| VS-6.1 | Before it is possible to gain a clear idea of what constitute equitable economic conditions, it is necessary to understand the shortcomings of our present system. This involves analysis of the occurrences of trade and commerce as they exist to-day. |
| VS-6.2 | It is not unusual to consider that value is derived from the power of wealth to gratify desires. This is only partially true. Certainly, a value does attach to everything on account of its utility, but this is a very different kind of value from that which attaches to commodities which are kept for sale. The latter are valuable, not because they are of use to their owner, but because he can exchange them for something else. This value is known as price, or exchange value; that is, the value which attaches to goods from their characteristic of exchangeability, as contradistinguished from the value which attaches to them from the use to which they may be out. This latter is known as utility, or use value. It will be readily seen that many things may possess great use value, while possessing no exchange value whatsoever. Air is absolutely essential to our existence, and consequently has a very great use value, but as no one would ever buy or sell it, it has no exchange value. |
| VS-6.3 | The term, use value, denotes the average utility to the community, not the use a given article may be to a certain member of the community. This latter varies with every individual. A coat is of greater use to the man for whom it was made, than to the tailor who made it. It is upon this varying quality of usefulness that exchange rests. Exchange only takes place when each party to the exchange obtains, or thinks he obtains, something which will be more useful to him, than that with which he parts. So both parties expect to be benefited by the transaction. |
| VS-6.4 | The price of goods is often said to depend upon the relation of the supply to the demand. As the latter increases in comparison to the former, so the price increases. As the supply increases in relation to the demand, the price falls. If both remain stationary, or if both increase or decrease in the same proportions, the price remains constant. |
| VS-6.5 | Why is this? It has been noted above that the same commodities may be of varying degrees of usefulness to different individuals. We can even go farther than this. The wants of each individual are various, and the degree of usefulness of each commodity varies in proportion as it is applied to the gratification of a more or less pressing need. To the man who has no clothes, one suit is absolutely necessary. After he has that suit, it is very nice for him to have a second, so that he can change his clothes to correspond with his occupation. But the second suit is of less vital importance to him than the first. The same is true of all subsequent suits. It is upon this difference in the varying usefulness of commodities that price rests. |
| VS-6.6 | Every man is working for his own best interests. He always endeavors to sell in the dearest market and buy in the cheapest. The man dying of thirst in the desert would give everything he possessed for a glass of water. If he could procure it, he would use it for drinking only, because that is its highest use, being the use which is most essential to his existence. Now suppose this same man has enough water to drink, but none with which to wash himself. He will be willing to give a good deal for it still, but not nearly so much as if he were dying of thirst. If he has enough to wash himself, his next demand will probably be for some to wash his clothes. For water for this purpose he will be willing to pay still less. If he is where water is comparatively plentiful, he will want some perhaps to water his lawn, or even to have a fountain in his front yard. But as each of these needs is less imperative than the one which precedes it, he will not be willing to pay as dearly for water for a fountain, as hr would if there were hardly enough for him to wash himself. If he can get enough to supply a fountain for six months for a few dollars, he will not pay $5.00 for a glass of water to drink. He will take some of the water from his fountain for this purpose. So while the uses to which a man can out a commodity are manifold and of different degrees of necessity, the price is determined by the highest desire which the limitations of the supply leave him unable to gratify. As the margin, or desires which are left unsatisfied, increases, the price decreases. Thus it is the “margin of utility” which determines the price. |
| VS-6.7 | The supply of raw material is, in most cases, practically unlimited. How is it, then, that the supply is not always sufficient to gratify all desires, and so reduce the margin, and consequently the price, to zero? Simply because, while every man is desirous of buying in the cheapest market, every one is also anxious to sell in the dearest. |
| VS-6.8 | Every commodity represents to the producer the embodiment of so much labor, as well as yhe possibility of a certain utility. He certainly will not exchange it for one which he can produce with less labor, or for one which is less useful to him. As similar motives actuate all with whom he comes in contact, in a free community he can only exchange his commodity for another which cost the same to acquire, and which, possessing greater usefulness for him, as only the same degree of social utility. |
| VS-6.9 | If an article suddenly acquires an increased utility, people will be willing to give articles which embody a great amount of labor in order to obtain the more useful article. So the producers of that article, will be able to reap a greater reward for their labor than the other members of the community. This immediately causes a number of the producers of other commodities to leave their old occupations and engage in the one which promises higher remuneration. Thus the supply is increased to meet the demand, until the equilibrium is once more established. So likewise the converse holds good. If for any reason the demand for any commodity decreases, the wages of the producers of that commodity fall, and many of them will seek more lucrative positions. Thus an increase in the demand is met by an increase of the supply, and a decrease in the demand by a decrease of the supply. So while exchange values fluctuate considerably, they always trend to remain at the cost of acquisition. The operation of this law is often hindered by such artificial restrictions as trusts, etc., which, by limiting the supply, increase the margin of utility and consequently the price. |
| VS-6.10 | But of what does this cost of acquisition consist? If labor were the only factor in production, no one would be able to obtain anything which he did not produce, unless he exchanged it for some article which embodied an equal amount of labor, or received it as a free gift. But there are other factors which must be taken into account. In the first place, it is necessary to apply labor to land. If this land is monopolized, the holders of it can demand a very great portion of the product of the labor applied to it. Under a form of complete monopoly, the only limit tot this tribute is the portion which the laborer finds absolutely necessary to the maintenance of life. That it does not reach this point at present, is due to the vast areas of unoccupied land in various parts of the world. |
| VS-6.11 | In order to produce anything except the very simplest forms of wealth, money is required to effect the necessary exchange of labor. If a man has a labor-saving machine which increases the productiveness of the community ten-fold, and no one else can obtain that machine, or any substitute for it, without the consent of that man, he will be able to rent it for at least nine times the former average productiveness of labor. By these means the producer will receive twice as much return for his labor as before, but the owner of the machine will receive more than four times as much as the producer. As money is the greatest of all labor-saving machines, for it is representative of all forms of capital, those who are able to monopolize money are able to reap the lion’s share of all the advantages of civilization. |
| VS-6.12 | Thus the twin monopolies of land and money, by means of their tribute, rent and interest, prevent an equal exchange of the products of labor. Under free conditions A, the shoemaker, would exchange a pair of shoes for a coat made by B, the tailor. When rent and interest exist, A has to pay three pairs of shies for a coat, and B pays three coats for a pair of shoes, while the capitalist and the landlord each have a pair of shoes and a coat. |
| VS-6.13 | In addition to rent and interest, profit and taxes must also be added to the actual amount of labor embodied in the commodity – which is known as the cost, or labor value, – before the cost of acquisition is fully accounted for. |
| VS-6.14 | By profit is usually meant, the difference between the price which a merchant pays for goods, and the price at which he sells them. But this is not a sufficiently accurate definition for economic purposes. Such profit is composed largely of rent, interest, taxes, wages and the necessary expenses of business. Economically speaking, profit is that which is left between the cost and the price, after the factors above mentioned have been deducted. Much of this is often due to some special privilege, such as the existence of a protective tariff, patent, copyright, or other similar form of monopoly. But it depends principally upon the existence of rent and interest. With the elimination of these various factors, the cost of acquisition will depend solely upon the labor value. Free competition will then force the price down to the actual labor value, making cost and price equal. |
| VS-6.15 | It should be noted that the labor value does not necessarily mean the actual amount of labor embodied in the identical article, but the amount of labor necessary to produce an article of exactly similar and equal utility. |
| VS-6.16 | In order to be able to think of a labor value, it is necessary to treat labor as an abstract quantity. In reality, of course, it is of various degrees of quality. But, as in everything else, the qualitative differences can be stated quantitatively. Foe example, we say that one gold ring is twice as pure as another, consequently the former is worth two of the latter. So with labor, it can all be measured by a common standard of intensity. The mechanic, we will say, has spent five years learning his trade. The average length of life of men engaged in the same trade, is such as to allow a period of twenty years of usefulness. It is no very difficult task to determine how much more wages he should receive per day, than the man who has not spent those five years learning the trade, and whose period of usefulnes [sic] is twenty-five years. Other factors have to be taken into consideration, such as the amount of money necessarily expended on education, the average length of life in various trades, and the repulsiveness of different occupations, which includes of course the hardness of the work. So in reality, while the various degrees of the intensity of labor present a somewhat complex mathematical problem, it is only a mathematical problem and perfectly capable of solution. This is all that concerns us at present. It is not necessary to work out all these problems in order to see that such a thing is possible. |
| VS-6.17 | Exchange has here been spoken of as existing directly between commodity and commodity. In civilized countries some medium of exchange is used to facilitate the process, but this does not effect [sic] the principles involved. To say that a pair of shoes is worth $4.00 and a coat is worth $4.00, is to say that they are worth each other. Nor does it matter whether each is worth $1.00, $4.00, or $10.00, the equality of value between them is still maintained. The coat and shoes have remained constant factors, while their price as mentioned in money has fluctuated. |
| VS-6.18 | We value money solely for what it will purchase. We would not accept it as money, if it was not capable of purchasing what we need. Therefore, when anything is sold, that is, exchanged for money, it is virtually exchanged for such other commodities as the holder of that money may desire. This exchange is consummated when the money is exchanged for other goods. Economically it may be said to be complete when the first sale was made, for the same reason that a man will give a receipt for money when he receives a note payable thirty days from date, though he cannot collect until the note matures. Money is a lien upon all the goods for sale in the community, and the possession of it is prima facie evidence of some service having been rendered for it. Thus he who has money is rich only from his stored up capacity of buying, and that capacity becomes valuable only as it is exercised. So all exchange may be spoken of as existing directly between commodities and commodities. |
| VS-6.19 | But to return to the main question. It has been shown that rent, interest, taxes and profit are the elements which constitute the difference between the cost of acquisition and the labor value of commodities – the difference between the amount of labor embodied in a commodity, and the price demanded for it. They are spoken of collectively as usury, or surplus value. If this passed directly into the hands of the laborers, the evil would be immaterial. But it does not, and that is where the trouble lies, for it prevents the producers from buying back as much as they produce. It is difficult to understand the extent of this surplus value, until attention is drawn to the large fortunes of many millionaires. A very large proportion of the wealth of the country, is owned by a very small per cent. of the population, and that small portion derives incomes from its usury which are far in excess of its power of consumption, great as that power of consumption is. It saves a surplus annually which is again invested. The result of this is that surplus value has ever a tendency to increase until it absorbs all the wealth of the country. As a result of this, wages ever have a tendency to decrease, until they reach the lowest point at which men will consent to work and to reproduce their kind. So great is the amount of surplus value, that it annually exceeds the total increase of wealth in the United States. Hence the periodical recurrence of times of general bankruptcy is inevitable as long as surplus value exists. |
| VS-6.20 | Another effect of this condition of affairs is seen in this; the surplus value collected by the capitalistic classes exceeds their power of consumption, so the world produces more than it consumes. As this surplus increases, a time comes when the markets of the world are glutted, factories are shut down, laborers are thrown out of unemployment and are unable to pay their debts, small stores fail, wholesale merchants are affected, banks are unable to meet the sudden demands made upon them, and confidence is destroyed. This is another fruitful cause of the great financial panics, which sake the business and industrial world to its centre, and leave the rich, richer and the poor, poorer than before. |
| VS-6.21 | The immediate result of such panics is that all securities are called in. Those who are unable to pay are forced to sacrifice their property at a very low figure, and those who buy realize large profits as soon as times get better. Thus panics have a tendency to further centralize wealth in the hands of a few. Just after a panic, however, and owing to the calling in of securities, large sums are found in the vaults of capitalists. Thus the money market is glutted and interest falls for a short time. All other forms of usury become lower, owing to the general depression, and, by degrees, a more normal condition is reached. Thus it is evident that surplus value is the cause of these periodic convulsions. Abolish surplus value and they will cease to exist. |
| VS-6.22 | The abolition of surplus value simply means that the price of commodities must be limited by the labor-cost of production. In other words, that the product of an hour of A’s labor shall be able to purchase the product of an hour of B’s labor of equal intensity – no more and no less. This is the great Cost Principle which was first proclaimed by Josiah Warren, and almost immediately afterwards by Proudhon and Marx, all of whom arrived at this conclusion independently and without any knowledge of the work of either of the others. |
| VS-6.23 | This cost principle is the common basis that underlies all forms of Socialism. For “Socialism, as such implies neither liberty nor authority. The word itself implies nothing more than a harmonious relationship. In fact, it is so broad a term that it is difficult of definition. ... The word Socialism having been applied for years, by common usage and consent, as a generic term to various schools of thought and opinion, those who try to define it are bound to seek the common element of all these schools and make it stand for that, and have no business to make it represent the specific nature of any one of them. ... Socialism is the belief that the next important step in progress is a change in man’s environment of an economic character that shall include the abolition of every privilege whereby the holder of wealth acquires an anti-social power to compel tribute.” (Tucker, Instead of a Book, p. 364.) |
| VS-6.24 | Starting from this common basis Socialists divide into two distinct armies; State Socialists, who hope, by placing all industries under State control, to make surplus value flow into the pockets of the laborers; and Voluntary Socialists or Anarchists, who maintain that free competition is the one thing needful to the establishment of the cost principle. These are the only two consistent schools of reform. They alone go to the bottom of the evil and suggest an adequate remedy. |
| VS-6.25 | As long as surplus value exists, all schemes for the amelioration of the laboring classes must necessarily prove futile. They are merely attempts to remove the effect, while leaving the cause untouched. It is impossible to show here the manner in which each of them works. One or two examples must suffice. |
| VS-6.26 | A scheme that is gaining much favor in certain circles, is the organization of gigantic co-operative companies. The object of these concerns is to abolish the profit of at least one middleman, and so reduce the price of goods to the consumer. In order to do this successfully, it is necessary to conduct the company on strict business principles. This involves buying goods and labor at the best possible figure. It is upon this principle that the Rochdale companies have been conducted – at least so Carroll D. Wright tells us in his report on Industrial Depressions, – and it is more than probable, that it is to this strict adherence to business principles that they owe their success. Consequently it is futile to expect such enterprises to increase the wages of the laboring classes, except as they do so indirectly by enabling them to purchase what they need at a lower figure. |
| VS-6.27 | The fact that a co-operative company is selling goods below the market price, at once affects that market price. Other dealers immediately cut their prices so as to retain as much of the trade as possible. This in turn necessitates a reduction of expenses, which is effected by a cut in wages. Prices having been reduced on many staple articles, living is much cheaper than before. So men will live on, and will accept, lower wages than formerly. As the co-operative company is forced by competition to buy at the most advantageous terms, it will be unable to do anything to maintain the old rate of wages. While these concerns may reduce the cost of goods to the consumer, they limit the purchasing power of the producer. The saving in profit ultimately involves a corresponding reduction in wages, leaving the position of the wage-earners much as it was before. If any saving is effected, the landlord and moneylender inevitably reap the benefit. The cheapening of living at any place is liable to attract people to that place – usually people with small but permanent incomes – and so increases the rent in that locality. |
| VS-6.28 | Co-operation may be a good thing when viewed from the standpoint of domestic economy, but it is, under existing conditions, a failure from the social economist’s point of view. On a small scale, it may benefit a few individuals. But as it becomes more general, it at once begets evils that counteract the good it does. |
| VS-6.29 | All other schemes to cheapen the cost of living operate in the same manner. Attempts to increase the wages of workers by artificial restrictions can be shown, by similar reasoning, to inevitably result in an increase in the price of commodities. If one trade succeeds in gaining higher wages, the price of goods manufactured by the trade increases and the consumers of these goods have to pay the increase of wages. As the wage-earners are the principal consumers, such attempts result in the benefit of one trade at the expense of all others. If the same policy is pursued by all, the increased cost of living counteracts the rise of wages. Until the cost principle is established, it is futile for labor to waste its energies in such useless struggles. |
| VS-6.30 | To expect men to be satisfied with the cost of an article, when they can get more for it, is absurd. So the cost principle will only be established, when the conditions of commerce are such that no one will be able to get any more. |
| VS-6.31 | In the Fourth Chapter it was shown, that the laws restricting the people from issuing money and from using vacant land were incompatible with Equal Freedom. As these laws are the cause of rent and interest (as will be shown in the following chapters) they stand equally condemned by the cost principle. Nor is this strange. For the cost principle is but the economic statement of the same fundamental principle of equity, which is stated ethically by the principle of Equal Freedom. |
| VS-6.32 | Men cannot be equally free when one is able to live off the toil of another. Every product of labor is created only with the expenditure of a certain amount of vital force. So he who robs me of the product of my labor, robs me of a portion of my life. |
| VS-6.33 | “When throughout a society, the normal relation between work and benefit is habitually broken, not only are the lives of many directly undermined, but the lives of all are indirectly undermined by destruction of the motive for work, and the consequent poverty. Thus to demand that there shall be no breach of the natural sequence between labor and the rewards obtained by labor, is to demand that the law of life shall be respected.” (Spencer, Essays, v. 3, p. 165.) |
| VS-6.34 | These two principles, then – or rather, these two statements of the same principle – are the rules by which we must be governed in our search for better conditions. Sometimes the way will be seen more clearly when examined from one point of view, sometimes when looked at from the other. If either of these principles is permanently violated, the other is set at defiance, and panics, commercial stagnation, political corruption and social disasters are bound to result. |
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