Freeland: A Social Anticipation

by Theodor Hertzka

Yesterday, accompanied by the two English agents, we inspected the Freeland Central Bank. The comprehensive and--as a necessary consequence--exceedingly simple clearing system excited the highest admiration of the two experienced gentlemen. The remarkably small amount of cash required to adjust the accounts of the whole of the gigantic business transactions drew from Lord E---- the inquiry why Freeland retained gold as a measure of value. He thought that, as the Freelanders already made the value of a unit of labour-time the standard of calculation in their most important affairs, the simplest plan would be to universalise this method--that is, to declare the labour-hour to be the measure of value, the money-unit. This would, he thought, far better harmonise with the general social order of Freeland, in which labour is the source and basis of all value.

The director of the bank (Mr. Clark) replied: 'That is a view which has been repeatedly expressed by strangers; but it is based simply upon confounding the measure of value with the source of income. For labour alone is not the source of value, though most Socialists adopt this error of the so-called classical economists as the ground of their demands. If all value were derived from labour and from labour alone, then even among you in the old exploiting world everything would be in favour of the workers, for even there the workers have control over their working power. The misery among you is due to the fact that the workers have no control over the other things which are requisite for the creation of value, namely, the product of previous work--i.e. capital, and the forces and materials derived from nature. We in Freeland have guaranteed to labour the whole of what it assists to produce. But we do not base this right upon the erroneous proposition that labour is the sole source of the value of what it produces, but upon the proposition that the worker has the same claim to the use of those other factors requisite for the creation of value as he has to his working-power. But this is only by the way. Even if labour were the only source of and the only ingredient in value, it would still be in any case the worst conceivable measure of value; for it is of all things that possess value the one the value of which is most liable to variations. Its value rises with every advance in human dexterity and industry; that is, a labour-day or a labour hour is continuously being transformed into an increasing quantity of all imaginable other kinds of value. That the value of the product of labour differs as the labour-power is well or badly furnished with tools, well or badly applied, cannot be questioned, and never has been seriously questioned. Now, among us in Freeland all labour-power is as well equipped and applied as possible, because the perfect and unlimited freedom of labour to apply itself at any time to whatever will then create the highest value brings about, if not an absolute, yet a relative equilibrium of values; but, in order that this may be brought about, there must exist an unchangeable and reliable standard by which the value of the things produced by labour can be measured. That the labour expended by us upon shoe goods and upon textile fabrics, upon cereals and turnery goods, possesses the same value is shown by the fact that these various kinds of wares produced in the same period of time possess the same value; but this fact can be shown, not by a comparison between the respective amounts of labour-time, but only by a comparison with something that has a constant value in itself. If we concluded that the things which required an equal time to produce were of equal value because they were produced in an equal time, we might soon find ourselves producing shoes which no one wanted, while we were suffering from a lack of textile fabrics; and we might see with unconcern the superfluity of turnery wares, the production of which was increasing, while perhaps all available hands were required in order to correct a disastrous lack of cereals. To make the labour-day the measure of value--if it were not, for other reasons, impossible--involves Communism, which, instead of leaving the adjustment of the relations between supply and demand to free commerce, fixes those relations by authority; doing this, of course, without asking anyone what he wishes to enjoy, or what he wishes to do, but authoritatively prescribing what everyone shall consume, and what he shall produce.

'But we in Freeland strive after what is the direct opposite of Communism--namely, absolute individual freedom. Consequently we, more imperatively than any other people, need a measure of value as accurate and reliable as possible--that is, one the exchange-power of which, with reference to all other things, is exposed to as little variation as possible. This best possible, most constant, standard the civilised world has hitherto found rightly in gold. There is no difference in value between two equal quantities of gold, whilst one labour-day may be very materially more valuable than another; and there is no means of ascertaining with certainty the difference in value of the two labour-days except by comparing them both with one and the same thing which possesses a really constant value. Yet this equality in value of equal quantities of gold is the least of the advantages possessed by gold over other measures of value. Two equal quantities of wheat are of nearly equal value. But the value of gold is exposed to less variation than is the value of any other thing. Two equal quantities of wheat are of equal value at the same time; but to-morrow they may both be worth twice as much as to-day, or they may sink to half their present value; while gold can change its value but very little in a short time. If its exchange-relation to any commodity whatever alters suddenly and considerably, it can be at once and with certainty assumed that it is the value not of the gold, but of the other commodity, which has suddenly and considerably altered. And this is a necessary conclusion from that most unquestionable law of value according to which the price of everything is determined by supply and demand, if we connect with this law the equally unquestionable fact that the supply and demand of no other thing are exposed to so small a relative variation as are those of gold. This fact is not due to any mysterious quality in this metal, but to its peculiar durability, in consequence of which in the course of thousands of years there has been accumulated, and placed at the service of those who can demand it, a quantity of gold sufficient to make the greatest temporary variations in its production of no practical moment. Whilst a good or a bad wheat harvest makes an enormous difference in the supply of wheat for the time being, because the old stock of wheat is of very subordinate importance relatively to the results of the new harvest, the amount of gold in the world remains relatively unaltered by the variations, however great they may be, of even several years of gold-production, because the existing stock of gold is enormously greater than the greatest possible gold-production of any single year. If all the gold-mines in the world suddenly ceased to yield any gold, no material influence would be produced upon the quantity of available gold; whilst a single general failure in the cereal crop would at once and inevitably produce the most terrible corn-famine. This, then, is the reason why gold is the best possible, though by no means an absolutely perfect, measure of value. But labour-time would be the worst conceivable measure of value, for neither are two equal periods of labour necessarily of equal value, nor does labour-time in general possess an unalterable value, but its exchange-power in relation to all other things increases with every step forward in the methods of labour.'

We were all convinced, but Lord E---- could not refrain from remarking that the Freelanders did nevertheless estimate the value of many things in labour-equivalents. He at once received from my father the pertinent answer that, according to all they had yet heard, this happened only in cases in which an increase of payment had to run parallel with a rise in the value of labour. Salaries and maintenance-allowances ought to rise in proportion as the proceeds of labour and therewith the general consumption rose; and it was only when this relation had to be kept in view that the value of things could be estimated in labour-equivalents.

Mr. Clark now drew our attention to the comprehensive, transparent, and detailed publicity which marked all the pecuniary affairs of Freeland, in consequence of the entry in the bank books of all commercial and industrial relations. No one can deceive either himself or others as to his circumstances; and one of the most important social consequences of this is that no one has any desire to shine by extravagant spending. Extravagance is only too often prompted by a desire to make oneself appear in the eyes of the world richer than one really is; such an attempt in this country would only provoke a smile. And if anyone wished to spend in luxuries more than he earned, the bank would naturally refuse him credit for such a purpose; and without this credit the spendthrift would have to appeal to the liberality of his fellow-citizens before he could indulge in his extravagance. The amounts of all incomes and of all outgoings lie open to the day; all the world knows what everybody has and whence he gets it. And as everyone is free to engage in any branch of industry whatever, the difference of income can excite no one's envy.

But Lord E---- here asked whether the degree of authoritative arbitrariness inevitable in fixing salaries of different kinds--e.g. of officials--did not present some contradiction to the otherwise operative principle of unconditional freedom of choice of calling, and to the equilibrium in the proceeds of different kinds of labour which resulted from this freedom. 'When the profits of the woollen industry are higher than those of agriculture, fresh labour will be transferred to the former until an equilibrium has been established between the two profits; if a permanent excess of profit shows itself in one of these branches of production, it is evident under your institutions that this can be due solely to the fact that the labour in this more profitable industry is less agreeable, more exhausting, or demands a higher or rarer knowledge or skill. No one has the slightest ground to complain of injury; and so far the harmony produced by freedom is worthy of all admiration. But when it comes to appointments and salaries, this absolute freedom must cease. You, as the head of a department of the government, receive £1,400, your neighbour the hand-worker earns merely £600; how do you know that the latter does not feel that he is wronged thereby?'

'My lord,' said Mr. Clark, smiling, 'if you mean, how do I know whether my neighbour does not feel himself wronged by nature because he is not able, like me, to earn £1,400 a year, I must answer that I can speak only from conjecture, and that I really possess no certain knowledge as to his feelings. But if you think that my neighbour, or anyone else in Freeland, could find in my higher salary an advantage conferred on me by an arbitrary exercise of authoritative power, or by the favour of the electors, or for any inadequate reason, I can certainly show that you are mistaken. For my salary is, in the last resort, as much the result of free competition as is the labour-profit of my neighbour. Whether I am the right man for my post is a question which is decided by the corporations by whom my election is made, and whose choice is controlled or superseded by no automatically working contrivance; with what salary my office must be endowed, in order that qualified men, or let us say men who are held to be qualified, may be obtained, this is regulated by exactly the same automatic laws as is the labour-profit of a weaver or an agriculturist. And this holds good of the salary of the youngest official up to that of the heads of the departments of the Freeland government. The fixing of the salaries in every case depends upon the free judgment of the presidents or of the electoral colleges; but these presidents or electoral colleges must fix the salaries at such sums as will at any time attract a sufficient number of qualified candidates. Of course, a pound more or less a year would make no difficulty--it is a recognised principle that the salaries should be high enough to attract rather a superfluity than a lack of candidates; but when the number of candidates is greater than a certain ratio, the salaries are reduced, whilst a threatened lack of candidates is met by an increase of salaries. I will add, that it is to be taken as a matter of course that in Freeland the unsuccessful candidates are not breadless aspirants. Success or failure is never therefore a question of a livelihood, but of the gratification of inclination and sometimes of vanity. A man gives up his office when more profitable or more agreeable occupation attracts him elsewhere. The public officials are not paid the same salaries in all the branches of the public service. Specially trying work, or work demanding special knowledge, obtains here higher profits, just as in the various industries. And whilst the labour-earnings of ordinary manual labour are the measure of the salaries of the lower officials, so do the salaries of the various association-managers exercise a regulative influence upon the salaries of the higher public officials. You, also, have often experienced that the attractions of positions connected with public activity have in no small degree brought down the salaries of government officials, professors, &c., below the level of the incomes of those who hold the chief posts in associations. As a rule, it is found that with a rise in the general level of intelligence there is a relative--by no means an absolute--sinking of the higher salaries. While the directors of several large associations receive as much as 5,000 hour-equivalents a year, the highest officials in the Freeland central government at the present time receive only 3,600 more, and that because our persistent assertion of the relative depreciation of the higher salaries is met by the parliaments with an equally persistent resistance, and the parliaments yield to our importunities only very slowly and very reluctantly. To be just, it should be added that the same game is repeated in the associations. The directors would often be satisfied with much lower salaries, for they often really do not know what to do with their incomes, which, in comparison with prices in Freeland, are in some cases exorbitant, and increase with every increase in the value of labour. Particularly during the last decade, since the value of the hour-equivalent has increased so much, proposals from above to reduce salaries have become a standing rule. I repeat, this reduction must be understood to be merely relative--that is, to refer merely to the number of hour-equivalents. The value of a labour-hour has quadrupled within the last twenty years; those of us, therefore--we public officials, for example--who receive twenty-eight per cent. fewer hour-equivalents than we did originally, still have incomes which, when reckoned in money, have been nearly tripled. As a rule, however, the associations will not hear of even such a reduction. Though their directors openly avow their willingness to accept lower salaries, the associations are afraid of offending some one or other of the competing societies which pay higher salaries; and as a few hundred pounds are not worth considering in view of the enormous sums which a great association annually turns over, the reduction of the salaries goes on but slowly. Nevertheless there is a gradual lessening of the difference between the maximum and the minimum earnings, plainly proving that even in this matter of salaries the law of supply and demand is in full operation.'

Lord E---- thanked him for this explanation. But now Sir B---- proposed a far weightier question. 'What struck me most,' said he, 'when I was examining the enormous operations of your central bank, and what I am not yet able to understand, is how it is possible, without arbitrary exercise of authority and communistic consequences, to accumulate the immense capital which you require, and yet neither pay nor reckon any interest. That interest is the necessary and just reward of the capitalist's self-denial I do not indeed believe; but I hold it to be the tribute which has to be paid to the saver for sparing the community, by his voluntary thrift, the necessity of making thrift compulsory. What I now wish to know is, what were your reasons for forbidding the payment of interest? Or are you in Freeland of opinion that it is unjust to give to the saver a share of the fruits of his saving?'

'We are not of that opinion,' answered the director. 'But first I must assure you that you have started from an erroneous assumption. We forbid the payment of interest as little as we "forbid" the undertaker's profit or the landlord's ground-rent. These three items of income do not exist here, simply because no one is under the necessity of paying them. If our workers needed an "undertaker" to organise and discipline them for highly productive activity, no power could prevent them from giving up to him what belonged to him--namely, the profit of the undertaking--and remaining satisfied themselves with a bare subsistence. Nothing in our constitution, and no one among us, would interfere with such an undertaker in the peaceable enjoyment of his share of the produce. If the land needed--'

'Pardon my interruption,' said Sir B----. '"If our workers needed an undertaker to organise and discipline them, no power could prevent them from giving up to him the whole of the produce"--these were your words. In the name of heaven, do not your workers need such a man? Do they need none over them to organise, discipline, guide, and overlook the process of production? And when I hear you so coolly and distinctly assert that such a man has a right to the produce, and that neither for God's sake nor in the name of justice need he leave to the worker more than a bare subsistence, I am compelled to ask myself whether you, an authority in Freeland, are pleased to jest, or whether what we have hitherto seen and heard here rests upon a mere delusion?'