Max Hirsch: The Problem of Wealth
From pamphlet published by:
Land Values Publication Department.
An Open Letter to Mr Andrew Carnegie
SIR,–I have read with the liveliest interest your article, The Gospel of Wealth*, which appeared in the March number of the Review of Reviews, for Australia. In common, no doubt, with thousands of others, I recognise the exceptional sense of public duty which has inspired this utterance, as well as your other contributions to political and economic literature, a public spirit, moreover, which has found expression in deeds as well as in words. That you who have been so pre-eminently successful in the accumulation of great wealth, nevertheless are able to impartially dissect the processes by which such accumulation is generally achieved, proves you to possess intellectual impartiality of the highest order. That you expose these processes publicly and insist upon the right of the community even to a part of such wealth, shows the possession of exceptional courage and independence. You have recognised that great wealth, and the power which great wealth conveys upon its possessors, brings with it great responsibility, and I therefore desire to express to you the admiration with which your actions have inspired me and many others.
I trust, however, that these same great qualities may also lead you to accept and consider some respectful criticism, which I venture to address to you concerning the arguments and conclusions conveyed in your article. I feel impelled to lay my views before you for several reasons. One is that, though your analysis of the origin and growth of great private fortunes exhibits their true causes to a large extent, your deduction, nevertheless, neglects them and substitutes a minor for the major course. I venture to think that, having gone so near to what I regard as the true perception, my exposition may lead you to correct your conclusion. Should this be the case, I may hope that you may also adopt the view that these great fortunes are only a minor system of social disease, and that the secondary and great evils which their existence creates are far surpassed by those which the process of their accumulation and the causes thereof inflict upon the community. If this should be so, I may also cherish the hope that your great influence and power may be directed to further the efforts of these individualists who think it of paramount importance to so change the legislation of all countries that the unjust acquisition of wealth, great or small, shall be prevented, while removing all obstacles to the just acquisition of wealth. Finally, I would also venture to say, that what appear to me faults of analysis have led you to form and express opinions which I regard as highly dangerous to the well-being of the community, inasmuch as they are identical with those of Socialism in impugning the ethical basis of all property rights, and thus are calculated to mislead on a subject fraught with the greatest importance to the continuance and progress of civilisation. May I then ask you to follow my reasoning with the mental impartiality which your writings show you to possess, and to pardon the inevitable criticism which, in its course, I am compelled to exercise.
Permit me to begin with your analysis of the causes, which enable great fortunes to be accumulated. This analysis is expressed in eight examples:
REAL ESTATE OR LAND.
The first of these deals with the increase in the value of “real estate.” Of this cause you say: “The community created the millionaire’s wealth. While he slept it grew as fast as when he was awake.” No doubt, through inadvertance, you thus posit as to real estate, i.e., land and the improvements on land, what is true only of the land alone. For if a man enhances the value of his real estate by employing capital in placing serviceable improvements on the land, i.e., by causing buildings to be erected, mining shafts and galleries to he scooped out, or fences, drainage, dams, and other agricultural improvements to be constructed, it is he who adds to the value of his real estate as far as these improvements are concerned. Apart, however, from such activity of the owner is the enhancement in the value of the land itself, which enhancement takes place whether he improves or not, and which arises from the progress and the increasing necessities of the community as a whole. Of this increasing land value it is certainly true that “while the owner slept it grew as fast as when he was awake.” This consideration, however, applies not only to the land owned by millionaires, but to all land; applies not only where the land is increasing in value, but even where its value is stationary or decreasing. It applies with equal force to the value of any land, for the value attaching to any plot of land (apart from improvements) at any time, is not due to anything done in the past, but is due entirely to the needs of the existing community, and to the expectation that these needs will continue to grow. For land has no cost of production. It exists without sacrifice or service on the part of any man. In your example you exhibit the fact that, a few generations ago, land in the centre of Manhattan Island possessed farm value only. If you had gone some centuries further back, you would have come to the time when even this land had no monetary value whatever. To-day every acre of it is worth millions of dollars. The cause of these phenomena is clearly apprehended by you. In the earlier period, when settlement had only just begun, so much land, in equally favourable situations, was available for the taking that no one would have paid anything for Manhattan land. During the second period there was still plenty of farm land open to all, but a city had arisen in Manhattan Island, where produce could be delivered more cheaply from a Manhattan farm, than from more distant land. Hence land on Manhattan Island had acquired a value equal to the capitalised value of this advantage. To-day, the former farm land is used or urgently wanted for commercial purposes, and, as no other land is as suitable for such purposes, it has acquired an enormous value, a value equal to the capitalised ground rent which men are willing to pay for its use. Suppose, however, that, for any reason, the commercial importance of New York were to decline. In that case the population would gradually withdraw itself; the demand for land within and around the city of New York would fall off; the value of the land would decrease again, and might ultimately disappear altogether. These facts, well known to you, prove that the value of land at any time arises from the needs of the existing community for such land; that no part of it is due to anything done in the past; that no part of it is due to any sacrifice made or service rendered by the owners of land as owners.
Permit me now to go a step further. Increasing demand for any commodity, for any product of man’s labour, does not generally enhance the value of such commodity, except for a time. On the contrary, as a rule, and in the long run, such increasing demand reduces the value of commodities, i.e., of real wealth. The reason is that enhanced demand induces increase of supply; that such increase of supply makes possible improved methods of production and transportation, thus reducing cost, and that the resulting competition, when unrestricted by monopoly, conveys part of all this saving in cost to the community in lower prices. Hence it is that though the demand for cotton, woollen, linen, and silk piece goods, for boots and hats, for iron and steel, and almost every other commodity, is enormously greater to-day than at any previous period in the world’s history, their prices are lower than they were during the centuries when the demand for them was comparatively small.
Why, then, does the enhanced demand for land have the opposite result; why does it enhance, instead of reduce, the value of land? Surely there is scarcely any need for me to give the reason in detail. It arises from the fact that land cannot be increased in area as commodities can be increased in volume. Man cannot make land. It is God’s gift to man. But it is more than this. Man is a land animal. On the land alone can he live. From the land alone can man obtain the material, which his hands shape into satisfaction for his wants. Land (inclusive, of course, of all that the land contains and gives access to) is the prime necessity for man’s existence. To have allotted this prime necessity to some, to the owners of land, makes the ever increasing number of landless men the slaves of the landowners, unable to live except by their permission, and by paying them tribute.
All the value of land is thus a monopoly value. All rent (apart from the interest in the value of improvements) when paid to private persons, is tribute. The landowners, as landowners, are of no value to the community, render no service. The land rent which they receive is tribute and their wealth, so far as it consists of land values, is but the capitalised value of expected tribute. It is not real, but spurious, wealth; based on the expectation that the rest of mankind will, for all time, continue to purchase from the owners of land permission to live on God’s earth.
Not merely the growth of the community, therefore, as you posit, but this growth and the consequent increased need for and specialisation of land, combined with the fact that land cannot be made by man, and that the most serviceable land is restricted in area, i.e., the monopoly character of land, cause the ever increasing value of land. Neither of these causes is due to any activity of landowners. They are natural limitations. Neither have the owners made the land, nor caused it to be made. Why then should they own its ever increasing value; why should they receive the tribute which enriches them, without giving any service in return?
Your reply to this question is, that “although in their case the wealth is a purely communal growth, yet in other cases wealth often comes largely from individual effort and ability,” which “develops our country’s resources.” This reply may pass as a justification–although I hold that there are more important and valid ones–for the private possession of such wealth as the owner has created by his effort and ability, or received in free exchange for such wealth, but cannot be used to justify the private possession of wealth created, not by the owner, but by the community as a whole, provided that “wealth of purely communal growth” can be distinguished from such other wealth. That this can be done is shown by yourself in the passage last quoted, and is a matter of common knowledge and practice as far as land values are concerned. There is no valid reason why they and the rent of land, on which they are based, should be enjoyed by individuals. Land values are not created by individuals, but by the community; rent, that is economic, not speculative, rent is taken from the earnings, not of individuals, but of the community. Hence, by eternal right they belong to the community, not in part, but all of them.
This would be true if the private ownership of land values did no other wrong to the community than to deprive it of wealth belonging to it; if it created no other evil than to confer upon some men inordinate wealth which they have not earned. Presently, however, shall show that this condition impoverishes the whole people by far more than the landlords receive in rent, and inflicts other and far-reaching evils. Before doing so, however, I desire to refer to your other examples of accumulation.
MINES AND MINERALS.
Your third example is that of a settler in Pittsburgh, who, recognising this as the spot on which steel could be produced more cheaply than anywhere else, enters into the steel-making business and ultimately becomes a millionaire, not by making steel, but by leasing and purchasing land covering iron-ore, coal and lime-stone mines. Of this man and his partners you say: “They did not produce these minerals, but saw them lying around open for sale at prices which are now deemed only nominal. Much of the wealth of the concern came from these minerals, which were once the public property of the community, and were easily secured upon trifling royalties.” And further–”Without more populous communities far and near no millionairedom was possible to them.”
Permit me, even at the risk of being deemed pedantic, to point out a cause of possible confusion in the words employed by you. When you say “they did not produce these minerals,” you surely do not mean to suggest that mine workers, employers and employed, do not produce the coal and ores which they take out of the ground. For these they do produce in the only way in which man can be said to produce anything, i.e., by using energy to change the form or place of matter. What they do not produce is the mine or quarry, the minerals in situ, to which the land leased or purchased by them gave them access. To make this quite clear allow me to use an analogy. The fisherman who catches a fish has produced that fish; what he cannot produce is the ocean from which he took the fish.
Similarly, you say, “Much of the wealth of the concern came from these minerals,” when, as the context shows, you meant to say “much of this so-called wealth of the concern consists of the value of this mineral land.” For, as you know better than most men, the value of the great steel producing concerns of the world consists only to a comparatively small extent of the value of the plants and other real wealth which they own. To a very much larger extent it consists of the value of the mineral land which they have acquired. The United States Steel Corporation, for instance, mainly points to the value of its coal and iron-ore deposits to justify its capitalisation of £200,000,000, and not to the value of its plants, numerous and extensive as they are.
A few months ago the American press reported the sale, for the sum of $80,00,000, by Mr. J.J. Hill, to the United States Steel Corporation, of his mineral rights over a large tract of country containing deposits of iron ore. Mr. Hill had apparently never worked these deposits. No man’s labour had gone to create the value. What he sold, and what the Steel Corporation bought, was the dominion over a valuable part of God’s earth–of land. These mineral deposits are land; their value is land value as much as that of land in the heart of New York or that of any farm land. The owners, as you justly say, did not create these deposits; nor did they create their value. The annual rental value of these deposits, like that of other land, is created by the efforts and the wants of the community as a whole, and to the community alone it can belong.
In this connection you again emphasize your view that the so-called millions owned by the men in question arise from increase of population, for you say: “Without more populous communities no millionairedom was possible to them.” I therefore venture to point out that this is only true as far as these land values are concerned. The rise of populous communities does not necessarily make millionaires of the producers of iron and steel. For, in the absence of monopoly, the increased demand for iron and steel increases the number of their producers and cheapens production. Some producers may amass greater fortunes than others, but only on condition that they render greater services, i.e., that they produce and sell iron and steel at lower prices and in larger quantities than others. A fortune so earned, however, is of a very different character from those made from or consisting of mere land values. For the latter fortunes represent nothing but a deduction from the wealth of the community. The general wealth would be as great or greater if no such fortunes or fortune owners existed. The former fortunes consist of part of the addition made by the owners to the general wealth. The general wealth would be smaller had no such fortune owners existed.
Your fifth example, that of the man who grows into a multimillionaire because he gets hold of copper and silver mines, is so obviously on a part with the one just examined, that it need not be dealt with separately.
RAILWAY AND OTHER FRANCHISES.
In your second example, that of the owners of railroads, however, you touch upon new ground. In those so far dealt with the wealth acquired consisted of the value of a natural monopoly conferred upon individuals. In this example, you come to a class of slightly differing monopolies, those created by human society by means of statute law. A railway consists of two totally different kinds of so-called wealth. On the one hand there is the road-bed, the rolling stock, and other tangible objects, all of which are the produce of labour. On the other hand, there is a privilege created by the legislature, the right of way over a narrow strip of land extending from terminal to terminal. In order that individuals shall obtain this right of way, the Legislature must pass a special statute, including’ a transfer to these individuals of the sovereign right of eminent domain. That is, the Legislature confers upon citizens a special privilege, which cannot be equally granted to all other citizens.
Every railway thus consists of two widely different kinds of property, i.e., of labour products, and of a special privilege, the franchise.
In spite of any imaginable increase in population there is no increase in the value of any of these labour products. On the contrary they decline in value with every year of their existence, and increase of population tends to reduce their cost of reproduction. But increase of population does constantly add to the value of the right of way, of the mere legal privilege. As the community, which can be served by any railroad increases in number, the value of this special privilege increases at an even greater ratio.
Why this difference? Permit me to explain, for the sake of others, what you know well. Increase in the population to be served must reduce the cost of transportation. For while interest and standing charges remain almost or quite stationary, the earnings increase by far more than the running expenses. It does not cost materially more to run a full than an empty train; and to run two trains per hour instead of one by no means doubles the cost. Hence, in the absence of monopoly, all the advantages, which railways derive from increase of population would be transferred to the community in reduced transportation charges through the action of free competition, and no basis would be available on which to erect huge fortunes. But there is no possibility of free competition. The special privilege granted to one man or one company cannot be granted to all men. In most cases an equally valuable privilege can only be granted once, or perhaps twice. For to own the right of way to the most advantageous route and terminals is a greater privilege than to own that over a less advantageous route and terminals. In any case, because the privilege to parallel rights of way cannot be multiplied indefinitely, competition is superseded, sooner or later, by combination. The right of way, the legal privilege, thus is, or becomes, a monopoly. Competition does not exist, or cannot be permanently maintained. Increase of population and consequent reduction in cost of transportation now does not lead to any equivalent reduction in the price of transportation, but to an increase in the value of the special privilege, the right of way. The value of the right of way is equal to the capitalised value of the monopoly profits. Thus, it is not the service rendered in transportation to an increasing population, which creates the railroad millionaire, but the increasing value of the monopoly, of the special privilege granted by the Legislature.
Likewise, the far greater part of the so-called wealth of railroad millionaires consists, not of any real wealth, but of spurious wealth, of the capitalised value of the future tribute, which it is believed that their legal privilege will enable them to exact from the people.
While I was writing this, I received an account of the evidence given by Mr. E. H. Harriman before the Inter-State Commerce Commission at New York on February 25th, with regard to the purchase and sale of the Chicago-Altona Railroad. It is to the effect that he and some of his friends purchased the line for $42,000,000 in the spring of 1900; that immediately afterwards they issued mortgage bonds on the line for $22,000,000, which amount they divided amongst themselves; and that they sold the line, saddled with this mortgage, to the Union Pacific for $89,000,000 in 1904, thus making a profit on their deal, apart from any dividends received meanwhile, of $69,000,000. There was no evidence that they had increased the rolling stock or improved the road bed. The enormous increase in price paid by the Union Pacific therefore, can only have been paid for the special privilege conferred upon the railroad, the right of way, the monopoly right. Mr. Harriman and his friends sold real wealth only to a small extent; their enormous profits came from the transfer of a monopoly, which the purchasing company expects will enable it to levy a tribute upon the people, over and above the fair charge for transportation, equal at least to the interest upon the purchase price.
While you have analysed the wealth of railroad millionaires you have not touched upon the enormous fortunes derived from street railroads, and from the supply of water, gas, electricity, hydraulic and pneumatic power, and other undertakings of similar character. Nor need I say more than that all such undertakings are obviously of like character as railroads, inasmuch as they all are based on a special legally conferred privilege, or franchise, and the value adhering to them is mainly the value of such special privilege. Whenever such undertakings serve a large population, the franchise value is many times greater than the value of the existing plant or the cost of its reconstruction. So far as this is the case, therefore, the so-called wealth of their owners also is nothing but the capitalised value of the monopoly profits of the tribute, which they can exact.
I now come to your fourth example, that of the man who, settling in Chicago, entered into the meat-packing business. Of him you also say, “Here, as before, it was the magnitude of the business based solely upon the wants of the population, that produced prodigious fortunes.” Again, I must point out, that if this were correct, no objection could be made to such fortunes; they would then be the reward of legitimate service, that of supplying an ever-increasing number of people with the necessaries of life at a cheaper rate than others could or would do. But the facts are far otherwise. These fortunes have been derived, not from making meat cheap, but from making it dear. The evidence shows that the Chicago packers, while increasing the price of meat to the consumers have enormously reduced the price, which they pay to the producers of cattle. That they were able to do these things shows that they were not exposed to competition either as buyers or sellers, i.e., that they were possessed of one or more monopoly creating privileges. Nor is it a secret that one, and probably the most decisive, monopoly, which has given them their commanding position, is their participation in the railroad monopoly. They were given specially low rates on bribed railways, which enabled them to undersell and ruin all competitors, and to gain such absolute command of the market that they could control, and manipulate to their own advantage, the price of cattle as well as of meat. In the absence of this, and perhaps other monopolies, increase of population and demand would have resulted in an increase of packers, in a saving in cost of production, and in the reduced price of meat. Those packers serving the population best, making the best use of the opportunity which an increasing population affords to all who live by rendering service to their fellow men, might still have amassed great wealth. But not only would such wealth have been the legitimate reward for service rendered, but it never could have been a tithe of the great fortunes which came to the Chicago packers when they used special privilege to rob the people. Their fortunes also consist mainly of the capitalised value of the tribute which monopoly enables them to exact from the people, that is of spurious wealth.
INVENTORS AND PATENTS.
Your seventh example deals with fortunes made by inventors, and of these you state: “This wealth, in a very much greater degree than others, may be credited to themselves.” While fully in accord with this view, I nevertheless must point out that their wealth also largely consists, or has been derived from, the possession of a legal privilege, namely, their patents. These shelter them from competition in the exploitation of their inventions, and thus enable them to charge a higher price for their patented productions than free competition would allow. They are the owners of a monopoly, and their wealth, like all the wealth so far examined, is derived from monopoly, and largely consists of the capitalised value of the tribute they may exact. Nevertheless, it must be admitted that ethically and economically their monopoly stands on a totally different basis from those so far examined. It is a reward for a service rendered to the community, and not, as in all other cases, a privilege unconnected with service. Whether, however, this is the best method for rewarding the services of an inventor, is another question, which need not be examined here. It is enough to have shown that the large fortunes made by inventors also arise from privilege, or consist of the capitalised value of expected tribute.
STOCK EXCHANGE SPECULATORS.
Your eighth example is that of speculators on the Stock Exchanges. Of them you say that they rarely die rich, and that when one of them does “his ill-gotten gold should be levied upon by the State at the highest rate of all.” Your reason for specially penalising wealth thus acquired is, that “it is taken without returning any valid consideration,” and that the activities of such speculators are “demoralising.” While I have no sympathy with this gentry, I must nevertheless point out that it seems to me that your antipathy has influenced your judgment. For, as I have shown, the greater part of all the large fortunes so far examined, except those of inventors, has been acquired without their possessors “returning any valid consideration,” or any other consideration. But their ethical aspect is really worse than that of fortune made by exchange speculators. For while the latter enrich themselves by methods which mainly deprive other speculators of their wealth, the wealth of monopolists is taken mainly from innocent people. Moreover, all wealth acquired without service tends to demoralise both the owners and the onlookers, and it is at least doubtful whether speculations on the Stock Exchange have a greater demoralising tendency than speculations in land or in franchise, or than the bribery and corruption which only too often accompany the acquisition and exploitation of franchises. Furthermore, if anyone will take the trouble to examine the speculative dealings on stock exchanges, he will find that the securities concerned consist almost exclusively of monopoly certificates. Hence, in the absence of private monopolies, harmful stock-exchange speculations would almost entirely disappear.
MANUFACTURERS AND DISTRIBUTORS.
Finally, you deal with fortunes made by manufacturers and others, as follows:–
“It may be said that in greater or less degree our leading manufacturers, railroad builders, department-store projectors, meatpackers, and other specialists in one line or another, had to adopt new methods; and with few, if any exceptions, there can be traced in their courses some special form of ability upon which their success depended, thus distinguishing them from the mass of competitors.” Nevertheless, you concluded that these men scarcely merited the wealth they gained, because “the inventions and processes used by them were the work of others, so that all they did was to introduce new methods of management, or to recognise and utilise opportunities.”
In this view I also cannot follow you, and for these reasons. The justification for obtaining wealth is not ability, but service rendered. Men of very great ability may render very much smaller economic services to the community than others of very much less ability. In that case the former cannot be entitled to receive as much wealth as the latter. For, if a man renders great service. either as manufacturer, distributor, or transporter, by enabling the community to obtain services or goods at lower rates than it did before, the community, by preferring his services to those of his competitors, will voluntarily give him a great reward. To this he is obviously entitled, for, as I have said, it is rendered voluntarily. That, in rendering these services, he makes use of “inventions and processes” the work of others, does not, I think, affect the question. For if these are patented he will have to pay their inventors for their use, i.e., he will be the channel through which the community rewards their inventors. If the “inventions and processes” are not patented, they form part of the accumulation of knowledge, the common inheritance of the race, which all are free to acquire and utilise, and the free use of which by anyone does not hinder anyone else from using it. In either case, moreover, competition is free to arise, and will arise if the reward is tempting, and only by continuing to render services which the community prefers can the original user ensure a continuance of the superior reward.
All this, however, becomes changed when monopoly, legal privilege, enters the business, either of manufacturers, distributors, or transporters. This may take place in many ways. Apart from those already considered, two are of importance and frequent occurrence. One, the less important, is through the purchase of patents, and the refusal to allow of their use to competitors; or through the purchase of the right to exclusive use of patents. These obviously, constitute illegitimate extensions of the legal privilege granted to inventors. The other, and far more important way, is through the legal privilege created by Customs or Excise Tariffs.
Even if a tariff is not protective, when it is imposed for revenue only, its tendency is to restrict competition on account of the additional capital required for the payment of duties. When the revenue duty is high its action in the direction of monopoly becomes powerful. For instance, the manufacture of tobacco and spirits has become concentrated in a few hands, and has given large fortunes to a few, in all countries where these articles are exposed to high revenue duties, whereas in countries where such duties are low no such concentration has taken place, and no such fortunes have been made.
When, however, tariffs are imposed for protective purposes, when the Legislature uses them deliberately for the purpose of giving a special privilege to the manufacturers of its country, i.e., to give them a partial monopoly by penalising or excluding foreign competition, it largely or wholly destroys the voluntary nature of the reward which these favoured ones receive from the community. For the protected manufacturers, on account of the penalties imposed upon competitors, are then able to charge a higher price for their products than they otherwise could. As an example, well known to you, I need only mention the fact, that the American and German manufacturers of steel-rails have been enabled by the tariff, for many years, to charge a price for steel rails used in their own country, very largely in excess of the prices asked by their British competitors.
This exclusion of foreign competition, moreover, furnishes a powerful inducement and a great opportunity for the exclusion of local competition as well, i.e., for obtaining, by combination, an absolute monopoly of the market. For it is much easier to combine the manufacturers of like products living in one country than those of the entire world, and the obvious fact, that when so combined, they can charge a price equal, or very nearly equal, to the price asked by foreign competitors plus the duty and the cost of transportation, furnishes a powerful motive for such combinations. Hence it is, that in protective countries, the United States, Germany, Austria-Hungary, France, and others, such combinations as Consolidations, Trusts, Kartells, Syndicates, and what other forms they may assume, dominate almost the whole field of important manufactures, whereas they are comparatively very rare in the United Kingdom.
I am not going to discuss the fiscal question. All I want to do is to point out that when monopoly enters the field of otherwise legitimate industry, the additional price which the people have to pay for their purchases is not a voluntary reward rendered by each of them, but is a compulsory tribute, the direct outcome of legal privilege. The result again is, that fortunes become greater and more numerous than they otherwise would be, and that they are not gained as the reward of service rendered, but through the acquisition of tribute-levying power. And further, the capitalised value of the annual tribute thus levied, or expected to be levied, forms a great part of the fortunes of manufacturers, distributors, and transporters, as of those of all other beneficiaries of privilege. Under the euphonious term of “goodwill,” it forms the basis of the enormous issues of ordinary stock, created by trusts and other combinations, frequently exceeding, and largely exceeding the value of the tangible assets belonging to them, and represented by their preferred stock. In this case, as in that of all the other large fortunes so far examined, the abolition of the privilege, of the power to levy tribute, would enormously reduce the amount of these fortunes without reducing in any way the amount of actually existing wealth.
I have now followed throughout your analysis of great fortunes, and would like to emphasise once more the points on which we agree and on which we differ. I agree with you, that nearly all great fortunes originate mainly, not from services rendered by their owners, or from any sacrifice on their part. While, however, we agree on this negative conclusion, we differ on the positive one, whence these great accumulations of wealth are derived. You hold that they arise from increase of population and consequent increase in demand. I, on the other hand, while admitting that increase in population is an element in their development, see their dominant cause in natural or legally created monopolies handed over to private persons. As I have already indicated, increase of population and consequent increase of demand for goods and services, must, in the absence of monopoly, result in increased supply of goods and services, and in their being supplied at lower price, i.e., against a smaller effort on the part of their purchasers.
Increase of population thus merely enlarges the opportunity for rendering service and creates the opportunity for better service. Even in these circumstances a few might make great fortunes; but these fortunes would neither be as great nor as numerous as they are now, and they would be ethically and economically justified. For the wealth obtained by anyone would be voluntarily rendered to him in exchange for service, and would always, however great, be only a fraction of the wealth which the services of the owner has contributed to the common stock of wealth.
All this, however, is altered by the introduction of monopolies, i.e., privileges. For these privileges enable those upon whom they are conferred by law to obtain wealth created by others without giving any service in return. They can thus compel the rest of the people to pay them tribute, and the wealth, which they thus receive is a deduction from the common stock of wealth. As owners of privileges those who receive this wealth have contributed nothing to the stock of wealth of which they appropriate such an enormous share. Here, and here only, does increase of population come in as an active factor. For it is obvious, that, every addition to the population increases the number of those compelled to pay tribute, and, therefore, other things being equal, the aggregate amount of tribute which the owners of privileges can enact. Moreover, increase of population enhances the amount of tribute which each has to render. For it tends to increase the price which each has to pay for living on God’s earth, and, by increasing and cheapening production without an equal reduction in price, to transform into tribute what previously was part of the legitimate cost of service. These tendencies, however, are not causes. They arise from the introduction of privilege, and in its absence would not exist. Privilege conferred by law, breeding monopoly, is thus the cause of nearly all great fortunes, and, what is economically still more important, nearly all, if not all, great fortunes consist mainly, not of real wealth, but of spurious wealth the value of privileges, i.e., the capitalised value of the annual tribute which these privileges enable their owners to collect from the rest of the community. The abolition of these privileges, therefore, would destroy or greatly reduce nearly all great fortunes without reducing, even by a fraction, the real wealth existing in the community.
Given your conception that great fortunes are mainly the outcome of increase of population, the result of the joint labour of their owners and of the people as a whole, your view of their significance was inevitable. Equally inevitable was it that your conception of the remedy required should be limited to the restoration to the community of a part of the wealth concentrated in a few hands. If, however, my modification of your analysis is correct, the restoration of part, or even of the whole, of such fortunes to the community at the death of their owners would fail to remove the evils and injustice which their existence reveals, even if it could be enforced. For in that case, the existence of these great fortunes does not constitute the economic and moral disease from which modern societies suffer, but is merely one of its conspicuous symptoms, I say one of its symptoms, and by no means its worst symptom. Its most distressing results have to be looked for in the homes of the deserving poor; in the sordid lives of the vast army of workers of the community; aye, even in city slums and among the army of degraded prostitutes, criminals, and tramps. If I am right, if privilege merely appropriates the wealth created by the workers of the community, the earnings of everyone of them are diminished not only by the wealth transferred to millionaires and multi-millionaires, but also by that which is appropriated by a vast number of less wealthy beneficiaries of privilege. Even this, however, is but a minor evil compared with the enormous hindrance to the production of wealth, and consequent limitation in the demand for labour, which results from privilege. The tendencies operating in this direction are so obvious that he who runs may read them. Within and around every city building land is kept out of use for speculative purposes, or cumbered with hovels by the side of magnificent structures. The owners, receiving no income, or a totally inadequate income compared with the selling value of the land, nevertheless do not build or rebuild, because they anticipate that increase in the value of the land will sooner or later compensate them amply for present loss of income. In the country, vast areas are used for grazing, or are inadequately cultivated because the net receipts of the owners are the same, or more than if an army of workers were to cultivate the land properly. No one knows better than you that vast areas of coal and mineral land are kept out of use by their owners, in order to shorten supply of necessary minerals and keep up their price. The enormously inflated cost of transportation, inflated to pay dividends on watered stock representing the supposed value of the right of way, hinders the expansion of every industry, and the deferential rates collected by the railways kill innumerable enterprises in order to bloat a few, with an enormous loss to the community. Taxation falling upon production, falling upon labour and labour products, made necessary because the natural source of revenue, the value of land created by the community, has been handed to private persons, inevitably places obstacles in the way of enterprise, and, when degenerating into protection, diverts capital and labour from industries producing more wealth to industries producing less wealth. Thus, if space permitted, I might go on describing the destructive tendencies, which evolve from the private possession of privileges. What I have said, however, suffices to show that these privileges enormously reduce the demand for labour and capital in the production of wealth, and, therefore, the amount of wealth, which is produced. It is, therefore, obvious that they diminish the wealth available for the satisfaction of human wants, and that they are responsible for the existence of a class in our midst which is unemployed for longer or shorter periods, and large numbers of whom ultimately become unemployable human wreckage. Equally obvious is it, that this artificially restricted demand for labour must reduce the wages and salaries of all workers, and the opportunities for small capitalists to establish a business of their own. Not merely are the mass of the people deprived of a large amount of wealth which they make, through speculative rent and monopoly charges, but the monetary reward which they would obtain for their actual labour is diminished, and wealth remains unproduced which would be produced, and which would be divided amongst the workers according to their merit. Here is to be found the solution of the master riddle, which confronts modern society, the riddle of the persistence of want, when man’s power to satisfy his wants has been so enormously increased. If I say that the power of the average worker, helped by modern inventions and discoveries, to produce wealth is at least fifteen times as great as that of the average worker a century ago, I surely do not exaggerate. Yet, in spite of all that trade unions and legislation have done, can anyone maintain that the average workers obtain anything like an adequate share in this increase? They always can produce so much more; when in work they do produce so much more. Yet they themselves get but a fraction of this increase, not merely because much is taken from them by privilege, but still more because privilege does not allow them to make the wealth, which they can produce.
If this diagnosis is correct, the mere transference to the community, at death, of the fortunes accumulated by millionaires and multi-millionaires is but a small matter. It would not cure the social malady of which these huge fortunes are but a symptom. It is even questionable whether such action would alleviate the malady. The important thing is to free human industry from the shackles of privilege, to prevent private privilege from levying tribute upon industry and strangling industry. This, obviously, can only be done in one way, by abolishing private privileges, however gradually, and substituting the rent of land for the revenue now derived from taxation.
I would, however, also submit that the measure you propose, the graduated taxation, on a considerable scale, at death of their owners, of fortunes exceeding a certain amount, would not work, for the same reason that the taxation of wealth by the States of the American Union has become a revolting farce, as well as on other grounds. You are no doubt aware of the universal testimony on the part of all concerned in the collection of these taxes, as well as by many impartial economists, that the very rich evade this law, so that in most cases they are taxed on only an insignificant fraction of their wealth; that small capitalists, and especially farmers, pay on nearly all their wealth, and that orphans and lunatics generally have to pay on all they own. The evasion thus practised by the millionaire class as regards the levy of an annual tax is, however, far more easy in that of a tax at death. For what is to prevent a millionaire from making a free gift of the bulk of his fortune to members of his family–on paper–while continuing to administer it as if no such gift had been made. It seems to me that no decent lawyer could fail to drive a coach and four through such a measure. The almost universal evasion of the wealth tax on the part of millionaires, at much greater cost to conscience and self-respect, moreover proves that sentiment cannot be relied upon to prevent the similar evasion of your proposed tax.
ETHICS OF PRIVATE OWNERSHIP.
The remedy which you propose is not only inadequate, not only unworkable, but it is also unjust. Compare it with the quotation with which you start your article, a quotation from one of the many speeches made by President Roosevelt. It runs: “We should discriminate in the sharpest way between fortunes well won and fortunes ill won; between those gained as an incident of performing great services to the community as a whole, and those gained in evil fashion by just keeping within the limits of mere law-honesty.” Here is a just perception and a statesmanlike discrimination. It is true that, as is so often the case with the author of this passage, his conclusion is totally divorced from his premises. For your quotation of his utterance concludes with the proposal to place a progressive tax on all fortunes beyond a certain amount at the death of their owner, regardless of the question whether they are ill won or well won; whether they are “an incident to performing great services,” or the result of no service whatever. In spite of this lame conclusion, the premises lay down a just principle, though its bearing does not appear to have been fully appreciated by Mr. Roosevelt. For the discrimination which alone is compatible with justice, is to abolish the laws which enable fortunes to be ill won, and to remove all obstacles to the incidental acquisition of large or small fortunes through the rendering of corresponding service to the community?
THE PROBLEM OF WEALTH.
Though you propose a tax almost identical with that suggested by President Roosevelt, you have not been guilty of his want of logic. For it appears to me that you regard great fortunes as such as a serious evil, and desire to diminish them, quite regardless of the methods by which they have been accumulated.
The injustice of this proposal, however, remains the same, and finds startling illustration in one of the sentences with which you defend it. You say: “There is nothing sacred about individual ownership except as man has established it as a system under which progress can be made.” The only possible meaning attaching to this sentence is, that the private ownership of wealth has no ethical foundation, but is a question of expediency, and that if “man”, or a majority of men, conclude that “progress can be made” equally, or better, under some other system, they would be justified in abolishing private ownership. This pronouncement, coming from a gentleman in your position, will, I think, be hailed with joy by all Socialists. For though you, in this same article, condemn Socialism as destructive of the well-being of mankind, you here concede that there is nothing immoral in its central proposal, i.e., the substitution of State-ownership for private ownership of every form of capital.
Moreover, I am of opinion that your statement is entirely wrong, as wrong as if you had said, “There is nothing sacred in human life, except in so far as man has found that respect for human life enables progress to be made.” You surely must have overlooked that there are certain principles of conduct, those which form the ethics of every nation, the necessity for which is so firmly established in the human conscience that they have become “sacred,” i.e., not subject to consideration of expediency. One of these is the rule, “thou shalt not steal,” another is “thou shalt not murder.” No reasoning, however subtle, will ever convince human beings that any human society can prosper in which theft and murder are regarded as innocent pastimes. But, pardon me for saying it, any other form of proprietary right than that which secures wealth to him who makes it involves theft, and the statement, which I am now contesting is an apology for, or justification of, theft. For all real wealth is made by some man or men, singly or working in combination. It matters not whether the wealth consists of a flock of millions of sheep or of one grilled chop; whether it consists of acres of buildings or one little cottage; of a fleet of ocean palaces or one miserable dugout. One and all, they are the produce of the mental and physical toil of some individual man or men. To deprive these men of the wealth made by them, or which they have obtained for it, or for services, in fair exchange, is theft, whether it is done by law, i.e., by the mandate of a majority of citizens, or whether it is done by anyone of them. To say that there is nothing sacred in “individual ownership,” in wealth made by individuals, is obviously equivalent to saying that there is nothing immoral in the abolition of “individual ownership,” in such wealth, i.e., in the State robbing those who made it. I am strongly of opinion that you cannot have fully considered the tendency of the rule thus laid down by you; a rule adopted by you apparently under the stress of having to find some general principle on which your proposal for the graduated taxation of large fortunes at death could be based. That this stress has led you 50 far astray, is strong presumptive proof that your proposal itself is wrong. To me it seems as wrong and unjust as the existing condition of things which it would bolster up. For theft is theft, whether it is practised by a few rich men on the many who are poor, or whether by these latter upon the rich. As I have shown, the existing condition is that the State has authorised certain men, through the grant of special privilege, to rob all other men. You do not propose to abolish this wrong; your remedy has no tendency in this direction. Instead, you propose that the State appropriate at death of the owners, not merely a part of the wealth thus robbed by them from all other men by authority of the State, but that the State shall also appropriate a similar part of such great fortunes as the owners themselves created, i.e., for which they rendered adequate services. The present existing system of theft is to continue, and a new theft is to be added to it. For these reasons and those previously stated, it seems to me that your proposed remedy is no remedy, but a sanction and intensification of existing justice and wrong. The only remedy for the evils arising from social injustice is the abolition of such injustice. All else is mere pretence and quackery. But for fear of being misunderstood I ought to say here, that it by no means follows that all existing social and economic injustice must, or can, usefully be abolished at once. Human experience shows only too clearly that, when injustice permeates social conditions, it is idle to attempt its removal otherwise than by instalments. But though the road we must go is long, though it may take a long time to reach the goal, we must clearly and fully know where the goal lies before any progress can be made towards it.
THE SOCIAL ORGANISM AND PRIVATE OWNERSHIP.
Having expressed the opinion that the principle of private ownership adopted by you is wrong, and calculated to strengthen the Socialism against which you protest, I would now also point out that your general view of the relations between the community and wealth is part of the ethical basis of Socialism. Says Edward Bellamy in Equality: “Nine hundred and ninety-nine parts of the thousands of every man’s produce are the result of his social inheritance and environment. It is estimated that the average daily product of a worker in America is to-day some fifty dollars. The product of the same man working in isolation would probably be highly estimated on the same basis of calculation at a quarter of a dollar. To whom belongs the social organism, this vast machinery of human association, which enhances two hundredfold the product of everyone’s labour?”
Of course, the answer is that it belongs to society; that society alone produces, and is alone entitled to own wealth, the small portion of wealth due to individual effort being a negligible quantity.
You will, of course, recognise that this conception is analogous to yours, and that the deduction, the right of the community to appropriate all wealth made by its citizens, also is merely a logical extension of yours. For just as you posit that increase of population, giving a wider scope for service and appropriation, entitles the community to part of the wealth gained by service and appropriation, so the Socialists argue that the community, endowing individuals with nearly all the power of rendering service, is entitled to all the resulting reward. Thus, your limitation of the right of private ownership becomes in their hands, quite logically, the denial of the right to private ownership. You thus give the sanction of your authority and influence to this part of the ethical basis of Socialism, just as you have given it to the other part by denying the sanctity of private property, not merely in privileges, but in wealth produced by individuals.
Yet this conception is based on a faulty analysis, both in the form, which you have given it, and in that in which it is advanced by the Socialists.
I have already dealt with the former. Permit me now to say a few words as to the latter. It is true that within any given social organisation, even the most primitive, the power of every individual to produce wealth is greater than it would be were he to work in isolation. This social organisation, however, is only the medium in which every member of the community works. It produces no wealth of itself. Every particle of real wealth produced has an individual author or authors. Moreover, the social organism, the opportunity to make wealth, is naturally available to all, as much as air, light, and land. Those who produce no wealth may use it in production as much as those who do produce. Like air and light, the use made by anyone of the social organism does not exclude any others from making equal or greater use of it. Therefore, the existence of the social organism gives no advantage to one over another; all it does is to equally enhance the wealth-producing power of all. Using this equal opportunity as much as they like, men produce differing amounts of wealth and render services of differing value, according to their innate capacities and tendencies. In doing so they benefit the community more or less according to the value of the wealth, which they produce, or of the services, which they render. To confiscate this wealth even for the equal benefit of all, would thus deprive of their just reward those who produce more than the average value, in order to provide a greater than their just reward for those who produce less than the average value. Such a measure obviously would be as unjust as if the social organism had no tendency to increase the power of individuals in the production of wealth.
This reasoning, however, as you will readily perceive, is based on the assumption that the social organism is not manipulated in favour of some as against others. When that assumption fails, as it fails wherever legal privileges in favour of some individuals have been created, equality in social opportunity is abrogated. Obviously, however, the abolition of private ownership in real wealth, in part or in full, finds no support even in this condition. What the condition demands is the restoration of equal social opportunity through the abolition of special privileges.
THE ELIMINATION OF ECONOMIC INJUSTICE.
Though I have already indicated the remedy which I regard as necessary for the removal of the social malady, one of the symptoms of which is the rise of huge fortunes, you will, no doubt, expect me to state it in somewhat greater detail.
The most important cause of the disease I have shown to be the handing over to private persons of the ownership of the land on which all the people must live, and from which alone they can obtain the material for the satisfaction of their needs. I have also shown that private ownership of land induces owners to keep land (inclusive of mineral land), out of use or full use, thus creating an artificial scarcity of land, which increases rent, reduces the demand for labour, and curtails the amount of wealth available within the community. I have further shown that the rent of land belongs by right to the community and not to individual owners. The obvious remedy for all these evils is to restore to the community what belongs to it, the rent of land. For, if the rent of land were paid into the public treasury the injustice of double taxation, i.e., private taxes levied in rent of land, and public taxes levied on labour and production, and all the evils which flow from the taxation of production, of labour, and of labour products, would cease. Public expenditure could, and would be, met out of the rent of land; no further revenue would be required, and no further taxation would be endured. Such land as the community required would all be used to the fullest advantage, because no one could hope to reap any benefit from keeping land out of use or full use. For, as the rent would be exacted on the full value, whether the land was used or not used, whether it was imperfectly used or fully used, the man who would then keep land out of use or full use, would injure himself every year to the extent of the annual rent, without any hope of recovering the loss in the ultimate sale of the land. For there could be no sale of land. Land, apart from improvements, would have no more selling value than air. Its selling value now is the capitalised rental, which the land is expected to bring to the buyer. When that rental goes to the public treasury, however high it may mount, land will have lost its selling value.
A tax on the annual rental value of land gives to the community a corresponding part of this rental value; every increase in such tax secures to the community a correspondingly greater part of such rental value; when the tax amounts to 100 per cent. of the annual rental value it transfers to the community the whole of the latter. This process, coupled with the gradual reduction and ultimate abolition of all other taxes, is Henry George’s Single Tax system, the great advantage of which is that it removes existing injustice as gradually as the people may desire, with the least disturbance of existing conditions and the smallest hardship to existing owners.
So far as regards land. The same remedy, gradual absorption by taxation, might also be applied to the value of the privileges conferred upon railways, water, gas, and other companies which supply utilities. In that case, however, the price of transportation, and of these other utilities, would not be materially diminished. The existing monopoly charges might be reduced, but could not be abolished. They would merely be transferred to the public treasury. The better plan, therefore, would be for the State or municipality to cancel these privileges, purchase the improvements of existing public utility undertakings, i.e., the actual wealth, and to conduct itself the business of providing these public utilities at a price equal to cost. As regards railways, either general or street railways, a third and even preferable course is open. The Government need not do more than own the road and regulate the service to ensure safety and equality, while the actual transportation was carried on by competing private companies having running rights over the same line or lines. Just as the community, through a public body, owns and manages the public streets and roads, and regulates the traffic which private persons conduct on them, while exacting nothing for the running rights; so the use of railways may be regulated on the same principle, with the result that all monopoly is avoided, private business conducted by competing private persons, and the cost of transportation so reduced that an enormous stimulus would be applied to all industries.
In the several ways here indicated privilege and legalised monopoly could be eliminated from our social conditions, with the result that economic injustice would be removed; industry would be freed from the fetters which now bind it; labour, the labour of hand and brain, would come to its own; security would take the place of constant fear, and the conflict between the morality which we preach and which we practice in daily life, would be healed.
The knowledge that all are secure in the possession of equal opportunities to earn their bread; that the wealth going to each is strictly in accordance with the service which he renders to the community, would cause the feeling of brotherhood to supersede that of rivalry and jealousy in regulating the conduct of men, and the time for which you long, when character, ability, and learning shall be honoured more than the possession of mere wealth would surely have come.
You will have observed that I have omitted to touch upon the use which may be made, and is made, of great aggregations of capital, apart from privileges, to create monopoly by unfair competition, as well as upon other evil ways, in which they may be and are being employed. I have done so deliberately and for these reasons. Important as these matters are, they become insignificant when compared with the magnitude of the evils, which arise from legally conferred monopoly. Moreover, I hold the opinion that if the latter were abolished, liberating men from the economic fetters, which now bind them, not only would most of these great fortunes disappear, but the evils now produced by great fortunes would no longer arise from the surviving ones.
I have now traversed the ground covered by your article, a task performed in the hope that it may lead to your taking an interest in the wider aspect of the important question to which you have devoted attention. Your character, your achievements, your great wealth, and your manifest desire to use this wealth for the benefit of your fellowmen, have conferred upon you an influence, which few can equal. This influence might be used by you in a manner, which would cause all the generations of men who came after us to look upon you as their benefactor. What greater glory can any man achieve than to have played a decisive part in banishing injustice from the economic relations of men; in freeing the masses of men from undeserved poverty; in banishing involuntary want and all the evils and vices which spring from such want. This you might do if you were to use your influence and munificence in spreading the knowledge of the social causes which, while creating a comparatively few fortunes of unwieldy size, condemn the masses of men to lifelong poverty, and deprive all mankind of the sweetest fruit of industrial progress. Is it too much to hope that you may still play such a part, that you may add this greatest achievement to your already great career, and thus become, indeed, a benefactor of your kind?
*) The Gospel of Wealth can be found at Wikipedia here: The_Gospel_of_Wealth