| VS-11.1 | If a merchant is doing business with borrowed money, he has to pay interest on that money out of the difference between the price at which he buys, and the price at which he sells his goods. And if the money invested in his business is his own, he will expect to receive that interest himself. For if he could not get interest in this manner, but could do so by lending it to another, he would most assuredly follow the latter course. |
| VS-11.2 | With rent the situation is exactly similar. Whether the ground on which the business is conducted be owned by the business man himself or by someone else, rent has to be paid out of the margin on the sales. And again, if the proprietor of the business cannot make as much, after paying all the expenses of his business, as he could working on salary as manager of a similar concern, he would rather rent his land, lend his money on interest, and work for someone else. |
| VS-11.3 | Therefore, the margin between the price at which goods are bought, and that at which they are sold, must be sufficient to cover Rent, Interest, Wages of of superintendence, Wages of employes, Insurance and all the incidental expenses of business. If it falls below that point, a number of traders will go out of business, or else seek some more remunerative occupation. This will reduce the competition among the rest so they will be able to buy and sell to better advantage than before and the margin will increase until it is sufficient to cover these charges. |
| VS-11.4 | While this margin can never permanently fall much below the point here indicated, it can, and often does, exceed it, so making what is technically known arc profit. For example, a man has $10,000 invested in his business. If this was lent at 6 per cent. interest it would bring in $600 a year. He also owns the ground on which his store is situated. This we will say could be rented for $500. As manager of a similar business he could command a salary of, say, $1,500. If his business is to be profitable, it must yield not less than $600 interest, $500 rent, $1,500 wages of superintendence, making a total of $2,600. This sum must remain after all current expenses, such as wages of help, insurance, allowance for bad debts, wear and tear on the property has been paid. Instead of $2,600 the business man finds he has cleared, say, $3,000. The difference between these sums – $400 – is clear profit. |
| VS-11.5 | Since the wages of the proprietor have been deducted before, and these wages were determined by his ability to conduct such a business satisfactorily, ample allowance had already been made for superior executive ability. It is absurd, therefore, to claim that the profit is the result of the way in which the business is managed, and as such, rightfully belongs to the manager. If profit is not produced by the labor of the proprietor (in which case it would not be profit but wages) it must have been obtained from the labor of someone else, and so is inconsistent with the Cost Principle. |
| VS-11.6 | It is easy to see how profit arises in some forms of business. Special legislation restricting the freest competition in any branch of industry, enables those who are engaged in that business to charge higher prices for their goods than they otherwise could. Such things as these are easy to deal with. Repeal the specia1 privileges and the profit accruing from them will cease to exist. But while this would reduce profit in certain lines. it would not abolish it altogether. Other causes would still tend to perpetuate its existence. |
| VS-11.7 | When we examine the extent of profit in various lines of business, we find that those institutions which involve the greatest amount of land and money return the greatest profit. Large iron works, and other institutions which need a big capital, return much higher profits than a book bindery or a printing office. The wholesale grocer quickly amasses a fortune, while the keeper of the little corner store finds it difficult to keep out of the hands of the sheriff. |
| VS-11.8 | The rate of interest on $100,000 is no greater, in fact it is quite often less, than the rate of interest on $100. But the number of men who own $100,000 is very much less than the number who own $100, and certainly hundreds could borrow the latter sum where one could borrow the former. Consequently, the number of men who could engage in any business, becomes more and more limited as the amount of money and land necessary to its existence increases. In this manner the competition in large business undertakings is very much limited, while in those in which small capital is required it is intensified. |
| VS-11.9 | Once establish an equitable system of land tenure, and remove the restriction on the use of credit and the issuance of money and all this is immediately changed. When occupancy and use are the sole title to land, it will not be necessary to spend vast sums of money purchasing ground on which to start large business undertakings. The land will be free to all, and all will be able to avail themselves of the opportunities it offers. |
| VS-11.10 | When Mutual Banks are established, few people will have no credit which they can use. Large numbers, who to-day are deterred from negotiating loans upon the security they possess by the interest charged, will be able to use their credit. So that, while the credit of each individual will not be equal, there will be sufficient money in circulation to insure the freest possible competition in all branches of production and distribution. |
| VS-11.11 | The inherent selfishness, not to say laziness, of the human race prompts a man to get all he can with as little exertion as possible. Consequently, all men desire to exchange the product of their labor for the greatest amount of commodities that they can get for it. If a man finds, that by working at a certain occupation he can make more with the same amount of exertion than he can when otherwise engaged, he will follow that occupation. Once land and money are free, there will be nothing to prevent most men from engaging in any occupation they see fit. |
| VS-11.12 | Many men to-day have no capital, and under free conditions even, would have nothing at first to offer as security to the mutual banks. But all wage earners are not in this unfortunate condition. Those whose credit is good, would be attracted to manufacturing and mercantile pursuits, because they promise greater remuneration for the amount of labor expended. This would at once reduce the competition among the wage earners and increase it among the employers of labor. For every wage earner who becomes an employer, not only decreases the number of applicants for work, but also creates a demand for others. |
| VS-11.13 | Furthermore, the competition among the manufacturers and merchants would force the price of goods down to the lowest possible point, which, since rent, interest and taxes are abolished, would be the bare cost of running the business, including insurance against risk and wages of superintendence. As soon as it fell below that point the change would be in the opposite direction. A good example of this is seen in the building trades, especially in the Western States. Bricklayers generally earn good wages. The amount of capital required to start as a contractor is small, so it is not unusual to see journeymen bricklayers become contractors. Wherever the conditions are free, it is seldom that an ordinary contractor is able to make more than one of his journeymen. I have often noticed in times of great activity in this trade, that quite a considerable number of men are alternately employers and employes. The result of such a state of affairs, is to maintain a condition of equality between the journeymen and contractors. If this works this way in one trade, it will do so in every trade under similar conditions. |
| VS-11.14 | Free competition will increase the competition among the employers and decrease it among the wage earners. The dream of the old time labor reformers will be realized. The job will search for the laborer, not the laborer for the job. When this takes place wages must necessarily go up rapidly. But the increase of competition among the manufacturers and merchants will also reduce prices. So not only will the wages of the workers be increased as measured in money, but the purchasing power of that money will be increased owing to the cheapening of commodities. |
| VS-11.15 | How would this affect such men as farmers? In order to make the matter plain, we must take the case of a farmer who is working on a rented farm and with borrowed capital. For, just as in the case of the merchant cited in the beginning of this chapter, if he owns his own farm and capital he pays rent and interest to himself. This farmer, then, raises sheep among other things. Out of the sale of the wool he has to pay a certain amount of rent and interest. (If he raises nothing but wool he has to pay all his rent and interest from this source.) So that only a portion of the price he gets for it goes to him. The man to whom he sells the wool pays for transporting it to the factory. Out of the sum paid for transportation, the railroad company makes rent, interest and profit. The dealer also adds his share of these three items to the cost before selling the wool to the spinner. The spinner next and then the weaver, next the wholesale merchant and then the retailer, and lastly the boss tailor all collect rent, interest and profit before the wool gets back to the farmer, in the shape of a suit of clothes. This is rather understating the case than exaggerating, as, with our minute divisions of labor, the material often passes through other hands than those above mentioned. When we consider that goods are often transported five or six times before they reach the customer, instead of only once, we see how great a proportion of the total cost to the customer is paid in the shape of usury. The reduction of the prices will be effected by the elimination of this usury, and the same cause will raise the original price of the raw material when sold by the farmer. The farmer, as such, is a wage earner in spite of the fact that he is not employed by another. His wages come out of the price of the goods he sells. As a wage earner the same forces will be at work to increase his wages as those mentioned above. |
| VS-11.16 | The extent of usury is shown in a small degree by the following example: “A man who weaves cloth for which he receives less than four cents a yard as a producer, may have to pay seventy-five cents a yard as a consumer, the profit to the retailer in such case being at least twenty-five cents a yard; that is, the retailer, for handling one yard of goods receives twenty-five cents compensation, where the weaver, for weaving the same yard of cloth received less than four cents compensation. This single illustration is sufficient to show how far distribution is at fault in matters of depression and as an obstacle to the best interests of wage earners.” (First Annual Report of the U. S. Commissioner of Labor – Industrial Depressions – p. 278.) It must be recollected, however, that a certain amount of labor was embodied in the wool before it reached the hands of the weaver. After he has woven it it had to be distributed, which again necessitated labor. The work of distribution may be considered a part of production, as goods are not fully produced until they reach the consumer. The middleman is usually as necessary to production as is the railway, and his labor must be paid for. But, even admitting all these facts, it is absurd to say that the retailer adds more than six times as much value to the goods by distributing them as does the weaver by making the cloth. Under free conditions, of course, all that the middleman would be able to obtain would be just the market value of his labor. If he obtained more, other men would go into that line of business and, by cutting prices, would lower the price to the consumer and curtail their own profits. Here, as in every other case, free competition is all that is required to establish the cost principle. |
| VS-11.17 | Many writers still cling to the idea that “co-operation” will be essential, even under free conditions. In a sense this is true. Co-operation is always necessary in any except the most primitive state of society. But, as Prof. F. A. Walker says, one of the greatest difficulties which political economy encounters “arises from the use of terms derived from the vocabulary of every-day life ... with some of which are associated in the popular mind conceptions inconsistent with, or, at times, perhaps, antagonistic to, those which are in the view of the writer on economics.” [Online editor’s note: American economist Francis Amasa Walker (1840-1897), in his 1883 Political Economy. – RTL] A striking example of this is found in the use of the word co-operation. This word has come to be popularly understood as implying some form of copartnership. Strictly speaking, of course, it means only “working-together;” and, when Spencer speaks of voluntary co-operation being a characteristic of industrialism, I take it that he uses the word in this, its broadest sense. The wool-grower, the spinner, the weaver, the tailor, all work together to produce a suit of clothes,– that is, they co-operate, though there may be no kind of communistic arrangement between them. Perhaps “the somewhat unsatisfactory term, division of labor,” expresses the idea more clearly in many respects. It is in this sense that Anarchists often use the word, but, owing to the popular conception of its meaning, our position on may [sic] important questions is misunderstood. |
| VS-11.18 | Under free conditions there would, in most cases, be no necessity for co-operation as usually understood. In fact, such an arrangement would often prove to be more of a curse than a blessing. To make this clear, let us take an example. Suppose several men, realizing that goods can be bought cheaper in large quantities, agree to buy their groceries together and divide them among themselves. They will find that they effect a saving by this arrangement But they have really performed so much extra labor, and the pay for that labor is all they have saved. They have performed the services of one middleman, and so save his profit. As they go into the business more extensively, this becomes more apparent. They will soon find that a great amount of time and labor is requisite, if they would keep informed of the state of the market, – the price and the quality of the various commodities. So great will this soon become that it will more than counterbalance any saving they may effect. It is absurd to suppose that several men, engaged in other callings, can perform the functions of the retailer in any line as well as men who devote their whole time to that business. To obviate this difficulty, the co-operators must either give up their scheme, or else employ a competent manager to take care of the business. That it will pay them to employ the most efficient manager they can obtain is obvious. But such a man will demand the highest wages he can get. In the absence of rent and interest, his wages will necessarily be just what he could get by conducting such a business for himself. So, after paying the salary of the manager, the goods will cost the consumers as much as if they had bought from a retailer in the first place. In addition to this, they will have all the trouble of looking after the manager for nothing. The ordinary retailer’s wages depend upon the success with which he conducts his business, but the salary of the manager of a co-operative concern is not dependent upon the results of his efforts in anything like the same degree. |
| VS-11.19 | These two conceptions of the term co-operation are antagonistic to a very great extent, for the popular conception is really a denial of the division of labor. When a man does a little carpenter-work for himself, he thinks he saves the amount he would otherwise have paid a carpenter. In reality he has merely earned the carpenter’s wages. But, as he is probably a poor carpenter, it will take him longer to do the work than it would a good mechanic. So he will be earning lower wages. It would be better for him to devote the same amount of time and labor to his ordinary occupation and, out of the money so earned, pay a carpenter to do the work for him. The same is true in regard to the retailer. |
| VS-11.20 | These considerations, however, may be modified by circumstances. It may be a pleasure, for example, for a bookkeeper to do a little wood-work in the evening. Or it may be that the conditions of a man’s business are such that the time spent in this kind of work could not be profitably employed at his usual occupation. But these factors in no way invalidate the tenor of my argument. They apply only in isolated cases, and disappear as soon as the co-operative associations are organized. |
| VS-11.21 | In the present day, of course, the retailer collects rent and interest in addition to his wages. So there is a direct saving in such co-operation when conducted on a small scale. But as soon as a regular business is established, the rent and interest have to be paid in one form or another, and so the benefits are neutralized as soon as they promise to become of any importance. |
| VS-11.22 | To conduct such enterprises, it is necessary that all the co-operators form an agreement. Such an agreement will often prove a hindrance to the individual members, if they should wish to act at variance with the policy of the association. No matter how liberal the contract might be, it would necessarily curtail the liberty of the members more than if no such organization existed, and each were free to purchase his goods when, where, and how he liked, without reference to the wishes of any of the rest of the community.. We have already seen that there would be no economic advantages to offset this restriction of liberty; so such associations would be a positive detriment to those concerned. |
| VS-11.23 | These remarks apply with just as much force to productive as to distributive “co-operative associations.” The management of a large factory is just as much a trade as the shoeing of horses. It will be to the advantage of everyone concerned to attend to the business to which he has been trained, than to attempt to meddle with that of which he knows little or nothing. |
| VS-11.24 | Some few instances might be found where, from the nature of some special business, it could be conducted more economically upon such a co-operative plan. |
| VS-11.25 | But such instances are very few. I apprehend that even Mutual Banks and Protective Associations will, in the end, be conducted by individuals, who will cater to the wants of their customers and make what wages they can out of the business, rather than by communistic associations of the customers. |
| VS-11.26 | It must not be inferred that the conditions herein set forth would produce an absolute equality among all kinds of laborers (I use this word laborers in its very widest sense). Such a result would be unjust and inharmonious with the cost principle. In the Sixth Chapter the difference in the intensity of different forms of labor was pointed out. This same factor must be taken into consideration here. A man will not perform more intense labor for the same wages that he will perform that which is less intense, if there is nothing to prevent him from changing his occupation. He will always demand sufficient to pay him for the extra intensity of his labor. If he does not get it he will immediately change his occupation and apply himself to the easier work. Once the axiom, that men seek to gratify their desires with the least exertion, is admitted, all these propositions follow as logical deductions. It is thus that the Cost Principle can be established and the wages of each occupation be adapted to the intensity of the labor involved, without the necessity of elaborate statistics and interminable and intricate mathematical calculations necessitated by a State Socialistic regime. Liberty works automatically. Tyranny ever has to bolster itself up with elaborate machinery, which is always getting out of order and producing the most unlooked for and grotesque results. |
| VS-11.27 | It may be objected to this, that all men cannot change their occupation at a moment’s notice. A man who has been brought up as a bricklayer cannot suddenly become a shoemaker. This is greatly true. Such radical changes are rare and are not necessary to the theory. If 10 per cent. or even 5 per cent. of the men in any given occupation, were to engage in other kinds of work, it would very materially increase the wages in that occupation. When we consider that many of the changes involved,, merely mean changes from employe to employer in the same line of business, the position does not seem at all strained. The equality of wages in the different trades, will be maintained principally by the number of recruits to the rank of workers. Boys choosing an occupation are governed largely by their special tastes and by the wages paid in various callings. Any occupation which offered special inducements would soon be crowded with new workmen and so competition would reduce their pay. On the other hand, any occupation promising but a poor opening would gain few new recruits and, consequently, those engaged in it would be able to obtain higher pay for their services. |
| VS-11.28 | But the difficulty of people changing their occupations is much overestimated. Under the present system, those occupations which require special training, are subject to much less competition than those which require no such training. This is simply due to the fact, that thousands of persons cannot spare the time and money necessary to special training, and so are forced to do the commonest kind of manual labor regardless of their adaptability to such a life. This is merely usury in another form. Labor unions also have a decided tendency to prevent a man from changing the occupation he has once chosen. I have no wish to decry labor unions. They have often been labor’s only weapon of defence against encroachments of capital. In their way they are very good examples of voluntaryism as it exists to-day. But they must not be regarded as anything more than mere weapons of defence, to be cast aside as the conditions which called them into being are outgrown. |
| VS-11.29 | Ideas of social caste also tend to prevent the free choice of an occupation, and many other forces are at work in a similar manner. Yet in spite of all the rigidity of our present system, it is marvelous how many men do change their occupation. This is especially true in the Western States, where these forces are less felt. But even in the East it is not unusual for a man to enter one of the professions after devoting many years to other callings. How much more may we not expect in this direction when these artificial barriers are removed. |
| VS-11.30 | One other factor still remains; that of which I have spoken in the Chapter on Land as the “economic rent of intellect.” A man who has special ability in any direction, will, under free competition, be able to obtain more wages with less exertion than others engaged in the same occupation. This is not strictly in harmony with the cost principle. But this could not be prevented by any system other than Communism, which, being a denial of competition, and consequently of Equal Freedom, stands more fundamentally condemned than does this slight deviation from our guiding principle. But even this inequality, like the economic rent on land, would tend to decrease. |
| VS-11.31 | Of all the thousands of men forced by circumstances to perform the commonest labor, many are far better equipped mentally and physically for the professions, and would have made good doctors and lawyers instead of inferior laborors. On the other hand, many men of a mechanical turn of mind go into business and become unsuccessful merchants instead of competent artizans for fear of losing social caste. Suppose Herbert Spencer’s father had lost what money he had during this great philosopher's infancy, where would the Synthetic Philosophy be to-day? Mr. Spencer would have made a mighty poor hewer of wood and drawer of water, and probably such a life would have killed him long before he reached manhood. May it not do the same with thousands of others? The fact that nearly all the great men have been children of parents in comfortable circumstances seems to be in harmony with such a conclusion. And the exceptions to this general rule form almost conclusive evidence of the truth of such as assumption. I think I may say, that in every case where the child of really poor parents has become famous, he has received material assistance from those in better circumstances. This shows that in some cases at any rate, there is much genius among the poorer classes if conditions are favorable to its development. The fact that at every crisis in the world’s history, men seem to spring up who are especially fitted for such times, can only be rationally explained on the hypothesis, that there is always a large supply of such men awaiting such an opportunity. Thousands of them die in obscurity where one finds himself amid the conditions which develop his ability. From these and similar facts we may reasonably expect the crop of men of great ability to be quite large as soon as opportunities are favorable for each to develop his best characteristics. |
| VS-11.32 | Under free conditions there would be nothing to prevent every man from engaging in the occupation for which he was best fitted. So that, guided by self interest, nearly everyone would sooner or later find himself engaged in the moot congenial occupation. This would inevitably result in a great increase in the standard of ability in every occupation. Men who are to-day considered as possessing extraordinary ability, would find themselves but little in advance of the rank and file of men in their vocations. The eminent success achieved by some men to-day is largely due to the fact that they are the right men in the right place When all artificial restrictions are removed, selfishness will impel every man to find the right place for himself. So, while free competition may not produce absolute equality of ability, it will tend to reduce to a minimum the inequalities of the wages received by men of different kinds of ability. Thus the economic rent of intellect, like the economic rent of land, would have a perpetual tendency to decrease under freedom, and for the same reason, namely, each individual would be put to his highest use, thus reducing the inequality between them. |
| VS-11.33 | All these forces, or rather, all the manifestations of the same force – self interest – would be just the same regardless of the productive power of the community. Once establish free conditions, and the laborer must inevitably reap the full product of his toil. The greater that product is, the greater will be labor’s reward. The development of labor-saving machinery, improved methods of production and everything that tends to increase the total product of the community would benefit the laborer, either by increasing his wages, decreasing his hours of labor, or by a combination of the two. |
| VS-11.34 | What the average wages would be under the cost principle, I should be afraid to say. When we consider that, at every step in its production and distribution, every article has to pay rent, interest and taxes, we get an idea of how enormous the sum of surplus value must be. When we add to this the fact that those, who to-day live off the toil of others, would have to produce for themselves, we see that the total product would be greatly increased. And when we also take into consideration, that the productive power of those who now labor would be tremendously increased, as each would perform the labor best adapted to his ability, and as the occasion for strikes being removed, men would not waste their energies in that way, some idea of the stupendous possibilities of such a system begins to dawn upon our intellects. |
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