The Online Library of Liberty

A project of Liberty Fund, Inc.

• Preface
• Introduction
• Book I: Systematic and Constructive
• Chapter I: Introductory: Administration of Resources and Choice Between Alternatives. Price and the Relative Scale
• Chapter II: Margins. Diminishing Psychic Returns
• Chapter III: Economical Administration and Its Difficulties
• Chapter IV: Money and Exchange
• Chapter V: Business and the Economic Nexus
• Chapter VI: Markets
• Chapter VII: Markets ( Continued ). Interest. Tools. Land
• Chapter VIII: Markets ( Continued ). Earnings
• Chapter IX: Distribution. Cost of Production
• Book II: Excursive and Critical
• Chapter I: Margins and Their Diagrammatic Representation
• Chapter II: On the Diagrammatic Method of Representing Areas of Satisfaction and Marginal Significances 13
• Chapter III: On the Nature of Curves of Total Satisfaction
• Appendix to Chapters II. And III.
• Chapter IV: Buyer and Seller. Demand and Supply
• Chapter V: The Theory of "increasing and Diminishing Returns"
• Chapter VI: The Diagrammatic Exposition of the Law of Rent and Its Implications
• Chapter VII: Banking. Bills. Currency
• Book III: Analytical and Practical
• Chapter I: Samples of Analysis
• Chapter II: Some Further Analyses
• Chapter III: Conclusion

BOOK III

ANALYTICAL AND PRACTICAL

Verum animo satis haec vestigia parva sagaci
sunt per quae possis cognoscere cetera tute.
Namque canes ut montivagae persaepe ferai
naribus inveniunt intectas fronde quietes,
cum semel institerunt vestigia certa viai,
sic alid ex alio per te tute ipse videre
talibus in rebus poteris caecasque latebras
insinuare omnis et verum protrahere inde.

    But this faint spoor suffices for an alert mind; so that thou thyself may'st come at all the rest. For just as hounds, when once they have found the true track, full often search out with their nostrils the lair of the mountain-roaming quarry, hidden though it be with foliage, even so may'st thou, in such things as these, see for thyself one thing after another, work thyself into the secret lurking-places, and thence drag out the truth.

CHAPTER I

SAMPLES OF ANALYSIS

Summary.—We may apply the principles we have been studying to the analysis of a miscellaneous set of phenomena in the social and industrial world, both by way of exercise and by way of testing the principles themselves. The subjects chosen in this chapter are gambling, the housing problem, unemployment, depression and crises, the immediate and permanent effects of attempts to relieve distress, or of changes in expenditure, the meaning of the national income and the legitimacy of inferring from it the average command of commodities and services which would accrue to each individual if wealth were more evenly distributed.

The systematic portion of our task is completed. It remains to illustrate and test the value of the instrument of analysis which is now in our hands by applying it to concrete cases.

We may take our material almost at random. An institution such as Trade Unionism; a programme such as the scheme of "communalising the instruments of production," or the more limited proposals to nationalise or communalise the land, or to feed ill-nourished school children; or matters of discussion such as the housing problem, or the proposals of the "tariff reformers"; or phrases such as the "national income"; or the problems suggested by a concrete action, like that of subscribing to a famine fund, or by practices such as playing cards for money, or betting on the turf, may provide us with subjects for analysis. In the course of our examination of any one of these questions we shall find abundant illustration of that interdependence of economic, social, and moral questions which has been so often insisted upon in the body of this work.

We will begin with the highly complex question of gambling, and we will take it first in the simple and undisguised form which it assumes at the gaming-table. Our treatment must necessarily be brief and inadequate, for it is not within the scope of these concluding chapters, either in this or in any other case, to give more than a bare indication of the way in which our principles may be applied.

From the individual point of view, there can be no doubt that an immense number (I should say an overwhelming majority) of those who gamble intend to win and think that they can do so. In the case of a pure game of chance, such as we are now supposing, a man who thinks that he can win must believe in such things as runs and turns of luck, the occurrence of which may be felt by a natural or acquired sense, or must be the victim of some analogous superstition; or else he must rely on some "system," all which systems reduce themselves either to a belief that in matters of pure chance what has already happened affects the probabilities of future happenings, or to a transformation (by a systematic scheme of successive stakes), of a game in which there are even chances of loss and gain into one in which a gain is made more probable than a loss, but at the expense of the loss being proportionately heavier if it comes. In this latter class of "system" the gambler's attention is absorbed by the increased probability of gain, and he does not realise that the proportional gravity of the loss leaves him in the long-run exactly where he was. So far it is obvious that we are not on economic ground at all. Superstition, and ignorance of the doctrine of chances, can only be eliminated by general intelligence or special study. Meanwhile, we can but stamp as a delusion, and set aside without further examination, the belief that any instinct or system can give a man an advantage in a game of pure chance. The man who thinks he is more likely to mend than to mar his fortunes by gaming is the victim of an illusion, and there is an end of it. But this dogmatic statement cannot now and here be justified.

We now pass to the social aspect of the question. Dropping for a moment the question of the commission taken in the form of the favourable chances of the table, it is clear that if there is any considerable transference of money from some of the players to others our general principle of declining marginal significance shews us that the gains will, on the average, be of less significance to the winners than the losses to the losers; so that there will be a net loss in the psychic significance of the collective wealth of the players. The money will have been transferred from the place in which it is more to the place in which it is less significant; for since the relative wealth or poverty of the players has no influence on their gain or loss, we may put it out of consideration, and may treat the gainer and loser as though they were equally wealthy; and in that case it is obvious that the gain, which advances from the existing margin onwards, will have less significance than the loss, which retreats from the existing margin backwards. We may illustrate this principle by passing for a moment from the gaming-table, and taking the case of a sweepstake on a horse-race. Each player makes a uniform stake, and the names of all the horses that are to run are then written on separate lots, and a sufficient number of blanks is put in to make the number of lots equal to the number of players. Each player then draws a lot, and the holder of the name of the horse that wins sweeps all the stakes. Now it is clear that if there are fifty players, each of them sacrifices his stake at the existing margin, whereas when they accumulate in the hands of the winner they advance, at a constantly declining significance, from the present margin downwards. Each stake, therefore, comes from where it is more and goes to where it is less significant.

Contrast the case of insurance against fire. There is an uncertain loss to be met. The margin of the man upon whom it falls suddenly and notably retreats. He receives sovereigns, each one of which is taken at the existing margin of the other insurers and is applied at his raised, because retreated, margin; so that the sovereigns come from where they are less and go to where they are more significant. Gambling and insurance, therefore, which have some elements in common, namely the certainty of the stake and the uncertainty of the issue, are, from the social point of view, exactly the opposite of each other. Gambling is a machinery for carrying money from where it is more to where it is less significant, and insurance is a machinery for carrying it from where it is less to where it is more significant.

Insurance companies charge a commission, and, as they render a social service, they are creating a fund (not indeed material, but psychic) in the extra significance which wealth gains by the transference they effect, out of which fund they are paid. And now we will return to the table and reintroduce the element of the "chances of the table," which is the analogue of the commission of the insurance agent. It is not necessary to explain in detail what these "chances of the table" are. It is enough to instance the game of rouge et noir, in which the teetotum turns up "zero" on an average once in thirty-seven cases, and what then happens is equivalent to each player forfeiting half his stake. Thus the table has an advantage of one chance in seventy-four over the players. The owner of the table practically draws this commission for facilitating the anti-social work of making wealth less significant, just as the insurance agent draws his commission for his social service of making it more significant. And here we may return for a moment to the individual. He cannot alter the chances of the game, and at the table the chances are not even. It is as if the player paid a small fee for the privilege of staking on an even chance; and as the players collectively would win and lose equally on an equal chance, they collectively lose on a chance which is in favour of the table; so that to the psychic loss which accrues to them collectively from the transference of wealth from one to the other, there must be added the material loss of the subtraction from their collective wealth of the commission of the table. And in the long-run his portion of this loss must come home to every persistent gambler, and must more than swallow up any gains he individually may make; for it is steady and cumulative and bears a proportion to the magnitude of his transactions, whereas his gains are at best casual and have no tendency to repeat themselves. The successful gambler, then, if he persists, will pay all and more than all his gains in return for the privilege of making them, and the unsuccessful gambler in addition to his losses will pay for the privilege of incurring them. These statements, again, can only be substantiated by the doctrine of chances, but they cannot be questioned or shaken.59

There remains a theoretical possibility of a man having, say, only one shilling in the world and no prospect of getting another for months or years. It is possible to argue that the best thing he can do with it is to stake it at some game in which the prizes are enormously high and the chance of winning them correspondingly small. Say he has one chance in thirty thousand of gaining £1000. This chance is not actuarially worth 1s. It is only worth 8d. But yet to the man in his present state it may reasonably appear that £1000 would be worth more than 30,000 times as much as a shilling. For whether he goes into the workhouse (or the Thames) to-day or to-morrow may seem to him to make hardly any appreciable difference at all, if he knows that this fate is in any case coming; and so he gets something—a small chance of £1000—for almost or quite nothing. It is a case of rising margins such as our theory fully recognises.

Doubtless in such cases an element of illusion generally enters, and when the man draws a blank he will probably be conscious of something very like a disappointed expectation; but it is conceivable that the transaction dispassionately considered might really be reasonable. Such a case, however, could only be isolated. For a man to make a practice of thus staking his shillings would imply that he had a flow of shillings to stake; and if the flow and his play continued long enough he would be sure to lose more than he gained. Other cases, in which the unschooled imagination pictures the large gain of one as more than compensating the collective small losses of the many, resolve themselves into various forms of hallucination, and are, above all, inapplicable to habitual or repeated transactions.

We have already seen60 that the speculating public occupies exactly the same position to the Stock Exchange which the gamblers collectively occupy to the table, and that the ruin of the one, as of the other, is probably due to the commission, not to luck. In horse-racing, the bookmaker, even if perfectly honest, is able to derive a similar commission, from the curious fact that the inner circle of the backers of the horses, whose estimates ultimately determine the "odds," collectively overestimate the chances. This may be illustrated by an example, much too crude to correspond with actual facts, but manifesting the principle. Suppose there are four horses in a race, and the trainers and owners of each horse, and others who have a special interest in it, estimate its chance of winning at one-third. It follows that their estimate of the collective chances of the horses is 1 1/3,—i.e. more chances than there are. It will work out thus: Each owner or backer who thinks that his horse has one chance out of three of winning will regard 2 to 1 against the horse as the proper odds; that is to say, he will promise to pay £1 if he loses on condition that he is to receive £2 if he wins. The first chance being only twice as great, in his opinion, as the second, he regards the odds as fair and the chances even. So a bookmaker betting 2 to 1 against each of the four horses will receive £1 on each of the three that loses and will pay £2 on the one that wins, leaving himself a balance of £1. The bookmaker, then, does not back horses any more than the "bank" makes stakes on the table. They leave that to the public. The difference between staking on the green table and speculating on the Stock Exchange or the turf, is simply that in the two latter cases an element of judgment may enter, though it seldom really does. The judgment of the ordinary speculator or backer of horses being on a level with the "judgment" of the gambler who dots down on his card a certain number of the turns of the teetotum until he considers the proper moment has come for him to back his luck. In so far as judgment really enters into the case of the horse-race, an individual's chance of making money may be better than his chance of losing it, but we must observe that he is only "making" money from the individual point of view. From a social point of view he is merely "taking" it from his less competent correspondent. And on the principle already examined his gain will normally be less significant than his companion's loss. "Judgment" on the Stock Exchange in purely speculative transactions stands on the same footing. But if a property or concern of any kind is speculatively bought with a view to developing and improving it, then nobody need lose and the gains of the speculator may really be "made."

And this will serve to illustrate the transition from the speculation which is of the nature of gambling to the speculation which is not. There can be no doubt that the excitement of taking risks is not only a deeply rooted but a valuable trait in human nature. But the man who devotes his resources to acquiring special skill and training, without knowing whether he will be able to make a living by it, or to prospecting for minerals without knowing whether he will find them in payable quantities, is speculating in a very different sense from that in which the gambler speculates. The former aims at creating wealth, the latter merely at getting wealth that is already created, instead of some one else getting it. Or, to put it in another way, the former class meet uncertainties on their industrial way and deal with them as best they may; the latter go out of the industrial way just to create uncertainties. But it need hardly be pointed out that here as everywhere the line is difficult, or rather impossible, to draw. We know perfectly well that the man who buys for a rise, intending to sell again before settling day,61 is practically gambling, and that the man who takes shares in a new industrial undertaking, intending to hold them and to draw his dividend, is not gambling. But the point at which fools who came to scoff remain to pray, or saints who came to pray remain to scoff,—that is to say, the point at which the man who bought to sell becomes interested in the concern on its own merits and holds for a dividend, and the point at which the man who bought to hold sells because he thinks the selling price is more than the shares are worth,—can seldom be foreseen or defined. Nor can we tell how the two motives combine even at the beginning. A man may buy partly because he thinks the thing good enough to hold, and partly because he expects a fancy on the part of the public to make it still better to sell. Probably the majority of those who buy stock at all are at least potential speculators in buying and selling.

The gambler's ultimate plea, however, has not yet been examined. Suppose he declares that he knows perfectly well that he loses, that it to say, that he pays for the game, but says that he enjoys the game and is willing to pay for it. This is the account that many people who play cards for money will give of themselves. Some, no doubt, believe in their luck, and unreasonably expect and intend to win. Some believe in their skill and judgment and deliberately intend to profit at the expense of their guests and hosts, or fellow-guests. But the majority, I suppose, will say that their gains or losses are in the long-run trifling, and that, in any case, the game is worth the price. And we may note that as in this case there is no commission, there is no certainty of loss to be taken into consideration. To judge of this plea we must consider the nature of the satisfaction, whether it is of the character of vicious or ruinous indulgence as examined and analysed in a previous chapter;62 and, finally, we must consider how far it is possible to dissociate it from the incidental cruelties involved in drawing the young, the poor, and the inexperienced into risks in which loss is likely to be crushing and gain corrupting.

We will now turn to another question, without any attempt to establish a link between it and the one we have just examined; for the scheme of this chapter does not imply that any special connection between its successive sections exists.

Many people live under housing conditions which rightly shock every feeling of humanity; and the fact raises a growing sense of social compunction. How it is to be met constitutes the housing problem. But it is clear, on examination and analysis, that it is only in a very limited sense that we can speak specifically of a housing problem at all. In what sense is the question why people live in improper houses, and how we are to stop it, different from the problem why they eat improper and insufficient food, or why they are inadequately clothed, or amused? The problem how to house people is obviously only a branch of the problem how to provide for them generally, both in body and mind. Certain persons are ill-provided with everything. In their own eyes they are not ill-provided with houseroom relatively to other things, for if they were they would redistribute their expenditure so as to get more houseroom and less of everything else. But you will answer they cannot afford to give up anything else. Exactly. That is to say, they are as keenly in want of more of everything else as they are of more house accommodation. Their conditions of accommodation possibly strike us as even more terrible than their conditions of feeding and clothing, but they do not strike them so. The housing problem, then, is in the first place the general problem of poverty. In the next place it is the problem of education. We think, perhaps, that people ought to value decent accommodation more highly than they do. And lastly, we think (and here it seems for a moment that we come upon a specific housing problem) that rents ought not to be so high. But why is the house rent of the poor so high? Primarily because they have to live near their work and land is of great value there because it is a highly efficient industrial instrument there. The rich man either does not live where his work lies, or lives there in a good house. If the poor man lives in foul quarters, then, it is either because he is poor or because he does not appreciate the value of better housing conditions as highly as we think he ought to do. Broadly speaking, it would seem that the only ways of dealing with the housing problem are to combat the poverty of the ill-housed, to quicken their sense of the evil of bad housing, to make good houses cheaper, or to give houses to people for less than they are worth. All these plans have been attempted. Miss Octavia Hill and her disciples have done much in educating individual slum-dwellers into desiring better conditions, but the process is too slow and laborious to satisfy the impatience of the demand for improved conditions. Attempts, whether by public authorities or private companies, to build better houses at a cheaper rate, on commercial principles, come under an important class of experiments of which we have already spoken.63 If, on the other hand, houses are provided by philanthropic companies or individuals, who are content with 3 per cent on their capital (or otherwise on less than commercially remunerative terms), a privileged class of occupants is at once created; and the difficulty may be found insuperable of securing the privilege, even as far as it goes, to the class of persons most in need of it. Possibilities of cheap and easy transport are constantly opening, and perhaps the best hope of depleting our overcrowded centres lies in a development of tram services which would relieve the competition for central business sites. Thus, the housing problem turns out to be a poverty problem, a land problem, an education problem, a problem of locomotion, and a problem of town-planning. Attempts to deal with it merely by saying that bad houses shall be destroyed and none but good ones built in their stead do not in themselves touch the difficulty. They are open to the same danger which we encounter in connection with proposals for a minimum or standard wage.64 As a minimum wage may mean the multiplication of the unemployed, so minimum requirements of decency and convenience in houses may mean the multiplication of the unhoused; or if the standard only applies to new houses it may mean the crowding into existing tenements of those who cannot afford to come up to the new requirements. At best, if it stood alone, it would mean attempting to force people to pay for what we think they ought to want instead of for what they want themselves. There is no doubt a wide range for insisting on sanitary conditions which do not notably add to the expense of building, but it can hardly be doubted that in some country districts the by-laws enforced by the local authority prevent cottages being built, and therefore aggravate overcrowding.

It should hardly be necessary to add that overcrowding may be brought about by any cause that makes building land difficult to obtain; and if the owners of land object to having cottages on their estates for æsthetic, social, or sporting reasons, the result is just the same as if the competition for the land were purely industrial.

We will now turn to the connected problems of unemployment, depression, and commercial crises, which are admittedly amongst the most baffling on the whole field of applied economic science. I am far, indeed, from claiming that the principles laid down in this work present an obvious and convincing solution of them. But the following points may be considered. Every one knows that persons, not without some dexterity both of mind and hand, may be absolutely unemployable in a given post. Every busy man has had embarrassing offers of "help" from zealous friends who are willing to do anything,—but who can do nothing that does not require more superintendence and correction than the result is worth. In an industrial society of increasing complexity it may reasonably be expected that the conditions which enable the individual to pass from a negative to a positive efficiency will become more and more exacting. An advancing education may be supposed to meet these more exacting conditions, but, so far as it depends on the specialising of capacities, the man who has been made eminently employable in one line of activity may thereby be made all the more unemployable in another. Again, unemployment may be absolute or relative; that is to say, a man may be unable to find any employment at all because he can do nothing that is worth anything to any one else that he can find, or he may be unable to find employment at a living wage or at the wage which he demands. Now the specialising, alike of instruments and of faculties, and the minute division of labour, which are characteristic of the organisation of industry on the great international scale, are accompanied by liability to variations in the stress of demand, and such variations mean accompanying variations in the relative worth, economically considered, of this or that particular skill. Industries in which sliding scales prevail recognise this fact. When, for any reason, the product becomes worth less, there may still be employment for the same number of labourers if they are willing to recognise that their work also is worth less. The sliding scale cannot obviate disputes, for it is based on an evaluation of the significance of labour relatively to the significance of all the other factors of production, which can hardly, in the nature of things, be above dispute; but it does at least recognise the fact that with the changing stress of demand the significance of any kind of labour changes also. If this fact could be universally recognised, one cause at least of unemployment would be removed or qualified; for it is obvious that the attempt to maintain a standard wage, or to fix a minimum wage, independently of fluctuations in the market of the product, must, so far as it succeeds, throw men out of work when the demand falls, until the marginal value of the reduced product and the marginal significance of the reduced number of workers bring about equilibrium. The larger product might have been sold at the lower price, and all the workers might have been kept in employment at the lower wage. And the supplies of the rest of the community would have been maintained at a higher level.

There is, however, no limit to the possible fluctuations of demand, and however much the principle of the sliding scale were elaborated and extended, and even if it were applied to all interests, rents, and salaries, fluctuations in demand might reduce all concerned in a given industry to a starvation wage, if not to absolute "unemployment."

Obviously, the only real issue from such a state of things will be found in the draining off of labour from the depressed industry to others. This is a process beset with inherent difficulties in the want of mobility and versatility on the part of the workers,65 but the difficulties are indefinitely aggravated by the jealousy with which any invasion of other industries (all of which normally regard themselves as overstocked66 ) is sure to be regarded.

Note, further, that every business must be carried on to a great extent on a speculative basis. Promises of all kinds are made67 in anticipation of the results of an industrial undertaking. Thus, before a great ship is launched or a great building completed, not only an immense number of promises, but an immense number of payments have been made in anticipation of the value that the completed work will have. All kinds of estimates of the marginal significance of land, tools, technical skill in directing and executing work, and every variety of factor of production, have thus been formed and acted on. These estimates are not necessarily correct. When the whole commercial community is in high spirits and feels successful, vast numbers of over-estimates of the worth of things may be indulged in. Payments out of current stock may be made on the assumption that the stock is being more than replaced pari passu; and while the country thinks itself growing in wealth, it may in fact be living on its means. At last the time for keeping promises and replacing expenditure comes, and the resources from which this was to be done are found not to exist. In detail this is a chronic phenomenon in all periods, whether of prosperity or of depression. Individual firms are perpetually becoming bankrupt because they find themselves unable to keep their promises; and others who have promised or performed on the strength of these promises are involved in the ruin in their turn. But if business in general is sound, these events do not shake the general confidence, however much they discourage or hamper individuals. If, on the other hand, the general estimate has been at fault and the commercial world collectively, or in a particular country, has consumed more rapidly than it is creating, and has promised what it cannot perform, a general shudder of nervous apprehension will run through it when the discovery is made. People become afraid of promising anything at all, and still more afraid of paying in advance, or of trusting other people's promises, and the whole complex system of mutual supply becomes more or less paralysed. Mechanics and others have been receiving and have consumed more than the equivalent of their marginal significance, and now that this is known they cannot get the same wages any more. Meanwhile, the people who gave them more than they get from them are impoverished or ruined. And not only do many people realise that they have spent more than they had or more than they could afford, and are actually in poverty, but the means of communication and combination by which alone we can prosper have been disorganised and the mutual confidence without which the industrial machine will not work has been shaken. A starves for want of the things that B can make; B starves for want of the things that C can make; and C for want of the things that A can make; because A, B, and C can only be brought into relation with each other by a system of speculative promises which no one dares to make or which no one cares to trust. Now, as soon as a man finds that he cannot sell his goods at the accustomed price, he complains of over-production and says that the markets are glutted. Thus we have the paradoxical situation of general "over-production" and "glutted markets," accompanied by general want. That is to say, apparently, there is so much of everything that no one can get anything. But it is not really the abundance of the things produced, or the abundant power of producing them, that causes the mischief, but the timidity or forlornness of those who weave the vast and intricate maze of promises, through confidence in which alone things can be moved from those who make to those who use them.

For recurrent general depressions the only radical cure seems to be a raising of the intelligence and conscientiousness both of the directors of industry and of the public. It is possible that this may ultimately be furthered by making them state officials, but at present the socialistic Utopias are generally characterised by totally ignoring the necessity of any connection and proportion at all between promises and the means of fulfilling them.68 It is said, however, that private persons are already beginning to take advantage of slack times for outlay on permanent plant and improvements; and it seems ideally conceivable that the State should pursue a similar course, and should undertake public works, that must be executed some time, in the slack periods when they can be executed at least expense, and will, at the same time, have a tendency to counteract a serious evil.69

Note, finally, that it is easy to exaggerate the magnitude of the material difference between prosperous and depressed times. The bulk of the business of the country goes on successfully all the time. It is only over a comparatively narrow margin that inflation and contraction succeed each other.

The question may often have presented itself to reflective minds whether it would be possible, by limiting the area of commercial intercourse, to prevent the inhabitants of a given country from being swept into the storms of the whole industrial world. Just as it is argued that a yeomanry, living largely on the direct products of its own industry, would be less liable to desolating economic disturbances than a manufacturing population, which is helpless to supply its own wants if the world markets cease to demand its product, so it may be argued in the abstract that the fluctuation within a limited area will be less violent and disastrous if it is approximately self-supplying than if a considerable portion of its population are liable to bear the brunt of changes in the currents of the whole commerce of the world. But though the question whether such relative isolation and self-sufficiency are possible, and whether they might be expected to yield a balance of advantage, is perhaps arguable in the abstract, as a matter of fact no scheme of fiscal union is ever based on any such idea of shielding a suitably constituted area from the commercial storms of the world. The fact becomes obvious when we note that actual or proposed areas of fiscal union are always determined by other than commercial or economic considerations. The United States of America are often cited as furnishing a typical case of protection, but we should never lose sight of the fact that there is free trade within the United States themselves, so that it seems safe to assert that there is no other free trade area of so great an extent and embracing so wide a variety of natural and social conditions in the whole world. Moreover, it is generally supposed that the United States would welcome the accession of Canada, and in case of a union would at once throw down the fiscal barriers that now separate the two countries. If this is so, one is led to the conclusion that the tariff is not maintained on economic grounds, and that no economic loss would be anticipated from its removal. In the same way the desire to federate the British Empire fiscally is clearly determined by other considerations than those of an economically convenient and suitable area, containing a due balance of productive resources; and the desire of all advanced industrial communities to find external markets for their "surplus products" shews that they have no idea of cutting themselves off from the great world-streams of commerce and constituting themselves into self-supplying groups of a size and character determined by the prospect of economic stability.70

It will be a good exercise to see how far we can trace the meaning of such an act as subscribing a guinea to a famine fund in India. The root fact is that there is a shortage of food, and the inevitable deduction seems to be that man or beast must somewhere go so much short.71 If the otherwise starving Hindus are fed, they must eat food that some one else would eat if they were left to starve. Now, if I subscribe a guinea, it is exceedingly improbable that I save that guinea out of food. Even if I did we should have to inquire in what way the food that I should have eaten gets, directly or indirectly, to the Hindu; but if I eat just as much as I should have done, the more perplexing question remains: Who abstains from food because I subscribe a guinea? How does my subscribing make him abstain, and how does the food from which he abstains reach India directly or indirectly? Let us consider the special circumstances, which would of course vary if the famine were not in India, but in China or Sicily. To begin with, we may assume that there is no actual lack of food-stuffs in British India as a whole, even in time of the severest famine. Probably there will be plenty of food near the famine-stricken districts, easily accessible. The trouble is not that there is no food, but that the ryot has no money or general command of wealth by which to get it. Nay, it is very possible that the starving ryot has himself managed to grow rice enough for sustenance and next year's seed, but has to sell to enable him to pay taxes.72 Now a certain not inconsiderable part of the taxation of India is devoted to the payment of pensions and annuities in England. This, then, is the situation. India exports rice in order (amongst other things) to pay pensions in England. Suppose, in the first instance, that English pensioners or annuitants, who would actually have consumed a guinea's worth of Indian rice, determine to subscribe a guinea to the famine fund, and to go short of the food themselves. That is to say, they give up eating the rice and eat nothing else instead. The case would then be perfectly simple. The distressed ryots would either keep their own rice or buy rice from a neighbouring district, and India would export less rice by that amount. Money can in this case be eliminated from the question, and we can regard the English pensioner as simply giving the ryot a bill on himself for the price of the rice which he has never received. The ryot can then either keep his own rice and pay his taxes by his bill on the Englishman, or can buy rice from his neighbour with the bill and pay his taxes out of other resources. It would be exactly the same if you or I abstained from the rice, and subscribed the guinea. In that case the essential facts might be represented thus. I allow India to draw a bill on me for a guinea, and at the same time I abstain from eating rice. India, instead of selling rice to raise a guinea for the pensioner in England, sends him the bill upon me for that amount, and keeps and eats the rice; leaving me to pay the pension. But now, suppose that the subscribers, instead of abstaining from rice, abstain from stalls at the opera, or dishes of early asparagus or strawberries, or that they travel third class instead of first, or go without books they would otherwise have bought, or trench upon their other charities. How does this relieve the famine? The immediate answer is obvious and is the same as before. India has leave to draw a bill upon the subscriber, and, therefore, is not compelled to sell the rice. There is, therefore, so much more rice in India, and so much less in the general market, and it follows that somebody must go short. But the accounts are not "cleared" as they were in the former case, and we must pursue our inquiries further. Two apparently independent centres of disturbance have been established. On the one hand, the rice market in England is to a certain extent depleted. Our previous studies enable us to form a perfectly clear conception of what that would mean if it stood alone. What would have been the marginal demands had the supply been as great as usual would remain unsatisfied. The price of rice would rise, and certain people would either go without rice altogether, or would take less than usual. As we need not suppose that any of the phenomena we are examining affect the incomes of the majority of these abstainers, they would presumably increase their purchases of the most obvious substitutes for rice, let us say sago, tapioca, or Indian corn. And since at present we have seen no reason to suppose that the available supply of these substitutes would be in any way increased, these markets also would feel the reaction, and there would be a tendency to a rise. And so, in widening circles, the effect of a shortage in rice would diffuse itself, and minute abstinences would be the result, until the whole effect of the shortage was exhausted in the diminished satisfactions of a great number of individuals who had unconsciously and unintentionally made minute marginal concessions to fill up the hideous void in India, where for once we watch a margin actually running back, unless arrested, to the origin itself.

So far, then, the effect of my donation to India has been to diffuse the suffering caused by the shortage of the rice crop, and this is entirely satisfactory. But, so far as we have yet gone, though the diffusion is in itself a subject of congratulation, it is a little surprising to discover that the persons amongst whom the actual loss is diffused appear to be entirely involuntary agents in the transaction.

But we have only traced the movement from one of the centres of disturbance. Let us now return to the other. If I economise in my railway travelling or in my payments at the box-office of a theatre, I do not save any expenditure except to myself. The first-class carriage in which I should have travelled is run just the same, and the performance I should have witnessed takes place; but the shareholders of the company or the proprietors of the theatre are a guinea to the bad. So far as I am concerned, the balance-sheet is made up. I have given a guinea to the ryots, and I have gone without a guinea's worth of comfort or enjoyment. But the enjoyment or comfort that I have forfeited is not transferred to some one else. It has perished, or rather it has never come into existence, but has remained a dormant opportunity. I am the loser to the full extent; but nothing whatever has yet been done towards economising rice. And again, though I bear the loss of the pleasure or comfort that has not emerged into actuality, yet the management of the theatre or the shareholders of the company have their resources curtailed by the full extent of the guinea of my subscription, and they must bear the loss too. I, therefore, compel them practically to pay the subscription over again in some shape or another; and they again have the alternative of standing out of some open opportunity already provided for them, or of going without some material transferable thing which is there not potentially but actually. We may carry on this process as far as we like in the imagination, though it is clearly impossible to trace it in the concrete, as the pressures becomes more and more diffused. It is impossible to say how many potential enjoyments, or exchanges of service, are sterilised without in any way affecting the consumption of rice. But, ultimately, the pressure must come home somewhere to persons who economise by going without material things. We need hardly repeat the stock warning that no sharp line can here be drawn. Gathered fruits or cut flowers stand more nearly on the footing of a stall at the opera-house or a journey in a first-class railway carriage than on that of a bag of rice or corn. The opportunity they offer is open, indeed, for a longer time than the opportunity of witnessing the performance or taking the journey, but they are indefinitely more perishable than a bag of grain, and it may well be that if I do not buy them, they cannot be kept and supplied to some one else. In that case the vendors will be the losers, wholly if they cannot sell at all, partly if they are obliged to make a reduction at the close of the market. In the latter case the loss is not complete, but a product which would have satisfied a want higher on the collective scale goes to satisfy one lower on that scale. There is an objective loss, amounting to something short of the whole objective value that would have been realised; but whether there is psychic gain or loss no man can say. In any case nothing has yet been done towards bearing the ultimate privation caused by the shortage of rice except just so far as the enjoyment I have abstained from is directly or indirectly a substitute for the consumption of rice.

But the widening effects of my abstinence are reaching the same diffused markets which the widening effects of the relief of the Hindu's starvation have reached, and they are acting in opposite directions. While the retention of rice in India is raising demands, the enforced abstentions in England are lowering them, and so theoretically we have found the meeting-place, and have seen not only that the relief of the famine in India is directly caused by my abstaining from a certain enjoyment, but also that the effects of these two primary phenomena theoretically meet and counteract each other through a vast network of minute capillary channels. It still remains true, however, that my voluntary subscription causes an undefined series of involuntary contributions on the part of those whom my contracted expenditure affects, and that these are passed on from hand to hand, repeating and multiplying themselves in diffusing circles, and all of them without effect in relieving the markets upon which extra pressure has been put, so long as they affect forms of consumption which are not effective substitutes for the consumption of rice. Further, it remains true that the ultimate abstinences are borne by involuntary, not voluntary, agents, except in so far as the original subscriber actually abstains from such food-stuffs or other commodities as are direct or indirect substitutes for the rice.

Now, note that the unforeseen and sudden nature of the demand is the real cause of the disturbance. If an enlightened administration came to the conclusion that the regular levying of taxes, together with irregular appeals to charity for their practical remission, was a wasteful method; and if the English public were to make up its mind, once for all, to give peace and justice to India on easier terms73 than are now nominally exacted, and were to regularise and rationalise the methods on which these lower terms were enforced; we might then have a continuous instead of an intermittent abstinence on the part of the British public from certain satisfactions in order to relieve the pressure upon India. The energies which are now devoted to the construction of first-class carriages, the production of operas, and so forth, would be turned into other channels, and might, directly or indirectly, produce food to make good the diminished tribute in rice from India. And even if no direct provision could in all cases be made, so that an ultimate shortage of food was somewhere felt, at any rate there need be none of that incidental and gratuitous waste that our analysis has traced as due to the intermittent character of the claim upon England's charity and the inability of the machinery of the economic world to adapt itself to it.

Now let us eliminate the fact that the suffering to be relieved is in one country, and the abstinence that relieves it in another. We may suppose that a disaster has occurred in our own country and that subscriptions are made to relieve it. Here the conditions are essentially the same as before. There will be two centres of disturbance, caused respectively by the destruction, say, of crops and herds, due to a flood, and by the contraction of my own expenditure, when I have by my subscription transferred a part of my purchasing power to the sufferers; and unless the things I abstain from are precisely the things which the relieved sufferers consume, my abstinence does not cover their consumption, and the same succession of incidental and, so to speak, gratuitous losses that we have already traced will accompany the process of my compelling some less well-to-do person than myself involuntarily to incur the really effective abstinence that balances my beneficiary's consumption.

Now let us take another step and eliminate the element of suffering or loss altogether, simply supposing that one person in England makes a gift to another. The difference here is that there is no primary loss to be made good. We are not supposing that there is a shortage anywhere. But, if the presentation is not one of a group of actions that has been contemplated and provided for in advance by the enterprise of the industrial world, that is to say, if it constitutes a disturbance in the regular and anticipated course of events, it may be accompanied by all the incidental disturbances that we traced in the other case. If I buy for my friend something different from what I should have bought for myself, or if I make him a present in money and what he buys with it is not the same thing that I abstained from, then two markets are affected. Prices tend to rise in the one and to fall in the other, and there is a suction in the one case and an obstruction in the other, which, if continued, would tend to draw productive resources down one set of channels to the relief of the other.74 Meanwhile, there is a certain amount of waste of services and of swiftly perishable commodities, and as the relative places on the communal scale of a variety of things are directly and indirectly shifted up or down by the tightening and relaxing demands, certain people are made richer or poorer.

And now, finally, we may eliminate the hypothesis of a gift altogether, and may see exactly how any sudden change of expenditure tends to produce loss and disturbance. The provision already made for the expenditure which ceases will run more or less to waste, and the increased demand on another market will squeeze out certain marginal claimants upon it, driving them to alternative forms of expenditure. But, as the increased expenditure in the favoured market improves the position of those who command its wares, it is probable that some of them may secure, in the falling market, some of the satisfactions from which I have turned aside, and caused others to turn aside, and so far the wastage of accumulated resources and talents which my contracted expenditure has caused will be checked. Some waste, however, there will always be, as well as the disturbance of the raised and lowered values of existing goods. If the new order of things becomes established, the distribution of the factors of production adapts itself to it, and the things more in demand are produced instead of those less in demand, and there is no continuous loss.

The incidental disturbance due to any change, as such, may be ignored when there is a great and obvious purpose to be served, such as in our instance of the relief of famine. Nor need it trouble the most scrupulous conscience when it is of a casual and personal nature, for such irregularities are always taking place, and in the broad cancel each other. But capricious changes in fashion have, doubtless, a depressing effect upon the material and moral condition of the industrial populations they affect; and even where a new invention or reformed administration increases the resources and the well-being of the community, the incidental disturbance may be disastrous in its local effect, and, unless some provision be made to meet it, may be a heavy social offset against the total gain.75

In leaving this subject we may note that we have throughout been assuming a "rigidity" in the industrial organisation that allows no room for "play." As a matter of fact it would require very extensive movements to complete the circles in the way we have supposed. Any small changes of pressure would probably exhaust themselves long before their effects met and counteracted each other in diffused markets, and at every point spare energies might be released and directed into compensating channels. To take a single instance; a rise in the price of any food might make it just worth while to harvest some small and distant crop in some part of the world that would otherwise not have paid for the picking or saving and transporting.

We are now in a position to enter upon the last inquiry to be undertaken in this chapter, namely, the meaning of estimating the national income at so much, and the value of the speculations as to the average income which it would secure if wealth were more evenly distributed. I may warn the reader in advance that we shall reach no particularly definite or novel results; but the inquiry will itself, I think, constitute a particularly valuable exercise.

What would be meant by saying, for example, that the total income of England is about seventeen hundred million a year, and that this gives an average of £40 a head, or of £200 for a family of five? The total income is arrived at by adding up the estimated incomes of individuals. Both the national and the individual incomes are expressed in terms of gold. But how are these incomes reckoned, and in what do they consist? If a man earns his living by growing vegetables and selling them in the market, he acquires a certain command of commodities and services that other people control and which they consider marginally equivalent—each to each—to the lots of vegetables they receive from him in exchange. The vegetables he produces, therefore, are the communal asset that is represented in his income. They are what he contributes. What he consumes is contributed by others. If he pays rent, then part of this asset of vegetables is represented not in his income, but in that of the landlord. But what if the man earns his living by teaching Greek, or by book-keeping, or by preaching, or by dancing, or by company-promoting? He renders services, in return for which he receives certain things he desires. The communal asset is his services. They are what he contributes. What he enjoys is contributed by others. The communal income, then, though measured by marginal significances in gold, is constituted by the marginal significance of everything made, produced, or done, that enters into the circle of exchange. The revenue of a community for a year is all the desired things, whether material commodities or services, which come into existence that year. Hence, if my income is £500, and out of it I pay a servant the equivalent of £30 in board and lodging and wages, her income will be estimated at £30 and mine at £500. And this will not be counting her £30 twice. I have rendered services that count for £500, and she has rendered services that count for £30, and both are reckoned in the national income, just as much as the wheat grown by the farmer. Many reflections are at once provoked. Naturally, the total income of a nation tells us nothing unless we know how it is distributed. Wealth and starvation side by side may shew as large a total as evenly distributed comfort would. Again, the income of the nation consists only in exchangeable things; but we have seen76 that the true revenue of satisfaction, enjoyment, or vital realisation and experience (whether of the individual or of the community), though supported by things in the circle of exchange, is neither secured nor measured by them. Probably, if any community realised this, its income would decline and its well-being would increase, for it would create less and enjoy what it created more.

Again, as all wealth is estimated by its marginal significance in gold, it would be possible for an increased supply of any commodity or service, except gold, to appear on the estimate of the national income as a loss. For, if the fall in marginal significance relative to gold should more than compensate the increased supply, the total area of enjoyment would increase while the total exchange value of the commodity declined; and a gain in the means of satisfaction would be registered as a loss of wealth. If gold increased in greater proportion than other things, prices would rise and all supplies would be registered at a higher figure and so the income of the country would rise all round, whereas only gold would really be more abundant. In all careful statistics this is allowed for, and an "Index Number" is used which measures values not in gold but in a complex unit that may be supposed to give a much nearer approach to psychic or vital stability.

Innumerable sources of error and illusion, however, remain. Since all services and commodities are impartially estimated at their market value, the tools that the burglar buys and uses are just as much a part of the year's income as those that the farmer uses. The services of two rival "travellers" who are endeavouring to capture the same market count as much in the national income as if they had been bringing conveniences and utilities within the reach of persons who would otherwise have gone without them. Mutually destructive or inherently vicious activities and services count for as much as constructive and wholesome ones. The "services" for which the wages of shame are paid constitute a part of the national revenue as much as any other;77 but if Portia is Brutus's wife and not his harlot her companionship ceases to count in the national revenue. And, moreover, any changes in the tastes, habits, or morals of the community which enabled them to derive increased enjoyment from their own personal activities or their mutual intercourse would tell for nothing in the estimates of national wealth.

All this, however, and much more of the same sort, is admitted. It must not be lost sight of, but it need hardly be pressed, for it is all generally allowed, and some of it is habitually realised. Any one who says that the national income amounts to £40 a head means no more, at most, than that the resources of the country are such that there is enough for every one to have forty pounds-worth, at the rates now current, of the things and services in the circle of exchange that, wisely or foolishly, virtuously or viciously, he desires. But it is just this proposition that we must now proceed to examine, for it is by no means obviously true.

If, indeed, we could be sure that, however the wealth of the country were redistributed, the same things would be wanted in the same quantities and with the same relative intensities by the people then in a position to realise their desires as they are now by the present commanders of wealth, then, truly, all the activities of the country might go on just the same and the revenue might remain the same, only the things and services now made and rendered would be given to other people. Indeed, less than this would satisfy us, and would justify us in speaking of the "average income" of the country in the usual way. We have learnt to distinguish between the immediate disturbance and the ultimate effect of any change, and the former of these considerations may be ignored. It will be enough for us if the resources now devoted to the production of services and commodities desired by those who are at present in a position to command them, are capable of being so diverted as to produce commodities and services demanded in the new order of things, in such quantity and quality that, estimated at their marginal significance, they would total to the same amount as at present. Have we any right to assume that this will be so? Let us try to see.

The mere fact of a thing being desired by a number of wealthy men gives it a high marginal value objectively. It is possible to conceive, for example, that a man of very great wealth might be willing to offer a larger sum for a great area of land for purposes of sport than a number of poorer men might be willing to give for the same land for purposes of subsistence. Strange and paradoxical as it may seem, the land would in this case occupy a higher place on the scale of preferences of the man to whose pleasures it made a slight addition than on the scales of the men to whom it made the difference between a hard life of unrelieved toil and a fair degree of comfort;78 because the wealthy man has so great a command of generalised resources and commodities that the whole amount which would make the vital difference between poverty and comfort to a hundred families signifies very little indeed to him, and opens to him no alternative more eligible than that of adding to his game preserves. The price of the land, therefore, is higher because of the existence of a few very rich men than it might be if there were the same general command of resources and services in the community, more evenly distributed. Thus land might stand lower on the communal scale, if wealth were more evenly distributed.

One may see the same fact illustrated in the case of the fees that an eminent surgeon or counsel can command. If there are a number of exceedingly wealthy men in the community, there may be many persons to whom the difference between the services of the acknowledged possessors of the very highest skill in their respective branches, and those whom skilled opinion places just one distinguishable degree below them, might weigh in the scale as heavily as anything else that could be got for, say, £200; and if there were enough of these persons to employ the energies of some two or three surgeons, they might command fees of five hundred guineas; whereas, if there were no very wealthy men, no considerable body of persons would care to spend more than, say, £20, or £10, or 10s., as the case might be, on the mental satisfaction of thinking they had got the services of those whose public reputation was supreme, in preference to the services of others, possibly quite as good, and certainly barely distinguishable from them in excellence. If I suppose that by going to one dentist I can have one per cent greater security against present or future suffering than if I go to another, the extent of my general resources will determine the amount at which I am willing to purchase this extra security. If I am a millionaire and am unfortunate enough to require the amputation of a limb, the difference between three hundred and five hundred guineas sinks, in the presence of such a crisis, below the range of perceptible distinctions. If my whole income is not above a few hundreds, I shall be well content with the services of a man of good local reputation in whose hands I shall feel reasonably safe; and if he will perform the operation for £20 I might not be willing to give £30 (much less £500) for the services of the top man in the profession. Thus the difference between a certain exercise of A's skill and of B's may be valued at £480, or at something under £10, in the estimate of the national income, according to the degree to which the inequalities in the distribution of wealth have been carried.

It is unnecessary to multiply examples. It is sufficiently clear that if the command of the collective resources of the community were more evenly distributed, they would all be there just the same. The surgeon's skill and every other faculty would be there, available for the relief of suffering, and the sustaining and adorning of life, but minute differences would not count for so much, relatively to staple articles, as they do now. Whereas fine distinctions of talent in music-hall "stars" and others, who render services to masses of persons at once, might possibly command greater not less differentiated remuneration. But these latter cases would be exceptional. When we think of the scheme of values in the minds of the rich and poor respectively, we must surely feel that these considerations entirely vitiate the calculations made from the total income of the nation to the ideal "average" which each might enjoy; for if we divide the national income by the population and say that the quotient is £40, what that suggests is that there is now enough to give every one the things that he individually would buy if under present circumstances, and with present prices ruling, he had £40. But this is not so. He would have a share in the national revenue of things and services, the items in which share, taken severally, can each find somebody now who attaches such a value to it that all the values added together make up £40. But to some of them no one not immensely rich could attach the high values they now bear, so that if wealth were evenly distributed they would be there, but would not be valued by any one at such a figure as to make up the average of £40.

This does not mean that there would be a material loss to set against the psychic gain of a more even distribution. It merely means that the averaging of the national income, objectively measured, gives an unreliable estimate of the actual command of the things he desires which his share of that revenue would secure to each individual.

But, it may be urged, although it is obvious that a family with an income of £200 a year would not value jewellery or game preserves, choice bindings or editions de luxe, thoroughbred horses or skilled professional services, at the figures they now command, yet this would merely create a disturbance for a time, if the change were sudden; and ultimately the talents and resources that are devoted to the production of these things would flow down other channels and would produce equal values in the things that are now most in demand. But can we really place any reliance upon this? The talents and resources that are now devoted to the breeding of a bull-dog worth £1000 might conceivably, if diverted, produce the year's food, clothes, shelter, amusement, and so forth, which five families of five each would demand, if each family had an income of £200 a year; and our general assumption that all free resources can be turned into various channels at approximately equivalent commercial significances seems to imply something like this; but the assumption is far from safe even as a prima facie probability if we are supposing the change in the direction of resources to be not a mere shifting of margins but a substitution in bulk of one set of industries for another. It does indeed seem at least possible that the kind of talent that produces prize bull-dogs might succeed in producing particularly fertile varieties of plants and animals that would be valued under the new conditions. But no one can say how these things would work out in terms of marginal value in gold; or whether, for instance, the general distribution of the population of the earth over her surface could remain substantially the same as it now is if the processes of industry were so completely revolutionised as they would be under the conditions we are supposing.

Forecasts on such subjects must be based on general considerations, and their speculative character should be recognised. An extensive redistribution of wealth would certainly change its psychic significance, but its actual effect cannot be arrived at by any such simple process as doing a division sum. And statements based on such a procedure have a delusive air of solidity and precession against which we should be on our guard. If we are confident that the world, or any particular community, is rich enough to enable every member of it to live in human comfort, our confidence must be based on our general belief in the versatility and resourcefulness of human intelligence, and our anticipation that the reaction of a more even distribution upon the energies, tastes, and morals of the community would be such as to heighten rather than to lower the effectiveness of human effort.

This confidence is not shared by every one, and, therefore, the desire for a more even distribution of wealth, which animates most social reformers, is looked upon with open suspicion or with secret misgiving by many men who would be slow to admit that they were willing to purchase the luxury of the few at the cost of the penury of the many. They believe that all devices for relieving poverty at the expense of wealth will result in impoverishing the rich without enriching the poor in the first instance, and in still further impoverishing the poor ultimately. The only basal answer that can be given to such forecasts is that we must at least try to devise such methods as may make the experiment worth trying; but it is well, meanwhile, that we should try to face the implications of our Utopia itself, suppose we could get to it. And to this we are led by some aspects of the inquiry we have just concluded.

We have asked whether the talents that are now devoted to choice bookbinding, for instance, could under changed conditions produce improvements in the potato crop that would stand on the relative scale of the new community as high as the object of artistic beauty stood on that of the old one. Well, if they could, and if they did, there would doubtless be a psychic gain, but would there not also be a psychic loss? Few of us would dare to say that we prefer a society in which there are both slums and culture to one in which there is no want and no refined artistic taste. But, nevertheless, if the disappearance of poverty meant the disappearance of a wealthy and leisured class, and if the disappearance of such a class meant the disappearance of what we now think of as refined tastes, refined manners, and all the finer artistic enjoyments, we should feel that a heavy price had been paid. A comparison, however, of such social and economic conditions as those of Denmark with those of countries of greater wealth and greater poverty does not support the belief that the higher qualities and finer tones of the intellectual and æsthetic life need fear anything from more even distribution of wealth.

One thing, however, is very clear; namely, that there actually are some satisfactions or indulgences which in the nature of things could not become universal, even if our general command of material resources were indefinitely increased, and which must tend to disappear if wealth is more evenly distributed. And the examination of a case in point may serve to remind us of the necessity of constant vigilance against the tacit assumption that what is possible to any one is possible to every one.

Napoleon may have wished to encourage the belief that every soldier carried in his knapsack a marshal's baton. But he must have known that, however true it might be that any soldier might rise to the position of a marshal, that "fool of a word" impossible was the only one to apply to the supposition that every soldier could do so. For the existence of one marshal implies the existence of a number of soldiers who are not marshals. In like manner it is possible in any advanced industrial community for any man to become wealthy; but it is not possible for every man to become wealthy, with the implications we now attach to the term; for, included in our conception of wealth (even in the modest degree to which every middle-class establishment aspires to its possession) is the keeping of servants. The personal ideal then, at which middle-class people aim, appears to be one which cannot in its very nature be universally realised; for, if we cannot all be marshals, neither can we all belong to the servant-keeping class. This is the most obvious and stubborn of a great number of facts indicating that most of us wish to command the services of others on terms on which we should not wish to render them ourselves.

People who for any reason have done all their own housework know how much of it there is which is not worth doing for the sake of enjoying the results. Amazing simplifications of life take place, for good or ill, when the alternative is to work the apparatus of a complicated life one's self.

Let us suppose that one family enjoys an income of £500 a year and another an income of £100. One member of the poorer family goes into service with the richer family and receives in food, wages, and accommodation, the equivalent of £30 a year. The income of the poorer family is now scheduled as £130, and the joint incomes of the two families are £630. Had the girl stopped at home and done the same things for her own family that she does for the other family the joint incomes would only be £600. Prima facie both families would be the losers, not only nominally but really, for the poorer family prefers £30 a year in other things to the services of the girl, and the richer family prefers the services of the girl to £30 worth of other things. But now, suppose that the income of the poorer family rose, from independent causes, to the level of the other. The family, now in command of £500 a year, might not only prefer to keep their daughter at home rather than that she should earn the equivalent of £30 elsewhere, but might further desire to command the services of another girl at £30 a year, and might soon come to consider themselves the victims of extreme social hardship if they could not get her. But "where everybody's somebody, there no one's anybody"; and if the rendering of personal services stands no lower down upon any one's scale of preferences than it is upon yours, you must either (1) render personal services yourself, or (2) get them from other people at terms which you or your compeers would accept, or (3) go without them.

Thus we see that not only an equalised distribution of existing wealth, but changes which should raise the resources of the poorer to a level of those of the richer without any corresponding loss anywhere, would in themselves render the realisation of the usual middle-class ideal impossible.

Such reflections may cause many searchings of heart, and may bring home to us the danger of allowing a not inconsiderable gap to arise, unobserved, between our social sympathies and the goal to which our practical endeavours are directed. On the other hand, it may strengthen our sense of the true nature of independence, and may direct our thoughts to many possibilities of simplification of the apparatus of life by extension of our communal as distinct from our private opportunities, and dissociation of the idea of enjoyment from the idea of exclusive possession and command. The flower-beds in a public park may be enjoyed by hundreds of thousands, and half a dozen gardeners may give as much pleasure as hundreds could have done if each of them had worked at that which only a few could enjoy. In the National Gallery or the Louvre the poorest citizen who has the rudiments of artistic taste and culture may secure opportunities of enjoyment and education which no private collection could secure to even a handful of the community. The extent to which this economy can be carried depends very largely upon the development of two qualities in the general mind: the capacity for dissociating the idea of enjoyment from the idea of possession, and the sense of respect and responsibility in handling or enjoying public property.

CHAPTER II

SOME FURTHER ANALYSES

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

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

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

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

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

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

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

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

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

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

We have seen80 that although the expenses incurred in producing goods, and in bringing them to the market, do not determine their exchange value when there, yet their exchange value when there does determine how much expense will be deliberately encountered in order to get them there. If the expenses are raised, therefore, goods that would have been produced will be produced no more. If this holds, then, an import tax that did not produce, or was not accompanied by, a rise in prices would tend to close the market against the foreigner who now supplies it. He would not pay the tax, for he would cease to import. If, on the other hand, the price rose by the amount of the tax, he would go on importing, but would recover the tax in the higher price received.

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

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

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

Two points must be made clear before we proceed to a further analysis. In the first place, we have seen81 that there is, properly speaking, no economic theory of foreign trade as distinct from home trade. We may therefore consider putting pressure on an Englishman to deal with an Englishman or a Canadian rather than with a citizen of the United States, or putting pressure on a London publisher to get his printing done in London rather than in Glasgow or Hull, or on a villager to get his table and chairs made by the village carpenter instead of buying them in the neighbouring town, as all raising the same theoretical points for consideration. Thus the matter under investigation is the policy of directing a man's bargaining along lines which he would not choose for himself in order to benefit certain people in whom we are specially interested at the expense of others in whom we are interested less or not at all. The area and the grounds of our interest may be important in many ways, but they do not affect the economic theory. Whether we take the Empire, or the United Kingdom, or the country, or our own district, city, village, estate, or family as the area of intenser interest, the problem is the same. And in the second place, the policy of pushing others, to their economic detriment, into transactions they would not have chosen for themselves, because we desire certain results to accrue, and the desirability of our voluntarily entering upon similar transactions ourselves, at a certain sacrifice, for the sake of those same results, may be discussed together; for their investigation demands the same analysis. In other words, the question of whether it is patriotic to buy at home what it would suit me better to buy abroad, and the question whether it is patriotic to make other people do the same must ultimately depend upon a common principle for their answers.

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

We have insisted82 that this highly organised industry has very heavy drawbacks, but also that it is an essential condition of that materially advancing civilisation which we cannot escape, even if we would. And we have also seen that in spite of the increased general wealth which results from the new order of things, the currents of industry cannot be swiftly changed without loss and possible hardship to individuals. Certain village artisans or tradesmen are hard pressed by the competition of the towns, that is to say, by the existence of persons who, working at an advantage, can do more for the same return than they themselves have been accustomed to do. Theoretically, they should either turn to agriculture where they are, or go where they can work at a better advantage in their present trade; and whichever course tends to establish the equation of marginal significances is the better one. Anything that obstructs or retards this change is, so far, bad. Anything that softens the hardship of the transition is, so far, good. Sound thought and sound policy must distinguish between these two things with the utmost care; and the basal fact that now concerns us is that the new equilibrium towards which we are moving is economically more advantageous to all concerned than the old; and the policy of buying at home, at a disadvantage, instead of abroad tends to retard or to disturb this superior equilibrium. If a patriotic villager determines, at a loss to himself, to patronise the village artisan, he thereby holds him back, or brings him back from whichever of the courses, indicated above, the situation demands; and at the same time by withdrawing or withholding his custom from the artisan in the neighbouring town, and ceasing to send him food, he drives him to get his food in some other way, which by hypothesis is less advantageous. Thus, at a loss to himself, he has kept one man, for whom he cares, in a position of relative inefficiency, and has forced another man, for whom he does not care, into a position of relative want. There is a collective loss to the two communities jointly and severally. It is sometimes said that the doctrinaire free-trader's golden rule is, "buy in the cheapest and sell in the dearest market, and so fulfil the law of Christ." So far as he neglects, in thought or in policy, the hardships of the transition, and so far as he takes a purely material view of well-being, the taunt is justified. But, nevertheless, it is the most substantial of facts that the constant desire to further our own purposes, whatever they are, of which "buying in the cheapest and selling in the dearest market" is one aspect, is in truth the great underlying force that perpetually draws us into relations of mutual service. Largely understood, "buying in the cheapest and selling in the dearest market" is the best rule that the plain man can find for directing his own energies and those of others along the most efficient lines—efficiency, be it always remembered, being measured by reference to the things, good or bad, that men want done; and each "man" counting for more or less according to the extent of his command of the things in the circle of exchange.

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

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

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

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

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

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

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

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

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

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

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

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

We have now opened the way to the consideration of the far-reaching question of the extent to which it is desirable to push the municipal or other communal management of enterprises that stand on a commercial basis. The most natural industries for public bodies to enter upon are those which it is in any case deemed necessary or advisable to make monopolies, whether absolute or qualified. Railroads, tramways, letter-carrying, the liquor trade, gas and water supply, and many others, will occur at once to the mind; and every one of them offers a number of problems and suggests a number of considerations which can be debated from many points of view. The ultimate object may be to restrict trade; it may be to extend and encourage it; it may be simply to effect economies. But in all these cases the services ultimately rendered may be paid for by the individuals who desire them, and the objective test at once exists which we sought in vain in some previous cases, and which we can only apply ideally in others. Here, if the governing body submits to the financial test, it is aiming lower than in some of the previous cases, but it can be more certain that it is accomplishing its humbler aim. Sometimes, as in the case of the liquor traffic, for example, to adopt the financial test would be absolutely to renounce the purpose for which the communal action is taken; but in the case of trams or railways financial success would be a proof that the marginal estimates of the significance of the privilege secured, formed by certain members of the community, raised it to a place on the collective scale that economically justified the expenditure of the resources that had been devoted to it. But, if the money is to be not only spent but raised on economic principles, it must be raised on loan and not by taxation; for only so can we know that all concerned have got what they consider a good bargain. Now, a public body is at a great advantage in raising money on loan, but it is an advantage the basis of which it is instructive to examine. The credit of a municipality, and still more the credit of the nation, is good because no one is afraid of its becoming bankrupt; that is to say, it is not the persons who lend the money but the persons who do not that will have to bear the loss if the undertaking fails. The risk, far from being eliminated, is in the opinion of some greater (though in the opinion of others it may be less) than that of a well-guaranteed private company. The municipality, however, enters upon the competition with this advantage, an advantage which is denounced as unfair when looked at from one point of view, and should be regarded as gained at the risk of the community when regarded from another. The effective conduct of the business will, doubtless, be placed in the hands of a skilled manager, but the work of the directors and promoters will, to a certain extent, be done by volunteers, who either have a direct interest in the well-being of the community, or value the credit that attaches to public service, or enjoy managing affairs and directing enterprises, especially, perhaps, when detached from the personal risks of private business. Thus, there are sources of economy in the conducting of business by public bodies,—the easy terms on which they can raise capital, and the amount of business talent which they can secure without payment. What does this latter consideration amount to? The question being one of fact must depend for its solution upon experience rather than argument. How far is there really a store of competent business capacity which can be put into harness by motives other than economic? Not only the contractor but the general designer and conceiver of all kinds of work, as well as the mechanic who carries out the physical portion of it, are as a rule supposed to be actuated mainly by the desire to accomplish their own purposes and to put themselves in command of general resources and services to be turned in the direction they desire. How far can you give men a primary interest in the well-being of the community so that they will be willing to exercise vigilance, to give thought, to lay down far-seeing and far-reaching combinations, not in order to put themselves in command of resources to be devoted to other objects, but with the primary object of serving the community? In a word, can a succession of competent men be found to do public work for the sake of the public? And if the idea once becomes well established, will the public spirit that secures the services of such men be subject to a law of acceleration? Any amount of a priori argument may be brought to bear as to the fitness or unfitness of municipalities to undertake this or that class of work, but it can only be decided by experiment how far the persons who are fit for this kind of work can be found willing to do it as a primary object, and whether such machinery can be constructed as will give scope to the continuous and systematic exercise of their ability and goodwill. It is possible, of course, that the work thus got for nothing might be of inferior quality to the work done at high salaries, but the difference might not be worth the salary. In all these matters "collectivism" or what is (perhaps too hastily86 ) called "Municipal Socialism" is not so much an economic theory as a social faith.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

CHAPTER III

CONCLUSION

Summary.—Unearned revenues of some kinds may be appropriated to public purposes, and exceptionally high private revenue of all kinds may be taxed, to a degree that cannot be theoretically determined beforehand, without detriment to the springs of industrial efficiency. A man's share in such public revenue may be independent of his economic worth. So far men may be required to give according to their means, and may receive according to their needs. But the economic forces tend to give every man what he is worth to others, neither less nor more. The economic problem of poverty, therefore, regarded as a part of the social problem, but not the whole of it, is the problem of making the "underpaid" worth more so that they will receive more under the pressure of the economic forces. This may be attempted by developing their powers, physical and mental, and by impartially securing access to opportunities. The consequent abolition or reduction of privilege may cut down many of the mighty from their seats, and exalt the humble. Preparing for the Kingdom.

In a brief concluding chapter we may attempt to draw together the conclusions that are warranted by the whole course of our inquiry, so far as they bear upon the question of securing a less uneven distribution of wealth. Every one is shocked by the co-existence of luxurious wealth and hopeless poverty side by side. The time is gone for a fatalistic acquiescence. The warning that if we try to mend things we shall only make them worse is losing its terror. On the other hand the heyday of Utopias, in which both the conditions of life and human nature itself were to be completely revolutionised, seems to be passed. Few people are now either so certain that they will succeed or as much afraid of trying as they were even a few years ago. Increased intellectual caution and increased practical boldness seem to characterise the present in contrast with a very recent past. But theory may still be useful, partly in pointing out the most hopeful lines for experiment and yet more in enabling us to understand and profit by its results. It is true that an appalling sense of helplessness must often overwhelm the student as he contemplates the magnitude of the problems and the uncertainty and feebleness of the methods by which the attempt is being made to solve them; but a note of hopefulness can generally be heard from those who are most closely engaged in the actual battle, and who, one would think, have best reason to despair. To us, too, in all social matters hope is a "paramount duty," but so is a determination not to feed ourselves and others on illusions.

Setting aside more ambitious and revolutionary schemes, and taking it that the economic pressures, which urge every man to place himself under the conditions in which he will be useful to others, will remain the great moving forces of the industrial world, we ask how the general level of success in gaining a steady foothold in that industrial world may be raised, and how failure, rising from lack of opportunity, lack of capacity, or accident, may be robbed of its sting. The successful have always acknowledged some kind of obligation to the unsuccessful. Theoretically, no man need starve in our country, but until lately the public as distinct from the private provision for the defeated and unsuccessful has been consciously and intentionally grudging and reprobating. It has been thought that, dread of want being the great stimulus to effort, the natural or social penalties of failure may indeed be mitigated to some extent, but must not be allowed to become other than terrible. A marked change is coming over our feelings in this respect. It is already difficult to recover the attitude of mind in which it was seriously believed that the prospect of a workhouse, little short of penal in its regulations would create an energy and thrift which the prospect of an old age pension would hamstring.

But in what sense need there be any failures at all? What proportion of the failures are due to lack of opportunity? And how far need the success of one be accompanied not only by the relative but by the absolute failure of another? This is the problem to which we are now addressing ourselves, and there is a widely spread and still spreading conviction that the actual human material that comes into existence year by year is capable of indefinitely better development than it now receives, with indefinitely better results. We have seen reason to believe that some of the contemplated methods of amelioration are illusory, but the awakened spirit of humanity will not accept defeat. If our investigations have been in any degree enlightening, they will be forgiven for being sobering.

The central thesis of this book is that, so far as the economic forces work without friction, they secure to every one the equivalent of his industrial significance at the point of the industrial organism at which he is placed. The full and comprehending acceptance of this principle would at once dispel a number of hopes and banish a number of fears and scruples. It used to be maintained, for instance, that if the workers of the country had allotments, or if cheap baths and wash-houses were provided for them at the expense of the municipality, or if in any other way their condition were improved, their wages would automatically fall. Naturally it is true that if such improved conditions were extended to persons within a certain area, and were not available elsewhere, there would be a tendency to migrate to that area, and so to overstock the local markets of labour and reduce the wages there; but this would not be because the workers were better off, but because there were more of them without proportional increase in the other factors of industry. Again, we may set aside at a stroke the fear that old age pensions, for example, will lower the rate of wages by creating a set of persons who "can afford to work cheap." If men get what they are worth, and if the worth of a man who has 5s. a week safe is as high as that of one who has nothing, then he will receive as much. It may of course be true that he was receiving more than he earned because the payment was not wholly economic, and that when the obligation to keep the man's head above water is assumed by the State it is dropped by the individual. But that is another matter. And so far as any friction caused by imperfect markets and imperfect mobility has to be overcome, the man who has something to fall back upon will be better able to exact the payment for his full economic worth than the man who has nothing.

On the other hand the idea that life can be improved by a simple decree that higher wages shall be paid, in other words the hope of social regeneration by the enactment of a minimum wage, appears to be illusory. We have noted again and again that you cannot make a man worth so much a week by saying that he shall receive it, and that the economic forces will never induce any one to give a man more for his work than that work is worth to the giver. The only circumstances under which the enforcement of a minimum wage can be theoretically defended are when there is reason to believe that the economic conditions really justify a higher wage, but that friction and lethargy prevent the economic forces acting; or when the creation of a certain amount of unemployment is deliberately contemplated under the idea that it will be easier to deal with than a mass of employment at starvation wages. We start, then, from the thesis that if there are great bodies of persons in every country receiving starvation wages, it must be either because the economic forces cannot overcome certain frictions, or because the persons in question, under existing circumstances, are not industrially worth any more than they are receiving. If so, it is no use denouncing some one else for not giving them more than they are worth. We must either overcome the industrial frictions, or make them worth more where they are, or place them somewhere where they will be worth more. The steady tendency of present movements is to concentrate on the attempt to make them worth more. The cry for feeding school children, which defies all the wisdom of our fathers, justifies itself by pleading that ill-nourished children will be worth nothing, and, therefore, will get nothing, in the industrial world. This is only carrying a step further the principle that was acknowledged long ago in the State aid of education, and finally in the full acceptance of the national responsibility for the education of the people. But many are bitterly disappointed with the results of compulsory education and sceptical as to the value of our present methods, and are trying to conceive of a system of true education, at once industrial and human, that shall be a great instrument for training, sorting, and directing the faculties and developing the characters of the community, so as to make every talent available for the highest and most urgently needed function which it is capable of performing, and making every normally efficient man and woman worth enough at the margin to be able to command the means of a human life.

The "population question" in the old sense no longer troubles us. We have no fear of "population overtaking the means of subsistence" in the abstract. But it may well be that labour exchanges and emigration offices may have to be organised on an international scale to secure the due balance and distribution of efforts; and the growing belief that it is our collective duty to take charge in some way or other both of the children and of the unemployed directs many minds to speculate on the possible rise of the stupendous problem of the regulation of population in the not distant future. Only experience, however, can decide whether better conditions of life and a fuller sharing by the State of the responsibilities of the parent will really tend to stimulate, in any unmanageable degree, the multiplication of a helpless population. There are many reasons, to say the least, for gravely questioning it.

Meanwhile, we can already trace in the Allotments and Small Holdings Acts the feeble beginnings of a movement to open fresh opportunities, and to force, against the obstruction of prejudice or class jealousy, fresh channels through which the economic forces may beneficently flow.

The means for all these developments must be secured by a frank recognition of the claims of the unsuccessful and unfortunate upon the successful and the fortunate. The tax on "unearned increment" is an initial claim of the community on the unearned income which is perpetually flowing into private hands. And the super tax even on earned incomes, if they are sufficiently high, is an acknowledgment of the principle that success, as such, has its special duties. Our general principle will not incline us to fear that if success is "robbed of its reward," to a certain extent, it will cease to be attractive, and men will be too much discouraged to care to exert themselves. On the contrary, we have seen reason to believe90 that the more highly a man is paid, the less work he is likely to wish to do for pay, so that in theory cumulative taxation should make men of exceptional ability and success more rather than less industrious. And surely we may hope (or at the very least we may "dream a dream of good" and be the better for it) that the time will come when a rich and successful man takes a pride in thinking that his direct public usefulness automatically increases with his growing command of resources for his private purposes.

We have already spoken of the fund, let us hope the growing fund, of public spirit which devotes administrative talent to the communal service.

But we, the privileged, must remember that if we are in earnest we are endeavouring to curtail or to abolish privilege. We are throwing open the preserves, and in proportion as we succeed in our endeavours, we and our children will have to take chances in a world that has no special care for us. We can contemplate the prospect without dismay if we believe that the lowest places in a regenerated industrial society will be places that can be filled with dignity and satisfaction, and will yield the conditions of a truly human life. So and only so can we accept without either terror or self-reproach a competitive system. We can only regard the highest success as an object of honourable ambition, if the failure to attain success does not involve the exclusion from all that makes life worth living.

And, finally, how are we individually to "prepare for the Kingdom"? By learning to find our chief delights in the things which all may share and which are the solace, not of our class, but of our humanity. By learning to rejoice in the common weal, and to respect and enjoy the communal property. By learning to feel that "keeping up appearances" is a sorry substitute for grasping realities which would cost the same sum. And above all by understanding that the relatively wealthy and successful man, by unconsciously shewing what the things for which he most cares really are, directs the ambitions and moulds the aspirations of those who have less power of realising their ideals than he has himself.

As the wealthy are called upon to bear more and more of the public burdens, as the privileged see their preserves invaded, as equality of opportunities more and more prevails, and men rank according to their worth, not according to their antecedents, there will be bitterness and indignation wherever the value of humanity has not come to be felt as higher than that of position. The triumph of a material democracy, without the corresponding spread of the democratic spirit, would cause acute distress and sense of wrong in the face of phenomena which would be hailed with heartfelt thankfulness were the democratic spirit penetratingly present.

[59.]The only theoretical reservation is that any individual gambler may stop short (if only because he dies) before the run has been long enough to absorb all his gains. But it is a mistake to think that there must come a moment in the career of every gambler at which, if he were wise enough to stop, he would be a winner on his whole transactions. It is probable but not certain that there may be such a moment, or such moments, early in his experience; but the longer he goes on the less likely is it that he can ever stop as a winner on the whole body of his transactions since he began.

[60.]Page 246.

[61.]See page 246.

[62.]See pages 423 sqq.

[63.]See pages 209 sq.

[64.]See pages 693 sqq., and cf. page 344.

[65.]It has often been noted that old sailors are scarcely ever out of a job, because of their general resourcefulness and versatility.

[66.]See pages 546 sqq.

[67.]See pages 370 sq.

[68.]Cf. pages 682 sq.

[69.]Cf. page 357.

[70.]For some remarks on unemployment and "tariff reform," see pages 666 sqq.

[71.]See, however, page 649.

[72.]See Vaughan Nash, The Great Famine, pages 134 sqq., London, 1900.

[73.]The salaries of the Indian officials, pensions and all, are surely not higher than the market value of the talent and fidelity which they exercise at their posts. So far as that goes, the justice and peace given her cannot presumably be purchased on any easier terms; but England might give them to India for less than they cost, instead of charging her the full price and then giving her doles when she is ruined.

[74.]See pages 383 sq.

[75.]Cf. pages 352-357.

[76.]Pages 152 sq.

[77.]Cf. pages 184 sqq.

[78.]Cf. pages 145 sqq., 189 sqq., etc.

[79.]Pages 148 sqq.

[80.]Pages 373 sqq.

[81.]Pages 589 sq.

[82.]Pages 183 sqq.

[83.]See pages 640 sqq. and cf. pages 356 sq. etc.

[84.]Cf. pages 146 sqq., 189 sqq., 215 sq.

[85.]Pages 209 sq.

[86.]For if the Municipality borrows capital from individual lenders and pays for work and material at market rates, we are far from any accepted definition of socialism.

[87.]See page 341 sq., and compare page 573.

[88.]We have neglected the expense of collecting and distributing the revenue and have taken Consols at par, for the sake of simplicity.

[89.]Page 354.

[90.]Page 354.