The Funds of Progress

By this time, I imagine, the reader will be wondering how these modern ambitions are to be financed. For at the core of all the spiritual demands of the labor movement there is a perfectly frank desire for more wealth. The consumer attempting to pull down prices and jack up quality is making the same demand from another angle. And all through society there runs an increasing agitation for better cities, for a more attractive countryside, for enlarged schools, for health campaigns, for a thousand elements of civilization which cost money and pay in happiness. Where is this money to come from? It must come, says the radical, out of unearned wealth.

But what is unearned wealth? Rent of land, says the single taxer; the tariff tax, says the free trader; watered stock, inherited fortunes, speculative profits, monopoly prices, ? these have been named; rent, interest, and dividends, say the socialists. Most employers would point to the wages of inefficient workingmen.

There is one item of agreement: a fund of wealth exists which to-day is being diverted into the pockets of those who do no adequate service? we may call that fund the Social Surplus. It is made up of all the leaks, the useless payments, the idle demands, the inefficiency, the extortion and parasitism of industrial life. This surplus is the legitimate fund of progress.

It is quite clear that no sane man wishes to attack the economic life of a nation in any way that would make it less productive. So when editorial writers and financial experts cry out that a certain tax will ruin industry, they are making a charge which would be convincing if it were true. But the trouble is that nine times out of ten they are either dishonest or superstitious. They complain on every occasion with the slightest provocation. They have cried 'wolf’ so often that reformers don't listen any more. Business has a way of shouting before it is hurt, and pretending that the least little thing is the sack of the world. Every labor law, every business regulation, every insignificant tariff change calls forth clouds of gloom pierced by a shriek that panic is upon us. It is a pity, for the chief effect of this latent hysteria is to neutralize whatever wisdom business men have to give. Now in the years to come, we shall have to cut into the unearned surplus of industry. If it is done wisely, the attack will be confined to what is really unearned. But the opinions of business men may be no index of the truth. They will, I fear, make just as much commotion over a tax that hits the surplus as over one that hits production itself. When we attack the parasite they will say it is the tree.

Yet the modern business man is actually beginning to locate portions of the surplus. The worker who loafs is the first to catch his eye; then the inefficient worker. So business men are advocating industrial education as a way of making labor more productive. To employ a less productive worker when a more efficient one is available would be just so much waste. In large business there is a constant effort to cut down costs, and one of the vaunted achievements of the trusts has been to eliminate a host of middlemen, drawing profits for work that need not be done under a proper organization. Then too, a big item in many business houses is rent paid to a landlord. The more progressive manufacturers are beginning to wonder whether the cost of government couldn't be shifted on to these landlords, who seem to be a very unproductive class. So the single tax makes headway among business men, under the slogan 'Untax industry.’

This effort to organize out of existence the unproductive is what is meant by an attack on 'unearned’ wealth. Wherever you can substitute a machine for a man, a good worker for a poor one, a few salaried managers for an army of jobbers, you have located some of the social surplus. The trusts have been the leaders in this work. They have given us a definition of unearned income. It is a payment for an unnecessary service.

Take the case against the landlord. There are people who say that no individual has a right to own any portion of the globe. The earth belongs to all the people born on to it. But that is one of those unimpeachable sentiments which mean very little in practice. In the early days on this continent it would probably have been impossible to open up the West unless land was given away to the settler. There is no sense then in describing the economic rent some of those settlers took as unearned wealth. The case against the landlord is made out only when society has some better way of administering its natural resources. If New York City were capable of managing its land, then landlordism in New York City would have become unnecessary and parasitic. But if the city isn't capable of that task, if it can, on the other hand, spend wisely twenty per cent of the ground values, then landlordism has become twenty per cent parasitic.

Take the charge of the socialist that not only rent of land but interest on capital is unearned. Most socialists seem to imagine that interest is in its very nature a useless payment. The idea is clearly too simple for the facts. Interest would be unearned if society had devised some means of creating capital that didn't require saving by individuals. To a certain extent society has done that. For example, when a city starts to build a subway it needs capital. It can go to the bankers, but it will have to pay a very high rate of interest. It may be that the city could do its own banking and secure the money at a lower rate of interest. In that case the difference between the lower and the higher rate would represent unearned wealth. Now the time may come, I am inclined to think it is sure to come, when the government will be operating the basic industries, railroads, mines, and so forth. It will be possible then to finance government enterprise out of the profits of its industries, to eliminate interest, and substitute collective saving.

There is no blanket case against the landlord or the capitalists. The socialist contention stands or falls by men's ability to propose industrial methods which operate without the need of paying rent or interest. The landlord is an old-fashioned instrument to be superseded as fast as a less costly one can be devised. He is like the stage-coach, useless only when the railroad is possible. He is like the jobber, useless when he is no longer needed. He is like the telegraph, too costly when the wireless is possible. He is like the $100,000 man on a salary, unnecessary when better and less expensive men are ready to do the work.

This it seems to me is the way we shall locate the funds of progress. When a reform administration comes into power it generally begins by cutting out the sinecures, consolidating jobs, substituting competent for incompetent officials. The money saved can be devoted to social purposes. Well, a very capable administration does not stop there. It may eliminate the contractor, and do government work directly, and save a great deal of money in the process. If it has wider plans, it may look for new sources of wealth, as Lloyd George did in England, it may begin to tap the rent of land. Governments can eat more and more into unearned wealth by income taxes, graded drastically, by inheritance taxes on large fortunes. If these funds are spent for civilization they will not impair industry, they will on the contrary increase its efficiency. The state may encroach continuously. The question at issue always is whether the state can spend the money more wisely than the private individual. Could the government make better use of Mr. Carnegie's huge fortune than Mr. Carnegie does?? that is the problem. Are there better uses to which it might be put than those which Mr. Carnegie has in mind? If there are, then the government is entirely justified in substituting itself for Mr. Carnegie as a dispenser of libraries and peace palaces.

The more competent government becomes, the wider its outlook and the surer its method, the more surplus it will find available. The community is engaged in a competition with rich men as to which can make the better use of the nation's wealth. There is no question of inalienable rights. It is a question of good use and bad use, wise use and foolish use. When Mr. Rockefeller founded the Rockefeller Institute he did something which is wiser than most of what our government has yet shown itself capable. But when millionaires invest in ropes of pearls and flotillas of yachts they tempt the taxing power of even the most stupid government. The cry is sure to go up that all this is a proposal to destroy 'incentive.’ A debater might reply quickly that there are no end of 'incentives’ in the world to-day which ought by all means to be destroyed. But the cry would not recur so regularly were there not a genuine fear behind it. Men look at the industrial world to-day, and find that it produces enormous quantities of goods. They reason that any change would result in the production of less goods. That is the logic of their fear.

Perhaps you think I'm unjust, that worldly men could not possibly reason in so muddied a way. Well, leave the editorial writers and the speech-making bankers. Go to the orthodox economists who talk about incentive all the time. Prof. Marshall, for example, refers in one place to 'that measurement of motive which is the chief task of economic science.’ Obviously, if economics could perform such a task it would be one of the most useful sciences in the world. The art of life would have found a very solid basis if we could follow Marshall and measure 'the payment that is required to supply a sufficient incentive.’ But at no point in the whole field of political economy is the withering effect of a bad method so evident as it is in the very pages from which I am quoting. Marshall lays great stress on the measurement of motive. He says that economics leads all the other social sciences, because it deals not only with the quality of human motive but with quantity, measurable in money.

What ails that idea is that it conceals a vicious circle. Measure motive in terms of money? If a man to-day receives a hundred dollars for a piece of work, the measure of his motive is a hundred dollars. Is it? That is just what remains to be proved. If you take the money paid men to-day as a measure of motive, you assume what you started to discover. For you set out to find what you need to pay him in order to provide an incentive. You end by calling what you did pay him a measure of motive. You have begged the question completely. It is as pure a piece of sophistry as the statement that opium puts you to sleep because it is an opiate.

Supposing you set out to discover how much food a man needs in order to live. You meet a glutton and inquire about his diet. You then announce that what this glutton eats is what this glutton needs. Would you call that science? You meet an anemic person, register his diet, and announce that the food he consumes is a measure of his needs. This is literally what the orthodox economist does. He meets an economic glutton, a millionaire, and discovers that this man built a railroad, opened up new territory, and took fifty million dollars for the job. That means, says the economist, that in order to provide sufficient incentive for this magnificent enterprise fifty million dollars is required. He meets a half-starved mill-worker, who produces cloth at the rate of nine dollars a week. That proves, says the economist, that you must pay nine dollars a week for this work; to pay any more would be contrary to the principles of economics.

To say that economists measure motive in money is to say in roundabout fashion that whatever is, is necessary; then, adding insult to incompetence, to infer that whatever is, is right. Surely it is obvious as sunlight that people's incomes to-day have only a very slight relation to the 'payment that is required to supply a sufficient incentive.’ In the case of a boy who inherits eighty million dollars from a father who inherited it from the grandfather, it is clear that this income has nothing to do with incentive. Well, all through our social system these crazy anomalies occur. Unskilled labor is bought in the open market for a shabby keep and no provision for wear and tear. Competitive wages are no index of motives: they measure what a man has to take in order to live. Skilled labor does a bit better by organizing a monopoly, and fighting for higher pay. The real directors of industry are paid fixed salaries for their ability, and make fortunes 'on the side.’ Inventive genius lives from hand to mouth, and some smart person capitalizes its achievements. It pays better to own land than to cultivate it, to draw dividends than to create them. The great fortunes go to those who control the franchises, the forests, the water-powers, the mines, not to the engineers, the administrators, and the workers who are hired to use them. If I can 'corner’ the wheat supply, if I can make food scarce, if I can contrive some new fraud or stimulate some new madness in fashions, I can grow rich beyond the dreams of honest labor. Money measures incentive: there is no real relation to-day between money-making and useful work.

Power, position, pull, custom, weakness, oversupply, the class monopoly of higher education, inheritance, accident, the strategy of industrial war? these are the things which determine income? not the incentive which is necessary. The work of the world is not done because the producers get what stimulates them to their best effort. It is done under the compulsion of circumstances, grounded in habit, and the lure of big rewards is in the rarest cases a lure to human service. That is why the industrial world is capable of tremendous reorganization without impairing its efficiency. A better distribution of incomes would increase that efficiency by diverting a great fund of wealth from the useless to the useful members of society. To cut off the income of the useless will not impair their efficiency. They have none to impair. It will, in fact, compel them to acquire a useful function.

Now the working class has very excellent uses for money that it can secure. It invests it directly in human life, in the food, clothing, shelter, and recreation which are its basis. So the pressure of the labor movement is a force that can make for a wiser use of wealth. If employers find that they 'cannot’ pay higher wages, their real business is not to resist labor, but to increase the efficiency of production so that they can. They will have to learn to finance industry better, they will have to eliminate the sinecures of their cousins and their uncles, they will have to scale down capitalization, and do without the hundred and one middlemen who extract a profit.

That is the only way they can meet the pressure of labor from one side and of the consumer on the other. Both of those movements are really demands for a wiser management of business. Both of them are interested in industrial efficiency. This may seem a strange thing to say in the face of labor's hostility to laborsaving devices. But the reason for the hostility is that labor at present gains very little, almost nothing, by its increased productivity. When labor and the consumer really share in industrial progress, as they will when they are powerful enough, we shall have two forces constantly at work to eliminate the parasite and abolish waste.

The commercial adventurer has no real interest in efficiency. Between useful service and some mad freak the decisive point is which will pay him the most. But consumers and workingmen are interested directly in making industry produce the greatest quantity and the best quality of goods at the least possible cost in effort. They are made poorer by money devoted to producing useless luxuries. They pay all the cost of waste, parasitism, and inefficiency. That is why tile real progress of industry is bound up intimately with their demands.

The more they press the better. I know how much this will harass the business man. But his necessity will be the mother of invention. When he finds that he faces on one side an organized labor movement, on another the organized consumer, and on another the taxing power of the state, when he is no longer able to cover waste by reducing wages or raising prices, then he will have to devote himself more and more to the real business of industrial management. He will begin to cut down his extravagant selling costs, he will have to finance his enterprise less expensively, he will have to squeeze out watered stock, he will have to scale down futile salaries, do without some of his 'side’ ventures, spend less time on the stock market, and give the best of his thought to coordinating the industry.

These necessities will be the opportunity of the business man with a scientific training. Already we are beginning to see that in the light of its possibilities, industry to-day is inconceivably wasteful. The raw product is won from the earth, it is transported hundreds of miles over expensive railroads, it passes through ten or twenty different manipulators, is manufactured, and passes again through an infinitely complicated series of operations to the ultimate consumer. The great water-power resources of this country are said to be not one-seventh developed. Yet their primary power alone 'exceeds our entire mechanical power in use, would operate every mill, drive every spindle, propel every train and boat, and light every city, town, and village in the country.’ Coal burned on the American locomotive is estimated by the Railway Age Gazette to be only 45% efficient. The whole conservation movement in its infinite ramifications is an answer to the pressing demmands that people are making upon industry. So far in America we have been spendthrifts with our resources, letting coal lie half mined, skinning the forests, and obtaining by agriculture a yield that shames us in the eyes of the European farmer.

The wealth exists to pay for democracy. Our dreams are not idle. We are not a poor people who need fill our minds with gorgeous and impossible visions. Labor can go ahead with its demands, the consumer with his, we can enter upon social works to transform our sooty life into something more worthy of our dignity. There are huge wastes to be eliminated, parasitic incomes to be cut off, large classes of people to be turned from useless into useful effort, great inventions to be utilized. But these things will be done only if there is constant pressure on the industrial system from those who work in it and live by it.