Front Page Titles (by Subject) CHAPTER VIII: the future of labour - Law in a Free State
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CHAPTER VIII: the future of labour - Wordsworth Donisthorpe, Law in a Free State 
Law in a Free State (London: Macmillan and Co., 1895).
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the future of labour
It is now twelve years since I published what I may call a theory of industrial evolution in which I endeavoured to predict the future of the labour bond. Six years ago I embodied the thing in a little book entitled Labour Capitalisation, and I have ever since been assailed (especially by individualists) as the patentee of a quack pill for the cure of poverty. This is a complete misunderstanding of my position. I do not propose anything. I advocate no system, I have been told that my system wouldn't work, that it is all very fine in theory, and so forth. I don't know whether it would work or not. I might almost say I don't care. For the purposes of my argument it does not signify whether it would be a failure or not if put into practice to-day. It has been pointed out to me that it would not extirpate poverty. I know it would not. Of course it could not, any more than Socialism or Malthusianism or any other scheme for counteracting the laws of nature. I have been told that it cannot permanently raise the price or reward of labour, such as it is. I know that. The average value of the labourer is the cost of his production, and you can only raise his price in the same ways as you can raise the price of other elements of production. There are several ways. You can diminish the supply, or you can increase the demand at his present productiveness; or, thirdly, you can increase his productiveness. But any attempt to raise the price of labourers (that is, to enlarge their share of the produce) without increasing their productiveness, compared with other elements of production, is clearly foredoomed to failure. The notion is absurd and opposed to the first principles of economic science.
All I have done is this: I have carefully studied the history of industrialism; I have observed the tendencies operating throughout the past and still operating at the present time; and I have tried to show what the eventual outcome of these tendencies must be in the future. Whether that future is near or remote I cannot tell. Whether we are now ripe for the industrial régime of the future (as I foresee it) I do not know. All I profess to know for certain is that short of a cataclysm nothing can happen to prevent the adoption of the system of labour capitalisation by civilised peoples sooner or later. It is as certain to result from existing observed tendencies as any celestial phenomenon which an astronomer predicts as the necessary effect of observed movements. I no more propose a new arrangement as a cure for present ills than a meteorologist proposes a hot summer as a cure for the effects of a late spring. I merely predict that which I foresee. If you ask me whether we in this country are yet ripe for labour capitalisation, I answer that it does not affect the theory. It is a practical question which practical men must answer either by guesswork or by experiment. My humble opinion is that in some industries we are ripe for it, in others not. I believe it might be introduced with success in the large factories, the mines, the foundries, and other industrial laboratories now worked on a large scale with numerous manual labourers. It would not work, I incline to think, at present in small retail establishments. Social arrangements are not transformed per saltum or all along the line. Slavery is still a natural and beneficent industrial system among some peoples; and even among civilised races it was centuries in dying out and giving place to Wagedom. In its turn Wagedom will not give place to Capitalisation between some Monday and Tuesday. Neither will it be brought about by a short Act of Parliament.
But I have not yet stated precisely what I mean by Capitalisation of Labour. In order to do this clearly I must ask to be allowed to give very briefly my own view of wealth production.
I discard as utterly worthless all the orthodox technical economic terms. The absurd division of wealth into three classes—land, capital, and labour—seems to me not only arbitrary and useless but mischievous.
Wealth is all that which is useful, that is pleasing to man. To the extent that its kinds are limited there exist infinite gradations of value, from the very valuable to the absolutely valueless. Valuable wealth may be roughly divided into two classes—that which is directly or immediately useful (pleasure-giving), and that which is directly or mediately useful.
We all enjoy plum-pudding (or ought to), but no one enjoys a screw-driver or a tie-rod.
These latter have value, because by combining them with other kinds of wealth we obtain a product which is more valuable than the elements from which it is created.
Now I define capital as those kinds of wealth the value of which is due to the demand for them as elements of production.
Thus large diamonds are useful for glass-cutting, but their value is absolutely independent of this fact; therefore they are not capital. Conversely, iron-ore is enjoyable not immediately, but only after passing through the industrial crucible; therefore it is capital. Coal is immediately enjoyable, but its value in this country is affected and determined by the demand for it as an element of production; therefore it is capital. Consequently, land and labourers are both capital. It makes no matter what we call them;—they are capital. The whole system of wealth production consists of putting things, as it were, into a crucible with such prudence that the resulting compound is worth more than the sum of all the elements employed. The increment is called profit. To talk of abolishing profits is sheer nonsense. If profits were not expected no one would be so foolish as to throw wealth into the melting-pot.
Now, all valuable wealth is appropriated—belongs to somebody. The mere statement that it is valuable means that some people want it but lack it, and are willing to make a sacrifice to obtain it.
The first question that arises, when the product results from the combination, is, To whom does it belong? For some of the wealth may have belonged to one person and some to another. The answer given by history and by justice and common-sense is, It belongs to those who put the elements in, and exactly in proportion to the value contributed by each. But some of the wealth has been totally destroyed, consumed in the process, for example the coal and the limestone. Some is not consumed wholly, for example the furnace and the workers. They are only impaired. They are worth less because they are nearer the time when they will be worth nothing at all. They wear out. In the case of these things an actuarial computation is roughly, perhaps unconsciously, made. It is customary to reckon so much of them as destroyed. Ten per cent per annum is usually written off for wear and tear of machinery, that is, one-tenth is regarded as used up. If machinery was never worn out or broken, or lost or stolen, only economic rent could be obtained for the loan of it. Now, labourers are, economically speaking, machines; whoever casts them into the crucible, taking all the risks, should logically receive a share of the gross product proportional to their prior value, just as the owners of the horses and machinery do.
When slave-owners invest their slaves in an adventure, their share of the profits or losses (i.e. of the gross product) is so calculated. How is it that the same arrangement is not made when the workers own themselves. The system in vogue is Wagedom.
The reason is plain. The workers, instead of casting themselves into the crucible, prefer to dispose temporarily of the property in their own bodies to others during the process, in order to evade the risk of loss. Others cast them in, and to others rightfully belongs the gain or loss resulting from the combination.
Seeing that on the average of all the combinations in this country a gain is made (about 3 per cent), instead of a loss, it is clear that by the wage system the workers forfeit the profit. This loss of average profit (or economic interest) on the value of the workers (say £375,000,000 a year) is not the only deplorable result of wagedom. I propose to show some of the other direct or indirect evils of the system; to point out some of the remedies which have been proposed; the good results obtained by them; the evils resulting, or which necessarily would result; and finally, the probable effects of the capitalisation of labour.
By capitalisation of labour I mean the system under which the workers invest themselves (their labour) on the same terms as other capitalists,—namely, a proportionate share of the product,—be it profit or loss. But they cannot afford the loss, if any? Then let them insure themselves on a definite basis, instead of paying as a premium an indefinite sum varying with the success of the undertaking. But it would cost as much to do it the other way? I deny it. And if it did, the results to be shown would be unaffected. Their profits would for many reasons be far larger. And then the premium would fall. But wages must be advanced, you say. Yes, wages perhaps, but not necessarily the reward of labour. I have been asked how the system could be started. Well, I have nothing to do with that. I am told that no one knows the present market value of a free labourer. Very likely. I have suggested that, in order to make a beginning, it might suffice to strike an average of the last seven years in some large concern, and ascertain what proportion of the gross returns of the business had been paid over in wages. Suppose 30 per cent. It might be inaudible it might be 80. A bargain might then be made between the existing staff of workers and the so-called employers, to hand over such share of the value of the product to the workers at the end of three months, or at any other convenient stock-taking.
Mr. Moffat urges (and I value his opinion more highly than that of most other political economists, because he is always thorough and logical) that this ratio also ought not to be fixed, but should vary by competition. Quite so. I admit it. I merely suggested this arrangement as a convenient one to start with. At the instance of either party, after a single process, or several processes, a revaluation could be made, such as now takes place among working and sleeping partners.
I have not the smallest doubt but that the workers' share would steadily rise. But whether their share rose or not, it is abundantly clear that their gross takings would rise considerably for the following reasons:—
Let us now examine some of the proposed remedies for admitted evils.
Trade - unionism aims at raising the price of labour by diminishing the supply: not by restricting the number of workers, but by binding them together not to sell their services for less than what is deemed a reasonable price.
In order to attain this result, clearly all the world must be brought into the Union. If all the workers refused, say, to work more than four hours a day, the price of labour would at first be nearly doubled; and moreover, the cost of the production of labourers would remain the same; so that wages would not fall. But the effect on prices would be followed by a diminished demand for labour; and this would be followed by the slow starvation of some of the workers—unless they broke the pact. Would they?
Malthusianism also aims likewise at raising the price of labour, but by limiting the supply. Here, again, we must leave foreign competition on one side (which we have no right to do); and then we may admit that the effect would be to raise the cost of the labour supply; and thereby to raise the price of labour. But how are we to begin? Preaching converts the best. Then the inefficient increase and multiply, and fill up the vacuum; and the only effect is the steady deterioration of the breed. Moreover, we cannot afford to dispense with the great spur to industry—necessity.
Religion would possibly suffice, if the majority could be firmly convinced that their temporal comfort was a thing of little moment. But its influence seems to be on the decline.
Thrift has been preached by some; under which head we may include abstention from unprofitable luxuries like alcohol and tobacco and expensive dress, and also early marriage. But the effect of this, though beneficial to the individual practising the virtue, cannot affect the class, except to make it a better instrument of production at a reduced cost. It could not raise the reward of labourers all along the line, and it certainly would lower the reward of labour ad valorem.
Emigration means the removal of the surplus population. The effect here again would be the raising of wages by the reduction of the supply of labourers. But if it is left to the workers themselves it is clear that the country loses its best blood, and the worse remains behind. If the State exports the inferior, we require an impossible exercise of selection, and what is more, we eventually injure the Anglo - Saxon race abroad. Moreover, a little arithmetical calculation will show that one might as well try to empty the sea with a teaspoon.
Neo-Radicalism perhaps hardly deserves mention. It is a jumble of “dodges”; it talks liberty and practises despotism, and it ignores all the indirect consequences of its acts.
Profit - sharing is a system under which the lawful owner of profits gives up a certain share of such profits by way of bribes to his workpeople, to induce them to work harder. The objection to it is that, if carried out as a general practice, it would necessarily lower wages, till wages and bonus together equalled the old and normal wage.
Co-operation is a reaction from wagedom, and it swings to an equally absurd length in the opposite direction. Wagedom says all the profits properly belong to the capitalist. Co-operation says none of the profits properly belong to the capitalist. But inasmuch as Capital cannot be got to co-operate on that understanding, co-operationists aim at scraping together the savings of the workers themselves and treating them as loans.
The Sliding Scale is another recognition of the doctrine that somehow or other wages ought to vary with profits; but it is a mischievous arrangement; for by making wages vary with the price of output per unit, it tends to discourage production. That is to say, it is the interest of the workers to keep up the price of the article produced rather than to produce a great deal at a lower price.
Lastly, we come to Labour Capitalisation. What are the objections to it? and are they insuperable? They are fairly and clearly summed up in a letter which I received from the late Lord Derby:—
The difficulty of profit-sharing (though I think experiments in that direction well worth trying) seems to me practically this—that working men are quite willing to share profits, but not to share losses; and also that if they are to be paid by results, they will naturally claim a voice in the management, which in many branches of business, at least, it would not be easy to give them.
I am not sure that on a first reading I have clearly made out how the system which you propose differs from that of profit-sharing which you condemn. I dare say a second and more deliberate examination will clear up the difficulty. I think also that you underrate the importance which the majority of men in all classes attach to a fixed rather than a fluctuating income. But this is a matter of opinion in regard to which proof is impossible.
Your leading idea—the inexpediency of continually calling in the State to interfere between man and man—is one which I am personally disposed to accept, but you will never get a democracy, newly possessed of power, to accept it. They will, at any rate, try what their voting power can do to improve their condition, and nothing but experience will teach them what legislation can accomplish and what it cannot
It is not difficult to show that the difference between capitalisation and profit - sharing (in its usual and technical sense) is very considerable. Profit-sharing is based on wagedom, and the share of profit allotted to the workman is not calculated on any principle. Nor is his claim to such share recognised as a right. It is merely contended that if the employer will give the workers a share (any share found sufficient for the purpose) of the -net profits, it will operate as a bribe or stimulus to work harder and better, and the result will be that the gross returns will be so much increased as to more than recoup the employer for his generosity.
The capitalisation system, on the other hand, recognises the right of the worker to a share, and a very definite share, of the gross returns of the undertaking. Nor is it based on the wage system. It proceeds on the principle that the labourer has an ascertainable value, that he is his own capital, and that he should put himself into the venture on precisely the same terms as other investors of capital demand. In proportion to the original value of the capital contributed by each, the gross returns should be divided. A contributes an acre of land, B a steam-plough, C a team of horses, D his own self. The acre is worth £60, the plough worth £80, the horses worth £120, and the labourer £600. Let the gross total be worth £946 at the end of a year. There is the acre, the plough (10 per cent the worse for wear), the horses (a year older and worth less), and the labourer also a year older, and there is the net produce of the year's work, worth £86. How should this £86 be divided? Neglecting differential wear and tear, the owner of the acre would take £6, the plough-owner would take £8, the owner of the horses would take £12, and the labourer would take £60. But, it will be said, surely this is a very disproportionate share for the labourer? No, at present instead of receiving it at the end of the venture, it is mostly doled out to him by the other contributors during the process. And it is reckoned by them as part of their outlay. And so it is. What they do is this; they buy the labourer for the year (borrow him, or hire him) as a speculation. Then they invest him as their property—not his own. Hence any profits on the venture are fairly theirs, not his. This is the system of wagedom. Now there is no conceivable reason why the labourer should not invest himself, and retain the property in his own body. He will then be entitled, of course, to the profit (or loss) on the investment.
And how is he going to live in the meantime? The capitalisationist's answer to this question is, Leave that to him. If it is necessary to have an office whose function it is to advance the means of subsistence, to eliminate risks, and to ensure an average return to the worker for his work, that is not the business of the contributor of other kinds of capital. It is a separate function, and one, moreover, which is most injurious to the community. We argue that the time is at hand when this function should altogether cease. Of course, those (no matter who they are) who take the risk of the labourer's investment, and guarantee a return, cannot, under the best conditions, do this without charging a commission. The labourer must pay the premium just as he does when he insures his life. And the premium paid is precisely the net profit on his capital (himself). Consequently all he receives is the fuel which keeps him going, and a small sum for a sinking fund to rear up a substitute when he is worn out. He voluntarily forgoes his profits.
In exchange for this sacrifice it is true that he is guaranteed against loss, and thereby enabled to go on living. He does not gain, but he does not lose. He works for nothing; he has as much after a year's work as he had before, namely himself; but he has resisted the forces of disintegration all the time, and that is something. Hence, as Lord Derby says, the majority of working men are not anxious to run any risk of having to share losses. Of course no capitalisationist pretends (as profit-sharers do) that the labourer should stand to share profits without at the same time standing to share losses. It is not contended that at present the working classes are all ripe for the change. It is believed that the “aristocracy of labour” is ready to assume the responsibility of self-investment, and that eventually the great body of workpeople will follow their lead. By taking care of their own earnings, and by exercising discretion in investing their capital (their own selves), they will get rid of the middleman, who at present lives on their shiftless irresponsibility. They will thus take the profits they have fairly earned, instead of paying them to anybody who will kindly guarantee to keep them alive and fat enough for all practical purposes, and save them the trouble of thinking how they shall invest themselves.
Of course, there are many difficulties to overcome before the old order can give place to the new, and one of the most important is pointed out in Lord Derby's letter. The workers will not consent to invest themselves in an undertaking in which they have no voice. But it is probable that they will be satisfied with a representative voice. And who shall say that the labourers' delegate to the Council will not be welcome? The tendency observable in the course of industrial evolution is in the direction of larger and richer partnerships. Joint-stock companies are increasing, and will continue to increase. No greater element of stability on the managing board can be found than the chosen representative of those whose lives depend on the permanently successful management of the business. But in case one partner wished to reserve to himself full control of the management, it could be done just as easily as it is done now in the case of employer partnerships, where one man puts capital into a concern to be arbitrarily managed by another. The terms of the contract differ, that is all.
Partnerships are almost invariably the result of competition. The competition comes first, and when the partnership is an accomplished fact the competition ceases, as between the partners. That is precisely the position aimed at by labour capitalisationists. It is quite true that wage-receivers have no claim whatever, legal or moral, to a share of the profits on the employer's capital. It is this which distinguishes capitalisation from profit-sharing. In the former system, the labourer shares nothing that does not belong to him. By competition alone his value is assessed before the industrial operation. He then takes precisely that share of the gross returns of the venture which his own original and agreed-on value bore to the rest of the capital employed. Could anything be juster?. The fact that a large number of manual labourers require the means of subsistence to be advanced to them is not necessarily any business of the “employer” (contributor of other kinds of capital). True, he undertakes that function now, but that is exactly what I deprecate. It is not the function of either a speculator or a superintendent. It is added to these.
The main advantage of the new system is to hold out an inducement to the superior workers to do something more than is absolutely necessary to keep themselves alive and rear a substitute—something more than is required to “keep the place,” and avoid “getting the sack.” Under the system of wagedom there is no identity of interest whatever between those who supply labour and those who supply other elements of production. Once the labourer is hired he ceases to care two straws whether his work is productive or remunerative or useful. So long as he gets his “screw” he is satisfied. The harder he works the more he raises the standard of expectation and lowers wages. He is a fool to do more than is necessary to ensure re-engagement. It is the same with respect to quality of workmanship. When Mr. Moffat says, “The natural relation between the capitalist and the labourer is one of exchange or barter, not of partnership,” one can find but one fault with the statement. It is the actual relation, but not necessarily and always the natural relation. In the days of slavery it would have been quite as accurate to say that the natural relation between master and workman was one of coercion. The slave did what he was compelled to do, and received in exchange just what his employer thought fit. It was a natural arrangement, no doubt, in a sense, but it has mostly passed away. So will wagedom. It is merely a question of time; but the sooner the true tendency is recognised, the better for all. It is easier to make progress when the goal is in sight.
In the process of capitalisation (as Mr. Moffat points out), the improving partner is likely to be under-valued at the outset. This is the case at present, as he admits. It always will be the case. Perhaps it is one of the compensating advantages of old age. We weigh men by their past achievements, and not by their promises. But then, Mr. Moffat forgets that these labour partnerships are not permanent, and that readjustments will be made from time to time if necessary. Such readjustments will rarely be needed. In any case, they will compare favourably with the jerky and endless readjustments brought about under the wage system by means of strikes and arbitrations and lock-outs. There is now absolutely no basis of settlement. Even the arbitrators have nothing to guide them but “reasonable expectations.”
Unless we accept the principle of labour capitalisation, the only alternative to this state of eternal tugging seems to be a system of State interference—factory legislation, State-regulated hours of labour, bank holidays, compulsory insurance, and the like; and it is a clear public gain when statesmen of well-earned authority put on record their personal conviction that, although State socialism is growing, and likely to grow, still in the end experience, and experience alone, will teach the newly enfranchised—especially the manual workers—that legislation can do little for their own, or for any other class, beyond ensuring for all a fair field and no favour.
The theory of labour capitalisation is based on the doctrine propounded by Adam Smith, but not adhered to by him throughout his writings, that the labourer is a species of capital. That being so, it is further contended that the proper remuneration of the labourer is such proportion of the profits of the work on which he has been engaged, as he himself bore to the whole of the capital employed—before the operation. This clearly necessitates the capitalisation of the workman. The free worker has a capital value not more difficult to ascertain than the capital value of any other element of production which is not sold outright, but which is hired or rented by time. The slave was sold outright, and his value was calculated on the basis of his average profitableness as revealed by experience. To say that “labour” is a species of capital which cannot directly support the labourer—as Mr. Moffat says1 —may be quite true, but it is quite irrelevant. Most kinds of capital must be exchanged for other kinds before they can be put to that particular use. “Mr. Donisthorpe seems to think that his theory is wholly inconsistent with the Ricardian doctrine of the tendency of wages to a minimum,” says Mr. Moffat; but surely this is a gross misconception of my position. On the contrary, the need for capitalisation is based upon this very doctrine. Ricardo's theory is stubbornly true so far as “wages” are concerned, and it is for this reason that wagedom is condemned and capitalisation put forward in its place. According to this system, profits and labour remuneration would rise and fall together, and in proportion. And it is the latter circumstance which Mr. Moffat deprecates. “In so far as the movement of profit and wages in the same direction is concerned, Mr. Donisthorpe's observation is simply the observation of a common every-day fact; in as far as the establishment of a definite ratio is concerned, it is not justified by fact—it is the reform proposed by Mr. Donisthorpe himself; but the assumption does not hold good that the facts afford any preliminary justification of it.” This is perfectly true. Under the wage system the facts could not afford any such definite indication. But, asks Mr. Moffat, “Why should labourers receive a fixed proportion of gross profits?” “Whence does Mr. Donisthorpe propose to get his proportion? Precisely from wages paid by competition. But if these wages are just, what is the need of change?” Now, this is the key to the objection of political economists to the capitalisation scheme. But it seems to be overlooked that this method of capitalising the workers is put forward merely as a temporary basis in order to gain foothold for a start. It is neither asserted nor denied that wages are already just; but it is held that, although the new system may possibly start on an unjust basis, such is the excellence of the system itself that it will work out its own salvation. At present it is impossible to say what is the capital value of an unskilled labourer; still less of a skilled labourer. Experience alone can teach. And even if we knew the past value (under the wage system) we could not predict the value under a system of freedom. When industry and self-interest are pulling together, who shall tell how much more valuable the worker will be? When Mr. Moffat says, “Competition is to be slain and buried, but its ghost is to preside over the scene for evermore,” he again mistakes the issue. No capitalisationist wishes to see competition slain and buried, or even wounded and weakened. It is the very soul of progress. All he asks is that the worker shall cease to sell himself by time for any kind of work, with his eyes shut, to any employer who chooses to engage him; and that he shall in future be responsible for the work at which he labours. He shall enter into an undertaking with his eyes open and with full responsibility. -If the work is a failure, he will suffer; if a success, he will gain. At present the worker may go into the service of a man who proposes to make a fortune by converting roast-beef into manure, or he may engage himself to a cotton-spinner, and in cither case he takes his fixed wages. What does the success of the undertaking matter to him? And what inducement has he to work beyond the wish to keep his place?
Probably Mr. Moffat hits the nail on the head when he says, “Mr. Donisthorpe also forgets that his labourers will have vested interests.” This is true, and it is one of the formidablest obstacles to the introduction of the system. It is one, however, which is daily weakening as an objection. Indeed, what are called equitable interests are being steadily multiplied. Certainly, workers who have contributed to bring a business up to a flourishing condition will never submit to be arbitrarily dismissed by an employer-that is, by the contributor of the other forms of capital. And, consequently, some contract in restraint of arbitrary discharge will have to be entered into. But why not? No employer cares to get rid of workpeople without just cause. The bare admission that the system would tend to confer a vested interest on the worker is hardly one which is calculated to make it unpopular.
Mr. Henry George, the “Orthodox,” by R. S. Moffat (Remington and Co.)