"Give us an example."
"We will take then, first, the manufacturing capitalist, who employed labor. Suppose he manufactured shoes. Suppose for each pair of shoes he paid ten cents to the tanner for leather, twenty cents for the labor of putting, the shoe together, and ten cents for all other labor in any way entering into the making of the shoe, so that the pair cost him in actual outlay forty cents. He sold the shoes to a middleman for, say, seventy-five cents. The middleman sold them to the retailer for a dollar, and the retailer sold them over his counter to the consumer for a dollar and a half. Take next the case of the farmer, who sold not merely his labor like the wage-earner, but his labor blended with his material. Suppose he sold his wheat to the grain merchant for forty cents a bushel. The grain merchant, in selling it to the flouring mill, would ask, say, sixty cents a bushel. The flouring mill would sell it to the wholesale flour merchant for a price over and above the labor cost of milling at a figure which would include a handsome profit for him. The wholesale flour merchant would add another profit in selling to the retail grocer, and the last yet another in selling to the consumer. So that finally the equivalent of the bushel of wheat in finished flour as bought back by the original farmer for consumption would cost him, on account of profit charges alone, over and above the actual labor cost of intermediate processes, perhaps twice what he received for it from the grain merchant."
"Very well," said the teacher. "Now for the practical effect of this system."
"The practical effect," replied the boy, "was necessarily to create a gap between the producing and consuming power of those engaged in the production of the things upon which profits were charged. Their ability to consume would be measured by the value of the money tokens they received for producing the goods, which by the statement was less than the value put upon those goods in the stores. That difference would represent a gap between what they could produce and what they could consume."
MARGARET TELLS ABOUT THE DEADLY GAP.
"Margaret," said the teacher, "you may now take up the subject where Frank leaves it, and tell us what would be the effect upon the economic system of a people of such a gap between its consuming and producing power as Frank shows us was caused by profit taking."
"The effect," said the girl who answered to the name of Margaret, "would depend on two factors: first, on how numerous a body were the wage-earners and first producers, on whose products the profits were charged; and, second, how large was the rate of profit charged, and the consequent discrepancy between the producing and consuming power of each individual of the working body. If the producers on whose product a profit was charged were but a handful of the people, the total effect of their inability to buy back and consume more than a part of their product would create but a slight gap between the producing and consuming power of the community as a whole. If, on the other hand, they constituted a large proportion of the whole population, the gap would be correspondingly great, and the reactive effect to check production would be disastrous in proportion."
"And what was the actual proportion of the total population made up by the wage-earners and original producers, who by the profit system were prevented from consuming as much as they produced?"
"It constituted, as Frank has said, at least nine tenths of the whole people, probably more. The profit takers, whether they were organizers of production or of distribution, were a group numerically insignificant, while those on whose product the profits were charged constituted the bulk of the community."
"Very well. We will now consider the other factor on which the size of the gap between the producing and consuming power of the community created by the profit system was dependent--namely, the rate of profits charged. Tell us, then, what was the rule followed by the capitalists in charging profits. No doubt, as rational men who realized the effect of high profits to prevent consumption, they made a point of making their profits as low as possible."