hundred years ago, or rather more, every rich family in this country
had a considerable sum of money left at a bank, and paid into the
banker’s coffers further sums of money which they received. Each had a
book of accounts with the bank showing exactly how much had been put
in and therefore how much they could “draw” upon. At first the clients,
or depositors, would “draw” some portion of their money which they
might immediately need by way of a letter. Thus, if their banker’s name
was Mr. Smith, they would write this note: “To Mr. Smith. Please pay my
servant who brings this letter £20 out of the £1,000 which I left with
you the other day.” They would sign this letter and send the servant
with it; the banker would give the £20 to the servant and the servant
would give a receipt against it.
That was the origin of what are nowadays called “cheques.” The letter
giving authority for the messenger to draw the money grew more and
more formal and was drawn up more and more in the same terms to save
trouble. Then the bankers would have the forms printed, so that the
client who wanted to draw would have the least possible trouble. If
you look at a cheque to-day you will see that it is nothing but the
old letter put into the simplest terms. At the head of the cheque is
the name of the bank; then there is the word “Pay,” and after that the
client adds the sum which he wants paid and signs his name to prove
that it is really he who is entitled to have the sum and who is asking
for it. The words “or bearer” are sometimes printed after the word
“Pay,” so that anyone bringing the cheque for the client can get the
money for him.
But to prevent people using these pieces of paper to get money without
having the right to it the word “order” was more often substituted for
the word “bearer”; and this word “order” means that the owner, who
is drawing his money out, says: “Do not pay it to me; pay it to this
other person whom I desire to receive the money and whose name I have
mentioned above, who will sign to show that _his_ order for payment has
been met.”
For instance: I have £1,000 deposited with my banker, Mr. Smith. I
write a letter: “Pay £20 to John Jones _or order_.” This means: “Do
not, dear Mr. Smith, send the money back to me, but give it to Mr.
Jones who will bring this letter with him, or, if he cannot come
himself, will send a signed letter _order_ that it should be paid
to him.” At the beginning of the system, Mr. Jones, to whom I gave
the cheque, would write a little letter saying: “Dear Mr. Smith, Mr.
So-and-So, who banks with you, has given me the accompanying letter by
which I can get £20 of his _by my order_. I therefore send you this
letter to tell you that whoever brings this cheque bears my order to
give the money to him.” He signs the letter “John Jones” and the banker
hands over the money to whomever it may be that brings the letter for
John Jones.
In process of time the thing was simplified. In place of the letter
came the shortened form, the cheque, and you wrote: “Pay £20 to John
Jones or order,” and John Jones, instead of sending a letter signed
by himself, merely put his signature at the back of the cheque. This
was called “endorsement,” which is a Latin form of the English meaning
“putting one’s name on the back of anything.” A cheque “endorsed” with
the name “John Jones,” that is, with John Jones’s name signed on the
back of it, was paid by the bank to whomever John Jones might send to
receive the payment. My cheque asking for £20 to be paid to John Jones
having fulfilled its object, and the £20 being paid to whomever John
Jones had sent after he had “endorsed” that cheque, the cheque was said
to have been “honoured” by the bank. The word “honoured” meant that the
bank had admitted that I had the money banked with them, and that they
were bound to hand it over on seeing my signature asking that it should
be handed over.
The convenience of cheques used in this way for business was obvious.
If I owed a man £20 and I had £1,000 with my banker, instead of having
to draw out twenty sovereigns myself and take them to him, all I had
to do was to write out a cheque to the order of this man, who would
endorse it and get the money.
Now as banking grew and came to deal with more and more people, it was
probable that this man, Jones, would have a banking account too with
somebody. If Mr. Smith was not his banker, then Mr. Brown would be.
As we have seen, people not only drew out money from the original sum
they had deposited at the bank, they also paid in money as they got
it, on account of the convenience of having it looked after safely. So
when John Jones got my cheque for £20, he often did not get the actual
cash from my banker, Mr. Smith, but simply gave in the cheque, endorsed
by him, to Mr. Brown, _his_ banker, and said: “Get this from Mr. Smith,
the other banker, and add it to the sum which I have banked with you,
Mr. Brown.” The banker Brown did this, and the cheque which I had
originally signed in favour of John Jones, having gone the rounds, was
sent back to me to prove that the transaction was complete.
As banking continued to grow this system took on a vast extension.
Thousands and thousands of people paid, and were paid, by cheques, of
which only a small part were turned into cash, and of which much the
greater part were paid into the bankers’ offices and then settled by
the bankers among themselves.
After many years of this system it became apparent that the enormous
transactions, thousands of cheques all crossing each other daily in
hundreds of ways, could be simplified by the establishment of what came
to be called the “Clearing House.”
Thus, suppose three bankers--Mr. Smith, Mr. Brown and Mr. Robinson.
I bank with Mr. Smith, and sign a cheque in favour of Mr. Jones who
banks with Mr. Brown, because I owe Jones a bill which I can thus pay.
I also sign a cheque in favour of Mr. Harding (that is, to the order
of Mr. Harding), to whom I also owe money. He banks with Mr. Robinson.
Meanwhile Harding perhaps owes money to Jones and pays him a cheque
ordering Mr. Robinson (Harding’s banker) to pay Jones a sum of money.
Jones hands this over to his banker, Mr. Brown. At the end of a certain
time--say, a month--the three bankers, Smith, Brown and Robinson, get
together and compare the various cheques they have received. It is
obvious that a great many will cancel out.
For instance: I have given Jones a cheque for £20 which Mr. Smith, my
banker, has to pay to Mr. Brown, Jones’s banker. But Mr. Brown has a
cheque of Mr. Harding’s asking Mr. Robinson to pay £20 to Jones, and
Jones has given that to Brown too. Meanwhile Jones has given me a
cheque later on, for something which he owed me, of £10. The bankers
compare notes and see that Smith need not pay £20 to Brown, and then
ask Brown for £10. It is simpler to pay the difference only. Mr. Smith
hands to Mr. Brown what is called the “balance.” The difference between
£10 and £20 is £10, and Brown hands over £10 to Smith. At the end of
another month perhaps it is Robinson, Harding’s banker, who finds that
on comparing notes he has a balance against him of £10 to Brown: and so
on.
When dozens of bankers came to be established with thousands of
clients, or “depositors,” the convenience of this system was
overwhelming. There would perhaps be in a week as many as 10,000
cheques out, and instead of having to make 10,000 separate transactions
of paying from Brown to Smith, Smith to Robinson, Robinson back to
Brown, and so on, through dozens of bankers, the cheques were compared
and only the balances were paid over--or, as the phrase goes, “cleared.”
The Clearing House was the place where all the cheques of different
banks were put in at regular intervals and compared one with another,
so as to see what balances remained over, owing by particular bankers
to others.
Meanwhile, as the banking system grew, most of the ready money in the
community came into the hands of the bankers. There was a perpetual
coming and going, and paying in and paying out, but there was always
among the bankers as a community a very large sum of money lying
untouched, a sort of reservoir. It was nearly always very much
more than two-thirds of the whole amount which the banks could be
called on to pay. That is, the depositors never wanted a third of
their deposits out at any one time. The art of a banker, therefore,
consisted in knowing how to purchase with this idle money left in their
hands fruitful objects for producing future wealth, in other words,
“investing” it in “capital enterprises,” but always prudently keeping
a large reserve ready to meet any demands which their depositors might
suddenly make upon them.
So far so good. The banking system up to this point in its development
was an advantage to the community and to individuals. It enabled a
large number of small sums which could not be used very well separately
to be collected together for big enterprises.
A thousand people, depositing a thousand pounds each, left a million
pounds in the hands of the bankers, of which much more than half a
million could be used at any time for “development,” that is, for
buying instruments with which to develop natural resources. The nation
would be richer if a deep shaft were sunk and coal were got out of the
earth, but it would cost half a million to make that mine. No one of
the thousand small depositors could have undertaken such a task: the
bank, using all their monies together, could undertake it--and did so.
The banking system thus rapidly increased the wealth of the country,
and that was all to the good. People meanwhile felt their money to be
secure, and they had the great advantage of being able to draw cheques
for payments they had to make to those to whom they owed money, and of
receiving cheques for money due to them instead of perpetually handling
and carrying about large sums in metal--the whole passing through the
bank and helping to keep this reservoir of wealth perpetually filled
and available for use in investment.
That state of affairs lasted to within the memory of men now living,
and, as I have said, the banking system during that time was an
advantage to everybody. There was nothing to be said against it.
But then came (as there comes upon every human institution after a
certain time) a further phase of development, in which the institution
of banking produced certain perils and evils. Those perils and evils
are increasing, and are producing the antagonism to the banks and to
their power which everybody is beginning to express to-day, all over
Europe and America, and which we must understand if we are to follow
modern political economy. I will show you how these evils in the
Banking system arose.
A man having £1,000 in the bank could draw upon it up to the total
amount. He could sign a cheque for £100 and then for £500 (making £600)
and then for another £400. Supposing he put nothing in during that
time, he would have exhausted the whole of what he had in his bank; he
would have come to an end of what is called, in the terms of banking,
his “balance.” There, you might think, was an end of his power to draw
cheques. He had got back all his money, so the bank and he had nothing
more to do with each other. At first, of course, that was the regular
state of affairs. A man could draw out all that he had in the bank, but
no more. It seems common sense.
But the banks had plenty of other people’s money lying about which
had not been drawn out, and much of which had not yet been invested
in capital enterprises, such as mining, or what not. They would say
to the man who had once put £1,000 into their hands and who had now
drawn it all out: “You still want to carry on your business; but you
have exhausted all the money you had with us. You will probably want
to borrow some money to tide you over until the time when further sums
begin to come in to you through what you sell in your business. We
are prepared to lend you money out of what we have to use from other
people’s deposits. You will pay a certain ‘_interest_’ upon it (that
is, so much a year on each hundred pounds we lend you--say £5 a year
for every £100), and you shall pay us back when you can.” The bank
accompanied this offer with the right to draw further cheques to, say,
another thousand pounds, which the bank would “honour”--that is, for
which the bank would pay out money which did not really belong to their
client but was lent to him by the bank out of other people’s balances.
And this extra amount, which the bank thus allowed their client over
and beyond what was his own money was, and is, called an “over-draft.”
At first, before the banks would allow anybody an “over-draft” (that
is, a loan), they required the borrower to give security. He had to
leave with them gold or silver plate or a mortgage upon his land, so
that if, in the long run, he found himself unable to pay back, the
banker, could sell the security and recoup himself.
But it was obviously convenient and useful when a client was in a
big way of business to grant him an “over-draft” from time to time
although he had no security to offer. The bank said to itself: “Here is
a merchant making very large profits every year. It takes him some time
to get his money in from the foreigners to whom he sells goods oversea,
but he is bound to get it sooner or later. So, without asking him for
any security (for perhaps he has no plate or title deeds or what not to
give), it is still well worth our while to let him have an over-draft
(that is, a loan) out of the other people’s money. He will pay us
interest upon it, we shall make a profit, and when the foreigners pay
him he will be able to pay us back.”
In this way the banks became on all sides lenders of money to persons
without security, and it became exceedingly important to any trader
whether he could or could not get the banks to back him up in this
fashion.
The thing went farther. A man might have no capital at all, but a good
idea. He might have discovered, for instance, a mine of copper-ore in
some colony. He would come to the banks and say: “I have not the money
to pay labourers to dig for this ore, but if you will advance the money
to me and go shares in the profit the ore can be got out.” The banks
would look at the “proposition,” as it is called, and if they thought
it a good thing they would advance the money and share the subsequent
profits with the borrower. All over the world the banks were thus
“financing,” as it is called, every kind of enterprise.
The system went farther still--and here it is that we come upon the
modern trouble. Hitherto when they gave an over-draft to anybody,
whether with or without security, or even when they gave a loan to a
man who had no capital at all, and “backed” him in his enterprise which
they thought likely to prove successful, they had used the money which
other clients had left with them. But it occurred to the banks after a
certain time that there was no need to use anybody else’s money at all.
_They could themselves offer to honour the cheques of the man to whom
they lent the money, without having any real money with which to pay
those cheques._
Why was this? It was because, with the growth of the banking system,
hardly any of the payments were, by this time, actually made in
gold. Real money only passed in a very small degree. Of the myriad
transactions all but a tiny proportion were “_instruments of credit_.”
Just as a bank-note issued by the Bank of England is a promise to pay
in gold, and yet a promise to pay a million pounds in bank-notes could
always be made with much less than a million real pounds to redeem
the notes so _the banks could create paper money, or its equivalent,
in the form of over-drafts_. If they said to a man who had _no_ money
deposited with them: “We will honour your cheques up to £1,000” _what
they were really doing was increasing the paper currency to the extent
of £1,000_. They were issuing promises to pay, exactly like bank-notes,
knowing that of the total amount out only a small proportion at any
moment would be required in real money.
There was a check on this system of creating new artificial paper money
by the banks (for this is what it came to), and the check consisted in
the control of the Government over the National Bank--in England the
Bank of England. There was a law preventing the Bank of England from
issuing more than a certain number of notes in proportion to the gold
lying behind them, and the private banks could not issue over-drafts,
or loans, indefinitely, because they could not get more than a certain
amount of paper money from the Bank of England to meet the payments
they had to make, and the Bank, in its turn, could not issue more than
a certain proportion of paper money against its gold.
So ultimately the amount of real money, the gold, in the hands of the
banks, both national and private, acted as a check upon this creation
of false money by the banks. But when gold payments ceased with the
Great War that check broke down, and even if gold payments had not
ceased, the power of the banks thus to “create” as it is called,--in
other words, their power to say to any individual enterprise: “You
shall or you shall not have your cheques honoured: you shall or you
shall not carry on”--gave them an immense and increasing power over
the community.
That is why the revolt against the banking system and its control over
our lives in the modern state since the war is becoming so formidable.
It has two chief forms against which men protest.
1. The bankers can decide, of two competitors, which shall survive.
As the great majority of enterprises lie in debt to the banks--that
is, carrying on with loans allowed them by the banks working with
money _made_ by the banks--any one of two competing industries can be
killed by the bankers saying: “I will no longer lend you this money. I
‘call it in’--that is, ask for it to be paid at once. But I will not
exercise the same pressure upon the man who is competing against you.”
This power makes the banks the masters of the greater part of modern
industry. It is argued that the banks do not act from caprice, and will
naturally only back a sound enterprise and only ruin an unsound one.
That is, on the whole, true. But still, those who command them have the
power, if they like, to act from caprice, and whenever you give a few
human beings great power of this sort over millions of others it tends
to be abused.
2. The banks, especially in England, are all in one combination and
keep detailed information upon all of us. Not only have they control
over industry through their power to make or withhold the money which
they alone can now create and hand out to those they favour, but they
also keep indexes of detailed information as thorough and widespread
as those of any Government office. They have a secret service more
widespread and powerful than that of the State, and this hidden power
of theirs, though private and concealed knowledge, irritates plain men
more and more. People feel that they are not free, and that the banking
system, which is international in essence, is a universal and hidden
master.
Therefore all over the world to-day people are saying: “The banking
system, and the few men who direct it, are altogether too powerful.
They control our lives. They are beginning to control the public policy
of the State, especially in England, and there ought to be a national
authority superior to them and keeping them in order.”
A great many schemes have lately been on all sides proposed to
establish such a superior authority. Thus, we have in England a very
powerful movement in favour of what is called the “Douglas Scheme
of Credit,” and of course the Socialists, with their ideas of State
control of everything, would also put an end to the private power of
the banking system. Then there are those who want to have a strong King
who would be able to override any lesser power in the State, including
the bankers.[5] But the points to seize in understanding the political
economy of our time are those I have just been describing to you: what
the banking system is, how it arose, how unnaturally powerful it has
become, and why a universal revolt is arising against it.
There will be a struggle inevitably between the banking, or financial,
interest and the people all over civilised countries: but no one can
tell which will win. In industrial countries the odds are in favour of
the banks, or financiers. In peasant countries against them.
NATIONAL LOANS AND TAXATION
Every country must, to carry on its national services, raise taxes
from its citizens, and those taxes, though levied in money, translate
themselves, of course, into goods, that is, economic values attached to
material objects.
We say that the State “raises,” say, a hundred million pounds in
taxation from its citizens a year, for “State Purposes”; and when you
come to look into what is actually got by the State and how the State
uses what it has got, it means that the State levies so many boots and
so much bread, and so much housing material and so much clothing, and
spends this again in maintaining State servants, that is, in clothing
and housing and feeding soldiers and policemen, and civil servants and
school teachers, and so on.
But in the modern world, and for the last two hundred years or so,
nearly all states have also had to raise taxation _in order to pay
interest upon the State loans_.
A State loan, or _national debt_, arises in this way. The State needs a
great quantity of goods for a particular purpose--usually for the very
unproductive purpose of waging a war. It has to get a lot of metal for
its munitions and guns, and quantities of food to feed the soldiers,
and coal to transport them. Now there are two ways in which a state
gets these. The first is to get the whole amount, as it is needed,
directly from the people, by a very heavy tax levied at the time. That
was what was done for hundreds of years before the second method was
attempted. The king of a country, wishing to wage war, would ask his
subjects for contributions, and he could not wage war upon a scale more
than these contributions would meet.
But about two hundred years ago there began (and since then has very
largely increased), the second method, which is that of _national
loans_.
The State is, let us say, taking in ordinary taxation from its citizens
about one-tenth of their produce. Suddenly it finds itself involved in
a much higher expenditure, amounting to, say, half the produce of the
country. If it asked for half the produce right away as a tax people
might refuse to pay it, or it might make the policy of the State--the
war, for instance, which the Government wanted to wage--so unpopular
that the State could not pursue that policy or wage that war. So the
Government had recourse to _borrowing_ from the citizens, promising to
pay, to those who lent, interest in proportion to what they borrowed,
as well as the capital itself. Thus they would _take_ in taxation for
a war money from a farmer equivalent to _ten_ loads of wheat; but they
would also _borrow_ from him _one hundred loads_ of wheat, promising to
give him as interest _five_ loads of wheat every year for any number of
years until they should ultimately pay back the whole hundred loads as
well.
When these national loans began the Governments honestly intended
to pay back what they borrowed. But the method was so fatally easy
that, as time went on, the debt piled up and up until there could be
no question of repaying it: all the State could do was to pay the
interest out of taxation. It remained indebted to private rich men for
the principal, that is, the whole original sum, and meanwhile, through
further wars, this hold of the rich men upon all the rest of the
community perpetually increased.
The “National Debt”--as it came to be called--remained a permanent
institution, in connection with which all the citizens had to be taxed
in order to provide interest for the rich lenders. Latterly these
burdens of national debt have become overwhelming, and at the present
moment about a twelfth of everything that English people produce is
taken from them and handed over as interest to the comparatively few
wealthy residents in England and abroad who lent great sums to the
Government during the war.
It is true that whenever a loan is raised the Government provides not
only interest but what is called a “sinking fund”--that is, an extra
amount of taxation every year which is dedicated to paying back the
whole of the loan slowly. But long before a loan is paid off some new
occasion arises compelling the Government to borrow again on a large
scale, and the total debt perpetually increases.
The result is that all the great modern European nations are now
loaded with a debt really larger than any of them can bear, and that
therefore they have all taken steps to lighten that burden by various
tricks not at all straightforward. Some of them pay back in money
which appears the same as the money which they borrowed, but which has
a very different value. They have borrowed for a war, say, £1,000,
representing 100 tons of wheat. Then they debase the currency, so that
a sum still called £1,000 will only buy 20 tons of wheat, and in this
way they can pretend to pay the lender back, although they are really
cheating him of four-fifths of what he lent. Two countries, Germany
and Russia, have pushed this so far that the lenders are now not
really paid anything at all. A man who lent the German Government, for
carrying on the war, money which during the war would have bought a
million tons of wheat, is now (October, 1923) paid back in money called
by the same name but able only to purchase a tenth of a ton--which is
the same as saying that he is not paid back at all.
Of all European countries that fought in the war our own has been the
most honest in this matter, but even in England a man who lent the
equivalent of 1,000 sheep, say, and who was promised interest at the
rate of 50 sheep a year, is only getting 25 sheep a year on account of
the change in the value of money.
In this matter of loans we must distinguish between _internal loans_
and _external loans_. An _internal loan_ is borrowed from one’s own
people. It involves taxing and impoverishing one set of citizens in
order to pay interest to and enrich another set. But the country as a
whole is no poorer. An _external_ loan is borrowed from foreigners, and
the interest on it is dead loss to the country. Also, it cannot be paid
in debased currency. A government can cheat its own nationals by paying
them in false money. But it has to pay foreign lenders in real money. A
foreign loan is real. It must be (as a rule) paid in gold. England thus
pays millions a year to America.
Now from State _loans_ let us turn to State _taxation_, which has
to-day for its most permanent object the payment of interest on
internal and external loans.
How does the State tax its citizens?
Taxation levied by the State is divided into two kinds--called _direct_
and _indirect_.
Direct taxation is the taxation levied upon the money which the person
who pays it has at his disposal.
For instance: If you have £1,000 a year and the State makes you declare
that and then taxes you £100 every year, that is direct taxation.
Indirect taxation takes the form of levying a tax on the manufacturer
of an article or on the importer of an article, which tax he passes
on to the person who consumes it, by an addition to the price of the
article. Thus, when you buy a pound of tea or a bottle of wine you are
paying indirect taxation. The price which you paid for the tea is so
much for the real value of the tea and so much more (though you do not
feel or know it at the time) which has been paid on the tea as it came
into England at the ports. The brewers who make beer have got to pay
the Government so much for every gallon they make, and this is passed
on to the people who buy the beer by an extra amount put on to the
price.
The wisest men who have discussed how taxes should be levied laid
down four rules which, unfortunately, no Government has kept to as it
should. It is worth while knowing those rules, because they are a guide
to what good taxation should be.
These rules are:--
1. A tax should fall in such a fashion that it is paid most easily.
For instance: it is much easier to pay £100 a year in small sums which
fall due at frequent intervals than to pay the whole £100 upon demand
in one lump.
2. The tax should be so arranged that the cost of collecting it should
be as slight as possible.
For instance: if I put a tax upon everyone who crosses a particular
bridge, I shall have to appoint and pay someone to collect the tax at
the bridge, and I shall probably have to pay inspectors to go round and
see that these bridgemen do their duty and do not cheat. If I tried to
levy a tax of this kind on a great many bridges that are not much used
the cost of collecting would be very high compared with the revenue
produced. But if I put a tax on every cheque issued by a bank, _that_
tax is collected with hardly any expense. All the Government has to do
is to say that no cheque will be valid unless it carries a stamp. The
banks stamp all their cheques with this stamp, and when they sell a
cheque book to a customer they take the value of the stamps from him.
All the Government has to do is to find out the number of cheque books
issued, and ask for the money from the banks.[6]
3. Taxes are better in proportion as they fall on unnecessary things
rather than on necessary things.
It is much better, obviously, to make people pay for their luxuries
than for their necessities. It is oppressive to make people pay for
their necessities, which even the very poor must have, and it is juster
and altogether better to make people pay for things which they need
not have. Thus, when the tax was first levied upon tea it was a tax
upon a luxury, for only rich people then drank tea. But to-day, when
the poorest people must drink it, it is unjust to tax it, for it is a
necessity.
Unfortunately, it is very difficult to keep to this rule in any modern
country, because the amount of taxes required is so large that unless
one taxes the necessities one will not get enough money for the
requirements of the State: thus tea and sugar, beer and tobacco, all
of them _necessities_ of the poorest people, are enormously taxed. Our
poor people in England are much more heavily taxed than any people in
the world.
4. Taxes should fall proportionately to the wealth of the taxed, that
is, the sacrifice should be equally felt by all. This rule is easy
enough to keep when taxation is light. For a very slight tax on poor
men--who are the vast majority of the State, suffices to bring in the
small revenue needed, and a severe tax on rich men is but an addition.
But when taxation must be heavy to meet the requirements of the
State--say more than a twentieth of poor men’s incomes--then the rule
is difficult to keep. For either you get insufficient revenue if you
spare the poor, or you must tax the poor on a scale which no increase
of the taxation on the rich can really equal. When taxation is too
heavy, you must either ruin the rich or crush the poor. And that is why
heavy taxation has destroyed so many States.
5. The last rule about taxation is that it should be _certain_; and
this means that the State should be certain of getting what it ought to
get, and that the people who pay should know what they have to pay and
not be left in doubt and anxiety.
For instance: the tax on tobacco in this country is a certain tax. It
is levied on a comparatively small number of ships’ cargoes which enter
the country with tobacco, because we do not grow tobacco in England,
and the sum which the importers pay is automatically passed on to the
purchasers. The State knows by experience how much tobacco the people
will buy in the country in the year, and the people who buy tobacco
know what they mean to spend, and can, if they choose, ascertain how
much of this goes in taxation. But the same tax on tobacco in France
is not a certain tax, because the French grow a lot of their own
tobacco--in fact, most of it. The people who grow tobacco naturally try
to hide the total amount of their crop from the Government inspectors,
and a great number of these inspectors have to be going about the whole
time actually counting each leaf on each plant and rummaging in the
bins to see that none is gone.
An example of a most uncertain and unjust tax for the taxpayer in our
own country is the Income Tax, because it is difficult to prevent
unfixed people from hiding their profits or from concealing from the
tax collectors amounts which they have earned. Also the honest citizen
with an established and known position can be bled to the full, while
the rogue and adventurer, the speculator and dealer escapes. But it
is a certain tax from the point of view of the Government, because
they know on the average what a penny on the Income Tax will produce
one year with another, and are not concerned with justice but with a
calculable revenue.
Before we leave this discussion it is worth while mentioning an odd
idea which a few very earnest and active people have got hold of,
called the “Single Tax.”
It is really much more a part of the theory of Socialism than a system
of taxation. Still, as it has come to be called the “Single Tax” we
will treat it under that head.
The idea of the single tax is this:--Rent, or the surplus value of a
site, whether it be due to the extra fertility of farm land or to the
extra convenience of town land, is, say the Single Taxers, not the
product of the individual who owns the land.
If I own a barren piece of heath on which I cannot get any rent for
agriculture, and then a railway is built passing through it and a
station is built on the heath, many town workers who want to live in
the country will take houses which will be built near this station and
live in these houses, running up and down from town for their work.
In a few years this barren heath which brought me in nothing will be
bringing in many thousands a year, for a little town will have sprang
up, and I shall be able to charge rent to all the people who live there
upon my land.
The Single Taxers say that, since I did nothing towards making the
extra value, but that extra value has been made by the growth of
population and by the activity of the whole community, I have no right
to these rents. In the same way they say that I have no right to the
rent of a very fertile field compared with a bad field which pays
little or no rent, because it was not I that made the soil fertile.
So they propose that _all the rents of the country should be levied as
a tax_. They say that no other taxes are needed. If I have money from
dividends in an industrial concern I can keep all that without paying
any taxes on it, and I can be let off taxes on tobacco and drink and
everything else of that sort. But anything I get as rent for land I
must pay over to the State. I may still be allowed to call myself the
owner of the land, but I must be taxed an equivalent to the rent which
it produces.
These people have never been able to apply their theory, and the reason
is pretty clear. It would work most unjustly, considering that people
buy and sell land just as they do any other commodity, and that a man
who had put all his money into rents in land would be ruined by this
system, while another man with exactly the same amount of money, who
had put it into a business, would go scot free. If you were starting a
new country it might be possible to begin with the Single Tax system,
but even then you would be up against the fact that people like owning
land because such ownership gives them independence. But at any rate it
is theoretically possible to apply this system in a new country. In an
old country it is quite out of the question.
THE SOCIAL (OR HISTORICAL) VALUE OF MONEY
There is a special point in Economics which has been very little dealt
with, or rather not properly dealt with at all, and which you will
find interesting as a new piece of study, because it will help you to
understand history as nothing else will: and that point is the _Social
(or Historical) Value of Money_.
You read how, in the past, the King of England, wishing to wage a
great war, managed to raise, say, a hundred thousand pounds; and how
that was thought a most enormous sum: whereas to-day, for the same
sized army, we should need thirty times as much. You read how Henry
VIII. suppressed the Monastery at Westminster which had an income of
four thousand pounds a year, and how this income was then regarded as
something very large indeed--much as we to-day regard a half million a
year or more--the income of some great shipping company. You read how
the National Debt later on actually reached _one_ million, and people
trembled lest the State could not bear the burden.
Yet here we are to-day, raising hundreds of millions yearly in
taxation, spending thousands of millions in our wars.
What is the explanation of this apparently totally different meaning of
money in different times? It puzzles nearly everybody who reads history
intelligently, and it wants explanation. Most attempts to explain it
have failed, or have been very insufficient; some of them quite vague,
as: “The value of money was very different in those days from what it
is now.” Or: “Money was then at least ten times as valuable as now”
(whereas it is clear from the chronicle that it was _enormously_ more
valuable!) Sentences like that leave the unfortunate reader as much in
the dark as he was before. We need a more precise explanation, and that
I think can be given.
There are three things which, between them, decide the social value of
money at any period, and unless we consider _all_ three we shall go
wrong. The reason why most people have gone wrong in trying to solve
the problem--or have abandoned it--is that they only consider the first
of the three. These three things are as follows:--
1. _The actual purchasing power of whatever is used as currency_--in
our case, for nearly the whole of European history, gold[7]: the amount
of wheat and leather and building materials and all the rest of it,
which so much weight of gold (say an ounce) will purchase at any time.
This varies in different periods according to the amount of gold
present in circulation, and its efficiency in circulation. We saw how
these were the factors of price, that is, of the purchasing power of
money, when we spoke of money earlier in the book.
2. _The number of kinds of things_ which money can be used to buy in
any society--or, to put it in learned words, “the number of categories
of purchasable economic values.”
3. _The economic scale of the community_, that is, the number of its
citizens and the amount of its total wealth at a given time.
When we go into the full meaning of all these three things we shall
see how, in combination, they make up the social value of money at any
time, and why that value differs so very much between one historical
period and another.
1. _The actual purchasing power of the currency._
Given the same currency (and in Western Europe it has, for all
practical purposes, been gold for the last two thousand years), we can
measure the purchasing value of such and such a weight of gold in any
period by what is known as the _Index Number_ of that period.
The Index Number is a thing important to understand, because it
comes into a great deal of modern discussion as well as historical
discussion; for instance: wages are nowadays largely based upon an
Index Number.
A particular year is taken, say the year 1900, and the records of what
various commodities were fetching in gold in the market during that
year are examined. Thus it is found that an ounce of gold in that year
would buy (let us say) four hundred pounds weight of wheat, 600 pounds
weight of barley, 80 pounds weight of bacon, 80 gallons of beer, a
quarter of a ton of pig iron, and so on. A list is drawn up of all the
principal commodities which are used in the community. Suppose that 100
such commodities are taken and between them make up by far the great
part--say seven-eighths--of all the values commonly consumed in that
community. The next thing to do is what is called to “weight” each
commodity, for it is evident that a commodity which is very largely
bought--such as bread--must count more in estimating the purchasing
power of money than a commodity of which very much less is used--such
as tin.
According to the value of each commodity used in any one period of time
(say a year) the various commodities are “weighted.” Thus you count
bread (let us say) as twelve times more important than lead, because
the value of the bread used in the community for one year is twelve
times as much as the value of the lead used in the community during
that year. Then let us suppose that the value of the leather used is
three times that of the lead, the value of the iron five times, etc.
You put against each commodity these “weight” numbers.
Next you find out what an ounce of gold would purchase of each of those
commodities in that particular year. For instance: you find it would
purchase a quarter of a ton of lead, 400 pounds weight of bread, and
so on, only you multiply by your weight number the use of gold in each
particular article. For instance: you count the gold used in buying
bread as twelve times more important than the gold used in buying lead.
You then add up all the prices measured in an ounce of gold in your
column; you divide by the number of items in your column, each
multiplied by its weight number, and the result is that your ounce
of gold for the year 1900 will be found to have a certain _average
purchasing power_ which you call, for the sake of further application,
arbitrarily, “100.”
Then you take another year, say 1920, and you find what the ounce of
gold would purchase in the same conditions, similarly weighted, in the
year 1920. You discover that the ounce of gold on the average in 1920
would only purchase half the weight of stuff it purchased in 1900. In
other words, prices have doubled, or, what is the same thing, gold has
halved in value. You put down for the year 1920 the figure “200,”
which means that average prices are twice as great as they were in
1900, and the economist’s way of saying this is: “With the year 1900 as
a base, the Index Number for 1920 is 200.”
In the year 1921 he makes the calculation again, and finds that prices
have fallen, that is, gold has become rather more valuable as compared
with other things, and prices are only three-quarters more than they
were in 1900. The economist writes down: “The Index Number for 1921 is
175, with the prices of 1900 as a base.” He goes back to 1880 and finds
that in 1880, after making a similar calculation, an ounce of gold
would on the average buy five pounds of material where in 1900 it could
only buy four. In other words, prices are lower in 1880 by one-fourth.
So he writes down: “The Index Number for 1880, with 1900 as a base, is
75.”
These Index Numbers taken for each year with a particular year as a
_base_, or year of reference, show the fluctuations in the purchasing
value of gold.
To make the process clearer, we will take a simple instance and imagine
a community in which there were only three things purchased on a large
scale by the citizens--wheat, bacon, and iron. We take for our year of
reference, let us say, the year 1880, and we find that an ounce of gold
would purchase one ton of wheat, half a ton of iron, and a quarter of a
ton of bacon. But the amount spent on wheat was ten times the amount
spent on bacon and twenty times the amount spent on iron.
You add up the twenty tons of wheat, the half ton of iron and the half
ton of bacon--half a ton of the latter because twice as much is spent
on it as is spent on iron, and therefore though it is half the price of
iron you must double the amount, because twice as much is bought.
You get 21 tons. To buy this 21 tons of stuff 3 ounces of gold were
needed. You divide the 21 tons by 3, and you get 7 tons of material on
the average.
Next, as you are taking this particular year for a “base” (or year of
reference) you call the 7 “100,” so that you may compare in percentages
the rise or fall of prices in other years. You then do exactly the
same thing with these three staple commodities in another year--say
1890--and you find that your ounce of gold purchases no longer 7 tons
of stuff, but 14 tons of stuff. Taking the year 1800 as your base
number, you will see that the Index Number for 1890 is “50.”
Then you do the same thing for the year 1920, and you find that with
the same ounce of gold you can only purchase 3½ tons of stuff. 7 is
to 3½ as 100 is to 200, so the Index Number for 1920 will be 200 as
compared with the base year--or year of reference--which is 1880.
You cannot use the Index Numbers without knowing what your base year is
and what average prices were in that base year, but, having settled
that, your Index Number is nothing more than a statement of _average
prices_, or again, the average purchasing power of a fixed weight of
gold in the various epochs you examine.
In reality the calculating of an Index Number involves a great
many more difficult points than these, and of course the number of
commodities taken is very much more than three; but that is the method
in its general outline, and if you go over it carefully I think you
will not find it difficult to understand.[8]
The first thing, then, in finding out the social value of money at any
historical period is to find out the purchasing value of a given weight
of gold--say, one ounce. Supposing we are comparing the time when Henry
VIII. dissolved the monasteries and took their wealth (1536–9) with our
own time, before the War, when our currency was still normal and in
gold, you will find that with 100 as your base for prices in 1536–9 the
Index Number of 1913 is, according to different calculations, somewhere
between 2,000 and 2,400. I have gone into it myself very carefully,
and I make it out to be at least 2,400 (though historians some time
ago, who had not gone into it very fully, used to make it lower); that
is, where one ounce of gold would purchase the things which Englishmen
regarded as their staple commodities in 1536, 24 ounces of gold would
be necessary to-day.
That is the first thing you have to consider when you are comparing the
social value of money at that time with the social value of money in
our own time. You multiply right away by 24. You hear, for instance,
that a man had £100 a year paid him by the King for looking after the
garrison at Dover. You translate it into modern money, and say that he
had £2,400 a year paid him _in our money_.
Most people stop there, and that is why they get their answer to the
problem all wrong. In reality the _social_ value of money then was
_very much more than_ 24 times what it is now, and £100 a year under
Henry VIII. meant _a great deal more than_ what £2,400 means now.
In order to see how true this is we have to consider the next two
points which I mentioned.
2. _The number of purchasable categories._
Suppose you put a man into a little primitive place like Andorra (which
is a tiny independent state shut off from the world in a valley of the
Pyrenees), and he is paid there £1,000 a year. He cannot live in a
house with more than a small rental, because there are no big houses
to be had. Everybody lives in simple, little houses. He cannot spend
his money on many things. There are no roads, no use for a motor car;
no railways, so he cannot spend money on railway fares; no theatres
or cinematographs--none of the hundred things which we have here on
every side. He can buy bread and meat, and wine and clothing, and very
little else--for there is nothing else to be bought. In other words,
the number of _sets of things_ (that is what the word “categories”
means--“sets of things”) on which he can spend money is a great deal
less than what it would be in London. A man with £1,000 a year in
London and a family to keep is, of course, very much better off than a
labouring man, but still he is not rich, as rich people use the term.
He will live in a house for which he must pay perhaps £200 a year,
counting rent and taxes. Then he will--he usually must--travel, and
that will cost him perhaps £50 a year. Then his friends will expect
to meet him and he must have them at his house, and he will have to
spend a good deal in postage and telegraphing--and so on. The man in
Andorra with £1,000 a year simply would not know what to do with it. He
would be so “well off” that he would have a very large surplus--more
than half--to give away, or to help other people with, or to save and
invest. But exactly the same sort of man, with the same ideas and
bringing-up and necessities, put down in London would certainly not be
able to save a penny of his £1,000 a year.
So we see that the social value of £1,000 a year in Andorra is very
different from the social value of the same sum in London. Some people
might be inclined to laugh at this difference, and to say: “Oh,
yes! but the man in London could, if he liked, save, simply by not
spending on those various categories, as you call them.” Yes; he as an
individual might choose to live an odd life of his own and not do what
other people do. But _Society as a whole_--that is, all the community
round him--in London is, as a fact, spending upon those various, very
numerous, categories, while in Andorra he does not, for he _cannot_,
spend upon them; they are not there to be purchased. Therefore it is
true that the _social value_ of the same sum, with the same index
number, is on the average very much higher in Andorra than in London.
You cannot give this difference precisely in figures as you can an
index number, because nobody can precisely calculate the number of
categories nor the respective importance of each, but the least
knowledge of history shows you that in Henry VIII.’s time, in 1536, the
number of categories was very much smaller than it is to-day. So the
man to whom Henry VIII. paid £100 a year as salary for looking after
one of his castles, though the purchasing value of his income--the
amount of rye or pork or what not that he could buy with it--was
what we should call to-day £2,400 a year, had a much higher income
_relatively to the people of the time_ than has a man with £2,400 a
year to-day. He counted much more than a man to-day counts who has five
thousand a year.
But this second point is not all. There is again a third point, as we
have seen, and we must next turn to that.
3. _The purchasing value of the whole community._
The third factor in the making up of the social value of money is the
relation of any sum to the total wealth of the whole community. That of
course depends upon two things: the average of wealth of each family in
the community, and the number of those families.
Supposing, for instance, with things at their present prices, you
consider two communities: (1) the people of Iceland, (2) the people of
Australia. In both countries you can get pretty much the same amount
of stuff for an ounce of gold, and though there are less categories
of purchasable things in Iceland than in Australia, yet most of the
things a civilised man requires can be got in Iceland--at least in the
capital, or can be imported there by the inhabitants if they need them
or can afford to pay for them. Both communities are of our own race
and of much the same standard of culture and the same idea of how one
should live. But Iceland has only four thousand families, and these
families are poor for the most part. Australia has a million families,
that is, 250 times as many, and they are much richer than the families
in Iceland on the average. There are much worse differences of rich
and poor in Australia than there are in Iceland. There are far more
miserable and starving people in Australia than there are in Iceland;
but the _average_ wealth of a family in Australia is much higher than
that in Iceland.
Now suppose that the Government of Iceland were to want to build a
new harbour for the capital, which is on the sea, and in order to get
the money were either to confiscate the wealth of certain rich people
or to tax all the people--supposing it wanted, for instance, £400,000
in order to complete the work. And supposing the people of Australia
similarly wanted to build a harbour and also wanted £400,000 to be
got in the same way. The index number is the same in both places. An
ounce of gold will roughly purchase the same amount of things in both
places, for the index number at any moment is much the same all over
the white world, measured in gold, and we may imagine the categories of
purchasable things to be much the same in both places. Yet the social
value of the £400,000 is quite different in Iceland from what it is in
Australia. In Iceland it means taking an average of £100 from each of
the poor families--if you get it by taxation--or the confiscation of
all the wealth of the very few rich men there may be. But in Australia
it means no more than the taking of about 8s. from each family, and
that from an average family income much higher than the average family
income in Iceland. Under this heading the social value of £400,000
in Iceland is enormous and in Australia is small. If Iceland tried
to build such a harbour it could hardly do so. The economic effort
would be very great, and if it succeeded it would fill a big place in
the history of the island. In Australian history it would pass almost
unnoticed.
Now let us add the influence of all these three points together, and we
shall see that there is a vast difference between the social value of
money in the time of Henry VIII., when the monasteries were dissolved,
and the social value of the same amount of money to-day. We shall see,
for instance, why the King, taking away the annual revenues of the
Monastery of Westminster and keeping them for himself, made such a
prodigious splash, although the actual amount in pounds, or weight of
gold, in which the income of Westminster Abbey could then be measured
was only £4,000 a year. In the first place, you must multiply by 24,
so that the actual income or annual purchasing value in wheat, beef,
rye, pork, beer, which was confiscated, was nearly £100,000 in our
money. Then you must remember that it took place in a community where
there was a very much smaller number of purchasable categories; that
is, where people had a very much small number of “sets of things” upon
which to spend money.
And, lastly, you must remember that it took place in an England the
population of which was hardly more than a sixth--some people would
say it was hardly more than a tenth--of to-day’s, and that population
actually a great deal poorer on the average than the present population
of England. It is true that there was not then the great herd of
starving or half-starving people which we have to-day in England, and
that labouring people were then much better off than they are now;
but, on the other hand, there was nothing like the same number of
very rich people, and therefore the average family income was much
smaller. Put all that together, and it is clear what a tremendous
business the confiscation of this one Abbey meant. It was somewhat as
though the Government to-day were to confiscate one of the smaller
railway companies, or to take away the rentals now paid by a northern
manufacturing town to the great landlords owning the soil, and put the
money into its own pocket.
From this example of the confiscation of the Abbey of Westminster you
can argue to all the other expenditure of the time--expenditure on
armies and navies, and so on--and in this way you can see _how, why and
in what degree the social value of money differs between one period and
another_.
It is most important to get this point in Economics clear in your mind
if you are reading history, because it helps to explain all manner of
things which otherwise puzzle one in the past.
USURY
Usury, the last subject but one on which I am going to touch in this
book, is one which modern people have almost entirely forgotten, and
which you will not find mentioned in any book on Economics that I know.
Yet its vital importance was recognised throughout all history until
quite lately, and it is already forcing itself upon modern people’s
notice whether they like it or no. So it is as well to understand it
betimes, for it is going to be discussed very widely in the near future.
All codes of law and all writers on morals from the beginning of
anything we know about human society have denounced as wrong the
practice of _Usury_.
They have recognised that this practice does grave harm to the State
and to society as a whole, and must, therefore, as far as possible, be
forbidden.
Now what is Usury, and why does it thus do harm?
Modern people have so far forgotten this exceedingly important matter
that they have come to use the word “usury” loosely for “the taking
of high interest upon a loan.” That is very muddled thinking indeed,
as you will see in a moment. The character of Usury _has nothing to
do with the taking of high or low interest_. It is concerned with
something quite different.
_Usury is the taking of any interest whatever upon an_ UNPRODUCTIVE
_loan_.
A man comes to you and says: “Lend me this piece of capital which
you possess” (for instance, a ship, and stores of food with which to
feed the sailors during the voyage of the ship). “Using this piece
of capital to transport the surplus goods from this country over the
sea and to bring back foreign goods which we need here I shall make a
profit so large that I can exchange it for at least one hundred tons of
wheat. The voyage there and back will take a year.”
You naturally answer: “It is all very well for you to make a profit of
one hundred tons of wheat in one year by the use of _my_ ship and of
_my_ stores of food for sailors who work the ship, but what about me?
I grant you ought to have part of this profit for yourself, as you are
taking all the trouble. But I ought to have _some_, because the ship
and stores of food are mine; and unless I lent them to you (since you
have none of your own) you would not be able to make that profit by
trading of which you speak. Let us go half shares. You shall have fifty
tons of wheat and I will take fifty, out of the total profit of one
hundred tons.”
The man who proposed to borrow your ship agrees. The bargain is
struck, and when the year is over you make a fifty tons profit of wheat
on your capital.
That is _the earning of interest on a productive loan_.
There is nothing morally wrong about that transaction at all. It does
no one any harm. It does not weaken the State or society, or even hurt
any individual. There is a sheer gain due to wise exchange (which is
equivalent to production); everybody is benefited--you that own the
capital, the man who uses it, and all society, which benefits by the
foreign exchange. Supposing your ship and stores of food were worth
a hundred tons of wheat, then your profit of fifty tons of wheat is
a profit of fifty per cent., which is very high indeed. But you have
a perfect right to it: your capital has produced a real increase of
wealth to that extent. If your capital be worth ten times as much, then
your profit is only five per cent. instead of fifty. But your moral
right to the fifty per cent. is just as great as your moral right to
the five per cent. No one can blame you, and you are doing no harm.
Now supposing that, instead of coming to ask you for the loan of your
ship, the man came and asked you for the loan of a sum of money which
you happened to have by you and which would be sufficient to buy and
stock the ship. It is clear that the transaction remains exactly the
same. The loan is _productive_. He makes a true profit, that is, there
is a real increase of wealth for the community, and you and he have
a right to take your shares out of it--you because you are the owner
of the capital, and he because he took the trouble of organising and
overlooking the expedition.
These are examples of profit on a _productive_ loan.
Now suppose a man to come to you if you were a baker and say: “Lend me
half a dozen loaves. My family have no bread and I cannot see my way to
earning anything for a day or two. But when I begin to earn I will get
another half dozen loaves and see that you are not out of pocket.” Then
if you were to reply: “I will not let you have half a dozen loaves on
those terms. I will let you owe me the bread for a month if you like,
but at the end of the month you must give me back _seven_ loaves”: that
would be usury.
The man is not using the loan productively; he is consuming the loaves
immediately. No more wealth is created by the act. The world is not the
richer, nor are you the richer, nor is society in general the richer.
No more wealth at all has appeared through the transaction. Therefore
the extra loaf that you are claiming is claimed out of nothing. It has
to come out of the wealth of the community--in this particular case out
of the wealth of the man who borrowed the loaves--instead of coming out
of an increment or excess or new wealth. That is why usury is called
“usury”--which means: “wearing down,” “gradually dilapidating.”
It is clear that if the whole world practised usury and nothing but
usury, if wealth were never lent to be used productively, but only to
be consumed unproductively, and yet were to demand interest on the
unproductive transaction, then the wealth that was lent would soon eat
up all the other wealth in the community until you came to a situation
in which there was no more to take. Everyone would be ruined except
those who lent; then these, having no more blood to suck, would die
themselves, and society would end.
As in the case of the ship, it matters not in the least whether the
actual thing, the loaves of bread, are lent, or money is lent with
which to buy them. _The test is whether the loan is productive or not._
The _intention_ of Usury is present _when the money is lent at interest
on what the lender_ KNOWS _will be an unproductive purpose_, and the
actual _practice_ of usury is present _when the loan, having as a fact
been used unproductively, interest is none the less demanded_.
As in every other case of right and wrong whatsoever, there is, of
course, a broad margin in which it is very difficult to draw the line.
A man guilty of usury and trying to excuse himself might say, even
in the case of food lent to a starving man: “The loan may not look
directly productive, but indirectly it _was_ productive, for it saved
the man’s life and thus later on he was able to work and produce
wealth.”
The other way about (though there is not much danger of that nowadays),
a man trying to get out of interest on a productive loan might say in
many cases: “The loan was not really productive. It is true I made
a profit on it, but that profit was not additional wealth for the
community. It only represented what I got out of somebody else on a
bargain.”
In this margin of uncertainty we have only common sense to guide us,
as in every other similar case. We know pretty well in each particular
example we come across whether a loan is productive of not; whether we
are borrowing or lending for a productive purpose, or for a charitable
or luxurious one, or for one in every way unproductive.
The proof that this feeling about usury is right is to be found in the
private conduct of individuals in their social relations. If a poor
man in distress goes to a rich friend and borrows ten pounds, he pays
it back when he can; and the rich man would think it dishonourable
to charge interest. But if a man borrowed ten pounds of one for the
purpose of doing something which was likely to increase its value,
and we knew that this was his purpose, we should have a perfect right
to share the results with him, and no one would think the claim
dishonourable.
Usury, then, is essentially a claim to increment, or extra wealth,
_which is not there to be claimed_. It is a practice which diminishes
the capital wealth of the needy and eats it up to the profit of the
lender; so that, if usury go unchecked, it must end in the absorption
of all private property into the hands of a few money brokers.
Now, these things being so, the nature of usury being pretty clear,
and both the moral wrong of it and the injury it does to society being
equally clear, how is it that the modern world for so long forgot all
about it, and how is it that it is forcing itself upon the attention of
the modern world again in spite of that forgetfulness?
I will answer both of those questions.
The wrong and the very nature of usury came to be forgotten with the
great expansion of financial dealings which arose in the middle and end
of the seventeenth century--that is, about 250 years ago--in Europe.
In the simpler times, when commercial transactions were open and upon
a comparatively small scale, and done between men who knew each other,
you could pretty usually tell, as you can in private life, whether a
loan were a loan required for a productive or an unproductive purpose.
The burden of proof lay upon the lender. It was no excuse in lending
a man money to say: “I did not know what he wanted to do with it, so
I charged him 10 per cent., thinking that very probably he was going
to use it productively.” The courts of justice would not admit such a
plea, and they were quite right. For under the simple conditions of
the old days the judge would answer: “It was your business to know.
A man does not come borrowing money unless he is in either personal
necessity or has some productive scheme for which he wants to use the
money. If you thought it was a productive scheme you would certainly
have asked him about it in order to share the profits, and the fact
that you did not trouble to find out whether it were productive or no
shows that you are indifferent to the wrong of usury, and willing to do
that wrong under the pretence that it was not your business to inquire.”
The attitude of the law on money-lending in the old days was very much
what it is to-day with regard to certain poisonous chemicals which may
be used well or ill. The seller of those chemicals has to ask what they
are going to be used for, and is responsible if he fails to inquire.
In the same way the old Christian law said a lender was bound to find
out if his loan were intended for production or not. If the law had not
done this, then usury would have been universal and would have eaten up
the State, to the profit of the few people who lent out their money: as
it is doing now.
But as trade became more and more complicated and much larger and lost
its personal character, as the banking system arose on a large scale
and great companies with any number of shareholders, and as it became
impossible to lay the weight of proof upon the lender--when, indeed,
most lenders could not know for what their money was being lent, but
only that they had put it into some financial institution with the
object of fructifying it--then the opportunity for Usury came in, and
it soon permeated all commerce.
Suppose a man to-day, for instance, to put money into an Insurance
Company. It pays him, let us say, 5 per cent. interest on his money.
He does not know, and cannot know--no one can know--exactly how that
particular bit of money is being used. It is merged in the whole lump
of the funds the Insurance Company has to deal with. A great deal of it
will be used productively. It will go to the purchase of steam engines
and stores of food, ships, and so on, which in use increase the wealth
of the world; and the money spent in buying these things has a perfect
right to profit and does no harm to anyone by taking profit. But a
certain proportion will be used unproductively. The original investor
knows nothing about that, and even the managers of the company know
nothing about it.
A client comes to them and says: “I want a loan of a thousand pounds.”
They are quite unable, under modern conditions, to go into an
examination of what he is going to do with it. He gives security and
gets his loan. He may be a man in distress who gets it in order to pay
his debts, or he may be a man who is going to start a business. The
company cannot go into that. It has to make a general rule of so much
interest upon what it lends, under the implied supposition, of course,
that the loan is normally productive. But the borrower _can_ use it
unproductively, and often does and intends to do so.
Thus, with a very large volume of impersonal business, the presence of
usury is inevitable. But though inevitable, and though therefore the
practice of it, being indirect and distant, cannot be imputed to this
man or that, usury inevitably produces its disastrous effects, and the
modern world is at last coming to feel those effects very sharply.
A few pence lent out at usury some twenty centuries ago would amount
now, at compound interest, to more wealth than there is in the whole
world; which is a sufficient proof that usury is unjust and, as a
permanent trade method, impossible.
The large proportion of usurious payments which are now being made
on account of the impersonal and indirect character of nearly all
transactions, is beginning to lay such a burden upon the world as a
whole that there is danger of a breakdown.
If you keep on taking wealth as though from an increase, when really
there is no increase out of which that wealth can come, the process
must, sooner or later, come to an end. It is as though you were to
claim a hundred bushels of apples every year from an orchard after the
orchard had ceased to bear, or as though you were to claim a daily
supply of water from a spring which had dried up. The man who would
have to pay the apples would have to get them as best he could, but by
the time the claim was being made on all the orchards of the world,
by the time that usury was asking a million bushels of apples a year,
though only half a million were being produced, there would be a jam.
The interest would not be forthcoming, and the machinery for collecting
it would stop working. Long before it actually stopped, of course,
people would find increasing difficulty in getting their interest and
increasing trouble would appear in all the commercial world.
Now that is exactly what is beginning to happen to-day after about
two centuries of usury and one century of unrestricted usury. So far
we have got out of it by all manner of makeshifts. Those who have
borrowed the money and have promised to pay, say, 5 per cent., are
allowed to change and to pay only 2½ per cent. Or, by the process of
debasing currency, which I described earlier in this book, the value
of the money is changed, so that a man who has been set down to pay,
say, a hundred sheep a year, is really only paying 50 or 30 sheep
a year. A more drastic method is the method of “writing off” loans
altogether--simply saying: “I simply cannot get my interest, and so I
must stop asking for it.” That is what happens when a Government goes
bankrupt, as the Government of Germany has done.
If you look at the Usury created by the Great War, you will see this
kind of thing going on on all sides. The Governments that were fighting
borrowed money from individuals and promised interest upon it. Most
of that money was not used productively: it was used for buying wheat
and metal, and machinery and the rest, but the wheat was not used
to feed workmen who were producing more wealth. It was used to feed
soldiers who were producing no wealth, and so were the ships and the
metal and the machinery, etc. Therefore when the individuals who had
lent the money began collecting from the Government interest upon what
they had lent they were asking every year for wealth which simply was
not there, and the Governments have got out of their promise to pay a
usurious interest in all sorts of ways--some by repudiating, that is
saying that they _would_ not pay (the Russians have done that), others
by debasing currency in various degrees. The English Government has cut
down what it promised to pay to about half, and by taxing this it has
further reduced it to rather less than a third. The French Government,
by inflation and by taxation, have reduced it much more--to less than a
fourth, or perhaps more like a sixth or an eighth.
The Germans have reduced it by inflation to pretty well nothing, which
is the same really as repudiating the debt altogether.
So what we see in a general survey is this:--
1. Usury is both wrong morally and bad for society, _because it is the
claim for an increase of wealth which is not really present at all_. It
is trying to get something where there is nothing out of which that
something can be paid.
2. This action must therefore progressively and increasingly soak up
the wealth which men produce into the hands of those who lend money,
until at last all the wealth is so soaked up and the process comes to
an end.
3. That is what has happened in the case of the modern world, largely
through unproductive expenditure on war, which expenditure has been met
by borrowing money _and promising interest upon it although the money
was not producing any further wealth_.
4. The modern world has therefore reached a limit in this process and
the future of usurious investment is in doubt.
Though these conclusions are perfectly clear, it is unfortunately not
possible to say that this or that is a way out of our difficulties;
that by this or that law we can stop usury in the future and can go
back to healthier conditions. Trade is still spread all over the world.
It is still impersonal and money continues to be lent out at interest
unproductively, with the recurring necessity of repaying the debt and
failing to keep up payments which have been promised. Things will not
get right again in this respect until society becomes as simple as it
used to be, and we shall have to go through a pretty bad time before we
get back to that.
ECONOMIC IMAGINARIES
I am going to end with a rather difficult subject on which I hesitated
whether I should put it into this book or no. If you find it too
difficult leave it out; but if you find as you read that you can
understand it it is worth going into, because it is quite new (you will
not find it in any other book), and it is very useful in helping one to
understand certain difficult problems which have arisen in our modern
society and which have become a danger to-day. This subject is what I
call “Economic Imaginaries.”
An imaginary is a term taken from mathematics, and means a value which
appears on paper but has no real existence. It would be too long and
much too puzzling to explain what imaginaries in mathematics are, but I
can give you a very simple example of what they are in Economics. They
mean economic values or lumps of wealth which appear on paper when you
are making calculations, so that one would think the wealth was really
there, but which when you go closely into their nature you find do not
really exist.
The first example I will give you is that of a man who, having a
large income, gives an allowance to his son living somewhere abroad.
Supposing a man in England has £10,000 a year, and he has put his son
into business in Paris, but because the young man has not yet learned
his business, and is still being helped from home, he allows that son
£1,000 a year to spend.
When the Income Tax people go round finding out what everybody has they
put down the rich man in England, quite rightly, as having £10,000
a year, and when the value of all incomes in England is _assessed_,
_i.e._, when a table is drawn up showing what the total income of all
Englishmen is, this man appears, quite properly, as having £10,000
a year. But when the people in France make a similar _assessment_,
to find out what the incomes are of all the people living in France,
the rich man’s son in Paris appears as having £1,000 a year. So when
the assessments of England and France are added together and some
Government economist is calculating what the total income of the
citizens of both countries may be, _that £1,000 a year appears twice_.
One of these appearances is an _economic imaginary_. In other words, by
the method of calculation used, £1,000 every year appears on the total
assessment of England and also of France, making £2,000 of £1,000. The
extra £1,000, though appearing on paper, does not really exist at all:
it is an “Economic Imaginary.”
This is the simplest case of an economic imaginary. It is the case
overlap, or counting of the same money twice, and we may put down this
case in general terms by saying: “Every unchecked overlap creates an
economic imaginary to the extent of that unchecked overlap.”
It looks so simple that one might say, “Well, surely everybody would
notice that!” But it is very much the other way--even in this simple
case. The more complicated society becomes, the more payments there are
back and forth, allowances and pensions and all sorts of arrangements
which grow up with increased travel and means of communication and,
in general, with the development of society, the more these overlaps
come into being and remain unchecked, that is, uncorrected, the
greater number there are in which people are not aware that there is
an overlap, or if it is an overlap do not remember to mention it, or
if they do mention it are not believed. In general the more society
increases in complexity the more this kind of economic imaginary by
mere overlap increases in proportion to the total real wealth, and the
more the total “assessment” of the community is exaggerated.
I will give you one instance, to prove this, which is very striking and
which happened in my own experience. A man I knew gave in his income
tax returns a few years ago. He had a secretary at home to whom he paid
a fairly large salary, and he also used a secretary in town. Their
salaries came out of money which he had earned in business but appeared
in his taxable general income, for he was not allowed to take it off
as an expense. Meanwhile, both the secretary in the country and the
secretary in town were paying tax on _their_ salaries, though they came
out of a total income which had already paid taxes, and anyone making
an assessment of the total income of England would certainly have
written down from the official books: “Mr. Blank, so much a year; his
secretary A--, so much a year; his secretary B--, so much a year,” and
added up the total. Yet it is clear that the money put down to A and B
was imaginary.
I cannot tell you the thousands of ways in which this simple case of
overlapping goes on in modern England, for it would be too long to
explain, and I have only given you very simple instances, but you may
be certain that the economic imaginaries of this kind form at least a
quarter of the supposed income of the country.
If there were no other form of imaginaries than this it would be
very simple to understand them, and perhaps allow for them in making
an estimate of total wealth. Unfortunately, there are any number of
different forms much more difficult to seize and cropping up like
mushrooms everywhere more and more in a complicated and active society.
For instance: you have (2) the economic imaginary due to _luxurious
expenditure_.
All over the world where you have rich people spending money foolishly
they are asked, for things that they buy, prices altogether out of
keeping with the real value of the things. If you go into one of the
big hotels in London or Paris and have a dinner the _economic values_
you consume are anything from a quarter to a tenth of the sum you are
asked to pay. Thus people who buy a bottle of champagne in this sort
of place pay from a pound to thirty shillings. The economic values
contained in a bottle of champagne, that is the economic values which
are built up by the labour of all sorts which has been expended in
producing it, come to about two shillings and sixpence. So when people
pay from a pound to thirty shillings for a bottle of champagne they
are paying from eight to twelve times the real economic values which
are destroyed in consumption. There is an extra margin of anything
from seventeen shillings and sixpence to twenty-seven shillings and
sixpence, which is an _economic imaginary_ in that one case alone.
And remember that this economic imaginary goes the rounds. It appears
in the profits of the hotel-keeper, which are assessed in the total
national income for taxation. It appears in the rent for his hotel,
since a man will pay much more rent for a house in which he can get
people to pay these sums than for a humbler hotel of the same size and
of the same true economic value in bricks and mortar. It appears in the
rates which the hotel pays to the local authorities, and which in their
turn appear in the income of humble officials living in the suburbs.
That economic imaginary created by the silly person who is willing to
pay from a pound to thirty shillings for a thing worth two shillings
and sixpence appears over and over again in the various assessments of
the country.
Here is another case (3): _economic imaginaries due to inequality of
income_.
Supposing you have a thousand families with £1,000 a year each; that
is, a total income among them of £1,000,000 a year. Supposing you put
up for competition among those families a very beautiful picture which
everybody would like to have; painted, say, by Van Dyck. None of these
people with £1,000 a year each could afford to give more than a certain
sum for the picture, and probably, when they had competed for it, it
would fetch no more than £100. An official estimating that community
would say that it had £1,000,000 a year income, such and such values in
houses, etc., and that there was a picture present worth £100, and all
that would go down in his estimates or “Assessment.”
Now supposing all but two of these thousand families to be impoverished
by having to pay rents and interest to these two men. Supposing they
were all reduced to just under £500 a year, and that the balance of
£500,000 were paid to those other two. Then each of these would have
£250,000 a year. The Van Dyck is put up for auction in this community.
The poor families, of course, have no show at all. Not one of them can
afford more than £50 at the most, however much he wanted the Van Dyck.
But the two rich men can compete one against the other recklessly. They
have an enormous margin of wealth with which to do what they like, and
the Van Dyck between them may be rushed up to £50,000.
There is not a penny more of real wealth in the community than there
was before. Yet your Government assessor would come down and assess the
community in a very different fashion from the way in which he would
have assessed the first community. He will put down the total income at
£1,000,000, and the houses, furniture, etc., at so much, and he will
add: “Also a Van Dyck valued at £50,000.” Of course in real life, where
are great differences of income, this sort of thing is multiplied by
the thousand. It is another example of the way in which, as communities
get more complicated in a high civilisation, economic imaginaries
appear.
I am only introducing this subject as a very simple addition to this
little book, and I will not multiply instances too much, though one
might go on giving examples almost indefinitely.
Here, then, is a last one (4): _economic imaginaries due to the
confusion between services and economic values attached to material
things_.
We saw at the beginning of this book that wealth did not consist in
_things_, such as coal, chairs, tables, etc., but in the _economic
values attached to those things_; that is, their added use for the
purposes of human beings up to the point where they were beginning to
be consumed. We saw how the coal in the earth has no economic value,
how it begins to be of value when it begins to be mined, and how each
piece of additional labour put into it to bring it nearer to the point
of consumption adds to its economic value, until at last, when it gets
into your cellar, from being worth nothing a ton (when it was still in
the earth) it is worth thirty shillings or forty shillings a ton.
But when people assess wealth for the purpose of taxation, and in order
to find what (in their judgment) the total yearly income of a nation
is, they count not only the economic values attached to things consumed
by the nation, but also _services_.
For instance: if Jones is a good card player, the rich man Smith may
pay him £500 a year to live in his house and amuse his loneliness by
perpetually playing cards with him. I knew a case of a man in South
Wales who did exactly that. It is an extreme case, but we all of us,
all day long, are paying money for services which do not add economic
values to things at all, and which yet must appear in assessment.
All the money I earn by writing is of this kind. Now assessment of
these services creates an enormous body of economic imaginaries, and to
show you how they may do so I will give you an extreme and ludicrous
case.
Supposing two men, one of whom, Smith, has a loaf of bread, and the
other of whom, Brown, has nothing. Smith says to Brown: “If you will
sing me a song I will give you my loaf of bread.” Brown sings his song
and Smith hands over the bread. A little later Brown wants to hear
Smith sing and he says to him: “If you will sing me a song I will give
you this loaf of bread.” A little later Smith again wants to have a
song from Brown. Brown sings his song (let us hope a new one!) and the
loaf of bread again changes hands and so on all day.
Supposing each of these transactions to be recorded in a book of
accounts. There will appear in Smith’s book: “Paid to Brown for singing
songs two hundred loaves of bread,” and in Brown’s book: “Paid to Smith
for singing songs two hundred loaves of bread.” The official who has to
assess the national income will laboriously copy these figures into his
book and will put down: “Daily income of Smith, 200 loaves of bread.
Daily income of Brown, 200 loaves of bread. Total 400 loaves of bread.”
Yet there is only one _real_ loaf of bread there all the time! The
other 399 are imaginary.
Now with a ludicrous and extreme example of this sort you may say:
“That is all very well as a joke, but it has no bearing on real life.”
It has. That is exactly the sort of thing which is going on the whole
time in a highly-developed economic society. I go to a matinee and
pay 10s. for a man to amuse me. He goes off himself in the evening
and pays 10s. to hear a man sing at a concert. Next morning that man
(I sincerely hope) buys one of my books, and a big part of the price
is not paid for the economic values attaching to the material of it,
but for the services of writing it, which is not a creation of wealth
at all. The publisher pays me my royalty, and I spend part of it in
looking at an acrobat in a music hall. The acrobat pays 10s. to keep up
his chapel; and the minister of the chapel, in a fit of fervour, pays a
subscription of 10s. to a political party.
And so on. Here is a short chain of economic imaginaries: 50s.--five
ten-shilling notes--all appearing one after the other in the assessment
of the national income and corresponding to no real wealth.
It is exactly the same thing in principle as the case of the two men
singing for one loaf of bread. And the same principle applies to the
expenditure of rates and taxes. A great part of this expenditure goes
in empty services, not in services which add economic values to things.
We must, of course, distinguish between two things which many of the
older economists muddled up. A thing may be of the highest temporal use
to humanity in the production of happiness, such as good singing, or
of high spiritual value, such as good conduct, and yet that thing must
not be confounded with economic values. When one says, for instance,
that good singing, or a good picture, or a good book has no economic
value, or only a very slight material economic value (the best picture
ever painted has probably not a true economic value of more than 20s.
outside its frame, unless the painter used expensive paints or a quite
enormous canvas) one does not mean, as too many foolish people imagine,
that _therefore_ one ought not to have good singing, or good pictures,
or the rest of it.
What _is_ meant is that the examination of any one set of things must
be kept separate from the examination of another, and when you put down
the money spent on these things as though it represented real economic
values you are making a false calculation.
Well, this is only a hint of quite a new subject in Economics, which
I have put in at the end in the hope that it may be of some value
to you. Meditate upon it. As societies get more and more luxurious,
more and more complicated, more and more “civilised” (as we call
it), so do these economic imaginaries grow out of all proportion to
the real wealth of the society. If on the top of their growth you
suddenly impose high taxation, based upon your assessment, you may
think that you are only taking a fifth or a third or a fourth of the
whole community’s real yearly wealth, when in reality you are taking
a half or more than a half. And this is probably the main reason why
so many highly developed societies have broken down towards the end
of their brilliance through the demands of their tax-gatherers who
worked on assessment inflated out of all reality by a mass of economic
imaginaries.
FINIS
FOOTNOTES
[1] From the Latin word “Fiat” = “Let it be so.” As though the
Government had said: “This is not a piece of gold, only a piece of
paper. But I say it is to be taken as gold. So I order. _Let it be so._”
[2] It is important to keep our ideas rigidly clear on this point. You
can exchange a piece of fertile land for some set of values. Yet it is
not _wealth_. It is not matter transposed from a condition where it
is less useful to a condition where it is more useful to man. See the
definitions in the first chapter, “What is wealth?”
[3] “Enjoyment” does not mean, in this connection, pleasure, happiness.
It is a conventional phrase to mean “consumption _not_ directed to the
making of further wealth?” Thus the wealth consumed at a boring dinner
party is consumed in “enjoyment.”
[4] A _Strike_ is a modern English word (only used where the English
language is spoken), and signifying the refusal of the Free labourers
to sell their labour for the amount hitherto given. They cease work,
thereby interrupting the profits of the Capitalist who furnishes them
with food, clothing, etc., in the shape of wages. They do so in the
hope of compelling him, by loss of profits during their idleness, to
pay them more.
A _Lock-out_ is a modern English word now used all over the world to
signify an action of the Capitalist refusing to pay his workmen what
they have hitherto received, and hoping to starve them into accepting
lower wages by “locking them out” of his factory until they submit.
Strikes are only possible when the labourers have accumulated some
capital on which to live during the struggle. This they accumulate by
contributions to the common fund of a “Trades Union” while still in
employment. A Lock-out is only possible from the fact that such funds
are small and soon exhausted.
[5] In theory Parliament is stronger than the banks, but Parliament
no longer counts as a real governing power. The banks are far more
powerful than Parliament.
[6] This very sensible tax was invented by Disraeli in England about a
lifetime ago.
[7] Silver and gold were used together, but gold alone will serve as a
test.
[8] A simple daily example of an amateur index number is the
housewife’s idea of “cost of living.” She finds that, for the purchase
of her home, a great deal of bread, a little butter, more cheese, so
much for clothing, rent, etc., 40s. to-day go about as far as 20s. in
1913 before the war. In other words she is “taking 1913 as a base and
establishing an index number of 200 for 1923.”
Index
Banking, how arose, 168–173;
its machinery, 173–179.
Banking system, its advantage in concentrating capital, 180;
begins to invest money, 183–186;
great modern power of, 186–188.
Blanc, creator of modern socialism, 133;
its definition, 134.
Capital, Character of, 19–26.
“Capitalism,” term for Capitalist Society, 105;
“Paradox,” 120, 122.
Capitalist State, 101, 104–5;
advantages and disadvantage, 115–123.
Categories, Purchasable, 209–210.
Circulation, Efficiency in, 72–75.
Clearing House, 179.
Coal, Example of addition of values to, 27–28.
Coal Mine, example of how rent arises as a surplus, 47–49.
Communism, only logical and necessary form of Socialism, 135.
Consumption of Capital inevitable, 23.
Consumption of wealth is universal, 31–32.
Currency, Debasement of, 79–83.
Currency, Meaning of, 70.
Denmark, example of distributive state, 108, 126.
Diminishing Returns, Law of, 40–44.
Distributive State, 105–6;
advantages and disadvantages, 124–131.
Division of Labour, 54.
Douglas Scheme of Credit, 187.
Economic Imaginaries, examples of, 231–240.
Exchange, a true form of production, 52.
Exchange, Free, Formulæ of maximum wealth through, 59–60.
Exchange, International, factor of National Currencies in, 142, 143.
Exchange, Medium of, or currency, 70.
Exchange, Multiple, 57–58.
Exchange, Multiple, in International trade, 143–144.
Exchange, Potential of, 53–54.
Exchange value, necessary condition of wealth, 12–14.
Expenditure, Luxurious, productive of Economic Imaginaries, 233.
Exports not a test of wealth, 146–149.
Formulæ defining production of wealth, 26.
Formula, defining wealth, 14.
Formula of Consumption, 32.
Formula of Maximum Wealth through freedom of exchange, 59.
Formula, of Production by Transport and Exchange, 32.
Formula of Protection, 64.
Formula of Potential of Exchange, 56.
Formulæ of Subsistence, Interest and Rent, 50.
Free Trade, arguments for, 153–155.
Free Trade and Protection, detailed consideration of, 150–166.
Free Trade and Protection, Elements of, 61–65.
Gold and Silver, Natural advantages of, as money, 69–70.
Great War, its effect in destroying value of currency, 79–83.
Human energy in production of wealth, conventionally called “Labour,”
18–19.
Imaginaries, Economic, examples of, 231–240.
Imports test of wealth, not exports, 146–149.
Incomes, Inequality of, productive of Economic Imaginaries, 235.
Index Number, 204–208.
Inequality of Incomes, productive of Economic Imaginaries, 235.
Intention, a necessary adjunct to Capital, 22.
Interest, high, not connected with though often confused with Usury,
217, 218.
Interest, Nature of, 39–45.
International Exchange, factor of National Currencies in, 142, 143.
International Trade, why vital to England, 148–149.
Islands, Three, Example of in proof of Protectionist Theory, 160–165.
Labour, Division of, 54.
Labour, term for all human energy in production of wealth, 18–19.
Labour “worth while of” or Standard of Subsistence, 30–38.
Land, conventional term for all natural forces used in production of
wealth, 17–18.
Land, Labour, Capital, Conventional terms for three factors of
wealth, 16.
Law of Diminishing Returns, 40–44.
Loan, Unproductive, the test of Usury, 218–221.
Luxurious Expenditure, productive of Economic Imaginaries, 233.
“Marx,” assumed name of Mordecai, 134.
Material objects, not wealth, 11–12.
Means of Production, 99–100.
Medium of Exchange, or currency, meaning of, 70.
Money, how it arises, 66–69;
Qualities of, 68–69.
Money, Paper, its function, 75–78;
its corruption, 78–83.
Money, Social value of, three factors in, 202–203.
Mordecai, or “Marx,” principal propagator of Socialism, 134.
Multiple Exchange, 57–58.
Multiple Exchange in International trade, 143–144.
Natural forces used in production of wealth, called “Land,” 17–18.
National loans and debt, how arise, 189–191;
method of shirking interest on, 192–193.
Overlap, example of an Economic Imaginaries, 231–232.
Potential of Exchange, 53–54;
formulæ of, 56.
Prices, Names for exchange value in gold, 71–72.
Production, Means of, definition, 99–100.
Production of wealth, three necessary factors in, Land, Labour and
Capital, 15–26.
Production, Process of, 27–32.
Property, Nature of, 95–97;
private, 96.
Protection and Free Trade, detailed consideration of, 150–166;
arguments advanced for, 152, 156–157;
example of the Three Islands, 160–165;
of Pig Meal in England, 165–166.
Protection and Free Trade, Elements of, 61–65.
Protection, Economic, Formula of, 64.
Rent, a surplus, 47.
Rent, Example of Coal Mine, 48.
Rent, Interest, Subsistence, the three divisions of wealth produced,
33–51.
Rent, Nature of, 46–51.
Saving, a necessary process in formation of Capital, 24–25.
Services and Wealth, confusion between productive of Economic
Imaginaries, 236–238.
Servile State, 100, 103;
advantages and disadvantages, 109–114.
Silver and Gold, Natural advantages of, as money, 69–70.
Single Tax, theory of, 198–200.
Socialism, its creator in modern terms. Blanc, 133;
its definition, 134.
Socialism, only conceivable as Communism, 135;
failure of, 135–140.
Standard of subsistence, 36–38.
State, Capitalist, 101, 104–5;
advantages and disadvantages, 115–123.
State, Distributive, 105–106;
advantages and disadvantages, 124–131.
State, Servile, 100, 103;
advantages and disadvantages, 109, 114.
Subsistence, Nature of, 35–39.
Subsistence, Standard of, 36–38.
Taxation, direct and indirect, 193–194;
rules of, 194–197.
Taxes, law in distributive state, 129.
Tribute paid to wealthy countries by poor ones, 145–146.
Unproductive Loan, the test of Usury, 218–221.
Usury, definition of, 221;
why neglected, 223–227.
Values, Economic, attached to material objects, 12.
Wealth, Definition of, 10–14.
Wealth, production of, three necessary factors in, Land, Labour and
Capital, 15–26.
Transcriber’s Notes
Punctuation, hyphenation, and spelling were made consistent when a
predominant preference was found in the original book; otherwise they
were not changed.
Simple typographical errors were corrected; unbalanced quotation
marks were remedied when the change was obvious, and otherwise left
unbalanced.
Illustrations in this eBook have been positioned between paragraphs
and outside quotations. In versions of this eBook that support
hyperlinks, the page references in the List of Illustrations lead to
the corresponding illustrations.
Footnotes, originally at the bottoms of the pages that referenced them,
have been collected, sequentially renumbered, and placed near the end
of the book, just before the index.
The index was not checked for proper alphabetization or correct page
references.
Page 164: “Island B cannot do.” perhaps should be “Island A cannot do.”