The Unsolved Riddle of Social Justice

by Stephen Leacock

Any socialist who says this, is quite right. Where he goes wrong is when he tries to build up as truth a set of inferences more fallacious and more malicious still.

But the central economic doctrine of cost can not be shaken by mere denunciation. Let us examine it and see what is the matter with it. We restate the equation.

Under perfectly free competition the value or selling price of everything equals, or is perpetually tending to equal, the cost of its production. This is the proposition itself, and the inferences derived from it are that there is a "natural price" of everything, and that all "natural prices" are proportionate to cost and to one another; that all wages, apart from temporary fluctuations, are derived from, and limited by, the natural prices paid for the things made: that all payments for the use of capital (interest) are similarly derived and similarly limited; and that consequently the whole economic arrangement, by giving to each person exactly and precisely the fruit of his own labor, conforms exactly to social justice.

Now the trouble with the main proposition just quoted is that each side of the equation is used as the measure of the other. In order to show what natural price is, we add up all the wages that have been paid, and declare that to be the cost and then say that the cost governs the price. Then if we are asked why are wages what they are, we turn the argument backward and say that since the selling price is so and so the wages that can be paid out of it only amount to such and such. This explains nothing. It is a mere argument in a circle. It is as if one tried to explain why one blade of a pair of scissors is four inches long by saying that it has to be the same length as the other. This is quite true of either blade if one takes the length of the other for granted, but as applied to the explanation of the length of the scissors it is worse than meaningless.

This reasoning may seem to many persons mere casuistry, mere sophistical juggling with words. After all, they say, there is such a thing as relative cost, relative difficulty of making things, a difference which rests upon a physical basis. To make one thing requires a lot of labor and trouble and much skill: to make another thing requires very little labor and no skill out of the common. Here then is your basis of value, obvious and beyond argument. A primitive savage makes a bow and arrow in a day: it takes him a fortnight to make a bark canoe. On that fact rests the exchange value between the two. The relative quantity of labor embodied in each object is the basis of its value.

This line of reasoning has a very convincing sound. It appears in nearly every book on economic theory from Adam Smith and Ricardo till to-day. "Labor alone," wrote Smith, "never varying in its own value is above the ultimate and real standard by which the value of all commodities can at all times and places be estimated and compared."

But the idea that quantity of labor governs value will not stand examination for a moment. What is quantity of labor and how is it measured? As long as we draw our illustrations from primitive life where one man's work is much the same as another's and where all operations are simple, we seem easily able to measure and compare. One day is the same as another and one man about as capable as his fellow. But in the complexity of modern industrial life such a calculation no longer applies: the differences of skill, of native ingenuity, and technical preparation become enormous. The hour's work of a common laborer is not the same thing as the hour's work of a watchmaker mending a watch, or of an engineer directing the building of a bridge, or of an architect drawing a plan. There is no way of reducing these hours to a common basis. We may think, if we like, that the quantity of labor ought to be the basis of value and exchange. Such is always the dream of the socialist. But on a closer view it is shattered like any other dream. For we have, alas, no means of finding out what the quantity of labor is and how it can be measured. We cannot measure it in terms of time. We have no calculus for comparing relative amounts of skill and energy. We can not measure it by the amount of its contribution to the product, for that is the very matter that we want to discover.

What the economist does is to slip out of the difficulty altogether by begging the whole question. He deliberately measures the quantity of labor by what is paid for it. Skilled labor is worth, let us say, three times as much as common labor; and brain work, speaking broadly, is worth several times as much again. Hence by adding up all the wages and salaries paid we get something that seems to indicate the total quantity of labor, measured not simply in time, but with an allowance for skill and technical competency. By describing this allowance as a coefficient we can give our statement a false air of mathematical certainty and so muddle up the essential question that the truth is lost from sight like a pea under a thimble. Now you see it and now you don't. The thing is, in fact, a mere piece of intellectual conjuring. The conjurer has slipped the phrase, "quantity of labor," up his sleeve, and when it reappears it has turned into "the expense of hiring labor." This is a quite different thing. But as both conceptions are related somehow to the idea of cost, the substitution is never discovered.

On this false basis a vast structure is erected. All prices, provided that competition is free, are made to appear as the necessary result of natural forces. They are "natural" or "normal" prices. All wages are explained, and low wages are exonerated, on what seems to be an undeniable ground of fact. They are what they are. You may wish them otherwise, but they are not. As a philanthropist, you may feel sorry that a humble laborer should work through a long day to receive two dollars, but as an economist you console yourself with the reflection that that is all he produces. You may at times, as a sentimentalist, wonder whether the vast sums drawn as interest on capital are consistent with social fairness; but if it is shown that interest is simply the "natural price" of capital representing the actual "productive power" of the capital, there is nothing further to say. You may have similar qualms over rent and the rightness and wrongness of it. The enormous "unearned increment" that accrues for the fortunate owner of land who toils not neither spins to obtain it, may seem difficult of justification. But after all, land is only one particular case of ownership under the one and the same system. The rent for which the owner can lease it, emerges simply as a consequence of the existing state of wages and prices. High rent, says the economist, does not make big prices: it merely follows as a consequence or result of them. Dear bread is not caused by the high rents paid by tenant farmers for the land: the train of cause and effect runs in the contrary direction. And the selling price of land is merely a consequence of its rental value, a simple case of capitalization of annual return into a present sum. City land, though it looks different from farm land, is seen in the light of this same analysis, to earn its rent in just the same way. The high rent of a Broadway store, says the economist, does not add a single cent to the price of the things sold in it. It is because prices are what they are that the rent is and can be paid. Hence on examination the same canon of social justice that covers and explains prices, wages, and interest applies with perfect propriety to rent.

Or finally, to take the strongest case of all, one may, as a citizen, feel apprehension at times at the colossal fortune of a Carnegie or a Rockefeller. For it does seem passing strange that one human being should control as property the mass of coin, goods, houses, factories, land and mines, represented by a billion dollars; stranger still that at his death he should write upon a piece of paper his commands as to what his surviving fellow creatures are to do with it. But if it can be shown to be true that Mr. Rockefeller "made" his fortune in the same sense that a man makes a log house by felling trees and putting them one upon another, then the fortune belongs to Mr. Rockefeller in the same way as the log house belongs to the pioneer. And if the social inferences that are drawn from the theory of natural liberty and natural value are correct, the millionaire and the landlord, the plutocrat and the pioneer, the wage earner and the capitalist, have each all the right to do what he will with his own. For every man in this just world gets what is coming to him. He gets what he is worth, and he is worth what he gets.