Part II, Chapter X
THE PROBLEM OF DISTRIBUTION: COMPETITION: THE DIFFUSION THEORY: THE ECONOMICAL HARMONIES.
HAVING discussed much at length certain principles in the production of wealth, in that connection showing the falsity of the current doctrine of a wages-fund, we come now to the problem of distribution, wherein we may look to find the true philosophy of wages.
But is there a problem of distribution? Can there be a philosophy of wages? Certainly if we exclude the question of rent, the orthodox economists have scarcely recognized a problem of distribution, and were it not for the space taken for refuting the opinions of heretical writers, what the text books have to say on the subject of wages would be very little. How, indeed, can there be a philosophy of wages, when the doctrine of a wages-fund prevails? If the question of wages is simply a question in long-division, what need to take much space to illustrate the operations of "one of the four fundamental rules of arithmetic." Population being given, there is no philosophy of wages. The whole question of the well-being of the laboring-class is, then, reduced to a question of population. Here philosophy becomes possible; but the question of population does not belong in the department of distribution at all.
But even the wage-fund doctrine aside, the economists of the Manchester School have not been disposed to regard the problem of distribution, the question of rent excepted, as one of much urgency or difficulty. They have been of the opinion expressed by Chevalier, thirty-five years ago, that this department of political economy is inferior in interest and importance to that of production. This has not been from a disposition to disregard the effects on human happiness, and the strength and stability of the state, wrought by a good or an ill distribution of the products of industry; but from a belief in the absolute sufficiency of economical forces, in a state of industrial freedom, to diffuse all burdens and all benefits alike, to the highest advantage of the industrial community. Laissez faire: let these principles work unhindered, has hence come to contain pretty much the whole theory of distribution as held by the writers of this school. To such it can only be a matter of curious interest, so far as they are concerned as political economists, what are the facts of the distribution of wealth at any given time, or what the moral and social condition of any single class of the community. If things are wrong, they need only to be let to work themselves right, under the impulsion of purely economical forces; and such forces are constantly operating for the redress of grievances, and the repair of inequalities. If aught is wrong at present, it is simply because the free play of economic forces has been hindered by arbitrary enactment, or illegal violence in the past: the one thing required to bring about industrial relief is industrial freedom. So completely satisfied are the writers of this school with the sufficiency of the force they invoke to secure a right distribution, that they refuse to make political freedom a condition, necessary or even important, for the successful operation of that force. The question of wages is no different in the United States from what it is in Russia, by reason of differences in the political institutions of those countries. It differs nothing in Austria from what it is in Prussia, by reason of the wide difference in popular intelligence existing between those countries. The ballot can do nothing to enhance wages: social opportunities can do nothing, except as they operate in restraint of population; sympathy and respect for labor can do nothing. The economical force is all-sufficient, granted only a state of industrial freedom.
Competition it is, and competition alone, to which the economist looks to accomplish the distribution of the products of industry. Competition expresses the desire and the effort of the buyer to buy as cheaply, and of the seller to sell as dearly; of the one to give as little, and of the other to get as much, as he can; and inasmuch as every man is at once buyer and seller, we say he gives as little and gets as much as the existing conditions of industry allow. Competition involves, therefore, we see, a free, easy and sure resort to the best market, whatever be the thing that is to be bought or sold.
If competition be perfect, no question can be made of its result in an equable division of all burdens and diffusion of all benefits throughout the industrial society. Let us consider the laborers and the employers of labor in a state of active competition. Each laborer will sell his labor at the highest price which any employer can afford to give, since the employers are in competition among themselves for labor. Each employer will get his labor at the lowest price at which any laborer can afford to sell it, since the laborers are in competition among themselves for employment. The lowest price at which any laborer will sell his labor is thus the highest price which any employer can afford to pay. If we suppose the rate of wages to any single laborer to be reduced, be it ever so little, below the highest price which any employer can afford to pay, the competition among employers for the extra profit thus offered will speedily reduce that margin to the minimum. If again we suppose the wages obtained by a single laborer to be above the average of his class, the resort of his fellows to that better market will instantly afford his individual employer all the labor he requires at the usual rate. So much for the reduction or elevation of the wages of a single laborer below or above the standard; but if we suppose that standard to be lowered, and the wages of the whole body of laborers to be reduced, we shall then find a like satisfactory result wrought out in one of two ways; either the employers, getting their labor for less, will sell their products at correspondingly reduced prices, and the laborers will thus, as consumers, make good their nominal loss as producers, or, if prices be maintained, the enhanced profit thus afforded on each pound, bushel or yard of the product will incite each individual employer to produce all he can, and for this purpose to employ all the labor he can; and employers will thus be brought to bid against each other until the margin of extra profit wholly disappears, and the lowest price at which any laborer will sell his labor will thus again become the highest which any employer can afford to pay. On the other hand, if we suppose the standard of wages to be raised and the body of laborers to receive a larger compensation, then it will follow from the action of competition, that either prices will be raised correspondingly and the laborers lose as consumers what they have nominally gained as producers, or, prices remaining the same, the employers will find their profits trenched upon, and this, diminishing the motive to production, will diminish the employment offered, which will induce competition among the workmen for employment, which will restore the standard of wages.
The above account will hold good of laborers and employers found in the same locality and engaged in the same occupation. But if we assume laborers and employers to be dispersed among different localities and occupations, precisely the same result would, in a condition of absolute competition, be effected without loss and without delay. Laborers would seek employers or employers laborers, with perfect facility, across the dividing lines, whether territorial or industrial. All inequalities of condition would thus be immediately reduced. The effort of each to get the most possible for himself would simply result, with equal strength and opportunities, in giving the same to all.
By the operation of the same principle, any burden—say, a tax—imposed arbitrarily upon any class, whether of persons, of industrial processes, or of products, is distributed equally over the whole community. That burden, wherever first imposed, becomes an element in determining the actual net advantage enjoyed in their place by the class of persons, upon whom, or upon whose processes, or upon whose products, the burden is laid. The diminution thus effected in their substantial remuneration, will either cause their products to rise in price, while the same quantity is produced by the same number of laborers (which may be the case if the products are of prime importance or necessity); or laborers and employers will leave these avocations until the prices of their products, thus diminished in quantity, are raised by scarcity to a point which will afford wages to laborers and profits to employers equivalent, after full account be had of the exceptional burden, to those enjoyed in other departments of production. This is the reasoning of those who hold the diffusion theory of taxation.
Such is the operation of unhindered competition, achieving a beneficent distribution of the products of industry, equalizing all burdens and all benefits throughout the industrial community. These are the Economical Harmonies celebrated by Bastiat. Of course no one ever supposed that competition was perfect in any place, or in any department of human activity; but the political economists of the Manchester School have felt themselves at liberty to treat the questions of distribution precisely as if competition were perfect, regarding the failures as so far exceptional as not to impair the substantial validity of practical conclusions based on the assumption of universal competition. Our further course will lead us to investigate this assumption of a competition so general that the exceptions thereto may for practical purposes be disregarded; and if we find the exceptions numerous and important, to inquire how far the conclusions based on competition alone require modification to meet the conditions disclosed.—But first, of a term just used. What is THE MANCHESTER SCHOOL OF POLITICAL ECONOMY?
It is usually spoken of as the school of Free Traders; but this, in my estimation, does not present the real characteristic of the class of writers included by the term. There were Free-traders before Manchester; there are Free-traders who are not of Manchester.
I should rather define the Manchester school to consist of those free traders who carry into the department of Distribution, that assumption of the economical sufficiency of competition which the whole body of free-traders accept when dealing with the questions of Exchange; who fail to recognize any differences between services and commodities, between men and merchandise, which require them to modify their doctrine of laissez faire, looking on a Manchester spinner as possessing the same mobility economically, as being under the same complete subjection to the impulses of pecuniary interest, as a bale of Manchester cottons on the wharf, free to go to India or Iceland as the difference of a penny in the price offered may determine; free-traders, who, to come down to single practical questions, object to laws against truck as an interference with the freedom of contract; who oppose exceptional legislation respecting the employment of women under ground in mines and at factory labor during pregnancy and for the period immediately succeeding confinement, on the ground that such matters should be regulated by the interest of the parties thereto; who, while perhaps approving, on social considerations, laws regulating the employment of children in mines and factories, yet deny that such regulations have any economical justification, holding that self-interest is here, again, a sufficient guide; who object to laws of compulsory rules respecting apprenticeship, or admission to the professions, to the governmental regulation or inspection of industrial operations, and to any and all acts of the state directed to the promotion of prudence and frugality on the part of the working classes. It was to the effects of such teaching that Prof. Cairnes referred when he said: "Laissez faire, freedom of contract, and phrases of like import, have of late become somewhat of bugbears, with a large number of people. It is enough to mention them to discredit by anticipation the most useful practical scheme."
But it may be here asked, are not the Manchester economists merely more consistent and thorough than those who stop short in their advocacy of freedom from legal restraints when they leave the department of exchange; does it not amount to this, that the Manchesterians stick to their principles, while others do not? It is to be in a position to meet this question that I have stated the theory of competition so much at length; and I now answer, no question of principle is involved, but only a question of fact. No one will deny that if competition be perfect, a right distribution will be effected by its agency, but on the other hand no one can claim that any such assurance exists if competition be seriously impaired. If laborers and employers do not in fact, whatever the cause, resort to the best market, then injuries may be inflicted on labor or on capital, and no economical principle whatever will operate to secure redress. The entire justification for laissez faire is found in an assumed sufficiency of the individual motive-force to reach the best market. With immobility, total or partial, there is no certainty, or probability, of an equalization of burdens and benefits, or of the propagation, without delay or loss, of any economical impulse whatever.
Competition, to have the beneficent effects which have been ascribed to it, must be all-pervading and unremitting; like the pressure of the atmosphere of which we are happily unconscious because it is all the while equal within and without us, above and below us. Were that pressure to be made unequal, its effects would instantly become crushing and destructive. So it is with competition; when it becomes unequal, when the ability of one industrial class to respond to the impulses of self-interest is seriously reduced by ignorance, poverty, or whatever cause, while the classes with which it is to divide the product of industry, are active, alert, mobile in a high degree, the most mischievous effects may be experienced.
Free traders, therefore, who decline to carry the rule of laissez faire into the department of distribution, are not dodging their principles. They deny that the condition which alone justifies that rule, exists in this department. With respect to merchandise, destitute alike of sympathies and antipathies, competition is so far perfect that it may be reasoned upon as if no obstruction to exchange existed. The one additional penny of profit will send the bale of goods east or west, north or south, to kinsman or to stranger, to black man or white, with absolute indifference. But with that strange bundle of "apathies, sympathies and antipathies" called man, bound by manifold strong attachments to place and scene, to home and friends, weighted with daily burdens, almost or quite to the limit of his strength, beset with reasonable and with superstitious fears, a prompt resort to the best market must so evidently be a matter of great uncertainty, that no economist can justly be accused of abandoning his principles who refuses to trust wholly to the individual impulse for the right distribution of the products of industry. The question of a competition sufficient or insufficient to this end, is a question of fact. And it is important to be borne in mind that the obstructions to competition which defeat a right distribution, are not physical merely, or mainly, but moral; ignorance, superstition, timidity, procrastination, mental inertia, love of country, love of home, love of friends. So much for the obstructions to competition, on the side of the working classes. But it is equally important to note that a further effect prejudicial to them may be produced by the greed of employers counteracting a true regard for their own self-interest. The theory of competition assumes that the employer in seeking his own interests will become the conservator of the interests of the laborer, there being a true harmony of interests between them. This may be so, as Prof. Cairnes has noted, with interests as they really exist, and as they would be seen by an enlightened eye. But it does not follow that the employer's interest, as he may regard it, coincides with the interests of those dependent on him for employment. "This chasm in the argument of the laissez faire school has never been bridged. The advocates of the doctrine shut their eyes and leap over it."
But here we have to meet the further questions: granting that competition is in fact impaired to an extent which allows serious and lamentable injury to result in the distribution of the products of industry, from the inability of persons and classes to resort to their best market, is it the part of the legislator or of the economist to do or to speak otherwise than as if competition were perfect? Are we not to accept competition, as it is, for what it can now do; and wait for the action of economical forces in gradually perfecting it? Does not the existence of competition, however much impaired, establish a steady tendency which must sooner or later wear out the obstructions which are admitted to beset the resort to the best market, on the part of no inconsiderable portion of the industrial community? And meanwhile, to repeat, should we argue or act otherwise than as if competition were complete?
To these questions I have to answer as follows:
1. The reader is referred to what has been said in Chapter IV. on the degradation of labor: the breaking down of the laboring population through industrial distress and disaster. It was there sought to be shown, that if the blow, in its suddenness or its severity, bears more than a certain ratio to the power of resistance, the chances are many, human nature being what it is, that the wages class will succumb, that is, that they will accept the harder terms imposed upon them; and, on the one hand, through a less ample or nourishing diet and meaner conditions, and on the other, through a loss of self-respect and perhaps the contracting of distinctly bad habits, they will become unable to render the same amount and quality of service as before. This result being reached, not only is there not a tendency in any economical forces to repair the mischief, but even the occurrence of better times and new opportunities, if brought about from the outside (as for example, by the discovery of new resources in nature, or new powers in art), would not serve to restore the shattered industrial manhood.
2. Such disasters aside, the tendency of purely economical forces is continually to aggravate the disadvantages from which any person or class may suffer. The fact of being worsted in one conflict is an ill preparative for another encounter. Every gain which one party makes at the expense of another, furnishes the sinews of war for further aggressions; every loss which one person or class of persons sustains in the competitions of industry, weakens the capability for future resistance. This principle applies with increasing force as men sink in the industrial scale. Emphatically is it true that the curse of the poor is their poverty. Cheated in quantity, quality and price in whatever they purchase, they are notoriously unable to get as much, proportionally, for their little, as the rich for their larger means. Economically speaking, this must ever remain true, and operate with increasing power Moral forces may indeed enter to restore the equilibrium; the liberality of nature may afford to the weaker class a margin sufficient for them to long maintain themselves; the discovery of new arts and new resources may open up fresh opportunities for retrieving loss; but, through all, it cannot be controverted that the tendency of purely economical forces is to widen the differences existing in the constitution of industrial society, and to subject any and every person and class of persons who may, from any cause, be at disadvantage in respect to selling his or their service or product, to a constantly increasing burden.
3. Progress toward freedom is not necessarily accomplished by indiscriminately throwing off restraints, either in the political or the industrial body. True, men only learn to swim by going into the water; only make their eyes of use by going into the light; but, out of regard to human weakness, exposure to either element should be conducted with measure, and in order. While progress toward freedom is to be made by the removal of industrial restrictions, it does not follow that the removal of any specific restriction at any given time, conduces to such progress. The restriction may be, in the situation existing, correspondent to an infirmity which cannot so summarily be done away. A crutch operates by restraint only; but it is a restraint which prevents a lame man from falling to the ground, whence he might have no strength to raise himself again; while, if artificially sustained, he may be able to achieve a very considerable freedom of movement and of action. A law prohibiting a child under eight years to work in a factory, operates by restraint only; but it is a restraint upon parental folly or greed, which may prevent a horrible waste of physical force, and cause a larger amount of actual labor to be accomplished during the entire term of life, than would be effected were the child to be stunted by premature exposure and hardship. For this reason I believe, with Mr. Horner, that "the interposition of the legislature in behalf of children, is justified by the most cold and severe principles of political economy."
Just how much force, on purely economical principles, has the objection urged against many proposed measures, that they are in violation of the freedom of contract? Let us candidly but searchingly consider this question. What is the authority of laissez faire when levelled against a factory act, or a proposition to restrain truck? Laws in restraint of trade, or interfering with the times and methods of employment, with wages and prices, are not mischievous because they violate a theoretical self-sufficiency of labor, but because they effect a certain actual result. What is that result? They diminish mobility, which, as we have seen, is the prime condition of competition, while competition affords the only security the laborer can have that he will get the utmost possible for his service. The mischief of such laws is simply and solely that they are obstructive. Here, then, and not in the shibboleth, laissez faire, laissez passer, we have the true test of the expediency of a proposed regulation of industry or trade. Does it practically obstruct movement? But is it said: every restriction or regulation is in some degree, obstructive? Right and wrong, at once. Restriction and regulation are obstructive as against a pre-existing condition of perfect practical freedom. But perfect freedom obtains in nothing human. There are obstructions on every hand, not physical only, but also intellectual and moral. May not a regulative act well conceived to remove certain moral and intellectual obstacles to free action, have the effect to promote, not retard, industrial movement?
For instance: take the transfer of real estate. An act for the registration of ownership is restrictive upon transfers; yet can any one doubt that judicious provisions for registration, instead of retarding transfers of land and buildings, do in fact, in the most important degree, promote them? The compliance with the requirement of registration is indeed, in itself, an obstruction: it involves a certain expenditure of labor and money; a few shillings and an hour's time. But it gives every possible buyer such an assurance as to his title and the history of the property, as constitutes an intellectual and moral help in the acquisition of estates, of the greatest effectiveness. For it should be borne in mind, in all discussions relating to the exchange and distribution of wealth, that fear, ignorance, superstition and custom are as truly obstructive as are rivers and mountains; and if a registrative provision gives certainty and clearness, where before was doubt and apprehension, or utter ignorance, it may pay a thousand times over, for the nominal hindrance to action which is involved in a formal compliance with its requirements.
It is difficult to see how perfect freedom becomes the condition of economical, any more than it is of political, security and advancement. Why should not the throwing-off of economical restrictions among a people long abused and deeply abased, be accomplished with the same caution, and the same regard for the order of things, as the social and political emancipation and enfranchisement of oppressed masses? Yet we find writers who would ridicule the notion that one form of government is equally good for all peoples, or that any form of government could be good for any people, which had not respect to national peculiarities of character and structure; who hold that no people long degraded can safely be raised at once to political freedom; and even insist that among a people long habituated to universal suffrage, and with traditions of self-rule extending through centuries, stringent limitations should be imposed on the popular will: we find, I say, these writers declaring for the removal of all restrictions throughout industrial society, even such as are of a regulative character merely, not only without regard to the habits or condition of the people, but equally without regard to the order in which such restrictions should be removed.
For myself, I am utterly at a loss to conceive how such reasoners, some of whom are conservatives and pessimists of the deepest dye in politics, justify their optimistic radicalism in industry. Certainly, if, as Chevalier, the great apostle of free trade in France, has said, Political Economy and politics rest on the same principles, there would seem to be as much virtue in judicious and disinterested restraint in labor, as in government or society. Nowhere has restraint any positive virtue; no life or healing comes out of it; but grave evils may be suppressed; great waste and mischief prevented by it.
But while I hold that discretion and order should be observed in throwing off social, political and economical restrictions, alike, I hold this in no desponding or distrustful vein. I believe that society and industry may unload rapidly, if in due order; that there is something in the very name of liberty to which the heart of man, in whatever condition, responds; and that men who believe in freedom are the safest guides in directing the progress of a people toward perfect freedom. I do not say that progress should be made slowly; but that it should be made by steps, by due gradation—and with something of preparation for each successive stage of the advance.
What then is the problem of Distribution?
We have seen that so far as differences exist in respect to the ability and opportunities of the several classes of industrial society to resort swiftly and surely to the best market, such difference must put at an economical disadvantage the class suffering the greatest relative obstruction, and confer corresponding advantages at their expense, upon the class or classes more favorably situated and better endowed. We have seen, moreover, that such disadvantages, be they great or small, at the outset, are cumulative; that the word "to him that hath shall be given, and from him that hath not shall be taken away even the little that he seemeth to have," is a law of universal operation and a very unharmonizing tendency; that economical forces, thus, instead of bringing redress, tend to crowd further down the classes who enter the struggle weakest.
If, then, the political economist finds the obstructions besetting the resort to the best market, existing in the present condition of industrial society, to be, in fact, serious, is he not bound to abandon a rule of conduct based on the assumption of a competition so general that it may for practical purposes be deemed universal, and to study critically the condition of the several classes of persons making claims on the product of industry with a view to ascertain what help can be brought from the outside, in the absence of any reparative virtue in industrial causes, to supply the deficiencies of competition? Failing to find relief in economical forces, he will look away to moral forces to achieve the emancipation of the economically oppressed classes, not by taking them out from under the operation of economical laws, for that is impossible, but by providing the conditions (intelligence, frugality and sobriety, political franchises and social ambitions) which will secure that mobility, that easy, quick and sure resort to market, which alone is needed to give scope and sway to the beneficent agencies of competition. Fortunately he may look with confidence to see this amelioration coincide with a continued increase in the productive power of labor, due to fresh advances in the arts and sciences, which will facilitate the upward movement.
Meanwhile the question whether any specific legislation in protection of the working classes (say, a factory act), or any measure of regulation and restraint adopted by an industrial class for their own benefit (say, a trades union rule), is likely to promote the desired object, should be treated, I suggest, on the following principle. Remembering that the one thing to be secured for the right distribution of wealth, is perfect competition, it should be inquired, whether that act or measure will, all things considered, on the whole and in the long run, increase or diminish the substantial, not the nominal, freedom of movement. If the effect would be to quicken the resort to market, then, no matter how far restrictive in form, it must be approved. But in considering the probable tendencies of such acts or measures, we should bear in mind how great are the liabilities to error and corruption in legislation; how certain is the administration of the law to fall short of its intent; how much better most results are reached through social than through legal pressure; how destitute of all positive virtue, all healing efficacy, is restraint, its only office being to prevent waste; how frequently, too, good acts become bad precedents.
Yet these considerations, strong as they are, do not suffice to create doubt in my mind of the justification, on purely economical grounds, of laws for the registration of real estate, for the limitation or prohibition of truck, or for the regulation of the labor of children, of women, or even of men, in accordance with the dictates of the most advanced sanitary science. In Chapter XVIII, questions will arise respecting the practical influence of legislation upon the substantial freedom of industrial movement. These will be discussed with single reference to the principle of judgment here set up. And when the question of trades unions and strikes comes before us, it will be treated on the same grounds. I shall not deem the question to be decided against these agencies by the fact that they take the form of inhibition and restriction; but shall hold myself bound to inquire whether they do, in their time and place, increase or diminish the freedom and the fulness of the laborer's resort to market, bearing in mind that his practical ability to accomplish that resort, is made up of a material element, the means of transportation and of provisional maintenance, and of intellectual and moral elements, quite as essential.