The philosophy of wealth. Economic principles newly formulated

Preface

In a series of articles in the Neiv Englander, commenced ten years ago, I endeavored to contribute a share toward the reformulating of certain leading principles of economic science. The traditional system was obviously defective in its premises. These were as-) sumptions rather than facts, and the conclusions! deduced from them were, for that reason, uncertain. The assumed premises were, at certain points, at variance with facts, and the conclusions were, to that extent, erroneous. The better elements of human nature were a forgotten factor in certain economic calculations ; the man of the scientific formula was more mechanical and more selfish than the man of the actual world. A degraded conception of human nature vitiated the theory of the distribution of wealth.

The prevalent theory of value started with a misconception of utility, and of the part which it plays in exchanges. Economic science, in general, found no adequate place for the intellectual activities of men, and made no important use of the fact that society is an organism, to be treated as a unit in the discussion of many processes affecting wealth.

.V PREFACE.

The articles referred to endeavored to contribute such share as they might toward the needed reconstruction of economic theories. They endeavored to broaden the conception of wealth, as the subject of the science, to find a place in the system for the better motives of human nature, to construct a new theory of value, to apply at all points the organic conception of society, and to suggest other corrections. They tried, in general, to bring the premises of the science into better accordance with facts, and to bring the general spirit of it into greater harmony with the instinctive demands of a healthy human nature.

In this book the most of these articles are republished, with varying amounts of revision, and the discussion is extended, and made to include, among other points, a study of the nature of production and distribution. The one process is found to consist of a synthesis, and the other of an analysis ; the same elements which are combined in production are separated, step by step, in distribution. The process loosely termed competition is analyzed, and a new theory of "non-competing groups " is advanced, and applied to the labor problem. The lines furnished by these groups are found to determine the limits of the combinations of capital and of labor, which are the distinctive feature of the present era. A study is made of the laws determining what forms of industrial organization shall emerge from the present chaotic condi-

PREFACE. V

tioii. The test of economic principles is applied to the intellectual and spiritual activities of society.

There are two or three points in the system, as here outlined, which readers of recent economic literature might naturally suppose were directly borrowed from that source. These were, however, contained in the articles already referred to, which were published early enough to preclude dependence on anything very recently issued. Whatever may be their merits or demerits, the theories here advanced are not borrowed from the writings of other persons.

If this book were intended as a general treatise on political economy, it would, of course, be very incomplete. It omits whatever belongs to that field which is common to economics and practical 'politics. It has nothing to say about protection or currency. Obviously the work cannot be a text-book, in the ordinary sense of the term. Teachers who do not want a text-book as the sole or chief means of instruction, and who prefer to present in their own way the controverted practical questions of the day, may, perhaps, find a place for it in the classroom. The place which it primarily seeks is in the hands of readers and thinkers who have long been in revolt against the general spirit of the old political economy.

J. B. Clark.

Preface To The Second Edition

I COMPLY with the suggestion of a friendly critic in stating the relation which the theory of value advanced in the fifth chapter of this book bears to that of Professor Jevons. My theory was attained independently, very long ago, but proved to coincide with that of Professor Jevons in the general fact of establishing a close connection between utility and value in exchange, and in regarding utility as subject to mental measurements. In some more specific points it resembled that theory without quite coinciding with it. It has been published without change in any of these respects. Features of the theory which I still venture to regard as my own are the identification of value in all its forms with measure of utility, the distinction between absolute and effective utility, and the analysis of the part played by society as an organic whole in the valuing processes of*^ the market.

Of the twelve chapters of the book, nine treat of topics falling within the traditional limits of economic science ; while the remaining three discuss subjects which a highly orthodox view may perhaps regard as lying outside of economic limits. If, however, political

Vlll PEEFACE.

economy undertakes to discuss wealth in all its forms, and to analyze the forces which actually influence the distribution of it, it is difficult to see how these topics can be excluded from the discussion. Those who believe in a progressive system of economic science will probably not desire to exclude them.

J. B. Claek.

Northampton, Mass., Feb. 2, 1887.

Chapter I

The current conception defective. Light derived from the Saxon use of terms. Essential attributes of wealth. ^ Insubstantial commodities included in the definition ; personal attributes excluded. The nature of service ; wealth, the material element involved in it.

Chapter II

Labor and service. The economic nature of the effort of appropriation. Officers of the law producers; also writers, speakers, musicians, etc. Mental and moral elements in all labor. Labor not literally the creator of every commodity. Four varieties of utility, resulting from four corresponding kinds of labor.

Chapter III

Human volition the ultimate cause of economic phenomena. Need of a correct conception of the nature of man. The conception current among economists of the past, first, unverified ; and secondly, incorrect. Deductive methods useful, provided the premises are cor-

X CONTENTS.

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V- rected, Man a part of a social organism. Classification of societies. Relations between the society and the individual. Effects of the social relation on individual natures. The expansiveness of higher wants. The highest wants unselfish ; their effects in the market. Desire for personal esteem the counterfeit and assistant of the highest human motives ; its economic effects. Wants as active or quiescent; their normal condition. Misuse of the term productive consumption.

Chapter IV

Men, altruistic ; society, egoistic. Production and consumption the reverse of each other. Consumption not destruction, but utilization ; maximum utilization the social goal. Secondary consumption. Social production as including exchange, and involving distribution. The nature of sub-products. Exchange and distribution, practically merged, logically distinct ; the one a qualitative diffusion of wealth ; the other a quantitative one. Bargain-making not a part .of the act of exchange, but the determining element in distribution. The competitive process analyzed. True competition diminishing ; the surviving element a source of danger.

Chapter V

Need of a definition of value in the generic. Utility included in the popular meaning of the term. The idea

CONTENTS. xi

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of value a secondary abstraction. Value defined as Measure of Utility. Price a mode of expressing the measurement. Apparent difficulties of the definition removed by distinguishing between absolute and effective utility. Method of measuring effective utility. Society the measurer, when exchange value is determined. Society the purchaser of the products of individuals. The absolute standard of value.

CHAPTER VI. The Law op Demand and Supply 91

Utilities, not matter, the subjects of exchange and distribution. Wants gratified in the order of their intensity. The purchase limit ; its variations due to changes in prices, and in the relative intensity of different wants. The simple adjustment of demand and supply, in the case, first, of inexpansive wants, and secondly, of expansive ones. The tendency of increasing production to take a qualitative direction. General overproduction of qualitative increments impossible. Fashion as an economic force. Normal price ; this not station-/''^ ary. Elementary utilities increasingly costly ; form and place utilities increasingly cheap. The predominance of the utilities which tend to cheapness. Influences which render industry as a whole increasingly productive. True and false Malthusianism. Inaccuracies in the orthodox theory of demand and supply; an important class of commodities omitted. The need of basing the law on utilities rather than on • commodities.

Xii CONTENTS.

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CHAPTER VIL

The mode of dividing the product of industry changing. The moral element in the wage question. The effect of the consolidation of capital and of labor. Vagueness of the ordinary conception of demand and supply ; their systematic action ; their ]3rimary, secondary and ternary fields. Tabular representation of the synthesis of elements resulting in a single completed product. Distribution as the reversal of this synthesis ; the division purely quantitative. The sale of a completed product a primary division of social wealth ; that of a sub-product secondary ; that of a share of a sub-product ternary; the last the criterion of wages. Tabular representation of the principle of non-competing groups. The groups, as such, agents in distribution. Examination of the theory that the exchange of surpluses determines prices. Three gradations of competitive action ; abnormal competition the cause of combinations. Contrast between past and present conditions.

CHAPTER Vm.

Products the source of wages. Statement of the Wage- Fund doctrine. Errors refuted by applying the principle that distribution deals with pure quantity. Wages, as a value, taken from the value created by industry, but subsequently embodied in usable forms by a process of exchange. Capital essential to this exchange. Wages of a working group taken from a specific sub-product, and gauged in amount, first by

CONTENTS. xiii

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the amount of the sub-product, and secondly, by the terms of the division made with the employer. Variations historically shown to be due to changes in both determining causes. Difference in principle between the present and the former mode of dividing products ; organization the cause of it. Labor unions a resource against an unjust division. Disappearance of individual competition. Necessity for appealing to moral force in dividing products. Conditions which determine whether labor unions shall or shall not follow the lines of occupation. The boycott as an instrument of coercion. Recent consolidations of capital ; their primary and secondary' objects, and their effects on real wages. Increased need of moral agencies.

CHAPTER IX.

The Ethics of Trade 149

Gloomy outlook afforded by Ricardianism ; the scientific weakness of the system. Moral force the characteristic of the new regime ; this new only in its mode of y action. Its origin as a social force, and its gradual extension. Effects of the institution of property. Different codes prevalent in the village and the mark of mediaeval times ; modern society a fusion of the two local elements, and morally dualistic. Competition formerly repressed by moral sentiment ; opportunities for this agency in the modern market. Disastrous effects of abandoning the standard of just bargains. Wealth legitimately acquired by production ; acquisition by unequal exchanges a prevalent abuse ; opportunities for repressing it afforded by present conditions ; effect of this upon wages. Competition, in its surviving fields, tending to become truly free.

XIV CONTENTS.

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CHAPTER X.

Cooperation an old principle in a new form. Economic science formulated by Adam Smith in an era of extreme individualism ; present tendency to merge the individual in the organization. Cooperation a principle of organic, not personal independence. Just distribution its aim. Arbitration an appeal to justice involving constant recourse to tribunals ; this hostile to harmonious effort. Tendency of cooperation to increase production and harmonize distribution. Small limits of possible increase of wages by methods of contention. Interests of capital and labor identical in production, antagonistic in distribution. Tendency of the wage system to create a conflict, but to set limits to overt action. Education a means of narrowing these limits, not of abolishing all conflict ; this latter possible by cooperation. Effects of profit-sharing ; its practicability. Fom- systems of dividing products now in use ; the principle which insures the survival of the fittest in each particular field. Difficulties of new experiments in full cooperation ; the ultimate survival of this form to be determined by its effects in successful instances. The easiest form of cooperation likely to have the greatest immediate extension ; the best form to have the longest continuance. Rochdale stores and communal farms ; their minor influence on _ the wages question; then- educational value. Municipal enterprises ; prison and work -house industries. Effect on general wages of instances of successful cooperation. The permanence of the principle assured.

CONTENTS. XV

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The socialistic state ; its principle despotic. Freedom the basis of cooperation.

CHAPTER XI.

XOX-COMPETITIVE ECONOMICS 203

Competition no longer general. Rational wealth the economic end of social action ; an approximation to this end formerly afforded by competition ; the survival of the principle in residual fields due to a similar action ; the princii^le abandoned where it ceases thus to act. The highest forms of rational wealth disbursed non-competitively. Art products placed at the service of the public ; also means of intellectual and spiritual education. This disbursal of products of no effect on the relation of capital to labor. The principle of inappropriable utilities; its special application to the railway problem.

CHAPTER Xn.

Material commodities which minister to spiritual wants ; special modes of disbursing them. Relations of rich and poor in this respect. Spiritual poor-relief; the principle involved not one of charity. This function committed to the church, and fulfilled with some fidelity. The commodities to be disbursed purchased in the open market ; the necessity for a revenue, and for securing it in a non-mercantile way. The prevalence of semi-mercantile methods. The appeal to the Spirit of caste. Reformation needed in the outward forms of church activity.

Chapter I. Wealth

Practical wisdom was never more iu demand than at present. Questions concerning currency, free-trade, transportation, etc., are demanding and receiving the attention of political economists, and it is in this part of their science that the attractive fields lie both for the writer and the reader. The period of irreconcilable diversity in the fundamental principles of the science seems to be past, and one of relative unanimity, in thought if not in language, appears to have arrived. May theoretical work, then, be laid definitely aside ? Not unless fundamental truths are of less importance here than in other departments of human thinking, and not unless the unanimity concerning them is somethingmore than relative. If obscurity still hangs over principles, the clear apprehension of which is essential to all reasoning on the subject, the removal of it, besides having an incalculable value in itself, will afford a welcome supplement to directly practical work. It will shed light on the pressing social questions of the day. In the present state of the public mind, for example, financial heresies and strange teachings concerning the rights of property find a ready circulation ; and, if these false doctrines connect themselves, even remotely, with fundamental errors of political economy, then the assault upon the practical fallacies can never be quite successful until the underlying errors be exposed and corrected. Questions on the solution of which the general prosperity depends cannot be solved without the clear apprehension of correct principles.

Nothing can be more fundamental in economic science than the conception of wealth. Is it worth our while to take issue with the current definitions of it? Not if the question to be settled is one of terms merely, and if the underlying thought is clear. Exactly the reverse of this is true of the definition of wealth which John Stuart Mill has inherited from Adam Smith, and, in turn, bequeathed to the so-called orthodox school of political economy. The terms of this definition are not seriously objectionable, but the thought which, in the discussion, they have been made to convey is so inconsistent with the significance of the terms themselves as to carry confusion throughout the science.

Mr. Mill's conception of wealth is so limited as to exclude much that is obviously a proper subject of economic study. It has obliged him to revive the pernicious classification of labor as productive and unproductive, and expressly to exclude from the list of productive laborers such persons as " the actor, the musical performer, the public declaimer or reciter, and the showman"; also "the army and navy, the legislator, the judge, and the officer of justice." On the other hand, certain economists under the leadership of M. Bastiat, impressed by the evils resulting from the traditional classification, have found no other remedy than that of abandoning the conception, wealth, as the subject of their science.

Yet there is a certain definable thing which is and must be the subject of political economy. Whether avowed or not, a definite conception is, in reality, under discussion in every treatise on this science. For this conception the term w^ealth, if used in the strictest accordance with history and etymology, is an accurate designation. The Saxf)n tceal indicated a condition of relative well-being, the state of having one's wants well supplied as compared with a prevailing standard. No possession common to all men can constitute such relative well-being. The limitless gifts of nature do not produce it, since they are indiscriminating in their ministrations ; air and sunlight make no differences among men, and, though creating absolute well-being, cannot create that social condition indicated by the term wealth. This relative condition can be produced only by that which, besides satisfying wants, is capable of appropriation.

It is by a transfer of meaning that the term which primarily designated a condition of life has been applied to the things which produce the condition. But not all causes of comparative happiness are included in the meaning of the word. Wealth, as historically used, signified the well-being resulting from outward rather than inward causes. Health and contentment may make the shepherd happier than the owner of flocks ; yet the owner only is " well off." Reserving a broader term to designate well-being in general, usage has employed the word wealth to signify, first, the comparative welfare resulting from material possessions, and secondly, and by a transfer, the possessions themselves.

Wealth then consists in the relative-weal-constituting elements in man's material environment. It is objective to the user, material, useful, and appropriable. Let us apply the term with logical consistency to whatever possesses these four essential attributes, and note the effect on the traditional conception of wealth. Mr. Mill and the orthodox school will be found to exclude from their classification things which possess these attributes, and to include some which do not. They recognize as wealth only those things which are sufficiently substantial and durable to constitute a more or less permanent possession, things which would appear on the inventory, if society were suddenly to cease produciiig and consuming, and apply itself, for, say, a month or two, to taking an account of stock. It is here maintained that durabilit}^ is not an essential attribute of wealth. Durability is a factor of value, and determines, in so far, the measure of wealth in any particular product. But products are of all degrees of durability, and there is no ground for excluding any of them from the conception of wealth on the ground of this simple difference of degree. Even the school of writers referred to would not hesitate to class the ices of the confectioner in the same category with the stone wall of the mason, though they are at opposite extremes in the scale of durability. They would, however, exclude music from the conception, on the ground of its insubstantial and perishable character. It is maintained in this discussion that, in that which constitutes wealth, there is no difference other than one of degree between music and a stone wall. The difference in their durability is, indeed, one of the factors in their relative value ; but both alike possess the four essential attributes above specified ; they are objective and material products ; they are useful and appropriable, and fall within the definition of wealth.

Having unduly limited their conception of wealth in one direction, the orthodox writers have unduly extended it in another. They have, for example, classed as wealth the acquired skill and the technical knowledge of the laborer. Personal attainments, as subjective and immaterial, are excluded from the meaning of the term. They are not a possession ; that implies externality to the possessor. They are Avhat he is, not what he has. Popular thought and speech broadly distinguish the able man from the wealthy man. A man has a potential fortune, not an actual one, in his abilities. The term indicates a state of being able, and implies a possibility ; not an attained result. Labor creates wealth, and acquired abilities are potential labor. They are to be regarded as the potentiality of the human factor of production, and it introduces an element of confusion into the science to class them with the completed product. If these considerations w^ere not sufficient to settle the economic status of a man's subjective qualities, it would, at least, suffice for that end to apply to them the test of the traditional definition itself, in which "exchangeable value" is made to be the essential attribute of wealth. In every exchange two commodities are alienated, and transferred to new ownership. Nothing can be subjected to this process which is an inseparable part of one man's being.

The error of putting abilities and products in the same category is wide-spread, and appears in the writings of some of Mr. Mill's opponents. As acute a thinker as J. B. Say characterizes acquired talents as "a species of wealth, notwithstanding its immateriality, so little imaginary that, in the shape of professional services, it is daily exchanged for gold and silver." The illustration is its own best answer. The talents are not alienated, and cannot be so ; the lawyer does not deprive himself of them, nor does his client acquire them, by the rendering of legal service. Their product only is transferable, and that only is a connnodity. It will hereafter be shown that the human effort which creates a product calls into exercise activities physical, mental and moral. If wealth-creating abilities are to be confounded with the product which results from exercising tliem, every power acquired by effort, involving, in practice, the whole man, will have to be classed, as a commodity. The error is mentally confusing, and it is disastrous in its practical results. Man produces wealth and consumes it ; but man himself is always distinct from it.

The illustration just cited suggests an examination of the " service " theory of M. Bastiat. As alchemists, searching unsuccessfully for gold, discovered compounds from which oxygen might be extracted, so those who have sought for a substitute for wealth, as a fundamental conception of economic science, have attained a compound notion the analysis of which gives something which is to the economic theory what oxygen is to the chemical.

According to M. Bastiat it is services only that are exchanged in the market ; commodities, indeed, pass from hand to hand ; but they are services materialized, while others remain without material embodiment. " Do this for me, and I will do that for you," is the formula for the exchange of services in their immaterial state; "give me what you have done, and I will give you w^hat I have done " is the formula for the exchange of commodities.

8 AVBALTH.

Now a service consists of an effort and a gratification. In order that it may exist, some one must labor, and some one's want must be satisfied. It is apparent that effort, as such, gratifies no one. An artisan's effort gives pleasure only through the medium of the commodity which he produces. The efforts of a bodyservant give satisfaction only through the modifications which they effect in the master's environment; and apart from this they would certainly not be wanted. Effort is irksome to the laborer, and, by the law of sympathy, it is irksome to those who witness it; without outward results, it would be intolerable to an employer. A musician's effort is displeasing in itself, though the annoyance which the display of it occasions is counterbalanced, and a large balance of enjoyment is secured, by the objective effect, — musical sound. This principle may be easily tested. Let an accomplished pianist advertise a concert on one of Mr. Petersilea's mute piano-fortes, and promise to display a large amount of effort; how many tickets, at a dollar each, would he probably sell? Let a voiceless speaker attempt to entertain an audience by a similar display of effort; how long would the assembly remain together? Yet, in either case, absolutely nothing would be wanting but the tenuous outward product, — sound.

The objective element inseparable from service is wealth ; the totality of it is the sum total of social products. This material element is the result of effort and the cause of gratification, and furnishes, therefore, the necessiuy connection between tlie elements of service. It has invariably the four essential attributes of wealth; it is objective to the producer and the utilizer; it is material, useful and appropriable. It is distinguishable in every action that can be termed a service ; but it is not always tangible, visible and durable. It is a mark of progressing civilization when the products of labor, the objective elements in service, take as their basis the more tenuous materials given in nature. It marks a certain supremacy over natural forces when man hews stone and fashions timber ; it marks an intellectual sovereignty when the thought of man impresses itself on vibrating air or makes electricity its messenger to remote regions. It is the more ethereal products of human effort that are the characteristic Avealth of a highly organized society.

Chapter II. Labor And Its Relation To Wealth

Labor is the former of the two subjective elements in service, namely, the wealth-creating efibrt. It is the making nature subservient to a master, and the primitive mode of doing this is by simply determining what master an already useful element shall serve.

Relative weal results from the mere appropriation of limited natural gifts. With the unlimited gifts monopoly is impossible ; the ultra-democracy of air and sunlight insist on creating, in so far as their ministrations can do it, a weal that is equal and universal. But primitive man may pluck the wild fruit or slay the game in his natural Eden, and then vindicate by effort his right to enjoy them. He may select a dwelling-place, proclaim it his own, and repel intruders ; he may guard the fruit-yielding tree, and even the hunting ground itself. This is almost the only form of labor which exists in the most primitive social state. Man, here, lives by the mere appropriation of the spontaneous products of tropical nature, and expends his chief efforts in guarding his property. The capacity to be thus owned and utilized is a primary attribute of wealth.

LABOR AND ITS RELATION TO WFIALTH. 11

The condition of appropriation is a relation l)et\veen commodities, on tlie one hand, and persons, on the other, and implies, therefore, that both the commodity itself and the society where it exists should be such that the relation may be established. The commodity must exist in limited quantity, and must be of a nature capable of being retained in the possession of a particular user. The atmosphere, as a whole, is inappropriable from its unlimited quantity; while pleasing atmospheric effects, cloud scenery, showers or breezes are limited in quantity, but are in appropriable from their nature. They minister transiently to whomsoever they will, and, in the long run, with impartiality. Except as rain-drops mingle with the earth, or as breezes and sunset-colors favor the dwellers in an elevated locality, and thus impart a value to the land itself, there is no power in man to determine the direction of their ministrations. The ownership of land carries with it only a partial control of the benefits of these elusive elements in nature. Utilities which are, from their nature, inappropriable constitute an important and neglected subject of economic study. •

On the part of the society where the commodity exists something is also requisite, in order that the relation of ownership may subsist. The attributes of society which render ownership possible are; it is believed, usually ignored altogether in treatises on this subject. The existence of these attributes is secured by the labor of a distinct class of persons, whose true economic function cannot be apprehended without noticing the effect of their labors upon society, and thus, indirectly, upon the wealth which exists in society.

In order that the essential attribute of wealth, appropriability, may be realized, the rights of property must be recognized and enforced, either by personal prowess, or by the agency of legal functionaries. In the most primitive of societies the guarding of property is done by each owner for himself, and constitutes, as above stated, his only regular labor. The earliest general division of labor consists in assigning the protective function to men, uniting with it the congenial work of hunting wild game, and reserving the more onerous industrial functions for women. Civilization partially reverses this arrangement ; it includes the majority of men in the industrial ranks, and excludes women from the heaviest tasks ; but it still reserves a limited class of men for the work of protecting property. Comparatively few officers of justice render property so secure that whatever a man produces becomes his in the act of production, and remains in his possession, with but a minimum of thought and effort on his own part. Useful things are now appropriable in so far as the condition of society is concerned.