A History of Economic Doctrines / from the time of the physiocrats to the present day

by Charles Gide; Charles Rist

CHAPTER II: THE THEORY OF RENT AND ITS APPLICATIONS

The revival of interest in Classical theories, of which mention was made in the last chapter, cannot be passed over without a special reference to the theory of rent. The theory of rent has always held a prominent place in economic science, especially during the earlier years of the nineteenth century, and the recent developments it has undergone are significant equally from a theoretical as from a practical standpoint.

Theoretically it has been shown that the concept rent, which for a long time was supposed to be indissolubly bound up with a particular economic phenomenon, namely, the revenue of landed proprietors, is capable of several applications and extensions, some of which might throw considerable light into more than one obscure corner of the economic world. Particularly does it seem applicable to a kind of revenue of which we hardly heard mention until recently—that is, the profits of the entrepreneur as distinct from the interest of the capitalist.

Practically also it is very important. Rent is “unearned increment” par excellence. In other words, it is a revenue for which the receiver has ostensibly done nothing. One can well imagine what fruitful ground for socialistic theories this must be! And, as a matter of fact, all systems of land nationalisation or of socialisation of rent—and they are by no means few in number—trace descent from the old Ricardian theory.

What we propose to do in this chapter is to examine the doctrine of rent in its twofold aspect, inquiring in the first place what developments it has recently undergone as a scientific theory, and, secondly, how it is proposed to apply this theory with a view to reforming society. The chief aim in view is, of course, to glean some knowledge of recent theories, but to do this we shall often find ourselves obliged to follow the stream backward towards its source in Mill or Ricardo, for in many cases it is the only way of appreciating the development of ideas.

I: THE THEORETICAL EXTENSION OF THE CONCEPT RENT

In a former chapter we were led to investigate the utterly futile attempts made both by Carey and Bastiat to undermine the Ricardian theory of rent. Open to criticism the theory certainly is, but in their anxiety to do away with it altogether these critics were led to deny that the land had any value at all.

But this denial has been refuted in no equivocal fashion by the emergence of what is perhaps the most striking phenomenon in nineteenth-century history, namely, the fabulous prices paid for land in the neighbourhood of large cities. The last century was pre-eminently the century of big towns. No other epoch in history can point to such growth of urban centres. England, America, Germany, and to a lesser degree France, have all had a share in this development. One result of this rapid agglomeration of population in restricted areas has been a wonderful growth of rents, or unearned increment. A quarter of an acre of land in the city of Chicago which was bought in 1830 for $20, at a time when the population was only fifty, and which in 1836 was sold for $25,000, was valued at $1,250,000 at the time of the International Exhibition in 1894. It has been calculated that the increase in ground-rents in London between 1870 and 1895 is represented by no less a sum than £7,000,000. Hyde Park, bought by the City of London in 1652 for £17,000, is to-day valued at about £8,000,000. M. d’Avenel states that in Paris a piece of land belonging to the Hôtel Dieu which was valued at 6 fr. 40 c. a square metre in 1775 is worth 1000 fr. to-day,[1148] and M. Leroy-Beaulieu mentions a piece of land in the neighbourhood of the Arc de Triomphe which between 1881 and 1904, i.e. in twenty-three years, has doubled its value and is now selling at 800 fr. a metre as compared with 400 fr. formerly.[1149] We have merely quoted a few isolated examples, but they may be regarded as typical.

Carey and Bastiat have not made many converts, evidently. The majority of economists have either accepted Ricardo’s theory or, having been induced to examine his position thoroughly, have been led to develop it, but none of them has denied the reality of the income derived from land. Hence the very curious twofold evolution which the theory presents.

On the one hand there has been discovered a whole series of differential revenues analogous to the rent of land, which, according to the expression of a great contemporary economist, “is not a thing by itself, but the leading species of a large genus.”[1150] On the other hand (and this second line of development is perhaps more curious than the first), while Ricardo considered that the rent of land was an economic anomaly resulting from special circumstances, such as the unequal fertility of the land or the law of diminishing returns, modern theorists regard it simply as the normal result of the regular operation of the laws of value. The rent of land and similar phenomena seem to fit in with the general theory of prices, and the theory of rent so laboriously constructed by the Classical school falls into the background as being comparatively useless. Despite its prestige throughout the nineteenth century, in a few more years it will be regarded as a mere historical curiosity.

This double evolution is the result of simultaneous efforts on the part of a great number of economists. It is almost impossible to trace a regular sequence of advances from one to the other, and we shall content ourselves with a mere mention of the names of those who have contributed most to it, their actual words being quoted whenever possible.[1151]

(a) In the first place, we have a number of differential revenues which are exactly analogous to the rent of land. Equal quantities, or, as the English economists prefer to put it, equal doses of capital and labour applied to different lands yield different revenues: such was the classic statement of the law of rent. Ricardo attributed the existence of rent to the presence of particular phenomena appertaining only to land, such as diminishing returns, unequal fertility, greater or lesser distance from a market. But it has long been realised that agriculture is by no means the only domain in which capital and labour yield unequal returns.

All natural sources of wealth—mines, salt-works, and fisheries—give rise to exactly similar phenomena. Their productivity is not identical, their fertility (if the term is permissible) presents the same differences and their position relative to a market the same variety as in the case of cultivated lands. Consequently every mine, every salt-work and fishery that is not on the margin of cultivation yields a differential revenue or rent because of its greater productivity or more convenient situation. Ricardo had recognised this in the case of mines, and Stuart Mill insisted upon its farther extension.[1152]

Further, land is not employed for tilth only; it is also frequently used for building purposes. The services which it renders in this connection are not less important than the others, and between different sites there are as many distinctions as there are between the various grades of cultivated lands. Their commercial productivity, if we may so put it, is by no means uniform. “The ground-rent of a house in a small village is but a little higher than the rent of a similar patch of ground in the open fields, but that of a shop in Cheapside will exceed this by the whole amount at which people estimate the superior facilities of money-making in the more crowded place. In this way the value of these sites is governed by the ordinary principles of rent.”[1153]

But why even confine attention to land and its uses? Degrees of productivity and differences of returns are equally evident in the case of capital. The machinery in one shop may be better, the organisation more efficient, division of labour more fully developed than in another because of the relatively greater abundance of capital, with the result that the production in the one case will exceed the production in the other, resulting in a supplementary gain in the case of the first shop.[1154] Similarly, the production of one worker as compared with another is frequently unequal. One man without any greater effort may get through more work than another, and the earnings of that man will exceed those of the other, so that even a workman may enjoy a supplementary gain of the nature of a differential rent. And not among workmen only do aptitudes differ, but also among entrepreneurs. Rent of ability plays an important rôle in determining the different degrees of success experienced by different undertakings and the unequal revenues which they yield. “The extra gains which any producer or dealer obtains through superior talents for business or superior business arrangements are very much of a similar kind.” That is how Mill[1155] expressed it, content merely to repeat an idea which Senior had expressed in his Political Economy as early as the year 1836, where he applies the term “rent” to “all peculiar advantages of extraordinary qualities of body and mind.”[1156]

The simple suggestion thrown out by Mill and Senior has long since been developed into a full-blown theory by Francis Walker, the American economist. The conception of profits as the remuneration of the entrepreneur’s exceptional skill is examined in his Treatise on Political Economy, and is further treated in considerable detail in the Quarterly Journal of Economics for April 1887.[1157]

We have already commented upon the optimistic tendencies of certain American economists. Carey was a case in point; so is Walker. In a work entitled The Wages Question, published in 1876, Walker made a successful attack upon that most pessimistic of theories, the wages fund, and forced economists to recognise that to some extent at any rate the wages depended upon the productivity of the undertaking. But to show the possibility of wages growing with the increased productivity of industry was hardly enough to satisfy sensitive consciences. Walker was particularly anxious to foil the socialists by showing that profit is not the outcome of exploitation, and it was with a view to such demonstration that the doctrine of rent was so greedily seized upon.

By the term “profit” Walker understands the special remuneration of the entrepreneur,[1158] omitting any interest which he may draw as the possessor of capital. This distinguishes him from the majority of English economists, who, contrary to Continental practice, have always persisted in confusing the functions of the entrepreneur and the capitalist. Neither is he content to regard his work as confined to simple business arrangement and superintendence, which would result in his being paid a salary equal to that of a managing director. His work is altogether of a more dignified character, and consists largely in anticipating the fluctuations of the market and in organising production to meet them—in a word, in adapting supply to demand. The entrepreneur is the true leader of economic progress—a real “captain of industry.”[1159]

All this implies, says Walker, differences in industrial revenues exactly analogous to the differences in agricultural incomes. Some industries yield no profit at all beyond remunerating capital and labour at the normal rate and leaving enough for the entrepreneur to prevent his abandoning the undertaking altogether. Other industries yield a little more, and by imperceptible gradations we pass from such mediocre undertakings to more prosperous ones, and finally reach those that yield immense profits. The question then arises as to whether such abnormal profits in any way represent wages that have been withheld from the workers. This is not at all likely, because wages are often highest where profits are greatest. Cæteris paribus, the probability is that the greater profit in the one industry as compared with another implies the greater capacity of the entrepreneur in the one case than in the other. The superior income is a pure surplus like the rent of land. “Under free and full competition,” says Walker, “the successful employers of labour would earn a remuneration which would be exactly measured, in the case of each man, by the amount of wealth which he could produce, with a given application of labour and capital, over and above what would be produced by employers of the lowest industrial, or no-profits, grade, making use of the same amounts of labour and capital, just as rent measures the surplus of the produce of the better lands over and above what would be produced by the same application of labour and capital to the least productive lands which contribute to the supply of the market, lands which themselves bear no rent.”[1160]

Walker’s theory contains a good deal of truth, although it is not, perhaps, quite as new as he thought it was. The opinions of Mill and Senior have already been referred to, and more than one Continental economist, from J. B. Say to Mangoldt, and including Hermann,[1161] have propounded similar views. Nor has the doctrine ever been completely triumphant in economic circles. Most contemporary writers, no doubt, regard profit as a kind of rent, due partly, but only partly, to the personal ability of the entrepreneur.[1162] Other economists—such as Marshall,[1163] for example—think that they can trace some other elements as well, such as insurance against risk and payment for the necessary expenses of training the entrepreneur.[1164] Walras, on the other hand, omits these last two items and points out that under static conditions the entrepreneur would neither gain nor lose. The sole source of profit, then, are those “dynamic” rents which are the result, so to speak, of the perpetual displacements of equilibrium in a progressive society. But these dynamic rents are extremely varied in character and bear no relation to the personal qualities of the entrepreneur.

Clark[1165] and others, although subscribing to Walras’s dictum that profits are really composed of rents, think that there may be static as well as dynamic rents and that Walras’s hypothesis of a uniform net cost for all undertakings is altogether too abstract. Only in the case of the marginal producer, whose expenses are highest, is there anything like equilibrium between costs and price. The other producers even when there is no such thing as a temporary displacement of equilibrium, are able to make substantial incomes out of the various species of differential rents already mentioned—proximity to market, better machinery, greater capital, etc. Marshall speaks of such incomes as composite rent.[1166]

Walker’s theory has evidently not been accepted without considerable reservations. And we need only remind ourselves of the way in which dividends are usually distributed among shareholders to realise the inadequacy of his conception of rent and the exaggerated nature of his attempted justification. Would anyone suggest, for example, that such dividends are merely the result of exceptional ability?[1167]

This attempted explanation of profit affords, perhaps, the most interesting illustration of the extension of the concept rent, although it is by no means the only one. The Ricardian theory, worked out to its logical conclusion, reveals the interesting fact that there are as many kinds of rents as there are different situations in the economic world. Whenever it becomes necessary to unravel the mystery surrounding individual inequalities of income recourse is had to a generalised theory of rent. “All advantages, in fact, which one competitor has over another, whether natural or acquired,[1168] whether personal or the result of social arrangements … assimilate the possessor of the advantage to a receiver of rent.”[1169] Something of the variety of concrete life is thus reintroduced into the Classical theory of distribution, although all this was at first rigidly excluded by the doctrine of equality of interest and uniformity of wages.[1170] The theory of rent is an indispensable complement of the Classical theory of distribution, giving the whole thing a much more realistic aspect. It is, as it were, the keystone of the whole structure.

(b) But the theory has also undergone another species of transformation. Ricardo conceived of rent as essentially a differential revenue arising out of the differences in the fertility of soils.[1171] Were all lands equally fertile there would be no rent. The same remark applies to the various species of rent discovered since then. There is always some inherent difference which explains the emergence of rent, such as the greater suitability of a building site, the greater vigour of the worker, or the superior intelligence of the entrepreneur. They are all of a type. Entrepreneurs who produce the same article, workmen toiling at the same trade, capitals employed in the same kind of undertaking, may be grouped in an order of diminishing productivity, much as Ricardo grouped the various species of lands. The last entrepreneur of the series, the last worker, or the last item of capital each earns just enough to keep them at that kind of employment. All the others produce more, and, seeing that they all sell their goods or services at the same price, they draw a rent which is greater than the income enjoyed by the others by the difference between their productivity and that of the last of the series. The whole economic world seems to be under the dominion of a kind of law of unequal fertility, not of lands merely, but of capital and individual capacity as well—a law which is sufficiently general in its application to explain all inequalities in the revenues of the different factors of production.

We cannot help feeling the artificiality of this conception and wondering whether the differences in revenues are not capable of explanation upon the basis of a simpler and more general principle. Is it impossible to take account of them directly and to treat them as something other than an exception or an anomaly? One cannot avoid asking such questions, and the reply is not far to seek.

Doubts arise as soon as we realise that land may yield rent apart from any inequality in its fertility. “If the whole land of a country were required for cultivation, all of it might yield a rent,” says Stuart Mill.[1172] Apparently all that is needed is an intense demand and a supply that is never equal to that demand, so that the price is permanently above the cost of production.[1173] In such a case even the worst land—assuming that all is not of equal fertility—would yield a rent. Mill was of opinion that this rarely happened in the case of land, but was by no means uncommon in the case of mines.[1174] Obviously, then, rent is not merely the outcome of unequal fertility, and the cause must be sought elsewhere. Stuart Mill had obviously foreseen this when he said that “a thing which is limited in quantity is still a monopolised article.”[1175]

But if such be the explanation of rent on land which is the last to be put under cultivation, what is the explanation in the case of better lands? We are not sure that Stuart Mill foresaw this problem.

This is how he explains the emergence of rent on land No. 1. Production having become insufficient to meet demand, prices go up; but it is only when they have reached a certain level—a level, that is to say, sufficiently high to secure a normal return on the capital and labour employed—that these lands will be brought under cultivation.[1176]

The cause of rent in this case is obviously the growth of demand and not the cultivation of land No. 2, because the cultivation only took place when the prices had risen.[1177] Moreover, the effect of this cultivation will be rather to check than to encourage the growth of rent by arresting this upward trend of prices through increasing the quantity of corn on the market. The rent of land No. 1 is consequently a scarcity rent which results directly from an increased demand and is independent of the quality of the land. The real cause of rent on all lands, whether good or bad, is really the same, namely, the insufficiency of supply to meet demand.

A similar process of reasoning might be applied to the other differential rents already mentioned, and the conclusion arrived at is that rent, whatever form it take, is not an anomaly, but a perfectly normal consequence of the general laws of value. Whenever any commodity, from whatever cause, acquires scarcity value and its price exceeds its cost of production, there results a rent for the seller of that product. Such is the general formula, and therein we have a law that is quite independent of the law of diminishing returns and of the unequal fertility of land.[1178]

But the issue was not decided at a single stroke. English political economy is so thoroughly impregnated with Ricardian ideas that it still adheres to the conception of a differential rent. Continental economists, on the other hand, have always regarded it as a more or less natural result of the laws of demand and supply. J. B. Say had long since made the suggestion that the existence of rent is due to the needs of society and the prices which it can afford to pay for its corn.[1179] A German economist of the name of Hermann, a professor at Munich, in his original and suggestive work, Staatswirtschaftliche Untersuchungen, published in 1832, claims that the rent of land is simply a species of the income of fixed capital. Whereas circulating capital, because of its superior mobility, has almost always a uniform rate of interest, fixed capital, which has not that mobility and which cannot be increased with the same facility, has a revenue which is generally greater than that of circulating capital. This surplus revenue or rent, instead of being a mere transitory phenomenon, might easily become permanent provided the new fixed capital which enters into competition with it has a lesser degree of productivity. Such precisely is the case with land.[1180] A little later another German of the name of Mangoldt defined rent as a scarcity price which does not benefit all the factors of production equally, but only those which cannot be readily increased in amount. And rent appears in the guise of a differential revenue simply because scarcity is always relative and is frequently kept in check by substitutes which generally give a smaller margin of profit.[1181] Schäffle, in a work partly devoted to the subject of rent,[1182] published in 1867, insists on the idea that the soil furnishes rent not because it is a gift of nature, but simply because of its immobility and the impossibility either of removing it or of increasing its quantity. Finally, Karl Menger, in his Grundsätze der Volkswirtschaftslehre, published in 1872, in outlining the foundations of the modern doctrine of value, assimilated the theory of rent to the general theory of prices by categorically declaring that “the products of land as far as the nature of their value is concerned afford no exception to the general rule, which applies to the value of the services of a machine or a tool, of a house or a factory, or any other economic good.”[1183]

The only difference, apparently, which recent economists recognise between rents conceived of in this fashion is their greater or lesser duration. The rent furnished by a first-class machine will disappear very readily because new machines can be turned out to compete with it. But when the rent is due to superior natural qualities, whether of land or of men, the element of rent will not be so easily got rid of. To borrow a phrase of Pareto’s, we may say that the rent will be of a more or less permanent character, according to the ease with which savings can be transformed into capital of a more or less durable kind.[1184] Dr. Marshall sums up his subtle analysis of the problem under consideration as follows: “In passing from the free gifts of nature through the more permanent improvements in the soil, to less permanent improvements, to farm and factory buildings, to steam-engines, etc., and finally to the less durable and less slowly made implements we find a continuous series [of rents].”[1185]

The series, we might add, may be extended to a point at which rent becomes negative, i.e. until the conditions of demand and supply become such that the factor of production which previously yielded a supplementary revenue no longer gives even the normal rate of remuneration. Thünen had suggested the possibility of a negative rent, and the idea has been further developed by Pareto.

These modern writers seem to regard rent simply as a result of the ordinary operation of the laws of supply and demand. The concept rent has been generalised so that it can no longer be regarded as a curiosity or an anomaly. The law of diminishing returns loses much of its economic importance, and even the Ricardian theory which is based upon it seems imperilled. After the numerous polemics to which it has given rise, it seems as if this theory, along with the Classical theory of value, were about to be relegated to the class of doctrines in which the historian is still interested but which are apparently of little practical value.[1186]

II: UNEARNED INCREMENT AND THE PROPOSAL TO CONFISCATE RENT BY MEANS OF TAXATION

It does not appear that Ricardo fully realised the damaging consequences which would ensue if the doctrine of rent ever happened to be made the basis of an attack upon the institution of private property. He was quite satisfied with the inference which he had drawn from it in support of the free importation of corn, and did not feel called upon to defend the rent of land any more than the interest of capital, both of which seemed inseparable from a conception of private property.

Other writers proved more exacting. Despite the numerous exceptions met with in actual life, the feeling that all forms of revenue ought to be justified by some kind of personal effort on the part of the beneficiary is fairly deeply rooted in our moral nature. But according to the Ricardian theory the rent of land is a kind of income got without corresponding toil—a reward without merit, and as such it is unjust. Such seems to be the logical conclusion of the Ricardian thesis.

The conclusion thus established is further confirmed by the natural feeling that not only is rent unjust, but the whole institution of private property as well. This feeling is one which all of us share (except those fortunate individuals who happen to be landlords, perhaps!), and is, of course, much older than any doctrine of rent. Movable property is generally the personal creation of man, the result of the toil or the product of the savings, if not of the present possessor, at least of a former one. But land is a gift of nature, a bountiful creation of Providence placed at the disposal of everyone without distinction of wealth or of station. Proudhon’s celebrated dictum is known to most people: “Who made the land? God. Get thee hence, then, proprietor.”[1187] That line of argument is really very old, and Ricardo unwittingly gave it new strength.

The idea of a natural right to the land and of a common interest in it is the instinctive possession of every nation. But in England the feeling seems more general than elsewhere, because, possibly, of the number of large proprietors and of the serious abuses to which the system has given rise. It seems rooted in the legal traditions of the nations. “No absolute ownership of land,” writes Sir Frederick Pollock, “is recognised by our law-books except in the Crown. All lands are supposed to be held, immediately or mediately, of the Crown, though no rent or services may be payable, and no grant from the Crown on record.”[1188] Even as far back as the seventeenth century, Locke, in his work On Civil Government, had ventured to declare that God had given the land as common property to the children of men.

As one approaches the end of the eighteenth century the demands that all lands unlawfully taken from the public should be again restored to it become much more frequent. Sometimes the demand is put forward by otherwise obscure writers, but occasionally it finds support in distinguished and influential quarters. In 1775 a Newcastle schoolmaster of the name of Thomas Spence, in the course of a lecture given before the Philosophical Society of that town, proposed that the parishes should again seize hold of the land within their own area. Thereupon he was obliged to flee to London, where he carried on an active propaganda in support of these ideas, achieving a certain measure of success. In 1781 a distinguished professor of the University of Aberdeen of the name of Ogilvie published an anonymous essay on the rights of landed proprietorship, wherein confiscation was proposed by taxing the whole of the value of the soil which was not due to improvements effected by proprietors. But little notice was taken of his suggestions, despite the fact that they had won the approval of Reid the philosopher. Tom Paine, in a pamphlet published in 1797, gave expression to similar ideas,[1189] and the same views were put forward in a book published in 1850 by a certain Patrick Edward Dove.[1190] The following year Herbert Spencer, in his book Social Statics, claimed that the State in taking back the land would be “acting in the interests of the highest type of civilisation” and in perfect conformity with the moral law. It is true that in a subsequent work he took pains to point out that all that can be claimed for the community is the surface of the country in its original unsubdued state. “To all that value given to it by clearing, making up, prolonged culture, fencing, draining, making roads, farm buildings, etc., constituting nearly all its value, the community has no claim.”[1191] But despite this reservation the justice of the general principle is clearly recognised by him.

Other communities besides England have put forward a similar demand. Not to mention the claims made by socialists like Proudhon and the Belgian Baron Colins, and Christian Socialists like François Huet, we find that a similar method of procedure is advocated by philosophers like Renouvier, Fouillée, and Secrétan. Some of them even go the length of claiming compensation for the loss which this usurpation has involved to the present generation.

Thus, a conception that was already ancient even when the law of rent was first formulated proclaimed the inalienable right of man to the soil and demanded the re-establishment of that right. We shall hear an echo of that ancient belief in all the advocates of land nationalisation, in Stuart Mill, Wallace, Henry George, and Walras;[1192] and this is one of the many links that bind them to those earlier writers. Gossen is a solitary exception.

But a simple pronouncement on the illegality of property does not take us very far. Appropriation of public property for private purposes is undoubtedly a great injustice, but the transaction is so old that retribution would serve little useful purpose, and the authors, were they still alive, would be safely ensconced behind their prescriptive rights. Moreover, most of the present proprietors, possibly all of them, cannot be accused of violent theft. They have acquired their land in a perfectly regular fashion, giving of their toil or their savings in exchange for it. To them it is merely an instrument of production, and their possession of it as legally justifiable as the ownership of a machine or any other form of capital. To take it away from them without some indemnity would not be to repair the old injustice, but to create a new one. Hence it is that the doctrine of the right of the community to the land had little more than philosophic interest until such time as it begot a new theory—the theory of rent.

What the Ricardian theory really proves is the accumulative nature of the benefits accruing from the possession of land. This spontaneous, automatic character of rent makes it unique: to no other form of revenue does it belong. The extension of cultivation, the increase of population, the growing demand for commodities, means an indefinite progression in the value of land. The interest, initiative, and intelligence of the proprietor are of no account. Everything depends upon the development of the social environment. This value which is created by the community should also belong to it. Just as the landed proprietors in times past filched the land, so they to-day absorb this income. But why allow this injustice to continue?

“Suppose,” says Stuart Mill, “that there is a kind of income which constantly tends to increase without any exertion or sacrifice on the part of the owners, these owners constituting a class in the community whom the natural course of things progressively enriches consistently with complete passiveness on their own part. In such a case it would be no violation of the principles on which private property is founded if the State should appropriate this increase of wealth, or part of it, as it arises. This would not properly be taking anything from anybody; it would merely be applying an accession of wealth created by circumstances to the benefit of society, instead of allowing it to become an unearned appendage to the riches of a particular class. Now this is actually the case with rent.”[1193] The argument seems quite decisive. At any rate, Ricardo’s book was hardly out of the press before the demand for confiscation was renewed.

His friend James Mill, writing in 1821, claimed that the State could legitimately appropriate to itself not only the present rent of land, but also all future increments of the same, with a view to compensating for public expenditure.[1194] The Saint-Simonians, a little later, expressed a similar view.[1195] But it was James Mill’s son, John Stuart Mill, who showed the warmest attachment to this idea. The Principles contains a general outline of his reform plan, which took a still more definite shape in the programme of the Land Tenure Reform Association, founded in 1870, and in the discussions and explanations which accompanied it.[1196]

The following are the essential points: (1) The State will only appropriate for its own use the future rents of land; that is, the rents paid after the proposed reform has been accomplished. (2) A practical beginning will be made by valuing the whole of the land, and a periodical revaluation will be made with a view to determining the increase in its value, and whether such increase is or is not the result of communal activity. A general tax would transfer this benefit to the State.[1197] (3) Should any proprietor consider himself unfairly treated the State would give him the option of paying the new tax or of buying back the property at the price obtainable for it had he determined to sell just when the reform was being brought in.

Mill was opposed to immediate nationalisation. Not that he thought it unjust; on the contrary, he was fully convinced of its equity. But our experience of State administration and of the work of municipal bodies did not seem to him to warrant any great faith in the utility of any such measure. He was afraid that “many years would elapse before the revenue realised for the State would be sufficient to pay the indemnity which would be justly claimed by the dispossessed proprietors.”[1198]

Nor did he attempt to disguise the fact that the financial results would in his opinion be somewhat insignificant and the scope of the reform naturally somewhat limited. A few years only were to elapse before another writer proposed a much more radical measure which was to effect a veritable social revolution. It was a project to abolish poverty and to secure distributive justice that Henry George now launched on the strength of his belief in the doctrine of rent.

Henry George (1839-1897) was not a professional economist. He was a self-made, self-taught man who followed a variety of occupations before he finally blossomed forth as a publicist. At the age of sixteen he went to sea, and led a roving life until 1861, when he settled down at San Francisco as a compositor, finally becoming editor of a daily paper in that city. He witnessed the rapid expansion of San Francisco and the development of the surrounding districts as the result of the great influx of gold-diggers. He also saw something of the agricultural exploitation of the western States. The enormous increase in the value of land and the fever of speculation which resulted from this naturally left a lasting impression upon him. Progress and Poverty (1879), the book which established his fame, is wholly inspired by these ideas.[1199]

The book aroused the greatest enthusiasm. It has all the liveliness of journalism and the eloquence of oratory, but has neither the precision nor the finality of a work of science. Its economic heresies, though obvious enough, detracted nothing from its powerful appeal, and the wonderful setting in which the whole problem of poverty was placed has not been without its effect even upon economists;[1200] nor is the powerful agitation to which the book gave rise by any means extinct.

It seemed to Henry George that landed proprietors, in virtue of the monopoly which they possess, absorb not merely a part but almost the whole of the benefits which accrue from the increase of population and the perfection of machinery. The progress of civilisation seems helpless to narrow the breach separating the rich from the poor. While rents go up interest goes down and wages fall to a minimum. Every country presents the same phenomena—extreme poverty at one end of the scale accompanied by extravagant luxury at the other.

Is this unhappy result a kind of hybrid begotten of the Malthusian law and the law of diminishing returns? Must we, after all, agree with Malthus, Ricardo, and Mill when they say that the cause is to be sought in the increase of population outrunning the means of subsistence? Henry George thinks not, for experience everywhere seems to show that the rich are growing in numbers much more rapidly than the growth of population warrants, and that organisation is really performing wonderful feats under very difficult conditions.[1201]

Is it caused by the exploitation of labour by capital, as the socialists seem to think? George apparently thinks not, for the two factors, capital and labour, seem to him so intimately connected that both of them are easily exploited by the landowners. Every man, he thinks, could devote his energies either to the production of capital or to supplying labour—capital and labour being merely different manifestations of the same force, human effort. The benefits resulting from the formation of capital on the one hand and from the exercise of labour on the other tend to be equal, and any inequality is immediately counteracted by a larger production of one or other of these two factors, with the result that equilibrium is soon re-established. The rate of interest and the rate of wages can never vary inversely.[1202]

But if we can neither accuse over-population nor lay the blame at the door of exploitation, how are we to account for the fact that the labourer is still so miserably paid? It is entirely, he thinks, the result of rent. Hitherto exceedingly severe in his handling of some Ricardian theories, George has no hesitation in pushing the doctrine of rent to its extreme limits.

He points out that owing to the existence of competition between capital and labour the rates of interest and wages are determined by the yield of that capital and labour when applied to land on the margin of cultivation—that is, to land that yields no surplus or rent. And in virtue of the natural monopoly which landowners possess they can exact for the use of other lands any amount they like beyond this minimum. The result is that rent goes on gradually increasing as the limits of cultivation extend. As population grows and needs become more extensive and varied, as technical processes become more perfect and labour becomes less and less necessary, new lands are brought under cultivation, such lands being generally of an inferior character. The result is that the lands which were previously cultivated will always yield a rent to the proprietor. Thus the progress of civilisation, whatever form it take, always tends to the same result—a higher rent for the benefit of the landed proprietor.[1203]

“Here is a little village; in ten years it will be a great city—in ten years the railroad will have taken the place of the stage-coach, the electric light of the candle; it will abound with all the machinery and improvements that so enormously multiply the effective power of labour. Will, in ten years, interest be any higher?” He will tell you “No!” “Will the wages of common labour be any higher?” He will tell you “No!” “What, then, will be higher?” “Rent: the value of land. Go, get yourself a piece of ground, and hold possession.… You may sit down and smoke your pipe; you may lie around like the lazzaroni of Naples or the lepers of Mexico; you may go up in a balloon or down a hole in the ground; and without doing one stroke of work, without adding one iota to the wealth of the community, in ten years you will be rich! In the new city you may have a luxurious mansion; but among its public buildings will be an almshouse.”[1204]

Accordingly Henry George regards rent not so much as a species of revenue which, as Stuart Mill saw, is particularly easy to absorb by means of taxation, but as the very source of all evil. Once get rid of rent, poverty will be banished, inequality of wealth will be removed, and economic crises—which George thought were the result of speculation in land—will no longer disturb the serenity of commercial life. But it is hardly enough to aim at the future increments of rent, for the damning consequences of privilege would still remain if landowners were allowed to retain even their present rents. The whole abomination must be taxed out of existence.[1205] Such a tax would yield sufficient to defray all State expenditure, and other forms of taxation could then be dispensed with. In the single tax advocated by Henry George we have a curious revival of the Physiocrats’ impôt unique.

George’s system is open to serious criticism both from the economic and from the ethical standpoint. From the economic point of view it is obvious that the right of private property does confer upon the proprietor the right to such benefit as may accrue from a possible surplus value, but it is not at all clear—nor has George succeeded in proving it—that such a right absorbs the whole benefit which accrues from social progress. Besides, it seems rather childish to think that rent is the sole cause of poverty and that its confiscation would result in the removal of the evils of poverty.

From the point of view of equity it seems clear that George in removing one injustice is at the same time creating another. To rob the present proprietors of the rents which they draw is simply to deprive them of advantages which many of them have acquired either by means of labour or economy. Land is no longer acquired merely by occupation: the usual way of getting hold of it to-day is to buy it. And if we consider that such a transaction is just, we are bound to recognise the legitimacy of rent just as much as the interest of capital. Confiscation might be justified in the case of those who first unlawfully occupied the land. But how many of them are left now?

Further, if we are going to relieve the landowner of the rent which results from the progress of civilisation, we ought to indemnify him for any “decrement” which may have resulted through no error of his. Stuart Mill anticipated this objection[1206] and gave the dissatisfied proprietor the option of selling his land at a price equal to its market value at the time when the reform was inaugurated.[1207] Henry George apparently never faced this aspect of the question. He thought that “decrement” would be very exceptional indeed, and that the persistence of increment values is as thoroughly established as any law in the physical world ever was.

Mill’s system, though much more moderate than George’s, is by no means beyond reproach. The common element in both systems—i.e. the emphasis laid upon unearned increments—has been criticised both by socialists and economists.

The socialists point out that if the object is to get rid of unearned incomes the interest of capital as well as the rent of land ought to be confiscated. While agreeing with the object, they claim that they are more logical in demanding the extinction of both kinds. But this criticism is not quite a complete answer to Mill and his supporters, for the latter regarded interest as the legitimate remuneration, if not of the labour, at least of the abstinence of the capitalist. Interest is the remuneration of sacrifice.[1208] But the socialists are not convinced. They cannot see how the negative effort of the capitalist is to be compared with the positive effort of the labourer, and they have not been sparing in their denunciation of Mill and his followers.

The economists adopt a different line of criticism. The argument is that the rent of land is illegal because the progress of society has contributed more to it than the work of the proprietor. But is there any kind of revenue which is altogether free from such criticism? Every kind of revenue contains some elements that are essentially social in character; that is, elements that depend entirely upon the demands of society. The growth of social demand often brings to capital as well as to land, to labour as well as to capital, quite unexpected and occasionally extravagant incomes. Has not political economy in the course of its development been forced to recognise the existence of a whole series of rents differing from the rent of land merely in respect of their shorter duration? Was the fortune of the celebrated hunchback of Quincampoix Street, who lived in the glorious days of Law’s system, in any way different from the fortune of the Duke of Westminster, who owns large areas of the city of London? Or is the surplus value conferred upon old capital by a mere fall in the rate of interest in any respect different from the surplus value acquired by land under the pressure of growing population? The most striking thing, apparently, about unearned increment is its ubiquity. Society, presumably, does not distribute its revenues in the way a schoolmaster rewards the most painstaking or the most meritorious pupil. It puts a premium upon the services that are rarest, but never inquires whether they involved any greater amount of sacrifice. Such premiums simply denote the intensity of its own demands. What right have we to isolate one of these and demand that it and it alone shall be confiscated?

Stuart Mill has given the only reply that is possible by showing that none of the other rents has either the persistence or the generality of the rent of land.[1209] That reply seems clear enough to justify at least a partial application of the systems of Henry George and Stuart Mill.

About the year 1880 several leagues were founded in England, America, and Australia with a view to propagating what George’s followers call his “sublime truths.” During the last few years they have not been nearly so active, although several attempts have since been made, especially by municipalities, to tax surplus values.[1210] Even as far back as 1807 a law was passed in France requiring riparian owners to pay compensation in cases where their estates bordered upon public works which in any way contributed to the greater value of the property. But the law is very seldom enforced.[1211] In London the principle was recognised as far back as the seventeenth century, but has long since fallen into desuetude.[1212] The idea is again gaining ground very rapidly in England and Germany especially. Numerous projects have been launched with a view to taxing the surplus value of urban lands not used for building purposes, and some of the schemes have been fairly successful. The adoption of this principle was one of the more prominent features of the famous English Budget of 1909, which roused so much opposition and brought the long constitutional struggle between the Liberal Government and the House of Lords to a head. The economists are still divided on the question. The imposition of a Werthzuwachssteuer by certain German municipalities led to a fresh discussion of the topic in a number of reviews and polemical works, but the principle stands enshrined in the German Imperial Act of 1911.

These ideas have never obtained the same hold in France, where property is subdivided to a much greater extent than it is in England, and where rent is accordingly distributed among a greater number of cultivators and naturally raises less opposition. In addition to this, the slow growth of the population in France makes the problem less acute than it is in Germany, where the workers find that an increasing proportion of wages is absorbed in the payment of rent. But the question will demand attention sooner or later, and France, like other countries, will have to look for an answer.

III: SYSTEMS OF LAND NATIONALISATION

The “land-nationalisers,” whose schemes now come under consideration, not content with the taxation of a part of the revenue of the land, demand that the whole of it should again become the property of the State.

Apparently a much more thoroughgoing suggestion than any of the preceding ones, especially Mill’s, in reality it is a much simpler system that is proposed. The advocates of land nationalisation think, with Mill, that the surplus value of the land should be reserved for the State, and, like him, they have great faith in the persistence and continuity of this surplus value. They also agree with him when he puts forward the claim of society to the possession of the soil, but they never suggest that it should be taken from its present owners. They reject the distinction between earned and unearned income and consider that they are both equally legitimate. But, unlike Mill, they never feel that they can say to the landed proprietor, “Thus far and no farther.” Appropriation is advocated simply on the ground of its public utility, and care is taken to hedge it round with all kinds of guarantees. Proprietors are to be indemnified not merely for the loss of income it would immediately involve, but also for the loss of any future revenue upon which they had reckoned. Could anything be simpler or more reasonable?

The practical interest of a system of this kind obviously cannot be very great. Such a fundamental change in the institution of private property, especially in old countries, could only be accomplished by means of a revolution. Revolutions are to be undertaken in no light-hearted fashion, and never without the sanction of absolute necessity. Curiously enough, all the changes made in France, for example, since the Revolution, in Russia since the emancipation of the serfs, and in Ireland during the last hundred years have been in the opposite direction. They have extended rather than contracted the area of private property. Russia at the present moment is engaged in this very task. The prospects of nationalisation are certainly not very rosy. New countries may perhaps prove more favourable grounds for experiment: there the State may possibly show itself more jealous of its rights. But as a matter of fact it is just in those countries that the State is most reckless, the reason undoubtedly being that the abuses of private property have not yet had time to make their influence felt.

The extremely hypothetical character of the schemes now under consideration relieves us of the necessity of examining their organisation in any detail, although this question of the minutiæ is apparently one that strongly appeals to the creative instinct of these Utopians.

Of greater interest are the grounds on which they base their demand and the economic processes by means of which they hope to accomplish their aims. From this point of view the most interesting systems are those of Gossen and Walras. Gossen’s scheme is expounded in a curious volume entitled Entwickelung der Gesetze des menschlichen Verkehrs, and Walras’s is developed in a memorandum addressed by the author to the Vaudoise Society of Natural Sciences in 1880. Both works contain ideas from which the economist may learn a good deal, and both writers claim that the successful adoption of their schemes would enable the State to make an offer of free land to all citizens.

(a) Gossen’s book appeared in 1853.[1213] It is a curious coincidence that the French Bastiat, the American Carey, and the German Gossen should all be engaged in developing an optimistic thesis just about the same time. Of the three, Gossen’s was the most optimistic and by far the most scientific. He concurred in the judgment of the Physiocrats, who believed that the world was providentially subjected to the action of beneficent laws which men must know and obey if they are ever to become happy. Such, he thought, are the laws of enjoyment, or of utility or ophelimity, as we call them to-day. A person who merely follows his own interests finds that unconsciously, perhaps, he has been contributing to the happiness of the whole of society. Gossen gives a remarkably clear proof of the theory of maximum ophelimity, based upon a very ingenious analysis of wants. According to this theory, every individual who pursues the satisfaction of his own desires under a régime of free competition helps in the realisation of the maximum satisfaction by everybody concerned.

If it be true that each individual in pursuit of personal enjoyment unwittingly contributes to the well-being of the whole community, it is clear that everyone ought to be given the utmost possible freedom in the pursuit of his interests. But there are two great obstacles in the way of this. The first of these is want of capital, which Gossen thought could be obviated by creating a huge Government bank which would lend capital whenever required. The mechanism of the bank is described in considerable detail. The second obstacle is the existence of private property in land. If man is to develop all his faculties and to use them to their utmost extent in the production of wealth, he must be allowed to choose his work freely and to carry it on under the most advantageous circumstances possible. But private property hinders free choice. “Thanks to this one fact,” says Gossen, “the obstinacy of a single proprietor often hinders the best development of the land which belongs to him and prevents its utilisation in the fashion that would best meet the needs of production. The necessity for the compulsory purchase of land for industrial purposes, for the making of roads, railways, or for developing mines, affords an indication of the unsatisfactory condition of landholding as it exists at present.”[1214]

It is obviously necessary that the community’s right to the soil should again be restored to it, so that everyone might be free to demand and to obtain the use of as much of it as he required. Every industry could then choose that locality which seemed best fitted for it. The right of using the land might be disposed of by public auction and given to the bidder who offered the highest rent. There would thus be a kind of guarantee that the organisation of production at any one moment was being carried on in the most favourable fashion—relatively, that is to say, to the knowledge possessed by the community at that period.[1215]

(b) Walras’s position is not quite so frankly utilitarian as Gossen’s. It was the analysis of the respective rôles of the individual and the State, of which he gave an exposition in his lectures on La Théorie générale de la Société (1867), that inspired his reform. Following Henry George, he sought a reconciliation of individualism and socialism[1216]—a reconciliation which he variously speaks of under the terms “liberal socialism,” “synthetic socialism,” or simply “syntheticism.”[1217]

It was his opinion that no real opposition existed between the State and the individual, that the one is just the complement of the other. Taken separately, it has been well said that they are nothing better than abstractions; the only real man is the social man—man living in society. This man, as we know, has two kinds of interests—the one personal or individual, and as such opposed to the interests of other beings; the other social or collective, common both to himself and his fellows—and unless these are secured the existence of the race is immediately jeopardised. The two groups of interests are equally important, for they are both equally necessary for the life of the social being. The State and the individual are mere phases in the life of the same being, according as we think of him pursuing the collective interests which he has in common with his fellow-men or his more personal and individual interests. Each has its own sphere of activity definitely marked off from the other by the diverse nature of the respective tasks which they have to perform.

The duty of the State is to secure those general conditions of existence which are necessary for everybody alike. Upon the individual devolves the duty of determining his own personal position in society through perseverance in the exercise of his own capacity in any line of activity which he may himself choose. But if both of them, individual and State alike, are to perform their respective tasks efficiently, they must be supplied with all necessary resources. To the individual should accrue the wealth which results from labour and saving, to the State the revenue which results from general social progress—i.e. the rent of land. Provided for in the manner indicated, there would be no necessity for taking away from the individual a portion of the fruit of his labour by means of taxation. Collective ownership of land and rent, private ownership of capital and labour, together with their incomes—such is the social organisation which Walras thought would solve the problem of distribution: equal conditions, coupled with unequal situations.[1218]

The reforms of Gossen and Walras, starting from a different angle as they do, depend for their realisation upon conditions that are exactly identical. Both of them evince the most scrupulous respect for the prescriptive rights of the present owners; and both agree that the State has no more right to appropriate future rents[1219] upon which these owners rely, in the manner suggested by John Stuart Mill, than it has to confiscate present rents, as Henry George proposed. The only way in which reform can be fairly carried out is to buy back the land, including in the purchase price any surplus values upon which the present proprietors have set their hopes. The most expedient way, perhaps, would be to issue bonds and to offer these to the proprietors in exchange for the land. The rents, which would still be received by the State—for there is no prospect of cessation of growth—would be employed partly in paying interest on the debt and partly in redeeming it; so that at the end of a certain period, say fifty years, the State would have paid back all the capital and it alone would henceforth draw the rents.[1220]

It would have been unnecessary to add anything to the exposition as given by Walras but for the objection which he himself raised to it, and which led him to give a very interesting account of his belief in the permanence of rent.

“If,” says Walras, “the State pays to the proprietors the exact value of their lands, reckoning in that price a sum equal to the estimated value of the future rent, what is it going to gain by the bargain?” If the value of the soil is carefully computed in the manner indicated above, then the interest on the capital borrowed to effect the purchase and the rents received must exactly balance one another, for one is just the price of the other, and the State will find that the rent of land is insufficient to repay the outlay involved. The results will cancel one another. Some inconveniences will doubtless be avoided, but there will be no outstanding advantage. How are we to get rid of this objection?

The difficulty is soon removed, for once the system outlined above is adopted there will be an end to all speculation in land. When individual buyers find that they must pay the owners a price that covers all surplus values which the land may possibly yield in the future, which would mean that they would not get any of that surplus value themselves, they will not be quite so keen. This is not the case, however, at the present time. Speculation of this kind is rife everywhere, for the good reason that a surplus value is always a possible contingency. The more perspicacious or better informed a buyer is, the more firmly does he believe in this advance and the more careful is he to safeguard his future interests. The State, so soon as it has bought back the land, will be in the position of the speculator in question. Walras is of the opinion that the surplus value is certain to grow in future even more rapidly than the actual possessors of the land imagine. Thanks to economic evolution, what the private proprietor can only speculate on the State can rely upon with absolute certainty.[1221]

“I believe, along with several competent economists, that when humanity left the purely agricultural system under which it had lived for thousands of years and entered upon a régime of industry and commerce, under which agriculture is still necessary to feed a growing population, but only possible with the expenditure of a vast amount of capital, it achieved a notable triumph, and the step it then took marks a veritable advance in economic evolution. I also believe that as the result of this evolution rent will continue to grow, but without involving any scarcity or increase in the value of agricultural produce—a fact that has escaped everyone except the wideawake and the well-informed, and by which proprietors alone have profited. I further believe that if the State had bought the land before this evolution had taken place and had then given of its resources to further such development, even the normal growth of this surplus value would have been ample to clear the debt.”[1222]

Walras agrees with Ricardo, and a kind of rehabilitation of the Ricardian thesis drives him to the conclusion that the future must witness a further growth of this surplus value of land—merely because of the limited quantity of land in existence. There is this difference, however. Whereas Ricardo bases his whole contention upon the validity of the law of diminishing returns, Walras will not even entertain the thought of a possible diminution in the amount of agricultural produce. The inevitable progress of society which leads it on from a purely agricultural stage right up to the industrial-commercial stage, from extensive to intensive cultivation, must result in increasing the value of land. The State would ease this transitional process by a measure of appropriation, and could make a solid contribution to the success of this gigantic undertaking, which is to apply not merely to land, but also to railways and mines, etc.[1223]

(c) Numerous and various are the reasons invoked by the advocates of land nationalisation. Gossen’s ideal is the maximum product, while Walras’s first care is to supply the State with all necessary resources. A final class of writers regards it as an excellent opportunity of giving everybody access to the soil. It was this ideal of free land that inspired the late Alfred Russel Wallace to write his book Land Nationalisation: its Necessity and its Aims, and to inaugurate his campaign in favour of nationalisation in 1882.

Wallace imagined that the mere right of free land would put an end for ever to the worker’s dependence upon the goodwill of the capitalist. Nobody would be found willing to work for starvation wages were everyone certain that on a free piece of land he would always obtain his daily bread. None would suffer hunger any longer, for the soil, at any rate, would always be there awaiting cultivation. Free access to the land would by itself solve the problem of poverty and want, and this would be by no means one of the least of the benefits of land nationalisation.[1224]

The essential thing, in his opinion, is to give to every worker the right to possess and to cultivate a portion of the soil.[1225] His proposal is that once nationalisation is an accomplished fact every individual at least once in his lifetime should be given the opportunity of choosing a plot of land of from one to five acres in extent wherever he likes on condition that he personally occupies and cultivates it.[1226]

The extremely simple character of the proposal makes it all the more notorious. Unlike the other schemes, it is not based upon any subtle, complex economic analysis. But it supplies a most convincing platform theme. Closer scrutiny, however, reveals its almost childish nature.

The cultivation even of the smallest piece of land requires some capital, which the advocates of free land appear to forget altogether. The amount of capital so required may not infrequently be in excess of the modest sum possessed by the working man. They also seem oblivious of the fact that the land does not produce all the year round: there must of necessity be a period of quiescence when the seeds are germinating. And if we are to suppose that the worker has sufficient reserve to wait for the harvest, why not admit at once that he has also enough to tide over a period of unemployment? A few pounds in the bank to which he can have access whenever he likes would certainly be much more serviceable in mid-winter, say, than a plot of land situated some distance away. Cultivation also requires capacity as well as capital. You cannot improvise the peasant, and a first-class artisan may be a very indifferent cultivator. The experience of distress committees seems to prove this point. The advocates of free land have a mistaken belief in the efficacy of the proposed remedy, and experience would quickly show them how difficult it would be to apply it.[1227]

IV: SOCIALIST EXTENSIONS OF THE DOCTRINE OF RENT

The writers who have hitherto engaged our attention were all of them individualists. They had no quarrel with the institution of private property as such, nor were they hostile to the existence of capital or to the personal advantage which may accrue from the possession of exceptional talent or ability. The orthodox socialist, on the other hand, is distinguished by an aversion to both interest and rent, and some of them even go the length of denying the individual’s claim to any special benefit accruing from personal ability if it has the effect of increasing his income beyond the mere remuneration of labour.

Between the two conceptions is a veritable abyss, and the question arises as to whether it can ever be bridged. Some writers confidently reply in the affirmative. “It is the easiest thing in the world. Just treat your interest on capital and the revenue derived from exceptional capacity as rent, and the theory of rent will supply a justification not only for the appropriation of land, but also for universal collectivism.” It was in England that this idea was first mooted.

England, the true home of socialism, the England of Godwin and Hall, of Thompson and Owen, after the first outburst of socialist activity over seventy years before, had not given birth to a single socialist scheme. With the exception of John Stuart Mill, who was impressed by the French socialists, English writers had remained quite indifferent to the ideas that were agitating Europe. Karl Marx toiled at the production of his masterpiece, Das Kapital, in the very heart of London without arousing the curiosity of a single English economist. The formation of socialist parties in Germany and France after 1870 had to intervene before the ideas of the great collectivist aroused any real enthusiasm in Great Britain, and it was not until 1880 that a small Marxian party was formed in England.[1228] Just about the same time another group of writers known as the Fabian Socialists began to preach an original and characteristically English kind of socialism.[1229]

The Fabian Society at first consisted of a small group of young men, for the most part belonging to the middle classes, and holding themselves aloof from the older political parties. The object was “the prompt reconstruction of society in accordance with the highest moral possibilities.” Success appearing somewhat remote, and being anxious for more immediate results, they allowed themselves to be led astray by ideas borrowed from the Marxian and anarchist doctrines of the Continent. But they very soon renounced the revolutionary spirit, which has so little in common with the English temperament; and in order to emphasise the difference between themselves and the advocates of brute force and the believers in a sensational historical crisis[1230] they adopted the name Fabian, which is derived from Fabius Cunctator, the famous adversary of Hannibal. The school has always been very critical both of itself and of others, somewhat afraid of public ridicule, but possessing none of the enthusiasm of apostles. Always ready to banter one another,[1231] to destroy their ancient idols, and to dispense with every social or definitely political creed, the Fabians rapidly became transformed into a society of students and propagandists whose interests are exclusively intellectual, and who believe that “in the natural philosophy of socialism light is a more important factor than heat.”[1232]

Such an attitude is hardly conducive to success in a socialist crusade, but the Fabians have left a deep impression—not so much upon working men, perhaps, as upon members of the bourgeois or middle class. Several of their members are persons of great literary distinction, such as Mr. Bernard Shaw, the dramatist and critic, Mr. and Mrs. Webb, the historians of Industrial Democracy, and Mr. H. G. Wells, the novelist. By throwing themselves into the study of social conditions of different kinds, by collaborating in the publication of reviews and newspapers without distinction of party, by publishing pamphlets and calling conferences, they have managed to stimulate interest in their ideas. A résumé of these ideas is given in a curious collection of articles entitled the Fabian Essays, published in 1889. These essays represent the opinions of the more prominent Fabians rather than of the Fabian Society, for the society as such has only a practical policy, but no theoretical doctrine which it holds in common. It calls itself socialist,[1233] and would welcome the transformation of individual into collective property. On the other hand, it declares that it has “no distinctive opinions on the marriage question, religion, art, abstract economics, historic evolution, currency, or any other subject than its own special business of practical democracy and socialism.”[1234] The economic theories which immediately interest us here are peculiar to certain members of the society. The society as a whole was doubtless inspired by these ideas, but they have not all received official recognition at its hands, and they are not even accepted by some adherents of the school.[1235]

It is Sidney Webb more especially who has essayed the task of finding a new theoretical basis for Fabian collectivism. Having rejected the Marxian theory of labour-value, and conscious of the charm possessed by the modern theories of Jevons, of Marshall, and the Austrians, he felt the need of some new justification for the collective ownership of the means of production. Unable to free himself from the fascination which Ricardo has always exercised over his fellow-countrymen, he turns to the theory of rent of that great economist, and that theory, in his opinion, is “the very corner-stone of collectivist economy.”[1236]

It is perfectly obvious that this theory of rent affords ample justification for the appropriation of the revenue of land by proving that this revenue is purely supplementary, produced as it is only on the best lands and not on the worst, where the worker only produces the exact equivalent of his wages. There is nothing very new in this, however.

Equally valid is its justification of confiscated interest. Different kinds of capital, different machines, implements, and buildings, all of which are employed for purposes of production, show the same variety of quality, and consequently produce different quantities of material goods, just as different lands do. The employee who works with “marginal capital,” if we may so put it, or, in other words, has to make shift with the minimum of tools and machinery, without which no work at all would be possible, barely produces the equivalent of his wages. Everything that exceeds this minimum may be claimed by the capitalist as payment for the superior yield of the capital which he has supplied. Interest, accordingly, is a differential revenue—a rent which ought to be expressed as a definite quantity of produce, for such it really is, and not as so much per cent.[1237]

Finally, any who possess superior ability as compared with those who work not merely with a minimum of capital and labour, but with a minimum of intelligence and ability, produce a surplus, which they generally retain for themselves. This surplus is of the nature of a differential rent—the rent of ability. Generally it is the result of the better education received by the children of proprietors and capitalists, and it is thus the indirect outcome of private property.[1238]

This ingenious argument is not very convincing. Even though we admit that interest and possibly the greater portion of wages may only be differential revenues, their confiscation would require special justification. The attributes of capital, unlike those of land as defined in the Ricardian theory, are not natural, but have been conferred upon it by the efforts of human beings. And as to the rent of ability, it still remains to be seen whether society would benefit by the confiscation of this rent. As a scientific explanation of distribution it does not seem to us a particularly attractive one. The distribution of incomes is effected by means of exchange and depends upon prices, but Webb makes an abstraction of prices in order to concentrate upon the material product. We do not deny the existence of rent derived from fixed capital, such rent being approximately measured by comparison with the current rate of interest. But after the labours of Böhm-Bawerk and Fisher it would seem impossible to explain this rate itself by reference to the material productivity of capital, which seems to be the essence of Webb’s theory.

The latest attempt to deduce revolutionary conclusions from the older economics and to found a theory of collectivism upon the Ricardian doctrine of rent has proved a failure. Even Webb’s friends have not shown the enthusiasm for it that they might[1239]—and this despite the constant allusion to the “three monopolies” which one meets with in their writings.

The interest of the experiment lies not so much in itself as in the indication which it affords of the more recent trend of thought in this matter. We have already drawn attention to the fact that the more immediate disciples of Marx both in France and Germany have refuted his theory of value, showing a disposition to rally to the counter-theory of final utility. We have here a group of English socialists undergoing a somewhat similar process of evolution. On every hand it seems that socialism has given up all pretension to creating a working men’s political economy alongside of the bourgeois, and it is now generally recognised that there can only be one political economy, independent altogether of all parties and social ideals, whose sole function is to give a scientific explanation of economic phenomena.

The Fabians even outdo the syndicalists in their reaction against the Marxian theories. Not only is the theory of value thrown overboard, but Marx’s whole social doctrine is rejected as well. There are two points on which the opposition is particularly marked, and although these may be outside the scope of the present chapter it is necessary to mention them in order to complete our exposition of Fabian ideas.

Marx’s social doctrine was built upon the theory of class war. Socialism was simply the creed of the proletarian. Its triumph would mean the victory of the proletariat over the bourgeoisie. Its principles are the direct antithesis of those which govern society at the present time, just as the two classes are directly opposed to one another. The Fabians entertain no such views. They think of socialism as a mere extension of the ideals of bourgeois democracy, and they would be quite content with a logical development and application of the principles which at present govern society. “The economic side of the democratic ideal is, in fact, socialism itself,” writes Sidney Webb.[1240] Our object should not be to replace the bourgeois supremacy by the proletarian ascendancy, nor even to emancipate the worker from the tyranny of the wage system (for under the socialist régime, as the Fabians point out, everybody will be a wage-earner), but merely to organise industry in the interest of the community as a whole. “We do not desire to see the mines and the profits from the mines transferred to the miners, but to the community as a whole.”[1241] Socialism is not a class doctrine, but a philosophy of general interest. “Socialism is a plan for securing equal rights and opportunities for all.”[1242] Webb questions the existence of an English class struggle in the Marxian sense of the word.[1243] On the contrary: “In view of the fact that the socialist movement has been hitherto inspired, instructed, and led by members of the middle class or bourgeoisie, the Fabian Society … protests against the absurdity of socialists denouncing the very class from which socialism has sprung as specially hostile to it.” One cannot see much similarity between this point of view and that of the French syndicalists.[1244]

The Fabian philosophy of history is equally distinct. For Marx the capital fact in nineteenth-century history is the concentration of property in the hands of a privileged few, and the consequent pauperisation of the masses. The necessary consequence of this twofold development will be the revolutionary dispossession of the former by the latter.

Optimistic as they are, the Fabians are not prepared to deny the concentration of capital. According to their view, the prime fact in nineteenth-century history is not the servility of the masses, but the waning authority of the capitalists, the growing importance of collective government in national economy, and the gradual dispossession of the idlers for the sake of the workers, a process that is already well on the way towards consummation. Webb is of the opinion that socialism is being realised without any conflict, and even with the tacit approval of its victims. “Slice after slice has gradually been cut from the profits of capital, and therefore from its selling value, by socially beneficial restrictions on its user’s liberty to do as he liked with it. Slice after slice has been cut off the incomes from rent and interest by the gradual shifting of taxation from consumers to persons enjoying incomes above the average of the kingdom.… To-day almost every conceivable trade is, somewhere or other, carried on by parish, municipality, or the national Government itself without the intervention of any middleman or capitalist.… The community furnishes and maintains its own museums, parks, art galleries, libraries, concert halls, roads, streets, bridges, markets, slaughter-houses, fire-engines, lighthouses, pilots, ferries, surf-boats, steam-tugs, lifeboats, cemeteries, public baths, washhouses, pounds, harbours, piers, wharves, hospitals, dispensaries, gasworks, waterworks, tramways, telegraph cables, allotments, cow meadows, artisans’ dwellings, schools, churches, and reading-rooms.” And even where private industry is allowed to survive it is rigorously supervised and inspected. “The State in most of the larger industrial operations prescribes the age of the worker, the hours of work, the amount of air, light, cubic space, heat, lavatory accommodation, holidays, and meal-times; where, when, and how wages shall be paid; how machinery, staircases, lift-holes, mines, and quarries are to be fenced and guarded; how and when the plant shall be cleaned, repaired, and worked.… On every side the individual capitalist is being registered, inspected, controlled, and eventually superseded by the community.”[1245]

We are already in the full current of socialism, declares Mr. Webb. Our legislators are socialists without knowing it. “The economic history of the century is an almost continuous record of the progress of socialism.”[1246] The Fabians, adopting a saying of the Saint-Simonians, point out to the socialists that they ought to be content with a clear exposition of the evolution of which everyone knows something, although perhaps in a hazy fashion. “Instead of unconscious factors we become deliberate agents either to aid or resist the developments coming to our notice.”[1247]

We are some distance away from Marx here, and farther still from his syndicalist disciples. We have really been led back to the philosophy of history as it was interpreted by the German State Socialists. Must we, then, conclude that the Fabians are State Socialists who feign ignorance of the fact?

Fabian socialism, strictly speaking, is not a new scientific doctrine. It is rather a plea for economic centralisation, an idea begotten of the modern conditions of existence in Europe, as against orthodox Liberalism, which is somewhat threadbare but still holds an honourable place in the opinion of many English writers. It is highly probable that the legislative activity of the last thirty years, which friends and foes alike regard as somewhat socialistic, will appear to our descendants as a moderate movement in the direction of greater centralisation.

English politics even long before this had begun to shake off its individualism and to rid itself of the philosophic and political doctrines of the utilitarian Radicals, which Bentham and his friends had formulated early in the nineteenth century, and which still exercise a considerable influence over some people. The Fabians regard themselves as the special protagonists of the new standpoint. They would be proud to consider themselves the intellectual successors of the utilitarian Radicals, who simply claim to express the new desires of a great industrial democracy. Labour legislation and its many ramifications, municipal socialism spontaneously developing in all the big towns, the great co-operative “wholesales” in Glasgow and Manchester, furnish persuasive illustration of the practical socialism which they advocate. “It is not,” writes Mrs. Sidney Webb, “the socialism of foreign manufacture which cries for a Utopia of anarchy to be brought about by a murderous revolution, but the distinctively English socialism, the socialism which discovers itself in works and not in words, the socialism that has silently embodied itself in the Factory Acts, the Truck Acts, Employers’ Liability Acts, Public Health Acts, Artisans’ Dwellings Acts, Education Acts—in all that mass of beneficent legislation forcing the individual into the service and under the protection of the State.”[1248]

The Fabian doctrine is the latest avatar of the Ricardian theory. It would really seem impossible to draw any further conclusions from it. Everything that could possibly be attempted in that direction has already been done, although other weapons of war forged against the institution of private property may yet come out of that old armoury. But that is hardly probable, especially when we remember that economic science no longer regards rent as a kind of anomaly amid the other economic phenomena. There is no doubt as to its reality, but it has been deprived of much of the social importance that was attributed to it by Ricardo and his followers, and it has consequently lost much of its revolutionary fecundity.