Part II—Economics

Max Hirsch: Democracy versus Socialism (1911)

Content of Part II

Chapter I— Marx’s Theory Of Value
Chapter II— The Quantitative Theory Of Value
Chapter III— Origin And Nature Of Capital
Chapter IV—  The Origin And Nature Of Spurious Capital And Spurious Interest—Debts And Monopolies
Chapter V— The Origin And Nature Of Spurious Capital And Spurious Interest—Continued
Chapter VI— A Comparison Of Real With Spurious Capital
Chapter VII— Surplus-Value
Chapter VIII— Land And Rent
Chapter IX— The Theory Of Interest
Chapter X— The Wages Of Labour
Chapter XI— The Component Parts Of Surplus-Value
Chapter XII— Competition



THE basis of every politico economic theory is to be found in its conception of value. For the world-wide industrial co-operation, which unites the nations of the earth into one economic society, depends for its existence upon exchange; not only upon exchange of the final product, but also upon exchange of the numerous intermediate products which make their appearance during the production of every commodity. It also depends upon the still more numerous exchanges of labour and services for products. Exchange, however, is itself dependent upon the formation of a concept of value in the minds of the parties to the exchange. The view taken of the concept “value” must, therefore, fundamentally affect the aspect of our industrial organisation. Socialism, as has been shown, makes no exception to this rule. Its original German exponent, Rodbertus­Jagetzow, indicated a theory of value consistent with his general conceptions, which, subsequently, was developed by Karl Marx,[1] who formulates it as follows :—”That which determines the magnitude of the value of any article is the amount of labour (labour-time) socially necessary for its production.”[2] Marx also explains that the labour to which he refers must be understood in the following sense :—

1. “The labour-time socially necessary is that required to produce an article under the normal conditions of production, and with the average degree of skill and intensity prevalent at the time.”[3]

2. “Skilled labour counts only as simple labour intensified, or rather, as multiplied simple labour, a given quantity of skilled being considered equal to a greater quantity of simple labour. Experience shows that this reduction is constantly being made. A commodity may be the product of the most skilled labour, but its value, by equating it to the product of simple unskilled labour, represents a definite quantity of the latter labour alone.”[4]

3. “Suppose that every piece of linen in the market contains no more labour-time than is socially necessary. In spite of this, all these pieces, taken as a whole, may have had superfluous labour-time spent upon them. If the market cannot stomach the whole quantity at the normal price of 2$ a yard, this proves that too great a portion of the total labour of the community has been expended in the form of weaving. The effect is the same as if each individual weaver had expended more labour­time upon this particular product than is socially necessary. Here we may say with the German proverb: caught together, hung together. All the linen in the market counts but as one article of commerce, of which each piece is only an aliquot part.”[5]

These explanations are so contradictory of each other, and of other statements by the same author, presently to be referred to, that they go a considerable way towards discounting his theory. 

In Explanation 1 the “socially necessary labour-time” which determines value is stated to be dependent upon “the average degree of skill and intensity prevalent at the time.” In No. 3 it is stated that if the market cannot take up all the linen produced, at the “normal” price, i.e. the price which covers the socially necessary labour-time, “too great a proportion of the total labour of the community has been expended in the form of weaving. The effect is the same as if each individual weaver had expended more labour-time upon this particular product than is socially necessary.” 

It is, however, manifest that if it is true that the “average degree of intensity prevalent at the time” is the “socially necessary labour-time,” then the average degree of intensity with which linen-weavers work determines the “socially necessary labour-time” for the production of a given quantity of linen, and the value of the linen is determined by this labour-time. Therefore, it is impossible, being a contradiction in terms, that “each individual weaver can expend more labour-time upon this particular product than is socially necessary.” Some weavers may expend more labour-time on a given quantity of linen than “the average prevalent at the time,” but all cannot possibly do so. 

If all the weavers increase the labour-time expended upon linen, the average of labour-time” prevalent at the time” in the linen industry will rise, and, ex hypothesi, the value of linen must rise. Therefore, it cannot be true, that this course would produce the same effect as “if the market cannot stomach the whole quantity at the normal price of 2 $ a yard,” for such a contingency would reduce the value of linen, a fact which the wording of the quoted sentence proves to have been apprehended by Marx. 

If to this reasoning it is objected, that the average skill and intensity of which Marx speaks is that prevalent, not in a single industry, but throughout all industry, the disproof of the objection lies in the following considerations :—

If the average labour-time requisite throughout all industry determines value, the determinator of value, the average labour-time, is of the same magnitude in all industries, and, as a necessary consequence, the value of the product of all industries must be of the same magnitude, i.e. the value of an equal quantity of all products must be the same. One yard of cotton-cloth of a given weight must then exchange for one yard of any silk-cloth of the same weight; one pound of flour must exchange for one pound of meat, for one pound of iron, and for one pound weight of silver and of gold. This we know not to be the case, and if the objection here considered gave true expression to the meaning of Marx’s theory, the latter might be dismissed at once as too absurd for further consideration. 

Marx himself, however, makes it quite clear that the theory embodied in this objection is not held by him; though it must be admitted that his own is only a degree less wild. Marx fully recognises that the average labour­time requisite in any industry is determined by other factors besides the skill and intensity of work put forth by the labourers who engage in it, viz. by the appliances and natural opportunities at the disposal of the industry, and, therefore, he regards the average labour-time requisite for the production of any homogeneous product as the measure of the value of that product. 

The following quotations bear out this statement :—

“The introduction of power-looms into England probably reduced by one-half the labour required to weave a given quantity of yarn into cloth. The hand-loom weavers, as a matter of fact, continued to require the same time as before; but for all that the product of one hour of their labour represented after the change only half an hour’s social labour, and consequently fell to one­half its former value.”[6]

And further :—

“Diamonds are of very rare occurrence on the earth’s surface, and hence their discovery costs on an average a great deal of labour-time… With richer mines, the same quantity of labour would embody itself in more diamonds, and their value would fall.”[7]

These statements clearly prove that in Marx’s opinion the value of any product is determined by the average labour-time socially necessary in the production of that product, and not by the average labour-time requisite in all production. Therefore, the value of linen is determined by the average labour-time requisite in its production. If that labour-time increases in quantity, by the habitual slowness or want of skill of all linen weavers, the result, therefore, must be a rise in the price of linen, and not a fall as he asserts in Statement 3. 

It is difficult to escape the conclusion that the whole of Statement 3 was framed with a view of avoiding the obvious objection to the labour-time theory of value, that the price of nearly all articles in large demand varies independently of any variation in the labour-time required for their production. 

The contradiction, so far proved, is not the most serious one. The statement contained in Explanation 2, that skilled labour counts only as “simple” “unskilled” labour multiplied, is a still more glaring petitio principii. 

The basis of Marx’s theory is that the value of labour­power is determined by the cost of its production, i.e. by the labour-time requisite to produce the means of subsistence of the labourer and his family. “The value of labour-power is the value of the means of subsistence necessary for the maintenance of the labourer.”[8]

If this be true, the value of the labour-power of a skilled labourer is determined in the same manner. It may be that, in general, skilled labour requires more education and a better standard of living than ordinary labour. But it is certainly not true that on an average the “necessary” cost of maintenance of labour increases pari passu with its skill. Therefore the labour-time theory of value is upon the horns of this dilemma. Either the value of skilled labour is determined like that of all labour “by the value of the means of subsistence necessary for the maintenance of the labourer,” in which case “a given quantity of skilled labour” is not “considered equal to a greater quantity of simple labour,” for this idea involves that of proportion; or this latter statement is true, in which case it is untrue that the value of all labour-power is “the value of the means of subsistence necessary for the maintenance of the labourer.” 

If, of the two horns, the latter is chosen, the whole of the Marxian theory of surplus value resolves itself into an idle dream, for it is based upon the foundation that all labour-power is purchased at sustenance cost by the capitalist and sold by him at product value. If the first horn is chosen, Marx’s value theory falls to the ground, for it is then admitted that other elements than average labour-time, socially necessary, enter into the value of products. 

Moreover, this conversion of skilled into unskilled labour-time is a still more obvious juggle than the one previously pointed out, and is similarly devised in order to escape from another inevitable objection to the labour­time theory. Goods produced by skilled labour generally possess a greater value, and frequently possess an infinitely greater value than those produced by ordinary labour in the same time. A sketch produced by an artist in one hour may, to take an extreme case, possess a hundred times the value of the work done by a house-painter during an equal time. The recognition of this fact is sufficient to completely disprove the theory that “the value of any article is determined by the labour-time socially necessary for its production.” Therefore, this transmutation of skilled into unskilled labour had to be devised in spite of its incongruity with the general character of the labour-time theory in order to mask the facts, which disprove this theory. 

The trick is the same as that involved in the following dialogue :—

A. All coats have the same price. 

B. That cannot be so; I saw some coats today, and found great differences of price. One actually had a price four times as high as that of the cheapest among them. 

A. That is, because the more highly priced coats count as less expensive coats multiplied. In the case you mention the most expensive coat counts as four cheaper coats. Therefore your objection has no weight; it remains true that all coats have the same price. 

These incongruities throw considerable doubt upon the theory of value according to labour-time. If now, instead of dissecting the statements of its author, the theory is subjected to the test of deduction, if it is compared with the facts which it is intended to explain, the doubt is converted into certainty. For it is then found to be contradicted by the vast majority of the phenomena of value. Grouping these into classes, they are—

Land, patents, copyrights, and other monopolies which possess value, though no labour has been expended in their production. It will be obvious that the element which is altogether absent in one class of values cannot be the universal determining factor of all values. 

Scarce goods of all kinds, which either cannot be reproduced or the reproduction of which is limited, such as old editions, coins, statues, pictures, rare wines, etc., possess a value which cannot be brought into harmony with labour-time. 

The products of all skilled labour possess a value which, as already pointed out, cannot be reduced to the labour-time involved in their production. 

The products of the mining and agricultural industries, such as coal, copper, pig-iron, lead, tin, gold, silver, wheat, cotton, wool, and many others, differ widely in the labour­time necessary for the production of the several quantities of each of them. While some land used for wheat-growing will only yield 8 or 9 bushels per acre in average seasons other land yields to the same or a little more labour-time 25 and 30 bushels. In the mining industry the differences are even greater. Yet all the wheat or iron, or any other of these products has for the same quantity and quality, and in the same market, the same value. If this value, say of wheat, were determined by the average labour-time socially necessary to produce wheat, all those who produce wheat on less productive land, and therefore spend more than the average labour-time in the production of a given quantity, would be at a permanent disadvantage, and those who produce wheat on or near the marginal land, i.e. the least productive in use, would be heavy losers year after year. 

It is manifestly unthinkable that the farmers who produce this wheat would or could persevere in this disastrous course year after year. In the Australian colonies, at any rate, they are not large capitalists) and would in two or three years find themselves in the bankruptcy court. 

The fact is, that unless the value of wheat over an average of seasons is high enough to compensate for the labour-time necessary to produce wheat at the margin of cultivation, i.e. on the least productive land used, wheat cultivation on such land is abandoned. The same fact can be observed in all extractive industries, and is equally true, though less easily proved, of all other industries. The value of goods must therefore, on the whole, be equal to or come near to the greatest amount, and not to the average amount, of labour-time socially necessary to produce the total quantity of such goods which the market requires. 

Not only all the products of the extractive industries, but also most of the manufactures, into the composition of which these largely enter, are subject to frequent changes in value, without any alteration in the average labour-time socially necessary for their production. Changes in the value of agricultural products, dependent upon climatic influences, may occasionally be consistent with increase or reduction in labour-time, owing to more or less favourable harvests. Apart from these, however, the market registers daily, weekly, and monthly changes in the value of such products, which cannot be connected with any such cause. Variations in the value of mineral products and their derivatives, which are of frequent occurrence, also cannot be due to any such cause. It is doubtful whether, in the course of these frequent variations, the value of such goods ever approaches that which would be congruous with the average labour-time socially necessary for their production, and it is obvious that, generally, there can be no such congruity. 

The same phenomenon may be observed with regard to all goods liable to sudden increases or reductions of demand, i.e. fashionable goods. 

Protective duties as well as revenue duties generally increase the price of the goods to which they apply without the least increase in the labour-time necessary for their production. This not only holds good with regard to the goods on which the duty has been paid, but also with regard to similar goods, locally produced, on which no such duty has been paid.

The value of all goods, which for their production require lengthy processes generally exceeds the value of those which require shorter processes, though the average labour-time involved is the same or less. The differences in the value of new and old wines, and the value, of old and useful trees, suggest themselves as convenient examples of this fact. 

These facts, embracing almost all the phenomena of value, prove that, while some goods may occasionally possess a value equal to the average labour-time socially necessary for their production, such correspondence is an accident instead of being the rule with regard to all values. A theory, which predicates, as a fact universally true of all related phenomena, a relation which is generally absent from all of them, and which only occasionally may exist with regard to some, possesses no element of validity. Whether the Marxian theory of value is examined with regard to the congruity of its various parts; or whether it is examined with regard to its congruity with the phenomena of value, which it is intended to relate and explain, the result is the same. Both methods show it to be a hypothesis ill-considered and untenable. 

This truth is now admitted by a considerable body of socialists.[9]But not only is Marx’s theory still generally accepted as true by the vast majority of socialists; not only do those who reject the theory nevertheless countenance its being taught to the great body of their followers,[10]but all socialists retain their belief in deductions which Marx made from this theory, and for which it seems to be the necessary basis. Nay, it is even maintained that Jevons’s utterly divergent theory still more fully sustains these deductions.[11]For all these reasons, and in spite of its repudiation by the Fabian socialists, a detailed refutation of Marx’s theory of value was necessary; and for the same reasons, as well as in order to clear the way for subsequent refutations of other economic theories of Socialism, it is advisable now to enter upon an exposition of the law of value accepted as true by those socialists who repudiate the Marxian theory and by economists generally. I refer to Jevons’s quantitative theory of value as developed and extended by the Austrian school of economists.  


JEVONS’s theory of value takes human desire as its starting-point. Commodities possess value because they can satisfy some want or desire of man, i.e. because they possess utility. The desire for any commodity may, however, be so fully met by an increase of supply, that the desire becomes extinguished; while, on the other hand, a reduction in the supply of some commodities, if large enough, may cause the desire for them to become irresistible. “We may state as a general law that the degree of utility varies with the quantity of commodity, and ultimately decreases as that quantity increases.”[12]

The several portions of the same stock of a commodity, therefore, possess different degrees of utility. As, how­ever, any two equal quantities of the same commodity are interchangeable, either will be taken with absolute in­difference by any purchaser. Hence no one will give more for any equal portion of a stock of a commodity than for that portion which possesses the least utility. Hence the value of the whole stock of any commodity is determined by the utility of its final portion, i.e. by its final utility. 

Jevons’s exposition of the quantitative theory of value, though true as far as it goes, embraces but a limited series of the phenomena of value. It has received the necessary extension at the hand of the Austrian school of economists, whose conclusions are now generally accepted. In the following, necessarily much condensed, summary of their teaching I lean largely upon Professor von Bohm-Bawerk’s profound exposition inThe Positive Theory of Capital. All human action is prompted by desire and resisted by distaste for exertion. In order that a thing may be produced, the desire for it must conquer the distaste for the exertion, which its production necessitates. The acquisition of goods through exchange is dominated by the same law. In an exchange of, say boots for hats, the desire of one party for hats must conquer his reluctance to part with boots, and vice versa, i.e. the thing to be acquired must be more ardently desired than the thing to be given up on both sides or no exchange can take place. But desire and utility are merely two aspects of the same relation. Men desire things because they are of some use to them, i.e. because they possess utility; and things are useless, i.e. possess no utility, unless they can satisfy some desire. 

Things may, however, be valued from a subjective standpoint—that is, for their power to satisfy the owners’ desire for themselves; or from an objective standpoint, when the desire is for other things which they bring through exchange. In either case their value depends upon, and is a consequence of the utility of the things. Hence it is clear that utility is the cause of both subjective or use-value, and of objective or exchange-value. 

Utility and value are not, however, convertible terms, for a thing may possess utility without possessing value. In order that a useful thing may acquire value, the desire for it must be strong enough to provoke action; and in order to do this the thing must be an indispensable condition of the satisfaction of desire. Water as such is capable of quenching thirst. But if I want a cup of water from a flowing stream, any particular cupful has no more utility than any of the other thousand cupfuls of water which every minute are flowing by. I would lose no satisfaction by the loss of any particular cup of water. It is capable of satisfying my desire, but its possession is not an indispensable condition of satisfaction. Therefore, water, though useful, possesses no value in this place. 

In a desert, however, where water is scarce, the loss of any single cup of water may compel some of my desire for water to go unsatisfied. Where this is the case, every cup­ful of water is an indispensable condition of satisfaction, and, therefore, water does possess value here. 

It follows: in order that utility shall evolve into value, the available quantity of the useful thing must be so limited that some desire for it may have to go unsatisfied unless the available quantity is increased. 

The value of goods, therefore, is a consequence of their utility. Their relative utility was classed by the classical school of economists according to the kind of desire, which they could satisfy. First in the order of importance they placed necessaries, next superfluities, and last luxuries. Hence they came to the conclusion, adopted by Marx, that the use-value and exchange-value of things had no necessary connection with each other. For according to this classification the use-value of bread infinitely exceeds that of diamonds; yet the exchange-value of diamonds is enormously in excess of that of bread. This, however, is a purely academic manner of looking at the conduct of men. They do not feel the promptings of desire according to this scale. Many a family has stinted itself in food in order to keep a carriage; women constantly deprive themselves of necessaries in order to save money for a new dress or a coveted ornament; and men will deprive themselves of food or go about in old and shabby clothes in order to get tobacco, beer, or tuition. It, therefore, is not the kind of desire, which determines the value of the object of that desire, but the degree of desire for that object. 

Any given kind of desire is felt in differing degrees of urgency, and may, for a time, be extinguished by satisfaction and even by the assurance of satisfaction. To come back to the former illustration, the man who has drunk enough water and sees more of it flowing by him, has no longer any desire for water. Even in a desert, if conscious that he has more than sufficient water with him, his desire for any particular gallon of this water is small. But should he lose so much of it, that the remainder is barely sufficient for the rest of his journey, he will feel a more urgent desire for what is left and will value it more highly. The loss of every additional gallon will increase the desire which he feels for, and the value which he sets on, the rest. 

Not the kind but the degree or urgency of desire, therefore, measures the utility and the value of the desired object; and as goods of the same kind are interchangeable, the least urgent degree of desire which can be satisfied with the available quantity, i.e. the marginal desire, determines the value of the entire available quantity. Or, in other words, the value of any commodity in the market is determined by the valuation of the marginal buyer, i.e. the buyer whose effective desire is least urgent. 

Not only is every kind of desire felt in many differing degrees of urgency, but many commodities are capable of satisfying several kinds of desire of differing urgency. 

As an illustration,[13]take the case of a solitary settler, who has just harvested five bags of wheat of which he must live till the next harvest. He determines that the best use he can make of them is to devote one bag to making bread; one to make puddings and cakes; one to feed poultry for his meals; one to make into spirit; and having no direct use for the fifth bag, he decides that it will be most usefully employed in feeding parrots and song-birds which he will catch. What is now the value of a bag of wheat to him? 

There can be no doubt as to his answer, for if he were to lose one of the bags, he would obviously discontinue the feeding of captured birds, while continuing to use the remaining four bags for his more pressing wants as before. The use of one bag for feeding birds, therefore, was the marginal utility of his whole stock of wheat. What he lost, when he lost one bag, was this former marginal utility, and this utility determined the value of this one bag of wheat. 

The assumption, however, is that the five bags of wheat are all of exactly the same weight and quality, therefore interchangeable. It is, therefore, a matter of indifference to the settler, which of the five bags is lost, i.e. they are all of the same value to him. Hence the value of one bag being determined by the least urgent desire which the whole quantity enables to be satisfied, and the value of all bags being alike, it follows that this same desire—the marginal utility—determines the value of all five bags of wheat. 

If now another bag were lost, the settler would discontinue making spirits, i.e. the marginal utility of four bags of wheat would have been determined by this, the highest use to which the fourth bag of wheat could be put, and this use would have determined the value of all the bags. If another bag were lost, the settler would discontinue the feeding of poultry; and if still another were lost, that of making cakes and puddings. Being then reduced to one bag, none of the less urgent wants can be satisfied; to lose this last bag would mean death. Marginal utility and highest utility have become one, and, to the settler, the value of this remaining one bag is immeasurably high. 

Suppose now that a hawker penetrates the wilderness and offers to exchange some of his wares for wheat. If the settler has five bags, he will part with one at a comparatively low rate; for in parting with it he loses only the satisfaction of feeding birds. If his stock consists of only four bags, he will demand a higher rate for anyone of them, because he loses a higher satisfaction in parting with it. If he had only one bag, he would not part with it at any price. 

The motives which determine the valuation of goods by this solitary settler also determine their valuation in the largest industrial community. Other things being equal, increase of supply reduces value and decrease of supply increases value—that is, when the available quantity of any commodity increases, lower levels of desire must be appealed to than before; these being less urgent will not become active unless the sacrifice imposed through their satisfaction is reduced, i.e. until the price falls. The value thus imposed by the least urgent desire determines the value of the whole stock. If supply decreases, less urgent desires cannot be satisfied, and a more urgent desire, forming the marginal of economic employment, produces a higher value for the whole stock. If, however, the available quantity of any commodity is so large, that all possible desires for it can be satisfied without absorbing the whole quantity, the marginal utility of the whole of it is zero, and the value of it is nothing. 

So far it has been shown that the value of goods arises from their utility, and is determined by their marginal utility. It now becomes necessary to consider a class of goods which cannot directly satisfy any desire, but which assists in the production of such desired goods, i.e. productive goods, or, in the phraseology of Socialism, “means of production.” Whence do these derive their value? The answer is that their value also is determined by the marginal utility of the stock of consumption-goods which forms their final product. 

The end and purpose of all production is the satisfaction of human desire through consumption. Therefore, every material, instrument, and opportunity of production from the land downwards is, economically speaking, undergoing the process of being converted into consumption­goods. Take a concrete case, say, that of bread. Let us call it a commodity of first rank. Its existence depends upon that of commodities of second rank, viz. flour, oven, and upon the labour of the baker. The existence of these again depends upon a group of commodities of third rank, viz. wheat, mill, materials of oven, and upon the labour of producing them. They are again conditioned by a group of fourth rank, viz. agricultural implements, building material of mill, by land, and by labour. With the exception of bread, none of these things are desired for themselves, for none can directly satisfy any desire. Each of them, however, does satisfy desire indirectly, through their final product, bread. Each one of these groups of production-goods is, economically speaking, bread in the making; is valued only in so far as it assists in the ultimate satisfaction of the desire for bread. Their only contact with desire is through bread, and their value, therefore, is determined by the value of bread. As the value of bread itself is determined by the quantitative relation between the wants for bread and the supply of bread i.e. by the marginal utility of bread, the same condition determines the value of each group of the productive goods which is called into existence by the wants for bread. 

In the modern co-operative system of industry, it is, of course, impossible for all intermediate producers to know the value of the final product. But each group of productive goods has an intermediate product, and finds its value in that of its intermediate product. Thus, reverting to our previous illustration, the value of bread directly determines the value of the group of commodities of second rank; the value of flour, their intermediate product, determines that of the group of commodities of third rank; and the value of wheat determines that of the group of fourth rank, of which it is the intermediate product; and all this, because the value of wheat and flour depends upon the marginal utility of bread as much as the value of bread itself. “Though the conduction of value from the anticipated final product back to intermediate product, and from that back to the very first product of all, may remain hidden from each producer, the organisation of industry practically carries the information from stage to stage.”[14]

It will thus be seen that this theory derives the cost of production from the marginal value of the final product, instead of deriving the value of the product from the cost of production. However paradoxical this conception may seem when compared with surface appearances, it is nevertheless borne out by common experience. No cost of production can give value to a thing the desire for which has ceased; if goods are out of fashion, i.e. if the desire for them has lessened, they fall in value regardless of their cost of production. Merchants and retailers whose shelves are encumbered with” dead stock” know this to their cost. 

Common experience, however, suggests, that if the cost of producing an article of general consumption falls, such as iron, steel, wool, or cotton, there will sooner or later be a corresponding fall in its value. The fact is true, but the compelling force does not arise from the lessened cost of production. The producers are not anxious to lower the price as long as they can dispose of all their products. If they could combine to prevent an increase in supply, they could prevent, as in protectionist countries they have frequently reduced, the fall in value. When, however, such a fall in the cost of production takes place, the supply generally does increase, either through the desire of previous producers to reap the increased profit from a greater number of sales; or through the desire of capitalists to share in the exceptionally high profit, by joining in the production of the article in question; or from both these causes. As a consequence, the wants which previously were fully supplied cannot absorb the additional supply; lower levels of wants must be appealed to, and can only be induced to take up the new supply if it can be obtained with a smaller sacrifice, i.e. at less cost. But as all parts of the whole stock are interchangeable, no one will give more for any of them than the marginal buyers offer for the new supply. Hence the value imposed upon this new supply by the new and lower wants to which it appeals, fixes the value of the whole supply, and not its cost of production, and the marginal cost of production must assimilate itself to this new value. 

Similarly, if the desire for a commodity declines, the cost of production will tend to assimilate itself to the lower value. Marginal producers, i.e. those who produce at the highest cost of production, and who find the new value unprofitable, will curtail and eventually abandon production. A lower cost of production thus forms the margin, while the lessened supply may and ultimately will produce a higher marginal utility, either preventing a further fall in value or raising value again. From both ends, therefore, tendencies arise which assimilate the cost of production to the new marginal utility of the product. It is not the cost of production, but the anticipated value of the product, which is the dynamic force and determines the course of industry. For cost of production, that is the sum of exertions, merely acts as a brake; the active cause of all economic actions is consumption, the satisfaction of human desires, the well-being of man. 


SOCIALISM posits private ownership of capital as the cause of all or nearly all social injustice. Capital and capitalism are the terms most frequently encountered in its literature, and they are the favoured objects of denunciation. It might, therefore, be supposed that the Socialism which claims to be “scientific” had made a close and serious study of the thing capital—that it had analysed it and clearly conceived what it is. Yet, strange to say, the opposite is the case. The endless mass of socialist literature which overburdens the student contains but few attempts at any definition of capital, and not one serious attempt to determine its nature and functions. Not one makes any distinction between capital, which is the result of labour applied to natural objects, and monopolies, which are the creation of legislative enactments; and, though land and capital are frequently differentiated, such difference is not infrequently denied, either directly[15]or indirectly.[16]The few definitions of capital to be found in socialist literature all suffer from the same fault. The most important of these is that of Karl Marx, who devotes a chapter of Capitalto its elucidation[17]and from which the following statements are extracted :—

“The circulation of commodities is the starting-point of capital. The production of commodities, their circulation, and that more developed form of their circulation called commerce, these form the historical groundwork from which it rises. …

“As a matter of history, capital, as opposed to landed property, invariably takes the form at first of money; it appears as moneyed wealth, as the capital of the merchant and the usurer. But we have no need to refer to the origin of capital in order to discover that the first form of appearance of capital is money. We can see it daily under our very eyes. All new capital, to commence with, comes on the stage, that is, on the market, whether for commodities, labour or money, even in our days, in the shape of money that by a definite process has to be transformed into capital.”

This process of transformation is thus described :—

“The simplest form of the circulation of commodities is C—M—C, the transformation of commodities into money, and the change of the money back again into commodities, or selling in order to buy. But alongside of this form we find another specifically different form: M—C—M, the transformation of money into commodities, and the change of commodities back again into money, or buying in order to sell. Money that circulates in the latter manner is thereby transformed into, becomes capital, and is already potentially capital… 

“In the circulation C—M—C, the money is in the end converted into a commodity, that serves as a use­value; it is spent once for all. In the inverted form M—C—M, on the contrary, the buyer lays out money in order that, as a seller, he may recover money. By the purchase of his commodity he throws money into circulation, ill order to withdraw it again by the sale of the same commodity. He lets the money go, but only with the sly intention of getting it back again. The money, therefore, is not spent, it is merely advanced …  

“The circuit C—M—C starts with one commodity and finishes with another. Consumption, the satisfaction of wants, in one word, use-value, is its end and aim. The circuit M—C—M, on the contrary, commences with money and ends with money. Its leading motive, and the goal that tracts it, is, therefore, mere exchange­value. … 

“To exchange £ 100 for cotton, and then this cotton again for £ 100, is merely a roundabout way of exchanging money for money, the same for the same, and appears an operation just as purposeless as it is absurd. One sum of money is distinguished from another only by its amount. The character and tendency of the process M—C—M is, therefore, not due to any qualitative difference between its extremes, both being money, but solely to their quantitative difference. More money is withdrawn from circulation at the finish than was thrown into it at the start. The cotton that was bought for £ 100 is perhaps resold for £ 100 plus £ 10 or £ 110. The exact form of this process is therefore M—C—M’—, where M’ = C—M = the original sum advanced plus an increment. This increment or excess over the original value I call surplus-value. The value originally advanced, therefore, not only remains intact while in circulation, but adds to itself a surplus-value or expands itself. It is this movement that converts it into capital. … 

“As the conscious representative of this movement, the possessor of money becomes a capitalist. … 

“It (value) differentiates itself as original-value from itself as surplus-value, as the father differentiates himself from himself qua the son, yet both are one and of one age; for only by the surplus-value of £ 10 does the £ 100 originally advanced become capital: … M—M’, money which begets money-such is the description of capital from the mouths of its first interpreters, the mercantilists. 

“Buying in order to sell, or more accurately, buying in order to sell dearer, M—C—M’ … is therefore in reality the general formula of capital as it appears prima facie within the sphere of circulation.”[18]

Apart from such misconceptions as the one that all capital makes its first appearance in the, form of money, which do not concern us here, the foregoing quotations make quite clear Marx’s conception of capital, viz. that it consists of all valuable things which yield an income to their possessors, and that it excludes all such things which either permanently or temporarily yield no income. The italicised sentences leave no shadow of doubt as to this meaning. No distinction is, therefore, made by him between the use of money (to adhere to his term) in directions which, while yielding an income to its possessor, add to the general income of the social body, and between the use of money which yields to its possessor an income which is deducted from the general income of the social body. 

Moreover, the tenor of the argument implies that all incomes from capital are uncompensated deductions from the general income, that “buying in order to sell,” inclusive of the transactions of manufacturers who buy, say cotton in order to sell yarn, is an activity which renders no service whatever. That this view is fully held and deliberately enforced by Marx is not only shown in the development of his surplus-value theory, but also in the following reference to capital :—

“We know that the means of production and subsistence, while they remain the property of the immediate producer, are not capital. They become capital only under circumstances in which they serve, at the same time, as means of exploitation and subjection of the labourer.”[19]

Here Marx still pursues the same theory, though the change in expression makes its meaning more clear. The only characteristic, which differentiates capital from general wealth is its use as a “means of exploitation and subjection of the labourer.” Anything not so used is not capital, and any income derived from capital is therefore “exploited” from the labourer. 

Apart from the confirmation of the deductions made from previous quotations, which this passage yields, it leads to curious results in another direction. For, if true, any machine or other instrument of production, which for the time being is not used, or is used by an immediate producer, say a farmer, is not capital. If the farmer engages a workman to drive the engine it becomes capital. A cotton-mill worked by a Co-operative Society could not be capital; if worked by a private employer it might be capital, provided it returned a profit; but if worked at a loss it could not possibly be capital. For, obviously, neither in the co-operative mill nor in that worked at a loss, are “the means of production used as the means of exploitation and subjection of the labourer,” while in the private mill, returning a profit, they may be so used. As reasonably may it be held that a gun is not a firearm if it is used for shooting game, but if it is used for shooting a man, then it becomes a firearm. 

The foregoing examination proves that Marx made no attempt to find out what capital is, but that he framed his definitions to suit certain deductions which he desired to make from them. 

La Propriété, by Paul Lafargue, furnishes (p. 303) another definition, viz. :—”Under capital one understands all property which affords interest, rent, income, or profits.” 

Lafargue also, therefore, makes no distinction whatever between land, labour-products, and monopoly-rights, but classes them all as capital. But subsequently he limits this generalisation as follows :—

“A sum of money put at interest is capital; any instrument of labour (land, weaving-looms, metal works, ships, etc.) used not by its proprietor, but by salaried persons, is capital. But the land which is cultivated by its peasant-owner with the aid of his family, the poacher’s gun, the fisherman’s boat … although they are property, are not capital.” 

This, however, is not merely a limitation, but an absolute contradiction of the principal proposition. For if “all property which affords income or profits,” is capital, then the peasant-proprietor’s land and the fisher­man’s boat also are capital, if they “afford an income or profit” to their owners when used by them, which generally is the case.

Moreover, according to this limitation, land is not capital if the owner and, say, two sons work it; but should one of the three be injured, so that a hired man must be engaged to take his place; or should threatening weather at harvest-time compel the engagement of an additional worker so as to hasten the operation, then it would at once become capital and the proprietor a capitalist. 

Laurence Gronlund, in The Co-operative Commonwealth, gives the following definitions, pp. 29, 30 :—

“We, therefore, mean by capital that part of wealth which yields its possessors an income without work.” … “Capital is accumulated fleecings, accumulated, withheld wages.” 

This view is supported by a greater authority, Frederick Engel, who, in Socialism, Utopian and Scientific, p. 43, states :—

“The appropriation of unpaid labour is the basis of the capitalist mode of production, and of the exploitation of workers that occurs under it; even if the capitalist buys the labour-power of his labourer at its full value as a commodity on the market, he yet extracts more value from it than he paid for; and in the ultimate analysis this surplus-value forms those sums of value, from which are heaped up the constantly increasing masses of capital in the hands of the possessing classes.” 

These definite statements embody most clearly the general conception which socialist writers and teachers wish to convey, viz. that capital, privately owned, not merely robs the workers, but is itself stolen from them, and that any property which yields an income without work is capital. It cannot be denied that socialists, as well as anyone else, have a perfect right to define the terms they use as seems good to them, provided the definition is consistent within itself, and is not subsequently departed from. Whether the definition is useful, or whether it tends to obscure the facts under consideration, is, however, another question. The definitions before us embrace objects, the origin, nature, and influence of which differ so widely from each other, that their agglomeration under one definition has consequences of the most misleading and mischievous character. The present chapter will be devoted to the elucidation of what, in contra-distinction to monopoly-rights and other spurious forms of capital may be called real capital, leaving the treatment of the former as well as of land to subsequent chapters. 

All the useful things, which constitute wealth are the result of human exertion exercised upon matter in the direction of changing its form or relation so as to fit it for the satisfaction of human desires. But not all such exertion adds to the stock of wealth. Apart from all other cases, it is obvious that labour directed towards the immediate satisfaction of desire fails to do so. For if a man gathering berries puts them into his mouth and eats them, there is no production of wealth; but if instead he puts them into a basket for subsequent use, the stock of wealth is increased. In order, therefore, that such a simple form of wealth as berries should be produced, some labour had to be expended in advance on the production of something not wanted for its own sake, and unable of itself to satisfy desire. 

Take another case. A man, wanting water from a spring at some distance from his hut, may satisfy his desire by going there and raising the water in his bent hand till he has quenched his thirst. But if he takes a piece of wood, hollows it out with fire, and attaches a handle made of twisted reeds, he not only can obtain more water, but can carry it to his hut where it is wanted. Manifestly, however, in order to obtain this greater quantity of water, and in order to carry it where it was wanted, he had to proceed in a roundabout way—that is, he had first to make something for which he had no direct desire, a pail. If he now wants more water still, he may cut down a tree, saw it into boards, make these boards into a flume, and along this channel an infinitely greater amount of water will be carried to his hut by gravitation, i.e. without any further exertion on his part than that of occasionally keeping the flume in order. 

To obtain this greater supply with less labour, he had, however, to go about the work of producing the water in a still more roundabout way. He had to quarry iron-ore and flux, construct a smelter, smelt the ore into iron, then produce a forge and shape the iron into axe and saw, then fell a tree, saw it into boards, and finally make these into a flume.

It is true, that if one man had to do all this in order to obtain water for his own use, the greater quantity of water thus obtained would not requite him for the labour expended in his roundabout process. But if thousands of men work in co-operation extending over time and space, some quarrying ore and flux and coal; some constructing smelters and forges; others smelting the iron, which others again shape into axes, saws, and other appliances wanted in various industries; if other men, again, fell trees, and still others saw them into boards for the manifold purposes for which boards are wanted, then the man wanting boards for a flume can obtain them through exchange with such a small expenditure of labour, that the construction of a flume may be very profitable to him. It is also obvious that the greater supply of water which he will now obtain is entirely due to the roundabout and co-operative process of producing the water, which began with the mining of the ore, which was carried on by several exchanges of intermediary products, and closed with the exchange of boards for something produced by the labour of their consumer. 

The above case is illustrative of the fact that a greater result is obtained by the roundabout process of production than by the direct process. In by far the greater number of productive processes, however, the roundabout process is the only one possible. In the pastoral industry, whether the final product aimed at is meat, wool, or milk, it is obvious that no product can be obtained except indirectly. Animals must be bred and reared; in cold climates shelter must be built for them; fodder must be grown, and various other processes must be performed, before either meat wool, or milk is produced. Similarly, before wheat or any other product of agriculture is obtainable, some sort of agricultural implements must be constructed, land must be cleared and prepared, seed must be sown, and other processes performed before the harvest can be gathered. 

In every kind of manufacture the roundabout process is equally obligatory. In the manufacture of bread from wheat, some sort of a flour-mill and some kind of an oven must be made before the final process of baking the bread can be undertaken. 

Similarly, before hides will emerge in the shape of boots, many tools must be constructed and processes undertaken; and even the most primitive manufacture of clothing requires at least a spinning-wheel and some sort of a loom, involving the antecedent labour of their construction.

The absolute necessity of this roundabout process is, however, still more apparent in the higher branches of manufacture. If anyone will think out for himself the manifold processes required before a steel pen, a watch, a pocket-knife, or a pair of spectacles make their appearance, he will find that the extension in time and space of the co-operative, roundabout process involved, is as far-reach­ing as it is indispensable.

We have now arrived at these conclusions :—

In some processes of production, the intermediary production of goods not in themselves capable of satisfying desire, leads to a greater production of the desired goods with the same exertion, or to an equal production of them with less exertion. 

In by far the greater number of productive processes, the intermediary production of goods not in themselves capable of satisfying desire is the indispensable condition of the production of the desired goods. 

This roundabout process of production, whether merely advantageous or indispensable, requires the co­operation of many producers through exchange; not only through the exchange of the final product, but through the exchange of many intermediate products as well. 

Two further conclusions, however, must be drawn. 

It was seen that when a man substituted a pail for his hand, the produce of his labour was increased through the extension of the process of production in time. When for the pail he substituted a flume, there was a further increase, but at the expense of still greater delay between the initiation of the productive process and the appearance of the product. This holds true throughout all production. The more roundabout the process, that is, the more goods not in themselves desirable are interposed between raw matter and final product, the more energies and powers of matter are set to work for man’s satisfaction, and the greater is the result of his exertion. 

And further: The more roundabout the process of production, the more specialised becomes every part of it. With this greater specialisation there comes an increase in the forms and quantities of intermediary products, and consequently a greater number of exchanges. Not only does the co-operative, roundabout process depend upon exchanges for its existence, but as it is extended, so exchanges multiply. Moreover, the process of production is not completed till the ultimate exchange of the final product has taken place, i.e. till it is in the hands of consumers. The end and purpose of all production being the satisfaction of human desires through consumption, production only ends where consumption, the satisfaction of desire, begins. And just as coal cannot satisfy human desires till it is brought to the pit’s mouth by the labour of the miner, so if it is not wanted there, it still fails to satisfy desire till the coal-merchant and sailor, or other carriers, have brought it to a city, and till the retailer and carter have delivered it in somebody’s backyard who wants to burn it. From beginning to end of the round­about, co-operative process of production, exchange is thus its indispensable condition. It is the bond, which gives aim and purpose to the separate and individual efforts of all the co-operators. 

The foregoing examination has made clear the nature of capital. It consists of all those forms of wealth which are produced, not for the direct satisfaction of the desires of the producer, but for their indirect satisfaction, through the assistance which they render in the satisfaction of desire, either as material, instruments, or final product; till, when the productive process is completed by delivery of the final product to its ultimate consumer, this final product loses the special character of capital and becomes simply wealth. Capital is thus seen to consist of labour­products, and it must be obvious that to press under the same description privileges, rights, and possessions, which are not the produce of labour, because their possession entails some consequences akin to those which arise from the possession of capital, is as misleading as to class canaries amongst herbivoræ because they like to nibble lettuce leaves. 

It is similarly made clear that what differentiates capital from other wealth is not its use “as means of exploitation and subjection of the labourer,” but the relation in which it stands to ultimate human desires, and that this relation is not affected by the question whether the thing is “the property of the immediate producer” or of anybody else, whether it is actually used, or whether, for the time, it remains unused. 

Capital, like all wealth, is the produce of labour and land. If capital is “accumulated fleecings,” i.e. if it is stolen from labour, then all wealth not owned by labourers is equally stolen. That no one can morally obtain wealth without rendering services in return is absolutely true. But it is not true that no one can morally obtain wealth without producing it. Doctors, lawyers, scientists, publicists, and journalists, even socialist ones, no more produce wealth than do singers or actors. But they render services to the wealth-makers, for which the latter are willing to exchange wealth. The socialist denunciation of the capitalist as a robber, because as a capitalist—apart from organiser or manager—he does not produce wealth, is, therefore, illogical. The question is not whether he produces wealth, but whether he renders services to the wealth-makers, which entitle him morally to a share in the wealth produced. Here, again, the distinction—un­recognised by Socialism—between the capitalist and the monopolist is of the utmost importance. The monopolist, as such, renders no service; the capitalist, as such, does, as will be shown in the chapter on interest. That, as long as monopolies exist, the reward which capitalists, as well as employers, obtain for their services may, in the aggregate, be excessive, is true. This, however, is not necessarily an inevitable outcome of the private ownership of capital and the private conduct of non-privileged industries, but may be, and, as will be shown, is a secondary result of legalised monopoly. Even if this were not the case, it would not justify the assertion that all the earnings of capital are stolen from labour. Nor does the undoubted fact that a considerable part of existing capital consists of accumulated tribute exacted from labour by monopolists justify the assertion that “all capital is accumulated fleecings,” and still less does it justify “the exploitation of the labourer” to be made the determinating characteristic of capital. 

The denunciations, which Socialism directs against the capitalistic form of production as “unorganised, chaotic, and anarchic,” may justify a slight digression in their refutation, which the foregoing description of the round­about process of production makes almost superfluous. 

Man lives in a world in which nothing is ever at rest. Every particle of matter is constantly being acted upon by other particles of matter, and is reacting upon yet other particles. As the result of these ceaseless activities, there appear energies, such as motion, gravitation, heat, electricity, chemical actions, and the mysterious principle which we call life. The sum of these energies, which nature pours out in ceaseless flow and inexhaustible quantities, without any assistance from man, is the productive endowment of man. From it he draws as much as his knowledge enables him and his wants necessitate, to assist him in satisfying his desires. Where man confines himself to production for immediate or almost immediate consumption, he makes use of a minimum only of nature’s energies, and, as a consequence, the produce of his labour is small; as he lengthens the process of production, enlisting more and more of nature’s energies, and at more frequent intervals, the produce of his labour increases. 

The increase in product is not necessarily proportioned to the increase in the length of the process. On the contrary, after a certain point is passed, every additional stage interposed between the beginning and end of a productive process may give a somewhat less increase of return than the previous one. There is, however, always an increase, against which advantage must be placed the disadvantage of increase of time. 

It follows that a community which adopts the round­about or capitalistic form of production, thereby enormously and progressively increases its power to satisfy wants; and further, that such a community consumes each year but a small part of the fruits of the labour of that year, i.e. that it mainly lives on the labour-results of past years which mature during the present year, while directing the greater part of its present efforts towards results which will mature in future years. The longer the process of production, the greater will be the degree of capitalism, the further off will be the time of maturity of present efforts, and the more ample will be their reward. In this sense, therefore, capital is the symptom as well as the cause of profitable production; it exists, because a people, producing more profitably, can postpone to later dates the consumption of the fruits of present efforts. The natural agencies imprisoned in capital and commanded by it enable man to give part of his labour to the imprisonment of more natural agencies, which shall do his future work. 

This process of roundabout or capitalistic production is made possible through the voluntary co-operation of vast numbers of men, extending in time and space, a co-operation of their physical as well as of their mental powers. Two kinds of co-operation are possible. One is the co-operation of many men, who, for the time, abandoning most of their mental activities, obey the will of one man in their physical exertions, leaving mental guidance to the one. This is the compulsory co-operation at which Socialism aims. The other is a voluntary co­operation, where every man more or less utilises both his physical and mental powers in the production of goods, which, through the act of exchange, shall satisfy the desires of all of them. This is the capitalistic system, world-wide in its extension, upon which our civilisation is based. While socialistic, i.e. enforced co-operation, tends to the repression of the mental energies of most of the co-operators, this voluntary co-operation tends to excite them, and thus, in its results, no less than in its character, far surpasses the former. Capitalistic production, so contemptuously called chaotic and anarchic by the men who cannot conceive of any co-operation except that which is enforced, and of which the lowest savage is capable, is, in reality, the most marvellous system of co-operation which the human mind can conceive; a voluntary, world-wide co-operation of independent units, which alone has enabled mankind to raise itself above a state of savagery, which has enormously increased the sum of human happiness, and which, when freed from the incubus of monopolism which the interference of the State has grafted upon it, will lift mankind above want and the fear of want into a sphere of as yet unimaginable intellectual and moral activity. 


HAVING ascertained the origin and nature of real capital, we may now investigate those of spurious capital, which is nearly always confounded with it by socialist writers. Even those among them who occasionally distinguish between capital and monopoly, invariably assert that the latter is an inevitable outcome of the private possession of capital; that capitalism must invariably evolve into monopoly, and that this evolution cannot be prevented except by the socialisation of capital.[20]As far, however, as the present writer knows, no socialist has ever attempted to prove this assertion. The nearest approach to it are attempts, such as that made in the second quotation cited, to prove that private ownership of the raw material of the earth, i.e. land, leads to monopoly, and then presume to have proved that capitalism, i.e. the private ownership of capital, does so. 

It cannot be denied that monopolies may have their origin in legal enactments which are unconnected with the private ownership of capital and the private conduct of industries, and it may, therefore, be that all, or nearly all, forms of monopoly owe their existence to this cause. At any rate, no honest conclusion as to the connection between capitalism and monopoly can be arrived at till all monopolies, which obviously exist through special legal enactments, are separated from those for which no such cause can be discovered. An endeavour to do this forms part of this and the following chapter.

The legal rights, which in some respects simulate capital, are either rights of debt or monopolies. Their similarity to real capital is, however, confined to the facts that, like real capital, they may be exchanged and may yield an income to their possessors. In every other respect they absolutely differ from real capital. 

A right of debt arises when existing wealth is exchanged for a legal right to demand other wealth at a future date. The wealth to which the legal right refers may be in existence at the time the exchange takes place, or it may come into existence at some future date. But whether it already exists or not, the mere engagement of the borrower to hand over wealth to the lender at some future date does not add to the existing stock of wealth or capital. The stock is the same before and after the loan is made; nay, not infrequently, the wealth by which the right of debt has been purchased has disappeared before the right terminates. To illustrate: A, a manufacturer sells goods to the value of £ 100 to B, a whole­sale merchant, on credit; B sells these same goods on credit to C, a shopkeeper, for £ 120; C sells these same goods on credit to his various customers, the ultimate consumers, for £ 160. The capital has then disappeared, but it is represented by legal rights of debt, aggregating no less than £ 380. 

This element is so conspicuous in the greater part of all public debts as to approximate the same to monopolies. The National Debt of Great Britain is a case in point. The wealth originally borrowed has disappeared without leaving any material representatives, such as part of the wealth borrowed by a railway company .finds in the road, rolling-stock, and other labour-products on which it was expended. All that exists, and all that was originally purchased by the lenders, is a claim on the labour of the people of Great Britain—the right to demand a share in the revenue which Government extracts from them by taxation. 

Unlike real capital, therefore, rights of debt can render no service, can give no assistance in production. The capital with which they were purchased may have rendered such service in the past; if it was used productively, its representative may be rendering such service in the present; but the right of debt can render no such service at any time. It is a mere claim to wealth or capital, and, therefore, in its origin and nature so different from capital that the application of the same term to both must lead to the utmost confusion of thought. 

It is the same with shares and similar documents. These are mere certificates of part-ownership in capital or legal rights. The share itself has no value apart from the capital or legal right to which it refers. Mere duplication of the number of shares, though it may deceive some into the belief that the capital, which the shares represent has been duplicated, has no influence whatever on the amount of capital in existence. But because the legal possession of the share entitles its holder to part of the income earned by the use of the capital or by the exercise of the legal right to which it refers, therefore it is confounded with capital. 

Legal rights of debt, such as book-debts, promissory notes, bills of exchange, bank-notes, treasury bills, debentures, mortgages, government and municipal bonds, as well as certificates of part or full ownership, such as shares and certificates of title, are, therefore, not real capital. It must, however, be admitted that they are inseparable from private ownership of capital and wealth, and the writer must also provide against the supposition that he objects to the existence of such rights. Though they are not capital, they, with the sole exception of public debts, the creation of which does involve injustice, are legitimate complements of the private ownership of wealth. For a private debtor has himself received the wealth the purchase of which created the obligation, or has voluntarily taken upon himself the obligation of the original debtor. Whereas the wealth paid for public obligations was not received by the taxpayers, but, at best, by one generation of them; nor was the wealth, so received, necessarily used for the benefit of subsequent generations of taxpayers. The moral right of a government to impose on subsequent generations the duty of repaying debts incurred by it as the representative of one generation is, to say the least, doubtful. Its admission in full would justify one generation of men in enslaving all future generations by mortgaging their productive power to the fullest extent, a doctrine, which carries with it its own refutation. 

The essential character of all monopolies is, that, without causing their possessors to be treated as criminals, they enable them to exact wealth from others without rendering any service in return, or to exact more wealth for such service as they do render than the recipients could be compelled to yield if free competition prevailed. A monopoly, therefore, must be established by law, or the law must have failed to efficiently provide against it. 

The principal legalised monopolies existing in civilised countries to-day are :—The private ownership of the land and of such treasures as the land contains. The privileged or exclusive use of land for certain purposes. Legal limitations of competition in certain industries and professions. 

The most fundamental of these monopolies is that of the land, inclusive of minerals, water-power, and other natural agencies. As all socialists admit as much it is not necessary to dwell at length on this kind of monopoly here, all the more as it will be dealt with exhaustively in subsequent chapters. Two phenomena, which are not generally understood, ought, however, to be explained here. 

In the heart of the city of Melbourne is a block of land, which, except that the trees, which grew upon it have been cut down, is in exactly the same state as when the blacks roamed over the site of the future city. No labour has ever been expended on it; no wealth has ever been created there. Fifty years ago the present owner of the land paid £ 57 for it to the government; lately he was offered and refused £ 60,000 for the same land. What is the cause of this increase in the value of this land? It is this. When the land was originally sold, Melbourne was a village on the outskirts of the wilderness, and no one would have given the owner more than £ 3 a year for the privilege of using it. Since that time the country has been populated, the soil has been subjected to the plough, roads and railways, centring upon Melbourne, have opened the interior of the country, and as a consequence Melbourne has become a great trading centre. The volume of trade has enormously increased, and with it has increased the demand for such land as gives access to trading facilities. Anyone wanting a trading location, such as this land presents, therefore, is compelled, and can afford, to pay at least £ 2,000 a year for the privilege of using it. The owner of this land has taken no part in the activities which have resulted in the value which his land now possesses. Even if he had he would have done so as a worker and not as an owner, and would have earned no more title to this land-value than any like worker who is not a landowner. For reasons, which do not concern us here the owner of this land has never made use of his power to levy a tribute of £ 2,000 a year upon the industry of the Victorian people without rendering them any service in return. He has preferred to withhold from his fellow­citizens the privilege of using this specially favourable opportunity to produce wealth. But he can exact this tribute any time he chooses, and therefore he can sell the power to do so, the annual value of the land, for £ 60,000. This sum of £ 60,000 is now considered to be part of the wealth of the country. As a matter of fact, it is neither wealth nor capital, but the capitalised value of the power to levy tribute from labour and capital without rendering or having rendered any service in return. 

Moreover, this power of landowners to exact tribute is not conferred upon them by any past services of the community, but by its present and anticipated future services and necessities. The frequently ephemeral goldfields of Australia illustrate one phase of this feature. As long as the field promises well and the population increases, the value of land in the vicinity rises, and frequently rises enormously. As soon as its disappointing nature is ascertained, and the exodus of the population has begun, the value of the land begins to decline again, and if the field is altogether unremunerative, the land declines to its former grazing value. 

The concentration of roads and railways upon any centre enormously enhances the land values there. Not, however, because they have been built, but because they continue to be used. If, acting similarly as Eastern despots have acted, a government were to discontinue the use of these roads by building sapping lines to another centre to which the traffic was directed, land-values in the old centre would decline, and would rise in the new one. Hence it is clear that land-values are not the result of past action, but the capitalised value of the tribute, which the present and anticipated future action of the community enables landowners to impose upon the productive activities of the people. The value of all land, and not merely of that, which is withheld from use, is of exactly the same nature. To revert to the former illustration, the great majority of the owners of Melbourne land have made full use of their power to levy tribute. They have either themselves built on the land, or have sold to others permission to build upon it against payment of ground-rent. Where this has been done, wealth and capital, represented by the value of the buildings, has been produced, and as presently will be shown, the income derived from the letting of the buildings is a legitimate return for services rendered. But apart from the value of, and income from, such buildings, there is in every case a value of, and an income from, the land, which can easily be separated from the building value and income. This land-value represents nothing but monopoly, the right to levy tribute from labour for the privilege of using advantages not created by the owner of the land, but which are being created by the community of which his tenants form part as well as himself, if he is not an absentee, as frequently is the case. 

This power to levy tribute from building, agricultural, and mining land, as well as from land put to other uses, becomes capitalised on the basis of the prevailing rate of interest, and the capitalised value of the privilege becomes the value of the land. Where rent or royalty is paid by the users of the land, the difference between the tribute and interest, between the land-value and capital, is comparatively obvious. Where, however, the owner himself uses the land, and still more, where the land is used by a number of part-owners, as, for instance, a mining company owning the mine, the distinction is less easily observed. Nevertheless it is there. In addition to the income which the freehold farmer derives from his labour, he receives one which arises from the use of land made more productive by the community in which he lives. This part of his income can easily be separated from the rest, and forms the basis of the capital value of his land, apart from the improvements. Similarly, the monopoly value of a mine consists of the capitalised value of the royalty which could be obtained for it, and can be easily separated from the capital of the company, i.e. mine improvements, ore at the pit’s mouth, buildings, machinery, or money. 

All these monopoly values, easily separated from real capital, are obviously spurious capital. They are not the result of past labour, but of legal privilege. Their value does not arise, as that of real capital, from services, which they render in production, but from the power to levy toll upon production. Yet socialists generally class these monopoly values as capital, and treat the tribute, the spurious interest upon which they are based, as of the same nature as real interest. 

The second form of legal monopoly consists of the privileged or exclusive use of specially valuable land, such as is granted to railway, canal, and tramway companies; to the purveyors of gas, water, electric light, pneumatic and hydraulic power, and similar undertakings based upon legal privileges. Every such undertaking, in addition to the legitimate return for the services which it renders, possesses the power, in esse or posse, to levy toll from those who avail themselves of their services, and the capitalised value of this toll is mistaken for real capital. 

To show the essential nature of the tribute which such monopolies may claim, the following illustration will serve :—

Suppose Government were to grant to me the right to erect gates at all the points giving entrance to the city of London, and to charge one penny to anyone who passed through these gates. Suppose also that experience had shown that, on an average, the annual income from this toll was £ 500,000. If the prevalent rate of interest were 4 %, the capital value of the privilege would be £ 12,500,000. I could sell it for that sum, and whether I sold it or not I would be considered to be possessed of a capital of £ 12,500,000. As a matter of fact, I would have no capital. All I possessed would be this legal privilege to levy tribute. 

If now the number of persons desiring to enter the city of London were to increase, the income from the privilege would increase as well, and with it would rise the capital value of it. Nay, the mere expectation that such increase of traffic would take place in the future would add to the present value of this privilege. 

Every successful undertaking of the kind enumerated above possesses, in addition to the value of its capital, some monopoly value of the kind above described. 

Consider a railway company. The capital of the undertaking consists of the present value of the road-improvements, plant, buildings, material, etc., less such wear and tear as they have undergone. Suppose anyone were to offer to buy any English railroad on such a valuation, or even on the value for which all its capital might be replaced now, without deducting anything for wear and tear. The directors would certainly regard him as a lunatic. Yet if anyone offered to buy an ordinary factory of similar age on such terms he would be received with open arms. Whence then the difference? It arises from the fact that the Legislature has given to the railway company a special privilege, i.e. the exclusive use of a narrow strip of land hundreds of miles long, unbroken by any roads or other rights of use. Having the exclusive right of use to this land, the railway company can charge more for carrying goods and passengers over it than if competing carriers were allowed to run trains over it.[21]The difference between competitive rates and the monopoly rates which the company now charges is a toll on industry as much as the toll levied at the gates in the preceding illustration. Capitalised, this toll forms part of the value of every railway stock. The value of railway shares is thus composed, partly of the value of the capital employed in the undertaking, and partly of the capitalised value of the legal power to levy tribute. 

Some of the American tramway companies lend themselves to a detailed illustration of this feature of monopoly, because the facts have been carefully ascertained. To take only one example, Mr. Lee Meriwether, Commissioner of Labour, Missouri, reports as follows with regard to the tramways in St. Louis :—

The amount expended in buildings, inclusive of the cost of their site, and in building the lines and equipping them, is estimated at $ 8,415,360. The total capitalisation of the lines he states to be $ 38,437,000, and the dividends paid in the preceding year (1894) as $ 1,962,468. The value of the undertaking, therefore, exceeds the value of the capital employed by more than $ 30,000,000. The dividend, calculated upon the value of the capital, amounts to more than 23 %. Obviously, if such a business were open to competition, other companies would start, and the rates, of carriage would be quickly reduced. But as the existing companies have been granted the exclusive right of using the streets for tramway purposes, no competition is possible; and this exclusive privilege, enabling the companies to charge monopoly rates, is valued at over $ 30,000,000, and is regarded as capital by socialists just as much as the cars and rails and buildings of the companies. 

Even where the legal right to use the streets is not exclusive, but merely privileged—as, for instance, in gas, electric light, and similar companies which have been accorded the right to lay their mains and cables below the public streets—the impossibility of granting the same privilege to every member of the community acts as a deterrent to competition, and therefore produces monopoly values. This tendency is increased through the fact that wherever competition is limited combination is feasible. The certainty that similar privileges cannot be granted indefinitely enables competing companies for the supply of gas, water, electricity, and similar commodities, as well as competing railway companies, to amalgamate or pool their receipts. The limitation of competition arising from privileged use thus ultimately results in the elimination of all competition, and in the establishment of the same monopoly and the creation of the same monopoly charges and monopoly values as where the legal privilege is exclusive. 

All such legal privileges, therefore, are more or less of the nature of toll-gates; their value is not a sign of the existence of any real capital, but consists merely of the capitalised value of a tribute which the possession of such legal privileges enables their owners to exact from others, without rendering service or adequate service in return. 


THE third group of monopolies is one to which socialists have given special attention, without, however, discovering their origin. It consists of monopolies which have been formed by the combination of capitalistic undertakings into groups, called rings, trusts, syndicates, combines, or pools, for the purpose of gaining control over a particular in­dustry, and preventing competition between themselves, either in the purchase of raw material or in the sale of finished goods, or both, and in the hire of labour. Socialists unanimously regard such combinations as the natural and inevitable development of the private ownership of capital under modern industrial conditions. They look forward to the universal prevalence of such combinations, and regard State monopoly as the only possible means of escape from these private monopolies. 

As an illustration of this attitude, the following quotation from The Fabian Essayswill serve :—[22]

“I now come to treat of the latest forms of capitalism, the ‘ring’ and the ‘trust,’ whereby capitalism cancels its own principles, and, as a seller, replaces competition by combination. When capitalism buys labour as a commodity it effects the purchase on the competitive principle. … But when it turns round to face the public as a seller it casts the maxims of competition to the wind and presents itself as a solid combination. … The competing persons or firms agree to form a close combination to keep up prices, to augment profits, to eliminate useless labour, to diminish risk, and to control the output. … Combination is absorbing commerce. … The individualist … is naturally surprised at these rings which upset all his crude economic notions, and he, very illogically, asks for legislation to prevent the natural and inevitable result of the premises with which he starts. It is amusing to note that those who advocate what they call self-reliance and self-help are the first to call on the State to interfere with the natural result of that self-help, of that private enterprise, when it has overstepped a purely arbitrary limit.”[23]

If the writer of the above statement were right in his assumption that such combinations as he deals with are the natural and inevitable result of private enterprise, his ridicule of individualists who call for legislation to combat them might be justified. If, however, such combinations owe their existence in almost every instance to legislative interference with private enterprise, then the individualist who calls for the removal of such legislative interference is by no means ridiculous. That this is the case will be seen from the following examination. Before entering upon it, it may, however, be of interest to show that socialists frequently reveal that they are not without some suspicion that this may be the case. The writer of the above­quoted statement, for instance, not only selects nearly all his examples of rings and trusts from the United States, but actually makes the following admissions :—

“The best examples of ‘rings’ and ‘pools’ are to be found in America,” and “We must again travel to America to learn what the socalled ‘trust’ is.”[24]

Still more definite is the following admission, taken from Hobson’s Evolution of Modern Capitalism:—[25]

“In most of the successful manufacturing trusts some natural economy of easy access to the best raw material, special facilities of transport, the possession of some State or municipal monopoly of market are added to the normal advantages of largescale production. The artificial barriers in the shape of tariff, by which foreign competition has been eliminated from many leading manufactures in the 

United States, have greatly facilitated the successful operation of trusts.” 

Any examination of the facts fully bears out this statement, i.e. that all, or nearly all, successful pools, rings, trusts, syndicates, or whatever other denomination be adopted by monopolistic combinations, owe their success to the possession of some legal privilege-either the possession of exceptionally productive land, or power over routes of transportation, or other legislative exclusion of free competition, or to a combination of such causes. So largely is this the case that, even with regard to the few instances in which the existence of such favouring causes cannot be proved, the presumption of their existence is very strong. 

Legal limitations of competition in industries which, not depending on special privileges, are by their nature competitive, have been favoured devices of despotic rulers, as well as of those interested in such industries, for their own enrichment at the expense of the masses of the people. The privileges of medieval trade-guilds, the monopolies established by Tudor and Stuart kings, the mercantile system, and last, not least, its modern offspring, the protective system, all have used and use the same device with the same object, i.e. to enable certain producers to charge higher prices for their products than they could compel buyers to pay under the action of free competition. 

The protective system renders this service to manufacturers within the protected area by placing duties on competing foreign goods from which similar goods made within such area are exempt. Foreign goods being thus artificially increased in price, the competing home manufacturers can either raise the price of their own goods to the same level, in which case little or no exclusion of foreign goods takes place; or they can raise the price of their goods to a level a little below that of the foreign goods plus the duty, when the competing foreign goods will be excluded, while at the same time a higher price for locally-made goods is obtained. The large and exceptional profit of such protected manufacturers, however, speedily attracts rivals into the protected area, and, as a consequence, the limited requirements within the area are either overtaken, or threatened to be overtaken. This over­production would speedily reduce prices and deprive manufacturers of the exceptional profits, the promise of which protection held out to them. The protective system, however, supplies the remedy in the facility for combination, which it offers. Foreign competition being excluded as long as the price is kept a little below that of foreign goods plus the duty, the number of manufacturers who need combine for the purpose of avoiding competition is comparatively small, and is favoured by proximity of location. To take one trade as an example. It is obviously impossible for all the cotton-spinners of the world to agree with regard to the quantity of yarn which they will produce and the prices which they will charge. But it is much more feasible for the cotton-spinners of one country to do so, especially when the exceptionally high prices which they obtain in their home market enable them to sell any surplus in outside markets without any profit, or even at a loss. Protection, therefore, not only restricts competition directly, but it also offers seductive facilities and temptations for such combinations in further restriction or abolition of competition as are known as combines, pools, rings, trusts, and syndicates. 

While protection thus enables local manufacturers to combine, and to do so with such profit to themselves, that it is worth their while to undertake the trouble, and even risk, where such action has been made illegal, free trade tends to prevent such combinations. In free-trade countries prices are governed by international competition, and no combination can raise local prices by more than a fraction—equal to cost of freight—over those ruling in the world’s markets, unless it included all, or nearly all, the world’s producers.[26]The advantages therefore, even where local combinations are feasible, are too small to induce the trouble and risk of forming them, unless they are favoured by some other legal privilege. Hence the comparative rarity of such industrial combinations in free-trade Great Britain, and their prevalence in industrial countries which have adopted a protective policy. Thus, once more quoting fromMr. J. Stephen Jeans’s valuable work, Trusts, Pools, and Corners:—

“The iron manufacturers of Germany regularly adopt two sets of prices. The tariff, by protecting them from outside competition, enables them to quote a high range of prices—which are often regulated by combination—to home consumers, while they dispose of a large surplus at a lower range of prices in neutral markets, where they have to face the competition of other countries.”[27]

Similarly, Professor Hadley states:[28]

“Nearly every industry in the United States employing fixed capital on a large scale has its pool, whether they call it by that name or not.” 

Von Halle, in Trusts in the United States, furnishes a table comprising no less than 501 separate combinations, rings, and trusts, embracing almost every product of industry, and states :—

“The Sugar Trust, it is alleged, arbitrarily dictates prices on its purchases, and, with the aid of the tariff, sells at prices which yield a greater profit to the refiner than could be obtained under free competition. This was admitted by Mr. Havemeyer (President of the Trust) before the investigation committee of the United States Senate, 15th June 1894.”[29]

The same result has followed from the protective tariffs of European countries. The Forum of May 1899 publishes an article, “Trusts in Europe,” by Wilhelm Berdrow, which states: “It is in Germany, however, of all European countries, that trusts have spread most extensively and have been most successful. … The German and Austrian rolling-mill unions, the trusts of the chemical industries, as well as the most important French trusts—the latter embracing more particularly the iron, petroleum, and sugar industries—have all adopted the method of selling conjointly by means of a central bureau, in order to dictate prices and to deprive the individual members of every vestige of independence. … As far as England is concerned, it must be admitted, notwithstanding her great industrial activity and her competitive warfare not less pronounced than that of other states, the trust system has as yet found but tardy acceptance in that country. This is doubtless due in some degree to the thorough application of the principles of free trade; for it is well known that the largest trusts are powerless unless their interests are secured by a protective tariff excluding from the home market the products of foreign countries.” 

Combinations have been so rarely successful in Great Britain that, dealing with the recent amalgamation of the sewing-cotton factories, the Economist of 4th December I 897, could say :—

“This is the introduction of the American trust system into Great Britain. … There is a certain consolation, however, in the fact that in such a country as ours industrial monopolies seldom attain anything like permanent success.” 

While protection alone is thus the fruitful parent of one set of industrial monopolies, others owe their origin to a combination of protection with the ownership of mineral lands; still others to a combination between the owners of railways and mineral lands, or indirectly to the existence of privately owned railways, canals, and mineral lands alone. 

As an example of the former, the anthracite coal pool in the United States may be cited.[30]Practically all the anthracite coal mined in the United States comes from a limited area of rich deposits in the state of Pennsylvania. This area is intersected by canals and railways, owned by three companies, which control about 90% of the output through the purchase of this proportion of the coal-land. The duty on foreign anthracite coal is 67 cents per ton, equal to about 30% ad valorem. Being thus secured against foreign competition, and holding their local competitors in the hollow of their hand, through the ownership of all the routes of transportation, the three railway and canal companies, as long as they are united, dictate prices for the whole of the output and wages for all who seek employment. Though quarrels between them have been frequent, each being followed by a reduction in the monopoly price of coal, they have only been intervals in the general course of exploitation through the combination of their interests. 

A more remarkable case, as exhibiting the indirect influence of the monopolising tendency of private ownership of routes of transportation, is the rise and progress of the small group of men, which, after monopolising the kerosene oil trade of the United States, is now extending its supremacy in so many directions as to foreshadow the coming of an autocracy over the entire industry of that country. This monopoly has been established, and is still being maintained by secret, illegal, and immoral contracts with the privately owned railways of the United States, which not only give lower freights to these favourites than to their competitors, but which in various other ways utilise the control over these public highways for the destruction of the business of the latter. The following evidence, of which that furnished by Mr. Henry W. Lloyd in his painstaking work, Wealth against Commonwealth,—the statements of which are based entirely upon official evidence,—is of special interest, will sustain this contention :—

“He (Mr. Rockefeller) was able to secure special rates of transportation with the help of some bribed railroad freight-agents.”[31]

“One witness declared that the trust received from the railway companies fourth-class rates on quantities of oil in less than car-load rates, whereas he had to pay first-class rates; and that he had practically been driven out of business in localities covered by certain roads who thus favoured the trust.”[32]

“After taking 3700 pages of evidence and sitting for months, the committee of 1879 of the New York Legislature said in their report: ‘The history of this Corporation (the Standard Oil Trust) is a unique illustration of the possible outgrowth of the present system of railroad management in giving preferential rates, and also showing the colossal proportions to which monopoly can grow under the laws of this country. … The parties whom they have driven to the wall have had ample capital and equal ability in the prosecution of their business in all things save their ability to acquire facilities for transportation’. 

“More than any others the wrongs of the oil industry provoked the investigations by Congress from 1872 to 1887, and caused the establishment of the Interstate Commerce Commission, and more than any others they have claimed the attention of the new law and the new court. The cases brought before it cover the oil business on practically every road of any importance in the United States—in New England, the Middle States, the west, the south, the Pacific Coast; on the great east and west trunk roads—the Pennsylvania, the Erie, the Baltimore, and Ohio, the New York Central, and all their allied lines; on the transcontinental lines—the Union Pacific, the Central Pacific, the Southern Pacific; on the Steamship and Railroad Association controlling the south and south­west. They show that from ocean to ocean, and from the Gulf of St. Lawrence to the Gulf of Mexico, wherever the American citizen seeks an opening in this industry he finds it, like the deer forests and grouse moors of the old country, protected by gamekeepers against him and the common herd. 

“The terms in which the commission have described the preference given the oil combination are not ambiguous: ‘great difference in rates,’ ‘unjust discrimination,’ ‘intentional disregard of rights,’ ‘unexcused,’ ‘a vast discrepancy,’ ‘enormous,’ ‘illegal,’ ‘excessive,’ ‘extraordinary,’ ‘forbidden by the Act to regulate commerce,’ ‘so obvious and palpable a discrimination that no discussion of it is necessary,’ ‘wholly indefensible,’ ‘patent and provoking discriminations for which no rational excuse is suggested,’ ‘obnoxious,’ ‘disparity,’ … ‘absurd and inexcusable,’ ‘gross disproportions and inequalities,’ ‘long practised,’ ‘the most unjust and injurious discrimination … and this discrimination inured mostly to the benefit of one powerful combination.'”[33]

The control exercised by a few millionaires over the meat and cattle trade of the north-western States of the Union originates in the same cause. E. von Halle states :—

“The special investigation of the meat and cattle trade” (United States Senate Report, No. 829, 51st Congress, second session, 1st May 1890) “demonstrates that heavy pressure on the railroads and ownership of the Chicago stockyards on the one hand, ‘friendly agreements’ on the other, had resulted in an effective control of the whole market. … They fix the prices for the purchase of cattle and sales of meat in the markets of Chicago, Kansas City, and Omaha.”[34]

This is confirmed by Henry D. Lloyd :—

“When a farmer sells a steer, a lamb, or a hog, and the housekeeper buys a chop or roast, they enter a market which for the whole continent, and for kinds of cattle and meats, is controlled by the combination of packers at Chicago known as ‘the Big Four.’ This had its origin in the ‘evening’ arrangement, made in 1873 by the railroads with preferred shippers, on the ostensible ground that these shippers could equalise or ‘ even’ the cattle traffic of the roads. They received $ 15 as ‘a commission’ on every car-load of cattle shipped from the west to New York, no matter by whom shipped, whether they shipped it or had anything to do with it or not. The commission was later reduced to $ 10. They soon became large shippers of cattle; and with these margins in their favour ‘evening’ was not a difficult business. By 1878 the dressed beef business had become important. As the Evener Combine had concentrated the cattle trade at Chicago, the dressed-beef interest necessarily had its home at the same place. It is a curious fact that the Evener Combine ceased about the time the dressed-beef interest began its phenomenal career. The committee appointed by the United States Senate to investigate the condition of the meat and cattle markets found that under the influence of the combination the price of cattle had gone down heavily. For instance, in January 1884 the best grade of beef cattle sold at Chicago for $ 7.15 per hundred pounds, and in January 1889 for $ 5.4°; north-western range and Texas cattle sold in January 1884 at $ 5.60, and in January 1889 at $ 3.75; Texas and Indian cattle sold in 1884 at $ 4.75, the price declining to $ 2.50 in December 1889. These are the highest Chicago prices for the months named. 

“‘So far has the centralising process continued that for all practical purposes,’ the report says, ‘the market of that city dominates absolutely the price of beef cattle in the whole country. Kansas City, St. Louis, Omaha, Cincinnati, and Pittsburg are subsidiary to the Chicago market, and their prices are regulated and fixed by the great market on the lake.’ 

“As to the effect on retailers, local butchers, and consumers, it was admitted by the biggest of ‘the Big Four,’ ‘that they combined to fix the price of beef to the purchaser and consumer, so as to keep up the cost in their own interest.’ 

“The favouritism on the highways, in which this power had its origin in 1873, has continued throughout to be its mainstay. The railroads give rates to the dressed-beef men, which they refuse to shippers of cattle, even though they ship by the train load—’an unjust and indefensible discrimination by the railroads against the shipper of live cattle.’ The report says: ‘This is the spirit and controlling idea of the great monopolies which dominate the country … no one factor has been more potent and active in effecting an entire revolution in the methods of marketing the meat supply of the United States than the railway transportation.'”[35]

Similar preferential treatment on the part of railway companies has been instrumental in creating many other monopolies which apparently have no such causal connec­tion with railway monopolies, notably that of some English and American express companies. 

Still another series of monopolies owes its origin and existence to the ownership of patents and copyrights, as is the case with the Western Union Telegraph Company, the Bell Telephone Company, the School Book Trust, and many others. 

The manner in which the semblance of capital is given to these monopoly rights is stated as follows:[36]

“It is said to be customary for the preferred stock in all American stock-companies to represent the money, value of land, plant, materials, products, etc., whilst the common stock at the beginning represents goodwill, rights, etc., to which by and by accumulated profits add a more tangible basis.” 

The magnitude of this process of converting monopoly rights into spurious capital, generally known as “water­ing stock,” is illustrated by the same investigator as follows:[37]

“From 45.2 % in 1891, the actual value of the property” (of the Cotton Oil Trust), “it rose to 48 per cent in 1892, 50 per cent in 1893, 50.8 per cent of the capitalisation in 1894. From this we may conclude that … the actual value of the undertaking, minus the goodwill, was not much more than from one-fourth to one-fifth of the capital stock. This agrees with the testimony of Mr. John Scott before the New York State Committee in 1888.” 

The latest available balance-sheet of the “American Tobacco Company,” published in Bradstreetsof 14th May 1898, exposes an even greater discrepancy between real and spurious capital. This company, with the assistance mainly of the tariff, but, to some slight extent, with the help of some patents, controls the cigarette trade of the United States, and is now underselling the makers of plug tobacco with a view of forcing them into a combination with itself. In the course of 1897 it lost $ 1,000,000 in this endeavour. Nevertheless, the net profit on all its transactions during this year was $ 4,179,460, on a capital composed of $ 4,009,000, representing real estate, plant, and machinery, and of $ 24,876,000, representing monopoly rights, such as patents, trade-marks, and goodwill. There is also a reserve fund, accumulated out of past profits not divided, amounting to $ 10,900,000.[38]


THE examinations conducted in the two preceding chapters prove that industrial monopolies are not an inevitable outcome of the private ownership and control of industrial undertakings, as Socialism posits, but that they, in nearly all instances, arise from special privileges granted by the State. Therefore, no such far-reaching and disastrous remedy as that which Socialism provides is required for their abolition. Owing their existence to special privileges, the withdrawal of these privileges will terminate their existence. They are the creatures of the unjust interference of the State with the equal rights of its citizens. Not further interference, as Socialism demands, but the abolition of such interference is, therefore, required to terminate their existence. 

The further demonstration, furnished by the preceding examination, is, that these monopoly-rights simulate the appearance of capital, and that the tribute which they exact largely simulates that of interest; as also, that these must be carefully distinguished from real capital and real interest, if a true conception is to be formed of the influence upon the distribution of wealth which the private ownership of real capital and of unprivileged industrial undertakings exercises. 

This distinction between real and spurious capital, between material products of human labour applied to land, and the immaterial products of legal enactments, must, however, be carried one step further. 

All products of labour are destined to be consumed either in the direct satisfaction of human desires, as wealth, or in their indirect satisfaction, as capital; either in one act, as food, or in a series of acts extending over shorter or longer periods, as clothing, furniture, tools, machines, buildings, and others. The object aimed at in the production of all such things is the satisfaction of human wants, and the only way to achieve this object is by their destruction through consumption. Even if this object fails to be achieved, these products of human labour nevertheless disappear sooner or later. Either they are lost, as in shipwrecks, or destroyed in accidents, as in fires, or they gradually disappear under the influence of mechanical decay and chemical disintegration. 

The products of human labour, which retain their character of wealth for the longest period are gold, silver, and precious stones. It may be that among the stores of precious metals and jewels now existing, there is some portion , which has been of service to man from the very dawn of history. Yet even these long-lived products of labour differ only in degree and not in kind from all other forms of real wealth. For even gold, silver, and precious stones tend to disappear again as soon as they are produced: jewels by being lost or spoiled; precious metals by being consumed in the arts, or through wear and tear when passing from hand to hand as money, or when used as ornaments, or through being lost. 

All wealth and capital, therefore, being the product of human labour, has, like man himself, a temporary existence only, and the stock of it, existing at any time, is far smaller than is generally supposed. Were the continuous processes of production to cease, even for one year, not only would the vast majority of men die of starvation, but there would be an unimaginable scarcity of all the more permanent forms of wealth and capital as well. Mankind lives mainly from hand to mouth. The wealth existing at any time is mainly the product of the labour of a few preceding years, and though some forms of wealth may continue to exist for comparatively long periods, as some buildings, statues, pictures, and others, not only are these rare exceptions, but it is only through the constant application of more labour that their life is thus prolonged. 

Real capital, in common with all labour-products, is subject to this consumption, decay, and destruction. Legal enactments, however, are not subject to these influences. Unless they are repealed by another act of the Legislature they exist as long as the nation exists; and as long as they remain in force, every monopoly-right, which they create continues to exist as well. There is to-day in Great Britain scarcely any wealth, and certainly no form of capital, which dates back to the Norman Conquest; but the monopoly of the land of Great Britain, then initiated, has continued to exist and has been extended and intensified. Many secondary monopoly-rights also, created centuries ago, continue to exist at the present time, of which the New River Company, which levies tribute upon a large section of the inhabitants of London, is only a prominent example. 

The creation of new monopoly-rights, to which nearly all legislatures devote a considerable part of their time and energies, is, therefore, not necessarily counteracted, as is the case with real capital, by the disappearance of older creations, and, therefore, their mass is steadily increasing. 

Moreover, social progress constantly tends to reduce the value of real wealth and capital, while it similarly tends to increase the value of all monopoly-rights. For social progress, consisting of increase in population, advance in the arts and sciences, lengthening of processes of production and multiplication of exchanges, tends steadily to facilitate and increase the production of all useful things, and thus to reduce their value, while it frequently leads also to the sudden destruction of value in forms of capital which have been rendered obsolete by new inventions and discoveries. 

The same cause, however, tends to enormously increase the value of land and other monopoly-rights. To revert to previous examples, the land of England does not materially differ in extent, and does not differ at all in character, from what it was at the time of the Conquest. Yet the whole of its capital value at the former time would be covered over and over again by the tribute, which Englishmen now pay for its use within a single year. In the city of Adelaide a piece of land was lately sold at a rate which, for 10-feet frontage, exceeded the price which the Government received some half-century ago for the whole area of that city. The same advance in value is conferred by the same cause upon secondary monopolies. Depending, like land, for their value upon the tribute which they can exact from individual consumers of the goods and services to which they relate, increase of population adds to the number of tributaries which they can exploit, while all progress tends to reduce the cost of producing the goods or services which they render. Their annual net income,—and, therefore, their capital value, is thus constantly enhanced by social progress. 

The value of all real capital is thus constantly declining, and all of it has only an ephemeral existence, disappearing soon after labour has created it, and depending upon further labour for its recreation. Monopoly-rights, on the contrary, are constantly increasing in value and number and have permanent existence. It follows that what Socialism terms capital consists in every country to by far its largest extent of mere monopoly-rights and to a small extent only of real capital. This is true even of Great Britain, where protective monopolies have been abolished, and is still more true of countries like the United States, Germany, and France, where their baneful influence has been added to that of other and even more far-reaching monopolies. It is, therefore, obvious that the diagnosis of the social malady upon which the doctrines of Socialism are founded is faulty in the highest degree, and that, therefore, the remedy which it proposes cannot be the true remedy. Making no distinction between real and spurious capital, between what is permanent and obviously unjust and injurious, and what is ephemeral and has never been proved to be unjust or injurious, it condemns both alike. By combining, under one denomination, these two widely differing classes of property, socialists obscure the action of both, and have, therefore, been unable to see that the relations between labour and the owners of real capital are profoundly affected by the existence of these monopoly-rights. That the power which the capitalist possesses over labour is not due to his possession of real capital, but to the weakening of the economic position of labour through the baneful action of monopoly-rights, will be shown in subsequent chapters. 


As shown in Part I. chapter i., one of the fundamental theories of the economic teaching of Socialism is that of surplus-value as set forth in Marx’s Capital. Starting from the conception that the value of any commodity is determined by the average labour-time socially necessary for its production—a conception which, as already stated, is now repudiated by many Socialists themselves—he arrives at the conclusion that the value of labour, i.e. wages, is similarly determined by the necessary cost of maintenance of the labourer and his family, i.e. the labour-time necessary to produce his labour-power. On this foundation-shown to be false in Part II. chapter i.—he erects the theory of surplus-value. Shortly stated it runs: The average labour-day (labour-power) is largely in excess of the time required by the labourer to produce the equivalent of his maintenance (labour-value). The excess of time spent in labouring produces a surplus-value which, being appropriated by the employer, becomes ultimately divisible into rent, interest, and profit. Supposing the labour-day to number twelve (12) hours, and six hours to be sufficient to produce the value required for the labourer’s maintenance or wages, it follows that the other six hours are spent in labouring for the exclusive benefit of the capitalist-employer. His gain, the surplus-value, therefore, arises from the unpaid appropriation of a part of the labour­time of every labourer, i.e. from that part of the value of the product of individual labour which exceeds the cost of the labourer’s maintenance. Surplus-value, therefore, is a deduction from the product of individual labour, appropriated by the capitalist-employer.[39]

As Marx himself admits that the creation of surplus­value, in his theory, is merely an extension beyond a certain point of the production of value generally,[40]the demonstration, given in Part II, chapter i., of the erroneous nature of his theory of value destroys the basis on which his conception of surplus-value rests. For if the value of labour-power is not determined by the consumption of the labourer and his family, and if the value of goods is determined by other factors than the average labour-time socially requisite to produce them, then the difference between the value of labour-power and labour­product does not necessarily arise from the unpaid appropriation by the employer of part of the labour-power. The importance of the subject is, however, far too great to allow it to rest at this point, and requires a complete examination. In this and the following chapters, therefore, an endeavour will be made to show that this entire conception of the origin of surplus-value is crude and misleading, first by showing that the theory is contradicted by facts, secondly, and at greater length, by a careful examination of the component parts of surplus-value. 

If the Marxian conception of the origin and nature of the tribute, which is undoubtedly exacted from labour were true, all surplus-value must be a deduction from the product of individual labour. If it can be shown that there are cases in which surplus-value arises which can be seen by him who runs not to be deducted from the product of such labour, the conception must be false. The following examples furnish such instances :—

A jeweller employs five women in sorting and stringing pearls. His capital is, say, £ 150,000, and his annual sales of strings of pearls amount to £ 100,000. His average annual clear profit is, say, £ 8,000. If this sum represents a deduction from the produce of individual labour, it must be deducted from the labour-product of the five women whom the jeweller employs. Each of them must, therefore, be entitled to an addition of £ 1,600 a year to the wages which she is actually receiving.

If, to this reduction ad absurdum, it is objected, that the surplus-value of £ 8,000 may, as to its greater part, be deducted from the product of the labour of the divers and other labourers employed in harvesting the pearls from the ocean-bed, and transporting them to the jeweller’s shop, the reply is obvious. These men were not employed by the jeweller, but by preceding capitalists; who, according to the supposition, themselves extracted surplus-value from the labour of their workmen. The price which the jeweller paid for the pearls included this surplus-value, just as the price which his customers pay to him includes any surplus-value he may receive. The surplus-value which he exacts, therefore, is additional to that exacted by previous employers, and, if it is a deduction from the produce of individual labour, it can only be deducted from that of the labour which he has employed, viz. five women. Unless, therefore, it is contended that the labour-product of each of these five women exceeds £ 1,600 a year, this surplus-value must be admitted to be no deduction from the produce of labour. 

The following case is even more decisive. Avigneronobtains from his vineyard new wine to the value of £ 100, constituting the entire return of the year’s harvest. He keeps this wine for ten years, at the end of which period, and without any labour having been done to it in the interval, the wine possesses a value of £ 200. From whose labour has this surplus-value of £ 100 been deducted? The only labourers who could be victimised are those who were employed in attendance on the vines, plucking grapes, and making the wine. When their labour ceased, its entire produce, inclusive of that of the vigneron’s own labour, had a value of £ 100 only. The additional £ 100 which makes its appearance subsequent to the cessation of their labour, cannot be the product of the latter, and can­not, therefore, be a deduction from the product of their or any other man’s labour.[41]

These two examples will suffice to show the erroneous nature of the Marxian theory of surplus-value on which Socialism is based. A close examination of the phenomenon, moreover, shows that surplus-value is a compound of many elements, some of which are natural consequences of the mental constitution of man and of his physical environment, and not in any sense deducted from the product of individual labour; while others, which constitute such deductions, are the result of limitations placed on the equal freedom of men by legislative enactments which confer special privileges on some. Of these latter, monopoly­tribute or spurious interest has already been dealt with in so far as its origin is concerned. The next few chapters will be devoted to the examination of other component parts of surplus-value, and to that of the influence which each of them exercises upon the earnings of labour.


THE term “land” possesses a double meaning. In its narrower sense it applies to the superficial area of the dry surface of the earth. In its wider sense it denotes all the matter and energies of nature external to man and unaltered by his activities, for the reason that man, being a land animal, can utilise nature’s powers only from the dry surface of the globe. Air, rain, and sunshine, the elements of fertility contained in the soil, and the mineral treasures hidden below the soil; the various manifestations of motion and gravitation, heat and electricity, chemical action and life, become accessible to man from this dry surface alone; and though man has made himself master of the ocean and may soon obtain the mastery over the aerial regions as well, yet from the dry surface of the globe alone can he obtain the materials which enable him to navigate these alien spaces, and to it must he return, from time to time, in order to renew his power of navigating them. 

This dry, superficial area, therefore, is the medium through which all nature becomes accessible to man, and as far as his efforts to utilise nature for the satisfaction of his wants are concerned, all nature is included in it. In its wider sense, therefore, the term land covers all the powers of nature which man may use for the satisfaction of his wants; not merely that which gives him foothold and resting-place, but all the matter which he can form into wealth and all the energies which assist him in his efforts. It is the only source of wealth; the passive factor in its production, without the use of which no wealth can be made and human beings cannot exist; the indispensable condition of life and of production. 

The general condition through which any and all the opportunities for making wealth, the treasures of nature, become accessible to man, therefore, is through the use of some part of the dry surface of the earth. There is, however, another condition equally far-reaching in its consequence. 

All material existence, and, therefore, all economic activity also is conditioned by space and time. Space and time, however, are concepts, not of things, but of the relation in which things stand to each other. Space is a relation of extension, i.e. of the relative position of things, which exist simultaneously; time is a relation of succession, i.e. of the relative position of things, which follow upon each other. 

Space, therefore, which has relation to all matter, also relates to wealth, which is matter modified by human exertion, and to this exertion. Every exertion, every form of production, requires space for its accomplishment; space to stand upon; more space to move in, and still more space for the extraction, storage, transformation, and transportation of materials, implements, and products. Occupations differ as to the space necessary for their most efficient conduct, but in every occupation there is a limit to the amount of exertion which, within a given space, will yield the most profitable return. Hence, natural law imposes upon man an extension of his labour in space, and this extension is limited by the area of the dry surface of the globe. 

This dry surface, however, the land in the narrower sense of the term, does not everywhere give access to similar opportunities for making wealth. Land differs greatly in the elements of fertility, which the soil contains, as well as in climatic conditions. Some areas give access to mineral treasures, while others do not, and even the former vary greatly with regard to the quantity and im­portance of the mineral deposits underlying them. Some areas, again, contain waterfalls and other opportunities, which facilitate production; other areas are covered with much coveted timber or luscious grasses, while others, again, are arid, bare, or covered with worthless scrub or rock. The opportunities for making wealth, the gifts of nature to which land gives access, thus vary in infinitesimal gradation from what economically may be regarded as zero, to what bears the utmost potentiality of wealth. 

There are, however, still further variations in the productivity of land, i.e. in the opportunity which it affords to satisfy wants through exertion, which have frequently been disregarded, though they are of equal importance with those already enumerated. In previous chapters it has been pointed out that exchange not only forms part and parcel of the productive process, but is the necessary condition for the existence of the world-wide co-operative system of production which has raised mankind above the level of savages. As co-operation through exchange supersedes the primitive form of isolated production, the qualities of land, which offer facilities for exchanges assume importance and gradually increase in importance. Access to navigable streams, to harbours, lakes, and tide­waters; proximity to fertile lands, mines, natural routes of trade, and centres of population; proximity to artificial routes of transportation, as roads, canals, and railways, now confer potentialities of productiveness upon land which it previously did not possess. 

These variations bring into prominence a consideration which otherwise would be of far less importance. As between two pieces of land, that one is obviously more productive which, to the same exertion, gives a greater return. It may, however, be, and frequently is the case, that of two pieces of land of equal productivity when a certain amount of exertion is applied to both alike, one will be more productive than the other if the amount of exertion is increased on both of them. To some extent this is true even in agriculture. A sandy soil may give the same or even a smaller return per unit of labour in wheat-growing than an equal area of clayey soil. But if both were used for fruit-growing, which requires a considerably greater application of labour and capital per acre, the sandy soil might prove far more productive.

This consideration applies with greater force to mineral land. If no more exertion were applied to an acre of mineral land than to one of wheat-land, the return would probably be increased but little, if at all, and might be even less. When, however, a vastly greater amount of exertion in labour and capital is applied to the mine, such land may not only give a greater aggregate return, but may even give a much greater return per unit of exertion applied. 

The most important manifestation of this condition, however, arises in our great exchanging centres—the manufacturing and trading cities. If no more labour were expended on an acre of land in the heart of a great city than on an acre of country land used for wheat-growing, the return would scarcely be greater. When, however, suitable and costly buildings are erected on the former, when thousands of workers and large amounts of capital are congregated within these buildings, then the productivity of such land is enormously greater than that of an equal area of country land, not only in the aggregate, but generally also per unit of exertion applied. 

So far we have arrived at these conclusions. Land, i.e. the dry surface of the globe, differs in its productivity, i.e. in the opportunity which it affords for the satisfaction of human wants through exertion: (1) inasmuch as some land yields a greater return than other land to the same exertion; (2) inasmuch as some land yields a greater net return than other land when more exertion is concentrated upon it. 

Let us now consider the influence, which these facts exert upon the distribution of wealth. 

Seeking to satisfy their wants with the least exertion, all men will endeavour to obtain the use of such land as, according to existing knowledge, will yield the greatest return to their exertion. They cannot all be successful in this endeavour, because the extent of the most productive land is limited, and because, in every occupation, there is a limit to the amount of exertion which can be applied most profitably within a given space. Some men, therefore, must use land of less than the greatest productiveness, other men must use still less productive land, until at last a wide difference in productiveness prevails between the most productive and the least productive land in use. So far, however, as the knowledge of men enables them to determine, the least productive land in use will still be more productive than the most productive land not yet used, for the reason, that all men seek to satisfy their wants with the least exertion. The least productive land in use, i.e. the land at the margin of production, must, however, fix the standard of the reward for human exertion, because it is a matter of indifference to any worker, whether he receives all the product of his labour when using land at the margin of production, or whether he receives the same amount when working on land of greater productiveness. If, for instance, the entire product of a man’s exertion at the margin is 10 s. a week, then, other things being equal, he will be willing to use the same exertion on land yielding 50 s. a week, provided he himself receives no less than 10 s. a week out of the same. The difference is rent, a payment made for the use of better natural opportunities than are available to all men. Taking from those who use more productive land the excess of its productiveness over that of land at the margin, rent equalises the natural opportunities for making wealth to all men. 

On this consideration is based Ricardo’s Law of Rent, which runs: “The rent of land is determined by the excess of its productivity over that which the same application can secure from the least productive land in use.” In view of the considerations above advanced, it will be seen that the law thus formulated expresses only part of the truth. It excludes from consideration the advantages which arise from the massing of more exertion on suitable land. A true law of rent cannot be so limited, and the importance of extending it may be seen from the erroneous deductions to which this limitation has given rise. Ricardo, Mill, and their successors were in this way led to adopt the Malthusian doctrine, that increase of population, compelling the use of inferior land, must reduce the average productivity of labour, and therefore must tend to produce misery and starvation. In the absence of any notice of the facts referred to, this was not an unnatural conclusion. When, however, these facts are included in the survey, the opposite result will be seen to arise. For with the increase of population there arises an increase in secondary production and exchanges, and these multiply at a greater ratio than population. Hence, more and more workers can be concentrated on land of the highest productivity, that which is most suitable for manufactures and exchanges, and where the productivity of the average unit of labour is greatest. Not only is the tendency of resorting to inferior land thus checked, but as more additional labour is employed on land of greatest productivity than is employed on land of inferior productivity, the aggregate product of all the labour is increased. Instead of increase of population leading to misery and starvation, it must, caeteris paribus, tend to an increase of comfort and plenty. 

The distinction previously drawn is therefore of the utmost importance, and this consideration may excuse this digression from the strict line of argument. A law of rent, to be strictly true, must therefore be formulated as follows :—

The rent of any piece of land is determined by the excess of its productivity over that of an equal area of the least productive land in use, after the sum of exertions, which in both cases yield the most profitable result has been deducted. 

So far land and the rent of land has been dealt with under natural conditions—that is, under conditions uninfluenced by men’s temporary enactments; and it will have been seen that rent is a natural result of the extension of men’s labour in space, just as interest will be seen to be a natural result of the extension of their labour in time. But, just as when dealing with capital, attention had to be drawn to a mass of spurious capital and spurious interest, the result of mere legal enactments, so attention has now to be drawn to a spurious and additional rent, equally resulting from mere legal enactment, i.e. from the private ownership of land and rent. 

In order to make this important point clear, use will be made of the following diagram. The horizontal lines enclose land of the same productivity, while the per­pendicular lines divide all the land into equal areas. The assumption, not absolutely true, is that as productivity declines area increases, but this assumption in no way falsifies the argument. The figures 1000 to 100 mark the original productivity of the land :—


B   900                
C  0  800              
D       700            
E 0       600          
F           500        
G             400      
H               300    
J                 200  
K                   100

As long as social requirements can be satisfied through the use of land A alone, there is no rent. As soon as any portion of land B must be used, rent arises. All of land A now acquires a rental value of 100 units, i.e. equal to the excess of its productiveness over what is now the marginal land B. When any of the land C has to be taken into use, B, in its turn, acquires a rental value of 100 units, and the rental value of A is correspondingly increased, viz. to 200 units. The use of any land of lower scale of productiveness gives a rental value to the land in the immediately superior scale, and correspondingly increases the rent of all the land, which previously had any rental value. In contradistinction to this general rise of rent, there stands the partial rise of rental value, which arises when additional productiveness is discovered in or conferred upon particular land. The discovery of new mineral deposits; the discovery of new methods for increasing the yield, or of treating more profitably, mineral deposits previously known; the discovery of methods, or the invention of machines, which increase the yield of special kinds of land or of their products; changes in trade routes; the rise or increase of trading centres; the extension of railways and other routes of communication and transportation,—all of these as well as other causes increase the value of particular land. In these cases the rental value of such land alone rises, without increasing the rental value of other land. That is to say, where rental value is conferred upon any land through a lower­ing of the margin of production, all rents rise correspondingly; but where new rental value is caused by advantages discovered in or conferred upon particular land, the rise in rental value is confined to such land. 

If it is now assumed that if all the land above line G were fully used, the products of this land would suffice for the requirements of the people, the natural rent would be: For land A, 600 units; for B, 500 units; for C, 400 units; for D, 300 units; for E, 200 units; for F, 100 units; and land G, as well as all the land below it in the scale of productivity, would possess no rental value. If, however, the owners of the land keep any of the land above line G out of use, say the lots marked 0, two consequences follow. 

The first is, that in order to satisfy the necessities of the community, some labour must be employed on less productive land, i.e. on land between G and H, and that, as a consequence, the produce of the aggregate labour of the community is lessened. 

The second is, that out of this lower product of the aggregate labour a largely increased rent-charge must be paid. For some land of 300 units of productiveness being now used, land above G, of 400 units of productiveness, now acquires an annual rental value of 100 units, and the rental value of all the land of superior productiveness is correspondingly increased. In the case illustrated by the diagram the rent received by the owners, if all the land above line G had been fully used, would have been 11,100 units. By keeping out of use the three squares marked 0, they increase the actual rent-charge to 14,900 units. This increase, amounting to 3,800 units, is a spurious rent, as is also the increased rental value of the land kept out of use. 

Moreover, where all the land has passed into private ownership, the self-interest of owners may, and frequently does, induce them to hold so much superior land out of use or full use, that some of the least productive land must be used unless the population declines. As under such conditions land is a complete monopoly, owners do not, as a rule, permit the use of any, even of the most inferior land, without some payment. As some men will now be compelled to use such land in order to live, they will be compelled to pay a rent for it. Natural rent is, under these conditions, superseded by rack-rent, i.e. rent at the margin: the least productive land available having no other limit than the smallest reward which labour can be compelled to accept, labour on all other land and in all occupations must accept similarly depressed wages. The rent for all other land, therefore, must rise accordingly, and the body of spurious rent, which the workers must pay to the landowners is increased to enormous proportions. All this artificial addition to the natural rent is a real deduction from the natural reward of individual labour. 

Nor is it necessary that much land should be kept out of use in order to produce this result. All that’ need be done is to devote some considerable areas to inferior uses than those they are best fitted for. To do this may, and frequently does, confer an additional advantage upon the landowners at the expense of the whole community, and still further emphasises the conflict between the interests of the community and those of private landowners. Conditions, largely prevailing in the Australian colonies as well as in other new countries, will serve to illustrate this phase of the subject. In everyone of these colonies millions of acres of the richest agricultural land, with ample rainfall and near to markets and ports of shipment, are used for mere grazing purposes. As a consequence most of the farmers were forced to settle on poorer land, further from markets and ports, and where the rainfall is less abundant. Land fit only for grazing is thus used for agriculture, while the land fittest for agriculture is used for grazing only. The latter would, under wheat, have given a gross return of say 35 s. per acre, while as grazing land its gross return is only say 15 s. per acre. Yet the net return to the owner may be, and frequently is, greater, where the gross return is smaller. For the cost of cultivating the land, i.e. wages, seed, implements, horses, etc., may absorb 30 s. out of the 35 s., while in grazing, where scarcely any labour is employed and all other expenses are small, these would absorb less than 5 s. per acre. In the one case, therefore, the net profit would be 5 s. out of a gross profit of 35 s.; in the other it would be 10 s. out of a gross profit of 15 s., and, in addition, the trouble of management will be much smaller. The community, however, loses 20 s. per acre, the difference in the gross return. For in either case the profit of the community is measured by the gross and not by the net return. The gross return represents new labour-products added to the common stock. Out of this new product the labourers employed in producing the materials and implements used on the land, as well as those directly employed on it, defray their consumption. When the gross product is 35 s., the added wealth is greater by 20 s. than when it is 15 s., and as long as the additional consumption does not exceed the value of the additional wealth, the permanent wellbeing of the community is increased to that extent. Hence, though the owner gains 5 s. by the substitution of the less productive for the more productive process, the community loses 20 s. worth of wellbeing. In addition, there is an enormous loss from the reduced productivity of the labour of those farmers who are compelled to cultivate land of less fertility and at greater distance from markets and ports. An even more graphic illustration of this condition is furnished by the wholesale clearances of Scottish and Irish land in order to make room for cattle, sheep, or deer, and the resulting misery of large numbers of the evicted tenants, and of the shopkeepers who supplied their wants. 

Still another and far-reaching influence arises from private ownership of land. It has been shown that the natural function of rent is to equalise the natural opportunities available to men. Rent takes from those who use the better natural opportunities the excess of produce due to this advantage and reduces their earnings to that which equal exertion would gain on the least productive land in actual use. As no man can be entitled to the free use of more productive natural opportunities than other men can obtain, no man can be entitled to the surplus of produce, due, not to his greater exertion, but to the use of the more productive opportunity. Rent, i.e. natural rent, therefore, is not a deduction from individual labour­results, as many socialists assert. It is a deduction from the results of the labour of society as a whole. Just as no person is entitled to the free use of more productive natural opportunities, so no person can ethically be compelled to the uncompensated use of less productive opportunities. All men are entitled to the free use of average opportunities to labour. Those using opportunities more productive than the average, therefore, are morally bound to compensate those using opportunities of less productiveness than the average. The equalising mission of rent, therefore, is not finished till it is either divided in equal shares among all those who have contributed to the result of the social labour, or till it is used for purposes from which all of them derive equal benefit. Spurious rent, on the other hand, is, as already stated, a deduction from the result of the individual labour of every worker. 

When, however, land is private property, not only the spurious, but the natural rent as well, is appropriated by a few, the owners of land. The equalising tendency of rent still affects all workers, reducing their earnings to what equal skill and exertion can produce, or is allowed to retain, at the margin; but on the owners of land it has the opposite tendency. It concentrates into their hands the rent produced by the aggregate labour of the community, and adds this vast and ever-increasing sum to any earnings, which they may derive from their own labour. Without having rendered and without rendering any service in return, they thus become the recipients of the social wealth represented by natural rent, and of the deduction from individual wealth represented by spurious rent. The equalising tendency of rent, therefore, stops short at the land-owning classes; below this line it reduces individual wealth, above this line it increases individual wealth. Instead of a tendency towards equalisation, there is thus introduced a twofold tendency towards differentiation, the results of which, supported by the secondary monopolies previously described, may be seen in the startling contrasts which disfigure our civilisation: on the one hand, multi-millionaires, receiving an amount of wealth vastly exceeding that which their labour contributes to the common stock, and frequently contributing nothing nor rendering any other service; on the other hand, a vast army of proletarians, who receive far less than their labour contributes, divided by a middle class vainly struggling to preserve its independence between these opposing forces. 

Private ownership of land, therefore, deprives all workers of their equal share in the product of their common labour, the natural rent of land; it further creates a spurious rent which is a real deduction from the product of individual labour, and it utterly nullifies the economic and ethical function of natural rent. That which under natural conditions would tend to produce a homogeneous society, strong through the agreement between public and private interests, then produces a society constantly becoming more strictly divided into two opposing classes, and threatened with destruction through the conflict between public and private interests, artificially introduced. 

Secondary influences of private ownership of land and of other monopolies on the relation between employers and employed will be discussed in a subsequent chapter. 


As space is a relation of extension, so time is a relation of succession. Every individual act follows upon or precedes some other act. If the sequence of one act upon another is immediate we speak of their succeeding each other in a short time; if the sequence is remote we speak of long time. All production consists of a series of acts following upon each other, and all production therefore requires more or less time. The production of bread, for instance, requires the successive accomplishments at different intervals of sowing, reaping, grinding, and baking. Similarly the production of a chair requires the felling of a tree, cutting it into boards, planing them, cutting them into the requisite pieces, turning some of these, fitting all the pieces together, and finishing the rough chair. No two of these acts can be performed simultaneously, they all stand in the relation of sequence to each other, and the series therefore requires considerable time in its accomplishment. In like manner every other productive process requires more or less time. It follows that only those productive processes which require little time for their accomplishment can be directed to the satisfaction of present’ wants, i.e. of wants existing at their initiation. By far the greatest number of productive processes, all those requiring more than a short time for their accomplishment, are necessarily directed to the satisfaction of wants which are expected to arise in the future, i.e. after the process is completed. Present wants, therefore, are mostly dependent for their satisfaction upon productive processes which were initiated in the more or less remote past, and the fruits of which are now maturing or have matured, while present labour is mostly directed to the satisfaction of future wants through the production of goods which will become available at such future date. Every increase in the length of productive processes postpones the time when their fruits will be available for the satisfaction of human wants, while, as has been already shown, it increases the number of wants which can be satisfied. 

All but the most primitive processes of production, therefore, imply the capacity of men to anticipate future wants and their desire to provide for them. The worldwide, roundabout, or co-operative system of production implies the possession of a high degree of these faculties. These faculties are part of the imaginative process. In order that men may be able to provide for future wants, they must be able to form a mental picture of the state of their future desires, of the quantity and kind of the goods necessary to satisfy these desires, and of the time when these desires will arise and these goods will become available, i.e. they must form some present conception of the value of goods which will only become available at a given future date. The only principle on which such goods can be valued is that of their marginal utility under the mutual action of our wants and the provision for these wants as we anticipate them to be at some future date. Apart from the element of risk, our present valuation of future goods is, therefore, made on the same principle as that of present goods, i.e. goods available at the present time. As these two sets of goods, however, become available at different times, under different circumstances, and serve different ·sets of wants, it is inevitable that a different valuation should be placed upon them at the present time. With few and unimportant exceptions this difference shows itself in a higher present value being placed on goods which are available at present than on goods of like quantity and kind which only become available at some future time. This difference in value is the cause of interest, which therefore arises from the extension of man’s labour in time. 

The following are the main reasons for the higher value of present than of future like goods :—

All persons who expect or hope that they will be better off in the future than in the present, that is the vast majority of men, will naturally value a given quantity of present goods more highly than an equal quantity of like goods in the future. For while their present wants are pressing upon their means to satisfy them they expect a less pressure in the future. The case of musical students who mortgage a great part of their future earnings in order to obtain present tuition is an extreme case in point.

On the other hand, persons who enjoy a good income in the present, but who anticipate that it may fall off or altogether cease in the future, such as employees with fixed salaries which may cease, will value goods becoming available at this future period more highly than goods available at present. This feeling, however, exerts no influence, because present goods can be preserved for use at such future period, especially in the shape of money, and can thus be used either for the satisfaction of present or of such future wants; whereas goods which do not become available till such future time cannot be used for the satisfaction of present wants. Hence, even in these cases, present goods are valued more highly or, at least, as highly as future goods of like quantity and kind. 

This difference in provision for wants between present and future is sufficient to give a higher subjective, and therefore a higher objective, value to present than to future goods. This tendency is, however, increased by other causes. 

The first of these is a tendency towards the undervaluation of future wants inherent in all men. That which lies nearest looms largest. Future wants are underestimated because they are distant and in the measure of their distance, and, therefore, the goods which can satisfy none but such future wants are undervalued. This underestimation of future wants differs in different men. Savages and children scarcely take any thought of distant wants, and among adult civilised men wide differences also appear. Nearly all men, however, give way to it to some extent. 

This second cause is cumulative with the first. Not only the persons who expect to be better off in the future than they are in the present, but all, or nearly all, other men make this underestimate of their future wants, and hence the lower valuations placed on future than on present goods is made more intensive and more extensive. 

A third and independent cause for the same phenomenon arises from the technical superiority of present over future goods, i.e. from the fact that, as a rule, goods which are available now give, when used as instruments for the production of other goods, a greater return than goods which become available in the future for such use. 

As already explained, lengthier methods of production are, on the whole, more productive than shorter methods. Given the same quantity of productive instruments and labour, the lengthier the method of production in which they are employed the greater will be the quantity or the better the quality of the resulting product. 

Suppose now that we have available in the year 1898 a quantity of productive instruments equivalent to one month’s labour. We can employ this one month’s labour in methods of production which will give an immediate return, or in such as will give a more or less remote future return through the application of more labour,—with this difference, however, that as we chose a lengthier method, so the future product of this month’s labour, as well as that of every other month’s labour successively employed in this particular process, will be increased. Let it be supposed that its product in immediate production will be 100 units of wealth; in a ‘one year’s process 200 units; in a two years’ process 280; in a ‘three years’ process 350; in a ‘four years’ process 400; in a ‘five years’ process 440; in a ‘six years’ process 470; and in a ‘seven years’ process 490. Any other figures will do as well, as long as the principle is observed that longer processes give greater return, but that the return increases at a less ratio than the length of process. 

The following table will show when these units of wealth, the product of one month’s labour, will become available :—

Length of Process.Units of Product.Time of Availability.
Immediate        – – – –1001898
One year.         – – – –2001899
Two years        – – – – 2801900
Three years      – – – –3501901
Four years        – – – –4001902
Five years        – – – – 4401903
Six years         – – – –4701904
Seven years      – – – –4901905

Suppose now, that in addition to the production-goods equivalent to one month’s labour, which are available to-day, we expect an equal quantity of such goods to become available in each of the years 1899, 1900, and 1901, let us see what will be the relative result at any future time of these four separate months of labour when employed in production :—


 18981899 19001901
Yield in units ofproduct for the year    

The above table clearly shows that present production­goods yield at any given time a greater return than goods of like quantity and kind, which become available at a later period. 

It is also obvious that the possibility of engaging in lengthier and, therefore, more profitable processes of production arises from the present possession of consumption­goods. If these were not available in sufficient quantities, labour and capital would be compelled to engage in shorter processes, giving forth their products at earlier periods, though in smaller quantities compared with the exertion employed. The increased result of the lengthier processes, therefore, is in this measure due to the possession of consumption-goods available in the present, not because they are capital, but because they enable capital to be used in processes of greater utility. Therefore, present consumption-goods possess the same technical superiority over future consumption-goods, which present production-goods possess over future production-goods. 

The three causes enumerated for the higher value of goods available in the present than of goods which will become available at any future time, are :—

(1) The difference in the circumstances of provision for wants between present and future. 

(2) The underestimate of future wants and of the importance of future goods. 

(3) The greater productiveness of lengthier methods of production and consequent technical superiority of present goods. 

While the two first causes are cumulative, the third cause acts independently and largely alternatively. To show this in detail here would lead too far; suffice it to say, that this alternative action gives to the phenomenon of higher valuation of present goods a varying intensity but universal validity. The varying intensity of subjective valuations enables exchanges of present against future goods to take place. Those who place a relatively high value on future goods are buyers of future goods, i.e. lenders; those who place a relatively low value on future goods are sellers of such goods, i.e. borrowers. A market price, resulting from their higgling, once established, exerts a reflex action on all subjective valuations, so that even those few who, from their economic circumstances, would value future goods equally with present goods are influenced by the general position of the market, which assures them also a preference for present goods. The same levelling tendencies of the market bring the lower value of future goods into a regular proportion with their remoteness in time, establishing everywhere a rate of interest, which is the general measure for the difference between the value of present goods and that of goods which become available at any future time. 

Of the three causes, the combined action of which gives rise to interest, one only, the technical superiority of present goods, is invariable in its action. Of the others, the underestimation of future wants declines in intensity and extensity as men become better adapted to the conditions of social life. The third cause, difference in the provision for wants between present and future, also will be less active when a just system of distributing wealth is adopted. For, in such case, the present needs of all will be more easily met, while a great majority will be able and desirous to retire from productive labour at a comparatively early age. Present needs will, therefore, be less pressing and future needs more pressing, leading to a reduction, from both sides, of the difference of valuation of present and future goods. 

The causes, which have resulted in a decline of the rate of interest in the past, will therefore continue and may be reinforced in the future, leading to a further, permanent, and large decline of the rate of interest. That interest ever will or can disappear entirely, however, does not seem probable, in view of the persistence of the technical superiority of present goods, and of the improbability of the entire disappearance of the two other causes which gave it existence. 

In a former chapter 1 it has been shown that the value of productive instruments is determined by the marginal utility (value) of the sum of the consumption-goods, which form their ultimate product. This ultimate product, however, is not contemporaneous with the productive instruments; it appears as these disappear in it. Compared with the productive instruments which give it being, the final product is a group of future commodities; of goods which will become available in the future. The present value of this final product, i.e. its value measured in present goods, is therefore lower than its future value, and therefore the value of the productive instruments is also lower than the future value of the consumption­goods into which they become embodied. It is equal to the present, and not to the future, value of these future goods. 

The capitalist, therefore, buys productive instruments at the present value of the sum of their ultimate products, and waiting till these latter have arrived at maturity, till what is now the future has in its turn become the present, becomes possessed of their higher value. This increment in value is the interest which he receives. 

To illustrate this sequence of events, take the case of a capitalist who purchases productive instruments, material, tools, and labour; and in order to simplify the illustration, let us assume that he purchases them all at one and the same time, i.e. at the beginning of the productive process. The circumstance that this is not quite true does not affect the principle but only the amount of interest which he will receive. Let it be further assumed, that the sum of the final products of these productive instruments has a total value, when they are available, of 500 units; and, further, that of these total ultimate products, equal parts become available at the end of each of five successive years, and possess at that time a value of 100 units, so that at the end of five years the whole product has been realised and the productive instruments have disappeared. 

All these products are future goods at the time the capitalist purchases his productive instruments. Their present value, therefore, i.e. their value measured in present consumption-goods, is less than that which they will possess when they in their turn will be available for the satisfaction of human wants, when they will have become present consumption-goods. That part of the total product which will become available at the end of one year, and which then will have a value of 100 units, possesses now a value of say 95 units only; the second part available at the end of two years has a present value of 90 units; the third year’s product equals 85 units; the fourth year’s product equals 80 units; and the fifth year’s product equals 75 units. The total present value of these consumption-goods, the future product of the group of productive instruments in question, and having a value of 500 units when they become available, is 425 units only. Therefore, the value of these productive instruments is 425 units, equal to the present value of their ultimate product. Our capitalist purchases them at this price, and the interest which he receives arises from the fact that he has purchased with a smaller quantity of mature goods, possessing a present high value, a larger quantity of immature goods, possessing a present low value, and that he waits until this latter in its turn has ripened into high value. 

This interest, therefore, is not taken from anyone. It arises, as has here been proved, when the capitalist pays full value for all the productive instruments, labour included, i.e. when he pays a price for them equal to the value of the sum of their products. It had no existence before; it came into existence in the hands of the capitalist, because he is a capitalist, i.e. because he, possessing more goods at present available for the satisfaction of human desires than he himself needs, exchanges them for goods which, in their turn, will be able to satisfy human wants at some future time. As, in the continuous process of production, those future goods gradually approach usefulness, and the more pressing, because more proximate, human wants, their value increases, until at last this utility and value reach their highest point, that of goods which can satisfy the most urgent wants, i.e. wants actually existing. Interest, therefore, is not, as Socialism posits, a robbery of labour, but an increment of value which arises from the natural extension of human labour in time and separately from the exertion of labour. 

That interest cannot be regarded as part of the product of labour, and that, therefore, it is not a deduction from the legitimate wages of labour, i.e. the full product of the labourer’s exertions, will, however, be demonstrated still more fully in the next chapter. 


THE foregoing examinations have paved the way for the inquiry, what part of the product of the industry of society rightfully belongs to those who take part in its production, i.e. to the producers of wealth of every kind, as producers. Obviously, the most that each producer can obtain individually is the entire product of his labour, and, as will be shown in subsequent chapters, this is also the least that justice demands for him. The only question, which concerns us here is what constitutes the produce of individual labour. 

Man as such, whether isolated or in co-operation with others, produces nothing. All wealth is the joint product of labour and land. As already demonstrated, the extension of man’s labour in space, which natural conditions impose upon him, and the variations in the productivity of land, produce the widest divergence between the natural conditions under which labour is exercised. Inevitably, the opportunity which some use is better or worse than that which others can use, and ultimately the differences become of enormous importance. 

As a consequence, the same unit of skill and exertion will produce many times the amount of wealth from one piece of land than when put forth upon some other piece of land. The excess is not due to any labour; it arises from the greater bounty of nature. To whom then does it belong? To the man who by accident labours upon the more productive land? Or to the owner who, by purchase, inheritance, or fraud, got hold of it? Or does it not rather belong to the society, the whole body of men, as a common fund to provide for their common needs? Nature owes to all men an opportunity to maintain their lives by labour. But no man can possess a natural right to the use of a better natural opportunity than others can obtain. Hence, that part of wealth which arises from the use of a better natural opportunity than the least productive which must be used, i.e. the natural rent of land, must be deducted from the reward of individual labour, as being, ethically and economically, no part of the product of such labour, and must be put into a common fund, of which every member of society is entitled to an equal share. 

In natural rent, therefore, we found one deduction, which must be made from what might, superficially, be regarded as the product of individual labour. Just as this deduction becomes necessary owing to the extension of man’s labour in space, so another deduction must be made on account of the extension of his labour in time. As was shown in the last chapter, interest, that is natural interest, arises from the greater value possessed by goods available in the present, than that possessed by an equal quantity of the same kind of goods which only become available in the future. It remains to apply this condition to the wages of labour, separately from that already made with regard to all productive instruments. Suppose a ploughman has given a week’s labour in ploughing a field, which eight months hence will yield 800 bushels of wheat. Suppose, likewise, that this one week’s labour is exactly one-hundredth part of all the labour required to produce the wheat at the flour-mill, where it is worth 4 s. per bushel. The ultimate value of the product of the ploughman’s labour in that case is 800 x 4 s. = 3,200 s. divided by 100 = 32 s. To this value he is manifestly entitled at the time when the wheat, the produce of the joint-labour of himself and others, is available, i.e. at the end of eight months. If there were no employer, he could not justly receive more than this amount, nor could he receive it earlier. But can he be entitled to this amount at the end of the week, when his labour ceased? Obviously not, for the product of his labour and that of others, the 800 bushels of wheat, had a smaller value at the end of the week’s ploughing than eight months afterwards, when it became available, and his share, therefore, also had a smaller value at the earlier time. Hence, though the ploughman is entitled to a wage of 32 s. at the end of eight months, he cannot be entitled to 32 s. now, as, in that case, he would receive more than the present value of what his labour produces. If he will wait till the product of his labour is matured, he is entitled to its then full value; if he wants to reap now the reward of his labour, when its product is as yet immature, he cannot be entitled to more than its present value. If, instead of working for wages, the ploughman is an independent farmer, he cannot obtain the product of his labour at the end of the week’s ploughing, but is compelled to wait for it for eight months, till the harvest is gathered. The ploughman cannot be entitled to better conditions and a greater return to his labour, because he works for an employer, than he could obtain if he were working on his own account under exactly like circumstances. Suppose, then, that the general valuation of the community places 3,000 s. available now at exactly the same value as 3,200 s. available eight months hence. In that case the value of the harvest was 3,000 s. at the time when the ploughing was ended, and as this ploughing constitutes one-hundredth part of all the labour which produced the harvest, the ploughman would be entitled to the one­hundredth part of 3,000 s., i.e. he would be entitled to 30 s., that being the then value of the ultimate product of his labour. The difference between 30 s. and 32 s.—between the present and the ultimate value of the product of the ploughman’s labour—obviously belongs to him who purchases this immature product of labour with mature products, i.e. the employer who pays wages. The importance of the subject under discussion may justify, even at the risk of tediousness, the use of a further illustration, which applies the same considerations to manufactures in a more detailed manner. Taken from Bohm-Bawerk’s Capital and Interest, it has been largely modified. 

Suppose an engine to be constructed from the ore upwards by one workman, working continuously for five years, and that, when completed, the engine possesses a value of £ 550. Let it also be assumed that the labour of each year produces a result exactly equal to a fifth part of the engine. Nevertheless, the workman could not be entitled to one-fifth part of the value of the completed engine, £ 110, at the end of the first year, for the reason, that an engine ready for use now has a greater value than one exactly similar, but which will not be ready for use till four years hence. If it is assumed that the general preference for goods available now, over similar goods available at some future time, is equal to 5 per cent per annum,[42]the workman is entitled at the end of each year to no more than £ 100. The proof of this statement is found in the fact, that when paid at this rate, the workman receives in the course of five years exactly the same value as if he waited for payment till his engine was completed. 

For between the end of his first year’s labour and the date of completion of the engine, there intervenes a period of four years; between the end of the second year’s labour and completion the interval is three years; between that of the third year’s labour and completion it is two years; and for the fourth year’s labour it is one year; while the end of the last year’s labour and the date of completion of the engine coincide. At the assumed rate of preference, £ 100 received by the workman at the end of the first year, therefore, exceeds the value of £ 100 to be received by him at the end of the fifth year by 4 x £ 5= £ 20, and a corresponding excess of value adheres to each of the sums of £ 100 which he receives at the end of the intervening years. Paid £ 100 at the end of each year, the value of all five payments at the date of completion of the engine would be £ 550, i.e. exactly the same amount which he would have received if he had waited till the engine was completed and its full value belonged to him, as under :—

£ 100at5%for 4 years =£ 120
£ 100at5%for 3 years =£ 115
£ 100at5%for 2 years =£ 110
£ 100at5%for 1 years =£ 105
£ 100atcompletion =£ 100
     Total£ 550

It is clear, therefore, that the same increment which the workman would receive from the growth of the engine towards completion, he will also receive when he is paid £ 100 at the end of each year, through the excess of value which four of these sums possess at the time of payment over four-fifths of the then value of the future engine. If at the end of each year he were to receive £ 110, the fifth part of the value of the completed engine, he would receive more than the value of the completed engine by £ 55, as under :—

£ 110at5%for 4 years=£ 13200
£ 110at5%for 3 years=£ 126100
£ 110at5%for 2 years=£ 12100
£ 110at5%for 1 years=£ 115100
£ 110atCompletion=£ 11000
    Total£ 60500

If it is objected that the workman probably lacks the means which would enable him to invest these several sums so as to reap the interest, and that he wants annual payments so as to be able to live, the answer is :—

The needs of the workman for present sustenance do not lead him to place a lower than the general valuation upon present as compared with future goods. He, like everyone else, values present goods at a higher rate than future goods. A sum of £ 100 now is, therefore, in his own estimation, as well as in everyone else’s estimation, worth £ 120 as compared with a sum of £ 100 four years hence. In receiving £ 100 now, he, therefore, receives a value of £ 20 more than if he waited for four years, whether he invests that sum or not. 

Moreover, the fact that he wants £ 100 for present consumption, while his labour has not yet produced a consumable equivalent, cannot entitle him to receive, and cannot oblige anyone to pay him, more than the total value of the engine when completed. Yet, as has been shown, were the employer or other purchaser of the engine to give more than £ 100 at the end of each year, he would pay, and the workman would receive, more for the engine than the one would have to pay and the other would receive if payment were deferred till the date of completion. As no one can claim that more than the full value of the engine shall be paid when the payment is deferred, it cannot be claimed that more than its full value shall be paid when the payment is made in instalments. 

Suppose now that, if instead of one workman working for five years, five workmen, each working for one year by himself, were employed successively in the production of this engine, and that each of them produces exactly one­fifth part of the engine. In that case an injustice would be done to the first and second labourer, and an undue preference would be shown to the fourth and fifth labourer, if the value of the engine were divided equally amongst them at the end of the fifth year, each receiving £ 110. For the former would have completed their task four and three years respectively before they received payment, while the last worker received his immediately on completion of his work. A fair division of the product of their joint labour must take this difference of time into account. At the assumed rate of preference the division, therefore, ought to be :—

First labourer ———————————————— £ 120
Second labourer ——————————————– £ 115
Third labourer———————————————– £ 110
Fourth labourer———————————————- £ 105
Fifth labourer————————————————- £ 100
Total£ 550

On the other hand, it is impossible for each of these labourers to get £ 110 immediately his task is done. For, as has already been shown, the total payment made for the engine would in that case be £ 605, or £ 55 than its assumed value. 

Let us, however, introduce a capitalist who will pay for the engine in yearly instalments, and who is anxious to pay its full value and to treat all the workmen equally. Seeing that a just scale of division between the workmen, in his absence, will yield to the last workman £ 100 on completion of his share of the work, the capitalist will treat him with absolute fairness by paying him this amount. Inasmuch, however, as the other workmen have contributed no more skill and exertion to the completed engine than this one, they cannot be entitled to a larger payment for the result of their labour on the completion of their task than the last workman is entitled to on the completion of his task. Therefore, each of the other workmen is also entitled to no more and no less than £ 100 at the end of his task. In this way not only equality of treatment for each, but absolute fairness to all is preserved. For inasmuch as the several payments are made at different periods before the completion of the engine, each payment of £ 100 stands in a different relation of value to that of the completed engine, and represents, at the completion of the engine, the same value which would have accrued to each workman from a just division if no employer had interfered; as under. Beginning this time with the last labourer, we find :—

Labourer5=£ 100 = £   100
Labourer4=£ 100at 5% for 1 year= £105
Labourer3=£ 100at 5% for 2 year= £110
Labourer2=£ 100at 5% for 3 year= £115
Labourer1=£ 100at 5% for 4 year= £120
    Total £550

The capitalist, by paying to each labourer £ 100, therefore, takes nothing from anyone of them to which he is entitled. What the former gains is the increment in value which accrues to the engine in its growth towards maturity, and which would have been gained by some only of the labourers, not as labourers, but as capitalists, had they been capitalists as well. The capitalist is entitled to this increment because he exchanges goods of present utility for something, which will acquire utility at some future date. 

This function of the employer—the fact that, apart from organising and directing labour, he is a lender; that, as such, he purchases from the labourers employed by him as well as from those who produced the implements and materials used by the former, a greater quantity of goods of present low value with a smaller quantity of goods of present high value—is generally overlooked. Yet it is this function which entitles him to receive interest. With goods capable of satisfying present wants, he purchases goods, which can only satisfy future wants, through the application of more labour. He waits till the product of labour ripens into full value, and in the meantime gives to labour, under natural conditions, the full present value of its product, in goods which have already ripened into usefulness. As labour in the present cannot be entitled to more than the present value of its product—to more than it can obtain in the absence of any employer—natural interest is no deduction from the legitimate wages of labour, because it forms no part of the product of labour. 

What, then, are the factors which, under the existing co-operative system of production, regulate the individual wages of labour under these just conditions, when, monopolies being abolished, natural rent goes to the community, and natural interest to the owner of capital. In Part II. chapter iii, it has been shown that lengthier processes of production yield increased returns. Against this advantage must be placed the disadvantage of increased interest-charge. The advantage may be equal or greater than the disadvantage, but it is reasonable to suppose that if it were less, the lengthier process would not be adopted. Take now a tradesman who is in a position either to enter upon a four years’ process by himself or on a two years’ process if he engages another workman to assist him. Let the product of their joint labour possess a value of £ 416 at the end of the two years’ process, or equal to an average wage of 40 s. per man and week, while that available at the end of the four years’ process by one man is £ 520, or an average of 50 s. per week. If the employer now pay to the workmen, on the termination of the two years’ process, one-half of the product of their joint labour, each of these two workers will receive £ 208. 

If, however, this tradesman works by himself in a four years’ process, he will, at its termination, become possessed of £ 520, which divided by two would be equal to £ 260 at the end of a two years’ process. For each of these two periods of two years the employer would thus receive £ 52 more than if he had engaged an assistant and had paid him the full product of his labour. It, therefore, would be more to his advantage to work by himself on the longer process, and this, therefore, he would undoubtedly do, unless some worker were willing to accept as much less than the full product of his labour as would yield the same advantage to the employer. 

This example shows that, even under absolutely just and natural conditions, employers can secure for themselves not only interest, but also all the advantages which result from the extension of processes. The power to do the latter, however, does not, under such natural conditions, come to the employer as an employer, but as a workman, for, as will have been seen, it arises from his ability to employ all his capital by his own labour. The capitalist-employer cannot so employ his capital. In the absence of monopolies he cannot obtain any income from the bulk of his capital unless it is employed productively by other men’s labour. This fact profoundly influences the relation between capitalist-employers and labour under natural conditions. For under such natural conditions, land being free, large numbers of labourers could employ themselves if the conditions of capitalist-employment did not suit them. They, therefore, would not agree to enter the service of an employer unless they could earn at least as much as if they employed themselves.

Suppose, then, that a good proportion of workmen possess sufficient means to employ their own labour in a two years’ process, yielding at the end of that period an average return of 40 s. a week; that more labourers possess enough for one year’s process, yielding on its completion 2 s. a week; while the remaining workers can only employ themselves in shorter processes, yielding say 12 s. 6d. a week, or cannot employ themselves at all. Suppose also that capitalist processes vary in length, but average six years, yielding an ultimate product averaging 5 s. per week and workman. What would be the rate of wages under these conditions? 

The employers, unable to obtain sufficient labour otherwise, would be compelled to induce some of those who can independently earn an ultimate wage of 40 s. per week to enter their employment. These men, however, could not be induced to do so, unless at least the equivalent of that amount were assured to them. The lowest rate which they could be induced to accept would, therefore, be, say 38 s. 6d., payable at the end of each week, this being equal to 40 s. a week payable at the end of two years. This is the minimum, which they will accept. Inasmuch, however, as all other workmen, who are earning less than these, are also required by the employers, all these would and could insist upon receiving the same rate of wages, and this rate, therefore, would be the minimum rate for all workmen. 

On the other hand, the maximum rate, which employers could pay would be 48 s. 6d. payable weekly, as, this being the equivalent of an average of 55 s. per week available at the end of six years, they would otherwise pay more for labour-products than their value at the end of each week. Hence the average wages of labour under these conditions could not fall below 38s. 6d. per week, and could not rise above 48s. 6d. per week. Within these limits they would be determined by the pressure of the stronger party, and that party is labour. For labourers could employ themselves, while capitalists cannot themselves employ their capital. If no agreement were arrived at, labourers could earn an independent income, but capitalists could obtain no income from their capital. Hence wages must rise to the maximum 48 s. 6d., and every extension of processes, every invention and every discovery, would enable labour to enforce a further increase in its wages, absorbing all the advantages of industrial progress and of a declining rate of interest. 

What has here been demonstrated is :—

1. That natural rent and natural interest are not deductions from the produce of individual labour or from the wages due to the individual labourer. 

2. That under natural conditions, i.e. when State­created monopolies are abolished, every labourer would be assured of receiving from the capitalist-employer, as his wages, the full product of his individual labour, and that, in addition, he would possess an equal share with all others in the produce of the common labour, the natural rent of land. 

When, however, the natural conditions, here presupposed, are superseded by artificial conditions based on private ownership of land, the position of labour is profoundly altered. 

The warping of the moral sense of the community and the obscuration of true economic principles, which arise from the existence and toleration of the all pervading monopoly in land, give origin to other and secondary monopolies. Some of these are merely land-monopolies in disguise, such as franchises which allow the exclusive or privileged use of city streets for industrial purposes, or which give exclusive rights-of-way, as in railways. Others, like protective monopolies and the resulting rings and trusts, are not connected directly with land-monopoly, but could never have been established if the economic knowledge of the people had not been obscured by its existence. Many secondary monopolies, therefore, are part and parcel of the monopoly of land, and all others are indirectly promoted by it. Every monopoly exacts tribute from the workers of the community in the shape of spurious rent or spurious interest, which they pay either in their capacity of producers or in that of consumers, or in both these capacities. 

Before entering upon the detailed demonstration of the evil consequences of monopolies, it may not be useless to point out, that it is a matter of indifference to labourers in which of these ways their wages are curtailed. Whether money-wages fall from 40 s. to 30 s. a week, i.e. 25 per cent, or whether the price of all the things which the labourers buy with their wages experience an average rise to the same extent, has exactly the same consequences for them. Similarly, a fall in prices has the same influence on their wellbeing as an equivalent rise in wages. For the real wages of labour do not consist of the stamped and lettered pieces of metal or paper which the labourer receives at the end of a week, a fortnight, or a month. They consist of the sum of goods and services, which his wages can procure for him. Real wages, therefore, increase, and increase largely without any rise in money-wages, if prices fall; and, similarly, real wages fall, without any reduction of money-wages, if prices rise.—All monopoly-prices, therefore, involve a real reduction of wages. 

Similarly, the social possession of natural rent may enormously benefit the workers, apart from any consequent rise of wages, if its use for social purposes relieves them of existing taxation on the goods which they buy, and brings within their reach satisfactions which they do not now enjoy. 

In Part II. chapter viii, it has been shown that private ownership of land affects labour directly in three ways :—

1. By absorbing their equal share in the social wealth represented by natural rent, and thus compelling taxation, which directly reduces wages by increasing the prices of the necessaries and comforts of life. 

2. That, by lowering the margin of production, it lowers the aggregate labour-result of the community. 

3. That this artificial lowering of the margin of production produces a spurious rent, which constitutes a direct deduction from the wages of individual labour. 

Far-reaching as these direct influences of land-monopoly are, they are rivalled in importance by its indirect influence. Under natural conditions, when the land is not monopolised, labourers can employ themselves. As has already been shown, the advantage in bargaining with the capitalist-employer then rests with the labourers. 

The importance of this factor is fully illustrated in new countries. In such countries capital is scarce, transport difficult, and owing to scarcity of population, the division of labour incomplete. The produce of labour, therefore, is on the average far less per labourer in new countries than in older countries. Nevertheless the wages of labour are on an average higher, and generally much higher. The reason is, that the low price of land and the easy conditions on which it can be obtained, enable so large a proportion of the existing labour-force to dispense with employers and to produce on their own account, that capitalist-employers must bid high for labour. 

Where, however, all the land, or all the more productive land, has passed into private ownership, there may be any amount of unused or only partly used land, yet labour cannot obtain any of it except on conditions with which but few labourers can comply. Hence their power of employing themselves is gone, they are placed at the mercy of employers, and must accept lower wages than they otherwise would consent to. Not only the landlord is now cutting into the legitimate wages of labour, not only is interest unnecessarily high, but the privileged employer also is able to appropriate part of the legitimate wages of labour. The latter now frequently gets more than legitimate interest. Apart from any legal monopoly which he may possess, and in addition to the legitimate wages of superintendence, he now frequently obtains a further increment. 

This increment, which we may term profit, is itself of a composite nature. It consists partly of exceptionally high wages of superintendence, arising from partial monopoly of the opportunities for acquiring the necessary qualifications; partly of the advantages which arise from discoveries and inventions equally applicable to all land; partly of the advantages which arise from the fact, that rent, advancing through competition, frequently lags behind the progress in arts and sciences when the latter is continuous. Where this is the case, some of the advantages even of discoveries and inventions which are applicable to particular land alone and which have been generally adopted, remain for a time with the undertakers. All these would go to labour were labour independent; they go to the employing capitalist when the labourer’s independence has been destroyed. 

Other monopolies, exercising their wage-lowering influence upon labour directly in its capacity of consumer, do so indirectly in labour’s capacity of producer as well. They enable the owners of the monopolies to raise the price of the goods, which they sell or of the services which they render, over and above what these prices would be under competitive conditions. The workers, paying these higher prices, thus lose part of their wages. A given amount of money-wages now buys less of services and goods. But inasmuch as the vast majority of purchasers (consumers) are workers for wages, this reduction in the purchasing power of wages involves a large reduction in production as well. Goods, which cannot be consumed, will not, in the long run, be produced. Therefore employment is largely curtailed, the already one-sided competition of labourers for employment is increased, labour is placed at a further disadvantage with regard to employers, and a further fall in the rate of wages must ensue as an indirect consequence of the rise in prices which monopoly enforces.

Thus, whether labour is deprived of its natural wages by a lowering of money-wages through the influence of land-monopoly, or whether the deduction arises from an increase of prices through the action of other monopolies, the result is the same. In either case the vast majority of the people are compelled to consume less than they produce, and, unless an equivalent increase of consumption takes place amongst the appropriating classes, an army of unemployed men, an increase of the competition between labourers for permission to work, a still further fall in wages, and a general lowering of the condition of the masses of the people is the inevitable result.

The counteracting tendency above alluded to, the equivalent increase in the consumption of the rich, however, fails to arise. Primarily, the wealth, which any man obtains consists in goods, the produce of labour. This holds good of millionaires and proletarians alike. The tribute, which a monopolist exacts from labour consists of goods made by these labourers and of nothing else. If the owners of these tribute-rights were willing and able themselves to consume the goods which they take from labourers, the evils of monopoly would be much reduced. It would still involve the injustice that the makers of wealth are deprived of a large part of this wealth, but the consequences of this injustice would be far less disastrous. Unfortunately, however, the monopoly-owners will or can consume these goods only to a limited extent: The less wealthy among them want to become more wealthy, and the wealthier ones are animated by the same impulse, though they cannot possibly consume the whole of their incomes. Both these sections, therefore, save a considerable part of their incomes, i.e. of the goods which they claim from labour. There are, however, only two ways in which wealth can be saved to a large extent and for any length of time. One is, by the multiplication of factories, railways, steamships, and other forms of pro­duction-goods. Much of the wealth so saved is wasted, but the larger part of it is usefully employed in extending the roundabout process of production and consequently increasing the product of labour. But this increase in the product of labour is not accompanied by an adequate increase in the consumptive power of labour, i.e. the wages of the additional labourers employed still fall short, and far short, of the value of the additional goods produced, and, hence, there is an increase in the under-consumption previously existing. 

The only other way in which wealth can be saved to its owners is through the creation of new monopolies or the extension of existing ones. Here there is either no additional production—as when rent rises through lowering the margin of production—or a comparatively small increase only. But there arises from this process a further contraction of the consumptive power of labour. For every such creation or extension of monopoly increases the tribute which labour must pay to its owners, and, therefore, reduces the wealth which it otherwise could retain for its own consumption. Hence there must arise, here also, an increase in the previously existing under-consumption of goods. 

It follows that periods must arise, from time to time, when a further saving of goods becomes impossible, i.e. when no additional capital can, for the time being, be employed profitably in industry, and when, for the time being, no more monopolies can be created. What becomes then of the vast amount of goods which the appropriators will neither consume themselves nor permit labour to consume? They cannot be destroyed or in any other way got rid of at once. Therefore their existence clogs the wheels of industry; further production must be curtailed till they are consumed gradually. This is what is called a commercial crisis: factories and workshops close; labourers must starve or live upon the scanty doles of charity; traders and manufacturers must go through the Bankruptcy Court, until the gradual diminution of this accumulation of goods once more allows the wheels of industry to revolve and labour to be employed. 

It is not here asserted that this under-consumption is the only possible reason for commercial and industrial crises. There have been crises, which owed their origin to the fact that more capital than could be spared for the purpose had been invested in processes of long duration, to the neglect of the more immediate wants of the community. But such crises have been rare. The vast majority of these disturbances are due to the cause here described, and they are becoming more and more frequent. Nor can it be otherwise. Every such crisis, in weeding out weaker competitors, favours the concentration of wealth in fewer and ever fewer hands. Every such increase of concentration adds to the amount of wealth that will be saved unnecessarily, by reducing the draft ‘upon this wealth through the consumption of its possessors and their con­tribution to the revenue of the State, and must consequently hasten the advent of the next crisis. 

These convulsions, however, merely mark the culmination of forces constantly at work, just as earthquakes or volcanic eruptions are the result of seismic forces constantly active. For even during the interval between two crises, even during those periods of feverish industrial activity which now and then arise, much capital and many labourers remain unemployed. The tendency towards under-consumption once established, imposes caution upon the employers of labour. Only the more active and reliable labourers are employed at any time, and every crisis adds to the number of those no longer in the race. Simultaneously a number of workers are employed for part of the working time only, and the increasing difficulty of finding profitable investment for savings adds to the number of both classes even in times of comparative prosperity. 

This, then, is the sequence of events. The creation of legal monopoly-rights concentrates wealth in the hands of a comparatively small class through the tribute which these rights enable them to impose upon the wealth-makers; the consequent reduction in the consumptive power of the majority of the people is not compensated for by either the consumption or the savings of the appropriating classes; hence arises under-consumption, scarcity of employment, the rise of an ever-increasing unemployed class, and those recurring industrial convulsions which we term commercial crises. To the creation of legal privileges, especially to the privilege of private ownership of the only source of wealth, the land upon and from which all men must live, must, therefore, be traced the industrial and social injustice which disfigures our civilisation, and not, as Socialism posits, to the private ownership of real capital and the private conduct of non-privileged industries. 


THE foregoing examinations prove, that surplus-value is not a homogeneous body, as Socialism posits, but a compound of several elements, differing widely in character, viz. :—

Natural Rent, the result of the extension of labour in space. 

Natural Interest, the result of the extension of labour in time. 

Spurious Rent, arising from the creation by the State of private ownership in land. 

Spurious Interest, arising from the creation by the State of other monopoly-rights. 

Profit, a secondary result, arising from the creation by the State of land and other monopolies. 

In their origin, these five integral parts of surplus­value fall thus into two categories, viz. those arising from natural law, and those arising from the corporate action of human society. In their influence upon society and the distribution of wealth, however, they fall into three classes, viz. :—

Natural Rent, as being no part of the product of individual labour, and, therefore, forming no deduction from individual wages, but being part of the common labour and wages of the whole community.

Natural Interest, as being no part of either individual labour or of that of the community as a whole, but a natural increment which the capitalist acquires only in so far as he renders services by exchanging goods of present high utility for goods which will acquire such utility at a future date. 

Spurious Rent, Spurious Interest, and Profit, being part of the product of individual labour and deducted from the wages of labour without any service being rendered in return. 

Arising from natural law, natural rent and natural interest never can become the property of individual labourers as labourers. Natural rent must always go to the owner of land, and natural interest to the owners of capital. No action which human societies may take can alter the immutable laws of nature. All that human enactments can do, is to change the ownership of land and capital, so that rent and interest may be reaped by the new owner or owners. When, therefore, Socialists demand the abolition of rent and interest, they demand an impossibility. The adoption of their industrial programme to its fullest extent, the ownership of all land and capital and the conduct of all industrial operations by the State, would utterly fail to abolish rent and interest; all it could do would be to change the incidence of ownership in rent and interest. The rent of all agricultural and mineral land, as well as that of factory sites, would pass into the hands of the State by virtue of their being used as well as owned by the State; but unless the State continued to charge rent for the more desirable residential areas, such rent would still be received by those private persons who were permitted to use them, in the advantage which they would enjoy over others. Interest would similarly continue to arise, and if the State did not itself absorb it in some way for the equal benefit of all—which will be shown to be impossible—it would pass into the hands of some of the people only, those engaged in the primary stages of every productive process. Moreover, while the latter method would eventually result in a reduction of the wealth which could be distributed to and consumed by the mass of the people, the former, the charging of interest by the State, even if it could be done, would not necessarily lead to any increase of wealth available for the consumption of the whole people. For with growth of population arises the necessity for a continuous increase in the amount of capital. This increase is at present provided mainly out of that part of the annual product of industry, which constitutes surplus-value. If the State becomes the only capitalist, the annual increase of capital will have to be provided for out of the annual product of industry just the same, and may, not unlikely, be equal to the sum of natural interest now going to the owners of private capital. Even, therefore, if the total product of the national industry were not diminished by the substitution of State officials for private organisers of industry, the deduction of new capital from this product would leave no more, or little more, available for general consumption in the most favourable but impossible case, the reaping of interest by the State. When, however, the State leaves interest in the hands of some of the people, and at the same time prevents them from using it as capital, which under Socialism is the only alternative, the deduction of a further amount from the product of industry for providing the necessary new capital must by so much reduce the amount of wealth available for distribution and consumption, and must, therefore, largely reduce the well­being of all labourers engaged in the final processes of production. 

It has been shown that the landowner, receiving rent for the use of opportunities which are available without his existence, and to the creation of which he has either not contributed at all or only as much, when a labourer, as every other labourer, has not rendered and does not render any service for the wealth which he is allowed to appropriate. On the other hand, it has been made equally clear that the capitalist, as capitalist, and apart from any services which he may render in the actual organisation of industry, receives natural interest for services which he renders, and which are of the utmost importance. In subsequent chapters it will be shown that such service cannot be rendered by State officials with similar efficiency, if at all. Apart from this question, however, seeing that such services are rendered, the enjoyment of the reward by those who render them fundamentally differentiates natural interest from natural rent. The possession of the latter by private persons, its withdrawal from the common possession of the social body as a whole, constitutes a series of ever-recurring and increasing acts of injustice to the mass of the people. The enjoyment of natural interest by private persons withdraws it from no one who has any title to it, and therefore inflicts no injustice. 

Moreover, while it has been shown that the private possession of capital and interest inflicts no injury on the social body, it has been equally shown that the private ownership of land and the private possession of rent, as well as that of other monopoly rights and tributes, does inflict such further injury by the augmentation of surplus­value through deductions from the wages of individual labourers, viz. Spurious Rent, Spurious Interest, and Profit. All these have been shown to arise, not from private ownership of capital and the private conduct of non­privileged industries, but from the creation by the State of private ownership in land and other monopoly-rights; and, further, it has been shown that, while rent increases with the progress of society, the rate of interest declines as social conditions are improved. 

For all these reasons a sharp distinction must be drawn between these two kinds of property, their social influence and ethical validity. While private property in one is wholly justified, not injurious, and may be of incalculable value to the wellbeing of society, private property in the other is wholly unjustifiable, injurious in itself, and productive of vast secondary injuries. On economic grounds, those mainly considered in the foregoing examinations, therefore, the appropriation by the State of rent—which, as will be shown, carries with it the abolition of private ownership of land, but not that of its private possession and use—and of those industries which cannot be carried on by private persons without the grant of special privileges by the State, as well as the abolition of all other monopoly-rights, is urgently called for by the vital interests of society; while, on the same ground, the appropriation of capital and interest by the State, and the State conduct of non-privileged industries, is wholly indefensible. 

That ethical considerations lead to the same conclusions will be more fully shown in the succeeding division of this work, Part III. 

The economic conceptions, which serve as the scientific basis for the industrial proposals of Socialism, are, therefore, shown to be unscientific and untenable. Distinctions, which are of vital importance are disregarded; accidental similarities are mistaken for proof of congruity; things essentially different are treated as of the same kind, and, as a consequence, the cause of existing economic evils is sought for in a false direction. The defects from which these conceptions suffer and which invalidate them are :—

1. Drawing no distinction between real capital, the produce of labour from land, and mere monopoly-rights, the creation of legislative enactments. 

2. Regarding surplus-value as a homogeneous mass, consisting wholly of tribute levied from the product of labour. 

3. Regarding productive labour as the only title to the possession of wealth, thus disregarding the fact that the voluntary transfer of wealth by its producer for service rendered gives a valid title to him who has rendered the service. 

4. Regarding all capital as the result of theft, and attributing the power to exploit labour to the private possession of capital. 

5. Regarding the present pathological condition of competition as its physiological condition, a conception the erroneous nature of which will be further demonstrated in the next chapter. 


IN former chapters it has been shown that the socialist contention of the failure of competition, the assertion that the inherent tendency of free industry is towards the displacement of competition by monopoly in so far as employers are concerned, is a delusion. It has been proved that nearly every kind of monopoly can be traced to some form of legal restriction, to legislative interference with the equal rights of all men, by the creation of special privileges for some, i.e. to legal limitations of competition. 

There remains, however, the further contention, that industrial competition, qua competition, is the cause of the exploitation and degradation of the labouring masses, a contention which challenges an inquiry into the nature and function of competition. No such inquiry has ever been instituted by socialists, who content themselves with asserting the inherent wickedness of the competitive process. Yet such an inquiry alone can determine whether the evils which to-day result from competition are due to competition as such, and are ineradicable, or whether they result from some interference with competition, and can be eradicated by the removal of such interference. 

That competition is not an arbitrary human invention, but an inherent necessity of life, is shown by the fact that it secures the maintenance and evolution of life throughout all nature. The welfare of any organism depends upon a due proportion between its several structures and their respective functions, and this due proportion is secured by the competition of the several structures for nutriment.  

Every structure receives a supply of blood in proportion to its activities. If the performance of function is defective, the supply of blood which it receives falls off and the structure deteriorates; if the performance of function increases, the supply of blood increases and the structure develops. This competition of the several parts of an organism for nutrition, therefore, secures that balance between the relative powers of all its structures on which depends the efficiency of the entire organism, as well as that constant adjustment of structures—some dwindling, others growing—by which the organism adjusts itself to changes of conditions. 

This principle of self-adjustment through competition within each individual is paralleled by the principle which enables a species as a whole to adjust itself to the conditions under which the life of its members must be carried on. For this adjustment likewise depends upon each individual being supplied with food according to the activities which it puts forth. Only if the individuals whose structures and consequent activities are best fitted to surrounding conditions receive larger benefits, and those less fitted receive smaller benefits or suffer greater evils, can there arise the survival of the offspring of the best fitted, inheriting these parental traits by which the ultimate adjustment of the whole species is secured. This adjustment, therefore, depends upon a competition of individual with individual, similar to the competition of structure with structure within each individual, by which reward is proportional to merit, leading to the ultimate extinction of those least able to compete. 

Likewise the evolution of lower types into higher types is made possible only by due apportionment of reward to merit through competition. Variations of structures can become fixed only when they are serviceable, i.e. if they secure to their possessors a better chance of obtaining food or safety, and, consequently, of leaving offspring similarly varying from the original type. For the better nutrition, prolonged life, and greater power of propagation which come to the members of the more highly evolved species, lead to the displacement of similar species the structures and consequent faculties of which are less adapted to their needs. Once more, therefore, competition, securing due reward to merit, subserves the purpose of life, by causing the development and securing the persistence of attributes, physical, mental, and moral, which distinguish higher types from lower types. 

Throughout the industrial part of human society, competition achieves a kindred apportionment of reward to merit, securing kindred results. A vital difference, however, must be pointed out. While merit in sub­human species consists mainly of self-subserving activities in the relation of unmated adults with each other, merit in the industrial relations of men in the social state consists solely in other-subserving activities. For the essence of the social state is that voluntary co-operation which results from the exchange of service for service; and the meritoriousness of any industrial act, therefore, is measured by the amount of service which it affords to others. Merit consisting in service, the reward of merit in the social state, must, therefore, be proportioned to service rendered. That any industrial agency—industry, trade, or profession—flourishes or decays under the stress of competition according to the degree in which it supplies felt wants, i.e. renders services, needs no proof. What needs to be proved here, because generally overlooked by socialists, is, that under the stress of competition every industrial agency is impelled to put forth the greatest activity, i.e. render the greatest service in return for the reward which it receives; as also, that within each of these agencies competition impels every individual to do the same, and allots to each of them a reward equal to the services which he renders. 

Two kinds of industrial competition are conceivable. One is that in which the number of prizes is smaller than the number of competitors, and where, therefore, some com­petitors cannot obtain any prize. In the other, the number of prizes is equal to the number of competitors, but the prizes vary in value, and competition, therefore, merely determines the value of the prize which shall fall to each competitor. Both these forms of competition are in existence. 

Architectural competition furnishes an example of the first kind. A public building is to be erected and a prize is offered for the best plan. One architect only can gain the prize, yet nothing but good results from this, the most onerous kind of competition; for not only are all the competitors stimulated to the exertion of their artistic faculties, but the object for which the competition is instituted, the best plan, cannot be attained with similar certainty by any other method. 

The second kind of competition, that in which competition merely decides the value of the prize which shall go to everyone of the competitors, and in which no single competitor need go without a prize, while obviously less onerous, is of far greater importance. In order to fully and clearly elucidate the principles, which determine this form of competition under natural conditions, it is advisable to study its action as it operates on various classes. 

Every medical man is constantly competing with other medical men as to which of them shall gain the confidence of the greatest number of patients. He to whom the greatest number give their confidence will be able to charge the highest fees and to collect the most remunerative practice. But the fact that the services of one surgeon or physician are valued by the public at £ 10,000 a year, does not prevent other surgeons or physicians from earning an income. The income of every medical man is determined by the competition of doctors for patients and patients for doctors, and is exactly equal to the value which the public places upon the service which each of them can render. 

The community, however, wants the services of a limited number of doctors only, and nobody can tell what this number is. When disease is rife more doctors are wanted than at times when the state of public health is normal. Some doctors, therefore, may earn a decent income sometimes, while at other times they will fail to do so, and these will be precisely those doctors on whose services the public places the least value. If there are, however, more medical men than the public wants at any time, those whose services are regarded as least valuable never can make an adequate income as medical men. These, therefore, will be compelled, sooner or later, to devote their faculties to the rendering of some other service which the community requires, and for which these fit them better than for the practice of medicine. 

What is true of medical men is equally true of all professions in the absence of monopoly. In the long-run every professional man will be paid in accordance with the value which the community places on his services; those whose services are regarded as least valuable and are in excess of public requirements will have to leave the profession in which their services are not required, and will enter on some occupation in which they are useful; the community is assured of always receiving the best professional service which can be rendered; and the mechanism which assures these beneficial results—results which could not be obtained in any other way—is competition. 

If it be now objected that the judgment of the community is not always right, that among the professional men whose services are accepted there may be some less fit than some of those whose services are rejected, the objection must be admitted to be true. That a human agency is not perfect, however, will not cause it to be rejected by reasonable men, unless a more perfect agency is available. Which is the agency more perfect as a selector than the estimate of the whole community? If it is replied that this more perfect agency is a governmental body, socialistic or otherwise, the obvious answer is, that the units composing this body must themselves be selected by the community; that if the judgment of the community is unreliable when each man deals with what directly concerns his own welfare, it must be infinitely more unreliable when each man deals with what only indirectly affects his own welfare, i.e. when all join in the selection of the men who are to select all the professional and other men who shall supply public wants. Competition, therefore, while not infallible, is yet far less fallible than any socialistic substitute in the selection of the fittest men for the services expected of them.

The principles set out above also guide the competition of other classes. Take that of manufacturers, and as an example that of manufacturers of boots. The one who produces the best boots at the lowest price, i.e. who renders his services against the smallest sacrifice on the part of the community, will, in the long-run, have the largest output, and will earn the biggest income. Unfortunately for the community, however, he cannot supply all the boots required. Therefore other and inferior manufacturers must be employed. These will earn incomes less than that which falls to the best manufacturer, but which in every case correspond to the value which the public places upon their services. If, however, there are more boot-manufacturers than the community requires, some must go without incomes, or must devote themselves to some other occupation in which their services are required. The men so weeded out will in the long-run be the least capable manufacturers of boots. Here again it is competition which secures to the community the best service, and which transfers to useful occupations those men who otherwise would lead lives useless to the community. 

These considerations obviously apply with equal force to all manufacturers, merchants, shopkeepers, farmers, and other employers of labour. They, however, are no less applicable to their employees, workers for salaries or wages. As an example, boot-operatives may be selected. The community wants each year a certain but varying quantity of boots. Therefore a certain number of employers set up boot-factories and want a certain number of operatives to assist them in making boots. They offer a certain wage to attract these operatives. Three cases are possible under natural conditions. If the wages offered are lower than those ruling in other industries requiring similar skill, the number of operatives attracted to the boot-factories will certainly be insufficient to supply all the boots required. If equal wages are offered, the number may still fall short of requirements. Higher wages will attract a sufficient number. 

As long as the number of operatives is less than, or just equal to, the requirements of the market, there will be produced less than a sufficient or just a sufficient quantity of boots, and the competition of buyers for boots will be greater or equal to the competition of boot­sellers with each other. In the former case prices will rise, factories will be enlarged or increased in number more operatives will be required, and wages will rise. In the other case prices will be stationary, and so will be the demand for and the wages of boot-operatives. The only competition which in both these eventualities can exist among boot-operatives is, as to which of them shall render greater services and earn higher wages than others, but none of them need go without wages in the boot­trade. Competition merely assures the result that reward shall be commensurate with services rendered. 

Suppose, however, that either through a miscalculation as to the number of boot-operatives required, or through the introduction of labour-saving apparatus, the number of the former exceeds the requirements of the community. In that case some operatives will be compelled to leave the boot-trade and to enter upon some other occupation. Who shall these be, the best or the worst bootmakers? The interest of the community manifestly requires that it shall be the worst, those least fitted to make boots. Competition again ensures this beneficent result. The worst operatives will be unable to obtain further employment as bootmakers, and will, therefore, be compelled to render some other service, which the community wants and for which they are better fitted than for bootmaking. 

So far the examination of competition has not revealed any evil results. This examination has, however, been made under the assumption of a condition which does not exist in the real life of to-day, viz. that all those who are in excess of the number required in any trade or profession will be able to find employment in some other occupation for which they are better fitted. This they undoubtedly could do, provided there were not enough labourers in some other occupations. When, however, this condition is absent, when the demand for labour generally falls short of the number of men seeking employment, some men will be unable to find employment anywhere, and the conditions under which competition proceeds are thereby profoundly altered. Observe, however, that it is not competition which has caused this scarcity of employment, but that, on the contrary, it is this scarcity of employment which produces the alteration in the character of competition which now must be investigated. 

So far competition has been seen to produce these results :—

(a) To assure to the community the best services in the satisfaction of its wants with the least sacrifice on its part.

(b) To secure to every worker a reward commensurate with the value which the community places on his services. 

(c) To weed out of every trade and profession the men whose services therein are superfluous and least valuable, and to transfer them to occupations where their services are more valuable to the community. 

If, however, no other occupation is open to the men so weeded out, all this will be profoundly altered. For in that case, instead of leaving the trade in which they are superfluous, these men are compelled to underbid labourers better fitted for the work than themselves. If, for instance, the best worker in a trade is worth 10 s. a day, and the worst worker actually employed 8 s. a day, employers will generally prefer the 10 s. man, if these wages are insisted upon. If, however, some unemployed man, nearly equal in efficiency to the worst man actually employed, offers to work for 6s. a day, the wages of these other labourers must fall to, at the highest, 6s. 6d. and 8s. 6d. respectively, or the inferior labourer will be the cheapest worker. This competition of workers who under existing conditions cannot be employed, now reduces the wages of all workers. But inasmuch as the employment of labour is principally determined by the consumption of that vast majority which labours for wages, it follows, that every reduction in wages, reducing consumptive power, must still further reduce the opportunities for the employment of labour. Competition has now ceased to be beneficial; it now is a scourge which flays the backs of the vast majority of mankind, and which, unless it were counteracted by other tendencies, would speedily reduce them to a state of abject poverty. 

Yet, to regard this result as a cause; to saddle competition with the consequences, which flow from scarcity of employment; to demand the abolition of competition instead of demanding the abolition of the causes which, by creating scarcity of employment, distort the action of competition, is a manifest absurdity. 

State-created monopoly, which has been shown to be the cause of low wages and of consequent scarcity of employment, is the dam, which has been erected across the stream of industry, the waters of which, directed by the force of competition, would otherwise bring fulness and plenty everywhere. 

To rail at the failure of the distributive machinery to fulfil its purpose, when that failure, unjust distribution, is obviously due to interference with this machinery, is pure childishness; more childish still is it to prescribe further interference as a remedy for the evils arising from existing interferences. Abolish the dam of State interference with men’s equal rights, the special privileges accorded to some, and competition, restored to its normal condition, will distribute the fruits of industry to the door of everyone who takes part in it in proportion with the services which he renders, and will raise the reward of each to the highest point which the existing skill, knowledge, and industry of mankind makes possible. 

[1]The theories of Rodbertus are traced to French, and those of Marx to English sources, by Anton Menger, The Right to the Full Produce of Labour

[2]Capital, p. 6; see for full quotation. Part 1. chap. i.

[3]Capital, p.6. 

[4]Ibid. pp. 11, 12

[5]Ibid. p. 80.

[6]Capital, p.6. 

[7]Ibid. p. 7.

[8]Capital, p. 149. For fuller quotation see Part I. chap. i.

[9]“English socialists are by no means blind worshippers of Karl Marx. Whilst recognising his valuable services to economic history, and as a stirrer of men’s minds, a large number of English socialist economists reject his special contributions to pure economics. His theory of value meets with little support in English economic circles, where that of Jevons is becoming increasingly dominant.”—Socialism in England, by Sidney Webb, pp. 84, 85.

[10]“The theory of value has a different history. Like the rainbow theory, it began by being simple enough for the most unsophisticated audience, and ended by becoming so subtle that its popularisation is out of the question, especially as the old theory is helped by the sentiments of approbation it excites; whereas the scientific theory is ruthlessly indifferent to the moral sense. The result is that the old theory is the only one available for general use among socialists. It has accordingly been adopted by them in the form (as far as that form is popularly intelligible) laid down in the first volume of Karl Marx’s Capital.”—”The Illusions of Socialism,” by Bernard Shaw, in Forecast of the Coming Century, p. 164.

[11]“Possibly if Jevons had foreseen that his theory would make Socialism economically irrefutable his scientific integrity might also have gone by the board.”—Socialism in England, by Sidney Webb, p. 106.

[12]Jevons, The Theory of Political Economy, 3rd edition, p. 53

[13]Free rendering of example in A Positive Theory of Capital, by Prof. von Bohm­Bawerk. 

[14]Smart, Introduction.

[15]“When we consider what is usually called capital, we are at a loss to disentangle it from land, as we are to find land which does not partake of the attributes of capital.”—Fabian Tract No. 7, Capital and Land.

[16]“I know that it has been sometimes said by socialists: ‘Let us allow the manufacturer to keep his mill and the Duke of Argyle to keep his land, as long as they do not use them for exploitation by letting them out to others on condition of receiving a part of the wealth created by these others … ‘Unluckily there are no unappropriated acres and factory sites in England sufficiently advantageous to be used as efficient substitutes for those upon which private property has fastened.”—Fabian Essays, pp. 139, 140.

The petitio principii, substituting “factory sites” in the second sentence for “mills” in the first, is a sleight-of-hand, characteristic of the manner in which prominent socialists endeavour to obscure the land question.

[17]The General Formula for Capital, vol. i. Part II. chap. iv.

[18]The italics are ours.

[19]Capital, p. 792.

[20]“As sin when it is finished is said to bring forth death, so capitalism when it is finished brings forth monopoly. And one might as well quarrel with that plain fact as blame thorns because they do not produce grapes, or thistles because they are barren of figs.”—Fabian Essays, pp. 93, 94. 

“Granted private property in the raw material out of which wealth is created on a huge scale by the new inventions which science has placed in our hands, the ultimate effect must be the destruction of that very freedom which the modern democratic State posits as its first principle. … Thus capitalism is apparently inconsistent with democracy as hitherto understood.”—Ibid. p. 98.

[21]The monopoly resides in the ownership of the road, not in the conduct of the traffic. There can be no more objection to allowing any person or company to run trains over State lines of railway competing for the traffic than there is to allowing private traffic for hire on public roads and streets. The difficulties in the way of regulating the traffic and ensuring safety are not insuperable, as is shown in those cases where competing companies have running powers over the same roads. The advantages of such a system are obvious and great. The same considerations apply to tramways and canals.

[22]Pp. 89, 90, and 93.

[23]The italics are ours. 

[24]Fabian Essays, pp. 90,94

[25]P. 141.

[26]“In the great majority of cases there is only a very narrow margin between the price at which English manufacturers can produce a commodity and the price at which it can be produced abroad, so that a comparatively small rise in price will afford to the foreign manufacturer the coveted opportunity of acquiring a new market.”—J. Stephen Jeans, Trusts, Pools, and Corners, p. 30.

[27]P. 177.

[28]“On Trusts in the United States,” in Economic Journal, March 1892, p. 73. 


[30]See “Anthracite Mine Labourers,” by G. O. Virtue, in Bulletin of the Department of Labour, U.S., Nov. 1897; and Jeans, Trusts, Pools, and Corners; and H. D. Lloyd, Wealth against Commonwealth.

[31]E. von Halle, Trusts in the United States, p. 11 

[32]J. S. Jeans, Trusts, Pools, and Corners, p. 95.

[33]Henry D. Lloyd, Wealth against Commonwealth, pp. 476-478. 

[34]E. von Halle, Trusts, pp. 21, 22.

[35]Henry D. Lloyd, Wealth against Commonwealth, pp. 33-36. 

[36]E. von Halle, Trusts, p. 107. 

[37]Ibid. p. 106.

[38]While this book was awaiting publication, two articles, respectively entitled “The Rage for Trusts” and “The Trend of Trusts,” appeared in The Public, a weekly journal published in Chicago. They are from the pen of the editor of the journal, Mr. Louis F. Post, an accomplished economist, and are so instructive that the present author sought and received permission to republish them in combined form. They are reproduced accordingly as Appendix VII.

[39]For quotations see Book I. chapter i. 

[40]See quotation from Capital, pp. 176, 177, in Part 1. chapter i. P.5.

[41]Both examples are a free rendering of those given in Capital and Interestby von Bohm-Bawerk.

[42]For the sake of simplicity compound interest has been eliminated.