such control by some +people and preventing attempted control by other +people not authorised. This lawful control over +a piece of wealth we call <em>Property</em> in it.</p> + +<div class="tb">* * * * *</div> + +<p>Thus, the coal in your cellar which you have +bought is by our laws your property. It is for you +to burn it as you want it and when you choose. +If another person comes in and takes some of it +without your leave, to burn it as <em>he</em> chooses, he is +called a thief and punished as such. The coal in +the Admiralty Stores is State property. The State +has the right to decide into what ships it is to be +put and how and when it is to be burnt, and so on. +But whether the control is in private hands such +as yours, or in the naval authorities who are officers +of the State, control there must always be.</p> + +<p>When people say that they want to “abolish +property,” or that “There ought to be no property,” +they mean <em>Private</em> property: the right of individuals, +or families, or corporations to control wealth. +Property in the full sense, meaning the control of +wealth by <em>someone</em>, whether the State, or private<span class="pagenum" id="Page_97">97</span> +individuals, or what not, is inevitable, and is +necessary in every human society. So, granting +that property must exist, we will first examine the +various forms it may take.</p> + +<p>At the beginning of our examination we noticed +that wealth, owned and controlled by whoever it +may be—the State, or an individual, or a +corporation—is of two kinds. There is the +wealth which will be consumed in enjoyment and +the wealth which will be consumed in producing +future wealth.</p> + +<p>The wealth which will be consumed in producing +future wealth is, as we have seen, called <em>Capital</em>. +For instance: if a man has a ton of wheat and +eats half of it while he is doing nothing but taking +a holiday, or doing work which has some moral +but no material effect—that is not Capital. But +if he uses the other half to keep himself alive while +he is ploughing and sowing for a future harvest, +and keeps a little of it for the seed of that harvest, +all that he so uses is <em>Capital</em>. Since control of wealth +is necessary, no matter of what kind the wealth be, +it is clear that there must be property not only +in what is about to be consumed in enjoyment +but also in Capital. Someone, then, must own +Capital.</p> + +<p>But here comes in a very important addition. The +fertility of land, space upon which to build, mines +of metal, water power, natural opportunities of +any kind and natural forces, <em>though they are not<span class="pagenum" id="Page_98">98</span> +wealth</em>,<a id="FNanchor_2" href="#Footnote_2" class="fnanchor">2</a> are the necessary conditions for producing +wealth. Someone, therefore, must control these +also: someone must have the power of saying, +“This field shall be ploughed and sown thus and thus. +This waterfall must be made to turn this turbine +in such and such a spot, and the power developed +must be applied thus and thus.” For if no one +had such power the fertility of the land, the force of +the stream, would be wasted.</p> + +<p>Property, therefore, extends over two fields, one +of which is itself divided into two parts. A.—It +extends over natural forces. B.—It extends over +wealth, and, in the case of B, wealth, it extends +over B.1 wealth to be used for future production +(which kind of wealth, when it is so used, is called +Capital), and also B.2 wealth which is going to be +consumed without the attempt to produce anything +else: consumed, as the phrase goes, “in enjoyment.”<a id="FNanchor_3" href="#Footnote_3" class="fnanchor">3</a> +Natural forces may be grouped, as we +<span class="pagenum" id="Page_99">99</span>have grouped them in the first part of this book, +under the conventional term “Land.” So Property +covers Land and Capital, as well as Wealth to be +consumed without the attempt to produce other +wealth. You may put the whole thing in a diagram +<span class="locked">thus:—</span></p> + +<figure id="ip_99" class="figcenter" style="max-width: 33em;"> + <img src="images/i_099.png" width="1579" height="571" alt=""> +</figure> + +<p>In studying the social effects of Property it is +convenient to group together <em>Land</em> and that part +of wealth which is used for further production and +is called <em>Capital</em>, and to call the two “<em>the means of +production</em>”: because, in a great many social +problems the important point is not who owns the +Capital separately or the land separately, but who +owns the whole bundle of things which constitute +the “Means of Production,” without which no +production can take place.</p> + +<p>For instance: Supposing a man owns a hundred +acres of fertile land, that is his property, and though +we call it wealth in ordinary conversation it is not +real wealth at all. It is only the opportunity for +producing wealth. If no one worked on that land, +if no one even worked so little as to take the trouble +of picking fruit off the trees or cutting the grass or<span class="pagenum" id="Page_100">100</span> +looking after animals on it, it would be worth +nothing. Supposing another man to own the stores +of food and the houses and the clothing necessary +for the livelihood of the labourers on the land, and +also the horses and the ploughs and the stores of +seeds necessary for farming, then that man owns the +Capital only. But to the <em>labourers</em> the important +thing is that someone else owns the “Means of +Production,” <em>without which they cannot live</em>, and +they are equally dependent whether one or many +control or own the <em>Means of Production</em> in any +particular case. <em>Their</em> condition has for its main +character <em>the fact that they do not own the “Means +of Production.”</em></p> + +<p>Labour must be kept going. That is, human +energy, for producing wealth from land, while it is +at work, waiting between one harvest and another, +will consume part of the stores of food and some +proportion of the housing (which is a perishable +thing, though it only perishes slowly) and of the +clothing, and of the seed, etc. So we have to examine +the various ways in which labour (which is not wealth) +and land (which is not wealth) and capital (which +<em>is</em> wealth) may be controlled.</p> + +<p>There are three main types of human society +which differ according to the way in which control +is exercised over these three factors of Labour, +Capital and Land. These three types <span class="locked">are:—</span></p> + +<div class="blockquot"> + +<p>1. <strong>The Servile State</strong>: that is, the state in +which the material Means of Production are the<span class="pagenum" id="Page_101">101</span> +property of men who also own the human agents +of Production.</p> + +<p class="p2">2. <strong>The Capitalist State</strong>: that is, the state in +which the material Means of Production are the +property of a few, and the numerous human agents +of Production are free, but without property.</p> + +<p class="p2">3. <strong>The Distributive State</strong>: that is, the state +in which the material means of Production are +owned by the free human agents of Production.</p> +</div> + +<p>There is also a fourth imaginary kind of state +which has never come into being, called the Socialist +or Communist State. We will examine this in its +right place, but the only three <em>actual</em> states of which +we know anything in history and can deal with +as real human experiences, are these three just +described: the <em>Servile</em> State, the <em>Capitalist</em> State, +and the <em>Distributive</em> State.</p> + +<p>But, before going farther, we must get hold of +a very important principle, which is <span class="locked">this:—</span></p> + +<div class="blockquot"> + +<p><strong>The nature of an economic society is not determined +by its arrangements being universal, that is, +applying without exception to all the families of +the State, but only by their applying to what is +called</strong> <em>The Determining Number</em> <strong>of the families of +the State: that is, in so great a proportion as to +colour and give its form to the whole society.</strong></p> +</div> + +<p>No one can exactly define the amount of this +“determining number,” but we all know in practice<span class="pagenum" id="Page_102">102</span> +what it means. For instance: we say the English +are a tall race, from 5½ to 6 feet high. But that +does not mean necessarily that the majority of the +people are over 5½ feet. You have, of course, to +exclude the children, and there are a great number +of very short people and a few very tall people. +It means that the general impression conveyed when +you mix with English people—the size of the doors +and the implements with which men work, and the +clothes that are produced, and the rest of it—turn +upon the general experience that you are dealing +with a race of about that size—5½ to 6 feet. Or again, +you say that the <em>determining</em> number or proportion +of our society speaks English. That does not mean +that they all speak English. Some are dumb; some +speak Welsh or Gaelic. Many speak with such +an accent that others with a different accent find +it difficult to understand them. Yet it is true to +say that the society in which we live speaks English.</p> + +<p>Now it is exactly the same with the economic +conditions of society. You may have a society +in which there is a certain number of slaves, and +yet it is not a slave-owning society, because the +number of free men is so great as to give a general +tone of freedom. Or you have, as we have in +England, a great deal of property owned by the +State—barracks and battleships and arsenals, some +of the forests, and so on—but we do not say that +England is economically a State-owned society, +because the <em>determining</em> proportion of property<span class="pagenum" id="Page_103">103</span> +is not owned by the State but by private people. +The general effect produced is one of private ownership +and not of State ownership.</p> + +<p>One more principle must be set down before we +go farther, and that is that almost any society +is mixed. A society of which the determining +proportion is slave-owning will yet certainly have a +proportion of free men; for if it did not there would +be no one to own the slaves. In the same way +what is called a Capitalist Society, which I will +describe in a moment (and which is the society +in which we now live in England) has a great number +of people not living under purely capitalist conditions. +It is mixed.</p> + +<p>But, though only a <em>determining number</em> is required +to mark the character of a particular society, and +though every society is <em>mixed</em> in its character, it +remains true that all societies we know of, in the +past or the present, fall into one of these three +groups—the Servile (that is, slave-owning), the +Capitalist, and the Distributive.</p> + +<p>The definition of these three systems is as +<span class="locked">follows:—</span></p> + +<p>1. In the Slave-owning Society, or <span class="allsmcap">SERVILE +STATE</span>, a certain minority owns a determining amount +of the wealth and also of land—that is, the means +of production (land and capital) and the wealth +ready for consumption in enjoyment. The rest +of the community is compelled by positive law to +give its labour for the advantage of these few<span class="pagenum" id="Page_104">104</span> +owners; and this rest of the community are, by +economic definition, (whether they call themselves +by the actual name or not) slaves: that is, they +can be compelled to work for the owners, and can +be punished by law if they do not work for the +owners.</p> + +<p>2. In the <span class="allsmcap">CAPITALIST STATE</span> a determining number +of the families or individuals are free; that is, they +cannot be compelled by positive law to work for +anybody. They are at liberty to make a contract. +Each can say to an owner of land or capital: “I +will work for you for so much reward, such and such +a proportion of the wealth I produce. If you will +not give me that I will not work at all,” and no +one can punish him for the refusal.</p> + +<p>But the mark of the Capitalist State is that a +determining amount of land and capital is owned +by a small number of people, and that the rest +of the people—much the greater number—though +free, cannot get food or housing or clothing except +in so far as the owners of these things (that is, of +the means of production) choose to give it them. +In such a state of society the people who own +nothing, or next to nothing, are free to make a +contract and to say: “I will work on your farm” +(for instance) “if you will give me half or three-quarters +of the harvest. If you will not, I will +not work for you.” But this contract is bound by +a very hard condition, for if they push their refusal +to the limit and continue not to work they will<span class="pagenum" id="Page_105">105</span> +starve, and they will not be able to get housing +against the weather or clothes to wear.</p> + +<p>We are living to-day, in England especially, in +such a Capitalist State. In such a state the free +men who contract to sell their labour often have a +certain very small proportion of things on which +they can live for a short time. They have a suit +of clothes and perhaps a little money with which +they can purchase a few days’ livelihood—some of +them more, some of them less. But the tone or +colour of the society is given by the fact that <em>the +great majority, though free, are dispossessed of the +means of production, and therefore of livelihood, and +that a small minority controls these things</em>.</p> + +<p>The word “Capitalism” does not mean that +there exists capital in such a society. Capital +exists in all societies. It is a necessary part of human +society and of the production of wealth, without +which no society can live at all. The word +“Capitalism” is only “shorthand” for the condition +we have just described: a condition where capital +and land are in few hands though all men are free.</p> + +<p>3. The <span class="allsmcap">DISTRIBUTIVE STATE</span> is a state in which +a determining number of the citizens, a number +sufficient to colour the habits, laws and conditions +of the whole society, is possessed of the means of +production, as private property, divided among +the various families. The word “distributive” is +an ugly, long word, only used for want of a better; +but the reason that we have to use such a tiresome<span class="pagenum" id="Page_106">106</span> +word is an odd and paradoxical reason well worth +grasping. The Distributive State is the natural +state of mankind. Men are happiest in such +conditions; they can fulfil their being best and are +most perfectly themselves when they are owners +and free. Now whenever you have natural and +good conditions, not only in Economics but in any +other aspect of life, it is very difficult to find a +word for it. There is always a word ready for odd, +unnatural conditions: but it is often difficult to +find a word for conditions normal to our human +nature. For instance: we have the words “dwarf” +and “giant,” but we have no similar common, +short word to describe people of ordinary stature. +So it is with the Distributive State. We have +to use an ugly new word, because men more or less +take for granted this state of affairs in their minds, +and have never thought out a special word for it.</p> + +<p>However, a name it must have; so let us agree +to call that kind of society in which most men are +<em>really</em> free and dignified and full citizens, not only +possessing rights before the law, but <em>owning</em>, so that +they are at no other man’s orders but can live +independently, “The Distributive State.”</p> + +<p>Then we have these three main types of Society +within human experience: the Servile, the Capitalist, +the Distributive.</p> + +<p>To put these three estates clearly before our +minds, let us describe the kind of thing you would +see in any one of the three.</p> + +<p><span class="pagenum" id="Page_107">107</span></p> + +<p>In the <em>Servile State</em>, as you travelled through the +country, you would most ordinarily see working on +the fields men who were the slaves of a master. That +master would own the land and the seed, and the +food and the houses, and the horses and ploughs +and everything, and these men you would see working +would be compelled to work for their master, and he +would have the right by law to punish them if they +did not.</p> + +<p>If you were in a <em>Capitalist State</em> (as we are in +England) the men you would see working would, +as a rule, be earning what are called “wages,” that +is, an allowance (actually of money but immediately +translated into food and clothes and house-room and +the rest), which allowance would be paid to them at +fairly short intervals, and without which they could +not live. The ploughs and horses with which they +would be working, the seed they would be sowing, +the houses they lived in would be the property of +another man owning this <em>capital</em>, and therefore +called <em>The Capitalist</em>. If you asked any one of +these men who were working whether he were +<em>compelled</em> to work by law he would indignantly +tell you that he was not. For he is a free man; +his wages are paid him as a result of a contract; +he has said: “I will work for you for so much,” +and no one could compel him to work if he did not +choose to work. But in this state of society a man +without capital must make a contract of this sort +in order to live at all. He is not compelled by law<span class="pagenum" id="Page_108">108</span> +to work for another, but he is compelled by the +necessity of living to work for another.</p> + +<p>Lastly, if you were travelling through a +<em>Distributive State</em> (Denmark is the best example of +such a state in modern Europe) you would find that +the man working on the land was himself the owner +of the land, and also of the seed and of the horses +and the houses, and all the rest of it. He would +be a free man working for his own advantage and +for nobody else’s. He would also have a share in +the factories of the country and be a part owner +in the local dairies, sharing the profit of those dairies +where the milk of many farms is gathered together, +turned into butter and cheese, and sold.</p> + +<p>This is what we mean by the three types of State. +In each you would find many exceptions, but each +has its <em>determining number</em>—of slaves in the one +case, wage earners in the other, and independent +men in the third.</p> + +<div class="tb">* * * * *</div> + +<p>We will now take each of these three kinds of +State separately and see the good and evil of them +and what the consequences of them are.</p> +<hr class="chap x-ebookmaker-drop"> + +<div class="chapter"> +<p><span class="pagenum" id="Page_109">109</span></p> + +<h2 class="nobreak" id="THE_SERVILE_STATE"><span id="toclink_109"></span>THE SERVILE STATE</h2> +</div> + +<p class="in0"><span class="firstword">The</span> Servile State is that which was found among +our forefathers everywhere. It is the Servile State +in which we Europeans all lived when we were pagan +two thousand years ago. For instance: In old +pagan Italy before it became Christian, or in old +pagan Greece—both of them the best countries in +the world of their time and both of them, as you +know, the origins of our own civilisation—most +of the people you would have seen working at +anything were slaves, and above the slaves were +the owners: the free men.</p> + +<p>Since we are talking of the political applications +of political economy, we have to consider <em>human +happiness</em>, which is the object of all human living; +and when we talk of “advantage” or “disadvantage” +in any particular economic state +we mean its greater or less effect on human +happiness.</p> + +<p>The great disadvantage of the slave-owning +state is clearly apparent: in it the mass of men +are degraded: they are not citizens: they cannot +exercise their own wills. This is so evident and<span class="pagenum" id="Page_110">110</span> +great an evil that it must be set against all the +advantages we are about to notice. Slavery is +a most unhappy condition in so far as it wounds +human honour and offends human dignity; and +that is why the Christian religion gradually dissolved +slavery in the process of many centuries: slavery +is not sufficiently consistent with the idea of man’s +being made in the image of God. Slavery can also +be materially unhappy, if the masters are cruel or +negligent. The great mass of slaves in such a +society might be, at the caprice of their masters, +very unhappy; and under bad phases of those +societies they <em>were</em> very unhappy.</p> + +<p>But we must not be misled by the ideas that have +grown up around the word “slave” in the modern +mind. Because we have no one in England to-day +who is called a slave and bought or sold as a slave, +and no one is yet compelled by law to work for +another man, therefore we regard slavery as +something odd and alien; and because it is natural +to dislike things which are odd and alien, unaccustomed, +we think of slavery as something simply +bad.</p> + +<p>That is a great mistake. The Servile State had—and, +if it comes back, will have again—two great +advantages: which were <em>personal security</em> and +<em>general stability</em>.</p> + +<p><em>Personal security</em> means a condition in which +everybody, master and man, is free from grave +anxiety upon the future: can expect regular food<span class="pagenum" id="Page_111">111</span> +and lodging and a continuance of his regular way +of life.</p> + +<p><em>General stability</em> means the continuance of all +society in one fashion, without the violent ups and +downs of competition and without the friction of +unwilling, constantly interrupted labour—as in +strikes and lock-outs.</p> + +<p>In the Servile State work always got done and +was done regularly. The owners knew “where +they were.” With so much land and so many +slaves they were sure of a certain average annual +produce. On the whole it was to the advantage +of a man to keep his slaves alive and fairly well +fed and housed. Also, the human relation came +in, and a man and his slave, in the better and +simpler forms of the Servile State, would often +be friends and were usually in the same relation +as people are to-day with their dependents. For +instance: in well-to-do houses of the Servile State +we know from history that certain slaves were +often the tutors of the children, and thus had a +very important and respectable position, and there +were other slaves who acted as good musicians and +architects and artists. There was always the +feeling of a fixed social difference between slave +and free, but this did not necessarily nor perhaps +usually lead to great unhappiness.</p> + +<p>This stability and security which slave-owning +gave to all society (to the owned to some extent, +and to the owners altogether) also produced a very<span class="pagenum" id="Page_112">112</span> +valuable effect, which is, the presence of <em>leisure</em>. +Because revenue was fairly certain, because this +kind of arrangement prevented violent fluctuation +of fortune, competition in excess, and the rest of it, +therefore was there a considerable proportion of +people at any time who had ample opportunity for +study, for cultivating good tastes, for writing +and building well, and judging well, and—what is +very important—for conducting the affairs of the +State without haste or the panic and folly of +haste.</p> + +<p>One alleged <em>economic</em> disadvantage of slave-owning +must be looked at narrowly before we leave this +description of the Servile State.</p> + +<p>One often hears it said that slave labour is less +productive than free labour, that is, labour working +at a wage under Capitalism. People sometimes +point to modern examples of this contrast, saying +that places like the Southern States of America, +where slave labour was used a lifetime ago, were less +productive than the Northern States, where labour +was free. But though this is true of particular +moments in history, it is not generally true. Free +labour working at a wage under the first institution +of capitalism—when, for instance, a body of +capitalists are beginning to develop a new country +with hired free men to work for them—will be full +of energy and highly productive. But when what +is called “free labour”—that is, men without +property working by contract for a wage—gets into<span class="pagenum" id="Page_113">113</span> +routine and habit, it is doubtful whether it is more +productive than slave labour. It is accompanied +by a great deal of ill-will. There is perpetual +interruption by strikes, and lock-outs,<a id="FNanchor_4" href="#Footnote_4" class="fnanchor">4</a> and the +process of production cannot be as minutely and +absolutely directed by the small and leisured class as +can slave labour. <em>There is no reason why a free man +working for another’s profit should do his best.</em> On +the contrary, he has every reason to work as little +as possible, while a slave can be compelled to work +hard.</p> + +<p>But whether slave labour be more or less productive +is not so important as the two points mentioned<span class="pagenum" id="Page_114">114</span> +above, of advantage and disadvantage. The <em>disadvantages</em>, +as we have seen, are (1) that it offends our +human love of honour and independence, degrading +the mass of men, and (2) that it is so terribly liable +to abuse in the hands of cruel or stupid owners, +or in conditions where great gangs of slaves grow +up under one owner who can know nothing about +them personally and is therefore indifferent to their +fate. The <em>advantages</em> are security and stability, +running as a note throughout society and showing +themselves especially in the leisure of the owning +classes, with all the good fruits of leisure in taste, +literary and artistic. It was a society based on +slavery which produced what is perhaps the best +fruit of leisure, and that is the profound and fruitful +thinking out of the great human problems. All +the great philosophy and art of the ancients was +worked out by the free owners in the slave-owning +states, and so was the best literature ever made.</p> +<hr class="chap x-ebookmaker-drop"> + +<div class="chapter"> +<p><span class="pagenum" id="Page_115">115</span></p> + +<h2 class="nobreak" id="THE_CAPITALIST_STATE"><span id="toclink_115"></span>THE CAPITALIST STATE</h2> +</div> + +<p class="in0"><span class="firstword">The</span> Capitalist State is that one in which though +all men are free (that is, though no one is compelled +to work for another by law, nor anyone compelled +to support another), yet a few owners of the land +and capital have working for them the great mass +of the people who own little or nothing and receive +a <em>wage</em> to keep them alive: that is, a part only of +the wealth they produce, the rest going as rent +and profit to the owners.</p> + +<p>The Capitalist State is a recent phenomenon +compared with the great length of known recorded +history. It is a modern phenomenon produced by +our white race alone, by no means covering the +whole of that race, nor the most of it, but of great +interest to us in England because we alone are, of +all nations, an almost purely capitalist society.</p> + +<p>Here again we can tabulate the advantages and +disadvantages.</p> + +<p>The chief moral advantage of Capitalism as +compared with the Slave-owning State is that <em>every +man, however poor, feels himself to be free and to +that extent saves his honour</em>. He may be compelled +by poverty to suffer a very hard bargain;<span class="pagenum" id="Page_116">116</span> +he may see himself producing wealth for other men, +of which wealth he is only allowed to keep a portion +for himself. To that extent he is “exploited,” +as the phrase goes. He feels himself the victim of +a certain injustice. He remains poor in spite of all +his labour, and the man for whom he works grows +rich. But, after all, it is a contract which the free +workman has made, and he has made it as a citizen. +If those who own nothing, or next to nothing, in +a capitalist state (this great majority is technically +called in economic language “the <em>proletariat</em>”) +organise, they can bargain, as our great Trade +Unions do, with the few owners of their means of +livelihood and of production, and be fairly certain, +for some little time ahead, of a reasonable livelihood.</p> + +<p>Another advantage of Capitalism, purely economic, +is the <em>effectiveness of human energy</em> under this system, +at least, <em>in the first part of its development</em>. We spoke +of this in the last section.</p> + +<p>But the disadvantages are very grave indeed.</p> + +<p>Under Capitalism the capitalist himself acts +competitively and for a profit. He does not, like +the slave-owner, direct a regular, simple machine +which works evenly year in and year out. He is +perpetually struggling to rise; or suffering, through +the rise of others, a fall of fortune. He is always +on the look-out to buy labour as cheaply as he can +and then to sell the product as dearly as he can. +There is thus a perpetual gamble going on, the +owners of Capital rapidly growing rich and poor<span class="pagenum" id="Page_117">117</span> +by turns and a general insecurity gradually poisoning +all the owning part of society. A far worse insecurity +affects the propertyless majority. The Proletariat—that +is, the mass of the State—lives perpetually +under the fear of falling into unemployment and +starvation. The lash urging the workman to his +fullest effort is this dread of misery. At first that +lash urges men to intense effort, but later it destroys +their energy. Capitalism was marked by nothing +more striking when it first arose than by the +immense expansion of wealth and population which +followed it. In every district which fell under the +capitalist system this expansion of total wealth +and of total population could be observed; and +England, which has become completely capitalist, +had in the hey-day of its Capitalism—up to the +present generation—a more rapid rate of expansion +in wealth and population than any other ancient +people. But already the tide has turned, and +the inhumanity of such a life is beginning to breed +everywhere an ill-ease and revolt which threaten +our civilisation.</p> + +<p>The disadvantages of Capitalism are, in the long +run, so great that now, after not more than a lifetime +of complete Capitalism, and that in only one +State—the English State—nearly everybody is +profoundly discontented with it and many people +are in violent rebellion against it. This grinding +and increasing insecurity which attaches to the +Capitalist system is killing it. No one is safe for<span class="pagenum" id="Page_118">118</span> +the morrow. Perpetual competition, increasing +with every increase of energy, has led to a chaos +in human society such as there never was before. +The mass of the people, not being slaves, cannot +be certain that they will be kept alive. They live +in a state of perpetual anxiety as to whether their +employment will continue; while among the owners +themselves the same anxiety exists in another +form. The competition among them gets more and +more severe. The number of owners gets less, and +even the richest of them is more insecure than were +the moderately rich of a generation ago. All society +is like a boiling pot, with individuals suddenly coming +into great wealth from below and then dropping +out again; the whole State suffers from an +increasing absence of leisure and an increasing +turmoil.</p> + +<p>There is, then, this very grave disadvantage of +insecurity everywhere, and particularly for the mass +of the people, who live under permanent conditions +of insecurity; nearly all the wage-earners have had +experience at some time, longer or shorter, of +insufficiency through unemployment. Capitalism +leaves free men under a sense of acute grievance +(which they would <em>not</em> feel if they were slaves, +accustomed to a regular and fixed status in society), +and, what is worse, Capitalism <em>in its later stages</em> +need not provide for the livelihood of the mass of +citizens, and, in effect, <em>does not</em> so provide.</p> + +<p>The magnitude of these evils is obvious. A man<span class="pagenum" id="Page_119">119</span> +who is a free man, a citizen, able in theory to take +part in the life of the State, equal with the richest +man before the law, yet finds himself living on a +precarious amount of necessaries of life doled out as +wages week after week; he sees his labour exploited +by others and suffers from a sense of injustice and +oppression. The wealth of the small, owning, class +does not seem a natural adjunct to its social position, +as it does in the slave-owning state; for there is +no tradition behind that class; it has no “status,” +that is, no general respect paid to it as something +naturally—or, at any rate, traditionally—superior +to the rest of men. Many a modern millionaire +capitalist, exploiting the labour of thousands of +his fellows, is of a lower culture than most of his +labourers; and, what is more, he may in a few +years have lost all his economic position and have +been succeeded by another, even baser than himself. +How can the masses feel respect for such a man in +such a position of chance advantage?</p> + +<p>It is inevitable that a moral evil of this sort +should make the whole State unstable. You cannot +make of great differences in wealth between citizens +a stable state of affairs, save by breeding respect for +the owners of great wealth. But the more the +turmoil of Capitalism increases the less respect +these owners of great wealth either deserve or +obtain: the less do they form a class, and the +less do they preserve traditions of any kind. And +yet it is under these very conditions of Capitalism<span class="pagenum" id="Page_120">120</span> +that there is a greater disparity of wealth than +ever the world knew before! It is clear that society +in such a condition must be as unstable as an +explosive.</p> + +<p>So much for the first great disadvantage of +Capitalism, chaos. But the second main disadvantage—the +fact that Capitalism in its later +stages ceases to guarantee the livelihood of the +people—is a little less easy to understand. Indeed, +most people who discuss Capitalism, even when they +strongly oppose it, seem unable to grasp this second +disadvantage—so let us examine it closely.</p> + +<p>I have said that Capitalism, in its later stages, +<em>does not provide for the maintenance of the mass of +the people</em>.</p> + +<p>To see how true this is, consider an extreme case.</p> + +<p>Supposing one man were to own all the means +of production, and supposing he were to have in +his possession one machine which could produce in +an indefinite amount all that human beings need +in order to live. Then there would be no economic +reason why this one man should provide wealth for +anyone except himself and his family. He might +turn out enough things to support a few others +whom he wanted for private servants or to amuse +him, but there would be no reason why he should +support the masses around him.</p> + +<p>Now it is true that we have not yet come, under +Capitalism, to so extreme a case. But the moral +applies, though modified, to Capitalism in its last<span class="pagenum" id="Page_121">121</span> +stages, when very few men control the means of +production, when machinery has become very +efficient, and when the great mass of people are +dependent upon employment by the capitalist for +their existence.</p> + +<p>Consider that it is of the essence of Capitalism to +keep wages down, that is, to buy labour cheap. +Therefore, the labourer who actually produces, say, +boots cannot afford to buy a sufficient amount of +the boots which he himself has made. The capitalist +controlling the boot-making machinery, when he +has provided himself with a dozen pair of boots, +and the working classes of the community with such +boots as their wages permit them to buy, must +either try to sell the extra boots abroad (and that +outlet can’t last long) or stop making them. He has +restricted the home market by the necessity of cheap +labour, and you have the absurd position of men +making more goods than they need, and yet having +less of those goods available for themselves than they +need: the labourer producing, or able to produce, +every year enough clothing for ten years, and yet +not being able to afford sufficient for one: the +labourer producing or able to produce ten good +overcoats, yet not able to buy one.</p> + +<p>So under Capitalism in its last stages you have +the abnormal position of millions of men ready to +make the necessaries of life, of machinery ready +to produce those necessaries, of raw material standing +ready to be worked up by the machinery if only<span class="pagenum" id="Page_122">122</span> +labourers could be put on, and yet all the machinery +standing idle, the wealth not being produced, and +the mass who could produce it going hungry and +ill-shod and badly clothed. And the more Capitalism +develops the more that state of things will develop +with it.</p> + +<p>Now this gradual lessening of purchasing power +on the part of the working masses under Capitalism +is <em>the destruction of the home market</em>. Low wages +make great masses of English bootmakers unable +to buy all the boots they would. Therefore the +capitalist who owns the boot-making machinery +must try to sell his surplus abroad. But the foreign +countries, as they grow capitalist, suffer from the +same trouble: property being badly distributed +and the wage-earners kept as low as possible, their +power to buy foreign goods also diminishes. Thus +you have <em>gradual destruction of the foreign market</em>. +You get in the long run the full working of what +we will call the “<em>Capitalist Paradox</em>,” which is that +Capitalism is a way of producing wealth which, in +the long run, prevents people from obtaining the +wealth produced and prevents the owner of the +wealth from finding a market.</p> + +<p>There is no doubt that, on the balance, the disadvantages +of Capitalism have proved, even after +its short trial, overwhelmingly greater than the +advantages.</p> + +<p>Capitalism arose in small beginnings rather more +than 250 years ago. It grew strong and covered the<span class="pagenum" id="Page_123">123</span> +greater part of the community (in England, at least) +about 100 years ago. It came to its highest +development in our own time; and it is already +doomed. People cannot bear it any longer. Future +historians looking back upon our time will be +astonished at the immense productivity of Capitalism, +the enormous addition to wealth which it made, +and to population, in its early phases; but perhaps +they will be still more astonished at the pace at which +it ran down at its end. Urged by the extreme +human suffering, moral and material, which +capitalism now produces, remedies have been proposed, +the chief of which is generally called Socialism, +or, in its fully developed form, Communism.</p> + +<p>But before we talk of this supposed remedy, +which has never been put into practice (it is an +imaginary state of things) we must describe the +third form of state—the Distributive State.</p> +<hr class="chap x-ebookmaker-drop"> + +<div class="chapter"> +<p><span class="pagenum" id="Page_124">124</span></p> + +<h2 class="nobreak" id="THE_DISTRIBUTIVE_STATE"><span id="toclink_124"></span>THE DISTRIBUTIVE STATE</h2> +</div> + +<p class="in0"><span class="firstword">A state</span> of society in which the families composing +it are, in a determining number, owners of the land +and the means of production as well as themselves +the human agents of production (that is, the people +who by their human energy produce wealth with +those means of production), is probably the oldest, +and certainly the most commonly found of all +states of society. It is a state of society which you +get all through the East, all through Asia, and in +all the primitive states we know. It is the state +to which men try to return, as a rule, after they +have blundered into any other, though the first state +we described—the Servile State—runs it very close +as a thing suitable to human nature; for we know +that the Servile State did also last for centuries +quite normally and stably in the Pagan past.</p> + +<p>The reason men commonly adopt the Distributive +form of society, and tend to return to it if they +can, is that the advantages it presents seem greater +in most men’s eyes than its disadvantages.</p> + +<p>The advantages are <span class="locked">these:—</span></p> + +<p>It gives freedom: that is, the exercise of one’s<span class="pagenum" id="Page_125">125</span> +will. A family possessed of the means of production—the +simplest form of which is the possession of +land and of the implements and capital for working +the land—cannot be controlled by others. Of +course, various producers specialise, and through +exchange one with the other they become more +or less interdependent, but still, each one can +live “on his own”: each one can stand out, if +necessary, from pressure exercised against him by +another. He can say: “If you will not take my +surplus as against your surplus I shall be the +poorer; but at least I can live.”</p> + +<p>Societies of this kind are not only free, but also, +what goes with freedom, elastic—that is, they +mould themselves easily to changed conditions. +The individual, or the family, controlling his or +its own means of production, can choose what +he will do best, and can exercise his faculties, +if he has sufficient knowledge, to the best +advantage.</p> + +<p>This arrangement also gives security, though not +as much security as the Servile State. Men in this +position of ownership are not in dread of the +immediate future. They can carry on. They may, +if they choose, make a reserve of their produce +to carry them over moments of difficulty. For +instance, they will probably have each a reserve of +food to carry them over a bad harvest or some +natural disaster. Further, it is found in practice +that societies of this kind continue for centuries<span class="pagenum" id="Page_126">126</span> +without much change. They go on for generations +with a property well divided among them and +everybody free, so far as economic situation is +concerned. No such society has ever been destroyed +except by some great shock; and so long as every +shock can be warded off, this system of having the +land and the means of production controlled by the +mass of the citizens as private owners is enduring. +There are districts of Europe to-day where the +system has continued from beyond the memory +of man. Such a little state as Andorra is an +example, and many of the Swiss valleys. Further, +when the system has been laboriously reconstructed, +when the mass of families who used to be dispossessed +have been again put into possession of land and the +means of production, we find that the state arrived +at is stable.</p> + +<p>The best example of that sort of reconstruction +to-day is to be found in Denmark, but you +have it also in a less marked fashion in most +parts of France and in most of the Valley of +the Rhine, in Belgium and Holland, in Norway, +and in many other places. Wherever it has been +settled it has taken root firmly.</p> + +<p>The disadvantages of such a system are, first, +that though in practice it is found usually stable, +yet in theory it is not necessarily stable, and in +practice also there are some communities the social +character of which is such that the system cannot be +established permanently.</p> + +<p><span class="pagenum" id="Page_127">127</span></p> + +<p>It is obvious that, with land and the means of +production well distributed among the various +families, a few may by luck or special perseverance +and cunning, tend to buy up the land and implements +of their less fortunate neighbours, and nothing will +prevent this but a set of laws backed up by strong +public opinion. In other words, people must desire +this state of society, and desire it strongly in order +to maintain it; and if the desire for ownership and +freedom is weak this distributive arrangement will +not last.</p> + +<p>In the absence of special laws, and a public opinion +to back them, the idler or the least competent or +least lucky of the owners will gradually lose their +ownership to the more industrious or the more +cunning or more fortunate.</p> + +<p>Another disadvantage which has often been pointed +out is that a state of society of this sort, though +usually stable and enduring, falls into a routine +(that is, into a traditional way of doing things), +which it is very difficult to change. The small +owner will not have the same opportunities for +travel and for wide experience as the rich man has, +and he will tend to go on as his fathers did, and +therefore when some new invention arises outside +his society he will be slow to adopt it. In this way +his society becomes less able to defend itself from +predatory neighbours and goes under in war. For a +society of this kind is unfitted to the discovery of +new things. Contented men feel no special spur<span class="pagenum" id="Page_128">128</span> +to discover or to act on such discovery. That is +why we find societies in which land and all the other +means of production are well distributed among +the greater part of the families of the State becoming +too conservative—that is, unwilling to change even +for their own advantage.</p> + +<p>This, of course, is not universally true. For +instance: no society in Europe has made more +progress in agriculture than the Danish society +of small owners. But, take the world all over, +this kind of state is usually backward, that is, +slow to take up improvements in production +and to avail itself of new discoveries in physical +science.</p> + +<p>There is also another disadvantage which the +Distributive State has when it is in competition +with a Capitalist State, or even a Servile State, +and that is <em>the difficulty of getting a very large number +of small owners to put their money together for any +great purpose</em>. The small owner will probably have +less opportunities for instruction and judgment than +the few directing rich men of a Capitalist or Servile +State, and even if he is, on the average, as well +educated as these rich men in neighbouring states, +it will be more difficult to get a great number of +small owners to act together than to persuade a few +large owners to act together. Therefore highly +Capitalist States, such as England, will be found more +enterprising than less Capitalist States in their investments +and commerce. They will open up new<span class="pagenum" id="Page_129">129</span> +countries more rapidly, and will get possession of +the best markets.</p> + +<p>Lastly, this disadvantage attaches to the +Distributive State—that it is not so easy in it to +collect great funds for war or for national defence, +or for any other purpose, as it is in a Capitalist +or Servile State. You cannot tax a Distributive +State as highly as you can tax a Capitalist State. +The reason is obvious enough. A family with, +say, £400 a year finds it terribly difficult—almost +impossible—to pay out £100 a year in taxation. +They live on a certain modest scale to which all +their lives are fitted, and which does not leave +very much margin for taxation. If you have +a million such families with a total income of +£400 millions you may collect from them, say, +a tenth of their wealth in a year—£40 millions—but +you will hardly be able to collect a quarter—£100 +millions.</p> + +<p>But another society with exactly the same +amount of total wealth, £400 millions a year, +only divided into very rich and very poor, a +society in which there are, say, 1,000 very rich +families with £300,000 a year each, and a million +families with rather less than £100 a year each, +is in quite a different situation. You need not tax +at all the million people with a hundred a year +each, but the rich people, who between them have +£300,000,000 a year, can easily be taxed a quarter +of their whole wealth; for a rich man always has<span class="pagenum" id="Page_130">130</span> +a much larger margin, the loss of which he does not +really feel.</p> + +<p>By a very curious paradox, which it would take +much too long to go into in detail, but which it is +amusing to notice, this power of taxing a very +highly capitalist community is one of the things +which is beginning to handicap our Capitalist +societies to-day against the Distributive societies. +It used to be all the other way, and it seemed +common sense that countries where you could levy +large sums for State purposes of war or peace would +win against countries where you could not levy +such sums for public purposes. But the fact +that you can tax so very highly a society of a +few rich and many poor has been shown in the +last few years to have most unexpected results. +The very rich men pay all right; but the drain +on the total resources of the wealth of the State +weakens it.</p> + +<p>The money raised by taxation is spent on +State servants—many of them inefficient and +idle.</p> + +<p>Since it is so easy to raise large sums, there +is a temptation to indulge in all sorts of +expensive State schemes, many of which come to +nothing. And this power of easy taxation, which +was a strength, becomes a weakness.</p> + +<p>No one suspected this until taxation rose to +its present height, but now it is clearly +apparent; and we in England might perhaps be<span class="pagenum" id="Page_131">131</span> +in a better way later on if there had been as +much resistance to high taxation here as there +has been in countries where property is better +distributed.</p> +<hr class="chap x-ebookmaker-drop"> + +<div class="chapter"> +<p><span class="pagenum" id="Page_132">132</span></p> + +<h2 class="nobreak" id="SOCIALISM"><span id="toclink_132"></span>SOCIALISM</h2> +</div> + +<p class="in0"><span class="firstword">It</span> remains to deal with a certain remedy which +some people have imagined would get rid of all the +disadvantages of Capitalism once and for all. This +remedy is called <em>Socialism</em>, and Socialism, as we +shall see in a moment, must mean ultimately +<em>Communism</em>.</p> + +<p>No one has ever succeeded in putting this remedy +for the evils of Capitalism into practice, and (though +the matter is still very much disputed) it looks +more and more as though no one would ever be +able to put it into practice.</p> + +<p>We have seen what the evils of Capitalism were +and how they have exasperated nearly everyone +who has become subject to a capitalist state of +society. There is the increasing insecurity which +everybody feels—all the Proletariat and many of +the Capitalists as well—whilst there is the necessary +tendency of Capitalism to leave a larger and larger +proportion of people unproductive, not making the +wealth which is necessary for their support, and +therefore either kept in idleness by Doles out +of the wealth which is still produced (a process<span class="pagenum" id="Page_133">133</span> +which cannot go on for ever) or starving. Pretty +well everyone wants to get rid of these evils and to +get out of the Capitalist system, and this idea of +Socialism which we are going to examine seemed, +when it was first put forward, an easy and obvious +shortcut out of the Capitalist muddle. When we +have looked into it, we shall see how and why +Socialism does not, in practice, turn out to be a +shortcut at all, but a blind alley.</p> + +<div class="tb">* * * * *</div> + +<p>Ever since men began to live in societies and +to leave records, you will find the poorer people, +when their poverty became intolerable, clamouring +for a division of the wealth which the more +fortunate enjoy.</p> + +<p>That is the main, obvious remedy to inequality +of wealth; to divide it up again. But such a scheme +has nothing to do with Socialism, and must not be +mistaken for Socialism.</p> + +<p>The Socialist theory was invented, or at any rate +was first put clearly, by a man of genius, Louis +Blanc, who was Scotch on his father’s side and +French on his mother’s. He lived rather less than +a hundred years ago and the scheme which he and +those around him started was <span class="locked">this:—</span></p> + +<p>The Officers of the State were to own all the Means +of Production—machinery and land and stores of +food, etc.—and they alone should be allowed to +own it. Individuals and families and corporations<span class="pagenum" id="Page_134">134</span> +might consume that portion of produced wealth +allotted them by the State after it had been produced, +<em>but they might not use it for making future wealth</em>. +<span class="smcap">Any wealth used for the making of future +wealth, that is, Capital in any form, was to +be handed over to the officers of the state; +and all land and natural forces were to be +owned for ever by the State.</span> That scheme is +Socialism, and from that principle all Socialist ideas +flow.</p> + +<p>In this way, it was claimed, there would be no +division of society into Capitalists and Proletarians, +no chaos of competition with its alternating riches +and ruin; insecurity would be done away with, +and insufficiency as well. Everyone in the country +would be a worker, the State itself would be the +Universal Capitalist. So there would be no struggle +of capitalists going up and down one against the +other, and no unemployment or lack of necessaries +for anyone.</p> + +<p>Among the energetic and keen set of men who +surrounded Blanc in Paris was a certain Mordecai, +who wrote under the name his father had assumed, +that of “Marx.” He wrote (in German) a very +long and detailed book describing the whole scheme, +as well as describing the evils of Capitalism, and +showing how this scheme would remedy those evils. +His book was pushed forward by the people who were +converted to the idea, and that is why the theory +of Socialism is now often called “Marxism.”</p> + +<p><span class="pagenum" id="Page_135">135</span></p> + +<p>For instance: the coal-mines and all the machinery +of the coal-mines and the houses in which the miners +live and the stores of food and the clothing, etc., +which keep the miners alive while the coal is being +mined, that is during the process of production—all +these, which now belong to capitalists who make +a profit out of the miners’ labour, would then belong +to the State, which would allot the coal produced +to all who needed it. So it would be with all farms, +farming implements, and cattle and horses and the +stores of food and clothing and houses necessary +to the labourers on the land during the process of +production. So it would be with all stone-quarrying +and timber-felling, and carpentry and brick-making +for the continued production of the houses necessary +to the producers during production. So it would +be with all corresponding material for making cloth +for clothing. So it would be with everything which +was made in the whole country. The officers of +the State would share out the wealth produced, +so that it would be consumed by all the citizens, +and there would be an end to the exploitation of +one man by another and to the uncertainty of living.</p> + +<p>Communism is simply that form of Socialism +in which all that is thus shared out by the State +would be shared equally, the State giving every +family an equal share in proportion to the numbers +of people which had to be supported in the family, +from one upwards.</p> + +<p>The reason I have called Communism the logical<span class="pagenum" id="Page_136">136</span> +and only possible ultimate form of Socialism is +that there could be under Socialism no reason for +any other form of distribution.</p> + +<p>Some time ago certain Socialists used to try +to get out of this necessity for Communism, so as +not to frighten rich people with their proposals for +reform. They would say to a man who was making, +say, £5,000 a year because he owned a lot of capital +and land and had rents and profits coming to him +from the work of his labourers: “You will have +just as much under Socialism, for we recognise +what a superior kind of person you are, and when +the State shares out its wealth among its citizens +it will give you as much as you have now, leaving +the same difference between rich and poor, only +seeing to it that the poor always at least have +enough to live on. Where we give one ticket to +the labourer to claim out of the common stores +what he wants for a week we will give you fifty +tickets, so that you will get fifty times as much if +you like.” But of course this was nonsense, and was +soon discovered to be nonsense. With everybody +working for the State under orders all would +naturally claim equality, and there would be no way +of preventing their getting an equal share except +force. In justice, supposing a Socialist state to +arise, there could be only the Communist form of it.</p> + +<p>This scheme has never been put into practice, +and when we look closely at it we shall discover, +I think, why it never will be put into practice.</p> + +<p><span class="pagenum" id="Page_137">137</span></p> + +<p>The reason it cannot be put into practice is +this: Although we use the words “the State” this +mere idea means in practice real men who act as +officials to represent the State. Actual men with +their varying characters, good and bad, lazy and +industrious, just and unjust, have got to undertake +the enormous business <em>first</em> of running +production in the interest of all, <em>next</em> of distributing +the resultant wealth equally to all.</p> + +<p>Now there are two qualities in man which make +action of this sort break down. The first is that +men love independence—they like to feel themselves +their own masters. They like therefore to <em>own</em>, +so that they may do what they like with material +things. The next is that men like to get as much +as possible of good things. Both these feelings are +universally true of the human race. You will +find exceptional people, of course, who are just +as contented with a little as with a great deal, and +you will find exceptional people who do not care +about independence or about owning, and who are +quite willing to be run by other people, or to give +up all possession for the sake of some special way of +living: that is, there is a comparatively small +number of men and women who, in order to live +free from responsibility, or in order to devote +themselves to religion or to some form of study and +contemplation, will give up all property and have +the material side of their lives administered for +them. But men and women in general will both<span class="pagenum" id="Page_138">138</span> +want to get all they can of good things with the least +possible exertion in the getting of them, and they +will also desire freedom to exercise their own wills +and deal with material objects as they choose.</p> + +<p>Now the Socialist scheme requires both these +very strong emotions, common to all mankind, to +be suppressed. The people who run the State—that +is the politicians—are to be absolutely just +(although there is no one to force them to be just), +they are to forget all personal wishes and to think +of nothing but the good of those whose labour they +direct and among whom they share out the wealth +that is produced. We know by experience that +politicians are not angels of this sort. It is absurd +to imagine that men coveting public office (and living +the life of intrigue necessary to get it) would suddenly +turn into unselfish and devoted beings of this ideal +kind. You cannot give this enormous power to men +without their abusing it.</p> + +<p>The second force making against the establishment +of Socialism is still stronger. You will never get +the run of men and women contented to live their +whole lives entirely under orders. In exceptional +moments a large part of individual freedom will be +given up to the necessity of the State—as during +the Great War; for if the State did not survive +the individual’s life and that of his children would +not be worth living. The individual in abnormal +crises goes through a great deal of suffering for a +moment in order that he and his should have less<span class="pagenum" id="Page_139">139</span> +pain in the long run. But even in such crises a +large part of liberty remains to him. Under Socialism +he would have none. He would have to do what he +was told by his task-masters, much more than even +the poorest labourers now have to do what they are +told by task-masters. And there would also be this +difference: that <em>everyone</em> would be in that situation +and there would be no way out. Not a part of life, +nor so many hours a day, but the whole of life, +would be subject to orders given by others. This, +humanity would certainly find intolerable.</p> + +<p>That is why, I think, Socialism has never been +put into practice and never can be put into practice. +There have been attempts at it, but even when they +are sincere and not the mere product of alien +despotism they break down. As in Russia to-day, +where, whether the Jew adventurers who seized +power were sincere or mere tyrants, they have, +in spite of their attempt at seizing all the soil and +keeping the peasants dependent on them, been +compelled at last to let nearly all the nation live +as owners tilling their own land.</p> + +<p>It is no reply to this to say that the State always +has owned, and actually can and does own, <em>some</em> +part of the means of Production (such as the Post +Office and certain forests and lands here in England, +and, abroad, most mountain land, all mines and +much else) and direct them with success. The +point of Socialism—the one condition necessary +to its existence—is that the State should own<span class="pagenum" id="Page_140">140</span> +<em>all</em> the means of Production that really count. +Between the normal exercise of a partial function +and the abnormal exercise of a universal function +is all the difference between <em>plus</em> and <em>minus</em>. +A partial State ownership working in a society +the determining character of which is private +ownership is an utterly different thing, even +an <em>opposite</em> thing to general State ownership +determining the character of Society and allowing +only exceptional private ownership. Socialism can +only be (<i>a</i>) good (<i>b</i>) possible when men desire, +and are at ease in, the latter kind of state; that is, +desire and are at ease in complete forgetfulness +of self coupled with justice as men ruling, and +complete surrender of personal honour and freedom +and appetite as men ruled.</p> +<hr class="chap x-ebookmaker-drop"> + +<div class="chapter"> +<p><span class="pagenum" id="Page_141">141</span></p> + +<h2 class="nobreak" id="INTERNATIONAL_EXCHANGE"><span id="toclink_141"></span>INTERNATIONAL EXCHANGE</h2> +</div> + +<p class="in0"><span class="firstword">International</span> exchange is not really different +from the domestic exchanges which go on within +a nation. The foreigner who has some product of +his own to exchange against a product of ours +deals as a private man with other private men, and +if you could see all the exchanges of the world going +on you would not distinguish between the character +of an exchange, say, between Devonshire and +London and one between London and the Argentine. +The Devonshire man grows wheat, which he sells +perhaps in a London market, and buys manufactured +products which a merchant in London provides. +The farmer in the Argentine does much the same +thing, sells wheat and receives in exchange what +manufactures he needs, precisely as though he were +living in Devonshire instead of abroad. He does +not trade with “England,” but with a particular +merchant or company in England.</p> + +<p>But there are certain points about international +trade which one must get clear unless one is to +make mistakes in the political problems arising out +of it.</p> + +<p><span class="pagenum" id="Page_142">142</span></p> + +<p>In the first place, international trade is always +subject to a certain interference which domestic +trade does not suffer. All countries have a <em>tariff</em>, +that is a set of taxes upon a great number of the +articles coming in from abroad. Even those +countries which, as England did until quite lately, +believe in leaving their citizens on equal terms with +foreign competitors and have gone in for complete +free trade, examine all goods at the port of entry +or at special points on the frontier, both in order +to raise revenue and to keep out undesirable goods, +such as certain drugs; nor does any country allow +<em>all</em> things to come in unexamined, lest forbidden +things should come in unobserved. Moreover, it +is important to measure the nature and volume of +a nation’s foreign trade, and this cannot be done +without stopping things at the ports or frontiers +and examining them.</p> + +<p>In general, international trade differs from +domestic trade first of all in this—that it always +has to pass through an examination at the frontiers +through which it enters. It also differs from +domestic trade in that it has to use another currency. +Even when all countries have a gold currency, +there are certain small fluctuations in the exchange +values of the different currencies. For instance: +before the war the English pound was worth in +gold about 25¼ French francs, but you hardly +ever had this “Parity” (as it is called) exact. The +franc would fluctuate slightly against the sovereign—sometimes<span class="pagenum" id="Page_143">143</span> +above, sometimes below “Parity” by +a penny, or even sometimes more than a penny, +one way or the other. With many countries whose +currency was not in a good condition the fluctuations +would be more violent, and of course since the +war, now that so many nations no longer have a +gold currency at all, but a fictitious paper currency, +the value of one currency against another fluctuates +wildly. Within a year you could get only 50 francs +for an English sovereign and then a little later as +much as 80 francs.</p> + +<p>Within one country exchanges can be simply +conducted by counting all values in the currency +of the country; but international trade, involving +the use of two or more currencies, cannot be so +simple.</p> + +<p>There is also a third point in international trade +which must be understood, and which proceeds from +the very fact that international exchanges do not +essentially differ from the exchanges which take +place within the same country, and that is the fact +that exchanges are not simple contracts between +two parties, but follow a whole chain of contracts, +covering a great number of parties.</p> + +<p>We saw, in the first part of this book, that exchange +even within one country, was not simple barter +but <em>multiple exchange</em>.</p> + +<p>In domestic exchange a farmer sells his wheat +to a broker, but does not purchase a lorry from the +same buyer: he receives money from the buyer,<span class="pagenum" id="Page_144">144</span> +and with that money buys a lorry, say, a month +later. But what has really happened is a whole +chain of exchanges in between the wheat and the +lorry—a miller has bought the wheat from the +broker, a baker the flour from the miller, and so +on until towards the end of the chain a caster has +sold castings to a motor maker who has assembled +them and sold the lorry to the farmer.</p> + +<p>It is the same with international exchanges; as +we saw in the earlier part of this book. There is +an international chain of exchanges.</p> + +<p>The total number of units engaged in this +international chain may be as large as you like; +there may be ten or fifty or a hundred links +before it is complete. But the universal principle +holds that imports and exports usually balance. +Whatever you import from abroad into a country +you must, as a general rule, pay for by exporting an +equivalent set of values created within your own +country. But there are certain exceptions to this +rule which are sometimes lost sight of.</p> + +<p>In the first place, the imports and the exports +need not all be what are called “visible” imports +and exports. Many of them may be, and some +always are, “invisible.” The most obvious example +of these are “freights,” that is, sums paid for the +carriage of goods between one country and another. +Thus, in the old days before the war you would +find England importing more than she exported, +and one of the principal reasons for the difference<span class="pagenum" id="Page_145">145</span> +was that the imports were mostly brought in English +ships. Thus if a man in the Argentine were sending +50 tons of wheat to England worth £500, England, +after a long chain of trade with many countries, +including the Argentine, would be exporting values +against this £500 worth of wheat, which would be +worth, say, not £500, but only £450. The difference +of £50 was made up by the cost of bringing the +wheat from the Argentine to England <em>in an English +ship</em>. In other words, £50 worth of the total +£500 worth of wheat stood for the sum which the +man in the Argentine had to pay to the English +sailors to bring his wheat over the sea.</p> + +<p>Further, a wealthy or strong country very often +levied tribute upon a poorer or weaker one, and this +tribute might take several forms. There was the +tribute of <em>interest upon loans</em>. If English bankers +had lent to people in Egypt a million pounds with +interest at forty thousand pounds a year Egyptian +production would have to export to England, either +directly or roundabout through the chain of trade, +forty thousand pounds’ worth of goods, against +which England had not to send out anything.</p> + +<p>Another form of tribute—though a small one—is +that paid in pensions. A man having worked +all his life in the Civil Service in India (for instance) +would retire upon a yearly pension of a thousand +pounds a year; but this pension was levied upon +the taxpayers of India, and if the man came to +live in England and spent his pension there—as<span class="pagenum" id="Page_146">146</span> +nearly all of them did—it meant that India had +to export a thousand pounds’ worth of goods every +year to England, against which England sent +nothing back.</p> + +<p>In the same way the shareholder in some works +or firms situated in a foreign country would, if he +lived in England, cause an import to come in +equivalent to his dividends or profits, and against +that England would send out nothing.</p> + +<p>But the point to remember is, that <em>the mere volume +of trade</em> (that is, <em>the total of things imported and of +things exported</em>) <em>is no indication of the wealth or +prosperity of the country importing and exporting</em>.</p> + +<p>A country may be very wealthy, although it is +doing hardly any international trade, because it +may be producing within its own boundaries a great +deal of wealth of a kind sufficient to nearly all, or +all, its needs. Again, of international trade (and it +is exceedingly important to remember this, because +most people go wrong on it) <em>nothing increases the +wealth of a country except the imports</em>.</p> + +<p>It ought to be quite clear, especially in the case +of an island like Great Britain, that it <em>loses</em> what it +sends out and <em>gains</em> what it brings in. Yet people +get muddled about even this very simple proposition, +because the individual trader thinks of his +transactions as an individual sale. He does not +consider the nature of trade as a whole. The +individual trader, for instance, who makes locomotives +and exports them, gets paid, let us say,<span class="pagenum" id="Page_147">147</span> +£10,000 for each locomotive. In point of fact +this means that in the long run he or someone else +in England will exercise £10,000 worth of demand +for foreign goods. But the individual trader does +not usually think of that; he thinks only of his +own transactions, and he would be very much +surprised if he were told that his sending the +locomotive abroad was, <em>regarded in itself, and +apart from the import which it assumed</em>, a loss to +the country of £10,000 worth of wealth.</p> + +<p>You often hear people in political arguments +talking as though the falling off of exports from a +country were a bad thing and the increase of imports +also a bad thing. It cannot be so in the long run. +The excess of imports over exports is the national +profit on the whole of its foreign transactions, and +any country which is exporting regularly more than +it imports is paying tribute to foreigners abroad, +while every country which regularly imports more +than it exports is receiving tribute.</p> + +<p>Of course, if you consider only a short period of +time, the falling off of exports may be a bad sign; +for it may mean that the corresponding imports +will not be gathered. If in this country we saw our +exports regularly falling year by year we should +be right to take alarm, for this would almost certainly +mean that a corresponding falling off in imports +would sooner or later take place also, and that +therefore our total wealth would be diminished. +But considered over a sufficient space of time, it<span class="pagenum" id="Page_148">148</span> +is obvious that the excess of imports over exports +is a gain and that the excess of exports over imports +is a loss.</p> + +<p>One last thing to remember about international +trade is that the very different importance of foreign +trade to different countries makes the foreign politics +of nations differ equally. A country which can +supply itself with all it needs is free to risk its foreign +trade for some other issue. A country importing +its necessities cannot risk the loss of such trade, for +it is a matter of life and death. The United States +is in the first position. It has within its own +boundaries not only all the minerals it needs, but +also all the petrol and all the raw material for +making cloth, and all the leather for boots, and all +the rest of it. But a country like England is in +quite a different position. We only grow half the +meat we need and about one-fifth of the corn. +Therefore it is absolutely necessary for us to have a +foreign trade. If all the foreign trade of the +United States were to be destroyed to-morrow, the +United States, though somewhat poorer, would +still be very rich and able to carry on without the +help of anyone else. But if our foreign trade were +destroyed there would be a terrible famine and +most of us would die.</p> + +<p>Nations differ very much in this respect, but of +all nations Great Britain is that which is most +vitally interested in maintaining a great foreign +trade, and next after Great Britain Belgium is<span class="pagenum" id="Page_149">149</span> +similarly interested, for Belgium also needs to +import four-fifths of its bread-stuffs. Almost every +country except the United States <em>must</em> have some +foreign trade if it is to live normally. For instance: +France, though largely a self-sufficing country, has +no petrol. It has to buy its petrol abroad and +must export goods to pay for that import. Nor +has it quite enough coal for its needs, and, before +the war, it had not nearly enough iron. Italy has +no coal, no petrol and no iron to speak of—not nearly +enough for its needs. And so it is with pretty well +every nation in Europe. But of all nations our +own and Belgium—our own particularly—are in +the most need of maintaining a large foreign trade.</p> + +<p>This affects all our policy, it is the root of both +the greatness and peril of England. It also tends +to make English people judge the wealth of foreigners +by the volume of their trade, and that is a great +error.</p> +<hr class="chap x-ebookmaker-drop"> + +<div class="chapter"> +<p><span class="pagenum" id="Page_150">150</span></p> + +<h2 class="nobreak" id="FREE_TRADE_AND_PROTECTION"><span id="toclink_150"></span>FREE TRADE AND PROTECTION +AS POLITICAL ISSUES</h2> +</div> + +<p class="in0"><span class="firstword">In</span> this matter of international trade there rose +up, about a hundred years ago, a great political +discussion in England between what was called +<em>Free Trade</em> and what was called <em>Protection</em>.</p> + +<p>This discussion is still going on and affecting the +life of the country, and it is important to understand +the principles of it, for we have here one of the chief +applications of theoretical Political Economy to +actual conditions.</p> + +<p>I dealt with this subject briefly in the first part +of this book under “Elementary Principles,” but I +return to it here in more detail because it has given +rise, in political application, to the most important +economic discussion in modern England.</p> + +<p>The Free Traders were those who said that +England would be wealthier, as a whole, if there were +no restriction upon exchange at all, whether internal +or external. A man having something to exchange +with his English neighbour was, of course, free to +exchange it without any interference; but the +Free Trader’s particular point was that a man having<span class="pagenum" id="Page_151">151</span> +something to exchange with a <em>foreign</em> purchaser +should be equally free to exchange it, without +any interference at the ports in the way of export +duty taxing the transaction. In the same way he +said that the foreigner should be perfectly free +to send here any goods he had to exchange against +ours, and should neither be kept out by laws nor +restricted by special import duties at the ports.</p> + +<p>“In this way,” said the Free Traders, “we shall +get the maximum of wealth for the whole country.”</p> + +<p>The Protectionists, on the other hand, said: +“Here are a lot of people engaged on a particular +form of production in England. Those who have +their capital in it are making profits, those who own +the land on which the capital is invested are getting +rents, and the working people are getting wages. +The foreigner, having special advantages for this kind +of production, which make him able to produce this +particular thing more cheaply than we can, brings +in that cheaper produce and offers it for sale to +Englishmen. The people to whom it is offered for +sale will, of course, buy the foreign stuff because +it is cheaper. The result will be that the English +people who have invested their capital in producing +this particular thing—that is, who have got implements +together and buildings, and the rest, suitable +for producing this thing—will be ruined. It will +not be worth their while to go on, for no one will +buy their goods. Their profits will be extinguished, +and their capital will decay to nothing. The rents<span class="pagenum" id="Page_152">152</span> +on the land they occupy will also disappear, and, +what is worst of all, the large population which live +on wages produced by this kind of work will starve +or have to be supported, idle, by other people. +Their power of producing wealth will be lost to +England. Therefore, let us tax this cheap foreign +import so that our production at home shall be +<em>protected</em>. Let us tax the foreign goods as they come +in, so that the cost of producing abroad, with this +tax added, comes to at least as much as the cost of +producing the same stuff at home. In this way it +will still be worth while for our people at home to go +on producing this kind of thing. The Englishman +at home will be just as ready to buy his fellow-citizen’s +produce as the foreigner’s, for the price of +each will be the same.”</p> + +<p>The Protectionist even said: “Let us make +this tariff so high that the foreign goods are sold +at a <em>dis</em>advantage—that is, let the tax on the +foreign goods be such that, added to the cost of +production abroad, they cannot be sold in England +save at a <em>higher</em> price than the English goods. In +this way only the English goods will be bought here +and the home industry will flourish as it did before.”</p> + +<p>Such were the two political theories, standing +one against the other.</p> + +<p>Now let us look into the economic principles +underlying these two opposing parties, and see which +of them had the best of the argument.</p> + +<p>We have already seen, in the first part of<span class="pagenum" id="Page_153">153</span> +this book, the elementary economic principle that +Exchange is only the last stage in the process of +production.</p> + +<p>And we have also had fixed the principle that +<em>freedom of exchange tends to produce a maximum of +wealth within the area to which it applies</em>, and that +interference with freedom of exchange tends to +reduce the total possible wealth of that area. This +is so obvious that all the great modern nations are +careful to let exchange be as free as possible <em>within +their own boundaries</em>.</p> + +<p>Goods can be freely exchanged without interference +all over the United States and all over Great +Britain and all over France, etc., because if you were +to set up tolls and interferences with exchange +<em>within</em> the country the total wealth of the country +would necessarily be diminished.</p> + +<p>Now the Free Traders extended this principle +to foreign trade. They said: “If the foreigner +comes to us with something which he can sell to us +cheaper than we can make it ourselves that is an +advantage to us, and it is short-sighted to interfere +with it under the idea that we are benefiting +the existing trade which is threatened by foreign +competition. For it means that we are producing +something with difficulty which we could get with +much less work if we turned our attention to things +which we can produce with ease. Or, again, it +means that with the same amount of work devoted +to things we make well and exchange against the<span class="pagenum" id="Page_154">154</span> +foreigner’s goods we shall get much more of the +things which the foreigner can make more easily +than we can.”</p> + +<p>If we take a concrete example we shall see what +the Free Traders’ argument means.</p> + +<p>Supposing people in this country had never heard +of foreign wine, but had to make their wine out of +their own grapes grown in hot-houses, and at great +expense, the wine coming, let us say, to £1 a gallon. +Meanwhile we are producing easily great quantities +of coal because we have great coal-mines near the +surface. We come to hear of people living in another +climate who can grow grapes easily in the open, +who need much less labour and capital to ripen them +than we do in our artificial way in hot-houses, and +who can therefore send us wine at 10s. a gallon. +Then we can get for each £1 worth of labour +and capital twice as much wine as we got before. +Instead of wasting our time artificially growing +grapes in hot-houses to make our wine, let the +people who used to work in the hot-houses become +coal-miners, so that more coal may be produced +and this extra coal exchanged for foreign wine. A +pound’s worth of labour and capital in coal will +get us 2 gallons of wine from the foreigner when +the same amount of labour and capital used in making +the wine ourselves would only get us one gallon. +Let the capital that used to keep up the hot-houses +be spent in developing mines, and we shall find as +a result that we are as rich as ever we used to be in<span class="pagenum" id="Page_155">155</span> +coal and richer in wine. Our total wealth will be +increased.</p> + +<p>In the particular case of the English dispute +about Free Trade and Protection not wine but a +much more important thing was concerned, namely +food; and that was what gave the political discussion +its practical value and made it so violent. It is also +because food was in question that the Free Traders +won, and that England was, for a whole lifetime, +up to the Great War, a Free Trade country—that +is, a country allowing all foreign produce to come in +and compete on equal terms with home produce.</p> + +<p>This country, at the beginning of the discussion +a hundred years ago, was already producing great +quantities of manufactured goods: cloth and +machinery, ships and so on. It also produced on +its fields the wheat and meat and dairy produce +with which it fed itself. But as the population +increased the amount of food being produced on +the soil of England, though getting larger in the +total, got smaller in proportion to the rapidly +increasing population. Therefore there was a danger +of its getting dearer. The Free Traders said: “Let +foreign food come in free. If it is produced in climates +where for the same amount of labour you can get +more wheat and more meat and more dairy produce +then, of course, many of our agricultural people +will have to give up working on the land. But they +can take to manufacturing, and the total amount of +food which the English will get for so much labour<span class="pagenum" id="Page_156">156</span> +on their part will be greater. Where an agricultural +labourer working an hour, for instance, can get a +pound’s weight of food, the same man working one +hour in a factory will get, say, by exchange of the +manufacture against foreign food, two pounds of +food, if we allow all foreign food to come in +free.”</p> + +<p>These Free Trade arguments look, when they +are first studied, not only simple and clear, but +unanswerable, and indeed most educated men—nearly +all educated men—in Queen Victoria’s reign, +thought they <em>were</em> unanswerable, and that Protectionists +here at home (who were no longer allowed +to put their theories into laws) and Protectionists +abroad who had kept up tariffs against foreign +trade, were simply ignorant and foolish men who did +not properly understand the elements of Economic +Science.</p> + +<p>To see whether the Free Traders were right or +wrong in these ideas, let us next turn to the arguments +with which the Protectionists met them.</p> + +<p>These arguments were of two <span class="locked">kinds:—</span></p> + +<p>(<i>a</i>) There were Protectionists who said: “We +cannot follow all these elaborate abstract discussions +about a science called Economics; we are practical +men with plenty of common sense and experience, +and all we know is that if the foreigner comes in +free we shall be ruined. He can sell his wheat at +such a price that our farmers will lose on it. Our +labourers will leave the land, the rents paid to our<span class="pagenum" id="Page_157">157</span> +landlords will vanish. You will thus ruin English +wealth altogether.”</p> + +<p>(<i>b</i>) There was another kind of Protectionist who +said: “You Free Traders take for granted, and +depend upon, one capital point, to wit, <em>that the labour +now employed in a particular form of production, +and the capital employed in it, both of which will be +destroyed by Free Trade, can be used more profitably +in some other form of Production</em>. But we, the +Protectionists, say that, in the particular case in +question, they would <em>not</em> be used more profitably. +We say that, in point of fact, things being as they +are, the national character being what it is, the +arrangements of our English society and its traditions +being what we know them to be, the ruined industry +will go on getting worse and worse, artificially +supported by relief from the community outside it, +the farmer losing year after year and still hanging +on, the land going back to weeds and marsh, the +buildings falling down, and so forth. <em>We</em> say that, +though it may theoretically be possible to use in +other ways the labour and capital thus displaced, +in practice you will destroy more wealth than you +will create.”</p> + +<p>These two kinds of arguments on the Protectionist +side are still to be heard everywhere to-day.</p> + +<p>It ought to be perfectly clear to anyone who +thinks about the matter at all that argument (<i>a</i>) +was nonsense, for people and capital driven out of +an industry ill suited to our present conditions are<span class="pagenum" id="Page_158">158</span> +not thereby destroyed. They may very well find +employment producing more total wealth in another. +But argument (<i>b</i>) was a good argument <em>if the +statement about the impossibility of changing from +one trade to another were in practice true</em>. The whole +discussion really turned upon the last point.</p> + +<p>Unfortunately for the Protectionists, those who +defended their cause in this country nearly all used +argument (<i>a</i>), and were very properly derided as +fools by the Free Traders. Argument (<i>b</i>) was only +used by a comparatively small number of thoughtful +men and they were under this disadvantage—that +they were arguing with regard to a possible +or probable future with no past experience to guide +them, and that many years must pass before it +could be discovered whether, in practice, what they +said was true or false; whether in practice the ruin +of English agriculture would diminish the well-being +of England as a whole or not.</p> + +<p>Further, the population continued to increase +at a great rate, and that all in the towns and on the +coal-fields. Our manufacturing productions went +up and up and up, the total wealth of the country +enormously increased, and these processes hid and +made to seem insignificant the corresponding decay +of the fields. We had no need for Protection in +any domestic manufactured goods; we had begun to +use coal before anybody else; we had developed +machinery before anybody else. The only thing +which there could be any point in protecting was<span class="pagenum" id="Page_159">159</span> +agriculture, and that would have meant dearer food +for the wage-earners in the towns.</p> + +<p>The great consequence was that Free Trade won +hands down, and for a long time all its opponents, +however distinguished or reasonable, were laughed +at.</p> + +<p>But if we wish to be worthy students of Economic +Science we cannot dismiss the quarrel so simply. +There is such a thing as a strong <em>economic</em> argument +in favour of Protection in particular circumstances. +The practical proof of this truth is the immense +increase in wealth which took place in the German +Empire during the thirty years before the Great +War, which increase exactly corresponded with a +highly protective tariff. The same thing happened +in the United States at the same time. But the +theoretical argument in favour of Protection is +much better, because the increase of wealth in +Germany and the United States under Protection +might be due to other causes, whilst it can be shown +by <em>reason</em> that Protection itself, in particular cases, +increases the total national wealth. With the proof +of this I will end the present chapter.</p> + +<p>We have seen that the following formula is true:—<em>Freedom +of exchange tends to increase the total amount +of wealth of all that area which it covers.</em></p> + +<p>But what gives the argument for Protection, +in special cases, its value is, as we saw on <a href="#Page_64">page 64</a>, a +second Formula equally true. Though freedom of +exchange tends to increase the total wealth of an<span class="pagenum" id="Page_160">160</span> +area over which it extends, <em>yet it does not tend to +increase the wealth of every part of that area</em>. Therefore, +if a part of the area over which freedom of +exchange extends finds itself impoverished by the +process, it may be enriched by interfering with +freedom of exchange over the boundaries of its own +special part.</p> + +<p>Therein lies the whole argument for Protection in +particular cases.</p> + +<p>Let us take for example three islands, two close +together and one far away and prove the case +by figures.</p> + +<figure id="ip_160" class="figcenter" style="max-width: 45em;"> + <img src="images/i_160.png" width="2162" height="660" alt=""> + <figcaption class="caption"><span class="smcap">Fig. 1.</span> + </figcaption> +</figure> + +<figure id="ip_160b" class="figcenter" style="max-width: 45em;"> + <img src="images/i_160b.png" width="2162" height="756" alt=""> + <figcaption class="caption"><span class="smcap">Fig. 2.</span> + </figcaption> +</figure> + +<p><span class="pagenum" id="Page_161">161</span></p> + +<p>We will number them A, B, C. Island A is full of +iron ore. Island B is full of coal. Island C is also +full of iron ore, like No. A, but it is a long way off.</p> + +<p>Iron ore naturally comes to the coal area to be +smelted, because, being heavier, it can be carried +in smaller bulk. It is cheaper to bring iron ore to +coal than coal to iron ore. If all three islands belong +to the same realm what will happen is quite clear. +Island B will import iron ore from Island A and will +smelt it and turn it into pig-iron and steel and iron +manufactures of all kinds, while Island C, a long way +off, will remain unused. We will suppose the climate +of No. C to be bleak, the soil bad, and the people +there, since they cannot sell their iron ore on account +of the distance at which they stand, make a very poor +livelihood out of grazing a few cattle.</p> + +<p>Let us suppose that the amount of iron ore +imported every year by No. B from No. A is worth +£10 million. This of course has to be paid for. +In other words, Island No. B has got to export +manufactured goods in iron and steel back to Island +No. A as payment for the iron ore which No. B +imports for smelting. It also has to pay for the +freight on the iron ore from No. A, that is, for the +cost of bringing it over the sea to No. B. Let us +suppose this cost to be one million. The total +value of the iron goods produced on No. B, after +being smelted with the coal of No. B, is, let us +say, £30 million. Of this, £11 million goes back +for the cost of carrying the ore from Island No. A<span class="pagenum" id="Page_162">162</span> +and for its purchase. Meanwhile we may neglect +economic values of Island No. C, because the few +wretched inhabitants and their handful of cattle +hardly count.</p> + +<p>Here, then, we have a wealth of £30,000,000 in +manufactured iron goods, of which £10,000,000 +goes to Island No. A and £19,000,000 to Island No. B, +and £1 million to whoever carries the ore in ships. +If you were estimating the wealth of the whole +realm made up of the three islands, A, B and C, you +would say: “The wealth of these people consists +in manufactured iron and steel goods. It is +equivalent to £30,000,000 a year, of which some +£10,000,000 is revenue to Island A and £19,000,000 +is revenue to Island B and £1 million earned in +freights. The wealth of Island C is negligible.” +Well and good.</p> + +<p>Now supposing the political conditions to change. +Islands B and C belong to one realm in future but +Island A has become a foreigner. The realm to +which Islands B and C belong turns Protectionist +and sets up a barrier in the shape of a tariff against +iron ore coming from abroad. We have seen that +the cost of carrying iron ore from No. A to No. B +was £1,000,000. No. C being much farther away +from No. B, let us say that the cost of carrying is +£5,000,000, but it is carried by subjects of the realm. +The tariff put up by the realm to which Island B and +C belong is what is called “prohibitive”—that is, +it is so high that it keeps the iron ore of No. A out<span class="pagenum" id="Page_163">163</span> +altogether, and the smelters on Island No. B are +bound to get their iron ore from that distant Island C. +Let us see what happens.</p> + +<p>Island No. B has now got to pay a freight, that is, +cost of bringing the iron ore, five times as much as +it used to be. Instead of paying £11,000,000 for +its ore (£10,000,000 at the mine and £1,000,000 +for carriage) it is now paying £15,000,000 (£10,000,000 +at the mine and £5,000,000 for carriage). It still +makes £30,000,000 worth of goods a year, but it +only has £15,000,000 left over for its own income, +instead of the £19,000,000 which it used to have. +It is thus impoverished.</p> + +<p>But Island C, from having hardly any income at all, +has now an income of £10,000,000 a year. Island +A is ruined. Protection has put the getting of the +ore under unnatural conditions. It has compelled +the coal-owners to go much farther off for their +ore than they need have done under Free Trade. +The total wealth of all three islands altogether +is less than it used to be by £4,000,000, for they +are adding £4,000,000 extra to the cost of getting +the raw material. <em>But the total combined wealth +of B and C, even if they pay foreign ships to bring the +ore, is now greater than it used to be under the old +Free Trade.</em> No. B has £15,000,000; No. C has +£10,000,000—the total is £25,000,000. If they pay +their own sailors to bring the ore it is £30,000,000. +Under the old conditions the total of B and C alone +was only £19,000,000. Island A is ruined and the<span class="pagenum" id="Page_164">164</span> +total wealth of the whole system is less, but the +Protectionists of the realm, which now only +includes B and C, are quite indifferent to that. +They are thinking of the wealth of their common +country, and are indifferent to the ruin of others, +and their policy is <em>increasing</em> the wealth of their +common country at the expense of foreigners.</p> + +<p>In that example lies the argument for Protection. +<em>If Island C could do something other than mine ore, +if it had other forms of wealth, or by ingenuity or luck +could discover some new fields in which its activities +might develop, then the argument for Protection in +this case would break down.</em> Island B would say: +“Let me get my iron ore cheap from the foreigner +in Island A, and do you, on Island C, develop (let +us say) dairy farming, or something else which I +cannot do and which Island B cannot do. In that +way we shall all three benefit, and the common +realm, consisting of Island B and Island C, will be +richer than ever. Island B will have all its old +profit of £19,000,000 (instead of being reduced to +£15,000,000), and Island C can well develop a dairy +produce of more than £7,000,000.”</p> + +<p>One ought to be able to see quite clearly from +an example like this how true it is that <em>the argument +in favour of Protection applies to particular cases +only, and turns entirely upon whether an undeveloped +part of the energies of the community can be turned +into new channels or not</em>.</p> + +<p>We have an excellent, though small, example<span class="pagenum" id="Page_165">165</span> +to hand in England to-day. The English people +have to send abroad about £4 worth of goods every +year per family for pig-meat, that is, bacon and +hams and the rest. There is no reason why they +should do this. They could produce the pigs on +their own farms without drawing a single person +from the factories and keep this mass of manufactured +goods for their own use. The reason we +are in this state in the matter of pig-meat +is that our agriculture has generally got into such +a hole that people will not bestir themselves to +produce enough pigs. So here is a definite case +in point, and only experiment could show whether +Protection would pay here or would not pay.</p> + +<p>Protection ought to take the form of <span class="locked">saying:—</span></p> + +<p>“Any pig-meat from abroad must pay such and +such a sum per pound at the ports as it enters.” +This would raise the price of pig-meat in England +somewhat. If it raised the price to such an amount +that the English people as a whole had to pay £2 +more a family, <em>and if at that increased rate of price +agricultural people could be stimulated into feeding +the right amount of pigs and taking the necessary +trouble to keep the supply going</em>, then the total wealth +of the community would be increased £2 per family. +Even if the price had to increase till each family +on the average paid £3 more, or £3 10s. 0d. more, +it would still be of advantage to the nation <em>on +condition that the higher price really did make the +farmers breed enough pigs, without lessening their<span class="pagenum" id="Page_166">166</span> +production of other things</em>. But if, when the charge +on the community had risen to £4 per family, it +did not stimulate the production of pigs in this +country sufficiently to supply the market, then your +Protection of Pigs would be run at a loss.</p> +<hr class="chap x-ebookmaker-drop"> + +<div class="chapter"> +<p><span class="pagenum" id="Page_167">167</span></p> + +<h2 class="nobreak" id="BANKING"><span id="toclink_167"></span>BANKING</h2> +</div> + +<p class="in0"><span class="firstword">During</span> the last two hundred and fifty years +there has arisen, among other modern economic +institutions, the institution of <em>Banking</em>.</p> + +<p>It has origins much older; indeed, people did +something of the kind at <em>all</em> times, but Banking as a +fully developed institution grew up in this comparatively +short time: since the middle of the +seventeenth century. It began in Holland and +England and spread to other countries.</p> + +<p>Like other modern institutions, it only became +really important in the latter half of this period, +that is, during the last hundred years or so; quite +recently—in the last fifty years—it has become of +such supreme importance by the mastery it has +got over the whole commonwealth that everybody +ought to try to understand its character. The +Power of the Banks comes to-day into the lives of +all of us and largely affects the relations between +different nations. Indeed, it has become so +powerful quite lately that one of the principal +things we have to watch in politics is the enmity +which the power of the Banks has aroused and the +way in which that power is being attacked.</p> + +<p><span class="pagenum" id="Page_168">168</span></p> + +<p>The essential of banking lies in these two combined +ideas: (1) that a man will leave his money in custody +of another man when that other man has better +opportunities for keeping it safe than he has; (2) +that the money so left in custody <em>may</em> be used by +the custodian of the money without the real owner +being very anxious what is being done with it, so +long as he is certain to get it when he wants it.</p> + +<p>The putting together of these two ideas—which +are ideas naturally arising in everybody’s mind—is +the origin of all banking, and the moral basis +upon which banking reposes.</p> + +<p>A man has £1,000 in gold. He has to travel or +to go abroad on a war, or is not certain of the safety +of so large a sum if it is kept in his house. He +therefore gives it into the custody of a man whom +he can trust, and who, on account of special circumstances, +can keep it more securely than he himself +can. What the owner of the £1,000 wants in the +transaction is to be certain of getting a part or the +whole of his money whenever he may need it. He +does not want the individual pieces of money. So +long as he can get the value of them <em>or of part of +them</em> at any moment from the man to whom he gave +custody of the original sum he is satisfied.</p> + +<p>A good many other people feel the same necessity. +The man who has special opportunities for looking +after <em>all</em> their sums of money collects them together +and has them in his strong box in safe keeping. +Those who have acted thus would be very angry if<span class="pagenum" id="Page_169">169</span> +they found their money had been lost, or that when +they came to ask for £20 or £100 out of their thousand +pounds—needing such a sum for the transactions +of the moment—the man in whose custody the whole +lay was unable to let them have the £20 or £100 +required. But so long as the <em>depositor</em> (as he is +called, that is, the man who hands over his money +for safe custody) finds himself, in practice, always +getting the whole or any part of his deposit on +demand, he is content; <em>and will not be annoyed +to find that the person in whose custody he left the +money has been using it in the meantime</em>.</p> + +<p>For instance: I might leave £1,000 in gold in +the custody of someone who is better able than I +to prevent its being stolen. I am saved all the +trouble of looking after it, and I can call on a part +of it or all of it whenever I like. If there were only +myself leaving it thus with one friend, and it was a +particular transaction between us two, that friend +would be acting wrongly if he were to take my £1,000 +and buy a ship with it, say, and do trade. No +doubt he would earn a profit, and could say to me +when I came back for £100 of it: “I am sorry that +I cannot give you your £100, but I have used the +money, without telling you, to buy a ship. The +ship will earn a profit of £200 at the end of the year, +and then you can have back your £100 if you like, +and if you press me, I will even sell the ship and +you shall have back the whole of your £1,000.”</p> + +<p>In that case I should naturally answer: “No<span class="pagenum" id="Page_170">170</span> +one gave you leave to use my money. You have +embezzled it, and you have acted like a thief.”</p> + +<p>But when a very great number of men entrust +their money in this fashion, and do not specially +stipulate that it should be left untouched, when +there is a sort of silent understanding that, if whenever +they want it, the money will be forthcoming, +then they do not ask too closely what has been done +with the whole of the sum in the custodian’s hands. +For if <em>very many</em> people are thus “banking” their +money with one safe custodian only a certain +proportion will <em>at any one time</em> want their money, +and the rest can be used without danger of the +“banker’s” failing to meet any particular demand. +Thus banking, that is, the use of other peoples’ +money, arises and becomes a natural process because +it is of mutual advantage. The Banker can earn +profits with that average amount of money which +always remains in his hands, the depositors have +their money safely looked after and may even share +in the profit.</p> + +<p>A hundred men, let us say, have given £1,000 +each into the hands of such a custodian, who has +come to be called their “Banker.” The total sum +of money in this man’s hands is £100,000. It is +found in practice, over the average of a number +of years, that this hundred men do not “draw” +upon (that is, ask for their money to be paid out +to them by) their banker more than to the extent of, +let us say, £100 every month each, and it is also<span class="pagenum" id="Page_171">171</span> +found that, while they need this £100 to pay wages +or bills or what not, they also come back with the +money they earn (say, £120 per month, on the +average) and give it back to their banker for safe +keeping. In several years of this practice the banker +discovers that he must have about 100 times £100, +that is £10,000, in free cash to meet the demands +upon him, and that he gets rather more put into +his custody in the same period of a month, year in +and year out. It follows that he always has about +£90,000 in gold doing nothing the whole time. He +says to himself: “Why should I not use this money +to buy instruments of production—ships or ploughs, +or machinery or what not—and produce more +wealth? It will not hurt those who have deposited +it with me, for I have found that, <em>on the average</em>, +they never want more than a tenth of their money +out at the same time (and they are also perpetually +paying in more money to me—so that they and I +are quite safe), and if I make a good profit by the +use of the things I shall have bought with this +£90,000 I can offer them part of the profit. So +we are both benefited.”</p> + +<p>That is what the banker began by doing at the +very origins of this institution of banking. It was +a little odd. It was not quite straightforward. +But the depositors, most of them, knew what was +going on, and at any rate did not protest. And if, +when a profit was made out of their combined money, +they got some of that profit, they were glad enough<span class="pagenum" id="Page_172">172</span> +to see that their money had been put to some use and +that they had become richer by its use; while if they +had kept it to themselves in scattered small amounts +it would not have made them any richer.</p> + +<p>In England we can trace the origins of a great +many banks, and of the fortunes of their owners, +proceeding along these lines. For instance: there +was a family of silversmiths rather more than two +hundred years ago. They had a shop in which silver +objects were bought and sold, and they also had +gold plate to buy and sell. They had strong-boxes in +which these things were kept, and they paid money +to men who guarded these strong-boxes. It was +a natural thing for people to go to this shop and +say: “I have here a thousand pounds in gold which +is not very safe at home. Will you look after it +for me, on condition of course that I may call for +any amount of it when I want it and what will +you charge for your trouble?” The silversmiths +said: “Yes, we will do this, we will charge nothing,” +and in that way they got hold of very large sums +which people left with them. They found, as we +have just seen, that in practice, year after year, only +a certain amount of the sums were required of them +at any one time, and rather than leave the big +balance lying idle they used it for buying useful +things which would produce more wealth. They lent +the money sometimes to the State for its purposes, +that is, to the King of the time. Sometimes they +employed it in other ways which earned a profit.<span class="pagenum" id="Page_173">173</span> +The people who left the money with them always +found that they could get back whatever they wanted +when they asked for it, and they were content. +That is how banking arose.</p> + +<p>Another example of which I know the history and +which is very interesting is that of a squire in the +West of England who lived rather less than two +hundred years ago and has given his name to one of +our great banks still existing to-day. This squire +was a rich man who had many friends coming to +his table. He had the reputation of good judgment +and his friends would say: “I will leave this sum +of money in your custody,” for they knew that he +would be able to put it to good use and give them +part of the profit. Thus, looking after the money +of neighbours, he came to look after the money of +a great many people whom his neighbours recommended, +and at last had hundreds of “clients,” +as the phrase went—that is, of people who would +leave their money with him, knowing that he would +earn a profit both for himself and for them; at the +same time the money would be safely kept, and +they might call for a portion of it whenever they +wanted it.</p> + +<p>From such origins the banking system gradually +extended until, about a hundred years ago, or rather +more, every rich family in this country had a considerable +sum of money left at a bank, and paid +into the banker’s coffers further sums of money +which they received. Each had a book of accounts<span class="pagenum" id="Page_174">174</span> +with the bank showing exactly how much had been +put in and therefore how much they could “draw” +upon. At first the clients, or depositors, would +“draw” some portion of their money which they +might immediately need by way of a letter. Thus, +if their banker’s name was Mr. Smith, they would +write this note: “To Mr. Smith. Please pay my +servant who brings this letter £20 out of the £1,000 +which I left with you the other day.” They would +sign this letter and send the servant with it; the +banker would give the £20 to the servant and the +servant would give a receipt against it.</p> + +<p>That was the origin of what are nowadays called +“cheques.” The letter giving authority for the +messenger to draw the money grew more and more +formal and was drawn up more and more in the +same terms to save trouble. Then the bankers +would have the forms printed, so that the client +who wanted to draw would have the least possible +trouble. If you look at a cheque to-day you will +see that it is nothing but the old letter put into +the simplest terms. At the head of the cheque +is the name of the bank; then there is the word +“Pay,” and after that the client adds the sum which +he wants paid and signs his name to prove that it +is really he who is entitled to have the sum and who +is asking for it. The words “or bearer” are sometimes +printed after the word “Pay,” so that anyone +bringing the cheque for the client can get the money +for him.</p> + +<p><span class="pagenum" id="Page_175">175</span></p> + +<p>But to prevent people using these pieces of paper +to get money without having the right to it the word +“order” was more often substituted for the word +“bearer”; and this word “order” means that the +owner, who is drawing his money out, says: “Do +not pay it to me; pay it to this other person whom +I desire to receive the money and whose name I +have mentioned above, who will sign to show that +<em>his</em> order for payment has been met.”</p> + +<p>For instance: I have £1,000 deposited with my +banker, Mr. Smith. I write a letter: “Pay £20 +to John Jones <em>or order</em>.” This means: “Do not, +dear Mr. Smith, send the money back to me, but +give it to Mr. Jones who will bring this letter with +him, or, if he cannot come himself, will send a signed +letter <em>order</em> that it should be paid to him.” At +the beginning of the system, Mr. Jones, to whom +I gave the cheque, would write a little letter saying: +“Dear Mr. Smith, Mr. So-and-So, who banks with +you, has given me the accompanying letter by +which I can get £20 of his <em>by my order</em>. I therefore +send you this letter to tell you that whoever brings +this cheque bears my order to give the money +to him.” He signs the letter “John Jones” and +the banker hands over the money to whomever it +may be that brings the letter for John Jones.</p> + +<p>In process of time the thing was simplified. +In place of the letter came the shortened form, +the cheque, and you wrote: “Pay £20 to John Jones +or order,” and John Jones, instead of sending a letter<span class="pagenum" id="Page_176">176</span> +signed by himself, merely put his signature at the +back of the cheque. This was called “endorsement,” +which is a Latin form of the English meaning +“putting one’s name on the back of anything.” +A cheque “endorsed” with the name “John Jones,” +that is, with John Jones’s name signed on the back +of it, was paid by the bank to whomever John Jones +might send to receive the payment. My cheque +asking for £20 to be paid to John Jones having fulfilled +its object, and the £20 being paid to whomever +John Jones had sent after he had “endorsed” +that cheque, the cheque was said to have been +“honoured” by the bank. The word “honoured” +meant that the bank had admitted that I had the +money banked with them, and that they were bound +to hand it over on seeing my signature asking that +it should be handed over.</p> + +<p>The convenience of cheques used in this way +for business was obvious. If I owed a man £20 +and I had £1,000 with my banker, instead of having +to draw out twenty sovereigns myself and take +them to him, all I had to do was to write out a +cheque to the order of this man, who would endorse +it and get the money.</p> + +<p>Now as banking grew and came to deal with more +and more people, it was probable that this man, +Jones, would have a banking account too with +somebody. If Mr. Smith was not his banker, then +Mr. Brown would be. As we have seen, people +not only drew out money from the original sum they<span class="pagenum" id="Page_177">177</span> +had deposited at the bank, they also paid in money +as they got it, on account of the convenience of +having it looked after safely. So when John Jones +got my cheque for £20, he often did not get the +actual cash from my banker, Mr. Smith, but simply +gave in the cheque, endorsed by him, to Mr. Brown, +<em>his</em> banker, and said: “Get this from Mr. Smith, +the other banker, and add it to the sum which I +have banked with you, Mr. Brown.” The banker +Brown did this, and the cheque which I had originally +signed in favour of John Jones, having gone the +rounds, was sent back to me to prove that the +transaction was complete.</p> + +<p>As banking continued to grow this system took +on a vast extension. Thousands and thousands of +people paid, and were paid, by cheques, of which +only a small part were turned into cash, and of which +much the greater part were paid into the bankers’ +offices and then settled by the bankers among +themselves.</p> + +<p>After many years of this system it became +apparent that the enormous transactions, thousands +of cheques all crossing each other daily in hundreds +of ways, could be simplified by the establishment +of what came to be called the “Clearing House.”</p> + +<p>Thus, suppose three bankers—Mr. Smith, Mr. +Brown and Mr. Robinson. I bank with Mr. Smith, +and sign a cheque in favour of Mr. Jones who banks +with Mr. Brown, because I owe Jones a bill which +I can thus pay. I also sign a cheque in favour of<span class="pagenum" id="Page_178">178</span> +Mr. Harding (that is, to the order of Mr. Harding), +to whom I also owe money. He banks with Mr. +Robinson. Meanwhile Harding perhaps owes money +to Jones and pays him a cheque ordering Mr. +Robinson (Harding’s banker) to pay Jones a sum +of money. Jones hands this over to his banker, +Mr. Brown. At the end of a certain time—say, a +month—the three bankers, Smith, Brown and +Robinson, get together and compare the various +cheques they have received. It is obvious that a +great many will cancel out.</p> + +<p>For instance: I have given Jones a cheque for +£20 which Mr. Smith, my banker, has to pay to +Mr. Brown, Jones’s banker. But Mr. Brown has +a cheque of Mr. Harding’s asking Mr. Robinson +to pay £20 to Jones, and Jones has given that to +Brown too. Meanwhile Jones has given me a cheque +later on, for something which he owed me, of £10. +The bankers compare notes and see that Smith need +not pay £20 to Brown, and then ask Brown for £10. +It is simpler to pay the difference only. Mr. Smith +hands to Mr. Brown what is called the “balance.” +The difference between £10 and £20 is £10, and Brown +hands over £10 to Smith. At the end of another +month perhaps it is Robinson, Harding’s banker, +who finds that on comparing notes he has a balance +against him of £10 to Brown: and so on.</p> + +<p>When dozens of bankers came to be established +with thousands of clients, or “depositors,” the +convenience of this system was overwhelming.<span class="pagenum" id="Page_179">179</span> +There would perhaps be in a week as many as +10,000 cheques out, and instead of having to make +10,000 separate transactions of paying from Brown +to Smith, Smith to Robinson, Robinson back to +Brown, and so on, through dozens of bankers, the +cheques were compared and only the balances were +paid over—or, as the phrase goes, “cleared.”</p> + +<p>The Clearing House was the place where all the +cheques of different banks were put in at regular +intervals and compared one with another, so as to +see what balances remained over, owing by +particular bankers to others.</p> + +<p>Meanwhile, as the banking system grew, most of +the ready money in the community came into the +hands of the bankers. There was a perpetual coming +and going, and paying in and paying out, but there +was always among the bankers as a community +a very large sum of money lying untouched, a sort +of reservoir. It was nearly always very much more +than two-thirds of the whole amount which the banks +could be called on to pay. That is, the depositors +never wanted a third of their deposits out at any +one time. The art of a banker, therefore, consisted +in knowing how to purchase with this idle money +left in their hands fruitful objects for producing +future wealth, in other words, “investing” it in +“capital enterprises,” but always prudently keeping +a large reserve ready to meet any demands which +their depositors might suddenly make upon them.</p> + +<p>So far so good. The banking system up to this<span class="pagenum" id="Page_180">180</span> +point in its development was an advantage to the +community and to individuals. It enabled a large +number of small sums which could not be used +very well separately to be collected together for +big enterprises.</p> + +<p>A thousand people, depositing a thousand +pounds each, left a million pounds in the hands +of the bankers, of which much more than half +a million could be used at any time for “development,” +that is, for buying instruments with which +to develop natural resources. The nation would be +richer if a deep shaft were sunk and coal were got +out of the earth, but it would cost half a million +to make that mine. No one of the thousand small +depositors could have undertaken such a task: +the bank, using all their monies together, could +undertake it—and did so.</p> + +<p>The banking system thus rapidly increased the +wealth of the country, and that was all to the good. +People meanwhile felt their money to be secure, and +they had the great advantage of being able to draw +cheques for payments they had to make to those +to whom they owed money, and of receiving cheques +for money due to them instead of perpetually +handling and carrying about large sums in metal—the +whole passing through the bank and helping +to keep this reservoir of wealth perpetually filled and +available for use in investment.</p> + +<p>That state of affairs lasted to within the memory +of men now living, and, as I have said, the banking<span class="pagenum" id="Page_181">181</span> +system during that time was an advantage to everybody. +There was nothing to be said against it.</p> + +<p>But then came (as there comes upon every human +institution after a certain time) a further phase of +development, in which the institution of banking +produced certain perils and evils. Those perils and +evils are increasing, and are producing the antagonism +to the banks and to their power which everybody +is beginning to express to-day, all over Europe and +America, and which we must understand if we are +to follow modern political economy. I will show +you how these evils in the Banking system arose.</p> + +<p>A man having £1,000 in the bank could draw +upon it up to the total amount. He could sign a +cheque for £100 and then for £500 (making £600) +and then for another £400. Supposing he put +nothing in during that time, he would have exhausted +the whole of what he had in his bank; he would have +come to an end of what is called, in the terms of +banking, his “balance.” There, you might think, +was an end of his power to draw cheques. He had +got back all his money, so the bank and he had +nothing more to do with each other. At first, of +course, that was the regular state of affairs. A man +could draw out all that he had in the bank, but no +more. It seems common sense.</p> + +<p>But the banks had plenty of other people’s money +lying about which had not been drawn out, and +much of which had not yet been invested in capital +enterprises, such as mining, or what not. They<span class="pagenum" id="Page_182">182</span> +would say to the man who had once put £1,000 into +their hands and who had now drawn it all out: +“You still want to carry on your business; but you +have exhausted all the money you had with us. +You will probably want to borrow some money +to tide you over until the time when further sums +begin to come in to you through what you sell +in your business. We are prepared to lend you +money out of what we have to use from other +people’s deposits. You will pay a certain ‘<em>interest</em>’ +upon it (that is, so much a year on each hundred +pounds we lend you—say £5 a year for every £100), +and you shall pay us back when you can.” The +bank accompanied this offer with the right to draw +further cheques to, say, another thousand pounds, +which the bank would “honour”—that is, for +which the bank would pay out money which did +not really belong to their client but was lent to him +by the bank out of other people’s balances. And +this extra amount, which the bank thus allowed +their client over and beyond what was his own money +was, and is, called an “over-draft.”</p> + +<p>At first, before the banks would allow anybody an +“over-draft” (that is, a loan), they required the +borrower to give security. He had to leave with them +gold or silver plate or a mortgage upon his land, +so that if, in the long run, he found himself unable +to pay back, the banker, could sell the security +and recoup himself.</p> + +<p>But it was obviously convenient and useful when<span class="pagenum" id="Page_183">183</span> +a client was in a big way of business to grant him +an “over-draft” from time to time although he +had no security to offer. The bank said to itself: +“Here is a merchant making very large profits +every year. It takes him some time to get his +money in from the foreigners to whom he sells goods +oversea, but he is bound to get it sooner or later. +So, without asking him for any security (for perhaps +he has no plate or title deeds or what not to give), +it is still well worth our while to let him have an +over-draft (that is, a loan) out of the other people’s +money. He will pay us interest upon it, we shall make +a profit, and when the foreigners pay him he will +be able to pay us back.”</p> + +<p>In this way the banks became on all sides lenders +of money to persons without security, and it became +exceedingly important to any trader whether he +could or could not get the banks to back him up in +this fashion.</p> + +<p>The thing went farther. A man might have no +capital at all, but a good idea. He might have +discovered, for instance, a mine of copper-ore in +some colony. He would come to the banks and say: +“I have not the money to pay labourers to dig for +this ore, but if you will advance the money to me +and go shares in the profit the ore can be got out.” +The banks would look at the “proposition,” as it +is called, and if they thought it a good thing they +would advance the money and share the subsequent +profits with the borrower. All over the world the<span class="pagenum" id="Page_184">184</span> +banks were thus “financing,” as it is called, every +kind of enterprise.</p> + +<p>The system went farther still—and here it is +that we come upon the modern trouble. Hitherto +when they gave an over-draft to anybody, whether +with or without security, or even when they gave +a loan to a man who had no capital at all, and +“backed” him in his enterprise which they thought +likely to prove successful, they had used the money +which other clients had left with them. But it +occurred to the banks after a certain time that there +was no need to use anybody else’s money at all. +<em>They could themselves offer to honour the cheques +of the man to whom they lent the money, without +having any real money with which to pay those cheques.</em></p> + +<p>Why was this? It was because, with the growth +of the banking system, hardly any of the payments +were, by this time, actually made in gold. Real +money only passed in a very small degree. Of +the myriad transactions all but a tiny proportion +were “<em>instruments of credit</em>.” Just as a bank-note +issued by the Bank of England is a promise to pay +in gold, and yet a promise to pay a million pounds +in bank-notes could always be made with much +less than a million real pounds to redeem the notes +so <em>the banks could create paper money, or its +equivalent, in the form of over-drafts</em>. If they said +to a man who had <em>no</em> money deposited with +them: “We will honour your cheques up to +£1,000” <em>what they were really doing was increasing<span class="pagenum" id="Page_185">185</span> +the paper currency to the extent of £1,000</em>. They +were issuing promises to pay, exactly like bank-notes, +knowing that of the total amount out only +a small proportion at any moment would be required +in real money.</p> + +<p>There was a check on this system of creating new +artificial paper money by the banks (for this is what +it came to), and the check consisted in the control +of the Government over the National Bank—in +England the Bank of England. There was a law +preventing the Bank of England from issuing more +than a certain number of notes in proportion to the +gold lying behind them, and the private banks +could not issue over-drafts, or loans, indefinitely, +because they could not get more than a certain +amount of paper money from the Bank of England +to meet the payments they had to make, and +the Bank, in its turn, could not issue more than +a certain proportion of paper money against its +gold.</p> + +<p>So ultimately the amount of real money, the gold, +in the hands of the banks, both national and private, +acted as a check upon this creation of false money +by the banks. But when gold payments ceased +with the Great War that check broke down, and +even if gold payments had not ceased, the power of +the banks thus to “create” as it is called,—in +other words, their power to say to any individual +enterprise: “You shall or you shall not have your +cheques honoured: you shall or you shall not carry<span class="pagenum" id="Page_186">186</span> +on”—gave them an immense and increasing power +over the community.</p> + +<p>That is why the revolt against the banking system +and its control over our lives in the modern state +since the war is becoming so formidable.</p> + +<p>It has two chief forms against which men protest.</p> + +<p>1. The bankers can decide, of two competitors, +which shall survive. As the great majority +of enterprises lie in debt to the banks—that is, +carrying on with loans allowed them by the banks +working with money <em>made</em> by the banks—any one +of two competing industries can be killed by the +bankers saying: “I will no longer lend you this +money. I ‘call it in’—that is, ask for it to be paid +at once. But I will not exercise the same pressure +upon the man who is competing against you.” +This power makes the banks the masters of the +greater part of modern industry. It is argued that +the banks do not act from caprice, and will naturally +only back a sound enterprise and only ruin an +unsound one. That is, on the whole, true. But +still, those who command them have the power, +if they like, to act from caprice, and whenever +you give a few human beings great power of this +sort over millions of others it tends to be abused.</p> + +<p>2. The banks, especially in England, are all +in one combination and keep detailed information +upon all of us. Not only have they control over +industry through their power to make or withhold +the money which they alone can now create and hand<span class="pagenum" id="Page_187">187</span> +out to those they favour, but they also keep indexes +of detailed information as thorough and widespread +as those of any Government office. They have a +secret service more widespread and powerful than +that of the State, and this hidden power of theirs, +though private and concealed knowledge, irritates +plain men more and more. People feel that they are +not free, and that the banking system, which is +international in essence, is a universal and hidden +master.</p> + +<p>Therefore all over the world to-day people are +saying: “The banking system, and the few men +who direct it, are altogether too powerful. They +control our lives. They are beginning to control +the public policy of the State, especially in England, +and there ought to be a national authority superior +to them and keeping them in order.”</p> + +<p>A great many schemes have lately been on all +sides proposed to establish such a superior authority. +Thus, we have in England a very powerful movement +in favour of what is called the “Douglas Scheme +of Credit,” and of course the Socialists, with their +ideas of State control of everything, would also put +an end to the private power of the banking system. +Then there are those who want to have a +strong King who would be able to override any +lesser power in the State, including the bankers.<a id="FNanchor_5" href="#Footnote_5" class="fnanchor">5</a><span class="pagenum" id="Page_188">188</span> +But the points to seize in understanding the political +economy of our time are those I have just been +describing to you: what the banking system is, +how it arose, how unnaturally powerful it has become, +and why a universal revolt is arising against it.</p> + +<p>There will be a struggle inevitably between the +banking, or financial, interest and the people all +over civilised countries: but no one can tell which +will win. In industrial countries the odds are in +favour of the banks, or financiers. In peasant +countries against them.</p> +<hr class="chap x-ebookmaker-drop"> + +<div class="chapter"> +<p><span class="pagenum" id="Page_189">189</span></p> + +<h2 class="nobreak" id="NATIONAL_LOANS_AND_TAXATION"><span id="toclink_189"></span>NATIONAL LOANS AND TAXATION</h2> +</div> + +<p class="in0"><span class="firstword">Every</span> country must, to carry on its national services, +raise taxes from its citizens, and those taxes, though +levied in money, translate themselves, of course, +into goods, that is, economic values attached to +material objects.</p> + +<p>We say that the State “raises,” say, a hundred +million pounds in taxation from its citizens a year, +for “State Purposes”; and when you come to +look into what is actually got by the State and how +the State uses what it has got, it means that the +State levies so many boots and so much bread, and +so much housing material and so much clothing, +and spends this again in maintaining State servants, +that is, in clothing and housing and feeding soldiers +and policemen, and civil servants and school teachers, +and so on.</p> + +<p>But in the modern world, and for the last two +hundred years or so, nearly all states have also had +to raise taxation <em>in order to pay interest upon the +State loans</em>.</p> + +<p>A State loan, or <em>national debt</em>, arises in this way. +The State needs a great quantity of goods for a<span class="pagenum" id="Page_190">190</span> +particular purpose—usually for the very unproductive +purpose of waging a war. It has to get +a lot of metal for its munitions and guns, and +quantities of food to feed the soldiers, and coal to +transport them. Now there are two ways in which +a state gets these. The first is to get the whole +amount, as it is needed, directly from the people, +by a very heavy tax levied at the time. That was +what was done for hundreds of years before the +second method was attempted. The king of a +country, wishing to wage war, would ask his +subjects for contributions, and he could not wage +war upon a scale more than these contributions +would meet.</p> + +<p>But about two hundred years ago there began +(and since then has very largely increased), the second +method, which is that of <em>national loans</em>.</p> + +<p>The State is, let us say, taking in ordinary taxation +from its citizens about one-tenth of their produce. +Suddenly it finds itself involved in a much higher +expenditure, amounting to, say, half the produce +of the country. If it asked for half the produce +right away as a tax people might refuse to pay it, +or it might make the policy of the State—the war, +for instance, which the Government wanted to wage—so +unpopular that the State could not pursue that +policy or wage that war. So the Government had +recourse to <em>borrowing</em> from the citizens, promising +to pay, to those who lent, interest in proportion +to what they borrowed, as well as the capital itself.<span class="pagenum" id="Page_191">191</span> +Thus they would <em>take</em> in taxation for a war money +from a farmer equivalent to <em>ten</em> loads of wheat; +but they would also <em>borrow</em> from him <em>one hundred +loads</em> of wheat, promising to give him as interest +<em>five</em> loads of wheat every year for any number of +years until they should ultimately pay back the +whole hundred loads as well.</p> + +<p>When these national loans began the Governments +honestly intended to pay back what they borrowed. +But the method was so fatally easy that, as time +went on, the debt piled up and up until there could +be no question of repaying it: all the State could +do was to pay the interest out of taxation. It +remained indebted to private rich men for the +principal, that is, the whole original sum, and +meanwhile, through further wars, this hold of the +rich men upon all the rest of the community +perpetually increased.</p> + +<p>The “National Debt”—as it came to be called—remained +a permanent institution, in connection +with which all the citizens had to be taxed in order +to provide interest for the rich lenders. Latterly +these burdens of national debt have become overwhelming, +and at the present moment about a +twelfth of everything that English people produce +is taken from them and handed over as interest to +the comparatively few wealthy residents in England +and abroad who lent great sums to the Government +during the war.</p> + +<p>It is true that whenever a loan is raised the Government<span class="pagenum" id="Page_192">192</span> +provides not only interest but what is called +a “sinking fund”—that is, an extra amount of +taxation every year which is dedicated to paying +back the whole of the loan slowly. But long before +a loan is paid off some new occasion arises compelling +the Government to borrow again on a large scale, +and the total debt perpetually increases.</p> + +<p>The result is that all the great modern European +nations are now loaded with a debt really larger +than any of them can bear, and that therefore they +have all taken steps to lighten that burden by various +tricks not at all straightforward. Some of them +pay back in money which appears the same as the +money which they borrowed, but which has a very +different value. They have borrowed for a war, +say, £1,000, representing 100 tons of wheat. Then +they debase the currency, so that a sum still called +£1,000 will only buy 20 tons of wheat, and in this +way they can pretend to pay the lender back, +although they are really cheating him of four-fifths +of what he lent. Two countries, Germany and +Russia, have pushed this so far that the lenders +are now not really paid anything at all. A man who +lent the German Government, for carrying on the +war, money which during the war would have bought +a million tons of wheat, is now (October, 1923) +paid back in money called by the same name but +able only to purchase a tenth of a ton—which is +the same as saying that he is not paid back at all.</p> + +<p>Of all European countries that fought in the war<span class="pagenum" id="Page_193">193</span> +our own has been the most honest in this matter, +but even in England a man who lent the equivalent +of 1,000 sheep, say, and who was promised interest +at the rate of 50 sheep a year, is only getting 25 sheep +a year on account of the change in the value of +money.</p> + +<p>In this matter of loans we must distinguish +between <em>internal loans</em> and <em>external loans</em>. An +<em>internal loan</em> is borrowed from one’s own people. +It involves taxing and impoverishing one set of +citizens in order to pay interest to and enrich another +set. But the country as a whole is no poorer. An +<em>external</em> loan is borrowed from foreigners, and the +interest on it is dead loss to the country. Also, it +cannot be paid in debased currency. A government +can cheat its own nationals by paying them in false +money. But it has to pay foreign lenders in real +money. A foreign loan is real. It must be (as a +rule) paid in gold. England thus pays millions +a year to America.</p> + +<p>Now from State <em>loans</em> let us turn to State <em>taxation</em>, +which has to-day for its most permanent object +the payment of interest on internal and external +loans.</p> + +<p>How does the State tax its citizens?</p> + +<p>Taxation levied by the State is divided into two +kinds—called <em>direct</em> and <em>indirect</em>.</p> + +<p>Direct taxation is the taxation levied upon the +money which the person who pays it has at his +disposal.</p> + +<p><span class="pagenum" id="Page_194">194</span></p> + +<p>For instance: If you have £1,000 a year and the +State makes you declare that and then taxes you +£100 every year, that is direct taxation.</p> + +<p>Indirect taxation takes the form of levying a tax +on the manufacturer of an article or on the importer +of an article, which tax he passes on to the person +who consumes it, by an addition to the price of the +article. Thus, when you buy a pound of tea or a +bottle of wine you are paying indirect taxation. +The price which you paid for the tea is so much +for the real value of the tea and so much more +(though you do not feel or know it at the time) +which has been paid on the tea as it came into +England at the ports. The brewers who make +beer have got to pay the Government so much for +every gallon they make, and this is passed on to +the people who buy the beer by an extra amount +put on to the price.</p> + +<p>The wisest men who have discussed how taxes +should be levied laid down four rules which, +unfortunately, no Government has kept to as it +should. It is worth while knowing those rules, +because they are a guide to what good taxation +should be.</p> + +<p>These rules <span class="locked">are:—</span></p> + +<div class="blockquot"> + +<p>1. A tax should fall in such a fashion that it +is paid most easily.</p> +</div> + +<p>For instance: it is much easier to pay £100 +a year in small sums which fall due at frequent<span class="pagenum" id="Page_195">195</span> +intervals than to pay the whole £100 upon demand +in one lump.</p> + +<div class="blockquot"> + +<p>2. The tax should be so arranged that the cost +of collecting it should be as slight as possible.</p> +</div> + +<p>For instance: if I put a tax upon everyone who +crosses a particular bridge, I shall have to appoint +and pay someone to collect the tax at the bridge, +and I shall probably have to pay inspectors to go +round and see that these bridgemen do their duty +and do not cheat. If I tried to levy a tax of this +kind on a great many bridges that are not much +used the cost of collecting would be very high +compared with the revenue produced. But if I +put a tax on every cheque issued by a bank, <em>that</em> +tax is collected with hardly any expense. All the +Government has to do is to say that no cheque will +be valid unless it carries a stamp. The banks +stamp all their cheques with this stamp, and when +they sell a cheque book to a customer they take +the value of the stamps from him. All the Government +has to do is to find out the number of cheque +books issued, and ask for the money from the +banks.<a id="FNanchor_6" href="#Footnote_6" class="fnanchor">6</a></p> + +<div class="blockquot"> + +<p>3. Taxes are better in proportion as they fall on +unnecessary things rather than on necessary things.</p> +</div> + +<p><span class="pagenum" id="Page_196">196</span></p> + +<p>It is much better, obviously, to make people pay +for their luxuries than for their necessities. It is +oppressive to make people pay for their necessities, +which even the very poor must have, and it is +juster and altogether better to make people pay +for things which they need not have. Thus, when +the tax was first levied upon tea it was a tax upon +a luxury, for only rich people then drank tea. +But to-day, when the poorest people must drink +it, it is unjust to tax it, for it is a necessity.</p> + +<p>Unfortunately, it is very difficult to keep to this +rule in any modern country, because the amount +of taxes required is so large that unless one taxes +the necessities one will not get enough money for +the requirements of the State: thus tea and sugar, +beer and tobacco, all of them <em>necessities</em> of the +poorest people, are enormously taxed. Our poor +people in England are much more heavily taxed +than any people in the world.</p> + +<p>4. Taxes should fall proportionately to the wealth +of the taxed, that is, the sacrifice should be equally +felt by all. This rule is easy enough to keep when +taxation is light. For a very slight tax on poor +men—who are the vast majority of the State, suffices +to bring in the small revenue needed, and a severe +tax on rich men is but an addition. But when +taxation must be heavy to meet the requirements +of the State—say more than a twentieth of poor +men’s incomes—then the rule is difficult to keep. +For either you get insufficient revenue if you spare<span class="pagenum" id="Page_197">197</span> +the poor, or you must tax the poor on a scale which +no increase of the taxation on the rich can really +equal. When taxation is too heavy, you must +either ruin the rich or crush the poor. And that is +why heavy taxation has destroyed so many States.</p> + +<p>5. The last rule about taxation is that it should +be <em>certain</em>; and this means that the State should be +certain of getting what it ought to get, and that +the people who pay should know what they have +to pay and not be left in doubt and anxiety.</p> + +<p>For instance: the tax on tobacco in this country +is a certain tax. It is levied on a comparatively +small number of ships’ cargoes which enter the +country with tobacco, because we do not grow +tobacco in England, and the sum which the importers +pay is automatically passed on to the purchasers. +The State knows by experience how much tobacco +the people will buy in the country in the year, and +the people who buy tobacco know what they mean +to spend, and can, if they choose, ascertain how +much of this goes in taxation. But the same tax +on tobacco in France is not a certain tax, because +the French grow a lot of their own tobacco—in +fact, most of it. The people who grow tobacco +naturally try to hide the total amount of their +crop from the Government inspectors, and a great +number of these inspectors have to be going about +the whole time actually counting each leaf on each +plant and rummaging in the bins to see that none is +gone.</p> + +<p><span class="pagenum" id="Page_198">198</span></p> + +<p>An example of a most uncertain and unjust tax +for the taxpayer in our own country is the Income +Tax, because it is difficult to prevent unfixed +people from hiding their profits or from concealing +from the tax collectors amounts which they have +earned. Also the honest citizen with an established +and known position can be bled to the full, while +the rogue and adventurer, the speculator and dealer +escapes. But it is a certain tax from the point of +view of the Government, because they know on +the average what a penny on the Income Tax will +produce one year with another, and are not concerned +with justice but with a calculable revenue.</p> + +<p>Before we leave this discussion it is worth while +mentioning an odd idea which a few very earnest +and active people have got hold of, called the “Single +Tax.”</p> + +<p>It is really much more a part of the theory of +Socialism than a system of taxation. Still, as it +has come to be called the “Single Tax” we will +treat it under that head.</p> + +<p>The idea of the single tax is this:—Rent, or the +surplus value of a site, whether it be due to the +extra fertility of farm land or to the extra convenience +of town land, is, say the Single Taxers, +not the product of the individual who owns the land.</p> + +<p>If I own a barren piece of heath on which I cannot +get any rent for agriculture, and then a railway is +built passing through it and a station is built on +the heath, many town workers who want to live<span class="pagenum" id="Page_199">199</span> +in the country will take houses which will be built +near this station and live in these houses, running +up and down from town for their work. In a few years +this barren heath which brought me in nothing will +be bringing in many thousands a year, for a little +town will have sprang up, and I shall be able to +charge rent to all the people who live there upon +my land.</p> + +<p>The Single Taxers say that, since I did nothing +towards making the extra value, but that extra +value has been made by the growth of population +and by the activity of the whole community, I have +no right to these rents. In the same way they say +that I have no right to the rent of a very fertile +field compared with a bad field which pays little or +no rent, because it was not I that made the soil +fertile.</p> + +<p>So they propose that <em>all the rents of the country +should be levied as a tax</em>. They say that no other +taxes are needed. If I have money from dividends +in an industrial concern I can keep all that without +paying any taxes on it, and I can be let off taxes on +tobacco and drink and everything else of that +sort. But anything I get as rent for land I must +pay over to the State. I may still be allowed to +call myself the owner of the land, but I must be +taxed an equivalent to the rent which it produces.</p> + +<p>These people have never been able to apply their +theory, and the reason is pretty clear. It would +work most unjustly, considering that people buy and<span class="pagenum" id="Page_200">200</span> +sell land just as they do any other commodity, and +that a man who had put all his money into rents +in land would be ruined by this system, while +another man with exactly the same amount of money, +who had put it into a business, would go scot free. +If you were starting a new country it might be +possible to begin with the Single Tax system, but +even then you would be up against the fact that +people like owning land because such ownership +gives them independence. But at any rate it is +theoretically possible to apply this system in a new +country. In an old country it is quite out of the +question.</p> +<hr class="chap x-ebookmaker-drop"> + +<div class="chapter"> +<p><span class="pagenum" id="Page_201">201</span></p> + +<h2 class="nobreak" id="THE_SOCIAL_OR_HISTORICAL_VALUE"><span id="toclink_201"></span>THE SOCIAL (OR HISTORICAL) VALUE +OF MONEY</h2> +</div> + +<p class="in0"><span class="firstword">There</span> is a special point in Economics which has +been very little dealt with, or rather not properly +dealt with at all, and which you will find interesting +as a new piece of study, because it will help you to +understand history as nothing else will: and that +point is the <em>Social (or Historical) Value of Money</em>.</p> + +<p>You read how, in the past, the King of England, +wishing to wage a great war, managed to raise, +say, a hundred thousand pounds; and how that +was thought a most enormous sum: whereas +to-day, for the same sized army, we should need +thirty times as much. You read how Henry VIII. +suppressed the Monastery at Westminster which +had an income of four thousand pounds a year, +and how this income was then regarded as something +very large indeed—much as we to-day +regard a half million a year or more—the income of +some great shipping company. You read how the +National Debt later on actually reached <em>one</em> million, +and people trembled lest the State could not bear +the burden.</p> + +<p><span class="pagenum" id="Page_202">202</span></p> + +<p>Yet here we are to-day, raising hundreds of +millions yearly in taxation, spending thousands of +millions in our wars.</p> + +<p>What is the explanation of this apparently totally +different meaning of money in different times? +It puzzles nearly everybody who reads history +intelligently, and it wants explanation. Most +attempts to explain it have failed, or have been very +insufficient; some of them quite vague, as: “The +value of money was very different in those days +from what it is now.” Or: “Money was then at +least ten times as valuable as now” (whereas it +is clear from the chronicle that it was <em>enormously</em> +more valuable!) Sentences like that leave the +unfortunate reader as much in the dark as he was +before. We need a more precise explanation, and +that I think can be given.</p> + +<p>There are three things which, between them, decide +the social value of money at any period, and unless +we consider <em>all</em> three we shall go wrong. The +reason why most people have gone wrong in trying +to solve the problem—or have abandoned it—is +that they only consider the first of the three. These +three things are as <span class="locked">follows:—</span></p> + +<div class="blockquot"> + +<p>1. <em>The actual purchasing power of whatever is +used as currency</em>—in our case, for nearly the whole +of European history, gold<a id="FNanchor_7" href="#Footnote_7" class="fnanchor">7</a>: the amount of wheat<span class="pagenum" id="Page_203">203</span> +and leather and building materials and all the rest +of it, which so much weight of gold (say an ounce) +will purchase at any time. This varies in different +periods according to the amount of gold present in +circulation, and its efficiency in circulation. We +saw how these were the factors of price, that is, of +the purchasing power of money, when we spoke +of money earlier in the book.</p> + +<p class="p2">2. <em>The number of kinds of things</em> which money can +be used to buy in any society—or, to put it in learned +words, “the number of categories of purchasable +economic values.”</p> + +<p class="p2">3. <em>The economic scale of the community</em>, that is, +the number of its citizens and the amount of its +total wealth at a given time.</p> + +<p>When we go into the full meaning of all these +three things we shall see how, in combination, they +make up the social value of money at any time, +and why that value differs so very much between +one historical period and another.</p> +</div> + +<h3>1. <i>The actual purchasing power of the currency.</i></h3> + +<p>Given the same currency (and in Western Europe +it has, for all practical purposes, been gold for the +last two thousand years), we can measure the +purchasing value of such and such a weight of gold +in any period by what is known as the <em>Index Number</em> +of that period.</p> + +<p><span class="pagenum" id="Page_204">204</span></p> + +<p>The Index Number is a thing important to +understand, because it comes into a great deal of +modern discussion as well as historical discussion; +for instance: wages are nowadays largely based +upon an Index Number.</p> + +<p>A particular year is taken, say the year 1900, +and the records of what various commodities were +fetching in gold in the market during that year are +examined. Thus it is found that an ounce of gold +in that year would buy (let us say) four hundred +pounds weight of wheat, 600 pounds weight of barley, +80 pounds weight of bacon, 80 gallons of beer, a +quarter of a ton of pig iron, and so on. A list is +drawn up of all the principal commodities which +are used in the community. Suppose that 100 +such commodities are taken and between them make +up by far the great part—say seven-eighths—of all +the values commonly consumed in that community. +The next thing to do is what is called to “weight” +each commodity, for it is evident that a commodity +which is very largely bought—such as bread—must +count more in estimating the purchasing power of +money than a commodity of which very much less +is used—such as tin.</p> + +<p>According to the value of each commodity used +in any one period of time (say a year) the various +commodities are “weighted.” Thus you count +bread (let us say) as twelve times more important +than lead, because the value of the bread used in the +community for one year is twelve times as much as<span class="pagenum" id="Page_205">205</span> +the value of the lead used in the community during +that year. Then let us suppose that the value of the +leather used is three times that of the lead, the value +of the iron five times, etc. You put against each +commodity these “weight” numbers.</p> + +<p>Next you find out what an ounce of gold would +purchase of each of those commodities in that +particular year. For instance: you find it would +purchase a quarter of a ton of lead, 400 pounds +weight of bread, and so on, only you multiply +by your weight number the use of gold in each +particular article. For instance: you count the +gold used in buying bread as twelve times more +important than the gold used in buying lead.</p> + +<p>You then add up all the prices measured in an +ounce of gold in your column; you divide by the +number of items in your column, each multiplied +by its weight number, and the result is that your +ounce of gold for the year 1900 will be found to +have a certain <em>average purchasing power</em> which you +call, for the sake of further application, arbitrarily, +“100.”</p> + +<p>Then you take another year, say 1920, and you +find what the ounce of gold would purchase in the +same conditions, similarly weighted, in the year +1920. You discover that the ounce of gold on the +average in 1920 would only purchase half the weight +of stuff it purchased in 1900. In other words, prices +have doubled, or, what is the same thing, gold has +halved in value. You put down for the year 1920<span class="pagenum" id="Page_206">206</span> +the figure “200,” which means that average prices +are twice as great as they were in 1900, and the +economist’s way of saying this is: “With the +year 1900 as a base, the Index Number for 1920 is +200.”</p> + +<p>In the year 1921 he makes the calculation again, +and finds that prices have fallen, that is, gold has +become rather more valuable as compared with other +things, and prices are only three-quarters more than +they were in 1900. The economist writes down: +“The Index Number for 1921 is 175, with the prices +of 1900 as a base.” He goes back to 1880 and finds +that in 1880, after making a similar calculation, +an ounce of gold would on the average buy five +pounds of material where in 1900 it could only buy +four. In other words, prices are lower in 1880 +by one-fourth. So he writes down: “The Index +Number for 1880, with 1900 as a base, is 75.”</p> + +<p>These Index Numbers taken for each year with a +particular year as a <em>base</em>, or year of reference, +show the fluctuations in the purchasing value of +gold.</p> + +<p>To make the process clearer, we will take a simple +instance and imagine a community in which there +were only three things purchased on a large scale +by the citizens—wheat, bacon, and iron. We take +for our year of reference, let us say, the year 1880, +and we find that an ounce of gold would purchase +one ton of wheat, half a ton of iron, and a quarter +of a ton of bacon. But the amount spent on wheat<span class="pagenum" id="Page_207">207</span> +was ten times the amount spent on bacon and +twenty times the amount spent on iron.</p> + +<p>You add up the twenty tons of wheat, the half +ton of iron and the half ton of bacon—half a ton +of the latter because twice as much is spent on it +as is spent on iron, and therefore though it is half +the price of iron you must double the amount, +because twice as much is bought.</p> + +<p>You get 21 tons. To buy this 21 tons of stuff +3 ounces of gold were needed. You divide the +21 tons by 3, and you get 7 tons of material on the +average.</p> + +<p>Next, as you are taking this particular year for +a “base” (or year of reference) you call the 7 +“100,” so that you may compare in percentages +the rise or fall of prices in other years. You then +do exactly the same thing with these three staple +commodities in another year—say 1890—and you +find that your ounce of gold purchases no longer +7 tons of stuff, but 14 tons of stuff. Taking the year +1800 as your base number, you will see that the +Index Number for 1890 is “50.”</p> + +<p>Then you do the same thing for the year 1920, and +you find that with the same ounce of gold you can +only purchase 3½ tons of stuff. 7 is to 3½ as 100 is +to 200, so the Index Number for 1920 will be 200 +as compared with the base year—or year of reference—which +is 1880.</p> + +<p>You cannot use the Index Numbers without +knowing what your base year is and what average<span class="pagenum" id="Page_208">208</span> +prices were in that base year, but, having settled +that, your Index Number is nothing more than +a statement of <em>average prices</em>, or again, the average +purchasing power of a fixed weight of gold in the +various epochs you examine.</p> + +<p>In reality the calculating of an Index Number +involves a great many more difficult points than +these, and of course the number of commodities +taken is very much more than three; but that is the +method in its general outline, and if you go over it +carefully I think you will not find it difficult to +understand.<a id="FNanchor_8" href="#Footnote_8" class="fnanchor">8</a></p> + +<p>The first thing, then, in finding out the social +value of money at any historical period is to find +out the purchasing value of a given weight of gold—say, +one ounce. Supposing we are comparing +the time when Henry VIII. dissolved the monasteries +and took their wealth (1536–9) with our own time, +before the War, when our currency was still normal +and in gold, you will find that with 100 as your +base for prices in 1536–9 the Index Number of 1913 +is, according to different calculations, somewhere +between 2,000 and 2,400. I have gone into it<span class="pagenum" id="Page_209">209</span> +myself very carefully, and I make it out to be at +least 2,400 (though historians some time ago, who had +not gone into it very fully, used to make it lower); +that is, where one ounce of gold would purchase the +things which Englishmen regarded as their staple +commodities in 1536, 24 ounces of gold would be +necessary to-day.</p> + +<p>That is the first thing you have to consider when +you are comparing the social value of money at that +time with the social value of money in our own +time. You multiply right away by 24. You hear, +for instance, that a man had £100 a year paid him +by the King for looking after the garrison at Dover. +You translate it into modern money, and say that +he had £2,400 a year paid him <em>in our money</em>.</p> + +<p>Most people stop there, and that is why they get +their answer to the problem all wrong. In reality +the <em>social</em> value of money then was <em>very much more +than</em> 24 times what it is now, and £100 a year under +Henry VIII. meant <em>a great deal more than</em> what +£2,400 means now.</p> + +<p>In order to see how true this is we have to consider +the next two points which I mentioned.</p> + +<h3>2. <i>The number of purchasable categories.</i></h3> + +<p>Suppose you put a man into a little primitive place +like Andorra (which is a tiny independent state shut +off from the world in a valley of the Pyrenees), and +he is paid there £1,000 a year. He cannot live<span class="pagenum" id="Page_210">210</span> +in a house with more than a small rental, because +there are no big houses to be had. Everybody lives +in simple, little houses. He cannot spend his money +on many things. There are no roads, no use for a +motor car; no railways, so he cannot spend money +on railway fares; no theatres or cinematographs—none +of the hundred things which we have here +on every side. He can buy bread and meat, and +wine and clothing, and very little else—for there is +nothing else to be bought. In other words, the +number of <em>sets of things</em> (that is what the word +“categories” means—“sets of things”) on which +he can spend money is a great deal less than what +it would be in London. A man with £1,000 a year +in London and a family to keep is, of course, very +much better off than a labouring man, but still he +is not rich, as rich people use the term. He will live in +a house for which he must pay perhaps £200 a year, +counting rent and taxes. Then he will—he usually +must—travel, and that will cost him perhaps £50 +a year. Then his friends will expect to meet him +and he must have them at his house, and he will +have to spend a good deal in postage and telegraphing—and +so on. The man in Andorra with £1,000 a +year simply would not know what to do with it. +He would be so “well off” that he would have a +very large surplus—more than half—to give away, +or to help other people with, or to save and invest. +But exactly the same sort of man, with the same +ideas and bringing-up and necessities, put down in<span class="pagenum" id="Page_211">211</span> +London would certainly not be able to save a penny +of his £1,000 a year.</p> + +<p>So we see that the social value of £1,000 a year in +Andorra is very different from the social value of +the same sum in London. Some people might be +inclined to laugh at this difference, and to say: +“Oh, yes! but the man in London could, if he +liked, save, simply by not spending on those various +categories, as you call them.” Yes; he as an +individual might choose to live an odd life of his +own and not do what other people do. But <em>Society +as a whole</em>—that is, all the community round him—in +London is, as a fact, spending upon those various, +very numerous, categories, while in Andorra he +does not, for he <em>cannot</em>, spend upon them; they +are not there to be purchased. Therefore it is true +that the <em>social value</em> of the same sum, with the same +index number, is on the average very much higher +in Andorra than in London.</p> + +<p>You cannot give this difference precisely in figures +as you can an index number, because nobody can +precisely calculate the number of categories nor the +respective importance of each, but the least knowledge +of history shows you that in Henry VIII.’s +time, in 1536, the number of categories was very +much smaller than it is to-day. So the man to whom +Henry VIII. paid £100 a year as salary for looking +after one of his castles, though the purchasing +value of his income—the amount of rye or pork or +what not that he could buy with it—was what we<span class="pagenum" id="Page_212">212</span> +should call to-day £2,400 a year, had a much higher +income <em>relatively to the people of the time</em> than has +a man with £2,400 a year to-day. He counted much +more than a man to-day counts who has five thousand +a year.</p> + +<p>But this second point is not all. There is again +a third point, as we have seen, and we must next +turn to that.</p> + +<h3>3. <i>The purchasing value of the whole community.</i></h3> + +<p>The third factor in the making up of the social +value of money is the relation of any sum to the +total wealth of the whole community. That of +course depends upon two things: the average of +wealth of each family in the community, and the +number of those families.</p> + +<p>Supposing, for instance, with things at their +present prices, you consider two communities: +(1) the people of Iceland, (2) the people of Australia. +In both countries you can get pretty much the same +amount of stuff for an ounce of gold, and though +there are less categories of purchasable things in +Iceland than in Australia, yet most of the things a +civilised man requires can be got in Iceland—at least +in the capital, or can be imported there by the +inhabitants if they need them or can afford to pay +for them. Both communities are of our own race +and of much the same standard of culture and the<span class="pagenum" id="Page_213">213</span> +same idea of how one should live. But Iceland has +only four thousand families, and these families are +poor for the most part. Australia has a million +families, that is, 250 times as many, and they are +much richer than the families in Iceland on the +average. There are much worse differences of rich +and poor in Australia than there are in Iceland. +There are far more miserable and starving people +in Australia than there are in Iceland; but the +<em>average</em> wealth of a family in Australia is much higher +than that in Iceland.</p> + +<p>Now suppose that the Government of Iceland +were to want to build a new harbour for the capital, +which is on the sea, and in order to get the money +were either to confiscate the wealth of certain +rich people or to tax all the people—supposing it +wanted, for instance, £400,000 in order to complete +the work. And supposing the people of Australia +similarly wanted to build a harbour and also +wanted £400,000 to be got in the same way. +The index number is the same in both places. An +ounce of gold will roughly purchase the same amount +of things in both places, for the index number at any +moment is much the same all over the white world, +measured in gold, and we may imagine the categories +of purchasable things to be much the same in both +places. Yet the social value of the £400,000 is +quite different in Iceland from what it is in Australia. +In Iceland it means taking an average of £100 from +each of the poor families—if you get it by taxation—or<span class="pagenum" id="Page_214">214</span> +the confiscation of all the wealth of the very +few rich men there may be. But in Australia it +means no more than the taking of about 8s. from each +family, and that from an average family income +much higher than the average family income in +Iceland. Under this heading the social value of +£400,000 in Iceland is enormous and in Australia +is small. If Iceland tried to build such a harbour +it could hardly do so. The economic effort would +be very great, and if it succeeded it would fill a big +place in the history of the island. In Australian +history it would pass almost unnoticed.</p> + +<p>Now let us add the influence of all these three +points together, and we shall see that there is a vast +difference between the social value of money in the +time of Henry VIII., when the monasteries were +dissolved, and the social value of the same amount +of money to-day. We shall see, for instance, why +the King, taking away the annual revenues of the +Monastery of Westminster and keeping them for +himself, made such a prodigious splash, although +the actual amount in pounds, or weight of gold, in +which the income of Westminster Abbey could then +be measured was only £4,000 a year. In the first +place, you must multiply by 24, so that the actual +income or annual purchasing value in wheat, beef, +rye, pork, beer, which was confiscated, was nearly +£100,000 in our money. Then you must remember +that it took place in a community where there +was a very much smaller number of purchasable<span class="pagenum" id="Page_215">215</span> +categories; that is, where people had a very much +small number of “sets of things” upon which to +spend money.</p> + +<p>And, lastly, you must remember that it took place +in an England the population of which was hardly +more than a sixth—some people would say it +was hardly more than a tenth—of to-day’s, and that +population actually a great deal poorer on the average +than the present population of England. It is +true that there was not then the great herd of +starving or half-starving people which we have to-day +in England, and that labouring people were then +much better off than they are now; but, on the other +hand, there was nothing like the same number of +very rich people, and therefore the average family +income was much smaller. Put all that together, +and it is clear what a tremendous business the +confiscation of this one Abbey meant. It was +somewhat as though the Government to-day were +to confiscate one of the smaller railway companies, +or to take away the rentals now paid by a +northern manufacturing town to the great landlords +owning the soil, and put the money into its own +pocket.</p> + +<p>From this example of the confiscation of the +Abbey of Westminster you can argue to all the other +expenditure of the time—expenditure on armies +and navies, and so on—and in this way you can see +<em>how, why and in what degree the social value of money +differs between one period and another</em>.</p> + +<p><span class="pagenum" id="Page_216">216</span></p> + +<p>It is most important to get this point in Economics +clear in your mind if you are reading history, because +it helps to explain all manner of things which +otherwise puzzle one in the past.</p> +<hr class="chap x-ebookmaker-drop"> + +<div class="chapter"> +<p><span class="pagenum" id="Page_217">217</span></p> + +<h2 class="nobreak" id="USURY"><span id="toclink_217"></span>USURY</h2> +</div> + +<p class="in0"><span class="firstword">Usury,</span> the last subject but one on which I am +going to touch in this book, is one which modern +people have almost entirely forgotten, and which +you will not find mentioned in any book on Economics +that I know. Yet its vital importance was recognised +throughout all history until quite lately, and it is +already forcing itself upon modern people’s notice +whether they like it or no. So it is as well to understand +it betimes, for it is going to be discussed very +widely in the near future.</p> + +<p>All codes of law and all writers on morals from +the beginning of anything we know about human +society have denounced as wrong the practice of +<em>Usury</em>.</p> + +<p>They have recognised that this practice does grave +harm to the State and to society as a whole, and +must, therefore, as far as possible, be forbidden.</p> + +<p>Now what is Usury, and why does it thus do +harm?</p> + +<p>Modern people have so far forgotten this exceedingly +important matter that they have come to +use the word “usury” loosely for “the taking of +high interest upon a loan.” That is very muddled<span class="pagenum" id="Page_218">218</span> +thinking indeed, as you will see in a moment. The +character of Usury <em>has nothing to do with the taking +of high or low interest</em>. It is concerned with something +quite different.</p> + +<p><em>Usury is the taking of any interest whatever upon an</em> +<span class="allsmcap">UNPRODUCTIVE</span> <em>loan</em>.</p> + +<p>A man comes to you and says: “Lend me this +piece of capital which you possess” (for instance, +a ship, and stores of food with which to feed the +sailors during the voyage of the ship). “Using this +piece of capital to transport the surplus goods from +this country over the sea and to bring back foreign +goods which we need here I shall make a profit so +large that I can exchange it for at least one hundred +tons of wheat. The voyage there and back will +take a year.”</p> + +<p>You naturally answer: “It is all very well for +you to make a profit of one hundred tons of wheat in +one year by the use of <em>my</em> ship and of <em>my</em> stores of +food for sailors who work the ship, but what about +me? I grant you ought to have part of this profit +for yourself, as you are taking all the trouble. +But I ought to have <em>some</em>, because the ship and stores +of food are mine; and unless I lent them to you +(since you have none of your own) you would not +be able to make that profit by trading of which +you speak. Let us go half shares. You shall have +fifty tons of wheat and I will take fifty, out of the +total profit of one hundred tons.”</p> + +<p>The man who proposed to borrow your ship agrees.<span class="pagenum" id="Page_219">219</span> +The bargain is struck, and when the year is over +you make a fifty tons profit of wheat on your +capital.</p> + +<p>That is <em>the earning of interest on a productive +loan</em>.</p> + +<p>There is nothing morally wrong about that +transaction at all. It does no one any harm. It +does not weaken the State or society, or even hurt +any individual. There is a sheer gain due to wise +exchange (which is equivalent to production); +everybody is benefited—you that own the capital, +the man who uses it, and all society, which benefits +by the foreign exchange. Supposing your ship and +stores of food were worth a hundred tons of wheat, +then your profit of fifty tons of wheat is a profit +of fifty per cent., which is very high indeed. But +you have a perfect right to it: your capital has +produced a real increase of wealth to that extent. +If your capital be worth ten times as much, then your +profit is only five per cent. instead of fifty. But +your moral right to the fifty per cent. is just +as great as your moral right to the five per cent. +No one can blame you, and you are doing no +harm.</p> + +<p>Now supposing that, instead of coming to ask you +for the loan of your ship, the man came and asked +you for the loan of a sum of money which you +happened to have by you and which would be +sufficient to buy and stock the ship. It is clear +that the transaction remains exactly the same.<span class="pagenum" id="Page_220">220</span> +The loan is <em>productive</em>. He makes a true profit, +that is, there is a real increase of wealth for the +community, and you and he have a right to take +your shares out of it—you because you are the owner +of the capital, and he because he took the trouble +of organising and overlooking the expedition.</p> + +<p>These are examples of profit on a <em>productive</em> +loan.</p> + +<p>Now suppose a man to come to you if you were +a baker and say: “Lend me half a dozen loaves. +My family have no bread and I cannot see my way +to earning anything for a day or two. But when I +begin to earn I will get another half dozen loaves +and see that you are not out of pocket.” Then if +you were to reply: “I will not let you have half +a dozen loaves on those terms. I will let you owe +me the bread for a month if you like, but at the end +of the month you must give me back <em>seven</em> loaves”: +that would be usury.</p> + +<p>The man is not using the loan productively; +he is consuming the loaves immediately. No more +wealth is created by the act. The world is not the +richer, nor are you the richer, nor is society in general +the richer. No more wealth at all has appeared +through the transaction. Therefore the extra loaf +that you are claiming is claimed out of nothing. +It has to come out of the wealth of the community—in +this particular case out of the wealth of the man +who borrowed the loaves—instead of coming out +of an increment or excess or new wealth. That is<span class="pagenum" id="Page_221">221</span> +why usury is called “usury”—which means: +“wearing down,” “gradually dilapidating.”</p> + +<p>It is clear that if the whole world practised usury +and nothing but usury, if wealth were never lent to +be used productively, but only to be consumed +unproductively, and yet were to demand interest +on the unproductive transaction, then the wealth +that was lent would soon eat up all the other wealth +in the community until you came to a situation +in which there was no more to take. Everyone +would be ruined except those who lent; then these, +having no more blood to suck, would die themselves, +and society would end.</p> + +<p>As in the case of the ship, it matters not in the +least whether the actual thing, the loaves of bread, +are lent, or money is lent with which to buy them. +<em>The test is whether the loan is productive or not.</em> +The <em>intention</em> of Usury is present <em>when the money +is lent at interest on what the lender</em> <span class="allsmcap">KNOWS</span> <em>will be +an unproductive purpose</em>, and the actual <em>practice</em> +of usury is present <em>when the loan, having as a fact +been used unproductively, interest is none the less +demanded</em>.</p> + +<p>As in every other case of right and wrong whatsoever, +there is, of course, a broad margin in which +it is very difficult to draw the line. A man guilty +of usury and trying to excuse himself might say, +even in the case of food lent to a starving man: +“The loan may not look directly productive, but +indirectly it <em>was</em> productive, for it saved the man’s<span class="pagenum" id="Page_222">222</span> +life and thus later on he was able to work and produce +wealth.”</p> + +<p>The other way about (though there is not much +danger of that nowadays), a man trying to get out +of interest on a productive loan might say in many +cases: “The loan was not really productive. +It is true I made a profit on it, but that profit was +not additional wealth for the community. It only +represented what I got out of somebody else on a +bargain.”</p> + +<p>In this margin of uncertainty we have only +common sense to guide us, as in every other similar +case. We know pretty well in each particular +example we come across whether a loan is productive +of not; whether we are borrowing or lending for +a productive purpose, or for a charitable or luxurious +one, or for one in every way unproductive.</p> + +<p>The proof that this feeling about usury is right +is to be found in the private conduct of individuals +in their social relations. If a poor man in distress +goes to a rich friend and borrows ten pounds, he +pays it back when he can; and the rich man would +think it dishonourable to charge interest. But if a +man borrowed ten pounds of one for the purpose of +doing something which was likely to increase its +value, and we knew that this was his purpose, we +should have a perfect right to share the results with +him, and no one would think the claim dishonourable.</p> + +<p>Usury, then, is essentially a claim to increment, or +extra wealth, <em>which is not there to be claimed</em>. It<span class="pagenum" id="Page_223">223</span> +is a practice which diminishes the capital wealth of +the needy and eats it up to the profit of the lender; +so that, if usury go unchecked, it must end in the +absorption of all private property into the hands of +a few money brokers.</p> + +<p>Now, these things being so, the nature of usury +being pretty clear, and both the moral wrong of it +and the injury it does to society being equally clear, +how is it that the modern world for so long forgot all +about it, and how is it that it is forcing itself upon +the attention of the modern world again in spite of +that forgetfulness?</p> + +<p>I will answer both of those questions.</p> + +<p>The wrong and the very nature of usury came to be +forgotten with the great expansion of financial +dealings which arose in the middle and end of the +seventeenth century—that is, about 250 years ago—in +Europe. In the simpler times, when commercial +transactions were open and upon a comparatively +small scale, and done between men who knew each +other, you could pretty usually tell, as you can in +private life, whether a loan were a loan required +for a productive or an unproductive purpose. The +burden of proof lay upon the lender. It was no +excuse in lending a man money to say: “I did not +know what he wanted to do with it, so I charged +him 10 per cent., thinking that very probably he +was going to use it productively.” The courts +of justice would not admit such a plea, and they were +quite right. For under the simple conditions of the<span class="pagenum" id="Page_224">224</span> +old days the judge would answer: “It was your +business to know. A man does not come borrowing +money unless he is in either personal necessity or +has some productive scheme for which he wants +to use the money. If you thought it was a productive +scheme you would certainly have asked him about +it in order to share the profits, and the fact that you +did not trouble to find out whether it were productive +or no shows that you are indifferent to the wrong +of usury, and willing to do that wrong under the +pretence that it was not your business to inquire.”</p> + +<p>The attitude of the law on money-lending in the +old days was very much what it is to-day with regard +to certain poisonous chemicals which may be used +well or ill. The seller of those chemicals has to ask +what they are going to be used for, and is responsible +if he fails to inquire. In the same way the old +Christian law said a lender was bound to find out if +his loan were intended for production or not. If the +law had not done this, then usury would have been +universal and would have eaten up the State, to the +profit of the few people who lent out their money: +as it is doing now.</p> + +<p>But as trade became more and more complicated +and much larger and lost its personal character, +as the banking system arose on a large scale and +great companies with any number of shareholders, +and as it became impossible to lay the weight of +proof upon the lender—when, indeed, most lenders +could not know for what their money was being<span class="pagenum" id="Page_225">225</span> +lent, but only that they had put it into some financial +institution with the object of fructifying it—then +the opportunity for Usury came in, and it soon +permeated all commerce.</p> + +<p>Suppose a man to-day, for instance, to put money +into an Insurance Company. It pays him, let us say, +5 per cent. interest on his money. He does not know, +and cannot know—no one can know—exactly how +that particular bit of money is being used. It is +merged in the whole lump of the funds the Insurance +Company has to deal with. A great deal of it will +be used productively. It will go to the purchase +of steam engines and stores of food, ships, and so on, +which in use increase the wealth of the world; +and the money spent in buying these things has a +perfect right to profit and does no harm to anyone +by taking profit. But a certain proportion will be +used unproductively. The original investor knows +nothing about that, and even the managers of the +company know nothing about it.</p> + +<p>A client comes to them and says: “I want a loan +of a thousand pounds.” They are quite unable, +under modern conditions, to go into an examination +of what he is going to do with it. He gives security +and gets his loan. He may be a man in distress +who gets it in order to pay his debts, or he may be +a man who is going to start a business. The company +cannot go into that. It has to make a general rule +of so much interest upon what it lends, under the +implied supposition, of course, that the loan is<span class="pagenum" id="Page_226">226</span> +normally productive. But the borrower <em>can</em> use +it unproductively, and often does and intends to +do so.</p> + +<p>Thus, with a very large volume of impersonal +business, the presence of usury is inevitable. But +though inevitable, and though therefore the practice +of it, being indirect and distant, cannot be imputed +to this man or that, usury inevitably produces its +disastrous effects, and the modern world is at last +coming to feel those effects very sharply.</p> + +<p>A few pence lent out at usury some twenty centuries +ago would amount now, at compound interest, +to more wealth than there is in the whole world; +which is a sufficient proof that usury is unjust and, +as a permanent trade method, impossible.</p> + +<p>The large proportion of usurious payments which +are now being made on account of the impersonal +and indirect character of nearly all transactions, is +beginning to lay such a burden upon the world as a +whole that there is danger of a breakdown.</p> + +<p>If you keep on taking wealth as though from an +increase, when really there is no increase out of +which that wealth can come, the process must, +sooner or later, come to an end. It is as though you +were to claim a hundred bushels of apples every year +from an orchard after the orchard had ceased to bear, +or as though you were to claim a daily supply of +water from a spring which had dried up. The +man who would have to pay the apples would have +to get them as best he could, but by the time the<span class="pagenum" id="Page_227">227</span> +claim was being made on all the orchards of the world, +by the time that usury was asking a million bushels +of apples a year, though only half a million were +being produced, there would be a jam. The interest +would not be forthcoming, and the machinery for +collecting it would stop working. Long before +it actually stopped, of course, people would find +increasing difficulty in getting their interest and +increasing trouble would appear in all the commercial +world.</p> + +<p>Now that is exactly what is beginning to happen +to-day after about two centuries of usury and +one century of unrestricted usury. So far we have +got out of it by all manner of makeshifts. Those +who have borrowed the money and have promised +to pay, say, 5 per cent., are allowed to change and +to pay only 2½ per cent. Or, by the process of +debasing currency, which I described earlier in this +book, the value of the money is changed, so that a +man who has been set down to pay, say, a hundred +sheep a year, is really only paying 50 or 30 sheep +a year. A more drastic method is the method of +“writing off” loans altogether—simply saying: +“I simply cannot get my interest, and so I must +stop asking for it.” That is what happens when a +Government goes bankrupt, as the Government of +Germany has done.</p> + +<p>If you look at the Usury created by the Great War, +you will see this kind of thing going on on all sides. +The Governments that were fighting borrowed<span class="pagenum" id="Page_228">228</span> +money from individuals and promised interest upon +it. Most of that money was not used productively: +it was used for buying wheat and metal, and +machinery and the rest, but the wheat was not used +to feed workmen who were producing more wealth. +It was used to feed soldiers who were producing +no wealth, and so were the ships and the metal and +the machinery, etc. Therefore when the individuals +who had lent the money began collecting from the +Government interest upon what they had lent +they were asking every year for wealth which simply +was not there, and the Governments have got out +of their promise to pay a usurious interest in all +sorts of ways—some by repudiating, that is saying +that they <em>would</em> not pay (the Russians have done +that), others by debasing currency in various degrees. +The English Government has cut down what it +promised to pay to about half, and by taxing this it +has further reduced it to rather less than a third. +The French Government, by inflation and by +taxation, have reduced it much more—to less +than a fourth, or perhaps more like a sixth or +an eighth.</p> + +<p>The Germans have reduced it by inflation to +pretty well nothing, which is the same really as +repudiating the debt altogether.</p> + +<p>So what we see in a general survey is <span class="locked">this:—</span></p> + +<p>1. Usury is both wrong morally and bad for +society, <em>because it is the claim for an increase of +wealth which is not really present at all</em>. It is<span class="pagenum" id="Page_229">229</span> +trying to get something where there is nothing +out of which that something can be paid.</p> + +<p>2. This action must therefore progressively and +increasingly soak up the wealth which men produce +into the hands of those who lend money, until at +last all the wealth is so soaked up and the process +comes to an end.</p> + +<p>3. That is what has happened in the case of +the modern world, largely through unproductive +expenditure on war, which expenditure has been +met by borrowing money <em>and promising interest +upon it although the money was not producing any +further wealth</em>.</p> + +<p>4. The modern world has therefore reached a +limit in this process and the future of usurious +investment is in doubt.</p> + +<p>Though these conclusions are perfectly clear, it +is unfortunately not possible to say that this or +that is a way out of our difficulties; that by this +or that law we can stop usury in the future and can +go back to healthier conditions. Trade is still +spread all over the world. It is still impersonal +and money continues to be lent out at interest +unproductively, with the recurring necessity of +repaying the debt and failing to keep up payments +which have been promised. Things will not get +right again in this respect until society becomes as +simple as it used to be, and we shall have to go +through a pretty bad time before we get back to +that.</p> +<hr class="chap x-ebookmaker-drop"> + +<div class="chapter"> +<p><span class="pagenum" id="Page_230">230</span></p> + +<h2 class="nobreak" id="ECONOMIC_IMAGINARIES"><span id="toclink_230"></span>ECONOMIC IMAGINARIES</h2> +</div> + +<p class="in0"><span class="firstword">I am</span> going to end with a rather difficult subject +on which I hesitated whether I should put it into +this book or no. If you find it too difficult leave +it out; but if you find as you read that you can +understand it it is worth going into, because it is +quite new (you will not find it in any other book), +and it is very useful in helping one to understand +certain difficult problems which have arisen in our +modern society and which have become a danger +to-day. This subject is what I call “Economic +Imaginaries.”</p> + +<p>An imaginary is a term taken from mathematics, +and means a value which appears on paper but has +no real existence. It would be too long and much +too puzzling to explain what imaginaries in mathematics +are, but I can give you a very simple example +of what they are in Economics. They mean economic +values or lumps of wealth which appear on paper +when you are making calculations, so that one +would think the wealth was really there, but which +when you go closely into their nature you find +do not really exist.</p> + +<p>The first example I will give you is that of a man +who, having a large income, gives an allowance<span class="pagenum" id="Page_231">231</span> +to his son living somewhere abroad. Supposing a +man in England has £10,000 a year, and he has put +his son into business in Paris, but because the young +man has not yet learned his business, and is still +being helped from home, he allows that son £1,000 +a year to spend.</p> + +<p>When the Income Tax people go round finding +out what everybody has they put down the rich +man in England, quite rightly, as having £10,000 +a year, and when the value of all incomes in England +is <em>assessed</em>, <i>i.e.</i>, when a table is drawn up showing +what the total income of all Englishmen is, this +man appears, quite properly, as having £10,000 a +year. But when the people in France make a +similar <em>assessment</em>, to find out what the incomes are +of all the people living in France, the rich man’s +son in Paris appears as having £1,000 a year. So +when the assessments of England and France are +added together and some Government economist is +calculating what the total income of the citizens of +both countries may be, <em>that £1,000 a year appears +twice</em>. One of these appearances is an <em>economic +imaginary</em>. In other words, by the method of +calculation used, £1,000 every year appears on the +total assessment of England and also of France, +making £2,000 of £1,000. The extra £1,000, though +appearing on paper, does not really exist at all: +it is an “Economic Imaginary.”</p> + +<p>This is the simplest case of an economic imaginary. +It is the case overlap, or counting of the same money<span class="pagenum" id="Page_232">232</span> +twice, and we may put down this case in general +terms by saying: “Every unchecked overlap +creates an economic imaginary to the extent of that +unchecked overlap.”</p> + +<p>It looks so simple that one might say, “Well, +surely everybody would notice that!” But it is +very much the other way—even in this simple case. +The more complicated society becomes, the more +payments there are back and forth, allowances and +pensions and all sorts of arrangements which grow +up with increased travel and means of communication +and, in general, with the development of society, +the more these overlaps come into being and remain +unchecked, that is, uncorrected, the greater number +there are in which people are not aware that there +is an overlap, or if it is an overlap do not remember +to mention it, or if they do mention it are not believed. +In general the more society increases in complexity +the more this kind of economic imaginary by mere +overlap increases in proportion to the total real +wealth, and the more the total “assessment” of +the community is exaggerated.</p> + +<p>I will give you one instance, to prove this, which +is very striking and which happened in my own +experience. A man I knew gave in his income tax +returns a few years ago. He had a secretary at +home to whom he paid a fairly large salary, and he +also used a secretary in town. Their salaries came +out of money which he had earned in business but +appeared in his taxable general income, for he was<span class="pagenum" id="Page_233">233</span> +not allowed to take it off as an expense. Meanwhile, +both the secretary in the country and the secretary +in town were paying tax on <em>their</em> salaries, though they +came out of a total income which had already paid +taxes, and anyone making an assessment of the +total income of England would certainly have +written down from the official books: “Mr. Blank, +so much a year; his secretary A—, so much a year; +his secretary B—, so much a year,” and added up +the total. Yet it is clear that the money put down +to A and B was imaginary.</p> + +<p>I cannot tell you the thousands of ways in which +this simple case of overlapping goes on in modern +England, for it would be too long to explain, and +I have only given you very simple instances, but +you may be certain that the economic imaginaries +of this kind form at least a quarter of the supposed +income of the country.</p> + +<p>If there were no other form of imaginaries than +this it would be very simple to understand them, +and perhaps allow for them in making an estimate +of total wealth. Unfortunately, there are any +number of different forms much more difficult to +seize and cropping up like mushrooms everywhere +more and more in a complicated and active society.</p> + +<p>For instance: you have (2) the economic imaginary +due to <em>luxurious expenditure</em>.</p> + +<p>All over the world where you have rich people +spending money foolishly they are asked, for things +that they buy, prices altogether out of keeping with<span class="pagenum" id="Page_234">234</span> +the real value of the things. If you go into one of +the big hotels in London or Paris and have a dinner +the <em>economic values</em> you consume are anything from +a quarter to a tenth of the sum you are asked to +pay. Thus people who buy a bottle of champagne +in this sort of place pay from a pound to thirty +shillings. The economic values contained in a bottle +of champagne, that is the economic values which +are built up by the labour of all sorts which has +been expended in producing it, come to about +two shillings and sixpence. So when people pay +from a pound to thirty shillings for a bottle of +champagne they are paying from eight to twelve +times the real economic values which are destroyed +in consumption. There is an extra margin of +anything from seventeen shillings and sixpence to +twenty-seven shillings and sixpence, which is an +<em>economic imaginary</em> in that one case alone. And +remember that this economic imaginary goes the +rounds. It appears in the profits of the hotel-keeper, +which are assessed in the total national +income for taxation. It appears in the rent for +his hotel, since a man will pay much more rent for +a house in which he can get people to pay these sums +than for a humbler hotel of the same size and of +the same true economic value in bricks and mortar. +It appears in the rates which the hotel pays to the +local authorities, and which in their turn appear in +the income of humble officials living in the suburbs. +That economic imaginary created by the silly person<span class="pagenum" id="Page_235">235</span> +who is willing to pay from a pound to thirty shillings +for a thing worth two shillings and sixpence appears +over and over again in the various assessments of +the country.</p> + +<p>Here is another case (3): <em>economic imaginaries +due to inequality of income</em>.</p> + +<p>Supposing you have a thousand families with +£1,000 a year each; that is, a total income among +them of £1,000,000 a year. Supposing you put +up for competition among those families a very +beautiful picture which everybody would like to +have; painted, say, by Van Dyck. None of these +people with £1,000 a year each could afford to +give more than a certain sum for the picture, and +probably, when they had competed for it, it would +fetch no more than £100. An official estimating +that community would say that it had £1,000,000 +a year income, such and such values in houses, etc., +and that there was a picture present worth £100, +and all that would go down in his estimates or +“Assessment.”</p> + +<p>Now supposing all but two of these thousand +families to be impoverished by having to pay rents +and interest to these two men. Supposing they were +all reduced to just under £500 a year, and that the +balance of £500,000 were paid to those other two. +Then each of these would have £250,000 a year. +The Van Dyck is put up for auction in this community. +The poor families, of course, have no show +at all. Not one of them can afford more than £50<span class="pagenum" id="Page_236">236</span> +at the most, however much he wanted the Van Dyck. +But the two rich men can compete one against the +other recklessly. They have an enormous margin +of wealth with which to do what they like, and the +Van Dyck between them may be rushed up to +£50,000.</p> + +<p>There is not a penny more of real wealth in +the community than there was before. Yet your +Government assessor would come down and assess +the community in a very different fashion from the +way in which he would have assessed the first community. +He will put down the total income at +£1,000,000, and the houses, furniture, etc., at so +much, and he will add: “Also a Van Dyck valued +at £50,000.” Of course in real life, where are great +differences of income, this sort of thing is multiplied +by the thousand. It is another example of the +way in which, as communities get more complicated +in a high civilisation, economic imaginaries appear.</p> + +<p>I am only introducing this subject as a very simple +addition to this little book, and I will not multiply +instances too much, though one might go on giving +examples almost indefinitely.</p> + +<p>Here, then, is a last one (4): <em>economic imaginaries +due to the confusion between services and economic +values attached to material things</em>.</p> + +<p>We saw at the beginning of this book that wealth +did not consist in <em>things</em>, such as coal, chairs, tables, +etc., but in the <em>economic values attached to those +things</em>; that is, their added use for the purposes of<span class="pagenum" id="Page_237">237</span> +human beings up to the point where they were +beginning to be consumed. We saw how the coal +in the earth has no economic value, how it begins +to be of value when it begins to be mined, and how +each piece of additional labour put into it to bring +it nearer to the point of consumption adds to its +economic value, until at last, when it gets into your +cellar, from being worth nothing a ton (when it was +still in the earth) it is worth thirty shillings or forty +shillings a ton.</p> + +<p>But when people assess wealth for the purpose +of taxation, and in order to find what (in their +judgment) the total yearly income of a nation is, +they count not only the economic values attached +to things consumed by the nation, but also +<em>services</em>.</p> + +<p>For instance: if Jones is a good card player, the +rich man Smith may pay him £500 a year to live +in his house and amuse his loneliness by perpetually +playing cards with him. I knew a case of a man +in South Wales who did exactly that. It is an +extreme case, but we all of us, all day long, are paying +money for services which do not add economic +values to things at all, and which yet must appear +in assessment.</p> + +<p>All the money I earn by writing is of this kind. +Now assessment of these services creates an +enormous body of economic imaginaries, and to +show you how they may do so I will give you an +extreme and ludicrous case.</p> + +<p><span class="pagenum" id="Page_238">238</span></p> + +<p>Supposing two men, one of whom, Smith, has a +loaf of bread, and the other of whom, Brown, has +nothing. Smith says to Brown: “If you will +sing me a song I will give you my loaf of bread.” +Brown sings his song and Smith hands over the +bread. A little later Brown wants to hear Smith +sing and he says to him: “If you will sing me a +song I will give you this loaf of bread.” A little +later Smith again wants to have a song from Brown. +Brown sings his song (let us hope a new one!) and +the loaf of bread again changes hands and so on +all day.</p> + +<p>Supposing each of these transactions to be recorded +in a book of accounts. There will appear in Smith’s +book: “Paid to Brown for singing songs two +hundred loaves of bread,” and in Brown’s book: +“Paid to Smith for singing songs two hundred loaves +of bread.” The official who has to assess the national +income will laboriously copy these figures into his +book and will put down: “Daily income of Smith, 200 +loaves of bread. Daily income of Brown, 200 loaves +of bread. Total 400 loaves of bread.” Yet there is +only one <em>real</em> loaf of bread there all the time! The +other 399 are imaginary.</p> + +<p>Now with a ludicrous and extreme example of +this sort you may say: “That is all very well as +a joke, but it has no bearing on real life.” It has. +That is exactly the sort of thing which is going on +the whole time in a highly-developed economic +society. I go to a matinee and pay 10s. for a man<span class="pagenum" id="Page_239">239</span> +to amuse me. He goes off himself in the evening +and pays 10s. to hear a man sing at a concert. +Next morning that man (I sincerely hope) buys +one of my books, and a big part of the price is +not paid for the economic values attaching to +the material of it, but for the services of writing +it, which is not a creation of wealth at all. The +publisher pays me my royalty, and I spend part +of it in looking at an acrobat in a music hall. +The acrobat pays 10s. to keep up his chapel; and +the minister of the chapel, in a fit of fervour, +pays a subscription of 10s. to a political party.</p> + +<p>And so on. Here is a short chain of economic +imaginaries: 50s.—five ten-shilling notes—all +appearing one after the other in the assessment +of the national income and corresponding to no real +wealth.</p> + +<p>It is exactly the same thing in principle as +the case of the two men singing for one loaf of +bread. And the same principle applies to the +expenditure of rates and taxes. A great part of this +expenditure goes in empty services, not in services +which add economic values to things.</p> + +<p>We must, of course, distinguish between two things +which many of the older economists muddled up. +A thing may be of the highest temporal use to +humanity in the production of happiness, such as +good singing, or of high spiritual value, such as good +conduct, and yet that thing must not be confounded +with economic values. When one says, for instance,<span class="pagenum" id="Page_240">240</span> +that good singing, or a good picture, or a good book +has no economic value, or only a very slight material +economic value (the best picture ever painted +has probably not a true economic value of more +than 20s. outside its frame, unless the painter used +expensive paints or a quite enormous canvas) one +does not mean, as too many foolish people imagine, +that <em>therefore</em> one ought not to have good singing, +or good pictures, or the rest of it.</p> + +<p>What <em>is</em> meant is that the examination of +any one set of things must be kept separate +from the examination of another, and when +you put down the money spent on these things +as though it represented real economic values +you are making a false calculation.</p> + +<p>Well, this is only a hint of quite a new subject in +Economics, which I have put in at the end in the +hope that it may be of some value to you. Meditate +upon it. As societies get more and more luxurious, +more and more complicated, more and more +“civilised” (as we call it), so do these economic +imaginaries grow out of all proportion to the real +wealth of the society. If on the top of their growth +you suddenly impose high taxation, based upon your +assessment, you may think that you are only taking +a fifth or a third or a fourth of the whole community’s +real yearly wealth, when in reality you are taking +a half or more than a half. And this is probably +the main reason why so many highly developed +societies have broken down towards the end<span class="pagenum" id="Page_241">241</span> +of their brilliance through the demands of +their tax-gatherers who worked on assessment +inflated out of all reality by a mass of economic +imaginaries.</p> + +<p class="p4 center"><span class="smaller">FINIS</span></p> + +<div class="chapter footnotes"> +<p><span class="pagenum" id="Page_242">242</span></p> + +<h2 class="nobreak" id="FOOTNOTES">FOOTNOTES</h2> + +<div class="footnote"> + +<p class="fn1"><a id="Footnote_1" href="#FNanchor_1" class="label">1</a> From the Latin word “Fiat” = “Let it be so.” As +though the Government had said: “This is not a piece +of gold, only a piece of paper. But I say it is to be taken +as gold. So I order. <em>Let it be so.</em>”</p> + +</div> + +<div class="footnote"> + +<p class="fn1"><a id="Footnote_2" href="#FNanchor_2" class="label">2</a> It is important to keep our ideas rigidly clear on +this point. You can exchange a piece of fertile land for +some set of values. Yet it is not <em>wealth</em>. It is not matter +transposed from a condition where it is less useful to a +condition where it is more useful to man. See the definitions +in the first chapter, “What is wealth?”</p> + +</div> + +<div class="footnote"> + +<p class="fn1"><a id="Footnote_3" href="#FNanchor_3" class="label">3</a> “Enjoyment” does not mean, in this connection, +pleasure, happiness. It is a conventional phrase to mean +“consumption <em>not</em> directed to the making of further +wealth?” Thus the wealth consumed at a boring dinner +party is consumed in “enjoyment.”</p> + +</div> + +<div class="footnote"> + +<p class="fn1"><a id="Footnote_4" href="#FNanchor_4" class="label">4</a> A <em>Strike</em> is a modern English word (only used where +the English language is spoken), and signifying the refusal +of the Free labourers to sell their labour for the amount +hitherto given. They cease work, thereby interrupting +the profits of the Capitalist who furnishes them with food, +clothing, etc., in the shape of wages. They do so in the +hope of compelling him, by loss of profits during their +idleness, to pay them more.</p> + +<p>A <em>Lock-out</em> is a modern English word now used all over +the world to signify an action of the Capitalist refusing +to pay his workmen what they have hitherto received, +and hoping to starve them into accepting lower wages +by “locking them out” of his factory until they submit.</p> + +<p>Strikes are only possible when the labourers have +accumulated some capital on which to live during the +struggle. This they accumulate by contributions to the +common fund of a “Trades Union” while still in employment. +A Lock-out is only possible from the fact that such +funds are small and soon exhausted.</p> + +</div> + +<div class="footnote"> + +<p class="fn1"><a id="Footnote_5" href="#FNanchor_5" class="label">5</a> In theory Parliament is stronger than the banks, but +Parliament no longer counts as a real governing power. +The banks are far more powerful than Parliament.</p> + +</div> + +<div class="footnote"> + +<p class="fn1"><a id="Footnote_6" href="#FNanchor_6" class="label">6</a> This very sensible tax was invented by Disraeli in +England about a lifetime ago.</p> + +</div> + +<div class="footnote"> + +<p class="fn1"><a id="Footnote_7" href="#FNanchor_7" class="label">7</a> Silver and gold were used together, but gold alone +will serve as a test.</p> + +</div> + +<div class="footnote"> + +<p class="fn1"><a id="Footnote_8" href="#FNanchor_8" class="label">8</a> A simple daily example of an amateur index number +is the housewife’s idea of “cost of living.” She finds that, +for the purchase of her home, a great deal of bread, a +little butter, more cheese, so much for clothing, rent, etc., +40s. to-day go about as far as 20s. in 1913 before the war. +In other words she is “taking 1913 as a base and establishing +an index number of 200 for 1923.”</p> + +</div> +</div> + +<div class="chapter"> +<p><span class="pagenum" id="Page_243">243</span></p> + +<h2 class="nobreak" id="Index"><span id="toclink_243"></span>Index</h2> + +<div class="index"> +<ul class="index"> +<li class="ifrst">Banking, how arose, <a href="#Page_168">168–173</a>;</li> +<li class="isub1">its machinery, <a href="#Page_173">173–179</a>.</li> + +<li class="indx">Banking system, its advantage in concentrating capital, <a href="#Page_180">180</a>;</li> +<li class="isub1">begins to invest money, <a href="#Page_183">183–186</a>;</li> +<li class="isub1">great modern power of, <a href="#Page_186">186–188</a>.</li> + +<li class="indx">Blanc, creator of modern socialism, <a href="#Page_133">133</a>;</li> +<li class="isub1">its definition, <a href="#Page_134">134</a>.</li> + +<li class="ifrst">Capital, Character of, <a href="#Page_19">19–26</a>.</li> + +<li class="indx">“Capitalism,” term for Capitalist Society, <a href="#Page_105">105</a>;</li> +<li class="isub1">“Paradox,” <a href="#Page_120">120</a>, <a href="#Page_122">122</a>.</li> + +<li class="indx">Capitalist State, <a href="#Page_101">101</a>, <a href="#Page_104">104–5</a>;</li> +<li class="isub1">advantages and disadvantage, <a href="#Page_115">115–123</a>.</li> + +<li class="indx">Categories, Purchasable, <a href="#Page_209">209–210</a>.</li> + +<li class="indx">Circulation, Efficiency in, <a href="#Page_72">72–75</a>.</li> + +<li class="indx">Clearing House, <a href="#Page_179">179</a>.</li> + +<li class="indx">Coal, Example of addition of values to, <a href="#Page_27">27–28</a>.</li> + +<li class="indx">Coal Mine, example of how rent arises as a surplus, <a href="#Page_47">47–49</a>.</li> + +<li class="indx">Communism, only logical and necessary form of Socialism, <a href="#Page_135">135</a>.</li> + +<li class="indx">Consumption of Capital inevitable, <a href="#Page_23">23</a>.</li> + +<li class="indx">Consumption of wealth is universal, <a href="#Page_31">31–32</a>.</li> + +<li class="indx">Currency, Debasement of, <a href="#Page_79">79–83</a>.</li> + +<li class="indx">Currency, Meaning of, <a href="#Page_70">70</a>.</li> + +<li class="ifrst">Denmark, example of distributive state, <a href="#Page_108">108</a>, <a href="#Page_126">126</a>.</li> + +<li class="indx">Diminishing Returns, Law of, <a href="#Page_40">40–44</a>.</li> + +<li class="indx">Distributive State, <a href="#Page_105">105–6</a>;</li> +<li class="isub1">advantages and disadvantages, <a href="#Page_124">124–131</a>.</li> + +<li class="indx">Division of Labour, <a href="#Page_54">54</a>.</li> + +<li class="indx">Douglas Scheme of Credit, <a href="#Page_187">187</a>.</li> + +<li class="ifrst">Economic Imaginaries, examples of, <a href="#Page_231">231–240</a>.</li> + +<li class="indx">Exchange, a true form of production, <a href="#Page_52">52</a>.</li> + +<li class="indx">Exchange, Free, Formulæ of maximum wealth through, <a href="#Page_59">59–60</a>.</li> + +<li class="indx">Exchange, International, factor of National Currencies in, <a href="#Page_142">142</a>, <a href="#Page_143">143</a>.</li> + +<li class="indx">Exchange, Medium of, or currency, <a href="#Page_70">70</a>.</li> + +<li class="indx">Exchange, Multiple, <a href="#Page_57">57–58</a>.</li> + +<li class="indx"><span class="pagenum" id="Page_244">244</span>Exchange, Multiple, in International trade, <a href="#Page_143">143–144</a>.</li> + +<li class="indx">Exchange, Potential of, <a href="#Page_53">53–54</a>.</li> + +<li class="indx">Exchange value, necessary condition of wealth, <a href="#Page_12">12–14</a>.</li> + +<li class="indx">Expenditure, Luxurious, productive of Economic Imaginaries, <a href="#Page_233">233</a>.</li> + +<li class="indx">Exports not a test of wealth, <a href="#Page_146">146–149</a>.</li> + +<li class="ifrst">Formulæ defining production of wealth, <a href="#Page_26">26</a>.</li> + +<li class="indx">Formula, defining wealth, <a href="#Page_14">14</a>.</li> + +<li class="indx">Formula of Consumption, <a href="#Page_32">32</a>.</li> + +<li class="indx">Formula of Maximum Wealth through freedom of exchange, <a href="#Page_59">59</a>.</li> + +<li class="indx">Formula, of Production by Transport and Exchange, <a href="#Page_32">32</a>.</li> + +<li class="indx">Formula of Protection, <a href="#Page_64">64</a>.</li> + +<li class="indx">Formula of Potential of Exchange, <a href="#Page_56">56</a>.</li> + +<li class="indx">Formulæ of Subsistence, Interest and Rent, <a href="#Page_50">50</a>.</li> + +<li class="indx">Free Trade, arguments for, <a href="#Page_153">153–155</a>.</li> + +<li class="indx">Free Trade and Protection, detailed consideration of, <a href="#Page_150">150–166</a>.</li> + +<li class="indx">Free Trade and Protection, Elements of, <a href="#Page_61">61–65</a>.</li> + +<li class="ifrst">Gold and Silver, Natural advantages of, as money, <a href="#Page_69">69–70</a>.</li> + +<li class="indx">Great War, its effect in destroying value of currency, <a href="#Page_79">79–83</a>.</li> + +<li class="ifrst">Human energy in production of wealth, conventionally called “Labour,” <a href="#Page_18">18–19</a>.</li> + +<li class="ifrst">Imaginaries, Economic, examples of, <a href="#Page_231">231–240</a>.</li> + +<li class="indx">Imports test of wealth, not exports, <a href="#Page_146">146–149</a>.</li> + +<li class="indx">Incomes, Inequality of, productive of Economic Imaginaries, <a href="#Page_235">235</a>.</li> + +<li class="indx">Index Number, <a href="#Page_204">204–208</a>.</li> + +<li class="indx">Inequality of Incomes, productive of Economic Imaginaries, <a href="#Page_235">235</a>.</li> + +<li class="indx">Intention, a necessary adjunct to Capital, <a href="#Page_22">22</a>.</li> + +<li class="indx">Interest, high, not connected with though often confused with Usury, <a href="#Page_217">217</a>, <a href="#Page_218">218</a>.</li> + +<li class="indx">Interest, Nature of, <a href="#Page_39">39–45</a>.</li> + +<li class="indx">International Exchange, factor of National Currencies in, <a href="#Page_142">142</a>, <a href="#Page_143">143</a>.</li> + +<li class="indx">International Trade, why vital to England, <a href="#Page_148">148–149</a>.</li> + +<li class="indx">Islands, Three, Example of in proof of Protectionist Theory, <a href="#Page_160">160–165</a>.</li> + +<li class="ifrst">Labour, Division of, <a href="#Page_54">54</a>.</li> + +<li class="indx">Labour, term for all human energy in production of wealth, <a href="#Page_18">18–19</a>.</li> + +<li class="indx"><span class="pagenum" id="Page_245">245</span>Labour “worth while of” or Standard of Subsistence, <a href="#Page_30">30–38</a>.</li> + +<li class="indx">Land, conventional term for all natural forces used in production of wealth, <a href="#Page_17">17–18</a>.</li> + +<li class="indx">Land, Labour, Capital, Conventional terms for three factors of wealth, <a href="#Page_16">16</a>.</li> + +<li class="indx">Law of Diminishing Returns, <a href="#Page_40">40–44</a>.</li> + +<li class="indx">Loan, Unproductive, the test of Usury, <a href="#Page_218">218–221</a>.</li> + +<li class="indx">Luxurious Expenditure, productive of Economic Imaginaries, <a href="#Page_233">233</a>.</li> + +<li class="ifrst">“Marx,” assumed name of Mordecai, <a href="#Page_134">134</a>.</li> + +<li class="indx">Material objects, not wealth, <a href="#Page_11">11–12</a>.</li> + +<li class="indx">Means of Production, <a href="#Page_99">99–100</a>.</li> + +<li class="indx">Medium of Exchange, or currency, meaning of, <a href="#Page_70">70</a>.</li> + +<li class="indx">Money, how it arises, <a href="#Page_66">66–69</a>;</li> +<li class="isub1">Qualities of, <a href="#Page_68">68–69</a>.</li> + +<li class="indx">Money, Paper, its function, <a href="#Page_75">75–78</a>;</li> +<li class="isub1">its corruption, <a href="#Page_78">78–83</a>.</li> + +<li class="indx">Money, Social value of, three factors in, <a href="#Page_202">202–203</a>.</li> + +<li class="indx">Mordecai, or “Marx,” principal propagator of Socialism, <a href="#Page_134">134</a>.</li> + +<li class="indx">Multiple Exchange, <a href="#Page_57">57–58</a>.</li> + +<li class="indx">Multiple Exchange in International trade, <a href="#Page_143">143–144</a>.</li> + +<li class="ifrst">Natural forces used in production of wealth, called “Land,” <a href="#Page_17">17–18</a>.</li> + +<li class="indx">National loans and debt, how arise, <a href="#Page_189">189–191</a>;</li> +<li class="isub1">method of shirking interest on, <a href="#Page_192">192–193</a>.</li> + +<li class="ifrst">Overlap, example of an Economic Imaginaries, <a href="#Page_231">231–232</a>.</li> + +<li class="ifrst">Potential of Exchange, <a href="#Page_53">53–54</a>;</li> +<li class="isub1">formulæ of, <a href="#Page_56">56</a>.</li> + +<li class="indx">Prices, Names for exchange value in gold, <a href="#Page_71">71–72</a>.</li> + +<li class="indx">Production, Means of, definition, <a href="#Page_99">99–100</a>.</li> + +<li class="indx">Production of wealth, three necessary factors in, Land, Labour and Capital, <a href="#Page_15">15–26</a>.</li> + +<li class="indx">Production, Process of, <a href="#Page_27">27–32</a>.</li> + +<li class="indx">Property, Nature of, <a href="#Page_95">95–97</a>;</li> +<li class="isub1">private, <a href="#Page_96">96</a>.</li> + +<li class="indx">Protection and Free Trade, detailed consideration of, <a href="#Page_150">150–166</a>;</li> +<li class="isub1">arguments advanced for, <a href="#Page_152">152</a>, <a href="#Page_156">156–157</a>;</li> +<li class="isub1">example of the Three Islands, <a href="#Page_160">160–165</a>;</li> +<li class="isub1">of Pig Meal in England, <a href="#Page_165">165–166</a>.</li> + +<li class="indx">Protection and Free Trade, Elements of, <a href="#Page_61">61–65</a>.</li> + +<li class="indx">Protection, Economic, Formula of, <a href="#Page_64">64</a>.</li> + +<li class="ifrst">Rent, a surplus, <a href="#Page_47">47</a>.</li> + +<li class="indx">Rent, Example of Coal Mine, <a href="#Page_48">48</a>.</li> + +<li class="indx"><span class="pagenum" id="Page_246">246</span>Rent, Interest, Subsistence, the three divisions of wealth produced, <a href="#Page_33">33–51</a>.</li> + +<li class="indx">Rent, Nature of, <a href="#Page_46">46–51</a>.</li> + +<li class="ifrst">Saving, a necessary process in formation of Capital, <a href="#Page_24">24–25</a>.</li> + +<li class="indx">Services and Wealth, confusion between productive of Economic Imaginaries, <a href="#Page_236">236–238</a>.</li> + +<li class="indx">Servile State, <a href="#Page_100">100</a>, <a href="#Page_103">103</a>;</li> +<li class="isub1">advantages and disadvantages, <a href="#Page_109">109–114</a>.</li> + +<li class="indx">Silver and Gold, Natural advantages of, as money, <a href="#Page_69">69–70</a>.</li> + +<li class="indx">Single Tax, theory of, <a href="#Page_198">198–200</a>.</li> + +<li class="indx">Socialism, its creator in modern terms. Blanc, <a href="#Page_133">133</a>;</li> +<li class="isub1">its definition, <a href="#Page_134">134</a>.</li> + +<li class="indx">Socialism, only conceivable as Communism, <a href="#Page_135">135</a>;</li> +<li class="isub1">failure of, <a href="#Page_135">135–140</a>.</li> + +<li class="indx">Standard of subsistence, <a href="#Page_36">36–38</a>.</li> + +<li class="indx">State, Capitalist, <a href="#Page_101">101</a>, <a href="#Page_104">104–5</a>;</li> +<li class="isub1">advantages and disadvantages, <a href="#Page_115">115–123</a>.</li> + +<li class="indx">State, Distributive, <a href="#Page_105">105–106</a>;</li> +<li class="isub1">advantages and disadvantages, <a href="#Page_124">124–131</a>.</li> + +<li class="indx">State, Servile, <a href="#Page_100">100</a>, <a href="#Page_103">103</a>;</li> +<li class="isub1">advantages and disadvantages, <a href="#Page_109">109</a>, <a href="#Page_114">114</a>.</li> + +<li class="indx">Subsistence, Nature of, <a href="#Page_35">35–39</a>.</li> + +<li class="indx">Subsistence, Standard of, <a href="#Page_36">36–38</a>.</li> + +<li class="ifrst">Taxation, direct and indirect, <a href="#Page_193">193–194</a>;</li> +<li class="isub1">rules of, <a href="#Page_194">194–197</a>.</li> + +<li class="indx">Taxes, law in distributive state, <a href="#Page_129">129</a>.</li> + +<li class="indx">Tribute paid to wealthy countries by poor ones, <a href="#Page_145">145–146</a>.</li> + +<li class="ifrst">Unproductive Loan, the test of Usury, <a href="#Page_218">218–221</a>.</li> + +<li class="indx">Usury, definition of, <a href="#Page_221">221</a>;</li> +<li class="isub1">why neglected, <a href="#Page_223">223–227</a>.</li> + +<li class="ifrst">Values, Economic, attached to material objects, <a href="#Page_12">12</a>.</li> + +<li class="ifrst">Wealth, Definition of, <a href="#Page_10">10–14</a>.</li> + +<li class="indx">Wealth, production of, three necessary factors in, Land, Labour and Capital, <a href="#Page_15">15–26</a>.</li> +</ul> +</div></div> + +<div class="chapter transnote"> +<h2 class="nobreak" id="Transcribers_Notes">Transcriber’s Notes</h2> + +<p>Punctuation, hyphenation, and spelling were made +consistent when a predominant preference was found +in the original book; otherwise they were not changed.</p> + +<p>Simple typographical errors were corrected; unbalanced +quotation marks were remedied when the change was +obvious, and otherwise left unbalanced.</p> + +<p>Illustrations in this eBook have been positioned +between paragraphs and outside quotations. In versions +of this eBook that support hyperlinks, the page +references in the List of Illustrations lead to the +corresponding illustrations.</p> + +<p>Footnotes, originally at the bottoms of the pages that referenced them, +have been collected, sequentially renumbered, and placed near the end of +the book, just before the index.</p> + +<p>The index was not checked for proper alphabetization +or correct page references.</p> + +<p><a href="#Page_164">Page 164</a>: “Island B cannot do.” perhaps should be “Island A cannot do.”</p> +<div> </div> +</div> + +<div style='text-align:center'>*** END OF THE PROJECT GUTENBERG EBOOK 75629 ***</div> +</body> +</html> + diff --git a/75629-h/images/cover.jpg b/75629-h/images/cover.jpg Binary files differnew file mode 100644 index 0000000..11dfb4d --- /dev/null +++ b/75629-h/images/cover.jpg diff --git a/75629-h/images/i_001.png b/75629-h/images/i_001.png Binary files differnew file mode 100644 index 0000000..2540684 --- /dev/null +++ b/75629-h/images/i_001.png diff --git a/75629-h/images/i_048.png b/75629-h/images/i_048.png Binary files differnew file mode 100644 index 0000000..259ac47 --- /dev/null +++ b/75629-h/images/i_048.png diff --git a/75629-h/images/i_099.png b/75629-h/images/i_099.png Binary files differnew file mode 100644 index 0000000..ab35b3a --- /dev/null +++ b/75629-h/images/i_099.png diff --git a/75629-h/images/i_160.png b/75629-h/images/i_160.png Binary files differnew file mode 100644 index 0000000..b006287 --- /dev/null +++ b/75629-h/images/i_160.png diff --git a/75629-h/images/i_160b.png b/75629-h/images/i_160b.png Binary files differnew file mode 100644 index 0000000..c5bc127 --- /dev/null +++ b/75629-h/images/i_160b.png |
