reference to banking and some other business relationships. Business
must be better with banking, apparently at least, when the buying and
the selling of drafts on the people of foreign countries is brisk than
when it is dull. It must be better, also, with exporters who draw the
drafts and sell them. The drawing and the selling of drafts against
foreign balances is surely a more profitable occupation when there is
an excess of exports to draw against than when the balance of trade is
the other way. It must be even more satisfactory in those connections
when the excess of exports is continuous.
But as matter of comprehensive Economics, in which not only bankers
and exporters but also all the other Wealth-producers of a country
are concerned, it cannot be true that a perpetual credit balance of
international trade is a favorable balance. In international trading,
as in trading between individuals (which, by the way, international
trading in the last analysis is), the aggregate of exports and of
imports must counter-balance. Otherwise the producers of the exports,
considered as a whole, must be engaged in foreign trade at a loss.
They give more Value than they get. Surely, trading at a loss is not
favorable trading.
Would a farmer prosper if every year he sold a thousand dollars’ worth
of his products and got back only eight hundred dollars’ worth of other
products? Wouldn’t that depend upon how much credit to him had piled up
in account-books as a result? If none, wouldn’t he have exchanged his
products at the rate of $10 for $8? How long would a farmer prosper if
he considered that kind of balance of trade as favorable?
Precisely so with international trading. The only difference is that
in the farmer illustration we have a solitary individual, whereas
in international trade we have many individuals grouped in national
wholes. In comprehensive Economics that difference is no difference at
all.
A credit balance between national communities is simply the difference
in Value remaining after all international trading to a given date
has been entered in the books of account. If that balance be on
the credit side of one of the nations, the creditor individuals of
the creditor nation may draw against it. To them it is a favorable
balance, in book-keeping terms. But if it is never to be paid off
with imports, which seems to be the aspiration of those who applaud
so-called “favorable balance of trade” theories, is it not in truth an
unfavorable balance?
If the reply be that the balance will be paid in gold, what difference
does that make in any comprehensive Economic sense? Gold itself is a
product of Labor applied to and upon Land. To import it in payment of
international balances would be precisely the same, Economically, as
importing other products of Labor.
Some private businesses may prosper through “favorable” balances
of trade, but Business everywhere and as a whole, Business in the
comprehensive sense of the science of Economics, must find “favorable”
balances of that unbalanced kind extremely unfavorable to the people of
every nation as a whole and to most producers individually.
International balances of trade are but aggregates of individual
balances. The favorableness or unfavorableness of either kind
depends upon difficulties of collection. If, for illustration, an
individual has a credit balance in his account at a bank, it is a
favorable balance provided he may “check it out” at will in payment
for products or services; but to the extent that obstacles to his
“checking out” are put in his way, the balance has an unfavorable
aspect. If the obstacles be prohibitive--a 100 per cent stamp tax, for
illustration,--the credit balance would be decidedly unfavorable. It
would be unfavorable in less degree only as the stamp-tax was reduced
from 100 per cent, down to 50 per cent or 25 per cent or 1 per cent.
The depositor would have sold more value than he could buy; that is,
he would have “exported” from his products more than he could “import”
from the products of others.
A like conclusion is inevitable in the aggregate of world trading. To
the extent that exports of Wealth are not offset by imports of Wealth,
to that extent every trading balance is unfavorable. The Economic
benefit of credit balances of all kinds, whether individually or in
community totals, depends upon ease of collection.
V. AN ILLUSTRATION OF THE PRODUCTIVE PROCESS
By means of the primary and the subsidiary categories described and
illustrated in this Lesson, all the tangled data of the Productive
Process in Economics may be readily unraveled. Consider for further
illustration the Productive phenomena involved in so simple a specimen
of Wealth (Artificial Objects) as a needle in the hands of a house-wife
engaged in mending family clothing.
She bought the needle at a retail store along with many other needles
gathered together in a bunch--a “paper of needles.”
How did that “paper of needles” get into the stock of the retail
store? It came with other commodities from a wholesale store. How? By
a railway train, on the complicated structure and management of which,
as well as upon the roadbed, the track and the station houses, a great
variety of Labor had been expended.
Where and how did the wholesale store get that needle? Directly or
indirectly, and by similar complicated methods of transportation, from
a needle factory.
How did the needle factory get it? Its workers made it. How? By means
of machinery, Artificial Products--Wealth used as Capital for the
production of further Wealth.
Of what did those workers make the needle? Steel. Where did the steel
come from? From transformations of iron in a steel mill. The iron? From
iron ore. The ore? From natural deposits in the earth.
By what magic was all that brought about? By an infinite variety
and complexity of specialized Labor, which, applied to a variety of
special kinds of Land (Natural Resources)--in country, town and
city,--produced all the Wealth (Artificial Objects) necessary for the
production of more Wealth, namely the Capital; and this consisted
of implements and structures made from and upon Land by Labor; of
implements and structures for the production of those implements and
structures, also made from and upon Land by Labor; of transportation
facilities of many kinds similarly made and operated. Also buildings
for stores as well as factories--all in a confusion of industrial
specialties that can be unraveled only by generalizing the details in
accordance with natural law as disclosed by the Basic Facts.
Let that unraveling be done and still we may be bothered by collateral
problems to which those details give rise--banking, for instance, and
book-keeping all along the productive lines.
To follow in detail the ramifications of the Production of that needle
from the first effort of Labor to which it owes its existence, to its
delivery at the retail store in a “paper of needles” to the house-wife
in whose deft hands we find it, would drive even a magician mad. But
all confusion is banished if we classify the multitudinous details
according to their natural characteristics respectively, as Labor, Land
and Wealth.
And as of the details of that needle’s production, so of all Economic
details, from least to greatest, from simplest to most complex,
throughout the labyrinthine intricacies of the Productive Process in
Economics. To study separately all the Economic constituents of even
the simplest civilized habitation and their respective relations to
it, Economically, one would need training in many different kinds of
specialties, from forestry to decoration. Yet systematic Economic
thinking assigns every Economic detail to three categories which
can be studied without risk of confusion. It need hardly be again
explained that those three categories are Labor, Land and Wealth. Every
constituent of such a habitation, no matter how minute, is assignable
for primary Economic study to one or another of those Basic Facts--to
Land for the site, and for all the rest, from architectural designing
to decorative completion, to composites of Land and Labor.
Likewise of every other human contrivance for human satisfactions.
In multitudinous detail it is an inexplicable mystery except to an
all comprehensive body of experts, and even to them if they ignore
the Basic Facts. Yet every complexity disappears when the details are
assigned to their appropriate natural categories of Man as the sole
producer, Natural Resources as the sole basis and source of production,
and Artificial Objects as the product; or, reverting to technical
Economic terms, when the confused details are appropriately assigned
to Labor as the Productive power, to Land as the basis and source of
Production, and to Wealth as the Product.
All Economic details, from least to greatest, from simplest to most
complex, from most familiar to most mysterious, throughout the
labyrinthine intricacies of the Productive Process in Economics, are
like the details in the Economic history of the house-wife’s needle of
our illustration. What the points of the compass are to navigation, or
the four fundamental divisions of arithmetic to mathematics, such are
the three Basic Facts to the Productive Process in Economics.
SIXTH LESSON
DISTRIBUTION
At the outset in this Lesson let the difference between Distribution of
Wealth and delivery of Wealth be again emphasized.
Delivery is part of the Productive Process to which the next preceding
Lesson was devoted. No Wealth is finally produced until, finished for
ultimate consumption, it has been produced to ultimate consumers by
final delivery.
Quite another thing is Distribution in the technical Economic sense. In
this sense Distribution is the apportionment of Labor-produced Wealth
in appropriate categories with reference to the Economic relationship
of Labor to Land--of Man to Natural Resources.
A better term than Distribution, since this term has been so much
abused by giving to it the sense of delivery by transportation (a mere
phase of Production), would probably be Division. But Distribution
of Wealth has too long served as the technical term for the Economic
division or sharing of Wealth, to be discarded offhand.
Although the Distribution of Wealth in appropriate shares, with
reference to the Economic relationship of Labor to Land, affects the
sharing of Wealth by individuals, it does not completely dictate either
the proportions or the magnitude of individual shares. These may be
determined not only by natural Economic law but also by purchase, by
common usage, by conventional inheritance statutes, by highway robbery,
by forgery, by burglary, by petty theft, by “confidence” tricks, by
lucky speculation or gambling games, by beggary, by “crooked business,”
by generous gifts, by legal distortions, by taxation, by a thousand
and one other influences, legitimate or illegitimate, outside the
jurisdiction of natural Economic law. Radically different are those
fundamental Economic apportionments in Distribution with reference to
the natural relations of Labor to Land.
Fundamentally, Economic Distribution is a twofold apportionment of
the Wealth produced by Labor from and upon Land, whereby one portion
is naturally allocated to Labor as its producer and the other to
Land-ownership as the controller of Natural Resources and sites.
Presumably, then, as Production of Wealth has two Basic factors--in
technical terms Labor and Land, in other terms Man and Natural
Resources--so Distribution of Wealth has two basic apportionments,
one corresponding to the Labor or Man factor in Production, the other
to the Land or Natural Resource factor--Wages for Labor, Rent for
permission to use Land.
That there can be neither Wages for Labor nor Rent for Land unless
Wealth has been produced, is a manifest law of nature. The nonexistent
being naturally indivisible, Production of Wealth must precede
Distribution of Wealth. Inasmuch, then, as Labor produces all Wealth
and without Labor no Wealth is or can be produced, some Wealth must
naturally be distributed or allocated to Labor as Wages before any can
be distributed or allocated to Land-ownership as Rent.
Consequently, the Wages allocation of Wealth demands consideration
first.
I. WAGES FOR LABOR
As with many another abuse of technical Economic terms, so colloquial
and business interpretations have distorted the significance of the
technical term Wages. Even Economic teachers allow their imaginations
to glide away from the comprehensive significance of this technical
term much as they do from its corresponding technical term Labor.
All too readily does conventional Economic thought, when considering
Wages, center upon the compensation which “shirt-sleeve” classes of
hired men bargain for, “salaries” taking the place of “wages” when
“white collar” workers cross the business line of vision. Still more
select levels of Labor are compensated with “fees,” “commissions,” or
“profits.” To thinking students, however, students of Economics who
recognize Economics as a science subject to natural law rather than a
grouping of arbitrary business customs--to such students all special
or mere conventional kinds of compensation for human service assemble
themselves naturally in the same fundamental category, and for clarity
of thought are always distinguished by the same technical term.
What the term for natural compensation out of human production for
human service in aid of production might better be, is of no importance
provided the term be treated distinctively. For Labor compensation
out of Labor-produced Wealth, Wages if treated distinctively is an
appropriate term, and its long time comprehensive use in Economics
entitles it to preference. Wages, then, the technical term in Economic
science for that natural allocation of some Wealth to Labor, which
produces all Wealth, demands primary consideration in any study of the
Economic phenomena of Wealth Distribution.
By natural Economic law all Wealth in Distribution goes to Wages as
compensation to Labor, up to the point at which differences in the
desirable qualities or locations (or both) of particular portions of
Land disclose relatively high and low opportunities for Production.
In those circumstances Wages for production on the superior Land would
be higher--a larger product of Wealth--than for the same Labor-power
expended on inferior Land. Consequently another natural law of
Economics becomes manifest. Rent for superior Natural Resources arises.
It is the difference between Labor productiveness on the poorest Land
in use and the productiveness of equal Labor-power on better Land.
Thus Rent has a place along with Wages in the primary Distribution of
Wealth. This Economic phenomenon is to be more definitely described
farther on. Meanwhile the phenomenon of Wages commands our principal
attention.
So long as Land freely offers equal opportunities for Production, the
category of Wages comprehends the whole product of Labor. It is only
as variations in the desirability of particular kinds and locations of
Land play a part in Production that Wages as a whole are distinguished
from total product. In those circumstances, however, the Wages category
embraces the entire Product less Rent for superior Land.
It is not to be inferred, though, that deductions for Rent necessarily
reduce Wages as a quantity. In normal circumstances the fact is the
reverse of that. Although Rent reduces the proportion of Wages to
Wealth it does not necessarily reduce the aggregate of Wages. On the
contrary, Wages may be more in quantity when normal Rent is deducted
from aggregate Wealth than before Rent arises. The reason is that
Rent takes of Wealth only a surplus which is measured by degrees of
superiority of the better over the poorest Land in demand.
Subject, then, to normal in contradistinction to arbitrary deductions
for Rent, the Wages allocation of Wealth is assignable to earners
in the Labor category in shares approximately proportionate to the
desirability of their respective services.
Subsidiary classifications of Wages are identified by more or less
descriptive terms for colloquial convenience and private accounting
purposes. Among these terms are “salaries,” “commissions,” “profits,”
“fees,” “labor costs,” and “dividends.” All of them are doubtless
convenient for keeping track of private business or other personal
details; nor are they objectionable for Economic research provided they
be not considered as primary or fundamental.
All such terms as “salaries,” “commissions,” “labor costs,” and the
like in private or business accounts, are in the Wages category of
Economics. “Profits” and “dividends” are mixed, very much as with
reference to the Productive Process in private and business accounts
Wealth and Land are mixed. “Profits” may be and they usually are made
up of a mixture of Wages for human service (Labor) and of Rent for
natural resources (Land). Convenient as such confused classifications
may be for account-keeping in private business affairs, or for other
manifestations of mere custom, they have no legitimate place in the
orderly categories of social Economics. However useful in business
accountings, which concern only the private interests of business
proprietors, they are intolerable in the science of Economics, which
concerns not only a proprietor, nor every proprietor, but all mankind.
Even for private accounting purposes there seems to be a wise tendency
among accountants toward more accurate assignments to normal Economic
categories. One business classification holds high Economic rank
deservedly. This is that subcategory of Wages known as Interest.
Interest may be rightly regarded as the Wages of Capital. This is
no play upon words, nor any confusion of Economic terms. It is a
necessary inference from manifest facts. Since Labor produces all
Wealth, and Capital is a distinct form of Wealth--Wealth devoted to
the production of further Wealth,--Labor is the producer of Capital;
and inasmuch as the use productively of Capital increases Wealth, a
share of that increase is properly assignable in Distribution to the
Distributive category called Wages, though for discriminative purposes
to a Wages subdivision. That subdivision is distinguished as Interest.
It is a subdivision in Distribution in perfect correspondence with that
subdivision of Wealth used in Production which is distinguished as
Capital. As subdivisions or secondary classifications, therefore, the
productive factor known as Capital and the corresponding Distributive
element known as Interest are legitimate Economic categories, provided
their Economic characteristic as products of Labor be not ignored nor
they be confused with Land and Rent. This proviso is often ignored,
however, as when Capital is classified with Land instead of Labor, and
Interest with Rent instead of Wages.
In connection with the subject of Wages, Taxation for the support of
Government demands passing consideration. If it be true, as indicated
in our Lesson on the Productive Process, that the legitimate activities
of Government belong in the Wealth production category as a Labor
factor, then the Economically legitimate income of Government, whether
through Taxation or otherwise, would seem to belong to the Distributive
category of Wages.
Controversies over Taxation take the form primarily of “Taxation
according to ability to pay” versus “Taxation according to financial
benefits conferred” upon the taxpayer by the social whole of which the
agent is Government.
The former contention--apportionment of Taxation according to ability
to pay--puts Government in the position of a highwayman whose “loot”
corresponds to so much of the proportionate property of his victims as
he is able to extort. But how shall taxes be measured in proportion
to governmental or social benefits received in financial form by the
taxpayer? A sound Economic discrimination might be made by levying upon
Rent only, instead of both Rent and Wages as is now customary.
But by what right could Government levy upon Rent only if its
claims to an income are as a producer of Wealth functioning in the
category of Labor, the natural compensation for which is not Rent
but Wages? The answer would seem to be that inasmuch as all Wealth
is produced by Labor from and upon Land, and as the Rent allocation
of Wealth attaches to Land-ownership--Land itself making no claim
to compensation,--Government might with Economic consistency exact
its Wages as a factor in Production from the receivers, actual and
potential, of Rent, whose ownership of the Land, valueless without
Governmental protection, rises in Value with Economic progress and
falls in Value with Economic decline.
Such an adjustment would exact no more of Economic science than
appropriate alterations of the technical terms respectively for the
two fundamental allocations of Wealth in Distribution. Instead of
identifying one allocation as Wages and the other as Rent, the two
could be identified respectively as Individual Wages and Social Wages.
This mode of identification would in no wise disturb the natural
characteristics of the two allocations into which the Wealth produced
by Labor from and upon Land naturally distributes itself.
In that connection it may be useful to note the fact that Taxes on
the Wages allocation of Wealth tend to check the production of
Wealth. They interfere with Trade, that gigantic factor of Production,
by thrusting the tax upon consumers as part of the Price--not only
the tax, but also business profits on the tax. On the other hand,
taxes upon Rent tend to check the Economic evil of speculation in
Landownership and the consequent monopolization of Natural Resources
unproductively.
Related to the problems thus suggested is the policy commonly and
widely known as “the Single Tax,” the fiscal method proposed and
widely popularized by Henry George for initiating and promoting an
evolutionary process in the direction not only of ethical readjustments
of fiscal methods but also of ethical readjustments of the Economic
relations of mankind to Natural Resources and to Artificial Objects
produced from and upon Natural Resources in accordance with natural
Economic law.
That policy rests upon three Economic principles. One is the principle
that Land (Natural Resources) is not an individual inheritance but is
a common inheritance. Since no man or body of men ever has or ever can
create Land, it is by edict of natural Economic law the inheritance of
all that are living. But inasmuch as Land cannot be well utilized (such
Natural Resources as the sea and other open waters excepted) unless
subjected to private possession for farming, mining, manufacturing,
merchandising and homes, or the like, private possession, control and
management of areas of Land are an Economic necessity. To adapt that
practical necessity, therefore, to the common right, the Single Tax
policy proposes to make private possession secure without prejudice to
common ownership, by the assignment annually, through taxation, of the
annual Economic Rent or Value of all Natural Resources to Governmental
treasuries by way of annual compensation to the community for the
annual values which the community gives to that Land. Concurrently the
Single Tax policy would exempt Artificial Products and their producers
from all taxation, on the principle that Artificial Products (Wealth)
are the private property of their producers and purchasers.