A Plea for Liberty: An Argument Against Socialism and Socialistic Legislation

Edited by: Mackay, Thomas
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Thomas Mackay, ed.
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Collected essays, various authors. Includes "From Freedom to Bondage," by Herbert Spencer.
10 of 16


by Thomas Mackay


It is a commonplace of the older political economists that capital is the result of abstinence from consumption. But an important process of civilisation does not so readily lend itself to definition in a brief sentence. Investment, that is the conversion of revenue into capital, is itself a form of consumption. It naturally implies abstinence from other and more obvious forms of consumption. Thus by means of the process of investment a man consumes a part of his revenue in acquiring, not food which is obviously perishable, but a machine or an improvement of his land, objects which are less obviously perishable. But the advantage thus acquired is by no means permanent, for a machine wears out and land loses its heart, and the usefulness of the expenditure, to which the name of capital has been given, disappears unless fresh doses of capital are from time to time administered. There is no such thing as permanence in human affairs; there are only degrees in the rapidity with which things are consumed.


These considerations, though familiar enough, are of importance in view of the socialist proposal for the nationalisation or socialisation of all forms of capital. We intend, therefore, to examine the operation of investment, or, as we may term it, the application of revenue to this less rapid form of consumption. The most enthusiastic socialist does not deny the usefulness of capital. His grievance is the private usefulness of capital. It is not disputed that capital makes labour a thousand-fold more productive, that mere human labour is in itself weak, that it only becomes powerful when allied with the mechanism of the inventive arts. This alliance is effected by capital, and results in an accelerated and increased production of wealth. So far there is no difference of opinion. The socialist, however, argues that capital should belong to mankind at large, to the nation, to the municipality, to a public body or bodies, and not on any account to a private capitalist. We, on the other hand, argue that capital should belong to him who has earned it, that he alone can make the best use of it, and that he alone should suffer if it is allowed to disappear in ill-considered ventures, or to waste away more rapidly than is necessary for want of due reparation and care; further, that the right of bequest and inheritance is at once the most economical as well as the most equitable method for the devolution of property from one generation to another; and that the socialist ideal of the universal usefulness of capital, which is our ideal also, can be reached by an ever-widening extension of private ownership and by that means only.


The régime under which we live makes considerable experiment in both these theories of the tenure of capital. There are tendencies working in both directions, and the question, as far as it is a practical one, is—To which side should a wise man lend his influence? Reasonable men in both camps are averse to revolutionary methods, and are agreed that change must be gradual.


An examination of the principles underlying these experiments in investment will afford matter for the consideration of those whose minds are still open to conviction.


I. There is a vast amount of capital invested and being invested under government and municipal control. The post-office, telegraphs, roads, sewers, and in many instances gas, water, docks, and a variety of other undertakings, are carried on by capital under State control.


II. Other enterprises are carried on by private capital under a State-granted monopoly: e.g. railways, canals, liquor traffic, gas and water, when supplied by a private company, electric lighting, telephones, and, if we include those industries which are more or less under Government regulation, such as shipping, insurance, banking, and joint-stock enterprise generally, we might very largely extend our list.


III. Capital is invested privately by private persons in private enterprise.


With regard to this last division, it is necessary to remark that even here freedom of action is much less than is generally supposed. It is impossible to draw the line with any precision between private capital controlled by the State and capital which is freely employed. Absolutely free employment of capital unencumbered by officious protection does not exist. Practically this statement may appear trivial, but from a philosophical point of view it has an importance which warrants a passing remark in explanation of our meaning.


The enforcement of mercantile and other contract, the Government enforcement of settlements of land and personal property, its protection of endowments, its support of contracts 1asting more than a generation, in some cases for a whole century, all these, intended as they are for the protection of property, act in restraint of the liberty of each passing generation in this matter of investment. We are not arguing in favour of a repudiation of contracts. On the contrary, though it may appear paradoxical to say so, we have a suspicion that contracts are observed with more regularity when their observance is not a matter enforceable at law. Even in the present state of society it is not difficult to adduce instances of this. Any one acquainted with business knows that in every trade a vast amount of business is done on terms which are not cognisable at law.


It is notorious that a large amount of property is held by Roman Catholic trustees on secret trusts which the law does not recognise. We have never heard that such trusts are imperfectly carried out.


The mere pressure of necessity has been sufficient to uphold the desert law of hospitality.


Again, there are probably no debts more regularly paid than gambling debts, debts of honour as they are called, and that by a class of men who are not abnormally sensitive to moral consideration. Indeed the 'plunger' has little scruple in cheating his money-lender and his tradesman, but as a rule he pays his bets.


Under the present system, inconvenience has without doubt arisen from too indiscriminate an enforcement of the so-called rights of property; from legislation which attempts to conserve to a man the administration of his fortune after his death; which permits a pious founder to stamp his educational ideals on future generations, or to endow the professional mendicant for all time; which enables a man to attach his personal debts to land which he has once owned, and so impede the exchangeability of property which is so essential to its value. We suffer also from the fact that dishonest men are able to defy and evade the law, and the injured, knowing the law's delay, feel helpless. These remarks are made with a view of showing that a superstitious respect for laws which guarantee to owners too extended an authority over their property is by no means a tenet in our creed. On the contrary, we believe that under a more open system human ingenuity could ultimately devise better guarantees for appropriate social conduct with regard to property than at present exist, for by the cumbrous procedure of the law-court only the minimum of right conduct can be enforced, and yet men presume on its guarantee and enter into contracts with men of inferior character, because they think that, if necessary, they can enforce their contract. We hardly appreciate how much our own honesty depends on the exercise of reasonable vigilance by our neighbors. Under an open system more circumspection would be necessary before making a contract; there would be room also for a fuller development of trade, arbitration, and protection societies, those equitable Judge Lynches of mercantile life, and as a result a very great commercial value would be added to a well-earned reputation for honorable character. All these considerations would play a part in creating a weight of custom and opinion sufficient to enforce the due observance of engagements. Such a force is, we believe, ready gradually to take the place of legal compulsion, if by general consent the mechanical responsibility of the law was allowed to become a diminishing quantity.


It cannot be denied that those who seek to uphold the rights of property are under some disadvantage, because of the difficulty of identifying the rights of property which are necessary and beneficial. The right of property in slaves is no longer recognised, the right of indefinite settlement is curtailed, copyright and patentright, forms of property peculiar to a modern phase of civilisation, are limited to an arbitrary term of years. Are we quite sure that the present legal definition of property and its rights is adequate and final? It is not reasonable to think so. The rights of property are those which the mutual forbearance of the members of society finds convenient and indispensable. It cannot be said that these can be unerringly identified by laws which are for the most part the result of class legislation. The complete rehabilitation of respect for the rights of property, which seem to some to be at present in danger, requires voluntary and universal recognition of the necessity of property, and it might seem logical to argue that this recognition will only be given when the principle of nonintervention by the State is much more widely accepted than it at present is in any existing organisation of society, and this indeed is the view of philosophical anarchists like Mr. Benjamin Tucker of Boston, U.S.A. But owners of property who after all are the majority of the nation, are not at all disposed to dispense all at once with the advantage of legal protection for their rights; and with the advantage, the value of which they perhaps exaggerate, they must also have the disadvantage. The disadvantage is that a certain suspicion is thrown on the whole institution of private property by reason of the officious protection given to it by the law, and because it has before now been detected in supporting rights which were contrary to public morality and public policy. This admission does not imply any doubt in our mind as to the justice and necessity of the institution of private property, but it seems to us to explain the plausible nature of the socialistic attack on a most useful and beneficent arrangement which, as far as experience at present goes, has never been dispensed with in any civilised community.


It is, however, only fair to admit that those who have a leaning towards the doctrine of a philosophic anarchy, but who, as opportunists and practical men of the world ask for slow and gradual advance, should not complain too loudly because private warfare by means of legislative enactment has succeeded to private warfare by force of arms, and because though the weapons are changed the spirit of war is still present. We may resist the attack, indeed it is our duty to do so. We can also look forward to the anarchical millennium when parliamentary obstruction and the organisation of harassed industries and rate-payers protection societies have rendered the legislative brigandage of party politics impossible. The necessity of mutual forbearance which has induced men to forego the practice of private warfare may some day induce them to forego the practice of legislative warfare. It is unwise of enthusiasts to insist too much on ideals which are apt to bring ridicule on their cause. In real life we are concerned with tendencies. These are coloured no doubt by the ideals which we allow ourselves to cherish, but it is sheer madness and contrary to the evolutionary theory on which our whole argument rests, to ask for a full and immediate application of principles which require centuries for their development.


We desire to see each generation enjoy to the full the whole resources of the country unfettered by the will of dead generations and by restrictions of the State placed on the free circulation of capital. Progress lies in that direction, for in an atmosphere of liberty human character has an adaptability which will prove equal to all occasions. And in a state of civilisation one aspect of this adaptation of character consists in what has been well called the socialisation of the will. The socialist looks for an automatic performance of social duties under the compulsion of a force ab extra. We, on the contrary, contend that individual wills which have not learnt the adaptations taught by self-control, will set such compulsion at defiance, and that the desired result can only come from the impulsion of a force ab intra. This consists in the character saturated with the motives of the free life, and in the conviction, realised by experience, sanctioned by free choice and made instinctive by custom, that the free interchange of mutual service and mutual forbearance is the beneficent and yet attainable principle on which the well-being of society depends. If we believe the improvement of human character to be the true line of progress, we cannot afford to neglect these considerations, for they contain some of the most potent factors which make for the endowment of appropriate social conduct.


To return from this digression to our subject—we may shortly sum up the forms of investment under three heads:

(1) State investment.
(2) Private investment under a State-given monopoly.
(3) Private investment which, subject to the foregoing remarks, may be popularly described as free.


We premise that the consumption or deterioration of capital may proceed from various causes. It may be in the nature of things. Thus the value of manure will be exhausted by lapse of time, a valuable machine will after a time wear out. An arbitrary alteration of fashion or demand will render some apparatus useless. Such a deterioration is a misfortune, out of which no form of investment can entirely contract itself.


Again, deterioration of capital is caused by new inventions. Thus capital invested in stage coaches has vanished away, because of the superior convenience of railway traveling; and every one in his own experience knows how machinery becomes antiquated, depreciated in value, and at length superseded by new machinery. Such process of improvement brings with it a distinct advantage to the community.


Now how is this question of deterioration affected by the nature of the tenure of capital? Let us take a variety of instances.


One of the most usual forms of a State investment of capital is in a war. Our judgment as to the wisdom or otherwise of such expenditure will depend on our view of the justice and necessity of the war, a point which, for our present purpose, we may leave out of sight. Obviously private enterprise could conduct a war for us. Whether the existence everywhere of bodies who are able to carry on war for us is an advantage or not is another question which we need not here consider. We accept under present circumstances the occasional necessity of war. Now expenditure on war can be provided out of current revenue; it is then consumed like our food supplies, and there is an end of the matter. If however the war takes dimensions too large to be paid for out of current revenue, a charge is made on the revenue of the future, and a loan is created. As a matter of fact our national debt is mainly due to our great wars. In the event of a successful war, additional national prestige is gained by means of an investment guaranteed by authority, but there are no tangible assets to represent the investment; it is just as much consumed, as if it had all been paid out of revenue. Now the loan is a permanent charge, as long as the nation exists or till it is paid off. It represents perhaps a reasonable expenditure, and we do not wish to criticise adversely the conduct of our forefathers in creating these loans. It is however necessary to compare this form of capitalisation with the capitalisation of a private man who can only derive interest and profit from his investment so long as it represents some present utility to his fellowmen. When this utility ceases, even the principal vanishes away. Pitt's wars, and shall we say the old service of mail coaches, were both necessary and useful in their day. Pitt's capitalisation was under the guarantee of Government, and we are still liable for it, principal and interest. Mail coaches, their owners and the capital and interest involved, have long since disappeared without injustice to anyone, and leaving no burden on the present generation.


As patriots we may not grudge the liability with which the heaven-sent minister has saddled us; but when we come to consider the application of private men's revenue, under the name of taxes, to payment of interest on State undertakings less important than the maintenance of our national existence, we are at liberty, without fear of being accused of want of patriotism, to look closely into the assets which represent our money. To do this we ought to have accurate and intelligible accounts. Of our imperial expenditure we know something mainly from commissions appointed from time to time to consider the inefficiency of our spending departments. But with regard to our local expenditure and indebtedness we have little or no information. It is stated in every elementary handbook on Local Government 'that there are difficulties amounting to impossibility in the way of accurately ascertaining from published returns the present total amounts of local taxation and expenditure.'*83 The same authority tells us that the returns are much in arrear or made up to different dates. Comparison is only conjectural, as the same local authorities perform different functions in different localities, and the overlapping of authorities is quite chaotic. Further, 'the capital expenditure on sewerage, on streets, on gas-works, and on water-supply, is not distinguished from the ordinary expenses of maintenance'; and again, 'imperial subventions appearing in the returns of any one year have been made in respect of the expenditure of the past year or years.' Chaos is a mild term for such a system of book-keeping.


Now this inability to value its assets is inherent in a monopoly. These monopolies represent absolute necessities of life, and whether the service be good or bad, the public has to put up with it. Competition is excluded, and the monopolist can value at any price he pleases. The service of the Post-Office, for instance, is alleged by Mr. Henniker Heaton to be inadequate. He conducts an agitation in Parliament; the monopolist yields to noise, reduces his terms, and charges the deficit to the community at large. The most perfect system of account-keeping by a State-trading monopoly can never be satisfactory, for, ex hypothesi, it has entered into a conspiracy to protect its capital from deterioration by prohibiting competition. In the open market, where there is no monopoly, there is a gradual deterioration of capital by reason of the improvements made by neighbors. A tradesman must replace his machinery by improved machinery or see his antiquated apparatus gradually become valueless. His attention is kept fixed to this point by the sight of custom going in other channels. No owner will agree to acknowledge the deteriorated value of his plant unless he is obliged to do so. Hence Government monopolies are very slow to adopt improvements. Each official is unwilling to admit the weaknesses of his own system, nor will he readily disendow his own knowledge and labour by accepting improvements which will oblige him to acquire fresh knowledge and which will render his present services antiquated. Competition compels private tradesmen to improve their ways. In a monopoly there is no such force making for progress, unless we so term the blind sentimental agitation which is now assailing the Post-Office in favour of an Anglo-Saxon penny post.


It is not easy to estimate the loss of the community through Government monopoly; at best it is only a calculation of what might have been, if private enterprise had not been stifled.


We can give one or two slight but suggestive instances. There are still Government offices where all letters are copied by hand and where none of the mechanical processes which give an exact facsimile of the letter copied are admitted. The rest of the clerical work of the establishment is presumably conducted in the same way. This does not of course prevent them from hiring a man in from the street to copy a confidential document as in the celebrated Foreign Office case.


Again, Mr. Stanley Jevons gives a curious instance of the slowness of Government to adopt improvement from the history of the Mint. In his treatise on Money,*84 he states that the present Mint is quite inadequate for meeting the demands thrown upon it. 'What should we think,' he asks, 'of a cotton-spinning company which should propose to use a mill and machinery originally constructed by Arkwright, or to drive a mill by engines turned out of the Soho works in the time of Boulton and Watt? Yet the nation still depends for its coinage upon the presses actually erected by Boulton and Watt, although much more convenient presses have since been invented and employed in foreign and colonial mints.'


In such a case one is able to detect the inadequacy by means of a comparison with other countries, but in the great majority of instances it is only possible to conjecture the loss sustained by the community by the absence of that competition which forces owners to increase the public utility of their property if they wish to maintain its value.


Nor does the State trader escape from the difficulties which best his career when he displays enterprise, as the rate-payer of such towns as Bristol and Preston might realise if they took any interest in the matter.


The Bristol Docks account shows that for the year ending April 30, 1890, the Corporation incurred 'a total loss on working Dock Estate and City Quays combined' of £18,911 4s. 5d.*85 This deficiency has to be made up by a rate in aid levied on the borough and city of Bristol, and accordingly £20,360 was last year taken from rate-payers. The result is that part of the expense of the shipping trade at Bristol is every year paid by the rate-payers, a large number of whom derive absolutely no benefit therefrom. We talk with some complacency of the folly of French sugar bounties and of McKinley tariffs, but the facts above given point to a state of affairs even more egregious and unjust. Either the shipping of Bristol is a decaying industry, and ought not to be bolstered up by subsidies from people living in the suburbs of Clifton, or (and this is the more probable alternative) a Corporation, even as respectable as that of Bristol, is an unsuitable body to have charge of such enterprise. In any case the money of the rate-payers is being improperly applied.


The following particulars with regard to Preston are taken from an article in the Pall Mall Gazette, 18 April, 1890:—Many years ago a company called the Ribble Navigation Company was formed; it paid no dividends, and its shares became worthless. An agitation was got up to make the town council buy up the company, improve the navigation, and make docks. The agitation succeeded, and 'it may be assumed that some of the active promoters were not wholly disinterested.' The expenditure was not to exceed £500,000; at the beginning of this year £751,000 had already been borrowed, and Parliament was asked to sanction further borrowing powers of £220,000. 'The eight miles of channel to the sea have yet to be provided for, and the cost may be anything from £300,000 to £1,000,000 as its course lies over shifting sand-banks fifteen to thirty feet deep. By the course pursued this money must be spent, or all that has been already sunk has been absolutely squandered. The friendly societies, who feel the effect of the abnormally high death rate (Preston, according to the Registrar General, is the unhealthiest town in England), have petitioned for better sanitary conditions, but where is the money to come from with such a burden on the back of the town?' At present the resources of the rate-payers 'are being squandered on a wild goose scheme to open out the river to sea-going vessels along a shifting channel in sixteen to seventeen miles of sand.' 'Certainly Preston has not been happy in its local rulers.' We should prefer to put it, that England had not been happy in allowing its municipalities to embark on such hazardous enterprises.


Again, a municipality lays down millions in a system of sewerage. Science is perpetually preaching to us that sewage can be utilised, yet our towns and houses are undermined by inaccessible drains, which are really little better than elongated cess-pools. Is it a wild conjecture to surmise that if the experimental energy of private enterprise had been allowed to enter the field, our practice would not lag so far behind scientific knowledge on this subject?


As it is, an enormous local debt has been created, and a very inadequate and unimproving service of sewerage has been obtained. Now if this matter had been dealt with by private enterprise (we do not say that it is possible, we are only using the case as an illustration) the capitalisation necessary for carrying out these works would have been made at the risk of private persons, who would have had to pay for their own failures. The community could have accepted each improvement without remorse and the deterioration of the earlier systems would have been constantly and gradually making room for improved methods. As it is, the ratepayers are saddled with an enormous debt, and being monopolists, served not by experts but by boards whose inefficiency is notorious, they hesitate at experiment, and there is no automatic pressure put on them to acknowledge the deterioration of their property or to incur fresh expense in its reparation or in the provision of a substitute.


George Stephenson's locomotive was preceded by that of Trevethick. Now our situation as regards sewage is as if the Government had bought up the invention of Trevethick and established a monopoly. The Peases would not have been allowed to employ Stephenson to make engines for the Darlington and Stockton Railway; and the Government, which had sunk its money in the comparatively worthless invention of Trevethick, would have effectually deprived mankind of the use of the locomotive engine.


It may be suggested that in the matter of sewage municipalities have by a happy inspiration adopted an adequate and absolutely efficient system. It is improbable; and we can make no better comment on the suggestion than to quote one or two passages from the Presidential address of Dr. G. V. Poore, M.D., F. R. C.P., delivered in August of this year (1890), to the Section of Preventive Medicine at the Sanitary Congress. Dr. Poore has had an abstract made of the chief outbreaks of typhoid fever in this country, which have been reported on by the medical officers of the Privy Council and the Local Government Board:—

'One factor in common to all these outbreaks, viz., the mixing of excremental matters with water.... There is no doubt that whenever excrement is mixed with water we are in danger of typhoid. Typhoid was not recognised in this country until the water-closet became common. We doubtless manufactured typhoid in a retail fashion in old days, but with the invention of the water-closet we unconsciously embarked in a wholesale business. We had not been many years at this work before we recognised that the water-closet poisoned all sources of water. We have had to go far afield for drinking water, and the result has been that as we have left off consuming the springs which we have wilfully poisoned, the amount of typhoid fever has somewhat abated. When the more remote sources get poisoned in their turn—as with our increasing population and our methods of sanitation they inevitably must—the present comparative abatement must, one would fear, cease.'


Such is the criticism on our present system, passed by a gentleman chosen by the Council of the Sanitary Institute to preside over their meeting. Dr. Poore proposes his own remedy, namely, the treatment of sewage with earth and not water. We are not competent judges, and will not assume that Dr. Poore's panacea is final and adequate, but it is clearly a misfortune that as a nation we have embarked on costly systems of sewerage condemned by so competent an authority, and that the position of each member of the community is that he is a part owner of this inadequate service, and that his whole interest lies in patching up and not abolishing a system which in all probability is inherently bad. This impotence Dr. Poore refers to its proper source in the concluding paragraphs of his paper; he says:—

'Parliament has compelled us to hand over our responsibilities to public authorities, with the consequence that the individual has lost his liberty and independence, and is drifting into a condition of sanitary imbecility.'

A rich man who can pay to have his house drains inspected yearly, and who can pay for remedying defects, can make the present system tolerable, but to the poor the expense attending such a course makes efficiency impossible.


We cannot therefore gauge the loss of the community arising from the perhaps necessary monopoly of sewage works in the hands of municipalities.


From another point of view monopoly has its inconvenience. It would, for instance, be an economical, and, under proper management, a profitable expenditure of money, to have subways under our principal streets for the passage of the various pipes and wires which traverse our towns. No public body, burdened as they all are with the discredit of years of unprofitable and incompetent management, dare suggest such an enterprise to the rate-payers. It is a difficult matter, and could only be effected by first-class financial and engineering ability. Public bodies very properly feel that they cannot experiment with rate-payers' money, or even incur expense in setting great engineers to estimate the cost and practicability of such schemes.


We have no wish to depreciate the public spirit which undoubtedly animates many, nay perhaps all, of our municipal bodies. The discredit into which after a brief period of popularity they inevitably fall, is due, not to personal consideration, but to far deeper causes. The interests confided to them are too large; they are a standing obstruction to the subdivision of labour and investment which is at the root of the efficiency of the services of civilised life. It is true that private enterprise shows a disposition to organise itself on a large scale by means of trusts and other combinations, but this new departure has been preceded by a great specialisation and subdivision of energy, and forms no precedent for the establishment of a great monopoly 'per saltum.'


Our most obvious and primitive wants had happily been to some extent arranged for before Government had been fully organised. Government has rarely interfered to help the governed in the distribution of food or in the victualling of great centres of population. Consider the marvellous world-wide interchange of service, both of labour and capital, which is involved in feeding London for a single day. This goes on day after day and year after year without any difficulty, and we are so accustomed to it that we rarely pause to admire. All this is done without the assistance of Government.


With advancing civilisation new wants became apparent; the community became anxious about sanitation, about education, about gas, water, electric light, and a variety of other interests, but by this time the State was fully organised. Men in a hurry refused to wait for the satisfaction of their wants by the system of private enterprise and competition, and they obliged the heavy hand of the State to interfere. Thus it comes that interests which in a civilised community are not inferior in importance to our food supplies, are left as monopolies in the hands of Government. To deal properly with the sanitation of a large town a vast subdivision of labour and management is perhaps necessary. Our public bodies are composed of very worthy persons, but they cannot discharge the functions which in a free state of enterprise would be performed by perhaps hundreds of separate purveyors of service, and notoriously the scientific officials of our municipalities are inadequately remunerated, and as a consequence the highest professional talent is not at their disposal. It is only by considerations such as these that we can estimate the loss which the public suffers from these monopolies. They and the bodies which administer them form a huge obstruction to beneficent applications of capital to the service of mankind. Capital is free to serve us in some of the most elementary needs of life. It cannot be dispensed with in more complicated matters, but it is tied about with endless restrictions and impediments; it is taken from us forcibly in taxation, not freely and experimentally adventured; it is spent timidly by a conscientious board, and recklessly by a corrupt board; if badly spent it still remains a debt upon us, and we are forced to make the best of the bad article supplied; we cannot accept the pressing offer of ingenious and scientific men who ask leave to try again at their own charge and risk to improve these most important services of civilised life.


The matter is not without difficulty, but the present solution—the solution of granting monopolies more or less complete in so many of the most important services of life—is unworthy of human ingenuity and cannot be considered final. This perpetual forestalling of a free-trade solution has weakened the power of private initiative; but if our superstitious reverence for Government can be shaken, we do not despair of retrieving again our steps and of giving to these higher services of civilised life the vigour and elasticity which belong to the humbler primitive services which supply us with our food and clothing.


Such, we believe, are the causes of the discredit into which local government bodies are constantly falling. It is not due to personal considerations. The members of municipalities and vestries represent very fairly the virtues and vices of their fellow-citizens. Many of them are persons of ability and position; some are retired tradesmen who, when they become too old to attend to their own business, are kind enough to occupy their declining years in the management of ours. Others are men still engaged in trades and professions. The employment given to them by their neighbors of free choice leaves them with some leisure on their hands, and, if they are public spirited, their services prove useful for the discharge of functions which, because of their importance, have been withdrawn from private enterprise and confided to municipal monopoly. Some, again, are well-to-do persons of good will who follow no calling. Their time hangs heavy on their hands, and they are sent out to get experience of life by assisting in the management of public business. To these of late years there has been added some admixture of first-class agitators. The whole is a fairly representative body rather above the average in respect of public spirit, but a good deal below the average in administrative ability.


It is, in our opinion, a tactical mistake on the part of those who have an instinctive distrust of public bodies to abuse the personnel of which they are composed. The constantly recurring scandals are due not so much to the incapacity of vestrydom as to the impossible duties for which it is held responsible.


Another Government enterprise which is not a monopoly has been undertaken professedly in the interest of the working-class. We shall be accused of temerity when we say that the institution we have in our mind—the Post-Office Savings Bank—has been a very doubtful benefit. A bank is an institution in which men place monies either on current account or on permanent deposit. A banker is an expert in investment; he uses a proportion of his customers' balances in financial operations and in investment. His customers obtain financial assistance such as their credit warrants, and a considerable portion of a banker's reserves are invested in the businesses of his customers and of the class to which his customers belong.


The working-class, however, is served by a bank which gives them no such assistance. The reserves of the Post-Office are placed in the hands of the Commissioners for the Reduction of the National Debt, who in turn invest them in Government stock, or lend them for financing the various spending departments of the State. It will be said that a workman has no credit which would enable a banker to employ capital in his service. This, however, is a great misconception. We refer the reader to the paper in this volume by Mr. Raffalovich, and to the suggestions which he there throws out for the use of savings banks' reserves for promoting the erection of working-class dwellings. It is moreover the business of a bonâ fide banker to devise forms of security by means of which he can give financial assistance to his customers.


Consider what an impulse to thrift and working-class investment would have been created, if the Post-Office Savings Bank had been debarred from investment in Government securities, and been obliged to invest workmen's savings in assisting schemes for their service. This is the function of the banker of the middle and upper classes. It is through the legitimate assistance of the banker and the insurance agency that the proletariat of this and other countries are to be encouraged to pass from the hand-to-mouth life of wage-earning into the greater security enjoyed by those who rely on investment as well as on labour for their maintenance.


This Post-Office Savings Bank is therefore, in this view of the matter, one of those 'short cuts' to prosperity of which the civilised world is very full. They are admirable in intention; they have also their advantages in practice, but they forestall and prevent the higher and more useful adjustments of mutual service. They are part of the bondage on the free development of character and energy which, more than anything else, impedes the true progress of the working-class.


It is satisfactory to know that the National Penny Bank, a legitimate private enterprise, is now beginning to make great progress, and to pay a dividend to its shareholders. It is to be hoped that its successful competition with the Post-Office is only the beginning of the rescue of this industry from the hands of Government. The sterilisation of working-class savings under the present system is a grave misfortune. If working-class banking was conducted by persons who had to conciliate the good-will of their customers, it would become more the practice to invest reserves in undertakings likely to benefit the working-class. It may even be possible that the working-class savings bank may one day be instrumental in promoting schemes of industrial partnership in well-established businesses. Co-operators are fond of talking of labour hiring capital, and of reversing the present plan of capital hiring labour. From whom could the co-operative labourer borrow with more fitness than from the savings bank of his own class? Loans of course cannot be obtained from a bank without undeniable security, and this he would have to provide, but the difficulty is superable, as M. Raffalovich has aptly shown, by a combination of insurance and loan. If a beginning were made in the simpler matter of house property, there can be little doubt that human ingenuity would soon extend the system to other matters, more especially to various forms of industrial and co-operative partnerships.


All attempts of this kind are impossible under the present system of Government banks, for Government can only invest in its own securities. Thus the author of the article on the Post-Office of the United States in the Encyclopæia Britannica points out that the United States cannot have post-office savings banks, because the Americans are fast paying off their national debt. 'It is plain,' he says, 'although the difficulty does not seem to have occurred to many of the advocates in the United States of a savings bank system, that to be lasting it must be founded upon a Government debt, a condition which does not and is not likely to exist in that country.'


It is obvious that the same line of argument can be applied in a minor degree to the monopolies granted by the State to private capitalists. The risk of loss is undertaken by the private adventurer, but if a success is made the public is at the mercy of the monopolist, tempered only by the expensive and incomplete protection given by the State. The Board of Trade has recently held an elaborate enquiry upon Railway Rates. The expense of the enquiry has been great, and the rates which the Board proposes to fix must be to a large extent arbitrary; they have none of the cogency which rates fixed by free competition would have.


It would be rash to say that greater freedom of railwaymaking for the purpose of creating more competition is either possible or impossible. We need have no hesitation in saying that, if it were possible, it would solve a great many, at present insuperable, difficulties.


Our argument is that the public has been deprived of the full value of railway enterprise by the granting of monopolies. Railway companies have been able to hold on to inferior machinery and to pay fancy prices for the acquisition of land, and they are unable to give increased facilities to travelers, because they are too tender of share holders' capital inflated beyond its value by causes such as the above.


If there was more freedom of trade in this matter there might well be ten times as much capital invested, and all of it represented by more efficient machinery. The experience of America in the matter of telephones and electric lighting shows that the mere fear of competition is sufficient to make monopolist companies reasonable.


Generally it may be said that we have much to learn from America in this matter of monopoly. It is there that a solution of a difficulty, which all admit, is to be looked for. Protection has made the United States a dear country to live in. But, as has been recently pointed out, it is in some respects not such a dear country as it was. This fact is attributed, probably with justice, to its cheap system of transport. A railway monopoly which results in high transport charges is tantamount to a form of protection. An American railway is built and worked very much more cheaply than an English railway, and the evils of monopoly are in this respect less apparent. In England we hear constant complaint of the difficulty of transporting fish, fruit, vegetables, and many other articles of which the first cost is low, because the rates of transport prevent their being brought within the reach of consumers on reasonable terms. An employer of labour in England and America writing to The Times of October 1, 1890, compares the English and American system, and asserts that we in England have done nothing since Stephenson to cheapen and improve our system of inland transport. The statement may be exaggerated but contains its grain of truth.


We hear numerous complaints of the congestion of population in great towns. Light railways are put forward as a panacea for the congested districts in Ireland. There are of course many causes which contribute to the growth of large towns, and undoubtedly the high price of transport is one of them. Human ingenuity cannot altogether abolish space, but, if price of transport is any criterion, it has brought America and India nearer to English ports than London is to Manchester. And why? mainly because sea transport is open to free competition, and land transport is a monopoly. If it were possible (it may be impossible, for some difficulties are insoluble), to reduce largely the cost of inland transport, there are many large industries which could just as well be carried on in the country as in the town, to the infinite advantage of our labouring population. It is noteworthy that the country factory is much more usual in America than with us. Our policy of protective monopoly requires very careful examination before we sit down meekly under our present disabilities.


Another curious point has arisen in the United States with regard to the railway monopoly. Trusts are arrangements projected by private enterprise for mitigating the evils of competition, for it is not here denied that there are evils in competition. Like every other human arrangement, trusts are liable to be abused, and it is alleged that some of the American Trusts have become oppressive, and that, in various trades, monopoly has been established to the detriment of the public at large. A leading working-class member has recently defended the attempt to make a Salt Trust in England, on the local and intelligible ground that it was an application of the principles of Trade Unionism to the affairs of the capitalist. Free combination, so long as it respects the freedom of the uncombined, is a necessary and legitimate method for overcoming certain social inconveniences, and as a rule the free community has its own remedy if the combination becomes oppressive. Given a fair field and no favour, an oppressive monopoly unsupported by force would not last for a week; it would at once be deserted and routed by indignant customers.


It is very noteworthy therefore, that the principal ground of complaint against the Trust in the United States is based on the allegation that Trusts have corrupted the railway monopoly, and have secured for themselves preferential rates and even induced the companies to charge extraordinary rates to outside competitors. The accusation is strenuously denied by the advocates of Trusts. The denial, however, appears to amount to this, that the preferential rates were secured by the corporation now forming various Trusts prior to their amalgamation in Trusts. It follows, therefore, that if to give preferential rates is corrupt on the part of a Railway Company, the corruption dates from a period before the era of Trusts. At any rate, it seems to be admitted by the more moderate opponents of the Trust system that, but for the Railway monopoly and preferential rates, an oppressive Trust would be an impossibility.*86


Under the present system mechanical traction has been confined to unduly narrow limits. Its extension to the uses of private life ought not to be beyond the power of human ingenuity, and here there is room for vast applications of capital. M. Raffalovich has pointed out how closely the question of an increased and cheaper service of locomotion is connected with the solution of the difficulty of housing the working-class.


In the case of the electric light, Government has pursued its usual course. It grants a monopoly but couples it with conditions intended to prevent private capitalists reaping too large a profit. At first the conditions were too onerous, and the country was deprived of the use of the electric light. We have many other illuminants, and it is a question whether the public required any protection in this matter at all. The most obnoxious clauses of Mr. Chamberlain's legislation have now, at great expense and loss of capital, been repealed, and by degrees the electric light is coming into household use.


The only force which can curb the pretensions of tradesmen, and yet at the same time act as an incentive to enterprise, is freedom of competition. Government can limit the division of profits by regulations which astute financiers can easily evade. But the process is apt to degrade the morals of commerce, or to drive the more sensitive into other fields of labour, and in this way to injure the interest of the consumer, who in the last resort has to pay for all this hampering of industry.


But the most familiar instance of private capital doing business under the support of a State monopoly is the liquor traffic.


In the proper sense of the term a public house should be a public house, and as much a place of amusement as of refreshment. The amount of capital employable in this trade is measured by the ability and willingness of the working-class to reward such investment. Paternal government has by creating a monopoly focussed all this capital on the sale of spirituous liquor. The workman still manages to pay for his drink, but his rational entertainment and his skittles can no longer be provided, because he has to pay perhaps eight or ten times its value for his glass of spirits or beer. This is not the act of the publican but of the Government, which attempts to improve the morals of workmen by putting a prohibitive price on their liquor. The result, as in most such cases, is the reverse of expectation. The taxes and the monopoly under which the poor man's caterers have to labour have been prohibitive not of liquor, but of rational amusement, and as a result the poor man is too much bound down to the one amusement which his protectors have left for him, namely the pleasures of strong drink. Can we wonder that under such a system drink has taken too large a share of a workman's spare time and spare cash?


Every class is entitled to spend a portion of its earnings on amusement. Those who are able to amuse us are at present as handsomely paid as any other servants of the public. The public entertainer of the poor has by the inordinate taxation of one necessary item been degraded to being the mere keeper of a drinking-shop, an enterprise from which many conscientious and enterprising tradesmen stand aloof. We do not assert that excessive drinking is caused by this monopoly. Excessive drinking and excessive eating are animal pleasures, which the civilised man soon outgrows if his opportunities of rational entertainment are not unduly curtailed. The poor man has suffered from this curtailment of the more refined methods of amusement, which would have weaned him from the coarser pleasures of appetite. The drinking habits of the richer classes, where drunkenness is now comparatively speaking rare, have passed through these same phases.


We may here, as conveniently as elsewhere, say a word on the philanthropic employment of capital. The employment of purely philanthropic capital to giving a supply of the necessaries of life to classes of the population at less than the market price is unsatisfactory. It keeps commercial capital out of the field, and attracts attention away from the cause of defective supply. In London there is a great deal of semiphilanthropic capital (for the most part it is now becoming distinctly commercial capital) employed in providing houses for working-people. It is not too much to say that its usefulness varies inversely to its philanthropy.


It is only a minority that can be housed on philanthropic terms. Commercial capital, which is plentiful but timid, is frightened away by philanthropic enterprise, and the majority have to remain inferior houses.


A very apposite illustration has been given to the writer by a friend who is partner in a large mill business in the North. Some thirty years ago his firm, being desirous of cultivating friendly relations with their work-people, built one or two streets of small houses. They were wealthy people, and they built a class of house rather in advance of the best artisan house of the day. The houses were readily let to their work-people, and for a time answered the purpose intended. At the present time, however, our informant states that he does not think any of his own work-people live in these houses, which still belong to his firm. His people have found that thirty years have brought great improvements in the art of house-building, and the men who formerly lived in the prize philanthropic house of thirty years ago have migrated to commercially built houses, where they get hot and cold water laid on, baths, and other modern improvements. Now if artisans' dwellings were widely supplied by philanthropic effort, or if, with a view of serving not only a minority but the whole of the working-class, philanthropic investment were made compulsory and the matter undertaken by the municipality, it is obvious that the gradual improvement above described could never have taken place. The bumbles of each generation would decide in what sort of houses each class should live. Stagnation and discontent on the one hand, or ruinous extravagance guided only by sentiment and without any economic principle to restrain it, and ending without doubt in a violent reaction, are the alternative horns of the dilemma which would of necessity arise in such a state of things.


The socialists argue that Government should arrange for a gratuitous use of capital to each successive generation. In other words, Government is to organise industry, and to give to each labourer his due; no charge is to be made for the use of capital; superintendence and reparation of plant must of course be paid for, but no one may derive any advantage from investment, but only from labour. Let us consider this proposition more closely. Each year's increment will be taken by the State; each labourer will receive his wage, and a portion will be retained by the State for the reparation of capital and for making that increase of machinery which is necessary for the support of an increasing population.


In fact it will be the duty of the State to capitalise a portion of each year's revenue. Now this superintendence of capital will have to be paid for. Inspectors and auditors will be required far beyond what is necessary under the present régime where most men are dealing with their own and not their neighbour's property. The use of capital therefore will not even here be given gratuitously. Further, it would give rise to a perpetual dispute as to the amount of capital to be subtracted from the due need of the labourer. The increment taken for capitalisation and for the cost of superintendence would be regarded as a tax, and would be paid as grudgingly. There would be a never-ending battle between the bureaucracy and the labourer. The former would naturally wish to increase the capital under their charge, and the labourer would resent all such deductions as a fraud on his claim. The fact is, that a gratuitous supply of capital is an absurd idea. Capitalisation or investment is essentially a form of consumption, and is in the main directed to the purpose of freeing the investor from the inconvenience of personal toil, in a word to labour-saving. If men or bodies of men labour assiduously and apply part of the revenue obtained from their exertion to this form of consumption, they only do so because they derive advantage therefrom. If that advantage is made to cease, this form of consumption will go out of fashion; if the control and resulting benefit of investment is taken away from individual men; if the benefit of capitalisation only reaches them after it has filtered through the hands of a bureaucracy—they will inevitably identify their interest with the labourers' share in the division, and they will embody this view in their mandate to the organizing bureaucracy. Man's maintenance, therefore, will gradually return to a dependence on labour alone, and each day's revenue will be consumed by the labourer as he receives it, and application of revenue to investment will cease. Can one conceive a surer means of bringing about a return to barbarism?


We have now compared the value of private as against State investment, but we have considered it mainly from the side of the consumer. His wants, we have endeavoured to show, will be best and most economically met by a free system of investment wherever that is possible, and we believe that it is applicable to a much larger sphere than it at present covers.


This, however, is a small matter compared to the influence of investment as a factor in producing the appropriate social character in each individual investor, and to this aspect of the question we now turn. Human happiness depends very largely on two equally necessary qualities, namely, on the individual energy which is able to satisfy reasonable wants; secondly on the self-control which holds in check unreasonable ambitions. The operation of investment has an important influence in stimulating and informing these valuable social instincts.


There is a threefold activity involved in the full ideal of civilised life. Each man is a consumer and should be a labourer and an investor. It will be found that our social troubles are caused because this threefold function is imperfectly performed by large masses of the population. We are all of us of necessity consumers, and most of us have capacities for consumption far beyond what our means allow us to gratify.


The primitive means for gratifying consumption was labour; but with the first fashioning of Adam's spade it became clear that investment was a necessary complement of human labour. Without it labour was a poor and feeble thing. We are familiar with the principle of the subdivision of labour; we do not always remember that this subdivision of labour without a corresponding subdivision of the duty of investment has produced a one-sided civilisation and interfered with the threefold economic harmony above described.


The consumer who is labourer only and not investor has his potentialities for consumption checked. The burden of supplying the complement of capital necessary to an increasing population of labourers falls on investors who are, by the service thus rendered, enabled to subsist without labour. The direction of this production remains with the investor, for he is the only consumer whose consuming power is still effective. His capital and other men's labour are therefore employed in the manufacture of luxuries which he only can purchase, and this one-sided form of consumption gives employment to silversmiths, painters, sculptors and other purveyors of the arts and luxuries of life, while at the other end of the scale the labourer has barely sufficient to eat and drink. Rich men might give away their superfluity, and large benefactions are from time to time given to public purposes. But experience shows that rich men cannot get rid of their responsibility by a mere scattering of gifts. For gifts thus scattered too often prove mere narcotics dulling the energy of poorer men, and obscuring the truth that in a society not yet become socialistic, the duty of private investment is as paramount as the duty of personal labour. The desire to consume, if it be not debauched by public charity, should prompt an exercise of both functions by each member of society. It is only thus that a liberal interpretation can be given to the term 'reasonable,' when we said above that human happiness, materially at all events, depends on the ability of each man's energy to satisfy his reasonable wants. A larger performance of this duty of investment would lead, we argue, to a much larger consumption, and hence a much larger production brought about by an ever-increasing application of capital or labour-saving investment, and an ever-decreasing application of the less effective instrument, namely, human labour.


Let us turn to our second proposition, that happiness depends on self-control as much as on the gratification of even our most reasonable desires. There are ambitions which are antisocial, and there is nothing which ministers more to their repression than a knowledge that honest conduct, or what we have termed appropriate social action, is not impracticable, and in fact that it is easier than an opposite course. The desire to consume will prompt an infirm will to an attack on the rights of others. But a conviction of the necessity of mutual forbearance, acknowledging the justice of other men's defence of their own, renders the road of transgression practically narrow. The wonderful internexus of social life which preserves automatically by mutual forbearance each man's claim, has reversed for practical purposes the truth of the adage. The social organisation which surrounds us gives an impetus towards right against which only despair can make us rebel. But here there is no ground for despair. Progress in a free atmosphere will inevitably lead men to an exercise of energy where such a course promises success, and to self-control where the conditions of difficulty are at the moment insurmountable. This double training of character in energy and self-control is the principle to which society owes all its nicest adjustments.


The labourer, therefore, who wishes to improve his position will be impelled to investment as the necessary complement of his labour; and, in turning to investment as a method of meeting some of the struggles of life, men's minds are opened to many salutary reflections.


Men realise that the power of labour, which from a point of view we may term man's only inalienable capital, is expended by mere effluxion of time, is rendered useless by sickness, and disappears at death and old age. Men, therefore, must, if they are wise, form a sinking fund by insurance or by savings to replace the yearly expenditure of their labour capital. This desire to make ends meet has important consequences. It limits the rate at which men create responsibilities; it promotes the application of revenue to the slower processes of consumption; it postpones the age of marriage, and has its influence on the birth-rate; it keeps the growth of population automatically proportionate to the growth of capital.


The first exercise of the investing instinct will be in matters which directly minister to the wants of the investor. Thus, the investments of the working-class are placed for the most part in their own institutions, such as Friendly Societies, Trade Unions, Building Societies, Co-operative Societies. This is the earlier stage of investment, but the full subdivision and mutual service of investment is not complete till investment passes beyond this stage. A makes boots and exchanges his service for wages; then, buying a coat, he pays the wages of B, the tailor who made the coat, and the reward of C, the investor who supplied the capital necessary to the transaction; and, be it noted, B and C are possibly the same person. If A wishes to contribute his full share to the social machine, and to draw out of it something beyond his wages, he is bound to contribute to the service of investment as well as to that of labour. Nor is there any reason to limit the range of A's investment. The tailor is not bound to invest in a tailoring business. So long as his investment is serviceable to the rest of the community he will be entitled to draw a revenue from it, and with this revenue he can reward the investors whose capital ministers more directly to his wants. This is the full subdivision of investment which we affirm to be the necessary accompaniment of the subdivision of labour.


How, it may be asked, will this ideal affect the status and wages of labour?


First, we urge it is the only ideal which is compatible with Freedom. State regulation of labour, and State investment of capital may have charms for the speculative enthusiast. To those who have had any experience of it the regulation of bumbledom in all its grades is simply intolerable. Liberty is an essential in any elevated ideal of life.


Next, how would it affect wages, and how would it affect interest and profits?


In the first place, if there was a more general exercise of investment, each man would have in his own pocket a potential strike-fund and his family and class would all, more or less, be in a position to help him. Wages must rule high, for the only limit on their rise would be the labourer's own interest as an investor. The investing labourer would not be indifferent to dividends, and the labouring investor would be a permanent influence in favour of liberal wages. The gradual acquisition of a small revenue from investment would do more to raise the economic position of the labourer than all the trade unions that ever existed, useful and beneficial as these have been.


Unfortunately for the country, the primitive instincts towards investment in our poorer classes have been so debauched by our socialistic poor-law, that vast arrears of work have to be overtaken in the quickening of motive and the building up of habit.


Nor do we think that the rate of interest and profit would fall. Skill and success in the application of investment would be more valuable functions than ever. The competition of capital for employment would be greater than ever, there would be therefore more demand for the service of the competent entrepreneur, and his wages, that is profit, would not fall. But while the competition of capital was keener, the field of investment would be vastly enlarged. First, because every man would be interested in reducing the demand on human toil, and as a consequence a powerful impulse would be given to the adoption of labour-saving apparatus. The life of a machine would be much shorter, for none but the most modern machinery would be used. An ingenious and anti-socialistic writer has argued that possibly interest will cease to be paid, and that on the contrary men would be willing to pay for the luxury of deferred consumption.*87 This view overlooks, we think, two important considerations. It overlooks the willingness of men to pay for a rapid succession of labour-saving inventions, and, secondly, it overlooks a still more important item, the increased potentialities of the consumer. If consumption of necessaries' and luxuries was likely to stand still, there would be something to be said for this view. But all this investment and all the implied multiplication of the power of labour and production is with a view to consumption. If we look round we see everywhere restricted consumption because of the unperformed office of investment. With increased investment there will come increased consumption. There is, therefore, a vast field of profitable investment at our very doors, namely, in the application of capital to the uses of the poor, but it can only become profitable as the poor learn by degrees the valuable duty of investment.


We have attempted to show that the State cannot successfully perform the duty of investment for its members. State property is always ill-managed; it does not disappear automatically when it becomes effete; and its universality would deprive citizens of the school of experience where, more than anywhere else, their character acquires the due admixture of energy and self-control.


If there is to be any legislation conveying property from the haves to the have-nets, we sincerely trust that the conveyance will be complete and final, and that as far as possible nothing will be left in the unfruitful paralyzing tenure of the State. We are against all confiscation, not because there is no precedent for it, or because existing titles to property are indisputable, but because it is utterly impossible amid the larger proportions of modern life to dress the injustice of earlier times without committing fresh acts of injustice on a much larger scale. But even if this consideration is disregarded it would be foolish as well as knavish to entrust any more property than we can help to a tenure at once demoralizing and unprofitable.


Notes for this chapter

Local Administration' by Messrs. Rathbone, Pen and Montague. Imperial Parliament Series, by S. Buxton, M. P.
8th Edition, 1887, p. 120; the preface is dated 1875.
Published in the Bristol Times and Mirror, 15 July, 1890.
See Foreign Office Report on Trusts, No. 174, p. 72.
J. H. Levy, The Outcome of Individualism.

VII. Free Education, by Rev. B. H. Alford

End of Notes

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