expenditure on roads; on reclamations of land from the sea; on
afforestation; on building great dams across valleys and barrages
across rivers and tideways to concentrate waterflow on turbine engines;
on stations for the distribution of the power thus gained; on the
demolition of slum towns that should never have been built, and their
replacement by properly planned, healthy and handsome garden cities;
and on a hundred other things that Capitalism never dreams of doing
because it is impossible to appropriate their advantages as commercial
profit. The demand for labor created by such operations would absorb
all the employable unemployed, and leave only the superannuated and the
incurably unemployable on the dole, with, of course, the children, on
whom much more money could and should be spent than at present, with
great uncommercial profit to the next generation.
All this sounds very reassuring, and costs little to describe on paper.
But a few minutes’ reflection will dispel all hope that it could occur
instantly and spontaneously through the uncompensated transfer of
all existing shares and title-deeds to the Government. The Ministry
of Health would have to produce a huge scheme for the grants-in-aid
to the cities; and Parliament would wrangle for months over it. As
to glutting the existing banks with spare money to lend without any
further interference with them, the results would include an orgy of
competitive enterprise, overcapitalization, overproduction, hopeless
shops and businesses started by inexperienced or silly or rash people
or people who are all three: in short, a boom followed by a slump, with
the usual unemployment, bankruptcies, and so forth. To keep that part
of the program under control, it would be necessary to set up a new
department of the Treasury to replace the present boards of predatory
company directors; to open banks wherever the post offices are doing
substantial business; and to staff the new banks with specially trained
civil servants. And all that would take longer than it takes a ruined
citizen to starve.
As to raising industrial wages and reducing prices with the object of
eliminating profit, that is so precisely the contrary of the policy
which the existing managers of our industry have trained themselves
to pursue, and which alone they understand, that their replacement by
civil servants would be just as necessary as in the case of the banks.
Such replacements could be effected only as part of an elaborate scheme
requiring long preliminary cogitation and a practical preparation
involving the establishment of new public departments of unprecedented
magnitude.
Public works, too, cannot be set on foot offhand in the manner of Peter
the Great, who, when asked to dictate the route to be taken by his new
road from Moscow to Petrograd, took up a ruler and drew a straight
line on the map from the word Moscow to the Neva. If Peter had had to
get a proposal for a turbine barrage through a parliament with a fiery
Welsh contingent determined that it should be across the Severn, and an
equally touchy Scots contingent bent on having it across the Kyle of
Tongue, he would have found many months slipping by him before he could
set the first gang of navvies to work.
I need not weary you by multiplying instances. Wholesale
nationalization without compensation is catastrophic: the patient dies
before the remedy has time to operate. If you prefer a mechanical
metaphor, the boiler bursts because the safety valves jam. The
attempted nationalization would produce a revolution. You may say
“Well, why not? What I have read in this book has made me impatient for
revolution. The fact that any measure would produce a revolution is its
highest recommendation”.
If that is yours view, your feelings do you credit: they are or have
been shared by many good citizens. But when you go thoroughly into the
matter you will realize that revolutions do not nationalize anything,
and often make it much more difficult to nationalize them than it
would have been without the revolution if only the people had had
some education in political economy. If a revolution were produced by
unskilled Socialism (all our parliamentary parties are dangerously
unskilled at present) in the teeth of a noisy and inveterate Capitalist
Opposition, it would produce reaction instead of progress, and give
Capitalism a new lease of life. The name of Socialism would stink in
the nostrils of the people for a generation. And that is just the
sort of revolution that an attempt to nationalize all property at a
blow would provoke. You must therefore rule out revolution on this
particular issue of out-and-out uncompensated and unprepared general
nationalization versus a series of carefully prepared and compensated
nationalizations of one industry after another.
Later on, we shall expatiate a little on what revolutions can do
and what they cannot. Meanwhile, note as a canon of nationalization
(economists like to call their rules for doing anything canons) that
all nationalizations must be prepared and compensated. This will
be found an effectual safeguard against too many nationalizations
being attempted at a time. We might even say against more than one
nationalization being attempted at a time; only we must not forget
that industries are now so amalgamated before they are ripe for
nationalization that it is practically impossible to nationalize one
without nationalizing half a dozen others that are inextricably mixed
up with it. You would be surprised to learn how many other things a
railway company does besides running trains. And if you have ever gone
to sea in a big liner you have perhaps sometimes looked round you and
wondered whether the business of making it was called shipbuilding or
hotel building, to say nothing of engineering.
62
WHY CONFISCATION HAS SUCCEEDED HITHERTO
Now that I have impressed on you at such length as a canon of
nationalization that Parliament must always buy the owners out and
not simply tax them out, I am prepared to be informed that the canon
is dead against the facts, because the direct attack on property by
simple confiscation: that is, by the Government taking the money of the
capitalists away from them by main force and putting it into the public
treasury, has already, without provoking reaction or revolution, been
carried by Conservative and Liberal Governments to lengths which would
have seemed monstrous and incredible to nineteenth century statesmen
like Gladstone, proving that you can introduce almost any measure of
Socialism or Communism into England provided you call it by some other
name. Propose Socialistic confiscation of the incomes of the rich, and
the whole country will rise to repel such Russian wickedness. Call
it income tax, supertax, and estate duties, and you can lift enough
hundreds of millions from the pockets of our propertied class to turn
the Soviet of Federated Russian Republics green with envy.
Take a case or two in figures. Gladstone thought it one of his triumphs
as Chancellor of the Exchequer to reduce the income tax to twopence in
the pound, and hoped to be able to abolish it altogether. Instead of
which it went up to six shillings in 1920, and stopped at that only
because it was supplemented by an additional income tax (Supertax or
Surtax) on the larger incomes, and a partial abolition of inheritance
which makes the nation heir to a considerable part of our property when
we die possessed of any. Just imagine the fuss there would have been
over this if it had been proposed by a Socialist Prime Minister as
Confiscation, Expropriation, and Nationalization of Inheritance on the
Communist principles of the prophet Marx! Yet we took it lying down.
You have perhaps not noticed how this taxation is arrived at in
Parliament at present. The Chancellor of the Exchequer is the Minister
who has to arrange the national housekeeping for the year, and screw
out of a reluctant House of Commons its consent to tax us for the
housekeeping money; for with the negligible exception of the interest
on certain shares in the Suez Canal and in some ten companies who had
to be helped to keep going during the war the nation has no income
from property. Whom he will be allowed to tax depends on the sort of
members who have been returned to Parliament. Without their approval
his Budget, as he calls his proposals for taxation, cannot become law;
and until it becomes law nobody can be compelled to pay the taxes.
In Gladstone’s time Parliament consisted practically of landlords
and capitalists and employers, the handful of working class members
being hopelessly outvoted by the other three sections combined, or
even single. Each of these sections naturally tried to throw as much
of the burden of taxation as possible on the others; but all three
were heartily agreed in throwing on the working class as much of it
as they could without losing too many working class votes at the next
election. Therefore the very last tax they wished to sanction was
the income tax, which all of them had to pay directly, and which the
wage workers escaped, as it does not apply to small incomes. Thus the
income tax became a sort of residual tax or last resort: an evil to be
faced only when every other device for raising money had been found
insufficient. When Gladstone drove it down from sixpence to fourpence,
and from fourpence to twopence, and expressed his intention of doing
without it altogether, he was considered a very great Chancellor of the
Exchequer indeed. To do this he had to raise money by putting taxes on
food and drink and tobacco, on legal documents of different kinds, from
common receipts and cheques and contracts to bills of exchange, share
certificates, marriage settlements, leases and the like. Then there
were the customs, or duties payable on goods sent into the country
from abroad. The industrial employers, who were great importers of
raw materials, and wanted food to be cheap because cheap food meant
low wages, said “Let them come in free, and tax the landlords”. The
country gentlemen said “Tax imports, especially corn, to encourage
agriculture”. This created the great Free Trade controversy on which
the Tories fought the Liberals for so many years. But both parties
always agreed that income tax should not be imposed until every other
means of raising the money had been exhausted, and that even then it
should be kept down to the lowest possible figure.
When Socialism became Fabianized and began to influence Parliament
through a new proletarian Labor Party, budgeting took a new turn. The
Labor Party demanded that the capitalists should be the first to pay,
and not the last, and that the taxation should be higher on unearned
than on earned incomes. This involved a denial of the need for keeping
Government expenditure and taxation down to the lowest possible figure.
When taxation consists in taking money away from people who have not
earned it and restoring it to its real earners by providing them with
schools, better houses, improved cities, and public benefits of all
sorts, then clearly the more the taxation the better for the nation.
Where Gladstone cried “I have saved the income tax payers of the
country another million. Hurrah!” a Labor Chancellor will cry “I have
wrung another million from the supertaxed idlers, and spent it on the
welfare of our people! Hooray!”
Thus for the last fifteen years we have had a running struggle in
Parliament between the Capitalist and Labor parties: the former trying
to keep down the income tax, the supertax, the estate duties, and
public expenditure generally, and the latter trying to increase them.
The annual debates on the Budget always turn finally on this point,
though it is seldom frankly faced; and the capitalists have been losing
bit by bit until now (in the nineteen-twenties) we have advanced from
Gladstone’s income tax of 2d. in the pound to rates of from four to six
shillings, with, on incomes exceeding £2000, surtaxes that range from
eighteen pence to six shillings according to the amount of the income;
whilst on the death of a property owner his heirs have to hand over to
the Government a share of the estate ranging from one per cent of its
fictitious capital value when it is a matter of a little over £100, to
forty per cent when it exceeds a couple of millions.
That is to say, if your uncle leaves you five guineas a year you have
to pay the Government seventy-three days income. If he leaves you a
hundred thousand a year you pay eight years income, and starve for the
eight years unless you can raise the money by mortgaging your future
income, or have provided for it by insuring your life at a heavy
premium for the nation’s benefit.
Now suppose this income of a hundred thousand a year belongs to an
aristocratic family in which military service as an officer is a
tradition which is practically obligatory. In a war it may easily
happen, as it did sometimes during the late war, that the owner of such
a property and his two brothers next in succession are killed within
a few months. This would bring the income of £100,000 a year down to
£12,000, the difference having been confiscated by the Government.
If we were to read in The Morning Post that the Russian Soviet had
taken £78,000 a year from a private family without paying a penny of
compensation, most of us would thank heaven that we were not living in
a country where such Communistic monstrosities are possible. Yet our
British anti-Socialist Governments, both Liberal and Conservative, do
it as a matter of routine, though their Chancellors of the Exchequer
go on making speeches against Socialistic confiscation as if nobody
outside Russia ever dreamt of such a thing!
That is just like us. All the time we are denouncing Communism as
a crime, every street lamp and pavement and water tap and police
constable is testifying that we could not exist for a week without it.
Whilst we are shouting that Socialistic confiscation of the incomes of
the rich is robbery and must end in red revolution, we are actually
carrying it so much further than any other fully settled country that
many of our capitalists have gone to live in the south of France for
seven months in the year to avoid it, though they affirm their undying
devotion to their native country by insisting that our national anthem
shall be sung every Sunday on the Riviera as part of the English divine
service, whilst the Chancellor of the Exchequer at home implores heaven
to “frustrate their knavish tricks” until he can devise some legal
means of defeating their evasions of his tax collectors.
But startling from the Victorian point of view as are the sums taken
annually from the rich, they have not in the lump gone beyond what
the property owners can pay in cash out of their incomes, nor what
the Government is prepared to throw back into circulation again by
spending it immediately. They have transferred purchasing power from
the rich to the poor, producing minor commercial crises here and there,
and often seriously impoverishing the old rich; but they have been
accompanied by such a development of capitalism that there are more
rich, and richer rich, than ever; so that the luxury trades have had
to expand instead of contract, giving more employment instead of less.
And they have proved that you may safely confiscate income derived
from property provided you can immediately redistribute it. But you
cannot tax it to extinction at a single mortal blow. You have always
to consider most carefully how far and how fast you can go without
crashing. The rule that the Government must not tax at all until it
has an immediate use for the money it takes is fundamental: it holds
in every case. The rule that if it uses it to nationalize an already
established commercial industry or service it must have a new public
department ready to take the business over, and must compensate the
owners from whom it takes it, is also invariable. When the object is
not nationalization, but simple redistribution of income within the
capitalist system by transferring purchasing power from one set of
people to another, usually from a richer set to a poorer set, thus
changing the demand in the shops from dear luxuries to comparatively
cheap necessities, then the process must go no faster than the
capitalist shops can adapt themselves to this change. Else it may
produce enough bankruptcies to make the Government very unpopular at
the next election.
Let us study a sensational instance in which we have incurred a heavy
additional burden of unearned income, so strongly resented by the mass
of the people that our Governments, whether Labor or Conservative, may
not long be able to resist the demand for its redistribution.
63
HOW THE WAR WAS PAID FOR
In 1914 we went to war. War is frightfully expensive and frightfully
destructive: it results in a dead loss as far as money is concerned.
And everything has to be paid for on the nail; for you cannot kill
Germans with promissory notes or mortgages or national debts: you must
have actual stores of food, clothing, weapons, munitions, fighting men,
and nursing, car driving, munition making women of military age. When
the army has worn out the clothes and eaten up the food, and fired off
the munitions, and shed its blood in rivers, there is nothing eatable,
drinkable, wearable, or livable-in left to shew for it: nothing visible
or tangible but ruin and desolation. For most of these military stores
the Government in 1914-18 went heavily into debt. It took the blood
and work of the young men as a matter of course, compelling them to
serve whether they liked it or not, and breaking up their businesses,
when they had any, without compensation of any kind. But being a
Capitalist Government it did not take all the needed ready money from
the capitalists in the same way. It took some of it by taxation. But in
the main, it borrowed it.
Naturally the Labor Party objected very strongly to this exemption of
the money of the rich from the conscription that was applied ruthlessly
to the lives and livelihoods and limbs of the poor. Its protests were
disregarded. The spare subsistence needed to support the soldiers and
the workers who were producing food and munitions for them, instead of
being all taken without compensation by taxation, was for the most part
hired from capitalists, their price being the right to take without
working, for every hundred pounds worth of spare subsistence lent, five
pounds a year out of the future income of the country for waiting until
the hundred pounds they put down was repaid to them in full.
Roughly, and in round figures, what happened was that the National
Debt of 660 millions owing in 1914 from former wars was increased by
the new war to over 7000 millions. Until we are able to repay this
in full we have to pay more than 350 millions a year to the lenders
for waiting; and as the current expenses of our civil services (300
millions), with our army, our navy, our air force, and all the other
socialized national establishments, come to more than as much again,
the Chancellor of the Exchequer has now to budget for more than two
millions a day, and get that out of our pockets as best he can. And as
it is no use asking the proletarians for it at a time when perhaps a
million or so of them are unemployed, and have to be supported out of
the taxes instead of paying any, he has to make the property holders
contribute, in income tax, supertax, and estate duties, over 380
millions a year: that is, a million and fifty thousand a day, or more
than half the total taxation. This is confiscation with a vengeance.
Does it strike you that there is something funny about this business
of borrowing most of the 7000 millions from our own capitalists by
promising to pay them, say 325 millions a year whilst they are waiting
for repayment, and then taxing them to the tune of 382 millions a year
to pay not only their own waiting money but that of the foreign lenders
as well? They are paying over 50 millions a year more than they are
getting, and are therefore, as a class, losing by the transaction. The
Government pays them with one hand, and takes the money back again,
plus over 17 per cent interest, with the other. Why do they put up with
it so tamely?
The explanation is easy. If the Government took back from each holder
of War Loan exactly what it had paid him plus three and sixpence in
the pound, all the holders would very promptly cry “Thank you for
worse than nothing: we will cancel the debt; and much good may it do
you”. But that is not what happens. The holders of War Loan Stock
are only a part of the general body of property owners; but all the
property owners have to pay income tax and death duties, and, when
their income exceeds £2000, supertax. Those who did not lend money to
the Government for the war get nothing from it. Those who did lend get
the 325 millions a year all to themselves; but their liability for the
taxation out of which it is paid is shared with all the other property
owners. Therefore, though the property owners as a whole lose by the
transaction, those property owners who hold War Loan Stock gain by
it at the expense of those who do not. The Government not only robs
capitalist Peter to pay capitalist Paul, but robs both of more than it
pays to Paul; yet though Peter and Paul taken together are poorer, Paul
taken by himself is richer, and therefore supports the Government in
the arrangement, whilst Peter complains that the burden of taxation is
intolerable.
To illustrate, my wife and I are capitalists, but I hold some War Loan
stock, whilst all her money is in bank, railway, and other stocks. We
are both taxed equally to pay me the interest on my War Loan; but as
the Government pays me that interest and does not pay her anything,
I gain by the transaction at her expense; so that if we were not, as
it happens, on the communal footing of man and wife, we should never
agree about it. Most capitalists do not understand the deal, and are
in effect humbugged by it; but those who do understand it will never
be unanimous in resisting it; consequently it is voteproof at the
parliamentary elections.
This quaint state of things enables the Labor Party to demonstrate
that it would pay the propertied class, as a whole, to cancel the
National Debt, and put an end to the absurdity of a nation complaining
that it is staggering under an intolerable burden of debt when as a
matter of fact it owes most of the money to itself. The cancellation
of the debt (except the fraction due to foreigners) would be simply
a redistribution of income between its citizens without costing the
nation, as a whole, a single farthing.
The plan of raising public money by borrowing money from capitalists
instead of confiscating it by direct taxation is called funding; and
lending money to the Government used to be called putting it in the
Funds. And as the terms of the borrowing are that the lender is to have
an income for nothing by waiting until his money is repaid, we get
the queer phenomenon of lenders who, instead of being anxious to get
their money back, dread nothing more; so that the Government, in order
to get the loans, has actually to promise that it will not pay back
the loan before a certain date, the further off the better. According
to Capitalist morality people who live on their capital instead of
on interest (as the payment for waiting is called) are spendthrifts
and wasters. The capitalist must never consume his spare subsistence
himself even when it is of a kind that will keep until he is hungry
again. He must use it to purchase an income; and if the purchaser stops
paying the income and repays the sum lent him, the lender must not
spend that sum, but must immediately buy another income with it, or, as
we say, invest it.
This is not merely a matter of prudence: it is a matter of necessity;
for as investing capital means lending it to be consumed before it
rots, it can never really be restored to the investor. Investing it
means, as we have seen, allowing a body of workmen to eat it up whilst
they are engaged in preparing some income producing concern like a
railway or factory; and when it is once consumed no mortal power
can bring it back into existence. If you do a man or a company or a
Government the good turn of letting them use up what you can spare this
year, he or she or they may do you the good turn of letting you have
an equivalent if they can spare it twenty years hence, and pay you for
waiting meanwhile; but they cannot restore what you actually lend them.