The economics of socialism

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THE ECONOMICS OF SOCIALISM

THE ECONOMICS
OF SOCIALISM

By H. M. HYNDMAN

Author of
^Evolution oj Revolution,^' etc.

BOSTON

SMALL, MAYNARD & COMPANY

rUBLISHERS

Copyright, 1921

BY SMALL, MAYNARD & COMPANY

(Incorporated)

?\ *• • *. • i • '•

H3

CONTENTS

PAGE

vii

Preface

Chapter I. Methods of Production. . . 1

Chapter II. Value ,38

Chapter III. Surplus Value /71 /

Chapter IV. Circulation of Commodities . 108

Chapter V. Profit 142

Chapter VI. Rent 159

Chapter VII. Interest 189

Chapter VIII. Wages 200

Chapter IX. Industrial Crises .... 210

Chapter X. Objections to the Labor Theory

of Value 244

Chapter XI. The Final Futility of Final Utility 258

Chapter XII. Synthesis of Analysis . . . 278

. 9 B

PREFACE

There seem to be many students of political economy
who do not devote either the time or the attention which
are required for the complete mastery of Marx's great
works. They are, consequently, almost as inaccessible
to the majority of EngUsh readers to-day as they were in
the original German. The subject is hard. Marx's
style and method of exposition are by no means easy,
and, if I am to judge by the ridiculous misrepresenta-
tions of his theories which still pass current at our ancient
seats of learning, his thoughts themselves are difficult of
comprehension.

Karl Marx has now been dead nearly forty years. It is
safe to say that never has his influence been greater than
it is now. Nothing, indeed, is more remarkable than the
hopeless failm-e of his critics to substitute any scientific,
or even reasonable, explanation of the capitaHst system of
production for the masterly analysis contained in his
"Capital."

We are continually told, it is true, that "Marx is out
of date"; that "his whole system is a muddle of contradic-
tions"; that "if he were Hving to-day he would have to go
to school again in political economy," and so forth and
so on. Strange to say, however, whenever these con-
temptuous sciohsts are brought to the test, and they are
called upon to maintain their position, even anonymously,
they at once take refuge in discreet silence. In the same
way, Messrs. Marshall, Foxwell, Sidney Webb, Wicksteed,

viii PREFACE

Bernard Shaw and the whole bourgeois school of Jevo-
nians and Fabians, who claimed and claim to solve
all problems of political economy on the theory of final
utiHty, when my paper on "The Final Futility of Final
Utility," reprinted as Chapter XI, was sent round to
them as a challenge, declined to discuss Marx's theories
at all, even in a PoUtical Economy Club! This though
two or three of them had declared beforehand that Marx
and his presumptuous expositor would both be crushed
with ease.

It has been the same ever since, with aU sorts and con-
ditions of English academic "Professors." And endowed
Schools of PoUtical Economy, teachers and students ahke,
are to-day equally disinclined to debate publicly, in the
press or on the platform, the soundness or rottenness of
Marx's theories; though they continue theu- campaign of
detraction whenever they can safely do so — unopposed.

Marx, in short, still holds the field. Nearly aU the
original work of historic economy done during the past
fifty years has been based upon his analysis and gener-
alisations; while the course of economic and social events
has, in the main, followed the fines of his forecasts.

But Marx, fike other great thinkers, has suffered not
only from ignorant and prejudiced attacks, but from the
tendency of some of his bigoted worshippers to erect him
into a sort of infalHble Sociafist Pope, and universal ar-
biter of economic and social destiny. Forgetting, what
he himself never forgot, that, of necessity, he built upon
the work of others, who had preceded him, and here and
there had anticipated him — as j6Jm-JB€llef»4n the antag-
onism between money and conmiodities;JBiibeKLQwei]Las
to the indispensable necessity of waste under the capital-

PREFACE ix

ist system; Eourier (1825) as to industrial monopoly
being in the long run under capitalism the logical and
inevitable outcome of industrial competition ; and the
Chartists as to wage-slavery being only chattel-slavery
in disguise. Forgetting all this, certain fanatics, far
more Marxist than Marx ever was, have claimed for him
the position at one period claimed for, and accorded to,
Aristotle. They have also carried their fetish-worship
from the domain of thought into that of wholly uncritical
propaganda, and have cited "texts" from Marx's earher
writings and pamphlets and letters, as Christians quote
authoritatively from the Gospels and the Epistles of St.
Paul, about the practical affairs of every-day poHtical and
social life.

Now it is safe to say that, on matters of this kind, as
he showed even in respect to what was advisable in his
own country, Marx was not a good judge when he was
living. Nothing, therefore, could possibly be more fool-
ish than to cite his opinions as decisive on such questions
when thirty-eight years of rapid and critical development
have passed away since his death. It is surely enough
that he has given us, at the expense of a Hfe-time of re-
search and exposition, the key whereby we may solve
many of the economic and social problems of the past,
may comprehend the economic and social antagonisms of
the present, and may go forward, consciously and capably,
to the harmonisation of the great material difficulties and
class struggles which confront us to-day.

It is Marx's explanation of Mehrwerth, or Surplus
Valii£,_aa_tbfi_ .basis of modern competitive production for
profit,_iQllQwed by his able and illuminating differentia-
tion of the categories of capital, and the source of the

X PREFACE

average rate of profit, which have developed political
economy from an art into a science. His Theory of His-
toric Determinism, or the Material Basis of History, has
been pushed very much farther, to the exclusion of all
other considerations, than, certainly, would have been
approved by Marx himself. But, taken with such modi-
fications as he would probably have accepted, the theory
throws much light upon the growth of human society in
some of its aspects; although Lewis Morgan's plan of
stripping off each successive layer of inventions and dis-
coveries, through the long ages of human development,
and examining the social forms beneath, lends itself less
to general misapprehension.

Lately, however, we have had a most extraordinary
example of the danger of endeavouring to force pseudo-
Marxism upon a huge aggregation of peoples by a ruthless
despotism imposed from above. Bolshevism is a com-
bination of personal ambition and fanatical materialism,
applied under conditions which rendered any reahsation
of scientific Socialism absolutely impossible. Failure
was certain. When the leaders of this futile attempt
tried to anticipate the evolution of economic and social
forms by generations, through a kind of Collectivist Czar-
ism, they have been compelled to return to the much
lower stage of industrialism to which Russia had attained,
and to bow the knee, by capitahst concessions to for-
eigners and capitahst reorganisation at home, before that
very capitahst system which they desired to reorganise
into SociaHsm, before its development had fully begun.

This is precisely the irrational impatience and individ-
ual arrogance that Marx and his coadjutor Engels would
have denounced now, and as a matter of fact did denounce,

PREFACE xi

as impossible and anarchical, in their own time. The
scientific Marxists of Russia, headed by George Plech-
anoff and Paul Axelrod, foresaw and predicted what has
since occurred, and all the best-accredited exponents of
Marxist theories in Western Europe agreed with them.
Bolshevism is, in fact, a hideous travesty of Marxism and
runs directly counter to the entire teachings of scientific
pohtical economy and social evolution.

It is true that, in the last paragraphs of the Commu-
nist IManifesto, published in 1847-48, ground is given for
the contention that, at that period, its authors, Marx and
Engels, thought that great countries, far behind the most
advanced nations in economic status, might anticipate
evolution by force. But that I can aflBrm most positively
was in direct antagonism to their opinions at a later period.
Marx, in conversation with myself, stated clearly that, in
his judgment, a nation could only attain to the level of
economic and social development for wliich it had been
prepared by its internal social evolution. Engels put the
point still more strongly to my friend BeKort Bax. And
both of them, singly and together, wrote to the same
effect as they spoke. To confuse autocratic Bolshevism,
therefore, with Marxism, or with its pohtical, social and
co-operative expression in Social-Democracy, is only a
device of the ignorant or mahgnant.

It is natural, however, that pohtical economists who
uphold either the bourgeoisie or its bureaucracy, in any
shape, should be as bitterly hostile to ]\Iarx, who gave a
reasoned and scientific basis to economic studies, as their
predecessors were to the ablest of the Chartists, who put
the economic antagonism between Labour and Capital,
between wage-slaves and employers, between human

xii PREFACE

agents and the machinery which overmastered them, in
popular form. Both pointed to Capital as the social
enemy of the toilers: Marx proved why it must inevi-
tably continue to be so. His social labour theory of
value indicates for the capitaUst class its absorption into
the entire democratic co-operative community, as the
next stage in the upward and onward progress of the race.
It is not so much the social labom* value theory itself,
as the necessary sociological deductions from it, that
rouse the animosity of the capitahst "captains of indus-
try," their professors, and their various dependents and
hangers-on.

Hence the great efforts made to show that Marx was
at one and the same time a man of transcendent ability —
so much cannot be denied — and a muddle-headed thinker,
who actually took great pains to contradict in his third
volume of the "Capital" (produced and edited by Engels
after Marx's death) all his contentions in the first volume,
and even to attribute to him the inconceivable fatuity of
admitting that he did so. I have dealt with this curious
contradictory estimate of Marx's capacity in Chapter X.
It is difficult, however, to exaggerate the nonsense, soberly
and seriously penned, by economists of reputed abihty
and standing, in order to belittle the intelhgence of the
author whose arguments they are wholly unable to refute.
Thus, not long ago, an elaborate pamphlet, stated to be
written by one of the leading English Professors of Polit-
ical Economy, to which Sir Arthur Steel Maitland, M.P.,
contributed a Preface, was lent to me by Belfort Bax for
comment. It contained the usual Final FutiHty con-
tentions, in all their barrenness, and the whole thing was
scarcely worth glancing at, except as a further proof of

PREFACE xiii

the longevity of error, where ignorance and prejudice
seem to suit the taste of a dominant class. But one crit-
icism was so contemptible that I reproduce its purport,
in order to show the lengths to which the exquisite ran-
cour of the professorial mind will lead a writer who, I
daresay, in other matters, is quite a decent man.

This learned gentleman actually gave it as his con-
sidered opinion that, because Karl Marx was poor through-
out his Kfe, and was at times much troubled by money
worries, therefore he was unable to think clearly on the
subjects with which he undertook to deal. At this rate,
Spinoza was a fourth-rate philosopher, William Blake a
poet and artist of no account, and Cort, the originator of
the hot blast, an inventor of inferior capacity. A case
must indeed be in a bad way when one of its leading ad-
vocates resorts to seK-degrading imputations of this sort.

The main reasons why a few of Marx's honest and un-
prejudiced critics have not grasped his full meaning are
that they have not covered the whole area of his system-
atic investigation of value; that they have not followed up
the distinction between constant capital and variable
capital to its ultimate issue; that they have not worked
out his explanation of average rate of profit, as securing
the distribution among freely competing capitals of vary-
ing amounts of surplus value; that they confuse cost of
production with price of production; and that they forget
that, in applying abstract theories to the solution of
practical problems, allowances have always to be made
for friction, changing conditions, and the like.

Frequently, also, there is a determinate inclination to
regard the question of the apportionment of gross and
net profit, due to the unpaid labour of the wage-earners

xiv PREFACE

at large, among all the various capitals engaged in social
production and distribution of commodities, from the
point of view of the individual capitalist and the personal
(or company) appropriation of the surplus value, or gross
profit, produced by such unpaid labour of his own wage-
earners. Consequently, these writers fail to comprehend
how it comes about that capitals with greater amounts
of constant value in their composition obtain for their
commodities when produced and reaUsed, in money or
its equivalent, prices higher than their value, and capitals
with less constant capital in their composition obtain for
their commodities under the same conditions prices
lower than their value.

But, after all, the best evidence that Marx was not
both a genius and a noodle lies in the indisputable fact
that his theories have Hved down the criticism of bour-
geois economists. When a Professor of PoUtical Econ-
omy of the highest reputation. Prof. A. A. Issaieff of the
University of St. Petersburg, gave up his Chair rather
than go on teaching what was antagonistic to IMarx's
theories; when, practically, the whole International So-
cialist Party accepts his views and acts upon his eco-
nomic principles; when we bear in mind that all this recog-
nition is due to no sentimental attraction, still less to any
sort of rehgious enthusiasm, but is wholly and solely de-
pendent upon the force of pure reason — I think nothing
more need be said as to Marx's influence being a living
power in world-wide sociology.

In the present volume I make a further endeavour to
simplify, for ordinary readers, the main points of Marx's
teaching, which I have been propagating myself, in Great
Britain, for the past forty yeai's. My personal acquain-

PREFACE XV

tance with Marx — broken off by some amusing if viru-
lent attacks upon me, by himself and Engels, in the well-
known "Letters to Sorge," and then happily renewed —
enabled me to have the advantage of direct explanation
by him of some of the more difficult passages in the
"Capital." Few are now Hving who enjoyed a similar
privilege.

The book is founded upon a series of Lectures, delivered
so long ago as 1894, to the members and friends of the
Social-Democratic Federation, and afterwards printed
and circulated. They have long been out of print. The
whole has now been carefully revised, largely rewritten
and considerably expanded.

Throughout I have not confined myseK to a bold ex-
position of Marx's views. Wherever it has seemed to
me desirable, for the better understanding of the subject,
I have made use of quotations and elucidations from other
writers upon political economy. I have, also, shown how
the great war has hastened forward powerful combinations
of the capitahsts, on the one side, and of the wage-earners,
on the other, with a rapidity not expected in Marx's day.
The class struggle has thus been intensified throughout
the world, in the pohtical as well as in the industrial
field. Direct action, in the shape of mass strikes and gen-
eral strikes, has been vigorously advocated and adopted
in more than one country; while in Italy seizm'e of large
works by the wage-earners was, though unsuccessful,
clear evidence of revolt against the entire wage system
and production for profit. In order to meet this growing
unrest, peacefully and politically, a thorough compre-
hension of the general economic and social development
is indispensable.

xvi PREFACE

Some repetitions of the basic truths of the social-
labour theory of value, as well as of the important cate-
gories of capital, as defined by Marx, will be found in the
following pages. I have considered this advisable, re-
gard being had to the strange misapprehensions which
are current as to the real purport of Marx's contentions
and their bearing upon the economic and social problems
of our day.

I hope, therefore, in the critical period, social and
political, upon which we have obviously entered, the
volume wiU be of service to students of political economy
and especially to members of the working-class. The
resumption of the name and the continuance of the work
of the old Social-Democratic Federation, by many
active members of that pioneer organisation of Socialist
propaganda in Great Britain, remind me of the enthu-
siasm with which we all worked for the cause from 1880-
81 onwards, and I think I can discern signs that similar
activity and self-sacrificing vigour will be displayed in
the future as in the past.

H. M. H.

13 Weli. Walk, Hampstead.

THE ECONOMICS OF SOCIALISM

CHAPTER I

METHODS OP PRODDCTION

Thanks to the work which has already been done, no-
body now talks as if our present methods of producing
wealth had been permanent ever since private property
broke up the old communal forms. I remember when the
majority even of educated people spoke as if the system of
production under which we are now living — that is,
production for profit and exchange — had lasted through
all the centuries, and they went back to the history of
Greece and Eome, of Carthage and of Egypt, and en-
deavoured to prove that there were prevailing in those
ancient empires the very same forms and ideas which we
have in London and in England at the beginning of the
Twentieth Century. This fallacious method, I am glad to
say, is now quite exploded. The historical school has so
completely swept away the old empirical teaching that now-
adays it is no longer necessary to insist upon the truth
that economic conditions have changed so greatly as to
render it impossible to apply the ideas and expressions of
one period of production to those of another.

When once we recognise that such phrases as "History
invariably repeats itself," " What has been always will be,"
" It is contrary to human nature," " Nobody would work
unless he saw some profit in it " are the commonplaces
of the ignorant, a closer investigation inevitably follows.

Nothing is more dilEcult than to read oneself fully into
a past system of society and to understand its industrial

1

2 THE ECONOMICS OF SOCIALISM

and social relations. It is hard enough to comprehend
societies in different stages of development which still
exist in our own day. But when we try to transport our-
selves in imagination into the minds of men of an entirely
different race at distant periods, such comprehension be-
comes doubly hard. Happily, many of these social and
industrial forms can still be seen around us, though, in
most cases, their higher developments have faded. It is
true, in a wide iense^ that we can trace the industrial and
social history of man on our planet from the aborigines of
Australia, the bushmen of South Africa, the natives of
Patagonia, and the hillmen of India, up to the highest
development of capitalist civilization in Great Britain or the
United States of America. All these forms of society can
be surveyed at the present time, and have been described
by men who have devoted themselves to their investiga-
tion. If, therefore, we wish to understand a little as to
what men were and how they lived in past ages, we can see
something like them in these various communities, whose
social development is so much behind our own.

It is now a commonplace of our knowledge that man-
kind, in the earlier stages of its existence, lived under
communism. All writers of any note on the early history
of man are agreed upon this. Such men as Sir John
Lubbock, Mr. Taylor, Mr. Herbert Spencer, Lewis H.
Morgan, Von Maurer, Bachofen and others express no
doubt whatever that the earliest form of society was a
Tude communism. Being now at the point when, after
the successive periods of development under private prop-
erty, we are on the eve of a great transformation back to
our starting-place on an almost infinitely higher plane,
this early communism has a special interest for us. If we
look through the development of nature we shall find that

METHODS OF PKODUCTION 3

the same law apparently governs all organic and inorganic
growths. In the case of an ear of corn, for instance.
There is the seed which you sow : this is split up or differ-
entiated in the earth, and then it reappears in the ear
again, but on a higher plane.

In the celestial sphere we can trace the operation of the
same law from the nebulae to the various galaxies back to
their point of origin again. In the organic world and
animal life we detect a similar process going on. These
and similar illustrations seem to show that the same law
pervades all nature. It is a reasonable hj^othesis, which
is now being verified under our eyes, that this law likewise
applies to the development of man in society. If this is so,
then the last development of human society will be nearer
in form to its original starting-point than to any of the
intermediate stages. As we began in the early history of
our race with narrow, tribal communism, provided with
and based upon small means of production; so we are now
proceeding to world-wide communism on an immensely
higher plane; in accordance with the greater powers over
nature which we possess, as the result of greater knowledge
and closer intercommunication.

Manifestly, we are not now at the beginning, or even
at the middle, of the capitalist period of production. All
the signs which betoken the close of a cycle may be de-
tected at the present time. Admitting this, then the long
process of splitting up from the earlier communism is at
an end, and the recombination in the shape of the higher
and final communism is at hand. Those who try to draw
a distinction between evolution and revolution, or speak of
evolutionary and revolutionary Socialism and Socialists,
misunderstand the entire theory of sociological develop-
ment, as formulated by the whole scientific Socialist school.

4 THE ECONOMICS OF SOCIALISM

'Eevolution simply means that the evolution of society has
reached the point where a complete transformation, both
external and internal, has become inevitable.

No man and no body of men can make such a revolution
before the time is ripe for it; though, as men become
conscious, instead of unconscious, agents in the develop-
ment of the society in which they live and of which they
form a part, that they may themselves help to bring about
this revolution peaceably instead of by violence. A suc-
cessful revolution, whether effected in the one way or the
other, merely gives legal expression and sanction to the new
forms which, for the most part, unobserved or disregarded,
have developed in the womb of the old society. Force
may be used at the end of the period as during the incuba-
tion and full '■ growth. It is true, as Marx said, that
" force is the midwife of progress delivering the old society
pregnant with the new " ; but, on the other hand, force is
also the abortionist of reaction, doing its utmost to strangle
the new society in the womb of the old. Force itself, on
either side, is merely a detail in that inevitable growth,
which none can very rapidly advance, or very seriously
hinder.

If, then, we have at last arrived at the end of the long
series of centuries in which private property has been the
dominating factor in economics and society, the early
communal forms have, I repeat, a special interest for us.
Not that we shall return to those precise social conditions,
or that our descendants will necessarily resemble the men
and women who lived under them; but because that form
of society is, in its essentials, nearer to the one to which
we are approaching than any of the societies based upon
private property could possibly be. Men have lived under
communism, as nomads, as savages, as village tribes, as

METHODS OF PEODUCTION 5

advanced barbarians, vastly longer than they have lived
under all the forms of private property taken together.
The history of man on this planet has been in the main
the history of communism. Moreover, mankind pro-
gressed from the lowest form of savagery up to the very
frontiers of civilisation under this social arrangement; in
which the ownership of the means of making wealth was
in the hands of the gens or the tribe, and the distribu-
tion was in accordance with the needs of the various
members of the community. Though each of these social
units was, in the earlier stages, at war with every other
similar unit harmony reigned within the little body itself.
Kinship, not property or locality, was the bond of con-
nection.

All the great inventions which lie at the foundation of
our modern arts and mechanical appliances to-day were
first used under Communism. Those who contend that
inventions must fade under Socialism, and that no further
progress would then be possible, overlook, or are ignorant
of, the whole of the early history of mankind. If there
are any inventions in the entire range of the human appli-
cation of the power of nature to the purposes of the race
which excel others in ingenuity, surely the wheel, the pot-
ter's wheel, and the bow and arrow deserve the first place.
Yet all of these were discovered under Communism. So
also were the boat, the sail, the rudder, the oar, the stencil
plate, fire, weaving, rude printing, building in wood and
clay, decoration, the cultivation of cereals, the taming
of animals, and the smelting of metals. It is upon this
foundation laid by our ancestors of long ago that the
whole fabric of our modern industry is built up. But for
the work done by these primitive Communists, but for the
efforts of the men of genius who devoted their thought to

6 THE ECONOMICS OF SOCIALISM

the inventions and discoveries by which we profit, we of
to-day should be living in skins and depending on fish and
our fellow-man for the greater portion of our food.

" The developments of the power of human production,
whether in agriculture or in manufacture, are necessarily
due to a long series of circumstances failing any one of
which the improvement could not have been made. The
introduction in agriculture of the turnip, of the potato, of
artificial grasses, of rotation of crops ; the vast improvement
in the breed of domestic animals; which has enabled meat
and beasts of burden to be produced of so much better
quality than heretofore; the properties of manures and
their right application; the preservation of fish by salting
and curing, which added so enormously to our food supply,
extending the cod, ling and herring fisheries to the propor-
tions of great industries : all these inventions are due to the
combined observation and steady industry not of one or
two but of thousands or millions of our race, though some
lucky individuals may be honoured for the last crowning bit
of work. Division of labour again, whether adapted to
special advantage of soil and climate in particular regions
— as wool-growing in Australia, cotton-growing in Louisi-
ana, hunting and forestry in the Tyrol, &c. — or devoted
to the abridgment of toil in workshops and factories ; this,
one of the most powerful engines for the domination of
nature and the increase of produce, arises from the long,
general, never-ceasing progress of human society, and is in
nowise to be laid to the account of one or more men of
individual genius.

" Precisely the same with shipping and navigation.
No man knows who invented the mariner's compass, or
who first hollowed out a canoe from a log. The power
to observe accurately the sun, moon, and planets so as to

METHODS OF PEODUCTION 7

fix a vessel's actual position when far out of sight of land,
enabling long voyages to be safely made; the marvellous
improvements in shipbuilding, which shortened passages by
sailing vessels and vastly reduced freights even before
steam gave an independent force to the carrier — each
and all were due to small advances which together con-
tributed to the general movement of mankind.

" So with the great industrial machines simple or com-
plicated. Who can fix upon the actual discoverers of the
application of wool or flax, silk or cotton, hemp or jute,
madder or indigo to human use or adornment or luxury?
Their names are legion, doubtless; but all have been swept
away as time has slowly swept its effacing figure over the
records of the past. With machines the same is true, from
the simple wheel, the pump, the forge, the stencil plate,
the potter's wheel onwards to printing, steam, electricity
and the great machine-making machines. Each owes all
to the others. The forgotten inventors live for ever in
the usefulness of the work they have done and the prog-
ress they have striven for,

" We of to-day may associate mythical or noble names
with the advances we specially remember; but too often
even then the real worker or discoverer, if such there were,
remains unknown, and an invention beautiful but useful
in one age or country can be applied only in a remote
generation, or in a distant land. Mankind hangs together
from generation to generation ; easy labour is but inherited
skill; great discoveries and inventions are worked up to
by the efforts of many myriads ere the goal is reached.
Those, therefore, who hold that the individual is all, wlio
contend that these organisers or that class have the right
to take from their fellows in return for the services they
themselves have rendered, do but show their imorance of

8 THE ECONOMICS OF SOCIALISM

the whole unbroken history of human progress and social
development." ^

The bed-rock inventions of humanity, then, those inven-
tions on which the whole edifice of modern capitalist in-
dustrialism is based, were made under Communism.
Various forms of this primitive Communism can be studied
to-day. There is, for example, the Communism of the
Australian aborigines who roam without any fixed habitat,
or live a precarious life in the roughest and rudest way,
and yet possess a most remarkable weapon in the boomer-
ang, and a social system as strange to us as it is effective
for its immediate purpose. The Communism of these, to
our ideas miserable, nomads is the lowest social life with
which we are acquainted, as their knowledge of and com-
mand over nature is at the lowest point. Nevertheless,
their existence is not unhappy, and white men who have
lived among them testify to their enjojrment of life.

The Eed Indians, many of the tribes of South Africa,
the New Zealanders and others, show what magnificent
specimens of mankind are developed under a rude Com-
munism; while the village Indians in the pueblos of New
Mexico and Arizona, a quiet, peaceful folk, very different
from such terrible savages as the Iroquois, the Apaches
or the Sioux, live a happy and contented life within the
walls of their communal dwellings. Their power of pro-
duction is very small indeed compared to ours. Yet they
till their fields skilfully, have common ground and garden
land in many cases, divide their food communally after
it is cooked, and make provision for bad times by storage
of grain. Their power of production of such food, and

1 " The Historical Basis of Socialism " by H. M. Hyndman,
p. 90 (1883). Oddly enoufjh this passage was quoted by Mr.
Samuel Smiles in one of his books!

METHODS OF PRODUCTION 9

of the ordinar}' clothing and other necessaries of life, is
sufficient managed communally to sustain them in moder-
ate comfort.

As to the village communities of India, with their semi-
communal arrangements, every historian of the country
bears witness to the simple, happy life of the inhabitants,
where the old institutions are kept up, and the villagers
are free from oppression above or raids from without.
Here, again, though the power to produce wealth is smaU,
the condition of the villagers in all the needs of their simple
life is far in advance of large portions of our city popu-
lations. They carry out their necessary work without the
intervention of capital, and the usurer, though not unknown
in the ancient native society, never obtained dominance
in the country districts until our capitalist rule gave him
the legal machinery to oppress with.

In Polynesia, a quarter of a century or so ago, the
early communal system might be seen at work, as in New
Zealand at an earlier date, almost untouched by European
influence. Here was evidence enough as to the manner
in which works of considerable magnitude could be carried
out not only without capital but without any idea of ex-
change, still less of profit. The great double canoe, Ndrua,
of the Fiji islanders is, in its way, quite as remarkable a
product of human skill, regard being had to the tools
employed, as the huge mail steamers, the Lucania, Cam-
pania, Majestic, Teutonic, or any of the great vessels cross-
ing the Atlantic or trading to India or Australia. There
is not a single nail in the canoe, the whole being held
together by cocoanut-fibre in the form of sinnett. Yet
every plank fits close into its neighbour, and the whole
vessel is quite water-tight. The deck itself is so skilfully
adzed with a flint adze that a European carpenter could not

10 THE ECONOMICS OF SOCIALISM

touch it with his plane. Such a vessel, with a house in the
middle covering the two canoes, will carry nearly two hun-
dred men and will sail from eight to ten knots on a wind.
A canoe of this description is constructed by the continu-
ous work of skilled artificers extending perhaps over a
period of two years; and while they are engaged upon it
they are fed and clothed by the labours of skilled agricul-
turists and cloth-makers, male and female, and provided
with fish and turtle by equally skilled fisher-folk. The
canoe when finished belongs to the tribe.

Their irrigation works and great huts are marvels of in-
genuity. Yet none are overworked, none go short of food
while others have plenty, and certainly the people are ex-
ceedingly happy, in spite of certain hideous rites and cus-
toms. It is impossible in such social conditions for a few
to be lazy and fat and others workless and starving simply
because the power to produce wealth is too great. If one
starved through famine all starved. Division of labour in
the tribe was amicably and conveniently arranged, and
provision was made against famine in the majority of
cases by storage, or by tabooing certain groves of fruit-
bearing trees at periods of threatened dearth. In this re-
spect great foresight was shown, and there is no reason
for believing that the methods of wealth-production were
wholly stationary. Small as their means of making wealth
were, the natives controlled them, and were not over-
mastered by them.

Where the germs of exchange could be traced, as in col-
lective gifts by one tribal chief to another; or in the early
individual transfer to be seen in the shape of the rude
form of barter described in " Old Xew Zealand " ; or the
similar plan of " begging " articles which had become
private property, as in parts of Polynesia; there it may

METHODS OF PRODUCTION 11

be said the development towards individual ownership had
already begun. But the change in this direction, so far
as we can judge, was very slow. Man in society seems
to have resisted as long as possible that advance to pro-
duction for individual, instead of communal, use which
nevertheless was inevitable in the onward and upward
course of the development of the race. Personal property
in weapons, in skins, in decorations, in mats did not at
all involve the economic predominance of class or caste,
or the break-up of the communal system.

But slavery in any shape necessarily puts an end to such
Communism. It seems not improbable that slavery was
one of the earliest forms of property, though in the first
instance it is also almost certain that the slaves belonged
to the whole tribe rather than to any individual members
of it, and it is further a probability amounting to cer-
tainty that slavery itself was due to a direct economic
cause.

When, for example, a powerful tribe had reached the
point at which captives, either by serving as shepherds
or in any other way, could produce a good deal more than
their keep, it became more advantageous to enslave them
than to cook and eat them at once, or to butcher them for
the mere fun of the thing. Consequently slavery was a
distinct social advance and, monstrous as chattel slavery
may seem to the dominant class of to-day, who are in con-
trol of a more hypocritical system of private property in
man, it was a necessary step in the long series of changes.
Chattel slavery was the economic basis of all the great
civilisations and of all the so-called democracies of an-
tiquity. But the history of all those civilisations shows
how hard the old gentile and communal forms died.

With slavery tlie accumulation of wealth in private hands

12 THE ECONOMICS OF SOCIALISM

grew apace. Exchange between individuals replaced col-
lective exchange. Their private property as individuals
became a series of products for the market. Herein is the
secret of the whole transformation which followed. As
soon as the producers, instead of using their own product
and enjoying it with their fellows, ceased to control it
directly, but let it go out of their own hands for exchange
against other products, they lost all power over it. They
could no longer either determine or even know what should
become of it. The product which escaped from them in
this way might even be turned, and as a matter of fact
actually was turned, against the producers themselves and
became, in spite of all they could do, the means of robbery
and oppression.

With the production of goods for exchange came the
tillage of the soil by individuals for their own gain and
enrichment, and shortly thereafter individual ownership
of land. Common land might well be tilled for individual
advantage before actual private ownership of land became
the rule, and that this was so appears from many evidences.
But with the development of individual production of goods
for exchange money also arose, that universal commodity
against which all the others could be exchanged. Here,
however, was another new economic and social power which
men invented without the slightest idea of the enormous
control it would obtain over themselves, whether they liked
it or not. Incapable as they were of comprehending its
full social significance, they soon learned by bitter experi-
ence that money represented the sole universal all-pervad-
ing power before whose throne society must inevitably
prostrate itself. At all the great centres of ancient civili-
sation this money-power made its appearance in its most
cruel and brutal shape, without the slightest reference

METHODS OF PEODUCTION 13

to the desires or feelings of those who were dominated by it.

Slavery, merely as slavery, was not incompatible with
the maintenance of a communistic or semi-communistic
tribal system above the slaves. Examples of this form of
society can be found at the present time. The slaves were
an inferior portion of the tribe, or gens, or family, but the
old kinship and the old communism still reigned. But no
sooner did exchange and money begin to work their way
than the break-douTi commenced. Private property, ac-
cumulation of wealth used to acquire more wealth, such was
the inevitable progression. Division of labour into various
branches, crystallised in many cases into rigid castes —
agriculture, handicraft, trade, shipping, &c. — soon fol-
lowed. Money and trade steadily forced a path for them-
selves through the ancient conservative arrangements.

But, it was a comparatively slow process in every case.
For many centuries the individual production which gradu-
ally supplanted primitive and developed Communism, aided
by a number of slaves who were reckoned a portion of the
family, strove hard to hold its own against organised slave
production on a large scale, with its more complete division
of labour and rapidly-accumulated wealth.

The history of the development is precisely similar in
each case. A settlement of tribes gathers round a common
centre, bound together within themselves not by local as-
sociation, still less by ownership of the land, but by those
close ties of gentile kinship, the key of which Morgan
found, and applied for us to the solution of such early com-
binations. By slow degrees, as such settlements became
powerful and afforded security against the general state of
war without, numerous other folk standing quite outside
the original tribe arrangements gathered round the settle-
ments.

14 THE ECONOMICS OF SOCIALISM

Simultaneously private property displaced Communism.
Wealth, trade and commerce grew apace. As the popula-
tion increased, which had no gentile ties with the original
settlers, these " old families " formed an aristocracy at the
top, and classes began to be formed. The conflicting mo-
tives of kinship and property were in perpetual antagonism.
The revolutionary idea as expressed in property and local
habitation inevitably won. Eights based on property quali-
fication and such local habitation, became sooner or later
supreme over the ancient gentile relations. Individual
labour on the land and private property in the products
and eventually, as already said, in the land itself, became
the dominant form of production. Slavery spread owing
to conflicts with neighbouring tribes. As conquests ex-
tended, or federations were formed, slavery became more
powerful as a factor of production. Still more conquests
extended the system : exchange and money had the greatest
influence, and the class separation became definite and ac-
knowledged ; though slave production and free labour went
on side by side.

Then arose, likewise in every case and from the same
cause, the tremendous question, above the mere arrange-
ments of production — the question of debtors and credit-
ors. Private owners of land and property who were com-
pelled by temporary needs of any kind to borrow money,
the universal equivalent, found themselves at the mercy
of their creditors. These creditors themselves were the
direct ancestors of the modern money-lords and capitalists.
They were merchants and middle-men, for the most part,
who accumulated money by standing between the producer
and consumer, and fleecing both. Having, as a rule, no
direct connection with the old society, out of which the
new revolutionary forms of which they were the human

METHODS OF PEODUCTION 15

exponents were evolving, they had no mercy whatever upon
those who became indebted to them.

Ancient history is full of the cruelties wrought upon un-
fortunate debtors by creditors of old times. A man who
could not pay was practically, himself, wife and children,
at the disposal of the person to whom he was indebted.
Humanity never entered into the question at all. A bitter
and bloody class struggle followed. Invariably the State
or community at large, chaotic from our point of view as
its relations then were, was compelled to interfere on the
side of the indebted classes in order to prevent continuous
bloodshed and eventual disruption.

The money-lending and usury of ancient times were a
trading upon the necessities of the borrowers, and the whole
system was so manifestly an ethical wrong, running quite
counter to the kinship and communal ties from which so-
ciety was but just breaking loose, that it was denounced
throughout antiquity not only by the pagan moralists but
even at a much later date by the Fathers of the early
Christian Church.

The cruelty of economic progress, however, is as terrible
as the cruelty of nature. It takes no acount of the feelings,
or passions, or desires of mankind. It entirely disregards
their morals and their souls. There is no place for re-
ligion, natural or supernatural, in economics. Dominate
or be damned. Be master or be slave. Your sentiment
and your soul are equally dependent on your belly. If the
latter be not filled the former cannot function. Only when
the material basis of individual and social life is fully
assured does the higher development of human intelligence
and character become possible. Slavery was an inevitable
stage in the upward path of humanity; and that debtors
should be subservient to creditors was likewise a natural

16 THE ECONOMICS OF SOCIALISM

result of what had gone before and a preparation for that
which was to come after.

The great majority were wholly unconscious, then as ever
since, of what was going on around them. Exchange and
money, private production for a market and slave produc-
tion for luxury slowly swept away all that remained of the
old gentile and communal society. The pressure of wealth
in every instance became greater and greater until the
slave system of cultivation was finally predominant and
slave production became practically universal, almost crush-
ing out the free workers as an economic force. The upper
stage of barbarism gave division of labour between agricul-
ture and manufacture : the first stage of civilisation con-
firmed this division and pushed it much further. Slaves
who toiled on the land, in the cities, or in the mines, were
worked in larger or smaller masses according to the wealth
of their owners; and were treated cruelly or kindly ac-
cording to the general social relations or the character of
their immediate masters. But whether treated compara-
tively well, as they were by the Greeks, or with cruelty, as
they were by the Romans and Carthaginians; whether
scourged and killed by Cato, op dealt with considerately
by Crassus, they remained as much chattels, for the most
part, as the horses- and oxen around them.

Even those slaves who held superior positions could not
rely upon being better treated, and it is interesting to
note, in passing, that the slave " captain of industry," the
vilUcus, received a less ration than those whose labour
he organised, on the express ground that such managerial
work was far less exhausting than manual labour. All that
the slaves produced, over and above their keep, belonged to
their masters, and it was of course by no means only the
rough and uneducated who were in this position of sub-

METHODS OF PEODUCTION It

servience. Plato, the great idealist philosopher of an-
tiquity, was sold as a slave, and could only be released
at a heavy cost. Aesop, the famous fabulist, was also a
slave, and many other men of ability were born or were
forced into the like condition. Highly-trained slaves con-
stituted the most important part of the wealth of the great
Roman land and slave owner, and next to them in impor-
tance came his land, his mines, &c. Writers, copyists,
artists, decorators, gold and silver smiths, skilled crafts-
men of every kind; these are enumerated as more valuable
than all his other property put together.

The wealth which was piled up l^y these huge armies of
slaves, skilled and unskilled, educated and uneducated, was
enormous: relatively greater, probably, in the case of the
Romans, than anything known in the history of the human
race until the Vanderbilts, the Jay Goulds, the Rockefellers
and Astors laid hands upon tens of millions sterling on the
other side of the Atlantic. That Lepidus should have been
able to maintain a large army in the field at his own cost;
that Hannibal could support himself and his armies in Italy
for seventeen years, largely from the slave-produced silver
of his mines in Spain — are as remarkable examples of in-
dustrial wealth as the fact that Gaesar could find money-
lenders prepared to advance him at least £3,000,000 on the
chance that he would make his way to the chiefdom of the
Roman Republic. And these instances of huge fortunes
are drawn from the period anterior to the completest de-
velopment of the system.

Obviously, the chattel-slave system of production, though
much nearer to our present wage-slave system of produc-
tion than either Feudalism or Communism, was very differ-
ent from it. Where this method of production prevailed
the producers as well as their product equally belonged to

18 THE ECONOMICS OF SOCIALISM

the master. The one could as well be sold by him as the
other. Much, or even most, of the produce of his slaves
might go into exchange and be sold for money, but the
great land and slave-owner of Greece or Eome or Carthage,
or Asia Minor was assuredly not a capitalist in our modern
sense. His wealth was used for his own luxury or to
augment his fame. He did not enter upon production
primarily to build up the means of creating more wealth.
The whole social relations were different: the methods used
and the end aimed at were quite dissimilar.

And yet the effects produced were in many respects super-
ficially the same. From the side of the slaves themselves,
for example. The slaves of antiquity took their position
for granted. It was in the nature of things and inevitable,
just as our wage-slaves of Europe and America to-day for
the most part regard their economic subservience as un-
changeable. They could not imagine a society existing
without slaves. And the ablest philosophers were of much
the same opinion. Aristotle himself, the ablest and most
profound thinker of all antiquity, could not see how it was
possible to dispense with this basic institution, " except
perhaps by the aid of machines " ; and that he should have
seen even so far is a testimony the more to his extraordinary
ability. Yet the numbers of the slaves were practically
overwhelming.

In Athens there were 90,000 free citizens, men, women
and children included, as against 365,000 slaves and 45,000
slave police. Corinth, Egina, Sparta show a similar dis-
proportion. In Eome the disparity was still greater. Yet,
though the whole of the governing classes, in spite of their
intestine feuds, more than once displayed considerable fear
as to what the slaves might do, the risings against the
economic tendency of the time, when they did occur, were

METHODS OF PRODUCTION 19

by no means so formidable as from a superficial view might
liave been expected. Even the hideous cruelty with which
they were treated in the mines of Asia Minor, Greece and
Spain rarely drove them to revolt; though, when they did
rise, their insurrections were suppressed with a bloody
brutality never excelled even by the dominant classes of
modern times. Their overwhelming numbers in the cities
would have given them at a later date a far better chance
of success, had they been able to combine in one fierce on-
slaught on their masters.

The whole history of the great slave period shows indeed
how impossible it is to bring about a change in class re-
lations until the form of production is ripe for transforma-
tion, and men's minds, unconsciously to themselves, take
the course which is prescribed for them by the historic
development of social and economic forms.

As slave-production grew and wealth expanded honest
labour became shameful. A Cincinnatus commanding vic-
torious armies in the field and then returning to his farm
and homely domestic life would have been quite impossible
under the Antonines. Any successful general who so de-
graded himself would have been regarded by all mankind
as a drivelling old dotard. The view of labour was much
the same under the Roman Empire as it is really in London
to-day — a toilsome and degrading expenditure of time.

As slave production also crushed by its competition the
independent efforts of free men, a class was developed an-
swering to the free whites of the belated chattel slavery
in the Southern States of America and the West India
Islands. These people in all the great cities, but more
particularly in Rome, had the good luck to possess political
power which could not be taken from them. As a result
they were flattered and fed by the governing classes, who

20 THE ECONOMICS OF SOCIALISM

effected a cheap insurance of their economic and social
predominance by liberal allowances of food and a huge
expenditure on shows. But the seamy side of slave pro-
duction was not long in turning itself to the community.
This exhausting method of cultivation practically ruined
Italy at a comparatively early period; Rome became entirely
dependent upon foreign sources for its food supply; and
the inhabitants, rich and poor alike, had many a bad quar-
ter of an hour when the arrival of the grain ships from
Egypt or the Euxine was unduly delayed by bad weather.

From that time forward Eome, with its slave production
and turbulent population, became almost as complete a
world-market for wealth and articles of luxury of every
description, almost as huge a vampire sucking riches by
tribute from all parts of the earth, as London or England
herself is to-day.

And what an Empire, what a civilisation, what wealth,
what luxury, what excess was thus due to the generations
of human cattle who toiled hopelessly on, producing wealth
for others and bare subsistence for themselves ! There is
nothing more imposing in history. Its roads, which still
exist, built by the free labour of the legionaries, extending
unbroken from one end of Europe to the other ; its adminis-
tration so complete and all-pervading that there was no
escape from its justice or its vengeance ; its peace within
its borders so profound that even the bloody struggles of
rival Emperors for supreme power scarcely troubled the
calm of the surface; its innumerable public works so solid
and yet so splendid that the ablest of modern engineers
gaze with admiration on the work of the greatest builders
that the world ever saw; its military system so complete
in every part that victory seemed reduced to a certainty,
and defeat became merely one of those casual accidents

METHODS OF PEODUCTION 21

which, as a matter of business, had at once to be repaired.

Stretching as it did to the uttermost parts of the earth,
having full mastery here in Britain for over 400 years,
while it had equal hold on the remotest confines of Asia
Minor, controlled by men who in their trained capacity
for domination in all forms have never seen their equals
on the planet — this extraordinary organisation seemed
constructed to last for ever. To a Eoman of the great
days of the Empire it might well have appeared, as he
looked round on the magnificent cities so connected and
so ruled, that such a structure, like their roads, their
aqueducts and their bridges, could never perish nor decay.
All modern empires seem mushrooms in comparison with
this. Slow and majestic in its growth: slow and majestic
in its decay.

The mills of economics, however, like the mills of God,
grind slowly but they grind exceeding small. The slave
culture and manufacture which looked to the ablest minds
as if it must endure for ever and which never appeared more
secure than immediately before its final collapse — that
system, like others, came to its end from economic causes
at work from the first. Luxury and debauchery, un-
equalled perhaps before or since, reigned above: the direst
and most hopeless poverty festered below. The provinces
were bled to death by excessive tribute; the slaves were
driven to death by excessive overwork: free farmers were
ruined by usurers and robbers. Mercenaries of the greedi-
est kind took the place of the old independent Eoman
legionaries; and pimps and eunuchs were the cherished
philosophers of the rich. Yet none could recognise the
rapid approach of the catastrophe which now seems to all
to have been so clearly impending.

Finally came the overthrow of the whole edifice, at any

2% THE ECONOMICS OF SOCIALISM

rate in Western Europe. The great barbarians who in-
vaded the decrepit Empire found a very different state of
things from that which their ancestors had encountered
a few centuries before. Their arrival but hastened on the
inevitable downfall, and provided at the same time the
means for reconstruction. To the mass of the city popu-
lations patriotism was a forgotten word: to the miserable
slaves no change could be for the worse. Consequently,
there was no resistance capable of withstanding wave after
wave of invasion, and the greatest chattel-slave Empire
of antiquity fell. There followed a long period of transi-
tion and disruption, and amid this apparent chaos new
growths took root and sprang up. Eoads fell into dis-
repair, local markets necessarily replaced the Eoman mar-
ket, local forces overcame imperial power. At last, at
varying periods, the feudal S3^stem, as we know it, became
the prevailing organisation over Western Europe.

Here we arrive at the second of the great forms of pro-
duction by an inferior class consequent upon the institu-
tion of private property.

The arrangements were, however, in many respects more
complicated than those which arose out of chattel-slavery.
Villenage or serfdom by which the mass of the common
people dwelling on the soil fell under the yoke of the
feudal lord never overcame free labour as slavery did, and
the relations of lord and serf differed materially from those
which existed between master and slave. Working on the
land, the villeins could not be removed from it for sale,
but the lands when disposed of carried with them their
serfs. The duties of these serfs varied materially in differ-
ent parts of Europe, and in many respects they had little
reason to congratulate themselves on holding a superior
position to their economic predecessors in servitude.

METHODS OF PEODUCTION 23

But in the main the difference between the serfs and the
chattel slaves lay in the fact that churls and villeins as
they were, liable as they might be to ill-treatment and mur-
der at any moment at the caprice of their lord, they were
recognised as possessing some right to their soil. Thus
they were permitted in the majority of cases to work so
many days for themselves as against an equal or greater
number of days that they were bound to devote to tillage,
forestry, quarrying, or other services for their lord. Most
of the total production of the country was thus due to
their ill-requited toil. When, however, ill-housed, ill-fed,
and subject to all sorts of indignities, they rose against
their noble and chivalrous overlords, they were butchered
and tortured even more relentlessly by the finest spirits of
the time than the unfortunate slaves were by the leading
minds of ancient Rome.

In this respect, indeed, there was little to choose between
the most saintly catholic knight and the earliest develop-
ment of the hypocritical nonconformist conscience; seeing
that Martin Luther, at the very close of the period of serf-
dom and villenage, was as relentless a persecutor of the
revolting German Bauers as the Capital de Buch, du
Guesclin, and Edward the Black Prince were the ruthless
slaughterers of the French Jacquerie, or the Russells,
Cecils and Howards the gentle butchers of the English
peasantry. Butcheries of this sort, by the dominant class
of the people, are pure matters of business, and the religion-
ists and moralists of the period are always careful to de-
nounce the criminality of the weaker side. In any case,
the futile risings of the peasantry on the continent, and
even in England, so long as the feudal system retained
its first vigour, show, as the similar hopeless risings of the
slaves proved before, how futile, except for the satisfaction

24 THE ECONOMICS OF SOCIALISM

of a temporary but legitimate vengeance, are insurrections
of the people until the time is economically ripe for an-
other stage in the development.

The villeins formed the main part of the unskilled and a
portion of the skilled labourers during the predominance
of the feudal system, and unsatisfactory enough was their
method of cultivation and work. But most of the barons
and their retainers, the lords, thanes, and freemen, lived
in a rude plenty; while some of the richer feudal lords,
lay and cleric, had around them an amount of comfort
and luxury which, if not equal to that of the Eoman or
Byzantine nobles, was still very great.

Side by side with serfdom, also, was the large body of
free workers, in country and town alike, who no longer
regarded labour as in any way degrading, and who had
inherited from the barbarian invaders, or had acquired
from them, notions in regard to general freedom and col-
lective ownership which placed them in a very different
position from that of the mere emancipated slave or predial
serf. Free peasants and free artisans, whatever dues they
might owe and pay to their lords in return for privileges
or services, were as free economically as men in that day
could be. Gathering round the castle for protection
against the robber hordes or legitimate invaders of their
territory, or clustered in fortified cities — whose narrow
streets and lofty houses show to-day how crowded these
fortresses became — the artisans and craftsmen carried on
their trades in democratic guilds with strictly limited ap-
prenticeships, and showed from time to time, throughout
the continent as well as in Great Britain, that they knew
very well how to protect their freedom against any attempt
at encroachment by the feudal superiors, to whom they
were nominally or really subject. Still, in these relations,

METHODS OF PRODUCTION" 25

there was no capitalism in the modern sense. Though
banks and banking were beginning, and exchange was as-
suming something of its modern features, the wealth of a
great baron or prince of the Church, great as it often was in
every respect, was due in no sense to the use of his capital
or to the gains which he made by direct trade.

As communication after the break-down of the Eoman
roads and the collapse of all central authority became in-
creasingly difficult, production in the interior of most of
the detached provinces into which Europe was thus spilt
up was carried on chiefly for immediate use of the pro-
ducers and their families; for the benefit of the feudal
lords or the Church to whom portions of the produce were
payable as dues for personal service, fees for privileges
granted, or tithes for the poor. Only the superfluity, after
these claims were satisfied, came forward for exchange,
and then only into local markets.

The holdings of land and property and tenure of posi-
tion : whether held under the beneficiary system in which
property considerations predominated ; or under vassalage,
which was a purely personal relation between one or more
individuals in the feudal chain and another individual; or
by immunity, which was a political privilege granted for
some service rendered or some quarrel compromised —
each and all of these involved payment of dues, or services
in peace or war to the immediate superior, through a long
chain of infeudation and subinfeudation from the king or
great over-lord downwards; and from the villein working
out his enfranchisement, or the poor peasant just able to
maintain his family, upwards. They were all personal
relations, although the form which the discharge of the
obligations took might be pecuniary. The difi'erences in
the shape of these relations and connections, in various

26 THE ECONOMICS OF SOCIALISM

parts of Europe, were countless, but in the main the system
itself was the same. It was in fact a great rural hierarchy,
modified by the growing power of the towns, with their
increasing wealth and independence for the burgher class,
and by the influence of a sacerdotal hierarchy, that of the
Catholic Church.

The articles of use, of beauty, and of luxury produced at
this period, even in countries which, like our o\^Tn, were at
the time in many respects rude and barbarous, awaken
our admiration. We have, in fact, only to look round our
museums, or to read the list of the rich things paid as
dues or given to a prince or baron of the day, to under-
stand that capital is in nowise necessary to the develop-
ment of the beautiful in art. The splendour of the ca-
thedrals alone, the ruins of the abbeys and monasteries
which abound in Great Britain, are quite sufficient to tell
us that there was no lack then of architects, decorators, and
builders of the very highest skill in every department of
their craft.

In the long run, the free cultivator and free craftsman,
the yeoman and the artisan, overcame the competition of
the serfs, if competition it could be called. The serfs were
gradually emancipated because their position became first
economically unsatisfactory to the community and then
ethically wrong. At length, therefore, in England, the
most advanced European country, cultivation of the land
and handicraft by freemen finally replaced villenago, and
England of the fifteenth century, as has been so often
pointed out of late years, was essentially the country of free
men — free producers who commanded as individuals their
own means of production and raw materials. If ever in-
dividualism in its economic and social sense could be per-
manently maintained, then was the time. Everybody

METHODS OF PEODUCTIOX 27

wanted to keep it up. The results to the kingdom at
large were satisfactory to all, and even the upper classes,
with all their arrogance and brutality, were in a sense
proud of the well-being and independence of their work-
ing countrymen.

Never before or since has man as an individual had such
a chance. Controlling his own tools and his own product,
selling his labour for hire but seldom and at a good rate ;
in the country master of his holding and entitled to his
share of the use of the common land ; in the town member
of his guild, secure of his privileges, safe to rise from
journeyman to master craftsman and protected against
competition — the advantage of such circumstances, and
the real freedom and sturdy well-being they gave birth to,
I have often descanted upon.

Local markets, in which adulteration was made criminal
and where profit-mongering was relentlessly put down, were
supplemented to some extent by the great national and
international fairs, at which goods from all parts of Europe
and the East were freely offered for sale in exchange for
local products. A local and national spirit of individual
initiative was thus engendered, which was vivifying to all
it touched then and rouses our admiration now. There
was some pleasure in doing good work when the craftsman
himself was in his way more than half an artist, and the
artist who was not also a craftsman was unknown.

The whole thing hung together. Individual production,
individual ownership, individual exchange. From the first
step to the last, the worker controlled his means of pro-
duction and controlled his product. There was no prob-
ability then that the creature of his own brain, fashioned
by his own hands, would turn again and rend him in
the form of an over-produced commodity. The supply and

28 THE ECONOMICS OF SOCIALISM

demand alike of goods and of labour were strictly regu-
lated: the object of the restrictions being almost invariably
to secure good articles and good pay for producing them.
When each man worked the whole or the greater part of
his time on the land, or in the town, under such conditions
as these; when he was certain of good, if rough, food and
good clothing from year's end to year's end; when educa-
tion was far more general and better than has been com-
monly supposed; and when wage-earning was the excep-
tion rather than the rule — when all this was the birth-
right of the working-class, there is little need to -marvel
that they did not welcome a change of system with any
great alacrity, so far as they could understand what was
coming about.

But this happy period of national isolation and full
bellies could not continue. It was impossible to round up
England from the onward movement of human kind at
large.

Once more economic development recked little of the
human happiness of the moment: once more mankind
moved unconsciously onward towards the completion of the
full and orbicular cycle marked out for the evolution of
the race.

Of the expropriation of the freeholders long since ac-
complished in Great Britain and now going on all over
Europe; of the downfall of the old feudal nobility and
the confiscation of Church property; of the cruel vagrancy
laws, and enactments against working-class combinations;
of the conversion of the democratic guilds into close capital-
ist corporations — of these and other events which ushered
in the modem capitalist system I need not here speak at
length. A whole library of works treating of these matters
has been placed at the disposal of the English public since

METHODS OF PEODUCTION 29

my little " England For All " first set the work on foot just
forty years ago. And now, in any city of the English-
speaking peoples, a student can, with little difficulty, and
with a comparatively small expenditure of time or money,
master all that he needs to know concerning the growth of
the wage-earning class. The facts are there, I say, but
they are not, unfortunately, by any means always rightly
interpreted.

Individual production for immediate use gradually gave
way to social production for private profit. How it came
about that large numbers of free men found themselves,
in this country first, and afterwards in other countries,
deprived of land, destitute of means of production, and
possessed only of the sole right to sell the power of labour
in their bodies to those who possessed land and means of
production, is a chapter in economic and social history
extending from the reign of Henry VII to that of James
I; and again from the beginning of the eighteenth to the
first quarter of the nineteenth century. Never in history
before was so great and crucial a change in the relations of
production so rapidly brought about. The development
may be said to divide itself, as stated, into two periods.
In the first period production for exchange was gradu-
ally substituted for individual production mainly for
use.

This change was accompanied by a similarly gradual
growth of the purely wage-earning class, by the expansion
of commerce and trade, and the replacement of the local
market, first by the national, and then by the international
and world-wide market.

The second period is essentially the age of machinery ; in
which, that is to say, steam and improved mechanical and
chemical processes dominate the whole industrial system.

30 THE ECONOMICS OF SOCIALISM

In the first stage, the producer becomes accustomed to
regard himself as a wage-earner for life. In the second
stage, he becomes accustomed to look upon himself not
only as a wage-earner for life but as an appendage to the
great machines of production and distribution around him.
In the earlier time spoken of, he might still, though a
wage-earner, use his machine when at work, and remain
still to some extent an independent man. In the later
period, he becomes, and must become, more and more the
mere slave of the mechanism of industry, which his fellows
have fashioned and which he, conjointly with them, might
use and dominate.

The crucial change which lies at the bottom of the entire
transformation is that from individual to social production,
unaccompanied by the modification of individual into social
exchange and appropriation of the product.

That may seem too abstract a statement. The worker
of the fifteenth century in England had, as we have seen,
a complete control over his tools, his raw materials and
his finished product; or, if a peasant farmer, he owned his
own land, lived off his own cereals and fruit and live stock
and clothed himself to a great extent with his own wool.
In the case of the handicraftsman, whether saddler, smith,
jeweller, tailor, or the like, he produced with a view to
the local market, and probably owned land as well. Such
a man was his own master as an individual, and even tlie
stonemason, though more continuously a wage-earner, came
into the same category in the main. When, however, a
number of workers began *to work under the control of
a master permanently for wages, the raw material, the
finished product, and the place in which they worked
all belonging to the master — who produced the articles
not primarily for use but for exchange in order to make a

METHODS OF PEODUCTION 31

profit — then, manifestly, the entire basis of the system
was transformed.

No longer was it merely the superfluity but the whole
production which went into exchange. No longer did the
individual worker work as an individual, he worked as a
portion of a complete social organism for a social purpose,
namely, exchange. No longer did the product belong to
him either wholly or in part; it belonged to his employer
and to him alone, and the wage-earner had no say what-
ever as to its method of production or as to its disposal.
No longer also did the worker work only incidentally as a
wage-earner: he toiled continuously as a wage-earner, and
as a wage-earner only, all his life through.

Here, then, we have the great, fundamental antagonism
of our present system of capitalist production, which
emerged from the old individual production of freemen.
It is the antagonism which lies at the root of all the other
antagonisms :

Social production over against individual appropriation -¥t:
and exchange.

Thenceforward from that point the rest of the develop-
ment and its class relations are comparatively easy to
understand. In spite of certain local survivals of the old
system, such as peasant proprietors and skilled craftsmen
in certain parts of Europe and in certain trades: in spite
of new developments such as the farmers of Western Amer-
ica, and the fruit and vineyard proprietors of Australia,
the tendency is all in the same direction.

The production for the local market fades into produc-
tion for the national and world market.

All the old middle-age restrictions are swept away and
even modern protection becomes very different from its
middle-age correlative.

32 THE ECONOMICS OF SOCIALISM

Production for profit becomes the rule: production for
use the exception.

The workers instead of being wage-earners at intervals
become wage-earners for life.

Exchange and the pecuniary relations which grow out of
exchange dominate and control the whole of society.

All the old class antagonisms fade by degrees into the
last and final antagonism, between wage-earners and owners
of the means of production and distribution.^

We are landed, in short, in that great maelstrom of
capitalist production with its whirl of commodities and its
series of economic antagonisms which it is the object of
this book to endeavour to examine and simplify. This de-
velopment has been almost infinitely more rapid than any
of its precursors. Capitalism in its present form is barely
180 years old; and yet, as said at the commencement of
this chapter, it is even now obviously in its last period.
Nay, more, the transformation to the new and final stage
of human power over nature has already begun.

What has pushed mankind on thus rapidly? What has
so greatly accelerated the rate of progress beyond that of
all former ages? Unquestionably the growth of the great
machine-industry motived by steam, oil and electricity.
From t'lo middle of the eighteenth century the human race
fell into the grip of its own tremendous mechanical con-
trivances, which, though many of them had been discovered
before, then first became applicable to the needs of society.
But they were not handled hy society. They were, they
are, and for a time still will be handled by the possessing
class against society. Once more the cruelty of economic
progress makes itself felt. The great machine industry

i Those who desire to follow the subject furtlier may consult
my "Evolution of Revolution." (Grant Richards, London. Boni
& Liveright, New York.)

METHODS OF PEODUCTION 33

which might have lessened labour and rendered toil un-
known, which provides mankind with the means of doing,
what Aristotle foresaid might thus be possible — the final
abolition of slavery in every form — this great machine
industry dominating instead of being dominated, has
crushed individuality, broken up family life, rendered ex-
istence more uncertain than ever before, and filled our
cities with huge hordes of propertyless proletarians; at the
same time that it has denuded the country districts of their
population and has rendered London and England more
dependent on foreign sources for food supply than ever was
Eome.

All wealth is due to labour applied to natural objects.
This is an obvious truth, when labour is engaged in creating
wealth under communism, under slavery, under serfdom, or
when individual free farmers are producing food, or materi-
als for clothing, or cattle or a superfluity of hides, milk,
cheese, &c., for exchange. There can be no doubt whatever
in these cases as to what is the agency by which the various
useful articles are produced. Nor, when exchange is con-
ducted by barter, does any dispute arise upon this point.
What is the actual measure of value between two articles
which are exchanged, under these conditions of barter, is
never considered. Supply and demand, in the shape of tha
higgling between the buyers and sellers, determine each
several transaction, whether it be between communist
tribes or between Carthaginian merchants and West Afri-
can savages, trading away their gold dust for goods.

Even under the capitalist system of production for ex-
change and profit, nobody would be so foolish as to con-
tend that wealth could be obtained, in the first instance,
without labour; for if none laboured there would be no
wealth at all and man would speedily perish. Only the

34 THE ECONOMICS OF SOCIALISM

fact that, without slavery or serfdom, or any apparent
compulsion, one class is in possession of all the social
means of production and distribution, inherited from past
generations and now constantly improved from decade to
decade by social discovery and invention, and another class
owns nothing but the labour power in the bodies of its
members, which those propertyless persons are obliged to
sell as a commodity to the possessors of capital in order
merely to live — only these facts introduce a complexity
into the problem which enables the capitalists and their
professors of political economy to confuse the whole issue,
under this modern form of the production of wealth.

Even to-day, also, the majority of any nation has little
knowledge of its own surroundings. The workers of Great
Britain as a whole do not recognise nearly to the extent
their Chartist forbears did, how completely the wage-sys-
tem holds them in thrall, they are unaware that, so long
as this system continues, their emancipation, either as
individuals or as a community, is impossible; and they
almost resent the statement that the ownership of all the
great means and instruments of making wealth, by a
small minority of the population over against them, in-
volves them in a class war whether they like it or not.
Yet capitalism in its modern form is so recent, and was
so fiercely resisted in this island, in its development to
its full power less than a hundred years ago, that such
forgetfulness of its origin is a remarkable instance of
human oblivion.

How different this capitalism is from any of the ancient
methods of production is at once apparent when historically
and economically considered. Moreover the illustration
of its growth is far clearer in Great Britain than in any
other country in the world. Not only did the entire trans-

METHODS OF PRODUCTION 35

formation of industry and transport by land and sea, ow-
ing to steam, great factories, railways, &c., begin in that
island, but the expansion of the proletariat — the indigent
population deprived of all property, even in the shape of
small land-ownership — assumed far larger proportions in
Great Britain than anywhere else. In fact, the small land-
owning and small handicraft sections almost entirely dis-
appeared. This is why the examples of the domination
of capital in the modern evolution of production are chiefly
drawn from England, though other nations have advanced
farther than the English employers in several departments
of industry. There is no peasant proprietary in Great
Britain as in France, Germany, Italy, Belgium, Russia and
other European countries, to act as a conservative, or re-
actionary, element in opposition to the revolutionary ten-
dencies of the workers of the towns when these latter be-
come conscious of their true class interests.

There is, in short, no antagonism between the toilers
of the country and the city here as there is elsewhere.
They can brigade themselves together on one common basis,
in order to proceed, either peaceably or forcibly, to the
next stage in the evolution of the race: and this stage,
as already stated, must inevitably be a reversion to collec-
tivism, communism and socialism, on an infinitely higher
plane than the primitive barbarian communism under
which our remote ancestors laid the foundations of man's
rapidly advancing control over the forces of nature. Nor
should the truth be overlooked that the change in the forms
of production, distribution, exchange, and communication
has been far greater in the last hundred and seventy years
than in all the previous history of man on the planet ; that
this modification is proceeding even now at a cumulative
rate; and that it is possible for human beings in society,

36 THE ECONOMICS OF SOCIALISM

through education, combination and mutual intercourse,
to far transcend in the rapidity of their economic and social
development any previous period kno^\^l to man.

At the close of even such a brief and cursory survey
of the methods of production as this, it is impossible not
to be struck with the wholly unconscious and helpless
manner in which mankind has drifted, rather than pro-
gressed, from one stage to another. From communism
into chattel-slavery and private property the development
was wholly unconscious : the resistance to and the ac-
ceptance of the new forms were equally actuated by
ignorance and ignorance alone. The ablest brains of the
time could but bring to bear immediate, transitory, and
so-called practical, remedies for the pressing needs which
threatened to subvert the entire community. None could
comprehend what was going on around them : not a single
man of genius could formulate the process of change
through which his society was passing.

So it was all through the long, long centuries during
wliich chattel-slavery, and the forces of production that it
called forth and created, dominated man in civilisation.
Great administrators and able thinkers as the Eomans and
the Roman Empire produced, they and their jurists were
too practical, too much bent on solving obvious problems
as they arose, to recognise the existence of the still greater
problem which was solving itself around them.

When chattel-slavery came to an end, and villenage and
feudalism were substituted, still the same blind, unconscious
and unregulated force of human development worked its
way on. The ablest and most farseeing men of the whole
of the great time of art, eloquence, conquest, and discovery
failed to perceive whither they were going, and were swept
hither and thither on the current of the stream which bore

METHODS OF PEODUCTION 37

them they knew not to what shore. If here and there a
dreamer arose who saw in his visions dimly into the
future, he himself felt that he was but a dreamer and
that, when his body returned to earth, his waking sensa-
tions would be no more capable of impelling him to con-
scious action, or of inducing others to follow him, than
they were before he was rapt up into the Seventh Heaven
of the seer.

So again was it when serfdom disappeared and individ-
ual freedom reached the highest point to which individ-
ualism, unsocialised, can attain. Still unconsciously, still
blindly, still ignorantly, groping like children in a darkened
room, did mankind drift from that sturdy individualism
into the Malebolge of capitalism with its inevitable but fear-
ful cruelty to the weakest and most sensitive of the race.
Like the Nemesis of the ancients the wheel of economic
progress rolls on, crushing the noblest and the worst indif-
ferently in its course.

Men of our epoch are the inheritors of the lessons of all
the ages. The long martyrdom of mankind to the forms
of production and exchange has enabled us to proceed con-
sciously and deliberately where our ancestors could but
move unconsciously and anarchically. Thanks to their
sufferings, we can see where they could not.

O/^ ,'7 ^'<r

CHAPTER II

VALUE

The thorough knowledge and understanding of what
the word " value " means is essential to any fruitful exam-
ination of the capitalist system of production. This is
admitted by economists of every school, though many of
them at once go on to render any true conception of value
impossible.

To begin any analysis, however, it is first necessary to
grasp what wealth is. It assuredly is not, as Aristotle
says it is, only that which is interchangeable; for a society
may be, as we have seen, very wealthy in proportion to its
needs, into whose midst the idea, still less the practice, of
exchange has never come. Eobinson Crusoe, the favourite
example of the individualist, was at the end of a few
years' work on his island a wealthy man in his way ; though
in his case, notwithstanding the fact that he possesses the
tools and weapons of civilisation, the very possibility of
exchange had entirely ceased. An individual, or a society,
which has an abundant supply of all the things needed for
existence, enjoyment and luxury, according to the ideas
of the time, and the power to keep up this supply at the
same or a higher level, is wealthy; and the ownership of
such a supply constitutes the possessor, in any ordinary
sense of the words, a person of wealth. Wealth, therefore,
primarily consists in an accumulation of goods, houses,
clothes, beautiful objects, boats, food and so on which
together give enjoyment to those who own and can use

38

VALUE 39

them. This whether they can be exchanged for other
articles or not.

Nothing has tended more to confuse the mind of the
student of political economy at the start than the statement,
which we owe to the great father of science himself, that
there are two sorts of economic value : value in use, or use-
value; and value in exchange, or exchange-value. If any-
thing is useful to us it is no doubt valuable to us. We
don't want to give it up, unless more of it is easy to get:
we wish to derive the full benefit from it. But it would
be equally useful if there were an endless supply of it,
and all the world could take as much as each needed. In
that case there would be no contest whatever about indi-
divual possession, though the need of a constant supply
might be as great as ever.

Value in the economic sense, therefore, only appears
^lien,^n addition to usefulness, relations of exchange '
between articles of social use are esJablisTied. Thus we
know that air, water, light are of enormous value, in the
sense that we cannot live without them. But they a];e_sp
plentiful, as a rule, that they have no value in the economic
sense; that is to say, they will fetch nothing in exchange
for other things. But in the desert, in a prison, or on
board a boat from a wrecked vessel, men have been known
to offer all the wealth they had at command for a little
water. In these exceptional instances, as in the case of a
besieged city, the value both in use and in exchange of
that which, in other conditions, is practically valueless be-
comes almost infinite.

But we have not to do here with such exceptional cases,
any more than with the value of food in a famine. The
object in view is to arrive at what constitutes the value of
useful things on the average when they are exchanged in

40 THE ECONOMICS OF SOCIALISM

a general free market. Aristotle, who saw and foresaw so
much, understood that exchange under such conditions
must be an exchange of equivalents — of things of equal
value ; though slavery disguised from him what formed the
basis of this equality of exchange. No matter how unlike
the things may be which are exchanged, coats and bread,
hats and iron, the equality of their value, in certain
quantities relatively to one another, is established on the
average by their exchange, and this equality is arrived at
by competition and the higgling of the market.

Now, in modern capitalist societies nearly everything
which is raised, produced, or made, is so with a view not
to its use by those who create it, or their immediate neigh-
bours, but for the purpose of exchange in the open market.
These goods thus produced_Jor exchange are called in
economhr4attgTrage^mmodities, of ^wares — useful articles
primarily intended for exchange and sale. The workers
and their employers alike look to the general market as they
produce cups and saucers, pots and pans, clothes and
furniture, gold and diamonds. And the wealth of our
present society, by common consent, consists-in-a^ast ac-
cumulation of these commodities or wares, which all have
an exchange value.

Now, how are these commodities exchanged under the
conditions spoken of? What is it which regulates their
value,_ their relative value, when exchanged against one
' another?

It is remarkable that nearly all economists of note are

/ agreed as to ^whjrLconst itutes value. They say, with one

/ accord, that ._quantity_ oOabour constitutes ..value ; the

/ amount of human labour, that is to say, which it costs to

/ produce the commodities or wares which are exchanged

against one another.

VALUE 41

Of late years, it is true, there has arisen a school — if
school it can be called, in which mere word-spinning is
reduced to a system — which holds that " utility," or even
" desire " alone, constitutes exchange value. I shall deal
with this strange aberration separately. Meanwhile, the
following extracts give the opinions of those who are still
reckoned the greatest English economists :

Thus, Sir William Petty says, speaking of exchange
value with reference to corn :

" How much English money is this com or rent worth ?
I answer, so much as the money which another single
man can save within the same time over and above his
expenses if he applied himself wholly to produce and make
it; viz.. Let another man so travel into a country where is
silver, there dig it, refine it, bring it to the same place
where the other man planted, his corn, coin it, &c., the same
person all the while of his working for silver gathering
also food for his necessary livelihood and procuring him-
self covering, &c. I say the silver of the one must be
esteemed of equal value with the corn of the other ; the one
being perhaps twenty ounces and the other twenty bushels.
From whence it follows that the price of a bushel of this
corn to be an ounce of silver. If a man can bring to
London an ounce of silver out of the earth in Peru in the
same time that he can produce a bushel of corn, then one
is the natural price of the other ; now, if by reason of new
and more easy mines a man can get two ounces of silver
as easily as formerly he did one, then corn will be as
cheap at ten shillings a bushel as it was before at five
shillings a bushel, caeteris paribus."

Petty confines himself here to -value^-iB-exehftBge— a&- —
observed in the society of his own day. But by treating
the subject solely from the individual point of view as

42 THE ECONOMICS OF SOCIALISM

depending upon the labour of " another man," " a man "
and so forth, he confuses the general issue. Also, he omits
the element of the relative wealth, or ease of accessibility,
of the silver ore, in the mine from which the ounce of
silver is obtained, which still further affects the question of
individual exchange. But he does not go back to anterior
conditions of society, in which exchange as an important
factor was wholly unknown, for the purpose of justifying
the labour basis of value. This was left to his successors
generations after his death. They use the hunters and
fishers of primitive times as reasoning as to the value in
exchange of their chase or their catch being reckoned upon
the amount of labour it had cost them to procure their
game or fish, regardless of the truth that the hunters and
fishers of this or that tribe of savages had not and could not
have such a conception in their minds as exchange, either
upon that basis or in any other recognised form. Nothing
can be more misleading than this when we consider value
in exchange under social and economic conditions where
exchange has become the principal motive for production in
every department of human industry. But the argument
that labour constitutes the main constituent of value in
exchange is overwhelming even when imperfectly put.
Adam Smith's well-known passage is almost too trite to

"The real price of everything, what everything really
costs to the man who wants to acquire it, is the toil and
trouble of acquiring it. What everything is really worth
to the man who has acquired it, and who wants to dispose
of it or exchange it for something else, is the toil and
trouble which it can impose on other people. Labour was
the first price — the original purchase-money that was
paid for all things. In that early and rude state which

VALUE 43

precedes both the accumulation of stock and the appropria-
tion of land, the proportion between the quantities of labour
necessary for acquiring different objects seems to be the
only circumstance which can afford any rule for exchang-
ing them for one another. If among a nation of hunters,
for example, it usually costs twice the labour to kill a
beaver which it does to kill a deer, one beaver would natu-
rally be worth or exchange for two deer. It is natural
that what is usually the produce of two days' or two hours'
labour should be worth double of what is usually the pro-
duce of one day's or one hour's labour."

And Adam Smith then elaborates this same proposition
at greater length.

Benjamin Franklin estimates the value of everything
by labour, general labour, and regards labour as the sub-
stance of value throughout. He says : " Trade in general
being nothing but the exchange of labour for labour, the
value of all things is most justly measured by labour."

Ricardo having adopted and confirmed Adam Smith's
view as to the basis of value in exchange being cost of
production as measured by labour for the original hunter
and fisher, into whose brain the very idea of exchange had
never yet come, proceeds :

" That this is really the foundation of the exchangeable
value of all things, excepting those which cannot be in-
creased by human industry, is a doctrine of the utmost
importance in political economy. If the quantity of labour
realised in commodities regulate their exchangeable value,
every increase of the quantity of labour must increase the
value of the commodity on which it is exercised as every
diminution must lower it.

" To convince ourselves that this is the real foundation
of exchangeable value, let us suppose any improvement to

U THE ECONOMICS OF SOCIALISM

be made in the means of abridging labour in any one of
the various processes through which the raw cotton must
pass before the manufactured stockings come to the market
to be exchanged for other things; and observe the effects
which will follow. If fewer men were required to culti-
vate the raw cotton, or if fewer sailors were employed in
navigating, or shipwrights in constructing, the ships in
which it was conveyed to us; if fewer hands were employed
in raising the buildings and machinery, or if these, when
raised, were rendered more efficient; the stockings would
inevitably faU in value, and command less of other things.
They would fall because a less quantity of labour was
necessary to their production and would therefore exchange
for a smaller quantity of those things in which no such
abridgment of labour had been made.

" Economy in the use of labour never fails to reduce the
relative value of a commodity, whether the saving be in
the labour necessary to the manufacture of the commodity
itself, or in that necessary to the formation of the cap-
ital, by the aid of which it is produced. In either case
the price of stockings would fall, whether there were fewer
men employed as bleachers, spinners, and weavers, per-
sons immediately necessary to their manufacture; or as
sailors, carriers, engineers, and smiths, persons more in-
directly concerned. In the one case, the whole saving of
labour was wholly confined to the stockings ; in the other, a
portion only would fall on the stockings, the remainder
being applied to all those other commodities, to the pro-
duction of which the buildings, machinery, and carriage,
were subservient."

John Stuart Mill also, although with his inveterate
eclecticism he so contrives that, on this point of value,
one page should carefully contradict another, states in so

VALUE 45

many words with respect to " the component elements of
the cost of production " that " the principal of them, and
so much the principal as nearly the sole, we found to be
labour."

It would be easy to extend these extracts by drawing
upon other English and foreign writers of note on political
economy.

Every one of these quotations shows that all these
thinkers took labour, quantity of human labour, as the
basis and measure of the value of commodities when ex-
changed against one another. But they do not sufficiently
distinguish what labour. They all speak of the labour as
practically the labour of this or that individual, or set of
individuals. There they stop.

But it is precisely at this point that the main difficulty
of the analysis begins, and the great service which Marx
rendered to economic science, when he published his first
volume of the " Capital," more than fifty years ago, be-
comes apparent so soon as we fully comprehend what that
difficulty was.

Commodities, or wares, when produced or exchanged, are
necessarily useful, in the social conditions of the time, or
they would not be exchanged. There are many things
which are reckoned useful, socially useful, to-day which,
under other conditions of human life, would be considered
useless, or even harmful, and would not enter into ex-
change at all. Bad gin, heavily-boned stays, tall hats,
" bosh " butter are commodities, and possess utility nowa-
days, but possessed utility at no other period. Such social
utility is, I say, invariably assumed in all commodities
which enter into the market for exchange.

When everything which marks the quality of things, the
difference or similarity between two commodities ex-

46 THE ECONOMICS OF SOCIALISM

changed, is removed ; when hardness, softness, colour, shape,
weight, size, &c., as well as social utility, are abstracted,
they have still sometliing left. A cheap suit of clothes
and a quarter of wheat are about as different commodities
as it is possible to imagine; yet at the time of writing
(1921) they exchange, roughly, upon an equality on the
London market. What, then, have the two wares in
common ? Precisely that, and that alone, which appears in
other similar cases. / They are both the products of human
labour. This circumstance, therefore, it is which enables
them to be reduced to a common term, to be placed on a
quantitative basis, and compared with one another.
Human labour applied to their production and embodied in
them is the basis and measure of the relation and exchange
of these two, and other similar and dissimilar commodities.

But again comes the question : what labour ?

Here we have to enter upon a somewhat abstract investi-
gation, and the mind of the ordinary Englishman in-
stinctively shrinks from abstract disquisitions of any kind
whatsoever. He wants something concrete, tangible,
practical! It is useless to tell him that abstract inquiry
lies at the bottom of nearly all the practical work done in
the world: useless to point out that but for the abstract
investigations of the old geometers into the properties of
conic sections and the like, the art of navigation could never
have attained anything approaching to its present stage
of development: quite beside the mark to urge upon him
that but for the abstract theories of atoms and volumes
half of our present chemistry would still remain to be dis-
covered. He may be silenced, but he is not convinced;
and the abstract remains for him a nuisance to be ever
avoided. Yet in this case the abstract cannot be escaped
if we wish to understand.

VALUE 47

Labour itself has two sides to it. It is qualitative and
quantitative.

The qualitative side is easy to comprehend. To create
value labour must be expended on producing things which
are useful to the existing society. Shirts, coats, boots, iron
fittings, ships, guns, &c., are all useful to-day. But obvi-'
ously the quality of the labour ej:_pend^ on making a shirt
is very different from the quality of the labour needed toJ
produce a gun. Both shirts and guns are manifestly
products of human labour, the results of the expenditure
of vital human energy in labour; but of human labour of
quite a distinct quality. That is all plain sailing enough.

But the quantitative side of labour, what does that
mean? When, as we now commonly say, the value of
commodities in exchange is determined by the quantity of
labour relatively embodied in each of them, what is meant?
Here we arrive at the abstract part of the inquiry, which is
not so easy to grasp.

It is, therefore, necessary to begin at the very beginning.
When two workers are engaged in producing two different
articles such as shirts and guns, each of them is clearly
exerting his own individual powers and is embodying in the
product his own individual work. But something more
is being done at the same time. Each worker is embodying
in the commodities produced human labour on the average,
and in the form of abstract, social human labour too.
Each worker is expending his vital force as an individual,
but he is creating value at the same time, as a social unit
of a civilised society which in the main produces for ex-
change.

Let us consider this more closely. Two Joiners set to
work to make a cabinet. Rpjp tVip qna1'^y_<2f ^•>ip If^^nr
is precisely the same. When finished, the two cabinets are"

48 THE ECONOMICS OF SOCIALISM

exactly alike. It is impossible to tell the one from the
other. But the one joiner has worked with old-fashioned
tools and without any machinery, thus entailing the ex-
penditure of a great deal of labour. The other has used
all the most modern labour-saving appliances; and thus
his cabinet, though as good in every respect as the other,
has been constructed at the expenditure of half the quan-
tity of labour. The first cabinet, therefore, made on old-
fashioned lines, does, beyond all question, contain in
itself the embodiment of twice the amount of individual
labour that the second contains. Yet, both being equally
well made, they have precisely the same exchange value in
relation to other goods on the market. No purchaser, that
is to say, cares a straw how the cabinets have been made:
both are the same to him. If individual labour measured
their exchange value, the first cabinet would be worth twice
as much as the second. It is really of equal value. Conse-
quently, it is clear that it is not individual labour which is
jthe measure of vjlue injthis caseThiiE the quantity of sociaT
necessary labour required to make each cabmet at the
time they are offered for exchange. This comes behind
both the joiners, while they are at work, and determines
the value of their respective cabinets in exchange, without
the slightest reference to the desire or convenience of the
two workers themselves.

Put in that way, the quality of the labour being identical,
and the product precisely similar, it is easy enough to
comprehend that the actual value in exchange of the two
cabinets is dependent, not upon the quantity of labour
embodied in them by either of the two men as individuals,
but upon the general average social cost in abstract social
human labour of producing a precisely similar cabinet.
This relation of exchange can only be arrived at, as before

VALUE 49

stated, indirectly, by competition and by the higgling of
the market.

But change in the quality of the labour applied to and
embodied in commodities by no means alters this truth.
Two workers who are engaged on producing the most
widely different commodities by the application to them,
and embodiment in them, of their individual labour of
totally distinct quality, do, nevertheless, in just the same
way as the two joiners, whose quality of labour was tlie
same, embody in these dissimilar commodities a specific
quantity of simple, abstract, social human labour. And
this, and this alone, it is which enables the value in ex-
change of these two different commodities to be measured
relatively to one another and other commodities.

In short, every individual worker, whatever may be
the individual quality of his labour, embodies, at the same
time that he applies his individual labour to the produc-
tion of commodities a definite quantity of social human
labour in the commodity which he is producing.

Xow we begin to understand what this quantitative
labour which creates and measures value, what this simple,
necessary, social human labour, in the abstract, really
regard to any two given commodities, applies with equal
force to the production and exchange of all commodities,
means. For the same reasoning, that is used above in
no matter how diverse their character may be. If, for in-
stance, to take the example already cited, a cheap suit of
clothes is worth a quarter of wheat: if, that is to say, a
suit of clothes is of the same exchange value as a quarter
of wheat, and they exchange as equal on the market, then
this equality of exchange betokens that, different as the
quality of labour is which is necessary to produce them,
and different as are the commodities themselves when

50 THE ECONOMICS OF SOCIALISM

produced, they both represent, over and above their special
peculiarities, the embodiment of the same quantity of
socially necessary simple abstract human labour in the one
as in the other.

If, also, that equation is altered one way or the other,
so that upon the average a quarter of wheat, for instance,
is worth two suits instead of one, then it is clear that
twice the quantity of this labour, this social labour, is
embodied in the quarter of wheat that is embodied in the
suit of clothes.

Or, to put the matter the other way. If a machine is
invented which enables a suit to be made with one-half the
expenditure of labour that was formerly necessary, if the
sort of labour of which I have spoken as needed for making
the suit is, consequently, reduced by one-half; then only
one-half the quantity of labour is embodied in the suit that
was formerly contained in it; and, the quantity of labour
embodied in the quarter of wheat, its cost of production is
socially necessary, simple abstract human labour, that is,
remaining unchanged, it takes two suits to afford an equiv-
alent in exchange value for one quarter of wheat. Similar
changes in the necessary amount of labour, whatever may be
their proportions, produce the like change in the relative
exchange value of the whole list of commodities affected.

It is now still more clear what this quantitative labour
is which measures the relative value of commodities in
exchange. It is not the quantity of individual labour
which is needed to produce each commodity : that may and
does vary infinitely with reference to the production of
precisely similar commodities. But it is the socially neces-
sary labour embodied in them which measures their rela-
tive value ; and this neither the individuals themselves, nor
society at large, can directly test or measure in any way.

VALUE 51

Nobody, for example, can possibly tell how m<iich labour
is embodied in a commodity by the time which any par-
ticular individual has spent in producing it.

There is not, and there cannot be to-day, any such thing
as absolute value measured by time. All value is relative,
and the value of commodities is not estimated by them-
selves, but only relatively to and in other commodities.
This relative value is arrived at, also, indirectly, by a
social process, namely by exchange, the ratio of which ex-
change is determined by the higgling of the market: the
whole operation thus is social from first to last, equivalence
being established on the average by the market dealings.

But now that we have shown how simple social human
labour in the abstract comes behind each and every indi-
vidual labourer in every department of trade, and deter-
mines the relative value of his individual product, in ex-
change with other products, without his knowing it, or
being able to tell the precise result beforehand, there is
still something more to consider. Here again the analysis
has been rendered more difficult by the endeavours to dis-
cover an actual " unit of labour." The efforts thus made
to arrive directly at estimates of value are equally foolish
and confusing. There is, of course, in present conditions,
no possible means of arriving at a definite, concrete, labour
coin, so to say, which shall establish the value of commodi-
ties when and as they are produced. The individual
labour-time it may take to produce a commodity is, as we
have seen, no test whatever of the length of social time
necessary to produce the same commodity.

Nevertheless, social labour-time does measure the value
of commodities with reference relatively to one another.

How is this done?

Take the case of weight. What is weight? That we

52 THE ECONOMICS OF SOCIALISM

can only explain by concrete illustrations of heavy bodies.
To state that it is ponderosity does not help us a bit.
Yet we know well enough what weight is by itself. More-
over, we weigh things relatively to their weight in other
things. We say, for instance, that a bushel of wheat weighs
60 lbs. Pounds of what? We arrive at the fact that
there is a bushel of wheat, that is 60 lbs of wheat, in the
scale, by balancing it against weights of iron or other
metal. When the scale is level, equality is evidenced, and
the weight on each side is declared to be the same: in
this case 60 lbs. But what the unit of weight is, in the
abstract, we can no more tell than we could before we
weighed the wheat.

In chemistry, likewise, the proportions in which various
elements mix with one another were formerly stated in
atoms, according to the theory which went by the name of
the great chemist Dalton ; and in this way gases and other
chemicals were measured and, in a sense, weighed for a
long time. But what was the Daltonic atom? Nobody
knew and nobody knows. Nowadays, in chemistry, we
deal not with atoms but with volumes. Common air, salt,
carbonic acid are expressed according to the relations of
the volumes of the chemical constituents which compose
them. But what is a volume in chemistry? It is just as
impossible to say as what constituted an atom. None the
less, though we do not know what they are — any more than
we can express in figures — \/-^ — volumes serve the pur-
pose of a common measure of the most diverse chemical
compounds.

So it is with simple, abstract, social human labour.
This labour measures for us the value in exchange of com-
modities relatively to one another. If less of such labour
is embodied in a commodity it becomes, on the average, of

VALUE 53

less value in exchange with respect to commodities which
remain stationary in regard to the quantity of labour em-
bodied in them. On the other hand, more labour embodied
constitutes, on the average, more relative value. And this
is true along the whole line of commodities.

But here the objection is frequently urged that all tbis
takes no account of skilled labour, and that if skilled
labour, or rather the skilled labourer, is employed, he pro-
duces much more value in exchange, in a given time, than
an unskilled labourer will produce. That is true. But
what, after all, does this mean ? It means only that skilled
labour is complex or higher labour, forming of itself a
multiple of simple labour. A highly-skilled chronometer-
maker, for instance, produces more value in exchange in
a day, a month, or a year than the most expert brick-maker
in the like period. All the same, however, when the
chronometer and the bricks come to be exchanged they are
exchanged not on the basis of skilled labour embodied in
them, but in proportion to the quantity of simple, social
abstract human labour embodied in them.

Again, labour itself has and can have no value. It only
constitutes value when embodied in useful commodities.
Labour as labour has no more value than weight as weight.
If a man employs labourers at ten shillings a day, or at
any other rate of wages, to dig holes and fill them up again,
it needs no great power of mind to see that their labour
has been embodied in no value, has been as we say, wasted.
The labourers receive their wages, and are so much the
better off; but their labour, individual or social, consti-
tutes no value, and has no value when expended. And, but
for the payment of wages, all the world would see that
labour itself is destitute of value. It has and only can
have value, as has been said, when embodied in useful

54 THE ECONOMICS OF SOCIALISM

articles. But, when embodied in such useful articles, it is
the sole basis and measure of value.

Thus the analysis has brought us round to the point
where a full conception can be formed of what sort of
human labour it is which measures the value of com-
modities.

The truth in relation to the theory of value is disguised
from ordinary observers to-day by the phenomena of price.
Everybody is so accustomed to look at the current market
price, and to estimate the value of that which has been
produced, or of that which they wish to buy or to sell,
almost on the instant, by this price current, that what lies
at the bottom of all the ups and downs of this special form
of value is forgotten.

Time was, (and is still in some parts of the world,)
when the relations of exchange of all commodities to one
another were expressed in some one commodity, and yet
that one commodity was neither gold nor silver. Cowries,
hides, salt, bullocks, iron, copper, have all performed, and
some of them perform still, the function of a medium of
exchange, as well as of a standard of value, in different
parts of the world. They are used in this way because
they are at one and the same time useful in the existing
social conditions, and embody in themselves human labour.

These commodities, however, alike as standards of value
and as currency, are much too cumbrous for the needs of
commerce. What is required when trade grows, and ex-
change becomes the dominant factor in production, is
something which in itself is useful ; which embodies a great
deal of human labour in a small compass ; which can easily
be divided up into fixed weights or quantities and recom-
bined again without loss; which is not subject to rapid
deterioration; and which, on the average, maintains its

VALUE 55

cost of production at nearly the same level over long
periods.

Now, all these qualities are possessed by gold and silver
to a greater extent, on the whole, than anything else. Pri-
marily, also, they are useful commodities, and abstract,
simple human labour is embodied in the so-called precious
metals, in just the same way as in other commodities.
Moreover, they vary in value according to the ease or diffi-
culty with which they are procured — that is, according
to the amount of labour which enables them to be ob-
tained, and is embodied in them. Scarcity in this case, as
in nearly all others, simply means difficulty of attainment :
the need for expending more labour, on the average, in
order to obtain a definite quantity of gold or silver. Plenty
betokens, on the other hand, ease of attainment ; the amount
of labour required to bring to market a definite weight of
gold or silver has become, on the average, less.

Evidently, if diamonds could be made by mixing up
cheap chemicals in a glass of water, the value of diamonds
will approximate in the long run to the cost in human
labour of the product of such a simple and easy process.
Diamonds are costly because they embody to-day a great
deal of human labour, by reason of the amount of such
labour which is of necessity expended in procuring them
in Brazil, South Africa, or elsewhere. They are subject, in
fact, in the long run, to the laws which govern all other
commodities.

Just so with silver and gold. They are commodities,
and can be used to measure the value of other commodities
simply because they comprise in themselves the embodi-
ment of a greater or less quantity of social human labour
measured by time. They thus become the convenient ex-
pression of the value of their fellow-commodities. But it

66 THE ECONOMICS OF SOCIALISM

must never be forgotten that as gold or silver measures
the value of other commodities in the form of value which
we know as price, so these other commodities themselves
measure the value of the precious metals. Just as in all
exchange every sale is a purchase, and every purchase a
sale, according to the side from which it is viewed, so with
gold and silver as measures of the value of other commodi-
ties; these other commodities likewise measure their value
— quantity of social human labour embodied being the
basis of relation and comparison in every case.

In addition to the conveniences briefly enumerated
above, in using gold or silver as the standard of value, and
then as currency, it is also to be noted that, as a rule, their
own value fluctuates within narrow limits. The quantity
of labour embodied in an ounce of gold has varied slowly.
But there is nothing to prevent such fluctuations from be-
coming much greater. Gold itself might become, weight
for weight, as costly as diamonds, or, on the other hand,
as cheap as iron. The same with silver. History, or tra-
dition, even tells us of a moment when the Phoenicians
used anchors of silver.

Moreover, both gold and silver being themselves com-
modities, and dependent for their value relatively to other
commodities on the quantity of labour embodied in a defi-
nite weight of each, the same rule applies to these two
precious metals in relation to one another. Both may be
simultaneously used as currency; but both cannot possibly
be used at the same time as a standard of value for all other
commodities. The cost of production is certain to fluctuate
between them, and the one precious metal will be, and
must be, a commodity in respect to the other. Gold may
be the better standard of value, or silver may be the better
standard ; but it is manifest that two commodities whose

VALUE 57

value varies the one with reference to the other cannot
both constitute a standard of value, on a permanent basis,
at the same time, no matter what laws may try to prescribe
to the contrary.

When, however, the value of all commodities, instead of
being estimated in one another by barter, special higgling
between individuals as buyers and sellers and so on, is
fixed with reference to one special commodity, which in
all wealthy countries to-day is gold, then this form of
value assumes a particular aspect and is known as price.
The quantity of social labour embodied in definite quanti-
ties of the whole series of commodities — coats, hats, guns,
bushels of wheat, diamonds, dozens of wine, &c., &c. — is
expressed in a certain weight of gold, which itself repre-
sents the same quantity of social labour as these quantities
of commodities each and all severally do. And gold, itself,
as it is dug from out of the earth, represents a corporeal
embodiment of human labour, and can thus be used to
measure the value of all other commodities.

For convenience of currency it is divided into weights
larger or smaller, and the stamp which the government
places upon a sovereign or a twenty-dollar gold piece merely
guarantees that it weighs so many grains of gold of such
a degree of fineness. But this stamp, of course, adds no
additional value whatever to the gold itself. That value
is determined, as so often repeated, by the quantity of
labour embodied in it and in the commodities, which it
exchanges for, or purchases.

The cost of production of gold, though it changes less
than in many other things, does fluctuate considerably at
times. Thus the great gold discoveries in California and
Australia from 1849 to 1851 so materially affected the
relative value of gold that its purchasing power, its ex-

58 THE ECONOMICS OF SOCIALISM

change ratio with respect to other commodities whose value
remained stationary, fell greatly, and long and abstruse
disquisitions were penned as to what might be the effect on
trade and commerce of a permanent fall in the value of
gold. The quantity of labour embodied in a given weight
of gold having been reduced by the discovery of richer
mines, the cost in labour of putting it upon the market,
that is, having been greatly lessened, its equivalent value in
other commodities became much smaller than it was before.

From 1849 onwards for some years there was, conse-
quently, an universal and continuous rise of prices in all
gold-using countries, which gave a great, and at first sight
what seemed likely to be a permanent, impetus to trade;
producers calculating that, owing to this continuous rise,
they would always be able to dispose of their commodities
at a relatively higher price than they had been called upon
to pay for their raw materials, labour-power, &c. What
actually happened will be seen later and the reasons for
their miscalculation given. But during the whole period
of this rise in prices, due to the relative depreciation in
the value of gold, commodities whose cost of production
in social human labour remained stationary exhibited no
change whatever in regard to their values in relation to
one another.

On the other hand, it is certain that, quite apart from
the effects produced by the demonetisation of silver and
the consequently increased demand for gold in certain
European countries, the cost of production of gold has in-
creased at times in comparison with its cost at another
period. This had the effect, therefore, of enhancing the
purchasing power of gold relatively to all other commodi-
ties. Prices have then, in fact, fallen all along the line,
and have fallen continuously, producing upon the mind

VALUE 59

the effect of a decrease of wealth, and, perhaps, to some
extent, discouraging production. But in this instance,
also, commodities whose cost of production in social human
labour had remained stationary exchanged, relatively to one
another, on the same level that they did before.

Tlius it appears that, according to the greater or less
cost of obtaining gold, there will be a fall or a rise in values
of other commodities as measured in gold; that is to say,
there will be a fall or a rise in prices all around. But this
does not mean a fall in the relative values of commodities
to one another all round. That is an impossibility. A
general fall in prices is a matter of common experience:
a general fall in relative values nobody ever saw, or can
ever see.

It is scarcely necessary to say that all this has nothing
to do with the so-called " value of money," as we read of
it in the daily newspapers. That is only another instance
of the confusion introduced by the use of the word " value "
in different senses. " Value of money," as used in the
money market, means that the interest which borrowers are
willing to pay for the loan of sums of money for a fixed
term is higher or lower. The purchasing power of gold
may be very high indeed, and the " value of money," in the
City sense, may be very low indeed. Or the purchasing
power of gold may be very low indeed, and yet the " value
of money," in the City sense, may be very high indeed.
Very different considerations here come in.

Two quotations from authors who wrote at a distance of
two hundred years the one from the other will, though
stating the matter in a completely abstract shape, help still
further to illustrate the problem before us.

Sir William Petty writes : " The earth is the mother
and labour the father of all wealth." Belfort Bax says:

eO THE ECONOMICS OF SOCIALISM

" The earth is formless matter, and value (in this case
money) is matterless form, separated from its parent by
the whole universe of commodities."

Now, price is only the money-name for value. And the
" matterless form " here spoken of is that quantitative,
simple, abstract, social human labour, expressed in money,
which measures the value of the universe of commodities
in relation to one another. Just as an individual worker,
while producing a commodity, creates at the same time a
definite quantum of social labour-value, so a lump of gold,
when produced, expresses a definite quantum of social
labour-value.

Let it be repeated once more that we cannot tell, by any
process that it is possible to apply to-day, how mwch
simple, abstract, social human labour is incorporated in a
ton of iron, in a hat, in a dozen shirts, in a quarter of
wheat, in an ounce of gold. There is no clue to this what-
ever in the amount of individual labour that may be
necessary to produce either of them in any particular case.
The time occupied by any individual worker is no test.
The lump of gold may vary in value in reference to other
commodities. None the less, however, the quantity of
labour incorporated is determined not actually, but rela-
tively, in equivalence with definite quantities of other com-
modities. This equivalence, and therefore the social mini-
mum of time required for production, being determined by
competition and the higgling of the market, and repre-
sented in the money form by the day-to-day price.

Gold, however, performs more than one duty in our
society to-day.

It measures the value of all commodities in social
human labour, because it is itself "the socially recognised
incarnation of human labour." In this respect it forms

VALUE 61

an actual standard of value for the whole universe of
commodities exterior to itself.

It acts as a standard of price hy reason of the fact that
" it is a fixed weight of metal."

To quote Marx:

" As the measure of value it serves to convert the values
of all the manifold commodities into prices, into imaginary-
quantities of gold: as the standard of price it measures
those quantities of gold. Tlie measure of value measures
commodities, considered as values: the standard of price
measures, on the contrary, quantities of gold by a unit
quantity of gold, not the value of one quantity by the
weight of another. In order to make gold a standard of
price a certain weight must be fixed upon as the unit. . . .
But only in so far as it is in itself a product of labour, and,
therefore, potentially variable in value, can gold serve as a
measure of value."

In addition, and in consequence of this, gold serves as a
medium of currency for tlie circulation of commodities.
It likewise serves as a means of payment. And, in the
form of bullion, gold is used as international money to
balance international trade accounts and make international
payments.

In a society where goods should be produced for the
general use, and labour was expended co-operatively, the
whole problem of value would be turned round the other
way. The question then would be: "How many hours of
average toil will be needed to produce so many tons of
iron, so many coats, so many hats, &c., as may be sufficient
to supply all the wants of the community in respect of these
different articles?" When this was settled, and the goods
were available, anyone who knew the figures could tell
without any difficulty, not indirectly but directly, pre-

63 THE ECONOMICS OF SOCIALISM

cisely how much social labour, as measured by time, was
incorporated in every useful article to be found in the
communal stores. And each improvement in power of
production would reduce the amount of social labour-time
which it would be necessary to expend in order to produce
any given article.

But we are a long way from that point yet. Our com-
modities, it is true, are produced for social use, into which
they find their way by the route of exchange. But this
production takes place under individual control, and with
widely different tools, machines and appliances (whose
power it is impossible for us to average) brought into play
to make precisely similar articles. Consequently, the law
by which the necessary average quantity of social human
labour embodied constitutes value can only work indirectly
and relatively, and makes its power felt at times in a very
disturbing way.

Now, in considering this problem of value, it will be
observed that up to the present time nothing has been
said about Supply and Demand, or Demand and Supply.
Nevertheless, by a school of economists which once had
considerable influence, the supply and demand theory of
the value of commodities was held to solve every diffi-
culty. The errors which thus arose are by no means wholly
extirpated even to-day; though they appear in a new
shape, girt in a modern dress of confusing terminology, and
shielded from the light of truth by a huge panoply of in-
applicable mathematical formulae.

It must be admitted that the idea of supply and demand,
as permanently regulating value in exchange, presents
something very fascinating to the commonplace mind.
The whole theory is so simple. There is nothing abstract
or difficult of comprehension here. The facts adduced fit in

)

VALUE 63

with our e very-day experience: the deductions drawn seem
an inevitable consequence from the facts.

Everybody knows, for instance, that there are frequently
on the market more goods of a certain kind than the de-
mand will cover at the old rate of exchange. When this
is the case, to any considerable extent, the price of the par-
ticular commodity thus over-supplied, and its relative value
to all other commodities whose supply is regulated in ac-
cordance with previous conditions, must fall, and does fall,
often very heavily, more particularly if the article happens
to be perishable. The sellers are anxious to dispose of
their goods at some price. The buyers, soon finding out
how matters stand, reduce their biddings, and so the value
falls; often out of all proportion to the extent of the over-
supply, and not unfrequently even below the actual cost or
price of production of the articles, which are sacrificed at
what are called slauglitcr prices. For the time being,
therefore, it is manifest that supply and demand have in
such circumstances a crucial influence on relative value.

Conversely, when there is a short supply of goods for
which there is a brisk demand their value rises and again
rises in many instances, as, for example, in the case of
necessaries of life, out of all proportion to the diminution
of the supply relatively to the demand. As in the former
case cost of production, quantity of labour and the rest of
it, is temporarily lost sight of. This time the buyers are
as eager to buy as the sellers in the former case were
eager to sell, and prices may rise to a phenomenal height.
Here also it is manifest that, for the time being, demand
and supply have a crucial influence on relative value.

But for the time being only. These are merely inci-
dents in the ups and downs of that blind individual compe-
tition through which our present social system works to its

64 THE ECONOMICS OF SOCIALISM

end. Under present conditions both sellers and buyers,
both producers and consumers, are creatures of the society
around them. The producer must sell what he has pro-
duced and the consumer must consume what his social
position requires. On both sides of the transaction there
is demand and on both sides likewise is supply. Saleable
values on the one hand encounter and exchange for sale-
able values on the other.

But beneath all the temporary ups and downs the quan-
tity of labour socially necessary to produce the articles
exchanged regulates the permanent value in exchange.
This is recognised, alike in theory and in practice, by every
producer. He knows right well that what regulates the sale
value of his commodity is the general cost of production in
human labour of that commodity, and he is forced by com-
petition to disregard temporary fluctuations in a constant
effort to bring his own individual cost below the average
level.

But let us hear what Karl Marx, who has sometimes
been accused of neglecting this side of the value problem,
says on the matter:

" Price is the money-name of the labour realised in a
commodity. Hence the expression of the equivalence of
a commodity with the sum of money constituting its price
is a tautology, just as in general the expression of the rela-
tive value of a commodity is a statement of the equivalence
of two commodities. But although price, being the ex-
ponent of the magnitude of a commodity's value, is the
exponent of its exchange-ratio with money, it does not
follow that the exponent of this exchange-ratio is neces-
sarily the exponent of the magnitude of the commodity's
value. Suppose two equal quantities of socially necessary

VALUE 65

labour to be respectively represented by 1 quarter of wheat,
and £2 (nearly Y^ oz. of gold), £3 is the expression in
money of the magnitude of the value of the quarter of
wheat, or is its price. If now circumstances allow of this
price being raised to £3, or compel it to be reduced to £1,
then although £1 and £3 may be too small or too great
properly to express the magnitude of the wheat's value,
nevertheless they are its price — for they are, in the first
place, the form under which its value appears, i. e., money ;
and, in the second place, the exponents of its exchange-
ratio with money. If the conditions of production, in
other words, if the productive power of labour remain con-
stant, the same amount of social labour-time must, both
before and after the change in price, be expended in the
reproduction of a quarter of wheat. This circumstance
depends neither on the will of the wheat producer nor on
that of the owner of other commodities.

" Magnitude of value expresses a relation of social pro-
duction; it expresses the connection that necessarily exists
between a certain article and the portion of the total labour-
time of society required to produce it. As soon as magni-
tude of value is converted into price, the above necessary
relation takes the shape of a more or less accidental ex-
change-ratio between a single commodity and another, the
money commodity. But this exchange-ratio may express
either the real magnitude of that commodity's value, or the
quantity of gold deviating from that value, for which, ac-
cording to circumstances, it may be parted with. The
possibility, therefore, of quantitative incongruity between
price and magnitude of value, or the deviation of the
former from the latter, is inherent in the price-form itself.
This is no defect, but, on the contrary, admirably adapts

66 THE. ECONOMICS OF SOCIALISM

the price-form to a mode of production wliose inherent laws
impose themselves only as the mean of apparently lawless
irregularities that compensate one another.

" The price-form, however, is not only compatible with
the possibility of a quantitative incongruity between magni-
tude of value and price, i. e., between the former and its
expression in money, but it may also conceal a qualitative
inconsistency — so much so that although money is noth-
ing but the value-form of commodities, price ceases alto-
gether to express value. Objects that in themselves are no
commodities, such as conscience, honour, etc., are capable
of being offered for sale by their holders, and of thus ac-
quiring, through their price, the form of commodities.
Hence an object may have a price without having value.
The price in that case is imaginary, like certain quantities
in mathematics. On the other hand, the imaginary price-
form may sometimes conceal either a direct or indirect
real value-relation; for instance, the price of uncultivated
land, which is without value, because no human labour has
been incorporated in it.

" Price, like relative value in general, expresses the value
of a commodity (e. g., a ton of iron), by stating that a
given quantity of the equivalent (e. g., an ounce of gold)
is directly exchangeable for iron. But it by no means
states the converse, that iron is directly exchangeable for
gold."

The meaning of this is surely quite clear. The fluctua-
tions of price due to accidental conditions of thg 'market
average themselves over long periods, and the truth of the
social labour theory of value manifests itself even through
these very perturbations.

But of course the majority of Professors of Political
Economy do not see that the above analysis is correct.

VALUE 67

They call it " rubbish," with the illustrious Professor
Flint; pass it by on the other side, while endeavouring to
make use of the distinctions drawn by its author, like the
still more illustrious Professor Alfred Marshall ; or imagine
that they have entirely crushed it into insignificance when
they point out that an oak has more value than an elm,
in common with that most illustrious Professor Bohm-
Bawerk !

To imagine that all this is really done in good faith is to
flatter the honesty of these learned gentlemen at the ex-
pense of their intelligence. But seeing that another well-
known Professor actually argued with me at a public
gathering against the social labour value theory on the
ground that crinolines when out of fashion were of little
value and were disposed of for next to nothing ; thus omit-
ting to consider that when first in fashion they sold for
many times their labour value — seeing, I say, that such
mental carelessness as this passes muster for sound con-
troversy even among the intelligent, it is indeed impossible
to set a limit to the ignorance of the learned.

What disguises from them the truth must, we may rea-
sonably assume, be the difficulty already commented upon
of apprehending the fact that it is social human labour
which constitutes value and measures value according to
the minimum of social labour time necessary, as deter-
mined by competition and higgling of the market, to
produce the various commodities in our present society.
Once the meaning of this simple abstract necessary social
human labour embodied to-day in commodities, tinder the
social conditions of free competition, with individual con-
trol and for individual exchange, is thoroughly grasped,
the problem of value is solved and further analysis becomes
possible. Then, too, the minor difficulty of fluctuations

68 THE ECONOMICS OF SOCIALISM

of value ceases to trouble the inquirer, who sees that, to
use the common illustration, they affect the basis of value
no more than the waves of the sea or an exceptionally high
tide influence the general sea level.

Simple abstract social human labour, to conclude with a
last repetition, comes behind all individual producers and
measures the value in exchange of their wares, as compared
with and exchanged for other wares, quite without refer-
ence to them: they themselves perform a social function
and call into being a social measure of value, at the same
time that they perform their individual tasks and exercise
their individual skill and capacity. When this quantity of
social labour value embodied in a commodity, instead of
being expressed or represented in the relative social labour
value of other commodities, is expressed, in common with
these other commodities, in relation to one special commod-
ity, gold, then value takes its money name and becomes
price. But this is only because gold itself is subject to the
same law of value as other commodities, and can be
measured in the common term with them, namely, labour.

This means, therefore, that all commodities which ap-
pear on the market of the world for exchange are estimated
relatively to one another as portions of the amount of
necessary social labour exerted by liuinan beings to pro-
duce them — aliquot parts of the social labour day, or
week, or month — measured by time. It matters not how
or by whom the commodities are produced, with what tools
they are fashioned, or in what scale of social development
they first assume their final market shape. Whether raised
or made by the highest skilled white labour with the best
machinery in the United States; by civilised beings on a
lower plane of economic development in Italy; by negroes
in Africa ; by ryots in India ; or by coolies in China : once

VALUE 69

the products themselves are on the market they, other
things being equal, lose every vestige of their origin, all
trace of their particular environment, during production.
They are simply incarnations of quantity of social labour
in various shapes, and their relative value is so measured
not directly by themselves but in one another.
To sum up:

1. All exchanges are upon the average conducted on an
equality.

2. The relative exchange value of articles of social use
is measured wholly and solely by and through other articles
of social use. The only value known to economics is this
relative value.

3. Value, thus defined, is measured by the quantity of
simple, abstract, necessary social human labour embodied
in the commodities exchanged : this social human labour
comes behind the individual producers, whatever their
natural advantages or disadvantages, their skill or lack
of skill, and estimates the value of their respective
products in terms of other commodities.

4. Thus the value of goods is not arrived a.t. directly by
the time it takes in special cases to produce them but
indirectly in relation to other goods. And their value,
their ratio of exchange in relation to other commodities, is
determined by competition and higgling of the market : the
minimum necessary labour time being thus arrived at not
absolutely but relatively.

5. The precious metals, and in our times gold more
particularly, are used to estimate the value of other com-
modities and as universal means of exchange, because they
themselves, as useful social articles, contain incorporated
in them a large quantity of social human labour in propor-
tion to their bulk, and for other reasons of convenience.

70 THE ECONOMICS OF SOCIALISM

6. As commodities, whether ordinary wares or the pre-
cious metals, exchange in relation to the quantity of simple,
abstract necessary social human labour embodied in them,
or which it costs to produce them, measured by time, it fol-
lows that the value of commodities relatively to one another
varies in proportion to the quantity of such labour em-
bodied in them. If less labour is embodied in them, if it
costs less labour to produce them, their value is less, other
things remaining the same; if more labour is embodied in
them, if it costs more labour to produce them, their value
is greater,

7. Gold is subject to precisely the same laws as other
commodities in regard to its relative value. But the value
of all other commodities on the markets of the world
being now estimated with reference to gold, divided into
special weights of that metal, the value of all those other
commodities assumes a particular form with respect to
gold, the universal commodity, and becomes price. Price
being the gold-name or money-name for value.

8. All prices may fall: all values cannot possibly fall.

9. Supply and demand affect value and price locally and
temporarily only. Underneath the ups and downs thus
occasioned, the law of measurement of value in exchange
by the quantity of simple, abstract, necessary social human
labour works steadily on.

CHAPTER III

SURPLUS VALUE

Having arrived at a clear conception of what value in
exchange is, and the measure of such value, we are in a
position to go farther and examine how riches are accumu-
lated, and whence they are derived, in our existing society,
where the system of capitalist production prevails.

Exchange means, on the whole, a transfer of equal values
from one side to the otlier, and vice versa. In such an
exchange there may be great advantage derived by both
parties to the transaction, but there can be no profit to
either. Neither side has possession of more value after
the bargain is completed than it had before. Supposing
it to be possible to barter directly a suit of clothes for a
quarter of wheat, which represents roughly an equality on
the London market to-day. The one side obtains a suit
of clothes and the other side a quarter of wheat, and, by
our assumption, each obtains what he wants: the former,
garments, the latter the means of making bread. Not only
are their social desires both mutually satisfied in this par-
ticular regard, but, from the point of view of exchange
value, each has obtained an equivalent, in social labour in-
corporated in a commodity, in exchange for that which he
has parted with. ^Manifestly there is no profit here, though
both sides are benefited by the exchange, and, the articles
being used in consumption, there is an end of the matter.

Now, however, let us assume that the owner of the suit
of clothes is ignorant as to the full value of his commodity,

71

72 THE ECONOMICS OF SOCIALISM

and parts with it to the owner of the wheat for a bushel
less than the quarter which he ought to obtain. The per-
son who wanted a suit has obtained it at less than its
market value; and the one who has parted with it is in
possession of less food, to the extent of a bushel of wheat,
than, on an equal exchange, he ought to have received.
He is so much the poorer, therefore, and, having parted
with his suit at less than its full value, that extra bushel
of wheat will remain in the hands of its original possessor,
in addition to the suit which he has acquired. But there is
no increase of riches here, no accumulation of wealth, no
amassing of surplus value. The suit and the quarter of
wheat still remain the suit and the quarter of wheat,
neither more nor less.

The same applies all round. A smart trader may get an
ounce of gold, or several pounds of indiarubber, in ex-
change for a few showy machine-made clothes. He has
good reason to congratulate himself. Nay, the ignorant
savage, from his point of view, has perhaps made a good
bargain; while the trader is by so much the richer man
when he returns to Manchester. But we are still where we
were before, from the point of view of economics. There
were cheap cotton goods on the one side and gold or india-
rubber on the other. The latter being made available for
civilised society adds to the convenience of its wealthy
members; but the savage when he comes to understand
what his gold, or his indiarubber, represents as value in
exchange, soon learns that he has been outwitted. He has
lost: the smart trader has gained. But the total values
are neither increased nor diminished.

Unequal exchange, in a word, like equal exchange,
creates no wealth.

Nor does the use of money affect this truth in any way,

SURPLUS VALUE 73

though it may and does serve, in some cases, to obscure it.
WHiether too high a price or too low a price is paid for a
commodity — whether too much or too little money value
is given in exchange for it — this only concerns the pur-
chaser and the seller, in the same way as if the unequal
exchange were made with another commodity, instead of
with the universal equivalent, or exchange commodity,
money itself. There were so many sovereigns, or gold
dollars, on the one side, and so much of useful goods on
the other. In whatever proportions they are exchanged
there is no increase of wealth, and no possibility of greater
social accumulation. Before as after the exchange there /
are the same number of sovereigns and the same quantity /
of goods. Money, used merely as a medium of exchange
for equal or unequal values, of itself engenders no increase
of wealth whatever.

All this is so obvious that it would be quite needless to
insist upon it, but for the fact that by uneducated people, as
well as by those who ought to know better, it has often been
assumed that riches are somehow created by the equal
exchange of commodities.

Now, when men and women worked as chattel slaves for
their master, the great land and slave owner of antiquity,
or when they worked as serfs for the feudal lord so many
days in the week without payment, there could be no doubt
as to the origin of the wealth which the Eoman noble, or
the French seigneur, acquired. The slaves, as well as
their product over and above their keep, both belonged to
the great proprietor of ancient days, and the increase of his
wealth was due wholly and solely to their labour.

The produce of the serfs, too, when it went into the
granaries or storehouses of that most superior person, the
baron or abbot of old times, belonged to him, in like man-

74 THE ECONOMICS OF SOCIALISM

ner; and his wealth was increased in the same way, though
now the serfs went with the land, instead of being bought
and sold as loose .chattels. In both these cases there was,
I say, no illusion whatever in regard to " organisation of
labour," " rent of ability," " invention or application of
superior tools or machinery " as the cause of the wealth of
the great man at the top. He took the useful things which
his slaves or villeins made, or raised, or extracted from
the mines, for him, allowing them to eat and drink and be
clothed with just so much as rendered them efficient agents
to provide him with what he wanted.

There was no cant of beneficence, no pretence of "eco-
nomic harmony," about all this. The improvements in
methods of production, such as were made, told, as a
matter of course, to the advantage of the proprietor of the
slaves and the land.

To-day, however, in the great civilised nations of the
world, there are neither slaves nor serfs left. All the
workers are supposed to be free men — free and equal
men in such countries as England and America. But free
as they are in England, at any rate, all the great means
and instruments of production and distribution, including
the land, are in the possession of one class; and there is
another class of perfectly free people whose drawback is
that, practically speaking, they possess no property —
excepting only one commodity.

Such are the necessary and inevitable social conditions
in which alone capital can become the dominant power in
production. And the one object of the owners of capital
is to obtain a profit by its employment : to realise by pro-
duction of commodities all that they had before and some-
thing more.

But how does it come about that the capitalist class sue-

SUEPLUS VALUE 75

ceeds in making a profit? How is it that, with neither
slaves nor serfs at command, members of this class contrive
to pile up wealth to an extent which the greatest slave-
owner or the most powerful baron could never reach?
They cannot do it by equal or unequal exchange; for, as
we have seen, these of themselves can engender no increase.

Neither is it as compensation for risk run that society
at large thus permits them to amass large fortunes. Indi-
vidual capitalists run a risk, no doubt, by reason of the
competition of other capitalists; but the whole class of
capitalists runs no risk whatever. Their property in-
creases as a class, irrespective of the bankruptcy and ruin
of individuals of their class, as can easily be seen by com-
paring the statistics of wealth in all civilised countries.

The fact remains, therefore, that, without gain by ex-
change, without compensation for risk, and, in numberless
cases, without the slightest social service on their part —
with far less of social service, indeed, than even a Lucullus
rendered to Rome — they obtain vastly increased wealth.

Now money itself only becomes active capital when it is
used to buy raw materials, tools, machinery, coal, oil, and
so forth for the purpose .of using tliem in production.
All these are bought as commodities on the market at their
market value. The completed product is sold afterwards,
and the capitalist has realised a gain. He started with
money to the amount of say, £100, and, after paying all
expenses, he finds himself at the end of the transaction the
happy possessor of £110. Whence comes this additional
£10 in money, over and above his original £100?

The capitalist has bought with his money the various
commodities he needs for production, at their cost of pro-
duction as expressed in simple, abstract, necessary social
human labour embodied in those commodities. He still

76 THE ECONOMICS OF SOCIALISM

requires human energy to transform these commodities into
the complete commodity in which he himself specially deals.
He has no slaves — he would be shocked if anyone proposed
to him to buy some; he controls no serfs — he thanks
heaven that feudalism Avas swept away long before his
day; but, conveniently for his operations, and without his
having had any say in the matter, there stand just outside
his factory door a crowd of men and women who are anx-
ious, nay, eager, to place themselves at his disposal for a
fixed time in return for agreed pay — tliat is all right: he
rubs his hands at having to deal with genuine free people,
instead of slaves or serfs, and in they go to work for him.

But what is this last purchase the capitalist has made,
and what is it that these free people so gladly sell to him?

Here, again, it is necessary to enter into a brief abstract
investigation. What is the one commodity, the sole prop-
erty, which the free and enlightened citizens, who possess
neither land nor capital, either as individuals or as a
community, have to sell? The common answer is
" labour." But, as we have already seen, clearly, labour
has, of itself, no value at all. Labour has value only when
embodied in useful commodities. The difficulties arise
from a loose use of language. What the free human be-
ings without property are so anxiously trying to sell is
therefore not labour but their power to labour. This is
the important commodity which they have to dispose of to
the benevolent " organiser of labour " or " captain of in-
dustry," who, in the course of his business, has only the
decent desire to make a wholesome profit for himself.

But power to labour, or labour-power, which means the
capacity to embody simple, abstract, necessary social human
labour in commodities, is by no means a good commodity

SURPLUS VALUE 77

to have as one's sole exchangeable possession. This labour-
power, though it be itself the sole-value-creating entity, is
not a good commodity to deal in, I say. To begin with,
it won't keep. Its owners, therefore, cannot hold it for
any length of time for a better market. Its value depends
upon the physical and mental vigour of its sellers, who
must eat and drink adequately from day to day. If, con-
sequently, they don't come to terms with some one or other
of the capitalist class, hunger begins to tell its tale, and
their labour-power loses at once a portion of its saleable
value.

But this commodity, this labour-power, though it is a
function of the human being, exchanges on the average,
like any other commodity, in relation to its cost of pro-
duction. Moreover, it exchanges on an equality in that
regard. Labour-power, therefore, exchanges, or is bought
by the capitalist, on the same lines as he has bought all his
other materials of production. That is to say, he buys
labour-power as a commodity at its cost of production, as
measured by the quantity of social human labour embodied
in the food, raiment, house-room, fuel and other materials
which go to create it and keep it in order without deteriora-
tion. Labour-power, therefore, is bought at the cost of
subsistence, or according to the standard of life, of the
workers who sell it, which varies in different trades and in
different countries, but always tends to approach the mere
subsistence level.

This is what their wages paid in money really represent :
this and nothing more. And it is precisely this payment
of their standard of life, or their cost of subsistence, in the
shape of money-wages, which disguises from most of the
vendors of labour-power, the workers namely, the whole

78 THE ECONOMICS OF SOCIALISM

scope of the transaction. " What should we do without the
rich and the capitalists? " is a phrase by no means confined
to the educated and well-to-do.

This labour-power, so bought as a commodity on the open
market, at its cost of production, by payment of wages
equivalent to the standard of life of the human machine
that can expend and apply it, embodies more value, how-
ever, in useful commodities, during the time of production,
than it costs in wages. This is a very remarkable peculi-
arity in the commodity, and it is the one from which the
capitalist derives his profit. None of the other commodi-
ties which he purchases, for the productive operation on
which he is engaged, do anything for him in this way.
But labour-power does. The capitalist here buys a com-
modity which returns to him all the value he has parted
with in the shape of wages, and a surplus value in addi-
tion thereto.

But, before examining more closely into the phenomena
which accompany the creation and appropriation of this
surplus value, let us see once more what labour-power and
labour are. It is a remarkable fact that the truth to which
our inquiry has conducted us can be verified in actual
practice. We commonly speak of " cheap labour," as if,
when low wages were paid, a really cheap article were al-
ways purchased by the capitalist. But experience has
shown that in cases where low wages mean that those who
receive them have an inferior physique, or live on a lower
scale of subsistence, there is often, or even as a rule,
no real gain to the capitalist. The late Thomas Brassey,
the contractor, discovered, as set forth by his son, that the
cost of carrying out works in countries in which wages
varied greatly was not very different, and that the prefer-
ence, so far as profit to himself was concerned, was in

SURPLUS VALUE 79

favour of those countries where the rate of wages was on
the average highest. My friend, Mr. George Collins Levey,
who has had buildings constructed in many different capi-
tals, discovered that their cost was in all cases nearly the
same, the cheapest being probably those set up in America
where wages were highest.

The Indian coolie, who is paid a ridiculously low rate
of wages, gives in India no more than the value of those
wages, in comparison with the more highly-remunerated
work of the European. But the same Indian coolie in
Demerara, where he lives on a higher scale, is a more
valuable labourer than the more muscular negro. We can
observe the like contrast in England. The agricultural
labourer in Wiltshire and Dorsetshire, who used to get
about 9s. to lis. a week, was of the same race as the Cum-
berland hind who received as much as 18s. or 19s. a week.
But a farmer who knew his business would rather have
paid the latter man, with his higher standard of life,
the higher wages than his fellow of the Southern counties
the lower. He was a cheaper man at the money.

Another illustration may be drawn from Texas. There
a man I knew was once employing a number of American
workers to do some more or less unskilled work at two
dollars, or eight shillings and fourpence, a day. They
struck for two dollars and a half, or ten shillings and
sixpence, a day. There were some Italians unemployed at
the time who were willing to take the job at a dollar a
day. My acquaintance, who had theories on the subject
of the quantity of labour embodied in relation to the
standard of life, agreed to pay them a dollar and a half
a day, on condition that he should supply them with, and
they should eat, the same food as the American labourers
who had left him. He told them further that as soon

80 THE ECONOMICS OF SOCIALISM

as they were worth two dollars a day, after the first six
weeks' work, he would pay them at that rate. Within the
six weeks, the Italians, as a whole, were doing nearly as
good work as the Americans, and within two months all
were being paid two dollars a day. They were well worth
it to their employer, you may be sure, who was no phil-
anthropist at all.

The above examples all apply to what is known as " un-
skilled labour," but similar illustrations can be drawn from
the field of "skilled labour." In nearly every case the
higher wages, accompanied as they are by a higher standard
of life, represent a proportional, or more than proportional,
quantitative embodiment of simple, abstract social human
labour in commodities.

This goes to show, therefore, that labour-power, selling
or exchanging for wages, in relation to its cost of produc-
tion or standard of life — the simple, abstract, necessary
social human labour embodied in commodities — is no mere
creature of the imagination but an actual force for the
crystallisation of social human labour in commodities, un-
der the most varying conditions of country, climate, race
and rates of payment.

To return to the purchase and sale of labour-power,
and the surplus value thus created and appropriated by the
capitalist.

It matters not what branch of manufacture or produc-
tion is taken, the analysis is the same. Cotton-mill, iron-
works, mine, farm, they are, one and all, from the capital-
ist point of view, not the means and instruments for cre-
ating useful articles for the benefit of society but so many
methods of obtaining profit. It^s^ for this reason, and
this reason alone, that, having capital in the form of

SUEPLUS VALUE 81

money in his possession, the capitalist buys his means of
production, including tliat commodity witliout which all
tKe~rest would be of no avail — labour-power — and sends
out his own completed commodity into circulation. In
tliis way, and in this way alone, can his £100 which he
has expended return with an additional £10 into his posses-
sion. And this labour-power, as said, is purchased at its
cost, as represented in the quantity of social labour in
commodities necessary to ensure its owner's subsistence.
Whatever this may represent on the market of the day
in money value, that is the value of his labour-power:
the value being arrived at, as with other commodities, not
directly but indirectly, by way of exchange, and determined
by competition on the market.

Now, Marx supposes in the case he deals with that the
value of the total daily cost of a labourer's subsistence is
represented by an amount of food, fuel, raiment, house-
room, etc., equal to what could be produced by half-a-day's
social labour. And if, on the same assumption, six shil-
lings in money is the equivalent of this half-a-day's social
labour, then the cost of the reproduction of the labour-
power purchased is six shillings. Consequently, the labour-
power which the capitalist buys is well and truly paid for
by six shillings a day. That is to say, the use of the
labour-power of the labourer for a whole day is bought
by the capitalist for the equivalent in money of half-a-day's
social labour; and in paying this he has paid its full
market value as a commodity.

There is no mere assumption here. If we add up the
total cost of a labourer's subsistence at the present time
in social labour, which means, of course, the amount of
social jabour embodied in those things which are needed

82

THE ECONOMICS OF SOCIALISM

to keep his labour-power in its normal condition, we shall
discover that in the majority of cases they reach less than
half -a-d ay's social labour.

Moreover, the worker gives the capitalist credit for his
commodity. He advances his labour-power to the monied
man, only receiving his wages at the end of the day, week,
or month, for which he engages to sell it at the agreed
price. This fact, which we see verified all around us, and
the fact already noted that labour-power itself cannot be
kept in good order without immediate sale by its owner,
show that the sole commodity owned by the workers is
always sold at a disadvantage. This becomes still more ap-
parent when an employer goes bankrupt and wages are
not paid ; or when accident, or social causes, lead to a stop-
page of trade.

We have seen that in the ordinary business of capitalist
production the capitalist buys all his materials at their
market cost, the machinery, in the case of manufacture,
being provided beforehand. His expenditure is thus di-
vided :

General
Raw Materials
Incidental Materials
Wear and Tear of
Tools and Machin-
ery
Coal

Wages Wages

Fabm
Seed
Manures

Wear and Tear of Tools, Barns
and Horses
Wages

Cotton Industry

Cotton

Oil, Gas, Packing,
etc.

Depreciation of Ma-
chinery, Buildings

Coal

Iron Industry
Iron Ore
Fluxes

Depreciation of Fur-
naces, Mills, etc.
Coal

also

Mines
Material

Here Raw

Product
Wear and Tear of Tools
Wages

The product in each case, of course, sells on theayerage

SURPLUS VALUE 83

for all that it has cost and more. If this were not the
case the capitalist would cease to produce, seeing that his
object is simply and solely to make profit for himself.
When profit ceases he does, in actual experience, cease to
produce, regardless of the interests of others.

When, therefore, the capitalist buys labour-power he
does so because it comprises that most convenient property
for him that, when expended in his service, it adds more
value to the commodity than its own cost of production.
The assumption, in the case taken for an example, is that
the cost of the labourer's subsistence is half-a-day's social
labour, or in money-value six shillings. This is the sum
for which he sells his labour-power to the capitalist.

But he sells his labour-power not for half-a-day, or four
hours, but for a whole day, or eight hours. Consequently,
after the wage-earner has returned to his employer the full
value of his wages in the shape of labour embodied in
useful commodities during the first four hours of his day's
work he continues to toil for another four hours which
gives an equal amount of value, or six shillings' worth in
money; this the employer takes and divides up Avith others.
That is an example of how surplus value is obtained, and
the four hours of work over and above the wage-earner's
wage constitutes so much unpaid labour — labour, that is,
which the worker is bound by his agreement to embody in
commodities for his employer but for which he himself
receives nothing.

This surplus value, however, is embodied in the surplus
of commodity-value produced, and is in the possession of
the capitalist before it is exchanged (with the rest of the
product) and converted into money.

Obviously, the same applies in the like manner to a
seven-hour day, or a six-hour day. If the value of the

84 THE ECOxVOMICS OF SOCIALISM

wage-earner's standard of life is represented by half-a-
day's social labour, then, manifestly, he works in each
case three-and-a-half hours, or three hours, for which he
receives no payment. And out of this surplus value so
jv.extractcd, this unpaid labour so obtained, embodied in
goods for exchange, the landlord, the income-receiver, the
commission-agent, the profit-monger, the banks and so on,
all obtain their share. Not, however, that the amount of
surplus value relatively to wages, or of unpaid to paid
labour, is generally so small as this. On the average, the
rate of unpaid to paid labour in a country such as Eng-
land is nearer two or three to one, than one to one as in
the above illustration. That is to say, the worker, for
every hour he works for himself, works two or three hours
for the benefit of other people, who may or may not do
any useful social work at all.

One day, in the first year or two of the movement here,
I was lecturing on this special point to a working-man's
Radical club in London. Many present scarcely followed
the argument, and some of the criticism was silly enough.
But, by-and-by, there arose a man who threw some light
on the discussion. " To me," said he, " the whole thing
is clear enough. I am a worker in iron. Iron comes into
our shop at 3s. the cwt. I myself receive 6s. a day as my
wages. After I have worked on the iron with the machin-
ery at my disposal for half-a-day, what comes into the
works at 3s. a cwt. goes out at a sale price of £1 the cwt.,
sometimes more, sometimes less. Put what you please
down for wear and tear of machinery, coal, oil, lighting,
&c., it is evident that the difference of 14s. between what
the iron costs in wages and raw material, namely, 6s., and
the price realised, that is £1, leaves a fine surplus value

SURPLUS VALUE 85

for somebody. I for one shall see more plainly in future
how my labour is filched from me."

This, indeed, is no exceptional case; for, making all
possible allowance for incidental materials, wear and tear
and so on, the cost of the cwt. of finished iron to the
employer could not have been more than 8s. all told.
Here, therefore, the surplus value would be twelve shillings,
and the rate of unpaid to paid labour as 12 to 3, or just
4 to 1. Consequently, the worker was day by day doing
four strokes of work for others against one for himself,
or for every hour he worked for himself he worked four
for others.

Now there are three ways in which the amount of surplus
value extracted from the workers may be enlarged by the
capitalist:

1. By increasing the actual number of hours that the
worker toils. Clearly, assuming that the work done is
equally good — as it is, up to a certain point — and that
the capitalist is quite indifferent to the health of his wage-
earner, as he nearly always is, knowing that there are
plenty more where he came from : on these assumptions
and within certain limits, the longer the hours, the greater
the quantity of unpaid labour, the larger the amount of
surplus value obtained by the employer. Thus, if the
wage-earner replaces the cost of subsistence as represented
by his wages by working half-a-day, when the day's work
is eight hours, the employer gains four hours of unpaid
labour for the services which he renders as an organiser of
labour ; he himself, that is, and those who take under him.
But now let him extend the day's work from eight to nine
hours, and he appropriates five hours of unpaid labour in-
stead of four. Let him protract the day's work still fur-

86 THE ECONOMICS OF SOCIALISM

ther to ten hours, and he has six hours of unpaid labour to
the good instead of either five or four.

Consequently, all through the capitalist period, it is
found that employers have been invariably anxious to in-
crease the number of hours in the working-days; and have
bitterly resented any attempt to restrict the hours as an
injustice not only to themselves, but to the community at
large. Such extension of the hours of labour is, within
certain limitations, an absolute increase of surplus value
in every case.

2. But there is another way in which the same result
may be brought about. The result, namely, that the quan-
tity of unpaid labour appropriated by the capitalist is in-
creased in comparison with the paid labour of the wage-
earner. This is by the reduction of the cost of his stand-
ard of life, as measured by the amount of social labour
necessary to produce it or embodied in it. Which again is
to express the reduction of its money-value. For example,
the standard of life for a particular section of wage-
earners is represented by, say, six shillings a day. Let us
now suppose that bread, bacon, clothing, rent, &c., fall
to such an extent that five shillings will purchase as much
as six shillings did a little while before. Then, competi-
tion and otber circumstances remaining the same, the
workers will be as content with five shillings a day as they
were previously with six shillings. The cost of production
of their labour-power has fallen to that level, and competi-
tion will bring dovni their wages in like manner. Con-
sequently, in this case, the employer who before got four
hours unpaid labour out of a total labour day of eight
hours, the worker replacing his wages in four hours out
of the eight — this same employer, I say, will now ap-
propriate upwards of four-and-a-half hours of unpaid la-

SURPLUS VALUE 87

hour instead of four, seeing that the worker replaces his
five shillings in wages in the first three-and-a-half hours'
work instead of four.

This was the reason, and not any philanthropic motive,
which induced the capitalists of Great Britain to agitate
so desperately for free-trade in food-stuffs as against the
cry of the advanced Chartists for nationalisation of land
and machinery. Cheaper food meant and means additional
hours of unpaid labour to the employers of Lancashire and
Yorkshire. The other incidental advantages of free trade
they cared nothing about.

3. The third manner in which surplus value may be
and is increased is purely relative. That is to say, the
number of hours worked remaining the same, and the
standard of life or wages continuing unaltered, a change
in the conditions of labour may bring about the same
pleasing result, in the shape of increased surplus value,
to the capitalist. This means that the rapidity and effi-
ciency of the machinery is increased, and more work is thus
compressed into the same number of hours. Suppose, now,
that the day's wages remain at six shillings, but the speed
of the machinery is increased fifty per cent. What hap-
pens? This: that it only takes the worker two-thirds of
the number of hours that it did before to replace the
value of his wages. Taking the day's work still at eight
hours; instead of four hours being required to replace
the worker's wages, two and two-third hours only are
needed to do this, and the capitalist takes more than five
hours of unpaid labour out of the eight instead of four.

Such intensification of labour by improved machinery,
like the extension of the working-day, can only be carried
on, profitably to the employer, up to a certain point. Be-
yond that point exhaustion of the " hands " begins, and the

88 THE ECONOMICS OF SOCIALISM

capitalist loses in breakages and bad output what he ap-
parently gains by greater speed.

It is needless to speak here of adulteration and short
measure, as a means of increasing surplus value. That is,
of course, merely a common fraud, which, though con-
sidered by capitalists of the highest moral character only
" a legitimate form of competition," is no better than
cheating at cards, uttering false coin or bank-notes, forg-
ing cheques, or any other kind of recognised, but illegal,
swindling. That nearly all goods produced for profit to-
day should be adulterated is a measure of the utility of
the capitalist system of production. With its morality I
have nothing to do.

Labour-power is thus, as we have seen, sold like other
commodities on the market, its value being regulated,
similarly to theirs, by the amount of social labour em-
bodied in the cost of its production, which in this case
is the total subsistence of its possessor. Moreover, the
value of labour-power is also determined not directly but
indirectly, and the equivalence of the exchange is arrived
at by competition and the higgling of the market.

Hence, though the value of labour-power to its possessor
is settled in its respective grades by the cost of produc-
tion, it is also subject to fluctuations — that is, wages in
the same trade may rise or fall — according to the supply
or demand of this special value-creating commodity at
different times.

It is the special object of trade unions to maintain the
rate of wages in each trade, whatever may happen, at such
a level that, when in employment, the worker is at least
sure of getting a decent subsistence. But, in spite of all
their efforts, the influence of this cause in determining
wages is severely felt. Ever since the capitalist method

SURPLUS VALUE 89

of production became dominant, and even for some time
previously, as the system of production for profit gained
strength, a large fringe of unemployed, or casual, labour
has been an inevitable necessity. The ups and downs of
trade, the causes of which I shall examine later; the con-
tinuous introduction of improved machinery and chemical
inventions, lessening the number of " hands " needed to
produce a given amount of commodities, — have resulted in
an almost permanent over-supply of labour-power on offer
in all civilised countries, save during periods of excep-
tional prosperity.

As a result, there is frequently weighing upon this par-
ticular market a mass of more or less dimensions of un-
sold labour-power, ready to be absorbed in periods of
great inflation for the profit of the capitalist class, but
thrown out again into worklessness and starvation for its
owners on the first recurrence of stagnation. All the phe-
nomena of demand and supply in relation to other com-
modities, glut and scarcity, low prices and high, are to be
seen in relation to labour-power: the only difference being
that this commodity happens to be incorporated in flesh-
and-blood, which, as before remarked, makes the necessity
for its daily sale by so much the more pressing.

Eeference has been made above to the relation which
paid labour bears to unpaid labour in one or two special
cases, and how changes are made in favour of the capitalist
without any important alteration in the method of pro-
duction itself. Now, in producing any manufactured com-
modity, it appears that there are generally the following
necessary constituents to be bought and expended by the
capitalist: raw materials, incidental materials, and, lastly,
labour-power. To these must be added the wear-and-tear
and deterioration of machinery: such deterioration being

90 THE ECONOMICS OF SOCIALISM

due, not merely to time and use, but to relative inferiority,
owing to the introduction of better machines of which
account must be taken.

The value of raw materials, however, as value, neither
increases nor diminishes during the course of the manufac-
turing process.

The value, the social labour value, that is, embodied in
the raw cotton, wool, leather, iron or other material bought
by the capitalist on the market reappears as the same value
and no more in the finished commodity. It is a constant
quantity throughout the whole process from first to last.

The value of the incidental materials likewise makes its
appearance again in the finished commodity, neither in-
creasing nor diminishing in value during the operation.
The value of the oil, gas, coal, etc., used up in manufactur-
ing the raw materials is embodied at their cost in the
finished commodity. So much and no more.

So, also, with the value of the machinery: this finds its
way, whether in ten years, fifteen years, or more, into the
commodities, but of itself creates no additional value what-
ever during the process. The wear-and-tear reckoned at,
say, 10 per cent., represents the gradual incorporation of
the value of the machinery in the finished product. But
this, too, is a constant value, which neither expands nor
contracts during the period of its absorption in the com-
modities produced.

All these three portions of the total value may there-
fore be classed as constant capital: that portion of the
capital, namely, whose value remains the same at the end
of the process that it did at the beginning. With the
cotton, the wool, the iron, the leather, the form is changed;
but the vahie of the raw material, to start with, remains
the value of the raw material in the finished commodity

SUEPLUS VALUE 91

— in the yarn, or the cloth, or the boots, or the finished
iron.

But now, lastly, we come to the labour-power purchased.
Here the case is different. Not only does the value of the
labour-power, its cost in wages to the capitalist, appear in
the finished commodity, but an additional value as well.
This particular material, labour-power, does, in function-
ing, give off to the finished commodity more value during
the process of production than its cost, to start with, rep-
resents. It is not a constant but a variable form of the
capital employed. It reproduces its own value and a sur-
plus value as well, which costs the original seller of tlie
labour-power toil and expenditure of vitality, but costs the
capitalist nothing.

Splitting up any finished commodity into its component
parts or value, we have, therefore:

Constant Capital — The value of raw materials, inci-
dental materials, wear-and-tear, etc.

Variable Capital — Wages paid to work-people.

Surplus Value — The value added during process of
manufacture by the unpaid labour of the workers,
after they have replaced their wages by labour-value
embodied in the commodities which they produce.

I give Marx's own illustration of how this works out in
relation to a cotton factory, although the figures are very
different indeed from those of to-day :

" First, we will take the case of a spinning mill con-
taining 10,000 mule spindles, spinning No. 32 yarn from
American cotton, and producing 1 pound of yarn weekly
per spindle. We assume the waste to be 6 per cent.
Under these circumstances 10,600 pounds of cotton are

92 THE ECONOMICS OP SOCIALISM

consumed weekly, of which 600 pounds go to waste. The
price of the cotton in April, 1871, was 7%d. per pound;
the raw material, therefore, costs in round numbers £342.
The 10,000 spindles, including preparation-machinery and
motive-power, cost, we will assume, £1 per spindle, amount-
ing to a total of £10,000. The wear-and-tear we put at
10 per cent., or £1,000 yearly — equal to £20 weekly.
The rent of the building we suppose to be £300 a year,
or £6 a week. Coal consumed (for 100 horse-power indi-
cated, at 4 pounds of coal per horse-power per hour during
60 hours, and inclusive of that consumed in heating the
mill), 11 tons a week at 8s. 6d. a ton, amounts to about
£41/^ a week; gas, £1 a week; oil, etc., £4i/^ a week. Total
cost of the above auxiliary materials £10 weekly. There-
fore, the constant portion of the value of the week's prod-
uct is £378. Wages amount to £52 a week. The price of
the yarn is 12i/4d. per pound, which gives for the value of
10,000 pounds the sum of £510. The surplus value is
therefore, in this case, £510 — £430 = £80. We put the
constant part of the value of the product = 0, as it plays
no part in the creation of value. There remains £132 as
the weekly value created, which = £52 var. £80 surpl.
The rate of surplus-value is, therefore, ^%2 = 153% per
cent. In a working-day of 10 hours with average labour
the result is : necessary labour = SWss hours, and surplus
labour = 6%3."

When once this division of industrial capital into con-
stant capital, variable capital and surplus value is grasped,
the second great step is taken in the analysis of the capital-
ist system. It is indeed easy to apply the formula in all
trades. The only portion of the theory which is at all
difficult to understand, by those who have already mastered
what value is, consists in the manner in which machinery

SURPLUS VALUE 93

contributes its share of value to the product. Improved
machinery so obviously enables its possessor to get the
better of competitors, in the rough-and-tumble of mer-
cantile strife, that many think the new machinery itself
contributes greater value to the commodity than the old
appliances. Of course, precisely the opposite is true. I
mean that improved machinery, by enabling commodities
to be produced with a less expenditure of social human
labour than was previously necessary, tends to reduce the
relatfve value of similar commodities put on the market,
with the aid of this machinery, or without it, below the
former level.

The only value which the machinery adds to the com-
modity during the process of manufacture is, therefore,
as said above, the value of its own deperishment, with the
cost of repairs and so on. This does not take place all at
once, but is spread over a term of years. So that a large
portion of the value of machinery, which has been for
any length of time in use, is actually circulating in the
form of commodities, or has been worn out, with the wear-
ing-out, or consumption, of those commodities, although
the machinery itself may still be clanking away in its old
habitation to the old familiar tune. The actual physical
deterioration, in addition to its moral and material deteri-
oration, relatively to other still better machinery since
introduced, has been represented in the exchange value of
the commodities as they were thrown upon the market.
True, its form is fixed, but its spirit — in the shape of its
value — has to some extent flitted away, and has gone into
the commodities which it has been partly instrumental in
producing.

The machinery itself and all the improvements which
can be made in it are also directly social products. But

94 THE ECONOMICS OF SOCIALISM

for the work, the discoveries, the inventions of countless
generations of human beings, not a single improvement of
the many on which our present society plumes itself could
have been made. Nay, more, unless society were in a con-
dition to take advantage of the modification in the method
the improvement would itself be useless. Steam, elec-
tricity, artificial manure, automatic machinery, machine-
making machines are all of them as much social products
as the commodities produced with a view to profit and
placed upon the market for exchange.

The private ownership of capital, in the shape of the
means and instruments of production and distribution is
also, as we have seen, as much the result of a long series
of historic and economic developments as the private
ownership of the soil. These developments have resulted
in an intricate network of social conventions, based upon
class appropriation and ownership, by reason of which the
members of certain classes possess everything as individuals,
and the members of the other, the wage-earning class,
possess nothing but their labour-power. This social cleav-
age once effected, all the discoveries, inventions and im-
provements, no matter by whom they were made, go into
the po^ -ession not of the community but of the capitalist
class, ^hey belong, henceforth, to individuals or groups
of that class, to the exclusion of the working-class alto-
gether. This has been going on for so long that the ar-
rangement seems not only legal, which the dominant class
has taken good care to make it, but natural, proper and
inevitable. These discoveries, inventions and improve-
ments, therefore, become the property of the purchasers of
labour-power, and are used by them against those who own
this labour-power as their sole available commodity.

The capitalists use this advance of society, due to in-

SURPLUS VALUE 95

dividuals who are themselves the product of that society,
and who owe their faculties to their begettings and sur-
roundings from birth, to repress the demand of the work-
ers for better conditions of life; at the same time that,
in the majority of eases they take good care to deprive even
the discoverers and inventors of any considerable share of
the profits reaped by their aid. Thus it comes about, for
example, that when the wage-earners, owing to any cause,
obtain some considerable increase of their wages, involv-
ing a rise in their standard of life, labour-saving machines,
or inventions, are adopted which render superfluous a cer-
tain number of the workers, and turn them into necessitous
competitors for employment with those who still remain
at work.

Such improvements in our progressive society are al-
ways at hand and awaiting acceptance by the dominant
class of our day. But the object of that class is not to
save expenditure of labour, not to produce more useful
articles with less of toil for the working community. Xot
at all. Their sole and only object is to increase the quan-
tity of labour-value which they can appropriate without
paying for it: to enhance their total profit, that is to say.
Consequently, if wages are sufficiently low in proportion to
the total labour-value produced in any department of in-
dustry to satisfy the capitalist cla.>s engaged in that trade,
no employer will think of " locking up his capital " in
improved machinery. He prefers the simpler plan of ex-
torting surplus value out of the underpaid hands at his
command. In this he may calculate correctly enough,
seeing that his sole end and aim, like that of other em-
ployers, is not to save labour, or to economise toil, but to
save wages and economise his own individual expenditure:
this as compared with the amount of commodities or in-

96 THE ECONOMICS OF SOCIALISM

corporated social labour-value which he appropriates, leav-
ing so much more surplus value to him.

Hence it happens that the capitalist system of produc-
tion, in its greed for surplus value, not unfrequently heads
back progress. And we have seen, in such examples as the
nail-makers of Cradley Heath, the brickmakers of Staf-
fordshire, and elsewhere, the using of women to tug barges
along canals, that the introduction of improved machinery
is positively fought against and resisted by the extremely
low wages paid, the long hours worked, and the using up
of the workers as mere food for profit-making.

Now, if surplus value were extracted only out of grown
men, the resistance which might be experienced would tend
at times to become dangerous. But capitalist arrange-
ments at first made full provision against that. During
the period of the complete and unrestrained domination of
the profit-making system, women and children were brought
in to aid improved machinery in keeping the demands of
the workers within what employers chose to consider were
reasonable limits — limits, namely, that coincided with
what they regarded as the appropriation by themselves of
satisfactory quantities of surplus value.

But the effect of the introduction of women's and chil-
dren's labour-power into the market in competition with
that of the men was two-fold. In the first place, they
were more docile and less apt — in the case of the chil-
dren, practically unable — to complain of excessive toil ;
thus affording to the capitalist a supply of his most im-
portant commodity under exceedingly favourable condi-
tions for him.

In the second place, the employer was in this way pro-
vided with the most convenient engine of competition to
keep down his wages-sheet that could possibly be. For,

SURPLUS VALUE 97

under the law which regulates the rate of wages, or stand-
ard of life, in any trade, a man earns the usual wage in that
trade; such wage being taken to cover his own subsistence
and that of his family. But when his wife and children
are brought into the market also, with their labour-power
likewise pressed for sale, then competition reduces the
average wage of the whole family to the point which would
have been the wage of the man alone.

Thus, apart altogether from the mischief done to the
community by the overwork of women and children —
mischief going on at this day, and by no means wholly
remedied, as some think, by the Factor}- Acts — apart
from this, I say, a man's foes become literally they of his
own household. Although, of course, this was not dis-
cerned at first, and too often is not seen now by the work-
ers themselves. Yet, whether they see it or not, the more
strict organisation of labour, which the capitalist class has
been and is thus able to secure, and the increased compe-
tition arising from this cause, tend to depress the eco-
nomic status of the men, in spite of the apparent gain of
the wife's and children's wages at the end of the week.

Throughout all this period of perfect personal freedom,
which, as will be seen here and later, it is so difficult to
distinguish from competitive anarchy, the labourer uses
his labour-power as a commodity to be exchanged like any
other commodity, at the cost of the quantity of labour em-
bodied in its production — food, clothing, house-room, &c.

To the capitalist engaged in the process of production ,
this same labour-power represents only one of the elements
of the productive process, and is that one of those ele-
ments out of which he squeezes his surplus value : the mar-
gin of value from which he derives his own personal profit
after dividing with others who participate.

98 THE ECONOMICS OF SOCIALISM

Here we can see at once how absurd it is of Adam Smith,
and those who follow him, to speak of the wage of the
labourer as part of the income derived from production, the
share of the labourer in the joint work with his partner
the capitalist. It is nothing of the sort. The labourer's
wage is the purchase consideration paid for the labourer's
sole and only commodity, labour-power, without which the
employer would be wholly unable to make his capital
fructify and engender surplus value. Adam Smith him-
self, in a way, contradicts his own statement when, else-
where, he declares that employers are in a continual con-
spiracy to keep down the rate of wages.

Out of this surplus value and its concomitant arrange-
ments a bitter class antagonism necessarily springs.
From the earliest days of the development of machinery,
and more especially during the period of the growth of
the great factory industry, the workers were conscious that
these new powers were being used to render them more de-
pendent upon the dominant class, to shake the continuity
and security of their employment, and to reduce the rate
of wages in all well-paid employments — such as that of
the weavers prior to the introduction of the power-loom.
But, unfortunately, they attacked, in many cases, the ma-
chines themselves, or struck against their employers at
great disadvantage. The class war brought about by eco-
nomic causes existed still, and possessors of the labour-
power which the capitalist was compelled to buy were
continuously at tlie mercy of the owners of the means and
instruments of production.

By slow degrees, conscious interference took the place of
unconscious revolt, not with a view to reduce the quantity
of surplus value appropriated by the capitalist class, but on

SUEPLUS VALUE 99

ethical grounds and in order to save the people from per-
manent deterioration.

Nevertheless, protection of women and children has so
far been quite half-hearted; shorter hours have been ac-
cepted more because it is not economical with the best
machinery to work longer, and because of the growing
power of working-class combinations, than from any con-
sideration for the well-being of the hands. To-day as
throughout its history capital has no ethic. It accepts
sullenly and after bitter resistance any restriction whatever
upon its inherent right to buy in the cheapest and sell in the
dearest market, irrespective of any consideration other than
pecuniary gain. That labour-power happens to be em-
bodied in human creatures, and cannot be bought without
taking them over at the same time, is for the capitalists
an inconvenient accident.

It is clear that to the workers as a class it is of little
importance how the amount paid to them for subsistence
is divided up. No doubt, it made a great deal of differ-
ence to the individual worker and to his wife and family
whether the wages coming in at the end of the week were
represented by the sum of 9s. or 10s. formerly paid to the
agricultural labourer of Dorsetshire or Wiltshire for his
hard but inefficient toil ; or whether they were represented
by the sum of 30s. to 50s. paid to the stalwart navvy, or
gasworker, or engineer, or skilled compositor, or electrician
for their vigorous toil or highly-trained manipulation. So
far the late Mr. Cliffe Leslie, who paid special attention
to the grouping of workers in the scale of payments, was
quite right when he wrote to me many years ago that
"averages in such matters are quite unscientific and illu-
sory."

100 THE ECONOMICS OP SOCIALISM

To strike an average between such rates of payment as
those given above, and take that as the average wage of
the English worker, would be absurd indeed, if it were
proposed in that way to give an accurate idea of the posi-
tion of the working community in these islands. But
from the point of view of the workers as a whole, though
some are much better off than others, they are so only as
the slaves of ancient days, who were specially useful in
contributing to the immediate luxuries or vices of their
masters, were better-fed, clothed and lodged than the
wretches who were flogged at their daily tasks in the fields
or in the mines. The economic and social relations remain
much the same in both cases : the quantity of surplus value
extracted varies very little : the uncertainty of good treat-
ment in the case of the slave, or of continuous employ-
ment in the case of the wage-earner, is as great as ever:
the provision for old age, all circumstances being taken into
consideration, is not materially altered for the better, in
spite of the miserable Old Age Pension dole, which has
been acorded to workers over 70 years of age — practically
in relief of Poor Rates.

Moreover, at the present time, the extension of machinery
in every department is tending, not only to displace men
by women in many branches of industry and to increase
uncertainty of employment, thus swelling the numbers of
the permanently unemployed; but is also tending to re-
duce the workers more and more to one dead level of mere
attendants on the new machines introduced. Hence it
arises, that of late years the trade unionists, who so long
considered themselves and were regarded by others as " the
aristocracy of labour," have been compelled to take a wider
view of the class war, and to recognise that even they,
whatever minor advantages they may secure by combina-

SUEPLUS VALUE 101

tion, are by no means adequately protected against the
levelling advance of machinery, or assured against long
periods of short time or worklessness, due to commercial
and financial crises over which they have no control. They
are, in fact, no better than food for surplus value like the
rest of their class. They, like the rest, are a mere mass
of human labour-power, embodied in flesh-and-blood, at
the mercy of the class which controls the great forces of
modern society.

So, again, with regard to the rise of wages. It cannot
be disputed that, in the great majority of industries, the
rates of wages paid to men and women when in employ-
ment have considerably increased. This is certainly true
in the United Kingdom, and applies also in great degree
to the continent of Europe. It is true, also, that this rep-
resents to the wage-earners while in work a somewhat
higher standard of life than they obtained prior to the war.
But here again, taking the largest increment possible, it is
questionable whether even this has compensated the work-
ers for the periods of worklessness, or short hours worked,
in many trades, or for the long weeks out on strike, to get
or maintain the advances spoken of.

In any case, the advantages secured by the producers in
the shape of a higher standard of life are altogether out
of proportion to the increase in the powers to produce
wealth now at the disposal of mankind. These powers
have increased in modern times to an extent far beyond
that of which there is any record. It would certainly ap-
pear, therefore, that those who argue that wages should be
lowered in order to meet foreign competition; that the
workers ought to emigrate, cease to marry, or in any way
to propagate their species because population grows too
fast for subsistence; and that the only way in which trad-

102 THE ECONOMICS OF SOCIALISM

ing and commercial prosperity can be maintained is by
overwork at home and spoliation abroad — that the wise-
acres who argue after this fashion, I say, might reasonably
have their attention called to such facts as that (1) four
men working on the land in the west of America can pro-
duce enough food in a year to sustain 1,000 people for
the like period, and .that (2) one woman working at a
loom in a factory can weave in a twelve-month enough
cloth to clothe at least 100 people. In the face of such
facts as these, to speak of over-population as the cause of
poverty, or to demand reduced wages as a remedy for bad
trade, is a sort of reasoning too monstrously absurd even
for the most greedy appropriators of unpaid labour to use
honestly.

Surplus value, with the acquisition of profit, being the
sole end and aim of the capitalist system; and payment
of wages by way of purchase of free labour-power being
the only means by which this end can be attained: it fol-
lows that so long as the capitalist system endures so long
must the appropriation of unpaid labour by the capitalist
class continue ; so long must there be a margin of unem-
ployed at hand, to restrain the demands of those who are
at work, and ready to be absorbed in periods of prosperity ;
so long must wages on the average in every trade be no
more than the subsistence rate customary in that trade
regulated by competition; and so long, in short, must the
workers be, in all but name, the slaves of the owners of
the capital and the land.

From this we can learn the comparatively small worth
of mere palliatives. Sanitary factories, liability of em-
ployers for injury to workmen, restriction of the age at
which children may work, limitation of dangerous or un-
healthy trades, even an eight-hour law, or seven-hour cus-

StJEPLUS VALUE 103

torn, each and all of these leave the basis of the system
wholly untouched, and the difficulties to which it neces-
sarily leads practically unmodified. The wage-earners
may be a trifle healthier, a little less liable to mutilation,
not quite so much overworked, and allowed a certain
amount more leisure in which to reflect upon the causes
of their subjection. But that is the total amount of ad-
vantage they will gain. They will be just as uncertain of
continuous employment, just as much liable to overwork
by increased rapidity of machinery — ten hours' work
being compressed into eight, or seven — and just as little
capable of making adequate provision for old age.

Meanwhile the tendency of machinery is to bring all
labourers to one level. In place of encouraging skill and
individuality, the great machine industry has the effect of
developing mere automatic, mechanical toil. Machines use
men instead of men using machines. So the surplus-value-
creating system grinds on, until the same economic causes
which brought about its development, having worked
through their full cycle, will bring about also the change
to the next social stage. But at the end of the evolution
of the capitalist period, as we now are, the examination
of surplus-value and the manner in which it is obtained
and appropriated not only affords the key to what is going
on around us, but also, properly understood, gives a clue
to the synthesis which is the complement of the analysis.

We are thus enabled, in some degree at least, to forecast
the coming period, when production of commodities will be
carried on no longer under the control of a class, with a
view to the creation of surplus-value and the absorption
of unpaid labour in the shape of profit, but the production
of useful and beautiful articles wi'l be co-operatively organ-
ised by the whole community for the benefit of all its mem-

104 THE ECONOMICS OF SOCIALISM

bers, between whom there will be no class distinctions, or
economic antagonisms, whatever.

To sum up:

All exchange is conducted on an equality on the aver-
age of transactions, and unequal exchange does not create
wealth. What one loses the other gains.

The capitalist who begins to produce commodities starts,
under existing conditions, with money. He buys all his
raw materials, incidental materials, machinery, &c., on
the market with this money. Having commenced his op-
erations with £100, he finds that he sells his finished com-
modities for £110, or £10 more than he had advanced, and
this was the object which he had in view from the first.

Whence does this increase come?

(a) It does not come from a reward for his risk, as,
though one capitalist may risk being beaten in competition
with his fellow-capitalist, the capitalist class as a whole
run no risk. Besides, the reward for risk must come
from somewhere, even supposing such reward there were.

(b) Not from the raw materials, incidental materials,
&c., which he buys at market price. The value of these
reappears, including the value of the proportional wear-
and-tear of machinery, in the finished commodity without
change. They constitute constant capital, unaffected as
to value by the industrial process, and are embodied in the
finished commodity, unchanged in this respect, however
much the form may have been modified.

(c) Not, as said before, by unequal exchange, for this
constitutes no value.

The increase, therefore, comes from the capitalist's last
purchase, the last commodity which he buys at the market
rate.

SURPLUS VALUE 105

Now this commodity is usually called labour. But it is
not labour which the capitalist buys as a commodity;
for labour has, and can have, no value in itself. It only
has value when it is embodied in articles of social utility,
relatively to other similar articles in which, of course,
labour is likewise embodied.

What the capitalist purchases, therefore, to complete his
selection of commodities necessary to commence produc-
tion, is not labour, but the power to labour, or labour-
power, that labour-embodying, value-creating capacity
which human beings possess.

But human beings must, by historic causes, be found in
such a social condition that they have no other property,
no other commodity, at command, to sell, except this force
of their bodies, this labour-power which the capitalist
wants to purchase.

On the one side, free labourers, without property, anx-
ious to sell their sole commodity, labour-power, for the day,
the week, the month, the year.

On the other side, owners of the means and instruments
of production ready to buy this strange commodity which
they find so conveniently on the market for purchase.

Such are the two necessary conditions of capitalist pro-
duction: without them capital as a series of social relations
cannot he.

Tlie labourers are anxious to sell or exchange their
labour-power, for unless they do they must starve. And it
will not keep, this commodity which they are eager to
dispose of. Consequently, they advance it on credit to the
capitalist : not getting the exchange-value of it until a week,
a fortnight, or a month of work has been done.

Labour-power thus bargained away is exchanged on the

106 THE ECONOMICS OF SOCIALISM

same basis as any other commodity, namely, its cost of
production in necessary, abstract, simple, social human
labour.

This means that the possessor of the labour-power ex-
changes it with the capitalist for such means of subsist-
ence as will keep him, according to the standard of life
of his trade, and enable him to hand on the same lot to his
offspring.

This quantity of social human labour embodied in his
standard of life is also determined, like the value of other
commodities, by competition and higgling of the market.
When, therefore, women and children are brought in to
sell their labour-power, the whole household only earns
what the head of the family would otherwise earn, and the
apparent gain is illusory.

Labour-power thus bought at its value in the quantity
of necessary, abstract, simple, social, human labour em-
bodied in its means of production (namely the subsistence
of its owner), measured in money, is at the disposal of the
capitalist for a fixed period, say a day.

But the money value of this labour-power, the wages
paid to its possessor for its use during the day, only repre-
sents a quarter, a third, a half of a social labour day,
whatever its length may be.

Hence the capitalist receives back from the worker, in
social labour-value embodied in commodities, the total value
of his wages before the first three or four hours of the day
are over. But he has the right, of which he avails him-
self, to use the labour-power under the same conditions
for the whole day.

Consequently for every hour that the labourer works for
himself to replace his wages, he works one, two, three, or

SURPLUS VALUE 107

even four hours for the capitalist without any payment
whatsoever.

The value thus appropriated by the employer for noth-
ing constitutes surplus value, which is divided up among
the various sections of the non-producing class.

What conceals from the workers at large the method of
their expropriation is the form of money in which they are
paid their wages. If, like chattel slaves, they received in
return for their labour only so much of the corn, or the
wine, or the meat, which they themselves raised and pre-
pared for their master, they would be under no delusion
as to the meaning of the transaction, however little power
they might liave to emancipate themselves from their thral-
dom. If, on the other hand, they were villeins compelled
to give two or three days' work in the week to their lord
without any payment whatever ; in this case also they would
not imagine, however stupid they might be, that they were
co-partners with their noble superior in tlie product of their
enforced husbandry or handicraft.

But the fact that they are perfectly free, so free that
they can go wherever they please and still possess nothing,
so free that they must sell their labour-power at cost of
subsistence to be exploited by the possessing class — this
keeps their eyes blinded, in the great majority of cases, to
the pleasing social juggle which enables the owners of the
means and instruments of production to deprive them of
two-tliirds or three-fourths of the value of their day's,
week's, or year's work without paying anything for it.

CHAPTER IV

CIRCULATION OF COMMODITIES

Labourers must sell their labour-power, day by day, or
week by week, in order to exist as labourers. If they fail
to be able to sell this, their sole commodity, regularly on
the market, they cease to live, or have to accept charity or
State aid in some form. They are living under a relent-
less economic law, from which, as individuals, they cannot
possibly emancipate themselves. Possessing no wealth, nor
any social power to control and subsist upon the products
of the labour of others, they are as much compelled to
place their labour-power at the disposal of members of the
capitalist and landowning class as their economic ancestors,
the slaves of old. Their economic freedom is limited to
the right (not always easy to exercise) to sell their labour-
power to another purchaser than the one who had bought
it yesterday. Anyway, sell they must.

But Just as the labourers are compelled by their social
and economic status to sell their labour-power for money,
in order merely to exist as labourers, so must the capi-
talists sell their commodities on the market for money, in
order merely to exist as capitalists. They have no choice
in the matter. In order to carry on their productive proc-
ess it is not suficient to produce commodities: they must
convert them into money continuously, in order to recom-
mence the process and carry it steadily on. Such is the
irony of the situation that, though both labourers and
capitalists are performing social duties, and cannot but

108

CIRCULATION OF COMMODITIES 109

perform them, they both also carry on their share of such
social work solely for personal and individual objects. The
labourers toil only incidentally, as it were, from their
point of view, to make articles of social use. They sell
their labour-power in order to obtain wages in money, and
how their labour-power is applied, so long as they get those
wages, in return for a given period of work, concerns them
not at aU.

The capitalists, on their side, use this labour power, not
with any idea of providing society with what its members
want, as a social function; but they perform this social
duty also, as it were, by the way, and on the road to
securing their profit. If capitalists could obtain profit
without using all the complicated machinery, human and
other, necessary for the output of useful articles, nothing
would please them better. Their sole and only aim, as a
class, is to obtain as much profit as possible, and to extend
their business at the expense of other capitalists, their
rivals, in order to prevent these rivals from absorbing them.
No social or human consideration has any weight in the
matter.

The surplus value is squeezed out of the labourers in the
factory, in the mine or on the farm, and the capitalist's
share of it, in the form of net profit, is contained in the
overplus of commodities created by the unpaid labour of his
workers. There it is at his disposal. But it is not realised
as yet. Moreover, his total product, in its commodity
shape of cotton cloth, woollen cloth, boots, hats, iron goods,
wheat, lead, &c., cannot be used to buy directly the raw
materials and all that he needs to begin afresh. The land-
lord will not accept his ground-rent, nor the banker his
interest on loans, in kind. Sell for money the capitalist
must.

110 THE ECONOMICS OF SOCIALISM

In this way, therefore, the circulation of commodities in
our modern society begins. Articles are produced to-day
in such conditions that they are of no use to those who
produce them. Consequently, they must be moved round
the circle of exchange until they reach the hands of the
persons who need them, and, what is more important, can
pay for them — pay for them in money, or the equivalent
of money, that is to say. Mere need constitutes no title to
commodities: mere demand is of no account. The need
must be a need backed by hard cash : the demand must be
what the old economists called an effective demand.

Money it is which renders this circulation of commodi-
ties, this whirl of exchange, possible. Barter, the direct
exchange of commodities, is at an end. This form of the
exchange of useful things, from the hands of those to
whom they are not useful into the possession of others to
whom they are useful, is different in every respect from
the process which we see going on all round us to-day. In
barter, or direct exchange for mutual use, the product of
useful labour in one form takes the place of the product
of useful labour in another form. The farmer, for in-
stance, exchanges his sacks of wool against a pedlar's
silks, who again trades away the wool for finished cloth.
Consumption follows, and the mere circulation is at an
end.

Attempts have been made to restore the direct exchange
or barter of useful goods between one individual and an-
other. But so completely has the idea of valuation apart
from money disappeared, that, insensibly, those who wish
to obtain other articles in place of their own, estimate the
value of their possessions which they propose to transfer,
not with reference to the need which they have of the other
articles they desire to possess in place of these, but with

CIECULATION OF COMMODITIES 111

regard to the price that either would realise if brought into
the open market. An exchange of commodities may be
directly effected between individuals by barter; but, still,
in spite of all they can do, the vision of the price current
is ever before them.

When, however, a commodity is exchanged for money,
something much more has taken place than a mere exchange
or transfer of commodities. When, for instance, our capi-
talist, impelled thereto by the very necessity of his being,
sells his cotton cloth, or his boots, for money, he does a
great deal more than merely part with useful articles for
gold. For gold, of course, is by no means always money,
any more than money is always gold.

Thus gold itself, when it is only a commodity, when, that
is to say, it is a bar of the precious metal to be used in
industry or the arts — gold in this case is no more money
than a bar of platinum, or a bar of tin, or a pig of lead,
likewise destined for use in the arts, is money. The capi-
talist who sold his goods even for bar gold, in such cir-
cumstances, would not have done that which he wished to
do. And the individual purchaser, like the individual
capitalist, who wished to buy, and thus begin a circula-
tion of commodities, extending far beyond his own immedi-
ate purchase and sale, would at once discover that gold,
merely as a commodity, would not do his business. He
would be forced, when he got it, to resort to a bullion
dealer and convert his valuable commodity into money
before he could buy a bible for £2 out of the proceeds of
the sale of some linen for that £2, thus enabling the owner
of the bible to buy brandy with the same £2, and so on and
so on.

Gold in its money shape is a very different thing, then,
from gold as a mere commodity. It performs in its o^vm

112 THE ECONOMICS OF SOCIALISM

person in this shape several functions, and figures as real
and ideal at one and the same time. Gold as money is
the very corporeal expression of value, or social value. It
is in itself the very incarnation and embodiment of such
value. In such a case, in Marx's own words, " gold as gold
is exchange value itself." It possesses the power of con-
verting itself, or being converted by its possessor, into all
the useful social articles which can be obtained. And it
possesses this power although its own utility has been
taken from it altogether, for the purpose of evaluation,
exchange and price.

Here, as in the original investigation of value, we are
driven to abstract reasoning. When it is said that gold in
the form of money is exchange value itself, what is meant ?
This : that gold, when all its useful properties are no
longer taken into consideration — and this is manifestly
the case when it is proposed to use it as a measure of value,
or as money — has ceased to be a commodity in any sense.
As a measure of value for all the commodities offered on
the market it is, in fact, a mirror which reflects at once the
value of each in turn as an ordinary mirror reflects the
" values " of the human face.

When this is done we have ceased to trouble ourselves
about the cost of production of gold itself, or about its
greater or less utility. It is recognised as the measure of
all values, because it is the universally admitted repre-
sentative of the embodiment of social human labour in the
abstract. Thus used, money converts the values of the
infinite number of commodities into imaginary quantities
of gold. And this comes about not because money renders
it possible to measure the value of commodities. "The
contrary is the case. Only because all commodities, in so

CIECULATION OF COMMODITIES 113

far as they are values, are embodied human labour, are
they capable of being measured in relation to one another ;
and, secondly, are they capable of being measured in one
and the same special commodity which becomes the com-
mon measure of them all." This special commodity being
converted into common measure, namely, money — Bax's
" matterless form " — reflecting the values of commodities
all round.

So far of the gold which the capitalist must have as a
measure of value. As a standard of price, money meas-
ures the quantities of gold which have previously been
imaginary. The ordinary price current gives the result of
the latest competition on the market in yarns, cloths, iron,
coffee, wheat, and so on; not in imaginary quantities of
gold, but in actual sovereigns. Yet, of course, this is an
ideal valuation. Each possessor of useful goods sees in
place of his special commodity its market price. Its utility
has ceased to concern him. What he is concerned with
is the price, and the price alone, that he is likely to get.
And it is this standard of price that money provides him
with. Moreover, the changes whicli may take place in the
value of gold itself do not affect its function as this stand-
ard of price.

In the ordinary form of the circulation of commodities
the change is from money to commodities and then from
commodities back to money. When the commodity moves
out, its equivalent, money, steps into its place; and several
moves of this kind may be made before the commodity
reaches its final destination and is consumed: the money
being always in the hands of the buyer and the commodity
in the possession of the seller. From this point of view
gold and money in general form a convenience of ex-

114 THE ECONOMICS OF SOCIALISM

change, as already said. It is a means of facilitating the
circulation of commodities from those who want to sell to
those who need to buy and use.

But to the capitalist mone}'' is the means whereby he can
realise at one stroke all the values locked up in the commod-
ities which he has produced, including the surplus-value,
which was the real reason why he produced them at all;
and, having thus obtained his money back with an incre-
ment, he can begin the whole process over again. But,
further, money represents to the capitalist, as well as to
the rest of the world, the means of payment ; the means of
paying his rent, of meeting bills when due, of discharging
gas and water rates and the like.

In this respect money acts no longer merely as a circu-
lating medium. It is no longer only an agent in facilitat-
ing the exchange and circulation of useful products. Now
it becomes the individual incarnation of social labour, the
embodiment in itself of the value of an aliquot part of that
labour. It is the independent form of existence of ex-
change value, the universal commodity which everybody
desires, standing by itself. Here we have a contradiction
and an antagonism in the uses of money, which produce
a very practical effect indeed at periods of industrial and
financial tension. Money, at these times, may be in such
great demand as a means of payment that its purpose as a
means of promoting the circulation of commodities will be
temporarily quite lost sight of.

Nor is it only in days of stress and strain that this mis-
take is made. Such is the influence of money on the hu-
man mind, that, just as in the domain of industry, human
beings are physically dominated by the very machinery
which they themselves make, and which they should con-
trol to the common advantage, in order to lessen the amount

CIRCULATION OF COMMODITIES 115

of labour needed to create wealth, instead of allowing it
to be used to pile up riches against them; so this other
social creation, money, in place of being regarded by the
many as a mere instrument, to be used in existing con-
ditions to facilitate the transfer of their products, is
looked upon as wealth itself. Because money will pur-
chase all that they want and give to its possessors power
over the community, therefore it becomes to the mass of
mankind something much more than a mere symbol of
social value, a standard of price, or even a means of pay-
ment. Money is the one thing needful, the one object
we ought all to strive for !

When economists tell the people that money is not
wealth and that its creation, beyond certain well-defined
limits, is not only not advantageous but positively a waste of
the time and labour of the community, the majority of
men and women still refuse to believe it. Wealth seems
to them to come from above, in the shape of money; as it
does to the domestic servant, or the cabman, who receives
his wages or his fare from his master or his employer.
There cannot, therefore, be too much of it. Even men
who ought to know better not unfrequently encourage for
their own purposes this illusion. Not so very long ago,
for instance. Lord Morley, who is commonly supposed to
have cleared his mind of supernaturalism in every shape,
publicly made his obeisance to this money fetish. He
hoped that the day would never come when we English-
men should cease to be very careful about money. Obvi-
ously money in this sense meant to our philosophic politi-
cian something much more than incorporated social labour
counters, and those whom he addressed so understood him.

Nevertheless, in order to comprehend the working of
our capitalist system, and the function which money or its

116 THE ECONOMICS OP SOCIALISM

representatives, bank-notes, drafts, cheques, bills, and the
like, play in facilitating circulation and exchange: in
order, too, to detect the real significance of that antag-
onism between commodities and money, which plays so
crucial a part in the immediate bringing about of finan-
cial crises; it is absolutely necessary to clear the mind of
all this confusion.

Mere money is, as said, a useful commodity deprived of
its utility and applied to a special purpose. Taken at its
full value it forms but a very small and insignificant frac-
tion of the total accumulated labour-value of any civilised
community. So far, also, from a superabundance of
money necessarily bringing with it good trade, it is an
absolute certainty that any supply of money, over and
above what is actually needed for the service of any given
society, will simply lie idle in the banks. What is the
quantity of currency required to do the circulating work of
any nation was proved theoretically more than two hundred
years ago, and is determined in practice by many who never
looked into the theory of the subject in their lives. In the
same way that many a skipper will safely navigate his
craft, by observation and calculation, who never gave a
thought to the theory on which the logarithmic tables he
uses are based. The amount of money necessary depends,
then, upon the value and rapidity of circulation of the
commodities to be moved from where they are not useful
into the consumer's hands.

A common example of this is what is called the "mov-
ing of the crops." That operation in this and other coun-
tries, and especially in the United States, calls for a very
large sum in hard cash. When the crops move out from
the farmers money must flow in, and at each successive
stage of the movement, as the wheat, hay, cotton, wool, &c.,

CIRCULATION OF COMMODITIES 117

passes on to its destination, money must come in to fill up
the gap. Moreover, it is some time before the money thus
sent out from the banks in gross begins to flow back in
detail. This occurs when the farmers and their associates
begin to purchase supplies from the shopkeepers or store-
keepers; who, in turn, remit through the local banks to
the central institutions as they give their orders for fresh
supplies, for the replenishment of their stocks of goods de-
pleted by the farmers' purchases.

It is almost needless to point out in this case that if
more money were sent out than was required, for the pur-
pose of facilitating the circulation of the food-stuffs to be
moved, nobody would gain by it. The prices which the
farmers obtain for their product in bulk are not regu-
lated by the temporary scarcity or temporary superabund-
ance of currency at a particular spot ; though possibly in a
case here or there an individual may lose or gain by these
local circumstances. The farmers' prices, on the contrary,
are governed by the condition of the world-market in re-
gard to their special products. The main competition and
higgling of the market wliich determine the quantity of
simple, abstract human labour embodied in what they want
to sell take place not locally but centrally. Tlie local
trade is conducted within very narrow limits of possible
fluctuation.

This is a simple case, and it occurs as a rule but once a
year on a large scale. With manufacturers it takes place
much more frequently, the rapidity of the turnover being
increased or slackened according to the circumstances of
the particular trade, and the amount of money needed in
all to move the goods is regulated in each case, by the entire
period taken to complete and realise the product. To
take, in passing, the case of a wholesale baker, whose sales

118 THE ECONOMICS OF SOCIALISM

are from day to day, and his bills are collected week by
week ; it is obvious that the amount of currency needed to
circulate his commodity at any given time is very small,
as compared with his total yearly output, by the side of
what is needed to perform the same office for a farmer who
is carrying on business on relatively the same scale. Here,
however, as in the farmer's case, a great supply of currency
would not facilitate the circulation of the bread in any
way; unless, indeed, a philanthropist were to provide a
number of poor people in the neighbourhood with the means
of buying loaves which otherwise they could not have
bought.

This, no doubt, is what many who crave for an expan-
sion of the currency, have in tbeir minds, as in some way
or another likely to occur, if the State sets the mints going
at twice their ordinary rate, or if valueless money, in the
shape of notes with no coin behind them, were tumbled
out upon the country. But a very slight consideration
will show the most careless reader that a mere increase of
currency by itself will not bring about the circulation of
more loaves of bread; while the creation of a mass of State
assignats receivable, as some propose, in payment of taxes,
would not benefit a country in any way whatever. Those
who keep their eyes steadily fixed on the production of
articles of utihty and their circulation as embodiments of
human labour value are not likely to be led astray by the
will-o'-tlie-wisps of the currency-mongers of any school.

To return to the cipitalist and his proceedings. He be-
gins with money, buys his raw materials of production, in-
cluding labour-power, takes tbese into the sphere of pro-
duction itself, and emerges therefrom, as already explained,
with the sum of all the values expended during the process
embodied in commodities, plus the increment which he has

CIECULATION OF COMMODITIES 119

squeezed out of purchased labour-power. These commodi-
ties he then sells for money, which replaces his original
money advance with something more. Tliat ends this par-
ticular cycle for him. The form of it is money, then raw
materials and incidental materials, then, lastly, more
money. Or, money, commodities, money again. And the
capitalist regards labour-power simply as one of his com-
modities and the wages paid in money as a part of his in-
evitable pecuniary expenditure. The money itself has, of
course, no say in the matter. What sort of goods it buys
does not affect the universal equivalent in any way.

Certain it is that money is not in any sense the cause
of wagedom. The workers exist separated from their
means of production. There they are, on the one side,
ready to sell. There stands the capitalist, on the other
side, ready to buy, and to bring these divorced elements of
production together — on terms. He does so by means of
money. But it is not the money itself, nevertheless, which
brings about the social conditions that result in the an-
tagonistic classes of capitalists and wage-earners. Not at
all. The labour-power of the workers can be bought as a
commodity, and its product put in circulation, because these
social classses already exist in predetermined conditions.
It is the same as it was with slavery. Money bought
slaves, and slaves were sold for money. But this could
only be done where slaves existed. Money could not make
slavery possible by itself; so neither can it make wage-
slavery possible by itself.

From the labourer's side the whole process takes quite a
different aspect, however. He is the seller of the commod-
ity, labour-power, and is anxious to circulate it in return
for money. He does so, and his labour-power goes into the
possession and under tlie power of the purchaser at its mar-

120 THE ECONOMICS OF SOCIALISM

ket price. The money which he receives at the end of the
week in the shape of wages, for the advance of his labour-
power for that time to the capitalist, represents to him the
means of buying other commodities necessary for his mere
subsistence; thus beginning with his money a circulation
of commodities at the other end.

Whether his money-wage goes into the publican's tiU or
the baker's purse, may make a difference to him, but in
either case the money has gone from him in exchange for
commodities. The labourer, unlike the capitalist, begins,
then, with commodities, his labour-power, to wit, exchanges
for money, and passes on to the purchase of commodities;
though in his case the shape in which he receives his wages
disguises from him the truth that he has received only a
fraction of the value of the labour embodied by his labour-
power, and that the remainder is either in his employer's
possession or is circulating on the market: in both cases
far removed from him.

Clearly, also, when money as capital goes out on to the
market, and is converted into the raw material of produc-
tion, or productive capital, this productive capital can no
longer circulate. It must go into the productive process,
that is, into consumption, whence it emerges in a changed
form, and must then go out into circulation again. Sim-
ilarly, that portion of the raw material of the indispensa-
ble element of production called labour-power can only
realise its use in the productive process, and create values
for future circulation, quite irrespective of the will, or
even of the knowledge, of its original seller.

It may be convenient to give here the various categories
of capital which Marx substituted for the bald " fixed "
and " circulating " capital of the orthodox economists.
These separations and distinctions, when firmly grasped,

CIRCULATION OF COMMODITIES 121

render it easy to comprehend the somewhat complicated
phenomena of modern industrial society:

I. The Money-Capital. This may be taken as the start-
ing-point of the whole process. With this, as already often
said, the capitalist goes out on to the market to buy his
raw materials of production, in order to convert them into
commodities, and eventually to increase his cash capital.
It is only when used in this way that money is active capi-
tal. Money of itself need not be capital, but, when it is
in the hands of a capitalist who is using it for the purpose
of producing commodities with a profit to himself, — then
it is capital in its most active shape.

II. The Commodity Capital, or Raw Material Capital,
which signifies the purchased commodities, including
Labour-Power, that, having been bought with the money
capital, are taken into the sphere of production. Here their
form is completely changed, as raw cotton is converted into
yard and afterwards into cloth, leather into boots, iron-
ore into iron, clay into porcelain, &c. Some of the mate-
rials, in fact, as coal, oil, gas, completely disappear. But,
none the less, the spirit of these component parts of the
commodity capital, their value, appears in the completed
commodities. The commodity capital, including labour-
power, goes into the productive or labour process as a num-
ber of commodities, and comes out again as a quantity of
commodities.

" One of the most striking peculiarities of the circula-
tion process of industrial capital, and therefore also of
capitalist production as a whole, is the circumstance that
on the one hand the elements for the formation of pro-
ductive capital come out of the market for commodities,
and are continually renewed therefrom ; that, in fact, they
must be bought as commodities : on the other hand, the

122 THE ECONOMICS OF SOCIALISM

products of the labour-process issue from it as commodities,
and as commodities they must be sold."

Compare, for instance, a modern farmer working his
farm on the best method with the highest skill and a
farmer of the old time. The modern farmer, though he
still scarcely regards himself as a capitalist in the manu-
facturing sense, is so completely overmastered by the
necessities of the capitalist system that he sells off his farm
everything he can sell. Frequently he even purchases his
seed for the next crop. If he does not sell, unless he is
merely holding for speculative purposes, he feels he has
made a mess of his business.

The old-world farmer, on the contrary, so far from sell-
ing everything he could sell, sold as little as he possibly
cotild. His object was to provide for himself and those
around him to the full extent that was possible, doing this
often at the expense of far more labour than was neces-
sary, had he sold some portion of his product and bought
with the proceeds. But he only sold his actual superfluity.
The contrast is marked. In the one case buy everything
and sell everything. In the other case buy as little as
possible and sell only the surplus.

III. Fixed Capital. This does not mean capital fixed
to a particular spot of ground, as a factory, or a furnace,
or a mining-plant, or a machine. Fixed capital in Marx's
sense means such proportions of the capital, whether build-
ings, machines, tools, steam-engines, or similar appliances,
as only transfer a portion of their value in the course of
production to the commodity produced ; thus giving over
their value to the commodities by degrees, the remainder
of the value, over and above that which has been parted
with in the productive process, remaining fixed in them.

CIECULATION OF COMMODITIES 123

The whole of their value is, of conrse, used up and trans-
ferred to the commodities sooner or later. But this bit by
bit transference may extend over many years, and conse-
quently, as remarked in the last chapter, the greater part
of the original value of the structure, or of the machinery,
may long since have gone forth into the great whirl of
commodities, while the building itself or the machinery
still continues in a more or less complete condition to fulfil
its part in the process of capitalist production of commod-
ities. " Capital is not ' fixed ' because it is fixed in the
instruments of labour, but because one portion of its value,
embodied in instruments of labour, remain fixed therein,
whilst another portion is in circulation as a fraction of the
entire value of the completed product."

This is recognised in practice. In all properly-kept ac-
counts, there is a yearly deduction of from ten or more
per cent, made from profits to allow for depreciation —
this depreciation representing, on the average, the pro-
portion of value which has been parted with by the fixed
capital to the commodities in the course of production and
which, in some way or other, has to be replaced. This
has nothing to do with the so-called " moral " depreciation
spoken of by Marx, due to the introduction of some new
method of producing the same commodities with more
costly appliances and less labour. This there is no means
of calculating beforehand, and the danger to the individual-
capitalist can only be met by a deduction from his surplus
value, or his share of it in the shape of profit, thus en-
abling him in time to adopt the improved methods, if it
seems desirable to do so. "With that, however, we have
nothing to do here.

It should be noted, however, that fixed capital, like all

124 THE ECONOMICS OF SOCIALISM

other capital, is a direct product of human labour, and
that its repairs and renewals are, of course, in like manner
due to human labour.

The whole factory, building, works, machinery, new ap-
pliances and inventions, are due also to the social sur-
roundings and social status of those who construct them.
There is no individual genius at work here of such colossal
magnitude that its possessor can divorce himself from his
begettings, surroundings, and education, and thus invent,
apply, construct and use, so to say, in vacuo. There is no
human being who is entitled to say of any fixed capital, of
any machinery or works, however cunningly devised, " I
did this," " I am the unit that gives to the human cyphers
their value." All such things, great or small, arise from
the society in which they are made, and which, as a society,
creates them.

It is necessary to state this again here, because certain
economists constantly reiterate that all improvements are
due to individual persons, and that therefore — the ethic
is as peculiar as the logic is faulty — certain other persons,
namely, the capitalist class, who did not invent them, really
ought to possess them, by reason of the value which these
inventions create ! But improvements in methods of pro-
duction which increase fixed capital, and entail the use of
machinery on a larger scale, do not, as remarked before,
increase the value of commodities but reduce it; and the
capitalist obtains an increased profit by the larger output,
not by selling dearer, but by producing cheaper ; that is to
say, with a less expenditure of human labour.

Again, a product of industry may be a mere commodity
to its producer and fixed capital to its purchaser. Thus
the maker of cotton-spinning, or cotton-weaving, machin-
ery, the constructor of a steam-hammer, a crane, or a

CIRCULATION OF COMMODITIES 125

hydraulic press, necessarily regards his product as a com-
modity. He in fact sells it, and is forced to sell it, as a
commodity, and, if not made to a definite order, domestic
or foreign, it goes out upon the market as a commodity, to
circulate with other commodities, until such time as it
finds its ultimate purchaser, in England, America, Aus-
tralia, Germany, China or Japan. Then it does become
fixed capital to that last purchaser, who applies it to pro-
ductive purposes; and the spindles, the looms, the steam-
hammer, and so on, proceed to give off of their value to the
commodities which they, in their form of fixed capital,
having ceased themselves to be commodities, help to create.

Further, mere fixity has nothing to do with the defini-
tion. A locomotive engine, like the machines named above,
is a commodity to its producer for sale, but is fixed capital,
involving a lock-up of capital, only gradually set free, to
those who use its power as intended. Oxen as ploughing
oxen are fixed capital to their proprietor. Sold off the
farm they figure as commodities. Fatted and killed for
the farmer's food they become mere articles of consump-
tion. And so, in many similar cases, it can be easily
seen that the old imperfect definition of fixed capital must
be abandoned in favour of the true, scientific, definition of
fixed capital given above.

IV. Circulating Capital is that portion of the constitu-
ents of production which consists of the raw materials, the
incidental materials (what the Germans call help-mate-
rials), labour, &c., whose value is wholly incorporated in
the completed commodity during the process of produc-
tion. It consists of capital in the commodity shape. It is
circulating capital, in the form of finished commodities or
stocks of commodities; as distinguished alike from the
money capital into which it is converted at the next stage,

126 THE ECONOMICS OF SOCIALISM

and which it was — less, of course, the amount of the sur-
plus value — in the previous stage; and as distinguished
from the fixed capital, the greater portion of whose value
has probably not yet been given forth to the commodities
which have been, or are about to be, thrown into circu-
lation.

This form of capital, circulating capital, is well under-
stood in all financial accounts, and when a manufacturing
business is valued for any purpose a well-defined distinc-
tion is drawn between the realisable stocks of commodities,
whether they be clothing, or boots, or hats, or barrels of
beer, which can be put in circulation at once, and the
machinery, buildings, waggons, horses and carts, which
form a portion of the same industrial establishment. Such
commodities can be exchanged, and, of course, must be
exchanged, for money; but as they lie in stock they con-
stitute liquid capital, which represents all the immediate
advances made in their creation.

The old French economists, who are known as the Physio-
crats, made this distinction between immediate advances
and permanent advances, which they designated avarices
annuelles and avarices primitives. Applied, as these two
categories were by them, almost solely to agriculture, the
primitive, or permanent, advances represented the capital
embarked in draining, making roads, constructing build-
ings, purchasing ploughs, horses, sheep, and so on. The
annual advances, realised in the shape of cereals, wine, wool,
&c., consisted in seed, manure, food for cattle and the like,
which each yearly crop necessitated. To them the differ-
ence between the two forms of capital consisted in the
longer or shorter period of their return to the person
advancing, and the creation of surplus value was not a

CIRCULATIOj^ of commodities 127

necessity of all capitalist production, but a peculiarity of
agricultural production alone. It is not, however, the
longer or shorter period of return that makes the difference,
but the method of giving over the value to the product.

Adam Smith extended this distinction of the Physiocrats
to the whole field of capitalist production in the guise of
fixed and circulating capital ; but both he and Eicardo, by
confusing " fixed and circulating " with " constant and
variable " capital, landed themselves and their followers
in a series of mistakes.

To quote Marx again: " The confusion created by Adam
Smith in tliis matter of fixed and circulating capital has
led to the following results:

"1. The difference between fixed and circulating capital
is confounded with the difference between productive cap-
ital and capital in the form of commodities. Thus, for
example, the same machine is circulating capital if it is
found on the market as a commodity, and fixed capital, if
it is taken into the process of production. From which it
is absolutely impossible to determine why one particular
sort of capital should be more fixed, or more circulating,
than the other.

" 2. All circulating capital is identified with the capital
expended, or to be laid out, on wages of labour. As with
John Stuart Mill and others.

" 3. The difference between variable and constant capi-
tal which was already used by Barton, Eicardo and others
as convertible with that between circulating and fixed
capital is at length reduced entirely to those cases where
all means of production, raw material, &c., as well as
tools, are fixed capital, and only the capital laid out in
wages is circulating capital.

128 THE ECONOMICS OF SOCIALISM

"4. Amongst the most recent English, and especially
Scotch economists, who regard everything from the un-
speakably narrow standpoint of a banker, the difference
between fixed and circulating capital is twisted into money
on call and money not on call."

V. Constant Capital is that portion of the capital, such
as the value of the wear-and-tear of the buildings, plant,
machinery, horses, carts, &c., the value of the raw mate-
rials, of the incidental materials, and, in fact, the value
of all the commodities bought and taken into the process
of production, except the value of the labour-power — of
the value-creating commodity. The value of all these com-
modities, whose value is embodied in the finished product,
without change of such value during the process of pro-
duction, no matter how greatly their mere form may be
changed, constitutes constant capital.

This category of capital was so fully dealt with in the
last chapter that it is not necessary to do more here than
point out the difference which exists between constant
capital and fixed capital on the one side, and circulating
capital on the other. Constant capital, so far as it relates
to buildings, machinery, and tools, represents the value of
the actual transfer of capital to the commodity during the
process of production. It consists of that portion of the
value of the fixed capital, in respect of the wear-and-tear
of that fixed capital, which is incorporated in the quantity
of commodities produced. This value, whatever it may be,
small or large, undergoes no increase or decrease whatever
during the process of production. So much of the virtue of
the original plant has gone out of it in doing this piece
of work, and has been transferred, without modification, to
the finished product. Its value remains constant, there-
fore; it is a portion of the constant capital in the finished

CIECULATION OF COMMODITIES 129

commodity, having been a portion of the fixed capital be-
fore the process of production began.

In like manner, the value of the raw materials, and
incidental materials, is incorporated, without change, as
part of the constant capital embodied in the finished com-
modity. Their value, that is to say, also reappears with-
out change in this completed product after the process of
production is at an end; they themselves, as commodities,
having formed a portion of the Commodity-Capital, pur-
chased by the capitalist with money at the beginning of
the whole operation. From that Commodity-Capital, it
will be remembered. Fixed Capital was of necessity ex-
cluded, and Labour-Power, the value-creating commodity,
was included, labour-power being bought, as a commodity,
for use in the process of production, like other commodities.
On the other hand, constant capital, though it is partially
included in circulating capital, does not pomprise its
entire constituents; for circulating capital includes the
embodiment of labour-power in labour-value, which formed
a portion, not of the constant capital, but of the variable
capital.

VI. Variable Capital is the capital expended by the
capitalist in the purchase of labour-power as a commodity.
This labour-power so purchased is then made use of in the
process of production, for the purpose not merely of mak-
ing commodities, but with the object of embodying in those
finished products its value as a commodity (which value to
the owner of the labour-power is represented by the money
wages paid by the capitalist) and more. "The charac-
teristic of variable capital is that a determined, given frac-
tion of capital, a definite amount of value, is exchanged
against a self -increasing, value-creating power — labour-
power, to wit ■^— which not only reproduces the value paid

130 THE ECONOMICS OF SOCIALISM

for it by the capitalist, but likewise produces a surplus
value, a value previously non-existent and paid for by no
equivalent."

This variable capital, with its accompanying surplus
value, contributed by the labour-power of the worker, with-
out remuneration, during the process of production, re-
appears in the finished commodities. The value of the
wages paid in money to the worker appears in these fin-
ished commodities, before the commodities are converted
into money again. So, likewise, does the surplus value
appear in the form of finished commodities. Both por-
tions of the product being indistinguishable in the entire
mass, and all, of course, belonging to the capitalist, as
now his circulating capital. When the commodities are
turned into money the value of the variable capital and
the surplus value are realised in money, simultaneously
with the realisation of the constant capital in money.

VII. Circulation Capital. This form of capital, ac-
cording to Marx's nomenclature, is the same that is ordi-
narily called circulating capital. That is to say, it is
capital which whether in the form of commodities or in
the form of money, enters into exchange and passes from
hand to hand; in contradistinction to its form of pro-
ductive capital as which it figures in the process of pro-
duction. " There are not two special sorts of capital into
which the capitalist divides his capital, but there are dif-
ferent forms which the same capital-value continually as-
sumes and drops one after the other in its course through
life."

The capital which is expended in fixed capital is eventu-
ally circulated in the product, in the same way that the
capital expended in commodities is circulated in the prod-
uct; and both are similarly converted into capital, in the

CIECULATION OF COMMODITIES 131

shape of money, by the circulation of the capital in the
form of commodities. No profit whatever is engendered
merely by the conversion, through exchange, of the com-
modities owned hy the capitalist into money. All that
takes place by such conversion is that the capitalist realises
his original advances, together with his surplus value
(which includes his individual profit) in the form of
money ; in place of holding them, as in effect he cannot do,
in the form of commodities. Both the money and the com-
modities .are circulation capital, in contradistinction, and
even opposition, to productive capital ; but they are not in
any sense circulating, or liquid, capital in contradistinction
to fixed capital.

These, then, are the seven categories of industrial capi-
tal which whosoever understandeth thoroughly the same
shall be economically saved!

Mercantile capital, which is, historically speaking, many
centuries older than industrial capital, stands outside these
categories. It is the money capital used by the merchant,
as the buyer of commodities and trader upon differences of
value. This capital so used creates no wealth and pro-
duces no surplus value, though it frequently piles up riches
for its possessor, at the expense, of course, of the pro-
ducers and buyers of the commodities.

If now our capitalist, being obliged to sell the commodi-
ties which he has produced for money, finds that all goes
well with him; that he is able to sell his product readily;
and that there is no hitch or check in the circulation of his
commodities — how does he stand ? He has got back again
in money the full value which he originally expended in
money, and has likewise realised his surplus value in
money. Unless he intends to retire from business alto-
gether, he is bound to use the same amount of money that

133 THE ECOISTOMICS OF SOCIALISM

he did before in purchasing a new set of commodities to
produce with. That is outside his individual volition.
But what he does with the surplus value in money, or so
much of it as belongs to him, is a matter for him to decide.
He can either expend it on personal enjoyment, he can
invest it in stocks, he can accumulate it, or he can put it
back into his business.

In practice, if he adopts the first course, he will probably
soon be beaten by a more cautious, or more enterprising,
competitor. The rule of modern competitive production
is " Get bigger or burst." It is a hard saying, but it is
of universal application. If he does not absorb and digest
his competitors they will, unless he possesses a monopoly,
absorb and digest him. Moreover, even apart from this
necessity, he will require a reserve fund, to provide against
any delay in disposing of his product. So that the second
course, of investment, or deposit in a bank, is the one which
he will almost certainly adopt; mere accumulation, miser-
fashion, being, to the active capitalist, a manifest folly.

But the business cannot be extended in small parts.
The capitalist, no matter how anxious he may be to grow,
can only add to his factory, workshop, rolling-mills, or
shipyard on a certain scale, proportionate to the original
scope of his enterprise. Until this point is reached, his
profits, which, after making due provision for a reserve
fund, he proposes to devote to the enlargement of his opera-
tions, must remain for him as capital in a state of sus-
pended activity. The bankers, to whom he entrusts it for
safe keeping, may lend it to other capitalists for use in
their business, or the depositor himself may borrow from
them to make up his deficiency. But only when that
minimum sum needed for extension is provided can the
extension take place.

CIRCULATION OF COMMODITIES 133

Now, this law of capitalist existence, that each producer
must increase his scale of production or fall by the way-
side, means, in practice, that only the biggest are the fit to
survive. This is what is actually taking place. Each
capitalist in a free, competitive market is ever striving to
drive his competitor's goods out of the channels of circula-
tion, and to replace them by his own. The weapon em-
ployed in this commercial war is cheapness. And the proc-
ess goes on and on until competition reaches its logical
term in combination and monopoly: in an agreement, that
is to say, between a number of large firms not to undersell
one another, when they have once obtained control of the
market, but to crush out all rivals by any means; or in an
absolute monopoly of production and distribution, of which
at present there are already some examples.

But though the point of absolute monopoly has been at-
tained in comparatively few instances even in the United
States — where, owing to various causes, the economic de-
velopment in this direction is in advance of anything to be
observed elsewhere — the growi;h of big concerns at the
expense of smaller is one of the most significant features
of the time in all countries. This is to be noted not
merely in production, but in every department of circula-
tion and distribution. Combinations and trusts, national
and international stores, and national and international
banks, all go to show the tendency of the time.

In particular, the waste of the unregulated competitive
system, more especially in the matter of circulation and
distribution, is beginning to correct itself. At the pres-
ent time the waste of labour in a huge number of small
shops, all selling the same goods, with an infinity of petty
advertisements in every direction puffing those goods, mani-
fests to everyone the defects of our distributive system;

134 THE ECONOMICS OF SOCIALISM

while even the men and women employed waste half their
labour in working at a mechanical disadvantage, alike in
production and distribution. As the capitalist system
goes on, however, we see great central establishments,
working with a minimum of friction and with branches
extending in all directions, gradually supplanting the petty
producers and retailers of past times, the waste in every
direction being thus lessened more and more. Thus, as
capitalism, meaning thereby competitive production of com-
modities for profit, relentlessly breaks down and overpowers
all other forms of production throughout the world; so
now, alike in production and in distribution, its tendency is
to break down itself in the competitive form.

But whether production and distribution are conducted
under capitalism on a large scale or on a small scale, the
system itself is worked on the same lines. It is of the
utmost importance to the capitalist that his raw materials
shall always be purchasable in sufficient quantity, and that
his products shall have a ready and continuous outlet —
that the circulation of commodities, in a word, should pro-
ceed continuously and without check. By no goodwill of
the capitalist himself, assuredly, does any interruption oc-
cur in the steady circulation of his capital. All who par-
ticipate in his surplus-value are equally anxious that there
should be no hitch to deprive them of their share of it.

But the demand for the goods, whether for those to be
used in production, or for the products themselves, is often
fitful, even in what is a steady market on the whole.
Consequently, an accumulation of commodities in ware-
houses becomes necessary, not as a condition of continuous
sale, but as a consequence of the temporary unsalability
of the commodities. Nevertheless, these warehouses as-
sure, through their presence, the steady continuance of the

CIRCULATION OF COMMODITIES 135

process of circulation and reproduction of commodities, in
normal conditions, as a reserve of money is a necessity for
the circulation of money ; and an expenditure of capital is
called for in either case, constituting a deduction from the
total social wealth, indispensable as their existence is.

When a diiSculty of a serious character arises in the dis-
posal of products for money, and fresh commodities come
forward before the last batch has been sold, then the ac-
cumulation of goods increases rapidly, just as an accumula-
tion of gold is brought about owing to a similar check to
the circulation of money. Then we have a glut, either at
tbe factories themselves, or in the merchants' storehouses.
This glut arises directly from the antagonism between gold
and commodities ; from the impossibility of converting com-
modities into money fast enough to take off the overplus.
And the block thus occasioned in the channels of circula-
tion, as will be seen more clearly later, not only involves
a temporary suspension of the exchange of commodities all
round the circle, but throws the machinery of production
itself out of gear.

Once more let it be repeated that continuous production
and sale of commodities for money is an indispensable neces-
sity of the capitalist system. But necessary warehousing,
so far from adding to the value of commodities, is a deduc-
tion from the wealth of the community, partly by actual
loss in storage, partly by deterioration of quality, and partly
by the labour of one sort or another which the mainte-
nance of the warehouse entails. It is certain that nobody
pays any more for goods merely because they have been
stored. Wlien the market is ready to take them, the stored
goods and the unstored goods, the articles produced yester-
day, or the articles produced months ago, fetch precisely
the same price, provided they are equally good.

136 THE ECONOMICS OF SOCIALISM

In the case of commodities which gain in quality by
keeping, and are warehoused or stored for that purpose, the
storage becomes part of the entire process of production,
not of the circulation; and the risks of such storage, as
in the case of wine or brandy, &c., constitute part of the
cost of putting them upon the market. Though, in these
instances, as in others, a stock of each special commodity
is needed, apart from the storage for improvement, in
order to meet the breaks in continuous circulation.

Transport of commodities plays a great part in the
sphere of the circulation of capital, and one which, since
the early part of the last century, has increased enormously
with each succeeding decade. The mere fact that raw
materials are now transported from the place where they
are grown, or mined, to the centres where they are taken
into the next stage of production and manufactured, and
then are frequently sent back again, in the form of the
completed commodity, to the very spot whence they origi-
nally came — such a series of transfers as this gives the
transport of goods an exceptional place in modern industry,
as also it has rendered the development in the direction of
railways and steamships a necessity.

Thus, raw cotton from the Southern States of America,
from India, from Egypt, finds its way to the mills of Lan-
cashire, Northern France, and Germany, and then the
cotton cloth is again sold, from the former mills at any
rate, in some of the countries from which the raw material
has come. So, in like manner, with the Bilbao iron-ore
from Spain, with copper from the United States, Chili, the
Cape, and the East, with silk from Italy, France and China.

These raw materials are imported into manufacturing
countries, and then, frequently, the finished commodity
is retransported back to the countries which originally pro-

CIRCULATION OF COMMODITIES 137

vided the raw materials. Even in the United States it-
self, which is more self-dependent in the matter of raw
materials than any other country, these raw materials, when
produced, are carried by rail thousands of miles to the
manufacturing centres, where they are transformed into
finished commodities, and are then transported in that
shape back again. At the same time, the necessities of
trade break down all national boundaries, and the farming
lands which supply Great Britain, not only with all sorts
of raw materials, but with wheat, meat, butter, eggs, fowls,
fruit, are situated, in some cases, hundreds, and in other
cases, thousands, of miles from our shores.

Now it is clear that mere transport of itself does not
necessarily add value to a commodity. If it did, and a
certain school of Anglo-Indian economists reason as if they
soberly held the view that transport of itself does create
value, then, clearly, the farther we send all sorts of goods
the more they will fetch. This, however, is manifestly
absurd.

Necessary transport is different. The utility of things
can only be made effective by consumption, and their con-
sumption may necessitate their removal, and therefore de-
mand the complementary process of production involved
in transport. Such transport can be watclied in the actual
process of production itself. Coal at the pit's mouth repre-
sented a value in money of, let us say, twelve to fourteen
shillings a ton. A factory close by can obtain it at that
price plus the cost of transporting it, probably a few pence :
to a factory thirty miles further off, with no nearer supply
of coal than the same pit, the cost of similar coal is in-
creased by the amount expended in transport, probably two
shillings or more a ton, whether this be done by railway,
tramway, barge, ship or waggon. The transport of com-

138 THE ECONOMICS OF SOCIALISM

pleted products follows the same rule, and the productive
capital embarked in the transport industry gives value to
the product, partly through the wear-and-tear of the means
of transport, and partly through the direct labour expended.
This latter portion of the contributed value is divided, as
the directly productive labour is divided, into the value of
the wages paid to the labourers and the surplus value which
is obtained from their incorporarted but unpaid labour.

All this means that whereas the expenditure of capital on
advertising, sorting, grading, warehousing, and packing
commodities, in order to facilitate their exchange into
money, adds nothing to their value, but constitutes merely
a deduction from the total surplus value, transport stands
in a different category. Transport increases the value of
a commodity, in so far as it takes the cheapest method to
bring it from where there is no market to where its social
utility can be made effective. And as the quantity of la-
bour needed to effect such transport is lessened the addi-
tional value due to transport is decreased. But, manifestly,
if goods are sent to a market merely for realisation at what
they will fetch, the transport can add no value to them
which will save the transmitter from loss.

It may not be out of place to point out here the influ-
ence which improved transport on the one hand, and ex-
cessive railway rates due to antiquated appliances or sheer
monopolist greed on the other produces on the circulation
of commodities; how also a great railway company, or a
combination of railway companies, can isolate an entire
region and produce as great an effect in the direction of
limiting that free competition, or free trade, which is taken
as the basis of capitalist production in an advanced stage,
as any hostile tariff that was ever imposed.

Thanks to the great improvement in steam-engines and

CIRCULATION OF COMMODITIES 139

mechanical appliances, by land and sea, it is now possible
to transport goods in quantity from the remotest parts of
the world at a cost at which it would have been impossible
to carry similar goods ten or twenty miles under the old
conditions. The contrast between the two systems and the
hindrance to circulation which the old system involves is
felt in practice the moment any new district is opened up
to mining, agriculture or commerce in any part of the
world.

West Australia and parts of South Africa afford striking
evidence of this with respect to mining. Brazil is a still
more striking example with regard to agriculture. Where
lines of railways are driven into that country from ports
on the coast coffee plantations and other plantations speed-
ily spring up. They cease where the railway ceases, and
sometimes before, if the rates for transport are too high.
In China, the lack of railways has confined the main com-
merce of that huge empire to the lines of water communi-
cation. But in the United States, where railway transport
has reached a point far in advance of that attained in any
other country, the railways are now even more important
than the rivers and canals, as agents in facilitating the
circulation of commodities. More remarkable still, per-
haps, was the reduction of freights by the great ocean-
going steamers and sailing-vessels prior to the war.

The effect of cheapened freights is very marked in in-
tensifying the competition of over-sea products with home-
grown products in all European Countries, but more par-
ticularly in Great Britain. Taking the cost of transport
of commodities as the basis of comparison, it was the fact
that, owing to the high rates charged by the English rail-
ways, Australia, Canada, the wheat centres of Canada, a
great portion of the Xorth-West district of India, and even

140 THE ECONOMICS OF SOCIALISM

the vast wheat-producing areas of the Mississippi, Missouri
and Saskatchewan were, reckoned by freight, within the
thirty-mile radius of London. That is to say, grain, fruit,
pork, meat, &c., grown in these regions, within easy dis-
tance of railway, were as near to the London market, so far
as the cost of transport is concerned, as the inhabitants of
towns in the Home counties.^ The English railways,
therefore, so far from facilitating the circulation of home-
produced or home grown commodities, directly hamper such
circulation and act as a heavy protective agency in favour
of foreign produce.

But not content with thus impeding circulation by their
rates of freight, English railway companies have delib-
erately shut out this or that district from convenient trans-
port in order to favour another. This occurred not many
years ago in Great Britain with reference to the South
Yorkshire coal-field, and in the United States in regard
to a portion of the bituminous coal-field of Pennsylvania.
As to the cost of transport of commodities also special
rates have frequently been made by companies for special
customers, thus ensuring the injury or even the ruin of
their rivals. This whole subject of transport is of crucial
importance in the circulation of commodities, as is seen,
more especially, in relation to the circulation of agricul-
tural products. But up to the present time the social
character of the function performed by railways, canals,
&c., has been no more recognised than the social character
of production has been admitted.

In the circulation of capital and commodities we have to

1 In my evidence before the Royal Labour Commission, given
thirty years ago, I showed that a cask of lager beer could be sent
from St. Louis to London, 4,200 miles, for less than a sack of
potatoes could be brought from Devizes.

CIECULATION OF COMMODITIES 141

consider not only the time occupied in production but also
in realisation: the two together, the period of production
and the period of circulation, representing the total time of
the turnover. Now the differences between the time of
production in different branches of industry are in prac-
tice endless, and the period of the turnover is thus directly
affected. And the result of this in such varying circum-
stances is that between cotton cloth which is perhaps thrown
on the market every week, or a locomotive which will take
three months to construct, or a ship which may take a
year, or agricultural products which may take a like period,
or raising cattle, which may occupy several years, the vary-
ing labour-period exercises a great influence upon the
whole operation.

CHAPTER V

PROFIT

In previous chapters the division of the value of the
social product between the contending classses which make
up modern society has been neglected. At most we have
considered the labourers and the capitalists as two antag-
onistic sections of that society: the former producing by
their labour all the wealth that is produced, in return for
wages which represent no more than a moderate subsist-
ence, and sometimes not even that : the latter appropriating
all the value incorporated in commodities by the labour
of these wage-earners. The surplus-value created by the
unpaid labour of the workers, over and above the return
of the original wages paid and constant capital advanced,
being taken in the first instance by the capitalists directly
engaged in tlie process of production, and then being
divided up with others who may be regarded as active or
sleeping partners in the business.

The most important of these participators in the total
surplus value created by social labour and appropriated by
employers, or by groups of employers in the form of share-
holders, are the landlords and interest receivers. Land-
lords take their share by reason of their individual owner-
ship of the soil, in the shape of what we call rent. Bankers,
traders, merchants, and others receive their portion, by
reason of the social conventions which give them control
of money and credit, chiefly in the shape of what we call
interest. The remainder falls to the employer as profit.
It is this last which we shall investigate first.

142

PEOFIT 143

Profit, the creation and increase of profit, is the motive
power of the whole capitalist system of production. Al-
though capitalists produce articles of social use, in the
society where they act as the agents of production, this
social utility is for them quite a secondary matter. Whole-
someness, purity, a high standard of nourishment, fine
quality of clothing, &c., carry no weight whatever with
them, except in so far as these features in commodities
facilitate rapidity of sale, and, therefore, of realisation of
profit, for their benefit. If inferior goods of any kind
command a more satisfactory profit, as the result of pro-
duction and exchange, than goods of a superior grade, then
the former will be produced in preference to the latter.
Thus production for exchange, regardless of the actual
worth to the eventual purchaser and consumer, dominates
the entire field of capitalist industry. The lowest possible
quality of deleterious but saleable gin is, for them, on the
same plane as the very best description of agreeable and
strengthening wine — so long as the poisonous alcohol is
easily and profitably disposed of.

Moreover, the capitalists themselves, as well as the wage-
earners they employ, have no control whatever over the
articles which they have produced for sale. The commodi-
ties go out upon the market for exchange, and realisation
for profit, and when that is done, all command over them
passes to others. These articles likewise are of no use to
those who, as wage-earners, turn them out for the capital-
ists: the capitalists and the workers themselves, with their
means of creating wealth, are merely the animate and inani-
mate means whereby raw materials are converted into ex-
changeable wares, or goods, which comprise in themselves
the power to be exchanged, to be sold for money, to realise
the amount of value in all the capital paid out for wear-

144 THE ECONOMICS OF SOCIALISM

and-tear of machinery and tools, raw materials, incidental
materials, depreciation of buildings, waggons, &c., and
wages, plus the additional labour-value embodied in the ex-
changeable articles to be sold. For which last no wages
have been paid, nor any other consideration has been
given.

This surplus quantity of commodities constitutes the
surplus value, or gross profit, which is the sole reason why
the entire industrial operation was entered upon and car-
ried through. Such gross profit brought to being in the
process of industry is the property in the first instance of
the individual capitalist himself, subject to deductions, in
the overwhelming majority of cases. The net profit of the
capitalist, that is to say, can only be arrived at after rent
has been paid and interest on money borrowed has been sub-
tracted, when his commodities, including the surplus value
or gross profit, have been realised in money.

But the rate of profit, whether gross or net, is very dif-
ferent, as we have already seen, from the rate of surplus
value, or, in other words, is very different from the ratio
of unpaid to paid labour. Furthermore, the rate of sur-
plus value, which is the measure of the exploitation of
labour that the capitalist is carrying on, may remain pre-
cisely the same, or even increase, while the rate of profit is
very much reduced.

Now the average rate of profit is continually falling in
all civilised countries. Superficial observers, therefore,
commonly contend that the wage-earners in those coun-
tries must, of necessity, as a class, be obtaining, apart from
any obvious rise in wages relatively to the cost of sub-
sistence, a constantly increasing share of the national prod-
uct of industry, as compared with the share that is realised
and appropriated by the capitalist class. This may even

PROFIT 145

appear, at first sight, a reasonable contention, and accumu-
lation of capital therefore becomes a mystery.

The rate of profit, however, is invariably reckoned upon
the whole of the capital embarked in any enterprise. Not
upon that portion of the capital which is used for pur-
chasing labour-power and paying wages, but upon the con-
stant capital and the variable capital taken together. But
the increasing tendency, throughout the field of capitalist
production, is that the amount of constant capital — capi-
tal embarked in machinery, raw material, &c., — should
grow relatively to the amount of variable capital expended
— the capital used to pay wages — embarked in the pur-
chase of labour-power. This is due to the larger amount of
machinery used, demanding heavier supplies of raw mate-
rial, &c., as processes of industry are improved by new
inventions, and the whole business of capitalism is con-
ducted upon a larger scale.

Thus, in a furniture factory where £50,000 is the total
capital embarked in the business we may have £35,000
employed as constant capital for machinery, buildings, raw
materials, incidental materials, and so on, with £25,000
used to purchase labour-power. Let us assume that the
rate of the exploitation of labour, that is of surplus value
or unpaid labour to paid labour, is one hundred per cent.
There will then be £25,000 of unpaid labour, surplus value,
or gross profit, embodied in the completed articles of furni-
ture which belong to the capitalist, and the rate of gross
profit on the entire capital embarked will be £25,000 upon
£50,000, or 50 per cent.

Now let improved and more costly machinery be set up,
calling for larger or better buildings with a corresponding
increase in the amount of raw materials, in this case
wood, used in the process of production. Then we may

146 THE ECONOMICS OF SOCIALISM

assume that this constant capital will represent no longer
£25,000 but £40,000 out of the total £50,000 and the varia-
ble capital available for paying wages will fall to £10,000
instead of £35,000: the rate of exploitation of labour re-
maining as before 100 per cent. Therefore the surplus
value of unpaid labour embodied in the articles of fur-
niture as a whole falls to £10,000. This shows only 20
per cent, upon the same total capital, namely, £50,000;
though the smaller number of wage-earners still employed
provide the same ratio of unpaid to paid labour embodied
in the articles of furniture that they did before. They
gain nothing whatever by the fall in the rate of profit cal-
culated on the total capital,

Now this process of the increase of the proportion of
constant capital to variable capital is, as said, steadily
extending in every department of productive industry as
the whole system of capitalism itself extends. Constant
capital, which engenders no surplus value, is growing pro-
portionally to the variable capital which alone engenders
surplus value. Nor is this tendency materially changed,
though it may be temporarily affected, by the cheapening of
the elements of constant capital, machinery, buildings, raw
materials, incidental materials, waggons, and so forth.
Consequently, the tendency of the rate of profit is to fall in
all capitalist countries, though the rate of surplus value,
namely, of unpaid to paid labour, may remain unchanged.

This whole tendency of the rate of profit to fall in all
highly-developed capitalist countries is set forth by Marx
as follows:

" Given the rate of wages and the working-day, a varia-
ble capital of £100, let us say, sets in motion a fixed number
of labourers: it constitutes the criterion of this number.

PEOFIT 147

For example, let £100 be the wages of 100 labourers, say
for one week. If tliese 100 labourers perform just as much
necessary labour as surplus labour, they daily work as much
time for themselves, that is for the reproduction of their
wages, as for the capitalist, namely, for the production of
surplus value; their total production in value is equal to
£200, and the surplus value they have produced amounts to
£100. The rate of surplus value, consequently, the ratio
of unpaid to paid labour embodied in commodities, would
be one hundred per cent. (100 %). This rate of surplus
value, cent, per cent., would, nevertheless, express very dif-
ferent rates of profit according to the varying size of the
constant capital employed relatively to the total capital
embarked. Thus, the rate of surplus value being one
hundred per cent. :

" If the constant capital is represented by a money value
of £50, and the variable capital by a money value of £100,
then the rate of profit on the above assumption represents
the ratio which £100, the total amount of surplus value
produced, bears to the entire amount of constant capital
and variable capital together employed. This is £150.
The rate of profit in this case, therefore, is in the propor-
tion of 100 to 150, or 66% per cent.

" But, now, if the constant capital is increased to £100
under the same conditions, the rate of profit is the ratio
which £100, the total amount of surplus-value produced,
bears to £200, the entire capital employed. The rate of
profit here, then, the same rate of surplus-value being main-
tained, is not cent, per cent., or 66% per cent., but the rela-
tion which 100 bears to 200, or 50 per cent.

" So, again, if the constant capital rises to £200, the
variable capital still remaining at £100, and the rate of

148 THE ECONOMICS OF SOCIALISM

surplus-value being still cent, per cent., or also £100, the
rate of profit falls still further, and is as £100 to £300, or
33^/^ per cent.

" Once more, when the constant capital reaches the
amount of £300, the rate of profit is as £100 to £400, or
only 25 per cent.

" As a last illustration, take the constant capital at £400.
This, added to the variable capital of £100 used to pay the
wages of the 100 labourers, gives a total capital of £500.
The surplus-value is still £100. Here, therefore, the rate
of profit falls still more, and is represented by the relation
of £100 to £500, or 20 per cent.

" Thus, the same rate of surplus-value, accompanied by
an unchanged scale of exploitation of labour, would express
itself in a falling rate of profit; because the amount of
tKe value of the constant capital, and together with this
the amount of value of the total capital, grows with its
own material bulk, though not in the same proportion."

Hence, says Marx, further, " the progressive tendency
of the general rate of profit to fall is only an appropriate
expression of the capitalist system of production for the
advancing development of the social, productive power of
labour." He adds that the whole school of political econ-
omists, professors and pupils alike, outside the Socialists,
" have failed to expound or explain this law " — of the
falling rate of profit — " because they are incapable of
formulating the distinction between constant and variable
capital in an intelligible and practical shape; and they
cannot separate rate of surplus value from rate of profit,
or discriminate between gross profit as a whole and its
various independent portions, such as industrial profit,
ground-rent and interest."

This is as true to-day of the general theorists of political

PROFIT 149

economy in Great Britain, outside the Marxist school, as
it was when Marx wrote. Not a single one of our academic
economists has contributed anything of real value to any
portion of Marx's analysis, though many of them have
exhausted their energies in futile endeavours to frame an
economic basis of capitalism which shall scientifically con-
ceal the wholesale exploitation of labour. There is, how-
ever, no possible explanation of the falling rate of profit,
concurrent with an equal or even an improved remuneration
of the workers, and a larger return to capital as a whole,
than the solution propounded by Marx.

Hitherto, the operation of the capitalist system has been
mainly considered from the point of view of production
and realisation by an individual employer, or company.
Now, in considering the general distribution of surplus
value, or gross profit, and the establishment of an average
rate of profit for all capital embarked in productive busi-
ness, the matter must be regarded from the point of view
of capital as a social and not merely as an individual
economic force. Thus, returning to two producers of fur-
niture, one manufacturing his cabinets, chairs, tables, &c.,
by the old hand-work process and another with the best
improved machinery, both using the same quality of wood
and turning out — which is quite possible — identically
similar articles in the same quantity for sale upon the
market, the following is obviously the position :

(a) The second producer will have relatively a much
larger proportion of his active industrial capital employed
as constant capital — machinery, raw material, incidental
materials, &c. — and a much smaller proportion of his
entire capital embarked in the form of variable capital —
payment of wages for the purchase of labour-power — than
the first producer of furniture.

150 THE ECONOMICS OF SOCIALISM

(b) "Whatever the total amount of capital, constant and
variable together, may be (which is assumed to be the same
for both producers) upon which the rate of profit has to be
reckoned, obviously the first producer is paying very much
more in wages, that is to say, his variable capital is much
larger in proportion to his constant capital, than that of the
second producer. Therefore the amount of surplus value
embodied in his commodities in the shape of unpaid labour
is much greater in the case of the producer who manufac-
tures furniture in the old-fashioned way than in the case
of the capitalist using improved machinery. That is be-
yond dispute.

(c) When, however, manufactured furniture of the same
quality is placed upon the market, it is manifest that the
two sets of goods will fetch the same price. What has
happened ? The social power of reproduction, with the
less expenditure of labour, comes behind the two sets of
commodities and equates them in exchange.

(d) Hence the furniture-manufacturer working with
the larger amount of constant capital and the less amount
of variable capital takes to himself in realisation a large
proportion of tlie unpaid labour embodied in commodities,
in this case furniture, which, in the first instance, nom-
inally belongs to the capitalist who turns out furniture
merely by the labour of hand-workers, without machinery.

(e) Obviously, the "organiser of labour" who sticks
to the old process must ere long be driven out of the
market by the more advanced employer of labour, although
his quantity of surplus value to begin with is greater than
that of his competitor.

(f ) This simple process, clear enough in theory, is being
applied all through the market in various departments in
actual practice. Capital using on the average larger

PROFIT 151

amounts of constant capital will inevitably as a rule com-
mand the market as against the same total amount of
capital producing with smaller amounts of constant cap-
ital. The larger the constant capital the greater the rela-
tive gain to the capitalist, though the rate of profit, on the
total capital employed, is steadily falling all the time.
Simple, abstract social human labour, engaged in produc-
ing the various commodities for profit, with the surplus
value simultaneously created by the unpaid labour em-
bodied therein, forms the basis of the entire system.

(g) It is the competition of capitals engaged in the
different branches of industry which establishes the average
rate of profit throughout. This average rate of profit in
nowise conflicts with the labour theory of values, but, on
the contrary, confirms it.

But in the general survey of capitalist production and
average rate of profit we have not to deal with segregated
instances of capital of higher composition, that is to
say capital employing more constant capital, and capital of
lower composition, using less constant capital, in direct
competition with one another on the field of realisation.
The competition covers the whole area of the production of
commodities for profit under the capitalist system. Here
the general social effect of this system comes into play.

It is thus put by Marx : " Although capitalists in the
various spheres of production recover the value of the cap-
ital used up in the production of their commodities, by
the sale of these commodities, they do not obtain the sur-
plus value or the gross profit created in their own sphere by
the production of these same commodities, but only as
much surplus value and profit as falls to the share of every
portion of the total social capital out of the total social sur-
plus-value, or social gross profit, produced by the total cap-

152 THE ECONOMICS OF SOCIALISM

ital of society in all spheres of production. Every 100 of
any invested capital, whatever may be its organic composi-
tion, draws as much profit during one year, or any other pe-
riod of time, as falls to the share of every 100 of the total
social capital during the same period. The various capital-
ists, so far as profits are concerned, are so many shareholders
in a share company in which the portions of profit are uni-
formly divided for every 100 shares of capital, so that profits
differ in the case of the individual capitalists only according
to the amount of capital invested by them in the social
enterprise, according to their investment in social produc-
tion as a whole.

" That portion of the price of commodities which buys
back the materials of capital used up in the production of
commodities, in other words their cost price " — [the con-
stant capital, raw materials, incidental materials, wear-and-
tear of machiner}^, &c., and variable capital in the shape of
wages actually paid out] — " depends upon the investment
of capital required in each particular sphere of production.
But the other element of the price of commodities, the per-
centage of profit added to this cost price, does not depend
upon the mass of profit produced by a certain capital during
a definite time in its own sphere of production, but on the
mass of profit allotted for any period to each individual
capital in its function as part of the total social capital
invested in social production.

" A capitalist selling his commodities at the price of
production recovers money in proportion to the value of the
capital used up in their production and obtains profits in
proportion to the part which his capital represents in the
total social capital. His cost prices are definite. But the
profit added to his cost-prices is independent of his partic-

PROFIT 153

ular domain of production, for it is a simple average per
100 of invested capital."

Here the difference between the actual cost of production,
and the price of production with average profit added, is
set out.

This had been previously expounded more elaborately as
follows. C in the tables stands for constant capital and
V for variable capital.

"Let us compare five different spheres of production,
and let the capital in each one have a different organic
composition, as follows :

Rate of Sur-

iSurplus

Value of

Rate of

Capitals

plus Value

Value

Product

Profit

I.

80c

20v

100%

20

120

20%

II.

70c

30v

100%

30

130

30%

III.

60c

40v

100%

40

140

40%

IV.

85c

15v

100%

15

115

15%

V.

95c

5v

100%

5

105

5%

"Here we have considerably different rates of profit in
different departments of production with the same degree of
exploitation, corresponding to the different organic compo-
sition of these capitals.

"The grand total of the capitals invested in tliese five
spheres of production is 500; the grand total of the sur-
plus-value produced by them is 110; the total value of all
commodities produced by them is 610. If we consider
the amount of 500 as one single capital, and capitals I to V
as its component parts (about analogous to the different
departments of a cotton mill which has different propor-
tions of constant and variable capital in its carding, pre-
paratory spinning, spinning, and weaving rooms, on the
basis of which the average proportion for the whole factory
is calculated), then we should put down the average com-

154 THE ECONOMICS OF SOCIALISM

position of this capital of 500 as 390c + llOv, or, in per-
centages, as 78c + 22v. In other words, if we regard each
one of the capitals of 100 as one-fifth of the total capital,
its average composition would be TSc + 22v; and every
100 would make an average surplus-value of 22. The aver-
age rate of profit would, therefore, be 22%, and, finally,
the price of every fifth of the total product produced by
the capital of 500 would be 122. The product of each
100 of the advanced total capital would have to be sold,
then, at 122.

"But, in order not to arrive at entirely wrong conclu-
sions, it is necessary to assume that not all cost-prices are
equal to 100.

" With a composition of 80c + 20v, and a rate of sur-
plus-value of 100, the total value of the commodities pro-
duced by the first capital of 100 would be 80c + 20v +
20s, or 120, provided that the whole constant capital is
transferred to the product of the year. Now, this may
happen under certain circumstances in some spheres of
production. But it will hardly be the case where the
proportion of c to v is that of four to one. We must,
therefore, remember in comparing the values produced by
each 100 of the different capitals, that they will differ
according to the different composition of c as to fixed and
circulating parts, and that the fixed portions of different
capitals will wear out more or less rapidly, thus trans-
ferring unequal quantities of value to the product in equal
periods of time. But this is immaterial so far as the rate
of profit is concerned. Whether the 80c transfer the value
of 80, or 50, or 5, to the annual product, whether the
annual product is consequently 80c+20v-[-20s=120, or
50c4-20v-f 20s=90, or 5c+20v-f 20s=45, in all of these
cases the excess of the value of the product over its cost-

PEOFIT

155

price is 20, and in every case these 20 are calculated on a
capital of 100 in ascertaining the rate of profit. The rate
of profit of capital I is, therefore, in every case 20%. In
order to make this still plainer, we transfer in the following
table different portions of the constant capital of the same
five capitals to the value of their product.

Value

Bate of

of Com-

Surplus

Surplus

Rate of

Used

mod-

Cost

Capitals

Vnlue

Value

Profit

UpC.

ities

Price

I.

80c4- 20v

100%

20

20%

50

90

70

II.

70c+ 30v

100%

30

30%

51

111

81

III.

60c4- 40v

100%,

40

40%

51

131

91

IV.

85c+ 15v

100%,

15

15%

40

70

55

V.

95c+ 5v

100%o

5

5%

10

20

15

390c+110v

110

100%

Total

78c+ 22v

22

22%

Average

" Now, if we consider capitals I to V once more as one
single total capital, it will be seen that also in this case
the composition of the sums of these five capitals amounts
to 500, being 390c llOv, so that the average composition
is once more 78c 23v. The average surplus-value also
remains 22%. If we allot this surplus-value uniformly
to capitals I to V, we arrive at the following prices of the
commodities :

Capitals

Surplus
Value

Value

Cost Price
of Com- Price
mod- of Com-
! ities modities

Rate of
Profit

Deviation

of Price

from

Value

I.

80c+20v

20

90

70

92

22%

+ 2

II.

70c+30v

30

111

81

103

22%

— 8

[II.

60c+40v

40

131

91

113

22.%

—18

IV.

85c+15v

15

70

55

77

22%

+ 7

V.

95c+ 5v

5

20

15

37

22%

+17

" Summing up, we find that the commodities are sold
at 2+74-17=26 above, and 8+18^=26 below their value,
so that the deviations of prices from values mutually
balance one another by the uniform distribution of the

156 THE ECONOMICS OF SOCIALISM

surplus-value, or by the addition of the average profit of
22 per 100 advanced capital to the respective cost-prices of
tlie commodities of I to V. One portion of the commodi-
ties is sold in the same proportion above in which the other
is sold below their values. And it is only their sale at
such prices which makes it possible that the rate of profit
for all five capitals is uniformly 22%, without regard to
the organic composition of these capitals. The prices
which arise by drawing the average of the various rates of
profit in the different spheres of production and adding
this average to the cost-prices of the different spheres of
production are the prices of production. They are condi-
tioned on the existence of an average rate of profit, and
this, again, rests on the premise that the rates of profit in
every sphere of production, considered by itself, have pre-
viously been reduced to so many average rates of profit.

s
These special rates of profit are equal to — in every

C
sphere of production, and they must be deduced out of
the values of the commodities. Without such a deduction
an average rate of profit (and consequently a price of pro-
duction of commodities) remains a vague and senseless
conception. The price of production of a commodity, then,
is equal to its cost-price plus a percentage of profit appor-
tioned according to the average rate of profit, or in otlier
words, is equal to its cost-price plus the average profit.

" Since the capitals invested in tlie various lines of pro-
duction are of a different organic composition, and since
the different percentages of the variable portions of these
total capitals set in motion very different quantities of
labour, it follows that these capitals appropriate very dif-
ferent quantities of surplus-labour, or produce very dif-

PROFIT 157

ferent quantities of surplus-value. Consequently the rates
of profit prevailing in the various lines of production are
originally very different. These different rates of profit
are equalised by means of competition into a general rate
of profit, which is the average of all these special rates of
profit. The profit allotted according to this average rate
of profit to any capital, whatever may be its organic com-
position, is called the average profit."

And throughout, as the advance of social production
becomes more and more marked, by the application in
industry of improved mechanical and chemical improve-
ments and the consequent growth of constant relatively to
variable capital the tendency of the rate of profit, as
shown, is towards a continuous fall. This means that the
social power of production of labour is itself steadily in-
creasing, though the rate of profit may fall temporarily
for other reasons. " It is the nature of capitalist produc-
tion and a logical necessity of its development, to give ex-
pression to the average rate of surplus-value by a falling
rate of average profit. Since the mass of employed living
labour is continually on the decline, as compared to the
inass of materialised labour embodied ^in productively
consumed means of production, it follows that the unpaid
portion of living lal^our which creates surplus-value must
fcontinuously decrease as compared with the amount and
the value of the total capital invested and employed. And
inasmuch that the proportion of the entire mass of sur-
plus-value to the value of the total capital embarked consti-
tutes the rate of profit this rate of profit must perpetually
fall." ^

It is not necessary to follow Marx's elaborate exposition

1" Capital," Vol. Ill, pp. 183-186. Untermann's translation
slightly modified.

158 THE ECONOMICS OF SOCIALISM

any farther. But we have here a manifest theoretical
proof of how it comes about that the great capitals grow
constantly bigger. They are forced by competition to
embark larger and larger proportions of their industrial
capital in machinery, raw materials, incidental materials;
in constant capital, in short. In every department of
production, from soap, cotton thread, oil refinery, iron and
steel founding, food preparation, &c., &c., business is con-
ducted on a larger and a larger scale. Small competitors
are undersold and crushed out. Competition, the soul of
capitalist production in the earlier stages, gradually ceases
and monopolies in the shape of Trusts, Combines, Cartels
become the dominant form, not only in direct industrial
production, but in transport, distribution, finance, banking,
&c. This vast power based upon the exploitation of labour-
power can be met and controlled only by the organisation of
vast co-operative associations, the direct interference of the
community, or the uprising of the co-ordinated and disci-
plined forces of the owners of labour-power, the wage-
earning class itself.

CHAPTER VI

RENT

It is still not unusual for economists to speak of rent
as if in its present form, as payment for the temporary use
of land, it had lasted through the centuries. But this is
as erroneous as to speak of exchange as always prevailing
under all forms of society. Eent has its history as
exchange has its history; and the competitive and ground
rents which are now the rule in Great Britain are quite an
exceptional form of land tenure even at the present time.
In the primitive communal societies rent, of course, was,
and is, unknown. Whether the land settled and cultivated
by the tribe or gens varied in quality, or was all equally
good, made no difference whatever from the point of view
of the division of tlie product among the members of the
tribe or gens. The soil was co-operatively tilled, and the
product was communally divided. Nor did this exclude, in
many cases, a most elaborate and scientific system of culti-
vation and irrigation. In such circumstances, as there was
no individual ownership, so also there was no conception
of rivalry for possession of the more fruitful tracts. At a
later stage, when land was cultivated as personal or family
property for a fixed term, and redistributed at the close of
the term among the tribal families, rent was still unknown.
Throughout ancient society, likewise, rent, in our English
sense of the word, rarely existed.

During the feudal period, the personal suit and service
due to the superior lord for lands held, when it was changed

159

160 THE ECONOMICS OF SOCIALISM

into payment in kind out of a proportion of the crop, or
even converted into payments in money, was a totally dif-
ferent thing from our modern rent. The historical growth
of modern agricultural rent in Great Britain is — from
the rent paid in labour or service by the holder to the over-
lord; to rent paid in produce by the holder to the land-
owner; thence to the equivalent money rent paid to the
landlord; lastly, to the differential rent, paid by the capi-
talist farmer in money to the landlord, for the use of a
superior agent of production.

Eent in the shape of the payment for land by cottier
tenants, where the landlord, being in absolute possession,
with needy and moneyless peasants all round him, is able
to exact all the produce of the soil for himself, less the bare
subsistence of the cottier tenants — this rent also is totally
distinct from the rent which the well-to-do farmer pays to
a landlord for the lease of a farm. This kind of cottier
rent we can still see in the south and west of Ireland, all
the " fair rent " enactments of the last forty years to the
contrary notwithstanding.

Again, rent paid by small farmers with small capital, but
not wholly needy, who till their own holdings themselves,
with tlio aid of their family, likewise differs from the
system we see around us to-day in Great Britain. And
the landlords who obtained rent under this state of things
soon found a marked change for the worse, in the amount
of rent they could get in proportion to the produce raised,
when, owing to the improvements in methods of cultivation
and the consequent necessity for the employment of a con-
siderable capital in agriculture, the tenants who undertook
to pay rent first estimated the profit on their capital at a
satisfactory figure, before they would pay any rent at all.

RENT 161

Interest on farmer's capital formed a deduction from the
total possible rent of the landlord.

This last form of rent in its fully-developed shape — the
form of rent, that is, paid in money by the farmer who
owns capital, to the landlord who owns the land, for the
privilege of tilling that land by agricultural labourers whom
the farmer employs in order to make a profit out of the
produce of their labour — this is the form of rent, so far
as agricultural land in Great Britain is concerned, which
we have first to consider.

Obviously, this arrangement, by which a capitalist who
happens to be a farmer takes land from a person recognised
by society as the owner of the soil, and pays rent for it in
order to make a profit for himself, brings the whole cultiva-
tion of the farm so hired within the range of the rest of the
system of capitalist production for profit. The landlord
in such circumstances has generally himself advanced, or
appropriated from others, capital in the shape of buildings,
drainage works, &c., to improve his land; and receives the
interest on that capital so advanced, together with the rent
which we may assume to be paid for the bare use of the
land itself. In practice it is exceedingly difficult, if not
impossible, to separate these two portions of the rent. But
the fact that the land when hired is used, primarily, for the
purpose of obtaining a profit for the farmer out of the
produce, differentiates this sort of land cultivation from
every other.

Thus the Irish cottiers, the Indian ryots, the peasant
farmers and metayers of the whole continent of Europe,
even most of tlie freehold farmers of North America and
the Argentina, till the land, in the great majority of cases,
under totally different conditions from those which prevail

162 THE ECONOMICS OF SOCIALISM

in England. If they have good land, and enough of it,
their circumstances will be good ; far superior, of course, to
those of the same class who till inferior soils or too small
plots of good land. The fact that the American freehold
farmer works his land with probably the best appliances
obtainable, and that the ryots of India use the primitive
tools of their ancestors, makes no more difference in regard
to their form of economic production than the land-tax
imposed by the Government of India turns the ryots into
competitive rent-payers, or constitutes them capitalist!
farmers. Both American freeholders and Indian ryots are
cultivating the soil under conditions and with objects that
are totally distinct from the conditions and objects under
and for which the English capitalist farmers work their
holdings. Nor does the appearance of their food-stuffs on
the same market, even though these food-stuffs are indis-
tinguishable from one another, bring them closer to the
English farmers in regard to the conditions of production
existing in each case.

Having thus, to some extent, cleared the ground, we are
in a position to consider agricultural rent as it exists in our
present capitalist society. This is the more important that,
everybody being acquainted with rent in some shape, all
are specially liable to be led astray by theories in connec-
tion with this subject. Now what is agricultural rent?

The theory of rent which finds widest acceptance at the
present time, and has even been made the foundation of
other theories which are put forward as explanations of the
whole capitalist system, is the theory of Eicardo. In
Eicardo's own words, " rent is that portion of the produce
of the earth which is paid to the landlord for the use of
the original and indestructible powers of the soil." This

EENT 163

manifestly applies only to agricultural land. It is what is
called by many " economic rent " as opposed to the popular
conception of rent. Eent in the popular sense, of course,
means the payment made for the use of any immovables;
and is sometimes still further extended, as when we speak
of the rent of type for printing, kept ready for use. In
the general sense also rent covers the returns on capital
already expended in improvements of the land when it is
rented. Ricardo's is a much narrower definition than
either of these.

When Eicardo spoke of " the original and indestructible
powers of the soil " as the source of the landlord's rent, he
was no doubt as well aware as we are that whatever may be
the original powers of any soil, none of them, except its
position, can properly be called " indestructible." How-
ever fertile a soil may be, continued cropping will destroy
its fertility, and call for the application of successive doses
of manure to restore its exhausted powers. It is still a
moot question whether Eicardo intended to include locality
within the scope of his original definition. Assuming that
he did, it is obvious that, from the rent-exacting point of
view, this " power," also, is by no means indestructible ;
seeing that a shifting of population, or the change of the
tidal flow, may entirely destroy, or greatly deteriorate, the
rentability of any plot of land which owed its " original "
advantage, from the landlord's point of view, to the neigh-
bourhood of a great city, or its vicinity to a navigable river,
or to the sea.

It is quite clear, at any rate, that it is not the soil itself
but the society living upon that soil which is the main cause
of Eicardian as of other rent. The social causes, as Mr.
Posnett pointed out, are "(1) Individual ownership un-

164 THE ECONOMICS OF SOCIALISM

shackled by State interference; (2) individual occupancy
by a farming class likewise unshackled; and (3) the exist-
ence of labourers perfectly free to compete."

In short, the social causes are the individual and private
ownership of land, plus the application to the land of the
capitalist system of production, with its private ownership
of tools and raw materials, and its free labourers who
have no property to sell except the power to labour in
their bodies. The physical causes of Eicardian rent are
"(1) The limited quantity of land; and (2) the varying
degrees of its fertility."

And Eicardo himself explains how agricultural rent
develops, and its effect when developed, after the following
fashion : " On the first settling of a country in which there
is an abundance of rich and fertile land, a very small pro-
portion of which is required to be cultivated for the support
of the actual population — or, indeed, can be cultivated
with the capital which the population can command — ■
there will be no rent. If all the land had the same prop-
erties, if it were unlimited in quantity and uniform in
quality, no charge could be made for its use, unless where
it possessed peculiar advantages of situation."

Here Eicardo speaks of situation for the first time; but
a purely social and relative cause such as situation surely
belongs to a far wider economic category than " the orig-
inal and indestructible powers of the soil " on which he
bases the landlord's claim to rent. " It is only, then,
because land is not unlimited in quantity and uniform in
quality, and because, in the progress of population, land
of an inferior quality, or less advantageously situated, is
called into cultivation, that rent is ever paid for the use
of it. When, in the progress of society, land of the second
degree of fertility is taken into cultivation, rent commences

RENT 165

on that of the first quality, and the amount of that rent
will depend on the difference in the quality of these two
portions of land." " If good land existed in a quantity
much more abundant than the production of food for an
increasing population required, or if capital could be indef-
initely employed without a diminished return, there could
be no rise of rent; for rent invariably proceeds from the
emplo}Tnent of an additional quantity of labour with a
proportionately less return."

Again : " The value of all commodities is always regu-
lated, not by the less quantity of labour that will suffice
for their production under circumstances highly favour-
able, but by the greater quantity of labour bestowed by
those who continue to produce them under the most unfav-
ourable circumstances; that is, the most unfavourable
under which the quantity of produce required renders it
necessary to carry on the production." And as a result of
this — " It has been justly observed that no reduction would
take place in the price of corn although landlords should
forego the whole of their rent. Such a measure would only
enable some farmers to live like gentlemen, but would not
diminish the quantity of labour necessary to raise raw
produce on the least productive land in cultivation."

Now, we have here the statements, irrespective altogether
of historic development, that rent is due to the extension
of the " margin of cultivation " to less fertile soils as popu-
lation increases; that the application of successive amounts
of capital and labour to the same tract of land always
results in a less proportional quantit}^ of produce, a view
which is known as the theory of " diminishing returns " ;
and that, owing to the law which governs the exchange of
commodities on the market, the price is not affected by the
exaction of rent for the use of a more favourable instru-

166 THE ECONOMICS OF SOCIALISM

ment of production, inasmuch that, speaking generally,
nobody can tell whether the product offered for sale has
been grown on good land or bad.

In these conditions, " Rent is always the difference be-
tween the produce obtained by the employment of two
equal quantities of capital and labour " on the same extent
of land, and " Whatever diminishes the inequality in the
produce obtained on the same or on new land tends to
lower rent; and whatever increases tbat inequality neces-
sarily produces an opposite effect and tends to raise it."

Put in a more concrete shape, the meaning is this:
Here are two tracts of land each of two hundred acres in
extent. The one tract returns just so much corn as will,
at the ruling price of grain on the market, pay for the
labour employed, and the average rate of interest and
average profit on the capital embarked ; let us suppose this
to be 20 bushels of wheat to the acre. Here we are at the
"margin of cultivation," other things remaining as they
are. For such land the landlord can demand no rent.

But there is the other tract of 200 acres which produces
28 bushels of wheat to the acre, as a return for the applica-
tion of an equal amount of capital and labour, instead of 20
bushels. That is to say, 20 bushels out of the 28 pay the
labourers for their labour at the current rate of wages,
and repay the capitalist his advances, with current rate of
interest and average profit, out of the price which their sale
realises on the market. There remain 8 bushels over.
The money value of these 8 bushels, on the average, the
landlord can ask for and get as his share, as the private
owner of the land, for the use of it as an agent of produc-
tion for profit.

Now, if, owing to increase of population on the same
extent of land, a third tract of 200 acres, of less fertility,

EENT 167

is brought under cultivation, giving a smaller return, say
15 bushels per acre, to the same amount of capital and
labour ; then a rise of price will be established, other things
remaining the same. The margin of cultivation has been
extended. As a result, not only will the 20 bushel land
now be able to pay a rent of 5 bushels to the landlord, the
previous assumption holding good, but the 28 bushel land
will pay a rent of 13 bushels to the landlord instead of 8;
that being the difference between the 15 bushel land whicA
it will just pay to cultivate at the new range of prices, and
the land which, for the same expenditure of capital and
labour, returns 28 bushels.

In short, as Eicardo says elsewhere, the price of the
larger amount of grain, or other produce, returned by
superior land, goes to the landlord in the form of rent,
instead of to the producer or the consumer; after the
labourer has been paid his wages and the capitalist has
received his profit on his capital.

Such, in brief, and without taking account of variations
of supply and the like, is the Ricardian theory of rent, in
the form given to it by Eicardo himself. He, as is well
known, was anticipated by Anderson to some extent, and
owed the completeness of the theory, from his point of view,
to the work of Adam Smith, Malthus, and West. Eicardo
lived through the great French wars, during which period
the island of Great Britain furnished an apt illustration of
his theory. The importation of foreign grain was prac-
tically excluded; the population was steadily increasing;
the capitalist system of production was in full swing on
the land; the landlords were in control of the soil as private
owners; and the necessity for the extension of the area of
food-production brought even the worst lands into tillage,
and thus extended the margin of cultivation. In such

168 THE ECONOMICS OF SOCIALISM

circumstances the price of grain rose enormously, owing to
the greater quantity of social labour embodied in food-
stuffs, and the landlord class, as leases fell in, were able to
demand constantly-increased rents for the superior soils
they owned, as compared with the inferior soils that neces-
sity called into cultivation.

At this period, and under these circumstances — the
application of machinery to agriculture, scientific manur-
ing, and intensive cultivation, with improvements in breed-
ing and rearing live-stock, being still in their infancy —
Eicardo's theory might well be accepted without criticism.
The price of agricultural commodities continually rose
owing to the rise in the cost of production in social labour
as determined by competition; the price of manufactured
commodities fell at the same time, owing to the introduc-
tion of machinery which reduced their cost of production
in social labour as determined by competition.

But the deduction drawn by many of his contemporaries,
and even, incidentary, by Eicardo himself, that the land-
lord costs notliing to the community, seeing that his rent
did not " enter into " the price of food, is not worth refuta-
tion. As well might we argue that the capitalist costs
nothing to the community because his profit does not
" enter into " price, but is squeezed out of the worker
before the price is realised on the market.

The law of diminishing returns to the increasing amount
of capital applied to any given plot of land which is men-
tioned above is also worthy of a little further considera-
tion. The meaning of it is that the more labour and
capital expended in cultivating any particular agricul-
tural area, though their application may give a greater
amount of produce, this additional quantity is less in pro-
portion than was the return to the original amount of

RENT 169

labour and capital expended on the same area. In other
words, if the expenditure of £10 an acre on a farm results
in an output of 28 bushels of wheat to the acre, then the
expenditure of a second £10 will not produce a return of an
additional 28 bushels or anything like it. That, speaking
generally, is true enough.

But it is likewise true that up to a certain point on all
land an increased application of capital and labour — which
of course means in one form or another an increased
application of labour — increases the total amount of the
produce both actually and relatively. This is now gener-
ally admitted, and by the admission another hole is
knocked in the theory of rent as formulated by Ricardo,
unless further modifications and limitations are intro-
duced. Professor Marshall, who cannot be accused of
being, as a rule, very definite about anything, commits
himself definitely on this point of increasing and dimin-
ishing returns to capital expended on cultivation of the
soil; and even tries to apply it to the case of the building
of lofty dwellings in great cities as well as to agricultural
land. Whether this last is correct or not, it is safe to
say that it has nothing whatever to do with the theory as
propounded by Ricardo.

It will be observed, further, that Ricardo took no account
of the historical growth of rent. Just as we had the
aboriginal hunter or fisher exchanging his game or his
catch on the most approved principles of nineteenth-century
commerce, so we have a society in all its capitalistic panoply
of landlord, capitalist farmer and propertyless labourer
plopped down into a new country, picking out the most
fertile soils to begin with, allowing the landlords to appro-
priate them, extending the cultivation to the poorer soils
as population increased, and so on, as required to suit the.

170 THE ECONOMICS OF SOCIALISM

needs of the theorj'. This was, perhaps, excusable in a
treatise on economics written ninety years ago by a man
of genius whose very errors are instructive. But when a
journalistic joker turns farceur after the following fashion,
and is even taken seriously by people with no appreciation
for humour of this sort, it is time to protest: " Figure to
yourself the vast green plain of a country virgin to the
spade, awaitiug the advent of man. Imagine then the
arrival of the first colonist, the original Adam, developed by
centuries of civilisation into an Adam Smith prospecting
for a suitable patch of Private Property. Adam is, as
Political Economy fundamentally assumes him to be, 'on
the make,' therefore he drives his spade into, and sets up
his stockade around the most fertile and favourably situ-
ated patch he can find." Then come others who can't get
such good land as this original settler, who has over them
an advantage of £500 a year. " Here is a clear advantage
of £500 a year to the first comer. This £500 is economic
rent. It matters not at all that it is merely a difference
of income, and not an overt payment from a tenant to a
landlord. The two men labour equally; and yet one gets
£500 a year through the superior fertility of his land and
convenience of its situation. The excess due to that fer-
tility is rent ! "

The full force of this argument will be seen at once
from the fact that America was, some three hundred years
ago, " a country virgin to the spade." It has since been
well colonised. Yet rent of agricultural land, in the form
of Eicardian rent paid to the landlord, is still almost
unknown. Consequently, we are told that " it matters not
at all " whether the farmer appropriates the whole product
of his farm to himself or whether he pays rent to a land-
lord ! He pays rent to himself ! !

RENT 171

The truth is, as we have, seen, that Eicardian rent is
quite an exceptional form of payment for the holding of
land. Eent of agricultural land in that form depends
upon, and constitutes a part of, a fully-developed capitalist
society. It is the same with rent as with every other eco-
nomic category: all are dominated and determined by the
stage in the capitalist system of production which the
surrounding society has reached.

Land to-day in Great Britain is regarded by the farmer
with capital, who rents it from the landlord, from pre-
cisely the same point of view as a machine, for using which
he pays a royalty to the inventor, is regarded by the indus-
trial capitalist. In the one case the capitalist farmer pays
a more or less heavy rent to the landlord for the use of a
portion of the soil of superior fertility to the worst in
tillage : in the other case the capitalist manufacturer pays
a rent to the owner of the patent for the use of a mechan-
ical appliance of superior productive power to the best
then applied. In each case the capacity to extract payment
arises from a social convention, which recognises the private
property of the landlord in the land and of the patentee, or
his assigns, in his invention. And, in both cases alike, the
capitalist regards the employment of the land, or the
mechanical contrivance, as a means of making profit for
himself out of the production of saleable commodities
created by the labour of his workers.

Thus the capitalist who hires land in present conditions
does so in order to extract surplus value from his labourers
and therefore make a profit out of it.

This same land is regarded by the landlord as simply the
engine whereby he may obtain from the capitalist farmer
a money rent and a money rent alone. Xo personal obliga-
tion goes with the contract as a rule, and many landlords

17» THE ECOXOMICS OF SOCIALISM

have never seen some of their- estates. It is purely a pecu-
niar}' connection; for payment in kind, long as it endured,
is now practically unknown in England.

Land rented by the landlord and farmed by the capitalist
farmer is looked upon by the agricultural labourer, in the
third place, much as a factory is regarded by the '' hands "
who work in it. Divorced from any ownership, or posses-
sion, or interest in the soil, as completely as any town
artisan, the land is to him simply the raw material on which
he toils to get his wages. He forms the third member in
our agricultural trinity. But not a trinity in unity by
any means. It is as compact a little set of antagonisms
as any in our society. For the agricultural labourer, if he
has any sense at all, — and what little he had has been
almost starved out of him — regards both the farmer and
the landlord as his natural enemies; but the farmer as, on
the whole, the worse of the two, seeing that, to use Adam
Smith's phrase, he is engaged in a " constant conspiracy "
to keep down or to cut down wages.

The farmer is, of course, at war with the agricultural
labourer on this point of wages, though it would in many
cases have paid him well to double the rates of pay in return
for the far better work he would get. He also regards the
landlord as his natural enemy, unless, indeed, he happens
to have got his farm on lease below the market value,
which on large estates was, and even now is, not unknown :
the landlord deliberately sacrificing direct pecuniary advan-
tages in order to retain the personal or political loyalty
of his tenants.

The landlord himself knows that his interests and those
of the farmer are economically at variance, but he is unable
to make common cause with the agricultural labourer
against the farmer; because that would leave him without

EKNT 173

tenants, and farming with a bailiff rarely proves advan-
tageous; because, also, he believes that high wages and
independence for the labourers would in the long run mean
low rents for the landlord — perhaps worse.

Such is the agricultural trinit}^ of antagonistic " free-
doms " on which the Eicardian theory of rent is based : a
landlord free to get as high rent as he can ; a farmer free
to get as much profit as he can; a labourer free to get as
much wages as he can. All three living in an atmosphere
of free sale of commodities in a competitive market.

Eent, then, in its modern sense of Eicardian rent, is
due to :

(a) Private property in land;

(b) Capitalist production for profit;

(e) Unrestricted competition among propertyless
labourers.

Now, however, comes Professor Amasa "Walker, who pro-
fesses himself to be a " Eicardian of Eicardians," and, in
a book written by him in defence of the theory, tells us
that the United States and Ireland are the only two con-
siderable countries in which rents closely approximating to
true competitive rents have ever been habitually paid!
" In England, however," ho proceeds, " the very country of
Eicardo, competitive rents have never been exacted."
This is a strange sort of defence.

For in Ireland, to begin with, one of the chief persons —
it is fair to call him the chief person — in the Eicardian
trinity is " conspicuous by his absence." The capitalist
farmer who pays the landlord rent in return for the use
of " the original and indestructible powers of the soil " is
rarely to be found in that part of the sister island to which
Professor Walker specially refers. And the land for which
the cottier tenants paid such exorbitant rents, in propor-

174 THE ECONOMICS OF SOCIALISM

tion to its cultivable value, so far from being originally
of superior fertility, has, in the majority of cases, only
been made fit for tillage at all by the interminable toil of
those same tenants and their ancestors, the result of which
the landlord has grabbed as his own. In tbe United
States, on the other hand, with which Professor Walker
ought to be very well acquainted, the great majority — it
may be said almost the whole — of the farmers own their
farms in freehold; and it would take a very elastic defini-
tion of rent to bring in the interest on their mortgages as
a part of such rent.

Let us now consider the Ricardian theory from the point
of view of the recent history of agriculture. Since Ricardo
died, enormous changes have taken place; but even at the
time when he wrote his statements stood in need of modi-
fication. For example, the statement that rent does not
enter into price, or is not the cause of price, simply means
that private property in land is not the cause of agricul-
tural prices, or that the prices of agricultural products do
not depend upon the private ownership of land. But it
would be easy to show that private ownership in land in
Great Britain since Ricardo's day has restricted the output
of home agricultural products, which is a direct economic
drawback to the whole community, and may in conceivable
circumstances very possibly have enhanced price.

Much more important, however, than this is the effect
of American, Indian, and Australian competition on the
price of English agricultural products. Population has
been increasing in Great Britain rapidly in the past fifty
years; yet so far from there having been an increase in
the rent of agricultural land, it is notorious that the rents
of such land in Great Britain fell from forty to
fifty per cent, within the same period, and that in some

EKNT 175

counties large tracts of land have gone out of cultivation
altogether. To what is this due ? In the case of American
competition, undoubtedly, first, to the enormous develop-
ment of cheap transport as compared with the rates charged
by English railways, thus bringing the wheat centres of
America within thirty miles of London, reckoned by
freight; and, secondly, to the application of machinery to
the cultivation of the soil on a large scale, thus reducing
the cost of production of cereals by the same means that
the cost of production of manufactured goods had been
previously reduced. With India, in addition to the cheap-
ness of freight for wheat, there was until lately a mechan-
ical currency cause at work tending to reduce prices.
This was due to the fact that the rupee had the same
purchasing power in India that it had before the great fall
in the value of silver relatively to gold.

Clearly, it is not the superior fertility of the soil in
either case which has enabled the producers in the United
States and in India to undersell English farmers and
knock down English rents. Not at all. A series of causes
connected with the development of society at the end of
the nineteenth century has been at work, and " the original
and indestructible powers of the soil," aided by improved
processes of production and an extraordinary cheapening
of transport elsewhere spelt to the English landlord con-
tinuously falling rents in the face of a continuously-increas-
ing population.

Nor was this the case in regard to cereals alone, though
the rent of agricultural land is chiefly dependent on their
price. Butter, eggs, fresh fruit and canned fruit, cheese,
fowls, even meat, fell rather than rose in price in conse-
quence of foreign imports, and the landlord suffered
from this cause as well. At the present time the popula-

17i6 THE ECONOMICS OF SOCIALISM

tion of Great Britain draws at least five-sixths of its total
supply of wheat and half its total supply of food from
sources outside of this island. So greatly has the area of
food cultivation on which the population can draw been
extended, so largely have the returns to effective machine
cultivation of the soil developed under favourable condi-
tions, that the production of food now stands on much the
same footing as the production of manufactured goods. It
was not that the " margin of cultivation " varied of itself,
but that the social development, as manifested in the facil-
ities for tillage and transport, had gone on at so great a
rate as to revolutionise the whole system.

Whither does all tliis lead us? To the truth that the
hire of land, like the hire of any other instrument of pro-
duction for profit under capitalism, is governed by the
consideration of a series of economic circumstances by no
means wholly covered by fertility, or even situation.
American agricultural production, for instance, averages
but 11 to 15 bushels of wheat to the acre. English agri-
culture contrives still to obtain an average of more than
28 to 34 bushels of wheat to the acre. Land of by no
means always first-rate quality, therefore, thousands of
miles distant from one of the chief markets for its prod-
uce, enabled its freehold farmers to hold their own and
more, in competition with other land producing a higher
average return to the acre close to that same market.

Hence it might well happen that it would be better for
a farmer who understood his business to pay a considerable
rent for a farm in the valley of the Mississippi, in Dakota,
or on the Sacramento plain, in order to make a profit
by shipping grain to London, rather than that he should
occupy a farm at a low rent, or at no rent at all, in Devon-
shire or Suffolk. This, too, although the latter soil might

EENT 177

even be the more fertile, as well as possess the advantage
in point of actual situation. But this will only fit in with
the Eicardian theory on the supposition that we to a great
extent neglect natural fertility, which is the keystone of
that theory, and introduce a number of other considera-
tions which are entirely omitted in Eicardo's exposition of
the causes of agricultural rent.

Nevertheless, if we assume that all agricultural land has
the same advantage in the matter of transport and is tilled
with equal skill, knowledge, and command of machinery,
then the land which is most fertile will, provided the situ-
ation in reference to market is equally good, command a
competitive rent under capitalism proportionally in excess
of that which will be paid for less fertile soils; and
Eicardo's theory of agricultural rent depending on margin
of cultivation is to that extent true. But even so, in old
settled countries, that same fertility is quite as much due
to the expenditure of capital and labour on the land in the
past, as it is to those " original and indestructible qualities
of the soil " which Eicardo postulated.

Agricultural rent, however, by no means exhausts the
categories of competitive rent under capitalism. Dead-
rents and royalties paid for mines are, in like manner,
governed by the same rule that applies to the differential
rent of land. For instance, it may be just worth the while
of the owner of mineral land, coal, iron or lead, to work it
himself with his own capital, or to let portions of it to
working miners to work on tribute, he receiving an agreed
part of the minerals raised. But the same mines, not being
rich, or the seams or veins not easily accessible, would not
offer sufficient inducement in the way of profit for a capi-
talist to undertake to develop the property; paying to the
owner a royalty of fourpence or sixpence a ton, or five per

178 THE ECONOMICS OF SOCIALISM

cent, on the gross return. Here, therefore, is no dead-
rent or royalty. This is the margin of exploitation for
the time being.

All mineral lands of superior quality equally well placed
with these will then command a royalty in proportion to
their greater richness, or the less difficulty and lower cost
of extraction. Similarly, water-power, fisheries, and so on,
command a differential rent, according to their relative
superiority as agents of production. In every case similar
products fetch the same price on the market, that price
being regulated by social cost of production determined by
competition.

Rent in such cases arises, as in the case of agricultural
land, by the demand of the private owner for a share of
the produce in return for the temporary cession to the
capitalist of his recognised legal right to do what he likes
with what society pleases to allow him to call his own.
Here, too, manifestly, rent arises from a monopoly of a
portion of the earth's surface accorded by society to an indi-
vidual. The amount of that rent, under the capitalist
system of production, is determined by the relative supe-
riority of that portion of the earth which he owns to
another portion which it only just pays at the then existing
price of the product to develop.

We now come to ground-rent, the rent of land in cities.
In this case we find ourselves at once quite outside " the
original and indestructible powers of the soil." Even
situation becomes a purely social matter. Here, if any-
where, it is clear to everybody that " rent arises from
society and not from the soil." Some of the greatest cities
in the world have grown up, not where it would seem most
convenient to locate them, but in situations quite the reverse
of advantageous. Paris itself being a marked instance of

EENT 179

this. Yet, when a considerable population has established
itself at any centre, or trade, administration and general
use have accustomed the nation or the world at large to
visit and deal at this or that city, it takes a long period to
bring about any great change.

Indeed, nothing short of such a complete diversion of
traffic as that which took place after the conquest of Con-
stantinople and the interruption of the old trade routes to
the East seems capable of shaking the supremacy of a great
historical city, whether its situation is naturally favour-
able like that of Genoa, or more or less accidental, as in
the case of Venice or Amsterdam. On the other hand, we
can see plainly that mere superiority of situation does not
necessarily carry with it a great population.

No more remarkable instance of this exists than the con-
trast between Melbourne and Geelong. The latter city,
lying about thirty miles from Melbourne, has a fine harbour,
is closer to the great mineral and agricultural resources of
the Colony of Victoria, and, as the centre of a large popu-
lation, would be easy to drain. Melbourne has no better
port than an open roadstead, is more remote from the
provincial districts of greatest wealth, is very badly situ-
ated for drainage, being on a level for the most part with
the sluggish Yarra Yarra, and possesses no advantages in
the surrounding countrv' to compensate for these draw-
backs. Xevertheless, Melbourne has a population of
700,000 against the 30,000 of Geelong; the ground-rents,
or the purchase price of sites, in Collins Street and Bourke
Street are as high as those in the City of London; while
the rents in the smaller city are, of course, comparatively
trifling.

Similar, though not such striking, examples of higher
ground-rents being obtained for what appear to be origi-

180 THE ECONOMICS OP SOCIALISM

nally and actually, from the point of view of convenience,
less favourable sites are common. Moreover, the tendency
of great cities, when once established, is, under existing
conditions, to grow continuously bigger and bigger. The
set of population is steadily from the country to the towns.
Nor is this the case only in old-settled countries. Even in
America and the Colonies the same tendency can be traced.

As a result of this social movement, hundreds of thou-
sands, and even millions of people are now concentrated
within comparatively narrow limits; thus huddled together,
not, as in the Middle Ages, for the sake of the protection
which the fortifications and common defence of the armed
citizens gave them against the nobles and brigands without,
but by a series of economic causes which dominate them,
instead of being dominated by them.

Consequently, competition for the favoured spots within
these narrow limits becomes, from social causes, very keen,
and the gain of the owners of the land on which the cities
are built is proportionately great. Thus the actual ground-
rents of London — the amount of money paid by us
Londoners for the privilege of occupying the site of our
own city, to a handful of persons whom we choose to con-
sider as entitled to exact it from us — reach the total of
more than £20,000,000 a year, and they are increasing at
the rate of £200,000 yearly. All this goes into the pockets
of the owners of the land, not assuredly from any inherent
virtue in the soil itself, still less in the landlords them-
selves ; but from the social development which is going on
in every direction, and which is legally compelled by these
gentlemen to " stand and deliver " every three, six, or
twelve months a fine full ransom in the shape of rent.

The increase of rental value, due solely to the social
action of the inhabitants of great cities, is denounced by

KENT 181

some as "unearned increment," and under that name it
has been a favourite topic for land reformers and munic-
ipal reformers, who are often stone-blind to other forms
of monopoly with their unearned incomes. Yet this un-
earned increment of rent, due to social causes and realised
by social convention, constitutes only a portion of the
entire unearned surplus-value wliich private ownership of
the means and instruments of production enables the active
capitalist class to extract from the unpaid labour of the
wage-earners and then divide with others.

City ground-rents themselves are divided into several
categories. First, there are the ground-rents which arise
directly from the industrial surroundings and constitute a
deduction, for the benefit of the landlord, from the surplus-
value of the manufacturer, or the profits of the distributor.
Under this heading come the ground-rents of factories and
workshops as well as the ground-rents of wharves and
shops. These rents are high or low according as the plot
of land for which rent is demanded is situated favourably
or otherwise for production or trade. They are paid by the
occupiers as a portion of the cost of the instruments
necessary to them for the making, or the realising, of a
profit.

Then there are the luxury ground-rents, as we may call
them. These are the ground-rents paid to the landlords,
not for the purpose of obtaining any advantage in indus-
trial business by the use of the plot of land paid for, but
for the enjoyment of the advantages, social, sanitary, or
other, connected with a particular site. Such rents are
paid by the wealthy out of the surplus value already taken
and paid over to them from the unpaid labour of the work-
ers. Here, as elsewhere, competition determines the
amount of the actual rent to be paid. Landlords, how-

182 THE ECONOMICS OF SOCIALISM

ever, commonly exact less than the full rent they might
get for sites of this sort, in return for capital expended
by the leaseholders in improvements, building, and so on.
But the landlords themselves generally obtain enhanced
rents from public improvements to which they contribute
nothing at all, as well as from the increasing pressure of
population.

Here, of course, fashion, which is a purely social force,
has a great deal to do with the amount of the rents which
are demanded and paid ; and as fashion changes within the
limits of a city, with little reference to the character of the
soil, so rents rise and fall. Districts which once com-
manded very high ground-rents on becoming unfashionable
are estimated at a lower level of rent; while districts, for-
merly unoccupied or covered by a low class of dwellings,
become fashionable and return extremely high ground-
rents to their owners.

A third class of ground-rents are those which are paid
for the sites of working-class dwellings. These are fre-
quently much higher than either the situation or the char-
acter of the houses erected on the sites would seem to
warrant. Competition for lodgings which are not far from
their work compels labourers to pay high rents for the
worst possible accommodation, a drawback so far only par-
tially removed by improved transport. These ground-
rents, and the rack-rents of the dwellings from which they
are deducted, constitute in reality the exaction of a direct
tribute from the wage-earning class, in addition to the sur-
plus value indirectly squeezed out of them, in the form of
unpaid labour embodied in commodities.

The rents of land converted into a money payment on a
competitive basis thus become a secure income to the
owner of the land rented, and they have become in the

EENT 183

main so secure, especially in respect to the ground-Tents
of great cities and market-garden land adjacent to them,
that their value is estimated at many years' purchase;
twenty to twenty-five years' purchase being frequently
given for such rents. Agricultural land, also, is not un-
frequently bought to return in rents, after all outgoings,
no more than three per cent, upon the capital sum paid.
When this is done, the facts are turned round the other
way, and it is argued that owners of land are obtaining
such a low interest upon their invested capital that they
are really benefactors to society by accepting it. The truth
being that it is the very certainty of being able to obtain
the fruits of other people's labour, under legislative enact-
ment and social convention, which gives so large a capital
value to the rental paid.

Again, both in the case of agricultural land and urban
land, the landowner obtains, in addition to his rent, the ad-
vantage of such improvements as have been made by the
tenant. Even compensation for unexhausted improve-
ments does not wholly save the really capable and thrifty
farmer from contributing of his capital and the labour of
his agricultural labourers to increase the value of the mo-
nopoly which the private ownership of land confers upon
the landlords in a thickly-peopled country. In cities this
is even more apparent. Apart from the unearned incre-
ment of rent, as it is the fashion to call it, due to the
higher competitive value of land in crowded industrial cen-
tres as the population increases, the landowners have an-
other great advantage, which they use to the utmost as
against the population, at any rate in Great Britain. They
refuse to part with the freehold of their land, and will let
it only on building leases, which tend to get shorter and
shorter.

184 THE ECONOMICS OF SOCIALISM

Thus the system of private landownership, in a country
where capitalist production is fully developed, involves bad
tillage in agriculture and bad buildings in towns. The
farmer who takes the long lease of a farm, having no real
security of tenure, is careful not to leave the land which
he has rented in any better heart at the end of his lease
than it was at the beginning. It is, therefore, not uncom-
mon to see land, taken on lease for a term of years, admi-
rably farmed for about half or two-thirds of the period, and
then gradually let down again to its original level, so that
the landlord may not receive a portion of the farmer's own
capital, in addition to his rent, as a gratuity on leaving.

How prejudicial this is to the interests of the community
it is unnecessary to enlarge upon ; nor how harmful, even to
the labourers, who, in addition to having to provide the
landlord with his rent and the farmer with the interest on
his capital and his profit, in return for subsistence wages,
are liable to be taken on and thrown off, as it suits the
farmer to work his farm on the higher or the lower scale.
All this, over and above the growing uncertainty of the la-
bourers' position, owing to the introduction of labour-sav-
ing machinery on the land and the substitution of pastoral
for arable farming.

In the towns the same anti -social rule governs building
operations under similar conditions. Building leases, for
60 to 99 years, granted in the majority of cases to builders
whose sole object it is to obtain a profit by enhanced
ground-rents, or by the sale of the carcasses of the houses
which they run up — such leases as these constitute a direct
premium on jerry-building. At the end of the lease the
houses built upon the land fall in to the ground landlord,
and it is to his interest that they should be well-built. But
he cannot push his restrictions too far in this direction, or

EEXT 185

he would fail to get capitalists to come in and build upon
his land.

Construction for profit, on the chance of meeting a grow-
ing demand at a large increase of rent, consequently entails
scamping in building, as production for profit entails adul-
teration in trade. And where this system of speculative
building on leasehold land is pushed to its extreme limit,
as in London, the class of dweJings and warehouses pro-
vided are nothing short of disgraceful. The drawbacks to
the community, from every point of view, are so great that
gradually public authority is beginning to restrict the
licence of the landlord and the capitalist in this direction;
but no permanent change for the better can be brought
about so long as private ownership of land continues.

It seems, therefore, that a wider definition of the rent
of land under capitalism is needed than that given by
Eicardo, and the following is suggested:

Rent of land is that portion of the total net revenue
which is paid to the landlord for the use of plots of land
after the average profit on the capital emharJced in develop-
ing such land has been deducted.

This definition covers not only the rent paid for agri-
cultural land, but also the dead-rent and royalties paid
for the right to extract minerals and the ground-rents paid
in the cities. It likewise places rent in its proper position
in the economic and social arrangements of to-day.

Contrary to appearances, the capitalist, even in the mat-
ter of such a primary agent of production and habitation
as the land, is enabled to secure his own terms as against
the landlord for the employment of his capital, when land
is brought under cultivation, when mines are developed,
and when town sites ?re built upon. When leases fall in
and the landlord becomes owner of tenants' improvements

186 THE ECONOMICS OF SOCIALISM

as well as of the land, or when the landlord tills, or builds
upon, his own land, or mines for his own profit, then rent
and profit or interest on capital are necessarily merged in
one rack-rent return.

From what has been said, it is easy to draw the conclu-
sion that confiscation of " economic rent," supposing it to
be possible to arrive at what economic rent really amounts
to in any country, or the confiscation of all rent of land of
every sort, would not affect the position of the working por-
tion of the community, unless the money so obtained were
devoted to giving them more amusement, to providing them
with better surroundings, and the Like. Competition for
employment under capitalist control would go on as before.
Workers' wages would undergo no increase whatever, nor
would their social status be in any way improved. The
capitalist, however, would be more dominant than ever, and
the competition for subsistence wages would continue
among the propertyless wage-earners.

In fact, the attack upon competition rents is merely a
capitalist attack. That class sees a considerable income
going off to a set of people who take no direct part in the
exploitation of labour; and its representatives are naturally
anxious to stop this leakage, as they consider it, and to re-
duce their own taxation for public purposes by appropriat-
ing rent to the service of the State. That is all very well
for them.

But to the workers it makes no difference whatever how
the surplus-value obtained by the incorporation of their
unpaid labour in commodities is divided up. Wliether the
landlords take one-fiftli and the capitalists four-fifths, or
the capitalists absorb the whole five-fifths, concerns the toil-
ers not at all. They would not get a farthing of the money
in any case: no matter how the burdens were shifted, the

EENT 187

men and women at the bottom would still have to bear the
whole weight.

This is why proposals for a single tax upon 'land values'*
have always been ridiculed by economists who know their
business, as failing to offer any solution of the land ques-
tion, or of any other of the pressing social problems of the
day. The only result of the confiscation of competitive
rents or royalties by tbe State, and the application of the
revenue thence derived to the reduction of taxation, would,
as before remarked, be the strengthening of the hands of
the capitalist class. For State ownership of rent by itself
does not check in the least degree the operations of capital,
nor does it involve in any sense the establishment of co-
operative production on the land.

So determinedly do some, however, stick to this rent
theory that they even contend that, under a Socialist or-
ganisation of society, when co-operation had been substi-
tuted for competition in every department of production
and distribution, rent of land would still exist. But the
rent of superior soils, or of superior sites, arises from pri-
vate property in those soils or sites, and is based upon di-
vision of labour and antagonistic classes.

When private property in land ceases, therefore, when
human beings cease to strive against one another, and an-
tagonistic classes cease to be, rent will cease too. Eent, in
short, will no more exist under the Communism of the fu-
ture than it existed under the Communism of the past;
and the very idea of rent being exacted under Socialism,
in order to stop a fight for a dwelling on Richmond Hill,
will be regarded by coming generations, if they ever hear
of that absurd figment of the imagination, as conclusive
evidence of the narrow-minded prejudice of the educated
middle-class in the twentieth century.

188 THE ECONOMICS OF SOCIALISM

Eent is due to historic development and social conven-
tion. By this social convention private ownership of land
is recognised by the community and upheld by law; thus
entitling landlords, like their friends and enemies the cap-
italists, to obtain a large share of the industrial product
without doing any productive work.

CHAPTER VII

INTEREST

Interest on money has a long history, anterior even to
rent. Interest on capital in its money form is, indeed,
much older than rent, and of course very much older than
profit in its modern shape. It arose out of the money
capital of the merchants or traders of antiquity which es-
tablished itself in their hands as a sort of social syphon,
specially adapted to suck wealth out of both sides, in the
exchange and commercial operations carried on by them,
as indispensable go-betweens to the small producers of those
times.

Standing between the buyers and the sellers of antiquity,
the owners of money, who possessed the universal equiva-
lent, traded between the two; and had the opportunity, of
which they took the fullest advantage, of getting the better
of both. Hence the money capital of this merchant class
steadily increased by taking toll of the produce which
passed through their hands.

The money power thus obtained was extended, by proc-
ess of accumulation and hoarding. By degrees, these op-
ulent traders found themselves in possession of sufficient
means to continue this commercial business on the increas-
ing scale which the growth of trade demanded ; and at the
same time they were able to lend a portion of their money
at interest to those who needed and could pay for it.
Money-owning here appears historically in opposition to,
and in antagonism with, landowning.

189

190 THE ECONOMICS OF SOCIALISM

The economic influence of usury on ancient society was
very great. It acted from the first as a revolutionary and
disruptive force. Not only did usury help to uproot and
destroy the small free producers, but it performed a similar
service, though not so completely, for the great slave-
M'orked estates, and converted patriarchal or family slavery,
under which the slaves had some chance of being fairly
treated, into mere chattel slavery, under which the slaves
were regarded as more or less intelligent human machines,
provided for the supply of wealth to their masters.

Usurers who advanced on estates, large or small, be-
came, by the pressure they were able to exert, and the
wholly anti-social relations they were able to establish, mas-
ters of the economic forces of the time; and may be said
to have filled, alike in regard to freemen and slaves, di-
rectly and indirectly, the position of the successful sweat-
ers of modern days. And they were regarded, both then
and in the feudal period. which followed, — in which, by
the way, they played much the same economic role — as an
altogether hateful class.

For many centuries the exaction of interest for money
lent was universally denounced as usury, and was fre-
quently punished by the law. To lend money in order to
beget more money was regarded as an unnatural means of
engendering an unnatural offspring. Aristotle speaks of
this method of acquiring riches as most reprehensible.
Usury, according to him, means money born of money ; " so
that of all means of money-making this is the most con-
trary to nature." The philosophers and jurists of the
Eoman period took the same view.

The Fathers of the Church followed on the same side,
and passage after passage might be quoted from their
writings, invoking all the wrath of heaven and all the tor-

INTEREST 191

ments of hell against the greedy, rapacious, usurers who
were wicked enough to exact interest for what is nowa-
days called "pecuniary accommodation."

But the development of the economics of class society
took no more account of the furious invectives of the men
of God than it did of the milder censures of the pagan
philosophers, or of the punishments inflicted upon indi-
vidual usurers by the pagan law-givers. Economics pay
no respect to the law or the prophets. Money-lenders be-
came continually more numerous and more powerful, not-
withstanding the intervention now and again by the State
on behalf of the debtors ; and the only effect of the ban put
upon usurers then and later Avas to raise the rate of interest
demanded on money lent; by way of compensation for the
greater risk run by the lender of losing not only his ad-
vance itself, by way of forfeiture, but certain, to him, very
valuable portions of his person into the bargain.

Money, of course, was lent under these circumstances in
its corporeal shape as money, as the universal metallic
equivalent. With money the borrower could buy anything.
Interest was exacted, under such circumstances, not as a
share of the profit to be realised by the borrower, nor as a
reward of abstinence in the lender for not having spent the
money at Corinth or Pompeii before he lent it ; but simply
because the social necessities of the borrower rendered it
imperative, or highly desirable, that he should have the
temporary use of the money, and the lender was able to
calculate upon this.

There was no question here of industrious, thrifty Char-
icles lending his plane, or his plough, to the less industri-
ous, less thrifty, or more unlucky Gallus, so that Gallus
might smooth more planks or raise a larger crop of wheat ;
and that then Charicles should participate in the gain due

192 THE ECONOMICS OF SOCIALISM

to the superior appliance which in the way of business he
had lent to Gallus. This pretty fairy-tale, which the late
M. Bastiat, Mr. Henry George, and others have amused
themselves with, has as little existence in fact as the sud-
den appearance of competitive rent among the original
settlers and their kin.

The loan of money from one man to another at inter-
est was, until a comparatively recent period, a pure trading
upon the social necessities of the borrower; in the same
way that the Indian money-lender, soucar, shroff, bunia, or
whatever name he may be called by, trades upon the social
necessities of the ryot to-day, when the latter borrows
money at sixty per cent, to spend on the marriage of his
daughter; or the familiar English pawnbroker trades upon
the necessities of the locked-out worker, when he lends the
workless Englishman money at twenty or thirty per cent.
on his tools or his furniture. This is why usury was so
vehemently denounced throughout the period when capital-
ism was in the germ. Enough of the old communal in-
stinct was still left to feel outraged at this money-monger-
ing.

But the borrowing and lending of money at interest
nevertheless attained vast proportions, though not borrow-
ing for the purpose of investment or speculation. Great
landowners, successful generals, ambitious politicians bor-
rowed in order to be able to display greater magnificence
on special occasions, to give larger donations to the popu-
lace, or to buy wider political influence. The smaller men,
the small free farmers, colonists, and the like, borrowed for
social purposes of more or less importance to them. Simi-
larly, the great noble of the feudal time had recourse to
the money-lenders in order to go well-equipped to the Cru-

INTEEEST 193

sades, or to make a fine show at a great tournament, and
the smaller men followed in his wake.

Yet all the time usury was regarded as a crime, and law
after law was enacted against the hated money-lenders,
even by merchants who were in effect taking interest on
money themselves. Money-lenders, Jew and Christian
alike, were always fair game. Yet they still prospered,
and throve in spite of the law, and their sacrifice of ears,
noses, teeth, eyes, and even life itself. In England, Act.
13 Elizabeth, cap. 8 of 1570, confirming the Act of Edward
VI, Sec. 5, proclaims, in view of the fact that " all usury
being forbidden by the law of God is sin and detestable,"
any loans on which less than ten per cent, is asked render
the principal liable to forfeiture; and loans bearing a
higher rate of interest not only expose the lender to the
loss of his capital, but bring him within the grip of the
law for severe punishment as well. This Act was only
repealed in 1854 ! Needless to say that payment of interest
had been fully recognised in England and enforced by law
long before that date.

The change in the view of interest taken in modern
times as compared with ancient is, of course, due to the
fact that interest in the twentieth century constitutes as
a rule only a participation in profit, or in surplus value,
already realised. Or in the case of state or municipal
loans the interest paid is in fulfilment of an obligation
supposed to have been entered into with the full consent
of the whole community. No moral stigma whai;ever at
present attaches to the making of profit, nor, consequently,
to the taking of a share in such profit when made. The
alteration of conditions came about with the rise of the
present complete system of capitalist production for profit.

194 THE ECONOMICS OF SOCIALISM

Those who found themselves in possession of money-capital
acquired by commerce, piracy, or slavery, could now lend it
not merely to feudal magnates, or needy freeholders, but
to their brother capitalists, in the sphere of active produc-
tion, who wished to make a profit out of the labours of
others by employing them as wage-earners to work a new
machine or the like.

The capitalist who directly employs his hands and sees
his way to realise a satisfactory amount of surplus-value,
representing, say, a profit of 20 per cent, reckoned on the
total amount of capital embarked, borrows the whole or a
portion of what he requires from the capitalist who owns
the money, and agrees to pay him a part of this surplus-
value — say, 5 per cent. — on his advance in the shape of
interest. The capitalist who makes this loan has, as a
rule, no control over the operations of the borrower — at
any rate, so long as things go right and his interest is paid,
or when his principal is paid in due course. He, like the
landlord, or rent-receiver, is simply a sleeping partner in
the business.

This is equally true whether tlie money borrowed, for
which interest is paid, is used as industrial capital, or as
trading capital. In both cases the lender receives his
interest, reckoned for this purpose at 5 per cent., in return
for parting with his temporary control over the universal
social equivalent for exchange-value. It matters not at
all how the lender came by the money he advances;
whether he inherited it, or stole it, or, as assumed above,
made it in trade. He obtains interest for it from the
borrower as a portion of the profit realised, not as a reward
for his abstinence, — for thrift has had nothing to say in
the whole transaction — but as a return for the temporary
loan of a social force, namely, money capital, which it is

INTEEEST 195

more convenient for him to part with, under restrictions,
to another, than to use himself.

Interest, then, is due to the private ownership of money,
as rent is due to the private ownership of land, and interest
on money under capitalism takes, for the most part, the
shape of a participation in profit. But the amount of
private capital which seeks an outlet, in the direction of
such a participation in profit under capitalism as is repre-
sented by the payment of interest for an advance, soon far
surpasses the total amount of coined money in any coun-
try. With the expansion of banking and credit, the growth
of bills, drafts, clieques, notes, bonds, shares, and so forth,
this sort of loanable capital becomes more and more obvi-
ously nothing more nor less than a series of orders on other
men's labour estimated in imaginary amounts of gold.

As this loanable capital, real or nominal, increases, and
security for the payment of the interest and repayment of
the principal is enhanced with the stability of any given
capitalist society, the rate of interest steadily falls. From,
say, 10 per cent, to start with, it comes down to 4. The
amount of loanable capital on offer grows, that is to say,
and its security increases, in a greater ratio than the
demand for it at the current rate for profit-making pur-
poses develops.

How purely this is a matter of social convention will be
apparent from the following illustration. A rich man
subscribes capital to the debentures of a railway. His
advance, which, with other loans, enables labour to be
turned into this instead of some other channel, bears the
fixed rate of interest of 4 per cent. If now he cuts off the
coupons from his debentures each year, and allows liis
banker to collect them for him in the shape of cheques
from the railway company, he will in five-and-twenty

196 THE ECONOMICS OF SOCIALISM

years, by simply leaving the account at his bank without
drawing upon it, have in his possession, as the result of
receiving these bits of paper, the whole amount of his
original advance, and, without toil or trouble on his part,
will be able to command twice as much labour as he could
five-and-twenty years before. If lent at compound interest
all the time very much more.

More than this, his original advance will not only be as
secure as it was to begin with, but the railway itself,
assuming the social convention under which it was con-
structed to continue in force, is a far more valuable prop-
erty than it was, although, owing to the progress of mechan-
ical invention, it could probably be constructed now for
half the cost. In fact, monopoly and the fall in the
average rate of interest on first-class security, owing to
other capitalists having been as abstinent and as saving
as himself, has greatly enhanced the capital value of his de-
bentures as an investment.

But it by no means follows that a permanent decrease
in the current rate of interest means that the interest-
receivers as a class take a less proportion of the total
product of the community than they did at the higher
rate, in return for having done themselves the honour to
be born capitalists, or for having arrived at the sleeping
capitalist stage of existence, as "architects of their own
fortunes." A very elementary knowledge of arithmetic
suffices to teach us that even two per cent, per annum on a
million sterling is equivalent to twice ten per cent, on one
hundred thousand pounds. If, tlierefore, the total amount
of loanable capital aggregated together in the hands of the
possessing classes and lent out at interest increased in a
far greater ratio than the rate of interest itself has fallen,
as unquestionably was the case in Great Britain before

INTEEEST 197

the war, then, clearly, the relative expropriation of the
results of social industry by the interest-receivers has in-
creased, notwithstanding the fall in the rate of interest on
first-class security.

Consequently, the argument which is sometimes used
that the reduction in the average rate of interest consti-
tutes of itself an advance towards an improved system of
production and distribution cannot be maintained. The
active capitalist may be able to borrow the whole or a por-
tion of his necessary capital from the sleeping partner, the
lender, at a lower rate than before; but in order to carry
out his business operations, on the more extended scale
required by modern industry, he will have to borrow larger
amounts than before, and the total surplus value extracted
from the toil of the workers is greater than ever.

A low bank-rate of discount, such as England used to
enjoy, carrying with it a low rate of interest on deposits
in the various banks, only signifies that confidence having
been shaken by great failures, and the initiation of large
enterprises, which has passed from the adventurous mer-
cantile class to the timid financial class, having been
checked, the amount of loanable capital to deal with first-
rate mercantile bills drawn against produce, or to lend on
high-class securities already on the market, outgrew the
requirements of this particular market. The coupon-
cutters and interest-accumulators, in fact, by their " absti-
nence " piled up deposits to their credit to such an enor-
mous extent that they reduced their own rate of interest
by the over-supply to the demand. These deposits are, let
it be said agaiu, purely matters of social convention, repre-
senting paper orders on other men's labour; from the
unpaid portion of which labour, interest, like rent and
profit, is derived.

198 THE ECONOMICS OF SOCIALISM

Professor Bohm-Bawerk and writers of his school have
been at great pains to discover some basis for interest other
than a participation in the surplus value squeezed out of
the labourers, owing to a class monopoly of money-capital
and credit. Similar efforts, as already observed, have been
made by other economists, most bitterly opposed to the
exaction of rent by landlords, to place interest and profit
on an ethical footing as between man and man. But our
modern social conditions admit of no weak moralising of
this sort on the assumption of mutual service rendered.

From the ethical point of view, with which here we have
nothing to do, wage-slavery is to the full as immoral as
slavery. From the point of view of the active capitalist
and direct employer of labour — the "captain of indus-
try," the well-paid villicus of our day — the sleeping capi-
talist partner who lends money at interest, no doubt
renders him a service by enabling him to extend his opera-
tions, and obtain larger profits by the use of such borrowed,
capital. But from the point of view of the actual pro-
ducers neither the one nor the other renders any service
whatever. They both merely take a portion of the sur-
plus-value, with which the wage-earners are compelled by
necessity to furnish them, in the shape of unpaid labour
embodied in commodities; standing in this respect prac-
tically on the same footing as landlords, bankers, merchants,
lawyers, brokers, clergymen, company-promoters and other
encumbrancers.

The truth about interest and its source in modern capi-
talist society is disguised from superficial observers, because
it appears, in ordinary business affairs, as a transaction
between two different sets of capitalists. Banks and loan-
agencies of various kinds lend their deposits, consisting of
capital accumulated out of the surplus-value appropriated

INTEREST 199

from unpaid labour, in the various spheres of industry, to
persons possessed of good security who are engaged in
different capitah'st businesses. Without entering upon the
diverse forms which these advances take, it is quite clear
that interest on money of itself creates no value. Conse-
quently, interest in every case is a participation in the
social surplus-value created by labour, and can have no
other origin. The attribution of value-creation to the
" thrift " or " abstinence " of sleeping-partner capitalists
is an absurdity so ludicrous that discussion of it would be
mere waste of space.

CHAPTER VIII

WAGES

Wages have been paid to labourers throughout a very
long period in the history of industry, and the variations
in their relation to the cost of subsistence have been
strongly marked. The rates paid also to skilled and un-
skilled labourers and to town and country labourers have
almost invariably been very different. But never before
the complete capitalist system was organised have the vast
majority of the workers (as well as the attendants upon the
parasitical classes) been compelled to depend upon wages
earned by the sale of their labour-power for their sole
source of subsistence, as is the case with the propertyless
class in Great Britain to-day. In other civilised countries,
as already said, a very large proportion of the population
is still settled upon the land aud, terribly hard as is the
work of the farmers, peasants, small holders and share-of-
produce cultivators, they are not directly dependent upon
the capitalist for their food, housing, clothing and small
luxuries. In most cases, much of what they need they
produce themselves. It is an arduous and exhausting life,
but, so long as those who live it can keep out of debt, an
independent one.

Nothing of the kind, on any appreciable scale, remains
in Great Britain. The non-possessing class in this island
is essentially a proletarian class. It possesses no property.
The agricultural labourers are as much the " hands " of

the farmers, as the factory operatives are the " hands " of

200

WAGES 201

the industrial capitalists. Moreover, until lately, the bulk
of these agricultural labourers were so completely unorgan-
ised, and so miserably paid and housed, that they were
even more dependent upon the capitalist farmers, over the
greater part of the country, than the industrial workers
and artisans were upon the town capitalists. This is the
reason, apart from the earlier growth of the capitalist sys-
tem of production in England, why this island is still used
as the classical example of the entire field of exploitation
of labour and manufacture for profit.

Now, as already frequently stated, people who possess
no property, and are destitute of the prospect of inheriting
or obtaining any property, have only one saleable com-
modity at their disposal, by parting with which they can
acquire the means of subsistence and shelter for themselves
and their families. This commodity is labour-power: the
power of labour comprised within their own bodies : the
power of labour, the power which alone when put into
operation for producing useful articles can embody value
in commodities by application to raw materials, &c. This
power at the disposal of propertyless human beings the
active capitalists, whose existence as capitalists depends
upon the continuous production of such commodities, is
ready to buy at a price. That price consists of wages paid
for the labour-power whose functioning is advanced to the
capitalists for a specific purpose, till the expiration of a
week, a fortnight or a month.

This labour-power so advanced on credit to the capi-
talists becomes their property for the time being as a living
commodity, like other commodities bought and used in the
course of production. It is used by them to create, by its
expenditure, articles of social use which can be sold at a
profit: such profit being derived from the value over and

20S THE ECONOMICS OF SOCIALISM

above the wages paid for the advance of the labour-power
which is embodied in the commodities produced under the
capitalists' absolute control.

Now what was the rate of wages paid to the workers of
Great Britain prior to the war? It is, of course, impos-
sible to average correctly rates of wages running from 12s.
to 15s. a week to agricultural labourers in the Southern
Counties up to the 36s. paid to members of the Amal-
gamated Society of Engineers in London or the still higher
wages paid to compositors, or plumbers. The standard of
life, the amount of rent paid for housing and the general
conditions differ too widely for accurate comparison. But
it is certain that, whether the vendor of labour-power be a
so-called " unskilled " agricultural labourer, or a highly-
skilled artisan, " it cannot be maintained that at any rate
the food, clothing, etc., necessary to keep the labourer in
the most efficient condition will give us a minimum below
which the self-interest of emploj^crs . . . will not suffer
wages to fall." (Henry Sidgwick.)

This means that, along the whole line, employers pur-
chase labour-power at the lowest possible point decreed by
competition, regardless of whether a sufficient subsistence
is or is not afforded to the labourer himself. Hunger in-
stead of the whip is also the impelling motive in such
competition. The wage-earner is forced, in order merely
to live up to the standard of life in his particular trade,
to accept the average or Trade Union rate of wages as
established by custom and agreement. He is thus virtu-
ally the wage-slave of the employing class, whether he be
paid a high or low scale of wages. Whether, also, he be
a low-grade or a high-grade wage-earner, unemployment for
three months at the very outside will see him stripped of
his small savings, denuded of his little furniture and his

WAGES 203

wife's trinkets, and swept down into absolute penury.
This anxiety concerning unemployment and destitution,
from which the superior grade of chattel-slave did not
suffer, weighs constantly upon the modern wage-earner;
while strikes to resist reduction of wages or unfair treat-
ment of any sort from the emplo3'er throw him upon his
scant Trade Union funds and often end in failure, or little
short of it, after weeks of privation.

Thus the economic and social position of even the high-
est-paid wage-earner, who at times may earn exceptional
remuneration, remains almost as insecure and his surround-
ings are not very far from being as depressing, as those of
the workers of a much lower grade. Only by stinting
himself and his family and accumulating savings by par-
simonious and physically injurious thrift can he hope to
rise out of his class into the employing class above. This
possibility becomes more and more remote every year, as
the necessary amount of capital to start in business in-
creases; nor does the ownership of shares in the mills where
he is employed tell much in the direction of greater inde-
pendence. He is drawn in some measure into the whirl-
pool of capitalist industrialism with little advantage to
himself. The small profits he obtains are, in any case,
drawn from the surplus-value created out of his own unpaid
labour. Individually, here and there, he may be tempo-
rarily and apparently a gainer. But, in the long run, born
a wage-earner, a wage-earner he will remain to the end of
his working life, so long as the system continues.

Furthermore, the very highly-paid wage-earner, even if,
in good times, in the United States, he drives to his daily
work in a Ford motor-car, is economically speaking, just as
much a wage-slave as the carefully-nourished, educated
slave of Crassus remained a chattel-slave, though his lot

204 THE ECONOMICS OF SOCIALISM

was far superior to tliat of the slaves of the same owner
toiling on the land. In short, what Robert Owen, himself
an employer of labour on a large scale, said of the capi-
talist, wage-earning, profit-making system, at the end of
the eighteenth century, is just as true at the beginning of
the twentieth century : " Under capitalism a man [or a
woman] must be either a slave-driver, or a slave."

Now, however, disregarding the various grades of remun-
eration in the wage-earning class, conditioned by skill,
effective Trade Union combinations, and apprenticeship,
&c., what was the amount of surplus-value, that is to say
unpaid labour, extracted from the producers and essentially
necessary social distributors, prior to the great war? To
arrive at this amount and its ratio to the total of yearly
national income — the word " income " by the way is quite
incorrect as applied to the wage-earning class — I make
use of the statistics given by Chiozza-Money in his useful
little book, "The Nation's Wealth." The total national
revenue is put there at £1,844,000,000. Of this sum,
the productive wage-earners are credited with receiving
£703,000,000. But that figure is excessive. To begin
with, it includes the remuneration of domestic servants,
obviously, in the main, a purely parasitical class. There
were some 2,000,000 such servants up to 1914. Taken as
a whole, their remuneration would be understated at
£100,000,000 a year. This leaves to the useful wage-
earners, roughly, only £600,000,000. But out of thia
£600,000,000, again, it is reasonable to deduct from the
net wages the rent paid back to the possessing and employ-
ing class for the wretjhed housing accommodations pro-
vided for the wage-earners as a whole. How much would
that be? Not far short of another £100,000,000, reckoning
that the workers of "Great Britain pay on the average one-

WAGES 205

sixth of their weekly wages for housing. But, in order to
be well within the mark, let only £60,000,000 be deducted
for rent paid to the property-o^^Tiers out of the remunera-
tion accorded to the wage-earners. We have then
£703,000,000, less £100,000,000, less again £60,000,000, or
£543,000,000 in all, as the actual payment, calculated on
this basis, made annually to the productive and necessary
distributive wage-earners of Great Britain up to 1914. I
consider this sum to be still too large for the facts, and no
allowance is made for the heavy pressure and consequent
reduction due to bad trade.

But taking £543,000,000 as the total amount of wages
paid to the actual necessary workers of the community out
of the grand total of £1,844,000,000, and it appears that
the non-producing class and their parasites (including
petty distributors who are economically useless) the pro-
portion of paid to unpaid labour in Great Britain is repre-
sented by the ratio of £543,000,000 to £1,844,000,000, or,
in round figures, 1 to 3I/2, This means that every useful
worker in the country does one hour's work for himself
and three and a half hour.>' work for non-producers: the
ratio of unpaid to paid labour being 7 to 2. Make what
allowance we please for due remuneration to doctors, sur-
geons, nurses, teachers, " organisers of labour," architects,
necessary small distributors and the like, and we have here
a social and economic system erected on a most precarious
foundation.

There is also a section of the wage-earning problem
which, though well known to exist, has never received due
consideration either from bourgeois political economists or
from our capitalist society as a whole : nor certainly has
any organised and continuous attempt been made to remedy
the evils resulting from this admitted fact by society as a

206 THE ECONOMICS OF SOCIALISM

whole. Labour-power is sold at its cost of subsistence and
reproduction to the capitalist. But a large proportion of
it is habitually sold by the workers in capitalist countries
at wages which preclude its owners and vendors from
obtaining, by the purchasing value of their wages, a
standard of life sufficient to enable them and their families
to maintain themselves in reasonable health and comfort.
In London, in particular, it was established by the investi-
gations of the Social-Democratic Federation, so long ago
as 1884-1887, that more than twenty-five per cent, of the
working class lived on a rate of wages which rendered the
continuance of such miserable poverty inevitable. The
accuracy of the statistics published by the Social-Demo-
crats of a number of average streets in the poorer districts
of the metropolis was challenged and tbeir arugments based
upon them were widely denounced by the capitalist press
as gross exaggeration. A wealthy shipowner took up the
subject, in order to prove that the facts were not as stated.

As the originator of the inquiry by the Social-Democratic
Federation, I watched for the result of this further more
elaborate and expensive work with great interest. The sta-
tistics obtained proved conclusively that more than thirty
per cent., not five-and-twenty per cent., were perpetually
living under the degrading social conditions of under-
payment, overcrowding and insufficient nutrition. And so
they are at the time of this writing.

The capitalist class of London and Great Britain with
the«Government of the day has paid no more attention to
the facts when they were conclusively established beyond
possibility of refutation by one of their own order than
they did when they were first made public by the Social-
Democratic Federation. Moreover, so long as our capi-
talist, competitive, wage-earning production for profit goes

WAGES 207

on, so long will this state of things endure, not only in
London but in all the largest industrial and commercial
centres of Great Britain. Averages are proverbially illu-
sory as evidences of well-being in social affairs; but it
would appear to be a crushing condemnation of the entire
wage-paying system that so large a percentage of useful
workers should, as acknowledged, be living under hopeless
conditions of this sort. Obviously, so low a standard of
life, for so large a proportion of the industrial population,
tends to keep down the rate of remuneration for the rest.

Since August, 1914, the economic conditions in Great
Britain and all over the world have been quite abnormal.
The great and inevitable decrease of production during the
war and the large demand for commodities which ensued
on the peace, aggravated by the over-issue of paper money
and excessive expenditure and waste, led to a very heavy
rise of prices in every department. This was necessarily
followed by a demand for higher wages and still higher
wages throughout the various industries, many of the
advances being preceded by strikes or threats of strikes
unless the claims of the workers were conceded. It is
doubtful, however, whether the additional wages obtained
represented on the average more than a nominal gain.
Such real advantages as fell to the lot of the workers at
home occurred between 1914 and the beginning of 1919,
due to circumstances whose consideration lies outside the
scope of this volume. The temporary home demand for
goods of all sorts in the two years succeeding the armistice
and the good trade which followed soon fell off. Great
Britain, in consequence of the policy of systematic neglect,
favoured by the Government, is now going back to the
conditions which prevailed before the period of hostilities
when, in spite of all the laudations of capitalist laissez-

208 THE ECONOMICS OF SOCIALISM

faire as beneficial to the people, the bulk of the wage-
earning class was living from hand to mouth on a low
standard of subsistence.

But the influence of the war upon the class struggle has
been very considerable in all countries, and, as might be
expected, especially in our own, the most advanced country.
Trade Unionism has gained enormously in strength. Com-
bined Labour was never nearly so powerful in this island.
The numbers of Trade Unionists have increased by leaps
and bounds, no fewer than 6,500,000 disciplined workers
being represented at the Congress at Portsmouth. More-
over, the tendency is to coalesce the large separate Unions
into closer and closer solidarity. It is within the power of
a few of these combined forces to hold up the entire trade
of the island on a mere question of wages, and the working-
class leaders not only negotiate on equal terms with the
Prime Minister and other members of the Cabinet but the
hostile capitalist press reports the speeches on both sides
almost verbatim. This in itself is an extraordinary
change, brought about within a very short period.

On the other hand, the growth of fighting organisations,
rings and trusts on the side of the capitalists has been
almost equally remarkable. In several trades something
little short of complete monopolies have been created —
national monopolies with international relations. In the
building trade it is calculated that from 300 to 600 per
cent, profit is realised by the different rings in the various
departments of the industry, on the materials required,
before the builders themselves and their workers begin to
carry out any contract. No method yet devised has been
able to cope with such excessive profiteering.

As a consequence, even Trade Unionists are beginning to
learn that mere efforts for higher wages cannot, even if

WAGES 209

successful, assure permanent well-being for the workers of
the community. This has led to stronger and stronger
claims for nationalisation and socialisation of mines, rail-
ways, shipping, factories, the land, &c. Such claims must
end sooner or later in a clear-cut programme for the aboli-
tion of the wages system altogether and the substitution
of complete social cooperation for anarchical competition.
The increasing disposition of the great Cooperative Socie-
ties, who supply upwards of a fourth of the consumers, to
make common cause with the Working Class Organisations,
politically and economically, must help or nd facilitate
this transformation — the greatest revolution of all time.

CHAPTER IX

INDUSTRIAL CRISES

In a previous chapter I dealt with the circulation of
commodities, and showed how necessary it is that the con-
tinuity of the stream should not be interrupted. Any
interruption, from whatever cause, means a temporary
stoppage round the whole circle, and a consequent break-
down in all, or nearly all, departments of trade. It is
common among those who have not fully considered the
conditions of modern capitalist production to contend that
there is practically no difference between the disturbance
of business which arises in modern times, and that whicli
can be traced in ancient history, or in countries where the
older forms of production remain to this day.

Thus a famine, a drought, a war, a pestilence, have fre-
quently occasioned, not merely a temporary but a wide-
spread suspension of business relations, inflicting the
greatest hardship on large populations. This can occur
as easily under the ancient primitive communism as under
chattel slavery or feudalism. In such circumstances, any
great natural upset of the existing society would bring
about very serious distress. But this was due to the lack
of the necessaries of life, or other requirements of tiie
society of that time. That people should be going un-
clothed or unfed, where but shortly before they had been
in full employment at good pay, merely by reason of the
over-abundance of the goods whicli they themselves had
produced and circulated, this is a peculiarity of modern >

210

INDUSTRIAL CEISES 211

times, and a phenomenon wholly unknown before the
establishment of the capitalist system. Under present
conditions, it is positively the excess of wealth produced,
over what economists call " the efi'ective demand " for it,
that results in those recurring crises which now come more
frequently than ever before.

The difficulty of harmonising the relations of produc-
tion, when once capitalism and production for profit be-
came the rule rather than the exception, was soon per-
ceived. Our early Poor Laws were to some extent an
attempt to deal with this difficulty. The famous Sir
William Petty, from whom I have previously quoted, saw
clearly that the problem of the unemployed of his day
ought to have been dealt with by the collective agency of
the whole community. As, for example : " Those who
cannot find work (though able and willing to perform it),
by reason of the unequal application of hands to lands,
ought to be provided for by the magistrate and landlord
till that can be done; for there needs be no beggars in
countries where there are many acres of unimproved im-
proveable land to every head as there are in England."

Again, the equally famous John Bellers, writing a little
later, found the same problem of deserving unemployed
facing him, and he says : " By computation, there is not
above two-thirds of the people or families of England that
do raise all necessaries for themselves and the rest of the
people by their labour; and if the one-third, which are not
labourers, did not spend more than the two-thirds which
are labourers, one-half of the people or families labouring
could supply all the nation." And, therefore, it is " a
certain demonstration of the illness of the method the
people are employed in if they cannot live by it; nothing
being more plain than that men in proper labour and em-

212 THE ECONOMICS OF SOCIALISM

ployment are capable of earning more than a living."
" With many commodities the market is over-stocked
(and what is the best dinner worth to a full stomach), which
is the great unhappiness of many of our mechanics, that
they make commodities when nobody wants them. And
then they pine and starve whilst they are waiting for a cus-
tomer that will give bread for their manufactures (or money
to buy bread), whereas the same labour in husbandry they
used in making them manufactures would have raised
much more food than the money they got for their manu-
factures will buy them," and partly from a more serious
cause, for " as traders are useful in distributing, it is only
the labour of the poor that increaseth the riches of the
nation, and though there cannot be too many labourers in a
nation if their employments are in due proportion, yet
there may be too many traders in a country for the number
of labourers, and then some must fail for the want of trade
to support them, from whence they become sharping or
distressed, not being used to work, and the nation the
poorer by the loss of their labour.

" Traders may grow rich while a nation grows poor
through extravagancy; for when the dealers may get
twenty thousand pounds by claret, the nation pays and
spends one hundred thousand pounds for it, and nobody
grows rich by drinking it, whatever the seller doth. Land
and labour are the foundation of all riches, and the fewer
idle hands we have the faster we increase in value ; and
spending less than we raise is a much greater certainty of
growing rich than any computation that can be made
from our exportation a id importation."

Thus early we see that the excess of commodities in one
department might be the occasion of serious distress to the
producers. This again would re-act upon tliose from whom

INDUSTEIAL CEISES 213

they themselves were accustomed to huy, raising great
difficulties in the way of subsistence for many, by reason
of that very original excess. It is sometimes argued that
this is still true, and that although it is possible that there
may be too much of one commodity produced, it is impos-
sible that there should be a glut in every department of
trade at the same time. Unfortunately, however, that is
precisely what occurs, and has been exemplified in every
great crisis that the last century suffered from. This was
true even of the great home crisis that followed upon the
peace of 1815.

Everybody thought that peace would bring with it great
prosperity, but it was found, to the astonishment of all,
that so far from the cessation of war benefiting the working
population, at the commencement it made things consid-
erably worse than they had been. The reason for this was
given clearly at the time by Robert Owen, who said that the
crisis or stagnation in trade was due to the great encour-
agement given to new mechanical inventions and chemical
discoveries, which superseded manual labour in supplying
the materials required for warlike purposes, and these,
direct and indirect, were innumerable. " The war was the
great and most extravagant customer of farmers, manufac-
turers, and other producers of wealth, and many during
this period became very wealthy. The expenditure of the
last year of the war, of this country alone, was one hun-
dred and thirty million pounds sterling, or an excess of
eighty millions of pounds sterling over the peace expendi-
ture. And on the day on which peace was signed, this
great customer of the producers died, and prices fell as
the demand diminished, until the prime cost of the articles
required for war could not be obtained.^' " Barns and
farmyards were full, warehouses loaded, and such was our

214 THE ECONOMICS OF SOCIALISM

artificial state of society that this very superabundance of
wealth was the sole cause of the existing distress. Burn
the stock in the farmyards and warehouses, and prosperili/
would immediately recommence in the same manner as if
the war had continued. This want of demand at remu-
nerating prices compelled the master producers to consider
what they could do to diminish the amount of their produc-
tions and the cost of producing, until these surplus stocks
could be taken out of the market. To effect these results,
every economy in producing was resorted to, and men
being more expensive machines for producing than mechan-
ical and chemical inventions and discoveries, so extensively
brought into action during the war, the men were dis-
charged, and the machines were made to supersede them —
while the numbers of the unemployed were increased by the
discharge of men from the army and navy. Hence the
great distress for want of work among all classes whose
labour was so much in demand while the war continued.
This increase of mechanical and chemical power was con-
tinually diminishing the demand for, and value of, manual
labour, and would continue to do so, and would effect
great changes throughout society."

Taking away from these statements the disturbing ele-
ment of war, Eobert Owen gives here a practical analysis
of what modern industrial crises are. They arise from a
superabundance of commodities having l)eGu produced rela-
tively to the "effective demand," thus checking the circu-
lation which has been insisted upon as essential.

Fourier, who observed the first really great international
crisis of 1825, noted Ihat this excessive accumulation of
commodities was the main feature of the disturbance, and
from that time to this, on each successive occasion, the
same state of things can be noticed.

INDUSTEIx\L CRISES 215

Before giving a short summary of these international
crises, of which there were eight or nine in the last cen-
tury — coming at intervals constantly decreasing, and their
effects lasting longer when they came — it may be well to
give the full theory of such crises, under a system of free,
competitiv^e capitalist production, from the point of view
of scientific economy.

Our present society moves and has its being in a whole
series of antagonisms. As already insisted upon more than
once, the fundamental antagonism, so to say, is that be-
tween the social form of the method of producing wealth
and the individual form of its appropriation and exchange,
which still continues. The fundamental antagonism is fol-
lowed and accompanied by the antagonism between the
organisation which exists in each individual factory, farm,
or workshop, and the complete anarchy which prevails in
the exchange. The organisation during the process of
production is pushed to the highest possible point ; so much
so that any one set of hands coming late to a factory renders
it impossible for the whole great engine of industry to act
properly. And employers take very good care to see that
discipline in this respect is completely maintained. But
when we come to deal with the products that are created by
the industry of this socially organised whole, we discover
that anything like organisation is, as a rule, unknown.

" Go as you please," is the one motto for all under fully-
developed capitalism, and the object of each individual
employer is to obtain the greatest possible outlet and the
quickest sale for his own goods, quite regardless of the
interests of anybody but himself.

A third antagonism is that between manual and machine
labour, already referred to in the quotation from Eobert
Owen. When the labourers, owing to an improvement in

216 THE ECONOMICS OF SOCIALISM

business, are able to demand and get better rates of wages
than they were paid before, new machines, which previously
had not been introduced, are brought into operation, and
thus the ingenuity and work of one portion of the working
population are used to keep another portion of the same
population in economic subjection.

Again, there is the antagonism previously commented
upon, between money and commodities. Money must be
obtained by the sale of commodities. With liis commodi-
ties alone, the capitalist cannot buy fresh raw materials,
cannot meet his bills, cannot pay his rent. Therefore the
moment any hitch occurs in disposing of his goods, this
antagonism, which in ordinary times escapes notice, starts
up and stares the producer in the face.

Out of these economic antagonisms there arises neces-
sarily a great class antagonism between the employers and
the wage-slaves, between the bourgeoisie and the prole-
tariat. To the employers, under our present system, the
existence of an unemployed section of the workers is a
necessity. The ups and downs of trade require that there
should be constantly on the market a set of workless men
and women, ready to compete for emplo}Tnent, and anxious
in good times to accept wages below what otherwise might
be obtained by those in employment, and eager in bad
times to obtain work on almost any terms whatever.

Another antagonism appears between the labour of men
and women, so that a man's foes, economically speaking,
become literally they of his own household ; children being
employed where it is at all possible, in order still furtlier to
lessen the necessity of employing able-bodied men, and
consequently bringing m a whole family to earn the amount
of wages which, but for this domestic competition, the
man, or even the woman, would probably earn alone.

INDUSTRIAL CEISES 217

The economic antagonisms here recited are the real
causes of the successive industrial crises we are discussing.

Manufacturers do not know, as a rule, what their neigh-
bours are doing. For instance, news reaches a house from
its correspondent in India, Australia, or China, that the
goods previously encumbering that particular market have
at last found a sale; that there has been a good harvest, a
fine silk crop, an admirable season for wool or cattle, a
splendid return from jute, or opium, or indigo; in fact,
that, in the judgment of the writer, business in that part
of the world will not only be better for the moment, but tbat
a heavier demand will certainly follow. Meanwhile, he
recommends that large quantities of such and such goods
should be shipped at once, so that the rival exporters may
not step in first after the troubling of the pool of pros-
perity. Similar advices reach other great firms from their
correspondents about the same time. Then the wholesale
exporters give orders in hot haste; the manufacturers, who
have probably heard of the improvement themselves, take
heart, and cautiously raise prices. They feel that dulness
and short time and depression have passed away. There
is lightness in the commercial air, and exhilaration per-
vades the whole atmosphere of business operations. Mills
or factories begin to set to work in earnest to fulfil the
orders which pour in from all quarters. More " hands "
are needed to do the work. The " over-population " which
Malthusians had been denouncing is absorbed in a twin-
kling— to enable the manufacturers to take advantage of
the " good times."

The good news spreads, and with it the change of " tone."

Those manufacturers who are first in the field order new
and improved machinery, which, be it said in passing,
increases the whole available supply of labour, and tends,

218 THE ECONOMICS OF SOCIALISM

besides, to keep wages from rising excessively. This, for
the time being, gives more work to the machinists and
iron-masters. Their prosperity reacts in turn upon the
miners and colliers. Prices rise all along the line; the
people are in full employment at good pay, for they have
soon demanded a rise in wages. In short, the manufac-
turers are in haste to get rich, the railways get full
freights, the growers of raw material find that they can, at
ruling rates, profitably grow more of the special staple in
which they are interested. Tliere is what, in American
parlance, might be called a universal " boom." It seems
impossible that a collapse can ever come again, for are not
all interested in maintaining this general interchange of
products? The working classes, in particular, hope that
at last permanent employment at good wages is assured to
them; pauperism falls off, and the reports in the columns
of the daily newspapers from the great industrial centres
are most satisfactory. The very whirl of business prevents
men from seeing clearly what is going on around them.

For at this very moment the highest point has been
reached. Those same correspondents, who but now were so
jubilant, send home doleful tidings to the effect that goods
are not moving off so fast as they were, and counsel pru-
dence as to further shipments. In the home market also,
the rise in wages, the higher rate of interest, the increase
of speculation in all sorts of hopeless enterprises, or invest-
ments in foreign bonds, combine to produce a check at the
same time. It is found that a portion of the demand has
been due to speculation from the outset, or to the pur-
chase of our own goods with our loaned capital. Further-
more, the rise of wages has driven manufacturers to try to
get the better of their neighbours by introducing improved

INDUSTRIAL CEISES 219

machinery, and thus to produce more at a lower price with
fewer hands.

At the very time, therefore, when all looks most
hopeful, when business is most prosperous, and em-
ployment is most brisk — just at that instant the highest
point has been reached in the progress of the industrial
cycle, and ere long the downward movement commences.
Suddenly, then, there is a great difficulty found in dis-
posing of goods at a profit. The home and foreign markets
are alike glutted. Even the cheaper raw material and
improved machinery will not suffice to put matters on a
better footing. Rather, those manufacturers who have
such advantages intensify the crisis by pouring yet more
goods at a lower price on an already over-burdened market.
Hence short time becomes the rule: men are discharged
wholesale from all departments of industry. There are
plenty of people wanting clothes, food, house-room ; but in
order to give them employment, and thus to enable them
to obtain these necessaries, the capitalist class must be able
to employ them at a profit, and such profit the very glut
of goods in the market prevents. Hence comes the renewal
of over-population on an enormous and even dangerous
scale ; whole districts are reduced to the very lowest level ;
it seems as if such misery could not longer endure.

The depression spreads to every department as pros-
perity affected every interest. Whence the first check comes
matters little, sooner or later all are more or less injured,
and we are in the midst of one of those ten-year crises,
which, since the year 1825, have had world-wide effect.
Such industrial crises, which are sometimes connected with
financial upsets, but which may not always bring about the
same results, have occurred every ten years for the last

220 THE ECONOMICS OF SOCIALISM

half-centur}'. But the recurring periods have been short-
ened, and the crisis in each particular trade may not be
absolutely contemporaneous with that in others. The
destruction they involve to men and material is incon-
ceivable.

When the pressure has lasted long enough for the over-
production, as it is called, to work off, then the renewed
demand begins, and the wlieel works round once more.
Again the workers who have been forced into the work-
house are out on the " tramp " ; again the unfortunate
hands who have " clemmed " in silence and sadness, hoping
for better times, are taken back to labour for their employ-
er's advantage and profit, only to be thrust down into deeper
despair at the next stagnation, which is as sure to recur as
are the seasons. Thus, in addition to all the uncertainty
of new machines and inventions, which may interfere with
his scanty wages at any moment; over and above all the
evils a workman has to suffer from the revolutionary basis
of modern production so opposed to the conservative — the
too conservative — methods of old times ; on the top of
such never-ceasing chances and changes in the conditions
of his daily labour, he is certain, once in every ten years at
least, to suffer from a congestion in the labour market,
owing to no fault of his own, which may throw him out of
his former comparative comfort into the lowest abyss of
misery and despair.

For the working-class have no control whatsoever over
the disposal of the goods which they themselves produce.
They are not consulted as to whether these steps should be
taken or that course abandoned. Labour has no say, can-
not compare notes. Tliere is socialisation in the work-
shop, in the factory, in the mine, on the farm ; and anarchy,
absolute, unrestrained anarchy in the exchange. Yet this,

INDUSTRIAL CEISES 221

I say again, is the organisation of labour for which the
labourers are asked to be thankful ; this is the skilful man-
agement of production wliich the capitalist class and their
hangers-on make a merit of. Wealth, wealth, ever more
wealth here: uncertainty, depression, starvation, degrada-
tion for the men, women and children whose labour alone
gives value or produces goods. The sole object of the cap-
italist class being to obtain surplus-value by extra and
unpaid labour, the relative over-population produced by
machines, and the alternating series of inflation and depres-
sion are greatly to their advantage. They are able to make
more profit in a shorter time. But these crises tend also
to crush out the small factories, the small dealers, the
small distributors, and the small handicraftsmen more
than ever.

Each period of this description culminates in a whole
series of bankruptcies, which, as a rule, means that the
trade is driven into the hands of larger and yet larger pro-
ducers and distributors. Thus the uncertainty of exist-
ence extends far even above the mere producer himself,
and results in that feverish lust for gain which is one of
the worst features in our modern society. All are in haste
to get rich, partly because they hope to be clear of the
possibility of being left in hopeless penury in their old age.
The capitalist system renders essential tlie economy of the
means of production in each separate establishment; but,
on the other hand, this is effected by the most wholesale
waste of the physical strength of the producers and their
means of production, not to speak of the innumerable
parasites engendered by the luxury it develops. Capitalist
production, to repeat, depends upon the men and women
who work being deprived of the means of production and
obliged to sell themselves on the market for what is little

222 THE ECONOMICS OF SOCIALISM

more than a bare subsistence wage. But, when once the
system is established, its continuance is necessarily ensured
upon an ever-growing scale, until the producers themselves
combine to take control of the whole means of production
in the collective interest.

For the products of the producer continually escape
from him into the hands of the class opposed to him. His
power of labour is worked up, not only into merchandise,
but into capital — into means of production which control
him, into means of subsistence, which actually buy the
worker himself body and soul. He is the slave of his own
production, and is bought with his own necessaries of life,
which he himself furnishes in the form of exchangeable
commodities. All this is disguised from the workers
themselves by the daily or weekly sale of their labour-
force; and the fiction that they enter upon a free contract
with their employers induces them to stint themselves per-
manently by serving the machines of another and hostile
class. Their consumption of daily necessaries forces them
to come day after day upon the market in order to sell
themselves afresh to their employers who keep them thus
in economical servitude. The relation of capitalist and
wage-Kl;;ve is day by day perpetuated.

" But higher wages," say some, " surely this would in
some sort remedy the miserable position you describe.
English labourers nowadays are at any rate free to com-
bine, the voting power is increasing in their hands ; cannot
they master the situation in that way, and secure for them-
selves some comfort and security ? " The conditions need
stronger measures, valuable as combination is for every
purpose. For the relative over-population which occasions
such endless misery in times of depression, and is ever
close at hand in the flushest times of trade, is directly due

INDUSTRIAL CRISES 233

to the control by the capitalist class of the whole process
of exchange, the increasing employment of machines owned
by that class, and the growing proportion of constant to
variable capital in every business. A man cannot keep his
capital without increasing it ; accumulation on a larger and
larger scale is forced upon the capitalist, and at the same
time the increase of the wage-earning class to be employed
as administering to luxury, or in producing more and more
surplus-value, continues. The payment of wages itself
presupposes a certain amount of labour given for nothing,
which, on the average of cases in England, is at least two-
thirds of the day's work. Wages, in fact, as already
stated, are but an order upon a fraction of the value of the
wage-earner's production.

Take the best explanation by a middle-class economist
of the phenomena of inflation and depression which has
just been considered. What says Mr. John Stuart Mill?
This:

" A manufacturer finding a slack demand for his com-
modity forbears to employ labourers in increasing a stock
which he finds it difficult to dispose of; or if he goes on
until all his capital is locked up in unsold goods, then at
least he must of necessity pause until he can get paid for
some of them. But no. one expects either of these states
to be permanent; if he did he would at the first oppor-
tunity remove his capital to some other occupation in which
it would still continue to employ labour. The capital
remains unemployed for a time during which the labour-
market is over-stocked, and wages fall. Afterwards the
demand revives and perhaps becomes unusually brisk,
enabling the manufacturer to sell his commodity even faster
than he can produce it; his whole capital is then brought
into complete efiiciency, and if he is able he borrows capital

224 THE ECONOMICS OF SOCIALISM

in addition, which would otherwise have gone into some
other employment. At such time wages, in his particular
occupation, rise. If we suppose what in strictness is not
absolutely impossihle, that one of these fits of briskness or
of stagnation should affect all occupations at the same time,
wages altogether miglit undergo a rise or a fall. These,
however, are but temporary fluctuations; the capital now
lying idle will next year be in active employment, that
which is this year unable to keep up with the demand will
in its turn be locked up in crowded warehouses, and wages
in these several departments will ebb and flow accordingly ;
but nothing can permanently alter general wages except an
increase or diminution of capital itself (always meaning
by the term the funds of all sorts destined for the payment
of labour), compared with the quantity of labour offering
itself to be hired." Again, "Wages depend, then, on the
proportion between the number of the labouring population
and the capital or other funds devoted to the purchase of
labour; we will say, for shortness, tlie capital. If the
wages are higher at one time or place than another, if the
subsistence and comfort of the hired labourers are more
ample, it is for no other reason than because capital bears
a greater proportion to population. It is not the absolute
amount of accumulatiou or of production that is of im-
portance to the labouring class ; it is not the amount even
of the funds destined for distribution among the labourers ;
it is the proportion between those funds and the numbers
among whom they are shared. The coudition of the class
can be bettered in no other way than by altering that
proportion to tlieir advantage ; and every scheme for their
benefit which does not proceed on this as its foundation, is,
for all permanent purposes, a delusion."

Mr. John Stuart Mill was a Malthusian. His idea was

INDUSTRIAL CRISES 225

that the working classes ought to keep down their families
to the number which should enable them to get each a
larger amount of this imaginary wages-fund. Strange to
say, it never occurred to him that this phenomenon of infla-
tion and depression takes place in countries where the
population is stationary, or even decreasing, as well as in
lands where the number of the people increases. That
there has been no want of capital in England to employ
the people, is apparent to the most casual thinker. Mani-
festly, neither the over-population theory to account for
the miserable wages of the workers, nor the abstinence the-
ory to account for the accumulation of capital, will hold
water for a moment. What abstinence is there in taking
so much extra labour for nothing, and then merely debat-
ing whether such surplus-value taken from the labourer
shall be used to build larger factories, or to expend in lux-
ury abroad? In either case the enforced abstinence is on
the part of the labourer who gets less for his day's work
than the labour-value he provides. The capitalist class
takes relatively to the total production of the country an
ever-increasing proportion of wealth for its own use. Un-
der our system of unregulated competition, the worker on
the average gains nothing, and if he limits his family as a
class and reduces the number of available hands — a thing
practically impossible — he but accelerates the introduc-
tion of new machines, and in due time the re-creation of a
relative over-population.

The ordinary explanation of these troubles is empirical
in the highest degree. There has been over-production,
and, consequently, the markets are unable to absorb the
amount of commodities thrown upon them. But why there
has been this over-production; why the markets, which but
yesterday were exceedingly active, become now depressed

226 THE ECONOMICS OF SOCIALISM

and gloomy; why prices, wliich were a few months, or
even a few days ago, high and profitable, should thus sud-
denly become low, and involve producers in loss, without
any change having taken place in the instruments of pro-
duction— these are questions which remain wholly unan-
swered by the ordinary economist.

A certain school of writers, not so much in vogue now
as they were some years ago, attribute all the mischief
to monopoly of land or the lack of free trade in land.
" If," says one school, " land could be transferred from one
owner to another as easily as commodities, then," so it is
argued, " everybody who possessed the means of cultivat-
ing the land being easily able to obtain access to it, there
would be no break in the chain of connection between pro-
duction and consumption, and all would be for the best."
Unfortunately for this view, land, in the sense of the school
of Cobden, as now represented by the supporters of the
" National Reform Almanac " and persons of their views, is
perfectly free in the United States of America, and as-
suredly never before in the history of the race was there
a greater amount of undeveloped land to be free with.
Yet, in spite of this, and of the presence of one of the most
active and capable populations in the way of production of
wealth ever seen on the planet, America has suffered per-
haps more severely from commercial crises during the last
half-century than any European country.

Our Australian colonies have afforded strong evidence
on the same side. So that to-day the idea that free trade
in land will have any serious effect in preventing commer-
cial crises has faded from the minds of all save those who,
having once taken up a theory, resolve that they will be
wholly indifferent to facts which inconveniently refute it.

In like manner, with the nationalisation of the land,

INDUSTEIAL CRISES 227

meaning thereby a confiscation of rent by the State and
the conversion of all holders into State tenants. In India
the land is nationalised in precisely that way over the
greater part of the British territory, and, in the native
States, the greater part of taxation is raised from the land.
This, of course, is not rent, in the sense in which rent is
understood in England; but it is State nationalisation of
land, and the cultivator is owner, subject only to the pay-
ment of his State dues. Of course, India is in a very dif-
ferent economic condition from Western Europe or Amer-
ica ; but the extreme poverty of the majority of the popula-
tion — a poverty which has certainly increased and is in-
creasing under British rule and nationalisation of the land
— proves conclusively that State ownership of the soil,
apart from other considerations, constitutes no high-road
to national wealth, and in no wise interferes with those
upsets of the capitalist system from which India has suf-
fered just so far as she has been drawn within the vortex of
international exchange.

Then, again, there are the Protectionists, who aver that
if each country strongly protected its own producers, and
thus in some degree rounded itself up from the rest of the
world, crises would become impossible, and depression un-
known. Once more, the teachings of America, France,
Germany, and Victoria, show us conclusively that protec-
tion, even when pushed to an exceptional point, is quite
powerless to arrest these terrible industrial convulsions,
which inflict so much increase of misery on mankind.

But if protection is no remedy, if free land and national-
isation of land afford no relief, if every country which en-
ters into and forms part of the world-wide system of pro-
duction and exchange that now obtains, is subject to these
same convulsions, no matter what its government, and

228 THE ECONOMICS OF SOCIALISM

without regard to its extent, position, or climate, if all this
is true — as true it is — then manifestly the Socialist ex-
planation of these purely social phenomena holds the field.

There are otlier circumstances lying on the surface of
modern industrial arrangements, which tend to bring about
a more speedy collapse, when the time is ripe for a break-
down, and render a renewal of confidence slower than
would have been the case in previous periods. Thus, for
example, the greater part of the manufacturing and dis-
tributing business of this and other great commercial coun-
tries is done upon credit. That is to say, men who are en-
gaged either in manufacture or trade rely upon the dis-
count of their bills, maturing at longer or shorter periods,
for the provision of the greater part of their capital.
These bills are taken at varying rates of discount, accord-
ing as the supply of loanable capital is plentiful or the re-
verse. A turnover of two or three hundred thousand
pounds, or even more, in the year, is thus often worked
upon an absolute cash capital in the hands of the manufac-
turer or the merchant not exceeding £10,000 or £20,000.
Now, so long as the rate of discount or interest ranges
low, say from 2 or 2 14 to 41/2 or 5, or even 51/2 per cent.,
those who are carrying on business under these conditions
can do so at a profit, and therefore without making any in-
road upon their original comparatively small capital in
proportion to the business which they do. But as soon as
the rate goes higher than this, everybody is anxious to
realise their commodities in cash in order to meet their
bills coming due; there arises a fear that the rate will go
higher and higher still, and every one of these weak trad-
ers is in fear of his life.

The banks became very careful as to what paper they
discount, confidence begins to be shaken, even in the

INDUSTEIAL CEISES 229

standing of the best firms, and an access of panic seizes
upon the whole commercial community. Immediately
there arises a cry for what are called " the means of ac-
commodation," meaning thereby the facility to exchange
bills, and the commodities which those liills represent, for
money, or money's equivalent, in the form of good bank-
notes. The result of this again being that at all times of
pressure we hear demands made for an expansion of cur-
rency; and a variety of nostrums are propounded which
would, it is hoped, bridge over those economic antagonisms
that are really the cause of the whole crisis. Nevertheless,
a very cursory survey of the crises of the past century
would show that they have taken place when the currency
has been plentiful, and when it has been scarce; when
gold has had a high relative purchasing power, as at the
present time, and when it had a relatively low power, as
in 1857; when the banking system of a country has been
comparatively sound, as in France, and when the banking
system has been notoriously unsound, as it was in America
in 1857.

Leaving aside the crisis of 1815, the series of interna-
tional crises of the nineteenth century begins with the
year 1825. The upward course of business which had com-
menced in the year 1817 took a further development in
1819, when the Bank of England resumed specie payments,
and a succession of good harvests helped on the period of
inflation. Then first was fully felt by all classes the great
change which had taken place in the methods of produc-
tion in England since 1760. In every direction the in-
crease of wealth in the eight years prior to the crisis was
something phenomenal. This was the worst period in our
history for the working-class in our factory districts. Fac-
tory laws were as yet unknown, and the over-work on

230 THE ECONOMICS OF SOCIALISM

starvation wages is something horrible to read of even now.
But the middle-class and the capitalists waxed exceed-
ingly rich, and in consequence seemed to lose those bet-
ter characteristics which had previously gained them wealth
and power.

The bubbles of the previous century were re-blown in
more glittering and fantastic shapes. The follies of 1824
and 1825 surpassed every previous financial folly. Classes
of the population which had never before followed the will-
o'-the-wisps of speculation tumbled over one another in
their eagerness to put salt on the tails of these Sittings
of the financial marsh. It was high-day and holiday for
the Dousterswivels and John Laws, for unscrupulous
schemers and half-insane enthusiasts. Everybody specu-
lated in something : not only the world of business, but the
entire population was swept along in the craze for gam-
bling. Old and young, men and women, rich and poor,
noble and simple, one and all were drawn into the throng.
Even when all the purely absurd and swindling projects are
eliminated, and only those are taken account of which have
a reasonable claim to solidity, even then the commitments
entered into by Great Britain are upon an astonishing scale
— a scale rather suitable to the end than to the beginning
of the nineteenth century, and certainly more fitly repre-
senting the investments of twenty years than of two.

The most ridiculous speculations were entered upon by
those who were supposed to possess the shrewdest brains in
the city. Money seemed to be rolling in in huge waves.
The time was thought to be not far distant when all who
deserved wealth could scarcely fail to be opulent, and a
millennium of easily-earned incomes of many thousands a
year had commenced for the really worthy of the popula-
tion. Just at the very height of confidence and foolish-

INDUSTRIAL CRISES 231

ness, the crash came. In six weeks seventy provincial
banks failed, and commercial houses tumbled down one
after the other. Being the first sweeping panic of this
kind which affected people throughout the country, nobody
quite knew what to be at. The remarkable sagacity, of
which the commercial classes are supposed to possess al-
most a monopoly, was entirely wanting at the critical mo-
ment. An unprecedented glut of commodities intensified
the mischief arising from a sort of universal despair.

Thereupon, Great Britain was over-run with workless peo-
ple, and as Englishmen had not then learned to starve in
silence and quietude, so that the sleep of the blunderers
who had ruined them might not be disturbed, riots and
tumults were common from one end of the island to the
other. Imprisonments and shootings-down, and other law-
and-order proceedings of course followed, and the workers
were persuaded to return quietly to their hovels lest a
worse fate than slow starvation should befall them. By
degrees the " organisers of industry " recovered their
senses; but it was some time before the effects of this first
great international crisis passed away.

Foreign countries, even then, in the days prior to rail-
roads and steam-vessels, felt the injurious influence of Eng-
lish mismanagement. English goods were tumbled at
slaughter prices on to foreign markets, and great difficulties
were occasioned in financial and commercial centres which
had scarcely participated at all in the previous inflation;
whilst the great cotton gambling in the United States left
behind it a legacy of trouble and uncertainty on the other
side of the Atlantic.

This first crisis, however, though exhibiting the same
features on a smaller scale as its successors, was as nothing
to those which followed. After a period of recovery, dur-

233 THE ECONOMICS OF SOCIALISM

ing which the banking system had a great extension, and
speculation and gambling burst out anew, a shock sud-
denly tumbled down the whole edifice of confidence. This
time the shake came from the other side of the Atlantic,
and in 1837 and 1839 again were seen all those features of
glut, panic, incompetence, and, for the people, destitution
and misery, which had been experienced twelve years
before.

In this crisis the United States suffered even more than
Great Britain. So complete was the collapse that bank-
ruptcy seemed to become the rule rather than the exception.
Needless to say, the people who suffered most were pre-
cisely those who had no control whatever over the manufac-
turing, mercantile, and financial machinery to which they
fell victims. But the international character of the crisis
was manifested more clearly than before. A rise in the
Bank rate in England meant a restriction of accommoda-
tion all over the world, and people were wringing their
hands in hopelessness at a recurrence of a state of things
which, had they but taken into consideration the lessons of
the previous crisis, they would have seen to be inevitable, so
long as the system remained as it was.

This crisis of 1837 to 1839 was the last under the old
system of banking in England. In 1844, what was called
the Bank Charter Act was passed, concerning which it is
sufficient to say here that it is only maintained in exist-
ence because everybody in the world of finance knows per-
fectly well that it will be suspended at any period of ex-
ceptional difficulty.

When the Bank of England was re-constituted by this
Act on its present foundations the magnates of the City of
London were foolish enough to believe that henceforth
such troubles as those of the two previous decades would

INDUSTEIAL CRISES 233

be rendered impossible. They little understood what was
coming. One of the great difficulties in the capitalist sys-
tem of production, as has been incidentally remarked in
a previous chapter, is to regulate and harmonise the amount
of capital which shall be expended on works of permanent
utility, such as railways, canals, docks, harbours, and the
like " affairs of long breath," as the French call them; and
the amount which shall be disposed of or allotted to what
may be called the day-to-day business.

Now the period from 1839 onwards saw the great de-
velopment of the English railway system, though the first
railway of any importance in this country had been opened
between Liverpool and Manchester in 1830. Everybody
was anxious to have a hand in this new method of getting
rich in a hurry, by providing means of transporting com-
modities and passengers from one point to another. The
rush to make railways was so great, that had one-half the
projects formulated been carried out, this island would
have been gridironed from one end to the other. Even as
it was, what was being done quite surpassed the necessi-
ties of the period, and the preposterous premiums to which
shares advanced in enterprises that were either hopeless in
themselves, or were not then at all ripe for being carried
out, prepared the way for a wholesome breakdown.

At the same time, the introduction of free trade in 1846
gave another impetus to trade and speculation. The year
1847 saw an end to all this factitious prosperity, and for
the third time within thirty years Great Britain was in the
throes of one of those commercial convulsions which speed-
ily spread to other centres. Paris, Amsterdam, and New
York, all had their evil period of mistrust and misfortune,
as a consequence of the crisis in industry and finance at
the centre of international capitalism. Once again tens

234 THE ECONOMICS OF SOCIALISM

of thousands of workers were out of employment and starv-
ing, and the famine in Ireland, arising largely from the
shipment of food to England to pay absentee rents, still
further aggravated the situation. As an evidence of the
worthlessness of City calculations, the boasted Bank Act
of 1844 proved useless at the first touch of trial.

Not until that Act was suspended, and the directors were
permitted to ride rough-shod over the law, was any return
of confidence and commercial stability possible. On each
occasion, be it remarked, the financial phenomena consti-
tute the superficial portion of the crisis : the really serious
part is that which underlies the perturbation of the stock
markets. It is the constant renewal of the glut of com-
modities, and the discharge of hands consequent upon the
incapacity to produce more at a profit or to carry out great
works any further, that constitute the really dangerous
and permanently unmanageable features of the whole bus-
iness.

From 1847 we pass into the main period of modern de-
velopment, and between that date and 1857 an expansion
of trade, of colonisation, and of gold discovery took place,
far transcending anything that had ever been seen before.
Eailways, steam-vessels, telegraphs, now began to exercise
their full influence upon modern commerce, and, simul-
taneously therewith, the expansion of the great machine
industry in our own and foreign countries brought us into
the period of fullest development of the capitalist system.
There can be no doubt that the gold discoveries in Cali-
fornia and Australia, though not the cause of the tremen-
dous inflation which 1hen followed, greatly tended to en-
hance it, and to widen the area of speculation and gam-
bling. The rise of prices stimulated production and en-
couraged purchases. America, in particular, advanced in

INDUSTKIAL CEISES 235

prosperity by leaps and bounds, longer and more prodi-
gious than anything previously recorded.

Her inhabitants took care to let all the world know of
her good fortune, and men persuaded one another that, with
such an enormous field to open up and develop, a backset of
depression could never come again. The banking system
of the United States at this time poured fuel on the fire.
It seemed then, to the most far-sighted, that there was noth-
ing but continuous prosperity to look for. But, as always
happens at such times, it was just when everything looked
most satisfactory that the downfall took place. Every-
where warehouses were choked with goods in anticipation
of the high prices which everybody felt confident would be
realised by their sale. Everywhere preparations were be-
ing made to still further pile up commodities for an antici-
pated good market. Suddenly one bank stopped pa}Tiient,
and then a suave qui pent took place, unparalleled, per-
haps, in the mournful history of these crises. Nothing
could be sold. Bills previously accounted of the best de-
scription could not be met. All the gold from California
and Australia was powerless to check the universal panic.
From one end of the United States to the other people did
not know for twenty-four hours whether they would keep
clear of the Bankruptcy Court.

Very speedily bank suspensions, railway defaults, clos-
ing of factories, unemployed out on the street, gave evi-
dence that all classes must suffer terribly before any return
of confidence allowed the machine again to work with reg-
ularity. England on this occasion likewise suffered ter-
ribly. Workers were thrown out of work all over the coun-
try, the fall of prices rendering it quite impossible to pro-
duce at a profit, no matter how much wages might be cut
do^\^l. Yet, as I have said, during the whole of this period

236 THE ECONOMICS OF SOCIALISM

gold was pouring into Europe on a scale quite unknown at
any previous time. The year 1857 exhibited more clearly
than ever before the fact that in this species of commercial
and financial epidemic no quarantine can possibly keep out
the disease. Beginning, as said, in America, it spread with
the greatest rapidity to the United Kingdom, to France,
Germany, Belgium, Austria, Italy, as well as in due time
to India, China, and the Australian colonies. Eegard-
less of barriers and indifferent to governments, this crisis
swept on; and even to-day the remembrance of the year
1857 and the anarchy then brought about in financial and
industrial affairs, lingers in the minds of all who passed
through it, or have been told of it by those who did.

Nine years more, and yet again those who handle the
complicated machinery of our modern industrial and com-
mercial business proved themselves incapable of reading
the signs of the times. Once more, therefore, this time
again beginning in England, a shock was given to credit by
the fall of ^Messrs. Overend, Gurney, and Co. in 1866, the
effects of which would have been much worse but for a se-
ries of circumstances that gave an exceptional impetus to
English trade. It is impossible not to reflect upon the
extraordinary short-sightedness of all this, proving again
that even the very people who are most deeply interested,
owing to class prejudice or the occupations of business, fail
to understand what is going on around them, and conse-
quently are wholly incapable of making preparations for a
recurrence of a similar set of circumstances.

The crisis of 1873 commenced for the first time on the
Continent of Europe, and, strange to say, began in the
city of Vienna, which until that date had never exercised
any important influence on the finance of Europe, nor in-
deed has it done so since. Commencing in the month of

INDUSTRIAL CEISES 337

May, 1873, the crisis worked wholesale destruction in Ger-
many, in the United States of America, and later on had a
most prejudicial influence upon English prosperity ; France,
which had suffered so terribly from the war of 1870, being
the country of Europe which escaped with least loss. I
cannot uow give any account of the huge building specula-
tion in Vienna and Berlin, the wild fury of speculation in
banking and brokerage banks which led up to and helped
on the eventual catastrophe.^ But the effects were such
that a complete reorganisation of finance in Germany and
Austria followed, which did not prevent the most whole-
sale misery amongst the working population at the time,
nor fail to check legitimate industrial enterprise under
capitalist production up to the year 1879.

But the effects of this crisis were exliibited in their most
acute form, and could be traced more clearly than else-
where, in the great Republic on the other side of the At-
lantic. The great extension of railroads which had taken
place after the Civil War, the rush of European capital
to obtain a share in the rising prosperity of this magnifi-
cent territory, the steady extension along the lines of rail-
ways, as well as through the valleys of the great rivers,
the cultivation of all sorts of produce — all these, together
had produced an appearance of prosperity which, extend-
ing to the mountain regions of the West, and affecting the
till then somewhat distressed districts of the South, built
up a display of wealth which dazzled all beholders.

With the crisis of 1873 all this real as well as apparent
prosperity seemed to fade away like a mirage, and never was
the glut of all commodities more clearly exhibited as the

1 Those who wish for further information on the auhject may
find it more fully treated in my " Commercial Crises of the
Nineteenth Century."

238 THE ECONOMICS OF SOCIALISM

cause of crisis following upon economic antagonism, than at
this time. True, in 1857, also, good harvests on both sides
of the Atlantic, cumbering all the storehouses with grain,
produced that terrible irony of men and women thrown
workless on the streets, and starving, because food was too
cheap and too plentiful for them to obtain it. But in 1873
and 1874 in the United States things looked still worse.
With the greatest power to produce wealth that the world
had ever seen, and more favourable conditions in every re-
spect to produce it in, between three and four millions of
workless and foodless men paraded as hopeless tramps
throughout the Republic.

To pass through the principal industrial districts before
the crisis and to revisit the same towns during it was indeed
a lesson in the anarchy of capitalism. When all was going
well, it seemed impossible for men to work enough; wages
were high, goods were being thrown upon the market with
unexampled rapidity. Furnaces, rolling mills, cotton,
wool, and silk factories were all running at full speed. The
working population, as well as the middle classes, seemed
to think that there could be no end, as before, to this period
of " boom." A few months later, what a change ! Busy
cities comparatively deserted; works at a stand-still; men,
women, and children looking round hopelessly — and there
is no harder place in the world than America for the poor
— for that employment which seemed little likely to come.
Yet at this very time all the magazines were bursting with
food-stuffs, and the store-houses were literally choked with
useful articles that the people were not allowed to turn to
useful purposes.

A similar state of things a little later was to be found
in England itself, where, though the crisis, as already said,

INDUSTRIAL CRISES 239

was not felt so speedily, bad times made their appearance
all too soon.

After another prolonged period of depression, involving
an amount of unnecessary suffering, merely by reason of
the incapacity of organised society to control the greatest
means of making wealth that the world has ever seen,
another upward period began. But this again was but tem-
porary. The next crisis had its origin in France and was
connected with the downfall of the Union Generale. In
this case the effect was not so immediately to be observed
as in either of the preceding instances ; it was rather a slow,
grinding depression, than an immediate and sudden col-
lapse. Nevertheless, though not so marked in its features,
every country was affected; and in England from 1883 to
1887, or even 1888, there was a period of worklessness for
huge masses of the people, and restricted business for the
manufacturing, mercantile, and financial classes, which
equalled almost anything that had gone before. Once
more, in every country where capitalism prevailed, the
difficulty in disposing of the accumulation of products in
every department resulted in widespread distress for the
workers of all civilised nations.

Too much food for the people to have withal to eat; too
much of clothing for people to be clothed; too much fuel
to provide them with warmth. Such is the anarchy of our
order of to-day.

The recovery commenced, as I say, in 1887, and was
very short-lived. This, indeed, is a noteworthy feature of
all these great crises. They follow one another at ever-
shortening distances, and last longer each time that they
come. Three years of good trade, chiefly due to the ex-
ceptional development of South America, saw the civilised
world involved in another and terrible depression. The

240 THE ECONOMICS OF SOCIALISM

great Baring crisis of 1890 is still fresh in the memory of
all. First felt terribly in Great Britain, and then spread-
ing with tremendous rapidity to France, Germany, and
Austria, it slowly worked its way to America in the west,
and to Australia on the other side of the world. It is not
too much to say that the five years 1890 to 1895 were in
England a period of slow, persistent stagnation, during
which the numbers of the unemployed and partially em-
ployed exceeded those of which there is any record what'-
ever.

This lack of work arose, as usual, not from de-
ficiency of production, or from abnormally high prices, but
from over-supply of the very tilings required for human
subsistence, and the low prices at which they could be ob-
tained. In America matters were worse still. The ter-
rible crisis of 1893 surpassed even that of twenty years be-
fore in the injury which it did to the working-people.
Wages fell in every department of trade, and the men and
women competing for employment upon a market already
overstocked found themselves encountered in their own
country by swarms of Italians and Hungarians, not only
accustomed to a lower standard of life than themselves,
but also, from their ignorance of the language, virtually
mere slave-driven starvelings.

The mischiefs below reflected themselves above in the
collapse of one bank after another, in a succession of bank-
ruptcies almost unparalleled, and in one great railway
after another being thrown into the Eeceiver's hands.
Matters must indeed have reached an unprecedented pitch
when railway companies of the standing of the New York
Central and the Michigan Central, not to speak of private
capitalists of enormous wealth, were driven to borrow
money on the English market at rates of interest which

INDUSTKIAL CRISES 241

far exceeded anything before heard of on similar security.

In Australia, at a slightly later date, the same thing oc-
curred on an even greater scale, regard being had to the
disparity in population. It may be said that only three
banks in all the Australian colonies kept their heads above
water. In Melbourne, the best of real estate in the city
itself was almost unsaleable. Sheep-runs, which shortly
before liad been valued at hundreds of thousands of pounds,
could not find purchasers at any price. With millions of
acres of good land all around them, with one of the finest
climates in the world to enjoy, the problem of the unem-
ployed became as pressing as, and even more dangerous, in
Melbourne, Sydney, and Adelaide, than it had been in Eng-
land. What is remarkable in this most recent group of
crises, commencing with 1890, has been the character of
the men immediately involved in the ruin and devasta-
tion brought about. In America, in Great Britain, in
Australia, on the Continent of Europe, it has been the very
pick of capitalist society, the highest names in the commer-
cial and even the aristocratic world, that have utterly failed
to show any capacity whatever to deal with what they are
pleased to call " tlieir own businesses."

Leaving aside cases of individual rascality, which have
really become too numerous to consider as in any way
exceptional, it is clear that the transfer now completed of
the control of adventure and industry from the mercantile
to the financial class tends to intensify such crises as those
which now so constantly afflict the industrial community.
The mercantile class could, and did, enter upon a business
which might extend over many years with its own capital,
and was prepared to take success or failure as it might
come. In their best period, they looked far ahead, and
made their calculations with care and ability. The finan-

242 THE ECONOMICS OF SOCIALISM

cial class, on the other hand, necessarily restricts its pur-
view. Its one object is, not the gain of success in the
future, but realisation, by sale to the public, of immediate
profit in the present. Consequently, the capitalist class of
to-day, as represented in its fullest development, is the most
short-sighted and incompetent dominant class, from the
point of view of the community, of which history shows any
record whatever.

But while these crises pass — pass — pass — and come
again, unknown to them and unconsciously organised by
them, the corrective is developing out of the conditions of
the time. Each successive crisis now tends to the still fur-
ther establishment of industrial monopoly. The smaller
organisms in every department of trade are being relent-
lessly crushed out. Trusts, " combines," " corners," now
pervade every department of production, and the monopo-
lies of the twentieth century seem likely to surpass thoi^e
kingly monopolies of the sixteenth century against which
our ancestors rose in arms.

Already the form of industrial and commercial crises
underwent in consequence considerable modification at the
end of the nineteenth and the beginning of the twentieth
century. Capitalism, by the growth of Trusts, Combines,
Cartels, Trade Agreements and Manufacturers' Under-
standings referred to, began to co-ordinate its own anar-
chical methods of helter-skelter production and realisation.
A steady reduction in the number of great banking institu-
tions and a more vigilant survey of the scope of the world-
market in each branch of industry tended in the same direc-
tion.

As a result, the approach of over-production and glut
of commodities in each line of business was taken ac-
count of systematically and dealt with by means of restric-

INDUSTRIAL CRISES 343

tion of banking credits, gradual rises in the rate of discount
all along the line, reduction of output, with consequent
" short time " for the wage-earners in the different indus-
tries, and a recognition of the existence of a slackening de-
mand for commodities with a lower range of prices. In
this way headlong competition was brought under control
to a considerable extent. Industrial and commercial crises,
after a period of prosperity, were more and more taking the
shape of a prolonged dry-rot in trade, with a steady margin
of underpaid and unemployed wage-earners ; instead of ap-
pearing in the shape of such periodical crashes of credit
and breakdown of shaky realisations due to over-produc-
tion all round, which have been briefly summarised above.
In Great Britain, though Trusts and Trade monopolies
have not advanced so far as in the United States and Ger-
many, steps were taken by the industrial chiefs to deal in
this way with the inevitable outcome of competitive produc-
tion. The effect upon the working-class of cities and towns
dependent wholly upon one staple industry, of this par-
tially organised shrinkage of production and employment,
was deplorable. A distinct lowering of the standard of
physical and intellectual life was observable. An atmos-
phere of gloom pervaded the population during these pe-
riods of prolonged " bad trade," whose duration extended,
with increasing length, at each renewal of depression. So
much so, that the years of slack business were exceeding
those of acti\dty in several centres and the fringe of unem-
ployment though smaller in dimensions was becoming al-
most permanent, this fringe of unemploj'ment being a
necessity of the continuous functioning of the entire cap-
italist system.

CHAPTER X

OBJECTIONS TO THE LABOUR THEORY OF VALUE

It was inevitable that, when Marx's theories are being
accepted by leading economists all over Europe, and sev-
eral Governments have had Marxists as their Prime Min-
isters and Ministers, great eft'orts should be made to show
that these opinions are erroneous. The capitalists, their
bourgeoisie and their economists, are still not ready to sur-
render, without a struggle, either in theory or in practice.

That is natural. A class which nowadays dominates so
complex a society as ours, which has produced so many men
of genius in the world of science, of art and of letters;
which believes that its function as an organising and ad-
ministrative body is essential to the continued existence
and progress of society as a whole; which regards itself as
engaged in steadily improving the general status of the
human race; which, besides, has furnished even the theo-
rists and the leaders of the new Labour movement, from
among its own learned men, may be forgiven when its mem-
bers refuse to recognise that, like tlie land and slave own-
ers and the feudal barons and serf -lords of old — who also
produced great men in their day — the period of its own
downfall is rapidly approaching. And the synthesis of
Marx's analysis involves nothing short of such a downfall
for them. Hence it is that they, with their economists,
carry on the conflict not only in politics, in social affairs, or,
when necessary, on the field of physical conflict, but like-
wise in the department of thought and reason.

244

OBJECTIONS TO LABOUR THEORY 245

Thus the effort has been made to prove that the entire
work done by Marx and his school is really of no impor-
tance: a mere will-o'-the-wisp, certain to lead the ignorant
and credulous into the bog of miscomprehension and illu-
sion. We are told plainly, therefore, that, under the free
competitive system of capitalist production for exchange,
the relative value of commodities is not determined, on the
average, by the quantity of social labour embodied in them.
Evidence to that effect is furnished by pointing to natural
objects, or raw materials, which, when brought into the
sphere of capitalist production by the expenditure of a
given quantity of labour-power, are of greater value than
other natural objects, or raw materials, of a somewhat sim-
ilar character, which are made available in the same sphere
of capitalist production, by the expenditure of an equal,
or only very slightly less, expenditure of labour-power.

Therefore, the raw material of superior quality, created
by nature herself, has a higher relative exchange of value,
before and after it is brought forward on to the market,
than the material of inferior quality belonging to the same
class of natural objects. Consequently, the private owner
of the superior or exceptional raw material obtains in ex-
change with other commodities a higher rate of relative
value, or a higher price, than the private owner of the in-
ferior raw material, according to the social estimate of the
time. That this is, in practice, the truth cannot be dis-
puted.

But the process of capitalist production has only begun,
when raw materials grown or furnished by nature, no mat-
ter what their respective qualities may be, are taken into
the workshop, the factory, the rolling-mills, &c., in order
to convert them into finished commodities, by the embodi-
ment of simple, abstract human labour in them. These

246 THE ECONOMICS OF SOCIALISM

raw materials of different qualities and varying values,
that is to say, convey no more value to the finished com-
modities, when produced, appropriated and exchanged,
than that which they possessed at the start. They form
part of the original constant capital, the value of which
neither gains nor loses during the process of production
and exchange.

Such alteration of form without change of value involves
the appropriation of no surplus-value, nor, therefore, profit
for the owner, of the capital, either in the shape of sur-
plus commodities or in the shape of cash, upon the realisa-
tion of all the commodities so produced, by sale for money.
The origin of surplus value remains where it was before —
in the amount of unpaid labour embodied in commodities,
for which no remuneration whatever has been given in the
wages paid by the capitalist during the period of produc-
tion. This surplus-value he appropriates first in com-
modities and then in money.

Yet we are told that the variations in the quality and
value of natural objects, before they enter into the sphere
of production and exchange at all, destroy the whole theory
of abstract, social, labour value as measuring the relative
value in exchange of commodities which can be indefi-
nitely reproduced ! There is no need to labour this state-
ment and its refutation any farther.

But, apart from this contention, there are other points
which are insisted upon as invalidating the theory. First,
that the concentration of capital in larger and larger
masses, for the purposes of production, which Marx pre-
dicted, is not being borne out by the facts, as recorded
in the countries which are most fully developed econom-
ically. In view of what is going on at the present time,
it is scarcely necessary to consider this argument. The

OBJECTIONS TO LABOUR THEOEY 247

chief feature of economic progress, throughout the capital-
ist world to-day, is the growth of great Trusts, Combines
and Monopolies, in every department of production and
distribution, with a view to minimising waste, curtailing
unnecessary expenditure and limiting cut-throat competi-
tion and " over-production " by capitalists in the same
branches of trade. Thus the manifest tendency of capital
towards concentration in greater and greater masses is obvi-
ous.

A few critics have been misled by inaccurate statistics
of individual shareholders in Limited Companies, and
have persuaded themselves, in consequence, that wealth is
much more widely distributed than it is. Edouard Bern-
stein, in his " revisionist " period, was one of those who
made this mistake. But, so long ago as 1913, in two lec-
tures delivered at Buda-Pesth, he frankly and completely
abandoned his anti-Marxist views. Clearly, also, even if
Marx's anticipations had been falsified, instead of being
verified, this would not have affected the truth of his ex-
change theory in itself.

Secondly, it has been argued that, though the combina-
tion of large capitals may have been going on, the inde-
pendent bourgeoisie have not been crushed out by the com-
petition of the larger capitals embarked in industry, either
in the productive or in the distributive sphere. But this
again is simply a mistake as to facts. What has actually
happened is this: That while the larger bourgeoisie have
been displaced or absorbed by the still larger combinations
for production and distribution, in some directions, the
small shop-keepers have been simultaneously increasing.
But these small retailers, who may have increased with the
increasing population, are merely petty distributors, at-
tendants upon the wage-earners, part of the hand-to-mouth

248 THE ECONOMICS OF SOCIALISM

proletariat themselves, toiling excessively long hours to se-
cure subsistence by their " profits," and not a Third Estate,
a powerful middle class, or bourgeoisie, at all. The dilTer-
ence between these poverty-stricken purveyors to the needs
of the worker and the old well-to-do and independent shop-
keeping class is too marked to be honestly overlooked even
by the most prejudiced critic.

In one direction only is there an apparent exception to
this general rule of the concentration of capital, the con-
tinued increase in the scale of industrial production and
the gradual elimination of the producer on a small scale.
This is in relation to the land. It seems now well estab-
lished that the general tendency, even in countries where
there is still a vast " frontier " open to occupation and till-
age, is not towards the success of huge factory farms of
from 10,000 to 40,000 acres in one block, notwithstanding
the great improvement in machinery and scientific manur-
ing, skilled dairy-farming and the like. Eelatively small
farming, of from 200 to 500 acres in one holding, seems
to be on the increase : the unit of profitable farming being
lower apparently under such circumstances than might
have been supposed beforehand. ,

Here the law of the concentration and enlargement of
capital — where co-operation has not been introduced —
comes so far on the next plane. The cultivators, though
nominally independent farmers, find themselves at the
mercy of, and in effect working for, the great railway com-
panies, elevator companies, creamery companies, canning
combinations, banking monopolies, and the like. But the
actual concentration of capital for the capitalists and
against the farmers goes on none the less rapidly. It is
only the concentration of capital on actual land-cultiva-
tion which has not proceeded so fast. This is specially no-

OBJECTIONS TO LABOUR THEORY 249

ticeabie in the United States and Canada. So crushing, in
fact, has the tyranny of capital in these secondary depart-
ments become, in many districts of these two countries, that
the farmers themselves, hitherto the most conservative
class in the world, and the least inclined to political action
in their own interest, have been literally forced into polit-
ical revolt, in order to protect their economic status against
the combination of profiteers who dominated not only the
distributive and financial but the political sphere.

Where these farmers have succeeded in making their po-
litical power felt they have organised collectivist, coopera-
tive and limited Socialist agencies to prevent exploitation
by capital, and to extend improvement by State encourage-
ment. Here, as elsewhere, therefore, the general movement
has been towards the control and ownership of concentrated
capital and monopoly in collective interest, and in the
United States and Canada the farmers, though not as yet
Social-Democrats, have been wise enough to use political
action successfully towards collectivist ends.

Thirdly, attempts have been made of late to show that
the work of intelligent human beings, in the shape of so-
cial service, organisation of labour in factories, in work-
shops, on the land, and so on adds to the value of commodi-
ties in exchange, and thus modifies the basis of the labour-
value theory. This claim is, of course, not a modification
but a direct contradiction of the whole labour theory of
value.

But what does a man do who introduces, let us say, a bet-
ter system of organisation of labour and management into
a furniture factory?

This organiser enables the employer to produce a
greater quantity of tal)les, chairs, cbests of drawers, desks,
and the like with the same amount of human labour

250 THE ECONOMICS OF SOCIALISM

which he used before. There are more useful arti-
cles produced, that is to say, by the same quantity
of labour. The effect is the same as that resulting from
the introduction of an improved machine into the industry.
There is, obviously, in both cases, less, not more, human
labour embodied in the different or separate pieces of fur-
niture produced, than there was before the work in the
factory was re-organised.

What does this mean? That the furniture manufac-
turer can afford to exchange his commodities, or realise
them in gold, for a lower, not for a higher, exchange value,
or price, than he did before his " hands " were taught how
to economise their labour-power, because, owing to the bet-
ter organisation, more goods are produced with the same
expenditure of labour-power. Thus he can undersell his
competitors in the market, unless and until they adopt his
improved methods. And he does so to his own profit, not
because the application of intelligence to his business has
increased the value in exchange of each of his articles of
furniture. Quite the contrary. Precisely by reason of
that fact that the labour-value embodied in every piece of
furniture has been reduced by his foresight and superior
business aptitude and he can therefore afford to accept a
lower price in competition with his rivals.

Therefore, the whole organisation is set in motion again
for the purpose of obtaining surplus value, created by the
expenditure of labour-power for which no wages are paid,
in the manner described in the foregoing pages. The
clever organiser or manager has added nothing whatever to
the valve of the products in exchange, whether he acts
upon the Taylor system, or any other device for improv-
ing the application of labour-power to the production of
commodities.

OBJECTIONS TO LABOUE THEORY 251

A fourth objection brought forward since the war, and
especially since the great influence of extensive labour or-
ganisations has been manifested in raising wages to an
unprecedented nominal^, and even relative, height (in the
United States more particularly), is that labourers skilled
and unskilled have now reached such a status, owing to
these higher wages, which they have secured for their la-
bour-power, and the shorter hours they now work, that it
is quite out of place to speak any longer of " subsistence
wages " or of the workers as " wage-slaves of capital." La-
bourers, it is urged, now have the whip hand of capital and
can obtain adequate remuneration for their toil, after cap-
ital has received a legitimate profit. To speak of wage-
earners as proletarians who drive to their work and who are
not compelled to toil more than eight, or even seven or six,
hours a day is absurd. Such is the view put by a very well-
known American Social-Democrat.

But we have yet to see, even in America, where wealth
has been piled up during the past seven years at a rate quite
unprecedented in economic history, that this remarkable
relative prosperity for the wage-earners will be maintained.
In Great Britain, the uncertainty of maintaining wages at
their present level relatively to the existing high prices has
already impelled most of the labour leaders to strive for a
reduction of the prices of the necessary articles comprised
in the standard of life of the workers in preference to press-
ing on in the vicious circle of higher wages, higher prices,
and vice-versa. This is due to the fact, proved to them by
actual experience, that the endeavour to raise and to keep
wages at a level which represents a high standard of sub-
sistence, in the face of rapidly rising prices, is by no means
easy and involves, in many cases, loss and privation by
strikes, which have been serious and frequent of late years.

252 THE ECONOMICS OF SOCIALISM

Even the very highest wages, also, and that illusory cap-
italist arrangement, profit-sharing, — feeding a dog with
sections of his own tail — do not change in the very least
the basic conditions of capitalism ; by which the toilers are
divorced from any control over their own means of making
and distributing wealth, suffer from constant anxiety as to
how long full employment will last, and are quite unable
to emancipate themselves from that domination of the cap-
italists and bourgeoisie which constitutes them, however
well-paid, a wage-slave class. So long, likewise, as capital-
ism and production of commodities for profit and ex-
change last, so long as they are obliged to sell their labour-
power for money wages to the class which owns the means
and instruments of production and distribution, including
the land — so long will they remain a wage-slave class, no
matter how thickly their chains may be temporarily gilded
by high remuneration.

Finally, we have the supposed economic contradiction
between the Third Volume of the " Capital " and the First.
This is the only point which really affects Marx's theory as
a theory. But we must begin the consideration of this
assumed contradiction with a passing reflection upon the
strange inconsistency of even his ablest opponents. Was
Marx the man of extraordinary ability which they one and
all admit him to have been ? Did he throughout his career
invariably exhibit a masterly capacity for analysis and an
admirable command of logic and dialectic in all its forms?
Unquestionably he did. Could he be, at one and the same
time, an absurdly confused thinker, who worked sixteen
hours and more a day during the greater part of his life in
chase of an economic will-o'-the-wisp which landed him in
a bottomless bog of hopeless incompatibility at the close
of his arduous career? Yet that is what the majority of

OBJECTIONS TO LABOUR THEORY 253

his critics virtually contend that he was. This is an in-
compatibility far greater than that which these same crit-
ics allege that they have discovered in his writings. How
reconcile, then, these contradictory evaluations of Marx's
intelligence ? How account, besides, for the awkward fact
that Engels, himself a political economist second only to
Marx, and a very shrewd and successful man of business
into the bargain, was afflicted with the like mental inca-
pacity, not only during his intimate friend Marx's life-
time, but for many years after his death ?

The whole idea is one tissue of absurdity. Marx knew
perfectly well what he was about, from the beginning of his
work, which led to his publication of " Zur Kritik per Poli-
tischen Economie," in 1859, and all through. Neither he
nor Engels was in the slightest degree misled by a chimera.
There is no contradiction whatsoever between the First
Volume of the " Capital " and the Third. As a matter of
fact, the elaborate notes left behind by Marx for the Third
Volume were made, and the general tenour of the whole
volume was decided upon, before the First Volume was be-
gun. There was not, therefore, and there could not have
been, any attempt on Marx's part, he being in collusion
with Engels, to fudge in the Third Volume a solution to
the problem which Engels propounded, in his preface to
the Second Volume, after his friend's death ; which problem
remained wholly unsolved by Marx's critics during the
years that elapsed before the appearance of the denounced
Third Volume.

The truth is that one and all of Marx's critics in this
matter, and some even of his followers, fail to comprehend
thoroughly the very foundations of that great writer's sys-
tematisation. He was engaged upon an elaborate analysis
and explanation, in the first place, of the general laws of

254 THE ECONOMICS OF SOCIALISM

political economy in the abstract, under the economic, his-
toric and social conditions of his time, as a mathematician
might investigate the general laws of mechanics, or of
vibrations. Precisely the same with the theory of social
labour-value in exchange and the consequences deduced
therefrom.

The main reason why this theory has been misunderstood,
by those political economists who have honestly declared
against it, is that they have not thoroughly grasped the full
meaning of constant capital, as distinguished from varia-
ble capital, in the sphere of capitalist production, and, con-
sequently, have failed to comprehend whence surplus value
is derived, why rate of profit differs from rate of surplus
value, and to understand the general effects of the relations
between constant capital and variable capital, in the func-
tioning of the progressive capitalist system. Now in the
varying composition of active capitals engaged in industry,
the constant portion which consists of machinery with its
wear-and-tear, raw materials, incidental materials, &c., as
already stated, is always becoming relatively larger and
larger, as society advances in industrial development.
This constant capital, with all its constituent values, con-
tributes no additional value to the resultant commodities
in the course of production. None whatever.

The variable portion which is devoted to the purchase of
labour-power by payment of wages becomes on the other
hand relatively smaller and smaller. This variable cap-
ital it is which, as explained, not only is reproduced in the
commodities as the social labour value of the wages paid
to the workers for their labour-power and embodied in the
commodity, but provides the surplus-value, consisting of
unpaid labour embodied in the same commodities, which is
the object of the whole transaction. As has been seen in

OBJECTIONS TO LABOUR THEORY 255

the chapter on " Profit," the rate of profit is reckoned on
the whole of the capital embarked, constant capital
as well as variable capital, and as the constant capital
relatively to the total caj)ital embarked continuously in-
creases and the variable capital which comprises in its pur-
chase the value-cxeating la])our-power continuously de-
creases, relatively to the total capital embarked, the rate of
profit must continuously fall.

This no one before Marx had ever explained.

So, likewise, in regard to the partition of surplus value
and gross profit into its various distributive parts. This
surplus value is engendered in the sphere of production : it
is only realised in the sphere of circulation. Commodities
are commonly sold by the individual capitalist producer at
a price considerably below this actual value in exchange,
such value, as a whole, comprising, of course, the total sur-
plus value embodied in the course of production, and, tem-
porarily, at the disposition of this capitalist producer. In
that way he hands over a portion of the surplus value he
has obtained from the unpaid labour of his work-people
embodied in commodities (these reckoned as the gross
profit on the whole of his own capital embarked in the bus-
iness) to be divided up, apart from rent, among the capitals
engaged in other branches of business; which, of them-
selves, though necessary to the realisation in cash of surplus
value and profit, may produce no surplus-value whatever.

Now it is perfectly true that if of two industrial capitals
of equal size, functioning under the same conditions, one
capital is composed of a large proportion of constant cap-
ital [capital embarked in machinery, raw materials, inci-
dental materials, &c.] — with a relatively small propor-
tion of variable capital — [capital embarked in paying
wages for the purchase of labour-power] — and another

356 THE ECONOMICS 0^ SOCIALISM

capital consists of a small proportion of constant capital
with a relatively large proportion of variable capital, it is
directly contrary to Marx's entire theory of labour-value
that both these capitals should produce the same amount of
surplus-value.

But then Marx nowhere says that they do or can. Far
from this, he expressly states in the Third Volume that this
is quite impossible. Thus : " If a capital consisting of
90 per cent, of constant capital plus 10 per cent, of varia-
ble capital produces as much surplus-value, or gross profit,
with the same degree of exploitation, as a capital consist-
ing of 10 per cent, of constant capital plus 90 per cent, of
variable capital, then it would be as clear as daylight that
surplus-value, and value in general, must have an entirely
different source from labour, and that political economy
would then be destitute of any reasonable foundation."
Nothing could possibly be more stringently put than that.
Yet Marx is accused of having "admitted " in his Third
Volume that his whole labour theory was unsound !

In the First Volume of " Capital " the operations of the
individual capitalist, with his own special set of work-
people and the surplus-value they produce by their labour,
are dealt with. In the Third Volume the manner in which
the total surplus-value is obtained and the gross profits are
divided up among the various groups of capitalists is in-
vestigated and the way in which an average rate of profit
upon capital as a whole is arrived at. "We are no longer
looking on at the proceediugs of the individual capitalist:
we are occupied with the entire social capital and the par-
tition of the whole of ''he surplus-value produced by all the
wage-earners under capitalist control.

Under these conditions, capitals of equal dimensions as a
whole receive equal amounts of profit, regardless of their

OBJECTIONS TO LABOUR THEORY 257

composition in constant and variable capital. This is due
to the fact that, although they do produce different amounts
of surplus-value^ the capital which contains most constant
capital obtains, in the course of exchange and realisation,
part of the surplus-value created by the capital which con-
tains most variable capital: the different capitals engaged
in the various spheres of production and distribution re-
ceiving their remuneration in the shape of average profit,
according to the ordinary rules of competition and supply
and demand.

The reason why this explanation has not been grasped
by Marx's critics, and is imperfectly understood by some
of his own followers, is that they do not distinguish be-
tween the " price of production " and the ordinary " cost
of production " ; because, also, they will persist in consider-
ing the question of the apportionment of general profit, de-
rived from the social unpaid labour of the wage-earners at
large, among the capitals engaged in social production
and distribution, from the point of view of the individual
capitalist, and his personal appropriation of the surplus
value produced by the unpaid labour of his own " hands."

Consequently, they fail to comprehend how it comes
about that capitals with relatively greater amounts of con-
stant capital in their composition obtain for their goods
when realised prices higher than their exchange value,
measured in the social labour-value embodied in them;
while capitals with relatively less constant capital in their
composition obtain lower prices for theirs. This is in com-
plete consonance with, and not in opposition to, the social
labour theory of value.

CHAPTER XI

THE FINAL FUTILITY OF FINAL UTILITY

The growth of general interest in political economy, or
economics, and the increasing number of people of all
classes who devote themselves to the serious study of this
difficult subject is one of the most hopeful signs of the
times. We are manifestly in a period of crucial transition,
alike economically and politically. It is impossible, how-
ever, to deal consciously with this development, due in the
main to the productive forces of our time, unless the sys-
tem in which we are at present living is understood, and
its tendencies are comprehended by, at any rate, a consid-
erable fraction of the active part of the community.

Consequently, discussions on the theoretical basis of eco-
nomics are more necessary now than ever before. If there
are among educated and thoughtful men two diametrically
opposed and incompatible theories in regard to what regu-
lates the exchange value of the commodities which consti-
tute the wealth of our modern society, nothing is to be
gained by shading over the antagonism between these con-
flicting schools of thought. Far better is it, in my opinion,
to accentuate the differences which undoubtedly exist on this
point, in order that students may be led to think out the
whole question for themselves, uninfluenced by mere au-
thority, or great reputations on either side.

The object of this i-hapter is to expose the fallacies of
the theory of Final Utility as a measure of value. The
theory is, of course, associated with the name of Professor

258

FINAL FUTILITY OF FINAL UTILITY 259

Stanley Jevons, and is accepted at the present time by
many academic economists. If I can show that this theory
is merely an obscure way of re-stating the old supply-and-
demand thesis of Lord Lauderdale, Bastiat, and others;
that its originator does not adhere to it himself; that
neither in his own hands nor in those of his followers has
it solved any great problem or led the way to any dis-
covery, but, on the contrary, has rendered confusion worse
confounded, and has given rise to the most ridiculous con-
jectures and absurd assumptions; that also his principal
supporter himself abandons his master's own dialectic — if
I succeed in doing this, I venture to think that I shall have
justified the title of my chapter.

I may say, however, that I do not propose to inflict any
portion of the Differential Calculus upon my readers. If
it pleases my critics to aver that my not having set out in
full Homersham Cox's proof of Taylor's Theorem is irre-
fragable evidence that I am incapable of understanding
how it comes about that a quarter of wheat and a definite
sum in gold constitute an equation of value in London to-
day, I shall not attempt to controvert them. Neither shall
I raise any objection if they constate that my inability to
discover the locus of the curve of human greed, or to ex-
press the limits of human happiness in the form of an
algebraic expansion, inevitably prevents me from fathom-
ing the mysteries of capitalist production for profit. I

shall allow all the missiles of — to fly round my head

dx
without dodging, and the fragments of Conic Sections that
may be aimed at me will not disturb my intellectual equa-
nimity for a moment — impavidum ferient ruinoe — the
debris of shattered arguments are not rendered more for-

360 THE ECONOMICS OF SOCIALISM

midable by being enveloped in useless mathematical for-
mulae.

"Eepeated reflection and inquiry," says Jevons at the
beginning of his work on " The Theory of Political Econ-
omy," " have led me to the somewhat novel opinion that
value depends entirely upon utility." Eicardo had already
answered this bald and " somewhat novel " statement by an-
ticipation when he wrote : " When I give 2,000 times more
cloth for a pound of gold than I give for a pound of iron,
does it prove that I attach 2,000 times more utility to gold
than I do to iron ? Certainly not : it proves only that the
cost of production of gold is 2,000 times greater than the
cost of production of iron. If the cost of production of the
two metals were the same I should give the same price for
them; but if utility were the measure of value it is probable
I should give more for the iron. It is the competition of
producers . . . which regulates the value of different com-
modities. If, then, I give one shilling for a loaf and 21
shillings for a guinea, it is no proof that this in my esti-
mation is the comparative measure of their utility."

But it would appear that Jevons, who protests most rea-
sonably, as other economists have done before and since,
against the use of the word " value " to express various
meanings in economics, plays the same trick with the word
" utility " on his own account. He is analysing, or at-
tempting to analyse, the ratio of exchange in a society in
which, economically speaking, exchange is the dominant
factor. It is not merely the superfluity which is ex-
changed after the needs of the producers themselves are sat-
isfied, nor is production for exchange the object of one por-
tion of the community, and production for immediate use
that of another. All goods arc produced for exchange on
the market of the world ; and, in tlie majority of cases, the

FINAL FUTILITY OF FINAL UTILITY 261

articles produced are of no utility to the persons who pro-
duce them.

The commodities are produced under the control of a
particular class, namely, the capitalists, for profit; and
chemical, mechanical, and other improvements are going
on which fall into the hands of this dominant class and
are used by them, in competition with their fellows, to
extend their own market, and lessen that of their rivals.
The determining element in this struggle is cheapness.
The scale of production is, however, determined by these
same social considerations. A manufacturer cannot pro-
duce on the scale which he himself pleases. That is de-
termined for him by his surroundings. He must use the
best machinery, and organise his hands in the most ap-
proved method, or submit to being crushed out by those
who read the signs of the times and translate them into ac-
tion better than he can.

Nowadays, also, it is not demand which invariably pre-
cedes supply, but supply which in many cases anticipates
and almost forces demand. Furthermore, the utility of
different articles thus produced by capitalists for exchange
is determined, not by their real utility, in the sense of use-
fulness to the consumers, but by the social position and
purchasing power of those consumers in the society of the
time. Purchase and sale of course involve sale and pur-
chase : a quantity of saleable values on the one side which
the owner is ready to sell, and a quantity of saleable values
on the other side with which the owner is willing to buy.
The production and the consumption are in such conditions
purely and manifestly social; but the exchange, likewise a
social function, is conducted under individual control,
because appropriation of the product is still under indi-
vidual (or capitalist company) ownership.

262 THE ECONOMICS OF SOCIALISM

It is the production and exchange of commodities in
such conditions, I say, which Professor Jevons sets himself
to examine. According to him, when two commodities are
exchanged on a free market, the production of such com-
modities being practically capable of indefinite increase and
not restricted or monopolised — this is the essence of com-
petitive capitalism — then that exchange, so effected, pro-
claims that the " final utility " of the two sides of the trade
equation is the same. This, and not the quantity of sim-
ple, abstract, social human labour embodied in the com-
modities on either side, determines the " ratio of their ex-
change," their relative value. But let Jevons speak for
himself, only taking note of the fact that he investigates
social phenomena from the purely individval point of view
of individual interest, individual desire, and individual
labour.

" Utility," he says, " though a quality of things, is no
inherent quality. We can never, therefore, say absolutely
that some objects have utility and others have not. The
ore lying in the mine, the diamond escaping the eye of the
searcher, the wheat lying unreaped, the fruit ungathered
for want of consumers, have no utility at all. The most
wholesome and necessary kinds of food are useless unless
there are hands to collect and mouths to eat them sooner
or later."

How scientific, how enlightening, how truly philosophic
is all this ! Platitude reduced to its final imbecility could
surely no further go. " Nor, when we consider the matter
closely ( !), can we say that all portions of the same com-
modity possess equal utility. A quart of water per day
has the high utility ol saving a person from dying in a
most distressing manner. Several gallons a day may pos-

FINAL FUTILITY OF FINAL UTILITY 263

sess much utility for such purposes as cooking and wash-
ing; but, after an adequate supply is secured for these
uses, any additional quantity is a matter of comparative in-
difference. All that we can say, then, is that water, up to
a certain quantity, is indispensable ; that further quantities
will have various degrees of utility ; but that beyond a cer-
tain quantity, the utility sinks gradually to zero; it may
even become negative, that is to say, further supplies of the
same substance may become inconvenient and harmful."

That is to say, a flood may sweep everything away and
drown " a person " who might, without a quart of it, have
died of thirst !

Jevons proceeds to apply the same luminous method of
investigation to bread and clothes, and then goes on:
" Utility must be considered as measured by, or even as
actually identical with, the addition made to a person's
happiness. It is a convenient name for the aggregate of
the favourable balance of feeling produced — the sum of
the pleasure created and the pain prevented. We must now
carefully discriminate between the total utility arising
from any commodity and the utility attaching to any par-
ticular portion of it. Thus the total utility of the food we
eat consists in maintaining life, and may be considered as
infinitely great" — didn't Esau, when famishing, sell his
birthright for a mess of pottage? — "but if we were to
subtract a tenth part from what we eat daily our loss would
be but slight. We" — who are we? — "should certainly
not lose a tenth part of the whole utility to us. It might
be doubtful if we should suffer any harm at all " — obvi-
ously Jevons had only the well-fed or over-fed classes in
his mind.

"Let us imagine the whole quantity of food which a

264 THE ECONOMICS OF SOCIALISM

person consumes on an average during twenty-four hours
to be divided into ten equal parts. If his food be reduced
by the last part, he will suffer but little; if a second part
be deficient, he will feel the want distinctly; the subtrac-
tion of the third tenth will be decidedly injurious; with
every subsequent subtraction of a tenth part his sufferings
will be more and more serious, until at length he will be
on the verge of starvation" — last of all the man died
also!

And then Mr. Jevons is good enough to squirt a few
pages of mathematics at us to illustrate, or obscure, this
his most exquisite reasoning on the theory of value in ex-
change. But he gives it all over again a little later,
returning to his favourite water illustration. " We cannot
live without water, and yet in ordinary circumstances we
set no value on it. Why is this? Simply because we have
so much of it that its final degree of utility is reduced
nearly to zero. We enjoy every day the almost infinite
utility of water, but then we do not need to consume more
than we have. Let the supply run short by drought, and
we begin to feel the higher degrees of utility of which we
think but little at other times."

Wliat is all this but the old " supply and demand " with
a veil over its face ? Compare Lord Lauderdale :

" With respect to the variations in value, of which every-
thing valuable is susceptible, if we could suppose for a
moment that any substance possessed intrinsic and fixed
value so as to render an assumed quantity of it constantly,
under all circumstances, of equal value, then the degree
of all tilings, ascertaired by such a fixed standard, would
vary according to the proportion betwixt the quantity of
them and the demand, and every commodity would of

FINAL FUTILITY OF FINAL UTILITY 265

course be subject to a variation from four different cir-
cumstances.

" 1. It would be subject to an increase of its value from
a diminution of its quantity.

" 2. To a diminution of its value from an augmentation
of its quantity.

"3. It might suffer an augmentation in its value from
the circumstance of an increased demand.

" 4. Its value might be diminished by a failure of de-
mand.

" As it will, however, clearly appear that no commodity
can possess fixed and intrinsic value so as to qualify it for
a measure of value of other commodities, mankind are
induced to select as a practical measure of value that which
appears to be least liable to any of these four sources
of variation which are the sole causes of alteration or
value.

" When in common language, therefore, we express the
value of any commodity, it may vary at one period from
what it is at another, in consequence of eight different
contingencies :

" 1. From the four circumstances above-stated, in rela-
tion to the commodity of which we mean to express the
value.

" 2. From the same four circumstances in relation to
the commodity we have adopted as a measure of value.

" Water, it has been observed, is one of the things most
useful to man, yet it seldom possesses any value; and the
reason of this is evident : it rarely occurs that to its quality
of utility is added the circumstance of existing in scarcity ;
but if, in the course of a siege, or a sea-voyage, it becomes
scarce, it instantly acquires value; and its value is subject

266 THE ECONOMICS OP SOCIALISM

to the same rule of variation as that of other commod-
ities." 1

Eedueed to their elements, all Jevons' "final utility,"
"esteem," and the like, are contained in that passage. It
is unnecessary to quote Eicardo's criticism in view of other
portions of this chapter which follow. But it is surely
manifest that in a free market, for commodities which
may be increased to practically any extent, the phenomena
of supply and demand are but superficial. What really
regulates the relative exchange value is the quantity of
social human labour embodied in tlie commodity on the two
sides, the demand and supply fluctuations being averaged
over longer or shorter periods.

The form of price to which Lord Lauderdale refers does
but give the quantity of labour embodied in commodities,
its name in money. Now " magnitude of value expresses
a relation of social production; it expresses the connection
that necessarily exists between a certain article and the
portion of the total labour-time of society required to pro-
duce it. As soon as the magnitude of value is converted
into price, the above necessary relation takes the shape of
a more or less accidental exchange ratio between a single
commodity and another, the money commodity.

" But this exchange-ratio may express either the real
magnitude of that commodity's value or the quantity of
gold deviating from that value for which, according to
circumstances, it may be parted with. The possibility,
therefore, of incongruity between price and magnitude of
value " — the productive power of labour remaining con-
stant — " or the deviation of the former from the latter, is
inherent in the price-form itself. This is no defect, but,

1 " An Inquiry into the Nature and Origin of Public Wealth,"
pp. 15-16.

FINAL FUTILITY OF FINAL UTILITY 267

on the contrary, admirably adapts the price-form to a mode
of production whose inherent laws impose themselves only
as the mean of apparently lawless irregularities that com-
pensate one another." ^

But our Professor is not content with " utility," ^' final
utility," and " commodity." He treats us to a theory of
" discommodity " or " disutility," which, it seems, too, is
a something which, being a nuisance, helps us to realise
the conception of value in exchange. So fond is he of
this notion also that he repeats it two or three times. The
sewage of great towns, for instance, " we can hardly call
it a commodity/' ( !) " acquires a higher and higher degree
of disutility the greater the quantity to be disposed of."

But now, to use Jevons' phrase, let us investigate the
subject a little more closely : " In exchange for a diamond
we can get a great quantity of iron, or corn, or paving-
stones, or other commodity of which there is abundance;
but we can get very few rubies, sapphires, or other precious
stones. Silver is of high purchasing power compared with
zinc, or lead, or iron, but of small purchasing power com-
pared with gold, or platinum, or iridium." Why is this?
Because — it is Professor Jevons who tells us so — " noth-
ing can have a high purchasing power unless it be highly
esteemed in itself; but it may be highly esteemed apart
from all comparison with other things " — what on earth
has this to do witli exchange-value then ? — " and, though
highly esteemed, it may have a low purchasing power
because those things against which it is measured are still
more esteemed."

From which it should now appear that not " utility " but
" esteem " is the measure of the value of commodities.

1 Karl Marx, "Das Capital," p. 132.

268 THE ECONOMICS OF SOCIALISM

But then Jevons puts the whole thing right in this
way:

"(1) Value in use equals total utility,

"(2) Esteem equals final degree of utility.

"(3) Purchasing power equals ratio of exchange."

All which no doubt advances our knowledge greatly!

But the main point is that labour embodied in commodi-
ties is not the measure of their value; though, strange as
it may seem, " economists have not been wanting " who
have advanced this monstrous proposition. " But though
labour is never the cause of value " — what does the word
" cause " mean here ? — " it is in a large proportion of
cases the determining circumstance, and in the following
way: Value depends solely on the filial degree of utility
[otherwise * esteem']. Hoiv can we vary this degree of
utility? By having more or less of the commodity to
consume. But how shall we get more or less of it? By
spending more or less labour in obtaining a supply.

" According to this view, then, there are two steps
between labour and value. Labour affects supply, and
supply affects the degree of utility, which governs value, or
the ratio of exchange. In order that there may be no
possible mistake about this all-important series of relations
I will re-state it in a tabular form as follows:

'' Cost of production determines supply;
Supply determines final degree of utility;
Final degree of utility determines value."

The italics throughout are Professor Jevons'. I think
everyone will agree with me that nothing can be more
strenuously put. The Professor was exceedingly anxious
that there should " be no possible mistake " about that

FINAL FUTILITY OF FINAL UTILITY 369

which he manifestly regarded as the keystone of the arch
of his whole theory.

Now hear his most distinguished disciple and follower
on this very passage. He speaks of the " loose and inac-
curate " terms of the statement quoted, and goes on : "Let
us turn then to examine the chain of causation in which
Jevons' central position is formulated, in his second edi-
tion, and compare it with the position taken up by Hicardo
and Mill. He says: 'Cost of production determines
supply/ &c., as above. Now if this series of causations
really existed there could be no great harm in omitting the
intermediate stage and saying that cost of production
determines value. For if A is the cause of B which is
the cause of C, then A is the cause of C." Surely a very
economic Daniel come to judgment. " But," — pray mark
this, Mr. H. S. Foxwell; read it, Mr. Philip Wicksteed,
and inwardly digest it, Mr. Sidney Webb — " but in fact
there is no such series ! "

So far as I am aware, not one of the minor lights of the
Jevonian firmament has twinkled out a reply to this direct
and rather brutal contradiction. Which is right and which
is wrong or whether both are in error, does not concern
me at present.

For, in truth, it is not necessary to go beyond Jevons
himself to show how much importance we need attach to
his utility \aews. For instance (at p. 186 of the third
edition, p. 181 of the first edition, of his " Theory of Polit-
ical Economy " ) he says : " It may tend to give the reader
confidence in the preceding theories when he finds that
they lead directly to the well-knowTi law, as stated in the
ordinary language of economists, that value is proportional
to the cost of production." When I first read this passage,

270 THE ECONOMICS OF SOCIALISM

more than five-and-forty years ago, I threw down the book.
I felt that I had been made a fool of through the previous
180 pages, which, indeed, had conveyed not a single fresh
idea to my mind. It is as complete a self-exposure as
Henry George's famous economic bull, that all which is not
wages is rent.

But Professor Jevons must needs set out an equation of
ratios to confirm the matter. At p. 191 we find the fol-
lowing :

"Value per unit of x cost of production per unit of x.

Value per unit of y cost of production per unit of y.

or, in other words, value is proportional to cost of produc-
tion." Once more the italics are Professor Jevons'. " As,
moreover, the final degrees of utility of commodity are
inversely as the quantities exchanged, it follows that the
values per unit are directly proportional to the final degrees
of utility " — have we reached the final degree of futility
through all this wearisome logomachy? For if "the ratio
of exchange " — in other words, the value — " of any two
commodities will be determined by a kind of struggle
between the conditions of consumption and production,"
which is the temporary higgling of the market, influenced
by supply and demand on either side, and " value is pro-
portional to the cost of production," we are merely landed
where the classical school of economists placed us 80 years
ago. We have, in fact, what Jevons himself calls " the
well-known and almost self-evident law that articles which
can be produced in greater or less quantity exchange in
proportion to their cost of production. The ratio of ex-
change of commodities will, as a fact, conform in the long
run to the cost of production."

FINAL FUTILITY OF FINAL UTILITY 271

And again, " Thus we have proved " — by certain math-
ematical formulae — " that commodities will exchange in
any market in the ratio of the quantities produced by the
same quantity of labour. But as the increment of labour
considered is always the final one, our equation also ex-
presses the truth that articles will exchange in quantities
inversely as the cost of production of the most costly por-
tions, i. e., the last portion added."

The sentence italicised by Jevons is most unscientifically
and incorrectly expressed. If, for example, in an open
market, say for typewriters, " the last portion added " is
more cheaply produced than all the rest, then beyond all
question this last portion, if added in sufficient quantity,
will reduce the exchange value of all similar articles to its
own lower level in comparison with other articles whose
cost of production remains stationary. But all this is
temporarily determined by the higgling of the market.
The law that commodities exchange on the average in rela-
tion to the quantity of simple, abstract, social human labour
embodied in them, asserts itself in despite of fluctuation.

No attempt whatever is made by our Professor, be it
observed, to analyse this " cost of production," this " quan-
tity of labour." Jevons takes the phrase as he found it and
leaves it there. Jevons was wholly ignorant of German,
an ignorance which his followers have for the most part
themselves assiduously cultivated. Yet it might have been
thought that, by the year 1879, Jevons would have heard
of the celebrated system of Marx, based upon simple,
abstract, social human labour as the measure of the value
of commodities in exchange; of the mehrwerth theory
growing out of it; of the complete analysis of the cate-
gories of capital and the circulation of commodities which
followed; and even of the admirable criticisms on Adam

272 THE ECONOMICS OF SOCIALISM

Smith, Eicardo, the Physiocrats, and others which are now
to be found in the second German volume. Apparently
he had not.

At any rate, Professor Jevons was content with the old
confusions, and made no effort to clear them up. " Fixed
and Circulating Capital " he supplements by such a mean-
ingless phrase as " Free and Invested Capital " ; but of
Constant Capital, Variable Capital, Money Capital, Goods
Capital, Circulation Capital, in addition to Fixed and Cir-
culating Capital, he and his followers still seem to be
equally ignorant, regardless of the flood of light which
Marx's subtle and exhaustive investigations have thrown
upon the whole sphere of the production and circulation of
commodities in modern society.

With labour it is the same. The value of labour is
spoken of as if it had not been shown conclusively that
labour has no value, that labour can have no value, apart
from the commodities in which it is embodied. " I hold
labour," he says, " to he essentially variable, so that its
value must he determined hy the value of the produce, not
the value of the produce hy that of the labour." Which
means — what ? That the labour of a Zulu embodied in a
diamond is worth more than the labour of the same Zulu
for an equal time embodied in cane sugar? I am glad I
am not called upon to answer.

But Jevons actually jumbles up the productive labourers
with barristers, merchants, schoolmasters, and the like!
The exertion of vital force which incorporates labour in
commodities he puts on the same economic plane as the
exertion of vital force to secure the acquittal of a mur-
derer, or the successful placing on the market of a large
parcel of adulterated goods. Old Sir William Petty taught
him better than that more than two hundred years ago.

FINAL FUTILITY OF FINAL UTILITY 273

For the father of modern political economy speaks of such
" labourers " as these as persons " who properly and orig-
inally earn nothing from the public, being only a kind of
gamesters who play with one another for the labours of
the poor, yielding of themselves no fruit at all." But a
Professor of Political Economy at the University of
Oxford, at the end of the reign of Queen Victoria, who
could write as if the labour of a lawyer is the same in kind
as the labour of an artisan, who also was quite ignorant of
the meaning of social human labour in its simple, abstract
form, was not a man likely to learn from a genuine thinker
on Political Economy of the reign of Charles IT.

Professor Jevons himself, I may note, made no distinc-
tion whatever between labour-power and labour. Yet
labour-power is the value-creating commodity, which the
capitalist buys, like other commodities on the market, and
pays for in the form of money wages; and labour is the
measure of the value of the commodities produced, in
excliange with other commodities. Professor Alfred
Marshall takes the distinction, without a word of acknowl-
edgment, from Marx, but does not know what to do with it
when he has got it. Do what he would, however, he could
not possibly make a greater mess of his analysis than his
master, Professor Jevons, did before him.

For instance, Jevons says : " The view which I accept
concerning the rate of wages is not more difficult to com-
prehend than the current one. It is that the wages of a
working-man are ultimately coincident with what he pro-
duces after the deduction of rent, taxes and the interest on
capital." Is not that luminous ? The wages of " a work-
ing-man " are what he can get, after landlord, government
and (shall we say?) banker have scrambled for their
portions !

274 THE ECONOMICS OF SOCIALISM

To begin with, in our present form of production, no
human being can tell what any single working-man has
produced. It is quite impossible to differentiate his single
bit of social work from the mass in which it is blended and
lost. How much further forward, therefore, are we for
this? But in his other explanations, Jevons is much less
clear even than Adam Smith or Quesnay ; for he omits alto-
gether to take into consideration the "constant capital,"
the raw materials, the incidental materials, &c., which,
though changed in form, appear, unchanged in value, in
the complete product. Are we to understand that this
belongs to " a working-man " ? Of course not.

But such foolish omissions are only of a piece with the
astounding statement which follows : " The fact that the
workers are not their own capitalists introduces com-
plexity into the problem " ! ! The fact that the workers,
as a class, are not themselves capitalists, as a class, that
they do not own and control their own means of produc-
tion and exchange and pay themselves their own wages, this
fact " introduces complexity " into the solution of the
problem of modern production; in which all the means
and instruments of production are in the hands of the
capitalists and the workers have only their labour-power
to sell. If I had tried to invent nonsense in order to have
the pleasure of fathering it upon the late Professor, I am
confident that I could not have hit upon anything so in-
describably silly as this. Yet this is the genius before
whose shrine our University Professors of Political Econ-
omy still prostrate themselves !

If, however. Professor Jevons showed himself incon-
sistent, incapable, and confused in his theories of value in
exchange, labour, and capital, he was equally at a loss
when he came to the discussion of practical questions. His

FINAL FUTILITY OF FINAL UTILITY 275

foolish utterances on the exhaustion of our coal supply
have long since been forgotten. His speculations on the
depreciation of gold have been absurdly falsified. His
analysis of the problems connected with money has not
advanced us a single step. His remarks about gluts and
commercial crises are ridiculously weak.

This last, I know, is a very tender place with economists
of Professor Jevons' school. For what has " the master "
said? "Overproduction is not possible in all branches of
industry at once, but it is possible in some as compared
with others." Now, as a matter of fact, the history of the
commercial crises of the last century, if it throws into
relief one point more clearly than another, proves that over-
production, or glut, in all branches of industry at once —
a complete industrial crisis owing to social causes in every
department of industry — is not only possible but inev-
itable.

How to explain these recurring crises? Jevons was
quite incapable of doing it. His " fiual utility " gave him
no clue, and his followers, save in cases where they convey
without acknowledgment from others, are as much at sea as
he was himself. But — not to be beaten at once, he went
off out of our social arrangements — the very idea of the
antagonisms between social production and individual
exchange, between commodities and money, between pro-
duction for use and production for profit, never entered his
mind — he went off, I say, out of our social arrangements,
and even out of our planet, right away to the sun, the
source, he thought, of economic as of other light. It was
the spots on the sun that did all the mischief ! Unluckily
for this hypothesis — but really it is not necessary to deal
further with that ridiculous aberration. His own followers
are ashamed of the nonsense, and I only refer to it now as

276 THE ECONOMICS OF SOCIALISM

further evidence of the utter futility of his own system.
Fortunately, the entire theory of commercial crises has
been worked out by a very different school of thinkers, and
Jevons' " Commercial Crises and Sun Spots " may be left
to gather dust on its neglected shelf, until some writer,
with nothing better to do, thinks it worth while to publish
a monograph on " The Strange Hallucinations of Professors
of Political Economy."

Professor Alfred Marshall has likewise his pretty little
excursion into the realms of fancy in that huge tome of his
that elucidates not a single problem which he takes upon
himself to solve. Professor Marshall's hallucination as-
sumes the shape of " Consumers' Rent."

This learned gentleman from Oxford teaches the young
gentlemen at Cambridge that if they would rather pay £1
for a halfpenny box of matches than go without lucifers
they pocket a Consumers' Pent to the tune of 19s. lli/2<i!
This fallacy arises directly out of the notion that "final
utility " or " esteem " constitutes the measure of value.
When, however, the consumers, whether they be happy
young undergraduates at Trinity, or luckless dockers at the
East-end of London, grope in their breeches' pocket for the
19s. lli/2d., which is their just rent for having been able
to buy matches so much below their " final utility," they
will appreciate the humour of the learned professor at its
true exchange value.

" But for the honour of the thing now," said an Irish-
man (whom I take to have been a lineal ancestor of Mr.
George Bernard Shaw) when he was conveyed to a ball in
a sedan-chair with no bottom to it — " but for the honour
of the thing now, bedad, I might just as well have been
walking ! "

What now are the tests of really scientific method in

FINAL FUTILITY OF FINAL UTILITY 277

Economics, as in every other department of human knowl-
edge? Rigid and logical analysis, accurate induction,
luminous and pregnant hypothesis, masterly synthetic veri-
fication, preparation of the ground for reasonable forecast.
On every one of these points Professor Jevons is
markedly deficient. His analysis is absolutely worthless;
his induction is loose and useless; his working hypothesis
is " conspicuous by its absence " ; having nothing to verify,
his verification is unattempted; while forecast on his lines
is utterly hopeless. The school of economists which has
followed closely in his footsteps has been as barren of im-
provement or discovery as he was himself. Only when
they have abandoned his crude and ill-digested common-
places in favour of a widely different method, have his
pupils done any good work whatever. The Final Futility,
of Final Utility is conclusively proved by the utter incapac-
ity of any thorough-going Jevonian to give a reasoning
explanation of the daily working of the capitalist system
of production and exchange. Surely it is high time that,
at whatever expense to individual reputations, this involved
and bootless theory should be generally recognised as the
jumble of confusion which it is.

CHAPTER XII

SYNTHESIS OP ANALYSIS

Such an analysis as that which it has been my endeavour
to put in a compendious shape in the foregoing pages neces-
sarily leads those who adopt it as a correct exposition of the
main features of modem industrial society to consider the
steps which can be consciously and advantageously taken
towards the organisation of national and international pro-
duction and distribution on a co-operative instead of on a
competitive basis.

Manifestly, the many antagonisms of our existing social
system, arising out of the initial antagonism between social
production and individual ownership and exchange, cannot
be harmonised, so long as there is a wage-paying class and
a wage-receiving class. All, therefore, who wish to solve
the difficulties which at present face us must recognise that
a complete economic and social revolution can alone give
the desired result.

This economic and social revolution is even now being
prepared by the inherent weakness of the capitalist system,
which has already seen its best days. The capitalist class
itself has conclusively shown that it is unable to handle
the great means and instruments of production and distri-
bution to the general advantage of the community. Periods
of wild inflation and ruinous depression ; overcrowded towns
and deserted country; luxury above and starvation below;
physical improvement of the well-to-do class accompanied
by continuous deterioration and enfeeblement of a large

278

SYNTHESIS OF ANALYSIS 279

portion of the working-class ; monopoly extending, yet the
powers of the State used against the people — such are a
few of the more obvious shortcomings of fully-developed
capitalism which are preparing its downfall in every
country.

How to anticipate this downfall, and to ward off if pos-
sible the danger of an intermediate period of anarchy,
should be the thought and work of economists and states-
men in every country. No doubt, in view of the deplorable
social conditions of our time, it is a matter of little concern
to the scientific sociologist whether the inevitable change
takes place peacefully or tempestuously.

We ourselves take no account to-day of the horrors of
the barbarian invasion of the Roman Empire ; of the whole-
sale slaughterings of conquering Mohammedanism in East
and West; of the turmoil and ruffianism of the Middle
Ages ; or of the piracy and slaving by white men in North
and South America and Asia which fitly ushered in the
capitalist epoch. So it will be with those who come after
us. The dwellers under international organised commun-
ism will assuredly not trouble themselves to count the
numbers of those who fell in the preceding conflicts, or to
discriminate between the people who died from actual vio-
lence and those who simply rotted out of existence in the
bloody peace of our present class war.

But such a conscious advance as Socialists advocate, even
though it may not relieve society from the physical strug-
gles which have accompanied or preceded other epochs of
crucial change, will at least tend to shorten the period of
disturbance and to lay the foundations for a solid recon-
struction.

That capital must be destroyed before any thorough
reorganisation can take place is certain. This does not

280 THE ECONOMICS OF SOCIALISM

mean, however, that the great means and instruments of
making and distributing wealth should be destroyed. Not
at all. Capital expresses class-ownership and production
for profit as the dominant economic and social system.
Its destruction only involves the change from indi\ddual
or company ownership to the ownership of the Community
at large. Wagedom being finally done away with by the
abolition of capital, industrial Communism will at once
take its place.

Now the only way in which this can be peacefully
brought about, assuming that no cataclysm occurs, is
through the agency of the democratic Community as the
organised power of the whole people. Each department
of industry or distribution which becomes a Public Service
is already approaching to the Socialist form. To the form,
I say, because, as in the case of the Post Office in all
countries, the spirit of Socialism is wholly absent. Instead
of co-operative organisation for the general advantage, we
have to-day remuneration on the competitive scale and
overwork, in the lower grades of the department, for the
benefit of the dominant class.

This arises, not from the nature of the case, but from the
determination of that dominant class not to give up its
position and privileges, and from the ignorance and apathy
of the wage-earners, as well without as within the ranks of
the department. There is no economic reason why this
great public service in particular, with its wide national
connections and international ramifications, should not
form the nucleus of a great co-operative system. All its
members and their families need food, clothing, and house-
room, all render useful service in return for these and other
necessaries of life; and the genuine co-operative methods

SYNTHESIS OF ANALYSIS 281

of supply once set on foot in any of the public services
would speedily spread to others.

During the war department after department of industry
and distribution was brought under collective control and
administration. But for the efforts of the Government to
" keep the existing system in being " by upholding the
monopoly banks, at one end of the scale, and the wasteful
small distributors at the other, peaceful reconstruction, in
the interest of the whole community, on co-operative lines,
would have been carried much farther. Even as it was
the war could not have been won on the old capitalist
lines.

In order to help in the beneficial national advance the
great Co-operative Societies who supply between one-fourth
and one-third of the population twice offered to place their
entire organisation at the disposal of the Government. A
similar proposal was made during the miners' strike. All
these suggestions were declined. It is clear nevertheless
that along these lines, in conjunction with the organised
forces of labour the most effective and beneficial co-ordina-
tion of existing competitive anarchy can be brought about.
Unfortunately, since the Armistice and the Peace, the
dominant class has done its utmost to return to the old
chaotic profiteering system and has succeeded so far in
subordinating the management of the community to the
control of the Trusts, now more powerful than ever. This
policy, though temporarily successful, must ere long lead
to the absorption of monopolies by the Co-operative Com-
monwealth.

Wherever, in fact, the company form on a large scale
has been attained, either in production or distribution,
there the economic development has already reached the

282 THE ECOXOMICS OF SOCIALISM

point at which the State can easily step in and advan-
tageously substitute a public service for a shareholders'
organisation or monopoly. And those great enterprises
which, from their inception, have been in the form of a
joint-stock company are obviously those which lend them-
selves most naturally to this change.

Railways and canals, for example, being the main
arteries of transport and communication in every civilised
country, would be far better in the possession of the public
at large, as are the highways and bridges which it has been
the policy everj'where of late years to free from turnpikes
and toll-bars. Such functions as those now fulfilled by
railways can never be safely left in private hands.

This is being recognised both in England and America,
where railway companies have been allowed more latitude
than anywhere else. The virtual monopoly of transport
which they possess is so manifestly a government within a
government, and so opposed to the public interest, that the
demand for nationalisation and socialisation, that is, for
their conversion into a co-operative public service, is daily
growing on both sides of the Atlantic, and finds acceptance
among members of the capitalist class itself.

Assuming such nationalisation and socialisation to be
carried out to the fullest extent, it by no means follows, of
course, that, except in form, we should be any nearer to
the institution of Social-Democracy, seeing that in coun-
tries where the railways are already national property
capitalism reigns supreme. But the machinery for co-
operation is so far made ready for immediate use, and the
area of possible peaceful transition is so greatly widened,
that the abolition of wages and the co-operative apportion-
ment of wealth could be easily set on foot.

Similarly with coal and oil mines. Coal is a necessary

SYNTHESIS OF ANALYSIS 283

of modem industrial life, and, as in the case of the rail-
ways, many of the dominant class who regard Social-
Democracy with horror have been frightened by coal
strikes, and the consequent stoppage of trade, into
advocacy of the collective acquisition aL'l management of
coal mines in the interest of the whole community. The
same reasoning applies with almost equal force to the great
monopoly of mineral oil. The production and distribution
of both is controlled by companies, and there is assuredly
no economic difficulty to be overcome in their appropriation
by tbe people at large.

Here again the area of possible co-operative production
and distribution would again be greatly extended, as these
branches of industry became public services instead of
company monopolies.

The conversion of the factory industry in its various
departments of cotton, wool, iron, leather, liquors, etc.,
presents greater difficulty. But here, likewise, there is now
no longer any economic obstacle to be overcome. On the
contrary, the economic forms are manifestly ready — and
this applies in an equal degree to the great distributing
stores owned by limited companies — for the transforma-
tion from competition and production and distribution for
profit, to co-operatiou and production and distribution for
use. Eaw materials and goods of all kinds would then be
produced and warehoused in publicly owned and communal
stores for the service of all who formed part of the co-
operative commonwealth. The moment, in short, men's
minds become capable of understanding the real problem
to be solved around them that problem is virtually on the
high road to solution in so far as all these large organisa-
tions are concerned.

A more serious question is presented by the land; and

284 THE ECONOMICS OF SOCIALISM

the reorganisation of the great fundamental industry of
agriculture on a co-operative basis is the most difficult
problem of all. In no country has agriculture attained
the company form except in a few isolated instances. In
no nation except in England have the peasants been com-
pletely uprooted from the soil; though the tendency for
population everywhere is to migrate from the rural dis-
tricts to the large towns. Each nation must inevitably
settle this as other matters in accordance with its historic
growth and the stage of its economic development.

Where the population is still attached to the soil, as in
France, Germany, Italy, and generally on the Continent of
Europe, or where it has lately settled in the country dis-
tricts, as in the United States and the Colonies, it is
manifest that the difficulties to be met are quite different
from those which have to be faced and dealt with in Eng-
land. Yet in both cases the establishment of farming and
market-gardening, as an industry to be worked with the
best possible machinery' and scientific appliances in co-
operative union and alternation with other industries, is
obviously the end to be aimed at. Nor are the obstacles
so great as might at first sight appear. Though there can
be no immediate progression from the company to the
public service as in other cases, the moment co-operation
and communism begin to replace competition and wage-
slavery the tendency of agriculture will be towards the
same organisation as obtains in the other departments of
social work.

It is the necessity for treating all the agencies of pro-
duction and distribution as portions of the next great
national development which constitutes mere muuicipalisa-
tion a danger in the near future. To put gas, water,
tramways, and so on under the control of the municipali-

SYNTHESIS OP ANALYSTS 285

ties may mean better and cheaper administration under
capitalist conditions. But the tendency of those who fix
upon municipalities as the limit is to crystallise the towns
as they are.

Instead of doing this, the first object of Socialism must
of necessity be to break down the barriers between country
and town and spread the population out into the rural
districts; not for the purpose of remaining isolated and
immovably planted on the soil, but as a portion of the
active life of the whole community according to the seasons ;
the town forming the centres of manufacture and handi-
craft and the gathering-places for the higher instruction
and amusement. That the greater part of our modem
cities will have to be completely destroyed is at any rate
clear to all who bear in mind tliat fresh air is a necessity
for healthy existence.

Such reorganisation on progressive Social-Democratic,
Co-operative lines may but too probably be interrupted by
the economic and social collapse and cataclysm which some
of us fear will overtake the peoples uninstructed as to its
real meaning, and unprepared to deal capably with its
results. In any case, however, tlie wbole civilised world
will inevitably be forced, sooner or later, to act together in
the reconstitution of the future. The class war knows no
national boundaries, the markets of our day are the markets
of the world. As mankind has advanced in its economic
and social progression from tlie gens and the tribe to the
province, the municipality, the nation, so the change from
the social production of commodities by wage-slaves, and
the exchange for profit under the control of individuals,
have broken down the boundaries of nationality, and the
next stage will be international social production and social
exchange of articles of use without profit. Economics, in

286 THE ECONOMICS OF SOCIALISM

the main, though by no means wholly, guide the course of
human development, and the most careful economic
analysis of our present society shows us that, partly con-
sciously and partly unconsciously, the greatest transforma-
tion of the ages has already begun.

That transformation must inevitably entail the complete
overthrow of capitalist production of commodities for
profit, and, therefore, the payment of wages for the pur-
chase of labour-power. Then production for use by the
social services of the whole adult community, having com-
mand over nature and the social creation of wealth, by
processes infinitely greater than any ever before at the
disposal of mankind, will substitute the freedom of organ-
ised co-operation for the slavery of competitive anarchy.

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