Speculations from Political Economy
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C. B. Clarke >> Speculations from Political Economy
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SPECULATIONS
FROM
POLITICAL ECONOMY
BY
C. B. CLARKE, F.R.S.
INTRODUCTION
The following nine articles are "Speculations," by no means
altogether recommendations. They are _from_ Political Economy, i.e.
they have nearly all of them been suggested by considering mere
propositions of Political Economy. Some of them are old, or given me
by friends: some are, I believe, new: these many persons will set
aside as unpractical or impracticable, as that is the approved word
by which people indicate that an idea is new to them. The topics of
the nine articles have been largely taken from those now under
political discussion, but they can hardly be called ephemeral; and,
though they do not form a treatise, they will hardly be called
disconnected. As they are speculations, no trouble has been taken to
work out suggestions in detail, or give the "shillings and pence"
correctly.
CONTENTS
1. EFFICIENCY OF LABOUR
2. RECIPROCITY AND RETALIATION
3. UNIVERSAL FREE TRADE
4. THE RANSOM OF THE LAND
5. MAKING THE MOST OF OUR LAND
6. FREE TRADE IN RAILWAYS
7. REFORM IN LAND LAW
8. EQUALISING OF TAXATION
9. WEALTH OF THE NATION
SPECULATIONS
_FROM POLITICAL ECONOMY_
1. EFFICIENCY OF LABOUR.
Political economists have not overlooked efficiency of labour: they
have underestimated its importance in the opinion of Edward Wilson,
who has supplied me with the examples and arguments that follow and
who has verbally given me leave to publish as much as I like.
The English workman, especially in a country town of moderate size,
regards capital as unlimited, employment ("work") as limited. A wall
six feet high is to be built along the length of a certain garden: if
one bricklayer is employed, the fewer bricks he lays daily the more
days' employment he will get; if several bricklayers are employed,
the fewer bricks one lays daily the more employment is left for the
others. It thus appears that the more inefficient the labourer is,
the better for himself, his fellow-handicraftsmen, and for "labour"
in general: the more money is drawn from the capitalist.
There is a grain of truth in this view with respect to petty
unavoidable repairs in a narrow locality: but the capital spent on
such is as a drop in the ocean compared with that embarked in a
single large work. Consider the case of the London Building Trade, as
practised in the suburbs on all sides of London. The London
bricklayers thoroughly believe that it is their interest to be
inefficient: it is said that they have a rule that no bricklayer
shall ever lay a brick with the right hand; they have also a rule
against "chasing," i.e. that no bricklayer, whatever his skill, shall
lay more than a certain number of bricks a day; they believe that if
the bricklayer laid a larger number of bricks he would get no more
pay for a harder day's work, while the "work" would afford employment
to a smaller number of labourers. Look however a little further. The
speculative builders round London compete against each other, so that
they carry on their trade on ordinary trade profits. Such a builder
is building streets, house after house, each house costing him £800,
and selling for £1000 say; and this, after paying his interest at the
bank, etc., pays him about 10 to 15 per cent on his own capital
embarked. Suppose now that the bricklayers increase their
inefficiency either by a trade rule or by a combination to shorten
the hours of labour. The cost of each house is increased £50 to him:
nothing in the new bricklaying rules or rates affects the purchasers;
the builder estimates that his profits will fall to 5 to 8 per cent
on his capital. He does not care to pursue so risky a business at
this rate of profit; he determines to contract operations. When he
goes to his bank, a branch of one of the gigantic London joint-stock
banks, at the end of the quarter, the manager of the branch comes
forward as usual ready to continue the bank advances; but the builder
says simply, "The building trade is not so good as it was," and
declines. The increased cost of bricklaying has affected all other
speculative builders in much the same way; the consequence is that
"gold" accumulates in the branch banks. The secretaries and managers
of the great joint-stock banks do not let their capital idly
accumulate; they buy New Zealand 6 per cents, or transfer to
Frankfort or New York the capital that, but for the rise in cost of
bricklaying, would have gone to the London bricklayers.
In this case it is easy to see that the quantity of work to be done
is not limited. Should the cost of building diminish but a little,
the rate of profit of the builders on their _own_ capital (in many
cases not one-tenth of the capital they employ) will run up to 20 or
30 per cent, or even more; and at even a 20 per cent profit the
bricklayers would find that a perfect rage for building would set in.
Every speculative builder in the trade would strain his credit to the
utmost, and take up every £100 from his bank that he could induce the
bank manager to let him have.
A second illustration. Forty years ago, on our farm in the south of
England, two men with flails used to begin threshing wheat in the
long barn about 1st November, and used to thresh till 1st April. They
got eight shillings a week with us, but in adjoining counties seven
shillings (and even six) were winter wages. Now the steam threshing-
machine will empty that long barn in two short days' work. It takes
half a dozen men to do the work, and they get about fifteen shillings
a week, though their labour is much shorter and easier than that of
the old flail men. At the same time our farmers now are much poorer
men than they were forty years ago: they have less capital, they have
made for many years past a low rate of profit, and they are
frequently themselves complaining that they cannot afford to pay
their labourers well, and inferring that they should get Protection
back again in some shape or other. The labourers on their part
imagine very generally that their increased wages for less work are
due to Mr. Arch and agitation; that the employers of labour will
never pay more than is wrested from them (this is in large measure
true); and that employers must pay whatever agitators are strong
enough to demand (this is wholly erroneous).
In this case it is evident on the surface that the labourers who
thresh with the steam-thresher are more efficient than the flail-men:
their labour is worth the half-a-crown a day to the employer, and
therefore the employer, however poor, can afford to pay it as he
receives it back with a profit. On the other hand, if the flail-men
were raised from the dead, no farmer would now pay them even eight
shillings a week for threshing; their labour would not be worth even
that.
One illustration more. Thirty years ago there were few more wretched
trades than the shoemakers of Northampton. Wages were low, the labour
was severe, the social condition of the workmen was necessarily low
also. The sewing-machine, with some special adaptations to make it
sew leather, increased about sixfold the bootmaking power of a
workman. It is needless to say that the Northampton shoemakers met
the introduction of this machine with the fiercest opposition: they
said five-sixths of their number must be thrown out of employment.
The struggle was won by the machine (as in other cases); shoemakers'
wages have ruled 50 to 100 per cent higher ever since, at the same
time that the shoemaking population has largely increased; and the
social comforts and character of the workpeople have improved vastly
too. This is an example that has always puzzled the workmen
themselves; but it requires no explanation after what has been said
about the efficiency of labour. The puzzle to the shoemakers is what
becomes of the additional boots and shoes made. They do not reflect
that, even of a necessary of life, only a certain quantity is used at
a certain price. Nothing is more necessary in London, especially in
winter, than coal; but, when coal some years ago went up to 40s. a
ton in London, it was marvellous how people in all ranks managed to
reduce their consumption of coal. Much more in the case of boots,
which will bear the cost of export to remote countries, did the
demand increase as the price fell. A fall of 10 per cent only in the
price of boots would cause every wholesale boot exporter to export on
the largest scale. No doubt the invention of a self-acting machine
which should turn out 1000 pairs of boots an hour at a nominal cost
of workmanship per pair would reduce the shoemakers of Northampton to
idleness and starvation. But in practice it has rarely happened that
any machine has been introduced in any trade that has thus completely
choked the increased demand. It has happened often that the workmen
who could only work the old way, and were not able to take up the new
machine, have been reduced to starvation. Even then, after this
generation has passed away, the new machine-workers have been better
off than their predecessors.
Employers of labour cannot pay as wages more than the labour is
worth: no organisation or rules will make them. But employers may pay
a good deal less than the labour is worth, and often have done so.
However great their profits, there is, according to J. S. Mill,
always a tacit understanding among all employers of labour to pay the
minimum the labourers can be induced to accept. It is only by
combination that the labourers can get the full value of their
efficiency. Here Mr. Arch comes in: I have little doubt that the
flail-threshers might, under a well-managed large trade combination,
have got nine shillings a week instead of eight shillings forty years
ago.
But every rise in wages gained by the workmen, unless springing from
or in conjunction with an increase in efficiency, will tell against
themselves; it must increase the price of the article, whether
houses, wheat, or boots; this must diminish the demand for the
article, and this must throw some of the workmen out of employ.
It is difficult to find an example of price of wages which presents
any difficulty of explanation when we apply to it the consideration
of efficiency. If bricklayers were to offer to exert themselves to
the utmost, and do in eight hours the same amount and quality of work
they now do in nine, the speculative builders would doubtless be
willing to give the same wages for eight hours' work that they now
give for nine. In case the labourers by increase in their efficiency
are able to get higher wages, the choice will (in general) lie with
them how much of the increase they take in increased money wages, how
much they take in shortened hours of labour. We thus see how, in an
uncivilised community, owing to the inefficiency of their labour,
their whole time and energies are expended on their hunting, or
otherwise providing bare subsistence. The greater skill of our
civilised labourers, working with machines provided by our science,
and profiting by our fixed capital (as our railway tunnels and
embankments), is vastly more efficient: it ensures the labourers a
certainty and regularity of food which the savage does not enjoy, and
provides him a certain margin of leisure beyond what the inefficient
savage labourer can count upon; it also provides the whole surplus
production out of which the intellectual and leisure classes are
supported.
It is to be noted that an increase of efficiency in any industry (and
very largely in the case of industries producing generally essential
utilities) raises real wages in all other industries, and this,
whether the particular trade gains (as we have seen it nearly always
do) or loses, as is conceivable, though rarely occurring. Thus, if
the introduction of a boot-sewing machine lowers the price of boots
50 per cent, this can have no effect in lowering the money wages of
farm labourers; and, as a matter of fact, the fall in cost of boots
has sensibly improved the position of farm labourers. In the same way
the superior efficiency of carriers by railway over the old road
carriers has diminished the cost of coal and all articles (the bulky
ones most sensibly) in all parts of England. There thus arises the
instructive result that handicrafts in which there has been no
improvement in the last forty years have obtained a rise of real
wages (amounting in some cases to 50 per cent) by the improvements in
efficiency in all the trades around them.
To sum up: No man in ordinary business will give a price for anything
that he intends to sell again unless he expects to profit by selling
it again. No capitalist will pay a workman to make a table unless he
expects to sell the table for a sum somewhat exceeding the cost of
the wood and the workman's labour. It follows directly that the one
grand object of the workman, both as an individual, a trade, and a
class, should be to improve the efficiency of his labour. He may gain
something by combination and higgling for the turn of the market, but
the limit to what he can get is the value of his labour to his
employer.
In order to attain this improved efficiency the most important
practical aid is piecework. This has done much even in agriculture:
the turnip-hoer by the acre earns more, while he does his work at his
own time with more comfort to himself than the old day-labourer. What
is more important, the men who by head and hand are superior at
turnip-hoeing are able to do the work cheaper than ordinary
labourers, and turnip-hoeing thus falls entirely to the most
efficient hoers, whose efficiency thus again gets constantly
improved. There is no doubt to me that, if the London bricklayers
would arrange to work by contract, they would soon obtain more wages
without being compelled (as they imagine would be the case) to work
more severely or longer hours to gain those wages. If they were more
efficient, nothing could prevent the competition of employers soon
giving extra wages for extra value of work.
But it may, finally, be urged that there is surely such a thing as
over-production. If there is an over-production of boots, trade is
flat, the wholesale dealers find they are making no profit, they stop
their purchases, the workmen are thrown out of employ on a large
scale. To this the reply is that there is almost a necessary
alternation of up and down in every particular trade, whether the
efficiency of the workmen is high or low. If trade is good, the large
dealers will extend their purchases, and very commonly rather over-
extend their purchases: a reaction follows, and _vice versa_ when
trade is bad.
But it must be recollected over-production in all trades at once is
impossible: capital is now not buried in pots by our great joint-
stock banks; if one trade is at standstill the capital is carried to
the most remunerative use that the experienced bank secretaries can
discover. If agriculture is, as we have lately seen it, in a
depressed state for years, inasmuch as wheat is "over-produced" in
America till the price in England falls to 36s. per quarter (and
less), at which it hardly pays to produce it in England; this of
itself implies an enormous spur to all other industries--the real
cost of labour has in them fallen (for the labourer will not be able
to keep to himself the whole benefit of cheapened food)--the rate of
profit in all other industries has risen (_pro tanto_). If we ever do
arrive at a state when all the desires are fully satisfied--when
there is over-production in all industries--we shall have general
reduction in the hours of labour: "efficiency" will take that form.
2. RECIPROCITY AND RETALIATION.
The wealth of England is the sum of the wealth of each individual in
England. An individual may have £10,000 in England, £5000 invested in
Australia. We may reckon his wealth in England either as including or
excluding the £5000, which he could transfer (probably very speedily)
to England in gold if he desired it tangibly. Whichever way we reckon
his wealth and that of other individuals, we shall in like manner in
the sum get the wealth of England: it will be in one case the wealth
in England-in the other case the wealth in England plus the lien
which residents in England have on other countries in the world.
In parallel manner the effective capital of England, which can be
brought into the wages fund, must be the sum of the capital of all
the individuals.
These two self-evident truths are capable of many applications: we
see directly from them that the National Debt, so far as it is held
by residents in England, neither diminishes the national wealth nor
affects the wages fund. We see also directly that any exchange
between an Englishman and a foreigner which gives a profit to the
Englishman gives an equal profit to the English nation.
When a merchant buys 1000 quarters of wheat from America and pays in
gold, he does so to make a profit for himself; but he cannot make a
profit for himself without making an equal profit for the nation. The
exchange of the wheat for gold is profitable to both seller and
buyer; otherwise the bargain would not be struck. A value is added to
the wheat by its being brought from Minnesota (where it is wanted, as
all good things are wanted) to London, where it is much more wanted,
and this increased value is greater than the cost of moving the wheat
from Minnesota to London; this excess is the profit on the exchange
which the buyer and seller divide between them. The exact shares in
which they divide the profit between them depend on some of the most
complicated considerations in the science of political economy.
Indeed, political economy can no more work out a case in figures,
even when every circumstance is given, than political economy can
tell in pounds sterling what should be the rent of a given farm. But
the point required for our present purpose is easy and certain,--
unless the English buyer got _some_ share in the profit he would not
give his gold for the wheat.
The great principle of Free Trade is that in this, and in all similar
cases, the individual shall be left to make what profit he can; that
his dealings with foreigners shall be interfered with by Government
in no way; that he shall not be checked in his operations by import
duties, bounties on exports, staples, or any other of the numerous
obsolete interferences in the statute-book. The principle is that
each individual can manage his own trade better than Government can
manage it for him; that, therefore, Government shall let any
individual do his best in trade his own way, knowing that whatever
profit an individual makes in foreign trade is an equal national
profit.
It may be shortly stated that in the old Protectionist theory,
destroyed by Adam Smith, gold was considered to be wealth. Hence, if
an individual bought foreign wheat for gold, the English suffered a
national loss of wealth, and the foreign nation made a national gain.
It is unnecessary to occupy space in refuting this (to us absurd)
idea, as no refutation can be more satisfactory than Adam Smith's
own.
If I profit on the transaction of buying 1000 quarters of wheat for
gold, I do so irrespectively of all other exchanges by others.
Whether the firm next door to me has succeeded in selling to a Boston
house £2000 worth of Sheffield cutlery or no is a matter entirely
beside my bargain. My profit will depend practically on the movements
in the English corn trade: a small rise in the price of wheat at Mark
Lane between the date of my purchasing by cable the wheat in America
and my selling it at Mark Lane, may give me a large profit, or _vice
versa_. But my exchange of gold for the wheat is a separate
transaction of itself: it stands entirely on its own bottom.
It is perfectly true that if my neighbour in Threadneedle Street does
succeed in selling £2000 worth of cutlery to the New Englander, there
is another distinct national profit to England and to America.
[Footnote: I am assuming for simplicity throughout that every
exchange made by private merchants in this foreign trade is a
successful speculation; if in any particular speculation a merchant
loses, his country loses the same amount. As foreign trade, on the
whole, is an enormous national profit, I am justified in sinking the
particular cases of loss. It may be said, "But perhaps all your
exchange of gold for wheat is a national loss": it is evident that
when the trade takes this form the merchants who import foreign corn
stop their operations instantly; in practice they stop them with
prescient instinct.] But whether he succeeds in making a bargain or
not, I object to being interfered with by Government, and prevented
making my own little profit. If my neighbour is practically deprived
of his profitable bargain by Government action on the part of the
Americans--if they are Protectionists and believe that gold is the
only National Wealth, and put a heavy duty on cutlery--if by doing
this they prevent an exchange profitable to both nations--they stop
TWO merchants from a profitable stroke of business. Whether they
injure the English merchant or the Bostonian would-be purchaser of
cutlery MOST is (as above explained) very difficult to prove in any
well-ascertained instance, but it is quite certain that the
interference of the American import duty causes a loss to each
merchant and to each nation.
Where now is Reciprocity and where Retaliation? We can no doubt say
to the Americans, "As you have injured us in the matter of cutlery,
so will we injure you by putting a duty on wheat." But it is merely
cutting off one's nose to spite one's face. In the exchange of gold
for wheat the division of the profit on one transaction is uncertain,
but in the long run it is probably about equal between the English
and the American merchants, i.e. between the English and the American
nations. (I am not overlooking the fact that the ultimate benefit to
England is cheap bread; but it is unnecessary in the present argument
to follow the food down the throats of the consumers: the wheat is
really worth to the corn merchants what they can get for it from the
consumers.) We cannot stop the corn trade with America by a duty (or
diminish it) without as great a loss to ourselves (probably a
greater) than to them; the retaliation in putting a duty on corn
because the Americans put a duty on cutlery would be (with our
lights) mere spite: it would be as though a farmer who took one
sample of wheat to market and one of barley, should meet a factor who
offered him his price for the wheat, but would not spring to his
price for the barley, and the farmer should thereupon sulkily carry
both his samples home again.
The ideas of Reciprocity and Retaliation are pure relics of the old
Protectionist commercial theory, viz. that there is always a national
loss in parting with gold--that the foreign trade can only be
profitable to England so long as the value of the exports exceeds
that of the imports, so that a continual accumulation of gold may go
on.
Now, first, we may meet this with the abstract scientific argument
that there is no character by which gold can be diagnosed as wealth
from steel or broadcloth. Our merchant who buys wheat for gold could
buy from the Americans wheat for cutlery or wheat for broadcloth. The
reason he gives gold for the wheat is merely because he makes a
better profit by giving gold than by giving anything else in exchange
for the wheat. The nation therefore gets a better profit that way
too.
Descending a little from this abstract argument, our opponent says,
"If you go on buying wheat for gold, and cannot sell your cutlery and
broadcloth out of the country for gold, you _must_ run out of gold."
But the fact has been proved by many years' experience not so to be:
for many years our imports have been some £150,000,000 sterling more
than our exports, while our stock of gold in the Bank of England (and
the gold in circulation) remain the same from year to year. This is
one of those many things (like the supply of meat to London) which
will regulate itself perfectly and insensibly (without any violent
disturbances in trade or the money market) if Government will only
leave the matter entirely alone. If our stock of gold is at all short
our merchants give a little less per quarter for American wheat; the
trade is checked; the sensibility of the market--the experience of
our corn-traders--is such that the balance is preserved with very
slight oscillations. The refusal of the Americans (enforced by an
import duty) to purchase our cutlery, etc., _does_ partially check
the reflux of gold to this country, and does lower sensibly the price
which the Americans get for their wheat from us. Errors in political
economy avenge themselves--often fearfully--on their perpetrators.
But our objector will still want to have explained to him where the
£150,000,000 sterling required in England annually comes from. It is
not essential to, or indeed any part of, my present argument to
explain this; but I will anticipate matters so far as to say shortly
here that this £150,000,000 is, roughly speaking, the interest on
English capital invested in foreign countries paid in cash to the
owners resident in England--it is equivalent to an annual tribute.