# The Socialist Movement/Chapter 3

CHAPTER III
THE ECONOMIC FAILURE OF CAPITALISM
We are now in a position to discuss the practical working of capitalist industry. We start from the assumption that the processes of production are undertaken for the purpose of ministering to the needs of the people. Clothes are made to clothe, houses to house, food preparations to feed; the products of foreign lands are imported to add to our comforts. The test which must be always imposed upon any system of production is: Does it fulfil those ends? And that must be supplemented by another test: Does the system under consideration do its work economically or wastefully? Let us apply the second test first of all.
1. Rent.
We shall arrive at clear ideas on this point most readily and conveniently if we consider how various economic classes gain an income, and we shall deal with the owner of land—the rent receiver—first of all.
Income from land is not of the nature of reward for services rendered. It used to be. Land was granted by the sovereign to his captains who, in return for their possessions, rendered military service to the state, and in addition paid certain taxes so as to provide the king—who was the embodiment of the state—with what income he required. The land was then held in trust for the state, ​and that theory underlies the whole of our ancient land legislation and taxation. But as the character of the state changed, the landowning trustee was transformed—or, strictly speaking, transformed himself—into an ordinary owner. His obligations were diminished and disappeared, his special taxation was whittled down and, though legal and judicial theory retained its ancient assumptions, the practice grew up of treating the land as the subject of ordinary private possession.
Now, it is from the land that we derive all the primary raw materials. It is the soil which the agriculturist needs, it contains the ores and the minerals of all our vast or quarrying, smelting trades; upon it must be built our factories, our warehouses, our houses; it is still, with the exception of the high seas, the foundation of our transport industry. If it were closed against us, every industry in the country would be paralysed and we should die. Upon this fact, income from land depends. "I can prevent you from working, from building, from mining, from living," says the landowner. "From the proceeds of our labour and our skill," reply the rest of the community, "we are willing to pay you to allow us to work, and build, and mine, and live." And so rent is paid and the landowner gets an income. It was Adam Smith who wrote: "Rent is not at all proportioned to what the landlord may have laid out upon the improvement of the land, or to what he can afford to take, but to what the farmer can afford to give."
​Some parts of the land have special values. Some land adjoins rivers, like the sites of London and Liverpool. The transport trades must use it or nothing at all. Rutland is useless for shipping companies; the marshes around Leicester cannot be turned into docks. Some land contains certain minerals. Middlesex is of no value to a mining company desiring to put coal on the market. Some land is in the highway used by streams of people. A Buckinghamshire village is no use to a Whiteley. Some land is of one texture, other of another. The clays of the Thames Valley will not suit the requirements of Lincolnshire potato growers. Thus the differences in the quality of land and in its natural advantages determine where towns are to be, where different kinds of food are to be grown, where there are to be factories, where there are to be mines, where there are to be green fields, where there is to be a Black Country. This in turn determines that rents are to vary. But however much they vary, they are all of the same economic nature. They are the price paid to the landowner by the community—for it is really the community of consumers that pays and not the individual—to induce him to allow his land to be used at all.
The owner of land is thus in the position of a man who holds the keys of life, and he consequently can exact a maximum toll as his price. He does so. Rent therefore tends to absorb every social improvement that can be turned into an advantage in the exchange ​market. A marsh outside a town is drained, up go rents; a tram-line is laid into the outskirts of a town, up go rents; a mining-shaft is sunk and a specially profitable seam of coal is struck, up go rents; the industrial prosperity of a town improves, up go rents; the people of a town acquire the habit of shopping in certain streets, up go rents; peasant intensive cultivation is shown to be profitable in certain directions, up go rents; free education is granted, up go rents.
The amount of rent is determined by the capacity of the community to buy, not by the value of the services rendered by the owners. It is a measure of monopoly. That a community which has improved its streets and educated its people should allow the possessors of its land to secure for themselves the financial counterparts of these benefits can have no justification either in reason or in morality, whilst from the point of view of economy it is waste.
Be it noted, however, that Socialism does not oppose rent, it only objects to rent belonging to private persons. These values are real. A shop in a frequented thoroughfare has a higher economic value than a shop in a back street; fine river loam has a higher agricultural value than sodden and heavy river clay; as the margin of cultivation widens the value of the old cultivated lands increases. Some one must benefit by economic rent. If it goes to the fortunate shopkeeper, as the advocates of leasehold enfranchisement used to claim, he is receiving ​something which neither his labour nor his skill created; if it goes to the farmer on the long-cultivated fields, he is receiving a benefit which he has not earned. Its origin lies in the nature of things; even when it arises in consequence of the expenditure of capital on, say, a street improvement or on a tram-line, it is much more than interest on capital. When Moses struck the rock, the water that gushed forth and the streams which followed his people through the wilderness in consequence, being far more than the reward of his labour, could not justly be subject to the economic laws of private property. When a London Railway Company laid its lines through Buckingham and opened out wide fields upon which part of the population of London might spread itself, it put fortune after fortune into the pockets of landowners and speculators. That was not done by the expenditure of the Railway Company's capital, because the company might have tunnelled Ben Nevis instead of the Finchley Hills and no new values would have been created. It was caused by the fact that there was a community ready to use the capital in the form of a railway and put itself in the power of the landowners who lay in wait for the exodus beyond Finchley and Harrow. The only just repository for such values is the communal exchequer. They are the natural source from which the cost of government and the development of communal action ought to be met. Every valid reason that can be urged in favour of personal ​property can be used in favour of communal property. The community has created the values, and it needs them in order to continue a free existence. But to-day they are handed over to private individuals who are parasitical sharers in national wealth.
2. Interest.
Incomes derived from invested capital are not so easy to classify. The Ricardian dictum that all wealth is created by labour is not exactly true. It carries one much further than the statement which is true—that no wealth can be created without the service of labour. But there is much wealth ​which labour cannot create without the aid of capital. A man can go into the forest and tear boughs off trees with his hands for his fires, but he cannot fell trees without an axe of some kind, which is capital. Capital, therefore, has its value, a simple fact which means that under the freest economic conditions, interest will be paid. It may be interest of five per cent., it may be of a tenth per cent., but the utility of capital in production will always have an appreciable value which the labourer who uses it will pay without suffering exploitation or injustice. Interest is therefore not of the nature of a monopoly toll. It is a payment for service rendered. This we may call pure interest. Risk may determine its amount, but no consideration but this can justify its existence.
But everything called interest is not of this nature, as a study of some businesses will show. Money-lending has acquired an evil reputation because many of its transactions are of the nature of illicit operations. It lives under great risks; its victims are in unusual straits, and in relation to them it is almost of the nature of a monopoly because their chances of succour are so few; it deals with a class of reckless borrowers who are willing to sacrifice the whole of the morrow for a moment of pleasure to-day; it is often dishonest. When we allow it high ​interest to cover its risks, its income is still excessive and is exploitation.
If we consider some of the recently formed trusts we again discover incomes which cannot be justified on grounds of public interest. The capital of £34,000,000 which the Mercantile Marine Company carries is generally held to be too great. If interest were paid on it, the community would have to bear excessive freight rates; if interest is not paid on it somebody's money has been transferred into somebody else's pocket. The lending of such capital is not an assistance to but a hampering of enterprise. It is as much a waste of capital as was the old hoarding of money in a stocking, and it is far more detrimental to industry. Another source of capitalist incomes has been the forcing and keeping up of prices above economic levels. Thus the price of sugar in America has been kept up by the trust in spite of great improvements that ought to have reduced prices. The same is true of oil, and the whole world is groaning under the Meat Trust. The policy of Protection greatly enhances these incomes. They are all of the nature of exploitation.
Similarly a substantial proportion of incomes made on Stock Exchange transactions has no justification. The Stock Exchange itself is a necessary institution and will continue to be so for a very long time to come. It is an organisation for the exchange of capital, a market for investments. But instead of being one of the organs of the ​industrial system, it is manipulated and controlled by financiers who influence prices and exchanges to suit their own interests. The manipulation of capital exchange has become a business which is parasitic upon industry although the institution through which the operations are carried on is necessary for industry. The rubber boom which took place in 1910 is a typical example of those activities. It resulted in no fewer than three injuries to trade. An important industry was unsettled by feverish speculation; it was burdened with unnecessary capital; the price of its products was forced up. Thus the incomes derived from these transactions more nearly represented a measure of industrial loss than of industrial service and gain.
These are but examples, and they by no means exhaust the catalogue of anti-social sources of interest and successful business transactions which represent waste and exploitation. Such a catalogue would specify hundreds of ways of making an income, from dealing in slum leases to trading on bankruptcy stock, from shipping rings to sweating wages.
3. Waste of Capital.
In addition to the specific instances of anti-social sources of income which I have given, I must comment on the general wasteful effect of the system as a whole. One of the chief characteristics of competitive com​mercialism is its chaos. It has no system at all. A B and C engage in competition with each other. Nothing but capacity of output or danger of bankruptcy limits and controls their activities. They pour upon `the markets their goods; they manufacture their stocks in expectation of orders which may or may not come. They take work-people from other employers and callings, and may have to discharge them at the end of a week. Production is theoretically for the feeding and clothing of the people, but conducted as it is to-day by rivals who seek to stuff their victims and bury them under clothes, and who only stop their mad follies when the markets are choked, and when a paralysed industry tells them in words that cannot be mistaken that they must stop, it results in industrial disorder, uncertainty and poverty. Hence, it is true not only of over-capitalised trusts that production is bearing too heavy burdens, it is true of industry in general. There is far more capital in use than is necessary for efficient production, and for that competitive commercialism is to blame. An oft-used illustration of this is a comparison between the duplicating and overlapping milk-carts and barrows that are dragged up and down our streets of a morning, and the organised and non-competitive system of selling postage stamps. A well-organised milk trust run in the interests of the consumers would reduce the price of milk, diminish the amount of water in it, and improve its quality, not because it would eliminate ​the dishonest trader, but because it would effect substantial economies. We might pension off every superfluous middleman and yet society would not be poorer but richer as the result. It is because this is true that trusts can economise even with a top-heavy burden of capital.
It was stated when the American Wire Nail Association was formed in 1895, that the machinery then working in the country could produce four times the quantity of nails for which there was a demand. When the whisky combination was formed, also in America, it took over eighty plants and found it could produce up to the demand with twelve. The Sugar Trust was formed after eighteen of the forty refiners in the United States had become bankrupt. Eighteen of the survivors formed the Trust, eleven refineries were closed down, and the necessary production was carried on by seven. When combinations in our own country are formed, a similar process is gone through. Old work-places are closed, production is regulated and organised, profits are guaranteed when works are idle, economies in management are effected, processes of manufacture are specialised and differentiated. The waste involved in competitive industry is enormous, and the sheer force of circumstances is tending to eliminate it.
4. Waste of Labour.
One further consideration must be noted. We have seen that the private ownership ​of land and capital is a serious drain upon national wealth and a heavy burden upon national production. Let us now approach the subject from the standpoint of the waste of labour involved.
A constant grievance against the amalgamation of railway interests which is going on to-day is its effect upon employees. So long as production is carried on primarily for the profit of the owners of capital, labour is not used to its economic maximum. There is no co-operation between capital and labour for the most economic use of both. Labour has to look after itself. Its more economic use—say by the introduction of machinery—may mean a lowering of the cost of production and consequently a fall in prices. But wage-earners cannot consider that, because the only immediate experience which they have of the change is that there is less demand for their services, that they are discharged, and that their incomes consequently cease altogether. The first task of a workman's life is to make a wage for this present week, and whatever prevents him from doing that cannot be welcomed by him, and we ought not to expect him to welcome it. This is ​why so many trade unions have at some time or another tried to limit production by adopting the policy of "ca' canny." There is no justification in sound economies for this policy, but it can be excused as an incident in the attempts of capital to effect economies at the expense of labour.
A much more prolific source of waste is the machinery employed by capitalists to secure custom for their goods. This is the cause of enormous expenditure in advertising and in putting an army of travellers on the road. When the British soap combine was formed, the Daily Mail objected to it on the ground that it would mean a loss to newspapers in advertising of £200,000, and on further inquiries the head of an advertising firm put the loss "at nearer £500,000 than £200,000." The formation of the tobacco trust had a similar result. The hoardings showed that to the eye, and the ordinary newspaper reader, who but scanned advertisement columns, could not help missing familiar advertisements of tobacco manufacturers’ wares. Before the Standard Oil Company secured its monopoly in the supply of paraffin in America, advertisements of oil stared one in the face everywhere, now they have disappeared.
What has been aptly called "the standing army of commerce," the commercial travellers, is responsible for much larger expenditure. Mr. Bradley, who gave evidence before the United ​States Industrial Commission, referring to the cost of putting whisky on the market, said that forty million dollars were thus spent every year. The president of the Commercial Travellers' National League stated that 35,000 salesmen had been thrown out of employment by the organisation of trusts, and that 25,000 others had to suffer reductions in salaries. He estimated that this reduction in the number of commercial travellers meant a loss to railways of £50 per day for 240 days in the year, or, in all, £5,000,000; and that hotels were hit to about the same amount.
This dislocation of labour has a justification in economy, but the fact that it has taken place shows what numbers of printers, bill-posters, papermakers, travellers, have to be maintained at the cost of general industry. For, it must be emphasised, few of these are producers in the strict sense of the word. The vast majority of them are engaged in transferring custom from one firm to another. They are taking from Peter to give to Paul, without adding a halfpenny to the wealth of the community which consists of Peter and Paul. I must not be understood to argue that all advertisement or commercial travelling is waste. One of the functions of advertisement is to give information to consumers and users; one of the functions of travelling is to facilitate the exchange of goods between producer and distributor. These functions are necessary and are of the nature of real service which creates or adds ​to the facilities for using national wealth. Nor must I be assumed to argue that travellers are now unnecessary. They are part of the uneconomical use of labour occasioned by our present system. Under a better system they would be absorbed in other occupations.
The fact is, that our present modes of production and distribution are complicated, expensive, burdensome and wasteful, to an extent which few have grasped because so much of the waste is hidden under the appearance of useful labour. One seeing a printer at work assumes without a second thought that the man is a productive labourer. If, however, he is printing advertisements the only effect of which is to transfer custom from one firm to another, he is not a productive labourer at all. He is only getting a share of the wasteful expenditure of capitalist competition. No sane employer would employ two men to do one man’s job, but our present system of production and distribution employs an army of men who do not enter at all into the mechanism of real wealth production.
Hence, our present system does not bear the test of economy.
5. Poverty.
We can now apply the other test: Does our present system fulfil the ends of industry, namely, the keeping in decent comfort the people of the country? Again the answer must be in the negative.
​Under commercialism national wealth undoubtedly increases. In 1812 Colquhoun estimated the wealth of the United Kingdom at £2,736,000,000; in 1855 Edleston estimated it at £3,760,000,000; in 1865 Giffen estimated it at £6,113,000,000; in 1875 at £8,548,000,000; in 1885 at £10,037,000,000; to-day it is estimated at £13,500,000,000. Similarly the income of the United Kingdom was estimated in 1840 to be £504,000,000; in 1860, £760,000,000; in 1889, £1,285,000,000; in 1895, £1,421,000,000; in 1904, £1,700,000,000; to-day, £1,800,000,000. The wage-earners' share in 1850 was about £15 per head per annum, in 1888 it had risen to £25, in 1905 to £29, and it remains about that to-day. Thus, the wage-earners' share has not increased in proportion to the increase of the national income. I have already quoted Mr. Mallock's figures of family incomes, and these, read with the above figures and with the descriptions of poverty given in the investigations of Mr. Booth, Mr. Rowntree, the Social Union of Dundee, reveal a vast amount of poverty, a certain amount of which is punishment for personal errors, but the bulk of which is the product of our industrial system.
Let us consider the most fruitful source of all poverty—unemployment. The unemployed man is not merely temporarily injured by idleness. He loses grip on life, his savings go, his membership of thrift clubs lapses, he acquires bad habits, his skill deteriorates, he becomes an "habitual." Even if he resists ​the worst effects of unemployment, he emerges from it with a heavy millstone of debt and discouragement about his neck, and if it recurs it may make it impossible for him ever to move from those shallows where he is stranded at every ebb of the industrial tide. Now, competitive industry always requires a margin of workless men. The tide is never steady, and the statistics show that at the very best of times from two to three per cent. of skilled men are out of work. That on a working population of 14,000,000 means that 280,000 workers are out of work during booms of trade. That figure rises fourfold and over in times of bad trade, and when we add dependents, we can gain some idea of the disastrous effect of this single flaw in competitive industry.
Now, it is not merely that our present system requires a constant margin of unemployed, it also requires a constant alternation of booms and depressions. It cannot work steadily. It must always go by fits and starts. It is like a steam-engine without a regulator. The market is good and the demand is eager. Off goes every productive machine in the country. Everybody is piling his goods on to the market with a reckless disregard for the morrow. There is no attempt to gauge capacity of consumption; there is no effort made to ascertain where the balance between supply and demand is fixed. The result is a choking of the market, depression in trade, unemployment, financial loss and bankruptcy. So incompetent is ​present-day society to handle stocks of commodities and distribute them that when nature happens to be in a generous mood and supplies rich harvests, distress as often follows as prosperity. In 1905 American newspapers announced that, owing to a big crop, cotton would have to be burned in the South to prevent serious loss to the growers. And so long as each producer works for himself alone, with his advertisements, his travellers, his agents, so long will there be chaos, unemployment, poverty.
And to make matters worse on their dramatic side at any rate, all this unemployment takes place when wealth is most heaped up and waiting for consumers. When the shoemaker is shoeless on the street, capital is cheapest, leather is cheapest, and boots are filling the warehouses.
Conditions are all the worse on account of a circumstance upon which, on other grounds, we greatly pride ourselves. We are taught that we are free, that no one controls our goings-out and our comings-in; and when Socialists speak of the present as a system of wage-slavery, we get angry. This freedom, however, has a fly in its amber. The man who is the property of another man is of value to that man and is not allowed by him to die of want or to become so degraded as to be useless. A man owning horses has far more cause for taking care of them than he has for taking care of the men whom he employs to work the horses. If one man dies or becomes useless, there are always plenty ​to take his place. The permanent margin of unemployed provides what is wanted.
This truth is well illustrated in the case of Pittsburg. The machines are valuable to the Steel Corporation; the "hands" are not. The machines are kept in the best order. No money is spared to keep them up to date. The means of production are of the best. Turn to the people. The Russell Sage Fund Investigation has revealed a reckless and callous disregard for decency, for health, for comfort, for education in Pittsburg, which, were the details not supplied with scientific precision, one could hardly believe.
The same thing is seen if we consider the effect of industrial legislation. When, for instance, the Workmen's Compensation Law was passed, employers who had hitherto felt little concern about the dangerous machines with which their people had to work, began to interest themselves in guarding and fencing. Insurance companies began to impose conditions under which they were to do business. They appointed inspectors of their own to see that factories did not contain more points of accident danger than were absolutely necessary, with the result that this law, in addition to the compensation it provided for injured workers, made men of some value to their employers. Life insurance companies are beginning to appoint nurses to look after their ailing clients, and the most satisfactory consequence of sickness insurance in Germany is the elaborate system ​of preventive efforts to which it has given rise. As disease and death become costly health and life become valuable.
It also seems as though the forces which enabled labour to secure better conditions for itself are weakening. The industrial combinations of capital are rendering combinations of labour less effective, and even though legislation is beginning to do what trade unions did some years ago and to impose certain standards of hours, conditions and, in certain trades, wages, recent defensive agreements between employers have gone far to restore the economic advantages which capital had when it was bargaining with unorganised labour. In the economic state of nature, there is no freedom of contract between capital and labour, the position of the two being so unequal. Labour combinations went a good way to establish some equality by their common bargaining and by their privileges to declare war and carry it on. But capital can always restore the inequality by following the lead of trade unions, and it is now doing so. The only reply that labour can make is to enter politics. When it did so, however, it immediately met with the censure of the Law Courts, and capital again got possession of its privileged position.
But no responsibility is imposed on any one ​for causing a slump in trade. The alternation of overtime and unemployment is supposed to be as natural as that of night and day. The workers have to bear the burdens of the system under which they live, and as they are not responsible for its control, nothing is done by way of a remedy. Thus the chronic underpayment of the workers adds to our chaotic methods of production in intensifying periods of apparent over-production and trade depression.
Nor is it much better with the class above the workers. As unemployment comes inevitably upon the wage-earners, so bankruptcy comes inevitably upon the capitalist. During the ten years preceding 1909, there were in England and Wales 78,000 bankruptcies and deeds of arrangement, with a total estimated loss to creditors of £81,000,000. In 1909 there were 7,561 bankruptcies and deeds of arrangement, and the total loss to creditors so far as the Board of Trade returns show them, amounted to no less a sum than £5,086,131.
Although some enterprises that become bankrupt are of the nature of experiments that would have had to be made under any system, and others are purely fraudulent, ​the bulk of them are failures pure and simple, which must be put to the discredit of competitive commerce. Mr. David N. Wells, the American economist, published the result of an investigation made in the city of Worcester, Massachusetts, regarding failures in business. "Of every hundred men in business in that place in 1845, twenty-five were out of business in five years, fifty in ten years, and sixty-seven in fifteen years; and most of these disappearances mean simply failures." What man of practical instincts can regard such a state of things with a happy mind?
In addition to actual failures, there is a struggle for life going on daily from which many competitors never get clear. They make ends meet only after the most continued strain. They keep their heads above water at the price of a physical and mental wear and tear which by and by bring disease in their train. The increase in insanity, in paralysis, in consumption, in ailments like diabetes and Bright's disease, which are supposed to have some connection with mental worry, is one of the problems with which modern medicine is struggling in vain.
Thus our present system fails absolutely to satisfy the most primitive need of food, clothing and shelter, for a large section; it imposes absolute failure on others struggling to meet that need, and it places such great difficulties in the way of others that they cannot enjoy life after these needs are satisfied; it makes the grip of the vast majority of men on ​a standard of life which is but moderately comfortable, precarious in the extreme; it secures incomes to those who do no service and by allowing the growth of monopolies it tends to increase the power of those enjoying economic advantages and so it encourages exploitation.
The present system bears neither of the two tests which were proposed for it at the beginning of this chapter. In a sentence, taking my last chapter with this, the Socialist charge against capitalism is that it is a method of exploitation, and in its development produces conditions which forbid and render impossible its continued existence.
* ↑ Wealth of Nations, chap. xi.
* ↑ A good deal of profitless attack upon socialist economic theory has taken place on this subject. The doctrine that all wealth is created by labour was laid down by Ricardo, though not by him in the first place. It was one of those abstractions which the liberal economists were fond of making for the purpose of simplifying their arguments. Marx took it from Ricardo, though not in the form generally supposed. Mr. Mallock, for instance, makes much of this, whipping it with the scorpions of his scorn. How the whipping is done may best be shown by parallel statements. Marx's theory as stated by himself. "By labour power or capacity for labour is to be understood the aggregate of those mental and physical capabilities existing in a human being, which he exercises when he produces a use value of any description." Capital, I., p. 186. Mr. Mallock’s rendering. Marx asserts that the measure of exchange between one class of commodities and another … is the amount of manual labour, estimated in terms of time, which is on an average necessary to the production of each of them. Critical Examination of Socialism, p. 12. It is true that Marx believed that qualitative labour could be reduced for his purposes to terms of quantitative labour, but that is a totally different matter, and does not justify Mr. Mallock's misrepresentation.
* ↑ The Pennsylvania Railroad boasted that in one year it had dispensed with 80,000 men owing to economies in working, and in 1907 the New York Central dismissed ten per cent. of its main line staff for the same reason. The various proposals that have been made for the amalgamation of British railway interests have been resisted by the men, who are afraid of the staff reductions which follow, and they are being made the occasion for demands for shortening the working day.
* ↑ It ought to be remembered that this policy is often advocated by capitalist organisations so as to keep up prices.
* ↑ This refers to what is known as the Osborne judgment, by which the British Courts decided that it was outside the scope of the authorised purposes of Trade Unions to levy their members or spend their general funds to maintain a political party.
* ↑ Even here a beginning of new things has to be noted. The political organisation of labour brought this problem within the area of pressing political interests. The workers have to an extent become responsible for themselves, and consequently the Right to Work Bill has been discussed in parliament, and partly as a result of this a scheme of insurance against sickness and unemployment has been promised by the government.
* ↑ Recent Economic Changes, p. 351.