Labor, capital and money; their just relations

Front matter

Labor Problem

Solved.

warn

Preface

This work is the outgrowth of a presentiment of the coming of the industrial struggle which now forces itself upon the attention of society. For years there has grown upon me the conviction that an unseen evil influence was gathering a pressure and power, which, sweeping in a great cycle, would sooner or later engulf civilization, unless discovered and eradicated. I determined to sift political economy to the bottom in order to aid, if possible, in the accomplishment of this object. In this investigation I found radical errors in the groundwork, and from thence pervading every part of political science, as previously promulgated. By correcting these errors I have laid up one stone of truth upon another, not heeding where the truth might lead, until in a complete explanation of existing conditions it is presented to the reader. The result is as much a surprise to me as it can be to any other person.

The practical overthrow of the law of rent, hitherto considered as firmly established as the

VI PREFACE.

law of gravitation, and the consequent ellimination of its influence from the contemplation of the conditions of mankind, which have hitherto been regarded as sequential penalties of its operation, is a result as gratifying as it is novel.

That opportunities and facilities are found to exist, which can be made to supply abundantly every necessity, or rational want of man, as well as means to secure a just and equitable distribution without any shock or unnecessary suffering in society, is especially pleasing to me.

That the work may assist in upbuilding truth, in establishing justice and fraternity, in maintaining peace and plenty, as a means of securing happiness to all is the wish of

The Author.

Fredonia, N. Y., August i, 1887.

Table Of Contents

PAGK.

Introduction, ------- i

Chap. I. Definitions, ------ 7 Land, Labor, Capital, - 9

Distinction between Money and Capital, 18

" 2. Factors of Production, 26 " 3. Money, The Factor of Distribution ; Its

Origin, Powers and Functions. - 30

" 4. Insufficiency of Previous Explanations, 52

Henry George, ----- 55

BOOK II.— OF DISTRIBUTION. Introduction, showing that products of industry are

divided by four factors, - 67

Chap. i. Of Rent and the Laws of Rent, - - 78

" 2. Of Profit and the Laws of Profit, - 94 " 3. Of Interest — Inflation and Contraction

" 5. The Solution of all Problems of Industry, 119

Book Iii.— The Remedy

Chap. i. Inadequacy of all Proposed Remedies. 136

Co-operation, 137

Socialism, - 139

Confiscation of Land Values, - - 147

The True Remedy, 163

Vlll

Chap. 2. Of Money — its Essential Character

" 3. Money — By Whom Made,

" 5. " How Much Made,

11 6. " Suggestions how to give par

Delusions common to all classes of society, - Tables compiled from the 10th census of the United States, -

Showing gross Raw Products of the United States, according to said census, with all estimated omissions by government officials, -----

What became of the total production of the U. S. for the year 1880, amount consumed on farm, consumed raw, exported and amount manufactured, - Shows the condition, profit, rent & wages of the farmers of the United States, - Condition of the manufacturers in the United States, -----

Percentage P. & I. Agricultural products, Per cent, of Profit and Interest which appear in raw products,

Percent of profit and interest which appear in finished products, - Total gross production of all branches of industry from incipiency to finality in the United States for 1880, and showing where the pauper and millionaire originate,

II. Table 5

Table 6.

165 174 179 187

200 206 223

241 236

243 244

■ 246 247

Introduction

Conditions of society which challenge investigation.

The nineteenth century has witnessed the most remarkable awakening of mental and physical activity. Patient, earnest, fearless investigators in every department of science, have invaded the domain of nature in search of principles and facts which might add to the welfare and happiness of mankind.

What science has demonstrated, the practical mind has utilized. The busy-brained inventor, has subdued the subtle and potent forces of nature, and made them subject of his will ; has compassed land and sea with devices to facilitate commercial intercourse; has multiplied and remultiplied the efficiency of labor, until productive power and production itself, has passed the utmost bounds of necessity, of desire or caprice.

The student of political science has dug to the root of social relations ; has boldly challenged

INTRODUCTION.

the right of ancient superstitions and usurpations to cast their shadows across the present ; has unfolded the rights of individual humanity, and claims to have demonstrated that the object of government founded in justice and bounded byequity can only be attained by securing to the individual citizen the greatest liberty and happiness consistent with public good.

Were these deductions true, and governments founded upon such principles amidst abundance of production, it would seem to follow as a necessary consequence that poverty would be eradicated and want and wretchedness unknown.

The most casual observation shows that no such results have been attained. Go where you will in civilized society and the poor are always with you. Amidst abundance of wealth which his own hand has created ; amidst graineries full to repletion ; amidst warehouses of fabrics, whose texture bespeaks warmth, comfort and health; amidst luxuries limited only by satiety, the laborer stands compelled to beg permission to share sufficient to satisfy a niggardly necessity. The place where brightness and revelry and mirth hold perpetual holiday, casts its shadow over the hovel, where the deeper shadow of want and wretchedness is never absent.

INTRODUCTION. 3

The laboring many, trudging to their ceaseless treadmill of half requitted toil, behold the rich few in gay attire and gaudy trappings, go jauntily to resorts of pleasure, feeling that every farthing of useless waste represents comforts and wants of wife or child taken out of their labor, they know not how or why.

The clod falls continually upon the coffin of him who died from surfeit; and, if we listen closely, we can ever hear the hearse driver, on his way to the Potter's field, singing :

"Rattle his bones over the stones, He's only a pauper whom nobody owns."

Nor do we find this condition confined to wage workers alone. Everywhere in society, thrifty, industrious and energetic producers, toil as they will, husband their capital as they may, yet life presents no rest or leisure, no opportunity for culture — simply a struggle for bare existence.

The manufacturer, in the tide of prosperity, finds his storehouses filling with goods. He finds warehouses crowded everywhere. One by one, competent, faithful hands are discharged. Business comes to a standstill. We call it a "business depression. ,, For want of knowledge of the cause, one says, "Over production"; and

4 INTRODUCTION.

another, with just as little reason, says, "Want of consumption."

Over production, indeed! When you can almost hear the rustle of the angel's wings that bore away the breath of a child who died for want of breath ; and ever and anon come whirlwinds, we call them panics, when capital struggles no longer and mills and factories stand idle ; and he who but yesterday was weaving garlands of happiness in a thousand hearts finds himself stranded and none "so poor to do him reverence."

The question of questions which this generation has to answer is, "Why, amid abundance, poverty remains?" What are the means by which production is taken from the large body of producers and concentrated in the hands of a few?

The time has passed for evasion or subterfuge. Ridicule and sarcasm must give place to reason. Thinking men are looking each other in the face and asking, "What of the night?"

That no one of the current explanations finds lodgment in the judgment of men is evident from the painful uncertainty and doubt in master minds, and the apathy of those who could and

INTRODUCTION. 5

would correct existing evils, if a sure and steady light were thrown upon this subject.

One claims that tariff is the cause, another that tariff is the remedy ; one that a tax upon land is too grievious to be borne, another that tax is the remedy, and so on to the end ; while, as a result of confusion, organized labor and organized capital stand confronting each other like hostile foes in armed neutrality, when by every truth of science, every principle of justice, every teaching of political economy, it can be demonstrated that labor and capital are identical in interest, identical in the great struggle for industrial emancipation, identical in success, indentical in defeat.

That these conditions are not the result of natural laws is evident by the fact that the laborer, whether working for himself or another, produces more than enough to supply all his necessities and even the luxuries of life. This would be retained by him in the natural order of things did not the greater portion, by some power supreme and incomprehensible, slip from his grasp.

If not natural, it is in the power of just government to correct.

Lurking somewhere in social or political

6 INTRODUCTION.

adjustment, must be found an explanation of these anomalous conditions, which has escaped previous writers upon this subject.

I propose to sift out the error which obscures all previous reasoning upon these questions ; to explain, by a strict application to the rules of political science, the causes which lead to existing unjust conditions and point out a broad, clear way to the equitable distribution of wealth.

I shall hew to the line. If I cut through knotty superstitions or prejudices, I can only answer, my duty is to mankind and not to any man or set of men.

ERRATA.

Page 7, line 6, "purchaser " should read producer.

17, " 13, " not production" " not productive

81, " 24, " one-tenth" should read seven-tenths

149, " 14, "a little over" " a little less than.

184, Transpose lines 14 and 15.

185, "influx should read flux.

Chapter I

Definition of words used in economic writings, showing the distinction between land, labor and capital as the factions of production and money the factor of distribution.

The object of this work is to ascertain the causes which lead to extreme poverty and extreme wealth in every stage of civilization ; or in other words, to ascertain by what means a small portion of society absorb the products of labor, except the bare living of the purchaser ; to show that this condition is not natural or just and to suggest a remedy.

To accomplish this it will be necessary to examine and explain so much of political economy as relates to the production of wealth; to ascertain the factors of production, their relations, mode of development and contributions to final results, and afterwards to note the distribution of the product, through the various channels, in which it is caused to flow, by natural and artificial laws controling civilized society.

In this examination the technical terms of political economy will constantly recur. Here trouble begins. The nomenclature of this science is not accurate.

Those accounted the foremost writers on economic subjects use the same terms to express different ideas, to express diverse ideas, and sometimes ideas of opposition. Besides this, the technical use is often much more extended or restricted than the common and vulgar use of the same word. Now, as I desire to make this work a demonstration as accurate and conclusive as a theorem of Euclid, and as I also desire to make it useful to that large class of society who have little opportunity to follow economic pursuits, I propose to define such terms as I use with scientific accuracy, and also to explain when the ordinary use expands or contracts their meaning. This does not require any new terms, but simply the use of the most familiar and common words confined to one meaning, and thus stripped of their usual source of ambiguity.

It is an axiom of political economy that labor, assisted by capital exerted upon land, is the primary source of wealth. The three factions of production, then, are land, labor and capital, and the product, if any, is wealth.

Land is defined by political economists with sufficient unanimity to be the earth, and all natural forces and powers incident thereto. This includes the sea and land, rivers and waterfalls, air, light, heat and electricity, the power of fructification, and all other properties of matter w T hich assist in furnishing means to satisfy human desire.

Labor, as applied to production, is defined as human, physical exertion, as modified by, and dependent upon, hereditary traits, mental and moral culture.

Capital is one of the ambiguous terms of political economy. Standard authors define the word as fancy dictates and use it to suit every convenience.

Henry George, in " Progress and Poverty/' makes a thorough examination of the nature and relations of capital, in order to give a clear idea of this term. He collates the definitions of numerous authors, shows their inconsistencies and rejecting errors, sets the meets and bounds of

IO DEFINITIONS.

the term, so that the idea of what is and is not capital is readily discernable, and then confounds all his subsequent reasoning by falling into the very error he has been combating. To make this plain I quote freely from " Progress and Poverty," chapter ii. He says:

"In general discourse all sorts of things that have a value or will yield a return are vaguely spoken of as capital, while economic writers vary so widely that the term can hardly be said to have a fixed meaning. Let us compare with each other the definitions of a few representative writers :"

"'That part of a man's stock,'"- says Adam Smith (book ii., chapter i.), " 'which he expects to afford him a revenue is called his capital,' "and the capital of a country or society, ' ' he goes on to say, ' 'consists of ( i ) machines and instruments of trade which facilitate and abridge labor; (2) buildings, not mere dwellings, but which may be considered instruments of trade — such as shops, farmhouses, etc.; (3) improvements of land which better fit it for tillage or culture ; (4) the acquired and useful abilities of all the inhabitants ; (5) money ; (6) provisions in the hands of producers and dealers, from the sale of which they expect to derive a profit; (7) the material of, or partially completed, manufactured articles still in the hands of producers or dealers ; (8) completed articles still in the hands of producers or dealers. The first four of these he styles fixed capital and the last four circulating capital, a distinction of which it is not necessary to our purpose to take any note."

Ricardo's definition is :

11 Capital is that part of the wealth of a country which

DEFINITIONS. I I

is employed in production, aud consists of food, clothing, tools, raw materials, machinery, etc., necessary to give effect to labor." — Principles of Political Economy, chapter v.

''This definition, it will be seen, is very different from that of Adam Smith, as it excludes many of the things which he includes — as acquired talents, articles of mere taste or luxury in the possession of producers or dealers, and includes some things which he excludes — such as food, clothing, etc., in the possession of the consumer."

McCulloch's definition is :

''The capital of a nation really comprises all those portions of the produce of industry existing in it that may be directly employed either to support human existence or to facilitate production." — Notes on Wealth of Nations, book ii. , chapter i.

"This definition follows the line of Ricardo's, but is wider. While it excludes everything that is not capable of aiding production it includes everything that is so capable, without reference to actual use or necessity for the use — the horse drawing a pleasure carriage, being, according to McCulloch's view, as he expressly states, as much capital as the horse drawing a plow, because he may, if need arises, be used to draw a plow\"

"John Stuart Mill, following the same general line as Ricardo and McCulloch, makes neither the use, nor the capability of use, but the determination to use the test of capital. He says :

1 ' 'Whatever things are destined to supply productive labor with the shelter, protection, tools and materials which the work requires, and to feed and otherwise maintain the laborer during the process, are capital. — Principles of Political Economy, book i. , chapter iv.

" These quotations sufficiently illustrate the divergence of the masters. Among minor authors the variance is still greater, as a few examples will suffice to show."

"Professor Wayland, whose 'Elements of Political Economy ' has long been a favorite text book in American educational institutions, where there has been any pretense of teaching political economy, gives this lucid definition :

" 'The word capital is used in two senses. In relation to product it means any substance on which industry is to be exerted. In relation to industry, the material on which industry is about to confer value that on which it has conferred value ; the instruments which are used for the conferring of value, as well as the means of sustenance by which the being is supported while he is engaged in performing the operation." — Elements of Political Economy, book i., chapter i.

" Henry C. Carey, the American apostle of protectionism, defines capital as 'the instrument by which man obtains mastery over nature, including in it the physical and mental powers of man himself. ' Professor Perry, a Massachusetts free trader, very properly objects to this, that it hopelessly confuses the boundaries between capital and labor, and then himself hopelessly confuses the boundaries between capital and land by defining capital as 'any valuable thing, outside of man himself, from whose use springs a pecuniary increase or profit.' An English economic writer of high standing, Mr. William Thornton, begins an elaborate examination of the relations of labor and capital ('On Labor') by stating that he will include laud with capital, which is very much as if one who proposed to teach algebra should begin with the declaration that he would consider the signs plus and minus as meaning the same thing and having the same value. An American writer, also of high standing, Professor Francis A. Walker, makes the same declaration in his elaborate book on 'The Wages Question.' Another English writer, N. A. Nicholson ('The Science of Exchanges, ' London, 1873), seems to cap the climax of absurdity by declaring in one paragraph (p. 26) that ' capital must, of course, be accumulated by saving, ' and in the very next paragraph stating that 'the land which produces a crop, the plow which turns the soil, the labor which secures the produce, and the produce itself, if a material profit is to be derived from its employment, are all alike capital. ' But how land and labor are to be accumulated by saving them he nowhere condescends to explain. In the same way a standard American writer, Professor Amasa Walker (p. 66, 'Science of Wealth'), first declares that capital arises from the net savings of labor, and then immediately afterward declares that land is capital." * * *

"Now, it makes little difference what name we give to things if, when we use the name, we always keep in view the same things and no others." * * *

' ' This common sense of the term is that of wealth devoted to procuring more wealth. Dr. Adam Smith correctly expresses this common idea when he says : ' That part of man's stock which he expects to afford him revenue is called his capital.' And the capital of a community is evidently the sum of such individual stocks, or that part of the aggregate stock which is expected to procure more wealth. " * * *

' ' The difficulties which beset the use of the word capital as an exact term, and which are even more strikingly exemplified in current political and social discussions than in the definition of economic writers, arise from two facts : First, that certain classes of things, the possession

H

DEFINITIONS.

of which to the individual is precisely equivalent to the possession of capital, are not part of the capital of the community; and second, that things of the same kind may or may not be capital, according to the purpose to which they are devoted.

" Land, labor and capital are the three factors of production. If we remember that capital is thus a term used in contradistinction to land and labor, we at once see that nothing properly included under either one of these terms can be properly classed as capital. * * * A fertile field, a rich vein of ore, a falling stream which supplies power, may give to the possessor advantages equivalent to the possession of capital, but to class such things as capital would be to put an end to the distinction between land and capital, and, so far as they relate to each other, to make the two terms meaningless. *

* * In common parlence we often speak of a man's knowledge, skill or industry as constituting his capital ; but this is evidently a metaphorical use of language that must be eschewed in reasoning that aims at exactness."

• ' Thus we must exclude from the category of capital, everything that may be included either as land or labor. Doing so, there remain only things which are neither land nor labor, but which have resulted from the union of these two original factors of production. Nothing can be properly capital that does not consist of these — that is to say, nothing can be capital that is not wealth."

' ' But it is from ambiguities in the use of this inclusive term wealth that many of the ambiguities which beset the term capital are derived."

1 ' As commonly used, the word ' ' wealth ' ' is applied to anything having an exchange value. But when used as a term of political economy it must be limited to a much more definite meaning, because many things are commonly spoken of as wealth which, in taking account of collective or general wealth, cannot be considered as wealth at all. * * * Such are bonds, mortgages, promissory notes, bank bills or other stipulations for the transfer of wealth. * * * Increase in the amount of bonds, mortgages, notes or bank bills cannot increase the wealth of the community that includes as well those who promise to pay as those w\ho are entitled to receive.

* * * And all this relative wealth, which, in common thought and speech in legislation and law is undistinguished from actual wealth, could, without the destruction or consumption of anything more than a few drops of ink and a piece of paper, be utterly annihilated. " * . *

"All things which have an exchange value are, therefore, not wealth, in the only sense in which the term can be used in political economy. Only such things can be wealth, the production of which increases, and the destruction of w T hich decreases the aggregate of wealth."

"Thus, wealth, as alone the term can be used in political economy, consists of natural products that have been secured, moved, combined, separated, or in other ways modified by human exertion, so as to fit them for the gratification of human desires. It is, in other words, labor impressed upon matter in such a way as to store up, as the heat of the sun is stored up in coal, the power of human labor to minister to human desires. Wealth is not the sole object of labor, for labor is also expended in ministering directly to desire ; but it is the object and result of what we call productive labor — that is, labor which gives value to material things. Nothing which nature supplies to man, without his labor, is wealth, nor yet does the expenditure of labor result in wealth, unless there is a tangible product which has and retains the power of ministering to desire."

"Now, as capital is wealth devoted to a certain purpose, nothing can be capital which does not fall within this definition of wealth. By recognizing and keeping this in mind, we get rid of misconceptions which vitiate all reasoning in which they are permitted, which befog popular thought, and have led into mazes of contradiction even acute thinkers."

1 ' But though all capital is wealth, all wealth is not capital. Capital is only a part of wealth — that part, namely, which is devoted to the aid of production. It is in drawing this line between the wealth that is and the wealth that is not capital that a second class of misconceptions are likely to occur." * *

And, after contrasting the definitions of Mc- Culloch, Ricardo and Mills, and drawing the distinction which must necessarily be made between wealth used for the gratification of desire and capital, he says :

1 ' In all these cases the term capital is used in its commonly understood sense, as that portion of wealth which its owners do not propose to use directly for their own gratification, but for the purpose of obtaining more wealth. In short, by political economists, in everything except their definitions and first principles, as well as by the world at large, 'that part of a man's stock,' to use the words of Adam Smith, 'which he expects to afford him revenue, is called his capital.' This is the only sense in which the term capital expresses any fixed idea — the only sense in which we can, with any clearness, separate it from wealth and contrast it with labor. ' '

It would seem that nothing more need be said to render the term capital easily understood.

The tests of capital, therefore, are :

ist. It must be wealth.

2nd. It must be wealth devoted to production.

The tests of wealth are :

a. It must be a material thing.

b. It must be " secured, combined, separated, or otherwise modified so as to be capable of exchange value, i. e. y capable of satisfying human desire;" and

c. A negative test of wealth is : Its destruction must lessen the sum of human wealth.

With what astonishment, if not chagrin, then,

do we read Mr. George as he goes on :

"If the articles of actual wealth, existing at a given time in a given community, were presented in situ to a dozen intelligent men who had never read a line of political economy, it is doubtful if they would differ in respect to a single item, as to whether it should be accounted capital or not. ' Money which its owner holds for use in his business or in speculation would be accounted capital ; ' money set aside for household or personal expenses would not. That part of a farmer's crop held for sale or for seed, or to feed his help in part payment of wages, would be accounted capital ; that held for the use of his own family would not be. The horses and carriages of a hackman would be classed as capital, but an equipage kept for the pleasure of its owner would not. So, no one would think of counting as capital the false hair on the head of a woman, the cigar in the mouth of a smoker, or the toy with which a child is playing ; but the stock of a hair dealer, of a tobacconist, or the keeper of a toy store would be unhesitatingly set down as capital. A coat which a tailor has made for sale would be accounted as capital, but not the coat he had made for himself. Food in the possession of a hotel keeper, or a restauranter, would be accounted capital, but not the food in the pantry of a housewife, or in the lunch basket of a workman."

Money wealth, indeed ! When and where did Mr. George discover that money was wealth ? If the reader will turn just ten pages over in " Progress and Poverty" he will find Mr. George declares that one of the " fruitful sources of economic error is the confounding wealth with money;" and here we find him drop into this very common source of economic error as readily as all his predecessors.

For has he not told us, and told us truly, that capital must be wealth. Here he says, money is capital, hence wealth. There he says, and says truly, that it is an economic error to call money wealth.

Mr. George might be forgiven for falling into this " common source" of error, of classing money as wealth, but when he goes further and falls into the exceedingly vulgar error of calling money capital, i. e. s " wealth devoted to production," one is lost in astonishment at the ease with which the brightest minds are obscured.

No writer of any eminence, which it has been my privilege to read, anywhere, or in any place, defines money as " devoted to production," under any circumstances. Adam Smith says "that part of a man's stock which he expects to afford him a revenue he calls his capital." Under this he classes money as capital, but he is very careful to point out and emphasize the fact that it is not production. He says, book ii., chapter i. : " Money is neither a material to work upon nor a tool to work with. * * That part of his capital which a dealer is obliged to keep by him unemployed, in ready money, for answering occasional demand, is so much dead stock, which, so long as it remains in this situation, produces nothing either to himself or his country. * * The gold and silver money which circulates in any country and by means of which the produce of its land and labor is annually circulated and distributed to the proper consumer, is, in the same manner as the ready money of the dealer, all 'dead stock.' It is a very valuable part of the capital of the country which produces nothing to the country." And, speaking of the revenues of a country, he furthermore says and demonstrates that money forms no part of the revenues of any country, and although an invaluable part of the stock, or, as he expresses it, the " Great wheel of circulation, the great instrument of commerce, * * is the only part of the circulating capital of a society of which the maintenance can occasion any diminution of their net revenue/' Not only not productive, but a positive tax upon the revenues of society.