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DISTRIBUTIVE JUSTICE
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DISTRIBUTIVE JUSTICE
The Right and Wrong of Our Present Distribution of Wealth
by
JOHN A. RYAN, D.D.
Associate Professor of Political Science at
the Catholic University of America; Professor
of Economics at Trinity College; Author of
"A Living Wage," "Alleged Socialism of the
Church Fathers," Joint Author with Morris
Hillquit of "Socialism: Promise or Menace?"
New York
The Macmillan Company
1916
All rights reserved
Nihil Obstat.
_REMIGIUS LAFORT, S. T. D.,
Censor_.
Imprimatur.
_JOHN CARDINAL FARLEY,
Archbishop of New York_.
COPYRIGHT, 1916,
BY THE MACMILLAN COMPANY
Set up and electrotyped. Published November, 1916.
TO
ARCHBISHOP IRELAND
IN
ADMIRATION AND GRATITUDE
PREFACE
Five of the nine members of the late Federal Commission on Industrial
Relations united in the declaration that the first cause of industrial
unrest is, "unjust distribution of wealth and income." In all
probability this judgment is shared by the majority of the American
people. Regarding the precise nature and extent of the injustice,
however, there is no such preponderance of opinion. Even the makers of
ethical and economic treatises fail to give us anything like uniform
or definite pronouncements concerning the moral defects of the present
distribution. While the Socialists and the Single Taxers are
sufficiently positive in their statements, they form only a small
portion of the total population, and include only an insignificant
fraction of the recognised authorities on either ethics or economics.
The volume in hand represents an attempt to discuss systematically and
comprehensively the justice of the processes by which the product of
industry is distributed. Inasmuch as the product is actually
apportioned among landowners, capitalists, business men, and
labourers, the moral aspects of the distribution are studied with
reference to these four classes. While their rights and obligations
form the main subject of the book, the effort is also made to propose
reforms that would remove the principal defects of the present system
and bring about a larger measure of justice.
Many treatises have been written concerning the morality of one or
other element or section of the distributive process; for example,
wages, interest, monopoly, the land question; but, so far as the
author knows, no attempt has hitherto been made to discuss the moral
aspects of the entire process in all its parts. At least, no such task
has been undertaken by any one who believes that the existing economic
system is not inherently unjust. That the present essay in this field
falls far short of adequate achievement the author fully realises, but
he is sustained by the hope that it will provoke discussion, and move
some more competent person to till the same field in a more thorough
and fruitful way.
JOHN A. RYAN.
The Catholic University of America,
Washington, D. C., June 14, 1916.
CONTENTS
PREFACE vii
INTRODUCTORY CHAPTER: THE ELEMENTS AND SCOPE OF THE PROBLEM xiii
General References xvii
SECTION I
THE MORALITY OF PRIVATE LANDOWNERSHIP AND RENT
CHAPTER PAGE
I THE LANDOWNER'S SHARE OF THE NATIONAL PRODUCT 3
Economic Rent Always Goes to the Landowner 4
Economic Rent and Commercial Rent 5
The Cause of Economic Rent 6
II LANDOWNERSHIP IN HISTORY 8
No Private Ownership in Pre-Agricultural Conditions 10
How the Change Probably Took Place 12
Limited Character of Primitive Common Ownership 14
Private Ownership General in Historical Times 15
Conclusions from History 17
III THE ARGUMENTS AGAINST PRIVATE LANDOWNERSHIP 19
Arguments by Socialists 19
Henry George's Attack on the Title of First Occupancy 21
His Defence of the Title of Labour 24
The Right of all Men to the Bounty of the Earth 30
The Alleged Right of the Community to Land Values 39
IV PRIVATE OWNERSHIP THE BEST SYSTEM OF LAND TENURE 48
The Socialist Proposals Impracticable 48
Inferiority of the Single Tax System 51
V PRIVATE LANDOWNERSHIP A NATURAL RIGHT 56
Three Principal Kinds of Natural Rights 57
Private Landownership Indirectly Necessary for
Individual Welfare 59
Excessive Interpretations of the Right of Private
Landownership 61
The Doctrine of the Fathers and the Theologians 62
The Teaching of Pope Leo XIII 64
VI LIMITATIONS OF THE LANDOWNER'S RIGHT TO RENT 67
The Tenant's Right to a Decent Livelihood 69
The Labourer's Claim Upon the Rent 71
VII DEFECTS OF THE EXISTING LAND SYSTEM 74
Landownership and Monopoly 75
Excessive Gains from Private Landownership 80
Exclusion from the Land 90
VIII METHODS OF REFORMING OUR LAND SYSTEM 94
The Leasing System 95
Public Agricultural Lands 97
Public Ownership of Urban Land 98
Appropriating Future Increases of Land Value 100
Some Objections to the Increment Tax 102
The Morality of the Proposal 108
The German and British Increment Taxes 114
Transferring Other Taxes to Land 117
The Morality of the Plan 120
Amount of Taxes Practically Transferable 122
The Social Benefits of the Plan 127
A Supertax on Large Holdings 130
References on Section I 133
SECTION II
THE MORALITY OF PRIVATE CAPITAL AND INTEREST
IX THE NATURE AND THE RATE OF INTEREST 137
Meaning of Capital and Capitalist 137
Meaning of Interest 138
The Rate of Interest 141
X THE ALLEGED RIGHT OF LABOUR TO THE ENTIRE PRODUCT
OF INDUSTRY 145
The Labour Theory of Value 146
The Right of Productivity 149
XI THE SOCIALIST SCHEME OF INDUSTRY 152
Socialist Inconsistency 152
Expropriating the Capitalists 154
Inefficient Industrial Leadership 158
Inefficient Labour 162
Attempted Replies to Objections 162
Restricting Individual Liberty 168
XII ALLEGED INTRINSIC JUSTIFICATIONS OF INTEREST 171
Attitude of the Church Toward Interest on Loans 172
Interest on Productive Capital 175
The Claims of Productivity 177
The Claims of Service 181
The Claims of Abstinence 182
XIII SOCIAL AND PRESUMPTIVE JUSTIFICATIONS OF INTEREST 187
Limitations of the Sacrifice Principle 187
The Value of Capital in a No-Interest Régime 188
Whether the Present Rate of Interest is Necessary 191
Whether at Least two Per Cent. is Necessary 193
Whether any Interest is Necessary 196
The State is Justified in Permitting Interest 199
Civil Authorisation not Sufficient for Individual
Justification 201
How the Interest-Taker is Justified 204
XIV CO-OPERATION A PARTIAL SOLVENT OF CAPITALISM 210
Reducing the Rate of Interest 211
Need for a Wider Distribution of Capital 213
The Essence of Co-operative Enterprise 214
Co-operative Credit Societies 216
Co-operative Agricultural Societies 217
Co-operative Mercantile Societies 220
Co-operation in Production 222
Advantages and Prospects of Co-operation 228
References on Section II 233
SECTION III
THE MORAL ASPECT OF PROFITS
XV THE NATURE OF PROFITS 237
The Functions and Rewards of the Business Man 237
The Amount of Profits 239
Profits in a Joint-Stock Company 241
XVI THE PRINCIPAL CANONS OF DISTRIBUTIVE JUSTICE 243
The Canon of Equality 243
The Canon of Needs 244
The Canon of Efforts and Sacrifice 246
The Canon of Productivity 247
The Canon of Scarcity 250
The Canon of Human Welfare 252
XVII JUST PROFITS IN CONDITIONS OF COMPETITION 254
The Question of Indefinitely Large Profits 255
The Question of Minimum Profits 258
The Question of Superfluous Business Men 260
XVIII THE MORAL ASPECT OF MONOPOLY 262
Surplus and Excessive Profits 263
The Question of Monopolistic Efficiency 265
Discriminative Underselling 267
Exclusive-Sales Contracts 270
Discriminative Transportation Arrangements 272
Natural Monopolies 273
Methods of Preventing Monopolistic Injustice 275
Legalised Price Agreements 277
XIX THE MORAL ASPECTS OF STOCKWATERING 279
Injurious Effects of Stockwatering 281
The Moral Wrong 284
The "Innocent" Investor 286
Magnitude of Overcapitalisation 288
XX THE LEGAL LIMITATION OF FORTUNES 291
The Method of Direct Limitation 292
Limitation Through Progressive Taxation 296
The Proper Rate of Income and Inheritance Taxes 299
Effectiveness of Such Taxation 300
XXI THE DUTY OF DISTRIBUTING SUPERFLUOUS WEALTH 303
The Question of Distributing Some 303
The Question of Distributing All 308
Some Objections 311
A False Conception of Welfare and Superfluous Goods 314
The True Conception of Welfare 316
References on Section III 318
SECTION IV
THE MORAL ASPECTS OF WAGES
XXII SOME UNACCEPTABLE THEORIES OF WAGE-JUSTICE 323
I The Prevailing-Rate Theory 323
Not in Harmony with Justice 325
II Exchange-Equivalence Theories 326
The Rule of Equal Gains 326
The Rule of Free Contract 328
The Rule of Market Value 330
The Mediæval Theory 332
A Modern Variation of the Mediæval Theory 337
III Productivity Theories 340
Labour's Right to the Whole Product 341
Clark's Theory of Specific Productivity 347
Carver's Modified Version of Productivity 351
XXIII THE MINIMUM OF JUSTICE; A LIVING WAGE 356
The Principle of Needs 356
Three Fundamental Principles 358
The Right to a Decent Livelihood 360
The Claim to a Decent Livelihood from a Present
Occupation 362
The Labourer's Right to a Living Wage 363
When the Employer is Unable to Pay a Living Wage 366
An Objection and Some Difficulties 370
The Family Living Wage 373
Other Arguments in Favour of a Living Wage 376
The Money Measure of a Living Wage 378
XXIV THE PROBLEM OF COMPLETE WAGE JUSTICE 381
Comparative Claims of Different Labour Groups 381
Wages Versus Profits 388
Wages Versus Interest 390
Wages Versus Prices 393
Concluding Remarks 398
XXV METHODS OF INCREASING WAGES 400
The Minimum Wage in Operation 400
The Question of Constitutionality 405
The Ethical and Political Aspects 407
The Economic Aspect 408
Opinions of Economists 412
Other Legislative Proposals 416
Labour Unions 417
Organisation Versus Legislation 420
Participation in Capital Ownership 423
References on Section IV 425
XXVI SUMMARY AND CONCLUSION 426
The Landowner and Rent 426
The Capitalist and Interest 427
The Business Man and Profits 428
The Labourer and Wages 430
Concluding Observations 431
INDEX 453
INTRODUCTORY CHAPTER
THE ELEMENTS AND SCOPE OF THE PROBLEM
Distributive justice is primarily a problem of incomes rather than of
possessions. It is not immediately concerned with John Brown's railway
stock, John White's house, or John Smith's automobile. It deals with
the morality of such possessions only indirectly and under one aspect;
that is, in so far as they have been acquired through income.
Moreover, it deals only with those incomes that are derived from
participation in the process of production. For example; it considers
the labourer's wages, but not the subsidies that he may receive
through charity or friendship. Its province is not the distribution of
all the goods of the country among all the people of the country, but
only the distribution of the products of industry among the classes
that have taken part in the making of these products.
These classes are four, designated as landowners, capitalists,
undertakers or business men, and labourers or wage earners. The
individual member of each class is an _agent_ of production, while the
instrument or energy that he owns and contributes is a _factor_ of
production. Thus, the landowner is an agent of production because he
contributes to the productive process the factor known as land, and
the capitalist is an agent of production because he contributes the
factor known as capital; while the business man and the labourer are
agents not only in the sense that they contribute factors to the
process, but in the very special sense that their contributions
involve the continuous expenditure of human energy. Now the product of
industry is distributed among these four classes precisely because
they are agents of production; that is because they own and put at the
disposal of industry the indispensable factors of production. We say
that the agents of production "put the factors of production at the
disposal of industry," rather than "exercise or operate the factors,"
because neither the landowner nor the capitalist, as such, expend
continuous energy in the productive process. All that is necessary to
enforce a claim upon the product is to contribute an instrument or
factor without which production cannot be carried on.
The product distributed in any country during a single year is
variously described by economists as the national product, the
national income, the national dividend. It consists not merely of
material goods, such as houses, food, clothing, and automobiles, but
also of those non-material goods known as services. Such are the tasks
performed by the domestic servant, the barber, the chauffeur, the
public official, the physician, the teacher; or any other personal
service "that is valued, as material commodities are valued, according
to their selling prices." Even the services of the clergyman are
included in the national income or product, since they are paid for
and form a part of the annual supply of good things produced and
distributed within the country. In the language of the economist,
anything that satisfies a human want is a utility, and forms part of
the national wealth; hence there can be no sufficient reason for
excluding from the national income goods which minister to spiritual
or intellectual wants. The services of the clergyman, the actor, the
author, the painter, and the physician are quite as much a part of the
utilities of life as the services of the cook, the chambermaid, or the
barber; and all are as clearly utilities as bread, hats, houses, or
any other material thing. In a general way, therefore, we say that the
national product which is available for distribution among the
different productive classes comprises all the utilities, material
and non-material, that are produced through human agents and satisfy
human desires.
In the great majority of instances the product is not distributed in
kind. The wheat produced on a given farm is not directly apportioned
among the farmers, labourers, and landowners that have co-operated in
its production; nor are the shoes turned out by a given factory
divided among the co-operating labourers and capitalists; and it is
obvious that personal services cannot be returned to the persons that
have rendered them. Cases of partial direct distribution do, indeed,
occur; as when the tenant takes two-thirds and the landowner one-third
of the crop raised by the former on land belonging to the latter; or
when the miller receives his compensation in a part of the flour that
he grinds. To-day, however, such instances are relatively
insignificant. By far the greater part of the material product is sold
by the undertaker or business man, and the price is then divided
between himself and the other agents of production. All personal
services are sold, and the price is obtained by the performers
thereof. The farmer sells his wheat, the miller his flour, and the
barber his services. With the money received for his part in
production each productive agent obtains possession of such kinds and
amounts of the national product as his desires dictate and his income
will procure. Hence the distribution of the product is effected
through the conversion of producers' claims into money, and the
exchange of the latter for specific quantities and qualities of the
product.
While the national product as a whole is divided among the four
productive classes, not every portion of it is distributed among
actually distinct representatives of these classes. When more than one
factor of production is owned by the same person, the product will
obviously not go to four different classes of persons. For example;
the crop raised by a man on his own unmortgaged land, with his own
instruments, and without any hired assistance; and the products of the
small shopkeeper, tailor, and barber who are similarly self sufficient
and independent,--are in each case obtained by one person, and do not
undergo any actual distribution. Even in these instances, however,
there occurs what may be called _virtual_ distribution, inasmuch as
the single agent owns more than one factor, and performs more than one
productive function. And the problem of distributive justice in such
cases is to determine whether all these productive functions are
properly rewarded through the total amount which the individual has
received. Where the factors are owned by distinct persons, or groups
of persons, the problem is to determine whether each group is properly
remunerated for the single function that it has performed.
The problem of the morality of industrial incomes is obviously
complex. For example; the income of the farmer is sometimes derived
from a product which he must divide with a landowner and with
labourers; sometimes from a product which he shares with labourers
only; and sometimes from a product which he can retain wholly for
himself. The labourer's income arises sometimes out of a product which
he divides with other agents of production; sometimes out of a product
which he divides with other labourers as well as other agents; and
sometimes out of a product of which he receives the full money
equivalent. The complexity of the forces determining distribution and
income indicate a complexity in the forces affecting the morality of
income. Moreover, there is the more fundamental ethical question
concerning the titles of distribution: whether mere ownership of a
factor of production gives a just claim upon the product, as in the
case of the landowner and the capitalist; whether such a claim,
assuming it to be valid, is as good as that of the labourer and the
business man, who expend human energy in the productive process;
whether different kinds of productive activity should be rewarded at
different rates; and if so in what proportion. Why should the
capitalist receive six per cent., rather than two per cent., or
sixteen per cent.? Why should the locomotive engineer receive more
than the trackman? Why should not all persons be compensated equally?
Should all or any of the benefits of industrial improvements go to the
consumer? Such are typical questions in the study of distributive
justice. They are sufficient to give some idea of the magnitude and
difficulty of the problem.
Scarcely less formidable is the task of suggesting means to correct
the injustices of the present distribution. The difficulties in this
part of the field are indicated by the multiplicity of social remedies
that have been proposed, and by the fact that none of them has
succeeded in winning the adhesion of more than a minority of the
population. We shall be obliged not only to pass moral judgment upon
the most important of these proposals, but to indicate and advocate a
more or less complete and systematic group of such reforms as seem to
be at once feasible and righteous.
GENERAL REFERENCES
TAUSSIG: Principles of Economics. Macmillan; 1911.
DEVAS: Political Economy. Longmans; 1901.
HOBSON: The Industrial System. Longmans; 1909.
CLARK: The Distribution of Wealth. Macmillan; 1899.
SMART: The Distribution of Income. London; 1899.
WILLOUGHBY: Social Justice. Macmillan; 1900.
CARVER: Essays in Social Justice. Harvard University Press;
1915.
ELY: Property and Contract in Their Relations to the
Distribution of Wealth. Macmillan; 1914.
NEARING: Income. Macmillan; 1915.
STREIGHTOFF: The Distribution of Incomes in the United
States. Longmans; 1912.
WAGNER: Grundlegung der Nationaloekonomie. Leipzig;
1892-1894.
PESCH: Lehrbuch der Nationaloekonomie. Freiburg; 1905-1913.
ANTOINE: Cours d'Économie Sociale. Paris; 1899.
HITZE: Capital et Travail. Louvain; 1898.
HOLLANDER: The Abolition of Poverty. Houghton Mifflin
Company; 1914.
ELLWOOD: The Social Problem. Macmillan; 1915.
GARRIGUET: The Social Value of the Gospel. Herder; 1911.
PARKINSON: A Primer of Social Science. Devin-Adair Co.; 1913.
VERMEERSCH: Quaestiones de Justitia. Bruges; 1901.
KING: The Wealth and Income of the People of the United
States. Macmillan; 1915.
COMMISSION ON INDUSTRIAL RELATIONS. Final Report; 1915.
SECTION I
THE MORALITY OF PRIVATE LANDOWNERSHIP AND RENT DISTRIBUTIVE JUSTICE
CHAPTER I
THE LANDOWNER'S SHARE OF THE NATIONAL PRODUCT
That part of the national product which represents land, and is
attributed specifically to land, goes to the landowner. It is called
economic rent, or simply rent. We say that rent "is attributed
specifically to land," rather than "is produced specifically by land,"
because we do not know what proportion of the joint product of the
different factors of production exactly reflects the productive
contribution of any factor. Economic rent represents the productivity
of land in so far as it indicates what men are willing to pay for
land-use in the productive process. In any particular case rent comes
into existence because the land makes a commercially valuable
contribution to the product; and it goes to the landowner because this
is one of the powers or rights included in the institution of private
ownership. And the landowner's share is received by him precisely in
his capacity as landowner, and not because he may happen to be
labourer, farmer, or proprietor of agricultural capital.
It is perhaps superfluous to observe that not all land produces rent.
While almost all land is useful and productive, at least potentially,
there is in almost every locality some land which in present
conditions does not warrant men in paying a price for its use. If the
crop raised on very sandy soil is so small as to cover merely the
outlay for labour and capital, men will not pay rent for the use of
that soil. Yet the land has contributed something to the product.
Herein we have another indication that rent is not an adequate measure
of land productivity. It merely represents land value,--at a given
time, in given circumstances.
_Economic Rent Always Goes to the Landowner_
All land that is in use, and for the use of which men are willing to
pay a price yields rent, whether it is used by a tenant or by the
owner. In the latter case the owner may not call the rent that he
receives by that name; he may not distinguish between it and the other
portions of the product that he gets from the land; he may call the
entire product profits, or wages. Nevertheless the rent exists as a
surplus over that part of the product that he can regard as the proper
return for his labour, and for the use of his capital-instruments,
such as, horses, buildings, and machinery. If a farmer employs the
same amount and kind of labour and capital in the cultivation of two
pieces of land, one of which he owns, the other being hired from some
one else; if his net product is the same in both cases, say, 1,000
dollars; and if he must pay 200 dollars to the owner of the hired
land,--then, 200 of the 1,000 dollars that he receives from his own
land, is likewise to be attributed specifically to his land rather
than to his capital or labour. It is rent. While the whole product is
due in some degree to the productive power of land, 200 dollars of it
represents land value in the process of production, and goes to him
solely in his capacity as landowner. The rent that arises on land used
for building sites is of the same general character, and goes likewise
to the owner of the land. The owner of the site upon which a factory
is located may hire it to another for a certain sum annually, or he
may operate the factory himself. In either case he receives rent, the
amount that the land itself is worth for use, independently of the
return that he obtains for his expenditure of capital and labour. Even
when a person uses his land as a site for a dwelling which he himself
occupies, the land still brings him economic rent, since it affords
him something for which he would be obliged to pay if his house were
located on land of the same kind owned by some one else.
_Economic Rent and Commercial Rent_
It will be observed that the landowner's share of the product, or
economic rent, is not identical with commercial rent. The latter is a
payment for land and capital, or land and improvements, combined. When
a man pays nine hundred dollars for the use of a house and lot for a
year, this sum contains two elements, economic rent for the lot, and
interest on the money invested in the house. Assuming that the house
is worth ten thousand dollars, and that the usual return on such
investments is eight per cent., we see that eight hundred dollars goes
to the owner as interest on his capital, and only one hundred dollars
as rent for his land. Similarly the price paid by a tenant for the use
of an improved farm is partly interest on the value of the
improvements, and partly economic rent. In both cases the owner may
reckon the land as so much capital value, and the economic rent as
interest thereon, just as the commercial rent for the buildings and
other improvements is interest on their capital value; but the
economist distinguishes between them because he knows that they are
determined by different forces, and that the distinction is of
importance. He knows, for example, that the supply of land is fixed,
while the supply of capital is capable of indefinite increase. In many
situations, therefore, rent increases, but interest remains stationary
or declines. Sometimes, though more rarely, the reverse occurs. As we
shall see later, this and some other specific characteristics of land
and rent have important moral aspects; consequently the moralist
cannot afford to confuse rent with interest.
_The Cause of Economic Rent_
The cause of economic rent is the fact that land is limited relatively
to the demand for it. If land were as plentiful as air mere ownership
of some portion of it would not enable the owner to collect rent. As
landowner he would receive no income. If he cultivated his land
himself the return therefrom would not exceed normal compensation for
his labour, and normal interest on his capital. Since no one would be
compelled to pay for the use of land, competition among the different
cultivators would keep the price of their product so low that it would
merely reimburse them for their expenditures of capital and labour. In
similar conditions no rent would arise on building sites. The cause of
the _amount_ of rent may also be stated in terms of scarcity. At any
given time and place, the rent of a piece of land will be determined
by the supply of that kind of land relatively to the demand for it.
However, the demand itself will be regulated by the fertility or by
the location of the land in question. Two pieces of agricultural land
equally distant from a city, but of varying fertility, will yield
different rents because of this difference in natural productiveness.
Two pieces of ground of equal natural adaptability for building sites,
but at unequal distances from the centre of a city, will produce
different rents on account of their difference of location. The
absolute scarcity of land is, of course, fixed by nature; its relative
scarcity is the result of human activities and desires.
The definition of rent adopted in these pages, "what men are willing
to pay for the use of land," or, "what land is worth for use," is
simpler and more concrete, though possibly less scientific, than those
ordinarily found in manuals of economics, namely: "that portion of
the product that remains after all the usual expenditures for labour,
capital, and directive ability have been deducted;" or, "the surplus
which any piece of land yields over the poorest land devoted to the
same use, when the return from the latter is only sufficient to cover
the usual expenses of production."
The statement that all rent goes to the landowner supposes that, in
the case of hired land, the tenant pays the full amount that would
result from competitive bidding. Evidently this was not the case under
the feudal system, when rents were fixed by custom and remained
stationary for centuries. Even to-day, competition is not perfect, and
men often obtain the use of land for less than they or others might
have been willing to give. But the statement in question does describe
what tends to happen in a system of competitive rents.
Before discussing the morality of the landowner's income, and of rent
receiving, we may with profit glance at the history of land tenure.
Thus we shall get some idea, first, of the antiquity of the present
system, and, second, of its effects upon individual and social
welfare. Both these considerations have an important bearing upon the
moral problem; for length of existence creates a presumption in favour
of the social, and therefore the moral, value of any institution; and
past experience is our chief means of determining whether an
institution is likely to be socially beneficial, and therefore morally
right, in the future.