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DISTRIBUTIVE JUSTICE
THE MACMILLAN COMPANY
VMW YORK • BOSTON • CHICAGO • DALLAS
ATLANTA •■ SAN FRANCISCO
MACMILLAN & CO., Limited
LONDON • BOMBAY • CALCirTTA
MELBOURNK
THE MACMILLAN CO. OF CANADA. Ltd.
TORONTO
DISTRIBUTIVE JUSTICE
The Right and Wrong of Our
Present Distribution of Wealth
?
BY
JOHN A. RYAN, D.D.
Associate Professor of Political Science at the
Catholic University of America; Professor of
Economics at Trinity College; Author of
**A Living Wage,' ' "Alleged Socialism of the
Church Fathers,'* Joint Author with Morris
Hillquit of "Socialism: Promise or Menace?"
Hrm fork
THE MACMILLAN COMPANY
1919
Ml rights reserved
h t ■
Nihil Obstat. i ^
BEMIQIU8 LAFORT, 8. T. D.,
Censor.
Imprimatur.
JOHN CARDINAL FARLEY,
Archhiahop of New York,
COPTBIGHT, 1916,
By the MACMILDAN COMPANY
S«t up and electrotyped. Published November, 1916.
By transfer
U. S. Soldiers Home Ubi
JUL 14 ™6
tA^.
\ ■
TO
ARCHBISHOP IRELAND
IN
Admiration and Gratitude
PREFACE
Five of the nine members of the late Federal Commis-
sion on Industrial Relations united in the declaration that
the first cause of industrial unrest is, *' unjust distribution
of wealth and income." In all probability this judgment
is shared by the majority of the American people. Re-
garding the precise nature and extent of the injustice,
however, there is no such preponderance of opinion.
Even the makers of ethical and economic treatises fail to
give us anything like uniform or definite pronouncements
concerning the moral defects of the present distribution.
While the Socialists and the Single Taxers are sufficiently
positive in their statements, they form only a small por-
tion of the total population, and include only an insignifi-
cant fraction of the recognised authorities on either ethics
or economics.
The volume in hand represents an attempt to discuss
systematically and comprehensively the justice of the
processes by which the product of industry is distributed.
Inasmuch as the product is actually apportioned among
landowners, capitalists, business men, and labourers, the
moral aspects of the distribution are studied with refer-
ence to these four classes. While their rights and obliga-
tions form the main subject of the book, the effort is also
made to propose reforms that would remove the principal
defects of the present system and bring about a larger
measure of justice.
Many treatises have been written concerning the moral-
ity of one or other element or section of the distributive
process ; for example, wages, interest, monopoly, the land
question; but, so far as the author knows, no attempt has
PREFACE
hitherto been made to discuss the moral aspects of the en-
tire process in all its parts. At least, no such task has
been undertaken by any one who believes that the exist-
ing economic system is not inherently unjust. That the
present essay in this field falls far short of adequate
achievement the author fully realises, but he is sustained
by the hope that it will provoke discussion, and move some
more competent person to till the same field in a more
thorough and fruitful way.
John A. Ryan.
The Catholic University of America,
Washington, D. C, June 14, 191 6.
CONTENTS
Preface , . vii
Introductory Chapter: The Elements and Scope of the
Problem xiii
' ' General References ....... xvii
SECTION I
THE MORALITY OF PRIVATE LANDOWNERSHIP AND
RENT
CHAPTER PAGE
I The Landowner's Share of the National Product 3
Economic Rent Always Goes to the Landowner . . 4
Economic Rent and Commercial Rent 5
The Cause of Economic Rent 6
II Landownership in History 8
No Private Ownership in Pre-Agricultural Conditions 10
How the Change Probably Took Place 12
Limited Character of Primitive Common Ownership 14
Private Ownership General in Historical Times . . 15
Conclusions from History 17
III The A.RGUMENTS Against Private Landownership . . 19
Arguments by Socialists 19
Henry George's Attack on the Title of First Occupancy 21
His Defence of the Title of Labour 24
The Right of all Men to the Bounty of the Earth . . 30
The Alleged Right of the Community to Land Values 39
IV Private Ownership the Best System of Land Tenure 48
- The Socialist Proposals Impracticable 48
V . . Inferiority of the Single Tax System 51
CONTENTS
CHAPTER PAGE
V PiavATE Landownership a Natural Right .... $6
Three Principal Kinds of Natural Rights .... 57
Private Landownership Indirectly Necessary for In-
dividual Welfare 59
Excessive Interpretations of the Right of Private
Landownership 61
The Doctrine of the Fathers and the Theologians . 62
The Teaching of Pope Leo XIII 64
VI Limitations of the Landowner's Right to Rent . . 67
The Tenant's Right to a Decent Livelihood ... 69
The Labourer's Claim Upon the Rent 71
VII Defects of the Existing Land System 74
Landownership and Monopoly 75
Excessive Gains from Private Landownership ... 80
Exclusion from the Land 90
VIII Methods of Reforming Our Land System .... 94
The Leasing System 95
Public Agricultural Lands 97
Public Ownership of Urban Land 98
Appropriating Future Increases of Land Value . . . lOO
Some Objections to the Increment Tax 102
The Morality of the Proposal 108
The German and British Increment Taxes . . . .114
Transferring Other Taxes to Land 117
The Morality of the Plan 120
Amount of Taxes Practically Transferable . . . .122
The Social Benefits of the Plan 127
A Supertax on Large Holdings 130
References on Section I 133
SECTION II
THE MORALITY OF PRIVATE CAPITAL AND INTEREST
IX The Nature and the Rate of Interest I37
Meaning of Capital and Capitalist I37
Meaning of Interest 138
- The Rate of Interest 141
CONTENTS
CHAPTER PAGE
X The Alleged Right of Labour to the Entire Product
OF Industry 145
The Labour Theory of Value 146
The Right of Productivity , 149
XI The Socialist Scheme of Industry 152
Socialist Inconsistency 152
Expropriating the Capitalists 154
Inefficient Industrial Leadership ....... 158
Inefficient Labour 162
Attempted Replies to Objections 162
Restricting Individual Liberty , . 168
XII Alleged Intrinsic Justifications of Interest . . . 171
Attitude of the Church Toward Interest on Loans . . 172
Interest on Productive Capital 175
The Claims of Productivity 177
The Claims of Service 181
The Claims of Abstinence 182
XIII Social and Presumptive Justifications of Interest . 187
Limitations of the Sacrifice Principle 187
The Value of Capital in a No-Interest Regime . . . 188
Whether the Present Rate of Interest is Necessary . 191
Whether at Least two Per Cent, is Necessary . . . 193
Whether any Interest is Necessary 196-
The State is Justified in Permitting Interest .... 199
Civil Authorisation not Sufficient for Individual Justi-
fication 201
How the Interest-Taker is Justified ...... 204
XIV CO-OPERATION A PARTIAL SOLVENT OF CAPITALISM . . . 210
Reducing the Rate of Interest 211
Need for a Wider Distribution of Capital .... 213
The Essence of Co-operative Enterprise .... 214
Co-operative Credit Societies 216
Co-operative Agricultural Societies 217
Co-operative Mercantile Societies 220
Co-operation in Production 222
Advantages and Prospects of Co-operation .... 228
References on Section II 233
CONTENTS
SECTION III
THE MORAL ASPECT OF PROFITS
CHAPTER PAGE
XV The Nature of Profits 237
' The Functions and Rewards of the Business Man . . 237
■ The Amount of Profits 239
Profits in a Joint-Stock Company 241
XVI The Principal Canons of Distributive Justice . . . 243
, The Canon of Equality 243
. The, Canon of Needs 244
The Canon of Efforts and Sacrifice 246
The Canon of Productivity 247
The Canon of Scarcity 250
The Canon of Human Welfare 252
XVII Just Profits in Conditions of Competition .... 254
, The Question of Indefinitely Large Profits .... 255
The Question of Minimum Profits 258
The Question of Superfluous Business Men . . . 260
XVIII The Moral Aspect of Monopoly 262
Surplus and Excessive Profits 263
. The Question of Monopolistic Efficiency 265
. Discriminative Underselling 267
. Exclusive-Sales Contracts 270
Discriminative Transportation Arrangements . . . 272
. , Natural Monopolies 273
. . Methods of Preventing Monopolistic Injustice . . . 275
Legalised Price Agreements 277
XIX The Moral Aspects of Stockwatering 279
. Injurious Effects of Stockwatering 281
. . The Moral Wrong 284
, . The. "Innocent" Investor 286
. Magnitude of Overcapitalisation 288
XX The Legal Limitation of Fortunes 291
The Method of Direct Limitation 292
Limitation Through Progressive Taxation .... 296
CONTENTS
CHAPTER ^^^"
The Proper Rate of Income and Inheritance Taxes . 299
Effectiveness of Such Taxation 300
XXI The Duty of Distributing Superfluous Wealth . . 303
The Question of Distributing Some 303
The Question of Distributing All 308
' ' Some Objections 3ii
A False Conception of Welfare and Superfluous Goods 314
The True Conception of Welfare 316
References on Section III 3i8
SECTION IV
THE MORAL ASPECTS OF WAGES
XXII Some Unacceptable Theories of Wage-Justice . . .323
I The Prevailing-Rate Theory 323
Not in Harmony with Justice 325
II Exchange-Equivalence Theories 326
The Rule of Equal Gains 326
The Rule of Free Contract 328
The Rule of Market Value 330
The Mediaeval Theory 332
A Modern Variation of the Mediaeval Theory . 337
III Productivity Theories 340
Labour's Right to the Whole Product . . .341
Clark's Theory of Specific Productivity . . 347
Carver's Modified Version of Productivity . . 351
XXIII The Minimum of Justice; A Living Wage . . . .356
The Principle of Needs 35^
Three Fundamental Principles 358
The Right to a Decent Livelihood 360
The Claim to a Decent Livelihood from a Present Oc-
cupation 302
The Labourer's Right to a Living Wage 363
When the Employer is Unable to Pay a Living Wage 366
An Objection and Some Difficulties 370
The Family Living Wage 373
Other Arguments in Favour of a Living Wage . . .376
The Money Measure of a Living Wage . . . • -378
CONTENTS
CHAPTER PAGE
XXIV The Problem of Complete Wage Justice 381
Comparative Claims of Different Labour Groups . . 381
Wages Versus Profits 388
Wages Versus Interest 390
Wages Versus Prices 393
Concluding Remarks 398
XXV Methods of Increasing Wages 400
The Minimum Wage in Operation 400
The Question of Constitutionality 405
The Ethical and Political Aspects 407
The Economic Aspect 408
Opinions of Economists 412
Other Legislative Proposals 416
Labour Unions 417
Organisation Versus Legislation 420
Participation in Capital Ownership 423
References on Section IV 425
XXVI Summary and Conclusion 426
The Landowner and Rent 426
The Capitalist and Interest 427
The Business Man and Profits 428
The Labourer and Wages 430
Concluding Observations 431
Index 453
INTRODUCTORY CHAPTER
THE ELEMENTS AND SCOPE OF THE PROBLEM
Distributive justice is primarily a problem of incomes
rather than of possessions. It is not immediately con-
cerned with John Brown's railway stock, John White's
house, or John Smith's automobile. It deals with the
morality of such possessions only indirectly and under one
aspect ; that is, in so far as they have been acquired through
income. Moreover, it deals only with those incomes that
are derived from participation in the process of pro-
duction. For example; it considers the labourer's wages,
but not the subsidies that he may receive through charity
or friendship. Its province is not the distribution of all
the goods of the country among all the people of the coun-
try, but only the distribution of the products of industry
among the classes that have taken part in the making of
these products.
These classes are four, designated as landowners, capi-
talists, undertakers or business men, and labourers or wage
earners. The individual member of each class is an agent
of production, while the instrument or energy that he owns
and contributes is a factor of production. Thus, the land-
owner is an agent of production because he contributes to
the productive process the factor known as land, and the
capitalist is an agent of production because he contributes
the factor known as capital; while the business man and
the labourer are agents not only in the sense that they con-
tribute factors to the process, but in the very special sense
that their contributions involve the continuous expendi-
ture of human energy. Now the product of industry is
xiii
XIV INTRODUCTORY CHAPTER
distributed among these four classes precisely because they
are agents of production; that is because they own and put
at the disposal of industry the indispensable factors of
production. We say that the agents of production " put
the factors of production at the disposal of industry,"
rather than " exercise or operate the factors," because
neither the landowner nor the capitalist, as such, expend
continuous energy in the productive process. All that is
necessary to enforce a claim upon the product is to con-
tribute an instrument or factor without which production
cannot be carried on.
The product distributed in any country during a single
year is variously described by economists as the national
product, the national income, the national dividend. It
consists not merely of material goods, such as houses,
food, clothing, and automobiles, but also of those non-
material goods known as services. Such are the tasks
performed by the domestic servant, the barber, the chauf-
feur, the public official, the physician, the teacher; or any
other personal service " that is valued, as material com-
modities are valued, according to their selling prices."
Even the services of the clergyman are included in the
national income or product, since they are paid for and
form a part of the annual supply of good things produced
and distributed within the country. In the language of
the economist, anything that satisfies a human want is a
utility, and forms part of the national wealth; hence there
can be no sufficient reason for excluding from the national
income goods which minister to spiritual or intellectual
wants. The services of the clergyman, the actor, the
author, the painter, and the physician are quite as much a
part of the utilities of life as the services of the cook, the
chambermaid, or the barber ; and all are as clearly utilities
as bread, hats, houses, or any other material thing. In a
general way, therefore, we say that the national product
which is available for distribution among the different
THE ELEMENTS AND SCOPE OF THE PROBLEM XV
productive classes comprises all the utilities, material and
non-material, that are produced through human agents
and satisfy human desires.
In the great majority of instances the product is not
distributed in kind. The wheat produced on a given farm
is not directly apportioned among the farmers, labourers,
and landowners that have co-operated in its production;
nor are the shoes turned out by a given factory divided
among the co-operating labourers and capitalists ; and it is
obvious that personal services cannot be returned to the
persons that have rendered them. Cases of partial direct
distribution do, indeed, occur; as when the tenant takes
two-thirds and the landowner one-third of the crop raised
by the former on land belonging to the latter ; or when the
miller receives his compensation in a part of the flour that
he grinds. To-day, however, such instances are relatively
insignificant. By far the greater part of the material
product is sold by the undertaker or business man, and the
price is then divided between himself and the other agents
of production. All personal services are sold, and the
price is obtained by the performers thereof. The farmer
sells his wheat, the miller his flour, and the barber his
services. With the money received for his part in pro-
duction each productive agent obtains possession of such
kinds and amounts of the national product as his desires
dictate and his income will procure. Hence the distribu-
tion of the product is effected through the conversion of
producers' claims into money, and the exchange of the
latter for specific quantities and qualities of the product.
While the national product as a whole is divided among
the four productive classes, not every portion of it is dis-
tributed among actually distinct representatives of these
classes. When more than one factor of production is
owned by the same person, the product will obviously not
go to four different classes of persons. For example; the
crop raised by a man on his own unmortgaged land, with
XVI INTRODUCTORY CHAPTER
his own instruments, and without any hired assistance;
and the products of the small shopkeeper, tailor, and
barber who are similarly self sufficient and independent, — -
are in each case obtained by one person, and do not
undergo any actual distribution. Even in these instances,
however, there occurs what may be called virtual distribu-
tion, inasmuch as the single agent owns more than one
factor, and performs more than one productive function.
And the problem of distributive justice in such cases is to
determine whether all these productive functions are prop-
erly rewarded through the total amount which the indi-
vidual has received. Where the factors are owned by
distinct persons, or groups of persons, the problem is to
determine whether each group is properly remunerated for
the single function that it has performed.
The problem of the morality of industrial incomes is
obviously complex. For example; the income of the
farmer is sometimes derived from a product which he
must divide with a landowner and with labourers; some-
times from a product which he shares with labourers only ;
and sometimes from a product which he can retain wholly
for himself. The labourer's income arises sometimes out
of a product which he divides with other agents of pro-
duction; sometimes out of a product which he divides
with other labourers as well as other agents; and some-
times out of a product of which he receives the full money
equivalent. The complexity of the forces determining
distribution and income indicate a complexity in the forces
affecting the morality of income. Moreover, there is the
more fundamental ethical question concerning the titles
of distribution: whether mere ownership of a factor of
production gives a just claim upon the product, as in the
case of the landowner and the capitalist; whether such a
claim, assuming it to be valid, is as good as that of the
labourer and the business man, who expend human energy
in the productive process ; whether different kinds of pro-
THE ELEMENTS AND SCOPE OF THE PROBLEM Xvil
ductive activity should be rewarded at different rates;
and if so in what proportion. Why should the capitalist
receive six per cent., rather than two per cent., or sixteen
per cent.? Why should the locomotive engineer receive
more than the trackman ? Why should not all persons be
compensated equally? Should all or any of the benefits
of industrial improvements go to the consumer? Such are
typical questions in the study of distributive justice. They
are sufficient to give some idea of the magnitude and
difficulty of the problem.
Scarcely less formidable is the task of suggesting means
to correct the injustices of the present distribution. The
difficulties in this part of the field are indicated by the
multiplicity of social remedies that have been proposed,
and by the fact that none of them has succeeded in winning
the adhesion of more than a minority of the population.
We shall be obliged not only to pass moral judgment upon
the most important of these proposals, but to indicate and
advocate a more or less complete and systematic group of
such reforms as seem to be at once feasible and righteous.
GENERAL REFERENCES
Taussig: Principles of Economics. Macmillan; 191 1.
Devas: Political Economy. Longmans; 1901.
Hobson: The Industrial System. Longmans; 1909.
Clark: The Distribution of Wealth. Macmillan; 1899.
Smart: The Distribution of Income. London; 1899.
Willoughby: Social Justice. Macmillan; 1900.
Carver: Essays in Social Justice. Harvard University Press; 1915.
Ely: Property and Contract in Their Relations to the Distribution
of Wealth. Macmillan; 1914.
Nearing: Income. Macmillan; 1915.
Streightoff: The Distribution of Incomes in the United States.
Longmans; 1912.
Wagner: Grundlegung der Nationaloekonomie. Leipzig; 189^-1894.
Pesch: Lehrbuch der Nationaloekonomie. Freiburg; 1905-1913.
Antoine: Cours d' Sconomie Sociale. Paris; 1899.
XVlll INTRODUCTORY CHAPTER
HiTZE : Capital et Travail. Louvain ; 1898.
Hollander : The Abolition of Poverty. Houghton Mifflin Company ;
1914.
Ellwood: The Social Problem. Macmillan; 1915.
Garriguet: The Social Value of the Gospel. Herder; 191 1.
Parkinson : A Primer of Social Science. Devin-Adair Co. ; 1913.
Vermeersch: Quaestiones de Justitia. Bruges; 1901.
King: The Wealth and Income of the People of the United States.
Macmillan; 1915.
Commission on Industrial Relations. Final Report; 1915.
SECTION I
THE MORALITY OF PRIVATE LANDOWNER-
SHIP AND RENT
DISTRIBUTIVE JUSTICE
CHAPTER I
THE landowner's SHARE OF THE NATIONAL PRODUCT
That part of the national product which represents
land, and is attributed specifically to land, goes to the land-
owner. It is called economic rent, or simply rent. We
say that rent " is attributed specifically to land," rather
than " is produced specifically by land," because we do not
know what proportion of the joint product of the different
factors of production exactly reflects the productive con-
tribution of any factor. Economic rent represents the
productivity of land in so far as it indicates what men are
willing to pay for land-use in the productive process. In
any particular case rent comes into existence because the
land makes a commercially valuable contribution to the
product; and it goes to the landowner because this is one
of the powers or rights included in the institution of pri-
vate ownership. And the landowner's share is received
by him precisely in his capacity as landowner, and not be-
cause he may happen to be labourer, farmer, or proprietor
of agricultural capital.
It is perhaps superfluous to observe that not all land
produces rent. While almost all land is useful and pro-
ductive, at least potentially, there is in almost every local-
ity some land which in present conditions does not war-
rant men in paying a price for its use. If the crop raised
on very sandy soil is so small as to cover merely the outlay
3
4 DISTRIBUTIVE JUSTICE
for labour and capital, men will not pay rent for the use
of that soil. Yet the land has contributed something to
the product. Herein we have another indication that rent
is not an adequate measure of land productivity. It
merely represents land value, — at a given time, in given
circumstances.
Economic Rent Always Goes to the Landowner
All land that is in use, and for the use of which men
are willing to pay a price yields rent, whether it is used
by a tenant or by the owner. In the latter case the owner
may not call the rent that he receives by that name; he
may not distinguish between it and the other portions of
the product that he gets from the land; he may call the
entire product profits, or wages. Nevertheless the rent
exists as a surplus over that part of the product that he
can regard as the proper return for his labour, and for the
use of his capital-instruments, such as, horses, buildings,
and machinery. If a farmer employs the same amount
and kind of labour and capital in the cultivation of two
pieces of land, one of which he owns, the other being hired
from some one else; if his net product is the same in both
cases, say, i,ooo dollars; and if he must pay 200 dollars
to the owner of the hired land, — then, 200 of the 1,000
dollars that he receives from his own land, is likewise to
be attributed specifically to his land rather than to his
capital or labour. It is rent. While the whole product is
due in some degree to the productive power of land, 200
dollars of it represents land value in the process of pro-
duction, and goes to him solely in his capacity as land-
owner. The rent that arises on land used for building
sites is of the same general character, and goes likewise to
the owner of the land. The owner of the site upon which
a factory is located may hire it to another for a certain
sum annually, or he may operate the factory himself. In
either case he receives rent, the amount that the land itself
THE LANDOWNERS SHARE OF NATIONAL PRODUCT 5
is worth for use, independently of the return that he ob-
tains for his expenditure of capital and labour. Even
when a person uses his land as a site for a dwelling which
he himself occupies, the land still brings him economic rent,
since it affords him something for which he would be
obliged to pay if his house were located on land of the
same kind owned by some one else.
Economic Rent and Commercial Rent
It will be observed that the landowner's share of the
product, or economic rent, is not identical with commer-
cial rent. The latter is a payment for land and capital,
or land and improvements, combined. When a man pays
nine hundred dollars for the use of a house and lot for
a year, this sum contains two elements, economic rent for
the lot, and interest on the money invested in the house.
Assuming that the house is worth ten thousand dollars,
and that the usual return on such investments is eight per
cent., we see that eight hundred dollars goes to the owner
as interest on his capital, and only one hundred dollars as
rent for his land. Similarly the price paid by a tenant
for the use of an improved farm is partly interest on the
value of the improvements, and partly economic rent. In
both cases the owner may reckon the land as so much
capital value, and the economic rent as interest thereon,
just as the commercial rent for the buildings and other
improvements is interest on their capital value; but the
economist distinguishes between them because he knows
that they are determined by different forces, and that the
distinction is of importance. He knows, for example,
that the supply of land is fixed, while the supply of capital
is capable of indefinite increase. In many situations,
therefore, rent increases, but interest remains stationary
or declines. Sometimes, though more rarely, the reverse
occurs. As we shall see later, this and some other specific
characteristics of land and rent have important moral
6 DISTRIBUTIVE JUSTICE
aspects ; consequently the moralist cannot afford to confuse
rent with interest.
The Cause of Economic Rent
The cause of economic rent is the fact that land is
limited relatively to the demand for it. If land were as
plentiful as air mere ownership of some portion of it
would not enable the owner to collect rent. As land-
owner he would receive no income. If he cultivated his
land himself the return therefrom would not exceed normal
compensation for his labour, and normal interest on his
capital. Since no one would be compelled to pay for the
use of land, competition among the different cultivators
would keep the price of their product so low that it would
merely reimburse them for their expenditures of capital
and labour. In similar conditions no rent would arise on
building sites. The cause of the amount of rent may also
be stated in terms of scarcity. At any given time and
place, the rent of a piece of land will be determined by
the supply of that kind of land relatively to the demand
for it. However, the demand itself will be regulated by
the fertility or by the location of the land in question.
Two pieces of agricultural land equally distant from a
city, but of varying fertility, will yield different rents
because of this difference in natural productiveness. Two
pieces of ground of equal natural adaptability for building
sites, but at unequal distances from the centre of a city,
will produce different rents on account of their difference
of location. The absolute scarcity of land is, of course,
fixed by nature ; its relative scarcity is the result of human
activities and desires.
The definition of rent adopted in these pages, " what
men are willing to pay for the use of land," or, " what land
is worth for use," is simpler and more concrete, though
possibly less scientific, than those ordinarily found in
manuals of economics, namely : " that portion of the
THE landowner's SHARE OF NATIONAL PRODUCT J
product that remains after all the usual expenditures for
labour, capital, and directive ability have been deducted ; "
or, " the surplus which any piece of land yields over the
poorest land devoted to the same use, when the return
from the latter is only sufficient to cover the usual expenses
of production."
The statement that all rent goes to the landowner sup-
poses that, in the case of hired land, the tenant pays the
full amount that would result from competitive bidding.
Evidently this was not the case under the feudal system,
when rents were fixed by custom and remained stationary
for centuries. Even to-day, competition is not perfect,
and men often obtain the use of land for less than they or
others might have been willing to give. But the state-
ment in question does describe what tends to happen in a
system of competitive rents.
Before discussing the morality of the landowner's
income, and of rent receiving, we may with profit glance
at the history of land tenure. Thus we shall get some
idea, first, of the antiquity of the present system, and,
second, of its effects upon individual and social welfare.
Both these considerations have an important bearing upon
the moral problem; for length of existence creates a pre-
sumption in favour of the social, and therefore the moral,
value of any institution; and past experience is our chief
means of determining whether an institution is likely to be
socially beneficial, and therefore morally right, in the
future.
CHAPTER II
LANDOWNERSHIP IN HISTORY
Thirty or thirty-five years ago, the majority of
economic historians seemed to accept the theory that land
was originally owned in common.^ They held that in the
beginning the community, usually a village community,
was the landowner; that the community either cultivated
the land as a corporation, and distributed the product
among the individual members, or periodically divided the
land among the social units, and permitted the latter to
cultivate their allotments separately. The second of these
forms of tenure was the more general. The primitive
time to which the theory referred was not the period when
men got their living by hunting and fishing, or by rearing
herds, but the agricultural stage of economic development,
when life had become settled. Of the arguments upon
which the theory was based, some consisted of ambiguous
statements by ancient writers, such as Plato, Csesar, and
Tacitus, and others were merely inferences drawn from
the existence of certain agrarian institutions: family
ownership of land; common pasture lands and woodlands;
periodical distribution of land among the cultivators, as
in the German Mark, the Russian Mir, the Slavonic
Zadruga, and the Javanese Dessa. All these practices
^The most notable exponents of this view were: Von Maurer,
" Einleitung zur Geschichte der Mark," 1854 ; Viollet, " Bibliotheque
de r ecole des chartres," 1872; Maine, "Village Communities in the
East and the West," 1872 ; and De Laveleye, " De la propriete et ses
formes primitives," 1874, of which an English translation appeared in
1878 under the title, " Primitive Property."
8
LANDOWNERSHIP IN HISTORY^ 9
have been interpreted as " survivals " of primitive common
ownership. Only on this hypothesis, it is argued, can they
be satisfactorily explained.
More recent writers have subjected the various argu-
ments for this theory to a searching criticism.^ To-day the
great majority of scholars would undoubtedly accept the
conclusion of Fustel de Coulanges, that the arguments and
evidence are not sufficient to prove that in the earliest
stages of agricultural life land was held in common; and
a majority would probably take the more positive ground
that common ownership in the sense of communal cultiva-
tion and distribution, never existed for any considerable
length of time among any agricultural people. The
present authoritative opinion on the subject is thus sum-
marized by Professor Ashley:
" From the earliest historical times, in Gaul and Ger-
many, very much land was owned individually, and wealth
on one side and slavery on the other were always very
important factors in the situation.
" Even in Germany, communal ownership of land was
never a fundamental or generally pervasive social institu-
tion; there was something very much like large private
estates, worked by dependents and slaves, from the very
earliest days of Teutonic Settlement.
" As to England, it is highly probable that we shall not
find anything that can fairly be called a general com-
munal system of landowning, combined with a substantial
equality among the majority of the people, under condi-
tions of settled agriculture. To find it in any sense we
1 Chief among these writers are : Fustel de Coulanges in an article
in "Revue des Questions Historiques," April, 1889; translated by Mar-
garet Ashley, and published with an introductory chapter by W. J.
Ashley under the title, " The Origin of Property in Land," 1891 ; G.
Von Below, " Beilage zur Allgemeine Zeitung : Das kurze Leben einer
vielgenannten Theorie," 1903 ; F. Seebohm, " The Village Community,"
1883. Cf. Whittaker, " Ownership, Tenure, and Taxation of Land,"
1914, ch. ii; Cathrein, "Das Privatgrundeigenthum und seine Gegner,"
1909; and Pesch, " Lehrbuch der Nationaloekonomie," I, 183-188,
10 DISTRIBUTIVE JUSTICE
shall have to go back to an earlier and * tribal ' condition,
if, indeed, we shall find it there! " ^
No Private Ownership in Pre- Agricultural Conditions
Whenever and wherever men got their living by hunting
and fishing, there was no inducement to own land pri-
vately, except possibly those portions upon which they
built their huts or houses. *' Until they become more or
less an agricultural people they are usually hunters or
fishermen or both, and possibly also to a limited extent
keepers of sheep and cattle. Population is then sparse
and unoccupied territory is plentiful, and questions of the
ownership of particular tracts of land do not concern
them." ^ In any region occupied by a group or tribe, all
portions of the land and the water were about equally
productive of game and fish ; the amount obtainable by any
individual had no relation to labour on any particular piece
of soil; and it was much easier for each to range over the
whole region in common with his fellows than to mark
off a definite section upon which he would not permit
others to come, but beyond which he himself would not be
permitted to go. In such conditions private ownership of
land would have been folly. Tribal or group ownership
was, however, in vogue, especially among those groups
that were in control of the better grounds or streams.
Even this form of proprietorship was comparatively un-
stable, since the people were to a considerable degree
nomadic, and were willing to abandon present possessions
whenever there was a prospect of obtaining better ones
elsewhere. Among men who got their living by rearing
herds, the inducement to hold land in exclusive private
control would be somewhat stronger. The better grazing
tracts would be coveted by many different persons, espe-
cially in the more populous communities. And there
1 Quoted in Whittaker, op. cit., pp. 27, 28.
2 Idem, p. 29.
LANDOWNERSHIP IN HISTORY II
would always be the possibility of confusion among the
different herds, and contention among their owners. In
such circumstances the advantages of exclusive control
would sometimes outweigh the benefits of common use
and ownership. In the thirteenth chapter of Genesis we
are told that, owing to strife between the herdsmen of
Abram and Lot, the brothers separated, and agreed to
become the exclusive possessors of different territories.
Nevertheless, it is probable that tribal ownership was the
prevailing form of land tenure so long as people remained
mainly in pastoral conditions.
It is likewise probable that the same system continued
in many cases for some time after men began to cultivate
the soil. At least, this would seem to have been the
natural arrangement while land was plentiful, and the
methods of cultivation crude and soil-exhausting. It
would be more profitable to take up new lands than to
continue upon the old. Within historical times this system
prevailed among the ancient Germans, some of the tribes
of New Zealand, and some of the tribes of Western
Africa. Where land was not so plentiful it was some-
times redistributed among individuals or heads of families,
as often as a death occurred or a new member arrived in
the community. Some of the tribes and peoples who ob-
served this practice were the ancient Irish, the aborigines of
Peru, Mexico, and parts of what is now the United States,
and Australia, and some of the tribes of Africa, India, and
Malaysia.^ Whether the most primitive agricultural sys-
tems of every people were of this nature we have, of
course, no means of knowing, but the supposition is ante-
cedently probable; for agriculture must have begun very
gradually, and been for some time practised in connection
with the more primitive methods of obtaining a livelihood.
As the land had been held for the most part in common
iCf. P. W. Joyce, "A Social History of Ancient Ireland," 1903;
and Letourneau, " Property : Its Origin and Development," 1896.
12 DISTRIBUTIVE JUSTICE
during the hunting and fishing stage and during the pas-
toral stage, the same arrangement would probably continue
until the people found it necessary to cultivate the same
tracts of land year after year, and conceived the desire to
retain their holdings in stable possession and to transmit
them to their children. Moreover, so long as the members
of the clan remained strongly conscious of their kinship,
and realised the necessity of acting as a unit against their
enemies, there would be a strong incentive to clan owner-
ship of the land, and clan allotment of it among the indi-
vidual members. In other words, the clan would, in these
circumstances, have the same motives for common owner-
ship that exist to-day in the family.
The oldest historical peoples, the Israelites, Egyptians,
Assyrians, Babylonians, and Chinese, had private owner-
ship of land at the beginning of their recorded history.
Most of them, however, had been cultivating land for a
considerable length of time, and had acquired a consider-
able degree of civilisation, before the earliest period of
their existence of which we have any knowledge. It is
quite possible that those among them that had passed
through the hunting and fishing or the pastoral stage of
existence, had practised tribal or common ownership dur-
ing the earlier portion of their agricultural life.
How the Change Probably Took Place
The change from tribal to private landownership could
have occurred in a great variety of ways. For example,
the chief, patriarch, or king might have gradually obtained
greater authority in making the allotments of land among
the members of the tribe or group, and thus acquired a
degree of control over the land which in time became prac-
tical ownership; he might have seized the holdings of
deceased persons, or of those who were unable to pay him
the tax or tribute that he demanded, or of those who were
for any reason obnoxious to him. Again, the taxes paid
LANDOWNERSHIP IN HISTORY 1 3
to the chief man in a community for his services as ruler
might have come in time to be regarded as a payment for
the use of the land, and therefore as an acknowledgment
that the chief was also the landlord. Even in the Middle
Ages the rents received by the feudal lords were in great
measure a return for social and political services, just as
are the taxes received to-day from private landowners by
the State. In primitive times, as well as later on, the chief
would naturally do his best to convert this institution of
tax paying or tribute paying into rent paying, and to add
the position of landowner to his other prerogatives. After
all, the transition from tribal ownership, with private cul-
tivation and private receipt of the produce of individual
allotments, to overlordship and landlordism, would not
have been greater than that which actually took place in
England between the fifteenth and the nineteenth centuries,
when the lords became absolute owners of land that they
had previously held with their tenants in a sort of divided
or dual ownership. In a word, tribal ownership could
have been displaced by landlordism through the same
methods that have been used everywhere by the powerful,
the ambitious, and the greedy against the weak, the indif-
ferent, and the upright. Nor must we forget the influence
of conquest. Most of the countries that appear in his-
torical times with a system of private ownership had at
some previous period been subjugated by an alien people.
In many of these the conquerors undoubtedly introduced a
considerable degree of individual ownership, the more
powerful among them becoming landlords, while their
weaker companions and the mass of the conquered popula-
tion were established in a condition of tenancy.
Where a somewhat widely diffused private ownership
succeeded the primitive system, it was probably due to the
free action of the cultivators, as soon as they came to
realise the inconveniences of ownership in common.
" Any enclosed land round their permanent dwellings, and
14 DISTRIBUTIVE JUSTICE
any land outside the settlement which was cleared, re-
claimed, and cultivated, or occupied with cattle by indi-
viduals or families, was recognised as their personal prop-
erty. Only those who were industrious, enterprising, and
courageous enough would clear, occupy, retain, cultivate,
and defend waste land. They would become personal
owners of cattle, and would gradually acquire wealth
which would enable them to employ others and still fur-
ther improve their position. As their power increased,
and as population grew, the bravest, wealthiest, and most
capable fighting men amongst them would become chiefs
or a species of nobles, and the force of circumstances, often
no doubt aided by force and fraud, would eventually make
them the landowners of the greater part of the district,
with the more or less willing acquiescence and consent of
the community amongst whom they lived, and to whom
they extended their protection." ^
Limited Character of Primitive Common Ownership
A great deal of the opposition to the theory of primitive
common ownership of agricultural land, seems to be based
upon an exaggerated conception of the scope of that insti-
tution. The average man who thinks or speaks of owner-
ship to-day has in mind the Roman concept and practice
of private property. This includes the unrestricted right
of disposal; that is, the power to hold permanently, to
transfer or transmit, to use or to abuse or not to use at all,
to retain the product of the owner's use, to rent the prop-
erty to any person and for any period that the owner
chooses, and to obtain a price in return called rent. Any
man who takes the theory of primitive common ownership
to imply that the community or tribe exercised all these
powers over its land, will have no difficulty in proving that
the evidence is overwhelmingly against any such theory.
Even among those people that are certainly known to have
1 Whittaker, op. cit., pp. 30, 31.
LANDOWNERSHIP IN HISTORY 1 5
practised so-called common ownership of land, there are
very few instances of communal cultivation, or communal
distribution of the product. Yet these are included in the
Roman concept of ownership. The usual method seems
to have been periodical allotment by the community of the
land among individuals, individual cultivation of the
allotted tracts, and individual ownership of the product.
Moreover, there was always a chief or patriarch who exer-
cised considerable authority in the distribution of the land,
frequently collected a rent or tax from the cultivators,
and almost invariably exercised something like private
ownership of a portion of the land for his direct and
special benefit. Sometimes other men of importance in
the community possessed land which was not subject to
the communal allotment. Primitive ownership of land in
common was, therefore, very far from vesting in the com-
munity all the powers that inhere in the private proprietor
of land according to the Roman law and usage.
Private Ownership General in Historical Times
So much for land tenure in prehistoric times. During
the historical period of the existence of the race, almost
all civilised peoples have practised some form of private
ownership in the matter of their arable lands. While dif-
fering considerably at various times and places, it has
always excluded communal allotment of land and com-
munal distribution of the product, and has always included
private receipt of the product by the owner-user, or private
receipt of rent when the owner transferred the use to
some one else. But it did not always include the right to
determine who should be the user. In the later centuries
of the feudal system, for example, the lord could not
always expel the tenants from the land, nor prevent them
from transmitting the use of it to their children. More-
over, the rent that he received was customary and fixed,
not competitive and arbitrary, and it was looked upon in
1 6 DISTRIBUTIVE JUSTICE
great measure as a return to the lord for social, military,
and political services, as well as a payment for the use of
land. This system was private ownership, indeed, but if
we apply the Roman notion of ownership we shall find it
difficult to decide whether the tenant or the lord should
more properly be called the owner. At any rate, the right
of ownership possessed by the lord was greatly limited by
restrictions which favoured the masses of the cultivators.
In every community there were common wood lands and
pasture lands for the free use of all the inhabitants.
Among other restrictions of private ownership and con-
trol in favour of the principle of equal access to the land by
all persons, we may mention the division of the English
villein's holding into several portions, intermingled with
those of his neighbours, so that each would have about the
same amount of good land; and the ancient Hebrew law
whereby alienated land was returned to the descendants of
its original owners every fifty years. ^
Reckoning the feudal lord, and all other overlords who
had the same control over land, as private proprietors, we
may say that in historical times the arable land of every
country has been owned by a minority of the population.
Since the downfall of feudalism, the tendency in most
regions of the Western world has been toward an increase
in the number of owners, and a decrease in the number of
great estates. This tendency has been especially marked
during the last one hundred years. It will, however, need
to continue for a very long time, or else to increase its
pace very rapidly, before land ownership will be diffused
in anything like the measure that is necessary if its benefits
are to be shared by all the people. Even in the United
States, where the distribution is perhaps more general than
in any other country, only 38.4 per cent, of the families in
towns and cities owned, in 19 10, the homes in which they
lived, and therefore the land upon which their homes were
1 Leviticus xxv, 23-28.
LANDOWNERSHIP IN HISTORY 1 7
located. In the rural districts the per cent, of home-
owning families was only 62.8.
Conclusions from History
What conclusions does history warrant concerning the
social and moral value of private landownership ? Here
we are on very uncertain ground; for different inferences
may be drawn from the same group of facts if a different
section of them be selected for emphasis. Sir Henry
Maine and Henry George both accepted the theory of
primitive agrarian communism, but the former saw in this
assumed fact a proof that common ownership was suited
only to the needs of rude and undeveloped peoples, while
the latter regarded it as a sure indication that common
ownership was fundamentally natural and in accordance
with permanent social welfare. The fact that practically
all peoples whose history we know discarded communal for
private ownership as soon as they had acquired a moderate
degree of proficiency in methods of cultivation and in the
arts of civilised life does, indeed, create a presumption that
the latter system is the better for civilised men. To this
extent Sir Henry Maine is right. Against this presump-
tion Henry George maintained that common ownership was
abandoned solely because of the usurpation, fraud, and
force employed by the powerful and privileged classes.
Undoubtedly this factor played a great part in bringing
about the private ownership that has existed and still exists,
but it does not account for the institution as a whole and
everywhere. If chiefs, kings, and other powerful per-
sonages had never usurped control of the land, if no people
had ever conquered the territory of another, it is probable
that private ownership would have taken place to the same
extent, although it would have been much more widely
diffused. For the system of periodical repartition of land,
to say nothing of communal cultivation and communal dis-
tribution of the product, does hinder that attachment to a
1 8 DISTRIBUTIVE JUSTICE
particular portion of the soil and that intensive cultivation
which are so necessary to the best interests of the culti-
vator, the most productive use of the land, and therefore
the welfare of society.
On the other hand, the limitations on the right of private
ownership which have been established in so many places
and times in favour of those who were not owners, show
that men have very generally looked upon land as in some
measure the inheritance of all the people. Hence arises
the presumption that this conviction is but the reflection of
fundamental and permanent human needs.
Summing up the matter, we may say that the history of
land tenure points on the whole to the conclusion that pri-
vate ownership is socially and individually preferable to
agrarian communism, but that it should be somewhat
strictly limited in the interest of the non-owners, and of
the community as a whole.
CHAPTER III
THE ARGUMENTS AGAINST PRIVATE LANDOWNERSHIP
If land were not privately owned there would be no
receiving of rent by individuals. Therefore, the morality
of the landlord's share of the national product is intimately
related to, and is usually treated in connection with, the
morality of private ownership.
Substantially all the opponents of private property in
land to-day are either Socialists or disciples of Henry
George. In the view of the former, land as well as the
other means of production should be owned and managed
by the State. Although they are more numerous than the
Georgeites, their attack upon private landownership is less
conspicuous and less formidable than the propaganda car-
ried on by the Henry George men. The Socialists give
most of their attention to the artificial instruments of pro-
duction, dealing with land only incidentally, implicitly, or
occasionally. The followers of Henry George, commonly
known as Single Taxers or Single Tax men, defend the
private ownership of artificial capital, or capital in the strict
economic sense, but desire that the control of the com-
munity over the natural means of production should be
so far extended as to appropriate for public uses all econo-
mic rent. Their criticism of private ownership is not only
more prominent than that made by the Socialists, but is
based to a much greater extent upon ethical considerations.
Arguments by Socialists
Indeed, the orthodox or Marxian Socialists are logically
debarred by their social philosophy from passing a strictly
19
20 DISTRIBUTIVE JUSTICE
moral judgment upon property in land. For their theory
of economic determinism, or historical materialism, in-
volves the belief that private landownership, like all other
social institutions, is a necessary product of economic
forces and processes. Hence it is neither morally good
nor morally bad. Since neither its existence nor its con-
tinuance depends upon the human will, it is entirely devoid
of moral quality. It is as unmoral as the succession of
the seasons, or the movement of the tides. And it will
disappear through the inevitable processes of economic
evolution. As expressed by Engels : " The growing per-
ception that existing social institutions are unreasonable
and unjust, that reason has become unreason, and right
wrong, is only proof that in the modes of production and
exchange changes have taken place, with which the social
order, adapted to earlier economic conditions, is no longer
in keeping." ^
Frequently, however, the individual Socialist forgets this
materialistic theory, and falls back upon his common sense,
and his innate conceptions of right and wrong, of free
will and responsibility. Instead of regarding the existing
land system as a mere product of blind economic forces,
he often denounces it as morally wrong and unjust. His
contentions may be reduced to two propositions : The pro-
prietor who takes rent from a cultivator robs the producer
of a part of his product; and no one has a right to take for
his exclusive use that which is the natural heritage and
means of support for all the people. Referring to the
receipt of 35,000,000 pounds a year in rent by 8,000 British
landlords, Hyndman and Morris exclaim : " Yet in the face
of all this a certain school still contend that there is no class
robbery." ^ Since the claim that the labourer has a right
to the full product of his labour applies to capital as well
as to land, it can be more conveniently considered when we
1 " Socialism : Utopian and Scientific," p. 45 ; Chicago, igoo.
2" A summary of the Principles of Socialism," p. 23; London, 1899.
ARGUMENTS AGAINST PRIVATE LANDOWNERSHIP 21
come to treat of the income of the capitalist. With regard
to the second contention, the following statement by
Robert Blatchford may be taken as fairly representative
of Socialist thought : '' The earth belongs to the people.
... So that he who possesses land possesses that to which
he has no right, and he who invests his savings in land be-
comes the purchaser of stolen property." ^ Inasmuch as
this argument is substantially the same as one of the funda-
mental contentions in the system of Henry George, it will
be discussed in connection with the latter, in the pages
immediately following.
Henry George's Attack on the Title of First Occupancy
Every concrete right, whether to land or to artificial
goods, is based upon some contingent fact or ground, called a
title. By reason of some title a man is justified in appropri-
ating a particular farm, house, or hat. When he becomes
the proprietor of a thing that has hitherto been ownerless,
his title is said to be original; when he acquires an article
from some previous owner, his title is said to be derived.
As an endless series of proprietors is impossible, every
derived title must be traceable ultimately to some original
title. Among the derived titles the most important are
contract, inheritance, and prescription. The original title
is either first occupancy or labour. The prevailing view
among the defenders of private landownership has always
been that the original title is not labour but first occupancy.
If this title be not valid every derived title is worthless,
and no man has a true right to the land that he calls his
own. Henry George's attack upon the title of first occu-
pancy is an important link in his argument against private
property in land.
" Priority of occupation give exclusive and perpetual
title to the surface of a globe in which, in the order of
nature, countless generations succeed each other! . . .
1" Socialism: A Reply to the Pope's Encyclical," p. 4; London, 1899.
22 DISTRIBUTIVE JUSTICE
Has the first comer at a banquet the right to turn back all
the chairs, and claim that none of the other guests shall
partake of the food provided, except as they make terms
with him ? Does the first man who presents a ticket at the
door of a theatre, and passes in, acquire by his priority the
right to shut the doors and have the performance go on
for him alone? . . . And to this manifest absurdity does
the recognition of the individual right to land come when
carried to its ultimate that any human being, could he con-
centrate in himself the individual rights to the land of any
country, could expel therefrom all the rest of the inhab-
itants; and could he concentrate the individual rights
to the whole surface of the globe, he alone of all the
teeming population of the earth would have the right to
Hve." 1
In passing, it may be observed that Henry George was
not the first distinguished writer to use the illustration
drawn from the theatre. Cicero, St. Basil, and St. Thomas
Aquinas all employed it to refute extravagant conceptions
of private ownership. In reply to the foregoing argument
of Henry George, we point out: first, that the right of
ownership created by first occupancy is not unlimited, either
extensively or intensively; and, second, that the historical
injustices connected with private ownership have been in
only a comparatively slight degree due to the first occupa-
tion of very large tracts of land. The right of first occu-
pancy does not involve the right to take a whole region or
continent, compelling all subsequent arrivals to become
tenants of the first. There seems to be no good reason to
think that the first occupant is justified in claiming as his
own more land than he can cultivate by his own labour, or
with the assistance of those who prefer to be his employes
or his tenants rather than independent proprietors. " He
has not the right to reserve for himself alone the whole
territory, but only that part of it which is really useful to
1 " Progress and Poverty," book vii, ch. i.
ARGUMENTS AGAINST PRIVATE LANDOWNERSHIP 23
him, which he can make fruitful." ^ Nor is the right of
private landownership, on whatever title it may rest, un-
limited intensively, that is, in its powers or comprehension.
Though a man should have become the rightful owner of
all the land in a neighbourhood, he would have no moral
right to exclude therefrom those persons who could not
without extreme inconvenience find a living elsewhere.
He would be morally bound to let them cultivate it at a
fair rental. The Christian conception of the intensive
limitations of private ownership is well exemplified in the
action of Pope Clement IV, who permitted strangers to
occupy the third part of any estate which the proprietor
refused to cultivate himself.^ Ownership understood as
the right to do what one pleases with one's possessions, is
due partly to the Roman law, partly to the Code Napoleon,
but chiefly to modern theories of individualism.
In the second place, the abuses which have accompanied
private property in land are very rarely traceable to abuses
of the right of first occupancy. The men who have pos-
sessed too much land, and the men who have used their
land as an instrument of social oppression, have scarcely
ever been first occupants or the successors thereof through
derived titles. This is especially true of modern abuses,
and modern legal titles. In the words of Herbert Spencer :
" Violence, fraud, the prerogative of force, the claims of
superior cunning, — these are the sources to which these
titles may be traced. The original deeds were written with
the sword, rather than with the pen : not lawyers but sol-
diers were the conveyancers : blows were the current coin
given in payment; and for seals blood was used in prefer-
ence to wax." ^ Not the appropriation of land which
1 " La Propriete Privee," par L. Garriguet, I, 62 ; Paris, 1903.
2 Cf. Ardant, " Papes et Paysans," pp. 41, sq.
s " Social Statics," chap, ix ; 1850. Spencer's retractation, in a later
edition of this work, of his earlier views on the right of property in
land does not affect the truth of the description quoted in the passage
above.
24 DISTRIBUTIVE JUSTICE
nobody owned, but the forcible and fraudulent seizure of
land which had already been occupied, has been one of the
main causes of the evils attending upon private landowner-
ship. Moreover, in England and all other countries that
have adopted her legal system, the title of first occupanc)^
could never be utilised by individuals : all unoccupied land
was claimed by the Crown or by the State, and transferred
thence to private persons or corporations. If some indi-
viduals have got possession of too much land through this
process, the State, not the title of first occupancy, must bear
the blame. This is quite clear in the history of land tenure
in the United States and Australasia.
Henry George's attack upon private landownership
through the title of first occupancy is therefore ineffective;
for he attributes to this qualities that it does not possess,
and consequences for which it is not responsible.
His Defence of the Title of Labour
Thinking that he has shattered the title of first occu-
pancy, Henry George undertakes to set up in its place the
title of labour. " There can be to the ownership of any-
thing no rightful title which is not derived from the title
of the producer, and does not rest on the natural right of
the man to himself." ^ The only original title is man's
right to the exercise of his own faculties; from this right
follows his right to what he produces; now man does not
produce land; therefore he cannot have rightful property
in land. Of these four propositions the first is a pure
assumption, the second is untrue, the third is a truism, and
the fourth is as unfounded as the first. Dependently upon
God, man has, indeed, a right to himself and to the exercise
of his own faculties; but this is a right of action, not of
property. By the exercise of this right alone man can
never produce anything, never become the owner of any-
thing. He can produce only by exerting his powers upon
1 " Progress and Poverty," loc. cit.
ARGUMENTS AGAINST PRIVATE LANDOWNERSHIP 2$
something outside of himself; that is, upon the goods of
external nature. To become the producer and the owner
of a product, he must first become the owner of materials.
By what title is he to acquire these ? In one passage ^
Henry George seems to think that no title is necessary, and
refers to the raw material as an " accident," while the
finished product is the " essence," declaring that " the right
of private ownership attaches the accident to the essence,
and gives the right of ownership to the natural material in
which the labour of production is embodied." Now this
solution of the difficulty is too simple and arbitrary. Its
author would have shrunk from applying it universally;
for example, to the case of the shoemaker who produces a
pair of shoes out of stolen materials, or the burglar who
makes an overcoat more useful (and therefore performs a
task of production) by transferring it from a warehouse
to his shivering back! Evidently Henry George has in
mind only raw material in the strict sense, that which has
not yet been separated from the storehouse of nature; for
he declares in another place that " the right to the produce
of labour cannot be enjoyed without the free use of the
opportunities offered by nature." ^ In other words, man's
title to the materials upon which he is to exercise his facul-
ties, and of which he is to become the owner by right of
production, is the title of gift conferred by nature, or
nature's God.
Nevertheless this title is applicable only to those goods
that exist in unlimited abundance, not to those parts of the
natural bounty that are scarce and possess economic value.
A general assumption by producers that they were entitled
to take possession of the gifts of nature indiscriminately
would mean industrial anarchy and civil war. Hence
Henry George tells us that the individual should pay rent
to " the community to satisfy the equal rights of all other
1 " Open Letter to Pope Leo XIII," page 25 of Vierth's edition.
2 " Progress and Poverty," loc. cit.
26 DISTRIBUTIVE JUSTICE
members of the community." ^ Inasmuch as the individual
must pay this price before he begins to produce, his right
to the use of natural opportunities is not " free," nor does
his labour alone constitute a title to that part of them that
he utilises in production. Consequently labour does not
create a right to the concrete product. It merely gives the
producer a right to the value that he adds to the raw
material. His right to the raw material itself, to the ele-
ments that he withdraws from the common store, and
fashions into a product, say, wheat, lumber, or steel, does
not originate in the title of labour but in the title of con-
tract. This is the contract by which in exchange for rent
paid to the community he is authorised to utilise these
materials. Until he has made this contract he has mani-
festly no full right to the product into which natural forces
as well as his own labour have entered. According to
Henry George's own statements, therefore, the right to the
product does not spring from labour alone, but from labour
plus compensation to the community. Since the contract
by which the prospective user agrees to pay this compensa-
tion or rent must precede his application of labour, it in-
stead of labour is the original title. Since the contract is
made with a particular community for the use of a par-
ticular piece of land, the title that it conveys must derive
ultimately from the occupation of that land by that com-
munity,— or some previous community of which the pres-
ent one is the legal heir. So far as economically valuable
materials are concerned, therefore, the logic of Henry
George's principles leads inevitably to the conclusion that
the original title of ownership is first occupancy.
Even in the case of economically free goods, the original
title of ownership is occupancy. Henry George declares
that the traveller who has filled his vessels at a free-for-all
spring owns the water when he has carried it into a desert,
1 " Progress and Poverty," loc. cit.
ARGUMENTS AGAINST PRIVATE LANDOWNERSHIP 2^
by the title of labour.^ Nevertheless, in its original place
this water belonged either to the community or to nobody.
In the former supposition it can become the property of the
traveller only through an explicit or implicit gift from the
community ; and it is this contract, not labour, that consti-
tutes his title to the water. If we assume that the spring
was ownerless, we see that the labour of carrying a portion
of it into the desert still lacks the qualifications of a title;
for the abstracted water must have belonged to him before
he began the journey. It must have been his from the
moment that he separated it from the spring. Otherwise
he had no right to take it away. His labour of transport-
ing it gave him a right to the utility thus added to the water,
but not a right to the water when it first found a local habi-
tation in his vessels. Nor was the labour of transferring
it from the spring into his vessels the true title ; for labour
alone cannot create a right to the material upon which it is
exerted, as we see in the case of stolen objects. If it be
contended that labour together with the natural right to
use the ownerless goods of nature have all the elements
of a valid title, the assertion must be rejected as unprecise
and inadequate. The right to use ownerless goods is a
general and abstract right that requires to become specific
and concrete through some title. In the case of water it is
a right to water in general, to some water, but not a right
to a definite portion of the water in this particular spring.
The required and sufficient title here is that of apprehen-
sion, occupation, the act of separating a portion from the
natural reservoir. Therefore, it is first occupancy as
exemplified in mere seizure of an ownerless good, not
labour in the sense of productive activity, nor labour in
the sense of painful exertion, that constitutes the precise
title whereby the man acquires a right to the water that he
has put into his cup or barrel. Mere seizure is a sufficient
1 " Open Letter to Pope Leo XIII," loc. cit.
28 DISTRIBUTIVE JUSTICE
title in all such cases as that which we are now considering,
simply because it is a reasonable method of determining
and specifying ownership. There is no need whatever of
having recourse to the concept of labour to justify this
kind of property right. In the present case, indeed, the
acts of apprehension and of productive labour (the labour
of dipping the water into a vessel is productive inasmuch
as the water is more useful there than in the spring) are the
same physically, but they are distinct logically and ethically.
One is mere occupation, while the other is production;
and ownership of a thing must precede, in morals if not in
time, the expenditure upon it of productive labour.
" The theory which bases the right of property on labour
really depends in the ultimate resort on the right of pos-
session and the fact that it is socially expedient, and is
therefore upheld by the laws of society. Grotius, dis-
cussing this in the old Roman days, pointed out that since
nothing can be made except out of pre-existing matter,
acquisition by means of labour depends, ultimately, on
possession by means of occupation." ^
Since man's right to his faculties does not of itself give
him a right to exercise them upon material objects, pro-
ductive labour cannot of itself give him a right to the
product therefrom created, nor constitute the original title
of ownership. Since labour is not the original title to
property, it is not the only possible title to property in land.
Hence the fact that labour does not produce land, has no
bearing on the question of private landownership.
In passing it may be observed that Henry George im-
plicitly admitted that the argument from the labour title
was not of itself sufficient to disprove the right of private
property in land. Considering the objection, " if private
property in land be not just, then private property in the
products of land is not just, as the material of these prod-
ucts is taken from the land," he replied that the latter form
1 Whittaker, op. cit., p. 32.
ARGUMENTS AGAINST PRIVATE LANDOWNERSHIP 29
of ownership " is in reality a mere right of temporary pos-
session," since the raw material in the products sooner or
later returns to the " reservoirs provided for all . . . and
thus the ownership of them by one works no injury to
others." ^ But private ownership of land, he continued,
shuts out others from the very reservoirs. Here we have
a complete abandonment of the principle which underlies
the labour argument. Instead of trying to show from the
nature of the situation that there is a logical difference
between the two kinds of ownership, he shifts his ground
to a consideration of consequences. He makes the title of
social utility instead of the title of labour the distinguishing
and decisive consideration. As we shall see later, he is
wrong even on this ground; for the fundamental justifica-
tion of private landownership is precisely the fact that it is
the system of land tenure most conducive to human welfare.
At present we merely call attention to the breakdown in his
own hands of the labour argument.
To sum up the entire discussion on the original title of
ownership: Henry George's attack upon first occupancy is
futile because based upon an exaggerated conception of the
scope of private landownership, and upon a false assump-
tion concerning the responsibility of that title for the his-
torical evils of the system. His attempt to substitute
labour as the original title is likewise unsuccessful, since
labour can give a right only to the utility added to natural
materials, not to the materials themselves. Ownership of
the latter reaches back finally to occupation. Whence it
follows that the title to an artificial thing, such as a hat or
coat, water taken from a spring, a fish drawn from the sea,
is a joint or twofold title ; namely, occupation and labour.
Where the product embodies scarce and economically valu-
able raw material, occupation is usually prior to labour in
time; in all cases it is prior to labour logically and ethi-
cally. Since labour is not the original title, its absence in
1 " Open Letter," loc. cit.
30 DISTRIBUTIVE JUSTICE
the case of land does not leave that form of property un-
justified. The title of first occupancy remains. In a
word, the one original title of all property, natural and
artificial, is first occupancy.
The other arguments of Henry George against private
landownership are based upon the assumed right of all
mankind to land and land values, and on the contention
that this right is violated by the present system of tenure.
The Right of All Men to the Bounty of the Earth
" The equal right of all men to the use of land is as
clear as their equal right to breathe the air — it is a right
proclaimed by the fact of their existence. For we cannot
suppose that some men have a right to be in the world, and
others no right.
" If we are here by the equal permission of the Creator,
we are all here with an equal title to the enjoyment of his
bounty — with an equal right to the use of all that nature
so impartially offers. . . . There is in nature no such
thing as a fee simple in land. There is on earth no power
which can rightfully make a grant of exclusive ownership
of land. If all existing men were to grant away their
equal rights, they could not grant away the rights of those
who follow them. For what are we but tenants for a day ?
Have we made the earth that we should determine the
rights of those who after us shall tenant it in their turn? " ^
The right to use the goods of nature for the support of
life is certainly a fundamental natural right; and it is sub-
stantially equal in all persons. It arises, on the one hand,
from man's intrinsic worth, his essential needs, and his
final destiny; and, on the other hand, from the fact that
nature's bounty has been placed by God at the disposal of
all His children indiscriminately. But this is a general
and abstract right. What does it imply specifically and in
the concrete ? In the first place, it includes the actual and
1 " Progress and Poverty," book vil, ch. i.
ARGUMENTS AGAINST PRIVATE LANDOWNERSHIP 3 1
continuous use of some land ; for a man cannot support life
unless he is permitted to occupy some portion of the earth
for the purposes of working, and eating, and sleeping.
Secondly, it means that in time of extreme need, and when
more orderly methods are not available, a man has the right
to seize sufficient goods, natural or produced, public or pri-
vate, to support life. So much is admitted and taught by
all Catholic authorities, and probably by all other authori-
ties. Furthermore, the abstract right in question seems
very clearly to include the concrete right to obtain on rea-
sonable conditions at least the requisites of a decent liveli-
hood; for example, by direct access to a piece of land, or
in return for a reasonable amount of useful labour. All
of these particular rights are equally valid in all persons.
Does the equal right to use the bounty of nature include
the right to equal shares of land, or land values, or land
advantages? Since the resources of nature have been
given to all men in general, and since human nature is spe-
cifically and juridically equal in all, have not all persons
the right to share equally in these resources? Suppose
that some philanthropist hands over to one hundred per-
sons an uninhabited island, on condition that they shall
divide it among themselves with absolute justice. Are
they not obliged to divide it equally? On what ground
can any person claim or be awarded a larger share than
his fellows? None is of greater intrinsic worth than an-
other, nor has any one made efforts, or sacrifices, or prod-
ucts which will entitle him to exceptional treatment. The
correct principle of distribution would seem to be absolute
equality, except in so far as it may be modified on account
of varying needs, and varying capacities for social service.
In any just distribution account must be taken of differ-
ences in needs and capacities; for it is not just to treat
men as equal in those respects in which they are unequal,
nor is it fair to deprive the community of those social ben-
efits which can be obtained only by giving exceptional re-
32 DISTRIBUTIVE JUSTICE
wards for exceptional services. The same amount of food
allotted to two persons might leave one hungry and the
other sated; the same amount of land assigned to two per-
sons might tempt the one to wastefulness and discourage
the other. To be sure, the factor of exceptional capacity
should not figure in the distribution until all persons had
received that measure of natural goods which was in each
case sufficient for a decent livelihood. For the funda-
mental justification of any distribution is to be sought in
human needs; and among human needs the most deserv-
ing and the most urgent are those which must be satisfied
as a prerequisite to right and reasonable life.
Now it is true that private ownership of land has no-
where realised this principle of proportional equality and
proportional justice. No such result is possible in a sys-
tem that, in addition to other difficulties, would be required
to make a new distribution at every birth and at every
death. Private ownership of land can never bring about
ideal justice in distribution. Nevertheless it is not neces-
sarily out of harmony with the demands of practical jus-
tice. A community that lacks either the knowledge or the
power to establish the ideal system is not guilty of actual
injustice because of this failure. In such a situation the
proportionally equal rights of all men to the bounty of na-
ture are not actual rights. They are conditional, or hypo-
thetical, or suspended. At best they have no more moral
validity than the right of a creditor to a loan that, owing
to the untimely death of the debtor, he can never recover.
In both cases it is misleading to talk of injustice ; for this
term always implies that some person or community is
guilty of some action which could have been avoided. The
system of private landownership is not, indeed, perfect;
but this is not exceptional in a world where the ideal is
never attained, and all things are imperfect. Henry
George declares that " there is on earth no power which
can rightfully make a grant of exclusive ownership in
ARGUMENTS AGAINST PRIVATE LANDOWNERSHIP 33
land " ; but what would he have a community do which
has never heard of his system? Introduce some crude
form of communism, or refrain from using the land at all,
and permit the people to starve to death in the interests of
ideal justice? Evidently such a community must make
grants of exclusive ownership, and these will be as valid
in reason and in morals as any other act that is subject to
human limitations which are at the time irremovable.
Perhaps the Single Taxer would admit the force of the
foregoing argument. He might insist that the titles given
by the State in such conditions were not exclusive grants
in the strict sense, but were valid only until a better sys-
tem could be set up, and the people put in possession of
their natural heritage. Let us suppose, then, that a nation
were shown *' a more excellent way." Suppose that the
people of the United States set about to establish Henry
George's system in the way that he himself advocated.
They would forthwith impose upon all land an annual tax
equivalent to the annual rent. What would be the effect
upon private land-incomes, and private land-wealth ? Since
the first would be handed over to the State in the form of
a tax, the second would utterly disappear. For the value
of land, like the value of any other economic good, depends
upon the utilities that it embodies or produces. Whoever
controls these will control the market value of the land it-
self. No man will pay anything for a revenue-producing
property if some one else, for example, the State, is for-
ever to take the revenue. The owner of a piece of land
which brings him an annual revenue or rent of one hun-
dred dollars, will not find a purchaser for it if the State
appropriates the one hundred dollars in the form of a tax
that is to be levied year after year for all time. On the
assumption that the revenue represents a selling value of
two thousand dollars, the private owner will be worth that
much less after the introduction of the new system.
Henry George defends this proceeding as emphatically
34 DISTRIBUTIVE JUSTICE
just, and denies the justice of compensating the private
owners. In the chapter of " Progress and Poverty "
headed, " Claim of Land Ov^ners to Compensation," he de-
clares that " private property in land is a bold, bare, enor-
mous v^rong, like that of chattel slavery " ; and against
Mill's statement that land owners have a right to rent and
to the selling value of their holdings, he exclaims: ''If
the land of any country belong to the people of that coun-
try, what right, in morality and justice, have the individuals
called land owners to the rent? If the land belong to the
people, why in the name of morality and justice should the
people pay its salable value for their own?" ^
Here, then, we have the full implication of the Georgean
principle that private property in land is essentially unjust.
It is not merely imperfect, — tolerable while unavoidable.
When it can be supplanted by the right system, its in-
equalities must not continue under another form. If in-
equalities are continued through the compensation of pri-
vate owners, individuals are still hindered from enjoying
their equal rights to land, and the State becomes guilty of
formal and culpable injustice. The titles which the State
formerly guaranteed to the private owners did not have in
morals the perpetual validity which they professed to have.
Since the State is not the owner of the land, it was morally
powerless to create or sanction titles of this character.
Even if all the citizens at any given time had deliberately
transferred the necessary authorisation to the State, " they
could not," in the words of Henry George, " grant away
the right of those who follow them." The individual's
right to land is innate and natural, not civil or social. The
author of " Progress and Poverty " attributes to the in-
dividual's common right to land precisely the same absolute
character that Father Liberatore predicates of the right to
become a private land owner.^ In the view of Henry
1 Cf. chapter entitled " Compensation " in " A Perplexed Philoso-
pher."
2 Cf. " Principles of Political Economy," 1891, p. 130.
ARGUMENTS AGAINST PRIVATE LANDOWNERSHIP 35
George, the State is merely the trustee of the land, having
the duty of distributing its benefits and values so as to
make effective the equal rights of all individuals. Conse-
quently, the legal titles of private ownership which it
creates or sanctions are valid only so long as nothing better
is available. At best such titles have no greater moral
force than the title by which an innocent purchaser holds
a stolen watch; and the persons who are thereby deprived
of their proper shares of land benefits, have the same right
to recover them from the existing private owners that the
watch-owner has to recover his property from the innocent
purchaser. Hence the demand for compensation has no
more merit in the one case than in the other.
To the objection that the civil laws of many civilised
countries would permit the innocent purchaser of the watch
to retain it, provided that sufficient time had elapsed to
create a title of prescription, the Single Taxer would reply
that the two kinds of goods are not on the same moral basis
in all respects. He would contend that the natural herit-
age of the race is too valuable, and too important for
human welfare to fall under the title of prescription.
To put the matter briefly, then, Henry George contends
that the individual's equal right to land is so much supe-
rior to the claim of the private owner that the latter must
give way, even when it represents an expenditure of money
or other valuable goods. The average opponent does not
seem to realise the full force of the impression which this
theory makes upon the man who overemphasises the innate
rights of men to a share in the gifts of nature. Let us see
whether this right has the absolute and overpowering value
which is attributed to it by Henry George.
In considering this question, the supremely important
fact to be kept in mind is that the natural right to land is
not an end in itself. It is not a prerogative that inheres
in men, regardless of its purposes or effects. It has valid-
ity only in so far as it promotes individual and social wel-
36 DISTRIBUTIVE JUSTICE
fare. As regards individual welfare, we must bear in
mind that this phrase includes the well being of all persons,
of those who do as well as of those who do not at present
enjoy the benefits of private landownership. Consequently
the proposal to restore to the " disinherited " the use of
their land rights must be judged by its effects upon the
welfare of all persons. If existing landowners are not
compensated they are deprived, in varying amounts, of the
conditions of material well being to which they have be-
come accustomed, and are thereby subjected to varying de-
grees of positive inconvenience and hardship. The asser-
tion that this loss would be offset by the moral gain in al-
truistic feelings and consciousness, may be passed over as
applying to a different race of beings from those who
would be despoiled. The hardship is aggravated consid-
erably by the fact that very many of the dispossessed pri-
vate owners have paid the full value of their land out of
the earnings of labour or capital, and that all of them have
been encouraged by society and the State to regard landed
property in precisely the same way as any other kind of
property. In the latter respect they are not in the same
position as the innocent purchaser of the stolen watch; for
they have never been warned by society that the land might
have been virtually stolen, or that the supposedly rightful
claimants might some day be empowered by the law to re-
cover possession. On the other hand, the persons who
own no land under the present system, the persons who are
deprived of their " birthright," suffer no such degree of
hardship when they are continued in that condition. They
are kept out of something which they have never possessed,
which they have never hoped to get by any such easy
method, and from which they have not been accustomed to
derive any benefit. To prolong this condition is not to
inflict upon them any new or positive inconvenience. Evi-
dently their welfare and claims in the circumstances are
not of the same moral importance as the welfare and claims
ARGUMENTS AGAINST PRIVATE LANDOWNERSHIP 37
of persons who would be called upon to suffer the loss of
goods already possessed and enjoyed, and acquired with
the full sanction of society.
Henry George is fond of comparing the private owner
of land with the slave owner, and the landless man with
the man enslaved; but there is a world of difference be-
tween their respective positions and moral claims. Lib-
erty is immeasurably more important than land, and the
hardship suffered by the master when he is compelled to
free the slave is immeasurably less than that endured by
the slave who is forcibly detained in bondage. Moreover,
the moral sense of mankind recognises that it is in accord-
ance with equity to compensate slave owners when the
slaves are legally emancipated. Infinitely stronger is the
claim of the landowner to compensation.
If the Georgeite replies that the landless man is at pres-
ent kept out of something to which he has a right, while
confiscation would take from the private owner something
which does not really belong to him, the rejoinder must be
that this assertion begs the question. The question is like-
wise begged when the unreasonable defender of private
property declares that the right of the landless is vague
and undetermined, and therefore morally inferior to the
determinate and specific right of the individual landowner.
This is precisely the question to be solved. Does the ab-
stract right of the landless man become a concrete right
which is so strong as to justify confiscation? Is his nat-
ural right valid against the acquired right of the private
proprietor ? These questions can be answered intelligently
only by applying the test of human welfare, individual and
social. To say that land of its very nature is not morally
susceptible of private ownership, is to make an easy asser-
tion that may be as easily denied. To interpret man's
natural right to land by any other standard than human
welfare, is to make of it a fetish, not a thing of reason.
Henry George himself seemed to recognise this when he
38 DISTRIBUTIVE JUSTICE
wrote that wonderfully eloquent but overdrawn and one-
sided description of the effects of private ownership which
occurs in the chapter entitled, " Claim of Landowners to
Compensation." ^
When we say that human welfare is the final deter-
minant of the right to land, we understand this phrase in
the widest possible sense. To divide the goods of the idle
rich among the deserving poor, might be temporarily bene-
ficial to both these classes, but the more remote and endur-
ing consequences would be individually and socially dis-
astrous. To restore a legacy to persons who had been de-
frauded of it when very young, would probably cause more
hardship to the swindler than the heirs would have suf-
fered had there been no restitution ; nevertheless the larger
view of human welfare requires that the legacy should be
restored. When, however, two or three generations have
been kept out of their inheritance, the civil law permits the
children of the swindler to retain the property by the title
of prescription; and for precisely the same reason, human
welfare.
The social consequences of the confiscation of rent and
land values, would be even more injurious than those fall-
ing upon the individuals despoiled. Social peace and order
would be gravely disturbed by the protests and opposition
of the landowners, while the popular conception of prop-
erty rights, and of the inviolability of property, would be
greatly weakened, if not entirely destroyed. The average
man would not grasp or seriously consider the Georgean
distinction between land and other kinds of property in
this connection. He would infer that purchase, or in-
heritance, or bequest, or any other title having the imme-
morial sanction of the State, does not create a moral right
to movable goods any more than to land. This would be
especially likely in the matter of capital. Why should the
capitalist, who is no more a worker than the landowner, be
1 " Progress and Poverty."
ARGUMENTS AGAINST PRIVATE LANDOWNERSHIP 39
permitted to extract revenue from his possessions? In
both cases the most significant and practical feature is that
one class of men contributes to another class an annual
payment for the use of socially necessary productive
goods. If rent-confiscation would benefit a large number
of people, why not increase the number by confiscating in-
terest ? Indeed, the proposal to confiscate rent is so abhor-
rent to the moral sense of the average man that it could
never take place except in conditions of revolution and
anarchy. If that day should ever arrive the policy of con-
fiscation would not stop with land.
The Alleged Right of the Community to Land Values
In the foregoing pages we have confined our attention
to the Georgean principle which bases men's common right
to land and rent upon their common nature, and their com-
mon claims to the material gifts of the Creator. Another
argument against private ownership takes this form:
" Consider what rent is. It does not arise spontaneously
from the soil ; it is due to nothing that the landowners have
done. It represents a value created by the whole commu-
nity. . . . But rent, the creation of the whole community,
necessarily belongs to the whole community." ^
Before taking up the main contention in this passage, let
us notice two incidental points. If all rent be due to the
community by the title of social production, why does
Henry George defend at such length the title of birthright?
If the latter title does not extend to rent it is restricted to
land which is so plentiful as to yield no rent. Since the
owners or holders of such land rarely take the trouble to
exclude any one from it, the right in question, the inborn
right, has not much practical value. Probably, however,
the words quoted above ought not to be interpreted as ex-
cluding the title of birthright. In that case, the meaning
1 " Progress and Poverty," book vii, ch. iii.
40 DISTRIBUTIVE JUSTICE
would be that rent belongs to the community by the title of
production, as well as by the congenital title.
The second preliminary consideration is that the commu-
nity does not create all land values nor all rent. These
things are as certainly due to nature as to social action.
In no case can they be attributed exclusively to one factor.
Land that has no natural qualities or capacities suitable for
the satisfaction of human wants will never have value or
yield rent, no matter what society does in connection with
it : the richest land in the world will likewise remain value-
less, until it is brought into relation with society, with at
least two human beings. If Henry George merely means
to say that, without the presence of the community, land
will not produce rent, he is stating something that is per-
fectly obvious, but it is not peculiar to land. Manufac-
tured products would have no value outside of society, yet
no one maintains that their value is all created by social
action. Although the value of land is always due to both
nature and society, for practical purposes we may cor-
rectly attribute the value of a particular piece of land pre-
dominantly to nature, or predominantly to society. When
three tracts, equally distant from a city, and equally af-
fected by society and its activities, have different values
because one is fit only for grazing, while the second pro-
duces large crops of wheat, and the third contains a rich
coal mine, their relative values are evidently due to nature
rather than to society. On the other hand, the varying
values of two equally fertile pieces of land unequally dis-
tant from a city, must be ascribed primarily to social ac-
tion. In general, it is probably safe to say that almost all
the value of land in cities, and the greater part of the value
of land in thickly settled districts, is specifically due to social
action rather than to differences in fertility. Neverthe-
less, it remains true that the value of every piece of land
arises partly from nature, and partly from society ; but it
is impossible to say in what proportion.
ARGUMENTS AGAINST PRIVATE LANDOWNERSHIP 4I
Our present concern is with those values and rents which
are to be attributed to social action. These cannot be
claimed by any person, nor by any community, in virtue of
the individual's natural right to the bounty of nature.
Since they are not included among the ready made gifts of
God, they are no part of man's birthright. If they belong
to all the people the title to them must be sought in some
historical fact, some fact of experience, some social fact.
According to Henry George, the required title is found in
the fact of production. Socially created land values and
rents belong to the community because the community, not
the private proprietor, has produced them. Let us see in
what sense the community produces the social value of
land.
In the first place, this value is produced by the commu-
nity in two different senses of the word community, namely,
as a civil, corporate entity, and as a group of individuals
who do not form a moral unit. Under the first head must
be placed a great deal of the value of land in cities; for
example, that which arises from municipal institutions and
improvements, such as, fire and police protection, water
works, sewers, paved streets, and parks. On the other
hand, a considerable part of land values both within and
without cities is due, not to the community as a civil body,
but to the community as a collection of individuals and
groups of individuals. Thus, the erection and maintenance
of buildings, the various economic exchanges of goods and
labour, the superior opportunities for social intercourse
and amusement which characterise a city, make the land of
the city and its environs more valuable than land at a dis-
tance. While the activities involved in these economic
and " social " facts and relations are, indeed, a social not
an individual product, they are the product of small, tem-
porary, and shifting groups within the community. They
are not the activities of the community as a moral whole.
For example, the maintenance of a grocery business im-
42 DISTRIBUTIVE JUSTICE
plies a series of social relations and agreements between
the grocer and his customers; but none of these transac-
tions is participated in by the community acting as a com-
munity. Consequently such actions and relations, and the
land values to which they give rise are not due to, are not
the products of the community as a unit, as a moral body,
as an organic entity. What is true of the land values
created by the grocery business applies to the values which
are due to other economic institutions and relations, as
well as to those values which arise out of the purely
" social " activities and advantages. If these values are to
go to their producers they must be taken, in various pro-
portions, by the different small groups and the various in-
dividuals whose actions and transactions have been directly
responsible.
To distribute these values among the producers thereof
in proportion to the productive contribution of each person
is obviously impossible. How can it be known, for ex-
ample, what portion of the increase in the value of a city's
real estate during a given year is due to the merchants, the
manufacturers, the railroads, the labourers, the professional
classes, or the city as a corporation? The only practical
method is for the city or other political unit to act as the
representative of all its members, appropriate the increase
in value, and distribute it among the citizens in the form
of public services, institutions, and improvements. Assum-
ing that the socially produced value of land ought to go to
its social producer rather than to the individual proprietor,
this method of public appropriation and disbursement
would seem to be the nearest approximation to practical
justice that is available.
Is the assumption correct? Do the socially produced
land values necessarily belong to the producer, society?
Does not the assumption rest upon a misconception of the
moral validity of production as a canon of distribution?
ARGUMENTS AGAINST PRIVATE LANDOWNERSHIP 43'
Let US examine some of the ways in which values are pro-
duced.
The man who converts leather and other suitable raw
materials into a pair of shoes, increases the utility of these
materials, and in normal market conditions increases their
value. In a certain sense he has created value, and he is
universally acknowledged to have a right to this product.
Similarly the man who increases the utility and value of
land by fertilising, irrigating, or draining it, is conceded
the benefit of these improvements by the title of produc-
tion.
But value may be increased by mere restriction of sup-
ply, and by mere increase in demand. If a group of men
get control of the existing supply of wheat or cotton, they
can artificially raise the price, thereby producing value as
effectively as the shoemaker or the farmer. If a syndi-
cate of speculators gets possession of all the land of a cer-
tain quality in a community, they can hkewise increase its
value, produce new value. If a few powerful leaders of
fashion decide to adopt a certain style of millinery, their
action and example will effect an increase in the demand
for and the value of that kind of goods. Yet none of
these producers of value are regarded as having a moral
right to their product.
When we turn to what is called the social creation of
land values, we find that it takes two forms. It always
implies increase of social demand; but the latter may l3e
either purely subjective, reflecting merely the desires and
power of the demanders themselves, or it may have an ob-
jective basis connected with the land. In the first case it
may be due solely to an increase of population. Within
the last few years, agricultural land which is no more fer-
tile nor any better situated with regard to markets or other
social advantages than it was thirty years ago, has risen in
value because its products have risen in value. Its prod-
44 DISTRIBUTIVE JUSTICE
ucts have become dearer because population, and there-
fore demand, have grown faster than agricultural produc-
tion. Merely by increasing its wants the population has
produced land values; but it has obviously no more right
to them than have the leaders of fashion to the enhanced
value which they have given to feminine headgear. On the
other hand, the increased demand for land, and the conse-
quent increase in its value, are frequently attributable spe-
cifically to changes connected with the land itself. They
are changes which affect its utility rather than its scarcity.
The farmer who irrigates desert land increases its utility,
as it were, intrinsically. The community that establishes a
city increases the utility of the land therein and thereabout
extrinsically. New relations are introduced between that
land and certain desirable social institutions. Land that
was formerly useful only for agriculture becomes profitable
for a factory or a store. Through its new external rela-
tions, the land acquires new utility ; or better, its latent and
potential uses have become actual. Now these new rela-
tions, these utility-creating and value-creating relations,
have been established by society, in its corporate capacity
through civil institutions and activities, and in its non-cor-
porate capacity through the economic and " social " ( in the
narrower " society " sense) activities of groups and indi-
viduals. In this sense, then, the community has created
the increased land values. Has it a strict right to them?
a right so rigorous and exact that private appropriation of
them is unjust?
As we have just seen, men do not admit that mere pro-
duction of value constitutes a title of ownership. Neither
the monopolist who increases value by restricting supply,
nor the pace-makers of fashion, who increase value by
merely increasing demand, are regarded as possessing a
moral right to the value that they have " created." It is
increase of utility, and not either actual or virtual increase
of scarcity to which men attribute a moral claim. Why do
ARGUMENTS AGAINST PRIVATE LANDOWNERSHIP 45
men assign these different ethical qualities to the produc-
tion of value ? Why has the shoemaker a right to the value
that he adds to the raw material in making a pair of shoes ?
What is the precise basis of his right ? It cannot be labour
merely; for the cotton monopolist has laboured in getting
his corner on cotton. It cannot be the fact that the shoe-
maker's labour is socially useful; for a chemist might
spend laborious days and nights producing water from its
component elements, and find his product a drug on the
market. Yet he would have no reasonable ground of com-
plaint. Why, then, is it reasonable for the shoemaker to
require, why has he a right to require payment for the
utilities that he produces? Because men want to use his
products, and because they have no right to require him to
serve them without compensation. He is morally and
juridically their equal, and has the same right as they to
have access on reasonable terms to the earth and the earth's
possibilities of a livelihood. Being thus equal to his fel-
lows, he is under no obligation to subordinate himself to
them by becoming a mere instrument for their welfare.
To assume that he is obliged to produce socially useful
things without remuneration, is to assume that all these
propositions are false; it is to assume that his life and per-
sonality and personal development are of no intrinsic im-
portance, and that his pursuit of the essential ends of life
has no meaning except in so far as may be conducive to his
function as an instrument of production. In a word, the
ultimate basis of the producer's right to his product, or its
value, is the fact that this is the only way in which he can
get his just share of the earth's goods, and of the means of
life and personal development. His right to compensation
does not rest on the mere fact of value-production.
As a producer of land values, the community is not on
the same moral ground with the shoemaker. Its productive
action is indirect and extrinsic, instead of direct and in-
trinsic, and is merely incidental to its principal activities
46 DISTRIBUTIVE JUSTICE
and purposes. Land values are a by-product which do not
require the community to devote thereto a single moment of
time or a single ounce of effort. The activities of which
land values are a by-product, have already been remuner-
ated in the price paid to the wage-earner for his labour,
the physician for his services, the manufacturer and the
merchant for their wares, and the municipal corporation in
the form of taxes. On what ground can the community,
or any part of it, set up a claim in strict justice to the in-
creased land values? The right of the members of the
community to the means of living and self development is
not dependent upon the taking of these values by the com-
munity. Nor are they treated as instruments to the welfare
of the private owners who do get the socially created land
values ; for they expend neither time nor labour in the in-
terest of the latter directly. Their labour is precisely what
it would have been had there been no increase in the value
of the land.
Since social production does not constitute a right to land
values nor to rent, it affords not a shadow of justification
for the confiscation of these things by the community. If
social appropriation of socially created land values had
been introduced with the first occupation of a piece of
land, it might possibly have proved more generally bene-
ficial than the present system. In that case, however, the
moral claim of the community to these values would have
rested on the fact that they did not belong to anybody by
a title of strict justice. They would have been a " res
nullius " ('* nobody's property") which might fairly have
been taken by the community according as they made
their appearance. The community could have appropri-
ated them by the title of first occupancy. But there could
have been no moral title of social production. When,
however, the community or the State failed to take advan-
tage of its opportunity to be the first occupant of these
values, when it permitted the individual proprietor to ap-
ARGUMENTS AGAINST PRIVATE LANDOWNERSHIP 47
propriate them, it forfeited its own claim. Ever since
it has had no more right to already existing land values
than it has to seize the labourer's wages or the capitalist's
interest, — no more right than one person has to recover
a gift or donation that he has unconditionally bestowed
upon another.
To sum up the conclusions of this chapter: The argu-
ment against first occupancy is valid only with regard to
the abuses of private ownership, not with regard to the
institution; the argument based upon the title of labour is
the outcome of a faulty analysis, and is inconsistent with
other statements of its author; the argument derived from
men's equal rights to land merely proves that private own-
ership does not secure perfect justice, and the proposal to
correct this defect by confiscating rent is unjust because it
would produce greater evils ; and the so called production
of the social values of land confers upon the community
no property right whatever.
CHAPTER IV
PRIVATE OWNERSHIP THE BEST SYSTEM OF LAND
TENURE
The defence of private landownership set forth in the
last chapter has been conditional. It has tended to show
that the institution is morally lawful so long as no better
system is available. As soon as a better system has been
discovered, the State and the citizens are undoubtedly
under some degree of moral obligation to put it into prac-
tice. Hence the important present question is whether
this condition or contingency has become a reality. The
only proposed and the only possible alternative systems
are Socialism and the Single Tax. All other forms of
tenure are properly classed as modifications of private
ownership, rather than as distinct systems. Consequently
the worth, and efficiency, and morality of private owner-
ship can be adequately determined by comparison with
the two just mentioned.
The Socialist Proposals Impracticable
As now existing and as commonly understood, private
landownership comprises four elements which are not
found together in either Socialism or the Single Tax.
They are: security of possession combined with the power
to transfer and transmit; the use of land combined with
the power to let the use to others; the receipt of revenue
from improvements in or upon the land ; and the receipt of
economic rent, the revenue due to the land itself, apart
from improvements. In its extreme form, and as for-
merly understood by the majority of its authoritative ex-
48
THE BEST SYSTEM OF LAND TENURE 49
ponents, Socialism would take from the individual all of
these elements or powers. The State, or the Collectivity,
would own and manage all productive land and land-capi-
tal, and would receive and distribute the product. Conse-
quently the cultivators of the land would be deprived of
even that limited degree of control which is now possessed
by the tenant on a rented farm ; for the latter, though not a
landowner, is the owner of a farming business, and of
agricultural instruments of production. Under Socialism
the users of the land would not receive the revenue either
from improvements or from the land itself. They would
be substantially employes of the community, receiving a
share of the product according to some plan of distribu-
tion established by public authority. Land occupied by
dwellings would likewise be owned and managed by the
State, although its product, the benefit of its use, would
necessarily go in the first instance to the occupier. In re-
turn for this benefit he would undoubtedly be required to
pay some kind of rent to the State.
Now the majority of persons believe that this system of
land tenure would be inferior to private ownership, both
as regards individual welfare and social welfare. The
reasons for this belief will be given in detail in the chapter
on " The Socialist Scheme of Industry." For the present
it will be sufficient to point out in a summary way that
Socialism would be unable to organise and carry on effi-
ciently all agricultural and extractive industries, either
under one central direction or under many provincial au-
thorities ; that it could not adjust wages and salaries satis-
factorily, nor give the individual worker an incentive as
effective as the self interest that goes with private owner-
ship; that it would deprive the worker of a great part of
the freedom that he now enjoys in the matters of occupa-
tion and residence; that it would leave to the consumer
less choice in the demand for the products of land ; that it
would place all the people in a position of dependence upon
50 DISTRIBUTIVE JUSTICE
a single agency for all these products; and that it would
make all land users, whether as workers or as residents,
tenants-at-will on the property of the State.
From the nature of the case, none of the foregoing prop-
ositions can be demonstrated mathematically. Neverthe-
less they are as nearly evident as any other practical con-
clusions which are based upon our general experience of
human nature, its tendencies, and its limitations. At any
rate, the burden of proof is upon the advocates of the new
system. Until they have assumed and satisfactorily dis-
posed of this burden, we are justified in rejecting their
prophecies, and in maintaining the superiority of private
ownership.^
To-day, however, many Socialists, possibly the majority
of them in some countries, would reject the extreme form
of land socialisation discussed in the preceding paragraphs.
" The nearest approach which Socialists have made to a
volte face since Marx, has been in relation to Agrarianism.
. . . Marx thought that the advantage of concentrating
capital would be felt in agriculture as in other industries ;
but, in spite of a temporary confirmation of this view by
the mammoth farms which sprang up in North America, it
now appears very doubtful. . . . Recognition of this has
led reformists to substitute a policy of actively assisting
the peasants for the orthodox policy of leaving them to
succumb to capitalism. Their formula is : * Collectivise
credit, transport, exchange, and all subsidiary manufacture,
but individualise culture.' " ^ The Belgian Socialist leader,
Vandervelde, seems to prefer State ownership and manage-
ment of the great agricultural industries which require
large masses of capital for their efficient operation, such
as dairying, distilling, and sugar making, together with
State ownership of the land thus used. Other lands he
would have owned by the State, but cultivated by individ-
1 Cf. Chapter xi.
2 Ensor, " Modern Socialism," p. xxxi, N. Y., 19CJ4.
THE BEST SYSTEM OF LAND TENURE 5 1
uals according to a system of leasing and rent-paying.^
By a referendum vote the members of the SociaHst party
in the United States recently amended their platform on
land, to read as follows : " The Socialist party strives to
prevent land from being used for the purpose of exploita-
tion and speculation. It demands the collective possession,
control or management of land to whatever extent may be
necessary to attain that end. It is not opposed to the oc-
cupation and possession of land by those using it in a use-
ful and bona fide manner without exploitation." ^ As to
land occupied by dwellings, perhaps the majority of Social-
ists would now agree with Spargo in the statement that,
" so far as the central principle of Socialism is concerned,
there is no more reason for denying the right of a man
to own his own home than there is to deny him the right
to own his hat." ^
In so far as the foregoing modifications of Socialist pro-
posals would allow the individual to own the land that he
cultivates or occupies, they do not call for further discus-
sion here. In so far as they combine State ownership of
land with individual management of cultivation, they are
subject to at least all the limitations of the Single Tax.
To the latter system we now turn our attention.
Inferiority of the Single Tax System
Of the four leading elements of private ownership enu-
merated above, the Single Tax scheme would comprise all
but one. In the words of Henry George himself : '' Let
the individuals who now hold it still retain, if they want
to, possession of what they are pleased to call their land.
Let them continue to call it their land. Let them buy and
sell, and bequeath and devise it. We may safely leave
them the shell, if we take the kernel. It is not necessary
1 Idem, pp. 2i3-2ri6.
2 Cited by Spargo, " The Substance of Socialism,'* p. 88, N. Y., 1909.
3 Idem, p. 90.
52 DISTRIBUTIVE JUSTICE
to confiscate land; it is only necessary to confiscate rent.
... In this way the State may become the universal land-
lord without calling herself so, and without assuming a
single new function. In form, the ownership of land
would remain just as now. No owner of land need be dis-
possessed, and no restriction need be placed upon the
amount of land that any one could hold." ^
Individuals would, therefore, still enjoy security of
possession, the managerial use of land, and the revenue due
to improvements. The income arising from the land it-
self, the economic rent, they would be obliged to hand over
as a free gift to the State. As we have seen in a preced-
ing chapter, this confiscation of rent by the State would be
pure and simple robbery of the private owner. Suppose,
however, that the State were willing to compensate indi-
vidual proprietors with a sum equal to the present value,
or the capitalised rent, of their land. In that case the only
difference made to the individual would be that he could no
longer invest his money in land nor profit by the increases
in land values. While this would deprive some persons of
advantages that they now enjoy, it would be beneficial to
the majority, and to the community. Since no man would
find it profitable to retain control of more land than he
could use himself, the number of actual land users would
be increased. The land speculator would disappear, to-
gether with the opportunity of making and losing fortunes
by gambling on the changes in land values. Owing to the
removal of taxation from the necessaries of life and from
industry, consumers would get goods cheaper, and some
stimulus would be given to production and emplo3nTient.
Those monopolies which derive their strength from land
would become weaker and tend to disappear. Sooner or
later there would probably be a considerable increase in
the amount of money available for public improvements
and socially beneficial institutions.
1 " Progress and Poverty," book viii, ch. ii.
THE BEST SYSTEM OF LAND TENURE 53
On the other hand, there would be certain and serious
disadvantages. A considerable number of land users
might permit their holdings to deteriorate through careless
cultivation. To be sure, they v^ould not find this a profit-
able course if they intended to remain on the land perma-
nently; but they might prefer to exhaust the best qualities
of a farm in a few years, and then retire, or go into some
other business, or repeat the wearing-out process on other
lands. Thus the community would suffer through the low-
ered productiveness of its land, and because of the lower
rent that it would receive from all subsequent users of the
deteriorated tracts. In the second place, the administrative
machinery required to levy and collect the rent, and to ap-
portion the different holdings among competitive bidders,
would inevitably involve a vast amount of error, inequal-
ity, favouritism, and corruption. For the land tax to be
levied and collected would not be, as now, a fraction of
the rental value, but the full amount of the annual rent.
In the third place, cultivators would not have the induce-
ment to make improvements which arises from the hope
of selling both the improvements and the land at a profit,
owing to the increased demand for the land. Perhaps
the greatest disadvantage of the system would be the in-
stability of tenure, with regard to both productive and
residential lands. Owing to misfortunes of various kinds,
for example, one or two bad crops, many cultivators would
be temporarily unable to pay the full amount of the land
tax or rent. It is scarcely conceivable that the State would
remit the deficiency, or refuse to turn the land over to
other persons on terms more advantageous to itself. In-
asmuch as the value and rent of land would be continu-
ously adjusted by competition, the more efficient and more
wealthy would frequently supplant the less efficient and
the less wealthy, even though the latter had occupied their
holdings or their dwellings for a great number of years.
Legal security of tenure, though theoretically the same as
"54 DISTRIBUTIVE JUSTICE
that enjoyed by the private owner to-day, would be much
less effective practically. In this respect land users would
be in almost as bad a case as renters are at present.^
Our conclusion, then, is that private landownership is
certainly better than extreme Socialism, or any form of
Socialism which does not concede to the land user all the
control that he would have under the Single Tax system,
and that it is very probably superior to the latter. In
making this comparison and drawing this conclusion, we
have in mind private ownership, not at its worst nor as it
exists or has existed in any particular country, but pri-
vate ownership in its essential elements, and with its
capacity for modification and improvement. If we were
to examine carefully the results of private ownership as it
obtained in Ireland for several centuries before the enact-
ment of the recent Land Purchase Act, we should probably
be tempted to declare that the most extreme form of agra-
rian Socialism could scarcely have been productive of more
individual and social injury. Certain other countries pre-
sent almost equally unfavourable conditions of compari-
son. Failure to note this distinction between the histori-
cal and the potential aspects of private landownership has
vitiated many otherwise excellent defences of the institu-
tion. It has provoked the retort that almost any plausible
change would be an improvement upon private ownership
as it has existed in this or that country. But these are not
the real alternatives. The practical choice is between pri-
vate ownership as shown by experience and reason to be
capable of improvement, and some untried system which
is subject to grave defects, and which at its best would be
probably inferior to modified private ownership. An at-
tempt to describe some of these modifications and improve-
ments will be made in a subsequent chapter. In the mean-
time we content ourselves with the statement that private
1 Cf. Walker, " Land and Its Rent " ; and Seligman, " Essays in
Taxation."
THE BEST SYSTEM OF LAND TENURE 55
land ownership is capable of becoming better than Social-
ism certainly, and probably better than the Single Tax sys-
tem. Consequently it is justified not merely so long as
neither of these schemes is introduced, but as an institution
which the State would do well to maintain, protect, and
improve.
CHAPTER V
PRIVATE LA'NDOWNERSHIP A NATURAL RIGHT
The conclusions of the preceding chapter include the
statement that individuals are morally justified in becoming
and remaining landowners. May we take a further step,
and assert that private landownership is a natural right of
the individual? If it is, the abolition of it by the State,
even with compensation to the owners, would be an act of
injustice. The doctrine of natural rights is so prominent
in the arguments of both the advocates and the opponents
of private landownership that it deserves specific treat-
ment. Moreover, the claim that private landownership is
a natural right rests upon precisely the same basis as the
similar claim with regard to the individual ownership of
capital; and the conclusions pertinent to the former will
be equally applicable to the latter.
A natural right is a right derived from the nature of the
individual, and existing for his welfare. Hence it differs
from a civil right, which is derived from society or the
State, and is intended for a social or civil purpose. Such,
for example, is the right to vote, or the right to hold a
public office. Since a natural right neither proceeds from
nor is primarily designed for a civil end, it cannot be an-
nulled, and it may not be ignored, by the State. For ex-
ample: the right to life and the right to liberty are so
sacred to the individual, so necessary to his welfare, that
the State cannot rightfully kill an innocent man, nor pun-
ish him by a term in prison.
56
PRIVATE LANDOWNERSHIP A NATURAL RIGHT 57
Three Principal Kinds of Natural Rights
Although natural rights are all equally valid, they differ
in regard to their basis, and their urgency or importance.
From this point of view, we may profitably distinguish
three principal types.
The first is exemplified in the right to live. The object
of this right, life itself, is intrinsically good, good for its
own sake, an end in itself. It is the end to which even
civil society is a means. Since life is good intrinsically,
the right to life is also valid intrinsically, and not because
of consequences. Since there is no conceivable equivalent
for life in the case of any individual in any contingency,
the right to life is immediate and direct in all possible
circumstances.
Among the natural rights of the second class, the most
prominent are the right to marry, to enjoy personal free-
dom, and to own consumption-goods, such as food and
clothing. The objects of these rights are not ends in
themselves, but means to human welfare. Confining our
attention to marriage, we see that membership in the con-
jugal union is an indispensable means to reasonable life
and self development in the majority of persons. The
only conceivable substitutes are free love and celibacy.
Of these the first is inadequate for any person, and the
second is adequate only for a minority. Marriage is,
therefore, directly and per se necessary for the majority of
individuals; for the majority it is an individual necessity.
If the State were to abolish marriage it would deprive the
majority of an indispensable means of right and reason-
able life. Consequently the majority have a direct natural
right to the legal power of marrying.
In the case of the minority who do not need to marry,
who can live as well or better as celibates, the legal oppor-
tunity of marriage is evidently not directly necessary. But
it is necessary indirectly, inasmuch as the power of choice
58 DISTRIBUTIVE JUSTICE
between marriage and celibacy is an individual necessity.
No argument is required to show that the State could not
decide this matter consistently with individual welfare or
social peace. Whence it follows that even the minority
who do not wish or do not need to marry, have a natural
right to embrace or reject the conjugal condition. In their
case the right to marry is indirect, but none the less
inviolable.^
Private ownership of land belongs in a third class of
natural rights. Inasmuch as it is not an intrinsic good,
but merely a means to human welfare, it differs from life
and resembles marriage. On the other hand, it is unlike
marriage in that it is not directly necessary for any indi-
vidual whatever.^ The alternative to marriage, namely,
celibacy, would not even under the best social administra-
tion enable the majority to lead right and reasonable Hves.
The alternative to private landownership (and to private
ownership of capital as well), namely, some form of em-
ployment as wage receiver, salary receiver, or fee receiver
enables the individual to attain all the vital ends of private
ownership: food, clothing, shelter, security of livelihood
and residence, and the means of mental, moral, and spiritual
development. None of these vital ends or needs is essen-
tially dependent upon private ownership of land ; for mil-
lions of persons satisfy them every day without becoming
landowners. Nor are they exceptions, as those who can
get along without marriage are exceptions. The persons
who live reasonable lives without owning land are average
persons. What they do any other person could do if
placed in the same circumstances. Therefore, private land-
ownership is not directly necessary for the welfare of any
individual.
^The marriage rights of criminals, degenerates, and other socially
dangerous persons, are passed over here as not pertinent to the present
discussion. For the same reason nothing is said of the perfectly valid
social argument in favour of the individual right of marriage.
2 Cf . Vermeersch, " Quaestiones de Justitia," no. 204.
PRIVATE LANDOWNERSHIP A NATURAL RIGHT 59
Private Landownership Indirectly Necessary for Individual
Welfare
In our present industrial civilisation, however, private
landownership is indirectly necessary for the welfare of
the individual. It is said to be indirectly necessary because
it is necessary as a social institution, rather than as some-
thing immediately connected with individual needs as such.
It is not, indeed, so necessary that society would promptly
go to pieces under any other form of land tenure. As we
have seen in the last chapter, it is necessary in the sense
that it is capable of promoting the welfare of the average
person, of the majority of persons, to a much greater
degree than State ownership. It is necessary for the same
reason and in the same way as a civil police force. As the
State is obliged to maintain a police force, so it is obliged to
maintain a system of private landownership. As the citizen
has a right to police protection, so he has a right to the
social and economic advantages which are connected with
the system of private ownership of land. These rights are
natural, derived from the needs of the individual in society,
not dependent upon the good pleasure of the city or the
State. They are individual rights to the presence and
benefits of these social institutions.
But man's rights in the matter of land tenure are more
extensive than his rights with regard to a police force.
They are not restricted to the presence and functioning of
a social institution. Every citizen has a natural right to
police protection, but no citizen has a natural right to
become a policeman. The welfare of the citizen is suffi-
ciently looked after when the members of the police are
selected by the authorities of the city. On the contrary,
his welfare would not be adequately safeguarded if the
State were to decide who might and who might not become
landowners. In the first place, the ideal condition is that
in which all persons can easily become actual owners. In
6o DISTRIBUTIVE JUSTICE
the second place, the mere legal opportunity of becoming
owners is a considerable stimulus to the energy and ambi-
tion of all persons, even of those who are never able to
convert it into an economic opportunity. Therefore, only
a very powerful reason of social utility would justify the
State in excluding any person or any class from the legal
power to own land. No such reason exists ; and there are
many reasons why the State should not attempt anything
of the sort. As a consequence of these facts, every person,
whether an actual owner or not, has a natural right to ac-
quire property in land. This right is evidently a neces-
sary condition of a fair and efficient system of private
ownership, which is in turn a necessary condition of indi-
vidual welfare. The right of private landownership is,
therefore, an indirect right; but it is quite as valid and
quite as certain as any other natural right.
Now this right is certainly valid as against complete
Socialism, which includes State management and use, as
well as State ownership. Is it valid against the Single
Tax system, or against such modified forms of Socialism
as would allow the individual to rent and use the land as an
independent cultivator with security of tenure? Would
the introduction of some such scheme in a country in which
only a small minority of the population were actual owners,
constitute a violation of individual rights ? While we can-
not with any feeling of certainty return an affirmative
answer to these questions, we can confidently affirm that
reform within the lines of private ownership would in the
long run be more effective, and, therefore, that the right
of private ownership is probably valid even against these
modified forms of common ownership.^
1 The argument in the text is obviously empirical, drawn from con-
sequences. There is, however, a putatively intrinsic or metaphysical
argument which is sometimes urged against the justice of the Single
Tax system. It runs thus: since the fruits of a thing belong to the
owner of the thing, " res f ructificat domino," rent, which is the economi-
PRIVATE LANDOWNERSHIP A NATURAL RIGHT 6l
Excessive Interpretations of the Right of Private
Landownership
The indirect character of the right of private landowner-
ship, its relativity to and dependence upon social conditions,
is not always sufficiently grasped by either its advocates
or its opponents. In the writings of the former we some-
times find language which suggests that this right is as
independent of social conditions as the right to marriage
or the right to life. " The State has no right to abolish
private property [in land] because private property is not
a social right, but an individual right derived from nature,
not derived from the State." It exists for human welfare,
not merely for civil welfare.^ The only defect in this
reasoning is that the premises do not justify the conclu-
sion. Undoubtedly the State may not abolish private
ownership, so long as it is necessary for human or indi-
vidual welfare; but, when this necessity ceases, the moral
justification of the institution likewise disappears. The
institution may then be abolished, somehow, by some
agency, without any violation of individual rights. Why
may not the task of abolition be performed by the State?
No other agency is available. The assertion that the State
is incompetent to decide whether the institution of private
ownership has outlived its usefulness, is entirely gratuitous;
besides, it implies that a small minority of selfishly inter-
ested persons may justly require the continuation of a
system of land tenure which has become harmful to the
overwhelming majority of the community. Extreme de-
cally imputed fruit of land, necessarily and as a matter of natural right
should go to the owner of the land. ^ As will be shown later, the
formula at the basis of this contention is not a metaphysical principle
at all, but a conclusion from experience. Like every other formula
or principle of property rights, it must find its ultimate basis in human
welfare.
1 Liberatore, " Principles of Political Economy," pp. 134, 130.
62 DISTRIBUTIVE JUSTICE
fences of the right of private landowner ship are largely
responsible for the misconceptions of many of its oppo-
nents. Occasionally the latter represent this right as an
a priori monstrosity which is serenely independent of the
facts of life and industry. While such persons are at lib-
erty to reject the interpretations of facts contained in the
preceding paragraphs, they cannot reasonably deny the
logic of the process which has led to the conclusion that the
individual has a natural right to own land.
So much for the natural right of landownership as seen
in the light of reason. Let us now consider it briefly from
the side of doctrinal authority, namely, the writings of the
Fathers and Theologians of the Church, and the formal
pronouncements of the Popes.
The Doctrine of the Fathers and Theologians
Some of the Church Fathers, particularly Augustine,
Ambrose, Basil, Chrysostom, and Jerome, denounced riches
and the rich so severely that they have been accused of
denying the right of private ownership. The facts, how-
ever, are that none of the passages upon which this accusa-
tion is based proves it to be true, and that in numerous
other passages all of these writers explicitly affirm that
private ownership is lawful.^ Speaking generally, we may
say that they taught the moral goodness of private owner-
ship without insisting upon its necessity. Hence they can-
not be cited as authorities for the doctrine that the indi-
vidual has a natural right to own land.
Some of the great theologians of mediaeval and post-
mediaeval times denied this right, inasmuch as they denied
that the institution of private ownership was imposed or
commanded by the natural law. Among them are Scotus,^
1 Cf. Vermeersch, op. cit., no. 210; Ryan, "Alleged Socialism of the
Church Fathers."
2 " In IV Sent," d. 15, q. 2, n. 5 ; and " Reportata parisiensia," d. 15,
q. 4, n. 7-12.
PRIVATE LANDOWNERSHIP A NATURAL RIGHT 63
Molina/ Lessius,^ Saurez,^ Vasquez,^ and Billuart.^
Since private ownership is not absolutely necessary to
human welfare in all forms of society, it cannot, in their
view, be regarded as strictly prescribed by the natural law,
nor be instituted without the positive action of civil author-
ity, or the consent of the community. Nevertheless they
all admit that it is much better than common ownership in
contemporary societies. The difference between their posi-
tion and that of de Lugo, for example, seems to be
two-fold: First, they put stronger emphasis upon the
doctrines that the earth belongs to all men in common,
that in the absence of original sin ownership would
likewise have been common, and that this arrangement
is therefore in a fundamental sense normal, agreeing
with nature and the natural law; and, second, they put
a lower estimate upon the superiority of private owner-
ship even in contemporary conditions. In a word, they
denied that private ownership was so much better than
any alternative system as to confer upon the individual a
natural right in the strict sense ; that is, a right which laid
upon the State the correlative obligation of maintaining the
institution of private landownership.
On the other hand, many of the ablest theologians of
the same period declared that private ownership was en-
joined by the natural law and right reason, and conse-
quently that it was among the individual's natural rights.
According to St. Thomas Aquinas, private property is
" necessary for human Hfe," and is one of those social
institutions which are prescribed by the jus gentium; and
the content of the jus gentium is not determined by positive
law, but by the dictates of " natural reason," by " natural
1 " De Justitia et Jure," tr. 2, d. 18 and 20.
2 " De Justitia et Jure," c. 5, n. 3.
3 " De Legibus," 1. 2, c. 14, n. 13 and 16.
* " In Summa," ima 2ae, d. 157, n. 17.
5 " De Justitia et Jure," d. 4, a. i.
64 DISTRIBUTIVE JUSTICE
reason itself." ^ These statements seem to convey the doc-
trine of natural right as clearly as could be expected in the
absence of an explicit declaration. Cardinal de Lugo sets
forth the same teaching somewhat more compactly, but in
substantially the same terms : " Speaking generally, a divi-
sion of goods and of ownership-titles proceeds from the
law of nature, for natural reason dictates such division as
necessary in the present circumstances of fallen nature and
dense populations." ^ This view is to-day universally
accepted among Catholic writers.
The Teaching of Pope Leo XIII
The official teaching of the Church on the subject is
found in the Encyclical, " On the Condition of Labour," by
Pope Leo XIIL In this document we are told that the
proposals of the Socialists are " manifestly against jus-
tice " ; that the right of private property in land is " granted
to man by nature " ; that it is derived " from nature not
from man, and the State has the right to control its use in
the interest of the public good alone, but by no means to
abolish it altogether." These statements the Pope deduces
from a consideration of man's needs. Private property in
land is necessary to satisfy the wants, present and future,
of the individual and his family. Were the State to
attempt the task of making this provision, it would exceed
its proper sphere, and produce manifold domestic and social
confusion.
While Pope Leo defines the natural right of private
ownership as incompatible with complete Socialism, that is,
collective use as well as collective ownership, his state-
ments cannot fairly or certainly be interpreted as condemn-
ing the Single Tax system, or any other arrangement which
would leave to the individual managerial use and secure
possession of his holding, together with the power to
1 " Summa Theologica," 2a 2ae, q. 57, a. 2 and 3.
2 " De Justitia et Jure," d. 6, s. i, n. 6.
PRIVATE LANDOWNERSHIP A NATURAL RIGHT 65
transmit and transfer it, and full ownership of improve-
ments. These are the only elements of ownership which
the Holy Father defends, and which he insists upon as
necessary. The one element of private ownership which
the Single Tax system would exclude; namely, the power
to take rent from and profit by the changes in land values,
finds no place among the advantages of private ownership
enumerated in the Encyclical.
There is, indeed, one passage of the Encyclical in which
Pope Leo seems to allude to the Single Tax, or to some
similar proposal. He expresses his amazement at those
persons who " assert that it is right for private persons to
have the use of the soil and its various fruits, but that it is
unjust for. any one to possess outright either the land on
which he has built, or the estate which he has brought under
cultivation. But those who deny these rights do not per-
ceive that they are defrauding man of what his own labour
has produced. For the soil which is tilled and cultivated
with toil and skill utterly changes its conditions: it was
wild before, now it is fruitful ; was barren, but now brings
forth in abundance. That which has thus altered and im-
proved the land becomes so truly a part of itself as to be
in great measure indistinguishable and inseparable from it.
Is it just that the fruit of a man's own labour should be
possessed and enjoyed by any one else? As effects follow
their cause, so is it just and right that the results of labour
should belong to those who have bestowed their labour."
In this passage we find two principal statements: first,
that those persons are in error who declare full private
ownership of land to be unjust; and, second, that it is
wrong to deprive a man of the improvements which he
makes in the soil. Now the first of these propositions does
not touch the Single Tax system as such ; it only condemns
the assertion of Henry George that private ownership is
essentially unjust. It is directed against one of the argu-
ments for the system, not against the system itself. More
66 DISTRIBUTIVE JUSTICE
Specifically, it is a refutation of an argument against private
land ownership, rather than a positive attack upon any other
system. It could be accepted by any Single Taxer who
does not agree with Henry George that the present system
is essentially unjust. The second proposition does not
apply to the Single Tax system at all ; for the latter would
concede to the individual holder the full ownership and
benefit of improvements; and it could easily be so admin-
istered as to protect him against injury in any case in which
improvement values were not exactly and clearly distin-
guishable from land values.
While Henry George opposed the doctrines of the Encyc-
lical in his " Open Letter to Pope Leo XHI," all his argu-
ments are directed against the proposition that private
ownership is right and just. The " Letter " is an attack
upon private ownership rather than a defence of the Single
Tax. Apparently its author did not find that Pope Leo
condemned any positive or essential element of the Single
Tax as a proposed system of land tenure.
If the rejoinder be made that Pope Leo could have had
no other group of persons in mind than the Single Taxers,
when he wrote the paragraph quoted above, our answer
must be that he did not definitely identify them, either by
naming them, as he named the Socialists, or by any other
sufficiently explicit designation. Applying to this para-
graph the customary and recognised rules of interpretation,
we are obliged to conclude that it does not contain an
explicit condemnation of the Single Tax system.
To put the substance of this chapter in two sentences:
Private landownership is a natural right because in present
conditions the institution is necessary for individual and
social welfare. The right is certainly valid as against com-
plete Socialism, and probably valid as against any such
radical modification of the present system as that contem-
plated by the thorough-going Single Taxers.
CHAPTER VI
LIMITATIONS ON THE LANDOWNER'S RIGHT TO RENT
The chapters immediately preceding have led to the con-
clusion that private ownership is the best system of land
tenure, and that the individual has a natural right to par-
ticipate in its advantages. Although this system confers
upon the individual owner the power to take the rent of the
land, we are not logically debarred from raising the ques-
tion whether this power is a necessary part of the moral
rights of landownership. Does the right to own a piece
of land necessarily include the right to take its rent? By
what ethical principle of distribution is the landowner justi-
fied in appropriating a revenue in return for which he has
performed no labour, nor made any sacrifice? This is
unquestionably what happens when a man hires out his land
to another. And in conditions of perfect competition,
those owners who operate their own land are fully remu-
nerated for their labour in the form of profits. Over and
above this sum they receive rent, the payment that they
could get from the land if they were to let its use to tenants.
In the normal situation, therefore, rent is a workless in-
come. On what moral ground may it be taken by the
landowner ? ^
1 The assumption that perfect competition is even roughly approxi-
mated in relation to men who operate their own land, and that they
generally obtain an adequate return for their labour in addition to the
sum that they might have obtained through hiring out their land, may
appear rather violent in view of the estimate that the average farmer
in the United States gets only $402 annually in payment for the
labour of himself and family. See article on " The Farmer's Income "
in the American Economic Review, March, 1916. However, this
67
68 DISTRIBUTIVE JUSTICE
The fact that we have rejected the Single Tax and the
confiscation of rent by the community, does not of itself
commit us to the conclusion that the private owner has a
moral right to receive rent. We have condemned the
State appropriation of rent on the assumption that it would
take place without a similar confiscation of interest. Such
discrimination would be grossly unfair; for it would cause
land values to sink to zero, while leaving the value of
capital substantially undisturbed. To carry out such a
programme would be to treat property owners unequally,
to penalise one set of beneficiaries of " workless " incomes,
while leaving another set untouched. Consequently, the
State is not justified in confiscating rent unless it is justi-
fied in confiscating or prohibiting interest; and the land-
owner is as fully justified in taking rent as the capital
owner is in taking interest. The contention of the Single
Taxer that ownership of the former kind is morally wrong,
while ownership of capital is morally legitimate, has
already received suf^cient discussion. The specific ques-
tion remains, therefore, — whether the landowner and the
capitalist are justified in receiving and retaining their
" workless " incomes.
Inasmuch as the principles and pertinent facts involved
in this question can be more effectively and more con-
veniently discussed in relation to interest than in relation
to rent, the solution will be deferred to the chapters on
interest. Assuming provisionally that the outcome of the
discussion will be favourable to the claims of the land-
owner, let us inquire whether he always has a moral right
to all the rent. The parallel question regarding the capi-
income is mostly in the form of food, fuel, and shelter, which would
cost very much more in the city ; consequently it is probably equivalent
to an urban income of $600. Its value is still further enhanced by the
farmer's independent position, and by his expectation of profiting by
the future increase of land values. Hence it would seem that the rent
and interest allowance of ^322 might fairly be regarded as a surplus
in excess of the necessary payment for labour.
LIMITATIONS ON THE LANDOWNER'S RIGHT TO RENT 69
talist will be considered in connection with the right of the
labourer to a living wage.
The Tenanfs Right to a Decent Livelihood
The actual payments made by tenants to landowners
sometimes leave the former without the means of decent
living. Such had been the condition of a large part of
the Irish tenant farmers before 1881, when the Land
Courts were established. In the course of twenty-five
years these courts reduced the rents by twenty per cent,
on the average in upwards of half a million cases. While
a part of the reductions was intended to free the tenants
from the unjust burden of paying rent on their own im-
provements, another part was undoubtedly ordered on the
theory that the tenants were entitled to retain a larger
share of the product for their own support. Yet the latter
portion of the reduction apparently represented true
economic rent; for it was included in the difference be-
tween the product and the current cost of production; it
was included in the amount that men in Ireland were will-
ing to pay for the use of land. It was a part of the surplus
that they had left after defraying their expenditures for
capital and labour. To be sure, the tenants in some other
countries, say, the United States, would not have been
satisfied with such a small remuneration, and would not
have handed over so much to the landlord; but if the con-
cept of economic rent is to have any serviceable meaning
it must be determined by the actual returns to capital and
labour in each locality, and not by the standards of some
other place which are assumed to be normal. In any case,
the Irish Land Courts did reduce the rents below the level
fixed by competition, by the unregulated forces of supply
and demand.
Was this treating the landlords justly? May a tenant
ever retain a part of the rent which the free course of
competition would yield to the landowner ? Here we must
70 DISTRIBUTIVE JUSTICE
distinguish between the tenant who is and the tenant who
is not in possession of a holding sufficiently large to require
all the time and labour of a cultivator possessing average
efficiency. The tenant who controls and cultivates less
than this amount of land ought not to expect to get all his
livelihood therefrom. Failure to do so would not neces-
sarily mean that he was paying exorbitant rent. Holdings
of this sort are rightly called " uneconomic " ; that is, they
are too small to permit a profitable and reasonable applica-
tion of labour and capital. On such holdings the fair
rent would be that amount per acre which would be re-
garded as fair for the use of the same land held in farms
of " economic " size. The proper recourse for the occu-
piers of uneconomic holdings is to get control of more land,
which is exactly what has been happening in Ireland
through the action of the Congested Districts Board.
This brings us to the case of the man who cannot pay
the competitive rent on a holding of normal size, and have
sufficient left to provide himself and family with a decent
liveHhood. The fundamental reason why the rent is so
high is to be found in the economic weakness of the great
mass of the tenants, who can neither emigrate to another
country nor get a better living as wage earners in their
own. Their predicament is exactly the same as that of the
helpless and unskilled labourers who are compelled by the
force of competition to accept less than living wages. In
these circumstances it seems clear that a government com-
mission would be justified in reducing the rents to such a
level as would leave the tenants of average efficiency on
normal holdings the means of maintaining a decent stand-
ard of living. In such cases, then, the landowner has not
a right to the full economic or competitive rent. His right
thereto is morally inferior to the tenant's right to a decent
livelihood, just as the capitalist-employer's right to the pre-
vailing rate of interest is morally inferior to the labourer's
right to a living wage. Neither in the one case nor in the
LIMITATIONS ON THE LANDOWNERS RIGHT TO RENT 7 1
other is mere competition the final determinant and meas-
ure of justice. It has no moral validity when it comes into
conflict with man's natural right to get a reasonable
livelihood on reasonable conditions from the bounty of
the earth. These fundamental questions will be discussed
at length in the chapters on wages.
To the possible objection that the concept of a " normal "
holding is vague, the sufficient reply is that in practice it
can be estimated with as much definiteness as the concept
of the " average " labourer. As we see from the history
of the Irish Land Courts and their " Judicial Rents," it
can be defined with sufficient accuracy to serve the ends of
practical justice. More than this is not attained in any
department of human relations, particularly, economic
relations.
The Labourer's Claim Upon the Rent
Should any part of the rent go to the labourer? Let
us take first the case of the labourer who is employed by a
tenant, and who is not occupied in personal service but in
some productive task connected with the land. Like all
other wage earners he has a right to a sufficient share of
the product to afford him a decent livelihood. Since the
tenant is the employer, the director of the business, and
the owner of the product, he rather than the landowner
is the person who is primarily charged with the obligation
of providing the labourer with a living wage. As noted
above, his own claim to a decent livelihood is morally
superior to the landlord's claim to rent ; but if, having taken
this amount from the product, he finds himself unable to
pay living wages to all his employees unless he deducts
something either from the normal interest-return on his
own capital or from the rent that would ordinarily go to
the landowner, he is morally bound to choose the former
course. He, not the landowner, is the wage payer. That
he is obliged to provide living wages to his labour force
'J2 DISTRIBUTIVE JUSTICE
even at the cost of interest on his own investment in the
business, is a proposition that v^ill receive ample discus-
sion and defence in a later chapter.^
Suppose, however, that the tenant has not the means of
paying full living wages after turning into the wage fund
all the money that he had hoped to retain as interest on
his capital. May he withhold from the landowner a suffi-
cient portion of the rent to cover the deficit in wages?
Were this action practicable it would be undoubtedly justi-
fiable; for the landowner's claim to rent is no stronger than
the tenant-capitalist's claim to interest. As claims upon
the product, both are morally weaker than the labourer's
right to a living wage. Nevertheless, the tenant who
should attempt to carry out this course would probably
be prosecuted for non-fulfilment of his contract with the
landowner, or would be evicted from the holding. Nor is
the landowner obliged in such cases to give up the rent in
order that a living wage may be paid to the tenant's labour
force. He cannot be certain that the failure of the latter
to receive full living wages has not been due to inefficiency
or fraudulent conduct on the part of the tenant. More-
over, the landowner would be justified in seeking to pro-
tect himself against the recurrence of such situations by
putting his land in charge of a more capable tenant, or by
selling it and investing or lending the money elsewhere.
However clear may be the abstract proposition that the
claim to a living wage possessed by the employee of the
tenant is superior to the claim to rent possessed by the
landowner, the difficulty of realising this right in practice
is sufficient to relieve even conscientious proprietors from
the obligation of giving up the rent for this purpose.
When the landowner is operating or cultivating his land
himself, he is evidently obliged to pay a living wage to all
his employees at the expense of rent, just as he is obliged
to do so at the cost of interest on his artificial capital. To
1 Chapter xxii.
LIMITATIONS ON THE LANDOWNER'S RIGHT TO RENT 73
be sure, the first charge upon the product should be a decent
liveHhood for himself; but, when he has obtained this, the
right of his employees to a living wage is morally superior
to his right to either rent or interest.
At present the State takes a part of the rent through
taxation. May it take a larger share without violating
justice? This question will be considered in the second
chapter following. In the meantime, we shall examine
the principal defects of the existing system of land tenure
with a view to the suggestion of appropriate remedies,
whether through taxation or otherwise.
CHAPTER VII
DEFECTS OF THE EXISTING LAND SYSTEM
Starting from the principle that the rightness or
wrongness of any system of land tenure is determined not
by metaphysical and intrinsic considerations, but by the
effects of the institution upon human welfare, we arrived at
the conclusion that private landownership is not unjust, so
long as no better system is available. By the same test
of human welfare we found that it would be wrong to
substitute a better system through the process of confiscat-
ing rent, while leaving interest undisturbed. A further
step brought us to the conclusion that complete Socialism
would certainly, and the complete Single Tax probably, be
inferior to the present system. As a sort of corollary,
the social and moral superiority of private landownership
was stated in terms of natural rights. Finally, the ques-
tion was raised whether the landowner, has a right to take
rent, and to take all the rent.
In stating the superiority of the present system, we
explicitly noted that we had in mind the system as capable
of improvement. This implied that there are defects in
the present form of land tenure, and that these can be
eliminated in such a way as to make the system more bene-
ficial and more in harmony with the principles of justice.
In the present chapter we shall give a summary review of
the principal defects, and in the following chapter we shall
suggest some methods of reform. All the defects and
abuses may conveniently be grouped under three heads:
Monopoly ; Excessive Gains ; and Exclusion from the Land.
74
DEFECTS OF THE EXISTING LAND SYSTEM 75
Land ownership and Monopoly
In the literature of the Single Tax movement the phrase,
" land monopoly," is constantly recurring. The expres-
sion is inaccurate; for the system of individual landowner-
ship does not conform to the requirements of a monopoly.
There is, indeed, a certain resemblance between the control
exercised by the owner of land and that possessed by the
monopolist. As the proprietor of every superior soil or
site has an economic advantage over the owner of the
poorest soil or site, so the proprietor of a monopolistic
business obtains larger gains than the man who must
operate in conditions of competition. In both cases the
advantage is based upon the scarcity of the thing controlled,
and the extent of the advantage is measured by the degree
of scarcity.
Nevertheless, there is an important difference between
landownership and monopoly. The latter is usually de-
fined as that degree of unified control which enables the
persons in control arbitrarily to limit supply and raise
price. As a rule, no such power is exercised by individ-
uals, or by combinations of individuals with regard to
land. The pecuniary advantage possessed by the land-
owner, that is, the power to take rent, is conferred and
determined by influences outside of himself, by the natural
superiority of his land, or by its proximity to a city. He
can neither diminish the amount of land in existence nor
raise the price of his own. The former result is inhibited
by nature; the latter by the competition of other persons
who own the same kind of land. To be sure, there are
certain kinds of land which are so scarce and so concen-
trated that they do fall under true monopolistic control.
Such are the anthracite coal mines of Pennsylvania, and
some peculiarly situated plots in a few great cities, for
example, land that is desired for a railway terminal. But
these instances are exceptional. The general fact is that
76 DISTRIBUTIVE JUSTICE
the owners of any kind of land are in competition with
similar owners. While the element of scarcity is common
to landownership and to monopoly, it differs in its opera-
tion. In the case of monopoly it is subject, within limits,
to the human will. This difference is sufficiently im-
portant, both theoretically and practically, to forbid
the identification or confusion of landownership with
monopoly.
A notable illustration of such confusion is the volume
by Dr. F. C. Howe, entitled, '* Privilege and Democracy
in America." He maintains that bituminous coal, copper
ore, and natural gas are true monopolies, but gives no
adequate proof to support this assertion. Moreover, he
exaggerates considerably the part played by landownership
in the formation of industrial monopolies. Thus, his con-
tention that the petroleum monopoly is due to ownership of
oil-producing lands is certainly incorrect ; for the Standard
Oil Company (or companies) has never controlled as much
as half the supply of raw material. " The power of the
Standard does not rest upon a direct monopoly of the pro-
duction of crude oil through ownership of the wells.*' ^
Perhaps the most remarkable misstatement in the volume
is this : '' The railway is a monopoly because of its iden-
tity with land." ^ Now there are a few important railway
lines traversing routes or possessing terminal sites which
are so much better than any alternative routes or sites as
to give all the advantages of a true monopoly. But they
are in a small minority. In the great majority of cases, a
second parallel strip or parallel site could be found which
would be equally or almost equally suitable. Neither the
amount nor the kind of land owned by a railroad, nor its
legal privilege of holding land in a long, continuous strip,
is the efficient cause of a railway monopoly. To attribute
1 " Report of the Commissioner of Corporations on the Petroleum
Industry," Part I, p. 8.
2 P. 138.
DEFECTS OF THE EXISTING LAND SYSTEM y'J
the monopoly to land is to confound a condition with a
cause. One might as well say that the land underlying
the " wheat king's " office is the cause of his corner in
wheat. It is true that in a few of the great cities the exist-
ing railroads may, through their ownership of all the suit-
able terminal sites, prevent the entrance of a competing
line. In the first place, such instances are rare; in the
second place, the fact that there are several roads already
in existence shows that competition was possible without
the entrance of another one. The influence impelling them
to form a monopoly for the regulation of charges is not
their ownership of terminal sites. No sort of uniform
action with regard to terminals would produce any such
effect. The true source of the monopoly element in rail-
ways is inherent in the industry itself. It is the fact of
" increasing returns," which means that each additional
increment of business is more profitable than the preceding
one, and that in most cases this process can be kept up
indefinitely. As a consequence, each of two or more rail-
roads between two points strives to get all the traffic ; then
follows unprofitable rate cutting, and finally combination.^
The same forces would produce identical results if rail-
road tracks and terminals were suspended in the air.
Dr. Howe asserts that the monopolistic character of
such public utility corporations as street railways and
telephone companies is due to their occupation of
" favoured sites." ^ How can this be true, when it is
possible to build a competing line on an adjoining and
parallel street? If the city forbids this, and gives an ex-
clusive franchise to one company, this legal ordinance, and
not any exceptional advantage in the nature of the land
occupied, is the specific cause of the monopoly. If the
city permits a competing line, and if the two lines sooner
or later enter into a combination, the true source and
iCf. Ely, "Monopolies and Trusts," pp. 59, sq.
2 P. 133-
78 DISTRIBUTIVE JUSTICE
explanation are to be found in the fact of increasing re-
turns. Combination is immeasurably more profitable than
cut-throat competition. Moreover, the evils of public
service monopolies can be remedied through public con-
trol of charges and through taxation. Neither in railroads
nor in public utilities is land an impelling cause of mo-
nopoly, or a serious hindrance to proper regulation.
Most of Dr. Howe's exaggerations of the influence of
land upon monopoly take the form of suggestion rather
than of specific and direct statement. When he attempts
in precise language to enumerate the leading sources of
monopoly, he mentions four; namely, land, railways, the
tariff, and public service franchises.^ Nor is he able to
prove his assertion that of these the most important is land.
Nevertheless, land is one of the foremost causes. The
most prominent examples of land monopoly in this coun-
try are the anthracite coal mines and the iron ore beds.
Fully ninety per cent, of our anthracite coal supply (ex-
clusive of Alaska) is under the control of eight railway
systems which in this matter act as a unit.^ According to
Dr. Howe, the excessive profits reaped from this monopo-
listic control amount to between one hundred and two
hundred million dollars annually.^ In other words, the
consumers of anthracite coal must pay every year that
much more than they would have expended if the supply
had not been monopolised. On the other hand, the forma-
tion of monopoly would have been much more difilicult if
the railroads had been legally forbidden to own coal mines.
As things stand, railway monopoly is an important cause
of the anthracite coal monopoly. Some authorities are of
the opinion that a similar condition of monopoly will ulti-
1 Pp. 68, 69.
2 "Final Report of the U. S. Industrial Commission," p. 463; Bliss,
" New Encyclopedia of Social Reform," pp. 245, 770 ; Van Hise, " Con-
centration and Control," pp. ^2, 2>Z.
3 Idem, pp. 46, 47; cf. " Final Report of Industrial Commission," pp.
463-465.
DEFECTS OF THE EXISTING LAND SYSTEM 79
mately prevail in the bituminous coal mines. Iron ore
has been brought under the control of the United States
Steel Corporation to such an extent that the Commissioner
of Corporations writes : *' Indeed, so far as the Steel Cor-
poration's position in the entire iron and steel industry is
of a monopolistic character, it is chiefly through its control
of ore holdings and the transportation of ore." ^ From
this statement, however, it is evident that the monopoly
depends upon control of transportation as well as upon
ownership of the ore beds. If the former were properly
regulated by law, the latter would not be so effective in
promoting monopoly.
Speaking generally, we may say that when a great cor-
poration controls a large proportion of the raw material
entering into its manufactured products, such control will
supplement and reinforce very materially those other
special advantages which make for monopoly.^ Prominent
examples are to be found in steel, natural gas, petroleum,
and water powers. In his " Report on Water Power De-
velopment in the United States," the Commissioner of
Corporations (March 14, 1912) declared that the rapidly
increasing concentration of control might easily become
the nucleus of a monopoly of both steam and water power.
Ten great groups of interests, he said, already dominated
about sixty per cent, of the developed water power, and
were pursuing a policy characterised by a large measure
of agreement.^ As a rough generalisation, it would be
fair to say that in one or two instances, at least, land-
ownership is the chief basis, and in several other cases an
important contributory cause of monopoly.
Even an approximately accurate estimate of the amount
of money which consumers are compelled to pay annually
1 " Report of the Commissioner of Corporations on the Steel In-
dustry," Part I. p. 60.
2 Cf. Hobson, *' The Industrial System," pp. 192-197.
3 Pp. IS, 16, 29-31.
8o DISTRIBUTIVE JUSTICE
for the products of such concerns over and above what they
would pay if the raw material were not wholly or partially
monopolised, is obviously impossible. It may possibly run
into hundreds of millions of dollars.
Excessive Gains from Private Land ownership
The second evil of private landownership to be consid-
ered here, is the general fact that it enables some men to
take a larger share of the national product than is con-
sistent with the welfare of their neighbours and of society
as a whole. As in the matter of monopoly, however, so
here, Single Tax advocates are chargeable with a certain
amount of overstatement. They contend that the land-
owner's share of the national product is constantly increas-
ing, that rent advances faster than interest or wages, nay,
that all of the annual increase in the national product tends
to be gathered in by the landowner, while wages and in-
terest remain stationary, if they do not actually decline.^
The share of the product received by any of the four
agents of production depends upon the relative scarcity of
the corresponding factor. When undertaking ability be-
comes scarce in proportion to the supply of land, labour,
and capital, there is a rise in the remuneration of the busi-
ness man ; when labour decreases relatively to undertaking
ability, land, and capital, there is an increase in wages.
Similar statements are true of the other two agents and
factors. All these propositions are merely particular illus-
trations of the general rule that the price of any commodity
is immediately governed by the movement of supply and
demand. In view of this fact, it is not impossible that
rent might increase to the extent described in the preced-
ing paragraph. All that is necessary is that land should
become sufficiently scarce, and the other factors sufficiently
plentiful.
As a fact, the supply of land is strictly limited by nature,
1 Cf. *' Progress and Poverty," books III and IV.
DEFECTS OF THE EXISTING LAND SYSTEM 8 1
while the other factors can and do increase. There are,
however, several forces which neutralise or retard the tend-
ency of land to become scarce, and of rent to rise. Mod-
ern methods of transportation, of drainage, and of irriga-
tion have greatly increased the supply of available land,
and of commercially profitable land. During the nine-
teenth century, the transcontinental railroads of the United
States made so much of our Western territory accessible
that the value and rent of New England lands actually
declined ; and there are still many millions of acres through-
out the country which can be made productive through
drainage and irrigation. In the second place, every in-
crease of what is called the " intensive use " of land gives
employment to labour and capital which otherwise would
have to go upon new land. In America this practice is
only in its infancy. With its inevitable growth, both in
agriculture and mining, the demand for additional land
will be checked, and the rise in land values and rents be
correspondingly diminished. Finally, the proportion of
capital and labour that is absorbed in the manufacturing,
finishing, and distributive operations of modern industry is
constantly increasing. These processes call for very little
land in comparison with that required for the extractive
operations of agriculture and mining. An increase of one-
fifth in the amount of capital and labour occupied in grow-
ing wheat or in taking out coal, implies a much greater
demand for land than the same quantity employed in fac-
tories, stores, and railroads.^
As a consequence of these counteracting influences, it
appears that the share of the landowners has not increased
disproportionately. The most comprehensive endeavour
yet made to determine the growth and relative size of the
different shares of the national product is embodied in
Professor W. I. King's volume, " The Wealth and Income
of the People of the United States," published in 1915.
1 Cf. Walker, " Land and Its Rent," pp. 168-182, Boston, 1883.
82 DISTRIBUTIVE JUSTICE
It estimates that the total annual income of the nation in-
creased from a little less than two and one-fourth billions
of dollars in 1850 to a little more than thirty and one-half
billions in 19 10, or slightly more than fifteen times.
During the same period rent, the share of the landowners,
advanced from $170,600,000 to $2,673,900,000, or about
fifteen and three quarter times. In the year 1910, there-
fore, the landowners were receiving but a very small frac-
tion more of the national product than their predecessors
obtained sixty years earlier.^ As to the relative size of
the shares going to the different factors in 19 10, the figures
are even more remarkable. Wages and salaries absorbed
46.9 per cent.; profits, 27.5 per cent.; interest, 16.8 per
cent. ; and rent, only 8.8 per cent.^ This was exactly the
same per cent, that the landowners received in i860. To
be sure, these figures are only approximations, but they are
probably the most reliable that can be obtained from our
notoriously incomplete statistics, and they will deserve
respectful consideration until they have been refuted by
specific criticism and argument. In the opinion of their
compiler : " The figures for wages and salaries are believed
to be fairly accurate; those for rent are thought to have
an error of not more than twenty per cent. The separa-
tion of the share of capital from that of the entrepreneur
is very crudely done and no stress should be laid on the
results. The total for all shares is thought to be more
accurate than the mode of distribution, and for the last
three census years should come within ten per cent, of the
correct statement of the national income. For earlier
years the error should not be over twenty per cent, at the
outside." ^ If we make the maximum allowance for error
in reference to the share of the landowner, and assume
that the rent estimate is twenty per cent, too low, we find
that it was still only ten and one-half per cent, of the total
product in 1910, which represents an increase of less than
1 Page 158. 2 Page 160. s Page 158; footnote.
DEFECTS OF THE EXISTING LAND SYSTEM 83
three per cent, since 1850. It is significant that Dr. Howe,
who has no bias toward belittling the share of the land-
owner, suggested as his minimum and maximum estimates
of the land values of the country in 1910 figures which are
respectively fifty per cent, below and only five per cent,
above the amount taken by Professor King as the basis
for his estimate of rent.^ There is, consequently, a strong
presumption that Professor King is right when he stig-
matises as " absurd " the contention of the Single Taxer,
" that all the improvements of industry result only in the
enrichment of the landlord. . . . The value of our prod-
ucts has increased since 1850 to the extent of some twenty-
eight billions of dollars, while rent has gained less than
three billions. Evidently it has captured but a meagre part
of the new production." ^
There are strong indications, however, that the per cent,
of the product going to the owners of land has increased
considerably in the last twenty years, and that this move-
ment will continue indefinitely. According to Professor
King's calculations, the per cent, of the total product
assignable as rent advanced from 7.8 in 19,00 to 8.8 in
1910, which meant that during that period the national
income increased only 70 per cent., while the share of the
landowner increased 91 per cent.^ It is true that a dis-
proportionate advance in rent has occurred between other
census years, only to be neutralised by subsequent de-
creases; but the present instance seems to include certain
features which did not characterise any of the former
gains in the relative share of the landowner. Since 1896
the prices of food products " rose most rapidly in the case
of meat, dairy products, and cereals, which were derived
directly from the land. The prices of raw materials show
a like relation. Timber, grain, and other raw materials
1 " Privilege and Democracy," p. 307.
2 Page 160.
3 Op. cit, pages 160, 158.
84 DISTRIBUTIVE JUSTICE
obtained directly from the land have risen rapidly in price,
while semi-manufactured articles have increased less rap-
idly, or have decreased in price. . . . There is no parallel
in any other field to the advance in those land values upon
which civilisation most directly depends — timber lands,
fertile agricultural land, and land in large commercial and
industrial centres. The recent rise in land values has been
little short of revolutionary." ^
Between 1900 and 19 10 the value of farm lands per acre
in the United States advanced 108.1 per cent.^ During
the eight years beginning with July i, 1906, the value of
land in Greater New York increased something more than
one-third; in the principal cities of New Jersey, and in
Worcester, Washington, Boston, and Buffalo, somewhat
less; in Springfield and Holyoke, considerably more. In
the most recent ten years for which figures are available
(since 1900 in every case) the land values of Milwaukee,
St. Louis and San Francisco averaged only a slight degree
of expansion, while those of Kansas City doubled, and
those of Houston, Dallas, Los Angeles, and Seattle trebled.
To quote Professor Nearing, from whose compilations
these estimates have been summarised : ** The total extent
of the increase in American city land values may be hinted
at rather than stated with any certainty. The scattering
instances in which land and improvements are separately
assessed led to the conclusion that in a large, well-estab-
lished city, growing at approximately the same rate as the
other portions of the United States, the land value is
doubling in from ten to twenty-five years. In the new,
rapidly growing city of the middle and far West and in
some of the smaller cities of the East, the ratio of increase
in land values is far greater, amounting to two-fold or
1 Professor Nearing in " The Annals of the American Academy of
Political and Social Science," March, 191 5.
2 Thirteenth Census, Bulletin on " Farms and Farm Property,"
page I.
DEFECTS OF THE EXISTING LAND SYSTEM 85
even three- fold in a decade. In a few instances the rate
of increase is much smaller, and in one case, Jersey City,
land values over a period of seven years have actually
decreased. . . . Nevertheless, the few available long range
figures indicate a widespread and considerable increase in
American city land values." ^
The rise in the value of timber lands during the last
thirty years has been, in the words of the federal investi-
gators, " enormous." For the ten-year period ending in
1908, " the value of a given piece of southern pine taken
at random is likely to have increased in any ratio from
three-fold to ten-fold." About the same ratio of increase
obtained in the Pacific Northwest, and a somewhat smaller
increase in the region of the Great Lakes.^ While a con-
siderable decline has taken place since 1908, it is only tem-
porary ; for the demand for timber is notoriously increasing
several times as fast as the supply.
That this upward movement in the value of all three
kinds of land will continue without serious interruption,
seems to be as nearly certain as any economic proposition
that is dependent upon the future. Although millions of
acres of arable lands are still unoccupied in the United
States and Canada, the far greater part of them require a
comparatively large initial outlay for draining, clearing,
irrigation, etc., in order to become productive. Hence
there is no likelihood that they can be brought under culti-
vation fast enough to halt or greatly retard the advancing
values which follow upon the growth of population and the
increased demand for agricultural products. In all prob-
ability the greater part of them will not come into use until
the prices of farm products have risen above the present
level. Obviously this supposes an increase in the value of
1 The Public, Nov. 26, 1915. For an account of increases in the
principal European cities, see Camille-Husymans, " La plus-value
immobiliere dans les communes beiges " ; Gand, 1909.
2 " Report of the Commissioner of Corporations on the Lumber
Industry," Part I, pp. 214-216.
86 DISTRIBUTIVE JUSTICE
all farm land, old and new. Nor is the adoption of better
methods of farming likely to check seriously the upward
movement. Between 1900 and 19 10 the urban population
of America increased 34.8 per cent., as against a gain of
only 21 per cent, in the total population. This dispropor-
tionate growth in the number of the city dwellers will if
continued make certain what is in any case extremely prob-
able, a steady and considerable advance in urban land values
and rents.
The circumstance that these remarkable increases in land
values are a comparatively recent phenomenon has pre-
vented them from receiving the attention that they deserve,
either from the general public or from the students of
economic and social problems. The total value of the land
of the country has increased steadily from decade to decade,
but so has the total value of capital, and even between 1900
and 1 9 10 the increase in the share of the capitalist was
exactly equal to the increase in the share of the landowner,
that is, 91 per cent.-^ Those persons who complacently
make such comparisons overlook the new and significant
feature of the more recent advances in land value; namely,
that they are due in only a slight degree to an expansion
of the area of land under consideration. The increases of
value quoted in the foregoing paragraphs are increases per
acre and per urban lot, not increases derived from bringing
new land under cultivation or new tracts within municipal
limits. On the other hand, the increases in the value of
capital, now as always, represent for the most part con-
crete additions to the existing stock of productive instru-
ments. Except where monopoly holds sway, particular
capital instruments, unlike particular pieces of land, do not
increase in value. Hence the owner of a given amount of
capital does not profit by the advance in the total value of
capital as the owner of the average parcel of land profits by
the general increase in the value of land. This means that
* 1 King, op. cit, p. 158.
DEFECTS OF THE EXISTING LAND SYSTEM 8/
all those consumers of products who are not landowners
must pay an increasing tribute to those who are landed
proprietors.
So much for the proportion of the national product which
goes to the landowning class. Let us next inquire how the
landowner's share, or rent, is distributed throughout the
population. If it were equally divided among all persons,
its increase relatively to the shares of the other factors
would, from the social viewpoint, be a matter of consid-
erable indifference. On the other hand, if it is secured
by a minority of the population, and if that minority tends
to become smaller as the share itself becomes larger, we
have a socially undesirable condition.
In the twenty years between 1890 and 19 10, the pro-
portion of farm families in the United States owning farm
land, mortgaged or unmortgaged, declined from 65.9 per
cent, to 62.8 per cent.; the proportion of urban families
owning their homes, encumbered or unencumbered, in-
creased from 36.9 to 38.4 per cent., and the proportion of
all families owning homes, encumbered or unencumbered,
fell from 47.8 to 45.8 per cent. Of the homes owned by
their occupiers, 28 per cent, were mortgaged in 1890, and
32.8 per cent, in 1910.^ While a decline of two per cent,
in the home owning and landowning families in twenty
years, and an increase of almost five per cent, in the number
of those families who hold their property subject to encum-
brance, may not seem very serious in themselves, they in-
dicate a definitely unhealthy trend. Not only are the land-
owning families in a minority, but the minority is becoming
smaller.
Nevertheless, when we consider the amount of gains
accruing to the average member of the landowning class,
we do not find that it is unreasonably large. The great
majority of landed proprietors have not received, nor are
they likely to receive, from their holdings incomes suffi-
1 Thirteenth Census, Vol. I, p. 1295.
88 DISTRIBUTIVE JUSTICE
ciently large to be called excessive shares of the national
product. Their gross returns from land have not ex-
ceeded the equivalent of fair interest on their actual in-
vestment, and fair wages for their labour. The landown-
ers who have been enabled through their holdings to rise
above the level of moderate living constitute a compara-
tively small minority. And these statements are true of
both agricultural and urban proprietors.
It is true that a considerable number of persons, abso-
lutely speaking, have amassed great wealth out of land.
It is a well known fact that land was the principal source
of the great mediaeval and post-mediaeval fortunes, down
to the end of the eighteenth century. " The historical
foundation of capitalism is rent." ^ Capitalism had its
beginning in the revenue from agricultural lands, city
sites, and mines. A conspicuous example is that of the
great Fugger family of the sixteenth century, whose wealth
was mostly derived from the ownership and exploitation
of rich mineral lands.^ In the United States very few
large fortunes have been obtained from agricultural land,
but the same is not true of mineral lands, timber lands, or
urban sites. " The growth of cities has, through real es-
tate speculation and incremental income, made many of
our millionaires." ^ " As with the unearned income of
city land, our mineral resources have been conspicuously
prolific producers of millionaires." ^ The most striking
instance of great wealth derived from urban land is the
fortune of the Astor family. While gains from trading
ventures formed the beginning of the riches of the orig-
inal Astor, John Jacob, these were " a comparatively in-
significant portion of the great fortune which he trans-
iHobson, "The Evolution of Modern Capitalism," p. 4; London,
1907.
2 Harper's Monthly Magazine, Jan., 1910.
sWatklns, "The Growth of Large Fortunes," p. 75; N. Y., 1907.
^Idem, p. 93.
DEFECTS OF THE EXISTING LAND SYSTEM 89
mitted to his descendants." ^ At his death, in 1848, John
Jacob Astor's real estate holdings in New York City were
valued at eighteen or twenty million dollars. To-day the
Astor estate in that city is estimated at between 450 and
500 millions, and within a quarter of a century will not
improbably be worth one billion dollars.^ According to
an investigation made in 1892 by the New York Tribune,
26.4. per cent, of the millionaire fortunes of the United
States at that time were traceable to landownership, while
41.5 per cent, were derived from competitive industries
which were largely assisted by land possessions.^ The
proportion of such fortunes that is due, directly or indi-
rectly, in whole or in part, to landownership has undoubt-
edly increased considerably since 1892.
With regard to great individual or corporate land hold-
ings, there exist no adequate statistics. A few conspicu-
ous instances may be cited. The United States Steel Cor-
poration owns lands yielding iron ore, coal, coke, and
timber which are valued by the' Commissioner of Cor-
porations at nearly 250 million dollars, and by the Steel
Corporation itself at more than 800 million dollars.*
Three companies own nearly eleven per cent., and 195 in-
dividuals or corporations own 48 per cent, of all the pri-
vately owned timber in the United States.^ The United
States Census of 1910 shows that the number of farms
containing 500 acres or over was about 175,000, and com-
prised ten per cent, of the total farm acreage. One hun-
dred and fifty persons and corporations are said to own
1 Youngman, " The Economic Causes of Great Fortunes," p. 45 ; N.
Y., 1909.
2 Howe, op. cit., pp. 125, 126.
3 Cf. Commons, "The Distribution of Wealth," pp. 252, 257; N. Y.,
1893.
* *' Report of the Commissioner of Corporations on the Steel In-
dustry," Part I, p. 314,
5 " Summary of Report of the Commissioner of Corporations on the
Lumber Industry," pp. 3-8.
90 DISTRIBUTIVE JUSTICE
220,000,000 acres of various kinds of land. None of
these holders has less than ten thousand acres, and two of
the syndicates possess fifty million acres each.^
Exclusion from the Land
One of the most frequent charges brought against the
present system of land tenure is that it keeps a large
proportion of our natural resources out of use. It is con-
tended that this evil appears in three principal forms:
owners of large estates refuse to break up their holdings
by sale; many proprietors are unwilling to let the use of
their land on reasonable terms; and a great deal of land
is held at speculative prices, instead of at economic prices.
So far as the United States are concerned, the first of
these charges does not seem to represent a condition that
is at all general. Although many holders of large mineral
and timber tracts seem to be in no hurry to sell portions
of their holdings, they are probably moved by a desire to
obtain higher prices rather than to continue as large land-
owners. As a rule, the great landholders of America are
without those sentiments of tradition, local attachment,
and social ascendency which are so powerful in maintain-
ing intact the immense estates of Great Britain. On the
contrary, one of the common facts of to-day is the per-
sistent effort carried on by railroads and other holders of
large tracts to dispose of their land to settlers. While the
price asked by these proprietors is frequently higher than
that which corresponds to the present productiveness of
the land, it is generally as low as that which is demanded
by the owners of smaller parcels. To be sure, this is one
way of unreasonably hindering access to the land, but it
falls properly under the head of the third charge enu-
merated above. There is no sufificient evidence that the
large landholders are exceptional offenders in refusing to
sell their holdings to actual settlers.
1 From articles in " The Single Tax Review," vol. 9, nos. 5, 6.
DEFECTS OF THE EXISTING LAND SYSTEM 9 1
The assertion that unused land cannot be rented on
reasonable terms is in the main unfounded, so far as it
refers to land which is desired for agriculture. As a rule,
any man who wishes to cultivate a portion of such land
can fulfil his desire if he is willing to pay a rent that cor-
responds to its productiveness. After all, landowners are
neither fools nor fanatics: while awaiting a higher price
than is now obtainable for their land, they would prefer to
get from it some revenue rather than none at all. As a
matter of fact, almost all the agricultural land that is im-
mediately available for renting, is constantly under culti-
vation. This refers to land that is already under the
plough, and is provided with buildings and other neces-
sary improvements. Practically none of this is out of
use. New land which is without buildings is not wanted
by tenants, unless it is convenient to their residences, be-
cause they do not desire to expend money for permanent
improvements upon land that they do not own. True,
the present owners of such land might erect buildings,
and then let it to tenants. In so far as new land might
profitably be improved and cultivated, and in so far as the
owners are unwilling or unable to provide the improve-
ments, the present system does keep out of use agricultural
land that could be cultivated by tenants. Mineral and tim-
ber lands are sometimes withheld from tenants because the
owners wish to limit the supply of the product, or because
they fear that a long-term lease would prevent them from
selling the land to the best advantage. As to urban sites,
the contention that we are now examining is generally
true. The practice of leasing land to persons who wish
to build thereon does not, with the exception of a very few
cities, obtain in the United States for other than very large
business structures. As a rule, it does not apply to sites
for residences. The man who wants a piece of urban land
for a dwelling or for a moderately sized business build-
ing cannot obtain it except by purchase.
92 DISTRIBUTIVE JUSTICE
Cannot the land be bought at a reasonable price ? This
brings us to the third and most serious of the charges con-
cerning exclusion from the land. Since the value of land
in most cities is rising, and apparently will continue to
rise more or less steadily, the price at which it is held and
purchasable is not the economic price but a speculative
price. It is higher than the capitalised value of the present
revenue or rent. For example: if five per cent, be the
prevailing rate of interest, a piece of land which returns
that rate on a capital of one thousand dollars cannot be
bought for one thousand dollars. The purchaser is will-
ing to pay more because he hopes to sell it for a still higher
price within a reasonable time. He knows that he cannot
immediately obtain five per cent, on the amount (say, 1,200
dollars) that he is ready to pay for the land, but his valu-
ation of it is not determined merely by its present income-
producing power, but by its anticipated revenue value and
selling value. ^ The buyer will pay more for such land
than for a house which yields the same return; for he
knows that the latter will not, and hopes that the former
will, bring a higher return and a higher price in the future.
Wherever this discounting of the future obtains, the price
of land is unreasonably high, and access to vacant land is
unreasonably difficult.
This condition undoubtedly exists most of the time in
the great majority of our larger cities. Men will not sell
vacant land at a price which will enable the buyer to ob-
tain immediately a reasonable return on his investment.
They demand in addition a part of the anticipated increase
in value. In the rural regions this evil appears to be
smaller and less general. The owners of unused or un-
economically used arable land are more eager to sell their
1 " In a growing city, an advantageous site will command a price
more than in proportion to its present rent, because it is expected that
the rent will increase still further as the years go on." Taussig,
** Principles of Economics," II, 98; N. Y., 191 1.
DEFECTS OF THE EXISTING LAND SYSTEM 93
holdings than the average proprietor of a vacant lot. So
far as this sort of land is concerned, it is probable that
most of the denunciation of " land speculators " and " land
monopolists " overshoots the mark. Not the high price at
vi^hich unused arable lands are held, but the great initial
cost of draining, clearing, or irrigating them, is the main
reason why they are not purchased by cultivators.
While no general and precise estimate can be given of
the extent to which the speculative exceeds the actual
rent-producing value of land in growing cities, twenty-five
per cent, would not improbably be a fair conjecture. Even
when a reaction occurs after a period of excessive *' land-
booming," the lower prices do not bring the manless land
any nearer to the landless men. Only the few who possess
ready money or excellent credit can take advantage of such
a situation. On the whole the evil that we are now con-
sidering is probably greater than any other connected with
the private ownership of land.
All the tendencies and forces that have been described
in the present chapter under the heads of Monopoly, Ex-
cessive Gains, and Exclusion from the Land, are in some
degree real defects and abuses of the existing system of
land tenure. Most of them do not seem to be sufficiently
understood or appreciated by the more ardent defenders of
private ownership. To recognise them, and to seek ade-
quate correctives of them would seem to be the task of
both righteousness and expediency. In the next and final
chapter of this Section, we shall consider certain remedies
that seem to be at once effective and just.
CHAPTER VIII
METHODS OF REFORMING OUR LAND SYSTEM
In economic and social discussion the word reform is
commonly opposed to the word revolution. It implies
modification rather than abolition, gradual rather than vio-
lent change. Hence reforms of the system of land tenure
do not include such radical proposals as those of land na-
tionalisation or the Single Tax. On the other hand, some
extension of State ownership of land, and some increase
in the proportion of taxes imposed upon land, may quite
properly be placed under the head of reform, inasmuch as
they are changes in rather than a destruction of the exist-
ing system.
In general, the reform measures needed are such as will
meet the defects described in the last chapter; namely,
monopoly, excessive gains, and exclusion from the land.
Obviously they can be provided only by legislation; and
they may all be included under two heads, ownership and
taxation.
By far the greater part of the more valuable lands of
the country are no longer under the ownership of the State.
Urban land is practically all in the hands of private pro-
prietors. While many millions of acres of land suitable
for agriculture are still under public ownership, almost all
of this area requires a considerable outlay for irrigation,
clearing, and draining before it can become productive.
Forty years ago, three-fourths of the timber now standing
was public property; at present about four-fifths of it is
94
METHODS OF REFORMING OUR LAND SYSTEM 95
owned by private persons or corporations.^ The bulk of
our mineral deposits, coal, copper, gold, silver, etc., have
likewise fallen under private ownership, with the exception
of those of Alaska. The undeveloped water power re-
maining under government ownership has been roughly
estimated at fourteen million horse power in the national
forests, and considerably less than that amount in other
parts of the public domain.^ This is a gratifying propor-
tion of the whole supply, developed and undeveloped, of
this national resource, which is said to be somewhere be-
tween 27 and 60 millions horse power.^ Only about seven
million horse power has yet been developed, almost all of
which is privately owned.
The Leading System
In many countries of Europe it has long been the policy
of governments to retain ownership of all lands containing
timber, minerals, oil, natural gas, phosphate, and water
power. The products of these lands are extracted and put
upon the market through a leasing system. That is; the
user of the land pays to the State a rental according to the
amount and quality of raw material which he takes from
the storehouse of nature. Theoretically, the State could
sell such lands at prices that would bring in as much rev-
enue as does the leasing system ; practically, this result has
never been attained. The principal advantages of the leas-
ing arrangement are : to prevent the premature destruction
of forests, the private monopolisation of limited natural
resources (which has happened in the case of the anthracite
coal fields of Pennsylvania) and the private acquisition of
exceptionally valuable land at ridiculously low prices ; and
to enable the State to secure just treatment for the con-
1 " Summary of Report of the Commissioner of Corporations on
the Timber Industry in the United States," p. 3.
2 " Report of the Commissioner of Corporations on Water Power
Development in the United States," pp. 193-195.
3 Idem, pp. 4, 5.
g6 DISTRIBUTIVE JUSTICE
sumer and the labourer by stipulating that the former shall
obtain the product at fair prices, and that the latter shall
receive fair wages.
This example should be followed by the United States.
All timber, mineral, gas, oil, and water power lands which
have not been alienated to private persons should remain
under government ownership, and be brought into use
through a leasing arrangement which would enable the
private operators to obtain the rates of profit and interest
which are ordinarily yielded by enterprises subject to the
same degree of risk. Happily this policy now seems likely
to be adopted. In 19 13 a law was passed by the United
States providing for the operation of the coal mines of
Alaska on leases. The amount that can be leased by any
person or corporation is limited to 2560 acres, and the
penalty for attempting to monopolise the product is for-
feiture of tenure. The Secretary of the Interior has urged
a similar arrangement for the development and extraction
of water power, coal, oil, gas, phosphate, sodium, and
potassium on the public domain of Continental United
States, and his recommendation will probably be adopted
by Congress. Thus the rent of these lands will go to the
whole people instead of to a comparatively small number
of individuals, monopoly of the products will be made im-
possible, and our remaining public resources will be pro-
tected from rapid and ruinous exploitation.
To the objection that capitalists will not invest their
money in nor carry on extractive enterprises on a leasing
basis, the sufficient answer is that they are doing it now.
In 1909, 24.5 per cent, of all the lands producing minerals,
precious metals, and stone ; 94.6 per cent, of the lands pro-
ducing petroleum and gas; and 61.2 per cent, of the two
groups of lands combined, were operated under leases from
private owners or from the government.^ If the rental or
royalty demanded is not unreasonably high capitalists will
1 " Abstract of the Thirteenth Census," p. 552.
METHODS OF REFORMING OUR LAND SYSTEM 97
be quite as willing to produce raw materials of these kinds
from leased land as they are to manufacture or sell goods
in a rented building. Not the leasing system, but the terms
of the particular lease are the important consideration.
Public grazing lands should remain government prop-
erty until such time as they become available for agricul-
ture. Cattle owners could lease the land from the State
on equitable terms, and receive ample protection for money
invested in improvements.
Public Agricultural Lands
The leasing system cannot well be applied to agricultural
lands. In order that they may be continuously improved
and protected against deterioration, they must be owned by
the cultivators. The temptation to wear out a piece of
land quickly, and then move to another piece, and all the
other obstacles that stand in the way of the Single Tax as
applied to agricultural land, show that the government
cannot with advantage assume the function of landlord in
this domain. In the great majority of cases the State
would do better to sell the land in small parcels to genuine
settlers. There are, indeed, many situations, especially in
connection with government projects of irrigation, clear-
ing, and drainage, in which the leasing arrangement could
be adopted temporarily. It should not be continued longer
than is necessary to enable the tenants to become owners.
With this end in view the State should make loans to cul-
tivators at moderate rates of interest, as is done in New
Zealand and Australia.
Whether the State ought to purchase undeveloped land
from private owners in order to sell it to settlers, may well
be doubted. The only lands to which such a scheme would
be at all applicable are large estates which are held out of
use by their proprietors. Even here the transfer of the
land to cultivators could be accomplished indirectly,
through an extra heavy tax. This method has been
98 DISTRIBUTIVE JUSTICE
adopted with success by Australia and New Zealand. The
only other action by the State that seems necessary or wise
in order to place settlers upon privately owned agricultural
land, is the establishment of a comprehensive system of
rural credits. The need of cheaper food products, and the
desirability of checking the abnormal growth of our urban
populations, are powerful additional reasons for the adop-
tion of this policy. The Hollis Rural Credits Bill recently
enacted into law by Congress goes a considerable way to-
ward meeting these needs.
Public Ownership of Urban Land
No city should part with the ownership of any land that
it now possesses. Since capitalists are willing to erect
costly buildings on sites leased from private owners, there
is no good reason why any one should refuse to put up or
purchase any sort of structure on land owned by the
municipality. The situation differs from that presented by
agricultural land; for the value of the land can easily be
distinguished from that of improvements, the owner of the
latter can sell them even if he is not the owner of the land,
and he cannot be deprived of them without full compensa-
tion. While the lessee paid his annual rent, his control of
the land would be as complete and certain as that of the
landowner who continues to pay his taxes. On the other
hand, the leaseholder could not permit or cause the land to
deteriorate if he would; for the nature of the land renders
this impossible. Finally, the official activities involved in
the collection of the rent and the periodical revaluation of
the land, would not differ essentially from those now re-
quired to make assessments and gather taxes.
The benefits of this system would be great and manifest.
Persons who were unable to own a home because of their
inability to purchase land, could get secure possession of
the necessary land through a lease from the city. Instead
of spending all their lives in rented houses, thousands upon
METHODS OF REFORMING OUR LAND SYSTEM 99
thousands of families could become the owners and occu-
piers of homes. The greater the amount of land thus
owned and leased by the city, the less would be the power
of private owners to hold land for exorbitant prices. Com-
petition with the city would compel them to sell the land at
its revenue-producing value instead of at its speculative
value. Finally, the city would obtain the benefit of every
increase in the value of its land by means of periodical re-
valuation, and periodical readjustment of rent.
Unfortunately the amount of municipal land available
for such an arrangement in our American cities is negli-
gible. If they are to establish the system they must first
purchase the land from private owners. Undoubtedly this
ought to be done by all large cities in which the housing
problem has become acute, and the value of land is con-
stantly rising.. This policy has been adopted with happy
results by many of the municipalities of France and Ger-
many.^ At the state election of 191 5 the voters of Massa-
chusetts adopted by an overwhelming majority a constitu-
tional amendment authorising the cities of the common-
wealth to acquire land for prospective home builders. In
Savannah, Georgia, no extension of the municipal limits is
made until the land to be embraced has passed into the
ownership of the city. Another method is to refrain from
opening a new street in a suburban district until the city
has become the proprietor of the abutting land. Whatever
be the particular means adopted, the objects of municipal
purchase and ownership of land are definite and obvious : to
check the congestion of population in the great urban cen-
tres, to provide homes for the homeless, and to secure for
the whole community the socially occasioned increases in
land values. Indeed, it is probable that no comprehensive
scheme of housing reform can be reaHsed without a con-
siderable amount of land purchase by the municipalities.
Cities must be in a position to provide sites for those home
1 ,Cf . Marsh, " Land Value Taxation in American Cities," p. 95*
lOO DISTRIBUTIVE JUSTICE
builders who cannot obtain land on fair conditions from
private proprietors.^
Turning now from the direct method of public owner-
ship to the indirect method of reform through taxation, we
reject the thoroughgoing proposals of the Single Taxers.
To appropriate all economic rent for the public treasury
would be to transfer all the value of land without compen-
sation from the private owner to the State. For example :
a piece of land that brought to the owner an annual revenue
of one hundred dollars would be taxed exactly that amount;
if the prevailing rate of interest were five per cent, the pro-
prietor would be deprived of wealth to the amount of two
thousand dollars; for the value of all productive goods is
determined by the revenue that they yield, and benefits the
person who receives the revenue. Thus the State would
become the beneficiary and the virtual owner of the land.
Inasmuch as we do not admit that the so-called social crea-
tion of land values gives the State a moral right to these
values, we must regard the complete appropriation of eco-
nomic rent through taxation as an act of pure and simple
confiscation.^
Appropriating Future Increases of Land Value
Let us examine, then, the milder suggestion of John
Stuart Mill, that the State should impose a tax upon land
sufficient to absorb all future increases in its value.^ This
scheme is commonly known as the appropriation of future
unearned increment. Either in whole or in part it is at
least plausible, and is to-day within the range of practical
1 Municipal purchase and ownership of land have been advocated
by such a conservative authority as the Rev. Heinrich Pesch, S. J.
" Lehrbuch der Nationaloekonomie," I, 203.
2 As we shall see in a later chapter, the confiscation and injustice
would be smaller if the State should simultaneously abohsh interest.
In any case, the decline in land value resulting from complete con-
fiscation of rent should be made up to the private owner by public
compensation.
3 ** Principles of Political Economy," book V, ch. 2, sect. v.
METHODS OF REFORMING OUR LAND SYSTEM lOI
discussion. It is expected to obtain for the whole commu-
nity all future increases in land values, and to wipe out the
speculative, as distinguished from the revenue-producing
value of land. Consequently it would make land cheaper
and more accessible than would be the case if the present
system of land taxation were continued. Before discussing
its moral character, let us see briefly whether the ends that
it seeks may properly be sought by the method of taxation.
For these ends are mainly social rather than fiscal.
To use the taxing power for a social purpose is neither
unusual nor unreasonable. " All governments," says
Professor Seligman, '* have allowed social considerations in
the wider sense to influence their revenue policy. The
whole system of productive duties has been framed not
merely with reference to revenue considerations, but in
order to produce results which should directly affect social
and national prosperity. Taxes on luxuries have often
been mere sumptuary laws designed as much to check con-
sumption as to yield revenue. Excise taxes have as fre-
quently been levied from a wide social, as from a narrow
fiscal, standpoint. From the very beginning of all tax sys-
tems these social reasons have often been present." ^ Our
Federal taxes on imports, on intoxicating liquors, on oleo-
margarine, and on white phosphorus matches, and many
of the license taxes in our municipalities, as on pedlars,
saloon keepers, and dog owners, are in large part intended
to meet social as well as fiscal ends. They are in the inter-
est of domestic production, public health, and public safety.
The reasonableness of effecting social reforms through tax-
ation cannot be seriously questioned. While the mainte-
nance of government is the primary object of taxation, its
ultimate end, the ultimate end of government itself, is the
welfare of the people. Now if the public welfare can be
promoted by certain social changes, and if these in turn can
be effected through taxation, this use of the taxing power
1 " Progressive Taxation in Theory and Practice," 1908, p. 130.
102 DISTRIBUTIVE JUSTICE
will be quite as normal and legitimate as though it were
employed for the upkeep of government. Hence the moral-
ity of taxing land for purposes of social reform will de-
pend entirely upon the nature of the particular tax that is
imposed.
Some Objections to the Increment Tax
The tax that we are now considering can be condemned
as unjust on only two possible grounds : first, that it would
be injurious to society; and, second, that it would wrong
the private landowner. If it were fairly adjusted and ef-
ficiently administered it could not prove harmful to the
community. In the first place, landowners could not shift
the tax to the consumer. All the authorities on the subject
admit that taxes on land stay where they are put, and are
paid by those upon whom they are levied in the first in-
stance. ■'• The only way in which the owners of a commod-
ity can shift a tax to the users or consumers of it, is by
limiting the supply until the price rises sufficiently to cover
the tax. By the simple device of refusing to erect more
buildings until those in existence have become scarce enough
to command an increase in rent equivalent to the new tax,
the actual and prospective owners of buildings can pass the
tax on to the tenants thereof. By refusing to put their
money into, say, shoe factories, investors can limit the sup-
ply of shoes until any new tax on this commodity is shifted
upon the wearers of shoes in the form of higher prices.
IJntil these rises take place in the rent of buildings and the
price of shoes, investors will put their money into enter-
prises which are not burdened with equivalent taxes. But
r.othing of this sort can follow the imposition of a new tax
upon land. The supply of land is fixed, and cannot be af-
fected by any action of landowners or would-be landown-
ers. The users of land and the consumers of its products
1 Cf. Taussig, "Principles of Economics," II, 516: Seligman, "The
Shifting and Incidence of Taxation," p. 223.
METHODS OF REFORMING OUR LAND SYSTEM IO3
are at present paying all that competition can compel them
to pay. They would not pay more merely because they
were requested to do so by landowners who were labouring
under the burden of a new tax. If all landowners were to
carry out an agreement to refrain from producing, and to
withhold their land from others until rents and prices had
gone up sufficiently to offset the tax, they could, indeed,
shift the latter to the renters of land and the consumers of
its products. Such a monopoly, however, is not within the
range of practical achievement. In its absence, individual
landowners are not likely to withhold land nor to discon-
tinue production in sufficient numbers to raise rents or
prices. Indeed, the tendency will be all the other way ; for
all landowners, including the proprietors of land now
vacant, will be anxious to put their land to the best use in
order to have the means of paying the tax. Owing to this
increased production, and the increased willingness to sell
and let land, rents and prices must fall. It is axiomatic
that new taxes upon land always make it cheaper than it
would have been otherwise, and are beneficial to the com-
munity as against the present owners.
In the second place, the tax in question could not injure
the community on account of discouraging investment in
land. Once men could no longer hope to sell land at an
advance in price, they would not seek it to the extent that
they now do as a field of investment. For the same reason
many of the present owners would sell their holdings sooner
than they would have sold them if the tax had not been
levied. From the viewpoint of the public the outcome of
this situation would be wholly good. Land would be
cheaper and more easy of access to all who desired to buy
or use it for the sake of production, rather than for the
sake of speculation. Investments in land which have as
their main object a rise in value are an injury rather than a
benefit to the community ; for they do not increase the prod-
ucts of land, while they do advance its price, thereby keep-
104 DISTRIBUTIVE JUSTICE
ing it out of use.. Hence the State should discourage in-
stead of encouraging mere speculators in land. Whether
it is or is not bought and sold, the supply of land remains
the same. The supreme interest of the community is that
it should be put to use, and made to supply the wants of the
people. Consequently the only land investments that help
the community are those that tend to make the land pro-
ductive. Under a tax on future increases in value, such
investments would increase for the simple reason that land
would be cheaper than it would have been without the tax.
Men who desired land for the sake of its rent or its product
would continue as now to pay such prices for it as would
enable them to obtain the prevailing rate of interest on their
investment after all charges, including taxes, had been paid.
Men who wanted to rent land would continue as now to get
it at a rental that would give them the usual return for
their capital and labour.
So much for the effect of the tax upon the community.
Would it not, however, be unjust to the landowners ? Does
not private ownership of its very nature demand that in-
creases in the value of the property should go to the owners
thereof ? " Res fructificat domino : " a thing fructifies to
its owner; and value-increases may be classed as a kind of
fruit.
In the first place, this formula was originally a dictum of
the civil law merely, the law of the Roman Empire. It was
a legal rather than an ethical maxim. Whatever validity
it has in morals must be established on moral grounds, by
moral arguments. It cannot forthwith be assumed to be
morally sound on the mere authority of legal usage. In
the second place, it was for a long time applied only to
natural products, to the grain grown in a field, to the off-
spring of domestic animals. It simply enunciated the
policy of the law to defend the owner of the land in his
claim to such fruits, as against any outsider who should
attempt to set up an adverse title tlirough mere appropria-
METHODS OF REFORMING OUR LAND SYSTEM IO5
tion or possession. Thus far, the formula was evidently
in conformity with reason and justice. Later on it was
extended, both by lawyers and moralists, to cover com-
mercial '' fruits," such as, rent from lands and houses,
and interest from loans and investments. Its validity in
this field will be examined in connection with the justifica-
tion of interest. More recently the maxim has received
the still wider application which we are now considering.
Obviously increases in value are quite a different thing
from the concrete fruit of the land, its natural product. A
right to the latter does not necessarily and forthwith imply
a right to the former. In the third place, the formula in
question is not a self evident, fundamental principle. It
is merely a summary conclusion drawn from the considera-
tion of the facts and principles of social and industrial
life. Consequently its validity as applied to any particular
situation will depend on the correctness of these premises,
and on the soundness of the process by which it has been
deduced.
The increment tax is sometimes opposed on the ground
that it is new, in fact, revolutionary. In some degree the
charge is true, but the conditions which the proposal is
intended to meet are likewise of recent origin. The case
for this legislation rests mainly on the fact that, for the
first time in the world's history, land values everywhere
show an unmistakable tendency to advance indefinitely.
This means that the landowning minority will be in a posi-
tion to reap unbought and continuous benefits at the ex-
pense of the landless majority. This new fact, with its
very important significance for human welfare, may well
require a new limitation on the right of property in land.
It is also objected that to deprive men of the opportu-
nity of profiting by changes in the value of their land would
be an unfair discrimination against one class of propri-
etors. But there are good reasons for making the dis-
tinction. Except in the case of monopoly, increases in
I06 DISTRIBUTIVE JUSTICE
the value of goods other than land are almost always due
to expenditures of labour or money upon the goods them-
selves. The value increases that can be specifically traced
to external and social influences are intermittent, uncer-
tain, and temporary. Houses, furniture, machinery, and
every other important category of artificial goods are per-
ishable, and decline steadily in value. Land, however, is
substantially imperishable, becomes steadily scarcer rela-
tively to the demand, and its value-increases are on the
whole constant, certain, and permanent. Moreover, it is
the settled policy of most enlightened governments to ap-
propriate or to prevent all notable increases in the value
of monopoHstic goods, either through special taxation or
through regulation of prices and charges. Taking the
increment values of land is, therefore, not so discrimina-
tive as it appears at first glance.^
iThe "discrimination" objection is put in a somewhat different
form by the Rev. Sydney F. Smith, S. J., in an article in The Month,
Sept., 1909, entitled " The Theory of Unearned Increment." His
argument is in substance that if the people of a city can claim the
increases in land values which their presence and activity have oc-
casioned, the purchasers of food, clothes, books, or concert tickets are
equally justified in claiming that, "having added to the value of the
shops and music halls, they had acquired a co-proprietary right in the
increased value of the owners' stock, and the owners' premises."
While this argument is specifically directed against those who main-
tain that the " social production " of values confers a right thereto,
it affects to some extent our thesis that there is a vast difference be-
tween value-increases in land and in other goods. Father Smith seems
to confuse the origination of value with the increase of value. The
presence of consumers is an obvious prerequisite to the existence of
any value at all in any kind of goods, but labour and financial outlay
on the part of the producers of the goods are an equally indispensable
prerequisite. The reason why the value is appropriated by the latter
rather than the former is that this is clearly the only rational method
of distribution. What we are concerned with here, however, is not
this initial or cost-of-production-value of artificial goods, but the in-
creases in value above this level which are brought about by external
and social influences. Theoretically, the State could as reasonably
take these as the increases in the value of land; practically, such a
performance is out of the question, for the simple reason that such
increases are spasmodic and exceptional. If Father Smith thinks that
" food or clothes, or books, or concert tickets " regularly advance above
METHODS OF REFORMING OUR LAND SYSTEM IO7
Another objection is that the proposal would violate the
canons of just taxation, since it would impose a specially
heavy burden upon one form of property. The general
doctrine of justice in taxation which is held by substan-
tially all economists to-day, and which has been taught by
Catholic moralists for centuries, is that known as the
" faculty " theory.^ Men should be taxed in proportion
to their ability to pay, not in accordance with the benefits
that they may be assumed to receive from the State. And
it is universally recognised that the proper measure of
" ability " is not a man's total possessions, productive and
unproductive, but his income, his annual revenue. Now,
the increment tax does seem to violate the rule of taxation
according to ability, inasmuch as it would take all of one
species of revenue, while all other incomes and properties
pay only a certain percentage.
All the adherents of the faculty theory maintain, how-
ever, that it is subject to certain modifications. Incomes
from interest, rent, and socially occasioned increases in
the value of property should be taxed at a higher rate
than incomes that represent expenditures of labour; for
to give up a certain per cent, of the former involves less
sacrifice than to give up the same per cent, of the latter.
Therefore, increments of land- value may be fairly taxed
at a higher rate than salaries, personal property, or even
rent and interest. When, however, the law absorbs the
whole of the value increments, it seems to be something
more than a tax. The essential nature of a tax is to take
the cost-of-production-value, he is simply mistaken. Since these and
other artificial goods bring to their owners as a rule no socially oc-
casioned increments of value, they and their owners are in quite a
different situation from l^nd and the owners of land.
1 Cf. Seligman, " Progressive Taxation in Theory and Practice,"
part II, chs. ii and iii ; also the classic^ refutation of the " benefit "
theory by John Stuart Mill in " Principles of Political Economy,"
book V, ch. ii, sec. 2. The traditional Catholic teaching on the sub-
ject is compactly stated by Cardinal de Lugo in " De Justitia et Jure,"
disp. 36; cf. Devas, " Political Economy," p. 594, 2d ed.
I08 DISTRIBUTIVE JUSTICE
only a portion of the particular class of income or prop-
erty upon which it is imposed. The nearest approach to
the plan of taking all future increases in land value is to
be found in the special assessments that are levied in many
American cities. Thus, the owners of urban lots are fre-
quently compelled to defray the entire cost of street im-
provements on the theory that their land is thereby and
to that extent increased in value. In such cases the con-
tribution is levied not on the basis of the faculty theory,
but on that of the benefit theory; that is, the owners are
required to pay in proportion to benefits received. All
adherents of the faculty theory admit that the benefit
theory is justifiably applied in situations of this kind. It
might be argued that the latter theory can also be fairly
applied to increments of land value that are to arise in the
future. In both cases the owner returns to the State the
equivalent of benefits which have cost him nothing.
There is, however, a difference. In the former case the
value increases are specifically due to expenditures made
by the State, while in the latter they are indirectly brought
about by the general activities of the community. We
do not admit with the Single Taxers that this " social
production " of value increments creates a right thereto
on the part of either the community or the civil body; but
even if we did we should be compelled to admit that the
two situations are not exactly parallel ; for the social pro-
duction of increases in the value of land involves no special
expenditure of labour or money. Hence it is very ques-
tionable whether the appropriation of the whole of the
future value increments can be harmonised with the re-
ceived conceptions and applications of the canons of tax-
ation. .
The Morality of the Proposal
However, it is neither necessary nor desirable to justify
the proposal on the mere ground of taxation. Only in
METHODS OF REFORMING OUR LAND SYSTEM IO9
form and administration is it a tax; primarily and in es-
sence it is a method of distribution. It resembles the
action by which the State takes possession of a newly dis-
covered territory by the title of first occupancy. The
future increases of land value may be regarded as a sort
of no man's property which the State appropriates for the
benefit of the community. And the morality of this pro-
ceeding must be determined by the same criterion that is
applied to every other method or rule of distribution;
namely, social and individual consequences. No principle,
title, or practice of ownership, nor any canon of taxation,
has intrinsic or metaphysical value. All are to be evalu-
ated with reference to human welfare. Since the right of
property is not an end in itself, but only a means of human
welfare, its just prerogatives and limitations are deter-
mined by their conduciveness to the welfare of human
beings. By human welfare is meant not merely the good
of society as a whole, but the good of all individuals and
classes of individuals. For society is made up of individ-
uals, all of whom are of equal worth and importance, and
have equal claims to consideration in the matter of liveli-
hood, material goods, and property. In general, then, any
method of distribution, any modification of property
rights, any form of taxation, is morally lawful which
promotes the interests of the whole community, without
causing undue inconvenience to any individual. Whether
a given rule of ownership or method of distribution which
is evidently conducive to the public good is, nevertheless,
unduly severe on a certain class of individuals, is a ques-
tion that is not always easily answered. Some of the
methods and practices appearing in history were clearly
fair and just, others clearly unfair and unjust, and still
others of doubtful morality. Frequently the State has
compelled private persons to give up their land at a lower
price than they paid for it; in more than one country
freebooters and kingly favourites robbed the people of the
no DISTRIBUTIVE JUSTICE
land, yet their heirs and successors are recognised by both
moralists and statesmen as the legitimate owners of that
land; in Ireland stubborn landlords are to-day compelled
by the British government to sell their holdings to the
tenants at an appraised valuation ; in many countries rnen
may become owners of their neighbours' lands by the title
of prescription, without the payment of a cent of com-
pensation. All these practices and titles inflict consider-
able hardship upon individuals, but most of them are held
to be justified on grounds of social welfare.
Now the public appropriation of all future increments
of land value would evidently be beneficial to the commu-
nity as a whole. It would enable all the people to profit
by gains that now go to a minority, and it would enable the
landless majority to acquire land more easily and more
cheaply. We have in mind, of course, only those value
increases that are not due to improvements in or on the
land, and we assume that these could be distinguished in
practice from the increments of value that represent im-
provements. Would the measure in question inflict undue
hardship upon individuals? Here we must make a dis-
tinction between those persons who own land at the time
that, and those who buy land after, the law is enacted.
The only inconvenience falling upon the latter class
would be deprivation of the power to obtain future in-
creases in value. The law would not cause the value of the
land to decline below their purchase price. Other forces
might, indeed, bring about such a result; but, as a rule,
such depreciation would be relatively insignificant, for the
simple reason that it would already have been " discounted "
in the reduction of value w-hich followed the law at the
outset. The very knowledge that they could not hope to
profit by future increases in the value of the land would
impel purchasers to lower their price accordingly. While
taking away the possibility of gaining, the law enables the
buyers to take the ordinary precautions against losing.
METHODS OF REFORMING OUR LAND SYSTEM III
Therefore, it does not, as sometimes objected, lessen the
SO called " gambler's chances." On the other hand, the
tax does not deprive the owners of any value that they
may add to the land through the expenditure of labour or
money, nor in any w^ay discourage productive effort.
Now it is, as a rule, better for individuals as well as for
society that men's incomes should represent labour, ex-
penditure, and saving instead of being the result of '* wind-
falls," or other fortuitous and conjunctural circumstances.
And the power to take future value increments is not an
intrinsically essential element of private property in land.
Like every other condition of ownership, its morality is
determined by its effects upon human welfare. But we
have seen in the last paragraph that human welfare in the
sense of the social good is better promoted by a system of
landownership which does not include this element; and
we have just shown that such a system causes no undue
hardship to the individual who buys land after its estab-
lishment. Such is the answer to the contention, noticed a
few pages back, that the landowner has a right to future
increments of value because they are a kind of fruit of
his property. It is more reasonable that he should not
enjoy this particular and peculiar *' fruit." Were the in-
crement tax introduced into a new community before any
one had purchased land, it would clearly be a fair and
valid limitation on the right of ownership. Those who
should become owners after the regulation went into ef-
fect in an old community would be in exactly the same
moral and economic position. Finally, there exists some
kind of legal precedent for the proposal in the present
policy of efficient governments with regard to the only im-
portant increases that occur in the value of goods other
than land; namely, increases due to the possession of
monopoly power. By various devices these are either
prevented or appropriated by the State.
Those persons who are landowners when the increment
112 DISTRIBUTIVE JUSTICE
tax goes into effect are in a very different situation from
those that we have just been considering. Many of them
would undoubtedly suffer injury through the operation of
the measure, inasmuch as their land would reach and main-
tain a level of value below the price that they had paid for it.
The immediate effect of the increment tax would be a de-
cline in the value of all land, caused by men's increased de-
sire to sell and decreased desire to buy. In all growing
communities a part of the present value of land is specula-
tive ; that is, it is due to demand for the land by persons who
want it mainly to sell at an expected rise, and also to the
disinclination of present owners to sell until this expecta-
tion is realised. The practical result of the attitude of
these two classes of persons is that the demand for, and
therefore the value of land is considerably enhanced. Let
a law be enacted depriving them of all hope of securing
the anticipated increases in value, and the one group will
cease to buy, while the other will hasten to sell, thus caus-
ing a decline in demand relatively to supply, and therefore
a decline in value and price.
All persons who had paid more for their land than the
value which it came to have as a result of the increment
tax law, would lose the difference. For, no matter how
much the land might rise in value subsequently, the in-
crease would all be taken by the State. And all owners
of vacant land the value of which after the law was passed
did not remain sufficiently high to provide accumulated in-
terest on the purchase price, would also lose accordingly.
To be sure, both these kinds of losses would exist even if
the law should cause no decline in the value of land, but
they would not be so great either in number or in volume.
Landowners who should suffer either of these sorts of
losses would have a valid moral claim against the State
for compensation. Through its silence on the subject of
increment-tax legislation, the State virtually promised
them at the time of their purchases that it would not thus
METHODS OF REFORMING OUR LAND SYSTEM II3
interfere with the ordinary course of values. Had it
given any intimation that it would enact such a law at a
future time, these persons would not have paid as much
for their land as they actually did pay. When the State
passes the law, it violates its implicit promise, and con-
sequently is under obligation to make good the resulting
losses.
Is it not obliged to go further, and pay for the positive
gains that many of the owners would have reaped in the
absence of the law? For example: a piece of land is
worth one thousand dollars the day after the tax goes into
effect, and that was exactly the price paid for it by the
present owner; another piece has the same value, but was
bought by the present owner for eight hundred dollars.
While neither of these men suffer any loss on their invest-
ments, they are deprived of possible gains; for had the
law not been enacted their holdings would be worth, say,
eleven hundred dollars. Nevertheless, they are no worse
off in this respect than those persons who buy land after
the increment tax goes into effect, and have no greater
claim to compensation for abolished opportunities of posi-
tive gain. As we have seen above, the certain advantages
of the measure to the community, the doubtful advantages
to individuals of profiting by changes in price which do
not represent labour, expense, or saving, show that the
owners have no strict right to compensation. And it is
still clearer that no landowner has a valid claim on ac-
count of value increases that would have taken place sub-
sequent to the time that the measure was enacted. There
is no way by which owners who would have held their land
long enough to profit by these increments can be distin-
guished from owners who would not have availed them-
selves of this conjectural opportunity, nor any method by
which the amount of such gains can be determined.
On the other hand, it might be objected that, in reim-
bursing all owners who suffer the positive losses above
114 DISTRIBUTIVE JUSTICE
described, the State is unduly generous; for if the law had
not been enacted many of the reimbursed persons would
have sold their holdings at a price insufficient to cover
their losses. But these cannot be distinguished from those
who would have sold at a remunerative price. Hence the
State must compensate all or none. The former alterna-
tive is not only the more just all round, but in the long
run the more expedient.
In view of the social benefits of the increment tax, espe-
cially the removal of many of the inequities of the present
taxing system, the State might sometimes be justified in
making good only a part of the losses that we have been dis-
cussing. But this could probably occur only for adminis-
trative reasons, such as the difficulty of determining the
persons entitled to and the amounts of compensation. It
would not be justified merely to enable the State to profit
at the expense of individuals. And, in any case, there
seems to be no good reason why the unpaid losses should
amount to more than a small fraction of the whole.
In the foregoing pages we have been considering a law
which would from the beginning of its operation take all
the future increments of land value. There is, however,
no likelihood that any such measure will soon be enacted
in any country, least of all, in the United States. What
we shall probably see is the spread of legislation designed
to take a part, and a gradual groMng- part, of value in-
creases, after the example of Germany and Great Britain.
Let us glance at the laws in force in these two countries.
The German and British Increment Taxes
The first increment tax (Werthzuwachssteuer) was es-
tablished in the year 1898 in the German colony of Kiaut-
schou, China. In 1904 the principle of the tax was
adopted by Frank fort-am-Main, and in 1905 by Cologne.
By April, 1910, it had already been enacted in 457 cities
and towns of Germany, some twenty of which had a popu-
METHODS OF REFORMING OUR LAND SYSTEM II5
lation of more than 100,000 each, in 652 communes, sev-
eral districts, one principaUty, and one grand duchy. In
191 1 it was inserted in the imperial fiscal system, and thus
extended over the whole German Empire. While these
laws are all alike in certain essentials, they vary greatly in
details. They agree in taking only a per cent, of the value
increases, and in imposing a higher rate on the more rapid
increases. The rates of the imperial law vary from ten
per cent, on increases of ten per cent, or less to thirty per
cent, on increases of 290 per cent, or over. In Dortmund
the scale progresses from one to I2}4 per cent. Inas-
much as the highest rate in the imperial law is 30 per cent.,
and in any municipal law (Cologne and Frankfort) 25
per cent. ; inasmuch as all the laws allow deductions from
the tax to cover the interest that was not obtained while
the land was unproductive; and inasmuch as only those
increases are taxed, which are measured from the value
that the land had when it came into the possession of
the present owner, — it is clear that landowners are not
obliged to undergo any positive loss, and that they are per-
mitted to retain the lion's share of the " unearned incre-
ment." ^
It is to be noted that most of the German laws are re-
troactive, since they apply not merely to future value in-
creases, but to some of those that occurred before the law
was enacted. Thus, the Hamburg ordinance measures the
increases from the last sale, no matter how long ago that
transaction took place. The imperial law uses the same
starting point, except in cases where the last sale occurred
before 1885. Accordingly, a man who had in 1880 paid
2500 marks for a piece of land which in 1885 was worth
1 Cf . Fallon, " Les Plus-Values et V Impot," pp. 455, sq. ; Paris,
1914; Fillebrown, "A Single Tax Handbook for 1913"; Boston, 1912;
Marsh, " Taxation of Land Values in American Cities," pp. 90-92 ;
New York, 1911 ; "The Quarterly Journal of Economics," vols. 22,
^4, 25; "The Single Tax Review," March- April, 1912; " Stimmen aus
Maria-Laach," Oct., 1907.
Il6 DISTRIBUTIVE JUSTICE
only 200O marks, and who sold it for 3000 marks after
the law went into effect, would pay the increment tax on
1000 marks, — unless he could prove that his purchase
price was 2500 marks. In all such cases the burden of
proof is on the owner to show that the value of the land
in 1885 was lower than when he had bought it at the
earlier date. Obviously this retroactive feature of the
German legislation inflicts no wrong on the owner, since
it does not touch value increases that he has paid for.
Indeed, the value of the land when it came into the present
owner's possession seems to be a fairer and more easily
ascertained basis from which to reckon increases than any
date subsequent to the enactment of the law. On the one
hand, persons whose lands had fallen in value during their
ownership would be automatically excluded from the opera-
tion of the law until such time as the acquisition value was
again reached; on the other hand, those owners whose
lands had increased in value before the law went into effect
would be taxed as well as those whose gains began after
that event; thus the law would reach a greater proportion
of the existing beneficiaries of " unearned increment."
Moreover, it would bring in a larger amount of revenue.
The British law formed a part of the famous Lloyd-
George budget of 1909. It taxes only those increments
that occur after its enactment. These are ^^ubject to a
tax of twenty per cent, on the occasion of the next transfer
of the land, by sale, bequest, or otherwise.^ In some cases
this arrangement will undoubtedly cause hardship. For
example: if land which was bought for 1,000 pounds in
1900 had fallen to 800 pounds in 1909, and were sold for
1,000 pounds in 191 5, the owner would have to pay a tax
of twenty per cent, on 200 pounds. This would mean a
net loss of forty pounds, to say nothing of the loss of
interest in case the land was unproductive. It would seem
that some compensation ought to be given here; yet the
1 See the references in the second last paragraph.
METHODS OF REFORMING OUR LAND SYSTEM II7
rarity of such instances, the administrative difficuUies, and
the general advantages of this sort of legislation quite con-
ceivably might forbid the conclusion that the owner was
made to suffer certain injustice. The compensating social
advantages of the increment tax as well as of other special
taxes on land, will receive adequate discussion presently.
Transferring Other Taxes to Land
Another taxation plan for reducing the evils of our land
system consists in the imposition of special taxes on the
present value of land. As a rule, these imply, not an addi-
tion to the total tax levy, but a transfer of taxes from
other forms of property. The usual practice is to begin
by exempting either partly or wholly buildings and other
kinds of improvements from taxation, and then to apply
the same measure to certain kinds of personal property.
In most cases the transfer of such taxes to land is gradual,
extending over a period of five, ten, or fifteen years. The
plan is in operation in Canada and Australasia, and to a
slight extent in the United States.
It has received its greatest development in the western
provinces of Canada ; namely, British Columbia, Alberta,
Saskatchewan, and Manitoba. The cities of Edmonton,
Medicine Hat, and Red Deer; Vancouver, Victoria, and
thirteen others of the thirty-three cities of British Columbia ;
all the towns of Alberta except two; all but one of the
villages of Alberta, and one-fourth of those in Saskatche-
wan; all the rural municipalities and local improvements
districts in Alberta, Manitoba, and Saskatchewan, and 24
of the 28 in British Columbia, — exempt improvements
entirely from taxation. The three cities in Alberta whicli
retain some taxes on improvements; all the cities and
towns and three- fourths of the villages in Saskatchewan;
the four largest cities in Manitoba; and a considerable
number of the municipalities in Ontario (by the device of
illegal under-assessment in this instance), — tax improve-
Il8 DISTRIBUTIVE JUSTICE
ments at less than full value, in some cases as low as fifteen
per cent. Land is invariably assessed at its full value.
It is to be observed that these special land taxes provide
only local revenues; they do not contribute anything to
the maintenance of either the provincial or the dominion
governments. The reason why the local jurisdictions
have adopted these taxes so much more extensively in
Alberta than in the other provinces is to be found in a
provincial law enacted in 19 12, which requires all towns,
villages, and rural areas to establish within seven years the
practice of exempting from taxation personal property and
buildings. Saskatchewan permits cities and towns to tax
improvements up to sixty per cent, of their value, while
British Columbia and Manitoba leave the matter entirely
in the hands of the local authorities. The provincial
revenues are derived from many sources, chiefly real estate,
personal property, and incomes; but British Columbia,
Saskatchewan, and Alberta levy a special tax on unim-
proved and only slightly improved rural land. The rate
of this " wild lands tax " is in British Columbia four per
cent., and in the other two provinces one per cent. Some
of the municipalities of British Columbia and Saskatche-
wan also impose a " wild lands tax." By a law passed in
191 3 Alberta levies a provincial tax of five per cent, on
the value increases of non-agricultural lands. A move-
ment for the reduction of the tax on buildings has devel-
oped considerable strength in the eastern provinces of
Ontario, Nova Scotia, and New Brunswick.^
New Zealand and most of the states of Australia have
for several years levied special taxes on land, consisting
mainly of general rates on estates of moderate size, and a
iThe most comprehensive and reliable account of the special land
taxes in Canada is contained in the report prepared for the Committee
on Taxation of the City of New York, by Robert Murray Haig, Ph.D.,
entitled, " The Exemption of Improvements from Taxation in Canada
and the United States"; New York, 1915. See also Fallon, op. cit.,
pp. 452-455.
METHODS OF REFORMING OUR LAND SYSTEM IIQ
progressive super tax on large estates. The Common-
wealth of Australia also imposes a tax of one penny in the
pound on the value of land. A considerable proportion of
the cities and towns in both New Zealand and Australia
derive practically all their revenues from land, exempting
improvements entirely. In both countries, however, the
bulk of the total revenue is obtained from other sources
than land taxes. In New Zealand they yield less than
thirteen per cent, of the national receipts.-^
Pittsburgh and Scranton were required by a law enacted
in 19 1 3 to reduce the local tax rate on buildings at such a
pace that in 1925 and thereafter it would be only one-half
the highest rate on other forms of property. Everett,
Wash., and Pueblo, Col., within recent years adopted by
popular vote more sweeping measures of the same char-
acter, but the Everett law has never gone into effect, and
the Pueblo statute was repealed two years after it had been
passed. In many cities of the United States, buildings are
undervalued relatively to land by the informal and illegal
action of assessors. The most pronounced and best known
instance of this kind is Houston, Texas, where in 19 14
land was assessed at seventy per cent, of its value and
buildings at only twenty-five per cent. In 191 5, however,
the practice was forbidden by the courts as contrary to the
Texas constitution. At more than one recent session of
the New York legislature, bills have been introduced pro-
viding for the gradual reduction of the tax on buildings
in New York City to a basis of fifty per cent, of their
value. While none of them has been passed, the senti-
ment in favour of some such measure is probably increas-
ing. A similar movement of opinion is apparent in many
other sections of the country.
On the whole, the special land taxes of Canada and
Australasia are not remarkably high. They seem to be as
low or lower than the average rates imposed on land, as
iCf. Fallon, op. cit., pp. 443-452.
I20 DISTRIBUTIVE JUSTICE
well as on other forms of general property, in the United
States. In the provinces, the special land taxes provide
only a small portion of the total revenues ; in the cities and
towns, there are, as a rule, other sources of revenue as
well as land, and the expenses of municipal government
are probably not as high as in this country. Hence the
land taxes of Canada have not reached an abnormally high
level, and are probably lower than most persons who have
heard of them would be inclined to expect. The chief
exceptions to the foregoing statements are to be found in
the '* wild lands tax " of British Columbia, and in the land
taxes of some of the towns (not the cities) of Alberta.
A rate of four per cent, on unimproved and slightly im-
proved rural land is extraordinary in fiscal annals, and is
scarcely warranted by any received principle of taxation,
although it may possibly be justified by peculiar social and
administrative conditions in the province of British Co-
lumbia. Some of the smaller towns of Alberta which
adopted the land tax during the recent period of depression
have been compelled to impose even higher rates, the maxi-
mum being reached by Castor in 19 12, with a rate of 8^
per cent. As a natural consequence, a large proportion of
the land in this town was surrendered by its owners to the
municipality. While this amazing tax rate is probably
temporary, and is likely to be lowered after the return of
the average conditions of prosperity, it inflicts unfair hard-
ship upon those owners whose circumstances are such that
they must give up their land, instead of awaiting the hoped
for decline in the rate of taxation.
The Morality of the Plan
The losses of various kinds that would result from the
transfer of other taxes to land may be thus summarised.
Land would depreciate in value by an amount equal to the
capitalised tax. For example; if the rate of interest were
five per cent., an additional tax of one per cent, would
METHODS OF REFORMING OUR LAND SYSTEM 121
reduce land worth one hundred dollars an acre to eighty
dollars. This decline might, indeed, be partly, wholly, or
more than offset by a simultaneous rise due to economic
forces. In any case, however, the land would be worth
twenty dollars less than it would have been worth had the
tax not been imposed. For some owners this would mean
a positive loss; for others it would signify mere failure to
gain. The latter would happen in the case of all those
owners who at any time after the imposition of the tax
sold their land at as high a price as they had paid for it.
Not all of the owners whose land was forced by the tax
to a figure below their purchase price would suffer positive
loss; for the land might subsequently rise in value suffi-
ciently to wipe out the unfavourable difference. In this
respect a special tax on the present value of land has a
different effect from a tax that appropriates all the future
value increases. Only those owners who actually sold their
land below their purchase price could charge the former
tax with inflicting upon them positive losses. In the case
of the land exemplified above, the owner who sold at ninety
dollars per acre could properly attribute to the tax a loss of
ten dollars; the owner who sold at eighty dollars would
have a grievance amounting to twenty dollars; and a loss
would be suffered by any owner who sold for less than
eighty dollars. In the second place, all owners of vacant
land who sold at a price insufficient to provide for accumu-
lated interest on the purchase price, could justly hold the
tax responsible, so long as the deficiency did not exceed
the value-depreciation caused by the tax. Thirdly, all per-
sons whose land had an unusually high value relatively to
the value of their exempted property, would suffer losses
as taxpayers. They would lose more through the heavier
land taxes than they would gain through the lighter taxes,
or the absence of taxes, on their other property.
To compensate all owners who underwent these three
kinds of losses would be practically impossible. The num-
122 DISTRIBUTIVE JUSTICE
ber of persons would be too large, the difficulty of proving
many of the claims would be too expensive, and the com-
pensation process would be too long drawn out, since it
would have to continue until the death of all persons who
had owned land when the last instalment of the increased
land taxes went into effect. Therefore, the losses in ques-
tion must be counterbalanced by other and indirect methods.
These will be found mainly in the following considerations :
the amount of the new taxes; the gradual method of im-
posing them ; and their socially beneficial results.
Amount of Taxes Practically Transferable
According to Professor King's computations, the total
rent of land in the United States in 1910 was $2,673,-
900,000, while the total expenditures of national, state,
county and city governments were $2,591,800,000.^ In
his opinion (p. 162) "the rent would have been barely
sufficient to pay off the various governmental budgets as
at present constituted, and with the growing concentration
of activities in the hands of the government, it appears that
rent will soon be a quantity far too small to meet the
required changes. With increasing pressure on our natural
resources, however, it is probable that the percentage of
the total income paid for rent will gradually increase and,
since this is true, the lag behind the growing governmental
expenses will be considerably less than would otherwise be
the case."
A change in our fiscal system providing for the imme-
diate derivation of all revenues from land taxes would,
therefore, involve the confiscation of all rent, and the de-
struction of all private land values. Land would be worth
nothing to the owners when its entire annual return was
taken by the State in the guise of taxes. Even if the
process of imposing the new taxes on land were extended
1 " The Wealth and Income of the People of the United States,"
pp. 158, 143.
METHODS OF REFORMING OUR LAND SYSTEM 1 23
over a long term of years the same result would be reached
in the end; for whatever increase had taken place in the
economic value of land during the process would in all
probability have been neutralised by the increase in govern-
mental expenditures. It is evident, therefore, that the
proposal to put all taxes on land must be rejected on
grounds of both morals and expediency.
Let us suppose that all national revenues continued, as
now, to be raised from other sources than land, and that
all state, county, and city revenues remained as they are,
except those derived from the general property tax. This
would mean that all the following taxes would be un-
changed : all federal taxes, the taxes on licenses of all
kinds, all taxes on business, incomes, and inheritances, and
all special property taxes. If, then, the whole of the gen-
eral property tax were concentrated on land; that is, if all
the taxes on improvements and on all forms of personal
property were legally shifted to land, — the entire revenue
to be raised from land would in 19 12 have amounted to
$1,349,841,038.^ This is slightly more than one-half of
Professor King's estimate of the total rent for 1910, which
was $2,673,900,000. But this figure equals four per cent,
of the land values of the country; hence the concentration
of the general property tax on land would mean a tax rate
of two per cent, on the full value of the land.
How much would this change increase the present rate
of land taxes, and decrease existing land values? While
no accurate and definite answer can be given to either of
these questions, certain approximations can be attempted
which should be of considerable service.
In 19 12 the average tax rate on the assessed valuation of
all goods subject to the general property tax was .0194, or
$19.40 per thousand dollars.^ The assessed valuation of
1" Abstract of Bulletins on Wealth, Debt, and Taxation," p. 16;
U. S. Census, 1913.
2 Idem, p. 15.
124 DISTRIBUTIVE JUSTICE
taxed real property and improvements (land, buildings,
and other improvements) was nearly fifty-two billion dol-
lars, while the true value of the same property was nearly
ninety-eight and one-half billions.^ Consequently, the
actual tax rate of .0194 on the assessed valuation was
exactly one per cent, on the true value of real estate. On
the assumption that both land and improvements were
undervalued to the same extent, the land tax was one per
cent, of the full value of the land. If now we take Thomas
G. Shearman's estimate, that land values form sixty per
cent, of the total value of real estate, we find that the taxes
derived from land constituted only forty- four per cent, of
the total revenues raised by the general property tax. To
concentrate the whole of the general property tax on land,
by transferring thereto the taxes on improvements and on
personal property, would, accordingly, cause the land tax
to be somewhat more than doubled. It would be slightly
above two per cent, on the full value of the land. This is
the same estimate that we obtained above by a different
process ; that is, by comparing Professor King's estimate of
land value and rent with the total revenues derived from
the general property tax.
However, it is not improbable that sixty per cent, is too
low an estimate of the ratio of land values to entire real
estate values. In 1900, farm land and improvements, exclu-
sive of buildings, formed 78.6 per cent, of the value of real
estate, i.e., land, improvements, and buildings. In 19 10, the
per cent, was a little less than 82. Now it is quite unlikely
that the value of non-building improvements on farms
amounted to the difference between sixty per cent, and sev-
enty-eight per cent, in 1900, or between sixty per cent, and
eighty-two per cent, in 19 10. Hence the value of farm land
is something more than sixty per cent, of farm real estate.
On the other hand, the value of factory land in 1900
1 Idem, p. 16; and Bulletin of the Census on "Estimated Valuation
of National Wealth," p. 15.
METHODS OF REFORMING OUR LAND SYSTEM 1 25
formed only 41.5 per cent, of the total value of factory-
land and buildings, while the value of city and town lots
in five rural states varied from 34 to 62 per cent, of this
species of real estate.^ In Greater New York land consti-
tutes 61 per cent, of real estate values.^ Owing to the lack
of data, the average ratio for all kinds of real estate for
the whole country is impossible of determination. If the
estimate of seventy per cent, be adopted, which is probably
the upper limit of the average proportion between land
values and real estate values throughout the country, the
portion of the general property tax now paid by land
amounts to about fifty-two per cent. Consequently the
imposition of the whole general property tax on land would
not quite double the present rate on land. To the first of
the two questions raised above the answer can be given
with a fair amount of confidence that the transfer of im-
provement and personal property taxes to land would cause
land taxes to be about twice what they are at present.
To the second question, concerning the extent to which
land values would fall in consequence of the heavier taxes,
the answer must be somewhat less definite. The added
land taxes would be about one-half the present general
property taxes, or $675,000,000. This is about one per
cent, the total land values of the country. One per cent, of
land values capitalised at five per cent, represents a de-
preciation of twenty per cent, in the value of land; capi-
talised at four per cent., it represents a depreciation of
twenty-five per cent. For example ; if land worth one hun-
dred dollars an acre returns to its owner a net income of
five dollars annually, the appropriation of one dollar by a
new tax will leave a net revenue of only four dollars;
capitalised at the current rate of five per cent., this repre-
1 " Special Report of the Twelfth Census on Wealth, Debt, and
Taxation," pp. 12, 13.
2 Haig, " Probable Effects of Exemption of Improvements . . . ",
p. 23.
126 DISTRIBUTIVE JUSTICE
sents only eighty dollars of land value, or a depreciation
of twenty per cent. If the land has the same value of one
hundred dollars, and still yields only four dollars revenue,
a deduction of one dollar in new taxes will leave only three
dollars net ; capitalised at the current rate of four per cent.,
this represents only seventy-five dollars of land value, or a
depreciation of twenty-five per cent. Using the other
method of calculation, which estimated the present tax rate
on the full value of land at one per cent., we get exactly
the same results ; namely, the new tax is one per cent., which
is equivalent to a depreciation of twenty per cent, or of
twenty-five per cent., according as we assume an interest
rate of five per cent, or of four per cent. Suppose, how-
ever, that the assessors do not undervalue land to the ex-
tent that we have been assuming; suppose that the present
rate of .0194 on assessed valuation is equivalent to, not
merely one per cent., but one and one-half per cent, of the
full value of land. In that hypothesis the additional tax
would likewise be one and one-half per cent., which capi-
talised at five per cent, would represent a depreciation of
thirty per cent., and at four per cent, a depreciation of
thirty-seven and one-half per cent. Combining in one gen-
eralisation the various suppositions made in this paragraph,
we estimate the depreciation of land values resulting from
the proposed tax transfer as somewhere between twenty
and forty per cent.
We have considered two hypothetical transfers of taxes
to land. The first we found to be out of the question
because it would appropriate the whole of the rent and
destroy all private land values. The second would appar-
ently amount to two per cent, of the value of land, and
cause land values to depreciate from twenty to forty per
cent. It is unnecessary to consider the probable effects of
any plan that would involve heavier land taxes than
the second; that is, the scheme of imposing all the general
property tax on land ; for it represents the extreme feasible
METHODS OF REFORMING OUR LAND SYSTEM 1 27
and fair limit of the movement within, at any rate, the next
fifteen or twenty years.
Even this degree of tax transference would be unjust to
the landowners if it were brought about at once. No social
or other considerations exist that would justify a deprecia-
tion in land values of from twenty to forty per cent. If,
however, the process were extended over a period of, say,
twenty years, the decline would be only one or two per
cent, annually, which is considerably less than the rate at
which farm lands and the land in large cities have risen in
value during recent years. Under such an arrangement the
great majority of owners would probably find that the de-
preciation caused by the heavier land taxes, had been more
than offset by the upward tendency resulting from the in-
creased demand for land.
Nevertheless, there would still be positive losses of the
three kinds described a few pages back ; namely, to owners
who sold land below the price that they had paid for it;
to owners who sold vacant land at a price insufficient to
cover accumulated interest on the investment; and to
owners whose aggregate tax burdens were increased.
Some degree of each of these sorts of losses would be due
specifically to the new land taxes. As noted above, public
compensation in all such cases would be impracticable.
Consequently the justification of a law that inflicts such
losses must be found, if it exists, in social considerations.
The Social Benefits of the Plan
These may be summed up under three heads: making
land easier to acquire ; cheapening the products and rent of
land; and reducing the burdens of taxation borne by the
poorer and middle classes. An increase in the tax on land
would reduce its value and price, or at least cause the price
to be lower than it would have been in the absence of the
tax. This does not mean that land would be more profit-
able to the purchaser, since he is enabled to buy it at a
128 DISTRIBUTIVE JUSTICE
lower price only because it yields him less net revenue, or
because it is less likely to increase in value. The value of
land is always determined by its revenue-producing power,
and by its probabilities of price-appreciation. Conse-
quently, what the purchasers would gain by the lower price
resulting from the new tax, they would lose when they
came to pay the tax itself, and when they found the chances
of value increases diminished. If a piece of land which
brings a return of five dollars a year costs one hundred
dollars before the new tax of one per cent, is imposed, and
can be bought for eighty dollars afterward, the net interest
on the purchase price has not changed. It is still five per
cent. Hence the only advantage to the prospective pur-
chaser of land in getting it cheaper consists in the fact that
he can obtain it with a smaller outlay of capital. For
persons in moderate circumstances this is a very important
consideration.
In the second place, higher taxes would cause many
existing owners either to improve their land, in order to
have the means of meeting the added fiscal charges, or to
sell it to persons who would be willing to make improve-
ments. And the desire to erect buildings and other forms
of improvements would be reinforced by the reduction or
abolition of taxes on those kinds of personal property
which consist of building materials. An increase in the
rapidity of improvements on land would mean an increase
in the rate at which land was brought into use, and there-
fore an unusual increase in the volume of products. This
virtual increase in the supply of land, and actual increase in
the supply of products, would cause a fall in three kinds
of prices: the price of products, the rent of land, and the
price of land. The last named reduction would be distinct
from the reduction of land value caused in the first instance
by the imposition of the tax.
In the third place, the reduction, and finally the abolition,
of taxes on improvements and personal property would be
METHODS OF REFORMING OUR LAND SYSTEM 1 29
especially beneficial to the poorer and middle classes be-
cause they now pay a disproportionate share of these
charges. Lower taxes on dwellings would mean lower
rents for all persons who did not own their homes, and
lower taxes for all owners whose residence values were
unusually large relatively to their land values. And the
tendency to lower rents on dwellings would be reinforced
by the lower cost of building materials resulting, as noted
above, from the increased supply and the lower tax on this
form of personal property. Lower taxes on that species
of personal property which consists of consumers' goods,
such as household furniture and wearing apparel, would
lessen the present inequity of taxation because this class of
goods is reached to a much greater extent in the case of
the poor than in the case of the rich. It is not easy to
conceal or to undervalue a relatively small number of
simple and standard articles; but diamonds, costly furni-
ture, and luxurious wardrobes can be either hidden, or
certified to the assessor at a low valuation. As for those
forms of personal property which are of the nature of
capital and other profit producing goods, such as machinery
and tools of all kinds, productive animals, money, mort-
gages, securities, the stocks of goods held by manufacturers
and merchants, and likewise buildings which are used for
productive purposes, — the taxes on all these kinds of prop-
erty are for the most part shifted to the consumer. The
latter ultimately pays the tax in the form of higher prices
for food, clothing, shelter, and the other necessaries and
comforts of life.^ Now a tax on consumption is noto-
riously unfair to the poorer and middle classes because it
affects a greater portion of their total expenditures, and
takes a larger per cent, of their income than in the case of
the rich. Hence the removal of the taxes specified in this
1 Cf. Seligman, " The Shifting- and Incidence of Taxation," pp. 187,
24s, 272, and all of part II; N. Y., 1899; Taussig, "Principles of
Economics," II, 518-549, and chs. 67-69.
130 DISTRIBUTIVE JUSTICE
paragraph would be at once the abohtion of a fiscal in-
justice, and a considerable assistance to the less fortunate
classes.
All those landowners who occupied rented dwellings
would benefit by the reduction in house rent, and all land-
owners without exception would reap some advantage from
the reduction or abolition of the taxes on consumers' goods
and on the various forms of producers' goods. It is not
improbable that a considerable proportion of them would
gain as much in these respects as they would lose in the
capacity of landowners.
Would the social benefits summarily described in the
foregoing paragraphs be sufficient to justify the increased
land taxes in the face of the losses that would be under-
gone by some landowners in the three ways already speci-
fied? In view of our ignorance concerning the probable
amount of benefits on the one hand and losses on the other,
it is impossible to give a dogmatic answer. However,
when we reflect on the manifold social evils that are threat-
ened by a rapid and continuous increase in land values, and
the resulting decrease in the proportion of the population
that can hope to participate in the ownership of land, we
are forced to conclude that some means of checking both
tendencies is urgently necessary for the sake of social jus-
tice and social peace. The project that we have been con-
sidering; namely, the transfer of taxes on improvements
and on personal property to land by a process extending
over twenty years, seems to involve a sufficiently large
amount of advantage and a sufficiently small amount of
disadvantage to justify systematic and careful experiment.
A Supertax on Large Holdings
Every estate containing more than a maximum number
of acres, say, ten thousand, whether composed of a single
tract or of several tracts, could be compelled to pay a spe-
cial tax in addition to the ordinary tax levied on land of
METHODS OF REFORMING OUR LAND SYSTEM I3I
the same value. The rate of this supertax should increase
with the size of the estate above the fixed maximum.
Through this device large holdings could be broken up, and
divided among many owners and occupiers. For several
years it has been successfully applied for this purpose in
New Zealand and Australia.^ Inasmuch as this tax
exemplifies the principle of progression, it is in accord with
the principles of justice ; for relative ability to pay is closely
connected with relative sacrifice. Other things being equal,
the less the sacrifice involved, the greater is the ability of
the individual to pay the tax. Thus, the man with an in-
come of ten thousand dollars a year makes a smaller sacri-
fice in giving up two per cent, of it than the man whose
income is only one thousand dollars ; for the latter case the
twenty dollars surrendered represent a privation of the
necessaries or the elementary comforts of life, while the
two hundred dollars taken from the rich man would have
been expended for luxuries or converted into capital.
While the incomes of both are reduced in the same propor-
tion, their satisfactions are not diminished to the same de-
gree. The wants that are deprived of satisfaction are
much less important in the case of the richer than in that
of the poorer man. Hence the only way to bring about
anything like equality of sacrifice between them is to in-
crease the proportion of income taken from the former.
This means that the rate of taxation would be progressive.^
It is in order to object that the principle of progression
should not be applied to the taxation of great landed estates,
since a considerable part of them is unproductive, and con-
sequently does not directly affect sacrifice. But the same
objection can be urged against any taxation of unoccupied
land. The obvious reply is that the equal taxation of un-
1 Cf. Fallon, op. cit., pp. 442, sq.
2 Cf. Vermeersch, " Quaestiones de Justitia," pp. 94-126; Seligman,
"Progressive Taxation in Theory and Practice," pp. 210, 211; Mill,
" Principles of Political Economy," book V, ch. ii, sec. 3.
132 DISTRIBUTIVE JUSTICE
productive with productive land is justified by social rea-
sons, chiefly, the unwisdom of permitting land to be held
out of use. The same social reasons apply to the question
of levying an exceptionally high tax on large estates, even
though they may at present produce no revenue.
While the tax is sound in principle, it is probably not
much needed in America in connection with agricultural or
urban land. Its main sphere of usefulness would seem
to be certain great holdings of mineral, timber, and water
power lands. ** There are many great combinations in
other industries whose formation is complete. In the lum-
ber industry, on the other hand, the Bureau now finds in
the making a combination caused, fundamentally, by a long
standing public policy. The concentration already exist-
ing is sufficiently impressive. Still more impressive are
the possibilities for the future. In the last forty years
concentration has so proceeded that 195 holders, many
interrelated, now have practically one-half of the privately
owned timber in the investigation area (which contains
eighty per cent, of the whole) . This formidable process of
concentration, in timber and in land, clearly involves grave
future possibilities of impregnable monopolistic conditions,
whose far reaching consequences to society it is now difficult
to anticipate fully or to overestimate." ^ In January,
191 6, the Secretary of Agriculture called the attention of
Congress to the fact that a small number of corporations
closely associated in a policy of community of interest
were threatening to secure and exercise a monopoly over
the developed water power of the country. Ninety per
cent, of the anthracite coal lands of Pennsylvania are
owned or controlled by some nine railroads acting as a
unit in all important matters. For situations of this kind
a supertax on large estates would seem to hold the promise
of a large measure of relief.
1 " Summary of Report of the Commissioner of Corporations on
the Lumber Industry in the United States," p. 8.
METHODS OF REFORMING OUR LAND SYSTEM 1 33
To sum Up the main conclusions of this very long chap-
ter : Exceptionally valuable lands, as those containing tim-
ber, minerals, oil, gas, phosphate, and water power, which
are still under public ownership should remain there.
Through a judicious system of loans, deserving and effi-
cient persons should be assisted to get possession of some
land. Municipalities should lease rather than sell their
lands, and should strive to increase their holdings. To
take all the future increases in the value of land would be
morally lawful, provided that compensation were given to
owners who thereby suffered positive losses of interest or
principal. To take a small part of the increase, and to
transfer very gradually the taxes on improvements and on
personal property to land, would probably be just, owing
to the beneficial effects upon public welfare. A supertax
on large holdings of exceptionally valuable and scarce land
would likewise be beneficial and legitimate.^
REFERENCES ON SECTION I
Ashley: The Origin of Property in Land. London; 1892.
Laveleye: Primitive Property. London; 1878.
Whittaker: The Taxation, Tenure, and Ownership of Land.
London; 1914.
Preuss : The Fundamental Fallacy of Socialism. St. Louis ; 1908.
George: Progress and Poverty; and A Perplexed Philosopher.
Marsh: Land Value Taxation in American Cities. N. Y. ; 191 1.
FiLLEBROWN : A Single Tax Handbook for 1913. Boston ; 1912.
Young: The Single Tax Movement in the United States. Prince-
ton; 1916.
Shearman : Natural Taxation. N. Y. ; 1898.
Mathews: Taxation and the Distribution of Wealth. N. Y. ; 1914.
1 Probably the most concrete and satisfactory discussion of the
increment tax and the project to transfer improvement taxes to land,
is that presented in the *' Final Report of the Committee on Taxation
of the City of New York"; 1916. It contains brief, though complete,
statements of all phases of the subject, together with concise argu-
ments on both sides, majority and minority recommendations, a great
variety of dissenting individual opinions, and considerable testimony
by experts, authorities, and other interested persons.
134 DISTRIBUTIVE JUSTICE
Cathrein : Das Privatgrundeigenthum und seine Gegner. Freiburg ;
1909.
Fallon: Les Plus-Values et 1' Impot. Paris; 1914.
Nearing: Anthracite. Philadelphia; 1916.
Haig: Final Report of the Committee on Taxation of the City of
New York; 1916.
The exemption of Improvements from Taxation in Canada and
U. S. ; 1915.
Some Probable Effects of Exemption in City of New York; 1915.
Kelleher: Private Ownership. Dublin; 1911.
Proceedings of the 1913 Meeting of the American Economic Associa-
tion.
U. S. Commissioner of Corporations: Reports on the Lumber, Pe-
troleum, Steel, and Water Power of the United States.
Seligman : Essays in Taxation; Shifting and Incidence of Taxation;
and Progressive Taxation in Theory and Practice.
Also the works of Taussig, Devas, Carver, Pesch, King, Vermeersch,
Willoughby, and the Commission on Industrial Relations, all of which
are cited at the end of the introductory chapter.
SECTION II
THE MORALITY OF PRIVATE CAPITAL AND
INTEREST
CHAPTER IX
THE NATURE AND THE RATE OF INTEREST
Interest denotes that part of the product of industry
which goes to the capitahst. As the ownership of land
commands rent, so the ownership of capital commands
interest ; as rent is a price paid for the use of land, so in-
terest is a price paid for the use of capital.
However, the term capital is less definite and unambig-
uous, both in popular and in economic usage, than the word
land. The farmer, the merchant, and the manufacturer
often speak of their land, buildings, and chattels as their
capital, and reckon the returns from all these sources as
equivalent to a certain per cent, of interest or profit. This
is not technically correct; when we use the terms capital
and interest we should exclude the notions of land and rent.
Meaning of Capital and Capitalist
Capital is ordinarily defined as, wealth employed directly
for the production of new wealth. According as it is con-
sidered in the abstract or the concrete, it is capital-value
or capital-instruments. For example, the owner of a
wagon factory may describe his capital as having a value
of 100,000 dollars, or as consisting of certain buildings,
machines, tools, office furniture, etc. In the former case
he thinks of his capital as so much abstract value which,
through a sale, he could take out of the factory, and put
into other concrete capital forms, such as a railroad or a
jobbing house. In the latter case he has in mind the par-
ticular instruments in which his capital is at present em-
bodied. The capital-value concept is the more convenient,
and is usually intended when the word capital is used with-
out qualification. It is also the basis upon which interest
137
138 DISTRIBUTIVE JUSTICE
is reckoned; for the capitalist does not measure his share
of the product as so many dollars of rent on his capital-
instruments, but as so many per cent, on his capital-value.
Capitalists are of two principal kinds : those who employ
their own money in their own enterprises; and those who
lend their money to others for use in industry. The for-
mer may be called active capitalists, the latter loan-capi-
talists. Perhaps a majority of active capitalists use some
borrowed money in their business. To the lenders of this
borrowed money or capital they turn over a part of the
product in the form of interest. When, therefore, interest
is defined as the share of the product that goes to the capi-
talist, it is the owner of capital- value rather than of capital-
instruments that is meant. For the man who has loaned
50,000 dollars at five per cent, to the wagon manufacturer
is not, except hypothetically, the owner of the buildings
which have been erected with that money. These are
owned (subject possibly to a mortgage) by the borrower,
the active capitalist. But the abstract value which has
gone into them continues to be the property of the lender.
As owner thereof, he, instead of the active capitalist, re-
ceives the interest that is assigned to this portion of the
total capital. Hence interest is the share of the product
that is taken by the owner of capital, whether he employs it
himself or lends it to some one else. While the funda-
mental reason of interest is the fact that certain concrete
instruments are necessary to the making of the product,
interest is always reckoned on capital-value, and goes to
the owner of the capital-value. It goes to the man whose
money has been put into the instruments, whether or not
he is the owner of the instruments.
Meaning of Interest
Interest is the share of the capitalist as capitalist. The
man who employs his own capital in his own business re-
THE NATURE AND THE RATE OF INTEREST 1 39
ceives therefrom in addition to interest other returns. Let
us suppose that some one has invested 100,000 dollars of
borrowed money and 100,000 dollars of his own money
in a wholesale grocery business. At the end of the year,
after defraying the cost of labour, materials, rent, repairs,
and replacement, his gross returns are 15,000 dollars. Out
of this sum he must pay five thousand dollars as interest on
the money that he has borrowed. This leaves him a total
amount of ten thousand dollars, as his share of the product
of the industry. Since he could command a salary of
three thousand dollars if he worked for some one else, he
regards his labour of directing his own business as worth
at least this sum. Deducting it from ten thousand dollars,
he has left seven thousand dollars, which must in some
sense be accredited as payment for the use of his own
capital. However, it is not all pure interest; for he runs
the risk of losing his capital, and also of failing to get the
normal rate of interest on it during future unprosperous
years. Hence he will require a part of the seven thousand
dollars as insurance against these two contingencies. Two
per cent, of his capital, or two thousand dollars, is not an
excessive allowance. If the business did not provide him
with this amount of insurance he would probably regard it
as unsafe, and would sell it and invest his money else-
where. Subtracting two thousand dollars from seven
thousand, we have five thousand left as pure interest on
the director's own capital. This is equivalent to five per
cent., which is the rate that he is paying on the capital that
he has borrowed. If he could not get this rate on his own
money he would probably prefer to become a lender him-
self, a loan capitalist instead of an active capitalist. This
part of his total share, then, and only this part, is pure
interest. The other two sums that he receives, the three
thousand dollars and the two thousand dollars, are respec-
tively wages for his labour and insurance against his risks.
140 DISTRIBUTIVE JUSTICE
Sometimes they are classified together under the general
name of profits.
Let us suppose, however, that the gross returns are not
15,000 dollars, but 17,000. How is the additional sum to
be denominated? In strict economic language it would
probably be called net profits, as distinguished from normal
or necessary profits, which comprise wages of direction and
insurance against loss. Sometimes it is called interest. In
that case the owner of the store would receive seven in-
stead of five per cent, on his own capital. Whether the
extra two per cent. (2,000 dollars) be called net profits or
surplus interest, is mainly a matter of terminology. The
important thing is to indicate clearly that these terms
designate the surplus which goes to the active capitalist in
addition to necessary profits and necessary interest.
At the risk of wearisome repetition, one more example
will be given to illustrate the distinction between interest
and the other returns that are received in connection with
capital. The annual income from a railway bond is in-
terest on lender's capital, and consequently pure interest.
Ordinarily the bondholder is adequately protected against
the loss of his capital by a mortgage on the railroad. On
the other hand, the holder of a share of railway stock is a
part owner of the railroad, and consequently incurs the
risk of losing his property. Hence the dividend that he
receives on his stock comprises interest on capital plus
insurance against loss. It is usually one or two per cent,
higher than the rate on the bonds. Since the officers and
directors are the only shareholders who perform any labour
in the management of the railroad, only they receive wages
of management. Consequently the gross profits are
divided into interest and dividends at fixed rates, and fixed
salaries. When a surplus exists above these requirements
it is not, as a rule, distributed among the stockholders an-
nually. In railroads, therefore, and many other corpora-
tions, interest is easily distinguished from those other
THE NATURE AND THE RATE OF INTEREST I4I
returns with which it is frequently confused in partnerships
and enterprises carried on by individuals.
The Rate of Interest
Is there a single rate of interest throughout industry?
At first sight this question would seem to demand a nega-
tive answer. United States bonds pay about two per cent. ;
banks about three per cent. ; municipal bonds about four
per cent. ; railway bonds about five per cent. ; the stocks of
stable industrial corporations about six per cent, net ; real
estate mortgages from five to seven per cent. ; promissory
notes somewhat higher rates ; and pawnbrokers' loans from
twelve per cent, upwards. Moreover, the same kind of
loans brings different rates in different places. For
example, money lent on the security of farm mortgages
yields only about five per cent, in the states of the East,
but seven or eight per cent, on the Pacific coast.
These and similar variations are differences not so much
of interest as of security, cost of negotiation, and mental
attitude. The farm mortgage pays a higher rate than the
government bond partly because it is less secure, partly
because it involves greater trouble of investment, and partly
because it does not run for so long a time. For the same
reasons a higher rate of interest is charged on a promissory
note than on a bank deposit certificate. Again, the lower
rates on government bonds and bank deposits are due in
some degree to the peculiar attitude of that class of in-
vestors whose savings are small in amount, who are not
well aware of the range of investment opportunities, and
to whom security and convenience are exceptionally im-
portant considerations. If such persons did not exist the
rates on government bonds and savings deposits would be
higher than they actually are. The higher rates in a new
country on, say, farm mortgages are likewise due in part
to psychical peculiarities. Where men are more specula-
tive and more eager to borrow money for industrial pur-
142 DISTRIBUTIVE JUSTICE
poses, the demand for loans is greater relatively to the
supply than in older and more conservative communities.
Therefore, the price of the loans, the rate of interest, is
higher.
In one sense it v^ould seem that the lowest of the rates
cited above, namely, that on United States bonds, repre-
sents pure interest, and that all the other rates are interest
plus something else. Nevertheless, the sums invested in
these bonds form but a very small part of the whole amount
of money and capital drawing interest, and they come from
persons who do not display the average degree either of
iDUsiness ability or of willingness to take risks. Hence it
is more convenient and more correct to regard as the
standard rate of interest in any community that which is
obtained on first class industrial security, such as the bonds
of railroads and other stable corporations, and mortgages
on real estate. Loans to these enterprises are subject to
what may properly be called the average or prevailing in-
dustrial risks, are negotiated in average psychical condi-
tions, and embrace by far the greater part of all money
drawing interest ; consequently the rate that they command
may be looked upon as in a very real and practical sense
normal. While this conception of the normal rate is in a
measure conventional, it accords with popular usage. It is
what most men have in mind when they speak of the pre-
vailing rate of interest.
The prevailing or standard rate in any community can
usually be stated with a sufficient approach to precision to be
satisfactory for all practical purposes. In all the Eastern
States it is now about five per cent. ; in the Middle West it is
somewhere between five and six per cent. ; on the Pacific
coast it is between six and seven per cent. The supreme
court of Minnesota decided in 1896 that, in view of the
actual rates of interest then obtaining, five per cent, on the
reproduction cost of railroads was a fairly liberal return,
and could be adopted by the state authorities in fixing
THE NATURE AND THE RATE OF INTEREST I43
charges for carrying freight and passengers.^ A few years
later the Michigan tax commission allowed the railroads
four per cent, on the reproduction cost of their property,
on the ground that investments which yielded that rate in
addition to the usual tax of one per cent, (or five per cent,
before the deduction of the tax) stood at par on the stock
market.^ In other w^ords, the prevailing rate was five per
cent. At the beginning of the year 1907, the railroad com-
mission of Wisconsin fixed six per cent, as the return to
which the stockholders of railroads were entitled, because
this was about the return which investors generally were
able to get on that kind of security. In the view of the
Commission, the current rate of interest on railroad bonds,
and similar investments, was about five per cent.^ The
significance of these decisions by the public authorities of
three states is found not so much in the particular rates
which they sanctioned as in the fact that they were able to
determine a standard or prevailing rate. Therefore a
standard rate exists. At the same time it is interesting to
note that in all three states the rate of industrial interest
was declared to be about the same, that is, five per cent.
Perhaps it is safe to say that, throughout the greater part
of the industrial field of America, five or six per cent, is the
prevailing rate of interest.
What causes the rate to be five per cent., or six per cent.,
or any other per cent. ? Briefly stated, it is the interplay
of supply and demand. Since interest is a price paid for
the use of a thing, i.e., capital, its rate or level is determined
by the same general forces that govern the price of wheat,
or shoes, or hats, or any other commodity that is bought
and sold in the market. The rate is five or six per cent,
because at that rate the amount of money offered by lenders
1" Final Report of the Industrial Commission," pp. 410, 411.
2 "Report of the Industrial Commission," vol. IX, p. 380.
3 " Publication No. 32 of the Railroad Commission of Wisconsin,"
pp. 165, 166.
144 DISTRIBUTIVE JUSTICE
equals the amount demanded by borrowers. Should the
amount offered at that rate increase without a correspond-
ing increase in the amount demanded, the rate would fall,
just as it would rise under opposite conditions.
Supply and demand, however, are merely the immediate
forces. They are themselves the outcome or resultant of
factors more remote. On the side of supply, the principal
remote forces which regulate the rate of interest are : the
industrial resources of the community, and the relative
strength of its habits of saving and spending. On the side
of demand, the chief ultimate factors are: the productivity
of capital-instruments, the comparative intensity of the
social desires of investing and lending, and the supplies of
land, business ability and labour. Each of these factors
exercises upon the rate of interest an influence of its own,
and each of them may be assisted or counteracted by one
or more of the others. Precisely what rate will result
from any given condition of the factors, cannot be stated
beforehand, for the factors cannot be measured in such a
way as to provide a basis for this kind of forecast. All
that can be said is that, when changes occur on the side of
either demand or supply, there will be a corresponding
change in the rate of interest, provided that no neutralising
change takes place on the other side.
CHAPTER X
THE ALLEGED RIGHT OF LABOUR TO THE ENTIRE PRODUCT
OF INDUSTRY
In a preceding chapter we saw that Marxian Socialism
is logically debarred from passing moral judgment upon
any social institution or practice.^ If social institutions
are produced necessarily by socio-economic forces they are
neither morally good nor morally bad. They are quite as
unmoral as rain and snow, verdure and decay, tadpoles and
elephants. Consistent Socialists cannot, therefore, censure
on purely ethical grounds the system of private capital and
interest.
This logical requirement of the theory of economic de-
terminism is exemplified in much of the rigidly scientific
discussions of Socialists. Marx maintained that the value
of commodities is all determined and created by labour,
and that interest is the surplus which the labourer pro-
duces above the cost of his keep; nevertheless Marx did
not formally assert that the labourer has a moral right to
the whole product, nor that interest is theft. He set forth
his theories of value and surplus value as positive explana-
tions of economic facts, not as an ethical evaluation of
human actions. His object was to show the causes and
nature of value, wages, and interest, not to estimate the
moral claims of the agents of production, or the morality
of the distributive process. In his formal discussion of
the theory of value and of surplus value, Marx said noth-
ing that implied a belief in genuine moral responsibility, or
1 Cf . Engels, " Socialism : Utopian and Scientific," pp. 45, 46 ; and
Hillquit-Ryan, '* Socialism : Promise or Menace," 103, 104, 143-145.
145
146 DISTRIBUTIVE JUSTICE
that contradicted the principles of philosophical material-
ism and economic determinism. It is, therefore, quite
erroneous to infer that, since the Marxian theory attrib-
utes all value and products to the action of labour, Marx-
ian Socialists must condemn the interest-taker as a robber.
Neither Marx nor any other Socialist authority, how-
ever, has always held consistently to this purely positive
method of economic exposition. When they declare that
the labourer is " exploited," that surplus value is " filched "
from him, that the capitalist is a " parasite," etc., they are
expressing and conveying distinct moral judgments. In
their more popular writings Socialist authors do not seri-
ously attempt to observe the logical requirements of their
necessitarian philosophy. They assume the same ethical
postulates, and give expression to the same ethical intui-
tions as the man who believes in the human soul and free
will.^ And the great majority of their followers likewise
regard the question of distribution as a moral question, as
a question of justice. In their view the labourer not only
creates all value, but has a just claim to the whole product.
The Labour Theory of Value
This doctrine is sometimes formally based upon the
Marxian theory of value, and is sometimes defended inde-
pendently of that theory. In the former case its ground-
work is about as follows : By eliminating the factors of
utility and scarcity, Marx found that the only element
common to all commodities is labour, and then concluded
that labour is the only possible explanation, creator, and
determinant of value.^ Since capital, that is, concrete
capital, is a commodity, its value is likewise determined
and created by labour. Since it cannot create value, for
only labour has that power, it can contribute to the product
of the productive process in which it is engaged only as
1 Cf. Hillqitit-Ryan, op. cit., pp. 75, 76,
2 " Capital," pp. 1-9.
ALLEGED RIGHT OF LABOUR TO ENTIRE PRODUCT 1 47
much value as it originally received. Since it is only a
reservoir of value, it cannot transfer more value than it
holds and possesses. In the words of Marx, '' the means
of production transfer value to the new product, so far
only as during the labour-process they lose value in the
shape of the old use-value. The maximum loss of value
that they can suffer in the process is plainly limited by the
amount of the original value with which they came into
the process, or, in other words, by the labour time neces-
sary for their production. Therefore, the means of pro-
duction can ever add more value to the product than they
themselves possess independently of the process in which
they assist. However useful a given kind of raw material,
or a machine, or other means of production may be, though
it may cost 150 pounds, or say 500 days' labour, yet it
cannot, under any circumstances, add to the value of the
product more than 150 pounds." ^
To view the matter from another angle: capital con-
tributes to the product only sufficient value to pay for its
own reproduction. When, as is the normal usage, the
undertaker has deducted from the product sufficient value
or money to replace the deteriorated or worn out machine,
or other concrete capital, all the remaining value in the
product is due specifically to labour.
When, therefore, the capitalist goes further, and appro-
priates from the product Interest and profits, he takes a
part of the value that labour has created. He seizes the
surplus value which labour has produced in excess of the
wages that it receives. In ethical terms, he robs the
labourers of a part of their product.
It Is not necessary to Introduce any extended refutation
of this arbitrary, unreal, and fantastic argument. *' The
theory that labour is the sole source of value has few de-
fenders to-day. In the face of the overwhelming criti-
cism which has been directed against it, even good Marx-
iQp. cit, p. 117; Humboldt Edition.
148 DISTRIBUTIVE JUSTICE
ists are forced to abandon it, or to explain it away." ^ It
may, however, be useful to recount very briefly the facts
which disprove the theory. Labour creates some things
which have no value, as wooden shoes in a community that
does not desire wooden shoes; some things have value,
exchange value, although no labour has been expended
upon them, as land and minerals; the value of things is
sometimes greater, sometimes less, proportionately, than
the labour embodied in them; for example, paintings by
the old masters, and last year's styles of millinery; and,
finally, the true determinants of value are utility and
scarcity. If it be objected that Marx was aware of these
two factors, the reply is that he either restricted them to
the function of conditions rather than efficient causes of
value, or attributed to them an influence that is inconsist-
ent with his main theory that labour is the sole determinant
of value. Indeed, the contradictions into which Marx
was led by the theory are its sufficient refutation.^
With the destruction of the labour theory of value, the
Marxian contention that capital contributes only its own
original value to the product is likewise overthrown. The
same conclusion is reached more directly by recalling the
obvious facts of experience that, since the joint action of
both capital and labour is required to bring into being
every atom of the product, each is in its own order the
cause of the whole product, and the proportion of the
whole that is specifically due to the casual influence of
either is as incapable of determination as the procreative
contribution of either parent to their common offspring.
The productive process carried on by labour and capital is
virtually an organic process, in which the precise amount
contributed by either factor is unknown and unknow-
able.
In so far, therefore, as the alleged right of labour to the
1 Skelton, " Socialism : A Critical Analysis," pp. 121, 122.
2 Cf. Skelton, loc. cit.
ALLEGED RIGHT OF LABOUR TO ENTIRE PRODUCT I49
whole product is based upon the Marxian theory of value,
it has not a shadow of validity.
The Right of Productivity
But the claim is not necessarily dependent upon this
foundation. Those Socialists who have abandoned the
labour theory of value can argue that the labourer (in-
cluding the active director of industry) is the only human
producer, that the capitalist as such produces nothing, and
consequently has no moral claim to any part of the prod-
uct. Whatever theory of value we may adopt, or whether
we adopt any, we cannot annul the fact that interest does
not represent labour expended upon the product by the
capitalist.
Nevertheless, this fact does not compel the conclusion
that the share of the product now taken by the capitalist
belongs of right to the labourer. Productivity does not
of itself create a right to the product. It is not an in-
trinsic title. That is to say, a right to the product is not
inherent in the relation between product and producer.
It is determined by certain extrinsic relations. When
Brown makes a pair of shoes out of materials that he has
stolen, he has not a right to the whole product; when
Jones turns out a similar product from materials that he
has bought, he becomes the exclusive owner of the shoes.
The intrinsic relation of productivity is the same in both
cases. It is the difference of extrinsic relation, namely,
the relation between the producer and the material, that
begets the difference between the moral claims of the two
producers upon the product.
The right of the producer is conditioned by certain
other and more fundamental relations. Why has Jones
a right to the shoes that he has made out of materials that
he has bought? Not because he needs them; he is not
alone in this condition. The ultimate reason and basis of
his ownership is to be sought in the practical requirements
150 DISTRIBUTIVE JUSTICE
of an equitable social distribution. Unless men receive
an adequate return for their labour, they will not be able
to satisfy their wants in a regular and sufficient manner.
If they are forced to labour for others without compen-
sation, they are deprived of the opportunity to develop
their personality. They are treated as mere instruments
to the welfare of beings who are not their superiors, but
their moral and juridical equals. Their intrinsic worth
and sacredness of personality is outraged, their essential
equality with their fellows is disregarded, and their inde-
structible rights are violated. On the other hand, when a
producer, such as Jones, gets possession of his product, he
subordinates no human being to himself, deprives no man
of the opportunity to perform remunerative labour, nor
appropriates an unreasonable share of the common bounty
of the earth. He has a right to his product because this is
one of the reasonable methods of distribution.
In fact, it is the exigencies of reasonable distribution
that constitute the fundamental justification of every title
of ownership. The title of purchase by which a man
claims the hat that he wears; the title of inheritance by
which a son claims the house that once belonged to his
father; the title of contract through which a labourer gets
wages, a merchant "prices, and a landlord rent, — are all
valid simply because they are reasonable devices for
enabling men to obtain the goods of the earth for the sat-
isfaction of their wants. All titles of property, produc-
tivity included, are conventional institutions which reason
and experience have shown to be conducive to human
welfare. None of them possesses intrinsic or metaphysi-
cal validity.^
Therefore, the Socialist cannot establish the right of
1 The exaggerated claims made on behalf of social productivity in
the matter of land values have been examined in a previous chapter.
Similar exaggerations with regard to capital will be considered in
chapter xii.
ALLEGED RIGHT OF LABOUR TO ENTIRE PRODUCT I5I
labour to the full product of industry until he proves that
this so-called right could be reduced to practice consistently
with individual and social v^elfare. In other words, he
must show that to give the entire product to the labourer
would be a reasonable method of distribution. Now the
arrangement by which the Socialist proposes to award the
whole product of labour is the collective ownership and
operation of the means of production, and the social dis-
tribution of the product. If this system would not enable
the labourer and the members of society generally to sat-
isfy their wants to better advantage than is possible under
the present system, the contention that the labourer has a
right to the entire product of industry falls to the ground.
The question will be considered in the following chapter.
CHAPTER XI
THE SOCIALIST SCHEME OF INDUSTRY
" Never has our party told the workingman about a
* State of the future/ never in any way than as a mere
Utopia. If anybody says: *I picture to myself society
after our programme has been realised, after wage labour
has been abolished, and the exploitation of men has ceased,
in such and such a manner, — ' well and good; ideas are
free, and everybody may conceive the Socialist State as
he pleases. Whoever believes in it may do so; whoever
does not, need not. These pictures are but dreams, and
Social Democracy has never understood them otherwise.'' ^
Such is the official attitude of Socialism toward de-
scriptions of its contemplated industrial organisation.
The party has never drawn up nor approved any of the
various outlines of this sort which have been defended by
individual Socialists. It maintains that it cannot antici-
pate even the essential factors in the operation of a social
and industrial system which will differ so widely from the
one that we have to-day, and which will be so profoundly
determined by events that are in the nature of the case
impossible to prognosticate.
Socialist Inconsistency
From the viewpoint of all but convinced Socialists, this
position is indefensible. We are asked to believe that the
collective ownership and operation of the means of pro-
duction would be more just and beneficial than the present
1 Wilhelm Liebknecht, cited in Hillqult's " Socialism in Theory and
Practice," p. 107.
152
THE SOCIALIST SCHEME OF INDUSTRY 1 53
plan of private ownership and operation. Yet the Social-
ist party refuses to tell us how the scheme would bring
about these results; refuses to give us, even in outline, a
picture of the machine at work. As reasonably might we
be expected to turn the direction of industry over to a
Rockefeller or a Morgan, making an act of faith in their
efficiency and fairness. We are in the position of a man
who should be advised to demolish an unsatisfactory house,
without receiving any solid assurance that the proposed
new one would be as good. To our requests for specific
information about the working of the new industrial order
the Socialists, as a rule, answer in terms of prophesied re-
sults. They leave us in the dark concerning the causes
by which these wonderful results are to be produced.
From the viewpoint of the confirmed Socialist, how-
ever, this failure to be specific is not at all unreasonable.
He can have faith in the Socialist system without knowing
beforehand how it will work. He believes in its efficacy
because he believes that it is inevitable. In the words of
Kautsky, " what is proved to be inevitable is proved not
only to be possible, but to be the only possible outcome." ^
The Socialist believes that his scheme is inevitable be-
cause he thinks that it is necessarily included in the out-
come of economic and social evolution.
Neither the premises nor the conclusion of this reason-
ing is valid. The doctrines of economic determinism, the
class struggle, the concentration of capital, the disappear-
ance of the middle classes, the progressive pauperisation
of the working classes, and all the other tenets of the
Socialist philosophy, have been thoroughly discredited by
the facts of psychology, the experience of the last half
century, and the present trend of industrial and social
forces.^ Even if the Socialist outcome were inevitable,
it would not necessarily be an improvement on the present
1 '* Das Erfurter Program," cited by Skelton, op. cit., p. 178.
2 Cf . Skelton, op. cit., ch. vii ; Bernstein, " Evolutionary Socialism,"
154 DISTRIBUTIVE JUSTICE
system. It might illustrate the principle of retrogression.
Since we cannot make an act of faith in either the in-
evitableness or the efficacy of the Socialist industrial
scheme, we are compelled to submit it to the ordinary
tests of examination and criticism. We must try to see
what would be the essential structure, elements, and opera-
tion of a system in which the means of production were
owned and managed collectively, and the product socially
distributed. In attempting to describe the system, we
shall be guided by what seems to be inherently necessary
to it, and by the prevalent conception of it among present
day Socialists. In this connection we have to observe
that some of the criticisms of the Socialist order attribute
to it elements that are not essential, nor any longer de-
manded by the authoritative spokesmen of the movement;
for example, complete confiscation of capital, compulsory
assignment of men to the different industrial tasks, equal-
ity of remuneration, the use of labour checks instead of
money, the socialisation of all capital down to the smallest
tool, and collective ownership of homes.
Expropriating the Capitalists
The first problem confronting a SociaHst administra-
tion would be the method of getting possession of the in-
struments of production. In the early years of the Social-
ist movement, most of its adherents seemed to favour a
policy of outright confiscation. Professor Nearing esti-
mates the total property income now paid in the United
States as, " well above the six-billion-dollar mark." ^
Were the Socialist State to seize all land and capital with-
out compensation, it could conceivably transfer more than
six billion dollars annually from landowners and capital-
ists to the community. Not all of it, however, would be
pp. 1-94; Simkhovitch, "Marxism vs. Socialism/' passim; Walling,
" Progressivism and After," passim; Hillquit-Ryan, op. cit., ch. iv.
1 " Income," p. 152.
THE SOCIALIST SCHEME OF INDUSTRY 1 5$
available for diversion to the labourers. According to
the computations of Professor King, about two billion
dollars were in 1910 saved and converted into capital.^
A progressive Socialist regime would want to appropriate
at least that sum for the renewal and increase of the in-
struments of production. Consequently, it would have
only four billion dollars to add to the present total income
of labour. This would be equivalent to $43.50 for every
person in the United States.
Desirable as would be such an addition to the remunera-
tion of labour, it could never be realised through the
process of confiscation. The owners of land and capital
would be sufficiently powerful to defeat any such simple
scheme of setting up the collectivist commonwealth. They
constitute probably a majority of the adults of our popu-
lation, and their economic advantages would make them
much stronger relatively than their numbers.^ Ethically
the policy of confiscation would be, on the whole, sheer
robbery. To be sure, not all owners of land and capital
have a valid claim to all their possessions, but practically
all of them hold the greater part of their wealth by some
kind of just title. Much land and capital that was orig-
inally acquired by unjust means has become morally legiti-
matised by the title of prescription.
The majority of present day Socialists seem to advo-
cate at least partial compensation.^ But this plan does
not seem to offer any considerable advantage over com-
plete confiscation. As regards morality, it would differ
only in the degree of its injustice ; as regards expediency,
it would be at best of doubtful efficacy. If the capitalists
were given only a small fraction of the value of their
holdings they would oppose the change with quite as much
1 " The Wealth and Income of the People of the United States," p.
132.
2 Cf. Hillqult-Ryan, op. cit, pp. 107, 136.
3 Cf. Hillquit-Ryan, op. cit., pp. 7Z-77') Skelton, op. cit., p. 183; Wall-
ing, " Socialism as It Is," p. 429.
156 DISTRIBUTIVE JUSTICE
determination as though they were offered nothing; if
they were paid almost the full value of their possessions
there would be no substantial gain to the community from
the transfer; if they were compensated at a figure some-
where between these two extremes their resistance would
still be more costly to the State than the extra amount re-
quired to make full compensation.
Finally, if full compensation were offered it would have
to take the form of government obligations, securities, or
bonds. If these did not bear interest the great majority
of capital owners would regard the scheme as partial and
considerable confiscation, and would fight it with deter-
mination and effectiveness. If the State bound itself to
pay interest on the bonds it would probably find itself giv-
ing the dispossessed capitalists as high a rate of return on
their capital, as large a share of the national product, as
they receive under the present system. Consequently, the
expropriation of the capitalists would bring no direct and
pecuniary gain to the labouring classes. Indeed, the latter
would suffer positive loss by the change, owing to the fact
that the State would be required to withdraw from the
national product a considerable amount for the mainte-
nance, renewal, and expansion of the instruments of pro-
duction. At present the capitalist class performs the
greater part of this function through the reinvestment of
the incomes that it receives in the form of interest and
rent. The average Socialist entirely ignores this capital-
istic service, when he draws his pessimistic picture of the
vast share of the national product which now goes to
" idle capitalists." So far as the larger capitalist incomes
are concerned; that is, those in excess of twenty-five thou-
sand dollars annually, it is probable that the greater part
is not consumed by the receivers, but is converted into
socially necessary capital instruments. Since this would
not be permitted in a Socialist order, the capitalists would
strive to consume the whole of the incomes received from
THE SOCIALIST SCHEME OF INDUSTRY 1 57
the public securities, and the State would be compelled to
provide the required new capital out of the current na-
tional product. In a word, society would have to give
the capitalists as much as it does at present, and to with-
hold from the labourers for new capital an immense sum
which is now furnished by the capitalists.
It is undoubtedly true that the richest capitalists would
be unable to expend the whole of their incomes upon
themselves and their families. If they turned a consid-
erable part of it over to the State, the surrendered sum
would be available as capital, thereby reducing the amount
that the State would need to take out of the national
product for this purpose. Were all those possessing in-
comes in excess of fifty thousand dollars per family to
give up all above that amount, the total thus accruing to
the State would be a little more than one billion dollars.^
But this would be only one-half the required new capital.
A part of the additional one billion is now provided out of
wages and salaries, but the greater part probably comes
out of rent and interest. Under Socialism this latter por-
tion would have to be deducted from that part of the na-
tional product which at present goes to the workers and
is consumed by them. Hence they would undergo a loss
of several hundred million dollars.
One reply to this difficulty is that the total product of
industry would be much increased under SociaUsm. Un-
doubtedly an efficient organisation of industry on collec-
tivist lines would be able to effect economies by combining
manufacturing plants, distributive concerns, and transpor-
tation systems, and by reducing unemployment to a mini-
mum; but it could not possibly make the enormous econo-
mies that are promised by the Socialists. The assertion
that under Socialism men would be able to provide abun-
dantly for all their wants on a basis of a working day of
four, or even two, hours is seductive and interesting, but
1 Cf . King, op. cit., pp. 224-226.
1 58 DISTRIBUTIVE JUSTICE
it has no support in the ascertainable facts of industrial
resources. Even if the SociaHst organisation were operat-
ing with a fair degree of efficiency, the gains that it could
effect over the present system would probably not more
than offset the social losses resulting from increased con-
sumption by the compensated capitalists.
But the proposed industrial organisation would not
operate with a fair degree of efficiency. According to
present Socialist thought, industries that are national in
scope, such as the manufacture of petroleum, steel, and
tobacco, would be carried on under national direction,
while those that supplied only a local market, such as
laundries, bakeries, and retail stores, would be managed
by the municipalities. This division of control would be
undoubtedly wise and necessary. Moreover, the majority
of Socialists no longer demand that all tools and all indus-
tries should be brought under collective or governmental
direction. Very small concerns which employed no hired
labour, or at most one or two persons, could remain under
private ownership and operation, while even larger enter-
prises might be carried on by co-operative associations. ■*■
Nevertheless the attempt to organise and operate collec-
tively the industries of the country, even with these limita-
tions, would encounter certain insuperable obstacles.
These will be considered under the general heads of in-
efficient industrial leadership, inefficient labour, and inter-
ference with individual liberty.
Inefficient Industrial Leadership
Under Socialism the boards of directors or commissions
which exercised supreme control in the various industries,
would have to be chosen either by the general popular
vote, by the government, or by the workers in each par-
ticular industry. The first method may be at once ex-
1 Cf. Kautsky, "The Social Revolution," pp. 166, 167; Hillquit-Ryan,
op. cit., p. 72.
THE SOCIALIST SCHEME OF INDUSTRY 1 59
eluded from consideration. Even now the number of of-
ficials chosen directly by the people is far too large ; hence
the widespread agitation for the " short ballot." Public
opinion is coming to realise that the voters should be re-
quired to select only a few important officials, whose
qualifications should be general rather than technical, and
therefore easily recognised by the masses. These su-
preme functionaries should have the power of filling all
administrative offices, and all positions demanding expert
or technical ability. If the task of choosing administrative
experts cannot be safely left to the mass of the voters at
present, it certainly ought not to be assigned to them
under Socialism, when the number and qualifications of
these functionaries would be indefinitely increased.
If the boards of industrial directors were selected by
the government, that is, by the national and municipal au-
thorities, the result would be industrial inefficiency and an
intolerable bureaucracy. No body of officials, whether
legislative or executive, would possess the varied, exten-
sive, and specific knowledge required to pick out efficient
administrative commissions for all the industries of the
country or the city. And no group of political persons
could safely be entrusted with such tremendous power.
It would enable them to dominate the industrial as well
as the political life of the nation or the municipality, to
establish a bureaucracy that would be impregnable for a
long period of years, and to revive all the conceivable
evils of governmental absolutism.
The third method is apparently the one now favoured
by most Socialists. " The workers in each industry may
periodically select the managing authority," says Morris
Hillquit.^ Even if the workers were as able as the stock-
holders of a corporation to select an efficient govern-
ing board, they would be much less likely to choose men
who would insist on hard and efficient work from all sub-
1 Hillquit-Ryan, op. cit, p. 80; cf. Spargo, "Socialism," pp. 225-227.
l6d DISTRIBUTIVE JUSTICE
ordinates. The members of a private corporation have a
strong pecuniary interest in selecting directors who will
secure the maximum of product at the minimum of cost,
while the employes in a Socialist industry would want
managing authorities who were willing to make working
conditions as easy as possible.
The dependence of the boards of directors upon the
mass of the workers, and the lack of adequate pecuniary
motives, would render their management much less effi-
cient and progressive than that of private enterprises.
In the rules that they would make for the administration
of the industry and the government of the labour force,
in their selection of subordinate officers, such as superin-
tendents, general managers, and foremen, and in all the
other details of management, they would have always be-
fore them the abiding fact that their authority was derived
from and dependent upon the votes of the majority of the
employes. Their supreme consideration would be to con-
duct the industry in such a way as to satisfy the men who
elected them. Hence they would strive to maintain an
administration which would permit the mass of the labour
force to work leisurely, to be provided with the most ex-
pensive conditions of employment, and to be immune from
discharge except in rare and flagrant cases. Even if the
members of the directing boards were sufficiently cour-
ageous or sufficiently conscientious to exact reasonable
and efficient service from all their subordinates and all
the workers, they would not have the necessary pecuniary
motives. Their salaries would be fixed by the govern-
ment, and in the nature of things could not be promptly
adjusted to reward efficient and to punish inefficient man-
agement. So long as their administration of industry
maintained a certain routine level of mediocrity, they
would have no fear of being removed; since they would be
supervised and paid by public officials who would have
neither the extraordinary capacity nor the necessary in-
THE SOCIALIST SCHEME OF INDUSTRY l6l
centive to recognise and reward promptly efficient manage-
ment, they would lack the powerful stimulus which is pro-
vided by the hope of gain. In the large private corpora-
tions, the tenure of the boards of directors depends not
upon the workers but upon the stockholders, whose main
interest is to obtain a maximum of product at a minimum
of cost, and who will employ and discharge, reward and
punish, according as this end is attained. Moreover, the
members of the boards, and the executive officers gen-
erally, are themselves financially interested in the business
and in the maintenance of the policy demanded by the
other stockholders.
All the subordinate officers, such as department man-
agers, superintendents, foremen, etc., would exemplify the
same absence of efficiency. Knowing that they must
carry out the prudent policy of the board of directors, they
would be slow to punish shirking or to discharge incom-
petents. Realising that the board of directors lacked the
incentive to make promotions promptly for efficient serv-
ice, or to discharge promptly for inefficient service, they
would devote their main energies to the task of holding
their positions through a policy of indifferent and routine
administration.
Invention and progress would likewise suffer. Men
who were capable of devising new machines, new processes,
new methods of combining capital and labour, would be
slow to convert their potencies into action. They would
be painfully aware that the spirit of inertia and routine
prevailing throughout the industrial and political organi-
sation would prevent their efforts from receiving quick
recognition and adequate rewards. Inventors of mechan-
ical devices particularly would be deprived of the stimulus
which they now find in the hope of indefinitely large gains.
Boards of directors, general managers, and other persons
exercising industrial authority would be very slow to in-
troduce new and more efficient financial or technical
l62 DISTRIBUTIVE JUSTICE
methods when they had no certainty that they would re-
ceive adequate reward in the form of either promotion or
money compensation. They would see no sufficient reason
for abandoning the established and pleasant policy of
routine methods and unprogressive management.
Inefficient Labour
The same spirit of inefficiency and mediocrity would
permeate the rank and file of the workers. Indeed, it
would operate even more strongly among them than
among the officers and superiors ; for their intellectual
limitations and the nature of their tasks would make them
less responsive to other than material and pecuniary mo-
tives. They would desire to follow the line of least re-
sistance, to labour in the most pleasant conditions, to re-
duce irksome toil to a minimum. Since the great bulk of
their tasks would necessarily be mechanical and monoto-
nous, they would demand the shortest possible working
day, and the most leisurely rate of working speed. And
because of their numerical strength they would have the
power to enforce this policy throughout the field of indus-
try. They would have the necessary and sufficient votes.
In a general way they might, indeed, realise that the prac-
tice of universal shirking and laziness must sooner or
later result in such a diminution of the national product as
to cause them great hardship, but the workers in each in-
dustry would hope that those in all the others would be
more efficient ; or doubt that a better example set by them-
selves would be imitated by the workers in other indus-
tries. They would not be keen to give up the certainty
of easy working conditions for the remote possibility of a
larger national product.
Attempted Replies to Objections
All the attempts made by Socialists to answer or ex-
plain away the foregoing difficulties may be reduced to
THE SOCIALIST SCHEME OF INDUSTRY 1 63
two: the achievements of government enterprises in our
present system; and the assumed efficacy of altruism and
public honour in a regime of Socialism.
Under the first head appeal is made to such publicly
owned and managed concerns as the post office, railroads,
telegraphs, telephones, street railways, water works, and
lighting plants. It is probably true that all these enter-
prises are on the whole carried on with better results to
the public than if they were in private hands. It is like-
wise probable that these and all other public utility monop-
olies will sooner or later be taken over by the State in all
advanced countries. Even if this should prove in all
cases to be a better arrangement from the viewpoint of the
general public welfare than private ownership and man-
agement, the fact would constitute no argument for a
Socialist organisation of all industry. In the first place,
the efficiency of labour, management, and technical organ-
isation is generally lower in public than in private enter-
prises, and the cost of operation higher. Despite these
defects, government ownership of public utilities, such as
street railways and lighting concerns, may be socially pref-
erable because these industries are monopolies. Inasmuch
as their charges and services cannot be regulated by the
automatic action of competition, the only alternative to
public ownership is public supervision. Inasmuch as the
latter is often incapable of securing satisfactory service
at fair prices, public ownership and management becomes
on the whole more conducive to social welfare. In other
words, the losses through inefficient operation are more
than offset by the gains from better service and lower
charges. Three cent fares and adequate service on an in-
efficiently managed municipal street railway are preferable
to five cent fares on a privately owned street railway whose
management is superior. On the other hand, all those in-
dustries which are not natural monopolies can be prevented
from practising extortion upon the public through regu-
164 DISTRIBUTIVE JUSTICE
lated competition. In them, therefore, the advantages of
private operation, of which competition itself is not the
least, should be retained.
In the second place, practically all the public service
monopolies are simpler in structure, more routine in opera-
tion, and more mature in organisation and efficiency than
the other industries. The degree of managerial ability
required, the necessity of experimenting with new methods
and processes, and the opportunity of introducing further
improvements in organisation are relatively less. Now, it
is precisely in these respects that private has shown itself
superior to public operation. Initiative, inventiveness, and
eagerness to effect economies and increase profits are the
qualities in which private management excels. When the
nature and maturity of the concern have rendered these
qualities relatively unimportant, public management can
exemplify a fair degree of efficiency.
In the third place, the ability of the State to operate a
few enterprises, does not prove that it could repeat the
performance with an equal degree of success in all indus-
tries. I can drive two horses, but I could not drive twen-
ty-two. No matter how scientific the organisation and
departmentalisation of industries under Socialism, the
final control of and responsibility for all of them would
rest with one organ, one authority, namely, the city in
municipal industries, and the nation in industries having
national scope. This would prove too great a task, too
heavy a burden, for any body of officials, for any group
of human beings.
Finally, it must be kept in mind that the publicly oper-
ated utilities are subject continuously to the indirect com-
petition of private management. By far the greater part
of industry is now under private control, which sets the
pace for efficient operation in a hundred particulars. As
a consequence, comparisons are steadily provoked between
public and private management, and the former is subject
THE SOCIALIST SCHEME OF INDUSTRY 1 65
to constant criticism. The managers of the State con-
cerns are stimulated and practically compelled to emulate
the success of private management. This factor is prob-
ably more effective in securing efficiency in public indus-
tries than all other causes put together. In the words of
Professor Skelton : '' A limited degree of public ow^ner-
ship succeeds simply because it is a limited degree, suc-
ceeds because private industry, in individual forms or in
the socialised joint stock form, dominates the field as a
vv^hole. It is private industry that provides the capital, pri-
vate industry that trains the men and tries out the methods,
private industry that sets the pace, and — not the least of
its services — private industry that provides the ever-pos-
sible outlet of escape." ^
The Socialist expectation that altruistic sentiments and
public honour w^ould induce all industrial leaders and all
ordinary w^orkers to exert themselves as effectively as they
nov^ do for the sake of money, is based upon the very
shallov^ fallacy that what is true of a few men may very
readily become true of all men. There are, indeed, per-
sons in every walk of life who work faithfully under the
influence of the higher motives, but they are and always
have been the exceptions in their respective classes. The
great majority have been affected only feebly, intermit-
tently, and on the whole ineffectively by either love of
their kind or the hope of public approval.
A Socialist order could generate no forces which would
be as productive of unselfish conduct as the motives that
are drawn from religion. History shows nothing
comparable either in extent or intensity to the record
of self surrender and service to the neighbour which are
due to the latter influence. Yet religion has never been
able, even in the periods and places most thoroughly
dominated by Christianity, to induce more than a small
minority of the population to adopt that life of altruism
1" Socialism: A Critical Analysis," p. 2ig.
1 66 DISTRIBUTIVE JUSTICE
which would be required of the great majority under
SociaHsm.
Moreover, the efficacy of the higher motives is much
greater among men devoted to scientific, intellectual, and
religious pursuits than in either the leaders or the rank and
file engaged in industrial occupations. The cause of this
difference is to be sought in the varying nature of the two
classes of activity : the first necessarily develops an appre-
ciation of the higher goods, the things of the mind and
the soul; the second compels the attention of men to rest
upon matter, upon the things that appeal to the senses,
upon the things that are measurable in terms of money.
There is a special fallacy underlying the emphasis
placed by Socialists on the power of public honour. It
consists in the failure to perceive that this good declines
in efficacy according as the number of its recipients in-
creases. Even if all the industrial population were will-
ing to work as hard for public approval as they now do
for money, the results expected by Socialists would not
be forthcoming. Public recognition of unselfish service
is now available in relatively great measure because the
persons qualifying for it are relatively few. They easily
stand out conspicuous among their fellows. Let their
numbers vastly increase, and unselfishness would become
commonplace. It would no longer command popular
recognition, save in those who displayed it in exceptional
or heroic measure. The public would not have the time
nor take the trouble to notice and honour adequately every
floor walker, retail clerk, factory operative, street cleaner,
agricultural labourer, ditch digger, etc., who might become
a candidate for such recognition.
When the Socialists point to such examples of disinter-
ested public service as that of Colonel Goethals in building
the Panama Canal, they confound the exceptional with the
average. They assume that, since an exceptional man
performs an exceptional task from high motives, all men
THE SOCIALIST SCHEME OF INDUSTRY 167
can be got to act likewise in all kinds of operations. They
forget that the Panama Canal presented opportunities of
self satisfying achievement and fame which do not occur
once in a thousand years; that the traditions and training
of the army have during many centuries deliberately and
consistently aimed and tended to produce an exceptionally
high standard of honour and disinterestedness; that, even
so, the majority of army officers have not in their civil
assignments shown the same degree of faithfulness to the
public welfare as Colonel Goethals; that the Canal was
built under a regime of " benevolent despotism," which
placed no reliance tipon the " social mindedness " of the
subordinate workers; and that the latter, far from show-
ing any desire to qualify as altruists or public benefactors,
demanded and received material recognition in the form of
wages, perquisites, and gratuities which greatly surpassed
the remuneration received by any other labour force in
history.^ In a word, wherever in the construction of the
Canal notable disinterestedness or appreciation of public
honour was shown, the circumstances were exceptional;
where the situation was ordinary, the Canal builders were
unable to rise above the ordinary motives of selfish advan-
tage.
Beneath all the Socialist argument on this subject lies
the assumption that the attitude of the average man toward
the higher motives can by some mysterious process be
completely revolutionised. This is contrary to all experi-
ence, and to all reasonable probability. Only a small
minority of men have ever, in any society or environment,
been dominated mainly by altruism or the desire of public
honour. What reason is there to expect that men will act
differently in the future? Neither legislation nor educa-
tion can make men love their neighbours more than them-
selves, or love the applause of their neighbours more than
their own material welfare.
1 Cf . " The Panama Gateway," by Joseph Bucklin Bishop, p. 26Z.
l68 DISTRIBUTIVE JUSTICE
Restricting Individual Liberty
Even though human nature should undergo the degree
of miraculous transformation necessary to maintain an
efficient industrial system on Socialist lines, such a social
organisation must soon collapse because of its injurious
effect upon individual liberty. Freedom of choice would
be abolished in the most vital economic transactions; for
there would be but one buyer of labour, and one seller of
commodities. And these two would be identical, namely,
the State. With the exception of the small minority that
might be engaged in purely individual avocations, and in
co-operative enterprises, men would be compelled to sell
their labour to either the municipality or the national gov-
ernment. As competition between these two political
agencies in the matter of wages and other conditions of
labour could not be permitted, there would be virtually
only one employer. Practically all material goods would
have to be purchased from either the municipal or the
national shops and stores. Since the city and the nation
would produce different kinds of goods, the purchaser of
any given article would be compelled to deal with one
seller. His freedom of choice would be further restricted
by the fact that he would have to be content with those
kinds and grades of commodities which the seller saw fit
to produce. He could not create an effective demand for
new forms and varieties of goods, as he now does, by
stimulating the ingenuity and acquisitiveness of compet-
ing producers and dealers.
Prices and wages would, of course, be fixed beforehand
by the government. The supposition that this function
might be left to the workers in each industry is utterly im-
practicable. Such an arrangement would involve a grand
scramble among the different industries to see which could
pay its own members the highest wages, and charge its
neighbours' members the highest prices. The final result
THE SOCIALIST SCHEME OF INDUSTRY 169
would be a level of prices so high that only an alert and
vigorous section of the workers in each industry could
find employment. Not only wages and prices but hours,
safety requirements, and all the other general conditions
of employment, would be regulated by the government.
The individuals in each industry could not be permitted
to determine these matters any more than they could be
permitted to determine wages. Moreover, all these regu-
lations would from the nature of the case continue un-
changed for a considerable period of time.
The restriction of choice enforced upon the sellers of
labour and the buyers of goods, the utter dependence of
the population upon one agency in all the affairs of their
economic as well as their political life, the tremendous
social power concentrated in the State, would produce a
diminution of individual liberty and a perfection of politi-
cal despotism surpassing anything that the world has ever
seen. It would not long be tolerated by any self respect-
ing people.
To reply that the Socialist order would be a democracy,
and that the people could vote out of existence any dis-
tasteful regulation, is to play with words. No matter
how responsive the governing and managing authorities
might be to the popular will, the dependence of the indi-
vidual would prove intolerable. Not the manner in which
this tremendous social power is constituted, nor the per-
sonnel of those exercising it, but the fact that so much
power is lodged in one agency, and so little immediate con-
trol of his affairs left to the individual, — is the heart of
the evil situation. In a word, it is a question of the lib-
erty of the individual versus the all pervading control of
his actions by an agency other than himself. Moreover,
the people in a democracy means a majority, or a compact
minority. Under Socialism the controlling section of the
voting population would possess so much power, political
and economic, that it could impose whatever conditions it
170 DISTRIBUTIVE JUSTICE
pleased upon the non-controlling section for an almost in-
definite period of time. The members of the latter part
of the population would not only be deprived of that im-
mediate liberty which consists in the power to determine
the details of their economic life, but of that remote lib-
erty which consists in the power to affect general condi-
tions by their votes.
In the last chapter we saw that the claim to the full
product of industry, made on behalf of labour by the So-
cialists, cannot be established on intrinsic grounds. Like
all other claims to material goods, it is valid only if it can
be realised consistently with human welfare. Its validity
depends upon its feasibility, upon the possibility of con-
structing some social system that will enable it to work.
The present chapter has shown that the requirements of
such a system are not met by Socialism. A Socialist or-
ganisation of industry would make all sections of the pop-
ulation, including the wage earning class, worse off than
they are in the existing industrial order. Consequently,
neither the private ownership of capital nor the individual
receipt of interest can be proved to be immoral by the
Socialist argument.
Since private ownership and management of capital are
superior to Socialism, the State is obliged to maintain, pro-
tect, and improve the existing industrial system. This is
precisely the conclusion that we reached in chapter iv with
reference to private ownership of land. In chapter v we
found, moreover, that individual ownership of land is a
natural right. The fundamental considerations there ex-
amined lead to the parallel conclusion that the individual
has a natural right to own capital. But we could not im-
mediately deduce from the right to own land the right to
take rent. Neither can we immediately deduce from the
right to own capital the right to take interest. The posi-
tive estabhshment of the latter right will occupy us in the
two following chapters.
CHAPTER XII
ALLEGED INTRINSIC JUSTIFICATIONS OF INTEREST
In his address as President of the American Sociologi-
cal Society at the annual meeting, Dec. 2J, 191 3, Professor
Albion W. Small denounced '' the fallacy of treating cap-
ital as though it were an active agent in human processes,
and crediting income to the personal representatives of
capital, irrespective of their actual share in human serv-
ice." According to his explicit declaration, his criticism
of the modern interest-system v^as based primarily upon
grounds of social utility rather than upon formally ethical
considerations.
A German priest has attacked interest from the purely
moral viewpoint.^ In his view the owner of any sort of
capital who exacts the return of anything beyond the
principal, violates strict justice.^ The Church, he main-
tains, has never formally authorised or permitted interest,
either on loans or on producing capital. She has merely
tolerated it as an irremovable evil.
Is there a satisfactory justification of interest? If
there is, does it rest on individual or on social grounds?
That is to say: is interest justified immediately and in-
trinsically by the relations existing between the owner and
the user of capital? Or, is rendered morally good owing
to its effects upon social welfare? Let us see what light
is thrown on these questions by the anti-usury legislation
of the Catholic Church.
iHohoff, "Die Bedeutung der Marxschen Kapltalkritik " ; Pader-
born, 1908.
2 Pp. 64-67, 88, 89. 96.
171
172 DISTRIBUTIVE JUSTICE
Attitude of the Church Toward Interest on Loans
During the Middle Ages all interest on loans was for-
bidden under severe penalties by repeated ordinances of
Popes and Councils.^ Since the end of the seventeenth
century the Church has quite generally permitted interest
on one or more extrinsic grounds, or " titles." The first
of these titles was known as " lucrum cessans/' or relin-
quished gain. It came into existence whenever a person
who could have invested his money in a productive ob-
ject, for example, a house, a farm, or a mercantile enter- .
prise, decided instead to lend the money. In such cases
the interest on the loan was regarded as proper compen-
sation for the gain which the owner might have obtained
from an investment on his own account. The title created
by this situation was called '' extrinsic " because it arose
out of circumstances external to the essential relations of
borrower and lender. Not because of the loan itself, but
because the loan prevented the lender from investing his
money in a productive enterprise, was interest on the
former held to be justified. In other words, interest on
the loan was looked upon as merely the fair equivalent of
the interest that might have been obtained on the invest-
ment.
During the seventeenth, eighteenth, and nineteenth cen-
turies, another title or justification of loan-interest found
some favour among Catholic moralists. This was the
" praemium legale," or legal rate of interest allowed by
civil governments. Wherever the State authorised a
definite rate of interest, the lender might, according to
these writers, take advantage of it with a clear conscience.
To-day the majority of Catholic authorities on the sub-
ject prefer the title of virtual productivity as a justifica-
tion. Money, they contend, has become virtually pro-
1 Cf . Van Roey, " De Jiisto Auctario ex Contractu Crediti " ; and
Ashley, ** English Economic History."
ALLEGED INTRINSIC JUSTIFICATIONS OF INTEREST 1 73
ductive. It can readily be exchanged for income-bearing
or productive property, such as, land, houses, railroads,
machinery, and distributive establishments. Hence it has
become the economic equivalent of productive capital, and
the interest which is received on it through a loan is quite
as reasonable as the annual return to the owner of pro-
ductive capital. Between this theory and the theory con-
nected with " lucrum cessans " the only difference is that
the former shifts the justification of interest from the
circumstances and rights of the lender to the present na-
ture of the money itself. Not merely the fact that the
individual will suffer if, instead of investing his money he
loans it without interest, but the fact that money is gen-
erally and virtually productive, is the important element in
the newer theory. In practice, however, the two explana-
tions or justifications come to substantially the same thing.
Nevertheless, the Church has given no positive approval
to any of the foregoing theories. In the last formal pro-
nouncement by a Pope on the subject, Benedict XIV ^
condemned anew all interest that had no other support
than the intrinsic conditions of the loan itself. At the
same time, he declared that he had no intention of denying
the lawfulness of interest which was received in virtue of
the title of " lucrum cessans," nor the lawfulness of in-
terest or profits arising out of investments in productive
property. In other words, the authorisation that he gave
to both kinds of interest was merely negative. He re-
frained from condemning them.
In the Responses given by the Roman Congregations
from 1822 onward to questions relating to the lawfulness
of loan- interest, we may profitably consider four principal
features. First, they declare more or less specifically that
interest may be taken in the absence of the title of " lucrum
cessans " ; second, some of them definitely admit the title
of " praemium legale," or civil authorisation, as sufficient
1 Encyclical, " Vix Pervenit," 1745.
174 DISTRIBUTIVE JUSTICE
to give the practice moral sanction; third, they express a
genuine permission, not a mere toleration, of interest tak-
ing; fourth, none of them expHcitly declares that any of
the titles or reasons for receiving loan-interest will neces-
sarily or always give the lender a strict right thereto.
None of them contains a positive and reasoned approval
of the practice. Most of them merely decide that per-
sons who engage in it are not to be disturbed in conscience,
so long as they stand ready to submit to a formal decision
on the subject by the Holy See. The insertion of the
latter condition clearly intimates that some day interest
taking might be formally and officially condemned.
Should such a condemnation ever appear, it would not
contradict any moral principle contained in the " Roman
Responses," nor in the present attitude of the Church and
of Catholic moralists. Undoubtedly it could come only as
the result of a change in the organisation of industry, just
as the existing ecclesiastical attitude has followed the
changed economic conditions since the Middle Ages.
All the theological discussion on the subject, and all the
authoritative ecclesiastical declarations indicate, therefore,
that interest on loans is to-day regarded as lawful because
a loan is the economic equivalent of an investment. Evi-
dently this is good logic and common sense. If it is right
for the stockholder of a railway to receive dividends, it is
equally right for the bondholder to receive interest. If it
is right for a merchant to take from the gross returns of
his business a sum sufficient to cover interest on his capi-
tal, it is equally right for the man from whom he has bor-
rowed money for the enterprise to exact interest. The
money in a loan is economically equivalent to, convertible
into, concrete capital. It deserves, therefore, the same
treatment and the same rewards. The fact that the in-
vestor undergoes a greater risk than the lender, and the
fact that the former often performs labour in connection
with the operation of his capital, have no bearing on the
ALLEGED INTRINSIC JUSTIFICATIONS OF INTEREST I75
moral problem; for the investor is repaid for his extra
risk and labour by the profits which he receives, and which
the lender does not receive. As a mere recipient of in-
terest, the investor undergoes no more risk nor exertion
than does the lender. His claim to interest is no better
than that of the latter.
Interest on Productive Capital
On what ground does the Church or Catholic theological
opinion justify interest on invested capital? on the shares
of the stockholders in corporations? on the capital of the
merchant and the manufacturer ?
In the early Middle Ages the only recognised titles to
gain from the ownership of property were labour and
*'isk.^ Down to the beginning of the fifteenth century
substantially all the incomes of all classes could be ex-
plained and justified by one or other of these two titles;
for the amount of capital in existence was inconsiderable,
and the number of large personal incomes insignificant.
When, however, the traffic in rent charges and the oper-
ation of partnerships, especially the " contractus trinus,"
or triple contract, had become fairly common, it was ob-
vious that the profits from these practices could not be cor-
rectly attributed to either labour or risk. The person who
bought, not the land itself, but the right to receive a por-
tion of the rent thereof, and the person who became the
silent member of a partnership, evidently performed no
labour beyond that involved in making the contract. And
their profits clearly exceeded a fair compensation for their
risks, inasmuch as the profits produced a steady income.
How then were they to be justified?
A few authorities maintained that such mcomes had no
justification. In the thirteenth century Henry of Ghent
condemned the traffic in rent charges; in the sixteenth
Dominicus Soto maintained that the returns to the silent
1 Cf . St. Thomas, " Summa Theologica," 2a 2ae, q. 78, a. 2 et 3.
\iy6 DISTRIBUTIVE JUSTICE
partner in an enterprise ought not to exceed a fair equiva-
lent for his risks ; about the same time Pope Sixtus V de-
nounced the triple contract as a form of usury. Never-
theless, the great majority of writers admitted that all
these transactions were morally lawful, and the gains
therefrom just. For a time these writers employed
merely negative and a pari arguments. Gains from rent
charges, they pointed out, were essentially as licit as the
net rent received by the owner of the land; and the inter-
est received by a silent partner, even in a triple contract,
had quite as sound a moral basis as rent charges. By the
beginning of the seventeenth century the leading authori-
ties were basing their defence of industrial interest on
positive grounds. Lugo, Lessius, and Molina adduced the
productivity of capital goods as a reason for allowing
gains to the investor. Whether they regarded productiv-
ity as in itself a sufficient justification of interest, or
merely as a necessary prerequisite to justification, cannot
be determined with certainty.
At present the majority of Catholic writers seem to
think that a formal defence of interest on capital is un-
necessary. Apparently they assume that interest is justi-
fied by the mere productivity of capital. However, this
view has never been explicitly approved by the Church.
While she permits and authorises interest, she does not
define its precise moral basis.
So much for the teaching of ecclesiastical and ethical
authorities. What are the objective reasons in favour of
the capitalist's claim to interest? In this chapter we con-
sider only the intrinsic reasons, those arising wholly out
of the relations between the interest-receiver and the in-
terest-payer. Before taking up the subject it may be well
to point out the source from which interest comes, the
class in the community that pays the interest to the capi-
talist. From the language sometimes used by Socialists
it might be inferred that interest is taken from the la-
ALLEGED INTRINSIC JUSTIFICATIONS OF INTEREST 1 77
bourer, and that if it were abolished he would be the chief
if not the only beneficiary. This is incorrect. At any
given time interest on producing capital is paid by the
consumer. Those who purchase the products of industry
must give prices sufficiently high to provide interest in
addition to the other expenses of production. Were in-
terest abolished and the present system of private capital
continued, the gain would be mainly reaped by the con-
sumer in the form of lower prices; for the various capi-
talist directors of industry would bring about this result
through their competitive efforts to increase sales. Only
those labourers who were sufficiently organised and suffi-
ciently alert to make effective demands for higher wages be-
fore the movement toward lower prices had got well under
way, would obtain any direct benefit from the change. The
great majority of labourers would gain far more as con-
sumers than as wage earners. Speaking generally, then,
we may say that the capitalist's gain is the consumer's
loss, and the question of the justice of interest is a ques-
tion between the capitalist and the consumer.
The intrinsic or individual grounds upon which the
capitalist's claim to interest has been defended are mainly
three: productivity, service, and abstinence. They will
be considered in this order.
The Claims of Productivity
It is sometimes asserted that the capitalist has as good
a right to interest as the farmer has to the offspring of
his animals. Both are the products of the owner's prop-
erty. In two respects, however, the comparison is inade-
quate and misleading. Since the owner of a female ani-
mal contributes labour or money or both toward her care
during the period of gestation, his claim to the offspring
is based in part upon these grounds, and only in part upon
the title of interest. In the second place, the offspring is
the definite and easily distinguishable product of its par-
178 DISTRIBUTIVE JUSTICE
ent. But the sixty dollars derived as interest from the
ownership of ten shares of railway stock, cannot be iden-
tified as the exact product of one thousand dollars of
railway property. No man can tell whether this amount
of capital has contributed more or less than sixty dollars
of value to the joint product, i.e., railway services. The
same is true of any other share or piece of concrete capital.
All that we know is that the interest, be it five, six, seven,
or some other per cent., describes the share of the product
which goes to the owner of capital in the present condi-
tions of industry. It is the conventional not the actual
and physical product of capital.
Another faulty analogy is that drawn between the pro-
ductivity of capital and the productivity of labour. Fol-
lowing the terminology of the economists, most persons
think of land, labour, and capital as productive in the same
sense. Hence the productivity of capital is easily assumed
to have the same moral value as the productive action of
human beings; and the right of the capitalist to a part
of the product is put on the same moral basis as the right
of the labourer. Yet the differences between the two kinds
of productivity, and between the two moral claims to the
product are more important than their resemblances.
In the first place, there is an essential physical differ-
ence. As an instrument of production, labour is active,
capital is passive. As regards its worth or dignity, labour
is the expenditure of human energy, the output of a person,
while capital is a material thing, standing apart from a
personality, and possessing no human quality or human
worth. These significant intrinsic or physical differences
forbid any immediate inference that the moral claims of
the owners of capital and labour are equally valid. We
should logically expect to find that their moral claims are
unequal.
This expectation is realised when we examine the bear-
ing of the two kinds of productivity upon human welfare.
ALLEGED INTRINSIC JUSTIFICATIONS OF INTEREST 1 79
In the exercise of productive effort the average labourer
undergoes a sacrifice. He is engaged in a process that is
ordinarily irksome. To require from him this toilsome
expenditure of energy without compensation, v^ould make
him a mere instrument of his fellows. It would subordi-
nate him and his comfort to the aggrandisement of beings
who are not his superiors but his moral equals. For he
is a person ; they are no more than persons. On the other
hand, the capitalist as such, as the recipient of interest,
performs no labour, painful or otherwise. Not the capi-
talist, but capital participates in the productive process.
Even though the capitalist should receive no interest, the
productive functioning of capital would not subordinate
him to his fellows in the way that wageless labour would
subordinate the labourer.
The precise and fundamental reason for according to
the labourer his product is that this is the only rational rule
of distribution. When a man makes a useful thing out
of materials that are his, he has a strict right to the product
simply because there is no other reasonable method of
distributing the goods and opportunities of the earth. If
another individual, or society, were permitted to take this
product, industry would be discouraged, idleness fostered,
and reasonable life and self development rendered impos-
sible. Direful consequences of this magnitude would not
follow the abolition of interest.
Perhaps the most important difference between the
moral claims of capitalist and labourer is the fact that for
the latter labour is the sole means of livelihood. Unless he
is compensated for his product he will perish. But the
capitalist has in addition to the interest that he receives
the ability to work. Were interest abolished he would
still be in as good a position as the labourer. The prod-
uct of the labourer means to him the necessaries of life;
the product of the capitalist means to him goods in excess
of a mere livelihood. Consequently their claims to the
l80 DISTRIBUTIVE JUSTICE
product are greatly unequal in vital importance and moral
value.
The foregoing considerations show that even the claim
of the labourer to his product is not based upon merely
intrinsic grounds. It does not spring entirely from the
mere fact that he has produced the product, from the mere
relation between producer and thing produced. If this is
true of labour-productivity we should expect to find it even
more evident with regard to the productivity of capital;
for the latter is passive instead of active, non rational
instead of human.
The expectation is well founded. Not a single con-
clusive argument can be brought forward to show that
the productivity of capital directly and necessarily confers
upon the capitalist a right to the interest-product. All
the attempted arguments are reducible to two formulas :
"res fructificat domino" {" sl thing fructifies to its
owner") and "the effect follows its cause." The first
of these was originally a legal rather than an ethical
maxim; a rule by which the title was determined in the
civil law, not a principle by which the right was deter-
mined in morals. The second is an irrelevant platitude.
As a juristic principle, neither is self evident. Why
should the owner of a piece of capital, be it a house, a ma-
chine, or a share of railway stock, have a right to its prod-
uct, when he has expended neither time, labour, money,
nor inconvenience of any kind? To answer, " because the
thing which produced the product belongs to him," is
merely to beg the question. To answer, " because the
effect follows the cause," is to make a statement which
has nothing to do with the question. What we want to
know is why the ownership of a productive thing gives a
right to the product; why this particular effect should
follow its cause in this particular way. To answer by
repeating under the guise of sententious formulas the
thesis to be proved, is scarcely satisfactory or convincing.
ALLEGED INTRINSIC JUSTIFICATIONS OF INTEREST l8l
To answer that if the capitalist were not given interest
industry and thrift would decrease and human welfare
suffer, is to abandon the intrinsic argument entirely. It
brings in the extrinsic consideration of social conse-
quences.
The Claims of Service
The second intrinsic ground upon which interest is de-
fended, is the service performed by the capitalist when he
permits his capital to be used in production. Without
capital, labourers and consumers would be unable to com-
mand more than a fraction of their present means of live-
lihood. From this point of view we see that the service
in question is w^orth all that is paid in the form of interest.
Nevertheless it does not follow that the capitalist has a
claim in strict justice to any payment for this service.
According to St. Thomas, a seller may not charge a buyer
an extra amount merely because of the extra value at-
tached to the commodity by the latter.^ In other words,
a man cannot justly be required to pay an unusual price
for a benefit or advantage or service, when the seller
undergoes no unusual deprivation. Father Lehmkuhl car-
ries the principle further, and declares that the seller has
a right to compensation only when and to the extent that
he undergoes a privation or undertakes a responsibility.^
According to this rule, the capitalist would have no right
to interest; for as mere interest-receiver he undergoes no
privation. His risk and labour are remunerated in profits,
while the responsibility of not withdrawing from produc-
tion something that can continue in existence only by con-
tinuing in production, is scarcely deserving of a reward
according to the canons of strict justice.
Whatever we may think of this argument from author-
ity, we find it impossible to prove objectively that a man
1 " Secunda Secondae," q. 'jy, a. i, in corp.
2 " Theologia Moralis," I, no. 1050.
l82 DISTRIBUTIVE JUSTICE
who renders a service to another has an intrinsic right to
anything beyond compensation for the expenditure of
money or labour involved in performing the service. The
man who throws a Hfe preserver to a drowning person may
justly demand a payment for his trouble. On any recog-
nised basis of compensation, this payment will not exceed
a few dollars. Yet the man whose life is in. danger would
pay a million dollars for this service if he were extremely
rich. He would regard the service as worth this much
to him. Has the man with the life preserver a right to
exact such a payment? Has he a right to demand the
full value of the service? No reasonable person would
answer this question otherwise than in the negative. H
the performer of the service may not charge the full value
thereof, as measured by the estimate put upon it by the
recipient, it would seem that he ought not to demand any-
thing in excess of a fair price for his trouble. In other
words, he may not justly exact anything for the service
as such.
It would seem, then, that the capitalist has no moral
claim to pure interest on the mere ground that the use of
his capital in production constitutes a service to labourers
and consumers. It would seem that he has no right to
demand a payment for a costless service.
The Claims of Abstinence
The third and last of the intrinsic justifications of inter-
est that we shall consider is abstinence. This argument
is based upon the contention that the person who saves
his money, and invests it in the instruments of production
undergoes a sacrifice in deferring to the future satisfac-
tions that he might enjoy to-day. One hundred dollars
now is worth as much as one hundred and five dollars a
year hence. That is, when both are estimated from the
viewpoint of the present. This sacrifice of present to
future enjoyment which contributes a service to the com-
ALLEGED INTRINSIC JUSTIFICATIONS OF INTEREST 183
munity in the form of capital, creates a just claim upon
the community to compensation in the form of interest.
If the capitalist is not rewarded for this inconvenience
he is, like the unpaid labourer, subordinated to the ag-
grandisement of his fellows. ,
Against this argument we may place the extreme refu-
tation attempted by the Socialist leader, Ferdinand
Lassalle :
" But the profit of capital is the reward of abstinence.
Truly a happy phrase! European millionaires are ascet-
ics, Indian penitents, modern St. Simons Stylites, who
perched on their columns, with withered features and
arms and bodies thrust forward, hold out a plate to the
passers-by that they may receive the wages of their priva-
tions ! In the midst of this sacro-saint group, high above
his fellow-mortifiers of the flesh, stands the Holy House
of Rothschild. That is the real truth about our present
society! How could I have hitherto blundered on this
point as I have?" ^
Obviously this is a malevolently one-sided implication
concerning the sources of capital. But it is scarcely less
adequate than the explanation in opposition to which it
has been quoted. Both fail to distinguish between the
different kinds of savers, the different kinds of capital-
owners. For the purposes of our inquiry savings may
be divided into three classes.
First, those which are accumulated and invested auto-
matically. Very rich persons save a great deal of money
that they have no desire to spend, since they have already
satisfied or safeguarded all the wants of which they are
conscious. Evidently this kind of saving involves no real
sacrifice. To it the words of Lassalle are substantially
applicable, and the claim to interest for abstinence de-
cidedly inapplicable.
Second, savings to provide for old age and other future
i"What is Capital?" p. 27.
184 DISTRIBUTIVE JUSTICE
contingencies which are estimated as more important than
any of the purposes for which the money might now be
expended. Were interest abolished this kind of saving
would be even greater than it is at present; for a larger
total would be required to equal the fund that is now pro-
vided through the addition of interest to the principal.
In a no-interest regime one thousand dollars would have
to be set aside every year in order to total twenty thou-
sand dollars in twenty years ; when interest is accumulated
on the savings, a smaller annual amount will suffice to
produce the same fund. Inasmuch as this class of persons
would save in an even greater degree without interest, it
is clear that they regard the sacrifice involved as fully
compensated in the resulting provision for the future. In
their case sacrifice is amply rewarded by accumulation.
Their claim to additional compensation in the form of
interest does not seem to have any valid basis. In the
words of the late Professor Devas, '* there is ample re-
ward given without any need of any interest or dividend.
For the workers with heads or hands keep the property
intact, ready for the owner to consume whenever con-
venient, when he gets infirm or sick, or when his chil-
dren have grown up, and can enjoy the property with
him." 1
The third kind of saving is that which is made by per-
sons who could spend, and have some desire to spend,
more on present satisfactions, and who have already pro-
vided for all future wants in accordance with the standards
of necessaries and comforts that they have adopted.
Their fund for the future is already sufficient to meet all
those needs which seem weightier than their present un-
satisfied wants. If the surplus in question is saved it will
go to supply future desires which are no more important
than those for which it might be expended now. In
other words, the alternatives before the prospective saver
1 " Political Economy," p. 507.
ALLEGED INTRINSIC JUSTIFICATIONS OF INTEREST 185
are to procure a given amount of satisfaction to-day, or
to defer the same degree of satisfaction to a distant day.
In this case the inducement of interest will undoubtedly
be necessary to bring about saving. As between equal
amounts of satisfaction at different times, the average
person will certainly prefer those of the present to those
of the future. He will not decide in favour of the future
unless the satisfactions then obtainable are to be greater
in quantity. To this situation the rule that deferred en-
joyments are worth less than present enjoyments, is
strictly applicable. The increased quantity of future
satisfaction which is necessary to turn the choice from the
present to the future, and to determine that the surplus
shall be saved rather than spent, can be provided only
through interest. In this way the accumulations of inter-
est and savings will make the future fund equivalent to a
larger amount of enjoyment or utility than could be
obtained if the surplus were exchanged for the goods of
the present. " Interest magnifies the distant object."
Whenever this magnifying power seems sufficiently great
to outweigh the advantage of present over future satis-
factions, the surplus will be saved instead of spent.
Among the well-to-do there is probably a considerable
number of persons who take this attitude toward a con-
siderable part of their savings. Since they would not
make these savings without the inducement of interest,
they regard the latter as a necessary compensation for the
sacrifice of postponed enjoyment. In a general way we
may say that they have a strict right to this interest on
the intrinsic ground of sacrifice. Inasmuch as the com-
munity benefits by the savings, it may quite as fairly be
required to pay for the antecedent sacrifices of the savers
as for the inconvenience undergone by the performer of
any useful labour or service.
Summing up the matter regarding the intrinsic justi-
fication of interest, we find that the titles of productivity
l86 DISTRIBUTIVE JUSTICE
and service do not conclusively establish the strict right
of the capitalist to interest, and that the title of abstinence
is morally valid for only a portion, probably a rather small
portion, of the total amount of interest now received by
the owners of capital. Consequently interest as a whole
is not conclusively vindicated on individual grounds. If
it is to be proved morally lawful its justification must be
sought in extrinsic and social considerations. This in-
quiry will form the subject of the next chapter.
CHAPTER XIII
SOCIAL AND PRESUMPTIVE JUSTIFICATIONS OF INTEREST
As we saw in the last chapter, interest cannot be con-
clusively justified on the ground of either productivity or
service. It is impossible to demonstrate that the capitalist
has a strict right to interest because his capital produces
interest, or because it renders a service to the labourer or
the consumer. A part, probably a small part, of the inter-
est now received can be fairly justified by the title of
sacrifice. Some present owners of capital would not have
saved had they not expected to receive interest. In their
case interest may be regarded as a just compensation for
the sacrifice that they underwent when they decided to
save instead of consuming.
Limitations of the Sacrifice Principle
Nevertheless these men would suffer no injustice if in-
terest were now to be abolished. Up to the moment of the
change, they would have been in receipt of adequate com-
pensation; thereafter, they would be in exactly the same
position as when they originally chose to save rather than
consume. They would still be able to sell their capital,
and convert the proceeds to their immediate uses and
pleasures. In this case they would obviously have no
further claim upon the community for interest. On the
other hand, they could retain the ownership of their cap-
ital, and postpone its consumption to some future time.
In making this choice they would regard future as more
important than present consumption, and the superiority
of future enjoyment as sufficiently great to compensate
187
1 88 DISTRIBUTIVE JUSTICE
them for the sacrifice of postponement. Hence they
would have no moral claim to interest on the ground of
abstinence. In general, then, the sacrifice-justification of
interest continues only so long as the interest continues.
It extends only to the interest received by certain cap-
italists in certain circumstances, not to all interest in all
circumstances. Therefore, it presents no moral obstacle
to the complete abolition of interest.
Since probably the greater part of the interest now
received cannot be justified on intrinsic grounds, and since
that part of it which is thus justified could be abolished
consistently with the rights of the recipients, let us see
whether it is capable of justification for reasons of social
welfare. Would its suppression be socially beneficial or
socially detrimental?
The Value of Capital in a No-Interest Regime
The interest that we have in mind is pure interest, not
undertaker's profit, nor insurance against risk, nor gross
interest. Even if all pure interest were abolished the
capitalist who loaned his money would still receive some-
thing from the borrower in addition to the repayment of
the principal, while the active capitalist would get from
the consumer more than the expenses of production. The
former would require a premium of, say, one or two per
cent, to protect him against the loss of his loan. The
latter would demand the same kind of insurance, and an
additional sum to repay him for his labour and enterprise.
None of these payments could be avoided in any system
of privately directed production. The return whose sup-
pression is considered here is that which the capitalist
receives over and above these payments, and which in this
country seems to be about three or four per cent.
Would capital still have value in a no-interest regime,
and if so how would its value be determined? At present
the lower limit of the value of productive capital, as of
SOCIAL AND PRESUMPTIVE JUSTIFICATIONS 189
all Other artificial goods, is fixed in the long run by the
cost of production. Capital instruments that do not bring
this price will not continue to be made. In other words,
cost of production is the governing factor of the value
of capital from the side of supply. It would likewise fix
the lower limit of value in a no-interest regime; only, the
cost of producing capital instruments would then be some-
what lower than to-day, owing to the absence of an interest
charge for the working capital during the productive
process.
But the cost of production is not a constant and accurate
measure of the value of artificial capital. The true
measure is found in the revenue or interest that a given
piece of capital yields to its owners. If the current rate
of interest is five per cent., a factory that brings in ten
thousand dollars net return will have a value of about
two hundred thousand dollars. This is the governing
factor of value from the side of demand. In a no-interest
economy the demand factor would be quite different.
Capital instruments would be in demand, not as revenue
producers, but as the concrete embodiments, the indis-
pensable requisites of saving and accumulation. For it
is impossible that saving should in any considerable
amount take the form of cash hoards. In the words of
Sir Robert Gififen : " The accumulations of a single year,
even taking it at one hundred and fifty millions only, . . .
would absorb more than the entire metallic currency of
the country [Great Britain]. They cannot, therefore, be
made in cash." ^ The instruments of production would
be sought and valued by savers for the same reason that
safes and safety deposit boxes are in demand now. They
would be the only means of carrying savings into the
future, and they would necessarily bring a price sufficiently
high to cover the cost of producing them. One man
might deposit his savings in a bank, whence they would
1 " Growth of Capital," p. 152.
ipO DISTRIBUTIVE JUSTICE
be borrowed without interest by some director of indus-
try. When the owner of the savings desired to recover
them he could obtain from the bank the fund of some
other depositor, or get the proceeds of the sale of the con-
crete capital in which his own savings had been embodied.
Another man might prefer to invest his savings directly
in a building, a machine, or a mercantile business, whence
he could recover them later from the sale of the property.
Hence the absence of interest would not change essen-
tially the processes of saving or investment. Capital
would still have value, but its valuation from the demand
side would rest on a different basis. It would be valued
not in proportion to its power to yield interest, but be-
cause of its capacity to become a receptacle for savings,
and to carry into the future the consuming power of the
present.
The question whether the abolition of interest by the
State would be socially helpful or socially harmful is
mainly, though not entirely, a question of the supply of
capital. If the community would not have sufficient cap-
ital to provide for all its needs, actual and progressive, the
suppression of interest would obviously be a bad policy.
Most economists seem inclined to think that this condi-
tion would be realised; that, without the inducement of
interest, men would neither make new savings nor con-
serve existing capital in sufficient quantity to supply the
wants of society. Very few of them, however, pretend
to be able to prove this proposition. So many complex
factors with regard to the possibilities of saving and the
motives of savers, enter into the situation that no opinion
on the subject can have any stronger basis than prob-
ability. As a preliminary to our consideration of the
question of abolition, let us inquire whether there exists
any definite relation between the present supply of capital
and the current rate of interest.
SOCIAL AND PRESUMPTIVE JUSTIFICATIONS I9I
Whether the Present Rate of Interest Is Necessary
It is sometimes contended that the interest rate must
be kept up to the present level if the existing supply of
capital is to be maintained. The underlying assumption
is that some of the present savers would discontinue that
function at any lower rate, with the consequence that the
supply of capital would fall below the demand. Owing
to this excess of demand over supply, the rate of interest
would rise, or tend to rise, to the former level. There-
fore, the rate existing at any given time is the socially
necessary rate. The rate of interest is said to be anal-
ogous to the rate of wages. For example; of ten thou-
sand men receiving five dollars a day, nine thousand may
be willing to work for four dollars rather than quit their
present jobs. But the other thousand set their minimum
price at five dollars. If the wage is reduced to four dol-
lars these men will get employment elsewhere, thus caus-
ing such an excess of demand over supply as to force the
wage rate back to five dollars. The same thing, it is con-
tended, will happen when the high-priced section of the
savers, " the marginal savers," discontinue saving on
account of the artificial lowering of the rate of interest.
The analogy, however, is misleading. The " marginal "
one thousand wage earners refuse to work for four dollars
a day because they can get better compensation in some
other occupation. This phenomenon has been proved
over and over again by observation and experience. On
the other hand, there is no experience, no positive evi-
dence, which shows or tends to show that any necessary
group of present savers would discontinue or materially
reduce their accumulations if they were no longer able
to secure the present rate of interest. If the rate were
lowered simultaneously in all civiHsed countries the dis-
satisfied savers, unlike the dissatisfied labourers, would not
be able to get a better price for their capital elsewhere.
192 DISTRIBUTIVE JUSTICE
Their only alternative would be to spend their actual or
potential savings for present enjoyment. Now we have
no empirical data to justify the assumption that any con-
siderable number of savers would choose this alternative
in preference to, say, three or two per cent, interest. The
fact that any group of savers at present gets and insists
on getting a higner rate, merely proves that they can get
it, and that they are selfish enough to take advantage of
the possibility. We know that some men who now obtain
six per cent, interest would accept two rather than cease
to save; yet they do not hesitate to demand six per cent.
So far as we know, all present savers might take the same
attitude. At any rate, we can not conclude that they
would not take less from the fact that they now get more.
Why then does not the rate of interest fall? If all present
savers are getting a higher rate than is necessary to induce
them to save, why do they not increase their savings to
such an extent that the supply of capital will exceed the
present volume of demand, and thus lead to a declme in
the rate of interest? This is what happens when the price
of consumption-goods rises appreciably above the mini-
mum level that satisfies the most high-priced or " mar-
ginal " producers. There is, however, an important
difference between the two cases. The capacity to pro-
duce more goods is practically unlimited, and the corre-
sponding desire is also unlimited, so long as the price of
the product exceeds the cost of production. The capacity
to save is not unlimited, and the desire to save is neu-
tralised and sharply restricted by other and more powerful
desires. Hence it is quite possible that the price of
capital, i.e., interest, is determined to only a slight degree
by the " cost " of saving, being mainly dominated and
regulated from the side of demand.
Even though many of the present savers and owners
of capital should diminish or discontinue their functions
on account of a fall in the rate of interest, a reduction
SOCIAL AND PRESUMPTIVE JUSTIFICATIONS 1 93
would not necessarily take place in the supply of capital.
The function of these *' marginal savers " would in all
probability be performed by other persons, who would be
compelled to increase their accumulations in order to pro-
vide as well for the future as they had previously been
able to provide with a smaller capital at a higher rate of
interest.^
Whether at Least Two Per Cent. Is Necessary
While admitting that the present rate is unnecessarily
high, Professor Cassel maintains that a certain important
class of savers would diminish very considerably their
accumulations if the interest rate should fall much below
two per cent. This class comprises those persons whose
main object in saving is a fund which will some day sup-
port them from its interest. At six per cent, a person
can accumulate in about twelve years a sum sufficient to
provide him with an interest-income equal to the amount
annually saved. For example; two thousand dollars put
aside every year, and subjected to compound interest, will
aggregate in twelve years a principal capable of yielding
an annual income of two thousand dollars. At two per
cent, the same amount of yearly saving will not lead to
the same income in less than thirty-live years. If the
rate be one and one-half per cent., forty-seven years will
be required to produce the desired income. Hence, con-
cludes Cassel, if the rate falls below two per cent, the
average man will decide that life is too short to provide
for the future by means of an interest-income, and will
expect to draw upon his principal. This means that he
will not need to save as much as when he sought to ac-
cumulate a capital large enough to support him out of its
interest alone.
The argument is plausible but not conclusive. If the
1 Cf . Conner, " Interest and Saving," p. 7s ; Cassel, " The Nature
and Necessity of Interest," ch. iv.
194 DISTRIBUTIVE JUSTICE
rate of interest is so low that a man must save for forty-
seven years in order to obtain a sufficient interest-income
to support him in his declining years, he will rarely attain
that end. In the great majority of instances men who are
unable to save more annually than the amount that they
will need each year in old age, will expect and be com-
pelled to use up a part or all of their capital in the period
following the cessation of their economic usefulness.
Nevertheless, it does not follow that they will save less
at one and one-half per cent, than at six per cent. The
determining factpr in the situation is the attitude of the
saver toward the capital sum accumulated. He either de-
sires or does not desire to leave this behind him. In the
latter case he will save only as much as is necessary to
provide an annual income composed partly of interest and
partly of the principal. If this contemplated income is
two thousand dollars, and the rate of interest is six per
cent., he will not need to save that* much annually for as
long a period as ten years. He can diminish' either the
yearly amount saved or the length of time devoted to sav-
ing. On the other hand, if the rate is only one and one-
half per cent, he will be compelled to save a larger total
in order to secure an equal accumulation and an equal
provision for the future. In all cases, therefore, in which
the saving is carried on merely for the saver's own life-
time it will be increased instead of decreased by a low
rate of interest.
If the saver does desire to bequeath his capital he will
not always be deterred from this purpose merely because
he is compelled to use some of the capital for the satis-
faction of his own wants. Take the man who can save
two thousand dollars a year, and with the rate of interest
at six per cent, assure himself an interest-income of the
same amount, and who intends to leave the principal
(some thirty-three thousand dollars) to his children.
Should the rate fall to one and one-half per cent, he would
SOCIAL AND PRESUMPTIVE JUSTIFICATIONS I95
be unable to accumulate and bequeath nearly such a large
sum. Surely this fact, discouraging as it is, will not de-
termine him to save nothing. He will not, as Cassel's
argument assumes, decide to leave nothing to his children,
and content himself with that amount of saving which
will suffice to provide for his own future. In all prob-
ability he will try to accumulate a sum which, even when
diminished by future deductions for his own wants, will
approximate as closely as possible the amount that he
could have bequeathed had the rate remained at six per
cent. This means that he will save more at the low than
at the high rate of interest.
The relative insignificance of the sum which would be
saved at a low rate might sometimes, indeed, deter a
person from saving for testamentary purposes. With the
rate at six per cent., a man might be willing to save six
hundred dollars a year for a sufficiently long period to
provide a legacy of twenty thousand dollars to an educa-
tional institution. With the rate at one and one-half per
cent., the amount that he could hope to accumulate would
be so much smaller that it might seem to him not worth
while, and he would decline to save the six hundred dol-
lars annually. Cases of this kind, however, always in-
volve the secondary objects of saving, the luxuries rather
than the necessaries of testamentary transmission. They
do not include such primary objects as provision for one's
family. When the average man finds that he cannot leave
to his family as much as he would desire, as much as he
would have bequeathed to them at a higher rate of interest,
he will strive to increase rather than decrease his efforts
to save for this purpose.
Speaking generally, then, we conclude that the assump-
tion underlying Professor Cassel's theory is contradicted
by our experience of human motives and practices. Men
who save mainly for a future interest-income, at the same
time wishing to keep the principal intact until death, and
196 DISTRIBUTIVE JUSTICE
who could have fully realised this desire under a high
interest regime, will not become entirely indifferent to it
when they find that they cannot attain it completely.
They will ordinarily try to leave behind them as large a
capital or principal as they can. Hence they will save
more rather than less.
Whether Any Interest Is Necessary
Perhaps the best known recent statement of the opinion
that interest is inevitable, appears in Professor Irving
Fisher's ** The Rate of Interest." ^ While he does not
assert explicitly that sufficient capital would not be pro-
vided without interest, and even admits that in certain
circumstances interest might disappear, the general logic
and implications of his argument are decidedly against
the supposition that society could ever get along without
interest. He lays such stress upon the factor of " impa-
tience," i.e., man's unwillingness to wait for future goods,
as to suggest strongly that other causes of interest, and
the number of savers free from " impatience," are quite
insignificant. Now, if " impatience " were the only cause
of interest the latter must continue as long as " impa-
tience" continues; and if practically all savers, actual and
possible, are completely dominated by " impatience " the
abolition of interest would be socially disastrous. How-
ever, neither of these assumptions is demonstrable. We
have just seen that the present rate of interest has other
causes than " impatience " ; that a large proportion of
savers insist upon getting the present rate, not because
they require it to offset their " impatience," but simply
because they can obtain it, and because they prefer it to
the lower rate. Therefore, the mere existence of the
present rate does not prove it to be necessary. By the
same argument it is evident that the existence of any
interest does not demonstrate the necessity of some inter-
1 New York, 1907.
SOCIAL AND PRESUMPTIVE JUSTIFICATIONS I97
est. In the second place, the number of savers, present
and prospective, v^hose " impatience '' is so weak as to
permit them to save without interest, is probably greater
than the average reader of Professor Fisher's pages is led
to assume. The question whether interest is necessary
cannot be answered by reference to the general fact of
human " impatience " ; it demands a preliminary analysis
of the extent to which " impatience " affects the different
classes of savers.
With interest abolished, those persons who were willing
to subordinate present secondary satisfactions to the pri-
mary future needs of themselves and their families, would
save at least as much for these purposes as when they
could have obtained interest. Most of them would prob-
ably save more in order to render their future provision
as nearly as possible equal to what it would have been had
interest accrued on their annual savings. Whether a
person intended to leave all his accumulations, or part of
tiiem, or none of them to posterity, he would still desire
them to be as large as they might have been in a regime
of interest. In order to realise this desire, he would be
compelled to increase his savings. And it is reasonable
to expect that this is precisely the course that would be
followed by men of average thrift and foresight. Such
men regard future necessaries and comforts, whether for
themselves or their children, as more important than pres-
ent non-essentials and luxuries. Interest or no interest,
prudent men will subordinate the latter goods to the
former, and will save money accordingly.
When, however, both future and present goods are of
the same order and importance, the future is no longer
preferred to the present. In that case the preference is
reversed. The luxuries of to-day are more keenly prized
than the luxuries of to-morrow. If the latter are to be
preferred they must possess some advantage over the
luxuries that might be obtained here and now. Such ad-
198 DISTRIBUTIVE JUSTICE
vantage may arise in various ways; for example, when a
man decides that he will have more leisure for a foreign
journey two years hence than this year, or when he prefers
a large amount of future enjoyment at one time to present
satisfactions taken in small doses. But the most general
method of conferring advantage upon the secondary satis-
factions of the future as compared with those of the
present, is to increase the quantity. The majority of fore-
seeing persons are willing to pass by one hundred dollars'
worth of enjoyment now for the sake of one hundred and
five dollars' worth one year hence. This advantage of
quantity is provided through the receipt of interest. It
affects all those persons whose saving, as noted in the last
chapter, involves a sacrifice for which the only adequate
compensation is interest, and likewise all those persons
who are in a position to choose between present and future
luxuries. Were interest suppressed these classes of per-
sons would cease to save for this kind of future goods.
According to Professor Taussig, " most saving is done
by the well-to-do and the rich." ^ On this hypothesis it
seems probable that the abolition of interest would dimin-
ish the savings and capital of the community very con-
siderably; for the accumulations of the wealthy are
derived mainly from interest rather than from salaries.
On the other hand, the suppression of interest should
bring about a much wider diffusion of wealth. The sums
formerly paid out as interest, would be distributed among
the masses of the population as increased wages and re-
duced costs of living. Hence the masses would possess
an immensely increased capacity for saving, which might
offset or even exceed the loss of saving-power among those
who now receive interest-incomes.^
To sum up the results of our inquiry concerning the
necessity of interest: The fact that men now receive
1" Principles of Economics," II, 42.
2 Cf. Hobson, " The Economics of Distribution," pp. 259-265.
SOCIAL AND PRESUMPTIVE JUSTIFICATIONS I99
interest does not prove that they would not save without
interest. The fact that many men would certainly save
without interest does not prove that a sufficient amount
would be saved to provide the community with the neces-
sary supply of capital. Whether the savings of those
classes that increased their accumulations would counter-
act the decreases in the saving of the richer classes, is a
question that admits of no definite or confident answer.
The State Is Justified in Permitting Interest
If we assume that the suppression of interest would
cause a considerable decline in saving and capital, we must
conclude that the community would be worse off than
under the present system. To diminish greatly the in-
struments of production, and consequently the supply of
goods for consumption, would create far more hardship
than it would relieve. While " workless " incomes would
be suppressed, and personal incomes more nearly equalised,
the total amount available for distribution would probably
be so much smaller as to cause a deterioration in the con-
dition of every class. In this hypothesis the State would
do wrong to abolish the system of interest.
If, however, we assume that no considerable amount
of evil would follow, or that the balance of results would
be favourable, the question of the proper action of the
State becomes somewhat complex. In the first place, in-
terest could not rightfully be suppressed while the private
taking of rent remained. To adopt such a course would
be to treat the receivers of property incomes inequitably.
Landowners would continue to receive an income from
their property, while capital owners would not; yet the
moral claims of the former to income are no better than
those of the latter. In the second place, the State would
be obliged to compensate the owners of existing capital
instruments for the decline in value which, as we have
already seen, would occur when the item of interest was
200 DISTRIBUTIVE JUSTICE
eliminated from the cost of reproducing such capital in-
struments. It would likewise be under moral obligation
to compensate landowners for whatever decrease in value
befell their property as a result of the abolition of rent.
Nevertheless, the practical difficulties confronting the
legal abolition of interest are apparently so great as to
render the attempt socially unwise and futile. In order
to be effective the prohibition would have to be interna-
tional. Were it enforced in only one or in a few coun-
tries, these would suffer far more through the flight of
capital than they would gain through the abolition of
interest. The technical obstacles in any case would be
well nigh insuperable. If the attempt were made to sup-
press interest on producing capital, as well as on loans,
the civil authorities would be unable to determine with any
degree of precision what part of the gross returns of a
business was pure interest, and what part was a necessary
compensation for risk and the labour of management.
Should the State try to solve this problem by allowing
the directors of industry varying salaries to correspond
with their comparative degrees of efficiency, and different
rates of insurance-payments to represent the different
risks, it would inevitably make some allowances so low as
to discourage labour and enterprise, and others so high as
to give the recipients a considerable amount of pure in-
terest in the guise of profits and salaries. Should it fix
a flat rate of salaries and profits, the more efficient under-
takers would refuse to put forth their best efforts, and
the more perilous enterprises would not be undertaken.
The supervision of expenses, receipts, and other details
of business that would be required to prevent evasion of
the law, would not improbably cost more than the total
amount now paid in the form of interest. On the other
hand, if the method of suppression were confined to loans
it would probably prove only a little less futile than the
effort to abolish interest on productive capital. The great
SOCIAL AND PRESUMPTIVE JUSTIFICATIONS 201
majority of those who were prevented from lending at
interest would invest their money in stocks, land, build-
ings, and other forms of productive property. Moreover,
it is probable that a large volume of loans would be made
despite the prohibition. In the Middle Ages, when the
amount of money available for lending was comparatively
small, and when State and Church and public opinion were
unanimous in favour of the policy, the legal prohibition
of loans was only partially effective. Now that the sup-
ply of and the demand for loans have enormously in-
creased, and interest is not definitely disapproved by the
Church or the public, a similar effort by the State would
undoubtedly prove a failure. Even if it were entirely
successful it would only decrease, not abolish, interest on
productive capital.^
In view of the manifold and grave uncertainties of the
situation, it is practically certain that modern States are
justified in permitting interest.
Civil Authorisation not Sufficient for Individual
Justification
This justification of the attitude of the State does not
of itself demonstrate that the capitalist has a right to
accept interest. The civil law tolerates many actions
which are morally wrong in the individual; for example,
the payment of starvation wages, the extortion of unjust
prices, and the traffic in immorality. Obviously legal
toleration does not per se nor always exonerate the indi-
vidual offender. How, then, shall we justify the indi-
vidual receiver of interest?
As already pointed out more than once, those persons
who would not save without interest are justified on the
ground of sacrifice. So long as the community desires
1 Cf. Fisher, " Elementary Principles of Economics,"^ pp. 396, 397.
However, he does not discuss in this passage the possibility of sup-
pressing interest on productive capital by a direct method.
202 DISTRIBUTIVE JUSTICE
their savings, and is willing to pay interest on them, the
savers may take interest as the fair equivalent of the in-
convenience that they undergo in performing this social
service. The precise problem before us, then, is the justi-
fication of those savers and capitalists v^ho do not need
the inducement of interest, and whose functions of saving
and conserving capital are sufficiently compensated with-
out interest.
It is a fact that the civil law can sometimes create moral
rights and obligations. For example; the statute requir-
ing a person to repair losses that he has unintentionally
inflicted upon his neighbour is held by the moral theologians
to be binding in conscience, as soon as the matter has been
adjudicated by the court. In other words, this civil reg-
ulation confers on the injured man property rights, and
imposes on the morally inculpable injurer property obli-
gations. The civil statutes also give moral validity to the
title of prescription, or adverse possession. When the
alien possessor has complied with the legal provisions that
apply, he has a moral right to the property, even though
the original owner should assert his claim at a later time.
Some moral theologians maintain that a legal discharge
in bankruptcy liberates the bankrupt from the moral obli-
gation of satisfying his unpaid debts. Several other situ-
ations might be cited in which the State admittedly creates
moral rights of individual ownership which would have
no definite existence in the absence of such legal action
and authorisation.^
This principle would seem to have received a par-
ticularly pertinent application for our inquiry in the doc-
trine of prcBmium legale as a title of interest on loans.
In the " Opus Morale " of Ballerini-Palmieri can be found
a long list of moral theologians living in the seventeenth
and eighteenth centuries who maintained that the mere
legal sanction of a certain rate of interest was a sufficient
iCf. Lehmkuhl, "Theologia Moralis," I, nos. 917, 965, 1035.
SOCIAL AND PRESUMPTIVE JUSTIFICATIONS 203
moral justification for the lender.^ While holding to the
traditional doctrine that interest was not capable of being
justified on intrinsic grounds, these writers contended that
by virtue of its power of eminent domain the State could
transfer from the borrower to the lender the right to the
interest paid on a loan. They did not mean that the State
could arbitrarily take one man's property and hand it over
to another, but only that, when it sanctioned interest for
the public welfare, this extrinsic circumstance (Hke the
other " extrinsic titles " approved by moralists) annulled
the claim of the borrower in favour of the lender. In
other words, they maintained that the money paid in loan-
interest did not belong to either borrower or lender with
certainty or definiteness until the matter was determined
by economic conditions and extrinsic circumstances.
Hence legal authorisation for the common good was
morally sufficient to award it to the lender. More than
one of them declared that the State had the same right
to determine this indeterminate property, to assign the
ownership to the lender, that it had to transfer property
titles by the device of prescription. And their general
position seems to have been confirmed by the response of
the Congregation of the Poenitentiaria, Feb. ii, 1832, to
the Bishop of Verona, the substance of which was that a
confessor might adopt and act upon this position.^
And yet, neither this nor any of the other precedents
cited above, are sufficient to give certain moral sanction
to the practice of interest-taking by those persons who
would continue to save if interest were aboHshed. All
the acts of legal authorisation that we have been consider-
ing relate to practices which are beneficial and necessary
to society. Only in such cases has the State the moral
authority to create or annul property rights. In the
seventeenth and eighteenth centuries the legal authorisa-
1 Vol. 3, pp. 617-629 ; 2d ed.
2 Ballerini-Palmieri, loc. cit. ; cf . Van Roey, op. cit., pp. 73-75.
204 DISTRIBUTIVE JUSTICE
tion of a certain rate of interest made that rate mor ally-
lawful simply because this legal act gave formal and au-
thoritative testimony to the social utility of interest-
taking. The State merely declared the reasonableness,
and fixed the proper limits of the practice. The beneficent
effect of interest-taking upon society v^as its underlying
justification, v^as the ultimate fact which made it reason-
able, and which gave to the action of the State moral value.
Had the taking of interest on loans not been allowed the
bulk of possible savings would either not have been saved at
all, or would have been hoarded instead of converted into
capital. And that money was badly needed in the com-
mercial and industrial operations of the time. Hence the
owners of it were in the position of persons who regarded
saving and investing as a sacrifice for which interest was
a necessary and proper compensation. To-day, however,
there are millions of persons who would continue to per-
form both these functions without the inducement of
interest. Therefore, the public good does not require that
they should receive interest, nor that the State should have
the power to clothe their interest-incomes with moral law-
fulness. Inasmuch as the State is not certain that the
abolition of interest would be socially expedient or prac-
tically possible, it is justified in permitting the institution
to continue ; but it has no power to affect the morality of
interest-taking as an individual action.
How the Interest-Taker Is Justified
Although the interest received by the non-sacrifice savers
is not clearly justifiable on either intrinsic or social
grounds, it is not utterly lacking in moral sanctions. In
the first place, we have not contended that the intrinsic
factors of productivity and service are certainly invalid
morally. We have merely insisted that the moral worth
of these titles has never been satisfactorily demonstrated.
Possibly they have a greater and more definite efficacy
SOCIAL AND PRESUMPTIVE JUSTIFICATIONS 205
than has yet been shown by their advocates. In more
concrete terms, we admit that the productivity of capital
and the service of the capitahst to the community, are pos-
sible and doubtful titles to interest. A doubtful title to
property is, indeed, insufficient by itself. In the case of
the interest receiver, however, the doubtful titles of pro-
ductivity and service are reinforced by the fact of posses-
sion. Thus supplemented, they are sufficient to justify
the non-sacrifice saver in giving himself the benefit of the
doubt as regards the validity of his right to take interest.
To be sure, this indefinite and uncertain claim would be
overthrown by a more definite and positive title. But no
such antagonistic title exists. Neither the consumer nor
the labourer can show any conclusive reason why interest
should go to him rather than to the capitalist. Hence the
latter has at least a presumptive title. In the circum-
stances this is morally sufficient.
To this justification by presumption must be added a
justification by analogy. The non-sacrifice savers seem to
be in about the same position as those other agents of
production whose rewards are out of proportion to their
sacrifices. For example; the labourer of superior native
ability gets as much compensation for the same quality
and quantity of work as his companion who has only ordi-
nary ability ; and the exceptionally intelligent business man
stands in the same relation to his less efficient competitor ;
yet the sacrifices undergone by the former of each pair is
less than that suffered by the latter. It would seem that
if the more efficient men may properly take the same re-
wards as those who make larger sacrifices, the non-sacri-
fice capitalist might lawfully accept the same interest as
the man whose saving involves some sacrifice. On this
principle the lenders who would not have invested their
money in a productive enterprise were nevertheless per-
mitted by the moralists of the post-mediaeval period to
take advantage of the title of lucrum cessans. Although
206 DISTRIBUTIVE JUSTICE
they had relinquished no opportunity of gain, nor made
any sacrifice, they were put on the same moral level as
sacrificing lenders, and were allowed to take the same
interest.
As a determinant of ownership, possession is the fee-
blest of all factors, and yet it is of considerable importance
for a large proportion of incomes and property. In the
distribution of the national product, as well as in the di-
vision of the original heritage of the earth, a large part
is played by the title of first occupancy. Much of the
product of industry is assigned to the agents of production
mainly on the basis of inculpable possession. That is; it
goes to its receivers automatically, in exchange for bene-
fits to those who hand it over, and without excessive
exploitation of their needs. Just as the first arrival on a
piece of land may regard it as a no-man's territory, and
make it his own by the mere device of appropriation, so
the capitalist may get morally valid possession of interest.
Sometimes, indeed, this dei3atable share, this no-man's
share of the product of industry, is secured in some part
by the consumer of the labourer. In such cases their title
to it is just as valid as the title of the capitalist, notwith-
standing the doubtful titles of productivity and service
which the latter has in his favour. First occupancy and
possession are the more decisive factors. In the great ma-
jority of instances, however, the capitalist is the first
occupant, and therefore the lawful possessor of the
interest-share.
The general justification of interest set forth in the
immediately preceding paragraphs is supplemented in the
case of the great majority of capital owners by the fact
that their income from this source is relatively insig-
nificant. The average income of the farmers of the
United States is only 724 dollars per year, and of this
322 dollars is interest on the capital invested in the farm.^
'iCf. American Economic Review, March, 1916; p. 46.
SOCIAL AND PRESUMPTIVE JUSTIFICATIONS 20J
Even when we make due allowance for the high purchas-
ing power of farm incomes, due to the lower cost of
foodstuffs and house rent, the total amount of 724 dollars
provides only a very moderate living. Consequently the
great majority of farmers can regard the interest that they
receive as a necessary part of the remuneration that is
fairly due them on account of their labour, sacrifices, and
risks. So far as they are concerned, the justification of
interest, as interest, is not a practical question. The same
observation applies to the majority of urban business men,
such as small merchants and manufacturers. Their inter-
est can be justified as not more than fair wages and
profits.
Again, there is a large number of interest receivers
who are entirely dependent upon this kind of income, and
who obtain therefrom only a moderate livelihood. They
are mainly children, aged persons, and invalids. Unlike
the classes just described, they cannot justify their interest
as a fair supplement to wages ; however, they may reason-
ably claim it as their equitable or charitable share of the
common heritage of the earth. If they did not receive
this interest-income they would have to be supported by
their relatives or by the State. For many reasons this
would be a much less desirable arrangement. Conse-
quently their general claim to interest is supplemented by
considerations of human welfare.
The difference between the ethical character of the
interest discussed in the last two paragraphs and of that
received by persons who possess large incomes, is too
often overlooked in technical treatises. Every man own-
ing any productive goods is reckoned as a capitalist, and
assumed to receive interest. If, however, a man's total
interest-income is so small that when combined with all his
other revenues it merely completes the equivalent of a
decent living, it is surely of very little significance as
interest. It stands in no such need of justification as the
208 DISTRIBUTIVE JUSTICE
interest obtained by men whose incomes amount to, say,
ten thousand dollars a year and upwards.
Still another confirmatory title of interest is suggested
by the following well known declaration of St. Thomas
Aquinas : " The possession of riches is not in itself unlaw-
ful if the order of reason be observed : that a man should
possess justly what he owns, and use it in a proper manner
for himself and others." ^ Neither just acquisition nor
proper use is alone sufficient to render private posses-
sions morally good. Both must be present. As we have
seen above, the capitalist can appeal to certain presumptive
and analogous titles which justify practically his acquisi-
tion of interest; but there can be no doubt that his claim
and his moral power of disposal are considerably
strengthened when he puts his interest-income to a proper
use. One way of so using it is for a reasonable
livelihood, as exemplified in the case of the farmers,
business men, and non-workers whom we considered
above. Those persons who receive incomes in excess
of their reasonable needs could devote the surplus to
religion, charity, education, and a great variety of al-
truistic purposes. We shall deal with this matter spe-
cifically in the chapter on the " Duty of Distributing
Superfluous Wealth." In the meantime it is sufficient to
note that the rich man who makes a benevolent use of his
interest-income has a special reason for believing that his
receipt of interest is justified.
The decisive value attributed to presumption, analogy,
possession, and doubtful titles in our vindication of the
capitalist's claim to interest, is no doubt disappointing to
those persons who desire clear-cut mathematical rules and
principles. Nevertheless, they are the only factors that
seem to be available. While the title that they confer upon
the interest receiver is not as definite nor as noble as that
by which the labourer claims his wages or the business man
1 " Contra Gentiles," lib. 3, c. 123.
SOCIAL AND PRESUMPTIVE JUSTIFICATIONS 20g
his profits, it is morally sufficient. It will remain logically
and ethically unshaken until more cogent arguments have
been brought against it than have yet appeared in the
denunciations of the income of the capitalist. And what
is true of him is likewise true of the rent receiver, and
of the person who profits by the " unearned increment "
of land values. In all three cases the presumptive justi-
fication of " workless " incomes will probably remain
valid as long as the present industrial system endures.
CHAPTER XIV
CO-OPERATION AS A PARTIAL SOLVENT OF CAPITALISM
Interest is not a return for labour. The majority of
interest receivers are, indeed, regularly engaged at some
active task, whether as day labourers, salaried employes,
directors of industry, or members of the professions; but
for these services they obtain specific and distinct com-
pensation. The interest that they get comes to them
solely in their capacity as owners of capital, independently
of any personal activity. From the viewpoint of eco-
nomic distribution, interest is a " workless '' income.
As such, it seems to challenge that ethical intuition which
connects reward with effort and which inclines to regard
income from any other source as not quite normal.
Moreover, interest absorbs a large part of the national
income, and perpetuates grave economic inequalities.^
1 Professor Scott Nearing estimates the annual Income derived from
the ownership of property in the United States ; that is, land and all
forms of capital, at from six to nine billion dollars. Professor W. I.
King gives the combined shares of the national income received by the
landowners and the capitalists at more than six and three-quarter
billions in 1910. According to the Census Bulletin on the " Estimated
Valuation of National Wealth," the capital goods of the country were
in 1912 approximately $175,000,000,000.00. At four per cent, this would
mean an annual income of seven billion dollars. The lowest of the
three estimates, six billion dollars, is equivalent to more than sixty
dollars a year for every man, woman, and child in the United States.
If that sum were equally distributed among the whole population, it
would mean an increase of between forty and sixty per cent, in the
income of the majority of workingmen's families! Nor do present
tendencies hold out any hope of an automatic reduction of the interest-
burden in the future. In the opinion of Professor Scott Nearing,
" the present economic tendencies will greatly increase the amount of
property income paid with each passing decade." "Income," p. 199;
210
CO-OPERATION AS A PARTIAL SOLVENT 211
Nevertheless, interest cannot be wholly abolished. As
long as capital remains in private hands, its owners will
demand and obtain interest. The only way of escape is
by the road of Socialism, and this would prove a blind
alley. As we have seen in a preceding chapter, Socialism
is ethically and economically impossible.
May not the burdens and disadvantages of interest be
mitigated or minimised? Such a result could conceivably
be reached in two ways : the sum total of interest might
be reduced, and the incomes derived from interest might be
more widely distributed.
Reducing the Rate of Interest
No considerable diminution of the interest-volume can
be expected through a decline in the interest rate. As far
back as the middle of the eighteenth century, England and
Holland were able to borrow money at three per cent.
During the period that has since intervened, the rate has
varied from three to six per cent, on this class of loans.
Between 1870 and 1890, the general rate of interest de-
clined about two per cent., but it has risen since the latter
date about one per cent. The Great War now (19 16) in
action is destroying an enormous amount of capital, and
it will, as in the case of all previous military conflicts of
importance, undoubtedly be followed by a marked rise in
the rate of interest.
On the other hand, the only definite grounds upon
which a decline in the rate can be hoped for are either
uncertain or unimportant. They are the rapid increase of
capital, and the extension of government ownership and
operation of natural monopolies.
New York, 1915. See especially ch. vii. According to Professor
Taussig, " the absolute amount of income going to this [the capitalist]
class tends to increase, and its share of the total income tends also to
increase ; whereas for the labourers, though their total income may in-
crease, their share of income of society as a whole tends to decline."
" Principles of Economics," II, 205.
212 DISTRIBUTIVE JUSTICE
The first is uncertain in its effects upon the rate of in-
terest because the increased supply of capital is often
neutralised by the process of substitution. That is, a large
part of the new capital does not compete with and bring
down the price of the old capital. Instead, it is absorbed
in new inventions, new types of machinery, and new
processes of production, all of which take the place of
labour, thus tending to increase rather than diminish the
demand for capital and the rate of interest. To be sure,
the demand for capital thus arising has not always been
sufficient to offset the enlarged supply. Since the Indus-
trial Revolution capital has at certain periods and in cer-
tain regions increased so rapidly that it could not all find
employment in new forms and in old forms at the old
rate. In some instances a decline in the rate of interest
can be clearly traced to the disproportionately quick
growth of capital. But this phenomenon has been far
from uniform, and there is no indication that it will be-
come so in the future. The possibilities of the process of
substitution have been by no means exhausted.
The effects of government ownership are even more
problematical. States and cities are, indeed, able to obtain
capital more cheaply than private corporations for such
public utilities as railways, telegraphs, tramways, and
street lighting; and public ownership of all such concerns
will probably become general in the not remote future.
Nevertheless the social gain is not likely to be propor-
tionate to the reduction of interest on this section of
capital. A part, possibly a considerable part, of the sav-
ing in interest will be neutralised by the lower efficiency
and greater cost of operation; for in this respect publicly
managed are inferior to privately managed enterprises.
Consequently, the charges to the public for the services
rendered by these utilities cannot be reduced to the same
degree as the rate of interest on the capital. On the other
hand, the exclusion of private operating capital from this
CO-OPERATION AS A PARTIAL SOLVENT 213
very large field of public utilities should increase competi-
tion among the various units of capital, and thus bring
down its rewards. To what extent this would happen
cannot be estimated even approximately. The only safe
statement is that the decline in the general rate of interest
would probably be slight.
Need for a Wider Distribution of Capital
The main hope of lightening the social burden of in-
terest lies in the possible reduction in the necessary volume
of capital, and especially in a wider distribution of interest-
incomes. In many parts of the industrial field there is a
considerable waste of capital through unnecessary duplica-
tion. This means that a large amount of unnecessary
interest is paid by the consumer in the form of unneces-
sarily high prices. Again, the owners of capital and re-
ceivers of interest constitute only a minority of the popu-
lation of all countries, with the possible exception of the
United States. The great majority of the wage earners
in all lands possess no capital, and obtain no interest. Not
only are their incomes small, often pitiably small, but their
lack of capital deprives them of the security, confidence,
and independence which are required for comfortable
existence and efficient citizenship. They have no income
from productive property to protect them against the ces-
sation of wages. During periods of unemployment they
are frequently compelled to have recourse to charity, and
to forego many of the necessary comforts of life. So long
as the bulk of the means of production remains in the hands
of a distinct capitalist class, this demoralising insecurity
of the workers must continue as an essential part of our
industrial system. While it might conceivably be elim-
inated through a comprehensive scheme of State insur-
ance, this arrangement would substitute dependence upon
the State for dependence upon the capitalist, and be much
less desirable than ownership of income-bearing property.
214 DISTRIBUTIVE JUSTICE
The workers who possess no capital do not enjoy a
normal and reasonable degree of independence, self
respect, or self confidence. They have not sufficient con-
trol over the wage contract and the other conditions of
employment, and they have nothing at all to say concerning
the goods that they shall produce, or the persons to whom
their product shall be sold. They lack the incentive to
put forth their best efforts in production. They cannot
satisfy adequately the instinct of property, the desire to
control some of the determining forms of material pos-
session. They are deprived of that consciousness of
power which is generated exclusively by property, and
which contributes so powerfully toward the making of a
contended and efficient life. They do not possess a normal
amount of freedom in politics, nor in those civic and social
relations which lie outside the spheres of industry and
politics. In a word, the worker without capital has not
sufficient power over the ordering of his own life.
The Essence of Co-operative Enterprise
The most effective means of lessening the volume of
interest, and bringing about a wider distribution of capital,
is to be found in co-operative enterprise. Co-operation in
general denotes the unified action of a group of persons
for a common end. A church, a debating club, a joint
stock company, exemplifies co-operation in this sense. In
the strict and technical sense, it has received various
definitions. Professor Taussig declares that it " consists
essentially in getting rid of the managing employer " ; but
this description is applicable only to co-operatives of pro-
duction. " A combination of individuals to economise
by buying in common, or increase their profits by selling
in common" (Encyclopedia Britannica) is likewise too
narrow, since it fits only distributive and agricultural co-
operation. According to C. R. Fay, a co-operative society
is " an association for the purpose of joint trading, orig-
CO-OPERATION AS A PARTIAL SOLVENT 21$
inating among the weak, and conducted always in an un-
selfish spirit." If the word, " trading " be stretched to
comprehend manufacturing as well as commercial activi-
ties, Fay's definition is fairly satisfactory. The distin-
guishing circumstance, " originating among the weak," is
also emphasised by Father Pesch in his statement that the
essence, aim, and meaning of co-operation are to be found
in " a combination of the economically weak in common
efforts for the security and betterment of their condi-
tion." ^ In order to give the proper connotation for our
purpose, we shall define co-operation as, that joint eco-
nomic action which seeks to obtain for a relatively weak
group all or part of the profits and interest which in the
ordinary capitalist enterprise are taken by a smaller and
different group. This formula puts in the foreground the
important fact that in every form of co-operative effort,
some interest or profits, or both, are diverted from those
who would have received them under purely capitalistic
arrangements, and distributed among a larger number of
persons. Thus it indicates the bearing of co-operation
upon the problem of lightening the social burden of
interest.
From the viewpoint of economic function, co-operation
may be divided into two general kinds, producers' and
consumers'. The best example of the former is a wage
earners' productive society; of the latter, a co-operative
store. Credit co-operatives and agricultural co-operatives
fall mainly under the former head, inasmuch as their prin-
cipal object is to assist production, and to benefit men as
producers rather than as consumers. Hence from the
viewpoint of type, co-operation may be classified as credit,
agricultural, distributive, and productive.
1 " Lehrbuch der Nationaloekonomie," III, 517.
2l6 DISTRIBUTIVE JUSTICE
Co-operative Credit Societies
A co-operative credit society is a bank controlled by the
persons who patronise it, and lending on personal rather
than material security. Such banks are intended almost
exclusively for the relatively helpless borrower, as, the
small farmer, artisan, shopkeeper, and the small man gen-
erally. Fundamentally they are associations of neigh-
bours who combine their resources and their credit in
order to obtain loans on better terms than are accorded by
the ordinary commercial banks. The capital is derived
partly from the sale of shares of stock, partly from de-
posits, and partly from borrowed money. In Germany,
where credit associations have been more widely extended
and more highly developed than in any other country, they
are of two kinds, named after their respective founders,
Schulze-Delitzsch and Raiffeisen. The former operates
chiefly in the cities, serves the middle classes rather
than the very poor, requires all its members to subscribe
for capital stock, commits them to a long course of saving,
and thus develops their interest as lenders. The Raiffeisen
societies have, as a rule, very little share capital, exist
chiefly in the country districts, especially among the poorest
of the peasantry, are based mostly on personal credit, and
do not profess to encourage greatly the saving and lending
activities of their members. Both forms of association
loan money to their members at lower rates of interest
than these persons could obtain elsewhere. Hence credit
co-operation directly reduces the burden of interest.
The Schulze-Delitzsch societies have more than half a
million members in the cities and towns of Germany, sixty
per cent, of whom take advantage of the borrowing facili-
ties. The Raiffeisen banks comprise about one-half of all
the independent German agriculturists. Some form of
co-operative banking is well established in every important
country of Europe, except Denmark and Great Britain.
CO-OPERATION AS A PARTIAL SOLVENT 217
In the former country its place seems to be satisfactorily
filled by the ordinary commercial banks. Its absence from
Great Britain is apparently due to the credit system pro-
vided by the large landholders, to the scarcity of peasant
proprietors, and to general lack of initiative. It is espe-
cially strong in Italy, Belgium, and Austria, and it has
made a promising beginning in Ireland. In every country
in which it has obtained a foothold, it gives indication of
steady and continuous progress. Nevertheless it is sub-
ject to definite limits. It can never make much headway
among that class of persons whose material resources are
sufficiently large and palpable to command loans on the
usual terms offered by the commercial banks. As a rule,
these terms are quite as favourable as those available
through the co-operative credit associations. It is only
because the poorer men cannot obtain loans from the com-
mercial banks on the prevailing conditions that they are
impelled to have recourse to the co-operative associations.
Co-operative Agricultural Societies
The chief operations of agricultural co-operative socie-
ties are manufacturing, marketing, and purchasing. In
the first named field the most important example is the
co-operative dairy. The owners of cows hold the stock
or shares of the concern, and in addition to dividends re-
ceive profits in proportion to the amount of milk that they
supply. In Ireland and some other countries, a portion of
the profits goes to the employes of the dairy as a dividend
on wages. Other productive co-operatives of agriculture
are found in cheese making, bacon curing, distilling, and
wine making. All are conducted on the same general
principles as the co-operative dairy.
Through the marketing societies and purchasing
societies, the farmers are enabled to sell their products to
better advantage, and to obtain materials needed for carry-
ing on agricultural operations more cheaply than would be
2l8 DISTRIBUTIVE JUSTICE
possible by isolated individual action. Some of the prod-
ucts marketed by the selling societies are eggs, milk,
poultry, fruit, vegetables, live stock, and various kinds of
grain. The purchasing societies supply for the most part
manures, seeds, and machinery. Occasionally they buy
the most costly machinery in such a way that the associa-
tion becomes the corporate owner of the implements. In
these cases the individual members have only the use of
the machines, but they would be unable to enjoy even that
advantage were it not for the intervention of the co-opera-
tive society. Where such arrangements exist, the society
exemplifies not only co-operative buying but co-operative
ownership.
Agricultural co-operation has become most widely ex-
tended in Denmark, and has displayed its most striking
possibilities in Ireland. Relatively to its population, the
former country has more farmers in co-operative societies,
and has derived more profit therefrom, than any other
nation. The rapid growth and achievements of agricul-
tural co-operation in the peculiarly unfavourable circum-
stances of Ireland constitute the most convincing proof
to be found anywhere of the essential soundness and
efficacy of the movement. Various forms of rural co-
operative societies are solidly established in Germany,
France, Belgium, Italy, and Switzerland. In recent years
the movement has made some progress in the United
States, especially in relation to dairies, grain elevators, the
marketing of live stock and fruit, and various forms of
rural insurance. The co-operative insurance companies
effect a saving to the Minnesota farmers of $700,000
annually, and the co-operative elevators handle about 30
per cent, of the grain marketed in that state. In 191 5 the
business transacted by the co-operative marketing and
purchasing organisations of the farmers of the United
States amounted to $1,400,000,000.
The transformation in the rural life of more than one
CO-OPERATION AS A PARTIAL SOLVENT 2I9
European community through co-operation has amounted
to httle less than a revolution. Higher standards of agri-
cultural products and production have been set up and
maintained, better methods of farming have been incul-
cated and enforced, and the whole social, moral, and civic
life of the people has been raised to a higher level. From
the view^point of material gain, the chief benefits of agri-
cultural co-operation have been the elimination of un-
necessary middlemen, and the economies of buying in large
quantities, selling in the best markets, and employing the
most efficient implements. As compared v^ith farming
conducted on a large scale, the small farm possesses cer-
tain advantages, and is subject to certain disadvantages.
It is less wasteful, permits greater attention to details, and
makes a greater appeal to the self interest of the cultivator;
but the small farmer cannot afford to buy the best
machinery, nor is he in a position to carry on to the best
advantage the commercial features of his occupation, such
as borrowing, buying, and marketing. Co-operation frees
him from all these handicaps. " The co-operative com-
munity ... is one in which groups of humble men com-
bine their efforts, and to some extent their resources, in
order to secure for themselves those advantages in in-
dustry which the masters of capital derive from the
organisation of labour, from the use of costly machinery,
and from the economies of business when done on a large
scale. They apply in their industry the methods by which
the fortunes of the magnates in commerce and manufac-
ture are made." These words, uttered by a prominent
member of the Irish co-operative movement, summarise
the aims and achievements of agricultural co-operation in
every country of Europe in which it has obtained a strong
foothold. In every such community the small farm has
gained at the expense of the large farm system. Finally,
agricultural co-operation reduces the burden of interest by
eliminating some unnecessary capital, stimulates saving
220 DISTRIBUTIVE JUSTICE
among the tillers of the soil by providing a ready and safe
means of investment, and in manifold ways contributes
materially toward a better distribution of wealth.
Co-operative Mercantile Societies
Co-operative stores are organised by and for consumers.
In every country they follow rather closely the Rochdale
system, so called from the English town in which the fxrst
store of this kind was established in 1844. The members
of the co-operative society furnish the capital, and receive
thereon interest at the prevailing rate, usually five per cent.
The stores sell goods at about the same prices as their
privately owned competitors, but return a dividend on the
purchases of all those customers who are members of the
society. The dividends are provided from the surplus
which remains after wages, interest on the capital stock,
and all other expenses have been paid. In some co-opera-
tive stores non-members receive a dividend on their pur-
chases at half the rate accorded to members of the society,
but only on condition that these payments shall be invested
in the capital stock of the enterprise. And the members
themselves are strongly urged to make this disposition of
their purchase-dividends. Since the latter are paid only
quarterly, the co-operative store exercises a considerable
influence toward inducing its patrons to save and to become
small capitalists.
In Great Britain the vast majority of the retail stores
have been federated into two great wholesale societies, one
in England and the other in Scotland. The retail stores
provide the capital, and participate in the profits according
to the amounts purchased, just as the individual consumers
furnish the capital and share the profits of the retail estab-
lishments. The Scottish Wholesale Society divides a part
of the profits among its employes. Besides their opera-
tions as jobbers, the wholesale societies are bankers for
the retail stores, and own and operate factories, farms.
CO-OPERATION AS A PARTIAL SOLVENT 221
warehouses, and steamships. Many of the retail co-opera-
tives likewise carry on productive enterprises, such as
milling, tailoring, bread making, and the manufacture of
boots, shoes, and other commodities, and some of them
build, sell, and rent cottages, and lend money to members
who desire to obtain homes.
The co-operative store movement has made greatest
progress in its original home, Great Britain. In 19 13
about one person in every three was to some degree inter-
ested in or a beneficiary of these institutions. The profits
of the stores amounted to about $71,302,070, which was
about 35 per cent, on the capital. The employes num-
bered about 145,000, and the sales for the year aggregated
$650,000,000. The English Wholesale Society was the
largest flour miller and shoe manufacturer in Great Brit-
ain, and its total business amounted to $150,000,000.
Outside of Great Britain, co-operative distribution has
been most successful in Germany, Belgium, and Switzer-
land. It has had a fair measure of development .in Italy,
but has failed to assume any importance in France.
" There is every sign that within the near future — except
in France — the stores will come to include the great
majority of the wage earning class, which is a constantly
growing percentage of the total population.'* ^ Within
recent years a respectable number of stores have been
established on a sound basis in Canada and the United
States. Owing, however, to the marked individualism
and the better economic conditions of these two countries,
the co-operative movement will continue for some time to
be relatively slow.
As in the case of agricultural co-operation, the money
benefits accruing to the members of the co-operative stores
consist mainly of profits rather than interest. In the
absence of the store societies, these profits would have
gone for the most part to middlemen as payments for the
1 Fay, " Co-operation at Home and Abroad," p. 340.
222 DISTRIBUTIVE JUSTICE
risks and labour of conducting privately owned establish-
ments. Forty-seven of the sixty million dollars profits of
the British co-operative stores in 1910 were divided among
more than two and one-half million members of these in-
stitutions, instead of going to a comparatively small num-
ber of private merchants. The other thirteen million
dollars were interest on the capital stock. Had the mem-
bers invested an equal amount in other enterprises they
could, indeed, have obtained about the same rate and
amount of interest, but in the absence of the co-operative
stores their inducements and opportunities to save would
have been much smaller. For it must be kept in mind that
a very large part of the capital stock in the co-operative
stores is derived from the members' dividends on their
purchases at such stores, and would not have come into
existence at all without these establishments. The gains
of the co-operative stores, whether classified as profits or
as interest, are evidently a not inconsiderable indication of
a better distribution of wealth.
Co-operation in Production
Co-operative production has occasionally been pro-
nounced a failure. This judgment is too sweeping and
too severe. " As a matter of fact," says a prominent
London weekly, " the co-operators' success has been even
more remarkable in production than in distribution. The
co-operative movement runs five of the largest of our flour
mills; it has, amongst others, the very largest of our boot
factories ; it makes cotton cloth and woollens, and all sorts
of clothing; it has even a corset factory of its own; it
turns out huge quantities of soap; it makes every article
of household furniture; it produces cocoa and confec-
tionery; it grows its own fruit and makes its own jams;
it has one of the largest tobacco factories, and so on."
Obviously this passage refers to that kind of productive
co-operation which is carried on by the stores, not to pro-
CO-OPERATION AS A PARTIAL SOLVENT 223
ductive concerns owned and managed by the workers
therein employed. Nevertheless the enterprises in ques-
tion are co-operatively managed, and hence exemplify co-
operation rather than private and competitive industry.
They ought not to be left out of any statement of the field
occupied by co-operative production. The limitations and
possibilities of co-operation in production can best be set
forth by considering its three different forms separately.
The " perfect " form occurs when all the workers en-
gaged in a concern own all the share capital, control the
entire management, and receive the whole of the wages,
profits, and interest. In this field the failures have been
much more numerous and conspicuous than the successes.
Godin's stove works at Guise, France, is the only important
enterprise of this kind that is now in existence. Great
Britain has several establishments in which the workers
own a large part of the capital, but apparently none in
which they are the sole proprietors and managers. The
" labour societies " of Italy, consisting mostly of diggers,
masons, and bricklayers, co-operatively enter into contracts
for the performance of public works, and share in the
profits of the undertaking in addition to their wages; but
the only capital that they provide consists of comparatively
simple and inexpensive tools. The raw material and other
capital is furnished by the public authority which gives the
contract.
A second kind of productive co-operation is found in
the arrangement known as co-partnership. This is " the
system under which, in the first place, a substantial and
known share of the profit of a business belongs to the
workers in it, not by right of any shares they may hold,
or any other title, but simply by right of the labour they
have contributed to make the profit; and, in the second
place, every worker is at liberty to invest his profit, or any
other savings, in shares of the society or company, and so
become a member entitled to vote on the affairs of the
224 DISTRIBUTIVE JUSTICE
body which employs him/' ^ So far as its first, or profit
sharing, feature is concerned* co-partnership is not genuine
co-operation, for it includes neither ownership of capital
nor management of the business. Co-operative action
begins only with the adoption of the second element. In
most of the existing co-partnership concerns, all the em-
ployes are urged, and many of them required to invest at
least a part of their profits in the capital stock. The most
notable and successful of these experiments is that carried
on by the South Metropolitan Gas Company of London.
Practically all the company's 6,000 employes are now
among its stockholders. Although their combined hold-
ings are only about one-twenty-eighth of the total, they
are empowered to select two of the ten members of the
board of directors. Essentially the same copartnership
arrangements have been adopted by about one-half the
privately owned gas companies of Great Britain. In none
of them, however, have the workers obtained as yet such
a large percentage of either ownership or control as in the
South Metropolitan. Co-partnership exists in several
other enterprises in Great Britain, and is found in a con-
siderable number of French concerns. There are a few
instances in the United States, the most thoroughgoing
being that of N. O. Nelson & Co. at Le Claire, 111.
As already noted, the co-operative stores exemplify a
third type of co-operative production. In some cases the
productive concern is under the management of a local
retail establishment, but the great majority of them are
conducted by the English and Scottish Wholesale Societies.
As regards the employes of these enterprises, the arrange-
ment is not true co-operation, since they have no part in
the ownership of the capital. The Scottish Wholesale
Society, as we have seen, permits the employes of its pro-
ductive works to share in the profits thereof; nevertheless
it does not admit them as stockholders, nor give them any
1 Schloss, " Methods of Industrial Remuneration," pp. 353, 354.
CO-OPERATION AS A PARTIAL SOLVENT 225
voice in the management. In all cases the workers may,
indeed, become owners of stock in their local retail stores.
Since the latter are stockholders in the wholesale societies,
which in turn own the productive enterprises, the workers
have a certain indirect and attenuated proprietorship in
the productive concerns. But they derive therefrom no
dividends. All the interest and most of the profits of the
productive establishments are taken by the wholesale and
retail stores. For it is the theory of the wholesale societies
that the employes in the works of production should share
in the gains thereof only as consumers. They are to profit
only in the same way and to the same extent as other con-
sumer-members of the local retail establishments.
The most effective and beneficial form of co-operative
production is evidently that which has been described as
the " perfect " type. Were all production organised on
this plan, the social burden of interest would be insig-
nificant, industrial despotism would be ended, and indus-
trial democracy realised. As things are, however, the
establishments exemplifying this type are of small im-
portance. Their increase and expansion are impeded by
lack of directive ability and of capital, and the risk to the
workers' savings. Yet none of these obstacles is neces-
sarily insuperable. Directive ability can be developed in
the course of time, just as it was in the co-operative stores.
Capital can be obtained fast enough perhaps to keep pace
with the supply of directive ability and the spirit of co-
operation. The risk undertaken by workers who put their
savings into productive concerns owned and managed by
themselves need not be greater than that now borne by
investors in private enterprises of the same kind. There
is no essential reason why the former should not provide
the same profits and insurance against business risks as
the latter. While the employes assume none of the risks
of capitalistic industry, neither do they receive any of the
profits. If the co-operative factory exhibits the same de-
226 DISTRIBUTIVE JUSTICE
gree of business efficiency as the private enterprise it will
necessarily afford the workers adequate protection for
their savings and capital. Indeed, if " perfect " co-opera-
tive production is to be successful at all its profits will be
larger than those of the capitalistic concern, owing to the
greater interest taken by the workers in their tasks, and in
the management of the business.
For a long time to come, however, it is probable that
" perfect " co-operative production will be confined to
relatively small and local industries. The difficulty of
finding sufficient workers' capital and ability to carry on,
for example, a transcontinental railroad or a nationwide
steel business, is not likely to be overcome for one or two
generations.^
The labour co-partnership form of co-operation is sus-
ceptible of much wider and more rapid extension. It can
be adapted readily to the very large as well as to the small
and medium sized concerns. Since it requires the workers
to own but a part of the capital, it can be established in any
enterprise in w^hich the capitalists show themselves will-
ing and sympathetic. In every industrial corporation
there are some employes who possess savings, and these
can be considerably increased through the profit sharing
feature of copartnership. A very long time must, indeed,
elapse before the workers in any of the larger enterprises
could get possession of all, or even of a controlling share
of the capital, and a considerable time would be needed
to educate and fit them for successful management.
Production under the direction of the co-operative stores
can be extended faster than either of the other two forms,
and it has before it a very wide even though definitely
limited field. The British wholesale societies have already
shown themselves able to conduct with great success large
manufacturing concerns, have trained and attracted an
1 Cf ,, however, Mr. A. R. Orage's work, " National Guilds," London,
1914.
CO-OPERATION AS A PARTIAL SOLVENT 227
adequate number of competent leaders, and have accumu-
lated so much capital that they have been obliged to invest
several million pounds in other enterprises. The possible
scope of the stores and their co-operative production has
been well described by C. R. Fay : '' distribution of goods
for personal consumption, first, among the working class
population, secondly, among the salaried classes who feel
a homogeneity of professional interest; production by
working class organisations alone (with rare exceptions in
Italy) of all the goods which they distribute to their mem-
bers. But this is its limit. Distribution among the re-
maining sections of the industrial population; production
for distribution to these members; production of the in-
struments of production, and production for international
trade; the services of transport and exchange: all these
industrial departments are, so far as can be seen, perma-
nently outside the domain of a store movement," ^
The theory by which the stores attempt to justify the
exclusion of the employes of their productive concerns
from a share of the profits thereof is that all profits come
ultimately from the pockets of the consumer, and should
all return to that source. The defect in this theory is that
it ignores the question whether the consumers ought not
to be required to pay a sufficiently high price for their
goods to provide the producers with profits in addition to
wages. While the wholesale stores are the owners and
managers of the capital in the productive enterprises, and
on the capitalistic principle should obtain the profits, the
question remains whether this is necessarily a sound prin-
ciple, and whether it is in harmony with the theory and
ideals of co-operation. In those concerns which have
adopted the labour copartnership scheme, the workers,
even when they own none of the capital, are accorded a
part of the profits. It is assumed that this is a fairer and
wiser method of distribution than that which gives the
1 Op. cit, p. 341.
228 DISTRIBUTIVE JUSTICE
labourer only wages, leaving all the profits to the manager-
capitalist. This feature of co-partnership rests on the
^theory that the workers can, if they will, increase their
efficiency and reduce the friction between themselves and
their employer to such an extent as to make the profit shar-
ing arrangement a good thing for both parties. Conse-
quently the profits obtained by the workers are a payment
for this specific contribution to the prosperity of the busi-
ness. Why should not this theory find recognition in
productive enterprises conducted by the co-operative
stores ?
In the second place, the workers in these concerns ought
to be permitted to participate in the capital ownership and
management. They would thus be strongly encouraged to
become better workers, to save more money, and to in-
crease their capacity for initiative and self government.
Moreover, this arrangement would go farther than any
other system toward reconciling the interests of producer
and consumer. As producer, the worker would obtain,
besides his wages, interest and profits up to the limit set
by the competition of private productive concerns. As
consumer, he would share in the profits and interest which
would otherwise have gone to the private distributive enter-
prises. In this way the producer and consumer would
each get the gains that were due specifically and respec-
tively to his activity and efficiency.
Advantages and Prospects of Co-operation
At this point it will perhaps be well to sum up the ad-
vantages and to estimate the prospects of the co-operative
movement. In all its forms co-operation eliminates some
waste of capital and energy, and therefore transfers some
interest and profits from a special capitalist and under-
taking class to a larger and economically weaker group of
persons. For it must be borne in mind that all co-opera-
tive enterprises are conducted mainly by and for labourers
CO-OPERATION AS A PARTIAL SOLVENT 229
or small farmers. Hence the system always makes
directly for a better distribution of wealth. To a con-
siderable extent it transfers capital ownership from those
who do not themselves work with or upon capital to those
who are so engaged; namely, the labourers and the
farmers; thus it diminishes the unhealthy separation now
existing between the owners and the users of the instru-
ments of production. Co-operation has, in the second
place, a very great educational value. It enables and in-
duces the weaker members of economic society to combine
and utilise energies and resources that would otherwise
remain unused and undeveloped ; and it greatly stimulates
and fosters initiative, self confidence, self restraint, self
government, and the capacity for democracy. In other
words, it vastly increases the development and efficiency of
the individual. It likewise induces him to practise thrift,
and frequently provides better fields for investment than
would be open to him outside the co-operative movement.
It diminishes selfishness and inculcates altruism; for no
co-operative enterprise can succeed in which the individual
members are not willing to make greater sacrifices for the
common good than are ordinarily evoked by private enter-
prise. Precisely because co-operation makes such heavy
demands upon the capacity for altruism, its progress
always has been and must always continue to be relatively
slow. Its fundamental and perhaps chief merit is that it
does provide the mechanism and the atmosphere for a
greater development of the altruistic spirit than is possible
under any other economic system that has ever been tried
or devised.
By putting productive property into the hands of those
who now possess little or nothing, co-operation promotes
social stability and social progress. This statement is true
in some degree of all forms of co-operation, but it applies
with particular force to those forms which are carried on
by the working classes. A steadily growing number of
230 DISTRIBUTIVE JUSTICE
keen-sighted social students are coming to realise that an
industrial system which permits a comparatively small sec-
tion of society to own the means of production and the
instrumentalities of distribution, leaving to the great
majority of the workers nothing but their labour power,
is fundamentally unstable, and contains within itself the
germs of inevitable dissolution. No mere adequacy of
wages and other working conditions, and no mere security
of the workers' livelihood, can permanently avert this
danger, nor compensate the individual for the lack of
power to determine those activities of life which depend
upon the possession of property. Through co-operation
this unnatural divorce of the users from the owners of
capital can be minimised. The worker is converted from
a mere wage earner to a wage earner plus a property
owner, thus becoming a safer and more useful member of
society. In a word, co-operation produces all the well
recognised individual and social benefits which have in all
ages been evoked by the " magic of property."
Finally, co-operation is a golden mean between individ-
ualism and Socialism. It includes all the good features
and excludes all the evil features of both. On the one
hand, it demands and develops individual initiative and
self reliance, makes the rewards of the individual depend
upon his own efforts and efficiency, and gives him full
ownership of specific pieces of property. On the other
hand, it compels him to submerge much of the selfishness
and indifference to the welfare of his fellows which char-
acterise our individual economy. It embraces all the good
that is claimed for Socialism because it induces men to con-
sider and to work earnestly for the common good, elim-
inates much of the waste of competitive industry, reduces
and redistributes the burdens of profits and interest, and
puts the workers in control of capital and industry. At
the same time, it avoids the evils of an industrial des-
potism, of bureaucratic inefficiency, of individual indiffer-
CO-OPERATION AS A PARTIAL SOLVENT 2^1
ence, and of an all pervading collective ownership. The
resemblances that Socialists sometimes profess to see be-
tween their system and co-operation are superficial and far
less important than the differences. Under both arrange-
ments the workers would, we are told, own and control the
means of production; but the members of a co-operative
society directly own and immediately control a definite
amount of specific capital, which is essentially private
property. In a Socialist regime the workers' ownership of
capital would be collective not private, general not specific,
while their control of the productive instruments with
which they worked would be shared with other citizens.
The latter would vastly outnumber the workers in any par-
ticular industry, and would be interested therein not as
producers but as consumers. No less obvious and funda-
mental are the differences in favour of co-operation as
regards the vital matters of freedom, opportunity, and
efficiency.
In so far as the future of co-operation can be predicted
from its past, the outlook is distinctly encouraging. The
success attained in credit, agriculture, and distribution, is
a sufficient guarantee for these departments. While pro-
ductive co-operation has experienced more failures than
successes, it has finally shown itself to be sound in prin-
ciple, and feasible in practice. Its extension will neces-
sarily be slow, but this is exactly what should be expected
by any one who is acquainted with the limitations of human
nature, and the history of human progress. If a move-
ment that is capable of modifying so profoundly the con-
dition of the workers as is co-operative production, gave
indications of increasing rapidly, we should be inclined to
question its soundness and permanence. Experience has
given us abundant proof that no mere system or machinery
can effect a revolutionary improvement in economic con-
ditions. No social system can do more than provide a
favourable environment for the development of those in-
232 DISTRIBUTIVE JUSTICE
dividual capacities and energies which are the true and
the only causal forces of betterment.
Nor is it to be expected that any of the other three forms
of co-operation will ever cover the entire field to which it
might, absolutely speaking, be extended ; or that co-opera-
tion as a whole will become the one industrial system of
the future. Even if the latter contingency were possible
it would not be desirable. The elements of our economic
life, and the capacities of human nature, are too varied
and too complex to be forced with advantage into any one
system, whether capitalism, Socialism, or co-operation.
Any single system or form of socio-economic organisation
would prove an intolerable obstacle to individual oppor-
tunity and social progress. Multiplicity and variety in
social and industrial orders are required for an effective
range of choices, and an adequate scope for human effort.
In a general way the limits of co-operation in relation to
the other forms of economic organisation have been satis-
factorily stated by Mr. Aneurin Williams : " I suggest,
therefore, that where there are great monopolies, either
natural or created by the combination of businesses, there
you have a presumption in favour of State and municipal
ownership. In those forms of industry where individ-
uality is everything; where there are new inventions to
make, or to develop or put on the market, or merely to
adopt in some rapidly transformed industry; where the
eye of the master is everything; where reference to a com-
mittee, or appeals from one official to another, would cause
fatal delay: there is the natural sphere of individual enter-
prise pure and simple. Between these two extremes there
is surely a great sphere for voluntary association to carry
on commerce, manufacture, and retail trade, in circum-
stances where there is no natural monopoly, and where the
routine of work is not rapidly changing, but on the whole
fairly well established and constant." ^
1 " Copartnership and Profit-Sharing," p. 235.
CO-OPERATION AS A PARTIAL SOLVENT 233
The province open to co-operation is, indeed, very large.
If it were fully occupied the danger of a social revolution
would be non-existent, and what remained of the socio-
industrial problem would be relatively undisturbing and
unimportant. The " specialisation of function " in indus-
trial organisation, as outlined by Mr. Williams, would
give a balanced economy in which the three great socio-
economic systems and principles would have full play, and
each would be required to do its best in fair competition
with the other two. Economic life would exhibit a
diversity making strongly for social satisfaction and
stability, inasmuch as no very large section of the indus-
trial population would desire to overthrow the existing
order. Finally, the choice of three great systems of in-
dustry would offer the utmost opportunity and scope for
the energies and the development of the individual. And
this, when all is said, remains the supreme end of a just
and efficient socio-industrial organisation.
REFERENCES ON SECTION II
Fisher: The Rate of Interest. New York; 1907.
Cassel : Nature and Necessity of Interest. London ; 1903.
Conner: Interest and Saving. London; 1906.
Landry: L' Interet du Capital. Paris; 1904.
Menger : The Right to the Whole Produce of Labour. London ; 1899.
Cathrein-Gettelman : Socialism. St. Louis ; 1904.
Skelton: Socialism: A Critical Analysis. New York; 191 1.
Spargo : Socialism. Macmillan ; 1906.
Walling : Socialism As It Is. New York ; 1912.
Hillquit-Ryan : Socialism: Promise or Menace? Macmillan; 1914.
Savatier : La Theorie Moderne du Capital et la Justice. Paris ; 1898.
Garriguet : Regime du Travail. Paris ; 1908.
Funk: Zins und Wucher. Tiibingen; 1868.
Holyoake: The History of Co-operation. London; 1906.
Fay : Co-operation at Home and Abroad. London ; 1908.
Williams: Copartnership and Profit-Sharing. Henry Holt & Co.;
1913-
234 DISTRIBUTIVE JUSTICE
Mann, Sievers, Cox : The Real Democracy. London ; 1913.
^xA}^° ft^ ^°f^?. of Taussig, Devas, Antoine, Hobson, Nearin?,
Willonghby, and Hitze, which were given at the end of the introductonr
chapter. ■"
SECTION III
THE MORAL ASPECT OF PROFITS
/ \
CHAPTER XV
THE NATURE OF PROFITS
We have seen that rent goes to the landlord as the price
of land use, while interest is received by the capitalist as
the return for the use of capital. The two shares of the
product which remain to be considered include an element
which is absent from both rent and interest. The use for
which profits and wages are paid comprises not merely the
utilisation of a productive factor, but the sustained exer-
tion of the factor's owner. Like the landowner and the
capitalist, the business man and the labourer put the pro-
dutive factors which they control at the disposal of the
industrial process; but they do so only when and so long
as they exercise human activity. The shares that they
receive are payments for the continuous output of human
energy. No such significance attaches to rent or interest.
The Functions and Rewards of the Business Man
Who is the business man, and what is the nature of his
share of the product of industry? Let us suppose that
the salaried manager of a hat factory decides to set up a
business of the same kind for himself. He wishes to be-
come an entrepreneur, an undertaker, a director of indus-
try, in more familiar language, a business man. Let us
assume that he is without money, but that he commands
extraordinary financial credit. He is able to borrow half
a million dollars with which to organise, equip, and operate
the new enterprise. Having selected a favourable site, he
rents it on a long term lease, and erects thereon the neces-
sary buildings. He installs all the necessary machinery and
237
238 DISTRIBUTIVE JUSTICE
other equipment, hires capable labour, and determines the
kinds and quantities of hats for which he thinks that he
can find a market. At the end of a year, he realises that,
after paying for labour of all sorts, returning interest to
the capitalist and rent to the landowner, defraying the cost
of repairs, and setting aside a fund to cover depreciation,
he has left for himself the sum of ten thousand dollars.
This is the return for his labour of organisation and direc-
tion, and for the risk that he underwent. It constitutes
the share called profits, sometimes specified as net profits.
This case is artificial, since it assumes that the business
man is neither capitalist nor landowner in addition to his
function as director of industry. It has, however, the
advantage of distinguishing quite sharply the action of the
business man as such. For the latter merely organises,
directs, and takes the risks of the industrial process, finds
a market for the product, and receives in return neither
rent nor interest but only profits. In point of fact, how-
ever, no one ever functions solely as business man.
Always the business man owns some of the capital, and
very often some of the land involved in his enterprise, and
is the receiver not only of profits but of interest and rent.
Thus, the farmer is a business man, but he is also a capi-
talist, and frequently a landowner. The grocer, the
clothier, the manufacturer, and even the lawyer and the
doctor own a part at least of the capital with which they
operate, and sometimes they own the land. Nevertheless
their rewards as business men can always be distinguished
from their returns as capitalists and landowners by finding
out what remains after making due allowance for rent and
interest.
It is a fact that many business men, especially those
directing the smaller establishments, use the term profits
to include rent and interest on their own property. In
other words, they describe their entire income from the
business as profits. In the present discussion, and
THE NATURE OF PROFITS 239
throughout this book generally, profits are to be under-
stood as comprising merely that part of the business man's
returns which he takes as the reward of his labour, and as
insurance against the risks affecting his enterprise. De-
duct from the business man's total income a sum which
will cover interest on his capital at the prevailing rate and
rent on his land, and you have left his income as business
man, his profits.
The Amount of Profits
In a preceding chapter we have seen that where the con-
ditions of capital are the same, there exists a fairly uni-
form rate of interest. No such uniformity obtains in the
field of profits. Businesses subject to the same risks and
requiring the same kind of management yield very dif-
ferent amounts of return to their directors. In a sense
the business man may be regarded as the residual claimant
of industry. This does not mean that he takes no profits
until all the other agents of production have been fully
remunerated, but that his share remains indeterminate
until the end of the productive period, say, six months or
a year, while the shares of the other agents are determined
beforehand. At the end of the productive period, the
business man may find that his profits are large, moderate,
or small, while the landowner, the capitalist, and the
labourer ordinarily obtain the precise amounts of rent, in-
terest, and wages that they had expected to obtain. That
there exists no definite upper limit to profits is proved by
the history of modern millionaires. That there exists no
rigid lower limit is proved by the large proportion of enter-
prises that meet with failure.
Nevertheless it would be wrong to infer that the volume
of profits is governed by no law whatever, or that they
show no tendency toward uniformity in any part of the
industrial field. There is a calculated or preconceived
minimum. No man will embark in business for himself
240 DISTRIBUTIVE JUSTICE
unless he has reason to expect that it will yield him, in
addition to protection against risks, an income as large as
he could obtain by hiring his services to some one else. In
other words, contemplated profits must be at least equal to
the income of the salaried business manager. No tend-
ency toward uniformity of profits exists among very large
enterprises nor among industries which are constantly
adopting new methods and new inventions. In businesses
of small and moderate size, and in those whose methods
have become standardised, such as a retail grocery store,
or a factory that turns out staple kinds of shoes, profits
tend to be about the same in the great majority of estab-
lishments. In such industries the profits of the business
man do not often exceed the salary that he could com-
mand as general manager for some one else in the same
kind of business.
Professor King estimates the total volume of profits in
the United States in 19 lo as almost eight and one-half
billion dollars. This was 27.5 per cent, of the national
product, as against 24.6 per cent, in 1890 and 30 per cent,
in 1900.^ He interprets the fall in the wage earners' share
which has taken place since 1890 (53.5 to 46.9 per cent.)
as indicating a considerable increase in the share of those
business men who control the very large industries. " The
promoters and manipulators of these concerns have re-
ceived, as their share of the spoils, permanent income
claims, in the shape of securities, large enough to make
Croesus appear like a pauper." ^ Moreover, even outside
this monopoly field, the more able and successful business
men seem to have obtained in recent years what might be
termed a relatively large share of the product of industry.
The exceptionally efficient undertakers, those possessing
the imagination, foresight, judgment, and courage to take
i"The Wealth and Income of the People of the United States,"
158, 160.
2 Idem, p. 21S.
THE NATURE OF PROFITS 24I
full advantage of the recent improvements in the indus-
trial arts, and in the methods of production generally, seem
to have advanced in wealth and income more rapidly than
any other class that has been subject to the operation of
competition.
Profits in the Joint-Stock Company
Up to this point v^e have been considering the inde-
pendent business man, the undertaker who manages his
enterprise either alone or as a member of a partnership.
In all such concerns it is easy to identify the business man.
Who or where is the business man in a joint stock com-
pany ? Where are the profits, and who gets them ?
Strictly speaking, there is no undertaker or business
man in a corporation. His functions of ownership,
responsibility, and direction are exercised by the whole
body of stockholders through the board of directors and
other officers. It is true that in very many, probably in
most corporations, one or a very few of the largest stock-
holders dominate the policies of the concern, and exercise
almost as much power and authority as though they were
the sole owners. Neither these, however, nor any other
officer in a corporation receives profits in the same sense
as the independent owner of a business. For their active
services the officers of the corporation are given salaries;
for the risks that they undergo as owners of the stock they
are compensated in the same way as all the other stock-
holders, that is, through a sufficiently high rate of divi-
dend. For example, in railroads the bonds usually pay
from four to five per cent., the stock from five to six per
cent. The bonds represent borrowed money, and are se-
cured by a mortgage on the physical property. The stock
represents the money invested by the owners, and is sub-
ject to all the risks of ownership ; hence its holders require
the protection which is afforded by the extra one per cent,
which they obtain over that paid to the bondholders.
242 DISTRIBUTIVE JUSTICE
While a corporation has no profits in the sense of a
reward for directive activity or a protection against risk,
it frequently possesses profits in the sense of a surplus
which remains after costs and expenses of every kind have
been defrayed. These profits are ordinarily distributed
pro rata among the stockholders, either outright in the
form of an extra dividend, or indirectly through enlarge-
ment of the property and business of the company. They
are surplus gains or profits having the same intermittent
and speculative character as the extra gains which the
individual business man sometimes obtains in addition to
those profits which are necessary to remunerate him for
his labour, and protect him against risks. They are not
profits in the ordinary economic sense of the term.
CHAPTER XVI
THE PRINCIPAL CANONS OF DISTRIBUTIVE JUSTICE
Before taking up the question of the morality of profits,
it will be helpful, if not necessary, to consider the chief
rules of justice that have been or might be adopted in dis-
tributing the product of industry among those who par-
ticipate actively in the productive process. While the
discussion is undertaken with particular reference to the
rewards of the business man, it will also have an important
bearing on the compensation of the wage earner. The
morality of rent and interest depends upon other principles
than those governing the remuneration of human activity;
and it has been sufficiently treated in chapters xii and
xiii. The canons of distribution applicable to our pres-
ent study are mainly six in number: arithmetical equality;
proportional needs; efforts and sacrifices; comparative
productivity; relative scarcity; and human welfare.
The Canon of Equality
According to the rule of arithmetical equality, all per-
sons who contribute to the product should receive the same
amount of remuneration. With the exception of Bernard
Shaw, no important writer defends this rule to-day. It
is unjust because it would treat unequals equally.
Although men are equal as moral entities, as human per-
sons, they are unequal in desires, capacities, and powers.
An income that would fully satisfy the needs of one man
would meet only 75 per cent., or 50 per cent., of the capac-
ities of another. To allot them equal amounts of income
would be to treat them unequally with regard to the requi-
243
244 DISTRIBUTIVE JUSTICE
sites of life and self development. To treat them un-
equally in these matters would be to treat them unequally
as regards the real and only purpose of property rights.
That purpose is welfare. Hence the equal moral claims
of men which admittedly arise out of their moral equality
must be construed as claims to equal degrees of welfare,
not to equal amounts of external goods. To put the mat-
ter in another way, external goods are not welfare; they
are only means to v/elfare; consequently their importance
must be determined by their bearing upon the welfare of
the individual. From every point of view, therefore, it is
evident that justice in industrial distribution must be
measured with reference to welfare rather than with refer-
ence to incomes, and that any scheme of distribution which
provided equal incomes for all persons would be radically
unjust.
Moreover, the rule of equal incomes is socially imprac-
ticable. It would deter the great majority of the more
efficient from putting forth their best efforts and turn-
ing out their maximum product. As a consequence, the
total volume of product would be so diminished as to ren-
der the share of the great majority of persons smaller than
it would have been under a rational plan of unequal
distribution.
The Canon of Needs
The second conceivable rule is that of proportional
needs. It would require each person to be rewarded in
accordance with his capacity to use goods reasonably. If
the task of distribution were entirely independent of the
process of production, this rule would be ideal; for it
would treat men as equal in those respects in which they
are equal; namely, as beings endowed with the dignity
and the potencies of personality; and it would treat them
as unequal in those respects in which they are unequal;
that is, in their desires and capacities. But the relation
THE PRINCIPAL CANONS OF DISTRIBUTIVE JUSTICE 245
between distribution and production cannot be left out of
account. The product is distributed primarily among the
agents of production only, and it must be so distributed as
to give due consideration to the moral claims of the pro-
ducer as such. The latter has to be considered not merely
as a person possessing needs, but as a person who has con-
tributed something to the making of the product. Whence
arise the questions of relative efforts and sacrifices, and
relative productivity.
Since only those who have contributed to the product
participate in the distribution thereof, it would seem that
they should be rewarded in proportion to the efforts and
sacrifices that they exert and undergo. As an example of
varying effort, let us take two men of equal needs who
perform the same labour in such a way that the first
expends 90 per cent, of his energy, while the second ex-
pends 60 per cent. As an example of varying sacrifice,
let us take the ditch digger, and the driver who sits all
day on the dump wagon. In both these examples the first
man expends more painful exertion than the second. This
would seem to make a difference in their moral desert.
Justice would seem to require that in each case compensa-
tion should be proportionate to exertion rather than to
needs. At any rate, the claims of needs should be modi-
fied to some extent in favour of the claims of exertion. It
is upon the principle of efforts and sacrifices that we ex-
pect our eternal rewards to be based by the infinitely just
Rewarder. The principle of needs is likewise in conflict
with the principle of comparative productivity. Men gen-
erally demand rewards in proportion to their products.
The validity of this demand we shall examine in a subse-
quent paragraph.
Like the rule of arithmetical equality, the rule of pro-
portional needs is not only incomplete ethically but impos-
sible socially. Men's needs vary so widely and so imper-
ceptibly that no human authority could use them as the
246 DISTRIBUTIVE JUSTICE
basis of even an approximately accurate distribution.
Moreover, any attempt to distribute rewards on this basis
alone would be injurious to social welfare. It would lead
to a great diminution in the productivity of the more
honest, the more energetic, and the more efficient among
the agents of production.
The Canon of Efforts and Sacrifice
The third canon of distribution, that of efforts and sacri-
fices, would be ideally just if we could ignore the questions
of needs and productivity. But we cannot think it just to
reward equally two men who have expended the same
quantity of painful exertion, but who differ in their needs
and in their capacities of self -development. To do so
would be to treat them unequally in the matter of welfare,
which is the end and reason of all distribution. Conse-
quently the principle of efforts and sacrifices must be modi-
fied by the principle of needs. Apparently it must also
give way in some degree to the principle of comparative
productivity. When two men of unequal powers make
equal efforts, they turn out unequal amounts of product.
Almost invariably the more productive man believes that
he should receive a greater share of the product than the
other. He believes that the rewards should be deter-
mined by productivity.
It is evident that the rule of efforts and sacrifices, like
those of equality and needs, could not be universally en-
forced in practice. With the exception of cases in which
the worker is called upon regularly to make greater sacri-
fices owing to the disagreeable nature of the task, attempts
to measure the amounts of effort and painful exertion put
forth by the different agents of production would on the
whole be little more than rough guesses. These would
probably prove unsatisfactory to the majority. More-
over, the possessors of superior productive power would in
most instances reject the principle of efforts and sacrifices
THE PRINCIPAL CANONS OF DISTRIBUTIVE JUSTICE 247
as unfair, and refuse to do their best work under its opera-
tion.
The three rules already considered are formally ethical,
inasmuch as they are directly based upon the dignity and
claims of personality. The two following are primarily
physical and social ; for they measure economic value rather
than ethical worth. Nevertheless, they must have a large
place in any system which includes the factor of competi-
tion.
The Canon of Productivity
According to this rule, men should be rewarded in pro-
portion to their contributions to the product. It is open
to the obvious objection that it ignores the moral claims of
needs and efforts. The needs and use-capacities of men
do, indeed, bear some relation to their productive capaci-
ties, and the man who can produce more usually needs
more; but the differences between the two elements are so
great that distribution based solely upon productivity
would fall far short of satisfying the demands of needs.
Yet we have seen that needs constitute one of the funda-
mentally valid principles of distribution. Between pro-
ductivity on the one hand and efforts and sacrifices on the
other, there are likewise important differences. When
men of equal productive power are performing the same
kind of labour, superior amounts of product do represent
superior amounts of effort; when the tasks differ in irk-
someness or disagreeableness, the larger product may be
brought into being with a smaller expenditure of painful
exertion. If men are unequal in productive power their
products are obviously not in proportion to their efforts.
Consider two men whose natural physical abilities are so
unequal that they can handle with equal effort shovels dif-
fering in capacity by fifty per cent. Instances of this
kind are innumerable in industry. If these two men are
rewarded according to productivity, one will get fifty per
248 DISTRIBUTIVE JUSTICE .
cent, more compensation than the other. Yet the surplus
received by the more fortunate man does not represent any
action or quality for which he is personally responsible.
It corresponds to no larger output of personal effort, no
superior exercise of will, no greater personal desert. It is
based solely upon a richer physical endowment by the
Creator.
It is clear, then, that the canon of productivity cannot
be accepted to the exclusion of the principles of needs and
efforts. It is not the only ethical rule of distribution. Is
it a valid partial rule? Superior productivity is fre-
quently due to larger effort and expense put forth in study
and in other forms of industrial preparation. In such
cases it demands superior rewards by the title of efforts
and sacrifices. Where, however, the greater productivity
is due merely to higher native qualities, physical or mental,
the greater reward is not easily justified on purely ethical
grounds. For it represents no personal responsibility,
will-effort, or creativeness. Nevertheless, the great ma-
jority of the more fortunately endowed think that they
are unfairly treated unless they are recompensed in pro-
portion to their products. Sometimes this conviction is
due to the fact that such men wrongly attribute their
larger product to greater efforts. In very many cases,
however, the possessors of superior productive power be-
lieve that they should be rewarded in proportion to their
products, regardless of any other principle or factor.
Probably the true explanation of this belief is to be found
in man's innate laziness. While the prevalence of the con-
viction that superior productivity constitutes a just title to
superior compensation, does create some kind of a presump-
tion in favour of its correctness, it must be remembered that
presumption is not proof. Weighing this presumption
against the objective considerations on the opposite side
of the argument, we take refuge in the conclusion that
the ethical validity of the canon of comparative product-
THE PRINCIPAL CANONS OF DISTRIBUTIVE JUSTICE 249
ivity can neither be certainly proved nor certainly dis-
proved.
Like the rules of equality, needs, and efforts, that of pro-
ductivity cannot be universally enforced in practice. It is
susceptible of accurate application among producers who
perform the same kind of work with the same kind of in-
struments and equipment ; for example, between two shov-
ellers, two machine operators, two bookkeepers, two law-
yers, two physicians. As a rule, it cannot be adequately
applied to a product which is brought into existence
through a combination of different processes. The en-
gine driver and the track repairer contribute to the com-
mon product, railway transportation; the bookkeeper and
the machine tender co-operate in the production of hats;
but we cannot tell in either case whether the first con-
tributes more or less than the second, for the simple rea-
son that we have no common measure of their contribu-
tions. Sometimes, however, w^e can compare the produc-
tivity of individuals engaged in different processes ; that is,
when both can be removed from the industry without caus-
ing it to come to a stop. Thus, it can be shown that a
single engine driver produces more railway transportation
than a single track repairer, because the labour of the latter
is not indispensable to the hauling of a given load of cars.
But no such comparison can be made as between the w^hole
body of engine drivers and the whole body of track re-
pairers, since both groups are indispensable to the produc-
tion of railway transportation. Again, a man can be
shown to exert superior productivity because he affects
the productive process at more points and in a more inti-
mate way than another who contributes to the product in a
wholly different manner. While the surgeon and the at-
tendant nurse are both necessary to a surgical operation,
the former is clearly more productive than the latter.
When due allowance is made for all such cases, the fact
remains that in a large part of the industrial field it is
250 DISTRIBUTIVE JUSTICE
simply impossible to determine remuneration by the rule
of comparative productivity.
The Canon of Scarcity
It frequently happens that men attribute their larger re-
wards to larger productivity, when the true determining
element is scarcity. The immediate reason why the engine
driver receives more than the track repairer, the general
manager more than the section foreman, the floorwalker
more than the salesgirl, lies in the fact that the former
kinds of labour are not so plentiful as the latter. Were
general managers relatively as abundant as section foremen
their remuneration would be quite as low; and the same
principle holds good of every pair of men whose occupa-
tions and products are different in kind. Yet the pro-
ductivity of the general managers would remain as great
as before. On the other hand, no matter how plentiful
the more productive men may become, they can always
command higher rewards than the less productive men in
the same occupation, for the simple reason that their
products are superior either in quantity or in quality.
Men engaged upon the more skilled tasks are likewise mis-
taken when they attribute their greater compensation to
the intrinsic excellence of their occupation. The fact is
that the community cares nothing about the relative nobil-
ity, or ingenuity, or other inherent quality of industrial
tasks or functions. It is concerned solely with products
and results. As between two men performing the same
task, superior efficiency receives a superior reward because
it issues in a larger or better product. As between two
men performing different tasks, superior skill receives su-
perior compensation simply because it can command the
greater compensation ; and it is able to do this because it is
scarce.
In most cases where scarcity is the immediate determi-
nant of rewards, the ultimate determinant is, partly at
THE PRINCIPAL CANONS OF DISTRIBUTIVE JUSTICE 25 1
least, some kind of sacrifice. One reason why chemists
and civil engineers are rarer than common labourers is to
be found in the greater cost of preparation. The scarcity
of workers in occupations that require no special degree
of skill is due to unusual hazards and unpleasantness. In
so far as scarcity is caused by the uncommon sacrifices
preceding or involved in an occupation, the resulting higher
rewards obviously rest upon most solid ethical grounds.
However, some part of the differences in scarcity is the
result of unequal opportunities. If all young persons had
equal facilities of obtaining college and technical training,
the supply of the higher kinds of labour would be consid-
erably larger than it now is, and the compensation would
be considerably smaller. Scarcity would then be deter-
mined by only three factors; namely, varying costs of
training, varying degrees of danger and unattractiveness
among occupations, and inequalities in the distribution of
native ability. As a consequence, competition would tend
to apportion rewards according to efforts, sacrifices, and
efificiency.
How can we justify the superior rewards of that scarcity
which is not due to unusual costs of any sort, but merely to
restricted opportunity? So far as society is concerned,
the answer is simple: the practice pays. As to the pos-
sessors of the rarer kinds of ability, they are in about the
same ethical position as those persons whose superior pro-
ductivity is derived entirely from superior native endow-
ment. In both cases the unusual rewards are due to fac-
tors outside the control of the recipients; to advantages
which they themselves have not brought into existence.
In the former case the decisive factor and advantage is
opportunity; in the latter it is a gift of the Creator. Now
we have seen that this sort of productivity cannot be
proved to be immoral as a canon of distribution; conse-
quently the same statement will hold good of this sort of
scarcity.
252 DISTRIBUTIVE JUSTICE
The Canon of Human Welfare
We say " human " welfare rather than " social " wel-
fare, in order to make clear the fact that this canon con-
siders the well being of men not only as a social group, but
also as individuals. It includes and summarises all that
is ethically and socially feasible in the five canons already
reviewed. It takes account of equality, inasmuch as it
regards all men as persons, as subjects of rights; and of
needs, inasmuch as it awards to all the necessary partici-
pants in the industrial system at least that amount of re-
muneration which will meet the elementary demands of
decent living and self development. It is governed by
efforts and sacrifices, at least in so far as they are reflected
in productivity and scarcity ; and by productivity and scar-
city to whatever extent is necessary in order to produce the
maximum net results. It would give to every producer
sufficient remuneration to evoke his greatest net contribu-
tion to the productive process. Greatest " net " contribu-
tion; for a man's absolute maximum product may not al-
ways be worth the required price. For example: a man
who for a salary of 2500 dollars turns out a product valued
at 3000 dollars, should not be given 3000 dollars in order
to induce him to bring forth a product worth 3300 dollars.
In this case a salary of 2500 dollars evokes the maximum
net product, and represents the reward which would be as-
signed by the canon of human welfare. Once the vital
needs of the individual have been safeguarded, the su-
preme guide of the canon of human welfare is the prin-
ciple of maximum net results, or the greatest product at
the lowest cost.
It is not contended here that this canon ought never to
undergo modification or exception. Owing to the excep-
tional hazards and sacrifices of their occupation, a com-
bination of producers might be justified in exacting larger
compensation than would be accorded them by the canon
THE PRINCIPAL CANONS OF DISTRIBUTIVE JUSTICE 253
of human welfare on the basis of net results in the present
conditions of supply and scarcity. Unusual needs and
capacities might also justify a strong group in pursuing
the same course. All that is asserted at present is that in
conditions of average competition the canon of human
welfare is not unjust. And this is all that is necessary as
a preliminary to the discussion of just profits.^
lA very suggestive discussion of the psychology, the general prin-
ciples, and the practical limitations of distributive justice, will be
found in an article by Gustav Schmoller, entitled, " The Idea of Justice
in Political Economy." It is No. 113 in the Publications of the Ameri-
can Academy of Political and Social Science.
CHAPTER XVII
JUST PROFITS IN CONDITIONS OF COMPETITION
We have seen that profits are that share of the product
of industry which goes to the business man. They com-
prise that residual portion which he finds in his hands
after he has made all expenditures and allowances for
wages, salaries, interest at the prevailing rate on both his
own and the borrowed capital, and all other proper charges.
They constitute his compensation for his labour of direc-
tion, and for the risks of his enterprise and capital.
In the opinion of most Socialists, profits are immoral
because they are an essential element of an unjust indus-
trial system, and because they are not entirely based upon
labour. Under Socialism the organising and directing
functions that are now performed by the business man,
would be allotted to salaried superintendents and man-
agers. Their compensation would include no payment for
the risks of capital, and it would be fixed instead of inde-
terminate. Hence it would differ considerably from pres-
ent-day profits.
To the assertion that profits are immoral a sufficient re-
ply at this time is that Socialism has already been shown to
be impracticable and inequitable. Consequently the system
of private industry is essentially just, and profits, being a
necessary element of the system, are essentially legitimate.
The question of their morality is one of degree not of kind.
It will be considered under two principal heads : the right
of the business man to obtain indefinitely large profits ; and
his right to a certain minimum of profits.
254
JUST PROFITS IN CONDITIONS OF COMPETITION 255
The Question of Indefinitely Large Promts
As a general rule, business men who face conditions of
active competition have a right to all the profits that they
can get, so long as they use fair business methods. This
means not merely fair and honest conduct toward competi-
tors, and buyers and sellers, but also just and humane
treatment of labour in all the conditions of employment,
especially in the matter of wages. When these conditions
are fulfilled, the freedom to take indefinitely large profits
is justified by the canon of human welfare. The great
majority of business men in competitive industries do not
receive incomes in excess of their reasonable needs. Their
profits do not notably exceed the salaries that they could
command as hired managers, and generally are not more
than sufficient to reimburse them for the cost of education
and business training, and to enable them to live in reason-
able conformity with the standard of living to which they
have become accustomed.
Efiforts and sacrifices are reflected to some extent in the
different amounts of profits received by different business
men. When all due allowance is made for chance, pro-
ductivity, and scarcity, a considerable proportion of profits
is attributable to harder labour, greater risk and worry,
and larger sacrifices. Like the principle of needs, that of
efforts and sacrifices is a partial justification of the busi-
ness man's remuneration.
Those profits which cannot be justified by either of the
titles just mentioned, are ethically warranted by the prin-
ciples of productivity and scarcity. This is particularly
true of those exceptionally large profits which can be
traced specifically to that unusual ability which is exempli-
fied in the invention and adoption of new methods and
processes in progressive industries. The receivers of
these large rewards have produced them in competition
with less efficient business men. While the title of produc-
256 DISTRIBUTIVE JUSTICE
tivity does not entirely satisfy the seeker for decisive ethi-
cal sanctions, it is stronger morally than any opposing
considerations that can be invoked. It is probably as
strong as some other principles that we have to accept as
the best attainable in the very difficult field of industrial
ethics.
Nevertheless, it would seem that those business men who
obtain exceptionally large profits could be reasonably re-
quired to transfer part of their gains to their employes in
the form of higher wages, or to the consumers in the form
of lower prices. Both of these methods have been fol-
lowed by Henry Ford, the automobile manufacturer.
Neither of them is certainly demanded by the principles of
strict justice; they rest upon the feebler and less decisive
principle of general equity or fairness.^ This concept
is less definite than those of charity and justice, and stands
midway between them. It comes into operation when an
action is obligatory on stricter grounds than those of char-
ity, and yet cannot with certainty be required on grounds
of justice. Notwithstanding its vagueness, it is suffi-
ciently strong to make the average conscientious man feel
uncomfortable if he neglects its prescriptions entirely. It
has, therefore, sufficient practical value to deserve a place
in the ethics of distribution. And it seems to have suffi-
cient application to the problem before us to justify the
statement that the receivers of exceptionally large profits
are bound in equity to share them with those persons who
have co-operated in producing and providing them, namely,
wage earners and consumers.
In the field of profits the canon of human welfare is not
only sound ethically but expedient socially. It permits
the great majority of business men to obtain, if they can,
sufficient remuneration to meet their reasonable needs.
Whether it requires society to guarantee at least this
amount of profit-income is a question that we shall exam-
1 Cf. pp. 212, 213 of Castelein's " Philosophia Moralis et Socialis."
JUST PROFITS IN CONDITIONS OF COMPETITION 257
ine presently. It encourages efforts, and makes for the
maximum social product by permitting business men to
retain all the profits that they can get in conditions of fair
competition. Does it forbid any attempt by society to
limit exceptionally large profit-incomes? If the limit were
placed very high, say, at 50,000 dollars per year, it would
not apparently check the productive efforts of the great
majority of business men, since they never hope to pass
that figure. Whether it would have a seriously discour-
aging effect upon the activity and ambition of those who
do hope to reach, and of those who have already reached
that level, is uncertain. Among business men who are
approaching or who have passed the 50,000 dollars annual
profit-income mark, the desire to possess more money is
frequently weaker as a motive to business activity than the
longing for power and the driving force of habit. At any
rate, the question is not very practical. Any sustained at-
tempt to limit profits by law would require such extensive
and minute supervision of business that the policy would
prove to be socially intolerable and unprofitable. The es-
pionage involved in the policy would provoke general re-
sentment, and the amount of profits that could be diverted
either to the State or to private persons would be relatively
insignificant.
Thus far we have been considering the independent busi-
ness man and business firm, not the joint stock company or
corporation. In the latter form of organisation, the
labour of direction is remunerated by fixed salaries to the
executive officers, while the risks of enterprise and capital
are covered by the regular dividends received by the whole
body of stockholders. Consequently the only revenues
comparable to profits are the surplus gains that remain
after wages, salaries, interest, dividends, rent, and all
other expenses and charges have been met. These are ap-
portioned through one process or another among the stock-
holders. On what ethical principle can they be thus dis-
258 DISTRIBUTIVE JUSTICE
tributed? The general principle of productivity, or supe-
rior productivity, is the only one available. If a corpora-
tion which uses fair methods of competition can obtain
surplus gains, while the majority of its competitors fail to
do so, the cause must be sought in its superior business
management. This superiority must be credited to the
whole body of stockholders, even though the great major-
ity of them are responsible for it only in a very remote
way, through their selection of the executive officers. The
stockholders surely have a better claim to these surplus
gains than any other group in the community. At the
same time, they are, like the independent business man,
bound by the principle of equity to share the surplus with
the labourers and consumers.
The Question of Minimum Profits
Has the business man a strict right to a minimum living
profit ? In other words, have all business men a right to a
sufficient volume of sales at sufficiently high prices to pro-
vide them with living profits or a decent livelihood? Such
a right would imply a corresponding obligation upon the
consumers, or upon society, to furnish the requisite amount
of demand at the required prices. Is there such a right,
and such an obligation?
No industrial right is absolute. They are all condi-
tioned by the possibilities of the industrial system, and by
the desires, capacities, and actions of the persons who enter
into industrial relations with one another. As we shall
see later, this statement is true even of the right to a liv-
ing wage. When the industrial resources are adequate,
all persons of average ability who contribute a reasonable
amount of labour to the productive process have a right to
a decent livelihood on two conditions: first, that such
labour is their only means of sustenance ; and, second, that
their labour is economically indispensable to those who
utilise it or its product. " Economically indispensable "
JUST PROFITS IN CONDITIONS OF COMPETITION 259
means that the beneficiary of the labour would rather give
the equivalent of a decent livelihood for it than go without
it. While both these conditions are apparently fulfilled in
the case of the great majority of wage earners, they are
only rarely realised with regard to business men. In most
instances the business man who is unable to make living
profits could become an employe, and thus convert his right
to a decent livelihood into a right to a living wage. Even
when no such alternative is open to him, he cannot claim
a strict right to living profits, for the second condition
stated above remains unfulfilled. The consuming public
does not regard the business function of such men as eco-
nomically indispensable. Rather than pay the higher
prices necessary to provide living profits for the inefficient
business men, consumers will transfer their patronage to
the efficient competitors. Should the retail grocer, for
example, raise his prices in the effort to get living profits,
his sales would fall off to such an extent as to reduce his
profits still lower. While the consumers may be willing
to fulfil their obligation of furnishing living profits for all
necessary grocers, they are not willing, nor are they
morally bound, to do so in the case of grocers whose in-
ability to command sufficient patronage at remunerative
prices shows that they are not necessary to the community.
The consuming public does not want to employ such busi-
ness men at such a cost.
Nor is the State under obligation to ensure living profits
for all business men. To carry out such a policy, either
by enforcing a sufficiently high level of prices, or by sub-
sidising those who fail to obtain living profits, would be to
compel the public to support inefficiency.
In the foregoing paragraphs we have assumed that the
inability of the business men under consideration to get
living profits is due to their own lack of capacity as com-
pared with their more efficient competitors. When, how-
ever, their competitors are not more efficient, but are
26o DISTRIBUTIVE JUSTICE
enabled to undersell through the use of unfair methods,
such as adulteration of goods and oppression of labour, a
different moral situation is presented. Honest and hu-
mane business men undoubtedly have a claim upon society
to protection against such unfair competition. And the
consumers are under obligation to make reasonable efforts
to withhold their patronage from those business men who
practise dishonesty and extortion.
The Question of Superfluous Business Men
Although we have rejected as impractical the proposal
to set a legal limit to profit-incomes, we have to admit that
many of the abler business men would continue to do their
best work even if the profits that they could hope to obtain
were considerably smaller in volume. These men hold a
strategic position in industry, inasmuch as they are not
subject to the same degree of constant competition as the
other agents of production.^ Were the supply of superior
business capacity more plentiful, their rewards would be
automatically reduced, and the burden of profits resting
upon society would be to that extent diminished. On the
other hand, the number of mediocre business men, espe-
cially in the distributive industries, is much larger than is
necessary to supply the wants of the community. This
constitutes a second unnecessary volume of payments un-
der the head of profits. Is there no way by which these
wastes can be reduced ?
The volume of exceptionally large profits could be dimin-
ished by an extension of the facilities of technical and in-
dustrial education. Thus the number of persons qualify-
ing as superior business men could be gradually increased,
competition among this class of men would be intensified,
and their rewards correspondingly diminished.
The profits that go to superfluous business men, espe-
cially in the class known as middlemen, can be largely
1 Cf . Hobson, " The Industrial System," chapter on " Ability."
JUST PROFITS IN CONDITIONS OF COMPETITION 26 1
eliminated through combination and co-operation. The
tendency to unite into a single concern a large number of
small and inefficient enterprises should be encouraged up
to the point at which the combination threatens to become
a monopoly. That this process is capable of effecting a
considerable saving in business profits as well as in capital,
has been amply demonstrated in several different lines of
enterprise. As we have seen in a preceding chapter, the
co-operative movement, whether in banking, agriculture,
or stores, has been distinctly successful in reducing profits.
Millions of dollars are thus diverted every year from un-
necessary profit-receivers to labourers, consumers, and to
the man of small resources generally. Yet the co-opera-
tive movement is only in its infancy. It contains the pos-
sibility of eliminating entirely the superfluous business
man, and even of diminishing considerably the excessive
profits of the exceptionally able business man.
CHAPTER XVIII
THE MORAL ASPECT OF MONOPOLY
The conclusion was drawn in the last chapter that the
surplus gains of corporations operating in conditions of
competition, can justly be retained by the stockholders as
the remuneration of exceptional productive efficiency. It
is, of course, to be understood that the proper allowance
for interest on the capital is not necessarily the amount
authorised by the stipulated rate of dividend on the stock,
but the prevailing or competitive rate of interest plus an
adequate rate of insurance against the risks of the enter-
prise. If the prevailing rate of interest is five per cent.,
and the risk is sufficiently protected by an allowance of
one per cent., the fair rate of return on the investment is
six per cent. The fact that a concern may actually award
its stockholders ten per cent, dividends, has no bearing on
the determination of the genuine surplus. If the actual
surplus that remains after paying all other charges and
allowing ten per cent, on the stock, is only 50,000 dollars,
whereas it would be 100,000 dollars with an allowance of
only six per cent., then the true surplus gains, or profits, are
the latter amount not the former. No part of the 100,000
dollars can be justified as interest on capital. It must all
find its justification as profits proceeding from superior
productivity.
Bearing in mind this distinction between the actual rate
of dividend and the proper allowance for interest on capi-
tal, we take up the question of the morality of profits or
surplus gains in conditions of monopoly.
262
THE MORAL ASPECT OF MONOPOLY 263
Surplus and Excessive Profits
Several of the great industrial combinations of the
United States have obtained profits v^hich are commonly
stigmatised as "excessive." For example, the Standard
Oil Company paid, from 1882 to 1906, an average annual
dividend of 24.15 per cent, on the capital stock, and had
profits in addition at the rate of about 8 per cent, annu-
ally;^ from 1904 to 1908 the American Tobacco Com-
pany averaged 19 per cent, on its actual investment; ^ and
the United States Steel Corporation obtained an average
annual return of 12 per cent, on its investment from 1901
to 1910.^ A complete list of the American monopolies
that have reaped more than the competitive rate of return
on their capital v^ould undoubtedly be a very long one.
Is it possible to justify such returns? Has a monopoly
a right to take surplus gains? Let us suppose a concern
which is getting 15 per cent, on its investment. Inas-
much as the risks are smaller than in competitive enter-
prises, six per cent, is an ample allowance for interest.
Of the remaining 9 per cent., 4 per cent., we shall assume,
is derived from economies of production as compared
with the great majority of competitive concerns. This
portion of the surplus, being the reward of superior ef-
ficiency, may be retained by the owners of the monopoly
quite as justly as similar gains are taken by the exception-
ally efficient corporation in conditions of competition.
The objection that the monopoly ought to share these gains
with the public, since it limits individual opportunity in a
1 Report of the Commissioner of Corporations on the Petroleum
Industry, II, 40, 41.
2 Report of the Commissioner of Corporations on the Tobacco In-
dustry, II, 26-34.
3 Report of the Commissioner of Corporations on the Steel Industry,
I, 51. According to F. J. McRae, the expert accountant for the Stanley
congressional investigating committee, this concern secured 40 per cent.
on the cost of its property.
264 DISTRIBUTIVE JUSTICE
socially undesirable way, has some merit, but it can scarcely
be urged on grounds of strict justice. At most it points
only to an obligation in equity.
By what canon of distribution can the retention of the
other 5 per cent, of surplus gain be justified? Not by the
titles of needs and efforts, for these have already been sat-
isfied through the salaries paid to those stockholders who
perform labour in the management of the concern. These
titles afford no basis for any other claim than that which
proceeds from labour. They cannot be made to justify
claims made on behalf of capital. Not by the title of
productivity, for this has already been remunerated in the
4 per cent, just considered. Not as interest on capital,
for ample allowance has already been made under this
head in the original 6 per cent. As we have seen in an
earlier chapter, the only reasons that give ethical support
to interest on capital are the sacrifice that is involved in
some kinds of saving, the possibility that interest is neces-
sary in order to induce the provision of sufficient capital,
the certainty that the State would be unable to enforce the
abolition of interest, and some presumptive considerations.
Since all of these reasons and ends are satisfied by the
competitive rate of interest, none of them will justify the
exaction of more than the competitive rate. It is not
possible to justify a higher rate on either social or indi-
vidual grounds. Therefore, the only basis that is left
upon which to defend the retention of the five per cent,
surplus that we are discussing, is the power of appropria-
tion. The monopoly possesses the economic strength to
take this five per cent, because it is able to impose higher
than competitive prices upon the consumer. Obviously
such power has no greater ethical sanction or validity than
the pistol of the highwayman. In both cases the gains
are the product of extortion.
The conclusion that men have no right to more than the
competitive rate of interest, as interest, on their capital, and
THE MORAL ASPECT OF MONOPOLY 265
that a monopoly has consequently no right to those surplus
gains that are not produced by superior efficiency, is con-
firmed by public opinion and by the decisions of the courts.
The monopolistic practice of taking more than the usual
rate of returns on capital merely because there exists the
power to take it, is universally condemned as inequitable.
In fixing the charges of public service corporations, the
courts with practical unanimity allow only the rate of re-
turn that is obtainable in competitive conditions of invest-
ment.
The statement that the monopoly may retain those sur-
plus gains which are derived from superior efficiency as-
sumes, of course, that fair wages have been paid to em-
ployes, and fair prices to the sellers of materials, and that
fair methods have been used toward competitors. In so
far as any of these conditions is not met, the monopolistic
concern has no right to surplus gains of any sort. All
three of the claims just mentioned are morally stronger
than the claim to superior rewards because of superior
efficiency.
The Question of Monopolistic Efficiency
So much for the moral principle. What proportion of
the surplus gains of monopoly are due to extortionate
prices rather than to economies in production, cannot be
known even approximately. According to Justice Bran-
deis, who is one of the most competent authorities in
this field, only a very small part of these gains are derived
from superior efficiency.^ Professor E. S. Meade writes :
"During a decade [1902-1912] of unparalleled industrial
development, the trusts, starting with every advantage of
large capital, well-equipped plants, financial connections,
and skilled superintendence, have not succeeded." ^ On
1 Hearings Before the Interstate Commerce Committee, U. S. Senate,
Part XVI, pages 1146-1166.
2 The Journal of Political Economy, April, 1912, p. 366.
266 DISTRIBUTIVE JUSTICE
the other hand, President Van Hise thinks that, " the
weight of argument is strongly in favour of the increased
efficiency of large combinations of industry on the aver-
age." ^ The difference of opinion existing among stu-
dents of this subject is due to lack of adequate data, par-
ticularly to the absence of such uniform and comprehen-
sive systems of accounting as w^ould be required to provide
a basis for reliable general conclusions. Opposing par-
ticular statements may be equally true, because based upon
different instances; but general statements are little better
than guesses.
Let us approach the question from another side, that of
prices. Whenever the charges imposed by monopolistic
concerns upon their products are higher than those that
w^ould have prevailed under competition, the surplus gains
are obviously to that extent not due to superior efficiency.
They have their source in the arbitrarily made prices. The
Final Report of the United States Industrial Commission,
v^hich v^as made at the beginning of the year 1902, de-
clared that, " in most cases the combination has exerted
an appreciable pov^er over prices, and in practically all
cases it has increased the margin betw^een raw materials
and finished products." ^ Since the cost of production had
decreased during the preceding decade, this increase in the
margin, and the ensuing increased profits, necessarily in-
volved an increase in prices to the consumer. Taking the
period of 1897-19 10, and comparing the movement of
prices between eighteen important trust-controlled prod-
ucts, and the same number of important commodities not
produced by monopolistic concerns. Professor Meade con-
cluded that the former were sold at a " much lower " rela-
tive level than the latter.^ His computations were based
upon figures compiled by the Bureau of Labour. Accord-
1 " Concentration and Control," p. 20.
2 Page 621.
3 The Journal of Political Economy, April, 1912, p. 363.
THE MORAL ASPECT OF MONOPOLY 267
mg to the Commissioner of Corporations, the Standard
Oil Company " has taken advantage of its monopoly power
to extort prices much higher than would have existed under
free competition." ^ The same authority shows that the
American Tobacco Company used its power to obtain con-
siderably more than competitive prices on some of its
products.^ Excessive prices, as measured by the stand-
ards of competition, were also established by the United
States Steel Corporation, the American Sugar Refining
Company, and the combinations in meat packing and in
lumber.^
A safe statement w^ould probably be that the greater part
of the surplus gains of the most conspicuous American
monopolies have been due to excessive prices rather than to
economies of production.
Let us turn from the subject of unjust monopoly gains
to that of unfair methods used by the great combinations
toward their competitors. These methods are mainly
three: discriminative underselling, exclusive-selling con-
tracts, and advantages in transportation.
Discriminative Underselling
The first of these practices is exemplified when a
monopoly sells its goods at unprofitably low rates in com-
petitive territory, while maintaining higher prices else-
where; and when it offers at very low prices those kinds
of goods which are handled by competitors, while holding
at excessively high prices the kinds of commodities over
which it has exclusive control. Both forms of the practice
seem to have been extensively used by most of the monopo-
listic concerns of America.* The Standard Oil Company
has been perhaps the most conspicuous offender in this
1 Report on the Petroleum Industry, II, 74.
2 Report on the Tobacco Industry, II, 27.
3Cf. Van Hise, op. cit., pp. 140, 149, I53, 159-
* Final Report of the Industrial Commission, pp. 660-662.
268 DISTRIBUTIVE JUSTICE
field.^ This practice is unjust because it violates the fun-
damental moral principle that a man has a right to pursue
a lawful good without hindrance through illicit means.
Among the illicit means enumerated by the moral theo-
logians are force, fraud, deception, lying, slander, intimida-
tion, and extortion.^
The illicit means employed in discriminative under-
selling are chiefly extortion and deception. If the very
low prices at which the monopoly sells in the field which
contains competitors were maintained outside of that field
also, and if they were continued not merely until the inde-
pendent concerns were driven out of business, but indefi-
nitely afterward, no injustice would be done the latter.
For no man has a natural right to any particular business.
If a powerful concern can eliminate competitors through
low prices made possible by superior efficiency, the com-
petitors are not unjustly treated. They have no more
just cause of complaint than the inefficient grocer whose
custom is attracted from him by other and more efficient
merchants. The offence is at the worst contrary to
charity. But when the monopoly maintains the low and
competition-eliminating prices only locally and temporarily,
when it is enabled to establish and continue these prices
only because it sells its goods at extortionate rates else-
where, the latter prices are evidently the instrument or
means by which the competitors are injured and eliminated.
In that case the monopoly violates the right of the com-
petitors to pursue a lawful good immune from unfair
interference. The lawful good is a livelihood from this
kind of business; and the illicit interference is the unjust
prices maintained outside the competitive field.
In the preceding paragraph we have assumed that the
extortionate prices are operative at the same time as the
excessively low prices, but in a different place. Suppose
1 Report on the Petroleum Industry, I, 328-332.
2Cf. Lehmkuhl, " Theologia Moralis," I, No. 974.
THE MORAL ASPECT OF MONOPOLY 269
that the former are imposed only after the independent
concerns are eHminated. The injustice to the competitors
remains the same as in the preceding case. AUhough the
extortionate prices are later in time, they are the instru-
mental cause of the destructive low prices through which
the competitors were driven out of business. If the
owners of the monopoly were not certain of their ability
to establish the subsequent extortionate prices, they would
not have put into effect the unprofitably low prices. Hence
there is a true causal connection between the former and
the latter. Although the connection is mainly psychical,
through the consciousness of the monopoly owners, it is
none the less real and effective. Its practical effectiveness
is seen in the fact that the subsequent possibility of impos-
ing extortionate prices will induce men to lend the mo-
nopoly money to carry on the process of exterminating
competition. The process is maintained by means of the
extortionate prices quite as effectively as though the two
things were simultaneous.
In so far as the patrons of the independent concerns are
deceived into expecting that the very low prices will be
permanent, and in so far as this impression causes them to
withdraw their patronage from the independents, the latter
are injured through another illicit means, namely, decep-
tion. The competitors have a right not to be deprived of
their customers through imposture.
What is the measure of extortionate prices in this con-
nection? How can we know that the high, competition-
eliminating prices are really extortionate? There are only
two possible tests of just price. The first is the proper
cost of production, — fair wages to labour, fair prices for
materials, and fair interest on capital. If the monopoly
does not raise prices above this level, it obviously does not
impose extortionate prices, nor inflict injustice upon the
eliminated competitor. Moreover, if the monopoly has
introduced economies of production it may, as we have
270 DISTRIBUTIVE JUSTICE
seen, justly charge prices somewhat above the cost-of-
production level. But it may not raise them above the
level that would have prevailed under competition. This
is the second test of just price. No possible justification
can be found, except one to be mentioned presently, for
charging the consumers higher prices than they could have
obtained under competitive conditions. At such prices the
monopoly will be able to secure the prevailing rate of in-
terest on its capital, and all the surplus gains that proceed
from superior efficiency. A higher scale of prices will be,
therefore, extortionate, and the competitors who are elim-
inated through its instrumentality will be the victims of
injustice.-^
The exception alluded to above occurs when the
monopoly uses the excess which it obtains over the com-
petitive price to pay fair wages to those labourers who
were insufficiently compensated in competitive conditions.
In such a case the eliminated competitors would have no
just claim against the monopoly; for their elimination took
place in the just interest of the producers. The case,
however, is purely academic, since the discriminative
underselling practised by our monopolistic concerns has not
been impelled by any such motive, nor has it achieved any
such result.
Exclusive-Sales Contracts
The second unfair method employed by monopolies
toward competitors is that of exclusive-selling contracts,
1 It may be of interest to recall the mediseval attitude toward monop-
olistic exactions, as summarily stated by St. Antoninus, who was arch-
bishop of Florence in the first half of the fifteenth century: "When
monopolist merchants agree together to preserve a fixed price, so as to
secure an unlimited profit, they are guilty of sinful trading." Ke
maintained that they should not sell above the market price, and should
be prevented from so doing by law. See his " Summa Theologica,"
III, 8, 3, iv, and II, i, t6, ii. Present day moral theologians lay down
the' same doctrine, and in addition condemn the characteristic monopo-
listic methods as unjust. See Tanquerey, " De Justitia," nos. 776, 777;
Lehmkuhl, " Theologia Moralis," vol. I, no. 11 19.
THE MORAL ASPECT OF MONOPOLY 27 1
sometimes called the " factor's agreement." It requires
the dealer, merchant, or jobber to refrain from selling the
goods produced by independent concerns, on penalty of
being refused the goods produced by the monopoly. The
merchant is compelled to choose between the less important
line of wares to be had from the former, and the more
important line obtainable from the latter. He will not be
permitted to handle both. " Here is somebody who has
been buying goods, let us say, by way of illustration, from
the American Tobacco Company, and a rival producer
comes in whom the merchant likes to patronise. He buys
goods for a time from the rival, and an agent of the trust
sends him a note to the effect that he must not buy any
more from that rival corporation; that, if he does so, the
trust will give all of its own goods, some of which the
merchant is obliged to have, to another agent. That will
probably bring him to terms." ^ By this method the inde-
pendent manufacturer can be deprived of sufficient pat-
ronage to injure him seriously, and perhaps to drive him
out of business.
This process is one of intimidation brought to bear upon
the merchant. Through fear of loss he is compelled to
discontinue selling the goods of the competing manufac-
turer. It is a kind of secondary boycott. As such, it is
an unreasonable interference with the liberty of the mer-
chant unless its object is to compel him to do something
that he may be reasonably required to do. In the case
that we are considering, the object of the pressure is not
of that character; for to drive the rival manufacturer out
of business, or to assist in his expulsion, is not a reason-
able thing. The exclusive-selling contract which is forced
upon the merchant is quite as unreasonable as though its
purpose were to prevent him from, say, patronising manu-
facturers having red hair. Being thus unreasonable, thus
injurious to individual liberty, it violates not only the law
1 Clark, " The Problem of Monopoly," p. 35.
2'J2 DISTRIBUTIVE JUSTICE
of charity but that of justice. It transgresses the mer-
chant's right to enter reasonable contracts with the rival
manufacturer, and if it results in a pecuniary loss to the
former it is an invasion of his rights of property. It like-
wise violates the rights of the competitive manufacturer,
since it is among the unfair means which may not be used
to prevent a man from pursuing a legitimate good. It is
an unfair means because it involves unreasonable intimida-
tion, uncharity, and injustice toward the merchant. When
the independent manufacturer is injured through such an
instrumentality, he suffers injustice quite as certainly at the
hands of the monopoly as though his property were
destroyed through the strong-arm methods of hired thugs.
Discriminative Transportation Arrangements
Concerning the third unfair method, discriminative ad-
vantages in transportation, the United States Industrial
Commission declared : *' It is incontestable that many of
the great industrial combinations had their origin in rail-
road discrimination. This has been emphasised many
times in the history of the Standard Oil Company, and of
the great monopolies dealing in live stock, dressed beef,
and other products." ^ The American Sugar Refining
Company has been several times convicted of receiving
illegal favours from railroads, and has paid in fines thou-
sands upon thousands of dollars. Sometimes the monop-
oly has openly been accorded lower freight rates than its
competitors, and sometimes it has paid the regular charges,
and then received back a part of them as a refund or
rebate. At one time the Standard Oil Company obtained
rebates not only on its own shipments, but on those of its
rivals ! ^
Special advantages of this sort necessarily involve in-
justice to the competitors of the monopoly. If the low
1 Final Report, p. 361.
? Report on the Petroleum Industry, pp. 22, 23.
THE MORAL ASPECT OF MONOPOLY 273
rates given to the monopolistic concern are a sufficiently
high price for the service of carrying freight, the higher
charges imposed upon the competing concerns are extor-
tionate; if the former rates are unprofitably low, the dif-
ference between sufficient and insufficient freight charges
is made up by the independent concerns. In the former
case the independents pay the railroad too much; in the
latter case they bear burdens that should properly rest upon
the monopoly. The monopolistic concern is partly respon-
sible for this injustice inasmuch as it urges and often in-
timidates the railroad to establish the discriminating rates.
All three of the practices that we have been considering
are universally condemned by public sentiment. They are
all likewise under the ban of statutory law. The first two
have recently received detailed and explicit prohibition in
the Clayton Anti-Trust Act.
Natural Monopolies
Up to this point we have been dealing with private and
artificial monopolies. We turn now to consider briefly
those natural and quasi-public monopolies which are either
tacitly or explicitly recognised as monopolies by public
authority, and whose charges are to a greater or less extent
regulated by some department of the State. Such are, for
example; steam railroads and municipal utilities. When
the charges made for the services of these corporations are
adequately regulated by public authority, the owners of
such concerns will have a right to all the surplus gains that
they can obtain. In that case a contract is made between
the corporation and the public which is presumably fair to
both parties, and which represents the social estimate of
what is just. If the public authorities have not sufficiently
safeguarded the interests of the people, if they have per-
mitted the charges to be so high as to provide excessive
returns for the corporation, the latter is under no moral
obligation to refrain from reaping the full benefit of the
274 DISTRIBUTIVE JUSTICE
State's negligence or incompetence. If, however, the un-
duly high rates have been brought about through bribery,
extortion, or deception practised by the corporation, the
inequitable contract thus arranged will not justify the
surplus gains thus produced. For example; if the cor-
poration deliberately and effectively conceals the real value
of its property through stockwatering, and thus misleads
the public authority into permitting charges which return
twelve instead of six per cent, on the actual investment,
the corporation cannot forthwith justly claim the surplus
gain represented by the extra six per cent.
When the public authorities either fail entirely to regu-
late charges, or do so only spasmodically and partially, the
quasi-public monopoly will not necessarily have a right to
all the obtainable surplus gains. For a long time the ex-
press companies of the United States were permitted to
exact what charges they pleased, and even yet the rates on
some of our railroads are not adequately regulated by the
State. In such cases the charges imposed on the public
are not an adequate expression of the social estimate of
justice, nor an adequate basis of legitimate surplus gains.
In the absence of sufficient public regulation, a quasi-public
monopoly is morally bound to fix its charges at such a level
as will enable it to obtain only the prevailing rate of in-
terest on the investment, and such surplus gains as it can
produce through exceptional efficiency. In all such cases
the public service corporation is in the same moral posi-
tion as the artificial monopoly : it has no possible basis ex-
cept superior efficiency for claiming or getting any returns
above the competitive rate of interest on its capital. Its
only possible reason for obtaining more is the fact that it
has the power to take more. This fact has obviously no
moral validity.
THE MORAL ASPECT OF MONOPOLY 275
Methods of Preventing Monopolistic Injustice
How shall the injustices of monopoly be prevented in
the future? So far as quasi-public monopolies are con-
cerned, all students of the subject are now agieed that
these should be permitted to exist under adequate govern-
mental regulation as to prices and service. The reason is
that in this field successful and useful competition is im-
possible. Public utility corporations are natural monopo-
lies, and must be dealt with by the method of regulation
until such time as they are brought under the ownership
and operation of the State. With regard to the great in-
dustrial combinations which have become or threaten to
become artificial monopolies, there exists substantial agree-
ment among competent authorities on one point, and dis-
agreement on another point. All admit that the unfair
competitive methods described in an earlier part of this
chapter should be stringently prohibited. No possible
reason can be found for legal toleration of these or any
other discriminative, uncharitable, or unjust practices on
the part of stronger toward weaker competitors.
The disagreement among students of monopoly relates
to the fundamental question of permitting or not permit-
ting these combinations to exist. According to the first
theory, of which Mr. Justice Brandeis is the most dis-
tinguished exponent, no new industrial monopolies should
be permitted, and those that we have should be dissolved.
The basis of this theory is the assumption that all the
economies and all the productive efficiency found in mo-
nopolistic concerns can be developed and maintained in
smaller business organisations, and that the method of
prevention and dissolution is the simplest means of pro-
tecting the public against the danger of extortionate
monopoly prices. Attention has been called in a preceding
paragraph to the impossibility of determining whether the
great monopolistic combinations have on the average
276 DISTRIBUTIVE JUSTICE
shown themselves to be more efficient than concerns sub-
ject to active and adequate competition. It is significant,
however, that in the discussion of this subject which took
place at the twenty-sixth annual meeting of the American
Economic Association, at Minneapolis in 1913, the econo-
mists who participated were practically unanimous in hold-
ing that the superior efficiency of the trusts had not been
demonstrated, but was a matter of serious doubt, and that
the burden of proof of their alleged superiority had been
definitely shifted upon those who maintained the affirma-
tive.^ Probably the great majority of the whole body of
American economists would share these conclusions.
On the other hand, the opponents of prevention and
dissolution, of whom Mr. George W. Perkins is probably
the most conspicuous, point to the obvious economies of
large-scale over small-scale production, and contend that
these are sufficient reason for permitting and even encour-
aging the great combinations. The power to oppress com-
petitors by unjust methods of business, and the public by
extortionate prices, should be kept under rigid control by
supervision, and government regulation of maximum
prices. But the arguments advanced in favour of this
position are never conclusive. Most of its advocates fail
to realise, or at least to take adequately into account, the
difference between large-scale production and production
by a monopoly. While the large plant and the large busi-
ness organisation have in many lines of manufacture and
trade a considerable advantage over the small plant and the
small organisation, there is not a scintilla of evidence to
show that the efficiency of magnitude increases indefinitely
with magnitude. There is no proof that the maximum
efficiency is reached only with the maximum size of the
business unit. On the contrary, all the evidence that we
have points to the conclusion that in every field of indus-
trial and commercial enterprise, all the economies of mag-
1 " Papers and Proceedings," pp. 158-194.
THE MORAL ASPECT OF MONOPOLY 277
nitude and of combination are obtained long before the
concern becomes a monopoly. There is not an industry
of any importance in the United States in which all the
advantages of bigness and concentration cannot be made
operative in concerns that control as low as twenty-five per
cent, of the total product. The highest economy and effi-
ciency can be obtained without monopoly.
Indeed, this is admitted by the more reasonable advo-
cates of the regulation and price-fixing policy. While
maintaining that " concentration must go far in order to
give the maximum of efficiency," President Van Hise does
not hold " that it should go to the extent that the element
of monopoly enters " ; and he would have the law " declare
restraint of trade unreasonable that gets to monopoly,"
and fix the definite per cent, of business control which
constitutes a monopoly.^ We are justified, therefore, in
concluding that the theory of prevention and dissolution
(provided that the competing units are not made so small
as to destroy the certain economies of magnitude) rather
than the theory of permission and regulation, indicates
the sound economic and social policy of dealing with
monopolies.
Legalised Price Agreements
President Van Hise advocates the regulation policy in
a modified form. In substance his view is that, while no
corporation should be permitted to control the greater part
of any product, monopolistic price-agreements should be
sanctioned and regulated by law. No amount of restric-
tive legislation, he maintains, can secure universal compe-
tition in the matter of prices. Experience shows that the
destructive results of cut-throat competition compel the
more powerful competitors to make price agreements in
some lines of business.^ For example; all the retail
grocers in a city are often found selling certain staples at
1 Op. cit., pp. 20, 251. 2 op. cit., pp. 2S4'-26s.
278 DISTRIBUTIVE JUSTICE
a uniform price for long periods of time. Agreements of
this sort should, in the opinion of President Van Hise, be
formally permitted by law, with the proviso that a govern-
ment commission should fix the maximum and possibly the
minimum limits. And he contends that the task of fixing
fair maximum and minimum prices would be much less
difficult than is commonly supposed, and that it would be
much simpler and easier than the task of regulating rail-
way freight rates.
Whatever may be the merits of this plan, it is not likely
to be embodied in legislation in the near future. So far as
we can see now, the American people are committed to the
policy of endeavouring to restore genuine competition by
prohibiting those predatory practices to which the great
monopolies mainly owe their existence. The attempt will
be made to give competition a fair opportunity to prevent
both monopolistic control of products and monopolistic
fixing of prices. Competition has not enjoyed any such
opportunity during the last quarter of a century. If this
attempt should fail after a thorough trial, the time will be
at hand for the regulation of prices by the government.
Until that time has arrived (let us hope that it never will
arrive) the State will not, and should not, embark upon
such a large and difficult experiment.
CHAPTER XIX
THE MORAL ASPECT OF STOCK WATERING
In the last chapter we saw that a monopoly has no right
to gains in excess of the competitive rate of interest on its
capital, except in so far as these have been derived from
superior efficiency. Now superior efficiency is clearly
present whenever the monopolistic concern obtains surplus
gains by selling its product at competitive prices, or at the
prices that would have prevailed under competition. Evi-
dently the surplus in such a case is due to the greater pro-
ductivity of the monopoly as compared with the average
productivity of competitive concerns. When, however,
the monopoly charges prices above the competitive level,
its surplus gains cannot all be attributed to unusual effi-
ciency. A part if not all of them are the result simply of
the power to take ; consequently they are immoral.
One of the means by which some monopolies have ob-
tained unjust surplus gains is overcapitalisation, or stock-
watering. This practice is rarely found in businesses that
are subject to normal competition. So far as the con-
sumer is concerned, a corporation that cannot fix prices
arbitrarily has nothing to gain by inflating its capital.
Unless it develops exceptional efficiency, it cannot hope to
obtain more than the competitive rate of interest on its
capital; if it does become exceptionally efficient, it can take
the resulting surplus gains without arousing public resent-
ment or criticism. In either case, it will have no sufficient
reason to deceive the public by exaggerating the amount of
its capital. When a competitive concern does water its
stock, the object will be to defraud investors. If the
279
28o DISTRIBUTIVE JUSTICE
scheme is successful the unjust surplus gains are taken by
one set of stockholders from another set of stockholders.
Whenever anything of this sort occurs, the deceptive de-
vices employed are so crude and obvious that they present
no special problem for the moralist. Even as practised by
monopolies, stockwatering raises no principle that has not
been already discussed. It does, however, create some
special difficulties in the matter of applying the moral prin-
ciples involved. Consequently, it may with advantage be
considered in a separate chapter.
The general definition of overcapitalisation is capitalisa-
tion in excess of the proper valuation of a business. What
is the measure of proper valuation? According to many
corporation directors, it is earning power. If a concern
is able to get the prevailing rate of interest on a capitalisa-
tion of ten million dollars, that is the proper capitalisation
for that concern, even though the money actually invested
might not have exceeded five million dollars. In the
opinion of most other persons, however, a company is over-
capitalised when the face value of its securities is greater
than the money put into the business plus the subsequent
enhancement in the value of its land. " The money put
into the business," means that which has been expended
for labour, materials, land, equipment, and all other items
and costs of organising the concern, together with the sum
that is necessary to cover the interest not obtained by the
investors during the preparatory period before the business
became productively operative. The increase in the value
of the land after its acquisition by the company also de-
serves a place in the legitimate valuation, and may reason-
ably be represented by an appropriate amount of securities.
Monopolistic corporations have as good a right, generally
speaking, to profit by the " unearned increment " of land
as competitive concerns. In brief, the proper measure of
capitalisation is cost: either the original cost, as just ex-
THE MORAL ASPECT OF STOCKWATERING 281
plained and supplemented; or the present cost of reproduc-
ing the business.
Injurious Effects of Stockwatering
Stockwatering can become an instrument of unjust
gains in two ways : first, through fraud inflicted upon some
of the investors; second, through the imposition of exorbi-
tant prices upon the consumers. The former cannot occur
so long as the process of inflation does not go beyond earn-
ing power; for in that case all stockholders, barring dis-
honest manipulation of the company's receipts, will obtain
the normal rate of interest on their investment. If, how-
ever, stock is sold in excess of the earning power of the
concern, those stockholders who fail to obtain the ordinary
rate of interest on their money are unjustly treated in so
far as they have been deceived. And those officers or
other members of the corporation who have profited by
the deception of and injury to these stockholders, are the
recipients of unjust gains. Daniel Drew inflated the capi-
talisation of the Erie Railroad from seventeen millions to
seventy-eight millions within four years for the purpose
of manipulating the stock market; owing to excessive
issues of stock, the American Shipbuilding Company was
thrown into bankruptcy to the great injury of all but one
of its stockholders ; ^ because they issued securities to buy
subsidiary railway lines at exorbitant prices, and to provide
extravagant commissions and discounts for bankers, the
directors of the 'Frisco System forced it into a receiver-
ship, after having inflicted a net loss of four million dol-
lars per year upon the stockholders.^ Many other notable
performances might be cited where stockwatering, both in
railroads and in industrial concerns, has defrauded in-
1 Cf. Ripley, " Trusts, Pools, and Corporations," pp. 207-210.
2 See Report of the Interstate Commerce Commission on these trans-
actions.
282 DISTRIBUTIVE JUSTICE
vestors of millions of dollars, and enabled a few powerful
directors to reap corresponding enormous profits.
At first sight it would seem that stock watering is of little
or no importance to the consumer. Since a monopolistic
concern endeavours to fix its prices at the point that will
yield the maximum net profit in any case, the amount of
stock in existence would seem to be irrelevant to the prob-
lem. Nevertheless, the presence of a large quantity of
fictitious capital whose owners are calling for dividends,
sometimes constitutes a special force impelling the imposi-
tion of higher prices and charges. " It will happen at
times that overcapitalisation does at least cause a clinging
to high prices. The managers of an overcapitalised mo-
nopoly may have to face the fact that great blocks of
securities are outstanding, very likely issued by their prede-
cessors, and now held by all sorts of investors. They are
then loath to let go any slice of its profits. We have seen
that often the monopoly principle of maximum net profit is
not applied in its full sweep, especially in industries which
are potentially subject to public control. Where abnormal
returns on the original investment have been made, con-
cessions to public opinion in the way of low rates and
better facilities are more likely to come when capitalisation
has not been inflated." ^ The United States Industrial
Commission found that as regards railroads : " In the long
run excessive capitalisation tends to keep rates high; con-
servative capitalisation tends to make rates low." ^
This indirect influence of stockwatering toward exces-
sive rates and prices becomes effective in two ways. The
existence of fictitious capital conceals from the public the
high rate of return that is obtained on the true valuation,
thus preventing effective action for a reduction in prices
and charges; and it sometimes causes the rate-making
authorities to allow rates to be sufficiently high to yield
1 Taussig, " Principles of Economics," II, 385, 386.
2 Final Report, p. 414.
THE MORAL ASPECT OF STOCKWATERING 283
something to the investors in the inflated capital. If a
trust or a railroad has issued stock having a par value of
tv^ice the capital invested, its rate of dividend on the entire
capitalisation will be only one-half the rate of interest that
it is receiving on the investment. If it pays, for example,
seven per cent, on all its stock, it will be getting fourteen
per cent, on its genuine capital. While the consumers of
tobacco, or the patrons of a railroad, would raise no out-
cry against seven per cent, dividends, they would probably
begin to agitate for an enforcement of the anti-trust laws,
and for a reduction in freight and passenger charges, if
they realised that they were providing for dividends of
fourteen per cent. Nor is the public adequately protected
by government investigations of trusts and regulation of
railway rates. Despite the anti-trust laws, many Amer-
ican monopolies have for many years received exorbitant
profits through excessive prices imposed upon the con-
sumer; and in many of these instances overcapitalisation
and its resulting concealment of real profits have been of
considerable assistance to the extortionate monopoly. In
fixing railway rates, the Interstate Commerce Commission,
and the various state railroad commissions, have been
seriously hampered by their inability to determine the real
investment of the roads, and to separate the genuine from
the fictitious capitalisation. N'ot until the year 19 13 did
the national government begin the task of making a valua-
tion' of interstate railroad property, and the work will re-
quire several years. Very few of the states have made
valuations of the railroads within their borders. In the
meantime it is certain that many of the rates fixed by both
the national and the state bodies will continue, as in the
past, to be higher than they would have been if the true
value of the railroads were known and accepted as the
basis of freight and passenger charges.
The second bad effect of stockwatering on the consumer
is seen when rate-fixing bodies deliberately permit the
284 DISTRIBUTIVE JUSTICE
charges of public service corporations to be high enough
to include some returns on that portion of the capitalisa-
tion which is fictitious. It is very difficult for such author-
ities to resist entirely the plea of the " innocent investor."
Consequently, railroad commissions and other rate making
authorities, and even the courts, have occasionally made
some provision for dividends on the " water." Chairman
Knapp of the Interstate Commerce Commission admitted a
few years ago that, in considering the reasonableness of a
given rate, this body took into account the financial condi-
tion, and therefore the capitalisation of the railroad.^ In
1 91 4 and 191 5 practically all the great railway systems of
the United States made powerful, and in a measure suc-
cessful, appeals to the Interstate Commerce Commission
for a rise in rates on the ground that they were unable to
pay the normal rate of interest on their securities, and
hence could not obtain on advantageous terms new capital
needed for improvements. Had the capitalisation of the
roads been kept down to the actual investment, most of
them would have been able to pay the competitive rate of
interest on all their stock, and still have a sufficient surplus
to command excellent credit.
The Moral Wrong
When prices or charges are made high enough to pro-
vide returns on fictitious capital, the consumer is treated
unjustly. As we have shown more than once, the con-
sumer cannot rightfully be required to pay for the products
of a monopoly at a greater rate than is necessary to pro-
vide the competitive rate of interest on capital in the aver-
age conditions of efficiency. If some concerns are able
to sell at this price, and still obtain surplus gains, they
have a right thereto on account of their exceptional pro-
ductivity. But the capital upon which a monopolistic con-
cern has a claim to the prevailing rate of interest, is genuine
1 Final Report of the Industrial Commission, p. 413.
THE MORAL ASPECT OF STOCKWATERING 285
capital : that is, the actual investment as interpreted above,
not an inflated capitalisation. The consumers may justly
be required to pay for the use and benefit of actual pro-
ductive goods; but it is not just that they should be com-
pelled to pay for the supposed use of a capital that has no
concrete reality.
The stockholders of the monopolistic corporation which
imposes upon the consumers exorbitant prices or charges
through the instrumentality of inflated capitalisation, can
become guilty of this injustice in two ways: by promoting
the improper capitalisation; and by getting dividends on
stock for which they have not given a fair equivalent. As
a rule, the greater part of such guilt and responsibility
rests upon certain special and powerful groups among the
stockholders. For example; the J. P. Morgan syndicate
which organised the United States Steel Corporation
received for that service securities to the value of
$63,500,000. " There can be no question," says the
Commissioner of Corporations, " that this huge compensa-
tion to the syndicate was greatly in excess of a reasonable
payment." ^ The syndicate was able to exact this stupen-
dous sum mainly because some of its members were also
in control of some of the companies that were brought
into the combination. *' In other words, as managers of
the Steel Corporation these various interests virtually de-
termined their compensation as underwriters." ^ In the
opinion of the minority members Of the Stanley congres-
sional investigating committee, " such a sum bore no rela-
tion whatever to the service rendered, the risk run, and
the capital advanced." ^ The majority of the committee
characterised the transaction in even stronger language.
It is clear, therefore, that the syndicate committed injustice
toward the consumers both by organising a monopoly
1 Report on the Steel Industry, p. 38.
2 Idem, p. 39.
3 Chicago Record-Herald, July 29, 1912.
286 DISTRIBUTIVE JUSTICE
which afterward imposed unjust prices, and by .taking
millions of dollars in securities which its members did not
earn, and on which they received interest through the
exorbitant prices. While this transaction is exceptionally
conspicuous, it is substantially typical of the methods by
which many powerful monopolies have watered their stock
to the detriment of the public, and the advantage of a
small group of directors and financiers.
The " Innocent " Investor
Is the State obliged to protect, or is even justified in
protecting, the innocent victims of stockwatering ? That
is to say, should rate-making authorities fix the charges of
public service corporations high enough to return some
interest to the purchasers of fictitious securities? All the
facts and presumptions of the case seem to demand an
answer in the negative. In the first place, it is impossible
to distinguish the " innocent " holders from those who
were fully acquainted with the questionable and speculative
nature of the stock at the time it came into their posses-
sion. In the second place, the civil law has never formally
recognised any such claim on the part of even innocent
investors, nor any such obligation on the part of itself.
It has never laid down the principle that any class of in-
vestors in fictitious stock has a legal or moral right to
obtain the normal rate of interest on such stock through
the imposition of sufficiently high charges upon the con-
sumers. Nor have the courts, except in isolated instances,
sanctioned any such principle. On the contrary, the
Supreme Court of the United States, in the case of Smyth
vs. Ames, declared that a railroad '' may not impose upon
the public the burden of such increased rates as may be
required for the purpose of realising profits upon such ex-
cessive valuation or fictitious capitalisation." In the third
place, when we consider the matter from the side of
morals, we see that the innocent investors are not the only
THE MORAL ASPECT OF STOCKWATERING 287
persons whose rights are involved. If charges are placed
high enough to cover interest on fictitious capital, the cost
and the injury fall upon the consumers. The latter have
a right to the services of utility corporations, such as rail-
ways and gas companies, at a fair price; that is, a price
which will return to the capital put into the concern the
prevailing rate of interest, plus whatever gains are ob-
tained by exceptional efficiency. To require them to pay
more than this, is to compel them to give something for
nothing; namely, to provide interest on capital which does
not exist, and from which they receive no benefit. When,
therefore, the State intervenes to secure fair charges for
the consumers, it should base them upon the capital actually
invested and used in the business of public service.
Frequently, however, the State has permitted over-
capitalisation, and charges sufficient to pay normal divi-
dends thereon, for long periods of years. Has it not
thereby encouraged investors to cherish the expectation
that these high charges would be permitted to continue,
and that the fictitious stock would remain indefinitely as
valuable as when it came into their possession? Is it not
breaking faith with these investors when it reduces charges
to the basis of the actual investment ? A sufficient answer
to these questions is found in the fact that the State has
never officially sanctioned the practice of stockwatering,
nor in any way intimated that it would recognise the exist-
ence of the fictitious stock when it should take up the
neglected task of fixing fair rates and charges. At the
most, the civil law has merely tolerated the practice, and
the resulting extortion upon the public. And there has
never been a time when the greater and saner part of public
opinion did not look upon overcapitalisation as at the least
abnormal and irregular. Neither from the civil law nor
from public sentiment have the devices of inflating capi-
talisation received that measure of approval which would
confer upon investments therein the legal or the moral
288 DISTRIBUTIVE JUSTICE
Status of vested rights. To the " innocent investor " in
watered stocks the maxim, caveat emptor, is as fairly
appHcable as to the man who has been deceived into lend-
ing his money on insufficient security, or the man who has
been induced by the asseverations of a highly imaginative
prospectus to put his money into a salted gold mine, or the
man who buys stolen goods from a pawn shop, or the man
who because of insufficient police protection loses his purse
to a highwayman. In all these cases perfect legal safe-
guards would have prevented the loss ; yet in none of them
does the State undertake to make the loss good to the
innocent victim.
Such seems to be the strict justice of the situation as
between the consumer and the innocent investor. It may
sometimes happen that a particularly grave hardship can be
averted from the latter at a comparatively slight cost to
the former. In such a case equity would seem to require
that some concession be made to the investors through the
imposition of somewhat higher charges upon the consumer.
Magnitude of Overcapitalisation
Probably the majority of the great steam railroads,
street railways, and gas companies that were organised
during the last quarter of the nineteenth century inflated
their capitalisation to a greater or less extent. Since the
year 1900 the trusts have been the chief exponents and
illustrations of the practice. According to President Van
Hise, " the majority of the great concentrations of in-
dustry have gone through two or three stages of reorgani-
sation, the promoters and financiers each time profiting
greatly, sometimes enormously." ^ For example; in 1908
the " water " in the American Tobacco Company was esti-
mated by the Commissioner of Corporations at $66,-
000,000; the United States Shipbuilding Company
diluted its twelve and one-half million dollars of capital
1 Op. cit., p. 28.
THE MORAL ASPECT OF STOCKWATERING 289
with more than fifty-five miUions of " water " ; the United
States Steel Corporation contained at the time of its organ-
isation fictitious capital to the amount of $5oo,ocmd,ooo;
and at least fifty per cent, of the common stock of the
American Sugar Refining Company represented no actual
investment.-^ Owing to the penetrating and widespread
criticism, and the government investigations and prosecu-
tions of the last few years, the practice of stockwatering
has very greatly diminished. Perhaps the most flagrant
recent example is that of the Pullman Company, which
according to the testimony of R. T. Lincoln before the
Federal Commission on Industrial Relations, distributed
among its stockholders $100,000,000 in stock dividends
between 1898 and 1910.
Nevertheless the temptation to inflate capital will exist
until the device is stringently prohibited by law. Both the
nation and the states ought to adopt the policy of forbid-
ding the sale of stock at less than par value, and restricting
issues of stock to the amount required for the establish-
ment, equipment, and permanent betterment of a concern,
including a sum to cover the loss of interest to the investors
during the early period of the business. Any extraor-
dinary risks to which an enterprise is liable can be pro-
tected by the simple device of allowing a correspondingly
high rate of interest on the securities. With such legisla-
tion enacted and enforced, neither the investor nor the
consumer could be deceived or defrauded ; and the financing
and management of corporations would become less specu-
lative, and more beneficial to the community. The present
chapter may be fittingly closed Vx^ith a moderate and sig-
nificant statement from the pen of Professor Taussig:
" It is doubtful whether the whole mechanism of irregular
and swollen capitalisation was at any time necessary or
wise. Why not provide once for all that securities shall
be issued only to represent what has been invested? . . •
1 Cf . Van Hise, op. cit., pp. 29, 142, 149.
290 DISTRIBUTIVE JUSTICE
It IS sometimes said that freedom, even recklessness, in the
issue of securities was a useful device, in that it enabled
the projectors to look forward to returns really tempting,
and at the same time concealed these returns from a
grudging public. ... A more simple and straightforward
way of dealing with the issue of securities might thus
have dampened in some degree the feverish speculation
and restless progress of railway development. But a
slower pace would have had its advantages also, and, not
least, restriction of securities would have saved great com-
plications in the later stages of established monopoly and
needed regulation." ^
1 Op. cit, II, 387, 388.
CHAPTER XX
THE LEGAL LIMITATION OF FORTUNES
If the taxation and other measures of reform suggested
in Section I were fully applied to our land system; if co-
operative enterprise were extended to its utmost practicable
limits for the correction of capitalism; and if the wide
extension of educational opportunities, and the elimina-
tion of the surplus gains of monopolies restricted the
profits of the business man to an amount strictly com-
mensurate with his ability and risks, — if all these results
were accomplished the number of men who could become
millionaires through their own efforts would be so small
that their success would arouse popular applause rather
than popular envy. Their claim to whatever wealth they
might accumulate would be generally looked upon as en-
tirely valid and reasonable. Their pecuniary eminence
would be pronounced quite as deserved as the literary emi-
nence of a Lowell, the scientific eminence of a Pasteur,
or the political eminence of a Lincoln. In such conditions
there could be no disconcerting discussion of the menace
of great fortunes.
In the meantime, these reforms are not realised, nor are
they likely to be even approximately established within
the present generation. For some time to come it will be
possible for the exceptionally able, the exceptionally cun-
ning, and the exceptionally lucky to accumulate great riches
through clever and fortuitous utilisation of special advan-
tages, natural and otherwise. Moreover, a great propor-
tion of the large fortunes already in existence will persist,
and will be transmitted to heirs who will in many cases
291
292 DISTRIBUTIVE JUSTICE
cause them to increase. Can nothing be done to reduce
the size and lessen the number of these great accumula-
tions? If so, is such a proceeding socially and morally
desirable ?
The Method of Direct Limitation
The law might directly limit the amount of property to
be held by any individual. If the limit were placed fairly
high, say, at one hundred thousand dollars, it could scarcely
be regarded as an infringement on the right of property.
In the case of a family numbering ten members, this would
mean one million dollars. All the essential objects of
private ownership could be abundantly met out of a sum
of one hundred thousand dollars for each person. More-
over, a restriction of this sort need not prevent a man from
bestowing unlimited amounts upon charitable, religious,
educational, or other benevolent causes. It would, indeed,
hinder some persons from satisfying certain unessential
wants, such as, the desire to enjoy gross or refined lux-
uries, great financial power, and the control of immense
industrial enterprises; but none of these objects is neces-
sary for any individual's genuine welfare. In the interest
of the social good such private and unimportant ends may
properly be rendered impossible of realisation.
Such a restriction would no more constitute a direct
attack upon private ownership than limitations upon the
use and kinds of property. At present a man may not do
what he pleases with his gun, his horse, or his automobile,
nor may he invest his money in the business of carrying
the mails. The limitation of fortunes is just what the
word expresses, a limitation of the right of property. It
is not a denial nor destruction of that right. As a limita-
tion of the amount to be held by an individual, it does not
differ in principle from a limitation of the kinds of goods
that may become the subject of private ownership. There
is nothing in the nature of things nor in the reason of
THE LEGAL LIMITATION OF FORTUNES 293
property to indicate that the right of ownership is un-
limited in quantity any more than it is in quaHty. The
final end and justification of individual rights of property
is human welfare; that is, the welfare of all individuals
severally and collectively. Now it is quite within the
bounds of physical possibility that the limitation under
discussion might be conducive to the welfare of human
beings both as individuals and as constituting society.
Nevertheless the dangers and obstacles confronting any
legal restriction of fortunes are so real as to render the
proposal socially inexpedient. It would easily lend itself
to grave abuse. Once the community had habituated itself
to a direct limitation of any sort, the temptation to lower
it in the interest of better distribution and simpler living
would become exceedingly powerful. Eventually the right
of property might take such an attenuated and uncertain
form in the public mind as to discourage labour and
initiative, and thus seriously to endanger human welfare.
In the second place, the manifold evasions to which the
measure would lend itself would make it of very doubtful
efficacy. To be sure, neither of these objections is abso-
lutely conclusive, but taken together they are sufficiently
weighty to dictate that such a proposal should not be enter-
tained so long as other and less dangerous methods are
available to meet the problem of excessive fortunes.
Four of the nine members of the Federal Commission
on Industrial Relations have suggested that the amount of
property capable of being received by the heirs of any
person be limited to one million dollars.-^ If we assume
that by heirs the Commission meant the natural persons to
whom property might come by bequest or succession, this
limitation would permit a family of ten persons to inherit
one hundred thousand dollars each, and a family of five
persons to obtain two hundred thousand dollars apiece,
^ould such a restriction be a violation of the right of
1 " Final Report," p. 32.
294 DISTRIBUTIVE JUSTICE
private ownership? The answer depends upon the effects
of the measure on human welfare. The rights of bequest
and succession are integral elements of the right of owner-
ship ; hence they are based upon human needs, and designed
for the promotion of human life and development. A per-
son needs private property not only to provide for his
personal wants and those of his family during his life-
time, but also to safeguard the welfare of his dependents
and to assist other worthy purposes, after he has passed
away. Owing to the uncertainty of death, the latter ob-
jects cannot be adequately realised without the institutions
of bequest and succession.
All the necessary and rational ends of bequest and suc-
cession could be attained in a society in which no man's
heirs could inherit more than one million dollars. Under
such an arrangement very few of the children of million-
aires would be prevented from getting at least one hun-
dred thousand dollars. That much would be amply suffi-
cient for the essential and reasonable needs of any human
being. Indeed, we may go further, and lay down the
proposition that the overwhelming majority of persons can
lead a more virtuous and reasonable life on the basis of a
fortune of one hundred thousand dollars than when bur-
dened with any larger amount. The persons who have
the desire and the ability to use a greater sum than this in
a rational way are so few that a limitation law need not
take them into account. Corporate persons, such as hos-
pitals, churches, schools, and other helpful institutions,
should not, as a rule, be restricted as to the amount that
they might inherit; for many of them could make a good
use of more than the amount that suffices for a natural
person.
So much for the welfare and rights of the beneficiaries
of inheritance. The owners of estates would not be in-
jured in their rights of property by the limitation that we
are here considering. In the first place, the number of
THE LEGAL LIMITATION OF FORTUNES 295
persons practically affected by the limitation would be ex-
tremely small. Only an insignificant fraction of property
owners ever transmit or expect to be wealthy enough to
transmit to their families more than one million dollars.
Of these few a considerable proportion would not be de-
terred by the million dollar limitation from putting forth
their best and greatest efforts in a productive way. They
would continue to work either from force of habit and
love of their accustomed tasks, or from a desire to make
large gifts to their heirs during life, or because they wished
to assist some benevolent enterprise. The infinitesimally
small number whose energies would be diminished by the
limitation could very safely be treated as a socially neg-
ligible element. The commimity would be better off with-
out them.
The limitation of inheritance would, indeed, be liable
to abuse. Circumstances would undoubtedly arise in
which the community would be strongly tempted to make
the maximum inheritable amount so low as to discourage
the desire of acquisition, and to deprive heirs of reasonable
protection. While the bad effects of such a limitation
would not be as great as those following a similar abuse
with regard to possessions, they are sufficiently grave and
sufficiently probable to suggest that the legal restriction of
bequest and succession should not be considered except as
a last resort, and when the transmission of great fortunes
had become a great and certain public evil.
It seems reasonable to conclude, then, that neither the
limitation of possessions nor the limitation of inheritance
is necessarily a direct violation of the right of property,
but that the possible and even probable evil consequences
of both are so grave as to make these measures of very
doubtful benefit. Whether the dangers in question are
sufficiently great to render the adoption of either proposal
morally wrong, is a question that cannot be answered with
any degree of confidence. What seems to be fairly certain
296 DISTRIBUTIVE JUSTICE
is that in our present conditions legislation of this sort
would be an unnecessary and unwise experiment.
Limitation Through Progressive Taxation
Is it legitimate and feasible to reduce great fortunes
indirectly, through taxation? There is certainly no ob-
jection to the method on moral or social principles. As
we have seen in chapter viii, taxes are not levied exclu-
sively for the purpose of raising revenue. Some kinds of
them are designed to promote social rather than fiscal ends.
Now, to prevent and diminish dangerous accumulations of
wealth is a social end which is at least as important as
most of the objects sought in license taxes. The pro-
priety of attempting to attain this end by taxation is, there-
fore, to be determined entirely by reference to its probable
effectiveness.
The precise method of taxation available here is a pro-
gressive tax on incomes and inheritances. By a progres-
sive tax is meant one whose rate advances in some definite
proportion to the increases in the amount taxed. For ex-
ample, a bequest of 100,000 dollars might pay one per
cent. ; 200,000 dollars, two per cent. ; 300,000 dollars, three
per cent., and so forth. The reasonableness of the prin-
ciple of progression in taxation has been well stated by
Professor Seligman : " All individual wants vary in in-
tensity, from the absolutely necessary wants of mere sub-
sistence to the less pressing wants which can be satisfied
by pure luxuries. Taxes, in so far as they rob us of the
means of satisfying our wants, impose a sacrifice upon us.
But the sacrifice involved in giving up a portion of what
enables us to satisfy our necessary wants is very different
from the sacrifice involved in giving up what is necessary
to satisfy our less urgent wants. If two men have in-
comes of one thousand dollars and one hundred thousand
dollars respectively, we impose upon them not equal but
very unequal sacrifices if we take away from each the same
THE LEGAL LIMITATION OF FORTUNES 297
proportion, say ten per cent. For the one thousand dollar
individual now has only nine hundred dollars, and must
deprive himself and his family of necessaries of life; the
one hundred thousand dollar individual has ninety thou-
sand dollars, and if he retrenches at all, which is very
doubtful, he will give up only great luxuries, which do not
satisfy any pressing wants. The sacrifice imposed on the
two individuals is not equal. We are laying on the one
thousand dollar man a far heavier sacrifice than on the one
hundred thousand dollar man. In order to impose equal
sacrifices we must tax the richer man not only absolutely,
but relatively, more than the poor man. The taxes must
be not proportional, but progressive; the rate must be
lower in the one case than in the other." ^
The principle of equality of sacrifices which underlies
the progressive theory does not justify the levelling and
communistic inferences that have sometimes been brought
against it. Equality of sacrifice does not mean equality of
satisfied, or unsatisfied, wants after the tax has been col-
lected. If Brown pays a tax of one per cent, on his in-
come of two thousand dollars, it does not follow that Jones
with an income of ten thousand dollars should pay a suf-
ficiently high rate to leave him with only the net amount
remaining to Brown; namely, 1980 dollars. Equality of
sacrifice means proportional equality of burden, not equal-
ity of net resources after the tax has been deducted. The
object of the progressive rate is to make relatively equal
the sacrifices caused by the tax itself, not to equalise the
sum total of burdens or unsatisfied wants that exist among
men.
Another objection to progressive taxation is that it
readily lends itself to confiscation of the largest incomes.
All that is necessary to produce this result is to increase
the rate with sufficient rapidity. This could be accom-
1 " Progressive Taxation," pp. 210, 211 ; cf. Vermeersch, " Quaestiones
de Justitia," pp. 94-126.
298 DISTRIBUTIVE JUSTICE
plished either by large steps in the rate itself or by small
steps in the income increases which formed the basis of
the advances in the rate. For example, if the Federal in-
come tax, which at present levies two per cent, on incomes
of more than three thousand dollars, and three per cent, on
incomes of over twenty thousand dollars, should thereafter
progress geometrically with every geometrically progressive
increment of income, the rate on incomes above $640,000
would be 96 per cent. ! Or if the rate should progress
arithmetically with every ten thousand dollars of increase
above twenty thousand dollars, it would be 100 per cent,
on incomes of over $990,000!
To this objection there are two valid answers. Even if
the rate should ultimately reach one hundred per cent, it
need not, and on progressive principles it should not, effect
confiscation of an entire income. The progressive theory
is satisfied when the successive rates of the tax apply to
successive increments of income, instead of to the entire
income. For example, the rate might begin at one per
cent, on incomes of one thousand dollars, and increase by
one per cent, with every additional thousand, and yet leave
a very large part of the income in the hands of the re-
ceiver. Each one thousand dollars would be taxed at a
different rate, the first at one per cent., the fiftieth at fifty
per cent, and the last at one hundred per cent. If the
hundred per cent, rate were applied to the whole of the
higher incomes, it would be a direct violation of the prin-
ciple of equality of sacrifice. In the second place, the
progressive theory forbids rather than requires the rate to
go as high as one hundred per cent. While the sacrifices
imposed by a given rate are greater in the case of small
than of large properties, they become approximately equal
as between all properties above a certain high level. After
this level is reached, additional increments of wealth will
all be expended either for extreme luxuries, or converted
into new investments. Consequently they will supply
THE LEGAL LIMITATION OF FORTUNES 299
wants of approximately equal intensity. For example, the
wants dependent upon a surplus of 25,000 dollars in excess
of an income of 100,000 dollars, and the wants dependent
upon a surplus of 75,000 dollars above the same level do
not differ materially in strength. To diminish these sur-
pluses by the same per cent., say, ten, would impose pro-
portionally equal burdens.
Hence the rate of progression should be degressive; that
is, it should increase at a constant pace until a certain high
level of income is reached, then increase at a steadily di-
minishing pace, and finally become uniform on the very
highest incomes. For example; if the rate increased one
per cent, with every additional five thousand dollars,
reaching fifteen per cent, on incomes of seventy-five thou-
sand dollars, it should be on eighty thousand dollars, not
sixteen but fifteen and one-half per cent. On 85,000 dol-
lars the rate should be 15% per cent.; on 90,000, 15% per
cent.; on 95,000, i5^%g per cent.; and on all sums of
100,000 and over, 16 per cent. The point at which the in-
crements in the rate began to decline would be that at
which differences in wants began to diminish, and the
point at which the rate became stationary would be that at
which wants fell to the same level of intensity.
The Proper Rate of Income and Inheritance Taxes
While the principle of equality of sacrifices forbids a
rate of tax that would reach or approximate confiscation,
it gives no definite indication of the proper scale of pro-
gression, or of the maximum limit that justice would set
to the rate. Under our Federal law the highest rate on
incomes is now 13 per cent.; under the Wisconsin law it
is 6 per cent. ; under the law of Prussia it is 4 per cent. ;
and under the British act of 1909 it is about 8% per cent.
Evidently a much higher rate than any of these would be
required to make any impression upon swollen fortunes.
The British government recently (September, 191 5) made
300 DISTRIBUTIVE JUSTICE
the maximum rate about 33% per cent. To be sure, this
is a war measure which probably will not continue after
the restoration of peace. However, if it were made per-
manent it could not be proved to be unjust, provided that it
were applied to the increments of income above a certain
high limit, but not to these incomes in their entirety.
Our present inheritance taxes are very low, averaging
less than 3 per cent, throughout the United States. Prob-
ably the highest rate is to be found in Wisconsin, where
bequests to non relatives in excess of half a million dollars
are subject to a tax of fifteen per cent. It is clear that all
the existing rates could be raised very considerably with-
out causing a violation of justice. Some years ago An-
drew Carnegie recommended a tax of fifty per cent, on
estates amounting to more than one million dollars.^ No
country has yet reached this high level of inheritance taxes.
Nevertheless we cannot certainly stigmatise it as unjust
either to the testator or his heirs, nor can we prove that it
is in any other manner injurious to human welfare. All
that can be said with confidence concerning the just rates
of inheritance taxation must take the form of generalisa-
tions. The increments of the tax should correspond as
closely as possible to the diminishing intensity of the wants
which the tax deprives of satisfaction; in the case of each
heir a certain fairly high minimum of property should be
entirely exempt; on all the highest estates the rate should
be uniform, and it should fall a long way short of con-
fiscation; and the tax should at no point be such as to dis-
courage socially useful activity and enterprise.
Effectiveness of Such Taxation
: The essential justice of the measures is not the only con-
sideration affecting high income and inheritance taxes.
There remain the questions of expediency and feasibility.
Under the first head the objection is sometimes raised that
1 " The Gospel of Wealth," pp. 11, 12.
THE LEGAL LIMITATION OF FORTUNES 3OI
taxes which appropriated a considerable portion of the
larger incomes and inheritances would diminish very ma-
terially the social supply of capital. Immense sums of
money would go into the public treasury which otherwise
would have been invested in commerce and industry. Two
questions are raised by this situation : first, whether it might
not be better for society to have these sums devoted,
through public works of various kinds, to consumptive
uses instead of to an increase in the supply of capital; sec-
ond, whether the reduction in the savings and capital pro-
vided by the persons paying the taxes could be offset by
increases in saving among other classes. Even if it be
assumed that the first question should receive a negative
answer, it is not improbable that the second should be an-
swered in the affirmative. In other words, the increased
saving which the poorer and middle classes would be
enabled to make as a result of the shifting of some of their
burden of taxation to the large incomes and inheritances,
might very well counterbalance the curtailment in the in-
vestments of the wealthy classes. Even if this possibility
were not fully realised, even if the net volume of capital
in the community were somewhat diminished, this disad-
vantage might be more than neutralised by the wider social
benefits of the taxation policy.
With regard to the feasibility of very heavy income and
inheritance taxes, it is sometimes contended that neither
of these measures can be made effective toward the reduc-
tion of abnormal fortunes.^ It is held that the successful
collection of these taxes requires the co-operation of the
persons affected by them; that if the rate should go above
ten or twelve per cent., the income receiver would evade
the tax in a great variety of ways, while the owner of a
large estate would transfer his property outright to a trust
company, which would after his death make the desired
1 Cf. Dr. T. S. Adams in " Papers and Proceedings of the 27th Annual
Meeting of the American Economic Association," pp. 234, sq.
302 DISTRIBUTIVE JUSTICE
distribution. The man who urges these objections is a
very high authority on taxation, especially on its adminis-
trative side; nevertheless his contentions are not absolutely
conclusive. In particular, it does not seem probable that
high inheritance taxes could be evaded by the simple de-
vices that he mentions. It ought not to be beyond the
power of administrative ingenuity to find methods of de-
feating such subterfuges. However, it is altogether likely
that the possibilities of evasion would be sufficient to pre-
vent the imposition of tax rates that approached within
measurable distance of the borderland of confiscation.
The sum of the matter seems to be that the reduction
and prevention of great fortunes cannot prudently be ac-
complished by the method of direct limitation; that these
ends may wisely and justly be attained indirectly, through
the imposition of progressive income and inheritance
taxes; but that the extent to which these measures would
be genuinely effective cannot be estimated until they have
been given a thorough trial.
CHAPTER XXI
THE DUTY OF DISTRIBUTING SUPERFLUOUS WEALTH
The correctivies of the present distribution that were
proposed before the beginning of the last chapter related
mainly to the apportionment of the product among the
agents of production. They would affect that distribution
which takes place as an integral element of the productive
process, not any disposition which the productive agents
might desire or be required to make of the shares that
they had acquired from the productive process. Such
were many of the proposals regarding land tenure, and all
of those concerning co-operative enterprises and monopoly.
In the last chapter we considered the possibility of neu-
tralising to some extent the abuses of the primary distri-
bution by the action of government through the taxation
of large fortunes. These were proposals directly affect-
ing the secondary distribution. And they involved the
method of compulsion. In the present chapter we shall in-
quire whether desirable changes in the secondary distribu-
tion may not be effected by voluntary action. The specific
questions confronting us here are, whether and how far
proprietors are morally bound to distribute their super-
fluous wealth among their less fortunate fellows.
The Question of Distributing Some
The authority of revealed religion returns to the first of
these questions a clear and emphatic answer in the affirma-
tive. The Old and the New Testaments abound in declara-
tions that possessors are under very strict obligation to
give of their surplus to the indigent. Perhaps the most
303
304 DISTRIBUTIVE JUSTICE
striking expression of this teaching is that found in the
Gospel according to St. Matthew, ch. 25, verses 32-46,
where eternal happiness is awarded to those who have fed
the hungry, given drink to the thirsty, received the
stranger, covered the naked, visited the sick, and called
upon the imprisoned; and eternal damnation is meted out
to those who have failed in these respects. The principle
that ownership is stewardship, that the man who possesses
superfluous goods must regard himself as a trustee for
the needy, is fundamental and all-pervasive in the teaching
of Christianity. No more clear or concise statement of it
has ever been given than that of St. Thomas Aquinas:
" As regards the power of acquiring and dispensing mate-
rial goods, man may lawfully possess them as his own; as
regards their use, however, a man ought not to look upon
them as his own, but as common, so that he may readily
minister to the needs of others." ^
Reason likewise enjoins the benevolent distribution of
surplus wealth. It reminds the proprietor that his needy
neighbours have the same nature, the same faculties,
capacities, wants, and destiny as himself. They are his
equals and his brothers. Reason, therefore, requires that
he should esteem them as such, love them as such, and
treat them as such; that he should love them not merely
by well wishing, but by well doing. Since the goods of
the earth were intended by the Creator for the common
benefit of all mankind, the possessor of a surplus is rea-
sonably required to use it in such a way that this original
purpose of all created goods will be fulfilled. To refuse
is to treat one's less fortunate neighbour as something dif-
ferent from and less than oneself, as a creature whose
claim upon the common bounty of nature is something less
than one's own. Multiplying words will not make these
truths plainer. The man who does not admit that the
welfare of his neighbour is of equal moral worth and im-
1 " Summa Theologica," 2'a. 2ae., q. 66, a. 3.
DUTY OF DISTRIBUTING SUPERFLUOUS WEALTH 305
portance with his own welfare, will logically refuse to
admit that he is under any obligation of distributing his
superfluous goods. The man who does acknowledge this
essential equality will be unable to find any logical basis
for such refusal.
Is this obligation one of charity or one of justice? At
the outset a distinction must be made between wealth that
has been honestly acquired and wealth that has come into
one's possession through some violation of rights. The
latter kind must, of course, be restored to those persons
who have been wronged. If they cannot be found or
identified the ill-gotten gains must be turned over to
charitable or other worthy objects. Since the goods do
not belong to the present holder by any valid moral title,
they should be given to those persons who are qualified by
at least the claim and title of needs.
Some of the Fathers of the Church maintained that all
superfluous wealth, whether well or ill gotten, ought to be
distributed to those in want. St. Basil of Csesarea:
" Will not the man who robs another of his clothing be
called a thief? Is the man who is able and refuses to
clothe the naked deserving of any other appellation? The
bread that you withhold belongs to the hungry; the cloak
that you retain in your chest belongs to the naked ; the shoes
that are decaying in your possession belong to the shoe-
less ; the gold that you have hidden in the ground belongs
to the indigent. Wherefore, as often as you were able to
help men and refused, so often you did them wrong." ^
St. Augustine of Hippo : " The superfluities of the rich
are the necessities of the poor. They who possess super-
fluities possess the goods of others." ^ St. Ambrose of
Milan: ''The earth belongs to all; not to the rich; but
those who possess their shares are fewer than those who
do not. Therefore, you are paying a debt, not bestowing
1 " Patrologia Graeca," vol. 31, cols. 275, 278.
2 " Patrologia Latina," vol. 37, col. 1922.
306 DISTRIBUTIVE JUSTICE
a gift." ^ Pope Gregory the Great: "When we give
necessaries to the needy, we do not bestow upon them our
goods ; we return to them their own; we pay a debt of jus-
tice rather than of mercy." ^
The great systematiser of theology in the thirteenth
century, St. Thomas Aquinas, who is universally recog-
nised as the most authoritative private teacher in the
Church, stated the obligation of distribution in less ex-
treme and more scientific terms : " According to the
order of nature instituted by Divine Providence, the goods
of the earth are designed to supply the needs of men. The
division of goods and their appropriation through human
law do not thwart this purpose. Therefore, the goods
which a man has in superfluity are due by the natural law
to the sustenance of the poor." ^
That this is the official teaching of the Church to-day is
evident from the words of Pope Leo XIII : " When one
has provided sufficiently for one's necessities and the de-
mands of one's state of life, there is a duty to give to the
indigent out of what remains. It is a duty not of strict
justice, save in case of extreme necessity, but of Chris-
tian charity." ^ Nearly thirteen years earlier, the same
Pope had written : " The Church lays the rich under strict
command to give their superfluity to the poor." ^
The only difference between the Fathers and Pope Leo
XIII and St. Thomas on this question has reference to
the precise nature of the obligation. According to the
Fathers, the duty of distribution would seem to be a duty
of justice. In the passage quoted above from St. Thomas,
superfluities are said to '* belong," or to be " due " (" de-
1 " Patrologia Latina," vol. 14, col. 747.
2 " Patrologia Latina," vol. Tj, col. 87. These and several other ex-
tracts of like tenor may be found in Ryan's " Alleged Socialism of the
Church Fathers," ch. i ; St. Louis, 1913.
3 Op. cit., 2a. 2ae., q. 66, a. 7.
* Encyclical, " On the Condition of Labour," May 15, 1891.
5 Encyclical, " On Socialism, Communism, Nihilism," Dec. 28, 1878.
DUTY OF DISTRIBUTING SUPERFLUOUS WEALTH 307
betur ") to the needy; but the particular moral precept that
applies is not specified. In another place, however, the
Angelic Doctor declares that almsgiving is an act of char-
ity.^ Pope Leo XIII explicitly says that the obligation
of giving is one of charity, " except in extreme cases."
The latter phrase refers to the traditional doctrine that a
person who is in extreme need ; that is, in immediate dan-
ger of losing life, limb, or some equivalent personal good,
is justified in the absence of any other means of succour in
taking from his neighbour what is absolutely necessary.
Such appropriation, says St. Thomas, is not properly
speaking theft; for the goods seized belong to the needy
person, " inasmuch as he must sustain life." ^ In a word,
the mediaeval and the modern Catholic teaching would make
distribution of superfluous goods a duty of justice only in
extreme situations, while the Fathers laid down no such
specific limitation. Nevertheless, the difference is less im-
portant than it appears to be on the surface. When the
Fathers lived, theology had not been systematised nor
given a precise terminology; consequently, they did not
always make exact distinctions between the different classes
of virtues and obligations. In the second place, the Patris-
tic passages that we have quoted, and others of like import,
were mostly contained in sermons addressed to the rich,
and consequently were expressed in hortatory rather than
scientific terms. Moreover, the needs of the time which
the rich were exhorted to relieve were probably so urgent
that they could correctly be classed as extreme, and there-
fore would give rise to an obligation of justice on the part
of those who possessed superfluous wealth.
The truly important fact of the whole situation is that
both the Fathers and the later authorities of the Church
regard the task of distributing superfluous goods as one of
strict moral obligation, which in serious cases is binding
1 Op. cit., 2a. 2ae., q. 32, a. I.
2 Idem, q. 66, a. 7,
308 DISTRIBUTIVE JUSTICE
under pain of grievous sin. Whether it falls under the
head of justice or under that of charity, is of no great
practical consequence.
The Question of Distributing All
Is a man obliged to distribute all his superfluous wealth?
As regards the support of human life, Catholic moral the-
ologians distinguish three classes of goods : first, the neces-
saries of life, those utilities which are essential to a healthy
and humane existence for a man and his family, regard-
less of the social position that he may occupy, or the
standard of life to which he may have been accustomed;
second, the conventional necessities and comforts, which
correspond to the social plane upon which the individual
or family moves; third, those goods which are not re-
quired to support either existence or social position.
Goods of the second class are said to be necessary as re-
gards conventional purposes, but superfluous as regards
the maintenance of life, while those of the third class are
superfluous without qualification.
No obligation exists to distribute the first class of goods;
for the possessor is justified in preferring his own primary
and fundamental needs to the equal or less important needs
of his neighbours. The owner of goods of the second
class is under obligation to dispense them to persons who
are in extreme need, since the preservation of the neigh-
bour's life is more important morally than the mainte-
nance of the owner's conventional standard of living. On
the other hand, there is no obligation of giving any of
these goods to meet those needs of the neighbour which
are social or conventional. Here, again, it is reasonable
that the possessor should prefer his own interests to the
equal interests of his fellows. Still less is he obliged to
expend any of the second class of goods for the relief of
ordinary or common distress. As regards the third class
of goods, those which are absolutely superfluous, the pro-
DUTY OF DISTRIBUTING SUPERFLUOUS WEALTH 309
portion to be distributed is indefinite, depending upon the
volume of need. The doctrine of the moral theologians
on the subject is summed up in the following paragraph.
When the needs to be supplied are " ordinary," or " com-
mon " ; that is, when they merely expose a person to con-
siderable and constant inconvenience, without inflicting
serious physical, mental, or moral injury, they do not im-
pose upon any man the obligation of giving up all his
superfluous goods. According to some moral theologians,
the possessor fulfils his duty in such cases if he contributes
that proportion of his surplus which would suffice for the
removal of all such distress, provided that all other pos-
sessors were equally generous; according to others, if he
gives two per cent, of his superfluity ; according to others,
if he contributes two per cent, of his annual income.
These estimates are intended not so much to define the
exact measure of obligation as to emphasise the fact that
there exists some degree of obligation; for all the moral
theologians agree that some portion of a man's superfluous
goods ought to be given for the relief of ordinary or com-
mon needs. When, however, the distress is grave ; that is,
when it is seriously detrimental to welfare; for example,
when a man or a family is in danger of falling to a lower
social plane; when health, morality, or the intellectual or
religious life is menaced, — possessors are required to con-
tribute as much of their superfluous goods as is necessary
to meet all such cases of distress. If all is needed all
must be given. In other words, the entire mass of super-
fluous wealth is morally subject to the call of grave need.
This seems to be the unanimous teaching of the moral
theologians.^ It is also in harmony with the general prin-
lA comprehensive, though brief, discussion of this question and
numerous references are contained in Bouquillon, " De Virtutibus
Theologicis," pp. 332-348. When Pope Leo XIII declared that the
rich are obliged to distribute " out of " their superfluity, he did not
mean that they are free to give only a portion thereof. The particle
" de " in his statement, " officium est de eo quod superat gratificari in-
3IO DISTRIBUTIVE JUSTICE
ciple of the moral law that the goods of the earth should
be enjoyed by the inhabitants of the earth in proportion
to their essential needs. In any rational distribution of
a common heritage, the claims of health, mind, and morals
are surely superior to the demands of luxurious living,
or investment, or mere accumulation.
What per cent, of the superfluous incomes in the United
States would suffice to alleviate all the existing grave and
ordinary distress? Nothing like an exact answer is pos-
sible, but we can get an approximation that will have con-
siderable practical value. From the estimates of family
incomes given by Professor W. I. King, it appears that in
1910 the number of families with annual incomes of less
than one thousand dollars was a little more than ten and
three quarter millions, and that the total incomes of those
families receiving more than ten thousand dollars a year
amounted to a little more than three and three quarter
billions.^ If each of the latter class of families should
expend ten thousand dollars per year for the needs of life
and social position, they would have left nearly two and
three quarter billions for distribution among the ten and
three quarter million families who are below the one thou-
sand dollar level. So far as the figures of Professor
King's table enable us to judge, the greater part if not all
of this sum would be required to bring this group of fam-
ilies up to that standard. Possibly an income of one
thousand dollars per family is not required to remove all
ordinary and grave distress; and possibly ten thousand
dollars is not enough for the reasonable requirements of
some families. If both these suppositions are true they
digentibiis," is not correctly translated by "some." It means rather
" out of," " from," or " with " ; so that the affluent are commanded to
d'evote their superfluous goods indefinitely to the relief of the needy.
In the Encyclical, " Quot Ap«ostolici Muneris," he used the expression,
"gravissimo divites urget praecepto ut quod superest pauperibus
tribuant," which clearly declares the duty of distributing all.
1 " The Wealth and Income of the People of the United States," pp.
224-226.
DUTY OF DISTRIBUTING SUPERFLUOUS WEALTH 3 II
will tend to cancel each other : the needs to be met will be
less, but the superfluous income to be distributed will be
less also. Whatever be the minimum and maximum limits
of family income that approve themselves to competent
students, the conclusion will probably be inevitable that
the greater part of the superfluous income of the well-to-do
and the rich would be required to abolish all grave and
ordinary need.
Some Objections
The desirability of such a thoroughgoing distribution
of superfluous incomes appears to be refuted by the fact
that a considerable part of the capital and organising abil-
ity that function in industry is dependent upon the pos-
session of superfluous goods by the richer classes. That
surplus of the larger incomes which is not consumed or
given away by its receivers at present, constitutes no small
portion of the whole supply of savings annually converted
into capital. Were all of it to be withdrawn from indus-
try and distributed among the needy, the process might
involve more harm than good. Moreover, the very large
industrial enterprises are initiated and carried on by men
who have themselves provided a considerable share of the
necessary funds. Without these large masses of personal
capital, they would have much more difficulty in organis-
ing these great enterprises, and would be unable to exercise
their present dominating control.
To the first part of this objection we may reply that the
distribution of superfluous goods need not involve any
considerable withdrawal of existing capital from industry.
The giving of large amounts to institutions and organisa-
tions, as distinguished from needy individuals, might mean
merely a transfer of capital from one holder to another;
for example, the stocks and bonds of corporations. The
capital would be left intact, the only change being in the
persons that would thenceforth receive the interest. Small
312 DISTRIBUTIVE JUSTICE
donations could come out of the possessor's income.
Moreover, there is no reason why the whole of the distri-
bution could not be made out of income rather than out of
capital. While the givers would still remain possessed of
superfluous wealth, they would have handed over to needy
objects, persons, and causes the thing that in modern times
constitutes the soul and essence of wealth; namely, its
annual revenues.
Nevertheless, the distribution from income would ap-
parently check the necessary increase of capital, lessen
unduly the supply of capital for the future. Were all, or
the greater part of superfluous incomes devoted to benevo-
lent objects it would be used up for consumption goods;
such as, food, clothing, housing, hospitals, churches,
schools. Would not this check to the increase of capital
cause serious injury to society?
New investment would not be diminished by an amount
equal to the whole amount of income transferred to ob-
jects of benevolence. For the improved position of the
poorer classes that had shared in the distribution would
enable them to increase their productive power and their
resources, and therefore to save money and convert it into
capital. Again, their increased consuming power would
augment the demand for goods, bring about a larger use of
existing capital instruments, and therefore lead to an en-
largement of the community's capacity for saving. Thus,
the new saving and capital would, partially at least, take
the place of that which was formerly provided by the pos-
sessors of surplus income. In so far as a net diminution
occurred in the community's supply of capital, it would
probably be more than offset, from the viewpoint of social
welfare, by the better diffusion of goods and opportunities
among the masses of the population.
The second difficulty noted above, that such a thorough
distribution of superfluous goods would lessen consider-
DUTY OF DISTRIBUTING SUPERFLUOUS WEALTH 313
ably the power of the captains of Industry to organise and
operate great enterprises, can be disposed of very briefly.
Those who made the distribution from income rather than
from invested wealth, would still retain control of large
masses of capital. All, however, would have deprived
themselves of the power to enlarge their business ven-
tures by turning great quantities of their own income back
into industry. But if their ability and character were
such as to command the confidence of investors, they
would be able to find sufficient capital elsewhere to equip
and carry on any sound and necessary enterprise. In this
case the process of accumulating the required funds would,
indeed, be slower than when they used their own, but that
would not be an unmixed disadvantage. When the busi-
ness was finally established, it would probably be more
stable, would respond to a more definite and considerable
need, and would be more beneficial socially, inasmuch as
it would include a larger proportion of the population
among its proprietors. And the diminished authority and
control exercised by the great capitalist, on account of his
diminished ownership of the stock, would in the long run
be a good thing for society. It would mean the curtail-
ment of a species of power that is easily liable to abuse,
wider opportunities of industrial leadership, and a more
democratic and stable industrial system.
Only a comparatively small portion of the superfluous
goods of the country could with advantage be immediately
and directly distributed among needy individuals. The
greater part would do more good if it were given to re-
ligious and benevolent institutions and enterprises.
Churches, schools, scholarships, hospitals, asylums, housing
projects, insurance against unemployment, sickness, and
old age, and benevolent and scientific purposes generally, —
constitute the best objects and agencies of effective distri-
bution. By these means social and individual efficiency
314 DISTRIBUTIVE JUSTICE
would be so improved within a few years that the distress
due to economic causes would for the most part have dis-
appeared.
The proposition that men are under moral obligation to
give away the greater portion of their superfluous goods
or income is, indeed, a " hard saying." Not improbably
it will strike the majority of persons who read these pages
as extreme and fantastic. No Catholic, however, who
knows the traditional teaching of the Church on the right
use of wealth, and who considers patiently and seriously
the magnitude and the meaning of human distress, will be
able to refute the proposition by reasoned arguments. In-
deed, no man can logically deny it who admits that men
are intrinsically sacred, and essentially equal by nature
and in their claims to a reasonable livelihood from the
common heritage of the earth. The wants that a man
supplies out of his superfluous goods are not necessary for
rational existence. For the most part they bring him
merely irrational enjoyment, greater social prestige, or in-
creased domination over his fellows. Judged by any rea-
sonable standard, these are surely less important than those
needs of the neighbour which are connected with humane
living. If any considerable part of the comm.unity re-
jects these propositions the explanation will be found not
in a reasoned theory, but in the conventional assumption
that a man may do what he likes with his own. This as-
sumption is adopted without examination, without criti-
cism, without any serious advertence to the great moral
facts that ownership is stewardship, and that the Creator
intended the earth for the reasonable support of all the
children of men.
A False Conception of Welfare and Superfluous Goods
If all the present owners of superfluous goods were to
carry out their own conception of the obligation, the
amount distributed would be only a fraction of the real
DUTY OF DISTRIBUTING SUPERFLUOUS WEALTH 315
superabundance. Let us recall the definition of absolute
superfluity as, that portion of individual or family income
which is not required for the reasonable maintenance of
life and social position. It allows, of course, a reasonable
provision for the future. But the great majority of pos-
sessors, as well as perhaps the majority of others, do not
interpret their needs, whether of life or social position, in
any such strict fashion. Those who acquire a surplus
over their present absolute and conventional needs, gen-
erally devote it to an expansion of social position. They
move into larger and more expensive houses, thereby in-
creasing their assumed requirements, not merely in the
matter of housing, but as regards food, clothing, amuse-
ments, and the conventions of the social group with which
they are affiliated. In this way the surplus which ought
to have been distributed is all absorbed in the acquisition
and maintenance of more expensive standards. All
classes of possessors adopt and act upon an exaggerated
conception of both the strict and the conventional neces-
sities. In taking this course, they are merely subscribing
to the current theory of life and welfare. It is commonly
assumed that to be worth while life must include the con-
tinuous and indefinite increase of the number and variety
of wants, and a corresponding growth and variation in
the means of satisfying them. Very little endeavour is
made to distinguish between kinds of wants, or to ar-
range them in any definite scale of moral importance.
Desires for purely physical goods, such as, food, drink,
adornment, and sense gratifications generally, are put on
the same level with the demands of the spiritual, moral,
and intellectual faculties. The value and importance of
any and all wants is determined mainly by the criterion of
enjoyment. In the great majority of cases this means a
preference for the goods and experiences that minister to
the senses. Since these satisfactions are susceptible of in-
definite increase, variety, and cost, the believer in this
3l6 DISTRIBUTIVE JUSTICE
theory of life- values readily assumes that no practical
limit can be set to the amount of goods or income that will
be required to make life continuously and progressively
worth living. Hence the question whether he has super-
fluous goods, how much of a surplus he has, or how much
he is obliged to distribute, scarcely occurs to him at all.
Everything that he possesses or is likely to possess, is in-
cluded among the necessaries of life and social position.
He adopts as his working theory of life those propositions
which were condemned as " scandalous and pernicious "
by Pope Innocent XI in 1679: "It is scarcely possible
to find among people engaged in worldly pursuits, even
among kings, goods that are superfluous to social position.
Therefore, hardly any one is bound to give alms from this
source."
The practical consequences of this false conception of
welfare are naturally most conspicuous among the rich,
especially the very rich, but they are also manifest among
the comfortable and middle classes. In every social group
above the limit of very moderate circumstances, too much
money is spent for material goods and enjoyments, and
too little for the intellectual, religious, and altruistic things
of life.
The True Conception of Welfare
Tnis working creed of materialism is condemned by
right reason, as well as by Christianity. The teaching of
Christ on the worth of material goods is expressed sub-
stantially in the following texts : ** Woe to you rich."
"Blessed are you poor." " Lay not up for yourselves
treasures on earth." " For a man's life consisteth not in
the abundance of things that he possesseth." " Be not
solicitous as to what you shall eat, or what you shall drink,
or what you shall put on." " Seek ye first the kingdom
of God and his justice, and all these things shall be added
unto you." " You cannot serve God and Mammon."
DUTY OF DISTRIBUTING SUPERFLUOUS WEALTH 317
"If thou wouldst be perfect, go, sell what thou hast and
give to the poor, and come follow me." Reason informs
us that neither our faculties nor the goods that satisfy
them are of equal moral worth or importance. The in-
tellectual and spiritual faculties are essentially and intrin-
sically higher than the sense faculties. Only in so far as
they promote, either negatively or positively, the develop-
ment of the mind and soul have the senses any reasonable
claim to satisfaction. They have no value in themselves;
they are merely instruments to the welfare of the spirit,
the intellect, and the disinterested will. Right life con-
sists, not in the indefinite satisfaction of material wants,
but in the progressive endeavour to know the best that is
to be known, and to love the best that is to be loved ; that
is, God and His creatures in the order of their importance.
The man who denies the intrinsic superiority of the soul
to the senses, who puts sense gratifications on the same
level of importance as the activities of mind, and spirit,
and disinterested will, logically holds that the most degrad-
ing actions are equally good and commendable with those
which mankind approves as the noblest. His moral stand-
ard does not differ from that of the pig, and he himself is
on no higher moral level than the pig.
Those who accept the view of life and welfare taught by
Christianity and reason cannot, if they take the trouble to
consider the matter, avoid the conclusion that the amount
of material goods which can be expended in the rational
and justifiable satisfaction of the senses, is very much
smaller than is to-day assumed by the great majority of
persons. Somewhere between five and ten thousand dol-
lars a year lies the maximum expenditure that any family
can reasonably devote to its material wants. This is inde-
pendent of the outlay for education, religion, and charity,
and the things of the mind generally. In the overwhelm-
ing majority of cases in which more than five to ten thou-
sand dollars are expended for the satisfaction of material
3l8 DISTRIBUTIVE JUSTICE
needs, some injury is done to the higher life. The inter-
ests of health, intellect, spirit, or morals would be better
promoted if the outlay for material things were kept below
the specified limit.
The distribution advocated in this chapter is obviously
no substitute for justice or the deeds of justice. Inas-
much, however, as complete justice is a long way from
realisation, a serious attempt by the possessors of true
superfluous goods to fulfil their obligations of distribu-
tion would greatly counteract and soften existing injustice,
inequality, and suffering. Hence, benevolent giving de-
serves a place in any complete statement of proposals for
a better distribution of wealth. Moreover, we are not
likely to make great advances on the road of strict justice
until we acquire saner conceptions of welfare, and a more
effective notion of brotherly love. So long as men put
the senses above the soul, they will be unable to see clearly
what is justice, and unwilling to practise the little that they
are able to see. Those who exaggerate the value of sense
gratifications cannot be truly charitable, and those who are
not truly charitable cannot perform adequate justice. The
achievement of social justice requires not merely changes
in the social mechanism, but a change in the social spirit,
a reformation in men's hearts. To this end nothing could
be more immediately helpful than a comprehensive recog-
nition of the stewardship of wealth, and the duty of
distributing superfluous goods.
REFERENCES ON SECTION III
Ely: Monopolies and Trusts. Macmillan; 1900.
Van Hise: Concentration and Control. Macmillan; 1912.
Stevens : Industrial Combinations and Trusts. Macmillan ; 1913.
Russell: Business, the Heart of the Nation. John Lane; 191 1.
Garriguet : Regime du Travail. Paris ; 1909.
The Social Value of the Gospel. St. Louis ; 191 1.
HoBSON : Work and Wealth, a Human Valuation. Macmillan ; 1914.
West : The Inheritance Tax. New York ; 1908.
DUTY OF DISTRIBUTING SUPERFLUOUS WEALTH 319
Seligman : Progressive Taxation. Princeton ; 1908.
The Income Tax. New York; 1913.
BouQUiLLON : De Virtutibus Theologicis. Brugis ; 1890.
Also, the works of Taussig, Devas, Hobson, Antoine, Pesch, Carver,
Vermeersch, Nearing, and King which are cited in connection with the
introductory chapter.
SECTION IV
THE MORAL ASPECT OF WAGES
CHAPTER XXII
SOME UNACCEPTABLE THEORIES OF WAGE-JUSTICE
" It may be that we are not merely chasing a will-o'-the-
wisp when we are hunting for a reasonable wage, but we
are at any rate seeking the unattainable."
Thus wrote Professor Frank Haight Dixon in a paper
read at the twenty-seventh annual meeting of the Amer-
ican Economic Association, December, 1914. Whether
he reflected the opinion of the majority of the economists,
he at least gave expression to a thought that has frequently
suggested itself to every one who has gone into the wage
question free from prejudices and preconceived theories.
One of the most palpable indications of the difficulty to
which Professor Dixon refers is the number of doctrines
concerning wage justice that have been laboriously built
up during the Christian era, and that have failed to approve
themselves to the majority of students and thinkers. In
the present chapter the attempt is made to set forth some
of the most important of these doctrines, and to show
wherein they are defective. They can all be grouped
under the following heads: The Prevailing-Rate Theory;
Exchange-Equivalence Theories; and the Productivity
Theories.
I. The Prevailing-Rate Theory
This is not so much a systematic doctrine as a rule of
expediency deyised to meet concrete situations in the ab-
323
324 DISTRIBUTIVE JUSTICE
sence of any better guiding principle. Both its basis and
its nature are well exemplified in the following extract
from the " Report of the Board of Arbitration in the
Matter of the Controversy Between the Eastern Railroads
and the Brotherhood of Locomotive Engineers :"^ *' Pos-
sibly there should be some theoretical relation for a given
branch of industry between the amount of the income that
should go to labour and the amount that should go to
capital; and if this question were decided, a scale of wages
might be devised for the different classes of employes
which would determine the amount rightly absorbed by
labour. . . . Thus far, however, political economy is un-
able to furnish such a principle as that suggested. There
is no generally accepted theory of the division between
capital and labour. ...
" What, then, is the basis upon which a judgment may
be passed as to whether the existing wage scale of the
engineers in the Eastern District is fair and reasonable?
It seems to the Board that the only practicable basis is to
compare the rates and earnings of engineers in the East-
ern District with those of engineers in the Western and
Southern Districts, and with those of other classes of rail-
way employes."
Six of the seven men composing this board of arbitra-
tion subscribed to this statement. Of the six one is the
president of a great state university, another is a successful
and large-minded merchant, the third is a great building
contractor, the fourth is a distinguished lawyer, the fifth
is a prominent magazine editor, and the sixth is a railway
president. The dissenting member represented the em-
ployes. Since the majority could not find in any generally
accepted theory a principle to determine the proper division
of the product between capital and labour, they were per-
haps justified in falling back upon the practical rule that
they adopted.
1 Page 47.
SOME UNACCEPTABLE THEORIES OF WAGE- JUSTICE 325
Not in Harmony with Justice
From the viewpoint of justice, however, this rule or
standard is utterly inadequate. It is susceptible of two
interpretations. " Wages prevailing elsewhere," may
mean either the highest rates or those most frequently oc-
curring. According to the latter understanding, only those
wages which were below the majority rates should be
raised, while all those above that level ought to be lowered.
In almost all cases this would mean a reduction of the
highest wages, as these are usually paid only to a minority
of the workers of any grade. The adoption of the highest
existing rates as a standard would involve no positive
losses, but it would set a rigid limit to all possible gains
in the future. According to either interpretation of the
prevailing rate, the increases in wages which a powerful
labour union seeks to obtain are unjust until they have
been established as the prevailing rates. Thus, the attor-
ney for the street railways of Chicago dissented from the
increases in wages awarded to the employes by the majority
of the board of arbitration in the summer of 191 5 because,
" these men are already paid not only a fair wage but a
liberal wage, when the wages in the same employment
and the living conditions in other large cities are taken
into consideration, or when comparison is made of these
men's annual earnings with the earnings in any comparable
line of work in the city of Chicago." ^ In other words,
the dominant thing is always the right thing. Justice is
determined by the preponderance of economic force.
Now, a rule such as this, which condemns improvement
until improvement has somehow become general, which
puts a premium upon physical and intellectual strength,
and which disregards entirely the moral claims of human
needs, efforts, and sacrifices, is obviously not an adequate
measure of either reason or justice. And we may well
1 The Chicago Daily Tribune, July 17, 1915.
326 DISTRIBUTIVE JUSTICE
doubt that it would be formally accepted as such by any
competent and disinterested student of industrial relations.
11. Exchange-Equivalence Theories
According to these theories, the determining factor of
wage justice is to be found in the wage contract. The
basic idea is the idea of equality, inasmuch as equality is the
fundamental element in the concept of justice. The prin-
ciple of justice requires that equality should be maintained
between what is owed to a person and what is returned to
him, between the kinds of treatment accorded to different
persons in the same circumstances. Similarly it requires
that equality should obtain between the things that are
exchanged in onerous contracts. An onerous contract is
one in which both parties undergo some privation, and
neither intends to confer a gratuity upon the other. Each
exchanger desires to obtain the full equivalent of the thing
that he transfers. Since each is equal in personal dignity
an intrinsic worth to the other, each has a strict right to
this full equivalent. Owing to the essential moral equality
of all men, no man has a right to make of another a mere
instrument to his own interests through physical force or
through an onerous contract. Men have equal rights not
only to subsist upon the earth, but to receive benefits from
the exchange of goods.
The Rule of Equal Gains
The agreement between employer and employe is an
onerous contract ; hence it ought to be made in such terms
that the things exchanged will be equal, that the remunera-
tion will be equal to the labour. How can this equiva-
lence be determined and ascertained? Not by a direct
comparison of the two objects, work and pay, for their
differences render them obviously incommensurable.
Some third term, or standard, of comparison is required
SOME UNACCEPTABLE THEORIES OF WAGE-JUSTICE 327
in which both objects can find expression. One such
standard is individual net advantage. Inasmuch as the
aim of the labour contract is reciprocal gain, it is natural
to infer that the gains ought to be equal for the two parties.
Net gain is ascertained by deducting in each case the utility
transferred from the utility received; in other words, by-
deducting the privation from the gross return. The good
received by the employer when diminished by or weighed
against the amount that he pays in wages should be equal
to the good received by the labourer when diminished by or
weighed against the inconvenience that he undergoes
through the expenditure of his time and energy. Hence
the contract should bring to employer and employe equal
amounts of net advantage or satisfaction.
Plausible as this rule may appear, it is impracticable,
inequitable, and unjust. In the vast majority of labour
contracts it is impossible to know whether both parties
obtain the same quantity of net advantage. The gains of
the employer can, indeed, be frequently measured in terms
of money, being the difference between the wages paid to
and the specific product turned out by the labourer. In
the case of the labourer no such process of deduction is
possible ; for advantage and expenditure are incommensur-
able. We cannot subtract the labourer's privation, that is,
his expenditure of time and energy, from his gross ad-
vantage, that is, his wages. How can we know or measure
the net benefit obtained by a man who shovels sand ten
hours for a wage of two dollars? How can we deduct
his pain-cost from or weigh it against his compensation?
So far as the two sets of advantages are comparable at
all, those of the employe would seem to be always greater
than those of the employer. A wage of seventy-five cents
a day enables the labourer to satisfy the most important
wants of life. Weighed against this gross advantage, his
pain-cost of toil is relatively insignificant. His net advan-
tage is the greatest that a man can enjoy, the continuation
328 DISTRIBUTIVE JUSTICE
of his existence. The net advantage received by the em-
ployer from such a wage contract is but a few cents, the
equivalent of a cigar or two. Even if the wage be raised
to the highest level yet reached by any wage earner, the
net advantage to the labourer, namely, his livelihood, will
be greater than the net advantage to the employer from
that single contract. Moreover, the sum total of an em-
ployer's gains from all his labour contracts is less quan-
titatively than the sum total of the gains obtained by all
his employes. The latter gains provide for many liveli-
hoods, the former for only one. Again, no general rate
of wages could be devised which would enable all the
members of a labour group to gain equally. Differences
in health, strength, and intelligence would cause differ-
ences in the pain-cost involved in a given amount of
labour; while differences in desires, standards of living,
and skill in spending would bring about differences in the
satisfactions derived from the same compensation. Fi-
nally, various employers would obtain various money gains
from the same wage outlay, and various advantages from
the same money gains. Hence if the rule of equality of
net advantages were practicable it would be inequitable.
It is also fundamentally unjust because it ignores the
moral claims of needs, efforts, and sacrifices as regards the
labourer. As we have seen in the chapter on profits in
competitive conditions, and as we shall have occasion to
recognise again in a later chapter, no canon or scheme of
distributive justice is acceptable that does not give ade-
quate consideration to these fundamental attributes of
human personality.
The Rule of Free Contract
Another form of the exchange equivalence theory would
disregard the problem of equality of gains, and assume
that justice is realised whenever the contract is free from
force or fraud. In such circumstances both parties gain
SOME UNACCEPTABLE THEORIES OF WAGE- JUSTICE 329
something, and presumably are satisfied; otherwise, they
would not enter the contract. Probably the majority of
employers regard this rule as the only available measure of
practicable justice. The majority of economists likewise
subscribed to it during the first half of the nineteenth
century. In the words of Henry Sidgwick, " the teaching
of the political economists pointed to the conclusion that a
free exchange, without fraud or coercion, is also a fair
exchange." -^ Apparently the economists based this teach-
ing on the assumption that competition was free and gen-
eral among both labourers and employers. In other
words, the rule as understood by them was probably iden-
tical with the rule of the market rate, which we shall
examine presently. It is not at all likely that the econo-
mists here referred to would have given their moral ap-
proval to those *' free " contracts in which the employer
pays starvation wages because he takes advantage of the
ignorance of the labourer, or because he exercises the
power of monopoly.
No matter by whom it is or has been held, the rule of
free contract is unjust. In the first place, many labour
contracts are not free in any genuine sense. When a
labourer is compelled by dire necessity to accept a wage
that is insufficient for a decent livelihood, his consent to
the contract is free only in a limited and relative way. It
is what the moralists call '' voluntarium imperfectiimf
It is vitiated to a substantial extent by the element of fear,
by the apprehension of a cruelly evil alternative. The
labourer does not agree to this wage because he prefers
it to any other, but merely because he prefers it to unem-
ployment, hunger, and starvation. The agreement to
which he submits in these circumstances is no more free
than the contract by which the helpless wayfarer ^ives up
his purse to escape the pistol of the robber. While the
1 Article on " Political Economy and Ethics," in Palgrave's Dictionary
of Political Economy.
330 DISTRIBUTIVE JUSTICE
latter action is free in the sense that it is chosen in prefer-
ence to a violent death, it does not mean that the wayfarer
gives, or intends to give, the robber the right of ownership
in the purse. Neither should the labourer who from fear
of a worse evil enters a contract to work for starvation
wages, be regarded as transferring to the employer the full
moral right to the services which he agrees to render.
Like the wayfarer, he merely submits to superior force.
The fact that the force imposed upon him is economic
instead of physical does not affect the morality of the
transaction.
To put the matter in another way, the equality which
justice requires is wanting in an oppressive labour con-
tract because of the inequality existing between the con-
tracting parties. In the words of Professor Ely : " Free
contract supposes equals behind the contract in order that
it may produce equality." ^
Again, the rule of free contract is unjust because it
takes no account of the moral claims of needs. A man
whose only source of livelihood is his labour does wrong
if he accepts a starvation wage willingly. Such a con-
tract, however free, is not according to justice because it
disregards the requirements of reasonable life. No man
has a right to do this, any more than he has a right to
perpetrate self mutilation or suicide.
The Rule of Market Value
A third method of interpreting exchange equivalence is
based upon the concept of value. Labour and compensa-
tion are thought to be equal when the value of one is equal
to the value of the other. Then the contract is just and
the compensation is just. The only objection to these
propositions is that they are mere truisms. What does
value mean, and how is it to be determined? If it is to
receive an ethical signification; if the value of labour is
1 " Property and Contract," II, 603.
SOME UNACCEPTABLE THEORIES OF WAGE-JUSTICE 33 1
to be understood as denoting not merely the value that
labour will command in a market, but the value that labour
ought to have, — the statement that wages should equal the
value of labour becomes merely an identical proposition.
All that it tells us is that wages ought to be what they
ought to be.
In its simplest economic sense value denotes purchasing
power, or importance in exchange. As such, it may be
either individual or social; that is, it may mean the ex-
change importance attributed to a commodity by an in-
dividual, or that attributed by a social group. In a
competitive society social value is formed through the
higgling of the market, and is expressed in market price.
Now individual value is utterly impracticable as a meas-
ure of exchange equivalence in the wage contract. Since
the value attributed to labour by the employer differs in
the great majority of instances from that estimated by the
labourer himself, it is impossible to determine which is the
true value, and the proper measure of just wages.
The doctrine that the social value or market price of
labour is also the ethical value or just price, is sometimes
called the classical theory, inasmuch as it was held, at
least implicitly, by the majority of the early economists
of both France and England.^ Under competitive condi-
tions, said the Physiocrats, the price of labour as of all
other things corresponds to the cost of production ; that is,
to the cost of subsistence for the labourer and his family.
This is the natural law of wages, and being natural it is
also just. Adam Smith likewise declared that competitive
wages were natural wages, but he refrained from the ex-
plicit assertion that they were just wages. Nevertheless
his abiding and oft-expressed faith in the theory that men's
powers were substantially equal, and in the social be-
neficence of free competition, implied that conclusion.
Although the great majority of his followers denied that
1 Cf . " L' Idee du Juste Salaire," by Leon Poller, ch. iil. Paris ; 1903.
332 DISTRIBUTIVE JUSTICE
economics had moral aspects, and sometimes asserted that
there was no such thing as just or unjust wages, their
teaching tended to convey the thought that competitively
fixed wages were more or less in accordance with justice.
As noted above, their belief in the efficacy of competition
led them to the inference that a free contract is also a fair
contract. By a free contract they meant for the most
part one that is made in the open market, that is governed
by the forces of supply and demand, and that, conse-
quently, expresses the social economic value of the things
exchanged.
All the objections that have been brought against the
rule of the prevailing rate apply even more strongly to the
doctrine of the market rate. The former takes as a stand-
ard the scale of wages most frequently paid in the market,
while the latter approves any scale that obtains in any
group of labourers or section of the market. Both accept
as the ultimate determinant of wage justice the prepon-
derance of economic force. Neither gives any considera-
tion to the moral claims of needs, efforts, or sacrifices.
Unless we are to identify justice with power, might with
right, we must regard these objections as irrefutable, and
the market value doctrine as untenable.
The Mediaeval Theory
Another exchange-equivalence theory which turns upon
the concept of value is that found in the pages of the
mediaeval canonists and theologians. But it interprets
value in a different sense from that which we have just
considered. As the measure of exchange equivalence the
mediaeval theory takes objective value, or true value.
However, the proponents of this view did not formally
apply it to wage contracts, nor did they discuss system-
atically the question of just wages. They were not called
upon to do this; for they were not confronted by any con-
siderable class of wage earners. In the country the num-
SOME UNACCEPTABLE THEORIES OF WAGE-JUSTICE 333
ber of persons who got their living exclusively as employes
was extremely small, while in the towns the working class
was composed of independent producers who sold their
wares instead of their labour.^ The question of fair com-
pensation for the town workers was, therefore, the ques-
tion of a fair price for their products. The latter question
was discussed by the mediaeval writers formally, and in
great detail. Things exchanged should have equal values,
and commodities should always sell for the equivalent of
their values. By what rule was equality to be measured
and value determined? Not by the subjective apprecia-
tions of the exchangers, for these would sometimes sanc-
tion the most flagrant extortion. Were no other help
available, the starving man would give all he possessed for
a loaf of bread. The unscrupulous speculator could
monopolise the supply of foodstuffs, and give them an
exorbitantly high value which purchasers would accept
and pay for rather than go hungry. Hence we find the
mediaeval writers seeking a standard of objective value
which should attach to the commodity itself, not to the
varying opinions of buyers and sellers.
In the thirteenth century Albertus Magnus ^ and Thomas
Aquinas ^ declared that the proper standard was to be
found in labour. A house is worth as many shoes as the
labour embodied in the latter is contained in the labour
embodied in the former. It is worthy of note that the
diagram which Albertus Magnus presents to illustrate this
formula of value and exchange had been used centuries
before by Aristotle. It is likewise noteworthy that this
conception of ethical value bears a striking resemblance to
the theory of economic value upheld by Marxian Socialists.
However, neither Aristotle nor the Schoolmen asserted
that all kinds of labour had equal value.
1 Poller, op. cit., pp. 2,3, sq. ; Ryan, " A Living Wage," pp. 26, sq.
2 " Ethica," lib. 5, tr. 2, cap. 5.
3 "Comment, ad Eth.," XXI, 172.
334 DISTRIBUTIVE JUSTICE
Now this mediaeval labour-measure of value could be
readily applied only to cases of barter, and even then only
when the value of different kinds of labour had already
been determined by some other standard. Accordingly we
find the mediaeval writers expounding and defending a
more general interpretation of objective or true value.
This was the concept of normal value; that is, the aver-
age or medium amount of utility attributed to goods in
the average conditions of life and exchange. On the one
hand, it avoided the excesses and the arbitrariness of in-
dividual estimates ; on the other hand, it did not attribute
to value the characters of immutability and rigidity. Con-
trary to the assumptions of some modern writers, the
Schoolmen never said that value was something as fixedly
inherent in goods as physical and chemical qualities.
When they spoke of " intrinsic " value, they had in mind
merely the constant capacity of certain commodities to
satisfy human wants. Even to-day bread has always the
intrinsic potency of alleviating hunger, regardless of all
the fluctuations of human appraisement. The objectivity
that the mediaeval writers ascribed to value was relative.
It assumed normal conditions as against exceptional con-
ditions. To say that value was objective merely meant
that it was not wholly determined by the interplay of
supply and demand, but was based upon the stable and
universally recognised use-qualities of commodities in a
society where desires, needs, and tastes were simple and
fairly constant from one generation to another.
How or where was this relatively objective value of
goods to find concrete expression ? In the " communis
aestimatio," or social estimate, declared the canonists.
Objective value and just price would be ascertained prac-
tically through the judgment of upright and competent
men, or preferably through legally fixed prices. But
neither the social estimate nor the ordinances of lawmakers
SOME UNACCEPTABLE THEORIES OF WAGE-JUSTICE 335
were authorised to determine values and prices arbitrarily.
They were obliged to take into account certain objective
factors. In the thirteenth and fourteenth centuries, the
factors universally recognised as determinative were the
utility or use-qualities of goods, but especially their cost
of production. Later on, in the sixteenth and seventeenth
centuries, risk and scarcity were given considerable promi-
nence as value determinants. Now cost of production in
the Middle Ages was mainly labour cost; hence the stand-
ard of value was chiefly a labour standard. Moreover,
this labour doctrine of true value and equality in exchanges
was strongly reinforced by another mediaeval principle,
according to which labour was the supreme if not the only
just title to rewards.
How was labour cost to be measured, and the differ-
ent kinds of labour evaluated? By the necessary and
customary expenditures of the class to which the labourer
belonged. Mediaeval society was composed of a few defi-
nite, easily recognised, and relatively fixed orders or
grades, each of which had its own function in the social
hierarchy, its own standard of living, and its moral right
to a livelihood in accordance with that standard. Like the
members of the other orders, the labourers were conceived
as entitled to live in conformity with their customary class-
requirements. From this it followed that the needs of the
labourer became the main determinant of the cost of pro-
duction, and of the value and just price of goods. Inas-
much as the standards of living of the various divisions of
the workers were fixed by custom, and limited by the
restricted possibilities of the time, they afforded a fairly
definite measure of value and price, — much more definite
than the standard of general utility. To Langenstein, vice
chancellor of the University of Paris in the latter half of
the fourteenth century, the matter seemed quite simple;
for he declared that every one could determine for himself
336 DISTRIBUTIVE JUSTICE
the just price of his wares by referring to the customary
needs of his rank of Hfe.^
Nevertheless, class needs are not and cannot be a stand-
ard of exchange-equivalence. They cannot become a cri-
terion of equality, a common denominator, a third term of
comparison, between labour and wages. When we say
that a given amount of wages is equal to a given content
of livelihood, we express a purely economic, positive, and
mathematical relation : when we say that a given amount
of labour is equal to a given content of livelihood, we are
either talking nonsense or expressing a purely ethical rela-
tion; that is, declaring that this labour ought to equal this
livelihood. In other words, we are introducing a fourth
term of comparison ; namely, the moral worth or personal
dignity of the labourer. Thus, we have not a single and
common standard to measure both labour and wages, and
to indicate a relation of equality between them. While
class needs directly measure wages, they do not measure
labour, either quantitatively, or qualitatively, or under any
other aspect or category.
Aside from this purely theoretical defect, the canonist
doctrine of wage justice was fairly satisfactory as applied
to the conditions of the Middle Ages. It assured to the
labourer of that day a certain rude comfort, and probably
as large a proportion of the product of industry as was
practically attainable. Nevertheless it is not a universally
valid criterion of justice in the matter of wages; for it
makes no provision for those labourers who deserve a wage
in excess of the cost of living of their class; nor does it
furnish a principle by which a whole class of workers can
justify their advance to a higher standard of living. It is
not sufficiently elastic and dynamic.
1 Cf . Poller, op. cit., pp. 66-75 ; Ryan, op. cit., pp. 93, 94.
SOME UNACCEPTABLE THEORIES OF WAGE-JUSTICE 337
A Modern Variation of the Mediceval Theory
In spite of its fundamental impossibility, the concept of
exchange-equivalence still haunts the minds of certain
Catholic writers.^ They still strive to get a formula to
express equality between labour and remuneration. Per-
haps the best known and least vulnerable of the attempts
made along this line is that defended by Charles An-
toine, S. J.^ Justice, he declares, demands an objective
equivalence between wages and labour; and objective
equivalence is determined and measured by two factors.
The remote factor is the cost of decent living for the
labourer; the proximate factor is the economic value of
his labour. The former describes the minimum to which
the worker is entitled; the latter comprises perfect and
adequate justice. In case of conflict between the two
factors, the first is determinative of and morally superior
to the second; that is to say, no matter how small the
economic value of labour may seem to be, it never can
descend below the requisites of a decent livelihood.
Now, neither of these standards is in harmony with the
principle of exchange-equivalence, nor capable of serving
as a satisfactory criterion of wage justice. Father
Antoine argues that labour is always the moral equivalent
of a decent livelihood because the worker expends his
energies, and gives out a part of his life in the service of
his employer. Unless his wage enables the labourer to
replace these energies and conserve his life, it is not the
equivalent of the service. If the wage falls short of this
standard the labourer gives more than he receives, and
the contract is essentially unjust. In this conception of
equivalence, energy expended, instead of cost of living, be-
comes the term of comparison and the common measure
of labour and remuneration. Energy expended is, how-
1 Cf . Polier, op. cit., pp. 92-95.
2 " Cours d' ficonomie Sociale," pp. 598, sq.
^^S DISTRIBUTIVE JUSTICE
ever, technically incapable of providing such a common
standard; for it does not measure both related terms in
the same way. The service rendered to the employer is
the effect rather than the equivalent of the energy ex-
pended; and the compensation is a means to the replace-
ment of this energy rather than its formal equivalent.
Moreover, the formula does not even furnish an adequate
rational basis for the claim to a decent minimum wage.
A wage which is merely adequate to the replacement of
expended energy and the maintenance of life, is really
inadequate to a decent livelihood. Such compensation
would cover only physical health and strength, leaving
nothing for intellectual, spiritual, and moral needs. As
Father Antoine himself admits and contends, the latter
needs are among the elements of a decent livelihood, and
a wage which does not make reasonable provision for them
fails to comply with the minimum requirements of justice.
The second factor of " objective equivalence " is even
more questionable than the first. To be completely just,
says Father Antoine, wages must be not merely adequate
to a decent livelihood, but equivalent to the " economic
value of the labour" ("la valeur economique du trav-
ail"). This "economic value" is determined objectively
by the cost of production, the utility of the product, and
the movement of supply and demand; subjectively, by the
judgment of employers and employes. In case of conflict
between these two measures of value, and in case of un-
certainty concerning the objective measure, the decision of
the subjective determinant must always prevail.
These statements are hopelessly ambiguous and confus-
ing. If the objective measure of " economic value " is to
be understood in a purely positive way, it merely means
the wages that actually obtain in a competitive market.
In the purely positive or economic sense, the utility of
labour is measured by what it will command in the market,
the movement of supply and demand is likewise reflected
SOME UNACCEPTABLE THEORIES OF WAGE- JUSTICE 339
in market wages, and the determining effect of cost of
production is also seen in the share that the market awards
to labour after the other factors of production have taken
their portions of the product. In other words, the
" economic value " of labour is simply its market value.
This, however, is not Father Antoine's meaning; for he
has already declared that the " economic value "of labour
is never less than the equivalent of a decent livelihood,
whereas we know that the market value often falls below
that level. In his mind, therefore, *' economic value " has
an ethical signification. It indicates at least the requisites
of decent living, and it embraces more than this in some
cases. When? and how much more? Let us suppose a
business so prosperous that it returns liberal profits to the
employer and the prevailing rate of interest on the capital,
and yet shows a surplus sufficient to give all the labourers
ten dollars a day. Is '^ cost of production " to be inter-
preted here as allowing only the normal rate of profits and
interest to the business man and the capitalist, leaving the
residue to labour ? Or is it to be understood as requiring
that the surplus be divided among the three agents of pro-
duction? In other words, is the ''economic value" of
labour in such cases to be determined by some ethical prin-
ciple which tells beforehand how much the other agents
than labour ought to receive? If so, what is this principle
or formula?
None of these questions is satisfactorily answered in
Father Antoine's pages. They are all to be solved by
having recourse to the subjective determinant of " eco-
nomic value"; namely, the judgment of employers and
employes. Thus his proximate factor of justice in wages,
his formula of complete as against minimum just wages,
turns out to be something entirely subjective, and more or
less arbitrary. It is in no sense a measure of the equiva-
lence between work and pay.
Moreover, it is inadequate as a measure of justice.
340 DISTRIBUTIVE JUSTICE
Should the majority of both employers and employes fix
the " economic value " of the labour of carpenters at five
dollars a day, there v^ould be no certainty that this decision
v^as correct, and that this figure represented just v^ages.
Should they determine upon a rate of fifty dollars a day,
v^e could not be sure that their decision v^as unjust. Un-
doubtedly the combined judgment of employers and em-
ployes w^ill set a fairer wage than one fixed by either party
alone, since it vi^ill be less one-sided; but there is no suffi-
cient reason for concluding that it will be in all cases com-
pletely just. Undoubtedly employers and employes know
what wages an industry can afford at prevailing prices,
on the assumption that business ability and capital are to
have a certain rate of return; but there is no certainty that
the prevailing prices are fair, or that the assumed rates of
profits and interest are fair. In a word, the device is too
arbitrary.
To sum up the entire discussion of exchange-equivalence
theories: Their underlying concept is fundamentally un-
sound and impracticable. All of them involve an attempt
to compare two entities which are utterly incommensurate.
There exists no third term, or standard, or objective fact,
which will inform men whether any rate of wages is the
equivalent of any quantity of labour.
III. Productivity Theories
The productivity concept of wage justice appears in a
great variety of forms. The first of them that we shall
consider is advocated mainly by the Socialists, and is
usually referred to as the theory of the " right to the whole
product of labour." ^
1 Poller, op. cit., pp. 219^359 ; Menger, " The Right to the Whole
Produce of Labour " ; English Translation. London ; 1899.
SOME UNACCEPTABLE THEORIES OF WAGE- JUSTICE 34I
Labour's Right to the Whole Product
We have seen that Adam Smith's belief in the nor-
mality and beneficence of free competition would have
logically led him to the conclusion that competitive wages
were just; and we know that this doctrine is implicit in
his writings. On the other hand, his theory that all value
is determined by labour would seem to involve the infer-
ence that all the value of the product belongs to the
labourer. As a matter of fact, Smith restricted this con-
clusion to primitive and pre-capitalist societies. Appar-
ently he, and his disciples in an even larger degree, was
more interested in describing the supposed beneficence of
competition than in justifying the distribution that re-
sulted from the competitive process.
The early English Socialists were more consistent. In
1793 William Godwin, whom Anton Menger calls "the
first scientific Socialist of modern times," laid down in
substance the doctrine that the labourer has a right to the
whole product.^ In 1805 Charles Hall formulated and
defended the doctrine with greater precision and con-
sistency.^ In 1824 the doctrine was stated more funda-
mentally, systematically, and completely by William
Thompson.^ He accepted the labour theory of value laid
down by Adam Smith, and formally derived therefrom the
ethical conclusion that the labourer has a right to the whole
product. " Thompson and his followers are only original
in so far as they consider rent and interest to be unjust
deductions, which violate the right of the labourer to the
whole product of his labour." '^ He denounced the laws
which empowered the land owner and the capitalist to
appropriate value not created by them, and gave to the
1 " Enquiry Concerning Political Justice."
2 " On the Effects of Civilisation on the People of European States."
3 " An Inquiry Into the Principles of the Distribution of Wealth Most
Conducive to Human Happiness."
* Menger, op. cit., p. 56.
342 DISTRIBUTIVE JUSTICE
value thus appropriated the name, '' surplus value." In
the use of this term he anticipated Karl Marx by several
years. His doctrines were adopted and defended by many
other English Socialist writers, and were introduced into
France by the followers of Saint-Simon. " From his
works," says Menger, " the later Socialists, the Saint-
Simonians, Proudhon, and above all, Marx and Rodbertus,
have directly or indirectly drawn their opinions." ^
Although Saint-Simon never accepted the doctrine of
the labourer's right to the whole product, his disciples,
particularly Enfantin and Bazard, taught it implicitly. In
a just social state, they maintained, every one would be
expected to labour according to his capacity, and would
be rewarded according to his product.^
Perhaps the most theoretical and extreme statement of
the theory that we are considering is found in the writings
of P. J. Proudhon.^ He maintained that the real value of
products was determined by labour time, and that all kinds
of labour should be regarded as equally effective in the
value-creating process, and he advocated therefore equality
of wages and salaries. For the realisation of this ideal he
drew the outlines of a semi-anarchic social order, of which
the main feature was gratuitous public credit. Neither his
theories nor his proposals ever obtained any considerable
number of adherents.
A milder and better reasoned form of the theory was
set forth by Karl J. Rodbertus.^ Professor Wagner calls
him, '' the first, the most original, and the boldest repre-
sentative of scientific Socialism in Germany." Yet, as
Menger points out, Rodbertus derived many of his doc-
trines from Proudhon and the Saint-Simonians. He ad-
mitted that in a capitalist society the value of commodities
1 Op. cit, p. 51.
2 Cf. Menger, op. cit., pp. 62-73.
3 " Qu' est-ce que la propriete ou recherches sur la principe du droit
et du gouvernment." 1840.
*"Zur Erkentniss unserer staatswirthschaftlichen Zustande," 1842.
SOME UNACCEPTABLE THEORIES OF WAGE-JUSTICE 343
does not always correspond to the labour embodied in
them, and that different kinds of labour are productive in
different degrees. Therefore, he had recourse to the con-
cept of a normal, or average, day's labour in any group,
and would have the various members of the group re-
munerated with reference to this standard. This was to
be brought about by a centralised organisation of industry
in which the whole product would ultimately go to labour,
and the share of the individual worker would be deter-
mined by his contribution of socially necessary labour.
Although Karl Marx adopted and formulated in his
own terms the theory that value is determined by labour,
he did not thence deduce the conclusion that labour has a
right to the whole product.^ Being a materialist, he con-
sistently rejected conceptions of abstract justice or injus-
tice, rights or wrongs. In opposition to the methods of
his predecessors, he endeavoured to discover the historical
and positive forces which determined the actual distribu-
tion, and to derive therefrom the laws that were neces-
sarily preparing the way for a new social order. While
he contended that rent receivers and interest receivers ap-
propriated the surplus value created by labour, he refrained
from stigmatising this process as morally wrong. It was
merely a necessary element of the capitalist system. To
call it unjust was in Marx' view to use language without
meaning. As well might one speak of the injustice of a
hurricane or an avalanche. Not the preaching of abstract
justice, but the inevitable transformation of the capitalist
into the collectivist organisation of industry, would enable
labour to obtain its full product.
Nevertheless, it is probably true that a majority of the
followers of Marx have drawn from his labour theory of
value the inference that all the value of the product be-
longs by a moral right to the labourer. So deeply fixed
in the human conscience is the conception of justice, and
1 " Das Kapital," 1867.
344 DISTRIBUTIVE JUSTICE
SO general is the conviction of the labourer's right to his
product, that most Socialists have not been able to main-
tain a position of consistent economic materialism.
Indeed, Marx himself did not always succeed in evading
the influence and the terminology of idealistic conceptions.
He frequently thought and spoke of the Socialist regime
as not only inevitable but as morally right, and of the
capitalist system as morally wrong. Despite his rigid,
materialistic theorising, his writings abound in passionate
denunciation of existing industrial evils, and in many sorts
of " unscientific " ethical judgments.^
In so far as the right to the whole product of labour
has been based upon the labour theory of value, it may be
summarily dismissed from consideration. The value of
products is neither created nor adequately measured by
labour; it is determined by utility and scarcity. Labour
does, indeed, affect value, inasmuch as it increases utility
and diminishes scarcity, but it is not the only factor that
influences these categories. Natural resources, the desires
and the purchasing power of consumers determine value
quite as fundamentally as does labour, and cause it to vary
out of proportion to the labour expended upon a com-
modity.
To-day there are probably not many adherents of the
right-to-the-whole-product doctrine who attempt to base it
upon any theory of value. The majority appeal to the
simple and obvious fact that the labourers, together with
the active directors of industry, are the only human beings
who expend energy in the productive process. The only
labour that the capitalist and the landowner perform in
return for the interest and rent that they respectively re-
ceive, consists in choosing the particular goods in which
their money is to be invested. As capitalist and land-
owner, they do not participate in the turning out of prod-
ucts. They are owners but not operators of the factors
1 Cf . Polier, op. cit., pp. 352, sq.
SOME UNACCEPTABLE THEORIES OF WAGE-JUSTICE 345
of production. In the sense, therefore, of active agents
the labourers and the business men are the only producers.
Whether land and capital should be called productive^
whether the product should be regarded as produced by
land and capital as well as by labour and undertaking
activity, is mostly a matter of terminology. Inasmuch as
they are instrumental in bringing forth the product, land
and capital may properly be designated as productive, but
not in the same sense as labour and business energy. The
former are passive factors and instrumental causes of the
product, while the latter are active factors and original
causes. Moreover, the former are non-rational entities,
while the latter are attributes of human beings.
As we have seen in former chapters, it is impossible to
prove that mere ownership of a productive thing, such as
a cow, a piece of land, or a machine, necessarily creates a
right to either the concrete or the conventional product.
The formula, ''res fnictificat domino," is not a self evi-
dent proposition. Nor are there any premises available
from which the formula can be logically and necessarily
deduced. On the other hand, we cannot prove conclu-
sively that ownership of productive property does not give
a right to the product. Whence it follows that the owners
of land and capital have at least a presumptive claim to
take rent and interest from their possessions. Moreover,
those owners of capital who would not have saved money
without the hope of interest have a just claim thereto on
account of their sacrifices in saving.
Would the State be justified in abolishing rent and in-
terest, and thus enabling labour to obtain the whole prod-
uct? Conceivably this result might be brought about
under the present system of private ownership, or through
the substitution of collectivism. Were the change made
by the former method land and capital would no longer
be sought or have value on account of their annual rev-
enues, but only as receptacles of saving. They would be
346 DISTRIBUTIVE JUSTICE
desired solely as means of accumulating stores of goods
which might be exchanged for articles of consumption
some time in the future. While we cannot estimate even
approximately the decline that would thus occur in the
value of land and capital, we may safely assert that it
would be considerable. Unless the proprietors received
adequate compensation for this loss, they would be com-
pelled to suffer obvious and grave injustice. Any attempt,
however, to carry out such a scheme, either with or with-
out compensation, would inevitably fail. Rent might be
terminated through the Single Tax, but interest could not
be abolished by any mere legal prohibition. Nor does
Socialism afford a way out; for, as we have seen in a
former chapter, it is an impracticable system. Conse-
quently the theory of the right to the whole product of
labour is confronted by the final objection that its realisa-
tion would involve greater evils and injustices than those
which it seeks to abolish.
Finally, the theory is radically incomplete. It professes
to describe the requirements of justice as between the land-
owners and capitalists on the one side, and the wage earners
on the other; but it provides no rule for determining dis-
tributive justice as between different classes of labour. In
none of its forms does it provide any comprehensive rule
or principle to ascertain the difference between the products
of different labourers, and to decide how the product be-
longing to any group of men as a whole should be divided
among the individual members. Does the locomotive
engineer produce more than the section hand, the book-
keeper more than the salesman, the ditch digger more than
the teamster? These and countless similar questions are,
from the nature of the productive process, unanswerable.
Even if it were ethically acceptable, the doctrine of the
right to the whole product is hopelessly inadequate.
As intimated above, the notion that if the labourer re-
ceives compensation according to his product he receives
SOME UNACCEPTABLE THEORIES OF WAGE-JUSTICE 347
just compensation, is one of the most prevalent and funda-
mental concepts in the controversy about wage justice.
Hence we find it in certain theories which reject the doc-
trine of the right to the whole product. According to
these theories, not only the labourer but all the agents of
production should be rewarded in proportion to their pro-
ductive contributions. Instead of the whole product, the
worker ought to receive that portion of it which corre-
sponds to his specific productivity, that is, that portion of
the product which represents his productive influence as
compared with the productive efficacy of land, capital, and
business energy.
Clark's Theory of Specific Productivity
One of the theories referred to in the last paragraph is
that which has been elaborated in great detail and with
great ingenuity by Professor John Bates Clark. As stated
by himself in the opening sentence of the preface to his
" Distribution of Wealth," its main tenet is, " that the
distribution of the income of society is controlled by a
natural law, and that this law, if it worked without fric-
tion, would give to every agent of production the amount
of wealth which that agent creates." In a regime of per-
fect competition, therefore, the labourer would get, not the
whole product of industry, but the whole product due to
his own exertions.
It is impossible, and indeed unnecessary, to enter upon
an extended examination of this contention. It will be
sufficient to state in a summary way the most obvious and
cogent objections. Without making any examination of
Professor Clark's theory, we should expect to find it un-
convincing. For the productive process is by analogy an
organic process, in which every factor requires the co-
operation of every other factor in order to turn out even
the smallest portion of the product. Each factor is in its
own order the cause of the whole product. Consequently
34^ DISTRIBUTIVE JUSTICE
no physical portion of the product can be set aside and
designated as wholly due to any one factor. Can we not,
however, distinguish the proportionate productive influence
exerted by each factor, and the proportion of the product
which represents such productive influence? This is the
question to which Professor Clark addresses himself with
much ingenuity, subtlety, and labour, and to which he
returns an affirmative answer.^
He contends that the amount of product added by the
presence of the least productive labourer in a group or
establishment describes the productivity of that and every
other labourer for whom the man in question can be sub-
stituted. Nevertheless this marginal labourer had the use
of some capital, no matter how little or how poor; conse-
quently the increment of product which follows his activity
is partly due to capital. It represents something other
than his own productive power. If his wage equals the
value of this increment of product, he is receiving some-
thing more than his specific product.
In the second place, Professor Clark maintains that the
difference between what a labourer produces when he uses
the whole of a certain supply of capital and what he pro-
duces when he has shared that capital with another
labourer, represents the specific productivity of the relin-
quished capital. Let us assume that in a given case the
difference is ten units of product. When the first man
had the whole capital to himself, the product was one hun-
dred units; when he shares the use of it with another, the
total product is one hundred and eighty units. As the two
men are assumed to be equally productive, each has to his
credit ninety units of product. Working with half the
capital, the first man finds that the resulting product is ten
units less than when he was using the whole capital.
Hence these ten units represent the portion that the relin-
quished capital contributed to the product; and if the
1 Cf. especially chap, xxi, " The Theory of Economic Causation."
SOME UNACCEPTABLE THEORIES OF WAGE- JUSTICE 349
productivity of half the capital is ten units, that of the
whole capital must be twenty units. Nevertheless, the ten
units by which the product was enlarged when the man
had the whole capital, did not come into being without his
co-operation; hence they cannot be entirely attributed to
the one-half share of the capital. In other words, the
productivity of the relinquished capital seems to be less
than ten units. It also seems to be more than ten units;
for we may assume that if each man were to use one-half
the capital independently of the other, the resulting total
product would be less than one hundred and eighty units,
or less than ninety units for each. Consequently the dif-
ference between the product resulting from the first man's
use of the whole capital and that resulting from his use of
half the capital would be more than ten units; and this
difference is specifically attributable to half the capital.
Who can say which of these calculations is correct, or
whether either of them is correct?
The method of ascertaining specific productivity which
has been described in the last paragraph is thought by
Professor Clark to receive confirmation from the fact that
it leads to the same conclusion as the first and more direct
method; namely, that the specific productivity of labour is
expressed in the product of the marginal labourer. As a
matter of fact, this conclusion is yielded by both methods ;
for the specific productivity of the first labourer appeared
as eighty units, which was also the specific productivity of
the second labourer, who was the marginal labourer. As
we saw in the second last paragraph, however, the mar-
ginal product is not due to labour alone ; hence the verifica-
tion provided by the second method is in reality a refu-
tation.
Apparently the majority of economists do not accept
Professor Clark's theory; for of the nine who discussed
certain applications of it at the nineteenth annual meeting
of the American Economic Association only one approved
350 DISTRIBUTIVE JUSTICE
it, three were non-committal, and five expressed their
dissent.^
Even if the theory were true its hypothetical character
would deprive it of any practical value. It assumes a
regime of perfect competition, but this assumption is so
seldom realised that no rule based upon it can throw much
light on the question of the productivity of present day
labourers.
Even if it were exactly applicable to existing conditions,
that is, if labourers were actually getting their specific
products, the theory would not provide us with a doctrine
of just wages. As we have seen in former chapters, pro-
ductivity is neither the only nor the highest canon of jus-
tice, whether as regards the comparative claims of capital
and labour, or as regards the claims of different labourers.
The contention that capital ought to command interest be-
cause it aids in bringing forth the product, is neither self
evident nor demonstrable by any process of reasoning.
Even if we should concede that the capitalist has a right to
interest by virtue of the productivity of his capital, we
should not therefore conclude that this right is as cogent
as the corresponding right of the labourer. In the former
case the productive agency is not human nor active, but
only material and passive; and the recipient of the product
performs no labour as capitalist, but is left free to get a
livelihood by personal activity. The productivity of
labour differs in all these respects, and the difference is
ethically sufficient to justify the claim that the labourer
may sometimes have a right to a part of the specific product
of capital. To sum up the matter in the words of Pro-
fessor Wicker : " To have proved that the capitalist gets
in interest what his capital produces is not to have proved
that the capitalist gets what he has earned. To have
proved that the landlord gets what his land produces is
not to have proved that the landlord earns his distributive
1 " Proceedings," pp. 23-54.
SOME UNACCEPTABLE THEORIES OF WAGE- JUSTICE 35 1
share. . . . Economics is not ethics; explanation is not
justification." ^
Indeed, Professor Clark nowhere explicitly asserts that
productivity is an adequate rule of justice. " We might
raise the question," he says, " whether a rule that gives
to a man his product is in the highest sense just." ^ Scat-
tered throughout his volume, however, are many expres-
sions which might fairly be interpreted as answering this
question in the affirmative. The statements that distribu-
tion according to product is a " natural law," and that if
the labourer does not get his full specific product he is
" despoiled," suggest if they do not imply that wages
according to productivity is not merely the economic but
the ethical norm. At any rate, the assumption of pro-
ductivity as the adequate canon of wage justice, is very
widely adopted, and is frequently brought forward to give
sanction to insufficient rates of remuneration. Hence it
has been thought well to show that the economic basis of
the assumption, i.e., that the labourer gets what he pro-
duces, is unproved and unprovable.
Carver's Modified Version of Productivity
Professor Carver makes no attempt to ascertain or state
the exact physical productivity of labour as compared with
that of capital, but confines his attention to what he calls
the " economic " productivity of a given unit of labour in
a given productive process.^ " Find out accurately how
much the community produces with his [the labourer's]
help, over and above what it produces without his help,
and you have an exact measure of his productivity." *
By this rule we can determine a man's productivity not
only as compared with his inactivity in relation to a given
1 " Proceedings of the 22d Annual Meeting of the American
Economic Association," pp. 160, 161.
2 Op. cit, p. 8.
3 " Essays in Social Justice " ; especially ch. vii.
*0p. cit, pp. 187, 188.
352 DISTRIBUTIVE JUSTICE
industry or establishment, but as compared with the pro-
ductivity of some other man who might be substituted for
him. Thus understood, productivity expresses the eco-
nomic value of a man to the industrial process in which he
participates. It " determines how much a man is worth,
and consequently, according to our criterion of justice,
how much a man ought to have as a reward for his
work." 1
While this conception of productivity is relatively simple,
and the canon of justice based upon it is somewhat plau-
sible, neither is adequate. To many situations the produc-
tivity test is substantially inapplicable. The removal from
industry of the man who works alone; for example, the in-
dependent shoemaker, blacksmith, tailor, or farmer, would
result not in a certain diminution, but in the entire non-
appearance of the product; and the removal of the capital
or tools would have precisely the same effect. According
to the former method, the labourer is to be credited with
the whole product, and capital with nothing; according to
the latter method, capital produces everything, and labour
nothing. Even when several labourers are employed in an
establishment, the test is inapplicable to those who are en-
gaged upon indispensable tasks ; for example, the engineer
in the boiler room of a small factory, and the bookkeeper
in a small store. Remove them, and you have no product
at all; hence a rigid enforcement of Professor Carver's
test would award them the whole product. To be sure,
we can get some measure of the productivity of these men
by observing the effect on the product when inferior men
are put in their places; but this merely enables us to tell
how much more they are worth than other men, not their
total worth. Moreover, even the substitution test is not
always practicable. The attempt to ascertain the produc-
tivity of a workman of high technical skill by putting in
his place an utterly unskilled labourer, would not yield
1 Op. cit., p. 201.
SOME UNACCEPTABLE THEORIES OF WAGE- JUSTICE 353
very satisfactory results, either to the inquiry or to the
industry. In the majority of such cases, the difference in
the resulting product would probably far exceed the dif-
ference in the existing wage rates of the two men, thus
showing that the skilled worker is getting considerably less
than he is *' economically worth."
In the field to which it is applicable; namely, that of
more or less unspecialised labour in large establishments,
Professor Carver's theory violates some of the most funda-
mental conceptions of justice and humanity. He admits
that it takes no account of the labourer's efforts, sacri-
fices, or needs, and that when unskilled labour becomes too
plentiful, the value of the product may fall below the cost
of supporting a decent standard of living. While he looks
with some sympathy upon the demand for a minimum
wage of two dollars per day, he contends that unless the
labourer really earns that amount, some other man will be
paid less than he earns, " which would be unjust." To
" earn " two dollars a day means, in Professor Carver's
terminology, to add that much value to the product of the
establishment in which the labourer is employed; for this
is the measure of the labourer's productivity. If all the
men who are now getting less than two dollars a day are
receiving the full value of their product, and if all the
other workers are likewise given the full value of their
product, an increase in the remuneration of the former will
mean a deduction from the compensation of the latter.
These conclusions of ethical pessimism are extremely
vulnerable. As we have shown in chapter xvi, efforts,
sacrifices, and needs are superior to productivity as claims
to reward, and must be given due consideration in any
just scheme of distribution. Professor Carver would
leave them out of account entirely. In the second place, it
is not always nor necessarily ever true that to raise the
wages of the poorest paid labourers will mean to lower the
remuneration of those who are better paid. Many work-
354 DISTRIBUTIVE JUSTICE
ers, particularly women, are now receiving less than the
measure of their " productivity," less than they " earn,"
less than their worth to the employer, less than he would
be willing to pay rather than go without their services.
Professor Carver w^ould, of course, not deny that the
wages of all such labourers could be raised without affect-
ing the remuneration of other workers. Even when the
poorest paid class is receiving all that its members are at
present worth to the employer, an increase in their com-
pensation would not necessarily come out of the fund
available for the better paid. It could be deducted from
excessive profits and interest; for we know well that in
many industries competition does not automatically keep
down these shares to the minimum necessary to retain the
services of business ability and capital. It could be pro-
vided to some extent out of the enlarged product that
would result from improvements in the productive process,
and from the increased efficiency of those workers whose
wages had been raised. Finally, the increased remunera-
tion could be derived from increased prices. When we
speak of the unskilled labourer as getting all that he pro-
duces, or all that he earns, we refer not to his concrete
product, but to the value of that product, to the selling
price of the product. Neither this price, nor any other
existing price, has anything about it that is either eco-
nomically or ethically sacred. In a competitive market
current prices are fixed by the forces of supply and de-
mand, which often involve the exploitation of the weak;
in a monopoly market they are set by the desires of the
monopolist, which are likewise destitute of moral validity.
Hence a minimum wage law which would raise the price
and value of the product suflficiently to provide living
wages for the unskilled workers, thus increasing their
" productivity " and enabling them to " earn " the legal
wage, would neither violate the principles of justice, nor
necessarily diminish the compensation of any other labour-
SOME UNACCEPTABLE THEORIES OF WAGE- JUSTICE 355
ing group. To be sure, the increased prices might be fol-
lowed by such a lessening of demand for the product as to
diminish employment ; but this is another matter which has
no direct bearing on either the economic or the ethical
phases of productivity and earning power. And the dis-
advantages involved in the supposition of a reduced vol-
ume of employment may possibly be not so formidable
socially as those which accompany a large volume of in-
sufficiently paid occupations. This question will receive
further consideration in a later chapter.
In the meantime, we conclude that Professor Carver's
theory or rule is inapplicable to a large part of the indus-
trial field, and that where it does apply it frequently runs
counter to some of the fundamental principles of distribu-
tive justice.
CHAPTER XXIII
THE MINIMUM OF JUSTICE: A LIVING WAGE
Although the principle of needs is somewhat promi-
nent among the theories of wage justice, it received only
incidental mention in the last chapter. Considered as a
comprehensive rule, this principle has been defended with
less energy and definiteness than most of the other canons.
Considered as a partial rule, it is sound and fundamental,
and therefore could not have been classed among theories
that are unacceptable.
The Principle of Needs
Many of the early French Socialists of the Utopian
school advanced this formula of distribution : ** From
each according to his powers; to each according to his
needs." It was also put forward by the German Social-
ists in the Gotha Program in 1875. While they have not
given to this standard formal recognition in their more re-
cent platforms. Socialists generally regard it as the ideal
rule for the distant future.^ The difficulties confronting
it are so great and so obvious that they would defer the
introduction of it to a time when the operation of their
system will, they hope, have eradicated the historical
human qualities of laziness and selfishness. To adopt
needs as the sole rule of distribution would mean, of
course, that each person should be rewarded in proportion
to his wants and desires, regardless of his efforts or of the
amount that he had produced. The mere statement of
iCf. Skelton, "Socialism: A Critical Analysis," p. 202; Menger,
" The Right to the Whole Produce of Labour," pp. 8, sq.
356
THE MINIMUM OF JUSTICE: A LIVING WAGE 357
the proposal is sufficient to refute it as regards the men and
women of whom we have any knowledge. In addition to
this objection, there is the insuperable difficulty of measur-
ing fairly or accurately the relative needs of any group
composed of men, women, and children. Were the mem-
bers' own estimates of their needs accepted by the dis-
tributing authority, the social product would no doubt fall
far short of supplying all. If the measurement were
made by some official person or persons, " the prospect of
jobbery and tyranny opened up must give the most fanat-
ical pause." Indeed, the standard of needs should be re-
garded as a canon of Communism rather than of Social-
ism; for it implies a large measure of common life as well
as of common ownership, and paternalistic supervision of
consumption as well as collectivist management of pro-
duction.
While the formula of needs must be flatly rejected as
complete rule of distributive justice, or of wage justice, it
is valid and indispensable as a partial standard. It is a
partial measure of justice in two senses : first, inasmuch as
it is consistent with the admission and operation of other
principles, such as productivity and sacrifice; second, in-
asmuch as it can be restricted to certain fundamental requi-
sites of life, instead of being applied to all possible human
needs. It can be made to safeguard the minimum de-
mands of reasonable life, and therefore to function as a
minimum standard of wage justice.
Human needs constitute the primary title or claim to
material goods. None of the other recognised titles, such
as productivity, effort, sacrifice, purchase, gift, inherit-
ance, or first occupancy, is a fundamental reason or justi-
fication of either rewards or possessions. They all as-
sume the existence of needs as a prerequisite to their valid-
ity. If men did not need goods they could not reasonably
lay claim to them by any of the specific titles just enumer-
ated. First comes the general claim or fact of needs; then
358 DISTRIBUTIVE JUSTICE
the particular title or method by which the needs may be
conveniently supplied. While these statements may seem
elementary and platitudinous, their practical value will be
quite evident when we come to consider the conflicting
claims that sometimes arise out of the clash between needs
and some of the other titles. We shall see that needs are
not merely a physical reason or impulse toward acquisi-
tion and possession, but a moral title which rationalises
the claim to a certain amount of goods. ^
Three Fundamental Principles
The validity of needs as a partial rule of wage justice
rests ultimately upon three fundamental principles regard-
ing man's position in the universe. The first is that God
created the earth for the sustenance of all His children;
therefore, that all persons are equal in their inherent claims
upon the bounty of nature. As it is impossible to demon-
strate that any class of persons is less important than an-
other in the eyes of God, it is logically impossible for any
believer in Divine Providence to reject this proposition.
The man who denies God or Providence can refuse assent
to the second part of the proposition only by refusing to
acknowledge the personal dignity of the human individual,
and the equal dignity of all persons. Inasmuch as the
human person is intrinsically sacred and morally inde-
pendent, he is endowed with those inherent prerogatives,
immunities, and claims that we call rights. Every person
is an end in himself; none is a mere instrument to the
convenience or welfare of any other human being. The
worth of a person is something intrinsic, derived from
within, not determined or measurable by reference to any
earthly object or purpose without. In this respect the
human being differs infinitely from, is infinitely superior
1 All the questions treated in this chapter are discussed at much
greater length in the author's work, "A Living Wage"; Macmillan;
1906.
THE MINIMUM OF JUSTICE: A LIVING WAGE 359
to, a stone, a rose, or a horse. While these statements
help to illustrate what is meant by the dignity of person-
ality, by the intrinsic worth, importance, sacredness of the
human being, they do not prove the existence of this in-
herent juridical quality. Proof in the strict sense is irrele-
vant and impossible. If the intrinsic and equal moral
worth of all persons be not self evident to a man, it will
not approve itself to him through any process of argumen-
tation. Whosoever denies it can also logically deny men's
equal claims of access to the bounty of the earth; but he
cannot escape the alternative conclusion that brute force,
exercised either by the State or by individuals, is the only
proper determinant of possessions and of property.
Against this monstrous contention it is not worth while to
offer a formal argument.
The second fundamental principle is that the inherent
right of access to the earth is conditioned upon, and be-
comes actually valid through, the expenditure of useful
labour. Generally speaking the fruits and potentialities
of the earth do not become available to men without pre-
vious exertion. " In the sweat of thy brow thou shalt eat
thy bread," is a physical no less than a moral command-
ment. There are, indeed, exceptions : the very young, the
infirm, and the possessors of a sufficient amount of prop-
erty. The two former classes have claims to a livelihood
through piety and charity, while the third group has at
least a presumptive claim of justice to rent and interest,
and a certain claim of justice to the money value of their
goods. Nevertheless, the general condition is that men
must work in order to live. " If a man will not work
neither shall he eat." For those who refuse to comply
with this condition the inherent right of access to the
earth remains only hypothetical and suspended.
The two foregoing principles involve as a corollary a
third principle; the men who are in present control of
the opportunities of the earth are obliged to permit
360 DISTRIBUTIVE JUSTICE
reasonable access to these opportunities by persons who
are wilHng to work. In other words, possessors must
so administer the common bounty of nature that non-
owners will not find it unreasonably difficult to get
a livelihood. To put it still in other terms, the right
to subsist from the earth implies the right to access
thereto on reasonable terms. When any man who is
willing to work is denied the exercise of this right, he is
no longer treated as the moral and juridical equal of his
fellows. He is regarded as inherently inferior to them,
as a mere instrument to their convenience ; and those who
exclude him are virtually taking the position that their
rights to the common gifts of the Creator are i<nherently
superior to his birthright. Obviously this position cannot
be defended on grounds of reason. Possessors are no
more justified in excluding a man from reasonable access
to the goods of the earth than they would be in depriving
him of the liberty to move from place to place. The com-
munity that should arbitrarily shut a man up in prison
would not violate his rights more fundamentally than the
community or the proprietors who should shut him out
from the opportunity of getting a livelihood from the
bounty of the earth. In both cases the man demands and
has a right to a common gift of God. His moral claim is
as valid to the one good as to the other, and it is as valid
to both goods as is the claim of any of his fellows.
The Right to a Decent Livelihood
Every man who is willing to work has, therefore, an
inborn right to sustenance from the earth on reasonable
terms or conditions. This cannot mean that all persons
have a right to equal amounts of sustenance or income;
for we have seen on a preceding page that men's needs,
the primary title to property, are not equal, and that other
canons and factors of distribution have to be allowed some
weight in determining the division of goods and opportu-
THE MINIMUM OF JUSTICE: A LIVING WAGE 361
nities. Nevertheless, there is a certain minimum of goods
to which every worker is entitled by reason of his inherent
right of access to the earth. He has a right to at least a
decent livelihood. That is; he has a right to so much of
the requisites of sustenance as will enable him to live in a
manner worthy of a human being. The elements of a
decent livelihood may be summarily described as : food,
clothing, and housing sufficient in quantity and quality to
maintain the worker in normal health, in elementary com-
fort, and in an environment suitable to the protection of
morality and religion; sufficient provision for the future
to bring elementary contentment, and security against
sickness, accident, and invalidity; and sufficient opportu-
nities of recreation, social intercourse, education, and
church-membership to conserve health and strength, and
to render possible in some degree the exercise of the
higher faculties.
On what ground is it contended that a worker has a
right to a decent livelihood, as thus defined, rather than to
a bare subsistence? On the same ground that validates
his right to life, marriage, or any of the other fundamental
goods of human existence. On the dignity of person-
ality. Why is it wrong and unjust to kill or maim an
innocent man? Because human life and the human per-
son possess intrinsic worth ; because personality is sacred.
But the intrinsic worth and sacredness of personality imply
something more than security of life and limb, and the
material means of bare existence. The man who is not
provided with the requisites of normal health, efficiency,
and contentment lives a maimed life, not a reasonable life.
His physical condition is not worthy of a human being.
Furthermore, man's personal dignity demands not merely
the conditions of reasonable physical existence, but the
opportunity of pursuing self perfection through the har-
monious development of all his faculties. Unlike the
brutes, he is endowed with a rational soul, and the capacity
362 DISTRIBUTIVE JUSTICE
of indefinite self improvement. A due regard to these
endowments requires that man shall have the opportunity
of becoming not only physically stronger, but intellectually
wiser, morally better, and spiritually nearer to God. If
he is deprived of these opportunities he cannot realise the
potentialities of his nature nor attain the divinely appointed
end of his nature. He remains on the plane of the lower
animals. His personality is violated quite as fundamen-
tally as when his body is injured or his life destroyed.
While it is impossible to define with mathematical pre-
cision the degree of personal development that is necessary
to satisfy the claims of personal dignity, it is entirely prac-
ticable to state with sufficient definiteness the minimum
conditions of such development. They are that quantity
of goods and opportunities which fair-minded men would
regard as indispensable to humane, efficient, and reason-
able life. The summary description of a decent liveli-
hood at the end of the second last paragraph, would prob-
ably be accepted by all men who really believe in the in-
trinsic worth of personality.
The Claim to a Decent Livelihood from a Present
Occupation
The claim of a worker to a decent livelihood from the
goods of the earth does not always imply a strict right to
a livelihood from one's present occupation. To demand
this would in some circumstances be to demand a livelihood
not on reasonable but on unreasonable terms ; for the per-
sons in control of the sources could not reasonably be re-
quired to provide a decent livelihood. Their failure to do
so would not constitute an unreasonable hindrance to the
worker's access to the earth in such circumstances. In
chapter xvi we saw that not all business men have a
strict right to that minimum of profits which is required to
yield them a decent livelihood : first, because the direction
of industry is not generally the business man's only means
THE MINIMUM OF JUSTICE: A LIVING WAGE 363
of getting a living; second, because the community, the
consumers, do not regard the presence and activity of all
existing business men as indispensable. Of course, the
community is morally bound to pay such prices for goods
as will enable all the necessary business men, whether manu-
facturers or traders, to obtain a decent livelihood in return
for their directive functions; but it is not obliged to pro-
vide a livelihood for those business men whose presence is
not required, who could vanish from the field of indus-
trial direction without affecting either the supply or the
price of goods, and whose superfluous character is proved
by the fact that they cannot make a livelihood at the pre-
vailing prices. They are in the position of persons whom
the community does not desire to employ as business men.
In refusing to pay prices sufficiently high to provide these
inefficient business men with a decent livelihood, the com-
munity is not unreasonably hindering their access to the
common goods of the earth. Such men are really demand-
ing a livelihood on unreasonable terms.
The Labourer's Right to a Living Wage
On the other hand, the wage earner's claim to a decent
livelihood is valid, generally speaking, in his present occu-
pation. In other words, his right to a decent livelihood in
the abstract means in the concrete a right to a living wage.
To present the matter in its simplest terms, let us consider
first the adult male labourer of average physical and mental
ability who is charged with the support of no one but him-
self, and let us assume that the industrial resources are
adequate to such a wage for all the members of his class.
Those who are in control of the resources of the commu-
nity are morally bound to give such a labourer a living
wage. If they fail to do so they are unreasonably hinder-
ing his access to a livelihood on reasonable terms ; and his
right to a livelihood on reasonable terms is violated. The
central consideration here is evidently the reasonable-
364 DISTRIBUTIVE JUSTICE
ness of the process. Unlike the business man, the rent
receiver, and the interest receiver, the labourer has ordi-
narily no other means of livehhood than his v^^ages. If
these do not furnish him with a decent subsistence he is
deprived of a decent subsistence. When he has performed
an average day's work, he has done all that is within his
power to make good his claim to a decent livelihood. On
the other hand, the community is the beneficiary of his
labour, and desires his services. If, indeed, the commu-
nity would rather do without the services of an individual
labourer than pay him a living wage, it is morally free to
choose the former alternative, precisely as it is justified in
refusing to pay a price for groceries that will enable an
inefficient grocer to obtain living profits. Whatever con-
crete form the right of such persons to a decent livelihood
may take, it is not the right to living wages or living
profits from the occupations in question. Here, however,
we are discussing the labourer to whom the community
would rather pay a living wage than not employ him at all.
To refuse such a one a living wage merely because he can
be constrained by economic pressure to work for less, is to
treat him unreasonably, is to deprive him of access to a
livelihood on reasonable terms. Such treatment regards
the labourer as inferior to his fellows in personal worth,
as a mere instrument to their convenience. It is an un-
reasonable distribution of the goods and opportunities of
the earth.
Obviously there is no formula by which such conduct
can be mathematically demonstrated as unreasonable; but
the proposition is as certain morally as any other proposi-
tion that is susceptible of rational defence in the field of
distribution. No man who accepts the three fundamental
principles stated some pages back, can deny the right of
the labourer to a living wage. The man who does not
accept them must hold that all property rights are the ar-
bitrary creation of the State, or that there is no such thing
THE MINIMUM OF JUSTICE: A LIVING WAGE 365
as a moral right to material goods. In either supposition
the distribution and possession of the earth's bounty are
subject entirely to the arbitrament of might. There is
nothing to be gained by a formal criticism of this as-
sumption.
What persons, or group, or authority is charged with
the obligation which corresponds to the right to a living
wage? We have referred to *' the community" in this
connection, but we do not mean the community in its cor-
porate capacity, i.e., the State. As regards private em-
ployments, the State is not obliged to pay a living wage,
nor any other kind of wage, since it has not assumed the
wage-paying function with respect to these labourers. As
protector of natural rights, and as the fundamental deter-
miner of industrial institutions, the State is obliged to
enact laws which will enable the labourer to obtain a living
wage; but the duty of actually providing this measure of
remuneration rests upon that class which has assumed the
wage-paying function. This is the employers. In our
present industrial system, the employer is society's pay-
master. He, not the State, receives the product out of
which all the agents of production must be rewarded.
Where the labourer is engaged in rendering personal serv-
ices to his employer, the latter is the only beneficiary of
the labourer's activity. In either case the employer is the
only person upon whom the obligation of paying a living
wage can primarily fall.
If the State were in receipt of the product of industry,
the wage-paying fund, it would naturally be charged with
the obligation that now rests immediately upon the em-
ployer. If any other class in the community were the own-
ers of the product that class would be under this specific ob-
ligation. As things are, the employer is in possession of
the product, and discharges the function of wage payer;
consequently he is the person who is required to perform
this function in a reasonable manner.
366 DISTRIBUTIVE JUSTICE
When the Employer Is Unable to Pay a Living Wage
Evidently the employer who cannot pay a living wage is
not obliged to do so, since moral duties suppose a corre-
sponding physical capacity. In such circumstances the
labourer's right to a living wage becomes suspended and
hypothetical, just as the claim of a creditor when the
debtor becomes insolvent. Let us see, however, precisely
what meaning should reasonably be given to the phrase,
" inability to pay a living wage."
An employer is not obliged to pay a full living wage to
all his employes so long as that action would deprive him-
self and his family of a decent livelihood. As active di-
rector of a business, the employer has quite as good a right
as the labourer to a decent livelihood from the product,
and in case of conflict between the two rights, the employer
may take advantage of that principle of charity which per-
mits a man to prefer himself to his neighbour, when the
choice refers to goods of the same order of importance.
Moreover, the employer is justified in taking from the
product sufficient to support a somewhat higher scale of
living than generally prevails among his employes ; for he
has become accustomed to this higher standard, and would
suffer a considerable hardship if compelled to fall notably
below it. It is reasonable, therefore, that he should have
the means of maintaining himself and family in moderate
conformity with their customary standard of living; but
it is unreasonable that they should indulge in anything like
luxurious expenditure, so long as any of the employes fail
to receive living wages.
Suppose that an employer cannot pay all his employes
living wages and at the same time provide the normal rate
of interest on the capital in the business. So far as the
borrowed capital is concerned, the business man has no
choice; he must pay the stipulated rate of interest, even
though it prevents him from giving a living wage to all
THE MINIMUM OF JJJSTICE : A LIVING WAGE 367
his employes. Nor can it be reasonably contended that
the loan capitalist in that case is obliged to forego the in-
terest due him. He cannot be certain that this interest
payment, or any part of it, is really necessary to make up
what is wanting to a complete scale of living wages. The
employer would be under great temptation to defraud the
loan capitalist on the pretext of doing justice to the la-
bourer, or to conduct his business inefficiently at the ex-
pense of the loan capitalist. Anyhow, the latter is under
no obligation to leave his money in a concern that is un-
able to pay him interest regularly. The general rule, then,
would seem to be that the loan capitalist is not obliged to
refrain from taking interest in order that the employes
may have living wages.
Is the employer justified in withholding the full living
wage from his employes to provide himself with the normal
rate of interest on the capital that he has invested in the
enterprise? Speaking generally, he is not. In the first
place, the right to any interest at all, except as a return
for genuine sacrifices in saving, is not certain but only pre-
sumptive.^ Consequently it has no such firm and definite
basis as the right to a living wage. In the second place,
the right to interest, be it ever so definite and certain, is
greatly inferior in force and urgency. It is an axiom of
ethics that when two rights conflict, the less important
must give way to the more important. Since all property
rights are but means to the satisfaction of human needs,
their relative importance is determined by the relative im-
portance of the ends that they serve; that is, by the rela-
tive importance of the dependent needs. Now the needs
that are supplied through interest on the employer's capi-
tal are slight and not essential to his welfare; the needs
that are supplied through a living wage are essential to a
reasonable life for the labourer. On the assumption that
the employer has already taken from the product sufficient
1 See chapters xii and xiii.
368 DISTRIBUTIVE JUSTICE
to provide a decent livelihood, interest on his capital will
be expended for luxuries or converted into new invest-
ments; a living wage for the labourer will all be required
for the fundamental goods of life, physical, mental, or
moral. Evidently, then, the right to interest is inferior to
the right to a living wage. To proceed on the contrary
theory is to reverse the order of nature and reason, and
to subordinate essential needs and welfare to unessential
needs and welfare.
Nor can it be maintained that the capitalist-employer's
claim to interest is a claim upon the product prior to and
independent of the claim of the labourer to a living wage.
That would be begging the question. The product is in a
fundamental sense the common property of employer and
employes. Both parties have co-operated in turning it out,
and they have equal claims upon it, in so far as it is neces-
sary to yield them a decent livelihood. Having taken
therefrom the requisites of a decent livelihood for him-
self, the employer who appropriates interest at the expense
of a decent livelihood for his employes, in effect treats
their claims upon the common and joint product as essen-
tially inferior to his own. If this assumption were cor-
rect it would mean that the primary and essential needs
of the employes are of less intrinsic importance than the
superficial needs of the employer, and that the employes
themselves are a lower order of being than the employer.
The incontestable fact is that such an employer deprives
the labourers of access to the goods of the earth on reason-
able terms, and gives himself an access thereto that is un-
reasonable.
Suppose that all employers who found themselves unable
to pay full living wages and obtain the normal rate of
interest, should dispose of their businesses and become
mere loan capitalists, would the condition of the underpaid
workers be improved ? Two effects would be certain : an
increase in the supply of loan capital relatively to the de-
THE MINIMUM OF JUSTICE: A LIVING WAGE 369
mand, and a decrease in the number of active business men.
The first would probably lead to a decline in the rate of
interest, while the second might or might not result in a
diminution of the volume of products. If the rate of in-
terest were lowered the employing business men would be
able to raise wages; if the prices of products rose a fur-
ther increase of wages would become possible. However,
it is not certain that prices would rise; for the business
men who remained would be the more efficient in their
respective classes, and might well be capable of producing
all the goods that had been previously supplied by their
eliminated competitors. Owing to their superior effi-
ciency and their larger output, the existing business men
would be able to pay considerably higher wages than those
who had disappeared from the field of industrial direction.
As things are to-day, it is the less efficient business men
who are unable to pay living wages and at the same time
obtain the prevailing rate of interest on their capital. The
ultimate result, therefore, of the withdrawal from busi-
ness of those who could not pay a living wage, would
probably be the universal establishment of a living wage.
Of course, this supposition is purely fanciful. Only a
small minority of the business men of to-day are likely to
be driven by their consciences either to pay a living wage
at the cost of interest on their capital, or to withdraw from
business when they are confronted with such a situation.
Is this small minority under moral obligation to adopt
either of these alternatives, when the effect of such action
upon the great mass of the underpaid workers is likely to
be very slight? The question would seem to demand an
answer in the affirmative. Those employers who paid a
living wage at the expense of interest would confer a con-
crete benefit of great value upon a group of human beings.
Those who shrank from this sacrifice, and preferred to go
out of business, would at least have ceased to co-operate
in an unjust distribution of wealth, and their example
370 DISTRIBUTIVE JUSTICE
would not be entirely without effect upon the views of
their fellow employers.
An Objection and Some Difficulties
Against the foregoing argument it may be objected that
the employer does his full duty when he pays the labourer
the full value of the product or service. Labour is a com-
modity of which wages are the price; and the price is just
if it is the fair equivalent of the labour. Like any other
onerous contract, the sale of labour is governed by the re-
quirements of commutative justice; and these are satisfied
when labour is sold for its moral equivalent. What the
employer is interested in and pays for, is the labourer's
activity. There is no reason why he should take into ac-
count such an extrinsic consideration as the labourer's live-
lihood.
Most of these assertions are correct, platitudinously cor-
rect, but they yield us no specific guidance because they
use language vaguely and even ambiguously. The con-
tention underlying them was adequately refuted in the last
chaptei*, under the heads of theories of value and theories
of exchange equivalence. At present it will be sufificient
to repeat summarily the following points: if the value of
labour is to be understood in a purely economic sense it
means market value, which is obviously not a universal
measure of justice; if by the value of labour we mean its
ethical value we cannot determine it in any particular case
merely by comparing labour and compensation; we are
compelled to have recourse to some extrinsic ethical prin-
ciple; such an extrinsic principle is found in the proposi-
tion that the personal dignity of the labourer entitles him
to a wage adequate to a decent livelihood; therefore, the
ethical value of labour is always equivalent to at least a
living wage, and the employer is morally bound to give
this much remuneration.
Moreover, the habit of looking at the wage contract as
THE MINIMUM OF JUSTICE: A LIVING WAGE 37I
a matter of commutative justice in the mere sense of con-
tractual justice, is radically defective. The transaction
between employe and employer involves other questions of
justice than that which arises immediately out of the rela-
tion between the things exchanged. When a borrower
repays a loan of ten dollars, he fulfils the obligation of
justice because he returns the full equivalent of the article
that he received. Nothing else is pertinent to the question
of justice in this transaction. Neither the wealth nor the
poverty, the goodness nor the badness, nor any other qual-
ity of either lender or borrower, has a bearing on the jus-
tice of the act of repayment. In the wage contract, and
in every other contract that involves the distribution of
the common bounty of nature, or of the social product, the
juridical situation is vitally different from the transaction
that we have just considered. The employer has obliga-
tions of justice, not merely as the receiver of a valuable
thing through an onerous contract, but as the distributor
of the common heritage of nature. His duty is not merely
contractual, but social. He fulfils not only an individual
contract, but a social function. Unless he performs this
social and distributive function in accordance with justice,
he does not adequately discharge the obligation of the
wage contract. For the product out of which he pays
wages is not his in the same sense as the personal income
out of which he repays a loan. His claim upon the prod-
uct is subject to the obligation of just distribution; the
obligation of so distributing the product that the labourers
who have contributed to the product shall not be denied
their right to a decent hvelihood on reasonable terms from
the bounty of the earth. On the other hand, the activity
of the labourer is not a mere commodity, as money or
pork; it is the output of a person, and a person who has
no other means of realising his inherent right to a liveli-
hood. Consequently, both terms of the contract, the
labour and the compensation, involve other elements of
2^y2 DISTRIBUTIVE JUSTICE
justice than that which arises out of their assumed mutual
equivalence.
In a word, justice requires the employer not merely to
give an equivalent for labour (an equivalent which is
determined by some arbitrary, conventional, fantastic, or
impossible attempt to compare work and pay) but to ful-
fil his obligation of justly distributing that part of the
common bounty of the earth which comes into his hands
by virtue of his social function in the industrial process.
How futile, then, to endeavour by word juggling to de-
scribe the employer's obligation in terms of mere equiva-
lence and contractual justice!
Some difficulties occur in connection with the wage
rights of adult males whose ability is below the average,
and female and child workers. Since the dignity and the
needs of personality constitute the moral basis of the claim
to a decent livelihood, it would seem that the inefficient
worker who does his best is entitled to a living wage. Un-
doubtedly he has such a right if it can be effectuated in the
existing industrial organisation. As already noted, the
right of the workman of average ability to a living wage
does not become actual until he finds an employer who
would rather give him that much pay than do without his
services. Since the obligation of paying a living wage is
not an obligation to employ any particular worker, an
employer may refrain from hiring or may discharge any
labourer who does not add to the product sufficient value
to provide his wages. For the employer cannot reason-
ably be expected to employ any one at a positive loss to
himself. Whence it follows that he may pay less than
living wages to any worker whose services he would rather
dispense with than remunerate at that figure.^
1 While the statement in the text applies to a// labourers of less than
average ability, it obviously is applicable only to individual cases among
those who are up to the average. These are the workers at the
" margin " of the labour force in an establishment, those who could
be discharged without causing the industry to shut down. If an em-
THE MINIMUM OF JUSTICE: A LIVING WAGE 373
Women and young persons who regularly perform a full
day's work, have a right to compensation adequate to a
decent livelihood. In the case of minors, this means liv-
ing at home, since this is the normal condition of all, and
the actual condition of almost all. Adult females have a
right to a wage sufficient to maintain them away from
home, because a considerable proportion of them live in
this condition. If employers were morally free to pay
home-dwelling women less than those adrift, they would
endeavour to employ only the former. This would create
a very undesirable social situation. The number of
women away from home who are forced to earn their own
living is sufficiently large (20 to 25 per cent, of the whole)
to make it reasonable that for their sakes the wage of all
working women should be determined by the cost of living
outside the parental precincts. This is one of the social
obligations that reasonably falls upon the employer on
account of his function in the present industrial system.
In all the American minimum wage laws, the standard of
payment is determined by the cost of living away from
home. Besides, the difference between the living costs of
women in the two conditions is not nearly as great as is
commonly assumed. Probably it never amounts to a dol-
lar a week.
The Family Living Wage
Up to the present we have been considering the right of
the labourer to a wage adequate to a decent livelihood for
himself as an individual. In the case of an adult male,
however, this is not sufficient for normal life, nor for the
reasonable development of personality. The great major-
ity of men cannot live well balanced lives, cannot attain a
reasonable degree of self development outside the married
ployer would rather go out of business than pay a living wage to all his
necessary labourers of average ability, he is morally free to do so; but
he may not employ them at less than living wages in order to obtain
interest on his capital.
374 DISTRIBUTIVE JUSTICE
state. Therefore, family life is among the essential needs
of a normal and reasonable existence. It is not, indeed,
so vitally necessary as the primary requisites of individual
life, such as food, clothing, and shelter, but it is second only
to these. Outside the family man cannot, as a rule, com-
mand that degree of contentment, moral strength, and
moral safety which are necessary for reasonable and effi-
cient living. It is unnecessary to labour this point fur-
ther, as very few would assert that the average man can
live a normal and complete human life without marriage.
Now, the support of the family falls properly upon the
husband and father, not upon the wife and mother. The
obligation of the father to provide a livelihood for the wife
and young children is quite as definite as his obligation to
maintain himself. If he has not the means to discharge
this obligation he is not justified in getting married. Yet,
as we have just seen, marriage is essential to normal life
for the great majority of men. Therefore, the material
requisites of normal life for the average adult male, in-
clude provision for his family. In other words, his decent
livelihood means a family livelihood. Consequently, he
has a right to obtain such a livelihood on reasonable terms
from the bounty of the earth. In the case of the wage
earner, this right can be effectuated only through wages;
therefore, the adult male labourer has a right to a family
living wage. If he does not get this measure of remunera-
tion his personal dignity is violated, and he is deprived of
access to the goods of the earth, quite as certainly as when
his wage is inadequate to personal maintenance. The dif-
ference between family needs and personal needs is a dif-
ference only of degree. The satisfaction of both is indis-
pensable to his reasonable life.
Just as the woman worker who lives with her parents
has a right to a wage sufficient to maintain her away from
home, so the unmarried adult male has a right to a family
living wage. If only married men get the latter wage
THE MINIMUM OF JUSTICE: A LIVING WAGE 375
they will be discriminated against in the matter of em-
ployment. To prevent this obviously undesirable condi-
tion, it is necessary that a family living wage be recog-
nised as the right of all adult male workers. No other
arrangement is reasonable in our present industrial sys-
tem. In a competitive regime the standard wage for both
the married and the unmarried men is necessarily the same.
It will be determined by the living costs of either the one
class or the other. At present the wage of the unskilled
is unfortunately adjusted to the subsistence cost of the
man who is not married. Since two prevailing scales of
wages are impossible, the remuneration of the unmarried
must in the interests of justice to the married be raised to
the living costs of the latter. Moreover, the unmarried
labourer needs more than an individual living wage in
order to save sufficient money to enter upon the responsi-
bilities of matrimony.
Only two objections of any importance can be brought
against the male labourer's claim to a family living wage.
The first is that just wages are to be measured by the
value of the labour performed, and not by such an ex-
trinsic consideration as the needs of a family. It has al-
ready been answered in this and the preceding chapters.
Not the economic but the ethical value of the service ren-
dered, is the proper determinant of justice in the matter
of wages; and this ethical value is always the equivalent
of at least a decent livelihood for the labourer and his
family. According to the second objection, the members
of the labourer's family have no claim upon the employer,
since they do not participate in the work that is remuner-
ated. This contention is valid, but it is also irrelevant.
The claim of the labourer's family to sustenance is directly
upon him, not upon his employer; but the labourer has a
just claim upon the employer for the means of meeting
the claims of his family. His right to this amount of re-
muneration is directly based neither upon the needs nor
^y6 DISTRIBUTIVE JUSTICE
the rights of his family, but upon his own needs, upon the
fact that family conditions are indispensable to his own
normal life. If the wife and young children were self
supporting, or were maintained by the State, the wage
rights of the father would not include provision for the
family. Since, however, family life involves support by
the father, the labourer's right to such a life necessarily
includes the right to a wage adequate to family support.
Other Arguments in Favour of a Living Wage
Thus far, the argument has been based upon individual
natural rights. If we give up the doctrine of natural
rights, and assume that all the rights of the individual
come to him from the State, we must admit that the State
has the power to withhold and withdraw all rights from
any and all persons. Its grant of rights will be deter-
mined solely by considerations of social utility. In the
concrete this means that some citizens may be regarded as
essentially inferior to other citizens, that some may prop-
erly be treated as mere instruments to the convenience of
others. Or it means that all citizens may be completely
subordinated to the aggrandisement of an abstract entity,
called the State. Neither of these positions is logically
defensible. No group of persons has less intrinsic worth
than another; and the State has no rational significance
apart from its component individuals.
Nevertheless, a valid argument for the living wage can
be set up on grounds of social welfare. A careful and
comprehensive examination of the evil consequences to
society and the State from the underpayment of any group
of labourers, would show that a universal living wage is
the only sound social policy. Among competent social
students, this proposition has become a commonplace. It
will not be denied by any intelligent person who considers
seriously the influence of low wages in diminishing the
efficiency, physical, mental, and moral, of the workers; in
THE MINIMUM OF JUSTICE I A LIVING WAGE 377
increasing the volume of crime, and the social cost of
meeting it; in the immense social outlay for the relief of
unnecessary poverty, sickness, and other forms of dis-
tress; and in the formation of a large and discontented
proletariat.^
The living wage doctrine also receives strong support
from various kinds of authority. Of these the most im-
portant and best known is the famous encyclical, " On the
Condition of Labour," May 15, 1891, by Pope Leo XIIL
" Let it then be granted that workman and employer
should, as a rule, make free agreements, and in particular
should agree freely as to wages; nevertheless, there is a
dictate of natural justice more imperious and ancient than
any bargain between man and man; namely, that the re-
muneration should be sufficient to maintain the wage
earner and reasonable and frugal comfort." Although
the Pope refrained from specifying whether the living
wage that he had in mind was one adequate merely to an
individual livelihood, or sufficient to support a family,
other passages in the Encyclical leave no room for doubt
that he regarded the latter as the normal and equitable
measure of remuneration. Within a dozen lines of the
sentence quoted above, he made this statement: "If the
workman's wages be sufficient to maintain himself, his
wife, and his children in reasonable comfort, he will not
find it difficult, if he be a sensible man, to practise thrift;
and he will not fail, by cutting down expenses, to put by
some little savings and thus secure a small income."
All lesser Catholic authorities hold that the adult male
labourer has some kind of moral claim to a family Hving
wage. In all probability the majority of them regard this
claim as one of strict justice, while the minority would
put it under the head of legal justice, or natural equity, or
charity. The differences between their views are not as
1 One of the best statements of the evil social results of low wages
will be found in Webb's " Industrial Democracy," vol. II, pp. 749-766.
378 DISTRIBUTIVE JUSTICE
important as the agreements; for all the Catholic writers
maintain that the worker's claim is strictly moral in its
nature, and that the corresponding obligation upon the em-
ployer is likewise of a moral character.
The Federal Council of the Churches of Christ in Amer-
ica, representing the principal Protestant denominations,
has formally declared in favour of " a living wage as a
minimum in every industry."
Public opinion likewise accepts the principle of a living
wage as the irreducible minimum of fair treatment for all
workers. Indeed, it would be difficult to find any im-
portant person in any walk of life to-day who would have
the temerity to deny that the labourer is entitled to a wage
sufficient for reasonable family life. Among employers
the opinion is fairly general that the narrow margin of
profit in competitive industries renders the burden of
paying a family living wage to all adult males unfairly
heavy; but the assertion that the wage contract is merely
an economic transaction, having no relation to justice, is
scarcely ever uttered publicly.
The Money Measure of a Living Wage
For self-supporting women a living wage is not less
than eight dollars per week in any city of the United
States, and in some of our larger cities it is from one to
two dollars above this figure. The state minimum wage
commissions that have acted in the matter, have fixed
the rates not lower than eight nor higher than ten dollars
per week.^ These determinations are in substantial
agreement with a large number of other estimates, both
official and unofficial.
When the present writer was making an estimate of
the cost of decent living for a family about eleven years
ago, he came to the conclusion that six hundred dollars
1 See reports of these commissions in Oregon, Washington, Massa-
chusetts, Minnesota, and California.
THE MINIMUM OF JUSTICE: A LIVING WAGE 379
per year was the lowest amount that would maintain a
man and wife and four or five small children in any Amer-
ican city, and that this sum was insufficient in some of the
larger cities.^ Since that time retail prices seem to have
risen at least twenty-five and possibly forty-five per cent.^
If the six hundred dollar minimum were correct in 1905 it
should, therefore, be increased to seven hundred and fifty
dollars to meet the present range of prices. That this
estimate is too low for some of the more populous cities,
has been fully proved by several recent investigations.
In 191 5 the Bureau of Standards put the minimum cost
of living for a family of five in New York City at $840.18.
About the same time the New York Factory Investigating
Commission gave the estimate of $876.43 for New York
City, and %yy2.^2> ^^^ Buffalo. In 1908, when the cost of
living was from ten to thirty per cent, cheaper than to-
day, the United States Bureau of Labour found that, " ac-
cording to the customs prevailing in the communities se-
lected for study," a fair standard of living for a family
of five persons among mill workers, was $600.74 in the
South, and from $690.60 to $731.64 in Fall River, Massa-
chusetts.^
According to the " Manly Report " of the Federal Com-
mission on Industrial Relations, between two-thirds and
three-fourths of the adult male labourers of the United
States receive less than $750.00 a year, and the same pro-
portion of women workers are paid under eight dollars a
1 " A Living Wage," p. 150.
2 See Bulletins of the Federal Bureau of Labour Statistics on " Re-
tail Prices " ; and Nearing, " Reducing the Cost of Living."
3 " Summary of the Report on Condition of Woman and Child Wage
Earners in the United States," pp. 383, 384. The best intensive study
of family cost of living is that published in the volume edited by
Robert C. Chapin, " The Standard of Living Among Workingmen's
Families in New York City " ; 1909. It led to the conclusion that any-
thing less than eight hundred dollars was insufficient for the yearly
maintenance of a husband and wife and three small children in Man-
hattan.
380 DISTRIBUTIVE JUSTICE
week. A considerable majority, therefore, of both male
and female labourers fail to obtain living wages. We are
still very far from having actualised even the minimum
measure of wage justice.
CHAPTER XXIV
THE PROBLEM OF COMPLETE WAGE JUSTICE
A LIVING wage for all workers is merely the minimum
measure of just remuneration. It is not in every case
complete justice. Possibly it is not the full measure of
justice in any case. How much more than a living wage
is due to any or all of the various classes of labourers?
How much more may any group of workers demand with-
out exposing itself to the sin of extortion? By what
principles shall these questions be answered?
The problem of complete wage justice can be conven-
iently and logically considered in four distinct relations, as
regards : the respective claims of the different classes of
labourers to a given amount of money available for wage
payments; the claims of the whole body of labourers, or
any group thereof, to higher wages at the expense of
profits; at the expense of interest; and at the expense of
the consumer.
Comparative Claims of Different Labour Groups
In the division of a common wage fund, no section of
the workers is entitled to anything in excess of living
wages until all the other sections have received that amount
of remuneration. The need of a decent livelihood consti-
tutes a more urgent claim than any other that can be
brought forward. Neither efforts, nor sacrifices, nor pro-
ductivity, nor scarcity can justify the payment of more
than living wages to any group, so long as any other group
in the industry remains below that level; for the extra
compensation will supply the nonessential needs of the
381
382 DISTRIBUTIVE JUSTICE
former by denying the essential needs of the latter. The
two groups of men will be treated unequally in respect of
those qualities in which they are equal; namely, their per-
sonal dignity and their claims to the minimum requisites
of reasonable life and self development. This is a viola-
tion of justice.
Let us suppose that all the workers among whom a given
amount of compensation is to be distributed, have already
received living wages, and that there remains a consider-
able surplus. On what principles should the surplus be
apportioned? For answer we turn to the canons of dis-
tribution, as explained in chapter xvi. When the ele-
mentary needs of life and development have been supplied,
the next consideration might seem to be the higher or
nonessential needs and capacities. Proportional justice
would seem to suggest that the surplus ought to be dis-
tributed in accordance with the varying needs and capaci-
ties of men to develop their faculties beyond the minimum
reasonable degree. As we have already pointed out, this
would undoubtedly be the proper rule if it were susceptible
of anything like accurate application, and if the sum to be
distributed were not produced by and dependent upon
those who were to participate in the distribution. How-
ever, we know that the first condition is impracticable,
while the second is nonexistent. Inasmuch as the sharers
in the distribution have produced and constantly deter-
mine the amount to be apportioned, the distributive process
must disregard nonessential needs, and govern itself by
other canons of justice.
The most urgent of these is the canon of efforts and
sacrifices. Superior effort, as measured by unusual will-
exertion, is a fundamental rule of justice, and a valid title
to exceptional reward. Men who strive harder than the
majority of their fellows are ethically deserving of extra
compensation. At least, this is the pure theory of the
matter. In practice, the situation is complicated by the
THE PROBLEM OF COMPLETE WAGE JUSTICE 383
fact that unusual effort cannot always be distinguished,
and by the further fact that some exceptional efforts do
not fructify in correspondingly useful results. Among
men engaged at the same kind of work, superior effort is
to a great extent discernible in the unusually large prod-
uct. As such it actually receives an extra reward in ac-
cordance with the canon of productivity. When men are
employed at different tasks, unusual efforts cannot gen-
erally be distinguished and compensated. Hence the gen-
eral principle is that superior efforts put forth in the pro-
duction of utilities, entitle men to something more than
living wages, but that the enforcement of this principle is
considerably hindered by the difficulty of discerning such
efforts.
The unusual sacrifices that deserve extra compensation
are connected with the costs of industrial functions and
the disagreeable character of occupations. Under the
first head are included the expense of industrial training
and the debilitating effects of the work. Not only justice
to the worker but a farsighted view of social welfare, dic-
tate that all unusual costs of preparation for an industrial
craft or profession should be repaid in the form of un-
usual compensation. This means something more than a
living wage. For the same reasons the unusual hazards
and disability resulting from industrial accidents and dis-
eases should be provided for by higher remuneration. In
the absence of such provision, these costs will have to be
borne by parents, by society in the form of charitable re-
lief, or by the worker himself through unnecessary suffer-
ing and incapacity. The industry that does not provide
for all these costs is a social parasite, the workers in it are
deprived of just compensation for their unusual sacrifices,
and society suffers a considerable loss through industrial
friction and diminished productive efficiency. In so far,
however, as any of the foregoing occupational costs are
borne by society, as in the matter of industrial education,
384 DISTRIBUTIVE JUSTICE
or by the employer, as by the devices of accident compen-
sation or sickness insurance, they do not demand pro-
vision in the form of extra wages.
Other unusual sacrifices that entitle the worker to more
than living wages, are inherent in disagreeable or despised
occupations. The scavenger and the bootblack ought to
get more than the performers of most other unskilled
tasks. On the principles of comparative individual desert,
they should receive larger remuneration than many per-
sons who are engaged upon skilled but relatively pleasant
kinds of work. For if they were given the choice of
expending the time and money required to fit them for the
latter tasks, or of taking up immediately their present dis-
agreeable labour, they would select the more pleasant oc-
cupations, for the same or even a smaller remuneration.
And the majority of those who are now in the more skilled
occupations would make the same choice. Hence the sac-
rifices inherent in disagreeable kinds of work are in many
cases as great as or greater than the sacrifices of prepara-
tion for the more pleasant tasks ; consequently the doers of
the former are relatively underpaid. If all wages were
regulated by some supreme authority according to the
principles of complete justice, the workers in disagreeable
occupations would receive something more than living
wages. Nor would this determination of rewards be in
any way contrary to social welfare or the principle of
maximum net results; for the superior attractiveness of
the other kinds of work would draw a sufficient supply of
labour to offset the advantage conferred by higher wages
upon the disagreeable occupations. The main reason why
the latter kind of labour is so poorly paid now is the fact
that it is very plentiful, a condition which is in turn due
to the unequal division of industrial opportunity. Were
the opportunities of technical education and of entrance to
the higher crafts and professions more widely diffused,
the labourers offering themselves for the disagreeable
THE PROBLEM OF COMPLETE WAGE JUSTICE 385
tasks would be scarcer and their remuneration correspond-
ingly larger. This would be not only more comfortable
to the abstract principles of justice, but more conducive to
social efficiency.
To sum up the discussion concerning the canon of ef-
forts and sacrifices : Labourers have a just claim to more
than living wages whenever they put forth unusual efforts,
and whenever their occupations involve unusual sacrifices,
either through costs of preparation, exceptional hazards,
or inherent disagreeableness. The precise amount of ex-
tra compensation due under any of these heads can be de-
termined, as a rule, only approximately.
The next canon to be considered as a reason for more
than living wages is that of productivity. This offers
little difficulty; for the unusual product is always visible
among men who are performing the same kind of work,
and the employer is always willing to give the producer of
it extra compensation. While superior productive power
which is based solely upon superior native ability has only
presumptive validity as a canon of justice, that is ethically
sufficient in our workaday world. Moreover, the canon
of human welfare demands that superior productivity
receive superior rewards, so long as these are necessary to
evoke the maximum net product.
The canon of scarcity has exactly the same value as
that of productivity. Society and the employer are well
advised and are justified in giving extra compensation to
scarce forms of labour when the product is regarded as
worth the corresponding price. This remains true even
when the scarcity is due to restricted opportunity of prep-
aration, rather than to sacrifices of any sort. In that case
the higher rewards are as fully justified as the superior
remuneration of that superior productivity which is based
upon exceptional native endowments. The amount of
extra compensation which may properly be given on ac-
count of scarcity is determined either by the degree of
386 DISTRIBUTIVE JUSTICE
sacrifice involved or by the ordinary operation of com-
petition. When men are scarce because they have made
exceptional sacrifices of preparation, they ought to be
rewarded in full proportion to these sacrifices. When
they are scarce merely because of exceptional opportunities,
their extra compensation should not exceed the amount
that automatically comes to them through the interplay of
supply and demand.
The canon of human welfare has already received im-
plicit application. When due regard is given to efforts,
sacrifices, productivity, and scarcity, the demands of human
welfare, both in its individual and its social aspects, are
sufhciently safeguarded.
In the foregoing pages the attempt has been made to
describe the proportions in which a given wage fund ought
to be distributed among the various classes of labourers
who have claims upon the fund. The first requisite of
justice is that all should receive living wages. It applies
to all workers of average ability, even to those who have
no special qualifications of any sort. When this general
claim has been universally satisfied, those groups of
workers who are in any wise special, whose qualifications
for any reason differentiate them from and place them
above the average, will have a right to somxCthing more
than living wages. They will have the first claim upon
the surplus that remains in the wage fund. Their claims
will be based upon the various canons of distribution ex-
plained in detail above; and the amounts of extra re-
muneration to which they will be entitled, will be deter-
mined by the extent to which their special qualifications
differentiate them from the average and unspecialised
workers. If the total available wage fund is merely suffi-
cient to provide universal living wages and the extra com-
pensation due to the specialised groups, no section of the
labour force will be justified in exacting a larger share.
Even though the employer should withhold a part of the
THE PROBLEM OF COMPLETE WAGE JUSTICE 387
amount due to some weaker group, a stronger group that
is already getting its proper proportion would have no
right to demand the unjustly withheld portion. For this
belongs neither to the employer nor to the powerful labour
group, but to the weaker section of labourers.
This does not mean that a powerful body of workers
who are already receiving their due proportion as com-
pared with other labour groups, would not be justified in
seeking any increase in remuneration whatever. The in-
crease might come out of profits, or interest, or the con-
sumer, and thus be in no sense detrimental to the rights of
the other sections of labourers. This problem will be con-
sidered a little later. At present we confine our attention
to the relative claims of different labour groups to a definite
wage fund.
Suppose, however, that after all workers have received
living wages, and all the exceptional groups have obtained
those extra amounts which are due them on account of
efforts, sacrifices, productivity, and scarcity, there remains
a further surplus in the wage fund. In what proportions
should it be distributed? It should be equally divided
among all the labourers. The proportional justice which
has been already established can be maintained only by
raising the present rates of payment equally in all cases.
All the average or unspecialised groups would get some-
thing more than living wages, and all the other groups
would have their extra compensation augmented by the
same amount.
Of course, the wage- fund hypothesis which underlies
the foregoing discussion is not realised in actual life, any
more than was the '' wage fund " of the classical econo-
mists. Better than any other device, however, it enables
us to describe and visualise the comparative claims of dif-
ferent groups of labourers who have a right to unequal
amounts in excess of living wages.
388 DISTRIBUTIVE JUSTICE
Wages Versus ProHts
Let us suppose that the wage fund is properly appor-
tioned among the different classes of labourers, according
to the specified canons of distribution. May not one or all
of the labour groups demand an increase in wages on the
ground that the employer is retaining for himself an undue
share of the product?
As we have seen in the last chapter, the right of the
labourers to living wages is superior to the right of the
employer or business man to anything in excess of that
amount of profits which will insure him against risks, and
afford him a decent livelihood in reasonable conformity
with his accustomed plane of expenditure.. It is also evi-
dent that those labourers who undergo more than average
sacrifices have a claim to extra compensation which is
quite as valid as the similarly based claim of the employer
to more than living profits. In case the business does not
provide a sufficient amount to remunerate both classes of
sacrifices, the employer may prefer his own to those of
his employes, on the same principle that he may prefer his
own claim to a decent livelihood. The law of charity per-
mits a man to satisfy himself rather than his neighbour,
when the needs in question are of the same degree of
urgency or importance. As to those labourers who turn
out larger products than the average, or whose ability is
unusually scarce, there is no practical difficulty; for the
employer will find it profitable to give them the correspond-
ing extra compensation. The precise question before us,
then, is the claims of the labourers upon profits for re-
muneration above universal living wages and above the
extra compensation due on account of unusual efforts,
sacrifices, productivity, and scarcity. Let us call the wage
that merely includes all these factors " the equitable mini-
mum."
In competitive conditions this question becomes prac-
THE PROBLEM OF COMPLETE WAGE JUSTICE 389
tical only with reference to the exceptionally efficient and
productive business men. The great majority have no
surplus available for wage payments in excess of the
" equitable minimum." Indeed, the majority do not now
pay the full " equitable minimum " ; yet their profits do
not provide them more than a decent livelihood. The
relatively small number of establishments that show such
a surplus as we are considering have been brought to that
condition of prosperity by the exceptional ability of their
directors, rather than by the unusual productivity of their
employes. In so far as this exceptional directive ability is
due to unusual efforts and sacrifices, the surplus returns
which it produces may be claimed with justice by the em-
ployer. In so far as the surplus is the outcome of excep-
tional native endowments, it may still be justly retained by
him in accordance with the canon of productivity. In
other words, when the various groups of workers are
already receiving the '' equitable minimum," they have no
strict right to any additional compensation out of those
rare surplus profits which come into existence in condi-
tions of competition.
This conclusion is confirmed by reference to the canon
of human welfare. If exceptionally able business men
were not permitted to retain the surplus in question they
would not exert themselves sufficiently to produce it;
labour would gain nothing; and the community would be
deprived of the larger product.
When the employer is a corporation instead of an indi-
vidual or a partnership, and when it is operating in com-
petitive conditions, the same principles are applicable, and
the same conclusions justified. The officers and the whole
body of stockholders will have a right to those surplus
profits that remain after the " equitable minimum " has
been paid to the employes. Every consideration that urges
such a distribution in the case of the individual business
holds good for the corporation.
390 DISTRIBUTIVE JUSTICE
The corporation that is a monopoly will have the same
right as the competitive concern to retain for its owners
those surplus profits which are due to exceptional efficiency
on the part of the managers of the business. That part of
the surplus which is derived from the extortion of higher
than competitive prices cannot be justly retained, since it
rests upon no definite moral title. As we saw in the chap-
ter on monopoly, the owners have no right to anything
more than the prevailing rate of interest, together with a
fair return for their labour and for any unusual efficiency
that they may exercise. Should the surplus in question be
discontinued by lowering prices, or should it be continued
and distributed among the labourers? As a rule, the for-
mer course would seem morally preferable. While the
labourers, as we shall see presently, are justified in con-
tending for more than the " equitable minimum " at the
expense of the consumer, their right to do so through the
exercise of monopoly power is extremely doubtful.
Whether this power is exerted by themselves or by the
employer on their behalf, it remains a weapon which
human nature seems incapable of using justly.
Wages Versus Interest
Turning now to the claims of the labourers as against
the capitalists, or interest receivers, we perceive that the
right to any interest at all is morally inferior to the right
of all the workers to the " equitable minimum." As here-
tofore pointed out more than once, the former right is
only presumptive and hypothetical, and interest is ordi-
narily utilised to meet less important needs than those sup-
plied by wages. Through his labour power the interest
receiver can supply all those fundamental needs which are
satisfied by wages in the case of the labourer. Therefore,
it seems clear that the capitalist has no right to interest
until all labourers have received the " equitable minimum."
It must be borne in mind, however, that any claim of the
THE PROBLEM OF COMPLETE WAGE JUSTICE 39 1
labourer against interest falls upon the owners of the pro-
ductive capital in a business, upon the undertaker-capitalist,
not upon the loan-capitalist.
When all the labourers in an industry are receiving the
" equitable minimum," have they a right to exact anything
more at the expense of interest? By interest we mean, of
course, the prevailing or competitive rate that is received
on productive capital — five or six per cent. Any return
to the owners of capital in excess of this rate is properly
called profits rather than interest, and its relation to the
claims of the labourers has received consideration in the
immediately preceding section of this chapter. The ques-
tion, then, is whether the labourers who are already getting
the ^' equitable minimum " would act justly in demanding
and using their economic power to obtain a part or all of
the pure interest. No conclusive reason is available to
justify a negative answer. The title of the capitalist is
only presumptive and hypothetical, not certain and uncon-
ditional. It is, indeed, sufficient to justify him in retaining
interest that comes to him through the ordinary processes
of competition and bargaining ; but it is not of such definite
and compelling moral efficacy as to render the labourers
guilty of injustice when they employ their economic power
to divert further interest from the coffers of the capitalist
to their own pockets. The interest-share of the product is
morally debatable as to its ownership. It is a sort of
no-man's property (like the rent of land antecedently to
its legal assignment through the institution of private land-
ownership) which properly goes to the first occupant as
determined by the processes of bargaining between em-
ployers and employes. If the capitalists get the interest-
share through these processes it rightfully belongs to them;
if the labourers who are already in possession of the
" equitable minimum " develop sufficient economic strength
to get this debatable share they may justly retain it as their
own.
392 DISTRIBUTIVE JUSTICE
The foregoing conclusion may seem to be a very un-
satisfactory solution of a problem of justice. However,
it is the only one that is practically defensible. If the capi-
talist's claim to interest were as definite and certain as the
labourer's right to a living wage, or as the creditor's right
to the money that he has loaned, the solution would be
very simple: the labourers that we are discussing would
have no right to strive for any of the interest. But the
claim of the capitalists is not of this clear and conclusive
nature. It is sufficient when combined with actual pos-
session; it is not sufficient when the question is of future
possession. The title of first occupancy as regards land is
not valid until the land has been actually occupied; and
similarly the" claim of the capitalist to interest is not valid
until the interest has. been received. If the economic
forces which determine actual possession operate in such a
way as to divert the interest-share to the labourers, they,
not the capitalists, will have the valid moral title, just as
Brown with his automobile rather than Jones with his
spavined nag will enjoy the valid title of first occupancy
to a piece of ownerless land which both have coveted.
This conclusion is confirmed by reference to the
rationally and morally impossible situation that would
follow from its rejection. If we deny to the labourers
the moral freedom to strive for higher wages at the ex-
pense of the capitalist, we must also forbid them to follow
this course at the expense of the consumer. For the great
majority of consumers would stand to lose advantages
to which they have as good a moral claim as the capitalists
have to interest. Practically this would mean that the
labourers have' no right to seek remuneration in excess of
the " equitable minimum " ; for such excess must in sub-
stantially all cases come from either the consumer or the
capitalist. On what principle can we defend the proposi-
tion that the great majority of labourers are forever re-
strained by the moral law from seeking more than bare
THK PROBLEM OF COMPLETE WAGE JUSTICE 393
living wages, and the specialised minority from demand-
ing more than that extra compensation which corresponds
to unusual efforts, sacrifices, productivity, and scarcity?
Who has authorised us to shut against these classes the
doors of a more liberal standard of living, and a more
ample measure of self development?
Wuges Versus Prices
The right of the labourers to the " equitable minimum "
implies obviously the right to impose adequate prices upon
the consumers of the labourer's products. This is the
ultimate source of the rewards of all the agents of pro-
duction. Suppose that the labourers are already receiving
the *' equitable minimum." Are they justified in seeking
any more at the cost of the consumer? If all the con-
sumers were also labourers the answer would be simple,
at least in principle : rises in wages and prices ought to be
so adjusted as to bring equal gains to all individuals. The
*' equitable minimum " is adjusted to the varying moral
claims of the different classes of labourers ; therefore, any
rise in remuneration must be equally distributed in order
to leave this adjustment undisturbed. It is a fact, how-
ever, that a large part of the consumers are not labourers;
consequently they cannot look to rises in wages as an offset
to their losses through rises in prices. Can they be justly
required to undergo this inconvenience for the benefit of
labourers who are already getting the *' equitable mini-
mum " ?
Let us consider first the case of higher wages versus
lower prices. A few progressive and efficient manufac-
turers of shoes find themselves receiving large surplus
profits which are likely to continue. So far as the pre-
sumptions of strict justice are concerned, they may, owing
to their superior productivity, retain these profits for them-
selves. Seized, however, with a feeling of benevolence,
or a scruple of conscience, they determine to divide future
394 DISTRIBUTIVE JUSTICE
profits of this class among either the labourers or the con-
sumers. If they reduce prices the labourers will gain
something as users of shoes, but the other wearers of shoes
will also be beneficiaries. If the surplus profits are all
diverted to the labourers in the form of higher wages the
other consumers of shoes will gain nothing. Now there
does not seem to be any compelling reason, any certain
moral basis, for requiring the shoe manufacturers to take
one course rather than the other. Either will be correct
morally. Possibly the most perfect plan would be to effect
a compromise by lowering prices somewhat and giving
some rise in wages ; but there is no strict obligation to fol-
low this course. To be sure, since the manufacturers have
a right to retain the surplus profits, they have also a right
to distribute them as they prefer. Let us get rid_ of this
complication by assuming that the manufacturers are in-
different concerning the disposition of the surplus, leaving
the matter to be determined by the comparative economic
strength of labourers and consumers. In such a situation
it is still clear that either of the two classes would be
justified in striving to secure any or all of the surplus.
No definite moral principle can be adduced to the contrary.
To put the case in more general terms : there exists no
sufficient reason for maintaining that the gains of cheaper
production should go to the consumer rather than to the
labourer, or to the labourer rather than to the -consumer,
so long as the labourer is already in receipt of the " equi-
table minimum."
Turning now to the question of higher wages at the
cost of higher prices, we note that this would result in at
least temporary hardship to four classes of persons: the
weaker groups of wage earners; all self employing per-
sons, such as farmers, merchants, and manufacturers; the
professional classes; and persons whose principal income
was derived from rent or interest. All these groups
would have to pay more for the necessaries, comforts, and
THE PROBLEM OF COMPLETE WAGE JUSTICE 395
luxuries of living, without being immediately able to raise
their own incomes correspondingly.
Nevertheless, the first three classes could in the course
of time force an increase in their revenues sufficient to
offset at least the more serious inconveniences of the in-
crease in prices. So far as the wage earners are con-
cerned, it is understood that all these would have a right
to whatever advance in the money measure of the " equi-
table minimum " was necessary to neutralise the higher cost
of living resulting from the success of the more powerful
groups in obtaining higher wages. The right of a group
to the " equitable minimum " of remuneration is obviously
superior to the right of another group to more than that
amount. And a supreme wage-determining authority
would act on this principle. It cannot be shown, however,
that in the absence of any such authority empowered to
protect the " equitable minimum " of the weaker labourers,
the more powerful groups are obliged to refrain from de-
manding extra remuneration. The reason of this we shall
see presently. In the meantime we call attention to the
fact that, owing to the greater economic opportunity re-
sulting from the universal prevalence of the " equitable
minimum " and of industrial education, even the weaker
groups of wage earners would be able to obtain some in-
creases in wages. In the long run the more powerful
groups would enjoy only those advantages which arise out
of superior productivity and exceptional scarcity. These
two factors are fundamental, and could not in any system
of industry be prevented from conferring advantages upon
their possessors.
As regards the self employing classes, the remedy for
any undue hardship suffered through the higher prices of
commodities would be found in a discontinuance of their
present functions until a corresponding rise had occurred
in the prices of their own products. They could do this
partly by organisation, and partly by entering into com-
396 DISTRIBUTIVE JUSTICE
petition with the wage earners. Substantially the same
recourse would be open to the professional classes. In due
course of time, therefore, the remuneration of all workers,
whether employes or self employed or professional, would
tend to be in harmony with the canons of efforts, sacrifices,
productivity, scarcity, and human welfare.
Since the level of rent is fixed by forces outside the con-
trol of labourers, employers, or landowners, the receivers
thereof would be unable to offset its decreased purchasing
power by increasing its amount. However, this situation
would not be inherently unjust, nor even inequitable.
Like interest, rent is a " workless " income, and has only a
presumptive and hypothetical justification. Therefore, the
moral claim of the rent receiver to be protected against a
decrease in the purchasing power of his income, is inferior
to the moral claim of the labourer to use his economic
power for the purpose of improving his condition beyond
the limits of welfare fixed by the " equitable minimum."
What is true of the rent receiver in this respect applies
likewise to the case of the capitalist. As we saw a few
pages back, the wage earners are morally free to take this
course at the expense of interest. Evidently they may do
the same thing when the consequence is merely a diminu-
tion in its purchasing power. To be sure, if capital owners
should regard their sacrifices in saving as not sufficiently
rewarded, owing either to the low rate or the low purchas-
ing power of interest, they would be free to diminish or
discontinue saving until the reduced supply of capital had
brought about a rise in the rate of interest. Should they
refrain from this course they would show that they were
satisfied with the existing situation. Hence they would
suffer no wrong at the hands of the labourers v^^ho forced
up wages at the expense of prices.
Two objections come readily to mind against the fore-
going paragraphs. The more skilled labour groups might
organise themselves into a monopoly, and raise their wages
THE PROBLEM OF COMPLETE WAGE JUSTICE 397
SO high as to Inflict the same degree of extortion upon con-
sumers as that accompHshed by a monopoly of capitahsts.
This is, indeed, possible. The remedy would be interven-
tion by the State to fix maximum wages. Just where the
maximum limit ought to be placed is a problem that could
be solved only through study of the circumstances of the
case, on the basis of the canons of efforts, sacrifices, pro-
ductivity, scarcity, and human welfare. The second ob-
jection calls attention to the fact that we have already de-
clared that the more powerful labour groups would not be
justified in exacting more than the " equitable minimum "
out of a common wage fund, so long as any weaker group
was below that level; yet this is virtually what would
happen when the former caused prices to rise to such an
extent that the weaker workers would be forced below the
" equitable minimum " through the increased cost of liv-
ing. While this contingency is likewise possible, it is not
a sufHcient reason for preventing any group of labourers
from raising their remuneration at the expense of prices.
Not every rise in prices would effect the expenditures of
the weaker sections of the wage earners. In some cases
the burden would be substantially all borne by the better
paid workers and the self employing, professional, and
propertied classes. When it did fall to any extent upon
the weaker labourers, causing their real wages to fall below
the " equitable minimum," it could be removed within a
reasonable time by organisation or by legislation. Even
if these measures were found ineffective, if some of the
weaker groups of workers should sufifer through the estab-
lishment of the higher prices, this arrangement would be
preferable on the whole to one in which no class of
labourers was permitted to raise its remuneration above the
*' equitable minimum " at the expense of prices. A restric-
tion of this sort, whether by the moral law or by civil
regulation, would tend to make wage labour a status with
no hope of pecuniary progress.
39^ DISTRIBUTIVE JUSTICE
It is true that a universal and indefinite increase of
wages at the expense of prices might at length leave the
great majority of the labourers no better off than they
were when they had merely the " equitable minimum."
Such would certainly be the result if the national product
were only sufficient to provide the ** equitable minimum "
for all workers, and that volume of incomes for the other
agents of production which was required to evoke from
them a fair degree of productive efficiency. In that case
the higher wages would be an illusion. The gain in the
amount of money would be offset by the loss in its pur-
chasing power. Even so, this condition would be greatly
superior to a regime in which the labourers were univer-
sally prevented from making any effort to raise their wages
above a fixed maximum.
Concluding Remarks
All the principles and conclusions defended in this chap-
ter have been stated with reference to the present dis-
tributive system, with its free competition and its lack of
legal regulation. Were all incomes and rewards fixed by
some supreme authority, the same canons of justice would
be applicable, and the application would have to be made
in substantially the same way, if the authority were de-
sirous of establishing the greatest possible measure of
distributive justice. The main exception to this statement
would occur in relation to the problem of raising wages
above the " equitable minimum " at the expense of prices.
In making any such increase, the wage-fixing authority
would be obliged to take into account the effects upon the
other classes of labourers, and upon all the non-wage-
earning classes. Substantially the same difficulties would
confront the government in a collectivist organisation of
industry. The effect that a rise in the remuneration of
any class would produce, through a rise in the prices of
commodities, upon the purchasing power of the incomes of
THE PROBLEM OF COMPLETE WAGE JUSTICE 399
Other classes, would have to be considered and as nearly
as possible ascertained. This would be no simple task.
Simple or not, it would have to be faced ; and the guiding
ethical principles would always remain efforts, sacrifices,
productivity, scarcity, and human welfare.
The greater part of the discussion carried on in this
chapter has a highly theoretical aspect. From the nature
of the subject matter this was inevitable. Nevertheless
the principles that have been enunciated and applied seem
to be incontestable. In so far as they are en forcible in
actual life, they seem capable of bringing about a wider
measure of justice than any other ethical rules that are
available.
Possibly the applications and conclusions have been laid
down with too much definiteness and dogmatism, and the
whole matter has been made too simple. On the other
hand, neither honesty nor expediency is furthered by an
attitude of intellectual helplessness, academic hyper-
modesty, or practical agnosticism. If there exist moral
rules and rational principles applicable to the problem of
wage justice, it is our duty to state and apply them as
fully as we can. Obviously we shall make mistakes in
the process; but until the attempt is made, and a certain
(and very large) number of mistakes are made, there will
be no progress. We have no right to expect that ready-
made applications of the principles will drop from Heaven.
For a long time to come, however, many of the ques-
tions discussed in this chapter will be devoid of large
practical interest. The problem immediately confronting
society is that of raising the remuneration and strengthen-
ing generally the economic position of those labourers who
are now below the level, not merely of the " equitable
minimum," but of a decent livelihood. This problem will
be the subject of the next chapter.
CHAPTER XXV
METHODS OF INCREASING WAGES
Proposals for the reform of social conditions are im-
portant in proportion to the magnitude of the evils which
they are designed to remove, and are desirable in propor-
tion to their probable efficacy. Applying these principles
to the labour situation, we find that among the remedies
proposed the primacy must be accorded to a minimum
wage. It is the most important project for improving the
condition of labour because it would increase the com-
pensation of some two-thirds of the wage earners, and
because the needs of this group are greater and more
urgent than the needs of the better-paid one-third. The
former are below the level of reasonable living, while the
latter are merely deprived of the opportunities of a more
ample and liberal scale of living. Hence the degree of
injustice suffered by the former is much greater than in
the case of the latter. A legal minimum wage is the most
desirable single measure of industrial reform because it
promises a more rapid and comprehensive increase in the
wages of the underpaid than any alternative device that is
now available. The superior importance of a legally estab-
lished minimum wage is obvious; its superior desirability
will form the subject of the pages that are immediately to
follow.
The Minimum Wage in Operation
Happily the advocate of this measure is no longer re-
quired to meet the objection that it is novel and utterly
uncertain. For more than twenty years it Has been in
400
METHODS OF INCREASING WAGES 4OI
Operation in Australasia. It was implicit in the com-
pulsory arbitration act of New Zealand, passed in 1894;
for the wages which the arbitration boards enforce are
necessarily the lowest that the affected employers are per-
mitted to pay; besides, the district conciliation boards are
empowered by the law to fix minimum wages on complaint
of any group of underpaid workers. The first formal and
explicit minimum wage law of modern times was enacted
by the state of Victoria in 1896. In the beginning it
applied to only six trades, but it has been extended at
various legislative sessions, so that to-day it protects sub-
stantially all the labourers of the state, except those em-
ployed in agriculture. Since the year 1900 all the other
states of Australia have made provision for the establish-
ment of minimum wages. At present, therefore, the legal
minimum wage in some form prevails throughout the
whole of Australasia.
In 1909 the Trade Boards Act authorised the applica-
tion of this device to four trades in Great Britain. In
19 1 3 the provisions of the Act were made applicable to
four other trades, and in 1914 to a third group of four
industries. A special minimum wage law was in 1912
enacted to govern the entire coal mining industry of the
country.
The first minimum wage law in the United States was
passed in 191 2 by Massachusetts. It has been followed
by similar legislation in ten other states ; namely, Arkansas,
California, Colorado, Kansas, Minnesota, Nebraska, Ore-
gon, Utah, Washington, and Wisconsin. California has
adopted a constitutional amendment which specifically
authorises minimum wage legislation for women and
minors, and Ohio added a similar provision to her con-
stitution which applies to men as well.
The minimum wage statutes of Australasia and Great
Britain cover all classes of workers, but those of the
United States are restricted to minors and women. With
402 DISTRIBUTIVE JUSTICE
the exception of the Utah act, all the important laws on
this subject in all three regions establish minimum wages
indirectly, by authorising commissions and wage boards to
determine the actual rates. In Australasia and Great
Britain the statutes do not attempt to specify any standard
to which the wage determinations of the boards must con-
form, but the tendency in the former country in recent
years has been to enforce a living wage as the minimum;
that is, wage rates sufficiently high to provide a decent
family livelihood for men, and a reasonable personal live-
lihood for women and minors. All the laws in America
but one require the commissions to establish living wages.
In Utah no commission is provided for, as the law itself
specifies in terms of money the minimum rates of remu-
neration that the employers of women are permitted to
pay.
The effectiveness of the laws that have been put into
operation is at least as great as their friends had dared to
hope. According to Professor M. B. Hammond of Ohio,
who investigated the situation on the spot in the winter of
1911-1912, the people of Australasia have accepted the
minimum wage " as a permanent policy in the industrial
legislation of that part of the world." Professor Ham-
mond's observations, and the replies of the Chief Factory
Inspector of Melbourne to the New York Factory In-
vestigating Commission, show the main effects of mini-
mum wage legislation to be as follows: sweating and
strikes have all but disappeared; the efficiency of the
workers has on the whole increased; the number of
workers unable to earn the legal minimum has not been as
great as most persons had feared, and almost all of them
have obtained employment at lower remuneration through
special permits; the legal minimum has not only not be-
come the actual maximum, but is exceeded in the case of
the majority of workers; no evidence exists to show that
any industry has been crippled, or forced to move out of
METHODS OF INCREASING WAGES 403
the country; with the exception of a very few instances,
the prices of commodities have not been raised by the law.^
In the four trades of Great Britain which were first
brought under the operation of the Trade Boards Act,
and which presented some of the worst examples of
economic oppression, the beneficial effects of the minimum
wage have been even more striking than in Australasia.
Wages have been considerably raised, in some cases as
high as one hundred per cent. ; dispirited and helpless
workers have gained courage, power, and self-respect to
such an extent as to increase considerably their member-
ship in trade unions, and to obtain in several instances fur-
ther increases in remuneration beyond the legal minimum;
the compensation of the better paid labourers has not been
reduced to the level fixed by the trade boards; the effi-
ciency of both employes and productive processes has been
on the whole increased; the number of persons forced out
of employment by the law is negligible ; no important rise
of prices is traceable to the law; and the number of busi-
ness concerns unable to pay the increase in wages is too
small to deserve serious consideration. All these results
had been established before the outbreak of the war.^
The legal minimum wage has been carried into effect in
only four states of our own country. It covers practically
all the industries employing women and minors in Oregon
and Washington, all the working women and girls of
Utah, and the women and minors of a few trades in Massa-
1 See articles by Hammond in the American Economic Review, June,
1913, and in the Annals of the American Academy of Political and
Social Science, July, 1913 ; and page 62' of the Appendix to the third
vohime of the Report of the New York State Factory Investigating
Commission.
2 See the replies of the London Board of Trade to the N. Y. Factory
Investigating Commission, on pages 77, 78 of the volume cited above ;
and especially the two monographs by R. H. Tawney, " The Estab-
lishment of Minimum Rates in the Chain-Making Industry," and " The
Establishment of Minimum Rates in the Tailoring Industry," London ;
1914 and 1915.
404 DISTRIBUTIVE JUSTICE
chusetts. The rates established for experienced women
vary from $7.50 per week in Utah to ten dollars a week
for some classes in Washington. As the first wage de-
terminations were put into effect only in 19 13, American
experience has been too short as well as too narrow to
warrant certain conclusions. So far as it has been ap-
plied, however, the legal minimum wage has been as suc-
cessful in the United States as in Australasia or Great
Britain. All competent witnesses agree that it has
brought a considerable increase in wages to a considerable
proportion of the women and minors in the industries in
which it is operative, and that it has neither thrown any
important number of workers out of employment nor
forced any important concern out of business. Speaking
of the three leading industries in which minimum wages
were first established in Washington, the Industrial Wel-
fare Commission of that state testifies : " Seldom has any
piece of legislation, in prospect, engendered so much dis-
cussion and so much criticism, as did the minimum wage
law, with the intricacies of its ramifications touching
almost every industry in the state, large or small, and the
family of nearly every wage earner; seldom, too, has any
law, in actuality, been so well received, its application been
accomplished with so little open opposition, and, for a law
of this character, has been attended with so little industrial
disturbance as that same minimum wage law. None of
the dire predictions made prior to the passage of the law
have come about to an extent that questions the general
efficiency of the law. There has been no wholesale dis-
charge of women employes, no wholesale levelling of
wages, no wholesale replacing of higher paid workers by
cheaper help, no tendency to make the minimum the maxi-
mum, while the employers of the state in general have
been following the letter and spirit of the law, and aiding
greatly in its application. . . . The law, in other words,
has advanced the wages of practically sixty per cent, of the
METHODS OF INCREASING WAGES 405
workers in these industries, and has done it without serious
opposition at a time when business conditions were none
too good." ^ The Bureau of Labour Statistics of the
United States investigated the operation of the minimuni
wage in the mercantile estabHshments of Oregon at the^
end of the first year. The conclusions of the investigators
were in brief that both the number and the proportion of
women getting the legal minimum ($9.25 per week) for
adults had increased, that the proportion obtaining more
than this rate had likewise increased, that those who had
received a rise in remuneration did not show any decline
in efficiency, that women had not been displaced by men,
and that the average increase in the labour cost resulting
from the advance in wages was only three mills on each
dollar of sales.^ The effects of the Utah law during the
first year of its operation were summarised by the Labour
Commissioner, Mr. H. T. Haines, as follows: a rise in
the wages of a '' number of women and girls who most
needed the additional sums of money " ; increased effi-
ciency of female workers admitted by most employers; but
few cases of women or girls utterly deprived of employ-
ment by the law; none of the higher paid women suffered
a reduction in wages; and ninety per cent, of the employers
are satisfied with the minimum wage statute.*^ So far as
the law has been applied in Massachusetts, it seems to be
relatively as successful as in the other three states.*
The Question of Constitutionality
The principal reason why the minimum wage laws on
the statute books of the other seven states have not been
1 " First Biennial Report of the Industrial Welfare Commission of
Washington," pp. 13, 15.
2 " Effect of Minimum Wage Determinations in Oregon." Bulletin
No. 176 of United States Bureau of Labour Statistics.
3 From a paper read before the National Convention of the Associa-
tion of Government Labour Officials, Nashville, Tenn., June 9, 1914.
* See Bulletins of Massachusetts Minimum Wage Commission.
406 DISTRIBUTIVE JUSTICE
carried into effect, is the uncertainty of the vaHdity of
minimum wage legislation in our constitutional system.
In November, 1914, a district judge granted a writ of
injunction, restraining the Minimum Wage Commission
of Minnesota from enforcing their wage determinations,
on the ground that the law attempted to delegate legisla-
tive power, and that its provisions violated that section of
the fourteenth amendment to the United States Constitu-
tion which forbids any state to deprive a person of life,
liberty, or property without due process of law. One of
the courts of Arkansas has taken substantially the same
position. The second objection urged by the Minnesota
judge is probably much the more serious of the two, and
is the one upon which chief emphasis has been laid in the
briefs filed in various courts by the opponents of minimum
wage legislation. As regards labour legislation, *' due
process of law " may be practically translated, " reason-
able and necessary exercise of the State's police power."
And the police power means that indefinite power of the
State to legislate for the health, safety, morals, and wel-
fare of the community.^ Now it is obvious that a mini-
mum wage law deprives both employer and employe of
some liberty of contract, and also that it virtually deprives
the former of some property, inasmuch as it generally in-
creases his outlay for wages. On the other hand, this
restriction of liberty and equivalent diminution of property
seem to be carried out in harmony with due process of
law, since they constitute an exercise of the police power
of the State on behalf of the general welfare. Some
months before the Minnesota judge granted the writ of
injunction against the enforcement of the minimum wage
law of that state, a lower court and the Supreme Court of
Oregon had pronounced the Oregon statute constitutional,
1 See the excellent and varied series of papers on the subject in
Orth's " The Relation of Government to Property and Industry," pp.
103-178. Ginn & Company; 1915.
METHODS OF INCREASING WAGES 407
as a legitimate exercise of the police power. An appeal
from this judgment was argued in the Supreme Court of
the United States, Dec. 17, 19 14, but no decision has yet
(October, 1916) been rendered. Until the highest court
has spoken on the question of constitutionality, no state
is likely to take any further step toward establishing mini-
mum wages. Should the decision of the Supreme Court
be unfavourable valid minimum wage legislation will be
impossible without an amendment of the United States
Constitution.^
The Ethical and Political Aspects
Whether it be considered from the viewpoint of ethics,
politics, or economics, the principle of the legal minimum
wage is impregnable. The State has not only the moral
right but the moral duty to enact legislation of this sort,
whenever any important group of labourers are receiving
less than living wages. One of the elementary functions
and obligations of the State is to protect citizens in the
enjoyment of their natural rights; and the claim to a liv-
ing wage is, as we have seen, one of the natural rights of
the person whose wages are his only means of livelihood.
Therefore, the establishment of minimum living wages is
not among the so-called " optional functions "of the State
in our present industrial society. Whenever it can be
successfully performed, it is a primary and necessary func-
tion. So far as political propriety is concerned, the State
may as reasonably be expected to protect the citizen against
the physical, mental, and moral injury resulting from an
unjust wage contract, as to safeguard his money against
the thief, his body against the bully, or his life against the
iThe arguments for and against the constitutionality of a legal
minimum wage are adequately presented in the briefs, respectively, of
Louis D. Brandeis and Rome G. Brown, in the cases of Stettler vs.
O'Hara and Simpson vs. O'Hara. The former is published by the
National Consumers' League, New York, and the latter by the Review
Publishing Company, Minneapolis.
408 DISTRIBUTIVE JUSTICE
assassin. In all four cases the essential welfare of the
individual is injured or threatened through the abuse of
superior force and cunning. Inasmuch as the legal mini-
mum wage is ethically legitimate, the question of its enact-
ment is, politically speaking, entirely a question of
expediency.
The Economic Aspect
Now the question of expediency is mainly economic.
A great deal of nonsense has been written and spoken about
the alleged conflict between the legal minimum wage and
" economic law." Economists have used no such lan-
guage, indeed; for they know that economic laws are
merely the expected uniformities of social action in given
circumstances. The economists know that economic laws
are no more opposed to a legal minimum wage than to a
legal eight hour day, or legal regulations of safety and
sanitation in work places. All three of these measures
tend to increase the cost of production, and sometimes
carry the tendency into reality. A minimum wage law is
difficult to enforce, but not much more so than most other
labour regulations. At any rate, the practical considera-
tion is whether even a partial enforcement of it will not
result in a marked benefit to great numbers of underpaid
workers. It may throw some persons, the slower workers,
out of employment; but here, again, the important ques-
tion relates to the balance of good over evil for the ma-
jority of those who are below the level of decent living.
At every point, therefore, the problem is one of concrete
expediency, not of agreement or disagreement with a real
or imaginary economic law.
Some of those who oppose the device on the ground of
expediency set up an argument which runs about as fol-
lows: the increase in wages caused by a minimum wage
law will be shifted to the consumer in the form of higher
prices; this result will in turn lead to a falling off in the
METHODS OF INCREASING WAGES 409
demand for products ; a lessened demand for goods means
a reduced demand for labour ; and this implies a diminished
volume of employment, so that the last state of the workers
becomes worse than the first. Not only is this conception
too simple, but it proves too much. If it were correct
every rise in wages, howsoever brought about, would be
ill advised ; for every rise would set in motion the same
fatal chain of events. Voluntary increases of remunera-
tion by employers would be quite as futile as the efforts
of a labour union. This is little more than the old wages
fund theory in a new dress. And it is no less contrary to
experience.
The argument is too simple because it is based upon an
insufificient analysis of the facts. There are no less than
four sources from which the increased wages required by
a minimum wage law might in whole or in part be ob-
tained. In the first place, higher wages will often give
the workers both the physical capacity and the spirit that
make possible a larger output. Thus, they could them-
selves equivalently provide a part at least of their addi-
tional remuneration. When, secondly, the employer finds
that labour is no longer so cheap that it can be profitably
used as a substitute for intelligent management, better
methods of production, and up to date machinery, he will
be compelled to introduce one or more of these improve-
ments, and to offset increased labour cost by increased
managerial and mechanical efficiency. This is what seems
to have happened in the tailoring industry of England.
According to Mr. Tawney, " the increased costs of pro-
duction have, on the whole, been met by better organisa-
tion of work and by better machinery." ^ In the third
place, a part of the increased wage cost can be defrayed
out of profits, in two ways: through a reduction in the
profits of the majority of business concerns in an industry;
but more frequently through the elimination of the less
1 " Minimum Rates in the Tailoring Industry," p. 161.
4IO DISTRIBUTIVE JUSTICE
efficient, and the consequent increase in the volume of
business done by the more efficient. In the latter estab-
lishments the additional outlay for wages might be fully
neutralised by the diminished managerial expenses and
fixed charges per unit of product. This elimination of
unfit undertakers would not only be in the direction of
greater social efficiency, but in the interest of better em-
ployment conditions generally; for it is the less competent
employers who are mainly responsible for the evil of
*' sweating," when they strive to reduce the cost of pro-
duction by the only method that they know; that is, the
oppression of labour. Should the three foregoing factors
fall short of providing or neutralising the increased wages,
the recourse would necessarily be to the fourth source;
namely, a rise in the price of products. However, there
is no definite reason for assuming that the rise will in any
case be sufficient to cause a net decrease of demand. In
Oregon the increased labour cost due to the minimum
wage law amounted, as we have seen, to only three mills
per dollar of sales in mercantile establishments. Even if
this were all shifted to the consumer — something that is
practically impossible — it would be equivalent to an in-
crease of only three cents on each ten dollars' worth of
purchases, and thirty cents on each hundred. The reduc-
tion in sales on account of such a slight rise in prices would
be infinitesimal. In the case of possibly the majority of
products, the lessened demand on the part of the other
classes might be entirely counterbalanced by the increased
demand at the hands of the workers whose purchasing
power had been raised through the minimum wage law.
The effect upon sales, and hence upon business and pro-
duction, which follows from an increase in the effective
consuming power of the labouring classes is frequently
ignored or underestimated. So far as consumers' goods
are concerned, it seems certain that a given addition to the
income of the wage-earning classes will lead to a greater
METHODS OF INCREASING WAGES 4I I
increase in the demand for products than an equal addition
to the income of any other section of the people.
Nevertheless, the possibility must be admitted of some
diminution of employment, owing to higher prices and
decreased demand. And it is certain that some workers
would not be worth the legal minimum to their employers.
A part, but probably not all, of these could find employ-
ment at a lower wage, through a system of permits for
" slow workers." Whatever the amount of unemploy-
ment resulting from both these causes, it would undoubt-
edly be an evil of lesser magnitude than that which at
present follows from the under-payment of a majority of
the labouring population. And it could be remedied by
two measures which are in any case necessary for social
welfare, and which would be hastened by the establish-
ment of a legal minimum wage. These are adequate and
scientific laws and institutions to deal with the general
problem of unemployment, and a comprehensive system of
industrial and vocational training.
These conclusions, then, seem to be justified: the eco-
nomic objections to a legal minimum wage are not essen-
tially different from those that may be urged against any
other beneficial labour legislation; and they have been
sufficiently refuted by experience to throw the burden of
proof upon the objectors. Expediency suggests, however,
that in the United States the device should be applied
gradually in two respects : for a few years it ought to be
confined to women and minors; and when it is extended
to men, the rates should approach the level of a complete
family living wage by stages, covering, say, three or four
years. The former restriction would enable the law to be
carried through its experimental stages with a minimum
disturbance to industry as a whole, and with a minimum
of opposition, and the latter would greatly reduce the
danger of male unemployment.^
1 One of the best statements of the economic aspect of the minimum
412 DISTRIBUTIVE JUSTICE
Opinions of Economists
When the present writer made an argument for the
legal minimum wage something more than ten years ago,
he was able to find only one American economist who had
touched the subject, and the verdict of that one was unfa-
vourable.^ A little over a year ago, Dr. John O'Grady sent
an inquiry to one hundred and sixty economists of the
United States to ascertain their opinions on the same sub-
ject. Of the ninety- four who replied seventy were in
favour of a minimum wage law for women and minors,
thirteen were opposed, and eleven were noncommittal;
fifty-five favoured such legislation for men, twenty were
against it, and nineteen were disinclined to give a cate-
gorical answer. About three- fourths of those who
responded expressed the opinion that the measure would
tend to increase the efficiency both of the workers and of
methods of production.^
It is worthy of note that the nine members of the late
Federal Commission on Industrial Relations, although dis-
agreeing widely and variously on most other important
questions and proposals, were all favourable to a minimum
wage law for women and minors.^
The most comprehensive and most searching criticism
of the legal minimum wage from the viewpoint of eco-
nomic theory has been made by Professor F. W. Taussig.*
While he does not commit himself definitely to the asser-
wage is that by Sidney Webb, in the Journal of Political Economy,
Dec, 1912. Probably the most varied and comprehensive general dis-
cussion is the symposium in the Survey, Feb. 6, 191.5. See especially
the excellent presentation in Commons and Andrews' " Principles of
Labour Legislation/' pp. 167-200.
1 See* pages 303, 304 of " A Living Wage " ; Macmillan, 1906.
2 O'Grady, "A Legal Minimum Wage"; Washington, 1915.
3 " Final Report," pp. loi, 255, 364.
* The Quarterly Journal of Economics, May, 1916. A somewhat less
unfavourable criticism is contained in the paper by Professor John
Bates Clark in the Atlantic Monthly, September, 1913.
METHODS OF INCREASING WAGES 4I3
tion that a universal minimum wage of, say, eight dollars
per week, would cause a notable amount of unemployment
among women, he regards this consequence as sufficiently
probable to indicate the " need of going slow in the regula-
tion of women's wages." Specifically, he would have
public wage boards refrain from fixing the minimum rates
high enough to maintain women living away from home.
His final and only serious argument for this position re-
lates to the marginal effectiveness of women workers. He
assumes that all " the fitful, untrained, indifferent women
are got rid of; that all who offer themselves for work at
the age of (say) eighteen years have had an industrially
helpful education, — " and then raises the question whether
all of them will be " able to get distinctly higher wages
than are now current." ^ Obviously the question is not
serious unless it contemplates the probability of unemploy-
ment for a considerable proportion. If only one per cent,
or less of the women should be unable to find employment
at the higher wages, the net social advantage of the mini-
mum wage device would be so obvious as to render Pro-
fessor Taussig's opposition quite unreasonable. Making
the assumptions quoted above from his pages, let us try to
see whether his apprehensions are economically justifiable.
If they are reasonable or probable they must rest on
one of two fundamental conditions : the occupations avail-
able to women are too few to absorb all that would seek
to become wage earners at eight dollars per week; or a
considerable section of them would be unable to produce
such a high wage. Possibly the first of these assumptions
is true, but neither Professor Taussig nor any other
authority has presented evidence to support it, and it is on
the face of things not sufficiently probable to justify hesi-
tation in the advocacy of a minimum living wage. If the
second assumption be correct, if the product of a con-
siderable section of women (all adequately trained) would
1 Page 436.
414 DISTRIBUTIVE JUSTICE
be insufficient to yield them eight dollars per week, in addi-
tion to the other costs of production, the conclusion is
inevitable that the same result would follow the attempt
to pay all male adults (likewise adequately trained) a
family living wage of, say, fifteen dollars per week. For
the product of the average man does not exceed that of
the average woman by even as great a ratio as fifteen to
eight. If the average woman is not worth eight dollars a
week to an employer in any kind of woman's occupation,
the average man is not worth fifteen dollars. Therefore,
we cannot hope, even with the aid of a thorough system
of industrial and vocational training, to provide all adult
males of average capacity with a family living wage and
the minimum means of living a reasonable life.
This is a veritable counsel of despair. It implies either
that the law of diminishing returns is already operating in
this country in such a way as to prevent the national
product from being sufficiently large to provide a mini-
mum wage of fifteen dollars a week for men, and eight
dollars a week for women; or that the product, though
ample for this purpose, and for all the other necessary pay-
ments to the higher priced workers and to the other agents
of production, cannot under our present industrial system
be so distributed as to attain the desired end. For the
first of these hypotheses there is no evidence worthy of
the name. If Professor King is right in his estimate of
an average family income of 1494 dollars annually ^ the
difficulty before us does not lie in the field of production.
Professor Taussig seems to rest his fears on the second
hypothesis, on the assumed impossibility of bringing about
the required distribution; for he points out that increased
efficiency of the workers may, like increased efficiency of
the material instrumentalities of production, in the long
run redound mainly to the benefit of the consumers, while
1 " The Wealth and Income of the People of the United States," p.
129.
METHODS OF INCREASING WAGES 415
wages may be little if any above the old level. If these
fears are justified, if the difficulty is entirely one of the
mechanism of distribution, and if it cannot be overcome
by legal enactment, then is our competitive organisation of
industry bankrupt, and the sooner we find out that fact
definitely the better. If the legal minimum wage will help
to expose such a situation, will show that, no matter how
much the productivity of the workers may be increased, a
large proportion of them must by the very nature of the
competitive system be forever condemned to live below the
level of decent existence, then the minimum wage is worth
having merely as an instrument of economic enlightenment.
Professor Taussig's argument and illustrations -^ seem
to contemplate a condition in which the number of women
who become fitted for a certain trade is excessive rela-
tively to the demand for its products, and to the supply of
women in other industries. Were industrial training thus
misdirected, and were the trained persons unable or un-
willing to distribute themselves over other occupations,
they would, indeed, face precisely the same dilemma as do
the unskilled workers to-day. That is; a majority would
be condemned to insufficient wages, or a minority to un-
employment. But we have been assuming an adequate
system of industrial and vocational training, a well-
balanced system, one that would enable the workers to
adjust their supply to the demand throughout the various
occupations. In these conditions the economic axiom that
a supply of goods is a demand for goods should become
beneficently effective: the workers should all be able to
find employment, and to obtain the greater part of their
increased product. Surely Professor Taussig does not
mean to commit himself to the view that every increase
in the productive power of the workers will in the long
run help them only inasmuch as they are consumers, the
lion's share of the additional product being taken by other
1 Page 437.
41 6 DISTRIBUTIVE JUSTICE
classes. Probably such is the usual result in a regime of
unregulated competition, and unlimited freedom as regards
the wage contract. But this is precisely what we expect a
minimum wage law to correct and prevent. We rely upon
this device to enable the workers to retain for themselves
that share of the product which under free competition
would automatically go to the non-labouring consumers.
We hope that blind and destructive economic force can be
held in check by deliberate and beneficent social control.
The fact of the matter seems to be that Professor Taus-
sig's argument is too hypothetical and conjectural to
justify his pessimistic conclusions. It is unpleasantly sug-
gestive of the reasoning by which the classical economists
tried to show the English labourers the folly and futility
of trade unionism.
Other Legislative Proposals
The ideal standard of a minimum wage law is a scale
of remuneration adequate not only to the present needs of
individuals and families, but to savings for the contin-
gencies of the future. Until such time as the compensa-
tion of all labourers has been brought up to this level, the
State should make provision for cheap housing, and for
insurance against accidents, sickness, invalidity, old age,
and unemployment. The theory underlying such meas-
ures is that they would merely supplement insufficient
remuneration, and indirectly contribute to the establish-
ment of genuine living wages. In Europe, housing and
insurance legislation is so common that no reasonable and
intelligent person any longer questions the competency or
propriety of such action by the State.
If an adequate legal minimum wage, in the sense just
defined, were universally established, the State would not
be required to do anything further to effectuate wage
justice, except in the matter of vocational and industrial
education. This would qualify practically all persons to
METHODS OF INCREASING WAGES 417
earn at least a living wage, and would enable those who
underwent unusual sacrifices either before or during their
employment to command something over and above. In
other words, all workers would then be able to obtain what
we have called ''the equitable minimum." And the
labouring class as a whole would possess sufficient eco-
nomic power to secure substantially all that was due by any
of the canons of distributive justice.
Labour Unions
The general benefits and achievements of labour organi-
sations in the United States down to the beginning of the
present century, cannot be more succinctly nor more au-
thoritatively stated than in the words of the United States
Industrial Commission : " An overwhelming preponder-
ance of testimony before the Industrial Commission indi-
cates that the organisation of labour has resulted in a
marked improvement in the economic condition of the
workers." ^ Some of the most conspicuous and unques-
tionable proofs of rises in wages effected by the unions
are afforded by the building trades, the printing trades, the
coal mining industry, and the more skilled occupations on
the railroads. Between 1890 and 1907 wages increased
considerably more in the organised than in the unorgan-
ised trades.^
Nevertheless, when all due credit is given to the unions
for their part in augmenting the share of the product re-
ceived by labour, there remain two important obstacles
which seriously lessen their efficacy as a means of raising
the wages of the underpaid.
The first is the fact that the unions still embrace only a
small portion of the total number of wage earners. Ac-
cording to Professor Leo Wolman, a little more than
1" Final Report," p. 802. Washington, 1902.
2 See article by Professor Commons in " The New Encyclopedia of
Social Reform," p. 1233.
41 8 DISTRIBUTIVE JUSTICE
twenty-seven million of the thirty-eight million persons en-
gaged in " gainful occupations " in the United States in
1910 were wage earners in the ordinary sense of that
phrase, and of these twenty-seven million only 2,116,317,
or "j.y per cent., were members of labour organisations.^
The membership to-day is about two and three quarter
millions. If the total number of wage earners increased
between 19 10 and 19 16 at the same rate as during the
preceding decade, the organised portion is now somewhat
less than y.y per cent, of the whole. Evidently the la-
bour unions have not grown with sufficient rapidity, nor
are they sufficiently powerful to warrant the hope that
they will be soon able to lift even a majority of the under-
paid workers to the level of living wage conditions.
The second obstacle is the fact that only a small minor-
ity of the members of labour unions are drawn from the
unskilled and underpaid classes, who stand most in need of
organisation. The per cent, of those getting less than
living wages that is in the unions is almost negligible.
With the exception of a few industries, the unskilled and
the underpaid show very little tendency to increase notably
their organised proportion. The fundamental reason of
this condition has been well stated by John A. Hobson:
" The great problem of poverty . . . resides in the con-
ditions of the low-skilled workman. To live industrially
under the new order he must organise. He cannot or-
ganise because he is so poor, so ignorant, so weak. Be-
cause he is not organised he continues to be poor, ignorant,
weak. Here is a great dilemma, of which whoever shall
have found the key will have done much to solve the
problem of poverty." ^
The most effective and expeditious method of raising
the wages of the underpaid through organisation is by
means of the " industrial," as distinguished from the
1 The Quarterly Journal of Economics, May, 1916, p. 502.
2 " Problems of Poverty," p. 227. London, 1891.
METHODS OF INCREASING WAGES 419
" trade," or " craft," union. In the former all the trades
of a given industry are united in one compact organisa-
tion, while the latter includes only those who work at a
certain trade or occupation. For example: the United
Mine Workers embrace all persons employed in coal mines,
from the most highly skilled to the lowest grade of unspe-
cialised labour; while the craft union is exemplified in the
engineers, firemen, conductors, switchmen, and other
groups having their separate organisations in the railroad
industry. The industrial union is as much concerned with
the welfare of its unskilled as of its skilled members, and
exerts the whole of its organised force on behalf of each
and every group of workers throughout the industry which
it covers. The superior suitability of the industrial type
of union to the needs of the unskilled labourers is seen in
the fact that more of them are organised in the coal min-
ing than in any other industry, and have received greater
benefits from organisation than their unskilled fellow
workers in any other industry. Were the various classes
of railway employes combined in one union, instead of
being organised along the lines of their separate crafts, it
is quite improbable that the unskilled majority would be
getting, as they now are getting, less than living wages.
While it is true that the various craft unions in an indus-
try are often federated into a comprehensive association,
the bond uniting them is not nearly so close, nor so help-
ful to the weaker groups of workers as in the case of the
industrial unions.
Human nature being what it is, however, the members
of the skilled crafts cannot all be induced or compelled
to adopt the industrial type of organisation. The Knights
of Labour attempted to accomplish this, and for a time
enjoyed a considerable measure of success, but in the end
the organisation was unable to withstand those funda-
mental inclinations which impel men to prefer the more
narrow, homogeneous, and exclusive type of association.
420 DISTRIBUTIVE JUSTICE
The skilled workers refused to merge their local and craft
interests in the wider interests of men with whom they
had no strong nor immediate bonds of sympathy. Among
labourers, as well as among other persons, the capacity for
altruism is limited by distance in space and occupational
condition. The passion for distinction likewise affects
the wage earner, impelling the higher groups consciously
or unconsciously to oppose association that tends to break
down the barrier of superiority. Owing to their greater
resources and greater scarcity, the skilled members of an
industrial union are less dependent upon the assistance of
the unskilled than the latter are dependent upon the
former ; yet the skilled membership is always in a minority,
and therefore in danger of being subordinated to the in-
terests of the unskilled majority.
For these and many other reasons it is quite improbable
that the majority of union labourers can be amalgamated
into industrial unions in the near future. The most that
can be expected is that the various occupational unions
within each industry should become federated in a more
compact and effective way than now prevails, thus con-
serving the main advantages of the local and craft asso-
ciation, while assuring to the unskilled workers some of
the benefits of the industrial union.
Organisation Versus Legislation
In the opinion of some labour leaders, the underpaid
workers should place their entire reliance upon organisa-
tion. The arguments for this position are mainly based
upon three contentions: it is better that men should do
things for themselves than to call in the intervention of
the State; if the workers secure living wages by law they
will be less likely to organise, or to remain efficiently or-
ganised; and if the State fixes a mimimum wage it may
some day decide to fix a maximum.
Within certain limits the first of these propositions is
METHODS OF INCREASING WAGES 421
incontestable. The self education, self reliance, and other
experiences obtained by the workers through an organised
struggle for improvements of any kind, are too valuable
to be lightly passed over for the sake of the easier method
of State assistance. Indeed, it would be better to accept
somewhat less, or to wait somewhat longer, in order
that the advantages might be secured through organisa-
tion. However, these hypotheses are not verified as re-
gards the minimum wage problem. The legal method
promises with a high degree of probability to bring about
universal living wages within ten or fifteen years. The
champions of organisation can point to no solid reasons
for indulging the hope that their method would achieve
the same result within a half a century. Therefore, the
advantages of the device of organisation are much more
than neutralised by its disadvantages.
The fear that the devotion of the workers to the union
would decline as soon as living wages had been secured by
law, seems to have no adequate basis either in experience
or in probability. Speaking of the establishment of mini-
mum wages in the tailoring industry of Great Britain,
Mr. Tawney declares that it " has given an impetus to
trade unionism among both men and women. The mem-
bership of the societies connected with the tailoring trade
has increased, and in several districts the trade unions have
secured agreements fixing the standard rate considerably
above the minimum contained in the Trade Board's de-
termination." ^ Similar testimony comes from Austral-
asia. Indeed, this is precisely what we should be in-
clined to expect; for the workers whose wages had been
raised would for the first time possess the money and the
courage to support unions; and would have sufficient in-
centives thereto in the natural desire to obtain something
more than the legal minimum, and in the realisation that
organisation was necessary to give them a voice in the
1 " Minimum Rates in the Tailoring Industry," p. 96.
422 DISTRIBUTIVE JUSTICE
determination of the minimum, and to enable them to co-
operate in compelHng its enforcement. Indeed, general
experience shows that organisation becomes normally ef-
ficient and produces its best results only among workers
who have already approximated the level of living wages.
To be sure, the State could set up maximum instead of
minimum wages, — if the employing classes were suffi-
ciently powerful. But all indications point to a decline
rather than an increase in their political influence, and to a
corresponding expansion in the governmental influence of
the labouring classes and their sympathisers. Moreover,
the labour leaders who urge this objection are inconsist-
ent, inasmuch as they advocate other beneficial labour
legislation. The distinction which they profess to find
between laws that merely remove unfair legal and judicial
disabilities and laws that reduce the length of the working
day or fix minimum wages, has no importance in practical
politics or in the mind of the average legislature. If the
political influence of labour should ever become so weak
and that of capital so strong as to make restrictive labour
legislation generally feasible, legislators would not confine
their unfriendly action to the field of positive measures.
They would be quite as ready to pass a law prohibiting
strikes as to enact a statute fixing maximum wages. The
formal legalisation of strikes, picketing, and the primary
boycott which is contained in the Clayton Act, and for
which the labour unions worked long and patiently, could
conceivably be seized upon by some future unfriendly
Congress as a precedent and provocation for legislation
which would not only repeal all the favourable provisions
of the Clayton Act, but subject labour to entirely new and
far more odious restraints and interferences. The fact
that governments passed maximum wage laws in the past
is utterly irrelevant to the question of wage legislation
to-day. A legal minimum wage, and a multitude of other
protective labour laws are desirable and wise in the twen-
METHODS OF INCREASING WAGES 423
tieth century for the simple reason that labour and the
friends of labour are sufficiently powerful to utilise this
method, and because their influence seems destined to in-
crease rather than decrease. The contrary hypothesis is
too improbable for serious consideration.
The conclusions that seem justified by a comprehensive
and critical view of all the facts of the situation, are that
organisation is not of itself an adequate means of bringing
about living wages for the underpaid, but that it ought
nevertheless to be promoted and extended among these
classes, not only for its direct effect upon wages, but for
its bearing upon legislation. The method of organisa-
tion and the method of legislation are not only not mutu-
ally opposed, but are in a very natural and practical man-
ner complementary.
Participation in Capital Ownership
While those workers whose remuneration is below the
level of decent maintenance are not ordinarily in a posi-
tion to become owners of any kind of capital, many of
them, especially among the unmarried men, can accumu-
late savings by making large sacrifices. As a matter of
fact, hundreds of thousands of the underpaid have be-
come interest receivers through the medium of savings
banks, real estate possessions, and insurance policies.
Every effort in this direction is distinctly worth while,
and deserving of encouragement. Labourers who are
above the minimum wage level can, of course, save much
larger amounts, and with less sacrifices than the under-
paid classes. In all cases the main desideratum is that the
workers should derive some income from capital; but it is
almost equally important that their capital ownership
should wherever possible take the form of shares in the
industry in which they are employed, or the store at which
they buy their goods. This means co-operative produc-
tion and co-operative distribution. The general benefits
424 DISTRIBUTIVE JUSTICE
of the co-operative enterprise have already been described
in chapter xiv. For the wage earner proprietorship in a
co-operative concern is preferable to any other kind of
capital ownership because of the training that it affords
in business management and responsibility, in industrial
democracy, and in the capacity to subordinate his immedi-
ate and selfish interests to his more remote and larger
welfare.
Co-operative ownership of the tools with which men
work has advantages of its own over co-operative owner-
ship of the stores from which they made their purchases,
inasmuch as it increases their control over the conditions
of employment, and gives them incentives to efficiency
which results in a larger social product and a larger share
thereof for themselves. As already pointed out in chap-
ter xiv, the ideal type of productive co-operation is that
known as the " perfect " form, in which the workers are
the exclusive owners of the concern where they exercise
their labour. Nevertheless, the '* federal " type, in which
the productive concern is directly owned by a wholesale
co-operative, indirectly by the retail co-operative store, and
ultimately by the co-operative consumers, — presents one
important advantage. It could be so modified as to enable
the employes of the productive enterprise to share the
ownership of the latter with the wholesale establishment.
Such an arrangement would at once give the workers the
benefits of productive co-operation mentioned above, and
render probable a satisfactory adjustment of the conflict-
ing claims of producers and consumers. As intimated in
chapter xxiv, such a conflict is inherent in every system
of industrial organisation, and will become more evident
and more acute in proportion to the strengthening of the
position of labour.
A final reason for ownership of capital by labour de-
serves mention here, even though it has no immediate bear-
ing upon the question of remuneration. Were all la-
METHODS OF INCREASING WAGES 425
bourers receiving the full measure of wages to which they
are entitled by the canons of distributive justice, it would
still be highly desirable that the majority if not all of
them should possess some capital, preferably in the pro-
ductive and distributive concerns in which they were im-
mediately interested. It does not seem probable that our
economic system as now constituted, with the capital
owners and the capital operators for the most part in two
distinct classes, will be the final form of industrial organi-
sation. Particularly does this arrangement seem unde-
sirable, incongruous, and unstable in a society whose po-
litical form is that of democracy. Ultimately the workers
must become not merely wage earners but capitalists.
Any other system will always contain and develop the
seeds of social discontent and social disorder.
REFERENCES ON SECTION IV
Adams and Sumner: Labour Problems. Macmillan; 1905.
Commons and Andrews : Principles of Labour Legislation. Harpers ;
1916.
Walker: The Wages Question. New York; 1876.
Ryan : A Living Wage. Macmillan ; 1906.
Snowden : The Living Wage. London ; Hodder & Stoughton.
O'Grady: a Legal Minimum Wage. Washington; 1915.
Broda : La Fixation Legale des Salaires. Paris ; 1912.
N. Y. Factory Investigating Commission. Appendix to Vol. III.
Tawney: Minimum Rates in the Chain-Making Industry. London;
1914.
Minimum Rates in the Tailoring Industry. London; 1915.
Turman: Le Catholicisme Social. Paris; 1900.
PoTTiER : De Jure et J ustitia. Liege ; 1900.
iPolier: L' Idee du Juste Salaire. Paris; 1903.
Menger : The Right to the Whole Produce of Labour. London ; 1899.
Garriguet : Regime du Travail. Paris ; 1908.
Nearing: Reducing the Cost of Living. Philadelphia; 1914.
Chapin: The Standard of Living in New York City. New York;
1909.
Also the works on co-operation cited in connection with Section II,
and those of Hobson, Carver, Nearing and Streightoff.
CHAPTER XXVI
SUMMARY AND CONCLUSION
Throughout this book we have been concerned with a
twofold problem : to apply the principles of justice to the
workings of the present distributive system, and to point
out the modifications of the system that seemed to promise
a larger measure of actual justice. The mechanism of
distribution was described in the introductory chapter as
apportioning the national product among the four classes
that contribute the necessary factors to the process of pro-
duction, and the first part of the problem was stated as
that of ascertaining the size of the share which ought to
go to each of these classes.
The Landowner and Rent
We began this inquiry with the landowner and his share
of the product, i.e., rent. We found that private owner-
ship of land has prevailed throughout the world with
practical universality ever since men began to till the soil
in settled communities. The arguments of Henry George
against the justice of the institution are invalid because
they do not prove that labour is the only title of property,
nor that men's equal rights to the earth are incompatible
with private landownership, nor that the so-called social
production of land values confers upon the community a
right to rent. Private ownership is not only socially
preferable to the Socialist and the Single Tax systems of
land tenure, but it is, as compared with Socialism cer-
tainly, and as compared with the Single Tax probably,
among man's natural rights. On the other hand, the land-
426
SUMMARY AND CONCLUSION 42/
owner's right to take rent is no stronger than the capital-
ist's right to take interest; and in any case it is inferior
to the right of the tenant to a decent livelihood, and of the
employe to a living v^age.
Nevertheless, the present system of land tenure is not
perfect. Its principal defects are : the promotion of cer-
tain monopolies, as, anthracite coal, steel, natural gas,
petroleum, water power, and lumber; the diversion of ex-
cessive gains to landowners, as indicated by the recent
great increases in the value of land, and the very large
holdings by individuals and corporations; and the exclu-
sion of large masses of men from the land because the
owners will not sell it at its present economic value. The
remedies for these evils fall mainly under the heads of
ownership and taxation. All mineral, timber, gas, oil,
grazing, and water-power lands that are now publicly
owned, should remain the property of the states and the
nation, and be brought into use through a system of leases
to private individuals and corporations. Cities should
purchase land, and lease it for long periods to persons who
wish to erect business buildings and dwellings. By means
of taxation the State might appropriate the future in-
creases of land values, subject to the reimbursement of
private owners for resulting decreases in value; and it
could transfer the taxes on improvements and personal
property to land, provided that the process were suffi-
ciently gradual to prevent any substantial decline in land
values. In some cases the State might hasten the disso-
lution of exceptionally large and valuable estates through
the imposition of a supertax.
The Capitalist and Interest
The Socialist contention that the labourer has a right to
the entire product of industry, and therefore that the cap-
italist has no right to interest, is invalid unless the former
alleged right can be effectuated in a reasonable scheme of
428 DISTRIBUTIVE JUSTICE
distribution; and we know that the contemplated Socialist
scheme is impracticable. Nevertheless, the refutation of
the Socialist position does not automatically prove that
the capitalist has a right to take interest. Of the titles
ordinarily alleged in support, of such a right, productivity
and service are inconclusive, while abstinence is valid only
in the case of those capital owners to whom interest was a
necessary inducement for saving. Since it is uncertain
whether sufficient capital would be provided without inter-
est, and since the legal suppression of interest is imprac-
ticable, the State is justified in permitting the practice of
taking interest. But this legal permission does not justify
the individual interest-receiver. His main and sufficient
justification is to be found in the presumptive title which
arises out of possession, in the absence of any adverse
claimant with a stronger title to this particular share of
the product.
The only available methods of lessening the burden of
interest are a reduction in the rate, and a wider diffusion
of capital through co-operative enterprise. Of these the
former presents no definite or considerable reasons for
hope, either through the rapid increase of capital or the
inevitable extension of the industrial function of govern-
ment. The second proposal contains great possibilities of
betterment in the fields of banking, agriculture, stores, and
manufacture. Through co-operation the weaker farmers,
merchants, and consumers can do business and obtain
goods at lower costs, and save money for investment with
greater facility, while the labourers can slowly but surely
become capitalists and interest-receivers, as well as em-
ployes and wage-receivers.
The Business Man and Profits
Just remuneration for the active agents of production,
whether they be directors of industry or employes, depends
fundamentally upon five canons of distribution; namely,
SUMMARY AND CONCLUSION 429
needs, efforts and sacrifices, productivity, scarcity, and
human welfare. In the Hght of these principles it is evi-
dent that business men who use fair methods in competi-
tive conditions, have a right to all the profits that they
can obtain. On the other hand, no business man has a
strict right to a minimum living profit, since that would
imply an obligation on the part of consumers to sup-
port superfluous and inefficient directors of industry.
Those who possess a monopoly of their products or com-
modities have no right to more than the prevailing or
competitive rate of interest on their capital, though they
have the same right as competitive business men to any
surplus gains that may be due to superior efficiency. The
principal unfair methods of competition; that is, discrimi-
native underselling, exclusive-selling contracts, and dis-
crimination in transportation, are all unjust.
The remedies for unjust profits are to be found mainly
in the action of government. The State should either own
and operate all natural monopolies, or so regulate their
charges that the owners would obtain only the competitive
rate of interest on the actual investment, and only such
surplus gains as are clearly due to superior efficiency. It
should prevent artificial monopolies from ^practising extor-
tion toward either consumers or competitors. Should the
method of dissolution prove inadequate to this end, the
State ought to fix maximum prices. Inasmuch as over-
capitalisation has frequently enabled monopolistic concerns
to obtain unjust profits, and always presents a strong
temptation in this direction, it should be legally prohibited.
A considerable part of the excessive profits already accu-
mulated can be subjected to a better distribution by pro-
gressive income and inheritance taxes. Finally, the pos-
sessors of large fortunes and incomes could help to bring
about a more equitable distribution by voluntarily comply-
ing with the Christian duty of bestowing their superfluous
goods upon needy persons and objects.
430 DISTRIBUTIVE JUSTICE
The Labourer and Wages
None of the theories of fair wages that have been exam-
ined under the heads of " the prevaiUng rate," " exchange-
equivalence," or ** productivity " is in full harmony with
the principles of justice. The minimum of wage justice
can, however, be described with sufficient definiteness and
certainty. The adult male labourer has a right to a wage
sufficient to provide himself and family with a decent live-
lihood, and the adult female has a right to remuneration
that will enable her to live decently as a self supporting
individual. At the basis of this right are three ethical
principles: all persons are equal in their inherent claims
upon the bounty of nature; this general right of access to
the earth becomes concretely valid through the expenditure
of useful labour; and those persons who are in control of
the goods and opportunities of the earth are morally bound
to permit access thereto on reasonable terms by all who
are willing to work. In the case of the labourer, this
right of reasonable access can be effectuated only through
a living wage. The obligation of paying this wage falls
upon the employer because of his function in the industrial
organism. And the labourer's right to a living wage is
morally superior to the employer's right to interest on his
capital. Labourers who put forth unusual efforts or
make unusual sacrifices have a right to a proportionate
excess over living wages, and those who are exceptionally
■productive or exceptionally scarce have a right to the extra
compensation that goes to them under the operation of
competition. Labourers who are receiving the '' equi-
table minimum " described in the last sentence have a right
to still higher wages at the expense of the capitalist and
the consumer, if they can secure them through the processes
of competition; for the additional amount is an ethically
unassigned or ownerless property which may be taken by
SUMMARY AND CONCLUSION 43 1
either labourer, capitalist, or consumer, provided that
there is no artificial limitation of supply.
The methods of increasing wages are mainly three: a
minimum wage by law, labour unions, and co-operative en-
terprise. The first has been fairly well approved by ex-
perience, and is in no wise contrary to the principles of
either ethics, politics, or economics. The second has like-
wise been vindicated in practice, though it is of only small
efificacy in the case of those workers who are receiving less
than living wages. The third would enable labourers to
supplement their wage incomes by interest incomes, and
would render our industrial system more stable by giving
the workers an influential voice in the conditions of em-
ployment, and laying the foundation of that contentment
and conservatism which arise naturally out of the posses-
sion of property.
As a matter of convenience, the foregoing paragraphs
may be further summarised in the following abridgment:
The landowner has a right to all the economic rent, modi-
fied by the right of his tenants and employes to a decent
livelihood, and by the right of the State to levy taxes
which do not substantially lower the value of the land.
The capitalist has a right to the prevailing rate of inter-
est, modified by the right of his employes to the '' equi-
table minimum " of wages. The business man in com-
petitive conditions has a right to all the profits that he can
obtain, but corporations possessing a monopoly have no
right to unusual gains except those due to unusual effi-
ciency. The labourer has a right to living wages, and to
as much more as he can get by competition with the other
agents of production and with his fellow labourers.
Concluding Observations
No doubt many of those who have taken up this volume
with the expectation of finding therein a satisfactory
432 DISTRIBUTIVE JUSTICE
formula of distributive justice, and who have patiently
followed the discussion to the end, are disappointed and
dissatisfied at the final conclusions. Both the particular
applications of the rules of justice and the proposals for
reform, must have seemed complex and indefinite. They
are not nearly so simple and definite as the principles of
Socialism or the Single Tax. And yet, there is no escape
from these limitations. Neither the principles of indus-
trial justice nor the constitution of our socio-economic
system is simple. Therefore, it is impossible to give our
ethical conclusions anything like mathematical accuracy.
The only claim that is made for the discussion is that the
moral judgments are fairly reasonable, and the proposed
remedies fairly efficacious. When both have been realised
in practice, the next step in the direction of wider distribu-
tive justice will be much clearer than it is to-day.
Although the attainment of greater justice in distribu-
tion is the primary and most urgent need of our time, it is
not the only one that is of great importance. No con-
ceivable method of distributing the present national prod-
uct would provide every family with the means of sup-
porting an automobile, or any equivalent symbol of com-
fort. Indeed, there are indications that the present
amount of product per capita cannot long be maintained
without better conservation of our natural resources, the
abandonment of our national habits of wastefulness, more
scientific methods of soil cultivation, and vastly greater
efficiency on the part of both capital and labour. Nor is
this all. Neither just distribution, nor increased produc-
tion, nor both combined, will insure a stable and satisfac-
tory social order without a considerable change in human
hearts and ideals. The rich must cease to put their faith
in material things, and rise to a simpler and saner plane
of living; the middle classes and the poor must give up
their envy and snobbish imitation of the false and degrad-
ing standards of the opulent classes; and all must learn
SUMMARY AND CONCLUSION 433
the elementary lesson that the path to achievements worth
while leads through the field of hard and honest labour,
not of lucky " deals " or gouging of the neighbour, and
that the only life worth living is that in which one's cher-
ished wants are few, simple, and noble. For the adoption
and pursuit of these ideals the most necessary requisite is
a revival of genuine religion.
INDEX
Abstinence: as a title to interest,
182-186.
Adams, T. S. : 301, 302.
Adam Smith: 331, 341.
Agriculture: co-operation in, 217-
220.
Alaska : leasing system in, 96.
Altruism : efficacy of under Social-
ism, 165-167 ; promoted by co-
operation, 229.
Ambrose, Saint : 305.
American Sugar Refining Com-
pany: 267, 272, 289.
American Tobacco Company: 263,
267, 288.
Analogy: economic, as justifying
interest, 205, 206,
Anthracite coal: a monopoly, 7^,
78, 95, 132.
Antoine, Charles: 337-340.
Antoninus, Saint : 270.
Aquinas, Saint Thomas : 63, 64,
175, 181, 208, 304, 306, 307, 333-
Arbitration : failure of, 324.
Ashley, W. J. : 9.
Astor estate : 88, 89.
Augustine, Saint: 305.
Australasia : special land taxes in,
1 18-120, 131; minimum wage
in, 401, 402,
Authorities : Catholic and Protest-
ant, on living wage, 277, 278.
Basil, Saint : 305.
Bible, the : on the duty of benevo-
lence, 303, 304, 316, 317.
Brandeis, Louis D. : 265, 275.
Business man: functions and re-
wards of, 237-239, 255-258; no
right of to minimum profits,
258-260, 362, 363 ; the superflu-
ous, 260, 261.
Canada: special land taxes in, 117-
120.
Canonist : doctrine of wage justice,
333-33(i-
Canons of distributive justice:
243-253-
Capital: meaning of, 137, 138;
power of to create value, 146-
148; Catholic teaching con-
cerning interest on, 175-177;
titles of to interest, 177-186;
value of in a no-interest
regime, 188-190; need for a
wider distribution of, 213,
214; need for ownership of by
labour, 214, 229, 230.
Capitalists: two kinds of, 138; ex-
propriation of, 154-158; right
of to take interest, 201-209;
claims of, versus claims of la-
bourers, 367-369, 390-393, 396.
Carnegie, Andrew : 300.
Carver, T. N. : 351-355-
Catholic Church : attitude of
toward interest, 172-176.
Child workers : right of to a liv-
ing wage, 373.
Christian conception of welfare:
316-318.
Clark, J. B. : 271, 347-351-
Compensation : to landowners, 34-
39; to capitalists under So-
cialism, 154-158.
Competition : alleged failure of,
275-278.
Confiscation : of land values under
the Single Tax, 34-39; of cap-
435
436
INDEX
ital under Socialism, 154-158;
of wealth by taxation, 297,
298.
Constitutionality of minimum
wage laws: 405-407.
Consumer: injury to through
stockwatering, 282-288 ; obli-
gations of to business man,
258, 259, 362, 363; versus la-
bourer, 393-398.
Contract: onerous, 326; free, as a
rule of wage justice, 328-330,
370-372.
Co-operation : as a partial solvent
of capitalism, 210-233; essence
and kinds of, 214, 215; in
banking, 216, 217; in agricul-
ture, 217-220; in stores, 220-
222\ in production, 222-228;
efifect of on social stability,
229, 230 ; as compared with in-
dividualism and Socialism,
230, 231 ; province and limita-
tions of, 231-233; bearing of
on the superfluous business
man, 260, 261 ; and on the la-
bouring classes, 423-425.
Copartnership : 222^, 224.
Corporation : profits of a, 241, 242,
257, 258, 262, 389.
Cost of living: 378, 379.
Cost of production : of capital, 188,
189.
Credit societies: co-operative, 216,
217.
Defects of our land system: 74-
93; monopoly, 75-^; exces-
sive gains, 80-89; exclusion,
90-93.
Devas, Charles: 184.
Disagreeable tasks : 384, 385.
Dixon, F. H. : 323.
Discriminative transportation con-
tracts: 272, 273.
Discriminative underselling: 267-
270.
Distribution of superfluous
wealth: 303-319.
Distributive justice: canons of,
243-253, 381, 382.
Earth: right of access to, 358-
360.
Economic determinism : inconsist-
ent with ethical judgments,
20, 145, 146, 343, 344.
Efficiency : monopolistic, 265-267,
27S-'2^77, 279; exceptional, 388-
390.
Eff"orts : exceptional, as claim to
rewards, 382-383.
Efforts and sacrifices : as canons
of distribution, 245-247.
Ely, R. T.:330.
Employer: gains of from wage
contract, 327, 328; obligation
of to pay a living wage, 365-
272.
Engels, F. : 20.
Ensor, E. K. : 50.
Equal gains: as a canon of wage
justice, 326-328.
Equality : as a canon of justice,
243, 244; of men's claims to
the bounty of nature, 358, 359;
of rights to a decent liveli-
hood, 360-363.
" Equitable minimum " : of wages,
388, 390, 392, 393, 395, 397, 398,
399, 417-
Equity : meaning of, 256.
Exchange-equivalence : theories
of, 326-340; equal gains, 326-
328; free contract, 328-330;
market value, 330-332; me-
diseval, 332-33^) modern, 336-
340.
Exclusion from the land : 90-93.
Exclusive-sales contracts : 270-
272.
Expropriation : of capitalists un-
der Socialism, 154-158.
Extrinsic titles : of interest, 172.
Family living wage: 373-376.
Fathers of the Church : on private
INDEX
437
property in land, 62; on duty
of beneficence, 305, 306. •
Fay, C. R. : 214, 221, 227.
Fisher, Irving: 196.
Fortunes : legal limitation of, 291-
302 ; directly, 292-295 ; by tax-
ation, 296-302.
France : co-operative production
in, 223.
Fustel de Coulanges: 9.
Gains: excessive from land, 80-
89; from monopolies, 263-265.
Germany : co-operation in, 216.
Giffen, Sir Robert: 189.
Godwin, W. : 341.
Government ownership : 93-95 ;
limitations of, 163-165; and
rate of interest, 212.
Great Britain: co-operation in,
220-222 ; income taxes in, 299-
300; minimum wage in, 401,
402.
Haines, H. T. : 405.
Hammond, M. B. : 402.
Henry George : on primitive com-
mon ownership, 17; on first
occupancy, 21-24; on title of
labour, 24-29 ; on natural right
to land, 30-39; on right of
community to land values and
rent, 39-47; on Single Tax,
51, 52.
Hillquit, Morris: 159.
Hobson, J. A.: 418.
Howe, F. C: 76-78.
Hyndman and Morris : 20.
Human welfare : the test of prop-
erty rights in land, 36-38 ; and
of a system of land tenure,
74; and of increment taxes,
109-111 ; and of titles of prop-
erty, 150, 151, 244, 293-295; as
a canon of distributive justice,
252, 253; as justifying profits,
256, 257, 389; as justifying
higher than living wages, 386.
Income: distribution of national,
81-83.
Incomes : injustice of equal, 244 ;
progressive taxation of, 297-
302.
Increment taxes: 102-117.
Inefliciency: of leadership and la-
bour under Socialism, 158-168.
Inheritance: legal limitation of,
293-295; progressive taxation
of, 296-302.
Interest: nature of, 137-140;
rate of, 141-144; alleged in-
trinsic justifications of, 171-
186; attitude of Church
toward, 172-176; extrinsic ti-
tles of, 172; and the title of
productivity, 176-181; and the
title of service, 181, 182; and
the title of abstmence, 182-
186; social and presumptive
justifications of, 187-209;
necessity of, 191-199; civil
authorization, 201-204 ; how
justified, 204-209; a "work-
less" income, 210; possibility
of reducing rate, 211-213; dis-
tinguished from profits, 238,'
239; versus wages, 390-393-
Investor: the "innocent," 286, 287/
Ireland : reduction of rents in, 69-
71 ; compulsory sale of land
in, no; co-operation in, 217-
219.
Italy : co-operation in, 223.
Justice : dependence of on charity,
318; not found in prevailing-
rate theory, 325; nor in ex-
change-equivalence theories,
326-340; nor in productivity
theories, 340-355; and the
wage contract, 370-372; and
the legal minimum wage, 407.
Kautsky, Karl : 153.
King, W. I.: 82, 83, U2, 123, 155,
240, 310, 414.
438
INDEX
Labour: as a title to land, 24-29;
and to products, 45 ; and to
the entire product of industry,
145-152; 341-347; productiv-
ity of, 178, 179; inefficiency of
under Socialism, 162-167;
mediaeval measure of cost of,
336, 337; claims of different
groups of, 381-387; legislative
proposals for, 416, 417.
Labour unions : efficacy and limit-
ations of, 417-420; and legis-
lation, 420-423.
Labourer, the: claim of to rent,
71-73 ; right of to his product,
25, 26, 28, 43, 45, 149, 150, 179,
180; gains of from wage con-
tract, 327, 328; right of to a
living wage, 363-369, 373, 373 ;
versus the capitalist, 390-393,
396; versus the consumer,
393-398; and co-operative en-
terprise, 423-425.
Land: distribution of, 16, 17, 87-
89; large holdings of, 89, 90;
accessibility to, 91-95; the
leasing system, 95-97; public
ownership of, 98-100.
Landowner: right of to rent, 67-
73; his share of product, 80-
89.
Landownership : in history, 8-18;
two theories of, 8, 9; in pre-
agricultural conditions, 10-12;
origin of private, 12-14; prev-
alence and benefits of, 15-18;
arguments against private, 19-
47, by Socialists, 19-21, by
Henry George, 21-47; private,
the best system of tenure,
48-55; four elements of, 48;
a natural right, 55-56. See
Henry George, Occupancy,
Labour, Right, Compensation,
Confiscation, Defects, Rent.
Land System : defects of the exist-
ing, 74-93.
Land values: how created by the
community, 40-47 ; increase of.
83-86; taxation of, 117-130.
Langenstein : 335.
Lassalle, F. : 183.
Large estates: special taxation of,
130-132.
Leadership : industrial, under So-
cialism, 158-167.
Leasing system: 95-97.
Legislation: for labour, 120-123,
416.
Liberty: under Socialism, 168-170.
Liebknecht, W. : 152.
Life : right to, 57 ; true conception
of, 317.
Limitation of fortunes: 291-302;
directly, 292-295; by taxation,
296-302.
Livelihood, decent: 360-363; the
labourer's right to, 363-365;
the employer's, 366.
Living wage : the minimum of
wage justice, 356-380; three
fundamental principles, 358-
360; and a decent liveli-
hood, 360-363; right of la-
bourer to, 363-369; obligation
of employer to pay, 365-372;
for a family, 373-376; and
social welfare, 376, 377; au-
thorities for, 377, 378; money
measure of, 378-380; versus
other titles of reward, 381,
382, 386.
Loan capitalist: and the claims of
the labourer, 366, 367, 390, 391.
Loans : attitude of Church toward
interest on, 172^174; and pro-
ductive capital, 174, 175.
Maine, Sir Henry: 17.
Market value: and wage justice,
330-332, 370, 375.
Marriage: right to, 57, 58; and
reasonable life, 374.
Marx, Karl : 145-148, 342, 343, 374.
Materialism : in current concep-
tion of welfare, 314-318.
Meade, E. S. : 265, 266.
Menger, A.: 342.
INDEX
439
Middle Ages, doctrines of : on in-
terest, 172, 175, 176, :2oi; on
titles of gain, 175; on wage
justice, 332-336'
Minimum: of wage justice, 356-
380.
Minimum profits: question of
right to, 258-260.
Minimum wage : 353-355, 400-423 ;
in operation, 400-403; ethical
and political aspects of, 407,
408; economic aspect of, 408-
416; opinions of economists
on, 412-416, 420-423.
Modern : version of exchange-
equivalence, 336-340.
Monopoly : in relation to land, 75-
80; moral aspect of, 262-278;
excessive gains of, 263-265 ;
efficiency of, 265-267, 275-277 ;
discriminative underselling by,
267-270; favors to by rail-
roads, 262, 273; natural, 273-
275 ; suppression versus regu-
lation of, 275-278; by labour,
390, 397.
Natural monopolies : 273-275.
Natural rights : 57-59. See Rights.
Nearing, Scott: 83-85; 154, 210,
footnote.
Needs : as a canon of justice, 244,
246, 356-358; classification of,
308, 309; exaggerated con-
ception of, 314-318; a standard
of wage justice in Middle
Ages, 335, 336'
Occupancy, first : as a title to land,
21-24; as exemplified in in-
crement taxes, 109.
Occupation : question of right to
a livelihood from a present,
362, 363.
Original titles: See Occupancy,
Labour.
Ownership : titles of determined
by reasonable distribution, 150,
151.
Overcapitalization : 279-290. See
Stockwatering.
Perkins, G. W. : 276.
Personality: as basis of industrial
rights, 358-371, 374.
Pesch, H. : 215.
Pope Benedict XIV: 173.
Clement IV: 23.
Gregory the Great: 306.
Innocent XI: 316.
Leo XIII: 64-66, 306, 309, 377.
Sixtus V: 176.
Population: excessive increase of
urban, 86.
Possession: as a partial justifica-
tion of interest: 205, 206.
Possessors : obligation of to non-
possessors, 359, 360.
Presumption : as a partial justifica-
tion of interest, 2os ; and the
canon of productivity, 248.
Prevailing rate theory: of wage
^ justice, 323-325.
Prices: test of extortionate, 269,
270; legalized agreements fix-
ing, 277, 278; versus wages,
. 393-399.
Prmciples: three fundamental to
living wage doctrine, 358-360.
Product: distribution of national,
181-183. See Labour, Labour-
er, Right.
Production : of land values by the
community, 39-47; co-opera-
tion in, 222-228.
Productivity: as a title to the
product, 25, 26, 28, 43, 45, 149,
150, 179; as a title to interest,
172, 173, 176-181, 204, 205 ; of
labour and capital, 178-180;
as a canon of distribution,
246^249, 350, 351; as justify-
ing large profits, 2255-258, 262,
388, 389; as a title to wages,
341-355, 385; Clark's theory
of, 347-351 ; Carver's theory
of, 351-355.
Profits: nature of, 237-242; as
440
INDEX
compared with interest and
rent, 139, 140, 238, 239;
amount of, 239, 240 ; in a cor-
poration, 241, 242; in condi-
tions of competition, 254-261 ;
indefinitely large, 255-258 ;
minimum, 258-260 ; surplus
and excessive, 263-265; in
natural monopolies, 273, 274;
versus wages, 388-390.
"Progress and Poverty": 21, 22,
24, 25, 30, 34, 39, 51, 52.
Proudhon: 342.
Public honour: efficacy of under
Socialism : 165-167.
Pullman Company: 289.
Reform: versus revolution, 94.^
Rent: economic, 3-7; commercial,
5 ; how produced by society,
39-47; right of landowner to,
67-75; right of tenant and
labourer to, 69-73, 396; in-
crease and amount of, 80^-87;
distribution of, 87-89; in
United States, 122.
Rent charges : attitude of theolog-
ians toward, 175, 176.
" Res f ructificat domina " ; limita-
tions of this formula, 60, 61,
104, 105, I IT, 180, 345.
Revolution: versus reform, 94.
Riches: from land, 88, 89.
Right: of the individual to land,
30-39; of the community to
land values and rent, 39-47;
of the producer to his product,
see productivity; of private
landownership, 56-66; to take
rent, 67-73 ; of access to the
earth, 358-360; to a decent
livelihood, 360-363; to a liv-
ing wage, 363-369, ?,T2, 376.
Rights: three principal kinds of
natural, 57-59; of property, as
created by the State, 202.
Rodbertus, K. : 342.
Roman Congregations : on lawful-
ness of interest taking, 173,
174-
Saint-Simon: 342.
Sacrifice: principle of in taxation,
131, 297; as a title to interest,
185--188; as a title of reward,
383-385.
Savers : three kinds of, 183-185.
Scarcity: effect of on rewards of
productive agents, 80; as a
canon of distributive justice,
250, 251 ; as justifying very
large profits, and more than
a living wage, 255-258.
Schmoller: 253.
Schoolmen: doctrines of on wage
justice, 2>lZ-Z2)^.
Seligman, E. R. A.: loi, 296, 297.
Service: as a title to interest, 181,
182, 204, 205.
Shifting: of land taxes, 102, 103.
Sidgwick, H. : 329.
Single Tax: injustice of, 33-39,
100; proposals and defects of,
51, 54, 108.
Skelton, O. D.: 165.
Small, A. W. : 171.
Social benefits : of special taxes on
land, 127-130.
Socialisrn : as regards land, 49, 51 ;
not inevitable, 153 ; expropria-
tion of capitalists by, 154-158;
inefficiency of, 158-168 ; hostile
to individual liberty, 168-170;
not co-operation, 230, 231.
Socialists : on private landowner-
ship, 19-21 ; on interest, value,
and labour, 145-148; on the
collectivist State, 152, 153; on
morality of profits, 254; on
wage justice, 341-347; on the
principle of needs, 356.
Socialist party: of the United
States, on landownership, 51.
Spargo, John: 51.
Specific productivity: as a measure
of wage justice, 347-351-
INDEX
441
Speculation : effect of on land val-
ues, 92, 93, 103.
Spencer, Herbert: 23.
Standard Oil Company: 76, 263,
267.
State, the: should permit interest,
199-201 ; power of to create
property rights, 202^204; not
obliged to guarantee living
profits, 259; fixing of maxi-
mum prices by, 275-278; and
the "innocent" investor, 286,
287; and the prevention of
stockwatering, 289, 290; and
the limitation of fortunes, 291-
302; and payment of living
wages, 365 ; and minimum
wage, 407, 408, 420-423; and
other labour legislation, 416,
417.
Stockholders: claim of to surplus
gains, 257, 258, 262; as re-
lated to stockwatering, 2'](^
281, 285.
Stockwatering: moral aspect of,
279^-290; definition of, 280; in-
jurious effects of, 281-286;
and the " innocent " investor,
286, 287; magnitude of, 288,
289; prevention of, 289, 290.
Stores : co-operation in, 220-222.
Superfluous wealth : duty of dis-
tributing, 303-319; kinds of,
308, 309 ; a false conception
of, 314-316; true conception
of» 318, 319. See Wealth.
Supertax : on large landed estates,
130-132.
Supply and demand : as determin-
ing rent, 80; as determining
interest, 143, 144.
Taussig, F. W. : 198, 214, 282, 289,
290; on minimum wage, 412-
416.
Tawney, R. H. : 421.
Taxation: as a social instrument,
loi, 102; of increases in land
value, 102-117; faculty theory
of, 107, 108; progressive, as a
method of limiting fortunes,
296-302.
Taxes: shifting of to land, 117-
130; social benefits of, 127-130.
Tenant: claim of to rent, 69-71.
Theologians: on private landown-
ership, 62-64; on interest,
172-176, 202-204; on civil
creation of property rights,
202; on duty of benevolent
distribution, 308, 309.
Thompson, W. : 341.
Undertaker: See Business man.
United States: special land taxes
in, 119; co-operation in, 218,
263; minimum wage in, 401,
403-407.
United States Commissioner of
Corporations, reports of: on
Standard Oil Company, 76,
263, 267, 268, 272; on Steel
Corporation, 79, 89, 263, 267,
285 ; on water power owner-
ship, 79, 95; on the lumber
industry, 85, 89, 94, 132; on
American Tobacco Company,
263, 267, 288; on American
Sugar Refining Company, 267,
272, 289.
United States Shipbuilding Com-
pany: 288, 289.
United States Steel Corporation:
79, 89, 267, 285, 289.
Use: right, as a confirmatory jus-
tification of interest taking,
206-208.
Value: Marxian theory of, 145-
148, ZZZ, 343, 344; relation of
to wage justice, 330-340; and
to a living wage, 370, 375-
Van Hise, C. R.: 266, 2lbT, 277,
278, 288.
Wage justice: unacceptable theo-
ries of, 323-355; prevailing
rate theory, s^SS^S', ex-
442
INDEX
change equivalence theory, 326-
340; productivity theories, 341-
355 ; the minimum of, 35^38o ;
problem of complete, 381-
399; claims of different labour
groups, 381-387; wages versus
profits, 388-390; wages versus
interest, 390-393; wages ver-
sus prices, 393-399-
Wages: versus profits, 388-390;
" equitable minimum " of, 388 ;
versus interest, 390-393; ver-
sus prices, 393-399; methods
of increasing, 400-425; legal
minimum, 400-416; other leg-
islation for, 416, 417; labour
unions, 417-423; co-operative
enterprise, 423-425.
Wagner, A. : 342.
Watered stock: 279-290. See
Stockwatering.
Water power: in the United
States, 79, 95.
Wealth, superfluous : duty of dis-
tributing, 303-319; as regards
a part, 303-307 ; as regards the
whole, 308-314; a duty of
charity or of justice, 305-307;
the supply of capital and busi-
ness ability, 311-313; false
and true conceptions of, 314-
316.
Welfare: a false conception of,
314-316; true conception of,
316-318; social, demands a
living wage for all, zi^, Z77'
See Human welfare.
Whittaker, Sir Thomas : 10, 14, 28.
Wicker, G. R. : 350, 35 1-
Williams, A.: 232.
Wolman, L. : 417, 418.
Women : right of to a living wage,
i 37 Z-
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