Flürscheim – Capital and Capitalism

from Michael Flürscheim
Clue to the Economic Labyrinth

Chapter VIII
Capital and Capitalism

Definitions of Capital

What is capital? Economists are at loggerheads when asked to define this important factor of their science, and their definitions mostly differ from what is popularly understood by the word. So, for instance, may we hear every day: Brown has invested his capital in land. If this means that Brown has bought and spread manure, made fences, dug a ditch for irrigation purposes, or laid drains to desiccate the land, it agrees with the most general definition given by our economists; for Brown is using wealth for the production of wealth. But this is not at all what is usually understood when we speak of investments in land. If we say Brown has invested his capital in land, we generally mean that he has bought land which henceforth is his capital. The rental income from this land is now the interest of Brown’s capital, and the sharp division which most economists make between land and capital, between rent and interest, is blurred altogether. Some economists, by adopting a definition more in accordance with the popular conception, escape this dilemma, but fall into another. While defining as capital anything which produces an income, and thus ceasing to make a distinction between the products of man’s labour and land—the substance and surface of our globe, the Divine Creator’s gift to all men—they also include under the heading of capital, human talents and skill, such as a good voice, or the gift of acting, drawing, composing, the skill of the artisan as well as the knowledge of the professor. They, too, keep in touch with the popular meaning, for we all know how often we have heard such expressions as “Patti’s voice is her principal capital,” or, “the most valuable capital possessed by Rubinstein was his wonderful art.” Unfortunately, here again we find two conceptions thrown together which to keep apart is even more important than the distinction between land and products of labour, i.e. wealth; no distinction is made between capital and wages. I hope I need not explain that any income received by a person from his work falls under the category of wages, whether he works on his own account or for another individual who pays him a fixed or variable amount, whether the labour is done manually or intellectually, whether by means of the carpenter’s hands or the dancing-master’s feet, the throat of the singer or the resisting powers of the professional faster’s organism. If certain accomplishments which increase the wages earned by the worker—be they the vocal powers of a Patti, or the planning skill of a cabinet-maker—are to be divided off as capital, if skilled labour is to yield wages and interest while unskilled labour only produces wages, where shall we draw the line, and how are we to get out of confusion when we discuss the relation between interest and wages, one of the most important tasks of sociology?[1]

As it seems impossible to give a generally recognised definition of Capital in the same way in which we can define what is meant by a horse, a chair, or a house, we must formulate a definition which shall be useful and at the same time fairly compatible with popular meaning. I define

Capital as Property which can procure an Income without any Work on the part of its Owner.

This definition comes also nearest to the etymological meaning of the word kephalaion, caput, the head, the principal, as distinguished from the expected interest or usury, the unessential. In this sense Patti’s larynx is not capital, as it cannot be used to produce an income without her own work, nor is the skill of a worker of any kind his capital; whereas land is capital, as it produces an income without the work of its owner,

Orthodox Definition confusing

I now proceed to give my reasons for considering my definition specially useful when compared with the orthodox one,

  1. The latter cannot serve any useful purpose whatever. This definition which separates as capital any kind of wealth used for reproductive purposes, creates—not a category of definite objects—but one of temporary and changing uses. There is not a single kind of wealth which could not be simple wealth at one moment and capital the next. The piano in my drawing-room, until now only used for my pleasure, was simple wealth in the morning, but became capital the moment I gave my first paid music lesson on it in the afternoon. Bread bought for my table is wealth, but changes into capital with my change of mind which destines it to serve as provision in a fishing expedition. My horse was wealth as long as I used him merely to take my daily exercise on his back, but has been capital since I hire him out for money. On the other hand, even a machine may change into simple wealth from having been capital if it is presented to a museum. Of what practical use can it possibly be to create a special division of wealth with such flowing boundary lines?
  2. The orthodox definition is not only useless, but positively dangerous, because, instead of bringing light into an important problem, it merely makes matters worse confused.

Throws togethor Tools and Tribute Claims

When an orator or writer has to reply to a socialist’s attack upon capital as the oppressor of labour, he points to what orthodox economy calls capital, and speaks of our wonderful progress due to our improved means of production and distribution, whereas his antagonist thinks of Government bonds, of land monopoly, of mining rights, of all kinds of tribute claims selling at Exchange for certain amounts, and not at all falling under the orthodox definition of capital, though representing that capital which people principally have in view when they use the term.

It is here that precision is of the utmost importance. It can by itself produce neither good nor ferm whether we call a horse capital or mere wealth; the animal will not pull one ounce more weight, nor will a violin change its quality, whether it is wealth because we only use it for our amusement, or whether it changes into capital when we play on it for pay in an orchestra. But it is of great consequence to waive aside with a Podsnapian gesture the dangerous tribute claims as not being capital, fixing our gaze with exclusive regard on the moat innocent and even useful objects in the world—the means of production. The fatal effect which such a classification must exercise upon an exact recognition of the social problem will be better understood when we come to realise that the means of production would be far more abundant, and would be freely at the disposal of labour, were it not for that other kind of capital contemplated by its victims and ignored by the panegyrist of the tool capital.

Perfection v. Ownership of Tools

My own definition makes no distinction between the chair on which I take a rest and the same chair when I sit on it to write something by which I gain my daily bread, but it excludes the means of production where they are at the free disposal of honest and solvent workers, and includes them where they are used as an instrument of exploitation. The substitution of the steam plough for the crooked stick with which the savage tickles the soil is certainly very beneficial, but paramount for the masses of workers is the question: Who owns the tool? We certainly can produce more with the steam plough than with the stick, but the stick was owned by the savage, together with the soil cultivated by it, while the steam plough and the land belong to somebody else. Reflective and clear-headed men like Ruskin and Leo Tolstoy, for instance, have come to the conclusion that the advantage is not so unquestionably with the steam plough man as many economists pretend, and the opinion of such thinkers shows that the question of ownership, of the free use of the means of production deserves as much consideration as that of their perfection.

  1. My definition of capital thus legitimates its derivation:


i.e., the reign of capital as a means of exploitation. The increasing amount of machinery required for modern production by itself cannot create and constitute capitalism, for even the socialistic state would not renounce technic progress. In fact, socialists expect from freedom a much more extensive use of machinery in the arts of production than has ever been reached under the system of exploitation. A Leo Tolstoy, who preaches the eighteenth century gospel of Jean Jacques Rousseau in the twentieth, the gospel of the hoe and the scythe in the time of the steam plough and the mowing machine, is an anachronism; behind his time in this domain, far ahead of it, unfortunately, in another, in the reign of love and peace he so ardently expounds.

The preceding chapter has shown that the productivity of machinery is not the cause of interest, that if it were not for the possibility of investing savings in land purchases and in a legal tender money made from certain scarce metals, capitalists would be glad to lend out their savings in the shape of machinery, or any other means of production to anybody supplying the work of preservation. That the owners of machinery can levy a tribute from labour, independent of the work of supervision and organisation, is not a cause, but an effect of interest. The interest represented by tribute claims based on monopoly of some sort is the father of the interest demanded and paid for the means of production produced by labour. If the root were destroyed the tree would disappear. This root—the world’s tribute claims based on monopoly—once out of the way through the withdrawal of the monopoly base, the workers would soon be the owners of the means of production, and meanwhile would use all such means free of cost, which would eliminate them from the capital category of my definition. Or, in other words, the destruction of capital in the significance I give to the word would, to an incredible extent, multiply capital in the orthodox economist’s sense. Capital, rightly understood, is thus the arch enemy of wealth creation, and not its friend. The socialist is right when he

Curses Capital as the worst Enemy of Labour;

for, with the disappearance of monopoly, capital will vanish and wealth alone will remain, never mind what use this wealth will be put to, whether for reproductive purposes or for consumption and enjoyment of any kind.

Tribute Claim Capital constitutes the Bulk of the World’s Capital

This will be looked at as a paradox; but a single glance at the statistics of national wealth will prove that I am right.

In these statistics, the value of the unimproved land—of course, including the right of way of railroads,[2] the value of mines, canals, harbours, roads (after costs of production and improvements are deducted)—figures up to almost one-half of the whole value of public and private wealth; but this half, which is nothing but the value of a monopoly, the market price of tribute claims based upon the ownership of this monopoly, and therefore capital in our sense, is only a part of this capital, while the other half is by no means all capital in the orthodox sense.

National debts are mentioned in the tables of national wealth only when they are the debts of another country, which is correct; but in this case they certainly ought to be deducted from the assets of the debtor country, and this is not done. Anyhow, they are capital as  here defined, for bonds are property which can procure an income without any work on the part of the owners. Cutting off coupons can certainly not be called work. According to Fenn (edition of 1898) these debts had reached in 1897 the snug little amount of six thousand million pounds sterling, which is about seven times as much as the world’s stock of gold in which most of them are payable. To this amount we have to add the indebtedness of public bodies, and the mortgages—after deducting the value of the land, mines, etc., already counted on the other side. In this way, a sum total of capital merely consisting of the market value of tribute claims, which from now I shall call the tribute capital, is reached, which by far exceeds that portion composed of products of labour used for reproductive purposes, which I shall from henceforth call the tool capital.

The last chapter has shown that with the disappearance of the tribute capital through land nationalisation and currency reform the tool capital will be obtainable interest free, and then will cease to be capital in our sense—will become simple wealth. In Chapter IV., where I explained the cause of our commercial and financial crises, and in Chapter VII., where the effects of private rent and interest, its child, on production have been discussed, I have already shown how the tribute capital is the greatest obstacle that prevents the creation of tool capital and of wealth in general. Piecemeal we have gradually begun to understand, and now have only to recapitulate the full meaning of what we are in the habit of designating as

The Social Problem.

We have recognised that the nature of this problem has imperceptibly changed in the course of time. There has been a problem of want, of insufficient productive power rendered more insufferable by an unjust distribution of what little wealth could be produced; but this problem has been entirely solved by the human intellect, or, to speak more truly, by the divine spirit incarnated in human flesh. The billions of iron and steel slaves all over the world have increased our productive power indefinitely; for, at our bidding, they could bring forth further billions of their own progeny more powerful even than themselves. There need certainly be no more want if our full productive power were let loose. Plenty of leisure, as many necessaries and even luxuries as we could reasonably desire, would be at the disposal of the poorest.

This problem, therefore, is one of the past. Its solution required centuries of hard work, culminating in the wonderful attainments of the nineteenth century, which has done more for humanity on this score than all its predecessors combined[3]. But in the act of conquering the old enemy–want through insufficient productive power—the very effects of our victory have almost imperceptibly opened the door to another fertile source of trouble. A new social problem has gradually appeared in our midst:

Want through Superabundance.

It is a much more difficult and at the same time a much easier problem. It is much more difficult to fathom, but is much easier, as far as our power of carrying through an effective reform is concerned. When we look back on our achievements in the arts of production and distribution, we can hardly realise that poor human mites could ever accomplish so much. The solution of the problem of want through an insufficiency of productive power seemed almost unattainable, and the wonderful way in which victory has been won seems hardly realisable. It was easy enough to recognise the nature of the problem, but the practical remedy seemed out of reach, and has been found, at last, through the wonderful progress of one single century. The very reverse obtains as to the new problem which the very rapidity of our victory in the field of production has bequeathed to us. However the recognition of the problem’s nature presents the only difficulty, while the practical remedies are easily found, and will be speedily applied when a correct diagnosis of the evil has been generally adopted.

We have recognised that production can only be carried on to the extent of providing all with work if consumption keeps abreast of ready productive power. This is only possible if either the masses obtain, or the rich effectively exercise, a sufficient purchasing power. “Effectively” means that they purchase products of labour, either for consumption and enjoyment, which they cannot do because their wants are not great enough; or for productive purposes, which they will not do because under-consumption leaves the increased production without a market. Investing savings in means of production whose products are unsaleable must result in a loss for the investors. Instead of spending their incomes on Havannas, champagne, and yachts, the rich would buy unsaleable goods and rusting machinery, and there would be no glut Nor would there be one if their savings were stored in gold and silver or other products of labour, so long as this gold and silver are not the exclusive legal tender for debt.

The Solution

Unfortunately, another field of investment presents itself in the purchase of tribute claims, grown from the root monopoly. The very rich, as a rule, leave the risky investments in industry and commerce to comparatively poor men, while they content themselves with drawing rent and interest from secure investments. I have shown how the growing accumulation in investments of this sort have the effect of withdrawing securities from the possession of people who banked upon them, and thus created credit money; while the new owners do not need credit, and thus withdraw stone after stone from the credit building erected on our money stock. In its practical effects on the market this is equivalent to the withdrawal of real money from circulation.

Money has been compared to a road between two places depending on each other for the exchange of their products. If the road is blocked, production has to stop, and the quality of the road thus influences the trade of the two places, and consequently their production. By narrowing the road of commerce, by relatively reducing the available money or credit vehicles, the investors in tribute capital impede exchange and, accordingly, production. Thus tribute capital is the greatest obstacle to the production of wealth.

During the nearly twenty years which I gave to the study of this problem, I could find no other explanation capable of withstanding all attacks. My theory shows us the grain of

Truth at the Bottom of Mercantilism and the Wage Fund Bogey, of the Over-population and Over-production Swindle.

It is all very well to tell the mercantilist that it is not money but wealth which is wanted. It is easy to tell the wage fund humbug that labour all over the world produces the wealth which it consumes; that this production goes on simultaneously, so that wages are produced from day to day; and not only wages, but also the surplus monopolised by the drones of all kinds. Productive power is so great in all departments, inclusive of machinery production, that not only can it supply all the funds required to sustain the workers, but also enough to provide them with the best means of production. I demonstrated in Chapter I. that, under normal conditions, a very small proportion of the world’s workers could amply provide mankind with food, clothing, shelter, and warmth.

It is still easier to show how discussing over-population and over-production in the same breath is a most wonderful feat of logic; for either we have more people than we can feed, in which case we can have no over-production; or we have more necessaries of life than we can dispose of—which we mean when we speak of over-production—and how thus can we have Over-population?

And yet mercantilism, though its theory was not developed, had an inkling of the ominous part played of metal money. So there is a truth in the wage fund theory, because, in our existing system of trade it is not sufficient to possess wealth, but that wealth must have money wings to get over the obstacle to exchange, and as long as the money wings are made of one or two scarce metals or their substitutes, only those producer’s can reach each other, and thus can continue their production who can command the wing material or its substitute. Only thus do we need a wage fund; for, in most cases, without sufficient money, workers have to be dismissed. Only thus can we speak of over-production, for without the certainty of sales goods cannot be produced, and whatever goods fail to find a purchaser commanding money or its equivalent are over-produced. Only these conditions give us a right to speak of over-population, for where no money is obtainable for their labour and its produce, people must starve, consequently the country is over-populated.

I have shown how a paper money issued according to the requirements of the market, indicated by the price barometer, can put an end to this state of things; how by its means the credit building of our business transactions is transferred from the narrow and relatively unchangeable foundation of one or two scarce metals to the basis of the wide world’s productive power. Thus at one stroke we finally dispose of mercantilistic fallacies, of the wage fund bogies, as well as of the over-production and over-population spectres.

Money, not Land, the principal Villain

Henry George, his predecessors and disciples, have rendered an invaluable service to the world by clearly demonstrating the part played by land in the process of distribution. They have gone too far, however, in making the monopolisation of land solely responsible for the miscarriage of economic progress, pregnant with wonderful possibilities, yet bringing forth that horrible changeling known under different names such as: Want of employment, low wages, commercial depressions, over-production, over-population, and our competitive struggle.

Not only have they left out of sight the important role performed by Money in the human tragedy, but they have not even dreamt of the possibility that this despised Money might, after all, play the part of the principal villain. And yet such is the case; and this fact once more proves that the instinct of the people often comes nearer the truth than the cogitation of the philosopher at his desk. Even now, in spite of the car-loads of literature which the new, or newly discussed, aspect of the land problem has been responsible for, not one man in a hundred has been touched by this avalanche of learning. The remaining ninety-nine continue to speak of the want of money as the direct cause of the calamity; and the ninety-nine are in the right: vox populi, vox Dei. Doubtless no permanent reform can be accomplished without a thorough reform of our land laws. As long as individuals can monopolise the ownership of mother earth, their pockets will be the final receptacle of her fruits. Every progress in the arts of production and distribution must in the end increase the rental value of the land, and thus be a profit to the rent lord. Less and less land suffices to provide him with all necessaries and luxuries of life, and less and less hands are needed to produce them. Every progress in machinery construction, in manufacturing and chemical processes, in the means of communication and transportation, permits him to replace living men by inanimate structures, so that he can refuse the land for productive purposes and reserve it for his amusement. But though even in our days we find plenty of deer and pleasure parks displacing workers who used to make a living on the land thus malappropriated, this as yet is only the exception, and the influence on our economic situation is almost imperceptible, whatever it might become some day, if we were foolish enough to allow such enormities to continue. As it is, billions of acres—two billions in the basin of the Amazon and its tributaries alone—are yet waiting for the hardy settler, and can be had almost free of cost.

There can be no doubt that without the restoration of mother earth to her children, without the liberation of land from the fetters of private monopoly, no reform of any kind can bestow lasting benefits on the masses, but, as in the past, must eventuate in the greater power and wealth of the few, contrasted by the misery and dependence of the many. Still, that time has not yet come, and certainly we have to look for other causes if we want to explain the extraordinary spectacle we daily witness: poverty caused by progress. As yet land goes a-begging, and the money-owner can take his choice; and not in our colonies only.

Still, the bias of preconceived ideas and of inductive reasoning has tremendous influence. In my own case, I had been over ten years in the van of Georgism before I awakened to the part played by money in the social problem. The veil began to fall at Topolobampo, a socialist colony founded by Americans on the shores of the gulf of California, in Mexico. I had gone there full of the predominant part played by land in the economic process, and I left penetrated with the importance of the money problem. Land was easily obtainable for half a dollar an acre; but money was so scarce that I was offered half the crop on the settlers’ land if I only provided money to buy seed and machinery. The veil was further torn away when I returned to the United States, in July, 1893, just in time to witness the effects of that terrible

Financial Panic

of which I have already spoken. There I found a country which I had left only about two months before in the height of prosperity, or anyhow, of what we modest creatures have been accustomed to consider prosperity, and which presented all signs of the worst distress. Millions of workers were in the streets, factories were closing, and commercial houses suspending payment. What was the matter? There was just as much wheat, live stock, wool, cotton, iron, timber, coal, as much of all good things which human beings require as there had been when I left—in fact, more, because it was harvest time. There were as many willing workers only too anxious to produce all kinds of manufactures, necessaries, and luxuries out of the ready raw material. There had been no earthquake, no inundation, no war; but, on the contrary, a great festival of peace. The wonderful International Fair was attracting admiring tourists from all parts of the world. Nothing was wanting except one of the most useless things in this world: a certain yellow metal, easily dispensed with, and whose loss would be a trifle compared with that of iron. There was not gold enough on hand to pay more than a mere fraction of the gold debts, and the whole circulation of the country was threatened; which, of course, lamed production in all its branches. A blind man would have seen that land alone cannot do everything, and at last I recognised the great problem in all its bearings.

Enthusiastic as I have been, and eager as I still am for land reform, I have gradually come to sec that currency reform is more urgent still—that, in fact, land reform could be reached much quicker and easier if money reform preceded, or anyhow were carried parallel with it.

Money Reform is the Thin End of the Wedge,

because the impression that there is not money enough in the world to go round is very general, while only a few can penetratethrough confusing externalities to the real significance of the land problem.

Arthur Kitson, in A Scientific Solution of the Money Question, says: “In vain ministers preach the gospel of Peace and Righteousness. In vain Peace Societies are established. The ‘Gold Standard ‘ means inevitable war. Nations cannot possibly remain long under it. The nations ‘born of thee are fire and sword, red ruin, and the breaking up of laws.’ It is strange that land reformers are so absolutely blind to this fact. One never hears of money-lords begging for land on which to employ their wealth. But landlords are continually becoming indebted to the money power for the use of money. In other words, land is far more plentiful and more readily procurable than money. And to-day money is made more essential to men than land. And into the hands of the money power the land must inevitably fall!

It is difficult for land reformers, for men who have studied the great question in all its bearings, to realise how absolutely incomprehensible to most of their fellow-men something may appear which to them has become a mere truism. When, in the beginning of the eighties, before I knew anything about Henry George and his ideas, Dr. Theodor Stamm, one of the pioneers of land reform in Germany, told me that the land question is at the bottom of the social problem, I looked at him with a dubious smile. I had then been in practical business over twenty years, and had lived and worked in different countries. I had studied more than the average man, and yet my mind could not grasp that strange idea so absolutely new to me. I remember that I referred him to my neighbouring factory, to the wealth it represented, and to the comparatively small value of the land it was built on. We were talking amidst fine buildings situated in a thickly settled town; and looking at those costly houses around us, filled with most expensive furniture and other treasures, I could not understand how the little bit of land on which the erections stood should be of more importance than all this wealth. I needed some study before I realised how true my old friend’s words were, and then I found the same smiling unbelief wherever I first preached the gospel. But where the ignorant, who, in the fields of economics, at least, form the immense majority, minimise the influence of our land laws, they are rather inclined to form exaggerated notions of the effects that may be expected from changes in the currency. Therefore, in general, the reformer must modify too sanguine expectations from currency reform, while he has to break virgin soil in the land problem. Land reform is a terra incognita to most people, while all see that we are in money difficulties, and circumstances will force paper money on us sooner than most realise, at least in the colonies. There, it is not really a question of paper or gold, but paper without, or paper with, a perfect value standard.

But this is not the only ground on which I base my conviction that currency reform has to come first, if both reforms cannot be carried simultaneously. It is certain that

Currency Reform would give a Strong Helping Hand to Land Reform

from the very beginning; while land reform would then reciprocate with a powerful support against the greatest enemy of a perfect currency: Interest, the root of capitalism.

If the land of the nation has to be bought after the new money has been introduced, it will certainly be paid in this money. I do not mean by this that the State could all at once issue enough of the new money to pay for the whole land, for this would result in a considerable depreciation of the money, whose quantity would in this case largely exceed the requirements of circulation. But anyhow, a certain portion of the land could be thus paid, and probably a much larger portion than we are at first inclined to imagine; for a considerable part of the money paid to the land-owners would be deposited in the banks until chances of better investment offered themselves. The greatest part, however, would have to be withdrawn by the State through the issue of Government bonds payable in the new currency. As these would be secured by the whole land of the country, mortgaged for them, and as land-owners and mortgagees must find new investments for the money they obtained, the rate of interest would not exceed 3%. There need to be no fear that the bonds will not be placed at par at this rate. In case of need the State could reserve the option of issuing State bonds for the land, as has been proposed for New Zealand by Mr. Edward Withy in a very ably written pamphlet: How to Nationalise Ground Rent (Auckland, 1894).

The rate of interest ought not to be fixed for any definite period—as has unfortunately been the case with all our New Zealand loans—thus inflicting great losses on the community. The State ought to reserve the right of converting the bonds at any time; of giving the holders the option to accept their money or a reduction of the interest rate. I shall show that, even without a currency reform,

The Market Rate of Interest is bound to fall much faster in a Country with Nationalised Land

than where private property in land exists; though, even with such private property, experience has shown that the rate is slowly descending. We have already seen that the rate of interest proper is dictated by the tribute capital market; for this capital alone offers perfect security, and thus eliminates the risk premium. Two species of tribute capital have principally to be considered: Investments in land and investments in the bonds of the State and other public bodies. Their rate of interest in a country is generally the lowest at which money can be obtained there for long terms. The country itself may not offer the same guarantees as others, and consequently the rate may be higher there than elsewhere. English consols in ordinary times yield only 2½% interest, while the lowest rate of interest at which New Zealand can at present obtain money is 31/4% and there are countries which would be happy to place their bonds at par with 5% interest. Usually, capitalists prefer to invest in their own country, even if a little more interest can be obtained elsewhere. One likes to have his capital under his eyes, and where it can easily be converted into money when required. Besides, the laws of the country can fix those securities which trustees are allowed to use as investments for widows and orphans; and the exclusion of foreign securities has the natural effect of raising the value of the domestic ones.

There may be a difference in the rate of interest obtainable on bonds and in land investments. Different causes may come into effect therein. In the case of the bonds, the term during which no conversion can be made has ordinarily a reducing effect on the rate, while taxes or the possibility of taxation may raise it.[4] In the case of land purchases the anticipation of a rise of value reduces the rate of interest expected, and so does the consideration in which land-owners are usually held; while taxes, or the prospect of such, and of possible falls in value through other causes, also the cost of transfer, as well as the greater difficulties of sale when compared with bonds or mortgages, raise the interest demanded by investors, and consequently press on the price of the land. Though the loans of Government and public bodies are increasing very rapidly the world over, their increase does not begin to keep pace with that of the sums seeking investment in tribute capital. The rate of increase of public debts at present is about 120 million pounds a-year, which means that half of the yearly interest on the 6,000 million pounds of debts is paid by the means of new debts—whatever the pretext on which the new debts are incurred. Large as this sum appears, it is small when compared with the increase of the world’s tribute capital, an increase which I estimate now at 600 to 700 million pounds sterling a-year. This sum represents the savings which are not invested in products of labour, but in new tribute claims. The new loans represent only one-fifth of these new claims. Four-fifths have to look for investment in land values, either in the shape of land purchase or mortgage loans. If the land of the world had a fixed unchangeable value, all would have been bought by the rich long ago, or would be mortgaged to them to the hilt. But land values rise with the demand for them. Not .a square foot can be added to the earth’s surface, and so the price of the land is forced up through an increasing demand in presence of a fixed supply. If the rent of this land rose as rapidly as its value, the interest rate could remain stationary; but, though rent finally swallows most of the increased income due to our progress in the arts of production and distribution, its expansive power cannot begin to keep pace with that of interest compounding, whose power we realised in the last chapter. The inevitable consequence is that land values are forced up higher than the capitalised value of the rent increase would justify, which means that the rate at which the rent is capitalised goes down. If R (rent) doubles, becomes 2R, and thus at the rate of 5% (20 years’ purchase) brings up L (land values) from 20 to 40 L; while T (tribute claims), which look for investment in L, have increased from 20 L to 80 L, the inevitable result must be a descent of the interest rate from 5% to 2½%, because at 2½% (40 years’ purchase) 2 R = 80 L.[5]

Here we have the simple reason why

The Interest Rate has been gradually going down

within the last two generations, with only temporary interruptions due to passing causes, which for a time supply a more extended field of investment to the savers of tribute dues. We have witnessed such a period during the last two years. There has been a particular demand for money in different ways, principally for exceptionally large Government loans required for the Boer War, or for some important public works, of which the Siberian railway was the most prominent, while the extraordinary development of industry, especially in electric plant, has seduced more of the tribute dues to invest in tool capital than usual. The comparative security which the large American combinations gave to industrial investments attracted also immense sums of tribute savings, which go wherever monopoly of any sort can be secured. The sums represented by this last item are so immense (about 10 billion dollars in July, 1901) that they, by themselves, could account for the temporary lull in the downward pressure on the interest rate.[6]

Land nationalisation, by taking land values out of the market, has the effect of destroying the elasticity of this branch of investment

Slave Values and Land Values

Just as slave values disappeared on the day of Lincoln’s proclamation, so land values cease to exist when land nationalisation is accomplished. It must not be forgotten that I use the word value only in its economic sense of market price. The real value of the negro, as well as of the land, not only remains after their liberation from private ownership, but rises; for free men are worth more fo the community than slaves, and free land will be made to produce more wealth than that which is monopolised by individuals. For the land values which—in the capitalistic market—elastically extended with the demand for them, bonds are substituted, deprived even of the minimum power of extension they now possess in consequence of their temporarily excluded convertibility, which, while I am writing this on August 7, 1901, makes 4% New Zealand bonds sell at 114.15. Bonds convertible at any time cannot attain any premium. The presence of a premium shows that the interest rate has fallen below that paid by the State, so that where a higher rate is secured for a certain period a premium is paid corresponding to the capitalised amount of interest obtainable above the market rate, after a deduction for the final loss of the premium when the period of inconvertibility has expired. The new capital looking for investment in tribute claims, not being able to bid up either land values or bonds, must depress the rate of interest[7] at which the bonds are issued; just as a river kept within its bed by dams flows more rapidly towards the sea level than one left free to inundate its borders. This process goes on the more speedily the faster the profits made by the State between her growing rental income on one side and the diminished interest debt on the other permit the redemption of the bonds. This redemption is accelerated by the treble force of the falling interest rate, the rising rent, and compound interest—this last factor working for the people after having been their worst enemy. The faster the bonds are redeemed the less interest has to be paid, and the more rapidly can the reimbursement of the bonds go on. When New Zealanders take into consideration the effect which the falling of the interest rate must have on production and distribution, and the influence this will exercise on immigration, with its increased demand for land and a consequent rise of rents, they may hope—without being over-sanguine—that the fifteen or twenty years will not be exceeded which I gave in Chapter II. as the term of a full repayment of all the bonds issued for the purchase of the nation’s land. In that place I have dealt especially with the direct results of land nationalisation, leaving for the present chapter the consideration of indirect results, i.e., those exercised on the interest rate, and thus on capitalism, which are of very far-reaching influence.

After the land is once paid in the manner shown, and the bonds issued for the purpose are redeemed, the surplus income of the State from her rental incomes could be used for the gradual extinction of our present public debt, besides yielding a fund for old age and invalidism pensions, as proposed in Chapter II. As I said there, ten years more might be required for the redemption of the land debt if the pensions were to run from the beginning of land purchase.

Thus the two principal roots of tribute capital will disappear, and will only leave the tool capital to those who wish to invest their savings within the country. Of course, as long as

Outside Investments in Tribute Capital

can be made, interest cannot entirely disappear from our midst, and so the tool capital cannot yet give up its capital quality, cannot return into the category of simple wealth. But we must not over-estimate this influence, as we might be tempted to do at the first glance. The tremendous increase of production and the growing wealth of the people must so increase savings that the amounts which each saver keeps within the country at his ready disposal will alone suffice to supply all the capital required

Immense Free Capital

When, even now, the free deposits of our New Zealand banks figure up to seven million pounds, though most of our people cannot put by enough to keep a bank deposit at all, what estimate shall we forecast for a time when everybody will be able to put aside large amounts for future use? Seven million pounds would soon grow into a hundred millions, and all this money would in the last resort be at the free disposal of the State, the effects of currency reform helping. The bonds issued for the land could thus be refunded faster and faster, and in this way a previous currency reform would accelerate the liberation of the land. After all public debts are repaid; the State could lend out the accumulating funds at a nominal interest, and thus further stimulate production and saving, besides supplying the means for public works, for the furtherance of immigration. No more fear then of too many hardy workers coming in who, by their competition, might force down the wages of our workers! Land and capital are ready for them, and every additional worker will be a gold mine for the country. He brings not only two arms to produce wealth, but also a mouth to consume it, besides his other organs and their wants. Once these wants are satisfied, he, too, will save for the future, and thus will become a supplier of capital for further immigrants. There is no reason why our New Zealand should not become the Britain of the Pacific, with more inhabitants than the Motherland. Indeed, there is every reason to fear that—if the latter continues in her present conservatism, not to call things by a ruder name—Macaulay’s famous vision may some day become a reality.

Anyhow, our prosperity would supply so powerful an object-lesson to other countries that they would soon copy us, and this would finally doom interest entirely, and thus sweep away the last obstacle to a progress of so prodigious a nature that even the most sanguine anticipations cannot approximate to it.

I do not speak of the kind of progress we are so used to, that

One-sided Growth of Wealth

of which our modern multi-millionaires are the outcome. I do not speak of a progress in the nature of that reported by R. A. Dague, in the Forward Movement Herald, of Los Angeles. Perhaps the figures he gives are exaggerated, but every impartial observer knows that whether the rates of differentiation between the fortunes of the people given by him are correct or not, the existence of the tendency cannot be denied. Mr. Dague says:

“From the statistics of the Government we find that:

“In 1850 the wealth of the American nation was 8,000,000,000 dollars. The producers’ share was 62½ per cent.; non-producersshare 37½ per cent.

“In 1860 the wealth increased to 16,000,000,000 dollars. The producers’ share fell to 433/4 per cent.; non-producers’ increased to 561/4 per cent.

“In 1870 the wealth was 30,000,000,000 dollars. Producers’ share was 322/3 per cent.; non-producers’ share 67 1/3 per cent.

“In 1880 the wealth increased to 48,000,000,000 dollars. The producers’ share went down to 24 per cent., while the non-producers’ share increased to 76 per cent.

“In 1890 the wealth was further increased to 61,000,000,000 dollars. The producers’ share fell to 17 per cent, the non-producers’ share increased to 83.

“And now, in 1900, it is estimated that the wealth of the country is 100,000,000,000 dollars, while the producers’ share has fallen to 10 per cent., and the non-producers’ has gone up to 90 per cent.

“As the amount of wealth production increased, the producers’ share in that wealth decreased.”

The progress after land nationalisation and currency reform will not be one of this nature, of immense peaks towering above hopeless chasms; it will be a gradual and comparatively uniform upheaval of the whole level. In Chapter IV. I have tried to show how these glaring inequalities in our wealth distribution prevent production from keeping on a level with productive power. I have proved how this effect is produced by our present monetary system, which forces our whole trade through the narrow golden portal whose door-keepers are the commanders of the world’s scanty gold stock. I have also tried to give an idea how we shall be freed from the curse of overproduction through under-consumption, by a currency no more dependent on one special commodity liable to be cornered by the rich, but based on all commodities and services, on productive power, a currency which expands whenever and wherever a fall of prices indicates that productive power cannot become effective, because it is not followed by consumption. I have to ask the reader to kindly re-peruse those pages in Chapter IV., because

The Great Problem cannot be fully faced unless we enter by the Currency Gate

I know this by personal experience, of which I am supplying the proof by quoting from Rent, Interest, and Wages, written after many years of study, for which many more years of practical work in different branches of business had prepared me.

“Let us suppose a group of one hundred workmen and one employer. The one hundred workers are producing all necessaries and luxuries, each one having his speciality; the employer gets one-tenth of all they produce. Each worker will thus have only nine-tenths of what he produces; the employer will get the production of ten workers. The question whether the work of supervision and organisation, and perhaps of invention, accomplished by him is worth as much as he gets for it, and whether through the employer’s work every worker, in spite of his giving up one-tenth, gets more wealth than he would without the employer’s interference, is one of no importance in regard to the question before us. All we want to know at present is whether the employer’s confiscation of one-tenth of all the wealth produced will in any way interfere with free exchange, with the full right of exchange. It evidently will not, if he consumes his share of wealth, or even if he puts it aside for future consumption.

“The workers, instead of exchanging the product of a full day’s work, only exchanged that of nine-tenths; the employer takes the balance, and everybody has full work all the time.

“Let us suppose, now, that the productiveness of labour by means of inventions increases ten-fold, as actually has been the case, if we compare to-day’s results with those of the Middle Ages. Let us further suppose that wages—that is, that part of the product left to the worker—have quadrupled in that time, which, as we have seen in the last chapter, is far from being certain. In what ratio will the share of the employer have risen, if he gets the balance? P is the product, of which formerly W (the workers) enjoyed nine-tenths, and E (the employer) one-tenth. W had together 90 P; E 10 P. Now W enjoy 4 x 90 P = 360 P, and the total of production being 1,000 P, E will get the balance of 640 P.

“Let us suppose that his needs have only increased ten-fold, whereas his income has increased sixty-four-fold; this would enable him to invest a great part of his revenues in luxuries or in new tools, by which he could still further increase the productivity of work, and consequently his income.

“We might consider it unjust that one man should get so much, and others so little. We might reply to statisticians like Giffen, who exultingly point to the quadrupling of the workers’ incomes as a proof of their increased prosperity, that their relative income, instead of having quadrupled, has gone down to two-fifths if we take into account the increase of productive power. But all this would have nothing to do with the right of free exchange. Every worker would be able freely to exchange his products with every other worker, and there would be no want of work for any. Whether E takes his lion’s share in articles of consumption, or whether he prefers taking it in new tools and machines by which he further increases the productiveness of labour, is immaterial. The latter forms of investment might be of greater advantage to the workers, because it is not impossible that a small part of the increase of wealth due to new machines would fall to their share. But even supposing that it only increases the income of E, it could not do them any harm, so long as E continues to invest his surplus in the old way. But let us suppose, now, that E is the owner of the land, and by that means of all forces of Nature, all its accumulated treasures, without which work is impossible—and we have to make such a supposition, as otherwise there would be no earthly reason why the workers should not have left their employer as soon as his share exceeded the value of his services. They would very soon have made for themselves as good machines as they had made for him. Let us further suppose that E made up his mind that he had machines enough, and did not want any increase of luxuries for the time being. A new feature of the problem would in this case present itself which had not been observed before. There would no longer be work enough for all the workers. They would like to continue as before, working full time and exchanging with each other the products of their work, giving the lion’s share to E; but E will not let them have the use of natural opportunities any more and any longer than he needs their services which they furnish in payment. One-half of the tribute they are in the habit of paying is all he needs, and the natural consequence is that half the work will be all be requires, and all he allows to be done on his land. He now uses the rest of the land as a deer park. There being no other way of going to work than by using E’s land, our workers will have to work half time, though they would be happy if they were allowed to make use of their leisure to produce for themselves the goods they are so much in need of, because naturally E only pays them half wages for half work. Very soon fifty of the workers will come to E and propose to him to work cheaper than the others, or to give him a larger part of their products, if he will allow them to work full time. E accepts, and from now there is no more work for fifty of the workers, for the remaining fifty do all the work, and leave a larger share to E than the hundred left him before. Let us suppose that E increases his consumption fast enough to use up the new savings he makes in this way, as otherwise, there would not be full work even for the fifty cheaper workers. Things do not rest here. The fifty unemployed ones, pushed by hunger, finally underbid their former co-workers, and get the work themselves, or rather forty of them get it; for they work so hard, long, and cheap now that E gets as many goods out of them as before out of the fifty; and since he does not need any more goods for the present, there is only work left for forty. These forty, reduced to starvation wages by their underbidding their former friends, call in the help of their wives and children. By these means they begin to get along a little better, until the increased production becomes too much for E, who consequently dismisses ten of the party. The unoccupied reserve army of workers amounts now to the number of seventy and their families. Want drives them to underbid the thirty, who with their families are working overtime to make a decent living. Finally a man working with his whole family gets no more for fifteen hours’ work than he formerly got alone in ten hours. ‘There is no help for it,’ say the lawgivers they appeal to, ‘work is slack. Emigrate (to other countries, where the same state of things takes place) or go to the poor-house! We cannot fight against the laws of supply and demand.’ Some of the lawgivers belonging to another party propose protection, or as that name has become hateful in their country by past bad experiences, they call it ‘fair trade.’ Some of the workers cannot see what good it can do them if goods are not imported which they cannot produce as cheaply as the workers of other nations; if these, to be even with them, stop taking those goods which they (the native producers) used to export, having attained the knack of making them better and cheaper. Said producers, not knowing how to strike at the bottom of the evil, propose certain other measures. They ask for a maximum working day of eight hours, for a prohibition of the employment of married women and children, and others even want the State to fix a minimum of wages. When the law-givers of both parties hear this, a terrible noise is raised against these socialist and anarchist agitators who want to sap the foundations, of our prosperity, the liberty of each man to work as long as he pleases, and to sell his work and that of his wife and children to whomsoever and as cheaply as he pleases. They ask the workers how they can afford to lose the wages of overtime and the earnings of their wives and children, when even as it is they hardly know how to make both ends meet.

“In this way things get worse every day. If a certain part of the unemployed did not open liquor shops; if others did not artificially add to the cost of goods by waste in the work of distribution, thus forcing E to spend a little more, and to occupy more workers; if others, by becoming criminals and paupers, did not make more work, especially by compelling E to employ some of them as policemen and soldiers, thus reducing the army of the unemployed; if the E’s of the different countries did not from time to time quarrel amongst themselves, and lead the unemployed workers mutually to kill each other, thus reducing their numbers; if these and similar means of decreasing overpopulation were not adopted, there would have been a terrible catastrophe long ago.

“We have seen now that the direct cause of the evil is not that E gets a certain share from the workers, but that he does not take this share as fast as they are ready to deliver it, preventing them at the same time from working further until he feels ready to accept the part due to him. We have further seen that the power of thus impeding production is given to him by the ownership of natural opportunities.”

The problem is so important that I may perhaps adduce another parable for its illustration.

Robinson Crusoe, on his island, had to work all day to satisfy his needs. When he got Friday to work for him, things began to improve. He got a little leisure once in a while, and could think of producing articles of luxury. More slaves were procured. The result was complete exemption from work and a greater amount of luxury for Robinson, while the slaves had to work all day long with their primitive tools to provide this luxury and the necessary means of subsistence for themselves. A ship arrived bringing them all the tools and machines which technical science has given to civilised humanity. Very soon the slaves learnt how to use them. Their productive power increased immensely. Where formerly the work of six slaves; and that of their own families, was necessary to provide the entire colony with clothing, a single producer was sufficient now, and, in spite of this, everybody was clothed better than before; for the cotton gin, the spinning jenny, the improved weaving machine, the sewing-machine, and other inventions of the same kind, facilitated so much the work for the one worker, that he was enabled to achieve more than thirty could before. It was about the same with agriculture, with bread-making, housebuilding, and, in fact, with all industries, which before had been carried on by hand. Everywhere hands could be spared, and yet there was a larger production than before, so that all could live in abundance. The unemployed workers had to produce articles of luxury, which before could not be obtained. Good beer, wine, furniture, carpets, table services, and jewelry, works of art of all kinds were made—in fact, all these settlers could wish for. In time, machines and tools, as well as methods of production, improved more and more, so that workers in all branches could be spared. What did it matter? A great many more articles of luxury were invented and provided. One of the slaves, who was very talented, entertained the company with musical and theatrical performances; another wrote books; others built pleasure carriages and yachts, etc. The general well-being increased continually with the increasing facility of satisfying every wish.

All this was very good until one day Robinson got up in bad humour, and gave the order to stop the general good living of the slaves, which did not please him. “He alone had a right to enjoy all those luxuries which everybody had been partaking of; and the slaves ought to be satisfied if they got enough to eat and to drink, and had protection against wet and cold. All that went beyond this point only made them lazy and vicious.” From that day the slaves were forced to live accordingly.

A week after this, when Robinson took a walk, he saw a great number of the slaves standing about doing nothing. He angrily called his head man, and gave him strict orders that only those who worked were to eat, and have clothes and lodgings.

He was perfectly astonished when, some time after this, the head man came to tell him that a number of the men were dying of want.

“Are you mad?” Robinson asked him; “has not the island got more stock of all the good things man needs than we could wish for, and can we not produce as much more as we like? Are there not victuals enough? Are we short of clothing or of houses?”

“On the contrary,” the head man humbly replied, “we are forced to build new store-houses, because the old ones are filled to the top with food and clothing, and a great many of the dwelling-houses are empty.”

“Well?” asked Robinson; whose astonishment continually went on increasing.

“Yes, sir, that is all right; but you ordered that only those who work are to be fed, to be clothed and housed.”

“Certainly; and that was only right. Why don’t the lazy fellows work?”

“Because there is no work for them.”

“No work?” said Robinson, more and more astounded, and feeling his head to see whether he was not dreaming. “No work? Are you crazy, my man?”

“No, sir,” replied the the head man, who felt offended. “I have got all my senses about me, and should be very grateful to my master if he would show me what work I am to give the men. In the brewery, to begin with, three men were employed who had plenty of work in providing the beer for our people. Since your lordship has forbidden this luxury, so that only the beer for your table has to be brewed, I had to take away two of the brewers, and the other is only busy one-third of his time, so that he is also doing the work of the cooper, who consequently is out of work now. It is the same with the people who made the carpets and other articles of luxury. Your lordship is provided for, and the others are not to have any, so I have to take the workmen from their work.”

Robinson learnt a great lesson that day, which our economists and statesmen, as it seems, have yet to be taught; a lesson which, in fact, we ought to ponder over, if we don’t want it driven home to our minds some day in a fashion we shall hardly relish: the lesson that we cannot produce if we do not consume.

How different a case looks according to the side from which we observe it! The above passages were written by the disciple of Henry George, by one who saw most things through the master’s spectacles, and from the land nationaliser’s point of view. I do not mean that in the two supposititious cases things would not pass exactly as described, but the supposition itself does not coincide with the conditions of every-day life. Whatever might come some day if we allowed a continuation of our shameful system of land ownership, its effects have not been realised to such an extent in our time that we should be justified in explaining on this ground alone the strange phenomenon of poverty through progress. As yet, land can be had at reasonable conditions in many parts of the world, provided the means of transportation are at the disposal of the workers. Private land ownership is bad enough, without putting everything on its back. What has, more than any other cause, prevented humanity at large from fully benefiting by our progress in the arts? It has been the fact that this very progress has given us a productive power so wonderful that it has far outstripped the capacities of an antiquated means of exchange and payment, wholly unadapted to the work expected from it, through its want of expansive power. We must realise this before we gain headway in the solution of the great problem how to make production keep up with productive power. Only after having accomplished an adequate currency reform shall we find that if we do not make haste in preventing it, a new strong gate will take the place of the one we have demolished. Then, and only then, a time might come which would see the realisation of my two allegories.

I do not wish it to be understood that I want to minimise in the least the pressing necessity of re-conquering the land for the people, its rightful owners. The very fact that I began this book with land reform before I approached the currency question shows how little I have ever relaxed my efforts in this direction, how fundamental I still consider the great principle that the basis of any permanent social reform must be the destruction of private land monopoly.

In fact, in the great social structure in which humanity is living and working, the different building materials are so intermixed that no reconstruction appears feasible unless we pay due attention to all at the same time. We cannot replace the rotten rafters without putting in some new bricks, and we cannot put on a stronger roof without looking after the foundation and the walls. The relations of land ownership, of capital and money, of rent, profit, and interest, are so complicated that none can be understood, and certainly none can be touched, independently of the others. I have already shown how the rent of the land and the interest of the capital paid for or lent on the land cannot be separated. This being so, it is easy to realise that were there no private right of owning the land there would be none of the soil on which the millionaire fungus could batten. There is too little gold in the world to supply the hoards of more than a small fraction of our rich, were they compelled to invest their money in the primitive fashion still obtaining in some parts of the Orient. I have shown how dependent on labour for their maintenance other forms of wealth storage would be. Take away the land from the feet of the colossus and it will crumble into dust. Mammon, like Anteus, must perish if deprived of intimate touch with mother earth.

Given free land, and a rational money increasing with productive power, and every hindrance to the full development of wealth production up to the limits of productive power will vanish forthwith.

Will it, indeed; is not there one remaining pillar of Plutus’s temple:


Profit, that spectre of socialists hardly yet mentioned here; with what right is it treated so contemptuously? Let us approach nearer to the terrible bugbear of so many students of economic and social science, and, in the fashion of its kind, it will at once lose its terrors. Let us examine it; let us exclude rent and interest from its sum total: let us take away the stilts of land ownership and our present currency system, on which it rises far above its natural height, and poor Profit will assume such modest proportions that, unless we look very closely indeed, we shall not be able to distinguish it from our friend Wages. Only by going quite near we shall find that—wearing his cloak, Speculation—he looks a little fatter than Wages, but in reality he is not clothed any warmer; for, whenever he puts on his cloak, he leaves off his coat. Quitting the metaphor, I mean that speculative profits are balanced by speculative losses wherever monopoly is out of the way.


In saying “balanced,” I am very optimistic; for, in reality, the losses seem by far to preponderate. My business experience and what little statistics are obtainable in this field have given me the conviction that, after deducting rent and the wages of supervision and organisation at the rate paid by cooperative societies and limited companies, and last, not least, after taking account of the losses made by entrepreneurs of all kinds, what remains will not pay the rate of interest obtainable on mortgages or bonds.

At first this assertion may be received with a certain unbelief. This is natural, for it is human nature that the dazzling exception makes a deeper impression than the less visible rule. While the sun shines, the stars are invisible. The Goulds, Vanderbilts, Rockefellers, Carnegies, or Morgans are such luminosities in the wealth firmament that the millions of failures are eclipsed by them. And yet, when that part of their brilliancy is subtracted which is due to monopoly of some sort—of natural resources, of means of transportation, or of protective laws—what is left of these gorgeous suns? How many crushed existences had to supply the mortar with which these pyramids of wealth have been built? How many losses of thousands we never heard of had to compensate the profits so prominently paraded before our eyes? One single Panama canal, in which £50,000,000 were sunk, balances £1,000 profit of 50,000 enterprises. £404,000,000 of the capital invested in companies in Great Britain alone from 1892 to 1899 have been liquidated, and the Inspector-General in Companies Liquidation says: “It appears that the total number of abortive or liquidating companies during 1899 was in the proportion of new companies registered 60%, as against 56%, during the previous year.” That such losses generally do not affect the very rich as much as the poor is shown by the further remark: “About 37% of the capital belongs to the more or less solvent class, while the remaining three-fourths in number, or 63% of capital, represent the insolvent class.” Among the 37% we shall no doubt find very little money of the multi-millionaires, for this kind of men have learnt by experience that he who counts on certainties, on the 3% or 4% obtainable on good securities, is better off in the end than the speculator who hopes for 100% or more, and generally loses all. It may once in a while pay to buy a single lottery ticket, but wherever all tickets, or a very large quantity of them, are habitually bought, loss is certain.

If we go through the lists of dividend-paying companies we shall find that their average rate of interest made on the capital does not exceed what could have been realised on good rent and interest investments, Werner Siemens, the departed chief of the Berlin house, Siemens & Co.—one of the most successful manufacturing establishments in the world—once said that when they built their works, they discussed the policy of buying the whole block, but finally desisted, and limited themselves to the purchase of the actual site. The result was that if the firm had carried out the first intention, it would have made more money through the increase in value of the land than it ever made in business.

And this was one firm in a thousand, exceptionally successful. For one house of this kind we find a thousand who never lived over the first years of their existence. We have only to consult the lists of Dunn and Bradstreet in the United States to obtain an idea how numerous the failures and how immense the commercial losses are. I need not continue on this subject; only too familiar to all those who, like me, have spent a good part of their lifetime in practical business, and only puzzling to outsiders, and especially to two classes whose continual harping on profit has given it the undue prominence it occupies in sociological discussion. To the first belongs the economist of the study, who laboriously tries to make bricks without straw—or, to use more modern language, without clay, sand, and all other suitably material, His want of practical experience prevents him from grasping the problem; while the other class, the wage workers, who compose the body of the socialist army, are too near, and cannot see the forest for all the trees barring the outlook. Not all is profit that they see; for the credit of the house demands a careful hiding of the other side, and they never think of the many failures.

Let us change rent—now the most copious source of the capitalistic torrent, devastating the fields of labour—into an income of the people at large; let us turn it into the abundant supply of a vast irrigation system, bringing forth untold wealth wherever its waters flow. Let us change money into what it purports to be—.a powerful tool of distribution—from what it is: the most terrible weapon forged against the free exchange of labour’s products. Let us in this way destroy interest, the worst enemy of humanity; and when we have done all this, let us turn our lance against the terrible giant Profit, following the angry knights who gallop against it on their outworn Rosinantes; but let us not be too much taken aback when we discover that the giant is, after all, a poor windmill, kept in motion by thousands of windbags made out of paper soiled with printer’s ink, blowing against the fabric with their full power.

In the next chapter we shall see how successfully the workers are learning to use the tool Co-operation so as to become producers and distributors on their own account. The great reforms will clear from their way all those obstacles now impeding their progress; though, as I shall show, even now they could advance much faster if they dared to try new methods. Co-operative production and distribution will become the rule, instead of the exception; and where the workers continue to work on the wage system, their wages will give them the full equivalent of their work. Their employers will differ from the managers of the Co-operative Society only in their undertaking the management by contract work instead of on salary. They take the risk and chances, and give the others a certainty; while, under Co-operation, the risks and chances are taken by the members, and the manager works on a certainty—unless he, too, is paid by a profit share. It cannot be asserted which of the two systems will procure higher wages to labour; for the managers by contract, the employers, may be so much more capable than those working on salaries for the co-operated workers, that, in spite of their earning large incomes for themselves, they may be able to pay higher wages to their employees than the co-operating worker earns as a shareholder of his society.

The Wage System

I know that such expectations must appear very strange to Socialists declaiming against the wage system as sugh, and not noticing what they really attack is the system of low wages. I cannot blame them so much as the practical business men who do their best to prove to them the necessary identity of wages and low wages. Of all disgusting things I have to read in my special field of study, nothing beats those exhortations addressed to the union man who tries to force up wages.

The Employers’ Exhortations

Two points are usually made: (1) “If you want too much you will not get anything at all, because we shall not be able to compete in the world’s markets. (2) High wages mean dear products, and the purchasing power of the wages sinks in proportion to their rise.” This is the nonsense usually dunned into our ears by employers of labour, by economists, by able editors of all colours, who mostly agree on this point at least.

If I were a swearing man, I should reply to the first objection with the four words: “D—the world’s markets!” I did better by proving, in Chapter IV., the insignificance of these markets when compared with the one at our very doors, especially after the conquest of a purchasing power in harmony with the proceeds of production has largely widened this domestic market.

The other objection requires a few more words.

Wages and Purchasing Power

If wages were the only component of selling price, the argument that the worker cannot profit by higher wages, as they must result in a correspondingly higher price of everything he buys, might be plausible. But wages form less than one-sixth of the selling price of goods. Since I first made this calculation eighteen years ago I have seen it confirmed from different quarters; and the immense increase in the arts of production and distribution since that time has still further reduced the proportionate share of labour, as the increase of wages has not kept step with the growing productivity of labour. Even at that time when 1 made my calculation it was rather above the mark, for, in 1883, the total production of the United States was calculated at 6,000 million dollars, the total of wages only at 979 million dollars—not quite one-sixth; but the 6,000 million dollars are figured on wholesale prices, and, to judge the relation between the proceeds of the workers’ production and their purchasing power, we have to take retail prices.

The following passage from Bersford’s Pocket Book of Statistics gives a proportion of only 13½% for the United States, when retail prices are taken into account:

“Mulhall estimates the increase of the retail price (of commodities) over factory price as not less than 30%, but by comparing the wholesale price with the retail price of 25 commodities, such as clothing, shoes, flour, sugar, coffee, tea, meat, tools, etc., I found that the average increase was 67% over wholesale prices (and the wholesalers’ price was, of course, above the factory price). We would, therefore, I think, be quite justified in adding 50% to the total; but to be very conservative, if we add 30% we find the total value of manufactured products to be $14,011,793,736; dividing this by the number of workers (operatives employed in manufacturing industries, which is 4,251,613) we arrive at $3,295 as the value of the average annual product per worker; and the wages paid being $445, they are equal to about 13½% of the gross product. In other words, each worker produced about $10.55 per work day, and received about $1.42 per day as wages.”


Bersford is far too modest in his estimation of middlemen’s gross profits.

The New Zealand Year Book of 1899 gives the wages spent in manufacturies and works (including meat freezing and boiling down, fell-mongering and wool-scouring works) for 1895 at £1,907,592, and the total approximate of the produce at £9,549,360; so that wages form 20% of the turnover at manufacturer’s prices. If we keep below the mark and add to the manufacturer’s price only 50% for all the middlemen, which is only 33|% from retail price, we obtain in round numbers £14,300,000. Of this, the amount paid for wages would form 13,3%, which comes very near to the American estimate of 13½%. The lion’s share of what remains is taken by distribution, which is carried on in such a wasteful way that a very considerable portion of the expense could be saved under a rational system—of which more in the chapter on “Socialism.” Not less than one-third of the retail price is thus wasted. The saving which could be effected in this department alone would therefore permit a trebling of wages without increasing the price of goods at retail one single penny. Of the remaining two-thirds, manual labour gets less than one quarter; but as we have to pay also for intellectual work of all kinds—including Government and professional services and cost of distribution—let us add another quarter for that. The saving of the other half (of the two-thirds) now paid out for profit (?), rent, interest, and waste would then permit the trebling of the present pay for intellectual work. This leaves out of calculation the wonderful increase of productive power due to the freeing of production—which enables the latter to come up to productive power—and to the higher division of labour rendered feasible by the increased turnover which follows the greater purchasing power of the consuming masses. If we only count on this item for a mere doubling of the proceeds, we could increase the wages of manual labour eight-fold, and those of intellectual work six-fold, without in the least raising retail prices.

In New Zealand, through our so-called labour legislation and other favourable conditions, the share of labour in the manufacturer’s proceeds is a little higher; but the principal item—the waste in the field of distribution—is at least as high as, if not higher, than anywhere else. Whoever took the pains to calculate how much the farmer who brings produce to the market obtains for it, and what prices are paid by the consumer, will be astounded. What with freights, which could be greatly reduced by a better system, what with the loss through the practices of auctioneers, of which I have learnt more than I should like to say here, and the high additions to the price made by the retailer—especially in the fruit line, where the Chinese rings form the best organised fleecing machines—the difference between first cost and retail price is almost unbelievable.

I had also occasion to obtain an insight into the cost price of clothing, and found that the retail price is about double the cost price of the manufacturer; and the price of the latter includes many items which could be saved under a better system, with the advantages of the better division of labour due to a larger turnover through higher wages, and a consequent increased purchasing power of the masses.

I have mentioned

Our Labour Laws

a sore subject with our manufacturers, and one which greatly agitates them just now (August, 1901). I have been too long one of their guild not to appreciate their grievances, and to understand why they consider the present state of things almost unbearable. I can fully sympathise with them if they speak of closing their shops rather than submit to new exactions of the unions. I believe in the right of free contract without any limit, be it by arbitration, labour time, accident and sickness insurance, or contribution towards old age pensions;*[8]just as much as I believe in plenty of air and sunshine, in cold water, free exercise, and not too much clothing—under one condition, however, a conditio sine quâ non: a healthy state of things.

Poison against Poison

Just as I fully admit that cases may arise where the admission of cold air may do more harm than good, where the diseased eye has to be guarded from the effect of light, where warm water is preferable to cold, and rest may take the place of exercise, while the warmest clothing becomes necessary—so I know that, under diseased social conditions, many measures which otherwise would be absolutely condemnable may prove useful. What is a poison in the ordinary state of health may perhaps be used to good effect by the experienced physician in the case of disease. Therefore, under the existing system, laws which are based on a false principle may be highly beneficial because the system is bad. By multiplying a negative with a negative we obtain a positive. Thus laws which force up wages and, by granting certain indemnities to the worker, raise his purchasing power, or which, by limiting time, increase the number of billets, and thus give a consuming capacity to people who now have to go without it, though bad in principle, are beneficial, not only to the workers, but also to their employers; provided, of course, that eventually an efficient protection shuts out pernicious foreign competition, a subject I need not rediscuss after the exhaustive manner in which I dealt with it in Chapters IV. and V. Under natural conditions the law had better not meddle with these matters. The right of free contract between labour and capital need not be interfered with in a state of freedom. It is different where organised or unorganised labour is at the mercy of organised or unorganised monopoly. This is not the only case where

What is bad in Principle is good in Practice.

In a world where everything is topsy-turvy, only those who stand on their heads are in their normal position. Thus it comes about that people can in the same breath speak of overproduction and over-population without being put into a lunatic asylum; because we really live in a world in which millions cannot get rid of the wealth they produce—or would like to produce—while these very men who are thus most anxious to create more wealth cannot obtain the mere necessaries of life because of our over-production. As long as we do not adjust the foundations of the social building the more we stock the place with wealth of all sorts, the sooner must it crash down, and to throw the good things out of the window as quickly as possible must be the best policy. As long as we permit some men to monopolise the ownership of mother earth, the substance on and from which the land animal, called man, can alone live; as long as some men can control the medium of exchange and through this control can demand tribute from their fellowmen—payable, not in the products of their labour which these would willingly give, and could supply in sufficient quantity to speedily pay all their debts, but in that same monopolised means of exchange which forms the main source of the tribute claims—so long is the economic world in a diseased state; and whatever is good under normal conditions must be bad under present circumstances. In this way I have found a very simple test by which I judge whether, under existing conditions, any measure will produce good or bad results. I simply investigate whether its principle is correct or not. If it is correct, then the measure won’t do; but if the measure is based on a vicious principle, it is ten to one that the best thing is to vote for it. It will be easy enough to prove this strange paradox.

War and Business

Is it good that millions of men are kept unproductively under arms from day to day, from year to year, that Europe’s peace establishment alone now exceeds three million men? Certainly not! Such a state of things is entirely opposed, not only to economic laws, but also to those great principles preached from the Mount, which form the basis of that Christianity professed, though not practised, by a great part of our civilised world. The conclusion is, that this armed peace, this forcing of millions into a busy idleness, is an excellent thing from an economic point of view, as long as we do not make fundamental economic changes. We talk of over-production now; but what should we say if these millions of our strongest and healthiest men, instead of merely consuming, set to work and produce more wealth—imploring a market? On the other hand, when is business brisker than in war times? Business was prosperous during and immediately after the American Secession War; during and immediately after the Franco-German War; and is not our presently expiring revival mostly due to the Boer War and its consequences? This is natural, for war is the greatest consumer; war creates that wonderful arcanum for which we all sigh and often fight: a market for our surplus production. Things have to come to such a pass that business men all over the world look at wars, if only they do not involve their own country, as blessings, which a poor, over-stocked merchant ought to be very thankful for. I know they do not say so publicly, and their press organs are duly praising the blessings of peace with a grateful upturning of their eyes; but I know what is said behind the scenes, for during forty years I have been an initiated member of Mercury’s Limited Stock Company, called the commercial community. If this had not been so, if I belonged to that learned clique which the world over have monopolised economic and social science, I should speak differently. I should praise the beneficial effects of peace; I should curse the destructive tendencies of war; I should declaim against the waste of militarism; I should expect universal prosperity from general disarmament; I should do all this, and I should be as great a liar as they are under the existing state of things. Moral: peace societies, stop your nefarious work! Nefarious, as long as you do not help us to lay those foundations of the peace temple, without which the higher you build the more surely will your baseless structure fall, and overwhelm us with disaster: the foundations I am trying to specify in this book.


It is a truism that alcoholism is even a more terrible scourge than war. For one victim of the battle-field, more than a hundred are killed by the bottle. But supposing prohibition or any other method were successful in exorcising the fiend, what would be the result? A terrible increase of over-production and unemployment, as long as every worker produces six particles of wealth, and is only permitted to consume one, while those who are entitled to the other five parts are already oversatiated with the wealth now falling to their share. Consequence: more unemployed and more drink. For one man saved from drink in such circumstances and now producing with all his power, two may lose their job and turn to drink in their despair. Proofs are not wanting that misery produces drunkenness far more frequently than drunkenness produces misery. “In Rent, Interest, and Wages” I gave an interesting example from Ireland, where a drunken population became sober through obtaining a continuous paying employment. I here add an article from an American paper, the Binghampton Independent, in the same direction:

“A table has been prepared by Professor Warner, of Stanford University, based on fifteen separate investigations of actual cases of poverty, numbering in all over 100,000 cases in America, England, and Germany. These investigations were conducted by the charity organisation societies of Baltimore, Buffalo, and New York City, the associated charities of Boston and Cincinnati, by Charles Booth in East London, and for Germany we have the statements of Mr. Bohmert as to seventy-seven German cities. They include virtually all the facts that have been collected by trained investigators, unbiassed by any theory. From these figures it appears that about 20 per cent, of the worst cases of poverty are due to misconduct, and about 75 per cent, to misfortune. Drink causes only 11 per cent., while lack of work or poorly-paid work causes nearly 30 per cent.

“All evidence worth considering goes to prove that poverty and crime are both results of forced idleness or low-paid labour. As a rule, men who are steadily employed at some productive work, and who get in return for their labour what they consider to be a fair share of the product of their efforts are temperate and moral. If all men could feel sure of steady work at fair pay there would be practically no need for policemen or temperance societies. If the preachers would study theology less and political economy more, and then go into their pulpits and preach practical Christianity for every-day use they would be doing a far greater work than they are when they talk about patient submission here, in order that reward may be had hereafter.

“Poverty and crime are results of laws which men have made, and we will have both so long as these laws are in operation. It is not the fault of God, or Nature, or whatever you may term the creative cause, that many men are poor, shiftless, and intemperate. The fault lies with the people, and with them rests the remedy and the responsibility. When the people are wise enough to remove the cause, the evil will disappear. It is about time for men to stop repeating that antiquated statement that intemperance is the prime cause of poverty, and take up the study of how to remedy the real cause—enforced idleness.”

Moral: Prohibitionists had better help in taking away the worst cause of drunkenness, which is not, as they think, the supply of alcohol, but the social conditions which drive men and women into the bar-room.

Prison Reform

The great aim of prison reformers is to turn criminals into useful human beings. The best method towards this end is to put them to useful work, with some profit or advantage to themselves, however small, which has the further advantage of making our prisons self-supporting, instead of causing the honest toiler to sweat for the scoundrel. The method is rational, and consequently not to be permitted on any account as things are. Our manufacturers and artisans who declaim against prison work are perfectly in the right when they assert that every day’s work of a criminal takes away a day’s work from an honest man, and tends to turn him into a criminal career.

Moral: Be happy that, in these times of over-production, you always have the criminal among you; and agree with the humorous homage to the burglar once paid by W. S. Gilbert in the columns of the London Times. The renowned librettist said that he could never fully understand the prejudice against burglars. “An arrested burglar gives work to innumerable telegraph, police, and railroad officials; and possibly also to surgeons, coroners, and tombstone makers. As soon as he is in custody, the service of a whole army of lawyers, judges, petty and grand jurors, reporters, prison administrators, and turnkeys are put in requirement. Certainly the burglar effects more good than harm.”

Anyhow, I agree with Carlyle that there are far more pressing tasks for us on hand than this. When he inspected a model prison he wrote:

“For all round this beautiful Establishment, or Oasis of Purity, intended for the Devil’s regiments of the line, lay continents of dingy, poor, and dirty dwellings, where the unfortunate not yet enlisted in that force were struggling manifoldly—in their workshops, in their marble-yards, and timber-yards, and tan-yards, in their close cellars, cobbler-stalls, hungry garrets, and poor dark trade-shops, with red herrings and tobacco pipes crossed in the window—to keep the Devil out of doors and not enlist with him. And it was by a tax on these that the Barracks for the regiments of the line were kept up. Visiting Magistrates, impelled by Exeter Hall, by Able Editors, and the Philanthropic Movement of the Age, had given orders to that effect. Rates on the poor servant of God and of Her Majesty, who still serves both in his way, painfully selling red herrings; rates on him and his red herrings to boil right soup for the Devil’s declared Elect! Never in my travels, in any age or clime, had I fallen in with such Visiting Magistrates before. Reserved they, I should suppose, for these ultimate or penultimate ages of the world, rich in all prodigies, political, spiritual—ages surely with such a length of ears as was never paralleled before.

“If I had a commonwealth to reform or to govern, certainly it should not be the Devil’s regiments of the line that I would first of all concentrate my attention on!”

Waste in Distribution

In the chapter on “Socialism” I shall express myself unreservedly on our wasteful system of distribution. Here I state my conviction that any improvement in the methods of distribution, or any other saving of labour which does not result in a corresponding consumption, can only deepen the prevailing misery by increasing want of employment. The middlemen, who now consume without producing, would then try to produce without consumers.

Moral: Co-operators who busily construct a mere dividend-procuring machine are doing evil. They can only do good work by making co-operation that for which it is splendidly adapted—the most powerful engine of fundamental social reform.

Other Waste of all Kinds

Who has not been disgusted with red tape, with the waste of labour going on in Government offices all over the world? Well, let us abolish it; let us do away with flunkeydom; let us economise and be thrifty as much as we can; and then let us see how we can keep alive the millions of additional unemployed that under the present system would result!

Moral: More waste, more useless officials at good salaries, more Marchand million dollar bedrooms, more Vanderbilt $200,000 dinners, more million dollar baths, more yachts, more palaces, etc.; but for Heaven’s sake no more industrious workers! This adjuration is required to-day even more urgently than it was eleven years ago, when I penned the following lines; because compound interest has continued its nefarious work al this time:

“The praise of industry sounds from every pulpit, is dinned into our ears by millions of leaden soldiers from the typefoundry regiment, leaving the impress of their footsteps on millions of tons of paper which go forth as dailies, periodicals, or books. How strange that we find a growing fear of industrious workers, and that we do our best to send them out of the country, or to prevent their getting in. Emigration societies are founded, laws against the immigration of foreign workers are enacted or demanded. The rich drone is welcomed everywhere, and glowing advertisements set forth in rose colours the advantages of different towns in order to attract him; whereas workers are warned off in every possible way. It is a natural result of the unnatural state of things we live under; for consumers are wanted, and producers shunned in a world in which the purchasing power of the masses lags more and more behind their producing capacity.”

New Inventions

In the same way, we have every reason to fear any improvements in the arts of production and transportation, as long as we have not opened the flood-gates of a correspondingly increased demand to the additional stream of production due to the new inventions. Here again the instinct of the people sees clearer than the logic of the scholar in his study. They curse the linotype, which he welcomes. He rejoices at the new automatic power loom which trebles the productive power of each weaver, while they revile. They are right; for where we cannot sell enough, increased productive power presses with a heavier weight on the workers whom it deprives of employment.

 Effects of the Reform

All this will be entirely changed by a fundamental reform which keeps the purchasing capacity of the masses parallel to their productive power. Anything which increases the one must then result in an equal increase of the other; so that production will no more be fettered by the very elements which are meant to promote it. Peace, temperance, and economic distribution, the stoppage of waste of all kinds, will cease to deprive the workers of a chance to make a living, and will enable them to earn more with less labour. Labour-saving inventions will prove the real benefit to the working masses which they are now wrongly supposed to be. They will increase wealth production while lessening toil and working time. They will enrich the worker, and enable him to become his own employer, working with his own tools, instead of continuing to be instruments of oppression through their association with the tribute capital which transfers to them its power of claiming interest. The destruction of this kind of capital must be the wage worker’s endeavour, and not only his, but also that of his employer, of workers of any kind, whose real interests cannot be truly disjoined. There ought to be no more antagonism between the two camps who now waste their best energies in fighting each other. Instead of being at loggerheads about factory acts, about working time, and minimum wage, both ought to unite in fighting their common foes: private land monopoly, metal money, and the dire offspring of those twain—interest.

False Friends

I warn the workers especially against those false friends who try to hide from them the real nature of present institutions. Those owners of large estates, allied to the men who make a living by selling or conveyancing land—those eloquent preachers against the wicked ones who want to despoil the poor worker of the little plot which he has been saving up for during so many years; or the money-lender, who rallies him to the defence of interest, pointing to the benefit accruing to the poor saver from his investments in the savings banks or life insurance companies; or the banker, vaunting the good old sovereign or the honest gold dollar, and warning him against worthless paper which is bound to ruin the industrial classes.

I have seen smart men walk into such traps, who would not be taken in by the cajoling of a horse dealer, for instance. The dealer may say that never in this world was there such an animal as the one he is trying to palm off; and he may declare that he has not the least personal interest in any immediate disposal, for, at such a ridiculous price, he can sell the horse at any time. He may asseverate that he speaks out of pure philanthropy, because he knows how hard Mr. Green has to work for his money, and how much he requires a really good Clydesdale in his cart. But Mr. Green is shrewd enough to estimate the horse for himself, and the more his equine beauties are extolled, the less our working friend admires him. Instead of acting on the same principle with those humbugs who want to prove to him that they only consult his welfare in advising him to stand up for rent and interest, he believes them. If he did not, the world would be a good deal farther advanced.

I cannot help applying in another sense a metaphor already used: that of the wolf preaching to the sheep that the right of devouring other animals is one of the sacred natural laws, equally beneficial to all creatures, and therefore not to be infringed by anyone without extreme danger. “These agitators want to deprive you of the right you have to gorge yourselves on wolf flesh; just think of it!” Or let us imagine a slaveholder telling his human chattels that slavery is a profitable institution to them.” Has not Cæsar, a former slave, after buying his liberty, bought several slaves for himself? Why should not all of you have the same chance? ”

The Worker’s real Interest

Let the worker calculate how much his share in the nationalised land would amount to, and how much he can ever hope to own, under present conditions. I have shown in Chapter II. that the nationalised rent would yield enough to ensure him and his wife a higher pension for every single year after his retirement from work than, in ninety-nine cases out of a hundred, the whole value of the little plot of land which he can ever hope to possess free of debt, would figure up to. I could equally prove to him that the amount of interest he pays during his life in the price of everything he buys or of every pound he borrows, as well as in the loss caused by lower wages or unemployment, due to the interest paid by his employer, exceeds a hundred-fold the interest he obtains for his scanty savings from the savings bank or through the reduction on the premium he pays to the life insurance company. But all this dwindles into the background when he takes a broader view, when he comes to understand the part which the institutions thus praised to him play in the economic process. When he has once realised the truths which this book tries to inculcate: that the social mystery of the past and the present century—the problem of want through superabundance, which has succeeded the familiar and explicable difficulty of misery through insufficient productive power—that this seemingly incomprehensible problem is due to capitalism; and that capitalism must perish when its roots, rent, and interest are destroyed with the soil of private ownership and hard legal tender money which they luxuriate in—when the worker has thus gained the solution of our present-day problem, he will behold the dawning of a new era. Instead of clamouring for more labour laws, he will join his employer—after all, only a worker like himself—in the great fight against monopoly, the soul of capitalism.

I know it is far more difficult for him to penetrate into the depth of such a complicated problem than to understand that the more wages he can get the more he can spend, and the less time he works the more billets there will be. However, it is not necessary to enter into all the intricacies of the case. It does not need so much understanding and study to master the following

Two Fundamental Truths underlying the Land and the Currency Questions:

  1. 1. It cannot be in the interest of the man who uses the land for habitation and for work to see it employed as an instrument of extortion by anybody. Extortion can only be practised at the expense of labour, and labour must in the long run lose by it, even though some workers may finally benefit through themselves rising to the bad eminence of extortionists.
  2. A money which is based on labour and its products is of easier access to the producer than a money which consists of one scarce product only found in distant mines not accessible to the majority of workers, and mostly in the possession of capitalists. And it is self-evident that a paper money whose issue depends on changes in the price level of general merchandise is really based on this merchandise, i.e., on labour and its products. The very fact that prices are kept unchanged on the average, means that the worker can at any time obtain his full money’s worth for his merchandise or for the labour which produced it, provided always that he can obtain easy access to natural opportunities. In such a case, production can never outrun purchasing power; or, in other words, merchandise and money have become equals. Money can at any time change into merchandise without having to fear a rise of prices, because rising prices would at once restrict the money circulation, and thus force prices down again. Nor need merchandise be afraid of not being at any time able to exchange against money at normal prices, as any fall in prices would bring more money into the market; the very reverse of present conditions, when a fall in prices renders buyers apprehensive of a further fall, and thus locks up money, with the well-known disastrous effects. In the next chapter I shall prove more fully that scientific paper money is really labour money.

After these simple truths have been mastered, no sophistry put forth by the interested parties can eradicate the conviction that land and currency reform, whatever effect they may have upon the fortunes of certain gentlemen, must assuredly benefit the worker at large. The full extent of this benefit may not be discerned without a deeper study of the subject, but even the most superficial consideration ought not to find it difficult to realise how a money practically based on labour—as, under its reign, labour and the products of labour are always at the disposal of, and can at any time convert themselves into money—must make it

An Easy Matter for Labour to free Itself from all Debts

to capital within a very short period. The productivity of the world’s labour, immense already, and increasing from day to daythrough new inventions and improvements in the processes of production, is capable—if unfettered—of evolving such prodigious wealth that all our debts, enormous as they are, could be paid off at an early period. But before this term is reached—in fact, from the very commencement of the general reimbursement period—interest would be a thing of the past, and debt would lose its sting. The relation of creditor and debtor would simply mean that a certain number of people have

Deferred Consumption,

while others consent for a while to use that wealth in the shape of tools of production, to hand it back in the form of articles of consumption of all kinds at the time when the lenders want it For the advantage reaped from the use of the tools, the borrowers would render the service of preserving their creditors’ wealth intact. The longer the period during which wealth is thus freely lent, the better for the borrowers. If the lender is so rich that, as in the case of the Rothschild family, the mere consumption of the accumulated wealth, without interest, would give a yearly income of £100,000 during several thousand years, this would simply mean that many generations of workers need not at all think of reimbursement, that they may almost look at the capital as belonging to themselves. Practically, the liquidation would probably terminate somewhat more expeditiously, for it is not to be supposed that, in a world in which the wealth-producing power of labour benefits only the workers, and thus conquers for them the highest rungs of the social ladder, anybody should want to continue living as a drone. Where only the self-made man is honoured, inherited wealth will finally be flung away as something derogatory.

A Precedent

to what will happen is supplied by what has happened in the past. Professor Roscher tells us in his System der Volkswirthschaft(Volume III., p. 21), that in the year 1293 “the citizens of Florence made a law according to which the Grandi (noblemen, patricians), who had to be members of a guild to enjoy the privilege of sitting in the Council, had to actually work in their trade, if they did not want to risk the loss of their franchise.

… People could be ennobled as a punishment. … After the expulsion of the Duke of Athens, the most popular noble houses obtained permission to relinquish their nobility. In Pistoja all the disturbers of the public peace were entered into the register of nobility (1285). In Guelphic Parma all the Ghibellines were ennobled (as a punishment) in 1284.”

This reads like satire, and certainly appears as strange as my prediction of the future; and yet it is historical fact, recorded by a careful German university professor. But results more wonderful will follow our land and currency reforms. We have become so accustomed to the present state of things that it is hard for us to realise how difficult it would be to make anyone used to natural conditions —

An Immigrant from another Planet,

for instance—understand our present plight. It would be almost impossible to make him comprehend how, with such a wonderful productivity of labour, the workers could not soon free themselves from all their obligations—had not long since gained the ownership of all wealth. He might at last perceive what made our ancestors commit the folly of selling their terrestrial birthright, or how they were deprived of it by fraud or force. He would thus recognise the fundamental basis of all the land titles of to-day. But how explain to him that the workers, with their untold potential wealth, had not long since bought back the land? We should have to tell him that we make a pretty yellow metal our fetish and our sole legal tender; and then, perhaps, he would grasp the whole position. Much more difficult is it for our workers—blinded by the veil of habit—to see that a money based on labour and its products would wrench asunder the golden links of the slavery chain which centuries have forged around their brawny arms. So soon as our interplanetary guest learned that debts in this world are not payable in labour’s products, but in coins made out of the scarce pretty metal of which not enough exists to pay one-twentieth of the obligations contracted in its name, he would easily comprehend the rest. With any logic at all, he could not fail to realise that, under such circumstances, the creditor class is bound to become richer, the debtor class is sure to grow poorer all the time. The former play

The Bull Game

lately worked so successfully at the New York Stock Exchange on the Bears in Northern Pacific railroad stock. The Bears had sold more of the stock than existed, and, as a natural consequence, had to accept any terms the victorious Bulls chose to inflict on them. If, instead of claiming a comparatively moderate fine to free the others from their engagement, to deliver something which did not exist, the victors had so forced up the prices of the stock that all the wealth of the world would have been required to compensate them, there might have been no legal impediment, except that unwritten law according to which, as the German proverb says: “Wo nichts ist hat der Kaiser sein Recht verloren” (“Where there is nothing, the Emperor has lost his rights”). The bankruptcy of the debtors after they had given up all their possessions was the only practical limit, and the spoilers had reasons for stopping short of this extreme result of their power. The world’s creditor class is in exactly the same position towards the world’s debtor class; the difference is only that the deficit between the money stock and the engagements to deliver it is by far greater in their case than in that of the Northern Pacific stock. The debtors have promised to pay from twenty to thirty times more gold than the world possesses, and the creditors give them prolongations of the engagements against the payment of fines, called interest dues: fines which are payable in the same unobtainable gold[9], so that in this twentieth century the interest dues of one single year by themselves alone exceed the whole gold stock in existence. In spite of this fact, fines upon fines are added, interest and compound interest further increase the debt, until bankruptcy liquidates the account. And even this is not all.

Gold and Land Monopoly

By rendering the legal tender coins—the basis of our currency—less and less accessible to the producers and dealers (who imperatively require a means of exchange), the creditor class have succeeded in monopolising, to a certain extent, natural resources on the score of their gold claims. The rent tribute grew with the interest claims, and heavier and still heavier manacles were imposed on the purchasing power of the masses and consequently on production, so that this purchasing power and production were increasingly surpassed by the growing productivity of labour which enables the few to da the work formerly done by the many. Manifestly, then, the many must gradually be thrown out of employment; the few only, and the machines which they tend, are kept busy. The wages of the lucky ones still at work are reduced through over-competition for the scarce billets proffered by the requirements of the rich.

Thus, then, our interplanetary guest would realise by what means progress necessarily produces poverty in this world; and how wages (the average earnings of all classes, partly employed and unemployed included) must finally decrease, certainly in comparison with the general output, perhaps even absolutely—a downward tendency which is otherwise unexplainable. But progress is bound to raise wages where prices remain stationary; and this would be the case with the new currency, for the cheapening in the processes of production and distribution would no longer press upon prices, but would permit wages to rise in equal measure with improved facilities—provided that to the currency reform is added land reform, for then would vanish the last remaining shred of monopolistic power to seize the lion’s share of this world’s good things.

I hope I have succeeded in proving that with the destruction of capital in the sense of property, which can procure an income without any work on the part of the owner, capitalism must disappear, and the orthodox capital, the tool capital, thus having become simple wealth, wealth production will be freed from its fetters, and will keep at the level of productive capacity.

This chapter summarises the theories which were gradually evolved in the preceding part of the book, and it is the keystone of the whole work. If I am correct in my conclusions—and I believe that I have strictly adhered to established facts in forming them—then a new light is thrown on the nature of the great social problem, and on the relation of the different classes to this problem and to each other.

The Conflict is no more between Employer and Employed, or between Wealth and Poverty, but between Monopoly and Freedom.

The domineering class sits on the rest of mankind as the Old Man of the Sea sat on Sinbad the Sailor, gripping firm hold with the two knees: Land Monopoly and Money Monopoly; and the suffering mass asks no further concession than that the class shall kindly get off its back. The question lies not between the competitive system and co-operation, as socialists think—whatever reforms may yet be found desirable in that domain—for both systems can be practised under slavery. It is simply a fight between liberty and slavery. It is the power of preventing free competition by monopolising land and money which causes the struggle, the devil-take-the-hindmost-fight we are daily witnessing.

Not Competition, but want of Openings

A theatre is burning; in headlong flight old and young, weak and strong, men and women try to gain the outlet—a single small door blocked by a frantic mass of fighting humanity. Five hundred corpses are found the next day, and people are discussing the cause of the disaster. Some pretend that if, instead of this mad competition for the only outlet, there had been peaceful co-operation, or if the State’s policemen had maintained order and forced the people to walk out in a regular procession, all would have been well. Perhaps so, or perhaps only half of the spectators would have perished; because, in the calmest and most methodical manner, all could not pass through so small an opening in such a limited time. But a sufficient supply of doors would have allowed all to escape, never mind whether order reigned or not.

 Open the Gates!

Liberty is the perennial source from which alone a higher civilisation can flow; slavery proves to be a curse for the master as well as for the slave. Yes, also for the master, if it were for no other reason than that given by John William Draper in the Intellectual Development of Europe: “The high caste is steadily diminishing in numbers; the low caste is steadily increasing. In impervious pride the patrician fills his private jail with debtors, he usurps the conquered lands. Insurrection is the inevitable consequence—-foreign war the only relief.” What was true of old Rome is true of our times. The tendency of concentrating wealth in a few hands is even more marked now than it was in the days of which Draper writes.

The Terrible Danger

Those who are on top forget how insignificant their number really is. They meet in their drawing-rooms, in their boxes at the theatre, their ball-rooms, and public drives; and seeing each other so often, they obtain the impression of large numbers, as in the case of those histrionic armies composed of the same few men who march out at one side of the stage to come in again on the other, occasionally changing their helmets and arms if there is no time to don another uniform. Thus our upper classes do not realise how thin is the shell which they form on the social globe, comparatively thinner even than that of the solid crust over the fiery masses of our terrestrial globe, supposed to be about 1:150. We hardly ever stop to realise the flimsy nature of the envelope which protects us from those volcanic underlying masses. We quietly go about our business and pleasure, until once in a while an earthquake or an eruption disturbs us in our careless dream-life, reminding us of the terrible powers beneath our feet. So our plutocracy lives from day to day, investing and speculating, accumulating and wasting, without thinking of the turbulent masses on whose shoulders their palaces are built, until an insurrection, sometimes growing into a revolution, shakes them out of their crazy indifference. Or the Medusa head of anarchism is descried with horror for one moment. A Carnot, a Humbert, a M’Kinley drop under the assassin’s bullet or knife, and the mad dance is suspended—to be renewed instantly as if nought had happened. And all the while, the very forces which should prove the greatest blessing to all serve to increase the tension. Our Divine Master has not given us a very long time for that peaceful evolution of humanity which may yet possibly prevent the most frightful revolution this world has ever witnessed. We may guess the power of the reaction by that of the forces at work towards a culmination of the evil. You who have the capacity and the means to hasten the day of reform, hurry up in your own interest while yet you may! You may not secure your own future, and certainly you cannot provide for your children, in any other manner. Those fortunes which you may leave to your heirs will crumble to dust, for they are nothing but mere titles to slave services which become waste paper on the day that sees the slaves break their chains. But you can leave behind you something immensely more valuable and indestructible: a free world in which every talent has scope; in which easy and pleasant work, less exhausting than those idle pleasures, or so-called pleasures, which now absorb your time, will provide your children with all they need; a world which the gratitude of millions would transform into a paradise for you and yours, from the hell which even hearts made callous by the force of habit cannot contemplate without a shudder,

Enlightened Self-interest

I leave the task to others to appeal to higher motives. Experience has shown me the value of such appeals, where the mind is so immersed in selfishness that the eyes cannot see beyond the artificial wall of environment into the depth of eternal truth. Be selfish, if you cannot help it; only, in your selfishness, be at least as practical as you are when you give orders to your stockbrokers. Weigh in your mind which enterprise offers the best chances of investment: the limited company (in which you are as yet a main shareholder) chartered for the purpose of sawing the branches on which you are sitting, and endowed with an immense capital to do the work as speedily as possible, with golden saws tipped with diamond compound interest teeth; or that other company, whose share register has as yet few subscribers, but whose object—among others indifferent to you—is to supply you with a safer support than the branch on which you so strangely rely. Oh, Carnegie! great iron master and college founder, think of it for one single moment! What you are now doing can only help in the branch sawing business; for everyone of those thousand poor scholars whom you provide with the means of education will, at the end of his studies, find himself in a world where knowledge and ability become every year more incapable of making headway against stupid mediocrity that is the inheritor of monopolies, the slave-driver swinging his whip over the skilled and the unskilled worker, over the scholar and his intellect as well as over the ditcher with his brawny arm. Then will they curse the larger vision you have helped them to achieve; for they will see beyond the mists which as yet veil the truths of life from the ignorant many, and they will discern that your benefactions to themselves were fruits of that very system—that Upas tree—which has poisoned the whole anguished world.

Oh, Carnegie! oh. Rockefeller! a fraction of the sums that your philanthropy is misdirecting would launch a reform propaganda which—controlled by your genius of organisation—would transform this planet! Peacefully would the marvellous change be effected, and long before it can be reasonably anticipated by other means. Already, though unwittingly, you have done great service. You have helped to demonstrate that national and even international centralisation of production and distribution is possible. When anti-socialists invoke their familiar: Subjection-to-the-iron-rod-of-officialism, their incantations no longer excite alarm; for officials elected by the people could not be more odious than your vicegerents are in the departments of production and distribution. You merit well of the American people, for you manifest to them that the issues no longer lie between free individualism and socialism, but between socialism for the few and socialism for the many. Men like you, and still more especially, men like Tom L. Johnson—the creature of monopoly who exerts his power and his wealth to combat monopoly—may be important factors in the general betterment, may advance incalculably that peaceful and brotherly development longed for in the heart of the human race.


[1] I purposely do not say profit and wages, as my business is only with the interest component of profits. Wages of supervision and organisation, the other component, fall under wages; and what remains is rent and risk premium, or lottery gains, amply compensated by losses, as we shall see yet farther on.

[2] To show the importance of this right of way and the dangers involved in its possession by private parties, I here quote a passage from the Public: “With the recent acquisition of the Southern Pacific railroad, a little group of some half dozen men come into control of all the great highway systems of the United States. They not only own the railways of the country, but they absolutely control the entrance ways into all our large cities. Without the consent of these men no one can make railway connections with New York, Boston, Philadelphia, Chicago, San Francisco, Portland, the cities of Puget Sound, Galveston, St. Paul, Minneapolis or Omaha, to say nothing of other important points. Controlling the terminal facilities, they control the cities, and are thereby masters of the country. To regard this situation as some newspapers and public men do, as being good or bad according to the manner in which the terminal owners may manage the property, whether for the better accommodation of the public or not, is sheer fatuity. The real question is not what use these potentates may make of their unprecedented privileges, but what use they can make of them. These men, with the privileges they possess, are stronger than an absolute monarch.

And their power is not dissimilar. They are not business men uniting their business interests; they are owners of sovereign power, of governmental power, of power which originates not in business, but in law. The cars, rails, station houses and other railway equipment—which belong to them as business assets—are trifles in comparison with their rights of way and terminal rights, which belong to them as creations of sovereignty. Indeed, the time is coming when they will retain no interest in rolling stock, but will lease to business men the business privilege of running trains, while they themselves retire upon the landlord’s function of collecting rents for rights of way and terminals. It is evident now that the highways of the country will soon be directed by one master-mind whose power, greater than that of any other man on earth, will control ballot box and cartridge belt as well as rail and tie, unless—and only this can prevent it—the people themselves resume the ownership of their highways and terminals. Such a man, holding the livelihood of all railway employees in the hollow of his hand, would be a spoilsman infinitely more dangerous than the worst boss that political spoils could possibly develop.”

[3] The best and shortest summary of this progress has been given by Professor E. E. Dolbear of the United States: “The nineteenth century received from its predecessors the horse. We bequeath the bicycle, the locomotive, and the automobile. We received the goose-quill; we bequeath the fountain-pen and typewriter. We received the scythe; we bequeath the mowing machine. We received the sickle; We bequeath the harvester. We received the hand printing press; we bequeath the Hoe cylinder press. We received the painter’s brush; we bequeath lithography, the camera, and colour photography. We received the hand loom; we bequeath the cotton and woolen factory. We received gunpowder; e bequeath nitro-glycerine. We received twenty-three chemical elements; we bequeath eighty. We received the tallow dip; we bequeath the arc light. We received the galvanic battery; we bequeath the dynamo. We received the flint lock; we bequeath automatic Maxims. We received the sailing ship; we bequeath the steamship. We received the beacon signal-fire; we bequeath the telephone and wireless telegraphy. We received leather fire-buckets; we bequeath the steam fire-engine. We received wood and stone for structures; we bequeath twenty-storied steel buildings. We received the stairway; we bequeath the elevator. We received ordinary light; we bequeath the Röntgen rays. We received the weather unannounced; we bequeath the weather bureau. We received the unalleviable pain; we bequeath aseptics, chloroform, ether, and cocaine. We received the average duration of life of thirty years; we bequeath forty years.”

[4] As New Zealand taxes mortgages with the fancy that she thereby taxes the mortgagee, it may be useful to repeat again at this juncture that the taxing of bonds or mortgages affects only those issued before the tax becomes law, for ever after the tax is taken into consideration in the price or the interest rate. A tax on a loan entered into after the imposition of a tax is always borne by the borrower; for, as the rate of interest is determined by the money market and not by law, the law cannot change it. If 5% is the market rate for mortgages, a tax of 10% on mortgages simply raises the rate of interest to 5½% so that, after paying the tax, the mortgagee still gets his 5%. If he does not he will invest his money otherwise. A State which taxes its bonds will have to pay a correspondingly higher percentage for the next loan.

[5] The process of Watering Stock helps to disguise the rise of land values. A. Pohlman, in the Deutsche Volksstimme of January 5, 1901, gives the prices now paid for the shares of some old coal companies in the Pas de Calais, France. Bethune stands at 3,980; Bruay, 2,850; Courrieres, 2,800; Lens, 675; Meurchin, 13,900; and Næux, 29,500. The nominal capital of Meurchin is 500 francs, that of all others 1,000 francs. Only Bethune is fully paid in, while the others have paid in from 300 to 600 francs. Næux seems to have the highest value, but is almost the cheapest of all, because it is the only company which has not watered its stock. Meurchin has watered it five times, and is worth 69,500, but is not nearly so valuable as Courrieres, though the latter only stands at 2,800; because Courrieres has watered thirty-fold, and in reality the 300 francs actually paid in are worth 84,000 francs. The lowest in the list, Lens, instead of being 325 francs below par, is worth 67,500 for the 300 francs paid in, as it has been watered a hundred-fold. Bruay has been watered twenty-fold, and is worth 57,000 francs; while Bethune has merely been liquefied to six times its bulk, and is worth only 23,880.

It is evident that it is not the machinery and buildings of these companies which have thus increased in value, but the coal seam, the land.

In the same way English and American railroad companies are in the habit of watering their stock to disguise the increased value of their right of way, their land, and of the high rent they draw from it.

[6]  A pressure re-beginning in 1902, as soon as the above-mentioned causes ceased to act.

[7] Historic Precedents

The falling of the interest rate which I expect from land nationalisation, independent of currency reform, is not without historic precedents. I quote from Adam Smith’s Wealth of Nations, Book I., Chapter IX.: “The province of Holland, on the other hand, in proportion to the extent of its territory and the number of its people, is a richer country than England. The Government there borrow at 2%, and private people of good credit at 3%. The wages of labour are said to be higher in Holland than in England, and the Dutch, it is well known, trade on lower profits than any people in Europe.”

See also in Kahn’s Geschichte des Zinsfusses in Deutschland, where we learn that the interest rate of mortgages in Hamburg was 31/8 previous to 1842.

At the time of which Smith speaks comparatively few national loans existed—only 500 million pounds, according to Fenn, against our 6,000 millions—and the land was mostly tied up, so that little was open for the investment market. In Hamburg, at the period mentioned, the savings of its rich citizens awaiting good investments near home were very large, while the demand for money on mortgages was comparatively small.

The low interest at which money could be obtained by business men in Holland had an effect on wages which supplies another refutation of Henry George’s strange theory that interest and wages rise and fall together. (See P340: The lower the net interest…/pma)

[8] In Germany employers have to pay a certain quota towards the old age pensions; in New Zealand the general tax-payer provides the funds.

[9] I repeat that even these fines (interest) are the lesser evil, for they alone call forth money from its hiding-place, and thus keep up circulation in some measure, which otherwise would be totally interrupted, as it almost is in times of panic, when even the expectation of interest cannot call forth the money.