IV

"When we have nothing else to wearBut cloth of gold and satins rare,For cloth of gold we cease to care—Up goes the price of shoddy."

"When we have nothing else to wear

But cloth of gold and satins rare,

For cloth of gold we cease to care—

Up goes the price of shoddy."

Most writers do not distinguish between price and value with sufficient clearness, using the terms as if they were synonymous and interchangeable. Whereutilities are exchanged directly one for another, as in the barter of primitive society, there is no need of a price-form to express value. In highly developed societies, however, where the very magnitude of production and exchange makes direct barter impossible, and where the objects to be exchanged are not commonly the product of individual labor, a medium of exchange becomes necessary; a something which is generally recognized as a safe and stable commodity which can be used to express in terms of its own weight, size, shape, or color, the value of other commodities to be exchanged. This is the function of money. In various times and places wheat, shells, skins of animals, beads, powder, tobacco, and a multitude of other things, have served as money, but for various reasons, more or less obvious, the precious metals, gold and silver, have been most favored.

In all commercial countries to-day, one or other of these metals, or both of them, serves as the recognized medium of exchange. They are commodities also, and when we say that the value of a commodity is a certain amount of gold, we equally express the value of that amount of gold in terms of the commodity in question. As commodities, the precious metals are subject to the same laws as other commodities. If gold should be discovered in such abundance that it became as plentiful and easy to obtain as coal, its value would be no greater than that of coal. It might,conceivably, still be used as the medium of exchange, but it would—unless protected by legislation or otherwise from the operation of economic law, and so given a monopoly-price—have an exchange-value equal to that of coal, a ton of the one being equal to a ton of the other—provided, of course, that its utility remained. Since the scarcity of gold is an important element in its utility valuation, creating and fostering the desire for its possession, that utility-value might largely disappear if gold became as plentiful as coal, in which case it would not have the same value as coal, and might cease to be a commodity at all.

Price, then, is the expression of value in terms of some other commodity, which, generally used for that purpose of expressing the value of other commodities, we call money. It is only an approximation of value, and subject to a much greater fluctuation than value itself. It may, for a time, fall far below or rise above value, but in a free market—the only condition in which the operation of the law may be judged—sooner or later the equilibrium will be regained. Where monopoly exists, the free market condition being non-existent, price may be constantly elevated above value. Monopoly-price is an artificial elevation of price above value, and must be considered separately as the abrogation of the law of value.

Failure to discriminate between value and its price-expression, or symbol, has led to endless difficulty.It lies at the bottom of the naïve theory that value depends upon the relation of supply and demand. Lord Lauderdale's famous theory has found much support among later economists, though it is now rather unpopular when stated in its old, simple form. Disguised in the so-called Austrian theory of final utility, it has attained considerable vogue.[172]The theory is plausible and convincing to the ordinary mind. Every day we see illustrations of its working: prices are depressed when there is an oversupply, and elevated when the demand of would-be consumers exceeds the supply of the commodities they desire to buy. It is not so easy to see that these effects are temporary, and that there is an automatic adjustment going on. Increased demand raises prices for a while, but it also calls forth an increase in supply which tends to restore the old price level, or may even force prices below it. In the latter case, the supply falls off andprices find their real level. The relation of supply to demand causes an oscillation of prices, but it is not the determinant of value. When prices rise above a certain level, demand slackens or ceases, and prices are inevitably lowered. Prices may and do fall with a decreased demand, but it is clear that unless the producers can get a price approximately equal to the value of their commodities, they will cease to produce them, and the supply will diminish or cease altogether. Ultimately, therefore, the fluctuations of price through the lack of equilibrium between supply and demand adjust themselves, and prices must tend constantly to approximate values.

Monopoly-price is, as already observed, an artificial price in the sense that the laws of free market exchange do not apply to it. The "unique utilities," things not reproducible by human labor, command what might be termed natural monopoly-prices. There are many other commodities, however, the price of which is not regulated by the quantity of social human labor necessary to produce them, but simply by the desire of the purchasers and the means they have of gratifying it and the power of the sellers to control the market and exclude effective competition. Since Karl Marx wrote, the exceptions to his law of value have become more numerous, as a result of the changes in industrial and commercial conditions. The development of great monopolies and near-monopolies has greatlyincreased the number of commodities which, for considerable periods, are placed outside the sphere of the labor-value theory, their price depending upon their marginal utility, irrespective of the labor actually embodied in them or necessary to their reproduction. It may, in the opinion of the present writer, be said in criticism of the followers of Marx that they have not carried on his work, but largely contented themselves with repeating generalizations which, true when made, no longer fit all the facts. But that is not a criticism of Marx, or of his work. What he professed to make was an analysis of the methods of production and exchange in competitive capitalist society. His followers have largely failed to allow for the enormous changes which have taken place, and go on repeating, unchanged, his phrases.

Professor Seligman has pointed out that Ricardo's contention that value is determined by the cost of production, and the contention of Jevons that value is determined by marginal utility, are not mutually exclusive, but, on the contrary, complementary to each other.[173]The present writer has long contended that the marginal utility theory and the Marxian labor-value theory are likewise not antagonistic but complementary.[174]This is not the place to enter intothe elaborate discussion which this contention involves. Only a brief indication of the argument for the claim is here and now possible. First, as we have seen, Marx is very careful to insist that utility is essential to value, and that the utility must be a social utility. But social utility does not come of itself, from the skies or elsewhere. It is, so far as the vast majority of commodities is concerned, the product of labor. It is true that the value of a thing is never independent of its social utility; it is likewise true that this is determined by the social labor necessary to the reproduction of that utility. To regard the two theories as antagonistic, it seems to be necessary to say either (1) that the quantity of social labor necessary to produce certain commodities determines their value, utterly regardless of the amount of their social utility, or (2) that we estimate the social utility of commodities, estimate what we are willing to pay for them, utterly regardless of the labor necessary, on an average, for their reproduction. The latter contention would be absurd, and the former would involve the abandonment of the initial premises of the Marxian theory, contained in his definition of a commodity. In so far as the basis of social utility is the social labor necessary for its production, the labor-value theory of Marx may be said, I think, to include the marginal utility law, as one of the forms in which it operates.

Labor, the source and determinant of value, has,per se, no value. Only when it is embodied in certain forms has it any value. If a man labors hard digging holes and refilling them, his labor has no value. What the capitalist buys is not labor, but labor-power. Wages in general is a form of payment for a given amount of labor-power, measured by duration and skill. The laborer sells brain and muscle power, which is thus placed at the temporary disposal of the capitalist to be used up like any other commodity that he buys. The philosopher Hobbes, in his "Leviathan," clearly anticipated Marx in thus distinguishing between labor and laboring power in the saying, "The value or worth of a man is ... so much as would be given for the Use of his Power." The power to labor assumes the commodity form, being at once a use-value and an exchange-value. At first sight it appears that piecework is an exception to the general rule that the capitalist buys labor-power and not labor itself. It seems that when piece-wages are paid it is not the machine, the living labor-power, but the product of the machine, labor actually performed, that is bought. Superficially, this is so, of course, but it does not affect the principle laid down, because, as a matter of fact, the piecework system is only one of the means used to secure a maximum oflabor-power. The average output of pieceworkers in a trade always tends to become the standard output for the time-workers, and, on the other hand, the average wage of pieceworkers tends to keep very near the standard of time-wages.

Now, as a commodity, labor-power is subject to the same laws as all other commodities. Its price, wages, fluctuates just as the price of all other commodities does, and bears the same relation to its value. It may be temporarily affected by the preponderance of supply over demand, or of demand over supply; it may be made the subject of monopoly in certain cases. There is, therefore, no such thing as an "iron law" of wages, any more than there is an "iron law" of prices for other commodities. Lassalle took the Ricardian law of wages and, by means of his characteristic exaggeration, distorted it out of all semblance to truth. Says Ricardo: "The natural price of labor, therefore, depends on the price of the food, necessaries, and conveniences required for the support of the laborer and his family. With a rise in the price of food and necessaries, the natural price of labor will rise; with the fall in their price, the natural price of labor will fall."[175]This Lassalle made the basis of his famous "iron law," according to which 96 per cent of the wage-workers were precluded from improving their economic position. Lassalle's chief fault lay in thathe made no allowance whatever for either state interference, or the organized influence of the workers themselves. He also attaches too little importance to what Marx calls the traditional standards of living.[176]It is nevertheless true that the price of labor-power, wages, tends to approximate its value, just as the price of all other commodities tends, under normal conditions, to approximate their value.

And just as the value of other commodities is determined by the amount of social labor necessary on an average for their reproduction, so the value of labor-power is likewise determined. Wages tend to a point at which they will cover the average cost of the necessary means of subsistence for the workers and their families, in any given time and place, under the conditions and according to the standards of living generally prevailing. Trade union action, for example, may force wages above that point, or undue stress in the competitive labor market may force wages below it. While, however, a trade union may bring about what is virtually a monopoly-price for the labor-power of its members, there is always a counter tendency in the other direction, sometimes even to the lowering of the standard of subsistence itself to the minimum of things required for physical existence.

To class human labor-power with pig iron as a commodity, subject to the same laws, may at firstseem fantastic to the reader, but a careful survey of the facts will fully justify the classification. The capacity of the worker to labor depends upon his securing certain things; his labor-power has to be reproduced from day to day, for which a certain supply of food, clothing, and other necessities of life is essential. Even with these supplied constantly, the worker sooner or later wears out and dies. If the race is not to be extinguished, a certain supply of the necessities of life must be provided for the children during the years of their development to the point where their labor-power becomes marketable. The average cost of production in the case of labor-power includes, therefore, the necessities for a wife and family as well as for the individual worker. Far from being the iron law Lassalle imagined, this law of wages is one of considerable elasticity. The standard of living itself, far from being a fixed thing, determined only by the necessities of physical existence, varies according to occupational groups; to localities sometimes, as a result of historical development; to nationality and race, as a result of tradition; to the general standard of intelligence, and the degree in which the workers are organized for the promotion of their economic interests. The advance in the culture of the people as a whole, expressing itself in legislation for compulsory education, the abolition of child labor, improvement of housing and generalsanitary conditions, and so on, tends to raise the standard of living. Finally, the fluctuations in the price of labor-power due to the operation of the law of supply and demand are much more important than Lassalle imagined.

This living commodity, labor-power, differs in one remarkable way from all other commodities, in that when it is used up in the process of the production of other commodities in which it is embodied, it creates new value in the process of being used up, and embodies that new value in the commodity it assists to produce. In the case of raw materials and machinery this is not so. In the manufacture of tables, for example, the wood used up is transformed into tables, embodied in them, but the wood has added nothing to its own value. The same is true of machinery. But with human labor-power it is otherwise. The capitalist buys from the laborer his labor-power at its full value as a commodity. But the laborer, in embodying that labor-power in some concrete form, creates more value than his wages represents. For the commodity he sells, hispowerto labor, he has been paid its full value, namely, the social labor-cost of its production; but that power may be capable of producing the equivalent of twice its own cost of production. This is the central idea of the famous and much-misunderstood Marxian theory of surplus-value, by which the method of capitalism, theexploitation of the wage-workers, and the resulting class antagonisms of the system are explained. This theory becomes the groundwork of all the social theories and movements protesting against and seeking to end the exploitation of the laboring masses. To understand it is, therefore, of paramount importance.

As we have seen in an earlier chapter, Marx was not the first to recognize that the secret of capitalism, the object of capitalist industry, is the extraction of surplus-value from the labor-power of the worker. Nor was he the first to use the term. By no means a happy term, since it adds to the difficulty of comprehending the meaning and nature ofvalue, Marx took it from the current economic discussion of his time as a term already fairly well understood. What we owe to the genius of Marx is an explanation of the manner in which surplus-value is extracted by the capitalist from the labor-power of the worker, and the part it plays in capitalist society.

The essence of the theory can be very briefly stated, but its demonstration involves, naturally, a more extensive study. Under normal conditions, the worker will produce a value equivalent to his means of subsistence, or to the wages actually paid to him, in a very small number of hours. If he owned andcontrolled the means of production,—land, machinery, raw materials, and so on,—he would, therefore, need to work only so many hours as the production of the necessities of life for himself and his family required. But the laborer in capitalist society does not own the means of production, that condition being quite incompatible with machine production upon a large scale. A separation of the worker from the ownership of the means of production has taken place as one of the inevitable results of industrial evolution. So the laborer must sell the only commodity he has to sell, namely, his labor-power. He sells the utility of that commodity to the capitalist for its exchange-value, or market price. Like any other commodity, the utility of labor-power, its use-value, belongs to the purchaser, the capitalist. It is his to use as he sees fit. He has it used to produce other commodities which he in turn hopes to sell—has the labor-power used up in the manufacture of other commodities, just as he has the raw materials used up. He buys, for example, the labor-power of the workers for a day of ten hours. In five hours, say, the worker creates value equivalent to his wages, but he does not cease at that point. He goes on working for another five hours, thus producing in a day double the amount of his wages, the exchange-value of the labor-power he sold the capitalist. Thus the capitalist, having paid wages equivalent to the product of five hours,receives the product of ten hours. This balance represents the surplus-value (Mehrwerth).

This takes place all through industry. If the capitalist employs a thousand workers under these conditions, each day he receives the product of five thousand hours over and above the product actually paid for. This constitutes his income. If the capitalist owned the land, machinery, and raw materials, absolutely, without incumbrances of any kind, the whole of that surplus-value would, naturally, belong to him. But as a general rule this is not the case. He rents the land and must pay rent to the landlord, or he works upon borrowed capital and must pay interest upon loans, so that the surplus-value extracted from the laborer must be divided into rent, interest, and profit. But how the surplus-value is divided among landlords, moneylenders, creditors, speculators, and actual employers is a matter of absolutely no moment to the workers as a class. That is why such movements as that represented by the followers of Henry George fail to vitally interest the working class.[177]The division of the surplus-value wrung from the toil of the workers gives rise to much quarrel and strife within the ranks of the exploiting class, but the working class recognizes, and vaguely and instinctively feels where it does not clearly recognize, that it has no interest inthese quarrels. All that interests it vitally is how to lessen the extent of the exploitation to which it is subjected, and how ultimately to end that exploitation altogether. That is the objective of the movement for the socialization of the means of life.

Such, briefly stated, is the theory. We may illustrate it by the following example: Let us say the average cost of a day's subsistence is the product of five hours' social labor, which is represented by a wage of $1 per day. In a factory there are 1000 workers. Their labor-power they have sold at its exchange value, $1 per day per man, a total of $1000. They use up $1000 worth of labor-power, then. They also use up $1000 worth of raw material and wear out the plant to the extent of $100 in the course of their work. Now, instead of working five hours each, that being the amount of time necessary to reproduce the value of their wages, as above described, they all work ten hours. Thus, in place of the $1000 they received as wages for the labor-powerthey sold, they create laborproducts, valued at just twice that sum, $2000. According to our suppositions, therefore, the gross value of the day's product will be $3100, the whole of it belonging to the capitalist, for the simple and sufficient reason that he bought and paid for, at their full value as commodities, all the elements entering into its production, the machinery, materials, and labor-power. The capitalist pays,—

and this sum is the fund from which rent, interests, and profits must be paid.

It will be observed that there is no moral condemnation of the capitalist involved in this illustration. He simply buys the commodity, labor-power, at its full market price, as in the case of all other commodities. No ethical argument enters into it at all. It is very evident, however, that the interest of the capitalist will be to get as much surplus-value as possible, by buying labor-power at the lowest price possible, prolonging the working day, and intensifying the productivity of the labor-power he buys, while the interest of the workman will be equally against these things. Here we have the cause of class antagonism—not in the speeches of agitators, but in the facts of industrial life.

This is the Marxian theory of surplus-value in a nutshell. Rent, interest, and profit, the three great divisions of capitalist income into which this surplus-value is divided, are thus traced to the exploitation of labor, resting fundamentally upon the ownership by the exploiting class of the means of production. Other economists, both before and since Marx, havetried to explain the source of capitalist income in very different ways. An early theory was that profit originates in exchange, through "buying cheap and selling dear." That this is so in the case of individual traders is obvious. If A sells to B commodities above their value, or buys commodities from him below their value, it is plain that he gains by it. But it is equally plain that B loses. If one group of capitalists gains what another group loses, the gains and losses balance each other; there is no gain to the capitalist class as a whole. Yet that is precisely what occurs—the capitalist class as a whole does gain, and gain enormously, despite the losses of individual members of that class. It is that gain to the great body of capitalists, that general increase in their wealth, which must be accounted for, and which exchange cannot explain. Only when we think of the capitalist class buying labor-power from outside its own ranks, generally at its natural value, and using it, is the problem solved. The commodity which the capitalist buys creates a value greater than its own in being used up.

The theory that profit is the wages of risk is answerable in substantially the same way. It does not in any way explain the increase in the aggregate wealth of the capitalist class to say that the individual capitalist must have a chance to receive interest upon his money in order to induce him to turn it intocapital, to hazard losing it wholly or in part. While the theory of risk helps to explain some features of capitalism, the changes in the flow of capital into certain forms of investment, and, to some small extent, the commercial crises incidental thereto, it does not explain the vital problem, the source of capitalist income. The chances of gain, as a premium for the risks involved, explain satisfactorily enough the action of the gambler when he enters into a game of roulette or faro. It cannot be said, however, that the aggregate wealth of the gamblers is increased by playing roulette or faro. Then, too, the risks of the laborers are vastly more vital than those of the capitalist. Yet the premium for their risks of health and life itself does not appear, unless, indeed, it be in their wages, in which case the most superficial glance at our industrial statistics will show that wages are by no means highest in those occupations where the risks are greatest and most numerous. Further, the wages of the risks for capitalists and laborers alike are drawn from the same source, the product of the laborers' toil.

To consider, even briefly, all the varied theories of surplus-value other than these would be a prolonged, dull, and profitless task. The theory of abstinence, that profit is the just reward of the capitalist for saving part of his wealth and using it as a means of production, is answerable bya prioriarguments and by avast volume of facts. Abstinence obviously produces nothing; it can only save the wealth already produced by labor, and no automatic increase of that saved-up wealth is possible. If it is to increase without the labor of its owner, it can only be through the exploitation of the labor of others, so that the abstinence theory in no manner controverts the Marxian position. On the other hand, we see that those whose wealth increases most rapidly are not given to frugality or abstinence by any means. It may, certainly, be possible for an individual to save enough by practicing frugality and abstinence to enable him to invest in some profitable enterprise, but the source of his profit is not his abstinence. That must be sought elsewhere. Abstinence may provide him with the means for taking the profit, but the profit itself must come from the value created by human labor-power over and above its cost of production.

Still less satisfactory is the idea that surplus-value is nothing more than the "wages of superintendence," or the "rent of ability." This theory has been advocated with much specious argument. Essentially it involves the contention that there is no distinction between wages and profits, or between capitalists and laborers; that the capitalist is a worker, and his profits simply wages for his useful and highly important work of directing industry. It is a bold theory with a very small basis of fact. Whoever honestlyconsiders it, must, one would think, see that it is both absurd and untrue. Not only is the larger part of industry to-day managed by salaried employees who have no part, or only a very insignificant part, in the ownership of the concerns they manage, but the profits are distributed among shareholders who, as shareholders, have never contributed service of any kind to the industries in which they are shareholders. Whatever services are performed, even by the figure-head "dummy" directors of companies, are paid for before profits are considered at all. This is the invincible answer to such criticisms as that of Mr. Mallock, that Marx and his followers have not recognized "the functions of the directive ability of the few." When all the salaries of the directing "few" have been paid, as well as the wages of the many, and the cost of all materials and maintenance of machinery, there remains a surplus to be distributed among those who belong neither to the "laboring many" nor the "directing few." That profit Mr. Mallock cannot explain away. Marx himself, in "Capital," called attention to the "directing ability of the few," quite as clearly as Mr. Mallock has done. He first shows how the "collective power of masses" is really a new creation; that it involves a special kind of leadership, or directing authority, just as an orchestra does; then he proceeds to point out the development of a special class of supervisors and directors of industry,"a special kind of wage laborer.... Thework of supervision becomes their established and exclusive function."[178]Socialists, contrary to Mr. Mallock, have not overlooked the function exercised by the directing few, but they have pointed out that when these have been paid, their salaries being sometimes almost fabulous, there is still a surplus-value to be distributed among those who have not shared in the production, either as mental or manual workers. As Mr. Algernon Lee says:—

"The profits produced in many American mills, factories, mines, and railway systems go in part to Englishmen or Belgians or Germans who never set foot in America, and who obviously can have no share in even the mental labor of direction. A certificate of stock may belong to a child, to a maniac, to an imbecile, to a prisoner behind the bars, and it draws profit for its owner just the same. Stocks and bonds may lie for months or years in a safe-deposit vault, while an estate is being disputed, before their ownership is determined; but whoever is declared to be the owner gets the dividends and interest "earned" during all that time."[179]

It is an easy task to set up imaginary figures labeled "Marxism," and then to demolish them by learned argument—but the occupation is as fruitlessas it is easy. It remains the one central fact of capitalism, however, that a surplus-value is created by the working class and taken by the exploiting class, from which develops the class struggle of our time.

FOOTNOTES:[163]The People's Marx, by Gabriel Deville, page 288.[164]Capital, Vol. I, Kerr edition, page 41.[165]Professor J. S. Nicholson, a rather pretentious critic of Marx, has called sunshine a commodity because of its utility,Elements of Political Economy, page 24. Upon the same ground, the song of the skylark and the sound of ocean waves might be called commodities. Such use of language serves for nothing but the obscuring of thought.[166]William Petty,A Treatise on Taxes and Constitutions(1662), pages 31-32.[167]The Wealth of Nations, Vol. I, Chapters V-VI.[168]Benjamin Franklin,Remarks and Facts Relative to the American Paper Money(1764), page 267.Marx thus speaks of Franklin as an economist: "The first sensible analysis of exchange-value as labor-time, made so clear as to seem almost commonplace, is to be found in the work of a man of the New World, where the bourgeois relations of production, imported together with their representatives, sprouted rapidly in a soil which made up its lack of historical traditions with a surplus ofhumus. That man was Benjamin Franklin, who formulated the fundamental law of modern political economy in his first work, which he wrote when a mere youth (A Modest Inquiry into the Nature and Necessity of a Paper Currency), and published in 1721."A Contribution to the Critique of Political Economy, by Karl Marx, English translation by N. I. Stone, 1894, page 62.[169]David Ricardo,Principles of Political Economy and Taxation, Chapter I, § III.[170]Wealth of Nations, Book I, Chapter X.[171]Principles of Political Economy and Taxation, Chapter I, Sec. 1, § 4.[172]See "The Final Futility of Final Utility," in H. M. Hyndman'sEconomics of Socialism, for a remarkable criticism of the "final utility" theory, showing its identity with the doctrine of supply and demand as the basis of value.I refer to the theory of final or marginal utility as the "so-called Austrian theory" for the purpose, mainly, or calling attention to the fact that, as Professor Seligman has ably and clearly demonstrated, it was conceived and excellently stated by W. F. Lloyd, Professor of Political Economy at Oxford, in 1833. (See the paper,On Some Neglected British Economists, in theEconomic Journal, V, xiii, pages 357-363.) This was two decades before Gossen and a generation earlier than Menger and Jevons. In view of this fact, the criticism of Marx for his lack of originality by members of the "Austrian" school is rather amusing.[173]Principles of Economics, by Edwin R. A. Seligman (1905), page 198.[174]Cf., for instance, my little volume, in theStandard Socialist Series(Kerr), entitledCapitalist and Laborer; Part II,Modern Socialism, page 112.[175]Principles of Political Economy and Taxation, Chapter V, § 35.[176]Value, Price, and Profit, by Karl Marx, Chapter XIV.[177]It is worthy of note that the taxation of land values, commonly associated with the name of Henry George, was advocated as a palliative in theCommunist Manifestoof Marx and Engels.[178]Capital, by Karl Marx, Vol. I, Chapter XIII, of Part IV.[179]The Worker(New York), February 5, 1905.

[163]The People's Marx, by Gabriel Deville, page 288.

[164]Capital, Vol. I, Kerr edition, page 41.

[165]Professor J. S. Nicholson, a rather pretentious critic of Marx, has called sunshine a commodity because of its utility,Elements of Political Economy, page 24. Upon the same ground, the song of the skylark and the sound of ocean waves might be called commodities. Such use of language serves for nothing but the obscuring of thought.

[166]William Petty,A Treatise on Taxes and Constitutions(1662), pages 31-32.

[167]The Wealth of Nations, Vol. I, Chapters V-VI.

[168]Benjamin Franklin,Remarks and Facts Relative to the American Paper Money(1764), page 267.Marx thus speaks of Franklin as an economist: "The first sensible analysis of exchange-value as labor-time, made so clear as to seem almost commonplace, is to be found in the work of a man of the New World, where the bourgeois relations of production, imported together with their representatives, sprouted rapidly in a soil which made up its lack of historical traditions with a surplus ofhumus. That man was Benjamin Franklin, who formulated the fundamental law of modern political economy in his first work, which he wrote when a mere youth (A Modest Inquiry into the Nature and Necessity of a Paper Currency), and published in 1721."A Contribution to the Critique of Political Economy, by Karl Marx, English translation by N. I. Stone, 1894, page 62.

[168]Benjamin Franklin,Remarks and Facts Relative to the American Paper Money(1764), page 267.

Marx thus speaks of Franklin as an economist: "The first sensible analysis of exchange-value as labor-time, made so clear as to seem almost commonplace, is to be found in the work of a man of the New World, where the bourgeois relations of production, imported together with their representatives, sprouted rapidly in a soil which made up its lack of historical traditions with a surplus ofhumus. That man was Benjamin Franklin, who formulated the fundamental law of modern political economy in his first work, which he wrote when a mere youth (A Modest Inquiry into the Nature and Necessity of a Paper Currency), and published in 1721."A Contribution to the Critique of Political Economy, by Karl Marx, English translation by N. I. Stone, 1894, page 62.

[169]David Ricardo,Principles of Political Economy and Taxation, Chapter I, § III.

[170]Wealth of Nations, Book I, Chapter X.

[171]Principles of Political Economy and Taxation, Chapter I, Sec. 1, § 4.

[172]See "The Final Futility of Final Utility," in H. M. Hyndman'sEconomics of Socialism, for a remarkable criticism of the "final utility" theory, showing its identity with the doctrine of supply and demand as the basis of value.I refer to the theory of final or marginal utility as the "so-called Austrian theory" for the purpose, mainly, or calling attention to the fact that, as Professor Seligman has ably and clearly demonstrated, it was conceived and excellently stated by W. F. Lloyd, Professor of Political Economy at Oxford, in 1833. (See the paper,On Some Neglected British Economists, in theEconomic Journal, V, xiii, pages 357-363.) This was two decades before Gossen and a generation earlier than Menger and Jevons. In view of this fact, the criticism of Marx for his lack of originality by members of the "Austrian" school is rather amusing.

I refer to the theory of final or marginal utility as the "so-called Austrian theory" for the purpose, mainly, or calling attention to the fact that, as Professor Seligman has ably and clearly demonstrated, it was conceived and excellently stated by W. F. Lloyd, Professor of Political Economy at Oxford, in 1833. (See the paper,On Some Neglected British Economists, in theEconomic Journal, V, xiii, pages 357-363.) This was two decades before Gossen and a generation earlier than Menger and Jevons. In view of this fact, the criticism of Marx for his lack of originality by members of the "Austrian" school is rather amusing.

[173]Principles of Economics, by Edwin R. A. Seligman (1905), page 198.

[174]Cf., for instance, my little volume, in theStandard Socialist Series(Kerr), entitledCapitalist and Laborer; Part II,Modern Socialism, page 112.

[175]Principles of Political Economy and Taxation, Chapter V, § 35.

[176]Value, Price, and Profit, by Karl Marx, Chapter XIV.

[177]It is worthy of note that the taxation of land values, commonly associated with the name of Henry George, was advocated as a palliative in theCommunist Manifestoof Marx and Engels.

[178]Capital, by Karl Marx, Vol. I, Chapter XIII, of Part IV.

[179]The Worker(New York), February 5, 1905.

Many persons who have thought of Socialism as a scheme, the plan of a new social edifice, have been disappointed not to find in all the voluminous writings of Marx any detailed description of such a plan, any forecast of the future. But when they have grasped the fundamental principles of the Marxian system of thought, they realize that it would be absurd to attempt to give detailed specifications of the Socialist state. As the Socialist movement has outgrown the influence of the early Utopians, its adherents have abandoned the habit of speculating upon the practical application of Socialist principles in future society. The formulation of schemes, more or less detailed, has given place to firm insistence that Socialism must be regarded as a principle, namely, the efficient organization of wealth production and distribution to the end that the exploitation of the wealth producers by a privileged class may be rendered impossible. Whatever contributes to that end is a contribution to the fulfillment of the Socialist ideal.

Still, it is natural and inevitable that earnest Socialists and students of Socialism should seek something more tangible by way of a description of the future state than the bald statement that it will be free from the struggle between exploiting and exploited classes. The question is, can we go further in our attempt to scan the future without entering the realms of Utopian speculation? If Socialism is, objectively considered, a state of society which is being developed in the womb of the present, are there any signs by which its peculiar form and spirit, as distinguished from the form and spirit of the present, may be visualized? Within certain limits, an affirmative answer seems possible to each of these questions. There are certain fundamental principles which may be said to be essential to the existence of Socialist society. Without them, the Socialist state cannot exist. Regardless of the fact that Karl Marx never attempted to describe his ideal, to give such a description of his concept of the next epoch in evolution as would enable us to compare it with the present and to measure the difference, it is probable that every Socialist makes, privately at least, his own forecast of the manner in which the new society must shape itself.

There is nothing Utopian or fantastic in trying to ascertain the tendencies of economic development; nothing unscientific in trying to read out of the pagesof social evolution such lessons as may be contained therein. So long as we bear in mind that our forecasts must not take the form of plans for the arbitrary shaping of the future, specifications of the Coöperative Commonwealth, but that they must, on the contrary, be based upon the facts of life—not abstract principles born in the heart's desire—and attempt to discern the tendencies of social and economic evolution, we are upon safe ground. Such forecasts may indeed be helpful, not only in so far as they provide us with a more or less concrete picture of the ideal to be aimed at, but also, and even more important, in that they at once enable us to gauge from time to time the progress made by society toward the realization of the ideal, and to formulate our policies most effectively. Especially as there are certain fundamental principles essential to the existence of a Socialist state, we may take these and correlate them, and these principles, together with our estimate of economic tendencies, drawn from the facts of the present, may provide us with a suggestive and approximate outline of the Socialist society of the future. So far we may proceed with full scientific sanction; beyond are the realms of fancy and dream, the Elysian Fields of Utopia.[180]We must not set about our task with the mental attitude so well displayed by the yearning of Omar—

"Ah Love! could you and I with Him conspireTo grasp this sorry Scheme of Things entire,Would not we shatter it to bits—and thenRemold it nearer to the Heart's Desire!"

"Ah Love! could you and I with Him conspire

To grasp this sorry Scheme of Things entire,

Would not we shatter it to bits—and then

Remold it nearer to the Heart's Desire!"

From that spirit only vain dreams and fantastic vagaries can ever come. What we must bear in mind is that the social fabric of to-morrow, like that of yesterday, whose ruins we contemplate to-day, will not spring up, complete, in response to our will, but will grow out of social experience and needs.

One of the greatest and most lamentable errors in connection with the propaganda of modern Socialism has been the assumption of its friends, in many instances, and its foes, in most instances, that Socialism and Individualism are entirely antithetical concepts. Infinite confusion has been caused by setting the two against each other. Society consists of an aggregation of individuals, but it is something more than that in just the same sense as a house is something more than an aggregation of bricks. It is an organism, though as yet an imperfectly developed one. While the units of which it is composed have distinct and independent lives within certain limits, they are, outside of those limits, interdependent and inter-related. Man is governed by two great forces. On the one hand, he is essentially an egoist, ever strivingto attain individual freedom; on the other hand, he is a social animal, ever seeking association and avoiding isolation. This duality expresses itself in the life of society. There is a struggle between its members motived by the desire for individual expression and gain; and, alongside of it, a sense of solidarity, a movement to mutual, reciprocal relations, motived by the gregarian instinct. All social life is necessarily an oscillation between these two motives. The social problem in its last analysis is nothing more than the problem of combining and harmonizing social and individual interests and actions springing therefrom.

In dealing with this social problem, the problem of how to secure harmony of social and individual interests and actions, it is necessary first of all to recognize that both motives are equally important and necessary agents of human progress. The idea largely prevails that Socialists ignore the individual motive and consider only the social motive, just as the ultra-individualists have erred in an opposite discrimination. The Socialist ideal has been conceived to be a great bureaucracy. Mr. Anstey gave humorous and vivid expression to this idea inPunchsome years ago, when he represented the citizens of the Socialist state as being all clothed alike, known only by numbers, strangers to all the joys of family life, plodding through their allotted tasks under a race of hated bureaucrats, and having the solace of chewing gum in their leisuretime as a specially paternal provision. Some such mental picture must have inspired Herbert Spencer's "Coming Slavery," and it must be confessed that the early forms of Socialism which consisted mainly of detailed plans of coöperative commonwealths afforded some excuse for the idea. Most intelligent Socialists, if called upon to choose between them, would probably prefer to live in Thibet under a personal despotism, rather than under the hierarchies of most of the imaginary commonwealths which Utopian Socialists have depicted.

Even in the later propaganda of the modern political Socialist movement, there has been more than enough justification for those who regard Socialism as impossible except under a great bureaucracy. In numberless Socialist programmes and addresses Socialism has been defined as meaning "The social ownership and control of all the means of production, distribution, and exchange." Critics of Socialism are not to be seriously blamed if they take such "definitions" at their face value and interpret them quite literally. It is not difficult to see that in order to place "all means of production, distribution, and exchange" under social ownership and control, the creation of such a bureaucracy as the world has never seen would be necessary. A needle is a means of production quite as much as an electric power machine in a factory is, the difference being in their degrees ofefficiency. A jackknife is, likewise, in certain circumstances, a means of production, just as surely as a powerful planing machine is, the difference being in degrees of efficiency. So a market basket is a means of distribution quite as surely as an ocean steamship is; a wheelbarrow quite as much as a locomotive. They differ in degrees of efficiency, that is all. The idea that the housewife in the future, when she wants to sew a button upon a garment, will be obliged to go to some department and "take out" a needle, having it properly checked in the communal accounts, and being responsible for its return, is, of course, worthy only of opera bouffe. So is the notion of the state owning wheelbarrows and market baskets and making their private ownership illegal. "The socialization ofallthe means of production, distribution, and exchange," literally interpreted, is folly. But none of those using the phrase must be regarded as seriously contemplating its literal interpretation. For many years the phrase was included in the statement of its "Object" by the English Social Democratic Federation, and even now it appears in a slightly modified form, the word "all" being omitted,[181]perhaps because of its tautological character. For several years the writer was a member of the Federation, actively engaged in the propaganda, and how we spent much of our timeexplaining to popular audiences in halls and upon street corners that the socialization of jackknives, needles, sewing machines, market baskets, beer mugs, frying pans, and toothpicks was not our aim, is a merry memory.

When this is understood, the nightmare of the bureaucracy of Socialism vanishes. It is no longer necessary to fret ourselves asking how a government is to own and manage everything without making slaves of its citizens. The question propounded by that venerable and distinguished Canadian scholar, Professor Goldwin Smith,[182]whether a government can be devised which shall hold all the instruments of production, distribute to the citizens their tasks, pick out inventors, philosophers, artists, and laborers, and set them to work, without destroying personal liberty, loses its force when it is remembered that Socialism involves no such necessity.

The Socialist ideal may be said to be a form of social organization in which every individual will enjoy the greatest possible amount of freedom for self-development and expression; and in which social authority will be reduced to the minimum necessary for the preservation and insurance of that right to allindividuals. There is an incontestable right of the individual to full and free self-development and expression so long as no other individual's right to a like freedom is infringed upon. No individual right can be anabsoluteright in a society, but must be subject to such restrictions as may be necessary to safeguard the like right of every other individual, and of society as a whole.Absolutepersonal liberty is not possible; to grant it to any one individual would be equivalent to denying it to others. If, in a certain community, a need is commonly felt for a system of drainage to protect the citizens against the perils of a possible outbreak of typhoid or some other epidemic disease, and all the citizens agree upon a scheme except two or three, who, in the name of personal liberty, declare that their property must not be touched, what is to be done? If the citizens, out of solicitude for the personal liberty of the objecting individuals, abandon or modify their plans, is it not clear that the liberty of the many has been sacrificed to the liberty of the few, which is the essence of tyranny? Absolute individual liberty is incompatible with social liberty. The liberty of each must, in Mill's phrase, be bounded by the like liberty of all. Absolute personal liberty is a chimera, a delusion.

Even the Anarchist must come to a realization of the fact that liberty is not an absolute, but a relative and limited, right. Kropotkin, for example, realizesthat, even under Anarchism, any individual who did not live up to his obligations, or who persisted in conducting himself in a manner obnoxious or injurious to the community, would have to be expelled.[183]This is very like Spencer's practical abandonment of the doctrine oflaissez faireindividualism. Says he: "Many facts have shown us that while the individual man has acquired liberty as a citizen and greater religious liberty, he has also acquired greater liberty in respect of his occupations; and here we see that he has simultaneously acquired greater liberty of combination for industrial purposes. Indeed, in conformity with the universal law of rhythm,there has been a change from excess of restriction to deficiency of restriction. As is implied by legislation now pending, the facilities for forming companies and raising compound capitals have been too great."[184]Here is a very definite confession of the insufficiency of natural law, the failure of thelaissez fairetheory, and a virtual appeal for restrictive and coercive legislation.

This is inevitable. The dual forces which serve as the motives of individual and collective action, spring, unquestionably, from the fact that individuals are at once alike and unlike, equal and unequal. Alike in our needs of certain fundamental necessities,such as food, clothing, shelter, coöperation for producing these necessities, for protection from foes, human and other, we are unlike in tastes, appetites, temperaments, character, will, and so on, till our diversity becomes as great and as general as our likeness. Now, the problem is to insure equal opportunities of full development to all these diversely constituted and endowed individuals, and, at the same time, to maintain the principle of equal obligations to society on the part of every individual. This is the problem of social justice: to insure to each the same social opportunities, to secure from each a recognition of the same obligations toward all. The basic principle of the Socialist state must be justice; no privileges or favors can be extended to individuals or groups of individuals.

Politically, the organization of the Socialist state must be democratic. Socialism without democracy is as impossible as a shadow without light. The word "Socialism" applied to schemes of paternalism, and to government ownership when the vital principle of democracy is lacking, is a misnomer. As with Peter Bell—

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