The Funds of Progress
By this time, I imagine, the reader will be wondering how these modern
ambitions are to be financed. For at the core of all the spiritual
demands of the labor movement there is a perfectly frank desire for
more wealth. The consumer attempting to pull down prices and jack
up quality is making the same demand from another angle. And all
through society there runs an increasing agitation for better cities,
for a more attractive countryside, for enlarged schools, for health
campaigns, for a thousand elements of civilization which cost money and
pay in happiness. Where is this money to come from? It must come, says
the radical, out of unearned wealth.
But what is unearned wealth? Rent of land, says the single taxer; the
tariff tax, says the free trader; watered stock, inherited fortunes,
speculative profits, monopoly prices,--these have been named; rent,
interest, and dividends, say the socialists. Most employers would point
to the wages of inefficient workingmen.
There is one item of agreement: a fund of wealth exists which to-day is
being diverted into the pockets of those who do no adequate service--we
may call that fund the Social Surplus. It is made up of all the leaks,
the useless payments, the idle demands, the inefficiency, the extortion
and parasitism of industrial life. This surplus is the legitimate fund
of progress.
It is quite clear that no sane man wishes to attack the economic life
of a nation in any way that would make it less productive. So when
editorial writers and financial experts cry out that a certain tax will
ruin industry, they are making a charge which would be convincing if
it were true. But the trouble is that nine times out of ten they are
either dishonest or superstitious. They complain on every occasion
with the slightest provocation. They have cried “wolf” so often that
reformers don’t listen any more. Business has a way of shouting
before it is hurt, and pretending that the least little thing is the
sack of the world. Every labor law, every business regulation, every
insignificant tariff change calls forth clouds of gloom pierced by a
shriek that panic is upon us. It is a pity, for the chief effect of
this latent hysteria is to neutralize whatever wisdom business men
have to give. Now in the years to come, we shall have to cut into the
unearned surplus of industry. If it is done wisely, the attack will
be confined to what is really unearned. But the opinions of business
men may be no index of the truth. They will, I fear, make just as
much commotion over a tax that hits the surplus as over one that hits
production itself. When we attack the parasite they will say it is the
tree.
Yet the modern business man is actually beginning to locate portions
of the surplus. The worker who loafs is the first to catch his eye;
then the inefficient worker. So business men are advocating industrial
education as a way of making labor more productive. To employ a less
productive worker when a more efficient one is available would be
just so much waste. In large business there is a constant effort to
cut down costs, and one of the vaunted achievements of the trusts has
been to eliminate a host of middlemen, drawing profits for work that
need not be done under a proper organization. Then too, a big item in
many business houses is rent paid to a landlord. The more progressive
manufacturers are beginning to wonder whether the cost of government
couldn’t be shifted on to these landlords, who seem to be a very
unproductive class. So the single tax makes headway among business men,
under the slogan “Untax industry.”
This effort to organize out of existence the unproductive is what is
meant by an attack on “unearned” wealth. Wherever you can substitute
a machine for a man, a good worker for a poor one, a few salaried
managers for an army of jobbers, you have located some of the social
surplus. The trusts have been the leaders in this work. They have given
us a definition of unearned income. It is a payment for an unnecessary
service.
Take the case against the landlord. There are people who say that no
individual has a right to own any portion of the globe. The earth
belongs to all the people born on to it. But that is one of those
unimpeachable sentiments which mean very little in practice. In the
early days on this continent it would probably have been impossible to
open up the West unless land was given away to the settler. There is no
sense then in describing the economic rent some of those settlers took
as unearned wealth. The case against the landlord is made out only when
society has some better way of administering its natural resources. If
New York City were capable of managing its land, then landlordism in
New York City would have become unnecessary and parasitic. But if the
city isn’t capable of that task, if it can, on the other hand, spend
wisely twenty per cent. of the ground values, then landlordism has
become twenty per cent. parasitic.
Take the charge of the socialist that not only rent of land but
interest on capital is unearned. Most socialists seem to imagine that
interest is in its very nature a useless payment. The idea is clearly
too simple for the facts. Interest would be unearned if society had
devised some means of creating capital that didn’t require saving by
individuals. To a certain extent society has done that. For example,
when a city starts to build a subway it needs capital. It can go to the
bankers, but it will have to pay a very high rate of interest. It may
be that the city could do its own banking and secure the money at a
lower rate of interest. In that case the difference between the lower
and the higher rate would represent unearned wealth. Now the time may
come, I am inclined to think it is sure to come, when the government
will be operating the basic industries, railroads, mines, and so forth.
It will be possible then to finance government enterprise out of the
profits of its industries, to eliminate interest, and substitute
collective saving.
There is no blanket case against the landlord or the capitalists.
The socialist contention stands or falls by men’s ability to propose
industrial methods which operate without the need of paying rent
or interest. The landlord is an old-fashioned instrument to be
superseded as fast as a less costly one can be devised. He is like the
stage-coach, useless only when the railroad is possible. He is like the
jobber, useless when he is no longer needed. He is like the telegraph,
too costly when the wireless is possible. He is like the $100,000 man
on a salary, unnecessary when better and less expensive men are ready
to do the work.
This it seems to me is the way we shall locate the funds of progress.
When a reform administration comes into power it generally begins by
cutting out the sinecures, consolidating jobs, substituting competent
for incompetent officials. The money saved can be devoted to social
purposes. Well, a very capable administration does not step there. It
may eliminate the contractor, and do government work directly, and save
a great deal of money in the process. If it has wider plans, it may
look for new sources of wealth, as Lloyd George did in England, it may
begin to tap the rent of land. Governments can eat more and more into
unearned wealth by income taxes, graded drastically, by inheritance
taxes on large fortunes. If these funds are spent for civilization
they will not impair industry, they will on the contrary increase
its efficiency. The state may encroach continuously. The question at
issue always is whether the state can spend the money more wisely than
the private individual. Could the government make better use of Mr.
Carnegie’s huge fortune than Mr. Carnegie does?--that is the problem.
Are there better uses to which it might be put than those which Mr.
Carnegie has in mind? If there are, then the government is entirely
justified in substituting itself for Mr. Carnegie as a dispenser of
libraries and peace palaces.
The more competent government becomes, the wider its outlook and
the surer its method, the more surplus it will find available. The
community is engaged in a competition with rich men as to which can
make the better use of the nation’s wealth. There is no question of
inalienable rights. It is a question of good use and bad use, wise use
and foolish use. When Mr. Rockefeller founded the Rockefeller Institute
he did something which is wiser than most of what our government has
yet shown itself capable. But when millionaires invest in ropes of
pearls and flotillas of yachts they tempt the taxing power of even the
most stupid government.
The cry is sure to go up that all this is a proposal to destroy
“incentive.” A debater might reply quickly that there are no end
of “incentives” in the world to-day which ought by all means to be
destroyed. But the cry would not recur so regularly were there not a
genuine fear behind it. Men look at the industrial world to-day, and
find that it produces enormous quantities of goods. They reason that
any change would result in the production of less goods. That is the
logic of their fear.
Perhaps you think I’m unjust, that worldly men could not possibly
reason in so muddled a way. Well, leave the editorial writers and
the speech-making bankers. Go to the orthodox economists who talk
about incentive all the time. Prof. Marshall, for example, refers in
one place to “that measurement of motive which is the chief task of
economic science.” Obviously, if economics could perform such a task
it would be one of the most useful sciences in the world. The art of
life would have found a very solid basis if we could follow Marshall
and measure “the payment that is required to supply a sufficient
incentive.” But at no point in the whole field of political economy
is the withering effect of a bad method so evident as it is in the
very pages from which I am quoting. Marshall lays great stress on the
measurement of motive. He says that economics leads all the other
social sciences, because it deals not only with the _quality_ of human
motive but with _quantity, measurable in money_.
What ails that idea is that it conceals a vicious circle. Measure
motive in terms of money? If a man to-day receives a hundred dollars
for a piece of work, the measure of his motive is a hundred dollars.
Is it? That is just what remains to be proved. If you take the money
paid men to-day as a measure of motive, you assume what you started to
discover. For you set out to find what you need to pay him in order to
provide an incentive. You end by calling what you did pay him a measure
of motive. You have begged the question completely. It is as pure
a piece of sophistry as the statement that opium puts you to sleep
because it is an opiate.
Supposing you set out to discover how much food a man needs in order
to live. You meet a glutton and inquire about his diet. You then
announce that what this glutton eats is what this glutton needs. Would
you call that science? You meet an anemic person, register his diet,
and announce that the food he consumes is a measure of his needs. This
is literally what the orthodox economist does. He meets an economic
glutton, a millionaire, and discovers that this man built a railroad,
opened up new territory, and took fifty million dollars for the job.
That means, says the economist, that in order to provide sufficient
incentive for this magnificent enterprise fifty million dollars is
required. He meets a half-starved mill-worker, who produces cloth at
the rate of nine dollars a week. That proves, says the economist, that
you must pay nine dollars a week for this work; to pay any more would
be contrary to the principles of economics.
To say that economists measure motive in money is to say in roundabout
fashion that whatever is, is necessary; then, adding insult to
incompetence, to infer that whatever is, is right. Surely it is obvious
as sunlight that people’s incomes to-day have only a very slight
relation to the “payment that is required to supply a sufficient
incentive.” In the case of a boy who inherits eighty million dollars
from a father who inherited it from the grandfather, it is clear that
this income has nothing to do with incentive. Well, all through our
social system these crazy anomalies occur. Unskilled labor is bought in
the open market for a shabby keep and no provision for wear and tear.
Competitive wages are no index of motives: they measure what a man has
to take in order to live. Skilled labor does a bit better by organizing
a monopoly, and fighting for higher pay. The real directors of industry
are paid fixed salaries for their ability, and make fortunes “on
the side.” Inventive genius lives from hand to mouth, and some smart
person capitalizes its achievements. It pays better to own land than to
cultivate it, to draw dividends than to create them. The great fortunes
go to those who control the franchises, the forests, the water-powers,
the mines, not to the engineers, the administrators, and the workers
who are hired to use them. If I can “corner” the wheat supply, if I
can make food scarce, if I can contrive some new fraud or stimulate
some new madness in fashions, I can grow rich beyond the dreams of
honest labor. Money measure incentive: there is no real relation to-day
between money-making and useful work.
Power, position, pull, custom, weakness, oversupply, the class monopoly
of higher education, inheritance, accident, the strategy of industrial
war--these are the things which determine income--not the incentive
which is necessary. The work of the world is not done because the
producers get what stimulates them to their best effort. It is done
under the compulsion of circumstances, grounded in habit, and the lure
of big rewards is in the rarest cases a lure to human service. That
is why the industrial world is capable of tremendous reorganization
without impairing its efficiency. A better distribution of incomes
would increase that efficiency by diverting a great fund of wealth from
the useless to the useful members of society. To cut off the income of
the useless will not impair their efficiency. They have none to impair.
It will, in fact, compel them to acquire a useful function.
Now the working class has very excellent uses for money that it can
secure. It invests it directly in human life, in the food, clothing,
shelter, and recreation which are its basis. So the pressure of the
labor movement is a force that can make for a wiser use of wealth. If
employers find that they “cannot” pay higher wages, their real business
is not to resist labor, but to increase the efficiency of production
so that they can. They will have to learn to finance industry better,
they will have to eliminate the sinecures of their cousins and their
uncles, they will have to scale down capitalization, and do without the
hundred and one middlemen who extract a profit.
That is the only way they can meet the pressure of labor from one
side and of the consumer on the other. Both of those movements are
really demands for a wiser management of business. Both of them are
interested in industrial efficiency. This may seem a strange thing to
say in the face of labor’s hostility to labor-saving devices. But the
reason for the hostility is that labor at present gains very little,
almost nothing, by its increased productivity. When labor and the
consumer really share in industrial progress, as they will when they
are powerful enough, we shall have two forces constantly at work to
eliminate the parasite and abolish waste.
The commercial adventurer has no real interest in efficiency. Between
useful service and some mad freak the decisive point is which will
pay him the most. But consumers and workingmen are interested directly
in making industry produce the greatest quantity and the best quality
of goods at the least possible cost in effort. They are made poorer by
money devoted to producing useless luxuries. They pay all the cost of
waste, parasitism, and inefficiency. That is why the real progress of
industry is bound up intimately with their demands.
The more they press the better. I know how much this will harass the
business man. But his necessity will be the mother of invention. When
he finds that he faces on one side an organized labor movement, on
another the organized consumer, and on another the taxing power of the
state, when he is no longer able to cover waste by reducing wages or
raising prices, then he will have to devote himself more and more to
the real business of industrial management. He will begin to cut down
his extravagant selling costs, he will have to finance his enterprise
less expensively, he will have to squeeze out watered stock, he will
have to scale down futile salaries, do without some of his “side”
ventures, spend less time on the stock market, and give the best of his
thought to coördinating the industry.
These necessities will be the opportunity of the business man with a
scientific training. Already we are beginning to see that in the light
of its possibilities, industry to-day is inconceivably wasteful. The
raw product is won from the earth, it is transported hundreds of miles
over expensive railroads, it passes through ten or twenty different
manipulators, is manufactured, and passes again through an infinitely
complicated series of operations to the ultimate consumer. The great
water-power resources of this country are said to be not one-seventh
developed. Yet their primary power alone “exceeds our entire mechanical
power in use, would operate every mill, drive every spindle, propel
every train and boat, and light every city, town, and village in the
country.”[6] Coal burned on the American locomotive is estimated by the
Railway Age Gazette to be only 45% efficient. The whole conservation
movement in its infinite ramifications is an answer to the pressing
demands that people are making upon industry. So far in America we have
been spendthrifts with our resources, letting coal lie half mined,
skinning the forests, and obtaining by agriculture a yield that shames
us in the eyes of the European farmer.
The wealth exists to pay for democracy. Our dreams are not idle. We are
not a poor people who need fill our minds with gorgeous and impossible
visions. Labor can go ahead with its demands, the consumer with his, we
can enter upon social works to transform our sooty life into something
more worthy of our dignity. There are huge wastes to be eliminated,
parasitic incomes to be cut off, large classes of people to be turned
from useless into useful effort, great inventions to be utilized. But
these things will be done only if there is constant pressure on the
industrial system from those who work in it and live by it.