II. The second main count in the socialist indictment of the present industrial system is that it has multiplied the vicissitudes of trade, and so imposed an incurable and distressing insecurity upon the labourer's lot. The rapidity of technical transformation and the frequency of commercial crises create, it is alleged, a perpetual over-population, driving ever-increasing proportions of the labourers out of active employment into what Marx calls the industrial reserve, the hungry battalions of the half-employed or the altogether unemployed. In regard to technical transformation, the effects of machinery on the working class are now tolerably well understood. Individuals suffer in the first instance, but the class, as a whole, is eventually a great gainer. Machinery has always been the means of employing far more hands than it superseded, when it did supersede any (for it has by no means invariably done so). There is no way of "making work" like producing wealth. The increased production due to machinery cheapens the particular commodities produced by it, and thus enables the purchasers of these commodities to spend more of their income on other things, and so practically to make work for other labourers. But even in the trades into which the machinery has been imported, the effect of its introduction has been to multiply, instead of curtailing, employment. Take the textile trades—much the most important of the machine industries. Mr. Mulhall, in his "Dictionary of Statistics" (p. 338), gives the following statistics of the textile operatives in the United Kingdom at various dates:—

Year.Men.Women.Children.Total.
183582,000167,000104,000353,000
1850158,000329,000109,000596,000
1880 232,000 543,000 201,000 976,000

Marx and others dwell much on the fact, that machinery leads frequently to the substitution of female for male labour; but the preceding table shows that while female labour has been largely multiplied, male labour has been scarcely less so, and besides, a more extensive engagement of women is in itself no public disadvantage. For half the question of our pauperism is really the question of employment for women, it being so much more difficult to find work for unemployed women than for unemployed men; and if the course of industrial transformation opens up new occupations that are suitable for them, it is so far entirely a social gain, and no loss. No doubt, though the good accruing from industrial transformation far outweighs the evil, yet evil does accrue from it, and evil of the kind alleged, the tendency to develop local or temporary redundancies of labour. But then that is an evil with which we have never yet tried to cope, and it may probably be dealt with as effectively on the present system as on any other. Socialism would stop it by stopping the progress which it happens to accompany, and would therefore envelop society in much more serious distress than it sought to remove. In Marx's remarkable survey of English industrial history almost every conquest of modern civilization is viewed with regret; but it is manifestly idle to think of forcing society back now to a state in which there should be no producing for profit, but only for private use, no subdivision of labour, no machinery, no steam, for these are the very means without which it would be impossible for our vastly increased population to exist at all. What may be done to meet the redundancies of labour that are always with us is a difficult but pressing question which I cannot enter upon here. State provision of work—even in producing commodities which are imported from abroad, and which might therefore be produced in State workshops without hurting home producers—has many drawbacks, but the problem is one that ought to be faced, and something more must be provided for the case than workhouse and prison.

In regard to commercial crises, they are rather lessening than increasing. They may be more numerous, for trade is more extensive and ramified, but they are manifestly less violent than they used to be. The commercial and financial crises of the present century have been moderate in their effects as compared with the Darien scheme, Law's speculations in France, or the Tulip mania in the Low Countries, and under the influence of the beneficial expansion of international commerce and the equally beneficial principle of free trade, we enjoy now an absolute immunity from the great periodical visitation of famine which was so terrible a scourge to our ancestors. Facts like these are particularly reassuring for this reason, that they are the result, partly of better acquaintance with the principles of sound commercial and financial success, and partly of the equalizing effect of international ramifications of trade, and that these are causes from which even greater things may be expected in the future, because they are themselves progressive. There is no social system that can absolutely abolish vicissitudes, because many of them depend on causes over which man has no possible control, such as the harvests of the world, and others on causes over which no single society of men has any control, such as wars; and, besides, it is possible to do a great deal more under the existing system than is at present done, to mitigate and neutralize some of their worst effects. To provide the labouring population with the security of existence, which is one of their pressing needs, a sound system of working class insurance must be devised, which shall indemnify them against all the accidents and reverses of life, including temporary loss of work as well as sickness and age, and it is not too much to hope, from the amount of attention which the subject is at present attracting, that such a system will be obtained. As far as yet appears, the scheme proposed by Professor Lujo Brentano, to which I have already referred, is, on the whole, the soundest and most satisfactory in its general principles that has been advanced.

Again, much of the instability of trade arises from the want of commercial statistics, and the consequent ignorance and darkness in which it must be conducted. More light would lessen at once the mistakes of well-meaning manufacturers and the opportunities of illegitimate and designing speculation. Socialists count all speculation illegitimate, because they fail to see that speculation, conducted in good faith, exercises a moderating influence upon the oscillations of prices, preventing them from falling so low, or rising so high, as they would otherwise do. Speculation has thus a legitimate and beneficial work to perform in the industrial system, and if it performed its work rightly, it ought to have the opposite effect from that ascribed to it by socialists, and to conduce to the stability of trade, instead of shaking it. But unhappily an unscrupulous and fraudulent spirit too often presides over this work. Schaeffle, who is not only an eminent political economist, but has been Minister of Commerce to one of the great powers of Europe, says that when he got acquainted with the bourse, he gave up believing any longer in the economic harmonies, and declared theft to be the principle of modern European commerce. Socialists always take the bourse to be the type of capitalistic society, and the fraudulent speculator to be the type of the bourse, and however they may err in this, there is one point at any rate which it is almost impossible for them to exaggerate, and that is the mischief accruing to the whole community—and, as is usual with all general evils, to the working class more than any other—from the prevalence of unsound trading and inflated speculation. Confidence is the very quick of modern trade. The least vibration of distrust paralyzes some of its movements and depresses its circulation. Enterprise in opening new investments is indeed more and more indispensable to the vitality of modern industry, but the mischiefs of misdirected enterprise are as great as the benefits of well-directed. Illegitimate speculation is very difficult to deal with. It can never be reached by a public opinion which worships success and bows to wealth with questionless devotion. Nor is it practicable for the State to put it down by direct measures. But the State may perhaps mitigate it somewhat by helping to procure a good system of commercial statistics, for unsound speculation thrives in ignorance, and may be to some extent prevented by better knowledge. The socialist demand for commercial statistics is therefore to be approved. They would benefit everybody but the dishonest dealer. They would not only be a corrective against unsound speculation, but they would tend to smooth the conflicts between capital and labour about the rate of wages, and the working class in America press the demand on the ground of their experience of the benefits they have already derived from the Labour Statistical Bureaux established in certain of the States there. Some of our own most weighty economic authorities are strongly in favour of a measure of this kind. Mr. Jevons, for example, says: "So essential is a knowledge of the real state of supply and demand to the smooth procedure of trade, and the real good of the community, that I conceive it would be quite legitimate to compel the publication of requisite statistics. Secrecy can only conduce to the profit of speculators who gain from great fluctuations of prices. Speculation is advantageous to the public only so far as it tends to equalize prices, and it is therefore against the public good to allow speculators to foster artificially the inequalities of prices by which they profit. The welfare of millions, both of consumers and producers, depends on an accurate knowledge of the stocks of cattle and corn, and it would therefore be no unwarrantable interference with the liberty of the subject to require any information as to the stock in hand. In Billingsgate fish-market it has been a regulation that salesmen shall fix up in a conspicuous place every morning a statement of the kind and amount of their stock; and such a regulation, whenever it could be enforced on other markets, would always be to the advantage of every one except a few traders." ("Theory of Political Economy," p. 88.)

III. The next principal charge brought by socialists against the present order of things is that it commits a signal injustice against the labouring class, by suffering the capitalists who employ them to appropriate the whole increase of value which results from the process of production, and which, as is alleged, is contributed entirely by the labour of the artizans engaged in the process. I have already exposed the fallacy of the theory of value on which this claim is founded, and I need not repeat here what for convenience sake has been stated in another place. (See chap. iii. pp. 160-6). Value is not constituted by time of labour alone, except in the case of commodities admitting of indefinite multiplication; it is constituted in all other cases by social utility; and the importance of this distinction is especially manifest in treating of the very point that comes before us here—the value of labour. Why is one kind of labour paid dearer than another? Why is an organizer of manual labour better paid than the manual labourer himself? Why is the railway chairman better paid than the railway porter? Or why has the judge a better salary than the policeman? Is it because he exerts more labour, more socially necessary time of labour? No; the porter works as long as the chairman, and the policeman as long as the judge. Is it because more time of labour has been expended in the preparation and apprenticeship of the higher paid functionaries? No; because the railway chairman may have undergone no special training that thousands of persons with much poorer incomes have not also undergone, and the education of the judge cost no more than the education of other barristers who do not earn a twentieth part of his salary. The explanation of differences of remuneration like these is not to be found in different quantities of labour, but in different qualities of labour. One man's work is higher, rarer, more excellent, possesses, in short, more social utility than another's, and for that reason is more valuable, as value is at present constituted. It is thus manifest that the theory which declares value to be nothing but quantity of labour, nothing but time of labour, is inconsistent with some of the most obvious and important phenomena of the value of different kinds of labour. Many forms of labour are much more remunerative than others, nay, much more remunerative than many applications of capital, and the difference of remuneration is in no way whatever connected with the quantity of labour or the time of labour undergone in earning it. Socialists may perhaps answer that this ought not to be so; that if things were as they should be, the railway chairman, the station-master, the inspector, the guard, and the porter would be paid by the same simple standard of the duration of their labour in the service of the line—a standard which would probably reverse the present gradation of their respective salaries; but if they make that answer, they change their ground; they no longer base their claim for justice to the labourer on value as it is constituted, but on value as they think it ought to be constituted. Their theory of value would in that case not be what it pretends to be, a scientific theory of the actual constitution of value, but a utopian theory of its proper and just constitution. It would be tantamount to saying, Every man, according to our ideas of of justice, ought to be paid according to the value of his work, and the value of his work, according to our ideas of justice, ought to be measured by the time—the socially necessary time—it occupied. But this whole argument is manifestly based on nothing better than their own arbitrary conceptions of justice, and it needs no great perspicacity to perceive that these conceptions of justice are entirely wrong. In fact, the common sense of men everywhere would unhesitatingly pronounce it unjust to requite the manager who contrives, organizes, directs, with only the same salary as the labourer who executes under his direction, because, while both may spend the same time of labour, the service rendered by the one is much more valuable than the service rendered by the other. Let every man have according to his work, if you will; but then, in measuring work, the true standard of its value is not its duration but its social utility, the social importance of the service it is calculated to render.

This criterion of social utility is the principle that ought to guide us in answering the question that is really raised by the particular socialist charge now under consideration, the question of the justice of interest on capital. Interest is just because capital is socially useful, and because the owner of capital, in applying it to productive purposes, renders a service to society which is valuable in the measure of its social utility. Of course the State might perform this service itself. It might compulsorily abstract from the produce of each year a sufficient portion to constitute the raw materials and instruments of future production; but, as a matter of fact, the State does not do so. It leaves the service to be rendered spontaneously by private persons out of their private means. The service rendered by these persons to production is as indispensable as the service rendered by the labourers, and the justice of interest stands on exactly the same ground as the justice of wages. The labourer cannot produce by labour alone, without materials and implements, any more than the capitalist can produce by materials and implements alone, without labour; and the possessor of capital needs a reward to induce him to advance materials and implements just as much as the labourer needs a reward to induce him to labour. Nobody will set aside a portion of his property to provide for future production if he is to reap no advantage from doing so, and if the produce will be distributed in exactly the same way whether he sets it apart or not. It would be as unjust as it would be suicidal to withhold the recompense to which this service is entitled, and without which nobody would do it.

The real question for socialists to answer is, not whether it is just to pay private capitalists for the service society accepts at their hands, but whether society can perform this service better, or more economically, without them; whether, in short, the abolition of interest would conduce to any real saving in the end? This practical question, crucial though it be, is one, however, to which they seldom address themselves—they prefer expatiating in cloudier regions. The question may not, with our present experience, admit of a definitive and authoritative answer; but the probabilities all point to the conclusion that capitalistic management of production, costly as it may seem to be, is really cheaper than that by which socialism would supersede it. Capitalistic management is proverbially unrivalled for two qualities in which bureaucratic management is as proverbially deficient—economy and enterprise. Socialists complain much of the hosts of middlemen who are nourished on the present system, the heartless parasites who eat the bread of society without doing a hand's turn of real good; but their own plan would multiply vastly the number of unnecessary intermediaries depending on industry. Under the régime of the capitalist there are, we may feel sure, no useless clerks or overseers, for he has the strongest personal interest in working his business as economically as possible. But with the socialist mandarinate, the interest lies the other way, and the tendency of the head officials would be to multiply their subordinates and assistants, so that by abolishing the capitalist, society would not by any means have got rid of middlemen and parasites. There would be as much waste of labour as before. Lord Brassey is certainly right in attributing the industrial superiority of Great Britain as much to the administrative skill and economy of her employers as to the efficiency of her labourers. Individual capitalists are more enterprising, as well as more economical managers, than boards. Their keenly interested eyes and ears are ever on the watch for opportunities, for improvements, for new openings; and having to consult nothing but their own judgment, they are much quicker in adapting themselves to situations and taking advantage of turns of trade. They will undertake risks that a board would not agree to, and they will have entered the field and established a footing long before a manager can get his directors to stir a finger. Now this habit of being always on the alert for new extensions, and new processes, and new investments, is of the utmost value to a progressive community, and it cannot be found to such purpose anywhere as with the capitalistic despot the socialists denounce, whose zeal and judgment are alike sharpened by his hope of personal gain and risk of personal loss. Studnitz informs us that in 1878 he found the mills of New York standing idle, but those of Philadelphia all going, and his explanation is that the former were under joint-stock management and the latter belonged to private owners. The present tendency towards a multiplication of joint-stock companies is a perfectly good one, because, for one thing, it helps to a better distribution of wealth; but society would suffer if this tendency were to be carried so far as to supersede independent private enterprise altogether, and if joint-stock companies were to become the only form of conducting business. And if private enterprise is more advantageous than joint-stock management, because it has more initiative and adaptability, so joint-stock management is for the same reason more advantageous than the official centralized management of all industry.[6]

If there is any force in these considerations, it seems likely that we should make a bad bargain, if we dismissed our capitalists and private employers, in the expectation that we could do the work more cheaply by our own public administration. And the mistake would be especially disappointing for this reason, that in the ordinary progress of society in wealth and security the rate of interest always tends to fall, and that various forces are already in operation that may not unreasonably be expected to reduce the rate of profits as well. Profits, as distinguished from interest, are the earnings of management, and the minimum which employers will be content to take is at present largely determined by the entirely wrong principle that their amount ought to bear a direct proportion to the amount of capital invested in the business. In spite of competition, customary standards of this kind are very influential in the adjustment of such matters; they are the usual criteria of what are called fair profits and fair wages; they always carry with them strong persuasives to acquiescence; and then, from their very nature, they are very dependent on public opinion. I am not sanguine enough to believe with the American economist, President F. A. Walker, that employers will ever come to be content with no other reward than the gratification of power in the management of a great industrial undertaking; but there is nothing extravagant in expecting that, through the influence of public opinion and the constant pressure of trade unions, a fairer standard of profits may be generally adopted, with the natural consequence of allowing a rise of wages.

But whether these expectations are well grounded or no, one thing is plain,—the only thing really material to the precise issue at present before us,—and that is, that while interest and profits may be both unfair in amount, just as rent may be, or wages, or judicial penalties, neither of them is unjust in essence, because they are merely particular forms of remunerating particular services, which are now actually performed by the persons who receive the remuneration, and which, under the socialist scheme, would have to be performed—and in all probability neither so well nor so cheaply—by salaried functionaries.