Wages, Interest and Profits

From: Henry George versus Henry George

Wages, Interest and Profits

On page 141 Mr. George says:

“After formally decomposing profits into wages of superintendence, compensation for risk and interest—the net return for the use of capital—they proceed to treat of the distribution of wealth between the rent of land, the wages of labor and the profits of capital. “

Mr. George thinks this a great “confusion of terms,” resulting only in the “utter bewilderment of the reader.” It seems to us that Mr. George here makes the whole muddle for himself, and that it would quickly vanish if he would take as much pains to understand the passage as he does to disparage it. At any rate, the common reader has only to appeal from Mr. George to the authorities he cites, to be quite delivered of all the goblins Mr. George has raised for him. Even if it be a mistake to call the compensation of superintendence “wages,” still, with the distinction between it and the “wages of labor” explicitly stated, there is no confusion in dividing “wealth between the rent of land, the wages of labor and the profits of capital” and then subdividing the profits of capital into “wages of superintendence, compensation for risk and interest.” Mr. George says: (p. 141:)

“Buckle persistently speaks of the distribution of wealth in rents, wages, interest and profits.”

On pages 38, 39, of his book, and in the chapter referred to by Mr. George, Buckle says:

“The reward of the workman is called wages; the reward of the contriver is called profits.”

These were distinctions made in the first advance from the primitive state. After the “saving class” arises, and they “lend their accumulations,” “the reward they receive for their loans” is termed the interest of their money; so that there is a threefold division,—Interest, Profits and Wages. “After land values arise, there is a fourfold division” of the wealth of a country “into wages, rent, profits and interest.” (P. 53.) On page 54 he speaks of wages as that which is “left to the laborers after rent, profits and interest have been paid.” And on page 55 he again speaks of wealth as being “divided into rent, interest, profits and wages.”

These are the only instances in the chapter referred to by Mr. George, in which Buckle speaks of wealth being distributed into “rent, interest, profits and wages,” and in no instance with the words collated in the order (if that signify anything) in which Mr. George arranges them. The reader can see for himself how “persistently” Mr. Buckle speaks; and if Mr. George discovers “jumblement” and “confusion,” it only shows how superior his discernment is to that of “a man” (says Mr. George) “who certainly got a wondrously clear idea of what he read, and who had carefully read the principal economists from Smith down.”

However, even Mr. George’s superior discernment is not infallible—unless he sometimes purposely mistakes. On page 144, speaking of the laws of distribution as laid down in the standard works, he says, “if we fish them out and bring them together, we find them to be as follows:”

“Wages are determined by the ratio between the amount of capital devoted to the payment of subsistence of labor and the number of laborers seeking employment.”

This is an error. See Mills “Political Economy,” (vol. I, pp. 421, 422,) where he makes the proper qualification of the maxim that “wages depend on population and capital.” (See also Buckle, vol. I, p. 53 and note 67.)

Mr. George seems bent upon having his own way with the definitions, for it is only by forcing his new wine into the old bottles, (as, for example, making the term “wages” ‘include” all returns for human exertion, page 145,) that he can succeed in making out his case against the standard authorities. Mr. George says: (p. 146:) “All that the laborer produces should rather be held as his natural wages.”

If he digs roots with his finger-nails, Yes. But if he digs roots with a hoe, No. For some part of what he produces goes to the maker of the hoe. And so on through the whole catalogue of implements he uses on which another has bestowed labor, directly or indirectly. And the “injustice” of unequal distribution, “always has existed ever since the accumulation once fairly [or unfairly] began.” (Buckles “Civilization,” vol. I, p. 22.)

If Mr. George would only bear in mind that the political economists of whom he here and elsewhere (p. 140) so constantly complains, mean by “wages” the return to hird labor; by “profits” the return to capital—distributed into three parts, viz.: insurance (compensation for risk, wages of superintendence, and interest,—a subdivision perfectly consistent with the rest of their theory; and by “rent” the return to land; he would perceive that no “violence is done to the meaning of the word,” and that there is no inconsistency in “decomposing profits [p. 141; subdividing profits] into wages of superintendence, compensation for risk, and interest;” and then proceeding “to treat of the distribution of wealth between the rent of land, the wages of labor and the profits of capital.” And he would then perceive also, that the “puzzle,” “confusion of terms,” and “inextricable jumble,” not to say stupidity, exist—not in the brains of the cultivators of Political Economy, certainly not in the mind of John Stuart Mill; as any one of ordinary’ intelligence may see, if he will “take up” and “compare” the chapters referred to by Mr. George, (p. 142,) as the present writer has done—as he (Mr. George) probably expected few or none of his readers to do. And we venture to say that, abating his well-timed, well-said, indignant protest against the atrocious injustice of the present social adjustments, and his eloquent and urgent appeal for some kind of remedy; either one of the chapters he thus commends to his readers, is worth more than all of Mr. George’s book.

It looks a little as though Mr. George were ambitious to put the appearance of absurdity upon the methods of other writers, even when it seems as though it must be clear to his own mind that there is none in fact He says: (p. 141:)

“After formally decomposing profits into wages of super-intendence, compensation for risk, and interest … they proceed to treat of the distribution of wealth between the rent of land, the wages of labor and the profits of capital.”

This word “after” is so important to Mr. George’s purpose that he gives it to us again a few lines away, in the same connection. Now, suppose we give the other writers the benefit of their own way of putting it and say, that, having formally distributed wealth, (the proceeds of labor, land and capital,) between the rent of land, the wages of labor and the profits of capital, they proceed to decompose profits into wages of superintendence, compensation for risk and interest. Is there anything absurd in such a division and subdivision? Is that an “inextricable jumble” to any one but Mr. George? Is that like dividing mankind into men, women and human beings? When Mr. George will refer us to some writer on Political Economy who uses the word “profits” as synonymous with or as comprising “wealth,” (as the phrase “human beings” comprises “men and women,”) we shall see the point of his witticism. But, even the above transposition is not necessary to parry Mr. Georges gratuitous thrust at the “best thinkers.” They certainly had a right to define the word “profits” before as well as after using it as a term denoting an element in the distribution of wealth.

But, how is it with Mr. George himself? He says: “Capital is all wealth used to produce more wealth”; and that “the return for the use of capital is called ‘interest'”; (p. 145;) and that the term interest “includes all returns for the use of capital.” ( P. 155.) Thus interest stands for all the returns to capital. Now, what are all the returns? Of what do they consist? Mill says:

“Produce equals: rent, plus wages of labor, plus profits—which includes wages of superintendence, compensation for risk and interest.

Mr. George says: (p. 153:) Produce equals rent, plus wages, plus interest, “which includes” what? Why, “all the returns for the use of capital,” which are, what? Why, “those that pass from borrower to lender;” (p. 155;) natural increase of values, as of wine, bees, cattle and seeds; (p. 162;) wages of “human exertion,” but not “compensation for risks”—which is explicitly excluded—and yet including enough to show that Mr. George can “decompose” and “subdivide” quite as much, if not as well, as other people. Then why not this equation: Produce = rent, plus wages, plus profits (profits = insurance plus superintendence, plus interest?) Is there anything so strikingly different in these equations as to require, for its sake, complete revision and reconstruction of the science of Political Economy?

It is tolerably apparent that all Mr. George’s trouble grows out of the refractoriness of the old bottles to have his new wine forced into them. With the “current theory” the word “wages” means the reward of hired labor; with Mr. George—”reward of human exertion.” (P. 145.) Though they (the old writers) correctly define wealth, and though “the law of rent is clearly stated,” all “the rest is a confused and incoherent jumble,” (p. 143,) because the old writers did not anticipate Mr. George’s fog-dispelling definition. To withhold from capital, or to use capital to “reward human exertion,” is all well enough, but to do either to “reward labor,” (which “includes all human exertion,”) would worry Mr. George’s doctrine, that capital has nothing to do with the payment or maintenance of labor.

“Land, labor and capital are the factors of production. The term land includes all natural opportunities or forces; the term labor all human exertion; and the term capital, all wealth used to produce more wealth. In returns to these three factors is all the produce distributed. That part which goes to land owners as payment for the use of natural opportunities is called rent; that part which constitutes the reward of human exertion is called wages; and that part which constitutes the return for the use of capital is called interest” (P. 145)

Now this, all except the “human exertion” feature, is good, sound sense and pure politico-economic science—the very essence of the “current theory” on the subject. And to us it looks rather ungracious in Mr. George, after thus endorsing and adopting bodily the doctrine from the old system, that he should go right on in the next paragraph to rail at “the miscarriage of political economy.” But the fact is, he does not stick to it any longer than it seems to suit his purpose. On page 155 he tells us again, that interest “includes all returns for the use of capital, and not merely those which pass from owner to lender.” And then on page 167: “Interest is not properly a payment for the use of capital, but a return accruing from the increase of capital.” It cannot be “a payment,” one must suppose, because it accrues! And there is such a broad gulf of difference between the words “payment” and “return,” in this connection! It is by such nice distinctions, and deep penetration as this, into the heart of things, that Mr. George puts his insight and faculty of discrimination in contrast with the blunderings of the “great thinkers.”

In view of the fact, so “persistently” insisted on by Mr. George, that rent, wages and interest are all produced by labor and capital, it looks like a mere jugglery of words to say, (p. 153,) that “wages and interest do not depend upon the produce of labor and capital, but upon what is left after rent is taken out.” That is to say: Tom and Dick’s shares of a barrel of cider do not depend upon the cider, but upon what is left after Harry’s share is drawn out.

Mr. George says, on pages 163 and 154:

“No matter what be the increase in productive power, if the increase in rent keeps pace with it, neither wages nor interest can increase.”

Let Mr. George substitute for “interest,” in the above-quoted passage, the word “profits “—which includes interest—and he would say what all the current authorities have plainly indicated before him. And though he may have needed “a flood of light” to make it visible to him, it may well be doubted whether it was ever so hopelessly obscured to any other student of Political Economy. But Mr. George does not seem to be willing to let the old writers consider the relation of capital to wages as a separate question, in the analysis, with the rent element omitted, to take its proper turn. If he had adopted Mills order of arrangement in this, as closely as he has his words in other places, (see “Rent”) without acknowledgment, he might have spared himself a deal of tribulation on this perplexing subject.

On page 157 Mr. George states, that the expounders of the current Political Economy lay down the doctrine, “that wages and interest bear to each other an inverse relation, and that interest will be low or high as wages are high or low.” Then he adds a note, as if from a prick of conscience, that “this is really said of profits, but with the evident meaning of returns to capital.” This correction helps somewhat, but it is not the amende honorable, for it does not yet give the whole truth. For their “meaning of returns to capital” is not Mr. George’s meaning—restricted to interest alone. “Profits” with the author alluded to, includes “insurance, compensation for risk and interest.” And the proposition that Mr. George puts in its place is expressly repudiated, and its fallacy exposed. (Mill, Book II, Chap. XV.)

Page 157: “Abstinence produces nothing” says Mr. George, endeavoring to show that it is not the ground of interest “Why, then,” he asks,” should any part of what is produced be claimed for it?”

For the best of reasons—furnished by himself. He says the function of capital is to assist production; (without which assistance there could be no such production as is requisite to civilization); and capital is the fruit of abstinence. And if capital produce, or assist in producing, and be itself produced or preserved by abstinence, it is not drawing nice distinctions, but the sheerest quibbling, to say that abstinence produces nothing. Abstinence saves earnings—the penny, which is as good as two earned, which is wealth, convertible into capital. What’s that, but “produced”? It is hardly necessary to follow further an argument that rests on a manifest quibble.

Perhaps there is nothing more curious in Mr. George’s book than his pro et con. of the Interest question. He opens with the inquiry, whether interest be justifiable at all, and thinks the arguments in support of it have generally proved to be failures. He, however, having got down to the bottom rock of the matter, settles the question, and concludes that interest is justifiable, because it is not a human contrivance, but the result of a law of the universe. (P. 168.) The chief factor is time.

Questioning the appositeness of Bastiat’s illustration of the plane, he says:

“One carpenter, James, at the expense of ten days’ labor, makes himself a plane, which will last in use for two hundred and ninety of the three hundred working days of the year. William, another carpenter, proposes to borrow the plane for a year, offering to give back at the end of that time, when the plane will be worn out, a new plane equally as good. James objects to lending the plane on these terms, urging that if he merely gets back a plane he will have nothing to compensate him for the loss of the advantage which the use of the plane during the year would give him. William, admitting this, agrees not merely to return the plane, but, in addition, to give James a new plank. The agreement is carried out to mutual satisfaction. The plane is used up during the year, but at the end of the year, James receives as good a one, and a plank in addition. He lends the new plane again and again, until finally it passes into the hands of his son, ‘who still continues to lend it’ receiving back a plank each time. This plank, which represents interest, is said to be a natural and equitable remuneration, as by giving it in return for the use of the plane, William obtains the power which exists in the tool to increase the productiveness of labor, and is no worse off than he would have been had he not borrowed the plane; while James obtains no more than he would have had if he had retained and used the plane instead of lending it.’ “

Mr. George dissents from this. According to him, to maintain the equitableness of the relations between James and William, the plank which stands for interest, and represents a day s labor, must be left out, and either each must make his own plane and planks, or, if a plane be borrowed, it must simply be returned as good as new, for if,

—”in addition to the return of the plane, a plank is given, James at the end of the year will be in a better position than if there had been no borrowing, and William in a worse. James will have two hundred and ninety-one planks and a new plane, and William two hundred and eight-nine planks and no plane. And if William keeps on borrowing of James on the same terms, is it not evident that the income of the one will progressively decline, and that of the other will progressively increase, until the time will come when, as the result of the original lending of a plane, James will obtain the whole result of William’s labor—that is to say, William will become virtually his slave?” (Pp. 158-160.)

Well, suppose it to be so what are you going to do about it? What do you wish to do about it, since, being the result of one of the “laws of the universe,” it is not only inevitable but “just.” (P. 168.) And yet it seems to bear rather hard upon William. And it all comes from a characteristic misapprehension of the real nature of the transaction between them. It is because, says Mr. George, what

—”Bastiat (and many others) assigns as the basis of interest, the power which exists in the tool to increase the productiveness of labor; is neither in justice nor in fact the basis of interest.”

“The fallacy” of it all lies in the fact,

—”that with the loan of the plane they associate the transfer of the increased productive power which a plane gives to labor.”

The essential thing which James loaned to William was not “the increased power which labor acquires from using planes,” but, since it took ten days to make the plane, “the essential thing” that James loaned and William borrowed was “the use of the concrete result of ten days’ labor.”

If William had only known this—though all the other conditions remain the same—he would have been neither fleeced nor enslaved; or, if he had been both, it would have been so clearly the result of a “universal law” and so “just” that he would only have been delighted with the robbery and slavery.

The difference between a plane as a plane, and a plane as “the concrete result of ten days’ labor,” makes all the odds. Algebraically formulated it stands thus: The concrete result of ten days’ labor, plus wood, plus iron, equals plane. If one had read this in a comic almanac, or in the “funny column” of a newspaper, he need not have been amazed; but turning up in a serious, scientific book—”though it make the unskillful laugh, cannot but make the judicious grieve.”

But let us return to Mr. George’s question (p. 160) and see whether the “income of the one will progressively decline, and that of the other progressively increase.”

There are, say, three hundred working days in the year. James makes a plane in ten days. He has two hundred and ninety days in which to use his plane. But instead of using it, he lends it to William, who is to return to him as good a one at the end of the year, with a plank beside, for the use of it. It takes William ten days also to make the new plane. So he has two hundred and ninety days in which to work on planks, and by help of the plane earns two hundred and ninety planks—one a day. At the end of the transaction he has two hundred and eighty-nine planks, and James has back his plane, plus one plank. William borrows James’s plane the second year, on the same terms, and again has two hundred and eighty-nine planks for his three hundred days’ labor, (ten going to the making of the return plane,) while again James get back his plane (good as new) with another plank. So going on, in ten years James should have ten planks and his plane in return for making one plane; and William would have 289 x 10 = 2890 planks as the product of his labor with the borrowed plane. He is so much the better off than at the beginning, as to the possession of planks—and is not James’s “slave” for anything that the borrowing has had to do with it. Now, if William had made his own plane, he would not have paid James the ten planks for the use of his, and in the matter of planks would have apparently been so much the better off. But since, as Mr. George says, (p. 167,) William “would soon find out if it did not pay him to give a plank for the privilege of deferring payment on James’s plane,” it is to be presumed that it was made up to him in some other way. And, since there might be a mutual advantage in the loan of the plane,” (p. 161,) was not that the only ground of the transaction, and the “justification of interest”—whatever difference there may be between the “reason” the “cause,” and the “justification” of interest? Now, if James can live on one plank a year, and do so, is it to be said that he is supported out of the product of Williams labor? Not at all, he is supported by that property (imparted by his labor or inventive faculty) of the plane (call it “concrete result” or what you will) which makes it profitable for William to borrow it. He is not obliged to borrow it—by the hypothesis—and as he “would soon find out if it did not pay” to borrow it, and thinks he has a reason for this mode of managing his business, wherein is he the “worse” off, or what wrong does he receive at James’s hands? If there were not some advantage to him he would not continue the process. That advantage, whatever it be, is an equivalent for the plank paid to James. And, though he may do James a wrong by enabling him to live in idleness, James clearly does him none in lending him his plane.

Hence, the question must be answered diametrically the contrary of the way in which Mr. George intimates it should be. If James gives up the use of his plane to William, he will have only one plank at the end of the year—the one received “as interest” from William. In order to have two hundred and ninety-one planks at the end of the year, James must have had, or made and used another plane. If he makes two planes instead of one to start with, he consumes twenty instead of ten of the three hundred working days in plane-making, and could then have only two hundred and eighty planks for his own labor, and one from William, making two hundred and eighty-one to Williams two hundred and eighty-nine, for the first year—and only after that will he get two hundred and ninety-one planks to William’s two hundred and eighty-nine—taking ten days yearly to renew his own plane—relending the one returned by William. Even then it would take eight years for James to catch up to William. And since William makes his two hundred and ninety planks every year and pays but one to James, where is the “progressive decline” of his income, and the increase of James’s, if they keep on forever “borrowing and lending on these terms?” And what can be Mr. Georges motive for asking such a question, instead of attempting to show to be true what it implies to be true, when the implication can easily be shown to be false?

“The essential thing which James loaned to William was not the increased power which labor acquires from using planes.” (P. 160.)

Certainly not; in plain English it was a plane—nothing can be plainer. The power (aid) it imparts to labor comes when it is used—not when it was loaned. In spite of the grandiloquent “concrete result” we must insist that the loan was of a thing, (a plane,) quite as much as it would have been had it not been a concrete result.

Mr. George is prolific in assertions. “If,” he says, (p. 161,)

—”the power which exists in tools to increase the productiveness of labor were the cause of interest, then the rate of interest would increase with the march of invention. This is not so. Nor will I be expected to pay more interest if I borrow a steam engine than if I borrow a pile of bricks of equal value.”

Verily.—And for the very good reason that if the pile of bricks be of equal value with the steam engine, it will command just as much interest as the steam engine. But, if, after William has worked one year with James’ plane, he learns that Thomas has invented a plane by which, with the same exertion, twice as many planks can be made in a day as, by the old one, will not William gladly drop the old one and borrow the new and pay two planks (twice as much interest) for the use of it? And would the contrivance, in the new plane, which “adds to the productive power of labor,” (p. 161,) sustain no relation to the increased interest—the second plank—as a “reason” or “cause” or “justification?”—for Mr. George has tagged “interest” with all these epithets, anxious as he is to be “clear and conclusive.”

Now, suppose that Henry invents and makes a steam-machine-planer in ten days that, with the same exertion, turns out a thousand planks a day, will not William pay Henry more for the use of it than for James’s or Thomas’s plane? Is it not true then that the interest does “increase with the march of invention?” “O, yes,” says Mr. George—”the particular interest, but not interest in general—not the general rate.” Exactly.—Here lies the point. That is the trick of the argument Mr. George skips from the plank, paid for the use of the plane, to interest in general and invention in general—the necessary tendency of which, “by increasing the productive power of labor,” is to let down interest. If Henry’s steam-machine-plane make planks enough in a year to drug the market, William will not pay him two cents for the further use of it. And here it is where that “meaningless formula of supply and demand” as Mr. George calls it, (142,) comes in—and which explains why the general rate of interest does not increase with the march of invention; while it may still be true, that “the power which exists in tools to increase the productiveness of labor, is the cause of interest” a truth which Mr. George himself cannot fail to see if he will only keep that “plank” in his eye. Again:

“Nor does the improvement of tools add to the reproductive power of capital; it adds to the productive power of labor.” (P. 161.)

As, for example, the plane, though it does not give to William “the privilege of applying his labor in a more effective way, (p. 161,) nevertheless “it adds to the productive power of [his] labor.” Strange, that Mr. George’s memory could not carry him safely over the space of less than a dozen lines! Nevertheless, Mr. George is “inclined to think” that all interest, taken on this ground “would be but the robbery of industry.” (P. 161.) Interest, to be legitimate, must be the result of the “active power of nature; the principle of growth,” “the everlasting flux of nature;” (p. 162;) the chief element of which is “time;” (p. 165;) or that unknown something “which everywhere characterizes all the forms of that mysterious thing or condition which we call life.” “This is the cause of interest.” And, by parity of reasoning, gravitation is the cause of the jack-plane. By this method of following things up, even Mr. Georges book may be traced to “the everlasting flux,” as easily as the dust of Alexander is traced to a bung-hole. Without gravitation there could be no sun. No sun, no light, not so much as the dim glimmer of a farthing candle; no light, no heat; no vegetation, no wood; no man, no jack-plane; no plank, no interest. As deep as Mr. George is, we delve one yard below his mine and find gravitation to be the “cause of interest,” being the cause even of the “flux” itself. He says: (p. 162:)

“It is true that if I put away money, it will not increase. But suppose, instead, I put away wine. At the end of a year I will [shall] have an increased value, for the wine will have improved in quality. Or … I set out bees; at the end of a year I will [shall] have more swarms of bees, and the honey which they have made. Or … I turn out sheep, or hogs, or cattle; at the end of the year I will [shall], upon the average, also have an increase.”

All this “springs from the element of time—the difference of a year between the” (p. 165) turning out and taking-up. But this element cannot operate on a plane, “for a plane at the end of a year has no greater value than a plane at the beginning.” It is not the “use” of the plane; it is not its “power to add to the effectiveness of labor” that is the basis of interest in the case of the plane; the only “justification” of interest, in the case of a plane—the demanding of a plank for a year’s use of it—lies in the fact that it might have been a calf, transformable by a year’s growth into a cow. For if James, instead of lending his plane to William, had sold it for a calf, and loaned the calf to William, “it is clearly to be seen that to put James in as good a position as if he had not lent it, William, at the end of the year, must return, not a calf, but a cow.” Though the benefit to William, or how it is that he “can afford to give back” a cow for a years loan of a calf, is not so clear. It is not elear, notwithstanding Mr. George tells us that it is

—”because the same general average of advantages of labor applied in different modes will enable him to obtain from his labor an advantage from the element of time.” (P. 165.)

If William cannot “obtain from his labor an advantage from the element of time,” he is under no obligation to pay a plank to James for the use of his plane. “If all wealth consisted of planes interest would be robbery of industry” (P. 161)

But since, instead of a million planes, a man may have cattle on a thousand hills, interest comes by “a law of the universe” and is “just.” That is to say, the only “reason,” “cause,” “basis,” “justification” of interest, is, that James, instead of being a carpenter or maker of planes, might have been a stock-farmer and breeder of calves. And here is “clearly seen” the part the great magician Time plays, for that is “the element” which converts calves into cows. But even this is not profound enough for Mr. George. He must even get back of Time. For: “in the last analysis, the advantage which is given by the lapse of time springs from the generative power of Nature and the varying faculties of man,” and hence, “interest,” like Dogberry’s “reading and writing, is the gift of Nature.” (P. 166.) If I can “certainly” let out a thousand dollars at interest, “it arises” precisely from the fact that another has not, though he be a “millionaire,” that thousand dollars, and wants it for some particular purpose, and is willing to pay for the use of it. And to put it in any other form is refining out of reason—like one gone mad upon distinctions.—As for example: “Interest is not payment for the use of capital, but a return accruing from the increase of capital.”

But how is it, in case interest be paid in advance, and the increase fails—as often happens?

And speaking of distinctions, take this—at the risk of a surfeit: On page 161, we are virtually told, that capital does not confer the privilege of applying “labor in a more affective way;” while, on page 167, he speaks of adapting capital in such forms as to “increase the effective power of labor.” This is inconsistency “gross as a mountain,” and worse than not being “clear and conclusive.”

And still they come! On page 161 he tells us, in the case of the plane, that “the essential thing which James loaned to William, was not the privilege of applying his labor in a more effective way, but the use of the concrete result of ten days labor.” In another place, (p. 165,) he says, the return to James does not arise “from the increased power which the tool gives to labor,” (nor even the use of a “concrete result,”) “but it all springs from the element of time.” Finally, (p. 167,) he assures us, that the benefit is, neither “in the element of time,” nor in the use of a “concrete result,” but in the “use” absolutely. “Lay thy finger thus, and let thy soul be instructed.”

“Now, while by adapting capital in proper forms, we may increase the effective power of labor, to impress upon matter the character of wealth, (p. 167,) as when we adapt wood and iron to the form and use of a plane; or iron, coal, water, and oil to the form and use of a steam engine; or stone, clay, timber, and iron to that of a building, yet the characteristic of the use of capital is, that the benefit is in the use.”

That is to say, “Whatever is, is.” Mirum et semper mirum!

But the scope and conclusiveness of Mr. George’s argument on the cause of interest, is not fully seen till near the end of the chapter, (pp. 168, 169,) where he corrects (?) the common error of supposing interest to be “that which is paid for the use of capital to the owner of capital.” The return of anything, on which I spend labor or capital, is—no longer “wages,” as we have previously been taught—but interest. The apples I pick—if I planted the trees—the carrots I pull, the potatoes I dig, are actual instalments of interest. This is a way to make argument, easy: call apples, “cows milk,” carrots and potatoes interest; then show that these are products of Nature, and you then see how interest comes by a law of the universe; and how you might as well “talk about abolishing” the law of gravitation as interest. Mr. Mill says, (“Political Economy,” vol. I, p. 509.) that the “cause” of interest, (“profit,” which includes interest,) is the productive power of labor. Now, this cause, or law of interest, may not be as deep as a well, nor as wide as a church door, but it is perhaps as natural and honest as Mr. George’s, though it exclude cow’s milk, potatoes and small fruit generally—taken after his fashion.

Mr George tells us, on page 171, that,

— “a Government bond is not capital, nor yet is it the representative of capital. The capital that was once received for it by the Government, has been consumed unproductively—blown away from the mouths of cannon, used up in war ships, expended in keeping men marching and drilling, killing and destroying. The bond cannot represent capital that has been destroyed. It does not represent capital at all.”

And yet is not a Government bond “capable of commanding wealth”? Is it not, when on the market, “wealth in the course of exchange”?

And that which is usually called interest on public debts, is not “in the strict sense” interest, but

— “taxes levied on the produce of labor and capital, leaving so much less for wages, and so much less for real interest.”

Very likely Mr. George is not entirely singular in these views. Yet, to say that a Government bond is not capital, nor the representative of capital, seems like taking a very superficial view of the subject. And equally so, to say that the capital that was once received for it has been consumed unproductively—”destroyed,” so that a bond cannot represent it. Whether the capital so received by the Government, be blown away from the mouths of cannon, used up in ships, forts, trenches, or any of the appliances of a just and defensive war, successfully prosecuted, it has served its purpose, a good and necessary purpose, and has not been “wasted,” nor destroyed, nor “consumed unproductively.” If it prevented the destruction of a good Government; if it rid the country of a monstrous crime or an enormous evil; if it saved the lands of the people from devastations of war, their habitations from the torch of the armed incendiary, their wives and daughters from insult and outrage; can it be said, that it has conferred no abiding benefits upon the people who are to be taxed to enable the Government to keep its promises to the lender? Have they not an equivalent in perpetuity for the capital “wasted”? Had the Government invested the capital in turnpikes, dykes and jetties, levees, canals and breakwaters, or embankments to protect the fields and homes of the people from the fury of floods, fires and tempests, it would, according to Mr. George, have continued to be capital—the same as when used for

— “deepening a river-bed, the construction of light-houses, or the erection of a market “

But have not forts, and iron-clads, breastworks and trenches, and powder blown from the mouths of cannon, saved us from greater calamities than any which light-houses, dykes or jetties ever spared us, and enabled this people to go on producing, and adding to the vast wealth of the country? Powder blown from the mouths of cannon—is it necessarily “wasted”—capital “destroyed”—any more than powder exploded in coal-mines, stone-quarries, and St. Gothard tunnels? Is not the powder which conserves wealth, as well spent as that which creates it—even on the Poor Richard principle, that a penny saved is worth two earned? If the cannon, ships, and forts saved us at all, it was not for a day, but for all time, with a continually accruing and augmenting benefit to the whole people of many succeeding generations. Why the capital invested in batteries that saved the land from devastations of war, cannot be represented by bonds, as well as capital invested in dykes that save the land from the ravages of floods, is a question that Mr. George does not deign to answer.

In approaching the Law of Interest, (p. 176.) Mr. George requests us to keep in mind “two things” The second is: “That capital is not a fixed quantity.” The first, and probably the most momentous is: “That it is not capital which employs labor, but labor which employs capital.”

It is to be presumed that a correct apprehension of the distinction here set up, is as essential to the science of Political Economy, as would be, to the establishment of a sound Biology, the solution of the problem with respect to the primitive fowl—whether the first hen came from an egg, or the first egg from a hen. But, alas! just as you begin to think you are getting in sight of land, he takes another tack and heads out to sea again with the declaration, (p. 179,) that labor and capital are the same thing—”human exertion”—indifferent forms—allotropic states of the same elements, or rather allomorphic, with identical properties. Capital is human exertion— and human exertion is capital. So, you may reconstruct his “First” and render it thus: “It is not human exertion which employs human exertion, but human exertion which employs human exertion.” On pages 183-188, you will find this nonsense still further insisted on. The most wonderful thing about it all is, that the world could ever have gone so clean daft upon the subject, as to suppose an antagonism between labor and capital when it is so obvious, that they are the same thing!

“Interest must rise and fall with the rise and fall of wages.” (P. 181.)

This is affirmed as connoting a relation of cause and effect; which, if true, is subject to no real exception. A single exception disproves it. There is no place in the world where interest is so high, and wages so low as in India and China, where it varies from 15 to 65 per cent, while wages are the smallest living pittance. Some cause for this must be sought other than that found in the relation of wages to interest. This fact alone refutes Mr. George’s law. And if it be not the law, some other explanation must be found for its apparent confirmation in California. When wages were high there, interest was high. Now, that wages are low, interest is low. Is it coincidence, or cause and effect? Mr. George assumes the latter, and is a victim of the post hoc propter hoc fallacy. From his standpoint the true elements of the case are overlooked. When wages and interest were high, population and capital were both scarce; now, while interest and wages are low, both population and capital are abundant This accords exactly with the “current theory,” and conflicts with Mr. George’s. Still, another circumstance connected with high interest in California, the very circumstance which determines, more than any other thing, the rate of interest in India, was “risk” the greater uncertainty—the sense of insecurity—which prevailed in the earlier days of the California settlement. This element is always present in all those commercial crises—or not to use so strong a term—”fluctuations,” which run up the rate of interest: a circumstance too, which operates directly or indirectly to lower wages. This alone completely reverses Mr. George’s law. When from the sense of insecurity, that comes with “hard times,” men hoard and hide, and will lend only on great inducements, (high interest,) labor bids in competition for work, scarce from the withholding of capital, and runs wages down. This is law, logic and experience. Here is Mr. George’s “law of interest”:

“The relation between wages and interest is determined by the average power of increase which attaches to capital, from its use in reproductive modes. As rent arises, interest will fall as wages fall, or will be determined by the margin of cultivation.” (P. 183)

What kind of work would Mr. George make of it, if he were to attempt to define the law of gravitation after this manner? “You cannot feed capons so.”

Is there any other capital than that which is used “in reproductive modes”? Is it not the very characteristic of capital that it is wealth so used? Then why cram this superfluous definition into the belly of another one? If thinkers are to be judged by their skill in definitions, it will go hard with Mr. George, for that, at least, is not his forte. Not five lines away from this attempt at defining the law of interest, he excuses his lengthy elucidation of his subject, on the ground of its having been embarrassed by “befogying discussions.” Is it possible for anything to be more befogying than this statement of a law?—”Lengthy elucidation!” How many pages of it would it take to let daylight into such a definition for men “who have had no previous reading”?

Continued: Odds and Ends