The Principles of Economics Part 34

-- I. IMPERSONAL AND PERSONAL SHARES OF INCOME

[Sidenote: Functional vs. personal distribution]

1. _Under the t.i.tle "the social aspects of value" are to be considered the influences exerted upon incomes by various social acts, ideals, and inst.i.tutions._ The incomes from the wages of free labor and those from the rent of wealth, as studied in the abstract theory of value, are alike in their impersonal aspect, their relation to utility. But while wage flows from a personal source--is an income appearing to reward the personal effort of the laborer, the income of the wealth-owner is due to the uses of goods. In the abstract theory of value we do not seek to get behind this impersonal phase of rent. The income arising from goods goes to the de facto owner of the goods. We do not ask how the goods first came into his possession, whether through labor or as a gift, whether stolen or inherited. Indeed, the economic theory of compet.i.tive rent may be said not to recognize the personal fact of ownership; it is concerned with the impersonal fact of usufruct. The theory of economic rent, of time-value and capital, and of wages, as measured by efficiency, is impersonal, is a study of functional distribution. In the problem of monopoly the personal factor is more prominent, but the economic study of rent cannot well stop there.

[Sidenote: Social inst.i.tutions and personal incomes]

An answer, at least in broad outline, must now be given to the question why some men are permitted to hold wealth as their "own," that is, as "property," while other men are propertyless. Why do the owners exact payment for the use of goods, and why are they allowed by their fellows to do so? Back of these facts is a great system of social inst.i.tutions that helps to determine what men will do. Market value is a social fact; price is determined by the bidding of men under the existing social and political conditions. These broader social aspects of value remain for consideration. The influence of lawmaking, of collective action, and of social inst.i.tutions on value must be noted. Incidentally, this has been done in speaking of patents, political monopolies, and related questions; but mainly the subject has been viewed from the individual standpoint; now it must be looked at more fully from the social side.

[Sidenote: Harmony of the studies of impersonal and of personal distribution]

2. _The study of personal distribution should include a further explanation of the various elements that unite to form the individual's income._ "Distribution" in economics is the reasoned explanation of the way in which the total product of a society is divided among its members. It is a logical question and not an ethical one. The economist first asks, What is the effect of utility on value? and, next, What is the relation of these goods to the personal incomes of the members of society? It is not his peculiar part to say whether this is the best distribution in an ethical sense, yet in pursuing the question of distribution one comes to the border of certain moral questions.

The impersonal and the personal views of distribution are not, however, contradictory; they are different aspects of the same question. It cannot be said that the a.n.a.lysis of economic rent is a purely abstract piece of work. In fact, the impersonal view of distribution is essential to an understanding of the personal view of it. The one gives general principles, the other the special cases. In the practical economic issues of the day, the most urgent need is a better popular understanding of the abstracter theory of value. It is a guiding thread through otherwise bewildering mazes.

[Sidenote: Composition of personal incomes]

The actual incomes of individuals are made up of different elements. The wage-earner and the salaried man are rarely quite without material wealth. The enterpriser gets some income also in the form of contract interest, or as rent from machinery. Actual personal incomes are therefore a sum of various functional or impersonal incomes. The earnings of every agent may be thought of as always going either to some individual or to some group. By social convention the receiver of incomes that are not personal gifts is supposed to have produced them.

This involves the great a.s.sumption that the owner of a piece of land has produced or contributed in some way to society an amount equal to the rent. This may be true in many cases, but in many cases this view cannot be accepted without close scrutiny.

[Sidenote: Law in relation to wealth]

3. _Property and wealth are respectively the personal and the impersonal, the legal and the economic, aspects of productive agents._ Law holds an important place in the discussion of actual economic questions. This fact was not overlooked by John Stuart Mill, and it has been far more clearly recognized in the last few years, especially by the German economists. Political law in the broadest sense, as embodied in the state, is, in the first place, a set of rules to guide the conduct and regulate the relations of men in society--a legal code; it is, in the next place, a governmental machine to determine disputes between men--a judicial system; and it is, finally, physical power to bring contestants into court and to secure and protect their rights--a police force. Whether acting through legislature, courts, or police, in all its dealings with wealth the law is predominantly personal. The question the law asks and answers regarding wealth is not _What_, but _Who?_ Who is the owner, who should control, receive, enjoy the income?

Economic wealth consists of scarce things, of valuable agents, and because they are scarce, men quarrel over them. Because of the impersonal economic fact that a field and a machine produce scarce goods, arises the legal question as to which man is ent.i.tled to enjoy them.

[Sidenote: Property and wealth]

In the case of material things, property value and capital value must be exactly equal. Property rights cover the ownership of a material thing.

Material property consists of things viewed with reference to ownership; capital consists of the same things viewed with reference to their economic services. There are other property rights besides those in material things, various immaterial rights controlling the action of the individual and thus giving a sort of ownership of the individual's actions. Such are patents which forbid other men making a particular kind of machine; copyrights which forbid other men printing certain writings; legal contracts that limit the action of men in various ways, and thus appear to abridge their liberty.

-- II. THE ORIGIN OF PRIVATE PROPERTY

[Sidenote: Property and income]

1. _Property is ownership, the legal control over the sources of economic income._ The Latin word property means ownership, and hence that which pertains to the individual, that which is a man's own. The control of property is greater or less. The law makes between property rights and equity rights certain subtle distinctions which have their reason in the history, if not in the logic, of the law, but which are not essential to economic discussion. What we are interested in are the equitable claims of men to wealth rather than the technical property rights. With that thought let us consider the value of the control of wealth. If a farm worth ten thousand dollars is mortgaged for five thousand dollars, its economic worth is ten thousand dollars after as before the mortgage, but the equitable claim is divided into two shares of five thousand dollars each. The value of the property right cannot, in a reasonable view, be greater than the value of the economic wealth it covers. There is much confusion in the law of taxation on this point.

The law treats the farm as property and the debt upon it, whether secured by a mortgage or not, as another body of property. Needless to say, this leads to absurd conclusions in reasoning, and to gross injustice.

[Sidenote: Forms and modes of ownership]

There are different forms of ownership: first, private, as that of individuals, families, partnerships, or corporations; second, public or state, as the ownership of the state house, the highway, the Adirondack forest-reserve or the Erie Ca.n.a.l. These are equally effective as against the claims of outsiders, but the rights of those inside the circle of ownership differ. For example, the rights of one shareholder against another, or the rights of one member of a family as against another, are not the same as the rights against outsiders. Private property is the characteristic feature of our present industrial society, but it exists side by side with state property and with many intermediate grades between private and common property. Private property, while attacked on some sides, is usually accepted without question; but in this age of inquiry its origin should be examined, its limits and the reasons for them should be noted, and its purpose, faults, and effects should be set clearly before the judgment.

[Sidenote: Various theories of property: Occupation]

2. _The older theories of the origin of private property are those of occupation, conquest, labor, natural rights, and law._ The theory of occupation is that property is based upon the priority of claim of one who finds wealth without an owner and appropriates it. This, to be sure, is a statement of what happens in the settlement of new countries, but it is not an explanation of the property rights that are arising every moment, nor does it give a logical reason for the continuance of ancient property rights.

[Sidenote: Conquest]

The same can be said of the conquest theory, the theory that property is based on force. It applies to the invasion of the Roman provinces by the barbarian tribes who divided the country and enslaved the population. But it rarely applies to present-day happenings and at its best it cannot, to modern minds, "justify" present property rights.

[Sidenote: Labor]

The labor theory, meeting some queries where others fail, is that ownership is based on production, on the right of a man to that to which his brain and his muscle have imparted value. It is evident that this test leaves without explanation or justification a great number of things that do exist and have existed as property.

[Sidenote: Natural rights]

The natural-rights theory is that property is necessary for the realization of the dignity of human nature. This, if true, would be not so much an explanation as a condemnation of private property as it has existed in most cases, as millions of men are in every land all but lacking in property, and inequality of possession is everywhere marked.

This theory expresses, however, one of the worthy ideals of modern democracy. Although, in common with the various other "natural rights"

theories, it must to-day be deemed too absolute and too individualistic, it contains a far-reaching truth, of which due account must be taken in our social philosophy.

[Sidenote: Law]

The legal theory is that property exists because the law says it shall.

This expresses a truth, but is no more than a truism. The law determines the limits of property, but what determines the limits of the law? What practical or social justification is there for pa.s.sing and continuing such law? The legal theory does not explain anything finally. Each of these theories has its defects, but each points to some fact important and significant, at certain times and places, in the explanation of this widespread inst.i.tution.

[Sidenote: Property in early societies]

3. _The inst.i.tution of private property has evolved under diverse conditions; the question of its origin is not the same as that of its present justification._ In early societies individual property rights were not very clearly marked. Every tribe a.s.serted against other tribes, and tried to uphold, by war, its claims upon its customary hunting-grounds; but the claims of the individual hunter and fisher within the tribe did not often come into conflict. Private property at the outset was in personal possessions, ornaments, weapons, utensils, which were very meager in that primitive society where it was the custom "to go calling with a club instead of a card-case." Only later came individual property in land. A few years ago it was generally believed that the organization of the old German tribes was politically an almost perfect democracy, and economically a communism wherein all had equal claims on the land. To-day this opinion is very seriously questioned. It seems probable that the so-called communism was really an oligarchy of the favored, and that the ma.s.ses lived in subjection, cut off from all but a meager share in the public property.

[Sidenote: Origin vs. present justification of property]

However that may have been, strong forces within historic times have put an end to the common ownership and tillage of land as it existed among the serfs of Europe. The common tillage of land was shown by experience to be wasteful. Not only did compet.i.tion tend to bring the economic agents into more efficient hands, but the movement was furthered by many acts of injustice and violence on the part of those in power. Inquiries into the origin and development of this social inst.i.tution are interesting and helpful in forming an estimate of its present significance, but the problems of the past are not those of to-day.

Whether or not the ancient beginning of property in Europe was in violence and evil has but a remote bearing on the question as to the present working of it. Social conditions and needs have not changed more than have the forms and limits of property itself. Each generation has its own problems to solve, and each must test existing inst.i.tutions by their present results, ignoring for the most part the evils of the past.

[Sidenote: Social expediency the ground of private property]

[Sidenote: Shifting limits of the law of property]

4. _Private property may now be justified mainly on the grounds of social expediency._ This is a broad explanation under which can be brought the many varying conditions; but it has the fault of a broad explanation, that it needs be further explained. Conceding that private property works hardship to the individual in many cases, it must be justified on the ground that, on the whole, it furthers the progress of society. Private property is looked upon by some as merely reflecting or expressing the economic inequalities of men; the man poor in ability is the man poor in property. It is looked upon by others as exaggerating, indeed at times reversing, the economic abilities of men. In general, it must be judged by this test: Does it further the welfare of society better than would any alternative plan for the control of economic wealth? The question is not whether it is faultless, for no human inst.i.tution is so. Nor must it be a.s.sumed that property is a fixed and uniform mode of control; there are many kinds of property. Different parts of wealth may be treated in different ways: there may be private property in wagons, and public property in roads; private property in houses, and public property in forests; private property in automobiles, and, in some countries, public property in railway-carriages. But any rule of property, like any other workable human law, must be applicable to all individuals that meet the conditions. Hence any human inst.i.tution must be judged by its average working, not by exceptional cases.

The very acceptance of the theory of social expediency implies the need of a readjustment of the inst.i.tution of private property; for private property, as it is found to-day, is complicated by many historical accidents. Survivals of ancient injustice and relics of feudal inst.i.tutions that rest on no vital reason remain in our new country as well as in the older ones. The limits of property in many respects are determined, not according to the logic of expediency, but by the social inertia which often governs succeeding generations.

-- III. LIMITATIONS OF THE RIGHT OF PRIVATE PROPERTY

[Sidenote: Public interests limiting property rights]

1. _Unmodified private control of property is unknown: the public makes many reservations in its own interest._ Few realize the manifold ways in which property rights are limited. There is, first, a whole set of limitations to prevent nuisances. An owner in many situations is not free to build a slaughter-house or to start a glue-factory on his land.

Property is governed by general public utility, and anything that threatens to become a nuisance or a danger is excluded. When, under the right of eminent domain, the state or the railroad takes the old homestead from its owner who would live and die there, the payment of money damages to him does not make this the less a limitation of his property rights. Rights of way on property exist either through contract or by prescription permitting its public use. Most important of all limitations is the right of taxation, by which society takes more or less of private incomes for purposes of which the individual owners may in no way approve.

[Sidenote: Private claims limiting property rights]

2. _The law enforces a mult.i.tude of private claims against private owners._ A variety of rights called eas.e.m.e.nts or servitudes may attach to private property, modifying its exclusive use. Leases for any period are a virtual limitation of the control and division of the ownership.

Both the holder of the lease and the owner of the property have certain rights before the law. The lender of money secured by mortgage has a legally recognized and enforceable interest in the mortgaged wealth.

Property is left in trust for the benefit of persons or of inst.i.tutions or of the public, and is administered by trustees who are strictly bound to the execution of the terms of their instructions. Contracts of many sorts are entered into by owners, limiting their control in manifold ways, and the law enforces these contracts. These all form a complex of equitable claims, which together equal in value one undivided property right, which in turn equals the value of the wealth. These claims mutually limit each other (whether they be called equitable claims, or liens, or property rights), and wealth is not multiplied by multiplying the claims, as the lawmakers unfortunately sometimes a.s.sume to be the case.

[Sidenote: Limitation of bequest]

3. _The right of bequest, or of gift at death, is limited in various ways in different countries._ The term bequest implies a will, usually a written will in which the person, foreseeing death, has expressed his wishes as to the disposition of his property. It is said sometimes that bequest is a "logical" result of private property, but the law does not treat it as such. In countries where hereditary aristocracies exist, primogeniture is in some cases required by law, in others so strongly favored by public opinion that it is practically always followed. Custom limits bequests in England to members of the family, and wills giving outside the family are rare, and are almost always broken in the courts.