58. Arbitration.We have now considered at some length the evils arising from the present separation of interests between the employed and their employers. The next thing is to discuss the various attempts which have been made to remedy these evils, and to bring labour and capital into harmony with each other. In the first place, many people think that when any dispute takes place, arbitrators or judges should be appointed to hear all that can be said on both sides of the question, and then decide what the rate of wages is to be for some time to come.
No doubt a good deal may be said in favour of such a course, but it is nevertheless inconsistent with the principles of free labour and free trade. If the judges are to be real arbitrators, they must have power to compel obedience to their decision, so that they will destroy the liberty of the workman to work or not as he likes, and of the capitalist to deal freely with his own capital, and sell goods at whatever price suits the state of the market. If wages are to be arbitrarily settled in this way, there is no reason why the same thing should not be done with the prices of corn, iron, cotton, and other goods. But legislators have long since discovered the absurdity of attemptingto fix prices by law. These prices depend entirely upon supply and demand, and no one is really able to decide with certainty what will be the conditions of supply and demand a month or two hence. Government might almost as wisely legislate about the weather we are to have next summer as about the state of trade, which much depends upon the weather, or upon wars and accidents of various kinds, which no one can foresee. It is impossible, then, to fix prices and wages beforehand by any kind of law or compulsory decision. The matter is one of bargain, of buying and selling, and the employer must be at liberty to buy the labour required at the lowest price at which he can get it, and the labourers to sell their labour at the highest price they can get, both subject of course to the legal notice of a week or fortnight.
59. Conciliation.Though the compulsory fixing of wages is evidently objectionable, much good may be done byconciliators, who are men chosen to conduct a friendly discussion of the matters in dispute. The business is arranged in various ways; sometimes three or more delegates of the workmen meet an equal number of delegates from the masters, who place before the meeting such information as they think proper to give, and then endeavour to come to terms. In other cases the delegates lay their respective views before a man of sound and impartial judgment, who then endeavours to suggest terms to which both sides can accede. If the two parties previously engage that they will accept the decision of this conciliator or umpire, the arrangement differs little from arbitration, except that there is no legal power to compel compliance with the decision. Discredit has been thrown upon this form of conciliation by the fact that the workmen have in several instances refused to abide by the award of the umpire when given against them, and of course it cannot be expected that masters will accept adverse decisions as binding under such circumstances. Thus I am led to think that the conciliator should not attempt to be a judge; he should be merely an impartial friend of both sides, trying to remove misapprehension and hostile feelings, enlightening each party as to the views and reasons and demands of the other—acting, in short, as a go-between, and smoothing down the business as oil eases the movement of a machine. The final settlement must take the form of a voluntary bargain directly between the employers and employed, which will only have compulsory effect during the week or fortnight for which workmen usually enter into a legal agreement. Conciliation may in this way do much good, but it cannot remove the causes of difference—it cannot make the men feel that their interest is one with the interest of their employers.
60. Co-operation.Among the measures proposed for improving the position of workmen, the best is co-operation, if we understand by this namethe uniting together of capital and labour. The name co-operation is used indeed with various meanings, and some of the arrangements called by it have really nothing to do with what we are now considering.To co-operate means to work together(Latin,con, together, andoperor, to work). About thirty-five years ago some workmen of Rochdale, noticing the great profits made by shopkeepers in retail trade, resolved to work together by buying their own supplies wholesale, and distributing them amongst the members of the society which they established. They called thisa co-operative society, and a great number of so-called co-operative stores have since been established. Most of these are nothing but shops belonging to a society of purchasers, who agree to buy at the store and divide the profits. They have on the whole done a great deal of good by leading many men to save money and to take an interest in the management of affairs. The stores are also useful, because they compete with shopkeepers, and induce them to lower their prices and to treat their customers better. Wefrequently hear now of shops selling goods atco-operative prices.
But such co-operative societies have little or nothing to do with the subject of capital and labour. Commonly these stores are conducted less upon the true co-operative principle than ordinary shops. A shop is usually managed by the owner or by a man who has a large interest in its success, and has the best reasons for taking trouble. Co-operative stores, on the contrary, are often managed by men who are paid by salary or wages only, and have nothing to do with the profits and the capital of the concern.
Real co-operation consists in making all those who work share in the profits.At present a workman sells his labour for the best price he can get, and has nothing further to do with the results. If he does his work well, his master gets the benefit, and if he works badly his master is injured. It is true that he must not be very lazy or negligent for fear of being discharged; but if he takes care to be moderately careful and active, it is all that he need do for his own interests. No doubt it would be a good thing to reward the more active workmen with higher wages, and a wise employer endeavours to do this when he can, and to put the best workmen into the best places. But the trades-unions usually prevent it as far as they can, by insisting that men doing the same kind of work in the same place shall be paid alike. Moreover, as we have seen, many men are under the mistaken belief that if they work hard they decrease the demand for employment, and tend to take away the bread from their fellow-men. Thus it is not uncommon for workmen to studyhow not to do the work too quickly, instead of striving to make the most goods in the least time with the least trouble. Workmen do not see that what they produce forms in the long run their wages, so that if all workmen could be incited to activity and carefulness, wages would rise in all trades.
61. Industrial Partnerships.The best way of reconciling labour and capital would be to give every workman a share in the profits of his factory when trade is so prosperous as to allow of it. Charles Babbage proposed, in the year 1832, that a part of the wages of every person employed should depend on the profits of the employers. In recent years this has been tried in several large works, especially in Messrs. Briggs' collieries, and in Messrs. Fox, Head & Co.'s iron-works. The arrangement generally made with the men was that the capitalists should first take enough of the profits to pay 10 per cent. interest on the capital, together with fair salaries for the managers as wages of superintendence, a sum to meet bad debts, the repairs and depreciation of the machinery, and all other ordinary causes of loss. Such profit as remained was then divided into two equal parts, one of which went to the employers, while the other was divided among the workpeople in proportion to the amounts of wages which they had received during the year. Many workmen under such a scheme found themselves at Christmas in possession of five or ten pounds, in addition to the ordinary wages of the trade received weekly during the year.
This kind of co-operation has been calledindustrial partnership, and, if it could be widely carried into effect, there would arise many advantages. The workmen, feeling that their Christmas bonuses depended upon the success of the works, would not favour idleness, and would have some inducement for preventing needless waste whether of time or materials. By degrees they would learn thatthe best trades-union is a union with their employers. Strikes and lockouts would be for the most part a thing of the past, because, if wages were too low, the balance-sheet would prove the fact at the end of the year, and half the surplus would go to the workmen. To be free from the danger of strikes would be a very great advantage to the employers, and any portion ofprofits which they might seem to give up would be more than repaid by the increased care and activity of the workmen. The employers would continue to manage the business entirely according to their own judgment, and they need not make their affairs or accounts known to the men. All that is requisite is that skilful accountants should examine the books at the end of the year, and certify the amount of profits due to the men. If this plan were thoroughly carried out, the men would feel that they were really working for themselves as much as for their masters, and the troubles which at present exist would be nearly unknown.
There are great difficulties in the way of this kind of co-operation: most capitalists do not like it, because they needlessly fear to make known their profits to their men, and they do not understand the advantages which would arise from a better state of things. The workmen also do not like the arrangement, because the trades-unions oppose co-operation, fearing that it will overthrow their own power. Where the scheme has been tried, it has usually succeeded well, until the men, urged by their trades-unions, refused to go on with it. Thus are people, through prejudice and want of knowledge, made blind to the best interests of themselves and the country.
It is to be feared, then, that industrial partnerships will not make much progress just at present, so great is the dislike to them felt both by trades-unions and by prejudiced employers. Nevertheless, the arrangement is in accordance with the principles of political economy, and it will probably be widely adopted by some future generation. Already, indeed, many banks, mercantile firms, and public companies practically recognise the value of the principle, by giving bonuses or presents to their clerks at the end of a profitable year. A French railway company adopted this practice forty years ago, and as business falls more and more into the hands of companies whose profits are mattersof general knowledge, there seems to be no reason whatever why the principle of industrial partnership should not be adopted. Somewhat the same principle is said to be carried into effect in the very extensive and successful newspaper business of Messrs. W. H. Smith & Son.
62. Joint-Stock Co-operation.Another mode of co-operation consists in working men saving up their wages until they have got small capitals, so that they can unite together and own the factories, machines, and materials with which they work. They then become their own capitalists and employers, and secure all the profit to themselves. Co-operative societies of this kind are simply Joint-Stock Companies, the shares of which are held by the men employed. Of course the shareholders must choose directors from among themselves, and they must also have managers to arrange the business. The managers and directors ought to be well paid for what they do, and have a considerable share of the profits, in order to make them interested in the success of the works, and therefore active and careful. Incompetent or negligent management will soon ruin the best business.
A great number of co-operative companies of this kind have been formed in the last twenty years in England, France, America, and elsewhere; but most of them have failed from want of good direction. The working-men shareholders do not generally understand what a great deal of skill and judgment is required in the conduct of a business; they are accustomed to see work going on as if it went of its own accord, but they do not see the constant anxiety and the careful calculation which is requisite to make the work profitable. Hence they usually fail to secure good managers, and they do not sufficiently trust those whom they appoint. Moreover, many of the so-called co-operative companies are not really co-operative; they frequently employ men who are neither shareholders nor receivers of a share of profits, and they pay theirmanagers by a small fixed salary.Such co-operative societies are badly-managed joint-stock companies, and cannot be expected to succeed well.
Another difficulty with such companies is, that they rarely have enough capital, and, when bad trade comes, they are unable to bear the losses which will sometimes occur for several years in succession. They can borrow money by the mortgage of the buildings and machinery belonging to the company, and this is usually done; but no banker will give credit to such companies without the security of fixed property. Thus they frequently fail when bad trade comes, and those who buy up their property cheaply reap advantage. It is to be hoped that at a future time all working-men will become capitalists on a small scale, and when education and experience have been acquired, co-operative factories of working-men may succeed. At present it would be better to leave the management of business in the hands of capitalists, who are not only experienced and clever men, but have the best reason to be careful and active, because their fortunes depend upon success.
63. Providence.It is most deeply to be regretted that the working-people of England will not, for the most part, see the necessity of saving a portion of their wages in order to have something to live upon when trade is bad, or when ill-health and misfortune come upon them. Too many working-men's families spend all that is earned while trade is brisk, and when employment fails they are as badly off as ever.There are several distinct reasons why every man or woman should save up some property when possible:—
(1) It forms a provision in case of ill-health, accident, want of employment, or other misfortune; it is also wanted for support in old age, or for the helpless widow and orphans of a workman who dies early.
(1) It forms a provision in case of ill-health, accident, want of employment, or other misfortune; it is also wanted for support in old age, or for the helpless widow and orphans of a workman who dies early.
(2) It yields interest, and adds to a workman's income.(3) It enables a man to go into trade, to buy good tools, and to enjoy good credit in case he sees an opportunity of setting up business on his own account.
(2) It yields interest, and adds to a workman's income.
(3) It enables a man to go into trade, to buy good tools, and to enjoy good credit in case he sees an opportunity of setting up business on his own account.
No man and no woman, who is in the prime of life and earning fair wages, should spend the whole. Even an unmarried person will generally reach a time of life when, through ill health, old age, or other unavoidable causes, it is no longer possible to get a living. By that time enough ought to have been saved to avoid the need of charity or the degradation of the poor-house. When there is a wife and young family, the need of saving is evidently greater still. Every great storm, colliery explosion, or other great accident leaves a number of helpless children to be brought up by a struggling widow, or to go on the parish. No doubt people may meet with disasters so unexpected and so great that they cannot be blamed for not providing against them. A man who is blinded, or crippled, or otherwise disabled in early life, is a proper object of charity, but there would be plenty of benevolent institutions to provide for such exceptional cases, if those who are more fortunate would provide properly for themselves.
It is often said that working men really cannot save out of the small wages they receive; the expenses of living are too great. We cannot deny that there are labourers, especially agricultural labourers in the South of England, whose wages will not do more than barely provide necessary food and clothing for their families. The weekly earnings of a family in some parts are not more than 12 or 15 shillings on the average of the year, and sometimes even less. Such people can hardly be expected to save. But this is not the case with the artisans and labourers in the manufacturing districts. They seldom earn less than a pound a week, and often two pounds. The boysand girls, and sometimes the mother of the family, also earn wages, so that when trade is brisk a family in Manchester or Leicester, or other manufacturing town, will get altogether £150 a year, or more. Some kinds of workmen, especially coal-hewers, and iron-puddlers, earn twice that amount in good years, and are in fact better paid than schoolmasters, ministers of religion, and upper clerks. It is idle to say that the better-paid working men cannot save, and though we cannot make any strict rule, it is probable thatall who earn more than a pound (five dollars, or 25 francs) a week, might save something.
It is easy to prove this assertion by the fact that when a strike occurs, men voluntarily live on a half, or a third of their ordinary wages. Sometimes they will live for three or four months on 12 or 15 shillings a week, which is paid for their support by their trades-union, or by other unions, which subscribe money to assist them. It is quite common for workmen to paylevies, that is, almost compulsory subscriptions of a shilling or more a week, to be spent by other workmen who areplaying, as it is called, during a long strike. Nobody wishes working people to live on the half of their wages, butif, for the purpose of carrying on struggles against their employers, they can spare these levies, it is evident that they could spare them for the purpose of saving. Then, again, we know that the money spent on drink is enormous in amount; in this country it is about £140,000,000 a year, or about four pounds a year for every man, woman, and child. To say the least, half of this might be saved, with the greatest advantage to the health and morals of the savers, and thus the working classes would be able to lay by an annual sum not much less than the revenue of the nation.
64. We have sufficiently considered the difficulties which exist regardingLabourandCapital, two of the requisites of production, and we will now turn to another part of political economy, and inquire into the way in whichLand, the third requisite, is supplied.
In different countries land is held in very different ways. It is a matter of custom, and in the course of time customs slowly change. The way in which farms are owned and managed in England at the present time is no indication of the way land is held in France, or Norway, or Russia, or even the United States; nor is it the same as the way in which farms were owned in England some centuries ago. What is fitting to one place and state of society will not necessarily be fitting in other circumstances. We have to consider the various ways in which the requisites of production, land, labour, and capital, are brought together; sometimes they are all furnished by the same person; sometimes by separate persons.
In the condition ofslavery, for instance, as it existed in the Southern States of North America, the owner of an estate owned the land, labour, and capital, all at once. Strictly speaking a slave is not a labourer, because he cannot sell his labour at his own price, and work or not as he likes. He is more in the position of the horse which drags the plough, a mere beast of burden. Just as a farmer owns his horses, and cows, and pigs, as part of his capital, so a slave-owner treats his slaves as part of his capital. Slave-labour being given unwillingly, and without hope of reward, is usually badly given, and is wasteful; but there is hardly any need to consider whether slavery is good or bad in an economical point of view, because it is altogether condemned from a moral point of view. We may show the way the requisites of production are furnished in slavery by the following diagram—
slave owners
In a very large part of the world, again, the government takes the place of land-owners, and collects the rent by means of tax-gatherers. The farming is done by poor peasants, who find the capital, so far as there is any, and also do the work. Thus, we have the arrangement—
ryot system
This system is calledRyot Tenure, and it exists at the present day in Turkey, Egypt, Persia, and many eastern countries; also in a somewhat altered form in British India. After slavery, it is the worst of all systems, because the Government can fix the rent at what it likes, and it is difficult to distinguish between rent and taxes. When their crops fail the ryot peasants are unable to pay the tax-gatherers, and they get into debt and become quite helpless.
65. Peasant Proprietorship.One of the best modes of holding land, when it can exist, is that known as peasant proprietorship, because the owner of the land is the peasant himself, who labours with his own arms, and finds the capital also. In this system, as in slavery, all the requisites of production are in the same hands; thus—
land system
But in every other respect this system is the opposite of slavery. Its advantages are evident; the labourer being the owner of the farm and of all upon it, is an independent man, who has every inducement to workhard, and to increase his savings. Every little improvement which he can make in his farm is so much added to his wealth, and that of his family after him. There is what is called themagic of property. The feeling that he is working entirely for his own and his family's benefitalmost magically increases his inclination to work. In newly-settled countries, such as the Western Territories of the United States, and Canada, or the colonies of Australia, and the Cape, this mode of holding land seems to be suitable, because the land is there very cheap, and crops can be raised with little capital. In such countries there is no need of expensive manures, elaborate machinery, and the cost of draining and improving land.
The objection to peasant proprietorship is, that he who does the labour of a farm with his own hands, must usually be a poor and unskilful person. If he were rich he would probably prefer to buy up the labour of other men, and become a capitalist farmer; if he were a really skilful farmer, it would be a pity to waste his skill upon a small farm, when, with more division of labour, he might profitably direct and manage a large one. Being poor, his capital will be mostly absorbed in building his cottage and barns, and in paying the small price of his land; he will have little left to make improvements, or to buy good labour-saving implements, and good stock, such as well-bred horses, cows, and pigs. Thus, unless his land be new and very fertile, he will not get a large return for his labour. Owing to the magic of property, he may work very hard, and during long hours, but he will not work in an economical way, and therefore will remain poor in spite of his severe exertions. The peasant proprietors who still exist in Switzerland, Belgium, Norway, Sweden, and some other parts of Europe, work almost day and night during the summer, and they are very careful and saving; yet they seldom grow rich, or get more than a bare living out of the soil.
Too frequently the peasant proprietor, if he is not very provident, runs short of money after one or two bad seasons. He will then be tempted to borrow money, to sell his timber, and other produce before it is ready for the market, and thus run in debt. When his farm has increased in value and would bring some rent, he will very likely mortgage it, that is, give it by a legal deed as security for his debts. The mortgagee or lender of the money then becomes part-owner of the land and capital, so that the arrangement tends to take this form—
money-lenders
66.Tenure of Land in England.. As agriculture becomes more a science, farming will require greater skill, and larger capital, and the English mode of land tenure will probably spread. In this system there is the greatest division of labour, and different ranks of people have shares in the business, somewhat as follows:—
england
The land is usually owned by some rich man, who likes to have large estates, but does not wish to have the trouble of farming. In respect of the land only he is aproprietor of a natural agent, and the rent he receives is true rent; but there will usually be buildings, roads, fences, drains, and other improvements, of which he is also owner; in respect of these he is a capitalist, and the return he receives is interest. The farmer is a man of knowledge and skill, with considerable capital; he hires the land and its improvements from the proprietor, and stocks it with cattle, carts, improved implements of all kinds, and then employs day-labourers to do the manual work, labouring himself in superintendence, in keepingaccounts, buying and selling, &c. The labourer, generally speaking, is nothing but a labourer; he lives in a cottage hired probably from the farmer or proprietor, and he has little motive for working harder than he is made to do, because the advantage goes to his employer.
In this arrangement there are great advantages, and also great disadvantages. The farmer, being an intelligent man, acquainted with agricultural science, and furnished with plenty of capital, can adopt all the latest inventions, and raise the largest possible produce from the land and labour. It is also advantageous that the farmer does not own the land and fixed capital, because this leaves all his own capital free to provide more expensive implements and manures, and finer kinds of cattle. It is also a good thing that farms will, on this system, be large, so that there will be considerable division of labour, almost as in a factory; thus there will arise some of the advantages which were described as belonging to the Division of Labour (Sections 25-29).
The disadvantages of the English mode of farming are also great, especially as regards the labourers, the most numerous class. They have none of the independence of peasant proprietors, and, when dismissed, or too old to work, have probably to go to the workhouse. Their wages have hitherto been very low, and saving was not possible. But this state of things is partly due to the bad Poor Laws which used to exist in England, and to the excessive numbers of poor, ignorant labourers. After a time, when the poor laws are improved, when labourers become more educated, and are employed, like factory hands, to work machines, there is no reason why they should not get good wages, and become independent, like artisans.
In the English system, a great deal depends upon the nature of the agreement between the land-owner and the capitalist farmer. Many large land-owners in England refuse to let their land for long periodsThey like to have farmers who aretenants at will, and can be turned off their farms at a year's notice, and deprived of the value of all the improvements they have made, if they offend the great land-owner. It is easy to understand this; the land-owners wish to be lords, and to rule affairs in their own neighbourhood, as if they were little kings. This sort of thing is calledterritorial influence, and men who have become rich by making iron or cotton goods, often buy estates at a high price, in order to enjoy the pleasure of feeling like lords. The rural parts of England, Scotland, and Ireland are still, in fact, underthe feudal system.
In a Primer like this we have to look at the matter as regards political economy only, and in this respect the arrangement described is bad. Tenants at will have no inducement to improve their farms, because this would tempt the land-owner to turn them out, or to raise the rent. It is generally understood, indeed, that a land-owner will not use his power, so that many farmers act as if they were sure of holding their farms; if turned out after all, they are practically robbed of their capital; and, in any case, they cannot possibly feel the independence which every man ought to enjoy. We must always remember that the laws should be made not for the benefit of any one class, but for the benefit of the whole country. The laws concerning landlord and tenant have, however, been made by landlords, and are more fitted to promote their enjoyment than to improve agriculture.
There are two modes of remedying the unfortunate state of land tenure in this country, namely:—
(1) By a system of long leases.(2) By tenant right.
67. Leasehold Tenure.A lease is a formal agreement to let land or houses to a tenant for a certain number of years at a fixed rent, and with various conditions, which are carefully stated, to prevent misunderstanding. When land is taken by a farmerunder a lease for thirty years or more, it becomes almost like his own property, because, in the earlier part of his term, he can make great improvements with the aid of his capital, and yet be sure of getting the value back before the lease comes to an end. In the eastern parts of England and Scotland, where the farms are largest and best managed, these long leases are the usual mode of letting land. It is certainly one of the best arrangements for promoting good farming, and it has few disadvantages, except that the farmer will not make improvements towards the end of his lease.
68. Tenant Right.Another good arrangement is tenant right, which consists ingiving the tenant a right to claim the value of any unexhausted improvements, which he may have made in his farm, if he be turned out of it. A farmer can prove without difficulty how much he has spent in building barns, stables, piggeries, &c., in draining the lands, making roads and fences, or in putting lime and costly manures into the soil. Those who are experienced in farming can form a good judgment how long each improvement will continue profitable, so as to calculate how much the tenant loses if he be turned away. Thus a good estimate may be formed as to the sum which the tenant should receive as compensation, and the landlord, if he chooses to dismiss the tenant, should be obliged to pay this compensation. He will get it back by charging a higher rent to the next tenant.
Tenant right, though unknown in most parts of England, is not at all a new system; it has existed for a long time in the north of Ireland, where it is called theUlster tenant right. A new tenant there pays the old tenant a considerable sum of money for the privilege of getting a good farm with various improvements, and the land-owner is practically prevented from turning out a good tenant at his mere will. In Yorkshire also it has been the custom to compensate an outgoing tenant, and there is no good reason why the custom should not be made into a legal right, andextended over the whole country. Mr. Gladstone's Irish Land Act has already established a somewhat similar system throughout Ireland. If the land is to be used for its proper purposes, and not merely for the amusement and pride of a few landlords,every owner of land who lets it should be obliged either to give a long lease, say of thirty or fifty years, or else to pay the compensation fixed by a juryafter taking evidence from those skilled in valuing farms. It should be made illegal to let land on any other terms.
69. The Cause of Rent.It is very important to understand exactly how rent arises, for without knowing this it is impossible to see why a landlord should be allowed to come and take away a considerable part of what is produced, without taking any other trouble in the matter. But the fact is that we cannot do away with rents: they must go to some one or other, and the only real question which can arise is whether there shall be many landlords receiving small rents or few landlords with great rent-rolls.
Rent arises from the fact that different pieces of land are not equally fertile, that is, they do not yield the same quantities of produce for the same quantities of labour. This may arise from the soil being different, or from one piece of land getting more sun and moisture than another. If the earth had a perfectly smooth surface the same everywhere, and if it were all tilled and cultivated in exactly the same way, there would be no such thing as rent. But the earth's surface, as we know, has hills and valleys: there are flats of rich soil in one place, and wastes of dry sand and stones in other places. Now, where the soil is good and favourably situated for growing corn, or other produce, the owner of such land must get more, in return for his labour, than if he possessed a bad piece of land. Even then, if everybody owned the farm which he cultivates, those who owned the better pieces would get rent, because they would get more produce. Thus,after allowing the same wages to all, there would remain something in addition to the lucky owners of the better land. If, instead of working on this good land themselves, they let it to other workmen, they will be able to get a rent depending on the richness and the other advantages of the land.
Now there can be little difficulty in seeing how the amount of rent of land is governed. That land will pay no rent at all which only gives produce enough to pay the wages of the labourers who work upon it, together with the interest of any capital which they require. The rent of better land will then consist of the surplus of its produce over that of the poorest cultivated land, after allowance has been made for the greater or less amount of labour and capital expended on it. Or we may look at the matter in this way: The price of corn is decided by the cost of producing it on land which just pays the expenses of cultivation, because when more corn is needed, it is from such land we must procure it, the better land having been long since occupied. But corn of the same quality sells at the same price whatever be its cost of production; hence the rent of more fertile land will be the excess of the price of its produce over that of land which only just pays the cultivator and leaves no rent.
70. How Exchange Arises. One of the most important ways in which we can increase wealth consists in exchange—in giving what we do not want in return for what we do want. Wealth, as we have seen, is anything which is actually useful to us, because we have not enough already, and which can be transferred to another person. But when our want of any kind of commodity is satisfied, we want no more of that, but we do want other kindsof commodity. The result is that exchange constantly produces again of utility. Some people have objected that there can be no good in exchange, because that which is given equals in value that which is received. Others have said that, if one party gains, it must evidently be by robbing the other party. According to this view, trade would consist in trying to beggar your neighbour. That which is given does really equal in value that which is received, but it does not equal it in utility, and to increase utility is the purpose of all production and all commerce. We do not pay for things in proportion to their usefulness, or else air and water would be the most costly of all things. A good-sized loaf may be bought for fourpence or sixpence, although bread is the staff of life. Before attempting to understand this apparent paradox, we must settle exactly what we mean by value.
71. What is Value?In exchanging some goods for other goods, there arises the question, How much of one kind shall be given for so much of the other? Some things are said to bevaluable, as in the case of a gold watch or a diamond ring, because in exchange for them we can get a great quantity of other articles. Ashes are of little or no value, because we cannot get anything in exchange for them. Now this wordvalueis a very difficult one, and is employed to mean different things. We may say that quinine is valuable for curing fevers, that iron is valuable for improving the blood, or that water is valuable for putting out fires. Here we do not mean valuable in exchange, for quinine would cure fevers just as well if it cost a penny an ounce instead of some ten shillings. Water, if we can get it at the right time, puts out a fire whether it costs much or little or nothing. It is clear, then, that by valuable we often meanvaluable in use. The words value and valuable are in factambiguous. (See Logic Primer, pp. 22-26, on The Correct Use of Words.)There is value in use and value in exchange, and many things which would be commonly said to have little value in exchange have much value in use.But of these meanings, "value in use" is nothing but theutilityof a thing to us, that is, the utility of all such portions of it as we can actually employ. Thus, the value in use of water means the utility of the water that we drink, or wash in, or cook with, or water the roads with, and this utility is very great. But of course it cannot mean the utility of water which is not useful to us, but on the contrary hurtful, as in the case of floods, damp houses, wet mines, and so forth.
We may now see how true was the remark of Genovesi, the Italian economist, that "Exchange consists in giving the superfluous for the necessary," or, as I should prefer to say,the comparatively superfluous for the comparatively necessary. He who has more than enough of one article has already enjoyed all the good which that article can do to him, but he probably needs supplies of other articles. The exchange, like an act of mercy, blesses both him who gives and him who receives, because what each receives in exchange is much wanted and has high utility. In England, for instance, we possess a great deal of coal, and France produces plenty of good wine. We could have little or no wine in England unless we got it from France or some foreign country, and France also is much in want of coal. It is obvious that there is a great gain of utility if we give some of our comparatively superfluous coal in exchange for some of the abundant wine of France.
It has been objected to commerce that it issterileand produces no new goods. There exist neither more nor less coal and wine after they are exchanged than before. But in political economy we treat of utility and wealth; the question is whether things are usefully consumed or not. Now that which is not wealth if it were consumed by one person, becomes wealth when handed over to another person for consumption.Though exchange cannot create the material of wealth, it creates wealth because it gives utility to the material.
72. Value means Proportion in Exchange.When we speak of the value of a thing in exchange, we mean how much of some other thing we can get for it. This of course will depend upon the nature of that other thing. Obviously, I can get for a shilling much more potatoes than bread, and bread than beef, and beef than essence of beef. Therefore, when we speak of the value of a thing, we ought always to say what it is to be valued by.The word value only means that so much of one thing is given for so much of the other, and it is theproportionof these quantities (Latinproportiofrompro, in comparison with, andportio, share), which measures the values of the thing. A ton of pig-iron can usually be got for a quarter of corn; here the proportion is one to one. To get a ton of copper, we should probably have to give thirty quarters of corn; here the proportion is that of one to thirty. There cannot be such a thing as value in exchange, unless there be proportion—so much of one commodity for so much of another.
Usually, indeed, we measure the values of things by theirprices. Theprice is the quantity of money which we give for a thing; in this case the proportion is between the quantity of money and the quantity of goods we get for it, as when we give sixty shillings for ten yards of carpet. We shall learn later on that money is a kind of commodity, which has utility and value like other commodities. But there is great convenience in always thinking and speaking of values in money, because we can then readily compare the value of one thing with that of any other. If a pound of potatoes costs one penny, a pound of bread threepence, and a pound of beef ninepence, we can see at once that a pound of beef is of the same value as three pounds of bread and nine pounds of potatoes, and we can judge how much of each to use.
73.Laws of Supply and Demand.In the next place, we must try to understand how the values of things are governed, and made to change from time to time. The principal laws which govern values are calledthe laws of supply and demand, and they are very important indeed.Supplymeans the quantity of any goods which people are willing to give in exchange at a certain value, anddemandmeans similarly the quantity of goods which people are willing to take in exchange; but, before a person can judge how much he wishes to buy of a particular kind of goods, he must know its price, that is, its proportion in exchange for money. If bread, instead of being threepence per pound, becomes fourpence, a poor person would perhaps decide to take less bread, and to buy more potatoes. If beef, instead of being ninepence, should rise to a shilling, or fourteenpence a pound, some people would refuse to buy it altogether, and others would buy less than before. The supply of things varies similarly; if the price of meat rises high, farmers who own cattle bring them to market, in order to get a good profit by selling them; if the price falls low, they keep their cattle to sell at another time.
The Laws of Supply and Demandmay be thus stated: a rise of price tends to produce a greater supply and a less demand; a fall of price tends to produce a less supply and a greater demand. Conversely, an increase of supply or a decrease of demand tends to lower price, and a decrease of supply or an increase of demand to raise price.
These laws are so important that I will state them over again, in the form of a table:—
We can now understand how the price of any kind of goods is decided. The price must be such that the quantity demanded at any time is equal to the quantity supplied. If those who want goods at a certain price, cannot get them, they will have to offer a higher price, so that they may induce other people to sell. The higher the price the greater the supply, as we have seen; moreover, if some people in a market are offering a higher price, it soon becomes known to other dealers. When a farmer's wife carries a basket of butter to sell at the Butter Cross in the neighbouring market town, she soon learns whether the supply is greater or less than usual. If the purchasers are few and slow in buying, she begins to fear that she may have to carry her butter back unsold, and go without the crockery and calico and other things which she intended to buy with the money. Then she begins to ask a penny or twopence a pound less, and the other sellers of butter are obliged to lower their prices also, since no one would buy butter from one woman at 1s. 6d., if he could get it as good from the next person at 1s. 4d. But, if few people bring butter to market, or if there are many purchasers with money in their pockets, the scene is quite changed. Those who have brought butter, find that they will have no difficulty in selling all they have; it is the purchasers who now become anxious to buy before all is gone, and their eagerness soon shows the sellers that they may ask higher prices. It is by thishiggling of the market, by sellers asking the highest price they think they can get, and buyers trying to buy at the lowest price which they think will be taken—that the market price of any commodity is settled.
The market price will be such that the demand at that price will equal the supply at that price.The quantity of butter or any other commodity that is sold must equal what is bought, because it is not sold until it is bought; but the price will settle itself accordingly.
74. How Value depends upon Labour.We now come to the great question whether value is produced by labour, or how it is connected with labour. Some economists, observing that, when a thing like gold is very valuable, men spend a great deal of labour in getting it, have said thatthe labour spent upon it is the cause of the high value.This is quite wrong; for if it were true, anything, upon which great labour has been spent, ought to be very valuable; everybody knows that such is not the case. Great labour may be expended in writing, printing, and binding a book; but, if nobody wants the book, it is valueless, except as waste paper. A vast amount of labour was spent on building the Thames Tunnel, but, as few people wished to go through it, the tunnel was of small value, until it was required for a railway. Thus it is quite certain that we cannot make a thing valuable by simply labouring at it; we must labour in such a way as to make the thing useful.
On the other hand, substances may be very valuable which have cost little or no labour. When a shepherd in Australia happens to pick up a nugget of gold on the mountain side, it takes no labour worth mentioning to pick it up, yet the gold is just as valuable in proportion to its weight as any other gold. Some gold mines produce a great quantity of gold: others which have cost quite as much to sink, produce little; nevertheless the gold out of the one mine is sold at the same price in proportion to its weight and fineness as that out of the other mine.Thus it is quite certain that labour is not the cause of value.Gold is valuable because a great many people want more gold than they have already got, and whenever a thing is valuable it is because somebody wants it.
But we may look at this matter in another way. If it were possible to get a valuable thing like gold with little labour, many people would become gold miners. Much gold would then be produced; if this werewanted as much as what was already in use, it would be as valuable. But no one wants an unlimited quantity of any substance. Wealth, as we saw, must be limited in supply; if gold became as plentiful as lead or iron, it could not possibly remain as valuable as it is now. People would have far more than they could employ for ornaments, watches, gilding and so forth; there would be a large surplus to be used in making pots and pans, for which it is less needed. Now we can see through the whole subject of value. When much of a substance can usually be produced with little labour, the substance becomes so plentiful that people are satisfied with the supplies of it which they have; they do not want more, or at least do not want it so urgently. It follows that they are unwilling to give much wealth for it. Thus the labour spent upon producing a commodity does not affect the value of that commodity, unless it alters the quantity of it which people can get, and thus makes a further supply of the commodity more or less useful than before.
75. Why Pearls are valuable. To make this still more plain, let us endeavour to answer this difficult question, "Do men dive for pearls because pearls fetch a high price, or do pearls fetch a high price because men must dive in order to get them?" Pearl-diving is a very dangerous and laborious kind of work. The divers have to jump into the deep sea with heavy weights to carry them down, and they must hold their breath a long time while they are engaged in collecting the oyster shells at the bottom. The number of good pearls which they generally get is small compared with the great toil of getting them. It follows that, on the average, they must receive a high price for what they do find, otherwise they would not have adequate wages for such work. But this alone is not a sufficient reason for the pearls being so valuable, otherwise the mother of pearl shells, in which the pearls are found, and brought up, would be as valuable as the pearls. But mother of pearl isa very cheap substance. Again, if it were merely a question of labour, a diver might go down anywhere, and, bringing up the first stone or shell he found, insist on selling it for a high price, because he had dived for it. The truth is, that pearls are valuable because there are many ladies who have not got pearl necklaces, and who would like to have them; and those who have some pearls would like to get more and finer ones. In short, then, pearls are valuable because they are useful to ladies who want more pearl ornaments: they are thus useful because the ladies have not hitherto been able to get as many as they would like; and they have not been able to get many, because it is so difficult to fish them up from the bottom of the sea. Here we have the whole theory of value and labour.The labour which is required to get more of a commodity governs the supply of it; the supply determines whether people do or do not want more of it eagerly; and this eagerness of want or demand governs value.
76. Barter.When exchanges are made by giving one ordinary commodity for another, as a sack of corn for a side of bacon, or a book for a telescope, we are said tobarterthem. The operation is also calledtruck(French,troc, barter). Among uncivilised races trade is still carried on in this way; a traveller going into the interior of South Africa takes a stock of beads, knives, pieces of iron, looking-glasses, &c., in order that he may always have something which the natives will like to receive in exchange for food or services. People still occasionally barter things in England, or the United States, but this is seldom done, owing to the trouble which it gives.
If, for instance, I want a telescope, in exchange fora book, I shall probably have to make many inquiries, and to wait a long time before I meet with a person who has a telescope to spare, and who is also willing to take my book in exchange. It is very unlikely that he who has a telescope will just happen to want that particular book. A second difficulty is, that the book will probably not be worth just as much as the telescope, and neither more nor less. He who owns a valuable telescope cannot cut it up, and sell a part to one and a part to another; this would destroy its value.
77. Convenience of Money.With the aid of money all the difficulties of barter disappear; formoney consists of some commodity which all people in the country are willing to receive in exchange, and which can be divided into quantities of any amount. Almost any commodity might be used as money in the absence of a better material. In agricultural countries corn was so used in former times. Every farmer had a stock of corn in his own granary, and if he wanted to buy a horse or cart, he took so many sacks of corn to his neighbour's granary in exchange. Now suppose that, with corn as money, a farmer wanted to part with a cart and get a plough instead; he need not inquire until he finds a person willing to receive a cart, and give a plough in exchange. It is sufficient if he find one farmer who will receive a cart and give corn, and any other farmer who will give a plough and receive corn. No difficulty arises, too, if the cart or plough are not of equal value; for if the cart be the more valuable, then the farmer finally gets for it the plough together with enough corn to make up the difference. Money thus acts as amedium of exchange; it is a go-between, or third term, and it facilitates exchange by dividing the act of barter into two acts, in this way—