# The Case for Capitalism/Chapter 5

We have seen that under Capitalism the course of production and the question of the prices at which goods and services shall be sold is left to the decision of the average consumer, and that Capitalism is thus truly democratic in spirit as compared with the bureaucratic tyranny that would be set up by State Socialism or the Guild tyranny that the Guild Socialists would set up if ever they could arrive at a workable scheme; that the price which the consumer pays for an article has to cover payment for services rendered by labour, management, capitalists and adventurers; that the claim of capital to its interest and profit is admitted by Mr. Ramsay Macdonald to be sound, and can be shown to be so by a statement of the obvious facts about production. But the question of the share that the wage-earners are to get out of the price paid by the consumer has not yet been tackled, and it ​need hardly be said that on the better solution of this problem the future of Capitalism depends. Capitalism has not only to be just and expedient, and the best system in the interests of the community. It has to show clearly that this is so and make the matter plain to a large number of doubters, who have power to wreck it if they are not convinced.
We can approach the problem from a different angle by considering a claim which has often been put forward by writers on the subject of labour and capital, namely, the right of labour to the "whole of its produce." An interesting book on this subject has been written by Dr. Anton Menger, Professor of Jurisprudence in the University of Vienna, and translated into English with an introduction by Professor Foxwell.
On page 2 of this work, Dr. Menger describes what he considers the "ideal law of property from the economic point of view." This, he says, "would be attained in a system which ensured to every labourer the whole produce of his labour, and every want as complete satisfaction as the means at disposal would allow." He observes that "our actual law of property which rests almost entirely on traditional political conditions, does not even ​attempt the attainment of these economic ends. Originally the occupation of most countries was effected by conquest and settlement, and since then the sword has sufficiently often modified the existing distribution of property. When the State began to legislate as to rights of possession, it was generally content to sanction actual relations with a few unimportant alterations; so that it is easy to see how our property law, being the outcome of quite other than economic conceptions, seeks neither to secure to the labourer the full produce of his labour, nor to guarantee to existing wants the greatest feasible satisfaction. Our present law of property which centres in private possession does not, in the first place, guarantee to the labourer the whole product of his labour. By assigning the existing objects of wealth, and especially the instruments of production, to individuals to use at their pleasure, our law of property invests such individuals with an ascendancy, by virtue of which, without any labour of their own, they draw an unearned income which they can apply to the satisfaction of their wants. This income, for which the legally-favoured recipients return no personal equivalent to society, has been called rent by the St. Simonians; by Thomson and Marx, ​surplus value. I intend to call it unearned income. The legally recognized existence of unearned income proves in itself that our law of property does not even aim at obtaining for the labourer the whole product of his industry."
Thus, Dr. Anton Menger, approaching the problem from a different point of view, seems to agree with Mr. Cole, quoted in my last chapter, that the capitalist is a thief who lives upon the work of others whom he deprives of their full reward for the work that they do. It may be noted that he admits himself that the occupation of most countries was effected by conquest and settlement, and he seems to regard neither of these forms of activity as involving any labour, or entitling those who carried them out, and their heirs who followed them, to any reward for the exertions then made. In fact, as has already been pointed out, military service was a form of labour which was called for by the community at the time when it was fashionable, and therefore seems to be just as much entitled to its reward as that of many popular novelists, popular entertainers and popular swindlers of to-day whom the demands of the public enrich to the astonishment of detached observers.
It may also be noted that the two essentials of the ideal law of property assumed by ​Dr. Menger are hard to reconcile one with another. If every labourer is to have the whole produce of his labour, it seems to be impossible to arrange matters so that all the wants of all members of society will be as completely satisfied as the means of disposal will allow. One essential is based on the principle of reward in proportion to labour; the other on reward in proportion to "wants"—a very different matter.
Let us consider this question of the surplus value, or unearned income, of which the capitalist is accused of robbing Labour. Mr. Philip Snowden, on page 73 of his book on Socialism and Syndicalism, makes the following remarks on this theory. The doctrine of surplus value, or of surplus labour as it is sometimes called, is not like a theory of value—an abstract idea. It is a concrete fact. The modern capitalist system is so highly organized and its operations are so intricate, that the unpaid value of the worker's product is often obscured, yet it can be found in concrete form by a little investigation. The existence of a rich class who do no labour is the conclusive proof of the claim that labour does not receive all that labour creates, but that a surplus over and above the wages of ​labour is appropriated in some way and in some form by those who do no work. But to admit the truth of the doctrine of surplus value does not involve an acceptance of the doctrine in the crude form in which it is expounded in the Communist Manifesto, where the idea is conveyed that manual labour is the sole producer of wealth. In his later writings, Marx seems to express that view at times, though at others he very clearly recognizes the contribution made to production by directive ability and mental capabilities." Here, then, we have a slight but very important variation of the meaning of the word "labourer," which has now been made to include the owner of directive ability.
Labour's case for better treatment, like all other good cases, is only harmed by being over-stated, and no one can pretend that the manual worker does everything which is involved by modern production. But if under the word "labour" we have to include also directive ability, is it not still a very large assumption that the owners of it and of manual skill and strength could together do everything that is needed in production? If we put a manual worker, or a thousand manual workers, with a sufficient number of possessors of ​directive ability, down on a bare piece of ground, they could produce nothing until they had reclaimed the ground and furnished themselves with the necessary tools and equipment for production. In other words, they would have to do a great deal of work between them, the only product of which would be the ability to do more work later on more efficiently and satisfactorily. Because labour and management at the present moment cannot produce anything without the help of labour and management that has been done in the past, this labour and management that has been done in the past is provided by the capitalist who also, under modern conditions of production, earns a profit by running a risk.
Mr. Ramsay Macdonald, on page 62 of his book that I have already quoted on the Socialist Movement, said very truly that there is much wealth which labour cannot create without the aid of capital. "A man can go into a 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." The product of labour by itself is a miserable subsistence if without capital; that is, without the use of work done in the past—stored-up work, as we may call it. The only things that ​labour could produce by itself would be berries off the trees, roots out of the ground, and perhaps birds and beasts that the labourer might or might not be lucky enough to kill with his own hands. This could hardly be called production. It is simply taking what Nature provides. As soon as labour wants to produce in earnest, in the modern sense of the word, it has to provide itself with some sort of tool or weapon; that is to say, it has to work for some time without receiving any reward, in order that it may work more efficiently in the future. As soon as it has done so, it becomes a capitalist. Mr. Macdonald rightly pointed out that an axe is capital; as soon as our labourer has fashioned himself an axe, he has, in fact, become a capitalist. If he manufactures his own capital the interest on that capital then goes to himself. If he employs others with it, does he then rob those others?
Let us consider how the whole process works out by going back to the solitary man on the island whom we imagined in an earlier chapter. We saw that in order to fish more easily Crusoe made himself an axe, and then built himself a boat. He was then able to get a larger catch of fish, and so appropriated to himself the reward of his labour whenever he went fishing, ​plus the reward of his further past labour at a time when he built the boat, and of the risk that he took of failure in making the axe and boat, and of not being able to catch any more fish when his boat was built. Let us then suppose that a fresh inhabitant, Friday, arrives on the island, and also thinks that it would be nice to eat some of the fish that are easily to be caught a little distance from the shore. Friday naturally asks Crusoe for the loan of his boat, and Crusoe makes a bargain with him under which Friday is allowed the use of the boat for a day, promising to give Crusoe a share of any fish that he may catch.
Here we have an example of a labourer apparently being robbed of part of the produce of his labour. Crusoe can sit in the sun at the door of his hut and do no work all day, on the expectation that Friday will bring him home enough fish for supper when he comes in from his day's sport, but does Crusoe really rob Friday? Friday surely is enabled by the results of Crusoe's past efforts, in making the axe and the boat, to fish much more easily than he would have been able to do if he had sat on the rock and not gone out to sea. A large part of his catch is in fact the result of Crusoe's past labour, and Friday, with this help, is able, ​after paying Crusoe's share, to keep a larger supper for himself than he could have caught without it. Mr. Snowden argues that there must be surplus value or unearned income because certain people are not obliged to work. But Friday's case seems to show that labour shares in the unearned income, which is not really unearned, but earned by labour done in the past.
Then there comes another inhabitant, Saturday, who also wants the boat. How is Crusoe to decide whether he shall lend it to Friday or to Saturday? He will naturally lend it to the one who promises him the largest share of fish. Here we see him enjoying socially created wealth because the appearance of a third inhabitant has brought in the element of competition, and enabled him to secure a larger proportion of fish than he would have been able to get if the stimulus of competition had not increased the value of his boat. Nevertheless, the fact remains that the boat, which is his stored-up work, is still the basis of his claim upon a share of the work of whichever of the competitors succeeds in getting the boat. If we suppose that he lends the boat to Friday, we may then go on to assume that Saturday, being anxious for food, and not handy enough ​to pick up a living for himself by himself, may be ready to earn a meal out of Crusoe's accumulated store of food, the proceeds of his past work, or out of the fish which he expects to get from Friday—again the proceeds of his past work—in return for a day's work which Saturday promises to do on Crusoe's wheat patch, weeding it, or digging it, or enlarging it.
Crusoe is now becoming a capitalist on a large scale, employing two workers. If, then, other inhabitants appear, Crusoe may make bargains with them to make new axes and build new boats acting under his direction, and with the advantage of the experience that he gained by his earlier efforts. He sets them to work on improving the equipment of the whole of the community, while Friday continues to work for him as a fisherman, and Saturday as a farm labourer. In the case of the later corners, when no actual stored-up work is being applied by Crusoe to their efforts, when they themselves are going to make the axes and build the boats, it would seem at first that Crusoe has no claim whatever to remuneration; but here again it will be seen that during the period in which they are doing work which will produce no result that can be immediately consumed, he will have to maintain them either ​out of his store of food, which is his past work, or out of the food raised under his direction by Saturday, whose work has been made more effective by past work which Crusoe had already put into the agricultural development of the island, and further that Crusoe's experience and directive ability will earn its reward in directing them in their task.
Finally, there may arrive a new-comer, Sunday, a man of real organizing ability whom Crusoe appoints to relieve him of all the directing and organizing work required by the varied business that he is now carrying on—farming, fishery and boat building—in return for a share of the food which the enterprises already founded and conducted by Crusoe are producing. Sunday is his managing director, and undertakes the task of overseeing the work of all the others, and seeing that Crusoe's share of the produce is duly paid to him. Crusoe has now become an idle capitalist living on the surplus value apparently created by those who are working for him, but actually called into being largely by his own past work, directive power, and readiness to take a risk. He can sit all day and meditate, or stroll at his ease over the island, while other people work and supply surplus value for his clothing and feeding. ​This he has done by placing the results of his past work at the disposal of the others, so that they by working on it, and with it, can more easily earn a subsistence for themselves, providing a surplus value for him and—for themselves, to the benefit of all parties concerned.
If we ask why, when once the second boat has been built, Crusoe should have any right to any extra catch of fish that is secured by its use, the answer is that by devoting the work of those who came and asked him for food in return for their labour to increasing the productive equipment of the island, he has in fact made that effort of abstinence which so much amused Mr. Bernard Shaw, as was shown by a quotation from him in a previous chapter. Instead of employing those who built the second boat upon this work, which was going to increase the food supply of the community, Crusoe might very well have turned their labour in the direction of increasing his enjoyment of comfort and luxury for the moment. He might, for example, have put one of them on to the task of singing songs to him, or telling him stories, or making faces at him just as entertainers do at a twentieth-century cinema show. He might have set them to work on making ​his hut more water-tight, or on making him a new suit of clothes, or on building a Sedan chair for him, and carrying him about the island, thus relieving him of the trouble of walking, and giving him the savage counterpart of the joys of motoring. In other words, he might have turned their activities into a non-productive channel, which would have increased his enjoyment of a slothful existence but left the total output enjoyed by the rest of the community unimproved.
He also might have spent the resources that he had available for feeding his workmen on his own gluttonous enjoyment, instead of investing it in improving the equipment of the island for further production. Had he done so, he would have had what is called a "good time" for the moment, but his band of workmen would have been thrown out of employment, because he would have had nothing wherewith to pay them, and they would have to go and fend for themselves and pick up what they could in other parts of the island, either becoming capitalists themselves and building up for themselves possessions out of their own past labour, or leading a hand-to-mouth existence with a considerable chance of dying from hunger.
​So far it has been easy to show a good case for the reward earned by our capitalist, Crusoe. Everything that he has earned had been either from the work of his own hands or by the efforts of other people working on his own past work, or being fed out of the proceeds of his own past work, or working under his own direction, or being fed out of the proceeds of the organization which his work and directive ability have built up. He made the original axe, and fashioned the original boat, which were the beginnings of the community's capital. Thus the "concrete fact" of the existence of surplus value on which Mr. Philip Snowden laid stress, brings us to a different conclusion from the one which he drew from it. He saw in the existence of a rich class who do no work, "conclusive proof of the claim that labour does not receive all that labour creates," echoing Dr. Anton Menger's view that under our present arrangements no attempt is made to give every labourer the whole produce of his labour. With all deference to Mr. Snowden, whose earnest and devoted work on behalf of the wage-earners all must respect, it seems to me that the existence of surplus value is proved not merely by the existence of the rich class that does no work, but also by the fact that the wage-earners secure ​a standard of comfort which is very much better than the miserable and precarious subsistence which would be theirs if they were obliged to depend for a livelihood on all that they could produce without the help of capital. Surplus value is continually being produced for us by the work, management and enterprise of those who went before us. All classes share in this surplus value. A small number of rich people can live without working at all. A large number of poor people get a much better life than they could produce by their own exertions. How would the forty-seven million inhabitants of the British Isles fare if there were not a tool or a machine or a wagon or a railway in them, and not a ship to bring them goods from oversea? Most of them would be dead in a month.
Capital then is the axe or plough or store of food or of seed, and labour is the man with nothing but his hands. Capital can make nothing by itself, and the owner of it, the capitalist, can only make it productive by applying labour to it, his own or a wage-earner's. Labour by itself can only gather berries or dig up roots; in order to produce, it must fashion tools and acquire a store to keep itself during the process of production. It may be answered ​that in fact under modern conditions of production all the machinery that is provided by capital is actually made by labour. The wage-earners build the railways, dig out and fetch the raw material, and put it through the processes that make it into machinery. But labour has done all this under direction provided by managers working for capital and paid by capital, and labour could not have done it if capital had not paid it wages out of previously accumulated stores, which capital paid for out of money that it earned or got by some service or action for which it was paid by the then existing sense of the community. Capital and labour both live to an extent that few of us realize on the exertions of those who have gone before, directed and paid for by those who had the control of industry that is given by wealth. If the owners of that wealth had spent it on immediate enjoyment instead of equipping the country with productive machinery, so as to earn a profit for themselves and their successors, the country could not have maintained a fraction of its present population, and many of those who now denounce the capitalist as an exploiter or a thief would never have been born. They owe their very existence to the alleged exploiter.
​These things had to be said because the wage-earner's case is not helped by being over-stated, and if the wage-earner is taught to believe that he can do everything by himself he is likely to make mistakes that will cost him dear. His case is quite strong enough to stand on the facts of the matter. Without him capital can do nothing in the way of production and little in the way of selling what it produces with his help. Nothing could be more short-sighted than the view of some narrow-minded and stupid employers that it pays capital to pay low wages. Quite apart from the question of bad work owing to bad pay, this doctrine forgets that capital has to work for the consumer, and that a great majority of consumers are wage-earners and their dependents. High wages, if they do not lead to slack work and bad timekeeping, mean high buying power and a good and steady market for articles of general consumption. Every producer or handler of such articles is benefited by an increase in the pay given to the wage-earners employed by all other employers. Therefore it is clearly to the interest of industry as a whole and ultimately of his own enterprise. A busy community with well-distributed buying power is what will ​pay us all best in the long run, as a matter of mere business, to say nothing of the political and social advantages of such a state of things. If employers think that they can secure this by keeping their wage bill as low as possible and if wage-earners think that it can be done by restricting output we shall never get there.
Nevertheless all that has been said above concerning the benefit derived by labour from work directed and paid for by capital in the past has not really disposed of the difficulty, that was touched on in the last chapter, about the advantage given to certain individuals by the institution of hereditary property. Even if the wage-earners recognize that they are much better off than they would have been it no capitalists had equipped the country for production, they still have to be convinced that it is not unfair to them that the heirs of those capitalists should take to this day so large a share of what labour and capital produce between them. The system gives those heirs the power not only to live without working but to set aside out of their share of surplus a further store of capital which increases their future claim on the product of industry. Going back to the example of our Crusoe capitalist, if we suppose that during his growth ​into a capitalist he has acquired a mate and left a family, and that when he dies his youthful son, who has never done a stroke of work in his life, succeeds to the whole of the property and organization which Crusoe has built up, and that the other inhabitants of the island and their progeny are expected to work for Crusoe, Junior, on the same terms on which they worked for the original organizer, then we find ourselves faced with a claim that is much more difficult to justify. Why should this youngster, just because he is the son of a successful organizer, be supported during the rest of his existence by the labour of others with the confident expectation that he will be able to hand on to his own progeny a similar claim on the labour of the workers of the world?
We may say that hereditary property has been an essential part of every civilization worthy of the name which has been produced since the history of man has been known. But so have many things which are difficult to justify, except on the ground that having existed they must have for some inscrutable reason been necessary. A Roman or a Greek would have probably given the same answer if one had questioned the equity and justice of the institution of slavery. Moreover, landed ​property under the feudal system only went on from father to son on payment of a substantial fee by the heir to the Crown, so that it was by no means the indefeasible right which it is now too often assumed to be. Our Chancellors of the Exchequer by imposing heavy estate duties on the passing of property on the death of an owner, recognize that property, being only transferred to those whom the owner wishes it to go to, owing to the security afforded by our modern social arrangements, has to pay this periodic toll for the right to be left by will. This toll being exacted, however, it seems to be equitable that those who get wealth by serving the community should have the right to give it in their lifetime and leave it when they die.
The justification of the system on the grounds of economic expediency is obvious. If hereditary property were abolished, and the consequence were that no one cared to earn more than he wanted to consume, the fund, out of which new railways are built, new factories and ships are placed at the disposal of industry and commerce, would be very seriously diminished. It is only by successful investments, that is by actually increasing the general output of goods and services, that capitalists can ​maintain and increase their claim on industry's product. And whenever they increase industry's output a large part of the price that consumers pay goes to labour. As has been shown, capital without labour is powerless to produce. The wage-earner is thus most likely to earn good wages when there are as many capitalists as possible putting new capital into industry and competing for the services of the wage-earner as a worker, and for his custom as a consumer. If labour prefers to frighten and threaten the capitalist, the latter will be scarce and shy and his capital will be scarce and dear. Moreover the responsibilities that are attached to the ownership of wealth are not always learnt by those who gain it in their own lifetimes. Bad spending, as is particularly evident at present, is a specially prevalent vice among those who have suddenly grown rich. We might cure this disease by having no rich at all, but this cure would mean the adoption of a new economic system, with dangers that will be shown when we come to examine the suggested alternatives to Capitalism.
As it is, labour gets the whole of its product and a great deal more. If it wants to get also the share of the capitalist and the ​adventurer, it can do so by saving capital for itself and risking it in industry, so becoming its own employer and provider. "A few shillings per head from the working class would quickly raise the capital necessary to make a trial of democratic management in any industry." So says Mr. Stirling Taylor, in the Guild State, the latest contribution to the literature of Guild Socialism.
If the wage-earners determined to make themselves masters of industry by providing their own capital, they could gain a power that would be overwhelming. The process would be gradual and slow, but if half that we are told is true about workers who stay at home instead of going to work as soon as they have earned enough to satisfy their immediate wants, steadier work would give them a big margin for this purpose of strengthening their position. The wonderful success of the co-operative movement has shown what can be done. If labour provided its own capital, the idle capitalist with no labour to work for him would find the flank of his position most effectively turned.
Concerning the proportion of the joint product that is taken by capital, it may be interesting to quote a statement made by ​Sir Hugh Bell to the shareholders of the Horden Collieries, Ltd. Coal-mining being a speculative industry, capital invested in it may be expected to yield on the average a higher rate than most other enterprises. Sir Hugh, as reported in the Times of December 4, 1919, said:—
"While I am dealing with the position in which you find yourselves, it may interest you to know that the total amount disbursed in dividends over the whole 19 years that the company has existed is just over one million pounds—to be accurate, £1,010,000. Last year we paid in wages to men directly in our employment £1,019,000. In 19 years we have distributed £1,000,000 in dividends, and in one year we paid £1,000,000 in wages. That figure of £1,000,000 in wages corresponds exactly with the figure I have already cited on former occasions. The total amount of our outgoings last year is just under £2,000,000. The wages we have paid to our own people are, as I told you, just over a million, so that just about 50 per cent. of the total outgoing of your company goes in wages—in the form of wages, because I have to take into account the coals you supply to the men, and I also have to take into account the cottage rents, ​which are part of the wages. If you come to examine the other items, such as stores and so on, you will find that something like the same proportionate amount has been paid in wages, so that you have paid out, directly and indirectly, for wages £1,500,000 out of £2,000,000. That is to say, you disburse 75 per cent. in wages and salaries. Out of every ton of coal you sell, one half of the selling price goes to pay wages of the men in your employment, and of the remaining half, about a like proportion is paid in wages by the persons from whom you buy your stores, etc., so that directly you pay away 50 per cent., and indirectly 25 per cent., in wages and salaries. Out of just under £2,000,000 there remains £200,000 or thereabouts as your share. You will see on how narrow a margin you are conducting your trade, and how relatively small an increase of wages would absorb all that margin and leave you with no dividend at all."