Contemporary Socialism

by John Rae

Now we have to do here with no mere difference of terminology. Profits may be employers' wages, if you like to call them so; but it is a fatal confusion to suppose that, because you have called them employers' wages, you are therefore entitled to treat them as if they were governed by the same laws and conditions as labourers' wages. The truth is that they are governed by opposite conditions, and that the pith of the labour question is just the conflict between these two kinds of wages for the better share in the distribution. The battle of labour is not against the employer receiving fair interest on his capital in proportion to its quantity, but against the amount of additional profit which the employer claims as wages of superintendence, and which he also rates in proportion to capital invested instead of rating it in proportion to his own trouble or efficiency. One of the chief hopes of the workman resides in the possibility of breaking down this erroneous criterion of fair remuneration for superintendence, and so getting the employers to content themselves with smaller profits than they have been in the habit of considering indispensable. Profits and wages have thus opposite and conflicting interests in the distribution, but Mr. George, having once disguised the one in the garb of the other, is imposed on by the disguise himself, and treats them in his subsequent speculations as if they were the same thing, or at any rate—what in the present connection is equally pernicious in its effects—as if their respective shares in the distribution were determined by precisely the same conditions. The result is, as might be expected, a series of singular contretemps springing from mistaken identity, like those we are familiar with on the comic stage. The manufacturing millionaire appears before us as the victim of the same harsh destiny as the penniless crossing-sweeper, and the banker of Lombard Street is overshadowed by the same blighting poverty as the lumper of Wapping. Proudhon, in a powerful passage, describes pauperism as invading modern society at both extremes; it invaded the poor in the positive form of natural hunger; it invaded the rich in the unnatural but more devouring form of insatiable voracity. The burden of Mr. George's prophetic vision contains no such refinements. He sees a huge wedge driven through the middle of society; and on the underside of that enchanted wedge he sees the merchant princes of the world eating the bread of poverty with their lowest dependents. Mr. George's classification of profits under wages therefore involves much more than a mere change of nomenclature, for it has led him to pass off this absurd vision as a literal description of things as they are. By that classification he has really put out of his own sight the most important factor in the settlement of the question he is discussing, and so he begins playing Hamlet by leaving the part of Hamlet out.

Having simplified matters by throwing profits out of the cast, Mr. George's next step is to assign the leading rôle to rent. In the whole drama of the modern distribution of wealth, no part is more striking or more often misunderstood than the part played by rent. Wages never cease to cost much and to be worth little, but rent seems to have the property of going on growing while the landlords themselves sleep or play. This fact has impressed Mr. George so profoundly that, losing sight of things in their true connection and proportions, he declares that the growth of rent is the key to the whole situation, and that neither wages nor any other kind of income, not derived from land, can ever draw any advantage from the increase of prosperity, because rent always steps in before them and runs off with the spoil. He professes to found this conclusion on Ricardo's theory of rent, which he accepts, not only as being absolutely true, but as being too self-evident to need discussion. Indeed, he seems disposed, like some others, to have his fling at Mill for calling it the pons asinorum of political economy; but we shall presently discover various grounds for suspecting that he has not crossed the bridge successfully himself, and that here, as elsewhere, he has been led seriously astray by looking at things through the mist of doctrines he has only imperfectly mastered. Anyhow, he offers his theory as a deduction from Ricardo's law of rent, and this deduction claims particular attention because it is the corner-stone of his speculations, and constitutes what he would consider his most original and important contribution to economic science. He says that the law of rent itself "has ever since the time of Ricardo ... been clearly apprehended and fully recognised. But not so its corollaries. Plain as they are, the accepted doctrine of wages ... has hitherto prevented their recognition. Yet, is it not as plain as the simplest geometrical demonstration that the corollary of the law of rent is the law of wages, when the division of the produce is simply between rent and wages; or the law of wages and interest together, when the division is into rent, wages, and interest" (p. 120). It is really plainer. It is a mere truism. In any simple division, if you know how much one of the factors gets, you know how much is left for the others, and if you like to dignify your conclusion by the name of corollary, you are free to do so. But the real point is this, whether the share obtained by rent is fixed irrespectively of the share obtained by wages and interest, or whether, on the contrary, it does not presuppose the previous determination of the latter. There is no doubt, at any rate, as to how Ricardo—Mr. George's own authority—regarded the matter. According to his celebrated theory, wages and interest are satisfied first, and then rent is just what is over. Rent is simply surplus profit. In hiring land, the farmer hires a productive machine, and under the influence of competition gives, for the use of that productive machine for a year, the whole amount of its annual produce which remains as a surplus after paying the wages of his labourers, and allowing interest on his capital, and what he considers a fair profit for his own work of superintendence. A certain current rate of wages and a certain current rate of profit are presupposed, and after these demands are met, then if the land has yielded anything more, that surplus is what is paid as rent. Ricardo always presumes that land that cannot produce enough to meet these demands will not be cultivated at all, and that the poorest land actually under cultivation is land that meets them and does no more; in other words, that leaves nothing over for rent. Let us take Ricardo's law as it is stated by Mr. George himself (p. 118): "The rent of land is determined by the excess of its produce over that which the same application can secure from the least productive land in use." The standard by which, according to this law, the amount of rent is supposed to be determined, is the produce of the least productive land in use. Now, what is the least productive land in use? It is land that produces just enough to pay the wages the labourers upon it are content to work for, and the profits the farmer of it is content to farm for. How that rate of wages and that rate of profits are fixed is no matter here; but one thing is clear—and it is enough for our present purpose—that they cannot be determined, as Mr. George represents them as being, by a law of rent which presumes and is conditioned by their operation. Ricardo's law virtually explains rent in terms of wages and profits, and it would therefore be the height of absurdity to re-explain wages and profits in terms of rent. And if that is so, the circumstance which excites Mr. George's surprise, that economists have always so clearly apprehended the law of rent itself, and yet failed so completely to recognise the corollaries which he plumes himself on being the first to deduce from it, admits of a very simple explanation: the economists understood the law they expounded, and were better reasoners than to employ it as a demonstration of its own postulates.

This will become still plainer, if we look more closely at the fact which has struck Mr. George so much—the constant rise of rent in modern society. He attributes that rise to many causes; in fact, there are few things that will not, in his opinion, raise rent. Progress of population will do so; but if population is stationary, it will be done all the same by progress in the arts; the spread of education will do it; retrenchment of public expenditure will do it; extending the margin of cultivation will do it; and so will artificial contraction of that margin by speculation. In short, he is so haunted by the idea, that he seems to believe that so long as rent is suffered to survive at all, whatever we do will only conduce to its increase. Every step of progress we take extends its evil reign, and if progress were to reach perfection, rent would drive wages and interest completely off the field and appropriate "the whole produce" (p. 179). These fears are not sober, but they could never have risen had Mr. George first mastered the theory of rent he founds them on. For rent, being the price paid by producers for the use of a productive machine, cannot rise unless the price of the product rises first (or its quantity, if so be that it does not increase so much as to reduce its price), for unless the price of agricultural produce rises, the farmer cannot afford to pay a higher rent for the land than he paid before. No part of Ricardo's theory is more elementary or more unchallenged than this, that the rent of land constitutes no part of the price of bread, and that high rent is not the cause of dear bread, but dear bread the cause of high rent. Rent cannot rise further or faster than the price of bread (or meat, of course) will allow it, and the price of bread is beyond the landowner's control. He cannot raise it, but once it rises, he can easily raise rent in a corresponding degree. If a rise of rent depends on a rise in the price of bread, what does a rise in the price of bread depend on? On two things which Mr. George ignores or misunderstands—the progress of population and the diminishing return in agricultural production. The growth of population increases the demand for food so much as to raise its price, and renders it profitable to resort to more difficult soils or more expensive methods for additional supplies. The price will then remain at the figure fixed by the cost of the costliest portion that is brought to market.

Now Mr. George laughs at the idea of increase of population causing any difficulty about the supply of food—population, which he is never tired of telling us, is the very thing most wanted to multiply that supply, and possesses a power of multiplying it in even a progressive ratio to its numbers. "The labour of 100 men," he says, "other things being equal, will produce much more than one hundred times as much as the labour of one man" (p. 163). And he laughs in the same way at the idea of a diminishing return in agriculture, as if, says he, matter were not eternal, and as if an increasing population did not of itself increase the productive capacity of the land through increasing the productive capacity of the labour upon it. These two misunderstandings lie at the bottom of all Mr. George's vagaries about rent, and they are perhaps natural to a speculator, resident in a rich new colony, which, as he describes it himself, "with greater natural resources than France, has not yet a million people." No doubt in a country at that particular stage of its historical development, increase of population may involve an increase, and even a more than proportional increase, of food as well as of other commodities; but that particular stage is a temporary and fleeting one, and the world in general is very differently situated from the State of California thirty years ago. Where there is plenty of good land, the increase of population occasions no increase in the cost of producing food, because there is no need to resort to poorer land for the purpose; and while food is got as cheaply as before, other things are got much more easily and abundantly in consequence of the economies of labour and the many mutual services which result from the increased numbers of the community. But that state of matters only continues so long as there remains no occasion to resort to poorer soils for the production of food, and that time is long past in most countries of the world. Mr. George no doubt contends that in all countries it is just the same as in California, because even though it may have become more difficult in some places to produce food, it has become everywhere much easier to produce other commodities, and (so he argues) the production of any kind of commodity is practically equivalent to the production of food, for it can always be exchanged for food. So it can, if food is there to exchange for it; but the very question is whether food is there, or is there in the same relative quantity. If I say it is more difficult to get food, it is no answer to tell me that it is much easier to get other things. And because other things may be multiplied indefinitely at the same cost, that is no reason for denying that food can only be multiplied indefinitely at increasing cost. Yet Mr. George reasons as if it were. This confusion is repeated again and again in the course of his book, and has evidently had much influence on his whole speculations. He describes the advantages which the colonist derives from the arrival of other settlers. "His land yields no more wheat or potatoes than before, but it does yield far more of all the necessaries and comforts of life. His labour upon it will bring no heavier crops, and we will suppose no more valuable crops, but it will bring far more of all the other things for which men work" (p. 168). That is true, but it is not to the purpose. The new settler required a market, and population brought it; but although population up to a certain point is beneficial, you cannot for that reason declare that beyond that point it cannot possibly become embarrassing; for on Mr. George's own hypothesis the ground yields no more wheat and potatoes than before, and the limit to convenient population is prescribed by the amount of food the ground yields, and not by the quantity of other commodities which skilled labour can produce. If population were to exceed what that stock of food would adequately serve, then new-comers would find little comfort in Mr. George's rhetorical commonplace that they had two hands and only one mouth. His simple confidence, that they never can be at a loss, because they can get food by exchange as well as by direct production, is a mere dream, because he forgets that the people they are to exchange with are in the same case as themselves. They can only give food in exchange for other things so long as they raise more food than serves their own numbers, and when their numbers increase beyond that point, they will have no food to sell. The limit to subsistence is not the productive capacity of labour, but the productive capacity of land.

Mr. George's argument rests on another very curious fallacy. He builds his whole theory of distribution on the fact of the extension of the margin of cultivation from better to worse soils, but in the same breath he denies the existence of the very conditions that alone make that fact possible. Nobody would resort to worse land unless the better were unable to furnish indefinite supplies at the old cost, i.e., unless the principle of diminishing return prevailed in agriculture. Nor would any one resort to worse land until it paid him to do so, i.e., until the produce of this worse land became, through a rise in its price or through improvements in the art of agriculture, equal in net value to the produce previously yielded by the worst land then in cultivation. Mr. George denies the principle of diminishing return. He denies "that the recourse to lower points of production involves a smaller aggregate of produce in proportion to the labour expended." He denies this, "even where there is no advance in the arts and the recourse to lower points of production is clearly the result of the increased demand of an increased population. For," says he, "increased population of itself, and without any advance of the arts, implies an increase in the productive power of labour" (p. 163). But the question is, does it imply any increase in the productive power of the soil? Mr. George contends that it does, but only on the superior soils, not on the inferior. Increasing population, in his opinion, renders all labour so much more effective that "the gain in the superior qualities of land will more than compensate for the diminished production on the land last brought in" (p. 165). Now to all this there is one simple answer: why then resort to inferior soils at all? If crowding on the superior soils can make those soils indefinitely productive, why go farther and fare worse? There can be no reason for having recourse to worse land, but that the better has ceased to yield enough at the old cost. Organization and economy of labour are excellent things, but they cannot press from the udder more milk than it contains, or rear on the meadow more sheep than it will carry, or grow on a limited area available for cultivation more than a definite store of food.

But while Mr. George denies that there is anything to force people to poorer soils, he supposes at the same time that they go freely in order to get a less profit. He holds the amount of return obtained from cultivating the least productive land in use to be the lowest rate of return for which anybody will invest his capital, and therefore to serve in some sense as a standard rate of remuneration for all applications of capital and labour. Nobody, he declares, will work for less than he can make on land that pays no rent. But will any one work such land for less than he can make in other industries? That is what Mr. George supposes to be done every day, although he laughs at the idea of there being any necessity for doing it. It need not be said that men are not such lunatics. They are really forced to go to worse soils because the better cannot increase their yield indefinitely at the same cost, and they never go till they possess a reasonable expectation of making as much out of the worse land as they did before out of the better.

From all these remarkable misconceptions of the working of rent, and of the theory of Ricardo on the subject, which he professes to follow, he draws his first law of distribution, which is nevertheless, so far as it goes, undoubtedly correct: "Rent depends on the margin of cultivation, rising as it falls and falling as it rises" (p. 155).

To find the law of rent, he has told us, is to find at the same time its correlatives, the laws of wages and interest, and these laws accordingly he states thus: "Wages depend on the margin of cultivation, falling as it falls and rising as it rises. Interest (its ratio with wages being fixed by the net power of increase which attaches to capital) depends on the margin of cultivation, falling as it falls and rising as it rises" (p. 156). He is not content, however, with merely inferring these two laws as corollaries from the law of rent, but thinks it necessary to construct for wages and interest a certain independent connection with the movement of the margin of cultivation. To do so, he first reduces interest, as he had already reduced profits, to a form of wages; he then erects all the different forms of wages (i.e., every form of income except rent) into a single hierarchical system, in which there are many different rates of remuneration, occasioned by the necessity of compensating different risks and exertions, but all moving up and down concurrently with a certain general rate of wages at the bottom of the scale; and he finally connects this general or standard rate of wages with the margin of cultivation, by saying that no one would work at anything else for less than he can make on land open to him free of rent, and that therefore the income made by cultivating such land must be the lowest going.

Mr. George's view of the nature of interest is peculiar. He considers it to be the natural increase of capital, the fruit of inherent reproductive powers, like the increase of a calf into a cow, or of a hen into a hen and chickens; and because interest comes in this way freely from nature, he believes the private appropriation of it to be thoroughly just, although he presently gives precisely the same reason for declaring rent to be theft. It is unnecessary to discuss either the truth or the consistency of this doctrine here, and I refer to it now merely to explain that although Mr. George thus justifies interest as being the price of a natural force, he introduces it into his theory of the origin of poverty, as the price of human labour. "The primary division of wealth," he says, "is dual, not tripartite. Capital is but a form of labour, and its distinction from labour is in reality but a subdivision, just as the division of labour into skilled and unskilled would be. In our examination we have reached the same point as would have been attained had we simply treated capital as a form of labour, and sought the law which divides the produce between rent and wages; that is to say between the possessors of the two factors, natural substance and powers and human exertion—which two factors, by their union, produce all wealth" (p. 144). The difference between interest and wages is but as the difference between the wages of skilled labour and the wages of unskilled; the wages of skilled labour is only the wages of unskilled, plus some consideration for the skill, or for the time spent in training, or for drawbacks of various kinds; and the wages of unskilled labour is fixed by the amount that can be made on land that pays no rent. Profits, salaries, stipends, fees are, in the same way as interest, declared to be modes of wages. The £50,000 a year of the merchant prince, it seems, is just the £50 of the day-labourer, with £49,950 added to compensate him for the additional perils or drawbacks or discomforts of his life. All incomes, except the landowner's, row in the same boat, and the day-labourer's sets the stroke. When the margin of cultivation descends, he is the first to suffer, and then all the rest suffer with him. If he loses £10 a year, they successively lose £10 too; the doctor or bank-agent will have £490, instead of £500; the railway chairman, £4,990, instead of £5,000; the merchant prince, £49,990, instead of £50,000; and their loss is the landlord's gain. Here then we see the whole mystery of iniquity as Mr. George professes to unravel it. "The wealth produced in every community is divided into two parts by what may be termed the rent line, which is fixed by the margin of cultivation, or the return which labour and capital could obtain from such natural opportunities as are free to them without payment of rent. From the part of produce below this line, wages and interest must be paid. All that is above goes to the owners of land" (p. 121).

Mr. George here confounds the margin of cultivation with the margin of appropriation. When economists speak of an extension of the margin of cultivation, they mean a resort to less productive land, and that is always accompanied by a rise of rent; but an extension of the margin of appropriation may be a resort to more productive land, and may occasion a fall of rent, as has been done in Europe to-day through appropriation in America. But what in reality he builds his argument on is neither the movement of the margin of cultivation, nor the movement of the margin of appropriation, but simply the existence of abundance of unappropriated land. Where that exists, rent will, of course, be low, and wages will be high, for nobody will give much for land when he can get plenty for nothing at a little distance off, and nobody will work at anything else for less than he can make on land that he may have for nothing. For such land supplies labourers with an alternative. It is not the best of alternatives, for it needs capital before one can make use of it, and it takes time before any return is made from it. A diversity of national industries, for example, is better, and raises wages more effectively. Agricultural wages are higher in the manufacturing counties of England than in the purely agricultural; and they are higher in the manufacturing Eastern States of Mr. George's own country than in the purely agricultural States of the West, which possess the largest amount of unappropriated land. The reason of this is twofold: other industries increase the competition for labour generally, and create, at the same time, a better market for farm produce. Unoccupied land would act—though less effectually—in the same way as an alternative; but few countries are fortunate enough to possess much of it, and as Mr. George does not propose to interfere with the occupation of land, but only to tax the occupiers, he has no scheme for showing how countries that have it not are to get it. It is easy, of course, to call it from the vasty deep. "Put to any one capable of thought," says Mr. George, "this question: 'Suppose there should arise from the English Channel or the German Ocean a Noman's land on which common labour to an unlimited amount should be able to make ten shillings a day, and which would remain unappropriated and of free access like the commons which once comprised so large a part of English soil. What would be the effect upon wages in England?' He would at once tell you that common wages throughout England must soon increase to ten shillings a day" (p. 207). Perhaps so; but a little more thought would teach him that "a Noman's land on which common labour to an unlimited amount should be able to make ten shillings a day" must be itself unlimited in extent, and could not be accommodated in the English Channel. Apart from preternatural conditions, it could not afford remunerative employment to more than a definite number of occupants and cultivators, and when it came to be entirely occupied, England would stand exactly as it does at present. If the millennium of the working class is to depend on the discovery of a Noman's land of infinite expansibility, it must be indefinitely postponed.