Speculations from Political Economy Part 1

Speculations from Political Economy.

by C. B. Clarke.

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.

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" acc.u.mulates in the branch banks. The secretaries and managers of the great joint-stock banks do not let their capital idly acc.u.mulate; 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 quant.i.ty 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 ill.u.s.tration. 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 ill.u.s.tration 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 quant.i.ty 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 pa.s.sed 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 cla.s.ses 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 cla.s.s, 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-h.o.e.r 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 h.o.e.rs, 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 compet.i.tion 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 circ.u.mstance 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 s.p.a.ce 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 a.s.suming 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 acc.u.mulation 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 antic.i.p.ate 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.

Professor Henry Fawcett's _Lectures on Free Trade_ is a sound and admirable book: it is occupied a good deal with the practical question why so few foreign nations have adopted Free Trade, and how such foreign nations are to be converted to the orthodox creed of Adam Smith. But, as I think, unfortunately Professor Fawcett has in that book used the words Reciprocity and Retaliation pretty freely. Their mere use is enough to fortify a French or American Protectionist in his present policy; he naturally says, "The English Free-traders themselves admit that we are making money out of them: we take their gold for our wine and wheat; we refuse to give our gold for their cutlery and broadcloth: those English have now to come to us whining for Reciprocity; as to their Retaliation we are not alarmed--we know they _must_ have wheat and _will_ have wine." I would wish to expunge the words Reciprocity and Retaliation from the subject, as being words merely suggestive of false views. But the most fatal course to the adoption of a Free Trade policy by foreign nations has been our plan of humbling, begging (and indirectly giving a consideration for) Commercial Treaties. Such a course is enough to (and does) counterbalance with foreign nations all our theoretical writings about Free Trade. We go to France and say, "We will let in your wines at a lower duty provided you do us the favour and give us the advantage of lowering your duties on English manufactures." I cannot conceive any way of putting the matter more strongly calculated to convince the French that we believe we lose by purchasing their wines and gain by selling them our manufactures.

It appears to me that if we wish to convince Europe and America of the truth of Free Trade (as understood by our political economists), our proper course is to adopt Free Trade ourselves FULLY (if the principle is good for wheat it is good for tea--I shall return to this), and then to say to foreigners, "See how we prosper under Free Trade." If the Americans continue to maintain Protectionist duties on our manufactures, our line of conduct is not to offer to pay them indirectly to relax those duties, but to say, "You are losing more by your duties than we are; the proof of the pudding is in the eating." If I believe, as I do, that the Americans are gaining less wealth under Protection than they would under Free Trade, I cannot imagine any plan less likely to convert them to my views than my going to them and saying, "We will give you 5,000,000 sterling (or some valued political advantage) if you will alter your mistaken policy." If this course did not confirm the Americans in the very deepest suspicions that Protection is really advantageous to them, and that we in our inmost heart think so too, my ideas of human nature are altogether at fault. But every foreign debate, whether in France, Germany, or America, on Free Trade, convinces me that I am not mistaken in the effect which I attribute to our prayers to every foreign nation to grant us a Commercial Treaty.

3. UNIVERSAL FREE TRADE.

Wheat is now admitted to England free of duty. Tea pays a duty of about 4,000,000 sterling a year. This is called a duty for revenue, not for protection. Tea is an article of universal consumption; the tax on it is open to the objections against a poll tax or hearth tax, viz. that by it many a poor old woman is taxed as heavily as far richer people; indeed, owing to the poor consuming the lower-priced teas, they are by the present duty taxed at a higher rate than those who can afford the more expensive teas.

The reply in defence of these anomalies is, "We have to raise 4,000,000 sterling by a duty on something; on whatever we put it, it will no doubt be bad." Granting, however, this for a moment, the onus lies on the defender of the existing tariff to prove that it is better to raise the 4,000,000 required from tea than from wheat, or than to raise 2,000,000 from tea, 2,000,000 from wheat. Mr. Raban, a leading tea-planter in a.s.sam, has observed that if the duty on tea was replaced by one on wheat to raise the same gross amount, the pressure on the English poor would be less; while an encouragement would thus be given both to tea-planting in India and to agriculture in England. I adduce this case of the duty on tea merely to bring out strongly the fact that Free Trade in wheat is not universal Free Trade. I do not recommend that the duty on tea should be replaced by other duties: I am going to raise the question whether it should not be replaced by direct taxation.