Full text of "Democracy versus socialism, a critical examination of socialism as a remedy for social injustice and an exposition of the single tax doctrine"

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DEMOCRACY VERSUS SOCIALISM

DEMOCRACY

VERSUS

SOCIALISM

A CRITICAL EXAMINATION OF SOCIALISM

AS A REMEDY FOR SOCIAL INJUSTICE

AND AN EXPOSITION OF THE

SINGLE TAX DOCTRINE

MAX HIRSCH (MELBOURNE)

MACMILLAN AND CO., LIMITED

NEW YORK : THE MACMILLAN COMPANY
1901

TO THE MEMORY OF
HENRY GEORGE,

PROPHET AND MARTYR OF A NEW AND HIGHER FAITH,
THIS WORK IS

GRATEFULLY DEDICATED

158548

PREFACE

A MOVEMENT which draws its vitality, as Socialism does,
from the poverty and haunting sense of injustice of its
rank and file, and from the moral elevation and unselfish
pity of the leaders, cannot be successfully met even by the
most triumphant demonstration of the impracticability of
the remedies which it proposes.

Revolting against the injustice of existing social
arrangements and the evils thence resulting, preferring
the risk of failure to ignoble acquiescence, the advocates
of Socialism are, not unnaturally, deaf to merely negative
criticism.

It has seemed to me that this is the main reason why
the many and able expositions of the impracticability of
the industrial proposals of Socialism have failed to
exercise any marked retarding influence upon its pro-
gress. Necessary and beneficial as such expositions are,
they do not touch the heart of the matter. Failing to
probe the socialist creed to its bottom, they do not
show that it is based on an insufficient and faulty
analysis of the causes of social injustice. Disregarding
the legitimacy of the social revolt which has taken the
form of Socialism, they fail to suggest any alternative
method for the removal of the evils which have pro-
voked it.

a 2

viii DEMOCRACY VERSUS SOCIALISM

It has seemed to me that greater success might be
achieved by acting upon these considerations. More-
over, there does not, as far as I know, exist any work
dealing with Socialism as a whole.

Able examinations of its industrial proposals abound ;
refutations of some or another of its economic and
ethical conceptions can be found here and there in
works the main purpose of which lies in other direc-
tions. But I have not been able to find any work
dealing with these conceptions and proposals as a
whole.

I have therefore endeavoured to fill this void. The
first part of this book is devoted to an analysis of the
teaching embodied in Socialism, exhibiting its leading
principles and conceptions and the changes in social
arrangements which must directly result from their
application. The second and third part expose the
erroneous nature of the economic and ethical concep-
tions of Socialism, and exhibit what I regard to be
the true principles of social economy and ethics.

The fourth part exhibits the conflict between the
industrial and distributive proposals of Socialism and
the principles thus established as well as the disastrous
consequences which must arise from the acceptance of
the former.

In the fifth and concluding part I have endeavoured
to depict and vindicate the social reforms necessary to
bring our social system into harmony with these economic
and ethical principles, as well as their sufficiency for
the achievement of the ultimate object of Socialism
and Individualism alike, the establishment of social
justice.

PREFACE ix

In carrying out these objects I have drawn freely
on the great modern exponents of political economy
and ethics, especially on the writings of Henry George,
B6hm - Bawerk, and Herbert Spencer. While grate-
fully acknowledging my indebtedness to them, I may
nevertheless claim to have contributed some original
matter to the treatment of the subject matter which, I
trust, may stand the test of criticism even where it
embodies conclusions which differ from those arrived at
by these authorities.

To many friends my thanks are due for valuable
assistance graciously rendered in preparing this work for
the press ; to none more, however, than to Mr. R. J.
Jeffray, of London, who, in order to hasten its appearance,
has undertaken the laborious task of revising the proofs.

MELBOURNE, March 1901.

CONTENTS

INTRODUCTION

Existing social conditions and tendencies Undeserved poverty The
concentration of wealth The social problem defined The
attractiveness of Socialism The progress of Socialism The
general character of Socialism . . Pages xxix-xxxiv

PART I

AN ANALYSIS OF SOCIALISM

CHAPTER I

THE ECONOMIC CONCEPTIONS

Karl Marx's theories of value and surplus-value The failure of com-
petition as an industrial regulator The evil of competition qua
competition The reconciliation of these two views The
individualistic view of competition . . . 3-11

CHAPTER II

THE INDUSTRIAL PROPOSALS

State-ownership and management of industry Reconciliation of
apparently conflicting socialist declarations The abolition of
rent and interest Consequential extensions of these pro-
posals ....... 12-23

xii DEMOCRACY VERSUS SOCIALISM
CHAPTER III

THE INDUSTRIAL PROPOSALS Continued

The methods of transferring land, capital, and industries to the State
Examination and reconciliation of conflicting methods Further
consequential changes in industrial organisation The division of
authority between local and central government The organisa-
tion of labour Persistence of private ownership in consumption-
goods and of rent Definition of the industrial proposals of
Socialism ..... Pages 24-32

CHAPTER IV

THE ETHICAL CONCEPTIONS

The denial of natural rights Its necessary consequence of the indus-
trial and distributive proposals of Socialism The denial of
individual rights to labour-products The reasoning upon which
it is based : (i) The impossibility under modern industrial con-
ditions of determining the part or part-value of any industrial
product due to the labour of any particular individual ; (2) The
inequity of individuals benefiting by their special capacity and
industry, these being due to heredity The inequity of individuals
benefiting directly by their use of social opportunities . 33-39

CHAPTER V

THE DISTRIBUTIVE PROPOSALS

Justice in distribution, the original object in Socialism Disagreement
amongst socialists as to what constitutes justice Examination of
the various systems of distribution open to Socialism The/
impossibility of determining individual services and the value
of products under Socialism otherwise than by the arbitrary
decision of State officials Equal distribution in value, the system
which offers least difficulties and finds the greatest support The
consequential alterations arising from distribution of equal values
in the organisation of science, art, literature, the professions, and
domestic service ...... 40-46

CONTENTS xiii

CHAPTER VI

MODIFICATIONS OF FAMILY RELATIONS

Economic independence of women Abandonment of separate family
homes Transference of children to the care of the State at an
early age . . . . . . Pages 47-48

CHAPTER VII

THE POLITICAL CONCEPTION

Political equality The abolition of hereditary aristocracy and mon-
archy The extension of the function of local governments
Centralisation Internationalism .... 49-51

CHAPTER VIII

Is SOCIALISM SCIENTIFIC ?

The nature of science Socialism empirical on account of its denial of
any natural law of distribution and of natural ethics . 52-53

CHAPTER IX

THE DEFINITION OF SOCIALISM . . 54-55

PART II
ECONOMICS

CHAPTER I

MARX'S THEORY OF VALUE

Everyjpolitico-economic theory is based on some conception of value
Marx's theory of value stated Its contradictions exposed
(a) with regard to goods, (b] with regard to labour The theory
tested deductively Socialists who repudiate the theory, never-
theless accept Marx's deduction from it . . . 59-68

xiv DEMOCRACY VERSUS SOCIALISM
CHAPTER II

THE QUANTITATIVE THEORY OF VALUE

Professor W. S. Jevons's theory The Austrian theory Desire and
utility The condition which confers value on useful things
The classification of utilities Value is determined by the
urgency of desire, not by its kind The Robinson Crusoe example
Value of consumption -goods determined by their marginal
utility Value of production-goods determined by the marginal
utility of their ultimate products The relation of value to cost
of production ..... Pages 69-76

CHAPTER III

ORIGIN AND NATURE OF CAPITAL

Socialist definitions of capital Their absurdities and contradictions
The origin of capital and its function in the co-operative process
of production The increased yield from the extension of pro-
ductive processes in time The function of exchange in co-
operative production The nature of capital defined The
ownership of capital The organisation of capitalist industry

77-90

CHAPTER IV

THE ORIGIN AND NATURE OF SPURIOUS CAPITAL AND SPURIOUS
INTEREST DEBTS AND MONOPOLIES

The points of resemblance between real and spurious capital The
differences between rights of debt and real capital The essential
character of monopolies Monopoly in land Monopoly in fran-
chises Differentiation between monopoly-value and capital-value
in the same undertaking Comparison of the effect of special and
of exclusive legal privileges . . . 91-100

CONTENTS xv

CHAPTER V

THE ORIGIN AND NATURE OF SPURIOUS CAPITAL AND SPURIOUS
INTEREST Continued

Industrial monopolies The socialist view of industrial monopolies
Industrial monopolies based on legal privileges Protectionism
the fruitful source of industrial monopoly Monopolies which
arise from the co-operation of two or more legal privileges
Monopoly of unprivileged industries arising from the support of
privileged industries The conversion of monopoly -rights into
spurious capital .... Pages 101-112

CHAPTER VI

A COMPARISON OF REAL WITH SPURIOUS CAPITAL

Spurious capital would disappear with the repeal of laws conferring
special privileges All real capital ephemeral ; spurious capital
may continue for ever and accumulates Social progress tending
to reduce value of real capital, increases the value of spurious
capital The greater part of existing capital is spurious capital

113-117

CHAPTER VII

SURPLUS-VALUE

Marx's theory of surplus-value disproved by the disproval of his theory
of value Examples of surplus-value further disproving his theory

118-121

CHAPTER VIII

LAND AND RENT

The twofold meaning of the term "land" Space and time Space
as affecting the use of land Natural and social variations in the
productivity of land Conditions which favour the concentration

xvi DEMOCRACY VERSUS SOCIALISM

of exertion upon land Influence of these conditions and vari-
ations upon the distribution of wealth The limitation of
Ricardo's Law of Rent and the Malthusian doctrine The law
extended Natural rent arises from the extension of labour in
space Spurious rent the result of private ownership of land
Private appropriation of rent destructive of the economic and
ethical functions of rent .... Pages 12*2-134

CHAPTER IX

THE THEORY OF INTEREST

Present wants mostly supplied by past labour, while present labour is
mostly directed to the satisfaction of future wants Goods avail-
able at present valued more highly than like goods which be-
come available in the future, on account of (a) differences in
the provision for wants, (<) under -estimation of future wants,
(r) technical superiority of present goods Loans resulting from
individual differences in the relative valuation of present and
future goods Averages of such valuations produce rates of interest
The tendency towards lowering the rate of interest Interest
is the increment of value arising during the growth of future
into present goods, i.e. arises from the extension of labour in
time ... . I35-H3

CHAPTER X

THE WAGES OF LABOUR

Natural rent not a deduction from individual wages, but a social fund
Natural interest not a deduction from individual labour, nor a
common fund Illustrations The function of the capitalist
which entitles him to interest Wages consist of all the produce
of labour The minimum and maximum wages of labour Why
labour, under just legal conditions, is more powerful than capital,
and must obtain maximum wages The tribute exacted from
labour by monopoly, and by unprivileged employers when
monopoly prevails Influence of monopoly on production and
the demand for labour Underconsumption Unemployment
and commercial crises .... 144-160

CONTENTS xvii

CHAPTER XI

THE COMPONENT PARTS OF SURPLUS- VALUE

Surplus-value arises partly from natural law, partly from legal enact-
ments The action of each of its component parts on the distri-
bution of wealth Impossibility of abolishing rent and interest
Rent can be made common property ; interest cannot be made
common property The private appropriation of interest just
and innocuous ; the private appropriation of rent unjust and
harmful The unscientific character of the economic basis of
Socialism ..... Pages 161-165

CHAPTER XII

COMPETITION

Competition an inherent necessity of life Industrial competition
twofold : (a] in which the number of prizes is less than that of
competitors ; (b] in which the prizes are equal to the number of
competitors, but of varying value The latter kind predominates
Competition the only means of ensuring efficiency of service
and equality of reward to service rendered Scarcity of employ-
ment alters character of industrial competition The removal of
causes productive of scarcity of employment a social necessity,
not the removal of competition . . . 166-174

PART III
ETHICS

CHAPTER I

THE DENIAL OF NATURAL RIGHTS

The fundamental ethical conception of Socialism The meaning of
the conception made clear The denial of natural rights con-
tradicted by other fundamental conceptions of Socialism : (a)
the duty of the State to secure happiness ; (^) the claim of

xviii DEMOCRACY VERSUS SOCIALISM

majority rule ; (r) the assertion of the injustice of existing con-
ditions The denial examined deductively Murder and theft
condemned for other reasons than the prohibition of the State
Certain rights universally recognised, and recognised more fully
as societies evolve The State unable to alter the sequences of its
acts The origin and nature of rights . . Pages 177-185

CHAPTER II

HAPPINESS OR JUSTICE

The universal relation between the discharge of functions and sensa-
sations Happiness consists of the due discharge of all functions
Freedom to exercise all faculties the first requisite of happiness
Equal freedom, i.e. justice the condition for the greatest aggre-
gate sum of happiness Happiness cannot be distributed Equal
distribution of means to happiness cannot secure the greatest sum
of happiness Justice, securing equal rights to all, alone can
result in greatest sum of happiness The relativity of sensations
to individual organisms and to the state of such organisms, and
consequent impossibility of governmental determinations of acts
conducive to general happiness Justice a more intelligible aim
than happiness ..... 186-194

CHAPTER III

THE ORIGIN AND GROWTH OF LAW

Recognition of individual rights precedes the State and the formulation
of laws Leges Earbarorum are collections of pre-existing tribal
customs The growth of custom among Teutonic tribes Growth
of the Feudal Law, the Canon Law, and the Law of Merchants
The development of the Common Law and of Equity in England
The growth and codification of laws in Germany and France
Laws were declared by authority, but not made by it 195-206

CHAPTER IV

NATURAL RIGHTS

The limit of State interference with individual action Undisputed
natural rights . ..... 207

CONTENTS xix

CHAPTER V

THE ETHICS OF DISTRIBUTION

The development of social life in the direction of altruism The law
of immaturity Altruism originates in parental emotions The
law of maturity The survival of the fittest The penalties of
inefficiency The consequences of State interference with the
survival of the fittest The qualities and sentiments which con-
stitute fitness in the social state Monopoly fostering the sur-
vival of the less fitted ; justice in distribution tending to raise the
general degree of fitness Distributive proposals of Socialism
disastrous to society Their defence examined : (a) that com-
petition fails to secure a reward commensurate with services
rendered ; (b] that special energy and ability, being the result of
ancestral evolution, the "rent of ability " is a social inheritance ;

(c] that the power of any individual to supply his wants in the
social state depends upon the desire of others for his services ;

(d) that society is the only heir to the social inheritance of
intellect and discovery The right to an equal opportunity for
the acquisition of knowledge Distinction between equal rights
to the possession of things and equal rights to the opportunity for
the production of things . . . . Pages 208-227

CHAPTER VI

THE RIGHT TO THE USE OF THE EARTH

The right to the use of the earth a natural right and equal for all No
generation can limit or abolish the equal rights of future genera-
tions Justice condemns private ownership of land, as interfering
with the law of equal freedom The denial of equal freedom
through private ownership of land originates and is maintained
by force The duty of the State to enforce regulations giving
equal rights to land The appropriation of rent for common
purposes securing equal rights to land An illustration 228-232

CHAPTER VII

THE ETHICS OF PROPERTY

The proprietary sentiment recognisable in animals The causes ot
its indefiniteness and limitation among savages Its growth among

xx DEMOCRACY VERSUS SOCIALISM

pastoral and agricultural tribes The origin and growth of slavery
The causes of its abolition Communal use and ownership of
land The Teutonic mark War originates private ownership of
land Its original limitations Landowners, as the governing class,
removing such limitations Property in slaves, in land, and in
monopolies resting on a different basis than property in labour-
products The ethics of property in labour-products Property in
land, slaves, and monopolies directly infringes upon the rights of
property, and leads to indirect infringements The failure of the
State to make like claims upon property as upon lives for
defensive war Socialism would merely change the incidence of
injustice with regard to property . . Pages 233-243

CHAPTER VIII

THE RIGHT OF FREE INDUSTRY

The right to labour," what it is Socialism, abolishing the natural
right to work, would establish slavery The essence of slavery
The line of ethical demarcation between free and unfree indus-
tries Objections considered : (a} Fraudulent promises and adult-
erations ; (b) Factory legislation . . . 244-249

CHAPTER IX

INDIVIDUALISM

Socialist conception of the prevalence and influence of Individualism
Social injustice arises not from prevailing Individualism, but
from its legal limitation All social evolution proceeds from
primitive Socialism in the direction of Individualism The ethical
difference between Socialism and Individualism Existing limita-
tions of Individualism and their result The persistence of evils
arising from past interferences of the State with individual free-
dom Examples of such interferences in England The degrada-
tion of English labourers and remedial measures Full Indi-
vidualism consisting of the abolition of all interference with
equal freedom alone can complete the elevation of the working
classes ...... 250-260

CONTENTS xxi

PART IV
THE OUTCOME OF SOCIALISM

CHAPTER I

THE UNCONSCIOUS GROWTH OF SOCIAL STRUCTURES

Social evolution, like all evolution, consists in the development, multi-
plication, and increasing definiteness of structures The variety,
interdependence, and definiteness of the structures of co-operative
societies Individual desire to satisfy wants with least exertion,
the originating cause of social structures Their growth unpre-
meditated ; not social, but individual wellbeing being the im-
mediate object aimed at Socialism involves the substitution of
conscious creation for unconscious growth The evolution,
growth, and decline of social structures described Socialism
must reduce to a minimum the development of new and decline
of old structures Its influence on inventions and discoveries
The shrinkage of social structures under Socialism Stagnation
rapidly followed by retrogression, the result of Socialism

Pages 263-276

CHAPTER II

THE UNCONSCIOUS DISCHARGE OF SOCIAL FUNCTIONS

Co - operation the condition of social life The two kinds of co-
operation : (a] aiming directly at common ends, and compulsory ;
(b] aiming directly at individual ends, and voluntary Their
contrasts Illustration : the provisioning of an army and of a great
city The limited scope of compulsory co-operation Impossi-
bility to consciously direct the major activities of social
life ...... 277-288

CHAPTER III

THE INDUSTRIAL ORGANISATION OF THE SOCIALIST STATE /

Compulsory regulation declines with man's better adaptation to social
life Socialism, disregarding this law, increases compulsory regu-

xxii DEMOCRACY VERSUS SOCIALISM

lation Socialist and military organisation compared Socialist
admissions Compulsory allocation of occupation and location
The enforcement of " equality of service " Slavery the neces-
sary result of the conscientious discharge of its regulative func-
tions by the socialised State . . . Pages 289-299

I CHAPTER IV

THE POLITICAL OUTCOME OF SOCIALISM

/The tendency of governmental structures to escape from popular
control The political machine in the United States The
experience of trade unions Mr. and Mrs. Sidney Webb's
statements Differences between the regulative agency of trade
unions and that of the socialised State The bribing and terror-
ising power of the latter Its control of the Press Impossibility
of resistance to oppressive or corrupt use of power Different
systems of appointing and controlling regulative agency examined
Inevitability of such oppression and corruption Evolution of
caste system and hereditary despotism The experience of the
United States cited Impossibility of strikes . 300-316

CHAPTER V

THE INDUSTRIAL OUTCOME OF SOCIALISM

The motive for industrial exertion Its weakness under existing con-
ditions and total absence under Socialism Invalidity of the
socialist's reply to this contention The inefficiency of the regu-
lated labour equalled by the inefficiency of the regulators, and
followed by a decline in the efficiency of the national capital
Gradual reduction in the productivity of national labour Uni-
formity in poverty the result . . . 317-326

CHAPTER VI

THE FAMILY UNDER SOCIALISM

The evolution of parental emotions and their growth into generally
altruistic sentiments Monogynic relations best subserve this

CONTENTS xxiii

evolution and the wellbeing of offspring Socialism must
materially alter this relation The early separation of parents
and children weakening altruistic sentiments generally Its influ-
ence on the propagation of the race, and upon the character and
permanency of the marital relation These tendencies supported
by the pecuniary independence of women and the absence of a
separate family home The influence of public training on the
character of the children Survival of the unfittest Retrogression
and decay the inevitable result Socialist evidence confirming the
facts adduced ..... Pages 327-336

CHAPTER VII

THE ETHICAL OUTCOME OF SOCIALISM

The mental and physical adaptability of man to surrounding con-
ditions The reciprocal influence of individual character and
social control Appropriate sentiments accompanying various
stages of social evolution Socialism must develop appropriate
sentiments and ideas in the members of the socialised State, viz.
implicit obedience and submission to authority ; loss of the sense
of justice; untruthfulness, selfishness, and unchastity 337-34^

PART V
THE SINGLE TAX

CHAPTER I

INTRODUCTION

Private monopoly, especially land monopoly, the cause of social in-
justice Recapitulation of conclusions drawn in preceding chap-
ters Recapitulation of distinctions drawn between land and
wealth, inclusive of capital . . . 345-348

xxiv DEMOCRACY VERSUS SOCIALISM
CHAPTER II

OBJECTIONS TO PRINCIPLES

Lord Bramwell's theory of labour-value in land "The Fabian
Society " : the compound nature of capital ; the impossibility of
distinguishing between capital and land ; the ethical equality of
rent and interest ; that capital may have been acquired unjustly,
while land may have been purchased with rightfully acquired
wealth Mr. J. C. Spence, on behalf of "The Liberty and
Property Defence League " : that wealth is no more " made " by
labour than land ; that all forms of wealth are limited in amount
as land is limited ; that if land is common property, all men are
part-proprietors of Canadian land, and none of it can be taken
possession of without the special permission of all men Mr.
Lecky's version of this argument that priority of claim is the
basis of all property -rights ; that further corollaries from the
theory of common property in land are : the prohibition of the
use of any natural object involving its destruction ; the badness of
all titles to private property ; the prohibition of the appropriation
of anything Professor Huxley: the non-existence of natural
rights ; that equal right to land involves the denial of individual
rights to wealth ; that individual property in land is a corollary of
the derivation of individual rights of property from the exertion
of labour. .... . Pages 349-371

CHAPTER III

THE METHOD OF REFORM

qual right to the use of land involves as a corollary the duty of
governments to frame and enforce regulations safeguarding this
right Where this right is being disregarded, the regulations must
be framed in a manner which avoids unnecessary hardship being
inflicted upon those who suffer from and those who benefit by this
disregard Other conditions to be observed Nationalisation of
land by purchase It would miss the object aimed at and would
produce secondary evils Nationalisation of the rent of land by
purchase produces similar results Nationalisation of the land by
sudden confiscation produces utmost hardship to owners and non-
owners alike and produces secondary evils Henry George's Single

CONTENTS xxv

Tax method alone complies with all the conditions Its working
and results Its applicability to franchise-monopolies The treat-
ment of routes of transportation . . . Pages 372-384

CHAPTER IV
THE ETHICS OF COMPENSATION

The demand for compensation by defenders of private ownership of
land illogical Lord Bramwell's and Mr. Lecky's formulation of
the same The demand for compensation by the upholders of
equal rights to land considered Its validity when Land Nationali-
sation is the method of reform ; its invalidity when applied to the
Single Tax method The right to compensation involves the
denial of equal rights to land and of individual rights to labour-
products Compensation would perpetuate the existing system in
another form The plea of constructive general sanction The
plea that land has been purchased with labour-products The plea
of disappointed expectation The plea of destructive effect on the
sanctity of property .... 3^5-395

CHAPTER V

THE SUFFICIENCY OF THE REFORM

It abolishes speculation in land, lowers rent, increases demand for labour,
and raises wages It renders labourers independent of capitalist
employers The disappearance of involuntary unemployment
The disappearance of large fortunes Wage-industry superseded
by co-operative industry Almost disappearance of a separate class
of capitalists The disappearance of restrictive legislation The
dispersion of population and garden-homes Improvement in the
lot of women The re-population of the country Objections by
socialists considered Mr. H. M. Hyndman : rent an insignificant
amount ; the relief of capitalists from taxation ; that wages fall
pari passu with the removal of taxation from wage-earners Mr.
J. A. Hobson : that other classes have partaken, even more than
landowners, of the immense growth of wealth ; that the Single
Tax system would fail unless adopted universally The Fabian
Essays: the destruction of opportunities for employment furnished
by the wealthy classes .... 396-413

xxvi DEMOCRACY VERSUS SOCIALISM
CHAPTER VI

MR. EDWARD ATKINSON'S OBJECTIONS

That the Single Tax falls on the actual producers of wealth That it
would prevent men of small means from using land That
it would throw all valuable land into the hands of great
capitalists, and would not diminish their incomes That the tax
would be shifted to consumers, and that it could not be so shifted
That the tax would fall most heavily on farmers That the poor
will pay as much as the rich That it is impossible to determine
the " site " value of land That no one would make improve-
ments unless the land were leased for long periods at a fixed
rent ..... Pages 414-425

CHAPTER VII

PROFESSOR FRANCIS A. WALKER'S OBJECTIONS AND ADMISSIONS

Objections : That industrial crises are not due chiefly to speculative
holding of land That valuable land is not withheld from use
That the effect of improvements in methods of production does
not generally increase rent in a stationary population and where
all land is private property Increase of agricultural wages in
Great Britain Increase of capitalists' profits Increased produc-
tion does not necessarily involve an increased demand for land,
and the latter habitually falls short of the increased demand for
labour That improvements in transportation invariably reduce
rent That all improvements in agriculture invariably reduce
rent Admissions: That the landowner renders no service in
return for the rent which he appropriates That property in land
differs materially from property in labour-products and occupies a
lower ethical level That increase in the value of land is due, not
to the exertions and sacrifices of its owners, but to those of the
community Further Objections: That the admitted injustice in-
volved in private ownership of land cannot be removed without
giving rise to greater evils. These are : enormous addition to the
power of governments, and exhaustive culture of the soil 426-45 1

CONTENTS xxvii

CHAPTER VIII

CONFIRMATION BY SOCIALISTS

Extracts from the final chapter of Karl Marx's Capital, Fabian Essays
Sidney Webb, in Socialism in England August Bebel, in Woman
Sidney and Beatrice Webb, in Problems of Modern Industry
Edward Bellamy, in Equality . . . Pages 4.52-463

APPENDICES

1. The annual rental-value of land in the United Kingdom . 467

2. Revenue derived from taxation in the United Kingdom . 468

3. Annual rental-value of land and revenue derived from taxa-

tion in the United States .... 468

4. Annual rental-value of land and revenue derived from taxa-

tion in the Colony of Victoria . . . 469

5. Estimated contribution of capitalists to taxation in the

United Kingdom ..... 469

6. Estimated contribution of working population to taxation

in the United Kingdom .... 470

7. " The Rage for and Trend of Trusts," reprinted from The

Public, Chicago ..... 470

INTRODUCTION

THE greatest optimist cannot regard with satisfaction the
social conditions of the period through which we are
passing. At no time could wealth be produced with so
little effort ; at no time was wealth so abundant ; yet
mankind has benefited but inadequately by this unequalled
increase in the material means of happiness.

The statistics of lunacy and suicide confirm the general
conviction that the effort required to gain a livelihood is
constantly becoming greater and the strain on the nervous
energy of all workers more exhausting. Though a few
amass fortunes as huge as they are useless for the enjoy-
ment of anything but irresponsible power, the great mass
of the people, the bulk of the wealth-producers, are only
a little better off than at the period of their greatest
degradation ; while below them there is accumulating a
mass of hopeless human wreckage which makes our great
cities comparable to putrefying refuse heaps. 1 Last,
not least with this very advance in the facility of making
wealth, the opportunity to do so has become more re-
stricted and more uncertain for the working population.
Apart from the ever-increasing mass of those who cannot
find any employment, a much larger number are exposed
to the evil of occasional unemployment ; and recurring

"No one can contemplate the condition of the masses of the people without
desiring something like a revolution for the better." Giffen, Essays in Finance, 2nd
series, p. 393.

" It may well be the case, and there is every reason to fear it is the case, that there
is collected a population in our great towns which equals in amount the whole of those
who lived in England and Wales six centuries ago, but whose condition is more
destitute, whose homes are more squalid, whose means are more uncertain, whose
prospects are more hopeless than those of the poorest serfs of the Middle Ages and the
meanest drudges of the mediaeval cities." Rogers, Six Centuries of Work and Wages.

xxx DEMOCRACY VERSUS SOCIALISM

industrial crises, general and partial, hold up for ever
before his eyes that worst terror of the decent, self-re-
specting worker more or less continued unemployment. 1

Moreover, wealth is gradually concentrating in; fewer
and fewer hands, a process which, if unchecked, must
ultimately lead to the division of the population into two
warring classes with no interest in common, a ruling
plutocracy holding irresponsible power, and using it
ruthlessly to oppress the people, confronted by a mass of
hopeless proletarians for ever striving to shake off the
yoke imposed upon them. 2 Long before this extreme is
reached, however, social revolution, with all its horrors, will
have put a temporary check upon this tendency.

The problem which, with ever-increasing urgency,
demands a solution at the hands of our society, if peace
and progress are to be preserved, is that of the persistence
of undeserved poverty in the midst of abundant wealth ;
of unemployment in the midst of unsatisfied desires.

1 " In a normal state of industry in machine-using countries there exists more
machinery and more labour than can find employment, and only for a brief time in each
decennial period can the whole productive power of modern machinery be fully used."
Hobson, The Evolution of Modern Capitalism, p. 197.

2 In The Arena of December 1896, page 86, Eltweed Pomeroy publishes a table
showing the distribution of wealth in Great Britain among males of twenty-five years
and over, based upon the statistics of death and death-duties for the years 1890-94.
In explanation he states : " In my opinion it is an under-statement of the con-
centration of wealth in Great Britain j and yet the facts are startling. Over 56 per
cent own nothing ; and if we add the three first classes together, we have nearly 80 per
cent owning less than 3 per cent, and then a little over 20 per cent owning 97 per cent j
if we add the first four classes together, we have over 90 per cent of the people owning
less than 8 per cent of the wealth of the country, and under 10 per cent owning 92 per
cent j and if we take the last two classes, we find that less than one-fiftieth of the
people own over two-thirds of the wealth ; and then look at that last class of million-
aires, numbering less than three one-hundredths of I per cent, and yet owning over 13
per cent of the wealth."

Dealing with the State of Massachusetts, he shows the distribution of wealth to
have altered between the period 1829-31 and that of 1879-81 as follows, pp. 91, 92 :

" The class with nothing have increased from 62 to 69 per cent. The millionaires
have increased from .002 per cent with 8| per cent of the wealth, to .08 per cent with
24 per cent of the wealth. The number of small property owners with less than a
(1000) thousand (dollars) have decreased from under 20 per cent to 9 per cent, and their
property has decreased from a little over 4 per cent to just above i per cent. The
rich men worth between $100,000 and $500,000 have increased from .009 per cent to
.50 per cent, and their wealth has increased from nearly 13 per cent to z6\ per cent.
The moderately well off, worth from $1000 to $5000, have remained nearly the same
in per centage of population, around 13 per cent, but their wealth has decreased from 21
per cent to 8 per cent."

George K. Holmes, of the United States census office, in the Science Quarterly, December
1893, states : "Twenty per cent of the wealth of the United States is owned by three
one-hundredths of I per cent of the population 571 per cent is owned by 9 per cent of the
families, and 29 per cent of the wealth is all that falls to 91 per cent of the population."

INTRODUCTION xxxi

Why is it that millions of men cannot get enough bread
to eat, when two or three men can produce sufficient
wheat to maintain a thousand men for a year ? Why is it
that millions of human beings, in the most civilised
countries, are shivering in insufficient clothing, though
four of them can produce sufficient cotton or woollen cloth
for one thousand of them ? Why are so many without
decent boots, when a year's labour by one man can produce
nearly 4000 pairs of boots ? Why is it that while a boot-
maker wants bread, a tailor boots, and a baker clothes,
all three, instead of supplying each other's wants, are
compelled to want in enforced idleness ?

These are questions which ought to present themselves
to every thinking man, and which appeal with special
urgency to the minds of the wage-earners. For the slight
improvement in the condition of the majority of them,
the higher wages and shorter hours of labour which
organisation and legislation especially legislation which
abolished previous interference with equal freedom have
enabled them to exact, have given them leisure and
strength to consider their social condition. State schools
and cheap literature have given them access to the printed
thoughts of their leaders. The concentration of industry
in great cities has brought the additional stimulus of an
easy interchange of thought. Political enfranchisement
has endowed them with the hope that their aspirations
of to-day may be the realised condition of the near
future.

Socialism offers a plausible answer to these questions ;
appeals to the dissatisfied with an easily understood
remedy for the social and industrial evils which offend his
sense of justice. Its harmonious, if superficial, simplicity
captivates the half-educated from whom it requires no
mental exertion ; its passionate appeals to the highest
principles of ethics and the feeling of human brotherhood
intoxicate the emotional, while its pretended claims to
scientific completeness and evolutionary succession have
drawn within its ranks many men of marked ability, who
have despaired of any other method for the removal from
our civilisation of the evils which they abhor.

xxxii DEMOCRACY VERSUS SOCIALISM

It is therefore not astonishing that Socialism has
made and is still making progress, though its progress
may easily be over-rated. 1 For great numbers of men
are habitually classed or class themselves as socialists who
in reality know little or nothing of its nature or have no
sympathy with its proposals. Whoever seeks to improve
social conditions, even if the methods which he proposes
are fundamentally different from those of Socialism, is
nevertheless regarded as a socialist by unthinking or
prejudiced defenders of the existing system. On the
other hand, large numbers of men, profoundly conscious of
the injustice of existing social arrangements, lightly adopt
the name of socialist, though they are ignorant of the
real aims of the party which they thus apparently join.
While the numerical growth of Socialism is thus over-
estimated, it nevertheless is sufficiently great to demand
the most earnest attention and consideration.

C^What then is Socialism ? The great majority of the
middle - class population, who derive their information
mainly from the daily newspaper, regard it either as a
revolutionary attempt at an equal division of wealth, or as a
foolish aspiration for the sudden establishment of a Utopia.
No doubt the speeches and writings of the earlier socialists
have given ample excuse for these mistakes, and even now
there are many socialist speakers and not a few writers
whose violent utterances and extravagant dreams lend
themselves to easy misunderstanding and misrepresenta-
tion. Apart, however, from the consideration that such
extravagances are inevitable in any movement which
draws the mainspring of its activity from a manly revolt
against direful injustice and from a noble compassion for
the suffering which this injustice inflicts upon millions of
human beings, it is manifestly unjust and mischievous to
judge a great movement by its accessories instead of by
its essentials, unjust, because it amounts to misrepre-

1 " Although Socialism involves State control, State control does not imply
Socialism at least in any modern meaning of the term. It is not so much to the
thing which the State does as to the end for which it does it, that we must look before
we can decide whether it is a socialist State or not. Socialism is the common holding
of the means of production and exchange, and the holding of them for the equal benefit
of all." Fabian Essays, p. 212.

INTRODUCTION xxxiii

sentation; mischievous, because, while producing a false
sense of security on one side, it exasperates the other.

It is therefore deeply to be regretted that socialists
have just cause to complain that this treatment is only too
often meted out to them.

Socialism has long since cast off its early revolutionary
and Utopian swaddling-clothes, and has been transformed
into a political system working in constitutional channels.
Instead of depending upon a revolution for the realisation
of its ideas, it looks to a gradual transformation of our
society through the successive legalisation of small incre-
ments of its teaching. Instead of counting upon the
sudden creation of a Utopia, it looks upon society as
an evolutionary organism, which, through the gradual
adoption of socialistic proposals, is bringing its structure
into harmony with its environment. (Modern Socialism
is, therefore, a particular view of the organisation required
to bring society into harmony with its industrial expansion,
and is based on certain historical, economic, ethical,
industrial, and political conceptions.

Nor must it be omitted to acknowledge here that,
contrary to the crude opinion of " the man in the street,"
Socialism owes its development and progress to men of
high ability, character, and attainments ; that its exponents
have rendered important services in the development of
economic science, especially from the historical stand-
point ; and that it inculcates a spirit of altruism and
brotherhood among men which gives a high moral
and educational value to much of its literature. The
prevailing neglect of the social for the individual side of
life, the glorification of wealth and luxury and other
similarly regrettable tendencies of modern societies, have
been and are being denounced by socialist teachers with
enthusiastic devotion. If they mostly err in the opposite
direction, if they, in their turn, disregard the valid claims
of the individual in man and mistake compulsion for
beneficence, it is only the inevitable backward swing of
the pendulum before an equilibrium is reached.

A definition of Socialism which shall alike exclude all
those reformatory proposals which, while they bear a

xxxiv DEMOCRACY VERSUS SOCIALISM

semblance to those of Socialism, yet spring from opposite
motives, and will set in motion opposite tendencies, and
which shall not fail to include all that Socialism posits,
presents certain difficulties, because Socialism has not, on
all points, arrived at a static condition. In many respects
it is as yet in a state of development. Moreover, the
difficulty is increased by the claims which many socialists
advance, to count as evidence for the acceptance of their
creed, political measures, which, though neither adopted in
a socialistic spirit nor of a socialistic character, neverthe-
less bear a certain semblance to socialistic proposals. 1
Nevertheless, certain leading and essential characteristics
are sufficiently developed to enable general limits to be
drawn. In endeavouring to elucidate such a definition at
the present stage of this inquiry, it is, however, necessary
to confine it to the absolutely essential, leaving minor
characteristics for subsequent treatment.

1 " One of the most indefatigable and prolific members of the socialist party, in a
widely circulated tract, has actually adduced the existence of hawkers' licences as an
instance of the 'progress of Socialism.'" Hubert Bland, in Fabian Essays, p. 212.

PART I

AN ANALYSIS OF SOCIALISM

CHAPTER I

THE ECONOMIC CONCEPTIONS

THE fundamental economic conceptions of Socialism arise
from Karl Marx's theories of value and surplus value, and
culminate in the conception that the income of landowners,
capitalists, and employers alike, with the sole exception of
some reward due to the employer as organiser and director
of industry, are deductions from the wages of individual
labourers, a tribute imposed upon labour.

The following extracts from Marx's great work Capital
give the substance of these theories :

"That which determines the magnitude of the value
of any article is the amount of labour socially necessary,
or the labour-time socially necessary, for its production.
Each individual commodity in this connection is to be con-
sidered as an average sample of its class. Commodities,
therefore, in which equal quantities of labour are embodied,
or which can be produced in the same time, have the same
value. The value of one commodity is to the value of any
other, as the labour-time necessary for the production of
the one is to that necessary for the production of the other.
As values all commodities are only definite masses of con-
gealed labour-time " (p. 6). 1

" The value of labour-power is determined, as in every
other commodity, by the labour -time necessary for the
production, and consequently also for the reproduction, of
this special article. So far as it has value it represents

1 This and subsequent quotations from Capital are taken from the stereotyped edition,
Swan Sonnenschein and Co. London, 1889.

4 DEMOCRACY VERSUS SOCIALISM PART i

no more than a definite quantity of the average labour of
society incorporated in it. Labour-power consists only as
a capacity or power of the living individual. Its produc-
tion consequently presupposes his existence. Given the
individual, the production of labour-power consists in his
reproduction of himself or his maintenance. For his main-
tenance he requires a given quantity of the means of sub-
sistence. Therefore the labour -time requisite for the
production of labour-power reduces itself to that neces-
sary for the production of these means of subsistence ; in
other words, the value of labour-power is the value of the
means of subsistence necessary for the maintenance of the
labourer" (p. 149).

" The value of a day's labour-power amounts to three
shillings, because on our assumption half a day's labour is
embodied in that quantity of labour-power, i.e. because the
means of subsistence that are daily required for the produc-
tion of labour-power cost half a day's labour. But the past
labour that is embodied in the labour-power, and the living
labour that it can call into action, the daily cost of main-
taining it, and its daily expenditure in work, are two totally
different things. The former determines the exchange-
value (i.e. wages) of the labour-power, the latter is its use-
value. The fact that half a day's labour is necessary to
keep the labourer alive during twenty-four hours does not
in any way prevent him from working a whole day.
Therefore the value of labour-power and the value which
that labour-power creates in the labour process are two
entirely different magnitudes, and this difference of the two
values was what the capitalist had in view when he was
purchasing the labour-power" (p. 174).

" The action of labour-power, therefore, not only repro-
duces its own value, but produces value over and above it.
This surplus-value is the difference between the value of
the product and the value of the elements consumed in the
formation of the product ; in other words, of the means of
production (i.e. material and fractional parts of ' fixed
capital') and the labour-power. . . . The means of pro-
duction on the one hand, labour-power on the other, are
merely the different modes of existence which the value of

CHAP, i THE ECONOMIC CONCEPTIONS 5

the original capital assumed when from being money it
was transformed into the various factors of the labour-
process. That part of capital which is represented by the
means of production, by the raw material, auxiliary material,
and the instruments of labour, does not in the process of
production undergo any quantitative alteration of value.
. . . On the other hand, that part of capital represented
by labour-power does in the process of production undergo
an alteration of value. It produces the equivalent of its
own value and also produces an excess, a surplus-value,
which may itself vary, may be more or less according to
circumstances" (pp. 191, 192).

" If we now compare the two processes of producing
value and of creating surplus-value, we see that the latter
is nothing but a continuation of the former beyond a
definite point. If, on the one hand, the process be not
carried beyond the point where the value paid by the
capitalist for the labour-power is replaced by an exact
equivalent, it is simply a process of producing value ; if,
on the other hand, it be continued beyond that point,
it becomes a process of creating surplus - value " (pp.
176, 177).

" Capital has not invented surplus-labour. Wherever
a part of society possesses the monopoly of the means of
production, the labourer, free or not free, must add to the
working time necessary for his own maintenance an extra
working time in order to produce the means of subsistence
for the owners of the means of production, whether this
proprietor be the Athenian /ca\bs /cayaQos, Etruscan theocrat,
civis Romanus, Norman baron, American slave -owner,
Wallachian boyard, modern landlord or capitalist" (p. 2 1 8).

That this same idea of the unjust nature of surplus-
value is entertained, though in slightly altered form, by
the latest exponents of Socialism, in spite of the fact, which
will be proved later on, that some of them repudiate the
foundation on which the Marxian theory is built, the
labour-theory of value, will be seen from the following
quotation, taken from "Tract No. 69," issued by the
Fabian Society, and written by Mr. Sidney Webb, The
Difficulties of Individualism (p. 7) :

6- DEMOCRACY VERSUS SOCIALISM PART i

" When it suits any person having the use of land and
capital to employ the worker, this is only done on con-
dition that two important deductions, rent and interest,
can be made from his product, for the benefit of two, in
this capacity, absolutely unproductive classes those ex-
ercising the bare ownership of land and capital. The
reward of labour being thus reduced, on an average by
about one -third, the remaining eightpence out of the
shilling is then shared between the various classes who
have co-operated in the production."

Occupying a place in the economic teaching of Socialism
similar to that of surplus -value, is that of the evil of
industrial competition. Industrial competition, it asserts,
springs from and is inseparable from private ownership
and management of land and capital, and the only possible
method of putting an end to industrial competition and to
the evils which it generates, is to abolish such private
ownership and management.

Two lines of reasoning are put forward in support of
the maleficent influence of competition. The first of
these is based on the limitation of competition. Owing,
it states, to the inevitable tendency of modern machine
production towards the concentration of industry in the
hands of a comparatively small number of powerful in-
dividual capitalists, or associations of capitalists, competi-
tion has become one-sided. These capitalists instead of
competing with each other, form monopolistic combina-
tions to exclude competition between themselves. The
inevitable trend of industrial progress is towards the
extension of such monopolies until they must include
every considerable industry in which machinery is largely
employed.

While, however, the capitalist is thus enabled to shelter
himself from the evil results of competition, the wage-
earners remain exposed to all its horrors. The only
remedy for this one-sided competition is the total aboli-
tion of industrial competition.

Some examples of this line of reasoning will be found
in the following quotations. The first is from the Bible
of Modern " Scientific " Socialism, Karl Marx's Capital,

CHAP, i THE ECONOMIC CONCEPTIONS 7

pp. 788, 789 : "That which is now to be expropriated
is no longer the labourer working for himself, but the
capitalist exploiting many labourers. This expropriation
is accomplished by the action of the immanent laws of
capitalistic production itself, by the centralisation of
capital. One capitalist always kills many. . . . Along
with the constantly diminishing number of the magnates
of capital, who usurp and monopolise all advantages of
this process of transformation, grows the mass of misery,
oppression, slavery, degradation, exploitation. . . . The
monopoly of capital becomes a fetter upon the mode of
production, which has sprung up and flourished along
with it, and under it."

The following is an extract from Fabian Essays in
Socialism, the official publication of the Fabian Society,
London. 1 It states, pp. 89, 90 :

" I now come to treat of the latest forms of capitalism,
the c ring ' and the ' trust ' whereby capitalism cancels
its own principles, and, as a seller, replaces competition by
combination. When capitalism buys labour as a com-
modity it effects the purchase on the competitive prin-
ciple. . . . But when it turns round to face the public as
a seller, it casts the maxims of competition to the winds
and presents itself as a solid combination. Competition,
necessary at the outset, is found ultimately, if unchecked,
to be wasteful and ruinous. . . .

" No doubt the ' consumer ' has greatly benefited by
the increase in production and the fall in prices ; but
where is ' free competition ' now ? Almost the only per-
sons still competing freely are the small shopkeepers, /
trembling on the verge of insolvency, and the working T
men competing with one another for permission to live
by work."

The next quotation is taken from John A. Hobson's
The Evolution of Modern Capitalism, p. 357, a work which
is conceived and executed in a spirit of patient research
and careful analysis, which might serve as an example to
many opponents of Socialism.

1 Fabian Essays in Socialism is a complete exposition of modern English Socialism in
its latest and most mature phase (Sidney Webb, Socialism in England, p. 38).

8 DEMOCRACY VERSUS SOCIALISM PART

" Since the general tendency of industry, so far as it
falls under modern economics of machinery and method,
is either towards wasteful competition or towards mon-
opoly, it is to be expected that there will be a continual
expansion of State interference and State undertakings.
This growing socialisation of industries must be regarded
as the natural adjustment of society to the new conditions
of machine production."

In addition, it may not be without interest to quote
from the best-known and most widely-circulated work of
an American socialist, Laurence Gronlund's The Co-
operative Commonwealth. Though Gronlund is repudiated
by more modern socialists as favouring the catastrophic
realisation of their doctrines, they do not materially differ
from him as far as the doctrines themselves are concerned,
and his book is still widely disseminated by socialist
organisations. On pp. 42, 43, and 50, he states :

" The great weapon at the command of the capitalist
is competition. ... It deserves the name of cut -throat
competition when the wage -workers are forced into a
struggle to see who shall live and who shall starve. . . .
But these are by no means the only sufferers. The small
employers, the small merchants, are just as much victims
of that cruel kind of competition as the wage-workers. . . .

" But our big capitalists have a still more powerful
sledge-hammer than that of competition ready at hand-
to wit, combination. . . . They have already found that,
while competition is a very excellent weapon to use
against their weaker rivals, combination pays far better in
relation to their peers."

While the preceding authorities assert the failure of
competition to remain free and equal under the conditions
of modern industry, and base the proposals of Socialism
on this failure, other authorities base them on the evil of
competition qua competition. They disregard the argu-
ments which arise from one-sided competition and boldly
declare industrial competition as such to be the cause of
the exploitation and degradation of labour and incompat-
ible with the moral and physical wellbeing of the people.

Thomas Kirkup, one of the most careful and con-

CHAP, i THE ECONOMIC CONCEPTIONS 9

servative of socialist authors, declares in An Inquiry into
Socialism, p: 94 :

" So long and so far as the present competitive system
prevails, it must tend to the degradation of the workers,
to social insecurity, and disaster."

W. D. P. Bliss, a well-known American statistician
and writer on economic and industrial subjects, states in
A Handbook of Socialism, pp. 18, 20, and 21:

" Individual competition of manufacturers and em-
ployers compels them to produce as cheaply as possible
in order to sell as cheaply as possible. If they do not
they must go out of business ; for, under free competi-
tion, he who sells a given article the cheapest will get the
trade. Therefore, the manufacturer and producer, com-
pelled to buy in the cheapest market, strive among other
things to buy labour as cheaply as possible. The labourer,
meanwhile, having no good land and no adequate capital,
is compelled to sell his labour-force at the best price he
can. But since men multiply rapidly while land and
capital are limited, and since machinery and invention con-
stantly enable fewer and fewer men to do work formerly
done by many, there soon comes to be competition of
two (or two thousand) men to get the same job. Now
the employer we have seen to be compelled to employ
those who will work cheapest. There thus comes to be
a competition between workmen to see who will work
cheapest, and so get the job. This goes on developing
till wages fall to just that which will support and renew
the lowest form of life, that will turn out the requisite
grade of work. /

" Profit sharing, trades unions, partial co-operation,\
model tenements, charities, may do a little temporary good, )
but are mere bubbles on the ocean of competition ; the /
only way is to slowly replace competition by universal/
co-operation, which is Socialism.

" Nor would Socialism limit all competition. Com-
petition is not its devil. It recognises good as well as
evil in competition. It would simply abolish industrial
competition."

The Guild of St. Matthew's is an association of socialist

io DEMOCRACY VERSUS SOCIALISM PARTI

clerics of the Church of England. In a Memorial ad-
dressed to the Pan-Anglican Conference 1 by the Guild,
the following statements occur :

" Our present social system if the words 'social
system ' can be used for that which is largely the outcome
of anarchic competition is cruel and dishonest, and
needs drastic reform and radical reorganisation. . . . The
socialist objects to the competitive commercial system
under which we live, that it robs the poor because he is
poor," etc.

While the two lines of reasoning here exhibited differ
materially one from the other, they are not mutually
exclusive. The socialist who objects to private monopoly
may, and does, equally object to the freest and most
untrammelled industrial competition. This is actually
the state of mind prevailing among socialists who other-
wise may widely differ from each other. The mono-
polistic argument is used mainly against the theory that
free competition by itself will cure the evils which beset
our industrial system, in order to show that such free
competition is itself disappearing ; while the argument
against competition as such is the one mainly relied upon
to justify the novel industrial proposals of Socialism. The
economic theory of Socialism with regard to competition,
therefore, is that of the destructive and disintegrating
influence of industrial competition as such. The main
difference between Socialism and other non - socialistic
methods of social reform will be found to be that, while
the former condemns competition as such, the latter con-
demn the one-sided and inequitable conditions under
which competition is now carried on, and look forward
to the removal of these unjust conditions and to the
establishment of a really free and equal system of com-
petition the possibility of which Socialism denies as
the cure for the fundamental injustice of modern
societies.

These two conceptions, that of the destructive influ-
ence of industrial competition qua competition, and that

1 Report of Pan - Anglican Conference. London, 1888 j Society for Promoting
Christian Knowledge.

CHAP, i THE ECONOMIC CONCEPTIONS n

interest and rent and profit or surplus -value are deduc-
tions from the product, and, therefore, from the legiti-
mate reward of the producers, form the bases of the
industrial proposals of Socialism. The latter are devised
for the purpose of abolishing industrial competition, and
the exaction of rent, and interest, and profit, or surplus-
value as the only measures which can secure to labour its
full and just reward.

CHAPTER II

THE INDUSTRIAL PROPOSALS

SOCIALISTS as well as their opponents have, almost exclu-
sively, sought to define Socialism in terms of its industrial
proposals. As a consequence, these proposals have been
set out more frequently, and have been framed in more
definite terms than is the case with socialist principles
generally. Nevertheless, there is no complete agreement
between the authorities, even on this, the central point of
Socialism, though the differences, as will be seen, are not
of sufficient importance to prevent a definite conclusion
being arrived at.

The Social Democratic party of Germany is the most
numerous and influential body of socialists. Their
enunciation of the principles and aspirations which ani-
mate them is, therefore, of sufficient importance to justify
the republication here, in full, of that part of their latest
platform which deals with general principles. It was
framed at the Convention of the party, which took place
at Erfurt in October 1891, and is known as The Erfurt
Programme.

" The economic development of industrial society
tends inevitably to the ruin of small industries, which
are based on the workman's private ownership of the
means of production. It separates him from these means
of production, and converts him into a destitute member
of the proletariat, whilst a comparatively small number of
capitalists and great landowners obtain a monopoly of the
means of production.

" Hand in hand with this growing monopoly goes the

CHAP, ii THE INDUSTRIAL PROPOSALS 13

crushing out of existence of these shattered small industries
by industries of colossal growth, the development of the
tool into the machine, and a gigantic increase in the
productiveness of human labour. But all the advantages
of this revolution are monopolised by the capitalists and
great landowners. To the proletariat and to the rapidly
sinking middle classes, the small tradesmen of the towns,
and the peasant proprietors (Bauern), it brings an in-
creasing uncertainty of existence, increasing misery,
oppression, servitude, degradation, and exploitation.

" Ever greater grows the mass of the proletariat, ever
vaster the army of the unemployed, ever sharper the
contrast between oppressors and oppressed, ever fiercer the
war of classes between bourgeoisie and proletariat which
divides modern society into two hostile camps and is the
common characteristic of every industrial country. The
gulf between the propertied classes and the destitute is
widened by the crises arising from capitalist production,
which becomes daily more comprehensive and omnipotent,
which makes universal uncertainty the normal condition
of society, and which furnishes a proof that the forces of
production have outgrown the existing social order, and
that private ownership of the means of production has
become incompatible with their full development and their
proper application.

" Private ownership of the means of production,
formerly the means of securing his product to the pro-
ducer, has now become the means of expropriating the
peasant proprietors, the artisans, and the small tradesmen,
and placing the non-producers, the capitalists and large
landowners in possession of the products of labour.
Nothing but the conversion of capitalist private ownership
of the means of production the earth and its fruits,
mines and quarries, raw material, tools, machines, means
of exchange into social ownership, and the substitution
of socialist production, carried on by and for society, in
the place of the present production of commodities for
exchange, can effect such a revolution, that, instead of
large industries and the steadily growing capacities of
common production being as hitherto a source of misery

i 4 DEMOCRACY VERSUS SOCIALISM PARTI

and oppression to the classes whom they have despoiled,
they may become a source of the highest wellbeing and of
the most perfect and comprehensive harmony.

" This social revolution involves the emancipation, not
merely of the proletariat but of the whole human race,
which is suffering under existing conditions. But this
emancipation can be achieved by the working class alone,
because all other classes, in spite of their mutual strife
of interests, take their stand upon the principle of
private ownership of the means of production, and have
a common interest in maintaining the existing social
order.

" The struggle of the working classes against capitalist
exploitation must of necessity be a political struggle. The
working classes can neither carry on their economic struggle
nor carry on their economic organisation without political
rights. They cannot effect the transfer of the means of
production to the community without being first invested
with political power.

" It must be the aim of social democracy to give
conscious unanimity to this struggle of the working
classes, and to indicate the inevitable goal.

" The interests of the working classes are identical in
all lands governed by capitalist methods of production.
The extension of the world's commerce and production
for the world's markets make the position of the workman
in any country daily more dependent upon that of the
workman in other countries. Therefore, the emancipa-
tion of labour is a task in which the workmen of all
civilised lands have a share. Recognising this, the Social
Democrats of Germany feel and declare themselves at one
with the workmen of every land, who are conscious of the
destinies of their class.

" The German Social Democrats are not, therefore,
fighting for new class privileges and rights, but for the
abolition of class government, and even of classes them-
selves, and for universal equality in rights and duties,
without distinction of sex or rank. Holding these views,
they are not merely fighting against the exploitation and
oppression of the wage- earners in the existing social order,

CHAP, ii THE INDUSTRIAL PROPOSALS 15

but against every kind of exploitation and oppression,
whether directed against class, party, sex, or race." l

It is not without interest, to compare with the Erfurt
Programme that issued by the Social Democratic party of
Germany at their previous Convention at Gotha in 1875,
The Gotha Programme. The extract from the same,
here republished, deals with both the industrial and dis-
tributive proposals. It will be seen that the latter is
formulated in definite terms, while the Erfurt Pro-
gramme ', though of later date, is judiciously silent with
regard to it :

" Labour is the source of all wealth and of all culture, |
and, as useful work in general is possible only through
society, so to society that is to all its members belongs
the entire product of labour by an equal right, to each one
according to his reasonable wants, all being bound to work.

" In the existing society the instruments of labour are i
a monopoly of the capitalist class ; the subjection of the
working class thus arising is the cause of misery and servi-
tude in every land.

" The emancipation of the working class demands the
transformation of the instruments of labour into the
common property of society and the co-operative control
of the total labour, with the application of the product of
labour to the common good, and just distribution of the
same."

The Social Democratic Federation (England) states its
objects to be :

" The socialisation of the means of production, distri-
bution and exchange, to be controlled by a democratic
state in the interests of the entire community, and the
complete emancipation of labour from the domination of
capitalism and landlordism, with the establishment of social
and economic equality between the sexes."

The following extract is taken from the Manifesto
issued by the Joint Committee of Socialist Associations in
England. As a united expression of the principles and
aims of socialists it has therefore authoritative value :

" There is a growing feeling at the present time that,

1 Professor Ely's translation, Socialism.

1 6 DEMOCRACY VERSUS SOCIALISM PARTI

in view of the increasing number of socialists in Great
Britain, an effort should be made to show that, whatever
differences may have arisen between them in the past, all
who can fairly be called socialists are agreed in their main
principles of thought and action. . . .

" On this point all socialists agree. Our aim, one and
all, is to obtain for the whole community complete owner-
ship and control of the means of transport, the means of
manufacture, the mines and the land. Thus we look to
put an end for ever to the wage-system, to sweep away all
distinctions of class, and eventually to establish national
and international communism on a sound basis."

The Chicago Convention (1889) f "The Socialist
Labour Party of the United States " issued a programme
containing the following expression of its aims :

" With the founders of this republic we hold that the
true theory of politics is that the machinery of government
must be owned and controlled by the whole people ; but
in the light of our industrial development we hold, further-
more, that the true theory of economics is that the
machinery of production must likewise belong to the
people in common."

While the Chicago Convention, being mainly repre-
sentative of foreign socialists in the United States, cannot
claim to speak for native American socialists, it is differ-
ent with the recently organised " Social Democracy of
America." This association, organised by and for
Americans, and which, six months after its inception,
claimed to already exceed in membership all other socialist
bodies in the United States, has formulated its industrial
proposals as follows :

" To conquer capitalism by making use of our political
liberty and by taking possession of the public power, so
that we may put an end to the present barbarous struggle,
by the abolition of capitalism, the restoration of the land,
and of all the means of production, transportation, and
distribution, to the people as a collective body, and the
substitution of the co-operative commonwealth for the
present state of planless production, industrial war, and
social disorder. . . . The social democracy of America

CHAP, ii THE INDUSTRIAL PROPOSALS 17

will make democracy ' the rule of the people ' a truth by
ending the economic subjugation of the overwhelmingly
great majority of the people."

The socialists of France are split up into many parties,
differing mainly with regard to the methods more or less
revolutionary by which their objects are to be attained.
There does not, however, seem to exist any difference
between them regarding their industrial object, which, as
far as can be ascertained, is identical with that of their
strongest body, the " Parti Ouvrier Socialiste Revolu-
tionnaire Francais." The programme of the latter contains
the following declaration :

" To place the producer in possession of all the means
of production land, manufactures, ships, banks, credit,
etc., and, as it is impossible to divide these things among
individuals, they must be held collectively."

In addition to these, the most authoritative declara-
tions, because emanating from organised Socialism, some
definitions of like character, supplied by prominent
socialists and by one of their most eminent opponents, may
also be cited.

The first of these is the definition supplied by Dr.
A. von SchaefHe. Though Dr. Schaeffle is a State
socialist, and as such an opponent of organised Socialism,
his definition has been received with almost general
approval by socialists as well as others. The final part of
the definition, which deals with distribution, must however
be accepted with caution, inasmuch as it will be shown
presently to be incorrect, and that the error has since
been recognised by Dr. Schaeffle himself :

" To replace the system of private capital (i.e. the
speculative method of production, regulated on behalf of
society only by the free competition of private enterprises)
by a system of collective capital that is, by a method of
production which would introduce a unified (social or
' collective ') organisation of national labour, on the basis of
collective or common ownership of the means of production
by all the members of the society.

" This collective method of production would remove
the present competitive system, by placing under official

1 8 DEMOCRACY VERSUS SOCIALISM PARTI

administration such departments of production as can be
managed collectively (socially or co-operatively) as well as
the distribution among all of the common produce of all,
according to the amount and social utility of the productive
labour of each." 1

The two following definitions are taken from leading
socialist writers :

W. D. P. Bliss " Socialism is the fixed principle
capable of infinite and changing variety of form, and only
gradually to be applied, according to which the community
should own land and capital collectively and operate them
co-operatively for the equitable good of all."

William Clarke " A socialist is one who believes that
the necessary instruments of production should be held
and organised by the community instead of by individuals,
within or outside of the community." 3

In spite of the variety of expressions used, it will be
manifest that all the preceding declarations concur in
describing the industrial proposals of Socialism to be :
The transfer to the community of both the ownership and
management of all the land, and the means of production,
without any exception whatsoever. SchaefHe alone makes
a limitation, which, however, is meaningless, viz. " as
can be managed collectively." For it is obvious that
every department of production can be managed collect-
ively, when the question of relative advantage or conse-
quences is left out of account, as is done by SchaefHe.
Even a critic whose sympathies are largely on the side of
Socialism Professor R. T. Ely makes the following
comment on this part of SchaefBe's definition : " Perhaps
it is defective in the statement that Socialism proposes to
place under official administration such departments of
production as can be managed collectively, without stating
directly that Socialism maintains the possibility of a col-
lective management substantially of all production."
Moreover, in so far as the preceding declarations form
part of the programmes of organised Socialism, they
possess authority exceeding that of minor socialist bodies,

1 The Quintessence of Socialism, p. 3. 2 A Handbook of Socialism, p. 9.

3 Political Science Quarterly, December 1888. 4 Socialism, p. 20.

CHAP, ii THE INDUSTRIAL PROPOSALS 19

or of individual authors, however eminent, and whether
they are socialists or not. Nevertheless, in order to
obtain a full grasp of this question, it is necessary to
consider also declarations and definitions which, in one
way or another, seem to place limits upon the state-
ownership and management of industries demanded by
Socialism.

The most important of these is the prospectus of the
Fabian Society of Socialists an association which counts
among its members not only the most cultured of English
socialists, but many men and women whose character,
abilities, and attainments have secured for them distin-
guished positions in the world of literature, science,
politics, and commerce :

"The Fabian Society consists of socialists. It there-
fore aims at the reorganisation of society by the emanci-
pation of land and industrial capital from individual and
class ownership, and the vesting of them in the community
for the general benefit. In this way only can the natural
and acquired advantages of the country be equitably
shared by the whole people. The Society accordingly
works for the extinction of private property in land, and
of the consequent individual appropriation, in the form
of rent, of the price paid for permission to use the earth,
as well as for the advantages of superior soils and sites.

" The Society, further, works for the transfer to the
community of the administration of such industrial capital
as can conveniently be managed socially. For, owing to
the monopoly of the means of production in the past,
industrial inventions, and the transformation of surplus
income into capital, have mainly enriched the proprietary
class, the worker being now dependent on that class for
leave to earn a living.

" If these measures be carried out without compensa-
tion (though not without such relief to expropriated
individuals as may seem fit to the community), rent and
interest will be added to the reward of labour, the idle
class now living on the labour of others will necessarily
disappear, and practical equality of opportunity will be
maintained by the spontaneous action of economic forces

20 DEMOCRACY VERSUS SOCIALISM PART i

with much less interference with personal liberty than the
present system entails.

" For the attainment of these ends the Fabian Society
looks to the spread of socialist opinions, and the social
and political changes consequent thereon. It seeks to
promote these by the general dissemination of knowledge
as to the relation between the individual and society in its
economic, ethical, and political aspects." l

The limitation here insisted upon " such industrial
capital as can conveniently be managed socially " is an
advance, though a slight one, upon Schaeffle, and by no
means definite. It receives, however, a further extension
at the hands of Mr. Sidney Webb, a prominent member
of the Fabian Society, in the following definition :

" On the economic side, Socialism implies the collective
administration of rent and interest, leaving to the indi-
vidual only the wages of his labour, of hand or brain.
On the political side it involves the collective control
over, and ultimate administration of, all the main instru-
ments of wealth production. On the ethical side it
expresses the real recognition of fraternity, the universal
obligation of personal service, and the subordination of
individual ends to the common good."

The definition here given " the main instruments of
wealth production " is decidedly more definite than that
supplied by the prospectus of the Fabian Society, but still
errs on the side of ambiguity. Its meaning, however, is
explained by another member of the Fabian Society Mr.
Graham Wallas in an official publication, Fabian Essays
on Socialism. He defines it as " all those forms of pro-
duction, distribution, and consumption which can con-
veniently be carried on by associations larger than the
family group." As Mr. Wallas's definition is valuable
on other accounts as well, it is cited here in extenso :

" There would remain, therefore, to be owned by the
community the land in the widest sense of the word, and
the materials of those forms of production, distribution,
and consumption which can conveniently be carried on by
associations larger than the family group. . . .

1 Sidney Webb, Socialism in England, pp. iz, 13. 2 Socialism in England, p. 10.

CHAP, ii THE INDUSTRIAL PROPOSALS 21

" The postal and railway systems, and probably the
materials of some of the larger industries, would be owned
by the English nation until that distant date when they
might pass to the united states of the British Empire or
the Federal Republic of Europe. Land is perhaps gener-
ally better held by smaller social units. . . . At the same
time, those forms of natural wealth which are the neces-
sities of the whole nation and the monopolies of certain
districts mines for instance, or harbours, or sources of
water-supply must be ' nationalised/ . . .

" The savings of individuals would consist partly of
consumable commodities, or of the means of such industry
as had not been socialised, and partly of deferred pay for
services rendered to the community, such pay taking the
form of a pension due at a certain age, or of a sum of
commodities or money payable on demand." l

While Mr. Wallas's explanation leaves little to be
desired in the way of definiteness, it, on the other hand,
shows that the limitation advocated by the Fabian Society
is a verbal one only. For the industrial activities which
cannot be " conveniently carried on by associations larger
than the family group " are few and insignificant. The
industry of sewing new buttons to an old shirt may
conceivably fall under this head ; but the mending of the
family socks, washing the family linen, and cooking the
family dinner may easily be held to fall within this de-
finition, and many socialists regard them as peculiarly
the object of State management. 2 In any case all pro-
duction, the produce of which exceeds the requirements of
the producing family, i.e. all production for exchange, is
manifestly covered by this definition.

Moreover, the Fabian Society has itself repented of
the slight limitation introduced in its prospectus. For at
a subsequent date to that on which this document was
issued, it became one of the signatories to the Manifesto
issued by the Joint-Committee of Socialist Associations, 3 and
which declares : " On this point all socialists agree. Our
aim, one and all, is to obtain for the whole community

1 Fabian Essays, p. 135.
Vide Looking Backwards, etc. 3 Ante, p. 15.

22 DEMOCRACY VERSUS SOCIALISM PART i

complete ownership and control of the means of transport,
the means of manufacture, the mines, and the land."

Similarly, Mr. Sidney Webb has in a later work, Pro-
blems of Modern Industry, abandoned the slight limitation
on collective ownership and control previously introduced
by him, as the following quotation shows :

" We are trying to satisfy the ordinary man . . . that
the main principle of reform must be the substitution of
collective ownership and control for individual private
property in the means of production." 1

On all these grounds the conclusion is inevitable, that
there is no appreciable difference between the aim of the
Fabian Society and that of other socialist associations in
the direction of State ownership and management, and that
these comprise the land and every form of capital. Further
inquiry will prove that any limitation of this programme
is incompatible with the method of distribution which the
Fabian Society or any other socialist body aims at, as also
with that " abolition of industrial competition " to which
all socialists are pledged.

Moreover, the continuance of any private industry for
exchange, however insignificant the volume of its products
may be, is incompatible with the abolition of " Private
Interest," which, as has been shown, is one of the fore-
most objects of Socialism. The following quotation proves
that socialists, even Fabian socialists, fully admit this
fact :

" To whatever extent private property is permitted, to
that same extent the private taking of rent and interest
must be also permitted. If you allow a selfish man to
own a picture by Raphael, he will lock it up in his own
room unless you let him charge something for the privilege
of looking at it. Such a charge is at once interest. If
we wish all Raphael's pictures to be fully accessible to
every one, we must prevent men not only from exhibiting
them for payment, but from owning them." 1

Whether the charge dealt with in the foregoing quota-
tion is rightly described as interest or not, it is clear that

1 S. and B. Webb, Prcblems of Modern Industry, p. 259 (1898).
2 Fabian Essays, p. 139.

CHAP, ii THE INDUSTRIAL PROPOSALS 23

the argument applies with equal force to pictures by living
masters. When such a picture is exhibited by its author
against an entrance fee, the charge bears the same economic
character as that made by a speculator for viewing the
work of a dead master. Likewise, if it is desirable that
" Raphael's pictures be fully accessible to every one," it is
equally desirable with regard to modern pictures of ex-
cellence. " Men must be prevented from owning them "
also. Therefore, in the opinion of this Fabian essayist,
the production of paintings and other works of art for sale
or exhibition must be placed under State management.
Nor can the logic of this contention be easily disputed by
other socialists.

It is equally certain that professional services cannot be
permitted to be performed on private account. Although
the industrial proposals of Socialism do not necessarily
involve such a change, its distributive proposals do involve
it. In order that they may be carried out, all professional
men must be employees of the State, rendering their
services gratis or against a charge which must be paid, not
to them, but into the revenue of local or central govern-
mental bodies. This subject, as well as that of domestic
service, literature, and science, can, however, be more con-
veniently considered when the distributive proposals of
Socialism are under examination.

CHAPTER III

THE INDUSTRIAL PROPOSALS Continued

THE preceding examination has made it manifest that, in
spite of the appearance of limitation in some socialist
utterances, there exists a practical agreement between all
socialists, which will be seen to be dictated by other
principles held by them in common, requiring the sociali-
sation of all industries the products of which enter the
circle of exchanges.

The industries thus excluded are, however, so trivial
that they may conveniently be disregarded in any
definition. There remain, however, some direct con-
sequences of the above proposals to be considered before
such a definition can be made.

The first of these is the method by which Socialism
proposes to acquire the ownership of land and capital.
The prospectus of the Fabian Society states :

" If these measures be carried out without compen-
sation (though not without such relief to expropriated
individuals as may seem fit to the community), rent and
interest will be added to the reward of labour." 1

The Fabian Essays supply even more definite
information, viz. "The progressive socialisation of
land and capital must proceed by direct transference of
them to the community through taxation of rent and
interest and public organisation of labour with the capital
thus obtained." 2

The above statements are the more valuable because
the exponents of Socialism are generally more than

1 See ante, p. 19. 2 P. 140.

CHAP, in THE INDUSTRIAL PROPOSALS 25

reluctant to give clear expression to their intention on
this subject. Taken by themselves -the context in no
way alters their meaning they would, however, lead to
the conclusion that Socialism relied upon taxation alone
for the establishment of its industrial system. That,
however, is impossible. For if the State appropriates by
taxation more than its current expenditure requires, it
cannot keep the ever-increasing fund idly locked up in
some vault. " The public organisation of labour with the
capital so obtained " must proceed part passu with its
acquisition, in order that the gradual transformation
from private to public industry may be realised. There
are only two ways in which this can be done, viz. by
the creation of new establishments through the purchase
of land, machinery, and material, or through the purchase
of already existing private establishments.

At first, no doubt, the former process would be
largely employed. As, however, increasing taxation
results in a reduction of private profit, of rent, and
of the value of land, and as the competition of untaxed
State establishments reduces still further the value of
fixed capital engaged in private enterprises, private
industrial establishments could be purchased so cheaply
that the second method would prevail. Such land as the
State required would of course always be acquired by
purchase at rates constantly falling with the increase of
taxation. In this way the land and the capital would
become the property of the community apparently with-
out confiscation. In reality, however, no compensation
would have been paid. For the owners themselves
would furnish the compensation fund ; and the amount
received by them as compensation could not exceed
the amount paid by them in special taxation. Some
of them would receive more than their contributions,
but only on condition that others received less than
theirs.

Another method of transference is suggested by Mr.
Laurence Gronlund in the following terms :

" We shall here make a digression to state definitely
our position in regard to compensation to the dispossessed

26 DEMOCRACY VERSUS SOCIALISM PART i

owners of property which we left somewhat unsettled in
the last chapter.

" We suggested there that if the final change were
accomplished by force, the State would possibly expro-
priate our men of wealth without compensation whatever.
Their existing rights are such which the law gives, and
what the law gives the law can take away. That would
be done without any compunction of conscience, seeing
that much of that wealth is obtained by questionable
methods, and very much of it by the trickery of buying
j and selling, which never can create value. . . . But as a
matter of policy the State may see fit to give the pro-
prietors a fair compensation for that property which Society
takes under its control, i.e. for its real and not its specu-
lative value. But there are two important ' buts ' to note.
They will not receive any interest on the sums allowed them.
When all interest has ceased to be legitimate throughout
society, society will hardly charge itself with that burden.

" They will not be 'paid in money ^ but in goods, in articles
of enjoyment furnished in annuities to those whose claim
is sufficiently large." T

This statement shows that Gronlund is a catastrophic
socialist, a survival of the past. Nevertheless, his proposal
is worthy of examination, as being the only alternative to
that of the Fabian Society, if the transfer is to be made
gradually. For, though Gronlund considers it under the
supposition of a sudden transformation of the existing
into a full-blown socialistic system, it might be applied to
a gradual transmutation.

The State might establish new or purchase existing
industrial enterprises with bonds, and might gradually
extend this process till all land and private industrial
capital had passed into its possession. If the bonds were
made interest-bearing and if the profit from State-con-
ducted industries were sufficient to pay the interest, the
compensation would so far be real. If, however, the
profit were insufficient, a contingency which cannot be
disregarded, taxation of land and capital would have to be
resorted to, to the extent of the deficiency. In such case

1 A Co-operative Commonwealth, pp. 135, 136.

CHAP, in THE INDUSTRIAL PROPOSALS 27

the owners of land and capital would, to the same extent,
provide their own compensation as in the plan advocated
by the Fabian Society.

In either case, however, the payment of interest could
not be continued beyond the close of the transition period
without a denial of the fundamental principles of Socialism.
The bonds would then be repaid in the manner described
by Gronlund, in annual instalments of consumption-goods,
till the whole of the debt was extinguished. The pro-
spective cessation of interest payments would, however,
result in a gradual depreciation of the bonds, which
would reach its maximum at the actual termination of
the former.

On the other hand, it is also possible to make the
bonds non-interest-bearing from the first, and still subject
to gradual extinction by delivery of consumption-goods.
In this case the bonds would be at a great discount from
the beginning.

Whichever of these two systems were adopted, it is
certain that many if not all the bonds would change
hands during the period of their currency. The question
would therefore be raised, whether the State should pay
in full for bonds which had been acquired by their actual
possessors at much reduced values ; nor can there be any
doubt how it would be answered.

Gronlund's plan, therefore, while some improvement
on that of the Fabian Society from the point of view of
landowners and capitalists, is no very great improvement
even if it were practicable. The probability, however, is
greatly in favour of a mixed system being adopted at the
dictates of political expediency. If the socialists are
strong enough to induce the State to enter upon the
conduct of competitive industries, they will also have
sufficient influence to impose special taxation upon land
and capital. They may, however, easily be induced to
extend the system of State -industry beyond the limits
of the capital which such taxation would place at their
disposal, and this could only be done by the issue of
interest-bearing bonds. It is, however, inconceivable that
these bonds would be made exempt from the taxation

28 DEMOCRACY VERSUS SOCIALISM PART i

imposed on all other forms of wealth, and the bond-
holders would therefore furnish their own interest to an
extent which, ultimately, would amount to the whole
interest. Whichever plan, therefore, may be adopted,
the compensation paid would fall far short of the value
of the property appropriated, even short of that greatly
reduced value caused by State -competition or by State-
competition combined with special taxation. Socialism,
therefore, has no choice ; it must rely mainly on con-
fiscation for the gradual transformation of private industry
into collective industry.

Attention must now be directed to some of the con-
sequential changes in the existing industrial and financial
organisation which are implied in the socialisation of land
and capital.

It involves the abolition of all indirect sources of
private income and of the entire system of public and
private credit as we know it. The taxation of incomes,
gradually increasing, would ultimately absorb the interest
of all state and municipal indebtedness, which then might
be extinguished in the manner already described. Private
credits, the interest from which would be taxable in the
same manner, could not continue under a system in
which the State would borrow and lend without interest,
as will be described presently.

Private exchange, both wholesale and retail, would
equally disappear, giving way to State -conducted ware-
houses. These indirect consequences involved in the
realisation of the industrial proposals of Socialism are aptly
described by Dr. Schaeffle in the following terms :

"The principle of Socialism is thus opposed to the
continuance not only of private property in directly
managed means of production (that is, in private business
and joint-stock and other associations of capital), but also
of individual ownership in indirect sources of income ;
i.e. to the entire arrangement of private credit, loan, hire,
and lease not only to private productive capital, but also
to private loan - capital. State credit and private credit,
interest-bearing capital and loan-capital, are incompatible
with the socialistic state. Socialism will entirely put an

CHAP, in THE INDUSTRIAL PROPOSALS 29

end to national debts, private debts, tenancy, leases, and
all stocks and shares negotiable at the bourse. . . .
Socialism, from its premises, can no longer allow trading
and markets, and it would be necessary even for coinage
eventually to cease to exist and for labour-money (certifi-
cates of labour) to take its place. ... If we suppose the
production by private capitalists to be removed, and a
unified, organised common-production in its place, buying
and selling, competition and markets, prices and payment
by money are at once superfluous. Within the socialised
economic organisation they are even impossible."

With a slight limitation, regarding public credit, which
will be dealt with presently, this passage exhibits with
much acumen some of the indirect consequences which
necessarily must flow from the public assumption of
ownership and management of land and capital.

The socialisation of land and capital further implies their
being vested in and managed by some constituted authority
or authorities. Socialism proposes to vest such authority,
as far as possible, in local governmental bodies, i.e. muni-
cipalities, county councils, etc., and to confide to the
direction of the central government as few of the socialised
industries as_possible. It must, however, be recognised
thaf iSe limitsoFTocal control are drawn in a narrow circle
by the nature of industries. Purely local industries,
i.e. industries the products of which are destined for local
consumption alone, may be so managed with safety, as
supply of water, gas, electricity, hydraulic and pneumatic
power, as also local means of transport, as cabs, omnibuses,
and tramways. Villages and very small towns might also
undertake the local production and distribution of bread,
meat, milk, and some other quickly perishable articles,
though even in these instances complications from the
overlapping of authorities could scarcely be avoided.
Large towns and cities, which draw their supplies, even
of these quickly perishable articles, from wide areas, could
not possibly undertake even these limited functions. On
the other hand, all those industries which produce easily
transportable goods, as well as those means of transport

1 The Quintessence of Socialism, pp. 64, 69, 70.

30 DEMOCRACY VERSUS SOCIALISM PART i

which extend beyond local limits, must, by their very
nature, be managed by one central authority, as agriculture,
mining, manufactures, and the wholesale distribution of
their products, as well as railways, rivers, canals, and
shipping. The reason is obvious. The production of
such industries must be kept in harmony with the require-
ments of the community. In the absence of the com-
petitive organisation this object can only be attained
through an administration embracing and controlling the
whole field of their production. These considerations
make it clear that, with few and comparatively unim-
portant exceptions, the management of socialised industries
must be vested in the central government.

The authority which manages any industry must also
control the labour employed in it. The conduct of all
industries by the State further imposes upon the State the
duty to either find full employment for all its members at
all times, or to provide full incomes, without any return in
labour, during such times, if any, when employment can-
not be found for all. Therefore the managing authority
must possess power to appoint for each citizen the kind of
labour to which he is to devote himself, as well as the
locality where his labour will be of the greatest service.
Only by rigorously shifting labourers from an occupation
and a place in which they have become superfluous, to
occupations and places where their labour is required, can
the requirements of the community be harmoniously
supplied, and the simultaneous over-production of some
goods and under-production of other goods be prevented.

Stress must once more be laid on the fact that Social-
ism does not contemplate the abolition of all private
property, but only of private property in land and capital.
That part of the annual product of the national labour
and industry which is not required for the replacement,
improvement, and extension of national capital, would be
distributed among individuals in the shape of consumption-
goods, and would become private property. Private
ownership in consumption-goods would, therefore, continue
in the socialised State. Nor is there any compulsion on
individuals to abstain from saving. They could do so

CHAP, in THE INDUSTRIAL PROPOSALS 31

either by collecting durable consumption -goods in their
own homes, or by withdrawing from the common fund a
smaller amount of goods than they are entitled to, so as to
accumulate a reserve on which they could draw at future
times. Similarly, the State might advance consumption-
goods to citizens on the security of their future labour
contributions. The State, and this is the slight limitation
on Dr. Schaeffle's pronouncement already alluded to, could
thus, consistently with the principles of Socialism, become
the debtor and creditor of individuals, provided no interest
were paid or charged, though such a course, as will be
shown in Part II., would give all the advantages of interest
to the borrowers. Private loans, except in so far as they
were prompted by charity, would absolutely cease, because it
would be safer to allow savings to accumulate with the
Government, than, in the absence of interest, to entrust
them to some individual whose credit with the Government
was exhausted.

Rent of building sites would be paid, but would be
payable to the Government. For it would be manifestly
unjust to allot to some persons the best and most con-
venient building sites, while others must be satisfied with
inferior ones, without the exaction of an equivalent for
the enjoyment of the superior advantage. The equality
at which Socialism aims, therefore, requires the continu-
ance of such rent-payments a fact admitted by some. 1
On the other hand, rent for agricultural land, mines,
factory sites, and other natural opportunities of industry,
would apparently disappear, the State being, with regard
to them, tenant as well as landlord.

The foregoing examination enables us to formulate
a definition, perhaps not absolutely comprehensive, yet
sufficient for all practical purposes, of what is implied in
the, industrial proposals of Socialism, viz. :

(Socialism aims at the gradual abolition of private
property in and private control of the instruments and

1 " A Socialist State or municipality will charge the full economic rent for the use
of its land and dwellings, and apply that rent for the purposes of the community."
S. B. Webb, Problems of Modern Industry, p. 278. The necessity or even consistency of
charging rent of " dwellings," i.e. interest, is not apparent.

32 DEMOCRACY VERSUS SOCIALISM PART r

materials of production, land, 1 transportation, trade, loan-
capital, and public debts ; such abolition to take place
without compensation, or through partial compensation
only, of present proprietors as a whole. For these private
rights it would substitute the collective ownership and
management by the community, acting through local or
central governmental bodies, of the instruments and
materials of production, land, transportation, trade, and
loans, continuing private property in and private control
of all consumption-goods awarded to individuals as their
share of the industrial product. )

1 The term " land " as used here and subsequently includes agricultural land^
building sites, mines, waterfalls, and all other natural opportunities.

CHAPTER IV

THE ETHICAL CONCEPTIONS

THE conception which Socialism has formed with regard to
the relations existing between individuals and the social
entity to which they belong, is totally opposed to that
formed by Liberalism and Democratic Radicalism, and is
practically identical with that prevailing under the despotism
of the post-reformation period. 1 Apart from socialists, it
is, at the present time, to be found only among the belated
survivals of that period, who march in the rear of English
Toryism, or compose the junker-parties of Germany and
Austria. 2

It consists in the denial of the existence of abstract or \
natural human rights, and its converse, the assertion that \
all individual rights are derived from the State, as well as
in the logical deduction from these premises, that any

1 " All that is found within the limits of our State belongs to us by the same title.
You may rest assured that kings have the right of full and absolute disposition over all
the property possessed by the clergy as well as the laity, to use it at all times with wise
economy, that is, according to the general necessity of the State." "Memoires de Louis
XIV. pour 1' instruction du Dauphin," Yves Guyot, La Propriete'.

" The Liberty of the subject lieth, therefore, in those things which, in regulating
their action, the sovereign hath praetermitted. . . . Nevertheless, we are not to under-
stand that by such liberty, the sovereign power of life and death is either abolished, or
limited. For it hath already been shown that nothing the sovereign representative can
do to a subject on what pretence soever can properly be called injustice or injury ; . . .
and the same holdeth also in a sovereign prince that putteth to death an innocent
subject. For though the action be against the law of nature, as being contrary to equity,
as was the killing of Uriah, by David, yet it was not an injury to Uriah, but to God."
"The English Works of Thomas Hobbes," by Sir William Molesworth, Bart., vol. iii.
Leviathan, pp. 99, 100.

2 " Be it that there are natural rights that is, in a state of nature, where there
is nothing artificial. But men have formed themselves into a social state ; all is
artificial and nothing merely natural. In such a state no rights ought to exist but
what are for the general good all that are should." Lord Bramwell, Land and
Capital. The Pseudo-Scientific Theory of Men's Natural Rights. W. H. Mallock, Studies of
Contemporary Superstitions.

(

34 DEMOCRACY VERSUS SOCIALISM PART i

and all such rights may justly be cancelled by the State, if
the latter is of opinion that its interests will be served
thereby.

Thus Sidney Webb, in Socialism in England, states,
p. 79 : "A wide divergence of thought is here apparent
between England and the United States. In England the
old a priori individualism is universally abandoned. No
professor ever founds any argument, whether in defence
of the rights of property or otherwise, upon the inherent
right of the individual to his own physical freedom and
to the possession of such raw material as he has made his
own by expending personal effort upon. The first step
must be to rid our minds of the idea that there are any
such things in social matters as abstract rights " (The State
in Relation to Labour ', chap. i. p. 6, by the late W. Stanley
Jevons). . . . "The whole case on both sides is now made to
turn exclusively on the balance of social advantages."
Laurence Gronlund formulates the theory as follows, in
The Co-operative Commonwealth, pp. 82, 83, and 85 :

" It " (the conception of the State as an organism),
" together with the modern doctrine of evolution as applied
to all organisms, deals a mortal blow to the theory of
4 man's natural rights/ the theory of man's inalienable
right to life, liberty, property, happiness, etc.^y. These so-
y called ' natural rights ' and an equally fictitious ' law of
nature ' were invented by Jean Jacques Rousseau. Philo-
sophic socialists repudiate that theory of ' natural rights/
| It is Society, organised Society, the State, that gives us all
I the rights we have. ... As against the State, the organised
' Society, even Labour does not give us a particle of title to
what our hands and brain produce."

In addition to these socialist authorities, an opponent
of authority may also be cited, Professor Robert Flint,
who states in Socialism, p. 373 :

1" It " (Socialism) " denies to the individual any rights
independent of Society ; and assigns to Society authority
^j to do whatever it deems for its own good with the persons,
faculties, and possessions of individuals."

This denial of individual rights within the Society and
independent of that Society, naturally has, as correlative,

CHAP, iv THE ETHICAL CONCEPTIONS 35

the conception, that the State does not exist for the benefit
of the individuals composing it, at any given time ; that
it is an independent organism, possessing an entity and
purpose of its own, and that therefore the will, not only
of any one individual, but of all individuals, is subordinate
to the will of the State. Thus, again quoting from Soci-
alism in England, pp. 82, 83, Sidney Webb states :

" The lesson of Evolution, at first thought to be the
apotheosis of anarchic individual competition, is now recog-
nised to be quite the contrary. . . . Even the Political
Economists are learning this lesson, and the fundamental
idea of a social organism paramount over and prior to the
individual of each generation is penetrating to their minds
and appearing in their lectures."

Laurence Gronlund's exposition of the theory is too
lengthy for quotation in full ; the concluding sentences
(The Co-operative Commonwealth, p. 81) read:

" We therefore insist that the State is a living organ-?
ism, differing from other organisms in no essential respect.
This is not to be understood in a simply metaphorical
sense ; it is not that the State merely resembles an
organism, but that it including with the people, the land
and all that the land produces literally is an organism,
personal and territorial.

" It follows that the relations of the State, the body
politic, to us, its citizens, is actually that of a tree to its
cells, and not that of a heap of sand to its grains, to which
it is entirely indifferent how many other grains of sand are
scattered and trodden underfoot.

" This is a conception of far-reaching consequence."

The consequences which Gronlund draws from this
conception are exhibited in the preceding quotation from
his work. That they are far reaching cannot be denied.
It would be inopportune, at this stage of our inquiry, to
examine them or to criticise these conceptions themselves.
All that can conveniently be done here, is to show that
these ideas form part of the " scientific " synthesis which
Socialism claims as its foundation.

It is, however, necessary to point out that this con-
ception of the relations between the State and the in-

36 DEMOCRACY VERSUS SOCIALISM PART i

dividuals composing the State is not adopted arbitrarily
by the authorities which have been quoted. It is a
necessary consequence of the basic conceptions as well as
of the industrial and distributive proposals of Socialism.
For the admission of individual rights, prior to and in-
dependent of the State, would stamp these proposals as in
the highest degree unjust and despotic. Their defence,
on the ethical side, cannot, therefore, be undertaken except
on the supposition that no such rights exist, and that all
human rights emanate from and are dependent upon the
arbitrary will of the State.

To the labourer belongs the fruit of his toil, is
generally regarded as the only ethical standard of economic
justice. Socialism utterly denies the truth of this proposi-
tion, and teaches that the fruits of individual labour belong,
not to the labourer, but to the society of which he forms
* part, to be used by it in such manner as may, in its
opinion, promise the best social results. Citing again
Laurence Gronlund, we find the following clear and
emphatic statement of this conception on p. 145 of The
Co-operative Commonwealth :

" A man is entitled to the full proceeds of his labour
against any other individual, but not against society. Society
is not bound to reward a man either in proportion to his
services, nor yet to his wants, but according to expediency ;
according to the behests of her own welfare. Man's work
is not a quid pro quo, but a trust."

This doctrine is based on several different and com-
plementary lines of reasoning. One, mechanical, derives
communistic proprietary rights from the far-reaching
co-operative processes of modern industry, rendering it
impossible to discover which part of any finished product
and what share in its value owes its existence to the
labour of any individual co-operator, and posits that it is
equally impossible to assign to any of them equitable
proprietary rights in any part, or in the value of such
product. Thus W. D. P. Bliss, in A Handbook of
Socialism, p. 188, states :

" Nor can the principle that capital should be private
property, because it is the work of man, be allowed in

CHAP, iv THE ETHICAL CONCEPTIONS 37

equity, since it is practically impossible to say what man
produced any given portion of capital. All successful
production to-day, mental and manual alike, is the result
of social processes so intricate that it is impossible to
measure the share in the production taken by any one
man." Says Edward Bellamy : " Nine hundred and ninety-
nine parts out of the thousand of every man's produce are
the result of his social inheritance and environment."

While this argument is mainly directed to prove the
impossibility of allotting to each labourer the fruits of his
toil, another boldly asserts its inequity. Taking the
theories of evolution and of value for its basis, it asserts
that individual capacity and industry are the result of
heredity, arising from the ancestral struggle for existence.
Being thus the result of social causes, their product belongs
to Society, and not to the individual who accidentally
possesses them. Allied to this is the further conception,
that the value of any labour product, arising not from the
act of the producer, but from the desires of the consumers,
i.e. from a social cause, such value cannot equitably belong
to the producer, but only to Society as a whole.

Still another line of reasoning deduces social ownership
of labour products from the influence of the social en-
vironment, both on the labourer and the produce of his
labour.

The following quotations show examples of these
several and cognate arguments. Sir Henry Wrixon
attributes to Sidney Webb the following statement
(Socialism, p. 83) :

" The socialists would nationalise both rent and in- \
terest, by the State becoming the sole landowner and j
capitalist. . . . Such an arrangement would, however, J
leave untouched the third monopoly, the largest of thenr
all, the monopoly of business ability. The more recent
socialists strike, therefore, at this monopoly also, by allot-
ting to every worker an equal wage whatever the nature of
the work. This equality has an abstract justification, as/
the special ability or energy with which some persons are
born is an unearned increment due to the struggle for
existence upon their ancestors, and consequently having

38 DEMOCRACY VERSUS SOCIALISM PARTI

been produced by Society, is as much due to Society as the
4 unearned increment of rent/ '

In the Fabian Essays, p. 127, the following opinion is
expressed :

" For now, for the first time since the dissolution of
the early tribal communisms, and over areas a hundred
times wider than theirs, the individual worker earns his
living, fulfils his most elementary desires, not by direct
personal production, but by an intricate co-operation in
which the effect and value of his personal efforts are
( almost indistinguishable. The apology for individualistic
/ appropriation is exploded by the logic of the facts of com-
/ munist production ; no man can pretend to claim the
fruits of his own labour, for his whole ability and oppor-
tunity for working are plainly a vast inheritance and
contribution of which he is but a transient and accidental
beneficiary and steward, and his power of turning them to
his own account depends entirely upon the desires and
needs of other people for his services. The factory
system, the machine industry, the world commerce, have
abolished individualistic production."

In Equality, Edward Bellamy's latest work, the follow-
ing argument occurs :

" All human beings are equal in rights and dignity, and
only such a system of wealth distribution can therefore be
defensible as respects and secures those equalities. The
main factor in the production of wealth among civilised
men is the social organism, the machinery of associated
labour and exchange by which hundreds of millions of
individuals provide the demand for one another's product
and mutually complement one another's labours, thereby
making the productive and distributive systems of a nation
and of the world one great machine. . . .

" The element in the total industrial product, which is
due to the social organism, is represented by the difference
between the value of what one man produces as a worker
in connection with the social organisation and what he
could produce in a condition of isolation. ... It is
estimated that the average daily product of a worker in
America is to-day some fifty dollars. The product of the

CHAP, iv THE ETHICAL CONCEPTIONS 39

same man working in isolation would probably be highly
estimated on the same basis by calculation if put at a
quarter of a dollar. To whom belongs the social organism,
this vast machinery of human association, which enhances
some two hundredfold the product of every one's labour ?
. . . Society collectively can be the only heir to the social
inheritance of intellect and discovery, and it is Society
collectively which furnishes the continuous daily concourse
by which alone that inheritance is made effective." *

On these grounds, Socialism boldly pronounces
judgment against the older standard of industrial ethics,
and declares, that not to the labourer who produces it, but
to Society collectively, belongs the wealth which any man's
labour produces, and that Society has absolute and exclusive
proprietary rights in all the produce of individual labour.

i Pp. 79, 80.

CHAPTER V

THE DISTRIBUTIVE PROPOSALS

THE ethical conceptions which Socialism entertains, i.e.
that of the non-existence of natural rights, and that of the
inequity of the labourer possessing the fruits of his exertion,
are, as has already been stated, a necessary outcome of its
industrial and distributive proposals. The original object
of Socialism was no doubt the achievement of justice in
distribution to supplant the undoubtedly unjust dis-
tribution prevailing now by a just and equitable apportion-
ment of the products of labour among those who, by their
individual exertions, have given it existence. 1 So far,
however, socialists have been unable to arrive at an agree-
ment among themselves as to what would constitute a just
system of distribution. Moreover, nearly all the proposals
of distribution which have been advocated, and all the
proposals which are open to Socialism, offend against the
conception of justice embodied in the teaching that man
possesses inalienable natural rights, and that one of these
consists in the right of every individual to the possession
and enjoyment of the fruits of his own toil.

Professor Ely enumerates four standards of distributive
justice possible under Socialism :

(i) Absolute mechanical equality, i.e. allotting to each
an equal quantity and quality of the various consumption-
goods available for distribution.

1 " We might define the final aim of Socialism to be an equitable system of dis-
tributing the fruits of labour." Kirkup, An Inquiry Into Socialism, p. 105.

" Socialists wish to secure justice in distribution, but they have not yet been able
to agree upon a standard of distributive justice, although they now generally seem dis-
posed to regard equality in distribution as desirable." Ely, Socialism,

CHAP, v THE DISTRIBUTIVE PROPOSALS 41

(2) Hierarchical distribution, i.e. allotting to each a
general command over consumption-goods, equal in value
to the services rendered by him, lessened by a proportional
deduction to supply the values required for the renewal,
improvement, and extension of the social capital.

(3) Distribution according to needs, i.e. allotting to
each sufficient to satisfy his reasonable needs, regardless of
the value of the services rendered.

(4) Equality of income in value, i.e. allotting to each
an equal general command over consumption-goods, re-
gardless of the value of the services rendered, but leaving
the selection of the goods within the allotted value to the
varying individual desires.

The first of these four possible methods of distribution
may be disregarded here, as it is not now advocated by
any school of socialists, and is obviously impossible in any
large community.

The second standard that of distribution according
to service rendered is the one which naturally would
present itself as most nearly in accordance with the gener-
ally accepted conception of justice. It has been advocated
accordingly by many socialists, and is still presented as
their ideal by many when addressing popular audiences. 1
Another section, leaning more to Communism, and accord-
ingly looking to beneficence more than to justice as a
social regulator, has advocated, and in some measure still
advocates, the third standard, i.e. distribution according
to needs. The Gotha platform of the Social Democratic
Party of Germany (i 875)2 ^ a Y s ^ down tnat " to Society
that is, to all its members belongs the entire product
of labour by an equal right, to each one according to his
reasonable wants, all being bound to work."

1 " Men come greatly to desire that these capricious gifts of nature might be inter-
cepted by some agency having the power and the goodwill to distribute them justly
according to the labour done by each in the collective search for them. This desire is
Socialism." Fabian Essays, p. 4.

"In the Commonwealth the men will be rewarded according to results, whether
they are mechanics or chiefs of industry, or transporters or salesmen. . . . But in regard
to the work of the chiefs of industry and professionals, they, undoubtedly, will institute a
new graduation of labour. There will be no more ,10,000 or 5000, or even 2000
salaries paid. . . . When ' business ' is done away with, then their services will be com-
pared with manual work, as they ought to be, and paid for accordingly." Gronlund,
Co-operative Commonwealth, pp. 143, 144, and 145.

- Ante, p. 15.

42 DEMOCRACY VERSUS SOCIALISM PART i

It is this passage which has caused Dr. Schaeffle to
alter his opinion with regard to the distributive proposals
of Socialism, 1 and to state :

"Communism had already, in 1875, Decome the pro-
gramme of the German Social Democrats, and since then
has become more and more their widespread conviction ;" 2
and he defines Communism as (#) universal obligation to
equal labour ; ($) distribution by the community according
to socially recognised " reasonable needs " of each.

The silence of the Erfurt Programme on this subject
seems, however, to indicate that Dr. Schaeffle may be in
error in the latter part of his statement. English socialists,
moreover, have but rarely advocated this method, and they
as well as others seem to have arrived at the conclusion
that the only possible standard under Socialism is the
fourth, i.e. equal distribution in value, regardless of the
value of service. 3

An examination of these rival systems inevitably leads
to the conclusion that English socialists are right, that the
method which they advocate is the only one not obviously
impossible under Socialism.

Apart from the manifest impossibility of determining
the " reasonable needs " of any one, in the absence of any
universal standard for the measurement of needs, distri-
bution according to socially recognised needs, if honestly
administered, would generally allot smaller incomes to the
young and able workers than to feeble and old members
of the society. For though the former contribute more to
the social income, their needs are few and simple ; whereas
the latter, who contribute less, possess, by reason of their
infirmity, greater and more varied needs. Moreover, the
needs of every person would have to be estimated either
by himself or by some distributer or distributing body.
If the estimate of the claimants were accepted, the utmost

1 Ante, p. 17. 2 The Impossibility of Social Democracy, p. 54.

a " The fourth idea of distributive justice, and that which seems now to prevail
generally among socialists, is equality of income not a mechanical equality, but equality
in value." Ely, Socialism, p. 16.

" The impossibility of estimating the separate value of each man's labour with any
really valid result, the friction which would arise, the jealousies which would be pro-
voked, the inevitable discontent, favouritism, and jobbery that would prevail all these
things will drive the Communal Council into the right path, equal remuneration of all
workers." Fabian Essays, pp. 163, 164.

CHAP.V THE DISTRIBUTIVE PROPOSALS 43

resources of the State would probably be insufficient to
satisfy all the needs of all of them. If the determination
were left with some distributers, their decisions, even if
arrived at with the utmost care and impartiality, would,
nevertheless, provoke general discontent. Such impar-
tiality cannot, however, be expected. Inevitably the needs
of influential and favoured persons would be over-estimated
and those of powerless persons under-estimated ; jobbery
and corruption would undermine the system, and return
to a method less exposed to corrupt partiality and more
in accord with the interests of the great body of workers
would become inevitable.

Distribution according to the value of services rendered
is even more impracticable under Socialism. As already
pointed out, socialists justly observe though they base
upon it conclusions not warranted by the facts that the
co-operative processes of modern industry obscure the
individual origin of the final product, and make it im-
possible to determine which part of the whole, or of its
value, is due to the labour of any one of the co-operators.
No one can determine the respective contributions of
managers, clerks, book-keepers, spinners, weavers, and
carters, to the value of a bale of cotton cloth which their
joint labour has produced. Still less possible is it for the
socialised State to find a common denominator for the
value of services rendered in different occupations. How
many hours' work of a weaver equal an attendance by a
great physician ? How much flannel will equal the value
of a great picture ? How many hours of a navvy's work
will equal one hour's work by a specially skilled mechanic ?
Competition settles these questions ; in the absence of
the self-regulating action of competition, which Socialism
posits, it is impossible to ascertain the value of any man's
services, or the value of any labour product, and, there-
fore, equally impossible to reward any one in accordance
with his services. The attempt to adopt this standard of
distributive justice would, therefore, result in an absolutely
arbitrary distribution of the social product, and, as the
Fabian essayist rightly admits, in friction, jealousy,
favouritism, jobbery, and corruption.

44 DEMOCRACY VERSUS SOCIALISM PART i

There remains, as the last of the theoretically possible
systems of distribution under Socialism, that of equal
reward in value, regardless of the differing value of
services rendered. This reward would probably be
ascertained by taking the value of last year's total pro-
duction, deducting from the same the amount required for
the replacement and extension of national capital, and
dividing the remainder by the total number of claimants,
and placing the resultant amount to the credit of each, to
be drawn against by the selection of consumption-goods
at such times and places and in such variety as individual
preference would dictate.

This method, offering fewer difficulties than dis-
tribution according to service, is, however, not free from
objection. The latter method, as has been shown, is
impossible, because it leaves to the distributing agency
the arbitrary determination of the value of each person's
services and of the value of every commodity. Equality of
distribution in value, while eliminating the former difficulty,
leaves the latter in full force. Which is the standard of
measurement by which, in the absence of competition, the
value of all the various labour-products can be deter-
mined ? The reply of socialists is, that labour- time
furnishes such a standard. One hour of any person's
labour will be regarded as conferring the same value on
the resulting product as one hour of any other person's
labour. Even if it be admitted that, under Socialism,
purchasers will value the result of a year's work by a
talented painter no higher than that of a year's work by
an ordinary sempstress, or that people will be no more
anxious to live in well-constructed houses than in those
badly constructed, great inequality of reward would arise
in respect of ordinary consumption-goods.

Take boots as an example. Even under Socialism
boots will largely vary in quality, though made within the
same labour-time. Not only are there wide differences in
quality between various kinds of leather, but the skin
from one part of an animal's body yields inferior leather
to that from another part. These differences are supple-
mented by variations in the more or less skilful treatment

CHAP, v THE DISTRIBUTIVE PROPOSALS 45

of skins and by differences of skill in manufacturing boots.
Yet, if labour-time determines value, no notice can be
taken of the resulting variations in quality, and boots
differing widely in durability, sightliness, and comfort,
must be valued alike and must be sold at the same price.
In other articles, such as furniture, ornaments, feminine
apparel, and others, where artistic merit and fashion
largely determine value, labour -time as the measure of
value must lead to still greater inequality of benefit.

Seeing that labour-time is not a possible standard of
value ; seeing that no other has ever been suggested as a
substitute for competition, it follows that values must be
arbitrarily determined by the action of State officials, with
all the consequences of inequality of treatment, jobbery,
and corruption. As, however, all possible methods of
distribution under Socialism are open to the same objec-
tion ; as equal distribution in value confines such arbitrary
interference within narrower limits than any other, it must
be regarded as the least injurious method.

Equality of reward, however, as an inevitable con-
sequence, entails compulsory labour for all who are not
physically or mentally incapable. For it would be unjust,
demoralising, and, in the end, impracticable, to award to
idlers, capable of work, the same reward as to industrious
workers. Some system of compelling idlers and malingerers
to work, is, therefore, a necessary consequence of the
system of equal distribution. The following statement,
therefore, seems fully justified by the ethical conceptions
of Socialism, by actual proposals made by large sections
of socialists, and by general considerations :

No system of distribution is possible under Socialism,
which does not necessitate the arbitrary, and, therefore,
corruptive interference of State officials. The one which
confines such arbitrary interference within the narrowest
limits is the allotment to each of an equal share, measured
by value, in that part of the total social income which is
available for distribution, accompanied by some system of
compulsion to honestly assist in the production of the
social income or render other service to the community.

This, the only method of distribution open to Social-

46 DEMOCRACY VERSUS SOCIALISM PART i

ism, involves, however, further consequences. Equality
of distribution cannot stop at any arbitrary line, but must
include all workers, whatever the nature of their work.
Lawyers, doctors, actors, musicians, painters, journalists,
litterateurs, and scientists can no more be placed apart and
allowed to earn any income they can than can architects,
surveyors, engineers, and exceptionally skilful mechanics.
The difficulties which beset the distribution of wealth in
the socialistic State, therefore, enforce the subjection of all
these classes of workers to the directive and controlling
superintendence of the State. As they are paid by the
State, so they must work under the control of its officials,
and these officials must determine the number of those
who shall exercise their talents in these professions, and
their respective locations ; while those who by them may
be deemed superfluous must be directed into other
avenues of employment. Such control, therefore, implies
the selection, by State officials, of the men who shall act as
lawyers, doctors, actors, musicians, painters, and sculptors,
journalists, litterateurs, and scientists. Any men not so
selected would have to abstain from such pursuits, unless
they carry them on after ordinary working hours. Even
if they do so, they cannot sell their pictures and statues,
but must give them away, and if they publish the results
of their labours, they must do so at their own expense,
unless they can induce the proper officials to do it at the
expense of the State. In neither case would they receive
any payment for their books.

Domestic servants could no more be allowed to
bargain for their reward than other classes of labour.
Equality of distribution would, however, cause domestic
service to become so rare an occurrence that it would take
a new form, probably one which would resemble the
existing organisation of professional nursing. The pro-
fessional servants would, however, be paid by the State,
who might deduct fees for their service from the credit of
those who occasionally employ them.

CHAPTER VI

MODIFICATIONS OF FAMILY RELATIONS

MANY socialist writers advocate changes in the existing
marital relation, equally extravagant and repulsive. Dis-
regarding all such advocacy, as possibly the mere outcome
of individual idiosyncrasy, we shall inquire here what are
the changes in the constitution of the family which the
adoption of Socialism must produce.

Equality of reward, rendering women economically
independent, must powerfully affect the relation of the
sexes to each other. Women will no longer be driven
into loveless marriages by fear of destitution or desire for
wealth ; nor will such considerations prevent them from
seeking the dissolution of unions which have grown dis-
tasteful.

The compulsion, accompanying the right to equal
reward, to render industrial labour equally with men, must
lead to further modifications. Women whose energy is
expended in industrial work cannot preserve the comfort
or even decency of an individual household. Even if
they were able to undertake the additional work required
it would be done perfunctorily, their interests lying else-
where. That this distaste for and inability to perform the
duties of the household is a necessary outcome of the
industrial occupations of women is shown by present-day
experience. An experienced observer, himself a socialist,
remarks :

" The growth of factory work among women has /
brought with it inevitably a weakening of home interests and j
a neglect of home duties. . . . Home work is consciously

48 DEMOCRACY VERSUS SOCIALISM PART i

slighted as secondary in importance and inferior because it
brings no wages, and if not neglected is performed in a
perfunctory manner, which robs it of its grace and value.
This narrowing of the home as a place of hurried meals
and sleep is, on the whole, the worst injury modern industry
has inflicted on our lives, and it is difficult to see how it can
be compensated by any increase of material products.
Factory life for women, save in extremely rare cases, saps
the physical and moral health of the family. The
exigencies of factory life are inconsistent with the position
of a good mother, a good wife, or the maker of a home."

This lessening of home interests and neglect of home
duties must inevitably lead to the disappearance of separate
family homes under Socialism. Married couples, as well
as adult single persons, would occupy one or two rooms in
what may best be described as boarding-houses, the service
in which would be performed exclusively by professional
attendants.

The industrial services demanded of mothers must
prevent due care being given to children, especially during
their earlier years, nor could such care be given under
the conditions imposed by residence in boarding-houses.
Children would therefore be handed over to the care of
the State at as early a period after birth as is practicable.

These, then, are immediate and obviously inevitable
results of Socialism :

Economic independence of women, abandonment of
separate family homes, early separation of children and
parents, and transference of the former to the care of the
State.

The life of the family as it now exists, therefore, would
disappear, and the new life must profoundly affect the
relation of the sexes as well as the propagation of the race.
The probable nature of these consequential changes will
form the subject of subsequent inquiry.

1 Hobson, Evolution of Modern Capitalism, p. 320.

CHAPTER

THE POLITICAL CONCEPTION

SOCIALISM contemplates a state of society in which the
incomes of all citizens are equal, and in which all citizens
earn their incomes in the service of the State. Equality is
one of its principal aims ; merit the only claim for pro-
motion to influential though not better paid positions. It
follows that the socialistic State must aim at political
equality as much as at economic equality, and that it cannot
recognise any political privileges outside its own bureau-
cratic (superintending and organising)' circle. Socialism,
therefore, is democratic in the sense that it demands the
abolition of political privileges and the extension of equality
in the franchise to all adult persons of both sexes, f^

Practical considerations would have forced this attitude
upon Socialism, even if it were not a necessary outcome of
its distributive proposals.

The fundamental proposals of Socialism involve the
expropriation of the possessing classes, who are also the
incumbents of political privileges. Among these classes
it cannot, therefore, expect to make more than an
occasional convert. The nature of their proposals, there-
fore, compels socialists to rely mainly on the masses of the
people who possess little or no property, and some of
whom are as yet excluded from any or from an equal
participation in the franchise.

The equalising tendency of Socialism also makes its
existence incompatible with that of a hereditary aristocracy
and of a monarchy. The abolition of private property in
land puts an end to hereditary aristocracy, and the equal

50 DEMOCRACY VERSUS SOCIALISM PART i

distribution of the social income is irreconcilable with
monarchical institutions. Hence Socialists are Republicans
as well as Democrats.

Out of the industrial proposals of Socialism there
arises also a tendency towards the decentralisation of the
functions of government. The conduct of localised
industries by local bodies presupposes the existence of such
local bodies, and would considerably increase their -functions
and power. Moreover, while proposing to add enormously
to the power and functions of the central government,
socialists seem nevertheless to recognise to some slight
extent that this extension of power and functions may
foster despotic tendencies. They are, therefore, anxious
to limit the power of the central government as far as is
compatible with the due exercise of its industrial functions,
and pan passu to extend the power of local governments.

The narrow limits within which the industrial functions
of local governments are confined by the nature of industries
has already been indicated. It is less easy to indicate the
limit to their regulative functions outside of industrial
matters. That some extension in this direction is possible
may be granted, but in countries of advanced democratic
type like the United Kingdom, the United States, and
several British colonies, this extension cannot be far-
reaching. Nay, it may even be that, in one respect,
Socialism may prove a bar to the development of local
government.

The local administration of schools and of education is
everywhere one of the claims of democratic parties, and
there can be little doubt that considerable progress in this
direction will be made in the near future. But such local
administration must, and is intended to, result in diversity.
It may, therefore, lead to considerable difference in the
educational advantages offered in different localities, an
inequality of opportunity incompatible with the funda-
mental principles of Socialism. While it must be admitted
that the desire for decentralisation exists among socialists,
and that it is not opposed to the principles of Socialism, it
nevertheless appears that the decentralisation possible in
the socialistic State will by no means be of sufficient im-

CHAP, vii THE POLITICAL CONCEPTION 51

portan.ce to counteract the additional power which the
assumption of industrial and distributive control will confer
upon the central government.

On the other hand, Socialism necessarily tends to a
further centralisation, that of internationalism. The
ramifications of modern industry extend far beyond the
limits of any State. No nation is or ever can again be
industrially self-contained. The problem of achieving a
balance between production and consumption cannot, there-
fore, be successfully solved by an authority which is con-
fined to the limits of a single State. Hence, socialists aim,
more or less consciously, at some international industrial
federation, the executive of which shall regulate the con-
duct of all industries of international character.

CHAPTER VIII

IS SOCIALISM SCIENTIFIC

ONE of the claims most frequently and passionately urged
by modern socialists is, that their system has emerged from
the empirical stage and has become scientific. Neverthe-
less, this claim appears to be unfounded. Knowledge
becomes science through the systematic arrangement of
the natural laws by which a group or groups of related
facts or phenomena are governed, and in their interpretation
through causal connection, so that from that which is
observable conclusions can be formed with regard to that
which is not observable. The essential condition through
which a mere collection of facts becomes a science is,
therefore, the discovery and tabulation of the invariable,
natural laws which govern their appearance. Any system
which applies such natural laws to man's needs, is a system
based on science, i.e. scientific. Thus navigation is
scientific, inasmuch as it is based on the sciences of
mathematics and astronomy ; a scientific system of medi-
cine is based on the natural laws tabulated by the sciences
of biology and chemistry ; a scientific system of mining is
based on geology, etc. Likewise any system of politics
will be scientific, if it is based on well-ascertained natural
laws governing the conduct of man in society. But if any
political system is not based on such natural laws, still
more if it is based on the express denial of the existence
of such laws, it cannot be scientific ; it is a mere empirical
conception.

This is the position of Socialism. The most prominent
of the conceptions on which it is based is, that there are

CHAP, viii IS SOCIALISM SCIENTIFIC 53

no natural laws which govern the distribution of wealth ;
that distribution may be governed by municipal enact-
ments alone, and that, therefore, its arbitrary regulation is
a necessary function of the State, and the only means by
which justice in distribution can be achieved. Whether
this conception is true or not does not concern us here.
If true, then Socialism is not scientific, because there is
no science on which it can be based ; if untrue, then
Socialism is unscientific, because it disregards the science
on which the economic part of politics must be based.
This denial of natural law, therefore, whether in itself it
is true or not, destroys the claim of Socialism to be
considered scientific, and proves that it is based on un-
verified or unverifiable interpretations of facts, the causal
connection of which is either unknown or disregarded.

The ethical conceptions on which Socialism is based '
are equally empirical and equally deny the possibility of
any moral science. For the conception of a right includes
that of a duty to respect that right. The denial of natural
rights, therefore, involves the denial of natural duties. If
all rights are granted by the State, all duties are imposed
by the State. Moral conduct, therefore, is conduct
according to law ; there is no standard by which the
morality of any law may be determined, for the existence
of the law constitutes its morality. Morality, therefore,
has no existence ; it is merely a secondary term for legality.

As in the case of economics, therefore, Socialism is
unscientific, whether this denial of ethics, and, consequently,
of ethical science, is true or untrue ; if true, because there
is no ethical science on which its proposals can be based ;
if untrue, because its proposals disregard the laws which
that science has established.

CHAPTER IX

THE DEFINITION OF SOCIALISM

THE foregoing examination enables us to give a compre-
hensive definition of Socialism, as follows :

Socialism is an empiric system of organisation of social
life, based on certain ethical and economic conceptions.
Its ethical conceptions consist, generally, of the denial of
individual natural rights and v the assertion of the omni-
potence of the State ; specially, of the denial of the right
of the individual to the possession of the products of his
labour, and the assertion of the right of the State to the
possession of the products of the labour of all individuals.

Its economic conceptions are, that competition and
private property in land and capital, and the consequent
exaction of rent, interest and profit, i.e. surplus value, by
private persons, are social evils, responsible for the material
and mental destitution of vast masses of the people.

On these conceptions are based its industrial, distribu-
tive, and political proposals. They are : The gradual
abolition of private property in and private control of the
instruments and materials of production, land, transporta-
tion, trade, loan-capital, and public debts ; such abolition
to take place without compensation, or through partial
compensation only, of present proprietors as a whole. For
these private rights it would substitute ^the collective
ownership and management by the community) acting
through local and central governmental bodies, of the
instruments and materials of production, land, transporta-
tion, trade, and loans, continuing private property in and
private control of all consumption - goods awarded to

CH. ix THE DEFINITION OF SOCIALISM 55

individuals as their share of the products of the national
industry.

The only arrangement possible under Socialism, for
awarding to individuals a share in the products of the
national industries, is, to allot to each an equal share,
measured by value, in that part of the national income
which remains, after due deduction has been made for the
replacement and extension of national capital. The only
possible standard of value, labour-time, however, would
lead to inequality in the share of the national income
obtained by each, and must, therefore, be supplemented or
superseded by the arbitrary determination of the value of
all products by State officials.

The political proposals of Socialism are : equal political
rights for all adult individuals of both sexes ; extension
of the powers and functions of local governmental bodies,
and international control of international production and
trade.

These proposals entail certain consequential changes in
social organisation.

The management by the State of all production and
trade involves a numerous graduated body of officials for
the control of the individuals employed, and the deter-
mination of the kinds, qualities, and quantities of goods to
be produced. These officials must determine the occupa-
tion and place of employment of all individuals of both
sexes.

The distributive proposal involves some system of
compulsion to honestly assist in the production of the
national income, or to render other service to the com-
munity ; as also, the control of all literary, journalistic,
artistic, and scientific production, and the selection of
those who shall engage in such production. It also in-
volves the following changes in the constitution of the
family : Economic independence of women ; abandon-
ment of separate family homes ; early separation of
children and parents, and transference of the former to
the care of the State.

PART II

ECONOMICS

CHAPTER I

MARX'S THEORY OF VALUE

THE basis of every politico-economic theory is to be found
in its conception of value. For the world-wide industrial
co-operation, which unites the nations of the earth into
one economic society, depends for its existence upon
exchange ; not only upon exchange of the final product,
but also upon exchange of the numerous intermediate
products which make their appearance during the produc-
tion of every commodity. It also depends upon the still
more numerous exchanges of labour and services for
products. Exchange, however, is itself dependent upon
the formation of a concept of value in the minds of the
parties to the exchange. The view taken of the concept
" value " must, therefore, fundamentally afreet the aspect
of our industrial organisation.

Socialism, as has been shown, makes no exception to
this rule. Its original German exponent, Rodbertus-
Jagetzow, indicated a theory of value consistent with his
general conceptions, which, subsequently, was developed by
Karl Marx, 1 who formulates it as follows :

" That which determines the magnitude of the value
of any article is the amount of labour (labour-time) socially
necessary for its production." 2

Marx also explains that the labour to which he refers
must be understood in the following sense :

i. " The labour-time socially necessary is that required

1 The theories of Rodbertus are traced to French, and those of Marx to English
sources, by Anton Menger, The Right to the Full Produce of Labour.

2 Capital, p. 6 ; see for full quotation. Part I. chap. i.

60 DEMOCRACY VERSUS SOCIALISM PART n

to produce an article under the normal conditions of pro-
duction, and with the average degree of skill and intensity
prevalent at the time." l

2. " Skilled labour counts only as simple labour in-
tensified, or rather, as multiplied simple labour, a given
quantity of skilled being considered equal to a greater
quantity of simple labour. Experience shows that this
reduction is constantly being made. A commodity may
be the product of the most skilled labour, but its
value, by equating it to the product of simple unskilled
labour, represents a definite quantity of the latter labour
alone." 2

3. "Suppose that every piece of linen in the market
contains no more labour-time than is socially necessary.
In spite of this, all these pieces, taken as a whole, may
have had superfluous labour-time spent upon them. If
the market cannot stomach the whole quantity at the
normal price of 2s. a yard, this proves that too great a
portion of the total labour of the community has been
expended in the form of weaving. The effect is the same
as if each individual weaver had expended more labour-
time upon this particular product than is socially necessary.
Here we may say with the German proverb : caught to-
gether, hung together. All the linen in the market counts
but as one article of commerce, of which each piece is only
an aliquot part." 3

These explanations are so contradictory of each other,
and of other statements by the same author, presently to
be referred to, that they go a considerable way towards
discounting his theory.

In Explanation i the " socially necessary labour-time "
which determines value is stated to be dependent upon
" the average degree of skill and intensity prevalent at the
time." In No. 3 it is stated that if the market cannot
take up all the linen produced, at the " normal " price, i.e.
the price which covers the socially necessary labour-time,
" too great a proportion of the total labour of the com-
munity has been expended in the form of weaving. The
effect is the same as if each individual weaver had

1 Capital, p. 6. 2 Ibid. pp. u, 12. 3 Ibid. p. 80.

CHAP, i MARX'S THEORY OF VALUE 61

expended more labour-time upon this particular product
than is socially necessary."

It is, however, manifest that if it is true that the
" average degree of intensity prevalent at the time " is the
" socially necessary labour-time," then the average degree
of intensity with which linen-weavers work determines the
" socially necessary labour-time " for the production of
a given quantity of linen, and the value of the linen is
determined by this labour -time. Therefore, it is im-
possible, being a contradiction in terms, that "each
individual weaver can expend more labour-time upon this
particular product than is socially necessary." Some
weavers may expend more labour -time on a given
quantity of linen than " the average prevalent at the
time," but all cannot possibly do so.

If all the weavers increase the labour-time expended
upon linen, the average of labour-time " prevalent at the
time" in the linen industry will rise, and, ex hypothesi, the
value of linen must rise. Therefore, it cannot be true,
that this course would produce the same effect as "if the
market cannot stomach the whole quantity at the normal
price of 2s. a yard," for such a contingency would reduce
the value of linen, a fact which the wording of the quoted
sentence proves to have been apprehended by Marx.

If to this reasoning it is objected, that the average
skill and intensity of which Marx speaks is that prevalent,
not in a single industry, but throughout all industry, the
disproof of the objection lies in the following considera-
tions :

If the average labour-time requisite throughout all
industry determines value, the determinator of value, the
average labour-time, is of the same magnitude in all
industries, and, as a necessary consequence, the value of
the product of all industries must be of the same magnitude,
i.e. the value of an equal quantity of all products must be
the same. One yard of cotton-cloth of a given weight must
then exchange for one yard of any silk-cloth of the same
weight ; one pound of flour must exchange for one pound of
meat, for one pound of iron, and for one pound weight of
silver and of gold. This we know not to be the case, and

62 DEMOCRACY VERSUS SOCIALISM PART n

if the objection here considered gave true expression to
the meaning of Marx's theory, the latter might be dis-
missed at once as too absurd for further consideration.

Marx himself, however, makes it quite clear that the
theory embodied in this objection is not held by him ;
though it must be admitted that his own is only a degree
less wild. Marx fully recognises that the average labour-
time requisite in any industry is determined by other
factors besides the skill and intensity of work put forth by
the labourers who engage in it, viz. by the appliances and
natural opportunities at the disposal of the industry, and,
therefore, he regards the average labour-time requisite
for the production of any homogeneous product as the
measure of the value of that product.

The following quotations bear out this statement :

" The introduction of power-looms into England prob-
ably reduced by one-half the labour required to weave a
given quantity of yarn into cloth. The hand -loom
weavers, as a matter of fact, continued to require the
same time as before ; but for all that the product of one
hour of their labour represented after the change only
half an hour's social labour, and consequently fell to one-
half its former value."

And further :

" Diamonds are of very rare occurrence on the earth's
surface, and hence their discovery costs on an average a
great deal of labour-time. . . . With richer mines, the
same quantity of labour would embody itself in more
diamonds, and their value would fall." 2

These statements clearly prove that in Marx's opinion
the value of any product is determined by the average
labour-time socially necessary in the production of that
product, and not by the average labour-time requisite in
all production. Therefore, the value of linen is determined
by the average labour-time requisite in its production. If
that labour-time increases in quantity, by the habitual
slowness or want of skill of all linen weavers, the result,
therefore, must be a rise in the price of linen, and not a
fall as he asserts in Statement 3.

1 Capital, p. 6. 2 Ibid. p. 7.

CHAP, i MARX'S THEORY OF VALUE 63

It is difficult to escape the conclusion that the whole of
Statement 3 was framed with a view of avoiding the obvious
objection to the labour-time theory of value, that the price
of nearly all articles in large demand varies independently
of any variation in the labour-time required for their
production.

The contradiction, so far proved, is not the most
serious one. The statement contained in Explanation 2,
that skilled labour counts only as " simple " " unskilled "
labour multiplied, is a still more glaring petitio prindpii.

The basis of Marx's theory is that the value of labour-
power is determined by the cost of its production, i.e. by
the labour-time requisite to produce the means of sub-
sistence of the labourer and his family. " The value of
labour-power is the value of the means of subsistence
necessary for the maintenance of the labourer." l

If this be true, the value of the labour-power of a
skilled labourer is determined in the same manner. It
may be that, in general, skilled labour requires more
education and a better standard of living than ordinary
labour. But it is certainly not true that on an average
the " necessary " cost of maintenance of labour increases
pari passu with its skill. Therefore the labour -time
theory of value is upon the horns of this dilemma.
Either the value of skilled labour is determined like that
of all labour " by the value of the means of subsistence
necessary for the maintenance of the labourer," in which
case " a given quantity of skilled labour " is not " con-
sidered equal to a greater quantity of simple labour," for
this idea involves that of proportion ; or this latter state-
ment is true, in which case it is untrue that the value of
all labour-power is " the value of the means of subsistence
necessary for the maintenance of the labourer."

If, of the two horns, the latter is chosen, the whole of
the Marxian theory of surplus value resolves itself into an
idle dream, for it is based upon the foundation that all
labour -power is purchased at sustenance cost by the
capitalist and sold by him at product value. If the first
horn is chosen, Marx's value theory falls to the ground,

1 Capital, p. 149. For fuller quotation see Part I. chap. i.

64 DEMOCRACY VERSUS SOCIALISM PART n

for it is then admitted that other elements than average
labour -time, socially necessary, enter into the value of
products.

Moreover, this conversion of skilled into unskilled
labour-time is a still more obvious juggle than the one
previously pointed out, and is similarly devised in order to
escape from another inevitable objection to the labour-
time theory. Goods produced by skilled labour generally
possess a greater value, and frequently possess an infinitely
greater value than those produced by ordinary labour in
the same time. A sketch produced by an artist in one
hour may, to take an extreme case, possess a hundred
times the value of the work done by a house -painter
during an equal time. The recognition of this fact is
sufficient to completely disprove the theory that " the
value of any article is determined by the labour -time
socially necessary for its production." Therefore, this
transmutation of skilled into unskilled labour had to be
devised in spite of its incongruity with the general
character of the labour-time theory in order to mask the
facts which disprove this theory.

The trick is the same as that involved in the following
dialogue :

A. All coats have the same price.

E. That cannot be so ; I saw some coats to-day, and
found great differences of price. One actually had a
price four times as high as that of the cheapest among
them.

A. That is, because the more highly priced coats count
as less expensive coats multiplied. In the case you
mention the most expensive coat counts as four cheaper
coats. Therefore your objection has no weight ; it
remains true that all coats have the same price.

These incongruities throw considerable doubt upon
the theory of value according to labour-time. If now,
instead of dissecting the statements of its author, the
theory is subjected to the test of deduction, if it is
compared with the facts which it is intended to explain,
the doubt is converted into certainty. For it is then
found to be contradicted by the vast majority of the

CHAP, i MARX'S THEORY OF VALUE 65

phenomena of value. Grouping these into classes, they
are

Land, patents, copyrights, and other monopolies
which possess value, though no labour has been expended
in their production. It will be obvious that the element
which is altogether absent in one class of values cannot be
the universal determining factor of all values.

Scarce goods of all kinds, which either cannot be
reproduced or the reproduction of which is limited, such
as old editions, coins, statues, pictures, rare wines, etc.,
possess a value which cannot be brought into harmony
with labour-time.

The products of all skilled labour possess a value
which, as already pointed out, cannot be reduced to the
labour-time involved in their production.

The products of the mining and agricultural industries,
such as coal, copper, pig-iron, lead, tin, gold, silver, wheat,
cotton, wool, and many others, differ widely in the labour-
time necessary for the production of the several quantities
of each of them. While some land used for wheat-growing
will only yield 8 or 9 bushels per acre in average seasons,
other land yields to the same or a little more labour-time
25 and 30 bushels. In the mining industry the differences
are even greater. Yet all the wheat, or iron, or any other
of these products has for the same quantity and quality,
and in the same market, the same value. If this value,
say of wheat, were determined by the average labour-time
socially necessary to produce wheat, all those who produce
wheat on less productive land, and therefore spend more
than the average labour-time in the production of a given
quantity, would be at a permanent disadvantage, and those
who produce wheat on or near the marginal land, i.e. the
least productive in use, would be heavy losers year after year.

It is manifestly unthinkable that the farmers who
produce this wheat would or could persevere in this
disastrous course year after year. In the Australian
colonies, at any rate, they are not large capitalists, and
would in two or three years find themselves in the bank-
ruptcy court.

The fact is, that unless the value of wheat over an

66 DEMOCRACY VERSUS SOCIALISM PARTII

average of seasons is high enough to compensate for the
labour- time necessary to produce wheat at the margin of
cultivation, i.e. on the least productive land used, wheat
cultivation on such land is abandoned. The same fact
can be observed in all extractive industries, and is equally
true, though less easily proved, of all other industries.
The value of goods must therefore, on the whole, be equal
to or come near to the greatest amount, and not to the
average amount, of labour -time socially necessary to
produce the total quantity of such goods which the
market requires.

Not only all the products of the extractive industries,
but also most of the manufactures, into the composition of
which these largely enter, are subject to frequent changes
in value, without any alteration in the average labour-time
socially necessary for their production. Changes in the
value of agricultural products, dependent upon climatic
influences, may occasionally be consistent with increase or
reduction in labour-time, owing to more or less favourable
harvests. Apart from these, however, the market registers
daily, weekly, and monthly changes in the value of such
products, which cannot be connected with any such
cause. Variations in the value of mineral products and
their derivatives, which are of frequent occurrence, also
cannot be due to any such cause. It is doubtful whether,
in the course of these frequent variations, the value of
such goods ever approaches that which would be congruous
with the average labour-time socially necessary for their
production, and it is obvious that, generally, there can be
no such congruity.

The same phenomenon may be observed with regard
to all goods liable to sudden increases or reductions of
demand, i.e. fashionable goods.

Protective duties as well as revenue duties generally
increase the price of the goods to which they apply with-
out the least increase in the labour-time necessary for their
production. This not only holds good with regard to
the goods on which the duty has been paid, but also with
regard to similar goods, locally produced, on which no
such duty has been paid.

CHAP, i MARX'S THEORY OF VALUE 67

The value of all goods which for their production
require lengthy processes generally exceeds the value of
those which require shorter processes, though the average
labour-time involved is the same or less. The differences
in the value of new and old wines, and the value, of old and
useful trees, suggest themselves as convenient examples of
this fact.

These facts, embracing almost all the phenomena of
value, prove that, while some goods may occasionally
possess a value equal to the average labour-time socially
necessary for their production, such correspondence is an
accident instead of being the rule with regard to all values.
A theory which predicates, as a fact universally true of all
related phenomena, a relation which is generally absent
from all of them, and which only occasionally may exist
with regard to some, possesses no element of validity.
Whether the Marxian theory of value is examined with
regard to the congruity of its various parts ; or whether it
is examined with regard to its congruity with the phen-
omena of value which it is intended to relate and explain,
the result is the same. Both methods show it to be a
hypothesis ill-considered and untenable.

This truth is now admitted by a considerable body of
socialists. 1 But not only is Marx's theory still generally
accepted as true by the vast majority of socialists ; not
only do those who reject the theory nevertheless counte-
nance its being taught to the great body of their followers, 2
but all socialists retain their belief in deductions which
Marx made from this theory, and for which it seems to be
the necessary basis. Nay, it is even maintained that

1 " English socialists are by no means blind worshippers of Karl Marx. Whilst
recognising his valuable services to economic history, and as a stirrer of men's minds, a
large number of English socialist economists reject his special contributions to pure
economics. His theory of value meets with little support in English economic circles,
where that of Jevons is becoming increasingly dominant." Socialism in England, by
Sidney Webb, pp. 84, 85.

2 "The theory of value has a different history. Like the rainbow theory, it began
by being simple enough for the most unsophisticated audience, and ended by becoming
so subtle that its popularisation is out of the question, especially as the old theory is
helped by the sentiments of approbation it excites ; whereas the scientific theory is
ruthlessly indifferent to the moral sense. The result is that the old theory is the only
one available for general use among socialists. It has accordingly been adopted by them
in the form (as far as that form is popularly intelligible) laid down in the first volume of
Karl Marx's Capital." " The Illusions of Socialism," by Bernard Shaw, in Forecast of
the Coming Century, p. 164.

68 DEMOCRACY VERSUS SOCIALISM PART n

Jevons's utterly divergent theory still more fully sustains
these deductions. 1 For all these reasons, and in spite of
its repudiation by the Fabian socialists, a detailed refuta-
tion of Marx's theory of value was necessary ; and for the
same reasons, as well as in order to clear the way for
subsequent refutations of other economic theories of
Socialism, it is advisable now to enter upon an exposition
of the law of value accepted as true by those socialists
who repudiate the Marxian theory and by economists
generally. I refer to Jevons's quantitative theory of value
as developed and extended by the Austrian school of
economists.

1 " Possibly if Jevons had foreseen that his theory would make Socialism economically
irrefutable ... his scientific integrity might also have gone by the board." Socialism in
England, by Sidney Webb, p. 106.

CHAPTER II

THE QUANTITATIVE THEORY OF VALUE

1 JEVONS'S theory of value takes human desire as its starting-
I point. Commodities possess value because they can satisfy
some want or desire of man, i.e. because they possess
utility. The desire for any commodity may, however, be
so fully met by an increase of supply, that the desire
becomes extinguished ; while, on the other hand, a reduction
in the supply of some commodities, if large enough, may
cause the desire for them to become irresistible. " We
may state as a general law that the degree of utility varies
with the quantity of commodity, and ultimately decreases
as that quantity increases." l

The several portions of the same stock of a commodity,
therefore, possess different degrees of utility. As, how-
ever, any two equal quantities of the same commodity are
interchangeable, either will be taken with absolute in-
difference by any purchaser. Hence no one will give
more for any equal portion of a stock of a commodity
than for that portion which possesses the least utility.
Hence the value of the whole stock of any commodity is
determined by the utility of its final portion, i.e. by its
final utility.

Jevons's exposition of the quantitative theory of value,
though true as far as it goes, embraces but a limited series
of the phenomena of value. It has received the necessary
extension at the hand of the Austrian school of economists,
whose conclusions are now generally accepted. In the
following, necessarily much condensed, summary of their

1 Jevons, The Theory of Political Economy, 3rd edition, p. 53.

yo DEMOCRACY VERSUS SOCIALISM PARTII

/by

teaching I lean largely upon Professor von Bahm-Bawerk's
profound exposition in The Positive Theory of Capital.

All human action is prompted by desire and resisted

distaste for exertion. In order that a thing may
be produced, the desire for it must conquer the distaste
for the exertion which its production necessitates. The
acquisition of goods through exchange is dominated by
the same law. In an exchange of, say boots for hats, the
desire of one party for hats must conquer his reluctance
to part with boots, and vice versa , i.e. the thing to be
acquired must be more ardently desired than the thing to
be given up on both sides or no exchange can take place.
But desire and utility are merely two aspects of the same
relation. Men desire things because they are of some use to
them, i.e. because they possess utility ; and things are useless,
i.e. possess no utility, unless they can satisfy some desire.

Things may, however, be valued from a subjective
standpoint that is, for their power to satisfy the owners'
desire for themselves ; or from an objective standpoint,
when the desire is for other things which they bring
through exchange. In either case their value depends
upon, and is a consequence of the utility of the things.
Hence it is clear that utility is the cause of both subjective
or use-value, and of objective or exchange-value.

Utility and value are not, however, convertible terms,
for a thing may possess utility without possessing value.
In order that a useful thing may acquire value, the desire
for it must be strong enough to provoke action ; and in
order to do this the thing must be an indispensable con-
dition of the satisfaction of desire. Water as such is
capable of quenching thirst. But if I want a cup of water
from a flowing stream, any particular cupful has no more
utility than any of the other thousand cupfuls of water
which every minute are flowing by. I would lose no
satisfaction by the loss of any particular cup of water. It
is capable of satisfying my desire, but its possession is
not an indispensable condition of satisfaction. Therefore,
water, though useful, possesses no value in this place.

In a desert, however, where water is scarce, the loss of
any single cup of water may compel some of my desire for

CH.II QUANTITATIVE THEORY OF VALUE 71

water to go unsatisfied. Where this is the case, every cup-
ful of water is an indispensable condition of satisfaction,
and, therefore, water does possess value here.

It follows : in order that utility shall evolve into value,
the available quantity of the useful thing must be so limited
that some desire for it may have to go unsatisfied unless
the available quantity is increased.

The value of goods, therefore, is a consequence of
their utility. Their relative utility was classed by the
classical school of economists according to the kind of
desire which they could satisfy. First in the order of
importance they placed necessaries, next superfluities, and
last luxuries. Hence they came to the conclusion, adopted
by Marx, that the use-value and exchange-value of things
had no necessary connection with each other. For accord-
ing to this classification the use-value of bread infinitely
exceeds that of diamonds ; yet the exchange -value of
diamonds is enormously in excess of that of bread. This,
however, is a purely academic manner of looking at the
conduct of men. They do not feel the promptings of
desire according to this scale. Many a family has stinted
itself in food in order to keep a carriage ; women con-
stantly deprive themselves of necessaries in order to save
money for a new dress or a coveted ornament ; and men
will deprive themselves of food or go about in old and
shabby clothes in order to get tobacco, beer, or tuition.
It, therefore, is not the kind of desire which determines
the value of the object of that desire, but the degree of
desire for that object.

Any given kind of desire is felt in differing degrees of
urgency, and may, for a time, be extinguished by satis-
faction and even by the assurance of satisfaction. To
come back to the former illustration, the man who has
drunk enough water and sees more of it flowing by him,
has no longer any desire for water. Even in a desert, if
conscious that he has more than sufficient water with him,
his desire for any particular gallon of this water is small.
But should he lose so much of it, that the remainder is
barely sufficient for the rest of his journey, he will feel a
more urgent desire for what is left and will value it more

72 DEMOCRACY VERSUS SOCIALISM PARTII

highly. The loss of every additional gallon will increase
the desire which he feels for, and the value which he sets
on, the rest.

Not the kind but the degree or urgency of desire,
therefore, measures the utility and the value of the desired
object ; and as goods of the same kind are interchange-
able, the least urgent degree of desire which can be satisfied
with the available quantity, i.e. the marginal desire, deter-
mines the value of the entire available quantity. Or, in
other words, the value of any commodity in the market is
determined by the valuation of the marginal buyer, i.e. the
buyer whose effective desire is least urgent.

Not only is every kind of desire felt in many differing
degrees of urgency, but many commodities are capable of
satisfying several kinds of desire of differing urgency.

As an illustration, 1 take the case of a solitary settler,
who has just harvested five bags of wheat on which he
must live till the next harvest. He determines that the
best use he can make of them is to devote one bag to
making bread ; one to make puddings and cakes ; one
to feed poultry for his meals ; one to make into spirit ;
and having no direct use for the fifth bag, he decides that
it will be most usefully employed in feeding parrots and
song-birds which he will catch. What is now the value
of a bag of wheat to him ?

There can be no doubt as to his answer, for if he were
to lose one of the bags, he would obviously discontinue
the feeding of captured birds, while continuing to use the
remaining four bags for his more pressing wants as before.
The use of one bag for feeding birds, therefore, was the
marginal utility of his whole stock of wheat. What he
lost, when he lost one bag, was this former marginal
utility, and this utility determined the value of this one
bag of wheat.

The assumption, however, is that the five bags of wheat
are all of exactly the same weight and quality, therefore
interchangeable. It is, therefore, a matter of indifference
to the settler, which of the five bags is lost, i.e. they are

1 Free rendering of example in A Positive Theory of Capital, by Prof, von Bbhm-
Bawerk.

CH. ii QUANTITATIVE THEORY OF VALUE 73

all of the same value to him. Hence the value of one bag
being determined by the least urgent desire which the whole
quantity enables to be satisfied, and the value of all bags
being alike, it follows that this same desire the marginal
utility determines the value of all five bags of wheat.

If now another bag were lost, the settler would dis-
continue making spirits, i.e. the marginal utility of four
bags of wheat would have been determined by this, the
highest use to which the fourth bag of wheat could be
put, and this use would have determined the value of all
the bags. If another bag were lost, the settler would dis-
continue the feeding of poultry ; and if still another were
lost, that of making cakes and puddings. Being then
reduced to one bag, none of the less urgent wants can
be satisfied ; to lose this last bag would mean death.
Marginal utility and highest utility have become one, and,
to the settler, the value of this remaining one bag is im-
measurably high.

Suppose now that a hawker penetrates the wilderness
and offers to exchange some of his wares for wheat. If
the settler have five bags, he will part with one at a com-
paratively low rate ; for in parting with it he loses only
the satisfaction of feeding birds. If his stock consists of
only four bags, he will demand a higher rate for any one
of them, because he loses a higher satisfaction in parting
with it. If he had only one bag, he would not part with
it at any price.

The motives which determine the valuation of goods
by this solitary settler also determine their valuation in
the largest industrial community. Other things being
equal, increase of supply reduces value and decrease of
supply increases value that is, when the available quantity
of any commodity increases, lower levels of desire must be
appealed to than before ; these being less urgent will not
become active unless the sacrifice imposed through their
satisfaction is reduced, i.e. until the price falls. The value
thus imposed by the least urgent desire determines the
value of the whole stock. If supply decreases, less urgent
desires cannot be satisfied, and a more urgent desire, form-
ing the marginal of economic employment, produces a

74 DEMOCRACY VERSUS SOCIALISM PART n

higher value for the whole stock. If, however, the avail-
able quantity of any commodity is so large, that all possible
desires for it can be satisfied without absorbing the whole
quantity, the marginal utility of the whole of it is zero, and
the value of it is nothing.

So far it has been shown that the value of goods arises
from their utility, and is determined by their marginal
utility. It now becomes necessary to consider a class of
goods which cannot directly satisfy any desire, but which
assists in the production of such desired goods, i.e. pro-
ductive goods, or, in the phraseology of Socialism, " means
of production." Whence do these derive their value ?
The answer is that their value also is determined by the
marginal utility of the stock of consumption-goods which
forms their final product.

The end and purpose of all production is the satisfac-
tion of human desire through consumption. Therefore,
every material, instrument, and opportunity of production
from the land downwards is, economically speaking, under-
going the process of being converted into consumption-
goods. Take a concrete case, say, that of bread. Let us
call it a commodity of first rank. Its existence depends
upon that of commodities of second rank, viz. flour, oven,
and upon the labour of the baker. The existence of these
again depends upon a group of commodities of third rank,
viz. wheat, mill, materials of oven, and upon the labour of
producing them. They are again conditioned by a group
of fourth rank, viz. agricultural implements, building
material of mill, by land, and by labour. With the ex-
ception of bread, none of these things are desired for them-
selves, for none can directly satisfy any desire. Each of
them, however, does satisfy desire indirectly, through their
final product, bread. Each one of these groups of pro-
duction - goods is, economically speaking, bread in the
making ; is valued only in so far as it assists in the
ultimate satisfaction of the desire for bread. Their only
contact with desire is through bread, and their value,
therefore, is determined by the value of bread. As the
value of bread itself is determined by the quantitative
relation between the wants for bread and the supply of bread,

CH.II QUANTITATIVE THEORY OF VALUE 75

i.e. by the marginal utility of bread, the same condition
determines the value of each group of the productive goods
which is called into existence by the wants for bread.

In the modern co-operative system of industry, it is,
of course, impossible for all intermediate producers to
know the value of the final product. But each group of
productive goods has an intermediate product, and finds
its value in that of its intermediate product. Thus,
reverting to our previous illustration, the value of bread
directly determines the value of the group of commodities
of second rank ; the value of flour, their intermediate
product, determines that of the group of commodities of
third rank ; and the value of wheat determines that of the
group of fourth rank, of which it is the intermediate pro-
duct ; and all this, because the value of wheat and flour
depends upon the marginal utility of bread as much as the
value of bread itself. " Though the conduction of value
from the anticipated final product back to intermediate
product, and from that back to the very first product of
all, may remain hidden from each producer, the organisa-
tion of industry practically carries the information from
stage to stage."

It will thus be seen that this theory derives the cost
of production from the marginal value of the final pro-
duct, instead of deriving the value of the product from
the cost of production. However paradoxical this con-
ception may seem when compared with surface appear-
ances, it is nevertheless borne out by common experience.
No cost of production can give value to a thing the desire
for which has ceased ; if goods are out of fashion, i.e. if
the desire for them has lessened, they fall in value regard-
less of their cost of production. Merchants and retailers
whose shelves are encumbered with " dead stock " know
this to their cost.

Common experience, however, suggests, that if the
cost of producing an article of general consumption falls,
such as iron, steel, wool, or cotton, there will sooner or
later be a corresponding fall in its value. The fact is true,
but the compelling force does not arise from the lessened

1 Smart, Introduction.

76 DEMOCRACY VERSUS SOCIALISM PARTII

cost of production. The producers are not anxious to
lower the price as long as they can dispose of all their
products. If they could combine to prevent an increase
in supply, they could prevent, as in protectionist countries
they have frequently reduced, the fall in value. When,
however, such a fall in the cost of production takes place,
the supply generally does increase, either through the
desire of previous producers to reap the increased profit
from a greater number of sales ; or through the desire of
capitalists to share in the exceptionally high profit, by
joining in the production of the article in question ; or
from both these causes. As a consequence, the wants
which previously were fully supplied cannot absorb the
additional supply ; lower levels of wants must be appealed
to, and can only be induced to take up the new supply if
it can be obtained with a smaller sacrifice, i.e. at less cost.
But as all parts of the whole stock are interchangeable, no
one will give more for any of them than the marginal
buyers offer for the new supply. Hence the value im-
posed upon this new supply by the new and lower wants
to which it appeals, fixes the value of the whole supply,
and not its cost of production, and the marginal cost of
production must assimilate itself to this new value.

Similarly, if the desire for a commodity declines, the
cost of production will tend to assimilate itself to the
lower value. Marginal producers, i.e. those who produce
at the highest cost of production, and who find the new
value unprofitable, will curtail and eventually abandon
production. A lower cost of production thus forms the
margin, while the lessened supply may and ultimately will
produce a higher marginal utility, either preventing a
further fall in value or raising value again. From both
ends, therefore, tendencies arise which assimilate the cost of
production to the new marginal utility of the product. It
is not the cost of production, but the anticipated value of
the product, which is the dynamic force and determines
the course of industry. For cost of production, that is
the sum of exertions, merely acts as a brake ; the active
cause of all economic actions is consumption, the satis-
faction of human desires, the well-being of man.

CHAPTER III

ORIGIN AND NATURE OF CAPITAL

SOCIALISM posits private ownership of capital as the cause
of all or nearly all social injustice. Capital and capitalism
are the terms most frequently encountered in its literature,
and they are the favoured objects of denunciation. It
might, therefore, be supposed that the Socialism which
claims to be " scientific " had made a close and serious
study of the thing capital that it had analysed it and
clearly conceived what it is. Yet, strange to say, the
opposite is the case. The endless mass of socialist litera-
ture which overburdens the student contains but few
attempts at any definition of capital, and not one serious
attempt to determine its nature and functions. Not one
makes any distinction between capital, which is the result
of labour applied to natural objects, and monopolies,
which are the creation of legislative enactments ; and,
though land and capital are frequently differentiated, such
difference is not infrequently denied, either directly 1 or
indirectly. 2 The few definitions of capital to be found in
socialist literature all suffer from the same fault. The
most important of these is that of Karl Marx, who

1 " When we consider what is usually called capital, we are at a loss to disentangle it
from land, as we are to find land which does not partake of the attributes of capital."
Fabian Tract No. 7, Capital and Land.

2 " I know that it has been sometimes said by socialists : ' Let us allow the manu-
facturer to keep his mill and the Duke of Argyle to keep his land, as long as they do
not use them for exploitation by letting them out to others on condition of receiving a
part of the wealth created by these others. . . .' Unluckily there are no unappropriated
acres and factory sites in England sufficiently advantageous to be used as efficient substi-
tutes for those upon which private property has fastened." Fabian Essays, pp. 139, 140.

The petitio principii, substituting "factory sites " in the second sentence for "mills "
in the first, is a sleight-of-hand, characteristic of the manner in which prominent
socialists endeavour to obscure the land question.

78 DEMOCRACY VERSUS SOCIALISM PARTII

devotes a chapter of Capital to its elucidation, 1 and from
which the following statements are extracted :

" The circulation of commodities is the starting-point
of capital. The production of commodities, their circula-
tion, and that more developed form of their circulation
called commerce, these form the historical groundwork
from which it rises. . . .

" As a matter of history, capital, as opposed to landed
property, invariably takes the form at first of money ; it
appears as moneyed wealth, as the capital of the merchant
and the usurer. But we have no need to refer to the
origin of capital in order to discover that the first form of
appearance of capital is money. We can see it daily
under our very eyes. All new capital, to commence with,
comes on the stage, that is, on the market, whether for
commodities, labour or money, even in our days, in the
shape of money that by a definite process has to be trans-
formed into capital."

This process of transformation is thus described :

" The simplest form of the circulation of commodities
is C M C, the transformation of commodities into
money, and the change of the money back again into
commodities, or selling in order to buy. But alongside
of this form we find another specifically different form :
M C M, the transformation of money into com-
modities, and the change of commodities back again into
money, or buying in order to sell. Money that circu-
lates in the latter manner is thereby transformed into,
becomes capital, and is already potentially capital. . . .

" In the circulation C M C, the money is in the
end converted into a commodity, that serves as a use-
value ; it is spent once for all. In the inverted form
M C M, on the contrary, the buyer lays out money in
order that, as a seller, he may recover money. By the
purchase of his commodity he throws money into circula-
tion, in order to withdraw it again by the sale of the same
commodity. He lets the money go, but only with the
sly intention of getting it back again. The money, there-
fore, is not spent, it is merely advanced. . . .

1 The General Formula for Capital, vol. i. Part II. chap. iv.

CH. in ORIGIN AND NATURE OF CAPITAL 79

" The circuit C M C starts with one commodity
and finishes with another. Consumption, the satisfaction
of wants, in one word, use-value, is its end and aim. The
circuit M C M, on the contrary, commences with
money and ends with money. Its leading motive, and
the goal that tracts it, is, therefore, mere exchange-
value. . . .

" To exchange ^100 for cotton, and then this cotton
again for 100, is merely a roundabout way of exchang-
ing money for money, the same for the same, and appears
an operation just as purposeless as it is absurd. One
sum of money is distinguished from another only by its
amount. The character and tendency of the process
M C M is, therefore, not due to any qualitative differ-
ence between its extremes, both being money, but solely
to their quantitative difference. More money is with-
drawn from circulation at the finish than was thrown into
it at the start. The cotton that was bought for 100 is
perhaps resold for 100 plus 10 or ^no. The exact
form of this process is therefore M C M', where
M' = M A M = the original sum advanced plus an in-
crement. This increment or excess over the original
value I call surplus-value. The value originally advanced,
therefore, not only remains intact while in circulation, but
adds to itself a surplus-value or expands itself. It is this
movement that converts it into capital. . . .

" As the conscious representative of this movement,
the possessor of money becomes a capitalist. . . .

" It (value) differentiates itself as original-value from
itself as surplus-value, as the father differentiates himself
from himself qua the son, yet both are one and of one
age ; for only by the surplus-value of 10 does the 100
originally advanced become capital: . . . M M', money
which begets money such is the description of capital
from the mouths of its first interpreters, the mercantilists.

" Buying in order to sell, or more accurately, buying
in order to sell dearer, M C M 7 . . . is therefore in
reality the general formula of capital as it appears prima
facie within the sphere of circulation." *

1 The italics are ours.

8o DEMOCRACY VERSUS SOCIALISM PARTII

Apart from such misconceptions as the one that all
capital makes its first appearance in the form of money,
which do not concern us here, the foregoing quotations
make quite clear Marx's conception of capital, viz. that
it consists of all valuable things which yield an income to
their possessors, and that it excludes all such things which
either permanently or temporarily yield no income. The
italicised sentences leave no shadow of doubt as to this
meaning. No distinction is, therefore, made by him
between the use of money (to adhere to his term) in
directions which, while yielding an income to its possessor,
add to the general income of the social body, and between
the use of money which yields to its possessor an income
which is deducted from the general income of the social
body.

Moreover, the tenor of the argument implies that
all incomes from capital are uncompensated deductions
from the general income, that " buying in order to sell,"
inclusive of the transactions of manufacturers who buy,
say cotton in order to sell yarn, is an activity which
renders no service whatever. That this view is fully held
and deliberately enforced by Marx is not only shown in
the development of his surplus-value theory, but also in
the following reference to capital :

" We know that the means of production and subsist-
ence, while they remain the property of the immediate
producer, are not capital. They become capital only
under circumstances in which they serve, at the same
time, as means of exploitation and subjection of the
labourer." 1

Here Marx still pursues the same theory, though the
change in expression makes its meaning more clear. The
only characteristic which differentiates capital from general
wealth is its use as a " means of exploitation and subjec-
tion of the labourer." Anything not so used is not
capital, and any income derived from capital is therefore
" exploited " from the labourer.

Apart from the confirmation of the deductions made
from previous quotations, which this passage yields, it

1 Capital, p. 792.

CH.III ORIGIN AND NATURE OF CAPITAL 81

leads to curious results in another direction. For, if true,
any machine or other instrument of production which for
the time being is not used, or is used by an immediate
producer, say a farmer, is not capital. If the farmer
engages a workman to drive the engine it becomes capital.
A cotton-mill worked by a Co-operative Society could
not be capital ; if worked by a private employer it might
be capital, provided it returned a profit ; but if worked at
a loss it could not possibly be capital. For, obviously,
neither in the co-operative mill nor in that worked at a
loss, are " the means of production used as the means of
exploitation and subjection of the labourer," while in the
private mill, returning a profit, they may be so used. As
reasonably may it be held that a gun is not a firearm if it
is used for shooting game, but if it is used for shooting a
man, then it becomes a firearm.

The foregoing examination proves that Marx made
no attempt to find out what capital is, but that he framed
his definitions to suit certain deductions which he desired
to make from them.

La Propriety by Paul Lafargue, furnishes (p. 303)
another definition, viz.:

" Under capital one understands all property which
affords interest, rent, income, or profits."

Lafargue also, therefore, makes no distinction what-
ever between land, labour-products, and monopoly-rights,
but classes them all as capital. But subsequently he limits
this generalisation as follows :

" A sum of money put at interest is capital ; any
instrument of labour (land, weaving-looms, metal works,
ships, etc.) used not by its proprietor, but by salaried
persons, is capital. But the land which is cultivated by
its peasant-owner with the aid of his family, the poacher's
gun, the fisherman's boat . . . although they are property,
are not capital."

This, however, is not merely a limitation, but an-
absolute contradiction of the principal proposition. For
if " all property which affords . . . income or profits "
is capital, then the peasant-proprietor's land and the fisher-
man's boat also are capital, if they " afford an income or

82 DEMOCRACY VERSUS SOCIALISM PARTII

profit " to their owners when used by them, which gener-
ally is the case.

Moreover, according to this limitation, land is not
capital if the owner and, say, two sons work it ; but
should one of the three be injured, so that a hired man
must be engaged to take his place ; or should threatening
weather at harvest-time compel the engagement of an
additional worker so as to hasten the operation, then it
would at once become capital and the proprietor a
capitalist.

Laurence Gronlund, in The Co-operative Commonwealth,
gives the following definitions, pp. 29, 30 :

" We, therefore, mean by capital that part of wealth
which yields its possessors an income without work/' . . .
" Capital is accumulated fleecings, accumulated, withheld
wages."

This view is supported by a greater authority,
Frederick Engel, who, in Socialism, Utopian and Scientific,
p. 43, states .-

" The appropriation of unpaid labour is the basis of
the capitalist mode of production, and of the exploita-
tion of workers that occurs under it ; even if the capitalist
buys the labour-power of his labourer at its full value as
a commodity on the market, he yet extracts more value
from it than he paid for ; and in the ultimate analysis
this surplus-value forms those sums of value, from which
are heaped up the constantly increasing masses of capital
in the hands of the possessing classes."

These definite statements embody most clearly the
general conception which socialist writers and teachers wish to
convey, viz. that capital, privately owned, not merely robs
the workers, but is itself stolen from them, and that any
property which yields an income without work is capital.
It cannot be denied that socialists, as well as any one else,
have a perfect right to define the terms they use as seems
good to them, provided the definition is consistent within
itself, and is not subsequently departed from. Whether
the definition is useful, or whether it tends to obscure the
facts under consideration, is, however, another question.
The definitions before us embrace objects, the origin,

CH, in ORIGIN AND NATURE OF CAPITAL 83

nature, and influence of which differ so widely from each
other, that their agglomeration under one definition has
consequences of the most misleading and mischievous char-
acter. The present chapter will be devoted to the eluci-
dation of what, in contradistinction to monopoly-rights and
other spurious forms of capital, may be called real capital,
leaving the treatment of the former as well as of land to
subsequent chapters.

All the useful things which constitute wealth are the
result of human exertion exercised upon matter in the
direction of changing its form or relation so as to fit
it for the satisfaction of human desires. But not all such
exertion adds to the stock of wealth. Apart from all
other cases, it is obvious that labour directed towards the
immediate satisfaction of desire fails to do so. For if a
man gathering berries puts them into his mouth and eats
them, there is no production of wealth ; but if instead he
puts them into a basket for subsequent use, the stock of
wealth is increased. In order, therefore, that such a simple
form of wealth as berries should be produced, some labour
had to be expended in advance on the production of
something not wanted for its own sake, and unable of
itself to satisfy desire.

Take another case. A man, wanting water from a
spring at some distance from his hut, may satisfy his
desire by going there and raising the water in his bent
hand till he has quenched his thirst. But if he takes a
piece of wood, hollows it out with fire, and attaches a
handle made of twisted reeds, he not only can obtain more
water, but can carry it to his hut where it is wanted.
Manifestly, however, in order to obtain this greater
quantity of water, and in order to carry it where it was
wanted, he had to proceed in a roundabout way that is,
he had first to make something for which he had no
direct desire, a pail. If he now wants more water still,
he may cut down a tree, saw it into boards, make these
boards into a flume, and along this channel an infinitely
greater amount of water will be carried to his hut by
gravitation, i.e. without any further exertion on his part
than that of occasionally keeping the flume in order.

84 DEMOCRACY VERSUS SOCIALISM PARTII

To obtain this greater supply with less labour, he had,
however, to go about the work of producing the water in
a still more roundabout way. He had to quarry iron-ore
and flux, construct a smelter, smelt the ore into iron,
then produce a forge and shape the iron into axe and
saw, then fell a tree, saw it into boards, and finally make
these into a flume.

It is true, that if one man had to do all this in order
to obtain water for his own use, the greater quantity of
water thus obtained would not requite him for the labour
expended in his roundabout process. But if thousands of
men work in co-operation extending over time and space,
some quarrying ore and flux and coal ; some constructing
smelters and forges ; others smelting the iron, which
others again shape into axes, saws, and other appliances
wanted in various industries ; if other men, again, fell trees,
and still others saw them into boards for the manifold
purposes for which boards are wanted, then the man
wanting boards for a flume can obtain them through
exchange with such a small expenditure of labour, that the
construction of a flume may be very profitable to him.
It is also obvious that the greater supply of water which
he will now obtain is entirely due to the roundabout and
co-operative process of producing the water, which began
with the mining of the ore, which was carried on by
several exchanges of intermediary products, and closed
with the exchange of boards for something produced by
the labour of their consumer.

The above case is illustrative of the fact that a greater
result is obtained by the roundabout process of production
than by the direct process. In by far the greater number
of productive processes, however, the roundabout process is
the only one possible. In the pastoral industry, whether the
final product aimed at is meat, wool, or milk, it is obvious
that no product can be obtained except indirectly. Animals
must be bred and reared ; in cold climates shelter must
be built for them ; fodder must be grown, and various
other processes must be performed, before either meat
wool, or milk is produced. Similarly, before wheat or
any other product of agriculture is obtainable, some sort

CH. in ORIGIN AND NATURE OF CAPITAL 85

of agricultural implements must be constructed, land
must be cleared and prepared, seed must be sown, and
other processes performed before the harvest can be
gathered.

In every kind of manufacture the roundabout process
is equally obligatory. In the manufacture of bread from
wheat, some sort of a flour-mill and some kind of an oven
must be made before the final process of baking the bread
can be undertaken.

Similarly, before hides will emerge in the shape of
boots, many tools must be constructed and processes
undertaken ; and even the most primitive manufacture
of clothing requires at least a spinning-wheel and some
sort of a loom, involving the antecedent labour of their
construction.

The absolute necessity of this roundabout process is,
however, still more apparent in the higher branches of
manufacture. If any one will think out for himself the
manifold processes required before a steel pen, a watch, a
pocket-knife, or a pair of spectacles make their appearance,
he will find that the extension in time and space of the
co-operative, roundabout process involved, is as far-reach-
ing as it is indispensable.

We have now arrived at these conclusions :

In some processes of production, the intermediary
production of goods not in themselves capable of satisfying
desire, leads to a greater production of the desired goods
with the same exertion, or to an equal production of them
with less exertion.

In by far the greater number of productive processes,
the intermediary production of goods not in themselves
capable of satisfying desire is the indispensable condition
of the production of the desired goods.

This roundabout process of production, whether
merely advantageous or indispensable, requires the co-
operation of many producers through exchange ; not
only through the exchange of the final product, but
through the exchange of many intermediate products as
well.

Two further conclusions, however, must be drawn.

86 DEMOCRACY VERSUS SOCIALISM PARTII

It was seen that when a man substituted a pail for his
hand, the produce of his labour was increased through the
extension of the process of production in time. When
for the pail he substituted a flume, there was a further
increase, but at the expense of still greater delay between
the initiation of the productive process and the appearance
of the product. This holds true throughout all produc-
tion. The more roundabout the process, that is, the
more goods not in themselves desirable are interposed
between raw matter and final product, the more energies
and powers of matter are set to work for man's satisfac-
tion, and the greater is the result of his exertion.

And further : The more roundabout the process of
production, the more specialised becomes every part of it.
With this greater specialisation there comes an increase in
the forms and quantities of intermediary products, and
consequently a greater number of exchanges. Not only
does the co-operative, roundabout process depend upon
exchanges for its existence, but as it is extended, so
exchanges multiply. Moreover, the process of production
is not completed till the ultimate exchange of the final
product has taken place, i.e. till it is in the hands of
consumers. The end and purpose of all production being
the satisfaction of human desires through consumption,
production only ends where consumption, the satisfaction
of desire, begins. And just as coal cannot satisfy human
desires till it is brought to the pit's mouth by the labour
of the miner, so if it is not wanted there, it still fails to
satisfy desire till the coal-merchant and sailor, or other
carriers, have brought it to a city, and till the retailer and
carter have delivered it in somebody's backyard who
wants to burn it. From beginning to end of the round-
about, co-operative process of production, exchange is
thus its indispensable condition. It is the bond which
gives aim and purpose to the separate and individual
efforts of all the co-operators.

The foregoing examination has made clear the nature
of capital. It consists of all those forms of wealth which
are produced, not for the direct satisfaction of the desires
of the producer, but for their indirect satisfaction, through

CH. in ORIGIN AND NATURE OF CAPITAL 87

the assistance which they render in the satisfaction of
desire, either as material, instruments, or final product ;
till, when the productive process is completed by delivery
of the final product to its ultimate consumer, this final
product loses the special character of capital and becomes
simply wealth. Capital is thus seen to consist of labour-
products, and it must be obvious that to press under the
same description privileges, rights, and possessions, which
are not the produce of labour, because their possession
entails some consequences akin to those which arise from
the possession of capital, is as misleading as to class
canaries amongst herbivorae because they like to nibble
lettuce leaves.

It is similarly made clear that what differentiates
capital from other wealth is not its use " as means of
exploitation and subjection of the labourer," but the
relation in which it stands to ultimate human desires, and
that this relation is not affected by the question whether
the thing is " the property of the immediate producer "
or of anybody else, whether it is actually used, or whether,
for the time, it remains unused.

Capital, like all wealth, is the produce of labour and
land. If capital is " accumulated fleecings," i.e.. if it is
stolen from labour, then all wealth not owned by labourers
is equally stolen. That no one can morally obtain wealth
without rendering services in return is absolutely true.
But it is not true that no one can morally obtain wealth
without producing it. Doctors, lawyers, scientists, publi-
cists, and journalists, even socialist ones, no more produce
wealth than do singers or actors. But they render services
to the wealth -makers, for which the latter are willing
to exchange wealth. The socialist denunciation of the
capitalist as a robber, because as a capitalist apart from
organiser or manager he does not produce wealth, is,
therefore, illogical. The question is not whether he
produces wealth, but whether he renders services to the
wealth-makers which entitle him morally to a share in
the wealth produced. Here, again, the distinction un-
recognised by Socialism between the capitalist and the
monopolist is of the utmost importance. The monopolist,

88 DEMOCRACY VERSUS SOCIALISM PARTII

as such, renders no service ; the capitalist, as such, does,
as will be shown in the chapter on interest. That, as long
as monopolies exist, the reward which capitalists, as well
as employers, obtain for their services may, in the aggre-
gate, be excessive, is true. This, however, is not neces-
sarily an inevitable outcome of the private ownership of
capital and the private conduct of non-privileged indus-
tries, but may be, and, as will be shown, is a secondary
result of legalised monopoly. Even if this were not the
case, it would not justify the assertion that all the earnings
of capital are stolen from labour. Nor does the un-
doubted fact that a considerable part of existing capital
consists of accumulated tribute exacted from labour by
monopolists justify the assertion that " all capital is ac-
cumulated fleecings," and still less does it justify " the
exploitation of the labourer " to be made the determinat-
ing characteristic of capital.

The denunciations which Socialism directs against the
capitalistic form of production as " unorganised, chaotic,
and anarchic," may justify a slight digression in their
refutation, which the foregoing description of the round-
about process of production makes almost superfluous.

Man lives in a world in which nothing is ever at rest.
Every particle of matter is constantly being acted upon
by other particles of matter, and is reacting upon yet
other particles. As the result of these ceaseless activities,
there appear energies, such as motion, gravitation, heat,
electricity, chemical actions, and the mysterious principle
which we call life. The sum of these energies, which
nature pours out in ceaseless flow and inexhaustible quan-
tities, without any assistance from man, is the productive
endowment of man. From it he draws as much as his
knowledge enables him and his wants necessitate, to assist
him in satisfying his desires. Where man confines himself
to production for immediate or almost immediate con-
sumption, he makes use of a minimum only of nature's
energies, and, as a consequence, the produce of his labour
is small ; as he lengthens the process of production,
enlisting more and more of nature's energies, and at more
frequent intervals, the produce of his labour increases.

CH. in ORIGIN AND NATURE OF CAPITAL 89

The increase in product is not necessarily proportioned to
the increase in the length of the process. On the con-
trary, after a certain point is passed, every additional
stage interposed between the beginning and end of a
productive process may give a somewhat less increase of
return than the previous one. There is, however, always
an increase, against which advantage must be placed the
disadvantage of increase of time.

It follows that a community which adopts the round-
about or capitalistic form of production, thereby enor-
mously and progressively increases its power to satisfy
wants ; and further, that such a community consumes
each year but a small part of the fruits of the labour of
that year, i.e. that it mainly lives on the labour-results of
past years which mature during the present year, while
directing the greater part of its present efforts towards
results which will mature in future years. The longer
the process of production, the greater will be the degree
of capitalism, the further off will be the time of maturity
of present efforts, and the more ample will be their reward.
In this sense, therefore, capital is the symptom as well as
the cause of profitable production ; it exists, because a
people, producing more profitably, can postpone to later
dates the consumption of the fruits of present efforts.
The natural agencies imprisoned in capital and com-
manded by it enable man to give part of his labour to
the imprisonment of more natural agencies which shall do
his future work.

This process of roundabout or capitalistic production
is made possible through the voluntary co-operation of
vast numbers of men, extending in time and space, a
co-operation of their physical as well as of their mental
powers. Two kinds of co-operation are possible. One
is the co-operation of many men, who, for the time,
abandoning most of their mental activities, obey the will
of one man in their physical exertions, leaving mental
guidance to the one. This is the compulsory co-operation
at which Socialism aims. The other is a voluntary co-
operation, where every man more or less utilises both his
physical and mental powers in the production of goods,

90 DEMOCRACY VERSUS SOCIALISM PART ir

which, through the act of exchange, shall satisfy the
desires of all of them. This is the capitalistic system,
world-wide in its extension, upon which our civilisation is
based. While socialistic, i.e. enforced co-operation, tends
to the repression of the mental energies of most of the
co-operators, this voluntary co-operation tends to excite
them, and thus, in its results, no less than in its character,
far surpasses the former. Capitalistic production, so
contemptuously called chaotic and anarchic by the men
who cannot conceive of any co-operation except that
which is enforced, and of which the lowest savage is
capable, is, in reality, the most marvellous system of
co-operation which the human mind can conceive ; a
voluntary, world-wide co-operation of independent units,
which alone has enabled mankind to raise itself above a
state of savagery, which has enormously increased the
sum of human happiness, and which, when freed from the
incubus of monopolism which the interference of the State
has grafted upon it, will lift mankind above want and the
fear of want into a sphere of as yet unimaginable intel-
lectual and moral activity.

CHAPTER IV

THE ORIGIN AND NATURE OF SPURIOUS CAPITAL AND
SPURIOUS INTEREST DEBTS AND MONOPOLIES

HAVING ascertained the origin and nature of real capital,
we may now investigate those of spurious capital, which is
nearly always confounded with it by socialist writers.
Even those among them who occasionally distinguish
between capital and monopoly, invariably assert that the
latter is an inevitable outcome of the private possession
of capital ; that capitalism must invariably evolve into
monopoly, and that this evolution cannot be prevented
except by the socialisation of capital. 1 As far, however,
as the present writer knows, no socialist has ever attempted
to prove this assertion. The nearest approach to it are
attempts, such as that made in the second quotation cited,
to prove that private ownership of the raw material of the
earth, i.e. land, leads to monopoly, and then presume to
have proved that capitalism, i.e. the private ownership of
capital, does so.

It cannot be denied that monopolies may have their
origin in legal enactments which are unconnected with the
private ownership of capital and the private conduct of
industries, and it may, therefore, be that all, or nearly all,

1 " As sin when it is finished is said to bring forth death, so capitalism when it is
finished brings forth monopoly. And one might as well quarrel with that plain fact as
blame thorns because they do not produce grapes, or thistles because they are barren of
figs." Fabian Eisays, pp. 93, 94.

" Granted private property in the raw material out of which wealth is created on a
huge scale by the new inventions which science has placed in our hands, the ultimate
effect must be the destruction of that very freedom which the modern democratic State
posits as its first principle. . . . Thus capitalism is apparently inconsistent with
democracy as hitherto understood." Ibid. p. 98.

92 DEMOCRACY VERSUS SOCIALISM PART n

forms of monopoly owe their existence to this cause. At
any rate, no honest conclusion as to the connection
between capitalism and monopoly can be arrived at till all
monopolies, which obviously exist through special legal
enactments, are separated from those for which no such
cause can be discovered. An endeavour to do this forms
part of this and the following chapter.

The legal rights, which in some respects simulate
capital, are either rights of debt or monopolies. Their
similarity to real capital is, however, confined to the facts
that, like real capital, they may be exchanged and may
yield an income to their possessors. In every other
respect they absolutely differ from real capital.

A right of debt arises when existing wealth is exchanged
for a legal right to demand other wealth at a future date.
The wealth to which the legal right refers may be in
existence at the time the exchange takes place, or it may
come into existence at some future date. But whether
it already exists or not, the mere engagement of the
borrower to hand over wealth to the lender at some
future date does not add to the existing stock of wealth
or capital. The stock is the same before and after the
loan is made ; nay, not infrequently, the wealth by which
the right of debt has been purchased has disappeared
before the right terminates. To illustrate : A, a manu-
facturer, sells goods to the value of 100 to B, a whole-
sale merchant, on credit ; B sells these same goods on
credit to C, a shopkeeper, for 120 ; C sells these same
goods on credit to his various customers, the ultimate
consumers, for 160. The capital has then disappeared,
but it is represented by legal rights of debt, aggregating
no less than ^380.

This element is so conspicuous in the greater part of
all public debts as to approximate the same to monopolies.
The National Debt of Great Britain is a case in point.
The wealth originally borrowed has disappeared without
leaving any material representatives, such as part of the
wealth borrowed by a railway company finds in the road,
rolling-stock, and other labour-products on which it was
expended. All that exists, and all that was originally

CH. iv SPURIOUS CAPITAL AND INTEREST 93

purchased by the lenders, is a claim on the labour of the
people of Great Britain the right to demand a share in
the revenue which Government extracts from them by
taxation.

Unlike real capital, therefore, rights of debt can render
no service, can give no assistance in production. The
capital with which they were purchased may have rendered
such service in the past ; if it was used productively, its
representative may be rendering such service in the
present ; but the right of debt can render no such service
at any time. It is a mere claim to wealth or capital, and,
therefore, in its origin and nature so different from capital
that the application of the same term to both must lead to
the utmost confusion of thought.

It is the same with shares and similar documents.
These are mere certificates of part-ownership in capital or
legal rights. The share itself has no value apart from the
capital or legal right to which it refers. Mere duplication
of the number of shares, though it may deceive some into
the belief that the capital which the shares represent has
been duplicated, has no influence whatever on the amount
of capital in existence. But because the legal possession
of the share entitles its holder to part of the income earned
by the use of the capital or by the exercise of the legal
right to which it refers, therefore it is confounded with
capital.

Legal rights of debt, such as book-debts, promissory
notes, bills of exchange, bank-notes, treasury bills, deben-
tures, mortgages, government and municipal bonds, as
well as certificates of part or full ownership, such as shares
and certificates of title, are, therefore, not real capital.
It must, however, be admitted that they are inseparable
from private ownership of capital and wealth, and the
writer must also provide against the supposition that he
objects to the existence of such rights. Though they are
not capital, they, with the sole exception of public debts,
the creation of which does involve injustice, are legitimate
complements of the private ownership of wealth. For a
private debtor has himself received the wealth the purchase
of which created the obligation, or has voluntarily taken

94 DEMOCRACY VERSUS SOCIALISM PARTII

upon himself the obligation of the original debtor.
Whereas the wealth paid for public obligations was not
received by the taxpayers, but, at best, by one generation
of them ; nor was the wealth, so received, necessarily used
for the benefit of subsequent generations of taxpayers.
The moral right of a government to impose on subsequent
generations the duty of repaying debts incurred by it as
the representative of one generation is, to say the least,
doubtful. Its admission in full would justify one genera-
tion of men in enslaving all future generations by mortgag-
ing their productive power to the fullest extent, a doctrine
which carries with it its own refutation.

The essential character of all monopolies is, that,
without causing their possessors to be treated as criminals,
they enable them to exact wealth from others without
rendering any service in return, or to exact more wealth
for such service as they do render than the recipients
could be compelled to yield if free competition prevailed.
A monopoly, therefore, must be established by law, or the
law must have failed to efficiently provide against it.

The principal legalised monopolies existing in civilised
countries to-day are :

The private ownership of the land and of such treasures
as the land contains.

The privileged or exclusive use of land for certain
purposes.

Legal limitations of competition in certain industries
and professions.

The most fundamental of these monopolies is that
of the land, inclusive of minerals, water-power, and other
natural agencies. As all socialists admit as much it is
not necessary to dwell at length on this kind of monopoly
here, all the more as it will be dealt with exhaustively in
subsequent chapters. Two phenomena, which are not
generally understood, ought, however, to be explained
here.

In the heart of the city of Melbourne is a block of
land, which, except that the trees which grew upon it have
been cut down, is in exactly the same state as when the
blacks roamed over the site of the future city. No labour

CH. iv SPURIOUS CAPITAL AND INTEREST 95

has ever been expended on it ; no wealth has ever been
created there. Fifty years ago the present owner of the
land paid 57 for it to the government ; lately he was
offered and refused 60,000 for the same land. What is
the cause of this increase in the value of this land ? It
is this. When the land was originally sold, Melbourne
was a village on the outskirts of the wilderness, and no
one would have given the owner more than 3 a year for
the privilege of using it. Since that time the country has
been populated, the soil has been subjected to the plough,
roads and railways, centring upon Melbourne, have opened
the interior of the country, and as a consequence Melbourne
has become a great trading centre. The volume of trade
has enormously increased, and with it has increased the
demand for such land as gives access to trading facilities.
Any one wanting a trading location, such as this land
presents, therefore, is compelled, and can afford, to pay at
least 2000 a year for the privilege of using it. The
owner of this land has taken no part in the activities
which have resulted in the value which his land now
possesses. Even if he had he would have done so as a
worker and not as an owner, and would have earned no
more title to this land-value than any like worker who is
not a landowner. For reasons which do not concern us
here the owner of this land has never made use of his
power to levy a tribute of 2000 a year upon the industry
of the Victorian people without rendering them any service
in return. He has preferred to withhold from his fellow-
citizens the privilege of using this specially favourable
opportunity to produce wealth. But he can exact this
tribute any time he chooses, and therefore he can sell the
power to do so, the annual value of the land, for 60,000.
This sum of 60,000 is now considered to be part of the
wealth of the country. As a matter of fact, it is neither
wealth nor capital, but the capitalised value of the power
to levy tribute from labour and capital without rendering
or having rendered any service in return.

Moreover, this power of landowners to exact tribute is
not conferred upon them by any past services of the com-
munity, but by its present and anticipated future services

96 DEMOCRACY VERSUS SOCIALISM PARTII

and necessities. The frequently ephemeral gold-fields of
Australia illustrate one phase of this feature. As long as
the field promises well and the population increases, the
value of land in the vicinity rises, and frequently rises
enormously. As soon as its disappointing nature is ascer-
tained, and the exodus of the population has begun, the
value of the land begins to decline again, and if the field
is altogether unremunerative, the land declines to its former
grazing value.

The concentration of roads and railways upon any
centre enormously enhances the land-values there. Not,
however, because they have been built, but because they
continue to be used. If, acting similarly as Eastern
despots have acted, a government were to discontinue the
use of these roads by building sapping lines to another
centre to which the traffic was directed, land -values in
the old centre would decline, and would rise in the new
one. Hence it is clear that land-values are not the result
of past action, but the capitalised value of the tribute which
the present and anticipated future action of the community
enables landowners to impose upon the productive activities
of the people.

The value of all land, and not merely of that which is
withheld from use, is of exactly the same nature. To
revert to the former illustration, the great majority of the
owners of Melbourne land have made full use of their
power to levy tribute. They have either themselves built
on the land, or have sold to others permission to build
upon it against payment of ground-rent. Where this has
been done, wealth and capital, represented by the value of
the buildings, has been produced, and as presently will be
shown, the income derived from the letting of the buildings
is a legitimate return for services rendered. But apart
from the value of, and income from, such buildings, there
is in every case a value of, and an income from, the land,
which can easily be separated from the building value and
income. This land-value represents nothing but monopoly,
the right to levy tribute from labour for the privilege of
using advantages not created by the owner of the land,
but which are being created by the community of which

CH. iv SPURIOUS CAPITAL AND INTEREST 97

his tenants form part as well as himself, if he is not an
absentee, as frequently is the case.

This power to levy tribute from building, agricultural,
and mining land, as well as from land put to other uses,
becomes capitalised on the basis of the prevailing rate of
interest, and the capitalised value of the privilege becomes
the value of the land. Where rent or royalty is paid by
the users of the land, the difference between the tribute
and interest, between the land-value and capital, is com-
paratively obvious. Where, however, the owner himself
uses the land, and still more, where the land is used by a
number of part-owners, as, for instance, a mining company
owning the mine, the distinction is less easily observed.
Nevertheless it is there. In addition to the income which
the freehold farmer derives from his labour, he receives
one which arises from the use of land made more pro-
ductive by the community in which he lives. This part
of his income can easily be separated from the rest, and
forms the basis of the capital value of his land, apart from
the improvements. Similarly, the monopoly value of a
mine consists of the capitalised value of the royalty which
could be obtained for it, and can be easily separated from
the capital of the company, i.e. mine improvements, ore
at the pit's mouth, buildings, machinery, or money.

All these monopoly values, easily separated from real
capital, are obviously spurious capital. They are not the
result of past labour, but of legal privilege. Their value
does not arise, as that of real capital, from services which
they render in production, but from the power to levy
toll upon production. Yet socialists generally class these
monopoly values as capital, and treat the tribute, the
spurious interest upon which they are based, as of the
same nature as real interest.

The second form of legal monopoly consists of the
privileged or exclusive use of specially valuable land, such
as is granted to railway, canal, and tramway companies ;
to the purveyors of gas, water, electric light, pneumatic
and hydraulic power, and similar undertakings based upon
legal privileges. Every such undertaking, in addition to
the legitimate return for the services which it renders,

98 DEMOCRACY VERSUS SOCIALISM PARTII

possesses the power, in esse or posse, to levy toll from those
who avail themselves of their services, and the capitalised
value of this toll is mistaken for real capital.

To show the essential nature of the tribute which
such monopolies may claim, the following illustration will
serve :

Suppose Government were to grant to me the right to
erect gates at all the points giving entrance to the city of
London, and to charge one penny to any one who passed
through these gates. Suppose also that experience had
shown that, on an average, the annual income from this
toll was 500,000. If the prevalent rate of interest were
4 per cent, the capital value of the privilege would be
12,500,000. I could sell it for that sum, and whether
I sold it or not I would be considered to be possessed of a
capital of 1 2,500,000. As a matter of fact, I would have
no capital. All I possessed would be this legal privilege
to levy tribute.

If now the number of persons desiring to enter the
city of London were to increase, the income from the
privilege would increase as well, and with it would rise
the capital value of it. Nay, the mere expectation that
such increase of traffic would take place in the future would
add to the present value of this privilege.

Every successful undertaking of the kind enumerated
above possesses, in addition to the value of its capital, some
monopoly value of the kind above described.

Consider a railway company. The capital of the under-
taking consists of the present value of the road improve-
ments, plant, buildings, material, etc., less such wear and
tear as they have undergone. Suppose any one were to
offer to buy any English railroad on such a valuation, or
even on the value for which all its capital might be replaced
now, without deducting anything for wear and tear. The
directors would certainly regard him as a lunatic. Yet if
any one offered to buy an ordinary factory of similar age
on such terms he would be received with open arms.
Whence then the difference ? It arises from the fact that
the Legislature has given to the railway company a special
privilege, i.e. the exclusive use of a narrow strip of land

CH. iv SPURIOUS CAPITAL AND INTEREST 99

hundreds of miles long, unbroken by any roads or other
rights of use. Having the exclusive right of use to this
land, the railway company can charge more for carrying
goods and passengers over it than if competing carriers
were allowed to run trains over it. 1 The difference between
competitive rates and the monopoly rates which the com-
pany now charges is a toll on industry as much as the toll
levied at the gates in the preceding illustration. Capital-
ised, this toll forms part of the value of every railway
stock. The value of railway shares is thus composed,
partly of the value of the capital employed in the under-
taking, and partly of the capitalised value of the legal
power to levy tribute.

Some of the American tramway companies lend them-
selves to a detailed illustration of this feature of monopoly,
because the facts have been carefully ascertained. To take
only one example. Mr. Lee Meriwether, Commissioner
of Labour, Missouri, reports as follows with regard to the
tramways in St. Louis :

The amount expended in buildings, inclusive of the
cost of their site, and in building the lines and equipping
them, is estimated at $8,415,360. The total capitalisation
of the lines he states to be $38,437,000, and the dividends
paid in the preceding year (1894) as $1,362,468. The
value of the undertaking, therefore, exceeds the value of
the capital employed by more than $30,000,000. The
dividend, calculated upon the value of the capital, amounts
to more than 23 per cent. Obviously, if such a business
were open to competition, other companies would start,
and the rates, of carriage would be quickly reduced. But
as the existing companies have been granted the exclusive
right of using the streets for tramway purposes, no com-
petition is possible ; and this exclusive privilege, enabling
the companies to charge monopoly rates, is valued at over

1 The monopoly resides in the ownership of the road, not in the conduct of the
traffic. There can be no more objection to allowing any person or company to run
trains over State lines of railway competing for the traffic than there is to allowing
private traffic for hire on public roads and streets. The difficulties in the way of
regulating the traffic and ensuring safety are not insuperable, as is shown in those cases
where competing companies have running powers over the same roads. The advantages
of such a system are obvious and great. The same considerations apply to tramways
and canals.

ioo DEMOCRACY VERSUS SOCIALISM PARTII

$30,000,000, and is regarded as capital by socialists just
as much as the cars and rails and buildings of the com-
panies.

Even where the legal right to use the streets is not
exclusive, but merely privileged as, for instance, in gas,
electric light, and similar companies which have been
accorded the right to lay their mains and cables below
the public streets the impossibility of granting the same
privilege to every member of the community acts as a
deterrent to competition, and therefore produces monopoly
values. This tendency is increased through the fact that
wherever competition is limited combination is feasible.
The certainty that similar privileges cannot be granted
indefinitely enables competing companies for the supply of
gas, water, electricity, and similar commodities, as well as
competing railway companies, to amalgamate or pool their
receipts. The limitation of competition arising from
privileged use thus ultimately results in the elimination
of all competition, and in the establishment of the same
monopoly and the creation of the same monopoly charges
and monopoly values as where the legal privilege is
exclusive.

All such legal privileges, therefore, are more or less of
the nature of toll-gates ; their value is not a sign of the
existence of any real capital, but consists merely of the
capitalised value of a tribute which the possession of such
legal privileges enables their owners to exact from others,
without rendering service or adequate service in return.

CHAPTER V

THE ORIGIN AND NATURE OF SPURIOUS CAPITAL AND

SPURIOUS INTEREST Continued

THE third group of monopolies is one to which socialists
have given special attention, without, however, discovering
their origin. It consists of monopolies which have been
formed by the combination of capitalistic undertakings into
groups, called rings, trusts, syndicates, combines, or pools,
for the purpose of gaining control over a particular in-
dustry, and preventing competition between themselves,
either in the purchase of raw material or in the sale of
finished goods, or both, and in the hire of labour.
Socialists unanimously regard such combinations as the
natural and inevitable development of the private owner-
ship of capital under modern industrial conditions. They
look forward to the universal prevalence of such combina-
tions, and regard State monopoly as the only possible
means of escape from these private monopolies.

As an illustration of this attitude, the following quota-
tion from The Fabian Essays will serve : 1

" I now come to treat of the latest forms of capitalism,
the ' ring ' and the ' trust/ whereby capitalism cancels its
own principles, and, as a seller, replaces competition by
combination. When capitalism buys labour as a com-
modity it effects the purchase on the competitive principle.
. . . But when it turns round to face the public as a seller
it casts the maxims of competition to the wind and pre-
sents itself as a solid combination. . . . The competing
persons or firms agree to form a close combination to keep

1 Pp. 89, 90, and 93.

102 DEMOCRACY VERSUS SOCIALISM PART n

up prices, to augment profits, to eliminate useless labour,
to diminish risk, and to control the output. . . . Com-
bination is absorbing commerce. . . . The individualist
... is naturally surprised at these rings which upset all
his crude economic notions, and he, very illogically, asks
for legislation to prevent the natural and inevitable result
of the premises with which he starts. It is amusing to note
that those who advocate what they call self-reliance and
self-help are the first to call on the State to interfere with
the natural result of that self-help^ of that -private enterprise >
when it has overstepped a purely arbitrary limit." l

If the writer of the above statement were right in his
assumption that such combinations as he deals with are
the natural and inevitable result of private enterprise, his
ridicule of individualists who call for legislation to combat
them might be justified. If, however, such combinations
owe their existence in almost every instance to legislative
interference with private enterprise, then the individualist
who calls for the removal of such legislative interference is
by no means ridiculous. That this is the case will be seen
from the following examination. Before entering upon it,
it may, however, be of interest to show that socialists
frequently reveal that they are not without some suspicion
that this may be the case. The writer of the above-
quoted statement, for instance, not only selects nearly all
his examples of rings and trusts from the United States,
but actually makes the following admissions :

" The best examples of ' rings ' and c pools ' are to be
found in America," and " We must again travel to
America to learn what the so-called * trust ' is." 2

Still more definite is the following admission, taken from
Hobson's Evolution of Modern Capitalism:*

" In most of the successful manufacturing trusts some
natural economy of easy access to the best raw material,
special facilities of transport, the possession of some State
or municipal monopoly of market are added to the normal
advantages of large-scale production. The artificial
barriers in the shape of tariff, by which foreign competition
has been eliminated from many leading manufactures in the

1 The italics are ours. 2 Fabian Essays, pp. 90, 94. 3 P. 141.

CH.V SPURIOUS CAPITAL AND INTEREST 103

United States, have greatly facilitated the successful opera-
tion of trusts."

Any examination of the facts fully bears out this state-
ment, i.e. that all, or nearly all, successful pools, rings,
trusts, syndicates, or whatever other denomination be
adopted by monopolistic combinations, owe their success
to the possession of some legal privilege either the pos-
session of exceptionally productive land, or power over
routes of transportation, or other legislative exclusion of
free competition, or to a combination of such causes. So
largely is this the case that, even with regard to the few
instances in which the existence of such favouring causes
cannot be proved, the presumption of their existence is
very strong.

Legal limitations of competition in industries which,
not depending on special privileges, are by their nature
competitive, have been favoured devices of despotic rulers,
as well as of those interested in such industries, for their
own enrichment at the expense of the masses of the people.
The privileges of mediaeval trade-guilds, the monopolies
established by Tudor and Stuart kings, the mercantile
system, and last, not least, its modern offspring, the pro-
tective system, all have used and use the same device with
the same object, i.e. to enable certain producers to charge
higher prices for their products than they could compel
buyers to pay under the action of free competition.

The protective system renders this service to manu-
facturers within the protected area by placing duties on
competing foreign goods from which similar goods made
within such area are exempt. Foreign goods being thus
artificially increased in price, the competing home manu-
facturers can either raise the price of their own goods to
the same level, in which case little or no exclusion of
foreign goods takes place ; or they can raise the price of
their goods to a level a little below that of the foreign
goods plus the duty, when the competing foreign goods
will be excluded, while at the same time a higher price for
locally-made goods is obtained. The large and exceptional
profit of such protected manufacturers, however, speedily
attracts rivals into the protected area, and, as a conse-

io 4 DEMOCRACY VERSUS SOCIALISM PARTII

quence, the limited requirements within the area are either
overtaken, or threatened to be overtaken. This over-
production would speedily reduce prices and deprive
manufacturers of the exceptional profits, the promise of
which protection held out to them. The protective
system, however, supplies the remedy in the facility for
combination which it offers. Foreign competition being
excluded as long as the price is kept a little below that of
foreign goods plus the duty, the number of manufacturers
who need combine for the purpose of avoiding competi-
tion is comparatively small, and is favoured by proximity
of location. To take one trade as an example. It is
obviously impossible for all the cotton-spinners of the
world to agree with regard to the quantity of yarn which
they will produce and the prices which they will charge.
But it is much more feasible for the cotton-spinners of one
country to do so, especially when the exceptionally high
prices which they obtain in their home market enable them
to sell any surplus in outside markets without any profit,
or even at a loss. Protection, therefore, not only restricts
competition directly, but it also offers seductive facilities
and temptations for such combinations in further restriction
or abolition of competition as are known as combines,
pools, rings, trusts, and syndicates.

While protection thus enables local manufacturers to
combine, and to do so with such profit to themselves, that
it is worth their while to undertake the trouble, and even
risk, where such action has been made illegal, free trade
tends to prevent such combinations. In free-trade countries
prices are governed by international competition, and no
combination can raise local prices by more than a fraction
equal to cost of freight over those ruling in the world's
markets, unless it included all, or nearly all, the world's
producers. 1 The advantages therefore, even where local
combinations are feasible, are too small to induce the
trouble and risk of forming them, unless they are favoured

1 " In the great majority of cases there is only a very narrow margin between the
price at which English manufacturers can produce a commodity and the price at which
it can be produced abroad, so that a comparatively small rise in price will afford to the
foreign manufacturer the coveted opportunity of acquiring a new market." J. Stephen
Jeans, Trusts, Pooh, and Corners, p. 30.

CH.V SPURIOUS CAPITAL AND INTEREST 105

by some other legal privilege. Hence the comparative
rarity of such industrial combinations in free-trade Great
Britain, and their prevalence in industrial countries which
have adopted a protective policy. Thus, once more
-quoting from Mr. J. Stephen Jeans's valuable work,
Trusts, Pools, and Corners :

" The iron manufacturers of Germany regularly adopt
two sets of prices. The tariff, by protecting them from
outside competition, enables them to quote a high range of
prices which are often regulated by combination to
home consumers, while they dispose of a large surplus at a
lower range of prices in neutral markets, where they have
to face the competition of other countries. " *
Similarly, Professor Hadley states : 2 -

" Nearly every industry in the United States employing
fixed capital on a large scale has its pool, whether they call
it by that name or not."

Von Halle, in Trusts in the United States, furnishes a
table comprising no less than 501 separate combinations,
rings, and trusts, embracing almost every product of in-
dustry, and states :

" The Sugar Trust, it is alleged, arbitrarily dictates
prices on its purchases, and, with the aid of the tariff, sells
at prices which yield a greater profit to the refiner than
could be obtained under free competition. This was
admitted by Mr. Havemeyer (President of the Trust)
before the investigation committee of the United States
Senate, 1 5th June i894." 3

The same result has followed from the protective
tariffs of European countries. The Forum of May 1899
publishes an article, "Trusts in Europe/' by Wilhelm
Berdrow, which states : "It is in Germany, however,
of all European countries, that trusts have spread most
extensively and have been most successful. . . . The
German and Austrian rolling-mill unions, the trusts of
the chemical industries, as well as the most important
French trusts the latter embracing more particularly the

1 P. 177-

2 "On Trusts in the United States," in Economic Journal, March 1892, p. 73.

3 P. 69.

io6 DEMOCRACY VERSUS SOCIALISM PARTII

iron, petroleum, and sugar industries have all adopted
the method of selling conjointly by means of a central
bureau, in order to dictate prices and to deprive the
individual members of every vestige of independence. . . .
As far as England is concerned, it must be admitted,
notwithstanding her great industrial activity and her
competitive warfare not less pronounced than that of
other states, the trust system has as yet found but tardy
acceptance in that country. This is doubtless due in
some degree to the thorough application of the principles
of free trade ; for it is well known that the largest trusts
are powerless unless their interests are secured by a pro-
tective tariff excluding from the home market the products
of foreign countries."

Combinations have been so rarely successful in Great
Britain that, dealing with the recent amalgamation of the
sewing-cotton factories, the Economist of 4th December
1897, could say :

" This is the introduction of the American trust system
into Great Britain. . . . There is a certain consolation,
however, in the fact that in such a country as ours industrial
monopolies seldom attain anything like permanent success."

While protection alone is thus the fruitful parent of
one set of industrial monopolies, others owe their origin
to a combination of protection with the ownership of
mineral lands ; still others to a combination between the
owners of railways and mineral lands, or indirectly to the
existence of privately owned railways, canals, and mineral
lands alone.

As an example of the former, the anthracite coal pool
in the United States may be cited. 1 Practically all the
anthracite coal mined in the United States comes from a
limited area of rich deposits in the state of Pennsylvania.
This area is intersected by canals and railways, owned by
three companies, which control about 90 per cent of the
output through the purchase of this proportion of the
coal-land. The duty on foreign anthracite coal is 67

1 See " Anthracite Mine Labourers," by G. O. Virtue, in Bulletin of the Department
of Labour, U.S., Nov. 1897; and Jeans, Trusts, Pools, and Corners; and H. D. Lloyd,
Wtalth against Commonwealth.

CH.V SPURIOUS CAPITAL AND INTEREST 107

cents per ton, equal to about 30 per cent ad valorem.
Being thus secured against foreign competition, and hold-
ing their local competitors in the hollow of their hand,
through the ownership of all the routes of transportation,
the three railway and canal companies, as long as they are
united, dictate prices for the whole of the output and
wages for all who seek employment. Though quarrels
between them have been frequent, each being followed by
a reduction in the monopoly price of coal, they have only
been intervals in the general course of exploitation through
the combination of their interests.

A more remarkable case, as exhibiting the indirect
influence of the monopolising tendency of private owner-
ship of routes of transportation, is the rise and progress
of the small group of men, which, after monopolising the
kerosene oil trade of the United States, is now extending
its supremacy in so many directions as to foreshadow the
coming of an autocracy over the entire industry of that
country. This monopoly has been established, and is still
being maintained by secret, illegal, and immoral contracts
with the privately owned railways of the United States,
which not only give lower freights to these favourites than
to their competitors, but which in various other ways
utilise the control over these public highways for the
destruction of the business of the latter. The following
evidence, of which that furnished by Mr. Henry W. Lloyd
in his painstaking work^ealt/i against Commonwealth^ the
statements of which are based entirely upon official evidence,
is of special interest, will sustain this contention :

" He (Mr. Rockefeller) was able to secure special rates
of transportation with the help of some bribed railroad
freight-agents." 1

" One witness declared that the trust received from the
railway companies fourth-class rates on quantities of oil in
less than car-load rates, whereas he had to pay first-class
rates ; and that he had practically been driven out of
business in localities covered by certain roads who thus
favoured the trust." 2

1 E. von Halle, Trusts in the United States, p. 1 1 .

2 J. S. Jeans, Trusts, Pooh, and Corners, p. 95.

io8 DEMOCRACY VERSUS SOCIALISM PART n

" After taking 3700 pages of evidence and sitting
for months, the committee of 1879 of the New York
Legislature said in their report : ' The history of this
Corporation (the Standard Oil Trust) is a unique illustra-
tion of the possible outgrowth of the present system of
railroad management in giving preferential rates, and also
showing the colossal proportions to which monopoly can
grow under the laws of this country. . . . The parties
whom they have driven to the wall have had ample capital
and equal ability in the prosecution of their business in all
things save their ability to acquire facilities for trans-
portation/

" More than any others the wrongs of the oil industry
provoked the investigations by Congress from 1872 to
1887, and caused the establishment of the Interstate
Commerce Commission, and more than any others they
have claimed the attention of the new law and the new
court. The cases brought before it cover the oil business
on practically every road of any importance in the United
States in New England, the Middle States, the west, the
south, the Pacific Coast ; on the great east and west trunk
roads the Pennsylvania, the Erie, the Baltimore, and
Ohio, the New York Central, and all their allied lines;
on the transcontinental lines the Union Pacific, the
Central Pacific, the Southern Pacific ; on the Steamship
and Railroad Association controlling the south and south-
west. They show that from ocean to ocean, and from
the Gulf of St. Lawrence to the Gulf of Mexico, wherever
the American citizen seeks an opening in this industry he
finds it, like the deer forests and grouse moors of the old
country, protected by gamekeepers against him and the
common herd.

" The terms in which the commission have described the
preference given the oil combination are not ambiguous :
' great difference in rates/ ' unjust discrimination/ ' in-
tentional disregard of rights/ ' unexcused/ * a vast dis-
crepancy/ 'enormous/ 'illegal/ 'excessive/ 'extraordinary/
' forbidden by the Act to regulate commerce/ ' so obvious
and palpable a discrimination that no discussion of it is
necessary/ ' wholly indefensible/ ' patent and provoking

CH.V SPURIOUS CAPITAL AND INTEREST 109

discriminations for which no rational excuse is suggested/
' obnoxious,' * disparity/ . . . ' absurd and inexcusable,'
4 gross disproportions and inequalities,' ' long practised,'
* the most unjust and injurious discrimination . . . and
this discrimination inured mostly to the benefit of one
powerful combination.' " 1

The control exercised by a few millionaires over the
meat and cattle trade of the north-western States of the
Union originates in the same cause. E. von Halle
states :

" The special investigation of the meat and cattle
trade" (United States Senate Report, No. 829, 5ist
Congress, second session, 1st May 1890) "demonstrates
that heavy pressure on the railroads and ownership of the
Chicago stockyards on the one hand, ' friendly agreements '
on the other, had resulted in an effective control of the
whole market. . . . They fix the prices for the purchase
of cattle and sales of meat in the markets of Chicago,
Kansas City, and Omaha."

This is confirmed by Henry D. Lloyd :

" When a farmer sells a steer, a lamb, or a hog, and
the housekeeper buys a chop or roast, they enter a market
which for the whole continent, and for kinds of cattle and
meats, is controlled by the combination of packers at
Chicago known as * the Big Four.' This had its origin
in the 'evening' arrangement, made in 1873 by the rail-
roads with preferred shippers, on the ostensible ground
that these shippers could equalise or ' even ' the cattle traffic
of the roads. They received $15 as 'a commission ' on
every car-load of cattle shipped from the west to New
York, no matter by whom shipped, whether they shipped
it or had anything to do with it or not. The commission
was later reduced to $10. They soon became large

i shippers of cattle ; and with these margins in their favour
evening' was not a difficult business. By 1878 the
Iressed beef business had become important. As the
Evener Combine had concentrated the cattle trade at
Chicago, the dressed-beef interest necessarily had its home

Henry D. Lloyd, Wealth against Commonwealth, pp. 476-478.
2 E. von Halle, Trusts, pp. 21, 22.

no DEMOCRACY VERSUS SOCIALISM PARTII

at the same place. It is a curious fact that the Evener
Combine ceased about the time the dressed-beef interest
began its phenomenal career. The committee appointed
by the United States Senate to investigate the condition
of the meat and cattle markets found that under the
influence of the combination the price of cattle had gone
down heavily. For instance, in January 1884 the best
grade of beef cattle sold at Chicago for $7.15 per hundred
pounds, and in January 1889 for $5.40; north-western
range and Texas cattle sold in January 1884 at $5.60, and
in January 1889 at $3.75 ; Texas and Indian cattle sold in
1884 at $4.75, the price declining to $2.50 in December
1889. These are the highest Chicago prices for the
months named.

" ' So far has the centralising process continued that
for all practical purposes,' the report says, ' the market
of that city dominates absolutely the price of beef cattle
in the whole country. Kansas City, St. Louis, Omaha,
Cincinnati, and Pittsburg are subsidiary to the Chicago
market, and their prices are regulated and fixed by the
great market on the lake.'

" As to the effect on retailers, local butchers, and
consumers, it was admitted by the biggest of * the Big
Four,' * that they combined to fix the price of beef to the
purchaser and consumer, so as to keep up the cost in their
own interest.'

" The favouritism on the highways, in which this
power had its origin in 1873, has continued throughout
to be its mainstay. The railroads give rates to the
dressed-beef men which they refuse to shippers of cattle,
even though they ship by the train load ' an unjust and
indefensible discrimination by the railroads against the
shipper of live cattle.' The report says : ' This is the
spirit and controlling idea of the great monopolies which
dominate the country ... no one factor has been more
potent and active in effecting an entire revolution in the
methods of marketing the meat supply of the United
States than the railway transportation.' " l

Similar preferential treatment on the part of railway

1 Henry D. Lloyd, Wealth against Commonwealth, pp. 33-36.

CH.V SPURIOUS CAPITAL AND INTEREST in

companies has been instrumental in creating many other
monopolies which apparently have no such causal connec-
tion with railway monopolies, notably that of some English
and American express companies.

Still another series of monopolies owes its origin and
existence to the ownership of patents and copyrights, as is
the case with the Western Union Telegraph Company, the
Bell Telephone Company, the School Book Trust, and
many others.

The manner in which the semblance of capital is given
to these monopoly rights is stated as follows : 1

" It is said to be customary for the preferred stock in all
American stock-companies to represent the money, value
of land, plant, materials, products, etc., whilst the common
stock at the beginning represents goodwill, rights, etc., to
which by and by accumulated profits add a more tangible
basis."

The magnitude of this process of converting monopoly
rights into spurious capital, generally known as " water-
ing stock/' is illustrated by the same investigator as
follows : 2

" From 45.2 per cent in 1891, the actual value of the
property " (of the Cotton Oil Trust), " it rose to 48 per
cent in 1892, 50 per cent in 1893, 50.8 per cent of the
capitalisation in 1894. From this we may conclude that
. . . the actual value of the undertaking, minus the
goodwill, was not much more than from one-fourth to
one -fifth of the capital stock. This agrees with the
testimony of Mr. John Scott before the New York State
Committee in 1888."

The latest available balance-sheet of the " American
Tobacco Company," published in Eradstreets of I4th May
1898, exposes an even greater discrepancy between real
and spurious capital. This company, with the assistance
mainly of the tariff, but, to some slight extent, with the
help of some patents, controls the cigarette trade of the
United States, and is now underselling the makers of plug
tobacco with a view of forcing them into a combination
with itself. In the course of 1897 it lost $1,000,000

1 E. von Halle, Trusts, p. 107. 2 Ibid. p. 106.

H2 DEMOCRACY VERSUS SOCIALISM PART n

in this endeavour. Nevertheless, the net profit on all its
transactions during this year was $4,179,460, on a capital
composed of $4,009,000, representing real estate, plant,
and machinery, and of $24,876,000, representing monopoly
rights, such as patents, trade-marks, and goodwill. There
is also a reserve fund, accumulated out of past profits not
divided, amounting to $10, 900,000. *

1 While this book was awaiting publication, two articles, respectively entitled " The
Rage for Trusts " and "The Trend of Trusts," appeared in The Public, a weekly journal
published in Chicago. They are from the pen of the editor of the journal, Mr. Louis
F. Post, an accomplished economist, and are so instructive that the present author
sought and received permission to republish them in combined form. They are re-
produced accordingly as Appendix VII.

CHAPTER VI

A COMPARISON OF REAL WITH SPURIOUS CAPITAL

TH E examinations conducted in the two preceding chapters
prove that industrial monopolies are not an inevitable out-
come of the private ownership and control of industrial
undertakings, as Socialism posits, but that they, in nearly all
instances, arise from special privileges granted by the State.
Therefore, no such far-reaching and disastrous remedy as
that which Socialism provides is required for their abolition.
Owing their existence to special privileges, the withdrawal
of these privileges will terminate their existence. They are
the creatures of the unjust interference of the State with
the equal rights of its citizens. Not further interference,
as Socialism demands, but the abolition of such interference
is, therefore, required to terminate their existence.

The further demonstration, furnished by the preceding
examination, is, that these monopoly-rights simulate the
appearance of capital, and that the tribute which they
exact largely simulates that of interest ; as also, that these
must be carefully distinguished from real capital and real
interest, if a true conception is to be formed of the
influence upon the distribution of wealth which the private
ownership of real capital and of unprivileged industrial
undertakings exercises.

This distinction between real and spurious capital,
between material products of human labour applied to
land, and the immaterial products of legal enactments,
must, however, be carried one step further.

All products of labour are destined to be consumed
either in the direct satisfaction of human desires, as wealth,

n 4 DEMOCRACY VERSUS SOCIALISM PARTII

or in their indirect satisfaction, as capital ; either in one
act, as food, or in a series of acts extending over shorter
or longer periods, as clothing, furniture, tools, machines,
buildings, and others. The object aimed at in the pro-
duction of all such things is the satisfaction of human
wants, and the only way to achieve this object is by their
destruction through consumption. Even if this object
fails to be achieved, these products of human labour
nevertheless disappear sooner or later. Either they are
lost, as in shipwrecks, or destroyed in accidents, as in
fires, or they gradually disappear under the influence of
mechanical decay and chemical disintegration.

The products of human labour which retain their
character of wealth for the longest period are gold, silver,
and precious stones. It may be that among the stores of
precious metals and jewels now existing, there is some
portion which has been of service to man from the very
dawn of history. Yet even these long-lived products of
labour differ only in degree and not in kind from all
other forms of real wealth. For even gold, silver, and
precious stones tend to disappear again as soon as they are
produced : jewels by being lost or spoiled ; precious metals
by being consumed in the arts, or through wear and tear
when passing from hand to hand as money, or when used
as ornaments, or through being lost.

All wealth and capital, therefore, being the product of
human labour, has, like man himself, a temporary exist-
ence only, and the stock of it, existing at any time, is far
smaller than is generally supposed. Were the continuous
processes of production to cease, even for one year, not
only would the vast majority of men die of starvation, but
there would be an unimaginable scarcity of all the more
permanent forms of wealth and capital as well. Mankind
lives mainly from hand to mouth. The wealth existing
at any time is mainly the product of the labour of a few
preceding years, and though some forms of wealth may
continue to exist for comparatively long periods, as some
buildings, statues, pictures, and others, not only are these
rare exceptions, but it is only through the constant appli-
cation of more labour that their life is thus prolonged.

CH.VI REAL AND SPURIOUS CAPITAL 115

Real capital, in common with all labour-products, is
subject to this consumption, decay, and destruction.
Legal enactments, however, are not subject to these
influences. Unless they are repealed by another act of
the Legislature they exist as long as the nation exists ; and
as long as they remain in force, every monopoly-right
which they create continues to exist as well. There is
to-day in Great Britain scarcely any wealth, and certainly
no form of capital, which dates back to the Norman
Conquest ; but the monopoly of the land of Great Britain,
then initiated, has continued to exist and has been extended
and intensified. Many secondary monopoly-rights also,
created centuries ago, continue to exist at the present
time, of which the New River Company, which levies
tribute upon a large section of the inhabitants of London,
is only a prominent example.

The creation of new monopoly-rights, to which nearly
all legislatures devote a considerable part of their time
and energies, is, therefore, not necessarily counteracted,
as is the case with real capital, by the disappearance
of older creations, and, therefore, their mass is steadily
increasing.

Moreover, social progress constantly tends to reduce
the value of real wealth and capital, while it similarly tends
to increase the value of all monopoly-rights. For social
progress, consisting of increase in population, advance in
the arts and sciences, lengthening of processes of pro-
duction and multiplication of exchanges, tends steadily to
facilitate and increase the production of all useful things,
and thus to reduce their value, while it frequently leads
also to the sudden destruction of value in forms of capital
which have been rendered obsolete by new inventions and
discoveries.

The same cause, however, tends to enormously increase
the value of land and other monopoly-rights. To revert
to previous examples, the land of England does not
materially differ in extent, and does not differ at all in
character, from what it was at the time of the Conquest.
Yet the whole of its capital value at the former time
would be covered over and over again by the tribute

n6 DEMOCRACY VERSUS SOCIALISM PART n

which Englishmen now pay for its use within a single
year. In the city of Adelaide a piece of land was
lately sold at a rate which, for lo-feet frontage, ex-
ceeded the price which the Government received some
half-century ago for the whole area of that city. The
same advance in value is conferred by the same cause
upon secondary monopolies. Depending, like land, for
their value upon the tribute which they can exact from
individual consumers of the goods and services to which
they relate, increase of population adds to the number of
tributaries which they can exploit, while all progress
tends to reduce the cost of producing the goods or
services which they render. Their annual net income,
and, therefore, their capital value, is thus constantly
enhanced by social progress.

The value of all real capital is thus constantly de-
clining, and all of it has only an ephemeral existence, dis-
appearing soon after labour has created it, and depending
upon further labour for its recreation. Monopoly-rights,
on the contrary, are constantly increasing in value and
number and have permanent existence. It follows that
what Socialism terms capital consists in every country to
by far its largest extent of mere monopoly-rights and to a
small extent only of real capital. This is true even of
Great Britain, where protective monopolies have been
abolished, and is still more true of countries like the
United States, Germany, and France, where their baneful
influence has been added to that of other and even more
far-reaching monopolies. It is, therefore, obvious that
the diagnosis of the social malady upon which the doctrines
of Socialism are founded is faulty in the highest degree,
and that, therefore, the remedy which it proposes cannot
be the true remedy. Making no distinction between real
and spurious capital, between what is permanent and
obviously unjust and injurious, and what is ephemeral and
has never been proved to be unjust or injurious, it con-
demns both alike. By combining, under one denomina-
tion, these two widely differing classes of property,
socialists obscure the action of both, and have, therefore,
been unable to see that the relations between labour and

CH.VI REAL AND SPURIOUS CAPITAL 117

the owners of real capital are profoundly affected by the
existence of these monopoly -rights. That the power
which the capitalist possesses over labour is not due
to his possession of real capital, but to the weakening
of the economic position of labour through the baneful
action of monopoly-rights, will be shown in subsequent
chapters.

CHAPTER VII

SURPLUS-VALUE

As shown in Part I. chapter L, one of the fundamental
theories of the economic teaching of Socialism is that of
surplus-value as set forth in Marx's Capital. Starting
from the conception that the value of any commodity is
determined by the average labour-time socially necessary
for its production a conception which, as already stated,
is now repudiated by many Socialists themselves he arrives
at the conclusion that the value of labour, i.e. wages, is
similarly determined by the necessary cost of maintenance
of the labourer and his family, i.e. the labour -time
necessary to produce his labour-power. On this founda-
tion shown to be false in Part II. chapter i. he erects
the theory of surplus- value. Shortly stated it runs :
The average labour-day (labour-power) is largely in ex-
cess of the time required by the labourer to produce the
equivalent of his maintenance (labour- value). The excess
of time spent in labouring produces a surplus-value which,
being appropriated by the employer, becomes ultimately
divisible into rent, interest, and profit. Supposing the
labour-day to number twelve (12) hours, and six hours to be
sufficient to produce the value required for the labourer's
maintenance or wages, it follows that the other six hours
are spent in labouring for the exclusive benefit of the
capitalist-employer. His gain, the surplus-value, therefore,
arises from the unpaid appropriation of a part of the labour-
time of every labourer, i.e. from that part of the value of
the product of individual labour which exceeds the cost of
the labourer's maintenance. Surplus-value, therefore, is a

CHAP, vii SURPLUS-VALUE 119

deduction from the product of individual labour, appro-
priated by the capitalist-employer. 1

As Marx himself admits that the creation of surplus-
value, in his theory, is merely an extension beyond a
certain point of the production of value generally, 2 the
demonstration, given in Part II. chapter i., of the errone-
ous nature of his theory of value destroys the basis on
which his conception of surplus-value rests. For if the
value of labour-power is not determined by the con-
sumption of the labourer and his family, and if the value
of goods is determined by other factors than the average
labour-time socially requisite to produce them, then the
difference between the value of labour-power and labour-
product does not necessarily arise from the unpaid appro-
priation by the employer of part of the labour-power.
The importance of the subject is, however, far too great
to allow it to rest at this point, and requires a complete
examination. In this and the following chapters, there-
fore, an endeavour will be made to show that this entire
conception of the origin of surplus -value is crude and
misleading, first by showing that the theory is contradicted
by facts, secondly, and at greater length, by a careful ex-
amination of the component parts of surplus-value.

If the Marxian conception of the origin and nature of
the tribute which is undoubtedly exacted from labour were
true, all surplus-value must be a deduction from the pro-
duct of individual labour. If it can be shown that there
are cases in which surplus-value arises which can be seen
by him who runs not to be deducted from the product of
such labour, the conception must be false. The following
examples furnish such instances :

A jeweller employs five women in sorting and stringing
pearls. His capital is, say, 150,000, and his annual sales
of strings of pearls amount to 100,000. His average
annual clear profit is, say, 8000. If this sum represents a
deduction from the produce of individual labour, it must
be deducted from the labour-product of the five women
whom the jeweller employs. Each of them must, there-

1 For quotations see Book I. chapter i.
2 See quotation from Capital, pp. 176, 177, in Part I. chapter i. p. 5.

120 DEMOCRACY VERSUS SOCIALISM PARTII

fore, be entitled to an addition of 1600 a year to the
wages which she is actually receiving.

If, to this reductio ad absurdum, it is objected, that
the surplus-value of ^8000 may, as to its greater part, be
deducted from the product of the labour of the divers and
other labourers employed in harvesting the pearls from
the ocean-bed, and transporting them to the jeweller's
shop, the reply is obvious. These men were not employed
by the jeweller, but by preceding capitalists, who, accord-
ing to the supposition, themselves extracted surplus-value
from the labour of their workmen. The price which the
jeweller paid for the pearls included this surplus-value,
just as the price which his customers pay to him includes
any surplus -value he may receive. The surplus-value
which he exacts, therefore, is additional to that exacted by
previous employers, and, if it is a deduction from the
produce of individual labour, it can only be deducted from
that of the labour which he has employed, viz. five women.
Unless, therefore, it is contended that the labour-product
of each of these five women exceeds jCi6oo a year, this
surplus-value must be admitted to be no deduction from
the produce of labour.

The following case is even more decisive. A vigneron
obtains from his vineyard new wine to the value of i oo,
constituting the entire return of the year's harvest. He
keeps this wine for ten years, at the end of which period,
and without any labour having been done to it in the
interval, the wine possesses a value of ,200. From whose
labour has this surplus-value of jioo been deducted ?
The only labourers who could be victimised are those who
were employed in attendance on the vines, plucking grapes,
and making the wine. When their labour ceased, its
entire produce, inclusive of that of the vigneron s own
labour, had a value of 100 only. The additional ^100
which makes its appearance subsequent to the cessation of
their labour, cannot be the product of the latter, and can-
not, therefore, be a deduction from the product of their
or any other man's labour. 1

1 Both examples are a free rendering of those given in Capital and Interest by von
Bbhm-Bawerk.

CHAP. VII

SURPLUS-VALUE

121

These two examples will suffice to show the erroneous
nature of the Marxian theory of surplus-value on which
Socialism is based. A close examination of the phenomenon,
moreover, shows that surplus-value is a compound of
many elements, some of which are natural consequences of
the mental constitution of man and of his physical environ-
ment, and not in any sense deducted from the product
of individual labour ; while others, which constitute such
deductions, are the result of limitations placed on the equal
freedom of men by legislative enactments which confer
special privileges on some. Of these latter, monopoly-
tribute or spurious interest has already been dealt with in
so far as its origin is concerned. The next few chapters
will be devoted to the examination of other component
parts of surplus-value, and to that of the influence which
ach of them exercises upon the earnings of labour.

CHAPTER VIII

LAND AND RENT

THE term "land" possesses a double meaning. In its
narrower sense it applies to the superficial area of the dry
surface of the earth. In its wider sense it denotes all the
matter and energies of nature external to man and un-
altered by his activities, for the reason that man, being a
land animal, can utilise nature's powers only from the
dry surface of the globe. Air, rain, and sunshine, the
elements of fertility contained in the soil, and the mineral
treasures hidden below the soil ; the various manifestations
of motion and gravitation, heat and electricity, chemical
action and life, become accessible to man from this dry
surface alone ; and though man has made himself master
of the ocean and may soon obtain the mastery over the
aerial regions as well, yet from the dry surface of the
globe alone can he obtain the materials which enable him
to navigate these alien spaces, and to it must he return,
from time to time, in order to renew his power of navi-
gating them.

This dry, superficial area, therefore, is the medium
through which all nature becomes accessible to man, and
as far as his efforts to utilise nature for the satisfaction of
his wants are concerned, all nature is included in it. In
its wider sense, therefore, the term land covers all the
powers of nature which man may use for the satisfaction
of his wants ; not merely that which gives him foothold
and resting-place, but all the matter which he can form
into wealth and all the energies which assist him in his
efforts. It is the only source of wealth ; the passive

CHAP, vin LAND AND RENT 123

factor in its production, without the use of which no
wealth can be made and human beings cannot exist ; the
indispensable condition of life and of production.

The general condition through which any and all the
opportunities for making wealth, the treasures of nature,
become accessible to man, therefore, is through the use
of some part of the dry surface of the earth. There is,
however, another condition equally far-reaching in its
consequence.

All material existence, and, therefore, all economic
activity also is conditioned by space and time. Space and
time, however, are concepts, not of things, but of the
relation in which things stand to each other. Space is a
relation of extension, i.e. of the relative position of things
which exist simultaneously ; time is a relation of succession,
i.e. of the relative position of things which follow upon
each other.

Space, therefore, which has relation to all matter, also
relates to wealth, which is matter modified by human
exertion, and to this exertion. Every exertion, every
form of production, requires space for its accomplishment ;
space to stand upon ; more space to move in, and still
more space for the extraction, storage, transformation, and
transportation of materials, implements, and products.
Occupations differ as to the space necessary for their most
efficient conduct, but in every occupation there is a limit
to the amount of exertion which, within a given space,
will yield the most profitable return. Hence, natural
law imposes upon man an extension of his labour in space,
and this extension is limited by the area of the dry surface
of the globe.

This dry surface, however, the land in the narrower
sense of the term, does not everywhere give access to
similar opportunities for making wealth. Land differs
greatly in the elements of fertility which the soil contains,
as well as in climatic conditions. Some areas give access
to mineral treasures, while others do not, and even the
former vary greatly with regard to the quantity and im-
portance of the mineral deposits underlying them. Some
areas, again, contain waterfalls and other opportunities

i2 4 DEMOCRACY VERSUS SOCIALISM PART n.

which facilitate production ; other areas are covered with
much coveted timber or luscious grasses, while others,
again, are arid, bare, or covered with worthless scrub or
rock. The opportunities for making wealth, the gifts of
nature to which land gives access, thus vary in infinitesimal
gradation from what economically may be regarded as
zero, to what bears the utmost potentiality of wealth.

There are, however, still further variations in the pro-
ductivity of land, i.e. in the opportunity which it affords
to satisfy wants through exertion, which have frequently
been disregarded, though they are of equal importance
with those already enumerated. In previous chapters it
has been pointed out that exchange not only forms part
and parcel of the productive process, but is the necessary
condition for the existence of the world-wide co-operative
system of production which has raised mankind above the
level of savages. As co-operation through exchange
supersedes the primitive form of isolated production, the
qualities of land which offer facilities for exchanges
assume importance and gradually increase in importance.
Access to navigable streams, to harbours, lakes, and tide-
waters ; proximity to fertile lands, mines, natural routes
of trade, and centres of population ; proximity to artificial
routes of transportation, as roads, canals, and railways,
now confer potentialities of productiveness upon land
which it previously did not possess.

These variations bring into prominence a consideration
which otherwise would be of far less importance. As
between two pieces of land, that one is obviously more
productive which, to the same exertion, gives a greater
return. It may, however, be, and frequently is the case,
that of two pieces of land of equal productivity when a
certain amount of exertion is applied to both alike, one
will be more productive than the other if the amount of
exertion is increased on both of them. To some extent
this is true even in agriculture. A sandy soil may give
the same or even a smaller return per unit of labour
in wheat -growing than an equal area of clayey soil.
But if both were used for fruit-growing, which requires
a considerably greater application of labour and

CHAP, vin LAND AND RENT 125

capital per acre, the sandy soil might prove far more
productive.

This consideration applies with greater force to
mineral land. If no more exertion were applied to an
acre of mineral land than to one of wheat-land, the
return would probably be increased but little, if at all, and
might be even less. When, however, a vastly greater
amount of exertion in labour and capital is applied to the
mine, such land may not only give a greater aggregate
return, but may even give a much greater return per unit
of exertion applied.

The most important manifestation of this condition,
however, arises in our great exchanging centres the manu-
facturing and trading cities. If no more labour were
expended on an acre of land in the heart of a great city
than on an acre of country land used for wheat-growing,
the return would scarcely be greater. When, however,
suitable and costly buildings are erected on the former,
when thousands of workers and large amounts of capital
are congregated within these buildings, then the produc-
tivity of such land is enormously greater than that of an
equal area of country land, not only in the aggregate, but
generally also per unit of exertion applied.

So far we have arrived at these conclusions. Land,
i.e. the dry surface of the globe, differs in its productivity,
i.e. in the opportunity which it affords for the satisfaction
of human wants through exertion : (i) inasmuch as some
land yields a greater return than other land to the same
exertion ; (2) inasmuch as some land yields a greater
net return than other land when more exertion is con-
centrated upon it.

Let us now consider the influence which these facts
exert upon the distribution of wealth.

Seeking to satisfy their wants with the least exertion,
all men will endeavour to obtain the use of such land as,
according to existing knowledge, will yield the greatest
return to their exertion. They cannot all be successful in
this endeavour, because the extent of the most productive
land is limited, and because, in every occupation, there is a
limit to the amount of exertion which can be applied most

126 DEMOCRACY VERSUS SOCIALISM PARTII

profitably within a given space. Some men, therefore,
must use land of less than the greatest productiveness,
other men must use still less productive land, until at last
a wide difference in productiveness prevails between the
most productive and the least productive land in use. So
far, however, as the knowledge of men enables them to
determine, the least productive land in use will still be
more productive than the most productive land not yet
used, for the reason, that all men seek to satisfy their
wants with the least exertion. The least productive land
in use, i.e. the land at the margin of production, must,
however, fix the standard of the reward for human exer-
tion, because it is a matter of indifference to any worker,
whether he receives all the product of his labour when
using land at the margin of production, or whether he
receives the same amount when working on land of greater
productiveness. If, for instance, the entire product of a
man's exertion at the margin is los. a week, then, other
things being equal, he will be willing to use the same
exertion on land yielding 503. a week, provided he himself
receives no less than los. a week out of the same. The
difference is rent, a payment made for the use of better
natural opportunities than are available to all men.
Taking from those who use more productive land the
excess of its productiveness over that of land at the
margin, rent equalises the natural opportunities for making
wealth to all men.

On this consideration is based Ricardo's Law of Rent,
which runs : " The rent of land is determined by the
excess of its productivity over that which the same applica-
tion can secure from the least productive land in use."
In view of the considerations above advanced, it will be
seen that the law thus formulated expresses only part of
the truth. It excludes from consideration the advantages
which arise from the massing of more exertion on suitable
land. A true law of rent cannot be so limited, and the
importance of extending it may be seen from the errone-
ous deductions to which this limitation has given rise.
Ricardo, Mill, and their successors were in this way led to
adopt the Malthusian doctrine, that increase of population,

CHAP, vin LAND AND RENT 127

compelling the use of inferior land, must reduce the
average productivity of labour, and therefore must tend
to produce misery and starvation. In the absence of any
notice of the facts referred to, this was not an unnatural
conclusion. When, however, these facts are included in
the survey, the opposite result will be seen to arise. For
with the increase of population there arises an increase in
secondary production and exchanges, and these multiply
at a greater ratio than population. Hence, more and
more workers can be concentrated on land of the highest
productivity, that which is most suitable for manufactures
and exchanges, and where the productivity of the average
unit of labour is greatest. Not only is the tendency of
resorting to inferior land thus checked, but as more
additional labour is employed on land of greatest pro-
ductivity than is employed on land of inferior productivity,
the aggregate product of all the labour is increased.
Instead of increase of population leading to misery and
starvation, it must, caeteris paribus, tend to an increase of
comfort and plenty.

The distinction previously drawn is therefore of the
utmost importance, and this consideration may excuse this
digression from the strict line of argument. A law of
rent, to be strictly true, must therefore be formulated as
follows :

The rent of any piece of land is determined by the
excess of its productivity over that of an equal area of the
least productive land in use, after the sum of exertions
which in both cases yield the most profitable result has
been deducted.

So far land and the rent of land has been dealt with
under natural conditions that is, under conditions unin-
fluenced by men's temporary enactments ; and it will have
been seen that rent is a natural result of the extension of
men's labour in space, just as interest will be seen to be a
natural result of the extension of their labour in time.
But, just as when dealing with capital, attention had to be
drawn to a mass of spurious capital and spurious interest,
the result of mere legal enactments, so attention has now
to be drawn to a spurious and additional rent, equally

128 DEMOCRACY VERSUS SOCIALISM PARTII

resulting from mere legal enactment, i.e. from the private
ownership of land and rent.

In order to make this important point clear, use will
be made of the following diagram. The horizontal lines
enclose land of the same productivity, while the per-
pendicular lines divide all the land into equal areas. The
assumption, not absolutely true, is that as productivity
declines area increases, but this assumption in no way
falsifies the argument. The figures 1000 to 100 mark,
the original productivity of the land :

DEGREES OF PRODUCTIVITY

900

800

700

600

500

400

300

200

100

CHAP. VIII

LAND AND RENT

129

As long as social requirements can be satisfied through
the use of land A alone, there is no rent. As soon as
any portion of land B must be used, rent arises. All of
land A now acquires a rental value of 100 units, i.e. equal
to the excess of its productiveness over what is now the
marginal land B. When any of the land C has to be
taken into use, B, in its turn, acquires a rental value of
100 units, and the rental value of A is correspondingly
increased, viz. to 200 units. The use of any land of
lower scale of productiveness gives a rental value to the
land in the immediately superior scale, and correspondingly
increases the rent of all the land which previously had any
rental value. In contradistinction to this general rise of
rent, there stands the partial rise of rental value which arises
when additional productiveness is discovered in or con-
ferred upon particular land. The discovery of new
mineral deposits ; the discovery of new methods for in-
creasing the yield, or of treating more profitably, mineral
deposits previously known ; the discovery of methods, or
the invention of machines, which increase the yield of
special kinds of land or of their products ; changes in
trade routes ; the rise or increase of trading centres ; the
extension of railways and other routes of communication
and transportation, all of these as well as other causes
increase the value of particular land. In these cases the
rental value of such land alone rises, without increasing
the rental value of other land. That is to say, where
rental value is conferred upon any land through a lower-
ing of the margin of production, all rents rise correspond-
ingly ; but where new rental value is caused by advantages
discovered in or conferred upon particular land, the rise in
rental value is confined to such land.

If it is now assumed that if all the land above line G
were fully used, the products of this land would suffice
for the requirements of the people, the natural rent would
be : For land A, 600 units ; for B, 500 units ; for C,
400 units ; for D, 300 units ; for E, 200 units ; for F,
100 units ; and land G, as well as all the land below it in
the scale of productivity, would possess no rental value.
If, however, the owners of the land keep any of the land

130 DEMOCRACY VERSUS SOCIALISM PART n

above line G out of use, say the lots marked o, two
consequences follow.

The first is, that in order to satisfy the necessities of
the community, some labour must be employed on less
productive land, i.e. on land between G and H, and that,
as a consequence, the produce of the aggregate labour of
the community is lessened.

The second is, that out of this lower product of the
aggregate labour a largely increased rent-charge must be
paid. For some land of 300 units of productiveness
being now used, land above G, of 400 units of pro-
ductiveness, now acquires an annual rental value of 100
units, and the rental value of all the land of superior
productiveness is correspondingly increased. In the case
illustrated by the diagram the rent received by the owners,
if all the land above line G had been fully used, would
have been 1 1 , i oo units. By keeping out of use the three
squares marked o, they increase the actual rent-charge to
14,900 units. This increase, amounting to 3800 units, is
a spurious rent, as is also the increased rental value of the
land kept out of use.

Moreover, where all the land has passed into private
ownership, the self-interest of owners may, and frequently
does, induce them to hold so much superior land out of
use or full use, that some of the least productive land
must be used unless the population declines. As under
such conditions land is a complete monopoly, owners do
not, as a rule, permit the use of any, even of the most
inferior land, without some payment. As some men will
now be compelled to use such land in order to live, they
will be compelled to pay a rent for it. Natural rent is,
under these conditions, superseded by rack-rent, i.e. rent
at the margin : the least productive land available having
no other limit than the smallest reward which labour can
be compelled to accept, labour on all other land and in all
occupations must accept similarly depressed wages. The
rent for all other land, therefore, must rise accordingly,
and the body of spurious rent which the workers must
pay to the landowners is increased to enormous propor-
tions. All this artificial addition to the natural rent is a

CHAP, viii LAND AND RENT 131

real deduction from the natural reward of individual
labour.

Nor is it necessary that much land should be kept out
of use in order to produce this result. All that need be
done is to devote some considerable areas to inferior uses
than those they are best fitted for. To do this may, and
frequently does, confer an additional advantage upon the
landowners at the expense of the whole community, and
still further emphasises the conflict between the interests
of the community and those of private landowners.
Conditions, largely prevailing in the Australian colonies
as well as in other new countries, will serve to illustrate
this phase of the subject. In every one of these colonies
millions of acres of the richest agricultural land, with
ample rainfall and near to markets and ports of shipment,
are used for mere grazing purposes. As a consequence
most of the farmers were forced to settle on poorer land,
further from markets and ports, and where the rainfall is
less abundant. Land fit only for grazing is thus used for
agriculture, while the land fittest for agriculture is used
for grazing only. The latter would, under wheat, have
given a gross return of say 355. per acre, while as grazing
land its gross return is only say 155. per acre. Yet the
net return to the owner may be, and frequently is, greater,
where the gross return is smaller. For the cost of culti-
vating the land, i.e. wages, seed, implements, horses, etc.,
may absorb 303. out of the 353., while in grazing, where
scarcely any labour is employed and all other expenses are
small, these would absorb less than 53. per acre. In the
one case, therefore, the net profit would be 55. out of a
gross profit of 355. ; in the other it would be los. out of
a gross profit of 155., and, in addition, the trouble of
management will be much smaller. The community,
however, loses 2os. per acre, the difference in the gross
return. For in either case the profit of the community is
measured by the gross and not by the net return. The
gross return represents new labour-products added to the
common stock. Out of this new product the labourers
employed in producing the materials and implements used
on the land, as well as those directly employed on it,

1 32 DEMOCRACY VERSUS SOCIALISM PARTII

defray their consumption. When the gross product is
355., the added wealth is greater by 2os. than when it is
153., and as long as the additional consumption does not
exceed the value of the additional wealth, the permanent
wellbeing of the community is increased to that extent.
Hence, though the owner gains 55. by the substitution of
the less productive for the more productive process, the
community loses 2os. worth of wellbeing. In addition,
there is an enormous loss from the reduced productivity
of the labour of those farmers who are compelled to
cultivate land of less fertility and at greater distance from
markets and ports. An even more graphic illustration of
this condition is furnished by the wholesale clearances of
Scottish and Irish land in order to make room for cattle,
sheep, or deer, and the resulting misery of large numbers
of the evicted tenants, and of the shopkeepers who supplied
their wants.

Still another and far-reaching influence arises from
private ownership of land. It has been shown that the
natural function of rent is to equalise the natural oppor-
tunities available to men. Rent takes from those who
use the better natural opportunities the excess of produce
due to this advantage and reduces their earnings to that
which equal exertion would gain on the least productive
land in actual use. As no man can be entitled to the free
use of more productive natural opportunities than other
men can obtain, no man can be entitled to the surplus of
produce, due, not to his greater exertion, but to the use
of the more productive opportunity. Rent, i.e. natural
rent, therefore, is not a deduction from individual labour-
results, as many socialists assert. It is a deduction from
the results of the labour of society as a whole. Just as
no person is entitled to the free use of more productive
natural opportunities, so no person can ethically be com-
pelled to the uncompensated use of less productive oppor-
tunities. All men are entitled to the free use of average
opportunities to labour. Those using opportunities more
productive than the average, therefore, are morally bound
to compensate those using opportunities of less pro-
ductiveness than the average. The equalising mission of

CHAP, viii LAND AND RENT 133

rent, therefore, is not finished till it is either divided in
equal shares among all those who have contributed to the
result of the social labour, or till it is used for purposes
from which all of them derive equal benefit. Spurious
rent, on the other hand, is, as already stated, a deduction
from the result of the individual labour of every worker.

When, however, land is private property, not only
the spurious, but the natural rent as well, is appropriated
by a few, the owners of land. The equalising tendency
of rent still affects all workers, reducing their earnings to
what equal skill and exertion can produce, or is allowed
to retain, at the margin ; but on the owners of land it
has the opposite tendency. It concentrates into their
hands the rent produced by the aggregate labour of the
community, and adds this vast and ever-increasing sum to
any earnings which they may derive from their own
labour. Without having rendered and without rendering
any service in return, they thus become the recipients of
the social wealth represented by natural rent,, and of the
deduction from individual wealth represented by spurious
rent. The equalising tendency of rent, therefore, stops
short at the land-owning classes ; below this line it reduces
individual wealth, above this line it increases individual
wealth. Instead of a tendency towards equalisation, there
is thus introduced a twofold tendency towards differentia-
tion, the results of which, supported by the secondary
monopolies previously described, may be seen in the
startling contrasts which disfigure our civilisation : on
the one hand, multi-millionaires, receiving an amount of
wealth vastly exceeding that which their labour contributes
to the common stock, and frequently contributing nothing
nor rendering any other service ; on the other hand, a
vast army of proletarians, who receive far less than their
labour contributes, divided by a middle class vainly
struggling to preserve its independence between these
opposing forces.

Private ownership of land, therefore, deprives all
workers of their equal share in the product of their
common labour, the natural rent of land ; it further
creates a spurious rent which is a real deduction from the

134 DEMOCRACY VERSUS SOCIALISM PARTII

product of individual labour, and it utterly nullifies the
economic and ethical function of natural rent. That
which under natural conditions would tend to produce a
homogeneous society, strong through the agreement
between public and private interests, then produces a
society constantly becoming more strictly divided into
two opposing classes, and threatened with destruction
through the conflict between public and private interests,
artificially introduced.

Secondary influences of private ownership of land and
of other monopolies on the relation between employers
and employed will be discussed in a subsequent chapter.

CHAPTER IX

THE THEORY OF INTEREST

As space is a relation of extension, so time is a relation
of succession. Every individual act follows upon or
precedes some other act. If the sequence of one act upon
another is immediate we speak of their succeeding each
other in a short time ; if the sequence is remote we speak
of long time. All production consists of a series of acts
following upon each other, and all production therefore
requires more or less time. The production of bread,
for instance, requires the successive accomplishments at
different intervals of sowing, reaping, grinding, and baking.
Similarly the production of a chair requires the felling of
a tree, cutting it into boards, planing them, cutting them
into the requisite pieces, turning some of these, fitting all
the pieces together, and finishing the rough chair. No
two of these acts can be performed simultaneously, they
all stand in the relation of sequence to each other, and the
series therefore requires considerable time in its accom-
plishment. In like manner every other productive process
requires more or less time. It follows that only those
productive processes which require little time for their
accomplishment can be directed to the satisfaction of
present wants, i.e. of wants existing at their initiation.
By far the greatest number of productive processes, all
those requiring more than a short time for their accom-
plishment, are necessarily directed to the satisfaction of
wants which are expected to arise in the future, i.e. after
the process is completed. Present wants, therefore, are
mostly dependent for their satisfaction upon productive

136 DEMOCRACY VERSUS SOCIALISM PART n

processes which were initiated in the more or less remote
past, and the fruits of which are now maturing or have
matured, while present labour is mostly directed to the
satisfaction of future wants through the production of
goods which will become available at such future date.
Every increase in the length of productive processes post-
pones the time when their fruits will be available for the
satisfaction of human wants, while, as has been already shown,
it increases the number of wants which can be satisfied.

All but the most primitive processes of production,
therefore, imply the capacity of men to anticipate future
wants and their desire to provide for them. The world-
wide, roundabout, or co-operative system of production
implies the possession of a high degree of these faculties.
These faculties are part of the imaginative process. In
order that men may be able to provide for future wants,
they must be able to form a mental picture of the state of
their future desires, of the quantity and kind of the goods
necessary to satisfy these desires, and of the time when
these desires will arise and these goods will become avail-
able, i.e. they must form some present conception of the
value of goods which will only become available at a given
future date. The only principle on which such goods
can be valued is that of their marginal utility under the
mutual action of our wants and the provision for these
wants as we anticipate them to be at some future date.
Apart from the element of risk, our present valuation of
future goods is, therefore, made on the same principle as
that of present goods, i.e. goods available at the present
time. As these two sets of goods, however, become
available at different times, under different circumstances,
and serve different sets of wants, it is inevitable that a
different valuation should be placed upon them at the
present time. With few and unimportant exceptions this
difference shows itself in a higher present value being
placed on goods which are available at present than on
goods of like quantity and kind which only become
available at some future time. This difference in value
is the cause of interest, which therefore arises from the
extension of man's labour in time.

CHAP, ix THE THEORY OF INTEREST 137

The following are the main reasons for the higher
value of present than of future like goods :

All persons who expect or hope that they will be
better off in the future than in the present, that is the
vast majority of men, will naturally value a given quantity
of present goods 'more highly than an equal quantity of
like goods in the future. For while their present wants
are pressing upon their means to satisfy them they expect
a less pressure in the future. The case of musical students
who mortgage a great part of their future earnings in
order to obtain present tuition is an extreme case in
point.

On the other hand, persons who enjoy a good income
in the present, but who anticipate that it may fall off or
altogether cease in the future, such as employees with
fixed salaries which may cease, will value goods becoming
available at this future period more highly than goods
available at present. This feeling, however, exerts no
influence, because present goods can be preserved for use
at such future period, especially in the shape of money,
and can thus be used either for the satisfaction of present
or of such future wants ; whereas goods which do not
become available till such future time cannot be used
for the satisfaction of present wants. Hence, even in
these cases, present goods are valued more highly or,
at least, as highly as future goods of like quantity and
kind.

This difference in provision for wants between present
and future is sufficient to give a higher subjective, and
therefore a higher objective, value to present than to
future goods. This tendency is, however, increased by
other causes.

The first of these is a tendency towards the under-
valuation of future wants inherent in all men. That
which lies nearest looms largest. Future wants are under-
estimated because they are distant and in the measure of
their distance, and, therefore, the goods which can satisfy
none but such future wants are undervalued. This
underestimation of future wants differs in different men.
Savages and children scarcely take any thought of distant

138 DEMOCRACY VERSUS SOCIALISM PARTII

wants, and among adult civilised men wide differences
also appear. Nearly all men, however, give way to it to
some extent.

This second cause is cumulative with the first. Not
only the persons who expect to be better off in the future
than they are in the present, but all, or nearly all, other
men make this underestimate of their future wants, and
hence the lower valuations placed on future than on present
goods is made more intensive and more extensive.

A third and independent cause for the same phenomenon
arises from the technical superiority of present over future
goods, i.e. from the fact that, as a rule, goods which are
available now give, when used as instruments for the
production of other goods, a greater return than goods
which become available in the future for such use.

As already explained, lengthier methods of production
are, on the whole, more productive than shorter methods.
Given the same quantity of productive instruments and
labour, the lengthier the method of production in which
they are employed the greater will be the quantity or
the better the quality of the resulting product.

Suppose now that we have available in the year 1898
a quantity of productive instruments equivalent to one
month's labour. We can employ this one month's labour
in methods of production which will give an immediate
return, or in such as will give a more or less remote future
return through the application of more labour, with
this difference, however, that as we chose a lengthier
method, so the future product of this month's labour,
as well as that of every other month's labour successively
employed in this particular process, will be increased.
Let it be supposed that its product in immediate pro-
duction will be 100 units of wealth ; in a one year's
process 200 units ; in a two years' process 280 ; in a
three years' process 350 ; in a four years' process 400 ; in
a five years' process 440 ; in a six years' process 470 ; and
in a seven years' process 490. Any other figures will do
as well, as long as the principle is observed that longer
processes give greater return, but that the return increases
at a less ratio than the length of process.

CHAP, ix THE THEORY OF INTEREST

139

The following table will show when these units of
wealth, the product of one month's labour, will become
available :

Length of Process.

Units of Product.

Time of Availability.

Immediate

100

1898

One year .

2OO

I8 99

Two years

280

1900

Three years

350

1901

Four years

400

1902

Five years i

1903

Six years .

470

1904

Seven years

490

1905

Suppose now, that in addition to the production-goods
equivalent to one month's labour, which are available
to-day, we expect an equal quantity of such goods to
become available in each of the years 1899, 1900, and
1901, let us see what will be the relative result at any
future time of these four separate months of labour when
employed in production :

ONE MONTH'S LABOUR OF THE YEAR

1898.

1899.

1900.

1901.

Yield in units of

product for the year :

1898

100

...

. >

1899

200

100

1900

280

200

IOO

. . .

1901

350

280

200

IOO

1902

400

350

280

2OO

1903

440

400

350

280

1904

470

400

1905

470

440

4OO

The above table clearly shows that present production-
goods yield at any given time a greater return than goods
of like quantity and kind which become available at a
later period.

T 4 o DEMOCRACY VERSUS SOCIALISM PARTII

It is also obvious that the possibility of engaging in
lengthier and, therefore, more profitable processes of pro-
duction arises from the present possession of consumption-
goods. If these were not available in sufficient quantities,
labour and capital would be compelled to engage in shorter
processes, giving forth their products at earlier periods,
though in smaller quantities compared with the exertion
employed. The increased result of the lengthier processes,
therefore, is in this measure due to the possession of con-
sumption-goods available in the present, not because they
are capital, but because they enable capital to be used in
processes of greater utility. Therefore, present consump-
tion-goods possess the same technical superiority over
future consumption -goods which present production-
goods possess over future production-goods.

The three causes enumerated for the higher value of
goods available in the present than of goods which will
become available at any future time, are :

(1) The difference in the circumstances of provision
for wants between present and future.

(2) The underestimate of future wants and of the
importance of future goods.

(3) The greater productiveness of lengthier methods of
production and consequent technical superiority of present
goods.

While the two first causes are cumulative, the third
cause acts independently and largely alternatively. To
show this in detail here would lead too far ; suffice it to
say, that this alternative action gives to the phenomenon
of higher valuation of present goods a varying intensity
but universal validity. The varying intensity of subjective
valuations enables exchanges of present against future goods
to take place. Those who place a relatively high value
on future goods are buyers of future goods, i.e. lenders ;
those who place a relatively low value on future goods are
sellers of such goods, i.e. borrowers. A market price,
resulting from their higgling, once established, exerts a
reflex action on all subjective valuations, so that even
those few who, from their economic circumstances, would
value future goods equally with present goods are influ-

CHAP, ix THE THEORY OF INTEREST 141

enced by the general position of the market, which assures
them also a preference for present goods. The same
levelling tendencies of the market bring the lower value
of future goods into a regular proportion with their
remoteness in time, establishing everywhere a rate of
interest which is the general measure for the difference
between the value of present goods and that of goods
which become available at any future time.

Of the three causes, the combined action of which
gives rise to interest, one only, the technical superiority of
present goods, is invariable in its action. Of the others,
the underestimation of future wants declines in intensity
and extensity as men become better adapted to the condi-
tions of social life. The third cause, difference in the
provision for wants between present and future, also will
be less active when a just system of distributing wealth is
adopted. For, in such case, the present needs of all will
be more easily met, while a great majority will be able
and desirous to retire from productive labour at a com-
paratively early age. Present needs will, therefore, be
less pressing and future needs more pressing, leading to a
reduction, from both sides, of the difference of valuation
of present and future goods.

The causes which have resulted in a decline of the
rate of interest in the past, will therefore continue and
may be reinforced in the future, leading to a further,
permanent, and large decline of the rate of interest. That
interest ever will or can disappear entirely, however, does
not seem probable, in view of the persistence of the
technical superiority of present goods, and of the im-
probability of the entire disappearance of the two other
causes which gave it existence.

In a former chapter l it has been shown that the value
of productive instruments is determined by the marginal
utility (value) of the sum of the consumption-goods which
form their ultimate product. This ultimate product,
however, is not contemporaneous with the productive
instruments ; it appears as these disappear in it. Com-
pared with the productive instruments which give it being,

1 Part II. chap. ii.

1 42 DEMOCRACY VERSUS SOCIALISM PARTII

the final product is a group of future commodities ; of
goods which will become available in the future. The
present value of this final product, i.e. its value measured
in present goods, is therefore lower than its future value,
and therefore the value of the productive instruments is
also lower than the future value of the consumption-
goods into which they become embodied. It is equal to the
present, and not to the future, value of these future goods.

The capitalist, therefore, buys productive instruments
at the present value of the sum of their ultimate products,
and waiting till these latter have arrived at maturity, till
what is now the future has in its turn become the present,
becomes possessed of their higher value. This increment
in value is the interest which he receives.

To illustrate this sequence of events, take the case of
a capitalist who purchases productive instruments, material,
tools, and labour ; and in order to simplify the illustration,
let us assume that he purchases them all at one and the
same time, i.e. at the beginning of the productive process.
The circumstance that this is not quite true does not
affect the principle but only the amount of interest which
he will receive. Let it be further assumed, that the sum
of the final products of these productive instruments has
a total value, when they are available, of 500 units ; and,
further, that of these total ultimate products, equal parts
become available at the end of each of five successive years,
and possess at that time a value of 100 units, so that at
the end of five years the whole product has been realised
and the productive instruments have disappeared.

All these products are future goods at the time the
capitalist purchases his productive instruments. Their
present value, therefore, i.e. their value measured in
present consumption-goods, is less than that which they
will possess when they in their turn will be available for
the satisfaction of human wants, when they will have
become present consumption-goods. That part of the
total product which will become available at the end of
one year, and which then will have a value of 100 units,
possesses now a value of say 95 units only ; the second
part available at the end of two years has a present value

CHAP, ix THE THEORY OF INTEREST 143

of 90 units ; the third year's product equals 85 units ;
the fourth year's product equals 80 units ; and the fifth
year's product equals 75 units. The total present value
of these consumption-goods, the future product of the
group of productive instruments in question, and having
a value of 500 units when they become available, is 425
units only. Therefore, the value of these productive
instruments is 425 units, equal to the present value of
their ultimate product. Our capitalist purchases them at
this price, and the interest which he receives arises from
the fact that he has purchased with a smaller quantity of
mature goods, possessing a present high value, a larger
quantity of immature goods, possessing a present low
value, and that he waits until this latter in its turn has
ripened into high value.

This interest, therefore, is not taken from any one.
It arises, as has here been proved, when the capitalist pays
full value for all the productive instruments, labour in-
cluded, i.e. when he pays a price for them equal to the
value of the sum of their products. It had no existence
before ; it came into existence in the hands of the capi-
talist, because he is a capitalist, i.e. because he, possessing
more goods at present available for the satisfaction of
human desires than he himself needs, exchanges them for
goods which, in their turn, will be able to satisfy human
wants at some future time. As, in the continuous 'process
of production, those future goods gradually approach use-
fulness, and the more pressing, because more proximate,
human wants, their value increases, until at last this utility
and value reach their highest point, that of goods which
can satisfy the most urgent wants, i.e. wants actually
existing. Interest, therefore, is not, as Socialism posits, a
robbery of labour, but an increment of value which arises
from the natural extension of human labour in time and
separately from the exertion of labour.

That interest cannot be regarded as part of the product
of labour, and that, therefore, it is not a deduction from
the legitimate wages of labour, i.e. the full product of the
labourer's exertions, will, however, be demonstrated still
more fully in the next chapter.

CHAPTER X

THE WAGES OF LABOUR

THE foregoing examinations have paved the way for the
inquiry, what part of the product of the industry of society
rightfully belongs to those who take part in its production,
i.e. to the producers of wealth of every kind, as producers.
Obviously, the most that each producer can obtain indi-
vidually is the entire product of his labour, and, as will be
shown in subsequent chapters, this is also the least that
justice demands for him. The only question which
concerns us here is what constitutes the produce of indi-
vidual labour.

Man as such, whether isolated or in co-operation with
others, produces nothing. All wealth is the joint product
of labour and land. As already demonstrated, the exten-
sion of man's labour in space, which natural conditions
impose upon him, and the variations in the productivity
of land, produce the widest divergence between the natural
conditions under which labour is exercised. Inevitably,
the opportunity which some use is better or worse than
that which others can use, and ultimately the differences
become of enormous importance.

As a consequence, the same unit of skill and exertion
will produce many times the amount of wealth from one
piece of land than when put forth upon some other piece
of land. The excess is not due to any labour ; it arises
from the greater bounty of nature. To whom then does
it belong ? To the man who by accident labours upon
the more productive land ? Or to the owner who, by
purchase, inheritance, or fraud, got hold of it ? Or does

CHAP, x THE WAGES OF LABOUR 145

it not rather belong to the society, the whole body of men,
as a common fund to provide for their common needs ?
Nature owes to all men an opportunity to maintain their
lives by labour. But no man can possess a natural right
to the use of a better natural opportunity than others can
obtain. Hence, that part of wealth which arises from the
use of a better natural opportunity than the least pro-
ductive which must be used, i.e. the natural rent of land,
must be deducted from the reward of individual labour, as
being, ethically and economically, no part of the product
of such labour, and must be put into a common fund, of
which every member of society is entitled to an equal
share.

In natural rent, therefore, we found one deduction
which must be made from what might, superficially, be
regarded as the product of individual labour. Just as this
deduction becomes necessary owing to the extension of
man's labour in space, so another deduction must be made
on account of the extension of his labour in time. As
was shown in the last chapter, interest, that is natural
interest, arises from the greater value possessed by goods
available in the present, than that possessed by an equal
quantity of the same kind of goods which only become
available in the future. It remains to apply this condition
to the wages of labour, separately from that already made
with regard to all productive instruments. Suppose a
ploughman has given a week's labour in ploughing a field>
which eight months hence will yield 800 bushels of wheat.
Suppose, likewise, that this one week's labour is exactly
one-hundredth part of all the labour required to produce
the wheat at the flour-mill, where it is worth 43. per bushel.
The ultimate value of the product of the ploughman's
labour in that case is 800 x 45. = 32005. divided by 100
= 325. To this value he is manifestly entitled at the
time when the wheat, the produce of the joint-labour of
himself and others, is available, i.e. at the end of eight
months. If there were no employer, he could not justly
receive more than this amount, nor could he receive it earlier.
But can he be entitled to this amount at the end of the
week, when his labour ceased ? Obviously not, for the

146 DEMOCRACY VERSUS SOCIALISM PARTII

product of his labour and that of others, the 800 bushels
of wheat, had a smaller value at the end of the week's
ploughing than eight months afterwards, when it became
available, and his share, therefore, also had a smaller value
at the earlier time. Hence, though the ploughman is
entitled to a wage of 323. at the end of eight months, he
cannot be entitled to 325. now, as, in that case, he would
receive more than the present value of what his labour
produces. If he will wait till the product of his labour is
matured, he is entitled to its then full value ; if he wants
to reap now the reward of his labour, when its product is
as yet immature, he cannot be entitled to more than its
present value.

If, instead of working for wages, the ploughman is an
independent farmer, he cannot obtain the product of his
labour at the end of the week's ploughing, but is com-
pelled to wait for it for eight months, till the harvest
is gathered. The ploughman cannot be entitled to
better conditions and a greater return to his labour,
because he works for an employer, than he could obtain
if he were working on his own account under exactly like
circumstances.

Suppose, then, that the general valuation of the com-
munity places 30005. available now at exactly the same
value as 32005. available eight months hence. In that case
the value of the harvest was 30005. at the time when the
ploughing was ended, and as this ploughing constitutes
one-hundredth part of all the labour which produced the
harvest, the ploughman would be entitled to the one-
hundredth part of 30005., i.e. he would be entitled to
303., that being the then value of the ultimate product
of his labour. The difference between 305. and 32$.
between the present and the ultimate value of the product
of the ploughman's labour obviously belongs to him who
purchases this immature product of labour with mature
products, i.e. the employer who pays wages.

The importance of the subject under discussion may
justify, even at the risk of tediousness, the use of a further
illustration which applies the same considerations to
manufactures in a more detailed manner. Taken from

CHAP, x THE WAGES OF LABOUR 147

Bohm-Bawerk's Capital and Interest, it has been largely
modified.

Suppose an engine to be constructed from the ore
upwards by one workman, working continuously for five
years, and that, when completed, the engine possesses a
value of 550. Let it also be assumed that the labour of
each year produces a result exactly equal to a fifth part
of the engine. Nevertheless, the workman could not be
entitled to one-fifth part of the value of the completed
engine, ^i 10, at the end of the first year, for the reason,
that an engine ready for use now has a greater value than
one exactly similar, but which will not be ready for use till
four years hence. If it is assumed that the general pre-
ference for goods available now, over similar goods available
at some future time, is equal to 5 per cent per annum, 1 the
workman is entitled at the end of each year to no more
than 100. The proof of this statement is found in the
fact, that when paid at this rate, the workman receives in
the course of five years exactly the same value as if he
waited for payment till his engine was completed.

For between the end of his first year's labour and the
date of completion of the engine, there intervenes a period
of four years ; between the end of the second year's labour
and completion the interval is three years ; between that
of the third year's labour and completion it is two years ;
and for the fourth year's labour it is one year ; while the
end of the last year's labour and the date of completion of
the engine coincide. At the assumed rate of preference,
i oo received by the workman at the end of the first year,
therefore, exceeds the value of jioo to be received by
him at the end of the fifth year by 4x^5=^20, and a
corresponding excess of value adheres to each of the sums
of ^ i oo which he receives at the end of the intervening
years. Paid 100 at the end of each year, the value of
all five payments at the date of completion of the engine
would be 550, i.e. exactly the same amount which he
would have received if he had waited till the engine was
completed and its full value belonged to him ; as
under :

1 For the sake of simplicity compound interest has been eliminated.

148 DEMOCRACY VERSUS SOCIALISM PARTII

100 at 5% for 4 years .

100 5 % 3
ioo 5 % 2
ioo 5 % i
100 at completion

Total $50

It is clear, therefore, that the same increment which
the workman would receive from the growth of the engine
towards completion, he will also receive when he is paid
i oo at the end of each year, through the excess of value
which four of these sums possess at the time of payment
over four-fifths of the then value of the future engine. If
at the end of each year he were to receive ^i 10, the fifth
part of the value of the completed engine, he would receive
more than the value of the completed engine by 55, as
under :

jTi 10 at 5% for 4 years . . =i3 2

110 5% , 3 = 126 10 o

no 5 % 2 . . = 121 o o

no 5 % i . = 115 10 o

no on completion . . =11000

Total 605

If it is objected that the workman probably lacks the
means which would enable him to invest these several sums
so as to reap the interest, and that he wants annual pay-
ments so as to be able to live, the answer is :

The needs of the workman for present sustenance do
not lead him to place a lower than the general valuation
upon present as compared with future goods. He, like
every one else, values present goods at a higher rate than
future goods. A sum of 100 now is, therefore, in his
own estimation, as well as in every one else's estimation,
worth ;i2o as compared with a sum of jioo four years
hence. In receiving 100 now, he, therefore, receives a
value of 20 more than if he waited for four years, whether
he invests that sum or not.

Moreover, the fact that he wants 100 for present

CHAP, x THE WAGES OF LABOUR 149

consumption, while his labour has not yet produced a
consumable equivalent, cannot entitle him to receive, and
cannot oblige any one to pay him, more than the total
value of the engine when completed. Yet, as has been
shown, were the employer or other purchaser of the engine
to give more than i oo at the end of each year, he would
pay, and the workman would receive, more for the engine
than the one would have to pay and the other would receive
if payment were deferred till the date of completion. As
no one can claim that more than the full value of the
engine shall be paid when the payment is deferred, it
cannot be claimed that more than its full value shall be
paid when the payment is made in instalments.

Suppose now that, if instead of one workman working
for five years, five workmen, each working for one year by
himself, were employed successively in the production of
this engine, and that each of them produces exactly one-
fifth part of the engine. In that case an injustice would
be; done to the first and second labourer, and an undue
preference would be shown to the fourth and fifth labourer,
if the value of the engine were divided equally amongst
them at the end of the fifth year, each receiving ,110.
For the former would have completed their task four and
three years respectively before they received payment,
while the last worker received his immediately on com-
pletion of his work. A fair division of the product of
their joint labour must take this difference of time into
account. At the assumed rate of preference the division,
therefore, ought to be :

First labourer
Second
Third
Fourth
Fifth

Total 550

On the other hand, it is impossible for each of these
labourers to get ji 10 immediately his task is done. For,
as has already been shown, the total payment made for the

150 DEMOCRACY VERSUS SOCIALISM PARTII

engine would in that case be ^605, or ^55 more than its
assumed value.

Let us, however, introduce a capitalist who will pay
for the engine in yearly instalments, and who is anxious
to pay its full value and to treat all the workmen equally.
Seeing that a just scale of division between the workmen,
in his absence, will yield to the last workman ^100 on
completion of his share of the work, the capitalist will
treat him with absolute fairness by paying him this amount.
Inasmuch, however, as the other workmen have contributed
no more skill and exertion to the completed engine than
this one, they cannot be entitled to a larger payment for
the result of their labour on the completion of their task
than the last workman is entitled to on the completion of
his task. Therefore, each of the other workmen is also
entitled to no more and no less than jioo at the end of
his task. In this way not only equality of treatment for
each, but absolute fairness to all is preserved. For
inasmuch as the several payments are made at different
periods before the completion of the engine, each payment
of 100 stands in a different relation of value to that of
the completed engine, and represents, at the completion
of the engine, the same value which would have accrued to
each workman from a just division if no employer had
interfered ; as under. Beginning this time with the last
labourer, we find :

Labourer 5 = I oo . . =100

4 = I oo at 5 % for i year

3= 100 5% 2 years

2 = 100 5% 3

i = 100 5 % 4

= 105

= no

= 115

= 120

Total 550

The capitalist, by paying to each labourer 100, there-
fore, takes nothing from any one of them to which he is
entitled. What the former gains is the increment in value
which accrues to the engine in its growth towards maturity,
and which would have been gained by some only of the
labourers, not as labourers, but as capitalists, had they
been capitalists as well. The capitalist is entitled to this

CHAP, x THE WAGES OF LABOUR 151

increment because he exchanges goods of present utility for
something which will acquire utility at some future date.

This function of the employer the fact that, apart
from organising and directing labour, he is a lender ; that,
as such, he purchases from the labourers employed by him
as well as from those who produced the implements and
materials used by the former, a greater quantity of goods
of present low value with a smaller quantity of goods of
present high value is generally overlooked. Yet it is this
function which entitles him to receive interest. With
goods capable of satisfying present wants, he purchases
goods which can only satisfy future wants, through the ap-
plication of more labour. He waits till the product of labour
ripens into full value, and in the meantime gives to labour,
under natural conditions, the full present value of its pro-
duct, in goods which have already ripened into usefulness.
As labour in the present cannot be entitled to more than
the present value of its product to more than it can
obtain in the absence of any employer natural interest
is no deduction from the legitimate wages of labour, be-
cause it forms no part of the product of labour.

What, then, are the factors which, under the existing
co-operative system of production, regulate the individual
wages of labour under these just conditions, when, monopolies
being abolished, natural rent goes to the community, and
natural interest to the owner of capital. In Part II.
chapter iii. it has been shown that lengthier processes of
production yield increased returns. Against this ad-
vantage must be placed the disadvantage of increased
interest-charge. The advantage may be equal or greater
than the disadvantage, but it is reasonable to suppose that
if it were less, the lengthier process would not be adopted.
Take now a tradesman who is in a position either to enter
upon a four years' process by himself or on a two years'
process if he engages another workman to assist him.
Let the product of their joint labour possess a value of
416 at the end of the two years' process, or equal to an
average wage of 405. per man and week, while that avail-
able at the end of the four years' process by one man is
520, or an average of 505, per week. If the employer

152 DEMOCRACY VERSUS SOCIALISM PARTII

now pay to the workmen, on the termination of the two
years' process, one - half of the product of their joint
labour, each of these two workers will receive ^208.

If, however, this tradesman works by himself in a four
years' process, he will, at its termination, become possessed
of 520, which divided by two would be equal to 260
at the end of a two years' process. For each of these two
periods of two years the employer would thus receive 52
more than if he had engaged an assistant and had paid
him the full product of his labour. It, therefore, would
be more to his advantage to work by himself on the
longer process, and this, therefore, he would undoubtedly
do, unless some worker were willing to accept as much
less than the full product of his labour as would yield the
same advantage to the employer.

This example shows that, even under absolutely just
and natural conditions, employers can secure for them-
selves not only interest, but also all the advantages which
result from the extension of processes. The power to do
the latter, however, does not, under such natural condi-
tions, come to the employer as an employer, but as a
workman, for, as will have been seen, it arises from his
ability to employ all his capital by his own labour. The
capitalist-employer cannot so employ his capital. In the
absence of monopolies he cannot obtain any income from
the bulk of his capital unless it is employed productively
by other men's labour. This fact profoundly influences
the relation between capitalist-employers and labour under
natural conditions. For under such natural conditions,
land being free, large numbers of labourers could employ
themselves if the conditions of capitalist-employment did
not suit them. They, therefore, would not agree to enter
the service of an employer unless they could earn at least
as much as if they employed themselves.

Suppose, then, that a good proportion of workmen
possess sufficient means to employ their own labour in a
two years' process, yielding at the end of that period an
average return of 403. a week ; that more labourers
possess enough for one year's process, yielding on its com-
pletion 255. a week ; while the. remaining workers can only

CHAP, x THE WAGES OF LABOUR 153

employ themselves in shorter processes, yielding say 1 2s. 6d.
a week, or cannot employ themselves at all. Suppose also
that capitalist processes vary in length, but average six
years, yielding an ultimate product averaging 555. per
week and workman. What would be the rate of wages
under these conditions?

The employers, unable to obtain sufficient labour
otherwise, would be compelled to induce some of those
who can independently earn an ultimate wage of 405. per
week to enter their employment. These men, however,
could not be induced to do so, unless at least the equi-
valent of that amount were assured to them. The lowest
rate which they could be induced to accept would, there-
fore, be, say 383. 6d., payable at the end of each week,
this being equal to 403. a week payable at the end of two
years. This is the minimum which they will accept. In-
asmuch, however, as all other workmen, who are earning
less than these, are also required by the employers, all
these would and could insist upon receiving the same rate
of wages, and this rate, therefore, would be the minimum
rate for all workmen.

On the other hand, the maximum rate which employers
could pay would be 483. 6d. payable weekly, as, this being
the equivalent of an average of 555. per week available at
the end of six years, they would otherwise pay more for
labour-products than their value at the end of each week.
Hence the average wages of labour under these conditions
could not fall below 385. 6d. per week, and could not rise
above 483. 6d. per week. Within these limits they would
be determined by the pressure of the stronger party, and
that party is labour. For labourers could employ them-
selves, while capitalists cannot themselves employ their
capital. If no agreement were arrived at, labourers could
earn an independent income, but capitalists could obtain
no income from their capital. Hence wages must rise
to the maximum 483. 6d., and every extension of pro-
cesses, every invention and every discovery, would enable
labour to enforce a further increase in its wages, absorbing
all the advantages of industrial progress and of a declining
rate of interest.

154 DEMOCRACY VERSUS SOCIALISM PARTII

What has here been demonstrated is :

1. That natural rent and natural interest are not de-
ductions from the produce of individual labour or from
the wages due to the individual labourer.

2. That under natural conditions, i.e. when State-
created monopolies are abolished, every labourer would be
assured of receiving from the capitalist-employer, as his
wages, the full product of his individual labour, and that,
in addition, he would possess an equal share with all others
in the produce of the common labour, the natural rent of
land.

When, however, the natural conditions, here pre-
supposed, are superseded by artificial conditions based on
private ownership of land, the position of labour is pro-
foundly altered.

The warping of the moral sense of the community
and the obscuration of true economic principles which arise
from the existence and toleration of the all-pervading
monopoly in land, give origin to other and secondary
monopolies. Some of these are merely land-monopolies
in disguise, such as franchises which allow the exclusive or
privileged use of city streets for industrial purposes, or
which give exclusive rights-of-way, as in railways. Others,
like protective monopolies and the resulting rings and
trusts, are not connected directly with land-monopoly, but
could never have been established if the economic know-
ledge of the people had not been obscured by its existence.
Many secondary monopolies, therefore, are part and parcel
of the monopoly of land, and all others are indirectly
promoted by it. Every monopoly exacts tribute from
the workers of the community in the shape of spurious
rent or spurious interest, which they pay either in their
capacity of producers or in that of consumers, or in both
these capacities.

Before entering upon the detailed demonstration of
the evil consequences of monopolies, it may not be
useless to point out, that it is a matter of indifference to
labourers in which of these ways their wages are curtailed.
Whether money-wages fall from 403. to 305. a week, i.e..
25 per cent, or whether the price of all the things which

CHAP, x THE WAGES OF LABOUR 155

the labourers buy with their wages experience an average
rise to the same extent, has exactly the same consequences
for them. Similarly, a fall in prices has the same influence
on their wellbeing as an equivalent rise in wages. For
the real wages of labour do not consist of the stamped and
lettered pieces of metal or paper which the labourer receives
at the end of a week, a fortnight, or a month. They
consist of the sum of goods and services which his wages
can procure for him. Real wages, therefore, increase, and
increase largely without any rise in money- wages, if prices
fall ; and, similarly, real wages fall, without any reduction
of money-wages, if prices rise. All monopoly -prices,
therefore, involve a real reduction of wages.

Similarly, the social possession of natural rent may
enormously benefit the workers, apart from any consequent
rise of wages, if its use for social purposes relieves them
of existing taxation on the goods which they buy, and
brings within their reach satisfactions which they do not
now enjoy.

In Part II. chapter viii. it has been shown that private
ownership of land affects labour directly in three ways :

1. By absorbing their equal share in the social wealth
represented by natural rent, and thus compelling taxation
which directly reduces wages by increasing the prices of
the necessaries and comforts of life.

2. That, by lowering the margin of production, it
lowers the aggregate labour-result of the community.

3. That this artificial lowering of the margin of pro-
duction produces a spurious rent, which constitutes a
direct deduction from the wages of individual labour.

Far-reaching as these direct influences of land-monopoly
are, they are rivalled in importance by its indirect influ-
ence. Under natural conditions, when the land is not
monopolised, labourers can employ themselves. As has
already been shown, the advantage in bargaining with the
capitalist-employer then rests with the labourers.

The importance of this factor is fully illustrated in
new countries. In such countries capital is scarce, trans-
port difficult, and owing to scarcity of population, the
division of labour incomplete. The produce of labour,

156 DEMOCRACY VERSUS SOCIALISM PART n

therefore, is on the average far less per labourer in new
countries than in older countries. Nevertheless the wages
of labour are on an average higher, and generally much
higher. The reason is, that the low price of land and
the easy conditions on which it can be obtained, enable so
large a proportion of the existing labour -force to dis-
pense with employers and to produce on their own
account, that capitalist-employers must bid high for labour.

Where, however, all the land, or all the more produc-
tive land, has passed into private ownership, there may be
any amount of unused or only partly used land, yet labour
cannot obtain any of it except on conditions with which
but few labourers can comply. Hence their power of
employing themselves is gone, they are placed at the
mercy of employers, and must accept lower wages than
they otherwise would consent to. Not only the landlord
is now cutting into the legitimate wages of labour, not
only is interest unnecessarily high, but the privileged
employer also is able to appropriate part of the legiti-
mate wages of labour. The latter now frequently gets
more than legitimate interest. Apart from any legal
monopoly which he may possess, and in addition to the
legitimate wages of superintendence, he now frequently
obtains a further increment.

This increment, which we may term profit, is itself of
a composite nature. It consists partly of exceptionally high
wages of superintendence, arising from partial monopoly
of the opportunities for acquiring the necessary qualifica-
tions ; partly of the advantages which arise from discoveries
and inventions equally applicable to all land ; partly of
the advantages which arise from the fact, that rent, advan-
cing through competition, frequently lags behind the pro-
gress in arts and sciences when the latter is continuous.
Where this is the case, some of the advantages even of
discoveries and inventions which are applicable to particular
land alone and which have been generally adopted, remain
for a time with the undertakers. All these would go to
labour were labour independent ; they go to the em-
ploying capitalist when the labourer's independence has
been destroyed.

CHAP, x THE WAGES OF LABOUR 157

Other monopolies, exercising their wage - lowering
influence upon labour directly in its capacity of consumer,
do so indirectly in labour's capacity of producer as well.
They enable the owners of the monopolies to raise the
price of the goods which they sell or of the services which
they render, over and above what these prices would be
under competitive conditions. The workers, paying these
higher prices, thus lose part of their wages. A given
amount of money-wages now buys less of services and
goods. But inasmuch as the vast majority of purchasers
(consumers) are workers for wages, this reduction in the
purchasing power of wages involves a large reduction in
production as well. Goods which cannot be consumed,
will not, in the long run, be produced. Therefore employ-
ment is largely curtailed, the already one-sided competition
of labourers for employment is increased, labour is placed
at a further disadvantage with regard to employers, and
a further fall in the rate of wages must ensue as an
indirect consequence of the rise in prices which monopoly
enforces.

Thus, whether labour is deprived of its natural wages
by a lowering of money-wages through the influence of
land-monopoly, or whether the deduction arises from an
increase of prices through the action of other monopolies,
the result is the same. In either case the vast majority
of the people are compelled to consume less than they
produce, and, unless an equivalent increase of consumption
takes place amongst the appropriating classes, an army of
unemployed men, an increase of the competition between
labourers for permission to work, a still further fall in
wages, and a general lowering of the condition of the
masses of the people is the inevitable result.

The counteracting tendency above alluded to, the
equivalent increase in the consumption of the rich, how-
ever, fails to arise. Primarily, the wealth which any man
obtains consists in goods, the produce of labour. This
holds good of millionaires and proletarians alike. The
tribute which a monopolist exacts from labour consists of
goods made by these labourers and of nothing else. If
the owners of these tribute-rights were willing and able

158 DEMOCRACY VERSUS SOCIALISM PARTII

themselves to consume the goods which they take from
labourers, the evils of monopoly would be much reduced.
It would still involve the injustice that the makers of
wealth are deprived of a large part of this wealth, but the
consequences of this injustice would be far less disastrous.
Unfortunately, however, the monopoly-owners will or can
consume these goods only to a limited extent. The less
wealthy among them want to become more wealthy, and
the wealthier ones are animated by the same impulse,
though they cannot possibly consume the whole of their
incomes, Both these sections, therefore, save a consider-
able part of their incomes, i.e. of the goods which they
claim from labour. There are, however, only two ways
in which wealth can be saved to a large extent and for
any length of time. One is, by the multiplication ol-
factories, railways, steamships, and other forms of pro-
duction-goods. Much of the wealth so saved is wasted,
but the larger part of it is usefully employed in extending
the roundabout process of production and consequently
increasing the product of labour. But this increase in the
product of labour is not accompanied by an adequate
increase in the consumptive power of labour, i.e. the wages
of the additional labourers employed still fall short, and
far short, of the value of the additional goods produced,
and, hence, there is an increase in the under-consumption
previously existing.

The only other way in which wealth can be saved to
its owners is through the creation of new monopolies or
the extension of existing ones. Here there is either no
additional production as when rent rises through lower-
ing the margin of production or a comparatively small
increase only. But there arises from this process a further
contraction of the consumptive power of labour. For
every such creation or extension of monopoly increases
the tribute which labour must pay to its owners, and,
therefore, reduces the wealth which it otherwise could
retain for its own consumption. Hence there must arise,
here also, an increase in the previously existing under-
consumption of goods.

It follows that periods must arise, from time to time,

CHAP, x THE WAGES OF LABOUR 159

when a further saving of goods becomes impossible, i.e.
when no additional capital can, for the time being, be
employed profitably in industry, and when, for the time
being, no more monopolies can be created. What becomes
then of the vast amount of goods which the appropriators
will neither consume themselves nor permit labour to con-
sume ? They cannot be destroyed or in any other way
got rid of at once. Therefore their existence clogs the
wheels of industry ; further production must be curtailed
till they are consumed gradually. This is what is called
a commercial crisis : factories and workshops close ;
labourers must starve or live upon the scanty doles of
charity ; traders and manufacturers must go through the
Bankruptcy Court, until the gradual diminution of this
accumulation of goods once more allows the wheels of
industry to revolve and labour to be employed.

It is not here asserted that this under-consumption is
the only possible reason for commercial and industrial
crises. There have been crises which owed their origin
to the fact that more capital than could be spared for the
purpose had been invested in processes of long duration, to
the neglect of the more immediate wants of the community.
But such crises have been rare. The vast majority of
these disturbances are due to the cause here described, and
they are becoming more and more frequent. Nor can it
be otherwise. Every such crisis, in weeding out weaker
competitors, favours the concentration of wealth in fewer
and ever fewer hands. Every such increase of concen-
tration adds to the amount of wealth that will be saved
unnecessarily, by reducing the draft upon this wealth
through the consumption of its possessors and their con-
tribution to the revenue of the State, and must consequently
hasten the advent of the next crisis.

These convulsions, however, merely mark the culmina-
tion of forces constantly at work, just as earthquakes or
volcanic eruptions are the result of seismic forces constantly
active. For even during the interval between two crises,
even during those periods of feverish industrial activity
which now and then arise, much capital and many labourers
remain unemployed. The tendency towards under-con-

160 DEMOCRACY VERSUS SOCIALISM PARTII

sumption once established, imposes caution upon the
employers of labour. Only the more active and reliable
labourers are employed at any time, and every crisis adds
to the number of those no longer in the race. Simul-
taneously a number of workers are employed for part of
the working time only, and the increasing difficulty of
finding profitable investment for savings adds to the
number of both classes even in times of comparative
prosperity.

This, then, is the sequence of events. The creation of
legal monopoly-rights concentrates wealth in the hands of a
comparatively small class through the tribute which these
rights enable them to impose upon the wealth-makers ;
the consequent reduction in the consumptive power of the
majority of the people is not compensated for by either
the consumption or the savings of the appropriating classes ;
hence arises under-consumption, scarcity of employment,
the rise of an ever-increasing unemployed class, and those
recurring industrial convulsions which we term commercial
crises. To the creation of legal privileges, especially to
the privilege of private ownership of the only source of
wealth, the land upon and from which all men must live,
must, therefore, be traced the industrial and social injustice
which disfigures our civilisation, and not, as Socialism posits,
to the private ownership of real capital and the private
conduct of non-privileged industries.

CHAPTER XI

THE COMPONENT PARTS OF SURPLUS-VALUE

THE foregoing examinations prove, that surplus-value is
not a homogeneous body, as Socialism posits, but a com-
pound of several elements, differing widely in character,
viz. :

Natural Rent, the result of the extension of labour in
space.

Natural Interest, the result of the extension of labour
in time.

Spurious Rent, arising from the creation by the State of
private ownership in land.

Spurious Interest, arising from the creation by the State
of other monopoly-rights.

Profit, a secondary result, arising from the creation by
the State of land and other monopolies.

In their origin, these five integral parts of surplus-
value fall thus into two categories, viz. those arising from
natural law, and those arising from the corporate action
of human society. In their influence upon society and
the distribution of wealth, however, they fall into three
classes, viz. :

Natural Rent, as being no part of the product of
individual labour, and, therefore, forming no deduction
from individual wages, but being part of the common
labour and wages of the whole community.

Natural Interest, as being no part of either individual
labour or of that of the community as a whole, but a
natural increment which the capitalist acquires only in so
far as he renders services by exchanging goods of present

162 DEMOCRACY VERSUS SOCIALISM PARTII

high utility for goods which will acquire such utility at a
future date.

Spurious Rent, Spurious Interest, and Profit, being part
of the product of individual labour and deducted from
the wages of labour without any service being rendered in
return.

Arising from natural law, natural rent and natural
interest never can become the property of individual
labourers as labourers. Natural rent must always go to
the owner of land, and natural interest to the owners of
capital. No action which human societies may take can
alter the immutable laws of nature. All that human
enactments can do, is to change the ownership of land
and capital, so that rent and interest may be reaped by
the new owner or owners. When, therefore, Socialists
demand the abolition of rent and interest, they demand an
impossibility. The adoption of their industrial programme
to its fullest extent, the ownership of all land and capital
and the conduct of all industrial operations by the State,
would utterly fail to abolish rent and interest ; all it could
do would be to change the incidence of ownership in rent
and interest.

The rent of all agricultural and mineral land, as well as
that of factory sites, would pass into the hands of the State
by virtue of their being used as well as owned by the State ;
but unless the State continued to charge rent for the more
desirable residential areas, such rent would still be received
by those private persons who were permitted to use them,
in the advantage which they would enjoy over others.

Interest would similarly continue to arise, and if the
State did not itsejf absorb it in some way for the equal
benefit of all which will be shown to be impossible it
would pass into the hands of some of the people only, those
engaged in the primary stages of every productive process.
Moreover, while the latter method would eventually result
in a reduction of the wealth which could be distributed to
and consumed by the mass of the people, the former, the
charging of interest by the State, even if it could be done,
would not necessarily lead to any increase of wealth avail-
able for the consumption of the whole people. For with

CH. xi COMPONENTS OF SURPLUS-VALUE 163

growth of population arises the necessity for a continuous
increase in the amount of capital. This increase is at
present provided mainly out of that part of the annual
product of industry which constitutes surplus-value. If
the State becomes the only capitalist, the annual increase
of capital will have to be provided for out of the annual
product of industry just the same, and may, not unlikely,
be equal to the sum of natural interest now going to the
owners of private capital. Even, therefore, if the total
product of the national industry were not diminished by
the substitution of State officials for private organisers of
industry, the deduction of new capital from this product
would leave no more, or little more, available for general
consumption in the most favourable but impossible case,
the reaping of interest by the State. When, however, the
State leaves interest in the hands of some of the people,
and at the same time prevents them from using it as
capital, which under Socialism is the only alternative, the
deduction of a further amount from the product of industry
for providing the necessary new capital must by so much
reduce the amount of wealth available for distribution and
consumption, and must, therefore, largely reduce the well-
being of all labourers engaged in the final processes of
production.

It has been shown that the landowner, receiving rent
for the use of opportunities which are available without
his existence, and to the creation of which he has either not
contributed at all or only as much, when a labourer, as
every other labourer, has not rendered and does not
render any service for the wealth which he is allowed to
appropriate. On the other hand, it has been made equally
clear that the capitalist, as capitalist, and apart from any
services which he may render in the actual organisation of
industry, receives natural interest for services which he
renders, and which are of the utmost importance. In
subsequent chapters it will be shown that such service
cannot be rendered by State officials with similar efficiency,
if at all. Apart from this question, however, seeing that
such services are rendered, the enjoyment of the reward by
those who render them fundamentally differentiates natural

164 DEMOCRACY VERSUS SOCIALISM PARTII

interest from natural rent. The possession of the latter
by private persons, its withdrawal from the common posses-
sion of the social body as a whole, constitutes a series of
ever-recurring and increasing acts of injustice to the mass
of the people. The enjoyment of natural interest by
private persons withdraws it from no one who has any title
to it, and therefore inflicts no injustice.

Moreover, while it has been shown that the private
possession of capital and interest inflicts no injury on the
social body, it has been equally shown that the private
ownership of land and the private possession of rent, as
well as that of other monopoly rights and tributes, does
inflict such further injury by the augmentation of surplus-
value through deductions from the wages of individual
labourers, viz. Spurious Rent, Spurious Interest, and Profit.
All these have been shown to arise, not from private
ownership of capital and the private conduct of non-
privileged industries, but from the creation by the State
of private ownership in land and other monopoly-rights ;
and, further, it has been shown that, while rent increases
with the progress of society, the rate of interest declines as
social conditions are improved.

For all these reasons a sharp distinction must be drawn
between these two kinds of property, their social influence
and ethical validity. While private property in one is
wholly justified, not injurious, and may be of incalculable
value to the wellbeing of society, private property in the
other is wholly unjustifiable, injurious in itself, and pro-
ductive of vast secondary injuries. On economic grounds,
those mainly considered in the foregoing examinations,
therefore, the appropriation by the State of rent which,
as will be shown, carries with it the abolition of private
ownership of land, but not that of its private possession
and use and of those industries which cannot be carried
on by private persons without the grant of special privi-
leges by the State, as well as the abolition of all other
monopoly-rights, is urgently called for by the vital in-
terests of society ; while, on the same ground, the appro-
priation of capital and interest by the State, and the State
conduct of non-privileged industries, is wholly indefensible.

CH. xi COMPONENTS OF SURPLUS-VALUE 165

That ethical considerations lead to the same conclusions
will be more fully shown in the succeeding division of this
work, Part III.

The economic conceptions, which serve as the scientific
basis for the industrial proposals of Socialism, are, therefore,
shown to be unscientific and untenable. Distinctions
which are of vital importance are disregarded ; accidental
similarities are mistaken for proof of congruity ; things
essentially different are treated as of the same kind, and, as
a consequence, the cause of existing economic evils is sought
for in a false direction. The defects from which these con-
ceptions suffer and which invalidate them are :

1. Drawing no distinction between real capital, the
produce of labour from land, and mere monopoly-rights,
the creation of legislative enactments.

2. Regarding surplus-value as a homogeneous mass,
consisting wholly of tribute levied from the product of
labour.

3. Regarding productive labour as the only title to
the possession of wealth, thus disregarding the fact that
the voluntary transfer of wealth by its producer for service
rendered gives a valid title to him who has rendered the
service.

4. Regarding all capital as the result of theft, and
attributing the power to exploit labour to the private pos-
session of capital.

5. Regarding the present pathological condition of
competition as its physiological condition, a conception the
erroneous nature of which will be further demonstrated in
the next chapter.

CHAPTER XII

COMPETITION

IN former chapters it has been shown that the socialist
contention of the failure of competition, the assertion that
the inherent tendency of free industry is towards the dis-
placement of competition by monopoly in so far as
employers are concerned, is a delusion. It has been
proved that nearly every kind of monopoly can be traced
to some form of legal restriction, to legislative interference
with the equal rights of all men, by the creation of special
privileges for some, i.e. to legal limitations of competition.

There remains, however, the further contention, that
industrial competition, qua competition, is the cause of the
exploitation and degradation of the labouring masses, a
contention which challenges an inquiry into the nature and
function of competition. No such inquiry has ever been
instituted by socialists, who content themselves with assert-
ing the inherent wickedness of the competitive process.
Yet such an inquiry alone can determine whether the evils
which to-day result from competition are due to competi-
tion as such, and are ineradicable, or whether they result
from some interference with competition, and can be
eradicated by the removal of such interference.

That competition is not an arbitrary human invention,
but an inherent necessity of life, is shown by the fact that
it secures the maintenance and evolution of life throughout
all nature. The welfare of any organism depends upon a
due proportion between its several structures and their
respective functions, and this due proportion is secured by
the competition of the several structures for nutriment.

CHAP, xii COMPETITION 167

Every structure receives a supply of blood in proportion
to its activities. If the performance of function is defec-
tive, the supply of blood which it receives falls off and the
structure deteriorates ; if the performance of function in-
creases, the supply of blood increases and the structure
develops. This competition of the several parts of an
organism for nutrition, therefore, secures that balance
between the relative powers of all its structures on which
depends the efficiency of the entire organism, as well as
that constant adjustment of structures some dwindling,
others growing by which the organism adjusts itself to
changes of conditions.

This principle of self-adjustment through competition
within each individual is paralleled by the principle which
enables a species as a whole to adjust itself to the condi-
tions under which the life of its members must be carried
on. For this adjustment likewise depends upon each
individual being supplied with food according to the
activities which it puts forth. Only if the individuals
whose structures and consequent activities are best fitted
to surrounding conditions receive larger benefits, and those
less fitted receive smaller benefits or suffer greater evils,
can there arise the survival of the offspring of the best
fitted, inheriting these parental traits by which the ultimate
adjustment of the whole species is secured. This adjust-
ment, therefore, depends upon a competition of individual
with individual, similar to the competition of structure
with structure within each individual, by which reward is
proportional to merit, leading to the ultimate extinction of
those least able to compete.

Likewise the evolution of lower types into higher
types is made possible only by due apportionment of
reward to merit through competition. Variations of
structures can become fixed only when they are service-
able, i.e. if they secure to their possessors a better chance
of obtaining food or safety, and, consequently, of leaving
offspring similarly varying from the original type. For
the better nutrition, prolonged life, and greater power of
propagation which come to the members of the more
highly evolved species, lead to the displacement of

1 68 DEMOCRACY VERSUS SOCIALISM PART n

similar species the structures and consequent faculties of
which are less adapted to their needs. Once more, there-
fore, competition, securing due reward to merit, subserves
the purpose of life, by causing the development and
securing the persistence of attributes, physical, mental,
and moral, which distinguish higher types from lower
types.

Throughout the industrial part of human society,
competition achieves a kindred apportionment of reward
to merit, securing kindred results. A vital difference,
however, must be pointed out. While merit in sub-
human species consists mainly of self-subserving activities
in the relation of unmated adults with each other, merit
in the industrial relations of men in the social state consists
solely in other-subserving activities. For the essence of
the social state is that voluntary co - operation which
results from the exchange of service for service ; and the
meritoriousness of any industrial act, therefore, is measured
by the amount of service which it affords to others.
Merit consisting in service, the reward of merit in the
social state, must, therefore, be proportioned to service
rendered. That any industrial agency industry, trade,
or profession flourishes or decays under the stress of
competition according to the degree in which it supplies
felt wants, i.e. renders services, needs no proof. What
needs to be proved here, because generally overlooked by
socialists, is, that under the stress of competition every
industrial agency is impelled to put forth the greatest
activity, i.e. render the greatest service in return for the
reward which it receives ; as also, that within each of these
agencies competition impels every individual to do the
same, and allots to each of them a reward equal to the
services which he renders.

Two kinds of industrial competition are conceivable.
One is that in which the number of prizes is smaller than
the number of competitors, and where, therefore, some com-
petitors cannot obtain any prize. In the other, the number
of prizes is equal to the number of competitors, but the
prizes vary in value, and competition, therefore, merely
determines the value of the prize which shall fall to each

CHAP, xii COMPETITION 169

competitor. Both these forms of competition are in
existence.

Architectural competition furnishes an example of the
first kind. A public building is to be erected and a prize
is offered for the best plan. One architect only can gain
the prize, yet nothing but good results from this, the
most onerous kind of competition; for not only are all
the competitors stimulated to the exertion of their artistic
faculties, but the object for which the competition is
instituted, the best plan, cannot be attained with similar
certainty by any other method.

The second kind of competition, that in which com-
petition merely decides the value of the prize which shall
go to every one of the competitors, and in which no single
competitor need go without a prize, while obviously less
onerous, is of far greater importance. In order to fully
and clearly elucidate the principles which determine this
form of competition under natural conditions, it is
advisable to study its action as it operates on various
classes.

Every medical man is constantly competing with other
medical men as to which of them shall gain the con-
fidence of the greatest number of patients. He to whom
the greatest number give their confidence will be able to
charge the highest fees and to collect the most remunera-
tive practice. But the fact that the services of one
surgeon or physician are valued by the public at 10,000
a year, does not prevent other surgeons or physicians
from earning an income. The income of every medical
man is determined by the competition of doctors for
patients and patients for doctors, and is exactly equal to
the value which the public places upon the service which
each of them can render.

The community, however, wants the services of a
limited number of doctors only, and nobody can tell what
this number is. When disease is rife more doctors are
wanted than at times when the state of public health is
normal. Some doctors, therefore, may earn a decent
income sometimes, while at. other times they will fail to
do so, and these will be precisely those doctors on whose

1 70 DEMOCRACY VERSUS SOCIALISM PARTII

services the public places the least value. If there are,
however, more medical men than the public wants at any
time, those whose services are regarded as least valuable
never can make an adequate income as medical men.
These, therefore, will be compelled, sooner or later, to
devote their faculties to the rendering of some other
service which the community requires, and for which these
fit them better than for the practice of medicine.

What is true of medical men is equally true of all
professions in the absence of monopoly. In the long-run
every professional man will be paid in accordance with the
value which the community places on his services ; those
whose services are regarded as least valuable and are in
excess of public requirements will have to leave the
profession in which their services are not required, and
will enter on some occupation in which they are useful ;
the community is assured of always receiving the best pro-
fessional service which can be rendered ; and the mechanism
which assures these beneficial results results which could
not be obtained in any other way is competition.

If it be now objected that the judgment of the com-
munity is not always right, that among the professional men
whose services are accepted there may be some less fit than
some of those whose services are rejected, the objection
must be admitted to be true. That a human agency is
not perfect, however, will not cause it to be rejected by
reasonable men, unless a more perfect agency is available.
Which is the agency more perfect as a selector than the
estimate of the whole community ? If it is replied that
this more perfect agency is a governmental body, socialistic
or otherwise, the obvious answer is, that the units com-
posing this body must themselves be selected by the
community ; that if the judgment of the community is
unreliable when each man deals with what directly
concerns his own welfare, it must be infinitely more
unreliable when each man deals with what only indirectly
affects his own welfare, i.e. when all join in the selection
of the men who are to select all the professional and other
men who shall supply public wants. Competition, there-
fore, while not infallible, is yet far less fallible than any

CHAP, xii COMPETITION 171

socialistic substitute in the selection of the fittest men for
the services expected of them.

The principles set out above also guide the competition
of other classes. Take that of manufacturers, and as an
example that of manufacturers of boots. The one who
produces the best boots at the lowest price, i.e. who
renders his services against the smallest sacrifice on the
part of the community, will, in the long-run, have the
largest output, and will earn the biggest income. Un-
fortunately for the community, however, he cannot supply
all the boots required. Therefore other and inferior
manufacturers must be employed. These will earn in-
comes less than that which falls to the best manufacturer,
but which in every case correspond to the value which the
public places upon their services. If, however, there are
more boot -manufacturers than the community requires,
some must go without incomes, or must devote themselves
to some other occupation in which their services are
required. The men so weeded out will in the long-run
be the least capable manufacturers of boots. Here again
it is competition which secures to the community the best
service, and which transfers to useful occupations those men
who otherwise would lead lives useless to the community.

These considerations obviously apply with equal force
to all manufacturers, merchants, shopkeepers, farmers, and
other employers of labour. They, however, are no less
applicable to their employees, workers for salaries or
wages. As an example, boot-operatives may be selected.
The community wants each year a certain but varying
quantity of boots. Therefore a certain number of
employers set up boot-factories and want a certain number
of operatives to assist them in making boots. They offer
a certain wage to attract these operatives. Three cases
are possible under natural conditions. If the wages
offered are lower than those ruling in other industries
requiring similar skill, the number of operatives attracted
to the boot-factories will certainly be insufficient to supply
all the boots required. If equal wages are offered, the
number may still fall short of requirements. Higher
wages will attract a sufficient number.

172 DEMOCRACY VERSUS SOCIALISM PARTII

As long as the number of operatives is less than, or
just equal to, the requirements of the market, there will
be produced less than a sufficient or just a sufficient
quantity of boots, and the competition of buyers for
boots will be greater or equal to the competition of boot-
sellers with each other. In the former case prices will
rise, factories will be enlarged or increased in number,
more operatives will be required, and wages will rise. In
the other case prices will be stationary, and so will be the
demand for and the wages of boot-operatives. The only
competition which in both these eventualities can exist
among boot -operatives is, as to which of them shall
render greater services and earn higher wages than others,
but none of them need go without wages in the boot-
trade. Competition merely assures the result that reward
shall be commensurate with services rendered.

Suppose, however, that either through a miscalculation
as to the number of boot-operatives required, or through
the introduction of labour-saving apparatus, the number
of the former exceeds the requirements of the community.
In that case some operatives will be compelled to leave the
boot -trade and to enter upon some other occupation.
Who shall these be, the best or the worst bootmakers ?
The interest of the community manifestly requires that it
shall be the worst, those least fitted to make boots.
Competition again ensures this beneficent result. The
worst operatives will be unable to obtain further employ-
ment as bootmakers, and will, therefore, be compelled to
render some other service which the community wants and
for which they are better fitted than for bootmaking.

So far the examination of competition has not revealed
any evil results. This examination has, however, been
made under the assumption of a condition which does not
exist in the real life of to-day, viz. that all those who are
in excess of the number required in any trade or profession
will be able to find employment in some other occupation
for which they are better fitted. This they undoubtedly
could do, provided there were not enough labourers in
some other occupations. When, however, this condition
is absent, when the demand for labour generally falls short

CHAP, xii COMPETITION 173

of the number of men seeking employment, some men
will be unable to find employment anywhere, and the
conditions under which competition proceeds are thereby
profoundly altered. Observe, however, that it is not
competition which has caused this scarcity of employment,
but that, on the contrary, it is this scarcity of employment
which produces the alteration in the character of com-
petition which now must be investigated.

So far competition has been seen to produce these
results :

(#) To assure to the community the best services in
the satisfaction of its wants with the least sacrifice on its
part.

() To secure to every worker a reward commensurate
with the value which the community places on his services.

(<:) To weed out of every trade and profession the
men whose services therein are superfluous and least
valuable, and to transfer them to occupations where their
services are more valuable to the community.

If, however, no other occupation is open to the men
so weeded out, all this will be profoundly altered. For
in that case, instead of leaving the trade in which they are
superfluous, these men are compelled to underbid labourers
better fitted for the work than themselves. If, for in-
stance, the best worker in a trade is worth los. a day,
and the worst worker actually employed 8s. a day, em-
ployers will generally prefer the los. man, if these wages
are insisted upon. If, however, some unemployed man,
nearly equal in efficiency to the worst man actually
employed, offers to work for 6s. a day, the wages of
these other labourers must fall to, at the highest, 6s. 6d.
and 8s. 6d. respectively, or the inferior labourer will be
the cheapest worker. This competition of workers who
under existing conditions cannot be employed, now re-
duces the wages of all workers. But inasmuch as the
employment of labour is principally determined by the
consumption of that vast majority which labours for
wages, it follows, that every reduction in wages, reducing
consumptive power, must still further reduce the oppor-
tunities for the employment of labour. Competition has

174 DEMOCRACY VERSUS SOCIALISM PARTII

now ceased to be beneficial ; it now is a scourge which
flays the backs of the vast majority of mankind, and
which, unless it were counteracted by other tendencies,
would speedily reduce them to a state of abject poverty.

Yet, to regard this result as a cause ; to saddle com-
petition with the consequences which flow from scarcity
of employment ; to demand the abolition of competition
instead of demanding the abolition of the causes which,
by creating scarcity of employment, distort the action of
competition, is a manifest absurdity.

State-created monopoly, which has been shown to be
the cause of low wages and of consequent scarcity of
employment, is the dam which has been erected across the
stream of industry, the waters of which, directed by the
force of competition, would otherwise bring fulness and
plenty everywhere.

To rail at the failure of the distributive machinery to
fulfil its purpose, when that failure, unjust distribution, is
obviously due to interference with this machinery, is pure
childishness ; more childish still is it to prescribe further
interference as a remedy for the evils arising from existing
interferences. Abolish the dam of State interference with
men's equal rights, the special privileges accorded to some,
and competition, restored to its normal condition, will
distribute the fruits of industry to the door of every one
who takes part in it in proportion with the services which
he renders, and will raise the reward of each to the highest
point which the existing skill, knowledge, and industry of
mankind makes possible.

PART III
ETHICS

CHAPTER I

THE DENIAL OF NATURAL RIGHTS

THE fundamental ethical conceptions of Socialism we
found to be as follows : l

The denial of abstract or natural rights of individual
members of the State, and the consequential assertion that
all individual rights are granted by the State, which may,
therefore, alter or cancel existing rights or grant new
rights ; the sole consideration which ought to guide the
State in dealing with rights of individuals, being, " the
balance of social advantages."

The first and second of these propositions are clear cut
and need no further elucidation. It is, however, different
with the third proposition, for it is by no means clear
what is meant by " the balance of social advantages," or
how that balance is to be ascertained.

There can be no doubt as to the body to be entrusted
with the determination of the direction in which the
balance of social advantages lies. Socialism confides this
duty to the majority of adult individuals, for majority-
rule is one of its fundamental tenets. Nor is there any
doubt as to the manner in which the majority is to arrive
at its decision. The existence of natural rights being
denied, no general principle for the guidance of the
majority is available, nor can there be any limit to its
action. The question whether a particular measure, say
the legalisation of infanticide, will produce greater social
advantages than disadvantages, can, therefore, be decided
in no other way than by the process of estimating the

1 See Part I. chap. iv.

178 DEMOCRACY VERSUS SOCIALISM PART in

advantages or disadvantages, proximate and remote, which
may result from this particular act. If a majority, having
thus empirically investigated the question, has formed a
favourable opinion of the measure, it ought to be adopted.
The question of right or wrong cannot arise. For inas-
much as natural rights, such as the right of infants to life,
are denied, that only is right which the majority for the
time being has empirically adjudged to be socially advan-
tageous ; and wrong is only that which the majority for
the time being considers to be socially disadvantageous.

Coming now to the meaning of the proposition itself,
two ideas are obviously contained in it. One is, that
measures may be partly advantageous and partly disad-
vantageous to society, and that they ought to be adopted
if the foreseen advantages exceed the foreseen disadvan-
tages. The other is, that a majority of the people can
empirically determine all the sequences, proximate and
remote, of the enforced application of any proposal.

The question still remains in what direction lies the
advantage of society. Society itself is not a sentient being,
capable of feeling pleasure and pain. Sentiency, the
feelings of pleasure and pain, is confined to its constituent
parts, the sentient beings which compose it, individual
human beings. Hence, the welfare of society, considered
apart from that of the units which compose it, is not an
end to be sought. Society exists for the benefit of its
members, not the members for the benefit of society.
Society as such, therefore, can have no claims, except in
so far as they embody the claims of the component
members of society ; social advantage or disadvantage
has no meaning except in so far as the advantage or
disadvantage of its members, present and future, is con-
cerned.

The real meaning of the term, therefore, is, either
that the majority must guide each of its acts empirically
in the direction of securing advantages to the majority,
even if it thereby inflicts disadvantages on the minority ;
or in the direction of securing to all greater advantages
than disadvantages.

One more question, however, remains to be solved,

CH.I THE DENIAL OF NATURAL RIGHTS 179

viz. in what direction is the advantage or disadvantage of
the individuals constituting society to be sought ? Is it
in the direction of increasing the sum of misery ; or is it
in maintaining a state of indifference by an exact balance
of misery and happiness ; or is it in increasing the sum of
happiness, that social advantage is to be sought ? No
injustice will be done to socialists if it is concluded that
they consider social advantage to lie in increasing the sum
of happiness existing within the society, and social dis-
advantage to be equivalent to the increase of the sum of
unhappiness.

The statements here investigated, therefore, resolve
themselves into the following assumptions :

That it is the duty of the State, acting through a
majority of adult citizens, to secure the greatest possible
sum of general happiness.

That this greatest sum of general happiness can be
secured by empirical considerations of the sequences,
proximate and remote, of any governmental act.

That there exists no general law, deducible from the
nature of men and of their environment, by which the
influence of governmental acts on the sum of general
happiness can be measured.

Three methods of testing the validity of these postu-
lates are available. We may try to discover whether they
are really articles of socialistic belief, or whether socialists
merely endeavour to persuade themselves that they believe
in them ; and we may submit them to the test of deduc-
tion and induction. The present chapter will be devoted
to the first two of these examinations, while subsequent
chapters will deal with the third.

Men having no natural rights can have no natural
right to happiness. If men have no natural right to
happiness, it cannot be the duty of the State to secure
their happiness. The State may endeavour to do so as a
matter of grace ; but it cannot be bound to continue to
do so, and, if it thinks fit, may devote its acts to the
furtherance of their unhappiness. In assuming that it is
the duty of the State to further the happiness of its
members ; in laying down the doctrine that the acts of

i8o DEMOCRACY VERSUS SOCIALISM PART in

the State ought to be guided towards the increase of
happiness, socialists, therefore, admit a natural right to
happiness in the individual members of the State.

Likewise, if the right to individual happiness is assumed
to be not natural, but given by the State, the State can
withdraw not only the happiness, but also the right to it.
Having power to abolish the right to happiness, the State
cannot labour under the duty of securing happiness. The
right to happiness, therefore, cannot be given by the State,
and must be a natural right antecedent to the State. The ,
socialists' postulate, that it is the duty of the State to secure '
happiness, therefore, is contradictory of the other socialistic
postulate that there are no natural rights. It need not be
pointed out that the cogency of this reasoning is not
affected by the substitution of either misery or indifference
for happiness as the ultimate object of State action. As
long as it is postulated that the action of the State ought
to be guided by any principle, it is tacitly admitted that
there are individual natural rights ; for the obligation on
the part of the State can have no other origin than in the
possession of such rights by the individuals composing it,
as are not derived from and, therefore, cannot be abolished
by the State.

A further contradiction of the denial of natural rights
will be found in the claim for the rule of the- majority.
I Socialists passionately urge the right of the majority to
I impose its will on the minority in all common affairs.
This right of the majority cannot, however, be a right
granted by the State ; for if it exists, it must be ante-
cedent to the State, otherwise the State would be justified
in abolishing it. As a matter of fact, the right is not yet
fully recognised in any State in which Upper Houses, not
elected by a majority of the people, possess the right of
vetoing any legislative act, notably Great Britain and
Germany. In these countries, therefore, the right of the
majority to rule has not been granted by the State, and,
therefore, according to one socialistic doctrine, the people
of these countries do not possess the right to majority-
rule. As Socialism nevertheless claims that they possess
this right, it thereby admits that majority-rule is either ,

CH.I THE DENIAL OF NATURAL RIGHTS 181

itseJf a natural right or deducible from individual natural
rights.

The following reasoning will prove the latter con-
clusion to be the right one, the only possible basis being
the equal right of all individuals to happiness. For if the
acts of the State have any influence on individual happi-
ness, and if some men have a greater right to happiness
than others, a minority may possess a greater aggregate
right to happiness than a majority, and may, therefore,
possess a greater right to determine the conditions con-
ducive to general happiness than the majority. The
claim for majority-rule, therefore, implies the recognition
of equal individual rights to happiness ; therefore it
implies the recognition of individual natural right to
happiness, and contradicts the denial of natural rights and
the assumption that all rights are derived from the State.

This self-contradiction by socialists is still more
apparent in the following case. Justice consists of re-i
specting valid claims, and injustice of the infraction of!
valid claims, i.e. of rights. Only in so far as men are \
possessed of valid claims or rights can they be subject to
just or unjust treatment. If all rights are derived from /
the State, if there are no natural rights, injustice can arise
only from the infraction of rights granted by the State.
The State itself, therefore, can neither act justly nor un-
justly, either in granting rights previously denied, or
in cancelling rights previously granted, or in resisting
claims. For inasmuch as under this supposition there
is no rule by which the validity of any claim can be
gauged except the will of the State, it follows that no
claim can be valid which is denied by the State. When-
ever socialists, therefore, assert the injustice of existing
social conditions and institutions, they contradict their
v/own denial of natural rights. Yet, not only is this asser-
tion of existing social injustice the basis of all socialistic
theories, but it is also made in explicit terms. The follow-
ing instances might be supplemented by many others :

" A woman inherits from nature the same rights as a
man." l

1 Bebel, Woman, p. 122.

1 82 DEMOCRACY VERSUS SOCIALISM PART in

" We might define the final aim of Socialism to be an
equitable system of distributing the fruits of labour," l
implying that the existing system is inequitable, i.e. unjust.

" This then is the economic analysis which convicts
private property of being unjust." 2

" Of these three phases of human injustice " (chattel
slavery, feudalism, wage-slavery) " that of wage-slavery
will surely be the shortest." 3

Justifying murder as a means of resisting the legal
infliction of torture and death by Russian officials, it is
stated :

" It must be remembered that this is not a case of
Socialism v. anti-Socialism, but of the most elementary
rights of liberty and life." 4

" The phenomenon of economic rent has assumed
prodigious proportions in our great cities. The injustice
of its private appropriation is glaring, flagrant, almost
ridiculous." 5

These quotations, as well as the preceding examinations,
prove that socialists have not realised all that is involved
in the denial of natural rights, and that their explicit
denial does not prevent them from reasoning as if no such
denial had been given.

It is a justifiable assumption to suppose that socialists
condemn murder and theft for other reasons than that
they have been forbidden by the State. Yet if there are

rno natural rights to life and property, murder and theft
would deserve reprobation only to the extent to which
they are forbidden by law and where they are so forbidden.
If the human race has passed through a stage of isolated
individualism, like that of some predatory animals, the
inherent badness of murder and theft would scarcely have
been recognised during such period. When, however, the
gregarious instinct awoke in man, the inherent badness of
such actions could not remain concealed. For not even
the least organised horde could remain together under
conditions in which unprovoked murder and theft were
not limited by sympathy, and without the sympathetic

1 Kirkup, An Inquiry into Socialism, p. 105. 2 Fabian Essays, p. 23.

3 Ibid. p. 121. 4 Bax, The Ethics of Socialism, p. 70. 5 Fabian Essays, p. 188.

CH.I THE DENIAL OF NATURAL RIGHTS 183

feeling of abhorrence there would not have arisen the
public opinion which reprobates such actions within the
horde. Weak as this sympathetic feeling may have been
at first, necessary as it may have been to support its action
by fear of retaliation, it is far different with civilised men.
For as man becomes habituated to the social state and
sympathy develops to a larger extent, murder and theft
are no longer reprobated because the law of the State
forbids such acts, but because they are in themselves
repulsive. The dictates of sympathy are then obeyed
without any thought of acts of parliaments or penitentiaries,
merely because the thought of the wrong inflicted upon
others inflicts suffering upon self. This recognition of a
wrong arising from the nature of the acts themselves and
not from their prohibition, obviously implies the recogni-
tion of corresponding rights, likewise not arising from the
prohibition, but from natural relations.

Though human societies differ widely from each other
in type and development, they nevertheless have certain
features in common. All of them recognise more or less
fully certain rights ; the right to life and property being
the most common. This is not only true of existing
societies, savage, barbarian, civilised, and cultured, but is
equally true of all past societies of which we possess
records. Even in such a society as the Fijian, where the
chiefs had acquired undisputed sway over the lives and
property of commoners ; where certain tribes regularly
furnished human victims for cannibal feasts ; where aged
parents were killed by their own sons as a matter of
course, life and property were safeguarded by strict
customs to which these infractions were recognised ex-
ceptions.

Moreover, these rights become more fully recognised
in the ratio in which the organisation of any society is
developed. The higher the type of the society, the more
extensive and intensive is the recognition of these rights.

The universal history of mankind, therefore, points to /
the conclusion that the recognition of human rights is /
advantageous to society, i.e. that it works good ; and
conversely, that the non-recognition of human rights is

1 84 DEMOCRACY VERSUS SOCIALISM PARTIII

disadvantageous, i.e. that it works harm. If this is ad-
mitted, it must be equally admitted that there exists a
1 causal relation between the acts of the State and their
( sequences, over which the State has no control. That this
is admitted by socialists is shown in the absolute certainty
with which they contend that the present policy of the
State works harm, and that its adoption of a specified
other policy will work good. Socialists, therefore, them-
selves contend that the results which flow from govern-
mental acts are not determined by chance, but that such
sequences form part of the universal and unalterable causal
relation between acts and their results. But if such causal
relations do exist, then the action of the State ought to be
guided by rules deduced from these unalterable causal
relations. To revert to an illustration previously used.
If the universal history of mankind proves murder to be
harmful, the question whether infanticide shall be per-
mitted cannot be usefully or safely decided by balancing
the advantages and disadvantages which at a particular
time seem to result from it in the opinion of one or more
persons, but ought to be decided by the universal rule.
The socialists' postulate that every action of the State,
even those affecting the most fundamental rights of its
members, ought to be guided by considerations of " the
balance of social advantages," ignores the authority and
, even the existence of such universally true rules of conduct.
^ It assumes that the social utility of every act is solely
recognisable by its expected results ; that there is no
possibility of knowing by deduction from fundamental
principles the acts which must be advantageous and the
acts which must be disadvantageous to the community. ^_
I Nevertheless, such causal relation as is seen throughout
nature is no less manifest in the relations of social life.)
Where justice is expensive or uncertain, or both, contracts
are broken lightly and frequently ; where violence goes
unpunished, disorders increase ; where taxation is uncertain
or unjustly apportioned, production is checked ; where
property is insecure, no more than the necessaries of life
will be produced ; where monopolies abound, wealth con-
centrates in the hands of a few.

CH.I THE DENIAL OF NATURAL RIGHTS 185

In these as in all other cases the results which flow
from acts do not depend upon the will of the State or of
the ruling majority, and are unalterable by them. The
State, therefore, cannot control the results of its acts ; these
results are inevitably determined by natural law. How
then can it be held that the acts of the State can confer
rights ? If the State by sanctioning murder could improve
the conditions under which social life is carried on ; if by
sanctioning theft and fraud it could increase the production
of wealth ; if by establishing private monopolies it could
promote an equitable distribution of wealth ; that is, if the
State could control the sequences of its acts, then the State
could also create rights. But when it is seen that these
sequences are beyond the control of the State ; that they
are inevitable consequences of natural law, on which State
law has no influence, and for the appreciation of which no
empirical generalisation is necessary, no such proposition
can be entertained. Rights are then seen to arise naturally,
i.e. from the inevitable connection between cause and result
which prevails throughout nature, and which imposes upon
man the recognition of these rights. These are then seen
to be natural rights, the denial of which, injuriously affect-
ing life, individual and social, decreases the sum of aggre-
gate happiness ; the recognition of which, beneficially affect-
ing life, increases the sum of aggregate happiness. And
it is further seen that though the natural social laws and
the natural individual rights thence resulting are as eternal
and unvarying as the physical laws of nature, their re-
cognition, depending upon the experience of the race as
embodied in its ethical perceptions, is a gradual process,
similar to the ever-widening recognition of the unchange-
able physical laws of nature. 1

1 " Hence there is really but one code of ethics and morals which has been and
always will be as fixed and unchangeable as the forces of nature. But if, nevertheless,
there have been temporary and local differences in ethical views, it is, first, because
knowledge of nature has not everywhere reached the same stage of advancement, and
men often yield to the grossest self-deception in respect of it ; secondly, because there
are whole spheres of human life, like the social sphere, which on account of meagre
knowledge are not considered natural, in which the sway of nature is not conjectured or
presupposed." Ludwig Gumplowicz, The Outlines of Sociology, pp. 176, 177.

CHAPTER II

HAPPINESS OR JUSTICE

EVERY structure of any organism and the corresponding
functions which these structures subserve bear some
relation to the needs of the organism. The evolution of
the structure proves the corresponding function to be an
adjustment of the organism to the conditions under which
its life must be carried on. The non-fulfilment, in normal
proportion, of any function, therefore, causes the organism
to fall short of the complete life which is possible to it.
If the discharge of any function is neglected, the structure
receives an insufficient supply of blood, which, if long
continued, causes atrophy ; the consequent loss of power
of the particular structure being accompanied by a
corresponding deterioration of the organism as a whole.
If the discharge of function is excessive, the increased
waste is at first made good by an increase of blood-supply
and corresponding hypertrophy of tissues. These com-
pensatory movements, however, being limited in extent,
further excess, leading to uncompensated waste, impairs the
efficiency of the structure and injuriously affects the entire
organism.

During the evolutionary process, pleasurable sensations
and emotions have, necessarily, become the concomitants
of the normal discharge of functions ; while painful
sensations and emotions have become the concomitants of
deficient or excessive discharges. For adjustment to
environment, subserved by the evolution of functional
structures, could not have been achieved by organisms
which habitually underwent painful sensations from normal

CHAP, ii HAPPINESS OR JUSTICE 187

discharge of functions, and pleasurable sensations from
their abnormal discharges. Likewise, organisms which
experienced no sensations from the discharge of functions,
normal or abnormal, could not have discharged their
functions as efficiently, and would, therefore, have been
less likely to survive than organisms whose discharge of
functions was regulated by corresponding sensations.

Every species, however, is subject to derangements of
these relations through changes in external conditions.
Normal discharge of particular functions, though pleasurable,
may under these new conditions lead to the destruction of
the species, while defective or excessive discharges, though
painful, may become necessary conditions of survival.
Such derangements are, however, temporary ; for unless
the normal relation is sooner or later re-established by such
modification of structures as will lead to corresponding
sensations being derived from the due or undue discharge
of functions, the species will cease to exist.

Mankind, no less than inferior creatures, is endowed
with this relation between sensations and emotions on the
one hand and the discharge of functions on the other. Nor
is mankind exempt from the disturbance of these relations
through changes in external conditions. On the contrary,
as the change of such conditions has been exceptionally
great and involved during the passage from savagery to
the civilised state, the relation between sensations and dis-
charge of functions has undergone exceptionally great
disturbances in the case of civilised man. That his adjust-
ment to the conditions of social life is not yet complete, is ;
shown by the, as yet, incomplete relation between his
sensations and the discharge of functions which the social
state imposes upon him. In many cases actions which
must be performed yield no pleasure, and actions which
must be avoided yield no pain. Nay, in some cases,
necessary acts actually cause pain and injurious acts cause
pleasure. But with the further progress of man's adapta-
tion to the social state these incongruities must diminish
as they have diminished during like progress in the past,
and with complete adaptation they must disappear.

The sum of pleasurable sensations and emotions which

i88 DEMOCRACY VERSUS SOCIALISM PART in

arise from the normal discharge of all functions constitutes

/ happiness. Or, in other words, happiness arises from the

\ due exercise of all the faculties. For the only happiness

* we know of arises from the satisfaction of desires both

self-regarding and other-regarding. Desire, however, is

but the need for some pleasurable sensation or emotion,

and pleasurable sensations and emotions are producible

only by the due exercise of some faculty. The satisfaction

of desire being thus dependent upon the due exercise of

some faculty, happiness, the satisfaction of all desires,

consists in the due exercise of all the faculties. The first

J requisite of happiness, therefore, is freedom to exercise all

'the faculties.

In the social state, however, the sphere within which
each can exercise his own faculties is limited by the spheres
within which others must exercise their faculties. If every
man is to realise the greatest possible happiness, mankind
must be so constituted that each of them finds due exercise
for all his faculties within his own sphere, without encroach-
ment on the spheres of others. This complete adjustment
to social conditions does not yet prevail, inasmuch as
occasionally painful sensations arise from limiting activities
to one's own sphere, and pleasurable sensations from en-
croaching on the sphere of others. It results from this
mal-adjustment, that men are not yet capable of the full
degree of happiness otherwise open to them. Nevertheless
*s it true that the greatest aggregate sum of happiness can
nly arise from a strict limitation of the activities of each
y the like activities of all others. For whenever pleasure
ccrues to one through encroachment on the spheres of others,
the resulting increase of happiness to the aggressor is less than
the corresponding decrease of happiness to those aggressed
upon. To their loss of positive pleasure, there is added
the pain arising from the feeling of injury. Not only is
the aggregate of present happiness thus reduced, but there
results also a decline of future happiness. For every such
encroachment disturbs and delays the further adjustment
of character to social conditions, upon which the attain-
ment of complete happiness depends. The fixed condition,
under which alone the greatest aggregate sum of happiness

CHAP, ii HAPPINESS OR JUSTICE 189

can be attained in the social state, therefore, is freedom of
each to exercise all his faculties, limited by the like freedom
of all others to exercise their faculties, i.e. justice, the
recognition of equal natural rights.

These considerations show that happiness is not some-
thing which the State can distribute among its members.
For no action of the State can endow every one of its
members with the appropriate organisation which makes
pleasurable sensations and emotions the concomitants of
necessary actions, and painful sensations and emotions the
concomitants of deleterious actions. Hence, any attempt
to distribute happiness would produce deleterious results in
various directions. By disturbing the balance between
sensations and actions it would prevent the necessary
further adjustment of men's organisation to the require-
ments of social life. As the notion of State distribution of
happiness necessarily implies the non-exercise of faculties
otherwise exercised by individual men in procuring their
own happiness, the happiness of each must be diminished
to the extent to which these faculties remain unexercised,
i.e. the attempted State distribution of happiness would
result in a diminution of the aggregate sum of happiness.
And further, as disuse of faculties tends to their deteriora-
tion and ultimate disappearance, State distribution of
happiness, if possible, would result in a diminution of
individual faculties, and, therefore, in a reduction of
individual capacity for happiness.

Moreover, the idea of the State distributing happiness
necessarily implies the further idea of proportionate distri-
bution. What then is the proportion of happiness to be
distributed to each ? If the answer is, that happiness is to
be distributed in equal parts, the impossibility of the
project is obvious. For nothing that the State can do can
procure the same happiness for the antagonistic as for the
sympathetic ; for the passive as for the active ; for the
lethargic as much as for the excitable temperament. If,
on the other hand, happiness is to be distributed unequally,
the question arises, By what rule is the distribution to be
guided ? Is it to be according to merit or to demerit ; or
are the distributers to form an exact estimate of the capacity

190 DEMOCRACY VERSUS SOCIALISM PART in

for happiness of each member of the State, and then to
apportion the available quantity of happiness accordingly ?
Whichever of these courses is chosen, the impossibility of
any distributers making even an approximately correct
apportionment is obvious.

There remains yet another difficulty. What is it that
is to be distributed ? Happiness cannot be cut up and
distributed in parts, nor can it be measured as cloth is
measured by the yard. What then is meant when the
claim is made that the State shall distribute happiness, as
it is made in the socialistic contention that the State ought
to be guided in its actions by nothing else than " the
balance of social advantages," i.e. the measure of happiness
which results from them. The only meaning which can
be imported into the proposition manifestly is, that the
State shall secure for its members the greatest means to
happiness.

Here again, however, it has to be recognised that no
possible distribution of the means to happiness can secure
the greatest sum of aggregate happiness. For if the dis-
tribution of means is to be made in equal parts, as Socialism
proposes, differences in age, sex, constitution, activity, and
mental organisation, would result in some receiving more
and some less than their greatest possible happiness re-
quires. As a consequence, there would be a loss of
aggregate happiness ; the sum of available means could
procure a greater sum of aggregate happiness if it were
distributed in some other way. If, on the other hand, it
were contemplated to distribute the means to happiness
unequally, the same impossibility of making the apportion-
ment conform, even approximately, to any rule which
may be adopted, is as manifest as it was found to be
when a like distribution of happiness itself was considered.
\ Seeing happiness itself cannot be apportioned ; seeing
(also that the distribution of equal means to happiness fails
/to secure the greatest possible aggregate sum of happiness,
/while no other distribution can be made ; it follows, once
more, that considerations of happiness or social advantage
offer no guidance to the State. The question, however,
still remains, How can the State secure the greatest sum of

CHAP, ii HAPPINESS OR JUSTICE 191

aggregate happiness ? Manifestly there remains but one
way : the State must secure to all the conditions under
which each may obtain for himself the greatest amount of
happiness, i.e. it must secure to all equal opportunities for
the exercise of their faculties. Each must have as full
freedom for the exercise of his faculties as is consistent
with the equal freedom of all others. Therefore, once
more we find, that not considerations of happiness, not
" the balance of social advantages," but justice, the recog-
nition of equal natural right, alone can guide the State so
as to secure the greatest aggregate sum of happiness to its
members.

The same conclusion will be found to be inevitable
when the question is approached in another way. Men
have different standards of happiness ; not only men differ-
ing in race, not only men differing in degree of civilisa-
tion, not only men of the same race and civilisation,
but even the same men at different periods of their lives.
The qualities of external things as apprehended by us are
relative to our own organism, and, therefore, the feelings
of pleasure and pain which we associate with such qualities
are also relative to our own organism. This is true in a
double sense, for these qualities of external things are
relative to the structures, as well as to the state of the
structures of our organisms. Not only, therefore, is it
true that "what is one man's meat is another man's
poison/' but also, that what is pleasurable at one time is
painful at another to the same individual. The painful-
ness of exercise, otherwise pleasurable, when the body is
in a state of exhaustion ; the distaste for food, after a
hearty meal, which would be keenly relished when hungry ;
the agreeableness of a cold bath in summer, which in
winter is shrunk from ; as well as the pleasure derived
from a fire in winter, which in summer is oppressive, are
but simple examples of this general relativity of pains and
pleasures to structural states. i

All these circumstances render it exceedingly difficult /
for any individual to estimate the conduct which will
ensure the greatest happiness of himself and of the mem-
bers of his immediate family. Individuals, therefore, more

192 DEMOCRACY VERSUS SOCIALISM PARTIII

and more, allow their conduct to be guided by ethical
considerations, in the sure expectation that conduct so
regulated is more conducive to happiness than conduct
aiming directly at happiness. This difficulty of the
individual, however, is infinitesimal compared with that
of a governmental agency undertaking to determine the
actions which will ensure the happiness of all the members
of the State and of their descendants. Even when the
latter element is disregarded though it is obvious that
the happiness of future generations is largely affected by
present actions of the State even when the happiness of
living men and women alone is considered, the difficulties
are insuperable.

For the organisation of every individual differs in
innumerable ways from that of all others and from that of
the persons composing the governing agency. Therefore
the kinds and degrees of actions which will ensure the
greatest happiness of which each of them is capable, differ
from those which will ensure the happiness of all the
others, inclusive of that of the regulators. Nevertheless
the latter must be guided by their own feelings in deter-
mining the kinds, degrees, and sequences of the countless
acts, the totality of which constitutes the happiness of
the innumerable persons, all differently constituted from
them and from each other, the happiness of whom they
endeavour to ensure.

While the difficulty of determining the conduct which
will conduce to the greatest aggregate sum of happiness is
thus insuperable, the like difficulty is seen to exist when
the agencies by which such conduct must be applied are
considered. For the object, individual happiness, and the
agencies by which it can be attained are simple when
compared with the infinite complexity of the object,
general happiness, and its requisite agencies. Aiming
directly at general happiness, the State would require
numerous subordinate agencies, each composed of a gradu-
ated body of numerous officials, most of them unknown
to and unseen by the ruling agency, and acting upon
millions of differently constituted individuals, equally un-
known to and unseen by the rulers. Not only would the

CHAP, ii HAPPINESS OR JUSTICE 193

conduct determined upon be coloured and deflected in its
passage through these various agencies in ways which could
not be foreseen, but its ultimate application would again
be determined by the character of officials and of each of
the individuals on whom it is enforced. Therefore, even
if it were admitted that the State could better determine
what is conducive to each individual's happiness than each
can for himself, it would yet be impossible for the State
so to shape its acts as to secure that happiness to each.

Therefore, it is again seen, that the only conduct by
which the State can procure the greatest aggregate sum
of happiness, is to secure to all its members equal oppor-
tunities for the achievement of their own happiness, i.e.
equal opportunities for the exercise of their faculties ; that
is, the State must be guided by no other consideration than
that of justice.

In further confirmation of this same conclusion, the
consideration may be cited, that justice is a more intelligible/
aim than happiness. For justice is a question of quanti-l
tative measurement. Whenever an infraction of justice
occurs, as when, in a case of individual theft or of that
general theft which arises from monopoly, a benefit is
taken while no equivalent benefit is given ; or when, as
in breaches of contract, obligations discharged by one side
are not discharged or not fully discharged by the other ;
or when in the case of violence one assumes a greater
freedom than the other ; or when the State itself confers
privileges upon some of its members which cannot be
equally conferred upon all, the injustice always consists
in the disturbance of an equality and can be measured
quantitatively.

When, however, the object aimed at is happiness, no
definite measure is available. Not only is the measure of
quantity indefinite, but, differing from justice, a quantita-
tive measure also is required and is equally indefinite. As
an end to be achieved, happiness is, therefore, infinitely
less definite and less intelligible than justice.

Finally, the theory of " the balance of social advan-
tages " implies the belief that the State can secure the
greatest sum of aggregate happiness by methods framed

194 DEMOCRACY VERSUS SOCIALISM PART in

directly for this purpose, and without inquiry into the
conditions from which happiness arises. If it be held
that there are no such conditions, one kind of action would
be as effective in securing happiness as any other kind of
action, and, therefore, no balancing of advantages could
be necessary or beneficial. If, on the contrary, it is
admitted that there are conditions on the compliance with
which happiness depends, then the first step toward happi-
ness must be to ascertain these conditions, while the remain-
ing steps required consist in compliance with the conditions
i ascertained. To admit this, therefore, equally condemns
/the balancing of advantages as a possible guidance, and
admits that not happiness itself, but compliance with
; the conditions which ensure happiness, must be the
immediate aim of the State, i.e. that justice must be its
guide.

Expediency, the guidance by expected proximate re-
sults, proverbially delusive when guiding individual conduct,
is thus seen to be still more delusive when guiding collective
conduct. The theory that there are no natural rights,
that as a consequence the State may usefully shape, and
ought to shape, its conduct by balancing expectations of
social advantage against expectations of social disadvantage,
is shown to be a shallow delusion. From whatever stand-
point the question is approached, there results the con-
viction, that, though there may be additional guidance for
individual conduct, there is only one clear, safe, and infal-
lible guide for collective conduct, the conduct of the State.
That guide is justice, the recognition of equal natural
rights inherent in every member of the State, and entitling
each to equal opportunities with all others for the achieve-
ment of his own happiness.

CHAPTER III

THE ORIGIN AND GROWTH OF LAW

ONE more proof must be given to show that human rights
are not derived from the State, but are inherent, the State
merely recognising their existence as a necessary condition
of its own existence and continuation. This proof is
furnished by the history of human law.

If rights are not natural, i.e. arising from the con-
ditions under which life must be carried on in the social
state ; if they are arbitrary gifts conferred on its members
by the State, they must be conferred through laws enacted
by the State. Even if it could be shown that in every
society, past and present, there existed a legal enactment
corresponding to each recognised right, which manifestly
is not the case even in our societies, the conclusion would
not be justified that the right emanated from the law ; that
it had no existence before the law granted it. For it is
obviously possible that the law, instead of creating new
rights, has merely recorded rights previously recognised,
for the purpose that fixed scales of punishment for the
infraction of such rights should ensure their more uniform
recognition. 1 But if it can be shown that till a com-
paratively late period the State made no laws, and that,

1 " The Common Law, which had its origin with the Judges, made the following
presumptions in all actions between the State and the subject : First, that all privileges, j
such as personal liberty, freedom of speech, liberty to trade, right of public meeting,!
were the property of the subject and not the gift of the State " (p. 10).

" Those charters of our liberties, Magna Charta, the Petition of Rights, and the Bill
of Rights, are merely declaratory of the existence of these rights. . . . Hence, to the State
British subjects owe none of the fundamental rights which some call natural " (p. 14).

Attach on Liberty, an address by Thomas J. Smyth, LL.B.j Dublin University Press,
1890.

196 DEMOCRACY VERSUS SOCIALISM PART in

nevertheless, human rights were recognised, nay, that such

I rights were recognised before there was any State and any

law of the State, then it is obvious that human rights are

I natural, i.e. that they antedate the State and are derived

otherwise than from the State.

The historical proofs that customs recognising rights to
life and property are antecedent to the formation of the
State, and that, till a comparatively late period, men failed
to entertain even the conception that laws could be made
by the State or any other human agency, have been
furnished by a host of modern writers. 1 The present
chapter, dealing for the sake of brevity with European
States only, is mainly founded on Professor Edward
Jenks' valuable and interesting work, Law and Politics in
the Middle Ages.

The first records of Teutonic law consist of the
compilations known as Leges Barbarorum of the sixth
century. Several of these codes contain an account of
their origin. Lex Salica, the code of the Franks, contains
a prologue which describes the collection of its enactments
by four chosen men (whose names and abodes are stated)
after lengthy discussions with presidents of local assemblies.
It also contains the following general observations on the
manner of their origin : " Custom is a long habit founded
upon manners ; it is founded upon antiquity, and an old
custom passes for law." 2

Lex Gundobada, the code of the Burgundians, describes
itself as a definition, and bears the seals of thirty -one
Counts as witnesses, and the oldest code of the Alemanni
is known as a Pactus or Agreement.

These codes, therefore, are not laws newly made and
imposed by some authority, but a collection of ancient
tribal customs. This view, now generally admitted, is
confirmed by the fact that they are not territorial laws,
but laws of peoples. They show us the provincials of
Gaul living under the Roman law, of which the conquerors
made no attempt to deprive them. The Salic law specially

1 " Thus the comparative study of law showed that rights arise historically in the
collective or 'folk mind.' " Ludwig Gumplowicz, The Outlines of Sociology, p. 91.

2 Alexander Sutherland, Origin and Growth of the Mcral Sense, volume ii.

CH. in ORIGIN AND GROWTH OF LAW 197

refers to "men who live under the Salic law"; and the
oldest part of Lex Ribuaria contains the following passage :
"A Frank, a Burgundian, an Alemann, or in whatever
nation he shall have dwelt, shall answer according to the
law of the place where he was born. And if he be
condemned, he shall bear the loss, not according to
Ribuarian law, but according to his own law." l

The time and circumstances which gave rise to these
compilations are also not without bearing on the question
of their character. Most of them are the outcome of the
Teutonic emigration to Gaul, and coincide in date with
the conquests of Charles Martel, Pepin the Short, and
Charles the Great.

The probable cause of their origin may, therefore, be
found in the inevitable conflict between the desire of the
conquerors to modify the laws of the conquered by the
introduction of some of their own customs, and the
resistance of the latter, as also in the necessity of reconcil-
ing conflicting practices and providing for new conditions.
Such conflicts and new conditions would make the precise
formulation of claims obligatory, and would thus naturally
lead to the compilation of the customs upon which the
latter were founded.

It is, therefore, an absolute certainty that these codes
are not a collection of new edicts, but a collection of old
tribal customs. The question, however, arises, How did
these customs come into being ? were they the conscious
invention of any governing authority, or the outcome of
an unconscious growth, corresponding with the growth of
the tribal society ? A short exposition of the organisation
of Teutonic tribal societies will establish the truth of the
latter conception, which, moreover, corresponds with the
wider truth, fully established, that all primitive customs
originate in the necessities of social life under the supposed
sanction or command of tribal deities.

At the beginning of our era the Teutonic peoples, as
described by Caesar and Tacitus, were living in clans.
The unit of the clan was the household, consisting not of
one family, but of a cluster of families, the males and

1 Law and Politics, p. 9.

198 DEMOCRACY VERSUS SOCIALISM PART in

unmarried females of which were descended from the
same ancestor. All the households constituting the clan
also are descended, or believe that they are descended,
from a common ultimate ancestor. Within the house-
hold the housefather, generally the eldest male in direct
descent, holds despotic sway, modified by ancient customs.
The other members and the common property of the
household are in his trust (mund\ and he alone speaks
and acts for them. Within the household every member
bears the responsibility for his individual acts, but to the
outside world the members of the household are jointly
responsible for the acts of each of its members. The
injury of one is the injury of all, as the wrong done by
one is considered a wrong done by all. The household
acts and is acted upon as a corporate whole.

In this limitation of the right of vengeance and
liability for revenge to the members of the household,
the blood-feud appears the first manifestation of public
law. Anterior to it, the murder or other injury of one
would be avenged by all who were interested in the
victim, upon all who were in any way connected with the
aggressor. General slaughter, destructive of the fighting
strength of the clan, was the result. In time there arose
the custom of limitation to the members of the households
to which both parties to the injury belonged, and this
same idea is subsequently extended to offences against
property. The area of revenge and re -revenge is thus
limited, and the consequences of feuds are made less
disastrous to the community.

Nevertheless, the responsibility of the household is
heavy ; for if one is injured and vengeance is taken,
the feud is carried on by the household of the original
aggressor as a sacred duty. Gradually the idea must have
arisen that some real advantage received by the household
in compensation for the loss or injury of one of its
members would lessen the responsibility of each household
and redound to the advantage of the clan. For the blood-
feud weakens both households and the clan, while com-
pensation enriches one of the households and prevents
further weakening of the clan. Thus cases arise where

CH. in ORIGIN AND GROWTH OF LAW 199

compensation is offered and accepted. At first no doubt
rare and applying to slight injuries only, these cases
gradually multiply and extend to graver offences, until
finally they harden into custom, and the payment of
blood-money or " wer " habitually takes the place of the
blood-feud. The housefathers, as elders of the clan, are
the repositories of its customs. They, therefore, decide
in each case what the compensation shall be, taking into
account the nature of the offence as well as the status of
the injured person. But there is no power to enforce their
finding. If either the plaintiff or defendant refuses to
acquiesce in their judgment the blood -feud takes its
course.

This is the stage of development at which Teutonic
customs had arrived when the Leges Barbarorum were
being compiled. They are principally concerned with
minute and careful regulations of the compensation to be
paid for offences. But they also make it quite clear that
compliance is voluntary, and that the clan has neither
executive nor legislative machinery.

These facts prove the tribal customs, embodied in the
Leges Barbarorum, to have grown and established them-
selves independent of any official authority. The imme-
diate successors of these compilations are the Capitularies
or royal and imperial edicts issued by the Karolingian
rulers and others. They mostly deal with comparatively
unimportant matters, and it is doubtful whether their
validity extended beyond the life of the ruler who issued
them. In some rare cases "capitula" became true additions
to the law of the time, but it must be remembered that
they were a foreign importation imbibed by the rulers
from the Roman law.

During the gradual decay of the Frank Empire a new
law grew up : the law of the fief or feudal law. The
feudal lord administered the law of the fief generally by
deputy; a law made by no legislator, but which during
these troublous times had arisen through the mutual needs
of the men of the fief and their lord. It is purely local,
for any dispute as to what is the law of a given fief is settled
by reference to the " greffe " or register of the court, and

200 DEMOCRACY VERSUS SOCIALISM PART m

if this is silent, the men of the fief are called together and
decide what the law is (enquete par tourbe). Certain
general principles, nevertheless, run through the customs
developed in each fief, and the right of appeal to overlords
tends to produce a certain uniformity. Still the general
truth is, that the court of each fief has its own home-made
law.

As the fief-law applied to men of the fief alone, other
laws had to evolve for men who were not of the fief, such
as priests and merchants. These laws also do not emanate
from the State.

The canon law originates in resolutions of general
councils of the Church and papal decretals, considered as
binding by the clergy, and which, supposed to embody
the divine will, harmonise with primitive conceptions of
the origin of custom and law. To these must be added
ecclesiastical capitularies, issued by the Karolingian and
other rulers, and similar regulations in which secular
authority endeavours to restrict or enforce ecclesiastical
claims.

In time, however, the Church emancipates itself even
from this slight interference of the secular power. The
forgeries of Isidorus Mercator are followed three centuries
later by the Decretum Gratiani, likewise a private work to
which full authority is accorded, and is completed by the
papal compilations beginning in the thirteenth century.
The canon law, the binding force of which was not dis-
puted, is thus, like the laws already considered, neither
made nor administered by the State.

It is similar with the law of merchants. The rise of
more settled conditions during the eleventh century, and,
still more, the Crusades, greatly stimulated commercial
intercourse, which had almost disappeared during the pre-
ceding period of anarchy. Neither the law of fiefs nor
the elder folk-law contained provisions applicable to larger
trade transactions. A new body of law had, therefore, to
be evolved, and was again evolved by those whom it con-
cerned. The usages of merchants gradually hardened into
principles of conduct having the force of law. Though
frequently at variance with the principles of local laws, the

CH. in ORIGIN AND GROWTH OF LAW 201

merchant-law was nevertheless universally acquiesced in
and administered by courts of the highest eminence, such
as those of the Hanseatic League and the Parloir aux
Bourgeois at Paris. This, then, is another body of laws,
having cosmopolitan validity like the canon law, which
arises independent of the State, and receives obedience
without any special sanction from the State.

The separate development of law in the three kingdoms
of England, France, and Germany, which have become
definitely established by the end of the tenth century, must
now be followed.

England under Saxon rule had remained largely un-
influenced by the events which moulded the fortunes of
the Continent. Such rudiments of the feudal system as
had established themselves had given rise to a similarly
rudimental state of feudal law. On the whole, however,
the old folk-laws held sway within their several areas.
This arrested development greatly facilitated the work of
legal unification to which the Norman kings devoted
themselves. In this endeavour they were largely aided
by the fact that England, as a conquered land, was a single
fief in the hands of the king. They succeeded in little
more than a century in creating a " common law" of the
realm, the law of the royal court.

This law, however, is by no means a collection of State
enactments ; it is the law of a court. At first the kings
send their ministers round the country to administer local
law in local courts, and to look after the financial and
administrative interests of the king. Gradually differen-
tiation takes place and is accompanied by greater coherence.
Before the end of the twelfth century there has evolved a
royal court with purely judicial attributes, making regular
visitations through the counties, but having its head-
quarters at the residence of the king. It devises regular
forms of procedure and keeps strict record of all the cases
which come before it. In their decisions the judges unify
and modify old folk-laws ; precedent is followed by pre-
cedent ; and by the end of Henry III.'s reign, the law
declared in the king's court has superseded local law and
has become the Common Law of England. No one gave

202 DEMOCRACY VERSUS SOCIALISM PART in

the judges power to declare law, or enacted that their
decisions should become the law of the realm. Neverthe-
less, it is the law of the realm, and all bend before its
authority.

Accompanying this spontaneous growth there is, how-
ever, another development which bears some likeness to
the conscious law-making of our time. England, owing
to the conquest, is the domain of the king ; all that he
has not expressly given away belongs to him. Hence he
gives charters in great numbers, which become part of the
general law. Further, as the lord of a domain, he may,
within certain customary limits, make rules for its manage-
ment, and as all England is a royal domain, the king
assumes this power over all England. Hence arise royal
assizes and ordinances, which come very near to modern
ideas of law.

There thus existed in Norman England various bodies
of law, severally declared by kings, judges, landowners,
custom, merchants, and ecclesiastics. Their unification
through the establishment of one law -declaring agency
would be a manifest advantage. This result flowed from
the Great Parliament, where, for the first time, the repre-
sentatives of the several sections of the people came
together in one body. It gave to England a far more
efficient law-declaring agency than any other which then
existed or for centuries arose in other Teutonic countries,
in spite of the fact that the canon law continued to be a
rival of the national law. But even Parliament was not
a law-making body at first. For two centuries it confined
itself to the enforcement of old customs, or of such new
customs as had met with general observance without its
sanction. Not till the time of the Reformation is the
modern idea of law, made by the State and imposed upon
its members, realised.

The development of English law in one other direc-
tion, that of equity, has yet to be mentioned. When, in
the thirteenth century, as already stated, Parliament had
become the sole law -declaring agency, it still refrained
from enacting new laws. Yet the rapid development of
industry urgently required new laws. Suitors, therefore,

CH. in ORIGIN AND GROWTH OF LAW 203

petitioned the Crown whenever the common law failed to
provide a remedy. When the matter was one for legis-
lative declaration, the king, acting through his council,
brought it before Parliament. When the matter was one
for the king's grace, he referred it to his chancellor, who,
as ecclesiastic and president of the king's chancery, could
pronounce on the remedy which conscience would dictate
in the absence of positive law. Gradually this practice
assumed regular shape. Records being kept, successive
chancellors follow the rules laid down by their predecessors,
and failing such, declare rules of their own, which guide
their successors. Thus the Court of Chancery also becomes
a law-declaring court, adding its own laws, based purely
on the perception of natural rights, to those declared by
Parliament.

The peculiar feature in the development of English
law, here briefly sketched, is, that in several directions it
anticipates analogous developments in continental countries
by many centuries. Earlier than elsewhere there arises a
true law of the realm, though other laws also have local or
sectional currency ; earlier also there arises a central law-
declaring agency, though other law-declaring bodies con-
tinue to exist. But and this is the fact which shatters
the contention that rights are created by the State the
law throughout grows and develops independent of the
State. It is the creation mostly of the men who must
obey it, and is mostly formulated by persons having no
authority from the State to do so. Even when at last a
parliament arises, possessing powers of legislation, it, for
a long time, abstains from making laws, confining itself
mainly to declarations of what the actual law is. Even
this power it shares with an unauthorised body. The laws
have been made, if they can be said to have been made, by
the common people, merchants, ecclesiastics, and lawyers,
and only to some slight extent by the king. Not a
majority but a consensus of public opinion has evolved
them, and it is this general consensus which has given
recognition to individual rights, and not the State.

The absence of State-law and the recognition of in-
dividual rights through laws arising from other sources is

204 DEMOCRACY VERSUS SOCIALISM PART in

a feature which stands out still more boldly in the legal
development of Germany and France. Down to the
sixteenth century there is in neither country any national
law, but a medley of feudal, local, municipal, and royal
law, besides the canon law and the law of merchants.

The feudal and local laws of Germany were compiled
for the first time in the thirteenth century by private
compilers. The German Mirror, the Saxon Mirror, the
Swabian Mirror, and the Little Kaiser's Law, are such
compilations, and were accepted as actual law in spite of
their private origin. Even when, a century later, official
compilations were made (Landrechte}, they were little more
than new editions of the Mirrors.

In the fifteenth century, however, a new development
takes place. Germany is invaded by the Roman law, and
German law ceases to develop on its own lines. The
Corpus Juris Civilis of Justinian, as expanded by Italian
commentators and glossarists, becomes the common law
of Germany. This usurpation, however, is in nowise the
work of the State. Once more it is the work of private
persons : teachers and writers at the universities, as well as
learned doctors practising at the various courts, declare
the law, and the people accept it.

The Roman law, however, did not displace local laws.
On the contrary, the latter remain supreme. It is only
when other sources fail that the Roman law is appealed to.
The German maxim is : " Town's law breaks land's law ;
land's law breaks common law." x

These town laws, again, though based on charter pri-
vileges and local customs, are the creation of local courts
(Schoeffen-Gerichte) and not of any legislative authority.

After the Reformation, however, royal legislation also
begins to play a part. The great feudatories of the
empire, having become independent potentates, aspire to
being law-givers as well. New spheres of legislation, such
as aliens, marine, literature, and others, fall exclusively
into their hands, and in many directions they modify local
laws. But their influence is far smaller than that of the
Parliament of England, for the issue of their laws did not

1 Jenks, Laiu and Politics, p. 53-

CH. in ORIGIN AND GROWTH OF LAW 205

interfere with the fullest obedience being paid to older
laws.

Legal development has been closely analogous in
France. Here also the first compilations of existing law
are made in the thirteenth century, such as the Tres ancien
Coutumier of Normandy, the Conseil for the Vermandois,
the Livre de Jostice et Plet for the Orleanais and others.
But, differing from the German practice, these text-books
are not regarded as actual law. This, in disputed cases,
is still ascertained by searches in the register of the court
of the district, or by an enquete par tourbe.

The first official attempt to ascertain what the laws are,
was made by the French kings in the fifteenth century.
Continued through four reigns (from Charles VII. to
Louis XII.) these researches resulted in the compilation
of the official Coutumiers. These show that each district
had its own laws, administered by its feudal seigneur, who
had right of pit and gallows, of toll and forfeiture. Of
national law not a trace can be found ; complete anarchy
prevails.

These Coutumiers, though they henceforth are
authoritative declarations of what the law is, are mere
compilations. No new laws enter into them. The sole
intention is to do away with the necessity for enquetes par
tourbe. Therefore, a final enquete par tourbe is held.
Representatives of every order and rank in the district are
called together ; these discuss and alter the compilation,
and finally declare it to be a true exposition of the ancient
customs of their district.

Other laws, however, co- exist with the Coutumiers.
In Southern France, the pays de droit ecrit^ a modification
of the Roman law, continues to prevail ; cities and towns
have each developed their own law through their local
courts, cours d'echevins; there is the law of merchants
and the canon law, and, finally, royal law also appears as
an important factor somewhat earlier than in Germany. As,
by conquest, province after province is added to the domain
of the Crown, royal ordinances are extended to them.
The new spheres of legislation also fall into the hands of the
king, who, from time to time, also succeeds in encroaching

206 DEMOCRACY VERSUS SOCIALISM PART in

on the domain of older laws. But, in the main, the condition
is the same as in Germany. Older laws remain intact, and
the royal laws mostly cover but a comparatively small area,
and cover that incompletely. The revolution at last makes
tabula rasa of this anarchic condition, imposes a national
law, and, for the first time in France, realises the modern
idea of uniform law made by the State.

This necessarily much abridged and hasty survey of
the evolution of modern law reveals the following facts :

Law, till comparatively recent times, is not made by
any legislative authority. Originating in customs, the
result of experience confirmed by the actual or supposed
commands of ancestors, its sole authority, for a long time,
is its antiquity or supposed antiquity. Even when, at last,
law is recorded and loses its previous flexibility, alterations
of previous law as well as new laws, required by social
necessities, are not imposed by the State. They develop
and grow, and when general approbation has been given to
them, they are finally declared by various authorities, the
last comer among which is the State. Finally, there arises
the questionable notion that the State can make laws
instead of merely declaring what the law is. It is clear,
therefore, that, during by far the greater part of our era,
the State made no laws, and that the human rights recog-
nised during this period and transmitted to the present
time were not and are not granted by the State or any other
governing authority, and that, therefore, they are natural
rights. Whatever test is applied to the socialistic view of
human rights, shows it to be erroneous, and, therefore, the
system which is based upon that view must be a false
system.

CHAPTER IV

NATURAL RIGHTS

THE purpose for which organised society exists being the
furtherance of the happiness of all the members of society
the only manner in which this purpose can be fulfilled
being the maintenance of the equal natural rights of all
the members of society, it follows that it is the duty of
organised society, the State, to secure to all the full
possession of their natural rights, i.e. to secure to each of
them the fullest opportunity for the exercise of all his
faculties, consistent with the equal opportunity of all others
for the exercise of their respective faculties. Not only
must there be no invasion of the sphere of any individual
by other individuals, but the State also must abstain from
any further limitation of the sphere within which each is
free to act than suffices to maintain the equal freedom
of all.

Which are the natural rights, which, placed beyond the
reach of any majority, cannot be limited or denied without
injustice and consequent loss of happiness ? To deal at
length with all of them would transcend the scope of
this inquiry. Neither Socialism nor any instructed In-
dividualism denies the right to free speech and publication,
free thought and worship ; the right of marriage or the
equal political rights of all adults of both sexes. Other
natural rights are either denied or at any rate not so fully
understood either in their extension or limitation, and
must here be dealt with. This will be done in the
following chapters.

CHAPTER V

THE ETHICS OF DISTRIBUTION

THE only means by which the State can assure the greatest
aggregate sum of happiness to its members we found to be
the observance of justice, i.e. securing to all equal oppor-
tunities for the exercise of their faculties. In order that
any one of them may exercise his faculties, he must satisfy
the primary necessity of life, nutrition. In order that all
may obtain food, some or all must exercise faculties in the
production of food. The question arises, to whom right-
fully belongs the food and other desirable things which
any member of a society has produced by the exercise of
his faculties ?

Socialism, as already shown, replies, that the wealth
produced by any and all the members of the State belongs
to the State. The reasons by which this view is supported
have been quoted verbatim. 1 Before dealing with them, our
independent inquiry into the ethics of the relations between
State and citizens must be carried a step further than has
so far been done.

From the sociological standpoint, ethics are a definite
account of the forms of conduct which are fitted to the
social state, i.e. which will enable each member to live the
fullest and longest life, while rearing a due number of off-
spring. Differing from mere aggregations of animals, and
even from those earliest human groups in which the purpose
of contiguity is mainly mutual defence against external
aggression, the social state implies effectual co-operation
in defence against external and internal aggression, as well

1 Part I. chap. v. p. 41.

CH. v THE ETHICS OF DISTRIBUTION 209

as in industrial activities. In the more highly developed
social state, this latter object, industrial co-operation, is
both more important and more continuous than defensive
co-operation. The prosperity of any society, therefore,
mainly depends on the extent to which the conditions for
effectual co-operation, and especially industrial co-opera-
tion, are fulfilled. If these conditions are observed to a
due extent, those individuals whose nature is most disposed
to effectual co-operation will, on an average, live longer
and leave greater progeny having similar tendencies.
The whole society, thus brought into an ever better
adaptation to the conditions of social life, will not only
experience the greatest sum of aggregate happiness, but
will also supplant other societies in which the conditions
for effectual co-operation are less favourable.

In order that the sentiments which make for social
conduct may develop, each member of the State must reap
more good than evil from social union. The loss from
internal aggression, individual and social, must be less than
the gain from industrial co-operation and from reduction
of external aggression. The increase of egotistic satis-
factions yielded by the social state is, therefore, obtainable
only by an altruism which, to some extent, recognises the
claims of others. Where this altruism is developed so
little that fear of retaliation is the only restraint, the gain
from social union is comparatively small. Not only are
aggressions frequent and extensive, causing great loss, but
the gains from co-operation are small, because co-operation
is limited in intensity and extensity by such aggressions.
The gain increases in both directions as this pro-altruistic
sentiment develops in the direction of the altruistic con-
ception of equal rights, i.e. as the recognition of the equal
rights of others becomes voluntary and general. It is
greatest where the conditions are such that each can satisfy
all his needs and rear a due number of offspring, not only
without hindering others, but while aiding them in doing
the like. What then is the conduct from which evolve
the sentiments producing this highest development of
social life ? The following exposition will furnish the
answer to this question.

210 DEMOCRACY VERSUS SOCIALISM PART in

The evolution of every species of higher animals is
dominated by two laws, one egotistic, the other altruistic.
The latter is, that during immaturity of the individual the
benefits which it receives must be inversely proportioned
to its capacity ; for the continuance of the species
depends upon a due number of offspring being reared.
During infancy the life of all young animals is dependent
not on their own efforts, but upon parental care. During
gestation the embryo derives its nutrition gratuitously
from the system of the mother. After birth, the greater
or less helplessness of the young animal requires the
gratuitous supply of food and defence against enemies by
either or both parents ; the rendering of these services
becoming less and less necessary as, with the approach of
maturity, the animal becomes better able to help itself.
Other things being equal, therefore, that species will
become most numerous and will supplant allied species
in which the parental sentiment, compelling services being
rendered inversely to the capacity of the offspring, is most
highly developed, and similarly, within the species, the
offspring of those possessing this sentiment to a higher
degree will supplant the offspring of others.

The human offspring is helpless and dependent for a
longer period than that of any other species, and the
parental sentiment and emotions are proportionately more
highly developed. In the higher races of men, the love
and protecting guardianship of the parents follow their
children even beyond the parental home, fostering the
growth of the allied emotions which cause children to
return the parental love and its gifts when in their turn
parents grow into advancing helplessness. The law, there-
fore, applies in every respect to the human species as well.
In early infancy the care bestowed must be incessant on
account of the absolute incapacity of the human baby. As
the child grows older, services previously rendered by
mother or nurse may now be assumed by the child itself ;
as the young men or women approach maturity and become
able, through the performance of services, to obtain their
own sustenance, the gratuitous provision of sustenance by
parents is curtailed and ultimately withdrawn. Here also,

CH.V THE ETHICS OF DISTRIBUTION 211

benefits conferred are inversely proportioned to capacity,
and those parents on an average will rear the greatest
number of similarly disposed children, in whom the senti-
ments which prompt to this parental sacrifice are strongest ;
and those societies will outnumber and displace others in
which these sentiments are most generally and strongly
developed. Those parents in whom the sentiments
prompting to sacrifices for the benefit of children are
weakest, will, other things being equal, rear the fewest
children ; their progeny, possessing similar natures, being
ultimately displaced by that of parents in whom the
parental emotions are more highly developed.

Self-sacrificing parental love is the first of the emotions
which prompt to altruistic acts. The sympathy which
it engenders, extending to wife, brothers, sisters, and
parents, widens into sympathy with the clan, the tribe,
and the nation, and blossoming at last into that general
feeling of beneficence which, counting all mankind
as kin, prompts generally to beneficent acts. This
social altruism, however, lacking certain elements of
parental altruism, never can attain the same intensity.
Yet that it may generally attain a high level ; that minister-
ing to others' happiness may become an indispensable con-
dition of .self - happiness ; and that the happiness thus
derived may be more intense and may be preferred to
happiness derived from egotistic acts, may be seen in ever-
multiplying instances of men and women who thus secure
their happiness. Such voluntary beneficence, however,
cannot be carried permanently to an undue extent. For
the more generally sympathetic being, on an average,
those in whom the parental emotions are also most highly
developed, will not tax their resources for the benefit of
others beyond the limit which allows a better bringing-up
being given to their own children than to those of others.

The other law is, that after maturity has been attained,
benefit must be proportioned to capacity ; capacity being
measured by fitness for the conditions of life. On no
other plan could the evolution of higher types of life from
lower types have taken place, than that among adults the
well-fitted shall profit by their fitness, and that the ill-

212 DEMOCRACY VERSUS SOCIALISM PART in

fitted shall suffer through their unfitness. To see the
absolute truth of this proposition, it needs but to imagine
a species in which benefits were proportioned to ineffici-
ency. In such case inferior would habitually survive
superior and leave a greater number of progeny of like
unfitness. A gradual retrogression would result, until
the species, becoming less and less adjusted to the con-
ditions under which the lives of its members must be
carried on, would be exposed to universal suffering, end-
ing in extinction.

When, on the other hand, the more efficient experience
the benefit of their efficiency, and the less efficient suffer
the penalty of their inefficiency, the progeny of the more
efficient, inheriting more or less of this better adaptation,
will gradually displace that of the less efficient. The
species as a whole will gradually become better adjusted
to the conditions under which the lives of its members
must be carried on, and an increase in the aggregate sum
of happiness must result, as well as the tendency to still
further change with changing conditions, on which depends
the evolution of higher types.

The survival of the fittest thus ensures that the
faculties of every species tend to adjust themselves to the
conditions under which the lives of its members must
be carried on. It must be the same with men ; with
faculties which are termed moral as well as with those
which are termed physical. From the earliest times,
societies composed of men whose feelings and conceptions
were congruous with the conditions to which they were
exposed, must, other things being equal, have multiplied
faster, and must have displaced those whose feelings and
conceptions were incongruous with their conditions. Con-
gruity, more or less, of individual nature to the conditions
of social life, therefore, is the essential condition of human
existence in the social state, and that society will experi-
ence the greatest aggregate sum of happiness and will
survive all others, the average nature of the members of
which is most congruous with the conditions of social life.
In order that this highest average congruity may result,
those whose nature is more congruous must, on an aver-

CH.V THE ETHICS OF DISTRIBUTION 213

age, survive those whose nature is less congruous, and the
former must rear a greater number of similarly adapted
children than the latter. In no other way can this gradual
adjustment and ultimate complete adaptation be achieved.
Not only the present, but still more the future happiness
of mankind, therefore, depends upon compliance with the
law, that every adult shall experience the consequences of
his own conduct ; that the more efficient shall reap the
advantage of their efficiency, and that the less efficient
shall suffer the disadvantages of their inefficiency.

The laws governing the distribution of wealth in the
social state, therefore, are, first, that all individuals shall
enjoy full and equal opportunities for the exercise of their
faculties in the production of wealth ; second, that each
of them shall possess all the wealth which the exercise of
his faculties may produce from such equal opportunity.
Not equality of wealth, as Socialism posits, but equality of
opportunity and inequality of resulting wealth is thus the
social condition which justice imposes.

The law here set forth may seem repulsive to persons
who, much affected by suffering which they actually
witness, are indifferent to all other suffering. Neverthe-
less does the highest altruism demand conformity of
general conduct with its dictates. Private beneficence
may advantageously smooth its hard edges ; may in many
ways soften the inevitable suffering of the inefficient, the
less efficient, as well as of the more efficient when
occasionally overtaken by misfortune. But a general
departure from the law would be unethical in the highest
sense. For a people which in its corporate capacity
abolishes the natural relation between efficiency and re-
ward could not possibly survive. Either it will expose
itself to the miseries and unhappiness of slow decay, or it
will be conquered and absorbed by a people which has not
undermined its efficiency by the policy of fostering the
survival of its inferior at the expense of that of its superior
members.

Suffering is the inevitable concomitant of man's as yet
imperfect adjustment to the social state, and the only
means by which a more perfect adjustment and consequent

2i 4 DEMOCRACY VERSUS SOCIALISM PART in

increase of happiness can be achieved. If mal-adjustment
were not productive of unhappiness, or if it produced
happiness, man's nature could not evolve into greater
congruity with the requirements of social life.

Moreover, incapacity causes unhappiness to the incap-
able, directly through overtaxing deficient faculties, and
indirectly through non-fulfilment of certain conditions of
welfare. Conversely, capacity brings corresponding happi-
ness to the capable, directly through easy and complete
performance of tasks, and indirectly through the fulfilment
of conditions necessary to welfare. Not only self-happi-
ness, but other-happiness as well, is furthered by capacity
and hindered by incapacity. The healthy, capable man,
overflowing with joyful energy, spreads happiness around
him through sympathy with his mental state. Finding
self-maintenance easy, he can still further add to others'
happiness by altruistic acts. The incapable man, on the
other hand, whose faculties are overtaxed and whose spirits
are depressed by non-success, becomes a source of depres-
sion to all around him, and is less capable of furthering
others' happiness by altruistic acts.

In the social state all members suffer from the in-
capacity and profit through the capacity of any of them.
Deficiency of labouring power, physical and mental,
results in a smaller aggregate of produce and in a conse-
quent reduction of the share available for each. Excep-
tional labouring power, especially mental power, on the
other hand, increases the aggregate produce, not only by
the additional production of the more capable, but by
increasing the productive power of less capable members
as well. Organisation, inventions, discoveries, are all the
work of the more capable, but add to the productive power
of many.

Other defects of some individuals similarly reduce the
productiveness of the labour of many. Selfishness pro-
duces friction ; dishonesty entails the waste of labour in
supervision and other precautionary employments ; both
defects thus reducing the aggregate produce of the general
labour.

In addition to the negative evils caused by incapacity,

CH.V THE ETHICS OF DISTRIBUTION 215

there arise positive evils as well. Paupers, hospital
patients, and lunatics must be maintained, who consume
without producing, as also the widows and orphans of
those who, through weakness of constitution or intemper-
ate habits, die early. Without further prosecution of this
argument, it will be apparent, that the happiness of every
member of the social body is raised by increase in average
capacity, intelligence, and conscientiousness, and that every
reduction in the average of these qualities lowers the happi-
ness of all.

One further result of selfishness, however, may yet be
alluded to. The selfish person, missing the pleasures
derived from altruistic emotions and actions, fails to ex-
perience the greatest and most enduring happiness, while
suffering positive unhappiness when, during his more
advanced years, selfish pleasures pall. On the other hand,
those whom altruistic sentiments prompt to corresponding
acts, thence derive positive happiness, while escaping much
unhappiness. That others' happiness is likewise furthered
by those possessing altruistic natures and hindered by
those possessing selfish natures, needs no proof.

It follows that the aggregate sum of happiness in the
social state is dependent upon the aggregate adjustment
of the society to the condition imposed by that state.
These causes, however, extend beyond any one generation.
Parents having vivacious minds and vigorous bodies are
likely to transmit like sources of happiness to their off-
spring, while unhappiness is entailed upon the progeny of
parents having feeble minds and impaired physical con-
stitutions. The emotional organisation which prompts to
altruistic acts is similarly transmitted from parents to off-
spring, and with it the happiness to which it gives rise.
Likewise selfish, licentious, and dishonest parents are
likely to transmit similar natures to their progeny.
Future generations, therefore, are largely dependent for
their happiness upon conditions transmitted from the
present generation. Hence, social acts which further the
multiplication of those less adapted to the social state
lessen the aggregate of present and future happiness ;
social acts which, in due degree, further the multiplication

2i 6 DEMOCRACY VERSUS SOCIALISM PART m

of the better adapted increase the aggregate of present
and future happiness. The former, therefore, are un-
ethical, the latter ethical ; and the law that adults take the
consequences of their own nature and that their progeny,
inheriting, on an average, like natures, also take such con-
sequences, tends to raise the aggregate sum of happiness
by furthering the multiplication of those capable of ex-
periencing and conferring most happiness, and hindering
the multiplication of those less capable of experiencing and
conferring happiness.

One more consideration must be alluded to. If it is
admitted that men's nature is changeable under changing
conditions, every proposal affecting social conditions must
be examined with regard to its tendency to further or
hinder progress towards the highest social conditions, and
the correlative development of the highest human nature.
Social conditions which, exempting men from the conse-
quences of their own acts, withdraw the stimulus which
the knowledge of such consequences supplies, must hinder
the evolution of men's nature in the direction of this final
goal. Disassociating reward from service rendered, they
hinder the growth of the sentiment of justice, which, con-
trariwise, is furthered by the daily association of reward
with service arising from free contract. Inflicting injustice
upon some, in order that undeserved benefits may be given
to others, it hinders the development of altruistic senti-
ments in both directions. The development of mankind
towards the highest physical, mental, and moral condition
is, therefore, dependent in two ways upon the State ab-
staining from any general interference with the law, that
every adult shall reap the consequences of his own acts :
first, because the action of this law furthers the modifica-
tion of men's nature in this, the highest direction ; second,
because it ensures the multiplication of those possessing
such modifications, ultimately making the latter permanent
and general acquisitions.

The faculties and emotions which make for efficiency
in the social state, while partly identical, are partly differ-
ent from those which make for efficiency in the sub-human
and savage states. Parental and marital affections and

CH. v THE ETHICS OF DISTRIBUTION 217

the sacrifices to which they prompt, alike in kind though
differing in degree, make for efficiency in both states.
Such traces of the sentiments of justice and beneficence
as may be observed among higher animals, add to their
efficiency, while in the social state these same sentiments
highly developed are an essential condition of efficiency.
For co-operation is furthered not only by the disapproval
of aggression which the sentiment of justice implies, but
also by assistance being voluntarily rendered without the
expectation of an equivalent.

The greatest difference, however, arises from the fact
that while animals, and to some extent savage men as well,
are restricted to such food as nature produces spontane-
ously, man in the social state produces his own food and
other means for the satisfaction of desires, and produces
them co-operatively. This co-operation in satisfying
desire, whether it consists of the division or combination
of labour, co-ordinates efficiency with service. Whoever
produces anything which enters the circle of exchanges
renders a service to all other men, making it easier for all
to satisfy their desires, not only the desires for this parti-
cular thing, but for all things. The efficiency of any
individual for the social state, therefore, largely depends
upon his possession of faculties enabling him to render
services to others through the effort to sustain himself, and
upon the emotions which prompt him to render such
services adequately. Capacity, industry, honesty, enabling
and prompting their possessors to direct their self-sustain-
ing labours towards rendering greater services to others
than are rendered by those who are less capable, less in-
dustrious, and less honest, must be accompanied by greater
rewards than those others receive, if the whole community
is ultimately to become more honest, capable, and in-
dustrious. The self -sustaining faculties and emotions

J purely egotistic in the sub-human and savage state, thus
become partly altruistic in the social state. In the former
they enable their possessor to survive and leave progeny

Sat the expense of others ; in the latter they enable him to
do so while aiding others. Nature is " red in tooth and
claw" below the social state ; within that state she com-

218 DEMOCRACY VERSUS SOCIALISM PART in

pels men to achieve the advantage of self by conferring
advantages upon all others.

These considerations leave no doubt as to what is the
clear and imperative duty of the State with regard to the
distribution of wealth. For they show that any action of
the State in the direction of equal distribution, demanded
by Socialism, would be socially deleterious, because it
deprives the more efficient members of the State of their
due reward, in order to hand it over to the less efficient.
Constituting non-compliance with one of the natural laws
in obedience to which all life has evolved, the law that
adults take the consequences of their own natures and
acts, it inflicts upon society the penalties which such dis-
obedience inevitably entails. Gradual adjustment to the
necessary conditions of social life being prevented by the
survival of the less efficient and less congruous, progress
towards a higher social state and towards a higher type
of human nature ceases. The suffering entailed by exist-
ing mal-adjustment is perpetuated and the attainment of
a greater sum of aggregate happiness is prevented, with
the ultimate result, that a society thus made stationary ^
if not retrogressive, must be supplanted by societies
in which conditions favourable to further evolution are
maintained.

The reluctance to accept these conclusions arises largely
from existing interferences of the State with the law that
every adult shall reap the consequences of his own acts,
through the creation of legal privileges, especially private
ownership of land, and the consequent absence of equal
opportunities for all. The monopoly of opportunities by
a few, rendering nugatory the efforts of many whose
natures are better adapted to the conditions of social life,
prevents them from leaving a due number of children ;
while the owners of these opportunities, though they may
be less adapted, are by their possession enabled to rear a
larger number. Further, the acquisition of special privi-
leges is furthered by unsocial qualities, such as cunning,
dishonesty, and greed, while their possession and inherit-
ance confer reward without service or adequate service
rendered, and thus still further disturb the natural relation.

CH.V THE ETHICS OF DISTRIBUTION 219

Under existing conditions, therefore, reward being largely
severed from service rendered, the survival of the socially
fittest is disturbed, and many, socially less fit than others,
nevertheless survive, and leave a greater number of de-
scendants. These facts, however, so far from contradict-
ing the general theory and the conclusions based thereon,
tend to their confirmation.

Moreover, the disappearance of the less fit from exist-
ing societies is nevertheless proceeding at a comparatively
rapid rate. Public opinion, tending ever to become more
healthy and exacting of compliance with higher ethical
standards, represses unsocial conduct. Discourtesy, dis-
honesty, untruthfulness, laziness, cruelty, sexual mis-
conduct, and drunkenness are visited with strong social
disapproval ; while courtesy, truthfulness, honesty, mercy,
beneficence, application, and self-restraint excite more and
more approbation. As a consequence, unsocial conduct is
discouraged and social conduct encouraged ; social senti-
ments are strengthened, and unsocial sentiments weakened.
Hence heredity is modified by practice ; the unsocial
sentiments are weakened in their possessors, who transmit
more adapted natures to their children than they them-
selves inherited, causing the gradual disappearance of such
unsocial natures in a few generations.

On the other hand, those whose unsocial tendencies are
too strong to be repressed by the general sentiment, tend
to die out. The self-indulgent, the drunkard, and the
profligate, as well as the criminal classes, leave few children.
Though many children are born to many of them, they
mostly die in infancy or adolescence, partly through want of
due parental solicitude, partly through the inheritance of
enfeebled constitutions. The surviving children, inheriting
like tendencies, also leave few children, and in a few gene-
rations the strain has ceased to exist.

I Under conditions of social justice, when no legal
I monopoly -rights exist, the disappearance of the un-
j adapted, however, would be far more rapid. Reward
being apportioned to service rendered, the artificial dis-
turbance of the survival of the fittest would terminate.
Qualities which now, by the acquisition of legal mono-

220 DEMOCRACY VERSUS SOCIALISM PART in

polies, lead to the acquisition of fortunes and power, would
not benefit their possessors, and would therefore tend to
disappear. The comparative equality of possessions, and
disappearance of involuntary poverty, creating a more
homogeneous society, would add to the force of public
opinion, and make that opinion still more exacting of ethical
conduct. At the same time the temptation to unethical
conduct, arising on the one hand from excessive riches,
on the other from poverty, especially from poverty in
city slums, would be materially lessened by the scarcity of
either condition. All these forces would unite to the
modification of inherited tendencies in the direction of
gradual and better adaptation to the conditions of social
life. The remainder individuals endowed with such un-
social natures that these influences would fail to modify
them would be comparatively few, and their disappearance
would, therefore, be still more rapid. The more efficient
would still receive the reward of their greater efficiency,
and the less efficient would still suffer for their inefficiency.
But as the differences in efficiency would be lessened by
raising the social efficiency of the great majority, the suffer-
ing would be comparatively slight, and the time would be
materially hastened when, all mankind being approximately
adapted to the requirements of social life, unsocial con-
duct and consequent suffering would disappear.

The foregoing examination shows that the distributive
proposal of Socialism is in the highest degree unethical
and disastrous to the present and future wellbeing of
mankind. An examination, in the light of evolutionary
experience, of the reasons by which the exponents of
Socialism support this proposal, shows them to be as futile
as they are crude. These reasons will now be dealt with
in the sequence in which they have been enumerated in
Part I. chap. iv.

The first of these is the allegation, that under the far-
reaching co-operative processes of to-day, it is impossible
for competition to ensure to every co-operator a reward
commensurate with the services rendered by him.

It is true that, under existing conditions, competition
fails to assure to each co-operator in the co-operative

CH.V THE ETHICS OF DISTRIBUTION 221

system of production a reward accurately proportioned to
the services rendered by him. This failure, however,
obviously does not justify a proposal which aims at the
absolute severance of reward from service rendered. On
the contrary, it imposes upon society the duty to remove
those interferences with the action of competition which,
causing it to be one-sided, prevent its tendency to pro-
portion reward to service coming into full play. What
these interferences are, has been pointed out in Part II.

The second line of reasoning is based on the con-
ception, that " the special ability or energy with which \
some persons are born " is the result of ancestral evolution,
and, therefore, a social product which, as such, belongs to
society as a whole.

Not only the special energy and ability of some, but
all the faculties and emotions of every individual, are the
result of ancestral evolution. The claim, founded on this
consideration, that the results of the exercise of special
ability and energy, the so-called " rent of ability," belong
to society, overlooks several important facts. The first of
these, elaborated above, is, that by delaying, if not pre-
venting, the rearing of a more numerous progeny by those
possessing special ability and energy, it is detrimental to
the further evolution of all members of society in this
direction. The other is, that special ability and energy as
such produce no results, not even any " rent of ability."
In order that such results may be produced, these qualities j
must be used productively. When so used they not only
benefit their possessors, but, under just conditions, all
other individuals as well. The aggregate sum of happi-
ness, therefore, is increased in two ways by the exercise of
special ability and energy : first, in the greater happiness
which their exercise brings to their possessors ; second, in
the greater means to happiness which it places within the
reach of all others as well. The incentive to the exercise ^\
of these qualities is the special reward which it brings to \
their possessors. If that reward is withdrawn, as by equal
distribution it would be withdrawn ; if it is made as well
to be inferior as to be superior, the exercise of special
ability and energy will be discouraged, and the happiness

222 DEMOCRACY VERSUS SOCIALISM PART in

not only of their possessors, but of all other men as well,
will be diminished.

Moreover, to compare the increased reward derived
from the exercise of special ability with the so-called
" unearned increment " of rent is merely another proof of
the radically defective analysis of economic facts habitual
to socialists. For while an increase of rent comes to the
owners of land without any service rendered by them, and
as a deduction from the total result of the social product ;
any increase in reward derived through the exercise of
special ability is dependent, under natural conditions, upon
additional service rendered by the possessors of special
ability, which service adds more to the social fund than
the reward amounts to which those who render it can
possibly receive.

The third argument is, that the reward which any one
receives " depends entirely upon the desires and needs of
others for his services " ; the value of the services, being
thus a social product, belongs not to him who renders the
services, but the society.

It is undoubtedly true that the power of every

individual to supply his wants in the co-operative

industrial society depends mainly on the desire of others

for his services. But the conclusion to which this fact

I points is not that he must be deprived of the reward which

* these others are willing to give him for his services. On

the contrary, as the satisfaction of their desires for his

services enhances their happiness, he who renders these

, services is entitled to a reward commensurate with the

i happiness which he confers. It is the expectation of this

reward which stimulates his efforts to render services, i.e.

to confer happiness ; and it is this reward which, enabling

him who renders greater services than others to rear a

greater number of offspring, will ultimately increase the

services rendered by all. To deny a greater reward than

the average to him who confers more than the average

amount of happiness by his services, in order to increase

the reward of him who confers less than the average

amount of happiness by his services, must, therefore, reduce

the aggregate sum of present and future happiness.

CH. v THE ETHICS OF DISTRIBUTION 223

The fourth and last line of argument is that adopted
by Mr. Edward Bellamy, and consists of the following
reasoning : Society as such enormously increases the
productive capacity of every man, and, therefore, all the
produce of every man's labour, and not merely the
addition due to his participation in social advantages,
belongs to society and not to the producer.

The way in which this apparently illogical contention
is arrived at is shown in the following quotation :

" This analysis of the product of industry must needs
stand to minimise the importance of the personal
equation of performance as between individual workers.
If the modern man, by aid of the social machinery, can
produce fifty dollars' worth of product where he could
produce not over a quarter of a dollar's worth without
Society, then forty-nine dollars and three-quarters out of
every fifty dollars must be credited to the social fund to be
equally distributed. The industrial efficiency of two men
working without Society might have differed as two to
one that is, while one man was able to produce a full
quarter-dollar's worth of work a day, the other could
produce only twelve and a half cents' worth. This was a
great difference under those circumstances, but twelve and
a half cents is so slight a proportion of fifty dollars as not
to be worth mentioning. That is to say, the difference
in individual endowments between the two men would
remain the same, but that difference would be reduced to
relative unimportance by the prodigious equal addition
made to the product of both alike by the social organism." l

The fallacy in this reasoning is so clear that he who
runs can read it. The existence of the social organism
increases, according to the hypothesis, the value of one
man's work from twenty-five cents to fifty dollars. Does
it necessarily increase to fifty dollars also the value of the
work of him who only produces half as much ? If, for
instance, one man makes one pair of boots a day, while
another man produces two pair of boots in the same time,
does the social organism increase the value of the one pair
of boots to exactly the level of that of the two pair of

1 Equality, p. 8 1.

224 DEMOCRACY VERSUS SOCIALISM PARTIII

boots ? If not and it will be admitted it does not ; that,
on the contrary, the two pair of boots are worth exactly
twice as much as the one pair under any given social
conditions it follows that the social organism does not
make an " equal addition to the product of both alike."
In the given case, therefore, Society increases the value of
the one man's work from twelve and one-half cents to
twenty-five dollars, and the value of the other man's work
from twenty-five cents to fifty dollars. By appropriating
the product of the labour of both, Society, therefore, does
not extend approximately the same treatment to both of
them, but the inequality of treatment thus meted out is of
immense importance.

For it is clear that neither the one pair nor the two
pair of boots would have had any existence but for the
use which each of these men made of the social organism
by the exercise of their labour. Not to the social organism,
therefore, but to the exercise of their respective abilities,
must the existence of the boots be attributed. The social
organism is merely an opportunity which all must use for
the fructification of their efforts. The extent to which
each does use it depends upon his own capacity and
sentiments. The greater use any one makes of this
opportunity, the greater is the service which he renders to
Society. For Society to appropriate the result of the use
which any one makes of social opportunities is therefore
unjust and unwise. All that Society may and must do is,
to see that these social opportunities are equally open to
all, leaving to each the full reward which his use of such
opportunities may bring to him.

Moreover, the statement that Society is the only heir
to the inheritance of intellect and discovery, is only true
with regard to one of its parts. Intellect is a personal
attribute as much as speed, imagination, muscular strength,
or a good digestion. Like intellect, all these faculties are
the result of the ancestral struggle for existence and con-
sequent better adjustment to the conditions of life. If
intellect is a social inheritance, all these other attributes, a
good digestion included, are also social inheritances. Yet,
like intellect, these faculties cannot be exercised by Society,

CH.V THE ETHICS OF DISTRIBUTION 225

but by their individual possessors alone. They, therefore,
are not social inheritances, in the only sense which such a
statement conveys, that they are common possessions to
which all are equally entitled. They are, on the contrary,
individual inheritances to which the individual alone can
claim a right, and which no one but the individual who
has inherited them can use.

If, on the other hand, the idea intended to be conveyed
is that the result of the exercise of intellect is a social
inheritance, the idea is negatived by the same considerations
which were found to invalidate the similar claim made with
regard to the result of ability and energy.

It is, however, different with discoveries. Discoveries,
inventions, and additions to knowledge are only temporarily
individual possessions, and ultimately become social posses-
sions and a social inheritance. The individual making
a discovery or invention, or acquiring a new know-
ledge, does so by utilising antecedent discoveries and know-
ledge, the accumulated product of all past generations
We all stand on the shoulders of our predecessors ; can
reach higher than they could reach, because the knowledge
transmitted to us by them places us on a higher level.
This accumulated and transmitted knowledge, however, is
an opportunity open to all. The individual who, using
this common opportunity, makes a further discovery or
invention, or acquires additional knowledge, assumes no
greater freedom than any other possesses. The new
discovery, arising from the exercise of his individual
faculty upon an opportunity equally open to all, is the
exclusive and individual possession of the discoverer by the
law that every one shall experience the results of his own
acts. If he chooses to communicate the discovery, inven-
tion, or new knowledge to others, he is free to impose the
terms on which he will do so, and any use of the discovery,
invention, or knowledge by others, contrary to such terms,
is a breach of contract, an undue interference with the law
of equal freedom.

But just as all material products of labour ultimately
merge again in the general stock of matter, so all new
discoveries, inventions, and knowledge ultimately merge

226 DEMOCRACY VERSUS SOCIALISM PART in

in the general fund of knowledge. The individual
having made the discovery or invention, or acquired the
new knowledge, must die, and with him would die the
result of his exertion unless it were adopted and preserved
by other men of the same generation and of succeeding
generations. The accumulation of discoveries and inven-
tions, the fund of knowledge which any society possesses,
is transmitted not by particular individuals to their
descendants, but by previous generations to the present
one, which in its turn will transmit it, enriched and
enlarged by the efforts of its members, to future genera-
tions. This fund, therefore, is a true social or common
| inheritance. As such all are equally entitled to use it in
the only way in which it can be used, viz. acquiring it or
as much of it as they will or can by their own efforts as
one of the common opportunities for the maintenance of
life and the achievement of happiness. For this common
opportunity cannot be monopolised as other common
opportunities can, in the way that its acquisition by one
will prevent others from acquiring an equal share. On
the contrary, the more knowledge is acquired by any man,
and the greater 'the number of men who acquire the
fullest knowledge, the easier becomes the acquisition of
like knowledge by others. In every case, however, the
| acquisition of knowledge can be achieved by individual
I effort alone. While, therefore, knowledge is a social in-
heritance and possession, yet all men cannot be entitled
to equal knowledge, nor can knowledge be distributed
i among them unequally. What all are entitled to, what it
is the duty of the State to bring about, is that all have an
I equal opportunity for the acquisition of as much knowledge
f as any of them may desire or can absorb.

Again it must be pointed out that the right of each to
an equal opportunity with all others for acquiring know-
ledge does not involve any common right in the products,
not even the material ones, which the acquisition of
superior knowledge enables its possessors to produce.
For knowledge, like intellect, ability, and energy, produces
nothing ; the application of knowledge alone leads to
material results. The product resulting from the appli-

CH. v THE ETHICS OF DISTRIBUTION 227

cation of superior knowledge, therefore, is in all respects
subject to the same considerations as the product resulting
from the exercise of superior intellect, ability, and energy ;
it is an individual possession to which Society can urge no
claims.

With the exception of the first, all the reasons adduced
in favour of social possession and equal distribution of
labour-products suffer from the same defect. They all
confuse the right of equal possession of desired things
with the right of equal opportunities to produce desired
things. The former is a spurious right, disregarding the
essential conditions of life ; the other is a true right,
emanating from and congruous with the essential con-
ditions of life. Ethics, therefore, utter the same condem-
nation of the distributive proposals of Socialism as we
found Economics to do, i.e. that they are opposed to and
destructive of the highest interests of mankind. Ethics
as well as Economics show that there is only one true and
beneficial system of distribution : the one which, founded
on justice, leaves in the possession of every individual all
the produce which the exercise of his faculties brings forth,
or which others freely surrender to him as a gift or in
return for services rendered to them, always provided
that no one is granted a greater share than others in the
common opportunities to produce or render services with-
out his making full compensation to these others for any
loss of opportunity which they may suffer in consequence.

CHAPTER VI

THE RIGHT TO THE USE OF THE EARTH

!THE dry superficial area of the earth being the only
medium through which external nature becomes accessible
to man ; being not merely his only foothold and resting-
place, but also the means through which he obtains access
to all the matter which he, through the exercise of his
faculties, changes into objects fit to satisfy his desires and
maintain his life, it follows that freedom to use the earth
is the indispensable condition for the exercise of man's

i faculties and the maintenance of his life. Hence the
right to the use of the earth is a natural right, the
denial of which involves the denial of the right to the
exercise of any faculty, that is, the denial of the right to
live.

The right of any one to the exercise of his faculties
being limited only by the equal right of every one else,
the exercise of any faculty being dependent upon the use
of the earth, it follows that the right of any one to use
the earth is limited only by the equal right of every
one else. The natural right to the use of the earth,
therefore, is an equal right, inherent in all. If there
were only one man upon this earth he would obviously
be free to use the whole earth ; the right of any second
man to do the like must be equal to that of the
former. Nor can further multiplication bring about any
change in this relation. Of all the millions inhabiting the

/ earth to-day, each is free to use the whole earth or any
part of it, provided he infringes not the equal right of

j any other man. And conversely, it is equally true that

CH.VI RIGHT TO USE OF THE EARTH 229

no one of them may so use the earth as to prevent any
other from similarly using it. For to do so implies a
claim to greater opportunities for the exercise of his
faculties than others can enjoy.

The earth, therefore, is the common property of all
men the common property of all now living men,
subject to the equal rights of all succeeding generations.
For just as the human beings now living are dependent
upon the use of the earth for the exercise of their faculties
and the maintenance of their lives, so will succeeding
generations of men be dependent upon the same condition
for the maintenance of their lives. A baby which will be
born to-morrow or next year or a century hence, there-
fore, will have, in its turn, the same right to the use of
the earth as any one now inhabiting the earth. No
arrangements made, even with the consent of all living
men, can deprive any member of any future generation of
his or her equal rights to the use of the earth. Likewise
no arrangements made by past generations, even if all their
members had consented to them, can deprive any one now
living of his equal right. For every such arrangement, ifl
enforced, would offend against the law of equal freedom,!^
would deprive some of their right to an equal opportunity
for the exercise of their faculties and the maintenance of i
their lives ; would run counter to the law, that each adult
shall experience the consequences of his own acts, and
would do all this at the dictation of some past generation,
making them the masters of all subsequent generations.

Justice, therefore, condemns private ownership of land
For if one portion of the earth's surface, however small
may justly be made private property, then all portions
may equally be made private property, and consequently
the whole earth may be made the private property ol
some men. As private property of any portion of the
earth involves the right of exclusive use of such portion,
the private ownership of the whole earth likewise involves
the right of exclusive use of the whole earth. All non-
landowners, under this condition, would have no right to
the use of any part of the earth, would have no right to
live upon it. Being here on sufferance only, being

230 DEMOCRACY VERSUS SOCIALISM PART in

dependent upon the permission of the landowners for an
opportunity to maintain their lives, the landowners may
deny them such permission without any infraction of
justice. As mere trespassers on the earth, the owners of
the earth may justly hunt them off the earth, i.e. condemn
them to immediate death. If, then, the whole earth can
j justly be made private property a proposition involved
/ in the claim that a part of it may be made private property
the law of equal freedom is denied. For even if the
owners of the earth were habitually to permit of its use by
all others, the latter would have no right to such use-
would be dependent upon such permission for the exercise
of their faculties and the maintenance of their lives.
Obviously, those who are dependent upon the permission
of others for the exercise of their faculties and the
continuance of their lives, cannot have equal freedom
with these others. On the contrary, the others are
absolute masters, and they are slaves without any rights.

Though the whole earth has not yet been made private
property, the most valuable parts of the earth have been
so appropriated. As a consequence vast numbers of
human beings in every civilised country are deprived of
their equal right to the use of the earth, are dependent
upon the permission of others for the use of any op-
portunity to exercise their faculties and maintain their
lives. The conditions which would arise if the whole
earth were privately owned have actually arisen in civilised
countries through the private ownership of all the land of
such countries. For though elsewhere there is yet land
not privately owned, it is too distant or too little
productive to enable the majority of non-landowners to
escape from the conditions prevailing in their country.
In every civilised country the majority of the non-land-
owners, therefore, are deprived of their right to use their
faculties for the maintenance of their lives, while amongst
the landowners themselves there prevails the greatest
disparity of right. A few, owning more or less extensive
areas of valuable land, enjoy opportunities far in excess of
what equity could assign to them ; the majority, owning
small areas of little value, enjoy opportunities of less

CH.VI RIGHT TO USE OF THE EARTH 231

extent than equity would assign to them. What justice
requires, the recognition of the right of all to equal
opportunities for the exercise of their respective faculties, is
absolutely denied in all civilised countries.

This denial of justice, this abrogation of fundamental
/rights, has arisen, exists, and continues to exist, not in
i spite of the State, but through the direct action of the
I State. As will be shown in the next chapter, the State, by
a consistent course of force and fraud, has created private
property in land, and now maintains it by force. Were it/
not that police and soldiers are ready to enforce the claim sj
of private owners, the institution of private ownership*
could not maintain itself. Men cultivating or otherwise
using the land would not for long continue to pay others
for the privilege of doing so, if the State did not force
them ; still less would men, seeking for an opportunity to
maintain their lives, allow vast areas of valuable land to
remain unused while they must starve.

The State, therefore, is not merely guilty of neglecting
one of its fundamental duties in allowing private property
in land to continue ; it commits the positive wrong of
maintaining this unjust condition. Yet, as it is the
primary duty of the State to maintain justice, to prevent
any infringement of the equal rights of all its members,
the State is bound to frame and enforce regulations which
will safeguard the equal right of every one of its members
to the use of the national land. Nor would it be difficult
so to do. The opportunity which any piece of land offers
for the exercise of faculties is measured by its value ; the
product of the exercise of faculties on any piece of land is
measured by the value of such produce minus the rental
value of such land. The land offering the least valuable
opportunity which must be used, having no rental value
under natural conditions, the rental value of all superior
land is the measure of the superior opportunity inhering
in it. The State, taking for common purposes the annual
rental value of all land, would equalise all natural op-
portunities and maintain the equal right of all to the use
of the land. All would have an equal opportunity to use
any part of the land, and those who obtained the privilege

232 DEMOCRACY VERSUS SOCIALISM PART in

of using superior opportunities would pay full com-
pensation to all others for the special privilege accorded
to them.

An illustration will make this clear. A father leaves
to his three sons, in common, property consisting of three
houses of unequal value. Each of the sons wants to
inhabit one of the houses, and the question arises, how is
the common