ECONOMIC LIBERALISM
There are two forms of Socialism with which Liberalism has nothing to
do. These I will call the mechanical and the official. Mechanical
Socialism is founded on a false interpretation of history. It attributes
the phenomena of social life and development to the sole operation of
the economic factor, whereas the beginning of sound sociology is to
conceive society as a whole in which all the parts interact. The
economic factor, to take a single point, is at least as much the effect
as it is the cause of scientific invention. There would be no world-wide
system of telegraphy if there was no need of world-wide
intercommunication. But there would be no electric telegraph at all but
for the scientific interest which determined the experiments of Gauss
and Weber. Mechanical Socialism, further, is founded on a false economic
analysis which attributes all value to labour, denying, confounding or
distorting the distinct functions of the direction of enterprise, the
unavoidable payment for the use of capital, the productivity of nature,
and the very complex social forces which, by determining the movements
of demand and supply actually fix the rates at which goods exchange with
one another. Politically, mechanical Socialism supposes a class war,
resting on a clear-cut distinction of classes which does not exist. Far
from tending to clear and simple lines of cleavage, modern society
exhibits a more and more complex interweaving of interests, and it is
impossible for a modern revolutionist to assail "property" in the
interest of "labour" without finding that half the "labour" to which he
appeals has a direct or indirect interest in "property." As to the
future, mechanical Socialism conceives a logically developed system of
the control of industry by government. Of this all that need be said is
that the construction of Utopias is not a sound method of social
science; that this particular Utopia makes insufficient provision for
liberty, movement, and growth; and that in order to bring his ideals
into the region of practical discussion, what the Socialist needs is to
formulate not a system to be substituted as a whole for our present
arrangements but a principle to guide statesmanship in the practical
work of reforming what is amiss and developing what is good in the
actual fabric of industry. A principle so applied grows if it has seeds
of good in it, and so in particular the collective control of industry
will be extended in proportion as it is found in practice to yield good
results. The fancied clearness of Utopian vision is illusory, because
its objects are artificial ideas and not living facts. The "system" of
the world of books must be reconstructed as a principle that can be
applied to the railway, the mine, the workshop, and the office that we
know, before it can even be sensibly discussed. The evolution of
Socialism as a practical force in politics has, in point of fact,
proceeded by such a reconstruction, and this change carries with it the
end of the materialistic Utopia.
Official Socialism is a creed of different brand. Beginning with a
contempt for ideals of liberty based on a confusion between liberty and
competition, it proceeds to a measure of contempt for average humanity
in general. It conceives mankind as in the mass a helpless and feeble
race, which it is its duty to treat kindly. True kindness, of course,
must be combined with firmness, and the life of the average man must be
organized for his own good. He need not know that he is being organized.
The socialistic organization will work in the background, and there will
be wheels within wheels, or rather wires pulling wires. Ostensibly there
will be a class of the elect, an aristocracy of character and intellect
which will fill the civil services and do the practical work of
administration. Behind these will be committees of union and progress
who will direct operations, and behind the committees again one or more
master minds from whom will emanate the ideas that are to direct the
world. The play of democratic government will go on for a time, but the
idea of a common will that should actually undertake the organization of
social life is held the most childish of illusions. The master minds can
for the moment work more easily through democratic forms, because they
are here, and to destroy them would cause an upheaval. But the essence
of government lies in the method of capture. The ostensible leaders of
democracy are ignorant creatures who can with a little management be set
to walk in the way in which they should go, and whom the crowd will
follow like sheep. The art of governing consists in making men do what
you wish without knowing what they are doing, to lead them on without
showing them whither until it is too late for them to retrace their
steps. Socialism so conceived has in essentials nothing to do with
democracy or with liberty. It is a scheme of the organization of life by
the superior person, who will decide for each man how he should work,
how he should live, and indeed, with the aid of the Eugenist, whether he
should live at all or whether he has any business to be born. At any
rate, if he ought not to have been born--if, that is, he comes of a
stock whose qualities are not approved--the Samurai will take care that
he does not perpetuate his race.
Now the average Liberal might have more sympathy with this view of life
if he did not feel that for his part he is just a very ordinary man. He
is quite sure that he cannot manage the lives of other people for them.
He finds it enough to manage his own. But with the leave of the
Superior he would rather do this in his own way than in the way of
another, whose way may be much wiser but is not his. He would rather
marry the woman of his own choice, than the one who would be sure to
bring forth children of the standard type. He does not want to be
standardized. He does not conceive himself as essentially an item in a
census return. He does not want the standard clothes or the standard
food, he wants the clothes which he finds comfortable and the food which
he likes. With this unregenerate Adam in him, I fear that the Liberalism
that is also within him is quite ready to make terms. Indeed, it incites
him to go still further. It bids him consider that other men are, on the
whole, very like himself and look on life in much the same way, and when
it speaks within him of social duty it encourages him to aim not at a
position of superiority which will enable him to govern his fellow
creatures for their own good, but at a spirit of comradeship in which he
will stand shoulder to shoulder with them on behalf of common aims.
If, then, there be such a thing as a Liberal Socialism--and whether
there be is still a subject for inquiry--it must clearly fulfil two
conditions. In the first place, it must be democratic. It must come from
below, not from above. Or rather, it must emerge from the efforts of
society as a whole to secure a fuller measure of justice, and a better
organization of mutual aid. It must engage the efforts and respond to
the genuine desires not of a handful of superior beings, but of great
masses of men. And, secondly, and for that very reason, it must make its
account with the human individual. It must give the average man free
play in the personal life for which he really cares. It must be founded
on liberty, and must make not for the suppression but for the
development of personality. How far, it may be asked, are these objects
compatible? How far is it possible to organize industry in the interest
of the common welfare without either overriding the freedom of
individual choice or drying up the springs of initiative and energy? How
far is it possible to abolish poverty, or to institute economic equality
without arresting industrial progress? We cannot put the question
without raising more fundamental issues. What is the real meaning of
"equality" in economics? Would it mean, for example, that all should
enjoy equal rewards, or that equal efforts should enjoy equal rewards,
or that equal attainments should enjoy equal rewards? What is the
province of justice in economics? Where does justice end and charity
begin? And what, behind all this, is the basis of property? What is its
social function and value? What is the measure of consideration due to
vested interest and prescriptive right? It is impossible, within the
limits of a volume, to deal exhaustively with such fundamental
questions. The best course will be to follow out the lines of
development which appear to proceed from those principles of Liberalism
which have been already indicated and to see how far they lead to a
solution.
We saw that it was the duty of the State to secure the conditions of
self-maintenance for the normal healthy citizen. There are two lines
along which the fulfilment of this duty may be sought. One would consist
in providing access to the means of production, the other in
guaranteeing to the individual a certain share in the common stock. In
point of fact, both lines have been followed by Liberal legislation. On
the one side this legislation has set itself, however timidly and
ineffectively as yet, to reversing the process which divorced the
English peasantry from the soil. Contemporary research is making it
clear that this divorce was not the inevitable result of slowly
operating economic forces. It was brought about by the deliberate policy
of the enclosure of the common fields begun in the fifteenth century,
partially arrested from the middle of the sixteenth to the eighteenth,
and completed between the reigns of George II and Queen Victoria. As
this process was furthered by an aristocracy, so there is every reason
to hope that it can be successfully reversed by a democracy, and that it
will be possible to reconstitute a class of independent peasantry as the
backbone of the working population. The experiment, however, involves
one form or another of communal ownership. The labourer can only obtain
the land with the financial help of the State, and it is certainly not
the view of Liberals that the State, having once regained the fee
simple, should part with it again. On the contrary, in an equitable
division of the fruits of agriculture all advantages that are derived
from the qualities or position of the soil itself, or from the
enhancement of prices by tariffs would, since they are the product of no
man's labour, fall to no man's share, or, what is the same thing, they
should fall to every man, that is, to the community. This is why Liberal
legislation seeks to create a class not of small landlords but of small
tenants. It would give to this class access to the land and would reward
them with the fruits of their own work--and no more. The surplus it
would take to itself in the form of rent, and while it is desirable to
give the State tenant full security against disturbance, rents must at
stated periods be adjustable to prices and to cost. So, while
Conservative policy is to establish a peasant proprietary which would
reinforce the voting strength of property, the Liberal policy is to
establish a State tenantry from whose prosperity the whole community
would profit. The one solution is individualist. The other, as far as it
goes, is nearer to the Socialist ideal.
But, though British agriculture may have a great future before it, it
will never regain its dominant position in our economic life, nor are
small holdings ever likely to be the prevalent form of agriculture. The
bulk of industry is, and probably will be, more and more in the hands
of large undertakings with which the individual workman could not
compete whatever instruments of production were placed in his hands. For
the mass of the people, therefore, to be assured of the means of a
decent livelihood must mean to be assured of continuous employment at a
living wage, or, as an alternative, of public assistance. Now, as has
been remarked, experience goes to show that the wage of the average
worker, as fixed by competition, is not and is not likely to become
sufficient to cover all the fortunes and misfortunes of life, to provide
for sickness, accident, unemployment and old age, in addition to the
regular needs of an average family. In the case of accident the State
has put the burden of making provision on the employer. In the case of
old age it has, acting, as I think, upon a sounder principle, taken the
burden upon itself. It is very important to realize precisely what the
new departure involved in the Old Age Pensions Act amounted to in point
of principle. The Poor Law already guaranteed the aged person and the
poor in general against actual starvation. But the Poor Law came into
operation only at the point of sheer destitution. It failed to help
those who had helped themselves. Indeed, to many it held out little
inducement to help themselves if they could not hope to lay by so much
as would enable them to live more comfortably on their means than they
would live in the workhouse. The pension system throws over the test of
destitution. It provides a certain minimum, a basis to go upon, a
foundation upon which independent thrift may hope to build up a
sufficiency. It is not a narcotic but a stimulus to self help and to
friendly aid or filial support, and it is, up to a limit, available for
all alike. It is precisely one of the conditions of independence of
which voluntary effort can make use, but requiring voluntary effort to
make it fully available.
The suggestion underlying the movement for the break up of the Poor Law
is just the general application of this principle. It is that, instead
of redeeming the destitute, we should seek to render generally available
the means of avoiding destitution, though in doing so we should
uniformly call on the individual for a corresponding effort on his part.
One method of meeting these conditions is to supply a basis for private
effort to work upon, as is done in the case of the aged. Another method
is that of State-aided insurance, and on these lines Liberal legislators
have been experimenting in the hope of dealing with sickness,
invalidity, and one portion of the problem of unemployment. A third may
be illustrated by the method by which the Minority of the Poor Law
Commissioners would deal with the case, at present so often full of
tragic import, of the widowed or deserted mother of young children.
Hitherto she has been regarded as an object of charity. It has been a
matter for the benevolent to help her to retain her home, while it has
been regarded as her duty to keep "off the rates" at the cost of no
matter what expenditure of labour away from home. The newer conception
of rights and duties comes out clearly in the argument of the
commissioners, that if we take in earnest all that we say of the duties
and responsibilities of motherhood, we shall recognize that the mother
of young children is doing better service to the community and one more
worthy of pecuniary remuneration when she stays at home and minds her
children than when she goes out charing and leaves them to the chances
of the street or to the perfunctory care of a neighbour. In proportion
as we realize the force of this argument, we reverse our view as to the
nature of public assistance in such a case. We no longer consider it
desirable to drive the mother out to her charing work if we possibly
can, nor do we consider her degraded by receiving public money. We
cease, in fact, to regard the public money as a dole, we treat it as a
payment for a civic service, and the condition that we are inclined to
exact is precisely that she should not endeavour to add to it by earning
wages, but rather that she should keep her home respectable and bring up
her children in health and happiness.
In defence of the competitive system two arguments have been familiar
from old days. One is based on the habits of the working classes. It is
said that they spend their surplus incomes on drink, and that if they
have no margin for saving, it is because they have sunk it in the
public-house. That argument is rapidly being met by the actual change of
habits. The wave of temperance which two generations ago reformed the
habits of the well-to-do in England is rapidly spreading through all
classes in our own time. The drink bill is still excessive, the
proportion of his weekly wages spent on drink by the average workman is
still too great, but it is a diminishing quantity, and the fear which
might have been legitimately expressed in old days that to add to wages
was to add to the drink bill could no longer be felt as a valid
objection to any improvement in the material condition of the working
population in our own time. We no longer find the drink bill heavily
increasing in years of commercial prosperity as of old. The second
argument has experienced an even more decisive fate. Down to my own time
it was forcibly contended that any improvement in the material condition
of the mass of the people would result in an increase of the birth rate
which, by extending the supply of labour, would bring down wages by an
automatic process to the old level. There would be more people and they
would all be as miserable as before. The actual decline of the birth
rate, whatever its other consequences may be, has driven this argument
from the field. The birth rate does not increase with prosperity, but
diminishes. There is no fear of over-population; if there is any
present danger, it is upon the other side. The fate of these two
arguments must be reckoned as a very important factor in the changes of
opinion which we have noted.
Nevertheless, it may be thought that the system that I have outlined is
no better than a vast organization of State charity, and that as such it
must carry the consequences associated with charity on a large scale. It
must dry up the sources of energy and undermine the independence of the
individual. On the first point, I have already referred to certain
cogent arguments for a contrary view. What the State is doing, what it
would be doing if the whole series of contemplated changes were carried
through to the end, would by no means suffice to meet the needs of the
normal man. He would still have to labour to earn his own living. But he
would have a basis to go upon, a sub-structure on which it would be
possible for him to rear the fabric of a real sufficiency. He would have
greater security, a brighter outlook, a more confident hope of being
able to keep his head above water. The experience of life suggests that
hope is a better stimulus than fear, confidence a better mental
environment than insecurity. If desperation will sometimes spur men to
exceptional exertion the effect is fleeting, and, for a permanence, a
more stable condition is better suited to foster that blend of restraint
and energy which makes up the tissue of a life of normal health. There
would be those who would abuse their advantages as there are those who
abuse every form of social institution. But upon the whole it is thought
that individual responsibility can be more clearly fixed and more
rigorously insisted on when its legitimate sphere is properly defined,
that is to say, when the burden on the shoulders of the individual is
not too great for average human nature to bear.
But, it may be urged, any reliance on external assistance is destructive
of independence. It is true that to look for support to private
philanthropy has this effect, because it makes one man dependent on the
good graces of another. But it is submitted that a form of support on
which a man can count as a matter of legal right has not necessarily the
same effect. Charity, again, tends to diminish the value of independent
effort because it flows in the direction of the failures. It is a
compensation for misfortune which easily slides into an encouragement to
carelessness. What is matter of right, on the other hand, is enjoyed
equally by the successful and the unsuccessful. It is not a handicap in
favour of the one, but an equal distance deducted from the race to be
run against fate by both. This brings us to the real question. Are
measures of the kind under discussion to be regarded as measures of
philanthropy or measures of justice, as the expression of collective
benevolence or as the recognition of a general right? The full
discussion of the question involves complex and in some respects novel
conceptions of economics and of social ethics to which I can hardly do
justice within the limits of this chapter. But I will endeavour to
indicate in outline the conception of social and economic justice which
underlies the movement of modern Liberal opinion.
We may approach the subject by observing that, whatever the legal
theory, in practice the existing English Poor Law recognizes the right
of every person to the bare necessaries of life. The destitute man or
woman can come to a public authority, and the public authority is bound
to give him food and shelter. He has to that extent a lien on the public
resources in virtue of his needs as a human being and on no other
ground. This lien, however, only operates when he is destitute; and he
can only exercise it by submitting to such conditions as the authorities
impose, which when the workhouse test is enforced means loss of liberty.
It was the leading "principle of 1834" that the lot of the pauper should
be made "less eligible" than that of the independent labourer. Perhaps
we may express the change of opinion which has come about in our day by
saying that according to the newer principle the duty of society is
rather to ensure that the lot of the independent labourer be more
eligible than that of the pauper. With this object the lien on the
common wealth is enlarged and reconstituted. Its exercise does not
entail the penal consequence of the loss of freedom unless there is
proved misfeasance or neglect on the part of the individual. The
underlying contention is that, in a State so wealthy as the United
Kingdom, every citizen should have full means of earning by socially
useful labour so much material support as experience proves to be the
necessary basis of a healthy, civilized existence. And if in the actual
working of the industrial system the means are not in actual fact
sufficiently available he is held to have a claim not as of charity but
as of right on the national resources to make good the deficiency.
That there are rights of property we all admit. Is there not perhaps a
general right _to_ property? Is there not something radically wrong with
an economic system under which through the laws of inheritance and
bequest vast inequalities are perpetuated? Ought we to acquiesce in a
condition in which the great majority are born to nothing except what
they can earn, while some are born to more than the social value of any
individual of whatever merit? May it not be that in a reasoned scheme of
economic ethics we should have to allow a true right of property in the
member of the community as such which would take the form of a certain
minimum claim on the public resources? A pretty idea, it may be said,
but ethics apart, what are the resources on which the less fortunate is
to draw? The British State has little or no collective property
available for any such purpose. Its revenues are based on taxation, and
in the end what all this means is that the rich are to be taxed for the
benefit of the poor, which we may be told is neither justice nor charity
but sheer spoliation. To this I would reply that the depletion of public
resources is a symptom of profound economic disorganization. Wealth, I
would contend, has a social as well as a personal basis. Some forms of
wealth, such as ground rents in and about cities, are substantially the
creation of society, and it is only through the misfeasance of
government in times past that such wealth has been allowed to fall into
private hands. Other great sources of wealth are found in financial and
speculative operations, often of distinctly anti-social tendency and
possible only through the defective organization of our economy. Other
causes rest in the partial monopolies which our liquor laws, on the one
side, and the old practice of allowing the supply of municipal services
to fall into private hands have built up. Through the principle of
inheritance, property so accumulated is handed on; and the result is
that while there is a small class born to the inheritance of a share in
the material benefits of civilization, there is a far larger class which
can say "naked we enter, naked we leave." This system, as a whole, it
is maintained, requires revision. Property in this condition of things
ceases, it is urged, to be essentially an institution by which each man
can secure to himself the fruits of his own labour, and becomes an
instrument whereby the owner can command the labour of others on terms
which he is in general able to dictate. This tendency is held to be
undesirable, and to be capable of a remedy through a concerted series of
fiscal, industrial, and social measures which would have the effect of
augmenting the common stock at the disposal of society, and so applying
it as to secure the economic independence of all who do not forfeit
their advantages by idleness, incapacity, or crime. There are early
forms of communal society in which each person is born to his
appropriate status, carrying its appropriate share of the common land.
In destroying the last relics of this system economic individualism has
laid the basis of great material advances, but at great cost to the
happiness of the masses. The ground problem in economics is not to
destroy property, but to restore the social conception of property to
its right place under conditions suitable to modern needs. This is not
to be done by crude measures of redistribution, such as those of which
we hear in ancient history. It is to be done by distinguishing the
social from the individual factors in wealth, by bringing the elements
of social wealth into the public coffers, and by holding it at the
disposal of society to administer to the prime needs of its members.
The basis of property is social, and that in two senses. On the one
hand, it is the organized force of society that maintains the rights of
owners by protecting them against thieves and depredators. In spite of
all criticism many people still seem to speak of the rights of property
as though they were conferred by Nature or by Providence upon certain
fortunate individuals, and as though these individuals had an unlimited
right to command the State, as their servant, to secure them by the free
use of the machinery of law in the undisturbed enjoyment of their
possessions. They forget that without the organized force of society
their rights are not worth a week's purchase. They do not ask themselves
where they would be without the judge and the policeman and the settled
order which society maintains. The prosperous business man who thinks
that he has made his fortune entirely by self help does not pause to
consider what single step he could have taken on the road to his success
but for the ordered tranquillity which has made commercial development
possible, the security by road, and rail, and sea, the masses of skilled
labour, and the sum of intelligence which civilization has placed at his
disposal, the very demand for the goods which he produces which the
general progress of the world has created, the inventions which he uses
as a matter of course and which have been built up by the collective
effort of generations of men of science and organizers of industry. If
he dug to the foundations of his fortune he would recognize that, as it
is society that maintains and guarantees his possessions, so also it is
society which is an indispensable partner in its original creation.
This brings us to the second sense in which property is social. There is
a social element in value and a social element in production. In modern
industry there is very little that the individual can do by his unaided
efforts. Labour is minutely divided; and in proportion as it is divided
it is forced to be co-operative. Men produce goods to sell, and the
rate of exchange, that is, price, is fixed by relations of demand and
supply the rates of which are determined by complex social forces. In
the methods of production every man makes use, to the best of his
ability, of the whole available means of civilization, of the machinery
which the brains of other men have devised, of the human apparatus which
is the gift of acquired civilization. Society thus provides conditions
or opportunities of which one man will make much better use than
another, and the use to which they are put is the individual or personal
element in production which is the basis of the personal claim to
reward. To maintain and stimulate this personal effort is a necessity of
good economic organization, and without asking here whether any
particular conception of Socialism would or would not meet this need we
may lay down with confidence that no form of Socialism which should
ignore it could possibly enjoy enduring success. On the other hand, an
individualism which ignores the social factor in wealth will deplete the
national resources, deprive the community of its just share in the
fruits of industry and so result in a one-sided and inequitable
distribution of wealth. Economic justice is to render what is due not
only to each individual but to each function, social or personal, that
is engaged in the performance of useful service, and this due is
measured by the amount necessary to stimulate and maintain the efficient
exercise of that useful function. This equation between function and
sustenance is the true meaning of economic equality.
Now to apply this principle to the adjustment of the claims of the
community on the one hand and the producers or inheritors of wealth on
the other would involve a discrimination of the factors of production
which is not easy to make in all instances. If we take the case of urban
land, referred to above, the distinction is tolerably clear. The value
of a site in London is something due essentially to London, not to the
landlord. More accurately a part of it is due to London, a part to the
British empire, a part, perhaps we should say, to Western civilization.
But while it would be impossible to disentangle these subsidiary
factors, the main point that the entire increment of value is due to one
social factor or another is sufficiently clear, and this explains why
Liberal opinion has fastened on the conception of site value as being
by right communal and not personal property. The monopoly value of
licensed premises, which is the direct creation of laws passed for the
control of the liquor traffic, is another case in point. The difficulty
which society finds in dealing with these cases is that it has allowed
these sources of wealth to pass out of its hands, and that property of
these kinds has freely passed from one man to another in the market, in
the belief that it stood and would stand on the same basis in law as any
other. Hence, it is not possible for society to insist on the whole of
its claim. It could only resume its full rights at the cost of great
hardship to individuals and a shock to the industrial system. What it
can do is to shift taxation step by step from the wealth due to
individual enterprise to the wealth that depends on its own collective
progress, thus by degrees regaining the ownership of the fruits of its
own collective work.
Much more difficult in principle is the question of the more general
elements of social value which run through production as a whole. We are
dealing here with factors so intricately interwoven in their operation
that they can only be separated by an indirect process. What this
process would be we may best understand by imagining for a moment a
thoroughgoing centralized organization of the industrial system
endeavouring to carry out the principles of remuneration outlined above.
The central authority which we imagine as endowed with such wisdom and
justice as to find for every man his right place and to assign to every
man his due reward would, if our argument is sound, find it necessary to
assign to each producer, whether working with hand or brain, whether
directing a department of industry or serving under direction, such
remuneration as would stimulate him to put forth his best efforts and
would maintain him in the condition necessary for the life-long exercise
of his function. If we are right in considering that a great part of the
wealth produced from year to year is of social origin, it would follow
that, after the assignment of this remuneration, there would remain a
surplus, and this would fall to the coffers of the community and be
available for public purposes, for national defence, public works,
education, charity, and the furtherance of civilized life.
Now, this is merely an imaginary picture, and I need not ask whether
such a measure of wisdom on the part of a Government is practically
attainable, or whether such a measure of centralization might not carry
consequences which would hamper progress in other directions. The
picture serves merely to illustrate the principles of equitable
distribution by which the State should be guided in dealing with
property. It serves to define our conception of economic justice, and
therewith the lines on which we should be guided in the adjustment of
taxation and the reorganization of industry. I may illustrate its
bearing by taking a couple of cases.
One important source of private wealth under modern conditions is
speculation. Is this also a source of social wealth? Does it produce
anything for society? Does it perform a function for which our ideal
administration would think it necessary to pay? I buy some railway stock
at 110. A year or two later I seize a favourable opportunity and sell it
at 125. Is the increment earned or unearned? The answer in the single
case is clear, but it may be said that my good fortune in this case may
be balanced by ill luck in another. No doubt. But, to go no further, if
on balance I make a fortune or an income by this method it would seem to
be a fortune or an income not earned by productive service. To this it
may be replied that the buyers and sellers of stocks are indirectly
performing the function of adjusting demand and supply, and so
regulating industry. So far as they are expert business men trained in
the knowledge of a particular market this may be so. So far as they
dabble in the market in the hope of profiting from a favourable turn,
they appear rather as gamblers. I will not pretend to determine which of
the two is the larger class. I would point out only that, on the face of
the facts, the profits derived from this particular source appear to be
rather of the nature of a tax which astute or fortunate individuals are
able to levy on the producer than as the reward which they obtain for a
definite contribution on their own part to production. There are two
possible empirical tests of this view. One is that a form of collective
organization should be devised which should diminish the importance of
the speculative market. Our principle would suggest the propriety of an
attempt in that direction whenever opportunity offers. Another would be
the imposition of a special tax on incomes derived from this source, and
experience would rapidly show whether any such tax would actually hamper
the process of production and distribution at any stage. If not, it
would justify itself. It would prove that the total profit now absorbed
by individuals exceeds, at least by the amount of the tax, the
remuneration necessary to maintain that particular economic function.
The other case I will take is that of inherited wealth. This is the main
determining factor in the social and economic structure of our time. It
is clear on our principle that it stands in quite a different position
from that of wealth which is being created from day to day. It can be
defended only on two grounds. One is prescriptive right, and the
difficulty of disturbing the basis of the economic order. This provides
an unanswerable argument against violent and hasty methods, but no
argument at all against a gentle and slow-moving policy of economic
reorganization. The other argument is that inherited wealth serves
several indirect functions. The desire to provide for children and to
found a family is a stimulus to effort. The existence of a leisured
class affords possibilities for the free development of originality, and
a supply of disinterested men and women for the service of the State. I
would suggest once again that the only real test to which the value of
these arguments can be submitted is the empirical test. On the face of
the facts inherited wealth stands on a different footing from acquired
wealth, and Liberal policy is on the right lines in beginning the
discrimination of earned from unearned income. The distinction is
misconceived only so far as income derived from capital or land may
represent the savings of the individual and not his inheritance. The
true distinction is between the inherited and the acquired, and while
the taxation of acquired wealth may operate, so far as it goes, to
diminish the profits, and so far to weaken the motive springs, of
industry, it is by no means self-evident that any increase of taxation
on inherited wealth would necessarily have that effect, or that it would
vitally derange any other social function. It is, again, a matter on
which only experience can decide, but if experience goes to show that
we can impose a given tax on inherited wealth without diminishing the
available supply of capital and without losing any service of value, the
result would be net gain. The State could never be the sole producer,
for in production the personal factor is vital, but there is no limit
set by the necessities of things to the extension of its control of
natural resources, on the one hand, and the accumulated heritage of the
past, on the other.
If Liberal policy has committed itself not only to the discrimination of
earned and unearned incomes but also to a super-tax on large incomes
from whatever source, the ground principle, again, I take to be a
respectful doubt whether any single individual is worth to society by
any means as much as some individuals obtain. We might, indeed, have to
qualify this doubt if the great fortunes of the world fell to the great
geniuses. It would be impossible to determine what we ought to pay for a
Shakespere, a Browning, a Newton, or a Cobden. Impossible, but
fortunately unnecessary. For the man of genius is forced by his own
cravings to give, and the only reward that he asks from society is to
be let alone and have some quiet and fresh air. Nor is he in reality
entitled, notwithstanding his services, to ask more than the modest
sufficiency which enables him to obtain those primary needs of the life
of thought and creation, since his creative energy is the response to an
inward stimulus which goads him on without regard to the wishes of any
one else. The case of the great organizers of industry is rather
different, but they, again, so far as their work is socially sound, are
driven on more by internal necessity than by the genuine love of gain.
They make great profits because their works reach a scale at which, if
the balance is on the right side at all, it is certain to be a big
balance, and they no doubt tend to be interested in money as the sign of
their success, and also as the basis of increased social power. But I
believe the direct influence of the lust of gain on this type of mind to
have been immensely exaggerated; and as proof I would refer, first, to
the readiness of many men of this class to accept and in individual
cases actively to promote measures tending to diminish their material
gain, and, secondly, to the mass of high business capacity which is at
the command of the public administration for salaries which, as their
recipient must be perfectly conscious, bear no relation to the income
which it would be open to him to earn in commercial competition.
On the whole, then, we may take it that the principle of the super-tax
is based on the conception that when we come to an income of some £5,000
a year we approach the limit of the industrial value of the
individual.[12] We are not likely to discourage any service of genuine
social value by a rapidly increasing surtax on incomes above that
amount. It is more likely that we shall quench the anti-social ardour
for unmeasured wealth, for social power, and the vanity of display.
These illustrations may suffice to give some concreteness to the
conception of economic justice as the maintenance of social function.
They serve also to show that the true resources of the State are larger
and more varied than is generally supposed. The true function of
taxation is to secure to society the element in wealth that is of social
origin, or, more broadly, all that does not owe its origin to the
efforts of living individuals. When taxation, based on these principles,
is utilized to secure healthy conditions of existence to the mass of the
people it is clear that this is no case of robbing Peter to pay Paul.
Peter is not robbed. Apart from the tax it is he who would be robbing
the State. A tax which enables the State to secure a certain share of
social value is not something deducted from that which the taxpayer has
an unlimited right to call his own, but rather a repayment of something
which was all along due to society.
But why should the proceeds of the tax go to the poor in particular?
Granting that Peter is not robbed, why should Paul be paid? Why should
not the proceeds be expended on something of common concern to Peter and
Paul alike, for Peter is equally a member of the community? Undoubtedly
the only just method of dealing with the common funds is to expend them
in objects which subserve the common good, and there are many directions
in which public expenditure does in fact benefit all classes alike.
This, it is worth noting, is true even of some important branches of
expenditure which in their direct aim concern the poorer classes.
Consider, for example, the value of public sanitation, not merely to the
poorer regions which would suffer first if it were withheld, but to the
richer as well who, seclude themselves as they may, cannot escape
infection. In the old days judge and jury, as well as prisoners, would
die of gaol fever. Consider, again, the economic value of education, not
only to the worker, but to the employer whom he will serve. But when all
this is allowed for it must be admitted that we have throughout
contemplated a considerable measure of public expenditure in the
elimination of poverty. The prime justification of this expenditure is
that the prevention of suffering from the actual lack of adequate
physical comforts is an essential element in the common good, an object
in which all are bound to concern themselves, which all have the right
to demand and the duty to fulfil. Any common life based on the
avoidable suffering even of one of those who partake in it is a life not
of harmony, but of discord.
But we can go further. We said at the outset that the function of
society was to secure to all normal adult members the means of earning
by useful work the material necessaries of a healthy and efficient life.
We can see now that this is one case and, properly understood, the
largest and most far reaching case falling under the general principle
of economic justice. This principle lays down that every social function
must receive the reward that is sufficient to stimulate and maintain it
through the life of the individual. Now, how much this reward may be in
any case it is probably impossible to determine otherwise than by
specific experiment. But if we grant, in accordance with the idea with
which we have been working all along, that it is demanded of all sane
adult men and women that they should live as civilized beings, as
industrious workers, as good parents, as orderly and efficient citizens,
it is, on the other side, the function of the economic organization of
society to secure them the material means of living such a life, and
the immediate duty of society is to mark the points at which such means
fail and to make good the deficiency. Thus the conditions of social
efficiency mark the minimum of industrial remuneration, and if they are
not secured without the deliberate action of the State they must be
secured by means of the deliberate action of the State. If it is the
business of good economic organization to secure the equation between
function and maintenance, the first and greatest application of this
principle is to the primary needs. These fix the minimum standard of
remuneration beyond which we require detailed experiment to tell us at
what rate increased value of service rendered necessitates corresponding
increase of reward.
It may be objected that such a standard is unattainable. There are
those, it may be contended, who are not, and never will be, worth a full
efficiency wage. Whatever is done to secure them such a remuneration
will only involve net loss. Hence it violates our standard of economic
justice. It involves payment for a function of more than it is actually
worth, and the discrepancy might be so great as to cripple society. It
must, of course, be admitted that the population contains a certain
percentage of the physically incapable, the mentally defective, and the
morally uncontrolled. The treatment of these classes, all must agree, is
and must be based on other principles than those of economics. One class
requires punitive discipline, another needs life-long care, a third--the
mentally and morally sound but physically defective--must depend, to its
misfortune, on private and public charity. There is no question here of
payment for a function, but of ministering to human suffering. It is, of
course, desirable on economic as well as on broader grounds that the
ministration should be so conceived as to render its object as nearly as
possible independent and self-supporting. But in the main all that is
done for these classes of the population is, and must be, a charge on
the surplus. The real question that may be raised by a critic is whether
the considerable proportion of the working class whose earnings actually
fall short, as we should contend, of the minimum, could in point of fact
earn that minimum. Their actual value, he may urge, is measured by the
wage which they do in fact command in the competitive market, and if
their wage falls short of the standard society may make good the
deficiency if it will and can, but must not shut its eyes to the fact
that in doing so it is performing, not an act of economic justice, but
of charity. To this the reply is that the price which naked labour
without property can command in bargaining with employers who possess
property is no measure at all of the addition which such labour can
actually make to wealth. The bargain is unequal, and low remuneration is
itself a cause of low efficiency which in turn tends to react
unfavourably on remuneration. Conversely, a general improvement in the
conditions of life reacts favourably on the productivity of labour. Real
wages have risen considerably in the last half century, but the
income-tax returns indicate that the wealth of the business and
professional man has increased even more rapidly. Up to the efficiency
minimum there is, then, every reason to think that a general increase of
wages would positively increase the available surplus whether that
surplus goes to individuals as profits or to the State as national
revenue. The material improvement of working-class conditions will more
than pay its way regarded purely as an economic investment on behalf of
society.
This conclusion is strengthened if we consider narrowly what elements of
cost the "living wage" ought in principle to cover. We are apt to assume
uncritically that the wages earned by the labour of an adult man ought
to suffice for the maintenance of an average family, providing for all
risks. It ought, we think, to cover not only the food and clothing of
wife and children, but the risks of sickness, accident, and
unemployment. It ought to provide for education and lay by for old age.
If it fails we are apt to think that the wage earner is not self
supporting. Now, it is certainly open to doubt whether the actual
addition to wealth made by an unskilled labourer denuded of all
inherited property would equal the cost represented by the sum of these
items. But here our further principle comes into play. He ought not to
be denuded of all inherited property. As a citizen he should have a
certain share in the social inheritance. This share should be his
support in the times of misfortune, of sickness, and of worklessness,
whether due to economic disorganization or to invalidity and old age.
His children's share, again, is the State-provided education. These
shares are charges on the social surplus. It does not, if fiscal
arrangements are what they should be, infringe upon the income of other
individuals, and the man who without further aid than the universally
available share in the social inheritance which is to fall to him as a
citizen pays his way through life is to be justly regarded as
self-supporting.
The central point of Liberal economics, then, is the equation of social
service and reward. This is the principle that every function of social
value requires such remuneration as serves to stimulate and maintain its
effective performance; that every one who performs such a function has
the right, in the strict ethical sense of that term, to such
remuneration and to no more; that the residue of existing wealth should
be at the disposal of the community for social purposes. Further, it is
the right, in the same sense, of every person capable of performing some
useful social function that he should have the opportunity of so doing,
and it is his right that the remuneration that he receives for it should
be his property, _i. e._ that it should stand at his free disposal
enabling him to direct his personal concerns according to his own
preferences. These are rights in the sense that they are conditions of
the welfare of its members which a well-ordered State will seek by every
means to fulfil. But it is not suggested that the way of such fulfilment
is plain, or that it could be achieved at a stroke by a revolutionary
change in the tenure of property or the system of industry. It is,
indeed, implied that the State is vested with a certain overlordship
over property in general and a supervisory power over industry in
general, and this principle of economic sovereignty may be set side by
side with that of economic justice as a no less fundamental conception
of economic Liberalism. For here, as elsewhere, liberty implies control.
But the manner in which the State is to exercise its controlling power
is to be learnt by experience and even in large measure by cautious
experiment. We have sought to determine the principle which should
guide its action, the ends at which it is to aim. The systematic study
of the means lies rather within the province of economics; and the
teaching of history seems to be that progress is more continuous and
secure when men are content to deal with problems piecemeal than when
they seek to destroy root and branch in order to erect a complete system
which has captured the imagination.
It is evident that these conceptions embody many of the ideas that go to
make up the framework of Socialist teaching, though they also emphasize
elements of individual right and personal independence, of which
Socialism at times appears oblivious. The distinction that I would claim
for economic Liberalism is that it seeks to do justice to the social and
individual factors in industry alike, as opposed to an abstract
Socialism which emphasizes the one side and an abstract Individualism
which leans its whole weight on the other. By keeping to the conception
of harmony as our clue we constantly define the rights of the individual
in terms of the common good, and think of the common good in terms of
the welfare of all the individuals who constitute a society. Thus in
economics we avoid the confusion of liberty with competition, and see no
virtue in the right of a man to get the better of others. At the same
time we are not led to minimize the share of personal initiative,
talent, or energy in production, but are free to contend for their claim
to adequate recognition. A Socialist who is convinced of the logical
coherence and practical applicability of his system may dismiss such
endeavours to harmonize divergent claims as a half-hearted and illogical
series of compromises. It is equally possible that a Socialist who
conceives Socialism as consisting in essence in the co-operative
organization of industry by consumers, and is convinced that the full
solution of industrial problems lies in that direction, should in
proportion as he considers the psychological factors in production and
investigates the means of realizing his ideal, find himself working back
along the path to a point where he will meet the men who are grappling
with the problems of the day on the principles here suggested, and will
find himself able to move forward in practice in the front ranks of
economic Liberalism. If this is so, the growing co-operation of
political Liberalism and Labour, which in the last few years has
replaced the antagonism of the 'nineties, is no mere accident of
temporary political convenience, but has its roots deep in the
necessities of Democracy.
FOOTNOTE:
[12] It is true that so long as it remains possible for a certain order
of ability to earn £50,000 a year, the community will not obtain its
services for £5,000. But if things should be so altered by taxation and
economic reorganization that £5,000 became in practice the highest limit
attainable, and remained attainable even for the ablest only by effort,
there is no reason to doubt that that effort would be forthcoming. It is
not the absolute amount of remuneration, but the increment of
remuneration in proportion to the output of industrial or commercial
capacity, which serves as the needed stimulus to energy.